Mediterranean shipping Co. S.A. v. BPB Westroc Inc., 2003 FC 942

Date: 20030731

Docket: T-652-01

Citation: 2003 FC 942

Toronto, Ontario, July 31^st, 2003

Present:           Roger R. Lafrenière, Esquire

Prothonotary

BETWEEN:

                                      MEDITERRANEAN SHIPPING COMPANY S.A.

                                                                                                                                                          Plaintiff

                                                                                 and

                                                                BPB WESTROC INC

                                                                                                                                                      Defendant

                                      REASONS FOR JUDGMENT AND JUDGMENT

[1]                 Mediterranean Shipping Company S.A ("MSC"), the plaintiff carrier, seeks to recover from BPB Westroc Inc. ("Westroc"), the defendant shipper, the amount of $65,187.62 on account of freight for the carriage of Westroc's goods on three separate occasions, plus interest and its costs. Westroc concedes that the cargoes in question were theirs, that they were received by MSC, and that MSC carried them to the correct destination in proper condition. Westroc denies any liability, however, on the grounds that the freight has already been paid to J.T. Knight Export Services Inc. ("J.T. Knight"), a freight forwarder that Westroc understood had the authority to receive payment on MSC' s behalf.

[2]                 Any result reached in this case will necessarily be viewed as unjust by the losing party, particularly since neither party to this action has done other than what was generally expected; the carrier transported the goods as arranged by the freight forwarder, and the shipper paid the freight forwarder upon being invoiced. I am left with the unenviable task of deciding whether the shipper should, in the particular circumstances of this case, be made to pay twice, or whether the carrier will not be paid at all.

[3]                 The law generally supports carriers in their efforts to collect freight for the carriage of cargo from shippers where a freight forwarder who made the booking goes bankrupt after having been paid by the shipper. In recent decisions however, this Court has denied recovery to carriers based on equitable considerations. Therefore, as agreed by the parties, the two issues to be determined are: (1) whether MSC, by its conduct, induced Westroc to conclude that J.T. Knight was authorized to receive payment for the shipments; and (2) whether MSC is estopped from claiming the freight charges by reason of its knowledge of J.T. Knight's financial difficulties and its failure to so inform Westroc.

[4]                 The trial of the action was conducted in accordance with the simplified action procedure set out in Rule 299 of the Federal Court Rules, 1998, which requires that a party's evidence-in-chief be adduced by affidavit. The parties each filed one affidavit, namely the affidavit of Brian Kimber, president of MSC's Canadian agent, and the affidavit of Jim Brittain, principal of J.T. Knight. MSC also relied on the transcript of the examination for discovery of Westroc's representative, Keith Prew, who was responsible for giving instructions to the freight forwarder. Both deponents were cross-examined on their affidavits at trial. MSC elected to call a rebuttal witness, Jean Chouinard, following Mr. Brittain's cross-examination.

[5]                 I requisitioned a transcript of the evidence within a few weeks of the conclusion of the trial. Some time later, the court reporter, who had transcribed the proceedings by hand, reported that her notes had been misplaced following an office move, and that she could not locate them despite having conducted a diligent search. Counsel for the parties were informed of this development and were asked to provide their views on how best to proceed. After deliberation, the parties concluded that a re-trial would be too time-consuming and expensive. Therefore, they jointly requested that judgment issue, even though no written record of the testimony would be available in the event of an appeal.

[6]                 The facts set out below are based on the affidavits and exhibits filed by the parties, my personal notes, and my recollection of the testimony and demeanour of the witnesses. Although the facts were for the most part uncontested, there were some discrepancies in the evidence. Credibility findings therefore had to be made.

[7]             Mr. Kimber, who has been in the business of shipping for over 35 years, proved to be a very reliable witness. He related the events in a thorough and objective manner, and was not shaken in cross-examination. Moreover, his testimony was essentially corroborated by Mr. Prew , Mr. Brittain and Mr. Chouinard. As a result, I have placed great weight on Mr. Kimber's evidence.

[8]                 The same cannot be said about Mr. Brittain, the only witness called by Westroc. During his cross-examination, Mr. Brittain was evasive with respect to his true connection to J.T. Knight, and less than forthcoming regarding his dealings with Westroc. For example, Mr. Brittain stated that he was neither an owner nor a shareholder of J.T. Knight, but refused to say who was financing the company. In addition, he claimed that he could not recall who made banking arrangements for the company. Such statements are astonishing coming from the president of what was admittedly a very small operation. Moreover, it was only when pressed by counsel for MSC that Mr. Brittain admitted that he had been routinely billing Westroc before shipments were unloaded, that is even before he received an invoice from MSC. He also conceded that Westroc had not been informed that J.T. Knight was inflating the freight rate being charged by MSC on its invoices, or that he had negotiated terms of credit of 30 days, while at the same time insisting that Westroc settle its debt within 7 days. Mr. Brittain showed no compunction about his conduct which I consider to be duplicitous and unbecoming an agent. In the circumstances, I viewed Mr. Brittain's evidence with a great deal of skepticism.   

Background Facts

[9]             MSC is a body corporate under the laws of Switzerland and carries on the business of carriage by sea and a multimodal service world wide from its head office in Geneva, Switzerland. MSC is represented in Canada by a general agent, Mediterranean Shipping Company (Canada) Inc. ("MSC Canada"), and its president, Mr. Kimber.

[10]         The role of MSC Canada is to solicit cargoes from Canadian shippers for carriage by various modes, including by sea, to destinations outside of Canada world-wide. MSC Canada arranges the booking of cargoes on available ships of MSC, their reception at various terminal points, overland transport, and their loading onboard MSC's vessels. The company also makes arrangements with the local MSC agent at the destination for the discharge of cargoes and notification of their arrival to the receiver.

[11]          Mr. Kimber made certain observations regarding business practices that are prevalent in the freight forwarding industry. Mr. Kimber's evidence regarding trade practices was not disputed by Westroc, and was essentially confirmed by Mr. Brittain.

[12]         In Mr. Kimber's experience, few shippers, even those with sophisticated traffic and logistics departments, were able or willing to devote the attention or resources to keeping abreast of market developments, freight rates, and the preparation of documentation, such as bill of lading details and other documents incidental to the transport of goods. As a result, MSC Canada's business was primarily conducted with freight forwarders acting on behalf of Canadian shippers.

[13]         According to Mr. Kimber, freight forwarders generally insist that carrier representatives, such as MSC Canada, not "go behind" the freight forwarder and make contact with the forwarder's client, especially with respect to the financial arrangements for the transport and its execution. The only exception is when an emergency operational issue arose and the forwarder is not available to respond. Any carrier representative who fails to conform can face serious repercussions, such as the loss of future referrals, or being black-listed by other freight-forwarders. Moreover, major freight forwarders usually attempt to maintain absolute control over cargoes they are handling for their customers by having the carriers treat them as the shipper, and insist that the carriers look only to them as the parties liable for any freight payments that may be due. As a result, freight forwarders routinely issue their own bills of lading as carrier to their customers, making it difficult for carriers to learn the true identity of the owners of cargoes being transported.

[14]         J.T. Knight, a small freight-forwarding company offering full transportation services to shippers, started doing business with MSC Canada in 1981 through its president, Mr. Brittain. The relationship was maintained over the years, despite the fact that J.T. Knight had continued liquidity problems. Both witnesses called on behalf of MSC Canada agreed that Mr. Brittain would routinely "drag out payments".

Dealings between the shipper, the carrier and the freight-forwarder

[15]            J.T. Knight contracted with MSC in respect of a number of different shippers prior to June 2000, when an employee of MSC Canada became aware of the adoption of a shipping program by Westroc, a manufacturer of construction products. Since Westroc had a relationship with J.T. Knight dating back to 1998, Mr. Brittain was approached by MSC Canada regarding the possibility of business opportunities with Westroc. Through J.T. Knight's marketing efforts, Westroc started using MSC as its maritime carrier in September 2000.

[16]         After verifying Westroc's credit-worthiness, MSC Canada agreed to the same credit terms previously negotiated by J.T. Knight, that is, payment within 30 days following shipment, or in other words, the date of the bill of lading. Having some concerns in dealing with Westroc for the first time, MSC asked for and received from J.T. Knight a corporate guarantee of its customer's freight charges and an acknowledgement that it was acting as the shipper's agent.

[17]         During his examination for discovery, Mr. Prew stated that he was an export manager with Westroc. Mr. Prew confirmed that J.T. Knight had been acting on Westroc's instructions in its dealings with MSC. The freight forwarder's services were being used to provide certain skills Westroc did not have, and for its commercial convenience. Mr. Prew acknowledged that Westroc was aware that J.T. Knight was providing bill of lading details to MSC. Westroc relied on J.T. Knight to make sure bills of lading conformed to the invoices and shipping advices. According to Mr. Prew, Westroc only discovered that MSC's rate was lower than the rate it was paying to J.T. Knight only after default had already taken place. When questioned whether he ever discussed with J.T. Knight how Westroc could verify that carriers were getting paid, Mr. Prew replied that he could not recall. Mr. Prew admitted that Westroc never saw nor asked to see the bills that J.T. Knight was receiving from MSC.

[18]            From September 2000 to January 2001, eight transactions took place between MSC and Westroc, as reflected in the chart below:

[19]         According to Mr. Kimber, MSC's bills of lading also acted as freight invoices. Westroc's name was inserted on all bills of lading as the shipper and, in accordance with the terms of the bill of lading, as the party responsible for the freight. All bill of lading instructions which MSC Canada received from J.T. Knight during its course of dealings with Westroc's cargo were directed to name Westroc as the shipper. Even though the bills of lading were addressed to Westroc, they were forwarded to J.T. Knight, as custom dictated.

[20]        Mr. Brittain regularly communicated with Mr. Chouinard, who was responsible for freight receivables at MSC Canada, during the period covering the transactions involving Westroc, particularly with respect to the tardiness of payments which began with the first shipment on September 3, 2000. Mr. Chouinard testified that there was some tolerance shown towards freight forwarders once the 30 day credit period expired, and this was confirmed by Mr. Kimber. Both denied however that the company's leniency somehow constituted an extension of credit. Mr. Chouinard's instructions were to follow up and press for payment from freight forwarders which were known to be slow in obtaining funds from its customers, and in remitting them to MSC Canada, such as J.T. Knight. In cross-examination, Mr. Kimber insisted that his company never willingly agreed to receive payments late from J.T. Knight or Mr. Brittain.

[21]         MSC invoiced Westroc for the total amount of $ 65,187.62 ($ 42,815.00 US) for freight earned on three voyages in November and December 2000, during which Westroc's cargo was carried to the agreed destination. Mr. Brittain claims that there was an error in the charge for the bill of lading dated December 9, 2000, which should reflect $ 13, 995.00 US rather than $ 15,160.00 US. No evidence has been produced however to establish that the amount claimed by MSC is incorrect. In fact, Mr. Brittain did not dispute the quantum in his letter to MSC Canada proposing a schedule for payment of outstanding freight dated January 3, 2001. I therefore find that MSC was not paid for the following freight bills: the first one in the amount of $ 10,855.00 US dated November 22, 2000, the second one in the amount of $ 15,160.00 US dated December 9, 2000 and (c) the third one in the amount of $ 16,800.00 US dated December 27, 2000.

[22]            Throughout January 2001, Mr. Chouinard insisted on payment when he was following up with J.T. Knight regarding late payments. Although Mr. Kimber declared that he had no reason to suspect that the cause of non-payment was something other than the lack of receipt of funds from Westroc, Mr. Chouinard acknowledged in cross-examination that he was aware that J.T. Knight was having cash flow problems, and that the problems were Mr. Brittain's ("chez lui") and not those of Westroc.

[23]            On January 29, 2001, Mr. Chouinard called Mr. Brittain to demand immediate payment of the three outstanding bills of lading before two recent bills of lading would be released. The next day, J.T. Knight responded by fax and proposed a schedule of payment in stages during the month of February. On February 1, 2001, Mr. Chouinard wrote back to advise that the schedule was not acceptable, and that the two new bookings would not be released without payment in advance.

[24]            On February 2, 2001, Mr. Brittain sent another letter to Mr. Chouinard to reiterate his offer to pay over time and to inform him that a cheque in the amount of $ 10,885.00 US was being couriered over. On February 5, 2001, Mr. Chouinard telephoned Mr. Brittain to advise him that MSC Canada was left with no choice but to communicate with Westroc to inquire why the freight invoices had not been paid. During their conversation, Mr. Brittain admitted to Mr. Chouinard that J.T. Knight had in fact received payment from Westroc, but was having "cash-flow" problems.

[25]            On February 6, 2001, Mr. Chouinard sent a demand letter to J.T. Knight advising the forwarder that unless the freight invoices dated December 9 and 27, 2000 were paid in full by February 9, 2001, the matter would be turned over to MSC's lawyers. The letter also made the following offer:

Should "BPB Estroc Inc." want to pay MSC Canada for the above two b/l's and want the Original bills released directly to them, we have no objections in doing so.

[26]            J.T. Knight responded immediately by fax asking MSC Canada not to communicate with Westroc, as it would completely alienate Westroc and effectively put J.T. Knight out of business. That same day, MSC Canada received a cheque for $ 10,885.00 US drawn on J.T. Knight's account, which was immediately negotiated, but was later returned for lack of sufficient funds.

[27]            Mr. Kimber directed Mr. Chouinard to make contact directly with Westroc and enquire why J.T. Knight was not paying Westroc's invoices. As acknowledged by the parties, this was the first communication, either direct or indirect, between them. Mr. Chouinard spoke to Elaine Jolly, who worked in Westroc's accounts payable department. Ms. Jolly advised Mr. Chouinard that Westroc's terms with J.T. Knight were payment within seven (7) days of billing, which the company had always respected. Ms. Jolly further indicated that J.T. Knight had already received payment. Mr. Brittain confirmed this in cross-examination.

[28]            On or about February 9, 2001, MSC Canada turned over collection of the accounts to its solicitors. Letters of demand were forwarded directly to Westroc on February 14 and 19, 2001. During the weeks that followed, Westroc paid the invoices covering the January 30, 2001 cargo, which had not been released from the ocean terminal at destination.

Analysis

[29]            As noted earlier, there is a trend in this Court to avoid imposing on an innocent party an obligation to pay a second time under equitable principles. In Morlines Maritime Agency Ltd. v. Iko Industries Ltd., (1999) 180 F.T.R. 12, 2000 AMC 1042 ("Morlines"), the plaintiff agent of a carrier sought recovery of freight from a defendant shipper. The defendant had already paid its freight forwarder, who had gone bankrupt before paying the carrier's agent. Lutfy, J. (as he then was) concluded the plaintiff's conduct had led the defendant to conclude that payment was to be made directly by the shipper to the forwarder as carrier. Trade usage also created normal expectations for both parties that such would be the arrangement. Lutfy, J., therefore held that the plaintiff did not owe freight to the carrier and dismissed the action.

[30]            The critical element in Morlines appears to be the degree of control the carrier had in choosing with whom it does business, how it makes delivery, to whom it looks for payment and extends credit, and to whom it sends its invoices, statements, and delivery receipts necessary for payment. The legal relationship between carrier and shipper must therefore be carefully analysed. Whether a payment of freight by the shipper to the freight forwarder is to be deemed payment to the carrier can only be answered by delving into the intention of the parties, as evidenced by documents exchanged between them and their conduct.

[31]            In C.P. Ships v. Les Industries Lyon Corduroys Ltée, [1983] 1 F.C. 736 ("C.P. Ships"), Addy J. set down the following principles:

Where a debtor [the shipper], instead of paying his creditor [the carrier], chooses to pay a third party [the freight forwarder], he does so at his peril. Where the money is not turned over to the creditor [the carrier], the onus is then on the debtor [the shipper] to establish either:

(1) that the creditor actually authorized the third party to receive the money on his behalf, or

(2) that the creditor held the third party out as being so authorized, or

(3) that the creditor by his conduct or otherwise induced the debtor to come to that conclusion, or

(4) that a custom of the trade exists to the effect that in that particular trade and in those particular circumstances, both the creditor and the debtor normally would expect the payment to be made to the third party.

[32]            According to C.P. Ships, the general approach to be taken is that a shipper remains liable unless the shipper can show it was released by the carrier. This result comports with economic reality, since freight forwarders may have few assets, and yet book cargo far exceeding their net worth. While the carrier may extend credit to the forwarder, there is no economically rational motive for the carrier to release the shipper. It follows that carriers would expect payment to come from the shipper, albeit passing through, and not from, the freight forwarder. I conclude that there are legitimate policy reasons for adopting a rebuttable presumption in favour of shipper liability.

[33]            The burden was on Westroc, not MSC, to prove that its liability was released. Mr. Prew acknowledges that Westroc did not inform MSC Canada that it did not consider itself responsible for the freight charges. In fact, there was no direct communication between the two companies until the letter of demand was sent in February 2001. Both Mr. Kimber and Mr. Chouinard maintained that MSC always looked to Westroc for payment, as reflected in their bills of lading. Westroc elected to call no evidence to establish that it was somehow induced to believe otherwise. The fact that MSC demonstrated some leniency towards J.T. Knight with respect to late payments does not supply such proof. The forbearance shown towards J.T. Knight was, from MSC's perspective, ultimately for Westroc's benefit. MSC was under no obligation to approach Westroc directly when concerns arose about late payments, particularly in light of the practise in the industry of not "going behind" a forwarder.

[34]            On the evidence before me, I conclude that J.T. Knight was acting as a typical freight forwarding agent on behalf of Westroc towards MSC Canada. Mr. Prew acknowledged that Westroc had a prior relationship with J.T. Knight. Westroc gave instructions to the freight forwarder to make all arrangements to ship the cargo and prepare documents. Since Westroc appointed J.T. Knight as its agent for purposes of billing and collecting freight charges, and as the party to whom all documents necessary for that purpose would be sent, MSC cannot be faulted with following the trade practice of dealing with Westroc solely through its agent. Westroc distanced itself completely from any dealings with the carrier and relied solely on J.T. Knight to act in its interests. I cannot, in the circumstances, accept Westroc's contention that a custom of the trade existed to the effect that both MSC and Westroc expected payments to be valid and effective if made to J.T. Knight, in other words, that the carrier agreed to look only to the freight forwarder for payment of the freight charges. In fact, the evidence adduced by MSC, which I accept, was to the contrary.

[35]            Under the general principles of agency and by operation of law, non-payment by an agent is deemed non-payment by the principal. Westroc must be taken to have assumed the risk of paying twice if the party it relied upon to perform an essential function of its export program abused its position of trust by converting freight monies received for a designated purpose for its own use. Westroc ought to have been aware, or should have informed itself, whether the freight forwarder was an established, reputable freight forwarder with substantial assets, or simply a one-person operation with potential liquidity problems. Westroc was clearly in the best position to protect itself against an absconding forwarder.

[36]            Westroc failed to take proper precautions to protect itself. It could have investigated the history and reputation of its freight forwarder. It could also have insisted that the cheques be payable to the carrier, and not the freight forwarder. Further, before paying the freight forwarder, Westroc could have requested written assurance, such as a bill of lading, that MSC was looking only to the forwarder for payment.

Conclusion

[37]            A shipper remains liable to the carrier unless it can present clear and unequivocal evidence that a carrier somehow released it from liability. I conclude that Westroc has failed to meet its burden. In the circumstances, the judgment should issue in favour of MSC.

[38]            The rates of exchange claimed by MSC on the amount of $ 42,815.00 US are those cited by the Bank of Canada on its website as being the noon-time rate on a particular day of the bill of lading for buying US dollars. Westroc has admitted these rates of exchange are appropriate. MSC is therefore entitled to recover $ 65,187.62 on account of the outstanding bills of landing.

[39]            MSC also claims interest at the commercial rate charged by Canadian Chartered Banks as determined by the Bank of Canada, calculated at the average rate since November 2000, the date of the earliest invoice. Westroc has not taken issue with the rate of interest. Interest as claimed by MSC will therefore be granted from February 19, 2001 to the date of judgment.

[40]            Although costs would normally follow the event, the parties have agreed that the determination of costs should be deferred until after judgment has been issued so that counsel may make further representations. Accordingly, in the event the parties cannot resolve the issue of costs between themselves, MSC shall serve and file written submissions, not exceeding two pages in length, within 20 days of the date of these reasons. Westroc shall submit its responding submissions within 10 days of service of MSC's submissions.

JUDGMENT

THIS COURT ORDERS AND ADJUDGES that the Plaintiff recover from Defendant the sum of $ 65,187.62, together with prejudgment interest at the average commercial rate charged by Canadian Chartered Banks, as determined by the Bank of Canada, and interest at the rate of 4% per annum from the date of judgment until paid.

IT IS FURTHER ORDERED that the issue of costs is reserved pending written submissions of the parties.

"Roger R. Lafrenière"        

                                                                                               Prothonotary                  

FEDERAL COURT

    NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                                              T-652-01

STYLE OF CAUSE:              MEDITERRANEAN SHIPPING COMPANY S.A.

Plaintiff

and

BPB WESTROC INC

Defendant

PLACE OF HEARING:                      MONTRÉAL, QUÉBEC

DATE OF HEARING:                        SEPTEMBER 18, 2002

REASONS FOR JUDGMENT

AND JUDGMENT BY :                    LAFRENIÈRE P.

DATED:                                                JULY 31, 2003

APPEARANCES:                                Mr. David G. Colford

For the Plaintiff

Mr. Marc Duquette

For the Defendant

SOLICITORS OF RECORD:           Brisset Bishop

Montréal, Québec

For the Plaintiff

Ogilvy Renault

Montréal, Québec

For the Defendant

FEDERAL COURT

          Date: 20030731

                    Docket: T-652-01

BETWEEN:

MEDITERRANEAN SHIPPING COMPANY S.A.

                                                  Plaintiff

and

BPB WESTROC INC

                                              Defendant

REASONS FOR JUDGMENT

AND JUDGMENT