Contractual Interpretation Update

Introduction

On December 3, 2015, in MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842 the Ontario Court of Appeal addressed the issue of the standard of review to be applied on an appeal from a lower court decision involving interpretation of a contract.

This issue had recently been canvassed by the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, 2 S.C.R. 633. In that decision, the Supreme Court of Canada abandoned the traditional view that the standard of review in contractual interpretation was "correctness" and substituted a standard of review of  "palpable and overriding error". See the Fernandes Hearn LLP article on Sattva in the August 2014 newsletter. In Sattva, the Supreme Court of Canada also affirmed the contextual approach to contractual interpretation and explained the role of surrounding circumstances in contractual interpretation. The contract must be read as a whole and the words in the contract must be given their plain and ordinary meaning, consistent with the surrounding circumstances at the time of contracting.

The surrounding circumstances – such as the genesis of the transaction, the background, the context and the market in which the parties operate – combine to aid a decision maker (the arbitrator, the judge or jury) in ascertaining intention, since words do not have an immutable or absolute meaning. The Court in Sattva cautioned, however, that “while the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement,” and “the goal of examining such evidence is to deepen a decision maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract.”  The Court noted “while the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement.” (at para. 57). The Court added that the nature of the evidence, that can be relied upon under the rubric of “surrounding circumstances”, will necessarily vary from case to case.  It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract; that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting.  (at para. 58).

Earlier this Year

In a subsequent decision earlier this year (see Fernandes Hearn Article on UPS in the May 2014 newsletter), in UPS Supply Chain Solutions, Inc. v. Airon HVAC Service Ltd., 2015 ONSC 1734, the defendant relied upon Sattva Capital Corp. v. Creston Moly Corp. to submit that it is appropriate for a court, when interpreting a contract, to have regard for the surrounding circumstances. However, Justice Matheson limited the “surrounding circumstances”. Justice Matheson commented on this issue at paragraphs 67 to 69:

[67] To the extent that the service contract, as amended by the change order, is incorporated by reference into the insurance policy, it forms part of the insurance policy.  It is the insurance policy that must be interpreted to reach a conclusion about whether there is the mere possibility of coverage under that policy.  While I appreciate that there is an overlap between the two in the circumstances where the policy incorporates the scope of work in this way, I conclude that it does not change the essential task.  The task is to analyze the pleadings, assuming the alleged facts are true, and determine whether there is the mere possibility of coverage under the policy. 

[68] In considering the nature and scope of Honeywell’s “commitments” I have regard for relevant surrounding circumstances.  However, I note that the nature and extent of evidence of the surrounding circumstances that may be considered in interpreting a contract is not unlimited.  As set out in Sattva, at para. 50, 58:

The nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract…, That is, knowledge that was reasonably ought to have been within the knowledge of both parties at or before the date of contracting… [Emphasis added.]

[69] Some of the evidence in the Honeywell affidavit could properly be described as objective evidence of the background facts at the time of the execution of the service contract that was within the knowledge of both parties on or before that time.  One significant example is the evidence that the reference in the contract to cooler #2 is Cooler B and cooler #3 is Cooler C.

However, the Honeywell affidavit also describes how the work was actually done after the change order was made, and whether or not that work, in the view of the affiant, could have caused the problem with the Sanofi vaccines.  That evidence is not permitted under the rubric of “surrounding circumstances”.  And it is that evidence that leads to the conclusion that Honeywell and ACE argue for.

The judge only used objective evidence of the background facts at the time of the execution of the contract that was within the knowledge of both parties on or before that time.

Current Decision of the Ontario Court of Appeal

In MacDonald v. Chicago Title Insurance Company of Canada, the Ontario Court of Appeal held that Sattva did not apply to standard form contracts, such as contracts of insurance. The standard of review was not a "palpable and overriding error" but rather “correctness”. The Court also explained why “surrounding circumstances” are not relevant in standard form contracts:

[30] First, Rothstein J. emphasized that determining the objective intentions of the parties to a contract, the goal of contractual interpretation, is a “fact-specific goal”, informed, in part, by a consideration of “the surrounding circumstances known to the parties at the time of formation of the contract”: Sattva, at paras. 47, 49.

[31] There is no question that Sattva reflects the increasing emphasis placed by appellate courts and commentators over the last several years on the factual matrix, or the surrounding circumstances of a contract, as part of the interpretive process: see e.g. Investor’s Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98 (H.L.), at p. 114; Eli Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129, at para. 54; Bell Canada v. The Plan Group, 2009 ONCA 548, 96 O.R. (3d) 81, at para. 37; Geoff R. Hall, Canadian Contractual Interpretation Law, 2d ed. (Markham, ON: LexisNexis, 2012), at p. 22.

[32] However, the relative importance of the surrounding circumstances is largely dependent on the nature of the contract. The circumstances surrounding the formation of a contract negotiated by arms-length parties may be very important in understanding the parties’ objective intent. Similarly, the determination whether the parties are in a special relationship, such as a fiduciary relationship, may also be an important factor in determining the parties’ objectively intended obligations under a contract.

[33] The importance of the factual matrix is far less significant, if at all, in the context of a standard form contract or contract of adhesion where the parties do not negotiate terms and the contract is put to the receiving party as a take-it-or-leave-it proposition. Any search for the intention of the parties in the surrounding circumstances of these contracts “is merely a legal fiction”: Ledcor, at para. 14.

[34] The Title Policy was a pre-printed contract produced by Chicago Title and provided to the appellants on a take-it-or-leave-it basis. Chicago Title did not sit across from the appellants and hammer out the details of their bargain. The terms of the Title Policy were simply not negotiated in any meaningful sense and it would be illusory to suggest that anything could be inferred about the meaning of the contract from the facts surrounding its formation.

The Court of Appeal went on to find that it is untenable for standard form insurance policy wording to be given one meaning by one trial judge and another by a different trial judge. The factual matrix does not meaningfully assist in interpreting standard form contracts and their construction has broad application.

In summary, the Court of Appeal has held that standard form contracts are not subject to the Sattva decision.

Subsequently, the Ontario Court of Appeal reiterated this position on Dec. 23, 2015 in Monk v. Farmer's Mutual Insurance Company (Lindsay), 2015 ONCA 911 and on Dec. 24, 2015 in Daverne v. John Switzer Fuels Ltd., 2015 ONCA 919. In Monk, the Court of Appeal stated, “…we are concerned with the interpretation of a standard form insurance contract. This is not a case in which the circumstances surrounding the contract are important to its interpretation, nor is it a case in which the interpretation of a contract has no impact beyond the parties to it”. In Daverne, the Court of Appeal followed the decision of the Court in MacDonald and did not apply Sattva, stating at paragraph 13,  “In the case of insurance policies, which involve the interpretation of similar if not common language and the application of general principles of insurance law, the high degree of generality and precedential value justifies a departure from the deferential standard of appellate review.”

The question left open is the standard of review of boilerplate clauses in manuscript contracts. For instance, if a typical boilerplate hold harmless clause is inserted into what is otherwise a custom contract, will the “surrounding circumstances” be relevant? What will be the standard of review for the interpretation of the hold harmless clause? We will have to wait for future decisions and lawyers’ innovative arguments.

Rui M. Fernandes

J.D. Irving, Limited Entitled to Limitation of Liability for Barge Overturn

On January 22^nd, 2016 Federal Court of Canada released its decision in J.D. Irving, Limited v. Siemens Canada Limited 2016 FC 69. This was an action commenced by J.D. Irving Limited (“JDI”) seeking a declaration that it was entitled to limit its liability to $500,000 in relation to cargo (valued at $40,000,000) that had fallen into the sea, while being loaded on the deck of a barge on October 15^th 2008 in Saint John, New Brunswick.

Siemens Canada Limited (“Siemens”) had entered into a contract to supply a number of low pressure rotors and a generator rotor to the New Brunswick Power Nuclear Power Corporation for the refurbishment and upgrade of its Point Lepreau nuclear generating station.

Siemens contracted with JDI to transport the modules and generator rotor from the Port of Saint John to Point Lepreau. JDI chartered a barge, the “SPM 125”, and a tug to assist with the move. JDI retained Maritime Marine Consultants (2003) Inc. (“MMC) to provide naval architectural and consulting services. Mr. Don Bremner was the principal and owner of MMC. BMT Marine and Offshore Surveys Limited (“BMT”) was retained by Siemens and its insurer, AXA Corporate Solutions, to provide marine surveying services for the move of the cargo. The attending surveyor was Mr. Douglas Hamilton (“Hamilton”).

On October 15^th, 2008 two of the rotors were placed on self-propelled multi-wheeled transporters owned by JDI. This allowed the rotors to be driven or rolled on and off the SPM 124. While in the process of loading the second transporter onto the barge, it tipped to starboard, fell over and off the barge into Saint John Harbour. The other rotor, which had been placed on the first transporter loaded onto the barge, immediately followed.

A flurry of litigation ensured. Siemens commenced an action in the Ontario Superior Court of Justice against JDI, BMT and MMC claiming breach of contract, negligence etc. The claim was for $45,000,000.00. JDI filed a limitation action in the Federal Court of Canada seeking to limit its liability to $500,000.00. In June 2011 Justice Heneghan heard a motion on the limitation action and granted the motion of JDI to enjoin any other proceedings proceeding before any court or tribunal with respect to the incident. In other words, all actions had to take place in the Federal Court of Canada. She also ordered the limitation fund to be constituted pursuant to s. 32 of the Marine Liability Act. Siemens appealed to the Federal Court of Appeal. The Federal Court of Appeal upheld Justice Heneghan’s decision [ See Siemens Canada Limited v. JD Irving Limited, 2012 FCA 225, and the Fernandes Hearn LLP newsletter of August 2012]. On July 5^th 2013, Justice Heneghan ordered that the limitation action proceed before the liability action. The limitation action took place over a three week period in October 2015 before Justice Strickland.

In the decision released on January 22^nd 2016, Justice Strickland provided an extensive review of the evidence at trial. The issue before Her Honour was whether JDI was barred by its conduct from limiting its liability to $500,000 under the Marine Liability Act (incorporating Article 4 of the Convention on Limitation of Liability for Maritime Claims 1976). Article 4 provides:

A person liable shall not be entitled to limit his liability if it is proved that the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result.

Siemens did not assert that any party intended to cause the loss. It did, however, assert that the evidence established, or that the Court should infer, that JDI and MMC acted recklessly and with knowledge that the loss of the cargo would probably result. Siemens acknowledged that the loss must have resulted from the personal acts or omissions of the shipowner (JDI). In the case of JDI, it as argued, the impugned acts or omissions of particular individuals must be attributed to the corporation. In this regard, Siemens argued that two of JDI’s employees, Mr. Roderick Malcolm (“Malcolm”), the project manager of the cargo move, and Mr. David McLaughlin (“McLaughlin”), senior rigging engineer, had the authority to and did act on behalf of JDI in fulfilling the contract with Siemens. Siemens also submitted that JDI was responsible for the conduct of MMC and Bremner. JDI argued that Siemens failed to prove the actual cause of the incident or that a proven cause was recklessness. JDI argued that neither Malcolm’s nor McLaughlin’s actions were attributable to JDI for this purpose.

Justice Strickland reviewed the history and purpose of the Limitation Convention. The focus was to create a convention with a virtually unbreakable right to limit liability.

This is the first Canadian decision to look at recklessness in relation to the Limitation Convention. The prior decision of the Supreme Court of Canada released on April 23rd 2014 in Peracomo Inc. v. Telus Communications Inc., 2014 SCC 29 essentially dealt with wilful misconduct of the vessel owner. [See Fernandes Hearn LLP Newsletter April 2014]. At issue was whether the act of cutting a Telus underwater cable amounted to willful misconduct. Recklessness and knowledge, to that point, had only been considered in Canada in relation to the Warsaw Convention dealing with an air carrier’s conduct and limitation.

Justice Strickland examined the Supreme Court of Canada decision in Peracomo and noted that recklessness in the context of Article 4 required subjective knowledge that the loss that had actually occurred would probably occur, while recklessness in the context of wilful misconduct (for the purposes of marine insurance) has a lower fault element requiring only reckless indifference to the known risk despite a duty to know. 

As Justice Strickland noted, by the conclusion of the trial, Siemens’ main argument, regarding the recklessness, was that JDI had knowingly selected a barge that was too small for the job. It submitted that JDI employees knew that the margin of error of bringing the transporters on centre line onto the barge was small, were aware of a deviation during loading and then failed to pause and address the deviation.

Justice Strickland found that on the evidence (of JDI employees, Bremner, Hamilton, and expert testimony) that the barge was suitable, despite the fact that it was smaller than prior barges used. Her Honour also found that there was no evidence that JDI was made aware prior to the loss that there were any concerns about the barge and the operation.  Five experts testified on the following issues:

a) barge stability;

b) the change in the ballast plan and the free surface effect;

c) the lack of a swept path drawing to delineate the route of the cargo to the barge; and

d) the barge list and transporter stability.

The various experts opined on the cause of the loss. These included that the off centre loading of the transporters on the barge caused a list, the free surface effect of water in the ballast tanks of the barge, the manual mal-manipulation of the hydraulic system on the transporter allowing it to tilt, or the malfunction of the hydraulic system on the transporter allowing it to tilt.

Justice Strickland found that the sequence of the events leading to the loss was that the barge was and remained stable, but a number of factors contributed to the transverse stability of the second transporter being overcome. When that happened, it caused the transporter to tilt to port. The starboard side wheels of this transporter then lifted off the barge, causing the centre of gravity of this transporter and its load to instantly shift from a few inches off centre to three feet off centre. At this point, the situation was irretrievable. The transporter then toppled causing the barge to list, which, in turn, caused the first transporter loaded to follow. Justice Strickland found that there was limited time between the barge assuming a port list and the loss and, during that limited time efforts had been made to deal with the second transporter’s tilt and any resultant barge list.

Justice Strickland found that there were a number of contributing factors to the loss, which in and of themselves, were minimal. She determined that factors such as the small deviation from centre line, the free surface effect, the manipulation of the hydraulics of the transporter or “some combination of these, and possibly other factors, caused the loss of the cargo.”[at paragraph 248].

In dealing with whether the acts of the individuals involved were reckless, Justice Strickland referred to the trial decision in Peracomo quoting Justice Harrington (*1):

            Recklessness connotes a mental attitude or indifference to the existence of the risk.

Recklessness is more than mere negligence or inadvertence and, while it is not necessarily a criminal or even a morally culpable matter, it does mean the deliberate running of an unjustified risk.(*2) Recklessness is assessed on a subjective standard.(*3) Absent any allegation of intent, the person challenging the right to limit must establish both reckless conduct and knowledge that the relevant loss would probably result. While the two are closely related they are separate and cumulative; a challenge to the right to limit will fail if (for instance) only recklessness but not knowledge is established.(*4) Justice Strickland accepted the statement in the Rosa M (*5) that knowledge means actual and not constructive knowledge. It does not include something that the relevant person ought to have known.

Justice Strickland found that, based on the evidence, JDI and MMC personnel did not act recklessly and with the knowledge that, by either conducting the cargo move using the SPM 125 or continuing with the loadout after determining that the aft peak tank was not longitudinally divided (resulting in some free surface effect) and in the absence of a swept path plan, the loss of the rotors would probably result. (*6)

Lastly, the Court dealt with Siemens’ argument that both recklessness and knowledge can and should be inferred based on the circumstantial evidence. Siemens took the position that JDI had the evidentiary burden to explain what caused the loss of the cargo since the evidence was exclusively in the possession and control of JDI. It argued that JDI’s Corporate policy required an investigation into the loss and that JDI did not do one in accordance with its own policy. Siemens argued that the Court should infer that JDI called a halt to its investigation because it did not like the early findings. It asked the Court to apply the reasoning in Connaught (*7) to apply an adverse inference against JDI.

Justice Strickland reiterated that the evidence demonstrated that there were no concerns about the move. She noted that “inferences must arise from proven facts and go beyond speculation or conjecture” (*8). She declined to infer that Malcolm, McLaughlin and Bremnar had concerns that the barge was too small for the intended purpose. As to the investigation JDI testified that because Transport Canada was conducting an investigation they immediately referred the matter to JDI’s legal department, which took over the investigation (as opposed to a formal investigation pursuant to its existing policy). JDI also engaged an expert, Martin Ottaway (whose representative testified in court).

As to Siemens’ assertion that an adverse inference should be drawn, Justice Strickland distinguished the Connaught decision. In Connaught, the defendant carrier failed to explain why the cargo was not placed in a freezer at Heathrow airport as required. It did not call any evidence on this issue. In this case, JDI did not fail to call evidence. JDI called as witnesses most of the persons directly involved in the loadout. It tendered two of its own expert reports as well as calling a BMT witness and BMT’s expert. “The wealth of direct evidence put forward by JDI in this case distinguishes it from the evidentiary vacuum faced by the Court in Connaught.” (*9)

As to the argument by Siemens that an inference should be drawn of recklessness and knowledge,  Justice Strickland concluded that it was not obvious that a number of factors would act in combination to cause the loss. At the time of the incident a number of JDI and MMC personnel were on the barge working. If they had known that the loss was probable, it is unlikely that they would have put themselves in harm’s way.

Accordingly, limitation of liability was granted.

Endnotes

(*1) at paragraph 264

(*2) at paragraph 265

(*3) at paragraph 267

(*4) at paragraph 267

(*5) MSC Mediterranean Shipping Co SA v Delumar BVBA and Others (The “MSC Rosa M”), [2000] 2 Lloyd’s Rep 399

(*6) at paragraph 270

(*7) Connaught Laboratories Ltd. v. British Airways 61 OR (3d) 204; 217 DLR (4th) 717; 13 CCLT (3d) 288; [2002] OJ No 3421; affirmed 77 OR (3d) 34; 253 DLR (4th) 601; [2005] OJ No 2019. Rui Fernandes was the successful counsel in the Connaught Laboratories Ltd. case.

 (*8) at paragraph 290

(*9) at paragraph 298

Aquaculture – An Introduction

According to the Food and Agriculture Organization of the United Nations, aquaculture is understood to mean “the farming of aquatic organisms including fish, molluscs, crustaceans and aquatic plants. Farming implies some form of intervention in the rearing process to enhance production, such as regular stocking, feeding, protection from predators, etc. Farming also implies individual or corporate ownership of the stock being cultivated.” (*1)

In Canada, aquaculture is a billion dollar a year industry. Canada is the fourth-largest producer of farmed salmon in the world and mussels are Canada’s top shellfish aquaculture export. The industry provides more than 14,000 full-time jobs (5,800 direct, 5,600 indirect and 2,600 induced), many of which are in remote and coastal locations. (*2)

Types of Aquaculture Activities

There are a number of types of aquaculture activities. These include the following (*3):

a) Freshwater (Lake) Cage Culture: in cage culture operations, hatchery-produced stocks are grown in floating cages under provisions of a lease.

b) Land-based Systems: in land-based aquaculture operations, hatchery-produced stocks are grown in tanks or ponds located on private property.

c) Bottom Culture/Enhancement- Intertidal Zone: bottom culture/enhancement in the intertidal zone consists of two distinct activities. Marine plants or sessile shellfish are managed under provisions of a lease. Alternatively, marine plants or shellfish are managed without a lease, and a fishing licence is required for harvesting.

d) Long-line/Cage Culture: long-line and/or cage culture operations operate in subtidal waters. Typically, they consist of floating-rope or net-cage systems that are anchored to the seabed. Such systems operate within the provisions of a provincial or federal lease.

e) Bottom Culture/Enhancement- Subtidal Zone: subtidal bottom culture and enhancement is virtually identical to bottom culture and enhancement activities in the intertidal zone. The principal difference is the location of the activities in the coastal zone and the governing jurisdictions related to the activities.

f) Enhancement/Sea Ranching: in sea ranching operations, the sea may be regarded as an aquatic pasture where the hatchery- reared fish are released, forage for food and seek shelter. To facilitate recapture, sea ranching is commonly conducted with migratory stocks, such as salmon, that return to their natal streams to spawn.

Aquaculture facilities and activities in Canada are regulated under a number of acts, legislation, regulations, and programs related to environmental management and shared use of aquatic resources. These instruments are administered by various federal, provincial and territorial bodies.

Federal Legislation in Place

Through the Fisheries Act, Fisheries and Oceans Canada regulates the aquaculture industry in order to protect fish and fish habitat. The Act sets out authorities on fisheries licensing, management, protection and pollution prevention. The following regulations are relevant for aquaculture or will be amended to address barriers to industry growth while safeguarding the environment:

Aquaculture Activities Regulations: the Regulations clarify conditions under which aquaculture operators may treat their fish for disease and parasites, as well as deposit organic matter. They also impose public reporting on the environmental performance of the sector as well as specific environmental monitoring and sampling requirements.

Atlantic Fishery Regulations: The aquaculture industry is subject to these wild capture fisheries Regulations.

Fishery (General) Regulations: These Regulations set out Fisheries and Oceans Canada's authorities for approving the release of fish into fish habitat and the transfer of live fish to fish rearing facilities. They also support the Department's management of aquaculture in British Columbia in conjunction with the Pacific Aquaculture Regulations.

Management of Contaminated Fisheries Regulations: These Regulations authorize the Minister to close areas to recreational and commercial fishery harvests and to take other management measures when biotoxins, bacteria, chemical compounds or other substances are present in fish habitat to a degree that may constitute a danger to public health.

Marine Mammal Regulations: They set out authorizations for the management and control of aquatic mammals that cause a nuisance to fisheries activities.

Maritime Provinces Fishery Regulations: At present, aquaculture operators are constrained by these wild capture Regulations and unable to use current farming practices.

Pacific Aquaculture Regulations (Amendments): These Regulations set out Fisheries and Oceans Canada's licensing and management authorities for aquaculture in British Columbia. The amendments establish fees for aquaculture licences in British Columbia and also enable payment by annual installments on a multi-year licence.

Pacific Fishery Regulations: These regulations set out Fisheries and Oceans Canada’s authorities respecting fishing in the Pacific Ocean and the Province of British Columbia.

Other federal departments are involved in the aquaculture business and its regulation.

Environment Canada uses the Species At Risk Act to support the protection of wildlife species at risk in Canada including fish, reptiles, marine mammals and molluscs. The Minister of Fisheries and Oceans, as competent Minister under the Species at Risk Act, is responsible for aquatic species at risk.

The Canadian Environment Protection Agency under the Canadian Environmental Protection Act provides governance respecting pollution prevention and the protection of the environment and human health in order to contribute to sustainable development.

Some of the most commonly cited environmental concerns include:

a) local nutrient pollution into water systems, by waste feed/feces;

b) local chemical pollution from use of chemical treatments; and

c) effect on wild fish, by escapees interacting with wild fish populations and through disease spread

The Canadian Food Inspection Agency uses the Health of Animals Act to support the management of animal diseases, including aquatic animals (e.g. finfish and shellfish). The program is delivered through the National Aquatic Animal Health Program (NAAHP) and the Health of Animals Regulations. The Agency uses the Feeds Act to govern the manufacture and sale of livestock feeds in Canada to ensure they are safe, effective and labeled appropriately. Similarly it uses the Fish Inspection Act  to regulate food quality, food safety and identity of fish and seafood products that are processed in federally registered establishments or imported into Canada.

Future Federal Legislation

Regulatory proposals that the Department of Fisheries intends to bring forward include:

Aquaculture Activities Regulations (proposed): The proposed Regulations would clarify conditions under which aquaculture-related husbandry activities are undertaken under the Fisheries Act and impose greater public reporting on the environmental performance of the sector.

Atlantic Fishery Regulations: The proposed amendments would enable shellfish farmers to better manage their growing areas by permitting harvesting and maintenance activities unique to them.

Fishery (General) Regulations: Fisheries and Oceans Canada, with the support of the Canadian Food Inspection Agency, is proposing to amend these regulations to better align both organizations’ mandates and programs when it comes to fish health management. The proposed amendments would eliminate overlap and duplication and clarify roles and responsibilities.

Management of Contaminated Fisheries Regulations: The proposed amendments would enable shellfish aquaculture operations to manage their growing areas so as to further minimize health risks from consumption of bivalve shellfish.

Maritime Provinces Fishery Regulations: The proposed amendments would enable shellfish aquaculture operations to harvest undersized (“cocktail”) oysters from their own lease areas, an activity currently prohibited under the existing Regulations. A licence provision to allow the on- and off-tenure maintenance activities of normal business operations would also be proposed.

Pacific Aquaculture Regulations (Amended): Published on May 20, 2015, the amendments to the Regulations establish fees for aquaculture licences in British Columbia and also enable payment by annual installments on a multi-year licence. Licences in the Discovery Islands remain limited to one year pending further scientific assessments and regulatory work in the area.

Provincial and Territorial Legislation

Many provinces and territories regulate aquaculture in their areas. For example, in Ontario the Fish & Wildlife Conservation Act 1997, SO 1997, c 41 provides (*4) that no person shall engage in in aquaculture (defined as the breeding or husbandry of fish) unless the fish that are cultured:

(a) belong to a species prescribed by the regulations; and

(b) are cultured under the authority of a licence and in accordance with the regulations.

The Ontario Ministry of Natural Resources has issued an aquaculture issuing policy in accordance with the  Fish & Wildlife Conservation Act 1997. The policy governs how aquaculture licences, renewals, transfers, amendments, refusals and cancellations are issued. The policy's goal (and the regulations) is to minimize the risk of ecological damage from aquaculture activities.

The province regulates the culture of fish to minimize the risk of ecological damage resulting from aquaculture activities, such as fish escapes, which can alter aquatic ecosystems and native fish populations. These regulations protect Ontario fisheries by preventing:

a) the unauthorized introduction of fish into new waters

b) the spread of invasive fish species, fish parasites and fish diseases

Aquaculture Risks

Every agricultural sector has to deal with specific risks and issues. The risks resulting from the aquaculture industry are mainly environmental risks impacting the surrounding habitat and consumer health risks, as well as conflicts of interests between aquaculture facilities and neighboring fishery sectors.

While the main risks faced by onshore aquaculture facilities result from storms, tornados, diseases and predators, offshore aquaculture facilities are additionally subject to tsunamis, global warming, plankton blooming, and changes in sea level and water quality as well as other environmental impacts.

Risks caused by these impacts are mainly damage to the stock, but also damages to the facilities caused by storms, tsunamis etc.

Other risks that especially offshore aquaculture operators have to face are workers liability related risks, since operating aquaculture facilities offshore bares risks for workers and divers such as injuries and infections.

Diseases / Risks for the Stock

The most valuable asset of the aquaculture industry is the stock, thus threats to the stock pose the main risks faced by the facilities.

The most dangerous threats to the stock are diseases and parasites. Marine cage culture of Atlantic salmon in Chile, oyster farming in Europe (notably France), and marine shrimp farming in several countries in Asia, South America and Africa for example, have experienced high mortality caused by disease outbreaks in recent years, resulting in partial or sometimes total loss of production. Disease outbreaks also virtually wiped out marine shrimp farming production in Mozambique in 2011(*6)

However many of the threats to aquaculture livestock are a product of aquaculture itself, of growing candidate species in restricted areas and in numbers that, in their wild state, would not be found in such large numbers together. Indigenous species of the aquatic environment have developed various strategies to deal with the extremes of its constantly changing ecosystem, such as moving away from the threatening situation (for example plankton bloom). Such natural risk management strategies however operate against the meaning and purpose of aquaculture, which is to keep stock together and in controlled units of production.(*7)

Weather

A typical risk for all agricultural industries is the weather; however, aquaculture is possibly more exposed to the uncertain overall effects of global warming than any other farming sector. Fish farmers around the world are particularly vulnerable to weather related disasters, because of their location and their overall high levels of exposure to natural hazards, livelihood shocks and climate change impacts. Since there has been an increasing trend in the number of natural disasters in the past century around the world, exposure and vulnerability to natural hazards is increasing.

The types of disasters that affect the fisheries and aquaculture sector include natural disasters such as storms, cyclones/hurricanes with associated flooding and tidal surges, tsunamis, earthquakes, droughts, floods and landslides. Disasters of human origin affecting the sector have included oil and chemical spills and nuclear/radiological material.

The effects of disasters on the sector can include the tragic loss of life, the loss of livelihood assets such as boats, gear, cages, aquaculture ponds and broodstock, post- harvest and processing facilities, and landing sites.

Pollution, Chemical and Metallic Contamination

The aquaculture industry is prone to pollution from land and aquatic sources, and aquatic ecosystem degradation from farming, mining, industry and urbanization. Water pollution has increasingly threatened production in some newly industrialized and rapidly urbanizing areas. Agrochemicals, chemotherapeutants, metals, feed ingredients, feed additives and contaminants and organic pollutants, could pose chemical hazards. Metals of concern for public health include those usually grouped together as heavy metals, and some metalloids such as arsenic. Metals and metalloids are present in the aqueous environment mostly as a result of geochemical processes that cause them to enter into solution and so ultimately into watercourses and other bodies of water. They can also be introduced into aquaculture systems through certain cultural practices or as a result of pollution.

Insurance

With the above-mentioned threats to the aquaculture industry and caused by the aquaculture industry often resulting in high costs, the demand for insurance increased eventually.

The term “aquaculture insurance” describes all the various types of insurance that would normally be used to protect an aquaculture business operation. For a reasonably large aquaculture company, this would include insurance cover for buildings and equipment, employees, stock, livestock, liabilities, motor vehicles, vessels and divers, goods in transit, and other insurable interests.

Aquaculture has its very own industry-specific insurance challenges in the areas of the insurance of offshore operations, some aspects of employers liability, particularly for offshore workers, and employers' liability for divers, insurance of the end product, especially product recall and products liability and insurance of livestock. Generally the key perils that the owners of aquaculture facilities want covered by insurance are disease, infestations of parasites, predation, temperature fluctuations and plankton bloom, as well as the more typical hazards such as drought, storm, flood, earthquake, equipment and system failure, vandalism and manmade pollution. (*8)

Summary

World aquaculture production was 63.6 million tonnes in 2011, with almost 90% of this production in Asia. In the same year, Canadian production was 162,000 tonnes or 0.25% of the global total. In 2009, Canada ranked 20^th in the world in terms of the value of its aquaculture production. With the world's longest coastline, and a skilled workforce. Canada has the potential for future expansion. However, the aquaculture industry in Canada faces economic and environmental challenges. (*9) The aquaculture industry is overseen by a combination of federal and provincial authorities. The federal government has jurisdiction over the regulation of fish products marketed for export and interprovincial trade; the protection of commercial, recreational and Aboriginal fisheries; and research and development. DFO is responsible for the application of the Fisheries Act, and Transport Canada grants authorizations for aquaculture facility plans under the Navigation Protection Act. The safety and quality of aquaculture products, feeds and veterinary drugs used by the industry are governed by other departments, including Health Canada, Agriculture and Agri-Food Canada, and the Canadian Food Inspection Agency. The complex legislative and regulatory environment may hinder the growth of the aquaculture industry. There are many challenges ahead.

Endnotes

(*1) Food and Agriculture Organization of the United Nations, Coordinating Working Party on Fishery Statistics (CWP) Handbook of Fishery Statistical Standards, Section J: Aquaculture.

(*2) Legislative and Regulatory Review of Aquaculture in Canada: Commissioner for Aquaculture Development. http://www.dfo-mpo.gc.ca/aquaculture/ref/legal-lois-eng.htm#n30

(*3)Fisheries and Oceans Canada, Aquaculture Snapshot. http://www.dfo-mpo.gc.ca/aquaculture/sector-secteur/index-eng.htm

(*4) See section 47.

(*5) See FisPp.9.2.1

(*6) “The State of World Fisheries and Aquaculture 2012”, FAO Fisheries and Aquaculture Department, Rome 2012, page 26.  


(*7) “Aquaculture insurance industry risk analysis processes”, by P.A.D. Secretan, 2008, In M.G. Bondad-Reantaso, J.R. Arthur and R.P. Subasinghe (eds), Study on understanding and applying risk analysis in aquaculture, FAO Fisheries and Aquaculture Technical Paper, No. 519. Rome, FAO. pp. 229–245.

(*8) Ibid.

(*9) Thai Nguyen and Tim Williams, Industry, Infrastructure and Resources Division, 28 February 2013, “Aquaculture in Canada” Library of Parliament Research Publications.