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Newsletters > September 2010

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In this issue:
1. Firm and Industry News
2. A Look at Recent Amendments to the CIFFA Standard Trading Conditions
3. Update on Production of Cockpit Voice Recordings: Court of Appeal Decision in Societe Air France v. Nav Canada, 2010 ONCA 598

1. Firm and Industry News

• October 22nd 2010 Kansas City: Gordon Hearn will represent the firm at the Transportation Law Institute.
  
• October 28, 2010 Toronto: Kim Stoll will be taking part on a panel regarding prevention of load broker fraud at the Delta Nu Alpha Transportation Network meeting.
  
• November 30th, 2010 Toronto: CBMU Annual Conference and Dinner. Gordon Hearn will be presenting a paper on "Limitations of Liability in the Modern Carriage World"
  
• December 3rd, 2010 Montreal: Grunt Club Annual Dinner
  
• January 13th, 2011 Toronto: Fernandes Hearn Annual Seminar
  
• January 14th 2011 Toronto: CMLA Meeting
  
• January 14th 2011 Toronto: Marine Club Annual Dinner
• May 11-14 Las Vegas: Transportation Lawyers Assoc. Annual Meeting
• May 25-26 2011 Collingwood: CBMU Semi-Annual Dinner
• June 3rd 2011 Quebec City: CMLA Annual Meeting
  
  
• Rui Fernandes and Gordon Hearn have again been named to the Who's Who of Shipping Law and Canadian Lexpert 2011 list for shipping and transportation.

2. A Look at the Recent Amendments to the CIFFA Standard Trading Conditions

The Canadian International Freight Forwarders Association (CIFFA) is the leading industry organization for freight forwarders and logistics providers in Canada. Part of CIFFA's mandate is to publish the standardized industry terms of service to govern the relationship between the Forwarders operating under CIFFA's umbrella and their customers. This past May, CIFFA adopted new Standard Trading Conditions (the "Conditions") to replace its 2005 Conditions.

The 2010 Conditions are substantially similar to the 2005 Conditions, except for a small number of amendments that primarily serve to tighten or clarify the existing CIFFA Conditions. Generally speaking, the amendments are a shift rather than a complete sea change.

Below is an analysis of the amendments under four broad categories, beginning with the most significant change in the Conditions, which is a change to the choice of forum clause in the Conditions.

1. Change To "The Choice Of Forum" Clause

The Conditions contain both a choice of law clause and a choice of forum clause. To be clear, a choice of forum clause is a contractual term that seeks to bind the parties to prosecute their lawsuits heard in a particular venue. This contrasts with a choice of law clause that seeks to tell the court hearing the dispute that the parties intended their contract to be governed by the contractual laws of a certain place.

This is an important distinction because the courts in Canada, and generally globally, can potentially apply foreign law to any lawsuit that they hear. The court will always apply its local procedural law - called the lex fori in international law terms - but the court is flexible and will apply the substantive law of foreign jurisdictions - called the lex causae or lex loci in international law terms.

In practical terms, this means that the nuts and bolts of the litigation - how examinations for discovery or depositions are conducted, how documents are exchanged, etc - are dependent entirely on the rule of the place where the lawsuit is commenced, but the law used by the court to determine legal issues and the end result is not. For instance, an Ontario Court can interpret a contract using California law.

Both the 2010 and the 2005 Conditions contain a provision that covers choice of forum and choice of law; however, such section has been amended to allow greater flexibility in the choice of forum.

Under the 2005 Conditions, the choice of law clause sought to stipulate that the substantive law would be that of the province in which the Forwarder operates its principal place of business. The forum was that of the court of that province.

2005 Conditions [Bolded text represents text that has changed between 2005 and 2010]

21. Applicable Law and Jurisdiction
…Otherwise these Conditions shall be governed by the law of the Province within Canada in which the Company has its principal place of business. By accepting the services provided under these Conditions irrevocably attorns to the exclusive jurisdiction of the Courts of that Province.

Under the 2010 Conditions, the choice of law did not change, but there is now a choice to hear the matter in either the court of the province in which the Forwarder has its principal place of business or in the Federal Court.

2010 Conditions

21. Applicable Law and Jurisdiction
These conditions shall be governed by the laws of Canada and of the province within Canada in which the Company has its principal place of business. By accepting the services provided under these conditions, the Customer irrevocably attorns to the exclusive jurisdiction of the Court of that province and the Federal Court of Canada…

There are advantages and disadvantages to either choice of court, and now the CIFFA Conditions provide flexibility as to which forum to enter which can be an important strategic advantage to be discussed with counsel prior to commencement of a lawsuit.

2. Change To "Role As Principal" Clause

The manner in which a court understands the relationship between the Forwarder and the customer can potentially be determinative of any dispute. The rights and responsibilities of the "Forwarder as agent" are different at law than the "Forwarder as principal". Where the Forwarder is a principal, the court will treat the Forwarder as a carrier, which, at least in cargo damage cases, can mean a much lower standard of proof for the customer to establish a claim for damages. This is a concern because if the Forwarder is treated as a carrier but is not the party actually performing the carriage, the Forwarder may have greater liability exposure for that carriage without being able to control the outcome.

Where the Forwarder is acting as a principal on a particular movement of goods, and the third-party carrier hired by the Forwarder causes damages to the goods, it is possible at law that the Forwarder's liability will be different than the third-party carrier's liability.

Under the 2005 Conditions, where the Forwarder acts as a principal, the Forwarder's liability is limited according to the limit of liability contained in the 2005 Conditions.

2005 Conditions

4. Other Services
… Where it issues a transport document or electronic record, or provides a guarantee, the rights and obligations of the Company will be governed by the special conditions therein in addition to these Conditions. In the event of any inconsistency with these provisions, the special conditions prevail.

This limit of liability would be set without regard to any limit of liability that the third-party carrier may have stipulated for itself.

The only time when the Forwarder's limit of liability is tied to the third-party carrier's limit of liability occurs when the Forwarder issues a guarantee in writing of the proper performance of the terms of the contract between the customer and the third-party carrier.

2005 Conditions

4. Other Services
… Where requested by the Customer the Company may …
(b) guarantee in writing proper performance of the terms of any contract between the Customer and a third party whose services the Company has engaged on behalf of the Customer. As guarantor the Company is liable only to the same extent as the third party whose actions have been guaranteed, as may be limited by the conditions on which that party customarily offers its services.

The 2010 Conditions seek to change the landscape of liability exposure for the Forwarder when it acts as a principal. The language highlighted above in the excerpts from the 2005 Conditions has not been altered, but it has been reorganized. The new wording states that, where the Forwarder acts as a principal, the Forwarder's liability is limited to terms of the 2010 Conditions or to the third-party carrier's terms. The net effect sought is a guarantee that the Forwarder does not accept liability exposure greater than the third-party carrier's that it hires.

2010 Conditions

4. Role As Principal
Where requested by the Customer the Company may
(b) guarantee in writing proper performance of the terms of any contract between the Customer and a third party whose services the Company has engaged on behalf of the Customer
Where it issues a transport document or electronic record, or provides a guarantee, the rights and obligations of the Company will be governed by the special conditions therein in addition to these conditions and in any event the Company is liable only to the same extent as the third party who performs the carriage or guaranteed service, as may be limited by the conditions on which that party customarily offers its services. In the event of any inconsistency with these provisions, the special conditions prevail.

The 2005 Conditions allowed for situations where the Forwarder's liability as a principal would be higher than that of the third-party carrier. This could be particularly unfair where the Forwarder's only exposure arose from being the contracting party, but having no role in the causation of the damage. The 2010 Conditions seek to close this loophole and ensure the Forwarder will not be in a worse position than the third-party carrier.

3. Change To The "Non-Liability For Gratutitous Information" Clause

Condition #1 is states that the customer cannot foist any liability upon the Forwarder merely because the customer asked the Forwarder questions about services without hiring the Forwarder to perform those services. In other words, free advice or information will not draw the Forwarder into a carriage arrangement without actually hiring of the Forwarder.

When comparing the new wording with the old, no new rights or responsibilities are created, but the wording of Condition #1 has been changed for clarity. The new wording has two changes: first, it clearly states that "customer" can mean any of the parties interested in the transportation of the goods, and not just the party actually interacting with the Forwarder; and, second, it clearly states that the Forwarder is excused from even its own negligence for any gratuitous information provided.

2005 Conditions

1. Role Of The Forwarder
… Advice and information that is not related to instructions accepted by the Company is provided gratuitously and without liability. Advice is for the Customer only and is not to be furnished to any other party without the Company's prior written consent.

2010 Conditions

1. Role Of The Forwarder
… When determining any rights or liabilities of the Company under these conditions, the word "Customer" shall include the party giving instructions, the shipper, the consignee, and the owner of the goods. Notwithstanding the foregoing, advice is for the Customer only and is not to be furnished to any other party without the Company's prior written consent. Gratuitous advice and information that is not related to instructions accepted by the Company is provided without liability of any kind, including for negligence.

These changes are potentially key in a lawsuit between the Forwarder and the shipping interests with which it does business. It is a fact of the logistics industry that multiple parties are often involved in all transportation matters. In fact, the originating shipping interest who initially contacted the Forwarder may not be the same party who commences a lawsuit against the Forwarder down the road.

This added clarity was necessary to attempt to prevent a court from "reading down" this Condition to a more limited, and potentially unhelpful, understanding of Condition #1. For instance, the old phrasing of this rule could potentially lead to problems because the term "customer" was undefined. This may have allowed a court to apply a very narrow definition of customer including any party soley interacting with the Forwarder. Such a reading could prevent the Forwarder from relying on this condition where the narrow definition does not cover the party suing the Forwarder for damage that resulted from free information provided by the Forwarder to someone else.

The second key change is that Condition #1 now clearly excludes liability for the Forwarder's own negligence regarding gratuitous information. Without this clear exclusion, a court might have been tempted to find Condition #1 is ineffective in preventing a suit against the Forwarder. This is because a "hold harmless clause" generally requires the clear exclusion of the party's "negligence" in order to be effective against claims for negligence against that party.

4. Change To "Timelines"

The 2010 Conditions do not contain any new timelines or any new wording regarding the existing timelines; however, many of the timelines have been shortened. The following is a chart of the timelines found in both Conditions:

These timelines aid the Forwarder by allowing them to focus their efforts on day-to-day operations and quicker problem resolution. The flip-side of the coin is that customers will find that they must move more quickly, potentially faster than the pace of their own business in order to protect their rights. This may be particularly apparent in claims for lost or damaged goods.

Whenever a contract contains barriers to an otherwise legitimate claim, a court will scrutinize the contractual dealings that occurred when the contract was negotiated prior to applying the contractual barrier. The ultimate risk is that the court will find the contractual barrier so onerous or draconian that the court will require extraordinary measures to have been taken during negotiations before the court will enforce such a term after a dispute. As the revered Lord Denning once wrote: "Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient".

Of course, CIFFA's Conditions are an industry standard available for the public to read at any time. Also, the Conditions' timelines are similar to the internationally negotiated Rotterdam Rules for international carriage. On its face, there is no reason to suggest these timelines are destined to be problematic. However, from a dispute resolution perspective, one must always be mindful that a court may be prepared to rely on Lord Denning's "red hand". The practical lesson, as with all of the Conditions, is that it is important that a Forwarder discuss best practices with its transportation counsel in order be in the best position to be able to rely on the Conditions at trial.

Chris Afonso

3. UPDATE ON PRODUCTION OF COCKPIT VOICE RECORDINGS: COURT OF APPEAL DECISION IN SOCIETE AIR FRANCE V. NAV CANADA, 2010 ONCA 598

On September 17th 2010 the Ontario Court of Appeal released its decision on the appeal by the Transportation Safety Board from a decision of Justice George Strathy to allow production in a class action of an aircraft's cockpit voice recording (CVR) which would otherwise be privileged under the Canadian Transportation Accident Investigation and Safety Board Act. S. 28(6) sets out the test a court is to apply before ordering production of the CVR. We commented on the decision of Justice Strathy in our May 2010 newsletter. The original decision can also be found at 2009 CanLII 69321.

The case involves an Air France flight that landed in a severe thunderstorm at Toronto's Pearson International Airport. The aircraft overshot the runway, pitched into a ravine, and burst into flames. The aircraft was totally destroyed. Fortunately, no lives were lost, but passengers were injured, some of them seriously.

A class action was commenced against Air France and Nav Canada. During the investigation of the accident under its mandate, the Transport Safety Board of Canada took possession of the aircraft's CVR. Section 28 of the Act provides that an on-board recording like the CVR is privileged, and not required to be produced in any legal proceeding. It also allows the Board to make use of the recording in discharging its mandate but prohibits the Board from communicating such information to anyone.

However, the section also allows a court, if a request is made, to order production of the CVR. A court , after listening to the CVR, and after giving the Board an opportunity to make representations,may conclude that the publicinterest in the proper administration of justice outweighs the importance of privilege accorded to the CVR.

After considering the section in the Act and the representations made by Nav Canada, who brought the application for production, and by the Board, Justice Strathy ordered the production of the CVR.

Justice Strathy set out the test as follows:

In order to apply the statutory test in s. 28 of the TSB Act, I must first consider the content of the CVR and the circumstances of this case. I must then determine whether, in the circumstances of the case, the public interest in the proper administration of justice outweighs in importance the privilege attached to the on-board recording by virtue of that section. This in turn requires that I consider the meaning and content of the "public interest in the proper administration of justice" and the "importance of the privilege attached to the CVR". This necessarily involves a balancing of the two interests. If, having engaged in this balancing process, I determine that production is desirable, I may impose such restrictions and conditions as I deem appropriate.

Justice Strathy then listened to the recording and read the transcript, and then he described his conclusions about the contents of the CVR:

Having listened to the recording and read the transcript, I have no doubt whatsoever that the contents of the CVR are highly relevant, probative and reliable and that they are of incalculable value in the investigation of this accident. Neither the TSB nor the interveners dispute this as a general proposition and indeed the TSB's report makes it clear, as noted earlier, that the use of the CVR was a very useful tool in interviewing the pilots and in reconstructing the final critical minutes of the flight. In the context of this litigation, in which the communications between the pilots is an important issue, I am satisfied that the contents of the CVR are very relevant to the issues, very reliable, and contain no private, prejudicial or scandalous material.

In reviewing the decision the Court of Appeal noted that Justice Strathy:

...summarized the factors he considered in determining that, in the circumstances of this case, the public interest in the administration of justice outweighs the importance attached to the statutory privilege at paragraph 138.

The Court of Appeal noted that Justice Strathy clearly understood that the test he was required to apply is that prescribed by s. 28(6) of the Act, particularly s. 28(6)(c). His description of the task he set for himself, quoted above, put this beyond doubt.

He then proceeded to carry out the task exactly as described by the Act. Having examined the CVR recording and found it highly relevant, probative and reliable on the issues central to the litigation, he went on to an examination of the circumstances of the particular case before him, and concluded that the public interest in the administration of justice served by production outweighs the importance attached to the statutory privilege served by non-production.

The appellant argued that the motion judge also erred in law by failing to require NAV to establish that there would be a miscarriage of justice if the CVR was not produced.

The motion judge held that a "miscarriage of justice" test is more stringent than s. 28 requires. The Court of Appeal agreed. The section does not limit production only to a case where otherwise a miscarriage of justice would occur.

That is not what s. 28 provides, nor, as the motion judge said, would it be a test easy to apply prospectively.

That said, just as the factors that the motion judge considered that make production of the CVR important if the public interest in the administration of justice is to be properly served, these factors also mean that failure to order production makes an unjust result more likely.

Viewed either way, the court must take the impact of the decision about production on the public confidence in the administration of justice and weigh it against the impact of that decision on the statutory privilege. I disagree with the appellant however that unless a miscarriage of justice would result without production the latter must always outweigh the former in importance. The Act requires the court to consider all the circumstances of the case in assessing the balance.

The Board also argued on this appeal that that the motion judge erred in law in misapprehending the evidence of the importance of the CVR privilege. It said that he failed to appreciate that the disclosure of the contents of the CVR would, in the appellant's opinion, remove or greatly diminish the trust that pilots have in the confidentiality of the appellant's investigation process, thus reducing the information they would provide to it in future. In answer to this position the Court of Appeal stated:

Although his reasons address in more detail any possible impact of disclosure on pilot communications in the cockpit, the motion judge concluded that, in general, the appellant's suggestion of a chilling effect from production has no evidentiary basis and is nothing more than speculation. While the appellant's opinion is otherwise, it is simply baldly asserted and is unsubstantiated by evidence, for example, that previous orders for disclosure have caused pilots to be less cooperative with subsequent investigations. It was entirely open to the motion judge to discount the appellant's opinion as he did.

Rui Fernandes

This newsletter is published to keep our clients and friends informed of new and important legal developments. It is intended for information purposes only and does not constitute legal advice. You should not act or fail to act on anything based on any of the material contained herein without first consulting with a lawyer. The reading, sending or receiving of information from or via the newsletter does not create a lawyer-client relationship. Unless otherwise noted, all content on this newsletter (the "Content") including images, illustrations, designs, icons, photographs, and written and other materials are copyrights, trade-marks and/or other intellectual properties owned, controlled or licensed by Fernandes Hearn LLP. The Content may not be otherwise used, reproduced, broadcast, published,or retransmitted without the prior written permission of Fernandes Hearn LLP.