In this issue:
1. Firm and Industry News
2. Hague-Visby Rules Application to a Truck?
3. Obligations of Departing Employees
1. Firm and Industry News
- Aug. 29th Richmond Hill Ontario - Fall Golf
Tournament Canadian Board of Marine Underwriters
- Sept. 15-19, San Diego - International Union
of Marine Insurers Annual Conference
- Sept. 26-29, Toronto - Canadian Transport
Lawyers Association Annual Conference
- Sept. 26-28, Dublin - International
Marine Claims Conference
Gordon Hearn will chair the Executive Committee
meeting of the Transportation Lawyers Association in Toronto on
July 28, 2012.
2. Could the
Hague-Visby Rules Ever Apply to a Truck
or to a Truck Carrying
a Truck? The Curious Case of Wells Fargo v. the Barge "MLT-3"
Wells Fargo Equipment Finance Company ("Wells
Fargo") owned a 2001 Freightliner Truck equipped with a flat
bed and fitted crane (the "truck"). The truck was leased
to C & C Machine Movers & Warehousing Inc. ("C &C").
C&C was hired by a customer to use the truck for
the carriage of building materials to a building site on Grambier
Island, located near Vancouver. The fact that the building site
was on an island made for extra logistical concerns: C & C had
to provide the truck to carry the materials to the site, but somehow
the truck and the materials had to travel from the mainland to the
Pursuant to a long-standing business arrangement,
C & C engaged Mercury Launch & Tug Ltd. ("Mercury")
entering into a verbal contract whereby Mercury to would provide
a tug and barge for the movement of the truck and building materials
to the island. Mercury would assess an hourly tug and tow charge.
On December 4, 2007 the building materials were, accordingly, loaded
onto a barge owned by Mercury (the "MLT-3") at Horseshoe
Bay on the mainland for transfer to the island. Thereafter, an employee
of C & C (who, at all times, was the driver) loaded the truck
onto the MLT-3 by backing the truck over a ramp onto it. Later that
day, the tug, MERCURY XII, towed the MLT-3 (now laden with the truck
and materials) to Grambier Island. Upon arrival, the captain of
the tug, Neil Paterson, lowered the MLT-3's barge ramp onto the
concrete receiving ramp on shore and attached the shore mooring
lines to the MLT-3. The truck's crane was used to load two loads
of the building materials onto the truck. The truck was then driven
off the MLT-3 to attend the building site. After delivering the
building materials, this sequence was repeated, with the truck being
loaded a second time with building materials also carried on the
MLT-3 destined for the said building site.
After completing the second delivery, the truck was
loaded with a dilapidated pick-up truck at the building site on
its flat deck for eventual carriage back to the mainland on the
MLT-3. Upon arrival back at the loading ramp where the MLT-3 lay
in wait for the trip back to the mainland, it was getting dark and
the tide was lowering considerably. This was when fate intervened.
The mooring lines connecting the MLT-3 to the shore
had, by this time, been untied from the shore and were almost taut
on account of the lowering tide and, accordingly, were loosened.
As the truck driver backed the truck onto the barge loading ramp,
he could see in his rearview mirror the tug boat captain directing
him. When the rearmost axle of the truck was just off the barge
ramp and on the MLT-3 itself, the driver witnessed the MLT-3 starting
to depart from the shore. Sensing that the MLT-3 was moving, the
truck driver applied the truck's air brakes in the hope that this
would both lock the rear wheels to the deck of the MLT-3 and the
front wheels to the shore ramp in order to prevent the further movement
of the MLT-3 out from the shore. (*1) The evidence at trial
indicated that many drivers would conversely, have "booted
it" - that is, rapidly driving onto the deck of the MLT-3 using
the rotational force of the rear driving wheels to push the MLT-3
towards the shore.
While applying the air brakes, the truck driver heard
the truck's front bumper hitting the shore rocks. Soon, the whole
front of the truck began to sink and the cab filled with water.
The driver then jumped out of the truck's cab and swam for safety
to the deck of the MLT-3. The truck driver and the tug captain then
attempted to save the truck by attaching a rope from the back of
the tug to the back of the truck so as to pull the truck back onto
the MLT-3. This required the truck driver to swim back to the cab
to release the air brakes. As soon as he did this, the MLT-3 unexpectedly
swung so that its starboard side was toward the shore tipping the
truck over. The driver then jumped out of the cab, once again swimming
for his life. The truck finally tipped over and sank in fifty-five
feet of water. A few days later the MLT-3 returned to the scene
at the request of C & C and salvaged the truck.
Who was responsible for this loss and the related
The Court Action
Wells Fargo and C & C commenced an action in the
Federal Court of Canada against MLT-3 and her owners; the tug MERCURY
XII and her owners, Mercury, as well as the tug captain (*2).
On the basis of the evidence, the trial judge found
that the truck was under the control of its driver and the tug and
MLT-3 were under the control of the tug captain. Both were acting
within the scope of their duties (therefore acting for, and thus,
binding in law, C & C and Mercury respectively). The judge found
that the tug captain provided hand signal directions to the truck
driver as the truck was loaded onto the MLT-3 and that the truck
driver perceived the MLT-3 to be moving away from the shore. Having
acted on his own accord in applying the air brakes to try to stop
the movement of the MLT-3, the judge found that "there is no
standard or accepted method to deal with the situation faced by
(the truck driver)". Despite these efforts, the MLT-3 had continued
to move away from the shore until the front end of the truck fell
into the water.
On the basis of the foregoing, the judge found that
Mercury was to bear the responsibility for the loss. The judge found
that Mercury was negligent in its failure to secure the mooring
lines on shore to the MLT-3 (*3). With a lowering tide, a
prudent skipper would have added rope to the lines on shore to secure
the MLT-3 to the shore. Despite this lack of security, the tug captain
nonetheless signaled the truck driver to back the truck onto the,
which constituted negligence.
Mercury raised the question as to whether the truck
driver was contributorily negligent. Noting that, with the benefit
of hindsight, a better alternative likely was to have accelerated
the truck onto the MLT-3, when the problems started. The judge attributed
10% contributory negligence of the fault to the C & C truck
driver for applying the air brakes.
Some "Admiralty law 101":
a) Was there an "in rem" claim against
the MLT-3 or an "in personam" claim against the owner
of the MLT-3?
On the date of the incident, the MLT-3 was owned by
Consulich Group Investments Inc., which had provided same to Mercury
under a bareboat charter. As of the date in which this action was
commenced in 2009, the subject barge, then renamed MLT-3, had been
sold by Consulich to Mercury.
This transfer then gave rise to the issue as to whether
the MLT-3, could be made a defendant and subject to the legal process
by way of an in rem action. The court reviewed s. 43(3) of the Federal
Courts Act (*4) which extinguishes the in rem jurisdiction of
the Court in respect of various types of claims where the ownership
of the vessel had changed between the date of the incident and the
date that the action was commenced.
Plaintiff's counsel argued that one type of claim
that remains for a right of an action in rem against maritime property
concerns claims "
for damage or loss of life
or personal injury caused by a ship either in collision or otherwise" (emphasis added). The court, however, noted that any claim for damage
or loss in this case was not caused by the MLT-3 and/or the MERCURY
XII tug: they were not the actual instruments (whether by physical
contact or otherwise) of the damage done to the truck. The damage
was in fact done by the actions of one or the other or both of the
truck driver and the captain of the MLT-3 and tug. Accordingly,
there was no action available against the MLT-3 in rem and,
by extension, there was no claim against Consulich, itself.
b) Do the Hague-Visby Rules apply in which the
case the action might be said to be time barred?
(1). Section 43(1) of the Marine Liability Act
(*5) prescribes that the Hague-Visby Rules have the force of
law in Canada in respect of contracts for the carriage of goods
by water between different states as described in Article X of those
(2) The Hague-Visby Rules also apply in respect of
contracts for the carriage of goods by water from one place in Canada
to another place in Canada, either directly or by way of a place
outside of Canada, unless there is no bill of lading and the associated contract stipulates that those Rules do not apply.
To the extent applicable, the Rules could have wreaked
havoc upon the plaintiff's case, as this action was commenced outside
of the one year "time bar" provided for in those Rules.
Article III, paragraph 6 therein provides that:
the carrier and the ship shall in any
event be discharged from all liability whatsoever in respect of
the goods, unless suit is brought within one year after their
delivery or of the date when they should have been delivered.
This period may, however, be extended if the parties so agree
after the cause of action has arisen".
As indicated above, the Hague-Visby Rules apply in
respect of contracts for the carriage of goods by water from one
place in Canada to another place in Canada, either directly or by
way of a place outside of Canada, unless there is no bill of lading
and the contract stipulates that those Rules do not apply.
Mercury did not issue a bill of lading for the tow
in question. There was no expectation on the part of any of the
parties involved that Mercury would issue a bill of lading. The
court found that, as there was no bill of lading issued or other
document of title, the Hague-Visby Rules were not applicable,
and that oral contracts, such as took place here, do not then invoke
the Hague-Visby Rules. Accordingly, the case was not time-barred.
In the end, the plaintiffs were awarded damages for
90% of their proven losses and associated expenses concerning the
ill-fated truck (given the finding noted earlier of 10% contributory
We note that, on the time bar issue, the judge did
not note or find whether, on the oral contract, if there was any
agreement "that the Hague-Visby Rules would not apply".
This raises an interesting question. Recall the provisions of s.
43(1) and (2) of the Marine Liability Act at this point:
s. 43(1) The Hague-Visby Rules have the force
of law in Canada in respect of contracts for the carriage of goods
by water between different states as described in Article X of
(2) The Hague-Visby Rules also apply in
respect of contracts for the carriage of goods by water from
one place in Canada to another place in Canada, either directly
or by way of a place outside of Canada, unless there is no bill
of lading and the contract stipulates that those Rules
do not apply.
Interestingly, the findings of fact in this case as
mentioned do not touch on the question as to whether the parties
had an agreement that the Hague-Visby Rules would not apply. The
Court's analysis on the time bar issue rather begins and ends on
the basis that it is a pre-condition to the application of the Rules
regarding carriage from one place to another within Canada for there
to have been a written bill of lading or similar document. The Court
did not consider the second element (i.e. if the parties had agreed
in the contract that the Rules would not apply). This gives rise
to an interesting question: are the provisions in s. 43(2) limited
by those of s. 43(1), that is, is s. 43(2) merely an extension of
s. 43(1), such that if the test therein is not satisfied as to the
application of the Rules that they will not apply for the purposes
of s. 43(2)? Or, conversely, is s. 43(2) capable of being a "stand
alone" expansion of s. 43(1) whereby it might be asserted
that the Hague-Visby Rules might apply in pure Canadian trade where
they might not internationally?
We don't yet know. Stay tuned.
*1 At the time that the truck was being backed
onto the MLT-3, the MLT-3 was being held in place only by the stern
of the tug which pressed against the bow of the MLT-3 to keep it
*2 2012 FC 738 (CanLII)
*3 Evidence was led at trial to the effect that the mooring lines
could have been lengthened so as to accommodate the lowering tide,
but that "
this would have taken time and it was getting
*4 R.S.C. 1985 c.F-7
*5 s. 43(1) and (2), Marine Liability Act, S.C. 2001, c.
3. Ontario Court of Appeal Considers the Obligations
of Departing Employees
GasTOPS Ltd. v. Forsyth, 2012 ONCA 134
For any position, employers and employees enter into
a written or oral contract of employment. When an employer ends
an employee's contract, it must give notice of its intention to
do so either by providing working notice or payment for that time
period in lieu of working notice. However, it is also true that
employees are also required to provide notice when leaving their
employment. Typically, the requirement of such notice by employees
is only an issue where the departing employees are fiduciaries and
much more time is required to locate and re-train a replacement.
Where too little notice is provided by departing employees (or there
are breaches of fiduciary duties), litigation may ensue to recover
the resultant damages.
In GasTOPS Ltd. v. Forsyth, 2012 ONCA 134,
the case involved the resignation of four key employees (the "departing
employees") and their former employer's suit against them for,
amongst other things, failure to provide reasonable notice of their
Granger J. found the departing employees liable to
their former employer, GasTOPS Ltd. ("GasTOPS"), for breach
of fiduciary duty, breach of confidence and breach of their contract
of employment. The company incorporated by the departing employees
(the "new company") was held liable for breach of confidence.
Granger J. held that the departing employees were required to provide
10-12 months of notice and assessed damages against the employees
equivalent to the profits earned by their new company from military
contracts in its first ten years of operation, and he ordered the
new company to disgorge those profits. The departing employees were
ordered to pay this amount jointly and severally totaling $12,306,495.00
along with pre-judgment interest of $3,039,944.00 together with
costs on a full indemnity basis of $4,252,920.24.
This case specifically serves as a reminder of employees'
duty to give notice of departure, the "proportionality principle"
relating to the duration of lawsuits and the court's use of full
indemnity costs in certain circumstances.
GasTOPS was in the business of the design, development
and application of computer software products that assess machinery
conditions for maintenance purposes for operators of jet engines.
GasTOPS focused on military aviation markets, but also had business
in the commercial industrial market. In the 1990s, it expanded into
the commercial aviation market.
The trial judge found that GasTOPS was a leader in
a highly specialized niche industry and was heavily involved in
the pursuit of an opportunity for military contracts with the US
Until October 1996, the departing employees were employed
by GasTOPS in critical positions and were the designers of core
programs in GasTOPS' technology products. The trial judge found
that they were part of the senior management at GasTOPS and that
they were crucial to the direction and guidance of that company.
The departing employees, before leaving GasTOPS, planned
to set up a software company and, shortly after leaving, incorporated
the new company. The employees provided identical letters of resignation
giving two weeks notice and promising not to solicit business from
GasTOPS' existing or potential clients and not to solicit its employees.
The trial judge found that within hours of their resignation
from GasTOPS, the departing employees were meeting with GasTOPS'
employees and describing their plans to incorporate a company focused
on aviation maintenance software. Shortly thereafter, a number of
other GasTOPS' employees left to join the departing employees at
the new company.
Despite the promises made not to compete or solicit,
the trial judge found that, subsequent to their resignations, the
departing employees pursued every existing and potential GasTOPS'
customer. They used the confidential business information they had
obtained while at GasTOPS to map their marketing strategy and develop
their virtually identical technology that they had designed and
developed at GasTOPS. GasTOPS was immediately damaged and the new
company, in its first three years, was able to make over 80 per
cent of its income from the U.S. Navy contracts that had been pursued
The trial judge found that all of the departing employees
owed a fiduciary duty to GasTOPS and they breached this duty in
the way they left their employment and in the ways they continued
to act thereafter. They breached their fiduciary duty by leaving
without giving reasonable notice, they knew other employees would
follow and that this would have devastating effects on GasTOPS.
They breached their fiduciary duty by soliciting the customers and
prospective customers and by using GasTOPS' confidential information
to compete unfairly with GasTOPS.
Confidential commercial and technical information
was used to advance the new company to the detriment of GasTOPS
in breach of their duty of confidence to GasTOPS.
The trial judge also found the four departing employees
liable for breach of contract for leaving their employment with
GasTOPS without giving reasonable notice. The trial judge found
that two weeks notice was inadequate and that each of the departing
employees knew that, as a result, GasTOPS would be unable to fulfill
its existing contracts, or continue to pursue its planned new business
On appeal, the departing employees did not contest
most of the trial judge's findings including the finding that two
of them owed GasTOPS fiduciary obligations, which they breached
in these various ways. Nor did they contest that all five departing
employees breached their duty of confidence to GasTOPS as described
above. Finally, the departing employees did not contest that they
breached their employment contracts by failing to give reasonable
notice of their intended departure. The appeal grounds primarily
concentrated on the judge's quantification of various remedies including
the "accounting period" used by the trial judge to calculate
the number of years of improper profits to be disgorged and over
which GasTOPS' losses were to be calculated and compensated.
Two of the departing employees also appealed the finding
that they owed fiduciary duties. All departing employees appealed
the finding that they and the new company were jointly and severally
liable for the Judgment and argued that there should be an individual
assessment of liability.
The Court of Appeal found the ten-year accounting period to be an
integral component of the remedy ordered by the trial judge for
breach of confidence and breach of fiduciary duty and that same
was reasonable. The trial judge ordered both disgorgement of improper
profits by the new company and equitable compensation payable by
the departing employees. Both of these equitable remedies were deserving
of the exercise of judicial discretion at trial and to which the
Court of Appeal would provide deference. Further, the Court found
that the trial judge's selection of ten years for the accounting
period was a fact-driven exercise and which also attracted appellate
The Court of Appeal stated that, unless the trial
judge had made a palpable and overriding fact-finding error, or
proceeded on a wrong principle of law, or reached a conclusion that
was so clearly wrong or unreasonable as to amount to an injustice,
there would be no interference with the trial judge's exercise of
The Court of Appeal dismissed the assertion that the
use of the accounting period was a vehicle used to punish the departing
employees and the new company. The Court also dismissed the assertion
that the accounting period was not measured and proportional but
rather found that it was based on the trial judge's detailed review
and evidentiary conclusions. Further the Court confirmed that temporal
limits for damages for misuse of confidential information and damages
for breach of fiduciary duties are not capped at 1 to 2 years. Rather
such limits were found to be fact driven with much dependent upon
the nature of the information and extent of the misappropriation,
which breaches may reasonably extend to lengthy accounting periods
for calculation of damage, such as in this case.
The departing employees did not appeal the finding
that the length of reasonable notice should have been 10-12 months,
but did use this finding as another ground to object to length of
the accounting period of ten years.
The Court of Appeal found that, as the trial judge
had not separately assessed and quantified the damage award flowing
from the failure by the four departing employees to give reasonable
notice, it was unnecessary to consider the length of notice that
should have been given. The Court of Appeal specifically stated,
because there was no appeal in this regard, that the Court of Appeal
panel should not be taken to agree with the 10-12 months suggested
by the trial judge or the factors he considered in reaching that
period since such notice period played no part in the trial judge's
calculation of the accounting period.
The departing employees' also appealed the trial judge's
order that the Judgment was payable jointly and severally. The Court
of Appeal dismissed their appeal by stating that the departing employees
engaged in a joint enterprise that inflicted significant harm on
GasTOPS in breach of their legal obligations. The quantum was ordered
as remedy for the harm caused by them collectively and that such
remedy was within the trial judge's discretion.
The trial judge's order of full indemnity costs was
also appealed on the basis that there was no intention to mislead
the court or provided incorrect evidence. The Court of Appeal found
that the trial judge had ample evidence on which to base his conclusion
that the appellants intended to mislead the court including late
productions about which the departing employees clearly knew and
had even prepared as well as trial testimony that these productions
later demonstrated to be false. The departing employees' conduct
clearly warranted the scale of the costs order made at trial and
the order would not be interfered with by the Court of Appeal.
On appeal, the departing employees did not object
to the finding of the length of 10 to 12 months as the reasonable
notice owed by the departing employees. The Court of Appeal, therefore,
was careful not to be seen to approve of the length of the required
notice period as applied by the trial judge. However, this case
serves to remind employers and employees alike that the departing
employee is also required to provide reasonable notice and that
such notice length is fact dependent (including the nature of the
employee's duties, expected time required for finding and training
replacement, timing of resignation for the employer and custom in
the trade and industry).
This legal action took 7 years to complete inclusive
of 3.5 years of trial (295 days of evidence), 70,000 pages of exhibits,
written submissions of 3,000 pages and the reasons for judgment
took 2 years and 668 pages.
The Court of Appeal took the opportunity to remind
all parties and counsel alike that the principle of proportionality
should be respected to ensure an "efficient and effective justice
The award of full indemnity costs in light of the
departing employees' conduct throughout the action also serves as
a reminder to all parties and counsel of the importance of integrity
in the trial process.
Kim E. Stoll
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