I had to draw a diagram of that before I could understand it! But yes, the horse on the left passes under the tow rope of the approaching horse.
So, we have a potential chicken and egg situation here. What if the custom of "driving" on the left was already well established by the time of the canals, so that dictated that canal boats must pass port to port?
Alternatively, could it be that the maritime custom of passing on the right was transferred to canals, and this dictated that horses pass on the left, and this is the reason we drive on the left today?
Or, do I have too much spare time these days..?