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Newsletters 2012 > November 2012

In this issue:
1. Firm and Industry News
2. Aircraft Under Charter Not a Common Carrier
3. Charter Party Agreements are not Contracts of Carriage by Water
4. Customs Brokerage Fees and Silence. Who Pays?
5. Radioactive Cargo
6. Maritime Liens - Comfact Corporation v Hull 717 (Ship)



 

1. Firm and Industry News

Gordon Hearn and David Huard represented the Firm on November 9th at the Transportation Law Institute in Nashville, Tennessee.

Gordon Hearn presented a paper on "The Identity Theft of Cargo: Reducing Losses and the Allocation of Liability by the Courts" at the Canadian Board of Marine Underwriters Annual Conference in Toronto on November 27th.

LexisNexis Canada has just released its Halsbury's Laws of Canada - Maritime Law title. Rui Fernandes is the author of this new work. This completes Rui's trilogy of works for LexisNexis' Halsbury's Laws of Canada. Last December his Transportation - Carriage of Goods and Transportation - Railway Law was published. The current work is described by LexisNexis with the following introduction:

"The globalization of the economy has ballooned the international shipping community in size, making the sea an integral means of modern trade. This title is a complete source of admiralty law across Canada. Covering both the general issues of maritime law, such as its legislative and constitutional framework, and the more specific issues, such as regulatory and safety requirements and the operation of ships, this title is essential for practitioners working in fields of trade, administrative and international law."


 

2. Aircraft Under Charter Not a Common Carrier

In this British Columbia Superior Court case (*1), the claimant, Debra McLean, was the beneficiary of a life insurance policy on the life of her late husband. She sought a declaration that she was entitled to an accidental death benefit of $1,000,000 under the policy. The policy was purchased in 2007 as a group policy available to individuals who held Sears charge accounts. The claimant's husband, Mark McLean, was killed in a plane crash on August 3, 2008. He was insured under a policy of life insurance issued by the defendant through Sears Canada Inc. The defendant acknowledges that the policy was valid, Mr. McLean was a person insured under the terms of the policy, and that the plaintiff was entitled to be paid a benefit under the policy. However, the defendant stated that the claimant had already been paid the sum of $25,000 under the policy and submitted that she was not entitled to an additional benefit under the accidental death benefit rider that formed part of the policy.

To succeed, the plaintiff had to establish that Mr. McLean died as a direct result of an airplane crash while he was "… riding as a fare paying passenger inside …" a common carrier. The issue for determination at trial turned on whether the aircraft, in which Mr. McLean was a passenger at the time of his death, was a "common carrier" as that term was defined in the policy.

Under the policy, "common carrier" was defined as follows:

COMMON CARRIER means a public conveyance which is:

1. licensed to transport passengers for hire; and

2. provided and operated (a) for regular passenger service by land, water or air, and (b) on a regular passenger route with a definite regular schedule of departures and arrivals between established and recognized points of departure and arrival; and

3. provided and operated under a Common Carrier license at the time of the Loss.

The defendant did not dispute that the carrier, Pacific Coastal Airlines was licensed to carry passengers or that it was operating under an appropriate license at the time of the accident. However, the defendant argued that the flight Mr. McLean was on at the time of his death was a private charter and not a regular passenger service operating on a regular passenger route and, therefore, the flight was not within the definition of "common carrier" in the policy.

Facts

Mr. McLean worked for Seaspan International Ltd. as a log barge loader at the time of his death. He often worked at remote locations on the British Columbia coast that are accessible only by air or water. Seaspan had a standing arrangement with Pacific Coastal to fly its employees and contractors to the locations where and when they were needed.

On August 3, 2008, Mr. McLean was on a flight chartered by Seaspan to transport him and five other Seaspan employees from Port Hardy to Chamiss Bay, B.C. The flight had been arranged and paid for by Seaspan. It carried Seaspan employees only and was not available to any member of the public. Seaspan had given instructions as to the destination, the departure time and the names of the employees who were to travel on the flight. The times of departure and arrival were set by Seaspan to co-ordinate with the arrival of its employees with the availability of both barge and tugboat. Chamiss Bay was not a regular destination of Pacific Coastal.

Decision

The Court looked at the plain meaning of the words "common carrier" in the policy and discussed their meaning in the following statement (*2):

To be a common carrier, a person or business entity must be available to carry any passengers no matter who they may be. If the service is available only to certain passengers and not to the public at large, the carrier cannot be a common carrier, but is operating under a special contract: Whelan v. Parsons and Sons Transportation Ltd., 2004 NLSCTD 34.

In this case, the passengers were selected by and paid for by Seaspan. It directed the time of departure and the destination of the flight. The entire aircraft was chartered to Seaspan and no member of the public at large had access to the flight.

In my view, the definition of "common carrier" under the accidental death benefit rider means the aircraft utilized for the charter flight. And even though that aircraft was available at times should Pacific Coastal so direct, to operate within the definition of "common carrier" and to be within terms of the accidental death benefit rider, it was not operating within that definition at the time of the accident.

In the result, the Court found that the words of the contract were clear and unambiguous. By the terms of the accidental death benefit rider the words "common carrier" meant a public conveyance, such as an aircraft, provided that such conveyance, at the time of an accident, was operating a regular scheduled passenger service between defined points which was available to members of the public. In this case, the aircraft was not operating as a regularly scheduled airline and was, instead, under a charter restricted to employees or contractors of Seaspan. It was a flight in which Seaspan determined the identity of the passengers, the time of the departure and destination. Thus, the aircraft in this case did not fit within the definition of "common carrier" under the accidental death benefit rider.

Rui Fernandes

Endnotes:

1. McLean v. Canadian Premier Life Insurance Company, 2012 BCSC 163
2. Ibid, at paragraphs 35-37




3. Charter-Party Agreements are not "Contracts for the Carriage of Goods by Water"

The recent decision of the Federal Court of Appeal in Canada Moon Shipping Co. Ltd. v. Companhia Siderurgica Paultista-Cosipa (*1) provides an interesting discussion and insight into the legal and commercial context of charter-party agreements. What started out as a standard claim for cargo damage has culminated in a rather complicated and drawn out legal dispute giving rise the Federal Court of Appeal ruling on the effect of an arbitration clause in a voyage charter-party.

Charter-Party Agreements "101"

Before proceeding further into a review of this dispute, a brief description of the different types of charter-parties may be helpful in an understanding of the facts and legal issues. To quote a helpful excerpt from the Court's ruling (*2):

Charter-parties are normally described as contracts of hire of a ship…. There are three main types of charter-parties:

i) the bareboat or demise charter, which provides for the hire of an unmanned ship;
ii) the time charter party, which involves a contract for the hire of a fully manned ship for a specific duration. This can include a "slot-charter", where for example a carrier will hire from a competitor specific space or a slot [on a containership] for a specific time period;
iii) the voyage charter-party, which are used to hire a specific ship or type of ship for one or more voyages.

The Facts

T. Co. Metals LLC ("T. Co. Metals") imported a shipment of steel product to Canada, which it had purchased from a Brazilian supplier. The steel arrived damaged at destination. T. Co. Metals commenced a cargo claim in the Federal Court of Canada against both the owner of the ship involved in the carriage, Canada Moon Shipping Co. Ltd. ("Canada Moon") and the "time charterer" of the ship, Fednav International Ltd. ("Fednav"). T. Co. Metals asserted in the claim that one or both of these defendants were contracting carriers responsible for the safe delivery of the cargo to destination.

A third party - Companhia Siderugia Paulista-Cosipa ("Cosipa") - had entered into a voyage charter-party with Fednav in respect of the shipment of the steel from Brazil to Canada. The bills of lading for the cargo were consigned to the order of T. Co. Metals and were issued for and on behalf of the master of the ship to Cosipa, who was endorsed thereon as shipper.

Picture it this way: Canada Moon owned the ship, which was, in effect, leased to Fednav for a period of time - the "time" charter. Fednav in turn sub-leased the ship to Cosipa for the voyage from Brazil.

The bills of lading for the cargo were consigned to the order of T. Co. Metals. The bills of lading included a provision that they were subject to the terms and conditions of the voyage charter-party entered into between Fednav and Cosipa. The voyage charter-party had a provision that any dispute arising thereunder required arbitration in New York and dealt with the responsibility for the loading and offloading of the cargo as follows:

5a) The cargo shall be brought into the holds, loaded, stowed and/or trimmed, tallied, lashed, and /or secured by the Charterers (i.e. Cosipa) and taken from the holds and discharged by the receivers, free of any risk, liability and expense whatsoever to the Owners (i.e. Canada Moon as actual owner, and, as it might be asserted, as Fednav as the entity standing in place of the owner granting the voyage charter to Cosipa). (commentary added)

Accordingly, Cosipa had direct responsibility for the care of the cargo.

The voyage charter-party also had a provision dealing with the use of plastic covers over the steel cargo:

45e) Whenever Charterers / Shippers cover the cargoes with plastic canvas in order to protect them during the voyage, Owners guarantee that said plastic canvas at load port will be withdrawn only at the time of discharge of the cargoes at respective ports. Should Owners fail in fulfilling the above they will be fully responsible for any penalty, charges, extra expenses, etc. that Charterers may face arising therefrom.

A dispute arose between Cosipa, the Master of the vessel (who was employed by the Canada Moon, the owner) and Fednav with respect to the use of plastic covers on the cargo prior to loading. To resolve this dispute, such that the voyage could proceed, Fednav requested a "Letter of Indemnity" on its own behalf and for Canada Moon from Cosipa. This letter provided as follows:

Provided that the Owners/Master ensure that the vessel's ventilation system will be properly functioning during all the voyage, Charterers (i.e. Cosipa) hereby confirm that they will relieve Master/Vessel/Owners/Managers from any liability, and will hold them harmless for any possible cargo damage by moisture condensation under the plastic cover as a result of restricted ventilation of the cargo. (commentary added)

In effect, Canada Moon and Fednav wanted a release from liability regarding their cargo obligations in respect of any moisture condensation problems with the cargo during the voyage.

The Action

On October 20, 2008 T. Co. Metals commenced an action in the Federal Court seeking compensation from Canada Moon and Fednav for corrosion damage to the cargo. It alleged that the defendants received the cargo in good order and condition at the port of loading for carriage and delivery in the same condition to destination at Toronto. The defendants filed a common statement of defence, denying that they were bound to load, stow, handle, discharge or store the cargo, and denying that they, in fact, performed any such services as these operations had been undertaken by Cosipa or T. Co. Metals. The defendants pleaded that the bills of lading were expressly subject to all terms, conditions and clauses in the voyage charter-party.

Canada Moon and Fednav brought a "third party claim" against Cosipa citing clause 5a) in the voyage charter-party dealt and the responsibility of Cosipa and/or the receiver for the loading and offloading of the cargo.

Cosipa applied to the Federal Court for a "stay" of the claims brought against it, seeking to enforce the terms of the voyage charter-party that disputes be submitted to arbitration in New York.

a) The Initial Stay Proceedings before the Prothonotary

Prothonotary Morneau dismissed Cosipa's request for a stay of the third party proceedings in favour of arbitration proceedings, as well as Cosipa's alternative basis for a stay, which argued that Brazil was a "substantially more convenient forum" for the dispute to be resolved than the Canadian forum. Prothonotary Morneau refused to give effect to the arbitration clause in the voyage charter-party since he found that it was a "contract for the carriage of goods by water" within the meaning of s. 46(1) of the Marine Liability Act (*3), which provides:

46(1) If a contract for the carriage of goods by water to which the Hamburg Rules do not apply provides for the adjudication or arbitration of claims arising under the contract in a place other than Canada, a claimant may institute judicial or arbitral proceedings in a court or arbitral tribunal in Canada that would be competent to determine the claim if the contract had referred the claim to Canada, where

a) the actual port of loading or discharge, or the intended port of loading or discharge under the contract, is in Canada;

b) the person against who the claim is made resides or has a place of business, branch or agency in Canada; or

c) the contract was made in Canada.

The Prothonotary reasoned that charter-parties came within the meaning of "contracts for the carriage of goods by water", not being expressly excluded from the scope of the above provision. The Prothonotary also considered Cosipa's request that that the third party claim be stayed on the ground that Canadian courts were not the convenient forum for the dispute. He examined the factors identified in Spar Aerospace Ltd. v. American Mobile Satellite Corporation (*4) and determined that such factors were not of sufficient weight to displace the defendants' choice of forum to wage the third party claim. As a result, the Prothonotary dismissed the motion for a stay of the third party proceedings.

b) Cosipa appeals of the Prothonotary's Ruling to a Judge of the Federal Court

On the first level of appeal in the "stay" proceedings, Justice Scott allowed Cosipa's appeal from the Prothonotary's decision, finding that subsection 46(1) of the Act did not apply to charter-parties per se. In coming to this conclusion, the Judge carefully considered the ordinary meaning of the words used, the scheme of the Act, its objects and the intention of Parliament as well as Canada's international obligations. While he found that the expression "contract for the carriage of goods by water" in subsection 46(1) was wide enough, in its ordinary meaning, to include charter-parties, the Judge found that, as a matter of the broader legal context, it did not apply to charter-parties.

For its part, Canada Moon argued that subsection 46(1) should apply by virtue of the fact that, as owner, its relationship with Cosipa was by virtue of the bills of lading (where Cosipa was "shipper" and, as a matter of law, Canada Moon was liable as a carrier) rather than pursuant to the voyage charter-party under consideration. Canada Moon also argued that it had a stand-alone claim against Cosipa based on the aforementioned Letter of Indemnity, which it argued should not be viewed as a part of or an extension of the voyage charter-party, but rather as being a stand alone agreement in and of itself. Canada Moon relied on the fact that the Letter of Indemnity in and of itself did not contain an arbitration clause.

Justice Scott ruled that the operative contract between both Canada Moon and Fednav was, in fact, the voyage charter-party as the bills of lading incorporated the terms and conditions of that charter-party by reference, which thereby remained the applicable contract between Canada Moon, Fednav and Cosipa. The Judge found accordingly that the Letter of Indemnity constituted an amendment to the charter-party rather than a separate stand-alone agreement.

In the result, the Judge stayed the third party claims of both Canada Moon and Fednav against Cosipa pending the conclusion of the arbitration in New York under the terms of the voyage charter-party.

c) On Appeal to the Federal Court of Appeal

In her reasons for judgment issued for the panel of three judges, Justice Gauthier considered Canada Moon and Fednav to stand in different positions in relation to "stay" issue and the voyage charter-party and accordingly considered the positions of those parties separately.

As concerns Fednav, the issue related to whether s. 46(1) applies to charter-parties, the Fednav - Cosipa relationship being framed directly by the voyage charter-party. As concerns Canada Moon, the court had to discern the essence of the Letter of Indemnity and whether it could it be enforced only through arbitration proceedings; that is, was it an extension of the voyage charter-party or a stand alone contractual undertaking?. There remained the further issue for adjudication as to whether the bills of lading evidenced a distinct contract of carriage of goods between Cosipa and Canada Moon, in light of Justice Scott's ruling that the relationship between Cosipa and Canada Moon was governed by the voyage charter-party.

The Court of Appeal, accordingly, addressed the following three issues:

i) Is Cosipa entitled to a stay of proceedings of the third party claim brought against it by Fednav?
ii) Is Cosipa entitled to a stay of proceedings of the third party claim brought against it by Canada Moon?
iii) If the answer is no in either case, is Canada a forum non conveniens for the third party claim? (*5)

i) Is Cosipa entitled to a stay of proceedings of the third party claim brought against it by Fednav?

Justice Gauthier cited the proposition that the courts will generally respect the choice of commercial entities to resolve their disputes by arbitration: "Absent legislative intervention, the courts will generally give effect to the terms of a commercial contract freely entered into, even a contract of adhesion, including an arbitration clause" (*6). In the normal course, Fednav would accordingly be bound by the agreement to arbitrate in the voyage charter-party. The issue is whether there has been "legislative intervention" by way of s. 46(1) of the Act to relieve Fednav of its agreement to arbitrate disputes arising under the charter-party. Justice Gauthier necessarily had to revisit the meaning of the expression "contract for the carriage of goods by water". Justice Gauthier agreed that the broader contextual approach to discern the meaning as taken by Justice Scott was appropriate: "to give effect to the modern rule of construction, one must consider the entire context before concluding that there is no ambiguity in a legislative provision".

Justice Gauthier reviewed the domestic legal context in the enactment of the Marine Liability Act, and the international legal regime and the importance of uniformity in the application of laws between maritime nations. Justice Gauthier considered the commercial context of charter-party agreements. Citing John Wilson's text Carriage of Goods by Sea (*7), she found it to be common knowledge that:

A charter-party is a contract which is negotiated in a free market, subject only to the laws of supply and demand. While the relative bargaining strengths of the parties will depend on the current state of the market, shipowner and charterer are otherwise able to negotiate their own terms free from any statutory interference. In practice, however, they will invariably select a standard form of charter-party as the basis of their agreement, to which they will probably attach additional clauses to suit their own requirements. …

The existence of these standard forms is of considerable advantage in international trade where the parties may be domiciled in different countries and their negotiations hampered by language problems. In such circumstances, parties conversant with the terms of a standard form are unlikely to be caught by an unusual or unexpectedly onerous clause…

Taking the above into consideration Justice Gauthier found that by way of contrast that one can readily see the imbalance in bargaining power between ocean carriers and shippers of goods - being a far cry from the commercial context in which ship owners and charterers operate - as a result of which legislative regimes such as s. 46(1) came to be enacted. In short, there exists no policy basis to restrict the freedom of contract for those negotiating the chartering of ships whereas the relationship between shippers and carriers is entirely different.

Justice Gauthier noted that the ordinary meaning of a "contract for the carriage of goods by water" could include charter-party agreements - after all, the former are entered into for the eventual purpose of the performance of contracts of carriage. This said, taking into consideration the aforementioned legal and commercial contexts, Justice Gauthier found that this expression would not and should not be understood to include charter-parties. As stated in her Reasons for Judgment:

[79] This legal conclusion is consistent with commercial reality. Charter-parties are contracts between commercial entities dealing directly with each other, whose execution and enforcement are the private concern of the contracting parties. There is no policy reason why such actors should not be held to their bargains.

[80] To reiterate, considering the general purpose … and the mischief that section 46 was meant to cure (that is, boilerplate jurisdiction and arbitration clauses dictated by carrier to the detriment of Canadian importers and exporters who become parties to such contracts), and the different commercial reality that lead to the conclusion of charter-parties, the Judge's conclusion that the voyage charter-party under review is not covered by sub-section 46(1) is correct.

As to Fednav's argument that the Letter of Indemnity from Cosipa was a stand alone contract unrelated to the voyage charter-party, Justice Gauthier found that this Indemnity was an amendment to the charter-party and, in the result, that Fednav would be required to arbitrate both of its claims on the voyage charter-party itself and, on the Indemnity against Cosipa, by way of arbitration in New York.

ii) Is Cosipa entitled to a stay of proceedings of the third party claim brought against it by Canada Moon?

Justice Gauthier reached a different result in respect of the claims by Canada Moon against Cosipa, allowing Canada Moon's appeal and ruling that its third party claim against Cosipa was not stayed and could proceed.

To succeed on the question of a "stay", Cosipa was required to show that Canada Moon either actually or constructively agreed to arbitration. While the arbitration clause in the voyage charter-party formed a part of the bills of lading, Cosipa could not rely on them as such an agreement would be caught by s. 46(1) of the Act. Cosipa could not rely on the arbitration clause in the voyage charter-party agreement as Canada Moon was not a party to that agreement.

Cosipa asserted that Canada Moon was, in fact, privy to the agreement to arbitrate in New York by virtue of the Letter of Indemnity being an amendment to the charter-party, which was negotiated by Fednav and Cosipa with Canada Moon in mind as a "third party beneficiary". Justice Gauthier did not give effect to this argument, noting that Cosipa was trying to impose an obligation on Canada Moon (i.e. the requirement to arbitrate disputes) that did not exist when the Letter of Indemnity was issued. For Cosipa to succeed with this approach, it would have to demonstrate that the benefit conferred on Canada Moon by way of the Letter of Indemnity was a qualified benefit in the sense that the Indemnity could only be invoked through arbitration proceedings. Justice Gauthier found that even under a theory that, as far as Canada Moon was concerned, the voyage charter-party was amended by the Letter of Indemnity, and that there still was no requirement that Canada Moon pursue the benefit of the Indemnity in arbitration proceedings.

This said, Canada Moon had also argued that the Indemnity was a free-standing agreement containing no arbitration clause. Justice Gauthier agreed with this submission, ruling that there existed all the elements of a stand-alone contract including Canada Moon having accepted the cargo as it was packaged for carriage. Accordingly, whether the Indemnity be read as a part of the voyage charter-party or as a stand-alone document, Canada Moon was simply not part of any agreement that would require it to arbitrate its dispute with Cosipa.

Accordingly, Canada Moon's claims were not stayed and it would be able to proceed with its third party claims against Cosipa in the pending action by T. Co. Metal.

iii) If the answer is no in either case, is Canada a forum non conveniens for the third party claim?

As to Cosipa's alternative basis to argue for a stay, that the courts of Brazil were the "convenient" forum, Justice Gauthier agreed with the Prothonotary's assessment of the relevant factors regarding whether Canada was a forum non conveniens. Applying appellate deference to those findings and ruling that Cosipa had not convinced the Court that it should exercise its discretion to stay the third party proceedings in favour of a Brazil venue, Cosipa was unsuccessful on this argument.

Conclusion

The Federal Court, accordingly, ruled that Cosipa was entitled to a stay of Fednav's third party claim against it but that Canada Moon's claim could proceed and that the Canadian Federal Court was a convenient forum for that purpose.

Gordon Hearn

Endnotes

*1 2012 FCA 284
*2 supra, at paras. 59 - 60
*3 S.C. 2001, c.6
*4 [2002] 4 S.C.R. 205
*5 Forum non conveniens can be loosely translated from Latin to "inconvenient forum" in English. As alluded to above, our courts will agree to stay an action brought in Canada in favour of a foreign venue if certain tests are satisfied that justice can be more efficiently pursued in the foreign venue, all factors of the case being considered.
*6 Seidel v. TELUS Communications Inc., [2011] 1 S.C.R. 531
*7 6th edition (Essex: Pearson Education Limited, 2008) at page 3


 

4. Customs Brokerage Fees and Silence, Who Pays?


Dans une décision récente, la Cour Supérieure du Québec a du trancher sur l'obligation d'un consignataire de payer les frais de courtages en lien avec le dédouanement d'une cargaison lorsque le connaissement est silencieux sur la question. La Cour trancha qu'un consignataire a l'obligation de payer les frais de courtages en lien avec le dédouanement d'une cargaison, lorsqu'il s'agit de biens de petite valeur, puisque ceux-ci sont inséparables du transport pour lequel l'expéditeur a contracté.


According to the Bills of Lading Act *(1), a consignee of goods named on a bill of lading, as well as every endorsee, is subject to all liabilities in respect of the goods carried under the said bill of lading as if the contract contained in the bill of lading had been made with them. But is that liability limited to the transportation fees or is it actually broader than that, also applying to "other charges" like the customs brokerage fees? In Leblanc v. United Parcel Service du Canada Ltée *(2), the Quebec Superior Court had the opportunity to answer that question.

The Facts

The petitioner, Mr. Leblanc bought a shirt on Ebay from a seller in the United States for which he paid the price of $11.99 plus a shipping and handling fee of $10. Upon delivery of the shirt by United Parcel Service du Canada Ltée ("UPS"), the respondent had to pay a further $16.80 in customs brokerage fees, although his invoice contained no reference to any customs brokerage fees. In a motion seeking authorization to bring a class action against UPS, the petitioner claimed for the fees for customs brokerage services charged by UPS to him, in connection with his importation of the shirt into Canada. UPS resisted the petition by pleading, namely, the lack of legal justification of the petitioner's complaint as the petitioner was bound by the contracts contained in his bill of lading as if he were an immediate party, by virtue of section 2 of the federal Bills of Lading Act, which reads as follows:

"2. Every consignee of goods named in a bill of lading, and every endorsee of a bill of lading to whom the property in the goods therein mentioned passes on or by reason of the consignment or endorsement, had and is vested with all rights of action and is subject to all liability in respect of those goods as if the contract contained in the bill of lading had been made with himself.

Accordingly, UPS argued that the petitioner was liable for the payment of the brokerage fees as he was for the cost of transport per se.

The Legal Issue

In order to decide whether the petitioner was authorized to bring his class action against UPS, the Court had to decide the following issue:

- Is the petitioner bound to pay customs brokerage fees as liabilities in respect of the imported goods by virtue of sec. 2 of the Bills of Lading Act if the bill of lading contained no provision for customs brokerages services?

The Ruling

The Court answered yes, that in the case of low value casual goods shipped into Canada, the consignee is bound to pay customs brokerage fees, despite the bill of lading's silence in regard of the payment of the customs brokerage fees. The provision of customs brokerage services is inseparable from the uninterrupted door-to-door transport the shipper contracted for:

"If, as appears to be the case, the consignees did not expressly authorize the shippers to contract for customs brokerage services and the shippers did not ask for them either, but the courier companies provided them anyway and the consignees accepted the goods and paid for the services on being billed, they have ratified the act of the courier companies and cannot complain since being vested with the rights of the shippers, who could ratify the act of their agents, the courier companies, in providing the services, the consignees have done so in their stead.

Moreover, despite the bills of lading's silence on the matter of customs brokerage, I believe that in the case of low value casual goods being shipper into Canada, section 2 of the BLA becomes applicable once it is recognized that provision of the service is inseparable from the uninterrupted door-to-door transport the shipper contracted for.

[…]

While in the cases before me I find nothing allowing me to conclude that either the vendors or the Petitioners were made aware in advance of shipment of the customs brokerage fees the latter would be charged, I believe it is correct to impute knowledge of the requirement of customs clearance to both, as well as knowledge that only the courier companies could perform that function for low value casual goods while they were in transit. Both considerations are matters of law.

Performance of the service was therefore an implied term of the contracts of transport.

The Court accordingly dismissed the petitioner's motion for authorization to bring a class action against UPS.

David Huard

*(1) Bills of Lading Act, RSC 1985, c B-5.
*(2) Leblanc v. United Parcel Service du Canada Ltée, 2012 QCCS 4619 (CanLII).


 

5. THE FINANCIAL FALLOUT OF RADIOACTIVE CARGO: CONTAINER RADIATION & STEPS TO MITIGATE THE ASSOCIATED COSTS

Modern times present modern challenges for participants in the transportation industry. Long-gone are the days when good weather and a little bit of luck would be as good as a guarantee that a shipment would make it from origin to destination without difficulty. Nowadays, the increasingly complex nature of international shipping is such that there are now far more opportunities for something to go wrong; or, to look at from another angle, there are now so many things that need to go right. As a result, shippers, consignees, carriers, freight forwarders and any other party with an interest in the movement of cargo need to be prepared for an ever-increasing number of contingencies.

In recent times, increased port security and its related technology has revealed a previously unknown pitfall in connection with the movement of international cargo into Canada: radiation.

Specifically, in recent years the Canadian Border Services Agency ("CBSA") installed radiation detection equipment at the majority of Canada's ports for the purposes of locating and identifying sources of radiation in marine containers that could be a potential threat to health and safety.(*1) There are two main tools used to detect radiation in a marine container: stationary portals and car-borne mobile units.(*2)

What may come as a shock to the reader is the frequency with which the CBSA seizes containers on account of the emission of a radioactive signal. For example, in a sixty-three day period in 2011, the CBSA stopped 19 containers that tested positive for low levels of man-made radiation in British Columbia alone.(*3) Although more recent data is not available, news services reported that a container was stopped at the Port of Montreal on account of radiation as recently as October of 2012.(*4)

What is the Source the Radiation and Why Should I Care?

You may be thinking to yourself: I'm in the business of shipping/carrying/receiving innocuous retail products, not in the business of transporting medical isotopes - I don't need to worry about radiation.

Unfortunately, if your cargo contains any amount of metal, however minute in quantity, you are at risk. Fortunately, the risk is usually not health-related. More often than not, the radiation is of such low-levels to pose no real health risks; however, the risk can have significant legal and financial consequences should your cargo or container be stopped by the CBSA on account of contamination.

i. The Main Offender: Cobalt 60

All nineteen of the containers stopped by the CBSA on account of radiation, as well as the other incidents referred to above, shared the same source of radiation: Cobalt-60.

Cobalt-60 is a man-made radioactive material that has many industrial applications and is commonly used for medical treatments.(*5) It is usually contained in metallic housings and, as a result, sources can get mixed in with scrap metal and pass undetected into scrap metal recycling facilities. If melted in a mill, they can contaminate entire batches of metal as well as the facility itself.(*6)

Reports are mounting that metal manufacturers and dealers from China, India, former Soviet-bloc nations and some African countries export contaminated materials and goods, which is likely a byproduct of inadequate government regulation of their respective scrap/recycling industries. (*7)

It may come as a surprise as to the kinds of products that been found to be contaminated. Citing examples of products found to have low-levels of contamination in the United States (which is experiencing the same influx of contaminated cargo as Canada), one news service compiled the following list: (*8)

Common kitchen cheese graters, reclining chairs, women's handbags and tableware manufactured with contaminated metals have been identified, some after having been in circulation for as long as a decade. So have fencing wire and fence posts, shovel blades, elevator buttons, airline parts and steel used in construction.

Because the contamination occurs when the metal is recycled (i.e. at the metal's source), contamination can surface in virtually any product. The Canadian Nuclear Safety Commission ("CNSC") has confirmed that the source of the radiation recently identified at the Port of Montreal was found to be kitchenware.(*9) The "take-away" message is that, regardless of the nature of the cargo being shipped, so long as it contains metal (particularly steel), there is a risk of contamination.

Often, the level of contamination is too low to merit any reasonable health concerns; however, the CNSC and the legislative framework within which it operates allows for no chances when it comes to radiation. Should your cargo be stopped by the CBSA on account of radiation, you will have to be prepared for the legal and economic fallout that can accompany such a finding.

What Happens if my Cargo is Stopped and How will it Affect my Business?

In the event that the CBSA detects the emission of radiation from a container, the container will be stopped and immediately isolated within the port. The CBSA will alert the CNSC, which will, in turn, ordinarily send out a letter to the owner of the cargo and/or the owner of the container advising that the container has been stopped and advise of two options:

(1) the container can be returned to the point of origin as is; or

(2) the container can be accepted into Canada if the importer hires a consultant in possession of a license issued by the CNSC to isolate the goods containing the radioactive material and safely dispose of the material at a licensed facility in a matter that complies with the Nuclear Safety and Control Act and associated regulations.

Ignoring, for now, the business consequences of not being able to deliver/receive the cargo (which are discussed below), the options provided by CNSC both involve a high degree of difficulty and expense.

With that said, one might ask: "Why bother doing anything at all. If the expense outweighs the value of the cargo and the consequences of its non-delivery, would it not make sense to simply abandon the cargo?" The short-answer is that, should the CNSC formally order that you take the aforementioned action, the failure to do so could result in "a fine not exceeding $1,000,000 or […] imprisonment for a term not exceeding five years or […] both[.]"(*10)

While this article is not intended to be nor is it offered as legal advice (which must be sought on the unique aspect of each case) there are some common denominators and steps involved in cases of the detention of cargo.

i. Returning the Cargo to the Point of Origin

With regard to the first option this option may rarely be available as a practical matter.

Once a container has been identified as being radioactive, it is unlikely that an ocean carrier would be willing to transport the contaminated cargo in light of the carrier's risk of cross-contamination of other cargo or the vessel for that matter; moreover, it is doubtful that any country would knowingly allow the import of the contaminated cargo.

ii. Isolating the Contaminated Cargo

As directed by the CNSC, you need to isolate the source of the contamination (i.e. is the container itself previously contaminated from carrying irradiated material or is it the cargo itself and, if so, what part of the cargo?).

Step 1: The first step towards isolation is to retain a surveyor who is licensed by the CNSC to survey and handle the radioactive material. A licensed radiation surveyor will have the equipment and know-how necessary to survey the cargo and isolate the source of the contamination.

Step 2: The CBSA may not allow the survey to occur on the port premises; in which case the next step will be to make arrangements with a privately owned and operated warehouse that is licensed by the CBSA for the short-term storage of imported goods not yet released by the CBSA (a "sufferance warehouse") to receive the contaminated cargo and provide facilities for the de-stuffing, survey and storage of same.(*11)

Step 3: If the contaminated container must be transported from the port to the sufferance warehouse, one may have to coordinate with the CBSA, the surveyor, the warehouse and a transportation company to obtain the necessary approval from the CNSC to permit the transportation of the contaminated goods.

As mentioned above, more often than not, the contamination is of such low levels as to present no reasonable risk to humans; however, should the contamination be found to be of a level such that a legitimate health risk is present, this step will invariably be much more complicated and beyond the scope of this general-purpose article.

Step 4: Once the container has been transported to the sufferance warehouse, theoretically the container is ready to be surveyed such that the source of the radiation can be isolated and identified. Unfortunately, it is unlikely that your radiation surveyor is capable of physically de-stuffing the container on his/her own and, more likely, assistance will be required from the warehouse staff (i.e. to operate a fork-lift, etc.).

Again, you may then have to coordinate with the surveyor and the warehouse staff to obtain the necessary approval from the CNSC to permit the warehouse staff to assist in the de-stuffing of the container. As most incidents of Cobalt-60 contamination pose a negligible health risk, additional safety equipment will usually not be required for the warehouse staff; however, should it be needed, the radiation surveyor may be able to provide same.

Keep in mind that you may not be the only party interested in attending the radiation survey. Depending on the circumstances of the shipment, the carrier, shipper and/or consignees may wish to have their own representative attend the survey.

At the conclusion of the survey, the surveyor ought to have isolated the source of the radiation and identified whether the container and/or any of the other cargo was cross-contaminated.

Step 5: In the event that the radiation can be isolated to a single source and it can be confirmed that there was no cross-contamination, it would be at this juncture that you would likely have to obtain approval from the CNSC and the CBSA to confirm that the uncontaminated container and unaffected cargo can be removed from the sufferance warehouse and carried on to destination.

iii. Disposing the Contaminated Cargo

Step 1: Once the contaminated cargo has been isolated, arrangements will need to be made to have it destroyed. Assuming that your radiation surveyor is licensed to destroy or arrange the destruction of the cargo, the first step may then be to arrange to have a sample of the cargo sent to the surveyor's facilities for laboratory testing to determine the method/level of disposal as may be required.

Step 2: Again, arrangements may then have to be made between you, the surveyor, the CBSA and the CNSC for the necessary approvals with respect to the transport of a sample of the contaminated shipment from the sufferance warehouse to the surveyor's facilities.

Step 3: Once the extent of the contamination and method of required disposal has been assessed, the surveyor may then present disposal options. Oftentimes, the cost of disposal is based on the weight of the cargo to be destroyed and, compared to the disposal of ordinary materials can be significantly more expensive.

Step 4: Once the cargo has been destroyed and a disposal certificate is obtained and provided to the CNSC, generally speaking the process is effectively complete. However, as is discussed below, the process is rarely as simple as following the steps above (as and to the extent applicable) because, while trying to arrange for the isolation and disposal of the contaminated cargo, it is likely that there are legal/business considerations that you will have juggle throughout the process.

While navigating the above-described steps and necessary CNSC approvals that come with isolating and destroying the contaminated cargo, there are a number of business and/legal consideration that you may have to address depending on the circumstances of the shipment.

Conclusion

The purpose this article for that matter, is to highlight the fact that shippers, consignees, carriers and freight forwarders alike, need be aware of this emerging issue. Should you face such a situation, it is our hope this article will assist you in giving due consideration to the variety of risks that it presents and, furthermore, to give you a framework to effectively manage those risks and ensure the efficient resolution of same with minimal harm to your business.

James Lea

Endnotes:

*1 Canadian Border Services Agency - Radiation Detection, website: <http://www.cbsa-asfc.gc.ca/security-securite/detect/rad-eng.html>.
*2 Ibid.
*3 Canadian Border Services Agency - News Release "The CBSA keeps radioactive goods from entering Canada" (December 5, 2011), website: <http://www.cbsa-asfc.gc.ca/media/release-communique/2011/2011-12-05-eng.html>.
*4 CNews "Radioactive kitchenware detected at the Port of Montreal" (October 12, 2012), website: <http://cnews.canoe.ca/CNEWS/Canada/2012/10/12/20277406.html>.
*5 Supra at note 3.
*6 United States Environmental Protection Agency - "Radiation Protection - Cobalt", website: <http://www.epa.gov/radiation/radionuclides/cobalt.html>.
*7 Scripps Howard News Service - "Thousands of consumer products found to contain low levels of radiation" (June 21, 2009), website: <http://www.knoxnews.com/news/2009/jun/21/tainted-goods/>.
*8 Ibid.
*9 Canadian Nuclear Safety Commission - "Regulatory Action - Hanjin Shipping Canada Inc." (November 16, 2012), website: <http://www.nuclearsafety.gc.ca/eng/lawsregs/regulatoryaction/hanjin-shipping-canada-inc.cfm>.
*10 Nuclear Safety and Control Act (S.C. 1997, c. 9), s. 51.
*11 Canadian Border Services Agency - "Sufferance warehouses" (March 6, 2012), website: <http://www.cbsa-asfc.gc.ca/import/codes/menu-eng.html>.



 

6. Maritime Liens - Comfact Corporation v Hull 717 (Ship)

In 2010, Parliament amended the Marine Liability Act to create a maritime lien available to necessaries men involved in providing certain goods or services. The new section, s. 139(2), states that "a person, carrying on business in Canada has a maritime lien against a foreign vessel for claims that arise (a) in respect of goods, materials or services where supplied to the foreign vessel for its operation or maintenance including… stevedoring and lighterage; (b) out of a contract relating to the repair and equipping of the foreign vessel." (*1) In a decision released October 1, 2012, Comfact Corporation v Hull 717 (Ship), the Federal Court considered the scope of this section for the first time. The determinative question was one of statutory interpretation: whether Parliament intended to include skilled welding services performed during the construction of a ship as part of "services for operation and maintenance" and in so doing provide those performing such services with a maritime lien. Justice Harrington found that Parliament did not and no such lien was available to the plaintiffs. (*2)

Background

The plaintiff, Comfact Corporation, was an unpaid subcontractor of the builder, Davie Yard Inc. Davie went under the Companies Creditors Arrangement Act during the construction; if Comfact had a maritime lien it would outrank other creditors. The defendant ship's owners did not appear. Instead, Export Development Canada appeared for Hull 717 in its capacity as mortgagee. (*3)

The law prior to the amendment was set out by the Federal Court of Appeal in Mount Royal/Walsh Inc v Jensen Star (The):

"To contend that an action in rem could be sustained even in the absence of any personal liability on the part of the owner would go against the whole idea behind the system which is, again, the protection of the owner. A claim against a ship cannot be viewed apart from the owner; it is essentially a claim against the owner. […] I essentially agree that liability as a result of some personal behaviour and attitude on the part of the owner is required." (*4)

This was a mere statutory right in rem that was contingent on the behaviour or attitude of the owner and would not survive a transfer of ownership. Conversely, a maritime lien may exist without personal liability of the ship-owner and survives change in ownership.

The Decision

Comfact's services were not in the nature of stevedoring or lighterage. In order to succeed it had to show that the services it performed were for Hull 717's operation, maintenance, repair, and equipping, or that "construction" is an implied item included in s. 139. Export Development Canada stated that the services were instead rendered with respect to the construction of the ship and the maritime lien applies only in respect of services explicitly referred to in the statute.

Justice Harrington agreed with Export Development Canada. He ruled that section 139 of the Maritime Liability Act does not apply to those who have rendered services in the construction of a ship, and therefore the plaintiff did not enjoy a maritime lien. This conclusion is the result of comparing the language of the Act with that of other statutes dealing with marine services.

In the Federal Courts Act, s. 22(n) states that "the Federal Court has jurisdiction with respect to… any claim arising of a contract relating to the construction, repair or equipping of a ship." (*5) Section 139(2)(b) has a similar formulation, but omits construction. It refers only to "a contract relating to the repair or equipping." 139(2)(a) refers only to services for operation or maintenance. The presumption of coherence indicates that these should be read together so as to avoid conflict; the absence of the word "construction" in (2)(b) is evidence of what services Parliament intended to include in (2)(a). Justice Harrington wrote that "there is a presumption that the legislator included in the statute the elements which he meant to include… when a provision specifically mentions one or more items but is silent with respect to other items that are comparable, it is presumed that the silence is deliberate and reflects an intention to exclude the items that are not mentioned." Parliament thus "could not have intended to grant a maritime lien to those engaged in the construction of a ship." (*6)

Unresolved Issues

The plaintiff's failure on this point meant it was not necessary for the Court to rule on other interpretive issues. One such issue was whether Hull 717 was a foreign vessel, as required by s. 139. Comfact argued that the ship was recorded in the Canadian Ship Registry as owned by a Norwegian company, and therefore it was a foreign vessel. This was not relevant to Justice Harrington's decision; whether on foreign or domestic vessels, construction services do not give rise to a s. 139 lien. However, if the Federal Court were to consider the issue of vessel nationality in different circumstances, the fact that the vessel was recorded as foreign owned would not immediately lead to a finding that the vessel was foreign without the consideration of other factors. In a separate case in 2007, Justice Harrington wrote that "[recording] is not conclusive and… the Court should enquire into all the circumstances affecting the right of property" in order to determine the owner of two yachts. In that case, he decided that the builder, not the recorded owner, was the legal and beneficial owner of the vessels. (*7)

Additionally, the Court did not have to decide whether a post-amendment in rem action still required some personal behaviour or attitude on the part of the owner. Comfact argued that the enactment of s. 139 did away with this requirement. Their argument focused on s. 139(2.1) of the Act, which stated "for the purposes of paragraph (2)(a), with respect to stevedoring or lighterage, the services must have been provided at the request of the owner of the foreign vessel or a person acting on the owner's behalf;" the inclusion of "stevedoring and lighterage" means Parliament intended to require no such personal nexus for claims that arise from other services that were not explicitly listed. Export Development Canada countered that this subsection is intended only to harmonize s. 139 with s. 251 of the Canada Shipping Act, 2001, which provides "that a bareboat charter, as such, may now bind a ship with respect to stevedoring and lighterage services." (*8) In this conception, Parliament's intention was to preserve narrow exceptions under which a bareboat charter may bind a ship rather than remove the personal nexus requirement for maritime liens in general.

This section of Comfact's argument is similar to the reasoning that led to Justice Harrington deciding against them. Just as the omission of "construction" from s. 139 meant that Parliament did not intend to grant a maritime lien to those in construction of a ship, the court might not interpret s. 139 as requiring that services be provided at the request of the owner or his agent except for the services specifically mentioned in the statute, stevedoring and lighterage. If the same logic applies, only maritime liens arising from stevedoring and lighterage will require a personal connection to the owner.

Conclusion

Justice Harrington's decision offers a look into the future of s. 139 jurisprudence by setting out both sides of a number of elements of the maritime lien that remain in contention. Counsel involved in these claims before the Federal Court in the future will have the advantage of knowing how a sitting judge framed these arguments. Moreover, lawyers can help their clients avoid litigation by advocating for contractual certainty in instances where statutory interpretation remains unclear.

Terrence Laukkanen

Endnotes

*1 Marine Liability Act, SC 2001, c 6 s. 139(2)
*2 Comfact Corporation v Hull 717 (Ship), 2012 FC 1161 (CanLII) ("Comfact")
*3 Ibid at para 6.
*4 Mount Royal/Walsh Inc v Jensen Star (The), [1990] 1 FC 199 at para 30.
*5 Federal Courts Act, RSC 1985, c F-7 s. 22(n).
*6 Comfact, supra note 2 at paras 29-33.
*7 FC Yachts Ltd v Vessel Bearing Hull No QFY10703E709 (Yacht), 2007 FC 1257 at paras 19-20.
*8 Canada Shipping Act, 2001, SC 2001, c 26 s. 251.

 

 

 

 

 

 


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