Date: 20121108
Docket: A-378-11
Citation: 2012 FCA 284
CORAM: PELLETIER
J.A.
GAUTHIER
J.A.
MAINVILLE J.A.
BETWEEN:
CANADA MOON SHIPPING CO. LTD.
and
FEDNAV INTERNATIONAL
LTD.
Appellants
and
COMPANHIA SIDERURGICA
PAULISTA-COSIPA
Respondent
and
T. CO. METALS LLC
Plaintiff
REASONS FOR JUDGMENT
GAUTHIER J.A.
INTRODUCTION
[1]
The
main issue in this case is the effect to be given to an arbitration clause in a
voyage charter-party where the charterer is pursued by the ship-owner and the
time charterer in third party proceedings in the context of an action brought
by the holder and endorsee for value of the bills of lading for damage to the
cargo. In a decision reported at 2011 FC 291, Prothonotary Morneau (the
Prothonotary) dismissed the charterer’s motion for a stay of the third party
proceedings in favour of arbitration proceedings as provided by the
charter-party as well as the motion based on forum non conveniens. On
appeal, Justice Scott of the Federal Court (the Judge), in a decision reported
at 2011 FC 1067, allowed the appeal and granted the stay. That decision is now
appealed to this Court.
FACTS
[2]
The
facts are set out in some detail at paragraphs 4 to 19 of the Prothonotary’s
decision. For present purposes, they can be summarized as follows.
[3]
On
or about July 22, 2004 Companhia Siderurgia Paulista-Cosipa (Cosipa) entered
into a voyage charter-party in GENCON form with Fednav International Ltd.
(Fednav) in respect of steel products (cargo) from Brazil to Canada. The ship used to carry the cargo was the M/V Federal Ems owned by Canada Moon Shipping Co.
Ltd. (Canada Moon). That ship was operated under a time charter-party between
Canada Moon and Fednav.
[4]
It
should be noted that there are two Fednav corporations in these transactions,
Fednav International Ltd and Fednav Limited. The parties agree that for the
purposes of this dispute, each corporation can be taken as the agent of the
other so that there is no difference in their positions. I note, however, that
as will be discussed later on, the Judge found as a fact that Fednav Limited
acted as agent for Canada Moon when it sought to obtain a letter of indemnity
(LOI) from Cosipa.
[5]
Clauses
5(a) of the voyage charter-party deals with the responsibility for the loading
and offloading of the cargo while clause 45E refers to the use of plastic
covers on the cargo:
5(a) The cargo shall be
brought into the holds, loaded, stowed and/or trimmed, tallied, lashed, and/or
secured by the Charterers and taken from holds and discharged by the receivers,
free of any risk, liability and expense whatsoever to the Owners. The
Charterers shall provide and lay all dunnage material as required from the
proper stowage and protection of the cargo on board, the Owners allowing the
use of all dunnage available on board.
45E Whenever Charterers/Shippers cover the cargoes
with plastic canvas in order to protect them during the voyage, Owners
guarantee that said plastic canvas placed at loadport will be withdrawn only at
the time of discharge of cargoes at respective disports [sic].
Should Owners fail in fulfilling the above they will
be fully responsible for any penalty, charges, extra expenses, etc. that
Charterers may face arising therefrom.
[6]
A
dispute arose between Cosipa, the Master of the vessel and Fednav with respect
to the use of plastic covers on the cargo prior to loading. To resolve this
dispute, at the request of Fednav Limited acting on behalf of both Canada Moon
and Fednav, the disponent owner, Cosipa, issued a LOI addressed to Fednav
Limited. That letter, dated November 10, 2004, referenced the voyage charter-party.
The operative part of the letter reads as follows:
Provided that the Owners/Master ensure that the
vessel’s ventilation system will be properly functioning during all the voyage,
Charterers hereby confirm that they will relieve Master/Vessel/Owners/Managers
from any liability, and will hold them harmless for any possible cargo damage
by moisture condensation under the plastic cover as a result of restricted
ventilation of the cargo.
[7]
Two
bills of lading consigned to the order of T. CO Metals LLC were issued for and
on behalf of the Master of the ship to Cosipa as shipper on November 16 and 18,
2004, respectively. These bills of lading included the following provision:
“Subject to all terms, conditions, clauses and exceptions as per charter-party
dated July 26, 2004 (sic) at Rio de Janeiro including arbitration clause”. The transferable
bills of lading were negotiated by Cosipa and presented by T. Co Metals LLC (T.
Co. Metals) to obtain delivery of the cargo described therein in Canada. Although the Judge refers several times in his reasons (see paragraphs 52, 58, 59,
76 and 91) to the fact that Cosipa was the holder of the bills of lading at all
material times, the parties agree that this was a factual error.
[8]
On
October 20, 2008, T. Co. Metals commenced an action in the Federal Court
seeking compensation from Canada Moon and Fednav (collectively the defendants)
for damage to the cargo.
[9]
In
its Statement of Claim, T. Co. Metals alleges that the defendants received the
cargo in good order and condition at the port of loading for carriage and
delivery in the same condition to Toronto. According to T. Co. Metals, the
defendants, in breach of their contract, failed to safely load and deliver the
cargo in good order and condition. In addition, T. Co. Metals alleges that the
defendants were negligent. T. Co. Metals claims as the holder and endorsee for
value of the bills of lading covering the carriage of the damaged cargo.
[10] The Defendants filed a
common Statement of defence. In it, they deny that they were bound to load,
stow, handle, discharge or store the cargo, and deny that they had in fact
loaded, handled, discharged or stored the cargo and that these operations had
been undertaken by Cosipa (in Brazil) or T. Co. Metals (in Toronto). The
defendants plead that the bills of lading negotiated to T. Co. Metals were
expressly subject to all terms, conditions clauses and exceptions as per the
charter-party dated July 2[2], 2004 at Rio de Janeiro including clause 5(a)
quoted above.
[11] At the same time as
they filed their Statement of Defence, the defendants also filed a common third
party claim against Cosipa. In that claim, the defendants pleaded the terms of
the charter-party, in particular clause 5(a), and alleged that the cargo was in
fact loaded, stowed, tallied, lashed and secured by Cosipa. The defendants also
pleaded that if the loss was caused by the use of plastic sheeting to cover the
cargo, Cosipa had agreed to indemnify them for such loss pursuant to the LOI.
[12] The Defendants
obtained a Letter Rogatory from the Federal Court to serve their third party
claim on Cosipa.
[13] Cosipa responded to
the third party claim by bringing a motion for a stay of such proceedings on
the basis that the parties had agreed to submit disputes arising under the
charter-party to arbitration in New York.
THE DECISIONS BELOW
[14] The Prothonotary
dismissed Cosipa’s motion for a stay. He determined (a) that the contract
between Cosipa and Fednav is found primarily in the voyage charter-party and
not in the bills of lading; and (b) that the LOI issued by Cosipa to Fednav was
an amendment to their voyage charter-party agreement.
[15] The Prothonotary does
not deal expressly with the position of Canada Moon per se.
[16] However, the Prothonotary
refused to give effect to the arbitration clause of the voyage charter-party
since he found that the latter was a “contract for the carriage of goods by
water” within the meaning of subsection 46(1) of the Marine Liability Act,
S.C. 2001, c. 6 ( the Act). which is reproduced below for ease of
reference:
|
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 arbitral tribunal in Canada that would
be competent to determine the claim if the contract had referred the claim to
Canada, where
(a) the actual port of loading or discharge,
or the intended port of loading or discharge under the contract, is in Canada;
(b) the person against whom the claim is
made resides or has a place of business, branch or agency in Canada; or
(c) the contract was made in Canada.
|
46. (1) Lorsqu’un contrat de transport de marchandises par
eau, non assujetti aux règles de Hambourg, prévoit le renvoi de toute créance
découlant du contrat à une cour de justice ou à l’arbitrage en un lieu situé
à l’étranger, le réclamant peut, à son choix, intenter une procédure
judiciaire ou arbitrale au Canada devant un tribunal qui serait compétent
dans le cas où le contrat aurait prévu le renvoi de la créance au Canada, si
l’une ou l’autre des conditions suivantes existe :
a) le
port de chargement ou de déchargement — prévu au contrat ou effectif — est
situé au Canada;
b) l’autre
partie a au Canada sa résidence, un établissement, une succursale ou une
agence;
c) le
contrat a été conclu au Canada.
|
[17] The Prothonotary reasoned
that charter-parties would come within the meaning of “contracts for the
carriage of goods by water”, and that if Parliament had wanted to exclude them
from the scope of section 46 of the Act, it could have easily done so by
adopting wording similar to that contained in the Hamburg Rules
(Schedule 2 to the Act, articles 2 and 21) confirming that they were
excluded.
[18] Cosipa also argued
that the third party claim should nevertheless be stayed on the ground that
Canadian courts were forum non conveniens. The Prothonotary examined
each of the factors identified in Spar Aerospace Ltd v. American Mobile
Satellite Corporation, [2002] 4 S.C.R. 205 (Spar Aerospace), and
concluded that, on balance, they were not of sufficient weight to displace the
defendant’s choice of forum. As a result, the Prothonotary dismissed the
motion for a stay of the third party proceedings.
[19] The Judge allowed
Cosipa’s appeal from the Prothonotary’s decision. Unlike the Prothonotary, the
Judge found that subsection 46(1) of the Act did not apply to charter-parties
per se. Before coming to this conclusion, the Judge carefully
considered the ordinary meaning of the words used, the scheme of the Act,
the object of the Act, the intention of Parliament and Canada’s international obligations.
[20] Though he found that
the expression “contract for the carriage of goods by water” in subsection
46(1) was wide enough, in its ordinary meaning, to include charter-parties, the
Judge nonetheless concluded that, in context, subsection 46(1) did not apply to
charter-parties.
[21] Canada Moon also argued before
the Judge that, in any event, its situation was different from that of Fednav
because its contractual relationship with Cosipa was governed by the bills of
lading. Thus, even if subsection 46(1) of the Act did not apply to the
voyage charter-party, it certainly applied to the contract evidenced by the
bills of lading. Cosipa responded by arguing that it was not party to the said
contract. Canada Moon further submits that insofar as it is concerned, the LOI
could not be viewed as an amendment of the charter-party (even if this was so
vis-à-vis Fednav) as it was never a party to that charter-party.
[22] The Judge confirmed that the
contract between Fednav and Cosipa is found primarily in the charter-party
rather than the bills of lading. He disagreed with Canada Moon’s position that
its relationship with Cosipa is governed by the bills of lading. After
erroneously noting that the said bills of lading remained in the hands of
Cosipa at all material times, the Judge found that they only function as
receipts for the goods loaded onboard the ship (paragraph 59 of his reasons).
[23] The Judge also found that:
More
importantly, the respondents admit that the bills of lading incorporated the
Gencon standard form charter-party by reference. Thus, the charter-party would still
remain the applicable contract for the carriage of goods between the defendants
(Fednav and Canada Moon Shipping) and the appellant.
[24] The Judge then went on to agree
with the Prothonotary that, in the circumstances, the LOI constituted an
amendment to the charter-party rather than a separate stand alone agreement.
[25] In the result, the Judge
stayed the third party claim in the Federal Court pending the conclusion of the
arbitration in New York under the terms of the voyage charter-party. In light
of this last conclusion, the Judge did not have to address the motion based on forum
non conveniens.
ISSUES
[26] The ultimate issue in
the appeal is the proper disposition of Cosipa’s motion for an order staying
the third party claim in favour of arbitration proceedings pursuant to the
voyage charter-party. As I agree that Canada Moon and Fednav stand in different
positions in relation to the charter-party, their positions must be considered
separately.
[27] As regards Fednav,
the main issue is the application of subsection 46(1) of the Act to
charter-parties. As regards Canada Moon, the first issue is the proper
interpretation of the LOI, specifically whether the indemnity offered by Cosipa
can only be enforced through arbitration proceedings and whether the bills of
lading evidence a distinct contract of carriage of goods between Cosipa and
Canada Moon.
[28] The questions to be
determined therefore are:
1) Is Cosipa entitled to a stay of proceedings of
the third party claim brought against it by Fednav?
2) Is Cosipa entitled to a stay of proceedings of
the third party claim brought against it by Canada Moon?
3) If the answer is no in either case, is Canada a forum non conveniens for the third party claim?
STANDARD OF REVIEW
[29] This is an appeal from
a decision of a court of first instance. Questions of law are to be reviewed on
the correctness standard while questions of fact and mixed fact and law (apart
from extricable errors of law) are to be reviewed on the standard of
reasonableness: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235,
at paragraphs 8, 10, and 36.
[30] Except for the proper
meaning of “contract for the carriage of goods by water” in section 46 of the Act
which, in my view, is an extricable question of law, the other issues raised in
this appeal raise questions of mixed fact and law.
Is
Cosipa entitled to a stay of proceedings of the third party claim brought
against it by Fednav?
[31] By its motion, Cosipa
seeks to hold Fednav to the bargain it made to arbitrate disputes arising out
of the charter-party. Clause 19(b) of the charter-party reads as follows:
(b) This Charter Party shall be governed by and
construed in accordance with Title 9 of the United States Code and the Maritime
Law of the United States and should any dispute arise out of this Charter party,
the matter in dispute shall be referred to three persons at New York, one to be
appointed by each of the parties hereto, and a third by the two so chosen;
their decision or that of any two of them shall be final, and for purpose of
enforcing any award, this agreement may be made a rule of the Court. The
proceedings shall be conducted in accordance with the rules of the Society of
Maritime Arbitrators, Inc.
[32] The Courts will
generally respect the choice of commercial entities to resolve their disputes
by arbitration:
Absent legislative
intervention, the courts will generally give effect to the terms of a
commercial contract freely entered into, even a contract of adhesion, including
an arbitration clause.
Seidel
v. TELUS Communications Inc.,
2011 SCC 15, [2011] 1 S.C.R. 531 at paragraph 2
[33] In the normal course,
then, Fednav would be bound by its agreement to arbitrate. The issue is whether
there has been legislative intervention, specifically, whether subsection 46(1)
of the Act relieves Fednav from its agreement to arbitrate disputes
arising under the charter-party. This in turn requires us to determine the
meaning of the expression “contract for the carriage of goods by water” found
in that subsection.
The meaning of “contracts for the
carriage of goods by water”
[34] Fednav submits that the Judge
erred by looking at external aids (particularly the schedules to the Act
and the transcript of the Standing Committee on Transport and Government
operations for March 27, 2001 hearings), after having accepted that voyage
charter-parties in general could come within the ordinary meaning of these
words (paragraph 72 of his reasons). It says that there was no ambiguity that
justified such an approach.
[35] According to Fednav, the Judge
ignored the fact that Canada could well restrict or prohibit arbitration under
the United Nations Foreign Arbitral Awards Convention Act, S.C. 1986, c.
21, R.S.C. 1985, c. 16 (2nd Supp.) and the Commercial Arbitration Act,
R.S.C., 1985, c. 17 (2nd Supp.). It also says that the Judge gave too much
weight to the external aids and that he misconstrued the temporal application
of section 46 by treating it simply as a transitional measure.
[36] In my view, there is no doubt
that the Judge’s general approach was justified. To give effect to the modern
rule of construction, one must consider the entire context before concluding
that there is no ambiguity in a legislative provision. If this were not so, one
would simply pay lip service to the modern rule, falling back into the old
“plain meaning rule”.
[37] The following passage from the
decision of the Supreme Court of Canada in Canada Trustco Mortgage Co. v.
Canada, 2005 SCC 54, [2005] 2 S.C.R. 601 at page 622, is particularly
apposite:
The
first part of the inquiry under s. 245(4) requires the court to look beyond the
mere text of the provisions and undertake a contextual and purposive approach
to interpretation in order to find meaning that harmonizes the wording, object,
spirit and purpose of the provisions of the Income Tax Act. There is
nothing novel in this. Even where the meaning of particular provisions may not
appear to be ambiguous at first glance, statutory context and purpose may
reveal or resolve latent ambiguities. "After all, language can never be
interpreted independently of its context, and legislative purpose is part of
the context. It would seem to follow that consideration of legislative purpose
may not only resolve patent ambiguity, but may, on occasion, reveal ambiguity
in apparently plain language." See P. W. Hogg and J. E. Magee, Principles
of Canadian Income Tax Law (4th ed. 2002), at p. 563. In order to reveal
and resolve any latent ambiguities in the meaning of provisions of the Income
Tax Act, the courts must undertake a unified textual, contextual and
purposive approach to statutory interpretation. [My emphasis]
[38] It is for this reason that the
Supreme Court of Canada had concluded in a previous paragraph (paragraph 10),
on which the Appellants relied, by saying that:
The
relative effects of ordinary meaning, context and purpose on the interpretive
process may vary, but in all cases the court must seek to read the provisions
of an Act as a harmonious whole.
[39] In Canada 3000 Inc. (Re),
2006 SCC 24, [2006] 1 S.C.R. 865, Justice Binnie, writing for the Court, had to
determine if the word “owner” as used and defined in the Civil Air
Navigation Services Commercialization Act, S.C. 1996, c.20, included the
legal titleholder. It was evident that the ordinary and grammatical meaning of
the word would include it. Still, the learned Judge noted at paragraph 45 that
“it is necessary to suspend judgment on the precise scope of the word ‘owner’
in section 55(1) and first to examine the ‘contextual’ elements of the Drieger
approach”. In the end, he gave more weight to these elements and concluded that
this term did not include the legal titleholder.
[40] As noted by Ruth Sullivan in Sullivan
on the Construction of Statutes, 5th edition (Markham, Ont.: LexisNexis,
2008) at page 21:
Texts are not either plain or
ambiguous; rather they are more or less plain and more or less ambiguous. The
factors that justify outcomes in statutory interpretation are multiple,
involving inferences about meaning and intention derived from the text,
non-textual evidence of legislative intent, specialized knowledge, common sense
and legal norms. These factors interact in complex ways. It is never enough to
say the words made me do it.
[41] In the present case, the Judge
was very prudent in his use of the so-called external aids. With respect to the
schedule containing the Hamburg Rules, which rules are not yet in force
in Canada, he noted at paragraph 75:
[…] the Court cannot rely on the
remainder of the Hamburg Rules, which are external to the Act to
interpret section 46, nor can it ignore the fact that the wording of section 46
is taken directly from article 21 of the Hamburg Rules.
[42] The Judge said nothing
new with respect to the purpose and origin of section 46, as this was canvassed
in details in an earlier decision of this Court in
Magic Sportswear Corp. v. Mathilde Maersk (The), 2006 FCA
284, [2007] 2 F.C.R. 733 (Magic Sportswear), at paragraphs 56-66.
[43] Furthermore, the Judge’s comments
under the headings of “Scheme of the Act” and “Object of the Act” indicate that
he correctly understood that a Court must consider all evidence, direct and
indirect, in respect of the purpose of the Act and the provision under
review, as well as the legal context in which it was adopted, which includes
the mischief to be addressed. In my view, all the elements considered by the Judge
were admissible, and the final construction depends on the weight given to all
of them. This is where the Judge parted view with the Prothonotary, who gave
predominant weight to the ordinary meaning of the words in subsection 46(1),
whereas the Judge believed that this was not determinative in this case.
[44] I am not convinced that the Judge
gave undue weight to the elements before him. In any event, I will now explain
why I would reach the same conclusion, even assuming without deciding that, as
argued by Fednav, section 46 is not a transitional measure.
(i) Legal context
[45] Part V of the Act which
incorporates section 46 essentially reproduced the 1993 statute giving effect
in stages to two international conventions not ratified by Canada. Thus, as part of the legal context, it is worth considering how these conventions, which
will be simply referred to as the Hague-Visby Rules and the Hamburg
Rules, came about, what they covered, and what mischief they were meant to
address.
[46] As noted in Maritime Law
by Edgar Gold C.M., Aldo Chircop Q.C. & Hugh M. Kindred (Toronto: Irwin
Law, 2003) at pages 433-434, in the 19th century, common ocean carriers were
treated virtually as insurers of the goods they carried. This led to the
inclusion of very wide exclusions of liability clauses in the bills of lading
issued by such carriers. Under the near-sacrosanct application of the “freedom
to contract” principle at that time, these provisions were enforced by the
Court even if these contracts were “contracts of adhesion” for the most part.
Clauses of the bills of lading were essentially boilerplate, and were dictated
by the carriers.
[47] After an unsuccessful attempt at
creating a more balanced international regime, a number of States, such as the
United States (in 1893), Australia (in 1904), New Zealand (in 1908), and Canada
(in 1910), adopted what might be considered the first consumer protection
legislation regulating the rights and obligations of ocean carriers under bills
of lading, albeit in the commercial world.
[48] As noted by the learned authors,
“It soon became clear that a proliferation of national legislation imposing
different rules on merchant ships, which, by the nature of their business, call
in many different countries, would cause legal confusion and inhibit trade” (Ibid.
at page 433).
[49] Thus, shortly after the Comité
Maritime International (CMI) was founded in 1897, efforts were made to
establish an international uniform set of rules dealing with the rights and
obligations of carriers under contracts of carriage of goods evidenced by bills
of lading used by common carriers. This resulted in the so-called Hague
Rules of 1924, which convention came into force in 1931. Those rules were
widely adopted throughout the world. Canada incorporated them in its domestic
legislation in 1936.
[50] Updating and revising the Hague
Rules became necessary because of various technological developments in the
shipping trade including, for example, the use of containers. The Hague-Visby
Rules were adopted in 1968.
[51] Then, in the mid-1970s, The
United Nations Commission on International Trade Law (UNCITRAL) became
interested in this topic for the first time and undertook to create a new
convention dealing with carriage of goods by sea. This resulted in the Hamburg
Rules of 1978. These rules were meant to also apply to new types of sea
carriage documents used by common carriers – for example the sea waybill, which
had different characteristics than the traditional bills of lading. These rules
provided, among other things, for higher limits of liability than the Hague-Visby
Rules and fewer excepted perils. They also applied to carriage from as well
as to a Contracting State, and included for the first time, detailed provisions
dealing with jurisdiction and arbitration clauses (articles 21 and 22).
[52] As noted in Maritime Law (Ibid.
at page 434), “About two dozen states, few of whom are significant maritime
trading nations, apply the Hamburg Rules. The rest of the world operates
under the Hague Rules or the Hague-Visby Rules or some
variants of them.” Since the date of publication of this book, five more
countries implemented the Hamburg Rules. None are significant maritime
trading nations.
[53] In 1991, Australia adopted a two-step approach giving immediate effect to the Hague-Visby Rules
(Schedule 1 to the Australian Act) with some amendments. For example, like the Hamburg
Rules, the Australian rules were meant to apply to other “sea carriage
documents”, such as sea waybills, consignment notes and other non-negotiable
documents. The Hamburg Rules were included in a second schedule which
ultimately never came into force. In effect, the Australian statute provided a
maximum period of 10 years during which the Schedule containing the Hamburg
Rules could be proclaimed in force.
[54] In 1993, Canada adopted a similar approach with a new Carriage of Goods by Water Act (1993 c. 21,
repealed), which extended the application of the Hague-Visby Rules to
domestic shipments. The Carriage of Goods by Water Act also extended
their application to shipments from countries that implemented the Hague-Visby
Rules, even if, like Canada, they were not Contracting States within the
meaning of that convention.
[55] In 2001, the Act was
adopted to consolidate all Canadian legislation dealing with marine liability.
Part V of the Act replaced the 1993 Carriage of Goods by Water Act.
More will be said later in relation to section 46, the only new provision in
Part V.
[56] To complete this history, it is
worth noting that the so-called Rotterdam Rules were adopted in 2008.
These rules cover more subject-matter than any of the previous rules discussed
above, and are meant to apply to all the contracts of carriage of goods covered
by the Hamburg Rules, including for the first time any such contract concluded
solely through electronic communication. These rules have yet to come into
force, although the United States, France, Spain, Sweden, Norway and the Netherlands are among the 24 signatories of the convention.
[57] It is important to note that none
of the international regimes discussed above regulate the rights and
obligations of parties to a charter-party. They all specifically mention that
the rules will essentially only come into play when a distinct contract for the
carriage of goods exists or “springs to life”, for example through the
endorsement of a bill of lading between a carrier and a person who is not a
party to a charter-party.
[58] At this stage, it is useful to
describe the different types of charter-parties that are used, and explain why
these contracts were not regulated like the contracts for carriage covered by
the various international regimes.
[59] Charter-parties are normally
described as contracts of hire of a ship. In French they are referred to as “contrats
d’affrètement” (See William Tetley, Marine Cargo Claims 4th
edition (Cowansville, Quebec: Editions Yvon Blais, 2008) at page 350, note 24).
There are three main types of charter-parties.
(i) the bareboat or
demise charter, which provides for the hire of an unmanned ship;
(ii) the time
charter-parties, which are contracts for the hire of a fully manned ship for a
specific duration. These include the more recent type of time charter, referred
to as a slot-charter, where for example a carrier will hire from a competitor
specific space or a slot (containership) for a specific time period;
(iii)
the voyage
charter-parties, which are used to hire a specific ship or type of ships for
one or more voyages.
[60] As pointed out by John Wilson in Carriage
of Good by Sea 6th edition (Essex: Pearson Education Limited, 2008) at page
3, it is common knowledge that:
A
charter-party is a contract which is negotiated in a free market, subject only
to the laws of supply and demand. While the relative bargaining strengths of
the parties will depend on the current state of the market, shipowner and
charterer are otherwise able to negotiate their own terms free from any
statutory interference. In practice, however, they will invariably select a
standard form of charter-party as the basis of their agreement, to which they
will probably attach additional clauses to suit their own requirements. These
standard forms have a variety of origins. Some have developed over a number of
years in association with a particular trade, such as grain, coal or ore, while
others have been designed by individual firms with a monopoly in a particular
field, such as the transport of oil. A considerable number which have appeared
during the past century, however, are the products of the documentary
committees of such bodies as the United Kingdom Chamber of Shipping, the Baltic
and International Maritime Conference and the Japanese Shipping Exchange, on
many of which both shipowner and charterer interests are represented.
The
existence of these standard forms is of considerable advantage in international
trade where the parties may be domiciled in different countries and their
negotiations hampered by language problems. In such circumstances, parties
conversant with the terms of a standard form are unlikely to be caught by an
unusual or unexpectedly onerous clause, and accordingly can concentrate their
attention on the essential terms covering such matters as freight, laytime and
demurrage rates.
[61] One can readily see that the
imbalance in the bargaining power that is the mischief that led to the
development of the various international regimes discussed above did not exist
in relation to charter-parties. The liner trade (common carriers operating
regular services in certain areas, using the sea carriage documents covered by
the various international regimes) is simply quite different from the tramp
trade (chartered vessels). There was thus no policy to restrict the freedom to
contract of parties to such agreements.
(ii) Arbitration and
jurisdiction
[62] The traditional mode of settling
charter-party disputes has been arbitration. This is based on the belief of the
parties that these disputes require technical and specialized knowledge that
experienced arbitrators possess. In fact, many arbitrators specialize in
certain types of charter-parties for certain types of cargos, e.g. oil. The
arbitral case law is important. However, it is not commonly available because
most arbitration awards are private.
[63] In the 1970s, one could often
find jurisdictional clauses and even some arbitration clauses in bills of
lading. This raised the question of whether such clauses were contrary to
Article III (8) of the Hague Rules or Hague-Visby Rules
which prohibit any clause lessening the carrier’s liability. At the time,
national laws were not uniform as to how they dealt with such jurisdiction
clauses. For example, the validity of such clauses was controversial even in
the United States. In fact, it is only in the 1990s that the debate ended with
two decisions of the U.S. Supreme Court in Carnival Cruise Lines Inc. v.
Shute, 499 U.S. 85 (1991), 1991 A.M.C. 1697 (jurisdiction clause), and in Vimar
Seguros Y Reaseguros S.A. v. The MV Sky Reefer, 515 U.S. 528 (1995), 1995
A. M. C. 1817 (arbitration clause) recognizing the enforceability of such
clauses in bills of lading.
[64] Furthermore, the cost of
enforcing small cargo claims outside of one’s jurisdiction was seen as unfair
by many delegations at UNCITRAL, especially when the carrier imposed a forum
that had no relation to the carriage performed (for example, a clause giving
jurisdiction to courts in London, England, in a bill of lading covering a
voyage from the United States to Africa). This is what led to the adoption of
articles 21 and 22 of the Hamburg Rules.
[65] In some countries that did not
generally embrace the Hamburg Rules, legislators chose to incorporate
into their domestic legislation implementing the other international regimes,
provisions similar to articles 21 and 22 of the Hamburg Rules. These
countries include South Africa (1986), Australia (1991), New Zealand (1994) and the Scandinavian countries (Norway, Finland, Denmark and Sweden) (1994).
[66] At first glance, subsection 46(1)
appears to be the Canadian response to the mischief which led to the adoption
of articles 21 and 22 of the Hamburg Rules and to the national
provisions referred to above. This view is somewhat corroborated by what one
finds in the Legislative Summary cited by the Judge at paragraphs 82 and 83 of
his reasons. More particularly, in respect of section 46, one can read at
paragraph 83 of the reasons that:
According
to departmental sources, the fact that Hague-Visby Rules, unlike the Hamburg
Rules, contain no jurisdiction clause has given rise to some problems where the
inclusion of foreign jurisdiction clauses in bills of lading, has prevented
adjudication or arbitration of any dispute in Canada. Accordingly, an amendment
is needed to confirm Canadian jurisdiction in situations where a bill of lading
stipulates that disputes must be submitted to foreign Courts.
[67] In Marine Cargo Claims,
above, at pages 1424-1425, William Tetley notes that the Canadian provision is
less restrictive than most of the provisions adopted in other countries, for it
does not prohibit the ousting of the Canadian jurisdiction. Section 46 only
gives an option to the claimant to arbitrate or litigate in Canada in certain circumstances. The learned author adds that “[t]his solution seems fair and
reasonable pending Canada’s possible eventual transition from the Hague-Visby
Rules to the Hamburg Rules.”
[68] Quite apart from the above
mentioned developments, arbitration has become a favourite method of settling
international commercial disputes, generally. This led to the adoption of
various international instruments. As noted earlier, in the mid-1980s, Canada adopted the United Nations Foreign Arbitral Awards Convention Act, R.S.C.
1985, c. 16 (2nd Supp.) (the New York Convention Act), and the Commercial
Arbitration Act, R.S.C., 1985, c. 17 (2nd Supp.).
[69] Pursuant to article 8(1) of the Commercial
Arbitration Code, included as an Annex to the Commercial Arbitration Act,
Canadian Courts “shall” stay proceedings in the presence of a valid and
enforceable arbitration clause. Obviously, when section 46 of the Act
applies, the arbitration clause is not enforceable in Canada (See article 1(3) of the Commercial Arbitration Code).
[70] Nevertheless, the Court should be
prudent in construing subsection 46(1), as one should not too readily assume
that Parliament has limited the effect of arbitration clauses in respect of
disputes that have traditionally been the subject of arbitration, like charter-party
disputes.
(iii) Scheme of the Act
[71] The Act itself says
nothing about its purpose and object. I have already referred to the
Legislative Summary cited by the Judge. I will only note that it confirms that
the Act sought to consolidate existing marine liability regimes (Fatal
Accidents; Limitation of Liability for Maritime Claims; Liability for Carriage
of Goods by Water; Liability and Compensation for Pollution Damage) into a
single piece of legislation. The specific passage regarding the purpose and
object of section 46 was discussed earlier (also see Magic Sportswear,
aboveat
paragraphs 56-66).
[72] There is no definition of
“contract for the carriage of goods” in part V. This expression is used in
sections 43, 45 and 46. After defining the “Hague-Visby Rules” and the “Hamburg
Rules”, section 43 gives the Hague-Visby Rules force of law in Canada in
respect of contracts for the carriage of goods by water between different
states, as described in article X of the said Rules, reproduced in Schedule 1
to the Act. This applies until the entry into force of section 45
(subsection 43(4) of the Act). This means that they will apply to all
contracts for the carriage of goods evidenced by a bill of lading issued in a
Contracting State, or to any carriage from a Contracting State (port of
loading), or to a contract evidenced by a bill of lading that incorporates them
. Section 43(2) extends the reach of the Hague-Visby Rules to apply to
domestic carriages unless there is no bill of lading issued and the contract
stipulates that the rules do not apply.
[73] For the purpose of applying
subsection 43(1), subsection 43(3) provides that the expression “Contracting
States” will include States which, like Canada, implemented the Hague-Visby
Rules in their domestic legislation without becoming a party to the
convention.
[74] Section 44 indicates that the
Minister will report to Parliament every five years on whether the Hague-Visby
Rules should be replaced by the Hamburg Rules. The last report was
issued in 2009 and it recommended against the implementation of the Hamburg
Rules because of the low percentage of Canadian trade to countries that had
implemented them.
[75] Section 45, which is not yet in
force, also refers to contracts for the carriage of goods by water between
different states as described in article 2 of the Hamburg Rules. As
mentioned earlier, the said rules have a wider application given that they will
apply to various non-negotiable documents such as sea waybills issued in the Contracting State or to carriage to or from a Contracting State. Again, once in force, the Hamburg
Rules will also apply to domestic carriage, unless the contract stipulates
that the rules will not apply. One notes that there is no reference to bills of
lading in subsection 45(2) because the contracts of carriage to which the rules
can apply are broader and include documents such as sea waybills. Subsection
45(3) is meant to mirror subsection 43(3).
[76] We then come to subsection 46(1)
which, as mentioned, starts with the words:
If
a contract for the carriage of goods by water to which the Hamburg Rules
do not apply…
[77] As acknowledged by the Judge at
paragraph 72 of his reasons, the ordinary (more accurately, the dictionary
meaning) of “carriage of goods by water” could include charter-parties because
all such contracts are ultimately entered into in order “to convey goods” by
water.
[78] That said, in the context of
legislation dealing with the rights and obligations of common carriers and
which implements international rules, I am satisfied that this expression would
not and should not be understood to include charter-parties.
[79] This legal conclusion
is consistent with commercial reality. Charter-parties are contracts between
commercial entities dealing directly with each other, whose execution and
enforcement are the private concern of the contracting parties. There is no
policy reason why such actors should not be held to their bargains.
[80] To reiterate, considering the
general purpose of part V and the mischief that section 46 was meant to cure
(that is, boilerplate jurisdiction and arbitration clauses dictated by carriers
to the detriment of Canadian importers or exporters who became parties to such
contracts), and the different commercial reality that lead to the conclusion of
charter-parties, the Judge’s conclusion that the voyage charter-party under
review is not covered by subsection 46(1) is correct.
(iv) The LOI
[81] Fednav argues that its third
party proceeding against Cosipa is based at least in part (corrosion damage) on
the LOI, which, contrary to the Judge’s and the Prothonotary’s finding, is a
stand-alone contract that is not subject to the arbitration clause in the
voyage charter-party. In its view, the Judge misconstrued the evidence in that
respect.
[82] As mentioned, Fednav as a party
to the voyage charter-party is bound to arbitrate all its disputes (certainly
those based on clause 5(a)) with Cosipa in any event. The issue here is
therefore whether Cosipa’s undertaking in the LOI, if construed to include an
indemnity to Fednav itself, is also subject to the arbitration clause as a
dispute under the charter-party.
[83] The Judge’s conclusion that the
LOI was an amendment to the charter-party with Fednav is logical and amply
supported by the evidence before him. I have not been convinced that he made a
palpable and overriding error that would justify this Court’s intervention.
[84]
Fednav is
thus bound by its agreement to arbitrate these disputes with Cosipa in New York.
Is Cosipa entitled to a stay of proceedings of the
third party claim brought against it by Canada Moon?
[85] As mentioned, the third party
proceedings of Canada Moon are also based on clause 5(a) of the voyage
charter-party incorporated as a term of the bills of lading in respect of any
damage caused during the operations performed by Cosipa in Brazil and on the LOI
in respect of damage, if any, resulting from the use of plastic canvas covers
on the cargo.
[86] In the commercial
context, arbitration is a consensual dispute resolution forum. Therefore, in
order to force Canada Moon to arbitrate its claim against it, Cosipa must be
able to show that Canada Moon either actually or constructively agreed to
arbitration.
[87] The arbitration clause
which forms part of the terms of the bill of lading is an example of a
constructive agreement to arbitrate since, in the absence of legislative
intervention, it would bind Canada Moon. But Cosipa cannot rely on that
agreement to arbitrate as it is caught by subsection 46(1) of the Act.
In fact, before us, Cosipa took the position that it was not a party to the
contract evidenced by the bills of lading.
[88] Nor, on the face of
it, can Cosipa rely on the arbitration clause in the charter-party since Canada
Moon is not a party to that agreement. At law, incorporating the terms of a
distinct contract to which one is not a party – the voyage charter-party –
could not have the effect of making Canada Moon a party to that contract.
[89] Canada Moon argues
that the Judge’s mistaken belief that it was a party to the charter-party
through the incorporation in bills of lading necessarily impacted on his conclusion
that the LOI was not a stand alone contract at least insofar as it was
concerned
[90] Canada Moon argues
that Cosipa’s undertaking to indemnify it was a free standing agreement
containing no arbitration clause. As regards Canada Moon, a free standing
agreement to indemnify, without any reference to arbitration would not
constitute an agreement, actual or constructive, on Canada Moon’s part to
arbitrate any disputes with respect to that indemnity. It would be free to
pursue its claim for indemnity in the third party proceedings
[91] At the time the LOI was
negotiated and issued, there was no legal relationship whatsoever between
Cosipa and Canada Moon. The cargo had not been accepted by the Master. No bills
of lading had been issued.
[92] The Judge accepted that Fednav
Limited was acting on behalf of two principals (Fednav and Canada Moon) when it
negotiated the LOI. If one considers that the letter addressed to Fednav
Limited as agent was addressed to its two distinct principals, one of which,
contrary to the Judge’s finding at paragraph 59, was not a party to the
charter-party, it would be logical to conclude that the LOI was indeed a stand
alone contract in respect of Canada Moon. This even if one concluded that in so
far as Fednav was concerned the LOI was an amendment to their existing contract
with Cosipa.
[93] All the elements of a stand alone
contract are present including consideration that is Canada Moon‘s acceptance
of the cargo as packaged.
[94] Cosipa argues that
regardless of the Judge’s erroneous conclusion at paragraph 59 that all the
players were parties to the charter-party, his finding that the LOI was an
amendment to the charter-party can still stand on the basis that Fednav and
Cosipa can include in their contract a term for the benefit of a third party,
in this case, the ship owner Canada Moon.
[95] The enforceability of
contractual terms for the benefit of a third party raises the problem of
privity of contracts. In the ordinary course, Canada Moon, as a stranger to the
contract could not claim the benefit of the charter-party nor be subject to its
obligations. However, the law has developed to include principled exceptions to
the doctrine of privity (London Drugs Ltd. v. Kuehne
& Nagel International Ltd., [1992] 3 S.C.R. 299, and Fraser River Pile & Dredge Ltd v. Can-Dive Services Ltd., [1999] 3 S.C.R. 308 (Fraser River).
[96] There is little reason
for the law to restrict those who, by agreement, wish to confer a benefit on a
person who is a stranger to their agreement. However, the question of privity
has a different cast when parties seek, by their agreement, to impose an
obligation upon a stranger. The law has little interest, outside the law of
tort, in imposing obligations on those who have not agreed to them. In this case, Cosipa seeks to
impose on Canada Moon an obligation which it did not otherwise have when the
LOI was issued.
[97] If one considers that as is now
proposed by Cosipa, the LOI was simply an amendment to the charter-party which
contained a term for the benefit of Canada Moon, it seems to me that the proper
question is whether the benefit conferred on the latter was a qualified benefit
in the sense that the indemnity could only be invoked through arbitration
proceedings. If that is the true meaning of the amended charter-party, then by
invoking the indemnity which the parties offered it, Canada Moon agreed to
submit that question to arbitration.
[98] On a proper
interpretation of the amended charter-party, did the parties confer a qualified
benefit on Canada Moon? That question is one which must be resolved by an
examination of the terms of the LOI and the charter-party as well as the
surrounding circumstances at the relevant time.
[99] Cosipa relied on two
cases involving the so called Himalaya clause to say that Canada Moon is
necessarily bound by the arbitration clause. I find that the present situation
is distinguishable on its facts. The text of the LOI is far-removed from the
more elaborate language found in the Himalaya clauses commonly included in the
standard printed clauses of bills of lading.
[100] All concerned knew that the cargo
was destined for Canada. If the Master balked at Cosipa’s method of packaging,
it can only be because it wished to avoid damage claims from the Canadian
consignee. It would hardly suit Canada Moon to have to arbitrate its claim for
indemnity in New York while it was being sued in Canada. While the relevant
intentions are those of Cosipa and Fednav as parties to the charter-party, and
not of Canada Moon, in order to be acceptable to Canada Moon, the LOI would
have to be responsive to its concerns. Since Canada Moon accepted the LOI, one
can presume that it understood it to address its concerns.
[101] In this context, the absence of a
reference to the arbitration clause in the LOI is a significant indicator of
the intention of the parties. I contrast the omission of a reference to the
arbitration clause in the LOI to the inclusion of that clause in the bills of
lading issued to Cosipa. I also note that the arbitration clause itself does
not lend itself well to being invoked by a third party.
[102] In my view, the
parties were alive to the circumstances in which the indemnity would be of
value to Canada Moon and drafted the LOI accordingly. It is not necessary to
make the indemnity subject to the arbitration clause in order to give it
commercial efficacy. The opposite is more likely to be the case.
[103] In the end, even if one accepts
that the LOI was an amendment to the charter-party, in my view, on a proper
construction, the amended charter-party does not require Canada Moon to pursue
the benefit of indemnity in arbitration proceedings. It is not a qualified
benefit.
[104] In the circumstances,
in my view, the Judge’s error (paragraph 59, third bullet) impacted on his
ultimate conclusion with respect to Canada Moon. Cosipa has not met its burden
of establishing that Canada Moon was bound to arbitrate the third party
proceeding dispute.
[105] It is not necessary to deal with
the other arguments raised by Canada Moon. Particularly, whether there are good
reasons to conclude here that the prima facie rule that a bill of lading
is not evidence of a distinct contract of carriage in the hands of a
voyage-charterer should not be applied (The President of India v.
Metcalfe Shipping Co.
Ltd., [1970] 1 Q.B. 289, [1969] 3 All E.R. 1549 (C.A.); Rodoconachi, Sons & Co v. Milburn Brothers (1887), 18 Q.B.D. 67, 56
L.J.Q.B. 202 (C.A.)).
If the answer is no in either case, is Canada forum non conveniens for the third party claim?
[106] Because he
ordered the stay of the third party claim, the Judge did not deal with the
question of forum non conveniens. However, the Prothonotary found that Canada was not forum non conveniens for the hearing of the third party claim. As
noted above, the Prothonotary considered each of the factors enumerated in Spar
Aerospace and, having carefully weighed them all, he found that they did
not displace Canada Moon’s presumptive right to choose its forum.
[107] Since Spar Aerospace, the
Supreme Court has considered the question of forum non conveniens in two
recent cases: Club Resorts Ltd v. Van Breda, 2012 SCC 17, and Breeden
v. Black, 2012 SCC 19. In both of those cases, the Supreme Court cautioned
against giving the factor of juridical advantage too much weight in the forum
non conveniens analysis.
[108] Bearing in mind such caution, I still
essentially agree with the Prothonotary’s assessment of the relevant factors.
Cosipa has not convinced me that this Court should exercise its discretion to
stay the third party proceedings in favour of proceedings in Brazil.
CONCLUSION
[109] On the basis of the foregoing
analysis I find that Cosipa is entitled to a stay of the third party claim
against it insofar as that claim is advanced by Fednav. On the other hand, I
find that Cosipa is not entitled to a stay of the third party claim advanced by
Canada Moon. In addition, I find that the allegation that Canada is forum non conveniens has not been made out.
[110] In the result, I
would allow the appeal. I would set aside the orders of the Federal Court dated
March 10, 2011 and September 12, 2011. I would grant Cosipa’s motion for a stay
of the third party claim as regards Fednav but dismiss it as regards Canada
Moon. I would grant Cosipa its costs throughout.
“Johanne Gauthier”
“I
agree
J.D.
Denis Pelletier J.A.”
“I
agree
Robert
M. Mainville J.A.”
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