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April 2010
In this issue:
1. Firm and Industry News
2. Ship Bunkers and Necessaries Men
3. Mosregion v. Ukraine Airlines
4. Insurer Required to Defend Carrier for Consequential Losses Claim
1. FIRM AND INDUSTRY NEWS
- May 7th, 2010 U.S. Maritime Law Association
Semi-Annual Meeting, New York
- May 26th and 27th 2010 - Canadian Board
of Marine Underwriters Semi Annual Meeting, Montreal Canada.
- June 3rd, 2010 Canadian Maritime Law Association
Seminar - Current Developments in Canadian Maritime Law, Halifax
- June 4th, 2010 Canadian Maritime Law Association
Annual General Meeting, Halifax
- June 16th 2010 Annual Meeting and Luncheon,
Association of Average Adjusters of Canada, Toronto
- September 12-15 IUMI Conference, Zurich
Switzerland
- Rui Fernandes, Gordon Hearn and Kim
Stoll represented the firm at a joint meeting of the Transportation
Lawyers Association and the Canadian Transport Lawyers Association
held at Hilton Head, South Carolina April 28 - May 1st. Gordon
Hearn was appointed First Vice-President of the Transportation
Lawyers Association at the meeting. Kim Stoll is the current
Treasurer of the Canadian Transport Lawyers Association.
2. Ship Bunkers
and Necessaries Men
The recent decision of Justice Harrington of the Federal
Court of Canada of World Fuel Services Corporation v. The Ship
"Nordems" 2010 FC 332 shows that the facts of a case
are occasionally as complicated as the law of maritime liens and
statutory liens.
Parkroad Corporation, a Korean sub-time charter of
the vessel "Nordems," contracted (through communications
in Korea) with either the plaintiff, an American corporation, or
its affiliate World Fuel Services (Singapore) Pte Ltd., a Singapore
corporation, for the purchase of bunkers which taken on board in
South Africa. The vessel flew the Cyprus flag.
Parkroad Corporation went bankrupt without paying
for the bunkers.
Thereafter the plaintiff arrested the "Nordems"
in Baie Comeau Canada. The ship was released on bail furnished by
her German owners. Parkroad was named as a defendant but did not
appear.
The plaintiff's claim was that Parkroad contracted
not only on its own behalf, but also on behalf of the ship and her
owners. The provisions of the contract deemed it to have been made
in the United States. It was expressly governed by American law,
which createed a maritime lien over the ship, even should it be
that her owners and managers were not personally liable.
The court was required to decide the proper law governing
the relationship. The defendant German owners denied there was a
contractual relationship with the plaintiff. Both sides however
agreed to allow the Canadian court to decide the issues.
Justice Harrington made two findings which drove his
analysis of the legal issues in the case. He summarized these as
follows:
Parkroad had no actual authority from the
owners or managers of the Nordems to contract for the supply of
bunkers on their behalf, or on the credit of the ship. They were
expressly prohibited from so doing. However, World Fuel Services
Corporation had no actual knowledge of that fact. The importance
of these findings is that, briefly put, the maritime law of the
United States, the law selected by World Fuel Services Corporation
and Parkroad to govern their contract, is such that a necessaries
man is presumed to have contracted on the credit of the ship.
That presumption can only be rebutted by establishing that the
necessaries man had actual knowledge that the contracting party
did not have authority to bind the ship. If that presumption is
not rebutted, American law creates a maritime lien on the ship.
On the other hand, under Canadian maritime law, apart from a few
exceptions which are not relevant here, a necessaries man does
not enjoy a maritime lien. Under sections 22 and 43 of the Federal
Courts Act, he has a statutory right in rem against
the ship, but only if her owners are personally liable. As in
American law, there is a presumption that the necessaries were
ordered on the credit of the ship. However it is not necessary
to establish actual knowledge of lack of authority on the part
of the necessaries man to rebut that presumption.
Justice Harrington then goes on to highlight some
of the distinctions between a maritime lien and a statutory right
in rem and to explain why Canandian choice of law rules make
Canada a popular forum for American necessaries men who extend credit
to time charterers.
There are a number of important distinctions
between a maritime lien and a statutory right in rem. Only
one is relevant in this case, that being that a maritime lien
may exist even though the owners of the ship are not personally
liable. A maritime lien arises at the moment of the transaction,
be it for instance a collision, while a statutory right in
rem only comes into existence when proceedings are instituted,
or perhaps only when the action in rem is served on the
ship (this issue was extensively reviewed in the light of English
statutes by Mr. Justice Brandon in the "Monica S", [1968]
P. 741, [1967] 3 All E.R. 740, [1967] 2 Lloyd's Rep. 113). The
maritime lien travels with the ship into the hands of third-party
purchasers for value. However a potential action in rem
is defeated by a legitimate change of ownership, although the
original owners, of course, if personally liable in the first
place, remain liable.
The court also highlighted the fact that Canadian
choice of law rules dictate that if a transaction is governed by
another system of law, such as American, and that law has been proven
to differ from Canadian law, Canada will give effect to it. Canada
is an attractive forum for necessaries men who enjoy a maritime
lien under the proper law of their transaction in that in ranking
priorities Canadian law gives the necessaries men the status of
a maritime lien, a status which a Canadian necessaries man does
not enjoy. Justice Harrington points out that this is not the situation
in England, where priorities are considered to be a matter of procedure
governed by the lex fori, rather than a matter of substance.
Canadian domestic law was amended last year to give
necessaries men carrying on business in Canada a maritime lien against
a foreign ship. The services must have been provided at the request
of the owner or a person acting on his behalf. See An Act to
Amend the Marine Liability act and the Federal Courts Act and to
make consequential amendments to other Acts, S.C. 2009, c. 21,
s. 139.
Justice Harrington then went on to look at the evidence
in this case and to come to some conclusions on this summary judgment
application. The evidence consisted of some affidavit evidence including
from two American attorneys regarding American law.
The court found that the "Nordems" was subject
to a number of time charters. There was an original time charter
and seven sub-time charters, the last being from Cosco Oceania Chartering
Pty Ltd. of Australia to Parkroad Corporation of South Korea. This
charter contains the usual prohibition against a lien for supplies
or necessaries - "the charterers undertake …they will
not procure any supplies or necessaries or services, including any
port expenses and bunkers, on the credit of the owners."
At no time during the course of the Parkroad charter,
or thereafter prior to her arrest at Baie Comeau, did the Nordems
call at an American port.
The court then looked at the receipts, invoices, and
general terms and conditions of World Fuel Services in the supply
of the bunkers. Justice Harrington commented:
These general terms and conditions, and confirmation
of order, attempt to cover every possible permutation and combination
which may arise in the delivery of bunkers to a ship. They recognize
the possibility that the bunkers may have been ordered by and
on the account of a charterer who had no authority to bind the
ship or her owners. Indeed, if the plaintiff relied upon Lloyd's
Register of Shipping, it would have known perfectly well that
Parkroad was not the owner of the Nordems and that the owners
could be found at an address in Germany. It knew, or ought to
have known, that Parkroad was not the ship's port agent, as another
was identified in the order confirmation. Furthermore, it accepted
orders from Parkroad with respect to other ships which according
to Lloyd's have no connection whatsoever to the owners of the
Nordems.
Justice Harrington first needed to decide if the owners
of the Nordems were bound by the contract purportedly made on their
behalf by Parkroad. "If so, that is the end of the matter.
If not, then the issue becomes whether the presumption that the
necessaries were supplied on the credit of the ship has been successfully
rebutted."
The court found that:
According to its contract with Parkroad, World
Fuel Services relied on commercial registries, such as Lloyd's
Register of Shipping, to identify the owners of ships. I directed
during the hearing that the relevant entries from the Register
at the time be produced. The owners are stated to be Partenreederei
m.s. Nordems. The contract clearly demonstrated World Fuel Services'
own experience that the person ordering bunkers may not have actual
authority to bind the ship. Had it followed the general provisions
of its contract, which was not to extend credit, it would either
have been paid or would not have delivered the bunkers at all.
In my opinion it was on notice and should have verified with
the owners whether or not Parkroad had authority. [Emphasis
added]
Justice Harrington concluded that under domestic Canadian
maritime law the owners of the Nordems, much less her managers,
were not personally liable and so the action would be dismissed
in rem and in personam.
The court then had to determine if American law applied
and whether American law would grant World Fuel Services a maritime
lien. The court considered the factors that connect the case to
the United States:
The plaintiff's best case is that it is an
American corporation and that because credit was extended the
contract was deemed to have been made in the United States. Payment
was to be made to a bank in the United States. The contract with
Parkroad was governed by American law, with non-exclusive American
jurisdiction. On the other hand, the bunkers were ordered in South
Korea and delivered in South Africa to a Cypriot flag ship, owned
and managed out of Germany. At no relevant time did the Nordems
ply American waters, and the ship was arrested in Canada.
After reviewing the case law on how factors are weighed
the court concluded that the non-American factors outweigh the American
ones, stating:
These include the flag of the ship (Cyprus),
the domicile of her owners (Germany), the place where the offer
to purchase bunkers was accepted (South Korea), the place where
the bunkers were delivered (South Africa), and the place where
the ship was arrested (Canada). If it is necessary to choose among
these laws, the proper law is that of South Africa. There are
only two points of contact between the ship owner and the plaintiff.
The first is South Africa where the bunkers were supplied. If
a maritime lien exists, it existed from that moment. Had credit
not been extended, the plaintiff would have been in position to
arrest the ship then and there. Since the law of South Africa
has not been alleged and proven to differ from Canadian law, the
arrest would be set aside as there is no personal liability on
the part of the owners and as the presumption that the bunkers
were delivered on the credit of the ship has been rebutted. The
bunker receipt signed by the master does not even refer to World
Fuel Services. The receipt is on the letterhead of Caltex Oil
(SA) (Pty) (Ltd), with a Cape Town post office address and Cape
Town telephone number. That receipt gives no indication whatsoever
that the plaintiff was Caltex's unnamed principal. The second
point of contact was Canada, the place of arrest.
The court held that the shipowners were not party
to the World Fuel Services contract and were not bound by its terms.
Parkroad had no actual or ostensible authority to contract on their
behalf or on the credit of the ship. The presumption that the bunkers
were supplied on the credit of the ship was successfully rebutted.
United States law was not the proper law.
Rui Fernandes
3. MOSREGION V. UKRAINE AIRLINES
A Plaintiff Need Only Issue a Lawsuit Within Two
Years Under the Provisions of the Warsaw Convention
The case of Mosregion Investments Corporation et
al v. Ukraine International Airlines et al (2010) 99 O.R. (3d)
p. 49 (Ont Sup. Ct.) involved a claim brought by a plaintiff passenger
against Ukraine International Airlines [the "Airline"]
arising from an August 2, 2005 incident at the Pearson International
Airport when an Air France aircraft overran a runway at Pearson
International Airport and shortly thereafter caught fire.
The plaintiff brought a lawsuit on August 1, 2007
seeking damages for the loss of cargo destroyed in the fire. In
this claim, the plaintiff claimed that critical documents in checked
baggage were destroyed in the fire resulting from the Air France
plane leaving the runway. This baggage had been loaded in Kiev,
Ukraine, by the Airline and transferred to the Air France flight
at Paris bound for Toronto.
The law suit [the "statement of claim"]
was timely filed under the applicable law [see below] but it was
not served on the Airline within the time frame prescribed by Ontario's
rules of court [specifically, being six months from the date of
the issuance of the law suit]. On application by the plaintiff,
the time for service on the Airline was extended by an order of
an Ontario court "Master" permitting 'late' service of
the claim. The Airline appealed this initial order to another "Master"
of the court. This appeal was unsuccessful.
The Airline filed a further appeal, to a judge of
the Ontario Superior Court. On the appeal the Airline asserted that
the extension of the time for the service of the statement of claim
ought not to have been awarded by the court. It was common ground
that the case was governed by the Convention for the Unification
of Certain Rules for International Carriage by Air, [the "Warsaw
Convention"] in force in Canada by virtue of the Carriage
by Air Act. That Convention requires that a claimant bring a
claim against an air carrier, such as the Airline, within two years.
The Airline argued that there was a 'hard deadline' in the law,
whereby the claim had to be both filed in court and served within
two years. If the claim was not served within this time frame, it
was argued, the court had no basis to 'extend' the time, or, in
effect, "rewrite" the law on point. As such, the claim
should be 'stopped in its tracks' as being out of time.
Accordingly the Ontario Superior Court had to address
whether the "two year" requirement merely required the
filing of suit within this time frame, or whether it must also be
served on a defendant such as the Airline. Of course, if the latter
possibility were to prevail, this would have a very significant
effect on anyone bringing a claim against an airline for an incident
arising from international carriage subject to the Warsaw Convention.
[It should be noted that the Warsaw Convention, or various
similar manifestations or amendments to the same, governs the bulk
of international carriage of passengers and cargo by air].
In challenging the decision in the court level below
to permit the extension of time to serve the claim - outside of
the two year time frame - the Airline cited article 35 of the Convention
which provides:
"… the right to damages shall be extinguished
if an action is not brought within a period of two years, reckoned
from the date of arrival at a destination…".
On the appeal the Airline advanced the argument that
the two year limitation period under the Warsaw Convention is a
special regime providing for a clear limitation period, which should
not be "watered down" by Ontario procedural law. In essence,
the Airline argued that an action is only "brought" when
it is both initiated [filed in court] and served on the defendant[s]
within the two year limitation period stipulated in the Convention.
The Airline was unsuccessful in its appeal to the
Ontario Superior Court on this issue. The Court first noted that
article 29(2) provides that "… the method of calculating
the period of limitation shall be determined by the law of the Court
seized of the case". It was common ground that Ontario
was the 'court seized of the case". The Superior Court noted
Ontario court rule 3.02, which allows for a request for an extension
of time to be brought after the time period for service of
a particular lawsuit may have expired.
In ruling against the Airline, the Court applied a
straightforward meaning to the word "brought" in the above
phrase from the Convention as meaning "to sue, or initiate
legal proceedings". The Court refused to rule the word "brought"
would include service of the documents initiating the proceeding.
This ran counter to established case law considering the meaning
of the word, and, no doubt, the Court in ruling against the Airline
on the point would have needed to see stronger language with little
or no ambiguity so as to impose both a 'filing and service' requirement
on future plaintiffs within the two year period following loss or
injury.
Gordon Hearn
4. INSURER REQUIRED TO DEFEND CARRIER FOR CONSEQUENTIAL
LOSSES CLAIM
In Intact Insurance Company v. Keith Hart Holdings
Ltd., 2010 B.C.S.C. 209, the insurer sought a declaration that
a policy providing "Motor Truck Cargo Carrier's Liability"
coverage required it to only provide a defence to an action commenced
and to indemnify for liability for direct damage to any goods covered
under the policy. The insurer also sought a declaration that it
was not obligated to defend or indemnify Keith Hart Holdings Ltd.,
its insured, for any liability for damages relating to consequential
damages because consequential losses were excluded under the policy.
South Caribbean Supplies Limited commenced an action
against Keith Hart Holdings Ltd. for damages caused by the damage
to a shipment of poles. The shipper also claimed for the costs it
incurred to ship another cargo of replacement poles. Keith Hart
Holdings Ltd. defended both claims. It asked its insurer, Intact
Insurance Company, to take over the defence of the entire action.
In its application, Intact conceded that it was obligated to provide
a defence at least to the extent of the cost of the replacement
poles. It took the position that since the damages for the extra
costs of shipping were consequential damages, it was not required
to defend Keith Hart Holdings Ltd. for this part of the action.
The policy provided as follows:
1. This policy covers the legal liability
of the Insured as a carrier, against all risks of direct physical
loss or damage from any external cause, except as hereinafter
provided, with respect to lawful goods and merchandise accepted
for shipment by the Insured (hereinafter referred to as "property"),
while such property is on land or on regularly scheduled ferries
within and between Canada, and the Continental United States while
such property is:
(a) in due course of transit in or on or towed by a vehicle owned
by, or operated by, or on behalf of the Insured, including during
direct loading and unloading of such "vehicles for the amount
shown on the "Declaration Page(s)" for any "vehicle";
6. This policy does not cover liability or expense for: ...c.
delay, loss of market or loss of use, or any other indirect or
consequential loss of any kind.
Having determined that at least some of the claim
of South Caribbean was covered within the policy, the judge was
of the opinion that it was necessary for Intact to defend those
claims that potentially fall under the policy. He also held that
Intact could not call upon Keith Hart to obtain their own independent
counsel with respect to claims that potentially fell outside the
terms of the policy. Keith Hart was not entitled to be represented
by separate counsel in court in the action commenced by South Caribbean.
The judge went on to elaborate that:
In this regard, Boyd J. in Continental
Insurance Co. v. Dia Met Minerals Ltd. 1994 CanLII 640 (BC
S.C.), (1994), 5 B.C.L.R. (3d) 222 (S.C.), declined to direct
the insurers to appoint counsel to defend only those claims that
potentially fell under the policy while calling on the insured
to obtain their own independent counsel with respect to claims
falling outside the policy, stating that such an order would be
impractical and unworkable. I am in agreement with that assessment.
However, the judge held that the duty to defend the
entire action of South Caribbean was subject to an assessment after
the action was concluded regarding those costs which were to be
payable by Intact and those costs which were to be payable by Keith
Hart. Defence costs would be assessed retrospectively as opposed
to "the almost insurmountable difficulty of apportioning defence
costs, on the basis of pleadings alone, before or even after trial."
The judge was also uncomfortable in making a decision
as to whether the additional costs of transporting the replacement
poles were or were not direct physical loss or damage as per the
policy wording. Justice Burnyeat added:
As well, it is not clear at this stage whether
the cost of transporting the replacement poles would be determined
as being a "direct physical loss or damage" or whether
the exclusion for liability or expense for "delay, loss of
market or loss of use, or any other indirect or consequential
loss of any kind" applies. On the basis of the current state
of the pleadings, on the basis of pleadings that might be amended
in the future, and on the basis of any decisions that the trial
judge may make, it is not clear that the cost of transporting
the replacement poles would not be found to be a "direct
physical loss or damage".
The court dismissed Intact's application for a declaration
that it was not required to defend the consequential claim.
Rui Fernandes
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