Evidence of meeting #11 for Transport, Infrastructure and Communities in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was spill.
A recording is available from Parliament.
Conservative
The Chair Conservative Larry Miller
I'm going to call the meeting to order. We still have a few members to come, but we are on a time restriction.
We'll start our study on Bill C-3.
I'd like to thank and welcome Mr. Dawson, Ms. Nakatsu, Mr. Meisner, and Mr. Lachance. With no further ado, I'll turn it over to you. I presume one of you has some opening remarks.
Mr. Meisner, who wants to start?
Tim Meisner Director General, Marine Policy, Department of Transport
We'll start with Mr. Dawson.
Dave Dawson Director, Airports and Air Navigation Services Policy, Department of Transport
Good morning. I'm here to talk about the aviation industry indemnity act. I'm going to read the presentation to you, and if you have any questions after the fact, we'll deal with them.
Air industry participants, including carriers, airports, and air navigation service providers, as well as other suppliers to the air industry, require sufficient insurance coverage to operate. Insurance is required by regulation, commercial contracts, and for fiduciary reasons. Air industry participants need two types of insurance coverage: general and war risk. General insurance coverage is required in case of accidents, the same as for anyone else, but war risk insurance is different.
War risks is the term the insurance industry uses to describe potential damages caused by acts of violence. These include acts of war, but also other actions, like civil unrest, and of particular concern in recent times, acts of terrorism.
War risk insurance covers a range of categories of losses, liabilities, or damages. For example, an airline purchases insurance to cover the plane and the equipment, otherwise known as first party insurance, and the plane's contents, including the passengers and cargo, otherwise known as second party insurance. Finally, it must also account for the people and the property on the ground who have no particular relationship to the flight. These people are called third parties. The same broad categories exist for other parts of the air industry, other than just the airlines.
Before the attacks of September 11, 2001, the insurance industry offered war risk insurance at low rates. Following the attacks, insurance providers invoked short-term cancellation clauses for war risk coverage, leaving the air industry in a predicament, as this insurance is necessary for them to operate. The absence of a workable legislative framework necessitated the government's use of the royal prerogative to provide the coverage the aviation industry required. Since that time, the government has continued to use the interim authorities to provide an aviation war risk liability program, as the commercial markets for war risk insurance have been unstable and third party coverage has been most affected.
This situation was compounded by the recent global financial and economic crisis. In the Canadian context, the broader instability was particularly exacerbated by the approach of our closest competitors in the United States, which implemented a government based and supported approach to aviation war risk insurance that created a competitive advantage for their air industry participants.
This bill, the aviation industry indemnity act, would allow the government to provide aviation war risk liability coverage in a dependable and transparent manner when it's necessary to do so. It would also allow the tailoring of such assistance, if circumstances warrant, to the specific needs of individual industry participants and to rapidly adjust to changes in circumstances.
The markets for general insurance have not been affected in the same way. For that reason, general insurance risks are not addressed in this bill.
The events of 2001 illustrate the importance of providing the Minister of Transport with the ability to issue an indemnity if and when needed. The aviation industry indemnity act would provide the minister with the ability to offer an indemnity. It would not guarantee one. The Minister of Transport would undertake regular assessment of the state of the aviation war risk insurance markets and decide whether to offer an indemnity in light of the findings. This also would give the minister the ability to act or respond on very short notice, especially in that kind of emergency situation when rapid action is most necessary.
For example, at times it's necessary for the government to contract with an aircraft operator to send an aircraft into dangerous situations to evacuate Canadian citizens or undertake other humanitarian activities. In cases where the necessary flights would be impossible because insurance was not available, this bill would ensure that the Minister of Transport had the flexibility to issue an undertaking on short notice that would give the aircraft operator the coverage necessary to complete such urgent missions on Canada's behalf in a timely manner.
Although third party coverage for people and property with no connection to the aviation industry participant has been the primary concern to date, the bill would also give the minister the ability to provide an indemnity to address coverage for first and second parties if needed. Such coverage might be necessary in the earlier example of chartering an aircraft for emergency evacuations.
It could also be necessary, more generally, in a worst case scenario that included a broad-based withdrawal of private insurers for the aviation war risks.
If considered necessary, an indemnity could be provided to any member or group of members in the Canadian aviation industry. Because these entities might have differing insurance needs, the bill provides for tailoring an indemnity to meet the needs of the various players most effectively. It is even possible to indemnify an individual participant in case of special need. This flexibility ensures that coverage remains available to Canada’s aviation industry when and if it is necessary.
The bill includes provisions that allow the Minister of Transport to attach appropriate terms and conditions to an undertaking. These include the amount of indemnity to be provided and whether the aviation industry will have to purchase some insurance on its own. This is particularly important when there is instability but not outright failure in the markets.
This approach provides the additional benefit of encouraging commercial insurance markets to optimize coverage, and divides the risk between the government and the air and insurance industries in a way that is most appropriate to the circumstances prevailing at the time.
In addition, the terms and conditions attached to an indemnity can reference standard insurance industry practices or documents to ensure that not only is coverage provided, but it's provided in such a way as to ensure compatibility with practices familiar to Canadian aviation industry participants, and in a way that foreign regulators and business partners understand.
Although the proposed aviation industry indemnity act specifically identifies who may receive an indemnity, the types of risks covered, and some procedural matters, it does not include many other prescriptive elements. This is done because such things are impossible to anticipate and the government may have to react very rapidly. Rigid requirements would remove much of the usefulness of this bill.
This bill is designed to ensure clarity and transparency to Parliament and the Canadian public. It includes provisions for the regular assessment of the state of the aviation industry as well as regular reports to Parliament on activities undertaken under the authority of the bill.
A report must be made within 90 days after a new or amended indemnity is provided, or if there have been no changes, at least every two years. In addition, all new or amended indemnities will be published in the Canada Gazette. This approach ensures that all who need or want to know what is happening with regard to the bill can do so.
In conclusion, this bill will allow the government to provide aviation war risk insurance coverage in a dependable and transparent manner, as and when needed due to limitations in the commercial insurance markets.
Thank you.
April Nakatsu Director General, Crown Corporation Governance, Department of Transport
Good morning.
In recognition of the significance of marine transportation to Canada and its contribution to the Canadian economy, the Canada Marine Act was enacted in 1998.
One of the outcomes of this legislation was the establishment of Canada port authorities. There are currently 18 port authorities across Canada, and each is incorporated under their own letters patent. They are autonomous entities operating independent from the federal government. Their mandates are to manage their marine infrastructure and services in a commercial manner that encourages and takes into account input from users and the community in which the port is located.
They have boards of directors composed of between seven and eleven directors. The majority of the appointments to the boards are made by the Governor in Council. The individuals are nominated by the minister, and in some cases are in consultation with port authority users. Additionally, municipalities and provinces also appoint directors to the port authority boards.
Most appointments in the Transport portfolio become effective at a date set by the Governor in Council. However, effective dates of appointments to port authorities are not determined by the Governor in Council. Under subsection 14(2.2) of the Canada Marine Act, these appointments come into effect when port authorities are notified. This appears to be a unique constraint to the Governor in Council's power to appoint.
In addition, a distinct mechanism is required to track and monitor effective dates for appointments to port authorities. This results in additional administrative processes. A total of 95 Governor in Council appointments are affected, which represents one-third of all appointments in the Transport portfolio.
To assist in standardizing effective dates throughout the Transport portfolio, the government is proposing to amend the Canada Marine Act. As a result, the Governor in Council would set the effective date of appointments to port authorities. This change would also improve efficiency in administrative processes.
The amendment does not change any of the qualifications or other requirements for appointments to port authorities. It is a change to the effective date of the appointment only.
Thank you.
Director General, Marine Policy, Department of Transport
Good morning.
This morning I'm pleased to have the opportunity to speak about the amendments to the Marine Liability Act as contained in Bill C-3, the safeguarding Canada's seas and skies act.
The purpose of the Marine Liability Act amendments is to fill a gap in the current liability regime for ships and to ensure that Canadians and the environment are well protected from the risks of marine transport. This bill protects Canadians against the financial consequences of hazardous and noxious substance spills from ships by: one, ensuring that shipowners carry the appropriate amount of compulsory insurance for the risks associated with the cargoes they carry; and two, providing Canadians access to an international fund to provide compensation beyond the shipowner’s limit.
These amendments are important and necessary, because while Canada has an excellent marine safety record, it is important to have in place a robust liability and compensation regime to ensure that polluters pay for incidents and that Canadian interests are protected by modern legislation that includes proper compensation.
These amendments will facilitate the implementation of the 2010 hazardous and noxious substance, HNS, convention, an international liability and compensation convention adopted by the International Maritime Organization. Spills of dangerous substances can be costly to clean up, and these amendments will ensure that those affected by these spills are adequately compensated.
Shipping is truly and inherently a global industry. The international shipping industry is responsible for carrying about 90% of world trade, and is critical to the functioning of global commerce. Unlike other modes of transportation, which are more or less confined to our roads, railways, and airports, international ships have vast amounts of waterways to operate in and are constantly on the move from state to state to connect global supply chains and deliver goods and people to their markets and destinations.
Given this, it is important that Canada continue to contribute to the uniformity of international maritime law and continue its long-standing tradition of multilateralism with regard to international shipping. As I said, this is a global industry requiring global rules. Canada's intimate involvement in the advancement of the HNS convention is indicative of that long-standing tradition.
The 2010 hazardous and noxious substance convention establishes strict liability for the shipowner and also introduces compulsory insurance for their liability for the pollution damage caused by a spill of hazardous and noxious substances from a ship. This is a major improvement over the current regime when it comes to dangerous goods such as chemicals. The convention also includes membership to an international fund that will pay compensation for pollution damage caused by such spills.
Contributions to the international fund will be paid by cargo owners. By splitting the financial responsibility between the two principal parties involved, the shipowner and the cargo owner, this convention supports the very important polluter pays principle and will ensure that both the shipowner and cargo owner pay for pollution damage caused by their ship or goods.
This international convention is modelled on an existing regime for oil pollution from ships, which has served Canada well. The regime ensures that the risks associated with international shipping are shared globally. By ratifying this convention, Canada will gain access to approximately $400 million in compensation for a single spill of hazardous and noxious substances.
The hazardous and noxious substances convention covers a wide variety of substances, some 6,500 substances that are carried in bulk and in packages and containers along our coast and through Canadian waters. These substances include liquefied natural gas, propane, refined fuels, and other dangerous cargoes. The broad scope of coverage of these hazardous and noxious substances under this convention will go a long way in ensuring that Canadians are well compensated should an incident occur.
In the case of ship-sourced spills of refined fuel, compensation available from the ship-source oil pollution fund will continue to apply. This is a unique Canadian feature of our regime that will continue to benefit Canadians by ensuring that another tier of compensation is available to victims of oil pollution damage and by providing one of the highest amounts available globally for a spill of oil.
Transport Canada has consulted with Canadians and stakeholders who widely support the passage of the proposed amendments to the Marine Liability Act. The shipping industry had recently written to the chair of this committee to express their strong support for the proposed amendments to the Marine Liability Act. The cargo owners who would pay into this HNS fund have also voiced their support for this bill.
In summary, these amendments will ensure that shipowners carry adequate insurance and are held strictly liable for the damage caused by hazardous and noxious substances from their ship, and set out the legal framework for an international compensation fund to provide compensation to victims. It's a significant step forward in advancing the ship-sourced liability and compensation regime and in ensuring that victims of spills of hazardous and noxious substances are adequately compensated.
Thank you.
Sylvain Lachance Acting Director General, Marine Safety and Security, Department of Transport
I would like to thank the committee for the opportunity to speak of the important amendments to the Canada Shipping Act, 2001, as part of Bill C-3.
The amendments focus on three key areas, the first of which is the removal of obstacles to respond to an oil spill by addressing gaps in the civil and criminal immunity protection provided to response organizations, oil spill responders, and responders coming from outside of Canada at the request of a Canadian response organization.
Currently, the responder immunity provisions apply to certified Canadian response organizations and persons designated by the minister as an approved responder. Over the course of the past several years, industry stakeholders, specifically Canadian response organizations and certain U.S. oil spill response organizations, have raised two primary concerns with responder immunity and its application.
One concern brought forward by stakeholders was whether agents of Canadian response organizations were provided immunity when responding to a spill in Canadian waters. The second concern was whether Canadian response organizations were covered by responder immunity when responding to a spill at an oil handling facility.
The responder immunity amendments were designed to address these two concerns by providing civil and criminal immunity protection to agents of certified response organizations, including those coming from outside of Canada at the request of a response organization. The responder immunity amendments also provide the inclusion of “oil handling facility” within the definition of a response operation. This in turn clearly provides response organizations with immunity when responding to a spill at an oil handling facility during the loading or unloading of oil to or from a vessel.
The second series of proposed amendments will enhance the current requirements for oil handling facilities to reduce the likelihood of a spill from occurring and improve upon the response to a spill in the unlikely event that one should occur.
Currently, the Canada Shipping Act, 2001 does not include an authority to set requirements for persons who propose to operate an oil handling facility. For example, Transport Canada cannot compel such persons to formally notify the minister of the proposed operations or compel them to submit plans to the minister to verify compliance. The current legislative framework only provides Transport Canada with the authority to verify compliance once the facility becomes operational. Under such an approach, there is a risk that regulatory compliance issues could go undetected, resulting in an increased risk of a pollution incident.
To address this gap, amendments targeting new oil handling facilities would require persons who propose to operate a facility to provide notifications to the minister and to submit an oil pollution prevention plan, as well as an emergency plan, at least 90 days before operations begin. In addition, the minister will have the authority to compel persons who propose to operate a facility to submit any information or documents required to assess compliance. Finally, oil handling facilities would be prohibited from beginning operations unless the plans meet the requirements set out in the regulations.
Other sets of amendments target oil handling facilities that are or have been operational. Currently, there is no legal requirement for an operator of a facility to notify the minister, which means that Transport Canada may not be aware of all of the facilities that are currently in operation. Similar to the requirements for persons who propose to operate a facility, the minister will have the authority to require oil handling facilities to submit information or documents. The act presently requires oil handling facilities to have plans on site, but it does not specify that the plans have to be up to date, which is currently implicit but will now be clearly stated in the act. This requirement also has been included.
Also introduced is a requirement that operators of oil handling facilities who wish to make significant changes to the nature of their operation, for example, transfer rate, product, etc., will be required to notify the minister of the proposed change at least 180 days prior to the day on which the change is made. This includes the obligation to revise and submit the plans to the minister 90 days before making the changes.
Last, provisions have been included that would prohibit the facility from making a change to operations unless the plans meet the requirements set out in the regulations.
These requirements will strengthen the ability of oil handling facilities to prevent, prepare for, and respond to a potential oil spill. They will also provide Transport Canada with the necessary information to inform oversight activities.
The third series of proposed amendments looks at creating a fair and effective alternative to prosecution when dealing with minor to moderate contraventions of the pollution prevention and response requirements contained in the Canada Shipping Act, 2001, and pursuant regulations.
Currently, the administrative monetary penalties regime that is set out in part 11 of the act does not apply to part 8. Therefore, there are only two options for dealing with non-compliance with part 8 and its regulations: either to prosecute regulatory infractions through the court, or to take administrative actions, for example, by suspending the certification of a non-compliant response organization.
Both options are drastic and potentially expensive. Creating effective deterrents to contraventions of legal requirements is key to maintaining the integrity and effectiveness of any regulatory program. Administrative monetary penalties are a flexible enforcement tool that provides a quick yet effective means, consistent with administrative fairness, for addressing non-compliance with legislative and regulatory requirements. Administrative monetary penalties have long been considered a more cost-effective method of enforcement than prosecution.
Amendments to the Canada Shipping Act, 2001 will allow the making of regulations that could result in fines ranging from $250 to $25,000 for violations of relevant provisions pertaining to pollution prevention. Administrative monetary penalties will apply to both response organizations and oil handling facilities, thus providing another enforcement tool for marine safety inspectors.
In addition to the amendments already discussed, Bill C-3 provides the minister with several new powers targeting oil handling facilities. The minister will now be able to direct the operator of an oil handling facility to update or revise a plan and submit that plan. The minister will be able to take measures if it is believed that an oil handling facility has discharged, is discharging, or is likely to discharge oil. The minister can now also monitor measures taken to repair, remedy, minimize, or prevent pollution damage, as well as direct operators to take necessary measures to repair, minimize, or prevent pollution damage. Finally, the minister will have the power to designate an oil handling facility to be part of a class regardless of its prescribed class as set out in the regulations.
New offences have also been established for non-compliance in areas such as a failure to submit updated plans, failure to notify the minister of a change of operation, or failure to update plans following a change of operation.
These infractions could result in a fine of not more than $1 million, up to 18 months in prison, or both. Failure to notify the minister of proposed operations or beginning operations without first notifying the minister could result in a fine of not more than $100,000, up to 12 months in prison, or both.
In conclusion, these amendments are an important first step towards achieving our goal of establishing a world-class tanker safety system in Canada.
I would like to thank the committee once again for the opportunity to present this overview of proposed amendments to the Canada Shipping Act, 2001. I look forward to answering your questions.
Conservative
The Chair Conservative Larry Miller
Thank you very much.
We will now turn it over for questions.
Mr. Mai, you have seven minutes.
NDP
Hoang Mai NDP Brossard—La Prairie, QC
Thank you, Mr. Chair.
I want to thank the witnesses for joining us today. I also want to thank them for their work on this issue.
This is a large bill that enacts the Aviation Industry Indemnity Act and amends, among others, the Aeronautic Act, the Canada Marine Act, the Marine Liability Act and the Canada Shipping Act, 2001. So its scope is fairly broad.
Many of this bill's provisions have been approved at the industry's request to establish safer rules. We also support the polluter pays principle. These measures are steps in the right direction, especially given the situation with the Marine Liability Act. I have a few more questions about that.
Generally speaking, given the large number of budget cuts and station closures, the NDP asked that the bill's scope be broadened in order to protect the coasts. Like Canadians, we are very concerned about environmental protection.
I would now like to go back to part 4 of the bill, which amends the Marine Liability Act.
Mr. Meisner, is a ship owner's liability limited in the case of hazardous and noxious substance spills?
Director General, Marine Policy, Department of Transport
Yes, there is a limit of liability in a shipowner. It is established based on two factors. One is the size of the ship, and to a certain degree, it's the product they're carrying. The maximum amount of liability is about $185 million Canadian. I should mention that the limits in the convention are set by what they call special drawing rights, SDRs. The fluctuation in the Canadian dollar establishes the limit to a point, but based on today's standards, the maximum limit of liability for a ship would be $185 million.
Just to explain, when I was talking about the total compensation being $400 million, the fund would make up the difference between the $185 million and the $400 million. If the shipowner's liability happened to be less, let's say $150 million, the fund would still make up the difference. They move in tandem to make a maximum liability compensation of $400 million.
NDP
Hoang Mai NDP Brossard—La Prairie, QC
The fund is basically a fund that shipowners have put in amounts.... Is it an international fund?
Director General, Marine Policy, Department of Transport
It's an international fund set up by the IMO, but the way it's going to be structured is that shipowners will pay for it only post-incident.
NDP
Hoang Mai NDP Brossard—La Prairie, QC
Why is the liability limited to a total of $400 million? We have seen in cases such as Exxon Valdez that the costs involved could be huge. Can you explain to us why that limit was set at $400 million? That seems to be very low, considering the extent of economic repercussions and the pollution caused.
Director General, Marine Policy, Department of Transport
The $400 million was set by international convention, which involved a lot of discussion, debate, and dialogue among the several countries that sit there. Through consensus, they came up with the $400-million limit.
Just to clarify, for hazardous and noxious substances, there has never been a chemical spill that came anywhere near that amount. You mentioned the Exxon Valdez. That would be covered under a separate regime. There is a separate oil spill regime. That particular regime currently has upwards of $1.4 billion available. There are two different regimes: one for chemicals and another one for oil.
NDP
Hoang Mai NDP Brossard—La Prairie, QC
That is another point I would like to clarify. The limit does not apply to oil spills in this case, but only to noxious and hazardous products.
Correct me if I am wrong, but other countries, such as Norway, have no limit. Are there any other countries where the domestic legislation does not set a limit such as the $400 million to ensure some level of responsibility?
Director General, Marine Policy, Department of Transport
I just want to be clear that this limit of $400 million is not in place yet.
When you talk about Norway, you are probably referring to the oil spill regime, which is already in place and has been in place for several years.
I think there may be one or two countries, the U.S. being one of them, that don't have limits to the liability in terms of legislation, but most countries do have the international regime in place, and then Canada has the benefit of a separate domestic regime, which on the oil side is the ship-source oil pollution fund. That gives us the $1.4 billion. It's probably about the highest in the world right now, to my understanding.
NDP
Hoang Mai NDP Brossard—La Prairie, QC
I understand the difference between oil spills, and noxious and hazardous substance spills. Can you tell us what would happen if the costs exceeded $400 million? Who would pay for that?
Director General, Marine Policy, Department of Transport
If the costs were in excess of $400 million, I don't think.... The shipowner, first and foremost, could be liable for those costs through legal processes, but the—
NDP
Hoang Mai NDP Brossard—La Prairie, QC
You said that ship owners' liability limit was $185 million. So they are liable for covering up to $185 million in damages. If the cost is less than that, good for them; if it is more, the ship owners would be covered through an international fund. Our country decided, in compliance with international conventions and domestic legislation, that the maximum limit would be $400 million. However, if the damage exceeded $400 million and was, for example, $1 billion, who would cover the additional $600 million?
Director General, Marine Policy, Department of Transport
First and foremost, I think the first step would happen at.... Let me be clear that the ship's liability insurance is $185 million, so that would kick in. Then you get the rest, up to $400 million, whatever the difference would be. Should there be an excess of claims for that, it would be, as a first step, pro-rated among the claimants. I'll use a number of $500 million. They would all get 80% of their claims and then be spread out accordingly. There is always the option in a particular case for a government to decide to support an additional claim, but there is no requirement to do that.
NDP
Hoang Mai NDP Brossard—La Prairie, QC
My question is not about refund claims. I am thinking of situations such as the Lac-Mégantic incident. The government had to pay for the damage because the company in charge went bankrupt or did not have sufficient liability insurance.
The case we are discussing has more to do with marine liability. Unless I am mistaken, Canadians would have to pay. If the liability limit is $400 million, and the cost exceeds that limit, someone else would have to pay. Since the government would want to eliminate the pollution caused, it would pay for the clean up. At the end of the day, Canadian taxpayers would pay for that. Am I wrong?
Director General, Marine Policy, Department of Transport
No, I think you're absolutely right, but in the first case I would say on the marine side there's never been any chemical or hazardous or noxious spill even approaching the $400-million limit. Also, as I mentioned, there's no requirement for the government to step in if anything happened to exceed, in a rare case, $400 million. It does have the option to do so if it chooses to do so through decisions, but there's no requirement through this legislation to do so if it is exceeded.
Conservative
The Chair Conservative Larry Miller
Mr. Mai, your time has expired.
Mr. McGuinty, you have seven minutes.