June 2009

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 Corp.
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 conference.

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 regime?

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 recovered.

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 claims advanced.

Gordon Hearn

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. [2008] 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 policy.

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 decisions:

"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 policy."

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 insurance!

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:

"[66] 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., [1992] 1 S.C.R. 1021; Bow Valley Husky (Bermuda) v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210; and Ordon Estate v. Grail, [1998] 3 S.C.R. 437."

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.

Rui Fernandes

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 Court.

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 carriage if:

(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 finding that:

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 elsewhere.

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.

Rui Fernandes

4. What rights are you giving up in signing that release?

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 party.

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

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 Dominion.

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 policy.

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.

Gordon Hearn

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