By Marc de Man
My purpose here today is to address you on the relevant aspects of recovery law and the role of the Freight Forwarder.
My priorities are centered on practicality, cost effectiveness and efficiency. I shall accordingly try to balance these three considerations in the context of my presentation.
It is worthwhile to briefly go over a few key elements which illustrate the distinctiveness of the Canada context.
Canada is a privileged jurisdiction in that it has a legal system derived from both the English Common Law and the European Continental Civil Law.
It is the coexistence of these dual legal systems that give rise to four effective legal remedies, all four of which may be used by creditors to protect their marine cargo claims against faulty debtors in a variety of circumstances.
First, the Action in Rem is the most useful and prevalent recourse against the ocean carrier. It is a direct action against the “res” (or thing, in Latin), generally the ship. This recourse is available for cargo owners who have suffered damage due to the unseaworthiness of the vessel. It may also be used for unpaid bunker supplies or for unpaid suppliers of necessaries. Thus, if a ship enters into the Canadian jurisdiction and it has caused damage to cargo, the cargo claimant can institute an action in rem against the vessel. The arrest in rem effectively paralyzes the ship where she is berthed, and the warrant will be released only upon the ship providing adequate security for the claim. The action in rem is thus specifically designed to prevent the culprit ship from escaping the Canadian jurisdiction without some assurance that there is security for the debt after the judgment.
The second recourse, the Sistership Arrest, is also an Action in Rem 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” is of key importance. It has been interpreted by the Federal Court of Canada to have the same meaning as “registered owner”. This interpretation somewhat restricts the application of this recourse, but, with sufficient evidence of common ownership, it may prove to be a very useful tool for claimants against particular shipping fleets.
The third recourse, the Mareva Injunction is an “in personam” relief which restrains the owner of the assets from dealing with them. Essentially, the Defendant is told “if you have assets, you cannot dispose of them”. It is generally directed against banks or financial institutions.
Finally, the Seizure before Judgment, a purely civilian recourse, is provided for in the new Quebec Code of Civil Procedure at art. 516. It is essentially the equivalent of the Mareva Injunction but in the Civil Law. The Plaintiff is not required to give an undertaking as to damage, as is the case in the Mareva Injunction. However, since it is only provided for in the Quebec Code of Civil Procedure, the seizure before judgment can only be presented before the Superior Court of Quebec.
I. HOW LONG DO CARGO CASES TAKE IN CANADA?
HOW MUCH DO THEY COST IN FEES AND EXPENSES?
Cargo cases, and litigation more generally, widely vary in terms of the length of time they require from beginning to end. The process is largely dependent on the lawyers’ management of the cases.
Though there are of course a number of strict delays provided for in the procedural rules of Canadian Courts (whether it be the Federal Court Rules for the Federal Court or the Code of Civil Procedure of Quebec) the onus is on the parties to advance the litigation process.
Unfortunately, delays continue to occur as a result of Parties, (usually lawyers!) unnecessarily multiplying procedural steps and interlocutory motions to delay the onset of a trial or to exhaust the opposing party. Evidently, these delay tactics can severally prejudice the progress and advancement of litigation. As the expression goes, “justice delayed is justice denied”. There is in fact, in the past number of years, added pressure on lawyers to ensure that they do not drag matters ad infinitum.
However, if both parties are diligent and committed to advancing the litigation forward, the process can be expeditious. Files can be made ready for trial within a year or a year and a half. More complicated and sophisticated matters may require additional time.
Unfortunately, that is not where it ends. Once the parties are ready to be heard on the merits, they are faced with long-delays to obtain trial dates.
It is no secret that delays to obtain a trial date are of great concern within the Canadian legal community. Though delays are far shorter at the Federal Court of Canada than in the provincial courts, litigants must still account for several months of waiting time before they are attributed a trial date.
In both the provincial courts and the Federal Court of Canada, Judges are increasingly required to get actively involved in case management. They are further required to promote and encourage mediation and other modes of alternative dispute resolution mechanisms to provoke settlements. This typically has the effect of shortening the litigation process.
Where lawyer’s fees are concerned, these are decided between the lawyer and the client. If the lawyer and the client agree, the lawyer representing the Plaintiff may act on a contingency basis, otherwise known as “no cure, no pay” plus disbursements. The percentage for cargo claims is usually of 25% of the recovery plus disbursements. If acting in defence, the lawyer will require payment on an hourly basis, with rates ranging from CDN$250 to $600 per hour, if not more.
As for costs, a distinction must be drawn between judicial and extra-judicial costs. Judicial costs are those provided in the procedural rules for each court. For instance, these include 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 losses. In Canada, the losing party is generally not required to pay the lawyer fees of the winning party, unless the losing lawyer has shown himself to be extraordinarily abusive throughout the litigation process and is condemned to solicitor/client costs.
Disbursements refer to the charges and expenses which are paid out of pocket by the lawyer for the account of the client. In Canada, both at the provincial courts level and the Federal Courts, disbursements are generally quite low for proceedings. 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 and long distance charges.
Over the past number of years, Courts have made efforts to modernize their rules by allowing new modes of communication to be integrated into the litigation process. These modernization efforts result in lower costs for attorneys and clients alike and for increased efficiency.
For instance, fees and expenses are now minimized since Courts now permit that non-originating proceedings be served by email. Also, the Federal Court now has in place a convenient E-filing system which allows for lawyers to file their proceedings without requiring a bailiff. These are all cost-cutting measures being put in place by the judicial system, all of which aim to usher the judiciary into the 21st century. The Court system is undeniably a bastion of traditionalism. Change can be slow and incremental, but it is making its way, slowly but surely!
II. HOW QUICKLY DOES AN UNDERWRITER NEED TO ACT? WHAT ARE THE TYPICAL TIMES TO PROTECT THE TIME TO CLAIM AND TO SUE FOR EACH MODE OF TRANSIT (OCEAN, AIR, TRUCKING, WAREHOUSE AND RAIL)?
For ocean carriage
Canada is subject to the Hague-Visby Rules. Therefore the time for suit is one year from delivery of the goods or the date when the goods should have been delivered.
In addition, pursuant to the Hague Visby Rules, the claimant is required to provide the carrier with Notice of Loss.
Upon delivery from a carrier, the consignee is obliged to inspect the goods, and if they are in bad order, to specify on the receipts the extent of the loss or damage. If the loss or damage is not apparent or if the cargo is not delivered, then the consignee must give written notice within three days from the moment of delivery or from the moment of “deemed delivery”.
If notice is not duly provided this does not bar the claimant from claim, however the goods are then presumed to have been delivered as described in the Bill of Lading. Whereas if notice is given, then the goods are presumed to have been delivered as described in the notice. Both presumptions are rebuttable by any admissible proof.
Time can be extended, usually for 3 months at a time if there is agreement by the carrier.
For air carriage
The limitation period for bringing proceedings against an air carrier is the same in all Conventions/Protocols (whether Montreal and/or Warsaw) and is of two years. That is to say that the action must be brought within 2 years from either the date of arrival or the expected date of arrival of the aircraft, or from the date on which the carriage stopped.
Notice of loss must be provided to the carrier within 14 days from the date of receipt of the cargo. In a case of delay, a written notice must be provided within 21 days from the date on which the cargo should have arrived.
Time may also be extended if there is agreement by the carrier.
The law applicable to the carriage of goods by road depends on whether the carriage is intra-provincial (within a single same province) or extra-provincial (between provinces or between provinces and a foreign state).
Where the carriage is intra-provincial, the law of the province in which the carriage occurs applies and most provinces have legislation addressing the rights and obligations of the parties to a contract of carriage. Luckily, there is general (though not complete) uniformity between the various provincial statutes and regulations.
If the carriage is extra-provincial the Federal Motor Vehicle Transport Act applies. This Act provides that, for extra-provincial transport, the conditions of carriage and limitation that apply are those of the province of origin. If there is no provincial law that applies, for instance because the transport originated in a foreign state, then the conditions of carriage and limitations of liability that apply are those of the place of origin. The parties may at all times provide contractually for a governing law.
Since transportation by road is governed by the laws of each province of Canada, we must look at the provincial statutes in order to determine the applicable time bar. For instance, if the contract was entered into between the shipper and the trucker in the province of Quebec, the time bar is three years from the date of delivery, or from the date on which the cargo should have been delivered, since this is the time bar provided for in the Civil Code of Quebec.
Under the Civil Code of Quebec, claimants are required to notify the carrier within 60 days of the loss or delay of the goods. However, if there is no delivery, claimants may notify the carrier within 9 months from the date of shipment.
In Ontario the Limitations Act prescribes a general limitation period of two years from the discovery of the cause of action.
Extensions may be obtained from the carrier.
Warehousing is purely a matter of provincial law and is accordingly governed by the laws of each given province. It therefore follows that the applicable time-bar for instituting proceedings is found in provincial statutes or the Civil Code of Quebec. In Ontario for instance, the time-bar is of two years from the moment of discovery of the cause of action.
Where warehousing is concerned, the same time bar period applies as for trucking. The Civil Code of Quebec uses the term “contract of deposit” to qualify the obligations of the parties to the contract. The term depository refers to the person who undertakes to keep the cargo for a certain time, while the term depositor designates the person who hands over the goods to the depository. The three year time-bar applies from the moment that the depository is made aware, or should have been aware, of the breach of the contract of deposit.
For rail carriage
The time to sue a railway carrier is one year, and notice of loss should be provided within 4 months.
III. WHAT ARE THE TYPICAL LIMITS OF LIABILITY FOR EACH MODE OF TRANSIT (OCEAN, AIR, TRUCKING, WAREHOUSE AND RAIL) AND THE WAYS AROUND THEM?
The typical limits of liability for ocean carriage
The typical limits of liability for ocean carriage are stated in the Hague Visby Rules at Article IV(5)(a). This article states that unless the nature and the 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 (1 SDR = 1.82CAD) or 2 SDRs per kilogram of gross weight of the cargo lost or damaged, whichever is the highest of the two calculations.
The value of 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 of carriage.
Where a container, pallet or similar article or 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.
The typical limits of liability for air carriage
The air carrier is entitled to limit its liability unless the consignor has made a special declaration of value. The limitation is 19 SDRs per kilogram. Since 1 SDR is approximately valued at 1.82CAD at today’s rate, this equals CAD$34.58 per kilogram.
This limitation is extremely difficult, if not impossible, to break as the argument of wilful misconduct does not exist any longer following the ratification of the Montreal Convention.
The typical limits of liability for motor carriers
In Quebec, pursuant to the Transport Act, the carrier limits its liability to $4.41 per kilogram. This limitation applies unless the shipper has declared a higher value on the face of the Bill of Lading. Nevertheless, in any case where the carrier has acted with gross negligence limitation may be broken.
The typical limits of liability for warehousing
There are no limits of liability set out under Quebec law for warehousing. Therefore, any limit set by the warehouseman must be clearly set out contractually. Limits of liability can be broken where the warehouseman has acted with gross negligence.
The typical limits of liability for rail carriers
Rail carriage is governed in Canada by the Canada Transportation Act. Section 137 of this Act provides that a railway company shall not limit or restrict its liability to a shipper except by means of a written agreement or confidential rate contract signed by the shipper (or by an association or other body representing shippers).
IV. WHAT ARE THE MOST PECULIAR ASPECTS OF CANADA’S CARGO CLAIM JURISPRUDENCE?
One interesting and peculiar aspect of Canada’s judicial system stems from the fact that local provincial courts have concurrent jurisdiction with the Federal Court of Canada.
However, it is important to bear in mind that while the provincial and federal courts exercise concurrent jurisdiction some remedies can only be exercised by one court and not the other.
For instance, the arrest in rem and the sistership arrest can only be brought before the Federal Court, while the seizure before judgment may only be considered by a judge of the Superior Court of the province of Quebec.
Canadian Courts’ jurisdiction
Another important element to consider is that of jurisdiction. Section 46(1) of the Marine Liability Act grants Canadian Courts jurisdiction to hear a claim for the carriage of goods by water if any of the conditions provided for in that section are met, and this, in spite of any forum selection clause which may be included in a Bill of Lading. Thus if the port of loading or discharge are Canadian or the Contract of Carriage is entered into in Canada, the Courts shall have automatic jurisdiction despite a forum selection clause.
Ease of conducting arrest proceedings in Canada
Arrest proceedings are very efficient and unencumbered under Canadian law.
For example, a claimant is not required to obtain leave from the Court to arrest a vessel. This means that a claimant may move to have a vessel arrested without requiring permission of the Court (and without ever having to go before a judge!). Several jurisdictions, such as Australia, for instance, are required to obtain permission from a Court in order to proceed with an arrest. This results in delays which can at times be fatal. The Canadian arrest procedure allows for claimants to act quickly to protect their claim. Indeed, if a vessel is at the Port of Montreal, we are able to arrest within approximately 2 hours provided that the claimant has provided us with all of the documents and particulars required to evidence the debt.
Also, Canadian Courts do not require any documents (whether originals or copies) for the issuance of arrest proceedings. There is no necessity to have a Power of Attorney to act.
Moreover, another Canadian particularity rests in the fact that claimants are not required to post counter-security to arrest a Vessel.
Finally, if the loss is on board the ship, for example in St. John’s, Newfoundland or Victoria, B.C., we can act from Montreal in the Federal Court. In other words, the Federal Court has jurisdiction throughout all of Canada.
V. THE NEWEST DEVELOPMENTS IN CANADIAN CARGO CLAIM JURISPRUDENCE IN RECENT YEARS.
The first decision I will discuss today emanates from the Federal Court of Appeal and concerns sistership arrest in Canada.
In Westshore Terminals Limited Partnership v. Leo Ocean, S.A., 2014 FCA 231, the law of sistership arrest in Canada was clarified to confirm that sistership arrests cannot be “stacked” and that security can be obtained up to the value of the vessel arrested, even if that vessel is more valuable than the offending vessel.
In Westshore Terminals, part of the issue to be determined was whether a party could arrest both the offending vessel and her sistership. Previous case law and doctrine in Canada did not place a limit on the number of sisterships which could be arrested in support of one claim. In interpreting language of the Federal Courts Act, the Court found that although the language was ambiguous, it suggested that only one ship could be arrested.
Finally, let me deal with a decision pertaining to road carriage, specifically on the issue of the declaration of value.
In the matter of A & A Trading Ltd. v. DIL’S Trucking Inc., 2015 ONSC 1887, the plaintiff Shipper had hired the defendant Trucker to transport goods by truck from Toronto to Calgary.
The goods were stolen while in transit and the Shipper commenced proceedings to recover the value of the goods.
During discussions between the Shipper and Trucker, the Shipper advised the Trucker that the goods had a value of exceeding $250,000 and inquired whether the Trucker had sufficient insurance. The Trucker confirmed there was sufficient insurance. On the day of the shipment a bill of lading was filled out by the Shipper to which was attached an invoice showing the value of the goods to be $263,000.
The Shipper’s bill of lading was given to the Trucker but the Trucker also filled out its own bill of lading which referenced the invoice number. The Trucker’s bill of lading was signed by both parties. Neither bill of lading contained a declaration of the value of the goods on its face. The main issue in the case was whether the Trucker could limit its liability to $4.41 per kilogram as provided in the applicable Ontario regulations. The limitation amount would have been approximately $100,000.
The Ontario Superior Court held that the Trucker was liable for the full value of the goods stolen.
The Court’s reasoning was that the contract of carriage is not limited to the contents of the bill of lading. Indeed, the contract of carriage includes the oral representation by the Trucker as to insurance as well as the bill of lading prepared by the Shipper and the invoice that was attached to it. A declaration of value need not be set out in the space provided in a bill of lading. The intent is to provide the carrier with notice of the value of the goods. Given that the Trucker’s bill of lading contained a reference to the invoice which contained the value of the goods, there was a sufficient declaration of value on the face of the bill of lading and the Trucker could not limit its liability.
VI. THE FREIGHT FORWARDER IN CANADA
This Conference, unlike previous ones, has emphasized the role of the Freight Forwarder.
The position of the freight forwarder in Canadian law is difficult to grasp. The terminology that is used to define the freight forwarder is so loose that even the legal authors have difficulty circumscribing the functions of a freight forwarder.
John McNeil Q.C. distinguishes between the freight forwarder and the shipping agent. For Mr. McNeil if the freight forwarder acts as a carrier, he is known as the “freight forwarder”. However, if he acts as an agent, he is known as a “shipping agent”. This is somewhat similar to the distinction in France of “commissaire de transport” and the “Transitaire”.
On the other hand, the late professor Tetley defines the freight forwarder as such whether he is acting as a carrier or an agent.
In his fifth edition of Marine Cargo Claims he states that the legal responsibility of freight forwarders often seems mysterious because the freight forwarders have assumed two different legal roles – agents and principal contractor. They are not regulated by any national convention, resulting in various national laws that control their actions, giving rise to conflicts of law.
At times, the freight forwarder has acted as principal contractor arranging the carriage in his own name. His fee, payable by the shipper, is a straight freight charge.
In the case of Bertex Fashions Inc. v. Cargonaut Canada Inc. (1995) F.C.J. No. 827, the trial judge states, citing D.J. Hill on “Freight Forwarders”:
“The position of the forwarder as an intermediary between carrier and shipper is not always easily ascertained, and must often depend upon a careful analysis of the facts in each individual set of circumstances.”
In that case, the trial judge cites Tetley, who states that there are no hard rules for determining whether the freight forwarder is acting as agent or as principal contractor. He sets out several useful criteria that will assist in making the determination as follows:
a) the manner in which the forwarder characterizes its obligations in the contract documents;
b) the manner in which the parties have dealt with each other in the past;
c) whether a bill of lading was issued;
d) the manner in which the bill of lading (if issued) was signed;
e) whether the terms on the rear of the bill of lading (which typically identify the forwarder as a mere agent) are or are not consistent with the terms on the front of the bill of lading;
f) whether the shipper knew which carrier would actually carry the goods;
g) the mode of payment: Did the forwarder charge an amount calculated upon the freight and other expenses and then charge a further amount or a percentage as its fee? Or did the forwarder charge an all-inclusive figure?
The Freight Forwarder then, as regards his customer, the owner or shipper of the goods, behaves somewhat as a carrier and as regards the carrier, or the party moving the goods as a shipper. He puts into effect all arrangements by which possession is surrendered by the owner of the cargo or shipper. He undertakes arranging for terminals, warehouses, containers, land, sea, air or rail movement, and all customs and insurance matters the trip involves. His profit is made on the difference between what he is able to charge his customers and what he is able to negotiate with his traffic lines through large volume.
The hallmark of his undertaking is the assumption of responsibility for the transportation of cargo from origin to destination.
Now, as far as the shipping agent is concerned, he is known in the industry as a transportation broker, load broker, forwarding agent or shipping agent.
If the shipping agent holds himself as a carrier, and attends to the payment of the freight charge levied by the carrier, he engages, on his own account, and runs the risk of being found to be in fact a freight forwarder. The shipping agent who issues a bill of lading is quite vulnerable to such a conclusion.
A careful inquiry is necessary to the precise nature of the agent’s undertaking if, by his conduct, representation on his contract, he has assumed the character and liability of a freight forwarder. The distinction between the two is often a difficult one.
The shipping agent never comes into physical possession or contact with the cargo. It is a person whose services are engaged for the purpose of facilitating the movement of cargo. The shipping agent has access to the transportation industry, its schedule, rate and routes and can coordinate a movement of cargo through various modes of transportation to the desired destination. He appears in classes of transportation that are international or multi modal in character.
In Canada, all the documents issued by the freight forwarder, be it a through bill of lading, or the contract with the shipper are invariably subject to Standard Trading Conditions (S.T.C.). In Canada they are known as the CIFFA (The Canadian International Freight Forwarders Association) Standard Trading Conditions.
The Time Bar provision at Section 10 of the CIFFA conditions is problematic in that it provides for a 9 month time bar from the date of delivery or deemed delivery. This provision has not been tested by the Courts in Canada, but it may be contrary to the Hague Visby Rules if the freight forwarder acts as a carrier. Moreover, if the law of the Province of Quebec applies, it would be against public order as the Civil Code of Quebec at article 2883 states that prescription may not be renounced in advance, and article 2884 states that no prescriptive period other than that provided by law may be agreed upon. The prescriptive period in the Province of Quebec is three years.
The CIFFA S.T.C. further provide at section 21 that the Conditions shall be governed by the laws of Canada and of the province within Canada which the Company has its principal place of business. It further states that by accepting the services provided under the Conditions, the shipper, consignee and owner of the goods irrevocably attorns to the exclusive jurisdiction of the Courts of that Province and the Federal Court of Canada.
The CIFFA limitation at section 15 is 2 SDR’s per kilo if the Freight Forwarder acted as a principal and issued a through bill of lading with the maximum recoverable of 75,000 SDR per transaction.
Although we are limited by time, there is also, as the late Professor Tetley states, the particularly intractable problem of determining whether the carrier may recover the freight and related costs of carriage from the shipper or consignee when the freight forwarder, by reason of insolvency, bankruptcy or simple default, has neglected to remit the payment he has received originally by the shipper to the carrier. In the decision of Mediterranean Shipping Co. S.A. v. BPB Westroc Inc. (2003) 238 F.T.R. 135, the freight forwarder appeared to have been acting purely as the agent for the shipper, so that the agent’s default was that of the principal. Consequently, the shipper, having failed to discharge its onus of rebutting the presumption of its liability, was condemned to pay the freight a second time.
Professor Tetley concludes that freight forwarders are faced with a dilemma – will they present themselves as “principal contractors” or as agents? At times they even flirt with the term “carrier”. Their solution to the problem has been new standard trading conditions which admit equivocally that they may be principal contractors, but the terms are so evasively wrapped in conditions, limitations and exclusions that there is little clarity as to their responsibility at law. Much of this uncertainty is the fault of the freight forwarders, who contest any legislation or court decision which would find them as responsible parties to the contract of carriage. On the other hand, and paradoxically, they do not want to be paid a percentage as agents.