Developments in Canadian Maritime Law 2000

Transcription

1 Developments in Canadian Maritime Law 2000 Prepared by Christopher J. Giaschi Prepared for the Open Meeting of the Canadian Maritime Law Association at Vancouver on March 19, 2001 Note: This paper contains summaries of cases decided during the period from January 1, 2000 to approximately February 28, TABLE OF CONTENTS I. Marine Insurance II. Carriage of Goods III. Arbitration/Jurisdiction Clauses IV. Canadian Maritime Law/ Federal Court Jurisdiction V. Limitation of Liability VI. Admiralty Practice VII. Mortgages, Liens and Priorities VIII. Miscellaneous TABLE OF CASES

2 I. Marine Insurance Cargo Insurance - Cancellation - Misrepresentation Nuvo Electronics Inc. v London Assurance et al., (2000) 49 O.R. (3d) 374 (Ont. S.C.) This matter arose out of the loss of 15 cartons of integrated circuits valued at US$1,403, and carried by air from San Francisco to Toronto. The shipment left San Franciso on August 10, 1996, and arrived at Toronto on the morning of August 11, It was then placed in the Air Canada cargo warehouse but was never seen again. The Plaintiff consignee commenced this action for the value of the lost cargo against its cargo underwriter and the air carrier. (That part of the judgment dealing with the claim against the carrier is considered below under "Carriage of Goods".) The cargo underwriter denied coverage on the basis that it had cancelled the policy of insurance prior to the loss and also on the basis that the assured had failed to disclose prior losses. The shipment was insured under an open cargo policy that provided that it could be cancelled upon 30 days written notice "but such cancellation shall not affect any risks which have already attached hereunder". The policy further provided that notices mailed to the broker were deemed to have been received by the assured. On July 10, 1996, the underwriter faxed a notice of cancellation to the broker giving 30 days notice of cancellation and stating that the cancellation would be effective on August 10, The underwriter took the position that the policy was cancelled as of 12:01 a.m. on August 10, The Court, however, held that there were three problems with the underwriter s notice of cancellation. First, the notice of cancellation was vague and imprecise in that it did not say how the 30 days was to be calculated and did not specify the exact time on August 10, 1996, the cancellation would be effective. The Court held that the notice of cancellation could be interpreted to mean that coverage would be in force for the entire day of August 10, Second, the policy required that the notice of cancellation be mailed to the broker. Third, the policy also contained statutory conditions which contained clauses dealing with termination that were different from those in the body of the policy and which the underwriter made no attempt to comply with. The Court therefore held that the policy was ambiguous and the underwriter had failed to give proper notice of cancellation. The Court next turned to the issue of whether the policy was void ab initio by reason of the assured s failure to disclose at the time it applied for the policy that it had suffered prior losses. The evidence disclosed that the assured s broker had advised the underwriter that there had been no losses except for one lost package (value $300.00) three years earlier. This information was not accurate. In fact, the assured had suffered a series of losses in the hands of its courier totalling $18, This information did not come to the attention of the underwriter until after

3 the loss in issue. The underwriter submitted that these facts were material to the risk and should have been disclosed. The underwriter led the evidence of an expert independent underwriter to the effect that the courier losses would have caused him to either increase the premium or modify the conditions of carriage. The Court, however, found as a fact that the Defendant underwriter would have written the risk even if it had been advised of the prior losses. Under these circumstances it was irrelevant what an independent underwriter would have done. The Court held that a successful defence on the basis of material non-disclosure requires proof that, if the facts had been disclosed, the underwriter who wrote the risk would have declined the risk or required a higher premium and evidence from an independent "prudent" underwriter to the same effect. Accordingly, the Court held that the underwriter had failed to prove material nondisclosure and the underwriter was held liable for the insured value of the lost cargo. (Note: The underwriter was not without a remedy as there was a recovery from the air carrier which is detailed below under "Carriage of Goods".) Liability Policies - Interpretation - Illegality - Pay to be Paid Conohan v The Cooperators, (November 28, 2000) No. T (F.C.T.D.), [2000] F.C.J. No This case arose out of a collision between the "Lady Brittany" and "Cape Light II" off Prince Edward Island. At the time of the collision the "Cape Light II" was at anchor. Following the collision, blood alcohol readings were taken from the Master of the "Lady Brittany" which indicated his blood alcohol content was above the legal limit. An action was commenced by the owners of the "Cape Light II" against the "Lady Brittany". The insurers of the "Lady Brittany" refused to defend or participate in that action alleging that the insured was in breach of the terms of the policy in that the vessel was being operated in an illegal manner. The owner of the "Lady Brittany" thereafter admitted liability for the collision, confessed to judgment and assigned all of his rights of claim against his insurers to the owners and underwriters of the "Cape Light II". The owners and underwriters of the "Cape Light II" then brought this action against the Defendant, the insurer of the "Lady Brittany". The Defendant denied it was liable on various grounds. First, it alleged that there was a breach of the implied warranty of legality contained in s. 34 of the Marine Insurance Act. Second, it alleged that the collision was caused by "wilful misconduct", an excluded peril under s. 53 of the Marine Insurance Act. Third, it alleged that the collision was caused by "drunken or impaired operation of the vessel or other wrongful act" an excluded peril under the policy of insurance. Finally, it alleged that it was only liable to pay the insured if the insured has "become liable to pay and shall pay by way of damages to any other person any sum...". As the insured had not actually paid any sum it argued that its liability was not invoked. The Court considered each argument in turn and held: first, that the implied warranty of illegality did not apply to the third party liability portions of the policy; second, that there was no "wilful misconduct"; third, that on a proper reading of the policy the exclusion of "drunken or impaired operation of the vessel or other wrongful act" did not apply to the third party liability clause of the policy as that clause contained its own separately enumerated exclusions; and, finally, that the policy was, in fact, a pay to be paid policy and that the Defendant was, accordingly, not liable. Warranties

4 Elkhorn Developments Ltd. v Sovereign General Insurance Co. et al., [2000] B.C.J. No. 834, (2000) 18 C.C.L.I. (3d) 203 (B.C.S.C.) This was an application by the Defendants for summary dismissal of the Plaintiff s claim for coverage under a hull and machinery policy. The policy contained two warranties; that the Plaintiff s barge would be laid up permanently at Pearce Bay and that any movements of the barge would be subject to underwriters prior approval. In breach of these warranties, the barge was moved without any notice to underwriters and sank four days after the move had been completed. A marine surveyor was appointed but he was unable to come to a firm opinion on the cause of the sinking. The central issue in the case was whether the warranties were true promissory warranties or merely suspensive conditions. The Court reviewed the case law on warranties and noted that in order for a warranty to constitute a promissory warranty there was a need to demonstrate a substantial relationship between the warranty and the loss incurred. The Court found that although the evidence clearly established the underwriters were concerned about the possibility of a loss occurring during the course of a move of the barge, it was not clear whether there was concern about a loss after a move had occurred. The Court also noted that the Plaintiff wished to obtain further evidence concerning the cause of the sinking of the barge. The Court therefore dismissed the application and ordered that the matter proceed to trial. Liability of Agents and Brokers - Material Facts - Onus of Proof Ontario Ltd. v Kent Line International Ltd., [2000] O.J. No. 3074, (2000) 22 C.C.L.I. (3d) 312 (Ont. S.C.) This was an action against a freight forwarder and insurance broker for breach of contract and negligence arising out of damage to a cargo of chocolate bars shipped to Trinidad. The cargo was insured subject to the Institute Frozen Food Clauses which only provided coverage in the event of mechanical breakdown of the reefer units for a period longer than 24 hours and such coverage ceased 5 days after discharge from the ship. The Plaintiff was unable to meet these conditions and, hence, there was no insurance coverage. The claim against the freight forwarder and insurance broker for breach of contract was based on an alleged contractual agreement that the Defendants were to procure "all risks, warehouse to warehouse" insurance coverage for the shipment. The Court found, however, that although the Plaintiff had initially requested "all risks, warehouse to warehouse" coverage it later instructed the freight forwarder to procure coverage subject to the Institute Frozen Food Clauses. Accordingly, the Court found that there was no breach of contract. The Court next considered the question of negligence. The Court reviewed the authorities on the duties owed by insurance agents and brokers to their customers. These authorities established that the duty included: to review the needs of the customer; to provide information about available coverage and advice about which forms of coverage are appropriate; to exercise reasonable skill and care to obtain policies in the terms bargained for and to service those policies as required; to advise the customer if they are unable to obtain the policies bargained for; and to point out gaps in the coverage and advise the customer how to protect against those gaps. The Court held that although the Plaintiff had been advised of the limiting conditions of the Institute Frozen Food Clauses, the Defendants had a duty to do more. Specifically, the Court

5 found that extended coverage was available and that the Defendants should have advised the Plaintiff of this coverage. The Court rejected the Defendants argument that the Plaintiff had not proven that it would have been granted the extended coverage if it had so requested. The Court held that there was no onus on the Plaintiff to prove this. An additional argument advanced by the Defendants was that there had been material nondisclosure on the part of the Plaintiff. The Court rejected this argument saying that even if there had been material non-disclosure the effect would be to make the contract of insurance voidable and not void ab initio. As the underwriter never exercised the right to void the policy the Defendants could not rely upon the voidability of the policy as proof that the Plaintiff suffered no loss. Further, the Court held that there was insufficient evidence that the facts not disclosed were material. The Court noted that the onus was on the Defendants to lead evidence from the underwriter that it, in fact, regarded the non-disclosure as material and also to lead expert evidence of an independent underwriter that a prudent underwriter would be of the same view. In the result, the Defendants were liable for failing to obtain the proper insurance coverage. Cargo Insurance - Insufficiency of Packing Rainbow Technicoloured Wood Veneer Ltd. v The "Canmar Conquest" et al., (June 28, 2000) No. T (F.C.T.D.), [2000] F.C.J. No This was an action by the Plaintiff against its cargo insurer for damage to a guillotine press in an amount in excess of $100, The Defendant insurer argued that coverage was excluded by clause 4.3 of the Institute Cargo Clauses (A) in that the press was insufficiently packed and prepared for shipment. The Court reviewed the evidence of the surveyors, all of whom gave the opinion that the securing of the press in the container was inadequate, and dismissed the action. Unseaworthiness Laing v Boreal Pacific, (October 13, 2000) No. A (F.C.A.), [2000] F.C.J. No This was an appeal from a judgment of the Trial Division dismissing a claim under a marine insurance policy for the loss of an excavator. The excavator was loaded on the self-propelled barge, "Palaquin", and was being carried across the Strait of Georgia. During the crossing the seas became rough and the excavator shifted and ultimately fell overboard. The Plaintiff settled an action brought by the owner of the excavator and brought proceedings for indemnity pursuant to the terms of his insurance policy. The Defendant insurer denied the claim on the basis that the vessel was unseaworthy at the commencement of the journey. The Trial Judge found that the barge was unseaworthy in that it was too heavily laden for the sea conditions that could reasonably be expected and the excavator was not properly secured. She further found that the Plaintiff had knowledge of the facts that made the vessel unseaworthy. In result, the Plaintiff's action was dismissed. On appeal, the Court of Appeal held that the Trial Judge correctly applied the test of privity, ie. whether the shipowner had knowledge of the facts constituting the

6 unseaworthiness and knowledge that those facts rendered the ship unseaworthy or turned a blind eye to the facts giving rise to the unseaworthiness. In the result, the appeal was dismissed. All Risks Coverage - Wear and Tear Bevan v Gartside Marine Engines Ltd. et al., [2000] B.C.J. No. 528 (B.C. Prov. Ct.) This was an action against a repairer and an insurer under an all risks policy for damage caused when a transmission overheated. The Plaintiff alleged that the repairer had been negligent in performing prior repairs to the trolling valve control linkage. The Plaintiff further alleged that the damage was covered by his all risks policy. The repairer denied negligence and the insurer defended on the basis of an exclusion in the policy excluding liability for damage caused by wear and tear and mechanical breakdown. The Court found that there could have been multiple causes of the transmission failure including pre-existing damage, wear and tear and improper use of the trolling gear by the Plaintiff or previous owners. As a result, the Court held that negligence on the part of the repairer had not been proven. With respect to the claim against the insurer, the Court noted that there are limits to the coverage afforded by an all risks policy and that the Plaintiff was required to prove that the cause of the transmission failure "was due to a casualty". The Court held that the Plaintiff had not proven that the loss was due to a casualty and coverage was denied. II. Carriage of Goods Summary Judgment - Misdelivery Kanematsu GMBH v Acadia Shipbrokers Limited et al., (2000) 259 N.R. 201 (F.C.A.) This was an appeal from a motion in which the Plaintiff was granted summary judgment against the Defendant charterers for having induced the ship owner to deliver up the cargo to a third party without proper presentation of the bill of lading. The Defendants argued that the case was not appropriate for summary judgment as the facts were too complex. The motions judge, however, held that the fundamental issue was whether the cargo had been delivered without the surrender of the original bill of lading. As this was admitted, summary judgment was granted. On appeal, the Federal Court of Appeal set aside the order for summary judgment. The Court of Appeal held that the Defendants were not the ship owner and therefore were not prima facie liable for delivery of the cargo without proper presentation of the bill of lading. The case against the Defendants was for inducing breach of contract by the shipowner. This required proof that: (1) the Defendants knew there was a contract; (2) they induced its breach; and, (3) damages were suffered as a consequence. The Court of Appeal held that there was a real doubt whether the Defendants had knowledge of a contract between the Plaintiff, as holder of the bill of lading, and the shipowner. Further, the Court of Appeal thought there was doubt about whether the

7 Defendants intended to induce a breach of the contract. These were serious factual issues which required a trial on the merits. Costs of Discharge and Re-stowage Canadian Forest Products Inc. v Termar Navigation Co. Inc., (March 15, 2000) No. A (F.C.A.), [2000] F.C.J. No. 450 This was an appeal from a judgment of the Trial Division reported at [1998] 2 F.C The claim was by the carrier to recover the costs of discharging and re-stowing the Plaintiff's cargo after it shifted when the vessel encountered a large wave in rough seas. The Trial Judge held that the Plaintiff was not obliged to pay the discharge and re-stowing costs either under the terms of the bill of lading or on the basis of bailment, agency of necessity, quantum meruit or unjust enrichment. On appeal, the Court of Appeal merely indicated that they were in substantial agreement with the reasons of the Trial Judge and dismissed the appeal. Standing to Sue - Collisions Porto Seguro Companhia De Seguros Gerais v The "Federal Danube" et al., (January 31, 2001) No. T (F.C.T.D.), [2001] F.C.J. No. 152 This was the re-trial of an action that had been previously dismissed by the Federal Court Trial Division in a judgment reported at [1995] 82 F.T.R That judgment was ultimately overturned by the Supreme Court of Canada and a new trial ordered on the grounds that the Trial Judge erred in refusing to hear three expert witnesses because assessors had been appointed by the court (see [1997] 3 S.C.R. 1278). The Plaintiff was the cargo underwriter who had indemnified the cargo owners for damages suffered as a result of a collision in the St. Lawrence Seaway between the "Beograd" and the "Federal Danube". The Plaintiff argued that the "Federal Danube" was wholly at fault for the collision and liable for the damage to the cargo in the principal amount of $4.4 million. There were two issues in the case; the standing of the Plaintiff to bring the action in its own name and the liability for the collision. On the first issue, the Defendant argued that under Canadian maritime law the Plaintiff ought to have commenced the action in the name of the cargo owners. The Court, however, held that the matter was governed either by the law of Brazil (where the insurance contract was made) or the law of Quebec and that in either case the insurers became subrogated to the rights of their insured upon payment and were entitled to bring the action in their own name. With respect to the second issue, the liability for the collision, the Court held that the "Beograd" was wholly at fault for the collision. The faults found against the "Beograd" included: navigating through the anchorage area rather than in the navigation channel; navigating at an unsafe speed; and, failing to keep out of the way of an anchored vessel. In reaching the conclusion that the "Beograd" was wholly at fault the Court noted that where a vessel underway strikes a vessel at anchor the underway vessel is prima facie at fault unless it is proven the accident could not have been avoided by the exercise of ordinary skill. In the result, the Plaintiff s action was dismissed.

8 Air Carriage - Theft - Limitation Nuvo Electronics Inc. v London Assurance et al., (2000) 49 O.R. (3d) 374 (Ont. S.C.) This matter arose out of the loss of 15 cartons of integrated circuits valued at US$1,403,000 and carried by air from San Francisco to Toronto. The shipment left San Franciso on August 10, 1996, and arrived at Toronto on the morning of August 11, It was then placed in the Air Canada cargo warehouse but was never seen again. The Plaintiff consignee commenced this action for the value of the lost cargo against its cargo underwriter and the air carrier. (That part of the judgment dealing with the claim against the underwriter is considered above under "Insurance".) The air carrier defended the action arguing that the Plaintiff had not proven the value or the contents of the cargo, that it had delivered the goods to a courier for delivery to the Plaintiff and that it was, in any event, entitled to limit its liability pursuant to the Warsaw Convention. The only evidence adduced at trial as to the value and content of the shipment was the air waybill, the packing list and the commercial invoice. The carrier objected to the admission of these documents on the basis that they were hearsay and not properly admissible. The Court, however, held that these documents were business records within the meaning of the Canada Evidence Act and were admissible to prove both the content and value of the shipment. The carrier s second argument, that it had delivered the cargo to a courier, was also rejected by the Court. The Court found as a fact that although the courier driver had signed for the cargo he did not in fact receive the cargo as it could not be located by the air carrier. The Court next considered whether the air carrier could limit its liability under the Warsaw Convention and held that it could not. There were two reasons advanced by the Court for this decision. First, the Court found that the air waybill was not in conformity with Article 8 of the Convention in that it did not contain the name of the airport departure, the name of the first carrier, whether the weight was in pounds or kilograms and the nature and quantity of the goods. Relying upon American case law, the Court held that if an air carrier fails to include the particulars required by Article 8 of the Convention in the air waybill then, pursuant to Article 9, the carrier is not entitled to limit liability. Second, the Court held that the Plaintiff had proven that it was more probable than not that the cargo was stolen by an employee of the carrier or with the complicity of an employee of the carrier and that there was an irresistible inference that such employee was in the course and scope of his employment when the theft occurred. Accordingly, the Court held that there was "wilful misconduct" and that the carrier was not entitled to limit its liability. Air Carriage - Limitation World of Art Inc. v Koninklijke Luchtraart Maatschappij N.V., [2000] O.J. No (Ont. S.C.) affirmed [2000] O.J. No.4567 (Ont. C.A.) This was an application for summary judgment for the loss of cargo to be carried by air from Iran. The loss apparently occurred because the goods were rerouted through the United States where they were seized by U.S. Customs. The Defendant air carrier was aware of this possibility as a similar incident had occurred previously. As a result, its systems were set up so that a

9 warning would appear automatically on its computer system warning its employees not to route or reroute goods emanating from Iran through the United States. This warning would only appear, however, if the place of origin was accurately stated as being Iran. In this instance that did not occur. The goods were stated as originating in Amsterdam and were rerouted through the United States. This error was noticed by an employee of the Defendant who sent a message to his counterpart in Amsterdam but that message was not acted upon. The Court held that these facts created a strong prima facie case that there had been acts or omissions on the part of the Defendant "done with intent to cause damage or recklessly and with knowledge that damage would probably result". The Defendant filed an affidavit on the application as to the systems of the Defendant but that affidavit did not explain how the various errors that led to the rerouting had occurred. The Court drew an adverse inference from the failure of the Defendant to explain how the errors occurred. In the result, the Defendant was not entitled to limit its liability. Road Carriage Alberta Garment Manufacturing Co. v Purolator Courier Ltd., [2000] A.J. No. 317 (Alta. Prov. Ct.) The Plaintiff had delivered goods to the Defendant for carriage. On the face of the bill of lading the Plaintiff inserted a clause requiring the Defendant to obtain a certified cheque before effecting delivery. The Defendant did not do so and the Plaintiff was never paid for the goods. The Defendant relied upon a term in the bill of lading that limited its liability for failure to obtain a cheque to the freight charges. The Plaintiff argued that the Defendant was not entitled to limit its liability as the bill of lading was not signed by the Defendant as required by the Alberta regulations governing bills of lading. The Court held that under the applicable Alberta legislation if no bill of lading is issued or if the bill of lading does not comply with the regulations the Defendant is only entitled to rely upon the statutory limitation of $2 per pound. However, as that limitation applies only to loss of or damage to the goods it was of no assistance to the Defendant. In the result, the Defendant was not entitled to limit its liability. (Note: It is debatable whether a carrier who fails to issue a bill of lading or who issues a bill of lading not in compliance with the regulations may nonetheless rely upon the statutory limitation of $2 per pound. See, for example, Arnold Bros. Transport Ltd. v Western Greenhouse Growers Cooperative, (1992), 69 BCLR (2d) 108 and Corcoran v Ehrlick Transport, (1984), 46 OR (2d) 225, which are to the contrary.) Couriers Boutchev v D.H.L. International Ltd., [2000] A.J. No. 1 (Alta. Prov. Ct.) The issue in this small claims matter was whether the Defendant courier could rely upon terms in its waybill limiting its liability. The Court found that the terms on the waybill had not been properly brought to the attention of the Plaintiff and that the totality of the terms and conditions were "neither plain nor unambiguous" and were "quite simply legal gobbledygook". In result, the Plaintiff was awarded judgment. Claim for Freight - Set-off

10 Pantainer Ltd. v Ontario Ltd., (March 17, 2000) No. T (F.C.T.D.), [2000] F.C.J. No. 334 This was a claim for freight charges owing. The Defendant alleged that it was entitled to a set-off for damage caused to cargo carried by the Defendant. The Court held the general rule was that freight is to be paid without deduction and that the Defendant accordingly had no right of set-off. III. Arbitration/Jurisdiction Clauses Bill S-2, The Marine Liability Act Bill S-2, The Marine Liability Act (formerly Bill S-17) which died on the order paper when the Federal election was called last year) was passed by the Senate on January 31, 2001 and is currently before the House of Commons. Section 46 of the bill provides that, if a contract for the carriage of goods by water to which the Hamburg Rules do not apply provides for the adjudication or arbitration of claims arising under the contract in a place other than Canada, a claimant may bring proceedings in Canada where: (a) the actual port of loading or discharge, or the intended port of loading or discharge under the contract, is in Canada; (b) the person against whom the claim is made resides or has a place of business, branch or agency in Canada; or (c) the contract was made in Canada. Once enacted, this provision will allow cargo claimants to commence proceedings in Canada notwithstanding the existence of a jurisdiction or arbitration clause in the bill of lading provided one of the above three conditions are met. Hence, the many stay applications based on jurisdiction and arbitration clauses will become a thing of the past. Stay of Proceedings - Arbitration Clause Fibreco Pulp Inc. et al v Star Shipping A/S et al., (2000) 257 N.R. 291 (F.C.A.) This was an appeal from the order of a Motions Judge upholding the decision of a Prothonotary in which the Prothonotary ordered that the action be stayed not only against parties to an arbitration agreement but also against Defendants not parties to the agreement. The case involved two shipments of pulp from Squamish, British Columbia to Finland via Rotterdam. The Plaintiffs were the vendor of the pulp, the buyer of the pulp for resale, and the ultimate buyer/consignee of the pulp. The Defendants were the Squamish terminal, the charterers, Star Shipping A/S, and the

11 owners of the various ships that carried the pulp. The buyer of the pulp and Star Shipping had entered into a contract of affreightment that contained an arbitration agreement in favour of London arbitration. The Prothonotary held that pursuant to the Commercial Arbitration Act he had no alternative but to grant a stay of proceedings against Star Shipping. The Prothonotary noted that the more interesting question was whether the action ought to be stayed against the other Defendants who were not parties to the agreement. The Prothonotary referred to Nanisivik Mines Ltd. v Canarctic Shipping Co. Ltd., (1994), 113 D.L.R. (4th) 536, where the Federal Court of Appeal ordered a stay against persons not parties to an arbitration agreement on the grounds that "disposing of the issues between the two parties to the arbitration agreement might, more likely than not, resolve the entire litigation". In reliance on this decision, the Prothonotary noted that London arbitration "may well resolve the whole claim" and consequently ordered that the entire action be stayed. A secondary issue in this case was whether the in rem action against one of the Defendant ships ought to be set aside and the security given by the shipowner returned. The grounds were that there had been a change in the beneficial ownership of the ship after the voyage in question but before the action was commenced. (For certain specified claims, including cargo claims, section 43(3) of the Federal Court Act requires that the ship's beneficial ownership be the same at the time of commencement of the action as it was when the cause of action arose.) The Prothonotary granted the motion and ordered that the In Rem proceeding be struck and that the security be returned. On appeal, the Motions Judge noted that the Prothonotary's reasons were detailed and sound and the appeal was dismissed. On further appeal, the Federal Court of Appeal noted that there were multiple competing jurisdictions none of which were ideal. Nevertheless, the Court of Appeal found no error on the part of the Prothonotary and dismissed the appeal. In the result, the action was stayed. Stay of Proceedings - Jurisdiction Clause Hyundai Merchant Marine Co. Ltd. v Anraj Fish Products Industries Ltd. et al., (June 20, 2000) No. A (F.C.A.), [2000] F.C.J. No. 944 This was an appeal from an order of a Motions Judge in which the Motions Judge overturned the order of a Prothonotary staying the action on the grounds of a jurisdiction clause in the bill of lading selecting Korea as the appropriate jurisdiction. The Federal Court of Appeal stated that the standard of review on an appeal of this sort, whether from a decision of a Motions Judge or a Prothonotary, is that the court of appeal must uphold the order unless it was arrived at on a wrong basis or was plainly wrong. The Court of Appeal noted that the court should not microscopically examine the reasons of the Motions Judge or Prothonotary in applying this test and held that the Motions Judge had erred in overturning the decision of the Prothonotary. The Court of Appeal further re-stated that prima facie an application to stay proceedings based on a jurisdiction or arbitration clause must succeed unless "strong reasons" are shown that it would not be reasonable or just to enforce the clause. The Court examined the factors set out in The Eleftheria, [1969] 1 Lloyd s Rep.237, (i.e. the country in which the issues of fact are situated, the

12 applicable law, the country with which the parties are most closely connected, whether the defendant genuinely desires trial in a foreign country and the prejudice to the plaintiff of litigating in a foreign country) and concluded that there were not strong reasons to decline to enforce the jurisdiction clause. In the result, the action was stayed. Stay of Proceedings - Jurisdiction Clause - Proper Test - Deviation Ecu-line N.V. v Z.I. Pompey Industrie, (January 25, 2001) No. A (F.C.A.), [2000] F.C.J. No. 96 This was an appeal from a decision of a Motions Judge upholding the decision of a Prothonotary denying the Defendant's application for a stay of proceedings based on a jurisdiction clause in the bill of lading. At first instance, the Prothonotary considered the usual factors that are weighed on a stay application and determined that the balance of convenience was marginally in favour of granting the stay. However, the Prothonotary held that there had been an unreasonable deviation in that the bill of lading called for the cargo to be shipped from Antwerp and discharged at Seattle whereas the cargo was, in fact, discharged at Montreal and carried by rail to Vancouver. Accordingly, the Prothonotary held that the Defendant was not entitled to rely upon the jurisdiction clause in the bill of lading. On appeal, the Motions Judge held that the Prothonotary had taken into account all of the circumstances of the case and did not err by taking into the account the breach of contract by the Defendant. On further appeal the Court of Appeal upheld the decisions of the Prothonotary and the Motions Judge, however, and most importantly, the Court of Appeal held that the proper test to apply in stay applications is the tripartite test employed in applications for interlocutory injunctions. That test requires the court to consider; first, is there a serious issue to be tried; second, whether the party seeking the injunction (or stay) would suffer irreparable harm if the injunction (or stay) was not granted; and third, which party would suffer the greater harm as a result of the granting or refusal of the injunction (or stay). (Editors Note: This is arguably a much more difficult test for a defendant seeking a stay to meet than is the test set out in The Eleftheria, [1969] 1 Lloyd s Rep. 237, which has until now been the test applied to such matters.) Stay - Jurisdiction Clause- "Merchant" - Who is Bound Encan Liquidation v Transintra Canada, (November 29, 2000) No. T (F.C.T.D.), [2000] F.C.J. No This was an application by the Defendant carrier to stay a Third Party claim brought against it by a co-defendant, the freight forwarder of the Plaintiff cargo owner, on the basis of a jurisdiction clause in the bill of lading. The Court noted that the bill of lading was a contract between the carrier and the "Merchant" as defined. The term "Merchant" was defined as including the shipper, holder, consignee, receiver of the goods... and anyone acting on behalf of any such person". On this definition, the Court held the freight forwarder was a "Merchant" and was bound by the terms of the bill of lading, including the jurisdiction clause. In the result, the Court ordered the proceedings stayed. Stay

13 Texserv Inc. v Incon Container USA Ltd. et al., (2000) 48 O.R. (3d) 427 (Ont. S.C.) This was an application by the Defendant carrier to stay proceedings on the basis of a jurisdiction clause in the bill of lading requiring actions to be commenced in Florida. The Court declined the stay on the basis that the contract of carriage was effected before the bill of lading was issued, the Plaintiff was not aware of the jurisdiction clause until it received delivery of the goods, and there was virtually nothing to connect the proceedings with Florida except that the cargo was transhipped there. IV. Canadian Maritime Law/ Federal Court Jurisdiction Jurisdiction - Claims against Crew Members - Inducing Breach of Contract Ruby Trading S.A. v Parsons et al., (November 21, 2000) No. A (F.C.A.), [2000] F.C.J. No This matter concerned the jurisdiction of the Federal Court to entertain an action by a foreign ship owner against foreign crew members for breach of contract of employment and against a Canadian union for inducing breach of contract. While the "Japan Rainbow II" was loading a cargo of grain wage demands were made by the Defendants which were not satisfied by the Plaintiff. A strike sign was posted on the ship which resulted in the cessation of the loading activities. The Plaintiff then commenced this proceeding and obtained an injunction restraining the picketing for 14 days. The order granting the injunction was appealed but as the loading was completed during the time the injunction was in effect the issue of the appropriateness of the injunction was moot and the Court of Appeal declined to hear argument on this point. The Court of Appeal did, however, agree to adjudicate the issue of whether the Federal Court had jurisdiction to hear the claim of the Plaintiff. The Defendant argued that it did not have jurisdiction as the claims were in personaum and not in rem, did not fall within the maritime jurisdiction of the court and jurisdiction was specifically assigned by the Canada Labour Code to the Canada Industrial Relations Board. The Plaintiff argued that the claims fell within the court s admiralty jurisdiction. The Court of Appeal reviewed the authorities and reiterated that the test for jurisdiction was threefold: (1) there must be a statutory grant of jurisdiction by Parliament; (2) there must be an existing body of federal law essential to the disposition of the case that nourishes the grant of jurisdiction; and (3) the law on which the case is based must be a "law of Canada" as that phrase is used in s. 101 of the Constitution Act. The Court of Appeal held that all three branches of this test had been met. The statutory grant of jurisdiction was found in s. 22 of the Federal Court Act and the nourishing law and the "law of Canada" was found in Canadian maritime law. The Court of Appeal held that the claims advanced were integrally connected with maritime matters as to be legitimate Canadian maritime law. The Court of Appeal expressly held that it did not matter

14 that the claims were in personam and not in rem as the court had jurisdiction in either event. The Court of Appeal further held that the Canada Labour Code had no application as it did not govern relations between a foreign ship owner and a foreign crew. In the result, it was held that the Federal Court had jurisdiction. Jurisdiction - Breach of Agreement of Sale John E. Canning Ltd. v Tripap Inc., (April 5, 2000) No. T (F.C.T.D.), [2000] F.C.J. No. 418 This was an application to dismiss the Plaintiff s claim on the grounds that it was not a maritime matter and the Federal Court lacked jurisdiction. The claim arose from an agreement between the Plaintiff and Defendant pursuant to which the Plaintiff had agreed to sell and deliver by barge wood to the Defendant. The Defendant later purported to terminate the agreement on the grounds that the Plaintiff had failed to perform its obligations. The Plaintiff then brought this action alleging that the Defendant breached the agreement without cause and sought damages including expenses covering the barge. The Court held that, although the agreement between the parties included some undertakings involving maritime matters, the sole claim advanced of unlawful termination of a purchase and sale agreement had nothing to do with the marine aspects of the agreement. In the result, the Court held that it was without jurisdiction and dismissed the claim. Jurisdiction - Warehousing Pantainer Ltd. v Ontario Ltd., (March 17, 2000) No. T (F.C.T.D.), [2000] F.C.J. No. 334 One of the issues in this case was whether the Defendant s counterclaim against the Plaintiff for damage caused to cargo in a warehouse after the carriage by sea was within the jurisdiction of the Federal Court as coming under maritime law. The Court held that claims for warehousing and storage that arose out of contracts of the carriage of goods by sea are within the jurisdiction of the Court. Insurance - Subrogation Porto Seguro Companhia De Seguros Gerais v The "Federal Danube" et al., (January 31, 2001) No. T (F.C.T.D.), [2001] F.C.J. No. 152 This case is summarized above under "Carriage of Goods". One issue in this case was whether the Plaintiff cargo underwriters had standing to bring suit in their own name for damage caused to the cargo they insured and for which they indemnified the cargo owners. The Defendant argued that under Canadian maritime law the Plaintiff ought to have commenced the action in the name of the cargo owners. The Court, however, held that the matter was governed either by the law of Brazil (where the insurance contract was made) or the law of Quebec and that in either case the insurers became subrogated to the rights of their insured upon payment and were entitled to bring the action in their own name.

15 Application of Provincial Statutes R v Jail Island Aquaculture Ltd., [2000] N.B.J. No. 338 (N.B.Q.B.) In this matter the accused had been charged with various offences under the Occupational Health and Safety Act of New Brunswick. The charges arose out of a fatal accident that occurred on board the accused s barge while smolt salmon were being unloaded into a salmon cage. The accused argued that as the accident occurred on a ship it fell within exclusive federal jurisdiction with respect to maritime law and, in particular, navigation and shipping. At first instance, the Provincial Court Judge dismissed the motion holding that the case was not about shipping but was about aquaculture, a matter coming within provincial jurisdiction under property and civil rights. The accused then brought an application for judicial review to the Court of Queen s Bench. The Court of Queen s Bench did not deal with the substantive issues raised in the application as it was of the view that the application was in pith and substance an appeal from the order of the Provincial Court Judge and held that there was no right to appeal such an interlocutory decision. Application of Provincial Statutes R v Williams, (March 13, 2000) No. CC (B.C.S.C.) In this matter the accused was charged with selling liquor on board his vessel without a liquor licence in contravention of the Liquor Control and Licencing Act of British Columbia. The defences argued were that the Liquor Control and Licencing Act was ultra vires the province insofar as it attempted to regulate vessels, a matter coming under Federal maritime law, and that the vessel was operating outside the territorial jurisdiction of the province. The Court determined that the proper test to apply was whether the provinical legislation affected a vital part of the federal undertaking or whether it impaired or sterilised a federal undertaking. If it did either, it was ultra vires. The Court found, however, that the sale of liquor on a vessel was not a vital part of a ship's operations. The Court held, therefore, that the Liquor Control and Licencing Act did not encroach upon federal jurisdiction over navigation and shipping and did not impair a federal undertaking. The Court further held that the vessel was, at the material times, operating in and around the Greater Vancouver area which was within the territorial jurisdiction of the province of British Columbia. Fatal Accidents - Limitation Periods Nicholson v Canada, [2000] 3 F.C. 225 (F.C.T.D.) This was a summary judgment motion by the Crown for an order dismissing the claims of the Plaintiffs as time barred. The Plaintiffs were the dependents and the executor of the deceased who died when his vessel hit a rock and sank. The Plaintiffs alleged that the accident was caused by the breach of statutory duties on the part of the Coast Guard. The accident occurred on April

16 2, 1992, but the action was not commenced until March 30, The Defendant argued that the applicable limitation period was one year from the time of death as then prescribed by s. 649 of the Canada Shipping Act. The Plaintiffs argued that the discoverability principle operated to extend the time bar under the circumstances of the case, that the Court had inherent jurisdiction to extend the limitation period, that there was a non-statutory cause of action to which s. 649 did not apply, that the tolling provision of the Ontario Limitations Act applied, and that, in any event, the claim of the estate was not covered by s The Court dealt with each of these arguments. With respect to the discoverability principle (i.e. that the limitation does not run until the Plaintiff is aware of the material facts giving rise to a cause of action) the Court held that this principle applied but that it did not assist the Plaintiffs as they were aware of the material facts at the conclusion of the inquest into the death of the deceased yet they did not commence their action within one year from that date. With respect to the inherent jurisdiction of the court to extend the limitation period, the Court held that, in the absence of a clear statutory authority it had no such jurisdiction. (Note: This is contrary to the decision of the Ontario Court of Appeal in Dreifelds v Burton, (March 6, 1998) No. C 2456 & C24580 (Ont. C.A.) but is consistent with the decision of the British Columbia Supreme Court in Vogel v Sawbridge, (April 3, 1996) No Kelowna Registry.) With respect to the alleged common law non-statutory cause of action, the Court held that there was no such cause of action. With respect to the argument that the tolling provisions of the Ontario Limitation Act applied, the Court held that the incorporation of the tolling provisions would be inconsistent with the statutory scheme set out in Part XIV of the Canada Shipping Act. Finally, with respect to the action by the executor of the estate of the deceased, the Court held that this action (which was newly created by the Supreme Court of Canada in Ordon Estate v Grail, [1998] 3 S.C.R. 437) was not time barred as it was not a claim by dependents and was governed by the two year limitation period in the Ontario Trustee Act as incorporated by section 39 of the Federal Court Act. (Note: It is not apparent why the limitation period in the Ontario Trustee Act would apply to the action by the executor as that action is a common law action and is not based on the Trustee Act.) Federal Court Jurisdiction - Breach of Fishing Agreement Inter Atlantic Canada Ltd. v The "Rio Cuyaguateje", (2000)180 F.T.R. 318 (F.C.T.D.) This was an application to strike out the Statement of Claim and set aside the Warrant of Arrest on the grounds that the Federal Court lacked jurisdiction. The subject matter of the action was an alleged breach of an agreement relating to the utilization and allocation of North Atlantic shrimp to Cuba. The Court held that this was not a claim involving Canadian maritime law and, therefore, held that it was without jurisdiction and allowed the motion. V. Limitation of Liability Limitation Proceedings - Calculation of Fund - Flotilla Principle

17 Canadian Pacific Railway Company v The "Sheena M" et al., (November 28, 2000) No. T (F.C.T.D.), [2000] F.C.J. No This action arose out of the collision between the unmanned barge, "Rivtow 901", in tow of the "Sheena M", and the Mission Railway Bridge. The Plaintiffs, the owners of the "Sheena M", brought this application for summary judgment for an order that they were entitled to limit their liability under s. 577(1)(b) of the Canada Shipping Act to $500, plus interest. The Defendant, the owner of the bridge, admitted that the collision was not caused by a "personal act or omission" or "with intent to cause such loss" or "recklessly with knowledge that such loss would probably result" and, therefore, the right of the Plaintiffs to limit liability was not in dispute. The sole issue was whether the limitation fund should be calculated on the tonnage of the tug, "Sheena M", alone or whether it should be calculated on the combined tonnage of the tug and tow. The leading Canadian case on this issue was recognized by all to be the decision of the Supreme Court of Canada in The "Rhone" v The "A.B. Widener", [1993] 1 S.C.R. 497, in which the Supreme Court affirmed that the limitation fund should be calculated on the combined tonnage of the tug and tow provided the tug and tow were in common ownership (the "flotilla principle"). In the absence of common ownership and where the barge was a "dumb barge", the fund was to be calculated on the basis of the tonnage of the tug alone. However, the limitation of liability regime in effect at the time of the decision in The "Rhone" was essentially that contained in the 1957 Convention on Limitation of Liability for Marine Claims. That regime was repealed by C.6 Statutes of Canada 1998, which implemented the 1976 Convention on Limitation of Liability for Marine Claims, with some modifications. Counsel for the Defendant argued that these changes to Canada s limitation of liability regime had overtaken the decision of the Supreme Court of Canada in The "Rhone" and that the new regime should be interpreted as requiring the tonnage for limitation purposes to be calculated on the basis of the combined tonnage. Counsel for the Defendant pointed specifically to the new definition of "shipowner" in s. 576(3) of the Canada Shipping Act which includes "any person having an interest in or possession of a ship" and urged that by virtue of this definition the owners of the "Sheena M" were also owners of the "Rivtow 901". The Court, however, held that the new definition of "shipowner" was merely a substitution for former s. 577 of the Canada Shipping Act which had similarly extended the limitation of liability provisions to, inter alia, "any person having an interest in or possession of a ship". The Court therefore concluded that the legislation before it was essentially the same as was before the Supreme Court of Canada in The "Rhone". Counsel for the Defendant next argued that the "flotilla principle" was no longer valid because the new limitation of liability regime did away with concepts of "causative negligence" and "common ownership". The Court also rejected this argument saying that the 1998 amendments showed no clear intent on the part of Parliament to change the existing Canadian "flotilla principle". In the result, the limitation fund was calculated on the basis of the tonnage of the tug alone. Collisions - Limitation - Damage to Fishing Net North Ridge Fishing Ltd. et al. v The "Prosperity" et al., (2000) 78 B.C.L.R. (3d) 388 (B.C.S.C.) This was an action for damages suffered during the 1997 herring fishery when the Defendant's vessel cut the net of the Plaintiffs' vessel. (The full case is summarized below under