Newsletter > February 2016
In this issue:
1. News & Upcoming Events
2. The Fickleness of Eyewitness Testimony
3. Contract Renewal and the Duty to Act Reasonably
4. Erosion of the Motor Carrier Contract of Carriage
5. Professional Drivers Owe a Higher Standard of Care
6. Air Canada Overhaul Litigation
7. Rail Carriers’ Right to Limit Liability Via Published Tariffs
8. Transport Canada Does Not Owe A Duty Of Care To Airline
9. Dependent or Independent Contractor: Update
1. News & Upcoming Events
- Martin Abadi will be a guest lecturer at the University of Ottawa Faculty of Law in the Maritime Law (Droit Maritime) course in March. Martin will lecture on admiralty and commercial law and regulatory aspects in maritime law.
- Gordon Hearn will be presenting a paper on “The Ins and Outs of Moving Freight in Canada” at the Transportation Intermediaries Association Annual Conference being held in San Antonio, Texas on April 7, 2016.
- Rui Fernandes will be presenting a paper to the IIR Insurance Captive annual meeting on April 14th, 2016 on “Freight Contracts and Master Service Agreements.”
- Gordon Hearn, Kim Stoll and Louis Amato-Gauci will be representing the firm at the Transportation Lawyers Association Annual Conference being held April 27-30th in Destin, Florida. Louis Amato-Gauci is the Education Program Chair for this conference. Kim Stoll will be facilitating the Canadian Transport Law and Cross Border Issues Interactive Workshop.
2. The Fickleness of Eyewitness Testimony
In 1673 Thomas Cornell (Jr.) was accused, tried, convicted and hanged for the alleged murder of his mother, Rebecca Briggs Cornell, in Portsmouth, Rhode Island. He was convicted using circumstantial evidence as well as spectral evidence, in which witnesses recounted dreams involving ghosts pointing to his alleged guilt. American jurisprudence was later modernized to exclude the use of apparitions and dreams as evidence in trials. This case and its history have been chronicled in the book Killed Strangely: The Death of Rebecca Cornell by Elaine Forman Crane.
Over three hundred and twenty five years later in 1998, Richard Alexander was convicted of a series of rapes in South Bend, Indiana and was dubbed the “River Park Rapist”. He was convicted largely on the basis of eyewitness testimony. In 2001, with Alexander already having served five years in prison, an alleged burglar and child molester named Michael Murphy confessed to one of the two rapes of which Alexander had been convicted, knowing details only the true assailant would know. With this revelation, a judge ordered a new round of DNA testing in Alexander’s case. Hairs found at the scene of the rape were submitted to mitochondrial DNA testing. At the time of Alexander’s original conviction, such testing was not available in the State of Indiana. The tests proved that the DNA did not match Alexander’s profile, but did match Murphy’s. Alexander was released from prison on December 12, 2001.(*1)
Researchers have reported that 73 percent of the 239 convictions overturned through DNA testing were based on eyewitness testimony. One third of these overturned cases rested on the testimony of two or more mistaken eyewitnesses. How could so many eyewitnesses be wrong? (*2)
In addition to being used in criminal trials, eyewitness testimony is routinely utilized in civil cases ranging from automobile accidents to custody disputes. Eyewitness testimony is fickle and, all too often, shockingly inaccurate. Yet judges and jurors often uncritically accept such evidence.
Researchers have reported that (*3):
The uncritical acceptance of eyewitness accounts may stem from a popular misconception of how memory works. Many people believe that human memory works like a video recorder: the mind records events and then, on cue, plays back an exact replica of them. On the contrary, psychologists have found that memories are reconstructed rather than played back each time we recall them. The act of remembering, says eminent memory researcher and psychologist Elizabeth F. Loftus of the University of California, Irvine, is “more akin to putting puzzle pieces together than retrieving a video recording.” Even questioning by a lawyer can alter the witness’s testimony because fragments of the memory may unknowingly be combined with information provided by the questioner, leading to inaccurate recall.
Many researchers have created false memories in normal individuals; what is more, many of these subjects are certain that the memories are real. In one well-known study, Loftus and her colleague Jacqueline Pickrell gave subjects written accounts of four events, three of which they had actually experienced. The fourth story was fiction; it centered on the subject being lost in a mall or another public place when he or she was between four and six years old. A relative provided realistic details for the false story, such as a description of the mall at which the subject’s parents shopped. After reading each story, subjects were asked to write down what else they remembered about the incident or to indicate that they did not remember it at all. Remarkably about one third of the subjects reported partially or fully remembering the false event. In two follow-up interviews, 25 percent still claimed that they remembered the untrue story, a figure consistent with the findings of similar studies.
In the mid 1970’s researcher Elizabeth Loftus performed experiments demonstrating the effect of a third party introducing false facts into memory.(*4) The experiments were described as follows: (*5)
Subjects were shown a slide of a car at an intersection with either a yield sign or a stop sign. Experimenters asked participants questions, falsely introducing the term “stop sign” into the question instead of referring to the yield sign participants had actually seen. Similarly, experimenters falsely substituted the term “yield sign” in questions directed to participants who had actually seen the stop sign slide. The results indicated that subjects remembered seeing the false image. In the initial part of the experiment, subjects also viewed a slide showing a car accident. Some subjects were later asked how fast the cars were traveling when they “hit” each other, others were asked how fast the cars were traveling when they “smashed” into each other. Those subjects questioned using the word “smashed” were more likely to report having seen broken glass in the original slide. The introduction of false cues altered participants’ memories.
A number of factors can reduce the accuracy of eyewitness identifications and recollections of events. These have been identified as:
a) Extreme witness stress at the scene or during identification or during recall
b) Racial or cultural disparities
c) Alteration of the memory by the interviewer
Recognizing the fallibility of witness memories, then, is especially important to participants in the judicial process, since many trials revolve around factual determinations of whom to believe. Rarely will a factual question result in a successful appeal.
Where available, most counsel prefer documentary evidence to eyewitness testimony. Historically, counsel have relied upon original photographs, letters written by the parties, and other “formal” documents. Recently, we have seen a significant increase in the use of digital information. There has been an explosion in the use of email programs and of cell phones to take videos and photographs. These “tools” will change the nature of trials. As demonstrated recently in the Jian Ghomeshi trial, the unearthing of 13-year old emails by the defence and their use to attempt to discredit a woman accusing Jian Ghomeshi of sexual assault underscores the growing importance of “digital debris” in criminal and civil trials. (*6)
The amount of electronic data, records and documents introduced in trials has risen dramatically in the last ten years, increasing the time and expense of trials. Individuals and companies alike are hanging on to emails and electronic information, such as photographs and videos, forever, given the practically unlimited storage space available on the web and on computers. It is common sense today for lawyers to ask if there is a likelihood that relevant electronic evidence is available, whether emails, text messages, social media posts, online reviews etc. Even when someone thinks they have deleted the electronic information, it may not be deleted. The information may still exist on the backups of company databases and service provider databases.
What can we expect next? More electronic information and, with it, the risks of alteration of the electronic information. It’s the wild west, a brave new world. As before, with original photographs and documents, forensic investigators will be required to determine if, in fact, the electronic photograph or document has been altered. This also means the likely reduction of the use of eyewitness accounts and witnesses’ memories, without the aid of digital information. That might be a good thing.
Rui M. Fernandes
Follow Rui M. Fernandes on Twitter @RuiMFernandes and on Linkedin. See also his blog at http://transportlaw.blogspot.ca
(*1) “Richard Alexander”, The Innocence Project, http://www.innocenceproject.org/cases-false-imprisonment/richard-alexander
(*2) Hal Arkowitz, Scott O. Lillienfeld, “Why Science Tells Us Not to Rely on Eyewitness Accounts”, Scientific American, January 1, 2010.
(*4) See Elizabeth F. Loftus & J.C. Palmer, Reconstruction of Automobile Destruction: An Example of the Interaction Between Language and Memory, 13 J. of VERBAL LEARNING & VERBAL BEHAVIOR 585 (1974); Elizabeth F. Loftus, D.G. Miller, & H.J. Burns, Semantic Integration of Verbal Information into a Visual Memory, 4 J. of Experimental Psych, 19 (1978).
(*5) See Laura Engelhardt, “The Problem with Eyewitness Testimony a talk by Barbara Tversky, Professor of Psychology and George Fisher, Professor of Law”, Standford Journal of Legal Studies, April 5, 1999.
(*6) Laura Kane, “Ghomeshi email evidence shows how ‘digital debris’ increasingly used in trials” http://www.ctvnews.ca/canada/ghomeshi-email-evidence-shows-how-digital-debris-increasingly-used-in-trials-1.2768204
3. Contract Renewal and the Duty to Act Reasonably
What duties do parties to a contract owe each other when it comes time for renewal? The Ontario Superior Court of Justice stated in Data & Scientific Inc. v Oracle Corporation(*1) that there is a duty to exercise discretionary contractual powers reasonably, including decisions regarding whether to renew a contract.
The Defendant, Oracle Corporation (“Oracle”), is described by the court as a multi-national computer technology company carrying on business through its Oracle Partner Network (“ORN”) conduits. (*2) The Plaintiff, Data & Scientific Inc. (“D & S”), was a member of Oracle’s OPN for a period of twenty years; who over that time became reliant upon its relationship with Oracle.
The parties entered into Oracle’s standard OPN agreement (the “Agreement”), which was renewed annually at Oracle’s sole discretion. The Agreement contained the following clause:
“Any renewal of this agreement shall be subject to Oracle’s standard terms and fees…and shall be at Oracle’s sole discretion. You may apply for renewal of your membership in OPN by on-line electronic acceptance of the terms of the then current OPN agreement and Oracle will notify you if it accepts your application for renewal.” (*3)
The Agreement did not contain a provision regarding notice of non-renewal. The parties renewed the Agreement each year without incident. (*4) However, in the fall of 2014, Oracle invited D & S to renew the Agreement online as it had done in previous years. D & S accepted the terms online but without success so it wrote a letter to Oracle requesting renewal of the Agreement. Oracle advised that the Agreement would not be renewed. No notice was provided of the non-renewal. (*5)
D & S’ Position
D & S sued Oracle for damages for failing to give reasonable notice of non-renewal. D & S argued that Oracle was required to exercise its discretionary renewal power reasonably and that to do so, at a minimum, it should have provided reasonable notice of the non-renewal. (*6)
Oracle moved to strike the Plaintiff’s claim for failing to disclose a reasonable cause of action, pursuant to Rule 21.01(1)(b) of the Rules of Civil Procedure. Oracle agreed that there is a general rule that discretionary contractual powers must be exercised reasonably, but argued that the Supreme Court of Canada in its recent decision in Bhasin v Hrynew (*7)curtailed this rule. Oracle stated that the court in Bhasin established that the reasonable exercise of discretionary contractual powers never applies in cases of contractual renewal, absent active dishonesty. (*8)
The Court’s Analysis
In deciding to dismiss Oracle’s motion to strike D & S’ statement of claim, the court stated that Oracle’s interpretation of Bhasin was not what the Supreme Court intended in that decision:
In Bhasin, an obviously important development in the continuing modernization of Canadian contract law, the Court, in essence, did two things: one, it recognized that the ‘situational’ and ‘relational’ examples or pockets of a judicially recognized good faith doctrine were aspects of a broader organizing principle of good faith – ‘that parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily;’ and two, the Court decided on the facts before it that it was time to recognize a new duty – ‘a general duty of honesty in contractual performance.’(*9)
The judge noted that, in Bhasin, the court found that the defendant breached the duty of honesty in contractual performance by misleading the plaintiff and acting dishonestly in numerous ways leading up to and including the non-renewal of their agreement. The defendant, in that case, complied with the six-month notice provision in the agreement so the complaint was not one of lack of reasonable notice, but rather bad faith/dishonesty in the form of deception in their exercise of the non-renewal clause. The judge stated that the concern in Bhasin was dishonesty rather than unreasonableness. (*10)
The judge specifically stated that Bhasin did not stand for the principle that the “long-standing requirement that discretionary contractual power must be exercised reasonably can never apply in contract renewal situations” where the non-renewal power is at the sole discretion of one party and requires no notice. (*11)
Of interest is the fact that in its analysis, the court considered that the principle of good faith would likely have different implications in the context of a long-term contract of mutual cooperation than it would in a more transactional exchange, presumably meaning that the principle would be more strictly applied in circumstances involving long-term agreements. (*12)
It is important to note that the court in this case was clear that it was not making any type of findings in regard to the actual merits of D & S’ case, but rather that it was not plain and obvious that their claim was certain to fail and had no chance of success. The merits of the case would be left for a trial judge to decide (*13)
Implications and Conclusions
The court established that a party exercising discretionary contractual renewal powers must do so in a reasonable manner. A party who does not intend to renew a contract should, at a minimum, provide reasonable notice of that intent. The court did not elaborate on the length of notice that would be “reasonable” for these purposes; however, existing case law indicates that this is a fact specific inquiry.
Where the contract is silent with regard to notice, the courts have held that “reasonable notice” should be determined with regard to the facts that existed at the time notice was given, the general nature and circumstances of the case, the established practice in the trade or business and the obligations incurred / the commitments made by the terminated party in order to fulfill its contract. (*14) Other similar factors that courts have considered include the nature of the parties’ relationship, the duration of the relationship, the exclusivity of the agreement and the financial commitment of the terminated party. (*15)
Parties should first look at the provisions of the contract in question to determine if it sets out a minimum notice period. Similarly, when negotiating a contract, parties should discuss what amount of time would be appropriate and reasonable in their circumstances as a notice period and incorporate a clause to that effect into their contract. Parties should also consider if certain events would trigger termination of the contract without notice, and if so, provisions should be incorporated into the contract clearly setting out those events and their implications. In any event, parties should ensure that if they intend to exercise the non-renewal clause of a contract, they do so in a reasonable manner and provide some form of notice to the other party.
(*1) 2015 ONSC 4178 [hereinafter referred to as Data v Oracle].
(*2) Ibid at 1.
(*4) Ibid at 2.
(*5) Ibid at 2-3.
(*6) Ibid at 4.
(*7) 2014 SCC 71 [hereinafter referred to as Bhasin].
(*8) Data v Oracle at 8-9.
(*9) Ibid at 10, 15, 17.
(*10) Ibid at 11-14.
(*11) Ibid at 15.
(*12) Ibid at 16.
(*13) Ibid at 17-18.
(*14) Clarke v Irwin & Co v George G Harrap & Co, (1980) 9 BLR 97 at p 111-112 (ONHC).
(*15) Axiom Group Inc. v Inter Automotive Closures Inc., (2005) 2 BLR (4th) 171 (ONSC); WERAM (1975) Inc. v EMCO Ltd., (1999) 2 BLR (3d) 183 (ONSC); Toronto Type Foundry Ltd. v Miehle-Gross-Dexter Inc.,  2 OR 431 (ONHC); RGO Office Products Ltd. v Knoll North America Corp., (1996) 37 Alta LR (3d) 113 (ABQB) and most recently, Keenan v. Canac Kitchens – see Kim Stoll’s article below
4. The Potential Erosion of the Motor Carrier Contract of Carriage as We Know It: Look Out Below
The recent decision in the case of Pelmen Foods Ltd. v. Fast Load Transport Inc. (*1) provides an excellent illustration of the liability issues that arise in the context of a shipper and load broker relationship. Its real importance, however, is the indication that we may be seeing the erosion of the motor carrier contract of carriage as we have come to know it in the province of Ontario. As addressed below, the issue concerns the fact that, in Ontario, the applicable regulation governing road carriage contracts (*2) regulates the “contract of carriage” as opposed to the former regulatory regime that governed the “bill of lading”. Other provinces in Canada that regulate in the area continue to regulate the “bill of lading”. Commentators and lawyers continue to debate whether this is a “distinction without a difference” or whether there is an evolution in progress. Historically, a bill of lading has been regarded as being the best evidence of a contract of carriage – it might, in fact, be the contract of carriage, or it might simply form a part of the contract of carriage, which is to be filled in by other details that might be admissible in evidence.
Some examples come to mind. A shipper endorses 4 pallets as being tendered to a carrier on a bill of lading when only 3 were loaded onto the truck for carriage. The driver signs the bill of lading without having done a piece count. In the context of the eventual ‘pilferage’ claim for the missing pallet, the carrier may lead evidence to the effect that there are details informing the carriage mandate beyond the bill of lading itself; that is, to the effect that only 3 pallets were tendered at origin. In particular, the bill of lading, as it was issued at origin, would be said to only be a part of the contract of carriage.
In another context, a shipper and a carrier may agree to stipulate various rights and obligations in a ‘pre-shipment’ motor services agreement or shipper-carrier contract, such agreement stipulating that any bill of lading as issued will only be a receipt for the cargo, with any terms therein (or as may be deemed to apply under applicable statute or regulation) that are at odds with the written agreement being “read down”, so as to give effect to the terms of the latter.
The potential danger of the Pelmen decision is its rather bold extension of what was clearly a fact driven result in the earlier case of A & A v. Dil’s Trucking Inc. (“A & A”)(*3). Thisdecision held that the ‘contract of carriage’ in that case actually included a commercial invoice listing the value of the cargo, the effect of which being that the shipper in that case was found to have “declared a value” on the contract of carriage, with the consequence following that the carrier in that case could not limit liability to $2 per pound.
As mentioned, the Pelmen decision also highlights items of interest in the shipper- broker context, most notably when a broker might be liable for loss of or damage to cargo in transit.
PelmenFoods Ltd. (“Pelmen”) sold 180 boxes of frozen perogies to a company based in Memphis, Tennessee. The perogies had a value of US $27,258. The goods were to be transported from Pelmen’sfacility in Toronto to the buyer in Memphis. As Pelmenwas inexperienced with cross-border transportation logistics, it made inquiries of the defendant, ByExpress Corporation (“ByExpress”), who carried on business as a load broker, facilitating the transportation of goods between shippers and motor truck carriers.
A logistics coordinator with ByExpress fielded the inquiry from Pelman, and followed up by sending an email to Pelmenstating as follows:
We’re asset based transportation, logistics and warehousing company specializing in both FTL and LTL locally, as well as long-haul shipments. We do have a 3PL division that is fully licensed and bonded, which allows us to specialize in acquiring and coordinating all types of transportation services including road freight, ocean, air and Intermodal, right across the US as well as Canada and overseas.
ByExpress, in turn, hired the other defendant, Fast Load Transport Inc. (“Fast Load”), to carry the goods to Tennessee for the plaintiff. ByExpress learned of Fast Load through the Loadlink service, which matches brokers seeking to arrange the carriage of goods with carriers who have the assets to perform the movement of goods. ByExpress had no previous experience with either Pelmenor with Fast Load.
Accordingly, ByExpress provided a “Dispatch Information” document to both Fast Load and to Pelmen (*4). The Dispatch Information sheet set out the name of the carrier, the carrier’s contact information, the name and address of the shipper, the name and address of the consignee, the load and carrier number, the pick up and delivery dates, the type of equipment required and the particulars of the load, including the type of load, and the weight and the class of the goods. The Dispatch Information document also set out the fee charged by ByExpress for providing the service.
Fast Load accepted the Dispatch Information on January 9, 2013 for the load of perogies. The value of the goods was noted as “Not Specified”. Paragraph 4 of the Dispatch Information provided as follows:
Carrier agrees to provide cargo insurance in the amount listed above and a minimum of $100,000 to compensate owner of property in the event of loss or damage. Carrier also agrees to provide a current certificate of insurance with ByExpress Transportation named as the certificate holder. In the event of a cargo claim, carrier will be liable for the full value of the loss.
Pelmenprepared a bill of lading for the carriage of the perogies to Memphis. The bill of lading did not specify the value of the goods. The perogies were picked up from the plaintiff’s warehouse at which time both a representative of Pelmenand the Fast Load driver signed the bill of lading.
ByExpress also prepared a bill of lading, which was also signed by the Pelmenrepresentative at the point of pick up. This document identified Fast Load as being the carrier. A “note to shipper” near the bottom of this bill of lading stated, “Please review and confirm the accuracy of information contained in this bill of lading and revise as needed”. No value for the goods was set out in this bill of lading either; however, this bill of lading did state that a 53-foot reefer was supplied to carry 5 pallets of frozen perogies weighing 7500 pounds.
The plaintiff prepared a document for customs clearance, being an invoice setting the value of the goods at US $27,258. In its review of the facts, the Court noted that a copy of this invoice must have been given to Fast Load’s driver, as he would be required to clear U.S. customs to get the perogies into the United States. This invoice referenced the first bill of lading, referred to above, by number, being the bill of lading prepared by the plaintiff.
Fast Load delivered the perogies to Memphis on January 17, 2013. When the reefer trailer was opened, it was determined that the perogies had defrosted and were ruined. The consignee rejected the shipment. Fast Load, thereafter, acknowledged and accepted responsibility for the damage to the perogies. Pelmendid not conduct an examination of the damaged perogies, but maintained that they were now unsafe for consumption.
Following the loss, ByExpress contacted Fast Load’s insurance company who “promised that it would then contact the plaintiff”. For reasons not fully developed on the trial record, for some reason, an insurance claim was not pursued against the insurance policy that Fast Load apparently took out for the goods.
The Legal Proceedings
As Pelmendid not obtain any recovery from any insurance policy in respect of the perogies, it commenced a lawsuit against both Fast Load and ByExpress for $25,000 in Small Claims Court. ByExpress, in turn, commenced an action against Fast Load for contribution and indemnity in respect of all damages and costs for which it might be found liable to Pelmen. Fast Load did not defend either Pelmen’s claim or the claim by ByExpress for contribution and indemnity.
The action continued as between the Pelmenand ByExpress. The pleadings raised the following issues:
- Was ByExpress liable to the plaintiff for the lost perogies?
- Did ByExpress hold itself out to the plaintiff as a carrier?
- What was the quantum of damages?
The Court’s Analysis and the Outcome
Pelman’s claim against ByExpress was premised on the contention that it was an express or an implied term of the agreement between them that ByExpress would ensure that Fast Load would safely deliver the cargo to destination and, in essence, that ByExpress had held itself out as a carrier with “carrier like” liability to Pelman. As such, the first two issues listed above were then interrelated.
ByExpress led evidence at the trial that it never provided services as an international carrier, as it was not registered in the United States under the Department of Transportation to haul loads. ByExpress led evidence to the effect that it operated two trucks in the Ottawa area, exclusively providing services for Costco. ByExpress also led evidence that its “marketers”, who introduce the company and sell services to shippers as a standard practice, advise potential customers that ByExpress is only a broker and is not a carrier. Further Evidence led described how ByExpress used the Loadlink service in its capacity as a broker: Loadlink provided information setting out a carrier’s license, insurance coverage, WSIB coverage, the type of trailer, the routes, and other pertinent information concerning the carriers. ByExpress’ witness testified how it relied on Loadlink to perform its due diligence with respect to hiring carriers to transport loads for shippers. In turn, the ByExpress witness testified how, as a load broker, it would, in turn, coordinate carriers, track loads, obtain proof of delivery and “act as an extension of the consignor or its shipping department” and how, once a carrier is located on Loadlink, ByExpress contacted the carrier to negotiate the price and set up the details of the shipment.
ByExpress’s witness testified that, while he could not recall the email noted above, ByExpress would always advise shippers that it was a brokerage and did not transport goods as a carrier.
Pelmen’s representative, who originally booked the load with ByExpress, was not called as a witness. In the absence of her evidence, the court accepted ByExpress’ evidence that it would “never advise a customer that ByExpress was a carrier that transported goods”. In this regard, the court also noted that ByExpress prepared and delivered the Dispatch Information form and the bill of lading to the plaintiff, both of which stated clearly that Fast Load was the carrier. The court accordingly found that ByExpress did not hold itself out as a carrier to Pelmen, but rather provided the services of a load broker. (*5)
Pelman also alleged that ByExpress was negligent for assigning the carriage of the goods to Fast Load and further that ByExpress failed to confirm that Fast Load had adequate insurance coverage. The court rejected this argument on the basis that Loadlink had, in fact, confirmed the existence of coverage, and that there was the suggestion on in the evidence that such insurance coverage actually was in existence. As mentioned, Pelmen did not fully explain at the trial why it or Fast Load had not proceeded with an insurance claim. Without expressly making a finding on point in its dismissal of the case outright against ByExpress, the court necessarily found that ByExpress’ reliance on Loadlink to source and then obtain information about the carrier was a reasonable approach. Not being a carrier, and not having been negligent as a load broker in the selection of Fast Load as a carrier, the court dismissed the case against ByExpress.
The Damage Claim and Limitation of Liability
It not being in issue that Fast Load was liable as a carrier, the court had to then determine the amount of damages to which Pelman was entitled; however, neither the Dispatch Information form or the ByExpress bill of lading specified the value of the goods (*6).
In a rather disconcerting exercise, the court noted that Fast Load could not limit its liability to CDN $15,000 (i.e. the weight of 7500 lbs. x $2.00) for lack of a declared value on the bill of lading itself, on the basis that Fast Load had been provided with the aforementioned customs invoice, which listed the value at US 27,258. Noting that that invoice referenced the ByExpress bill of lading number, the Court reverted to a consideration of the A & A decision. (*5) In that decision, a carrier was not allowed to limit liability – despite there being no declared value on the bill of lading itself – owing to an expansive consideration and definition of a “contract of carriage” for the purposes of clause 10 of the Uniform Bill of Lading, which provides:
If the consignor has declared a value of the goods on the face of the contract of carriage, the amount of any loss or damage for which the carrier is liable shall not exceed the declared value.
In A & A, the court found that the reference, by number, of an invoice on the carrier’s bill of lading in effect incorporated the customs invoice into the contract of carriage, having the effect then of being a value ‘declared’ in the carriage contract. In the present case, there was something of a leap by the judge, who found that the reference of the bill of lading number onto the commercial invoice had the same effect of creating a declaration of a value. It might be one thing (per A & A) for a court to find an invoice as having been incorporated into a contract of carriage by being endorsed on a bill of lading; however, it seems to be a rather bold approach to find that an invoice is incorporated into a contract of carriage because the bill of lading number was referenced on that commercial invoice. Quite simply, as indicated above, bills of lading are either the contract of carriage or, at a minimum, they inform the contract of carriage. Commercial invoices, do not, by their nature, tend to inform the contract of carriage given their stand alone purpose of being given to the carrier to facilitate the customs entry into another country, being a customs event, pure and simple.
The reader is also cautioned that A & A also involved specific facts, which do not appear to exist in this case, and that may have influenced the finding in that case. Evidence was led in A & A that the shipper and carrier had engaged in pre-shipment discussions about the shipper’s concern that the carrier have adequate liability insurance coverage to cover the value of that cargo and which, in the context of that discussion, had been disclosed to the carrier. In that setting, one can see how a court might embrace how such discussions might inform a contracting intent that the ‘contract of carriage’ included a declaration of value, when the commercial invoice number was actually endorsed onto the operative bill of lading.
Without any further analysis on the point, the court ruled that the customs invoice was a part of the contract of carriage and, accordingly, rendered judgment for $25,000 in favour of Pelmen instead of the limitation amount of CDN $15,000. (*7)
The clear ‘take away’ from this case is that shippers, brokers and carriers all benefit from the certainty of contract that comes with specifically setting forth their contracting intentions in writing. Concerns as to any uncertainty that may result in how a court might incorporate extrinsic or “outside” documents into what constitutes a “contract of carriage” (whether for the purposes of determining if there is a limitation of liability or otherwise) will certainly dissipate by the parties properly contracting for their affairs.
The case also, of course, has an admonishment for the load brokering community: each case will turn on its own specific and as to whether a broker held itself out to a shipper as being a carrier, such that the broker would be liable for cargo loss and damage. Load brokers are advised to be deliberate and consistent in implementing their business model on point so as to make it clear what service they intend to offer a shipper and what degree of responsibility for cargo loss or damage that they are prepared to assume.
(*1) 2015 CanLII 85873 (ON SCSM)
(*2) Regulation 643/05 enacted under the Highway Traffic Act RSO 1990 c.H.8
(*3)  O.J. No. 1444. See the Fernandes Hearn LLP newsletter from April, 2015, and James Manson’s article for a review and discussion of the A & A v. Dil’s Trucking Inc. case.
(*4) Also known as or referred to in the industry as a “carrier confirmation sheet”. It is interesting that, in this case, this document was also sent to Pelman. Load brokers do not usually send this document to the shipper of goods.
(*5) Interestingly, the court did not address the point that the email, noted above, did, in fact, state that “… ByExpress was an asset backed transportation, logistics and warehouse company…” may reasonably imply that it did, in fact, operate equipment.
(*6) Recall that, by the “uniform bill of lading” prescribed in Ontario by Regulation 643/05 under the Highway Traffic Act, a carrier can limit liability to $2 per pound unless a value for the goods is declared on the bill of lading at the point of origin.
(*7) Note: the monetary jurisdiction in Ontario Small Claims court is $25,000. Accordingly a plaintiff wishing to sue in that venue has to reduce its claim to that amount so as to litigate a claim in that setting. Accordingly, Pelmen, in this case, ‘waived’ the difference between US $27,258 and CDN $25,000.
5. The Ontario Superior Court’s Decision in Gardiner v MacDonald, 2016 ONSC 602 – Professional Drivers Owe a Higher Standard of Care than Ordinary Drivers:
On January 28, 2008, a collision occurred at the intersection of Heron Rd. and Riverside Dr. in Ottawa, Ontario at approximately 1:54 am, when an OC Transpo bus driven by Raymond Richer (the “Bus”) T-boned an oncoming SUV (the “SUV”). The SUV occupants were the driver, Mark MacDonald, and the passengers, Brianne Deschamps, Vanessa Crawford, and Ben Gardiner. Mr. MacDonald, Ms. Deschamps, and Ms. Crawford were fatally injured. Mr. Gardiner was catastrophically injured. (*1)
The collision occurred when the bus, which entered the intersection of Riverside Dr. and Heron Rd. on a green light travelling northbound on Riverside Dr., and the SUV, which entered the intersection of Riverside Dr. and Heron Rd. on a red light travelling westbound on Heron Rd., collided. The Court found that the Bus had the right of way when the collision occurred. (*2)
Alcohol use by the SUV driver, Mr. MacDonald, was a factor in the collision. No criminal charges were laid against the Bus driver, Mr. Richer, as a result of the accident. (*3)
One issue that the Court had to consider in this case was whether Mr. Richer, as a professional bus driver, had to meet an even higher standard of care than an ordinary non-professional driver. (*4)
With respect to the duty of care, the Court noted the decision of the Ontario Court of Appeal in Sant v. Sekhon, 2014 ONCA, 623, 68 M.V.R. (*5):
A driver with a green light is free to go through the intersection assuming that drivers approaching the intersection from other directions and who are necessarily being shown a red light will stop. However, a statutory right of way does not absolve a driver from exercising proper care. A driver should not exercise his or her right of way 1) if the driver becomes aware or should become aware that the driver without the right of way is going to go through the intersection and 2) if the circumstances are such that the driver with the right of way had the opportunity to avoid the collision.
The Court noted that the dominant driver (the driver with the right of way) will be fixed with some responsibility if he or she had a reasonable opportunity to avoid the collision, but failed to do so. In determining whether the dominant driver had met the standard of care, the Court must consider all of the dominant driver’s actions and how those actions relate to the perception of hazard. The Court noted that such relevant factors include speed, distraction, the size and weight of the vehicle, and weather conditions. (*6)
Importantly, the Court also found that such relevant factors may take into account the expertise of the driver. The Court noted that, “professionals can be held to a higher standard than the general public when performing their professional duties.” (*7)
The Court held that, although the SUV driver, Mr. MacDonald was primarily responsible for the accident, the Bus driver, Mr. Richer was 20% contributorily negligent. The Court considered that Mr. Richer owed a higher standard of care in the circumstances given his status as a professional driver, and that he had breached this standard by, inter alia, travelling over the posted speed limit in poor weather conditions. (*8)
Such assignment of liability to the professional driver in this matter may be somewhat surprising given the Court’s finding that the Bus had the right of way and that the SUV driver was under the influence of alcohol and entered the intersection on a red light. However, this case demonstrates that professional drivers will be held to a higher standard of care than ordinary drivers. The Bus driver’s decisions with respect to travel speed in poor weather conditions breached the standard of care in the circumstances despite the fact that he had the right of way when entering the intersection where the accident occurred.
(*1.) Ben Gardiner et al. v Andrew MacDonald et al., 2016 ONSC 602 at para 1.
(*2.) Ibid atpara 2, and 3.
(*3.) Ibid at paras 5 and 6.
(*4.) Ibid at para 16 and 18.
(*5.) Ibid at para 137.
(*6.) Ibid at paras 138, 139, 140, and 142.
(*7.) Ibid at para 143.
(*8.) Ibid at paras 171 and 194.
6. Air Canada Overhaul Litigation: Supreme Court Hearing Delayed and Likely Averted
On February 17, 2016, Air Canada and Bombardier announced that the airline had entered into a letter of intent to purchase 75 aircraft from the manufacturer’s troubled C-Series line. The C-Series project, launched in 2004, is Bombardier’s first challenge to the duopoly enjoyed by Airbus and Boeing in the 100+ seat passenger aircraft market. Bombardier has struggled with repeated delays to the delivery of the new aircraft, which has translated into slowing and cancelled orders.
Air Canada further announced that it would establish a maintenance facility in the Montreal area to service the new Bombardier jets. Concurrently, the Quebec provincial government announced that it had reached a settlement with Air Canada whereby the provincial Attorney General would discontinue its ongoing legal proceedings against the airline relating to violations of the Air Canada Public Participation Act (“ACPPA”) (*1), being legislation enacted to govern the privatization of the flag carrying airline.
In November 2015, a panel of five Quebec Court of Appeal judges (*2) upheld a trial level decision finding that Air Canada was in breach of its legal obligations pursuant to the aforementioned legislation (*3). On December 30, 2015, Air Canada had filed an application for leave to appeal the Court of Appeal decision to the Supreme Court of Canada (*4). On February 19, 2016, Air Canada and the Quebec Attorney General filed correspondence with the Supreme Court indicating that the parties had reached an agreement and that accordingly the hearing of the application for leave to appeal should be delayed until July 15, 2016, presumably allowing the parties time to implement their agreement.
The Quebec Court of Appeal had, in its judgment, confirmed the non-compliance of Air Canada with its legislative obligations. At issue was s. 6(1)(d) of the ACPPA, which required that “the articles of continuance of (Air Canada) shall contain provisions requiring the Corporation to maintain operational and overhaul centres in the City of Winnipeg, the Montreal Urban Community and the City of Mississauga”.
At the time of its privatization, Air Canada performed all maintenance and repair of aircraft in house through its internal technical division, Air Canada Technical Services (“ACTS”). As part of Air Canada’s restructuring under the Companies’ Creditors Arrangements Act (*5) during its 2003 insolvency, ACTS was “spun off” as an independent corporation. As well as servicing many third party customers, ACTS retained the heavy maintenance and overhaul services contract for the Air Canada fleet. ACTS rented hangar space to perform the work from Air Canada and continued to render services in the Canadian cities, as prescribed in the ACPPA.
In 2006, ACTS became Aveos, and, in March 2012, Aveos filed for bankruptcy protection. One month later, the Attorney General of Quebec commenced litigation against Air Canada alleging that the closure of Aveos and its Canadian overhaul centres placed Air Canada in breach of the ACPPA because overhaul functions were then being performed overseas. Later in 2012, the Attorney General of Manitoba was granted intervening party status in the litigation, given its interest in the outcome in light of the same statutory provision’s requirement to maintain overhaul facilities in Winnipeg (*6).
In 2013, the Quebec Superior Court granted declaratory judgment in favour of the Attorney General dismissing Air Canada’s defences and holding it in breach of the representations it had made in order to secure its 1988 privatization.
Before the Quebec Court of Appeal, Air Canada challenged the factual determination of the trial judge that it did not, in fact, maintain an overhaul centre in Montreal. The Court of Appeal upheld the reasoning of the trial judge, denying Air Canada’s position that the Court had adopted a static definition of aircraft maintenance. The trial judge, rather, had properly referred to the Air Transport Regulations in distinguishing between servicing, maintenance, scheduled maintenance and overhaul of aircraft, and properly found that overhaul work performed in Montreal, if any, was insignificant.
Air Canada’s second line of appeal questioned the standing of the Attorney General to bring the legal proceeding and denied that it had the requisite interest to prosecute the suit. The Court of Appeal applied the three-step test established by the Supreme Court of Canada (*7) and found in favour of the Attorney General that: (1) There was a proper litigious case to be heard based on interpretation of legislation, (2) As reasoned at trial level, given the number of jobs in Quebec at issue and the lost fiscal revenue from the displacement of overhaul services, the Attorney General had the requisite interest in ensuring that Air Canada respect the ACPPA, and (3) the application for declaratory order was an appropriate recourse.
Bich J.C.A., delivering the unanimous decision of the court, dismissed Air Canada’s argument that the Attorney General had erred in failing to bring its proceeding under s. 247 of the Canada Business Corporations Act (“CBCA”) (*8). Air Canada argued that the ACPPA merely contained a requirement of form as to the terms of its articles of incorporation, and that such requirement of form was met, since the articles still required it to maintain overhaul services in Montreal. Accordingly, Air Canada advocated that the proper basis for suit would be failure to comply with articles of incorporation under s. 247 of the CBCA, which imported the application of the rule of business judgment granting deference to the choices of Air Canada.
Per Justice Bich, pursuant to an interpretation of the ACPPA which takes account of the objectives, context and purposes of the legislation, the ACPPA encapsulated substantive requirements incumbent upon Air Canada to maintain overhaul facilities, with a volume of operations comparable to the time of enactment of the ACPPA. The ACPPA did not simply impose a formality to maintain the obligations in the statute, or a duty to retain facilities absent operations.
The content of parliamentary debates, at the time of the ACPPA’s adoption, were persuasive for the Court in disclosing the true extent of the intended duties imposed by s. 6(1)(d) of the ACPPA. Moreover, Air Canada, itself, had successfully lobbied previously for amendments to other provisions under s. 6(1) of ACPPA, thereby implicitly recognizing the mandatory nature of the provisions. Accordingly, Air Canada could and ought to have made recourse to the legislature, if it could no longer respect its obligations under s.6(1)(d), as only the legislature could grant reprieve from the terms of the law.
Finally, Air Canada raised a difficulty with the trial judgment in that it provided Air Canada with no certainty regarding how it should respect its obligations under the ACPPA. Air Canada could not know the volume of operations required to be done at the Canadian centres, in order to meet its legal obligations. The appeal court, however, maintained the terms of the trial judgment, stipulating that it would be difficult for the Court to indicate at what volume of overhaul operations performed in Canada, Air Canada would be in compliance with the ACPPA. It was not for the trial judge to direct Air Canada as to the specific number of workers required to be based at the Canadian overhaul centres. Despite Air Canada’s concern that there would be continual litigation because it did not know the extent of repatriation of overhaul required to appease the Attorney General and to comply with the law, the court declined to usurp legislative functions of chronicling obligations not detailed in the law, or to impinge on the latitude afforded to Air Canada to exercise business discretion in fulfilling its duties under the ACPPA.
Although the decision is controversial, highly publicized and likely veering to a Supreme Court of Canada hearing, this may be averted given the purchase of Bombardier jets by Air Canada and its promise to establish an overhaul centre in Montreal for the aircraft. It remains, however, to be determined whether further recourse will be made by the Manitoba Attorney General, intervenor in the Quebec proceeding, who is left astray by the resolution of the Quebec dispute, since there is no public knowledge of reinstatement of a Winnipeg overhaul facility.
Mark A. Glynn
(*1) Air Canada Public Participation Act, RSC 1985, c 35
(*2) Quorum of the court is ordinarily three judges; however at the discretion of the Chief Justice, a five judge bench can be appointed in respect of high profile or complex matters. This is rarely. In 2012/2013, a five judge panel was used twice, and, in 2013/2014, on a single occasion.
(*3) Québec (Procureur général) c. Air Canada, 2013 QCCS 367 (trial); Air Canada c. Québec (Procureure générale), 2015 QCCA 1789 (appeal)
(*4) Supreme Court of Canada Docket 36791: Air Canada v. Attorney General of Quebec, et al.
(*5) Companies’ Creditors Arrangement Act, RSC 1985, c C-36
(*6) Québec (Procureur général) c. Air Canada, 2012 QCCS 4475
(*7) Canada (Attorney General) v. Downtown Eastside Sex Workers United Against Violence Society,  2 SCR 524
(*8) Canada Business Corporations Act, RSC 1985, c C-44
7. Federal Court of Appeal Addresses Rail Carriers’ Right to Limit Liability Via Published Tariffs
Cargo losses occasioned in the trucking and maritime environments are subject to generally well-known terms. In the case of road transportation, in particular, most provinces have enacted legislation that imposes a rebuttable presumption of liability, default limitation amounts, and certain uniform conditions of carriage that apply even in the absence of a bill of lading.
The rail regime is a different beast altogether. Firstly, Canadian rail carriers cannot turn away clients indiscriminately. They are subject to common carriage obligations pursuant to section 113 of the Canada Transportation Act (the “Act”), requiring them to accept goods for transportation upon payment of railway carriers’ freight rates (*1). Secondly, Section 113 of the Act also grants rail carriers significant freedom to contract with their shipping clients, both with regard to freight rates and conditions of service. Confidential agreements are not uncommon (*2).
Beyond the foregoing, a rail carrier is also entitled to simply publish tariffs, unilaterally, to govern its shipments in the absence of a written agreement (*3). Once published, the Act deems the tariff rates to be enforceable. Moreover, the Act requires the rail carriers to publish binding terms and conditions of their services (*4). In practice, since various types of cargo carry different risks, rail carriers publish multiple tariffs, each with their own rates and conditions. Of course, this places significant power in the hands of the rail carriers vis-à-vis shippers, who do not have large enough market positions to negotiate more favourable rates and terms.
In the recent case of Canadian Pacific Railway v. Canexus Chemicals Canada, LP (*5), the Federal Court of Appeal considered the extent of a rail carrier’s ability to unilaterally dictate its terms and conditions by published tariffs.
Several shippers argued that the limitation of liability provisions contained in Item 54 of Canadian Pacific Railway’s Tariff 8 were in contravention of Section 137(1) of the Act, which section prohibits a rail carrier from limiting its liability to a shipper in the absence of a written agreement. Further, if no written limitation of liability agreement is executed by the shipper (or an association representing the shipper), then the Railway Traffic Liability Regulations apply. (*6) The particulars of those regulations, which generally make carriers liable for all loss, damage or delay, were outside of the ambit of the Court’s review.
The tariff at issue was published in respect of hazardous commodities. In order to tightly insulate itself from any potential liabilities for those goods, the Canadian Pacific Railway (the “CPR”) appeared to have drafted Item 54 with the intent of shifting significant risk back on to the shippers. In particular, it provided that CPR would not be liable for claims, loss or damage caused by, or arising from, the transportation of the commodities (the “Broad Limitation”); and that shippers must indemnify and hold harmless CPR with respect to the claims of third parties (the “General Obligation to Indemnify”). For example, CPR would be indemnified for any alleged violation of an environmental law however, the foregoing was subject to certain restrictions, such that CPR would be liable for its own negligence or its agents’ negligence, but only in proportion to its fault in the case of joint liability (the “Joint Liability Clause”); and CPR would be liable for any loss, damage or delay to the goods in transit.
The shippers had initially sought redress from the Canadian Transportation Agency (the “Agency”), asking that body to consider Item 54. The Agency found that CPR was, in fact, acting contrary to the legislation and that the Broad Limitation needed to be agreed upon in writing, and not simply published in Tariff 8, because it was a limitation upon the shipper’s rights. Similarly, it found that the principle of apportionment in the Joint Liability Clause was required to be agreed upon in writing because it was tantamount to a limitation provision, given the shipper’s exposure to increased liability in certain circumstances.
With respect to the principle of indemnification more generally, the Agency found that it might be a limitation of liability, depending upon the facts. In particular, the Agency was concerned that the Joint Liability Clause could operate as a waiver by the shipper with respect to claims that it might have against CPR in relation to third party liabilities.
The appeal lay directly to the Federal Court of Appeal, which reviewed all of the foregoing.
First, the Court of Appeal disagreed with the Agency as to the purpose of Section 137(1). Whereas the Agency’s frame of analysis was that the section was designed to protect shippers from unauthorized transfers of exposure to liability, the Federal Court of Appeal reasoned that the section was simply designed to moderate the power imbalance. If the rail carriers attempted to impose overly broad limitations in their tariffs, market forces would push parties towards negotiated written agreements:
Left unchecked, the power to set terms by the use of tariffs would leave the shippers of certain types of traffic at the mercy of the railway company. Subsection 137(1) is the means by which Parliament has chosen to strike a balance between the interests of the railway companies and shippers and to favour the negotiation of commercial agreements between shippers and railway companies.
Requiring the shipper’s signature (however defined) on contracts of carriage which limit the railway company’s liability to shippers is, in effect, a way of forcing railway companies to either negotiate limitations of liabilities with shippers or to draft their limitation of liability clauses in such a way that they do not need to be signed to be enforceable. If the railway company choses to limit its liability narrowly, so that it is not caught by subsection 137(1), then the limitation of liability clause is likely to be more balanced, which is to the advantage of the shipper …. (*7)
The Court of Appeal held that Section 137(1) applied equally to limitations on the shipper’s right to claim over against the rail carrier for losses suffered by a third party.
The Court continued to find that the Broad Limitation did not apply to ordinary loss, damage or delay claims, as those items were explicitly covered.
The Court then found that the Joint Liability Clause acted both as a restriction on the Broad Limitation and as an exception to the General Indemnification Obligation. It reasoned that a claim by a shipper for CPR’s proportionate share of a loss – caused jointly by the shipper and the railway – must be excluded from the scope of the Broad Limitation so as to give effect to the Joint Liability Clause. By the same logic, the General Obligation to Indemnify would be equally ineffective in the case of a third party claim for CPR’s proportionate share of a loss. In effect, the Court found that the Joint Liability Clause was paramount to the Broad Limitation and the General Indemnification Obligation.
As a result of the foregoing, the Court of Appeal found that the real effect of the Broad Limitation and the General Indemnification Obligation, which had troubled the Agency, was limited to claims by third parties where there was no negligence on the part of CPR or its agents.
In the result, CPR would be liable for:
- loss, damage or delay claims,
- loss or damage caused by CPR’s own negligence, and
- loss or damage caused jointly by CPR and another party (subject to apportionment).
Item 54 would continue to operate in CPR’s favour with respect to the obligation of shippers to indemnify it and hold it harmless in circumstances where CPR was not negligent.
In light of this decision, railway tariffs ought to be closely reviewed, particularly with respect to third party liability. Parties – both shippers and rail carriers – would be well served to ensure that their liability insurance is sufficient to cover their risks.
Alan S. Cofman
(*1) SC 1996, c 10.
(*2) In fact, they are explicitly permitted. See ibid., section 126.
(*3) ibid. See Division IV of Part III.
(*4) Ibid. See section 117(2) and the Railway Traffic and Passenger Tariffs Regulations, SOR/96-338.
(*5) 2015 FCA 283.
(*7) supra note 4 at paras. 99-100.
(*8) Ibid. at paras. 118-119.
8. British Columbia Court Of Appeal Rules Transport Canada Does Not Owe A Duty Of Care To Airline
The British Columbia Court of Appeal, in its decision of Gill v. Canada, 2015 BCCA 344 (“Gill”), ruled that Transport Canada does not have a duty of care to protect the economic interest of aviation industry entities operating within its regulatory regime (“AOC”) (*1).
International Express Aircharter Ltd. (“IEA”) was an aircraft company engaged mainly in the air cargo business. In order to operate an air cargo service such as this, IEA was required to hold an Air Operator Certificate (“AOC”) issued by Transport Canada, being the regulatory body that oversees the aviation industry in Canada. Transport Canada’s mandate in this sphere includes the licensing and certification of individuals and business providing aviation services in Canada.
On January 21, 2006, an IEA aircraft was involved in a tragic accident that resulted in the death of three individuals. The cause of the accident was unknown.
Prior to the accident, Transport Canada had placed IEA on an enhanced monitoring programme of inspections, as the result of Transport Canada’s concerns regarding IEA’s maintenance procedures for their aircraft.
Following the accident, Transport Canada cancelled IEA’s AOC pursuant to Section 7.1 (1) of the Aeronautics Act, R.S.C. 1985, c. A-2 ( the “Act”), which provides for the suspension of an AOC where an immediate threat to aviation safety or security exists or is likely to occur. Transport Canada ruled that the IEA’s Operations Manager failed to properly discharge his responsibilities.
On February 22, 2006, IEA requested that the Transportation Appeal Tribunal of Canada (the “TATC”) review the notice of suspension.
In July, 2006, the TATC ruled that the basis for Transport Canada’s suspension of IEA’s AOC was invalid. The Operations Manager, as identified by Transport Canada, was not responsible for the issues potentially engaged by the accident. Additionally, it was discovered that the cause of the accident was a manufacturing defect that was not attributable to IEA; however, the TATC did not make a final determination to re-instate IEA’s AOC. Rather, the TATC referred the matter back to Transport Canada for reconsideration.
Over a year and a half later, the Reconsideration Panel of Transport Canada issued a report in February, 2008, which concluded that Transport Canada’s original decision to suspend IEA’s AOC was unfounded.
By that time, however, IEA had suffered irreparable economic harm as a result of the suspension of its AOC and declared bankruptcy as a result.
Trial Court Decision
IEA, through its owner Ranjit Singh Gill, brought an action against Transport Canada in the Supreme Court of British Columbia (“BCSC”) for damages allegedly resulting from Transport Canada’s failure to properly investigate the circumstances of the accident before suspending the AOC.
The BCSC held that Transport Canada relied, in error, upon an inapplicable regulatory power in support of its suspension of the AOC and, further, that the suspension of IEA’s AOC resulted in the bankruptcy of its business and economic loss.
The BCSC, however, also held that Transport Canada did not owe a duty of care to IEA. In short, the BCSC held that, in these circumstances, the existence of a private law duty of care was incompatible with the purpose of the regulatory scheme governing the conduct of Transport Canada. The purpose of that scheme, the BCSC concluded, was to protect public safety – a purpose inconsistent with a duty to take care to protect the economic interests of a regulated entity, such as IEA.
Without the existence of a duty of care, Transport Canada could not be found to be liable to IEA for the losses IEA had suffered.
IEA appealed the decision to the British Columbia Court of Appeal (the “BCCA”).
The issue on appeal was whether Transport Canada owed IEA a duty of care during the investigation and suspension process following the July, 2006 accident.
IEA argued that, although the primary purpose of Transport Canada was to protect public safety, Transport Canada must also have regard for the economic interests of a regulated entity, such as IEA, when considering whether to suspend an AOC.
The Court of Appeal outlined the jurisprudence of when a duty of care arises in the context of a regulatory environment. The Supreme Court of Canada (the “SCC”) made it clear in R. v. Imperial Tobacco Canada Inc., 2011 SCC 42, that the regulatory context is relevant to the determination of whether there is a relationship of proximity (*2). The regulatory regime may contemplate the existence of a duty of care, be inconsistent with one, or be neutral. Building on the reasoning on the SCC, the BCCA, in the decision of The Los Angeles Salad Company Inc. v. Canadian Food Inspection Agency, 2013 BCCA 34, held that a duty of care will not be found in the regulatory context where its recognition conflicts with or is precluded by the purpose of the regulatory regime (*3).
Following the above jurisprudence, the BCCA disagreed with IEA’s position that Transport Canada must also consider the economic interest of IEA. The BCCA held that the BCSC was correct in identifying public safety as the overriding purpose to suspend IEA’s AOC and that the statutory purpose was not to protect the specific interests or particular participants in the aeronautical industry.
The BCCA’s decision obviously has a negative impact on entities operating within the aviation industry to sue Transport Canada. Without the existence of a duty of care, Transport Canada cannot be found liable to such entities. The BCCA has stated clearly that public safety in the aviation industry is paramount to the economic concerns of airlines, even where unfounded decisions by Transport Canada have the impact of putting an airline out of business.
The decision also underscores the importance of the first instance hearing before Transport Canada. In this case, IEA was successful in appealing Transport Canada’s original decision of July, 2006. However, it was not before February, 2008 that IEA was able to have the decision overturned. Unfortunately for IEA, by that time, it was too late as it was impossible for IEA to survive without its AOC for this length of time. Companies faced with a potential penalty from Transport Canada, must take their first instance hearing before Transport Canada very seriously. In this case, it appears that the cause of the accident was not properly argued at the first instance hearing, which, if done, might have ultimately avoided the initial Transport Canada suspension. Although, in theory, the appeal of a Transport Canada decision is available, depending upon the severity of the penalty imposed by Transport Canada, the delay sought on appeal can make the success of that appeal a pyrrhic victory.
(*1) Gill v. Canada, 2015 BCCA 344
(*2) R. v. Imperial Tobacco Canada Inc., 2011 SCC 42
(*3) The Los Angeles Salad Company Inc. v. Canadian Food Inspection Agency, 2013 BCCA 34
9. Dependent or Independent Contractor/Operator? Keenan v Canac Kitchens Upheld
The appeal judgment in Keenan v Canac Kitchens (*1) provides further guidance on the definition of “dependent contractor”, which will assist with any review of whether owner operators are “independent contractors” for the purposes of the Workplace Safety & Insurance Board (WSIB) or other contracts or agreements. Indeed, the decision of the Court of Appeal, no doubt, may have significant ramifications regarding owner operator contracts or agreements already in place and enough to potentially to merit a review.
The trial court decision, Keenan v Canac Kitchens was reviewed in the Fernandes Hearn LLP November 2015 Newsletter (*2). It was noted therein that:
The determination of whether an individual is a dependent or independent contractor has a number of legal ramifications. Two important aspects are the employment relationship between the parties and its termination, and workers compensation.
Some advantages for use of independent contractors are: (1) overtime compensation is not owed to an independent contractor; (2) employee benefits do not have to be provided, nor do employment taxes have to be paid or withheld; (3) the work relationship is governed by contract and not by laws governing compensation; (4) and skills training is not usually necessary.
Some disadvantages to use of independent contractors include: (1) companies often regret situations where non-employees develop expertise about the company business, only to have the workers move on to a new customer when the contract expires; (2) misclassification of employees as independent contractors can result in severe legal penalties and/or legal liability; (3) independent contractors often charge a premium for their services; and (4) lack of contractor knowledge about the company’s specific needs.
The trial judge in Keenan v, Canac Kitchens found that the plaintiffs were dependent contractors and awarded damages. Canac’s appeal was based on one aspect of the trial court’s finding, being that of “exclusivity”. The Ontario Court of Appeal, in dismissing the appeal, agreed with the trial court that the plaintiffs had worked exclusively or with a high level of exclusivity for Canac and were “dependent” contractors.
Canac was a manufacturer, distributor, and retailer of kitchen cabinets and related accessories. The plaintiff, Lawrence Keenan, worked for Canac starting in 1976. Mr. Keenan worked as an installer of kitchen cabinets for 6-7 years and in 1983, he became a foreman, supervising the work Canac cabinet installers in new homes. Marilyn Keenan began to work for Canac in 1983 as a foreman. They were full time employees. In 1987, they were told at a meeting that they would henceforth be contractors as opposed to employees.
Canac told the Keenans that their titles were “Delivery and Installation Leader” and that, going forward, installers would provide their own trucks and pick up the kitchens from Canac. They would then deliver the kitchens to job sites for installation. Canac would set the installers’ rates and provide the Keenans amounts to pay the installers. The Keenans were also then responsible for any in transit damage to the cabinets and were expected to obtain insurance to cover those costs. The Keenans continued to be paid, as before, on a piece work basis for each box or unit installed; however, the amount was increased to reflect the fact that they were paid in gross, without deductions for income taxes, employment insurance and CPP.
Shortly thereafter, the Keenans were provided with a draft agreement reflecting the new arrangements and which described them as “subcontractors” who were required to devote “full time and attention” to Canac. Only Canac and Mrs. Keenan signed the agreement. The Keenans did not obtain independent legal advice.
The Keenans’ relationship and duties with Canac essentially remained unaltered and they considered themselves loyal employees. They never incorporated, carrying on business as Keenan Cabinetry, a sole proprietorship, and working almost exclusively for Canac to the end of 2006. They received employee discounts, wore shirts with the Canac logo, and used Canac business cards. Mr. Keenan received a signet ring for 20 years of loyal service. For all intents and purposes, the Keenans appeared to the outside worlds as Canac’s employees.
The Keenans did perform some weekend jobs and work for friends and family and also for Cartier Kitchens at the beginning of 2007. Their work with Canac had slowed down and Canac turned a blind eye to this extra work with Cartier Kitchens.
The Keenans’ relationship with Canac came to an end on March 15, 2009, when they were told by Canac that it was closing its operations and that their services were no longer needed. Canac considered the Keenans to be independent contractors and, as a result, the Keenans received no notice, payment in lieu of notice and no payment of any statutory entitlements.
Canac appealed the finding by the trial court that the Keenans were dependent contractors, citing specifically the Keenans lack of exclusivity as at the date of termination regarding their work for Canac.
The Trial Decision
The trial judge considered the five principles set out in Belton v. Liberty Insurance Co. of Canada (*3)for distinguishing employees from independent contractors. Based on McKee v. Reid’s Heritage Homes Ltd.(*4) the trial judge noted that those five principles also apply to distinguishing employees from dependent contractors. At para. 18 of the trial decision, the trial judge identified those principles (in the context of the status of a commissioned agent),
1. Whether or not the agent was limited exclusively to the service of the principal.
2. Whether or not the agent is subject to the control of the principal not only as to the product sold, but also as to when, where, and how it is sold.
3. Whether or not the agent as an investment or interest in what are characterized as the tools relating to his service.
4. Whether or not the agent has undertaken any risks in the business sense, or, alternatively, has any expectation of profit associated with the delivery of his service as distinct from a fixed commission.
5. Whether or not the activity of the agent is part of the business organization of the principal for which he works. In other words, whose business is it?
The trial judge found that: (1) all five principles favoured a finding that the Keenans were dependent contractors from 1987 until termination; and (2) the Keenans were economically dependent on Canac because they worked exclusively for Canac or at a high level of exclusivity. His Honour stated at para. 17:
The common law in Ontario, relating to dependent contractors, is now well established. Employment relationships exist on a continuum; with the employer/employee relationship, at one end of the continuum, and independent contractors at the other end. Between those two points, lies a third intermediate category of relationship, now termed dependant (sic) contractors.
The trial judge found that the Keenans were dependent contractors and entitled to proper notice of 26 months upon their dismissal without cause. (*5)
The Ontario Court of Appeal dismissed Canac’s appeal from the trial judge’s finding that the Keenans were dependent contractors and went on to provide further guidance on Canac’s only issue with that finding, being that of “exclusivity.”(*6)
Canac argued that, while the Keenans worked exclusively for Canac up to the end of 2006, thereafter and until termination, the Keenans also worked its competitors, Cartier Kitchens. Further, Canac contended that exclusivity should be determined at the time of termination of the relationship and, therefore, because the Keenans did not work exclusively for Canac for about two years prior to termination, the trial judge erred in his finding that the Keenans were “dependent” contractors.
The Court of Appeal, however, saw no reason to interfere with the trial judge’s finding of “exclusivity or near exclusivity”.
Rather, the Court of Appeal noted that the trial judge observed that, in the jurisprudence recognizing an intermediate category of “dependent” contractors, a finding that “the worker was economically dependent on the company due to complete exclusivity or a high level of exclusivity weighed heavily in favour of the conclusion that the worker was a dependent contractor.” (*7)
The Court of Appeal found that trial judge’s observation was vital to understanding how the question of exclusivity is to be approached by the trier of fact. At para. 25, the Court of Appeal provided further guidance for future cases:
Exclusivity cannot be determined on a “snapshot” approach because it is integrally tied to the question of economic dependency. Therefore, a determination of exclusivity must involve, as was done in the present case, a consideration of the full history of the relationship. It is for the trial judge to determine whether, after examining that history, the worker was economically dependent on the company, due to exclusivity or a high level of exclusivity.
The fact that the Keenans did some work for a Canac competitor in the two years prior to the end of the relationship at the end of 2006 was examined in context by the trial judge. The Keenans had worked exclusively for Canac for a significant period of time whereas the services for Cartier Kitchens were for a relatively short period, and done in response to a slowdown in work from Canac. Canac also turned a “blind eye” to that work.
Furthermore, on the findings of the trial judge, during the period that the Keenans provided services to Cartier, the “substantial majority” of their work continued to be done for Canac; specifically, 97.5% of the Keenans’ income was from Canac. Further, of the approximately 32 and 25 years of service that Lawrence Keenan and Marilyn Keenan respectively gave to Canac, in all but two of those years they exclusively served Canac.
The Court of Appeal found that, where there was less than complete exclusivity, a review of work history and relationship between the parties was necessary to determine whether there was a “high degree” or level of exclusivity.
As noted in the November 2015 FHLLP article referred to above, in the trucking area, the use of independent operators is common. In fact, the Workplace Safety & Insurance Board (“WSIB”) organizational test asks specific questions to confirm that the person qualifies as an independent operator for WSIB purposes. These provisions provide an excellent reference when considering the nature of the relationship between carriers and owner operators and as to whether they are indeed independent operators, dependent operators or employees.
The WSIB questionnaire provides:
Owner-operators will be treated as independent operators, for workplace safety and insurance purposes only, when the work relationship contains all the following features:
(a) The owner-operator pays for the truck and a majority of the equipment or other related property (such as payments for gas, maintenance of the truck, licence and storage) and is not required to finance the truck and equipment/related property through company sources.
(b) The owner-operator has the right to exercise a choice in selecting and operating the vehicle and has market mobility in that he/she has discretion to enter into contracts of any duration to transport goods and maximize profits.
(c) The principal does not have the right to control where or from whom products/services are purchased by the owner-operator (however, this does not preclude the owner-operator from exercising his/her option to purchase products/services from the company). Also, the principal does not have the right to exercise control over the owner-operator’s operations except to the extent that loads are offered, and destinations and delivery schedules are established by the principal’s contract with the shipper and except for the joint responsibilities set out in federal and provincial licensing and related statutes.
(d) The principal and the owner-operator state that the relationship is one of a contract for service and not that of employer and employee.
(e) The principal does not issue a Canada Revenue Agency T4, T4A or make statutory deductions for E.I. and/or C.P.P.
The WSIB considers the owner-operator to be an “independent operator” for WSIB purposes of the owner operator and the company retaining him/her agree that the above criteria accurately reflect their working relationship. If so, the independent operator is then registered with the WSIB and a clearance certificate is provided by the WSIB to confirm that insurance is in place.
However, just because an owner operator is identified in an agreement as an “independent contractor”, this may not be enough to establish that he/she is truly “independent”, but rather could be an employee or a dependent subcontractor. Review of the criteria above plus the analysis regarding a full work and relationship history between the parties, as outlined by the Court of Appeal, must be carefully undertaken when drafting agreements or contracts going forward.
For instance, when considering the engagement of owner operators in the Canadian context, a motor carrier might take into consideration how it structures certain items in the owner operator agreement. For example, it may be beneficial to assign the owner operator to plate the commercial motor vehicles and/or to take out the required insurance with such responsibility clearly assigned to the owner operator.
Further, to attempt to avoid having the relationship characterized as an exclusive one or one with a “high degree” of exclusivity, carriers in Canada might, for example, provide drivers with the opportunity to seek hauling opportunities with other companies when they are not in the service of the carrier. Rather than promoting a relationship of exclusivity, the decision as to whether to haul for third parties is left then with the owner operator rather than the carrier. In Keenan v Canac Kitchens, however, Canac did not acknowledge that Keenans were working for a competitor and had turned a “blind eye” to that work. Further, the Keenans had essentially been converted to “independent” contractors without any real notice, input or a properly drafted contract. Such factors allowed the Court to find that the relationship between Canac and the Keenans was one of exclusivity or near exclusivity and that of a dependent contractor.
A relationship of economic dependency arguably cannot be said to exist if the owner operator has the option to carry for other companies, if it wishes to do so. Including a non-exclusivity provision in Canadian contracts may help to ensure that the relationship will be characterized as that of independent contractor while still providing the carrier with protection should the owner operator choose to carry for other companies in addition to the carrier. Having said this, however, the Court of Appeal’s decision in Keenan v Canac Kitchens has now confirmed and clearly set out that any assessment of an owner operator’s status must include a full history of the relationship between the two parties as at the specific time in question and is ultimately fact specific.
Kim E. Stoll
(*1) 2015 ONSC 1055.
(*2) Please read the article written therein by Rui Fernandes regarding a review and discussion of the trial decision.
(*3) (2004), 70 O.R. (3d) 81, 2004 CanLII 6668 (C.A.)
(*4) 2009 ONCA 916
(*5) Dependent contractors and employees, if dismissed from employment without cause, are entitled to “notice” damages, which may include possible statutory payments, payment in lieu of notice and working notice, subject to applicable contractual provisions.
(*6) The issue of the length of notice for the Keenans is not canvassed in this article although that ground of appeal was also dismissed.
(*7) at para. 24 of the Appeal decision
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