In this issue:
1. Aviation: Lukacs v. United Airlines Inc. and Skywest Airlines
Inc. (2009 MBQB 29) Court of Queen's Bench, Manitoba
2. Update on Timberwest Forest Corp. v. Pacific Link Ocean Services
3. Application of Section 17 Athens Convention
4. What rights are you giving up in signing that release?
1. Aviation: Lukacs v. United Airlines Inc. and Skywest Airlines
Inc. (2009 MBQB 29) Court of Queen's Bench, Manitoba
The plaintiff in this case is a professor
of mathematics, who was booked on a United Airlines ("United")
flight to travel from Winnipeg, Manitoba to Columbus, Ohio. This
required making a connection in Chicago. The purpose for the trip
was to attend an academic conference at Ohio University in Athens,
Ohio. The opening day of the conference was the event of primary
interest to the plaintiff. The travel itinerary was planned such
that the plaintiff would arrive in time for the opening of the conference.
The first leg flight (Winnipeg to
Chicago) was however cancelled on account of mechanical failure.
The plaintiff's options were limited. The next United Airlines flight
to Chicago was scheduled to depart the next morning, which would
have meant that the plaintiff would miss the opening day of the
conference. The plaintiff declined a ticket on that next morning
flight as that timing would frustrate his reason for attending the
conference. Other possible options were not presented or offered
to the plaintiff. Arrangements could not be timely made to endorse
the plaintiff's ticket to accommodate him on a competitor flight
from Winnipeg to Chicago. The plaintiff simply went home, and missed
The plaintiff filed a claim for "delay"
[in carriage of himself as a passenger] against United. United provided
the plaintiff a full refund of his ticket price and [without prejudice
to question of liability} also conceded responsibility for certain
ground transportation charges [$80.00] involved with the plaintiff
attending at and returning from the Winnipeg airport in connection
with the cancelled flight.
The plaintiff brought litigation seeking
other heads of damages. He claimed $1,000.00 in damages for "inconvenience
and mental anguish" and $5,000.00 for "missed academic,
research and learning opportunities". This decision involved
the court's determination as to whether United was liable for "delay"
in the carriage of Mr. Lukacs, and, if so, for which amongst certain
types of damages being claimed. This decision involved a revisiting
of Article 19 of the Montreal Convention which provides that "the carrier is liable for damage caused by delay
(which) shall not be liable if it proves that it took all measures
that could be reasonably required to avoid the damage
The litigation presented four discrete
questions that had to be addressed by the court:
1. Were the damages claimed occasioned
by a "delay in the carriage of a passenger?" [so as to
invoke, and be covered by, the Montreal Convention Regime?]
2. Did the defendant take all measures
that could be reasonably required to avoid damages? [Specifically,
is United 'liable' for damages under the regime, for the delay?]
3. If United is liable, does Article
19 of the Montreal Convention permit the granting of general
damages for "inconvenience, anxiety and mental anguish"?
4. If United is liable, is the claim
for "missed academic, research and learning opportunities"
to be characterized as a special or general damage claim? In essence,
is it a recognized head of damages that can be recovered under the
As to the first question, the court
rejected the first defence led by the airline that there was no
"delay", as a matter of fact. United had argued that,
as the plaintiff was offered a substitute flight the next morning,
but had refused this option, there was no 'delay'; that is, the
effective cause of any problems alleged being the plaintiff not
exercising this alternative. The court had little difficulty finding
that there was a delay in the air transit, with or without
the offer of the ticket for the next day flight, given the plaintiffs
stated purpose of travel, being to attend the first day of the conference.
(It is interesting to note there was no apparently no defence led
of "remoteness" in this regard - or at least this did
not work its way into the reasons for judgment). [Note: "reasons
for judgment, in Canada, being the same thing as the Court's "opinion"
south of the border].
As to the second question, the court
found that United did not take all reasonable steps required to
avoid the damages. The specific facts of the case were canvassed
in the reasons for judgment with the court being critical of United
in various respects. The court found that the plaintiff's problems
in the delay in the first instance were caused by United being unable
to timely carry the plaintiff on the scheduled flight, on account
of not having appropriate aircraft on hand for the purpose. United
did not lead evidence of exactly what had gone wrong, nor did it
lead evidence as to why [consistent with any reasonable business
model] a replacement aircraft could not be sourced from a nearby
hub [such as Chicago]. This lack of evidence left the door open
for the court to find that reasonable measures were not taken to
prevent the losses complained of. Reviewing the facts of the case,
the court found that United did not take reasonable steps to avoid
the problem of Mr. Lukacs not being able to attend the opening day
of the conference.
The third question involved a consideration
of jurisprudence developed under the predecessor wording to Article
19 of the Montreal Convention contained in the Warsaw
Convention. In ruling against the plaintiff, the court cited
and relied on Warsaw Convention jurisprudence that an air
carrier cannot be held liable where an accident has caused damages
to a passenger other than death, physical injury or physical manifestation
of injury. Citing case law from the prior Warsaw Convention regime,
the court confirmed the long-standing principle that general damages
for intangible injuries cannot be recovered under the Montreal
Convention regime. Accordingly, one cannot recover for purely
mental or emotional injury unrelated to bodily injury.
The court then turned to the last
question, as to whether "missed academic research and learning
opportunities" was a head of damages that could be recovered
in respect of an incident coming within 'carriage by air'. Was this
claim in fact a special damages claim, requiring proper proof? Or
was it a general damages claim, which likewise could not be recovered
under the regime? The court held that this particular claim was
in essence a general damages claim and accordingly could not be
In the final result, the plaintiff
was awarded the cost of the foregone or wasted transportation costs
to and from the airport of $80.00 and could not recover on the other
2. Update on Timberwest Forest Corp. v. Pacific Link Ocean Services Corp.
In our newsletter of October 2008 I commented on the
Federal Court decision of Justice Harrington in Timberwest Forest
Corp. v. Pacific Link Ocean Services Corp.  FC 801 where
the claimant sued for the loss overboard of most of its shipment
of logs from the barge Ocean Oregon while under tow of the tug Sea
Commander on a voyage from the Fraser River to Eureka, California.
The case dealt with a number of issues including whether
the carriage was governed by the Hague-Visby Rules, whether the
cargo was "goods" as defined by the Hague Visby Rules,
and whether contractual benefits of a marine insurance policy may
be extended to third parties. The claimant, Timberwest, was indemnified
by its insurer St. Paul Fire & Marine Insurance Company. The
claim was a subrogated claim. One of the explicit insuring conditions
was a waiver of subrogation in favour of Pacific Link the contractual
carrier and charterer of the tug and barge. The tug was owned by
Union Tug and Barge Ltd. and the barge by Great Northern Marine
Towing Ltd. The other defendants also claimed the benefit of the
waiver of subrogation clause in the policy of insurance. If the
defendants were correct, then the underwriter who had paid one insured
could not sue other insureds in recovery of a loss covered by the
The court came to the following conclusions:
"a. the contract of carriage is not governed
by the Hague-Visby Rules; b. the cargo is not "goods"
as defined in the Hague-Visby Rules. Although the shipment was "covered"
by a bill of lading, that bill of lading, if issued, would have
stated the entire shipment was being carried on deck, as indeed
was the case; c. the waiver of subrogation in favour of Pacific
Link contained in Timberwest's insurance policy was not rendered
null and void and of no force or effect by the Hague-Visby Rules.
Pacific Link is a third party beneficiary and entitled to assert
the clause against St. Paul; and d. the other defendants are all
third party beneficiaries of one or more waiver of insurance clauses,
and likewise entitled to assert them against St. Paul. These defendants
were the owners of the tug and tow, the master of the tug, and either
crew or stevedores servicing the barge. As such, they were all parties
to and given exemptions and immunities under the contract of carriage.
In turn, they are additional insureds with benefit of a waiver of
subrogation granted them by St. Paul."
The court held that Pacific Link was specifically
and individually named in the St. Paul policy and thus could benefit
from the waiver of subrogation found in section 3 of the policy.
In so holding the court referred to two Supreme Court of Canada
"Pacific Link was performing the very services
provided for in the contract of carriage when the loss occurred.
Consequently, it is clearly a third party beneficiary and is entitled
to enforce the waiver of insurance clause in its own right as per London Drugs and Fraser River, notwithstanding that it had
not required Timberwest to have such a clause inserted and notwithstanding
that it knew nothing of the insurance policy until after the loss.
In Fraser River, the beneficiary, Can-Dive, likewise was
unaware of the policy. Furthermore, it only fell within a generic
class, the class of "charterers". In this case, Pacific
Link is actually named. However, the question remains whether the
other defendants are also entitled to benefit from Timberwest's
Justice Harrington recognized that on a narrow reading
of London Drugs neither the individual defendants nor the
other corporate defendant were employees of Pacific Link [and therefore
could not benefit as third parties]. However, Justice Harrington
decided to make use of the ITO-International Terminal Operators
v. Miida Electronics Inc. decision of the Supreme Court of Canada
which approved of the use of Himalaya clauses in Canada (if certain
conditions were met). Justice Harrington then took a leap and decided
that since Himalaya clauses have been used to extend benefits to
employees, servants, agents and subcontractors, the court could
use clause 14 in the bill of lading (the Himalaya clause) to extend
the benefits of the contract evidenced by the Pacific Link bill
of lading to include Pacific Link's benefits under the policy of
St. Paul's argument that it specifically only waived
subrogation against Pacific Link failed. The court recognized that
it was making new law. At paragraph 66 Justice Harrington stated:
" The final question is whether these
benefits fall within the existing case law. If not, would an extension
of insurance benefits to the defendants, other than Pacific Link,
be an incremental development which a judge might permit or would
it be a substantial change best left to Parliament? In my opinion,
giving the other defendants benefit of insurance does not offend
against Fraser River. If I am wrong, then in my opinion an
extension of benefits to those defendants would be a permissible
incremental change to the common law not only in line with London
Drugs, but also with such maritime cases as Canadian National
Railway Co. v. Norsk Pacific Steamship Co.,  1 S.C.R.
1021; Bow Valley Husky (Bermuda) v. Saint John Shipbuilding Ltd.,
 3 S.C.R. 1210; and Ordon Estate v. Grail,  3
Justice Harrington concluded that this was an appropriate
case to "make an incremental change to the law in compliance
with commercial reality, justice and fairness. The change would
be consistent with the reality that servants, agents and subcontractors,
if the language or circumstances so permit, should benefit from
contractual clauses stipulated for their benefit. Furthermore, an
insurer should not be entitled to pocket premium without risk."
On April 17th 2009 the Federal Court of Appeal rendered
its decision in this case. It upheld Justice Harrington's decision
noted above. See 2009 FCA 119.
3. Application of Section 17 Athens Convention
The recent decision of Princess Cruises v. Nicolazzo
(2009) CanLii 28217 demonstrates how important it is to bring a
suit in the correct jurisdiction. The claimants booked a cruise
with Princess Cruises. The booking was made in Hamilton Ontario
through a travel agent. The claimants boarded the vessel in Italy
and disembarked in the United Kingdom. They brought a law suit against
Princess Cruises claiming negligence on the cruise line for allowing
$5000 to be stolen from their stateroom during the cruise.
Princess Cruises brought a summary judgment application
to have the claim dismissed for lack of jurisdiction. Princess argued
that it did not have any offices in Canada. Its head office is in
California. The small claims court judge dismissed this argument
finding that the court had jurisdiction over Princess Cruises because
the owner of Princess Cruises, being Carnival Cruises had offices
in Canada. The decision was overturned in this appeal to the Divisional
The Marine Liability Act, SC 2001, c.6 governs
territorial jurisdiction over the dispute. Section 37 of the Act
gives the force of law to articles 1 to 22 of the Athens Convention
on liability for the carriage of passengers and their luggage by
sea. Article 2 of the Convention provides as follows:
1. This Convention shall apply to any international
(a) the ship is flying the flag of or is registered
in a State Party to this Convention, or
(b) the contract of carriage has been made in a
State Party to this Convention, or
(c) the place of departure or destination, according
to the contract of carriage, is in a State Party to this Convention.
Canada is a State Party to the Convention [Marine
Liability Act, s.38]. The contract was made in Canada. The court,
therefore, under article 2, s.1, paragraph (b) of the Convention,
the Convention applies to this carriage. (The other two preconditions
may exist as well.)
Article 17 of the Convention provides:
1. An action arising under this Convention shall, at the option of the claimant, be brought before one of
the courts listed below, provided that the court is located in
a State Party to this Convention:
(a) the court of the place of permanent residence
or principal place of business of the defendant, or
(b) the court of the place of departure or that
of the destination according to the contract of carriage, or
(c) a court of the State of the domicile or permanent
residence of the claimant, if the defendant has a place of business
and is subject to jurisdiction in that State, or
(d) a court of the State where the contract of carriage
was made, if the defendant has a place of business and is subject
to jurisdiction in that State.
The Divisional court found that Princess Cruises was
a separate company from Carnival Cruises. Princess Cruises did not
have a place of business in Canada. The court dismissed the action
It is plain and obvious that the appellant
has no place of business in Canada. No genuine issue for trial
remains on that question. Paragraphs (c) and (d) of section 1
of article 17 do not apply. The action cannot be brought in Canada
if article 17 of the Convention requires it to be brought
Paragraph (a) of section 1 of article 17 does
not apply. Article 17 by its terms applies only if the court mentioned
in one of the four paragraphs is located in a State Party. The
permanent residence or principal place of business of the defendant,
the USA, is not a State Party. But paragraph 1 (b) of article
17 does apply, because the destination, the United Kingdom, is
a State Party. The Convention, therefore, specifies where
the action may be brought.
4. What rights are you giving up in signing that
The recent decision of 1562860 Ontario Ltd., carrying
on business as Shoeless Joe's v. Insurance Portfolio Inc. et al.
and Dominion of Canada General Insurance Co. (Third Party) [2009
CanLII 17355 (ON S.C.)] illustrates the care and deliberation that
must be taken before signing a 'release' document in favour of another
The situation happens every day. A plaintiff sues
a defendant, and the parties work out a resolution. Perhaps matters
did not even get to litigation, with the parties working out their
differences. Either way, generally speaking, on the settlement of
a dispute, someone usually "pays", or gives some concession
in exchange for a release from liability and, with that, they may
want a magic piece of paper: the "release".
The release document is a critical document. It captures
the essential terms of a settlement and will "by and large"
be a tool in the hands of the party being released to ensure that
the matter is finished, once and for all. It is an enforceable bargain,
subject, of course, to its terms. It will usually indicate a binding
agreement between the parties that the dispute is resolved and cannot
be re-litigated or brought before the courts. It commits to writing
the amount of, and the promise of payment of the "settlement
price". The release will also offer the protection in favour
of the party being released (the "Releasee") that the
party who had the complaint in the first place and who is getting
the money, or the concession (the "Releasor") cannot,
and will not further pursue the matter against the Releasee.
The release may also contain wording designed to shut
down the chance of the Releasee being later dragged into court on
the same subject matter or claim complained of by the Releasor by other parties, not involved or privy to the original dispute.
What if, having resolved a dispute, a Releasor sues others on the
same complaint or grievance, who in turn want to assert that the Releasee is responsible for the Releasor's losses or damages
that they are now being held liable for? What is to stop the new
target defendant or claim recipient from claiming that the Releasee
is responsible [assuming of course, a credible basis in fact and
law for such an assertion)? Should it not be able to defend itself
with any legitimate means possible, including blaming the Releasee?
For that matter, can't the Releasee now complain that it paid the
settlement, or gave the concession reflected in the release document,
in good faith and in reliance that the matter would forever then
be at an end?
As protection against this problem, the Releasee will
usually insist on a further element of protection in a release,
which will usually contain standard wording as follows (or a slight
variation there from):
"And for the said consideration, I [i.e. the
Releasor] further agree not to make any claim or take any proceedings
against any other person or corporation who might claim
contribution or indemnity under the provisions of any statute
and the amendments thereto from the person, persons or corporation
discharged by this release".
[Italicized words are my own emphasis]
Shoeless Joe's operated a restaurant insured by Dominion
of Canada General Insurance Co. ("Dominion"). The insurance
was arranged by a broker named Insurance Portfolio Inc.. In August
2005 the restaurant suffered a flood resulting in a significant
loss. A claim was filed with Dominion for property damage as well
as for a business interruption loss. The Dominion policy however
featured a maximum limit for business interruption, subject to a
"rate of recovery loss" condition. Under the policy,
the plaintiff was obligated to have adequate coverage for business
interruption and "in the event that it did not", this
clause would reduce the maximum limit for business interruption
coverage based upon an agreed formula. Dominion took the position
that the restaurant did not have adequate coverage, so the formula
was triggered and a reduced amount was paid to Shoeless Joe's on
account of business interruption damages. This amount was substantially
less than the actual business loss.
The restaurant and Dominion were able to settle the
issues between them. Dominion paid out the amounts owing the restaurant
in accordance with the loss adjustment and the policy terms. The
proprietor of the restaurant executed a release in favour of Dominion.
This release contained the indented release wording ["
And for the said consideration
."] cited above. Some 3
months after that dispute was settled, the restaurant commenced
a court action against the broker, claiming that it failed to secure
adequate business interruption loss insurance for the restaurant.
The broker both filed a defence to this claim and issued a "third
party claim" against Dominion seeking "contribution
and indemnity": the broker wanted Dominion to pay anything
for which it might be held liable. The broker argued that Dominion
owed it a 'duty of care' to properly adjust the restaurant's claim
and to ensure that the initial insurance settlement was reasonable.
The broker was essentially complaining that Dominion incorrectly
under-adjusted the business loss claim and that the restaurant ought
to have been paid in full for its losses. Had this been done the
fully indemnified plaintiff would not have sued the broker.
The broker and Dominion happened to have had a formal
arrangement by way of a "broker agreement", which provided
that they agreed to exercise "the utmost diligence, honesty
and good faith in promptly servicing policies and
. in performing
the duties under this Agreement
.". The broker argued
this agreement was at least one basis whereby Dominion was said
to have insurer owed it a "duty of care" to properly adjust
the restaurant's claim, and, in effect protect the broker from the
action now being advanced by the restaurant.
Now we are on the 'horns of a dilemma'. Can't the
restaurant recover directly from the broker any losses for which
Dominion did not provide indemnify? If the broker failed the restaurant
in any respect, should it not have to pay? However, is the broker
not entitled to optimize its defence strategy, including bringing
into question whether more monies were in fact payable under the
policy to the restaurant? Can't Dominion say, 'No way', because
it has been released from the claim?
The motion for a "Stay of Proceedings"
Dominion brought a motion for an order staying the
restaurant's action against the broker and the associated third
party claim by the broker as against Dominion. The motion was brought
on the basis that the release executed in Dominion's favour precluded
any action by the broker for 'contribution and indemnity' against
Accordingly, Dominion argued that the restaurant ought
not to have brought its action against the broker, culminating in
the broker bringing the third party action against Dominion. As
such, the main action should be 'stayed', or "in effect"
frozen in its tracks. At a minimum, Dominion argued that the third
party action by the broker against Dominion ought to be "stayed".
The court had to wrestle with a fair outcome, all
things considered. Were the issues raised in the third party action
by the broker against Dominion linked with, or inter-connected with
the issues in the main action as between the restaurant and the
broker? If this was the case, would the broker be prejudiced if
the action by the restaurant permitted to continue against it (the
broker), but the broker could not proceed against Dominion in the
third party action? Should the third party action be stayed on the
basis of Dominion having been released on the matter? If this were
to be the case, the court might be more inclined to stay the main
action between the restaurant and the broker, and, as a direct result,
the claim by the broker against Dominion would just 'dry up'. Or,
on the other hand, was it a case where the issues raised in the
third party action by the broker against Dominion had little, if
anything, to do with the main action between the restaurant and
the broker, the broker's third party claim against Dominion perhaps
being an ingenious attempt by it to somehow seek a stay of the restaurant's
claim against it by 'forcing' the protest of Dominion to what was
taking place? In this latter scenario the court might simply rule
that the third party claim by the broker against Dominion for 'contribution
and indemnity' should be stayed as Dominion was entitled to rely
on the 'release', with the main action by the restaurant against
the broker being permitted to continue.
After an analysis of the facts and the legal issues
in the main action by the restaurant against the broker, and in
the third party claim by the broker against Dominion, the court
had little difficulty finding that, for starters, the third party
claim by the broker against Dominion should be stayed on the basis
of the clear intent and wording of the release document and in particular
the release provision cited above. The broker was suing Dominion
in respect of the very item that the latter had been previously
released from. Should, however, the main action be stayed? The court
found that there was a link between the issues in the main action
(restaurant suing the broker) and the third party claim (the broker
against Dominion). Both aspects concerned the question as to whether
adequate coverage coverage was provided, and how the insurance coverage
was to be adjusted and calculated. Accordingly the court ruled that
it would be unfair for the broker to have to defend the action and
be unable to pursue remedies against Dominion. Accordingly the main
action was "stayed" along with the third party action.
In the result, the plaintiff was "shut down"
in its claims against the broker and it was bound to the terms of
the release given to Dominion, being unable to proceed against the
broker for losses and damages not already collected under the Dominion
The foregoing points to a few important rules of thumb.
It is important that a claimant or litigant (anyone becoming a "Releasor")
consider taking legal advice before signing a release in favour
of another party, lest there be a potential third party to pursue
for further damages down the road who has a legitimate basis to then want to involve the "Releasee" as a part of
its defence. At a minimum, careful thought is required as to what
terms should be in a release, and what if any further proceedings
down the road might be contemplated. If matters are in litigation,
thought should be given to having all potentially liable
parties in the action at the same time such that matters will comprehensively
be dealt with at the release stage. If it is not possible to have
all potentially liable parties involved in the release, then thought
should be given to having the party being released agreeing in the
release to exempt from its application specfic claim[s] contemplated
against a specific party[s].
In conclusion, both parties to a release must always
exercise much thought and care in what is being signed.
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