Established 1996 Serving All of Canada
Telephone:
416-203-9500
 


Newsletters 2012 > June 2012

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"

The Facts

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 island.

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 expenses?

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 Rules.

(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.

The Result

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 negligence).

Commentary

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 those Rules.

(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.

[emphasis added]

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.

Gordon Hearn

Endnotes

*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 to shore.
*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 very dark".
*4 R.S.C. 1985 c.F-7
*5 s. 43(1) and (2), Marine Liability Act, S.C. 2001, c. 6



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 departure.

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.

The Facts

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 Navy.

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 by GasTOPS.

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 opportunities.

The Appeal

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 deference.

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 discretion.

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.

Conclusion

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 system".

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

 

 

 

 


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 Hearn LLP.