Coasting Trade in Canada

The marine transportation of goods and people between two points in Canada, as well as any other marine activity of a commercial nature in Canadian waters is restricted in Canada to Canadian vessels. “Coasting trade” refers to activity within Canada, as opposed to between Canada and another country. Canada has a vested interest in ensuring marine commercial activity in Canada is as often as possible facilitated by Canadian ships, in order to stimulate Canadian business generally. While Canadian ships are preferred, circumstances may require non-Canadian ships to operate in the Canadian coasting trade. The Coasting Trade Act, S.C. 1992, c. 31  (the “Act”) sets out the method to ascertain when that might be permitted. Generally, it is when there is no suitable Canadian ship available to carry out the activity.

The Act defines “coasting trade” under s. 2(1) as either

a) the carriage of goods by ship alone, or by ship and another mode of transport;

b) the carriage of passengers by ship; or

c) engaging in any other commercial marine activity by ship; from one place in Canada or above the continental shelf of Canada, to any other place in Canada or above the continental shelf, either directly or via a place outside Canada.

With respect to references to a place above the continental shelf of Canada, coasting trade only applies to the exploration, exploitation, or transportation of the mineral or non-living natural resources of the continental shelf.

In order to be permitted to use a foreign vessel in the coasting trade, one must apply simultaneously to the Canada Revenue Agency (“CRA”) and the Canadian Transportation Agency (“CTA”). The CTA is responsible for determining whether a suitable Canadian ship is available to perform the activity identified in the application and, in the case of the carriage of passengers, the CTA must also determine whether Canadian vessels offer adequate, similar passenger services.

During the application process which includes a notice to Canadian ship owners, potential Canadian suppliers can make submissions to the CTA opposing the granting of the license by representing that they have a Canadian ship or ships that can offer the service and by offering its ship(s) or services. The CTA decision can be contested. An appeal lies to the Federal Court of Appeal.

What happens, however, if the foreign ship does not make an application to the CTA? If a foreign ship does participate in the coasting trade in Canada without a license, the ship may be found guilty of an offence and is liable on summary conviction to a fine of up to $50,000 per day the activity occurs. An enforcement officer (from Transport Canada) may go so far as to require the owner, master or any other person to produce the official log book or other ship document that may evidence the offence. The officer may also order the ship detained.

What are the steps a Canadian ship owner can take if the foreign ship does not make an application to the CTA and neither Transport Canada nor the CTA enforce what is perceived as a coasting trade service? This scenario was recently before the Federal Court of Canada in McKeil Marine Limited v. A.G. Canada and Foss Maritime Company 2016 FC 1063. At issue in the case was whether a decision of the Chief, Marine Policy and Regulatory Affairs Seaway and Domestic Shipping Policy of Transport Canada made on February 5^th 2016 that the towage of two decommissioned vessels from British Columbia via the Panama Canal to Nova Scotia, to be dismantled would not constitute engaging in the coasting trade. Part of the journey, from British Columbia to Panama, was being done by American vessels owned by Foss Maritime Company [“Foss”]. Canadian vessels owned by Atlantic Towing (“Atlantic”) were performing the segment from Panama to Nova Scotia.

McKeil Marine Limited (“McKeil”) is a Canadian tug and barge owning company based in Ontario with operations through the Great Lakes, St. Lawrence Seaway and the east coast of Canada. It brought an application to the Federal Court for relief including a declaration that the towage of vessels between British Columbia and Nova Scotia constituted coasting trade.

The activity in question had come to the attention of Transport Canada in two ways. In January 2016, McKeil brought to the attention of Transport Canada that U.S. flagged ships being used to tow the decommissioned vessels did not have a license and questioned whether there was a violation of the Act. Initially Atlantic was advised by Transport Canada that a license may be required. In late January, Transport Canada informed Atlantic that the operation did not seem to meet the definition of coasting trade. Transport Canada advised McKeil on February 5^th 2016 of their “decision.” Following the receipt of this information, Atlantic entered into a contract with Foss to tow the vessels and no application was made to the CTA for a license.  Shortly thereafter, on February 24^th 2016 Foss commenced the tow of the first vessel from British Columbia arriving in Panama on or about March 23, 2016. An Atlantic tug towed the vessel from Panama to Nova Scotia arriving on April 22, 2016. The second vessel left British Columbia on May 9^th, 2016 and arrived in Nova Scotia on June 27^th, 2016. The application by McKeil in the Federal Court was heard on July 13^th, 2016. By that date, the towage of the decommissioned vessels had been completed.

In the Federal Court McKeil raised two issues:

1.   The towage was a “carriage of goods” by a ship and triggered subsection 2(1)(a) of the Act; and

2.   The towage was a commercial marine activity in Canadian waters contrary to section 2(1)(f) of the Act.

Foss countered that:

1.    The towing of a ship cannot be properly characterized as the “carriage of goods” by ship;

2.   Each towing operation was two tows neither of which was entirely within Canadian waters and thus not a “marine activity of a commercial nature in Canadian waters”;

3.    McKeil lacked standing to bring the application because it was not directly affected by the decision of Transport Canada as required by s. 18.1 of the Federal Courts Act, RSC 1985, c. F-7;

4.     McKeil should not be granted public interest standing to challenge the decision; and

5.     Even if McKeil had standing to challenge the decision of Transport Canada, the issue before the Court was moot because the towage of the two ships had been completed and the Court ought not to exercise its discretion to hear the matter.

Justice Zinn found on the evidence (cross examination transcripts) that McKeil acknowledged that it was principally concerned with the impact of the decision in this case to its operations in the Great Lakes. Justice Zinn found that McKeil provided no evidence demonstrating any direct advantage to it if its application succeeded or any direct disadvantage if it failed. “Its interest in the matter at issue, is at best, an indirect one.” Justice Zinn found that McKeil had no direct standing to bring the application.

Justice Zinn then dealt with the issue of whether to grant public interest standing to McKeil. The Supreme Court of Canada in Downtown Eastside Sex Workers United Against Violence Society v. Canada [2012] 2 SCR 524 sets out the factors to be considered when determining whether to grant public interest standing, at para. 2:

…whether the case raises a serious justiciable issue, whether the party bringing the action has a real stake or a genuine interest in its outcome and whether, having regard to a number of factors, the proposed suit is a reasonable and effective means to bring the case to court.

Interestingly the Court found that the “issue of the interpretation of the meaning of the Act as it applies to the facts in this case is far from frivolous, and was not brought by a ‘busybody’ litigant. In my view, there is a serious justiciable issue in this case.” Justice Zinn also found that he was prepared to find that the subject of the application was clearly within the business of McKeil and that it had a “real or a genuine interest in its outcome.” Justice Zinn, however, was not prepared to find for McKeil on the basis of the third prong in the Downtown test, that is that the proposed suit was a reasonable and effective means to bring the case to the court. One factor considered was whether there was a realistic alternative means, which would favour a more efficient and effective use of judicial resources and would present a context more suitable for adversarial determination. Justice Zinn found, at paras. 34 and 35:

Given the considerations in granting public interest standing and primarily relying on the consideration that the present case is not one closely reflecting McKeil’s real concern, I do not think this is the appropriate case to grant it public interest standing. In this respect, I agree with Foss that it is better use of judicial resources to address McKeil’s real concern which rests in Great Lakes towing if there is a future situation where that issue can be more effectively raised between the parties that are more directly opposed.

This finding will not, however, bar McKeil from being granted public interest standing in the future (when a more appropriate case arises)…

Justice Zinn then dealt with the issue of mootness. His Honour held that, even if he had granted McKeil standing on the application, the matter was moot and he would not exercise his discretion to hear the matter. The evidence showed that there was no longer a live controversy as the Foss vessels had completed the towing operations and the decommissioned ships had arrived in Nova Scotia. Justice Zinn added, at para. 44:

In the future, if McKeil were to hear of rumours of a US flagged vessel operating in the Great Lakes without a license and raised similar concerns to Transport Canada, a judicial review of Transport Canada decision could be brought on an urgent basis or an application could be made to the court for an interim injunction.

Justice Zinn declined to hear the application on its merits.

In summary, the decision did not deal with the main issue of whether a voyage from British Columbia to Nova Scotia through Panama, performed by a foreign vessel and Canadian vessel constitutes coasting trade. The decision does, however, provide a road map for Canadian operators who get wind of a foreign vessel performing coasting trade activities in Canada. They can bring an urgent application and injunction proceeding in the Federal Court of Canada.