developments in canadian maritime la cases.pdf · pith and substance approach the court had little...

Giaschi & Margolis BARRISTERS AND SOLICITORS

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Developments In Canadian Maritime Law01/01/2003- 30/03/2005

Prepared By:Christopher J. Giaschi*

Robert MargolisElyn Underhill

Mark Sachs (of Thomas Cooper & Stibbard)

Koprino turned south off Cape Bealewith a Barge in tow not made of steel;As Barge and Ship took the Island's leeboth travelled well on a flat calm sea;

The voyage was easy well into the nightwith Barge and tow line always in sight;

But off Carmanagh the wind grew strongerthe quiet sea was no longer;

The wooden Barge soon went down -but Koprino had not run aground;

The question is what caused the wreck -The Crew, the Barge or the house on deck?

A second query may arise -Who bears the loss insurance-wise?

The Honourable Mr. Justice DaviesBritish Columbia Supreme Court

Rough Bay Enterprises Ltd. v. Budden et al., 2003 BCSC 1796

*I gratefully acknowledge the contributions of Robert Margolis, Elyn Underhill and Mark Sachs, whocontributed some of the summaries contained in this paper. However, any errors or omissions are minealone and I am responsible for all notes and comments that accompany the summaries.

Canadian Maritime Law 01/2003-03/2005 Giaschi & Margolis

Table of ContentsCanadian Maritime Law/Admiralty Jurisdiction........................................................................... 1

Marine Insurance...........................................................................................................................3

Carriage of Goods......................................................................................................................... 8Sea Carriage...........................................................................................................................................8Air Carriage......................................................................................................................................... 11Road Carriage......................................................................................................................................13

Collisions.....................................................................................................................................16

Limitation of Liability................................................................................................................. 17

Arbitration/Jurisdiction Clauses and Stays of Proceedings......................................................... 18

Admiralty Practice.......................................................................................................................23In Rem Proceedings.............................................................................................................................23Arrest/Bail........................................................................................................................................... 25Pleadings............................................................................................................................................. 27Parties.................................................................................................................................................. 28Discovery.............................................................................................................................................29Delay....................................................................................................................................................30Time Extensions.................................................................................................................................. 31Costs/Security for Costs...................................................................................................................... 33Summary Trial.....................................................................................................................................35Miscellaneous......................................................................................................................................36

Mortgages, Liens and Priorities...................................................................................................37

Miscellaneous..............................................................................................................................41Salvage and Wrecks............................................................................................................................ 41Charterparties/Bailment.......................................................................................................................41Other....................................................................................................................................................42

Canadian Maritime Law 01/2003-03/2005 -1- Giaschi & Margolis

Canadian Maritime Law/Admiralty JurisdictionCanadian Maritime Law – Workers Compensation

Laboucane v Brooks et al., 2003 BCSC 1247

The issue in this important summary trial application was whether section 10(1) of the WorkersCompensation Act of British Columbia was valid provincial law or whether it was ultra vires theprovince as infringing upon Federal jurisdiction over navigation and shipping. The underlying factswere that the Plaintiff was injured while performing a welding job on the Defendant's fishing vessel.The Plaintiff commenced these proceedings against the Defendant alleging his injuries were caused bythe Defendant's negligence. The main defence to the action was that both Plaintiff and Defendant were“workers” within the meaning of the Workers Compensation Act, that the accident arose out of andduring the course of employment and that s. 10(1) of that Act prohibited the Plaintiff from commencingor continuing the action. The Court reviewed many of the leading constitutional authorities andconcluded that the proper approach was to first determine the “pith and substance” of the enactmentand then to determine whether the pith and substance of the enactment relates to one of the heads ofpower granted to the enacting legislature. Further, the Court noted that if the pith and substance fallswithin the class of subjects assigned to the Province then the legislation will be valid notwithstandingthat it may have incidental or ancillary affects in areas of Federal jurisdiction. The Court rejected thesubmissions of the Plaintiff that the appropriate analysis was to assume the constitutional validity of theprovision and to commence with the tests set out in Ordon v Grail, [1993] 3 SCR 437. Applying thepith and substance approach the Court had little difficulty in concluding that the pith and substance of s.10(1) of the Workers Compensation Act was solely within the exclusive jurisdiction of the Province inrelation to Property and Civil Rights. The Court further held that the fact that the accident took place ona vessel was of no relevance and that the subject matter was not integrally connected with maritimematters and did not fall to be resolved under Canadian Maritime Law. In fact, the Court found therewas no encroachment upon the Federal power over navigation and shipping. (Editors Note: It isarguably difficult to reconcile the approach in this case with the four part test set out in Ordon v Grail,[1993] 3 SCR 437. Additionally, it is difficult to reconcile the finding in this case that there was noencroachment on Federal jurisdiction when the Supreme Court of Canada in Ordon v Grail held thatMaritime negligence law is a core element of Federal jurisdiction and that it was constitutionallyimpermissible for a provincial statute to regulate this area.)

Jurisdiction – Personal Injury During Boat Trailering -Limitation of Liability

Isen v Simms, 2004 FC 227

The Defendant was injured when a bungee cord that was being used to secure the engine cover of asmall pleasure boat slipped from the hands of the Plaintiff ship owner and struck the Defendant in theeye. At the time of the incident the pleasure boat had just been removed from the lake and was on atrailer. The Defendant commenced proceedings against the Plaintiff in the Ontario Supreme Court fordamages in excess of $2,000,000.00. The Plaintiff commenced this action in the Federal Court to limithis liability to $1,000,000.00 and brought this application under Rule 220(1)(c) of the Federal CourtRules to determine a question of law, namely; whether the facts and circumstances constituted “claimsarising on any distinct occasion involving a ship with a tonnage of less than 300 tons” pursuant tosection 577(1) of the Canada Shipping Act. The Defendant apparently contested both the jurisdiction of

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the Court and the substantive relief sought. With respect to jurisdiction, the Court held that although theincident occurred on land it was sufficiently connected with navigation and shipping to bring it withinthe admiralty jurisdiction of the Federal Court. With respect to the substantive motion, the Courtanswered the question posed in the affirmative holding that the word “involve” should be given a broadmeaning.

Federal Court Jurisdiction – Scope of Canadian Maritime Law

Kusugak v Northern Transportation Co. et al., 2004 FC 1696

In this case the Plaintiffs were the dependants of crew members of the “Avatuq” which sank on 25August 2002 while en route from Churchill, Manitoba to Arviat, Nunavut. All of the crew membersperished. The Defendants included the Commissioner of Nunavut, the Government of Nunavut andsome of their employees (the “Nunavut Defendants”). The allegations against the Nunavut Defendantswere that they failed to have in place or implement proper procedures in relation to the search andrescue operation. The Nunavut Defendants brought this application to strike the Statement of Claimagainst them on the grounds that the Federal Court was without jurisdiction. The Plaintiff, on the otherhand, argued that the claim was within the maritime jurisdiction of the court. The motions Judgereviewed the applicable authorities, in particular Dreifelds v Burton, (1998) 38 OR (3d) 393, and notedthat a matter will only fall to be determined by Canadian Maritime Law if it is sufficiently connectedwith navigation and shipping. She held that the claims had nothing to do with navigation and shippingand were grounded solely in common law principles of negligence. Accordingly, she concluded that theCourt was without jurisdiction. She further held that the Nunavut Defendants were public authoritiesover whom the Court had no jurisdiction.

Provincial Court Jurisdiction – Steamship Inspectors - Offshore Accord

Secunda Marine Services Limited v The Queen et al., 2003 NSSC 2

This was an application to the Nova Scotia Supreme Court to review the refusal of a Canada SteamshipInspector to issue a letter of compliance. One of the issues in the case was whether the applicationshould have been brought in the Federal Court. The Nova Scotia Supreme Court held that theapplication was properly within its jurisdiction since the matter concerned the offshore area covered bythe Nova Scotia Accord Act and Canada Accord Act.

Constitutional Law – Distribution of Powers – Navigation and Shipping – Salvage

Gulf Log Salvage Co-Operative Assoc. v Early Recovered Resources, 2003 FCA 35

This case concerned the constitutional validity of the Log Salvage Regulations of British Columbia. Anapplication for summary judgment was brought by the Province of British Columbia for a declarationthat the Regulations were valid. The motions Judge dismissed that application leaving no doubt that heconsidered the Regulations ultra vires (2002 FCT 184). The Province of British Columbia appealed tothe Federal Court of Appeal but the Court of Appeal held that it was not appropriate to rule on theconstitutional validity of a statute except upon an adequate record and that there was not an adequaterecord before the Court.

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Federal Court Jurisdiction – Enforcement of Foreign Arbitration Awards – Piercing CorporateVeil

Trans-Pacific Shipping Co. v Atlantic & Orient Trust Co. Ltd. et al., 2005 FC 311

In this matter the Plaintiff shipowner had obtained an arbitration award against one of the Defendants inLondon for breach of a charterparty. The Plaintiff subsequently registered the award in the FederalCourt and then brought this action against the charterer and against various related companies and theindividual alleged to have effective control of all of the Defendants. The relief claimed by the Plaintiffwas a declaration that the debts of the charterer were the debts of all of the Defendants and adeclaration that the assets of one of the Defendants were the assets of the charterer. The Defendantsbrought this application challenging the jurisdiction of the Federal Court arguing that the declarationssought were matters of Property and Civil Rights and therefore within provincial jurisdiction. TheProthonotary, however, held that enforcement of foreign arbitral awards had long been consideredwithin Federal Court jurisdiction. Further, the Federal Court had the implied jurisdiction necessary toenforce its judgements, including the recognition of the foreign arbitral award. The Prothonotary nextconsidered the issue of the piercing of the corporate veil and concluded that it was arguable that thevarious Defendants were for many purposes one and the same entity and thus should not be entitled tothe protection of incorporation as separate entities. The Prothonotary expressly did not decide this issuebut merely decided that it was not plain and obvious the Plaintiff could not succeed. (Note: This caseshould be compared with that of the British Columbia Court of Appeal in Pan Liberty Navigation Co.Ltd. v World Link (HK) Resources Ltd., 2005 BCCA 206, and TMR Energy Limited v. State PropertyFund of Ukraine et al., 2005 FCA 28, both of which are summarized below.)

Constitutional Law - Division of Powers - s. 92(10) of the Constitution Acts 1867-1992

Island Tug & Barge Ltd. v. Communication, Energy and Paperworkers Union, Local 601, 2003BCCA 247

The Respondent union had set up a “water” picket attempting to prevent vessels from berthing at thePetro-Canada terminal in Vancouver where the union was on strike. The Appellant tug and bargeoperators sought an injunction from the BC Supreme Court to restrict or limit the picketing. The BCSupreme Court held that it did not have jurisdiction as the matter fell within provincial jurisdiction andthe provincial Labour Relations Code removed the courts’ jurisdiction to enjoin picketing. Thedecision was affirmed on appeal on the basis that the Appellant’s business was conducted whollywithin the province and s. 92(10) of the Constitution Acts 1867-1992 therefore governed. That sectionassigns to provincial jurisdiction local works except, inter alia, shipping lines connecting the provinceto other provinces or beyond the limits of the province. By implication, therefore, a shipping lineoperated wholly within the province was within provincial jurisdiction and the BC Labour RelationsCode applied.

Marine InsuranceMarine Insurance – Warranties – Deviation - Waiver & Estoppel – Arbitration Agreement –Right of Appeal

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McAsphalt Marine Transport Limited v Liberty International Canada, 2005 ONSC 13459

This was an application for leave to appeal the decision of an arbitrator. The Applicant was the ownerof the barge “Norman McLeod” which it had purchased in China. Arrangements were made to have thebarge towed from Shanghai to Vancouver together with another barge also destined for Canada. Prior tothe tow the Applicant arranged with its underwriters for the barge to be included on its existinginsurance policy. The Respondent underwriters agreed to hold the barge covered provided: the tug wasapproved by a surveyor; the surveyor “attend and approve all stages of the towing operation”; thesurveyor “approve prevailing weather conditions or stipulate acceptable weather criteria for each stageof the towing operation”; and, the recommendations of the surveyor were complied with. A surveyordid issue a Certificate of Approval which required, inter alia, that the departure from Shanghai orintermediate ports take place in favourable weather and on receipt of a suitable weather forecast. Thetug and two barges departed Shanghai on 30 April 2001. The contemplated route was to proceed viaJapan where bunkers were to be taken aboard. However, after leaving port the Master decided to takeon bunkers at Nakhoda, Russia which was done. Within a few hours of leaving Nakhoda the flotillaencountered rough weather. The two barges collided and both were damaged. The Applicant paid $2.5million to repair the “Norman McLeod” and suffered an additional $500,000 in losses. Subsequent tothe incident the Applicant and Respondent entered into an agreement to submit any dispute to “finaland binding” arbitration. At the arbitration, the arbitrator found that the survey warranty and Certificateof Approval constituted true warranties and that they had been breached in that the departure from theintermediate port of Nakhoda did not take place in favourable weather conditions and no surveyorattended at Nakhoda. In addition, the arbitrator found that the change of course was a deviation withinthe meaning of s. 43(2) of the Marine Insurance Act. (The held covered clause in the policy would haveprotected the Applicant if it had given the requisite notice.) Finally, the arbitrator held that there wasno waiver or estoppel on the part of underwriters in sending a surveyor to survey the loss and inapproving the continuation of the tow. The first issue the Court had to consider on this application waswhether the parties had excluded a right of appeal. The Court noted that if the parties had provided thatthe arbitration was “final and binding with no right of appeal” there could be no serious argument onthe issue. However, the agreement merely provided the arbitration was to be “final and binding” andtherefore the Court had to determine the intent of the parties. The only evidence of this outside theagreement was a statement by the lead underwriter that “a judicial resolution would have no value inthis case other than to result in heavy costs to the parties, to the benefit only of their lawyers”. TheCourt held that this statement taken together with the wording of the agreement indicated the partieswished their dispute to be resolved by the arbitrator without any appeals. This was sufficient to disposeof the application but the Court nevertheless continued to consider whether the issues on appeal werequestions of law, upon which an appeal could be allowed, or questions of fact for which there could beno appeal. The Court held that the issues as to whether the weather warranty and the warranty requiringsurveyor approval at intermediate stages were true warranties were questions of law. The arbitrator'sfindings with respect to notice and waiver and estoppel were, however, questions of fact upon which noappeal was allowed.

Marine Insurance – Bad Faith – Limitation Period - Pleading – Striking – Reasonable Cause ofAction

Forestex Management Corp. et al. v Underwriters at Lloyds et al., 2004 FC 1303

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“Many years ago when small boys wore suspenders and ships had gender...” So begins the Reasons forjudgment of Prothonotary Hargrave in this application by the Defendants to strike out the Statement ofClaim of the Plaintiff. The facts were that on 4 August 2000 the “Texada” went aground in a passage inthe Queen Charlotte Islands and was subsequently declared a constructive total loss. The Plaintiff gaveunderwriters notice of the casualty on 8 August 2000 and underwriters denied coverage for breach ofthe trading warranty on 10 August 2000. The Plaintiff subsequently commenced an action againstunderwriters for coverage under the policy of insurance. That action was, however, dismissed followinga status review on 9 January 2003. The dismissal was appealed by the Plaintiff but the appeal was notserved. The Plaintiff attempted to bring on a motion ex parte to extend the time to serve the appeal butwas ordered to serve the underwriters. This was not done and the Federal Court of Appeal dismissedthe appeal for delay on 13 January 2004. The Plaintiff subsequently commenced the present actionagainst underwriters alleging bad faith. The Defendant underwriters filed a Statement of Defence andbrought the present motion to dismiss the action on various grounds. However, as they had filed aStatement of Defence the Prothonotary held that they were only entitled to argue that the Statement ofClaim failed to disclose a reasonable cause of action. The thrust of the Defendants argument was thatthere could be no action for bad faith without an initial finding that there was coverage under thepolicy. The Prothonotary first considered the requirements of an action for bad faith. He reviewedAmerican and Canadian authorities and noted that although a claim under a policy and a claim for badfaith are two distinct causes of action they are related in that a claim for bad faith cannot succeed unlessthere is a finding that there is coverage under the policy. He next considered the effect of the dismissalof the claim under the policy and held that an order dismissing an action for delay does not set up a resjudicata defence and therefore, subject to any time bar defence, does not prevent a Plaintiff from re-commencing an action. The Prothonotary next considered whether there was a limitation period thatwould bar the Plaintiff from re-commencing an action on the policy. The Court was referred to s. 39 ofthe Federal Court Act which incorporates provincial limitation periods and was urged to apply the oneyear limitation period set out in section 22(1) of the British Columbia Insurance Act. However, theProthonotary questioned whether the British Columbia Insurance Act extended or ought to extend tomarine insurance, a federal undertaking. The Prothonotary did, however, apply the two year limitationperiod in the British Columbia Limitations Act and applying that period held that the action was nottime barred. (The denial of coverage occurred on 10 August 2000 and the bad faith action wascommenced on 9 August 2002.) Accordingly, the Prothonotary noted that the existing bad faith actioncould be amended by adding a supporting claim under the policy and held that if this was done it wasnot plain and obvious and beyond doubt that the Plaintiff's action could not succeed. In result, themotion to strike the claim was dismissed.

Marine Insurance – Breach of Warranty

Gartsman et al. v Elite Insurance et al., 2004 ONSC 11157

The Plaintiff in this matter purchased a vessel from the Defendant marina and asked the marina aboutinsurance. She was told that the marina could not provide insurance but was given the name of a brokerwho arranged insurance with the Defendant insurer. A temporary binder was issued for 30 days thatwas conditional on the vessel being laid up at the dock pending receipt of a completed application andsurvey. It was also conditional on the vessel not being used except for instructional purposes by themarina. Although the Plaintiff alleged she was not advised of these conditions the Court did not believeher. In breach of the conditions the Plaintiff took the vessel on a cruise during which it was damaged.

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Predictably, the insurer denied coverage and the Court upheld the insurer's denial.

Marine Insurance – Jury Trials

Nelson Marketing International v Royal and Sun Alliance Insurance, 2003 BCSC 439

The issue in this appeal was whether the Master had correctly set aside a jury notice. The underlyingfacts were that a cargo of wooden flooring carried from Malaysia to Long Beach, California wasdamaged. The cargo was insured by the Plaintiff with the Defendant but the Defendant denied coverageon various grounds. At first instance the Master set aside the jury notice served by the Plaintiff on thegrounds that the principal issues in the case were ones of construction of the terms of the insurancepolicy, a matter not within the purview of a jury. The Plaintiff appealed arguing that there were manyfactual issues that were within the purview of a jury and that the Master had misconstrued the case. Theappeal Judge held, however, that the Master was correct in his analysis, holding that the proper test waswhether the construction issues would remain once the factual issues were resolved. If so, the principalissues are ones of construction and the matter should be heard by judge alone.

Marine Insurance – Sue and Labour – Proportion payable when insured and uninsuredproperty involved

North Coast Sea Products Ltd. v. ING Insurance Company of Canada, 2004 BCCA 95 affirming2003 BCSC 592

The insured Plaintiffs incurred expenses in recovering trays and the oysters in them from the seabedwhen the lines of their oyster farm were vandalized. The Plaintiffs were insured for the loss of the traysbut not for the oysters themselves. They claimed under the sue and labour provisions of their marineinsurance policy for all the expenses incurred in recovering the trays and oysters. Underwriters claimedthat only a portion of the expenses could be claimed and that the claim should be in rateable proportionto the value of the insured trays to the uninsured oysters. The policy wording included provisions forreducing recoverable sue and labour expenses where the property was underinsured but was silent withrespect to cases where there was both insured and uninsured property. The matter was disposed of bySpecial Case. The underwriters relied on English case law from 1902 (Cunard Steamship Co. Ltd. v.Marten) that appeared to state that sue and labour expenses should be recoverable ratably whereexpenses are incurred for both insured and uninsured property. However, the trial Judge found for theinsureds because the terms of the policy did not specify what would happen when expenses wereincurred in respect of insured and uninsured property. On appeal, the Court of Appeal upheld the trialJudge holding that the sue and labour clause of the policy only limited the insurer's obligation in thespecific circumstances identified in that clause, none of which applied.

Insurance – Direct Action Against Insurers – Interpretation of Policies – Limits of Coverage

Solway v Lloyd's Underwriters, 2005 ONSC 13407

In this matter the Plaintiffs arranged for a motor carrier to move and store their personal belongings.The truck was stolen and the Plaintiffs' belongings were never recovered. The Plaintiffs obtained ajudgment against the carrier which was not satisfied. The Plaintiffs then commenced this direct action

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against the carrier's primary and excess liability underwriters. Both underwriters agreed that thePlaintiffs' loss was covered but disagreed as to how the loss should be apportioned between them. Theprimary underwriter argued that the limit of its policy was $500,000 as provided for in thetransportation section of its policy. The excess underwriter argued that the applicable limit was that inthe warehouse and storage section of the primary policy of $1,000,000. The issue was then one ofinterpretation of the primary policy. The Court noted that the normal rule for construction of insurancecontracts requires a search for an interpretation which, from the whole of the contract, advances the trueintent of the parties at the time the contract was entered into. The Court further noted that the generalprinciples of interpretation of insurance contracts include: 1) the contra proferentum rule; 2) theprinciple that coverage provisions should be construed broadly and exclusion clauses narrowly; and 3)the desirability, at least where the policy is ambiguous, of giving effect to the reasonable expectationsof the parties. The Court then considered in detail the provisions of the primary policy and ultimatelyconcluded that the applicable limit depended on the proper characterization of the claim against thecarrier either as breach of a transportation contract or breach of a storage contract. The Court held thatsince liability was imposed on the carrier at the trial for breach of a term relating to storage of thePlaintiffs' goods, the limitation of $1,000,000 for warehousing or storage was applicable.

Insurance – Interpretation – Exclusions – Delay – Deck Cargo – Concurrent Causes – TimberTrade Federation Clauses – Bad Faith – Punitive Damages

Continental Insurance Co. v Almassa International Inc., 2003 ONSC 10422

This case concerned a shipment of lumber carried from Canada to Saudi Arabia, some of which wasloaded on deck and some of which under deck. During the voyage the vessel suffered engine failure andhad to be towed to Piraeus, Greece for repairs. The shipment was insured under an open cargo policy.The assured was concerned about the possibility of the lumber cargo becoming damaged during therepair process by lack of ventilation. In the event, some of the cargo was damaged before the engineproblems had been repaired. Believing the cause of the damage was the failure to properly ventilate theholds, a covered peril, underwriters agreed to advance the assured approximately US$350,000.Notwithstanding this agreement, underwriters advanced only approximately US$260,000. After thecargo arrived in Saudi Arabia, it was surveyed by a surveyor appointed by underwriters. The essence ofthat surveyor's opinion was found to be that the damage to the cargo was caused by delay althoughother factors contributed. Underwriters denied the claim on the basis of an exclusion for delay in theTimber Trade Federation Clauses. The underwriters argued that this clause excluded all damagescaused by delay even if delay was only a contributing cause. At the trial the Judge did not accept theevidence of the underwriter's surveyor because that surveyor had received “input” from counsel and/oranother surveyor also retained by underwriters. The trial Judge found as a fact that the damage wascaused by lack of ventilation and was therefore not excluded under the policy. In any event, the trialJudge held that the exclusion clause would only be operative if delay was the sole cause of the loss. Asecondary issue concerned whether the cargo carried on deck was covered by the policy. This issuearose because the Timber Trade Federation Clauses differentiate between under deck and on deckcargo. Under deck cargo is subject to all risks coverage whereas on deck cargo is subject to specifiedperils coverage. The damage was not caused by any of the specified perils applicable to on deck cargoand, therefore, it appeared that the deck cargo should not be covered. However, the trial Judge foundthat there was an ambiguity in the policy when read together with the certificate of insurance in that itwas not clear whether an on deck bill of lading was required to have been issued to bring into effect the

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on deck clauses. She resolved the ambiguity in favour of the assured and held that the on deck cargowas afforded all risks coverage. Finally, the trial Judge considered allegations of bad faith made againstunderwriters and a claim for punitive damages. In the course of her reasons on this issue the trial Judgewas critical of the way in which underwriters handled the file. The criticisms included the following:making an interim payment of only US$260,000 when underwriters had agreed to pay US$350,000;interfering with and attempting to influence the surveyor; failing to list relevant documents and lyingabout same on discovery; and, raising allegations the damage was caused by inherent vice whenunderwriters knew there was no basis for this defence. She concluded that there was definite evidenceof unfairness and deception. However, and notwithstanding these findings, she declined to orderpunitive damages on the grounds that the conduct was not so outrageous that punitive damages wererequired to act as a deterrent.

Carriage of GoodsSea Carriage

Carriage – Fire – Dangerous Goods – Hague Rules – Appeal– Standard of Review

Elders Grain Company Limited et al. v The “Ralph Misener” et al., 2005 FCA 139 affirming 2003FC 837

This matter involved the carriage of a cargo of alfalfa pellets from Thunder Bay to Montreal. Duringthe discharge of the cargo in Montreal a fire broke out damaging the cargo and the carrying ship. ThePlaintiffs claimed for the damage to the cargo and the Defendants counterclaimed for the damage to theship. The Plaintiffs argued that the bills of lading, which were clean, created a prima facie presumptionagainst the Defendants that the cargo was received in good order and condition. The trial Judge,however, held that during the loading the cargo was surrounded by a cloud of dust which made visualinspection difficult and that under these circumstances the presumption did not apply. The trial Judgethen turned to the cause of the fire and reviewed the evidence of the various experts and witnesses. Heconcluded that the evidence overwhelmingly supported the conclusion that spontaneous combustioncaused the fire. He next considered whether the alfalfa pellets were a “dangerous cargo” within themeaning of Article IV r. 6 of the Hague Rules. He noted that the word “dangerous” had to be given abroad meaning and concluded with little difficulty that the cargo was indeed dangerous since if notproperly stored it could ignite. He further held that there was no evidence the Defendants consented tothe shipment of the cargo with knowledge of its dangerous character. The Plaintiffs failed to advise theDefendants of its flammable nature and failed to provide any information to the Defendants withrespect to the cargo. In their defence the Plaintiffs argued that pursuant to Art. IV r. 3 of the HagueRules they could not be liable to the Defendants without proof of an act, fault or neglect. The trialJudge rejected this argument holding that a shipper's liability for damage caused by dangerous goodswas strict both under Art. IV r. 6 and at common law. In result, the Plaintiffs' action was dismissed andthe Counterclaim was allowed. The Plaintiffs appealed. At the Court of Appeal the Court first notedthat the standard of review depended on the nature of the questions appealed from. The standard ofreview for pure questions of law is one of correctness. The standard for questions of fact is whether thetrial judge made a palpable and overriding error i.e. “one that gives rise to a reasoned belief that thetrial judge must have forgotten, ignored or misconceived the evidence in a way that affected his

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conclusion”. The standard for a mixed question of law and fact is that of “palpable and overriding errorunless it is clear that the trial judge made some extricable error in principle with respect of thecharacterisation of the legal test or its application”. Applying these standards of review the Court ofAppeal upheld the trial Judge and dismissed the appeal.

Damages – Compound Interest

Elders Grain Company Limited et al. v The “Ralph Misener” et al., 2004 FC 1285

In this matter the Defendant had been successful in its counterclaim and now sought compound interest.The Court referred to the Supreme Court of Canada decision in Bank of America Canada v MutualTrust Co., [2002] SCR 601, wherein it was held that compound interest will generally be limited tobreach of contract cases where the parties agreed, knew or should have known compound interestwould apply. Compound interest may also be awarded in other cases but subject to the requirement ofproving that damage component. The Court refused the claim for compound interest holding that therehad been no agreement and that the Defendant had not proved that damage component.

Carriage by Sea – Delivery Without Bill of Lading

Asian Exports International v Zim Israel Navigation Co. Ltd. et al., 2004 FC 225

In this matter the Plaintiff had paid for goods that were shipped from China and was the namedconsignee on a non-negotiable bill of lading. The vendor however refused to give the Plaintiff theoriginal bill of lading by which to obtain delivery of the goods from the carrier. When the containerarrived the Plaintiff commenced suit against the vendor and ocean carrier and arrested the container.The Plaintiff obtained the release of the container by posting a bank guarantee as security. The Plaintifflater brought the present motion to have the security returned. The only party that appeared on themotion was the ocean carrier who requested that the Plaintiff be required to execute a hold harmlessagreement as a condition of the order. The Prothonotary declined this request but did provide in theorder that any claim by the vendor against the ocean carrier was barred.

Bill of lading – Damage to Goods – Hague Rules

Canadian Forest Products Ltd. v. B.C. Rail et al., 2003 BCSC 263

Wood pulp was loaded in apparent good order and condition onto rail cars in the BC interior,discharged at a port terminal and then loaded in the ocean carrier. At final discharge, the pulp wasfound contaminated with wood splinters and rejected for use by the receiver’s customer. The Plaintiffsclaimed against the rail carrier, the loading terminal and the ocean carrier. The evidence was that woodsplinter contamination was a known risk from using wood floored or lined railcars but the Plaintiffs hadselected wood lined railcars over steel ones. The Plaintiffs invited the Court to apply a presumptionthat the party liable is the last party to handle the cargo when the contamination was found.Specifically, the Plaintiffs argued the ocean carrier should be found liable on the basis of thepresumption, or if the ocean carrier rebutted the presumption, the terminal should be liable, or if theterminal in turn rebutted the presumption, the rail carrier should be liable. The Court found that thehandling at the terminal and on board the vessel presented little or no opportunity for the contamination

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to arise since the vessel was of steel construction and wood was not used in connection with storageand loading at the terminal. These two Defendants had rebutted the presumption but the rail carrier hadnot. However, the claim against the rail carrier was also dismissed owing to the Plaintiffs havingknowingly selected wood-lined railcars. Arguments as to lack of title to sue and whether the pulp wasimproperly rejected were also considered and rejected.

Carriage of Goods – Damage to Vessel – Seaworthiness – Improper Stowage – Liability ofShipper – Apportionment

Sea-Link Marine Services Ltd. et al. v. Doman Forest Products Limited, 2003 FCT 712

A cargo of lumber was partially lost during carriage on “SEA-LINK YARDER” a dumb barge undertow between ports on Vancouver Island. During a portion of the transit on the outer coast ofVancouver Island the tug and tow encountered heavy weather and the cargo shifted resulting in loss ofsome cargo and damage to the barge. A claim was initially made for damage to the cargo and the bargeowner counterclaimed for damage to the barge. The cargo claim was settled and discontinued and theaction proceeded on the counterclaim. The carriage was subject to an agreement that placedresponsibility for loading and lashing on the shipper. The tug crew had inspected the lashing,recommended additional lashings and attached the lashing to the barge’s side wall fittings. The lashingwas done by the crew because the shipper’s employees were concerned about doing so. This was thesecond voyage between the parties. In the previous voyage, the tug crew had told the shippers morecargo could be loaded next time. No information had been provided to the Master by the owner as tothe barge’s load lines or stability or the amount of cargo it could carry. The Court held that theagreement placed responsibility for loading on the shipper and the tug crew did not intermeddle in theloading with respect to the lashing. The shippers argued that the barge owner, if held partiallyresponsible, could not recover as the damages could not be separated, however, referring to Bow ValleyHusky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210, the Court held thatprinciples of contributory negligence could be applied in maritime law. The shippers also argued thatthe tug Master had been negligent in proceeding with the tow or continuing with the tow given theweather forecasts for gales and the actual weather conditions. The Court found no negligence in thisregard. The shippers also argued that the barge was unseaworthy on various grounds including that theMaster did not know how much cargo it could carry and the barge was loaded below its load lines. TheCourt, however, found the barge was not unseaworthy. Nevertheless, the Court did find that there wereerrors on the part of the Defendants and apportioned liability 60% to the shippers and 40% to theDefendants. Unfortunately, the particular faults of the Defendants warranting the apportionment are notclear from the judgment.

Freight – Bankruptcy of Freight Forwarder

Mediterranean Shipping Company SA v BPB Westroc Inc., 2003 FC 942

This was an action by the Plaintiff carrier to recover freight from the Defendant shipper. TheDefendant's defence was that it had paid the freight to its freight forwarder. Unfortunately, the freightforwarder went bankrupt without remitting the payments to the carrier. The Prothonotary reviewed theapplicable case law and held that a shipper is liable to a carrier for payment of freight unless it presentsclear and unequivocal evidence that the carrier released it from liability. The Prothonotary held that the

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Defendant had failed to discharge this onus and was therefore liable to the carrier for the freight.

Deck Carriage – Meaning of “Goods” – Exclusions – Hague-Visby Rules

Timberwest Forest Ltd. v Gearbulk Pool Ltd. et al., 2003 BCCA 39

This case concerned the meaning of “goods” as defined in the Hague-Visby Rules and deals with theneed for clarity and accuracy in descriptions of deck cargo. The Plaintiffs were the shippers andconsignees of 1725 packages of lumber carried from Vancouver to Antwerp. The cargo was comprisedof two consignments destined to two different consignees and covered by two separate bills of lading.The carrier had the right to stow the entire cargo on deck, however, because there was space available,some cargo was stowed under deck. The carrier made no effort to identify the specific packages loadedon or under deck but merely kept track of the amount of lumber loaded in each location. In total, 86%of the entire shipment was loaded on deck and 14% under deck. Bills of lading were subsequentlyissued containing a statement that the cargo was stowed 86% on deck and 14% under deck. The deckcargo was damaged at the discharge port. The Defendant sought to avoid liability by relying upon anexclusion clause in the bills of lading for damage to deck cargo. The Plaintiffs argued that the contractsof carriage were governed by the Hague-Visby Rules and that pursuant to Article 8(3) the exclusionclause was null and void. Specifically, the Plaintiffs argued that the 86% - 14% description of thestowage was neither a sufficient description of the deck cargo nor accurate in respect of the individualbills of lading. Both at trial and on appeal the courts agreed with the Plaintiffs. The Court of Appealagreed with the motions Judge that the stowage notations on the bills of lading were unreliable withrespect to the individual consignments. The Court of Appeal also agreed with the motions Judge that,because the specific packages carried on deck were not identified, it was impossible to determine thevalues of the cargo on deck. The Court of Appeal held that the uncertainty in the description of the deckcargo was analogous to an absence of information concerning deck carriage. In result, Court of Appealheld the carriage was governed by the Hague-Visby Rules and the exclusion clause was inapplicable.

Air Carriage

Air Carriage – Warsaw Convention – Limitation – Notice – Wilful Misconduct – Presumption

Green Computer AB v Federal Express Corp. et al., 2004 FCA 111 affirming 2003 FCT 587affirming 2002 FCT 1015

This was a claim for the loss of one carton of integrated circuits valued at $50,000 carried by air fromSweden to Markham, Ontario. The Defendant air carrier argued that it was not liable as the Plaintiff hadnot given the notice required by Article 26 of the Warsaw Convention. Alternatively, the Defendantargued it was entitled to limit liability pursuant to the terms of the convention to $851. With respect tothe notice issue, Article 26(2) provides that notice must be given within 7 days of receipt in the case ofdamage to cargo and within 21 days in the case of delay. At first instance, the Prothonotary held thatthese notice requirements were not applicable to a case of non-delivery or loss of cargo. With respect tothe limitation issue, the Plaintiff argued that the Defendant was not entitled to limit its liability as theDefendant had been guilty of wilful misconduct pursuant to Article 25. Specifically, the Plaintiff arguedthat an inference should be made that the lost cargo had been stolen. The Prothonotary was not preparedto draw any such inference and found that the Defendant had merely lost the shipment in transit,

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something which did not constitute wilful misconduct. Finally, the Plaintiff argued that the Defendantwas not entitled to limit liability as it had not proved the cargo was lost during the carriage by air asopposed to carriage by land. The Prothonotary noted the absence of proof as to where the damageoccurred and applied the presumption contained in Article 18(3) of the Warsaw Convention whichprovides that “any damage is presumed, subject to proof to the contrary, to have been the result of anevent which took place during the carriage by air”. Accordingly, the Prothonotary granted judgment inthe limitation amount of $851. The Plaintiff unsuccessfully appealed the ruling in relation to theapplication of Article 18(3) of the Warsaw Convention first to a Judge of the Federal Court and then tothe Federal Court of Appeal. At both levels of appeal the respective courts held that the presumptionhad been properly applied.

Air Carriage – Warsaw Convention – Limitation of Liability

MDSI Mobile Data Solutions Inc. v Federal Express, 2003 BCCA 9

This was an appeal from an application by the Plaintiff for summary judgment for damage to computerequipment that occurred during the course of air carriage from Vancouver, British Columbia to Atlanta,Georgia. At trial, the Plaintiff sought to recover the full amount of its loss (approximately $240,000) or,in the alternative, the declared value amount of $214,000. The Defendant carrier admitted liability butargued that the Plaintiff was not entitled to recover the declared value amount since the Plaintiff’s clerkwho filled out the air waybill said on discovery that she believed the declared value amount set theamount that could be recovered from the Plaintiff’s insurer. The trial Judge found this argument whollywithout merit. The Defendant next argued that its liability was limited to 250 francs per kilogram as perArt. 22(2) of the Warsaw Convention or, in the alternative, to $50,000 as per its standard terms andconditions, which limited the amount that could be declared for carriage and limitation purposes to$50,000. The Plaintiff’s position on these issues was that the Convention limit of 250 francs perkilogram did not apply because of the declaration of value and that the conditions of carriage wereambiguous and inconsistent and did not, in fact, limit the amount that could be declared to $50,000.Additionally, the Plaintiff argued that a provision limiting the amount that could be declared by ashipper for carriage and limitation purposes was null and void by Art. 23 of the Convention. The trialJudge agreed with the Plaintiff that the Warsaw Convention prohibited a carrier from limiting theamount that could be declared and further agreed that the declaration of value of $214,000 replaced theConvention limit of 250 Francs per kilogram. An additional issue was whether the air waybill failed todisclose the agreed stopping places and failed to include a statement that the carriage was subject to theWarsaw Convention, contrary to Art. 8. The trial Judge held that the air waybill did not contravene Art.8 in these particulars as there was no stopping place actually agreed between the parties and thestatement in the air waybill that the Convention “may” be applicable was sufficient compliance withArt. 8. In the result, the trial Judge granted summary judgment in the amount of the declared value. TheDefendant appealed to the British Columbia Court of Appeal. The only issues on appeal were whetherthe conditions of the Defendant limited the value that could be declared for carriage to $50,000 andwhether such a limit was contrary to the Warsaw Convention. The Court of Appeal was divided on thefirst issue. The majority found that the clauses relied upon by the Defendant were unclear andinconsistent and concluded that there was no $50,000 limit on the amount that could be declared forcarriage. In view of this holding, the majority did not find it necessary to decide whether a $50,000limit was contrary to the Warsaw Convention, however, they did say they tended to agree with thedissenting Judge that the Convention would not prohibit the parties to a contract of carriage by air from

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agreeing on a limit of liability that was in excess of the 250 francs per kilogram provided by theConvention but less than the actual value of the goods carried. In the result, therefore, the appeal wasdismissed and the Plaintiff obtained judgment for the declared value amount of $214,000.

Road Carriage

Road Carriage – Limitation – Failure to issue Bill of Lading

Byers v United Parcel Service Canada Ltd., 2004 SKPC 66

In this case the Defendant courier sought to limit its liability pursuant to the uniform conditions ofcarriage passed under the Motor Carrier Act of Saskatchewan. The Court held, however, that thecourier was not entitled to rely upon the limits when it had failed to issue a bill of lading as required bythe statute.

Road Carriage – Limitation – Himalaya Clause – Failure to Issue Bill of Lading – Custom

Valmet Paper Machinery Inc. v Hapag-Lloyd AG, 2004 BCCA 518 affirming 2002 BCSC 868

The Plaintiff was the shipper of a piece of heavy equipment from Helsinki to Port Alberni, BritishColumbia. The equipment was carried by sea from Helsinki to Vancouver and by truck from Vancouverto Port Alberni. Ten kilometres short of its destination the equipment fell off the truck and was aconstructive total loss. The Defendant motor carrier admitted liability but claimed to be entitled to limitliability pursuant to the provisions of the Hapag-Lloyd bill of lading or, alternatively, pursuant to theterms of its own bill of lading and the provisions of the Motor Carrier Act or, in the further alternative,pursuant to custom. The trial Judge found that the Defendant could not rely upon the Hapag- Lloyd billof lading as this was a “port to port” bill of lading which did not apply to the carriage beyondVancouver. This finding was primarily based on a notation on the face of the bill of lading that thecarriage was “pier to pier traffic”. (Although obiter dicta, the Judge considered an argument by theDefendant that it could rely upon a Himalaya clause in the Hapag-Lloyd bill of lading notwithstandingthat it had failed to ratify the clause. The Defendant argued based on recent developments in the law ofprivity of contract that ratification of a Himalaya clause is no longer required. The Judge agreed.) TheJudge then considered the effect of the Defendant’s own bill of lading and the provisions of the MotorCarrier Act. The Motor Carrier Act and Regulations expressly required the carrier to issue a bill oflading and to obtain the signature of the shipper at the time of pick up and further stipulated theinformation such a bill of lading should contain. The Judge found that the Defendant had not issued abill of lading to the shipper at the commencement of the carriage and that the bill of lading that waslater prepared during the course of carriage from Vancouver to Port Alberni did not comply with therequirements set out in the Motor Carrier Act. The Judge then considered the Defendant’s argumentthat it ought to be allowed to limit liability based on a custom in the industry that liability is limited to$4.40 per kilogram. The Judge found, however, that the custom was based on the legislation in theMotor Carrier Act and held that where the Act had not been complied with it would be inappropriate tocircumvent the legislative requirements through the application of custom. The Judge did concede thatin a case where both parties were aware that liability was to be limited the failure to issue a bill oflading would not prevent the court from enforcing the limitation. That was not the case here and,

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accordingly, the Judge held that the Defendant was not entitled to limit liability. On appeal, the BritishColumbia Court of Appeal held first that the ocean bill of lading created two regimes: the first coveredthe carriage by sea to Vancouver; the second covered the inland carriage from Vancouver. The Court ofAppeal held that the “Multimodal Transport” clause of the bill of lading had the effect of authorizingHapag-Lloyd to enter into a contract as agent for and on behalf of the Plaintiff for the onward carriageof the goods from Vancouver. The Court further held that the Himalaya clause in the bill of ladingprotected only sub-contractors of Hapag-Lloyd and was not effective in protecting carriers hired byHapag-Lloyd as agent for the merchant, which was the case here. With respect to the issue of whetherthe Defendant could rely upon the limits of liability in the Motor Carrier Act and Regulations, theCourt of Appeal noted that the Plaintiff was sophisticated and was aware that carriers inevitably limitedtheir liability and for this reason elected to obtain insurance and not to declare a value for the goods.The Court of Appeal further noted that the custom or practice in this market was not to issue a bill oflading at the time the goods are picked up. Nevertheless, the Court held that such “usage is contrary tolaw, and an illegal usage, unless perhaps express consent is given to it, cannot avail”.

Carriage by Road – Limitation of Liability – Privity – Fundamental Breach – Unconscionability– Gross Negligence

Day & Ross Inc. v Beaulieu, 2005 NBCA 25

This appeal from a judgment of the New Brunswick Court of Queen's Bench addresses many of thearguments usually advanced to defeat a carrier's right to limit liability pursuant to the UniformConditions of Carriage in force in most provinces. The case concerned the loss of a package valued at$1,350. The carrier accepted liability but relied on its limitation clause. At Small Claims Court it washeld that the limitation clause did not apply to cases of gross negligence and that the failure of thecarrier to sign the bill of lading rendered it unenforceable. At the Court of Queen's Bench it was held,first, that the failure to deliver the goods was a fundamental breach and, second, that there was noprivity of contract between the carrier and consignee. The Court of Appeal held that in a contract forthe carriage of goods the shipper enters into the contract for and on behalf of the consignee andtherefore there is no lack of privity between the consignee and carrier. On the issue of fundamentalbreach the Court of Appeal held that fundamental breach is a matter of construction of a contract andthat there was no ambiguity in the limitation provision that would prevent the carrier from relying on it.The Court of Appeal then considered whether such limitation clauses are “unfair, unconscionable orunreasonable” and concluded that they were not, in part, because they are mandated by the statutoryframework. The Court of Appeal then considered the concept of gross negligence as a means ofavoiding limitation clauses and concluded that this approach has been categorically rejected. Finally,the Court of Appeal considered the failure of the driver to sign the bill of lading and suggested that suchan omission was so trivial it should not invalidate the contract. In result, therefore, the carrier wasentitled to limit its liability.

Carriage by Road – Limitation of Liability – Notice – Agreement to Insure

Shooters Production Services Inc. v Arnold Bros. Transport Ltd., 2003 BCSC 92

This was an action for damage to a trailer transported by the Defendant from Ontario to BritishColumbia. The Defendant carrier argued that it was not liable because it had been agreed that the

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Plaintiff would provide insurance and because a final statement of claim was not issued within 9months. Moreover, the Defendant argued that it was entitled to limit its liability to $2.00 per poundpursuant to the terms of its bill of lading and the provisions of the Regulations under the Motor VehicleAct of British Columbia (which essentially enact the Uniform Conditions of Carriage). The Court heldthat the agreement that the Plaintiff would insure was not an agreement exculpating the Defendant fromliability in the event it was negligent. Further, the Court held that the requirement that a final statementof claim be filed in 9 months was not a limitation period but a notice provision and that it had beensubstantially complied with. Finally, the Court held that the failure of the Defendant to issue a bill oflading at the time of shipment disentitled the Defendant from relying upon the limitation provisions inthe bill of lading and the Regulations.

Road Carriage – Limitation of Liability – Failure to issue Bill of Lading

Paine Machine Tool Inc. v Can-am West Carriers Inc., 2003 BCCA 50 affirming 2001 BCSC 1633

Two high precision machine tools carried by the Defendant were damaged when they struck anoverpass. In answer to the Plaintiff's claim for damages, the Defendant argued that its liability waslimited to $4.41 per kilogram pursuant to the Uniform Conditions of Carriage in Part 7 of theRegulations under the Motor Vehicle Act of British Columbia. At first instance, the trial Judge heldthat the Defendant was not entitled to avail itself of the limitation provisions since the bill of lading didnot substantially comply with the requirements of s.9.21 of the Regulations and was never sent to thePlaintiff and, therefore, was never “issued”. Further, the trial Judge held the bill of lading failed toreflect the prior course of dealings between the parties. The Court found as a fact that the carrier hadpreviously advised the Plaintiff that insurance up to a value of $500,000 was included in freight rates.On Appeal by the Defendant, the British Columbia Court of Appeal held the Motor Vehicle ActRegulations should be strictly complied with by the carrier “unless it is proved that the parties agreed toother terms for their contract, either expressly, by course of dealings or industry practice”. Non-compliance with the Regulations in this case was not excused because, inter alia, the evidence of theprior course of dealings was conflicting. The Court of Appeal further noted that the obligation “on thecarrier is to clearly establish the liabilities and obligations of the parties prior to shipment. It would beinappropriate for the appellant to be allowed to rely on the benefits of the conditions contained in theRegulations when it failed to comply with the obligations they impose.” In the result, the appeal wasdismissed. (Note: The comments in this case regarding industry practice should be compared with thosein Valmet Paper Machinery Inc. v Hapag-Lloyd AG, 2004 BCCA 518.)

Road Carriage – Limitation of Liability – Novation

Phoenix Bio-Tech Corp. v Day & Ross Inc., 2003 ONSC 11289

This case concerned carriage of a package from Mississauga to Orillia, Ontario. The package containedgoods that were required to be maintained at a temperature of between 2 and 8 degrees Celsius. Thepackage was picked up on 7 August 2001 and a bill of lading was issued by the carrier andacknowledged by the shipper. The shipper, who was an experienced and knowledgeable shipper, didnot declare a value in the bill of lading and did not give the carrier any special instructions eitherverbally or in the space provided on the bill of lading. When the package was not delivered over thenext two days the shipper called the carrier and was told by the carrier that the package would be

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delivered the next day, Friday, 10 August 2001. The carrier attempted to deliver the package at 5:00 pmon 10 August but the consignee's office was closed. The carrier kept the package over the weekend and,on the instructions of the shipper, returned the package to the shipper the following Monday. At firstinstance the Small Claims Judge held that there had been a novation of the original contract of carriageand that as a consequence the carrier was not entitled to rely upon the limitation of liability contained inits bill of lading and the Truck Transportation Act of Ontario. On appeal, the appeal Judge held that asa matter of law there could be no novation of a written contract of carriage except by anotherinstrument in writing. In the result, the carrier was entitled to rely upon the $2.00 per pound limitation.

Road Carriage – Water Damage – Insufficient Packaging

Trident Freight Logistics Ltd. v Meyer’s Sheet Metal Ltd., 2003 BCCA 342 overruling 2002 BCSC729

This was a counterclaim for water damage to a cargo of 19 pallets of galvanized sheet metal carriedfrom Calgary to Nanaimo. The cargo was loaded onto a flat bed trailer in Calgary by employees of theshipper who placed tarpaulins over the pallets. The decision to use a flat bed trailer was made by theshipper because of the size of the various pallets. It was common ground that the usual method ofconveyance was by a closed van. Upon delivery of the cargo at Nanaimo, it was received “clean anddry” without any exceptions. Under these circumstances, the trial Judge held that there was no liabilityon the part of the carrier. In fact, the trial Judge found that there was an implied agreement that thecargo owner assumed the risk of damage given that it chose to use a flat bed trailer and its employeesloaded the cargo. On appeal, the British Columbia Court of Appeal held that the trial Judge erred infinding that there was an implied agreement that the cargo would be carried at the owner's risk. TheCourt of Appeal referred to the applicable statute and regulations which required the carrier to issue abill of lading in the prescribed form and further noted that the bill of lading issued did not contain any“special agreement” or any agreement limiting the carrier's liability, both of which were required to beset out in the bill of lading. In view of the contents of the bill of lading and the statutory conditions theappeal was allowed and the Plaintiff was awarded damages.

CollisionsCollisions – Docks – Causation – Damages – Tug and Tow

The Queen v The “Delta Pride” et al., 2003 FCT 11

This was an action for damage allegedly caused to a breakwater by the Defendant vessel whilemanoeuvring. The facts established that one of the tugs assisting the Defendant vessel made contactwith the breakwater. The Defendants, the owners of the vessel, argued that they were not liable for anycontact between the tug and the breakwater. The Court held that there is a general presumption that thetow is in the control of the tug and that this presumption had not been rebutted. Accordingly, the Courtfound that there was liability. However, the Court also found that the breakwater was in a deterioratedand weakened condition and that this was a contributing cause. In result, the damages were reduced totake into account the condition of the breakwater.

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Collisions – Liability of Owner – Limitation

Dixon v Leggat, 2003 ONCA 10101

A pleasure craft ran into a rock face in Lake Rosseau, Ontario. As a result of the accident twopassengers were injured, one fatally. These actions were commenced against the owner of the pleasurecraft and the driver of the pleasure craft, the owner’s brother. At trial, the trial Judge found the driverliable in that he was operating the vessel at an unsafe speed, failed to maintain a proper lookout, andfailed to properly navigate the vessel. The trial Judge also held the Canada Shipping Act, in particulars. 566, created a statutory liability on the owner of the boat. On the issue of limitation, the trial Judgefound that the operator could limit his liability but that the owner could not. The trial Judge's findingwith respect to the liability of the owner of the vessel was appealed. The Ontario Court of Appeal heldthat the trial Judge erred in his interpretation of s. 566 of the Canada Shipping Act. The Court ofAppeal noted that this section merely provided for joint and several liability where there were joint tort-feasors and did not impose liability where none otherwise existed. The Court of Appeal then consideredother sections of the Canada Shipping Act also referred to by the trial Judge but held that neitherindividually nor collectively did they impose a statutory liability on the owner of a boat. The Court ofAppeal did, however, confirm that an owner could be liable on the principle of respondeat superior oron the basis of ordinary principles of tort law. In result, the Court of Appeal returned the case to thetrial division for a new trial on the issue of the owner's liability.

Limitation of LiabilityJurisdiction – Limitation of Liability

Isen v Simms, 2004 FC 227

See summary above under Jurisdiction.

Limitation of Liability – Personal Injury – Fault or Privity

Vukorep v Bartulin, 2005 BCCA 142

In July 1998 the Plaintiff was injured on board the Defendant's pleasure craft when the vessel hit awave from a passing ferry. At the time of the accident the vessel was being operated by the Defendantwho was also the owner. The Defendant brought this application for a determination of whether hecould limit his liability pursuant to s. 575 of the Canada Shipping Act. The trial Judge dismissed theapplication on the grounds that the Defendant failed in his capacity as owner to install after markethandholds for passengers and that this brought the Plaintiff's injury within his “actual fault or privity”as owner. On appeal, the British Columbia Court of Appeal held that the trial Judge had erred by notconsidering whether the absence of handholds rendered the pleasure craft unseaworthy. The Courtfound as a fact that the installation of such handholds is not a common practice and accordingly heldthat the vessel was seaworthy. In the result, the appeal was allowed and the Defendant was entitled tolimit his liability. (Note: The limitation provisions considered in this case were based on the 1957Limitation Convention which was replaced in Canada on 10 August 1998 by Part 3 of the Marine

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Liability Act. The new provisions are based on the 1976 Convention on Limitation of Liability forMaritime Claims and the 1996 Protocol.)

Arbitration/Jurisdiction Clauses and Stays of ProceedingsStay of Proceedings – Jurisdiction Clause – Bill of Lading

Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27

The Plaintiffs claimed that cargo carried from Belgium to Canada and then on to the US was damaged.The Appellant shipowner sought to rely on an exclusive jurisdiction clause in the bill of lading referringclaims to the Courts of Belgium. The matter arose before s.46(1) of the Marine Liability Act came intoforce. The Prothonotary refused to uphold the jurisdiction clause on the basis that there had been anunauthorized deviation. The Prothonotary's decision was upheld by the Federal Court Trial Divisionand Federal Court of Appeal. Unusually, the test applied by the Federal Court of Appeal was thetripartite test normally used in relation to interlocutory injunctions rather than the test from the The“Eleftheria”, [1969] 1 Lloyd’s L.R.237. The Supreme Court of Canada held that the Court of Appealhad applied the wrong test and that the correct test was that set out in The “Eleftheria” which requiresthat “strong cause” must be shown before the court will refuse to enforce an agreed jurisdiction. TheSupreme Court held that there were strong public policy considerations in favour of upholding the“strong cause” test as it created commercial certainty. The Supreme Court also rejected the finding thatthere had been a deviation that rendered the jurisdiction clause ineffective.

Jurisdiction Clause – MLA s.46 – Parallel Proceedings – Appeal – Standard of Review

Ford Aquitaine Industries SAS et al. v The “Canmar Pride” et al., 2005 FC 431 affirming 2004 CF1437

This action concerned the loss of or damage to several containers carried from LeHavre to Montreal.The damages were estimated at $6 million. The carriage was pursuant to a transportation servicesagreement which provided for American law and jurisdiction. The carrier under the transportationservices agreement was OOCL but OOCL was expressly permitted to subcontract the carriage, which itdid, to CP Ships. The Plaintiff originally commenced proceedings against only OOCL in a U.S. DistrictCourt. The Plaintiff attempted to discontinue those proceedings but was not allowed to do so. ThePlaintiff also commenced this proceeding in the Federal Court against both OOCL and CP Ships. TheDefendants brought this application to stay the Canadian proceedings. At first instance, theProthonotary granted the application for a stay. He held that section 46 of the Marine Liability Act didnot oust the court's jurisdiction under section 50 of the Federal Court Act to grant a stay on groundsother than a forum selection clause. He then applied the test from the decision of the British ColumbiaCourt of Appeal in Westec Aerospace v Raytheon Aircraft Co., (1999) 173 DLR (4th) 498. That testwas: 1) Are there parallel proceedings underway?; 2) If so, is the other jurisdiction an appropriateforum?; and, 3) Has the Plaintiff established by cogent evidence that there is some personal or juridicaladvantage available to him in the British Columbia action that is of such importance that it would beunjust to deprive him of it? The Prothonotary held that the Plaintiff had failed to meet the third elementof that test. In this regard a main point argued by the Plaintiff was that a U.S. Court would apply the

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COGSA limit which was substantially lower than the limitation that would apply in a Canadian courtapplying the Hague-Visby Rules. The Prothonotary, however, considered that the issue of theapplicable limitation would be argued in either court. On appeal, the appeal Judge first considered theappropriate standard of review from a discretionary order of a Prothonotary and noted that the test hadbeen recently reformulated to require the reviewing judge to first determine whether the questionsraised are vital to the final issue in the case. If so, the discretion should be exercised de novo and thereviewing judge need not consider the second branch of the test (whether the orders were clearlywrong). The appeal Judge considered the Prothonotary's decision final and thus proceeded to exerciseher discretion de novo. The appeal Judge held that the Prothonotary had erred in applying the test fromWestec. She considered that the Westec approach was incorrect in that it set up “loss of juridicaladvantage” as a separate test or step rather than weighing it with the other usual factors to be taken intoaccount. Moreover, she considered that the objective was not just to determine if the foreign forum wasequally appropriate to the domestic forum but whether it was more appropriate than the domesticforum. Nevertheless, weighing the relevant factors she concluded that the U.S District Court was amore appropriate forum and upheld the decision of the Prothonotary.

Stay of Proceedings – Arbitration Clause – MLA s. 46 – Charterparties – Bills of Lading andIncorporation of Charter Terms – Striking Claims

Dongnam Oil & Fats Co. v Chemex Ltd. et al., 2004 FC 1732

This matter concerned damage to a cargo of bleached tallow to be carried from Newark, New Jersey toInchon, Korea. The cargo was to be carried on board the ship “Tuapse”. The “Tuapse” was owned byNovoship but chartered under a head charter to Chemex. The head charter provided for Londonarbitration. The Plaintiff and Chemex entered into a voyage charter party which again called for Londonarbitration. The cargo was loaded at Newark and two bills of lading were issued which incorporated thevoyage charter party. The cargo was carried on board the “Tuapse” to Nanaimo, British Columbiawhere it was transhipped to another vessel for carriage to Korea. The cargo was allegedly damagedduring the transhipment. The Plaintiff subsequently commenced this proceeding and the DefendantsNovoship and Chemex brought applications to stay the proceedings in favour of London arbitration.The Plaintiff argued that s. 46 of the Marine Liability Act applied making the arbitration provisionsinapplicable. The Prothonotary disagreed ruling that a transhipment from one vessel to another was notloading or discharging at a Canadian port within the meaning of s. 46(1)(a). The Prothonotary furthernoted that section 46 should be interpreted strictly since it was a restriction on freedom to contract. TheProthonotary then considered whether the arbitration provisions were incorporated. With respect to thedispute between the Plaintiff and Chemex he found that there was clearly an arbitration provision inthe voyage charter and therefore concluded that he had no alternative but to allow the stay. With respectto the dispute between the Plaintiff and Novoship, however, there was no direct contractual relationshipbetween these two and therefore he had to consider the effect of the bills of lading. In this regard henoted that if the bills of lading had specifically referred to the arbitration provision, Novoship would beentitled to a stay. In addition, if the bills of lading incorporated the charter party terms and those termsprovided that the arbitration provision applied to disputes under the bill of lading, then Novoship wouldbe entitled to a stay. However, in this case the terms of the voyage charter party did not provide that thearbitration provision applied to disputes under the bill of lading and the bills of lading did notspecifically refer to arbitration. Accordingly, Novoship was not entitled to a stay. Two subsidiary issuesdealt with in these reasons concerned applications to strike out a claim for a declaration the Plaintiff did

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not owe dead freight and a claim for wrongful arrest. The claim for a declaration on the dead freightissue was struck on the grounds that the issue had been decided in an arbitration. The claim forwrongful arrest was struck on the grounds the Plaintiff was not the owner or in possession of the cargoat the time it was arrested.

Jurisdiction Clause – Bill of Lading – MLA s. 46

Nestle Canada Inc. v The “Viljandi” et al., 2003 FCT 28

This was an application for a stay of proceedings on the basis of a jurisdiction clause contained in a billof lading. The Court refused the stay on the grounds that the action had been commenced after theMarine Liability Act was proclaimed in force (August 8, 2001) and, therefore, the matter was coveredby s. 46(1) of the Marine Liability Act.

Stay of Proceedings – Jurisdiction Clause – Forum Non Conveniens – Standard of Review onAppeal

Magic Sportswear Corp. v OT Africa Line Ltd., 2004 FC 1165 affirming 2003 FC 1513

This was a subrogated action by cargo insurers for damages for the short shipment of goods carriedfrom New York to Liberia under a bill of lading that was issued in Canada. The freight was alsopayable in Canada and the Defendant carrier had offices in Canada. The bill of lading contained ajurisdiction clause granting exclusive jurisdiction to the High Court of England. One month after thePlaintiff commenced this proceeding in the Federal Court of Canada, the Defendant commencedproceedings in England for a determination that it was not liable to the Plaintiff and it obtained an ex-parte anti-suit injunction against the Plaintiff. The Defendant then brought this application in theFederal Court of Canada to stay the Federal Court action on the basis of the jurisdiction clause in thebill of lading and on the basis of the doctrine of forum non conveniens. At first instance, theProthonotary dismissed the motion. The Prothonotary held that where the conditions of s. 46 of theMarine Liability Act were met the court had no discretion to stay proceedings on the basis of ajurisdiction or arbitration clause in a bill of lading. However, the Prothonotary also held that s. 46 didnot prevent the court from granting a stay on the basis of forum non conveniens. The Prothonotaryconsidered the relevant factors and held that Canada, not England, was the most convenient andappropriate forum in the circumstances. Accordingly, the Prothonotary dismissed the application for astay of proceedings. The decision of the Prothonotary was appealed. The appeal Judge first consideredthe appropriate standard of review to be applied in such an appeal. The appeal Judge held that becausethe Prothonotary did not grant the stay of proceedings the order appealed from was not a final order.Therefore, the Order should not be disturbed unless the Prothonotary was clearly wrong in the sensethat the exercise of discretion by the Prothonotary was based upon a wrong principle or upon amisapprehension of the facts. The appeal Judge ultimately found that he was in agreement with theProthonotary as to the effect of the section 46 of the Marine Liability Act and dismissed the appeal.(Note: The cargo insurers were subsequently made parties to the companion proceedings in the EnglishHigh Court and they brought an application in the High Court for a stay of the English proceedings.Their application was dismissed in a decision reported at OT Africa Line Ltd v Magic SportswearCorporation et al., [2004] EWHC 2441. This decision is believed to be under appeal. Nevertheless,both the English and Canadian courts have taken jurisdiction and, with the English courts having issued

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an anti-suit injunction, there is a possibility of contempt proceedings against the cargo insurers shouldthey continue with the Canadian proceedings.)

Enforcement of Arbitration Award – Related Companies – Stay of Proceedings

Pan Liberty Navigation Co. Ltd. v World Link (HK) Resources Ltd., 2005 BCCA 206

In this matter the Plaintiff had obtained an arbitration award in London against a defaulting chartererunder a charter party that required English law and arbitration. The Plaintiff commenced this actionagainst the defaulting charterer to enforce the award but also included as Defendants various othercorporate entities. The Plaintiff alleged that the corporate entities were one and the same and that theirseparate existence was a fraud. One of the entities, World Link (HK) was the charterer of the ship“Eirini” which had called at Vancouver. The Plaintiff obtained an ex parte Mareva Injunction againstthe ship's fuel and bunkers. The injunction was lifted when World Link (HK) paid the value of the fueland bunkers into court. World Link (HK) then brought this application for a stay of proceedings. Atfirst instance the stay was refused but on appeal to the Court of Appeal of British Columbia the staywas granted. The Court of Appeal held that the allegations of the Plaintiff fell squarely within thearbitration provision of the charter party because the real issue was whether World Link (HK), althoughnot named in the charter party, was the defaulting charterer. These were matters that were properly tobe heard and decided by the arbitrator according to English law. The Court of Appeal further indicatedthat it agreed with the approach taken by the English High Court in Norsk Hydro ASA v State PropertyFund of Ukraine, [2002] EWHC 2120, that when enforcing arbitration awards the enforcing court isneither entitled nor bound to go behind the award in question. (Note: This case should be comparedwith Trans-Pacific Shipping Co. v Atlantic & Orient Trust Co. Ltd. et al., 2005 FC 311, summarizedabove.)

Motion – Jurisdiction – Stay Proceedings

DSL Corporation v Bulk Atlantic Inc., 2003 FC 1061

The Plaintiff claimed against the Defendant for damage to steel pipe carried from Turkey to Houston.The Defendant applied to set aside the ex juris service of the Statement of Claim or stay theproceedings on the grounds there was no real and substantial connection between the matter andCanada. The Plaintiff was an American company, one of the Defendants was a Maltese company, thecarrying vessel, which had not been arrested, was registered in Malta, the time charterer of the vesselwas a Marshall Islands Company, and neither the actual nor intended ports of loading or discharge werein Canada. The ships agent in Houston had however advised the Plaintiff that their principals wereAtlantic Maritime Inc. of Montreal. The Prothonotary held that the latter advice created a connectionwith Canada and relied upon United Nations v. Atlantic Seaways Corporation [1979] 2 F.C. 541 for theproposition that the court's jurisdiction in respect of cargo claims extended beyond Canada. TheProthonotary did indicate that he might have considered ordering a stay in favour of Texas if theDefendants had been willing to waive the time bar defence.

Application to Strike – Lis Pendens – Stay of Proceedings – Forum non conveniens – Arrest –Amount of Security

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A. Paschos K. Katsikopoulos S.A. v. The “Polar” et al., 2003 FCT 584

This was an application to strike out the Statement of Claim because the Plaintiff had commenced anearlier action in Greece involving the same parties or, in the alternative, to stay the proceedings on thebasis of forum non conveniens. The court was also requested to review the amount of the security thathad been provided by the Defendants to obtain the release of the “Polar” from arrest. The applicationto strike on the basis of lis pendens was not granted because the Plaintiff was prepared to withdraw itsaction in Greece in favour of maintaining its action in Canada alone. However, the Court did order thatthe action be stayed on the grounds that there was no connection between any aspect of the litigationand Canada other than the temporary presence of the vessel in Canada. This order was subject to thecondition that the letter of credit in place in relation to the Canadian litigation be maintained andamended to include payment of any judgment that may emanate from the Greek courts. Finally,regarding the amount of security, the Court declined to interfere because the bond reflected an amountsufficient to cover the reasonably arguable best case of the Plaintiff together with interest and costs.

Motion to Dismiss – Stay – Parallel Proceedings

Vilhena Shipping Ltd. v Aro-hall Ltd., 2003 FCT 756

This was an application by the Defendant to dismiss the proceedings or, alternatively, for a stay ofproceedings. The ground for the application was that the Plaintiff had commenced parallel proceedingsfor the same relief in France. The Plaintiff had attempted to withdraw those proceedings but this wasnot allowed by the French Tribunal. Under the circumstances the Prothonotary declined to dismiss thePlaintiff's action since it was possible that the Plaintiff's application to withdraw the Frenchproceedings would be allowed on appeal. However, the Prothonotary did order that the action be stayedto avoid duplication of costs and the risk of conflicting judgements.

Carriage of Passengers – Jurisdiction Clause – Athens Convention

Friesen v Norwegian Cruise Lines et al., 2003 BCSC 256

This was an application by the Defendant to stay proceedings commenced in British Columbia on thegrounds of a jurisdiction clause contained in the passenger ticket. The Plaintiff, a British Columbiaresident, was injured on an Alaskan cruise ship which had departed from the port of Vancouver. ThePlaintiff argued that the matter was governed by the Athens Convention; Article 17 of which gave herthe right to commence the proceedings in British Columbia. The Court, however, held that the AthensConvention was not applicable since Canada had not enacted the Convention at the time of thePlaintiff's accident. Moreover, the fact that the vessel was registered in the Bahamas, a signatory to theConvention, was held to not be sufficient to make Bahamian law applicable. The Court therefore heldthat the test set out in The Eleftheria, [1969] 2 All E.R. 641, was applicable and the onus was on thePlaintiff to establish a strong cause for not enforcing the jurisdiction clause. The Court held that thePlaintiff had met this onus in that virtually all of the witnesses resided in British Columbia and a stay ofthe action in favour of Florida would come close to denying the Plaintiff access to a court at all.

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Admiralty PracticeIn Rem Proceedings

Arrest of Ships – Whether Sister Ships – Setting Bail

Norcan Electrical Systems Inc. v. Feeding Systems A/S et al., 2003 FCT 702

These were two actions for necessaries. The first was for necessaries supplied to the vessels “FB XIX”and “FB XX” . The second action was for necessaries supplied to the vessels “FB XXII” and “FBXXIII”, which were alleged to be sister ships of “FB XIX” and “FB XX”. The vessels “FB XIX” and“FB XX” were arrested pursuant to warrants of arrest issued in both actions. An application wasbrought in the first action to have bail set and an application was brought in the second action to havethe claims struck on the ground that the arrested vessels were not sister ships of the vessels to which thenecessaries were supplied. Regarding the setting of bail, the Prothonotary applied the general rule thata Plaintiff is entitled to bail in an amount sufficient to cover his or her reasonably arguable best case,together with interest and costs, but limited by the value of the vessel. The Prothonotary noted,however, that in the event that security demanded and posted was excessive, there is a separate remedyfor wrongful demand of excessive security. Regarding the sistership issue, the Prothonotary found asfacts that the arrested vessels were owned by Feeding Systems A/S, that the wrongdoing vessels wereowned by Feeding Systems Chile Ltda. and that all the shares in Feeding Systems Chile Ltda. wereowned by Feeding Systems A/S. Moreover, the Prothonotary found that Feeding Systems Chile Ltda.was an agent of and fully controlled by Feeding Systems A/S and that Feeding Systems A/S hadguaranteed the Chilean debts of Feeding Systems Chile Ltda. The Prothonotary reviewed the Englishand French versions of s. 43(8) of the Federal Court Act and concluded that the two versions weredifferent and irreconcilable. Under the English version, which looked to registered ownership, thevessels arrested in the second action would not be sister ships of the wrongdoing vessels. However,under the French version, which looked at beneficial ownership, there was a substantial and reasonablyarguable case that these vessels were sister ships. In the event, the Prothonotary concluded that it wasnot plain, obvious and beyond doubt that the Plaintiff’s case would not succeed and he was notprepared to strike the claim. (Note: See also Royal Bank of Scotland PLC v The “Golden Trinity” et al.,2004 FC 795, which is summarized below.)

In Rem Proceedings – Striking – Arrest

ICS Petroleum (Montreal) Ltd. v Les Dauphins du St. Laurent et al., 2005 FC 251

The Plaintiff in this action was a fuel supplier that had supplied fuel to a shore tank for use in threeships allegedly owned by the now bankrupt in personam Defendant. Two of the ships were in factowned by the Defendant but the third ship, the “Corona Borealis”, was merely demise chartered to theDefendant. When the Defendant defaulted in its payments the Plaintiff arrested all three ships in thisaction to recover the price of fuel sold. The owner of the “Corona Borealis” brought this application toset aside the arrest and strike the in rem claim as against the “Corona Borealis”. The motion wassuccessful. The Prothonotary found that the fuel was supplied by the Plaintiff pursuant to standardcontractual terms that contained a clause creating an unspecified lien “over the vessel” and thatacknowledged the Plaintiff/Seller was relying upon the credit of the vessel. The Prothonotary

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acknowledged that this clause created a lien of some description over the ships in fact owned by theDefendant, however, it was held not to create a lien over the “Corona Borealis” which was not ownedby the Defendant. Moreover, the Prothonotary noted that the fuel was not supplied to “a ship” asrequired by section 22(2(m) of the Federal Court Act, but to a storage tank. Accordingly, the arrest wasset aside and the in rem action against the “Corona Borealis” was struck. A further procedural pointdiscussed in this matter concerned the use of affidavit evidence on a motion to strike. The Plaintiffargued that such evidence was not permitted. The Prothonotary, however, held that affidavit evidence isallowed on a motion going to jurisdiction.

In Rem Actions – Service on Proceeds – Summary Judgment – Repairers/Necessaries Suppliers

Northwest Delta Yacht Services Inc. v Sovereign Yachts et al., 2004 FC 304

The Plaintiff in this action had installed teak decking on the Defendant yacht pursuant to a contract withthe builder. The Plaintiff was not paid by the builder and brought this proceeding in rem against theyacht and in personam against the builder and against the purchasers of the yacht. The statement ofclaim was served on one of the purchasers but was not served on the other purchaser or on the vessel.The purchaser that was served filed a defence and brought this application to dismiss the entire action.The court allowed the application in part. The in personam action against the purchaser that had beenserved was dismissed on the grounds that there was no contract between the Plaintiff and thatpurchaser. With respect to the in rem action a preliminary issue was whether the ship had been validlyserved. The Plaintiff admitted that the yacht itself had not been served but argued that pursuant to rule479(1)(d) it could perfect the in rem claim by suing funds deposited into court in a separate action asbail. The court rejected this argument holding that the word “proceeds” used in rule 479(1)(d) referredto proceeds of sale and not money deposited to secure the release of property from arrest. The court,however, refused to dismiss the in rem action or the in personam action against the other purchaser.The court held that the summary judgment rules did not permit one Defendant to move to strike anaction against other Defendants who had not been served and had not defended.

In Rem Action – Striking – Arrest – Commission Contract

Atlantic Yacht 7 Ship Inc. v Sovereign Yachts Inc. et al., 2003 FC 965

The Plaintiff in this matter alleged that it was owed commission by the Defendant yacht builder inrespect of the Defendant yacht, the purchaser of which had been introduced by the Plaintiff to theDefendant. To secure its claim the Plaintiff effected an arrest of the Defendant yacht. The purchaser ofthat yacht brought this application to set aside the arrest and strike the in rem action. The Prothonotarygranted the application holding that the brokerage services contract between the Plaintiff and Defendantdid not give rise to a cause of action in rem.

In Rem Actions – Striking – Fishing Licenses

Roberts v Andrews, 2003 BCSC 1002

This was an application to set aside a warrant of arrest and strike an in rem action. The case concerneda joint venture fishing operation in which the Plaintiff provided fishing licenses and the Defendant

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provided, inter alia, a fish packing vessel. A dispute arose as to the distribution of profits and thePlaintiff commenced this proceeding and arrested the fish packer. The motions Judge held that thefishing licenses were privileges granted to persons and not vessels and the Plaintiff's supply of thelicenses to the joint operation was neither a supply of necessaries nor services and, even if they were,they were not supplied to the fish packer. In the result the in rem action was struck and the arrest setaside.

Arrest/Bail

Arrest – Release without Bail – Security – Security for Costs

Fish Maker LLC v The “Zodiak” et al., 2004 FC 670

The Defendants brought this application to release the Defendant vessel from arrest without bail or,alternatively, to set bail. The Prothonotary refused to release the ship without bail noting that this willonly be done in rare instances where the circumstances are quite extraordinary or where the case isbeyond doubt hopeless. Accordingly, the Prothonotary set security at an amount determined by thePlaintiff's reasonably arguable best case plus three years interest at 5% and costs. The Prothonotary alsogranted the Defendant security for costs on the basis that the Plaintiff was an American company notordinarily resident in Canada.

Arrest – Bail

Norgate Marine Management v. Genfreight Limited (The “Conti Will”), 2003 FCT 444

This was an application, inter alia, to reduce the amount of security posted to release the vessel fromarrest. The Court reduced the amount of security by 20% on the basis that the Court was satisfied thatthe claim would not succeed in full. The Court noted that the right of a Plaintiff to full security mustbe balanced so as not to be oppressive.

Arrest – Bail – Mitigation

Zhoushan Zhongchang Shipping Co. v The “Otello Manship” et al., 2004 FC 1181 affirming 2004FC 1135

This was an application to set bail. The underlying action was for breach of contract for the sale anddelivery of a bulk carrier. By the contract of sale the Defendant was required to deliver the vessel inChina by 20 January 2004 which was later extended to 12 February 2004. The Defendants did notdeliver the vessel as required but tendered a one day notice of delivery on 28 April 2004. The vesselwas not delivered within the one day time period and the contract was repudiated on 7 May 2004. Thevessel was later arrested in Vancouver at which time the parties apparently again entered intodiscussions for the sale of the vessel at that time. Those discussions were not successful. The mainissue in the application was whether the amount of bail should be reduced by the Plaintiff's failure tomitigate its loss. Specifically, the Defendant argued that the Plaintiff should have accepted a sale anddelivery of the vessel at Vancouver which would reduce the Plaintiff's damages to a loss of use claim.At first instance, the Prothonotary accepted that mitigation was a special circumstance that should be

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taken into account when setting bail at a Plaintiff's reasonably arguable best case. However, on theconflicting and incomplete evidence before him the Prothonotary considered it was not advisable tomoderate the bail based on the alleged failure to mitigate. Accordingly, bail was set at the differencebetween the agreed purchase price and the value of the vessel on the last date the vessel was to havebeen delivered plus costs of $300,000 and interest for one year at 6%. On appeal, the appeal Judge heldthat the obligation on a Plaintiff to mitigate its loss and accept a lesser security was not applicable inthe circumstances given the conduct of the Defendant. The appeal Judge confirmed the order of theProthonotary and dismissed the appeal.

Arrest – Bail – Delivery – Solicitor Client Costs

NHM Internatinal Inc. v F.C. Yachts Ltd. et al., 2003 FCT 53, 2003 FCT 373

This matter concerned a dispute over the construction of a vessel. The Defendant had agreed toconstruct the vessel for a fixed price and progress payments were made by the Plaintiff during thecourse of construction. The vessel was, however, not completed on time and the Plaintiff went intopossession as mortgagee under a builder's mortgage. The Plaintiff also arrested the vessel and broughtthis motion to set bail. The Plaintiff proposed that bail be set at the amount owing under the fixed pricecontract plus the hold back amount. The Defendant argued that the fixed price contract was not valid asit had not been signed and that bail should be set on the basis of a cost plus contract. The Court notedthat bail was to be set at an amount equal to the claimants best arguable case plus interest and costs butalso noted that a proper balance must be struck and the power to arrest must not be exercisedoppressively. The Court held that the Defendant's argument that the fixed price contract was invalidwas unreasonable, inconceivable and extravagant and refused to set bail on the basis of a cost plusarrangement. The Court also considered an argument advanced by the Defendant that the taking ofpossession of the vessel by the Plaintiff as mortgagee was a delivery of the vessel in Canada whichattracted a liability for the payment of provincial sales tax and goods and services tax. The Courtrejected this argument holding that neither going into possession as mortgagee nor arresting the vesselconstituted delivery. In later Reasons (2003 FCT 373) the Court dealt with a request by the Plaintiff foran award of costs of the motion in the amount of $14,000. The Court reviewed the case law as to whensolicitor client costs might be awarded and noted that it is only done in exceptional cases or where therehas been misconduct. The Court declined to order solicitor client costs in the requested amount of$14,000 but did consider that the extreme positions taken by the Defendant justified a “deterrentelement” and ordered lump sum costs in the amount of $9,000.

Arrest – Abuse of Process – Security

North King Lodge v The “Gowlland Chief” et al., 2003 BCSC 947

This was an application to set aside the arrest of the Defendant vessel or alternatively for setting theform and amount of security. The underlying action concerned the sinking of the Plaintiff's vessel dueto the alleged negligence of the Defendants. The motions Judge considered first whether the arrestshould be set aside due to abuse of process and noted in this regard that an abuse of process would bean arrest done for some purpose other than a legitimate desire to secure the claim, for example, toleverage a defendant into an improvident settlement. The motions Judge found there was no evidenceof abuse of process. With respect to the form of security required, the motions Judge noted that the

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Rules contemplated security in the form of a payment into court, a surety bond, letter of credit or letterof undertaking and held that these forms of security should not be departed from absent a very goodreason. He specifically declined to order posting of security by way of a mortgage on the Defendantvessel. Turning to the maximum amount of security, the motions Judge found that the parties were inagreement that the Defendant vessel had a market value of between $350,000 and $360,000. He nextconsidered the amount of security that should actually be posted and found that the Plaintiff's bestarguable case was the value of its vessel at $700,000. However, applying a contingency of 50% , hereduced this amount to $350,000. He also refused to apply a mark-up to take into account interest andcosts. (Note: Rule 55(26) of the British Columbia Supreme Court Rules does not permit security to begiven by way of a letter of undertaking as this judgment suggests. Also, the reduction in the amount ofsecurity from the Plaintiff's best arguable case by taking into account contingencies is questionablegiven the existing authorities. Similarly, the refusal to take into account interest and costs in settingsecurity would seem to be contrary to the weight of authority. Nevertheless, the result arrived at isjustifiable given the value of the Defendant vessel, and therefore the upper limit on security, wasapproximately $350,000)

Pleadings

Pleadings – Striking – Economic Loss

1340232 Ontario Inc. v St. Lawrence Seaway Management Corp., 2004 FC 209

This was an application to strike the claim of the Plaintiff. The Plaintiff's claim was for damages forbusiness losses incurred as a result of the closure of a bridge over the Welland Canal, which closure itwas alleged was due to the negligence of the Defendant. The Plaintiff had no proprietary interest in thebridge and none of the Plaintiff's own property was damaged. The Prothonotary allowed the applicationand struck the claim noting that similar claims to recover pure economic loss because of negligentdamage to a bridge have been consistently rejected by the courts.

Pleading – Striking – Jurisdiction

Kona Concept Inc. v Guimond Boats Limited, 2005 FC 214

In this matter the Plaintiff commenced proceedings against the Defendant in Hawaii in relation to acontract for the design, manufacture and sale of a tuna fishing boat. The Defendant initially contestedthe jurisdiction of the Hawaiian courts but after having lost its jurisdiction motion withdrew from thataction. The Plaintiff subsequently obtained a default judgment against the Defendant and commencedthese proceedings for breach of contract and for enforcement of the U.S. judgment. The Defendantbrought this motion to strike the entire Statement of Claim on the grounds that the Plaintiff was adissolved company when the Statement of Claim was issued and on the grounds that the Federal Courtlacked jurisdiction. On the first issue the Court found that the Defendant had dealt with and was paid bythe principal of the Plaintiff and held that fairness dictated that the Plaintiff be permitted to substitutethe correct party. On the second issue the Court held that pursuant to s. 22(2)(n) of the Federal CourtAct it had jurisdiction over claims for the construction of a ship and that the Plaintiff had pleadedsufficient facts to bring it within that jurisdiction. The Court declined to rule on the claim for theenforcement of the U.S. judgment as its status was in some doubt and this issue was better dealt with in

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a motion for summary judgment.

Motion to Strike Statement of Claim

Berhad v The Queen, 2003 FC 992

This was an application to strike out the Statement of Claim. The underlying action was a claim by theowner of the vessel “Lantau Peak” against the Federal government and two steamship inspectors. Thetwo inspectors detained the vessel and would not allow it to be moved until repairs were completed.The Plaintiff wanted to move the vessel to another jurisdiction where the repairs could be done moreeconomically than in Canada. The application to strike was dismissed for two reasons. It was animportant and complex case involving the overlap and interplay of the Canada Shipping Act, twointernational Memorandums of Understanding, and the SOLAS Convention and therefore ought not tobe decided on a motion to strike out. Secondly, it was far from plain and obvious that the Plaintiffwould certainly fail at trial. (Note: In fact, the action was successful. The trial judgment is summarizedbelow.)

Parties

Parties – Addition – Amendment of Pleadings – After Limitation Period

Budget Steel Ltd. v FMW Towing Ltd., 2004 FC 1140

This matter concerned the capsizing of a barge and the consequential loss of her cargo. The Plaintiff,the owner of the cargo, originally commenced these proceedings against the owners of the barge andthe tugs towing her. More than two years after the capsize the Plaintiff brought this application to addthe owners of a passing ship and to amend the Statement of Claim to allege that the wake of the passingship caused the capsize. The proposed Defendants contested the application arguing that the limitationperiod had expired and that they had been prejudiced by the lapse of time in that they did not have theopportunity to properly investigate the incident. With respect to the limitation period issue theProthonotary held that the running of the limitation period did not prevent the addition of theDefendants as they would be entitled to plead and argue the limitation defence. The Prothonotary hadmore difficulty with the prejudice issue since the Plaintiff had written to the proposed Defendantsadvising them that they considered the cause of the capsize to be the unseaworthiness of the barge.However, the proposed Defendants had been aware of the incident from the time of the capsize and hadbeen added as Third Party Defendants. The Prothonotary ultimately held that although there had beensome prejudice this prejudice was self inflicted in that it was due to an oversight or lack of initialassessment and investigation on the part of the proposed Defendants. In result, the proposed Defendantswere added as parties.

Joinder of Parties – Owners of Salved Property

Early Recovered Resources Ltd. v. Gulf Log Salvage Co-operative Association et al., 2003 FCT 549

This was a motion to add two associations of forestry companies who were owners of logs as eitherinterveners or defendants in the Plaintiff’s action for salvage in respect of 17 unidentified logs from the

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BC coast. In the original action, the Province had been named as a Defendant but had a limited interestto stumpage fees which had likely already been paid prior to salvage. After noting that the style ofcause should have been in rem to name the 17 unidentified logs, the Prothonotary held that the ownersof the salved property, who would be liable for the salvage claim, should be defendants as they shouldhave notice and be afforded the chance to protect their position. The two associations had an interest inrem in the logs (although ownership was unidentified) and an interest in protecting the existing logrecovery system. The motion was granted adding the associations as defendants.

Discovery

Discovery – Examination of Non-Parties

Thyssenkrupp Materials NA Inc. v The “Stewart Island”, 2005 FC 23

The Plaintiff brought this application for leave to examine the Chief Engineer of the Defendant vesselunder Rule 238 of the Federal Court Rules, 1998. The Prothonotary at first instance accepted that theChief Engineer had relevant information and that his examination would not cause undue delay,inconvenience or expense but nevertheless denied the application on the grounds that the informationcould be obtained from other sources such as production of documents or examination for discovery.On appeal, the appeal Judge dismissed the appeal holding that the Plaintiff had failed to demonstratethat the Prothonotary's order was clearly wrong in the sense that it was made upon an incorrectprinciple of law or misapprehension of the facts.

Discovery – Implied Undertaking Rule – Contempt

N.M. Patterson & Sons Limited v The St. Lawrence Seaway Mgt. Corp., 2004 FCA 210

This was an appeal from a motion in which a solicitor was found in contempt of court for disclosing tothe media information obtained on examination for discovery. The appeal was dismissed. Thisimportant case reminds practitioners that documents and information received through the discoveryprocess are subject to an implied obligation of confidentiality. Such documents and information maynot be disclosed to any third parties or used for any purpose other than the litigation in which it isproduced or given. The implied undertaking is only released if and when the document or informationbecomes publicly available by being tendered as evidence at trial. The Court of Appeal judgmentclarifies that the public availability of the information is a defence to the charge of contempt and not anelement of the offence. Therefore, the onus is on the accused to prove the information is publiclyavailable.

Examination for Discovery – Production of Documents – Scope

Seaspan International Ltd. et al. v The Ship “Ewa”, 2004 FC 124

This was a motion by the Defendant to compel the re-attendance of various discovery witnesses toanswer questions which had been refused at examinations for discovery. The questions relatedgenerally to claims and settlement agreements as between the Plaintiffs and sought the production ofany settlement agreements. As a preliminary point the Prothonotary considered whether the scope of

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production of documents under the Federal Court Rules, 1998 was narrower than under the previousrules. Relying on Smithkline Beecham Animal Health Inc. v The Queen [2002] 4 C.T.C. 93, he held thatthe “train of inquiry” test under the old rules was substantially the same as the current test requiringproduction of documents that a party intends to rely on or that tends to adversely affect the party's caseor support another party's case. With respect to the substance of the motion the Prothonotary referred tovarious authorities and concluded that settlement agreements are, for the most part, privileged.However, provisions as to release or not to sue or reservation of rights ought to be disclosed andevidentiary arrangements in those agreements might also be required to be disclosed at or shortly beforetrial.

Discovery – Written and Oral Examination

Haylock et al. v. Norwegian Cruise Lines et al., 2003 FC 932

This was an application by the Defendant shipowner in two actions for an Order that examinations fordiscovery of the 16 Plaintiffs, all cruise ship medical officers claiming wages for overtime, take placeby way of written examination and then by such oral examination as the Defendant may reasonablyrequire. The Prothonotary acknowledged that this was not a usual approach in the Federal Court butgranted the Order because it had the substantial promise of saving both time and money. TheProthonotary considered, in particular, the use of both written and oral examinations in the SupremeCourt of British Columbia and the “general move to encourage written discovery “ in the Federal Court.

Examination for Discovery – Prior Practices – Opinions

Seatech Construction Ltd. v “Inlet Challenger”, 2003 FC 1186

This was an application by the Defendant for an order that the Plaintiff's representative re-attend toanswer questions objected to at the examination for discovery. The case involved a claim by thePlaintiff for damage to a barge towed from Campbell River to Mimmo Bay. The Plaintiff was notrequired to answer questions related to its prior practices or that asked for the opinions of witnesseswho were not experts.

Delay

Dismissal for Delay – Appeal – Standard of Review

Precision Drilling International B.V. v The “BBC Japan” et al., 2004 FC 701

This was an appeal from an order of a Prothonotary dismissing the action for delay after a status review.The only explanation for the delay was that the Plaintiff had been negotiating a settlement with one ofthe Defendants. The appeal Judge considered first whether discretion should be exercised de novo onthe appeal and held that it should since the Prothonotary's decision was final. The appeal Judge thenconsidered the proper test to be applied and noted that the questions to ask were: 1) What are thereasons for the delay and do they justify the delay? and, 2) What steps are proposed to move the matterforward? The appeal Judge further noted that the overarching concern should be whether the Plaintiffsrecognize their responsibility to move the action along and are taking steps to do so. Applying this

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“liberal” approach the Judge held that although the Plaintiff might have provided a better explanationfor the delay it had justifiably explained the delay. The Judge further found that although the Plaintiffhad failed to propose a time table they did ask that the matter be set over for a few months to allow thesettlement to be finalized. The Judge considered this a reasonable response and queried why the courtshould insist on litigants preparing an artificial timetable when the parties are involved in meaningfulnegotiations. In the result, the appeal was allowed and the order dismissing the action set aside.

Dismissal for Delay – Security for Costs

Intertech Marine Limited v The “Nautica” et al., 2004 FC 1456

This was an application by the Defendant to dismiss the Plaintiff's action for delay or alternatively forsecurity for costs. The motions Judge noted that there had been significant delay in moving the actionforward and further noted that the Plaintiff had failed to comply with a number of court orders anddirections. She referred to the decision of the Federal Court of Appeal in Sokolowska v Canada, [2004]FCJ No. 570, in which that court said; “Failure to comply with Orders or Directions from this Courtand with the Rules of procedure as well as omission to provide a good justification for the delays andan action plan to speedily move the appeal forward justifies a dismissal of the appeal”. (Note theabsence of a reference to “prejudice” in this test.) Notwithstanding this fairly strict test, the motionsJudge did not dismiss the case but imposed very stringent conditions on the Plaintiff. The Judge thenturned to the motion for security for costs. She noted that the Defendant had provided evidence of anumber of outstanding judgements against the Plaintiff. She held however that this was not sufficient toobtain an order for security for costs. In addition, evidence was needed as to the assets of the Plaintiff.

Dismissal for Delay

Haylock et al. v Norwegian Cruise Lines, 2005 FC 501

This was an application by the Defendants to dismiss the actions of several of the Plaintiffs for failureto deliver written answers to examination questions on the date specified in the case managementschedule. The answers were to be delivered by 1 November 2004 but by 1 April 2005 they still had notbeen delivered and the Plaintiffs had taken no steps to obtain an extension of time. Moreover, at thehearing the Plaintiffs were unable to provide any assurances to the Court as to when the answers mightbe provided. The Prothonotary noted that although time limits are not absolute, they are more than meretargets and, subject to uncontrollable events, must be obeyed. The Prothonotary also noted thatcommonplace missing of deadlines can be an abuse of process which can be dealt with by an order ofdismissal. The Prothonotary concluded that in the absence of evidence explaining the delay and in theabsence of assurances the answers would be provided by a specified date the appropriate remedy was todismiss the claims.

Time Extensions

Extension of Time – Service – Substitutional Service

Arrow Corporation Inc. v The “Sea Tiger” et al., 2004 FC 1502

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This was an application to extend time for service of a Statement of Claim on one of the Defendants.The facts were that the Plaintiff had provided the Defendant with a copy of the Statement of Claimshortly after it was issued and later asked the Defendant to acknowledge service. The Defendant did notacknowledge service so the Plaintiff arranged to have it served but the service occurred out of time. ThePlaintiff then indicated it would bring a motion to extend the time for service but delayed some sixmonths in bringing the application. The Prothonotary noted that the test to apply was whether there wasa continuing intent to pursue the claim, whether there is an arguable case and whether there would beprejudice to the proposed defendant should the extension be granted. The underlying consideration orgeneral principal is to do justice between the parties. Applying this test the Prothonotary found that theexplanation for the delay and the demonstration of a continuing intent were weak. He further foundthere was an arguable case and no prejudice. The important factor, however, was that the Defendanthad acknowledged receipt of the Statement of Claim the day after it was issued. The Prothonotarysuggested that this might have been sufficient to support a motion under Rule 147 validating the servicenoting that good service merely required proof that a legible copy of the document came into the handsof the Defendant. Under these circumstances the Prothonotary considered it would be an injustice to notallow the extension of time.

Extension of time for Service and Arrest – Order for Sale Pendente Lite

Franklin Lumber Ltd. v. The “Essington II” et al., 2005 FC 95

This was an application by a mortgagee for a substantial extension of time (more than six years) withinwhich to serve and arrest the vessel and a further application for Court approval of a private salependente lite. In deciding to grant the time extension, the Prothonotary applied the three-part test fromRegistered Public Accountants Association of Alberta v. Society of Professional Accountants ofCanada, (2000) 5 C.P.R. (4th) 527 that the applicant must demonstrate a continuing intention topursue the claim, that there is an arguable case and that there is no prejudice to the defendant bygranting the extension. This test was to be applied within the context of the “overarching” principle ofensuring justice is done between the parties. In this case, the Prothonotary considered the fact that thedispute was essentially between family members to be particularly significant. In view of the fact thatthe vessel owner had not found a buyer in seven or eight years, but had at one time agreed to sell thevessel to the present buyer at the same price, the Prothonotary also made an Order for the private sale ofthe vessel pendente lite without appraisal and on the terms that a down payment of just under 8% of thesale price would be paid into Court immediately with closing approximately four months thereafter.The elements to be considered in deciding whether to order a sale pendente lite are open-ended, but theProthonotary noted that they include: 1) the value of the vessel compared to the amount of the claim;2) whether there is an arguable defence; 3) whether the owner can carry on, that is, whether there mustbe a sale at some point; 4) whether there will be any diminution in the value of the vessel or of the saleprice by the delay; 5) whether the vessel with depreciate by further delay; and 6) whether there is anygood reason for a sale before trial.

Counterclaim – Extension of time to file defence

Budget Steel Ltd. v Seaspan International Ltd., 2003 FCT 610

This was an appeal to the Federal Court of a Prothonotary’s order granting the Plaintiffs an extension of

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time to file a defence to counterclaim. The Plaintiffs claimed damages for the loss of a cargo of scrapsteel when the Defendant’s barge capsized. The Defendant filed a defence and counterclaimed for lossof freight and damage to the barge as a constructive total loss. Plaintiff’s counsel could not obtaininstructions to defend the counterclaim and wrote to Defendant’s counsel asking that they not takedefault judgment without prior notice. Defendant’s counsel did not respond to that letter. TheProthonotary granted the application applying the test in Canada (Attorney General) v. Hennelly(1999), 244 N.R. 399. Although finding that there was not a particularly strong continuing intention todefend and the reasons for delay were weak, there appeared to be possible defences and there was noprejudice to the Defendant in granting the extension. The Prothonotary on these factors aloneconsidered the issue balanced, but on the basis that the Plaintiffs' counsel had written at the outsetexplaining the need for time to obtain instructions and that the Defendants had not responded and hadnot taken steps to advance the counterclaim along, the Prothonotary held it would be unjust not to grantthe time extension. The decision was upheld on appeal. The appeal Judge held that this was adiscretionary matter and that the discretion had been properly exercised.

Service – Extension of Time

Finlandia Cheese Inc. v Shoreline Shipping SA et al., 2003 FC 969

In this matter the Prothonotary granted the Plaintiff an extension of time within which to serve itsStatement of Claim and validated service by mail. The facts were that the Plaintiff had mailed theStatement of Claim to the Defendant but the Defendant had changed its address without advising thePlaintiff. When the Plaintiff became aware of the change of address it immediately re-mailed theStatement of Claim. The Court validated this second mailing.

Costs/Security for Costs

Costs – Offers to Settle

Francosteel Canada Inc. v The “African Cape” et al., 2003 FCA 119

This matter concerned an action for damages to cargo in the alleged amount of $500,000. Early in theproceedings the Defendants offered to settle the Plaintiff's claim for $125,000. The offer was notaccepted and the case proceeded to arbitration. The Defendants' offer of settlement was withdrawn onthe fourth day of the arbitration. The arbitrator subsequently rendered an award in the total amount of$108,000, inclusive of interest. A hearing was subsequently held to decide the issue of costs. ThePlaintiff argued that it was the successful party and was entitled to its costs. The Defendants argued thattheir settlement offer should be taken into account and they should be entitled to costs. At first instance,the Prothonotary agreed with the Plaintiff and held that as the Defendants' settlement offer had beenrevoked it could only be taken into account in determining the amount of costs not the entitlement tocosts. The Prothonotary awarded the Plaintiff costs of $40,000. On appeal, the Prothonotary's Orderwas upheld. On further appeal, the Federal Court of Appeal held that the Prothonotary and the Judge onappeal misapplied Rule 400 in that they had failed to take into account the offer of settlement indetermining entitlement to costs. The appeal was allowed and the Defendants were awarded their costs.(Note: In separate Reasons Letourneau J.A. was very critical of the present Rule 420 and suggested thatit is in dire need of revision. This is something that is currently being undertaken.)

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Costs – Offer to Settle – Double Costs

Elders Grain Company Limited v “Ralph Misener”, 2003 FC 1163

The Defendant, who was successful on the main action and counterclaim, sought an order directing thetaxing officer to tax its costs in accordance with the high side of Column V of Part II of Tariff B anddoubling their costs after the date of their offer to settle the case on a “drop hands” basis. The judgeexercised his discretion and held that the Defendant's costs should be taxed in accordance with the highside of Column IV and not Column V and that the Defendant was entitled to double costs from the dateof the offer.

Costs – Double Costs – Offer to Settle – Increased Costs

Strachan v Constant Craving, 2003 FC 1175

This was a judgment dealing with costs of the trial in a simplified action where the Defendants weresubstantially successful on their counterclaim against the Plaintiff. The Court refused to award theDefendants solicitor-client costs as such costs are awarded only in rare circumstances where conduct inthe proceeding is scandalous or outrageous or deserving of reproof or rebuke. The Defendants wereentitled to double costs from the date of the offer whereby the Defendants offered to settle for less thanthe amount awarded at trial. Further, costs were awarded above the mid range of Column III of TariffB because of rejection of the offer referred to above and the Plaintiff's late decision not to call an expertwitness.

Practice – Security for Costs

Goodman Yachts LLC v The “Gertrude Oldendorff” et al., 2004 FC 40

This was a motion by the Plaintiff for additional security for costs. The underlying action involveddamage to a yacht carried as deck cargo from Singapore to Vancouver. The Plaintiff was not a residentof Canada and had no Canadian assets. The Defendants had been previously granted security for costsin the amount of $50,000 with leave to apply for further security. The Defendants now applied foradditional security of $100,000 and prepared a draft bill of costs supporting this amount. The Plaintiffcontested the application arguing that the court should carefully scrutinise the draft bill submitted andshould only allow those items that were firm and definite. The Prothonotary declined this approach in acase where the Plaintiff was a non-resident and had no Canadian assets. The Prothonotary also refusedto disallow travel expenses for out-of-town counsel. The Prothonotary noted that the Federal Court is aCanadian and international court and litigants had the right to use counsel from anywhere in Canada butsubject to a test of reasonableness. In the result the Prothonotary allowed the motion but ordered thatthe additional security be delivered in two stages.

Security for Costs – Nominal Plaintiff – Subrogated Action

Offrey v Ryan, 2003 FCT 35

This was an application to require the Plaintiff to post security for costs. The underlying action was fordamages allegedly suffered in a collision between two fishing vessels. The action was a subrogated

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action brought by the Plaintiff's insurers, although the Plaintiff did have an interest in his deductible.The Court held that the Plaintiff was a nominal Plaintiff and, in the absence of any evidence that thePlaintiff had assets to satisfy a judgment in costs, ordered that security for costs be posted. The Courtfurther noted that it might have been inclined to not make the order if the Plaintiff's insurers hadundertaken to pay any costs.

Security for Costs – Time Extension

Fish Maker LLC v The “Zodiak” et al., 2004 FC 1057

The Plaintiff in this matter had been ordered to post security for costs within a specified time. It failedto do so and the Defendant brought an application to dismiss the action for delay. The Plaintiff alsobrought an application for a 60 day extension of time within which to post the security. The Court setout the test for a time extension being: a continuing intention to pursue the application; that theapplication has some merit; that there is no prejudice to the other party; and that a reasonableexplanation for the delay exists. The Court further noted that whether a reasonable explanation forgranting the extension of time exists will depend on the facts of each case and that it was required tobalance the elements bearing on a time extension to do justice between the parties. Applying thesefactors and considerations the Court denied the time extension. In reaching this conclusion the Courtwas influenced by the fact that the Plaintiff had not moved the action forward and by the fact that thePlaintiff had not attempted to cure the failure to post security in a timely manner.

Summary Trial

Summary judgment – Genuine Issue

Cores Worldwide Inc. v The “Camilla” et al., 2004 FC 1160

This was an application for summary judgment to recover outstanding payments allegedly owed on thesale and purchase of a generator and pump. The application was denied on the grounds that there were anumber of key facts upon which the parties did not agree. The motions Judge noted that for a summarytrial the Applicant must present evidence showing there is no factual issue for which a trial is necessaryand the Respondent must put its best foot forward in the sense that it must present evidence and cannotsimply deny the claim or rely upon the pleadings.

Offshore Accord – Summary Trial – Credibility

Mil Davie Inc. v Hibernia Management and Development Co. Ltd., 2003 FCT 297

This was an application by the Defendant for summary judgment dismissing the Plaintiff's action. In theunderlying action the Plaintiff, a ship repair yard, alleged that the Defendant awarded contracts to acompetitor without seeking tenders and in violation of the Competition Act and the Offshore AccordActs. The motions Judge reviewed the jurisprudence on summary judgments and noted in particular thatsummary judgment applications are not appropriate where credibility is in issue. The motions Judgefound that there were genuine issues for trial and that issues of credibility had been raised and hetherefore declined to grant summary judgment.

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Miscellaneous

Trial – Adjournment

Parrish & Heimbecker Limited v The “Mapleglen” et al., 2004 FC 1197

This was an application by the Plaintiff to adjourn the trial which was scheduled to commence inapproximately two months time. The underlying action concerned short delivery of a cargo of grain.The reason for the requested adjournment was that the Plaintiff had recently obtained scale tickets fromthe discharging terminal which indicated that the discharging terminal might be responsible for theshortage and should be added as a Defendant. The Prothonotary refused the request for the adjournmentnoting that an adjournment in the Federal Court required exceptional circumstances. The Prothonotarydid not consider the circumstances exceptional since the Defendants had repeatedly asked for the scaletickets from the discharge terminal and the Plaintiff had refused to obtain and provide them. TheProthonotary considered that the Plaintiff had brought the present difficulties upon itself.

Appeal – Finding of Fact – Contract

Sabina A.G. v Carisbrooke Shipping Limited, 2003 FCA 366

This was an appeal by the Defendant from the judgment of the trial Judge who found there was acontract between the parties on the basis of documents, conversations and the evidence as a whole. Theappeal was dismissed because the appellate Court would not interfere with the trial Judge's findings offact unless there was an overriding and palpable error.

Simplified Action Procedures – Pleadings – Amendment – Evidence

Valentino Gennarini SRL v. Andromeda Navigation Inc., 2003 FCT 567

This was a simplified action for disbursements incurred and for ship agency services rendered by thePlaintiff at the port of Taranto, Italy. The case is of interest because of the way a number of proceduralmatters were decided. The Defendant sought to adduce affidavit evidence that it was acting as agent fora third party. The Plaintiff applied to strike this evidence on the basis that the agency relationship theDefendant sought to prove was never pleaded. The Court agreed and struck the evidence, holding that“the Court should not consider any evidence which is irrelevant to the pleadings as they are formulatedor which contradicts the pleadings”. The Defendant also applied for short leave to bring a motion toamend its pleadings. The Court reiterated the general rule that an amendment should be allowed for thepurpose of determining the real question in controversy between the parties provided that the allowancewould not result in an injustice to the other party not capable of being compensated by an award ofcosts and that it would serve the interests of justice. The Court denied the Defendant’s motion toamend its Statement of Defence because the motion was presented one day before trial when it couldhave been brought many months earlier, the amendment was not being made to refocus andparticularize points in controversy but rather sought to introduce a distinct and entirely new cause ofdefence, and the proposed amendments would inevitably delay an expeditious trial. At the hearing onthe merits the Plaintiff sought to introduce documents by way of an affidavit which effectivelyincorporated by reference every document listed in the Plaintiff’s Affidavit of Documents which thePlaintiff wished to introduce as evidence in chief. Despite the objections of the Defendant the Court

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accepted as filed the original documents incorporated by reference in the affidavit since they had beenlisted in the Plaintiff’s Affidavit of Documents and served on the Defendant over one year earliertogether with copies of the documents themselves. As a final procedural point, the Court permitted thePlaintiff to read in excerpts from the transcript of an oral examination for discovery conducted beforethe action was converted to a simplified action. While the rules on simplified procedures do notprovide for read-ins of oral discovery because there can be no oral examination for discovery, they donot preclude such read-ins when the oral examination was conducted before the action was converted toa simplified action.

Motions – Foreign Affidavits – Not Properly Taken according to Local Law

A. Paschos K. Katsikopoulos S.A. v. The “Polar” et al., 2003 FCT 584

As a preliminary motion to an application to strike out the Statement of Claim, the Defendant sought tostrike out the Plaintiff’s affidavits because the notary public who took the affidavits failed to complywith the requirements of Greek law, the law of the place where they were taken, as to the terms andconditions that ought to surround the administration of oaths to affiants. Even on the assumption thatthe Defendants were right in their criticism of the work performed by the Greek notary public, it did notfollow that the affidavits should be struck. There was no evidence of any collusion between the affiantsand the notary public with a view to contravening the requirements of Greek law. The record indicatedthat at all relevant times the affiants wished to file some allegations that they considered true and,“within the context of [his] residual discretion”, the Prothonotary considered this to be the essentialthing. To strike out the impugned affidavits owing to deficiencies attributable to the notary publicwould, in the circumstances, be akin to elevating form over substance, and this the Prothonotaryrefused to do.

Expert Evidence

Continental Insurance Co. v Almassa International Inc., 2003 ONSC 10422

This case reminds lawyers that undue interference in the preparation of an expert's reports can haveadverse consequences for clients. In this matter the evidence of a surveyor appointed by underwriterswas seriously discounted because of the involvement of counsel and “input” from another surveyor.(See the full summary above.)

Mortgages, Liens and PrioritiesMortages – Duties of Mortgagee in Possession – Improvident Sale

Middleton et al. v Farquharson et al., 2004 BCSC 32

In this matter the Defendant sold the vessel “Ocean Tribune” and her C licence to the Plaintiff for$135,000.00 payable $100,000 in cash and the balance by way of vendor financing for one year at 10%.The vendor financing arrangement was documented with a promissory note, a collateral marinemortgage and a registered marine mortgage. The Plaintiff failed to pay the amount owing on the due

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date and the Defendant seized the vessel. The parties then agreed that the Plaintiff would pay theDefendant $25,000 and would execute a second promissory note, collateral marine mortgage andregistered marine mortgage for $35,000. This was done. The Plaintiff paid the $25,000 but failed to paythe amount due under the second note. The Defendant again seized the vessel. On the advice of thebailiff, the vessel was removed from the water which caused the wood planking to dry out andultimately necessitated considerable repair work. The vessel was advertised for sale by the Defendantfor 21 days. The only bid received was one by the Defendant himself for $75,000. His evidence, whichwas accepted by the trial Judge, was that his bid was a protective bid made because he was concernedthe bids from others would be too low to recoup his losses. The Plaintiff subsequently brought thisaction. The first issue was whether the second note and second marine mortgage were invalid. ThePlaintiff alleged that the $25,000 payment was made on account of the first note and first mortgage andthat the second note and mortgage did therefore not properly reflect the amount owing. The Defendantreplied that the $25,000 payment was intended to satisfy outstanding interest on the first note and thecosts of effecting the seizure and to retire other debts owed by the Plaintiff to the Defendant. The trialjudge preferred the Defendant's evidence to that of the Plaintiff and held that the second note andmortgage were valid. The next issue was whether the Defendant as mortgagee in possession breachedhis duty to take reasonable care of the goods seized. This issue concerned the taking of the vessel out ofthe water. Again, the trial Judge sided with the Defendant finding that the Defendant acted reasonablyin taking the vessel out of the water. The next issue was whether the sale of the vessel to a numberedcompany owned by the Defendant was improper. The Plaintiff argued that the value of the vessel and Clicence were much more than $75,000. The trial judge noted that there were two lines of authoritydealing with the duty owed by a mortgagee when realizing on security. The subjective test requires themortgagee to exercise good faith and the avoidance of wilful default in selling the asset. The objectivetest involves an obligation to act reasonably to obtain the market value. Although the trial judgeconsidered the subjective test was the test that was binding on him he held that under either test theDefendant had not acted improperly.

Priorities – Sisterships

Royal Bank of Scotland PLC v The “Golden Trinity” et al., 2004 FC 795

This was a hearing to determine the priorities to the proceeds of sale from three vessels owned byvarious one ship companies but mortgaged under fleet type mortgages. The vessels were all under themanagement of a single company, the principal of whom was a Mr. Peter Lygnos. The main claimantswere the mortgagees of the vessels and Tramp Oil & Marine Limited, a bunkers supplier that hadsupplied bunkers to the various vessels and to alleged sisterships of the vessels. Tramp Oil sought toenhance its priority by challenging the various mortgages, by alleging a maritime lien and by arguingthat the normal priorities should be altered in the circumstances of the case. With respect to Tramp Oil'sattempts to challenge the mortgages the Court held that the mortgages were properly registered, validand enforceable. The Court then considered Tramp Oil's claim to a maritime lien. The Court allowedthe claim in respect of bunkers supplied at an American port through the agency of an Americansupplier on the basis that Tramp Oil was subrogated to the American supplier's maritime lien createdunder American law. It is noteworthy that in reaching this conclusion the Court applied American laweven though Tramp Oil's terms and conditions specified English law. The Court did so on the basis ofImperial Oil v Petromar, (2001) 283 N.R. 182, and the fact that there was no real connection withEngland, the jurisdiction selected in Tramp Oil's standard trading conditions. The Court disallowed

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Tramp Oil's claim to a priority on the basis of a contractual maritime lien as provided for in its standardtrading conditions. The Court held that a contractual maritime lien was not a true maritime lien whicharises automatically without antecedent formalities. The contractual lien did not raise the claim abovethe priority given to other statutory in rem creditors. The Court next considered the sistership claims.The Court first noted that even if the sistership claims were valid such claims would rank as ordinary inrem claims and not have the status of maritime liens. The Court, however, rejected the sistershipclaims. In doing so it noted the difference between the French and English versions of section 43(8) ofthe Federal Court Act. The English version requires consideration of the registered owners whereas theFrench version requires consideration of the beneficial owners. The Court held that the French versionwas the better approach and stated that if Tramp Oil could prove that the vessels it bunkered werebeneficially owned by the owners of the Defendant ships there would be a sistership claim. The Courtfurther noted that in trying to determine the beneficial ownership it is permissible to look behind theregistered ownership and that this was not an unauthorized piercing of the corporate veil. The factorsconsidered by the Court included: that the vessels were under common management; that the Boards ofDirectors of the one ship companies were identical; that the Banks required a personal guarantee fromPeter Lygnos; that the ships were insured under the same insurance policy; and that the ships werejointly and severally liable under the mortgages for each other's debts. These factors, however, were notsufficient to find a sistership relationship. The Court noted that there was no evidence as to whoultimately enjoyed or was entitled to the profit and benefit derived from the ships, something whichleads to the concept of beneficial ownership. Accordingly, the Court found the sistership relationshiphad not been proved. The Court finally turned to the question of whether the priorities should be re-ordered on the basis of equitable considerations. The issue here was whether the mortgagees ought tohave moved sooner to realize against the ships. The Court found that banks are entitled to grantindulgences to customers in bad times and refused to re-order the priorities on this basis. The Courtnoted, as it frequently does, that very special circumstances are required to vary the usual ranking andthat there is a very heavy onus on the party seeking to do so.

Meaning of “Vessel/Ship” – Mechanics Lien

TJ Inspection Services v Halifax Shipyards, 2004 NSSC 181

In this matter the Plaintiff was retained by the Defendant to provide detailed inspection services inconnection with the construction of a production platform which, when completed, would be towed onboard a barge to the off-shore production site. When placed the platform would rest on four legs on thesea floor. The Plaintiff was not paid by the Defendant and registered a lien against the platform underthe Nova Scotia Mechanics Lien Act. The Defendant brought this application for summary judgmentdismissing the Plaintiff's claim. The motions Judge reviewed the relevant provision of the MechanicsLien Act and noted that the validity of the Plaintiff's lien depended on the platform being either an“erection” or a “vessel”. The motions Judge noted that the thrust of the legislation “is against the land”and held that the platform could not be an “erection” within the meaning of the Act since it was to beplaced on the sea bed. With respect to the definition of “vessel”, the motions Judge referred to thedefinitions in the present Canada Shipping Act, in the not yet proclaimed Canada Shipping Act 2001and in the Federal Court Act. He held that under any of these definitions a structure must be capable offloating to be a vessel and that since the platform was not capable of floating it was not a vessel. Inresult, the Defendant's application was allowed and the lien was vacated.

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Priorities – Severance Pay – Maritime Liens

C.I.B.C. v “Le Chene No. 1” et al., 2003 FC 873 affirming in part 2003 FCT 292

The main issue in this case was whether a claim for severance pay or damages for wrongful dismissal isa maritime lien entitling the claimant to priority over a ship's mortgage. The claimant had beenemployed by the shipowner on a full time basis for 12 years and had worked as chief engineer onvarious ships for 8 of those 12 years. The claimant's employment was terminated when the shipownermade an assignment in bankruptcy. The Prothonotary held that the claimant was entitled to damages forwrongful dismissal but refused the claim for a maritime lien. The Prothonotary held that there must be arelationship between the severance pay and a particular ship before such a claim can be categorized as amaritime lien and that such a relationship was lacking in the instant case. On Appeal, the appeal Judgeagreed with the Prothonotary that the Plaintiff was entitled to damages for wrongful dismissal butdisagreed with the Prothonotary's findings concerning the existence of a maritime lien. The appealJudge noted that damages for wrongful dismissal have long been recognized as giving rise to amaritime lien and held that it did not matter whether the Plaintiff had served on one or more ships orwhether the employment contract failed to specify a particular ship or ships. The appeal Judge furtherheld that the lien would attach to the ship that received the benefit which in this case would be the shipthe Plaintiff was working on at the time of his wrongful dismissal. That ship was the Defendant vessel.

Liens and Priorities – Tax Lien – Provincial Law

British Columbia v PT Car and Yacht Rental Inc., 2003 BCSC 1073

The primary issue in this application was whether the Crown in right of the Province of BritishColumbia had priority over the Respondent for taxes owing to it by the judgment debtor. TheRespondent had loaned money to the debtor for the purchase of a motor vessel which was registeredunder the Canada Shipping Act. However, a mortgage was not registered under that Act. Instead theRespondent's interest was secured by a security agreement. Pursuant to the provisions of the PersonalProperty Security Act of British Columbia (the “PPSA”), if the Respondent had registered its securityinterest under the PPSA it would have had a “super priority” but the Respondent failed to register intime. The Crown, who was owed tax for the importation of the vessel into the Province, argued that theSocial Services Tax Act of British Columbia (the “SSTA”) gave it a priority. The motions Judge heldthat the SSTA gave the Crown priority over all other security interests or liens except a purchase moneysecurity interest (“PMSI”) which was the type of security the Respondent held. The Crown argued thatthe exception for PMSI interests in the SSTA should be read as excepting only registered PMSI securityinterests. The motions Judge held, however, that the SSTA did not limit the exception to registeredPMSI interests and cautioned against reading words into a statute. In the result, the Respondent wasgiven priority. (Note: It is extremely important to note that the priority between these two creditors wasdecided without any reference whatsoever to Canadian Maritime Law. Since at least Ordon v Grail it isa debatable point whether a provincial priority scheme can have any application to a vessel, particularlya registered vessel.)

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MiscellaneousSalvage and Wrecks

Salvage – Jurisdiction over Aircraft – Protection of Finders' Rights

Brooks Aviation Inc. v Boeing SB-17G, 2004 FC 710

This was an application by the Plaintiff for summary judgment in respect of a claim for salvage. Theres was a B-17 aircraft that had crash landed on a lake in Labrador during the winter of 1947. Thefollowing year the aircraft sank during the spring thaw. The wreck was discovered by the Plaintiff inJuly 1998. The Plaintiff sought a declaration for the following relief: that the Federal Court hadexclusive jurisdiction to determine the salvage claim; that the Plaintiff had a maritime lien; that thePlaintiff had possession of the res and that other parties are enjoined from interfering with thePlaintiff's salvage rights; and, that the Plaintiff was entitled to a full and liberal salvage award. On thequestion of jurisdiction the Court noted that the Federal Court had maritime jurisdiction and that thelaw of salvage was a traditional area of maritime law. The Court specifically considered whethersection 449 of the Canada Shipping Act limits the law of salvage to aircraft on or over the seas, tidalwaters or Great Lakes. The Court held, however, that this section did not limit the traditional maritimelaw which had been extended to aircraft. (Note: In reaching this conclusion the Court refused to followa contrary decision Smith v Smith, [1979] 4 WWR 665.) The Court then turned to the salvage claims. Itnoted that a claim of salvage requires: that the res be in peril; that the salvor be a volunteer; and that thesalvage be successful. The Court found that the res was in peril and that the Plaintiff was a volunteerbut, as the aircraft had not yet been recovered, the salvage was not yet successful. Accordingly, theCourt held that the Plaintiff did not yet have a salvage claim. However, the Court did indicate it wasprepared to protect the Plaintiff's priority rights as finder of the res upon further application of thePlaintiff.

Charterparties/Bailment

Charters– Bailment – Waiver of Subrogation

North King Lodge Ltd. v Gowlland Towing Ltd. et al., 2004 BCSC 460

This matter concerned liability for the sinking of the barge “Sea Lion VI”. The barge had been hired bythe owner to the first Defendant for use as an accommodation barge at a remote logging camp. One ofthe terms of the agreement was that the owner would provide a watchman. When the logging operationshad ceased the second Defendant, the towing company, was retained to remove the log booms. In doingso the crew of the tug untied the port side mooring lines of the “Sea Lion VI” which had been tied tothe log booms. Shortly thereafter the “Sea Lion VI” went aground and sank. The trial Judge found as afact that the removal of the port lines caused the sinking. The Plaintiff, the owner of the barge,commenced proceedings against both the hirer and the towing company. The Plaintiff contended thatthe hire contract was a charter party by demise or, alternatively a bailment and that the hirer wasresponsible for the safekeeping of the barge. The hirer, on the other hand, argued that it did not havepossession of the barge and that the contract was a time charter. The trial Judge held that it was notpossible to fit the agreement between the parties into one of the traditional forms of charterparty since

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the barge was not chartered for a voyage and had no master or crew. He held that the agreement wasone of bailment but declined to imply all of the usual obligations that a contract of bailment entails.Specifically, he held that the owner's obligation to provide a watchman made the owner primarilyresponsible for the safe moorage of the barge. (At the time of the sinking and for some time previousthere had been no watchman on the barge and this was known to the hirer. The fact that the hirer failedto complain about the removal of the watchman by the owner was held not to be a waiver of theowner's obligation to provide a watchman.) The trial Judge also found that the hirer owed an obligationto take reasonable care of the vessel and that it breached this duty by failing to promptly advise theowner when it became apparent that the barge was in danger. With respect to the liability of the towingcompany, the trial Judge found that owner of the “Sea Lion VI” committed an act of trespass in tyingthe barge to the log booms and that the duty owed by the towing company to a trespasser is to notintentionally harm the Plaintiff, act recklessly or without common humanity. He held that although thetowing company did not act with reasonable care it did not breach the duties it in fact owed to thetrespasser. In the result, liability for the sinking was apportioned 80% to the owner and 20% to thehirer. One final issue considered in the case was whether the hirer was immune from suit by reason ofclauses in the hull insurance policy including charterers as additional assureds and waiving subrogationagainst charterers. The trial Judge held that these clauses were not effective since the policy alsocontained an express clause which provided that the benefits of the insurance policy would notautomatically extend to third parties but would only be extended if the option was exercised by theowner. The trial Judge found that the owner did not exercise this option.

Other

Port State Control – Wrongful Detention – Negligence of Steamship Inspectors

Berhad v Canada (The “Lantau Peak”), 2004 FC 501

In this ground breaking case the Defendant Canada Steamship Inspectors were found liable in tort to thePlaintiff shipowner for their negligence and wrongful detention of the vessel “Lantau Peak”. The factswere that the “Lantau Peak” arrived at Vancouver on 5 April 1997. It was intended to repair hull framesfound to be detached during the voyage from Japan and then to load a cargo of coal. Upon arrival thevessel was inspected by Canada Steamship Inspectors and was ordered detained as a measure underPort State Control for safety at sea. The reason for the detention was that the hull frames were wastedand corroded beyond the acceptable limit of 17%. The owner objected to the detention but ultimatelyrepaired the vessel to a lesser standard. The ship remained in detention until 17 August 1997notwithstanding that the vessel met its classification requirement and its flag state petitioned for itsrelease. The primary defence to the claim of the Plaintiff was that the inspectors were acting under astatutory authority given by the Canada Shipping Act and were therefore immune from suit. The Courtheld, however, that there was no statutory immunity. In very lengthy and detailed reasons the trial Judgeheld that the provisions of Canada Shipping Act and Regulations, in particular s. 310 authorizingdetention of vessels, did not apply to foreign flag vessels engaged on international voyages. He foundthat the detention was pursuant to the Tokyo Memorandum of Understanding on Port State Control,with reliance on the Safety of Life at Sea Convention, however, the MOU did not have the force of lawand could not be considered a “legal authority” to detain a ship. The trial Judge next consideredwhether an action in negligence could lie against the Defendants and, applying the test in Anns v

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Merton London Borough Council, [1978] A.C. 728, had relatively little difficulty in concluding such anaction could lie. The trial Judge then considered whether the inspectors were, in fact, negligent. Heconsidered that the applicable standard of care to be met by the inspectors was contained in the MOUwhich required that ships should only be detained if they were unsafe or presented an unreasonablethreat of harm to the marine environment. He further found that this required that inspectors do adetailed inspection and come to a conclusion with satisfactory proof as to whether a ship was unsafe oran unreasonable threat to the marine environment. He held that the inspectors had failed to conduct thisrequired detailed inspection and instead arbitrarily applied a 17% standard. He further noted that a shipwhich meets the standards of its classification society should not be detained unless there is verifiableevidence the Class standard is not good enough either because the standard is unacceptable or the shipis unsafe. This proof requires the expert opinion of a naval architect and not the opinion of a steamshipinspector. The trial Judge further found one of the inspectors was negligent in the reporting of hisobservations and evidence to the Chairman of the Board of Steamship Inspectors. He also found thatimplicit in the standard imposed by the MOU was a requirement that there be in place a process ofsupervising the decisions taken by inspectors and held that there had been a lack of supervision of theinspectors. He further found that the Defendants owed a duty to the Plaintiff to provide expeditiousdecision making and held that they had breached this duty by unduly delaying the review of thedetention order. This delay was due in part because of concern that releasing the vessel wouldundermine the Port State Control regime. The Judge also considered that the terms of release of thevessel imposed by the Defendants were unreasonable and, therefore, also in breach of their duty of care.In result, the Defendants were held liable for damages plus interest in the amount of almost $6 million.

Arbitration– Enforcement of Foreign Arbitration Awards – Whether Enforcing Court CouldDetermine Identity of Respondent – Sovereign Immunity

TMR Energy Limited v. State Property Fund of Ukraine et al., 2005 FCA 28 overruling 2003 FC1517

This case concerned the validity of the seizure of an Anatov aircraft owned by the State of Ukrainewhich had landed in Newfoundland. The Plaintiff had obtained an ex parte order recognizing andenforcing a Swedish arbitration award in its favour against “State Property Fund of Ukraine”. In itsFederal Court pleadings the Plaintiff described the Defendant as “State Property Fund, an Organ of theState of Ukraine”. The State of Ukraine had initially been served in the Swedish arbitrationproceedings but the arbitration had been discontinued against it. In a lengthy judgment at first instancethe Prothonotary considered whether an enforcing court could determine the identity of the judgmentdebtor (the respondent) under the arbitration award. She also considered issues of state immunity andthe jurisdiction of the Federal Court. She held that the enforcing court could determine the identity ofthe judgment debtor and after hearing expert evidence with respect to Ukrainian law determined thatthe State of Ukraine was the judgment debtor. Following this Order there were various motions andcounter-motions all of which found their way to the Federal Court of Appeal. (Companion enforcementproceedings were also brought in the Newfoundland courts which were ultimately rejected because therequirements of the State Immunity Act were not followed and for failure on the part of the Plaintiff toprovide full and fair disclosure.) At the Federal Court of Appeal, the enforcement proceedings weredeclared null and void on the primary basis that the Prothonotary lacked jurisdiction to register andenforce an award over $50,000. In its judgment, the Federal Court of Appeal also adopted thestatement from the English High Court in Norsk Hydro ASA v. State Property Fund of Ukraine [2002]

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EWHC 2120 “that the enforcing court is neither entitled nor bound to go behind the award in question,explore the reasoning of the arbitration tribunal or second-guess its intentions”. (Note: See also PanLiberty Navigation Co. Ltd. v World Link (HK) Resources Ltd., 2005 BCCA 206, summarized above,where the British Columbia Court of Appeal ordered a stay in a similar proceeding and also indicatedthat the approach taken by the English High Court in Norsk Hydro ASA v. State Property Fund ofUkraine [2002] EWHC 2120 was the correct approach.)

Foreign Sovereign Immunity – Writ of Seizure and Sale – Setting Aside

Roxford Enterprises SA v. Cuba et al., 2003 FCT 763

The issue in this case was whether the assets of Cubana de Aviacion S.A. (“Cubana”) were availablefor seizure to satisfy a judgment obtained by default against the government of Cuba. Cubana was nota party to the original action but, according to the Plaintiff, the government of Cuba was the true ownerof Cubana’s shares and assets such that the property of Cubana should be liable to seizure to satisfyCuba’s debts. Having first determined that the Federal Court had jurisdiction to hear the case, theProthonotary answered the narrow question: were the assets of Cubana liable to seizure for a debtowed by Cuba in respect of litigation unrelated to Cubana’s affairs? This was the opposite of the usualquestion asked in sovereign immunity cases, that is, is a particular state entity entitled to the benefit ofsovereign immunity in respect of its activities? There apparently being no Canadian case lawaddressing the issue, the Prothonotary adopted the principles set out by the United States SupremeCourt, these being: duly created instrumentalities of a foreign state are entitled to be accorded apresumption of independent status, however, where a corporate entity is so extensively controlled by itsowner such that a relationship of principal and agent is created, one may be held liable for the actions ofthe other. The Prothonotary held that the facts did not support the conclusion that Cubana’s business,income, undertaking and assets were controlled or even owned by Cuba, and thus concluded that thePlaintiff had not dislodged the presumption that Cubana was a separate juridical entity. Cubana couldtherefore not be liable for the debts of Cuba.

Seizure – Setting Aside – Corporate Veil – Appeals – Standard of Review

Foresight Shipping Co. Ltd. v Union of India et al., 2004 FC 1501

This was an appeal from an Order of a Prothonotary in which the Prothonotary had set aside the seizureof the ship. The facts were that the Plaintiff had obtained an arbitral award against the Union of Indiaand the Food Corporation of India and registered the judgment in the Federal Court. Theaward/judgment was not paid and in an effort to obtain payment the Plaintiff seized the ship “LokRajeshwari” at Sorel, Quebec. The owner of the ship, the Shipping Company of India Ltd., brought anapplication to set aside the seizure, which was granted by the Prothonotary. On appeal, the appeal Judgeinitially addressed the question of the standard of review from orders of Prothonotaries. She referred tothe test enunciated in Canada v Aqua-Gem Investments, [1993] 2 F.C. 425 where it was held thatdiscretionary orders of Prothonotaries should not be disturbed unless they are clearly wrong or raisequestions vital to the final issue of the case. She also referred to the more recent formulation of this testin Merck & Co. Inc. v Apotex, [2004] 2 F.C. R. 459 where it was said that the first inquiry nowconcerns whether questions vital to the final issue of the case are raised. It was on this basis that theappeal Judge determined her discretion should be exercised de novo. The appeal Judge reviewed

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conflict of laws principles and determined that the law of India, not the law of Canada, should beapplied to determine whether the ship was an asset of the Union of India subject to executionproceedings. She then reviewed the affidavits of foreign law and held that the law of India regarded theShipping Company of India as having a distinct legal personality separate and apart from its majorshareholders and that under the law of India the lifting of the corporate veil was allowed only inexceptional cases such as fraud. The appeal Judge was not prepared to disregard the distinct legalpersonality of the ship owner and dismissed the appeal.

Unauthorized Sale of Vessel – Damages

Gilling v Cox, 2004 FC 1743

In this matter the Plaintiff commenced proceedings for a declaration that he was the owner of a yacht,for an order declaring a purported sale of the yacht null and void and for damages against the Defendantfor the unauthorized sale of the yacht. The Defendant did not appear at the hearing and the onlyevidence given was that of the Plaintiff. The facts were that the Plaintiff and Defendant entered into anarrangement whereby the Defendant was permitted to charter the Plaintiff's yacht and retain the chartermoneys. In exchange the Plaintiff would receive the benefit of the upkeep of the yacht by theDefendant. In furtherance of the arrangement the Plaintiff executed a Power of Attorney andAppointment of the Defendant as Captain. The arrangement continued for many years although therewas an apparent dispute between the parties as to whether the Plaintiff owed the Defendant money formaintenance and capital expenditures. The Defendant executed a bill of sale of the yacht to a third partywhich prompted the present action. The Court held that the bill of sale was executed without theconsent or authority of the Plaintiff and was null and void. Accordingly, the Court granted the Plaintiffa declaration that he was the owner of the yacht. However, the Plaintiff's many claims for damageswere refused by the Court on various grounds including that they were not properly proven.

Fire – Res Ipsa Loquitur – Damages

Strachan v The “Constant Craving” et al., 2003 FCT 86

This was an action by the Plaintiffs against the Defendants in negligence for damage caused to thePlaintiffs' vessel when the Defendant's vessel caught fire. The Plaintiffs established through expertevidence that the cause of the fire was the ignition of gas fumes in the Defendant's vessel. The source ofthe fumes was a rusted gas tank and the source of the ignition was an automotive battery charger. TheCourt considered the application of the res ipsa loquitur doctrine but concluded that the issue of theDefendant's negligence had to be determined on the evidence. The Court, however, had little difficultyin concluding the Defendant was negligent. On the issue of damages the Court held that the Plaintiffswere entitled to recover both the cost of repairs and the diminution in value of their vessel.Additionally, the Court awarded the Plaintiffs $1,500 each in damages for loss of use of their vessel.Finally, the Court considered whether the collateral benefit rule ought to apply to reduce the Plaintiffs'damages. This was an issue because the repair costs were initially paid by the Plaintiffs' insurer but, insubsequent proceedings between the insurers and the Plaintiffs, the insurers relinquished their right ofsubrogation. Thus, the Plaintiffs stood to be reimbursed twice for the cost of repairs. The Court heldthat this was a matter of private insurance which was a recognized exception to the collateral benefitrule.

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Ship repairer’s liability – Fire damage – Faulty Repair

Fiddler Enterprises Ltd., et al v. Allied Shipbuilders Ltd., 2003 FCT 463

A fire occurred in the funnel of a fishing vessel in the vicinity of the exhaust mufflers/silencers. ThePlaintiff owners alleged that during repairs to the vessel’s exhaust system the Defendants had installedan inadequate gasket and had not allowed for expansion and contraction in the system. The issue in thecase was the origin of the fire. The Plaintiffs’ expert said that the leaking exhaust gasses due to thefaulty repair ignited unburned hydrocarbons in the exhaust gasses. The Defendants' expert said that thesource of ignition was diesel fuel spilled from a fuel tank vent line that terminated inside the funnel.The Court held that the Plaintiffs, who had the burden of proving the cause of the fire, had failed toshow conditions under which the exhaust gasses could have ignited. They also failed to show that sootwhich had built up in the funnel could have ignited. The Court did not accept that the Defendants'theory of a fuel spill from the vent line had been proven either but, as the Plaintiffs carried the burdenof proof, the claim failed.

Towage – Negligence – Benefit of Insurance – Betterment

Rough Bay Enterprises Ltd. v. Budden et al., 2003 BCSC 1796

The Plaintiff, the purchaser of a barge, sued the Defendants for negligence and breach of contract inthe towage of the barge. The Plaintiff purchased the barge from the Defendant Budden for $90,000,paying a $5,000 deposit together with an initial payment of $42,500. The Defendant Budden agreed totow the barge from Port Alberni to Campbell River with his fishing vessel for an additional sum. Thebalance of the purchase price was to be paid on delivery. The Plaintiff arranged with its insurer to addthe barge to its insurance policy. The towage commenced but due to mechanical difficulties wasinterrupted at Bamfield. Discussions were then entered into between Budden and the KoprinoDefendants for the Koprino Defendants to complete the tow with the fishing vessel “Koprino”. TheKoprino Defendants advised Budden that they would complete the tow on the condition that the ownersof the barge provide insurance for all parties. Budden agreed to this condition but he failed to advise thePlaintiffs of the condition and the Plaintiffs, therefore, did not obtain insurance protecting the KoprinoDefendants. The “Koprino” took the barge in tow from Bamfield. At the time of departure the weatherforecasts included gale warnings. The barge capsized off Port Renfrew and was later towed to Victoria,where it was repaired and substantially upgraded. The Plaintiff did not pay Budden the balance of thepurchase price. The issues in the case included: whether the Defendants were negligent; if so, whetherthe Plaintiff's claim was barred by its failure to obtain insurance coverage for the benefit of theDefendants; and if not, what damages were attributable to the Defendants' actions. The Court held thatthe Plaintiff did not prove that the Defendants were negligent in deciding to leave Bamfield given theprevailing weather conditions or in continuing with the tow. The Court held that the capsize of thebarge was due to localized storm conditions off Port Renfrew and that the Defendants were notnegligent in failing to anticipate this. The Court found that the barge capsized because it wasunseaworthy due to rot in its bow and stern planking. Notwithstanding the findings that the Defendantswere not negligent the Court considered the insurance and damages issues. The Court found that therewas an agreement to insure for the benefit of the Koprino Defendants and, even though this agreementwas entered into between Budden and the Koprino Defendants, the Court held that Budden was actingas agent for the Plaintiff. Consequently, the Plaintiff's subrogated insurance claim was barred as againstthe Koprino Defendants but not as against Budden. With respect to damages the Court held that the

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repair costs should be depreciated by 25% to take into account betterment.

Contempt – Conditions for Show Cause Order

Goodman Yachts LLC v. The “Gertrude Oldendorff” et al., 2003 FCT 752

This was an application for a first stage contempt order, pursuant to Rule 467, brought against twoDefendants by the Applicant, also a Defendant in the action. The underlying action involved the loss ofa yacht being carried on the deck of the Defendant vessel from Singapore for delivery at Vancouver.The alleged contempt arose out of a loss of various items which the two Defendants had been orderedto retain and preserve. The two Defendants arranged for the items to be placed in locked storage byWestern Stevedoring. However, after all parties except the Applicant had inspected the items they wereinadvertently lost during a regular clean-up of the facility conducted by Western Stevedoring. TheProthonotary concluded that at worst the loss of the opportunity to inspect these items might haveproved critical to the Applicant mounting a knowledgeable and effective defence and at best theApplicant had been prejudiced. Nevertheless, the Prothonotary held that this did not provide a primafacie case leading to a contempt proceeding. The Prothonotary held that to obtain a show cause orderthe Applicant must in effect demonstrate a prima facie wilful disobedience or wilful refusal to complywith a court order; evidence of mere non-compliance due to a casual or accidental unintentional act,was not sufficient. As the Applicant was unable to establish a prima facie case that the destruction ofthe material was wilful or deliberate, no show cause order was made.

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Table of Cases i

Table of Cases1340232 Ontario Inc. v St. Lawrence Seaway Management Corp., 2004 FC 209..................................27A. Paschos K. Katsikopoulos S.A. v. The “Polar” et al., 2003 FCT 584..........................................21, 37Arrow Corporation Inc. v The “Sea Tiger” et al., 2004 FC 1502.......................................................... 31Asian Exports International v Zim Israel Navigation Co. Ltd. et al., 2004 FC 225................................. 9Atlantic Yacht 7 Ship Inc. v Sovereign Yachts Inc. et al., 2003 FC 965..................................................24Berhad v The Queen, 2003 FC 992......................................................................................................... 27Berhard v Canada (The “Lantau Peak”), 2004 FC 501......................................................................... 42British Columbia v PT Car and Yacht Rental Inc., 2003 BCSC 1073.................................................... 40Brooks Aviation Inc. v Boeing SB-17G, 2004 FC 710.............................................................................40Budget Steel Ltd. v FMW Towing Ltd., 2004 FC 1140............................................................................28Budget Steel Ltd. v Seaspan International Ltd., 2003 FCT 610.............................................................. 32Byers v United Parcel Service Canada Ltd., 2004 SKPC 66.................................................................. 13C.I.B.C. v “Le Chene No. 1” et al., 2003 FC 873 affirming in part 2003 FCT 292...............................39Canadian Forest Products Ltd. v. B.C. Rail et al., 2003 BCSC 263......................................................... 9Continental Insurance Co. v Almassa International Inc., 2003 ONSC 10422.................................... 7, 37Cores Worldwide Inc. v The “Camilla” et al., 2004 FC 1160................................................................ 35Day & Ross Inc. v Beaulieu, 2005 NBCA 25...........................................................................................14Dixon v Leggat, 2003 ONCA 10101........................................................................................................ 16Dongnam Oil & Fats Co. v Chemex Ltd. et al., 2004 FC 1732...............................................................19DSL Corporation v Bulk Atlantic Inc., 2003 FC 1061............................................................................ 21Early Recovered Resources Ltd. v. Gulf Log Salvage Co-operative Association et al.,2003 FCT 549.......................................................................................................................................... 28Elders Grain Company Limited et al. v The “Ralph Misener” et al., 2004 FC 1285..............................9Elders Grain Company Limited et al. v The “Ralph Misener” et al., 2005 FCA 139affirming 2003 FC 837.............................................................................................................................. 8Elders Grain Company Limited v “Ralph Misener”, 2003 FC 1163......................................................33Fiddler Enterprises Ltd., et al v. Allied Shipbuilders Ltd., 2003 FCT 463............................................. 45Finlandia Cheese Inc. v Shoreline Shipping SA et al., 2003 FC 969...................................................... 33Fish Maker LLC v The “Zodiak” et al., 2004 FC 1057.......................................................................... 34Fish Maker LLC v The “Zodiak” et al., 2004 FC 670............................................................................ 25Ford Aquitaine Industries SAS et al. v The “Canmar Pride” et al., 2005 FC 431affirming 2004 CF 1437 ......................................................................................................................... 18Foresight Shipping Co. Ltd. v Union of India et al., 2004 FC 1501....................................................... 44

Table of Cases iiForestex Management Corp. et al. v Underwriters at Lloyds et al., 2004 FC 1303................................. 4Francosteel Canada Inc. v The “African Cape” et al., 2003 FCA 119.................................................. 33Franklin Lumber Ltd. v. The “Essington II” et al., 2005 FC 95.............................................................32Friesen v Norwegian Cruise Lines et al., 2003 BCSC 256..................................................................... 22Gartsman et al. v Elite Insurance et al., 2004 ONSC 11157.....................................................................5Gilling v Cox, 2004 FC 1743...................................................................................................................44Goodman Yachts LLC v The “Gertrude Oldendorff” et al., 2004 FC 40............................................... 34Goodman Yachts LLC v. The “Gertrude Oldendorff” et al., 2003 FCT 752..........................................46Green Computer AB v Federal Express Corp. et al., 2004 FCA 111 affirming 2003 FCT 587affirming 2002 FCT 1015........................................................................................................................ 11Gulf Log Salvage Co-Operative Assoc. v Early Recovered Resources, 2003 FCA 35..............................2Haylock et al. v Norwegian Cruise Lines, 2005 FC 501......................................................................... 31Haylock et al. v. Norwegian Cruise Lines et al., 2003 FC 932.............................................................. 30ICS Petroleum (Montreal) Ltd. v Les Dauphins du St. Laurent et al., 2005 FC 251.............................. 23Intertech Marine Limited v The “Nautica” et al., 2004 FC 1456...........................................................30Isen v Simms, 2004 FC 227................................................................................................................. 1, 17Island Tug & Barge Ltd. v. Communication, Energy and Paperworkers Union, Local 601,2003 BCCA 247......................................................................................................................................... 3Kona Concept Inc. v Guimond Boats Limited, 2005 FC 214.................................................................. 27Kusugak v Northern Transportation Co. et al., 2004 FC 1696.................................................................2Laboucane v Brooks et al., 2003 BCSC 1247............................................................................................1Magic Sportswear Corp. v OT Africa Line Ltd., 2004 FC 1165 affirming 2003 FC 1513.................... 20McAsphalt Marine Transport Limited v Liberty International Canada, 2005 ONSC 13459....................4MDSI Mobile Data Solutions Inc. v Federal Express, 2003 BCCA 9..................................................... 12Mediterranean Shipping Company SA v BPB Westroc Inc., 2003 FC 942............................................. 10Middleton et al. v Farquharson et al., 2004 BCSC 32............................................................................ 37Mil Davie Inc. v Hibernia Management and Development Co. Ltd., 2003 FCT 297..............................35N.M. Patterson & Sons Limited v The St. Lawrence Seaway Mgt. Corp., 2004 FCA 210...................... 29Nelson Marketing International v Royal and Sun Alliance Insurance, 2003 BCSC 439.......................... 6Nestle Canada Inc. v The “Viljandi” et al., 2003 FCT 28..................................................................... 20NHM Internatinal Inc. v F.C. Yachts Ltd. et al., 2003 FCT 53, 2003 FCT 373......................................26Norcan Electrical Systems Inc. v. Feeding Systems A/S et al., 2003 FCT 702....................................... 22Norgate Marine Management v. Genfreight Limited (The “Conti Will”), 2003 FCT 444..................... 25North Coast Sea Products Ltd. v. ING Insurance Company of Canada, 2004 BCCA 95affirming 2003 BCSC 592..........................................................................................................................6

Table of Cases iiiNorth King Lodge Ltd. v Gowlland Towing Ltd. et al., 2004 BCSC 460................................................ 41North King Lodge v The “Gowlland Chief” et al., 2003 BCSC 947.......................................................26Northwest Delta Yacht Services Inc. v Sovereign Yachts et al., 2004 FC 304........................................24Offrey v Ryan, 2003 FCT 35....................................................................................................................34Paine Machine Tool Inc. v Can-am West Carriers Inc., 2003 BCCA 50affirming 2001 BCSC 1633......................................................................................................................15Pan Liberty Navigation Co. Ltd. v World Link (HK) Resources Ltd., 2005 BCCA 206.........................20Parrish & Heimbecker Limited v The “Mapleglen” et al., 2004 FC 1197............................................. 35Phoenix Bio-Tech Corp. v Day & Ross Inc., 2003 ONSC 11289............................................................ 15Precision Drilling International B.V. v The “BBC Japan” et al., 2004 FC 701................................... 30Queen v The “Delta Pride” et al., 2003 FCT 11.....................................................................................16Roberts v Andrews, 2003 BCSC 1002..................................................................................................... 24Rough Bay Enterprises Ltd. v. Budden et al., 2003 BCSC 1796............................................................. 46Roxford Enterprises SA v. Cuba et al., 2003 FCT 763............................................................................43Royal Bank of Scotland PLC v The “Golden Trinity” et al., 2004 FC 795............................................ 38Sabina A.G. v Carisbrooke Shipping Limited, 2003 FCA 366................................................................ 36Sea-Link Marine Services Ltd. et al. v. Doman Forest Products Limited, 2003 FCT 712......................10Seaspan International Ltd. et al. v The Ship “Ewa”, 2004 FC 124....................................................... 29Seatech Construction Ltd. v “Inlet Challenger”, 2003 FC 1186............................................................ 30Secunda Marine Services Limited v The Queen et al., 2003 NSSC 2........................................................ 2Shooters Production Services Inc. v Arnold Bros. Transport Ltd., 2003 BCSC 92................................ 14Solway v Lloyd's Underwriters, 2005 ONSC 13407..................................................................................6Strachan v Constant Craving, 2003 FC 1175......................................................................................... 34Strachan v The “Constant Craving” et al., 2003 FCT 86.......................................................................45Thyssenkrupp Materials NA Inc. v The “Stewart Island”, 2005 FC 23..................................................29Timberwest Forest Ltd. v Gearbulk Pool Ltd. et al., 2003 BCCA 39......................................................11TJ Inspection Services v Halifax Shipyards, 2004 NSSC 181................................................................. 39TMR Energy Limited v. State Property Fund of Ukraine et al., 2005 FCA 28overruling 2003 FC 1517........................................................................................................................ 43Trans-Pacific Shipping Co. v Atlantic & Orient Trust Co. Ltd. et al., 2005 FC 311................................ 3Trident Freight Logistics Ltd. v Meyer’s Sheet Metal Ltd., 2003 BCCA 342overruling 2002 BCSC 729......................................................................................................................16Valentino Gennarini SRL v. Andromeda Navigation Inc., 2003 FCT 567.............................................. 36Valmet Paper Machinery Inc. v Hapag-Lloyd AG, 2004 BCCA 518 affirming 2002 BCSC 868............13Vilhena Shipping Ltd. v Aro-hall Ltd., 2003 FCT 756............................................................................ 22

Table of Cases ivVukorep v Bartulin, 2005 BCCA 142...................................................................................................... 17Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27..........................................................................18Zhoushan Zhongchang Shipping Co. v The “Otello Manship” et al., 2004 FC 1181affirming 2004 FC 1135 ......................................................................................................................... 25