Her Majesty the Queen v. Cerescorp Inc, [1985] 1 CTC 276

Joyal, J:—This is an action for payment of moneys due and owing to the Crown by the defendant on the duties and sales tax assessed under the Customs Tariff* and the Excise Tax Actf The trial of the action was held in Montreal on December 6, 1984.

Before dealing with the procedural and substantive elements of this conflict, I should perhaps recite its history.

The defendant, Cerescorp Inc, is engaged in the business of loading and unloading marine cargo. It has been in this business for many years. It has promoted or reacted to increasingly sophisticated techniques for the loading and unloading of ships’ cargoes. In the competitive market between shipping companies and between stevedoring companies, the defendant has had to innovate in one sense and respond to customers’ needs on the other.

In pursuing its objects and purposes, the defendant in 1978 got word that Atlantic Container Lines (hereinafter referred to as ACL) wished to extend and improve its loading and unloading facilities in the port of Montreal. ACL was engaged at that time in providing regular or scheduled service between Europe and Canada for the carriage of freight. ACL had adopted both the “container” and “roll-on/roll-off techniques in the carriage of cargo and in the design of its cargo ships, the whole to provide a more cost-effective and more expeditious loading or unloading of ships. It is a fact that time for loading and unloading is of the essence to a carrier. Turn-around time, like down time in other industries, is an important cost factor to which management and staff continuously bend their collective minds.

It was in the summer of 1978 that the defendant offered its services to ACL and proposed the installation of a new container and roll-on/roll-off terminal in Montreal. ACL’s requirements, disclosed to the defendant at that time, imposed on the defendant the elaboration of a project involving land, equipment, ramps and other facilities. It was necessary for the defendant to submit a proposal to ACL, the details of which would be responsive to ACL’s needs and exigencies, would be cost effective and would provide it with competitive prices.

Responding to ACL’s requirements imposed on the defendant substantial capital commitments. The defendant had to acquire extensive land for the storage of

*RSC 1970, c C-41.

1 RSC 1970, c E-13.

large containers both inbound and outbound. It had to plan ramps for the handling of roll-on/roll-off cargo. It had to provide large and heavy mobile equipment of the fork-lift variety for the loading and unloading of containers to accommodate other transportation modes like flat-bed trucks and railway cars.

The defendant approached the port of Montreal authorities. It found it could lease undeveloped terminal facilities in an area of the port of Montreal called Section 66. The defendant started to put its project together, determining its sources of supply and costing the many items of expenditure which would be involved.

Included in the defendant’s package to ACL was the proposal to provide ACL with a state-of-the-art crane or gantry for the loading and unloading of container-type cargo. To comply with design and performance criteria imposed by ACL, the defendant had to install a rail-moveable crane having an outreach of some ninety feet, a back-reach of over 200 feet and a clear height of some ninety feet under its spreaders or legs. To appreciate the scale of this modified Eiffel Tower on wheels, one merely looks at its price which is in the neighbourhood of $1.8 million.

In the late summer and early fall of 1978, the defendant looked for a source of supply for its giant crane. It contacted its parent in Chicago who in turn inquired as to its availability in the United States. It contacted Dominion Bridge but with no success. The defendant was not particularly concerned with obtaining a new crane or a used crane so long as the crane conformed to ACL’s specifications. In due course, the defendant found that the equipment was unavailable in either the eastern United States or eastern Canada.

Finally, in late October or early November 1978, the defendant found what it wanted. It was a Liebherr-design crane, otherwise known as a Tango crane, which could be purchased from a company called Sea Containers Atlantic Ltd whose facilities were located near a small harbour in south-west Eire called Fenit. The price was right and the projected delivery date of the equipment was in keeping with the projected lead time which the defendant required. The projected delivery date was December 15, 1978.

The defendant then inquired as to the transportation of the crane from Fenit to Canada. It approached several shipping companies. It first approached its own new customer, ACL. This company controlled east-bound cargoes only. It had to contact Southampton, UK which controlled west-bound cargoes. ACL said it couldn’t do it.

The defendant got in touch with CP Ships, one of the few carriers on regular service between Europe and Montreal during the winter months. CP Ships was not interested. The defendant then contacted Manchester Lines, Polish Lines and Soviet Lines. The latter company showed interest in picking up the cargo in Eire on its way to Montreal, but later desisted when, upon further investigation, it found out that the water depth in the small port of Fenit could not handle its ships. Manchester Lines and Polish Lines also gave negative answers.

Finally, the defendant negotiated with Cast Shipping. Cast Shipping operated a regular service between Europe and Canada, some four ships providing collectively a weekly service between the two. Unlike ACL, however, which had a base in Southampton, UK, Cast’s European base was in Antwerp, Belgium. It was required, therefore, that Cast load the crane in its several parts at the small port of Fenit, Eire, on board a small feeder Cast vessel, ship the crane to Antwerp and from there, tranship it on one of its larger ships for the eventual scheduled run to Montreal.

In the meantime, the usual delays had been experienced by the crane fabricator, Sea Containers. It advised the defendant that the crane would not be free on board at Fenit before January 15, 1979. The goods finally arrived in the port of Montreal on February 20, 1979. Because of damage to some pieces of the electronic equipment contained in the cargo, it was not before March 29, 1979 that the equipment cleared customs in Montreal.

At customs, the defendant disclosed a value of $1.8 million. That value for duty was not in dispute. The crane and its several parts were classified under Tariff Item 42700-1 of the Customs Tariff. There was no dispute on this either. Where there developed a dispute between plaintiff and the Crown [sic], it was in respect of the duty applicable under Tariff item 42700-1.

The goods being imported originated in Eire where the treatment is under the British Preferential Tariff at 2/2 per cent. This was the percentage the defendant was willing to pay. The Crown, however, contended that that tariff only applied when the goods left a British preferential port of origin and moved directly to Canada. In the case at hand, the goods had been transhipped at Antwerp, Belgium, and that country enjoys only Most-Favoured-Nation treatment at 15 per cent. As is readily seen, the spread between 2/2 per cent and 15 per cent on $1.8 million is considerable. Under a British Preferential Tariff, customs duties at 2/2 per cent, to which must be added, under the Excise Tax Act, an excise tax of 9 per cent, make a total of $211,050. At the Most-Favoured-Nation rate, the total soars to $456,300.

The case for the Crown is founded on statute. The statute is the Customs Tariff. The charging section in that statute is subsection 3(1) which reads as follows:

3. (1) Subject to this Act and the Customs Act, there shall be levied, collected and paid upon all goods enumerated, or referred to as not enumerated, in Schedule A, when such goods are imported into Canada or taken out of warehouse for consumption therein, the several rates of duties of customs, if any, set opposite to each item respectively or charged on goods as not enumerated, in the column of the tariff applicable to the goods, subject to the conditions specified in this section.

Subsection 3(2) provides that:

3. (2) Subject to any other provision of this Act, the rates of customs duties, if any, set forth in column (1), “British Preferential Tariff’’, apply to goods the growth, produce or manufacture of the following British countries when conveyed without transhipment from a port of any British country enjoying the benefits of the British Preferential Tariff into a port of Canada:

This subsection then lists in excess of some 60 countries whose goods enjoy the benefits of the British Preferential Tariff. The Republic of Eire, or Ireland, is among them.

The condition that the conveyance of the goods be without transhipment is repeated in the concluding words of subsection 3(2) as follows:

goods entitled to the benefits of the British Preferential Tariff shall be accorded such benefits when such goods are shipped on a bill of lading consigned to a consignee in a specified port in Canada when such goods are transferred at a port in a British possession, and conveyed without further transhipment into a port of Canada.

Further in the statute, one finds some possible relief from the no transhipment or direct shipment requirement. This is found in subsection (3.1) of section 3 which provides that:

The Governor in Council may, by order,

(a) exempt goods . . . admitted to the benefits of the British Preferential Tariff . . . from the requirement that they be conveyed without transhipment

on such terms and conditions, if any, as are specified in the order.

The Governor in Council did pass such an order and the following is the text of it:

1. This Order may be cited as the Foreign Ports Transhipped Goods Remission Order.

2. Subject to section 3, remission is hereby granted of the customs duty and taxes on goods originating in countries enjoying the privileges of the British Preferential Tariff when those goods are not, as required by section 3 of the Customs Tariff, conveyed without transhipment into a port of Canada but, owing to circumstances beyond the control of the importer, are transhipped from a foreign port.

3. The remission is not payable unless satisfactory evidence is supplied to the Department of National Revenue, Customs and Excise to show that direct shipment was not possible.

4. The remission is [sic] each case shall be the difference between the duty and taxes properly payable under the British Preferential Tariff and those payable under the tariff that would apply to importations from the country in which the goods were transhipped.*

The defendant tried to bring itself within the terms of the above Order. It applied for remission. The Crown refused on the grounds that the condition for the granting of a remission had not been met. Subsequently, the Crown sued the defendant for recovery of that part of the customs duties and taxes remaining unpaid and based on the 15 per cent Most-Favoured-Nation rate.

I am indebted to both counsel for their able assistance to the Court in filing written submissions on the issues raised. The material they have filed is all the more useful as the parties were in agreement that the provision respecting the conditions of a Remission Order had never before been subject to judicial review. Neither party raised any issue respecting the jurisdiction of this Court to deal with the Crown’s money claim or with the defendant’s response to it in urging this Court to overturn the Crown’s refusal to grant remission.

Counsel for the Crown contended first of all that the provision of the Remission Order, being an exemption provision, must be strictly construed.f Counsel also argued that the Order imposes the condition of “direct shipment’’ from a British country meaning that the concept of direct shipment is not limited to a particular place or port within that country. It followed that if no direct shipment from Fenit to Canada was possible, there was any number of alternative means to get the equipment from Fenit to an alternate British port from which shipment to Canada was possible.

Counsel for the Crown further alleged that the notion of the shortest route possible is not present in the Remission Order. It would have been open to the defendant to arrange shipping along more circuitous lines, even if it meant longer time for delivery. The essence of the “no transhipment’’ condition did not preclude the defendant from having the equipment trucked to another port in Eire or in the United Kingdom as indeed, it was trucked some 15 or 20 miles from the fabricator’s shop in Fenit to dockside.

Counsel for the Crown conceded that in the circumstances of the case, the voyage from Fenit to Canada without transhipment might have been impracti-

* Financial Administration Act, CRC, Vol VII, c 767, p 4887.

+See Dame Mary Wylie v City of Montreal, 12 Can SCR 384.

cal, or inconvenient, but the impractical or inconvenient aspects of it are not “beyond the control of the importer” as that expression is found in the Order.

Counsel for the Crown further asserted that the burden of proof to bring the situation within the terms of the Order rested exclusively on the importer and that the defendant, in this case, had failed to discharge that onus. There was evidence obtained by the Crown through the office of the High Commissioner for Canada in the United Kingdom that shipment from a British Preferential Tariff port would have been possible. Even if this information was obtained well after the period material to this issue, it was not up to the Crown to prove conclusively that direct shipment was possible. It was up to the defendant to prove conclusively that it was not.

Defendant’s counsel, on the other hand, pleaded the “business test” approach to the interpretation of the Order. This would suggest that “circumstances beyond the control of the importer” or evidence showing that “direct shipment was not possible” must conform with business practicalities. It was open to the defendant, therefore, to decide that according to the business exigencies, the equipment had to be transported via Antwerp and that it would have been unbusinesslike to do otherwise. Reasonable effort to have the equipment shipped directly to Canada is all that is required by the terms of the Order.

By analogy, counsel for the defendant cited the decision in Crawford & Rowat v Wilson, Sons, & Co (1896), 1 Com Cas 277. In that case, the defendants had undertaken to deliver a cargo at Rio, “all unavoidable accidents or hindrances, in procuring, loading and/or discharging the cargo . . . excepted”. When the cargo arrived in Rio, a rebellion was in progress so that arrangements for unloading the cargo were and continued to be seriously disorganized. In exonerating the defendants on an action for demurrage, Lord Esher, MR said, at 280:

... In my opinion, if, by something happening at the port of discharge which the defendants could not possible avoid, they could not take delivery without doing something which it was wholly unreasonable that they should be called upon to do, they would be hindered, although by doing the unreasonable thing they might possibly have taken delivery. . ..

Similarly, at 284, Lopes, LJ is quoted as saying:

. . . The kind of delivery possible was not reasonable or recognized, and if the defendants had been compelled to resort to such a course, they would have been hindered within the meaning of the exceptions. . . .

In a United States decision (Supreme Court of Tennessee), Carolina Spruce Co v Black Mountain R Co,* [5] Williams, J, at 156, stated with respect to the term “prevented by weather conditions or other causes beyond its control” that:

. . . We are of opinion that the phrase comes nearer to being synonymous with “unavoidably prevented,’’ and that it can hardly be the equivalent of what is called the act of God; but it cannot mean less than that there must have interposed some hindrance which the railway company, as the actor party, could not foresee or overcome by the reasonable exercise of its powers and the use of the means and appliances that were, or in the exercise of commensurate care should have been, available. What is meant is that the happening must not have been occasioned in any degree by the want of such foresight, care, and skill as the law holds one in like circumstances bound to exercise. The words “beyond control’’ fairly imply a pledge to exercise human agencies to the point of excluding negligence under the above test, and if this be true human agencies are not excluded from consideration as factors.

In Chicago, etc, R Co v US, 194 Fed 342, 114 CCA 334, it was said in respect of the closely related phrase “unavoidable cause’’:

An . . . “unavoidable cause” . . . is a cause which reasonably prudent and cautious men under like circumstances do not and would not ordinarily anticipate and whose effects under similar circumstances they do not and would not ordinarily avoid.

With respect to the interpretation of the term “direct shipment was not possible”, counsel for the defendant quoted the case of Australian Dispatch Line (Inc) v Anglo-Canadian Shipping Co, Ltd, [1940] 2 WWR 266, where O’Halloran, J A affirmed, at 269, a statement of Maule, J [in Moss v Smith (1850), 9 CB 94, at 103, 19 LJCP 225, 137 ER 827]:

In matters of business a thing is said to be impossible when it is not practicable; and a thing is impracticable when it can only be done at an excessive or unreasonable cost.

On the issue of unforeseeable circumstances or of reasonable measures to prevent the event, counsel for the defendant urged me to find that the defendant could not have foreseen, at the time the purchase of the crane was made, that direct shipment would not be possible at the time the crane was ready for shipment. Every measure was taken to effect direct shipment. The impossibility faced by the defendant was a relative and not an absolute one and the element of relative impossibility was sufficient to discharge the onus upon it.

I was particularly impressed by the defendant’s counsel’s plea that the Remission Order conditions should be interpreted by reference to the “business” test. It would follow from this that the investigations and inquiries made by the defendant to have the equipment carried directly from Eire to Canada or transhipped to Canada from another United Kingdom port had been sufficiently thorough and complete as to bring the eventual carriage through Antwerp, Belgium, within the conditions expressed in the Order.

There seems to be little doubt that in contract cases, a “business test” may be applied when interpreting exception clauses to liberate a party to a contract from liability arising from late delivery or non-delivery of goods or services. The test of reasonableness, in many cases, is the business test in the sense that a businessman would regard a particular circumstance in the light of his business experience. Such an occupational approach to relieve a contracting party from liability or to exempt him from due performance will normally raise a number of considerations which have their root in the ways and means with which business relationships are conducted. In the light of such experiences, a Court will decide whether or not a breached condition is or is not capable of performance, due regard to all such circumstances.

Generally speaking, I should find little difficulty in applying a “business test” to the case at bar. Business experience is certainly one of the indicia among all the circumstances to be examined by a trier of facts in order to determine if the conditions of the Order, namely ‘‘ circumstances beyond the control of the importer”, or “direct shipment was not possible” have been met.

It comes out of the evidence that the defendant’s inquiries were substantially directed to shipping companies with regular sailings across the Atlantic Ocean. The weight or size of the equipment certainly did not warrant a special charter. Furthermore, it was important for the defendant to have the equipment loaded at Fenit as soon as possible after the equipment was ready for delivery. When the defendant finally contracted with Cast Shipping, it required the shipping company to load the equipment at Fenit aboard a smaller Cast feeder vessel, to sail from there to Antwerp, Belgium and from there, to have the equipment reloaded on a Cast vessel making the regular run between Antwerp and Montreal.

This evidence establishes that at least, loading aboard a ship in Fenit was possible. There is no evidence however as to whether or not the Cast feeder vessel could have detoured to Portsmouth, or Southampton or some other UK or Eire port in order to comply with the British Preferential Tariff rules. Neither is there any evidence as to attempts to find other means of getting the equipment to another British Preferential Tariff port by some other transportation mode prior to its ultimate Atlantic crossing to Canada.

In my view, the defendant has failed to discharge the onus imposed on him. The irony of it is that such failure is attributable to a “business test” approach.

As I view the evidence, the defendant made a business decision. The defendant, at some moment or other, during the relevant period, decided for purely business reasons that its equipment would be delivered to Canada via Antwerp. That was the defendant’s decision to make and it made it.

I find as a fact that the defendant was not compelled or impelled to do so by reason of the contract commitments respecting delivery imposed on the defendant by its customer, ACL. If time limits were imposed for the delivery and installation of the equipment, the time remaining for the defendant had not at the material time become critical. According to the contract, the defendant had until October 1979 to perform. By the time the equipment was ready for shipment from Fenit, the defendant had ample time left to arrange for transportation of its goods to Canada in such a manner as to enjoy the benefits of the British Preferential Tariff.

Concurrently, as will be noted later, the time constraints to take delivery of the equipment imposed on the defendant by virtue of its purchase contract with Sea Containers Atlantic Ltd were not critical.

In this respect, therefore, the defendant applies its own business test. It found it to its advantage to arrange for earlier delivery of the equipment. Although admittedly the defendant made several attempts through various shipping companies and agencies to get direct transportation to Canada, it seems clear from that evidence that the constraints it put on its inquiries were far greater than the constraints imposed on it by its contracts. The defendant not only wanted its equipment shipped, but wanted it shipped as soon as the equipment was ready for loading at Fenit.

The defendant, as I see it, decided that the earlier it could get the equipment to Canada and erect it on site, the earlier the equipment would become operational and the earlier the equipment would begin producing revenue.

There is also further evidence as to the motives for the defendant proceeding as it did. There is evidence that the defendant was very concerned with making good on its contract with its customer. It was a new contract involving a new customer. The defendant had contracted to take over the stevedoring duties from a previous company. I conclude that the defendant had to weigh the financial disadvantages of getting delivery through Antwerp against the financial returns of a more expeditious performance or the intangible returns in having a grateful and satisfied customer.

For such purposes, and perhaps for other purposes as well, the defendant narrowed considerably the scope of its inquiry. Its communications with various shipping lines, according to the evidence before me, were directed to the carriage of the equipment as soon as the equipment was ready for transport. There is evidence that it was extremely important for the defendant’s customer to get delivery of the crane as soon as possible. As mentioned earlier, the defendant was contemplating a winter voyage in January or February of 1979 limiting the choice or availability of carriers. Furthermore, inquiries were substantially limited to shipping companies running a regular or scheduled service across the North Atlantic. The evidence adduced by the defendant with respect to shipment in the latter part of the winter season or in early spring is either unsubstantial or vague. In my view, it falls short of the conclusive evidence the Order imposes on an importer in such circumstances.

I have read the agreement of December 8, 1978 between ACL and the defendant filed as Exhibit D-3. I have also read the terms of the agreement dated November 24, 1978 between Sea Containers Atlantic Ltd and the defendant filed as Exhibit D-4 respecting the sale of the Tango crane. It is clear from the provisions of these two agreements that it was in the interest of the defendant to get delivery of the crane at the earliest possible time. Early delivery narrowed the time frame within which the crane would begin producing revenue. Conversely, I fail to find in the purchase agreement with Sea Containers Atlantic Ltd such imperious conditions imposed on the defendant as would put it in financial jeopardy if some delay in taking possession were experienced. Indeed, as I read paragraph 5(f) of that agreement, a per diem penalty against the defendant for delays in effecting Handover (as that term is used in the agreement) did not begin to run until April 15, 1979.

A number of hypothetical instances were suggested to me during argument which might justify a Remission Order. It is difficult to establish general principles in this regard, but I daresay that to be brought within the provision of the Order, an importer must provide evidence that either the circumstances were in fact beyond his control or that direct shipment was in fact not possible. It seems to me a matter of evidence to be weighed by a court to determine in each particular case whether such a fact situation existed, either in absolute or in relative terms. One could conceive of the condition being met if during a voyage, a carrier might, without the prior knowledge of the importer, tranship the goods through a non-British Preferential Tariff port, or if the goods loaded at a British Preferential Tariff port should be rerouted to Boston because of strike action in Canadian ports. One might also agree that if the goods were imported from a land-locked British Preferential Tariff country, transhipment through some seaport or other would merit the granting of a Remission Order. One could also conceive that in dealing with perishable goods, delays in arranging direct shipment to Canada would, in the special circumstances of the case, bring the importer within the terms of the Order. Having found, however, that on the evidence before me the defendant has not discharged the burden imposed on it by the terms of the Order, I should venture no further in my hypotheses.

There will therefore be judgment for the Crown declaring that customs duties on the imported equipment are due and owing by the defendant on the basis of a Most-Favoured-Nation Tariff at 15 per cent. I would ask the parties to agree to and submit a draft formal judgment setting out the final calculations of all amounts due and owing by the defendant to the Crown. In the event of disagreement, either party may move in the usual way. I remain, of course, seized of the matter until the formal judgment has been signed.

As the terms of the Remission Order have not before been scrutinized by this Court, I believe it is proper that I should make no order as to costs.

Appeal allowed.