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Newsletters 2013 > September 2013

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In this issue:
1. Firm & Industry News
2. Beware the CCAA Super-Priority: the Subordination of Canadian Maritime Law in Priority Disputes between In Rem Claimants
3. When Two Policies Indemnify: The Latest on Apportionment: Aviva Insurance Co. of Canada v Lombard General Insurance Co. of Canada 2013 ONCA 416
4. Information Provided to Transport Safety Board Ordered Produced on Discovery: Jetport Inc. v. Global Aerospace Underwriting Managers (Canada) Limited, 2013 ONSC 5459
5. Maritime Labour Convention, 2006 Update

 

1. Firm and Industry News

  • Fernandes Hearn LLP is pleased to announce that the Firm has been listed for inclusion in Chambers and Partners Global 2013 as one of the best "Shipping" Law Firms in Canada.

  • Rui Fernandes has been selected by his peers for inclusion in the Eighth Edition of The Best Lawyers in Canada for in the practice areas of: Maritime Law and Transportation Law and being named the Best Lawyers' 2014 Toronto Transportation Law "Lawyer of the Year".

  • Gordon Hearn has been selected by his peers for inclusion in the Eighth Edition of The Best Lawyers in Canada for in the practice areas of: Maritime Law and Transportation Law.

  • Women’s International Shipping and Trading Association (WISTA) 2 to 4 October – Montreal, Quebec, Canada. Kim Stoll will be representing the firm at the conference.

  • Gordon Hearn will be making a presentation to the joint meeting of the Freight Carriers Association of Canada and the North American Transportation Council at Niagara Falls, Ontario on October 2, 2013. 

  • Canadian Board of Marine Underwriters Network Night – October 3 Montreal, Quebec, Canada. Kim Stoll and Martin Abadi will be representing the firm.

  • Rui Fernandes will be presenting a paper on general average in Montreal at the meeting of The Association Mondiale de Dispacheurs / International Association of Average Adjusters on October 8th. 

  • 2013 Surface Transportation Summit 16 October Mississauga, Ontario Canada. Kim Stoll and Martin Abadi will be representing the firm at the summit.

  • McGill Conference on International Aviation Liability & Insurance 25-26 October Montreal. Rui Fernandes and Mark Glynn will be representing the firm at the conference

  • Fort Lauderdale Mariners Club Seminar – October 29-30, Fort Lauderdale. Kim Stoll will be representing the firm at the seminar.

  • United States Maritime Law Association Fall Meeting and The Iberoamerican Institute of Maritime Law 18th Congress – October 29 to November 3rd, Puerto Rico. Rui Fernandes will be representing the firm at the conference.

  • National Conference on Supply Chain and Logistics –November 3-5, 2013, Toronto, Ontario, Canada. Kim Stoll and Martin Abadi will be representing the firm at the conference.

  • Gordon Hearn will be representing the firm at the Transportation Law Institute being held in Los Angeles, California on November 8-9.

  • Gordon Hearn will be presenting a paper on "Managing Risks in Export Trade Markets" to The Toronto Hispanic Chamber of Commerce on November 15 in Toronto.


 

2. Beware the CCAA Super-Priority: the Subordination of Canadian Maritime Law in Priority Disputes between In Rem Claimants

In the decision of Worldspan Marine Inc. (Re), 2013 BCSC 1593, the Supreme Court of British Columbia adjudicated a dispute over the proceeds of the sale of a 70-foot yacht as between a secured creditor and a court-appointed monitor over the insolvency proceedings of the vessel’s former owner. 

Facts

A group of related BC-based companies (collectively the “Vessel Manufacturer”) were in the business of designing, manufacturing and selling custom super yachts.

The Vessel Manufacturer entered into a vessel construction agreement with an individual for the construction of a 142-foot yacht.  A dispute arose between the Vessel Manufacturer and the individual, which ultimately caused the individual to cease making the payments contemplated under the vessel construction agreement. The Vessel Manufacturer quickly found itself in a financially perilous situation and, shortly thereafter, became insolvent.

In light of its insolvency, the Vessel Manufacturer brought an application for an initial order under the Companies Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA”). The CCAA provides a procedural framework that facilitates compromises and arrangements between companies and their creditors aimed at allowing the troubled company to continue to operate following the resolution of financial problems.

By way of contrast, an insolvent company that enters bankruptcy proceedings (available under the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3) will effectively cease to exist following the distribution of the bankrupt’s assets to its creditors. The CCAA process is best understood as an alternative to bankruptcy that provides the opportunity for a ‘second life’ following the resolution of its financial difficulties.

The Supreme Court of British Columbia, by way of an initial order under the CCAA, appointed a monitor (the “Monitor”), which is an independent third party that is mandated to monitor the insolvent company’s ongoing operations and assist with the CCAA proceedings.

CCAA proceedings are often time-consuming and expensive; thus, the Court’s initial order included an administration charge, not to exceed $500,000, as security for the fees and disbursements of the Monitor (the “Administration Charge”). Under the terms of the initial order, the Administration Charge is stated to rank in priority to all other security in the property of the Vessel Manufacturer.

As it turned out, the Vessel Manufacturer also owned a 70-foot yacht with hull identification number A129 (the “A129”). Shortly before the initial order in the CCCA proceedings, the Vessel Manufacturer moved the A129 to Seattle and attempted to sell it; however, Caterpillar Financial Services Corporation (“CAT”) held a mortgage over the A129 and, therefore, brought foreclosure proceedings against it in Seattle.

The A129 was arrested in Seattle and the Washington Court appointed a custodian to retain the A129 in its custody and safekeeping pending a further order of the Court. Ultimately, the A129 was sold with the blessing of the Canadian and American Courts. The parties both asserted that they had the first right to the proceeds from its sale and, thus, the within dispute ended up before the Supreme Court of British Columbia. Specifically, the Court considered the following issues:

    1. Did the Administration Charge attach to the A129 and continue to attach to the proceeds from its sale? and
    2. Does the Administration Charge rank in priority to CAT’s mortgage?

ISSUE 1: Did the Administration Charge attach to the A129 and continue to attach to the proceeds from its sale?

CAT argued that, on account of the fact that the A129 was located and subsequently sold in Seattle, the BC Court did not have jurisdiction to impose the Administration Charge on its proceeds and further that, under US insolvency law, the Seattle Court would refuse to do so.

The Monitor, meanwhile, argued that the CCAA, (and specifically section 11.52) authorized the Court to grant a charge over the Vessel Manufacturer’s property in respect of the Monitor’s fees and expenses and that, in fact, the Court had exercised this authority by way of its initial order. Furthermore, the Monitor argued that CAT had brought itself within the jurisdiction of the Court on the basis that it had filed a proof of claim in the CCAA proceedings.

The Court, in its ruling on the issue, opened with a subtle reminder to the parties of the purpose of CCAA proceedings and the role of a monitor in such proceedings:

[47]        A frequently cited statement of the purpose of the CCAA is found in Chef Ready Foods Ltd. v. Hongkong Bank of Canada (1990), 51 B.C.L.R. (2d) 84, [1990] B.C.J. No. 2384 at p. 3 where the Court of Appeal held:

The purpose of the C.C.A.A. is to facilitate the making of a compromise or arrangement between an insolvent debtor company and its creditors to the end that the company is able to continue in business. It is available to any company incorporated in Canada with assets or business activities in Canada that is not a bank, a railway company, a telegraph company, an insurance company, a trust company, or a loan company. When a company has recourse to the C.C.A.A. the court is called upon to play a kind of supervisory role to preserve the status quo and to move the process along to the point where a compromise or arrangement is approved or it is evident that the attempt is doomed to failure. Obviously time is critical. Equally obviously, if the attempt at compromise or arrangement is to have any prospect of success there must be a means of holding the creditors at bay, hence the powers vested in the court under s. 11.

[48]        The Monitor, as an officer of the court, oversees the financial affairs and restructuring of the insolvent company. The Administration Charge serves the purposes of the CCAA and facilitates the restructuring process by providing security for fees and expenses incurred by the Monitor in its oversight of the debtor, and by counsel retained by the Monitor and the debtor company to provide necessary assistance in the CCAA proceedings.

Moreover, the Court emphasized the expansive scope of section 11.52(2) of the CCAA, which is the section of the statute that gives the Court authority to impose a priority:

[49]        Section 11.52(1) of the CCAA authorizes the court to make an order declaring that "all or part of the property of the debtor company" is subject to a security or charge, in an amount the court considers appropriate, in respect of the fees and expenses of the Monitor, legal experts engaged by the Monitor, and legal experts engaged by the debtor company for the purpose of the CCAA proceedings.

[50]        Section 11.52(2) provides:

The court may order that the security or charge rank in priority over the claim of any secured creditor of the company.

[51]        There is no restriction in s. 11.52 on the type or location of property that may be subject to the security or charge.

Parliament, in having enacted s. 11.52 of the CCAA, authorized the courts to grant a “super priority attaching to all or part of the property of the debtor as security for fees and expenses of the Monitor.” (*1) Moreover:

That super priority serves the objectives of the CCAA by providing some assurance to the Monitor and other professionals engaged by it or by the debtor company for the purpose of CCAA proceedings that they will be paid for their services. (*2)

In summary, The Court found that initial order applied to all of the Vessel Manufacturer’s property and that the A129 was the property of the Vessel Manufacturer as of the date of the order; therefore, the A129 was subject to Administration Charge and its super priority status. (*3)

ISSUE 2: Does the Administration charge rank in priority to CAT’s mortgage?

With regard to the second issue, CAT argued that, under Canada maritime law, statutory charges rank in priority behind mortgages and, therefore, the AdministrationCharge should rank in priority behind its mortgage. Under Canadian maritime law, the usual ranking of in rem maritime claims is: (*4)

1.         disbursements of the admiralty marshals or sheriffs;
2.         costs of the sale;
3.         possessory liens pre-dating other liens;
4.         maritime liens;
5.         possessory liens arising after maritime liens;
6.         mortgages; and
7.         statutory rights in rem.

With underwhelming delivery, the Court dismissed CAT’s submission regarding relative priorities under Canadian maritime law:

[63] In my view, in CCAA proceedings, the super priority enacted by Parliament in s. 11.52 in order to advance the purposes and objectives of the CCAA trumps the ranking of in rem claims under Canadian maritime case law.  Under s. 91 of the Constitution Act, 1867, Parliament has exclusive legislative authority in relation to both Navigation and Shipping and bankruptcy and insolvency.  Had Parliament intended to except maritime in rem claims from the super priority created by s. 11.52 of the CCAA, it would have said so.

Ultimately, it appears that the Court reasoned that section 11.52(2) spoke for itself: “[t]he court may order that the security or charge rank in priority over the claim of any secured creditor of the company.” In this instance, the Court exercised its discretion granted under section 11.52(2) by way of the initial order when it ranked the Administration Charge in priority to the claim of any secured creditor.

This decision is a reminder to secured creditors or anyone else who may loan monies for security in a vessel, by mortgage or otherwise, that even “first in line” perfected security can be subordinate to other claims. Despite a security interest, lenders must nonetheless face the economic risks associated with the potential insolvency of the borrower.

James Lea

Endnotes:

(*1)      Para. 52.
(*2)      Ibid.
(*3)      Paras. 54-58.
(*4)      Royal Bank of Scotland plc v. Golden Trinity (The), [2004] F.C.J. No. 992 at para. 107.



3. When Two Policies Indemnify: The Latest on Apportionment: Aviva Insurance Co. of Canada v Lombard General Insurance Co. of Canada  2013 ONCA 416

It is now clear, if it wasn’t before, that liability to indemnify as between equally responsible insurers will not be based on the results of strategic manoeuvring such as when a payment is made or by whom, but rather on how such liability should be ultimately apportioned using equitable contribution or restitution principles.

Facts

A fire in an apartment building occurred in January, 1995 resulting in the death of six people and seriously injuring many more.  Arising out of the fire, several legal actions were commenced. The owner of the building, Axes Investments Inc. (“Axes”), and the property manager, Tandem Group Management Inc. (“Tandem”), were jointly represented by one counsel at trial. Liability was not apportioned between them but rather they were found liable as “one defendant”. There were no cross-claims as between Axes and Tandem.

Available Insurance

There were three policies of insurance which could respond to the defence and indemnity of this matter: (a) a Lombard primary policy which covered the first $1 million of the damages arising from the fire and covered both Axes and Tandem; (b) a Lombard umbrella policy with limits of $9 million which insured both Axes and Tandem; and (c) an Aviva policy with limits of $5 million which insured Tandem only.

Lombard paid out the limits under the primary policy, there being no dispute that the primary policy should respond first.  The issue between the two insurers throughout was which of the remaining policies should respond after exhaustion of the primary policy to satisfy the tort judgment.

The Tort Trial and Ranking Decision

Lombard, given the coverage of both defendants under the primary policy, decided to use one counsel and a combined defence at the tort trial. Aviva chose not to participate in the defence nor hire its own counsel. The two insurers took very different approaches and engaged in protracted “manoeuvring” over who was responsible for what portion of the excess losses.

The Ontario Court of Appeal (in appeal of the Priority Dispute Hearing described below) noted that,

 “there was much blaming and finger pointing in both directions regarding why Aviva …. chose not to defend and whether Lombard was taking advantage of Aviva by solely defending the tort actions and not appointing separate counsel for Axes and Tandem. Was Aviva simply “lying in the rushes” awaiting the outcome and hoping, if necessary, to be able to raise its “conflict of interest” arguments against Lombard and thus avoid making any payments altogether?  Was Lombard attempting to take advantage of Aviva by bringing what is described below as the “Priority Proceeding”, to avoid paying anything over and above its primary policy limits?” (*1)

A court application for priority ranking was brought by Lombard for a declaration that Aviva was required to respond next after the Lombard primary policy regarding the liability of their joint insured, Tandem.  Hoilett J. found that the Aviva policy was a primary policy with an excess coverage clause ranking ahead of Lombard’s true umbrella policy (the “Ranking Decision”)

The Ranking Decision was under appeal when the tort judgment was delivered. As the plaintiffs could require payment from either defendant, Aviva, to avoid possible claims of bad faith and in light of the Ranking Decision then under appeal, paid the entire amount awarded at the tort trial of $2,493.343.13. Lombard did not participate in the satisfaction of the tort judgment. Aviva had “blinked”.

The Ontario Court of Appeal, on appeal from the Ranking Decision, then varied the Ranking Decision to clarify that Aviva’s exposure to respond next related only to Tandem’s exposure, Aviva’s only insured. This decision did not touch on whether, or to what extent, liability would be shared if Aviva’s payment on behalf of Tandem exhausted the liability of both defendants, jointly and without contribution from Lombard. On this issue, the parties went before Grace J.

The Priority Dispute Hearing

Lombard’s position was that the Aviva policy was required to respond next after the Lombard primary policy was exhausted and that the Lombard umbrella policy was only triggered after the Aviva $5 million limits had been exhausted, if that occurred.  Aviva, to the contrary, maintained that the Lombard $9 million umbrella policy should respond next because it covered both Axes and Tandem.

At the priority dispute hearing, Grace J. agreed with Aviva and granted judgment against Lombard in the amount of $1,086,195.70 plus pre-judgment interest and costs, representing 50% of the amount paid by Aviva in respect of the tort judgment.

The Appeal of the Priority Dispute Finding for Aviva: Equitable Contribution and Restitution

Lombard appealed the decision of Grace J. in favour of Aviva.

Lombard argued that, with Aviva’s payment of the entire amount owing under the tort judgment, Lombard’s responsibility under its excess umbrella coverage was never engaged, and that full responsibility for payment was properly with Aviva.  

Aviva argued that Lombard should be responsible for one-half of the payment made by Aviva given that the Aviva policy covered only Tandem whereas the Lombard umbrella policy covered both Tandem and Axes.  Both Tandem and Axes were part of the “one defendant”, Aviva argued, and were each liable to pay that portion of the damages assessed against them in the tort actions and the issue was how to apportion that liability between the two insurers.

The Court of Appeal found once again for Aviva stating:

…these issues are properly resolved in the final analysis through the application of notions of equitable contribution, or some combination of equitable contribution and the restitutionary principles of unjust enrichment – both simply examples of the fair play rules imposed by equity.  These principles operate to require Lombard to contribute to Aviva’s payment of the total loss.  Payment of the loss was in reality a payment on behalf of both Tandem and Axes.  Lombard insured both Tandem and Axes.  While Lombard was not required to respond next to the loss on behalf of Tandem (in view of the Ranking Decision), it was required to respond to the loss on behalf of Axes.  It should therefore contribute to the total loss on a 50/50 basis. (emphasis in the original)

(a) Equitable Contribution

In applying the principles of equitable contribution, the Court of Appeal applied the criteria recited by the Supreme Court of Canada in Family Insurance Corp. v. Lombard Canada Ltd., 2002 SCC 48 (CanLII), 2002 SCC 48, [2002] 2 S.C.R. 695,

  1. All policies concerned must comprise the same subject-matter.
  2. All policies must be effected against the same peril
  3. All policies must be effected by or on behalf of the same assured.
  4. All policies must be in force at the time of the loss.
  5. All policies must be legal contracts of insurance.
  6. No policy must contain any stipulation by which it is excluded from contribution.

The Court noted that equitable contribution is applied to prevent over-recovery by an insured with more than one insurer covering the same risk, and by calling on all relevant insurers of that same risk to share pro rata in payment of that loss. As per the Supreme Court of Canada in Family Insurance Corp. v. Lombard Canada Ltd., supra, “[t]he selected insurer, in turn, is entitled to contribution from all other insurers who have covered the same risk” (emphasis added in the original). (*2)

The Court of Appeal noted that two different considerations were at play: (1) the need to prevent over-recovery by an insured who can look to more than one insurer for payment; and (2) the need to avoid a windfall to insurers other than the “selected insurer” (or Aviva in this case) because that selected insurer paid in full a claim arising out of shared liability.  This latter goal is achieved by requiring the other insurers who cover the same risk to share pro rata in responding to that risk. 

In this case, the risk is the equal obligation on the part of Aviva and Lombard to respond to the tort plaintiffs’ claim against the “one defendant” being both Axes and Tandem.  Lombard and Aviva were each equally obligated to respond to the tort plaintiffs’ claims in full.  The tort plaintiffs were entitled to enforce the portion of the damage award allocated to the “one defendant” against either Axes or Tandem for the full amount, and threatened to do so.  To the extent they had sought to enforce the full amount of the claim against Axes alone, Lombard was obligated to respond in full because of its obligation to indemnify Axes (Aviva did not insure Axes).  To the extent the tort plaintiffs had sought to enforce the judgment against Tandem alone, Tandem could potentially look to either Aviva or Lombard, because both insured Tandem though the Ranking Decision put Aviva next in line to respond following Lombard’s primary policy. 

Although Lombard had the benefit of the Ranking Decision for purposes of its umbrella policy, the Court found that its obligation vis-à-vis Axes in terms of responsibility for the Tandem payment was not discharged and the Ranking Decision did not preclude the operation of the doctrine of equitable contribution.

Lombard contended that the Ranking Decision eliminated any obligation on the part of Axes or Lombard to respond to the losses unless and until Aviva’s $5 million limits on behalf of Tandem had been exhausted.  The Court of Appeal found, however, that the Ranking Decision only settled that Aviva was required to respond next to satisfy Tandem’s liability only because Aviva’s policy was a primary policy with an excess coverage clause, as opposed to a true umbrella policy. Therefore, it took priority over the Lombard umbrella policy also providing excess coverage to Tandem. The Ranking Decision then did not determine that Axes had no liability to pay until this had been done or that Lombard had no obligation to respond to the liability of Axes

The Court of Appeal then went on to discuss the issue of the “same assured” criteria as required above. In this case, there were two insureds versus one. There was no impediment as “resort to principles calls for flexibility”.  (*3)

When two insurers insure the same risk, and choose – as Aviva and Lombard did here – to present a united front as “one defendant” in the tort actions arising from the occurrence of that risk, the two insurers (the “one defendant” (Axes/Tandem)) may in effect be viewed as though they are subject to a “coordinate liability” and, therefore, as if they were “the same assured” for purposes of that particular risk, in my view. 

Just as it is not equitable to permit the second of two insurers to escape with no responsibility where the first insurer, covering the same loss on behalf of the same insured, pays the claim in full, it would be similarly inequitable to permit the second insurer to do so in the circumstances that exist here.” (*4)

And at paragraph 46,

Just as it does not lie in the mouth of an insurer covering the same risk in the single insured context to say “there is nothing to pay because the selected insurer has paid the full amount and therefore there is no outstanding liability”, it does not lie in Lombard’s mouth in these circumstances to say in effect, “too bad, so sad: Aviva has paid the joint liability of Axes and Tandem by responding to the claim against Tandem, and as a result there is nothing left for Axes, nor therefore for us, to pay.”  

(b) Restitution/ Unjust Enrichment

The Court of Appeal also applied the alternate reasoning of the trial judge; that is, the principle of unjust enrichment. The Court referred to paragraph 32-34 of the Supreme Court of Canada’s decision in Kerr v. Baranow [2011] 1 S.C.R. 269, wherein Cromwell J. stated,

(Unjust enrichment) permits recovery whenever the plaintiff can establish three elements: an enrichment of or benefit to the defendant, a corresponding deprivation of the plaintiff, and the absence of a juristic reason for the enrichment: Pettkus; Peel, at p. 784.  By retaining the existing categories, while recognizing other claims that fall within the principles underlying unjust enrichment, the law is able ‘to develop in a flexible way as required to meet changing perceptions of justice’: Peel, at p. 788.

Lombard argued that Aviva’s payment did not relieve Lombard from a legal burden that Lombard would otherwise have been obliged to assume and that Aviva was rather simply complying with its own obligation to pay on behalf of Tandem.  Further, Aviva, it was argued, had not been deprived of anything, because Aviva was obliged to respond to Tandem’s obligation to the full extent of the Aviva policy limits as a result of the Ranking Decision.

The Court of Appeal disagreed because the Ranking Decision did not negate Lombard’s obligation under its umbrella policy to cover the liability of Axes.  It simply ranked the competing policies in terms of responding to Tandem’s liability.  Aviva’s obligation to respond next after the Lombard primary policy related to “the liability coverage afforded to the defendant Tandem” only.

The Court went on to say that, if the tort plaintiffs had decided to pursue Axes alone, as they would have been entitled to do, Axes was entitled to claim indemnity under the Lombard umbrella policy because Lombard remained fixed with the obligation to respond to that liability in relation to Axes. At paragraph 55,
In such an event, Lombard would have been in exactly the same position as an insurer who paid the claim of an insured who was able to choose from several insurers of the same risk; it would be entitled to seek contribution from those other insurers.  The reverse is true when the payment is made in these circumstances by Aviva.

The Court concluded that Lombard retained its obligation to pay on behalf of Axes, notwithstanding the Ranking Decision, which had related only to Tandem.  When Aviva covered that obligation – even though it did so in the course of covering its own obligation in relation to Tandem – it conferred a benefit on Lombard in the sense that the payment spared Lombard from incurring an expense it would otherwise have had to incur. Aviva also suffered a corresponding deprivation of having to cover Lombard’s share of the loss when Lombard did not comply with its obligation to indemnify Axes for its share of the damage award. 

The Court further found that there could be no juristic basis upon which Aviva’s policy could rank ahead of the Lombard umbrella policy in relation to the liability of Axes, as Aviva did not insure Axes.

The Court found that there was “no reason in law or justice” for Lombard’s retention of the benefit conferred by Aviva.

The appeal was accordingly dismissed. Lombard was required to reimburse Aviva for 50% of the Axes/Tandem liability on the basis of equitable contribution or unjust enrichment/restitutionary grounds and not on whether one insurer “blinked”. The Court stated at para 37, “ ‘Blinking’ cannot be the defining principle of insurance law upon which the respective responsibilities of Aviva and Lombard for responding to the losses are determined.”

Kim E. Stoll

Endnotes

(*1) at para. 13
(*2) Family Insurance Corp. v. Lombard Canada Ltd at para. 14
(*3) at para 41
(*4) at para 42-43


 

4. Information Provided to Transport Safety Board Ordered Produced on Discovery: Jetport Inc. v. Global Aerospace Underwriting Managers (Canada) Limited, 2013 ONSC 5459

This case involved an appeal by Jetport Inc. against an order made by Master Graham of the Ontario Superior Court ordering it to disclose information, as part of its examination for discovery obligations, it had provided to the Transportation Safety Board as part of the Board’s investigation into a air crash.

Jetport Inc. (“Jetport”) is an incorporated Alberta company, which carries on various businesses, including an executive aircraft charter operation based out of Hamilton International Airport. 

One of Jetport’s charter aircraft was a new Bombardier Global 5000 business jet bought in July 2005 and delivered to Jetport in October 2007.  It was added to its insurance policy, with an insured value of U.S. $40,000,000.  On November 11, 2007, the jet left the Hamilton International Airport bound for Fox Harb’r, Nova Scotia.  Jetport says it was piloted by Roger Adair with David Johnstone as second-in-command.  There were eight passengers aboard.  On landing at the Fox Harb’r airport, there was an accident when the aircraft veered off the runway.  Several passengers including the pilot and co-pilot were injured.  The aircraft was damaged beyond repair.

When Jetport made its claim under its insurance policy, in letters dated February 15 and March 19, 2008, the insurers denied Jetport coverage.  Jetport commenced an action against the insurers claiming $50,000,000 in damages. 

During the oral examinations for discovery, Jetport refused to answer questions relating to the information that the pilot Roger Adair provided to the Transportation Safety Board during their investigation.

Master Graham of the Ontario Superior Court held that questions about that which Adair had told the Transport Safety Board were relevant and had to be answered. Surprisingly, Jetport had not raised the statutory privilege found in section 30 of the Canadian Transportation Investigation and Safety Board Act, S.C. 1989, c. 3. Section 30(2) provides protection setting out that a statement given to the Transportation Safety Board is privileged. Section 30(5), however, allows production of the statement:

If the court or coroner concludes in the circumstances of the case that the public interest in the proper administration of justice outweighs in importance the privilege attached to the statement by virtue of this section, [it can] order the production and discovery of the statement, subject to such restrictions or conditions as the court or coroner deems appropriate, and may require any person to give evidence that relates to the statement.

Jetport failed to raise section 30 in argument before Master Graham. It first raised the issue at the Court of Appeal. It took the position that there is a public policy basis for not allowing any Transport Safety Board evidence to be used civil proceedings. The Court of Appeal was not impressed that the issue had not been raised before Master Graham, stating:

The issue of statutory privilege raised by Jetport in respect of the draft TSB Draft Report does not appear to have been earlier raised in its Refusals.  I have examined the Chart of Refusals attached to Master Graham’s second part of his Endorsement regarding the TSB Draft Report.  Q. 974 says that Jetport received a copy of the Draft Report.  He then ordered Jetport to answer Refusals 975, 977, 1260 all related to the TSB’s accident investigation.  Statutory privilege is not pleaded by Jetport.

The Court of Appeal reviewed the decision of Justice Strathy In Société Air France et al. v. NAV Canada et al., [2009] O.J. No. 5337, (SCJ). In 2010 ONCA 598 (CanLII), the Court of Appeal upheld the decision of Mr. Justice Strathy. The Court of Appeal went on to quote Mr. Justice Strathy:

In para. 85 of that decision, he refers to a motion to compel production of statements made in another TSB investigation.  He points out to the fact that the statutory privilege raised applies unless the declarant authorizes the release of the statements or the Court determines, “…the public interest in the proper administration of justice outweighed the privilege attached to the documents.”

In para. 110, Mr. Justice Strathy sets out how the statutory test under the TSB Act applies.  The Court must first consider the circumstances of the case and whether in those circumstances of the case, the “public interest in the proper administration of justice outweighs the importance the privilege attached” to the TSB Draft Report.  This, says Mr. Justice Strathy, involves the balancing of the two interests.  In para. 123 he says the public interest primarily refers to “the public interest in the fairness of the trial process – a trial in which the party can fairly make out its case and can fairly meet the case of the other party.”

In para. 126, Mr. Justice Strathy says that the public interest extends beyond the immediate interests of the parties, that is, one where it is ensured that the information available to the Court is as complete and reliable as possible.  The Court, in that instance held that the test had been satisfied and it ordered the production of the CVR (cockpit voice recorder).  The Court of Appeal upheld that decision.

The Court of Appeal noted that in the Jetport Inc. decision Master Graham held that the Refusals, were required to be answered in relation to the Transportation Safety Board Draft Report.  The Court of Appeal noted that the issue of privilege was not before him but “even if it had been, in my view, he came to the proper conclusion in making the Orders he did.  The public interest in the administration of justice outweighs the importance attached to the statutory privilege now claimed.  The Draft Report is, in my view, a vital document in assisting the Court to know what position Jetport’s witnesses took on all matters relating to the accident.”

Jetport Inc.’s appeal was dismissed. One wonders if Jetport had raised the issue earlier before Master Graham, whether the Court of Appeal would have ordered them to produce the information provided to the Transportation Safety Board. With decisions such as this one, pilots, vessel captains, railway conductors and others required by law to co-operate in safety investigations may in the future be very wary of what information they give to the Transportation Safety Board. Candour will be replaced by caution and “forgetfulness”. This can only have a detrimental effect on safety investigations.

Rui Fernandes


 

5. Maritime Labour Convention, 2006 Update

Canada ratified the Maritime Labour Convention, 2006 in July 2010. The Convention came into effect on August 20, 2013.

The Convention provides comprehensive rights and protection at work for the world's more than 1.2 million seafarers. The new standard consolidates and updates more than 65 international labour standards related to seafarers adopted over the last 80 years. The new Convention consolidates and updates 68 existing International Labour Organization maritime Conventions and Recommendations adopted since 1920.

The MLC, 2006, establishes the labour working conditions and requirements on board vessels including, among other things, conditions of employment, hours of work and rest, accommodations, recreational facilities, food and catering, health protection, medical care, welfare, and social security protection. It combines rights and principles with specific standards and detailed guidance as to how to implement these standards at the national level. These requirements are consistent with Part 3 of the Marine Personnel Regulations, entitled “Maritime Labour Standards”, under the Canada Shipping Act, 2001. Certification of Canadian vessels under the Convention will protect them from possible detainment when they enter the ports of other ratifying States.

The MLC, 2006 requires from the owner/operators of ships greater than 500 gross tonnage, engaged on an international voyage, other than an inland voyage, to certify that the working and living conditions onboard their ships are maintained in compliance with the MLC,2006. The Convention allows Canada to inspect foreign ships arriving in Canadian ports to determine their conformity with modern labour standards that are already being applied on Canadian vessels.

In fact, Canada was the second country (Denmark was first off the mark with the detention of the “Atlantic Carrier”) to detain a vessel under the Convention. In September 2013 it was reported that the Cyprus flagged vessel "LIA M", was detained after the Canadian authorities received complaints from the crew regarding alleged Convention deficiencies which included "unpaid wages, a 'collective bargaining agreement' that lacked the vessel name, a date or a wage scale; crew with no money and a crew member who had twice been refused access to a doctor. There was also a complaint that crew members were being forced to sign blank contracts." Both Canada and Cyprus have ratified the Convention. Following the intervention of Canadian (and Danish) authorities and the International Transport Workers’ Federation both vessels are now MLC, 2006 compliant.

Canada’s ratification is especially significant as it is a major port state with key international ports on both the Atlantic and the Pacific Oceans.

Rui Fernandes





 

 

 


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