December 2016 copy - Fernandes Hearn...Connie Banford (“Connie”), was injured in a boang...

Newslet ter

INTHISISSUEPAGE1BOATINGACCIDENTLITIGATIONISSUES

PAGE2AND3FIRMANDINDUSTRYNEWS

PAGE9TWOUKDECISIONSONLIMITATIONOFLIABILITY

PAGE12FORUMSELECTIONCLAUSES

PAGE18CUSTOMSUPDATEPAGE20FAILURETOEQUIPVESSELPROPERLY

PAGE23HAGUEVISBYRULESDONOTAPPLYTOCHARTERPARTY

PAGE26PRIORITYRULESONSALEOFVESSEL

PAGE20LOSSTRANSFERARBITRATIONS

PAGE35CONTEST

FERNANDES HEARN LLP DECEMBER 2016

TherecentdecisionofBanfordv.Mitchelson2016SKQB328illustrateshowimportant it is forpar>es tohavecompetentcounsel as soonaspossible aAer an accident, how witness tes>mony is important to acase, andthe effectson a civil caseof pleading guilty toa criminalcharge.

ConnieBanford(“Connie”),was injuredin a boa>ngaccident. RobertMitchelson(“Mitchelson”),deniedthathe was theoperatorofthe boatthatcausedtheinjuriestoMs.Banford.

TheFacts

The Banfords owned a coOage on Saskatchewan Beach along LongLake, inSaskatchewan.OnCanadaDay eachyeara fireworks displayisputonatthe villageofRegina Beach.Peoplewatchthedisplayfromthewater in their boats. It is notunusualtohave some200boatsinthewaterduringthedisplay.

OnJuly 1, 2005 the Banfordfamilywent towatchthefireworks.TheyleAtheircoOageintheir18.5footBayliner inboardboat.TheBanfordboattravelledtothe ReginaBeachYachtclubarea andsatina convoyof boats towatch the fireworks. Oncethefireworkswere over, theBanfords proceededtothenorthsideofthelake andtrolledtheirwayeastward to return to their coOage. The local coOage ownerswerepuZng on their own fireworks displays and the occupants of theBanfordboatweregoingslowtotakeintheseindividualdisplays.

When they were approximately one-half of theway home, anotherboatcameupbehindthem,overtakingthem.Theotherboatcameupover the topof the Banford boat from right to leA. In the process,Connietes>fiedthat the hull oftheother boat collidedwithher andcausedher tofall intothewalkway of the Banfordboat.As theboatcameover thebackof theBanfordboat, a passenger ontheBanford

BoaCngAccidentLiCgaConIssuesHighlighted

FERNANDES HEARN LLP NEWSLETTER DECEMBER 2016 PAGE 2

FIRMANDINDUSTRYNEWS

• Publisher LexisNexis has releasedtheHalsbury’s Laws ofCanada2016edi>onofMari5meLawwriOenbyRuiFernandes.

• GordonHearnwill berepresen>ngtheFirmattheJanuary8-9,2017mee>ngoftheConferenceofFreightCounselinDanaPoint,California

• GordonHearnwill be providinga Canadianperspec>ve inaninterna>onal paneldiscussionon“Conflicts of Law Issues in the CrossBorder Carriage of Goods betweenCanada, the United States and Mexico” at the Chicago Regional Seminar of theTransporta>onLawyersAssocia>ononJanuary20,2017.

• Kim Stoll will be represen>ng the Firm at the January 30-31, 2017 AmericanIns>tute 6th Annual Forum on Admiralty & Mari>me Claimsand Li>ga>on in Miami,Florida.

• TheMarineClubAnnualDinnerwilltakeplaceonJanuary20th,2017inTorontoattheRoyalYorkHotel.


FHLLP17THANNUALSEMINARADMIRALTY&TRANSPORTATIONLAW

Date:ThursdayJanuary19th,2017LocaCon:TheAdvocates’SocietyEducaConCentre250YongeStreet,Suite2700TorontoCost:$65.00-IncludeslightlunchandmaterialsonUSBDriveRegistraCon:SharifaGreen,FernandesHearnLLP416-203-9500Sendchequesto:FernandesHearnLLP,155UniversityAve.Suite700,ONM5H3B7Limitedto110aOendees5.5RIBOCredits(TechnicalCategory)

Time Topic Speaker(s)

8-825 Registra>onandCoffee Sponsor:RIOInsurance

825-830 Welcome RuiFernandes

830-900 PostIncidentStepsandAAermath:

1. EmergencyResponsePlans2. DealingwithAuthori>es3. DealingwiththeMedia4.PostIncidentBlues

RuiFernandes

9-930 ContractsUpdate:Thissessionwillprovidean

updateoncaselawinterpre>ngcontracts;

AlsoareviewofPriorityPaymentsandTrust

Obliga>onsinthetruckingandlogis>csfield

GordonHearn

930-10 SafetyPlans,DueDiligence,andInfrac>onsin

Trucking

AlanCofman,LouisAmato-Gauci

10-1030 EmergingEmploymentIssuesinthe

Transporta>onIndustry:

1. Federalv.ProvincialIssues

2. NonCompe>>on/NonSolicita>onClauses

3. HumanRightsandDisabili>es

RuiFernandes,CaroleMcAfee

Wallace

1030-11 ForeignUpdate USA:TBA

UK:TBA

11-1115 CoffeeBreak Sponsor:AON


FIRMANNUALSEMINAR

Time Breakout Session A Breakout Session B

1115-1145 DefendingCargoClaims

JamesManson,CharlesHammond

EmergingCustomsIssues

LouisAmato-Gauci,MarCnAbadi

1145-1215 InsuranceCoverageIssuesin

Transporta>on,KimStoll

FoodSafetyandTransporta>on

JaclyneReive,MarkGlynn

1215-100 Lunch

Time Mock Trial Participants

1-330 AshipmentofgrapesfromValparaiso

ChileinacontainertoSeaOle,thenby

trucktoVancouver,thenbyCNto

ConcordOntarioandthereaAerbytruck

totheOntarioFoodTerminal.Onarrival

thegrapeswerediscovereddamaged.The

trialwillexploredocumenta>onand

transporta>onissuesinvolvingaload

broker,oceancarrier,truckingcompany,

andrailcompany.

Lawyers:Fernandes,Stoll,Manson,CofmanwillpresentthecasetoJus>ceC.W.Wallace

tes>fiedhe wasabletoiden>fy thenameoftheotherboaton theside as a “Baja” boatwithawhitestripe.

As a result of the collision, Connie sufferedinjuries. Theother boat then leA thescene. Itwas chased. The Banford boat caught upwiththeBaja vessel.Words wereexchangedandtheBajavesseltookoffagain.

Thefollowingday,BanfordboatoperatorRhoryBanford(“Rhory”)contactedtheRCMPtoreportthe incident. He had surmised the offendingboatwas fromthe coOagearea immediately totheeast of SaskatchewanBeach. Hearrived atthis supposi>on because the Banford coOagewasattheveryendofSaskatchewanBeachandthe other boat washeaded east. The KannataValleycoOageareais immediately totheeastofSaskatchewanBeach.

In furtherance of this conclusion, Rhory andConnie proceeded to contact friends who hadproperty inKannataValleytoaskiftheyknewofanyone who owned a Baja boat in that area.They weretoldaboutMitchelson, asheownedsuchaboat.AfewdaysaAertheaccident,RhorydrovehisboattotheKannataValleyareawherehesawa Baja boatinaboatliAonthe water.Heindicatedit had thesametypeofstripe ontheside.Healsoindicatedtherewas amarkonthehulloftheboatthatseemedconsistentwiththedamage that would have been caused by thecollision.

Rhory tes>fied this was the sameman hehadseen on the night of the accident. Rhoryimmediately went to theRCMP detachment inLumsdentoreportwhathehaddiscovered.ThemanwasMitchelson.

TheRCMP chargedMitchelsonwith aviola>onofthe CanadaShippingAct,2001,SC2001,c26and provided him with an appearance no>cewithacourtdateofAugust22,2005.

Mitchelsontes>fiedthatontheeveningofJuly1, 2005, heandhis wifehadtravelledby boatfrom their coOage in Kannata Valley towatch

the fireworks at Regina Beach. Following thefireworks display, he was proceeding back totheircoOage.Hewas travellingata slowspeed.He was opera>ng a Baja boat. While he wastravelling, aboat cameup tohis boat andtheoccupants wereyellingandswearingatheandhis wife.Hecouldnotmakeoutwhattheyweresaying. He thought the occupants might havebeen intoxicated. He leA the area andproceededhome.

During the trial the court also heard thatMitchelsonhadappearedinProvincial Courtandentered a guilty plea to the CSA viola>on,dangerous opera>onofa boat. Theprosecutorhadreadintotherecordthefollowing:

Withrespecttothefacts, YourHonour, thisoccurred on JulyfirstatReginaBeachaAerthe fireworks on Last Mountain Lake. Anindividual by the name of Banford wasopera>ng a boatload of people and wasinvolvedinahitandrun.Heindicatedtothepolicethata21-footBajaboatwithamaleasthedriverandafemalecompanionstruckhisboat, basically a glancing blow to hisboat.His wife was in the boat. She fell down,receivedsomeminorinjurieswithrespecttoit. YourHonour,it isachargeof dangerousopera>on of a boat obviously. We’resugges>nga fineof$250.WediscussedthatwithMr. Michelson and he’s indicated thathe’sinagreementwiththat,...

Mitchelson was served with the statement ofclaimthecivil ac>on.Herespondedwitha leOerto the then lawyer for the plain>ffs andindicatedhe hadnotbeeninacollision.He tookno further steps andtheac>onwasnotedfordefault.Someyearslater,in2012,theplain>ffsappliedforjudgmentandMItchelsonappliedtodismiss theac>on,or, in thealterna>ve, tosetaside the no>ngfordefault.Thecourt setasidetheno>ngfordefaultandallowedMItchelsontofileastatementofdefence.

TheIssues

Some of the issues during the trial were asfollows:


1. What is the standard of proof in this civilproceeding?2.Whatis the effectofthe failuretocall certainwitnesses?3.What is theeffect ofthedefendant’sfindingof guilt on the charge pursuant the CanadaShippingAct?4. Has the plain>ff sa>sfied the standard ofproof to establish the defendant was theoperatoroftheboat?

Analysis

1. What is the standard of proof in this civilproceeding?

Thecourtconcludedthattheplain>ffmustplacebefore the court clear and cogent evidence toshow the allega>on is more likely than not tohave occurred; that is, on a balance ofprobabili>es.

2.Whatistheeffectofthefailuretocallcertainwitnesses?

Mitchelson deniedhewastheoperator of theboat involvedinthe collision.Hedidnotcall hiswifeasawitness.

Thecourtmaydrawanadverse inference fromaparty’s failure to call a witness in a civilproceeding. A party is expected to call thatevidence which will assist the court indeterminingtheques>oninissue.

Mitchelson denied an event occurred, in thefaceof the fact ofanaccident,by aBajaboat,and with two people posi>vely iden>fyingMitchelson as the operator of the offendingboat.Thosewitnessesiden>fiedMitchelsonanda woman as being the occupants of theoffendingboat. They indicatedthat thewomanhaddarkhair.

At trial Mitchelson confirmed his wife was ontheboat theeveningof July 1, 2005.Thecourtnoted:

Shewouldhavebeenableto thentes>fyastoalloftheeventsof thenightincludingtheabsenceofanaccident.Ona perhapssmallerpoint, the defendant tes>fied his wife hasalwayshad blond hair and denied her hairwas dark on July 1, 2005. She could havetes>fied to both confirm his point andthereby call into ques>on the Banford’spowersofobserva>on.

There was no explana>on provided for whyMitchelson’swife was notcalledas a witness. Itwas established that at the >me of trial,Mitchelson remained married to his wife andshe was present at their home locatedimmediately outside of Regina. There wasnothing tosuggest she was suffering from anydisability that would haveprevented her fromtes>fying.

Thecourtheld:

Iamcompelledtodrawanadverseinferencefrom thedefendant’sfailure to callhis wifeto tes>fy. I conclude there is evidence ofMrs. Mitchelson, concerning the boa>ngaccident, which would be unfavourable tothe defendant. It is for thisreason shewasnotcalledtotes>fy.

3.Whatistheeffectofthedefendantfindingofguilt on the charge pursuant the CanadaShippingAct?

Aprior convic>on is tobeconsideredasprimafacieproofthatthe facts,whichformpartoftheconvic>on,didoccur.Theoppositepartyis thenprovided with an opportunity to rebut thosefactsinthesubsequentcivilproceeding.

In this case the judge held that in thecircumstances it was appropriate to allowMr.Mitchelson to dispute responsibility for theaccident. It was not an abuse of process topermit that to occur. There was no evidencecalled at the criminal proceeding andaccordingly, the finding of guilt was not as aresult of the court reviewing any sworntes>mony. The judge held that Mitchelson’sexplana>on for why heenteredtheguilty plea

INVESTOR NEWSLETTER ISSUE N°3 FALL 2008FERNANDES HEARN LLP NEWSLETTER DECEMBER 2016 PAGE 6

was an explana>on that has been specificallyrecognizedbytheSupremeCourtofCanada.

In this case, Mitchelson tes>fied he entered aguilty plea duetohis economic circumstances.Essen>ally, he said it was cheaper to pleadguilty, get aminimalfineandnothave totakeaddi>onal >meoffworktodeal withthemaOer.There was no evidence tendered in theProvincialCourtproceeding.

4.Hastheplain5ffsa5sfiedthestandardofproofto establish thedefendantwas theoperator oftheboat?

Thecourtnoted:

“Rhory and Shelly Banford posi>velyiden>fiedMr.Mitchelsonas theoperatorofthe offending boat. On July 1, 2005, Mr.Mitchelson was in his Baja boat on LongLake. The Banfords, together with BlaineHuber,tes>fiedtheBajaboatcametoastopfollowing the collision. It was a number offeet from the Banford boat. It remainedstopped for aminuteor two and then leA.ShelleyandRhorytes>fiedtheywereabletoseeandposi>velyiden>fytheoperator.”

Both of these individuals were cross-examined on previous affidavits they hadfiled in this proceeding which wereinconsistentwiththeircurrenttes>mony.Ontheprevious occasion,RhorysworetheotherboatimmediatelyleAthescenefollowingthecollision. He explained that this statementwasnotaccurateandtheboatdidstopforaminuteortwo.

Thecourt alsonotedthat civil courtscantakesome direc>on for the factors rou>nelyconsidered by criminal courts in assessing theevidenceofawitness whois seekingtoiden>fyanotherparty.Criminal courtsregularlyconsiderthefollowingtypes offactors indeterminingtheweight tobegiventoeyewitnessiden>fica>onofaparty:

a.Opportunitytoobserve;b.Lightcondi>ons;

c.Distancefromwitnesstosuspect;d.Eyesightofthewitness;e.Previousacquaintancewiththesuspect;f.FocusoraOen>onordistrac>on;g.Presence orabsenceofdis>nc>vefeatures ofthesuspect.

The court reviewed the evidence on theiden>fica>on:

Both Rhory and Shelley had anopportunitytoobservethedefendantontwooccasionsand Rhory saw him on a third occasionoutsidethecoOage. Condi>ons for thefirsttwoobserva>onswerelessthanideal:itwasnighZmeandtherewaslimited illumina>onby ligh>ng. However, there was someillumina>onbytherearmast ligh>ng onthedefendant’sboat.On thefirstoccasion, theboats mayhavebeen20to40feetapart. Ineithercase,thisis notagreatdistanceanditwouldbepossibletomakeaniden>fica>on.On the second occasion, the boats weredirectly sideby sideand itwouldhavebeene v e n mo r e p o s s i b l e t o m a k e a niden>fica>on. While >me was limited oneachoccasion, itmayhavebeenasmuchastwo minutes, but appears to have beenaround theminutemark. Idonot view thisasaninsignificantamountof>me.

Coupled with this, the defendant wasopera>nga Bajaboat.Hewas inthevicinitythat evening. His ac>ons in “just leaving”followingtheconfronta>onwiththeBanfordboatappearoddinthecircumstances.

Interes>ngly, the court noted that the plea ofguilt,whilenot forestallingMitchelsondispu>ngliability in the civil proceedings, was addi>onalevidenceconfirminghisinvolvement.ThejudgefoundthatMitchelsonheldamaster’sdegree inindustrial psychology.Overtheyears Mitchelsonhad successfully operated his own consul>ngbusiness andhe hadmanageda medical surgicalbusiness opera>on. He presented as anintelligent and sophis>cated individual. Hisfailuretodisputethe wordsoftheCrownatthesentencing hearing “are unexplainable. Hetes>fiedhe didnot hear thosewords. Yet, hewaspresentandhe was specifically askedifhe


hadanythinghewantedtosaypriortosentencebeing pronounced.He declinedtosay anythinginresponse.”

Thecourtheldthat:

The failure to call Mrs. Mitchelsonsuggests her evidence would not havebeen favourable to Mr. Mitchelson’scase. His denial of involvement in theface of posi>ve iden>fica>ons, and aguilty plea based on the fact of anaccident, cal ls out for evidenceestablishinghislackofinvolvement.Mrs.Mitchelsonwasthisevidence.

In all of the circumstances, the court wassa>sfied, on a balance of probabili>es, that itwasmore likely thannot that MitchelsonwastheoperatoroftheBaja boatthatcollidedwiththeBanfordboat.

Damages wereawardedtoConnieBanfordforherinjuries.

RuiM.Fernandes

Fo l l ow Ru i M . Fe rnandes on Tw iRer@RuiMFernandesandonLinkedin. SeealsohisblogathOp://transportlaw.blogspot.ca


http://transportlaw.blogspot.cahttp://transportlaw.blogspot.ca

2. TwoUKDecisionsonLimitaConofLiability

Thereare tworecentdecisionsonthe limita>onofliability ofa shipownerunder theConven>onon Limita>on of Liability for Mari>me Claims1986thatwillbeequallyapplicableinCanada.

InBorko v.Cape Bari [2016]UKPC 20 thePrivyCouncil consideredanappeal fromtheCourtofAppealof theCommonwealth oftheBahamas.Thecase involveda collisionofthevessel CapeBariwitha seaberthduringberthingopera>ons.Thecollisionresultedindamages totheberthofU.S. $22 million. The vessel owners claimedtheywere en>tledtolimitliabilityto11,012,433SpecialDrawing Rights (calculatedby referenceto the vessel ’s gross tonnage), beingapproximately US$16.9 million. The berthownersdeniedthattheowners wereen>tledtolimit liability on the ground they had waivedtheir right todo sounder a contract that thepar>es had made immediately before theberthingopera>on.The contractwascontainedin or evidenced by a document referred tohereaAer as “Condi>ons of Use”, which wassignedbythemaster.

Thetrial judgehadheldthat theowners werenot en>tledtolimit their liability because theyhad contracted out of their right to limit. TheCourt of Appeal reversed the decision of thejudge on the grounds that, under the 1976Conven>on, it wasnot permissible to contractoutoftherighttolimit,evenby enteringintoacontractofindemnity.

ThePrivy Council had to consider (1) whetherunder 1976 Conven>on it was permissible fortheowners tocontractoutof theright tolimit(asbothpar>es hadacknowledgedat trial)and(2)onthetrue construc>onoftheCondi>ons ofUse,whetherthe ownershaddoneso(as foundbythetrialjudge).

TheCondi>onofUseinques>onstated:

Ifinconnec>onwith,orbyreasonof,theuseorintendedusebyanyvesseloftheterminalfacili>esor any part thereof,anydamageis

caused to the terminal facili>esor any partthereoffromwhatsoevercausesuchdamagemay arise, and irrespec>veof weather [sic]or not such damage has been caused orcontributed toby the negligence of BORCOor its servants, and irrespec>veof whethertherehasbeenanyneglectordefaultonthepartof thevesselortheOwner,inanysuchevent the vessel and theOwner shall holdBORCO harmless from and indemnifiedagainstall andany loss,damages, costsandexpenses incurred by BORCO in connec>ontherewith.Further,thevesselandherOwnershallhold BORCO harmlessandindemnifiedagainstall andanyclaims,damages,costandexpensesarising outof anyloss,damageordelay caused to any third party arisingdirectly or indirectly from the use of theterminal facili>esor of any part thereof bythevessel...[Emphasisadded]

AAer considering English and Hong Kong lawauthori>es, the Privy Council set out somegeneral principles inrela>ontowaivingtherighttolimit:

a)itis possiblefora shipowner tocontractoutof orwaivetheright to limit liability under the1976Conven>on(oritspredecessorConven>on)- nothing in the words of the Conven>onpreventsthis;b) for a party to abandon or contract out ofvaluablelegalrights, theprovisions relieduponmustmakeit clearthatthis iswhat is intended.The more valuable the right, the clearer thelanguageneedstobe;c)whenconstruingwhethera contract seekstowaive aright, thestar>ngpointis that therightin ques>on is treated as being known andunderstoodbythepar>estoapply;d) the right is thenconsideredwriOen intothecontract unless there is a provision in thecontract which clearly and unequivocallyexcludes it such that the two cannot be readtogether and the right must therefore beexcluded;e) it may be possible to exclude the rightwithout express reference to the statute orconven>on, but the right must be clearlyexcluded,expresslyorby necessary implica>on,


such that a reasonable observer would agreethattheowneragreedtowaiveit.

ThePrivy Council set asidetheCourtofAppealdecision, holding that the right of limita>oncould be contracted out of. It held, however,thatonatrue construc>onofthe "Condi>onsofUse",theshipowners hadnotactuallyagreedtoexclude their right to limit, as that right couldexist alongside the contractual wording, withBORCO en>tled to an indemnity "up to themaximum recoverable pursuant to theConven>on".

TheseconddecisionoutoftheUnitedKingdomcourts was the Atlan5k Confidence case. InKairos Shipping Ltd. v. Enka & Co. LLC [2016]EWHC 2412thevessel Atlan>cConfidencesankandwas lostaAerafireinthe engineroom.Thevessel was ladenwithcargo.Thecaptainandthecrewabandonedherintwolifeboats.Thevesselownerscontendedthattheloss was the resultofflooding following a fire. The cargo claimant’sposi>onwasthat thevesselhadbeen scuOledowingtotheowners’financialcircumstances.

The court considered the evidence andconcluded that the sinking was a deliberatescuOling performedby thechief engineer withtheknowledgeofthe masterontheinstruc>onsoftheowners.

Ashipowneris en>tledtolimithis liabilityunlessit is proven that the loss resulted from hispersonal act or omission, commiOed with theintent tocausesuchloss, orrecklessly andwithknowledgethatsuchloss wouldprobablyresult;see Ar>cle 4 of theLimita>onConven>on. Theburden of proving such conduct lays upon theperson challenging the right to limit, in thiscase,thecargoowners.

That burdenwas described by Sheen J. inTheBowbelle [1990] 1 WLR1330 as a "very heavyburden", whichdescrip>on hasbeen approvedby the Court ofAppealinThe Leerort [2001]2Lloyd’s Rep291 andby the Privy Council inTheCapeBari[2016]UKPC 20. Theburdenis "veryheavy" because of the nature of the conductwhichmustbe provedtobreaktherighttolimit.

Theburdenwas describedby LordClarkeinTheCapeBari at paragraph14 as"ahighhurdletojump". In Canada, the same descrip>ons havebeen made in the Peracomo case and theSiemensdecisions(*1).

Thecourtnotedthe difficulty thatchallengers tolimita>onfaceintermsoftheevidence:

ATLANTIKCONFIDENCE sank indeepwater.The wreck has not been inspected with aviewtodetermining thecauseof thefireorthe cause of the sinking. The availableevidence as to mechanism is thereforelimitedandconsistsof surveys of thevesselpriortothefinalvoyage,theobserva>onsofthe fire by the chief engineer and secondengineer and photographs of the vesseltaken aAer thevesselhadbeen abandonedandbeforeshesank.Insuchcircumstancesitis inevitablethatCargowill beunabletogivea full and complete account of theallegedscuOling (and unsurprising if the accountchanges as the li>ga>on proceeds). ThatneednotbefataltoCargo’scasesolongas,aAerexaminingalloftheevidence,thecourtis ableto infer that thevesselwasscuOledon the instruc>ons of Mr. Agaoglu. Indecidingwhether thecourt is ableto drawsuch inferencethe courtmust keepwell inmindthatitis possible,especiallywheretheevidenceislimited,thatthecasemaybeonewhere Cargo is unable to establish its casewith the result that the cause of the lossremainsindoubtand thecourt isunabletomakeafinding asto thecauseof the loss;seeThe PopiM [1985] 2 Ll.L.Rep.1atpp.3-6.

Thecourt heardoral tes>mony from thevesselowner Mr. Agaoglu, from Captain Toran, thechief execu>ve officer or fleet manager of theowners, andCaptainsTaner andMahmut, twodeck superintendents. They and other factwitnesses werecalledby theowners. Thecourtalso heard a considerable amount of experttes>mony.

The court concluded aAer hearing all of theevidence:


ATLANTIK CONFIDENCE was lost at sea aAersufferingafireinthestoreroomontheseconddeckof theengineroom. It ismorelikelythannotthattheoriginof thefirewasin thestoreroom and there is a real and substan>alpossibilitythatthatfirewasstarteddeliberatelyinthedoorwayof thestoreroombyspillingoilandigni>ng it.Thereis nomorethanaremotepossibility that it was caused accidentally byreasonofafireorigina>ngfromaleakoffueloilat the no.2 generator. The engine roomflooded. Thatflooding couldhavebeencauseddeliberatelyandthereis nomorethanaremoteor unlikely possibility that it was caused by acrack intheshellpla>ngresul>ng fromthermalstressescausedby thefire.Ataboutthesame>metheballastdoubleboOomtanksnos.4and5on the portsidewereflooded. That floodingcouldhavebeencauseddeliberatelyand thereis no more than a remote possibility that itcouldhavebeencausedbyaflashoverfromthefire affec>ng the cabling to the ballast valvesolenoid cabinet forward of the store room.Whilsttheimprobablecanhappenitisdifficultto accept that three improbable events (anaccidental fire, an accidental flooding of theengine room caused by the fire and anaccidentalfloodingof twodoubleboOomtankson theportside caused by thefire) may haveoccurredinrapidsuccessiontoeachother.Thisreasoningis frequentlyusedinallegedscuOlingcases.

In addi>on to there being three improbableevents the judge noted that those threeimprobable events were also preceded by achangeofrouteintodeepwater,anindica>onoftheintenttoscuOlethevessel soitcouldnotbefoundor raised. The Owners of thevessel hadinstructedthemastertochange theroute ofthevessel so that she sailed into deep water. Themaster and Captain Toran sought to hide thatchange of route. AAer it could no longer behidden, they said it was jus>fied by a risk ofpiracy when it was not. The court elaboratedfurther on the reasons for finding a deliberatescuOling.

The court thereforeheld that the loss resultedfrom the personal act of owners, which wascommiOed with the intent to cause the lossincurred, and therefore refused the owners'applica>onforlimita>ondecree.

RuiM.Fernandes

Fo l l ow R u i M . F e r nande s on Tw iRe r@RuiMFernandes and onLinkedin. See alsohisblogathOp://transportlaw.blogspot.ca

Endnotes(*1)PeracomoIncvTELUSCommunica5onsCo2014SCC29;SiemensCanadaLimitedv.J.D.Irving,Limited,2011FC791;2012FCA225;SiemensCanadaLimitedv.J.D.Irving,Limited,


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3. DowntheRabbitHolewithForumSelecConClauses

The recent decision of the Ontario Court ofAppeal in Novatrax Interna5onal Inc. v. HägeleLandtechnik GmbH (*1) provides an interes>ngillustra>onof issues thatcanarise witha forumselec>on clause in an interna>onal commercialcontract.

The ‘take-away’ from this case, and why it isimportantreading,canbesummarizedasfollows:

1.Whatwill a courtdowhenfacedwiththesitua>on where two par>es enter into acontract agreeing on ‘forum selec>on’ intheeventofadispute,withoneparty latersuingtheother ina differentforum,whichdraws theprotest oftheother contrac>ngparty?

2. Assume that the court is inclined toenforce the jurisdic>on clause in such acase –requiringtheplain>fftoreverttothe‘contractedforum’forthedispute.Whatofthefactthat the plain>ffsuedthirdpar>esinthe original lawsuitwhowerenot‘privy’to the contract. What happens to thoseclaims? Is the plain>ff then required toadvance those claims in the ‘contractedforum’ as well, or should they proceed inthe ‘disputed jurisdic>on’ wheretheclaimwasfirstfiledbytheplain>ff?

3. If the ac>on between the contrac>ngpar>es is required to be moved to the‘contractedforum’, and theclaimsagainstthenon-contrac>ngdefendants areallowedto remain in the ‘disputed forum’, shouldthe ac>ons be allowed to proceedsimultaneously or should the laOer bestayed pending an adjudica>on of theformer?

Background

In July 2006 Novatrax Interna>onal Inc.(Novatrax)renewedanExclusiveSales Agreement

(the “ESA”) with the respondent, HägeleLandtechnik GmbH (“Hägele”) under which itwouldcon>nuetodistributeindustrial reversiblefans inCanada andtheUnitedStates.Pursuanttothe terms of the contract either party couldterminate the ESA on 12 months’ no>ce, orwithoutno>ceinspecifiedcircumstances.

OnNovember24,2009,Hägeleno>fiedNovatraxthat it wastermina>ngtheESA immediately forcause.In January2010,Novatraxcommencedanac>onfordamages allegingwrongful termina>onof theESA andwillful misconduct giving rise toliability in tort against Hägele, and its principalofficers Karl Hägele and Benjamin Hägele.Novatrax alsoaddedCleanfixNorthAmerica Ltd.(“Cleanfix”)totheac>on. Cleanfixwasa relatedcompany set up by Hägele to sell its productsdirectlyintotheCanadianandAmericanmarkets.

Sec>on18oftheESAcontaineda forumselec>onclauseprovidingasfollows:

Thecontractualpar>esagreethatGermanlawis binding and to seOle any disputes by abinding arbitra>on through the“Industrie undHandelskammer” (Chamber of Commerce) inFrankfurt.

The defendants moved to “stay” the ac>on,relying on the forum selec>on clause. Theywanted to the dispute referred to Germanypursuant totheaboveclause.Themo>on judgewhoheardthis mo>ongrantedthestay.Wishingto con>nuewith its claims in Ontario, Novatraxappealed the decision to the Ontario Court ofAppeal.

TheIssuesontheAppeal

The par>es agreed that the mo>on judgecorrectly iden>fiedthegoverning principles thatrelate to the enforcement of a forum selec>onclause.These were setoutby theSupremeCourtof Canada in Z.I. Pompey Industrie v. ECU-LineN.V.,(“Pompey”)(*2)andbythe OntarioCourtofAppealinExpedi5onHelicoptersInc.v.HoneywellInc., ("Expedi5on Helicopters”) (*3), and in2249659OntarioLtd.v.SparkasseSiegen(*4):


(i) The law favourstheenforcementof forumselec>on clauses in commercial contracts.Where the par>es have agreed to a forumselec>on clause, the star>ng point in theanalysis is that the par>es should be held totheirbargain;

(ii)Astayofanac>onshouldbegrantedunlesstheplain>ffshows“strongcause”thatthecaseis excep>onal and the forum selec>on clauseshouldnotbeenforced;

(iii) The requirement that the plain>ff show“strong cause” presumes that there is anagreement containing a clear forum selec>onclauseandthatclause,by itsterms,appliestotheclaimstheplain>ffseekstobringinOntario;and

(iv) The forum selec>on clause pervades aforum non conveniens analysis and must begiven fullweight intheconsidera>onof otherfactors.(*5)

Novatraxraisedtwoissuesontheappeal.

It submiOed that the mo>on judge erred infindingthat the languageof the forum selec>onclause (i.e. “to seOle any disputesby a bindingarbitra>on”)was broadenoughtocapture boththecontractandtortclaims pleadedbyNovatraxagainstHägele. ItalsosubmiOedthatthe maOershouldnothavebeenstayedasagainst theKarlHägele, Benjamin Hägele, and Cleanfixdefendants becausetheywere notpar>estotheESAcontainingtheforumselec>onclause.

Issue#1:Did themo5on judgeerrin interpre5ngthescopeoftheforumselec5onclause?

In its Statement of Claim, Novatrax assertedseveralcontractclaimsagainstHägele:

(i)wrongfultermina>onoftheESA;(ii)a breachofthedutyofgoodfaithbyaccessingconfiden>al Novatrax informa>on whenBenjamin Hägele was permiOed to set up anofficewithintheNovatrax’sfacility;and

(iii) a breach of the duty of good faith incommunica>ng the termina>on of the ESA toNovatrax’semployeesanditsfinanciallender.

Novatrax arguedthatthemo>onjudge erredbyfailingtofindthatithadshownstrongcausenottoenforce the forumselec>on clause. NovatraxpointedtothedecisioninExpedi5onHelicopterswheretheOntarioCourtofAppeal statedthat afactor, which may jus>fy departure from thegeneral principleof enforcing a forum selec>onclause,iswhere“the claimor thecircumstancesthat have arisen are outside of what wasreasonably contemplated by the par>es whenthey agreedto theclause.”Novatrax contendedthat the high-handed and wrongful manner inwhich Hägele terminated the ESA was notcontemplated at the >me it entered into thecontract, such that the forum selec>on clauseshouldnotbeenforcedinthecircumstances.

TheCourtofAppealrejectedthis submissiononthreegrounds.

First,thescopeofa forumselec>onclauseis notdeterminedby theprofessedsubjec5veinten>onofone ofthe contrac>ngpar>es at the >methecontract was formed. Whether thenature of aclaim lies outside of what was reasonablycontemplatedatthe>methecontractwas signedturns ontheinterpreta>onoftheforumselec>onclause in accordance with general contract lawprinciplesandhowthereisa connec>onbetweenthe nature of the claims pleaded and thosecovered by the clause. In this regard a basiccontract law principle calls for the court toconstruct or interpret a contact onthebasis ofthe objec>ve manifesta>on of the contrac>ngpar>es inthe words theyusedinthecontractandpossiblyintheirmutual dealingsleadinguptothecontractforma>on.

Secondly,theforumselec>onclause requiredthepar>es to “seOle any disputes by a bindingarbitra>on…in Frankfurt.” TheCourt noted thatcontractual disputescouldariseinrespectofanystage in the life of a contract: in its forma>on,performance, termina>on or expira>on.Novatrax’s contractual claims against Hägele


concerned the performanceand termina>on oftheESA.Thelanguageofs.18oftheESAisbroadenough to include, within the term “anydisputes”, claims rela>ng to any stage of theESA's l i fe-cycle, including the wrongfultermina>on and breach of duty of good faithclaimspleadedbyNovatrax.

Thirdly,themo>onjudgecorrectly heldthattheseverity of the alleged breach of contract doesnotplaya role inthe strongcauseanalysis.As theSupremeCourt of Canada stated inPompey, atpara.31:

[A]court, inthecontextofanapplica>onforastaytoupholda forumselec>onclause…mustnotdelveintowhetheronepartyhasdeviatedfrom,or fundamentallybreachedanotherwisevalidly formed contract. Such inquiries wouldrender forum selec>on clauses illusory sincemostdisputeswill involve allega>onswhich, ifproved,willmaketheagreementterminableorvoidablebytheaggrievedparty.

In this case, Novatrax’s claims of wrongfultermina>onandbreachofthe dutyofgoodfaithall concernedthe performance and termina>onof the contract between thepar>es. The Courtfoundthat thoseclaimsall clearly fell withinthescopeofs.18oftheESA.

Themo>onjudgefoundthat theforumselec>onclause was opera>ve “not only [as to the]breaches of contract stemming from theagreement in whichsuchclauses are found, butalso[astothe] relatedtor>ous causes ofac>onarisingoutofthe samecircumstances.”Novatraxassertedthatthemo>onjudgeerredinstayingitstortclaims raisedagainstHägele. Inthis regardtheCourtofAppeal foundnoerror inthe mo>onjudge’s conclusion. It is well-established that abroad forum selec>on clause covering “anydisputes”appliesnotonly tocontractclaims,butalso tort claims, such as misrepresenta>on,interference with economic rela>ons and civilconspiracy that arise from the contractualrela>onship:CrownResourcesCorpora5onS.A.v.Na5onalIranianOilCompany(*6).

Issue#2: Did themo5on judgeerr instaying theac5on againstKarl Hägeleand Benjamin HägeleandCleanfix,whowerenotpar5estotheESA?

The ruling by the Court of Appeal on this issueresultedina “split”: one posi>onwas takenthe“majority”(i.e.twooutofthe three judges)withthe third “dissen>ng” judgedisagreeing on theoutcomeofthis issue.As inanyothersuchcase,thefindingofthe“majority”carriedtheday.

Themajority ruling,determining theoutcomeoftheissue

Novatraxpleadedinits claimthatit involvedthenon-contrac>ng defendants in its “futurestrategic businessdecisions”whenHägele askedit toallowBenjaminHägele toset upanofficewithin Novatrax’s facility. Novatrax alleged thatBenjamin Hägele thereby gained access to itsconfiden>al andproprietary informa>on.Hägele,theindividualdefendants, andCleanfix arethenallegedtohaveu>lizedthataccess toNovatrax’sinforma>on to terminate the ESA, no>fyemployeesandthe bank about the termina>on,and enable Cleanfix “to springboard into theNorth American marketplace and allow thesedefendants tocompete directly,butunfairly,withNovatraxinthisspecializedsalesmarket.”

In an important finding, the mo>on judge hadheldthat KarlHägele andBenjaminHägelewereaddedtothe ac>onbecauseoftheir rela>onshiptoHägele,with Cleanfix being addedbecause itwasthecorpora>oncreatedbythoseindividualsto further their common purpose. Ci>ngMomentous.caCorpora5onv.CanadianAmericanAssocia5on of Professional Baseball Ltd.(“Momentous.ca”) (*7) the mo>on judgeconcluded:

[W]heretheplain>ffitselftakesa posi>oninitsclaim…thattheallega>onsagainstthepar>esnot privy to the contract are so intertwinedwith the claimsbeing assertedagainsta partythatisapartytothecontractthattheyshouldbeheardanddecidedtogether,andwheretheallega>onsclearly all relateto andariseoutofthe dealings between the par>es to the


contract,thatthechoiceofforumclauseagreedtobytheplain>ffshouldgovern…

Novotrax submiOed that the conduct of KarlHägele, BenjaminHägeleandCleanfix were notwithin its reasonable contempla>on when theESA was made and that the judge erred inconcluding that the language of the forumselec>onclause wasbroadenoughtoencompasstheclaimspleadedagainstthem.

The majority did not accept this submission,no>ng the principle cited above that a forumselec>onclausepervades a forumnonconveniensanalysis and must be given full weight in theconsidera>on of other factors. Even thoughCleanfixandtheindividualrespondents werenotpar>es to the ESA, the claims pleaded againstthemallaroseoutof the sametransac>ons andoccurrencesandraisecommonques>ons offactand law linked to the claims pleaded againstHägele. The factually-intertwined nature of theclaims pleaded by Novatrax against allrespondents required that the forum selec>onclausedrivethestayanalysis.

It should be noted that the dissen>ng judgedisagreedwiththis result,no>ngthatitwouldbetantamount to adop>ng the proposi>on that aparty who has not agreed to arbitra>on withanother can be forced to arbitrate its claimsagainstthatparty.

Themajority registeredcau>oninsta>ngthatasa general rule a court lacks the jurisdic>on tocompel those who are not par>es to anarbitra>on agreement to submit their claims toarbitra>on. However, whether the issues forarbitra>onare substan>ally the sameas thoseinthe ac>on, requires considera>on of how theplain5ffhaspleadeditsclaim.Themajoritynotedthat the claimspleaded by Novatrax against allthe defendants were factually-intertwined andturned on the determina>on of the thresholdissue of whether Hägele wrongfully terminatedtheESA. Themajority alsonotedthat “it is verydoub~ul that theclaims pleadedagainst thetwoindividual defendants – both officers anddirectors of Hägele – are sustainable as claims

dis>nct from thoseagainst Hägelebecausetheydonot exhibita separateiden>ty or intent fromthat of the company so as to make the act orconductcomplainedofthatoftheindividuals.”

Accordingly, the prac>cal effect of the mo>onjudge’s exercise of hisdiscre>on in the presentcase was torequire theissueofwhether Hägelehadwrongfully terminatedtheESAtobedecidedfirst inanarbitra>on.Thatexercise ofdiscre>onis en>tled to considerable deference onappealabsent anerror inprinciple,misapprehensionoftheevidence,orunreasonabledecision:LapointeRosentein Marchand Melançon v. Cassels Brock(*8).

Accordingly, the majority held that themo>onjudgedidnotcommitany errornordidhereachan unreasonable result by including the claimsagainst Cleanfix and the individual defendantswithin the ambit of the stay. The majoritydismissed the appeal and Novatrax would nowhave to pursueall of itsclaims inarbitra>on inGermany inaccordancewiththe forumselec>onclause.

The dissen5ng judge’s views at the Court ofAppeal

While the majority opinion reviewed abovecarriedtheday,itis always instruc>vetoconsidertheviewsofa dissen>ngjudge soas togaina fullapprecia>onofmaOers.

This judge agreed that, on the first issue, themo>on judge was en>tled to find that theappellant failed to show strong cause why thechoice of forum in the contract should not beenforced, andwas thereforecorrect to stay theplain>ff’s claimsagainst Hägele in Ontario. Thisjudge however disagreed with the majority’sdecisiontoupholdthemo>onjudge’s order thattheappellant’s claims againstthenon-contrac>ngdefendants shouldalsobe stayedandreferredtoarbitra>oninGermany.

This judge cited “trite law” that an arbitra>onagreement gives an arbitrator jurisdic>on onlyover disputes between the par>es to the


agreement. Whereit is clear onthe face ofthearbitra>on agreement that a party to theli>ga>on is not a party to the agreement, thatissuecanandshouldbedeterminedby the courton a stay applica>on. Moreover, an arbitratorcannotmakeanarbitral awardthat disposes oftherights betweena partyandanon-partytotheagreement.(*9)

The d i s s en>ng j udge f ound t ha t t heMomentous.ca case noted above was factuallydifferent that the present case and did notprovidetheanaly>cal avenuerelieduponby themajority. In the Momentous.ca case, theplain>ffsspecificallyallegedthat:

i)all thedefendants werenecessarypar>estothesameac>on,ii) that they conspired together against theplain>ffs,iii) that the claimsraised common ques>onsoffactandlaw,iv)thattheyaroseoutofthesameoccurrences,v) and that their joinder would promote theconvenientadministra>onofjus>ce,the plain>ffscouldnotmaintainthattheyshouldbeallowedtoproceed[withdifferentac>ons]separately…

Thecourt inthatcaseaccordingly hada basis toconclude, despite the fact that two defendantswere notprivy totheagreementcontainingthechoice offorumandarbitra>onclauses,that“onthestateofthepleadings”, theclaims againstallthe defendants should besubject to the forumjurisdic>onclause.

Thedissen>ngjudgeinthis case foundthatsuchanelementof inferred‘consent’ontheplain>ffspartwasmissing.Unlike the Momentous.cacase,therewas no acknowledgement by the plain>ffon the face of its claim that, if and when theforum selec>on clausewouldbeenforceableasconcerns the ‘contrac>ng defendant’, then itwouldbe enforceable asagainstall defendants asan‘allornothing’proposi>on.

By comparison, the statement of claim in thepresent case dealt separately with the claimsagainst the corporate respondent Hägele for

breach of contract andwrongful termina>onofthe ESA. It thenmade claimsagainst all of theotherdefendantsforother(i.e.tor>ous)conduct.Thedissen>ngjudge notedthatshewouldadoptthis principled approach. Turning to the firstfactor, the issue to be determined in thearbitra>on was whether the corporaterespondent Hägele wrongfully terminated theESAwithNovatrax.Accordingtothe statementofclaim, the agreement provided for ordinarytermina>on if either party gave 12 months’wriOen no>ce, as well as for extraordinarytermina>on without no>ce in par>cularcircumstances. It was alleged that Hägele’stermina>on was not in accordance with thecontract.Itwasalsoallegedthatthe termina>onwaspartofa deliberatestrategytoobtaincontrolofsales intheNorthAmericanmarket.Itwas onlythis laOer claim, if pursued, that could involvesome or all of the same issues as are pleadedagainst the other defendants. There wouldtherefore besomeriskofinconsistent verdicts ifthatclaimwaspursuedinthearbitra>on,as wellas inthe Ontarioac>on.Thatriskwoulddependon how theplain>ff chosetoproceedwith thearbitra>oninGermany. Theappellant couldwelldecide to limit its claims in the arbitra>on tobreachofcontractandwrongful termina>on,andtopursuetheissues arisingoutoftheconductoftheprincipalsofthecompanyandCleanfixonlyintheOntarioac>on. Thatbeingsaid, theresultofthearbitra>oninGermanywouldnotdictatetheresult against the individual defendants andCleanfixintheOntarioac>on.Thatis,evenifthearbitrator determined that Hägele righ~ullyterminatedtheagreementwithoutno>ce,itwaspossible that a court here could find that theac>onsoftheindividualdefendants andCleanfixwerewrongfulunderOntariolaw.

Thesecond factor waswhether therewouldbean injus>ce to the individual defendants andCleanfix if the Ontario ac>on were con>nued.There could be some duplica>on of witnesses,depending on how the appellant proceeded inthe arbitra>on, as well as the >ming of thearbitra>onandtheac>on.However,thatwas onepossible consequenceofincludingawide-rangingarbitra>on clause in a contract between two


par>es wheredisputes mayarisethatalsoinvolveothers. In the dissen>ng judge’s view, thedefendants had not demonstrated that theywould suffer an injus>ce if the Ontario ac>onwere to con>nue. Everything that occurred, aswell as Cleanfix’s ongoing business, was inOntario. Many likely witnesses were inOntario,and therefore would not be inconvenienced interms of travelling. In fact, the defendantsconceded before the mo>on judge that, if atradi>onal forum non conveniens analysis wereapplied, Ontariowouldbethemoreconvenientandappropriateforumtoli>gatethisdispute.

As to the third factor, and whether thedefendants haddemonstratedthata stay wouldnot cause theplain>ff an injus>ce, the plain>ffalleged that its business has been ruined. Thedefendants had proceeded to carry on thatbusiness in Canada to the exclusion of theplain>ff. There would already be significantexpense for the plain>ff to proceed witharbitra>on with Hägele in Germany. Theplain>ff’s claims against the other defendantswere made in accordance with the law ofOntario.Whethersuchclaims alsoexistedunderthelawofGermanywas notknown.Thefactthatanother lawwouldapply to theseclaimsif theywere arbitrated in Germany was at first blushprejudicial tothe plain>ff,whodidnotagreewiththosedefendants tothat choice oflaw,andwastherefore en>tledtosueinOntario.Accordingly,inthe viewofthedissen>ng judge, there wouldbeprejudice totheplain>ffifa staywas orderedofits claims againstthe individual defendants andCleanfix.

Accordingly the dissen>ng judge held that themo>onjudge erredinlawby referringclaims toarbitra>on in Germany against the defendantswithwhomthe plain>ffmadenoagreementatalland no agreement to arbitrate, depriving theplain>ff of its right to li>gate those claims inOntariounder Ontariolaw.Thedissen>ng judgewouldhaveallowed theappealin part, and setaside thestay oftheclaims intheOntarioac>onagainstthenon-par>estotheESA.

GordonHearn

Endnotes(*1)2016ONCA771(CanLII)(*2)[2003]1S.C.R.450(*3)(2010)100O.R.(3d)241(*4)(2013)115O.R.(3d)241(*5)From>meto>mea defendantmay disputetheplain>ff’s commencement ofa lawsuit in apar>cular forum on the basis that it is not asconvenient or appropriate for the maOer asanother jurisdic>on. For example,a majority ofwitnesses may reside elsewhere, or a differentlawmight govern thedispute that thanof theforum selected by theplain>ff. The defendantmight this invoke the doctrine of forum nonconveniens in asking the court to exercise itsdiscre>onto‘stay’theac>oninfavourofitbeingcommenced in the other jurisdic>on. Thepointraisedinthecaselawhereis thatitwillbe a raresitua>on where in the face of a valid forumselec>onclausethata defendantwillbe able toconvincea courttoemployitsjurisdic>ontorefera case elsewhere simply because the otherloca>on is then considered to be moreconvenientfortheli>ga>on.(*6)(2006)273D.L.R.(4th)65(*7) 2010 ONCA 722 (CanLII), affirmed [2012] 1S.C.R.359(*8)2016SCC30(CanLII)atpara.54.(*9)See:GulfCanadaResourcesLtd. v. ArochemInterna5onal Ltd. (1992), 1992 CanLII 4033 (BCCA)andOntariov.ImperialTobaccoCanadaLtd.,2011ONCA525(CanLII)(*10)2015ABCA22(CanLII)


http://www.canlii.org/en/on/onca/doc/2013/2013onca354/2013onca354.htmlhttp://www.canlii.org/en/on/onca/doc/2013/2013onca354/2013onca354.htmlhttp://www.canlii.org/en/on/onca/doc/2010/2010onca722/2010onca722.htmlhttp://www.canlii.org/en/on/onca/doc/2010/2010onca722/2010onca722.htmlhttp://www.canlii.org/en/ca/scc/doc/2016/2016scc30/2016scc30.htmlhttp://www.canlii.org/en/ca/scc/doc/2016/2016scc30/2016scc30.htmlhttp://www.canlii.org/en/bc/bcca/doc/1992/1992canlii4033/1992canlii4033.htmlhttp://www.canlii.org/en/bc/bcca/doc/1992/1992canlii4033/1992canlii4033.htmlhttp://www.canlii.org/en/bc/bcca/doc/1992/1992canlii4033/1992canlii4033.htmlhttp://www.canlii.org/en/bc/bcca/doc/1992/1992canlii4033/1992canlii4033.htmlhttp://www.canlii.org/en/on/onca/doc/2011/2011onca525/2011onca525.htmlhttp://www.canlii.org/en/on/onca/doc/2011/2011onca525/2011onca525.htmlhttp://www.canlii.org/en/ab/abca/doc/2015/2015abca22/2015abca22.htmlhttp://www.canlii.org/en/ab/abca/doc/2015/2015abca22/2015abca22.html

4. Importers’ Right to make Revenue-neutralTariff Treatment Revision & CBSA Abuse ofProcess

The Federal Court of Appeal recently heardappeals of three cases brought by theAOorneyGeneral inrespectofdecisionsfromtheCanadianInterna>onalTradeTribunal(“CITT”)(*1).

The fact paOern in eachmaOer wasessen>allythe same. Goodswere imported into Canadaunder atariffclassifica>onthat en>tledthemtoenterthecountryduty-freeunderMostFavouredNa5on (MFN) tariff treatment (*2). Therespec>ve customs brokers each thereforedeclared the goods upon their entry as beingsubject to 0% rated MFN tariff treatment. Thiswasnotwithstanding that thegoodscould havealterna>vely beenenteredintoCanada ona0%basis pursuant to United States Tariff (“UST”)treatment pursuant totheNorthAmericanFreeTradeAgreement(NAFTA)(*3).

Althoughineachcase, thegoods were ofUnitedStatesorigin,eitherforreasons ofconvenience orby virtueoftheabsenceat the>meofentryofaCer>ficateof Originas requiredtoclaimNAFTAtariff treatment, the MFN treatment was usedandwas in anyeventequivocalgiventhe0%rateapplicabletothegoodsasclassified.

Subsequently, in eachcase, theCanadianBorderServices Agency (“CBSA”) performed audits,whichestablishedthatthe goodshadinfactbeenimproperly classified (*4). The reclassifica>onofthe goods did not en>tle them to enter intoCanada on a duty free basis under MFN tarifftreatment, although they would indisputablyhavebeeneligiblefor0%ra>ngifthey hadbeenentered under UST treatment, as they wereen>tledtobe, at the>meofentry intoCanada.The CBSA denied the importers the right toamendthetarifftreatmentonarevenue-neutralbas is such that the net effect of thereclassifica>on andrevised tariff treatment wasto uphold the duty free entry. Rather, CBSAassessedtheMFNdu>esapplicabletothegoods.

This was far from a new situa>on or indeeddisputefortheCBSA.Infact,theexactsamelegalques>onhadarisenin 2012withrespecttoa caseinvolving Frito-Lay Canada Inc. (“Frito-Lay”),whichwas decidedinJanuary2013(*5). InFrito-Lay, CITT deniedtheargument by CBSA that inorder for a tariff treatment to be revised for amore favourable treatment, the one-yearlimita>on period prescribed by s. 75 of theCustomsAct(“theAct”)hadtoberespected(*6).

S.74oftheActrefers tothe>meduringwhicharefund can be claimed by an importer withrespect to du>es paid. CITT held that thisprovisionwas inapplicable sincenomoneyswerebeing returnedto the importer inthecaseof arevenue neutral tariff treatment amendmentarisingoutofatariffclassifica>onrevision.

Although CBSA commenced appeal proceedingsbeforetheFederal Court ofAppeal withrespectto CITT’s decision in Frito-Lay, the Agencyul>mately discon>nued its appeal. However,ratherthanabidingbytheprinciples espousedbyCITT in its decision, CBSA proceeded to handlefurthercases inexactlythe mannerthathadbeenreversedinFrito-Lay.

This course ofac>onledtothreeimporters filingappeals totheCITTagainstdecisions reachedbyCBSA, the threecases commonly being referredtoas the“Bri-Chemtrilogy”(*7).The trioofcaseswasheardtogetherbyCITTinMay2015withtheappealing importers being represented by thesame counsel as had successfully acted againstCBSA in Frito-Lay. CITT rendered a decision inSeptember 2015 which resolutely chas>sed theCBSAforits doggedrefusal tofollowthe decisionin Frito-Lay, holding that “CBSA knowinglyfrustrated importers from the applicability ofFrito-Lay…….(and)createdorapplieda deliberatepolicy designedtoignore Frito-Lay. CITTfurtherheld that the CBSA was guilty of an abuse ofprocess that was deliberate and elaborate andwhichhadnobonafidesbasis.

Inthis case, theCBSA followedthroughwithitsappeal to the Federal Court of Appeal (*8).However, this forumwasnomoreamenableto


the arguments of theCBSA thanhad been theCITTinFrito-LayorBri-Chematfirstinstance.

TheFederal Court of Appeal likewise heard thethreecases onthe samepointoflawconcurrentlyandconfirmedthatthe CITT’s decisionswouldbesubject to judicial review pursuant to areasonableness standard,owingtothe“par>cularfamiliarity of CITT with the Customs Act” (*9).Stratas J.A. for the Federal Court of Appealhoweverwentfurtherinholdingthatthedecisionof CITTwasnotonly reasonablebut was infactcorrect.

Although the AOorney General reiterated itsposi>onthatit is not incorrectforanentrytobedeclared under an MFN tariff treatment, andtherefore an importer could not rely upon thecorrec>onprovisions foundat s.32.2oftheAct,thecourtwasdismissiveoftheargumentthattheimportershouldbe forcedtoresorttotherefundprovisions of s. 74 of the Act, and thereby belimitedby the one-year limita>onprovision.Thecourt also dismissed arguments premised onUnitedStates case lawthat interpreteddomes>clegisla>onfromthatjurisdic>on.

ThecourtwentontoupholdthefindingthattheCBSA’sconductineffec>velyrefusingtoapplytheFrito-Lay decision as an abuse of process.Par>cularweightwas giventothefact that theCBSA hadconsciously discon>nueditsappeal ofthe Frito-Lay decision, andpreferred instead toembarkonapolicyofapplyingits CITT-impugnedpolicy toother importers. This, according tothecourt,placeda“higher tac>cal burdenupontheCBSA….todemonstrateits goodfaithandtooffergood reasons to the Tribunal both as to whyFrito-Lay should not be followed and why theappealfromFrito-Laywasdiscon>nued.”

StratasJ.A.madea broadly applicablestatementof the “hierarchical rela>onship” betweentribunals and administrators. The court set outtwo alterna>ve case scenarios where anadministrator may makeabona fide decisiontoelectnottoapplya priortribunal decisiontonewscenarios.Either the administrator must beableto (1) point to material factual discrepancies

between the two or cases; or (2) where asignificant flaw is found in the tribunal’sreasoningwhichcanbebroughttotheaOen>onofthetribunaluponafurtherhearing.

In this case, neither of these alterna>vethresholds was sa>sfied. The CBSA had simplysought to re-li>gate the same issues and relieduponthe same linesofargument in Bri-Chemashad already been dismissed in Frito-Lay. Thecourt however did deny the responding par>esfromclaimingtheircosts ona solicitor-clientbasisgiventhatthecourtcouldonlyassess theconductof the li>gant as before the court and not asbeforetheTribunal.

MarkGlynn

Endnotes(*1)Canada(ARorneyGeneral)v.Bri-ChemSupplyLtd.2016FCA257(*2)MFNtreatmentisthecornerstoneprincipleoftheWorldTradeOrganiza>onandthefirstar>cleoftheGeneralAgreementonTariffs&Trade(GATT);itistherulewherebycountriesdonotdiscriminateamongsttheirtradingpartners.(*3)ThefreetradeagreementbetweenCanada,MexicoandtheUnitedStatesisinforcepursuanttotheNorthAmericanFreeTradeAgreementImplementa5onAct(S.C.1993,c.44).(*4)ThatistosaythattheHarmonizedSystem(HS)CodeassignedtothegoodsupontheirentryintoCanadawaseventuallydeterminedbyCBSAtobeincorrectpursuanttotheapplica>onoftheCustomsTariff,SC1997,c36(*5)Frito-Layv.PresidentoftheCanadianBorderServicesAgency,AppealNo.AP-2010-002(*6)CustomsAct,RSC1985,c1(*7)Bri-Chemv.PresidentoftheCanadianBorderServicesAgency,AppealNo.AP-2010-017;EverGreenEcologicalServicesInc.v.PresidentoftheCanadianBorderServicesAgency,AppealNo.AP-2014-027;SouthernPacificResourceCorp.v.PresidentoftheCanadianBorderServicesAgency,AppealNo.AP-2014-028(*8)TheFederalCourtofAppealisthefirstcourttowhichdecisionsoftheCITTarereferredonajudicialreviewapplica>onpursuanttos.68oftheCustomsAct.


(*9)Thisisinapplica>onoftheapproachendorsedbytheSupremeCourtinDunsmuirv.NewBrunswick2008SCC9andappliedrecentlyinCanada(ARorneyGeneral)v.IglooVikskiInc.2016SCC38


5.LackofJudicialClarityConcerningtheLiabilityofBoatOwnersforPoorlyEquippedVessels

InHolman v. Oberg et al. (“Holman”) (*1), aMaster of the Alberta Court of Queen’s Benchrecently had an opportunity to address theexposureofpleasurecraA owners for liability tothird par>es who suffer injuries due to theinsufficientequippingoftheirboats.Catherine and Lester Holmanowned a pontoonboat, constructedby Lester. It had lights, buttheywerenotworking. It is not knownwhetherthe lights would havebeen compliant with theregula>ons totheCanadaShippingAct,2001(*2)even if they had been working. Nonetheless,they had beenfixedearlier in theseason. TheHolmanssaid that they were unaware that thelightswereoutagain.At anevening coOageparty, theHolmans’adultson,Michael, hadgonefor a swimwithanotherperson. AAerwards,they re>redtothe couple’sboat. WhileMichaelwas siZng inthecaptain’schair witha cigareOe, they were hit by anotherboater,VernonOberg, whohadnot seen them.Michael sufferedinjuries. Hesubsequently suedMr. Oberg and others, including Wizard LakeMarine,whichownedOberg’sboat.Mr. Oberg and Wizard Lake Marine addedCatherine and Lester Holman as Third PartyDe fendan t s , c l a im ing tha t t hey werecontributorily liable for the accident, includingbecause the boat lackedworking lights. MasterSchlosserwas taskedwithaddressingamo>ontodismissthatclaimsummarily.Before 2001, by virtue of the former CanadaShipping Act (*3), a defendant owner wasrequiredto showan absenceof “actualfault orprivity”. Courts required that the boat beseaworthy, properly equipped (with lights andnaviga>onal aids,etc.),andappropriatelycrewed.In effect, it was not enough for the owner tomerely show an absenceof a direct connec>onbetweenhimselfandthewrong. Hehadtoshowanabsenceofactualfault.

TheCourtinHolman impliedthat itfollowedthereasoningoftheBCCourtofAppeal in Vukorepv.Bartulin(“Vukorep”)(*4). IntheVukorepcase, aboaterhadfailedtoseelarge waves createdbyaBCFerryboat inthedistance,as hehadbecomedistractedbyawaterskiertohisportside.Oneofhis passengersslippedandfell as a result ofthedefendant's failuretoadjust course accordingly.The Court of Appeal rejected the trial judge'sfindingthatthe operatorwasnegligentforfailingtohave installedanaAer-markethandrail,whichwas not proven to have been standard in theboa>ng community. In effect, there was nodirect, actual fault. However, the Court wasexplicitly applying the old law under the now-defunctCanada Shipping Act, since theaccidenthadtakenplacein1998.

Inthe circumstances ofthe Holmans'case(aAerthe statutory repeal), the Court was similarlypreparedtofindthatthe Holmans haddischargedthe“heavyburden”ofprovinganabsenceofanyactual faultorprivity. Michael’s decisiontotaketheboatoutinits unlitcondi>onwassufficienttobreak the chainof responsibility andtoabsolvethem.This wassoevendespite theMasterbeingskep>cal of the Holmans' asser>on that theywere unawarethatMichael hadgoneaboardatthe>meoftheaccident.

By finding a lack of "actual fault", the Courteffec>vely also neutered any argument forliability under a standard negligence analysis,where it would address whether there was arela>onshipofproximityanda dutyofcare;and,if there was a duty, whether it was met to asa>sfactory standard. Sincetherewasnoactualfault,the restoftheanalysis was moot.Itimpliedno"causa>on"(i.e.nocausal connec>on,withoutabreakage).

However, rather than an ordinary negligenceanalysis, the court considered the concept of"vicarious liability" at common law (i.e. theliability of innocent par>es for the wrongs ofothers). Of course, that concept has existed incertainareas ofthelaw,butnot intheworldofboat owner liability to third par>es. Thus, theMaster concluded that it would be beOer for


"vicarious liability" to be imposed by statuteratherthanbyincrementaljudge-madelaw(*5).

In coming to its conclusion, the Courtsummarized that Canadian mari>me law nowactually lays somewhere in-between directresponsibilityandvicariousliability:

Mari>me law now lies somewhere in-between direct and vicarious liability.While the law does not imposevicariousresponsibility per se, it does require anabsenceof actual fault or privity on thepart oftheowner.Toimposeit [liability]inthis contextalsoseemscontrarytotheideathatthe‘captainis themasterofthevessel’ and also, more recently, therequirement of al l pleasure boatoperators topass a test andbe licensed;bothofwhichsuggestanemphasis ontheindividual responsibility of the operator,ratherthanthatoftheowner(*6).

The result is unsa>sfying. If a direct causalconnec>oncanberefuted,somuchthebeOerfora defendant: he will be absolved. However,wherethereis fault(or"causa>on"),it is en>relyunclearwhatstandardwill apply.Forexample,ifthe Holmans had been aware that the ligh>ngcouldgooutontheirpontoonboat,wouldtheyhavebeenliableinthecircumstances?

T h u s , i t i s s u g g e s t e d t h a t a b eO e rconceptualiza>onofthelawis setoutinthe2014decisionofAtkinson etal.v.TheGypseaRoseetal. (*7). In that case, theHonourableMadamJus>ce Watchuk of the BC Supreme Court

consideredboaters'negligenceinthecontextofacollision between two small pleasure craA onLakeOkanagan. Insteadoffindingthat the lawwassomewhere"in-betweendirectandvicariousliability", Her Ladyshipsimply tooktheCourt ofAppeal's decision in Vukorep as an effec>vecodifica>onoftheoldstatutory standardofcare.In other words, thestandard of care of a boatowner innegligence required that his vessel beseaworthy, properly equipped, and properlycrewed.(*8)

Whether the"vicarious liability" concept of theAlbertaCourtwill gainanytrac>onis s>ll unclear.However, itis apparent that the jurisprudence islikely tokeepin line withVukorep to theextentthat an owner will have serious exposure toliabilitywhenhisboatis poorlyequipped,evenifhe is not aboard at the >me of an operator'smistake.

AlanS.Cofman

Endnotes(*1)2016ABQB448(*2)S.C.2001,c.26(*3)R.S.C.1985,c.S-9(*4)2005BCCA142(*5)Seepara.24(*6)para.25(*7)2014BCSC1017(*8) The Atkinson decision also discusses arequirementfortheownertohavegivenconsenttotheoperator inorder tobefoundat fault, atpara.98etseq,whichis beyondthescopeofthisar>cle.


6.FederalCourtFindsthatHague-VisbyRulesDoNotApplytoCharter-PartyAgreements

IntherecentdecisionofAGFSteel Inc.v.MillerShipping theFederalCourt determinedthat theHague-Visby Rules donot apply to charter-partyagreements(*1).

TheFacts

The Plain>ff AGF Steel Inc. (“AGF”) and theDefendant Miller Shipping (“Miller Shipping”)entered into a wriOen agreement en>tled the“Time Charter Party”, which provided for themovementof43,000metrictonsofsteelrebarbywater from Sorel, Quebec to Long Pond,Newfoundland over 6 voyages by the tug“Western Tugger” and the barge “Arc>c LiA1”(“theContract”).

Duringthethirdvoyage,the Arc>cLiA1capsizedonthesouthcoastofNewfoundland,causingthetotal loss of over 7,000 metric tons of steel,valuedatover$8,000,000.

The relevant clauses of the Contract were asfollows:

Clause18.2 of the Contract s>pulatedthatbothAGFandMillerShipping,withrespect toits ownproperty, be liable for all loss and/or damagesthatitmaysufferinconnec>onwiththeContractwithout regardtocauseor negligenceof eitherparty tothe Contract.This is knownas a “knockforknock”riskalloca>onterm.

Clause 19.5 provided that AGF would obtainMarine Cargo insurance covering “all risks” ofphysicallossordamage.

TheAc5onandSummaryJudgmentApplica5on

As aresultofthe loss ofits Cargo,AGFbroughtanac>oninFederal CourtagainstMillerShippingfordamagesinexcessof$8,000,000.

In response, Miller Shipper brought a summaryjudgment applica>on sta>ng there was nogenuine issue for trial. Miller Shipping’s central

argument was that Clause18.2 of theContractexcludedtheirliabilityincontractortort.

AGFrespondedthat the Contractwas a contractof carriage by water, which is captured bysubsec>on43(2)of theAct, and thus subject tothe Hague-Visby Rules. Subsec>on 43(2) of theAct incorporates the Hague-Visby Rules for allcontracts “for the carriage of goods by waterfrom one place in Canada to another place inCanada…unless thereis nobill ofladingandthecontract s>pulates that those Rules do notapply”.Thisis cri>cal becausewheretheHague-Visby Rules apply, par>es are prevented fromagreeingtotermsthatexcludeor limitliabilitytoanamount less thanprovidedfor intheHague-VisbyRules,as contemplatedbytheSec>on18.2‘knockforknock’clauseoftheContract.

As such,inordertobesuccessful onthe summaryjudgment mo>on, Miller Shipping had toestablishthat theContractwasa “charter-partyagreement”. If the Contract was found to be acharter-party agreement, itwouldnotbecaughtbesubsec>on43(2)andwouldnotbe subjecttotheHague-VisbyRules,meaningthepar>escouldbefreetonego>atetheirowntermswithrespectto liability for any losses that may occur in theperformance of the contract. Miller Shippingreliedonthe formoftheagreement(its >tleanddescrip>onofthepar>es),as well asthefactthattheContractcalledforthehireofaship.

With respect towhether theClause18.2 ‘knockforknock’clauseshouldbeenforcedintheeventthattheCourtfoundtheContracttobeacharter-party agreement, Miller Shipping argued thatthemselves and AGF were sophis>catedcommercialen>>es whoshouldbeheldtotheirbargains. Alterna>vely, Miller Shipping assertedthatClause19.5 excludedtheir liability asitwasanundertakingbyAGFtoinsurethe Cargo,whichshouldhavethe effectofrelievingthebeneficiaryof the undertaking from liability for loss ordamageoftheproperty.

Withrespect toClause19.5, AGFsubmiOedthatbecauseClause19.1requiredthatMillerShippingtakeout its owninsurancesufficient tocover its


ownliability,andas its liabilityforlostcargowascoveredby this insurance, there was noreasonwhythecargoinsurancetakenoutbyitshouldbedeemed to cover the same liability. Moreover,AGFsubmiOedthatClause19.5 onlymeant thatAGFwouldpay thepremiumson theinsuranceanddoes notshowaninten>onofAGFtowaiveitsrightsofac>onorsubroga>on.

TheCourt’sDecisiononwhethertheContractwasaCharter-Party

TheCourt foundthat the ContractbetweenAFGand Miller Shipping was a charter-partyagreement.

TheCourtreliedon theFederal Court ofAppealdecision of T. Co. Metals L.L.C. v. Federal EMS(Vessel), in which the Court had outlined thethree situa>ons when a contract for thetransporta>on of goods by water is properlycharacterized as a charter party (*3). One ofthese three situa>ons, known as a voyagecharter-party, is found where a specific ship ortype of ships is hired for oneor morevoyages.Theother twositua>ons; a “bareboatordemisecharter” provides for thehire of anunmannedship, and a “>me charter-party”, which is acontractfor the hireofa fullymannedshipfor aspecificdura>on.

TheCourtfoundthattheContractinthisinstancecontemplated the hire of a tug and barge totransportCargo, andwas properly characterizedasavoyagecharter-party.

The Court appeared to be influenced by the“form” of the Contract, meaning the actualwording usedon the Contract. The Courtmadereferencetothe factthatthesecondpageoftheContractwas>tled“TimeCharter Party”andthefactthatAGFwasdefinedasthe“Charterer”.

Giventhat the Contractwasa charter-party,theHague-Visby Rules didnot apply and the Courtfoundthatthepar>es were atlibertytonego>atethe terms about their respec>ve liability undertheContract.

The Court’s Decision on Whether the ContractExcluded Miller Shipping’s Poten5al Liability byVirtueofthe18.2ExclusionaryClauseorthe19.5InsuranceClause

TheCourtwasunwillingtodecide whetherMillerShipping was able to rely on Clause 18.2 toexclude its liability. The Court ruled that therewas insufficient evidence on the mo>on toconfidently determine their respec>ve rightsandliabili>es of the par>es. The Court stated thatques>ons of contractual interpreta>on areques>ons ofmixed fact andlaw, andwheretheques>ons oflawcannotbeclearly isolated,thoseques>onsshouldnotbedecidedsummarily.

Implica5ons

The Court’s decision re-affirms that when ashipperandship-ownerenterintoacharter-partyagreement, as opposedtoa tradi>onal contractfor thecarriage of goods by sea evidencedby aBill ofLading, itwillnot becapturedby Sec>on43(2) of theAct andtheHague-Visby Rules willnotapply.

This givescommercialpar>es,bothshippers andship-owners/carriers,the abilitytostructure theiraffairs so as to avoid the applica>on of theHague-Visby Rules andassignthe riskof lossordamage pursuant to their own agreements. Ofcourse,thisgives commercial par>es muchmoreautonomy. On theother hand, par>es enteringintoa charter-partyagreementneedtobeawarethat they will not besubject toany protec>onsthat they may have otherwise had under theHague-Visby Rules.Acarrier,for example,wouldnot beable torely on the limita>onof liabilityprovisions under the Hague-VisbyRules andmaybeexposedtothe full valueof lost or damagedcargounderacharter-partyagreement.

TheCourt also providedsome guidanceon thedifference between a charter-party agreementand a contract for the carriage of goods. TheCourtnotedthat inthis case,boththe “pith andsubstance” of the agreement was that of acharter-party agreement. With respect to the“pith” of the agreement, the Court was


influencedbythelanguageof theagreement,asdiscussed above, such as the fact that theagreement was >tled “TimeCharter Party” andthefactthatAGFwasdefinedasthe “Charterer”.With respect to the “substance” of theagreement, theCourt foundthat theagreementcontemplated the hire of a tug and barge, asopposed to merely the transporta>on of goodsfromonepointtoanother.

Commercial par>es entering into transporta>onagreementsshould take this into account whenaOemp>ngtoframe theiragreement as either acharter-party agreementorasa contractforthecarriageofgoods,asthecasemaybe.

Finally, from a procedural perspec>ve, thedecisionprovidesguidanceas towhensummaryjudgment intheFederal Court is aOainable.TheCourt commented that although the widelycirculatedSupremeCourt ofCanada decisionof

Hryniak v.Mauldin (*4) (wherein the SupremeCourtofCanada commentedupontheavailabilityofsummary judgmentundertheOntarioRulesofCivilProcedure,R.R.O.1990,Reg.194)serves as areminder to the Federal Court of certainprinciplesresident in theFederalCourt Rules, itdoes not materially change the procedures orstandards to be applied in summary judgmentmo>onsbroughtintheFederal CourtunderRule215(1).

CharlesHammond

Endnotes(*1)AGFSteelInc.v.MillerShipping,2016FC461(*2)MarineLiabilityAct,S.C.2001,c.6(*3)T.Co.MetalsL.L.C. v.Federal EMS (Vessel),20141F.C.R.836(*4)Hryniakv.Mauldin,20141S.C.R.87


7.VerreaultNaviga-on Inc. v.662901N.B. Ltd.:Federal Court performs (another) rankingexercise in connecConwith creditors’ claims toproceedsofvesselsale

Jus>ce Harrington of the Federal Court wasrecently taskedwithresolving apriority disputeamongstvariouscreditors inthecontextofa shiparrestandsale. Inthis case,VerreaultNaviga5onInc.v.662901N.B.Ltd.,2016FC1281,theownerofa tug,theChaulk Determina5on, andabarge,theChaulk Lioer, fell intofinancial difficulty.Thetug sank and was abandoned, at which pointcreditors arrested and sold the barge. Chiefamong the creditorswastheplain>ff, VerreaultNaviga>on Inc. (“Verreault”) on account ofvarious work it had performed on the ChaulkLioer. The sale generated a fund of only$600,000.00 withwhich to sa>sfy the claimsofthe various creditors, which totaled severalmilliondollars.

This decision, alongwithanotherrecentdecision(also by Jus>ce Harrington, Ballantrae HoldingsInc.v.The“PhoenixSun”,2016FC570(F.C.)(*1)),provides a further example of how Canadiancourts will deal with priority disputes amongstvarious creditors inmari>meac>ons.Creditors insimilar circumstances should expect resultssimilartotheoutcomesinthesecases.

TheFacts

TheChaulkDetermina5onandChaulkLioerwereboth owned by 662901 N.B. Ltd. (the“Company”), which had been incorporated inMarch2012.Thesoleofficer anddirector oftheCompanywasDavidChaulk.

TheChaulk Determina5on and theChaulk Lioerarrivedat thePort ofTrois-Rivieres,Quebec,onNovember27,2013.

On March 30, 2014, the Company issued apromissorynotetoDavidChaulk’s brother,Brent,intheamount of$305,000.00. Thenote stated,“security is inthe formofamarine mortgageonthevesselChaulkLioer”.

OnJune15, 2014, theCompany issuedanotherpromissorynotetoDavidChaulk’s father,Morris,this >me in the amount of $42,000.00. It alsostated that security was in the form of amortgageontheChaulkLioer.

Harbour dues were never paid oneither vessel,andconsequentlythe PortofTrois-Rivieres issueda deten>on order against both vessels on June26,2014.

A singlemortgage infavour ofBrentandMorrisChaulk in the amount of $347,000.00 was thenregisteredonJuly18,2014.

Then, onAugust20, 2014,theCompanyworkedout an arrangement with the Port of Trois-Rivieres, in which some of the harbour duesowingwerepaid.The CompanygrantedthePortanother mortgage for $57,305.27. In exchange,thedeten>onorderwasliAed.BrentandMorrisChaulkgaveprioritytothePort’smortgage.

TheChaulk Lioer thenarrivedatVerreault’s yardat LesMéchinsonOctober 7, 2014, inorder tohavesomeworkcarriedout.

Unfortunately, soon aAer, the CompanydefaultedonthePort’s mortgage.As a result,thePortarrestedthe Chaulk Lioer onDecember 12,2014,whileshewas indrydock.TheChaulkLioerremained in Verreault’s possession while theChaulkLioerwasunderarrest.

The Chaulk Determina5on then sank onDecember26,2014.

Verreaultthencommencedits ac>onagainsttheChaulkLioer,duringwhichthebargewas orderedsoldonJune 23,2015.The sale was completedonAugust4,2015,for$600,000.00.

TheUndisputedClaims

Of thetotal pool of $600,000.00, the Court firstdealtwithcertainundisputedclaims,asfollows.

The Ac5ng Marshal’s Fees to Bring the Ship toSale


First on the list was the claim by the ac>ngmarshalforhis fees andexpenses indealingwiththesale oftheChaulkLioer.Thisclaimwas intheamount of$42,395.19 andhadpreviously beenallowedinfullbytheCourt.

FeestoBringtheShiptoSale

Next, the Court considered claims by both thePort and Verreault for addi>onal expensesincurredinarres>ngthevessel, commencingtheac>on and conver>ng her into a fund againstwhichallofthecreditorscouldclaim.

In this case the Court found that such costsshould be divided in two, since the Port hadini>ally arrested the barge but Verreault hadbroughther tosale.ThePort’s costs hadalreadybeen paid; Verreault’s costs, in the amount of$3,306.23,wereawarded.

TwoPreferredClaims

The Court then awarded two addi>onal claimsthat were granted priority under variousprovisionsoftheCanadaMarineAct.

First, Transport Canadawas paid$37,155.70 foroutstanding harbour dues, and for the cost ofrepairing damage to its dock at Les Méchins,whichhadbeenstruckbytheChaulkLioer.

Second, the Port of Trois-Rivieres was paid$57,305.27 for harbour dues unrelated to themortgage,anditscosts.

TheRemainingClaims

Accordingly,aAertheaboveclaims hadbeenpaidout,$463,143.84plus a small amountofinterestremained with which to sa>sfy all remainingcreditors.

Verreault’sClaim

Verreault obtained judgment against theChaulkLioer and the Company in the amount of$217,551.67, with pre- and post-judgment

interest and costs. The judgment covered thecost of the various services and work thatVerreault had performed on the barge. Inaddi>on,Verreaultclaimedforseveraladdi>onalamountsincludingwharfage,various movementsof the barge, fuel supply and inspec>ons.Verreault’s total claim was in the amount of$373,726.98.

Jus>ce Harrington had no difficulty finding thatVerreault enjoyed a possessory lien over thebarge, which outranked the mortgages. HeallowedVerreault’sclaimvirtually in itsen>rety,subject to afew deduc>ons. Intotal, the CourtfoundthatVerreaultwas en>tledto$324,839.01oftheremainingfunds.

ThePortofTrois-Rivieres

Intotal,the Portclaimed$316,468.83againsttheCompany and the barge. $56,305.83 was theamount of the mortgage that it held on theChaulkLioer.The balanceof$210,181.00was forsums owing in respect of the ChaulkDetermina5on, for wharfage, clean-up andremoval(havingbeenabandonedby herownersaAershesank).

The Court decided that in this case, the Port’smortgage claim would rank above that of theotherChaulkfamilymembers.Thus,ThePortwasen>tledtoa priority paymentof $56,305.83,onaccountofitsmortgage.

However,theCourtobservedthat inCanada,itiswell establishedthataclaim inrespectofa shiponly carries with it an ordinary right in rem,without priority, against a sister ship. Thus, thePort’s claimagainst theChaulk Determina5on inthe amount of $210,181.00 could only rankalongside the other ordinary creditors whendirected against the proceeds of sale of theChaulkLioer.

BrentandMorrisChaulk

Next came the claims of the Chaulk familymembers whopurportedtoholdmortgages.TheCourt foundthat itwasclear fromtheevidence


that David Chaulk had intended to givepreference to his brother, Brent, and to hisfather,Morris.

Ul>mately, theCourt foundthat themortgageswere not granted“at arm’s length” asbetweenthe family members. As Jus>ce Harringtonremarked, “Nodoubt theChaulkslent a helpinghand out of love for David. However, that loveshouldnot come at theexpenseofarm’s lengthcreditors.” His Honour held that the Chaulkswouldrankbehindthe other ordinary creditors,andwouldrecoveronly iftherewas anythingleAoverfrompayingthemallout.

TheCanadianCoastGuard

TheCoastGuardsubmiOeda claiminthe amountof $1,839,927.68 for costs associated with thesinking of the Chaulk Determina5on. The Courtheldthat theCoastGuardwouldhaveenjoyedahighpriority if thevessel arrestedandsoldhadbeen the Chaulk Determina5on; however, giventhat theproceedsof salewerefromtheChaulkLioer, the Coast Guard was only an ordinarycreditorandnoten>tledtopriority.

TheAdministratoroftheShip-sourceOilPollu5onFund

This claimwas differentthantheothers.Infact,itwasreally a claim for security intheevent thattheShip-sourceOil Pollu>onFundwasobligatedto compensate par>es whomay have suffereddamages as a result of thepollu>oncausedbythesinkingoftheChaulkDetermina5on.

As the Court observed, persons who havesuffered actual or an>cipated oil pollu>ondamagemay, in accordance with s. 103 of theMarine Liability Act (the “Act”), file a claimwiththe Administrator if that claim is in connec>onwith the interna>onal Bunker Conven5on, beingScheduleVIII totheAct. TheBunker Conven5onhas force andeffectinCanada byvirtueofs.70oftheAct.

Sec>on102oftheActgivestheAdministratortherightto commenceanac>oninrem“against the

ship that is the subject of the claim, or againstany proceeds ofsale ofthe ship thathavebeenpaidintocourt…”

In this case, however, the Administrator filedaclaimagainsta sister ship, andnot the shipthathad caused the pollu>on. This gave rise to anissue as towhether theAdministrator coulddoso.The Courtfoundthatitcould.While s.102oftheActdidnot expressly givethe Administratorthe right to claim against a sister ship, Jus>ceHarrington was nonetheless sa>sfied that theAdministrator had theright toclaimagainst thesister ship by virtue of sec>on 43(8) of theFederalCourtsAct,whichallowsforanac>ontobebrought in rem against “any ship that, at the5me the ac5on is brought, is owned by thebeneficialowneroftheship thatisthesubjectoftheac5on”.As nothingintheMarineLiabilityActdetractedfromthatprovision,the CourtallowedtheAdministrator’sclaimtostandandrankas anordinarycreditor.

Ul>mately, the Administrator’s share of theremaining proceeds of sale amounted to$44,922.65. Being security for future costs,however, this amountwasstrictly speakingonlyto be applied as and when the Administratorapprovedclaims fromothers inconnec>onwitht h e p o l l u > on c a u s e d b y t h e Chau l kDetermina5on. Theques>on therefore arose astowhether theAdministratorshouldbepaidthefunds up front, or whether they shouldbepaidintocourttoawaitfutureclaims.TheCourtfoundthat the mostprac>cal solu>onin this casewasto pay the Administrator directly. TheAdministrator could seek direc>ons from theCourtshoulddifficul>esariseinthefuture.

Intheresult, theCourt establishedthefollowingorderofpriorityinthiscase:

1.TheAc>ngMarshal forcosts relatedtothe saleoftheship2. Verreault and the Port of Trois-Rivieres forcostsrelatedtothesaleoftheship3. Transport Canada for outstanding harbourduesandrepairstoitsdock


4. The Port of Trois-Rivieres for harbour duesunrelatedtoitsmortgage5. Verreault for the bulk of its main claim, byvirtueofitspossessorylienoverthebarge4.ThePortofTrois-Rivieres,forthatpor>onofitsclaimcoveredbyamortgage5. TheCanadianCoast Guard, for its unsecuredpor>onoftheremainder6. The Administrator of the Ship-source OilPollu>on Fund, for itsunsecuredpor>onof theremainder7. The Port of Trois-Rivieres, for its unsecuredpor>onoftheremainder

JamesManson

Endnotes(*1)Fora discussionofthe Court’s treatmentofthevarious compe>ng priori>es inthe“PhoenixSun” case,seethear>cle by theauthor en>tled“Ballantrae Holdings Inc. v. The “Phoenix Sun”:Federal Court Performs Ranking Exercise InConnec>onWithCreditors’ClaimstoProceeds ofVessel Sale”,whichcanbefoundstar>ngatpage21oftheOctober2016edi>onoftheFernandesHearnLLPNewsleOer.


8. Loss Transfer ArbitraCons: Burden and OnusofProofClarified

The Personal Insurance Company v. ZurichInsurance Company Ltd. (Arbitrator Bialkowski,October28,2016,unreported)

LossTransferReview:Ontario(*1)

Sec>on275ofthe InsuranceAct,R.S.O.1990,c.I.8 (“Insurance Act”), creates a scheme for losstransfer indemnity where any insurer who paidstatutory accident benefits may be repaid byanother insurer in collisions involving heavycommercialvehiclesandmotorcycles.

Sec>on9(2)ofOntarioRegula>on664undertheInsurance Act provides a first party insurer whoinsuresanautomobile with the right, incertaincircumstances, to claim indemnifica>on from asecond party insurer who insures a heavycommercialvehicletotheextent of fault foundontheoperatoroftheheavycommercialvehicle.

The purpose of the loss transfer regime is tobalance the costs and spread the risk betweenthe insurers of different sizes of vehicles. It iseffec>vely a loss re-alloca>on, since the risksassumed by insurers of smaller vehicles (e.g.motorcycles, snowmobiles, small cars) may bedispropor>onately largecomparedtotherisks ofinsuringa heavy commercial vehicle; specifically,withrespecttothepoten>alforinjury.

Thelosstransfer rules governindemnity for thepayment of accident benefits, i.e. no-faultmedical and other payments made to injuredvic>ms of motor vehicle collisions includingt r e a tmen t e x p e n s e s ( p h y s i o t h e r a p y ,rehabilita>on, prescrip>on medica>ons etc.),aOendant care, income replacement, andhousekeeping expenses. Typically, eachinsurerwill bearthecostoftheno-faultaccidentbenefitspaid to its own insured, but, when a heavycommercialvehicleis involvedinanaccidentwitha smallervehicle,the firstpartyinsurerwill makeclaim for the reimbursement of paid accidentbenefits under the loss transfer rules from thesecondpartyinsurer.

Theremust, however, beat leastpar>al liabilityon the part of the heavy commercial vehicledriverbeforeits insurermustreimbursethefirstparty insurer. If the truck’s driver is not liable,t h en no r e imbu r s emen t i s r e qu i r ed .Reimbursement is made inaccordancewiththerela>ve degrees of liability of the drivers (see“FaultDetermina>onRules”,below).

Iftheinsurersareunabletoagreewithrespecttoindemnifica>onunder s.275of theInsuranceActthedispute shall beresolvedthrougharbitra>onundertheArbitra5onAct,1991,S.O.1991,C.17.

Applica5onoftheLossTransferRules

Toapply,anatfaultvehiclemustbeconsidereda“heavycommercial vehicle”,whichis definedas a“commercialvehicle”usedtotransportmaterials,goods,tooland/orequipmentandhavingagrossweightgreaterthan4500kilograms(*2).

TheFaultDetermina5onRules

InOntario, theappor>onment of fault betweentwovehicles undertheloss transferrules isbasedupon the “Fault Determina>on Rules”. Theserules describe typical accident scenarios,assigningpre-determinedpercentages offault. Ifnone of scenarios in the Fault Determina>onRules applies to a par>cular accident then faultwill be determined in accordance with theordinaryrulesoflaw.

As indicatedinJevco InsuranceCompany v. YorkFire&CasualtyCompany(1996)27O.R.(3d)483,

“thepurposeofthelegisla>onis tospreadthe load among insurers in a gross andsomewhat arbitrary fashion, favouringexpedi&g

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December 2016 copy - Fernandes Hearn...Connie Banford (“Connie”), was injured in a boang...

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