Cutting the Wire but Not the Responsibility – Peracomo Inc v Telus
On November 15, the Supreme Court of Canada (SCC) will hear Peracomo Inc v Telus (“Peracomo”) a case where the sole officer and directing mind of a fishing company is trying to escape the consequences that stem from his deliberate decision to cut a telephone line cable. This case explicitly deals with Maritime Law. It is significant because it is the first time that article 4 of the Convention on Limitation of Liability for Maritime Claims, 1976 (“1976 Convention”) was used to deny limitation of liability. All Canadian businesses should sit at the edge of their seats, though, because the SCC will decide whether denying both a limitation of liability provision and the insurance policy coverage is too harsh for Canadian businesses.
Mr. Vallée (Vallée) is the sole officer and directing mind of Peracomo Inc. While snow crab fishing on the Realice in 2005 on the St Lawrence River, his anchor got caught on a brown cable, later determined to be the Sunoque I owned by Telus and Hydro and used by Bell Canada (collectively Telus). Vallée successfully released the anchor.
On June 6, 2006, one of Vallée’s anchors once again got caught on Sunoque I. Vallée decided to put an end to it and cut the cable. Part of the cable remained trapped in Vallée’s equipment; the rest of the cable sunk to the bottom of the river. A few days later, one of Vallée’s anchors again got hooked on the cable; prompting Vallée to cut the cable once again and to haul the cut segment to a deeper part of the river.
In July, Vallée made a voluntary statement to the Sûreté du Québec explaining what he had done. He was charged with committing mischief by willfully damaging property and interfering with the lawful use, enjoyment or operation of a communication service. He was acquitted in 2008 (La Reine c. Réal Vallée). The Realice was also found to be liable in rem and remains under arrest.
In 2011, the Federal Court found that Vallée was liable for the damage to the brown cable and Telus’ loss (amounting to $980,433.54) because Vallée’s personal actions were: (1) deliberate, and (2) done with intention to cause loss. Peracomo Inc. was also liable because Vallée was the company’s sole officer and directing mind. These two reasons also meant that the appellants could not limit their liability, pursuant to article 4 of the 1976 Convention. Additionally, the court held that the insurance company was not liable given that the loss was due to the insured’s willful misconduct, pursuant to subsection 53(2) of the Marine Insurance Act.
The Federal Court of Appeal (“FCA”) dismissed the appeal in 2012, finding no palpable or overriding error to overturn the Federal Court’s decision. The court added to the lower court’s decision, in two important ways:
First, the court agreed that Telus could not be held liable for contributory negligence because burying the cable was infeasible, and Telus’ failure to notify the Fishermen’s Association of the existence of the cable did not cause or contribute to the damage.
Second, the court reaffirmed that Vallée breached both his statutory obligation under the Charts and Nautical Publications Regulations, 1995 because he neither had the most up-to-date charts nor was sufficiently aware of the notices to mariners and his common law duty of care, established in The Clara Killam (1870) LR 3A&E 16, by cutting the cable without further investigating it.
The FCA also dismissed the appellants allegation that it was an error of law to hold Vallée jointly and severally liable with Peracomo because, according to ADGA Systems International v Valcom Ltd, employees, officers and directors are personally liable for tortious conduct causing property damage even while in pursuance of the interests of the corporation. The wording of part 1(4) and 9(a) of the 1976 Convention also supports this assertion that both Vallée and Peracomo can be held liable because it allows for aggregation of claims.
Supreme Court of Canada:
The SCC will consider three questions: did the FCA err in applying article 4 of the 1976 Convention to preclude the appellants from limiting their liability; did the FCA err in concluding that the loss was caused by the appellants willful misconduct and, consequently, excluded by subsection 53(2) of the Marine Insurance Act; and, did the FCA err in concluding that personal liability was applicable?
In formulating its decision, the SCC should carefully consider the decision’s precedential impact on Canadian jurisprudence and the business community as a whole. At the moment, the decision shows that the Canadian courts will take a firm stance on holding companies and their actors responsible for their actions. If they cause deliberate harm, there will be repercussions. Neither the insurance policy nor, with Peracomo, limitations of liability provisions will gallop in as the white knight. In the short term, this decision is definitely expensive for the individual business. Businesses, like Peracomo Inc, and their actors will have to pay, depending on the situations, millions of dollars for the consequences of their actions. In the long term, though, this position is good from a public policy perspective because it begins to reduce the moral hazard caused from the insurance system, reducing the cost to society, and thereby reducing a source of market failure.
The present decision also reinforces the current triple bottom line – profits, people, and planet – revolution that is challenging the way companies do business. Gone are the days when corporations, partnerships, and proprietorships can focus exclusively on profits. Now, they are strongly encouraged to present sustainable environmental and social engagement plans in addition to generating profits to please their various stakeholders (see Dominic Barton’s “Capitalism for the Long Term”). If the SCC relaxes the FCA’s strong stance on liability, then, is it also going against the business culture that encourages its corporate actors to act with the broader perspective in mind? Is it going against an emerging norm?
Thus, the SCC should be cautious to not steer to far from the path that the current decision sets for the Canadian business world.