In this issue:
1. Firm and Industry News
2. Application of Pollution Exclusion Clause in CGL Policy Clarified
3. Court Actions Must Proceed With Reasonable Diligence
4. Suspect Transactions for Scrap Metal Warning
1. Firm and Industry News
- June 3rd 2011 Quebec City: Canadian Maritime Law Association Annual Meeting and Dinner
- June 16, 2011 Toronto: Canadian International
Freight Forwarders Centraol Region Boat Cruise Networking Social
- June 23, 2011 Richmond Hill Golf Club: Canadian
Board of Marine Underwriters Spring Golf Tournament
- September 8th 2011 Toronto or Montreal: Tentative Date for Association of Average Adjusters of Canada
- September 18-21 2011 Paris France: International
Union of Marine Insurers Meeting.
- September 28-30 Malahide Dublin Ireland: International Marine Claims Conference
- October 6th, 2011 New York: Association
of Average Adjusters of the U.S. Annual Meeting and Dinner
Gordon Hearn represented the firm at the
Conference of Freight Counsel meetings held in Chicago on June
26 and 276, 2011.
Rui Fernandes will be attending the IUMI
meetings in Paris France in September. He will be giving a short
speech on Canadian maritime law and loss prevention.
Kim Stoll will be the moderator on the
Modal Update panel at the Canadian Transport Lawyers Association
Annual Conference in Winnipeg, Manitoba. Martin Abadi will be presenting on the modal update for Marine Law.
Fernandes Hearn LLP Named One of Top 6 Maritime
Boutique Firms in the Country. "This boutique came on the
scene in 1996, when Rui Fernandes and Gordon Hearn left Cassels
Brock & Blackwell LLP. Maritime law is a major component
of its general transportation law practice, which also deals
with matters involving aviation, trucking, and rail carriage.
Its nine lawyers serve key clients such as Royal & Sun Alliance
Insurance, Allianz Insurance, Chubb Group of Insurance Companies,
JEVCO Insurance Co., NYK Logistics, Quik X Transportation Inc.,
and Whirlpool Jet Boat Tours. Fernandes has helped solidify
the firm's strong reputation by publishing five texts on transportation
law." - Canadian Lawyer Magazine
2. Court of
Appeal Clarifies Application of Pollution Exclusion Clauses in CGL
In ING Insurance Company of Canada v. Miracle (Mohawk
Imperial Sales and Mohawk Liquidate), 2011 ONCA 321, the Ontario
Court of Appeal held that a "Pollution Liability" exclusion
clause in a Commercial General Liability (CGL) insurance policy
will apply where the insured participated in an activity that posed
a known risk of pollution and environmental damage.
The insured, Andrew Miracle doing business as Mohawk
Imperial Sales and Mohawk Liquidate (Miracle), operated a convenience
store and gas bar. In a claim between the Government of Canada and
Miracle it was alleged that gasoline escaped from an underground
storage tank on Miracle's property and migrated on to adjacent lands
owned by Canada. The claim, which alleged strict liability, nuisance
and negligence, was for $1,850,000 in damages to cover the loss
in value of the claimant's property, the costs of conducting an
environmental assessment and the costs of remediating the property.
ING issued a Commercial General Liability policy to
Miracle which contained a "Pollution Liability" exclusion
clause excluding coverage for losses "arising out of the actual,
alleged, potential or threatened spill, discharge, emission, dispersal,
seepage, leakage, migration, release or escape of pollutants"
from the lands or premises of Miracle.
ING sought a declaration that it had no duty to defend
or indemnify Miracle [ in the action commenced by Canada] on the
ground that the claim was excluded from coverage. The application
judge dismissed the application on the ground that, as Miracle was
not an "active industrial polluter" and as the claim was
based on Miracle's alleged negligence, the pollution exclusion clause
did not apply.
In dismissing ING's application for a declaration
that it had no duty to defend or indemnify Miracle, the application
judge relied on the decision of the Ontario Court of Appeal in Zurich
Insurance Co. v. 686234 Ontario Ltd. 2002 CanLII 33365 (ON C.A.),
(2002), 62 O.R. (3d) 447 (C.A.) (leave to appeal dismissed, 
S.C.C.A. No. 33). In particular, she relied on the finding in Zurich that nothing in the insured's regular business activities "place[d]
it in the category of an active industrial polluter of the natural
environment", and that the alleged "pollution" was
"a result of the negligence alleged in the underlying claims".
In Zurich, the owner of an apartment building
was sued by its tenants for damages caused by carbon monoxide poisoning
caused by a defective furnace. The owner was insured and claimed
indemnification from the insurer. The Ontario Court of Appeal held
that a "Pollution Liability" exclusion clause did not
apply to protect the insurer from having to indemnify the owner.
In holding that the parties in Zurich would not reasonably
have expected to exclude "carbon monoxide poisoning" from
coverage under an exclusion clause dealing with "environmental
pollution," the Court of Appeal relied on the determination
that the insured party's regular business activities did not "place
it in the category of an active industrial polluter of the natural
environment." The Court of Appeal suggested that "active
industrial polluters" would be in the nature of a manufacturer
that discharges "effluent, overheated water, spent fuel and
the like into the environment" in the normal course of its
In Miracle, the application judge found that,
like the insured in Zurich, Miracle did not fall into the
category of an "industrial polluter". Rather, the claimant
alleged that the gas leak occurred as a result of Miracle's negligence.
Since a reasonable insured would expect the exclusion to apply to
industrial pollution and not to a gas leak, the claimant's claim
was held not to fall within the pollution exclusion.
In this appeal [Miracle], Ontario Court of
Appeal clarified its earlier decision in Zurich. In so doing
it granted ING the declaration it sought that it had no duty to
defend or indemnify Miracle. The Court of Appeal held that the application
judge erred in holding that the pollution exclusion clause did not
apply to exclude coverage for the claim as pleaded.
The Court of Appeal relied on a "commercially
sensible interpretation" of the CGL insurance policy, based
on the reasonable expectations of the parties, and indicated that:
"Unlike Zurich, in this case, the insured
was engaged in an activity that carries an obvious and well-known
risk of pollution and environmental damage: running a gas station.
Indeed, the statement of claim is framed as a claim for damage
to the natural environment caused by a form of pollution."
Justice Sharpe, speaking for the Court, held that
the Court of Appeal's statement that the insured party in Zurich was not an "active industrial polluter" must be read in
the context of that case, and that the phrase should not be read
as restrictively as the application judge appeared to read it:
"Liability insurance is purchased to cover
risks, not outcomes that are certain or inevitable. There is a
general principle of insurance law that only fortuitous or contingent
losses are covered by liability policies [citation omitted]. Accepting
the argument that the pollution liability exclusion only applies
to "active" industrial polluters - those who are already
excluded from ordinary liability insurance coverage by virtue
of the fortuity principle - would effectively denude the clause
of any meaning. In my view, the exclusion clearly extends to activities,
such as storing gasoline in the ground for resale at a gas bar,
that carry a known risk of pollution and environmental harm."
The Court of Appeal went on to hold that applying
the "Pollution Liability" exclusion clause to the present
circumstances did not nullify the coverage sought by Miracle in
the first place:
[We] see no merit in the submission that giving
effect to the exclusion would effectively nullify the policy in
this case. [. . .] [T]he operator of a convenience store and gas
bar faces the risk of a wide range of liability claims for bodily
injury and damage to property that the CGL will cover. By denying
coverage for pollution liability, the court does not deprive the
policy of a very significant measure of protection for the myriad
other risks that the policy does cover. [. . .] [T]he pollution
exclusion in this case is animated by a unique purpose: to preclude
coverage for expensive government-mandated environmental cleanup
required by legislation that makes polluters strictly liable.
The Court of Appeal concluded that it found no reason
in this case to disregard the clear and unambiguous language of
the pollution exclusion clause. The claim against Miracle fell squarely
within the exclusion. ING was therefore not required to defend or
indemnify Miracle against the claim brought by Canada.
3. Court Actions Must Proceed with Reasonable Diligence
You're a defendant in a lawsuit. Growing tired of
the plaintiff not taking steps to advance the matter, at some point
you ask whether the claim might be dismissed by the court because
of all the delays incurred. Invariably you are advised by counsel
that 'it is hard to dismiss claims for pure delay'. While it is
a fundamental goal that parties should have their day in court,
the Ontario Court of Appeal has recently weighed in on the topic
affirming a dismissal of an action for 'delay', citing egregious
delays in the prosecution of a case.
Just when is 'enough enough'? The case of The Corporation
of The City of Hamilton v. Svedas Koyanagi Architects Inc. et al. (2011) 104 O.R. (3d) 689 is an important illustration of the expectation
that plaintiffs prosecute claims with reasonable diligence. Granted,
as will be seen, the delays in the City of Hamilton case
were very significant. Further, they were not adequately explained
when put under scrutiny, and perhaps of paramount importance, the
defendants showed that they had been prejudiced by the delay. As
such, the case serves as an important 'nudge' to plaintiffs counsel;
a reminder to move matters 'forward' with reasonable diligence.
The facts are that dramatic in terms of delay that the case should
not create a 'chilling effect' on counsel encountering the usual
delays in advancing a case - but they do illustrate when 'enough
The City of Hamilton sued the defendants, Svedas Koyanagi
Architects and Bradscot Construction for design and construction
defects in an arena building. The arena was substantially completed
in March 1994. The City alleges that serious defects such as cracks
in the ice pad first appeared after the arena opened. The City commenced
an action for damages in the spring of 2000. This suit was commenced
towards close to the six year deadline for actions to be commenced
in Ontario. (*1) Following the commencement of suit, other than
asking for the delivery of statements of defence by the defendants
and a failed application to add a third defendant to the action,
the City did little to advance the action.
In due course, in accordance with the procedures of
the Superior Court, the registrar issued a "status notice"
whereby counsel for the plaintiff [usually, on notice to, or in
concert with other counsel involved in the action] was called upon
to account to the court on the status of the action.(*2) Accordingly,
the City scheduled a status hearing for February 2009 but its counsel
who was handling the file forgot to attend. As a result, On July
9, 2009 the registrar for the Superior Court issued an order dismissing
the City's action for "delay".
The City brought a motion to a judge of the Superior
Court on March 30, 2010 to set aside the registrar's dismissal order.
This application was dismissed. The judge dismissed the application
on the basis that the significant delay incurred in the prosecution
[or lack thereof] of the action had not been explained, and further
that the defendants had been prejudiced by virtue of the delay.
The City appealed this order to the Court of Appeal.
At the Court of Appeal
The motion judge had the discretionary power to allow
the City's appeal, but as mentioned he chose to affirm the step
taken by the registrar. The main issue on the appeal concerned whether
this discretion was reasonably exercised.
A secondary issue arose from the fact that a 'third
party' brought into the litigation by the Svedas defendant was awarded
costs by the motion judge notwithstanding the fact the third party
- Group Eight Engineering - did not defend the main action.
On the appeal the City maintained that the motion
judge improperly found that i) there was no reasonable explanation
provided for the delay, ii) that the defendants were prejudiced
by any delay and iii) that Group Eight Engineering should be awarded
costs from the earlier proceedings wherein the action was dismissed.
Counsel for the City asserted in this regard that Group Eight Engineering
had no 'standing' in the earlier proceedings so as to have been
allowed any award for costs. (*3)
The Court of Appeal reviewed the chronological highlights:
- the period of time between the first indication
of the construction defects (late 1994) and the registrar's dismissal
order (July, 2009) was 15 years;
- of these 15 years, there were, roughly speaking,
three phases lasting 5 years each:
- the first, relating to the discovery of the defects,
up until the commencement of the action [taking us from 1994 to
- the second, concerning the litigation itself,
involving the City gathering in the statements of defence from
the defendants [March, 2000 to November, 2005]; and
- the third, concerning the passage of time from
November, 2005 up until July, 2009, when the initial dismissal
order was issued.
Reviewing the chronology, the Court of Appeal noted
with concern that in the middle time frame that "the City
took no steps to move its lawsuit forward" and that "the
defendants on the other hand, were not silent during this time period".
The Svedas defendant had indicated a manifest intention to investigate
the claim. The Bradscot defendant in turn had sent a request to
inspect documents and a 'demand for particulars' to counsel for
the City.(*4) The City did not respond to this request for particulars.
Bradscot's counsel wrote 5 letters to counsel for the City about
the action during the period of May 2000 to May 2001. Bradscot did
not receive a reply to any of these letters. The Court noted that
in Bradscot's last letter dated May 16, 2001, it's counsel said
with some justification: "
it appears that the City
is no longer interested in pursuing this claim".
Finally, in late November, 2005, the City delivered
to counsel for Bradscot three expert reports that it had in its
possession since 1999 which implicated the defendants in respect
of the arena defects being complained of. It was at this point that
the City requested delivery of statements of defence from Svedas
and Bradscot. These were duly delivered by those parties, in late
2005 and the spring of 2006.
In March 2006 the City appointed outside counsel to
handle the matter. In April, 2006, the City demolished the arena's
concrete ice-pad, being the subject of many of the complaints. A
consultant was retained to comment on the cracking who delivered
a report in December 2006 concluding that a temperature control
system manufactured by an entity not named in the law suit was defective
which led to the cracks in question. The City wanted to add this
'new' entity - Honeywell - as a defendant, however it waited to
bring the motion to add it as a defendant until June, 2008 which
application was actually heard by the court in March, 2009. The
application was dismissed because the City's delay in this regard
was not explained and this delay had prejudiced Honeywell.
Meanwhile, as at the end of 2007, as two years had
elapsed since Bradscot had delivered its statement of defence -the
matter not yet having been 'set down for trial' - the registrar
issued a status notice under Rule 48 of the Rules of Civil Procedure to counsel for the City. In response, the City scheduled a status
hearing for February 12, 2008. The City adjourned this hearing to
August 19, 2008. On that day, as its motion to add Honeywell as
a defendant was still pending, the City further adjourned the status
hearing, to February 10, 2009. It did not advise the defendants
of this new date. On February 10, 2009, no one attended the hearing.
The motion judge found that this was on account of inadvertence.
As mentioned above, the registrar thereafter issued an order dismissing
the City's action for delay.
A Review of the Motion Judge's Analysis
The Court of Appeal reviewed several key findings
by the motion judge:
- while the City did not have to explain its delay
in the issuance of suit until just before the end of the limitation
period, this, as a part of the 'cumulative delay', may be relevant
on the question of prejudice raised by the defendants said to
have been caused by the delay;
- the City did not explain its delay in the middle
phase listed above - that is, why little happened in the period
following issuance of suit;
- the City did not explain its failure to effectively
investigate potential causes of damage - the Honeywell 'angle'
being pursued only in early 2006 - adding to the spectre of 'unexplained
- prejudice to the defendants may be presumed because
"the recollection of memory of witnesses will erode over
time, and evidence that would otherwise be available may be lost";
- the City's delay has caused significant actual
prejudice to the defendants, in two ways. Many of their witnesses
were either then unavailable or have little recollection of the
arena project. In addition, the defendants were prejudiced by
the City's failure to add Honeywell as a defendant.(*5)
The Court of Appeal's Analysis
Judges' decisions on whether to set aside a registrar's
order dismissing an action for delay are discretionary. The general
principles and specific considerations that structure the exercise
of this discretion are well established in cases such as Scaini
v. Prochnicki (2007) 85 O.R. (3d) 179. The court noted that
two principles of our justice system and our Rules of Civil Procedure
come into play. The first is that civil actions should be decided
on their merits. As noted by the motion judge: "
court's bias is in favour of deciding matters on their merits rather
than terminating rights on procedural grounds". The second
principle, reflected in the various time limits mandated by the Rules of Civil Procedure, and in the provision therein for
a status notice and a hearing on point, is that civil actions should
be resolved within a reasonable time frame.
The court noted that on motions to set aside an order
dismissing an action for delay, invariably there is tension between
these two principles. In seeking to give effect to these principles,
motion judges must take into account and weigh a list of considerations,
- the length of the delay;
- whether the plaintiff has adequately explained
- whether the delay has prejudiced the defendants;
- whether the dismissal order resulted from a lawyer's
- whether, after becoming aware of the dismissal
order, the plaintiff moved reasonably promptly to set it aside.
The court's overriding objective is to achieve a just
result - a result that balances the interests of the parties and
takes account of the public's interest in the timely resolution
of disputes. The Court of Appeal noted that the motion judge took
the above framework into consideration and that his findings of
unexplained delay and prejudice were well supported on the court
record. Accordingly, it was found that the motion judge's conclusion
that the registrar's order should not be set aside was reasonable
and should not be disturbed on appeal. While the Court of Appeal
was hesitant to deny the City a decision on the merits of the claim,
the inordinate delay - in large part not explained - and the prejudicial
effect of the delay on the defendants outweighed any such concern
in upholding the dismissal of the action for delay. Interestingly,
the Court of Appeal noted that while "defendants as well
as plaintiffs have an obligation to move a matter along, the primary
responsibility rests with the plaintiff". Accordingly,
the Court of Appeal affirmed the ruling of the motion judge. The
City of Hamilton lost the ability to prosecute its case towards
In this case, the Court of Appeal found that the entire
responsibility for the delay rested with the City. Further - having
waited until close to the expiry of the limitation period to start
its action, the City was obliged to move it along.
On the last issue, as to whether the motion judge
erred in awarding costs to Group Eight Engineering, the Court of
Appeal agreed with the findings of the motion judge that "Group
Eight had a direct interest in the outcome of the motion, since
setting aside the registrar's dismissal order would have resulted
in the revival of the third party claims brought by Svedas
Accordingly - without ruling generally as to whether in all motions
of this kind a plaintiff should be at risk to pay the costs of a
third party who did not defend the main action - it was found that
the motion judge exercised his discretion correctly. This was not
only because Group Eight was affected by the outcome of the motion,
but because it was reasonably foreseeable that Svedas would have
taken third party proceedings against Group Eight who was one of
its sub-consultants on the arena project.
As mentioned at the beginning of this article, it
would take an extraordinary or a 'severe' set of facts for a case
to be dismissed for 'delay'. The facts in the City of Hamilton decision
are extraordinary. While it is often difficult to advance multi-party
litigation with dispatch, especially where there are complex factual
or expert related questions involved, the basic lessons for counsel
and litigants should be clear. Plaintiffs counsel need to manifest
an intention throughout to prosecute cases and to take steps to
move things along. Certainly, if and when status notices are issued
[a common occurrence] a cautious approach must be taken. If one
or more defendants are an on going cause of any delay, the record
should be developed accordingly so that the plaintiff will not be
found to have been the only cause of any delay as was the case in
For their part, defence counsel are by and large expected
to cooperate in the prosecution of matters, and to timely enforce
the plaintiff's obligations, in seeking appropriate remedies in
that regard, to advance court cases. However they must also be aware
that if inordinate delays accumulate, combined with prejudice to
the defence of a matter, that this case might serve as an important
precedent in seeking a dismissal for delay.
*1 The suit time of six years, relevant in this
case, is not longer the law in Ontario. Presently the time period
for suits for breach of contract and negligence is 2 years from
the "day on which the claim was discovered".
*2 Usually this culminates in a timetable being
prepared by counsel, with some form of scheduling attendance or
a timetable filing as a means to satisfy the court that a 'go forward'
plan has been agreed upon and that the parties are prepared to meet
timing deadlines in that regard.
*3 It will be recalled that in our system, as
a general rule, that the successful party will recover a portion
of their legal costs. Accordingly, the defendants had been awarded
some of their costs in the initial proceedings before the motion
judge. In addition, in the same vein, the third party was awarded
some of its legal costs.
*4 A "request for particulars" is
a list of questions that counsel for a defendant can send to counsel
for the plaintiff, soliciting details of the claim in advance of
delivering a statement of defence. These 'particulars' can, generally
speaking, be demanded if the provision of more information than
is pleaded in a statement of claim is key to the preparation of
a meaningful defence.
*5 As it turns out, while the motion judge
cited this as something left unexplained, the Court of Appeal did
not have a concern with this one discrete item, but it did have
a grievance over all other aspects of the plaintiff's delay in this
4. The ICC International Maritime Bureau (IMB)
has uncovered a number of suspect transactions for scrap metal.
The following notice can be found at http://www.icc-ccs.org/news/448-imb-identifies-bogus-scrap-shipments
"The Bureau has identified a number of purported
shipments of Heavy Melting Scrap (HMS) which, upon closer scrutiny,
appear not to have taken place at all. The documents represented
containerised cargoes of HMS allegedly shipped, by an Austrian beneficiary,
from a northern Italian port to various ports in Asia. IMB enquiries
quickly established that although the nominated vessels were at
the port at the stated time of loading and the containers as per
B/L are in existence, the said cargoes were not loaded as.
IMB Director Pottengal Mukundan commented: "These
transactions were supported by a very convincing set of documents,
which on first glance appear to be genuine. Furthermore, the vessels
named on all of the Bills of Lading were all in the ports of loading
at the stated time- which suggests a degree of familiarity with
the local trade. IMB was able to use third-party sources to establish
that these shipments had, in fact, never taken place."
All of the suspect transactions have included Bills
of Lading issued by the same NVOCC. The NVOCC had a website that
offered an 'Automated Tracking System', which allows users to enter
shipment details in order that they receive email confirmation that
the shipment had taken place. The information provided by third-party
sources, however, directly contradicted that provided by the NVOCC.
The documents included an inspection certificate issued
by a UK-based inspection company. The company, registered less than
one month prior to the first purported shipment was said to have
taken place, have a similar name and logo to that of an established
Mr Mukundan continued: "These documents have
clearly been produced by someone with an in-depth knowledge of trade
finance and are designed to deceive those without specific shipping
or trade knowledge. Most worrying, we have seen several referrals
of this type of document from various members in recent days- suggesting
that there may be numerous transactions under way with several banks."
Stringent due diligence checks on all parties involved
in any major transaction are strongly recommended by IMB, even on
parties with established trading records. Furthermore, the Bureau
advises that all details of the shipment appearing on the documents
are verified independently to prevent losses."
This newsletter is published to keep our clients and friends informed
of new and important legal developments. It is intended for information
purposes only and does not constitute legal advice. You should not
act or fail to act on anything based on any of the material contained
herein without first consulting with a lawyer. The reading, sending
or receiving of information from or via the newsletter does not
create a lawyer-client relationship. Unless otherwise noted, all
content on this newsletter (the "Content") including images,
illustrations, designs, icons, photographs, and written and other
materials are copyrights, trade-marks and/or other intellectual
properties owned, controlled or licensed by Fernandes Hearn LLP.
The Content may not be otherwise used, reproduced, broadcast, published,or
retransmitted without the prior written permission of Fernandes