T-2985-84
Pembina Resources Limited and Pembina
Exploration Co. Ltd. (Plaintiffs)
v.
ULS International Inc., Canada Steamship Lines
Inc., Halco Inc., Nipigon Transport Ltd., Cleve-
land Tankers Inc., Wilmington Trust Company,
American Steamship Co. Inc., Boland and Cor-
nelius, Her Majesty the Queen in Right of Canada
and the ships Canadian Hunter, Canadian Cen
tury, Canadian Transport, Canadian Progress,
Manitoulin, Island Transport, Laketon (formerly
the Lake Nipigon), Saturn and Sam Laud and
their owners and charterers (Defendants)
[By original action]
and
Pembina Resources Limited and Pembina
Exploration Co. Ltd. (Plaintiffs)
v.
ULS International Inc. and the ship Canadian
Hunter and its owners and charterers (Defen-
dants)
[As amended by virtue of discontinuances of
action filed in the cause]
INDEXED AS: PEMBINA RESOURCES LTD. V. ULS INTERNA
TIONAL INC. (T.D.)
Trial Division, McNair J.—Toronto, February 21,
22, 23, 24, 27 and 28, March 1, 2, 14 and 15;
Ottawa, October 6, 1989.
Negligence — Submerged natural gas pipeline fractured by
ship's dragging anchor — Negligence of captain — Contribu
tory negligence argument rejected — Omission to mark pipe
line's location with radar sensitive buoys not effective cause of
damage — Estimated cost of permanent repairs awarded as
damages for prospective loss — General damages awarded for
business interruption — Application of U.S. decisions affirm
ing principle of damage recovery for loss of production — Lost
profits proper means of measuring damages — Latter assessed
on basis of current value of lost production — Plaintiffs'
intervening act (failure of divers to correctly reassemble faulty
couplings) not absolving defendants from liability.
Maritime law — Torts — Submerged natural gas pipeline
fractured by dragging anchor — Negligence of captain —
Failure to mark location using radar sensitive buoys and to
bury pipeline not contributing to damage as not effective cause
thereof.
Maritime law — Practice — Submerged natural gas pipe
line fractured by ship's anchor — Negligence of captain —
General damages for business interruption — Admiralty prac
tice of allowing pre-judgment interest from date of injury
followed — Lack of case law and novelty of issues not special
considerations justifying denial of interest.
The plaintiffs' action is for damages resulting from the
fracture, on December 24, 1983, of a segment of their sub
merged natural gas pipeline (the "inner bay line") in Long
Point Bay, Lake Erie. The fracture is alleged to have been
caused by the dragging anchor of the defendant ship, the
Canadian Hunter. Temporary repairs were not completed until
April 3, 1984. Full production resumed on April 5, 1984.
Rather than make permanent repairs, the plaintiffs chose to lay
a new pipeline in a different location.
The plaintiffs seek to recover the costs of temporary repairs
and the estimated costs of permanent repairs. The parties are
agreed as to the quantum of those costs but not as to liability
therefor. The plaintiffs also claim general damages for loss of
business income. They submit that liability lies with those
responsible with the management and operation of the defen
dant ship. The defendants plead voluntary assumption of risk
on the part of the plaintiffs and, alternatively, contributory
negligence.
Held, the action should be allowed.
The evidence showed that the Canadian Hunter was the only
vessel which could, by its position, have snagged the plaintiffs'
pipeline and that it did in fact do so. The evidence also
established that the captain of the Canadian Hunter had been
negligent (1) in choosing an anchorage area situated less than
one mile from the pipeline and poorly protected from the
adverse weather conditions prevailing at the time; (2) in per
mitting his vessel to drag its anchor for a mile and a half
without taking any corrective measures; (3) in failing to have
aboard the most up-to-date navigational charts available; and
(4) in failing to check his ship's position regularly.
The defendants' argument based on contributory negligence
was rejected. For contributory negligence to be found, there
must be evidence that the negligence "was a proximate, in the
sense of effective, cause of injury". The plaintiffs' failure to
mark the location of the pipeline by appropriately spaced and
radar sensitive spar buoys did not constitute a fault or omission
that contributed to the damage complained of in the sense of
being an effective cause thereof. Nor were the plaintiffs at fault
by not burying the pipeline: such a measure was neither a
reasonable nor a viable means of avoiding the foreseeable risk
of injury by a ship's anchor.
Since the cost of temporary repairs was not in issue, the
plaintiffs were entitled to recover the amount agreed upon as
damages flowing from the injury. The plaintiffs were also
entitled to recover the estimated cost of permanent repairs. The
fact that the permanent repairs were not carried out was of no
consequence. As stated in McGregor On Damages, "Since
damages may ... be given for prospective loss, it is immaterial
that the repairs are not yet executed." Permanent repairs were
a prospective loss which the defendants should reasonably have
foreseen as a consequence of their negligence.
There were few Canadian authorities dealing with business
interruption claims of the nature discussed herein. Reference
was made to American decisions, and the principle expounded
therein, that damages are recoverable for loss of production,
was applied. Such damages may be measured in terms of lost
profits. In the case at bar, the damages were to be assessed on
the basis of the current value of lost production. To adopt the
defendants' theory that interruption effected a mere deferral of
production and that the current value of the production that
might ultimately be recovered should be deducted from the
current value of the lost production would be inequitable in that
it would fail to take into account the inconvenience and delay
suffered by the plaintiffs during the shut-down period. The
question whether the plaintiffs could have made up the lost
production was irrelevant. Whatever occurs after the loss does
not affect the right to recover damages for lost production.
Damages for loss of business income were to be calculated
from the date of the fracture of the pipeline to the date full
production resumed (a total of 104 days). The defendants'
argument that failure of the plaintiffs' divers to correctly
reassemble all the faulty couplings within 60 days constituted
an intervening force which absolved them from liability, was
rejected. Liability still lies with the original wrongdoer where
the intervening act is one which ought reasonably have been
foreseen by that wrongdoer. In the case at bar, the failure of
plaintiffs' divers constituted an intervening force which the
defendants should reasonably have anticipated as being a likely
consequence of their original negligence.
A claim for damages for loss of use cannot be allowed unless
the plaintiff proves actual loss. The plaintiffs had discharged
that onus: there was ample evidence of loss of profits during the
104-day shut-down.
The practice in admiralty cases to allow pre-judgment inter
est as an integral part of the damages awarded was followed.
The plaintiffs were granted pre-judgment interest from the date
of the injury to the date of judgment at the agreed rate of 9.5%.
Lack of case law and the novelty of the issues raised do not
constitute special considerations which could support exercise
of the Court's discretionary power to refuse interest for the
period sought.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Navigable Waters Protection Act, R.S.C. 1970, c. N-19,
s. 5(1).
Negligence Act, R.S.O. 1980, c. 315.
O. Reg. 629/80, s. 2.
O. Reg. 450/84.
Petroleum Resources Act, R.S.O. 1980, c. 377.
R.R.O. 1980, Reg. 752, s. 27(13).
The Energy Act, 1971, S.O. 1971, c. 44.
CASES JUDICIALLY CONSIDERED
APPLIED:
Bell Telephone Co. v. The Mar-Tirenno, [1974] 1 F.C.
294; 52 D.L.R. (3d) 702 (T.D.); affd [1976] 1 F.C. 539;
71 D.L.R. (3d) 608 (C.A.); Rose et al. v. Sargent, [1949]
3 D.L.R. 688; [1949] 2 W.W.R. 66 (Alta. C.A.);
McLoughlin v. Long, [1927] S.C.R. 303; [1927] 2 D.L.R.
186; The London Corporation, [1935] P. 70 (C.A.);
Fitzner v. MacNeil (1966), 58 D.L.R. (2d) 651
(N.S.S.C.); Martin v. McNamara Construction Com
pany Limited and Walcheske, [1955] O.R. 523; [1955] 3
D.L.R. 51 (C.A.); Continental Oil Co. v. S S Electra,
431 F.2d 391 (5th Cir. 1970); National Steel Corp. v.
Great Lakes Towing Co., 574 F.2d 339 (6th Cir. 1978);
U. S. Oil of Louisiana, Ltd. v. Louisiana Power & Light
Co., 350 So. 2d 907 (La. Ct. App., 1st Cir. 1977);
Canadian General Electric Co. Ltd. v. Pickford & Black
Ltd., [1972] S.C.R. 52; (1971), 20 D.L.R. (3d) 432;
Drew Brown Ltd. v. The "Orient Trader", [1974] S.C.R.
1286.
DISTINGUISHED:
Bolivar County Gravel Co., Inc. v. Thomas Marine Co.,
585 F.2d 1306 (5th Cir. 1978).
CONSIDERED:
Assiniboine (School Division of) South No. 3 v. Hoffer et
al. (1971), 21 D.L.R. (3d) 608; [1971] 4 W.W.R. 746
(Man. C.A.); The Ship Peterborough v. Bell Telephone
Co. of Canada, [1952] Ex.C.R. 462; [1952] 4 D.L.R.
699; Pacific Elevators Ltd. v. Canadian Pacific Railway
Co., [1974] S.C.R. 803; (1973), 41 D.L.R. (3d) 608.
REFERRED TO:
Exeter City v. Sea Serpent (1922), 12 LI. L. Rep. 423
(Adm. Div.); The Brabant (1938), 60 Ll. L. Rep. 323
(Adm. Div.); The Boltenhof (1938), 62 LI. L. Rep. 235
(Adm. Div.); The Velox, [1955] 1 Lloyd's Rep. 376
(Adm. Div.); The Gerda Toft, [1953] 2 Lloyd's Rep. 249
(Adm. Div.); Canadian Brine Ltd. v. The Ship Scott
Misener and Her Owners, [1962] Ex.C.R. 441; Subma
rine Telegraph Company v. Dickson (1864), 15 C.B.
(N.S.) 760; 143 E.R. 983 (C.P.D.); Heeney v. Best et al.
(1979), 28 O.R. (2d) 71; 108 D.L.R. (3d) 366; 11 CCLT
66 (C.A.); Northern Wood Preservers Ltd. v. Hall Corp.
(Shipping) 1969 Ltd. et al., [1972] 3 O.R. 751; (1972),
29 D.L.R. (3d) 413 (H.C.); affd (1973), 2 O.R. (2d) 335;
42 D.L.R. (3d) 679 (C.A.); R. in right of Canada v.
Saskatchewan Wheat Pool, [1983] 1 S.C.R. 205; 143
D.L.R. (3d) 9; [1983] 3 W.W.R. 97; 23 CCLT 121; 45
N.R. 425; Walls v. MacRae and Metro Fuels Co. Ltd.
(1981), 36 N.B.R. (2d) 1; 94 A.P.R. 1 (Q.B.); Total
Petroleum (N.A.) Ltd. v. AMF Tuboscope Inc. (1987), 81
A.R. 321; 54 Alta. L.R. (2d) 13 (Q.B.); Norcen Energy
Resources Limited and Murphy Oil Company Ltd. v.
Flint Engineering and Construction Ltd. (1984), 51 A.R.
42 (Q.B.); Nissan Automobile Co. (Canada) Ltd. v. The
Continental Shipper, [1974] 1 F.C. 88 (T.D.); John
Maryon International Limited et al. v. New Brunswick
Telephone Co., Ltd. (1982), 43 N.B.R. (2d) 469; 141
D.L.R. (3d) 193; 113 A.P.R. 469; 24 CCLT 146 (C.A.);
Irvington Holdings Ltd. v. Black et al. and two other
actions (1987), 58 O.R. (2d) 449 (C.A.); Davie Ship
building Limited v. The Queen, [1984] 1 F.C. 461; 4
D.L.R. (4th) 546; 53 N.R. 50 (C.A.).
AUTHORS CITED
Linden, Allen M. Canadian Tort Law, 4th ed. Toronto:
Butterworths, 1988.
McGregor, H. McGregor on Damages, 14th ed. London:
Sweet & Maxwell Ltd., 1980.
Sopinka, John and Lederman, Sidney N. The Law of
Evidence in Civil Cases. Toronto: Butterworths, 1974.
Waddams, S. M. The Law of Damages. Toronto: Canada
Law Book Ltd., 1983.
Wigmore on Evidence, vol. 2, rev. by James H. Chad-
bourn. Boston: Little, Brown and Co., 1979.
COUNSEL:
Nigel H. Frawley and Robert Shapiro for
plaintiffs.
John T. Morin, Q.C. and Christopher J.
Giaschi for defendants.
SOLICITORS:
McMaster Meighen, Toronto, for plaintiffs.
Campbell, Godfrey & Lewtas, Toronto, for
defendants.
The following are the reasons for judgment
rendered in English by
MCNAIR J .:
I. Questions Concerning Liability and Appor
tionment of Fault
The plaintiffs' action is for damages resulting
from the fracture of a segment of their submerged
natural gas pipeline in Long Point Bay at the
easternmost end of Lake Erie, alleged to have been
caused by the dragging anchor of the defendant
ship. The parties are agreed as to quantum for
both the costs of temporary repairs and permanent
repairs to the damaged pipeline as well as the
actual costs incurred by the plaintiffs in laying a
new, relocated pipeline, but without any admission
as to liability therefor. The general damages claim
of the plaintiffs for business interruption and
consequential loss of sales and profit is hotly con
tested. The defendants deny negligence on their
part and raise the defence that the damage com
plained of was solely attributable to the plaintiffs'
negligence in laying their pipelines in a known
anchorage area at their own risk and in failing to
properly protect them and to adequately mark
their location. Alternatively, the defendants plead
contributory negligence and the provisions of the
Negligence Act, R.S.O. 1980, c. 315.
The parties filed an agreed statement of facts,
the substantive portions of which read as follows:
1. The plaintiffs own and operate a natural gas field in Long
Point Bay, Lake Erie, which feeds natural gas by submerged
pipelines into the Consumers Gas land pipeline via the plain
tiffs' compressor station at Port Maitland, Ontario and into the
Union Gas land pipeline via their compressor station at Nan-
ticoke, Ontario.
2. The plaintiffs' pipelines are laid on the bottom of Long Point
Bay and were not buried when laid or otherwise protected. The
plaintiffs' well heads extend approximately 5 feet above the
lake bottom and are likewise not buried or protected except for
wells within the designated trawling area where they are set
below lake bottom and enclosed within caissons.
3. The defendant ULS International Inc. owns and operates
the defendant ship "CANADIAN HUNTER", a bulk carrier of
18,192.33 gross tons and 730 feet in length overall, which lay at
anchor in Long Point Bay from December 23 to December 25,
1983 loaded with a cargo of wheat. The anchors of the
"CANADIAN HUNTER" weigh approximately 5 1 / 2 tons each. Her
Master was Captain Sidney Van Wyck.
4. During the period from December 22 to December 25, 1983,
nine vessels including the defendant vessel "CANADIAN HUNT
ER" took shelter in Long Point Bay from severe wind and wave
conditions in Lake Erie. The entry and departure times of each
vessel are set out in Appendix "A" hereto.
5. Long Point Bay is a traditional and recognized anchorage
area routinely used by ships of all sizes during poor weather
conditions on Lake Erie. It is the only sheltered anchorage area
in the eastern end of Lake Erie. Notwithstanding the existence
of pipelines and wells on the bottom of Long Point Bay, it was
not in December 1983, declared as a designated prohibited
anchorage area.
6. On December 24, 1983, at approximately 10:45 a.m., a
section of the plaintiffs' pipeline was fractured. The likely cause
of the fracture was a ship's anchor fouling the pipeline.
7. On December 24, 1983, both the "CANADIAN HUNTER" and
the "LAKETON" (formerly the "LAKE NIPIGON") are known to
have dragged their anchors along the bottom of Long Point
Bay.
8. During the period from December 24, 1983 to January 1,
1984, a quantity of gas was lost to the atmosphere because of
the fracture. By January 1, 1984, all of the affected wells had
been shut in and the loss of gas was stopped.
9. The plaintiffs made temporary repairs to the pipeline at a
cost of $186,956.25. The temporary repairs were completed by
April 3, 1984. All of the affected wells were brought back into
full production by April 5, 1984.
10. Rather than make permanent repairs, the plaintiffs elected
to lay a new pipeline elsewhere in Long Point Bay. The
estimated cost of permanent repairs to the fractured pipeline is
$114,618.26. The new pipeline cost the plaintiffs $636,523.81.
11. Apart from gas lost to the atmosphere between the time of
fracture and January 1, 1984 when the main line valve at
junction 14 was shut, the amount of recoverable gas from the
affected wells would only be reduced by a negligible amount.
The plaintiffs' natural gas field in Long Point
Bay, Lake Erie, consisted at the material time of a
network of 151 active wells supplying natural gas
through an interconnected system of submerged
pipelines to the plaintiffs' two customers, Consum
ers Gas Company and Union Gas Limited,
through the plaintiffs' compressor stations at Port
Maitland and Nanticoke respectively. The Nan-
ticoke facility did not come into operation until
December 21, 1983. Prior to that, all gas produced
by the network of wells was pumped through the
compressor station at Port Maitland and sold to
Consumers Gas Company. The plaintiffs have con
tracts with their customers for the sale and deliv
ery of natural gas. The plaintiffs' rights to explore
for and produce natural gas from their field and to
lay pipelines over the bed of Long Point Bay are
dependant on natural gas production leases from
the Crown in right of Ontario of the various lake
bed parcels encompassing the entire area under
lease, for which they pay an annual rental plus
yearly royalties on the quantity of natural gas
marketed. The submerged pipeline that suffered
the fracture from a ship's anchor is the plaintiffs'
inner bay line, so called, running from east to west
for a length of about seven miles from the connec
tion with the main line to Port Maitland at Junc-
tion 14 to the Nanticoke line at its westerly
extremity. The inner bay line passes on its way
through Junctions 16, 17, 18 and 19, and is located
approximately 3.5 nautical miles to the north of
the lighthouse at the entrance to Long Point Bay.
Pembina Exploration Co. Ltd., which is a whol-
ly-owned subsidiary of Pembina Resources Lim
ited, is the lessee under the production leases from
the Crown and the active operator of the gas field
facilities. Pembina, either directly or through its
leasing agent, Elexco, provides up-to-date informa
tion showing the location of its wells and junctions
and interconnecting pipelines to the Canadian
Hydrographic Service as well as to the Canadian
Coast Guard Division of the Department of Trans
port. As a result, marine navigational charts are
continually updated and revised by these govern
mental agencies, which also publish and circulate
to the shipping industry and other interested par
ties Notices to Mariners showing the location of
the gas field facilities in the Long Point Bay area
of Lake Erie and warning of the need for caution.
Exhibit P-3, which is the navigational chart 2110
dated July 8, 1983 showing the respective locations
of the nine ships anchoring in Long Point Bay over
the period from December 22 to December 25,
1983, displays, inter alia, the following warning
caution:
Gas pipelines and wells contain natural gas under pressure and
damage to these installations would create an immediate fire
hazard. Vessels anchoring in Lake Erie should do so with
caution after noting the underwater positions of all gas wells,
pipelines, submerged cables and other installations.
Gas well heads protrude to a height of up to 5 feet from the
bottom and are marked by buoys.
Similar cautions were noted on the navigational
charts used at the time of the mishap in question
by Captain Gordon Stogdale, of the Canadian
Coast Guard vessel Griffin, and Captain Sidney
W. Van Wyck, master of the defendant ship
Canadian Hunter, being Exhibits P-20 and P-24
respectively. Exhibit P-20 is an updated version of
navigational chart 2110, corrected through
Notices to Mariners to the date of October 14,
1983, whereas Exhibit P-24 is the Canadian
Hunter's version of the same chart similarly cor
rected, but only to the date of December 4, 1981.
The chart used by the master of the Griffin, unlike
its earlier counterpart of December 4, 1981, gave a
more graphic warning of the existence of gas well
heads and pipelines by depicting their general
location in grey-coloured, screened areas so as to
serve as a better visual aid to the wary mariner.
There were further warnings of the marine haz
ards occasioned by the exploitation of natural gas
from the bottom of Lake Erie. A standard publica
tion entitled Sailing Directions for Lake Erie, in a
chapter devoted to the area of Lake Erie between
Long Point and Point Pelee, warned mariners to be
cautious about anchoring in this area because of
submerged gas well heads and pipelines. In addi
tion, the Notices to Mariners put out by the
Canadian Coast Guard contained the following
warning regarding the dearth of anchorage areas
in Lake Erie:
Mariners are warned that no anchorage areas have been estab
lished because of the existence of natural gas exploitation
facilities on the bottom. The locations of these areas have been
described in the weekly Notices to Mariners published by the
Canadian Coast Guard.
Damage to facilities can be extremely hazardous because the
pressurized natural gas contains toxic chemicals and is
flammable.
Included among the nine ships seeking refuge in
Long Point Bay from the storm on Lake Erie were
the Canadian Coast Guard vessel Griffin, the
Laketon (formerly the Lake Nipigon) and the
defendant's bulk carrier Canadian Hunter, which
was fully loaded with a cargo of wheat. The
Canadian Hunter anchored at 11:56 hours on
December 23 and weighed anchor and departed at
12:38 hours on December 25. This ship anchored
at the spot indicated by a circle on its own naviga
tional chart (Exhibit P-24) and marked with an
"X" on Exhibit P-3. The water depth here was 141
feet and the anchorage position was relatively
exposed to the elements. The Canadian Hunter
was the only ship anchored to the south of the
inner bay line. The Griffin arrived later at 18:40
hours on December 23 and anchored a consider-
able distance northeasterly of the Canadian
Hunter at the point indicated by an "X" on its
chart, and shown as well on Exhibit P-3. The
Griffin left on an ice-breaking mission at 03:58
hours on December 24. The Laketon arrived at
06:05 hours on December 23 and departed at
01:05 hours on December 25. Its anchorage posi
tion was the most northerly of all the vessels. Both
the Laketon and the Canadian Hunter dragged
their anchors during the period they were in Long
Point Bay. The evidence is that the Laketon
dragged anchor in a northeasterly direction for
approximately a quarter of a mile, following which
the anchor was raised and the vessel was brought
back under power and re-anchored in approxi
mately the same position.
The weather over Lake Erie during the period
from December 23 to December 25, 1983 was
generally foul. The wind was blowing from a west
southwesterly quarter toward the northeast at a
gale force of thirty to forty knots, causing high
waves and heavy seas. It was snowing intermittent
ly and there were patches of "steam" or low-lying
fog over the water. Visibility was relatively poor.
By December 25, the wind force had abated some
what and visibility conditions had improved.
It is agreed that the pipeline was fractured at
approximately 10:45 a.m. on December 24, 1983
and that fouling by a ship's anchor was the likely
cause. The first intimation of this was a sudden
drop in pressure at the Nanticoke compressor sta
tion, which occurred in the forenoon of December
24, 1983. Mr. Robert Simpson, the superintendent
of operations for Pembina Exploration Co. Ltd.,
was alerted to the problem by a phone call to the
station operator at approximately 2:30 p.m. in
response to a signal on his pager. Mr. Simpson
kept an accurate chronology of subsequent events.
The suspected causes were a freeze-up, colloquial
ly termed a "hydrate", or a break in the pipeline.
Methanol was pumped into the system to clear any
possible hydrate, with negative results. A drop in
pressure at Port Maitland confirmed the existence
of a pipeline fracture. Diving boats were called in
aid. A helicopter inspection on December 29
detected gas bubbles in the areas of Junctions 17,
18 and 19 on the inner bay line. Dive boats were
dispatched to the scene on the same day and a
number of portions of the line were shut in, includ
ing the main line valve at Junction 19. The gas
bubbles still persisted at Junction 17. On January
1, 1984 the divers were finally able to shut in the
main line valve at Junction 14, thereby preventing
any further escape of gas into the atmosphere, and
bringing the Port Maitland line back into full
production. The divers then set about the task of
effecting makeshift repairs to the inner bay line by
connecting the fractured segments of the line with
temporary hoses. This repair work was made more
difficult, and indeed completely thwarted on a
number of occasions, by heavy sea and ice
conditions.
There were three fractures to the inner bay line,
one at the original point of snagging about 15,000
feet or so westerly of Junction 17, another at
Junction 18 and the last at Junction 19. The
evidence is relatively uncontested that the fluke of
a dragging ship's anchor snagged the pipeline at
the first mentioned point to the west of Junction
17 and, by a combination of horizontal and verti
cal movement, set up a chain of forces causing the
line to break at three places. The first fracture
occurred at Junction 18, followed by the one at
Junction 19, with the final fracture occurring at
the initial point of contact near Junction 17. The
repairs to Junctions 19 and 18 were completed by
February 21, 1984 resulting in a limited supply of
gas being fed to the Nanticoke compressor station.
Problems still continued to be encountered at
Junction 17, one being a faulty coupling supplied
by a manufacturer. Another was the freeze-up of
the valve at Junction 17. Weather and ice condi
tions intervened to delay further diving operations
at the site. As a result of this combination of
factors, repairs to Junction 17 were not completed
until on or about April 3, 1984, when the valves
were turned on. According to Mr. Simpson's evi
dence, the Nanticoke line did not come back to full
production until April 5, 1984. The defendants
argue that the temporary repairs to the three
fractured portions of the inner bay line were, or
should have been, substantially completed within
the sixty-day period from December 24, 1983 to
February 21, 1984.
The plaintiffs' case on the issue of legal liability
for the damage complained of is simply that those
responsible for the management and operation of
the defendants' ship Canadian Hunter were at
fault in anchoring their vessel where they did,
having regard to existing conditions and the
hazard posed by the nearby presence of a sub
merged gas pipeline, and in permitting the ship to
drag its port anchor for a distance of approximate
ly a mile and a half without making any effort to
run up the engines and regain their original
anchorage position.
The defendants meet this case by pleading
voluntary assumption of risk on the part of the
plaintiffs and, as noted, contributory negligence.
The point is made that Long Point Bay has been
recognized and used for many years as a tradition
al anchorage area for vessels seeking refuge from
storms over Lake Erie and that the plaintiffs' gas
wells and pipelines were developed and laid in such
a way as to constitute obstacles and hazards to
safe navigation. The argument is pressed that the
methods chosen by the plaintiffs for the explora
tion and development of the gas field failed to take
any cognizance of the probability of damage to the
submerged pipelines. The defendants point to the
fact that no studies were made by the plaintiffs
regarding the feasibility of re-routing or burying
the pipelines as reasonable safeguards against
damage from ships' anchors. The alternative
objection was raised that the plaintiffs failed to
adequately mark the location of gas well heads and
pipelines with spar buoys or other appropriate
navigational aids. Defendants' counsel excoriates
the laissez-faire attitude of Pembina vis-Ã -vis its
pipelines. Indeed, the main thrust of the defen
dants' case on the liability issue is encapsulated in
the following submission of their counsel:
Surely ... a company operating this sort of a system, with a
highly flammable product running through it, under high pres
sure, with the potential hazards that the company is well aware
of, has a higher responsibility to the world at large and
certainly to other people using the bay, than the one that seems
to have been adopted by the company.
It is not good enough to simply say, well, we put down the
lines and we tell the Hydrographic Services and we hope you
find out about it, and if you do damage, we are going to sue
you.
I will now review some of the legal principles
applicable to the facts of the present case.
Permitting a ship to drag anchor so as to come
into collision or become entangled with someone
else's property and cause damage thereto is prima
facie evidence of negligence in the absence of a
reasonable explanation or proof of exonerating
circumstances: Exeter City v. Sea Serpent (1922),
12 Ll. L. Rep. 423 (Adm. Div.); The Brabant
(1938), 60 Ll. L. Rep. 323 (Adm. Div.); The
Boltenhof (1938), 62 Ll. L. Rep. 235 (Adm. Div.);
The Velox, [1955] 1 Lloyd's Rep. 376 (Adm.
Div.); The Gerda Toft, [1953] 2 Lloyd's Rep. 249
(Adm. Div.); and Canadian Brine Ltd. v. The Ship
Scott Misener and Her Owners, [1962] Ex.C.R.
441. Moreover, culpable want of knowledge of an
apparent danger arising from a failure to utilize
the means of knowledge at one's command can
amount to negligence: The Mar- Tirenno, infra;
and Submarine Telegraph Company v. Dickson
(1864), 15 C.B. (N.S.) 760; 143 E.R. 983
(C.P.D.).
In The Boltenhof, supra, Bucknill J. considered
the steps which the dragging ship should have
reasonably taken and concluded at page 240:
In my view the Marklyn negligently failed to keep a careful
watch, negligently failed to put down a second anchor or to pay
out more chain on the anchor in use, and negligently failed to
use her engines to ease the strain in due and proper time.
In The Velox, supra, Willmer J. said at page 382:
Even if it could be said that the Velox was not to blame for
dragging her anchors in the first instance, nevertheless the
situation called for a look-out of the utmost vigilance. In
pursuance of her duty in that respect, the Velox ought to have
been quick to appreciate that she was dragging, and, having
discovered that she was dragging, she ought to have been quick
to take steps to arrest her dragging, particularly in view of the
fact that, to the knowledge of those on board her, there were
other vessels lying to leeward of her, vessels which, for all that
was known, might very well be having their own difficulties in
the weather conditions prevailing.
In those circumstances, it seems to me that, although the
measures demanded by the situation may be regarded as
exceptional, nevertheless they were no more than those required
of a seaman of ordinary care and skill, having regard to the
exceptional weather conditions prevailing.
Plaintiffs' counsel places much reliance on the
case of Bell Telephone Co. v. The Mar-Tirenno,
[1974] 1 F.C. 294; 52 D.L.R. (3d) 702 (T.D.);
affd [1976] 1 F.C. 539; 71 D.L.R. (3d) 608
(C.A.), where a ship broke away from an exposed
wharf from the combined forces of tide and ice to
which the captain had been alerted. The captain
was forced to drop anchor to avert colliding with a
shoreside restaurant in a prohibited anchoring area
of the St. Lawrence River occupied by the plain
tiff's underwater telephone cable, thereby fouling
and damaging the same. The Trial Judge rejected
the pleas of inevitable accident and contributory
negligence and found the defendant ship solely
liable on the ground that the breaking away which
caused the accident and the damage resulting
therefrom were both clearly foreseeable. Addy J.
stated the underlying rationale for the decision at
page 300:
The case, in my view, therefore, turns on whether there was
any negligence on the part of the captain or any member of his
crew in tying up to that wharf in the first place, or in the
manner in which the ship was secured or remained there, or in
remaining there at all, and finally, whether he and his crew
took all precautions, which normally should be taken to avoid
the ship breaking away from its moorings as it did, including
constant and proper observation of all conditions which might
affect the security of the ship.
Where a person has actual dominion and control over an
object or has a legal duty to control it and that object goes out
of control and causes damage, then, it is obviously up to the
person in control to explain by positive evidence the reason why
the object went out of control or, at least, to establish by
positive evidence that it was not due to any act or omission on
his part or on the part of any other person whose actions were
under his control.
The learned Judge drew the following conclusion
at page 302:
The tying-up at the wharf in question, without informing
himself fully, or, at least, taking all reasonable steps to inform
himself fully of the nature and extent of the danger and, more
specifically, of the very great force which the ice would exert on
a ship on a rising tide at that particular wharf, constituted
negligence on the part of the captain.
The Ship Peterborough v. Bell Telephone Co. of
Canada, [1952] Ex.C.R. 462; [1952] 4 D.L.R.
699, is instructive on the matter of contributory
negligence in a case where the appellant's ship
dropped anchor in a no-anchorage area of the St.
Lawrence River and fouled and damaged the
respondent's submarine cable, for which the appel
lant was held solely liable in damages. The
respondent was granted permission under the
Navigable Waters Protection Act [R.S.C. 1952, c.
193] to lay the cable, subject to securing an ease-
ment from the National Harbours Board. The
easement was obtained. The evidence did not sup
port a finding that the cable constituted an
obstruction to navigation. The Court dismissed the
appeal and affirmed the judgment of the Trial
Judge. On the issue of contributory negligence,
Cameron J. said at page 473:
In my opinion, there was no duty cast upon the respondent
company when laying the cable in a no-anchorage area (where
damage by ships' anchors would not normally be anticipated)
to lay it at such length and in such a manner as to be able to
withstand all strains and stresses to which it might be subjected
by a ship's anchor which had fouled it, or in such a way that it
could not be fouled by a ship's anchor. Here the cable was
subjected to very great strain for perhaps three quarters of an
hour while the vessel made attempts to release its anchor, and
the further strain of raising it to the surface. ...I agree with the
opinion of the trial Judge that it is impossible to find that the
cable was laid or maintained in such a way as to have con
tributed to the accident or the resulting damage.
In Assiniboine (School Division of) South No. 3
v. Hoffer et al. (1971), 21 D.L.R. (3d) 608;
[1971] 4 W.W.R. 746 (Man. C.A.), a snowmobile
owned by the adult defendant went out of control,
while being operated by his infant son, and struck
and fractured an unprotected gas-riser pipe provid
ing a public school building with natural gas. The
pipe had been installed by the corporate defend
ant, a public utility company. Gas under pressure
escaped into the boiler room of the school and
exploded, causing a fire and extensive damage to
the school premises. Damages were apportioned at
trial on the basis of 50% to the owner and operator
of the snowmobile and 50% to the gas company.
Both parties appealed the decision. Dickson J.A.
(as he then was), delivering the judgment of the
Court, dealt with the issue of the liability of the
gas company at pages 615-616 D.L.R., as follows:
I am also of the opinion that Greater Winnipeg Gas Co. Ltd.
is liable to the plaintiff on the ground that the installation of
the gas service was negligently constructed in the sense that it
was constructed in such place and manner as to make likely the
type of damage which ensued. The gas company was respon
sible for the construction of the service line leading from the
street, the service riser, and attached equipment and meter. It is
difficult to conceive of any person, conscious of the explosive
properties of natural gas, designing and installing a service so
patently dangerous. Gas escaping from any fracture of the pipe
below the regulator would assuredly find its way into the boiler
room. The gas company ought to have reasonably foreseen
damage to the gas-riser pipe. It is true that persons are not
bound to take extravagant precautions but they must weigh the
probability of injury resulting and the probable seriousness of
the injury. Although the probability of the gas-riser pipe being
struck by an automobile, a motorcycle or an auto-toboggan was
not great, the pipe being tucked into the corner of the building,
the probable seriousness of any injury was very great. Against
this must be weighed the cost and difficulty of the precautions
which could have been taken. Protective pipes could have been
installed at small cost and little difficulty. The duty to take
protective measures increases in direct proportion to the risk. In
these circumstances, the gas company failed to exercise reason
able care where there was a duty to exercise a high degree of
care.
In Heeney v. Best et al. (1979), 28 O.R. (2d) 71;
108 D.L.R. (3d) 366; 11 CCLT 66 (C.A.), the
defendants negligently drove their truck into an
overhead hydro line, interrupting the flow of elec
trical power to the plaintiff's premises and extin
guishing the supply of oxygen to his chicken barns,
with the result that most of the chicks died from
lack of ventilation. The plaintiff had a power
failure alarm device, which could have alerted him
to the power failure and enabled him to save the
chickens, but it was not plugged in on the night in
question. The Trial Judge found the plaintiff to be
50% at fault. The plaintiff appealed this finding to
the Ontario Court of Appeal, which held that the
appellant should recover 75% of his damages.
MacKinnon A.C.J.O., writing the opinion of the
Court, was clearly of the view that the greater
fault was that of the respondent who had caused
the power interruption, leading him to conclude at
page 76 O.R.:
The appellant's negligence only contributed to the damages
he suffered, the respondent being wholly to blame for the
negligent act which set in train the events that caused the
ultimate injury or damage to the appellant. Under the circum
stances, I assess the degree of fault or negligence of the
appellant at 25% and of the respondent at 75%.
The evidence is conclusive that the Canadian
Hunter was the only vessel anchored at the ma
terial time in a position southerly and to windward
of the inner bay line and less than one nautical
mile therefrom. In my view, prudent seamanship
would seem to dictate a better choice of location.
The only firsthand explanation of why the cap
tain of the Canadian Hunter came to choose this
particular place of anchorage is contained in the
excerpts of the examination for discovery of Cap
tain Sidney W. Van Wyck, which were read into
the record by plaintiffs' counsel. His discovery
evidence relating to the actual anchorage position
reads as follows:
300 MR. FRAWLEY: Q. Captain, any particular reason why
you chose that location to anchor in?
A. It would be a safe spot and the number of ships that
were in the Bay. I didn't see any more room.
301 Q. I see. Before you anchored, did you go in further to
have a look or did you just go straight up to that—
A. Well I went straight up, as I said. This is where I
ended up.
302 Q. Yes, right.
A. This was my position when she settled down.
303 Q. So you didn't go further in the Bay to have a look?
A. No.
This explanation belies the fact that the vessel
closest to the Canadian Hunter at the time was the
Canadian Century, which was lying at anchor in a
relatively large and unobstructed area of the bay
on the northerly side of the inner bay line and
about four nautical miles to the northwest of the
Canadian Hunter's position. The Canadian Coast
Guard vessel Griffin came in later that evening
and anchored in the same general area about a
mile to the south of the Canadian Century. I find
as a fact that there was nothing which could have
prevented the Canadian Hunter from anchoring
where the Griffin did later that same evening.
Indeed, the defendants' own expert witness in
rebuttal, Captain John MacDonald, agreed on
cross-examination that it was possible for two or
more ships to anchor in the area where the
Canadian Century and the Griffin were anchored.
Nonetheless, Captain MacDonald clung to the
view that there was nothing wrong with the
anchorage position chosen by the captain of the
Canadian Hunter. Suffice it to say, I do not accept
that conclusion.
The expert witness retained by the plaintiffs to
give opinion evidence on the circumstances sur
rounding the mishap, Captain William R. Barr,
was clearly of the opinion that the captain of the
Canadian Hunter "ought to have anchored further
to the north and inside the bay where there would
be less water underneath the ship and where it
afforded greater protection". He also deplored the
fact that the captain anchored in an exposed posi
tion and at a water depth for which he had insuffi
cient anchor cable to safely hold the vessel, given
the weather conditions prevailing at the time.
Apart from the poor choice of anchor location,
Captain Barr was also critical of the apparent
disregard of the nearby gas pipeline on the part of
those responsible for the operation of the Canadi-
an Hunter, and their navigation and record keep
ing generally. The bottom line conclusion was that
the master of the vessel and those for whom he was
responsible acted imprudently in the circum
stances. I accept the conclusions of Captain Barr
in preference to those of Captain MacDonald,
where they differ.
Counsel for the plaintiffs urges that an adverse
inference should be drawn from the defendants'
failure to call Captain Van Wyck or any of his
officers or crew members to explain a number of
crucial questions left unanswered. He cites the
following examples: why was the vessel anchored
to the south and less than a mile to windward of
the inner bay line; did anyone pay any attention to
the navigational charts and other update literature
pointing to the presence of submerged gas well
heads and pipelines; were there any ice pole buoys
marking the presence of the inner bay line; why
did the captain of the Canadian Hunter not anchor
in the area where the Griffin afterwards anchored;
and, finally, why did the captain permit his vessel
to drag its anchor for a mile and a half without
taking any corrective measures? Defendants' coun
sel stated quite frankly that he made the decision
not to call the master of the Canadian Hunter as a
witness at the trial, based on his opinion that all
the essential evidence was before the Court by way
of the agreed statement of facts, the discovery
evidence of Captain Van Wyck, the supporting
charts and log books and the evidence given by the
plaintiffs' expert, Captain Barr. For a useful com
mentary on the principles relating to the drawing
of adverse inferences, see: Sopinka and Lederman,
The Law of Evidence in Civil Cases (Butter-
worths, 1974) pages 535-537; Wigmore on Evi
dence, vol. 2, paras. 285, 286, 289; and Northern
Wood Preservers Ltd. v. Hall Corp. (Shipping)
1969 Ltd. et al., [1972] 3 O.R. 751; (1972), 29
D.L.R. (3d) 413 (H.C.); affd (1973), 2 O.R. (2d)
335; 42 D.L.R. (3d) 679 (C.A.). In view of the
explanation given by defendants' counsel, I am not
prepared to draw an adverse inference based
simply on the bare fact that Captain Van Wyck
and others associated with the navigation of the
Canadian Hunter were not produced as witnesses.
However, I agree with counsel for the plaintiffs
that the absence of any explanation of facts which
tell against a party supports the drawing of an
adverse inference against that party, once a prima
facie case has been established by his opponent. I
prefer to treat the matter on that basis.
As previously indicated, the navigational chart
kept aboard the Canadian Hunter was updated
only to December 4, 1981. Why was it that the
Canadian Hunter did not have on board at the
time the current edition of navigational chart 2110
dated October 14, 1983 (Exhibit P-20), which
gave a much better visual warning of the hazards
posed by the submerged well heads and pipelines
than the earlier edition? I am in complete agree-
ment with the opinion expressed by Addy J. in The
Mar-Tirenno, supra, where he said at page 301:
In the same way that failure to consult a chart constitutes
negligence, ... failure to have up-to-date charts aboard would
equally constitute negligence.
I accept the evidence of the plaintiffs' expert,
Mr. Hluchan, that the damage to the plaintiffs'
pipeline was attributable to an anchor snag by a
vessel of a size comparable to that of the Canadian
Hunter and his explanation of the sequence of
fracturing caused by the anchor dragging in a
north to northeasterly direction. I am inclined,
however, to discount his speculative "slight possi
bility" that the damage at Junction 18 of the inner
bay line could have been caused by a second vessel,
which begs the consequent argument of defen
dants' counsel that the Coast Guard vessel Griffin
was a likely candidate for this eventuality. The
Griffin was anchored well to the north of the inner
bay line and the weight of evidence is totally
against any finding of involvement on its part.
I find on the evidence in its entirety that the
Canadian Hunter was the only vessel poised, as it
were, to snag the plaintiffs' pipeline with its drag
ging anchor at a point to the west of Junction 17 in
the inner bay line and that it did in fact do so,
thereby causing the three resulting fractures which
occurred in the manner and sequence described by
the plaintiffs' expert, Mr. Hluchan.
I also find that the master of the Canadian
Hunter, Captain Van Wyck, was negligent in the
following respects, namely: (1) in choosing the
place of anchorage he did under the circum
stances; (2) in permitting his vessel to drag its
anchor for a mile and a half without taking any
corrective measures; (3) in failing to have aboard
the most up-to-date navigational charts available;
and (4) in failing to check his ship's position
regularly. In sum, Captain Van Wyck failed in his
duty to exercise the requisite degree of careful and
prudent seamanship that the occasion demanded.
In my opinion, there can be little doubt that the
captain of the Canadian Hunter was "certainly
asking for trouble" in choosing to anchor where he
did in the sense that he ought to have reasonably
foreseen the probable likelihood of the ultimate
injury which occurred.
The plaintiffs inherited the pipeline system,
including the inner bay line, in its present form
when they purchased the gas field from Anschutz
(Canada) Exploration Limited on August 1, 1980.
The evidence is that the plaintiffs and their prede
cessor had generally complied with the statutory
and regulatory enactments pertaining to gas pipe
line systems. For instance, Anschutz had obtained
the approval of the Minister of Transport for its
gas pipeline system and an exemption from the
application of subsection 5(1) of the Navigable
Waters Protection Act [R.S.C. 1970, c. N-19] and
the regulations thereunder. The one exception to
the regime of general statutory compliance seems
to have been CSA Standard Z184-M1979, which
was made applicable to the operation and mainte
nance of gas pipelines systems by section 2 of O.
Reg. 629/80 enacted under The Energy Act, 1971
[S.O. 1971, c. 44] and filed on August 1, 1980.
Section 6.4.2 of the Standard deals with the topic
of pipeline protection and suggests additional
burial as one means of protecting offshore pipe
lines from accidental damage by vessel activities,
including anchoring and fishing operations. Inci
dentally, the applicability of the CSA Standard to
offshore pipelines was removed afterwards by O.
Reg. 450/84 filed on July 13, 1984. Apart from its
relative innocuousness, it seems to me that nothing
significant turns on whether section 6.4.2 of the
CSA Standard applies or not by reason that the
civil consequences of a breach of statutory duty
are subsumed in the law of negligence: R. in right
of Canada v. Saskatchewan Wheat Pool, [1983] 1
S.C.R. 205; 143 D.L.R. (3d) 9; [1983] 3 W.W.R.
97; 23 CCLT 121; 45 N.R. 425.
The main point of the defendants' argument is
that the risk of pipeline damage from ships'
anchors was something that was reasonably fore
seeable and that the burying of the six-inch pipe
lines or marking the same by spar buoys would
have avoided or substantially minimized this risk.
Plaintiffs' counsel counters this by asking how
could they be expected to know where a pipeline
fracture was likely to occur, and by pointing out as
well that the costs of burying the pipeline would be
astronomic. Plaintiffs' counsel also makes the
point that the trenching of the pipelines to the
depth of two metres or six feet suggested by the
defendants' expert on protective methods for sub-
sea pipelines, Norman I. Hanson, would create
insurmountable problems for the divers in making
necessary repairs.
Mr. Hanson's report and his viva voce evidence
in support generally favour trenching as a means
of protecting submerged gas pipelines, although he
frankly admitted that he had given no consider
ation to the economic factors involved in such an
enterprise. He cited several reported instances
where pipelines had been buried in other places in
Canada. Much of his evidence focused on the CSA
Standard, to which I have already alluded. Mr.
Hanson was strongly of the opinion that the fluke
of an anchor of the size and weight of the ones
employed by the Canadian Hunter would dig into
the clay bottom of Lake Erie to a depth of forty
inches. This led him to conclude that the safety
margin of trenching to avoid damage from an
anchor of that size would be two metres or six feet.
He was extensively cross-examined on the litera
ture search abstracts contained in Appendix B of
his report relating to the trenching of sub-sea
pipelines in other jurisdictions and particularly the
conclusion reached in the appended North Sea
survey that trenching and burial of pipelines "do
not offer any real protection against anchors from
larger ships". The full, unexpurgated edition of the
North Sea survey was entered as Exhibit D-18
during the course of Mr. Hanson's cross-examina
tion. In my view, it is unnecessary to elucidate its
conclusions any further than to repeat what
appears to be the final conclusion of its author,
John Strating, where he says:
Presently there appears to be no justification for trenching
and/or burying a large diameter pipeline for reasons other than
on-bottom stability. In areas with significant fishing activities,
the pipeline should be provided with a high quality concrete
coating.
I accept Mr. Hanson's conclusion that the inner
bay line would have had to have been buried to a
depth of two metres to achieve a safe margin of
protection from a ship's anchor of the size of the
Canadian Hunter's. Obviously, this measure of
protection could only have been accomplished at
great cost. In my opinion, the burying of the inner
bay line was not a reasonable and viable means of
avoiding the foreseeable risk of injury by a ship's
anchor.
The question that remains to be considered is
whether the plaintiffs were at fault by failing to
take the reasonable precaution of marking the
inner bay line with metal spar buoys of a type that
would be discernible by ships' radar. In other
words, was this such an obvious omission on the
part of the plaintiffs as to fall within their range of
reasonable foreseeability as it existed prior to the
date of the accident? In addressing this issue, I am
precluded from taking into account any protective
measures that may have been advocated or even
introduced after the event in question. I am think
ing here particularly of the proposal regarding
pipeline incidents in Long Point Bay prepared by
the gas producers and the Ministry of Natural
Resources, the minutes of the meeting of the Coast
Guard Advisory Council on May 2, 1984, and the
letters written by Mr. Simpson, of Pembina, to P.
A. Palonen, of the Ministry of Natural Resources,
dated March 28 and June 22, 1984 respectively.
Defendants' counsel seemed to set much store on
this hindsight evidence but, in my view, it must be
disregarded in determining whether liability
should be fastened on the plaintiffs for having
failed to mark the location of the inner bay line by
appropriately spaced spar buoys. In short, I agree
fully with the statement made by Dickson J.A. in
the Assiniboine School case, supra, at page 618
D.L.R. where he said:
I agree that in general one must not take into account, in
determining negligence, the fact that the defendant introduced
protective measures after the event. "People do not furnish
evidence against themselves, simply by adopting a new plan in
order to prevent the recurrence of an accident." But, with
respect, I do not read the Judge's words as meaning what
counsel alleges they mean. On the contrary, it seems to me that
what the Judge is saying is that with the benefit of hindsight it
is apparent that protective steps were taken after the event, but
that it is his duty, as he sees it, to determine whether damage to
the gas-riser pipe was reasonably foreseeable at the time of the
accident in 1968, and prior thereto when the installation was
made.
Mr. Simpson testified that they used wooden ice
pole buoys to mark for their own convenience the
location of existing gas well heads and pipeline
junctions. I take it that these buoys were of the
approved design required by subsection 27(13) of
Regulation 752 [R.R.O. 1980] enacted under the
Petroleum Resources Act [R.S.O. 1980, c. 377].
As for the inner bay line at the time of the
accident, Mr. Simpson recalled that there were ice
pole buoys marking Junctions 15, 18 and 19, but
there was none at Junction 17 and he did not know
about Junction 16. He explained that these ice
pole buoys were not detectable by ships' radar and
frankly acknowledged that they were not intended
as navigational aids to the shipping industry. He
also conceded that these buoys lacked flotation
stability and had a tendency to tip over and lie flat
from wave action so that they would not be clearly
visible in heavy seas.
The evidence of the defendants' expert, Captain
MacDonald, was to the effect that metal spar
buoys with radar reflectors, spaced at regular
intervals of 4,000 feet or so apart along the inner
bay line, would have been of assistance to the
master of a vessel in helping him to determine his
position in relation to the pipeline. Captain Stog-
dale, of the Griffin, agreed during his testimony
that metal spar buoys, regularly interspersed at
well heads and pipeline junctions, could serve as an
aid to navigation, but with the qualification that
too many would be likely to cause confusion. Cap
tain MacDonald had entertained the same reserva
tions about a "mass of buoys".
The question, as it seems to me, comes down to
this: was the plaintiffs' failure to mark the location
of the inner bay line by appropriately spaced and
radar sensitive spar buoys a fault or omission that
contributed to the damage complained of in the
sense of being an effective cause thereof? In my
opinion, it was not. In reaching this conclusion, I
am mindful of the words of Macdonald J.A. in
Rose et al. v. Sargent, [1949] 3 D.L.R. 688;
[1949] 2 W.W.R. 66 (Alta. C.A.), where he said
at page 693 D.L.R.:
It is not enough that there should be some fault on the part of
the plaintiff without which the damage complained of would
not have been sustained. Such negligence may be merely sine
qua non. To constitute contributory negligence in the legal
sense it must be established that the negligence charged was an
effective cause of the damage.
I am further influenced by the following statement
of Anglin C.J.C. in McLoughlin v. Long, [1927]
S.C.R. 303; [1927] 2 D.L.R. 186, at page 310
S.C.R.:
In order to constitute contributory negligence it does not suffice
that there should be some fault on the part of the plaintiff
without which the injury that he complains of would not have
been suffered; a cause which is merely a sine qua non is not
adequate. As in the case of primary negligence charged against
the defendant, there must be proof, or at least evidence from
which it can reasonably be inferred, that the negligence
charged was a proximate, in the sense of an effective, cause of
such injury.
II. Assessment of Damages for Temporary and
Permanent Repairs
It is common ground that the cost of temporary
repairs to the inner bay line in the agreed amount
of $186,956.25 is not in issue. Consequently, the
plaintiffs are entitled to recover that amount as
damages flowing from the injury.
What is very much in issue is whether the
plaintiffs are also entitled to recover the cost of
permanent repairs in the agreed quantum of
$114,618.26 which, according to counsel for the
defendants, were never carried out nor required to
be carried out. Defendants' counsel argues forcibly
that the moneys expended for temporary repairs
achieved the goal of bringing the plaintiffs' busi
ness undertaking back into full production, despite
the plaintiffs' subsequent decision to abandon the
original inner bay line and relocate it elsewhere at
an agreed cost of $636,523.81. In his submission,
the plaintiffs should not be permitted to recover
both the cost of temporary repairs and the estimat
ed cost of permanent repairs because that would
provide the plaintiffs with a compensatory windfall
for repair costs which they never had to incur.
The argument of plaintiffs' counsel is simply
that the estimated cost of permanent repairs repre
sents damages which were clearly foreseeable as
being likely to flow naturally from the fractured
pipeline. He submits that the plaintiffs, for their
own good reasons, decided to relocate the inner
bay line elsewhere and spent a considerable sum of
money in doing so, but this of itself should not
permit the defendants to escape liability for dam
ages based on the estimated cost of permanent
repairs that were reasonably foreseeable in the
circumstances. Plaintiffs' counsel further submits
that the defendants should not be permitted to
profit from the fact that the plaintiffs decided
upon a different course of action following the
accident.
In The London Corporation, [1935] P. 70
(C.A.), the plaintiffs' ship was not repaired but
was sold to be broken up, after having been slight
ly damaged in a collision with the defendants'
vessel. The defendants agreed to the estimated cost
of repairs, but no repairs were done. Consequently,
the defendants contended that the plaintiffs had
suffered no loss. Greer L.J. said at page 78:
... in cases of this sort, the prima facie damage is the cost of
repair, and circumstances which are peculiar to the plaintiffs—
namely, that they have, before the damage has been deter
mined, sold the vessel to be broken up, is an accidental circum
stance which ought not to be taken into account in the way of
diminution of damages ....
This principle was applied in Fitzner v. MacNeil
(1966), 58 D.L.R. (2d) 651 (N.S.S.C.), where the
plaintiff was awarded damages in the full amount
of a repair estimate for the damage done to his
automobile as a result of the negligent driving of
the defendant, even though the authorization for
such repairs had been revoked by the plaintiff.
The learned author of McGregor On Damages,
14th ed., makes the following statement in para
graph 1001 at page 686:
The fact that the repairs have not yet been executed before
the hearing of the action, or will never be executed at all, does
not prevent the normal recovery. Since damages may on gener
al principles be given for prospective loss, it is immaterial that
the repairs are not yet executed.
In the present case, the parties are in agreement
as to the quantum for the estimated cost of perma
nent repairs. Thus, there can be no question about
the reasonableness of the actual amount so agreed
to. If I apprehend the matter correctly, the defen
dants' argument turns on the point of whether
damages are properly recoverable for the cost of
permanent repairs that have not been, and never
will be, executed. In my opinion, these permanent
repairs must be characterized as a prospective loss
which the defendants might reasonably have fore
seen as a consequence of their negligence in frac
turing the plaintiffs' pipeline. I find therefore that
the defendants are accountable to the plaintiffs for
the cost of permanent repairs in the agreed
amount of $114,618.26.
III. Assessment of General Damages for Loss of
Business Income
A. Time Frame for Assessment of General
Damages
The next question concerns the appropriate time
frame for the assessment of general damages for
loss of business revenue pending the completion of
temporary repairs to the inner bay line. Essential
ly, the issue is simply whether such damages
should be calculated in terms of the 60-day period
from the date of fracture until February 21, 1984,
or the 104-day period terminating on or about
April 5, 1984. The problem arose from four faulty
plidco couplings for connective hoses which had
been incorrectly assembled by the supplier. The
divers noticed the defective assembly and correctly
reassembled three of the couplings, but for some
reason did not reassemble the fourth. Two of the
couplings were installed at Junction 19 and func-
tioned perfectly. The remaining two, one of which
proved defective, were installed at Junction 17.
When a pressure test was conducted at this Junc
tion on February 23, 1984, the hose connection
separated from the faulty plidco coupling. On
February 24, the faulty coupling and hose connec
tion were repaired and reinstalled. The pressure
test was successful and there were no further leaks
at this Junction. But that was not the end of the
problem. The valve at Junction 17 had become
frozen. Weather and ice conditions conspired to
prevent the completion of repairs at Junction 17
until April 3, 1984, when the valves were turned
on. I find on the evidence that full productive flow
of gas through the Nanticoke line was not attained
until April 5, 1984.
Counsel for the plaintiffs concedes that Pem-
bina's inability to resume full production on Feb-
ruary 23, 1984, was due to the failure of its divers
to reassemble correctly all four of the faulty cou
plings. He submits, however, that such failure
either did not constitute negligence, being merely
an understandable mistake made under adverse
weather conditions, or represented negligence of
such a low degree as not to be actionable. Plain
tiffs' counsel further points out that the divers'
omission resulted in only two days of lost produc
tion, there being no evidence that the faulty cou
pling had anything at all to do with the problems
subsequently encountered at the Junction 17 valve.
Counsel for the defendants asserts that it was
the intervening negligence of the plaintiffs which
caused the delay in production beyond the date of
February 21, 1984. He bases this submission on
the evidence of the plaintiffs' diving supervisor,
Mr. Petrochuk, arguing that the freeze-up of the
valve at Junction 17 was attributable to the faulty
plidco coupling. It follows, in his submission, that
it was the plaintiffs' own negligence in installing
this defective coupling which caused the postpone
ment of production until April 5, 1984, and that
this intervening force absolves the defendants from
liability.
Linden, Canadian Tort Law, 4th ed. (Toronto:
Butterworths, 1988) had this to say of the modern
version of the principle of intervening force at page
345:
There was once a time when a negligent actor could be
insulated from liability for consequences brought about by an
intervening force which came into operation after his act was
complete. The true nature of the problem was clouded by
phrases such as act us novus interveniens, the "last wrongdoer"
and the everpresent discussion of causation. Today, however, it
is clear that wrongdoers are not immune from responsibility in
these circumstances.
No one could quarrel with that statement. Suffice
it to say, however, that liability will still attach
where the intervening act is one which ought rea
sonably to have been foreseen by the original
wrongdoer. This principle was expounded by
Schroeder J.A. in Martin v. McNamara Construc
tion Company Limited and Walcheske, [1955]
O.R. 523; [1955] 3 D.L.R. 51 (C.A.), at page 527
O.R.:
I hold it to be an established principle that damage is
recoverable if, despite the intervening negligence of a third
party, the person guilty of the original negligence ought reason
ably to have anticipated such subsequent intervening negligence
and to have foreseen that if it occurred the result would be that
his negligence would lead to loss or damage.
The principle thus elucidated by Schroeder J.A.
was also quoted in Walls v. MacRae and Metro
Fuels Co. Ltd. (1981), 36 N.B.R. (2d) 1; 94
A.P.R. 1 (Q.B.), a case relied on by the defendants
and, in my view, is sufficiently applicable to the
facts of the present case to enable me to dispose of
this particular issue. In my judgment, the failure
of the divers to reassemble correctly all four of the
faulty plidco couplings did not constitute action
able negligence in the circumstances. Irrespective
of whether it was a mere mistake or a minor
negligent act, I find on the whole of the evidence
that it was an intervening force which the defen
dants ought reasonably to have anticipated as
being a likely consequence of their original negli
gence. In the result, I am impelled to conclude that
the defendants must be held accountable for any
damage sustained up to the date of the resumption
of full production on April 5, 1984. Moreover, I
also find on the evidence in its entirety that the
plaintiffs took all reasonable steps to achieve full
production by that date and that the 104-day
period of lost production was not inordinately long
under the circumstances.
B. Competing Theories of Business Interruption
Loss
Expert reports estimating the loss of business
income were prepared for the plaintiffs by Michael
A. Copeland, of Coopers & Lybrand, and for the
defendants by Donald R. Holmes, of Peat, Mar-
wick, Mitchell & Co. Both experts testified and
were extensively cross-examined at trial, and they
both impressed me as competent and reliable char
tered accountants. The two competing theories
propounded by the rival experts to measure the
plaintiffs' loss of income were not entirely dissimi
lar, when reduced to their simplest form. Both
experts arrived at an estimated value for the lost
production over the 104-day period. Mr. Copeland
adopted a cash flow approach to arrive at a net
total loss claim of $572,226. This was premised on
the assumption that the gas production lost during
the period of interruption would not be made up, if
at all, until the end of the life expectancy of the
gas reserves, and that the net present value of any
production received at that point in time would be
negligible. Consequently, it was his view that the
plaintiffs should be awarded the net amount of the
current value of lost production in order to afford
adequate compensation.
Mr. Holmes proceeded on the assumption that
the reserves of natural gas did not decrease in
volume after the wells were shut in, but rather
remained available to be recovered in their entire
ty, once production resumed. In other words, there
was no permanent loss of natural gas. Mr. Holmes
utilized overlay charts and graphs to support his
theory that the shutting in of the wells for the
period of 104 days, followed by the resumption of
production, resulted in no reduction of the volume
of gas, but simply effected a deferral of production
for successive periods of 104 days over the twelve
and a half year life of the gas field. In Mr.
Holmes' view, all future revenues received by the
plaintiffs from such deferred production, albeit
discounted to a present value, ought to be deduct
ed from the plaintiffs' claim for the present value
of lost production to avoid over-compensating
them for their loss. The application of this
methodology led Mr. Holmes to conclude that the
estimated total loss of income to the plaintiffs
would be in the range of $226,139 to $308,018.
C. Legal Arguments and the Applicable Law
There appear to be few Canadian authorities on
business interruption claims of this nature. The
plaintiffs rely heavily on Continental Oil Co. v. S
S Electra, 431 F.2d 391 (5th Cir. 1970). This was
a case where production from oil wells was sus
pended for 130 days as a result of the defendants'
vessel colliding with the plaintiffs' offshore drilling
platform. The parties reached an agreement as to
the physical damage to the platform, but were
unable to agree on damages for suspension of
production from the wells. That issue was submit
ted to a commissioner, who concluded that the
damages for loss of production were limited to
interest on the $60,000 net production figure for
130 days. The District Court approved the amount
so determined. The plaintiffs appealed and the
defendants cross-appealed. The Court of Appeals
upheld the appeal on the ground of error by the
commissioner and the District Court, and awarded
the appellants damages at 90% of $60,000 for the
value of the net production. As the Court noted
particularly at page 392:
The commissioner and the District Court erred. They
focused on the fact that the oil companies had not shown that
they had lost any oil as a result of the collision. As they viewed
the matter, since the oil was still intact and available the
plaintiffs ultimately could bring it to the surface and realize
profit therefrom just as they would have during the 130 day
period had they been operating—or at least they had not
proved with reasonable certainty that this would not occur, so
that their loss was purely theoretical. In this court the shipown-
er continues to focus on the fact that plaintiffs have not lost oil
as a capital asset and strenuously insists that to allow $60,000
as damages is to allow a double recovery.
The Court dealt with these errors and concluded
as follows [at page 392]:
All of this wholly misses the mark. The oil companies do not
claim for lost oil or damage to oil as an asset. Their suit is for
damages suffered as a consequence of the collision of the ship
with the platform. Profit on oil production is simply one means
of measuring the damage suffered. The plaintiffs have lost the
use of their capital investment in lease, platform and producing
wells for 130 days during which that investment was tied up
without return. The fact that the same amount of profit can be
made at a later time with the same investment of capital by
removing from the ground a like quantity of oil at the same site
does not alter the fact that the plaintiffs are out of pocket a
return on 130 days use of their investment. Presumably the oil
companies ultimately will produce from the reservoir all the oil
that is economic to produce, but, as the District Court pointed
out, it will require 130 days longer to do so. The plaintiffs must
stay on the site 130 days longer, with investment in place, than
necessary but for the ship's negligence.
This is no theoretical, shadowy concept of loss. It is squarely
within the basic damage doctrine for marine collision of
restitutio in integrum, as applied in many comparable situa
tions. Thus, for the vessel laid up for repairs:
In order to make full compensation and indemnity for what
has been lost by the collision, restitutio in integrum, the
owners of the injured vessel are entitled to recover for loss of
her use, while laid up for repairs. When there is a market
price for such use, that price is the test of the sum to be
recovered. When there is no market price, evidence of the
profits that she would have earned if not disabled is com
petent; but from the gross freight must be deducted so much
as would in ordinary cases be disbursed on account of her
expenses in earning it; in no event can more than the net
profits be recovered by way of damages; and the burden is
upon the libellant to prove the extent of the damages actually
sustained by him. [Emphasis added.]
The Court made the following observation at page
393:
The oil companies are like a single shipowner with his ship laid
up. It would be no answer to his claim to assert that he has lost
nothing because the same cargo is still on the dock when his
ship comes out of repair and that he can move it then—if other
cargoes are also then available.
The Continental Oil case has been followed in
several United States decisions, namely, National
Steel Corp. v. Great Lakes Towing Co., 574 F.2d
339 (6th Cir. 1978); and U. S. Oil of Louisiana,
Ltd. v. Louisiana Power & Light Co., 350 So. 2d
907 (La. Ct. App., 1st Cir. 1977), and has been
mentioned in other cases. It was also mentioned in
Canada in Total Petroleum (N.A.) Ltd. v. AMF
Tuboscope Inc. (1987), 81 A.R. 321; 54 Alta. L.R.
(2d) 13 (Q.B.), but only in reference to distin
guishing for loss of profit as a reasonably foresee
able result in the circumstances of that case from a
claim for damages for loss or deferral of produc
tion revenue, which was held to be too remote.
It is a well established principle that wrongful
interference with profit-making property causing
the owner to be deprived of the use thereof is
compensable as damages for lost profits: Wad-
dams, The Law of Damages (Canada Law Book
Limited, 1983), paragraphs 192 and 203; and
Pacific Elevators Ltd. v. Canadian Pacific Rail
way Co., [1974] S.C.R. 803; (1973), 41 D.L.R.
(3d) 608.
In Pacific Elevators Ltd., supra, unloading
facilities at the plaintiffs grain elevators were
damaged as a result of the derailment of railway
cars on two separate occasions, both of which were
attributable to the negligence of a railway
employee. The plaintiffs actions for claims of
$33,658 and $232,594 respectively were allowed in
full at trial. The Court of Appeal reversed the trial
decision and an appeal was taken to the Supreme
Court of Canada. The Court allowed the appeal in
part, but varied the judgment at trial by dismissing
the first action and allowing the plaintiff a much
lower damages recovery in the second action.
Pigeon J., delivering the judgment of the Court,
said at page 806:
Grain cars diverted are really the basis on which the claim is
to be assessed because, as counsel for the railway pointed out,
appellant's revenues and profits for 1966 were up from the
previous year. Its inventory was up too, as well as the quantities
of grain received, stored and shipped. No ship was diverted
from its dock. This does not mean that it suffered no loss
because if, without the disruption caused by the accidents, it
would have been able to handle and store still more grain and
consequently would have made higher profits, it is undoubtedly
entitled to claim the loss suffered although in spite of that loss,
its profit was higher than in the immediately preceding year.
In my view, the Pacific Elevators case lends fur
ther countenance to the principle that lost profits
are a proper measure for determining compensable
damages flowing from the loss of use of profit-
making property.
Counsel for the defendants relies heavily on the
case of Bolivar County Gravel Co., Inc. v. Thomas
Marine Co., 585 F.2d 1306 (5th Cir. 1978), to
support his argument that the U.S. Fifth Circuit
Court of Appeals in Continental Oil did not decide
that lost profits are the appropriate measure of
damages in cases involving a shut-down of oil or
gas wells. Defendants' counsel further relies on
Norcen Energy Resources Limited and Murphy
Oil Company Ltd. v. Flint Engineering and Con
struction Ltd. (1984), 51 A.R. 42 (Q.B.), a case
where the Alberta Court of Queen's Bench
reduced the damages assessed for loss of produc
tion from oil wells shut down as a result of fire
damage to the plaintiffs' oil battery by the amount
of $39,800 representing the present value to the
plaintiffs of recovery of lost production over the
life of the field. Medhurst J. offered no explana
tion for the quantification and deduction of this
present value item.
In the present case, the damages claim for busi
ness interruption loss is based on the net sales
value of the volume of production lost over the
104-day period. According to the defendants'
theory, this is not the right approach because the
oil was not lost irretrievably; rather, it is simply a
case of the deferral of production. In my view, this
argument is irrelevant because it belies the fact
that even if the plaintiffs ultimately produce the
full volume of untapped natural gas, they are still
delayed for a period of 104 days in achieving that
goal. Counsel for the plaintiffs stressed repeatedly
that there is no certain likelihood that the shut-in
gas will ever be produced and that its future
recovery is only a possibility at best, and will have
to await events. He summarizes his argument as
follows:
... you have Mr. Copeland saying that the plaintiffs cannot use
that 104 days worth of gas right now and it is a loss to them.
There is no guaranty or no assurance that they are ever going
to get that gas back again in the future. I would submit that
there is some compelling logic to that because we have the
evidence of Mr. Simpson that these wells have a life expectancy
of 20 years. My clients have a 10-year lease. They have an
option of renewing it for another 10 years. They may not wish
to renew, the Crown may not wish to renew. The sale of gas
may drop. My clients' fortunes may plummet. There are any
number of variables between here and the end of the useful life
of the reservoir.
I agree that it would appear to be inequitable to
deduct from the net present value of the lost
production an amount representing the present
value of the deferred production. After all, the
plaintiffs suffered the inconvenience and delay of
104 days lost production. In Continental Oil, the
Court pointed out that even though the oil compa
nies might ultimately produce from the reservoir
all the oil that was economic to produce, they
would nevertheless require 130 days longer to do
so. In the final result, the Court assessed the
plaintiffs' damages at the full value of the net
production without any deduction for the present
value of the oil that might ultimately be recovered.
I am strengthened in my conclusion that this is
the appropriate method of assessment to be fol
lowed in the case at bar by the decision of the U.S.
Court of Appeals, Sixth Circuit, in National Steel
Corp. v. Great Lakes Towing Co., supra. In that
case, a steel company which owned a railroad
bridge connecting its furnaces on an island in the
river with its steel-making plant on the shore
brought action against a towing company whose
towed vessel collided with and damaged the bridge
when a tow line snapped. The collision resulted in
a loss to the steel company of fifty hours of
production. The District Court entered judgment
in favour of the plaintiff steel company for repair
costs and expenses directly related to the interrup
tion of production only. The claim for damages for
lost production was denied on the ground that the
plaintiff had failed to convince the Court that it
had not made up the lost production. The Sixth
Circuit Court of Appeals held that the plaintiff
was entitled to recover for the lost production
without regard to whether it had made up the lost
production. Peck J., delivering the judgment of the
Court, said at page 343:
A few basic principles of tort liability must be kept in mind
in order to understand the flaws in defendant's argument. First
of all, a plaintiff is entitled to recover all damages proximately
caused by the defendant which can be proved with a reasonable
degree of certainty. When a defendant's negligence results in
an interference with the use of plaintiffs property, the plaintiff
is entitled to recover the value of the use during the interfer
ence, or the value of the amount paid for a substitute. Restate
ment of Torts, §§ 928, 931(a). The tort is complete and
liability attaches when the harm is suffered. The plaintiff has a
duty to take reasonable steps to mitigate damages, but this is a
concept of avoidance, not repair. Thus the plaintiff must take
all reasonable steps to prevent the accumulation of damages,
and to minimize the effect of defendant's negligence; but the
duty to mitigate applies only to damages which one can pre
vent, not to damages already accrued. Finally, the principle
which governs this lawsuit, a defendant cannot take advantage
of events occurring after harm has occurred and liability has
attached to reduce the damages for that harm.
The learned Judge continued in this vein at page
344:
Applying these principles to this case, the flaw in defendant's
argument quickly becomes clear. The Towing Company's negli
gence directly and immediately resulted in the loss of fifty
hours of production. At the end of three days of production
interruption, National Steel had a cause of action against the
Towing Company for all losses suffered. Whatever occurred
later, whether due to fortuitous events or plaintiffs diligence,
cannot affect that liability.
This is not to say that the question of whether or not lost
production was made up would never be relevant to a case of
this sort; but when the only damages sought are for loss of use
resulting in lost production, that question cannot affect the
result.
Peck J. had earlier expressed the unequivocal view
that the question whether the plaintiff could have
made up the lost production was irrelevant and
made no difference to the plaintiffs right to recov
er damages for lost production. In the result, the
Court reversed the decision of the District Court
and remanded the cause for modification of its
judgment in favour of the plaintiff to include the
sum of $69,741, being the reasonable value of the
production lost due to defendant's negligence.
Defendants' counsel endeavoured to distinguish
the present case from the National Steel case by
arguing that the profits in the latter were lost
permanently, whereas in the former they were
merely deferred. In my opinion, this argument is
lacking in merit. Obviously, the Court in National
Steel treated the question of whether the lost
production was made up as being irrelevant to the
plaintiffs claim for damages for loss of use based
on the reasonable value of lost production.
The case of U. S. Oil of Louisiana, Ltd. v.
Louisiana Power & Light Co., supra, was an
appeal from a judgment at trial in a suit to recover
against an electric utility for damages resulting
from power outages and fires at a sulphur plant,
wherein the trial Court found the value of produc
tion lost to be $52,570. The defendant appealed
the decision and the plaintiffs appealed the
inadequacy of the damages award. On the dam
ages appeal, the Court amended the trial judgment
to reflect a loss of production in the amount of
$121,943.50 attributable to one of the power out
ages. Edwards J. said at page 912:
Defendants contend that plaintiffs suffered no loss of income
for the sulfur not mined during the period between the outage
and restoration of normal production because the sulfur was
not lost but its production merely delayed. A similar contention
was rejected in Continental Oil Company v. S.S. Electra, 431
F.2d 391 (5th Cir. 1970). The court therein noted that the
plaintiff oil company suffered loss of production equal to net
profit for oil the recovery of which was delayed while produc
tion equipment was repaired. That reasoning is applicable
herein. Stated simply, production for that period of time was
forever lost.
In my view, the Bolivar case on which defen
dants' counsel so strongly relies is distinguishable
by the fact that there was no evidence that the
plaintiff lost any sales, revenues or potential cus
tomers as a result of the loss of use of its dredge
for ten days or that its position had been worsened
by the accident. If anything, it reaffirms the Con
tinental Oil principle of damages recovery by
emphasizing that proof of actual loss is necessary
to support a claim for damages for loss of use.
Unlike Bolivar, there is ample evidence in the
present case of loss of profits during the 104-day
period of shut-down. As for the Norcen case, there
is no explanation whatever of why the present
value of lost production was deducted from the
plaintiffs' damages award, nor of how that value
was determined. I have been unable to find any
reference to this aspect of the damages treatment
in Norcen in any subsequent Canadian decisions.
Plaintiffs' counsel urges that the present case is
distinguishable from Norcen on the basis that
there is no imminent likelihood of recovery of lost
production. That may well be. In any event, I am
not persuaded on the strength of the Norcen deci
sion to subtract the present value of deferred
production from the plaintiffs' claim for damages
for loss of income attributable to lost production
over the 104-day period, especially in face of the
weight of more reasoned authority pointing the
other way. In my opinion, the plaintiffs' losses
accrued in a proximate sense when the liability
attached for the harm done and the damages
should be assessed accordingly, without having to
inquire into subsequent events or happenings.
D. Quantification of Loss
I turn now to the actual calculation of the value
of lost production according to the theory of loss
presented by the plaintiffs' expert, Mr. Copeland,
which I accept. I might point out that Mr. Cope-
land was retained originally by Pembina's insur
ance adjusters to quantify the loss of production
during the indemnity period of 94 days, and his
analysis of the loss sustained during the initial
ten-day deductible period constitutes a separate
calculation. Mr. Copeland estimated the lost pro
duction during the 94-day period from January 3,
1984 to April 5, 1984 to be 225,254 mcf of natural
gas. From this he deducted the amount of 23,518
mcf for the actual production during that period to
arrive at a net lost production of 201,736 mcf. He
then multiplied this amount by the unit price
figure of $3.54 to arrive at a sales value of lost
production in the sum of $714,145. From this he
deducted the sum of $240,166 for the expenses of
petroleum gas revenue tax, royalties, overrides,
and depletion at the rate of 8.05 per cent to arrive
at a net claim figure of $473,979 from which he
deducted the sum of $3,000 to account for several
minor errors in his original calculations. This
yielded a net sales value of lost production of
$470,979, which he rounded off to $470,000.
The net value of lost production during the
ten-day deductible period was calculated in like
manner. However, Mr. Copeland did not make any
deduction for depletion in his second calculation
by reason that he treated depletion in the account
ing context of something to be deducted from
revenue received. As he explained it, the gas
vented and lost to the atmosphere during the ten-
day deductible period represented gas that was
completely lost for which no revenue would ever be
received, and so there should be no deduction for
depletion. I consider this to be a reasonable expla
nation in the circumstances. The end result of Mr.
Copeland's calculations was a net loss figure of
$102,226 for the ten-day deductible period, which
I accept.
Counsel for the plaintiffs submits that this net
loss figure should be increased by 25 per cent to
reflect an additional quantity of gas lost to the
atmosphere during the ten-day period. He bases
this on the evidence of the plaintiffs' superintend
ent, Mr. Simpson, who testified that lowered back
pressure caused by the venting to the atmosphere
would have resulted in an increased flow of gas,
which he estimated at this percentage. Under
cross-examination, Mr. Simpson conceded that the
figure was not firm and could lie anywhere be
tween zero and 30 per cent, and that 25 per cent
was merely his best estimate. I agree with counsel
for the defendants that this number "was just
picked out of the air" and had no basis in reality or
experience, and ought not to be taken into account.
Adding the figure of $102,226 to the net sales
value of $470,000, gives a net total value of lost
production for the period from December 24, 1983
to April 5, 1984 of $572,226, which I assess as the
plaintiffs' general damages for loss of business
income.
To recapitulate for the sake of convenience, the
plaintiffs' damages are assessed as follows (round-
ed version):
Cost of temporary repairs $186,956
Cost of permanent repairs $114,618
Loss of business income $572,226
TOTAL $873,800
In the result, the plaintiffs are entitled to recover
from the defendants total damages in the sum of
$873,800.
IV. Interest
The final question is whether pre-judgment in
terest should be awarded as an integral part of the
plaintiffs' damages and, if so, from what date it
should run. Counsel are agreed that the applicable
rate of interest would be 9.5 per cent.
Counsel for the defendants submits, firstly, that
I should exercise my discretion against allowing
any pre-judgment interest in the present case,
given the novelty of the various issues raised there
in and, particularly, the lack of jurisprudence
bearing on these issues and the assessment of
damages for business interruption loss. He cites
Nissan Automobile Co. (Canada) Ltd. v. The
Continental Shipper, [1974] 1 F.C. 88 (T.D.),
wherein Urie J., on a Rule 324 [Federal Court
Rules, SOR/71-68] application to reconsider judg
ment, confirmed that interest was disallowed pur
posely because of the reasonableness of the defence
and the lack of prior jurisprudence. Secondly,
defendants' counsel submits that the time for cal
culation of any pre-judgment interest should run
only from December 20, 1984, the date when the
plaintiffs first gave notice of the damaged pipeline
and their estimated losses resulting therefrom. In
his submission it would be unfair to award pre
judgment interest prior to that date, since the
defendants knew nothing of the damaged pipeline
nor the plaintiffs' claim in respect thereof. Thirdly,
it is submitted that the estimated cost of perma
nent repairs in the sum of $114,618 should be
excluded from any award of pre-judgment interest
because the repairs were never executed and the
plaintiffs were not out-of-pocket for that amount.
Counsel for the plaintiffs points out that the
prayer for relief in the statement of claim claims
interest "from the date of the loss until the date of
Judgment". He also points to the invariable prac
tice in admiralty cases of allowing pre-judgment
interest as an integral part of the damages award
ed and submits that the exercise of judicial discre
tion with respect thereto must be related to the
task of fully compensating the plaintiff or the
money wrongfully withheld, citing John Maryon
International Limited et al. v. New Brunswick
Telephone Co., Ltd. (1982), 43 N.B.R. (2d) 469;
141 D.L.R. (3d) 193; 113 A.P.R. 469; 24 CCLT
146 (C.A.); and Irvington Holdings Ltd. v. Black
et al. and two other actions (1987), 58 O.R. (2d)
449 (C.A.), at page 484. As for the point that
pre-judgment interest should be calculated only
from the date of notification of the claim, plain
tiffs' counsel submits that the lengthy period for
investigating the cause of damage to the pipeline
and identifying the responsible culprit was not
unreasonable in the circumstances.
In admiralty cases, interest is normally awarded
as an integral part of the damages suffered by the
plaintiff from the time of the injury or loss, and
the discretion for awarding pre-judgment interest
should be refused only in exceptional cases: see
Canadian General Electric Co. Ltd. v. Pickford &
Black Ltd., [1972] S.C.R. 52; (1971), 20 D.L.R.
(3d) 432; Bell Telephone Co. v. The Mar- Tirenno,
[1974] 1 F.C. 294; 52 D.L.R. (3d) 702 (T.D.);
affd [1976] 1 F.C. 539; 71 D.L.R. (3d) 608
(C.A.); Davie Shipbuilding Limited v. The Queen,
[1984] 1 F.C. 461; 4 D.L.R. (4th) 546; 53 N.R. 50
(C.A.); and Drew Brown Ltd. v. The "Orient
Trader", [1974] S.C.R. 1286.
In Canadian General Electric Co. Ltd. v. Pick-
ford & Black Ltd., supra, the Supreme Court held
that the plaintiff was entitled to interest on its
claim for cargo damage from the date when the
goods should have been delivered. Ritchie J. allud
ed to the principles administered in admiralty
courts with respect to the allowance of pre-judg
ment interest, and stated at page 57:
It is thus well settled that there is a clear distinction between
the rule in force in the common law courts and that in force in
admiralty with respect to allowing a claim for interest as an
integral part of the damages awarded.
In Bell Telephone Co. v. The Mar- Tirenno,
supra, Addy J., at trial, stated the following prin
ciple at pages 311-312:
It is clear that this Court, under its admiralty jurisdiction,
has the right to award interest as an integral part of the
damages suffered by the plaintiff regardless of whether the
damages arose ex contractu or ex delicto.
... interest in these cases is not awarded to the plaintiff as
punitive damages against the defendant but as part and parcel
of that portion for which the defendant is responsible of the
initial damage suffered by the harmed party and it constitutes a
full application of the principle of restitutio in integrum.
This principle was expressly approved by Mr. Jus
tice Urie in delivering the judgment of the Federal
Court of Appeal in the Davie Shipbuilding case,
supra.
In Drew Brown Ltd. v. The "Orient Trader",
supra, the owners of a cargo of tin brought action
against the carrier for cargo damage and the latter
counterclaimed for contribution in accordance
with the general average terms of the contract.
The Trial Judge dismissed the claim of the owners
and allowed the counterclaim for general average
adjustment, but disallowed interest to the date of
judgment on the general average adjustment
awarded against the owners, and this became the
subject-matter of a cross-appeal by the carrier. A
majority of the Supreme Court dismissed the
appeal of the owners and allowed the carrier's
cross-appeal, Hall and Spence JJ. dissenting.
Laskin J., dealing with the Trial Judge's reasons
on the counterclaim award, said at page 1335:
I see nothing in the trial judge's reasons to support his refusal
to allow interest to the date of judgment. The delay in asserting
the counterclaim, in which interest was claimed on the general
average contribution, is not a mitigating factor in favour of the
appellant when it had from the outset resisted the demand for
such contribution. Moreover, the complexity of the issues with
which the trial judge had to deal affected both parties equally.
In line with the principle considered by this Court in Canadian
General Electric Co. Ltd. v. Pickford and Black Ltd., the
respondent should have interest from the date of the general
average adjustment to the date of judgment. There are no
special considerations to support a discretionary exercise of
authority to deny interest for this period.
I find therefore that the plaintiffs are entitled to
pre-judgment interest on the total damages award
of $873,800 from the date of injury on December
24, 1983 to the date of judgment at the agreed rate
of 9.5 per cent per annum. Moreover, to para
phrase the words of Laskin J. in the Orient Trader
case, I am clearly of the opinion that there are "no
special considerations to support a discretionary
exercise of authority to deny interest for this
period".
V. Conclusion
For the foregoing reasons, I award judgment in
favour of the plaintiffs for total damages of
$873,800, together with pre-judgment interest
thereon at the rate of 9.5 per cent per annum from
December 24, 1983 to the date of judgment and
post-judgment interest thereafter at the same rate,
until payment. The plaintiffs are entitled to their
taxable costs of the action.
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