June 2007

TWO SUPREME COURT OF CANADA CASES OF IMPORTANCE

1. Supreme Court of Canada: Arrest of Cargo - Phoenix Bulk Carriers Ltd. v. Kremikovtzi Trade 2007 SCC 13: This recent decision involved the arrest of a shipment of coal on a vessel. In Canada the Federal Court of Canada Rules allow the arrest of "property that is the subject of an action." The court rejected the "physical nexus" interpretation of this section in favour of the "identifiability" approach. The cargo arrested was supposed to be cargo for a particular vessel but was loaded on a competitor's ship. In applying the "identifiability" test a court asks whether the cargo is the cargo designated in the contract of affreightment alleged to be breached. Applying this approach the court had no problem in confirming the arrest of the cargo was valid. The fact that it was not on the vessel specified in the contract ("the physical nexus" approach) did not make the arrest invalid.

2. Supreme Court of Canada: Rail Carriage and Disability - Council of Canadians with Disabilities v. Via Rail Canada Inc., 2007 SCC 15: The Canadian Transportation Agency ordered VIA Rail to modify 13 economy coach cars and 17 service cars to make them personal wheelchair accessible. The issue at the hearing was whether this accommodation imposed undue hardship on VIA Rail and whether the Agency's decision ordering VIA Rail to retrofit some of its newly purchased cars was patently unreasonable. In a 5-4 decision the Supreme Court of Canada held that the standard of care applicable to the Agency's decision as a whole is patent unreasonableness.
The court stated "Section 5 of the Canada Transportation Act, together with s. 172(1), constitute a legislative direction to the Agency to determine if there is an "undue obstacle" to the mobility of persons with disabilities. Section 5(g)(ii) of the Act states that it is essential that "each carrier or mode of transportation, as far as is practicable, carries traffic to or from any point in Canada under fares, rates and conditions that do not constitute an undue obstacle to the mobility of persons, including persons with disabilities". The Agency's authority to identify and remedy "undue obstacles" to the mobility of persons with disabilities requires that it implement the principle that persons with disabilities are entitled to the elimination of "undue" or "unreasonable" barriers, namely those barriers that cannot be justified under human rights principles."
The court further added "The Agency uniquely has the specialized expertise to balance the requirements of those with disabilities with the practical realities - financial, structural and logistic - of a federal transportation system."
The court found that where an expert tribunal has charted an appropriate analytical course for itself, with reasons that serve as a rational guide, a reviewing court should not lightly interfere with the tribunal's interpretation and application of its enabling legislation. Here, the Agency interpreted its authority to proceed with appellants' complaint under s. 172(1) in a manner that was rationally supported by the relevant legislation. It also defined the analytical process to be followed in identifying undue obstacles in the federal transportation network in a way that is supported by the Agency and human rights jurisprudence. Viewed as a whole, the Agency's reasons showed that it approached and applied its mandate reasonably.

Rui Fernandes

CORNSTARCH AND SEAWEED DON'T MIX: THE SHIPPER, THE CONSOLIDATOR, THE FREIGHT FORWARDER AND THE CARRIER: HIGWAY FREIGHT SYSTEMS LIMITED V. EMO TRANS (CANADA) FREIGHT LIMITED

The recent decision of the Ontario Superior Court in Highway Freight Systems Limited v. EMO Trans (Canada) Freight Limitedⁱ highlights how the common law of Ontario regards the duties and standard of care of the freight forwarding agent.

The "Comedy of Errors"

Highway Freight Systems Limited ("Highway Freight") is a freight forwarder operating in the Toronto area. As a part of its business, it has a warehouse and cargo consolidation operation. In August, 2004, one of its customers, Nacan Products Limited ("Nacan") hired Highway Freight to ship a load of cornstarch being stored in the latter's warehouse to Nacan's customer in Saskatoon, Saskatchewan.

In or about the same time, another customer of Highway Freight, Gum Products, asked it to load a shipment of seaweed stored in the Highway Freight facility into a container to be "spotted" at that warehouse. This shipment of seaweed was destined for a buyer in Germany. The container in which the Gum Products seaweed was to be carried was delivered to Highway Freight pursuant to arrangements made by its logistics provider being a freight forwarder named EMO Trans (Canada) Freight Limited ("EMO").

Employees of Highway Freight erred in loading the cornstarch into the container intended for the carriage of the seaweed. By the time that this error was discovered, the cornstarch (intended for Saskatoon) was on a railcar traveling to the Port of Montreal to be laden onto a vessel for carriage to Germany.

In the bizarre tale that follows, EMO will find itself as a defendant.

Highway Freight had to do something. It sought the intervention of EMO who had been involved (through its logistics mandate) in arranging the various carriers by which the container of seaweed was to be carried to Germany. Thus, EMO seemed to be a logical entity for Highway Freight to turn to. EMO informed Highway Freight that the first interception could only be upon the arrival of the container at Montreal, and that the cornstarch shipment could then be returned to the Toronto origin rail yard the following week.

Were the container of cornstarch simply rerouted back "home" after arrival at Montreal, this article would not have been written. For the moment, all seemed happy, with Highway Freight confirming to EMO that the former would pay for all return freight charges back to Toronto. However, the mood turned when it was learned that the container could not be easily accessed at the Montreal wharf facility that it had been delivered to, it being landlocked by other containers. A charge of $50.00 would be assessed by stevedores on a per container basis to move various containers to gain ready access to that containing the cornstarch. Accordingly, Highway Freight decided to wait until those containers impeding access were moved in their normal course of handling for the cornstarch container to be accessed for return to Toronto.

Unfortunately, contrary to this plan, the stevedores at Montreal loaded the container onto a vessel bound for Germany, operated by Mediterranean Steamship Company ("MSC"). Upon learning of this development, EMO tracked the container and it made arrangements for the same to remain on the vessel upon her call at the German port. The container was accordingly returned to the Montreal port, and on-carried by rail to the origin Toronto rail yard, arriving some six weeks after its initial escape from the Highway Freight warehouse.

Unfortunately, the usual manifest documentation (generated by MSC), indicating what cargo was "arriving" at Canada referenced the seaweed (as per the original voyage intention) instead of the actual contents being the cornstarch. As such, there was a conflict between that manifest and the Canada Customs invoice documentation as had been provided by Narcan (as shipper of the cornstarch), to facilitate its re-entry. This contradiction in documents delayed customs clearance and caused another couple of months worth of delays in the return of the cornstarch to Highway Freight. Demurrage charges started to mount at the Toronto rail terminal where the container was "held up" as there arose an impasse between Highway Freight and EMO as to who had to take the lead in clearing up the confusion with Canada Customs as to what was in the container. The plaintiff wanted EMO to fix the problem given that the immediate issue emanated from the incorrect MSC documentation, MSC having been engaged for the original seaweed carriage by EMO. Highway Freight argued that EMO was the exporter of record for the container and that it had an obligation to correct the record for the eventual import with Canada Customs. For its part, EMO took the position that the import clearance of the shipment was not its responsibility, being that of the importers who would be consuming or disposing of same namely, Highway Freight or Nacan. EMO cited its efforts in trying to convince MSC to waive the ocean freight charges with MSC ultimately only charging a modest amount for ocean freight. The "insult to injury" in the eyes of Nacan and Highway Freight arose with the reality that in order to complete the customs clearance process they had to undertake and guarantee the payment of demurrage and other handling charges incurred as a result of the aforesaid delays, which ultimately totaled over $15,000.00.

Highway Freight commenced an action against EMO, blaming EMO for the problems that caused the delays and, consequently, seeking relief for the monies paid.

The Ontario Superior Court of Justice

The matter culminated in litigation in the Ontario Superior Court of Justice, with Highway Freight seeking damages from EMO. This claim included claims for the ocean freight paid as well as the demurrage charges for the container while remaining at the rail yard at Toronto while matters were being worked out with customs.

EMO defended on the basis that it was only a voluntary intermediary between Highway Freight and MSC in the steps being taken to return the container of cornstarch. EMO maintained that it acted reasonably in locating the container, where it had ended up initially at the Port of Montreal and in creating and providing the option to Highway Freight that the container could be "dug out" of the export pile (at the aforementioned cost). EMO argued that Highway Freight was the author of its misfortune in both the original error and in its decision to wait for the normal course extrication of the container. EMO protested that it instructed MSC that there would be no bill of lading instruction for the container as it was to be returned to Toronto, only to thereafter learn that the container had been mistakenly loaded onto the steamship headed for Germany. EMO further cited the steps taken to track the container and that it forwarded the MSC arrival notice documentation to Highway Freight. EMO also cited the "normal practice" that upon the arrival of an import container, and the provision of the steamship lines' "arrival notice" it is then the responsibility of the cargo owner and/or their customs broker to attend to the necessary clearances from Canada Customs.

Thus, the essential dispute then turned to the plaintiff arguing that EMO "dropped the ball" with the incorrect MSC documentation and the failure to facilitate the customs clearance, while EMO argued that it had no obligations in that regard. The plaintiff admitted at trial that it was looking to EMO as a "last resort" while the crisis grew, preferring to involve EMO as the solution rather than forcing the involvement of its customer, Nacan, by virtue of the sequence of events having initially unfolded by virtue of its own error.

The plaintiff essentially argued that EMO owed it a duty of care, in having assumed the duty to make arrangements for the cornstarch or that alternatively, EMO had assumed a contractual obligation for the redelivery of the cornstarch, it having had a direct relationship with MSC.

Analysis of the Obligations of EMO as the Freight Forwarding Agent

Freight forwarders are not regulated in Canada, and therefore the duty of care and expectations of the logistics professional are a function of developing standards of care as developed in the case law. Where freight forwarders act as "principals", or in effect "contracting carriers", their duties of care and their obligations are then framed by the rules binding carriers in the particular mode of carriage in question.

The term "freight forwarder" is not defined by statute in Canada, however the label is generally applied to one facilitating the movement of freight, acting either as an agent or as a principal placed between the shipper/customer (or consignee/customer, as may be the case) and the actual "performing carrier". As such, the freight forwarder might in a particular case be a "contracting carrier", or it may only act as a true agent, the latter not assuming responsibility of for delivery of cargo to destination. In this particular case, EMO never issued a bill of lading or any other transportation document as concerned the carriage of any cargo belonging to Nacan and, as such, it was not alleged that it failed as a carrier. As such, the court's analysis proceeded on the basis of analyzing what the obligations are of the "freight forwarder agent", which more readily fit the EMO mold, relative to the plaintiff's allegations.

In this regard, the plaintiff cited the leading case law precedent in Ontario on point of Al-Qahtani-Shaw-Leonard Ltd. v. Cross World Freight Ltd.ⁱⁱ, which reasons for judgment incorporated the earlier decision of Rowlett L.J. in Jones v. European & General Express Companyⁱⁱⁱ :

It must be clearly understood that a forwarding agent is not a carrier; he does not obtain possession of the goods; he does not undertake the delivery of them at the other end, unless prevented by some accepted cause of loss or something which affords an excuse. All that he does is to act as an agent for the owner of the goods, to make arrangements with the people who carry - steamships, railways and so on - and to make arrangements, so far as they are necessary, for the immediate steps between ship and the rail, the customs, or anything else; so that the liability of the defendants, if there is any, depends on their failing - if they have failed - to carry out those duties which I have thus described.^iv

In the Al-Qahtani-Shaw-Leonard Ltd. decision, the Ontario Court ruled that the duty of the freight forwarder was then to "make arrangements on behalf of the shipper for the carriage of goods. Included within this responsibility are any additional duties taken on by the freight forwarder, explicitly, such as the preparation of necessary customs documentation and the duty which is that of any agent to follow the instructions of its principal."

The judge in this decision nicely cited the reality that "legal principles are easily stated in the abstract. Intelligently applied, however, they have to be read and understood in context". Quite simply, did EMO breach any standard, or fail to do something, as a freight forwarder agent?

EMO protested liability on the following basis:

1. There was no contract, express or implied, between Nacan or Highway Freight and itself;
   
   
2. There was no relationship between Nacan or Highway Freight and itself giving rise to a duty of care, EMO in effect arguing that it was cast in the role of a "Good Samaritan" in regards of which it acted reasonably;
   
   
3. It was the plaintiff's error that set the whole series of events in motion;
   
   
4. The plaintiff had the opportunity of extricating the container from the Montreal container facility when it had the earliest opportunity to do so, but opted otherwise;
   
   
5. There were unforeseeable and uncontrollable events thereafter taking shape, in the errors of the Montreal stevedores loading the container onto the ship, and in the incorrect completion of the manifest by MSC as to the contents of the container for importation back into Canada;
   
   
6. The redelivery back to the Toronto warehouse was ultimately resolved by the plaintiff and/or Nacan who both always had the responsibility of facilitating the importation of the shipment as well as the ability to mitigate the situation.

The Ruling

The court agreed with EMO's defence that the facts of the case could not support an action either in contract or in tort. Clearly, the "optics" of this case did not favour the plaintiff. It was the plaintiff's error that set the events in motion and the plaintiff had an opportunity early on to "save" the container at the Montreal yard facility but chose not to. There were then the further unforeseen developments in the mistaken shipment of the container to Germany and the incorrect documentation for which it would be unfair and remote to hold EMO accountable. Quite simply, EMO was seen to have acted over and beyond the call of any duty, working diligently to keep the plaintiff informed with information as to the status of the container as soon as that information became available.

Ultimately, what worked against the plaintiff in this case, was the fact that it always enjoyed an element of control over the equation and that it could have taken more timely steps to prevent the loss in question but chose not to. However, the court did not have to resort to causation principles in this regard in exonerating EMO, it being found that EMO did not have a contract nor did it create a duty of care in effectively acting as a "Good Samaritan". While the Al-Qahtani-Shaw-Leonard Ltd. cited above remains valid precedent, it speaks to cases where there is privity and proximity between the parties, governed by a written agreement setting out in considerable detail what is expected of the freight forwarder agent. In this case, to quote the trial judge, EMO was at most a "Good Samaritan spectator to a series of events of other's creation" and to fix EMO with liability would "require the creation of a new category of legal obligation". Accordingly, the action was dismissed.

This case underscores the importance of the parties to any transaction clearly identifying their obligations and the involvement of others, and the reality that courts may only find that reasonable reliance was placed on others in the performance of clearly defined functions.

Gordon Hearn

i. (2007) Can. LII 11722.
ii. [1987] 60 O.R. (2d) 565 (Ont. H.C.) at para. 71-72.
iii. (1920), 90 L.J.K.B. 159-160.
iv. It is clear from the year of this case (1920) that this is very much an analysis of the nature of the historical and conventional freight forwarding agency, before the advent of "3PLs" or, in the ocean context, Non-Vessel Operating Common Carriers (NVOCC).