By Marc de Man
My topic today is recovery law from a Canadian perspective.
The key aspect to consider is that of practicality. I shall try to be as practical as possible, and avoid detailed analysis of cases, and simply concentrate on the recourses available, jurisdictional requirements, notice of claim and time to sue, length of cases, fees, disbursements, security and limitation. I shall deal with these topics in maritime, air, rail and motor claims wherever applicable.
MARITIME CLAIMS – COMMON LAW/CIVIL LAW
In maritime matters, Canada is a privileged jurisdiction in that it has a legal system derived from both the Common Law and the European Continental Civil Law. In the Province of Quebec, the juridical systems of England and France blend together, adopting the Common Law in certain areas and the Napoleonic Code, or Civil Law as amended in others.
The fusion of legal systems has given rise to four effective legal remedies or recourses used in situations wherein the claim of the creditor has to be protected when the Debtor is in a position to dissipate its assets prior to a final judgment, or where there is fear that upon the obtaining of a final judgment, there will be no funds available to satisfy a Court judgment or arbitration award against the Debtors.
1. ACTION IN REM
The first such recourse is the action in rem in claims against the ocean carrier. This action is specifically provided by the procedural Rules of the Federal Court of Canada. It originates in the Roman Law and was applied, from medieval times to the present, by the English Admiralty Courts. It is a direct action against the res (or “thing” in Latin), generally the ship. The Canadian Federal Courts Act, at section 22, provides for the circumstances where the action in rem may be invoked. The recourse is available, inter alia, for cargo owners who have suffered damage due to the unseaworthiness of the vessel, for bunker suppliers who have not been paid by the ship, for suppliers of necessaries, etc. Thus, if a ship enters into the Canadian jurisdiction, and it has caused (say) extensive damage to cargo, the cargo claimant will institute an action in rem in the Federal Court through the issuance of a Statement of Claim, accompanied by an Affidavit to Lead Warrant. The affidavit will be reviewed by the District Administrator or Prothonotary of the Federal Court, and if it establishes a valid prima facie claim against the particular ship in accordance with the Federal Courts Act, the warrant of arrest will be issued.
The warrant is then served upon the ship itself by the Sheriff or Bailiff. In the old times, a copy of the warrant of arrest was nailed on the mast of the vessel and a fouled anchor was drawn with chalk on the deck of the ship. Today, wooden masts are rare, and the Sheriff or Bailiff will scotch tape the warrant of arrest on the bridge in front of the helm. The arrest in rem effectively paralyses the ship where she is berthed, and the warrant will be released only upon the ship providing adequate security for the claim, such as a P & I Club Letter of Undertaking, a bail bond, or other suitable guarantee, or settlement of the main action, or if not, until the ship is sold in justice.
The action in rem is thus specifically designed to prevent the culprit ship from escaping the jurisdiction without some assurance that there is security for the debt after judgment. Although a very useful procedure, the action in rem has limitations. It can only be asserted against the ship that caused the damage. If the ship has collided, or run aground, there may be no value to her, and sometimes no security can be obtained. Finally, it does not extend to other assets belonging to the Debtor.
The interesting aspect of the action in rem is the fact that it can be instituted almost instantly. We receive the documents by telefax or e-mail. Unlike many other jurisdictions, there is no need to have a formal power of attorney to act, nor is it necessary to put up security. Security for costs in the case of a foreign Plaintiff, however, may be requested later in the proceedings but not at the moment of the arrest.
Arrest proceedings may be instituted at any time during the day or night. In one case, I had to institute arrest proceedings at 2:00 AM. The Court has an emergency number. The Court clerk, once he is contacted, calls the RCMP who in turn opens the doors to the court house, and this enables the warrant of arrest to be issued by the court clerk.
We use it to generally arrest tramp vessels, but avoid using it against liner vessels, unless the claim is unusually high.
2. SISTERSHIP ARREST
The sistership arrest is the second recourse, which was introduced in Canada during the month of February, 1992. At section 43(8) of the Canadian Federal Courts Act, the action in rem was extended to any vessel, which at the time of the institution of the action was beneficially owned by the person who was the owner of the ship which was the subject of the action. The term “beneficial owner” becomes important.
It has been interpreted by the Federal Court of Canada to mean the same as the “registered owner”. This interpretation has somewhat restricted the application of this recourse, but if sufficient evidence is produced by way of affidavit to show common ownership, it has proved to be a very useful tool for claimants against shipping fleets. Again, there is no need to put up security and no need to present a power of attorney.
3. MAREVA INJUNCTION
The Mareva Injunction or Restraining Order is the third recourse, and the criteria to grant it are the following:
- The Plaintiff must have a cause of action against the Defendant within the jurisdiction of the court;
- As decided by the Canadian Supreme Court, the Plaintiff must establish that it has a strong prima facie case on the merits;
- The Plaintiff must satisfy that the Defendant has assets within the jurisdiction;
- The Plaintiff must show a real risk that the Defendant will remove its assets from the jurisdiction or dispose of them within the jurisdiction. This has been called the heart and core of the Mareva Injunction. The Canadian courts tend to require rather conclusive evidence of unusual activity motivated by some fraudulent intent.
- As a result of the Defendant’s disposal of assets, the Plaintiff will be unable to execute judgment against it;
- As with all interlocutory injunctions, the Plaintiff must give an undertaking as to damage.The Mareva Injunction does not operate as an attachment on property, but is relief in personam which restrains the owner of the assets from dealing with them. The Defendant is told « if you have assets, do not dispose of them ». In order to enforce this order, the persons holding the assets, such as banks or other third parties have to come into the picture. Thus the injunction has a direct effect on third parties (banks, financial institutions) who are notified of the injunction and who hold the assets comprised in the order. If the third party knows of the injunction but breaches it, it would be held in contempt of court.
The Mareva Injunction can be presented in all the Canadian courts of Common Law jurisdiction, including, of course, the Federal Court of Canada which has jurisdiction over shipping and admiralty matters.
4. SEIZURE BEFORE JUDGMENT
The fourth recourse is the seizure before judgment, or la saisie avant jugement, in France, called la saisie conservatoire, or conservatory seizure. This is the equivalent of the Mareva Injunction, but in the Civil Law, derived from the French procedure. The Quebec Code of Civil Procedure at article 733 provides as follows:
“The Plaintiff may, with the authorization of a judge, seize before judgment the property of the Defendant, when there is reason to fear that without this remedy the recovery of his debt may be put in jeopardy.”
Note that with the seizure before judgment, the Plaintiff is not obliged to give an undertaking as to damage. This is a requirement with the Mareva Injunction. The seizure before judgment is presented by way of a writ in the Quebec provincial courts whereas the Mareva Injunction is only presentable in the Federal Court of Canada and in the Canadian provincial courts of Common Law jurisdictions. Finally in both cases, the Mareva Injunction and seizure before judgment, elaborate affidavits signed by the Plaintiff or his representative have to be presented, and the matter has to be presented in front of a judge. With the arrest in rem and the sistership arrest, Plaintiff’s lawyer can present the Affidavit to Lead Warrant and no judge has to be consulted. As long as one falls within the parameters set out in the Federal Courts Act and its Rules, the arrest is issued by the Court clerk. It may take as little as one hour to prepare an arrest in rem. The sistership arrest, a little longer, but the Mareva Injunction and seizure before judgment could take a few days to prepare.
These then are the extraordinary recourses available to the Plaintiff, principally in shipping matters. Obviously they are not required in every case. An ordinary action initiated by a Statement of Claim in the Federal Court of Canada may be sufficient, or a Motion to Institute Proceedings in the Quebec Superior Court, and a similar procedure in the rest of the Canadian provinces.
JURISDICTION OF THE FEDERAL COURT OF CANADA
What is important to bear in mind is that the Federal Court of Canada has jurisdiction throughout the whole of Canada. Therefore, if you institute a cargo claim when the vessel has berthed in Vancouver, Province of British Columbia, the action may be filed in Montreal, Province of Quebec.
Another point to bear in mind is that the local provincial courts have concurrent jurisdiction with the Federal Court of Canada, but these courts do not provide the extraordinary remedies of the arrest in rem and the sistership arrest. These remedies are only exercised by the Federal Court of Canada which has admiralty and shipping jurisdiction, as well as jurisdiction over aviation cases. In fact, the Federal Court of Canada applies federal law. The provincial courts may apply federal law as well as provincial law and have wider jurisdiction. Put in other terms, in the Federal Court of Canada, based on the facts as presented, one may exercise as extraordinary recourses the Mareva Injunction, the arrest in rem and sistership arrest. In the Quebec courts, one can only invoke the seizure before judgment, and in the Common Law courts, in Ontario and the other provinces of Canada, one can invoke the Mareva Injunction. When we receive a new case, one of the first questions we ask ourselves is which court should be used to institute the action.
JURISDICTION IN GENERAL
The second major aspect to consider from a practical point of view is that of jurisdiction. In the year 2001, the Canadian Parliament enacted section 46(1) of the Marine Liability Act, S.C. 2001, ch. 6, which states as follows:
46(1). If a contract for the carriage of goods by water to which the Hamburg Rules do not apply provides for the adjudication or arbitration of claims arising under the contract in a place other than Canada, a claimant may institute judicial or arbitral proceedings in a court or arbitration tribunal in Canada that would be competent to determine the claim if the contract has referred the claim to Canada, where
- the actual port of loading or discharge, or the intended port of loading or discharge under the contract, is in Canada;
- the person against whom the claim is made resides or has a place of business, branch or agency in Canada; or
- the contract was made in Canada.
This section grants the Canadian court (usually the Federal Court of Canada) jurisdiction to hear a claim for the carriage of goods by water if any of the conditions contained in section 46(1)(a), (b) or (c) are met, and this despite a forum selection clause found in the bill of lading that states otherwise. The typical forum selection clause that we see in the back of bills of lading reads as follows:
“1) Any claim or dispute whatsoever arising in connection with the carriage under the Bill of Lading shall exclusively be governed by English law and determined by the High Court of London.”
This conflict between the statutory provision and the jurisdiction clause has given rise to anti-suit injunctions between English and Canadian Courts. I will not burden you with an analysis of the jurisprudence, but suffice it to state that the latest jurisprudence, in Canada, in the Mazda Canada Inc. v. Mitsui OSK Lines et al 2007 FC 916 case has stated that Canada’s public policy has been enunciated at section 46, and if one of the factors of section 46 is present, this constitutes a real and substantial connection with Canada and little weight should be given to the jurisdiction clause. This case distinguishes the case of Magic Sportswear Corp. v. OT Africa Line  2 F.C.R. 733. In Canada, we do not suffer the repercussions of the infamous US Supreme Court SKY REEFER American decision (Vimar Seguros y Reaseguros S.A. v. M/V SKY REEFER, 1995 AMC 1817).
In shipping matters, Canada is subject to the Hague-Visby Rules, with a potential in the future to adopt the Hamburg Rules. Therefore, the time for suit is one year from delivery of the goods or the date when the goods should have been delivered.
NOTICE OF LOSS
On Notice of Loss , the Hague-Visby Rules read in part as follows:
Article III, 6. Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading.
If the loss or damage is not apparent, the notice must be given within three days of the delivery of the goods.
The notice in writing need not be given if the state of the goods has, at the time of their receipt, been the subject of joint survey or inspection.
LIMITATIONS OF LIABILITY
The Hague-Visby Rules at Article IV(5)(a) state that unless the nature and value of the cargo have been declared by the shipper before shipment and inserted in the bill of lading, neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the cargo in an amount exceeding 666.67 SDRs per package or unit (One SDR is about CAN$1.68 these days) or 2 SDRs per kilogram of gross weight of the cargo lost or damaged, whichever is the higher. Notice that this limitation is obviously higher than the COGSA limitation, and many an American claimant has tried in various cases to have Hague-Visby apply instead of COGSA.
The total amount recoverable is calculated by reference to the value of the cargo at the place and time in which the cargo is discharged or should have been so discharged from the ship in accordance with the contract.
The value of the cargo is fixed according to the commodity exchange price, or, if there is no such price, according to the current market price, or if there is no commodity exchange price or current market price, by reference to the normal value of the cargo of the same kind and quality.
Where a container, pallet or similar article of transport is used to consolidate cargo, the number of packages or units enumerated in the bill of lading as packed in such article of transport are considered as the package or unit. So if a container contains 500 boxes of shoes, each box is considered a unit or package.
I have dealt with the limitations of liability provided by the Hague-Visby Rules, but there is also the limitation on the other side of the spectrum based on the Convention on Limitation of Liability for Maritime Claims, 1976, with the 1996 Protocol. This limitation is invoked by the shipowner when the loss of cargo is of a large amount. Under both the Hague-Visby Rules and the 1976 Limitation Convention the Defendant owner and charterer will be entitled to limit their liability, if any, unless it is “proved that the loss resulted from their personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result”. The burden falls upon the cargo interests, and it is a most difficult burden to overcome.
The Convention on Limitation of Liability for Maritime Claims provides for a Fund which is calculated on the tonnage of the ship and places a global limitation on liability with respect to all cargo claims arising from the same incident.
As for Air Law, Canada has enacted the Carriage by Air Act, R.S.C. 1985, c. C-26 and amendments, which incorporates the Warsaw Convention and its Protocols, including the Montreal Convention.
For cargo claims, the action against the carrier must be brought within two years from the date of the arrival or expected arrival of the aircraft, or from the date on which the carriage stopped. The limitation is 19 SDRs per kilogram. The SDR today is about CAN$1.68, or about CAN$31.92 per kilo.
This limitation is very difficult to break as the argument of wilful misconduct does not exist any longer on account of the Montreal Convention. The Federal Court of Canada as well as the local provincial courts have concurrent jurisdiction.
As for notice of loss, a written complaint must be provided within 14 days from the date of receipt of the cargo. In case of delay, a written notice must be provided within 21 days from the date on which the cargo should have arrived.
Transportation by Road is governed by the laws of each province in Canada. If the contract of carriage was entered into between the trucker and shipper in the province of Quebec, the time bar is three years from the date of delivery of the property or from the date on which it should have been delivered. In Quebec, according to the Transport Act, coupled with the Regulation respecting the requirements for bills of lading, the carrier limits its liability to $4.41 per kilogram, unless the shipper has declared a higher value on the face of the bill of lading. This limitation may be broken if gross negligence is proved.
The notice of damage, loss or delay to goods, setting out the origin, destination and date of shipment and the estimated amount of the claim, must be given within 60 days after delivery, or if there is no delivery, within 9 months from the date of shipment. The final claim statement with proof of payment of the freight, must be submitted within nine months following the date of the shipment.
I wish to deal briefly with armed hijacking to steal containers and their cargoes, generally mineral commodities, such as copper anodes or similar cargoes.
The defence of cas fortuit or fortuitous event, or force majeure or superior force is invariably raised.
In the Quebec Superior Court decision of Nexans Canada Inc. and ACE-INA Insurance v. Papineau International, EYB 2008-150992, Mrs. Justice Helene Poulin cited Article 2049 of the Civil Code of Quebec, which holds a transporter liable unless it can prove that there was superior force force majeure.
Insofar as armed hijacking is concerned, the doctrine and the jurisprudence would require three characteristics before an event would be considered a force majeure. The first is unforeseeability, the second is an irresistible event and the third is external causes with the same characteristics.
The Court went on to state that transporters are obliged to take all the normal precautions required to avoid a theft. They should not in any way help facilitate a theft or commit a fault. Therefore, hijacking in itself is not an automatic defence for a transporter if there is any element of negligence on the part of the trucker.
Railways are governed by the Canada Transportation Act, S.C. 1996, c-10. Section 137 of the Act provides that a railway company shall not limit or restrict its liability to a shipper or the movement of traffic except by means of a written agreement or confidential rate contract signed by the shipper or by an association or other body representing shippers. In the case of Boutique Jacob v. Canadian Pacific Railway et al, 2006 FC 217, the Federal Court of Canada at first instance held that the CPR could not limit its liability because it had not entered into a “written agreement or confidential rate contract signed by the shipper or by an association or other body representing shipper” to that effect.
This case dealt with a derailment, and the Plaintiff sued the NVOCC, freight forwarder, ocean carrier OOCL and Canadian Pacific Railway (CPR). The only party found liable by the Federal Court, Trial Division, was CPR, and it could not limit its liability. The case went to appeal after interventions were presented by the P & I Clubs and ocean carriers. The Federal Court of Appeal, Canadian Pacific Railway Company and Boutique Jacob Inc. and Zim, Maersk et al, 2008 FCA 85, by some strange logic, held that the ocean carrier, namely OOCL was the “shipper” and not the actual shipper, namely Boutique Jacob. The Court stated OOCL contracted directly with CPR by way of a confidential rate contract, and it was OOCL that handed over the container to CPR in Vancouver. Thus there was, as required by section 137, a written agreement between the railway carrier, CPR and the “shipper” OOCL. However, this Agreement was not signed. The Court went on to state that the confidential rate contract permitted the rail carrier to limit its liability to an amount equal to the liability of the steamship company pursuant to the ocean bill of lading which in this case was US$2.00 per pound of gross weight of the goods lost or damaged. Thus, the railway carrier was condemned to pay a miserly amount of CAN$1,432.89, instead of CAN$71,550.47 claimed. The Court finally concluded that the railway carrier could nonetheless rely on the Himalaya clauses found in the OOCL bills of lading as well as the NVOCC bill of lading.
The case has not been appealed to the Supreme Court of Canada. As a consequence, and in practical terms, the time to sue a railway carrier is one year, and notice of loss should be similar to that provided against an ocean carrier.
Security will only be required if a Mareva Injunction is sought, and as security for costs if the Plaintiff is a foreign legal entity. Security for costs is usually kept by Plaintiff’s lawyer in his trust account after it is requested, and only used if there is an Order as to costs against the Plaintiff. Otherwise, it is returned to the Plaintiff.
HANDLING OF CASES
Cases in the Federal Court of Canada, whether maritime, aviation, against railroads or motor carriers, or based on a through bill of lading or a combined transport bill of lading, are heard on an average of two years after the institution of the action, if no settlement is reached. The same applies with actions instituted in the provincial courts. This is simply a rule of thumb. In the Federal Court of Canada, judges get actively involved in case management, promote and encourage mediation/neutral evaluation to provoke settlements. This is usually instigated by the case management judge. In the provincial court, in Quebec, one of the parties can request that a judge be appointed to mediate the dispute. Mediation is founded on the good faith of all the parties who must show a desire to reach a settlement. It is an interesting procedure because the parties themselves set out their initial positions. The lawyers are left in the background.
The fees are decided between the lawyer and the client. In our jurisdiction, if there is agreement between the lawyer and the client, the lawyer may act on a contingency fee basis, no cure/no pay plus disbursements. The percentage for cargo claims is usually 25% of the recovery plus disbursements. There may be various variants of this formula, all depending on the negotiations between the lawyer and client. I have seen higher percentages, lower percentages, percentages based on a base recovery at one rate, and lower percentages as the settlement figure is higher. I have seen a combination of percentage and an hourly rate plus disbursement. In some cases, the lawyer can request that he be paid at a lower hourly rate, but if there is a recovery, he may agree to an agreed percentage and reimburses the amount received on an hourly basis. If there is no agreement on a no cure/no pay arrangement, the lawyer will ask to be paid strictly on an hourly basis. Hourly rates in Canada range from $250 to $650 per hour depending on the experience or seniority of the lawyer. In practice, the Plaintiff’s lawyer generally acts on a contingency fee basis. Defendant’s lawyer will generally act on a hourly fee basis. If the referral is from the U.S.A., it is usually on the basis of 2/3 of 1/3 of any recovery.
As for costs, a distinction has to be made between judicial and extra judicial costs. Judicial costs are those provided in the procedural rules for each court. These are the costs to institute an action, to hold examinations on discovery, etc. These are payable by the losing party. The lawyer’s fees constitute extra- judicial costs which must be paid by the client, whether the client wins or loses. The losing party generally does not pay the fees of the winning party and its lawyer as may be the case in England. Only exceptionally, the Federal Court will award solicitor-client costs, but in cases where the lawyer has been outrageously abusive. This occurs very rarely.
Disbursements are generally quite low. These include the initial cost to institute the legal proceedings, the bailiff’s fees to serve the proceedings, the cost of stenographers at examinations on discovery, taxis to Court, long distance charges. Everything that has to be paid out of pocket by the lawyer. If the case is adjudicated by the Court, a part of these disbursements may form part of the costs awarded to the winning party. Disbursements are always for the account of the client, and are payable by the client whether the lawyer is acting on a contingency fee bases or an hourly rate basis.
Pre-judgment interest is awarded as an integral part of damages in accordance with the civilian principle of restitutio in integrum. Such damages run from the date of delivery, in the case of damaged cargo and from the date the cargo should have arrived, in the case of late or short delivery. The rate of pre- judgment interest is left to the court’s discretion. If the prime commercial rate is claimed and proven, it is awarded.
Post-judgment interest on both the damage award and the pre-judgment interest is governed by the law of the province in which the cause of action arises, or where it does not arise in a province at a rate the Federal Court considers reasonable. Such interest is sometimes awarded at the legal rate of 5% per annum as stipulated by the Canada Interest Act, R.S.C. 1985, ch: I-15, sect. 3. The court nevertheless retains discretion to select a different rate, such as the average commercial prime rate.
In our practice, we are often faced with multimodal transport. For example, cargoes are transported from the Far East to West Coast ports, such as Vancouver and Prince Rupert, British Columbia and from there carried by rail to rail yards in Ontario, and from there by truck to Quebec or the Maritime provinces. There are freight forwarders involved, NVOCCs, actual ocean carriers, their owners and charterers. There are through bills of lading, waybills, combined transport bills of lading, ocean, rail, air, truck waybills and bills of lading.
Canada has not ratified the Hamburg Rules.
As for the Rotterdam Rules, Canada has expressed serious reservations with this Convention. For one, Canada is a “volume contract” jurisdiction.
As stated in a recent article by Alcantara, Oland, Professors Tetley, Ramberg, Johansson and others entitled Particular concerns with regard to the Rotterdam Rules, Article 80 of Rotterdam is the most objectionable part according to many commentators. Article 80 allows parties to derogate their obligations under Rotterdam in “volume contracts” which are extremely broadly defined.
Nevertheless, today we have to manage with the little we have, and the strategy we adopt is the infamous “shotgun approach”. We sue everyone that may have a contractual or tort link with the shipper and/or consignee. We usually are forced to issue proceedings within the year after delivery of the cargo, or even nine months after the loss as is the case with some freight forwarders or NVOCCs. In summary, as soon as we obtain the case, we determine immediately the prescription aspect, or suit time applicable to each defendant, and act accordingly. Issues of jurisdiction, applicable law, time extensions, limitation, application of extraordinary measures, etc. are then dealt with, and after that we are left, as Plaintiff’s lawyers, with possible settlement discussions, or mediation, and if this fails, we face the mercy of the Courts, and the wrath of the lawyers for the Defendants.