ITO-Int'l Terminal Operators v. Miida Electronics, [1986] 1 SCR 752

Supreme Court of Canada

ITO-Int'l Terminal Operators v. Miida Electronics, [1986] 1 S.C.R. 752

Date: 1986-06-26

ITO—International Terminal Operators Ltd. Appellant;

and

Miida Electronics Inc. Respondent;

and

Mitsui O.S.K. Lines Ltd. Respondent;

and between

Miida Electronics Inc. Appellant;

and

Mitsui O.S.K. Lines Ltd. Respondent;

and

ITO—International Terminal Operators Ltd. Respondent.

File Nos.: 16674,16680.

1984: October 2, 3; 1986: June 26.

Present: Dickson C.J. and Beetz, Estey, McIntyre, Chouinard, Lamer and Wilson JJ.

ON APPEAL FROM THE FEDERAL COURT OF APPEAL

Maritime law — Contract — Bill of lading — Exemption of liability clauses — Himalaya clause extending exemption from carrier to stevedore — Goods stolen after delivery to warehouse — Whether or not Himalaya clause effective in extending exemption.

Maritime law — Scope of maritime law — Port warehouse left unsecure and goods stolen — Whether maritime law including common law concept of negligence or whether Civil Code of Quebec incorporated into Canadian maritime law for cases arising in Quebec — Civil Code, arts. 1029, 1053.

Courts — Jurisdiction — Federal Court — Maritime law — Land — based tort with respect to recently unloaded goods — Short-term storage — Whether or not action within jurisdiction of Federal Court — Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10, ss. 2, 22(1), (2), 42—The Admiralty Act, 1934, 1934 (Can.), c. 31, s. 18(1), (2), (3) — The Admiralty Act, 1891, 1891 (Can.), c. 29, s. 4.

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Respondent Mitsui O.S.K. Lines Ltd. carried electronic calculators by sea from Japan to Montreal for respondent Miida Electronics Inc. Mitsui arranged for the goods, on arrival, to be picked up and stored at the port on a short term basis by ITO — International Terminal Operators, a stevedoring company and terminal operator. Many cartons of calculators were stolen from ITO's shed. The bill of lading contained a Himalaya clause by which the carrier Mitsui sought to extend limitation of liability to those it employed in performance of the contract of carriage. The contract between Mitsui and ITO expressly stated that the stevedoring company was to be an express beneficiary of all limitation of liability provisions in its bills of lading. The Federal Court Trial Division dismissed Miida's action against both Mitsui and ITO but the Court of Appeal allowed Miida's appeal against ITO and dismissed its appeal against Mitsui. Both Miida and ITO appealed to this Court. At issue were: (1) the general question of the jurisdiction of the Federal Court in Admiralty and the extent of Canadian maritime law; (2) the effect of the Himalaya clause in the bill of lading.

Held: The appeal by ITO — International Terminal Operators Ltd. against the judgment in favour of Miida Electronics Inc. should be allowed and the appeal by Miida Electronics Inc. against the dismissal of its action against Mitsui O.S.K. Lines Ltd. should be dismissed.

Per Dickson C.J. and Estey, McIntyre and Wilson JJ.: The Federal Court has jurisdiction to entertain the claims of Miida against both Mitsui and ITO.

Jurisdiction in the Federal Court depends on there being: (1) a statutory grant of jurisdiction by Parliament; (2) an existing body of federal law, essential to the disposition of the case, which nourishes the statutory grant of jurisdiction; and (3) law underlying the case falling within the scope of the term "a law of Canada" used in s. 101  of the Constitution Act, 1867 . The first requirement was met by s. 22(1) of the Federal Court Act. The second requirement was met in that Canadian maritime law is an existing federal body of law which was essential to the disposition of the case and which nourished the grant of jurisdiction to the Federal Court. The third requirement was met because Canadian maritime law and other laws dealing with navigation and

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shipping come within s. 91(10)  of the Constitution Act, 1867 , thus confirming legislative competence.

"Canadian maritime law" is defined in s. 2 of the Federal Court Act as including law (1) that was administered by the Exchequer Court of Canada on its Admiralty side by virtue of the Admiralty Act or any other statute, or (2) that would have been so administered if that Court had unlimited jurisdiction on its Admiralty side in relation to maritime and admiralty matters. The term therefore includes all that body of law which was administered in England by the High Court on its Admiralty side in 1934 as such law may, from time to time, have been amended by Parliament and as it has developed through judicial precedent to date. The second part of the definition was adopted to ensure that Canadian maritime law would include unlimited jurisdiction in relation to maritime and admiralty matters. While the historical jurisdiction of the Admiralty courts might be significant in determining whether a particular matter was within the definition of Canadian maritime law, the definition of maritime and admiralty matters is not restricted to those claims fitting within the historical limits. Maritime and admiralty matters are to be interpreted within the modern context of shipping and commerce rather than being frozen as of 1934. In reality, the ambit of Canadian maritime law is limited only by the constitutional division of powers in the Constitution Act, 1867 .

The maritime nature of this case depends on (1) the proximity of the terminal operation to the sea, (2) the connection between terminal operator's activities and contract of carriage by sea, and (3) the fact that the storage at issue was short-term pending final delivery carried out by the terminal operator and within the area of the port.

Canadian maritime law as adopted in Canada historically and as finally brought into Canadian law by s. 2 of the Federal Court Act includes common law principles as they are applied in Admiralty matters—they are not an incidental application of provincial law. The common law principles of negligence and bailment are a part of Canadian maritime law as adopted from England.

Contractual provisions extending limitations of liability to third parties, known as Himalaya clauses, are recognized as a permissible feature of Canadian maritime law. Both Mitsui and ITO are entitled to the protection of the exclusion clauses in the bill of lading

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because the requirements for establishing the necessary link between the stevedore and the consignee to give the element of privity were met here.

Even though the exempting provision relieving ITO and Mitsui of liability in any capacity did not specifically mention negligence, the exemption clause, considered in the context of the whole contract, was wide enough to include the warehouseman's negligence as being within the reasonable contemplation of the parties.

Per Beetz, Chouinard and Lamer JJ.: The appeal of Miida Electronics Inc. against Mitsui O.S.K. Lines Ltd. should be dismissed for the reasons given by McIntyre J. and the appeal of ITO—International Terminal Operators Ltd. against Miida Electronics Inc. should be allowed for the reasons of Pratte J.A., dissenting, in the Federal Court of Appeal. The action of Miida against ITO was purely delictual. Such a tort or delict, committed in Montreal, falls within the jurisdiction of the civil courts of Quebec, and not that of the Federal Court.

Cases Cited

By McIntyre J.

Quebec North Shore Paper Co. v. Canadian Pacific Ltd., [1977] 2 S.C.R. 1054; McNamara Construction (Western) Ltd. v. The Queen, [1977] 2 S.C.R. 654; New Zealand Shipping Co. v. A. M. Satterthwaite & Co. (The "Eurymedon"), [1975] A.C. 154, applied; National Gypsum Co. v. Northern Sales Ltd., [1964] S.C.R. 144; Salmond and Spraggon (Australia) Pty. Ltd. v. Port Jackson Stevedoring Pty. Ltd. (The "New York Star"), [1980] 2 Lloyd's Rep. 317, reversing [1979] 1 Lloyd's Rep. 298; Alderslade v. Hendon Laundry, Ld., [1945] K.B. 189; Lamport & Holt Lines Ltd. v. Coubro & Scrutton (M.& I.) Ltd., (The "Raphael"), [1982] 2 Lloyd's Rep. 42, considered; Domestic Converters Corp. v. Arctic Steamship Line, [1984] 1 F.C. 211, 46 N.R. 195; The Queen v. Canadian Vickers Ltd., [1978] 2 F.C. 675, 77 D.L.R. (3d) 241; Tropwood A.G. v. Sivaco Wire & Nail Co., [1979] 2 S.C.R. 157; "Yuri Maru" (The), The "Woron", [1927] A.C. 906; MacMillan Bloedel Ltd. v. Canadian Stevedoring Co., [1969] 2 Ex. C.R. 375; Toronto Harbour Commissioners v. The "Robert C. Norton", [1964] Ex. C.R. 498; De Lovio v. Boit (1815), 2 Gall. 398; Reference re Industrial Relations and Disputes Act, [1955] S.C.R. 529; "Cuba" (The) v. McMillan (1896), 26 S.C.R. 651; "Winkfield" (The), [1902] P. 42; Wire Rope Industries of Canada (1966) Ltd. v. B.C. Marine Shipbuilders Ltd., [1981] 1 S.C.R. 363; Associated Metals and Minerals Corp. v. The "Evie W", [1978] 2 F.C. 710; Kellogg Co. v. Kellogg, [1941] S.C.R. 242; Midland Silicones Ltd. v. Scruttons Ltd., [1962] A.C. 446; Canadian General Electric Co. v.

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Pickford & Black Ltd, [1971] S.C.R. 41; Greenwood Shopping Plaza Ltd. v. Beattie, [1980] 2 S.C.R. 228; Canada Steamship Lines Ld. v. The King, [1952] A.C. 192; Gillespie Brothers & Co. v. Roy Bowles Transport Ltd., [1973] 1 All E.R. 193; Hollier v. Rambler Motors (AMC) Ltd., [1972] 1 All E.R. 399; Rutter v. Palmer, [1922] 2 K.B. 87; Smith v. South Wales Switchgear Ltd., [1978] 1 All E.R. 18, referred to.

Statutes and Regulations Cited

Admiralty Act, 1891, 1891 (Can.), c. 29, s. 4.

Admiralty Act, 1934, 1934 (Can.), c. 31, s. 18(1), (2), (3).

Bills of Lading Act, R.S.C. 1970, c. B-6, s. 2.

Civil Code, arts. 1029, 1053.

Colonial Courts of Admiralty Act, 1890 (Imp.), 53 & 54 Vict., c. 27.

Constitution Act, 1867,  ss. 91 , 92 , 101 , 129 .

Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10, ss. 2, 22(1), (2), 31(2), 42.

Statute of Westminster, R.S.C. 1970, Appendix II, No. 26.

Authors Cited

Carver, Thomas Gilbert. Carver's Carriage By Sea, 2 vols., 13th ed. by Raoul Colinvaux, London, Stevens, 1982.

Castel, Jean-Gabriel. Canadian Conflict of Laws, 2nd ed., Toronto, Butterworths, 1986.

Clarke, Philip H. "The Reception of The Eurymedon Decision in Australia, Canada and New Zealand" (1980), 29 Int'I and Comp. L.Q. 132.

Dawson, Francis. "Himalaya Clauses, Consideration and Privity of Contract" (1975), 6 N.Z.U.L.R. 161.

Mayers, Edward Courtenay. Admiralty Law and Practice in Canada, Toronto, Carswells, 1916.

Tedeschi, Mark. "Consideration, Privity and Exemption Clauses; Port Jackson Stevedoring Pty. Ltd. v. Salmond and Spraggon (Australia) Pty. Ltd." (1981), 55 A.L.J. 876.

Tetley, William. Marine Cargo Claims, 2nd ed., Toronto, Butterworths, 1978.

Waddams, S. M., Comments (1977), 55 Can. Bar Rev., 327.

APPEAL from a judgment of the Federal Court of Appeal, [1982] 1 F.C. 406, allowing the appeal of Miida Electronics Inc., as against respondent ITO—International Terminal Operators Ltd. and dismissing its appeal, as against Mitsui O.S.K. Lines Ltd., from a judgment of Marceau J. dismissing its action against both defendants. Appeal by ITO—International Terminal Operators Ltd.

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against the judgment of Miida Electronics Inc. allowed; appeal by Miida Electronics Inc. against the dismissal of its action against Mitsui O.S.K. Lines Ltd. dismissed.

David Marler and J. Kenrick Sproule, for ITO—International Terminal Operators Ltd.

Marc Nadon, for Miida Electronics Inc.

Trevor Bishop and Robert Cypihot, for Mitsui O.S.K. Lines Ltd.

The judgment of Dickson C.J. and Estey, McIntyre and Wilson JJ. was delivered by

MCINTYRE J.—This appeal involves consideration of various issues concerning Canadian maritime law and the jurisdiction of the Federal Court of Canada to hear and determine a claim for damages for the negligence of a terminal operator in Montreal, and the question of how far an exoneration clause in a bill of lading can extend to benefit third parties, in other words, the validity of what has become known as the Himalaya clause in bills of lading.

The respondent, Mitsui O.S.K. Lines Ltd. (Mitsui), a marine carrier, agreed in a contract evidenced by a bill of lading to carry 250 cartons of electonic calculators from Japan to Montreal where the respondent, Miida Electronics Inc. (Miida), the other party to the contract and owner and consignee of the electronic calculators, could take delivery. The goods arrived in Montreal on September 10, 1973 and were picked up by the appellant, ITO—International Terminal Operators Ltd. (ITO), a cargo-handling or stevedoring company and terminal operator. ITO had agreed with Mitsui to unload and store the goods until delivery was made to Miida. On September 14, 1973, thieves broke into the terminal transit shed which was operated by ITO and where the goods were stored. One hundred and sixty-nine of the cartons were stolen.

In the ordinary course of events two security guards, employees of a security service employed by ITO, made rounds of ITO's sheds every two hours after 5:30 p.m. Due to the fact that one of

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the guards had been delayed at another shed on that occasion, no security check was made at the shed where the goods were stored until 10:30 p.m. The arrival of the guard interrupted the thieves. They fled and have not been apprehended. A padlock, which normally locked the door by securing the two sections of a chain to a ring in the wall, had not been attached. As a result, several feet of slack chain had been left. This fact would in all probability have been discovered if the 7:30 p.m. inspection by the security guard had taken place. The thieves had gained access to the shed by cutting a hole in the wall and pulling the slack, unsecured chain, which operated the door, permitting entry.

The bill of lading contained limitation of liability clauses in clause 8 and clause 18 and as well a Himalaya clause in clause 4, by which the carrier, Mitsui, sought to extend limitation of liability to those it employed in the performance of the contract of carriage. The clauses are set out hereunder.

4. It is expressly agreed between the parties hereto that the master, officers, crew members, contractors, stevedores, longshoremen, agents, representatives, employees or others used, engaged or employed by the carrier in the performance of this contract, shall each be the beneficiaries of and shall be entitled to the same, but no further exemptions and immunities from and limitations of liability which the carrier has under this bill of lading whether printed, written, stamped thereon or incorporated by reference. The master, officers, crew members and the other persons referred to heretofore shall to the extent provided be or be deemed to be parties to the contract in or evidenced by this bill of lading and the carrier is or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of all such persons.

8. The carrier shall not be liable in any capacity whatsoever for any delay, non-delivery, misdelivery or loss of or damage to or in connection with the goods occurring before loading and/or after discharge, whether awaiting shipment landed or stored or put into craft, barge, lighter or otherwise belonging to the carrier or not or pending transhipment at any stage of the whole transportation. "Loading" provided in this bill of lading shall commence with the hooking on of the vessel's tackle or, if not using the vessel's tackle, with the receipt

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of goods on deck or hold or, in the case of bulk liquids in the vessel's tank. "Discharging" herein provided shall be completed when the goods are freed from the vessel's tackle or taken from deck or hold, or the vessel's tank.

18. The goods may be discharged from the vessel without notice of arrival or discharge, as soon as the vessel is ready to do so and continuously Sundays and holidays included, at all such hours by day or by night as the carrier may determine, no matter what the state of the weather or custom of the port may be. Irrespective of any agreements for the direct delivery of the goods from vessel's tackle or hold to the person entitled to them, the carrier is hereby authorized by the shipper, consignee, and/or person entitled to the goods to discharge the goods onto a wharf, quay and into lighters, barges, craft or warehouse selected by the carrier. If the carrier makes a special agreement to deliver the goods at a specified dock or wharf, it is mutually agreed that such agreement shall be construed to mean that the carrier is to make such delivery only if, in the sole judgment of the carrier, the vessel can safely under her own power, proceed to, lie at, and return from the said dock or wharf, always afloat at any time of tide and only if such dock or wharf is available for the vessel to discharge immediately and that otherwise the goods shall be discharged at any other place in accordance with the preceding provisions of this Article, whereupon carrier's responsibility shall cease. In any case the carrier's responsibility shall cease at the time when the goods are discharged from the vessel and in any case all risks and expenses (including expenses for landing, lighterage, storage, cartage, port charges, etc.) incurred by delivery otherwise than from the vessel's side shall be borne by shipper and/or consignee notwithstanding any custom of the port to the contrary. The goods shall be considered to be delivered to the consignee at his own risk and expense in every respect when taken into the custody of customs or other authorities. If the goods be unclaimed within a reasonable time, they may, at carrier's discretion and subject to carrier's lien, be sold, abandoned or dealt with otherwise, solely at the risk and expense of shipper and/or consignee. The carrier shall not be required to give any notice of disposition of the goods under this Article.

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Optional delivery shall be only granted when arranged prior to the loading of the goods and so expressly provided herein. Shipper and/or consignee desiring to avail themselves of the option so expressed must give notice in writing to the carrier at the first port of the vessel's call named in the option at least 48 hours prior to the vessel's arrival there, otherwise the goods shall be landed at any of the optional ports at carrier's option and the carrier's responsibility shall then cease.

The stevedoring contract between Mitsui and ITO contained the following provisions as clause 2 and clause 7.

2 Labour. The Contractor will provide labour to load and discharge the vessels of the Company in accordance with prevailing Labour Agreement(s) and labour as provided will be contingent upon labour available to the Contractor under the aforementioned Labour Agreement (s). In the event that receiving, delivery, checking and/or watching services are required, it is expressly agreed that the Contractor will arrange for such services as Agent only for the Company and on the express condition that the Contractor, its Agents and employees shall thereby incur no liability whatsoever for misdelivery, pilferage, theft or mysterious disappearance of cargo, and the Company agrees to indemnify the Contractor in the event it be called upon to pay any sums as a result thereof.

7 Responsibility for Damage or Loss. It is expressly understood and agreed that the Contractor's responsibility for damage or loss shall be strictly limited to damage to the vessel and its equipment and physical damage to cargo or loss of cargo overside through negligence of the Contractor or its employees. When such damage occurs to the vessel or its equipment or where such loss or damage occurs to cargo by reason of such negligence, the vessel's officers or other representatives shall call this to the attention of the Contractor at the time of accident. The Company agrees to indemnify the Contractor in the event it is called upon to pay any sums for damage or loss other than as aforesaid.

It is further expressly understood and agreed that the Company will include the Contractor as an express beneficiary, to the extent of the services to be performed hereunder, of all rights, immunities and limitation of liability provisions of all contracts of affreightment as evidenced by its standard bills of lading and/or passengers' tickets, issued by the Company during the effective period of this agreement. Whenever the customary

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rights, immunities and/or liability limitations are waived or omitted by the Company, as in the case of ad valorem cargo, the Company agrees to include the Contractor as an assured party under its insurance protection and ensure that it is indemnified against any resultant increase in liability.

At the opening of the trial before Marceau J., the parties made a series of admissions which were reduced to writing and filed with the court. The document containing the admissions is reproduced here from the judgment of Marceau J.:

The parties, through their undersigned attorneys, hereby admit the following facts:

1. THAT Plaintiff Miida Electronics, Inc. ("Miida") was, at all material times herein, the owner of a cargo of 260 [sic] cartons of electronic desk calculators ("the cargo"), each carton containing 2 sets of electronic desk calculators;

2. THAT Plaintiff Miida is entitled to sue under the contract of carriage;

3. THAT Defendant Mitsui O.S.K. Lines Ltd's ("Mitsui's") Bill of Lading No. KBMR-0007, dated Kobe, Japan, July 31, 1973, is produced by consent as Plaintiff Miida's Exhibit P-1;

4. THAT the terms and conditions of Bill of Lading No. KBMR-0007 (Exhibit P-1) constitute the contract of carriage under which Plaintiff Miida's cargo was carried;

5. THAT defendant Mitsui was the carrier of the cargo and issued Bill of Lading No. KBMR-0007 (Exhibit P-1) and is bound by the terms and conditions thereof;

6.THAT Plaintiff Miida is bound by the terms and conditions of Bill of Lading No. KBMR-0007 (Exhibit P-1);

7.THAT Defendant ITO—International Terminal Operators Ltd ("ITO") was the stevedore and provider of terminal services who discharged Defendant Mitsui's vessel, the BUENOS AIRES MARU, at Montreal, pursuant to a contract entered into by it with Defendant Mitsui, it being agreed by all parties that ITO and Logistec Corporation Limited are to be considered by the Court as one and the same and synonymous from all points of view;

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8. THAT the production of the contract between Defendants ITO and Mitsui is admitted;

9. THAT Defendant ITO was the lessee of Sheds 49, 50, 51 and 52 of the Port of Montreal;

10. THAT Defendant ITO admits that 250 cartons of electronic desk calculators, each containing 2 sets thereof, were loaded at Kobe on board the BUENOS AIRES MARU, but does not admit that the same quantity was discharged from the BUENOS AIRES MARU at Montreal;

11. THAT 169 sets of electronic desk calculators (84.5 cartons) were not delivered to Plaintiff Miida;

12. THAT Plaintiff Miida has suffered a loss of $26,656.37, which is admitted by the Defendants;

13. THAT in the event of a judgment being rendered in favour of Plaintiff Miida, the Defendants admit that Plaintiff Miida will be entitled to receive $26,656.37, with interest at a rate of 8% from September 14, 1973.

Proceedings

Miida commenced proceedings in the Federal Court Trial Division against both ITO and Mitsui to recover its loss. In paragraph 12 of the statement of claim it was alleged:

12. THAT Defendants are jointly and severally responsible for the loss and damage claimed in breach of contract and in delict and in tort for their fault, negligence, want of care and lack of skill and of their employees, servants, agents, préposés, and independent contractors, including the Master, the crew, the stevedores and the terminal operators whilst in the exercise of the work for which they were employed and during the care of the cargo its checking, loading, handling, stowage, carriage, custody and discharge.

The action was dismissed against both defendants, ITO and Mitsui, on January 5, 1979. Miida appealed against both judgments to the Federal Court of Appeal (Pratte, Le Dain and Lalande JJ.) and on May 22, 1981 its appeal against the dismissal of its action against ITO was allowed (Pratte J. dissenting), and its appeal against Mitsui dismissed (Le Dain J. dissenting). The result of this disposition was to leave Mitsui free of any claim and to place all liability on ITO. From this decision Miida has now appealed to this Court

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against the dismissal of its claim against Mitsui and ITO has appealed against the judgment in favour of Miida. Leave was granted pursuant to s. 31(2) of the Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10.

Reasons in the Courts Below

In dismissing Miida's claim against Mitsui, Marceau J. [[1979] 2 F.C. 283] found that the loss of the goods had occurred after they had been unloaded from the ship at Montreal. Since he was of the opinion that liability against Mitsui could be found only on the basis of the contract of carriage, he concluded that Mitsui was fully protected by the exclusion clause. He said, in respect of Mitsui [at pp. 291-92]:

Defendant Mitsui is therefore correct. Since no gross negligence in choosing the cargo handling firm used or in any other doings on its part has been alleged against it, and since the loss has been proved to have occurred after the vessel was unloaded, defendant Mitsui is fully protected by the limitation of liability clause in the contract under which it is being sued. The action brought against it therefore cannot succeed.

As to the claim against ITO, Marceau J. held that the Federal Court had jurisdiction to hear the case because cargo-handling was sufficiently closely linked to the contract of carriage of goods by sea. He considered as well that Quebec law would apply because the delict or quasi-delict alleged by and relied upon by the plaintiff Miida was committed in Quebec by one domiciled in Quebec. He concluded on the facts before him that ITO could not be liable to Miida on a purely delictual basis independently of contract and that ITO could not avail itself of the contractual exoneration clauses in the bill of lading because it was not a party to it. He observed, however, that ITO had agreed to perform its services under a contract of services entered into with the carrier, and this contract limited its liability to the extent provided in the carriage contract. He concluded that Miida, the shipper/owner, knew that a stevedore would be involved during the unloading process, and though it was not a party to the stevedoring contract

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Miida knew that it was to obtain benefit from it and had agreed to that proposition in advance. Miida was therefore bound by the limitation of liability provisions in the service contract and ITO was entitled to rely upon them. He concluded his judgment on this issue by saying, at p. 302:

I therefore find that defendant ITO cannot be held liable for the loss on the sole ground of delict because it committed no fault that could be regarded as a delict; and that on any grounds other than delict it was protected by the limitation of liability clause provided in its contract with Mitsui, which plaintiff agreed to when it accepted the Himalaya clause in the contract of carriage.

In the Court of Appeal, the majority on this issue, Le Dain J. and Lalande D.J., allowed Miida's appeal against ITO. Le Dain J., for the majority, was of the view that, because of the close, practical relationship of the terminal operation to the performance of the contract of carriage, the Miida claim was a maritime matter within the definition of Canadian maritime law in s. 2 of the Federal Court Act. On this point, he expressed the view that the had been wrong in Domestic Converters Corp. v. Arctic Steamship Line, [1984] 1 F.C. 211, 46 N.R. 195 (C.A.) He considered that good policy required that the common law of bailment provided a more coherent and certain basis in cases involving the duties and liabilities of terminal operators than did the civil law of delictual liability. ITO was a sub-bailee for reward. Its duty was to take reasonable care in safeguarding the cargo owner's goods and to this end it was required to provide an adequate security system. It failed in this duty. ITO was, however, entitled to invoke the provisions of the Himalaya clause in the bill of lading. The stevedoring contract to which it was a party provided that the owner was to include it as a beneficiary of the limitation of liability provisions in the contract of carriage. The Himalaya clause could exclude liability for after-discharge loss (clauses 8 and 18), but those clauses did not have the effect of excluding liability for negligence. It did not therefore relieve ITO of liability. He would have allowed Miida's appeal

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against the dismissal of its action against Mitsui. He was of the view that clauses 8 and 18 of the bill of lading would not relieve the carrier of the obligation to deliver the cargo and care for it pending delivery, and it could not relieve itself by delegating the performance of its obligation to ITO, as its agent.

Lalande D.J. held in favour of the Federal Court's jurisdiction to entertain Miida's action against ITO as an action "connected with" navigation and shipping, pursuant to s. 4 of The Admiralty Act, 1891, 1891 (Can.), c. 29. ITO had contracted with Mitsui to perform terminal services that included "watching and guarding" services and had been negligent in its performance. That fault was actionable by a damaged person under art. 1053 of the Civil Code. He did not consider that the Himalaya clause or clause 7 of the stevedoring contract had any relevance to the issues because they had nothing to do with the after-discharge negligence which was the cause of the damage suffered here. These clauses, he said, gave ITO the benefit of the rights afforded by the Hague Rules to which the bill of lading was subject. There was nothing in the Hague Rules that exonerated the carrier from liability for after-discharge negligence. He agreed that Miida's appeal against ITO should be allowed and that its appeal against Mitsui should be dismissed.

Pratte J.A. was of the opinion that clauses 8 and 18 of the bill of lading excluded Mitsui from liability for after-discharge loss which occurred without fault or negligence on its part. He agreed that the appeal against Mitsui should be dismissed. He would have dismissed the appeal against ITO as well. The failure on ITO's part to do more than it actually did to preserve the goods would not be a fault under art. 1053 of the Civil Code. Even if the common law of bailment were the appropriate law,

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the claim against ITO would fail because, in his view, ITO was entitled to the protection of the Himalaya clause in the bill of lading. The more fundamental reason why Miida's claim against ITO could not succeed, however, was that given the decision of the Federal Court of Appeal in Domestic Converters Corp. v. Arctic Steamship Line, supra, a claim in delict and tort did not fall within the court's jurisdiction.

Issues

1. The general question of jurisdiction of the Federal Court in admiralty. This will involve a consideration of the extent of Canadian maritime law.

2. The effect of the Himalaya clause in the bill of lading.

Jurisdiction of the Federal Court

The question of the Federal Court's jurisdiction arises in this case in the context of Miida's claim against ITO, a claim involving the negligence of a stevedore-terminal operator in the post-discharge storage of the consignee's goods. The general extent of the jurisdiction of the Federal Court has been the subject of much judicial consideration in recent years. In Quebec North Shore Paper Co. v. Canadian Pacific Ltd., [1977] 2 S.C.R. 1054, and in McNamara Construction (Western) Ltd. v. The Queen, [1977] 2 S.C.R. 654, the essential requirements to support a finding of jurisdiction in the Federal Court were established. They are:

1. There must be a statutory grant of jurisdiction by the federal Parliament.

2. There must be an existing body of federal law which is essential to the disposition of the case and which nourishes the statutory grant of jurisdiction.

3. The law on which the case is based must be "a law of Canada" as the phrase is used in s. 101  of the Constitution Act,  1867 .

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The subject of admiralty and marine jurisdiction was canvassed in the Federal Court Trial Division by Thurlow A.C.J. (as he then was) in The Queen v. Canadian Vickers Ltd., [1978] 2 F.C. 675, 77 D.L.R. (3d) 241. He traced the history of the development of the admiralty jurisdiction of the Exchequer Court. I do not consider it necessary to cover the same ground as did Thurlow A.C.J. because the subject was again dealt with in this Court in Tropwood A.G. v. Sivaco Wire & Nail Co., [1979] 2 S.C.R. 157, and the jurisdiction of the Federal Court in this connection was authoritatively stated.

The Tropwood case concerned the question of whether there was operative law under which the Federal Court could properly entertain an action in both contract and tort for damage to inbound cargo. The case is well known and does not require detailed treatment here. It is sufficient to observe that Laskin C.J. (for the Court), noted that the Federal Court of Canada is given jurisdiction to adjudicate on questions of admiralty law by virtue of s. 22 of the Federal Court Act. Later, after noting the historical review by Thurlow A.C.J. in The Queen v. Canadian Vickers Ltd., supra, he said, at pp. 161-62:

For present purposes, it is enough to look at the Canadian statutes enacted following the British Colonial Courts of Admiralty Act, 1890, and following the abrogation of limitations on federal legislative power by the Statute of Westminster, 1931. These Canadian statutes are (1) The Admiralty Act, 1891 (Can.), c. 29; (2) The Admiralty Act, 1934 (Can.), c. 31; and the Federal Court Act, enacted in 1970, with effect from June 1, 1971.

After a discussion of the effect of The Admiralty Act, 1891, in introducing a body of admiralty law as part of the law of Canada, he went on to say, at pp. 162-63:

For my part, I do not think it matters here whether the Act of 1934 failed to incorporate or recognize a body of admiralty law. I leave that question open, although I would be inclined to find that s. 18 of the Act of 1934 was an adequate source of authority to apply a body of

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admiralty law. Since the present case is admittedly governed by the Federal Court Act, it is that Act to which we must look to determine whether the jurisdiction now reposed in the Federal Court to try what I may compendiously call admiralty matters relates to a body of law, which can be attributed to federal competence, upon which the jurisdiction can operate.

He then referred to the definition of Canadian maritime law in s. 2 of the Federal Court Act, which is set out hereunder:

2. …

"Canadian maritime law" means the law that was administered by the Exchequer Court of Canada on its Admiralty side by virtue of the Admiralty Act or any other statute, or that would have been so administered if that Court had had, on its Admiralty side, unlimited jurisdiction in relation to maritime and admiralty matters, as that law has been altered by this or any other Act of the Parliament of Canada.

and said, at p. 163:

This definition of Canadian maritime law in s. 2 refers to the law that was administered by the Exchequer Court "by virtue of the Admiralty Act or any other statute". The reference to the Admiralty Act is undoubtedly to the Act of 1934, but the Admiralty Act of 1891, although it was repealed, may certainly be considered as "any other statute" by virtue of which law was administered by the Exchequer Court on its admiralty side. If therefore there was a deficient incorporation of admiralty law by the Act of 1934, the same cannot be said of the Act of 1891.

(Emphasis in the original.)

He went on to find that the claim in question was within the scope of admiralty law as it was incorporated into the law of Canada in 1891.

In deciding whether the jurisdictional requirements are met in the case at bar, it seems clear that s. 22(1) of the Federal Court Act, set out hereunder, satisfies the first requirement in giving jurisdiction to the Federal Court:

22. (1) The Trial Division has concurrent original jurisdiction as well between subject and subject as otherwise, in all cases in which a claim of relief is made or a remedy is sought under or by virtue of Canadian maritime law or any other law of Canada relating to any

[Page 769]

matter coming within the class of subject of navigation and shipping, except to the extent that jurisdiction has been otherwise specially assigned.

To decide if the second requirement is met, it must be determined whether Canadian maritime law or any other law of Canada relating to any matter coming within the class or subject of navigation and shipping is essential to the disposition of the case and nourishes the statutory grant of jurisdiction. On this point, no "other law of Canada" was referred to as being essential to the disposition of the case or as nourishing the statutory claim of jurisdiction of the Federal Court.

Canadian maritime law, as defined in s. 2 of the Federal Court Act, can be separated into two categories. It is the law that:

(1) was administered by the Exchequer Court of Canada on its Admiralty side by virtue of the Admiralty Act or any other statute; or

(2) would have been so administered if that court had had on its Admiralty side unlimited jurisdiction in relation to maritime and admiralty matters.

Category 1 includes all English maritime law as it existed in 1891, as administered by the High Court on its Admiralty side (see Tropwood, supra.). In 1927, it was held in the Judicial Committee of the Privy Council in "Yuri Maru" (The) The "Woron", [1927] A.C. 906, that the Exchequer Court's jurisdiction did not include statutory expansions of the admiralty jurisdiction of the High Court of England arising after the passing of the Colonial Courts of Admiralty Act, 1890. In 1931, however, the Statute of Westminster enlarged the legislative power of the Federal Parliament to enact legislation repugnant to Imperial enactments. In 1934, The Admiralty Act was enacted by the federal Parliament in the exercise of its widened legislative powers to replace The Admiralty Act, 1891. Section 18 of the Act of 1934 defined the jurisdiction of the Exchequer Court in part, as follows:

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18. (1) The jurisdiction of the Court on its Admiralty side shall extend to and be exercised in respect of all navigable waters, tidal and non-tidal, whether naturally navigable or artificially made so, and although such waters be within the body of a county or other judicial district, and, generally, such jurisdiction shall, subject to the provisions of this Act, be over the like places, persons, matters and things as the Admiralty jurisdiction now possessed by the High Court of Justice in England, whether existing by virtue of any statute or otherwise, and be exercised by the Court in like manner and to as full an extent as by such High Court.

(2) Without restricting the generality of subsection one of this section, and subject to the provisions of subsection three thereof, section twenty-two of the Supreme Court of Judicature (Consolidation) Act, 1925, of the Parliament of the United Kingdom of Great Britain and Northern Ireland, which is Schedule A to this Act, shall, in so far as it can, apply to and be applied by the Court, mutatis mutandis, as if that section of that Act had been by this Act re-enacted, with the word "Canada" substituted for the word "England", the words "Governor in Council" substituted for "His Majesty in Council", the words "Canada Shipping Act" (with the proper references to years of enactment and sections) substituted, except with relation to mortgages, for the words "Merchant Shipping Act" (and any equivalent references to years of enactment and sections) and with the words "or other judicial district" added to the words "body of a county", wherever in such section twenty-two of such Supreme Court of Judicature (Consolidation) Act, 1925, any of the indicated words of that Act appear.

(3) Notwithstanding anything in this Act or in the Act mentioned in the next preceding subsection contained, the Court shall have jurisdiction to hear and determine:—

(a) Any claim—

(i) arising out of an agreement relating to the use or hire of a ship; or

(ii) relating to the carriage of goods in a ship; or

(iii) in tort in respect of goods carried in a ship;

provided, in respect of any such claim, that no action in rem shall be within the jurisdiction of the Court unless it is shown to the Court that at the time of the institution of the proceedings no owner or part owner of the ship was domiciled in Canada;

[Page 771]

(b) any claim for necessaries supplied to a ship;

(c) any claim for general average contribution.

The effect of this section, particularly subs. (1), was to adopt as part of Canadian law, English admiralty jurisdiction and law as it existed in 1934. This appears to have been the view of Thurlow A.C.J. in Canadian Vickers, supra, and seems to have been accepted by Laskin C.J. in Tropwood, supra. I would be of the opinion then that the term 'Canadian maritime law' includes all that body of law which was administered in England by the High Court on its Admiralty side in 1934 as such law may, from time to time, have been amended by the federal Parliament, and as it has developed through judicial precedent to date.

The question then arises as to whether the first category of Canadian maritime law would encompass a claim such as that brought by Miida against ITO. Miida's action against ITO is pleaded, both as an action in contract and an action in tort or delict, for loss of goods resulting from ITO's alleged negligence in its capacity as the storer or holder of the goods pending delivery. It can be seen that the action is based on the negligence of ITO and is essentially an action in tort or delict. English maritime law as of 1934, however, was at its broadest confined to torts committed within the ebb and flow of the tide (see MacMillan Bloedel Ltd. v. Canadian Stevedoring Co., [1969] 2 Ex. C.R. 375). Though this jurisdiction was expanded by statute in Canada, specifically s. 18(3) (a)(i) and (iii) of The Admiralty Act, 1934, to include any claim:

18. (3) (a)…

(i) arising out of an agreement relating to the use or hire of a ship; or

…

(iii) in tort in respect of goods carried in a ship;

it would still be insufficient to encompass Miida's claim against ITO. That claim does not arise from

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the contract of carriage between Miida and Mitsui, since ITO was not bound to perform any obligations under that bill of lading. In addition, goods discharged from a ship are no longer "goods carried in a ship" so as to invoke ss. (iii): see Toronto Harbour Commissioners v. The "Robert C. Norton", [1964] Ex. C.R. 498.

I would point out at this juncture that s. 22(2) of the Federal Court Act is of no assistance since the only subsections which might apply are:

22. (2) …

(h) any claim for loss of or damage to goods carried in or on a ship including, without restricting the generality of the foregoing, loss of or damage to passengers' baggage or personal effects;

(i) any claim arising out of any agreement relating to the carriage of goods in or on a ship or to the use or hire of a ship whether by charter party or otherwise;

These provisions are roughly the equivalent of s. 18(3) (a)(i) and (iii) of The Admiralty Act, 1934, and for the reasons just discussed would not apply to the case at bar. Even if a claim could be shown to fall within s. 22(2) the inquiry does not end. That section does no more than grant jurisdiction, and it does not create operative law. One must still be able to point to some applicable and existing federal law which nourishes the grant of jurisdiction: see Quebec North Shore Paper and McNamara cases. Since jurisdiction over landbased torts was not conferred by The Admiralty Act, 1891, it is clear that Miida's action against ITO is not encompassed by the first category of Canadian maritime law.

I turn then to the second part of the definition of Canadian maritime law in s. 2 of the Federal Court Act, which refers to law "that would have been so administered if that Court had had, on its Admiralty side, unlimited jurisdiction in relation to maritime and admiralty matters, as that law has been altered by this or any other Act of the

[Page 773]

Parliament of Canada." These words have been the subject of some discussion in the Federal Court of Appeal but have not yet been construed in this Court. In Tropwood, Laskin C.J. found it unnecessary to deal with them. Thurlow A.C.J. commented on this aspect of Canadian maritime law in The Queen v. Canadian Vickers Ltd., supra, as did Le Dain J. in Domestic Converters Corp. v. Arctic Steamship Line, supra. Thurlow A.C.J. appears to have been of the view that this second part of the definition of Canadian maritime law may have introduced into Canadian law maritime law which was administered in the Admiralty Court in the reign of Edward III and prior to the statutes of Richard II and Henry IV (the effect of which was to severely restrict the jurisdiction of the Admiralty Court). Le Dain J. expressed the opinion in Domestic Converters, at p. 240, that:

Although… these words permit the recognition of new maritime contracts as being within the jurisdiction of the Court, they cannot be applied without reference to what has historically been considered to be of a maritime nature when admiralty jurisdiction has been exercised to its greatest extent.

He went on to note the historical distinction between maritime torts and contracts, that is, that jurisdiction with respect to torts was necessarily bounded by locality, while jurisdiction with respect to contracts was not. He pointed out, at p. 243:

A maritime tort has been one committed on water and not on land, whereas a maritime contract, if it has the requisite general character because of its subject matter, may nevertheless be a maritime contract although it is to be performed on land.

At its height, the jurisdiction of the Court of Admiralty in England with respect to torts extended only to torts on the high seas, the British seas, and in ports within the ebb and flow of the tide (De Lovio v. Boit (1815), 2 Gall. 398 (U.S. Circuit Ct., Mass.), and MacMillan Bloedel Ltd. v. Canadian Stevedoring Co., supra). Le Dain J. concluded, at p. 244:

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It would be against the whole tradition of admiralty jurisdiction with respect to maritime torts to hold that a tort or delict committed on land is a maritime matter.

I would agree that the historical jurisdiction of the Admiralty courts is significant in determining whether a particular claim is a maritime matter within the definition of Canadian maritime law in s. 2 of the Federal Court Act. I do not go so far, however, as to restrict the definition of maritime and admiralty matters only to those claims which fit within such historical limits. An historical approach may serve to enlighten, but it must not be permitted to confine. In my view the second part of the s. 2 definition of Canadian maritime law was adopted for the purpose of assuring that Canadian maritime law would include an unlimited jurisdiction in relation to maritime and admiralty matters. As such, it constitutes a statutory recognition of Canadian maritime law as a body of federal law dealing with all claims in respect of maritime and admiralty matters. Those matters are not to be considered as having been frozen by The Admiralty Act, 1934. On the contrary, the words "maritime" and "admiralty" should be interpreted within the modern context of commerce and shipping. In reality, the ambit of Canadian maritime law is limited only by the constitutional division of powers in the Constitution Act, 1867 . I am aware in arriving at this conclusion that a court, in determining whether or not any particular case involves a maritime or admiralty matter, must avoid encroachment on what is in "pith and substance" a matter of local concern involving property and civil rights or any other matter which is in essence within exclusive provincial jurisdiction under s. 92  of the Constitution Act, 1867 . It is important, therefore, to establish that the subject-matter under consideration in any case is so integrally connected to maritime matters as to be legitimate Canadian maritime law within federal legislative competence.

Turning to Miida's claim against ITO, it can be seen that it involves the negligence of a stevedore-terminal operator in the short-term storing of

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goods within the port area pending delivery to the consignee. The Reference re Industrial Relations and Disputes Act, [1955] S.C.R. 529, established that the stevedoring function "is an integral part of carrying on the activity of shipping," (per Locke J. at p. 574). In that case, "stevedore" was employed as a compendious term by Kerwin C.J. to include the category of "shedmen". He defined the duties of shedmen, at p. 532, in these words:

The shedmen in general deliver cargo from the sheds to the tailboards of trucks or to railway car doors or receive cargo at these points and place it in the sheds and sometimes re-arrange the cargo in the sheds.

The work performed by the stevedores is also referred to by Locke J. at pp. 570-71. Part of that work involved the incidental storage of cargo.

Cargo of which immediate delivery is not taken by the consignee is placed in the company's sheds and delivery subsequently taken from there by the consignees in trucks or railway cars.

It is clear, in my view, that such incidental storage by the carrier itself or by a third party under contract to the carrier is also a matter of maritime concern by virtue of the "close, practical relationship of the terminal operation to the performance of the contract of carriage" (per Le Dain J. in the Court of Appeal). It may then be concluded that cargo-handling and incidental storage before delivery and before the goods pass from the custody of a terminal operator within the port area is sufficiently linked to the contract of carriage by sea to constitute a maritime matter within the ambit of Canadian maritime law, as defined in s. 2 of the Federal Court Act.

At the risk of repeating myself, I would stress that the maritime nature of this case depends upon three significant factors. The first is the proximity of the terminal operation to the sea, that is, it is within the area which constitutes the port of Montreal. The second is the connection between the terminal operator's activities within the port area and the contract of carriage by sea. The third is

[Page 776]

the fact that the storage at issue was short-term pending final delivery to the consignee. In my view, it is these factors, taken together, which characterize this case as one involving Canadian maritime law.

Having found that Miida's claim against ITO falls within the scope of Canadian maritime law, the question then arises as to the substantive content of that law. Canadian maritime law, as a body of substantive law, encompasses the principles of English maritime law as they were developed and applied in the Admiralty Court of England (The Queen v. Canadian Vickers Ltd., supra, and authorities cited therein, pp. 683-84. In 1934 when, as has been noted, a body of admiralty law from England was incorporated into Canadian law, the Admiralty side of the High Court of Justice had jurisdiction in cases of contract and tort which were considered to be admiralty matters. In dealing with such cases, the court applied the necessary common law principles of tort and contract in order to resolve the issues. Common law rules of negligence, for example, were applied in collision cases ("Cuba" (The) v. McMillan (1896), 26 S.C.R. 651, at pp. 661-62, and E. Mayers, Admiralty Law and Practice in Canada (1916), at p. 146). Bailment principles were applied in loss of cargo cases ("Winkfield" (The), [1902] P. 42 (C.A.)) Thus, the body of admiralty law, which was adopted from England as Canadian maritime law, encompassed both specialized rules and principles of admiralty and the rules and principles adopted from the common law and applied in admiralty cases as these rules and principles have been, and continue to be, modified and expanded in Canadian jurisprudence. (See, for example, the judgment of this Court in Wire Rope Industries of Canada (1966) Ltd. v. B.C. Marine Shipbuilders Ltd., [1981] 1 S.C.R. 363, in which common law principles of negligence and contract law were employed to resolve the appeal.)

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Canadian maritime law then is the existing body of federal law which is essential to the disposition of this case and which nourishes the jurisdiction granted to the Federal Court in s. 22 of the Federal Court Act. Thus the second requirement for a finding of jurisdiction in the Federal Court is established. The third requirement that the law in question must be a law of Canada, as that expression is used in s. 101  of the Constitution Act, 1867 , is also met because Canadian maritime law and other laws dealing with navigation and shipping come within s. 91(10)  of the Constitution Act, 1867 , thus confirming federal legislative competence.

I would, therefore, conclude that the Federal Court has jurisdiction to entertain the claims of Miida against both Mitsui and ITO.

Questions regarding the uniformity of Canadian maritime law and the incidental application of provincial law by the Federal Court have also been raised by the parties. Though these arguments were adduced under the heading "Choice of Law" in the factums, I think it better to avoid use of that term because of its particular meaning in the context of the law of conflicts. It is quite clear that this is not a case involving conflict of laws issues. Once it has been determined that a matter is governed by constitutionally valid federal law, as in this case, then the relevant legal unit is Canada and not a particular province. Federal law is not foreign law vis-à-vis the law of a province since it is an integral part of the law of each province and territory. This question is covered by J.-G. Castel in the second edition of his text, Canadian Conflict of Laws, at p. 4, in these terms:

2. Territorial and legal units

In a federal state like Canada, for the purposes of conflict of laws, each of the ten provinces and two territories is a territorial unit as well as a legal unit possessing its own provincial or territorial system of conflict of laws. In addition to the twelve systems of conflict of laws operating in the provinces and territories, there is a federal system of conflict of laws operat-

[Page 778]

ing inside the international territorial limits of the country as a whole with respect to matters which, under the Canadian constitution, come within the jurisdiction of the federal Parliament. This means that in some cases Canada also is a legal unit. Thus, each province or territory is a legal unit except as to matters governed by federal law, and Canada is a legal unit except as to matters governed by provincial or territorial law.

Of course, the individual principles and rules of conflict of laws form an integral part of the branch of the law to which they relate, be it federal or provincial in nature. Any law other than the law of the particular territorial legal unit in which the court, adjudicating a dispute containing legally relevant foreign elements, sits, is "foreign law." However, in Canada, federal law, which for the purpose of the subject matter discussed here means conflict of laws rules found in federal statutes, is not "foreign law" since it is an integral part of the law of each province and territory.

Dealing first then with the issue of uniformity, ITO advanced the argument that the Quebec Civil Code has been federally incorporated as part of the law of Canada and in admiralty cases in Quebec is applicable as Canadian maritime law. Reliance is placed on s. 129  of the Constitution Act, 1867  and s. 42 of the Federal Court Act. The sections are reproduced hereunder:

Constitution Act, 1867 

129. Except as otherwise provided by this Act, all Laws in force in Canada, Nova Scotia, or New Brunswick at the Union, and all Courts of Civil and Criminal Jurisdiction, and all legal Commissions, Powers, and Authorities, and all Officers, Judicial, Administrative, and Ministerial, existing therein at the Union, shall continue in Ontario, Quebec, Nova Scotia, and New Brunswick respectively, as if the Union had not been made; subject nevertheless (except with respect to such as are enacted by or exist under Acts of the Parliament of Great Britain or of the Parliament of the United Kingdom of Great Britain and Ireland,) to be repealed, abolished, or altered by the Parliament of Canada, or by the Legislature of the respective Province, according to the Authority of the Parliament or of that Legislature under this Act.

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Federal Court Act

42. Canadian maritime law as it was immediately before the 1st day of June 1971 continues subject to such changes therein as may be made by this or any other Act.

Section 129 does not, in my opinion, support an argument for referential incorporation of provincial law. The effect of the section is to preserve in force after the Union the laws which existed in the various provinces before the Union, but as to future repeal or amendment of such laws after the Union, the s. 91 and s. 92 division of powers was to apply. This section has rather an opposite effect from that contended for. It separates the laws into the separate spheres of legislative competence created by the Union, rather than causing any federal incorporation. See, on this point, the words of Jackett C.J. in Associated Metals and Minerals Corp. v. The "Evie W", [1978] 2 F.C. 710 (C.A.), at pp. 713-14. Section 42 cannot be considered a referential incorporation of provincial law or a re-enactment of provincial law. It is clearly only a continuation of law provision.

It is my view, as set out above, that Canadian maritime law is a body of federal law encompassing the common law principles of tort, contract and bailment. I am also of the opinion that Canadian maritime law is uniform throughout Canada, a view also expressed by Le Dain J. in the Court of Appeal who applied the common law principles of bailment to resolve Miida's claim against ITO. Canadian maritime law is that body of law defined in s. 2 of the Federal Court Act. That law was the maritime law of England as it has been incorporated into Canadian law and it is not the law of any province of Canada. This question was raised in the dissenting judgments of Cartwright and Ritchie JJ. in National Gypsum Co. v. Northern Sales Ltd., [1964] S.C.R. 144. That case involved an action brought in the Exchequer Court by a party to a charter party made in New York containing a provision that disputes under the charter party would be resolved by arbitration in New York. The charter party pro-

[Page 780]

vided that a vessel would pick up a cargo of grain at Montreal for ocean shipment. The vessel failed to come to Montreal and action for damages was commenced by the plaintiff. The plaintiff succeeded in the lower courts and the appeal of the defendant was dismissed in the Supreme Court of Canada. Speaking for the majority (Taschereau C.J., Fauteux and Abbott JJ.), Fauteux J. found that there was jurisdiction in the Exchequer Court and held that the arbitration provision in the charter party dealt with procedural matters which were subject to the lex fori, applied Quebec law in finding that such an arbitration provision in a contract was contrary to public policy in the Province of Quebec, and dismissed the appeal. Cartwright and Ritchie JJ. wrote separate reasons concurring in a dissent. Cartwright J., as he then was, considered that the arbitration provision was substantive and that it should have its effect, recognizing its applicability in English law which had been adopted in Canada as part of Canadian admiralty law. He said, at p. 153-54:

The substantive law applied by the Exchequer Court on its Admiralty side is, of course, the same throughout Canada and does not vary according to the Admiralty District in which the cause of action arises, but, by the combined effect of Admiralty Rule 215 and Exchequer Court Rule 2(1) (b), the practice and procedure, where it is not otherwise provided by any Act of the Parliament of Canada or any general rule or order of the Court, shall:

(b) If the cause of action arises in the Province of Quebec, conform to and be regulated, as near as may be, by the practice and procedure at the time in force in similar units, actions and matters in Her Majesty's Superior Court for the Province of Quebec; and if there be no similar suit, action or matter therein, then conform to and be regulated by the practice and procedure at the time in force in similar suits, actions and matters in Her Majesty's Supreme Court of Judicature in England.

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Ritchie J. was in agreement with Cartwright J., that the appeal should succeed, and in his separate reasons said, at p. 163:

It appears to me to be clear from the Admiralty Act that the substantive law to be applied by the Exchequer Court of Canada on its Admiralty side is by the very nature of the jurisdiction conferred by that Statute required to be the same in the various Admiralty District Courts which have been established to exercise it.

In my opinion, the force of these comments is not weakened because they were uttered in dissent. They deal with a question which was not specifically dealt with by the majority. In fact, in concluding his reasons for the majority, Fauteux C.J. said of the dissenting judgments, at p. 152:

…they do not, in my respectful view, affect the basis upon which the opinion I have formed has been reached.

The matter is further considered by Jackett C.J. in Associated Metals and Minerals Corp. v. The "Evie W", supra, at pp. 716-17.

I turn then to the question of the application of provincial law by the Federal Court and to the argument that the adoption of Civil Code art. 1053 (delict) for the determination of the issue of negligence, and art. 1029 (stipulation pour autrui), as far as the Himalaya clause is concerned, would merely be an incidental application of provincial law for the resolution of a particular dispute.

The Federal Court is constituted for the better administration of the laws of Canada. It is not, however, restricted to applying federal law in cases before it. Where a case is in "pith and substance" within the court's statutory jurisdiction, the Federal Court may apply provincial law incidentally necessary to resolve the issues presented by the parties; see Kellogg Co. v. Kellogg, [1941] S.C.R. 242, where, in a case involving a dispute over patent rights, the effect of an employment contract had to be considered in the Federal Court, and see as well: McNamara Construction (Western) Ltd. v. The Queen, supra, where Laskin C.J. suggested that the provincial law of contribution indemnity

[Page 782]

may be applied by the Federal Court where jurisdiction is otherwise founded on federal law.

It is argued that in the absence of a special Admiralty rule or provision the law enforced in the locality of the proceedings applies. This is the result, it is contended, of the adoption of an incomplete body of law from a unitary state into a federal system. Since the common law of negligence and bailment may be incidentally applied in Admiralty cases, so also may the Civil Code be incidentally applied in cases arising in the Province of Quebec. The answer to this argument may be shortly stated. Canadian maritime law as adopted in Canada historically, and as finally brought into Canadian law by s. 2 of the Federal Court Act, includes common law principles as they are applied in Admiralty matters. Thus, as discussed above, common law principles so incorporated are federal law and not an incidental application of provincial law.

In conclusion then it may be said that the common law principles of negligence and bailment have become part of Canadian maritime law by adoption from England. Accordingly, Le Dain J., in applying the common law principles of bailment and negligence, adopted the right course. In addition, this conclusion serves the practical interest of uniformity in Canadian admiralty and marine law.

The Himalaya Clause

As mentioned above, the bill of lading contained limitation of liability clauses in clauses 8 and 18 and a Himalaya clause in clause 4 seeking to extend the immunity granted to the carrier to those it employed in connection with the shipment and unloading of the cargo. Clause 4 in this case specifically includes the stevedore as a beneficiary of the clause. It becomes necessary now to consider whether Himalaya clauses are to be accepted as a feature of Canadian maritime law and, further, to

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decide whether clause 4 in the facts of this case would be effective to relieve ITO of liability.

The question of whether a Himalaya clause can be effective in Canadian law to permit a stevedore-terminal operator to claim the same exemptions as are allowed the carrier under a bill of lading is one which has not been directly addressed in this Court despite the great interest it has provoked in the courts of the Commonwealth and the United States and in the academic journals: see F. Dawson, "Himalaya Clauses, Consideration and Privity of Contract" (1975), 6 N.Z.U.L.R. 161; S. Waddams, Comments (1977), 55 Can. Bar Rev. 327; W. Tetley, Marine Cargo Claims, Chapter 13 "The Himalaya Clause-Heresy or Genius?" (2nd ed., 1978); P. Clarke, "The Reception of The Eurymedon Decision in Australia, Canada and New Zealand" (1980), 29 Int'l and Comp. L.Q. 132; M. Tedeschi, "Consideration, Privity and Exemption Clauses; Port Jackson Stevedoring Pty. Ltd. v. Salmond and Spraggon (Australia) Pty. Ltd." (1981), 55 A.L.J. 876. These comments have revealed a gap between contractual theory and commercial reality and it appears that the weight of opinion in commercial circles favours, at least in general terms, the adoption or recognition of the Himalaya clause.

The stumbling block which has obstructed the course of the development of the Himalaya clause seems to have been the common law notion of privity of contract and the difficulty it has caused common law lawyers in accepting the general proposition that a stevedore not a party to the contract contained in the bill of lading should be entitled to take the benefit of the immunity clauses in the contract. The House of Lords in Midland Silicones Ltd. v. Scruttons Ltd., [1962] A.C. 446, held, that the Himalaya clause could not have the effect of extending a carrier's limitation of liability to a stevedore, in an action in tort by a consignee for damage to the cargo by negligence during unloading. Viscount Simons, with whom Lord Reid, Lord Keith and Lord Morris of Borth-y-Gest agreed (Lord Denning dissenting), put his decision

[Page 784]

on what he termed "an elementary principle" that only the parties to a contract could sue upon it. He held that there was no basis for a finding that the stevedore was by implication a party to the contract or that the carrier had contracted as the agent of the stevedore and that the exemption of the carrier would not, therefore, avail the stevedore. This case was followed in this Court in Canadian General Electric Co. v. Pickford & Black Ltd., [1971] S.C.R. 41, where a claim was made against the stevedore for damage to a cargo by negligent stowage, but in Greenwood Shopping Plaza Ltd. v. Beattie, [1980] 2 S.C.R. 228, exceptions to the strict rule of privity were inferentially recognized.

In Midland Silicones, supra, Lord Reid, while agreeing with the majority that the appeal of the stevedore failed, nevertheless left open a route which could be followed by a stevedore seeking the benefit of an exception clause in a bill of lading. He said, at p. 474, after referring to the argument raised by the stevedore, that the carrier had contracted for them as an agent in the bill of lading:

I can see a possibility of success of the agency argument if (first) the bill of lading makes it clear that the stevedore is intended to be protected by the provisions in it which limit liability, (secondly) the bill of lading makes it clear that the carrier, in addition to contracting for these provisions on his own behalf, is also contracting as agent for the stevedore that these provisions should apply to the stevedore, (thirdly) the carrier has authority from the stevedore to do that, or perhaps later ratification by the stevedore would suffice, and (fourthly) that any difficulties about consideration moving from the stevedore were overcome.

In 1975, the matter again came up for discussion: this time in the Judicial Committee of the Privy Council in the case of New Zealand Shipping Co. v. A. M. Satterthwaite & Co. (The "Eurymedon"),

[Page 785]

[1975] A.C. 154, which case considered the question of an action in negligence against the stevedore for damage to goods being unloaded. The Judicial Committee gave effect to a Himalaya clause which was contained in the bill of lading, and held that the stevedore was entitled to rely on a clause in the bill of lading which barred actions not brought within one year. Lord Wilberforce, who spoke for the majority, relied upon the passage quoted above from the speech of Lord Reid in Midland Silicones and held that, as agent, the carrier had contracted for the same exemptions for the stevedore as for itself. In that case the defendant stevedore had a standing arrangement with the carrier to act as its stevedore and it was found to have authorized the carrier to contract on its behalf. This would comply with Lord Reid's first three conditions. The fourth condition was satisfied as well. Lord Wilberforce, at pp. 167-68, in a passage which I consider worth reproducing at some length recognized that there was no principle of jus tertii to be applied in English law, but nothing that the whole arrangement was of a commercial nature and purpose endeavoured to give it a realistic construction. He said that:

If the choice, and the antithesis, is between a gratuitous promise, and a promise for consideration, as it must be in the absence of a tertium quid, there can be little doubt which, in commercial reality, this is. The whole contract is of a commercial character, involving service on one side, rates of payment on the other, and qualifying stipulations as to both. The relations of all parties to each other are commercial relations entered into for business reasons of ultimate profit. To describe one set of promises, in this context, as gratuitous, or nudum pactum, seems paradoxical and is prima facie implausible. It is only the precise analysis of this complex of relations into the classical offer and acceptance, with identifiable consideration, that seems to present difficulty, but this same difficulty exists in many situations of daily life, e.g., sales at auction; supermarket purchases; boarding an omnibus, purchasing a train ticket; tenders for the supply of goods; offers of rewards; acceptance by post; warranties of authority by agents; manufacturers' guarantees; gratuitous bailments; bankers' commercial credits. These are all examples which show that English law, having committed itself to a rather technical and

[Page 786]

schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration.

In their Lordships' opinion the present contract presents much less difficulty than many of those above referred to. It is one of carriage from Liverpool to Wellington. The carrier assumes an obligation to transport the goods and to discharge at the port of arrival. The goods are to be carried and discharged, so the transaction is inherently contractual. It is contemplated that a part of this contract, viz. discharge, may be performed by independent contractors-viz. the appellant. By clause 1 of the bill of lading the shipper agrees to exempt from liability the carrier, his servants and independent contractors in respect of the performance of this contract of carriage. Thus, if the carriage, including the discharge, is wholly carried out by the carrier, he is exempt. If part is carried out by him, and part by his servants, he and they are exempt. If part is carried out by him and part by an independent contractor, he and the independent contractor are exempt. The exemption is designed to cover the whole carriage from loading to discharge, by whomsoever it is performed: the performance attracts the exemption or immunity in favour of whoever the performer turns out to be. There is possibly more than one way of analysing this business transaction into the necessary components; that which their Lordships would accept is to say that the bill of lading brought into existence a bargain initially unilateral but capable of becoming mutual, between the shipper and the appellant, made through the carrier as agent. This became a full contract when the appellant performed services by discharging the goods. The performance of these services for the benefit of the shipper was the consideration for the agreement by the shipper that the appellant should have the benefit of the exemptions and limitations contained in the bill of lading.

The "Eurymedon" decision was affirmed in the Privy Council in Salmond and Spraggon (Aus-

[Page 787]

tralia) Pty. Ltd. v. Port Jackson Stevedoring Pty. Ltd. (The "New York Star"), [1980] 2 Lloyd's Rep. 317, a case involving, as in the case at bar, post-discharge theft of cargo.

The main support for the acceptance of the clause seems to rest upon the assertion that it accords with commercial reality and allows for the definite establishment of risks, and therefore makes certain the respective needs for the provision of insurance. It must be noted as well that Lord Wilberforce specifically refused to put his acceptance of the clause on the basis of the jus tertii. He firmly rejects any weakening of the requirement of privity for one seeking to enforce or take the benefit of a contract. It is by placing the relationship of the parties into the traditional mold of the law of contract that he finds the clause acceptable in law.

Of interest on this point is the thirteenth edition of Carver, Carriage by Sea (1982), in which is found a different approach to the question of liability of stevedores and other agents of the carrier. The learned author rejects the proposition that the concept of the jus tertii is unknown to the common law and refers to early authorities which support its application. In essence, the view is expressed that there is nothing wrong in principle or authority with the clear application of the principle of jus tertii. There is nothing offensive, it is argued, in a contract of affreightment in giving effect to that which was intended by the parties. The essence of the proposition advanced by the learned author may be found at vol. 1, p. 262, where he says, at paragraph 410:

Importance of Himalaya Clause

It will be a happy day when the Himalaya Clause and The Eurymedon have run their course. The Himalaya Clause has proved to have been a most effective dyke to stem the tide threatening to overwhelm the barrier against incursion on shipowners' pockets of perils of the sea. But exceptions of perils of the sea can be preserved more thoroughly by simpler and more rational means once it was generally apparent that the fundamental principle of jus tertii covers all. It is clearly the available protective principle to apply now to ensure that the will of the parties to a contract of affreightment can simply

[Page 788]

be secured by saying in the bill of lading what that will is.

An omnibus clause, of Himalaya vintage, could be devised, but it need no longer go into awkward concepts, which vary as between one country and another such as those of undisclosed agency and deemed (which means non-existent de facto) trusts.

England does not stand alone in this matter; the real need to preserve, and possibly improve, the clause at this time stems also from the views already expressed by courts in Australia, Canada and the United States.

It may be that this approach offers a more rational solution to the problem than that outlined by Lord Wilberforce, which compresses the facts into a contractual mold in order to preserve the common law principle of privity in a situation in which it would appear that it is being rejected. Be that as it may, I leave open for another day consideration of the Carver proposal, and I would follow the approach of Lord Wilberforce expressed in the case of The "Eurymedon".

The "Eurymedon", as noted above, has caused considerable problems for some common law lawyers and academics who find difficulty with the concept of consideration as between ITO and Miida in these circumstances. I would observe on this point that conceptual difficulties of this nature are not a novel feature of the common law. In fact it may be said that one of the virtues of the common law is that it has never really let pure logic get in the way of common sense and practical necessity when a desirable result is sought to be achieved. In The "Eurymedon" case, Lord Wilberforce has made mention of the problems that have arisen in applying the strict rules of the law of contract to the infinitely variable activities of human society and has given examples which illustrate the problems. While it may be that logical difficulties arise in the analysis developed by Lord Wilberforce, in my view it should be followed. In admiralty or marine cases we are dealing with international commerce. There is sound reason to promote uniformity in this field and as great a degree of certainty as may be possible. In the ordinary course of commerce, carriers, stevedores

[Page 789]

and terminal operators have established practices which are widely followed and generally understood by all concerned. Bills of lading and stevedoring contracts are made in many languages frequently involving different rules and conditions and all must be made operative in the general practice of marine transportation. Himalaya clauses have become accepted as a part of the commercial law of many of the leading trading nations, including Great Britain, the United States, Australia, New Zealand, and now in Canada. It is thus desirable that the courts avoid constructions of contractual documents which would tend to defeat them. I would therefore accept the approach taken by Lord Wilberforce and, in doing so, I observe that the Court is simply giving effect to that which the parties themselves clearly agreed to in writing.

It may be noted at this point that in the Australian High Court in Salmond and Spraggon (Australia) Pty. Ltd. v. Port Jackson Stevedoring Pty. Ltd. (The "New York Star") [reversed by the Judicial Committee of the Privy Council, supra] Barwick C.J., at [1979] 1 Lloyd's Rep. 298, (in dissenting from the majority of that court) upheld the Himalaya clause on a somewhat different analysis than that adopted by Lord Wilberforce in The "Eurymedon". He expressed the opinion that there was a contract between the consignor and the stevedore through the agency of the carrier which became binding when the stevedore performed services in relation to the cargo, and that the exemption clauses in the bill of lading extended to protect the stevedore after the goods had been unloaded. The bill of lading was not to be considered as a contract or an offer but merely as a pre-contractual bargain between the consignor and the stevedore, that in the event the stevedore provided services in unloading cargo the provisions of the bill of lading would extend to protect him. He said, at pp. 304-05:

[Page 790]

For my part, I find no difficulty in interpreting the arrangement made by the bill of lading and its acceptance by the consignor as providing that if, in fact, the appellant stevedored the cargo, leaving aside for the moment what the stevedoring involved, the appellant should have the benefit of the clauses of the bill including the benefit of the time limitation expressed in cl. 17 of the bill of lading. I am unable to treat the clauses of the bill of lading as in any respect an unaccepted but acceptable offer by consignor to stevedore. Indeed, I do not think the bill can be interpreted as containing an offer at large by the consignor. The consignor and the appellant as stevedore were ad idem through the carrier's agency upon the acceptance by the consignor of the bill of lading as to the protection the stevedore should have in the event that it stevedored the consignment. But this consensus lacked the essential of consideration. The appellant through the bill of lading made no promise to stevedore the cargo. Thus, while I would not analyse the situation obtaining on the acceptance of the bill of lading as an exchange of promises, I would not analyse it as merely the making of an offer susceptible of acceptance by an act of the stevedore done in purported acceptance of the offer. For this reason I have described the bill of lading in so far as the carrier there purports to act for the appellant as an arrangement. To agree with another that, in the event that the other acts in a particular way, that other shall be entitled to stated protective provisions only needs performance by the doing of the specified act or acts to become a binding contract. Whether or not the arrangement is susceptible of unilateral disavowal before the stated act is done need not be discussed. Here the act was done. The performance of the act or acts at the one moment satisfied the test for consideration and enacted the agreed terms.

The arrangement made to govern future conduct on the happening of the specified events became, he said, a binding contract on the performance of the stevedoring services, and the stevedore was then entitled to the protection of the provisions of the bill of lading. (For an analysis of this approach, see M. Tedeschi, supra, at p. 878.) This approach, while possibly drawing a more direct line than does that in The "Eurymedon", is not inconsistent with it. Lord Wilberforce, at p. 167 of

[Page 791]

The "Eurymedon", supra, recognized that there would be different ways of analyzing the matter and he accepted Barwick C.J.'s approach as support for his own, as expressed in The "Eurymedon".

Having established that the Himalaya clause may be effective in Canadian maritime law, I turn now to consider its applicability to the case at bar. The resolution of this dispute depends, as do most other cases dealing with contests between carriers, stevedores and shippers, upon a construction of the underlying contracts. In this case we are concerned with the contract of carriage, that is, the bill of lading, and the stevedore's contract. The relevant clauses of the bill of lading for our purposes are clauses 8 and 18 which impose limits on the liability of the carrier, and clause 4, the Himalaya clause which purports to extend to the stevedore-terminal operator the benefit of such limitations. We are concerned as well with clauses 2 and 7 of the stevedoring contract between the carrier and ITO in which the carrier has agreed to include the stevedore-terminal operator as a beneficiary of all limitations of liability found in the bill of lading. These clauses have been reproduced above.

Clause 8 of the bill of lading in its application to the facts at bar provides that the carrier shall have no liability for any loss of the goods occurring after discharge and, further, that discharging shall be complete when the goods are freed from the vessel's tackle. This clause then deals precisely with the situation which exists in this case, the claim being for the loss of the goods after discharge. Clause 18 of the bill of lading also provides that upon completion of discharging the cargo responsibility of the carrier shall cease and it imposes the risks and costs for storage on the shipper or on the consignee. Clause 2 of the stevedoring agreement made between Mitsui and ITO provides that ITO will unload the vessel and that should further services including that of watching be required that ITO will arrange for such services as agent for the carrier and on the condition that ITO, its agents and employees, shall not thereby

[Page 792]

incur liability for the pilferage or theft of the cargo. Clause 7 of that contract, in so far as it would be applicable to the case at bar, provides that the carrier will include ITO as an express beneficiary of all immunities and limitations of liability provisions of the bill of lading. Clause 4, the Himalaya clause in the bill of lading, purports to extend to the stevedore in the performance of the contract:

… the same but no further exemptions and immunities from and limitations of liability which the carrier has under this bill of lading … the … persons referred to heretofore shall to the extent provided be or be deemed to be parties to the contract … this bill of lading and the carrier is or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of all such persons.

The question of the application and effect of these provisions is the central feature of the case.

On the face of the document clauses 8 and 18 of the bill of lading give wide immunity to the carrier. The consignee, Miida, is a party to the bill of lading (see Bills of Lading Act, R.S.C. 1970, c. B-6, s. 2) and is then bound by its provisions and must accord to Mitsui the immunities and limitations from liability that are available to it on a proper construction of the document. ITO, the stevedore-terminal operator in whose custody the goods were when the theft occurred, is not a party to the bill of lading and in accordance with common law rules would not be entitled to benefit from it. ITO, however, does have a contractual relationship with Mitsui as a party to the stevedoring contract which gives it immunities and expresses the conditions under which it performs its duties as a stevedore. Before ITO can have the benefit of the immunities and limitations to which the carrier, Mitsui, is entitled as against the claim of Miida, a link must be found between ITO and Miida which would bring ITO into the contractual arrangement between Mitsui and Miida, at least sufficiently to enable ITO to benefit from the extension of the immunities and limitations of liability under the provisions of clause 4, the Himalaya clause.

[Page 793]

In similar circumstances in the case of New Zealand Shipping Co. v. A. M. Satterthwaite & Co. (The "Eurymedon"), supra, Lord Wilberforce found the necessary link between the stevedore and the consignee which gave the necessary element of privity to create the contractual link. As we have mentioned above, he accepted the test propounded by Lord Reid in Midland Silicones Ltd. v. Scruttons Ltd., supra, and found that the stevedore in that case had the benefit of the exclusion clauses in the bill of lading and the Himalaya clause. In applying the same line of reasoning to the facts at bar, it may be said at once that the first requirement of Lord Reid's test is met. Clause 4 of the bill of lading specifically includes stevedores and contractors. The second requirement is also met by the words of clause 4, that the carrier shall be deemed to be contracting as agent for the stevedore. The third requirement, that the carrier has authority from the stevedore to contract on its behalf, is met. Clause 7 of the stevedoring contract provides, in part, that:

It is further expressly understood and agreed that the Company will include the Contractor as an express beneficiary, to the extent of the services to be performed hereunder, of all rights, immunities and limitation of liability provisions of all contracts of affreightment as evidenced by its standard bills of lading and/or passengers' tickets, issued by the Company during the effective period of this agreement.

The fourth requirement, that any difficulties about consideration moving from the stevedore are overcome, is met in my view by adopting the approach taken by Lord Wilberforce in The "Eurymedon" in a long passage, at pp. 167-68 of the report, which is cited above. I refer again to the closing words of that passage:

… the bill of lading brought into existence a bargain initially unilateral but capable of becoming mutual, between the shipper and the appellant, made through the carrier as agent. This became a full contract when the appellant performed services by discharging the goods. The performance of these services for the benefit of the shipper was the consideration for the agreement

[Page 794]

by the shipper that the appellant should have the benefit of the exemptions and limitations contained in the bill of lading.

I would therefore conclude that both Mitsui and ITO are entitled to the protection of the exclusion clauses in the bill of lading, according to their tenor. It remains then to consider whether the clauses are effective to provide relief in the circumstances of this case.

On the issue of whether the provisions of the bill of lading would apply to relieve ITO of liability for its own negligence, counsel for ITO relied on Canada Steamship Lines Ld. v. The King, [1952] A.C. 192, and certain English decisions which have applied it and commented upon it. In that case, where the lessee sought to recover damages from the lessor for the value of goods destroyed in a fire caused by the negligence of the servants of the lessor, an exemption clause provided:

… the lessee shall not have any claim … against the lessor for … damage … to … goods … being … in the said shed.

In the Judicial Committee of the Privy Council Lord Morton of Henryton, holding that the Crown was not entitled to the benefit of the exemption clause because of the negligence of its servants, referred to the "three-fold" test set out by Lord Greene M.R., in Alderslade v. Hendon Laundry, Ld., [1945] K.B. 189 (C.A.), and described the approach which should be taken by a court in construing such a clause. Lord Morton said, at p. 208:

Their Lordships think that the duty of a court in approaching the consideration of such clauses may be summarized as follows:—

(1) If the clause contains language which expressly exempts the person in whose favour it is made (hereafter called "the proferens") from the consequence of the negligence of his own servants, effect must be given to that provision. Any doubts which existed whether this was the law in the Province of Quebec were removed by the decision of the Supreme Court of Canada in The Glengoil Steamship Company v. Pilkington.

(2) If there is no express reference to negligence, the court must consider whether the words used are wide

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enough, in their ordinary meaning, to cover negligence on the part of the servants of the proferens. If a doubt arises at this point, it must be resolved against the proferens in accordance with article 1019 of the Civil Code of Lower Canada: "In cases of doubt, the contract is interpreted against him who has stipulated and in favour of him who has contracted the obligation."

(3) If the words used are wide enough for the above purpose, the court must then consider whether "the head of damage may be based on "some ground other than that of negligence," to quote again Lord Greene in the Alderslade case. The "other ground" must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it; but subject to this qualification, which is no doubt to be implied from Lord Greene's words, the existence of a possible head of damage other than that of negligence is fatal to the proferens even if the words used are prima facie wide enough to cover negligence on the part of his servants.

Tests 1 and 2 have caused little problem and have been generally accepted and followed by courts in England and Canada dealing with this question. Test 3, however, because of the qualifying statement to the effect that the existence of another possible head of damage, other than that of negligence, would be "fatal to the proferens" even if the words used are prima facie wide enough to include negligence, has been the subject of much judicial comment and has given courts some difficulties: see Gillespie Brothers & Co. v. Roy Bowles Transport Ltd., [1973] 1 All E.R. 193 (C.A.); Hollier v. Rambler Motors (AMC) Ltd., [1972] 1 All E.R. 399 (C.A.); Rutter v. Palmer, [1922] 2 K.B. 87 (C.A.); Smith v. South Wales Switchgear Ltd., [1978] 1 All E.R. 18 (H.L.) From these decisions it is apparent that the courts have treated this problem as a question of construction in an effort to give effect to what may be termed the reasonable intention of the parties. Generally, these cases have accepted the Canada Steamship Lines case as authoritative but have endeavoured to relax the qualification expressed in the third test.

This whole field was canvassed in the English Court of Appeal more recently in Lamport & Holt Lines Ltd. v. Coubro & Scrutton (M. & I.) Ltd., (The "Raphael"), [1982] 2 Lloyd's Rep. 42. In

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that case the exemption clause was in these terms [at p. 43]:

Except as stated herein (a) we shall not be liable for any damage loss injury costs or expenses suffered by you or your servants or agents and which may arise from or be in any way connected with any act or omission of any person or corporation employed by us or by any subcontractors or engaged in any capacity in connection herewith and (b) you shall indemnify us against all loss damages claims and expenses whatsoever incurred by us in relation to or arising out of the performance of our obligations.

At trial, it was held that the clause would exclude liability for negligence, and the appeal was dismissed. The judges in the Court of Appeal reviewed the above authorities and dealt with Lord Morton's qualification in test 3. At p. 48, May L.J. said:

Before I turn to the third of Lord Morton's tests, I should refer to the point which Lord Justice Donaldson has also mentioned. Underlying Counsel for the respondents' particular submissions on the respective tests there was a more general one. This was to emphasize that although they are described as tests, this is really a misdescription. They are and were only intended to be guidelines, not words in a statute, and at the end of the day the duty of the Court is just to construe the relevant clause. With Lord Justice Donaldson, I agree with this approach.

Further, although Lord Morton's use of the words "so fanciful or remote" could lead one to suppose that an exemption clause would only pass test three if one could discard all possible other grounds of potential liability other than those which were unreal and speculative, I do not think that this is a correct interpretation of this passage from his opinion. The words "so fanciful or remote" in the third test are followed by the phrase "that the proferens cannot be supposed to have desired protection against it".

At page 49, he added:

In my opinion, all that one may properly read Lord Morton as saying is that where, under his third test, the Court considers whether the head of damage may be based on some ground other than that of negligence, it should discard any ground to which, on a reasonable assessment of all the circumstances at the time the

[Page 797]

underlying contract was made, it is unlikely that the parties would have addressed their mind.

Such an approach indeed underlines the fact that the exercise upon which the Court is engaged in these cases is one of construction, that it is one of deciding what the parties meant or must be deemed to have meant by the words they used; the guidelines or tests which are referred to in the many authorities are only to be used by the Courts as aids to the successful and correct solution of such exercise.

Then, after quoting Lord Greene's formulation of the third test in Alderslade's case, and quoting the words of Salmon L.J. in the Hollier case, where the learned justice expressed the view that Lord Greene M.R. did not extend the law in his formulation of the third test in Alderslade's case because to do so would be to make the law artificial by ignoring the fact that rules of construction are our guides and not our masters, he continued, at pp. 49-50:

In these circumstances Counsel submitted, and I respectfully agree with Lord Salmon, that Lord Greene was not intending to extend the law in his judgment in Alderslade's case. The word "must" in the relevant passage which I have already quoted should be read as "should usually" or in some such way consistent with the guide to construction stated by Lord Justice Scrutton in Rutter v. Palmer.

Thus, if an exemption clause of the kind we are considering excludes liability for negligence expressly, then the Courts will give effect to the exemption. If it does not do so expressly, but its wording is clear and wide enough to do so by implication, then the question becomes wether the contracting parties so intended. If the only head of liability upon which the clause can bite in the cirumstances of a given case is negligence, and the parties did or must be deemed to have applied their minds to this eventuality, then clearly it is not difficult for a Court to hold that this was what the parties intended-that this is its proper construction. Indeed, to hold otherwise would be contrary to commonsense. On the other hand if there is a head liability upon which the clause could bite in addition to negligence then, because it is more unlikely than not that a party will be ready to excuse his other contracting party from the consequences of the latter's negligence, the clause will generally be construed as not covering negligence. If the parties did or must be deemed to have applied their

[Page 798]

minds to the potential alternative head of liability at the time the contract was made then, in the absence of any express reference to negligence, the Courts can sensibly only conclude that the relevant clause was not intended to cover negligence and will refuse so to construe it. In other words, the Court asks itself what in all the relevant circumstances the parties intended the alleged exemption clause to mean.

It is my view that the matter should be approached in this fashion. In the case at bar, the portion of clause 8 of the bill of lading relied on is in these terms:

8. The carrier shall not be liable in any capacity whatsoever for any … loss of … the goods occurring before loading and/or after discharge, whether awaiting shipment landed or stored or put into craft, barge, lighter or otherwise belonging to the carrier or not or pending transhipment at any stage of the whole transportation.

The goods were stored by ITO, as an agent for Mitsui, in accordance with the stevedoring contract, clause 2. Mitsui, once the goods were unloaded from the ship, was relieved of its liability as a carrier, but having undertaken the storage of the goods pending delivery its liability became that of a bailee and ITO, the actual warehouseman, became a sub-bailee for value under Mitsui. The duty of a bailee for value then attached, that is to say, to take reasonable care of the goods. See Carver, Carriage By Sea, vol. 2, 13th ed., supra, at p. 1101, paragraph 1564, reproduced hereunder:

Liability of shipowner as warehouseman. But if by arrangement, or following a usual course of business, the carrier at the end of the transit puts the goods into warehouse for their owner, to stay there until he is ready to take them or until another person who is to carry them forward is ready to do so, the carrier ceases to be responsible as such; and becomes answerable only as a warehouseman for any want of reasonable care in keeping the goods.

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There was no clear finding of negligence against ITO at trial. Le Dain J., in the Court of Appeal, however, was of the view that ITO was negligent and in the circumstances before us I would find it difficult indeed to disagree with him. For my purposes then, I will assume that the loss of the goods by theft was the result of ITO's negligence in storing the cargo in an insecure building or in allowing the building, otherwise secure, to become insecure.

The exempting provision relieves of liability in any capacity which would include that of bailee after discharge and during storage. There is no express mention of negligence so the question is: Do the words extend to include it? This is a question of construction and the answer must be found in the context of the whole contract. The contract of carriage contemplated the exclusion of all liability upon the carrier for preloading, and after-discharge, loss. The liability of the carrier qua carrier is not touched in this exemption clause and the focus in our case is on liability regarding the storage of the goods after discharge. It has been said that a general exemption from all liability will not of itself exclude negligence. In this case, however, where the exemption clause relates only to a small part of the full, agreed performance, such a general rule is not necessarily applicable. Here the carrier is protected in specific terms from liability for the loss of the goods. The only duty of the bailee is to exercise reasonable care in the safeguarding of the goods and it is difficult to see how a loss, in this case by theft, could occur but for the negligence of the bailee. I would therefore conclude that the words employed here are wide enough to include negligence as being within the reasonable contemplation of the parties in formulating their agreement. This view is reinforced by the fact that in clause 18 of the bill of lading it is provided that:

[Page 800]

In any case the carrier's responsibility shall cease at the time when the goods are discharged from the vessel and in any case all risks … incurred by delivery otherwise than from the vessel's side shall be borne by the shipper and/or consignee notwithstanding any custom of the port to the contrary.

I think it is important, in determining what was within reasonable contemplation, to recognize that this is a commercial contract between two parties who, in essence, are determining which of them is to bear the responsibility for insurance at the various stages of the contract.

The remaining question, whether there is any other possible head of liability upon which the exemption clause could operate, must be answered in the negative. The goods were in short-term storage awaiting delivery. The only liability which could be imposed on the bailee would be based on negligence. I am therefore of the opinion that Mitsui, as the carrier, has the benefit of the exemption clause in clause 8 of the bill of lading. The Himalaya clause in clause 4 extends that immunity to ITO. Thus, neither Mitsui not ITO can be held liable for the theft of the goods.

In summary, then I conclude:

1. The Federal Court has jurisdiction to hear Miida's claim against ITO, under s. 22(1) of the Federal Court Act. The existing body of federal law which nourishes the jurisdiction is Canadian maritime law, adopted from England, and in substance indistinguishable from the common law applied in the English courts in admiralty matters. This body of law is within federal legislative competence under s. 91(10)  of the Constitution Act, 1867 .

2. That, for the reasons given above:

(i) the appeal by Miida Electronics Inc. against the dismissal of its action against Mitsui O.S.K. Lines Ltd. is dismissed with costs;

[Page 801]

(ii) the appeal of ITO—International Terminal Operators Ltd. against the judgment in favour of Miida Electronics Inc. is allowed with costs.

The reasons of Beetz, Chouinard and Lamer JJ. were delivered by

CHOUINARD J.—I agree with the reasons of McIntyre J. and I would accordingly dismiss the appeal of Miida against Mitsui, with costs.

I would allow the appeal of ITO against Miida, with costs, for the reasons given by Pratte J.A., dissenting in the Court of Appeal, [1982] 1 F.C. 406, at p. 409. I would stress that the action of Miida against ITO is purely delictual. Pratte J.A. wrote at p. 411: "According to counsel for the Appellant, the action against ITO is based solely on delict or tort." The same view is expressed by McIntyre J. who writes: "It can be seen that the action is based on the negligence of ITO and is essentially an action in tort or delict." With respect, a tort or delict committed in Montreal—negligence in the custody of goods stored in a warehouse—falls, in my view, within the jurisdiction of the civil courts of Quebec, not that of the Federal Court.

Appeal by ITO—International Terminal Operators Ltd. against the judgment in favour of Miida Electronics Inc. allowed with costs; appeal by Miida Electronics Inc. against the dismissal of its action against Mitsui O.S.K. Lines Ltd. dismissed with costs.

Solicitor for ITO—International Terminal Operators Ltd.: David F. H. Marler, Montréal.

Solicitors for Miida Electronics Inc.: Martineau, Walker, Montréal.

Solicitors for Mitsui O.S.K. Lines Ltd.: Brisset, Bishop, Davidson & Davis, Montréal.