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Newsletter > July 2016

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In this issue:
1. News & Upcoming Events
2. Federally Regulated Employees – Termination for Cause Only
3. Maritime Liens and S. 139 of Marine Liability Act
4. Changes to the Repair and Storage Liens Act
5. Bye-Bye to the Bulk Sales Act?
6. Speedy Prosecution of Transport Charges
7. New Standard Charterparty for LNG
8. New Marine Liability and Information Regulations
9. Class Action Certification in Aviation Crash Denied

A great Lakes cargo ship going under a lift bridge in the Welland Canal for the June 2017 newsletter.

1. News & Upcoming Events

  • Louis Amato-Gauci attended the 87th Annual Meeting of the Association of Transportation Law Professionals, in New Orleans, June 19-21, 2016.
  • Gordon Hearn attended the Transportation Lawyers Association Executive Committee Retreat in Chicago, Illinois on July 15-16. Gordon is a Past President of the Transportation Lawyers Association.
  • Kim Stoll and Jaclyne Reive attended the Toronto Transportation Club’s Ladies on the Links event at the Country Club in Woodbridge on July 21, 2016.
  • Rui Fernandes will be speaking on “Limitation of Liability of Shipowners” at the Canadian Transport Lawyers Association annual conference being held in Toronto September 22-25, 2016. Kim Stoll is the program chair. Louis Amato-Gauci, Jaclyne Reive and Gordon Hearn will also be attending.


2.  S.C.C.: Federally Regulated Employees – Termination For Just Cause Only

In an important decision the Supreme Court of Canada recently held that non-unionized employees cannot be terminated absent just cause and that adequate severance pay is not a sufficient substitute. (*1) The Court reversed a decision of the Federal Court of Appeal and found that the “unjust dismissal” provisions of the Canada Labour Code that apply to unionized employees also apply to non-unionized employees. Otherwise, employees who are not expressly hired for a fixed term are now entitled to job security for life unless the employer can meet a very high threshold test of “just cause” for their dismissal. The decision affects half a million non-unionized employees working in banks, telecommunications, marine shipping, interprovincial trucking companies, interprovincial railways, airlines and other federal businesses.


In labour and employment law, some general principles developed at common law are: (1) unionized employees cannot be terminated absent just cause and (2) non-unionized employees may be terminated at any time without any right to reasons for termination so long as the employer gives reasonable notice of termination or reasonable compensation in lieu of notice. Provincially regulated employers have for decades enjoyed the right to dismiss employees on a without-cause basis to efficiently manage their human resource compliment, which could include terminating employees who simply proved, for one reason or another, to no longer be a good fit. The only requirement under provincial employment standards legislation is that the employer must provide the terminated employee with reasonable notice of dismissal, or pay in lieu thereof, plus severance pay under certain circumstances.

Unionized employees who are terminated have the ability to seek reinstatement with back pay or other forms of compensation before independent labour arbitrators. This right has now been given to non-unionized federally regulated employees. Federally regulated employers will now have to expend significant time, money and resources in the hopes of building a case of just cause against the employee.

There are some exceptions that should be noted. The Canada Labour Code limits application of the unjust dismissal regime in the following manner:

1.         The affected employee must have at lease twelve months of service with the employer.
2.         The regime does not apply to managers; however this term is interpreted very narrowly.  Supervisors, for example, may not be considered managers.
3.         The regime does not apply to terminations for lack of work.
4.         The regime does not apply to terminations for discontinuance of a function.

The Decision

The Supreme Court of Canada decision involved the dismissal without cause of Joseph Wilson. Mr. Wilson was employed with a federally regulated employer, Atomic Energy of Canada Ltd. (AECL) for four and a half years. Mr. Wilson did not have a disciplinary record and there was no serious misconduct leading to his termination. AECL admitted that he was not terminated for cause, but it had provided Mr. Wilson with a generous dismissal package that included six months’ pay in lieu of notice. Mr. Wilson could have sued in court for wrongful dismissal. Instead, he availed himself of the Canada Labour Code regime and made a complaint to an inspector under the Code, whosemandate was to try to settle the matter within a reasonable time, failing which the employee can apply for an adjudicatorIn this case a labour adjudicator was appointed. The employer sought a preliminary ruling on whether a dismissal without cause together with a sizeable severance package meant that the dismissal was a just one.

The Adjudicator concluded that an employer could not resort to severance payments, however generous, to avoid a determination under the Code about whether the dismissal was unjust. Because the employer did not rely on any cause to fire him, Mr. Wilson’s complaint was allowed. The Application Judge found this decision to be unreasonable because, in his view, nothing in Part III of the Code precluded employers from dismissing non‑unionized employees on a without‑cause basis. The Federal Court of Appeal agreed, but reviewed the issue on a standard of correctness. The Supreme Court of Canada reversed the Federal Court of Appeal and applied the standard of review as reasonableness not correctness. It emphasized that the decisions of labour adjudicators or arbitrators interpreting statutes or agreements within their expertise attracts a reasonableness standard. It found that the Adjudicator’s decision was reasonable. Three of the nine judges of the Supreme Court of Canada disagreed with the majority and separate cogent reasons were provided. Their view was that (*2):

In our view, this case exposes a serious concern for the rule of law posed by presumptively deferential review of a decision-maker’s interpretation of its home statute. In the specific context of this case, correctness review is justified. To conclude otherwise would abandon rule of law values in favour of indiscriminate deference to the administrative state.

The minority of the Court also relied on the interpretation of sections 230 and 235 of the Canada Labour Code. Those sections provide minimum notice and severance requirements to employees. The minority interpreted those sections as applying to all employees under Part III of the Code, stating:

Our interpretation is supported by the wording of ss. 230 and 235 of the Code. Because ss. 230 and 235 of the Code do not apply to dismissals for just cause (ss. 230(1) and 235(1)), they must necessarily apply to dismissals without cause. Otherwise they would be substantially redundant. By prescribing minimum notice periods and severance pay that are owed to employees who are terminated (including dismissed) without cause, Parliament clearly intended to permit federally regulated employers to dismiss non-unionized employees without cause.

The decision means that Mr. Wilson can now proceed with the remedy portion of his hearing before the Adjudicator. The Adjudicator can order AECL to reinstate him, with back pay.

Consequences of the Decision and Take Aways

1.         The decision has wide application in the transportation field, in trucking, aviation and rail. Trucking companies that operate outside the borders of one province are subject to the Canada Labour Code and this decision.

In the trucking area the use of independent contractors is common. In fact the Workplace Safety & Insurance Board has indicated that “Hiring subcontractors and/or owner-operators is a common practice in the transportation industry.”(*3) However, if an owner-operator is in an exclusive, or quasi-exclusive relationship with the transport company, a court may conclude that the owner-operator is a dependent contractor. Fernandes Hearn LLP has commented on the dangers of such a relationship in its November 2015 and February 2016 newsletters. Simply using the term “independent contractor” in an agreement may not be sufficient for the determination of the status of the individual.

This point was recently illustrated in the decision in the Ontario Superior Court in Keenan v. Canac Kitchens 2015 ONSC 1055, affirmed 2016 ONCA 79. In Canac Kitchens the claimants, a husband and wife, both worked for Canac for over twenty years. They began their relationship with Canac as employees. Lawrence Keenan worked for Canac from 1979 to 2009. Marilyn Keenan began working for Canac in 1983. In October 1987, both were summoned to a meeting with Canac management at which time they were told they would no longer be employees, but instead would carry out their work for Canac as independent contractors. They were also told that they should incorporate.

The Keenans were informed that, under the new arrangement, they would be responsible for paying installers. The installers would provide their own trucks and would pick up kitchens from Canac and deliver them to job sites for installation. Canac would set the rates to be paid to the installers and pay the Keenans, who, in turn, would pay the installers. The Keenans, as Delivery and Installation Leaders, would, as before, also be paid on a piecework basis for each box or unit installed; however, the amount paid would be increased to reflect the fact that the Delivery and Installation Leaders were being paid gross, without deductions for Unemployment InsuranceCanada Pension Plan, or Income Tax. Delivery and Installation Leaders would now be responsible for damage to cabinets while in transit, and were expected to obtain insurance to cover such liability.

The Keenans signed a contract with Canac, which described them as independent contractors. They never incorporated. They did register the business name “Keenan Cabinetry”. They obtained the insurance required by their agreement with Canac, and they registered with what was then known as The Workers’ Compensation Board. Although they were responsible for cutting cheques to the installers they supervised, the installers were not their employees. Keenan Cabinetry never registered as an employer with the Canada Revenue Agency for the purposes of withholding taxes and other source deductions.

As far as the plaintiffs were concerned, the 1987 agreement notwithstanding, they continued to consider themselves as loyal employees of Canac. They enjoyed employee discounts. They wore shirts with company logos. They had Canac business cards. Mr. Keenan received a signet ring for 20 years of loyal service. To the outside world, and in particular, to Canac’s customers, the plaintiffs were Canac’s representatives.

In March 2009, the plaintiffs were called to a meeting and were told that Canac was closing its operations and their services would no longer be required. The Canac work quickly dried up.
The Keenans sued for wrongful dismissal.

Justice Mew commented that the law in Ontario relating to dependent contractors is well established, stating (*4):

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 contractors …Like employees, dependant [sic] contractors are owed reasonable notice on termination.

Justice Mew then reviewed the case law on the principles used to distinguish independent contractors from employees. He looked at a 2004 decision (*5) involving commissioned agents, setting out the principles:

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 has 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?

Justice Mew concluded that the Keenans were entitled to 26 months of notice after they were found to be dependent, rather than independent, contractors of the employer.

If the Keenans had worked for an interprovincial trucking company, the Wilson v. AECL decision of the Supreme Court of Canada would apply and simply providing adequate notice would not be sufficient. The employer could be faced with reinstatement and back pay.

Trucking companies that operate outside the borders of one province should review and ensure that all their contracts with owner-operators establish a relationship that is truly independent. The consequences are now more severe if the contractor is found to be a dependent contractor. Trucking companies are also advised, where possible, to hire independent contractors that are corporations rather than individuals, with full authority to hire their own drivers, and the ability to haul loads for multiple carriers.

2. Federally regulated employers should conduct a performance review on each employee prior to the completion of his or her first 12 months of service, and not just after three or six months. If an employer has any concerns about the fit or regarding performance they should terminate the employee within that 12-month period.   Upon completion of a full 12 months of employment, a federally-regulated employee will acquire the added protection of the Code’s unjust dismissal regime.

3. Employees can be hired on a fixed term basis, however it is important that their contract not include an automatic renewal or “evergreen” clause, as this could bring into play the added protection of the Code’s unjust dismissal regime.

4. Employers should diligently document performance issues or issues of misconduct to establish just cause. It is extremely difficult to prove just cause without addressing issues in a timely way, and in documenting same. The onus is on the employer to show just cause.  Employers who terminate an employee for just cause must be able to prove that the employee’s conduct or behaviour was so serious in its nature or extent, that it broke the employment agreement. What is just cause? The following is from the Manitoba government guide:

What are some examples of possible just cause?
The circumstances and specific facts of each case must be considered to determine if there is just cause.  Just cause can vary depending on the employee’s conduct, the type of business, the employee’s position, and the employer’s policies or practices, among many other factors.   The following are some examples that may constitute just cause:
– Theft
– Dishonesty
– Violence
– Wilful misconduct
– Habitual neglect of duty
– Disobedience
– Conflict of interest

What do employers need to consider before deciding there is just cause?
Serious Circumstances
Each situation must be looked at on a case by case basis.  Very serious acts, such as those involving wilful misconduct or violence, might happen once and be sufficient to show just cause.   This type of behaviour can damage the employment relationship to the point it cannot reasonably continue.

Other Circumstances
Other behaviour, such as being late, missing work, and poor performance are not necessarily serious enough to terminate without notice.  For just cause to apply in these cases, the employer must be able to show appropriate steps were taken to correct the behaviour, including:
– Making the employee aware of the expectation
– Providing the employee with reasonable time and resources (where appropriate) to achieve the necessary standard, and
-Warning the employee about the specific consequences for continuing the unacceptable behavior

In short, employees should not be surprised by a termination for just cause in these types of circumstances.

Rui M. Fernandes 
Follow Rui M. Fernandes on Twitter @RuiMFernandes and on Linkedin. See also his blog at http://transportlaw.blogspot.ca

(*1) Wilson v. Atomic Energy of Canada Ltd., 2016 SCC 29
(*2) ibid, para. 79.
(*3) So You’re Thinking of Using Independent Operators in Your Transportation Business – Brochure
(*4) 2015 ONSC 1055, para. 17
(*5) Ibid, para. 18


3. Maritime Liens and S. 139 of Marine Liability Act

A maritime lien is a proprietary lien or security for a claim over maritime property including a vessel, its cargo, its freight or proceeds of sale (the “res”). (*1) A maritime lien has been dubbed a “secret lien” because it is not registered and its lien claims are protected and enforced regardless of where the claim originated. Maritime liens are attached to the maritime property until they are released. The liens are extinguished upon payment and acceptance of the amount of the claim. Professor Tetley defined a maritime lien in his text Maritime Liens and Claims at p 59-60,

A traditional maritime lien is a secured right peculiar to maritime law (the lex maritime). It is a privileged against property (a ship) which attaches and gains priority without any court action or any deed or any registration. It passes with the ship when the ship is sold to another owner, who may not know of the existence of the lien. In this sense the maritime lien is a secret lien which has no equivalent in the common law; rather it fulfills the concept of a “privilege” under the civil law and the lex mercatoria.(*2)

Maritime liens developed as a way of protecting those providing fundamental services to ships for their fees and those victims of negligent vessels regarding their compensation. The wrongdoer is the vessel not the owner. The lien protection was necessary since vessels moved freely between jurisdictions and could more easily escape creditors.

Prior to the amendments to the Marine Liability Act, S.C. 2001, c.6, in 2009, Canadian ship suppliers had only a statutory right in rem (property) as opposed to a maritime lien, which had greater priority. (*3) This was a problem in that American ship suppliers could assert maritime liens in Canadian legal proceedings because the Canadian Courts would apply American law, giving them greater priority (to the extent that such suppliers had contracts invoking American law, they could cite and rely on that law which affords ship suppliers maritime lien status as distinct from mere statutory lien status). On the other hand, Canadian law did not allow for Canadian suppliers to assert a maritime lien but only a statutory right in rem, which enjoyed a lesser priority. This was seen as unjust because the same exact service was treated differently and so Bill C-7 was passed to amend the Marine Liability Act in 2009.  S. 139 of the Marine Liability Act now confers the benefit of a maritime lien to those providing “goods, materials and services” (with no identified limitation as to what this might include) in Canada to foreign vessels in respect of “operation and maintenance”. American and Canadian ship suppliers are now treated equally. (* 4)

Ranking of liens in Canadian Maritime law is left in the discretion of the court where there may be an unjust result, but otherwise is:

  1. Costs of selling the ship, including sheriff’s disbursements;
  2. Possessory liens arising earlier in time than maritime liens;
  3. Maritime liens (including special statutory liens);
  4. Possessory liens arising later in time than maritime liens;
  5. Mortgages, in the order of their registration; and
  6. Statutory in rem claims.

Canpotex Shipping Services Limited v Marine Petrobulk Ltd. (“Canpotex”) (*5)is a recent case highlighting the Court’s process regarding the assertion of maritime liens under S. 139 of the Marine Liability Act.


The plaintiff, Canpotex Shipping Services Limited (“Canpotex”), entered into a contract with the defendant, O.W. Supply & Trading A/S (“OW Trading”), for the purchase of marine bunkers for vessels that Canpotex chartered.  Canpotex chartered two foreign vessels (the “Vessels”) and the associated contracts provided that Canpotex would pay for all fuel and would not allow any liens against the vessels. Canpotex ordered marine bunkers from as subsidiary of OW Trading, O.W. Bunkers (U.K.) Limited (“OW UK”). The actual supplier of the bunkers was Marine Petrobulk Ltd. (“MP”), a Canadian bunkers supplier, which then invoiced OW UK for the amount owing of over $650,000 USD. OW UK in turn invoiced Canpotex.

Before payment was made, OW UK became insolvent and declared bankruptcy. ING Bank N.V. (“ING”) was specifically assigned all of OW UK’s receivables and appointed Receivers, who were also defendants.

MP then demanded payment from Canpotex, which had ordered and received the bunkers. MP claimed a maritime lien pursuant to S. 139 of the Marine Liability Act and threatened to arrest the Vessels (*6), if it was not paid.

OW UK/ING’s Receivers also demanded payment from Canpotex and also threatened to exercise all powers available to them including the arrest of the Vessels if payment was not made.

Canpotex did not pay either the ING Receivers or MP given the competing demands and brought interpleader proceedings (*7) in the Federal Court of Canada. To avoid the assertion of liens or ship arrest, Canpotex obtained an order of the Federal Court (on consent) directing it to pay the principal amount plus interest of $661,050.63 USD (the “Funds”) into its solicitors’ trust account. Canpotex then brought proceedings asking for, amongst other things,  (1) a declaration regarding the entitlement of the defendants or any one of them to any or all of the Funds; (2) orders for payment out to the appropriate party; and (3) a declaration as to whether, upon such payment out or payment into trust, all liability of Canpotex and the Vessels and all liens asserted were extinguished. All of the defendants brought their own motions regarding their own particular entitlement to the Funds.

MP claimed a contractual lien pursuant to contractual terms with Canpotex as well as a maritime lien under s. 139 of the Marine Liability Act.  ING opposed MP’s claim to a lien in respect of the Funds given that a lien would allow direct payment of the Funds to MP and outside of OW’ bankruptcy estate. ING also sought to preserve Canpotex’s debt should the Court find that the Funds should be paid directly to MP by attacking the use of interpleader proceedings.

The Judgment

The Court, amongst other things (*8), dismissed ING’s objections to Canpotex’s status as interpleader by noting that it had consented to the order paying the Funds into trust which thereby allowed the Court to make decisions regarding payment out of the Funds.  The Court stated at para. 97:

Clearly, ING is seeking to preserve the debt that Canpotex owed to OW UK in the event that the Court decides that the Funds are to be paid to MP. In my view, that bridge has already been crossed. ING has already accepted that the Court should decide the allocation of the Funds issue pursuant to interpleader proceedings under Rule 108. In my view, that acceptance necessarily involves the concession that these are suitable proceedings for interpleader under Rule 108.

The Court decided which company would receive pay out of the Funds and also considered which parties had liens, if any, and whether Canpotex’s liabilities and any claims against the Vessels were extinguished by the payment into trust.

The Court went on to consider the liens.

The Court found that Canpotex, OW UK and MP were all bound to the MP Standard Terms and Conditions, which stated, at para. 139 :

…Customer acknowledges and agrees that Marine Petrobulk has and can assert a maritime lien on the Vessel or Customer’s delivery vessel, and may take such other action or procedure against the Vessel, Customer’s delivery vessel and any other vessel or asset beneficially owned or controlled by Customer, for all sums owed to Marine Petrobulk by Customer. Marine Petrobulk shall not be bound by any attempt by any person to restrict, limit or prohibit its lien attaching to the Vessel and, in particular, no wording placed on the bunker delivery receipt or any similar document by anyone shall negate the lien hereby granted… [emphasis added]

The Court stated that these provisions made it clear that MP had a contractual lien against the Vessels for all sums owed by Canpotex, as MP’s customer; however, it was not clear that MP’s contractual lien extended beyond the Vessels to the Funds held in trust as “any asset beneficially owned” by Canpotex, as highlighted above.

The Court confirmed that that MP had a maritime lien over the vessels under S. 139 of the Marine Liability Act, as the statutory requirements were met; specifically, MP was a Canadian company, carrying on business in Canada and it supplied goods to the foreign Vessels for their operation. The Marine Liability Act at S. 139 (2) states:

Maritime lien
(2) A person, carrying on business in Canada, has a maritime lien against a foreign vessel for claims that arise
(a) in respect of goods, materials or services wherever supplied to the foreign vessel for its operation or maintenance, including, without restricting the generality of the foregoing, stevedoring and lighterage; or
(b) out of a contract relating to the repair or equipping of the foreign vessel.

However, the Court also stated that, simply because there was a maritime lien under S. 139 in respect of the Vessels, it did not automatically follow that such a lien extended to the Funds.  The Court stated:

[142] …..The Funds were put up by Canpotex so that neither MP nor OW UK would asset (sic) liens and arrest the Vessels. This doesn’t mean that they replace the res

[143]    What is clear, I think, is that ING has no lien or security interest against the Vessels or any asset beneficially owned by Canpotex, including the Funds, so that once Canpotex pays MP the purchase price for the bunkers supplied to the Vessels from the Funds, ING has no claims against Canpotex or any asset Canpotex or the other Plaintiffs own or control. 

Regarding whether there was any lien on the Funds (as opposed to the Vessels), the Court stated, at para. 144,

“Given this situation, I don’t think it is necessary for me to decide whether MP has a contractual or a s 139 maritime lien in the Funds.”

Regarding ING,

[145}   In the present case it seems to me that ING has no contractual or lien right to assert against the Funds or the Vessels, and that MP is entitled to the disputed portion of those funds as a function of contract law and equity. In Balcan, above, Balcan pursued a necessaries claim under s 22(2)(m) of the Federal Courts Act in a situation where Balcan had not paid for the necessaries. The Court concluded that Balcan was not in the position of a necessaries claimant (para 19) so that Balcan had no in rem right of action because no such action could arise where a claimant fails to supply necessaries to a ship. In the present case, OW UK did not supply the marine bunkers and, in addition, OW UK has not paid for the marine bunkers that were supplied by MP to the Vessels. Consequently, based upon the reasoning in Balcan, I do not see how ING can now assert any in rem claims against the Vessels or the Funds. MP has supplied the marine bunkers to the Vessels under MP’s Standard Terms and Conditions which supersede any contractual arrangements to the contrary between Canpotex and OW UK. MP is contractually entitled to payment for the bunkers from Canpotex. ING, standing in the shoes of OW UK, is not entitled to any payment representing the purchase price of the bunkers because MP was not paid that purchase price and, under the Standard Terms and Conditions, has thus triggered a direct liability for Canpotex to pay it. This being the case, I don’t think I need to consider any priority position based upon lien rights between MP and the OW Group of companies 

Ultimately, the Court found that MP and ING’s entitlement to the Funds depended upon the contractual terms between the parties. Pursuant to the MP conditions, the plaintiff and OW UK were both customers of MP and were jointly and severally liable to pay it for the bunkers delivered. Accordingly, the plaintiff was found liable to pay to MP the full invoice price of MP for the bunkers delivered. ING, in the “shoes” or position of OW UK was entitled to an amount equal to the mark-up of OW being the difference between the OW UK invoice and the MP invoice.

Further, the Court found that MP had both a contractual and a S. 139 maritime lien in the Vessels that was not extinguished until such a time as MP received payment in full for the marine bunkers.


Canpotex highlights the Court’s process in determining whether parties can assert maritime liens under S. 139 of the Marine Liability Act. The Court interpreted S. 139 to include the provision of bunkers where the statutory requirements of that section were met; that is, MP was a Canadian company, carrying on business in Canada and it supplied goods to the foreign Vessels for their operation. OW UK did not fit into this description and had not supplied, paid for or received payment for the bunkers.

The use of interpleader, as described above, is also confirmed as appropriate where the intermediary and the actual bunkers supplier both demand payment of the charterer, who has yet to pay any party.

As indicated above, the Court also confirmed that a valid maritime lien is not extinguished until payment of the debt is paid in full. The Court, however, was not inclined to decide whether maritime liens or contractual liens extended to the funds deposited in trust, as such payments were made and posted to avoid the assertion of maritime liens and arrest of the Vessels and did not necessarily release the res. (*9)

Kim E. Stoll

(*1) There are many different types of maritime liens, which are not canvassed in this article.
(*2) William Tetley, Maritime Liens and Claims 2d ed. (Montreal: Yvon Blais, 1998
(*3) There are three differences between a statutory right in rem lien and a maritime lien.  The former arises on the day of the arrest and subject to any existing rights. Some statutory right in rem liens are defeated by a transfer of title (unless a statute says otherwise) and there must be personal liability on the part of the owner.
(*4) In S. 139 (2.1), there are differences for stevedoring and lighterage services , which must be done at the request of the owner or person acting on behalf of the owner.  Section 139(2.1) is subject to s.251 of the Canada Shipping Act, 2001 which provides that, when stevedores contract with the authorized representative or bareboat charterer of a vessel, they have the right to maintain an action in rem, but this right is only valid while the vessel remains under charter.
(*5) 2015 FC 1108
(*6) Where parties have a dispute involving a maritime claim (as identified in the Federal Court Act S. 22(2) which includes under subsection (m): goods, materials or services supplied to a ship for the operation or maintenance of a the ship), it is possible to arrest the ship involved. Claims involving in rem jurisdiction may use ship arrest to advantage as bail or security is posted for the arrested ship’s release allowing for immediate satisfaction of any judgment. See also (*8) below. Please see the author’s article “Ship Arrest: Warrant Confirmed and Sale Pendente Lite Denied” in the Fernandes Hearn LLP Newsletter, June 2016.
(*7) Interpleader proceedings are brought under the Rules of the Federal Court, S 108. Such proceedings are brought where two or more parties make conflicting claims regarding property as against another person who (1) is in possession of that property; and (2) has no interest in the property; and (3) is willing to deposit that property or dispose of it pursuant to court directions.   The court then makes directions as to the claim and its handling.
(*8) This decision also includes review and consideration of contractual issues as between the parties that are not canvassed in this article.
(*9) This is in contrast to a ship arrest where posting of the bail or security releases the vessel and the monies are left in court until adjudication or settlement. In this situation, the maritime lien would attach to the Funds.


4. Changes to the Repair and Storage Liens Act:  Two Important Steps Towards Taming the Jungle


Important changes are being made to Ontario’s Repair and Storage Liens Act (*1) (the “RSLA”) as pertain to the repair and storage of motor vehicles. These changes are being heralded by different interests.  Motor vehicle insurers and owners can embrace tightened rules in whether – or for how much – a lien may be claimed by a towing company following the removal of a tractor from a roadside accident.  Secured creditors such as motor vehicle lenders will benefit by the increased regulation of what might be claimed by way of a ‘preferential’ lien by a towing company or a storage facility – and the rest of us who for what ever reason will have a car towed will benefit from related changes being made to the Ontario Consumer Protection Act, 2002. (*2) (the “CPA”).

These changes are being introduced in two discrete phases.

Phase 1 Amendments: Effective as of July 1, 2016

The RSLA is the statutory means whereby repairers and storers of goods in Ontario are granted lien rights for unpaid services. The legislation provides certain conditions precedent for the assertion of a repairer’s lien – a “repairer” being one who makes a repair on the understanding that he or she will be paid for the repair.

The legislation also provides conditions precedent for a storer’s assertion of a lien, a “storer” in similar fashion being defined as a person who receives an article for storage or repair on the understanding that he or she would be paid for the storage or the storage and repair as the case may be.

The legislation includes in the definition of “repair” for these purposes a) the transportation of the article for the purpose of making a repair, b) the towing of an article, and c) the salvage of an article.

On July 1st the RSLA was amended in various respects.  One amendment was to reduce the maximum time period during which a storer could provide the necessary notice of a lien over a motor vehicle bearing a permit issued under Ontario’s Highway Traffic Act. (*3)  This time period used to be 60 days.  It is now 15 days.  Accordingly, if notice is not provided within 15 days, a storer’s lien is then limited to the unpaid amount owing for that period.  The 60 day notice period remains unchanged for out of province vehicles.

Under the RSLA a storer of vehicles has priority over other secured creditors who have registered security interests in the article being stored.  Under the former 60 day regime, a storer was allowed to accumulate storage costs for up to 60 days without notifying the owner of motor vehicle when the vehicle was brought into storage by a person other than the owner or a person having the authority of the owner.  As mentioned above, with the new change to 15 days, a failure to give the vehicle owner notice within that time will have the effect of capping the storage charges that can be claimed to 15 days of storage fees.

On the same date the RSLA also saw another key amendment, intended to provide guidance on what should be included in calculating the “fair value” of the repair or storage of an article (which can include a tractor or something much smaller…).

Prior to July 1st, certain conditions being satisfied, a repairer or a storer had a lien against an article (including a tractor) that he or she had stored (or stored and repaired) to equal to:

(a) the amount agreed upon for the storage or storage and repair of the article;
(b) where no such amount had been agreed upon, the fair value of the storage or storage and repair, including all lawful claims for money advanced, interest on money advanced, insurance, transportation, labour, weighing, packing and other expenses incurred in relation to the storage or storage and repair of the article.
(c) Where only part of a repair is completed, the fair value of the storage and the part of the repair completed, determined in accordance with any applicable regulations. [emphasis added]

The problem – surfacing in many commercial disputes pitting insurers and consumers against towing companies – is that there was no pronouncement on what constituted “fair value”. The new changes to the RSLA set out factors to be considered in assessing what constitutes “fair value” where no amount is agreed upon for the service.  The new legislation now provides that a storer has a lien against an article that the storer has stored or stored and repaired for an amount equal to one of the following, and the storer may retain possession of the article until the amount is paid:

(a) The amount agreed upon for the storage or storage and repair of the article.
(b) Where no such amount has been agreed upon, the fair value of the storage or storage and repair, determined in accordance with any applicable regulations.
(c) Where only part of a repair is completed, the fair value of the storage and the part of the repair completed, determined in accordance with any applicable regulations. [emphasis added]

As of July 1, 2016 Regulation 427/15 enacted under the RSLA provides the new criteria for “fair value” consideration:

In determining the fair value of repair …… the following factors shall be considered and may be included:

1. The repairer’s fixed costs, variable costs, direct costs and indirect costs.
2. The repairer’s profit.
3. Any other relevant factors.

In determining the fair value of the storage or storage and repair…… the following factors shall be included:

1. the expenses incurred by the storer in relation to the storage or storage and repair or storage and part of the repair of the article, including expenses related to insurance, transportation, labour, weighing and packing, and
2.  all lawful claims for money advanced and interest on money advanced by the storer in relation to the article; and

… and the following factors shall be considered and may be included:

1.  the storer’s fixed costs, variable costs, direct costs and indirect costs,
2.  the storer’s profit, and
3.  any other relevant factors.

These amendments should be of assistance in establishing objective – and legally relevant – criteria for a court (or, for that matter, parties trying to negotiate a resolution of a dispute) to take into consideration to assess the “fair value” of a service.

Phase 2 Amendments: Effective as of January 1, 2017

On this date amendments to the CPA and new Ontario Regulation 426/15 come into force, adding new part VI.1 to the CPA dealing with towing and storage services provided to “consumers” as defined by the CPA (*4).  This new regime provides mandatory content to be provided to consumers by a towing company and/or storage company similar in spirit and effect to Part VI of the CPA dealing with repairs done for a consumer.

Regulation 427/15 under the RSLA combines these new CPA changes into the RSLA regime with the effect that as of January 1, 2017 a storer is obliged to honor the CPA provisions where the towing and storage is for a consumer’s vehicle.   New section 3(2.0.1) in the RSLA will provide, in respect of tow and storage services, that “if the repair includes one or more tow and storage services in respect of which Part VI.1 of the CPA applies, no lien arises with respect to those services if the repairer fails to comply with the prescribed provisions of that Part, if any”.  Part VI.1 of the CPA in fact will provide, the following as of January 1, 2017, requiring owing services providers and storers to:

  • get permission from a consumer or someone acting on behalf of a consumer before providing or charging for towing and storage services
  • record the name and contact information of the consumer or the person giving the authorization, along with the date and time of authorization;
  • disclose certain information, in writing, such as the provider’s business name, contact information and address to where the vehicle will be towed.
  • refrain from recommending repair and storage facilities, legal service providers or health care service providers, unless a consumer or a person acting on their behalf specifically asks, or the provider offers to make a recommendation and that person agrees
  • disclose to a consumer whether the provider is getting a financial reward or incentive for towing a vehicle to a particular storage or repair shop
  • establish minimum insurance coverage including general liability insurance of $2 million, customer vehicle insurance of $100,000 and $50,000 cargo insurance
  • maintain authorization and disclosure records, invoices, copies of insurance policies and statements of rates for a three year period

There will be some exemptions for certain towing companies and storage services providers, for example where services are provided under a prepaid agreement or membership in an association such as the Canadian Automobile Association (CAA) where the consumer is not be charged for the specific service being provided.  These exemptions will also apply when the tow and any storage is being provided in the context of a vehicle purchase and the consumer is not charged for the specific service being provided.

When a vehicle is towed and stored for law enforcement purposes, or detained or impounded under other statutes or regulations or municipal by-laws, or a result of a lawful power of seizure a limited number of the above new rules will apply inasmuch as the consumer generally remains responsible for these types of charges.  The consumer will not be protected by requiring the provider to make publicly available a statement of rates and other information.

Further, by way of an important development, a lien for towing and storage will be capped at the maximum amount permitted under the CPA.  As of January 1, 2017 the RSLA will provide as follows: “in cases where Part VI.1 of the CPA applies, the amount of a repairer’s lien … with respect to tow and storage services shall be determined in accordance with the prescribed requirements, if any”.

The maximum amount of a lien for tow and storage services will in fact now be subject to certain restrictions under the CPA:

  • a tow and storage provider cannot charge a greater amount simply because the cost is to be paid by an insurer or another third party, or being impounded or detained for law enforcement purposes.
  • if an authorization includes an estimate, the amount charged may not exceed it by more than 10 per cent. However, the consumer or a person acting on their behalf can agree to change the estimate if they require additional or different services.

Conclusion: “Anything to Avoid the Spiral”

The foregoing amendments are welcomed.  Anything that can be done to avoid the vicious “spiral” seen in motor vehicle towage and storage lien disputes will help avoid economic waste and frustration.  What of the reference to a “spiral”?  We have seen on countless occasions the spiraling of a dispute where the amount of a lien is the subject of controversy, only to then force the extension of the time where the liened goods on hand are kept in storage, only to the increase the amount of the lien…

Certainty and predictability are always good for commerce, and the above amendments will help objectify how lien amounts will be calculated while at the same time providing further protections for consumers who were unlucky in the first place having to have a vehicle towed.

Gordon Hearn

(*1)  R.S.O. 1990, c. R.25
(*2) S.O. 2002, c. 30 Sch A.
(*3) R.S.O. 1990, c. H.8
(*4)  A “consumer” is defined as “an individual acting for personal, family or household purposes and does not include a person who is acting for business purposes”.


5. Bye-Bye to the Bulk Sales Act?

On June 8, 2016, the Province of Ontario signaled its intention to repeal the century-old Bulk Sales Act,R.S.O. 1990, c. B.14 (the “BSA”), when Bill 218 – the Burden Reduction Act, 2016 – passed its first reading in the Legislative Assembly of Ontario. Assuming this legislation makes its way through the system and receives Royal Assent before the current session of parliament is prorogued, Ontario will fall in line with all the other Canadian provinces and territories, and with 44 U.S. states, that have long since repealed their own bulk sales statutes. (*1)

Relevance for the Transportation Industry

The prospect of the BSA’s imminent repeal should be of particular interest to carriers and freight intermediaries that are seeking to expand their operations through strategic acquisitions here in Ontario.  Within the transportation industry, buyers have a greater incentive to structure their acquisitions by way of asset purchase transactions rather than by way of mergers or share purchases, so as to avoid the risk of inheriting the target company’s negative safety performance record. A buyer who has successfully negotiated for the transaction to proceed by way of an asset purchase must then immediately determine whether the BSA applies, and if so, whether and how to comply with its requirements.

The BSA has bewitched and bewildered purchasers of businesses, company owners, creditors and their respective legal counsel for decades.  It applies to every sale of stock in bulk, where  “stock” is defined as goods or inventory that a seller disposes of out of the usual course of business or trade of the seller; or goods, fixtures and chattels that the seller uses to operate its business. (*2)  There is no question, then, that it applies to all transactions whereby the buyer will purchase all or part of a business through an acquisition of the real and personal assets of a target company.  However, it is unsafe to assume that there would be no need to comply with the BSA during the acquisition of an “asset-light” transportation management company or 3PL: Ontario courts have held that the BSA applies even in those cases where the purchased assets are all intangibles, such as goodwill, distribution and customer lists, or where the buyer acquires a trade-mark along with a supply of branded packaging. (*3)

To Comply or Not to Comply

The BSA sets out the following procedure for compliance:

1.  The buyer must obtain a closing affidavit from the seller, listing all its secured and unsecured trade creditors, showing the names and addresses of the creditors, the secured collateral (if any), and the amount of each debt that is outstanding at the time of closing.

2.  If the seller’s statement shows that the claims of the unsecured and secured trade creditors exceed $2,500, the buyer must then ensure all trade creditors that have been listed are paid, unless alternate arrangements are made.  This could involve a direct payment of the claims out of the purchase price on closing; or the assumption by the buyer of some or all of the claims at the time of closing; or payment of all or part of the purchase price to a trustee, with the consent of the trade creditors.  Alternatively, the buyer may rely upon written waivers issued in a prescribed form by each of the seller’s creditors.

3.  Within five days of the closing of the asset purchase, the buyer must file an affidavit in the offices of the court for every county or district in which all or part of the stock in bulk is located, attesting to compliance with the BSA, setting out the particulars of the sale, and attaching the seller’s trade creditor list as an exhibit. (*4)

4.  In the alternative, the buyer may apply for an exemption from the Superior Court of Justice; however, an exemption cannot be granted unless there is unequivocal evidence that the transaction will be advantageous to the seller and that it will not impede the seller’s ability to settle its debts with any of its trade creditors.

Compliance can be costly and cumbersome, while failure to comply can trigger significant consequences.  And yet, more often than not buyers and sellers of businesses voluntarily waive compliance with the BSA altogether, with the buyer choosing instead to rely on the seller’s representations, warranties and indemnities concerning outstanding liabilities at the time of closing, and perhaps setting aside a holdback amount from the purchase price, that can be accessed by the buyer in the event of a third-party claim arising post-closing.

The risks of non-compliance cannot be overstated.  Although both parties are obliged to comply, it is the buyer who suffers the results of non-compliance.  Under subsection 16(1) of the BSA, a sale in bulk is voidable at the insistence of the seller’s creditors, at any time before the buyer files its post-closing affidavit, or up to six months thereafter. The seller’s creditors can take the purchased assets from the buyer, even if the buyer acted in good faith.  Under subsection 16(2) of the BSA, if a sale in bulk has been set aside or declared void and the buyer has received or taken possession of the stock in bulk, “the buyer is personally liable to account to the creditors of the seller for the value thereof, including all money, security and property realized or taken by the buyer from, out of, or on account of, the sale or other disposition by the buyer of the stock in bulk.”

Effectively, a buyer who has not taken steps to comply with the BSA may find that it has to pay twice for the purchased assets. Contractual indemnities will only go so far to mitigate the added cost, particularly if the purchase transaction has left behind a seller that is nothing more than a shell company without any operating assets.

Origins of Bulk Sales Legislation

Bulk sales legislation has its origins in the late-19th century, when American wholesalers demanded that government step in to curb a fraudulent practice that was quite prevalent.  Retail merchants would purchase inventory on credit, then avoid repaying those debts by selling their entire stock of goods “in bulk” to a third party, pocketing the proceeds, and disappearing into thin air.  In the absence of any evidence that the bulk purchaser had prior knowledge of the seller’s intention to defraud the creditors, it was next to impossible for the creditors to challenge these types of transaction.  By 1922, 45 U.S. states and all the Canadian provinces had responded by imposing a positive, statutory obligation on the buyer in respect of the seller’s creditors. (*5)

The BSA, and indeed all the bulk sales statutes that were previously in force across Canada, had three primary goals:

1.         To make it more difficult for business owners to sell their stock in bulk and abscond with the proceeds without paying their creditors.

2.         To require the bulk purchaser to take certain steps prior to closing the transaction, or lose its title to the assets as against the seller’s unpaid creditors.

3.         To require the bulk purchaser to either satisfy themselves that the seller’s debts had all been paid, or take steps to ensure that the proceeds from a sale are distributed among the seller’s creditors, rather than being paid directly to the seller without deduction.

It is worth noting that this third requirement goes far beyond the obligations imposed on a buyer under similar legislation in the United States.  Under the American model, a buyer is only required to ensure that the seller’s creditors have received notice of the pending transaction.

Key Reasons for Repeal of the BSA

Upon introducing Bill 218 for First Reading, the Minister for Economic Development and Growth, Brad Duguid, informed the Legislature that: “[t]he amendments are intended to reduce regulatory burdens to save businesses time and money.”  Indeed, compliance with the BSA can add significant costs and delays to asset purchase transactions.  However, the burdens imposed by the BSA go far beyond timing and costs.  The threat of voidability undermines transaction finality and contributes to an inefficient use of scarce judicial resources.

Writing for the majority of the Supreme Court of Canada in 2003, Justice Bastarache outlined the most compelling reasons for the repeal of the BSA:

From the outset, bulk sales legislation has been judicially recognized as protecting the interests of creditors whose merchant debtors had disposed of all or substantially all of the inventory, chattels and fixtures by which they carry on business.  See McLennan v. Fulton (1921), 50 O.L.R. 572 (C.A.), at p. 577; Re St. Thomas Cabinets, Ltd. (1921), 61 D.L.R. 487  (Ont. S.C.), at p. 491; and Garson v. Canadian Credit Men’s Trust Association, 1929 CanLII 53 (SCC), [1929] S.C.R. 282, at pp. 285-86.  However, such laws were recently repealed in Alberta, British Columbia, Manitoba, Saskatchewan, Yukon and the Northwest Territories, following reports of law reform commissions in those jurisdictions that the goal of protecting creditors, to the extent that it is achieved by bulk sales legislation, is realized only at the cost of significant commercial inconvenience, disruption and expense. (*6)

There is general consensus among legal practitioners that the BSA has outlived its utility, because its primary goal of protecting creditors can generally be achieved through the operation of other, more modern statutes.  These include the following:

–  The Ontario Personal Property Security Act (the “PPSA”) provides for the creation and perfection by registration of security interests in the assets of both commercial entities and consumers.  The PPSA also permits the creation of purchase-money security interest, which gives the creditor the added benefit of a super-priority lien over all the equipment, vehicles and inventory it has supplied to the debtor.

–  The Fraudulent Conveyances Act (Ontario) permits a creditor to recover property that the debtor has conveyed or transferred to others with the intent to defeat, delay or defraud the rights of creditors or others.

–  The Assignment and Preferences Act (Ontario) gives creditors an effective remedy in the event that a debtor transfers assets to one or more of its other creditors in preference to the others.

–  The Absconding Debtors Act (Ontario) provides for the seizure of real or personal property in Ontario if a resident of Ontario leaves the province with the intent to defraud creditors.

–  The Ontario Business Corporations Act and the Canada Business Corporations Act both provide creditors with recourse to the oppression remedy and derivative actions.

–  The Canada Bankruptcy and Insolvency Act (the “BIA”) provides that a court can either void a transfer that takes place at undervalue, or order a party to the transfer to pay to the trustee in bankruptcy the difference between the fair market value of the property or services sold or disposed of by the debtor and the actual consideration given or received by the debtor.  The BIA also permits the supplier or distributor of goods to repossess goods that it has delivered to a customer who later becomes bankrupt or placed into receivership.

The continued existence of the BSA here in Ontario is now totally inconsistent with mainstream commercial practices observed elsewhere in Canada.  Arguably, the continued existence of the BSA places the prospective seller of a business based in Ontario at a competitive disadvantage against the prospective seller of a business based elsewhere in Canada.  Simply put, as a result of the BSA, the acquisition of an Ontario business by means of an asset purchase has inherently higher risks than the acquisition of any other Canadian business.

Various Canadian law reform commissions have studied the impact of bulk sales legislation over the years, and in each case, they have recommended that these statutes be repealed, and legislators across the country have favourably received those recommendations.  The Alberta Law Reform Commission (“ALRC”), in particular, considered the experience in British Columbia in the years following the repeal of its bulk sales legislation, and noted with satisfaction that the repeal “had little impact on debtors, creditors, suppliers, or the insolvency area in general.”  The ALRC observed further that:

Potential creditors can now get effective security on inventory.  It is easy for a creditor to obtain a credit history of any established business from a credit reporting agency.

In addition to changed circumstances, the Act’s inherent limitations are also reasons why the Act does more harm than good.  Unsecured creditors of businesses are much more likely to be done in by the swoop of the secured creditor than by a fraudulent bulk sale.  The Act does a poor job of protecting creditors from a fraudulent bulk sale, because a rogue can short-circuit the Act simply by swearing a false declaration. (*7)

None of these sentiments were lost on the drafters of Bill 218, who summed up their initiative as follows:

Repealing the outdated Bulk Sales Act that was established over 100 years ago to protect creditors when a business sells off assets.  Creditors now have access to a number of more effective ways to protect their interests, and the legislation is expensive to administer. Ontario would join all other Canadian jurisdictions in eliminating this statutory vehicle. (*8)

Next Steps

Sometime after the Legislative Assembly reconvenes from its current summer recess, Bill 218 will be placed on the agenda for second reading and a full debate.  It will then be referred to a committee of the legislature for further review prior to being voted on in third reading.  Those of us who work in the M&A field will no doubt be waiting with bated breath until Bill 218 passes into law.

Louis Amato-Gauci

(*1) Bulk sales legislation was repealed in all the other Canadian provinces and territories between 1985 and 2008: British Columbia: Sales of Goods in Bulk, R.S.B.C. 1979, c. 371 – repealed as of May 17, 1985; Northwest Territories: Bulk Sales Act, R.S.N.W.T. 1988, c. B-2 – repealed as of April 18, 1991; Manitoba: Bulk Sales Act, R.S.M. 1987, c. B100 – repealed as of June 24, 1992; Alberta: Bulk Sales Act, R.S.A. 1980, c. B-13 – repealed as of July 8, 1992; Saskatchewan: Bulk Sales Act, R.S.S. 1978, c. B-9 – repealed as of August 24, 1992; Yukon Territory: Bulk Sales Act, R.S.Y. 1986, c. 14 – repealed as of December 17, 1992; Nova Scotia: Bulk Sales Act, R.S.N.S. 1989, c. 48 – repealed as of November 3, 1997; Prince Edward Island: Bulk Sales Act, R.S.P.E.I. 1988, c. B-6 – repealed as of April 27, 1998; Québec: Articles 1767 to 1778 of the Civil Code – repealed as of June 13, 2002; New Brunswick: Bulk Sales Act, R.S.N.B. 1973, c. B-9 – repealed as of August 1, 2004; and Newfoundland & Labrador: Bulk Sales Act, R.S.N.L. 1990, c.  B-11 – repealed as of June 4, 2008.  Nunavut never enacted bulk sales legislation.
(*2)  BSA, s. 1.
(*3)  Excelsior Brands Ltd. v. Italfina Inc., 24 O.R. (3d) 801; [1995] O.J. No. 4889.
(*4)  BSA, s. 11.
(*5)  Alberta Law Reform Institute, Report No. 56 – The Bulk Sales Act (January 1990) at 1-2.
(*6)  National Trust Co. v. H & R Block Canada Inc., [2003] 3 SCR 160, 68 OR (3d) 800; 232 DLR (4th) 193; 38 BLR (3d) 1; 312 NR 91; 44 CBR (4th) 249.
(*7)  Supra, note 4, at 2-3.
(*8) Ontario Ministry of Economic Development and Growth, Backgrounder to the Burden Reduction Act, 2016 (June 8, 2016).  Online at: https://news.ontario.ca/medt/en/2016/06/burden-reduction-act-2016.html


6. “Timely Justice”: The Supreme Court of Canada’s New Framework for the Prosecution of Regulatory Offences


Eighteen months is about one-third the length of World War I, about twice the gestation period for a human baby, and about eight times the length of Columbus’ voyage to the New World.  Now, according to the Supreme Court of Canada, it is also the maximum amount of time for the Crown to prosecute a regulatory offence in most instances.


Provincial regulatory statutes cover the gambit of commercial activity.  They range from the sale of tobacco products to occupational health and safety matters to the Highway Traffic Act and the transportation of dangerous goods.  Most are prosecuted pursuant to the Provincial Offences Act in the Ontario Court of Justice as pseudo-criminal matters and in similar courts in other provinces.

One of the more common defences in these cases is a defence of “unreasonable delay” as all accused persons are constitutionally entitled to a speedy trial in Canada.  Delays often occur, for example, where the Crown fails to make prompt disclosure of its materials, or where it has difficulty scheduling its officers to attend as witnesses.

Section 9 of the Charter of Rights and Freedoms specifically provides:

9. Any person charged with an offence has the right

(b) to be tried within a reasonable time.
… (*1)

That right – the right to a speedy trial – extends to a corporate accused, not just a natural-born human.

Time begins ticking for the purpose of assessing reasonableness under the Charter at the moment the charge is laid (which must be within six months of the offence date, at least in Ontario) (*2).  Deductions are made for delay that is attributable to the accused or for matters where the accused waived its rights (e.g. where an accused has consented to an adjournment for a more convenient trial date).

For the past many years, it has been unclear exactly how much delay is enough delay to have a charge “stayed” (i.e. to have it discarded by the Court).  As a rule-of-thumb, it generally took at least a year-and-a-half.  Sometimes, it could take closer to two full years.

Until recently, the Court would rely upon the 1992 criminal case of R. v. Morin (“Morin”), where the Supreme Court of Canada had provided a “contextual” approach (*3).  Under the old Morin scheme, the Court could consider factors such as the seriousness or gravity of the offence, or the absence of prejudice to the accused, in determining reasonableness.  Critics charged that the system fostered a culture of delay, or, at the least, that it lacked sufficient incentives to encourage the parties to take proactive steps.

“Timely Justice”

Earlier this month, in another criminal case, called R. v. Jordan,the Supreme Court of Canada reconsidered the “delay” issue.  The majority began with the principle that “[t]imely justice is one of the hallmarks of a free and democratic society”, followed by a recognition of the above-noted criticisms (*4).

In a narrow 5-4 split, the Court found that there was a presumptive 18-month ceiling for matters in provincial courts and a 30-month ceiling for criminal cases in superior courts (where more procedure is involved), counting from the time the charge is laid to the end of trial (*5).

Theoretically, there has been no shifting of any evidentiary burden.  In other words, the accused continues to have an onus to prove any allegation of unreasonable delay; however, that delay will be presumed to be unreasonable if it exceeds 18 months in the case of provincial courts or 30 months in the case of superior courts (*6).  Delays attributable to the accused, or waived by the accused, will continue to be deducted.  In other words, they will not count towards the presumptive ceiling.  However, institutional delay – even if it is not the fault of the prosecution – will now be counted (in contrast to the old Morin framework).  The Crown will have an onus to confront such delays.

The presumptive ceiling can only be augmented (lengthened) in exceptional, complex circumstances, or where there were unforeseeable events.  However, the majority in R. v. Jordan went so far as to say that even a typical murder case would not be sufficiently complex (*7).  Moreover, a lack of prejudice to the accused can no longer justify delays.  Rather prejudice is presumed if the ceiling is surpassed, and it is not rebuttable (*8).  Thus, any leniency towards the prosecution will be curtailed and the presumptive ceilings will be applied in almost every case.  The Court itself said that exceptions will be “rare, and limited to clear cases”(*9).

Despite the foregoing, it remains open to an accused to establish that a shorter period of delay was unreasonable in the circumstances.  However, below the presumptive ceiling, the accused will have to demonstrate diligence on its own part and fault on the part of the Crown.  According to the Court, a stay will only be ordered where the time taken “markedly exceeds the reasonable time requirements of the case” (*10).

In Mr. Jordan’s case, it took 49.5 months to try five drug-related offences.  Both the majority and the minority would have stayed the charges.  In a companion case, called R. v. Williamson, the majority also found that a 34-month delay to prosecute sexual offences against a minor was unreasonable (*11).

Transitional Exceptional Circumstances

The new law will apply to matters that are already in the system, subject to two qualifications, referred to by the majority as “transitional exceptional circumstances”.

First, for cases beyond the presumed ceiling, the Crown will be entitled to justify its delay on proof of reliance on the old law.  In this regard, it will not have to show that it took any special initiative to expedite matters in the face of institutional delay problems, as the Morin framework did not require any special Crown initiative.

Secondly, for cases below the presumed ceiling, the Court may consider defence initiative contextually.  Evidence of defence initiative to push matters forward will be helpful in assessing the reasonableness of delay.  However, any lack of defence effort will not be automatically taken as waiver of the desire for a timely trial.


The presumptive 18-month ceiling for regulatory offences will effectively be a hard cap going forward.  Whether for good or ill, the new system should provide a much better level of certainty.

Alan S. Cofman

*1. Part I of The Constitution Act, 1982, being Schedule B to the Canada Act (U.K.), 1982, c. 11, Part I.
*2. Provincial Offences Act, R.S.O. 1990, c. P.33, section 76(1).
*3. R. v. Morin, [1992] 1 S.C.R. 771.
*4. R. v. Jordan, 2016 SCC 27.
*5. 12. The majority reasons for judgement were actually penned by three justices (Moldaver, Karakatsanis and Brown JJ.), with two others concurring (Abella and Cote JJ.).  Another justice delivered separate reasons that arrived at the same result (McLachlin C.J.).  Three justices outright dissented (per Cromwell J., with Wagner and Gascon JJ. concurring).
*6. The 30-month presumption also applies to provincial court criminal matters that begin with a preliminary inquiry.
*7. R. v. Jordansupra, at para. 78.
*8. Ibid. at para.54.
*9. Ibid. at para. 48.
*10.Ibid. at para. 87.
*11. R. v. Williamson, 2016 SCC 28.


7. New Charterparty Standard Form for Liquified Natural Gas Shipments

In April 2016, the Baltic and International Maritime Counsel (BIMCO) and the International Group of Liquified Natural Gas (“LNG”) jointly issued a standard form voyage charterparty (“LNGVOY”) for use in the trade of LNG. A sample of the LNGVOY can be found at: http://www.giignl.org/system/files/lngvoy.pdf

The International Group of Liquified Natural Gas has indicated that the purpose of the new charterparty is to address an emerging “spot market” or charters of shorter distances and time periods. Previously, time charters were used most often. The new charterparty is meant to provide necessary flexibility to charterers and shipowners (*1).

Notable clauses under the new LNGVOY charterparty

Clause 2 of the new charterparty indicates that the vessel will not only be compatible with the listed terminals but will also be “accepted” by the terminals. The acceptability requirements create difficulties for shipowners because that element is essentially outside of their control – terminals have different standards and requirements. (*2) However, the degree to which shipowners must ensure acceptability is simply to the point that they must exercise due diligence.

Clause 5 deals with the condition of the vessel’s tanks at the loading port. It recognizes the practical reality that the vessel may arrive with cargo tanks in one of the following conditions: cold and ready to load; warm and under natural gas vapours; or warm and inerted. The clause addresses who will be responsible for the conditions of the tanks depending on how they arrive. For example, if it was agreed that they would arrive cold and ready to load, but do not do so, then the charterer must provide LNG to cool the tank before loading and the cost associated with doing so rests with the shipowners. However, the clause allows shipowners to tender a Notice of Readiness (“NOR”) even if the vessel is not actually ready for loading, transferring the risk onto the charterer for any delay and associated charges for the time that passes between the tender of the NOR and loading.

This is problematic because it conflicts with other sections of the charterparty. It is confusing when read with clause 9, which states that the NOR shall be tendered when the vessel has moored and is ready for loading. Similarly with clause 17, which indicates that charges for lay time or demurrage, where a shipowner has tendered an NOR but the vessel is not in fact ready for loading, shall be borne by the shipowner.

Clause 8 deals with ship to ship transfers and discusses the allocation of risk in those situations. The clause states that the risk and expense rests with the charterer and same shall indemnify the shipowner for all liabilities, losses or costs, and additional insurance arising out of the transfer.

Clause 23 addresses the risk associated with the boil off of cargo. As part of the charterparty, the charterer and shipowner agree to a boil off cap, whereby the shipowner can use natural boil off as propulsion for the vessel up to the agreed upon cap. Any boil off used in excess of the cap must be paid for by the shipowner at the rate for LNG specific in the charterparty. The charterparty provides for certain excepts where boil off will not be counter towards the cap. For example, where the boil off results from the actions of the charterer or any delays arising from blocked or restricted channels, seizure or detention of the vessel by piracy or war risks, blockages, strikes or lockouts.

Clause 27 provides that the charterers shall indemnify the shipowners against all liabilities that may arise from signing bills of lading where the terms and conditions of same impose more onerous liabilities on the shipowner than the conditions contained in the charterparty.

The limitation of liability set out in clause 32 indicates that the shipowners shall have the benefit of all limitation of liability accorded to owners or chartered owners of vessels by any statute or rule of law for the time being in force.

Lastly, clause 37(a) states that English law applies to the charterparty and any dispute shall be resolved by arbitration in London. This is the default provision, however, the charterparty allows the parties to choose an alternative jurisdiction to govern the charterparty. If the Parties which for Canadian law and jurisdiction to apply, they should amend the standard form LNGVOY to reflect this, considering that pursuant to T. Co Metals LLC v Fednav International Ltd. et. al., 2011 FC 1067, charterparties (unless a bill of lading has been issued pursuant to same) are not considered “contracts for carriage of goods by water” for the purposes of s46(1) of the Marine Liability Act. This means that even where the actual port of loading or discharge is in Canada, or the defendant has a place of business in Canada, or the contract was concluded in Canada, Canadian jurisdiction applies despite what is listed in the contract for the carriage of goods by water.


It will be interesting to see if parties will begin using the new LNGVOY standard form charterparty, considering that it is a voyage charter party rather than a time charter party, the latter being the most popular type of charterparty used for spot market transportation of LNG, currently.

The use of the voyage charterparty will change certain circumstances that parties are used to working under. For example, the cost to the charterer will be calculated based on the quantity/type of cargo loaded rather than the length of the voyage. Furthermore, the voyage charterparty will address the seaworthiness and carrying capacity of the ship, the date of arrival and time permitted for and places of loading and discharge, payment of freight, limitations of liability and choice of law.

Shipowers will also be required to provide a realistic estimate of the expected date of arrival since the new LNGVOY allows for a delivery time to be prescribed in the charterparty.

Jaclyne Reive

Twitter: @jaclyne_reive 
Blog: https://jaclynereive.wordpress.com

(*1) “LNG Charterparty Explanatory Notes” Bimco and Giignl, online: <http://www.giignl.org/system/files/lngvoy_explanatory_notes_0.pdf>
(*2) “Shipping: BIMCO launch new LNG voyage charter party” Eversheds, online <http://lexology.com/library/detail.aspx?g=d76abbcb-2be7-477a-b51c-3f009a65a38c>


8. New Marine Liability and Information Regulations to Take Effect in 2017

The Canadian Government recently issued a set of proposed regulations under the Marine Liability Act (*1). The new regulations, entitled the Marine Liability and Information Regulations (the “MLI Regulations”), are expected to enter into force on January 1, 2017. They are intended to replace the existing Marine Liability Regulations (*2), which are currently in force. The MLI Regulations will require persons in Canada each year to report receipt by sea of what are known as “hazardous and noxious substances” (“HNS”) over a certain amount. The first reporting deadline will be February 28, 2018. Failure to report can result in a $1,000 fine for each day of non-compliance.


Canada is already a party to various international treaties dealing with maritime pollution damage. For example, Canada is party to an international liability and compensation regime related to persistent oil spills (such as crude oil, fuel oil, lubricating oils), and bunker oil from oil tankers (*3). Canada is also party to the Bunkers Convention (*4), which covers bunker oil spills from ships other than oil tankers. As well, the Ship-source Oil Pollution Fund provides additional compensation for oil pollution damage in Canada by any type of ship and from any type of oil.

Currently, however, there is no comprehensive Canadian or international liability and compensation regime for ship-sourced incidents involving HNS.

The HNS Convention

All of this will soon be changing. The MLI Regulations are designed to facilitate Canada’s ratification of a new international treaty known as the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea, 2010 (the “HNS Convention”). Briefly stated, the HNS Convention is an international instrument designed to provide for, and regulate, compensation for damage caused by the carriage by sea of HNS. HNS, for purposes of the HNS Convention, is essentially a list of some 6,500 substances including oils, noxious and/or dangerous liquid substances, liquefied gases, solid bulk materials possessing chemical hazards, etc. HNS include both bulk cargoes and packaged goods.

Canada and several other countries signed the HNS Convention in October 2011; however, none of the signatories (including Canada) has yet ratified the treaty. The HNS Convention must be ratified by at least twelve member states of the International Maritime Organization, who together have received at least 40 million tonnes of HNS in the preceding calendar year (excluding oils, liquefied natural gas and liquefied petroleum gas). Four of the ratifications must also come from states whose ships have a total capacity of at least 2 million units of gross tonnage.

Essentially, the HNS Convention establishes a strict liability regime for owners of ships who are involved in incidents causing damage arising out of the international or domestic carriage of HNS by sea. It covers any damage caused by HNS in the territory of territorial sea of a State Party. It also covers pollution damage in the exclusive economic zone, or equivalent area, of a State Party and damage (other than pollution damage) caused by HNS carried on board ships registered in, or entitled to fly the flag of, a State Party outside the territorial sea or territory of any State.

“Damage” under the HNS Convention includes loss of life or personal injury or board or outside the ship carrying HNS, loss of or damage to property outside the ship, loss or damage caused by contamination of the environment, loss of income in fishing and tourism, and the costs of preventive measures and further loss or damage caused by such measures.

The HNS Convention does not cover pollution damage caused by persistent oil, since such damage may already be covered under other existing treaties. However, non-pollution damage caused by persistent oil, e.g. damage caused by fire or explosion, is covered.

A Two-Tier Model of Compensation

The HNS Convention provides for a “two-tier” model of compensation. First, the registered owner of a ship will (subject to a few exceptions) be strictly liable to pay compensation following an incident involving HNS. This means that the shipowner is liable, even in the absence of fault on its part. The fact that there is damage is enough to trigger liability, provided there is a causal link between the HNS and the damage.

However, the shipowner is then entitled to limit its liability under the HNS Convention in respect of any one incident, to a total amount calculated on the basis of the units of gross tonnage of the ship. For example, for ships not exceeding 2,000 gross tonnes, the limit of liability with respect to incidents involving bulk HNS is 10 million Special Drawing Rights (“SDRs”) – an amount equal to roughly CAD$18.3 million at current exchange rates. The limit increases by 1,500 SDRs for each unit of gross tonnage between 2,001 and 50,000 gross tonnes. For each unit of tonnage in excess of 50,000 gross tonnes, the limit is increased by a further 360 SDRs. Notwithstanding this formula, for incidents involving bulk HNS, there is an overall maximum liability exposure of 100 million SDRs.

Similar limits apply to incidents where the damage is caused by packaged HNS, or both packaged and bulk HNS, or where it is impossible to differentiate between the two. In this case, the maximum liability exposure is 115 million SDRs.

Furthermore, the shipowner is required to take out insurance, or maintain other acceptable financial security, to cover its liability under the HNS Convention. Claims for compensation may be made directly against the insurer or person providing financial security.

The “second tier” constitutes an international fund of money (the “HNS Fund”), which is made up of contributions from various industry players (not governments) based on the amount of HNS they receive each year (above a certain threshold) through trade. The HNS Fund will be self-governed pursuant to the terms of the HNS Convention, with a director, secretariat and an assembly consisting of representatives from the various States Parties.

The HNS Fund will provide additional “top-up” compensation when the total amount of a claim exceeds the available amount under the “first tier”, or when the shipowner is exonerated from liability or is otherwise financially incapable of meeting its obligations.  The maximum amount payable by the HNS Fund in respect of any single incident is 250 million SDRs.

The Purpose of the MLI Regulations

Canada has taken steps to prepare for ratification of the HNS Convention. It has already drafted and received royal assent on legislation amending the Marine Liability Act to incorporate the operative provisions of the HNS Convention into law upon ratification.

However, before Canada can ratify the HNS Convention, it must collect enough data (in the preceding calendar year) on HNS traffic in Canada so that it can report on which entities in Canada have received what amounts of HNS. This is so that the HNS Fund can be properly constituted by contributions from the appropriate entities in the proper amounts.

Accordingly, for purposes of the HNS Convention, the MLI Regulations have been proposed in order to set up a system by which receivers of contributing cargo (i.e. HNS) must report the quantities of bulk HNS above certain thresholds received in a calendar year.

The New Requirements

Essentially, the MLI Regulations retain the same requirements that currently exist under the Marine Liability Regulations, albeit organized slightly differently. For example, they do not change the existing reporting requirements in connection with the International Oil Pollution Compensation Funds, which provides similar coverage in the oil pollution context.

Instead, the “new” reporting requirements relate to HNS. Once the MLI Regulations come into force, they will require persons in Canada to report, on a yearly basis (by February 28 of each year), the quantities of bulk HNS they receive if, in a given calendar year, they receive at least 17,000 tonnes of non-persistent oils, liquefied petroleum gas, or any other type of HNS. Any quantity of liquefied natural gas received must also be reported (*5).

In addition, the MLI Regulations also provide that each such report must include other information, including the name and contact information of the receiver, the type and total quantity of contributing cargo received, whether or not the receiver has received contributing cargo on behalf of a principal, and if so, its name and the type and quantity of HNS received, etc.

The first reporting deadline is to be February 28 of the calendar year following the year that the contributing cargo is received. Thus, if the regulations take effect on January 1, 2017, the first reporting deadline will be February 28, 2018. Any person who fails to file a necessary report is liable to pay a fine of $1,000.00 per day that the report remains unfiled.

It is estimated that only about 50 entities in Canada will surpass the reporting threshold in a given year. Reports will be made through a dedicated Government of Canada electronic reporting system.

The Bottom Line

The MLI Regulations will soon have the force of law in Canada. Interested players in the shipping industry should definitely review these new regulations and take the necessary steps to ensure that they are prepared to report their receipts of contributing cargo in 2017 by February 28, 2018.

James Manson

(*1) Marine Liability Act (S.C. 2001, c. 6).
(*2) SOR/2002-307.
(*3) See e.g. the International Convention on Civil Liability for Oil Pollution Damage, 1992, as Amended by the Resolution of 2000, the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992, as Amended by the Resolution of 2000, and the Protocol of 2003 to the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992, all of which have force of law in Canada pursuant to the Marine Liability Act.
(*4) International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001
(*5) Note that under the HNS Convention, the reporting requirements in fact carry a threshold of 20,000 metric tonnes received. However, the Government of Canada chose to reduce the threshold to 17,000 metric tonnes in order to create a buffer to ensure that reporting fluctuations and inconsistencies in national reporting do not lead Canada into a state of non-compliance under the HNS Convention.


9. Recours collectif visant l’accident aérien AH5017 rejeté par la Cour supérieure du Québec

The Quebec Superior Court recently considered an application brought by the surviving husband/father of three victims of flight AH5017 which crashed in Mali in 2014 for certification of a class action for compensation for the survivors of all 108 passengers who perished in the accident. The court denied certification of the class action, finding that the Quebec courts only had jurisdiction in respect of claims concerning twelve of the victims pursuant to Article 33 of the Montreal Convention, and this did not suffice to justify a class action under Article 575 of the Quebec Code of Civil Procedure.

Le 18 mai 2016, la cour supérieure du Québec a considéré une demande de certification d’un recours collectif visant la compagnie aérienne Air Algérie (*1). Le recours concerne l’écrasement du vol AH5017, exploité par un sous-contractant espagnol, qui a eu lieu au Mali le 24 juillet 2014. Le vol était en provenance de Ouagadougou, Burkina Faso, et se dirigeait vers Alger, la capitale algérienne.

La Convention de Varsovie (1929) et la Convention de Montréal (1999) représentent le droit international régissant l’indemnisation des passagers lors d’un accident aérien (*2). Selon l’article 1 (2) de chacune des Conventions, leur application est subordonnée à la condition que le point de départ ainsi que le point de destination du transport se trouvent dans une Haute Partie Contractante. Par conséquent, pour déterminer la convention applicable, il convient de considérer l’itinéraire individuel de chacun des passagers et non pas, simplement, la route du vol fatal AH5017. Selon la cour supérieure, la Convention de Montréal s’appliquait à tous les passagers à bord sauf trois d’entre eux qui faisaient un aller-retour Alger-Ouagadougou et qui relevaient en conséquence de la Convention de Varsovie applicable en l’espèce, l’Algérie n’étant pas une partie à la Convention de Montréal.

L’épouse et les deux filles du demandeur, tous des citoyens burkinabés, ont  péri dans le vol. Le demandeur était un résident permanent du Canada qui avait parrainé sa famille afin qu’elle le rejoigne au Canada en leur achetant des billets d’avion avec le transporteur algérien qui dessert l’aéroport de Montréal. Ces trois victimes étaient parmi les douze personnes à bord du vol AH5017 qui avaient un droit d’action devant les juridictions canadiennes selon l’article 33 de la Convention de Montréal. Cet article prévoit cinq rattachements pour déterminer les juridictions compétentes pour entendre tout litige régi par la Convention. Bien que ni le domicile ni le siège d’Air Algérie (ni du transporteur de fait, Swiftair S.A., société espagnole qui exploitait cette route pour Air Algérie) ne soient au Canada, ces douze passagers pouvaient poursuive une action juridique au Canada en vertu des trois autres critères alternatifs de l’article 33, notamment en vertu du lieu ou leur contrat de transport a été conclu, la destination finale du passager, ou la résidence principale et permanente du passager.

Au lieu de poursuivre une action individuelle contre le transporteur au Québec, les avocats du demandeur ont intenté un recours collectif pour les ayants droit de tous les passagers à bord du vol AH5017.

La compagnie aérienne a présenté un moyen préliminaire à l’encontre de l’action collective visant le rejet de la demande de certification au motif que le demandeur ne pouvait pas représenter devant les tribunaux canadiens des personnes ne répondant pas aux critères de l’article 33 de la Convention de Montréal (ou 28 de la Convention de Varsovie).

Hamilton J.C.S. de la cour supérieure a rejeté la demande en exception déclinatoire de la défenderesse considérant que bien que l’article 584 du nouveau Code de Procédure Civile (« Cpc ») (*3) reconnaisse la possibilité d’un moyen préliminaire à l’encontre d’une action collective, cet article, énoncé dans le chapitre relatif au déroulement de l’action collective, exclut la présentation du moyen préalablement à la certification de l’action.

Le juge a commencé son analyse de la demande de certification par application du premier critère de l’article 575, considérant qu’il y avait des questions de droit ou de fait identiques, similaires ou connexes parmi les victimes. Air Algérie ne disputait pas que le deuxième critère, soit que les faits allégués paraissent justifier les conclusions recherchées, et que le quatrième critère, soit que le demandeur pouvait représenter adéquatement tous les membres de la classe, étaient en espèce rencontrés.

La problématique soulevée par Air Algérie et concernant la représentation par le requérant des personnes n’ayant pas autrement accès aux tribunaux canadiens figurait en revanche dans l’analyse, par le  juge, du troisième critère pour la certification. Selon l’article 575 (c) du Cpc, il faut que la composition du groupe rende difficile ou peu pratique l’application des règles sur le mandat d’ester en justice pour le compte d’autrui ou sur la jonction d’instance.

Pour décider de la satisfaction de ce critère, le juge a pris en compte le nombre de membres de la classe alléguée.

Le juge a tout d’abord statué que bien que l’article 33(4) de la Convention de Montréal dispose que la procédure sera régie selon le droit du tribunal saisi de l’affaire, les dispositions du Cpc, notamment sur les action collectives, ne pouvaient pas modifier les règles de compétence prévues dans la Convention de Montréal. Par conséquent, a priori, les ayants droit des 96 victimes sans rattachement à la juridiction canadienne selon l’article 33 de la Convention ne pouvaient pas être représentés devant la cour supérieure par le demandeur dans le cadre du recours collectif.

Le juge a ensuite considéré si, exceptionnellement, les autres victimes pouvaient poursuivre leurs recours devant les tribunaux québécois en vertu de l’article 3136 du Code Civil, lequel prévoit deux conditions cumulatives pour son application: que l’action à l’étranger se révèle impossible ou que l’on ne puisse exiger qu’elle y soit introduite, et que le litige présente un lien suffisant avec le Québec.

Le demandeur a argué que toutes les autres juridictions disponibles aux 96 victimes étaient soit corrompues, soit n’offraient pas la possibilité d’un recours collectif. Le juge a déterminé que toutes les actions pouvaient être poursuivies en Espagne, lieu du siège de Swiftair S.A., un forum garantissant l’indépendance des juges. Le juge a précisé que le seul fait de ne pas pouvoir poursuivre un recours collectif devant un tribunal étranger ne suffisait pas à satisfaire la première condition de l’article 3136 exigeant que l’action à l’étranger soit  impossible.

Bien que la première condition ne soit pas établie, Hamilton J.C.S. a aussi considéré le deuxième critère exigeant un lien suffisant entre le litige et le Québec. Cette condition n’était pas davantage remplie étant donné  que le seul lien avec le Québec qui était invoqué pour justifier la juridiction des tribunaux québécois pour entendre des réclamations des ayants droit des 96 victimes sans rattachement avec le Québec selon la Convention résidant dans  le fait que d’autres victimes de l’accident avaient des droits d’action susceptibles d’être exercés au Québec. Ceci ne suffisait pas pour satisfaire la deuxième condition imposée par l’article 3136. En résumé, seuls les ayants droit des douze passagers soumis à la juridiction des tribunaux québécois en vertu de l’article 33 pouvaient faire partie du recours collectif.

Étant donné que les douze victimes éligibles à poursuivre une action au Canada appartenaient à seulement quatre familles, le juge a déterminé qu’un recours collectif n’était pas indiqué selon le critère de l’article 575(c) du Cpc dans la mesure où  d’autres moyens procéduraux pouvaient être employés pour joindre les actions.

Le 15 juin 2016, la Cour d’appel du Québec a acceuilli une requete de al compagnie aerinne pour rejeter l’appel interjeté par le demandeur à l’encontre de cette decision de premiere instance (*4).

Mark Glynn

(*1) Zoungrana c. Air Algérie, 2016 QCCS 2311
(*2) La Loi sur le transport aérien L.R.C. (1985), ch. C-26 donne suite au Canada à la Convention pour l’unification de certaines règles relatives au transport aérien international, signée à Varsovie le 12 octobre 1929 ainsi qu’à la Convention pour l’unification de certaines règles relatives au transport aérien international faite à Montréal le 28 mai 1999
(*3) Code de procédure civile, RLRQ c C-25
(*4) Zoungrana c. Air Algérie, 2016 QCCA 1074

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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Newsletter > June 2016

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In this issue:
1. News & Upcoming Events
2. Export Control Prosecutions
3. Ship Arrest- Sale Pendente Lite Denied
4. The Gig Economy
5. “Virtual Airline” Needs No Licence
6. Westjet v. Chabot
7. Insurance Broker Personal Liability
8. Inherent Vice Defence
9. Global Law Update

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

1. News & Upcoming Events

  • Lexpert has announced the results of its peer review study of legal talent in Canada in its 2016-2017 Guide. Four firm members have made the Lexpert Guide:

    Rui Fernandes 
    is listed as an expert in Shipping and Maritime Law, Transportation (Rail & Road), and Litigation-Commercial Insurance.

    Gordon Hearn 
    is listed as an expert in Shipping and Maritime Law, and Transportation (Rail & Road).

    Kim Stoll 
    is listed as an expert in Transportation (Rail & Road)

    Louis Amato-Gauci 
    is listed as an expert in Transportation (Rail & Road).
  • Kim StollAlan Cofman and James Manson represented the firm at the Chartered Institute of Logistics and Transport in North America (CILTNA GTA Region Chapter) Marine Transportation Breakfast on June 1st in Mississauga.
  • James Manson, Mark Glynn and Jaclyne Reive spoke on a panel at the 2016 Supply Chain Management Association’s National Conference on “Understanding ‘limits of liability’: key insights into surface, air and ocean transportation contracts” on June 17th in Niagara Falls.
  • Gordon Hearn will be representing the Firm at the Transportation Lawyers Association Annual Executive Meeting being held in Chicago on July 16, 2016.
  • CIFFA (The Canadian Freight Forwarders Association) has advised:“CIFFA Membership Approves Update to STCs at AGM in Montreal to Address SOLAS VGMAlthough paragraph 7 of the CIFFA Standard Trading Conditions as passed by membership in May 2010 clearly identifies the responsibilities of the Customer with regards to description of a
    shipment, the CIFFA national board of directors determined that a slight amendment to those STCs would more specifically address the new regulation.The following text outlines the changes to paragraph 8 (A) of the CIFFA Standard Trading Conditions as approved by the membership at yesterday’s Annual General Meeting held in Montreal. The change specifically addresses the SOLAS VGM requirement as the responsibility of the shipper.

    “Without limiting the foregoing the Customer is responsible for timely communication of and warrants the accuracy of the verified gross mass (VGM) of the package(s) and or the transport unit and the identity of the duly authorized person so verifying. The customer shall maintain documentation evidencing measurement of VGM as required by law.”

    CIFFA Members should ensure customers are advised of the revision to paragraph 8 (A).

    As a reminder, the CIFFA Standard Trading Conditions may only be used by current CIFFA Regular Freight Forwarding Members of the Association.”

2. Export Control Prosecutions

Canadian companies and individuals should be aware that a Canadian and U.S. authorities are actively pursuing prosecutions for improper export of controlled goods to sanctions countries.

In 2011 Mahmoud Yadegari was sentenced by a Canadian Court to four years in prison for exporting Canadian transducers to Iran (*1)

After a trial by judge alone, the appellant was convicted of the following nine offences (he was acquitted of count 9 (an additional count of forgery):

1)     Count 1 – attempting to knowingly sell, supply or transfer restricted goods to a person in Iran or for the benefit of Iran, without first obtaining a certificate of exemption, contrary to the United Nations Act, R.S.C. 1985, c. U-2 (the “UN Act”) and the Regulations Implementing the United Nations Resolutions on Iran, SOR/2007-44 (the “Iran Regulations”)

2)     Count 2 – attempting to export or transfer restricted goods without first obtaining an export permit, contrary to the Export and Import Permits Act, R.S.C. 1985, c. E-19 and associated regulations;

3)     Counts 3, 4 and 5 – failing to report the restricted nature of the goods in question, or their proper value, and making a false or deceptive statement in writing to customs officials, contrary to the Customs Act, R.S.C. 1985, c. 1 (2nd Supp.);

4)     Count 6 – attempting to export controlled nuclear equipment without first obtaining an export licence, contrary to the Nuclear Safety and Control Act, S.C. 1997, c. 9 (the “NSCA”) and associated regulations; and

5)     Counts 7, 8 and 10 – knowingly making a false waybill and knowingly using a forged waybill and end-use certificate when attempting to export the pressure transducers from Canada, contrary to the forgery provisions of the Criminal Code, R.S.C. 1985, c. C-46 (the “Code”).

The United States has been encouraging the Canadian government to more aggressively prosecute such breaches.

Recently a Canadian-Iranian business man has been sentenced in the U.S. to three years in prison for conspiring to violate Iran sanctions. The case highlights that Canadian companies and individuals who purchase American goods and attempt to re route the goods through Canada can find themselves subject to prosecution in the U.S. (*2):

Preet Bharara, the United States Attorney for the Southern District of New York, and John P. Carlin, Assistant Attorney General for National Security, announced that ALI REZA PARSA, a Canadian-Iranian dual citizen and resident of Canada, was sentenced on Friday, May 20, 2016, to three years in prison for his participation in a conspiracy to violate the International Emergency Economic Powers Act (“IEEPA”) and the Iranian Transactions and Sanctions Regulations (“ITSR”).  PARSA was arrested in October 2014 following an investigation by the Federal Bureau of Investigation (“FBI”) and United States Department of Commerce, Bureau of Industry and Security (“BIS”).  PARSA pled guilty on January 20, 2016, before U.S. District Judge Ronnie Abrams, who imposed Friday’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “As he admitted in court, Ali Reza Parsa conspired to purchase high-tech electronic components – some used in the production of rockets and missiles – from American companies for eventual delivery to Iran through Canada.  He has now been sentenced to three years in prison for his violation of federal law.”
Assistant Attorney General John P. Carlin said: “Over the course of six years, Parsa repeatedly violated export control laws and aided Iranian entities in procuring high-tech electronic components that have both commercial and military uses.  With this sentence, he will be held accountable for circumventing important U.S. laws designed to protect our national security interests.  One of our top national security priorities remains safeguarding our national assets from those who may wish to do us harm.”
According to the Indictment filed against PARSA and other court documents publicly filed in this case and statements made in court proceedings, including Friday’s sentencing:
Between approximately 2009 and 2015, PARSA conspired to obtain high-tech electronic components from American companies for transshipment to Iran and other countries for clients of PARSA’s procurement company in Iran, Tavan Payesh Mad, in violation of U.S. economic sanctions.  To accomplish this, PARSA used his Canadian company, Metal PM, to place orders with U.S. suppliers and typically had the parts shipped to him in Canada or to a freight forwarder located in the United Arab Emirates, and then transshipped from these locations to Iran or to the location of his Iranian company’s client.  PARSA provided the U.S. companies with false destination and end-user information about the components in order to conceal the illegality of these transactions.
PARSA’s criminal scheme targeted numerous American technology companies.  The components that PARSA attempted to procure included cryogenic accelerometers, which are sensitive components that measure acceleration at very low temperatures.  Cryogenic accelerators have both commercial and military uses, including in applications related to ballistic missile propellants and in aerospace components such as liquid-fuel rocket engines.
In addition, following his arrest and while incarcerated at the Metropolitan Detention Center, PARSA continued to violate the IEEPA and the ITSR  by conducting business for Metal PM and Tavan Payesh Mad, including by ordering parts from German and Brazilian companies for Iranian customers.  PARSA subsequently directed a relative to delete email evidence of his ongoing business transactions while in jail, emphasizing the need for secrecy in their dealings.
Neither PARSA nor any other individual or entity involved in transactions that gave rise to his conviction applied for or obtained a license from the U.S. Department of the Treasury’s Office of Foreign Assets Control for the transactions.

Rui M. Fernandes 
Follow Rui M. Fernandes on Twitter @RuiMFernandes and on Linkedin. See also his blog at http://transportlaw.blogspot.ca

(*1) R. v. Yadegari 2011 ONCA 287.
(*2) May 23 2016 Press Release Dept. of Justice U.S. Attorney’s Office, Southern District of N.Y.

3. Ship Arrest: Warrant Confirmed and Sale Pendente Lite Denied

In May of 2016, the Superior Court of British Columbia rendered a decision in Avina v The Ship Sea Senor (“Avina”)(*1).  This case involved the arrest of a ship pursuant to the British Columbia Supreme Court Civil Rules as opposed to the Federal Court Rules, and an order for sale of the subject ship pendente lite, amongst other things. The Court heard concurrent contested applications and ultimately neither party was successful and all of the relief requested was denied.

The Avina decision, examined below, is instructive regarding: (1) the available grounds for ship arrests; (2) the associated jurisdiction of the Federal Court and British Columbia Supreme Court; and (3) regarding the factors to consider and the sufficiency of evidence required for orders for sale pendente lite (or “pending the litigation”).

Ship Arrest: A Brief Review

Where parties have a dispute involving a maritime claim, it is possible to arrest the ship involved.(*2). Claims involving in rem jurisdiction may use ship arrest to advantage as bail or security is posted for the arrested ship’s release allowing for immediate satisfaction of any judgment.

The Federal Court has concurrent original jurisdiction in all cases “in which a claim for relief is made or a remedy is sought under or by virtue of Canadian maritime law or any other law of Canada relating to any matter coming within the class of subject of navigation and shipping, except to the extent that jurisdiction has been otherwise specially assigned.” (*3)

The Federal Court Act in S. 22(2) lists the court’s jurisdiction regarding claims involving questions of:

(a) title, possession or ownership or proceeds of sale of a ship or any part interest therein;
(b) possession, employment or earnings of a ship between co-owners of a ship;
(c) mortgages, bottomry or respondentia, or other charges
(d) any claim for damage or for loss of life or personal injury caused by a ship either in collision or otherwise;
(e) damage sustained by, or for loss of, a ship including damage to or loss of the cargo or equipment of, or any property in or on or being loaded on or off, a ship;
(f) any claim arising out of an agreement relating to the carriage of goods on a ship under a through bill of lading for loss or damage to goods occurring at any time or place during transit;
(g) death or personal injury occurring in connection with the operation of a ship including any claim for death or personal injury arising out of any defect in a ship or in her apparel or equipment, or of the wrongful act, neglect or default of the owners, charterers or persons in possession or control of a ship or of the master or crew thereof or of any other person for whose wrongful acts, neglects or defaults the owners, charterers or persons in possession or control of the ship are responsible, being an act, neglect or default in the management of the ship, in the loading, carriage or discharge of goods on, in or from the ship or in the embarkation, carriage or disembarkation of persons on, in or from the ship;
(h) loss of or damage to goods carried in or on a ship including loss of or damage to passengers’ baggage or personal effects;
(i) agreement relating to the carriage of goods in or on a ship or to the use or hire of a ship whether by charter party or otherwise;
(j) salvage including, without restricting the generality of the foregoing, claims for salvage of life, cargo, equipment or other property of, from or by an aircraft to the same extent and in the same manner as if the aircraft were a ship;
(k) towage in respect of a ship or of an aircraft while the aircraft is water-borne;
(l)  for pilotage in respect of a ship or of an aircraft while the aircraft is water-borne;
(m)  goods, materials or services supplied to a ship for the operation or maintenance of the ship, including claims regarding stevedoring and lighterage;
(n) contract claims relating to the construction, repair or equipping of a ship;
(o) any claim by a master, officer or member of the crew of a ship for wages, money, property or other remuneration or benefits arising out of employment;
(p) any claim by a master, charterer or agent of a ship or shipowner in respect of disbursements, or by a shipper in respect of advances, made on account of a ship;
(q) general average contribution;
(r) marine insurance; and
(s) dock charges, harbour dues or canal tolls and charges for the use of the associated facilities.

A ship arrest order is made based upon a solicitor’s sworn Affidavit to Lead Warrant, supported by written or oral evidence establishing the debt or claim. The ship can be released by (1) the consent of the arresting party; (2) discontinuance or dismissal of the associated action; (3) payment into court of the amount claimed; or the amount of freight (where cargo is arrested for freight only); or the appraised value of the arrested ship. The ship may also be “bailed out” by the posting of an agreed upon amount (including interest and costs but not more than the ship’s value). The ship is then released by service of a court-issued release from arrest document plus any costs or Sheriff’s fees.  Upon agreement, these amounts may be provided by a P&I Letter of Undertaking as security. (*4) Otherwise, payment can be made by surety bond, bank guarantee or a court approved for of bail bond or by cash paid in to court.

Arrest can be contested by motion or application to the court on the basis of jurisdiction or grounds or where the arrest was otherwise wrongful. Damages for wrongful arrest will be awarded only if the owner of the ship can prove that the action was instituted with malice or gross negligence as per the Supreme Court of Canada’s seminal case, Armada Line Ltd. v.Chaleur Fertilizers Ltd.(*5) The release of the arrested ship can also be contested on motion by an interested party.

Orders for Sale Pendente Lite

Where an arrested ship is, for example, deteriorating because the involved parties are not maintaining it, the court will consider a sale order pendente lite.If the ship has significantly depreciated in value since its arrest or where it is reaching obsolescence, the court may order a sale where a fair price might be achieved to avoid a reduced price later on. Other factors are also considered as discussed below. (*6)

However, such orders for sale pendente lite are not always granted even though the ship remains in the jurisdiction of the court, where no bail or security is posted for its release.

Jurisdiction of Provincial Courts

British Columbia has made such arrest procedures available for access by parties in its British Columbia Supreme Court Civil Rules. It is the only province to do so. In other provinces, including Ontario, applications are made to the Federal Court for arrest warrants in respect of in rem claims pursuant to the provisions of the Federal Court Act and Rules thereunder.  The Avina case, reviewed below, considered and affirmed the British Columbia Supreme Court’s jurisdiction in this regard.

Case Comment: Avina v The Ship Sea Senor

The Avina decision is instructive regarding ship arrests pursuant to the British Columbia Supreme Court Civil Rules and also regarding the evidence required when applying for an order for a ship sale pendente lite.


The parties agreed to purchase the ship Sea Senor (the “Vessel”) as the sole asset of an incorporated entity, Sea Chariot Holdings Inc.. The Vessel was purchased for $225,500.00 in March of 2012. The parties eventually had various disagreements and a claim was commenced seeking damages and an order for the sale of the Vessel amongst other relief.

The plaintiff caused the Vessel to be arrested pursuant to an order of the British Columbia Supreme Court. The defendants, however, failed to post the usual security or bail for the Vessel’s release and so the Vessel remained under arrest and in the jurisdiction of the court, until such a time as the dispute resolved by trial or settlement.

The parties disagreed on just about everything including the amounts paid or not paid by the plaintiff in respect of the Vessel to the percentage owned by each of the parties to whether there was a conditional sales agreement in that regard.

The plaintiff claimed that, since the fall of 2013, the defendants were unwilling or unable to make necessary payments relating to the Vessel, failed to ensure that the Vessel was properly maintained to a point where the Vessel was deteriorating and should be sold before its value was affected. The defendants denied all such allegations.

The plaintiff sought an order for the sale of the Vessel pendente lite and an order for any proceeds to be held in trust by his counsel.

The defendants resisted the application for sale and brought their own application for an order setting aside the arrest warrant “for want of jurisdiction”, on the basis that the action was really a shareholders’ dispute and so there was no basis for the exercise of the Court’s maritime law jurisdiction. Instead, the defendants sought a declaration that they could seize and sell the Vessel pursuant to the provisions of the Personal Property Security Act of British Columbia. (*7).  The defendants stated in their factum:

a.         there is no basis in law for an exercise of maritime law jurisdiction as the matter is a shareholder’s dispute; and
b.         further, and in the alternative, the agreement between the parties is, in substance, a secured transaction and the debtor has exercised its right of voluntary foreclosure.

As a result, the Court heard two contested applications at the same time.

Jurisdiction and Warrant Confirmed: The Defendants’ Application Dismissed

The arrest warrant was issued pursuant Rule 21-1 of the British Columbia Supreme Court Civil Rules. Rule 21-1(1) stipulates that the said rule applies if an action may be brought in rem against a ship or other property. The in rem jurisdiction of the court is explained in Rule 21-1(2):

21-1(2) Except to the extent that jurisdiction has been otherwise specially assigned, an action may be brought in rem against a ship or other property that may be brought in rem in the Federal Court of Canada in all cases in which a claim for relief is made under or by virtue of Canadian maritime law or any other law of Canada relating to navigation and shipping. The action, therefore, must be one that could have been brought in rem in the Federal Court of Canada and must be a claim for relief under or by virtue of Canadian maritime law or any other law of Canada relating to navigation and shipping.

The jurisdiction of the Federal Court had to be established for the case at bar.

As per the listing of types of claims noted above from the Federal Courts Act, the affidavit in support of the arrest warrant indicated that the claim was:

“…a claim with respect to title, possession or ownership of a ship or any part interest therein pursuant to the Federal Courts Act, section 22(2)(a), a claim relating to any question arising between co-owners of a ship with respect to possession, employment or earnings of a ship pursuant to the Federal Courts Act, section 22(2)(b) and a claim in respect of goods, materials or services supplied to the Defendant ship for its operation or maintenance pursuant to the Federal Courts Act, section 22(2)(m) on the basis of which basis the Plaintiff invokes the in rem jurisdiction of this court.”

The Court referred to Sections 22(1), 22(2)(a), (b) and (m) (as noted above), of the Federal Court Act and also to 22(3)(a), which states:

 (3) For greater certainty, the jurisdiction conferred on the Federal Court by this section applies
(a) in relation to all ships, whether Canadian or not and wherever the residence or domicile of the owners may be;

Referring to two Supreme Court of Canada cases, the Court further noted that the essential requirements to support a finding of jurisdiction in the Federal Court were established (*8):

1. There must be a statutory grant of jurisdiction by the federal Parliament.
2. There must be an existing body of federal law which is essential to the disposition of the case and which nourishes the statutory grant of jurisdiction.
3. The law on which the case is based must be “a law of Canada” as the phrase is used in s. 101 of the Constitution Act, 1867.

At paragraph 30, the Court quoted McIntyre J. in ITO-Int’l Terminal Operators v. Miida Electronics (*9),  “It is important therefore that the subject-matter under consideration in any case is so integrally connected to maritime matters as to be legitimate Canadian maritime law within federal legislative competence.”

The Court stated at paragraph 92, referring to Siemens Canada Ltd. v. J.D. Irving Ltd., “There can be no doubt whatsoever that once a claim is held to fall within one of the heads found in subsection 22(2) of the Act, there is necessarily substantive maritime law to support the claim.” (*10)

Therefore, the plaintiff’s claim was “with respect to title, possession or ownership of a ship or any part interest therein” within the meaning of s. 22(2)(a) of the Federal Courts Act” and, as a result, rooted in maritime law. The defendants’ application was dismissed.

Orders for Sale Pendente Lite: The Plaintiff’s Application Dismissed

With regard to the order for sale pendente lite, the Court noted that,under the British Columbia Supreme Court Civil Rules, Rule 13-5(1) (*11) provides:

13-5 (1) If in a proceeding it appears necessary or expedient that property be sold, the court may order the sale and may order a person in possession of the property or in receipt of the rents, profits or income from it to join in the sale and transfer of the property and deliver up the possession or receipt to the purchaser or person designated by the court.

The Court, in deciding whether the Vessel should be sold, noted the Federal Court’s decision in Franklin Lumber Ltd. v. The Essington II, (Ship), (*12) at para. 53, suggested consideration of the following factors on an application for sale before trial:

  1. The value of the vessel compared with the amount of the claim;
  2. Whether there is an arguable defence;
  3. Can the owner carry on: is it reasonable to assume that there must be a sale of the vessel at some point;
  4. Whether there will be any diminution in the value of the vessel or of the sale price by the delay, including the cost of keeping a man or a crew aboard the vessel the cost of maintaining the vessel and the cost of insuring the vessel;
  5. Whether the vessel will depreciate by further delay;
  6. Whether there is any good reason for a sale before trial.

The Court considered, at para 40, the evidence before it and was to exercise broad discretion when determining whether a sale was necessary or expedient and, if possible, advantageous to both parties. (*13)

The plaintiff produced affidavits and photographs as proof that: (1) the Vessel was untidy, dirty, and moldy; (2) there were dents and scratches on the hull; (3) the dinghy was partially deflated, and (4) there was maritime growth below the waterline. The defendants, in turn, relied upon opposing affidavits, which testified that there was no serious deterioration and that the plaintiffs’ complaints were: (1) largely about cosmetic matters; (2) were minor; and (3) could be remedied at a modest cost.

The Court also found that there had been no appraisal of the Vessel and, although an appraisal may not be an absolute requirement on an application for sale, the lack of an appraisal made it more difficult for the applicant plaintiff to establish: (1) that the value of his claim was close to the value of the Vessel; and (2) that there had been serious deterioration and diminution of value since the Vessel was arrested. The Court accepted the defendants’ submission that the Vessel’s condition was not seriously deteriorating and that the deficiencies noted were minor and merely cosmetic.

The Court further found that the defendants had an arguable defence to the claim, although the relative strength of the two positions could only be determined following a trial.

Ultimately, in all the circumstances, the Court was not satisfied that an order for sale of the Vessel pendente lite was necessary or expedient at that time and denied the plaintiff’s request.

The Court dismissed both applications, awarding no costs to either party.

Kim E. Stoll

(*1)  Oscar Avina v The Owners and All Others interested in the Ship “Sea Senor” et al 2016 BCSC 749
(*2) A ship may also be subject to a Mareva Injunction order where a party’s assets are frozen within the subject jurisdiction. Further, a judgment debtors’ ship can be seized and sold as an asset of that judgment debtor’s to satisfy any outstanding debts.
(*3) Rule 22(1) of the Federal Court Act R.S.C 1985, c.F-7); 2002 c.8. s.14
(*4) Letters of Undertaking are not technically sufficient under the Canadian Federal Rules of Court, but are routinely negotiated.
(*5) [1997] 2 S.C.R 617
(*6) See Justice Lafreniere’s decision in Offshore Interiors Inc. v Worldspan Marine Inc. (*5)2014 FC 625
(*7) The defendants argued that their was a conditional sales agreement and sought declarations relating to their alleged entitlement under the province’s PPSA, S. 59(2) to dispose of the Vessel and to waive the necessity of notice in this regard. The Court found that the critical facts in dispute had to be resolved before the issue could be addressed.
(*8) See Quebec North Shore Paper Co. v. Canadian Pacific Ltd., 1976 CanLII 10 (SCC), [1977] 2 S.C.R. 1054, and in McNamara Construction (Western) Ltd. v. The Queen, 1977 CanLII 13 (SCC), [1977] 2 S.C.R. 654
(*9) , 1986 CanLII 91 (SCC), [1986] 1 S.C.R. 75 at page 766
(*10) [2012] F.C.J. No. 1120 at para. 35. It should be noted that this case was argued by Rui Fernandes.
(*11) The equivalent in the Federal Court Rules is Rule 490 (1).  “On motion, the Court may order, in respect of property under arrest, that… (f) where the property  is deteriorating, it be sold forthwith.”
(*12) 2005 FC 95 (CanLII). See also Brotchie v Karey T (The) [1994] F.C.J No. 1266.
(*13) See Moody Estate, 2008 BCSC 786 (CanLII), at paras. 18 to 27. See also the foundational case of The “Myrto” [1977] 2 Lloyd’s Rep. 243 at p. 260 where the court therein  that the court must have a good reason for ordering the sale pendente lite.

4. The Gig Economy – Blurring The Lines

A gig economy has been defined as “an environment in which temporary positions are common and organizations contract with independent workers for short-term engagements.” (*1)

The phrase “gig economy” was coined in early 2009, when the unemployed made a living by gigging, or working several part-time jobs, wherever they could.(*2)

It is predicted that by 2020, 40 percent of American workers will be independent contractors. As a result of the digital age, workers are increasingly mobile and cab work can from anywhere. As a result “freelancers can select among temporary jobs and projects around the world, while employers can select the best individuals for specific projects from a larger pool than that available in any given area.” (*3)

The gig economy is also spawning a host of new commercial activity. Individuals and small companies sell every product imaginable online. It is capitalism in its original form and has commented as follows:

This explosion of small-scale entrepreneurship might make one wonder whether we are returning to the economy of the 18th century, described by the economist Adam Smith in his book An Inquiry Into the Nature and Causes of the Wealth of Nations. The economy Smith described was a genuine market economy of individuals engaging in commerce with one another. Over the following two centuries, however, the emergence of mass production and distribution yielded modern corporations. The entrepreneurs of Smith’s time gave way to the salaried employees of the 20th century. (*4)

In addition to direct online selling of services and products, freelancers also utilize peer to peer exchange platforms. The rise of companies such as Uber and Airbnb has meant more and more people have started to work in the gig economy. Students with a car can utilize the Uber platform to make money in between classes. Retired person can occasionally let out spare rooms on the Airbnb platform. Prior to computers, GPS enabled smartphones and tablets, such activity was likely not to take place. Providers to the gig economy don’t have to commit to full days of work. A mom can pick up her kids from school (and then switch to being an Uber driver). In the gig economy, the lines between personal and professional become increasingly blurred.

The dark side of the gig economy is that the same issues faced by traditional temporary employees continues to exist. Workers do not get health benefits, paid vacation time, pensions or other safety net provisions such as unemployment insurance.

This past year has also seen some actions against the gig economy. Uber faces a class action lawsuit in California by its drivers. The complaint alleges that Uber misclassified drivers as independent contractors, failed to pay overtime wages and compensation, owes expense reimbursement, and didn’t turn over gratuities. (*5) Some technology companies are starting to convert their work forces from contractors to full-time employees. Others companies are offering gig workers more perks. Lyft offers a retirement savings programme for drivers with retirement benefits provider Honest Dollar. Oliver Hsiang, Lyft’s Vice President of Partnerships, said in a press release, “We’re excited to partner with Honest Dollar to help drivers achieve these goals. This first-of-its-kind product is designed to meet the unique needs of independent contractors through access to financial planning and investment tools.”(*6)

The line between gigs and fixed salary “real jobs” is getting increasingly blurred.

Rui M. Fernandes 
Follow Rui M. Fernandes on Twitter @RuiMFernandes and on Linkedin. See also his blog at http://transportlaw.blogspot.ca

(*1) http://whatis.techtarget.com/definition/gig-economy
(*2) http:/ft.com – Leslie Hook, December 29, 2015
(*3) Ibid
(*4) http://www.theguardian.com/commentisfree/2015/jul/26/will-we-get-by-gig-economy
(*5) The determination of whether an individual is a dependent or independent contractor has a number of legal ramifications. See the Fernandes Hearn LLP newsletter article on this topic – November 2015.
(*6) http://www.businesswire.com/news/home/20151119006638/en/Honest-Dollar-Delivers-1099-Savings-Plan-Lyft

5. “Virtual Airline” Needs No Licence

On March 29 2016 the Canadian Transportation Agency released its decision (*1) as to whether a reseller, NewLeaf Travel Company Inc. (“NewLeaf”), was operating an air service and  was required to have a license pursuant to section 57(a) of the Canada Transportation Act, S.C. 1996 (“CTA”).

A “reseller” is a person who does not operate aircraft and who purchases the seating capacity of an air carrier and subsequently resells those seats, in its own right, to the public. NewLeaf Travel Company Inc. was selling tickets to the public and using Flair Airlines Ltd. (who holds an air operator’s certificate) aircraft and crew.

Paragraph 57(a) of the CTA states that “no person shall operate an air service unless, in respect of that service, the person holds a licence issued under this Part.” The Agency summarized the law on interpretation set out by the Supreme Court of Canada:

In interpreting the expression “operate an air service,” the words are to be read in their entire context and in their grammatical and ordinary sense, harmoniously with the scheme of the legislation, the object of the legislation, and the intention of Parliament (Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 SCR 27 at para. 21).(*2)

The Agency found that after having carefully considered the wording of the CTA and the Air Transportation Regulations, SOR/88-58, the CTA’s underlying public policy purposes, and the submissions received during the consultation period, the most reasonable interpretation of what it means to operate an air service does not capture resellers, as long as they do not hold themselves out to the public as an air carrier operating an air service.

The Agency arrived at this decision after reviewing a number of prior decisions including two decisions involving Greyhound and after its own internal review.

In 1996, the CTA’s licensing parameters were tested when Greyhound Lines of Canada Ltd. (“Greyhound”) proposed to market and sell air services, on its own behalf, while entering into a contract with Kelowna Flightcraft Air Charter Ltd. (“Kelowna Flightcraft”) to operate the aircraft. The Agency, in Decision No. 232-A-1996 and Decision No. 292-A-1996, determined that Greyhound would operate the air service and, therefore, required a licence. The Agency arrived at its determination on the basis that the person that had commercial control over the sale of the air service was required to hold the licence, irrespective of whether they operated aircraft.

Greyhound and Kelowna Flightcraft petitioned the Governor in Council (“GIC”) to reverse the Agency’s decisions. The GIC, on the recommendation of the Minister of Transport, determined that Greyhound Canada Transportation Corp., a successor corporation to Greyhound, would not be operating the air service (Order-in-Council No. P.C. 1996-849). The GIC, however, placed a number of conditions on its decision, including that Greyhound Canada Transportation Corp. inform all prospective purchasers of the air services that Kelowna Flightcraft would be providing the air service.

In 2014, the Agency initiated an internal review of whether resellers are “operating air services” and are therefore required to hold a licence. The Agency subsequently became aware of NewLeaf’s plan to market and sell air services, while not operating aircraft, and in August 2015, initiated an inquiry, pursuant to section 81 of the CTA, into whether NewLeaf would be operating an air service and therefore would be required to hold a licence. The Agency decided to complete its review of whether resellers were required to hold a licence as part of this inquiry, and also decided to hold public consultations on the matter.

It is interesting to note that after this decision was released on March 29th, 2016 NewLeaf issued a press release the day after, stating:

NewLeaf Travel Company initially launched its website and began selling tickets to seven Canadian destinations on January 6, 2016. The Canadian public’s response to NewLeaf’s launch of low cost airfares for those destinations was overwhelming, and reinforces the fact that Canada needs, and can support, an ultra low cost unbundled travel option that creates competition in air travel.

“We want to thank the thousands of Canadians across the country who have expressed their support, especially those who have gone above and beyond by signing our petition and writing letters to the Minister of Transport. This backing shows that Canadian travellers truly desire an ultra low-cost air service option which NewLeaf, in conjunction with Flair Airlines, will provide. We are energized by the results of the review, and look forward to the bright future that lies ahead for NewLeaf and the Canadian travelling public,” said [Chief Executive Officer] Young.

The Agency warned resellers to not hold themselves out to the public as air carriers, stating (*3):

While the Agency finds that, on balance, the most reasonable interpretation of the statutory licensing provisions and their underlying objectives is that resellers are not operating air services and therefore, are not required to hold a licence, this will only be the case as long as those resellers do not hold themselves out to the public as an air carrier operating an air service. The Agency finds that if they choose to do so, resellers would be operating an air service and would be required to hold a licence, thereby ensuring that the consumer protection purposes of the legislation are not undermined.

In determining whether a person is holding themselves out as an air carrier operating an air service, the Agency will consider whether the person promotes themselves as an air carrier, including providing images of aircraft with their livery and using business name(s) and words/phrases that create the impression that they are an air carrier.

Lack of clear disclosure on its Web site, marketing material, and on tickets it issues of the identity of the operating air carrier would be indicative of the reseller holding itself out as an air carrier operating the air service. Web sites and marketing materials that use business names (e.g., “air”, “air lines”, “airlines” “airways”, “aviation”, “fly”, “jet”, or “sky”) or phrases and words (e.g., “our fleet of aircraft”, “our crew”, “we fly”) that convey that the reseller is an air carrier operating the air service would also be indicative of holding oneself out as operating an air service. In contrast, clearly identifying the air carrier that will operate the air service, that the reseller’s role is limited to reselling the air carrier’s capacity, and that the air carrier’s tariff’s terms and conditions apply to the flight would not be indicative of a person holding themselves out as an air carrier operating an air service.

The Agency notes that a passive approach by the reseller that neither clarifies nor refutes any impression by the public that the reseller is an air carrier operating an air service could also be indicative of the reseller holding itself out as an air carrier operating an air service. The public should be clearly informed about whether they are contracting and dealing with the operator of the air service so that they can assess any risk and make informed decisions.

As of the time this article was written the NewLeaf service (and website) is up and running. It is interesting to note that the website now states “Flights operated by Flair Airlines Ltd.” Presumably this is to ensure that it meets the Agency requirements set out above.

It is also interesting to note that on June 9th the Federal Court of Appeal issued its decision in Lukacs v. Canadian Transportation Agency and Newleaf Travel Company Inc.  [2016 FCA 174]. Dr. Lukacs is a well known air passenger rights advocate. Dr. Lukacs needed leave of the Federal Court of Appeal to appeal the decision of the CTA. On June 9th the Federal Court of Appeal granted Dr. Lukacs leave. The Court of Appeal noted that Dr. Lukacs participated in the consultation before the Agency undertaken with respect to the change in the interpretation of the licencing requirements applicable to domestic resellers of air service. This was sufficient to afford him standing to launch the appeal. The Court also found that he would possess standing as a public interest litigant. The test for public interest standing involves consideration of three inter-related factors: first, whether there is a justiciable issue, second, whether the individual seeking standing has a genuine interest in the issue, and, third, whether the proposed proceeding is a reasonable and effective way to bring the matter before the courts. The Court ordered the appeal to proceed on an expedited basis. We expect to see a decision within the next six months.

Rui M. Fernandes 
Follow Rui M. Fernandes on Twitter @RuiMFernandes and on Linkedin. See also his blog at http://transportlaw.blogspot.ca

(*1) Decision 100-A-2016.
(*2) Ibid, at para. 25.
(*3) Ibid, at paras. 42-45.

6. Air Canada Overhaul Litigation: Supreme Court Hearing Delayed and Likely Averted

The Quebec Court of Appeal dismissed an appeal brought by WestJet with respect to a decision of the province’s Superior Court, which had refused to circumvent a certified class action against the airline on the basis of jurisdiction.

The class action is one of the various proceedings claiming damages in the aftermath of the widely publicized 2008 decision of the Canadian Transportation Agency (« CTA ») that the industry standard « one seat-one price» basis for charging passengers was an undue obstacle to access to air transportation for obese and disabled persons requiring more than one seat.

WestJet argued that the provincial courts should cede jurisdiction in favour of the CTA to decide claims against the airline either as a matter of law or as a matter of deference to the CTA’s expertise in the field. The Court of Appeal upheld the judge of first instance’s decision that the plaintiffs were entitled to proceed in the Quebec Superior Court.

La Cour d’appel du Québec a rejeté un pourvoi formé par Westjet, le deuxième transporteur aérien canadien, qui contestait une décision de la Cour supérieure du Québec ayant rejeté sa requête en exception déclinatoire.

Cette action constitue un recours collectif déjà certifié par la Cour supérieure du Québec (*1). La partie demanderesse réclame une indemnité pour le prétendu préjudice résultant de la politique tarifaire de WestJet. Historiquement WestJet, comme son concurrent domestique Air Canada, a appliqué la politique d’un siège-un tarif (« politique 1S1T »). En application de celle-ci, lorsqu’un passager avait besoin de plusieurs sièges, soit en raison de son obésité, soit en raison d’un handicap nécessitant la présence d’un accompagnateur et/ou d’un siège supplémentaire, le passager était tenu de payer le tarif multiplié par le nombre de sièges requis.

En 2008, l’Office des transports du Canada (« l’Office ») avait dénoncé cette politique sur le marché interne en décidant que les compagnies aériennes ne pouvaient exiger des frais supplémentaires pour les sièges additionnels fournis aux personnes ayant une déficience physique (*2). L’Office a déclaré que les transporteurs en cause —WestJet, Air Canada et Air Canada Jazz — devaient prendre des mesures correctives pour éliminer cet obstacle au déplacement à travers le Canada des personnes ayant une déficience. Par conséquent, les transporteurs ont adopté une politique d’un passager-un tarif (« politique 1P1T »), éliminant ainsi les charges supplémentaires pour les sièges additionnels fournis en raison d’une déficience chez un passager.

Le champ d’application de cette décision était explicitement limité aux vols internes. En 2015, l’Office a refusé d’étendre l’application de sa décision aux vols transfrontaliers et internationaux (*3). Selon l’Office, le contexte international présente des paramètres additionnels tels que les lois et règlements internationaux, les accords bilatéraux et les alliances et autres accords commerciaux entre les transporteurs qui devraient être pris en considération par l’Office dans le cadre de sa réflexion sur l’application de la politique 1P1T aux vols internationaux.

Suite à la décision de l’Office en 2008, des actions collectives ont été initiées  à travers le Canada aux fins de réclamer une indemnisation monétaire pour les passagers ayant été préjudiciés par la politique 1S1T. En 2013, Mme Chabot a été certifiée comme représentant pour instituer un tel recours collectif à l’encontre de WestJet au nom de tous les résidents du Québec ayant payé des frais additionnels au bénéfice de WestJet en application de la politique 1S1T.

WestJet a déposé devant la Cour supérieure une requête en exception déclinatoire par laquelle elle a contesté la juridiction rationae materiae de la Cour supérieure au profit de celle de l’Office. Cette requête a été rejetée par le juge de première instance (*4). WestJet a formé un pourvoi à l’encontre de cette décision.

La juridiction matérielle de la Cour supérieure

La Cour d’appel a d’abord considéré si le recours collectif visait une adjudication des droits ou la réglementation des tarifs de la partie demanderesse, cette dernière ne relevant pas de la juridiction de la Cour en l’absence d’une disposition législative expresse. Hogue J.C.A. pour la Cour d’appel a conclu que l’action se fondait essentiellement sur la réclamation d’une indemnité pour un préjudice et que, par conséquent,  les cours de droit commun avaient une juridiction prima facie.

La Cour d’appel a ensuite considéré l’argument de WestJet selon lequel la Loi sur les transports au Canada (« la Loi ») (*5) aurait implicitement confié une juridiction exclusive à l’Office pour régler ce différend. Selon une jurisprudence constante de la Cour Suprême, deux conditions doivent être satisfaites pour que la compétence des cours de droit commun soit restreinte au profit d’un autre tribunal: une disposition législative expresse, et l’attribution exclusive à un autre tribunal (*6). Ces exigences n’ont pas été assouplies au cours des années et elles n’étaient pas réunies en l’espèce. La Loi ne confère pas une juridiction exclusive à l’Office, le recours est par conséquent admissible devant les cours du droit commun.

Le déclin discrétionnaire

WestJet a subsidiairement argué que même si le législateur n’a pas privé la Cour supérieure de sa compétence pour juger du différend entre les parties, le juge de première instance aurait néanmoins dû accueillir sa requête eu égard, d’une part, à la compétence exclusive de l’Office pour déterminer si les politiques des transporteurs constituent un obstacle au déplacement et, d’autre part, à la plainte alors pendante devant l’Office concernant l’application de la politique 1P1T aux vols transfrontaliers et internationaux.

Il existe des circonstances pouvant justifier un déclin de sa juridiction par la Cour supérieure en faveur d’un tribunal spécialisé ayant une juridiction concurrente, tel n’était cependant pas le cas en l’espèce. Le recours collectif vise une indemnisation monétaire pour les membres de la classe. En 2008, l’Office n’a pas ordonné le remboursement aux passagers des frais déjà payés comme mesure réparatrice bien que cette possibilité soit prévue au paragraphe 172 (3) de la Loi. En outre, l’Office ne peut pas accorder des dommages moraux ni exemplaires tels que réclamés dans l’action collective. C’est donc à juste titre que la Cour supérieure avait refusé de décliner sa juridiction au profit d’un tribunal dépourvu de la juridiction d’octroyer une partie de la réparation réclamée par la partie demanderesse.

Une décision préalable de l’Office

Selon WestJet, la cour ne pouvait accorder des dommages aux passagers affectés par la politique 1S1T avant que l’Office n’ait déterminé si cette politique représente un obstacle aux déplacements dans les sphères transfrontalières et internationales. Par une décision adoptée unanimement par la Cour, Hogue J.C.A. a écarté cet argument. L’action instituée par la partie demanderesse est basée sur la responsabilité contractuelle de WestJet, et l’examen par la cour de la prétendue faute contractuelle du transporteur se distingue de la notion d’un obstacle au transport des personnes handicapées qui serait en cause devant l’Office. Par conséquent, la Cour supérieure ne devait pas suspendre le recours devant elle en attente d’une décision de l’Office.

L’action se poursuivra alors devant la Cour supérieure.

Mark Glynn

(*1) Chabot c. WestJet 2013 QCCS 5297
(*2) Décision OTC n° 6-AT-A-2008
(*3) Chabot c. WestJet 2013 QCCS 5297
(*4) Chabot c. WestJet 2015 QCCS 2288
(*5) Décision OTC n° 324-AT-A-2015
(*6) Fortier c. Longchamps [1942] R.C.S. 240, Succession Ordon c. Grail [1998] 3 R.C.S. 437

7. Can Individual Employees of Insurance Brokers be Found Personally Liable to Clients?

The Superior Court of Justice recently released its decision on a motion brought by the Defendants in Regal Windows & Doors Systems Inc. et al v Marsh Canada Limited et al. (*1) The Defendants brought a motion for an order striking out, without leave to amend, the Statement of Claim as against the three employees of Marsh Canada Limited (the “Broker”) who were named as individual defendants in the lawsuit.

The Court decided that the Statement of Claim, as it was currently drafted, was completely devoid of any factual allegations against the individual defendants to substantiate a reasonable cause of action. However, it noted that the Plaintiffs may have a facts that they have not yet pleaded. On that basis, the Court granted permission to the Plaintiffs to amend their Statement of Claim to plead facts that could sustain a viable claim against the individual defendants personally.


The Plaintiffs obtained a commercial insurance policy (the “Policy”) through the Broker with Intact Insurance Company (the “Insurer”) with respect to certain premises in London, Ontario. A theft and/or vandalism occurred on the premises resulting in significant damages.

The Plaintiffs claimed those damages from the Insurer, who denied coverage due to numerous breaches of the terms of the Policy. The Plaintiffs then started this action against the Broker and the individual defendants for breach of contract, negligence and breach of fiduciary duty and/or professional duty. The Plaintiffs also started a separate action against the Insurer.

Positions of the Parties

The Plaintiffs argued that the allegations made in their Statement of Claim revealed a valid cause of action as against the individual defendants. They further stated that if the Court should find that the claims against the individual defendants should be struck, then the Plaintiffs should be given the chance to amend their claim to better plead a cause of action.

The Defendants stated that the Plaintiffs did not plead a cause of action against the individual defendants. They argued that at all material times, the individual defendants were employees of the Broker and their actions with respect to obtaining and renewing the Policy were performed in their capacity as employees.  The Defendants argued that there were no allegations put forth by the Plaintiffs that (i) the actions of the individual defendants were outside of the scope of their employment; or (ii) that the individual defendants had a relationship with the Plaintiffs that would give rise to a duty of care. The Broker also admitted vicarious liability for the conduct of the individual defendants.

The individual defendants also stated that the Court should infer that the Plaintiffs have no factual basis to make any allegations against them as the Plaintiffs did not attempt to amend their Statement of Claim at any time during the three months of notice that they had of the individual defendants’ intent to bring this motion.

Reasoning of the Court

The Rules of Civil Procedure permit a party to request the judge’s permission to strike out a pleading on the ground that it discloses no reasonable cause of action. (*2) The Court stated that to strike out a pleading, it must be “plain and obvious” that the Statement of Claim is “devoid of material facts that are sufficient to establish a reasonable cause of action.” (*3)

The Court noted that the Plaintiffs needed to plead sufficient facts that the individual defendants owed a duty to the Plaintiffs beyond their actions as employees as well as facts to establish personal liability as against the individual defendants. (*4)

The Court relied on the decision of the Ontario Court of Appeal in Montreal Trust Co. of Canada v ScotciaMcLeod (*5) where it was stated that:

“The decided cases in which the employees and officers of companies have been found personally liable for actions carried out under a corporate name are fact-specific. In the absence of findings of fraud, deceit, dishonestly, or want of authority on the part of the employees or officers, they are also rare…In every case, however, the facts giving rise to personal liability were specifically pleaded. Absent allegations which fit within the categories above, officers or employees of limited companies are protected from personal liability unless it can be shown that their actions are themselves tortious or exhibit a separate identity or interest from that of the company so as to make the act or conduct complained of their own.”

However, the Court also noted that the striking of pleadings should be exercised with “great care and reluctance”. (*6)

The Court reviewed the Statement of Claim and found that no allegations were made specifically against the individual defendants as to fraud, deceit, dishonesty or want of authority. Additionally, no allegations indicated that the individual defendants had a relationship with the Plaintiffs that formed the basis of a duty owed by the former to the latter. None of the allegations took the individual defendants outside of their role as employees of the Broker and the Statement of Claim actually made it clear that they were employed by the Broker as licensed insurance agents.

The Court reinforced the principle that it is not sufficient to simply add the individual employees’ name with every claim made against a corporate defendant. The Plaintiffs needed to set out specific allegations that separated the actions of the individual defendants from those of the Broker or plead how they owed a duty to the Plaintiffs.

On that basis, the Court found that the Plaintiffs failed to substantiate a reasonable cause of action as against the individual defendants.

However, the Court still had to address whether the Plaintiffs could amend their Statement of Claim. The individual defendants argued that the Broker, in its Statement of Defence, takes responsibility for the individual defendants on the basis of vicarious liability. On the other hand, the Plaintiffs argued that not to allow them to amend their claim would cause them irreparable prejudice since they may have facts that support a cause of action.

The Court recognized that the Broker admitted that it is vicariously liable for the conduct of the individual defendants. Yet, the Court stated that it should be “cautious to prevent a plaintiff to make a factually supportable cause of action.” (*7)

Ultimately, the Court decided to grant the Plaintiffs permission to amend their Statement of Claim to plead facts that can sustain a viable claim against the individual defendants.


Although this case does not make a formal decision on liability of the employees of the Broker, it highlights the circumstances under which employees should take caution. They should avoid acting outside the scope of their employment duties or creating a relationship with clients where clients are relying on them to a point which could be construed as creating a duty of care to the clients. Employees should also avoid situations where clients could try to claim that they have actual fraudulently, dishonestly, with deceit, or outside of their authority. This decision suggests that in any of these circumstances, there is a possibility that individual employees of a broker could be found personally liable to clients.

This decision also highlights the reluctance of the Court to strike a plaintiff’s claim for lack of factual support for a cause of action, without first giving the plaintiff the opportunity to first amend their claim. It will be interesting to follow this case to see if the Court will make a finding with regard to specific circumstances where employees of a broker could be found liable in their personal capacity.

Jaclyne Reive

Twitter: @jaclyne_reive 
Blog: https://jaclynereive.wordpress.com

(*1) 2016 ONSC 4040 [hereinafter, “Regal Windows”].
(*2) RRO 1990, Reg. 194, Rule 21.01(b).
(*3) Regal Windows, at 10.
(*4) Ibid., at 12.
(*5) 1995 CarswellOnt 1203, [1995] OJ No. 3556 (ONCA) at 25.
(*6) Regal Windows, at 14.
(*7) Ibid., at 29.

8. The Defence of Inherent Vice: A Case Study

At law, carriers have an obligation to deliver the shipments that they are entrusted with in the same condition as when they were received. However, they are not automatically liable for any kind of damages occurring to shipments while in transit and in their care, control and custody. For example, carriers are not liable for damages caused by an inherent vice of the shipment. In Société d’assurances générales Northbridge v. Garage Marcel Simard Inc., (*1), the Quebec Superior Court recently had to rule on the application of the inherent vice defence.

1. The Facts

In this case, a corporation called Pro-Combustion Inc., insured by Société d’assurances générales Northbridge, was at all material times specialized in the supply of mobile heating devices to commercial and industrial clients. On or about November of 2010, the services of Pro-Combustion Inc. were retained to supply and deliver a boiler to an entity located in Chibougameau, Québec.

To fulfill its contract, Pro-Combustion Inc. retained the services of the defendant Garage Marcel Simard Inc. to pick up the boiler already loaded on a trailer belonging to Pro-Combustion Inc. and to deliver it to its client located in Chibougameau, Québec. Few days later, an employee of the defendant picked up the trailer on which was loaded the boiler and attached it to its tractor using a whell lift and a chain system. While attaching the trailer to its tractor, the defendant’s employee noticed some rust on the trailer but did not think much of it other than it was normal for a trailer that spends most of its time outside to be rusted.

While in transit on the highway, a metal platform being part of the trailer’s structure split up causing the trailer to detach from the defendant’s tractor and to rollover in a nearby ditch.  The boiler was completely destroyed and the trailer suffered extensive damages as a result of this accident. The plaintiff Société d’assurances générales Northbridge indemnified its insured pursuant to terms of its policy and brought a subrogated action against the defendant Garage Marcel Simard Inc. before the Quebec Superior Court (N.B. Subrogated claims are brought in the insurer’s name in Quebec). The defendant denied all liability based namely on the fact that the loss was the result of an inherent vice of the trailer provided by Pro-Combustion Inc.

2. The Legal Issue

In its ruling, the Quebec Superior Court had to determine whether or not the defendant Garage Marcel Simard Inc. was entitled to deny liability for the damages to the boiler and the trailer based on the fact that those damages resulted from an inherent vice of the trailer.

3. The Law

Pursuant to section 2049 of the Quebec Civil Code, carriers are not liable for damages to goods in their care, control and custody arising out of an inherent defect:

“2049. The carrier is bound to carry the property to its destination.

He is bound to make reparation for injury resulting from carriage, unless he proves that the loss was caused by superior force, an inherent defect in the property or natural shrinkage.” [Emphasis Added]

4. The Ruling

The Quebec Superior Court held that the damages suffered by Pro-Combustion Inc. had been directly caused by an inherent vice of the trailer for which the defendant Garage Marcel Simard Inc. was not liable.

In its ruling the Quebec Superior Court found that there was uncontradicted evidence that the failure of the trailer’s metal platform was the sole cause of the Pro-Combustion Inc.’s damages. Accordingly, the Court found that the defendant Garage Marcel Simard Inc. was not liable for this loss pursuant to section 2049 of the Quebec Civil Code.

Finally, the Court addressed the plaintiff’s argument that the defendant carrier could not rely on the exclusion of liability found at section 2049 of the Quebec Civil Code since it was aware of the existence of the trailer’s inherent vice, i.e. the rust, prior to picking up the boiler. The Court noted that it was doubtful that specific knowledge of an inherent vice to a shipment by a carrier was sufficient to deprive the carrier from the exclusion of liability found at section 2049 of the Quebec Civil Code. In any event, the Court found that it could not be presumed that a carrier is aware of an inherent vice just because one of its employees, with no real expertise in metallurgy, had noticed some rust on a trailer to be picked up for carriage.

Accordingly, the claim by the plaintiff Société d’assurances générales Northbridge was dismissed.

David Huard

*1 Société d’assurances générales Northbridge c. Garage Marcel Simard Inc., 2015 QCCS 4959 (CanLII).

9. Global Law Update

A.         U.S.A. – Marine Insurance

On May 20, 2016, the United States Court of Appeals for the Second Circuit affirmed a decision of the Southern District of New York in Fireman’s Insurance v. Great American Insurance, No. 14-cv-1346, holding that under the doctrine of uberrimae fidei, as well as Mississippi Common law, an insurance contract is void ab initio if the insured is found guilty of misrepresenting material facts which a prudent and reasonable insurance underwriter would have otherwise taken into consideration when determining whether to issue a policy.

The case involved a marine construction firm Signal International LLC (“Signal”). Signal had insured a dry dock it owned in Texas. Signal failed to disclose material information regarding the poor condition of the dock. It had also ignored several recommendations for the dock’s repair. Signal obtained pollution and excess property insurance from Great American Insurance and Max Specialty Insurance Company. The dock thereafter sank. Great American Insurance and Max Specialty Insurance Company argued their policies did not cover the costs of removing the dock from the site and for cleaning up the site.

The court allowed Insurance and Max Specialty Insurance Company to void the policy ab initio for Signal misrepresenting the condition of the dock.

B.         U.K. – Interpretation of Letter of Undertaking in Arrest Proceedings

The issue in this case(*1) was whether the claimant owners could apply to the court to require the defendant P&I club to increase the level of security available under a letter of undertaking issued by the club to the owners. The owners pleaded that the use of the words “liberty to apply” in the LOU meant that the court had power to make such a requirement. The club pleaded that the court had no such power. The parties each issued summary judgment applications against the other, and it was common ground that the case raises a question of construction and law suitable for disposition on a summary basis.

The clause in question provided:

“It is agreed that both Charterers and Owners shall have liberty to apply if and to the extent the Security Sum is reasonably deemed to be excessive or insufficient to adequately secure Owner’s reasonable Claims.

The case arose out of an incident in the Indonesian port of Padang on 9 October 2013 in which the chemical tanker, “FSL NEW YORK” was damaged during loading, and there was an escape of cargo. At the time, the vessel was on charter to ICOF Ship Chartering Pte Ltd. Both owners and charterers asserted claims against each other, owners threatening to arrest vessels owned by the group of which charterers are part.

The defendant P&I club, Norwegian Hull Club, of which charterers are members, provided owners with an LOU in the sum of US$3,500,000.

The Court held that:

In the context of disputes which may lead to the arrest of a vessel, a letter of undertaking issued by a P&I club is a convenient means of providing alternative security, and such letters are widely accepted internationally as such … The letter is issued at the request of a member of the club to the party making a claim, but issue is a matter of discretion, and there is no obligation on the club to do so … The purpose is to place the claiming party in no less a favourable position than if it had begun an action in rem and arrested the vessel… Subject to its particular terms, such an instrument will be treated as giving rise to a primary obligation undertaken by the issuer analogous to a bank guarantee … In that case, the special principles of construction applicable to contracts of suretyship will not apply, since these are premised on the surety’s secondary liability. Letters of undertaking should be construed as commercial contracts having regard to their commercial purpose.

The Court applied the interpretation that “is consistent with business common sense.” Of course, the parties took diametrically different positions as to what constituted business common sense. The Court then proceeded to weigh different factors in the LOU in the interpretation.

The Court held that the “liberty to apply” in the letter of undertaking did not give owners the right to apply to the court to require the defendant P&I club to increase the amount of its undertaking. The Court accepted the club’s construction that this provision enables owners to arrest charterers’ assets if the security provided proves to be inadequate, and notwithstanding the prohibition against arrest or re-arrest provided for earlier in the instrument. The right to enforce an increase in the amount of the security lay against the charterers, and not against the P&I club direct.

C.         U.S. – Limitation of Liability Applies to Passenger in Recreational Vessel

In a recent decision of the United States Court of Appeals for the Second District a vessel owner was entitled to bring a limitation action for injuries sustained by a passenger while diving off a recreational vessel when it was anchored in shallow navigable waters in Lake Oneida.(*2)

The owner of the vessel, Bruce Germain, and four others (including the complainant) had left Brewerton New York on the shore of Lake Oneida for an excursion on Mr. Germain’s 38 foot motor boat. Lake Oneida is connected to and part of the New York State Erie Canal System. Using the federal shipping lane, the five headed to the shallow Three Mile Bay, a popular spot for recreational swimming. The bay was less than a nautical mile from the shipping lane. On anchoring, the bay was already crowded with other boats. Later, as they were preparing to leave, the claimant back flipped off the port side of the vessel into the water striking his head on the lake floor. The complainant suffered a serious spinal cord injury.

At issue was whether a recreational injury occurring on a recreational vessel anchored in a shallow recreational bay of navigable waters could meet the test the Supreme Court had set out in 1972 for admiralty jurisdiction. In addition the Court of Appeal had to consider whether the matter met the “modern test” for admiralty tort jurisdiction: Could the activity disrupt maritime commerce and did it bear sufficient relationship to traditional maritime activity?

The Court of Appeals articulated the Supreme Court’s instruction that “ordinarily” “every tort involving a vessel on navigable waters falls within the scope of admiralty jurisdiction.” Jerome B. Grubart Inc. v. Great Lakes Dredge & Dock Co. 513 U.S. 527, 543 (1995). The Appeals Court reviewed the history of admiralty jurisdiction and the “modern test” and found that a passenger who jumped from a vessel onto open navigable waters has a “more than fanciful potential to disrupt maritime commerce.”  In addition, the Second Circuit stated that Germain’s maritime activity was the transport and care of passengers onboard of a vessel on navigable waters, which constituted a substantial relationship to traditional maritime activity.

Rui M. Fernandes 
Follow Rui M. Fernandes on Twitter @RuiMFernandes and on Linkedin. See also his blog at http://transportlaw.blogspot.ca

(*1) FSL-9 Pte Limited and Northern Tankers v. Norwegian Hull Club [2016] EWHC 1091 (Comm.)
(*2) In Re Petition of Bruce Germain 15-665 issued June 1, 2016.

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