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Newsletter > April 2011

In this issue: 1. Firm and Industry News 2. Marine Insurance: Machinery Not Properly Packed Is Not Covered 3. Recent Cases of Interest

The three masted schooner Empire Sandy at the Harbour Front in Toronto for the January 2017 newsletter.

1. Firm and Industry News

  • May 6th -7th Montreal: McGill University Aviation Legal Liability Conference
  • May 11-14 Las Vegas: Canadian Transport Lawyers Association and Transportation Lawyers Assoc. Annual Meeting
  • May 25-26 2011 Collingwood: Canadian Board of Marine Underwriters Semi-Annual Meeting and Dinner
  • June 3rd 2011 Quebec City: Canadian Maritime Law Association Annual Meeting and DinnerRui Fernandes will be representing the firm at the McGill University Aviation Legal Liability Conference.Rui Fernandes, Gordon Hearn and Kim E. Stoll will be representing the firm at the CTLA and TLA Annual Meeting in Las Vegas. Fernandes Hearn LLP Named One of Top 6 Maritime Boutique Firms in the Country. “This boutique came on the scene in 1996, when Rui Fernandes and Gordon Hearn left Cassels Brock & Blackwell LLP. Maritime law is a major component of its general transportation law practice, which also deals with matters involving aviation, trucking, and rail carriage. Its nine lawyers serve key clients such as Royal & Sun Alliance Insurance, Allianz Insurance, Chubb Group of Insurance Companies, JEVCO Insurance Co., NYK Logistics, Quik X Transportation Inc., and Whirlpool Jet Boat Tours. Fernandes has helped solidify the firm’s strong reputation by publishing five texts on transportation law.” – Canadian Lawyer Magazine

2. Marine Insurance: Machinery Not Properly Packed Is Not Covered

In a recent decision of the Federal Court of Canada Justice Gauthier had an opportunity to look at the provisions of an “all risks” marine policy in determining if damages to a machine shipped from Canada to Germany were covered by the policy. See Feuiltault Solution Systems Inc. v. Zurich Canada 2011 FC 260.

Feuiltault Solution Systems Inc. sued its their marine insurers, Zurich Canada under an all risk policy (Institute Cargo Clauses A) for damage to machines shipped to Germany in three separate containers in May 2005.

The main issue in this matter was whether or not Feuiltault met its burden of proving that the loss occurred through a fortuity, whatever it may be. Another issue was whether the insurers established that the proximate cause of the loss was the insufficient or unsuitable packing of the cargo inside the containers and thus the loss was excluded by paragraph 4.3 of the Institute Cargo Clauses A.

The machinery was loaded in three dry van general cargo forty (40) foot containers at Feuiltault’s premises. The three containers were then loaded onboard the “Maersk Palermo” together with another 1,345 containers for a voyage to Bremerhaven, Germany via Rotterdam. The three containers were stowed in three different locations onboard the ship: two were under deck and one on deck protected on all sides, including the top, by other containers. The voyage to Europe was uneventful. In fact, it was described as ideal for a voyage at that time of the year. Captain Van Calcar, the master of the ship, described the weather as beautiful with very little movement of the ship and no spray over the deck. The three containers were unloaded at Bremerhaven on June 2 and 3, 2005. The court found that they were kept at the North Sea Terminal located at least 100 metres away from the dock, and thus could not be affected by any spray that might come over the dock if the sea was rough.

The containers were delivered to Feuiltault’s buyer, Mohn Media Mohndruck GmbH, in Gütersloh, Germany, on June 7, 2005. There was evidence that there were water droplets on the ceiling of one container as well as on the machines loaded therein. There was also some water on the floor discovered when the doors were opened. All of the units were rusted into varying degrees.

After the arrival of the last container, Feuiltault notified its insurers and Captain Schmidt, a certified Lloyd’s agent, who was appointed on behalf of Zurich to survey the damage. On August 3, 2005, shortly after Captain Schmidt completed his report, Zurich denied coverage on the following basis:

The findings of the surveyor reveal, that the damage is attributable to the inherent humidity / water contents of the timber, which was used to secure the goods in the container. In conclusion of the surveyor’s opinion, the sweat water resulting from the humidity of the square timber in conjunction with the insufficient protection of the goods, led to the damage.

During the course of the trial, Zurich established that the three containers were in good order and condition prior to and at the end of the voyage. In fact, before the end of the trial, Feuiltault acknowledged that this was no longer a disputed fact. During the voyage, there was thus no ingress of either fresh or sea water (as opposed to humid air) inside those containers.

The court also accepted evidence that there were no claims for damage to the contents of any of the other 1,344 containers onboard the ship, other than one reefer unit that broke down.

The court heard five experts on the cause of the loss – Feuiltault called two experts: Dr. Aziz Laghdir and Mr. Luc Lafrenière. Zurich called five experts: Dr. Paul Cooper, Mr. Alfred McKinlay, Captain Mel Fernandes, Steve Bodzay and Mr. Christopher Mapp.

The court referred to British and Foreign Marine Insurance Co. v Gaunt, [1921] 2 AC 41 (HL), and the Supreme Court of Canada in Canadian National Railway Co. v Royal and Sun Alliance Insurance Co., 2008 SCC 66, [2008] 3 SCR 453. The latter refers to the classic statements on the meaning of “all risks” in an all risks insurance policy (paras 79-80):

In construing these policies it is important to bear in mind that they cover “all risk”. These words cannot, of course, be held to cover all damage however caused, for such damage as is inevitable from ordinary wear and tear and inevitable depreciation is not within policies. There is little authority on the point, but the decision of Walton J. in Schloss Brothers v. Stevens, on a policy in similar terms, states the law accurately enough. He said that the words “all risk by land and water” as used in the policy then in question “were intended to cover all losses by any accidental cause of any kind occurring during the transit… . There must be a casualty.” Damage, in other words, if it is to be covered by policies such as these, must be due to some fortuitous circumstances or casualty.

At page 57 Lord Summer added: There are, of course, limits to “all risks”. They are risks and risks insured against. Accordingly the expression does not cover inherent vice or mere wear and tear or British capture. It covers a risk, not a certainty; it is something, which happens to the subject-matter from without, not the natural behaviour of that subject-matter, being what it is, in the circumstances under which it is carried.

These well known passages essentially explain why a Plaintiff needs to establish on a balance of probabilities the occurrence of a fortuity in a case such as this one.

The court also noted the recent decision of the Supreme Court of the United Kingdom in Global Process Systems Inc. v Syarikat Takaful Malaysia Berhad, [2011] UKSC 5 issued on February 1, 2011, where the Court reviewed the concept of fortuity in the context of cargo insurance policies excluding damage proximately caused by an inherent vice of the subject matter insured.

There is little case law dealing with the main exclusion relied upon by Zurich and which reads as follows:

4.3 Loss, damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject matter insured (for the purpose of this Clause 4.3 “packing” shall be deemed to include stowage in a container or lift van but only when such stowage is carried out prior to attachment of this insurance or by the Assured or their servants).

Justice Gauthier held that “the comments of the Supreme Court of Canada in the Canadian National Railway Co. decision above, in respect of the standard applicable to an exclusion of “faulty and improper design” in an all-risks policy are relevant. In effect, even if the exclusion at issue here is very different from the one under review in that case, the approach taken by the Supreme Court of Canada is still instructive. To determine what is faulty or improper, the Court applied the standard of the ordinary reasonably cautious and prudent person. As mentioned by the Supreme Court of Canada, this standard is lower than a perfection standard that takes into account all foreseeable risks but may sometimes be higher than an industry standard that can include cutting corners to cut costs. There appears to be no good reason to apply a different standard to assess if the packing or preparation of the cargo is insufficient.”

Justice Gauthier found that having carefully considered all the evidence in respect of the packing and preparation of the machinery loaded by the assured inside the three containers under review, that it was insufficient. Also, the wood used to brace the cargo inside the container was unsuitable given the absence of wrapping or protection of the machinery against the additional moisture the wood introduced in the closed environment in which the units were carried (a general dry van container). “At a minimum, the individual machines should have been wrapped in the same manner they were wrapped for the replacement shipments of June 2005. There is no doubt in the Courts’ (sic) mind that had this been so, the cargo would not have rusted despite the condensation.”

The court held that the Plaintiff had not established by preponderance of proof that any fortuitous event or anything of an accidental nature occurred during the insured transit. The case was dismissed.

Rui Fernandes


3. Recent Cases of Interest

Recent Cases of Interest

A. Environmental Assessment and the Detroit / Ontario Bridge – In two separate proceedings that were heard together, the Sierra Club of Canada and the Canadian Transit Company sought a judicial review of a December 3, 2009, decision by the Minister of Transport, the Minister of Fisheries and Oceans, and the Windsor Port Authority that a proposed new bridge and accompanying infrastructure linking Windsor, Ontario with Detroit, Michigan is not likely to cause significant adverse environmental effects. In essence, the decision was that the proposed new bridge plan met the requirements of the Canadian Environmental Assessment Act, S.C. 1993, c.37. After an extensive review and analysis the Federal Court of Canada dismissed the judicial review. See the full case at 2011 FC 515 and 517.

B. Pilots and Retirement Age – An application for judicial review from a decision of the Canadian Human Rights Tribunal regarding the age of retirement for pilots was heard by the Federal Court of Canada and can be found at 2011 FC 120. The court found the Tribunal’s finding reasonable that Air Canada had not established that an age under 60 was a bona fide occupational requirement for its airline pilots at the time that, two pilots, Messrs. Vilven and Kelly’s employment was terminated in 2003 and 2005 respectively. However, the Tribunal’s finding that Air Canada had not established that age was a bona fide occupational requirement for its pilots in light of the post-November 2006 ICAO standards was not reasonable. As result, Air Canada’s application for judicial review as it related to the bona fide occupational requirement issue was allowed in part. The question of whether Air Canada has established that age was a bona fide occupational requirement for its airline pilots after November of 2006 was remitted to the same panel of the Tribunal, if available, for re-determination on the basis of the existing record.

C. Shining a Light at an Aircraft Charge – In R. v. Khorfan, 2011 ABPC 84 the accused was charged under the Canadian Aviation Regulations to the Aeronautics Act as follows:

“On or about the 21st day of January, 2010, at or near Calgary, Alberta, did unlawfully project or cause to be projected a direct bright light source into navigable airspace in such a manner as to create a hazard to aviation safety or cause damage to an aircraft or injury to persons on board the aircraft, contrary to Section 601.20 of the Canadian Aviation Regulations, and did thereby commit an offence pursuant to Section 7.3(3) of the Aeronautics Act.

The Crown called evidence from an air traffic controller who was on duty at the Calgary International Airport on the night of January 21, 2010. The Crown also called evidence from the police officer who found the accused in his vehicle with a bright light emanating from his vehicle pointing upwards at the end of runway 16 of the Calgary International Airport, which runs north and south. In addition, the Crown entered, as exhibits, a video of the incident taken from the police officer’s vehicle as well as an expert’s report pursuant to section 657.3 of the Criminal Code regarding the potential hazard to aviation safety created by the shining of a bright light from the car into the sky at the end of runway 16. Based on the expert’s credentials and experience, the court accepted him as an expert and allowed his opinions in the report to be entered in the area of: “the effect of introducing a directed bright light into the cockpit of an aircraft on the pilot and crew and their ability to safely operate the aircraft”. Based on the information provided, the expert opined that the shining of the light beam, as witnessed by the police officer and captured on the police car video, represented “a real hazard to aviation safety”. The accused called no evidence. The court found the accused guilty of the offence.

D. Seizure of Aircraft for Non Payment of Airport Fees – On March 31, 2010, Thomas Cook Canada, Inc. applied for an order pursuant to s. 243 (1) of the Bankruptcy and Insolvency Act and s. 101 of the Courts of Justice Act appointing FTI Consulting Canada Inc. as receiver of the assets, undertakings and properties of Skyservice Airlines Inc. At 11:00 a.m. on March 31, 2010, Justice Gans granted the receivership order.

Priority disputes immediately arose involving the Greater Toronto Airports Authority, the Ottawa MacDonald-Cartier International Airport Authority, the Winnipeg Airports Authority Inc., and NAV Canada on one side and International Lease Finance Corporation, Thomson Airways Limited, Sunwing Tours Inc., IAI V, Inc. and MCAP Europe Limited on the other side.

In the hours after the granting of the Receivership Order, GTAA brought its application, in the Court, for aircraft seizure and detention orders and WAA brought an application for an aircraft seizure and detention order in the Court of Queen’s Bench for Manitoba. NAV Canada verbally gave notice of its intention to bring an application for similar relief and formally brought its application on April 6, 2010. On April 6, 2010, OMCIAA brought an application, in this Court, for an aircraft seizure and detention order.

The Airport Authorities and NAV Canada grounded their applications in s. 9 of the Airport Transfer (Miscellaneous Matters) Act, S.C. 1992, c.5 (the “Airport Transfer Act“) and s. 56 of Civil Air Navigation Services Commercialization Act, S.C. 1996, c. 20 (“CANSCA”) Section 9(1) of the Airport Transfer Act reads:

9 (1) Where the amount of any landing fees, general terminal fees or other charges related to the use of an airport, and interest thereon, set by a designated airport authority in respect of an airport operated by the authority has not been paid, the authority may, in addition to any other remedy available for the collection of the amount and whether or not a judgment for the collection of the amount has been obtained, on application to the superior court of the province in which any aircraft owned or operated by the person liable to pay the amount is situated, obtain an order of the court, issued on such terms as the court considers necessary, authorizing the authority to seize and detain aircraft.

Section 56(1) of CANSCA reads:

56 (1) In addition to any other remedy available for the collection of an unpaid and overdue charge imposed by the Corporation for air navigation services, and whether or not a judgment for the collection of the charge has been obtained, the Corporation may apply to the superior court of the province in which any aircraft owned or operated by the person liable to pay the charge is situated for an order, issued on such terms as the court considers appropriate, authorizing the Corporation to seize and detain any such aircraft until the charge is paid or a bond or other security for the unpaid and overdue amount in a form satisfactory to the Corporation is deposited with the Corporation.

The aircraft lessors, ILFC, Thomson, Sunwing, IAI and MCAP, brought motions seeking declarations, among other things, that none of NAV Canada, GTAA, OMCIAA and WAA were entitled to seize or detain various aircraft for any amounts alleged to be owing by Skyservice to any of the Airport Authorities or to NAV Canada.

There was no dispute that prior to the Receivership Order, Skyservice operated commercial aircraft that landed at the various airports and used the facilities and services provided by the Airport Authorities and NAV Canada. Nor was it disputed that, as a consequence, Skyservice owed GTAA, OMCIAA and WAA for landing fees, general terminal fees, airport improvement fees and/ or other charges related to the use of the airports and, further, that Skyservice owed monies to NAV Canada for air navigation services provided by NAV Canada.

The Airport Authorities and NAV Canada were attempting to recover amounts due to them from Skyservice by enforcing their rights as against the aircraft formerly used by Skyservice and which had been leased from the various lessors. The lessors took the position that circumstances were such that the Airport Authorities and NAV Canada did not have the right to seize and detain such aircraft and that the aircraft should be returned to the lessors without payment to the Airport Authorities and NAV Canada.

The court held that the Airport Authorities and Nav Canada were entitled to the seizures and were entitled to be paid. See Skyservice Airlines Inc. (Re), 2011 ONSC 703.

E. Transporting Dangerous Goods without a Placard – In R. v. Quik X Transportation Inc., 2011 ONCJ 9 Quik X Transportation Inc. was charged with two offences under the Transportation of Dangerous Goods (TDG) Act: s. 3 (a) Fail to comply with federal regulations safety requirement – no shipping document with prescribed information; and s. 3 (b) fail to display prescribed safety mark.

Officer Ronald Demerchant of the Ministry of Transportation of Ontario (MTO) testified that he carried out a level three inspection of a commercial motor vehicle – a three-axle Western Star tractor drawing a two-axle utility trailer — at about 2 a.m. on June 9, 2010 at the Whitby Truck Inspection Station in the Regional Municipality of Durham.

During the investigation Demerchant noted there were dangerous goods placards on the sides and rear of the trailer as required. A dangerous goods placard that was required on the front of the trailer was missing.

Demerchant, a qualified dangerous goods inspector and trainer of dangerous goods inspectors, said he checked documentation and dangerous goods information pertaining to the tractor-trailer combination which is registered to Quik X Transportation Inc. The documentation presented to him was set out according to U.S. standards, which were near identical to information required to meet Canadian regulations, albeit in a different format, in imperial measures rather than metric measures.

Section 9.1 of the TDG Regulations allows U.S. based consignments to be transported into or through Canada in accordance with the classification, marking labeling, placarding and documentation requirements of 49 CFR (U.S. legislation) under specified conditions. If these dangerous goods originating from the U.S. were still “in transport” they can be shipped to the destination in Canada using the U.S. shipping document. The court held that they were in fact still in transit and dismissed the first charge.

As to the second charge, the failure to display a placard, the court accepted the evidence of Officer Demerchant that the trailer in question was missing the prescribed dangerous goods safety placard from the front of the trailer. There was no evidence to the contrary and as such the judge found that the Crown had proven the charge beyond a reasonable doubt.

Quik X argued that the driver was not charged and that the company should not be found responsible for the driver’s error. The court reviewed the law and determined that in order to escape prosecution the company had to show that it exercised due diligence to avoid the commission of the offence. The only evidence before the court was the certificate of training of the driver. The court held that no evidence of what the training consisted of was tendered by Quik X and therefore the due diligence burden had not been met.

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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