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Newsletters 2014 > March 2014

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In this issue:
1.         Firm and Industry News
2.         Shippers and the General Accountability for Goods being “Transit-worthy”
3.         Federal Court of Canada Jurisdiction- There is a Difference Between Contracts for the Sale of Cargo and for the Shipping of Cargo: AK Steel Corporation v. Acelormittal Mines Canada Inc., 2014 FC 118 (CanLII)
4.         State Immunity: A Review of Bombardier Inc. v. AS Estonian Air, 2014 ONCA 41
5.         Fleet Expansion in Nova Scotia


 

1. Firm and Industry News

  • Fernandes Hearn LLP is pleased to announce that the firm has been listed in the 2014 edition of Chambers Global as a top tier Transportation Law firm with Rui Fernandes and Gordon Hearn listed as notable practitioners 

  • Gordon Hearn will be presenting a paper on “Carrier’s Rights and Remedies for Unpaid Freight Charges“ at the Annual Meeting of the Transportation Lawyers Association and Mid- Annual Meeting of the Canadian Transport Lawyers Association at St. Petersburg, Florida on May 2, 2014. Kim Stoll will be moderating an interactive workshop on “Developments in Cross Border Issues and Canadian Law”. Kim Stoll will co-chair the Canadian Transport Lawyers Association’s inaugural CLE programme during this conference and will moderate two panels including one on Cross Border Freight Forwarding issues and one on Venue and Forum Non Conveniens. Martin Abadi will be presenting a paper as part of this programme on “Regulation of Cross-Border Commercial Transportation of Goods Between Canada and the U.S.”

  • Rui Fernandes will be presenting a paper on “Protecting Your Business From The Dark Side – Law Suits” at the Mari-Tech conference at Niagara Falls on May 9th, 2014.


 

2. Shippers and the General Accountability for Goods being “Transit-worthy”

A recently published decision of the Federal Court of Canada (Trial Division) in the case of Oceanex v. Praxair Canada Inc. 2014 FC 6 (CanLII) serves as a reminder to shippers of goods that they may bear liability to a vessel owner in the event that the cargo “misbehaves” during the voyage and causes damage to the ship.  In the broader context, the case reaffirms the notion that in tendering goods to a carrier a shipper of goods generally speaking represents that the cargo is “transitworthy” and can withstand the usual rigours of transit for the mode and route in question.

This case concerned the tender for carriage by a shipper of a cargo of liquid oxygen in a tank container, which particular means of containment was not ‘quite up to speed’ for the purpose intended.

The Facts

Liquid oxygen leaked from a cryogenic tank container while being carried on board the M.V. CABOT from Montreal, which set sail en route to St. Johns, Newfoundland on December 11, 2007.  The leak caused significant havoc.  The vessel deck and shell plating became extremely brittle and fractured in the area where the liquid oxygen made contact. The vessel was put out of service from its liner trade for a period of time while the necessary repairs were undertaken.

The vessel owner Oceanex Inc. (“Oceanex”) brought an action for damages for the repairs and for consequential (business interruption) damages against the shipper who tendered the freight, Praxair Canada Inc. (“Praxair”) and against the tank container itself, which had leaked the liquid oxygen – “Tanktainer C-156 ex the ship M.V. CABOT” actually being named as a defendant.  That the container itself would be named as a defendant is an interesting vestige of the “in rem” action in admiralty law, whereby certain maritime property implicated in a casualty or a claim may be named as a defendant in the proceedings.   Those familiar with admiralty claims and the in rem jurisdiction of the Federal Court of Canada will have encountered the concept of a ship implicated in a maritime dispute being named as an in rem defendant.  Whether it be a ship, contested freight monies, a carriage conveyance such as a container or a tank or the cargo involved in a marine incident, a plaintiff might threaten the “arrest” of such property through the process of the Federal Court (or actually effect such an arrest) with a view to seeking pre-judgment security for an amount up to the value of that property.

In this case the tanktainer C-156 was actually never served with the statement of claim.  It was thus not required to deliver a defence and was left to go on about its business.

Oceanex pursued its claim against Praxair for the cost of the vessel repairs and for lost net revenue and other consequential expenses incurred during the downtime required to effect the repairs.  Praxair defended the case on the basis that the leakage was in fact caused by rough and improper handling by Oceanex employees or contractors in the loading, stowage or unloading of the tank container from the ship. Praxair maintained that the outward condition of the container at the time of the leak evidenced such rough handling.

The Issues

Liability

Why did tanktainer C-156 leak?  Did Praxair tender for carriage “untransitworthy” cargo and/or a means of containment for same?  Or did someone on the Oceanex side somehow abuse the tanktainer so as to cause the leak?

The evidence was undisputed that the leak emanated from two values located behind certain “cabinet doors” on one side of the tank container.   Oceanex asserted – and led comprehensive and complex lay and expert witness on point - that the valves were simply “loose” on the tank container when it was tendered for carriage as a result of which it could not contain the liquid oxygen during the normal handling and events associated with the voyage. Praxair, in turn, asserted through its own detailed lay and expert evidence that something out of the ordinary happened, or was done to the container leading to the leak.

As to Praxair’s assertion that the tank container had been exposed to rough handling, the court noted the lack of evidence as to tank container’s experience prior to arriving at the Port of Montreal for the voyage.  The purported external indication on the tank container of rough handling was in and of itself of no probative value, there being no indication of the container condition and handling before the point of loading onto the ship. This manifestation of abuse could have been historical, or it could have been ‘new’ reflecting rough handling while on board the vessel.  The court simply did not have the evidence to make any finding that the tank container was mishandled while being loaded onto or being handled on the ship.

The evidence led at trial on the cause of the leak was extremely detailed and technical on the properties of liquid oxygen and of the tanktainer.   The court ultimately found that the valves in question leaked because they were not sufficiently tight, a finding no doubt buttressed by the revelation that there was a valve leak some two months earlier then requiring a certain ‘snugging’ of the valves.  The finding that the tank container was ‘lacking’ (in terms of the valves not being secured) resulted in the determination that Praxair tendered cargo in a means of containment that was not transitworthy and capable of safe carriage within the realm of a normal voyage. 

The court then addressed whether Praxair should be held legally accountable for the consequences that followed in terms of the plaintiff’s damage claims. The analysis turned to whether Oceanex assumed the risk of the consequences of the leaking valves in accepting the tank container for carriage.  Quoting Mr. Justice Nadon in the case of Industries Perlite Inc. v. Marina Di Alimuri (The) [1996] 2 FC 426the trial judge noted that:

“The Liability for the damage caused by casualty flowing from the shipment of dangerous cargo is varied where the carrier, members of the crew, or ship owners know or ought to have reasonably known of the dangerous nature of the cargo. As will be seen from the jurisprudence, this exception is based on the assumption that a carrier who is aware of the dangerous nature of the cargo accepted for carriage, consents or accepts to assume some of the risks associated with that shipment. Put another way, where there is an indication that the carrier was made aware of the dangers involved in a shipment, or where the dangers are self-evident, and the carrier proceeds in the face of that knowledge, the general principle stated above is trumped. Therefore, whatever warranty exists (absolute or qualified) on the part of the shipper as to the suitability of goods for carriage, the liability for the damage arising out of “dangerous cargo” is judged in a sliding scale wholly dependent on the knowledge or deemed knowledge of the carrier (at Paragraph 98).

Liquid oxygen is covered by the Transportation of Dangerous Goods Act, 1992 and the regulations enacted thereunder. Amongst other things, a shipment must be properly placarded, which it was. Refrigerated gases fall within Class 2 of that Act. Under section 5.4 of the Consolidated Transportation of Dangerous Goods Regulations, the shipper “must load and secure dangerous goods in a means of containment…in such a way as to prevent, under normal conditions of transport, damage to the means of containment or the means of transport…”.

The court also noted that a carrier is not responsible for damage caused by insufficiency of packing: “no person is entitled to claim compensation from others for damage occasioned by his neglect to do something which it was his duty to do”. The court also noted that the insufficiency of packing in this case (e.g. the insufficiently tightened valves on the tank container), could not have been detected by Oceanex in the normal course of events. The valves in question were located behind sealed cabinet doors. The court noted that it would not be reasonably expected that Oceanex would do anything with the container other than carry it.

Accordingly, the court found that Praxair was liable on the basis that it tendered cargo that was not contained in a compliant means of containment and/or which was suitably fit for the normal rigours of ocean transit and that Oceanex did not assume the risk of any resulting loss or damage, as Oceanex was not aware of the specific dangerous propensity that came to unfold i.e. the leaking of the liquid oxygen.

The Damage Claims of Oceanex

Finding that Praxair was liable for the plaintiff’s damage claims, the court had to assess and quantify the damages payable. The first ‘head’ of damages claimed was not difficult to quantify as this related to the vessel repair expenses.  The consequential damages claims for the vessel being put out of service proved to be a bit more of an exercise.  Oceanex cited the loss of the use of the vessel (while the repairs were being made) for the intended “liner” scheduled voyage one week later from Montreal to St. Johns on December 19th – a critical juncture, just before the Christmas holiday. In this regard Oceanex claimed the costs incurred in the rerouting of cargoes by alternative means that would have travelled on the intended December 19th voyage and also claimed for loss of profit in connection with the ‘lost voyage’.

Praxair submitted that the rerouting costs in lieu of the December 19th voyage did not flow from the leakage, but were incurred by Oceanex for commercial reasons, so as to satisfy its major customer, Wal-Mart, as well as a few other customers.  Praxair maintained that Oceanex could have invoked a ‘force majeure’ clause in those supply contracts.  On this issue the court came to regard Oceanex as having acted reasonably in trying to mitigate damages, and that the rerouting of cargoes to meet customer shipment demands (that could have been fulfilled but for the ship being out of service) was a foreseeable consequence to Praxair with what happened: “Praxair knew full well that Oceanex was operating a scheduled liner service.  Had it thought about it, it would have known that the timing of shipments just before Christmas and boxing week sales were critical.  It would have been foolhardy for Oceanex to put its relationship with Wal-Mart into jeopardy.  The expenses claimed are not too remote”.  With this finding the court addressed another assertion raised by Praxair, that the rerouting expenses claimed by Oceanex were too “remote” in law finding that at the time of contracting Praxair would have or should have reasonably contemplated this type of loss being suffered by Oceanex. 

As mentioned Oceanex also claimed the loss of profit on the lost voyage intended for December 19th.  The assessment of this damage claim provided challenging as the M.V. CABOT was engaged in the carriage of different cargoes, which were not all carried at the same freight rate.  Further complicating the situation was the fact that, given the weekly liner service, many freight bookings would have been made by shippers at the last minute.  As a result, many more bookings might have been made that had to be cancelled for the foregone December 19th voyage.

After taking into account various accountant’s projections on what would constitute foreseeable net income – noting that “to go into more protracted calculations would be intolerable” – the court fixed a damage claim under this heading based on historical shipping figures and volumes.

Oceanex also claimed damages for overhead and detention of containers at St. Johns and a loss of “westbound” shipment income, all said to have arisen from the incident.  Based on the evidence, the court found that there was no loss of westbound freight; however, the court did calculate overhead and other damages tied into Oceanex’s “scrambling” regarding equipment detained at St. John’s as a result of the incident.

Conclusion – the “Take Away”

Shippers are reminded that they are responsible for the transitworthiness of cargo tendered for shipment – especially, but not limited to, cases where goods are considered to be ‘dangerous goods’, the transportation of which being significantly regulated.   Shippers must assume that they will be held accountable for the damages and consequences that flow from incidents arising from cargo-related mishaps while en route, while in certain limited (and very factually specific) cases the carrier might be seen to have assumed the risk over an incident, perhaps taking responsibility over a patent situation or a problem.

This case also illustrates the general willingness of the courts to award foreseeable damages to a carrier for damage to a carriage conveyance and related consequential damages.  The shipper will be taken to foresee – and hence, be liable for – a general range of damages that may be suffered in terms of business loss to the carrier given that the shipper will have to be aware of the nature of the carriers’ business in terms of not just servicing itself but a whole host of other shippers of goods, in the context of the carrier expecting to earn a profit.  In essence, the shipper must take care in appreciating that an adverse incident for which it may be fixed with blame affects commercial interests of others.  This exposure may extend to those interested in other shipments being carried on the same voyage in addition to those interested in the ship or carriage conveyance (be it a truck, airplane or a rail car) itself.

Gordon Hearn



3. Federal Court of Canada Jurisdiction: There is a Difference Between Contracts for the Sale of Cargo and for the Shipping of Cargo:  AK Steel Corporation v. Acelormittal Mines Canada Inc., 2014 FC 118 (CanLII)

The decision ofAK Steel Corporation v. Acelormittal Mines Canada Inc., 2014 FC 118 (CanLII) offers an interesting analysis into the jurisdiction of the Federal Court of Canada.  There were numerous other issues in this case including the effect of New York law on the positions of the parties. The use of experts is also noted and the court’s dismissal of “fanciful” opinions is of importance.

Facts

AK Steel Corporation (“AK Steel”) was the buyer of a cargo of 29,885 metric tons of iron ore pellets and the voyage charterer of the Great Lakes self-unloader vessel, the Rt. Hon. Paul J. Martin (the “Ship”). In December 2008, there were problems discharging the (frozen) cargo and the ship As charterer, AK Steel, was required to fully the shipowner, Canada Steamship Lines for the additional expenses incurred including demurrage and the cost of repairing the Ship’s damage that was incurred during discharge. AK Steel, in turn, claimed for the recovery of these monies from the defendant, Acelormittal Mines Canada Inc., known at the time as Québec Cartier Mining (“QMC”), who had sold the cargo to AK Steel “FOB ship’s hold” at Port-Cartier, Quebec. QMC was named as shipper on the bill of lading signed on behalf of the Ship’s master.

The claim was for approximately $80,000 CAD for repairs to the Ship, $105,000 for demurrage and damages for the cost of rental equipment at port of destination and the cost for the joint survey.

Jurisdiction of the Federal Court

Contractual provisions provided that the contracts were to be governed by the laws applicable in the State of New York and that any disputes were required to be resolved by New York Arbitration. The parties had agreed that the Federal Court had jurisdiction thereby waiving the arbitration clauses; however, the court reminded the parties that agreement was not enough and examined what was necessary in this case for the Federal Court to maintain jurisdiction.

The Federal Court was established by Parliament pursuant to s. 101 of the Constitution Act, 1867  (the “Constitution”).  The Federal Court has jurisdiction only if the matter in dispute falls within a federal legislative class of subject, an actual and existing federal law to administer that is necessary to the resolution of the dispute and, lastly, Parliament has granted jurisdiction to the Federal Court. (*1)
 
The Court considered whether the matter was a breach of contract for sale typically within in the class of Property and Civil Rights in the Constitution (*2) and whether the relationship between the parties could bring the matter into Canadian Maritime Law and therefore within the Navigation and Shipping class.(*3)

QCM sold and delivered the cargo of pursuant to a long-term contract it had with AK Steel. The iron ore had minimum and maximum specification parameters, including moisture content. There was no issue as between the parties that the cargo was deficient in one respect: the moisture content was 2.8% rather than the standard moisture content of 1%, with a maximum allowable of 2.5%.

Delivery as indicated above was “FOB hold of ship” at Port-Cartier, Quebec onto ships chartered by AK Steel. AK Steel was required to ensure that the Ship was compliant with Port-Cartier regulations as set out in QCM’s “Advice to Vessels”. QCM manufactured and sold the iron ore pellets and also operated the port and acted as ships’ agent. The contract provided for items such as Notice of Readiness, laytime, demurrage and despatch. There were three noteworthy paragraphs wherein the parties agreed as follows:

QCM agrees to indemnify AK Steel against any claim or fine relating to all forms of damage to the ship, other than normal wear and tear, or pollution (including water, air and noise), caused directly by the loading of pellets.

If after delivery to New Orleans (“NOLA”), Toledo, Middleton and/or Ashland, AK Steel incurs additional costs due to frozen QCM BAF Pellets, QCM will reimburse AK Steel for all such extra costs associated with the frozen pellets. AK Steels shall use reasonable efforts to minimize such costs.

AK Steel shall require the vessel’s Master to deliver to QCM at Port-Cartier a duly signed non-negotiable Bill of Lading provided by QCM prior to departure of the vessel from Port-Cartier.

QCM prepared the non-negotiable bill of lading and signed it as agent for the master. QCM was shown as shipper and AK Steel as the consignee with a port of discharge as Toledo, Ohio. The FOB seller of cargo is a party to a contract evidenced by a bill of lading (*4) but the Bill of Lading also provided:

Freight (and demurrage, if any) shall be payable pursuant to such Transportation Agreement or other Contract of Affreightment as may be in effect between the Shipper or Consignee, as the case may be, and the Carrier in respect of the cargo. The terms of such Agreement or Contract shall be deemed to be incorporated herein and this Bill of Lading shall be subject thereto.
In this case, the contract of affreightment between AK Steel and Canada Steamship Lines (“CSL”) specified carriage of iron ore pellets over an initial five-year period commencing with the 2008 Navigation Season.

Clause 2 of the contract described the intended cargo as “iron ore pellets”, free-flowing, capable of being handled by gearless bulkers or conveyor belt, boom-discharge self-unloader vessels and free of foreign objects which might damage the vessels. The particle size was not to exceed 2.5 inches in any direction and CSL had the right to refuse cargo outside of these specifications, but acceptance did not constitute a waiver.

Clause 3 provided that if any damage to a vessel or equipment resulting from cargo in breach of clause 2 occurred, AK Steel would indemnify and hold CSL harmless for such expense, repair and loss of time at the prevailing demurrage rate, upon presentation of appropriate invoices.

The subject Ship was one of a number of available ships and each nomination and each individual voyage had a voyage charter. In fact, CSL had two contracts of affreightment in virtually identical terms: (1) with QCM under the Bill of Lading; and (2) with AK Steel under the multiyear contract of affreightment.

The court concluded that the Federal Court had jurisdiction if AK Steel’s cause of action is brought pursuant to maritime law since Canadian Maritime Law includes conflict of law. However, if the cargo’s problem had been that of its iron content rather than its moisture content, such would not have been the case. The issue of proper moisture content was relevant to the fitness of the cargo for shipment. The court cited the Supreme Court of Canada decision in Monk Corp. v Island Fertilizer Ltd. (*5). In Monk Corp., the dispute related to cargo delivered but the dispute centred on the quantum delivered, demurrage and the cost of shore crane rental for discharge which did not relate to the sale but rather was integrally connected with navigation and shipping.  In this case, QCM had supplied a cargo that was not suitable for transport.

The court found that the case against QCM was not as a seller of cargo but as a shipper of cargo. AK Steel sued as a voyage charterer and not as a buyer. The case was not regarding the sale of goods but rather the sale of a cargo and the sale of maritime property, typically ships, falls within the Federal Court’s jurisdiction (*6).

The Federal Court had jurisdiction to hear this matter.

Issues

AK Steel submitted that QCM failed to provide a suitable cargo for carriage as there was risk of freezing with such high moisture content and the associated cost of the unwanted water and the carriage of it.

QCM submitted that its breach of its contract regarding excessive moisture content with AK Steel did not cause the loss nor was there a demand by AK Steel for a discount on the invoice price. The court agreed that the shipment was subject to the Hague-Visby Rules (the “rules”) and QCM argued that the question was whether the loss was caused by CSL’s failure to properly load, carry, care for, discharge and deliver that cargo as required by those rules.

QCM further submitted that if it was responsible for the loss, AK Steel was barred from recovery because under New York law: (a) it failed to give notice of breach within a reasonable time; and (b) it allowed for “spoliation of evidence” by failing to invite it to a joint survey of the Ship.

AK Steel’s response was that notice was reasonable but that, in any event, it was not required because QCM was well aware before the Ship’s arrival at port of destination (Toledo, Ohio) that it, QCM, was in breach of contract. Further, AK Steel stated that, given the awareness, it was incumbent upon QCM to call for a joint survey if the Ship’s inspection was required.

The Unloading and Ensuing Problems

The Ship was a self-unloader.  Unlike other bulk carriers, cargo is not discharged by lifting it from the holds but, rather, the holds are tapered with a thick plastic coating over the steel bulkheads. The bottom of each hold is fitted with gates which, when opened, allows the cargo to be fed via gravity down into a tunnel and onto two conveyor belts. The conveyor belts then move the cargo to the rear where it is then lifted by means of a loop belt and then onto a 250 feet long discharge boom swung out over the dock, at which point it is discharged.

On December 21, 2008 at 04:40 hrs, the Ship’s Notice of Readiness was tendered and accepted. The Ship was secured at the loading berth and loading commenced within the next two hours. It was very cold, at -18 degrees Celsius, and it was snowing. The Ship’s master could not see the cargo from the berth but was well aware that the cargo had been stockpiled in conditions that did not protect it from the weather and was witness, during loading, that snow was intermingled with the iron ore pellets and that it was free flowing.
 
The cargo was loaded by a certain sequence and in two phases to maintain stability. The first pass corresponded with the discharge of ballast water followed by a second pass. Then the cargo was trimmed by adding 800 tons through hatch 8 (hold 2) and hatch 18 (hold 4). Loading was completed finally on 22 December with some delays due to electrical problems. The master delayed sailing due to weather conditions but set sail at 18:10 hrs on December 22, to Toledo arriving slightly late on December 29.

The cargo holds were battened down throughout the voyage. The cargo was not inspected. The evidence indicated that the tunnel and the belts were bone dry throughout the voyage and at the commencement of discharge. However, a 4,500 tons of the cargo turned out to be frozen and would not flow down through the gates into the tunnel below. Photos taken at the time show massive frozen lumps.

While two heaters were rented, inexplicably, they did not work and were replaced by working heaters the following day. A crane at a different berth was to be used and various unsuccessful measures were used to try to dislodge the cargo including dropping truck tires and a 13.5-ton magnet on top of the cargo. Unfortunately, the swinging magnet hit the sides of holds 1 and 2 damaging the plastic coating. A grab was also used successfully and, as the piles got smaller, the heaters were used again to better effect. The crew continued to work in holds not using the crane and a bobcat and picks and shovels were used.  Discharge was completed on January 1, 2009 but CSL had already complained to AK Steel on the morning of December 30th.

AK Steel’s metallurgical engineer contacted QCM’s engineer in or around January 3rd but he could not recall whether he stated that a claim would be forthcoming but the frozen state of the cargo was mentioned. Some days later, QCM’s non-performance report was provided and the conversation was referred to therein.  At the time of the conversation, AK Steel’s metallurgical engineer was not aware that the moisture content put the iron ore off specification, as QCM was required by contract to carry out an analysis.

QCM knew by at least December 23 that the moisture content was outside the specifications and on that date QCM’s laboratory supervisor approved the Shipping Test Certificate with its non-conformity. The contract provided that QCM explain why the cargo was off specification, and what corrective action would be taken.

According to the non-conformance report, which, without explanation, was not sent until January 6th , the reason for being off specification was:

We had a lot of ice and snow in our BAF stockpile and it was not possible to reclaim somewhere else to take fresh pellets or pellets with lower moisture level.

The proposed corrective action was noted to be:

Everything that could be done under the circumstances was done. However, we will continue to maximize blending in our reclaiming practices and whenever possible, fresh pellet production will also be included.

CSL and AK Steel proceeded with a joint survey a few days later at Thunder Bay.

The Cause of the Loss

 The Court found that the pre-loading condition of the cargo caused its freezing as evidence from the master and the joint survey was accepted that, during the voyage, no water had entered the holds through the hatch covers or leakage from tanks. The cargo was found to be free flowing upon loading having traveled to the holds more than 2,000 feet, and less than 4,000 feet, obviously being shaken up along the way. The court found that the iron ore pellets had been left exposed to the elements for at least 1.5 months, which explained the excess moisture content. During the voyage from Port-Cartier to Toledo, the court found that a good portion of the cargo refroze.

Responsibility for Care of the Cargo

The master tendered the required Notice of Readiness and accepted the cargo on board. Although he observed snow within the cargo, the master was not concerned, as he had loaded in winter conditions at least 25 times without any problem in discharging the cargo.

The court did not find merit in the testimony of QCM’s expert who suggested that:(1) QCM should have been proactive inquiring as to the length of time that the cargo had been stored outside given the demand for steel products even though the master was not a world trade economist and could not have anticipated a problem due to the length of stockpiling; (2) loading was the cause of freezing in that the ship should have refused to take cargo from the top of the stockpile even though those on board could not see the location from which the iron pellets emanated; (3) freezing was worse in the holds in which the hatches were open the longest even though the worst freezing was not in those holds so the court found that there was no correlation between freezing and the snowfall; and (4) the Ship should have taken on heaters earlier since the master should have concluded that no moisture through the gates meant that the cargo was frozen even though heaters use of fossil fuel would have required a flat position and open hatch covers. Hatch covers, it was noted by the court, being part of the ship’s integrity, could not remain open during the voyage on open water. The court characterized QCM’s expert’s opinion that the heaters should have been on standby and tested before the Ship’s arrival in Toledo as “ too fanciful”.

The court accepted the master’s testimony and that of AK Steel’s expert that there was no reason for the master to anticipate that the cargo would not be free flowing at discharge. The court further noted, regarding the damage by the magnet, that there was a trade off between damage and delay, as the Ship could not wait until spring for the cargo to thaw. CSL was under an obligation to deliver the cargo and the Ship had other business in hand.

The Court quoted the Lord Chancellor in Banco de Portugal v Waterlow and Sons Ltd.(*7):

Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment, the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.

The Contract and New York Law

QCM agreed to indemnify AK Steel against any claim relating to all forms of damage to the Ship caused directly by the loading of the pellets. The damage was caused by the loading of pellets that could not be offloaded through the Ship’s self-unloading equipment. In addition, the contract provided that if, after delivery to New Orleans, Toledo, Middleton or Ashland, AK Steel incurred additional cost due to frozen pellets, it would be reimbursed by QCM. AK Steel testified that shipments during the St. Lawrence Seaway navigation season were to Toledo; however, during the winter, shipments were to U.S. Atlantic ports, or to New Orleans from which they would make their way to one of AK Steel’s mills. Counsel for QCM suggested that this clause only covered freezing which occurred after discharge. While the court could contemplate a situation where cargo was discharged at Toledo and then subjected to freezing rain and snow, the court found that reference to Middleton and Ashland put the exact meaning of the clause in doubt. The court stated that while freezing after final delivery might be possible in Middleton and Ashland, such freezing after discharge was very unlikely in New Orleans and interpreted the clause as contemplating freezing during carriage by ship from Port-Cartier, Quebec.

Further, by incorporating the AK Steel/CSL contract of affreightment into the Bill of Lading, QCM warranted that the cargo would be free flowing. Both parties provided opinions on the law applicable in the State of New York. QCM’s expert on the law of New York was of the opinion that AK Steel’s underwriters had a viable subrogation claim and that, if the damages to the ship flowed from QCM’s breach of contract, it would be entitled to recover incidental and consequential damages. They further pointed out that, should it be established that the damage was caused by CSL itself in improperly loading, transporting or discharging the pellets, QCM would have a valid defence. QCM also had two other defences arising from AK Steel’s failure to provide timely notice of the breach of contract, and its failure to invite it to inspect the Ship after the loss was discovered, and prior to her repair.

AK Steel’s New York law expert opined that no notice of breach of contract had to be given because QCM was perfectly aware it was in breach of contract for over 10 days before it admitted that breach to AK Steel and that, in any event, the notice was provided in the conversation between the two metallurgical engineers. Therefore, no  “spoliation of evidence” based on the failure to invite QCM to a joint survey had occurred as QCM had notice of its breach and could call for a joint survey.

The court preferred the opinion of AK Steel’s experts and noted that there was no prejudice by the failure to inspect prior to repair. Submissions that CSL may have benefited by repairing pre-existing damage were noted as sheer speculation.

The court was satisfied that AK Steel was entitled to recover in full.

Kim E. Stoll

Endnotes
(*1) ITO-International Terminal Operators Ltd. v Miida Electronics Inc., [1986] 1 SCR 752, [1986] SCJ No 38 (QL) (the Buenos Aires Maru).
(*2) S. 92(13) of the Constitution Act, 1867
(*3) S. 91(10), Constitution Act, 1867).
 (*4) Pyrene Company Ltd v Scindia Steam Navigation Company Ltd, [1954] 1 Lloyd’s Rep 321, [1954] 2 QB 198
(*5) [1991] 1 SCR 779, [1991] SCJ No 28 (QL).
(*6) Antares Shipping Corporation v The Ship ‘Capricorn’ et al. [1980] 1 SCR 553
(*7) [1932] UKHL 1


 

4. State Immunity: A Review of Bombardier Inc. v. AS Estonian Air, 2014 ONCA 41

Bombardier Inc. (“Bombardier”) brought an action against the Republic of Estonia (“Republic”) alleging that the Republic was involved in the decision making process of AS Estonian Air (the “Airline”) and thereby engaged in a “commercial activity” and was exempt from the application of the State Immunity Act, R.S.C. 1985, c. S-18.

The State Immunity Act, R.S.C. 1985, c. S-18 creates a presumption that a foreign state is immune from the jurisdiction of Canadian courts. A court is obliged to give effect to that immunity, even where it has not been raised by the state.

The commercial activity exception provides that a foreign state is not immune from jurisdiction “in any proceedings that relate to any commercial activity of the foreign state.” “Commercial activity” is defined as “any particular transaction, act or conduct or any regular course of conduct that by reason of its nature is of a commercial character.”

Bombardier alleged in its statement of claim that the Republic induced the Airline to breach its contract with it, Bombardier, and intentionally interfered with its economic relations.

The Ontario Court of Appeal held that a party seeking to bring a foreign state before the court, by invoking the commercial activity exception, cannot simply plead facts constituting a cause of action and then plead that those facts are commercial activity, thereby grounding jurisdiction, as Bombardier had pleaded. It must do more. It must provide an evidentiary record to enable a court to perform the necessary contextual analysis to determine that the state has engaged in commercial activity and that the proceedings relate to that activity.

The Republic owns over 90 percent of the shares of the Airline. The parties agreed that the Republic is not engaged in commercial activity simply because of this interest. More is required. The Court of Appeal noted that the judge below considered the record and held that the Republic’s activities were restricted to oversight as shareholder and to the furtherance of governmental objectives. His Honour also found, at paragraph 83, that with one insignificant exception, all of the evidence before him demonstrated that “there was no involvement by the government and no political interference with [the Airline’s] management in reaching its decision” to cease negotiations with Bombardier and to buy aircraft from a competitor. The findings were based on affidavits from both the Chief Financial Officer of the airline and a senior officer of the Ministry of Economic Affairs and Communications. This evidence satisfied the motion judge that the Republic had no involvement in the management, governance or commercial activities of the Airline and that the decision to end negotiations with Bombardier was made by the Airline and not by the Republic.

The appeal by Bombardier of the motion judge’s decision striking the claim against the Republic was dismissed with costs payable of $20,000.00 against Bombardier.

Rui M. Fernandes



5. Fleet Expansion in Nova Scotia: A Summary of Absolute Charters Inc. (Re), 2014 NSUARB 56 (CanLII)

This is a decision of the Nova Scotia Utility and Review Board and illustrates the procedure and analysis used in Nova Scotia in considering expanding a carrier’s license.

Absolute Charters Inc. (“Absolute”) made an application to the Nova Scotia Utility and Review Board to permanently expand its Extra Provincial Operating License No. XP02444 (“XP License”) to add one (1) 24-passenger 2011 Cutaway mini-coach to operate all of its services including year-round charter authority to pick up people anywhere in Nova Scotia and take them to any place in Canada or the United States one way, return, or the reverse.

This 2011 mini-coach has a washroom, on board luggage, coach seats, luggage compartment, seatbelts, Wi-Fi and large windows for viewing.

Absolute had the ability to operate a 2008 Cutaway mini-coach, which seats 24 passengers with luggage and 28 without.

As the Board indicated:

“This case is not about whether Absolute can make this newer vehicle available to passengers in Nova Scotia, as Absolute may exchange its plate from its older vehicle to this newer one.  This case is also not about whether universities or a tour company like to use 24-passenger mini-coaches, the former for smaller teams and the latter for smaller tour groups.
Rather, this case is about whether there is a need to permanently expand the motor coach industry in the Province (also “Industry”) and add another 24-passenger mini-coach based out of Halifax for year round service.”

The Industry in Nova Scotia is regulated to ensure there are safe, quality, sustainable motor coach services available in the Province.  The carriers licensed to operate in the Province enjoy a quasi-monopolistic environment, not subject to competition from other carriers in North America, like Greyhound Lines Inc. 

The Board indicated that with this quasi-monopolistic benefit comes the responsibility of operating within the regulatory structure to achieve the goals set by the Motor Carrier Act, R.S.N.S. 1989, c. 292 as amended (“MC Act”).

To accomplish the objects of the MC Act, virtually every aspect of the Industry is regulated.  One key component is ensuring there is not an excess of equipment.  In other words, the applicant must show there is a need to add another vehicle. 

The MC Act provides in s. 13 the following guidance to the Board on matters it may consider:

Factors Considered
13. Upon an application for a license for the operation of a public passenger vehicle or for approval of the sale, assignment, lease or transfer of such a license, the Board may take into consideration
(a) any objection to the application made by any person already providing transport facilities whether by highway, water, air or rail, on the routes or between the places which the applicant intends to serve, on the ground that suitable facilities are, or, if the license were issued, would be in excess of requirements, or on the ground that any of the conditions of any other license held by the applicant have not been complied with;
(b) the general effect on other transport service, and any public interest that may be affected by the issue of the license or the granting of the approval;
(c) the quality and permanence of the service to be offered by the applicant and the fitness, willingness and ability of the applicant to provide proper service;
(ca) the impact the issue of the license or the granting of the approval would have on regular route public passenger service;
(d) any other matter that, in the opinion of the Board, is relevant or material to the application.

The Board reviewed the testimony of the applicant, witnesses, competitors and looked at the industry and economy in general, the size of the market in Nova Scotia and the current state of available service. The Board concluded that the industry was not stable and an expansion of the industry was not warranted. The Board found that Absolute had not proven there was a need for another mini-coach to operate extra-provincial transportation services year round from its base in Halifax.  Its witnesses either were always able to obtain a 24-passenger mini-coach when needed or did not contact all other carriers licensed to operate these vehicles to determine their availability. The application for an expanded license was denied.

Rui M. Fernandes



 

 

 

 

 


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