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Newsletter > October 2009

In this issue: 1. Firm News 2. “Freight Prepaid”: What It Means To Use Those Words 3. Web-Based Defamation in the 21st Century: Crookes v. Newton and Future 4. Liability of a Shipper for Contamination of Consolidated Cargo

1. Firm News

  • The firm’s 10th Annual Maritime and Transportation Conference will be held on Friday January 15,th 2010. Please reserve the date on your calendar.

    Tentative Agenda:

    Effect of Changes to Ontario’s Rules of Civil Procedure Fraud and Forensic Investigations Emerging Issues in the Provision of Insurance Services by Agents, Brokers, MGA’s and Freight Forwarders Emerging Issues in Logistics and Trucking Adulteration of Food and Pharmaceuticals in Transportation Report from London on P & I Insurance Hull and Machinery Claims: Due Diligence, Coverage and the State of the Law

  • December 1st, 2009 – Canadian Board of Marine Underwriters Annual Meeting and Dinner – Royal York Hotel, Toronto.

  • December 4th, 2009 – Grunt Club Annual Dinner – Bonaventure Hotel, Montreal

  • January 15th, 2010 – Marine Club Annual Dinner – Royal York Hotel, Toronto.

2. “Freight Prepaid”: What It Means To Use Those Words

The adage “a picture is worth a thousand words” refers to the idea that complex stories can be described with just a single still image, or that an image may be more powerful than a substantial amount of text. The value of a document, however, should never be underestimated. Documentary evidence will always trump legal argument in a court of law.

The recent Federal Court of Canada decision in H. Paulin & Co. Ltd. v. A. Plus Freight Forwarder Co. Ltd. [2009] F.C. 727 is a perfect example where a document – a shipping document with the words “freight prepaid” – was instrumental in the court’s decision.

In this action Scanwell Logistics (Taiwan) Ltd., who issued “freight prepaid” shipping documents, claimed unpaid freight from H. Paulin Co. Ltd., the ultimate receiver, for the carriage of 29 containers of cargo from Taiwan to Vancouver by sea, and from there to Edmonton, Toronto and Montreal by rail. There were three distinct contracts of affreightment covering this multi-model transport. H. Paulin, the purchaser of the cargo, hired A Plus Freight Forwarder Co. Ltd. who hired Scanwell Logistics (Taiwan) Ltd., who in turn hired Orient Overseas Container Line Ltd. (OOCL).

H. Paulin and one of its suppliers paid freight charges to A Plus and Scanwell paid OOCL. No one has paid Scanwell. A Plus was a defunct corporation. Having obtained judgment in Taiwan against A Plus, but being unable to collect, Scanwell sued H. Paulin for payment. It asserted a number of reasons why H. Paulin was liable to it, one being that A Plus was its undisclosed agent, and another being that it was not bound by the “freight prepaid” documents it issued. H. Paulin’s position was that Scanwell dealt with A Plus as a principal in its own right. The court found H. Paulin liable and dismissed the claim with costs. Scanwell was bound by its representation that freight had been paid.

Justice Harrington, of the Federal Court of Canada, held that the statement “freight prepaid” limited Scanwell’s recourse to an in personam claim against A Plus. The statement precluded Scanwell from asserting any possessory lien or claim in rem against the cargo or in personam against the ultimate receiver, H. Paulin.

Justice Harrington also discussed the role of a bill of lading in a transaction and the different roles of a freight forwarder. He stated:

The original traditional role of a freight forwarder is well-known. As stated by Mr. Justice Rowlatt in Jones v. European & General Express Company, Ltd., (1920) 25 Com. Cas. 296 at p. 298 and approved by the English Court of Appeal in Marston Excelsior Ltd. v. Arbuckle, Smith & Co. Ltd., [1971] 2 Lloyd’s L.R. 306 and Gillespie Bros. & Co. Ltd. v. Roy Bowles Transport Ltd., [1973] 1 Lloyd’s L.R. 10:

It must be clearly understood that a forwarding agent is not a carrier; he does not obtain the possession of the goods; he does not undertake the delivery of them at the other end unless prevented by some excepted cause of loss or something which affords an excuse. All that he does is to act as agent for the owner of the goods to make arrangements with the people who do carry-steamships, railways, and so on-and to make arrangements so far as they are necessary for the intermediate steps between the ship and the rail, the Customs or anything else…

However, there are no fixed rules setting out the respective rights and obligations of the shipper and the freight forwarder. In Morlines Maritime Agency Ltd. v. IKO Industries Ltd., [1999] 180 F.T.R. 12, Mr. Justice Lutfy, as he then was, referred to the third edition of Marine Cargo Claims in which Professor Tetley pointed out that nowadays many the freight forwarder also:

… has acted as principal contractor arranging the carriage in his own name. His fee payable by the shipper is a straight freight charge. He then arranges to pay lower freight rates to the carrier and obtains his profit from the difference between the two. Very often the freight forwarder consolidates the cargoes of a number of clients into a single container, resulting in savings which benefit the freight forwarder and the clients. On these occasions the freight forwarder’s responsibility to the shipper is often that of a carrier.

Justice Harrington also reviewed the existing case law dealing with “freight prepaid.” He noted that the case most widely cited is C.P. Ships v. Les Industries Lyon Corduroys Ltée, [1983] 1 FC 736. In that case, the defendant was identified on the bill of lading as shipper. The bill of lading which was issued bore the notation “freight prepaid”. The defendant had hired Ketra Overseas Transport Canada Ltd. to arrange shipment, and apparently was under the belief that it was an agent of C.P. Ships for the purposes of receiving payment of freight. Ketra billed the defendant, was paid, but then went into bankruptcy without paying C.P. Ships. C.P. Ships was entitled to recover. Mr. Justice Addy stated:

Where a debtor, instead of paying his creditor, chooses to pay a third party, he does so at his peril. Where the money is not turned over to the creditor, the onus is then on the debtor to establish either: (1) that the creditor actually authorized the third party to receive the money on his behalf, or (2) that the creditor held the third party out as being so authorized, or (3) that the creditor by his conduct or otherwise induced the debtor to come to that conclusion, or (4) that a custom of the trade exists to the effect that in that particular trade and in those particular circumstances, both the creditor and the debtor normally would expect the payment to be made to the third party.”

Justice Harrington noted that:

“Ever since, Mr. Justice Addy’s commentary has been treated as if it were a piece of legislation. The Courts have used it as the cornerstone of the necessary factual analysis. (Mondel Transport Inc. v. Afram Lines Ltd., [1990] 3 F.C. 684; American President Lines, Ltd. v. Pannill Veneer Co. (1997), 36 B.L.R. (2d) 1 and Mediterranean Shipping Co. S.A. v. BPB Westroc Inc., 2003 FC 942, 238 F.T.R. 135). While I agree entirely with Mr. Justice Addy’s analysis, I do not think he intended that his words be taken au pied de la lettre. He was setting out a practical application of the law of agency.”

The Court noted that Scanwell relied strongly on two decisions of the Quebec Court of Appeal: 2318-1654 Québec inc. c. Swiss Bank Corp. (Canada), J.E. 2000-1475 and SGT 2000 inc. c. Molson Breweries of Canada Ltd., 2007 QCCA 1364, J.E. 2007-2013 where consignees were liable, together with the shipper, for the payment of freight. [See Fernandes Hearn LLP Newsletter December 2007].

In H. Paulin Justice Harrington distinguished the two Quebec Court of Appeal cases. He also noted that the jurisprudence emanating from the Federal Court of Canada had not been referred to in the Quebec Court of Appeal. He stated:

These cases can be distinguished if for no other reason than H. Paulin did not become owner of the cargo in virtue of the bills of lading which were not negotiable and apparently were never in the shippers’ hands. There appears to be a presumption, at least in trucking cases, that the contract is made between the owner of the goods and the carrier. It follows that the consignee is liable for freight (Palmer, Bailment (2nd ed) 1991 at pp. 1015, 1016). There is no such presumption in carriage by sea. Moreover, with respect, I am unable to follow them.

The entire contract as between the shipper and the carrier was not contained in the bills of lading. The overall contract included an obligation of the shipper to pay freight. Even if property passed in virtue of the bills of lading, the consignees’ liability is under the Act “as if the contract contained in the bill of lading had been made with himself” [emphasis added]. That contract clearly stated that freight had been prepaid.

The freight prepaid notation was a representation by the carrier, just as much as is a statement as to the apparent good order and condition of the cargo, or that the cargo has in fact been shipped on board. A deliberate misrepresentation by the issuance of a clean bill of lading when the cargo is obviously damaged is a conspiracy between the shipper and the carrier. It is a fraudulent representation made by the carrier with the intention that it be relied upon.

Justice Harrington concluded:

“Scanwell tried valiantly to escape its own language. Although Humpty Dumpty may say ‘when I use a word it means just what I choose it to mean – neither more nor less’, Scanwell may not. It is bound to H. Paulin for what it said, that freight was prepaid.”

Rui Fernandes


3. Web-Based Defamation in the 21st Century: Crookes v. Newton and Future Implications

As the Internet continues to rapidly expand at the speed of “life” in the twenty first century, so too must our centuries old laws in order to keep pace with the new realities. One recent example of this legal shift towards modernism can be demonstrated in Canada’s first appeal involving the issue of whether posting hyperlinks onto one’s own website, which link to other defamatory sources can trigger liability for defamation.

This was precisely the situation in Crookes v. Newton, a British Columbia Court of Appeal decision released on September 15, 2009. In this case, the plaintiff, a Vancouver businessman, sued the defendant, the operator of a free speech website. The website, www.p2pnet.com published an article about the plaintiff who at the time was suing some other websites for defamatory content written about him.

In the article, two hyperlinks were posted, which linked to the defamatory content. These hyperlinks directed readers to external websites containing defamatory content about the plaintiff, but the content itself was not contained in the defendant’s article. Upon learning about this, the plaintiff requested that the defendant remove the hyperlinks. The defendant refused on the basis that such hyperlinks were merely hyperlinks to outside sources with the contents not being publications of the website itself. The plaintiff sued and lost at trial. He then appealed to the British Columbia Court of Appeal claiming that the hyperlinks should be considered a publication of the defendant.

The Court of Appeal was divided on the issue of whether the facts surrounding the creation of a hyperlink in this case could create the inference of a publication. In the end, the Court held that the hyperlink postings were not considered a publication of the website operator and therefore no liability was found.

One of the arguments put forth by the plaintiff that the Court found persuasive was the fact that hyperlinks could be analogized to footnotes in that posting a hyperlink is no different than an author providing a footnote reference to another source. As such, since the author of a work would not be found liable for defamatory statements found within any referenced footnotes, neither should a website operator who creates hyperlinks to external references containing defamatory material. However, the Court did emphasize that the footnote analogy is not a guarantee to avoiding liability for publication of a hyperlink, as many authors tend to use footnotes and citations in a very “expansive” manner.

Several non-exhaustive factors which the Court set out in assessing whether liability may apply in these situations include factors such as: (a) how prominently the hyperlink is displayed, (b) the presence of any “words of invitation” or recommendation to the readers encouraging them to click on the hyperlink, (c) the nature of materials which it is suggested may be found at the hyperlink such as whether the material is “obscene” or “scandalous”, and (d) “a host of other factors”. This then leaves the door open to other possible considerations in the future.

It is likely that this issue will become more prevalent as the Internet continues to evolve. This is because the Internet provides an important public platform for individuals all over the world to communicate and freely express their views and opinions through countless forums that are heard, viewed and seen by millions, which would not otherwise be economically possible. On the other hand, the very threat of certain communications on the Internet to tarnish one’s reputation can have a significant detrimental impact on victims of such misinformation. Therefore, the courts need to set a balance. This decision seems to set the groundwork for future challenges. It will be interesting to see how these principles will be applied and developed by courts in the future.

Lawson Hennick


4. Liability of a Shipper for Contamination of Consolidated Cargo

In the recent decision of Risdale Transport Limited v. Transwest Air [2009] SKQB 380, Risdale Transport sued Transwest Air for damages result from a leaking drum of solvent transported on its truck. Transwest purchased two drums of “Varsol” for its own use. It hired Risdale to transport one drum from Prince Albert to Stony Rapids. The Risdale employee picked up the drum and issued a bill of lading identifying the article as “1 drum 205 L” with a weight of 250 pounds. The bill of lading was signed by Transwest as shipper and by Risdale’s driver.

Risdale’s employees loaded the drum of solvent in the back portion of the truck trailer with other items. Closer to the front of the trailer, Ridsdale had installed a foam vinyl covered bulkhead separating food commodities from other goods. The bulkhead did not seal off the area containing food commodities because the floor of the trailer was ribbed, such that any liquid could travel along the floor in the lower channels. After an eight-hour road trip on a rough road ,the driver opened the trailer door at Points North, and noticed the strong smell of solvent and liquid flowing beneath the bulkhead to where the food commodities were stored. In short, the Varsol contaminated the food commodities. Risdale compensated its other shippers and sought an indemnity from Transworld for its losses.

Transworld defended on the basis that the contents of the drum were disclosed to Risdale when its driver picked up the drum and the safety marks for dangerous goods were readily visible. There was clear wording on the outside that the drum contained Varsol. Transworld alleged that the drum was in good condition when Risdale received it. Furthermore, any damage to the food commodities was caused by Risdale’s breach of legislation that required food commodities and shipments capable of contaminating food commodities to be protected by a container or covering during transportation.

Ridsdale was a motor carrier, and was licenced to operate its freight transporter in accordance with The Traffic Safety Act, S.S. 2004, c.T-18.1 and its regulations, including The Motor Carrier Conditions of Carriage Regulations, c.M-21.2, Reg. 5 (the “Regulation”). Regulation 10 states that the uniform conditions of carriage set out in Part II of the appendix (the “uniform conditions”) apply to the transportation of general merchandise. The uniform conditions provide in section 1(2)(o) that “every person, whether as principal or agent, shipping explosives or dangerous goods without previous full disclosure to the carrier as required by law, shall indemnify the carrier against all loss, damage or delay caused thereby, and such goods may be warehoused at the consignor’s risk and expense.”

The Court also looked at Regulation 5 which states:

No transporter shall transport any commodity intended for human consumption unless: (a) the vehicle has been cleaned so that all poisonous chemicals and residues remaining in the vehicle from previous use have been removed; (b) all other shipments capable of contaminating such commodities are protected by a container or covering and are loaded so that contamination will not occur; and (c) those commodities are protected by container or covering to prevent contamination which could occur during transit.

The Court found, on the evidence adduced, that Risdale was fully aware that the contents of the drum was Varsol. The court held that because Risdale knew what the contents of the drum were, it could not seek indemnification from Transwest on the basis of uniform condition 1(2)(o).

In response to the allegation by Risdale that the drum was defective, the court noted that the drum was not leaking prior to being placed in Ridsdale’s truck at Prince Albert. It had not leaked in Ridsdale’s Prince Albert warehouse. The drum was not leaking when the truck arrived in La Ronge. It only became noticeable once Ridsdale’s driver opened the door of the trailer at Points North, after the eight-hour rough ride. Since Risdale itself determined shipping drums of Varsol from Prince Albert to Stony Rapids over rough road was not risky (by accepting the drum), it could not take the position that Transwest breached a duty of care by shipping a drum of Varsol by truck.

The Court concluded that Ridsdale’s losses stemmed from its own breach of Regulation 5 that required it to protect commodities intended for human consumption from contamination from other goods while being transported. Regulation 5 placed a positive duty on Ridsdale to protect those commodities by a container. “The foam bulkhead fell far short of providing such protection. This may well be a case of a statutory breach constituting evidence of negligence, as formulated by the Supreme Court of Canada in Canada v. Saskatchewan Wheat Pool, [1983] 1 S.C.R. 205.”

The claim against the shipper was dismissed with costs.

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.

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