Status Report on the Successes in Using Foreign Ships to Lay Submarine Cables in Canada
As published in the March Issue of SubTel Forum Magazine
By Jean-François Bilodeau
March 29, 2022
Last year, I wrote an article in this publication on the installation of undersea fibre-optic cables and the difficulty in using a foreign ship to install or repair of undersea cables in Canada. In particular, I referred to the Alcatel Submarine Networks coasting trade application and the Decision of the Canadian Transportation Agency issued on April 16, 2021[1].
Contrary to the message that might have been conveyed in the article, many foreign vessels are regularly used in Canada to perform specialized transportation such as the live transportation of juvenile and grower salmon[2], using a mobile offshore drilling unit registered in Panama, to undertake drilling services for the exploration and development of petroleum resources off the east/southeast coast of Newfoundland[3], the use of a dive support ship registered in Isle of Man, to complete the 2022 Subsea Project in the Terra Nova oil field[4], the use the “IT INTREPID”, a cable ship registered in Barbados, to install, lay and bury a new undersea fibre communication cable between Sept-Îles and Sainte-Anne-des-Monts, Quebec[5], the use of a seismic support ship registered in Bahamas, to support the operations of one seismic research ship by facilitating crew changes and resupplying fuel, supplies, and equipment, off the east coast of Newfoundland and Labrador.[6]
In two instances mentioned above, IT International Telecom Barbados Canada Inc. applied to obtain a licence to use the “IT Intrepid” Barbados registered ship to lay and bury and repair/replace underwater cables without any contestation being made to the application to use foreign vessels.
The criteria to contest the use of a foreign vessel under the Coastal Trade Act[7] is to demonstrate the availability of a suitable ship to perform the activity described in the application. Those key were reviewied in the recent Orange Marine decision issued on July 7, 2021[8].
Case Summary
Under the cited Coastal Trade Act, the Minister of Public Safety and Emergency Preparedness may issue coasting trade licence authorizing foreign ships or a non-duty paid ships to conduct a commercial activity in Canadian waters for a maximum period of 12 months once the Canadian Transportation Agency (CTA) determines there are no suitable Canadian ship to perform the activity described in the application.
Orange Marine applied to the Minister for a licence to use the “RENE DESCARTES”, a cable-laying ship registered in France and intended to partner with IT International Telecom Inc. (IT Telecom), a Canadian company that will provide assistance with the proposed activity.
Horizon Maritime Services Ltd. (Horizon Maritime) filed a contestation to the application and offered three Canadian-registered ships to perform the activity described in the application, in collaboration with ITB Subsea Ltd. (ITBS) of Burnaby, B.C.
The CTA determined, pursuant to subsection 8(1) of the Act, the availability and suitability of the vessels presented by Horizon Maritime.
The facts
It was intended for the “RENE DESCARTES” to lay off two sets of fibre-optic telecommunication cables in the Alberni Inlet located in British Columbia as part of the Topaz submarine fibre-optic cable project linking Canada and Asia. The ship would have arrived in Victoria, British Columbia, from Kita Kyushu, Japan, and then travel to Port Alberni, British Columbia, carrying 5,100 tons of fibre-optic cable, fibre-optic repeaters, a plough, and a remote operating vehicle (ROV).
Orange Marine intended to use the “RENE DESCARTES” to perform the entire work related to the Topaz project, both within and outside Canadian waters. The applicant admitted it did not contact any Canadian shipowners, given the small cable-laying ship market and the fact the available Canadian ships are widely known to industry.
The portion of the laying operation within Canadian waters subject to the Act was approximately 150 km in length.
Horizon Maritime opposed the use of the “RENE DESCARTES”, and offered the use of any of its three ships to perform the activity described in the application within Canadian waters, in collaboration with ITBS.
In its view, Orange Marine took the position that the selected ship was to be capable of laying cable with plough burial, operate a ROV for post-burial operations, and install branching units, capable of carrying 5,200 tons of cable for continuous laying from Canada to Japan, as required under the Topaz project. Apparently, the ability to carry 5,200 tons of cable is not a known capability of the existing Canadian ships.
The position of the parties
Availability
Orange Marine did not contest the availability of any of the Horizon Ships, but implied the apparent lack of availability, as all of these ships were working abroad: the “HORIZON STAR” was then flagged in Barbados and was working in the United Kingdom; the “HORIZON ENABLER” was flagged in Vanuatu and worked in the Gulf of Mexico, while the “HORIZON ARCTIC” flagged in Canada was working in the United Kingdom.
Further, Orange Marine challenged the availability of necessary equipment for the Horizon Ships to perform the proposed activity namely the power-feeding equipment (PFE) and a full universal jointing (UJ) spread which would require a six- to eight-month lead time for acquisition.
Horizon Maritime responded that all it ships would become available for the intended project and the two ships registered abroad would be reflagged to the Canadian registry which would not constitute a barrier to the contestation as outlined in previous CTA decisions.
Suitability
Orange Maritime made a series of arguments in support of the Horizon Maritime vessel unsuitability and in particular referred to:
- The conversion of the Horizon Maritime multipurpose ships for the cable-laying activity and in particular with the requirement to carry 5,200 tons of cable for continuous laying from Canada to Japan.
- The necessity to install PFE because the cable in an active system with repeaters and active branching heads;
- The cable had to be buried by plough on the Canadian continental shelf and which required complex systems: vehicle, towing winch, an umbilical winch, a command and control van, and a careful integration to conduct simultaneous cable laying operations.
- The ship had to be equipped with a full UJ spread with jointers able to make joints during the installation if a repair is required without needing the mobilization of another ship;
- Expertise to operate such complex systems;
- Timing to make the vessels available and operational; and
- Cost; converting multipurpose vessels in cable ships is costly and complex which would render not economically viable the short Canadian scope of the project.
Decision Analysis
The onus is on the applicant or in this case on Orange Maritime to complete the coasting trade application to provide information in sufficient detail to permit the Canadian industry to assess and respond to the application.
The Coastal Trade Act, recognizes the interests of Canadian ship operators by permitting foreign ships to temporarily engage in coasting trade activities in Canadian waters, only if no suitable Canadian ship or non-duty paid ship is available to perform the activity.
Availability
Horizon Maritime provided substantive rebuttal to this concern and the CTA accepted that Horizon Maritime could have the ships reinstated in the Canadian register in a matter of days and that their current work abroad would be concluded by July 2021.
Suitability
Pursuant to the CTA’s Guidelines, the offered Canadian?registered ship does not have to be “identical” to the proposed foreign vessel.
Moreover, the suitability of the Canadian-registered ship should not be determined in comparison with the foreign ship but assessed in relation to the technical and operational requirements of the activity: is proposed ship is capable of performing the activity.
The suitability criteria may include:
- commercial and economic suitability – the commercial (e.g., financial) and economic implications of using the foreign ship versus the offered Canadian?registered ship; and
- technical and operational suitability – technical characteristics of the ship and equipment required to operationally perform the proposed marine service or activity.
Such items have been raised by Orange Maritime.
Commercial and Economic Suitability
The CTA recognizes, as a matter of principle consistent with the overall intent of the Act, that the operation of Canadian?registered ships implies costs and operating conditions that usually higher than for, foreign ships. Evidence that go solely to the higher cost of operating a Canadian ship is generally insufficient to establish that an offered Canadian-registered ship is not commercially and/or economically suitable.
In raising commercial and/or economic suitability the applicant must produce evidence that clearly demonstrates:
- the necessity of using the foreign ship for the commercial viability of the proposed activity; and
- that the higher costs of using an offered Canadian ship for the activity would render the activity commercially/economically unviable.
If the applicant produces such evidence, the offeror needs to challenge the applicant’s position by producing counter-evidence in its reply to demonstrate that the use of a Canadian-registered ship would not render the proposed activity commercially and/or economically unviable.
In the present instance, Horizon Maritime did not rebut Orange Marine’s arguments related to cost in its reply submission. The CTA recognizes that additional costs resulting from the use of a second ship to perform the work in Canadian waters by using one of the Horizon Ships when the “RENE DESCARTES” would perform the entirety of the work will cause increased costs.
However, it was for Orange Marine to demonstrate that such cost was unreasonable and would have rendered the proposed activity using one of the Horizon Ships economically unfeasible.
Orange Marine failed to make any submissions, aside from a general statement about an “unrealistic cost.”
Technical and Operational Suitability
Orange Marine raised a number of questions on the technical and operational shortcomings of the Horizon Maritime vessels:
Issue 1 – Conversion for cable-laying activity
The CTA accepted that the assistance of a third-party (ITBS) by Horizon Maritime to provide the equipment necessary to convert the Horizon Ships would render the vessel able o perform cable-laying activities. The CTA consistently held that a Canadian offered ship does not need to be identical to the proposed ship and that the requirement is only that the offered ship can perform the work.
Further, Orange Marine did not establish that any one particular slack management software system can only be used for this operation, nor that the installation of such software on the Horizon Ships is infeasible. In this regard, the CTA found that ITBS’ experience and success in performing cable-laying activities, combined with the fact that the Horizon Ships are outfitted with dynamic positioning software, are indicative of the capability of the Horizon Ships’ ability to provide the requisite navigation capabilities necessary to carry out the work.
Finally, the issue of whether the Horizon Ships are capable of carrying 5,200 tons of cable for continuous laying from Canada to Japan was not addressed by Horizon Maritime, nor was the requirement of such capability rebutted. The CTA indicated that it was important to note that if this were a key issue, Orange Marine, for its part, did not make pleadings in this respect when it had the opportunity to do so in its response to Horizon Maritime’s objection.
In light of the evidence made in the pleadings and supporting affidavits, the CTA found that that the Horizon Maritime ships could be outfitted for cable laying.
Issue 2 – Need for PFE
Horizon Maritime contested the requirement for PFE, stating that it was not a listed requirement in Orange Marine’s application but could nevertheless perform the requisite function with its equipment.
Given the Orange Marine initial application, the CTA accepted the representations made by Horizon Maritime.
Issue 3 – Plough systems
Orange Marine made general statements regarding the complexity of plough systems and the need for a towing winch, umbilical winch, and a command and control van. However the applicant did not submit any information in the pleadings to indicate that the provision of such equipment by another party would be infeasible or unsuitable. The CTA therefore found that Orange Marine has not met its evidentiary burden of demonstrating that the Horizon Ships would be unsuitable to perform that task.
Issue 4 – UJ Spread
The CTA consistently holds that an offered ship need not be identical to the proposed foreign ship, provided that it can perform the task at hand.
Orange Marine’s application makes no mention of the requirement for a UJ spread, let alone substantiate the need for one. While not ignoring the desirability nor the necessity of the functionality a UJ spread could provide, Horizon Maritime presented evidence to demonstrate that a similar outcome can and has been achieved in other projects using Horizon Maritime’s and ITBS’ equipment. On that basis the CTA found that Orange Marine has not met its evidentiary burden in demonstrating the necessity of a UJ spread.
Issue 5 – Expertise and Horizon Maritime
Cable-laying operations that rely on equipment and expertise provided by a third party is not uncommon, and notably, Orange Marine itself proposed to do so with IT Telecom. While claiming that IT Telecom is the only Canadian company capable of implementing a telecom cable installation of the magnitude set forth in the application, Orange Marine did not provide any information to substantiate this claim, nor to justify the preclusion of the use of any other contractor.
The CTA, in a previous decision[9] reiterated that the question is the suitability of the offered ship, and not experience performing the activity at issue. The Agency concluded that Orange Marine has not met its evidentiary burden in this respect.
Issue 6 – Timing
Orange Marine did not provide any concrete evidence to substantiate or contradict Horizon Maritime’s submissions regarding timing and whether the Horizon Ships would be onsite and ready to carry out the work in time for July 2021.
Determination
In light of the above, the CTA determined that there were Canadian ships available and suitable to perform the envisioned activity contemplated by Orange Maritime despite the fact these vessels were located in the Atlantic Ocean and would have to travel to the Canadian West Coast.
Conclusion
This decision of the CTA is interesting because if refines the analysis of the requirements to licence foreign vessels to operate in Canada. Firstly, the initial application to use a foreign vessel should be as complete as possible and ought to include all the technical and operational requirements of the project.
The CTA found that for several items, the initial application was lacking in technical substantiation that was added to respond to the contestation made by Horizom Maritime.
Further the applicant must indicate and support with strong evidence the “must have” technical equipment and compulsory time line. In the Orange Application, the CTA did not retain vague sentences on the use of specific equipment or the time line requirement.
The need to use foreign vessels to lay or install undersea cable should be considered and planned in the earlier design stage of a project before tenders are issued to support specific technical needs or financial constraints. In this instance, one can imagine the additional costs the project will incur in paying for the mobilization costs relating to the travelling expenses for the Canadian vessels to sail from the East to the West Coast of Canada.
[1] Decision No. 27-W-2021
[2] Canadian Transportation Agency Determination No. W-2022-21
[3] Canadian Transportation Agency Determination W-2022-17
[4] Canadian Transportation Agency Determination No. W-2022-11
[5] Canadian Transportation Agency Determination No. W-2022-9 and W-2021-85
[6] Canadian Transportation Agency Determination No. W-2022-3 and No. W-2022-4
[7] S.C. 1992, c. 31
[8] Canadian Transportation Agency Decision No. 67-W-2021
[9] Decision No. 27-W-2021
Jean-François Bilodeau is Counsel at Borden Ladner Gervais LLP and focuses his practice on maritime law-related disputes. As a former member of the Royal Canadian Navy Reserve, his experience in navigation and ship management enables him to provide relevant legal services, supported by technical knowledge of the marine industry.
He represents different interests active in the marine industry before Québec and federal courts and the Supreme Court of Canada.
