Canada: Mari-Times Newsletter - Key Policy & Legislative Updates

A. Federal Moratorium on British Columbia Crude Oil Tanker Traffic

On November 13, 2015, Prime Minister Trudeau instructed the Minister of Transport, the Honourable Marc Garneau to "formalize a moratorium on crude oil tanker traffic on British Columbia's North Coast, working in collaboration with the Minister of Fisheries, Oceans and the Canadian Coast Guard, the Minister of Natural Resources and the Minister of Environment and Climate Change to develop an approach." This mandate accords with promises made by Prime Minister Trudeau during the Liberal election campaign.

Whether a federal moratorium on tanker traffic exists in British Columbia has long been a subject of debate. To date, there has been no legislation or other written instrument formally establishing such a ban. Despite this, various secondary sources have continued to refer to the existence of a moratorium and the federal government maintained this policy for a number of years. However, there is the Tanker Exclusion Zone, a voluntary truck routing measure that applies to loaded crude oil tankers servicing the Trans-Alaska Pipeline System between Valdez, Alaska and Puget Sound, Washington. Tankers carrying no cargo may transit within the Tanker Exclusion Zone.

In 2010, the House of Commons passed a non-binding opposition motion calling for a ban on crude oil tanker traffic off British Columbia's north coast. This was followed by a private member's bill sponsored by Vancouver Quadra Liberal MP Joyce Murray in 2010 (Bill C-606), which had the support of the minority Parliament. It was ultimately dropped from the Order Paper when the 2011 federal election was called. Under the leadership of the Conservative Party, the position of the federal government was that there was no legally binding moratorium on the west coast. This allowed oil and gas projects involving the use of crude oil tankers to develop in British Columbia.

The terms and extent of a formal federal moratorium on crude oil tanker traffic and the manner in which it will be established remain unclear. However, it is anticipated that any such ban will have a significant impact on oil and gas development projects in northern British Columbia given the necessity of tanker transport to these projects. For example, it is anticipated that the Enbridge Northern Gateway pipeline project will require 225 tankers carrying condensate and crude oil to travel the Douglas Channel each year. It is notable that the mandate letter does not appear to prohibit exports of refined crude oil, so some oil and gas projects may not be affected.

B. Bill C-22 — The Energy Safety and Security Act (the "ESSA")

The ESSA, which relates to Canada's offshore regime for oil and gas exploration and operations in the North and Atlantic regions, received Royal Assent in early 2015. The majority of the provisions affecting the off-shore oil and gas industry will come into force on or before February 26, 2016. The ESSA includes the following legislative changes:

  • Amendments to the Canada Oil and Gas Operations Act, RSC 1985, c O-7 and the Canada Petroleum Resources Act, RSC 1985, c 36 (2nd Supp) to provide the National Energy Board with new tools to regulate oil and gas activities in the North;
  • Amendments to the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act, SC 1988, c 28 and the Canada-Newfoundland Atlantic Accord Implementation Act, SC 1987, c 3; and
  • The Nuclear Liability Act, RSC 1985, c N-28 is replaced by the new Nuclear Liability and Compensation Act, SC 2015, c 4, s 120 to implement the International Convention on Supplementary Compensation for Nuclear Damage and increase the absolute liability limit of operators in the nuclear context from $75 million to $1 billion.

Specifically, the amendments revise the civil liability regime for the oil and gas industry by incorporating the "polluter pay" principle, increasing the limits of liability in the Atlantic offshore and Arctic areas to $1 billion, and requiring proof of financial resources to cover claims when applying for permits to drill, develop or produce offshore oil or gas. The amendments will identify Offshore Boards as "responsible authorities" under the Canadian Environmental Assessment Act, 2012, SC 2012, c 19, s 52, and grant them the authority to levy administrative and monetary penalties for contraventions of the regulations.

To improve spill response, regulators will have "direct and unfettered access" to $100 million in funds per project to help compensate affected parties and can authorize the use of chemical dispersants or other spilltreating agents as part of a spill response strategy. The ESSA also establishes a basis for governments to seek environmental damages to compensate for damage to species, coastlines or other public resources.

The ESSA will not apply on Canada's west coast due to the federal moratorium on oil and gas activity on offshore British Columbia. An unofficial ban on offshore oil and gas exploration in this region dates back to 1972, when the Government of Canada issued Orders in Council suspending the rights under existing permits for offshore oil and gas exploration and made a policy decision to decline to renegotiate the exploration permits as required by subsequent legislative developments.

C. Amendments to Schedule 1 to the Marine Liability Act

The Regulations Amending Schedule 1 to the Marine Liability Act, SOR/2015-98 came into force on June 8, 2015. The amendments increase the general limits of liability for shipowners' claims under Schedule 1 of the Marine Liability Act, SC 2001, c 6 (the "MLA") by approximately 50%. The limits are determined by size of vessel and vary depending on the specific range of size or tranches. Limits of liability for small vessels under the 300 ton gross tonnage threshold remain unchanged.

These amendments reflect Canada's obligations to the IMO's Convention of Limitation of Liability for Maritime Claims, 1976 (the "LLMC Convention"), as amended by the Protocol of 1996 (the "LLMC Protocol"), which provides the right for shipowners and their insurers to limit their liability on a range of different maritime claims. At its 99th session in April 2012, the IMO Legal Committee decided on the 50% increase based on the experience reported by the International Group of Protection and Indemnity Clubs, which underwrite the liability insurance for 90% of the world's vessels. The increase is intended to account for significant inflation since 1996 that has eroded the value of the maximum level of liability by over 50% in real dollar terms. This may have significant impact on a claimant's recovery of losses incurred.

Article 6 of the LLMC Convention, which is incorporated as Schedule 1 to the MLA, limits shipowners' liability for: (1) claims for loss of life and personal injury, and (2) claims for damage to property, such as other terminals, cargo and ships. Damages that are subject to other international instruments, such as pollution related to oil spills from oil tankers, are excluded. This limitation applies if the fault for the loss was due to the action or omission of the master or crew with no involvement of the shipowner or his executives or managerial staff.

The increase in LLMC limits will impact other elements of the MLA's framework, particularly:

  • The Athens Convention relating to the Carriage of Passengers and their Luggage by Sea, 1974, as amended by the Protocol of 1990 which sets the rules governing liability to passengers;
  • The International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001, which sets out the rules governing liability for pollution damage from bunker oil spills from non-tankers; and
  • The International Convention for the Unification of Certain Rules of Law relating to Bills of Lading, 1924, as amended by the Protocols of 1968 and 1979, which sets out the rules governing the shipowner's liability for loss or damage to cargo.

In its Regulatory Impact Analysis (Canada Gazette, Vol 149, No 10), the Government of Canada indicated that, while difficult to estimate, it is likely that the amend- ments may result in a net benefit to Canada given that the claimants will be mainly Canadians, whereas the respondents will include both domestic and international shipowners. Foreign registered ships, predominantly owned by non-Canadians, are generally much larger than Canadian ships and are more likely to be involved in major marine casualties where the current LLMC limits are exceeded. The Government of Canada also indicated the increase in LLMC limits could also have a positive impact on Canada's Ship-source Oil Pollution Fund ("SOPF"). For instance, in situations where a known ship (other than a tanker) is involved in a spill, the higher limits could allow the SOPF to recover a larger proportion of remedial costs in the rare cases when such incidents exceed the current LLMC limits.

As a result of Canada being a signatory to the LLMC Protocol, these limits may be increased again in the future. To implement such a proposal, the validity of a proposal to increase liability limits must be examined by the IMO's Legal Committee and two-thirds of the state parties must be in support.

D. Amendments to Regulations under the Canada Shipping Act, 2001

Vessel Pollution and Dangerous Chemicals Regulations

The Vessel Pollution and Dangerous Chemicals Regulations, SOR/2012-69 were amended on January 2, 2015 to control and regulate airborne emissions from ships and to implement Canada's international obligations under Annex VI of MARPOL.

The amendments lowered the permitted limit for sulphur content in marine fuel by 90% (from 1.000% to 0.10%) for almost all types of vessels, including drilling, production and storage vessels in the North American Emission Control Area ("NA-ECA") or operating in waters south of 60º N. The new restrictions will apply to Canadian-flagged vessels in any area of the world, as well as foreign-flagged vessels that are operating in Canadian waters or within the Canadian portion of the NA-ECA under MARPOL. However, offshore drilling, storage and offloading platforms ("FPSOs"), fishing vessels, pleasure crafts, and production or storage vessels will be exempt.

Transport Canada has warned that it will be increasing penalties for non-compliance to accord with these stricter limits. Therefore, vessel and cargo owners may risk increased fines and delays for non-compliance, which will cause a corresponding increased risk of third party claims for insurers.

The amendments also lowered the sulphur content for vessels operating in waters outside of the NA-ECA north of 60º N from 3.50% to 0.50%, but this change will not be effective until January 1, 2019. The affected area includes Hudson's Bay, James Bay, and Ungava Bay.

Vessel Operation Restrictions Regulations

Amendments to the Vessel Operation Restrictions Regulations, SOR/2008-120 establishing restrictions on boating activities and navigation in Canadian waters came into force on May 29, 2015. The amendments are intended to respond to requests from local authorities for Transport Canada to impose or amend restrictions on navigation in order to enhance the safety of navigation, protect the environment, or protect the public interest.

Specifically, the amendments appoint inspectors in a municipality in Québec to ensure compliance with the Regulations in order to maintain and promote safe operation of vessels in the area, as well as correct existing restrictions on 87 bodies of water in Ontario and 59 bodies of water in Québec to accurately reflect geographical place, names, and coordinates.

Vessel Registration and Tonnage Regulations and Vessels Registry Fees Tariff

The Vessel Registration and Tonnage Regulations, SOR/2007-126 (the "VRTR") and Vessels Registry Fees Tariff, SOR/2002-172 were amended on May 1, 2015 and establish requirements with respect to vessels in the Canadian Register of Vessels under Part 2 of the Canada Shipping Act, 2001, SC 2001, c 26 (the "CSA, 2001"). These amendments alleviate much of the administrative burden relating to registration and aim to reduce the regulatory burden on non-profit organizations, charitable organizations, and small business owners.

Prior to 2011, all vessels other than pleasure craft were required to be registered, including human-powered pleasure craft such as canoes, kayaks, row boats, and small sailing vessels. This requirement placed an unnecessary administrative burden on small vessel owners that far outweighed any safety benefit.

The amendments to the VRTR exempt from registration vessels under an aggregate power of 7.5 kW, sailboats that are 8.5 m or less in length, human-powered vessels other than commercial river rafts, and certain vessels operated by recreational boating schools for training purposes.

E. World-Class Tanker Safety System

In April 2015, the Tanker Safety Expert Panel (the "Panel") released Phase II of their report, "A Review of Canada's Ship-source Spill Preparedness and Response: Setting the Course for the Future, Phase II — Requirements for the Arctic and for Hazardous and Noxious Substances Nationally" (the "Report"). The Report is divided into three parts: (1) Arctic Ship- Source Spills, (2) Hazardous and Noxious Substances ("HNS"), and (3) Marine Casualty Management.

Arctic Ship-Source Spills

The Report found that the Arctic requires an improved and tailored prevention and response regime given its unique characteristics. The Panel indicated that Ice Navigators (i.e. persons who act as an advisor to a ship's master on the ice regimes being navigated and are required to be on board vessels that meet criteria specified in the Arctic Shipping Pollution Prevention Regulations, CRC, c 353 (the "ASPPR")), play an important role in preventing ship-source spills. The Panel's review indicated that while the ASPPR set out the qualifications for Ice Navigators, there is no formalized training program or certification process required by Regulation. To remedy this, the Panel recommended that Transport Canada formally certify the Ice Navigators to ensure that they have the necessary experience.

The Panel also indicated that Canada's current ice navigation systems are dated or inadequate and recommended that Canada's navigational infrastructure, including its charts and its ice navigation systems, be upgraded.

The Report advocated for the development of systems that address the Arctic's unique challenges. To this end, the Panel suggested: (1) the classification of all oil handlings facilities according to risk, (2) the development of Arctic-specific standards of responses that all prescribed vessels and facilities are required to possess, and (3) the creation by Transport Canada of an oversight program to ensure compliance of these new standards and procedural requirements.

Finally, the Panel noted that preventing and limiting ship-sourced spills will require important improvements that should be implemented incrementally and regularly reviewed over the long run in response to the Arctic's evolving situation. The Report recommended constant consultation with all stakeholders and continued research into improved methods for preventing spills.

Hazardous and Noxious Substances

Canada is a signatory to the IMO's International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea (the "HNS Convention"). The HNS Convention introduces strict liability for shipowners and requires insurance and insurance certificates. The HNS Convention is not yet in force, but the Safe-guarding Canada's Seas and Skies Act, which received Royal Assent in December 2014, incorporates many of its provisions into Canadian law by amending the MLA.

Although the need for a HNS preparedness and response regime has long been recognized, a framework has yet to be established in Canada. The Report recommended establishing a comprehensive regime that draws on linkages between the marine industry, chemical producers, and the land-based hazardous-response community.

The Report called for all ships carrying HNS and facilities handling HNS to have a comprehensive HNS response plan outlining in detail all facets of how to properly respond in the event of a spill. The Panel recommended that Transport Canada should develop an appropriate oversight program to ensure compliance with these new standards.

The Report also called for the Coast Guard, in collaboration with governmental, community, and industry stakeholders, to lead the development of national and regional contingency plans for ship-based HNS releases. These response plans should be routinely practiced to ensure readiness, and the Coast Guard must ensure it has the resources and competency to respond to a spill.

Finally, the Report recommended continued research into the behavior and effect of HNS substances and called for government and industry to constantly track and share data concerning HNS movement in Canada. Using such data and research, and in collaboration with all stakeholders, Canada's preparedness and response regime should be continually refined to ensure maximum effectiveness.

Marine Casualties

The Report recommended that Canada create a centralized marine casualty decision making authority similar to those in place in the United Kingdom and Australia.

F. Area Response Planning ("ARP")

On July 7, 2015, the former Minister of Transport announced the launch of the ARP pilot project. The ARP is one of the Government of Canada's measures under the World-Class Tanker Safety System and was developed in response to the Panel's Phase I report.

The ARP is intended to establish planning partnerships that will tailor ship-source spill preparedness and response to the level and types of risk in a particular geographic area. These plans will consider the geography, environmental sensitivities and oil tanker traffic volumes present in the designated areas and are intended to help ensure that procedures are in place and equipment is readily available to plan for any scenario. The ARP is intended to be a collaborative planning project, with participation and input from local communities, Aboriginal groups, industry and all levels of government.

The ARP pilot project will include the following geographic areas:

  • the southern portion of British Columbia, including Vancouver Harbour;
  • Saint John and the Bay of Fundy, New Brunswick;
  • Port Hawkesbury and the Strait of Canso, Nova Scotia; and
  • St. Lawrence River (Montréal to Anticosti Island), Québec.

G. International Code for Ships Operating In Polar Waters (The "Polar Code")

The IMO's Marine Environment Protection Committee (the "MEPC") adopted the environmental requirements of the Polar Code in May 2015. The MEPC also adopted amendments to the International Convention for the Prevention of Pollution from Ships ("MARPOL"), to which Canada is a party, which make the environment-related provisions of the Polar Code mandatory.

The IMO Maritime Safety Committee had previously adopted the safety provisions of the Polar Code in November 2014.

The Polar Code is intended to supplement existing IMO instruments by increasing the safety of ships' operation and mitigating the impact on people and the environment in polar waters. It acknowledges that coastal communities could be, and that polar ecosystems are, vulnerable to ship operation and that increased safety measures will benefit the environment by reducing the probability of an accident.

The Polar Code will restrict waste disposal by ships in the waters around the North Pole and offshore Antarctica by banning discharges of oil or oily mixtures, "noxious liquid substances" or mixtures containing such substances, and animal carcasses. Discharge of food waste will only be permitted when the ship is as far as practicable from areas of ice concentration exceeding 1/10 and not less than 12 nautical miles from the nearest land, ice-shelf or fast ice (i.e. sea ice which forms and remains "fastened" along the coast, where it is attached to the shore, an ice wall, an ice front, or between shoals or grounded icebergs). Food waste will have to be ground before it is discharged and cannot be contaminated with other types of waste. Limitations will also be placed on the discharge of cargo residues, cleaning agents or additives.

Further, the Polar Code requires ships to consider the presence of marine mammals and their seasonal migration areas in planning their route and to minimize unnecessary disturbances to marine mammals and areas of cultural heritage and significance if these are encountered.

The Polar Code is expected to come into force on January 1, 2017. Canada is a signatory to MARPOL and most aspects of MARPOL have been adopted under the CSA, 2001, while the sewage discharge provisions of the Arctic Waters Pollution Prevention Act apply to Canadian Arctic Waters because these were stricter than the MARPOL requirements. Canada was actively involved in the development of the Polar Code, though how and when it may be implemented in Canada is unclear at the present time.

H. Nairobi International Convention on the Removal of Wrecks

In June 2015, Transport Canada released a discussion paper (the "2015 Discussion Paper") regarding the possible development of a regulatory regime to comprehensively address the hazards associated with shipwrecks, including the potential Canadian adoption of the Nairobi International Convention on the Removal of Wrecks, 2007 (the "Nairobi Convention") and the development of further rules to augment the Nairobi Convention in the Canadian context.

The Nairobi Convention, to which Canada is not a party, was adopted by the IMO in May 2007 and came into force for State Parties on April 14, 2015. Transport Canada had previously released a discussion paper in April 2010 requesting input on whether Canada should ratify the Nairobi Convention and apply its provisions to Canada's internal waters and territorial sea. The responses to that discussion paper were generally favourable, so the 2015 Discussion Paper posits that any proposed regime would be based on the Nairobi Convention.

In Canada, the "hazards" that can arise from a shipwreck are governed by at least eight federal laws. For instance, the Navigation Protection Act, RSC 1985, c N-22 requires that the owner of an obstruction, including a wreck take certain reporting and removal actions and they can be ordered to secure, remove or destroy the obstruction by the Minister of Transport. Under the CSA, 2001, if the Minister of Fisheries and Oceans has reasonable grounds to believe that a vessel, including a wreck, is discharging or is likely to discharge a pollutant, he or she may take mitigation measures to repair, remedy, minimize or prevent pollution damage, as well as order any person or vessel to take such measures. Further, the MLA provides strict liability and compensation regimes for all pollution damages from any oil spills and for costs and expenses incurred by the Minister of Fisheries and Oceans or of any person in Canada. The MLA does not create a specific liability regime for shipwrecks and there is no requirement for shipowners to have marine insurance related to shipwrecks.

The 2015 Discussion Paper notes that in order to comprehensively address the hazards associated with shipwrecks, the proposed regime would have to extend the application of the Nairobi Convention to more vessels (e.g. non-seagoing vessels such as the Great Lakes fleet), extend certain provisions beyond what exists in the Nairobi Convention (e.g., compulsory insurance), and consider unique provisions for other circumstances not covered by the Nairobi Convention (e.g. liability for removal of towed objects).

The proposed regime outlined in the 2015 Discussion Paper would impose strict liability on shipowners by requiring that they remove or remediate, at their own expense, any commercial vessels and pleasure craft that become hazardous wrecks. To ensure that shipowners have the necessary financial resources to meet this obligation, the proposed regime would require all Canadian ships and all foreign ships that call at Canadian ports that are 300 gross tons and above to maintain insurance or financial security for wreck removal or remediation in accordance with Article 12 of the Nairobi Convention. The Discussion Paper also proposes that the insurance policies would need to allow for a direct action against the insurer for claims related to wreck removal and remediation, though insurers' liability would be limited to the amount of liability under the LLMC. This would prohibit or render ineffective standard "pay to be paid" clauses that usually require the shipowner to pay any claim before being indemnified by the insurer.

In the event that the owners fail to take appropriate action or where the situation requires immediate action, the proposed regime would allow Canadian authorities to facilitate the removal or remediation of a hazardous wreck. The Nairobi Convention provides a broad definition of "hazard," which includes conditions or threats to navigation, the marine environment, or "damage to the coastline or related interests" of one or more State Parties. Among other things, these "related interests" extend to the health of coastal populations and the "wellbeing of the area concerned, including conservation of marine living resources and of wildlife."

The 2015 Discussion Paper also proposes that a number of violations and offenses be created and be subject to either administrative monetary penalties or fines upon summary conviction depending on their severity. Under the proposed regime, a vessel and its owners, operator and/or master could be charged and liable for the penalty and vessels could be detained at a Canadian port or subject to other restrictions.

The proposed regime would apply to vessels whether or not they are registered, listed, or licensed under the CSA, 2001, but would not apply retroactively to wrecks in existence prior to its coming into force.

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