Recent Federal Court Decisions of Interest to Insurers
and Transportation Providers
The Arrest Remedy: Paramount Enterprises International,
Inc. v. An Xin Jiang (The),  F.C.J No. 2066 (F.C.A.)
Arresting marine property is an excellent way to obtain
security for payment of claims, in the appropriate case. Marine
vessel and cargo arrest is a statutory remedy available in Canada
only in the Federal Court, under section 43 of the Federal Court
Act. Arrest of vessels and cargo will result in costly delays.
Ocean going vessels charter for thousands of dollars per day so
the possibility that the vessel may be arrested often encourages
potentially liable parties to pay money into court to avoid arrest
or in discharge of arrest orders. Where arrest is available, an
insurer or transportation provider can proceed with a claim knowing
that there will be money to satisfy some or all of a judgment.
The decision in The An Xin Jiang deals with
the scope of the arrest remedy. It makes it clear that the arrest
remedy is not the equivalent of a Mareva injunction nor is it an
all purpose method of forcing ship or cargo interests to post security
to avoid arrest. It provides that the arrest remedy is restricted
to claims that, in a relevant sense, involve the ship or cargo sought
to be arrested. The arrest remedy is limited to situations of damage
to cargo caused by the state of the ship or the conduct of the crew
(where the owner is also in some way personally liable), damage
to the ship caused by the state of the cargo, collision, contracts
for the provision of services to the ship, and the other traditionally
recognized categories of in rem claims. However, the remedy
is not available just because the ship owners or charterers, or
cargo owners, have some (potential) liability to the plaintiff arising
out of events not related to the cargo or ship sought to be arrested.
In The An Xin Jiang, the charterers, Paramount
Enterprises, and the shipper, Beston Chemical Corporation Inc. (and
others) had agreed on a charter party for carriage of a cargo of
explosives from the port in China to Grande Anse, Quebec. The cargo
was to be carried aboard the ship "Len Speer." However,
for unknown reasons, the shipper did not have the cargo loaded aboard
the "Len Speer;" instead, had the cargo loaded aboard
another vessel, the "An Xin Jiang".
Paramount sued alleging breach of charter party and
wrongful interference with contractual relations. Warrants of arrest
were issued against the cargo and the ship. The ship owners and
cargo owners each sought orders from the Federal Court setting aside
the warrants.. The case eventually reached the Federal Court of
Appeal. The Court held that while an allegation of personal liability
of the owner of a ship or cargo is required before the ship or cargo
can be arrested, the mere fact of the owner's (potential) liability
is not sufficient for the arrest of the vessel. There must be some
non-fortuitous connection between the vessel or cargo sought to
be arrested and the dispute producing the litigation before arrest
of vessel or cargo is permitted. The Court held that, in this case,
the nexus between the ship, the cargo and the cause of action (the
claim for damages by the charterers of the "Len Speer"
) was merely fortuitous.
The "An Xin Jiang" had not been involved
in the incident giving rise to the litigation in any way that that
the Court held was significant. That it was now carrying the cargo
was not significant, according to the Court, because the breach
of the charter party (if it was a breach) was complete when the
shippers informed the plaintiffs that the cargo would not be carried
The "An Xin Jiang" was merely the ship that
ended up carrying the cargo. The vessel was not, herself, involved
in the breach.
Similarly, the cargo was not itself involved in the
incident in a relevant sense. It was merely the cargo that was supposed
to have been loaded on the "Len Speer". That, of itself,
was not sufficient to create the required nexus.
Pantainer Ltd. v. 996660 Ontario Ltd.
 F.C.J. No. 334 (Q.L.)
Every transportation provider that has ever commenced
proceedings for unpaid freight has been faced with a claim for set-off
(meritorious or otherwise), usually for cargo damage.
In Pantainer, the Federal Court Trial Division
confirmed that set-off is no defence to a claim for freight charges
under Canadian law.
In Pantainer, the plaintiff transportation provider
had arranged for ocean shipment of a cargo of pasta. The freight
charges for the shipment were unpaid. When the transportation provider
claimed for freight, the defendant raised a set-off for damage to
Considering whether set-off constituted a defence
to a claim for freight charges, Justice Teitlebaum held that unless
parties specifically contract out of the general rule to the effect
that freight is to be paid when due, without deduction, set-off
cannot be raised as a defence to claim for freight charges.
Anraj Fish Products Industries Ltd. v. Hyundai
Merchant Marine Co.,  F.C.J. No. 944
Both the business of providing transportation and
the business of providing cargo and hull insurance are necessarily
international. Choosing the jurisdiction in which claims are to
be commenced can significantly influence both the cost of proceedings
and the predictability of the result, for carriers and insurers
In the recent case of Anraj Fish Products,
the Federal Court of Appeal upheld the decision of a Prothonotary
to enforce a jurisdiction clause in a contract of carriage requiring
that proceedings be commenced in Korea. The Federal Court held that
jurisdiction clauses will be enforced unless the party seeking to
avoid the clause can show strong reasons (such as a serious prejudice
or unfairness that would result) before a court will refuse to enforce
a jurisdiction clause.
Z.I. Pompey Industry v. Ecu-Line N.V.,
 F.C.J. No. 96
The limitations of liability imposed under the Hague-Visby
Rules significantly affect the amount that can be recovered in subrogated
actions for cargo damage. The limitations often provide a significant
protection to transportation providers.
Before the decision of the Supreme Court of Canada
in Hunter Engineering v. Syncrude, the doctrine of fundamental
breach gave claimants a way to avoid onerous limitation of liability
clauses, if it could be established that there had been a breach
of contract so significant that the complaining party had been deprived
of the entire benefit of the contract. Since Hunter v. Syncrude,
limitation and exemption clauses have been enforce unless it can
be established that enforcement of the clause would be unconscionable.
The doctrine of fundamental breach seems to survive
in maritime law. If there is deviation from the route specified
in a contract of carriage or a unilateral change in the mode of
The facts at issue in Z.I. Pompey v. Ecu-Line involved shipment of a contract for carriage of two crates of cargo
from Anvers, Belgium, to Seattle. Instead of shipping the goods
from port to port by sea as agreed, the carrier travelled from Anvers
to Montreal and had the goods shipped west by rail.
While the reasoning of the Court of Appeal in Z.I.
Pompey v. Ecu-Line focuses largely on the standard of review to
be applied by appellate tribunals in reviewing the decisions of
lower courts, the Court of Appeal upheld the prothonotary's decision,
and the prothonotary's decision included a finding that there had
been a fundamental breach.
The Z.I. Pompey case thus suggests, indirectly, that
some form of the doctrine of fundamental breach survives in Canadian
federal law, and allows cargo interests to avoid contractual limitations
of liability where a carrier has unilaterally deviated from an agreed
Governor of the Bank of Scotland v. The Nel,
 1 F.C. 408;  F.C.J. No. 1305 (F.C.T.D., Prothonotary)
The Nel was a Cypriot bulk and container carrier.
The bank of Scotland held a mortgage against the Nel, and had the
Nel arrested in Vancouver when the mortgage went into default, and
she was sold for $5,000,000.00. The value of the mortgage was much
greater than the amount realized by the sale, and there were maritime
lien claims by bunker suppliers claiming under the provisions of
foreign laws (United States, Panamanian and Greek) for maritime
liens ranking in priority ahead of the claim of the mortgagee.
This case provides an up-to-date review of the ranking
of Maritime liens and claims at Canadian law, and a discussion of
the circumstances under which a Court may deviate from the usual
ranking of maritime claims to give a statutory claim in rem priority over the claim of a mortgagee to avoid an inequitable result.
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