In this issue:
1. Firm News
2. "Freight Prepaid": What It Means To Use Those Words
3. Web-Based Defamation in the 21st Century: Crookes v. Newton and Future
4. Liability of a Shipper for Contamination of Consolidated Cargo
1. Firm News
- The firm's 10th Annual Maritime and Transportation
Conference will be held on Friday January 15,th 2010. Please
reserve the date on your calendar.
Effect of Changes to Ontario's Rules of Civil
Fraud and Forensic Investigations
Emerging Issues in the Provision of Insurance Services by Agents,
Brokers, MGA's and Freight Forwarders
Emerging Issues in Logistics and Trucking
Adulteration of Food and Pharmaceuticals in Transportation
Report from London on P & I Insurance
Hull and Machinery Claims: Due Diligence, Coverage and the State
of the Law
December 1st, 2009 - Canadian Board of Marine
Underwriters Annual Meeting and Dinner - Royal York Hotel,
December 4th, 2009 - Grunt Club Annual
Dinner - Bonaventure Hotel, Montreal
January 15th, 2010 - Marine Club Annual Dinner - Royal York Hotel, Toronto.
Prepaid": What It Means To Use Those Words
The adage "a picture is worth a thousand words"
refers to the idea that complex stories can be described with just
a single still image, or that an image may be more powerful than
a substantial amount of text. The value of a document, however,
should never be underestimated. Documentary evidence will always
trump legal argument in a court of law.
The recent Federal Court of Canada decision in H.
Paulin & Co. Ltd. v. A. Plus Freight Forwarder Co. Ltd.  F.C. 727 is a perfect example where a document - a shipping
document with the words "freight prepaid" - was instrumental
in the court's decision.
In this action Scanwell Logistics (Taiwan) Ltd., who
issued "freight prepaid" shipping documents, claimed unpaid
freight from H. Paulin Co. Ltd., the ultimate receiver, for the
carriage of 29 containers of cargo from Taiwan to Vancouver by sea,
and from there to Edmonton, Toronto and Montreal by rail. There
were three distinct contracts of affreightment covering this multi-model
transport. H. Paulin, the purchaser of the cargo, hired A Plus Freight
Forwarder Co. Ltd. who hired Scanwell Logistics (Taiwan) Ltd., who
in turn hired Orient Overseas Container Line Ltd. (OOCL).
H. Paulin and one of its suppliers paid freight charges
to A Plus and Scanwell paid OOCL. No one has paid Scanwell. A Plus
was a defunct corporation. Having obtained judgment in Taiwan against
A Plus, but being unable to collect, Scanwell sued H. Paulin for
payment. It asserted a number of reasons why H. Paulin was liable
to it, one being that A Plus was its undisclosed agent, and another
being that it was not bound by the "freight prepaid" documents
it issued. H. Paulin's position was that Scanwell dealt with A Plus
as a principal in its own right. The court found H. Paulin liable
and dismissed the claim with costs. Scanwell was bound by its representation
that freight had been paid.
Justice Harrington, of the Federal Court of Canada,
held that the statement "freight prepaid" limited Scanwell's
recourse to an in personam claim against A Plus. The statement
precluded Scanwell from asserting any possessory lien or claim in
rem against the cargo or in personam against the ultimate
receiver, H. Paulin.
Justice Harrington also discussed the role of a bill
of lading in a transaction and the different roles of a freight
forwarder. He stated:
The original traditional role of a freight forwarder
is well-known. As stated by Mr. Justice Rowlatt in Jones v.
European & General Express Company, Ltd., (1920) 25 Com.
Cas. 296 at p. 298 and approved by the English Court of Appeal
in Marston Excelsior Ltd. v. Arbuckle, Smith & Co. Ltd.,
 2 Lloyd's L.R. 306 and Gillespie Bros. & Co. Ltd.
v. Roy Bowles Transport Ltd.,  1 Lloyd's L.R. 10:
It must be clearly understood that a forwarding
agent is not a carrier; he does not obtain the possession of the
goods; he does not undertake the delivery of them at the other
end unless prevented by some excepted cause of loss or something
which affords an excuse. All that he does is to act as agent for
the owner of the goods to make arrangements with the people who
do carry-steamships, railways, and so on-and to make arrangements
so far as they are necessary for the intermediate steps between
the ship and the rail, the Customs or anything else
However, there are no fixed rules setting out the
respective rights and obligations of the shipper and the freight
forwarder. In Morlines Maritime Agency Ltd. v. IKO Industries
Ltd.,  180 F.T.R. 12, Mr. Justice Lutfy, as he then
was, referred to the third edition of Marine Cargo Claims in which Professor Tetley pointed out that nowadays many the freight
has acted as principal contractor arranging
the carriage in his own name. His fee payable by the shipper
is a straight freight charge. He then arranges to pay lower
freight rates to the carrier and obtains his profit from the
difference between the two. Very often the freight forwarder
consolidates the cargoes of a number of clients into a single
container, resulting in savings which benefit the freight forwarder
and the clients. On these occasions the freight forwarder's
responsibility to the shipper is often that of a carrier.
Justice Harrington also reviewed the existing case
law dealing with "freight prepaid." He noted that the
case most widely cited is C.P. Ships v. Les Industries Lyon Corduroys
Ltée,  1 FC 736. In that case, the defendant was
identified on the bill of lading as shipper. The bill of lading
which was issued bore the notation "freight prepaid".
The defendant had hired Ketra Overseas Transport Canada Ltd. to
arrange shipment, and apparently was under the belief that it was
an agent of C.P. Ships for the purposes of receiving payment of
freight. Ketra billed the defendant, was paid, but then went into
bankruptcy without paying C.P. Ships. C.P. Ships was entitled to
recover. Mr. Justice Addy stated:
Where a debtor, instead of paying his creditor,
chooses to pay a third party, he does so at his peril. Where the
money is not turned over to the creditor, the onus is then on
the debtor to establish either:
(1) that the creditor actually authorized the third party to receive
the money on his behalf, or
(2) that the creditor held the third party out as being so authorized,
(3) that the creditor by his conduct or otherwise induced the
debtor to come to that conclusion, or
(4) that a custom of the trade exists to the effect that in that
particular trade and in those particular circumstances, both the
creditor and the debtor normally would expect the payment to be
made to the third party."
Justice Harrington noted that:
"Ever since, Mr. Justice Addy's commentary
has been treated as if it were a piece of legislation. The Courts
have used it as the cornerstone of the necessary factual analysis.
(Mondel Transport Inc. v. Afram Lines Ltd.,  3 F.C.
684; American President Lines, Ltd. v. Pannill Veneer Co. (1997), 36 B.L.R. (2d) 1 and Mediterranean Shipping Co. S.A.
v. BPB Westroc Inc., 2003 FC 942, 238 F.T.R. 135). While I
agree entirely with Mr. Justice Addy's analysis, I do not think
he intended that his words be taken au pied de la lettre.
He was setting out a practical application of the law of agency."
The Court noted that Scanwell relied strongly on two
decisions of the Quebec Court of Appeal: 2318-1654 Québec
inc. c. Swiss Bank Corp. (Canada), J.E. 2000-1475 and SGT
2000 inc. c. Molson Breweries of Canada Ltd., 2007 QCCA 1364,
J.E. 2007-2013 where consignees were liable, together with the shipper,
for the payment of freight. [See Fernandes Hearn LLP Newsletter
In H. Paulin Justice Harrington distinguished
the two Quebec Court of Appeal cases. He also noted that the jurisprudence
emanating from the Federal Court of Canada had not been referred
to in the Quebec Court of Appeal. He stated:
These cases can be distinguished if for no other
reason than H. Paulin did not become owner of the cargo in virtue
of the bills of lading which were not negotiable and apparently
were never in the shippers' hands. There appears to be a presumption,
at least in trucking cases, that the contract is made between
the owner of the goods and the carrier. It follows that the consignee
is liable for freight (Palmer, Bailment (2nd ed) 1991 at
pp. 1015, 1016). There is no such presumption in carriage by sea.
Moreover, with respect, I am unable to follow them.
The entire contract as between the shipper and the
carrier was not contained in the bills of lading. The overall
contract included an obligation of the shipper to pay freight.
Even if property passed in virtue of the bills of lading, the
consignees' liability is under the Act "as if the contract
contained in the bill of lading had been made with himself"
[emphasis added]. That contract clearly stated that freight had
The freight prepaid notation was a representation
by the carrier, just as much as is a statement as to the apparent
good order and condition of the cargo, or that the cargo has in
fact been shipped on board. A deliberate misrepresentation by
the issuance of a clean bill of lading when the cargo is obviously
damaged is a conspiracy between the shipper and the carrier. It
is a fraudulent representation made by the carrier with the intention
that it be relied upon.
Justice Harrington concluded:
"Scanwell tried valiantly to escape its own
language. Although Humpty Dumpty may say 'when I use a word it
means just what I choose it to mean - neither more nor less',
Scanwell may not. It is bound to H. Paulin for what it said, that
freight was prepaid."
3. Web-Based Defamation in the 21st Century: Crookes v. Newton
and Future Implications
As the Internet continues to rapidly expand at the
speed of "life" in the twenty first century, so too must
our centuries old laws in order to keep pace with the new realities.
One recent example of this legal shift towards modernism can be
demonstrated in Canada's first appeal involving the issue of whether
posting hyperlinks onto one's own website, which link to other defamatory
sources can trigger liability for defamation.
This was precisely the situation in Crookes v.
Newton, a British Columbia Court of Appeal decision released
on September 15, 2009. In this case, the plaintiff, a Vancouver
businessman, sued the defendant, the operator of a free speech website.
The website, www.p2pnet.com published an article about the plaintiff who at the time was suing
some other websites for defamatory content written about him.
In the article, two hyperlinks were posted, which
linked to the defamatory content. These hyperlinks directed readers
to external websites containing defamatory content about the plaintiff,
but the content itself was not contained in the defendant's article.
Upon learning about this, the plaintiff requested that the defendant
remove the hyperlinks. The defendant refused on the basis that such
hyperlinks were merely hyperlinks to outside sources with the contents
not being publications of the website itself. The plaintiff sued
and lost at trial. He then appealed to the British Columbia Court
of Appeal claiming that the hyperlinks should be considered a publication
of the defendant.
The Court of Appeal was divided on the issue of whether
the facts surrounding the creation of a hyperlink in this case could
create the inference of a publication. In the end, the Court held
that the hyperlink postings were not considered a publication of
the website operator and therefore no liability was found.
One of the arguments put forth by the plaintiff that
the Court found persuasive was the fact that hyperlinks could be
analogized to footnotes in that posting a hyperlink is no different
than an author providing a footnote reference to another source.
As such, since the author of a work would not be found liable for
defamatory statements found within any referenced footnotes, neither
should a website operator who creates hyperlinks to external references
containing defamatory material. However, the Court did emphasize
that the footnote analogy is not a guarantee to avoiding liability
for publication of a hyperlink, as many authors tend to use footnotes
and citations in a very "expansive" manner.
Several non-exhaustive factors which the Court set
out in assessing whether liability may apply in these situations
include factors such as: (a) how prominently the hyperlink is displayed,
(b) the presence of any "words of invitation" or recommendation
to the readers encouraging them to click on the hyperlink, (c) the
nature of materials which it is suggested may be found at the hyperlink
such as whether the material is "obscene" or "scandalous",
and (d) "a host of other factors". This then leaves the
door open to other possible considerations in the future.
It is likely that this issue will become more prevalent
as the Internet continues to evolve. This is because the Internet
provides an important public platform for individuals all over the
world to communicate and freely express their views and opinions
through countless forums that are heard, viewed and seen by millions,
which would not otherwise be economically possible. On the other
hand, the very threat of certain communications on the Internet
to tarnish one's reputation can have a significant detrimental impact
on victims of such misinformation. Therefore, the courts need to
set a balance. This decision seems to set the groundwork for future
challenges. It will be interesting to see how these principles will
be applied and developed by courts in the future.
4. Liability of a Shipper for Contamination of
In the recent decision of Risdale Transport Limited
v. Transwest Air  SKQB 380, Risdale Transport sued Transwest
Air for damages result from a leaking drum of solvent transported
on its truck. Transwest purchased two drums of "Varsol"
for its own use. It hired Risdale to transport one drum from Prince
Albert to Stony Rapids. The Risdale employee picked up the drum
and issued a bill of lading identifying the article as "1 drum
205 L" with a weight of 250 pounds. The bill of lading was
signed by Transwest as shipper and by Risdale's driver.
Risdale's employees loaded the drum of solvent in
the back portion of the truck trailer with other items. Closer to
the front of the trailer, Ridsdale had installed a foam vinyl covered
bulkhead separating food commodities from other goods. The bulkhead
did not seal off the area containing food commodities because the
floor of the trailer was ribbed, such that any liquid could travel
along the floor in the lower channels. After an eight-hour road
trip on a rough road ,the driver opened the trailer door at Points
North, and noticed the strong smell of solvent and liquid flowing
beneath the bulkhead to where the food commodities were stored.
In short, the Varsol contaminated the food commodities. Risdale
compensated its other shippers and sought an indemnity from Transworld
for its losses.
Transworld defended on the basis that the contents
of the drum were disclosed to Risdale when its driver picked up
the drum and the safety marks for dangerous goods were readily visible.
There was clear wording on the outside that the drum contained Varsol.
Transworld alleged that the drum was in good condition when Risdale
received it. Furthermore, any damage to the food commodities was
caused by Risdale's breach of legislation that required food commodities
and shipments capable of contaminating food commodities to be protected
by a container or covering during transportation.
Ridsdale was a motor carrier, and was licenced to
operate its freight transporter in accordance with The Traffic
Safety Act, S.S. 2004, c.T-18.1 and its regulations, including The Motor Carrier Conditions of Carriage Regulations, c.M-21.2,
Reg. 5 (the "Regulation"). Regulation 10 states that the
uniform conditions of carriage set out in Part II of the appendix
(the "uniform conditions") apply to the transportation
of general merchandise. The uniform conditions provide in section
1(2)(o) that "every person, whether as principal or agent,
shipping explosives or dangerous goods without previous full disclosure
to the carrier as required by law, shall indemnify the carrier against
all loss, damage or delay caused thereby, and such goods may be
warehoused at the consignor's risk and expense."
The Court also looked at Regulation 5 which states:
No transporter shall transport any commodity intended
for human consumption unless:
(a) the vehicle has been cleaned so that all poisonous chemicals
and residues remaining in the vehicle from previous use have been
(b) all other shipments capable of contaminating such commodities
are protected by a container or covering and are loaded so that
contamination will not occur; and
(c) those commodities are protected by container or covering to
prevent contamination which could occur during transit.
The Court found, on the evidence adduced, that Risdale
was fully aware that the contents of the drum was Varsol. The court
held that because Risdale knew what the contents of the drum were,
it could not seek indemnification from Transwest on the basis of
uniform condition 1(2)(o).
In response to the allegation by Risdale that the
drum was defective, the court noted that the drum was not leaking
prior to being placed in Ridsdale's truck at Prince Albert. It had
not leaked in Ridsdale's Prince Albert warehouse. The drum was not
leaking when the truck arrived in La Ronge. It only became noticeable
once Ridsdale's driver opened the door of the trailer at Points
North, after the eight-hour rough ride. Since Risdale itself determined
shipping drums of Varsol from Prince Albert to Stony Rapids over
rough road was not risky (by accepting the drum), it could not take
the position that Transwest breached a duty of care by shipping
a drum of Varsol by truck.
The Court concluded that Ridsdale's losses stemmed
from its own breach of Regulation 5 that required it to protect
commodities intended for human consumption from contamination from
other goods while being transported. Regulation 5 placed a positive
duty on Ridsdale to protect those commodities by a container. "The
foam bulkhead fell far short of providing such protection. This
may well be a case of a statutory breach constituting evidence of
negligence, as formulated by the Supreme Court of Canada in Canada
v. Saskatchewan Wheat Pool,  1 S.C.R. 205."
The claim against the shipper was dismissed with costs.
This newsletter is published to keep our clients and friends informed
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