Canada Chairs a Busy Arctic Council

At the last Ministerial Meeting of the Arctic Council, held in Kiruna, Sweden, on May 15, 2013, the Council adopted its second international agreement, the Agreement on Cooperation on Marine Oil Pollution Preparedness and Response in the Arctic. In brief, the Agreement requires each State Party to maintain a national oil pollution response system addressing pollution in their northern waters (in Canada's case, the waters lying north of the 60th parallel of North latitude), together with a national contingency plan. The Parties must also establish a minimum level of pre-positioned oil spill combating equipment, a program of exercises for the response organization, a training program for personnel and a competent national authority responsible for preparedness and response. A national, 24-hour-a-day operation contact point, where oil pollution reports can be received and transmitted, is also compulsory for each State Party, as well as an authority entitled to act on behalf of that State to request assistance or to decide on rendering it if asked.

On that same day in May, Canada assumed the chairmanship of the Arctic Council for the next two years, adopting as its theme, “Development for the People of the North”, with a focus on responsible resource development, safe shipping and sustainable circumpolar communities. Chair of the Council at this time will be significant work, as the Council is already engaged on 11 priority initiatives that will constitute the focus of its work during the next two years. Those more directly connected with shipping and the marine environment are outlined here.

Following up on the Marine Oil Pollution Agreement, the Council has established a new Task Force to develop an Action Plan to prevent marine oil pollution in the Arctic. The Task Force on Arctic Marine Oil Pollution Prevention (TFOPP), chaired by Norway and Russia, will strive to conclude arrangements to implement the Action Plan. TFOPP’s first meeting was held in Norway in November 2013, and the Task Force plans to make recommendation to the Council's Ministerial Meeting in 2015.

The Council is also preparing Guidelines for Sustainable Tourism and Cruise Ship Operations in the Arctic. This project has been assigned to one of the Arctic Council’s most active Working Groups, the one devoted to Protection of the Arctic Marine Environment (PAME). Canada has already submitted a discussion paper to PAME`s meeting held in Russia in October 2013 and has been invited to prepare a draft work plan, including a proposed timeframe, scope, goals, outreach and deliverables. PAME is establishing a contact group with representatives from other Working Groups to address this issue. Focused discussion with experts and Northerners will occur in early 2014 and the Guidelines, as they emerge, will be discussed with the communities involved. Initially, PAME has invited member governments to submit information on their domestic rules and policies pertaining to cruise ship tourism in the Arctic. Best practices can thus be identified, taking account of current trends in the Arctic cruise ship industry and existing rules, standards and guidelines. Canada and the United States are taking the lead in this important initiative, the urgency of which is seen in the increased cruise ship traffic, and some related incidents which have occurred “north of 60” in the last few years, as melting ice has attracted greater numbers of eco-tourists to northern waters.

At the same time, the Arctic Marine Strategic Plan (AMSP), adopted in November 2004, is to be revised, in order to take account of increasing pressures from climate change, economic activities and pollution, and to incorporate the findings and recommendations of Arctic Council projects, in a ten-year vision for marine protection of Arctic waters. The AMSP revision will be coordinated by PAME with the projects of other Working Groups. The final draft of the AMSP revision is expected to be completed during the summer of 2014, and then submitted to the Senior Arctic Officials and the Ministerial Meeting in 2015.

Another major initiative of the Arctic Council in the next two years will be to promote the conclusion by the International Maritime Organization (IMO) of the long-awaited International Polar Code, governing the design, construction, equipment and operation of vessels in both the Arctic and the Antarctic and the training of seafarers for the challenges of navigating there, as well as search and rescue and environmental protection matters. This too is an urgent priority, particularly given the recent increase in seagoing traffic across both the Northern Sea Route on the Russian side of the Arctic and in and through the Northwest Passage on the Canadian side. At the IMO, agreement in principle has been reached on definitions for the different categories of ship to covered by the Code (Categories A, B and C). All ships operating the waters concerned will be required to have a Polar Ship Certificate and a Polar Water Operation Manual. The Code is to be adopted by separate resolutions of IMO’s Marine Safety Committee (MSC) and its Marine Environmental Protection Committee (MEPC) and will be mandatory. IMO’s Secretary-General, Koji Sekimizu, who made his own personal voyage of discovery across the Northern Sea Route in August 2013, predicts that the Code will be adopted in 2015 and should be in force by 2016, providing a crucial legal framework to make Arctic shipping safer in the years to come, thus implementing one of the 17 key recommendations contained in the Arctic Marine Shipping Assessment, adopted by the Council in 2009.

Finally, although not directly related to shipping perse, mention must be made of the Arctic Council’s initiative in working to develop a Circumpolar Business Forum to help promote economic development for the benefit of Northern populations on both sides of the North Pole. Key to the success of this initiative will be establishing guidelines to manage that development in a sustainable mode and in a manner that includes the indigenous peoples of the circumpolar region.

Together with the political challenge that Canada will face chairing the Arctic Council (including working with the 12 States that now have observer status and handling the E.U.’s application for such status, deferred in 2013), it is obvious from the above outline that the next two years could see some crucial decisions being taken, setting in place a more elaborate and, it is to be hoped, effective legal framework for the region concerned and for the international shipping community, as the Arctic continues to struggle to adjust to its own rapid and challenging transformation.

For further information or questions on Arctic shipping in Canada, contact Peter Pamel of BLG’s Montréal office (514.954.3169 or by email at ppamel@blg.com).

The HNS Convention 2010 is Coming to Canada

Although it is not yet in force, Canada is taking steps to implement the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea 2010, commonly termed the “HNS Convention”. On October 18, 2013, Bill C-3, Safeguarding Canada’s Seas and Skies Act was introduced in First Reading in the House of Commons. Part 4 of the Bill (sects. 28 to 56) would amend Part 6 the Marine Liability Act in order to bring the bulk of the HNS Convention into force in Canada in due course for most vessels.

The HNS Convention provides a regime of liability and compensation for pollution damage from ships, including:

  • damages caused by hazardous and noxious substances carried by the vessels,
  • risks of fire and explosion, including loss of life or personal injury;
  • loss of or damage to property outside the ship;
  • economic losses resulting from contamination (e.g. losses in fishing and tourism);
  • loss or contamination of the environment;
  • the costs of preventive measures (e.g. clean-up) and further loss or damage caused by them;
  • costs of reasonable measures of reinstatement of the environment.

Any damage caused during the international or domestic carriage of HNS by any seagoing vessels in the territory, including the territorial sea, of a State Party to the Convention is covered. The Convention also covers pollution damage in the EEZ or equivalent area of a State Party. There is also coverage for damage (other than pollution damage) caused by HNS carried on board seagoing vessels of State Parties when they are outside the territory or territorial sea of any state.

Unlike the CLC and Fund Convention on marine oil pollution, on which it is largely modelled, the HNS Convention covers far more pollutants, a total of some 6,500 substances. These include lists of substances covered by various IMO Conventions and Codes, notably:

  • oils;
  • other liquid substances defined as noxious or dangerous;
  • liquefied gases;
  • liquid substances with a flashpoint not exceeding 60°C;
  • dangerous, hazardous and harmful materials and substances carried in packaged form;
  • solid bulk materials defined as possessing chemical hazards;
  • the residues left by the previous carriage of HNS, other than those carried in packaged form.

Like the CLC and Fund Convention, the HNS Convention establishes a two-tier regime of compensation. Tier 1 is provided by the shipowner and tier 2 by the HNS Fund. The liability of the shipowner is strict, with few defences, and its exact quantum depends upon the gross registered tonnage of the vessel, up to a maximum amount of 100 million SDRs (approx. C$160 million) for damage caused by bulk HNS and 115 million SDRs (approx. C$184 million) for damage caused by packaged HNS or by both bulk HNS and packaged HNS.

The specific limitations of the shipowner are as follows:

Ship Size Limits of liability for bulk HNS Limits of liability for packaged HNS
Ships ≤ 2,000 gross registered tonnes (grt) 10 million SDR 11.5 million SDR
Ships between 2,001 and 50,000 grt 1,500 SDR per gross ton = a maximum of 82 million SDR at 50,000 grt 1,725 SDR per gross ton = a maximum of 94.3 million SDR at 50,000 grt
Ships between 50,001 grt and 100,000 grt 360 SDR per gross ton = a maximum of 100 million SDR at 100,000 grt 414 SDR per gross ton = a maximum of 115 million SDR at 100,000 grt
For ships ≥ 100,000 grt 100 million SDR 115 million SDR

 

The owner’s limitation may only be broken by proof that the damages resulted from the owner’s personal act or omission committed with intent to cause the damage or recklessly with knowledge that the damage would probably result. No claim for compensation may be made against crewmembers, pilots, charterers, salvors, and their servants and agent, unless it is proven that the damage was caused by their personal acts or omissions committed with intent to cause the damage or recklessly and with knowledge that the damage would probably result. The shipowner, however, retains its recourse in damages against any third party who caused the HNS incident. Up to two-thirds of the available compensation is reserved for claims for loss of life and personal injury, which have priority over other claims.

Compulsory insurance applies, so that the ship must carry on board a certificate of insurance issued by a State Party, indicating that the owner has coverage for its liability under the Convention. That insurance, which will ordinarily be provided by a protection and indemnity club, must also provide for direct action against the insurer.

The HNS Fund will pay claims where the damage costs exceed the shipowner’s limit of liability under tier 1 or where the shipowner is not liable for the damages, as well as where there is no or insufficient insurance cover or where the owner is financially incapable of meeting its obligations. The Fund provides compensation up to a maximum of 250 million SDRs (approx. C$400 million) per incident, including the shipowner’s portion.

Bill C-3 would vest the Admiralty Court (ordinarily, the Federal Court of Canada) with exclusive jurisdiction over all matters relating to the constitution and distribution of the limitation fund, and the Court would have the power to stay proceedings in other courts and to make related orders.

The receivers of contributing cargo in each State Party are liable to pay annual contributions (levies) to the HNS Fund if they have received specified quantities of HNS in the preceding calendar year. They must report annually on the HNS they have received. Each State Party must determine the rate of such  levies. State Parties are required to report the HNS cargoes received in their territories in each calendar year and to ensure that the name of any person liable to pay levies appears on a list to be established by the Director of the HNS Fund. State Parties are responsible for levies lost as a result of non-submission of reports by persons liable to pay them. States must report their contributing cargoes upon ratifying the Convention, then annually to the IMO Secretary-General until the Convention enters into force and thereafter annually to the Director of the HNS Fund. Sanctions may be established for failure to comply with these reporting obligations.

An electronic system, the HNS Convention Cargo Contributor Calculator (HNS CCCC), has been developed to assist States and potential contributors to identify and report contributing cargoes covered by the Convention. Whether or not a substance falls within the definition of HNS can be ascertained by either the name of the substances or its United Nations number.

Bill C-3 also requires the Ship Source Oil Pollution Fund (SSOPF) to pay compensation where the owner is not liable for the pollution damages or where the quantum of the damages exceeds the owner’s and HNS Fund’s limitations or where the owner is financially incapable of meeting its obligations and they are not recoverable from the Fund. The necessary powers are conferred on the SSOPF Administrator. Bill C-3 also regulates the collection of levies required by the Convention and the reporting requirements, and provides for sanctions for various offences.

The Convention is not yet in force internationally. That will happen only 18 months after 12 States (including at least four States with not less than 2 million units of gross tonnage) have expressed their desire to be bound, and when those persons in such States who would be liable to contribute to the HNS Fund shall have received at least 40 million tonnes of contributing cargo to the General Account of the Fund during the preceding calendar year. If Bill C-3 is duly enacted in its present form, it may well be brought into force on the date when the Convention comes into effect internationally.

BLG will follow developments related to the implementation of the HNS Convention 2010 as they unfold and will keep clients aware of those likely to affect their shipping operations.

N.B.: The foregoing is only a summary of some of the provisions of the Convention. The full text should be consulted for any question of interpretation.

Canadian Maritime Law – Key Judgments – 2013

2013 has seen the usual variety of important Canadian maritime law decisions. The following is a sampling of those of greater significance that have arisen in various areas of admiralty practice.

  1. Constitutional Matters

    Newfoundland (Workplace Health, Safety & Compensation Commission) v. Ryan Estate

    The estates and widows of two Newfoundland fishers who drowned at sea sued the designer and builder of their fishing vessel for negligence and breach of contract, as well as the Attorney General of Canada, for alleged negligence in inspecting the vessel and testing its stability. The families of the deceased also obtained compensation from the provincial Workplace Health, Safety and Compensation Commission, under an arrangement contingent upon whether they were ultimately successful in their lawsuits. An internal review specialist with the Commission decided that their action against the defendants was barred by sect. 44 of the Workplace Health, Safety and Compensation Act. (the “WHSCA”). Sect. 44 removed all rights of action, statutory or otherwise, of workers and their dependents against employers or other workers resulting from injuries in respect of which compensation was payable, or arising in the course of the workers’ employment. The Supreme Court of Newfoundland and Labrador, Trial Division, later reversed that ruling, resulting in an appeal to the provincial Court of Appeal by the Commission, the designer and the builder of the vessel and the federal Attorney General.

    The Court of Appeal, applying the interjurisdictional immunity doctrine, held that sect. 44 impaired a core content of federal jurisdiction over navigation and shipping, because it purported to eliminate reliance on maritime negligence law to obtain compensation (by way of tort actions taken under the Marine Liability Act), for death or injury of Newfoundland and Labrador fishers arising from workplace accidents occurring in a maritime context. The provincial provision was also held inapplicable under the paramountcy doctrine, in that it was found to be incompatible with the federally enacted right of dependents of deceased maritime workers to sue for damages in tort under subsect. 6(2) of the MLA and also frustrated the purpose of that federal legislation, denying dependents of deceased fishers access to the federal maritime tort regime to the same extent that the deceased would have had if they had not perished.

    The Supreme Court of Canada disagreed. It found that the interjurisdictional immunity doctrine did not apply, because sect. 44, although it did affect, nevertheless did not impair, the integrity of federal maritime negligence law. The intrusion of sect. 44 on that body of federal law was held to be not significant or serious, considering the breadth of the federal power over navigation and shipping, the absence of impact of the Newfoundland provision on the uniformity of Canadian maritime law, and the historical application of workers’ compensation schemes in the maritime context. In addition, the federal paramountcy doctrine had no application in this case, because the federal and provincial provisions, in the Court’s view, could operate side by side without conflict. Nor did the WHSCA, establishing a no-fault regime to compensate for work- place-related injury, frustrate the purpose of subsect. 6(2) of the MLA. That provision was enacted to expand the range of claimants who could start an action in maritime negligence law. The WHSCA simply provided for a different (no-fault) regime for compensation that was distinct and separate from the regime of tort law.

    The Supreme Court’s decision suggests that provincial legislation is now being given a wider ambit of application to legal issues involving the maritime context and maritime workers.

    9171-7702 Québec Inc. v. La Reine

    This renewed deference to provincial law in matters that are arguably maritime in character is nowhere more obvious than in the decision of de Montigny J. in this case, involving a claim for the sale in Quebec of a fishing vessel that had been forfeited for drug offences and then sold by the federal government to the plaintiff. The plaintiff alleged that the model number of the vessel’s engine had been misstated in the offer to purchase and the bill of sale, the stated model having greater horsepower than the vessel’s actual engine. plaintiff therefore sued the Queen in Right of Canada, and the federal Crown cross-claimed against the company that had prepared the vessel’s valuation surveys, from which the incorrect engine model number was copied into the offer to purchase. The Court expressed concern as to whether Canadian maritime law or the civil law of Quebec would govern this case and, in particular, the cross-claim.

    De Montigny J. began by analyzing a host of classic Canadian constitutional law decisions and principles, on various points, including the constitutional limitation on the scope of Canadian maritime law found in the division of federal and provincial powers under the Constitution Act, 1867, the federal jurisdiction over navigation and shipping under that Act, the importance of uniformity in Canadian maritime negligence law, the applicability of provincial law to the federal Crown, the pith and substance theory, the incidental effects theory and the doctrines of federal paramountcy and interjurisdictional immunity. He observed that the latter doctrine had been narrowed so as to apply only where the impugned provincial enactment impaired, and not merely affected, the application of federal law. At the conclusion of this analysis, he decided that the applicable law governing the formation and performance of a contract for the sale of a ship, concluded in Quebec, was the Civil Code of Quebec and not Canadian maritime law. He found that provincial legislation on the contract of sale and its performance did not impair any core area of Canadian maritime law. In this connection, he cited recent decisions holding that provincial occupational health and safety legislation applied aboard ships, and concluded that the same principle must apply a fortiori to the sale of a ship, which is a matter even more remote from navigation and maritime law.

    Applying Article 1716 of the Civil Code, de Montigny J. then held that the federal Crown had not breached its warranty to deliver a vessel of the quality specified in the offer to purchase simply because the model number of the vessel’s engine was incorrectly recorded in the sale documents. The plaintiff had also been negligent in not verifying the model number as it could have done, and in not becoming aware of the “as is where is” non-responsibility clause of the contract, a provision valid at civil law and common law alike. The action was therefore dismissed, which caused the cross-claim to be pointless.

    One suspects that this decision will be appealed, on the important constitutional point of whether provincial sale of goods legislation or federal maritime law governs the conclusion and performance of ship sale contracts occurring in the provinces or territories of Canada.

  2. Federal Court Jurisdiction


    SDV Logistiques (Canada) Inc. v.
    “Dieselgenset” (The)

    The Export Development Corporation (“EDC”) loaned money to two hotel companies to complete construction of two vessels at the Davie shipyard in Quebec. The loan was secured by a first priority mortgage on the hulls under construction, as well as all appurtenances of each of them, including machinery and equipment. EDC also registered a hypothec on the appurtenances under Quebec’s Register of Personal and Movable Real Rights. Four diesel generators were to be installed on these vessels during their construction, as well as a lifting device. The shipyard hired the plaintiff (“SDV”) to pick up that machinery in Germany and ship it to Canada. The generators and lifting device were picked up in Kiel and delivered to storage in the Port of Hamburg, but were never shipped to Canada. The Davie shipyard company later ceased operations, but its successor company continued to pay monthly storage fees on the goods stored in Hamburg, while operating under the Companies’ Creditors Arrangement Act. A new company later purchased Davie’s assets, but ceased to make payments to SDV (amounting to $234,000) for storing and warehousing the equipment. The two hotel companies defaulted on their loan agreement with EDC, resulting in EDC seeking to sell the unfinished hulls under the Canada Shipping Act, 2001.

    A warrant for the arrest of the generators and lifting device was issued by SDV but was never served in rem. SDV released its warrant and amended its action against EDC, turning it into a suit in personam for payment of the storage charges. SDV applied to the Federal Court for an order to allow the sale of the generators and the lifting device, under Rule 379 of the Federal Courts Rules, which provision authorizes the Court to order the sale of perishable or deteriorating property. SDV’s motion was dismissed by Prothonotary Morneau on the grounds that the Court lacked jurisdiction to make the order sought, resulting in an appeal to a Federal Court judge.

    Scott, J. upheld Morneau, P.’s judgment, emphasizing that discretionary orders of prothonotaries ought not to be disturbed on appeal to a judge, unless they are clearly wrong or raise questions vital to the final issue of the case. The question of jurisdiction in this case was one of law, attracting a standard of correctness, but (contrary to EDC’s pretensions) the judge applying that standard was obliged to set aside the findings in first instance and conduct his own analysis.

    While it was clear that the Federal Court had in personam jurisdiction over cases dealing with navigation and shipping, including claims for warehousing arising out of the carriage of goods by sea, in this case, SDV had no contract for the storage concerned with the new operator of the Davie shipyard or with EDC, the sole in personam defendant. For the Federal Court to order the judicial sale of cargoes which have never been in Canada, there must be a statutory provision granting the Court power to force such a sale. Such a provision was found in the Canada Shipping Act, 2001, sect. 69, with respect to mortgaged property not located in Canada, but SDV, unlike EDC, was not the mortgagee of the equipment concerned. No equivalent provision in the statute granted power to issue an order of sale in favour of SDV for the outstanding storage charges, so that its action against EDC was now a purely in personam proceeding. The Court therefore lacked jurisdiction to order the relief sought. In addition, there was no evidence that the cargoes concerned were actually in peril, as was required to support an order of sale under Rule 379 of the Federal Courts Rules, on the sale of perishable or deteriorating property. SDV’s appeal was therefore dismissed with costs.

    Her Majesty the Queen in Right of the Province of Alberta v. Toney

    This long, but fascinating, judgment addresses the question of whether the Federal Court has in personam jurisdiction over the government of a Canadian province in a maritime death claim. The Toney family sued the Province of Alberta in the Federal Court, alleging that the negligent operation of a rescue boat owned and operated by the Province of Alberta had caused the death of their five-year-old daughter in a boating accident on an Alberta lake. The trial judge upheld the Federal Court’s in personam jurisdiction against Alberta over the objections of the Province, which then appealed the ruling to the Federal Court of Appeal.

    The appeal was allowed in a split decision (2 to 1). Near J.A., speaking for the majority, and applying the standard of correctness, first recalled four basic principles: a) Parliament and the provincial legislatures have adopted the premise that the Crown is prima facie immune from legislation (as expressed in both the federal and Alberta Interpretation Acts); b) where Parliament has authority to legislate in an area, a provincial Crown will be bound if Parliament so chooses; c) there must be some legislative provision in order for provincial Crowns to be sued in the Federal Court;and d) the Federal Court must have jurisdiction over both the subject-matter of the dispute and the parties. The majority noted that the Crown was presumed not to be bound by legislation, unless it was expressly named therein, or was bound by necessary implication, or unless it had waived its immunity from suit.

    As to express binding, sect. 22 of the Federal Courts Act, granting the Federal Court concurrent Admiralty jurisdiction “between subject and subject as well as otherwise” (emphasis added) did not, in the opinion of the majority, sufficiently express Parliament’s intention to bind the provinces or to confer on the Federal Court in personam jurisdiction over the provincial Crowns, nor was such a proposition supported by the case law, which had construed those final words of sect. 22 to mean that a general description of the subject-matter of concurrent jurisdiction was insufficient to displace the provincial Crown’s traditional immunity from suit in the Federal Court.

    Although sect. 19 of the Federal Courts Act did confer in personam jurisdiction on the Federal Court over provincial Crowns in cases of intergovernmental controversies, if the particular province involved had (like Alberta) adopted legislation accepting such jurisdiction, that provision nevertheless did not contemplate suits against provincial governments being instituted in Federal Court by private citizens or companies.

    Nor did the majority accept the argument for Federal Court jurisdiction based on Alberta’s Proceedings Against the Crown Act (“APACA”), which had been interpreted so as to require any such suits to be instituted in an Alberta court.

    The majority disagreed that the Federal Court had in personam jurisdiction over the provincial Crowns by necessary implication and that the Court's jurisdiction would be wholly frustrated if Alberta were not bound (especially since a remedy against the Province could be sought in the Alberta Court of Queen’s Bench). Alberta had not waived its immunity by past conduct, since the case law invoked in support of that argument involved suits against certain particular corporations that were treated as if they were private parties.

    Sharlow J.A., in a vigorous dissent, held that the Federal Court’s jurisdiction in this matter depended solely on federal (not Alberta) legislation, namely the Marine Liability Act (with respect to substantive matters) and the Federal Courts Act regarding procedural questions. Sect. 17 of the federal Interpretation Act provided for the immunity of the Crown from any enactment “except as mentioned or referred to in the enactment”. In Oldman River, the Supreme Court of Canada had held that, under sect. 17, the Crown (federal or provincial) was bound by a federal statute if the statute so stated or if a “purposive and contextual analysis of the statute discloses a clear parliamentary intention to bind the Crown” or if the statute’s purpose would be wholly frustrated unless the Crown were bound by it. The Federal Court's jurisdiction in actions “between subject and subject as well as otherwise” (emphasis added), enacted by sect. 23 of the Federal Courts Act, had been held to refer to an action against a public authority, and therefore should also be construed, under the similar wording of sect. 22, so as to include a claim against a province.

    The claim relating to the death of the Toney girl was clearly founded on Canadian maritime law (under the Marine Liability Act) and within the Federal Court’s concurrent maritime jurisdiction, under the Federal Courts Act, paragraphs 22(2)(d) and (g). The jurisdiction of the Federal Court over sect. 22 matters was enforceable in personam under subsect. 43(1) of the Act “in all cases” and was broad enough to include a claim in personam for damages caused by a ship or its operation where the ship was owned by a province. The fact that paragraph 43(7)(b) of the Act precluded an action in rem in the Federal Court against any ship owned or operated by Canada or a province where the ship was engaged on government service, would make no sense if the Federal Court lacked jurisdiction to consider a claim in personam against a ship owner that was a province.

    Accordingly, Sharlow J.A. found that sects. 22 and 43 of the Federal Courts Act, read as a whole and in context, intended to give the Federal Court complete and comprehensive jurisdiction in all Marine Liability Act claims against Alberta, thus meeting the “purposive and contextual analysis” test for the application of the second branch of sect. 17 of the Interpretation Act (disclosing a clear Parliamentary intention to bind the Crown).

  3. Carriage of Goods


    Wells Fargo Equipment Finance Co. v. Barge “MLT-3”

    Wells Fargo (“W.”) leased a truck and driver to carry building materials, and a tug and barge to carry them to an island off the British Columbia coast, offload them there, drive them to a construction site on the island where a house was being built, and then return the truck to the starting point on the B.C. mainland. The leased truck was lost when it toppled off the defendant barge while backing up onto it in preparation for the return voyage. W. sued the barge and the tug in rem and the tug captain in personam two years less two days after the loss of the truck, but outside the one-year limitation period of the Hague-Visby Rules (“HVR”), art. III(6). Hughes J., finding that the one-year time-bar did not apply to the case, awarded the plaintiff damages for negligence, reduced by 10% to take account of the latter’s contributory negligence. The defendants appealed, focusing on whether the HVR, with their one-year time-bar, applied, under the Marine Liability Act.

    The Federal Court of Appeal found that the trial judge had decided the case on the basis of an argument that had not been raised by counsel; namely, that the contract for carrying the truck had been an oral, rather than a written one, and that the carrier had issued no bill of lading. This was erroneous, because, although no bill of lading had in fact been issued, the application of the HVR had not been expressly excluded in the bill of lading, as was required by the Marine Liability Act, subsect. 43(2), in order to derogate from those Rules in the Canadian coasting trade. The appellate judges nevertheless upheld the trial judgment on another ground; namely, that the contract concerned was a charterparty, rather than a “contract for the carriage of goods by water” from one place to another in Canada within the meaning of the Marine Liability Act; and the HVR did not apply to charterparties, as the Federal Court of Appeal had recently decided in T. Co. Metals LLC v. Federal Ems(The).

    Evans, J., speaking for the appellate court, observed that the context of legislation dealing with the rights and obligations of common carriers and implementing certain international rules were such that the expression “contract for the carriage of goods by water” should not be understood to include charterparties. Such an interpretation was consistent with commercial reality, charterparties being agreements between commercial entities dealing directly with each other, the execution and enforcement of which were the private concern of the contracting parties. The terms agreed in the case at bar further supported the charterparty characterization of the contract. The trial judge had made no “palpable and overriding error” and his judgment was therefore entitled to deference. The appeal was dismissed.

    DHL Global Forwarding (Canada) Inc. v. CMA-CGM S.A.

    The defendant carrier transported 68 containers from Halifax to Ho Chi Minh City, Vietnam, under bills of lading which conferred jurisdiction over all actions arising under the contract of carriage evidenced by those instruments on the Tribunal de commerce de Marseille, in France. The freight forwarder, DHL, acting as agent for its customer (the shipper, HSB International) had paid freight to the carrier (CMA CGM) for the shipment. HSB, however, never paid DHL. So DHL continued to hold the bills of lading, refusing to release them to the Vietnamese  consignee  of  the  cargo,  and  the  goods remained in storage in Ho Chi Minh City, accumulating demurrage and storage charges. CMA-CGM, as carrier, instituted proceedings in Marseille to collect US $681,655.55 owing in respect of those charges. DHL responded by taking action in the Federal Court of Canada, seeking a declaration exempting it from any liability with regard to the demurrage and storage charges. CMA-CGM then moved for a stay of DHL’s declaratory action, pursuant to the Federal Courts Act, invoking the exclusive French jurisdiction clause of the bills of lading.

    Prothonotary Morneau, reviewing the documentation relating to this shipment, noted that the booking confirmation subjected the contract of carriage of the goods to the carrier's long form bill of lading, the customer (DHL) acknowledging and agreeing to all those terms and conditions. The subsequent bills of lading all identified the “Merchant” so as to include the “Holder” of the bill and “anyone acting on behalf of any such Person”. The bills also defined “Holder” to mean “any Person for the time being in possession of this Bill of Lading by reason of the consignment of the Goods or the endorsement of this Bill of Lading or otherwise”. The Prothonotary found that DHL had consented to the terms of the booking confirmation and that, at all material times, DHL, under the bills of lading, was any Person “otherwise” in possession of them and was therefore their “Holder” rather than HSB. DHL had also acknowledged in its statement of claim and in an affidavit that it had submitted that it had control over the bills of lading, was holding them and might offer them for sale. DHL’s action for a declaration thus fell within the scope of the bill of lading jurisdiction clause in question, and DHL had not established that Marseille was a forum non conveniens. The carrier’s motion for a stay was therefore granted with costs, in favour of the French court.

  4. Liens For Sub-Hire and Bill of Lading Freight

    Byatt International S.A. v. Canworld Shipping Company Limited

    Byatt time-chartered its vessel to Korea Line Corporation (“KLC”), which sub-time chartered her to MUR Shipping BV (“MUR”). MUR voyage chartered the ship to Canworld Shipping Company Limited (“Canworld”). Canworld agreed to carry sulphur from Vancouver to Australia for a shipper, Prism Sulphur Corporation (“Prism”) under a bill of lading issued by the vessel’s master. The head charterparty included a NYPE clause 18, granting Byatt a lien on all cargoes and all sub-hire/sub-freights for any amounts due under that charterparty. MUR paid its charter hire to KLC. KLC then defaulted on its payment of hire to Byatt. The indebtedness between Canworld and MUR remained outstanding. Byatt took steps to intercept and exercise a lien on the bill of lading freight payable by Prism to Canworld. Prism made an interpleader application and paid US $268,596.60 and US $65,100.00 into its solicitor’s trust account, seeking judicial direction as to who was legally entitled to receive those sums. Byatt’s claim against KLC ($16,360.079.41) was later settled for US $10,741,166.91, pursuit to insolvency proceedings in South Korea. Under the settlement agreement, Byatt agreed to credit KLC with any funds obtained by exercising its contractual rights of lien. The respondents questioned the efficacy of the lien notices and the direction of payment, and further contended that, in view of the terms of the settlement agreement concluded in KLC’s insolvency proceedings, it would be inequitable for Byatt to recover anything.


    The trial judge based his judgment on the equities of the case alone. He held that in view of the settlement agreement requiring any funds obtained by Byatt to be paid to KLC, the agreement would benefit only KLC, whereas the fund in issue should go to Canworld to satisfy its unpaid obligations to MUR, which had faithfully performed its contract to KLC, and was owed some US $330,000. The judge was unimpressed by Byatt's argument that, despite the settlement agreement, it was not necessarily evident that Byatt had received any money from KLC. He found that it would make no sense for Byatt to pay moneys to KLC if Byatt was owed money by KLC (being the party which had triggered the unfortunate sequence of events in the first place and had already been paid once). Byatt, in the trial judge’s opinion, had sustained no damages and enforcing its contractual lien would not benefit Byatt, because the terms of the settlement agreement would cause any resulting benefit to inure to the benefit of KLC. Byatt or KLC would thus receive a windfall, based on the default and subsequent settlement by KLC – an inequity which the Court could not promote. The trial judge accordingly awarded the interpleader funds to MUR.

    The B.C. Court of Appeal, speaking through Donald, J.A., reversed that decision, on the ground that the judge had not decided the case on  the  basis  of which party was legally entitled to the interpleaded funds, as required by the interpleader petition, but rather on his own idea of the fairest way of distributing the money. Neither the equitable principle of unjust enrichment nor the rule against double recovery applied to support MUR’s claim to the interpleaded funds, because both those principles required that Byatt be paid through its settlement with KLC, and there was no evidence that Byatt had received anything through the settlement. The settlement agreement contemplated Byatt taking action to recover third party losses related to KLC’s insolvency and, if successful, accounting for that recovery in a reckoning between the parties. Byatt had not assigned to KLC its right to make third party claims. The argument that the agreement required an accounting for all amounts received from KLC, was not a proper basis for denying Byatt’s contractual right of lien against sub-freights. Unjust enrichment also required a corresponding benefit of one party for no juristic reason and a resulting detriment to another party, and that condition was not met in this case. Even if KLC should benefit from a credit on payment to Byatt, there were two valid juristic bases for that outcome: Byatt’s charterparty, requiring payment of hire, and the South Korean insolvency proceedings, which had endorsed the settlement agreement. Moreover, the compromise made between Byatt and KLC in the latter’s insolvency proceedings was irrelevant to Byatt’s contractual entitlements to lien sub-freights and sub-hire, down the chain of charterparties, as against other parties not involved in that compromise.

    The appellate court also found that Byatt’s notice of lien had been effective. The payment of freight by Prism into its solicitor’s trust account, although made before Byatt’s notice of lien, was merely a payment from principal to agent, in contemplation of interpleader proceedings, not a complete alienation of the funds so transferred. The payment before the notice therefore did not render the lien ineffective. The lien on the bill of lading freight payable by Prism was also found valid and enforceable, to the benefit of Byatt.

  5. Maritime Liens

    Comfact Corp. v. “Hull 717” (The)

    The defendant ship was being built in Canada by D. Inc., for a Norwegian corporation. D. Inc. sub-contracted the welding services to C. Corp. and then went into bankruptcy protection. C. Corp. claimed in rem against the ship for its welding work, arguing that the claim was a preferred one, secured by a maritime lien. Harrington J. dismissed the claim in first instance, holding that the statutory maritime lien provided to Canadian ship suppliers for the supply of goods, materials and services to a foreign vessel, pursuant to the Marine Liability Act, did not include the provision of manpower to a shipbuilder for the construction of a vessel. The Federal Court of Appeal upheld the trial judge, not being persuaded that providing such services amounted to providing services for the “operation or maintenance” of a vessel, within the meaning of that statutory provision.

  6. Collisions

    R. v. Ralph

    Ralph, the accused captain of a fishing vessel, was convicted by the Newfoundland Provincial Court of five offences when his vessel overturned, killing four of her eight crew members. The convictions were for: 1) operating a steamship without having a valid certificate aboard; 2) operating the vessel without a certified crew to ensure a proper deck watch; 3) failing to maintain a proper deck watch; 4) failing to keep a proper lookout; and 5) failing to ensure that the crew understood how to use the lifesaving and firefighting equipment on board. A judge of the Trial Divisions, sitting as a summary conviction appeal judge, set aside the conviction for operating a steamship without having a valid certificate aboard, on the ground that the fishing vessel was not a “steamship”, but upheld the other four convictions. The Crown appealed to have the conviction for operating a steamship without a valid certificate restored. The accused cross-appealed, contesting his conviction for the four other offences.

    The majority of the Newfoundland and Labrador Court of Appeal (Rowe J.A. dissenting in part) found that the summary convictions appeal judge had erred in holding that the vessel was not a “steamship”, within the meaning of the then applicable Canada Shipping Act, and in setting aside the conviction on the first charge for that reason. Nevertheless, the majority held that the charge should indeed be set aside, but on other grounds, because the trial judge had erred in holding that compliance with the limitations specified on the certificate was a condition of its validity. In truth, the certificate’s validity did not depend on whether the accused complied with its terms. In addition, because the vessel was one of more than 100 but less than 200 tons, her master could be counted as a member of the deck watch under the Crewing Regulations, and no mate was required to be aboard as part of the crew. Accordingly, the deck watch-related conviction was set aside.

    The Court was unanimous, however, in upholding the accused’s conviction for failing to keep a proper deck watch, since he was not on the bridge or in the wheelhouse at the relevant time, but was then on the fish deck helping to retrieve the catch. This clearly violated the Seafarers’ Training, Certification and Watchkeeping Code, as incorporated into the Crewing Regulations, which required the officer in charge of the watch to keep that watch on the bridge. Similarly, the accused’s conviction for failing to keep a proper lookout, as required by Rule 5 of the Collision Regulations, was maintained. Nor had a “proper look-out by sight and hearing” been maintained in the wheelhouse (bridge) during the relevant period preceding the casualty.

    There was also clear evidence that the accused had neglected to provide the crew members with proper training in the use of the boat’s lifesaving and firefighting equipment. The fines imposed were upheld by the appellate court.

  7. Ship Mortgages – Priorities

    Worldspan Marine Inc. (Re)

    An “Administration Charge” established by a court order issued under the CompaniesCreditors Arrangement Act (“CCAA”) may attach to a vessel belonging to the insolvent corporate shipowner, regardless of the vessel’s location, and may outrank all traditional maritime claims against the proceeds of the judicial sale of that vessel.

    Worldspan Marine Inc., a British Columbia shipyard company, became insolvent when one of customers (Sargeant) ceased making payments on the construction of a large yacht. The B.C. Supreme Court, in proceedings instituted by Worldspan Marine, made an initial order under sect. 11 of the CCAA, imposing an “Administration Charge” to secure payment of the fees and disbursements of the CCAA Monitor appointed under that Act to supervise the restructuring of Worldspan Marine, as well as those of his counsel and counsel to the petitioners. The Administration Charge, not to exceed $500,000, was specified in the order as applying to all the “Non-Vessel Property” of the petitioners (i.e. all their property except the unfinished “Sargeant yacht”).

    When the initial order was rendered, the applicant, Caterpillar Financial Services Corporation (“CAT”), held a mortgage on the A129, another vessel belonging to Worldspan Marine. Although Canadian registered, the A129 had been moved to Seattle, Washington, in an attempt to sell her. CAT therefore had the A129 arrested in rem in foreclosure proceedings in the U.S. District Court in Seattle before the initial order was made in B.C. CAT obtained an order of default in Seattle, declaring that the A129 and all persons interested in her, other than the yacht broker, were in default. The B.C. Supreme Court later confirmed and extended its initial order and made a claims process order, establishing a process for filing claims against Worldspan Marine. CAT filed a proof of its mortgage claim against the A129 in the B.C. Supreme Court. The Monitor accepted CAT’s claim as a first charge against the vessel, subject only to the Monitor’s claim that the Administration Charge attached to her.

    The U.S. Bankruptcy Court for the Western District of Washington granted a “Recognition Order”, recognizing the B.C. proceedings as a “Foreign Main Proceeding” and staying all actions, proceedings and executions against Worldspan Marine’s assets in the U.S. There was no discussion of the Administration Charge in the U.S. proceedings, and the Recognition Order was not appealed.

    The B.C. Supreme Court then ordered the sale of the A129, requiring the net sale proceeds to be held in trust by CAT’s solicitors, and recognizing that CAT’s mortgage had first priority, subject only to the potential claim that the Administration Charge attached to the A129. Claims against the net proceeds based on the assertion that they were subject to the Administration Charge were limited to $170,000. The sale was approved by the B.C. Supreme Court and CAT’s solicitors were ordered to pay the net proceeds to CAT, except for the $170,000., which sum was to be retained by CAT’s solicitors pending a further order of the Court.

    On application by CAT for that sum, Pearlman J. of the B.C. Supreme Court held that the Administration Order applied to the A129’s judicial sale proceeds. Sect. 11.52, enacted in 2009, authorized the court to make an order declaring that “all or part of the property of the debtor company” was subject to a security or charge, in the amount the court considered appropriate, in respect of the fees and expenses of the Monitor, legal experts engaged by the Monitor, and legal experts engaged by the debtor company for the purpose of the CCAA proceedings. The section further authorized the court to”… order that the security or charge rank in priority over the claim of any secured creditor of the company.” There was no restriction on the type or location of property that could be subject to the security charged. The Court was thus empowered to grant a “super priority charge” attaching to all or part of the debtor’s property as security for the fees and expenses of the Monitor, which charge served the objectives of the CCAA by assuring the Monitor (and other professionals engaged by it or by the debtor company for purposes of CCAA proceedings) that they would be paid for their services. That interpretation was supported by the context of the CCAA as a whole and its purposes and plain wording. The initial order in this case included in petitioners’ property “… their current and future assets, undertakings and properties of every nature and kind whatsoever, and wherever situate including all proceeds thereof.” At the time that order was pronounced, the A129 was “Non-Vessel Property” of Worldspan, subject to the Administration Charge. By its Recognition Order, the U.S. Bankruptcy Court had deferred to the B.C. Supreme Court in matters relating to the administration and realization of the petitioners’ assets in the U.S., including the issue of whether the Administration Charge attached to the A129.

    The learned justice also held that: “In my view, in CCAA proceedings, the super priority enacted by Parliament in s. 11.52 in order to advance the purposes and objectives of the CCAA trumps the ranking of in rem claims under Canadian maritime case law.” The Administration Charge was, in effect, an in rem charge attaching to the A129 and its proceeds of sale standing in place of the vessel, and CAT’s solicitors were therefore ordered to pay and deliver to the Monitor the balance of the proceeds of sale of that yacht ($170,000).

  8. Shipbuilding

    Offshore Interiors Inc. v. Worldspan Marine Inc.

    Sargeant (mentioned in the previous summary) contracted with defendant Worldspan Marine for the building of a luxury yacht. Under his Vessel Construction Agreement (“VCA”), he was to make monthly payments to Worldspan, which “advances” were secured by a “first priority security interest”, in his favour, in the vessel and its materials, machinery and equipment. The VCA also provided that these advances would not be earned by Worldspan until the yacht was delivered and accepted. The VCA also required a builder’s ship mortgage to be registered against the vessel, in favour of Sargeant or his lender, which was done. The builder’s mortgage stated that was an “account current” pursuant to the VCA, specifying the obligations secured by the mortgage. Sargeant later arranged a construction loan with a bank to finance the remaining construction costs of the yacht, and assigned to the bank his interest in the VCA, the yacht and the builder’s mortgage. A dispute arose between Sargeant and Worldspan concerning the construction costs, and construction ceased, after the total advances made by Sargeant, and by the bank on his behalf, reached over US $20 million.

    The plaintiff (Offshore Interiors) filed an action in personam and in rem against Worldspan, another company and Owners of the vessel and the vessel herself, for unpaid services and materials rendered in connection with the yacht building. Worldspan and related entities then filed a petition in the B.C. Supreme Court for relief under the Companies’ Creditors Arrangement Act. The Court established a claims process, and Sargeant filed a claim for over US $21 million. The plaintiff filed a motion in Federal Court, seeking a declaration that the mortgage granted to Sargeant under the VCA did not create a lien or charge in the vessel other than to secure her delivery on completion, and therefore that since the vessel was never completed, Worldspan was not obliged to repay the advances to Sargeant.

    The Court agreed with the plaintiff, finding that the parties to the VCA had contemplated that the monies provided for construction of the vessel would be utilized in her construction and would not exist as a fund. In the event of a breach, Worldspan would be unable to repay those sums and Sargeant would have the option either to take possession of the vessel and complete or sell her, or to sue Worldspan in personam. The mortgage was simply designed to secure delivery and created no other lien or charge on the vessel obliging Worldspan to repay the advances to Sargeant or the bank.

  9. Maritime Personal Injury

    Thomas v. Todorovic

    The plaintiff was a passage in the defendant’s boat on a Quebec lake when he tried to retrieve a submerged buoy from the water by pulling up the rope to which the buoy was attached. As he did so, the defendant started the vessel’s engine, the boat accelerated quickly to a high speed, and the plaintiff fell overboard with the buoy rope still wrapped around his left arm. He was dragged through the water for some distance, sustaining injury. More than two years after the accident, the victim’s parents instituted an action for damages against the defendant, who invoked the two-year time-bar of Marine Liability Act (“MLA”) and moved for dismissal of the suit as unfounded in law, pursuant to Quebec’s Code of Civil Procedure (“C.C.P.”). The parents, in turn, moved for an extension of the two-year time for suit, under sect. 23(2)(a) of the MLA.

    Madam Justice Lalande held that the parents were “dependents” of  the  injured  teenager,  within  the meaning of the MLA, and as such were entitled to sue the defendant for damages for his fault or negligence, as provided by the statute. The MLA time limitation applying to such a suit was two years from the date of the accident. 74 More than two  years  from  that date having passed when the motion introducing the parents’ suit was filed, their action was clearly “pre-scribed” (i.e. time-barred). In consequence, their action was dismissed as unfounded in law under art. 165(4) C.C.P.

    The parents’ counter-motion for a discretionary extension of the two-year limitation period, made under sect. 23(2)(a) of the MLA, was also dismissed, since sect. 23 only authorized the Court to grant such an extension where the bodily injury action arose out of an occurrence on a “ship” involved in a “collision” with another ship. In this case, even if the buoy could, at a stretch, be considered to be a “ship” (as defined at subsect. 2(1) of the Federal Courts Act), there definitely was no “collision” between ships in this case. In consequence, the Court lacked discretion to extend the two-year time-bar under sect. 23. The judgment contains an interesting review of the authorities on time for suit in maritime personal injury actions instituted under the MLA.

  10. Limitation of Liability

    Mitsubishi Heavy Industries Ltd. v. Canadian
    National Railway


    Mitsubishi Heavy Industries (MHI) had a Master Transportation Agreement (MTA) with Fujitrans (a freight forwarder) to transport MHI’s aircraft parts to customers worldwide. Fujitrans shipped some such parts from Japan to Vancouver, where they were loaded aboard a CN train that derailed en route to its Ontario destination, causing serious damage to one of the parts. Fujitrans had contracted with Casco Forwarding Limited, another freight forwarder, for the rail carriage. Under a confidential contract (“CTA-13349”) between Casco and CN, CN’s liability was limited to $50,000.00. No actual copy of the contract bearing a signature by Casco was produced, however. MHI claimed damages estimated to be over $1.6 million from CN for the value of the damaged part, and CN invoked the limitation of its contract with Casco, which, it contended, availed as a limitation as a “written agreement signed by the shipper”, as understood in subsect. 137(1) of the Canada Transportation Act (“CTA”).

    Fitzpatrick J. found that Casco was indeed the “shipper” for the purposes of sect. 137 of that statute, according to the “realistic approach” to that issue mandated by the Quebec Court of Appeal in Sumitomo Marine & Fire Insurance Co. c. Canadian National Railway and approved by the Federal Court and Federal Court of Appeal in Boutique Jacob Inc. v. Pantainer Ltd. Casco had a direct contractual connection with the rail carrier; it chose to call on the rail carrier for its services; and it had effective and real control over the negotiation of the agreement made with that carrier. MHI was not the “shipper”, because its MTA with Fujitrans showed that MHI intended others to be responsible for transporting the aircraft parts, save for the ocean voyage. Fujitrans, although a freight forwarder, was not a rail carrier, and its action in this case mainly consisted of supervising the loading of the aircraft parts onto the CN train in Vancouver and then subcontracting with Casco under the MTA, with the intention that Casco would arrange for the rail transport with CN, which Casco did. Casco was therefore the true “shipper” for the purposes of sect. 137 of the CTA.

    The Court further concluded that there was a written agreement between Casco and CN relating to the shipment by rail of MHI’s aircraft parts, which contract included the limitation of liability clause benefiting CN. That agreement, including its limitation clause, was one familiar to Casco, in view of its extensive experience in arranging for rail transportation. Although no actual copy of CTA-13349 bearing the signature of representatives of either Casco or CN had been produced, the requirement of subsect. 137(1) for a “written agreement signed by the shipper” had to be read in the context of the CTA and in its grammatical and ordinary sense, in harmony with the statutory scheme and objects of the Act, and the intention of Parliament. The Court examined the history, context and legislative intent of the provision concerned. It also noted that “sign” and “signed”, as defined in various law dictionaries, included a form of acceptance or agreement, even where a signed copy of the document concerned could not be produced. Moreover, Casco had assigned the contract to P. & O Ports Canada Inc., under an agreement actually signed by one of its officers, thus indicating Casco’s acceptance of the terms of the assignment, and had attached an (unsigned) copy of CTA-13349 to  the assignment. This demonstrated that Casco had sufficient knowledge and acceptance of the latter contract and its limitation clause. Such an interpretation of “written agreement signed by the shipper” was consistent with the purpose of sect. 137, which was to protect shippers from being subject to a limitation of liability without having full knowledge and appreciation of the terms of the limitation. It would be unfair and arbitrary to deny CN the benefit of the limitation clause, which it had negotiated in good faith with Casco.

    The Court also held that MHI, as owner of the goods, had granted power to Fujitrans, in the MTA, to make other contracts relating to the shipment of the aircraft parts. Accordingly, MHI was bound by the terms of the contract made by Casco with CN, including the limitation of liability clause in question. The doctrine of sub-bailment on terms, upheld in Boutique Jacob and again in CAMI Automotive Inc. v. Westwood Shipping Lines Inc., was applied. In this case, the MTA allowed the subcontracting without restriction as to terms, but MHI retained control of the subcontracting, by requiring Fujitrans to consent to any such sub-contract. MHI knew of CTA-13349 and its limitation clause, which Fujitrans had executed on the authority of MHI. MHI therefore had consented to the terms of the rail carriage negotiated by Casco with CN, and CN was therefore entitled to the benefit of the limitation it sought under the terms of that agreement.

  11. Arrest Of Ships

    Quin-Sea Fisheries Ltd. v. “Broadbill 1” (The)

    The owners of the defendant fishing vessel concluded a loan agreement with plaintiff Quin-Sea Fisheries, granting it a mortgage over the vessel and undertaking to make available its fish catch for a minimum of one full fishing season following the year in which the loan was repaid. The loan was paid in 2013, but the owners wished to sell their catch to another company. Quin-Sea first sought a mandatory injunction in the Supreme Court of Newfoundland and Labrador, requiring the owners to sell their catch to it. The motion was dismissed on the grounds that there was no irreparable harm, as damages would suffice to compensate the plaintiff for any breach of the contract concerned. The plaintiff then sued in personam and in rem and had the vessel arrested in the Federal Court. Bail was set at $100,000., but was not furnished. Defendants moved for an order staying the Federal Court action. Harrington J. refused the stay. He held that, although the case could not proceed to trial in two jurisdictions, the plaintiff had not acted in a vexatious manner in arresting the vessel after it had failed to obtain the injunction, as mortgage creditors have that right for an alleged breach of a mortgage agreement. He also dismissed the argument that the mortgage covered only the repayment of the loan and not the fish-selling covenant, no adequate notice of that contention having been given. Although at some point in time, either the Newfoundland or the Federal Court proceedings would have to be stayed, given the volatility of the moment, and the fact that the defendants might still have re-courses to have the arrest set aside, the learned judge refused the stay at that point. He further observed that it was not unusual to sue in Federal Court simply to obtain security, while the matter proceeded on the merits in another jurisdiction. The vessel or bail in lieu of her would therefore remain in the control of the Federal Court while the merits of this case were dealt with elsewhere.

  12. Ranking

    Cameco Corp. v. “MCP ALTONA”

    The MCP ALTONA was carrying 24 containers, filled with 840 steel drums of Cameco Corp.’s radioactive uranium, from Vancouver to China. A portion of the stow collapsed in heavy weather, causing radioactive material to spill onto the tank tops. The cargo constituted “dangerous goods” under Canada’s Transportation of Dangerous Goods Act, 1992. The ship returned to Vancouver, where Transport Canada detained both vessel and cargo. Cameco, pursuant to its approved emergency response assistance plan (ERAP), and as required by the Transportation of Dangerous Goods Act, spent over $8 million discharging the nuclear cargo (as well as an oil rig belonging to other interests), shipping the radioactive material back to its point of origin in Saskatchewan and decontaminating the vessel. The German owners of the ALTONA went bankrupt - a fact which came to Cameco’s attention only months later. Cameco arrested the vessel in rem for its discharge/clean-up claim and also sued in personam the (bankrupt) shipowners, the ship managers, its own freight forwarder, the stevedores, and the container supplier. The ship manager and other defendants blamed Cameco for the spill. The HSH Nordbank AG held a German mortgage on the ship for over 6 million euros. The Bank filed a caveat release and later moved for an order of sale, which motion was granted. The judicial sale yielded proceeds of $4.8 million, plus incidentals. Obviously, that sum would not suffice to fully pay both the Bank and Cameco. Hence the Court had to decide on priorities.

    The Federal Court accorded the usual priority to the mortgagee’s claim, after the Marshal's expenses. Harrington J. held that, assuming the contract of carriage was frustrated due to a breach of contract by the carrier, Cameco’s claim was a cargo claim which could not be accorded the same priority as Marshal’s expenses. Nor was Cameco’s claim entitled to the status of a maritime lien for stevedoring services rendered to a foreign vessel, under the Marine Liability Act, because the stevedoring services were not rendered under any contract between Cameco and the shipowner, its agents or the bareboat charterer, but solely pursuant to Cameco’s legal obligations with respect to its nuclear cargo. No contract had resulted merely because the shipowner had permitted Cameco on-board to effect the discharge that Cameco was legally bound to perform to satisfy the Canadian Nuclear Safety Commission.

    Cameco was also unsuccessful in arguing that its claim gave rise to a maritime lien for salvage, because it had not acted as a volunteer in discharging the cargo, and because the danger was over when the ship returned to a safe berth in Vancouver. The Salvage Convention 1989, in force in Canada, did not change those two fundamental requirements of traditional salvage law (peril and voluntary action). Finally, the Court found no equitable grounds in this case to justify altering the normal order of ranking of maritime claims. The Bank’s inaction did not lull Cameco into doing something it would not have done anyway. Cameco incurred the expenses in question as a cost of doing business, acting as it was required to act, not as a volunteer, but to satisfy its legal duties. There was no reason to change the ordinary priorities in distributing the judicial sale proceeds.

    In subsequent proceedings, Harrington J. awarded costs of this litigation to HSB Nordbank.

  13. Criminal Law

    Karl Lilgert was convicted by a jury of two counts of criminal negligence causing death, contrary to subsect. 220(b) of the Criminal Code, resulting from his having had command of the passenger ferry QUEEN OF THE NORTH when it collided with Gill Island on the British Columbia coast in March 2006. Two of the 110 passengers aboard the vessel were drowned in that incident and the vessel sank. Lilgert, on that occasion, was fourth officer and officer of the watch, working in the bridge with a quartermaster (his former girlfriend, with whom he had just broken up). The ferry failed to make a necessary course correction at a certain point in its voyage, but sailed straight ahead, on automatic pilot, at full cruising speed of 17 knots, in the dead of night, striking the island, with the tragic consequences concerned. The Court was required to determine Lilgert’s sentence.

    The judge recalled the purpose of sentencing, to wit: denouncing unlawful conduct; general and specific deterrence; separating offenders from society where necessary; rehabilitation; providing reparations for the harm done to victims and the community; and promoting a sense of responsibility in offenders. He also recalled the principles of sentencing set forth in sect. 718.2 of the Criminal Code, requiring: a) account to be taken of aggravating and mitigating circumstances, b) imposing similar sentence for similar offenders in similar circumstances; c) combining sentences where consecutive sentences are imposed; d) not depriving the offender of liberty if less restrictive sanctions may be appropriate in the circumstances; and e) considering other reasonable and available sanctions in the circumstances. Sect. 718.1 also required any sentence to be proportionate to the gravity of the offence and the degree of responsibility or moral blameworthiness of the offender.

    Applying those principles as applied in relevant cases to date, Stromberg-Stein J. considered the aggravating factors in this case (the scope and duration of Lilgert’s negligence, amounting to a complete failure to navigate the ferry; his high degree of experience and knowledge; his status as a professional mariner in a trust situation; the high foreseeability of harm; and the great harm that occurred, including the loss of two lives (the bodies were never recovered), the trauma suffered by the survivors (including himself), the loss of the ferry and the temporary loss of ferry service on the northern routes). The mitigating factors included Lilgert’s lack of any criminal record; his expression of regret and remorse for the incident; the fact that rehabilitation was not an issue; the support of his family and community; the loss of his dream employment, dream house and the leaving of his dream community, as well as the prospective sale of his farm to pay his legal fees, as well as his exposure to vilification by the media.

    Nevertheless, this was a case of high moral blameworthiness, involving complete abdication of responsibility by the offender, who had ignored his responsibility to navigate safely a passenger ferry with 101 trusting passengers aboard, at night, moving at full cruising speed in waters with land nearby, knowing full well the risks and the possibly disastrous consequences of navigational errors. Moreover, he had also either lied or minimized his responsibility at trial, blaming the quartermaster, poor training, poor equipment and his employer’s practices and policies, the weather and other vessels. This blameworthiness required the sentence to focus on deterrence and denunciation. Accordingly, Lilgert was condemned to serve four years on each count, concurrently, and was prohibited from operating a vessel for ten years, pursuant to subsect. 259(2) of the Criminal Code.

  14. Recognition and Enforcement of Foreign Judgments

    Lakeland Bank v. Ship “Never E Nuff”

    In 2007, an American called McMahon borrowed money from the plaintiff bank in New York State for the purchase of the defendant ship, the loan being secured by a first preferred American ship mortgage. McMahon sold the vessel shortly thereafter to defendant Location Holand (1995) Ltée and in 2008 ceased to make loan payments to plaintiff. The plaintiff obtained judgment against McMahon in the U.S. District Court for the Northern District of New York in 2010 for US $190,000. But the vessel, having been disposed of by McMahon, was then in the Province of Quebec, in the hands of one Saint-Germain, a second defendant who had bought the ship from Location Holand. The plaintiff arrested the vessel in rem in the Federal Court and sought summary judgment under Rule 213 of the Federal Courts Rules.

    Roy J. dismissed the summary judgment motion. He recalled that the Canada Evidence Act required a foreign judgment to be exemplified before it could be admitted in evidence or acted upon. The judgment could therefore not be introduced merely by filing an affidavit of one of the plaintiff's vice-presidents (as the plaintiff was attempting to do), but had to be proven. Furthermore, the judgment of the New York District Court had to be recognized in Canada in order to be enforceable there. A full hearing with properly presented evidence was required in order to obtain such recognition, not mere allegations or pleadings. In addition, the issue of whether the Quebec Civil Code applied so as to require the registration of the ship mortgage in Quebec, or whether Canadian maritime law applied, thus setting aside that requirement, should also be explored. And even if maritime law applied, there would still be the issue of the execution of a foreign judgment obtained against a foreigner, without the involvement of the defendants who had raised the application of the Civil Code. In consequence, the Federal Court was not satisfied that there was no genuine issue for trial, as Rule 213 required for the granting of summary judgment to the plaintiff.

    Harrington J. first held that the Prothonotary’s decision was not discretionary, not because deciding whether a document is privileged is vital to the outcome of the case, but rather because it is vital to our fundamental sense of justice to protect documents that are subject to the litigation privilege or to the solicitor-client privilege. The learned justice also examined the documents in question, concluding that the Prothonotary had committed a palpable and overriding error in ordering production of the report of Canadian Claims Service. That document, with the exception of certain survey reports attached to it, was subject to solicitor-client privilege, since it protected the professional relationship between those parties. The other documents were found to be protected by litigation privilege, in as much as they had been prepared to facilitate the adversarial process, with a view to litigation that was either commenced or contemplated when they were drafted. In this case, the parties were in an adversarial situation before any of the documents was created. The documents in question, with the exception of the attachments to the report of Canadian Claims Service, were therefore adjudged to be privileged and therefore immune from discovery.

  15. Procedure

    Hagedorn v. Ship “HELIOS I”

    Harrington J., in this case, had to rule on an appeal from an order of Prothonotary Lafrenière as to whether certain documents in the possession of the defendants and third parties were immune from discovery on grounds of either solicitor-client privilege or litigation privilege.

    The defendant yacht, owned by two persons jointly, caught fire and burned at a marina in Vancouver, damaging other yachts as well. The broker who had placed insurance on the yacht believed that third party owners of the other damaged vessels would probably advance claims for their damages. He therefore had a survey report prepared and instructed  the  surveyors that they were being retained on behalf of counsel, whom he also retained, to conduct necessary investigations, in order to defend any claims that might be advanced against the HELIOS I or her owners. The counsel ordered a joint survey with experts retained by counsel for the third party vessel owners. Later the same defendants’ counsel retained another company (Canadian Claims Services Inc.) to interview one of the two owners of the HELIOS I, the dominant purpose of which interview was to assist in defending any potential claims against those owners. The Prothonotary ordered that some eighteen documents identified in a revised affidavit of documents be produced.

Germany Enacts a New Maritime Statute 

April 25, 2013 was a noteworthy date in the history of German maritime legislation. On that date, the new German maritime statute came into force, amending Book 5 (Maritime Trade) of the German Commercial Code (the Handelsgesetzbuch or “HGB”). The amending legislation, on which work began in 2004, is the first major revision of German shipping law since 1861 and is designed to modernize the country’s Commercial Code, bringing it from the age of sailing vessels into the contemporary era of container ships. Redundancies have been eliminated, gaps filled and various provisions harmonized with Germany’s civil and general transport law.

As regards the carriage of goods by sea, Germany remains a Hague Rules state, which never ratified the Visby Protocols but has implemented them by national legislation. There appears to be little chance of Germany ratifying the Rotterdam Rules any time soon. The amended Commercial Code, however, introduces some changes to the Hague-Visby regime, drawn from the Hamburg or Rotterdam Rules or the country’s 1998 general transport law. Nevertheless, any such changes relating to “contracts for the carriage of general cargo” that conflict with Germany’s international obligations under the Hague-Visby Rules (e.g. the elimination of the defences of error of navigation or management of the ship and fire) will not apply to bills of lading issued in Hague-Visby states.

Some of the salient features of the amended Book 5 of the HGB are the following:

  • Ship arrest will now be facilitated in Germany. In the past, it was necessary to show a valid ground for arrest (e.g. the impossibility of enforcement of the maritime claim in another jurisdiction or a matter of urgency), as well as a valid maritime claim. Under the amended legislation, only a valid maritime claim need be proven. As a result of that change, Germany should now become a jurisdiction where ship arrest will be easier (and likely also more frequent), its arrest law now being more akin to that of Belgium and the Netherlands.
  • Certain provisions on masters, considered outdated, have been repealed, masters now being considered as employees of shipowners rather than as quasi-entrepreneurs as they often were in the nineteenth century.
  • Shipowners will now be liable for damages done by their crews and others on board their ships, provided that the person who suffered the damage also has a claim for damages against the crew member in question. In addition, the shipowner will be liable for on-shore damages to cargo and that liability may only be excluded by individually negotiated agreements, not by general terms and conditions of a contract.
  • German law, for the first time, now provides expressly for time and bareboat charterparties, by detailed mandatory provisions on such contracts. Voyage charters continue to be regulated as hitherto.
  • In the carriage of goods, the carrier’s period of responsibility for cargo loss or damage is will now extend from the taking over of the goods until their delivery, rather than from tackle to tackle. The carrier may avoid such liability, however, by proving that the loss or damage was due to circumstances which it could not avoid and the consequences of which it was unable to prevent.
  • In cases where the vessel was unseaworthy or uncargoworthy, and where the facts indicate a likelihood that the loss or damage was caused by that condition, the carrier may escape liability only by proving that the condition in question could not have been discovered prior to the commencement of the voyage by a reputable carrier exercising due care.
  • The Hague Rules exceptions of error in the navigation and management of the ship and fire have been repealed. Nevertheless, the legislation permits the parties to a contract of carriage to exclude liability for navigational fault and fire by general terms and conditions (e.g. standard bill of lading terms) or by express agreement.
  • The other traditional Hague Rules exemptions remain unchanged in the German legislation, and limitation of liability remains set at the Hague-Visby level (i.e. the higher of 667.67 SDRs per package or unit or 2 kilograms of the gross weight of the cargo), unless the parties agree to higher limitations. As in Hague-Visby, those limitations are broken where the damages are proven to have been caused by an act or omissions of the carrier done with intent to cause such damage or recklessly and with knowledge that the damage would probably result.
  • The new statute introduces into German law the new concept of “performing carrier”, being the party (other than the contracting carrier) who actually performs the transport service. Although not stated expressly, the relevant definition appears to include as performing carrier parties such as a sub-carrier, a time charterer, a sub-charterer or a terminal operator. The performing carrier has the same liability as the contracting carrier for damage resulting from the loss of or physical damage to the goods and is jointly and severally liable for such loss or damage, together with the contracting carrier. Performing carriers and their servants may invoke the same exemptions from and limitations of liability as the contracting carrier. Any contractual arrangements with the shipper or the consignee whereby the carrier expands its own liability applies to the performing carrier only if the latter has agreed to those terms in writing.
  • The statute specifies the compulsory content of a bill of lading, including, notably, the name and address of the carrier, thus facilitating the taking of suit for cargo loss or damage.
  • The shipper’s liability for damages caused by his false declaration will no longer be fault-based. Rather, damages caused by the provision of false information concerning dangerous goods or bad packaging may now be claimed from the shipper, regardless of any fault on his part.
  • A time limitation for indemnity claims has been established, requiring the party wishing to seek indemnification to file his claim within three months of being made aware of the claim, on pain of loss of the right to any such indemnity.
  • Deck stowage is no longer prohibited per se. While in general goods may not be loaded on deck without the shipper’s consent, such loading is now permitted without such consent, provided that the goods are placed in or on an article of transport suitable for on-deck carriage (e.g. a container) and provided that the deck has been properly fitted out to carry such an article of transport. If goods are loaded on deck without the shipper’s consent (where required), the carrier is liable for any resulting loss or physical damage to them, even if it occurs without any fault or neglect on the carrier’s part, there being a presumption that the loss or damage was caused by such loading. If the carrier had agreed with the shipper that the goods were to be carried below deck and the damages resulted from their having been loaded and stowed on deck, the codal and contractual exemptions and limitations of liability do not apply (a fundamental breach provision).
  • A legal basis for electronic bills of lading has been created.
  • Bills of lading purporting to incorporate by reference the terms and conditions of a charterparty, including any law and jurisdiction clause, will not be effective to incorporate those charter provisions under the new statute. This is considered to be one of the more drastic changes introduced by the amendments.
  • Sea waybills are provided for, in both paper and electronic formats. Such documents are declared by the new legislation to be prima facie evidence of the conclusion of the contract of carriage and of its contents, as well as evidence that the carrier has taken over the goods. A sea waybill must be signed by the carrier but the signature may be reproduced by printing or a stamp.

It remains to be seen whether the new legislation will prove popular and effective in achieving its stated goals of modernization. In particular, the possible ratification of the Rotterdam Rules by the United States and at least some European Union states may put added pressure on Germany to further amend Book 5 of its Commercial Code. If it should choose not to yield to such pressure, interesting conflict of law problems may lie ahead. Canadian shippers and carriers should be at least generally aware of the amended Code, particularly as the Canada-E.U. Free Trade Agreement begins to affect trade with Germany in the next few years.

It is encouraging to see this major European Union country taking positive action to update its maritime legislation, but it is also disappointing to some observers that so important a shipping nation has chosen to go it alone with national legislation on carriage of goods, thus further weakening international uniformity of maritime law in that important domain.

N.B.: The above outline is a purely unofficial summary of some of the key provisions of the amended Book 5 of Germany’s Commercial Code. The full text of the Code, as amended by the 2013 statute, should be consulted for all purposes of interpretation.

 

Author

Graham Walker 
GWalker@blg.com
604.640.4045

Expertise

Insurance and Tort Liability
Maritime Law