Newsletter > August 2017View/Download this newsletter in PDF
In this issue: 1. News & Upcoming Events 2. Phishing Fraudulent Wire Transfer Not Covered by Insurance 3. Obstructive Docks 4. False Exculpatory Statements 5. Forum Selection Clauses in Contracts 6. Loss of Amenity of Vacation Not Compensable from Air Carrier
1. News & Upcoming Events
- The 12th edition of Best Lawyers in Canada (2018) has just been released. Rui Fernandes and Gordon Hearn have been listed for Maritime Law and Transportation Law, Kim Stoll has been listed for Maritime Law, Louis Amato-Gauci has been listed for Aviation Law and Transportation Law. Louis Amato-Gauci was named Transportion Law “Lawyer of the Year” in Toronto, Ontario.
- Comite Maritime International Assembly, September 7-8, 2017, Genoa Italy.
- Canadian International Freight Forwarders Association Golf Day, September 14th, 2017, Toronto.
- Ontario Trucking Association Golf Day, September 19th, 2017, Oakville Ontario.
- RIMS Canada Conference, September 24-27, 2017, Toronto.
- Canadian Ferry Association Annual Conference, September 24-26, 2017, Halifax.
- Canadian Society of Customs Brokers Annual Conference, September 24-26, 2017, St. Andrews New Brunswick.
- International Congress of Maritime Arbitrators, September 25-29, 2017, Copenhagen.
- Gordon Hearn will be speaking at the 31st Annual Conference on Transportation Innovation & Cost Savings being held September 26, 2017 in Burlington, Ontario. Gordon will be presenting a paper on “When the Broker Fails to Pay: Shipper and Consignee Liability for Freight Charges”.
- International Marine Claims Conference, September 27-29, Dublin.
- Women’s International Shipping & Trade Association Annual Conference, October 3-6, 2017, Rotterdam.
- Association of Average Adjusters of U.S. & Canada Annual Dinner, October 5, 2017, New York City.
- Canadian Transport Lawyers Association Annual Conference, October 5-7, 2017, Ottawa.
- Surface Transportation Summit, October 11th, 2017, Mississauga Ontario.
- Mare Forum USA 2017 (Maritime Transportation of Energy), October 17, 2017, Houston
- United States Maritime Law Association Annual Conference, October 18-22, Napa California.
- Fernandes Hearn LLP is one of the sponsors for the Marine & Energy Symposium of the Americas 2018 (“MESA 2018”) conference April 18-20, 2018 in Toronto. The following is the program for the conference.Where? Omni Kind Edward Hotel, Toronto CanadaWhen? 18-20 April 2018
Wednesday, April 18, 2018
6:00 – 8:00 pm Registration – Mezzanine, Omni King Edward Hotel
6:30 – 8:00 pm Opening Reception – Palm Court, Omni King Edward Hotel
8:00 pm Dinner on your own – or join us at a pre-arranged restaurant
Thursday, April 19, 2018
8:00 am to noon Registration – Mezzanine, Omni King Edward Hotel
Time Joint Session – Vanity Fair Ballroom 9:00 to 10:00 am Arctic Exploration and Shipping / The Polar Code 10:00 to 11:00 am Seabed Mining 11:00 to 11:15 Coffee Break 11:15 am to 12:15 pm Offshore Exploration and Exploitation: Liability and Compensation Issues Concurrent Session Time Session A – Vanity Fair Session B – Kensington 1:15 to 2:15 pm Application of Jurisdiction Clauses in Different Countries LNG Contracts and Transportation 2:20 to 3:20 pm Arrest of Vessels in Various Jurisdictions & Alternatives Update on HNS Convention 3:25 to 4:25 pm Issues Arising from Project Cargo Port Security and Liability Concurrent Session Session A – Vanity Fair Session B – Kensington 9:00 to 9:55 am Limitation of Liability by Statute – Conventions and in Contracts Impact of Climate Change on Shipping and Energy Projects 10:00 to 10:45 am Autonomous Ships and Equipment Cyberterrorism in Transportation and Energy Projects 10:45 to 11:00 am Coffee Coffee 11:00 to 11:45 am Roles and Risks for Forwarders in the Next Decade Pipeline Technologies, Development Issues and Litigation 11:55 am to 12:45 pm Emerging Issues in Insurance in Marine and Energy Wind Turbine Litigation
2. Phishing Fraudulent Wire Transfer Not Covered by InsuranceCyber risks are a daily threat to all business operations. Ever increasing cyber threats are the norm. Police authorities have warned about the most common cyber risk that involves fake emails. The scam is carried out by sending a fake email (phishing) targeting businesses that perform wire transfer payments. For example, an email that appears to be from a legitimate supplier’s executive is sent to an employee of the buyer’s company asking that payments of their invoices now be directed to a different bank account. Such a transfer was found not to be covered by insurance in the case of The Brick Warehouse LP v. Chubb Insurance Company of Canada, 2017 ABQB 413 (The Brick v Chubb). In August of 2010 an individual called The Brick Warehouse LP’s (the “Brick”) accounts payable department and spoke with an employee. The caller indicated he was from Toshiba and that he was missing some payment details. He indicated that he was new to Toshiba and the Brick employee, being helpful, faxed some payment documentation to a number provided by the caller. On August 20, 2010, a different individual in the Brick accounts payables department received an email from an individual with the name “R. Silbers” and an email address of email@example.com. The individual claimed to be the controller of Toshiba Canada and indicated that Toshiba had changed banks from the Bank of Montréal to the Royal Bank of Canada. It indicated all payments should be made to the new account and provided the necessary information to transfer money into the account. On August 24, 2010 a person phoned the Brick’s accounts payable department. That individual spoke to the same employee who received the August 20 email. The individual wanted to confirm the transfer of banking information. After the phone call, the employee changed Toshiba Canada’s bank information on the Brick’s payment system to reflect the Royal Bank account information. The employee followed the Brick’s standard practice on changing account information and the paperwork was reviewed by another Brick employee. Nobody from the Brick ever took any independent steps to verify the change in bank accounts. Nobody contacted the Royal Bank, and nobody contacted Toshiba. As a result of the change in banking information, payments that should have gone to Toshiba Canada were now going to the mysterious Royal Bank account. A total of ten Toshiba invoices were paid. The total amount transferred to the Royal Bank account was $338,322.22. The scam was discovered when Toshiba Canada called The Brick asking why their invoices had not been paid. The police discovered that the Royal Bank account belonged to an individual in Winnipeg who was also the victim of fraud. He had been convinced by an individual purporting to be in Dubai to receive the money as part of the business investment and then transfer some of the money to the individual in Dubai. As a result of the investigation, the Brick was able to recover $113,847.18 of the fraudulently transferred funds. The Brick made a claim to Chubb Insurance for $224,475.14. This represented the total amount transferred less the amount recovered. Chubb Insurance denied coverage. The Brick contended that its loss should be covered as it fell under the umbrella of funds transfer fraud. The policy defined funds transfer fraud as follows:
Funds transfer fraud means the fraudulent written, electronic, telegraphic, cable, teletype or telephone instructions issued to a financial institution directing such institution to transfer, pay or deliver money or securities from any account maintained by an insured at such institution without an insured’s knowledge or consent.The court referred to some U.S. decisions on the issues raised, noting at paragraph 21 and 22:
The defendant [Chubb Insurance] in this action seeks to have the court follow the decision of an American case from the United States District Court for the Central District of California, Taylor and Lieberman v Federal Insurance Company, 2:14-cv-03608, unreported. I note that Federal Insurance Company is related to Chubb Insurance. In the case, the Ninth Circuit Court of Appeals examined a case with very similar facts. Emails were sent to a company employee who then acted upon them, transferring money out of the insured’s account. The emails were fraudulent. The court held that the insurer was not liable because the Taylor and Lieberman employee requested and knew about the transfers. Although the employee did not know that the email instructions were fraudulent, the employee did know about the transfers. There are other similar pending cases in the United States. It is notable all of the decisions absolving the insurance company of liability seem to involve Chubb Insurance or one of its affiliated companies.The Brick contended that the policy provision stated that Chubb Insurance would pay for direct loss resulting from funds transfer fraud by a third-party, and that the focus should be on the fraud itself and not on the fraudulent instructions. The judge noted that, while it is true that the clause in question did state that, the clause must be examined in conjunction with the definition of fund transfer fraud contained in the contract. That definition included the words “insured’s knowledge or consent”. There was no definition in the contract of either the term “knowledge” or “consent”. There was no mention anywhere in the insurance policy of the term “informed consent”. The judge noted that if the policy contained these words, again it was unlikely that the parties would be before the court. The judge reiterated that, where a word or a term is undefined, the word should be given its “plain, ordinary and popular” meaning, “such as the average policy holder of ordinary intelligence, as well as the insurer, would attach to it.” The Court held at paragraph 25:
Even if the Brick did not consent to the funds transfer, there is still the issue of whether the transfer was done by a third party. Certainly, the emails with the fraudulent instructions were from a third party. The actual transfer instructions; however, were issued by a Brick employee. There was no one forcing the employee to issue the instructions, there were no threats of violence or other harm. The employee was simply a pawn in the fraudster’s scheme. Therefore, the transfer was not done by a third party.One of the decisions from the U.S. examined by the Court was Medidata Solutions, Inc. v. Federal Insurance Company, No. 1:15-cv-00907 (S.D.N.Y. Mar. 10, 2016) that was pending before the in New York. Employees at Medidata Solutions Inc. (“Medidata”) were deceived into transferring $4.8 million to a foreign bank account based on emails appearing to come from a Medidata executive. Federal Insurance Company insured Medidata under a crime policy providing coverage for computer fraud, forgery, and funds transfer fraud. The policy provided coverage against loss from “the unlawful taking of fraudulently induced transfer of money” resulting from “fraudulent electronic … instructions” directing a financial institution to pay funds without the knowledge or consent of the organization purportedly issuing instructions. Federal Insurance Company denied coverage stating that its policy covered involuntary transfers affected by hackers, forgers and imposters, not voluntary transfers effected by authorized signatories. Interestingly, less than a month after Brick v Chubb was rendered, the Medidata decision was handed down by the Southern District of New York (see Medidata Solutions Inc. v Federal Ins. Co, Case No 15-CV-907 (SDNY July 21, 2017). The Court in Medidata held that while the employee did knowingly carry out the transfer in this case, the Court found that the ‘funds transfer fraud’ insurance still applied. In the Court’s opinion, stealing through a trick is still stealing, and the fraudster being a step removed from the actual transfer was not sufficient to deny coverage. Cyber coverage litigation is relatively new and it remains to be seen whether the reasoning in Brick v Chubb or the Meditata decision will eventually prevail. In the meantime, companies should implement some practical steps to avoid falling victim to these scams: a) Always verify any requested changes. Contact your vendors/customers using your old contact information. b) Emails directing payment should get special attention and scrutiny. Examine email addresses closely. Beware of emails with extensions that are similar to the company email but not exactly the same. For example, “.co” instead of “.com”. c) Be wary of requests for secrecy or urgent action. d) Establish protocols for wire transfers and data privacy. Train your employees on those protocols. Rui M. Fernandes Follow Rui M. Fernandes on Twitter @RuiMFernandes and on Linkedin. See also his blog at http://transportlaw.blogspot.ca
3. Obstructive DocksThe recent decision in Day v. Valade, (*1) demonstrates the difficulty in establishing that a waterfront dock is a nuisance and affects a “neighbour’s” use and enjoyment of their property. Background The Valade and the Day families own adjacent waterfront properties on a self contained lake located near Bedford, Nova Scotia. The Days’ property was located east of the Valades’ property within a small cove. The Valades installed a seasonal wharf and dock that extended 57 feet into the lake. The Days claimed that the wharf and dock infringed their right to access the lake with their sailboat, was a nuisance as it affected the use and enjoyment of their property, and created a potential safety issue for their young daughter who would be learning to sail. The Days sought an order requiring the removal of the wharf and dock and sought damages for the infringement of their rights, which had occurred to date. Riparian Rights and Public Navigation The Days argued that the wharf and dock interfered with their riparian rights to access the waters of the lake. Justice Wood reviewed various cases and concluded that, “the riparian right of access entitled the land owner to get to navigable waters from every point on their shoreline without having to travel around a manmade obstruction”(*2). Justice Wood explained that the definition of navigable waters is dependent upon the circumstances. In this case, the lake was to be used for a variety of recreational purposes including fishing, swimming, and boating. Mr. Day’s sailboat drew three feet of water when its centerboard was down, therefore the Days’ riparian right of access entitled them to place the boat in the lake at any point along their shoreline and travel directly out to reach a depth of at least three feet. Based on the evidence submitted by the Days, which included a sounding plan prepared by a professional engineer and land surveyor as well as various photographs, Justice Wood found that the Days were able to access navigable waters without any interference by the wharf and dock. Although the Days did not argue that the wharf and dock interfered with their public right of navigation, Justice Wood thought it wise to distinguish riparian rights from the public right of navigation, and referred to a passage from Chaplin & Co. Ltd. v. Westminster Corpn., reproduced in Nicholson v. Moran,  B.C.J. 102.
A person who owns premises abutting on a highway enjoys as a private right the right of stepping from his own premises on to the highway, and if any obstruction be placed in his doorway or gateway, or if it be a river, at the edge of his wharf, so as to prevent him from obtaining access from his own premises to the highway that obstruction would be an interference with a private right. But immediately he has stepped on to the highway and is using the highway, what he is using is not a private right but a public right. (*3)Once the Days were in navigable waters, they were exercising their public right of navigation and could only sustain a claim if they could prove special damages. Justice Wood found that the evidence before him did not suggest that the wharf and dock interfered with the Days’ public right of navigation resulting in special damages to them. Only 14% of the total distance of the channel used by the Days to access the greater lake was blocked by the wharf and dock. This limited restriction was found not to support a claim for special damages. Nuisance The Days argued that the wharf and dock interfered with the use and enjoyment of their property in a manner that was both substantial and unreasonable. Justice Wood concluded that any impact of the wharf and dock on the public right of navigation was not an interference with the Days’ property interests. The Days further claimed that the wharf and dock affected their privacy as people on the dock had a better vantage point to see into their backyard. On this point, Justice Wood found that anyone exercising the public right of navigation on the lake would have the same or better opportunity. The Days’ evidence did not demonstrate a substantial interference in their property interests, and thus did not meet the threshold requirement to establish a nuisance. Negligence In a final attempt at having the wharf and dock removed, the Days argued that the Valades owed a duty of care as neighbouring land owners, and that their conduct in installing the wharf and dock breached that duty. Justice Wood found that the Days did not establish that they had suffered any injury or damage as a result of the wharf and dock, and thus their claim in negligence failed. The Days did not establish a legal basis for the removal of the wharf and dock or for damages, and as a result the application was dismissed. Andrea Fernandes Endnotes (*1) Day v. Valade, 2017 NSSC 175. (*2) Day v. Valade, 2017 NSSC 175 at para 30. (*3) Chaplin & Co. Ltd. v. Westminster Corpn.,  2 Ch 329,as reproduced in Nicholson v. Moran,  B.C.J. 102.
4. False Exculpatory Statements: Drawing a Grey Line Between Disbelief and FabricationOn March 15, 2014, a truck driver named Craig Wright left for Florida with a load of shampoo and cosmetics. On March 20, 2014, he returned to Canada with an ordinary load of okra. However, on inspection, the Canada Border Services Agency (“CBSA”) found that he was also carrying 68 kilograms of marijuana and a magazine of ammunition. He was charged with respect to the marijuana, but not the ammunition (for unknown reasons). When the CBSA officers interrogated Mr. Wright, he said that he simply did not know about the marijuana. He said that was not involved with loading the cargo and that he had never opened the refrigerator (“reefer”) unit, where the contraband had been hidden. In effect, it was a mystery to him as to how it got there. Mr. Wright did not testify in his own defence at trial. Thus, he was never cross-examined on the witness stand. Presumably, though, his story had not changed: the presence of the marijuana was left unexplained.(*1) The trial judge in R. v. Wright rejected Mr. Wright’s story on the basis that Mr. Wright’s fingerprints were found on the reefer unit, which he had told the attending CBSA officers, and later the RCMP, would be barren of his prints. Effectively, the trial judge branded his testimony as that of a self-serving liar. In support of the trial judge’s conclusion, Mr. Wright’s inaccurate exculpatory statements with respect to the reefer had been rather definitive, as illustrated by the following exchange, which was read into evidence at trial:
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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