this newsletter in PDF
In this issue:
1. News & Upcoming Events
2. J.D. Irving, Entitled to Limitation of Liability for Barge Overturn
3. Sask. Court Clarifies the Shipper – Broker – Carrier Dynamic
4. Contractual Interpretation Update
5. In Rem Claim Struck – Vessel Already Released in France
6. Loss Transfer
1. News & Upcoming Events
The firm is pleased to announce that Captain Mel Fernandes has joined the firm as a marine technical consultant. Mel is a former ship’s captain who obtained his foreign-going Master’s Certificate and commanded freighters, bulk carriers as well as passenger ships on worldwide routes. After leaving the sea, Mel held various positions as senior marine manager and then as regional marine manager for Toplis & Harding Canada Inc. He then was appointed director of the marine division of Granite Claims Solutions, which was acquired recently by Claimspro.
Kim Stoll will be representing the firm at the Admiralty and Maritime Conference in Houston, Texas being held on January 26-28, 2016.
The decision in J.D. Irving, Limited v. Siemens Canada Limited was released on January 22nd, 2016. Rui Fernandes was part of the legal team for J.D. Irving, Limited. He was responsible for handling the testimony of the experts in the trial. See his commentary on the case starting on page 1 of this newsletter.
2. J.D. Irving, Limited Entitled to Limitation of Liability for Barge Overturn
On January 22nd, 2016 Federal Court of Canada released its decision in J.D. Irving, Limited v. Siemens Canada Limited 2016 FC 69. This was an action commenced by J.D. Irving Limited (“JDI”) seeking a declaration that it was entitled to limit its liability to $500,000 in relation to cargo (valued at $40,000,000) that had fallen into the sea, while being loaded on the deck of a barge on October 15th 2008 in Saint John, New Brunswick.
Siemens Canada Limited (“Siemens”) had entered into a contract to supply a number of low pressure rotors and a generator rotor to the New Brunswick Power Nuclear Power Corporation for the refurbishment and upgrade of its Point Lepreau nuclear generating station.
Siemens contracted with JDI to transport the modules and generator rotor from the Port of Saint John to Point Lepreau. JDI chartered a barge, the “SPM 125”, and a tug to assist with the move. JDI retained Maritime Marine Consultants (2003) Inc. (“MMC) to provide naval architectural and consulting services. Mr. Don Bremner was the principal and owner of MMC. BMT Marine and Offshore Surveys Limited (“BMT”) was retained by Siemens and its insurer, AXA Corporate Solutions, to provide marine surveying services for the move of the cargo. The attending surveyor was Mr. Douglas Hamilton (“Hamilton”).
On October 15th, 2008 two of the rotors were placed on self-propelled multi-wheeled transporters owned by JDI. This allowed the rotors to be driven or rolled on and off the SPM 124. While in the process of loading the second transporter onto the barge, it tipped to starboard, fell over and off the barge into Saint John Harbour. The other rotor, which had been placed on the first transporter loaded onto the barge, immediately followed.
A flurry of litigation ensued. Siemens commenced an action in the Ontario Superior Court of Justice against JDI, BMT and MMC claiming breach of contract, negligence etc. The claim was for $45,000,000.00. JDI filed a limitation action in the Federal Court of Canada seeking to limit its liability to $500,000.00. In June 2011 Justice Heneghan heard a motion on the limitation action and granted the motion of JDI to enjoin any other proceedings proceeding before any court or tribunal with respect to the incident. In other words, all actions had to take place in the Federal Court of Canada. She also ordered the limitation fund to be constituted pursuant to s. 32 of the Marine Liability Act. Siemens appealed to the Federal Court of Appeal. The Federal Court of Appeal upheld Justice Heneghan’s decision [See Siemens Canada Limited v. JD Irving Limited, 2012 FCA 225, and the Fernandes Hearn LLP newsletter of August 2012]. On July 5th 2013, Justice Heneghan ordered that the limitation action proceed before the liability action. The limitation action took place over a three week period in October 2015 before Justice Strickland.
In the decision released on January 22nd 2016, Justice Strickland provided an extensive review of the evidence at trial. The issue before Her Honour was whether JDI was barred by its conduct from limiting its liability to $500,000 under the Marine Liability Act (incorporating Article 4 of the Convention on Limitation of Liability for Maritime Claims 1976). Article 4 provides:
A person liable shall not be entitled to limit his liability if it is proved that the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result.
Siemens did not assert that any party intended to cause the loss. It did, however, assert that the evidence established, or that the Court should infer, that JDI and MMC acted recklessly and with knowledge that the loss of the cargo would probably result. Siemens acknowledged that the loss must have resulted from the personal acts or omissions of the shipowner (JDI). In the case of JDI, it was argued, the impugned acts or omissions of particular individuals must be attributed to the corporation. In this regard, Siemens argued that two of JDI’s employees, Mr. Roderick Malcolm (“Malcolm”), the project manager of the cargo move, and Mr. David McLaughlin (“McLaughlin”), senior rigging engineer, had the authority to and did act on behalf of JDI in fulfilling the contract with Siemens. Siemens also submitted that JDI was responsible for the conduct of MMC and Bremner. JDI argued that Siemens failed to prove the actual cause of the incident or that a proven cause was recklessness. JDI argued that neither Malcolm’s nor McLaughlin’s actions were attributable to JDI for this purpose.
Justice Strickland reviewed the history and purpose of the Limitation Convention. The focus was to create a convention with a virtually unbreakable right to limit liability.
This is the first Canadian decision to look at recklessness in relation to the Limitation Convention. The prior decision of the Supreme Court of Canada released on April 23rd 2014 in Peracomo Inc. v. Telus Communications Inc., 2014 SCC 29 essentially dealt with wilful misconduct of the vessel owner. [See Fernandes Hearn LLP Newsletter April 2014]. At issue was whether the act of cutting a Telus underwater cable amounted to wilful misconduct. Recklessness and knowledge, to that point, had only been considered in Canada in relation to the Warsaw Convention dealing with an air carrier’s conduct and limitation.
Justice Strickland examined the Supreme Court of Canada decision in Peracomo and noted that recklessness in the context of Article 4 required subjective knowledge that the loss that had actually occurred would probably occur, while recklessness in the context of wilful misconduct (for the purposes of marine insurance) has a lower fault element requiring only reckless indifference to the known risk despite a duty to know.
As Justice Strickland noted, by the conclusion of the trial, Siemens’ main argument, regarding the recklessness, was that JDI had knowingly selected a barge that was too small for the job. It submitted that JDI employees knew that the margin of error of bringing the transporters on centre line onto the barge was small, were aware of a deviation during loading and then failed to pause and address the deviation.
Justice Strickland found that on the evidence (of JDI employees, Bremner, Hamilton, and expert testimony) that the barge was suitable, despite the fact that it was smaller than prior barges used. Her Honour also found that there was no evidence that JDI was made aware prior to the loss that there were any concerns about the barge and the operation. Five experts testified on the following issues:
a) barge stability;
b) the change in the ballast plan and the free surface effect;
c) the lack of a swept path drawing to delineate the route of the cargo to the barge; and
d) the barge list and transporter stability.
The various experts opined on the cause of the loss. These included that the off centre loading of the transporters on the barge caused a list, the free surface effect of water in the ballast tanks of the barge, the manual mal-manipulation of the hydraulic system on the transporter allowing it to tilt, or the malfunction of the hydraulic system on the transporter allowing it to tilt.
Justice Strickland found that the sequence of the events leading to the loss was that the barge was and remained stable, but a number of factors contributed to the transverse stability of the second transporter being overcome. When that happened, it caused the transporter to tilt to port. The starboard side wheels of this transporter then lifted off the barge, causing the centre of gravity of this transporter and its load to instantly shift from a few inches off centre to three feet off centre. At this point, the situation was irretrievable. The transporter then toppled causing the barge to list, which, in turn, caused the first transporter loaded to follow. Justice Strickland found that there was limited time between the barge assuming a port list and the loss and, during that limited time efforts had been made to deal with the second transporter’s tilt and any resultant barge list.
Justice Strickland found that there were a number of contributing factors to the loss, which in and of themselves, were minimal. She determined that factors such as the small deviation from centre line, the free surface effect, the manipulation of the hydraulics of the transporter or “some combination of these, and possibly other factors, caused the loss of the cargo.”[at paragraph 248].
In dealing with whether the acts of the individuals involved were reckless, Justice Strickland referred to the trial decision in Peracomo quoting Justice Harrington (*1):
Recklessness connotes a mental attitude or indifference to the existence of the risk.
Recklessness is more than mere negligence or inadvertence and, while it is not necessarily a criminal or even a morally culpable matter, it does mean the deliberate running of an unjustified risk.(*2) Recklessness is assessed on a subjective standard.(*3) Absent any allegation of intent, the person challenging the right to limit must establish both reckless conduct and knowledge that the relevant loss would probably result. While the two are closely related they are separate and cumulative; a challenge to the right to limit will fail if (for instance) only recklessness but not knowledge is established.(*4) Justice Strickland accepted the statement in the Rosa M (*5) that knowledge means actual and not constructive knowledge. It does not include something that the relevant person ought to have known.
Justice Strickland found that, based on the evidence, JDI and MMC personnel did not act recklessly and with the knowledge that, by either conducting the cargo move using the SPM 125 or continuing with the loadout after determining that the aft peak tank was not longitudinally divided (resulting in some free surface effect) and in the absence of a swept path plan, the loss of the rotors would probably result. (*6)
Lastly, the Court dealt with Siemens’ argument that both recklessness and knowledge can and should be inferred based on the circumstantial evidence. Siemens took the position that JDI had the evidentiary burden to explain what caused the loss of the cargo since the evidence was exclusively in the possession and control of JDI. It argued that JDI’s Corporate policy required an investigation into the loss and that JDI did not do one in accordance with its own policy. Siemens argued that the Court should infer that JDI called a halt to its investigation because it did not like the early findings. It asked the Court to apply the reasoning in Connaught (*7) to apply an adverse inference against JDI.
Justice Strickland reiterated that the evidence demonstrated that there were no concerns about the move. She noted that “inferences must arise from proven facts and go beyond speculation or conjecture” (*8). She declined to infer that Malcolm, McLaughlin and Bremnar had concerns that the barge was too small for the intended purpose. As to the investigation JDI testified that because Transport Canada was conducting an investigation they immediately referred the matter to JDI’s legal department, which took over the investigation (as opposed to a formal investigation pursuant to its existing policy). JDI also engaged an expert, Martin Ottaway (whose representative testified in court).
As to Siemens’ assertion that an adverse inference should be drawn, Justice Strickland distinguished the Connaught decision. In Connaught,the defendant carrier failed to explain why the cargo was not placed in a freezer at Heathrow airport as required. It did not call any evidence on this issue. In this case, JDI did not fail to call evidence. JDI called as witnesses most of the persons directly involved in the loadout. It tendered two of its own expert reports as well as calling a BMT witness and BMT’s expert. “The wealth of direct evidence put forward by JDI in this case distinguishes it from the evidentiary vacuum faced by the Court in Connaught.” (*9)
As to the argument by Siemens that an inference should be drawn of recklessness and knowledge, Justice Strickland concluded that it was not obvious that a number of factors would act in combination to cause the loss. At the time of the incident a number of JDI and MMC personnel were on the barge working. If they had known that the loss was probable, it is unlikely that they would have put themselves in harm’s way.
Accordingly, limitation of liability was granted.
Rui M Fernandes
Follow Rui M. Fernandes on Twitter @RuiMFernandes and on Linkedin. See also his blog at http://transportlaw.blogspot.ca
(*1) at paragraph 264
(*2) at paragraph 265
(*3) at paragraph 267
(*4) at paragraph 267
(*5) MSC Mediterranean Shipping Co SA v Delumar BVBA and Others (The “MSC Rosa M”),  2 Lloyd’s Rep 399
(*6) at paragraph 270
(*7) Connaught Laboratories Ltd. v. British Airways 61 OR (3d) 204; 217 DLR (4th) 717; 13 CCLT (3d) 288;  OJ No 3421; affirmed 77 OR (3d) 34; 253 DLR (4th) 601;  OJ No 2019. Rui Fernandes was the successful counsel in the Connaught Laboratories Ltd. case.
(*8) at paragraph 290
(*9) at paragraph 298
3. Saskatchewan Court Clarifies the Shipper – Broker – Carrier Dynamic And Associated Legal Liabilities
The Saskatchewan Provincial Court, in its decision of Western Honda v. Ferreira, 2015 SKPC 182 [“Western Honda”], dealt with a relatively simple fact scenario and clarified the contractual relationship and certain legal liability issues between shippers, brokers and carriers (*1).
The Court used fundamental principles of contract law to explain the contractual relationship between parties in this type of business relationship.
The Defendant, Western Honda, a car dealership, needed to ship a Honda motor vehicle from Calgary to Moosejaw on short notice in order to close a sale to a customer. In order to find a carrier, Western Honda posted a notice on the website “ehaulers.com.” Subscribers to this website are independent individuals involved in the transportation of cars and other vehicles.
The defendant Mr. Ferreira, who operates the company shipmyride.com, responded to Western Honda’s ehaulers.com notice. The company shipmyride.com owns and operates a number of trucks that regularly transports motor vehicles.
Mr. Ferreira and Western Honda, through e-mail and telephone conversations, agreed to a price of $725.00 to ship the vehicle from Calgary to Moosejaw. Mr. Ferreira undertook to deliver it within the tight timeframe required by and delivered to Western Honda an order form confirming the arrangement.
Mr. Ferreira, however, did not have a truck or driver available to make this prompt delivery. Instead, he entered into a second contract with the hauling company, Capital Car Carriers. Capital Car Carriers agreed to make the delivery to Moose Jaw. There was no indication from Mr. Ferreira to Western Honda that the shipment would be sub-contracted to a third party, nor did the order form generated by shipmyride.com list Capital Car Carriers as the actual carrier. In fact, the order form listed shipmyride.com as the performing carrier.
Capital Car Carriers delivered the vehicle; however, during an inspection of the vehicle upon its delivery, Western Honda noticed substantial damages to the back end of the vehicle.
Western Honda was forced to repair the vehicle and demanded reimbursement for these costs from shipmyride.com. Mr. Ferreira never compensated Western Honda. As a result, Western Honda sued shipmyride.com. Shipmyride.com did not commence a third party action against Capital Car Carriers.
The Court’s Analysis and Decision
Mr. Ferreira’s main argument was that he was acting merely as a broker “agent” and that Capital Car Carriers, as the actual carrier of the goods, was responsible for any damages incurred during transit. He argued that the Plaintiffs should have added Capital Car Carriers as a defendant to the action, but failed to do so.
The Court dismissed these ill-conceived arguments by Mr. Ferreira, and in doing so, explained the contractual obligations of parties involved in this sort of business relationship.
The Court articulated that the contractual relationship must be determined by looking at the contract documents. The Court found that, from the contractual documents in the current instance, it was impossible to conclude that Mr. Ferreira was acting merely as a broker. Perhaps the most important piece of evidence was the fact that the order form listed shipmyride.com as the car hauler. There was no indication in the contractual documents that anyone but shipmyride.com would be acting as the carrier. Based on this, the Court concluded that the shipmyride.com and Western Honda were the only parties to the hauling contract. Had shipmyride.com been acting as a broker, then there would be a contract between Western Honda and Capital Car Carriers. Instead, shipmyride.com separately entered into a “sub-contract” with Capital Car Carriers and to which Western Honda was not a party.
This finding is important because of the fundamental contract doctrine of “privity of contract”. Under the privity of contract doctrine, only the parties to a contract may sue each other for breach of that contract. Generally speaking, a third party who is not a party to the contract may not sue a contracting party for breach of that contract. As Capital Car Carriers and Western Honda did not have a contract with one another, Western Honda was unable to sue Capital Car Carriers for breach of contract.
The Court ruled in favour of Western Honda and concluded that, despite the subcontract, shipmyride.com remained contractually obligated to deliver the vehicle to Western Honda in a good and undamaged form and was liable for the said damages, as it did not do so. The Court articulated that, if Capital Car Carriers was to be brought into this action, shipmyride.com was the party that had to bring them in as a third party. However, as Mr. Ferreira was representing himself and did not get legal advice and take steps to add Capital Car Carriers as a third party, no such judgment could be made against Capital Car Carrier, despite the fact that the Court noted “a strong case has been made by the defendant for a judgment against Capital Car Carriers as a third party.”
The Western Honda decision is helpful for a number of reasons. First, it reminds us that whether a party holds itself out to a shipper as a broker or a carrier is very important with respect to their potential liability. Further, whether that party is merely a broker must be determined by looking at the contractual documents and the representations made by that party. According to the Court, it is not determined simply by what the contracting party believed to be their role in the matter.
Second, the application of fundamental contract law principles means that a third party carrier, to which a load has been brokered, is not party to the main contract between the shipper and the party with which the shipper is directly dealing unless that party is acting as a broker agent. Because of this, the shipper is not obligated to sue the actual carrier in the event that it suffers a loss with respect to the shipment. It can simply sue the party to with which it contracted, as a matter of contract, and which, in turn, must bring the actual carrier into the lawsuit via a third party claim.
Finally, the Court commented that this was a classic example of why individuals should obtain legal advice before deciding to represent themselves in a lawsuit. The defendant’s failure to add Capital Car Carriers as a third party to the lawsuit, likely because of his unfamiliarity with legal proceedings, forced him to pursue a defence that the court described as “virtually impossible for him to establish.”
(*1) Western Honda v. Ferreira, 2015 SKPC 182.
4. Contractual Interpretation Update
On December 3, 2015, in MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842 the Ontario Court of Appeal addressed the issue of the standard of review to be applied on an appeal from a lower court decision involving interpretation of a contract.
This issue had recently been canvassed by the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, 2 S.C.R. 633. In that decision, the Supreme Court of Canada abandoned the traditional view that the standard of review in contractual interpretation was "correctness" and substituted a standard of review of "palpable and overriding error". See the Fernandes Hearn LLP article on Sattva in the August 2014 newsletter. In Sattva, the Supreme Court of Canada also affirmed the contextual approach to contractual interpretation and explained the role of surrounding circumstances in contractual interpretation. The contract must be read as a whole and the words in the contract must be given their plain and ordinary meaning, consistent with the surrounding circumstances at the time of contracting.
The surrounding circumstances – such as the genesis of the transaction, the background, the context and the market in which the parties operate – combine to aid a decision maker (the arbitrator, the judge or jury) in ascertaining intention, since words do not have an immutable or absolute meaning. The Court in Sattva cautioned, however, that “while the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement,” and “the goal of examining such evidence is to deepen a decision maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract.” The Court noted “while the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement.” (at para. 57). The Court added that the nature of the evidence, that can be relied upon under the rubric of “surrounding circumstances”, will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract; that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. (at para. 58).
Earlier this Year
In a subsequent decision earlier this year (see Fernandes Hearn Article on UPS in the May 2014 newsletter), in UPS Supply Chain Solutions, Inc. v. Airon HVAC Service Ltd., 2015 ONSC 1734, the defendant relied upon Sattva Capital Corp. v. Creston Moly Corp. to submit that it is appropriate for a court, when interpreting a contract, to have regard for the surrounding circumstances. However, Justice Matheson limited the “surrounding circumstances”. Justice Matheson commented on this issue at paragraphs 67 to 69:
 To the extent that the service contract, as amended by the change order, is incorporated by reference into the insurance policy, it forms part of the insurance policy. It is the insurance policy that must be interpreted to reach a conclusion about whether there is the mere possibility of coverage under that policy. While I appreciate that there is an overlap between the two in the circumstances where the policy incorporates the scope of work in this way, I conclude that it does not change the essential task. The task is to analyze the pleadings, assuming the alleged facts are true, and determine whether there is the mere possibility of coverage under the policy.
 In considering the nature and scope of Honeywell’s “commitments” I have regard for relevant surrounding circumstances. However, I note that the nature and extent of evidence of the surrounding circumstances that may be considered in interpreting a contract is not unlimited. As set out in Sattva, at para. 50, 58:
The nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract…, That is, knowledge that was reasonably ought to have been within the knowledge of both parties at or before the date of contracting… [Emphasis added.]
 Some of the evidence in the Honeywell affidavit could properly be described as objective evidence of the background facts at the time of the execution of the service contract that was within the knowledge of both parties on or before that time. One significant example is the evidence that the reference in the contract to cooler #2 is Cooler B and cooler #3 is Cooler C.
However, the Honeywell affidavit also describes how the work was actually done after the change order was made, and whether or not that work, in the view of the affiant, could have caused the problem with the Sanofi vaccines. That evidence is not permitted under the rubric of “surrounding circumstances”. And it is that evidence that leads to the conclusion that Honeywell and ACE argue for.
The judge only used objective evidence of the background facts at the time of the execution of the contract that was within the knowledge of both parties on or before that time.
Current Decision of the Ontario Court of Appeal
In MacDonald v. Chicago Title Insurance Company of Canada, the Ontario Court of Appeal held that Sattva did not apply to standard form contracts, such as contracts of insurance. The standard of review was not a "palpable and overriding error" but rather “correctness”. The Court also explained why “surrounding circumstances” are not relevant in standard form contracts:
 First, Rothstein J. emphasized that determining the objective intentions of the parties to a contract, the goal of contractual interpretation, is a “fact-specific goal”, informed, in part, by a consideration of “the surrounding circumstances known to the parties at the time of formation of the contract”: Sattva, at paras. 47, 49.
 There is no question that Sattva reflects the increasing emphasis placed by appellate courts and commentators over the last several years on the factual matrix, or the surrounding circumstances of a contract, as part of the interpretive process: see e.g. Investor’s Compensation Scheme Ltd. v. West Bromwich Building Society,  1 All E.R. 98 (H.L.), at p. 114; Eli Lilly & Co. v. Novopharm Ltd.,  2 S.C.R. 129, at para. 54; Bell Canada v. The Plan Group, 2009 ONCA 548, 96 O.R. (3d) 81, at para. 37; Geoff R. Hall, Canadian Contractual Interpretation Law, 2d ed. (Markham, ON: LexisNexis, 2012), at p. 22.
 However, the relative importance of the surrounding circumstances is largely dependent on the nature of the contract. The circumstances surrounding the formation of a contract negotiated by arms-length parties may be very important in understanding the parties’ objective intent. Similarly, the determination whether the parties are in a special relationship, such as a fiduciary relationship, may also be an important factor in determining the parties’ objectively intended obligations under a contract.
 The importance of the factual matrix is far less significant, if at all, in the context of a standard form contract or contract of adhesion where the parties do not negotiate terms and the contract is put to the receiving party as a take-it-or-leave-it proposition. Any search for the intention of the parties in the surrounding circumstances of these contracts “is merely a legal fiction”: Ledcor, at para. 14.
 The Title Policy was a pre-printed contract produced by Chicago Title and provided to the appellants on a take-it-or-leave-it basis. Chicago Title did not sit across from the appellants and hammer out the details of their bargain. The terms of the Title Policy were simply not negotiated in any meaningful sense and it would be illusory to suggest that anything could be inferred about the meaning of the contract from the facts surrounding its formation.
The Court of Appeal went on to find that it is untenable for standard form insurance policy wording to be given one meaning by one trial judge and another by a different trial judge. The factual matrix does not meaningfully assist in interpreting standard form contracts and their construction has broad application.
In summary, the Court of Appeal has held that standard form contracts are not subject to the Sattva decision.
Subsequently, the Ontario Court of Appeal reiterated this position on Dec. 23, 2015 in Monk v. Farmer's Mutual Insurance Company (Lindsay), 2015 ONCA 911 and on Dec. 24, 2015 in Daverne v. John Switzer Fuels Ltd., 2015 ONCA 919. In Monk, the Court of Appeal stated, “…we are concerned with the interpretation of a standard form insurance contract. This is not a case in which the circumstances surrounding the contract are important to its interpretation, nor is it a case in which the interpretation of a contract has no impact beyond the parties to it”. In Daverne, the Court of Appeal followed the decision of the Court in MacDonald and did not apply Sattva, stating at paragraph 13, “In the case of insurance policies, which involve the interpretation of similar if not common language and the application of general principles of insurance law, the high degree of generality and precedential value justifies a departure from the deferential standard of appellate review.”
The question left open is the standard of review of boilerplate clauses in manuscript contracts. For instance, if a typical boilerplate hold harmless clause is inserted into what is otherwise a custom contract, will the “surrounding circumstances” be relevant? What will be the standard of review for the interpretation of the hold harmless clause? We will have to wait for future decisions and lawyers’ innovative arguments.
Rui M. Fernandes
Follow Rui M. Fernandes on Twitter @RuiMFernandes and on Linkedin. See also his blog at http://transportlaw.blogspot.ca
5. “One Bite At The Cherry”: Federal Court Strikes Out In Rem Claim Where Ship Had Already Been Released In France
Sections 22 and 43 of the Federal Courts Act grant the Court jurisdiction with respect to Canadian maritime law giving it jurisdiction with respect to “in personam” maritime claims (that is, claims against individual persons, corporations, or other legal entities). Additionally, the court also has jurisdiction with respect to “in rem” claims (that is, claims against ships and other property), but only where beneficial ownership of the in rem property has not changed between the time that the cause of action arose and the time that the suit was commenced.
Despite the foregoing, the court does not have an entirely free hand in maritime matters. It is also bound, for example, by principles of comity (respecting the authority of other competent courts) and issue estoppel (not litigating the same matter twice).
In Fingad Shipping Ltd. v. Ningbo Arts & Crafts Imp. & Exp. Co. Ltd. et al. (*1), all of the foregoing issues came together. The plaintiff sued certain corporate defendants that it had engaged to build ships, as well as the ship Chemical Aquarius, which was the result of one of those contracts. It also sued the current registered owner of the vessel,Huarong Huiyin Limited.
The plaintiff had cancelled the shipbuilding contracts in 2010 and obtained arbitration awards in 2013 against the corporate defendants. In the interim, those defendants had sold the ship to Huarong Huiyin in 2012. The plaintiff alleged that the sale was a sham; and that Huarong Huiyin was simply a front for the other defendants, such that the other defendants remained the beneficial owners.
At the time that the plaintiff commenced its suit in July 2015, a significant amount of the arbitration award had been paid, but a balance was still outstanding. It sought damages and a judicial sale of the ship; and quickly had the ship arrested as security for its claims. Concurrently, it made an application to court without notice to the opposing parties for recognition of the unfulfilled arbitration award.
In April 2015, the plaintiff had similarly attempted to take action in France; however, the French court released the ship in May 2015 on the basis that the owner, Huarong Huiyin, was not one of the plaintiff’s debtors.
The defendants sought to have the Statement of Claim struck out on several grounds, including that the issue of the vessel’s ownership had already been decided by the French court. They asserted that it was no longer open to the Federal Court of Canada to consider the genuineness of the sale from the shipbuilders to Huarong Huiyin.
Citing the Supreme Court of Canada’s decision in Danyluk v Ainsworth Technologies, the Honourable Mr. Justice Locke explained:
“The law rightly seeks a finality to litigation. To advance that objective, it requires litigants to put their best foot forward to establish the truth of their allegations when first called upon to do so. A litigant, to use the vernacular, is only entitled to one bite at the cherry.” (*2)
Following the Danyluk case, “issue estoppel” is at first blush made out where three preconditions are met: (i) the same question has already been decided, (ii) the judicial decision was final, and (iii) the parties to the underlying decision were the same ones, subject to the current proceedings. Where all of those preconditions are answered in the affirmative, the court must then determine whether it ought to apply “issue estoppel” as a matter of discretion in all of the circumstances.
On the facts of the Fingad case, the only contested precondition to issue estoppel was the first consideration, whether the same question had already been decided. The defendants argued that the issues were indeed the same: (i) the seizure of the ship to secure the debt owing, and (ii) the question as to the genuineness of Huarong Huiyin’s ownership. The plaintiff attacked the underlying French decision, by distinguishing French law from Canadian law, and by noting the French court’s concern about loose translations of Chinese documents.
The Honourable Mr. Justice Locke found that French and Canadian actions both focused on the same ultimate question, whether the ownership of the vessel was tied to the debt; and, with respect to the legitimacy of Huarong Huiyin’s ownership, His Honour found that all of the plaintiff’s evidence was suggestive rather than conclusive. Accordingly, His Honour found that issue estoppel applied at first blush; and that the plaintiff had not furnished him with any sufficient reason to exercise his discretion to allow the matter to proceed. In fact, His Honour found that it would be an abuse of process to permit the claim to proceed on the allegation that the ship’s sale was a sham.
Further to the foregoing, the in rem claim against the Chemical Aquarius and the in personam claim against Huarong Huiyin were both struck out. The ship was released from its arrest.
This case is a good illustration of the principle that a judgment creditor will generally only have “one bite at the cherry”. Although Canadian courts will assume jurisdiction in appropriate cases, they will not likely condone a ship arrest that was earlier unattainable in another jurisdiction.
Alan S. Cofman
(*1) 2015 FC 851.
(*2) ibid at para. 14, citing Danyluk v. Ainsworth Technologies, 2001 SCC 44 at para 18.
6. Loss Transfer: “Commercial Vehicle” Definition found “Expansive” on Appeal
The Dominion of Canada General Insurance v. Aviva Canada et al 2015 ONSC 6195
On October 13, 2015, the Ontario Superior Court of Justice dismissed an appeal by the Zurich Insurance Company Ltd. (“Zurich”) seeking to overturn the decision of Arbitrator Philippa Samworth (the “Arbitrator”) dated February 23, 2015, concerning the provisions of the Insurance Act, R.S.O. 1990, c. I.8, s. 275 (the “Act”) and Automobile Insurance, R.R.O. 1990, Reg. 664 (“Regulation 644”), as amended, involving loss transfers.
The Ontario Superior Court of Justice confirmed the Arbitrator’s decision that to be a “commercial” vehicle, a vehicle must meet one of two parts of the definition of “commercial vehicle” in the Act in order to effect loss transfer, but need not meet both parts. Specifically, in Regulation 644, the vehicle, to engage loss transfer, must either be: (1) an “automobile” used primarily to transport materials, goods, tools or equipment in connection with the insured's occupation; or (2) a “vehicle” identified as one of the types listed after the words "and includes" in the definition, such as those designated specifically for construction or maintenance purposes, a vehicle rented for 30 days or less, or a trailer intended for use with the commercial vehicle.
A motor vehicle accident occurred on March 7, 2008. As a result of snow clearing operations, ice and snow fell from an overpass and struck Gregory McKnight’s automobile, shattering its moon roof and injuring Mr. McKnight. Mr. McKnight was insured by Dominion of Canada General Insurance (“Dominion”), which paid certain accident benefits to Mr. McKnight.
An independent witness testified at the arbitration that the vehicle passing at that time was an unidentified snow plow. However, both companies responsible for snowplowing the area were insured by two different insurers, Zurich and Aviva Canada Inc. (“Aviva”).
Arbitration was held on December 17, 2014. Dominion sought reimbursement from Zurich and Aviva for all of the accident benefits that Dominion had paid to Mr. McKnight. Zurich and Aviva defended claiming that the snow plows were not subject to loss transfer, as they did not meet the definition of “commercial vehicle”.
The Arbitrator found that both vehicles were “commercial vehicles” within the meaning of Regulation 664 and were subject to the loss transfer provisions.
Section 275(1) of the Insurance Act provides:
The insurer responsible under subsection 268(2) for the payment of statutory accident benefits to such classes of persons as may be named in the regulations is entitled, subject to such terms, conditions, provisions, exclusions and limits as may be prescribed, to indemnification in relationship to such benefits paid by it from the insurers of such class or classes of automobiles as may be named in the regulations involved in the incident from which the responsibility to pay the statutory accident benefits arose.
Regulation 664 provides as follows:
1. In this Regulation,
"commercial vehicle" means an automobile used primarily to transport materials, goods, tools or equipment in connection with the insured's occupation, and includes a police department vehicle, a fire department vehicle, a driver training vehicle, a vehicle designated specifically for construction or maintenance purposes, a vehicle rented for 30 days or less, or a trailer intended for use with the commercial vehicle;
9 (1) In this section ...
"heavy commercial vehicle" means a commercial vehicle with a gross vehicle weight greater than 4,500 kilograms.
The snow plows were large dump trucks with a plow attached in front. The snow plows in question weighed greater than 4,500 kg and the parties conceded that the snow plows met the weight test.
The Arbitrator found that the snow plows fell within the definition of "automobile" as defined in Regulation 664 and were, in fact, insured under a standard automobile liability policy.
The issue on appeal was the Arbitrator’s finding that the snow plows were “heavy commercial vehicles” pursuant to Regulation 664 and, therefore, were subject to loss transfer. The Arbitrator stated:
Not only do I accept that snow plows are automobiles, I also find that they fall within the definition of commercial vehicle and therefore the two snow plows are heavy commercial vehicles for the purposes of loss transfer. I do this on the basis not that the snow plow would be found to be an automobile used primarily to transport materials, goods, tools or equipment in connection with the insured's occupation but rather it is a "vehicle designed specifically for construction or maintenance purposes. (*1)
Dominion argued at the arbitration that, irrespective of whether or not the snow plows were used primarily for transporting materials, goods, tools or equipment in connection with its occupation, if the snow plow was a vehicle designed for maintenance purposes that would be sufficient to trigger loss transfer. Simply put, the snow plows did not have to fit the first part of the definition of “commercial vehicle” because they fit within one of the examples after the word “includes” in the definition.
While the defending insurers had conceded that the snow plows were used for maintenance purposes, Zurich argued that, such finding by itself, was not sufficient to require loss transfer. Rather, to meet the definition of "commercial vehicle", Zurich argued, the snow plows must not only be maintenance vehicles but also used “primarily to transport materials, goods, tools or equipment in connection with the insured's occupation”.
The Arbitrator found that requiring such an interpretation would not be “purposeful and in harmony with the scheme and object of Section 275 of the Insurance Act and the purpose of loss transfer”. The snow plows, in effect, needed only be found to be a “vehicle designed for construction or maintenance purposes” to require loss transfer.
The Arbitrator went on to state,
In my view, in order to qualify as a commercial vehicle there are two separate parts to the test to be met under the definition pursuant to Regulation 644. The commercial vehicle firstly will be one that meets the test of whether it is an automobile used primarily to transport materials, goods, tools or equipment in connection with the insured's occupation. If the vehicle in question however does not meet that definition, you must then go on to see if it falls within the "and included" provisions. I note that the use of the word "automobile" is not used in the second part of this definition. Rather, the legislature has used the word "vehicle". The commercial vehicle now no longer needs to be an automobile but now needs to be a vehicle that meets certain criteria. This seems to suggest that we have a broader definition of commercial vehicle in the second part of the test than in the first part of the test.
The purpose of loss transfer is to require that vehicles of a certain weight that are on the road for commercial purposes and that are at fault for an accident repay a non- commercial vehicle insurer for accident benefits paid out. This policy recognizes that commercial vehicles that carry greater weight give rise to greater potential of injury, both with respect to their size and as a result of the frequency that they are on the road. The definition of commercial vehicle should be interpreted in keeping with the broader purpose of loss transfer.
If I accept Aviva's submissions that in order to be a commercial [vehicle] you must meet both parts of the test, there would therefore never or rarely be any circumstances in which vehicles such as a fire department vehicle, a police department vehicle or a driver training vehicle would ever meet the requirements of loss transfer. (*2)
The issue on appeal was whether the arbitrator correctly determined that the subject snow plow was a "commercial vehicle" pursuant to Regulation 664.
Zurich, on appeal, argued that the definition of "commercial vehicle" is inclusive and so the snow plow must be found to be both (1) "an automobile used primarily to transport materials, goods, tools or equipment in connection with the insured's occupation" and (2) “a vehicle designated specifically for construction or maintenance purposes” to effect loss transfer provisions. Therefore, Zurich argued, the Arbitrator did not find both to be the case and so the snow plows were not commercial vehicles and so loss transfer did not apply.
Dominion, responding on appeal, argued that the Arbitrator was correct and that such provisions expanded or broadened the definition of commercial vehicles to include the list of vehicles appearing after the words "and includes." Dominion’s counsel cited Lloyds of London v. Guarantee Co. of North America, 26 O.R. (3d) 204,  O.J. No. 2896 (Ont. Ct. Gen. Div.), wherein it was noted that the subject Regulation was amended on January 1, 1994 as regards the definition of "commercial vehicle" to add "and includes" and the entire list of the vehicles listed thereafter. Mandel J. in that case commented:
What the legislature has done is to extend the vehicles covered by the regulation to include such vehicles as a fire department vehicle which was a commercial vehicle as defined by the Highway Traffic Act which was not covered under the former definition contained in the Insurance Act Regulations. (*3)
The appeal partly concerned the qualification of the Arbitrator, Philippa Samworth, who had been chosen as arbitrator on consent pursuant to an Arbitration Agreement. The Court found that the Arbitrator had expertise in the interpretation of insurance law statutes and was qualified to render a decision in a manner acceptable to the parties. (*4)
In arriving at her decision, the Court found that the Arbitrator considered appropriate cases regarding the issue of whether the snow plow was an “automobile” as defined and concerning the definition of “commercial vehicle”. (*5) She further considered Lloyds of London and Wawanesa Mutual Insurance Company v. Lombard Canada Ltd. (2005), (Arbitrator: Guy Jones) in her determination of the definition of "commercial vehicle."
The Court confirmed that the Arbitrator took into account the scheme of the Act, the object of the Act, and the intention of Parliament and confirmed the Arbitrator’s finding regarding the definition of the snow plow as a commercial vehicle and pursuant to the relevant statutory definitions and case law. The Court was also satisfied that she properly considered the purpose of the loss transfer scheme and that her interpretation of the statute was not incorrect and was not subject to intervention by the Court.
In considering the definition, the Court noted that the Arbitrator found that the snow plow was insured under the standard motor vehicle policy and was, in fact, an automobile; however, it was not "used primarily to transport materials, goods, tools or equipment." As a result, she then proceeded to consider whether it fell in the list of the vehicles following "and includes." She found that the list broadened the meaning of the provision to include vehicles that would not otherwise have been caught by the definition.
The Court concluded that the Arbitrator’s decision was the same as in the case of Lloyd's of London, supra, wherein it was found that, in adding the list after "and includes," the legislature extended the vehicle coverage to include vehicles not covered under the former definition contained in the Insurance Act regulations. To find otherwise, the Court found, would mean that the vehicles on the said list would rarely be subject to the loss transfer provisions.
The Court went on to dismiss the appeal commenting at paragraph 26, “I do not find the Arbitrator's decision as regards the definition to result in absurdities as argued by Zurich.”
And finally, this decision is important for loss transfer arbitrations as it provides certainty regarding the interpretation of the applicable definitions at the arbitration level.
Kim E. Stoll
(*1) At paragraph 10.
(*2) In arriving at her conclusions, the Court found that the Arbitrator applied a contextual, purposive approach to statutory interpretation consistent with the approach set forth by the Supreme Court of Canada in Rizzo v. Rizzo Shoes Ltd. (Re.),  1 S.C.R. 27, 36 O.R. (3d) 418.
(*3) At page 209
(*4) Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53,  2 SCR 633 at para. 105.
(*5) the cases of Regele v. Slusarczyk, 33 O.R. (3d) 556,  O. J. No. 1849 (Ont. C.A.); Morton v. Rabito; ING Insurance Co. of Canada v. Chubb Insurance Co. of Canada (2007), 2007 Carswell Ont 11196 (Arbitrator: Stanley C. Tessis)
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