OCTOBER 2006

SUPREME COURT OF CANADA NARROWS SCOPE OF APPLICATION OF FEDERAL MARITIME LAW

On October 5th, 2006 the Supreme Court of Canada released its anticipated decision in Isen v. Simms 2006 SCC 41 and for the first time in a number of years narrowed the scope of the application of Canadian maritime law. Dr. Stephen Simms suffered personal injuries when the metal hook at the end of a bungee cord struck him in the eye. The incident occurred while the respondent Isen was using the bungee cord to secure a part of his boat prior to towing it on the highway.

The dispute was whether Mr. Isen could claim the benefit of the limitation of liability provisions contained in the Canada Shipping Act (now in s. 28 of the Marine Liability Act) of $1,000,000.

The Federal Court of Appeal in a 2 to 1 decision had held that the negligent acts giving rise to the accident were governed by Canadian maritime law and that the limitation provisions of the Canada Shipping Act were applicable. Justice Nadon had held that "the launching of a pleasure boat into the lake and its removal from the water after a day of navigation constitute land-based activities that are sufficiently connected with pleasure craft navigation" to bring the matter within the ambit of maritime law.

The Supreme Court of Canada reversed the Federal Court of Appeal. Justice Rothstein stated that the question of whether a claim falls within the ambit of federal maritime law, i.e. navigation and shipping, involves an examination of the factual context of the claim. In dealing with whether the federal Parliament had jurisdiction over pleasure craft, The court stated:
"Parliament does not have jurisdiction over pleasure craft per se. The mere involvement of a pleasure craft in an incident is not sufficient to ground Parliament's jurisdiction. Rather, in cases such as this, a court must look at the allegedly negligent acts and determine whether that activity is integrally connected to the act of navigating the pleasure craft on Canadian waterways such that it is practically necessary for Parliament to have jurisdiction over the matter. Given that the focus is on the acts that form the basis of the negligence claim, where or when those acts occurred is not determinative.

Nadon J.A. pointed out that pleasure craft will, as a matter of course, be removed from the water. I agree with him that the launching of pleasure craft and their removal from the water are matters that fall within Parliament's jurisdiction over navigation. These acts are necessary for and may involve the navigation of such craft in Canadian waters. A uniform federal law respecting the launching and removal of pleasure craft is practically necessary as such activities can pose a hazard to and interfere with the navigation of other vessels using the waterway. Moreover, the standard of care applicable to these acts, whether it arises from boating regulations or negligence law, is unique to the maritime context.

However, I am unable to agree with Nadon J.A. that the securing of the engine cover was a part of the removal process. The actions of the respondent had nothing to do with navigation of the boat on water and everything to do with preparing the boat to be transported on Ontario's highways. Once the boat was being secured for highway transport it was no different than any other type of cargo that is transported on the highway. It is the provincial legislatures that have jurisdiction over the carriage of cargo on provincial highways. The fact that the cargo is a boat does not bring under federal law a matter that is, in pith and substance, subject to provincial law." [Emphasis added]

Justice Rothstein then went on to find that the injury was caused on land by a person who was neither on the boat nor in the water. There was no contract of carriage for the goods by sea. There was no issue as to the seaworthiness of the ship. There was no in rem proceeding. There were no specialized admiralty laws, rules, principles or practices applicable. The accident had nothing to do with navigation nor with shipping. "There is no practical necessity for a uniform federal law prescribing how to secure the engine cover from flapping in the wind when a pleasure craft is transported on land in a boat trailer. The fact the vessel had just come out of the water was not enough to constitute an integral connection with navigation and shipping.

~ Rui M. Fernandes

THE SEARCH FOR COMITY IN INTERNATIONAL FREIGHT CLAIMS: MAGIC SPORTSWEAR CORP. V. OT AFRICA LINE

In an international economy, it is inevitable that the courts of various nations will be drawn into disputes over jurisdiction. This problem is of particular concern in the transportation industry, where contracts often necessarily involve parties resident in different localities. As there are few international standards on jurisdiction, it is up to the court of each forum to decide when and if they should take jurisdiction over an action. Absent any international agreement, Canadian courts are obliged to turn to common law conflicts of laws principles in reaching these difficult decisions, and in doing so run the risk that the court of another locality will also impose its jurisdiction over a particular case. This was a problem in the recent Federal Court of Appeal case of Magic Sportswear Corp. v. OT Africa Line Ltd. [2006] F.C..J. No. 1292 (hereinafter referred to as "OT Africa").

In OT Africa, there had been a loss of cargo while in transit, and the insurers of the cargo pursued the claim on a subrogated basis. The bill of lading was issued in Toronto, where the insurers were based. These were the only connections that the shipment had to Canada. The bill of lading contained an English choice of law clause, for disputes arising under the bill of lading to be resolved by the English courts. Despite this clause, the shippers chose to commence their action in Canada, and the carriers sought to restrain the action by seeking an anti-suit injunction in London. The English Court of Appeal upheld the anti-suit injunction, and the House of Lords dismissed the petition for leave to appeal. It was then up to the Canadian Federal Court, to decide whether it should also take jurisdiction as the proper forum to hear the case.

Decisions such as this one are necessarily complex. If the Canadian court were to impose its jurisdiction on the proceedings after the English House of Lords had already done so, there would be parallel proceedings, the possibility of inconsistent results, and a breakdown of international comity. Comity is a principle of customary international law whereby the courts of one nation recognize the validity of the legal acts of other nations. Under this principle, if Canadian courts respect the acts of other nations, presumably the courts of other nations will in turn respect the acts of Canadian courts. If Canadian courts were to take jurisdiction over a matter despite an English court already having done so, it is unlikely that the English court would respect any resulting Canadian decision, or assist in its enforcement. Over the long term, this could lead to a struggle between nations, and could create commercial difficulties in areas such as transportation, where there must be a sufficient level of certainty over the applicable law and jurisdiction for disputes. Conversely, there are concerns that Canada should not cede its sovereignty by allowing other nations to dictate what disputes Canadian courts can decide. As such, it is important that in ceding its jurisdiction, the Canadian Federal Court of Appeal properly applied conflicts of laws principles in a way that is consistent with Canadian law.

In OT Africa, the shippers claimed that they had the ability to bring an action in Canada under section 46(1) of the Marine Liability Act. This section states that: "a claimant may institute judicial or arbitral proceedings…in Canada…if the contract had referred the claim to Canada, where…" the port of loading or discharge (actual or intended) is in Canada, the defendant resides, has a place of business, branch or agency in Canada, or the contract was made in Canada. The Federal Court of Appeal emphasized that while the clause enabled the action to be brought in Canada, it did not require that the action be brought here. Canadian courts have the jurisdiction to decide when another forum is more appropriate to hear an action, both under the common law conflicts of laws principles, and under the jurisdiction afforded to the court under Federal Courts Act. Clearly, the most appropriate forum, with the greatest connection to the case should be the one to take jurisdiction. A court should not be compelled to take jurisdiction simply because a carrier has an office in Toronto, in an age when carriers often have offices across the globe. Forcing the court to hear an issue when the relevant witnesses are elsewhere, and the law is of another nation is to be applied, can only lead to increased costs and the development of bad law, based on poorly understood principles.

Rather, Section 46(1) of the Marine Liability Act is a permissive statute that allows the court to bypass a consideration of whether the court has a real and substantial connection to the issue. It does not preclude a decision that another jurisdiction should hear the action, if it is better suited to do so, and has a better connection to the issue.

The Federal Court of Appeal considered whether the English court was the more appropriate forum to hear the case. In doing so, the court considered that the policy goals of international comity, avoiding parallel proceedings and the desire to have judgments internationally recognized required that the court cede jurisdiction to the forum with the greatest connection to the case.

In deciding which court was the proper forum, English or Canadian, the court considered both the facts of the case, and that the English courts had already taken jurisdiction. However, the court noted that the foreign decision was not determinative of the issue in Canada. Rather, the court focused on the facts of the case. Firstly, the consignees, goods, shippers, ports of loading and discharge had no connection to Canada. Secondly, the witnesses and evidence were not located in Canada and the assets of the carrier were in London. Thirdly, if the action was heard in Canada, English law would have to be applied by the Canadian court, given that it was the law applicable to the dispute. Canadian courts are not ideally placed to decide foreign law. Fourthly, both parties to the contract of carriage had accepted the English jurisdiction clause on the bill of lading and courts generally will give significant weight to freely contracted choice of law terms. Lastly, any Canadian judgment would need to be enforced in London, which would likely be difficult given that an anti-suit injunction had already been pronounced. As such, the interests of justice actually militated against proceeding in Canada.

In the end, the Federal Court of Appeal found that London was a more convenient forum to hear the action. This decision made commercial sense according to the facts. However, deciding these cases piecemeal, with multiple nations fighting over jurisdiction does not make sense in a global economy. One can foresee a case where the courts of two nations would be equally placed to hear the action. In order to avoid inconsistency, there must be further movement toward standard conflict of laws rules that apply to the international commercial disputes. Courts increasingly have to consider international corporations and contracts that span multiple nations. It simply does not make economic sense to have multiple proceedings, or allow parties to "forum shop" by commencing lawsuits in jurisdictions offering the most advantageous law. Further, judgments are frequently registered extra-territorially. This registration system will break down if courts do not work together to decide what rules should apply to international conflicts. By having multiple proceedings and decisions, only confusion and wasted resources will result, with little hope of ultimate recovery.

~ Cynthia Verconich

MORE FORUM SHOPPING DENIED

Fernandes Hearn LLP lawyers Rui Fernandes and Demetrios Yiokaris were successful recently in having an action stayed in the Ontario courts for lack of jurisdiction and forum non conveniens.

In Kennedy v. Hughes 2006 CanLII 32996, Mr. and Mrs. Kennedy purchased a home in Massachusetts utilizing a Massachusetts real estate broker (Mrs. Hughes) and lawyer (Mr. Hughes) in Massachusetts. Mr. Kennedy had been transferred by his employer from Oakville Ontario to Norwell Massachusetts. Mr. Kennedy was diagnosed with lung cancer in January 2003 and returned to Ontario. He died in June 2003. The Kennedys alleged that radon gas exposure in the Massachusetts home between 1997 and 1998 caused Mr. Kennedy's lung cancer. An action was brought against both Hughes for negligence and negligent misrepresentation in failing to warn of the potential of radon gas and closing the transaction without an inspection. The defendants brought an application to stay the action on the ground that the court had no jurisdiction to hear the action and on the basis of forum non conveniens. The defendants were successful on both grounds. The court found that there was no "real and substantial" connection with Ontario. "The core of this action lies in Massachusetts. The factors against assuming jurisdiction outweigh those in favour of assuming jurisdiction." The court further added "Jurisdiction over a foreign defendant for acts done in a foreign country injuring an Ontario resident ought not to depend on when, or where, damages arose, even if a plaintiff could argue that Ontario law should apply because the damages did not manifest themselves until the plaintiff resided in Ontario."

The fact that the action was time barred in Massachusetts was not determinative. The plaintiffs were given full notice of the defendant's position well before the expiration of the Massachusetts limitation period, had ample time to consider an action in Massachusetts, and retained Massachusetts counsel for advice.

The court also found that the time bar in Massachusetts was only one factor to be taken into account in a forum non conveniens argument. The court found that the majority of witnesses were in Massachusetts and the bulk of the evidence was to come from Massachusetts.

~ Rui Fernandes