Date: 19990309
Docket: T-1989-93
BETWEEN:
KODAK
Plaintiff
- and -
RACINE TERMINAL (MONTREAL) LTD.
Respondent
REASONS FOR ORDER
TREMBLAY-LAMER J.:
[1] This is an application for summary judgment pursuant to Rule 213 et seq of the Federal Court Rules, 1998.1
[2] This action arose in the context of admiralty law. The parties were involved in the shipping of cargo from Felixstowe, UK to Rochester, New York, via the port of Montreal.
[3] Racine Terminal (Montreal) Ltd. (the "Defendant") is a terminal operator at the port of Montreal. Kodak Export Limited, Eastman Kodak Company and Eastman Kodak International Finance BV (the " Plaintiffs") were the owners of the cargo, which consisted of a shipment of photographic paper.
[4] The cargo was being shipped under a bill of lading to which the Plaintiffs and the shipping company, Orient Overseas Container Lines (UK) Ltd ("OOCL (UK)") were parties.
[5] The bill of lading contained a clause whereby the liability of OOCL (UK) for loss or damage to the cargo would be limited to $500.00 per package. Additional coverage on the shipment was not purchased by the Plaintiffs.
[6] The bill of lading also contained a standard clause, known in the industry as a "Himalaya clause", which purported to extend this limitation of liability to terminal operators, stevedores and others, even if the loss arose as a direct result of negligence.
[7] Upon arrival at Montreal, the shipment was unloaded by the Defendant. During the unloading process, the crane operator inadvertently damaged the container. The Plaintiffs have claimed that the nature of the product is such that the cargo was a constructive total loss and estimate their damages to be $787,826.87.
[8] The Defendant admits the crane operator was negligent and accepts its negligence in this regard. However, the Defendant seeks to limit its liability by claiming the protection of the Himalaya clause.
[9] Due to the effect of the Himalaya clause, the Defendant submits that its liability is limited to $500.00 per package, or $15,500.00.
[10] There is no written contract, nor is there an agency agreement between OOCL (UK) and the Defendant, authorizing OOCL (UK) to insert the Himalaya clause into the bill of lading and thereby extend the limitation of liability to the Defendant.
[11] There is a contract, dated August 1st ,1981, between Manchester Liners Limited (MLL) and the Defendant, which specifically grants MLL the authority to insert Himalaya clauses into bills of lading on behalf of the Defendant. MLL formerly operated in a similar capacity to OOCL (UK) at the port of Montreal. The contract states that no assignment of the terms may be made other than in writing.2
[12] OOCL (UK) took over the operations of MLL at some point between 1983 and 1988 and continued the business relationship with the Defendant.
ISSUES
| Is OOCL (UK) a party to the 1981 agreement between MLL and the Defendant? |
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| Was the relationship between OOCL(UK) and the Defendant sufficient to overcome the lack of an express grant of authority by the Defendant to OOCL(UK)? |
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ANALYSIS
| The Test for Summary Judgment |
[13] The applicable Rules for determining a summary judgment are found at Rule 213 et seq of the Federal Court Rules, 1998.3
[14] The test to meet is summarized in Grenville Shipping Co. v. Pegasus Lines Ltd.4
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1. the purpose of the provisions is to allow the Court to summarily dispense with cases which ought not proceed to trial because there is no genuine issue to be tried; |
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2. there is no determinative test but Stone J.A. seems to have adopted the reasons of Henry J. in Pizza Pizza Ltd. v. Gillespie. It is not whether a party cannot possibly succeed at trial, it is whether the case is so doubtful that it does not deserve consideration by the trier of fact at a future trial; |
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3. each case should be interpreted in reference to its own contextual framework; |
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4. provincial practice rules (especially Rule 20 of the Ontario Rules of Civil Procedure) can aid in interpretation; |
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5. this Court may determine questions of fact and law on the motion for summary judgment if this can be done on the material before the Court (this is broader than Rule 20 of the Ontario Rules of Civil Procedure); |
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6. on the whole of the evidence, summary judgment cannot be granted if the necessary facts cannot be found or if it would be unjust to do so; |
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7. in the case of a serious issue with respect to credibility, the case should go to trial because the parties should be cross-examined before the trial judge. The mere existence of apparent conflict in the evidence does not preclude summary judgment; the court should take a "hard look" at the merits and decide if there are issues of credibility to be resolved.5 |
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The principal issue in this action is whether the Defendant can benefit from the Himalaya clause contained in the bill of lading between OOCL(UK) and the Plaintiffs.
| The Himalaya Clause in Canada |
[15] The Supreme Court of Canada accepted Himalaya clauses as part of Canadian Admiralty law in the landmark decision ITO-International Terminal Operators v. Miida Electronics.6 In that case, the plaintiff Miida Electronics sued ITO, the terminal operator, for damages caused by theft due to the terminal operator"s negligence. ITO raised as its defence the protection of a Himalaya clause to limit its liability. The Supreme Court allowed the appeal, finding that Himalaya clauses are an accepted part of commercial law and give effect to what the parties intend.
[16] The acceptance of Himalaya clauses is based on an oft-quoted passage of Lord Wilberforce, from the case of Scruttons Ltd. v. Midland Silicones7, where he lays out the four criteria for a Himalaya clause to be effective. Those criteria are in summary:
| 1) the bill of lading makes it clear that the stevedore is intended to be protected by the provisions in it which limit liability; |
| 2) the bill of lading makes it clear that the carrier, in addition to contracting for these provisions on its own behalf, is also contracting as agent for the stevedore that these provisions should also apply to the stevedore; |
| 3) the carrier has authority from the stevedore to do that, or perhaps a later ratification by the stevedore would suffice; |
| 4) any difficulty about consideration moving from the stevedore was overcome.8 |
[17] In the present case, the Plaintiffs take issue only with the third criterion. They acknowledge that criteria 1, 2 and 4 of the above test have been met. They submit that the carrier OOCL (UK) did not have the proper authority to insert the Himalaya clause into the bill of lading, and that it would be inappropriate to permit the Defendant to ratify the clause after the damages have occurred.
[18] The Defendant submits the affidavit of Mr. Lee Reeves, the European Claims Manager for OOCL (Europe) in support of its claim that OOCL "continued" the operations of MLL such as to provide OOCL (UK) with the authority to act as an agent for the Defendant.
[19] Mr. Reeves submits that through a complex series of contracts and understandings OOCL(UK) took over the terms of the 1981 contract between MLL and the Defendant. In other words, since OOCL(UK) continued the business practices of MLL without any major modifications to the contract between MLL and the Defendant, the terms of the 1981 contract should still apply.
| a) Is OOCL (UK) a party to this MLL contract? |
[20] The Plaintiffs submit that the 1981 contract contains an express term which stipulates that the contract can not be assigned without the prior written consent of the other party. Express written consent was never obtained or given. Furthermore, the Plaintiffs contend that MLL and OOCL(UK) are separate corporate entities and that absent a name change or merger the only ways for a corporate person to become a party to a contract signed by another are by way of a formal assignment, a formal novation or by the execution of a new contract.
[21] The Plaintiffs point to evidence submitted by the Defendant, to demonstrate that MLL actually sold the North American portion of its business to ML Containerline Limited ("MLC") and that MLL and MLC formally novated the St-Lawrence Co-Ordination Agreement ("SCLA"), to which the Defendant was not a party.9 As a part of the novation, the SCLA contained a clause which instructed the parties to "forthwith contract at the Designated Terminals". However, there is no evidence that MLC ever carried out this obligation. MLC simply continued its operations on the basis of the MLL contract.
[22] The Plaintiffs therefore submit that the 1981 contract was no longer contractually binding as between MLL and the Defendant as of December 31, 1983. Further, since the 1981 contract was not part of the MLC/MLL novation, and it was never assigned to OOCL(UK), OOCL(UK) is not a party to that contract. After a careful review of the documents, I agree with the Plaintiffs.
[23] In my opinion, the failure of the Defendant to provide prior written consent of the assignment of the contract, when expressly required by the terms of the contract, operates to defeat the Defendant"s claim that the requisite authority had been assigned. In addition, OOCL(UK) and MLL are in fact separate legal entities and carry on business independently. The only way for the OOCL(UK) to become a party to the 1981 contract between MLL and the Defendant would be through a written assignment. In the absence of such an assignment, I can not accept that OOCL is a party to the 1981 contract.
| b) Was the relationship between OOCL(UK) and the Defendant such as to overcome the lack of express agency agreement? |
[24] Mr. Reeves submits that the Defendant has been employed by Orient Overseas (and thus by its subsidiary OOCL (UK)) for over 17 years. There is evidence before me which supports this claim. In addition, there is evidence, although not conclusive, which suggests that OOCL(UK) exclusively used the stevedoring services of the Defendant in Montreal.
[25] This long-standing commercial relationship, coupled with the fact that the shipping industry universally employs Himalaya clauses, and the almost exclusive use of the Defendant"s stevedoring services at the Montreal Terminal, by Orient Overseas, are an indication of the Defendant"s intention to have OOCL(UK) insert and benefit from the use of Himalaya clauses contained in the Bill of Lading.
[26] There is no other contract for services between OOCL(UK) and the Defendant. Therefore, the Defendant appears to have been providing stevedoring services to OOCL(UK) based on an unwritten agreement.
[27] In effect, the Defendant is arguing that although the parties were not permitted to assign the contract, there was an implied novation whereby the first contract was terminated and a new contract was formed between OOCL and the Defendant, based on the same terms.
[28] In Irving Oil Ltd. v. Canada10, the Federal Court of Appeal dealt specifically with the issue of implied novation of a contract where there is a clause prohibiting assignment without prior written consent. The Court of Appeal held that where there is such a clause in the contract, novation must be in writing. Ryan J.A. states:
| I now turn to Clause 17 of the contract which states: |
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| "This Contract may not be assigned without the written consent of the Board." |
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| The use of the words "This Contract may not be assigned" gives rise to a problem, as similar words have done in other cases such as The Queen v. Smith [(1885), 10 S.C.R. 1], for example. This is so because "assignment" tends to be used, as I have indicated above, to designate the transfer of rights, not duties. Obviously either the word "assigned" or the word "Contract" appearing in Clause 17 must be read in a sense other than the sense I have mentioned above. I read the word "Contract" as being used in the way I have indicated, that is as a bundle of rights and duties. I read "assigned" as meaning "transferred" and as covering both rights and duties. The effect of the clause is to require written consent to a novation, but not to a mere assignment of benefits. A novation could be made orally, were it not for the clause. [Emphasis added].11 |
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[29] Section IX of the 1981 Agreement prohibits the assignment or transfer of the agreement, in whole or in part. The relevant passage reads:
| No party to this Agreement may assign or transfer this Agreement or all or any part of its right hereunder to any person, firm or corporation without the prior written consent of the other party. [Emphasis added].12 |
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[30] Clearly, having a Himalaya clause inserted into all bills of lading is a right granted to the Defendant under this Agreement. As a result, in the absence of prior written consent, the plain language of Section IX renders anyone other than MLL incapable of acting as agent for the Defendant.
[31] Following Irving Oil Ltd., for a novation to be valid, Section IX of the 1981 Agreement requires it to be in writing. Even if a novation could be inferred based on the conduct of the parties, Section IX would render it a nullity.
[32] After a careful review of the evidence provided, the submissions of the parties, and the relevant case law, I am of the opinion that there is no genuine issue for trial.
[33] OOCL(UK) was not a party to the 1981 agreement, and, due to the fact that the 1981 Agreement contained a clause which prohibited assignment of the contract without prior written consent, the contract could not be novated, following Irving Oil Ltd. Therefore, the parties are not bound by the terms of the 1981 Agreement, which means that OOCL(UK) did not have the authority to insert the Himalaya clause into the Bill of Lading.
[34] As a result, there is no genuine issue for trial.
CONCLUSION
[35] The motion for summary judgment is granted with respect to the Defendant"s ability to plead the limitation of liability based on the Himalaya clause. The whole with costs.
[36] I order that the Plaintiffs" damages be assessed by way of a reference under rule 153 et seq.
(Sgd.) "Daniele Tremblay-Lamer"
J.F.C.C.
VANCOUVER, British Columbia
March 9, 1999
[37] FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF SOLICITORS AND SOLICITORS ON THE RECORD
COURT FILE NO.: T-1989-93
STYLE OF CAUSE: KODAK
- and -
RACINE TERMINAL (MONTREAL) LTD.
PLACE OF HEARING: Montréal, PQ
DATE OF HEARING: March 1, 1999
REASONS FOR ORDER OF TREMBLAY-LAMER J.
DATED: March 9, 1999
APPEARANCES:
| Ms. Mireille Tabib for the Plaintiff |
| Mr. Andrew Deere for the Defendant |
SOLICITORS OF RECORD:
| Stikeman, Elliott for the Plaintiff |
Montréal, PQ
| Marler & Associates for the Defendant |
Montréal, PQ
__________________
1 SOR/98-106.
2 Applicant"s Motion Record, Tab 5 p. 93A.
3 Supra note 1.
4 [1996] 2 F.C. 853 (T.D.).
5 Ibid. at 859-60.
6 [1986] 1 S.C.R. 752.
7 [1962] A.C. 446.
8 Ibid. at 473-74.
9 See generally Exhibit "C" to the Affidavit of Lee Reeves.
10 Irving Oil Ltd. v. Canada (1984), 52 N.R. 120 (F.C.A.).
11 Ibid. at 131.
12 Supra note 2.
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