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Toronto Law Firm

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1. News & Upcoming Events

  • Gordon Hearn and Carole McAfee Wallace will be representing the Firm at the Transportation Lawyer’s Association’s Chicago Regional Seminar being held on January 20-21, 2022.
  • Mark your calendars. The next Fernandes Hearn LLP Annual Seminar will take place on February 10, 2022. Send us an email to info@fhllp.ca to let us know what topics you would like us to cover.
  • Fernandes Hearn LLP has been awarded Transport Law – Law Firm of the Year in Canada -2022 by Corporate INTL Global Awards.

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2. Contracting Basics: Say What You Mean and Mean What You Say

The recent British Columbia decision in Belanger v. 2 Burley Men Moving Ltd. (*1) highlights the importance of effectively incorporating terms into a written contract and ensuring clarity in the contract language.

The Facts

Ms. Belanger retained the Defendant to move some of her furniture, including a leather couch and loveseat, from a storage locker to an apartment which she had rented. She made arrangements for the move in a telephone conversation with the Defendant’s office manager. The furniture was later picked up from the storage locker and delivered to the apartment on February 14, 2020.

Ms. Belanger claimed, and the Defendant did not dispute, that the couch and loveseat were in brand new condition when the Defendant’s moving crew picked them up at the storage locker. Ms. Belanger was present when the couch and loveseat were unloaded at the apartment building. She observed the efforts of the Defendant’s delivery crew to get them into the apartment. The couch did not easily fit in through the doorway. After a number of attempts the delivery crew succeeded in getting the couch through the door, however in the course of those efforts the door frame was damaged and several holes and tears were caused to the leather cover of the couch.

Ms. Belanger’s landlord charged her $55 for the damage to the door frame. The Defendant admitted liability for that amount, but denied liability for the damage to the couch, relying upon an alleged limitation of liability clause in the contract between the Defendant and Ms. Belanger. Further and in any event the Defendant says that Ms. Belanger could have had the couch repaired or recovered at a cost less than the full value of the couch, as claimed by Ms. Belanger.

The Court Action

Ms. Belanger sued for damages for the damage to couch. At trial she testified that the only contract document which she received before the couch was delivered to her apartment was a written “Appointment Confirmation”, which was sent to her by the Defendant by e-mail after the initial telephone conversation.

Under a heading “Our Coverage Does Not Apply To”, the “Appointment Confirmation” listed a number of types of specific furniture and other items (as one example, “Press Board Furniture”). “Couches” were not among the items listed. Under another heading “Protection Plan Coverage and Payment”, the document went on to say:

Any Damage or loss sustained during move and identified at that time does not release client from obligation to pay all related charges for move, products, and services at time of completion.

2 Burley Men reserve the right to ask for and then receive payment in full before move is completed.

Mr. Burley of the Defendant testified that the Defendant’s computer system was programmed to send the customer a second document entitled “Client Disclaimer” with the “Appointment Confirmation”, and that he believed that this second document would have been sent to Ms. Belanger. The judge reviewed the terms of the “Client Disclaimer” which he in any event found to be an “appalling” example of poor legal drafting.

The “Client Disclaimer”

Under the heading “Protection Plans — Terms & Conditions” the “Client Disclaimer” opened with the following simple statement:

We do not and cannot sell insurance.

Immediately below that, the “client” was offered three undefined options to simply accept certain “amounts per pound”. One was for $0.60 per pound, the second for $2.00 per pound and the third for $4.00 per pound. The document provided that the first option was “free”, the second option was available at a price of $94.50 and the third at a price of $174.95. The document did not expressly provide that these items were intended to be limits on the amount of compensation payable by the Defendant in the event of damage to the objects to be moved.

There was a space beside each option for the customer’s signature. Ms. Belanger did not sign in any of those spaces.

Below the above language there was a list of items in respect of which the “Protection Plan” did not apply, being the same list appearing on the “Appointment Confirmation”.

The following provisions then appeared under the heading “Payment and Protection Plan”:

The protection plans available are based on price per lbs. and will not exceed their maximums.

I [i.e. the “Customer”] understand that any damage to my belongings or any surrounding structures resulting from the move are the sole responsibility of the undersigned customer. If I do not choose a plan, the carriers (sic) liability is $0.60 per lb./item or $60.00 maximum repair per 100 lbs.

Your signature acknowledges that services offered were performed satisfactorily and the shipment has been received in good condition unless noted on this bill.

Ms. Belanger testified that she did not receive a copy of the “Client Disclaimer” until after the couch was in her apartment – after it having been damaged after being pushed through the door. Ms. Belanger testified that the Defendant’s employees then handed her the document and asked her to sign it.

The judge accepted Ms. Belanger’s evidence, noting the following:

a. Mr. Burley could not testify that he sent her Ms. Belanger copy of the document as a matter of fact. Rather, he could only say that the Defendant’s computer was programmed to send her a copy with the “Appointment Confirmation”;

b. Ms. Belanger was seen to be an honest witness, with an accurate memory of the events in issue;

c. The space for the client’s signature on the “Client Disclaimer” appeared immediately below a paragraph in which the client was being asked to acknowledge that the goods have been successfully delivered in good condition.

As noted by the judge, obviously a “client” such as Ms. Belanger could not be asked to sign a liability disclaimer after the delivery of goods.

The judge also found the heading “Payment and Protection Plan” to be misleading, the objective of the provision apparently having nothing to do with offering insurance protection for a customer’s goods or interests but rather having been designed to attempt to shield the Defendant from a customer’s claim. In short, the document simply was not clear as to whether insurance was being offered or whether the Defendant was intending to limit its liability.

The Defendant’s representative at the trial asserted that the Court should construe the “Client Disclaimer” to mean that, in the event of damage to Ms. Belanger’s furniture, that the liability of the Defendant would be limited to $0.60 per pound, not to exceed $60 in total, unless Ms. Belanger had chosen and paid for one of the second and third options, and that as she had not chosen one of the second and third options, the Defendant’s liability should be limited to $60.

The Court’s Analysis

The Court disagreed with the Defendant, citing certain fundamental principles of contract law.

First, a limitation of liability clause will not be effective or enforceable unless it is brought to the attention of the party whose rights it purports to limit at the time that the contract is made (*2).

Second, while in an appropriate case it may be possible for parties to a contract to agree to change or add terms to the same “mid-term” even without “fresh consideration” (that is, some type of benefit being bestowed by one party with a correlating payment or sacrifice by the other) such was not the case as concerns the parties to this dispute. In this regard the Court ruled that the “Client Disclaimer” could not in effect be introduced by Defendant after the delivery was performed so as to alter the contract, citing in a 2018 decision by the Chief Justice of British Columbia:

When parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress, unconscionability, or other public policy concerns, which would render an otherwise valid term unenforceable. A variation supported by valid consideration may continue to be enforceable for that reason, but a lack of fresh consideration will no longer be determinative. (*3)

In other words, the Court noted that a variance in contract terms might be considered effective in cases where the contract remained wholly or partly unperformed by the parties when the amendment was agreed to. In such a case the parties might be seen to be considering amendments to their future rights and obligations under the contract. In this case, the contract was however fully executed before Ms. Belanger was asked to sign the “Client Disclaimer”. Accordingly, it was not open to the defendant to seek to change the contract terms after the fact.

The Court in any event went on to analyze and criticize the language “Client Disclaimer”. The language was found to be unclear and confusing. As noted by Lord Denning, a legendary U.K. judge, a contractual term seeking to avoid liability after the fact:

. . . is so wide and so destructive of rights that the Court should not hold any man bound by it unless it is drawn to his attention in the most explicit way. … In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it – or something equally startling.” (*4)

The judge further noted that while the “Client Disclaimer” might have been capable of bearing the construction urged by the Defendant, it would take a sophisticated reader some time to discern such an intention. Ms. Belanger had signed it at the request of the Defendant’s employees in a moment of some distress. As noted by the judge, Lord Denning’s “red hand” was remarkably absent.”

The Court proceeded to note that absent an effective limitation of liability clause, the Defendant was subject to the duties of a bailee for reward who thus carried the onus of proving that any damage to the furniture was not caused by the Defendant’s negligence (*5). The Court noted that this onus had not been met by the defendant in this case. On the contrary, Ms. Belanger’s uncontradicted evidence had demonstrated the “remarkable carelessness” of the Defendant’s employees, which caused the damage complained of.

Mitigation

The Defendant argued that it was not necessary to replace the couch, and that Ms. Belanger could and should have had it repaired at a cost less than the replacement cost. The Court cited the governing principle on “mitigation” of losses:

Where it is alleged that the plaintiff has failed to mitigate, the burden of proof is on the defendant, who needs to prove both that the plaintiff has failed to make reasonable efforts to mitigate, and that mitigation was possible. (*6)

The Court found that this onus had not been met by the Defendant. The Defendant had not led evidence on alternative repair options, with the consequence that Ms. Belanger was entitled to recover the full replacement cost of the couch.

Conclusion

Contracts should be framed very carefully and couched in very clear terms. (*7)

A party intending to introduce a term to a contract must do so in a notorious and timely fashion. Parties may vary a contract mid-term; however, the above test will be applied. A Court will need to see that there was the requisite negotiation and commercial intent involved such that two parties were bona fide organizing their affairs for future purposes consistent with the purposes of the original contract.

This case points out how in the transportation contract context it is important that the contract of carriage terms and conditions should not be mixed up or blended with the evidentiary intent and purpose of a “Proof of Delivery” document.

This case also illustrates how a service provider or vendor needs to clearly articulate the offering of insurance coverage as discrete from the liability terms and conditions under which it offers services. The offering of insurance to a customer may also be a matter of regulation; however, for present purposes, the immediate “takeaway” is that it does not address the idea of a vendor or a service provider attempting to limit liability. As noted above, clear and unambiguous language is required to show the customer’s timely assent to such a term for the same to be effective.

Gordon Hearn

Endnotes
Endnotes
(*1) 2021 CarswellBC 3599, 2021 BCPC 270
(*2) Apps v Grouse Mountain Resorts Ltd. (2020) 445 DLR (4th) 615 @ paragraphs 41 — 44.
(*3) Rosas v Toca [2018] BCJ No. 938 422 DLR (4th) 351 at paragraph 183.
(*4) Thornton v. Shoe Lane Parking Ltd. (1970), [1971] 2 Q.B. 163 (Eng. C.A.) at 173. Naturally, “red ink” or a “hand pointing to it” might not be necessary but the clause should be made perfectly clear to the reader.
(*5) The notion that the defendant was actually a common carrier of goods does not appear to have been raised or argued in this case. This might have been argued, but the same outcome would have been achieved. Absent a specific agreement on point with a shipper, a carrier can be considered to have a broader exposure to liability for loss or damage to goods than a mere bailee (for example, a warehouseman). As noted in this case, a bailee can be held liable where it cannot show that the loss in question did not take place without its negligence. At common law and in accordance with standard contract of carriage language, a carrier may be liable for transit damage to cargo unless it can invoke at least one of a limited set of enumerated defences. As such carrier may have broader legal liability than that of a bailee.
(*6) Southcott Estates Inc v Toronto Catholic School Board [2012] 2 SCR 675 at paragraph 476.
(*7) This play on words was intentional.

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3. “Breaking Limits”: Update on Conduct Required to Bar Limitation of Liability Under Marine Liability Act

There are very few cases that have considered statutory limitation and the ability to “break limits”. The most recent case is an unreported decision of the Ontario Superior Court of Justice, Woodbury et al v. Woodbury et al (“Woodbury”) 2021 ONSC Number, CV-09-383220.

It continues to be a struggle to convince plaintiffs’ lawyers that limitations of liability, whether for property or personal injury claims, exist for maritime matters, that such limitations may provide only a small fraction of the damages owed and, further, that the parties are not personally liable over and above such limits, unlike non-maritime cases where there may be exhausted insurance policy limits and where the defendants may be personally liable for any remaining debt.

Despite significant damages in catastrophic cases, the Supreme Court of Canada and other Canadian courts have properly applied associated limitations of liability under the Marine Liability Act, S.C. 2001, c. 6 (“MLA”) and also denied the application of art. 4 of the Convention, described below, to “break limits” or to bar the application of the limitation. The maritime limitations of liability are, it would seem, truly “unbreakable”.

Review

There are statutory limits regarding damages for personal injury, death and property damage for claims in Canada, falling under the MLA. The MLA incorporates certain international conventions including the 1976 Convention on Limitation of Liability for Maritime Claims (the “Convention”).

The statutory limits cap the amount available for claimants; that is, once the particular limit is reached regarding any one incident, there are no further funds available regardless of any insurance policy limits or number of claimants. Where there are multiple plaintiffs, the limit must be shared, each according to their claims and typically via negotiation. A limitation fund may be struck in this regard. The limitations available today are higher in quantum than they were under the previous legislation, but they are also harder to “break” or nullify.

Previously, the ability to “break” through the statutory limit was easier. The quantum of the limits was, in today’s world, impossibly low and a plaintiff could “break” limits by proving that the owner did not come to the table with “clean hands” regarding a variety of factors, including the alleged unseaworthiness of the vessel. Once “broken”, there was no limitation of liability applied and all claims could be litigated regardless of quantum.

In a nutshell, as a result of extensive international negotiation, those “impossibly low” limits were replaced by much higher statutory limits of liability. Such higher limits were accepted by the shipping industry in exchange for the certainty of a global limit of liability for potential claims. To gain this certainty, the statutory limits were “hardened” so that they could not be easily “broken” thereby ensuring that the limitation would remain in place for most, in fact nearly all, circumstances.

However, under art. 4 of the Convention, incorporated into the MLA, certain conduct will deny those defendants normally protected by the statutory limits of liability to the benefit of those limits. A plaintiff, to apply art. 4 to bar the limitation of liability and open the doors to unlimited liability, has the heavy burden to prove the following:

Conduct barring limitation

A person liable shall not be entitled to limit his liability if it is proved that the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result.

Case Law review on “Breaking Limits” and the Application of the Limitation Bar

To date there have been few cases to even consider the application of art. 4 or the MLA equivalent to deny the limitation of liability.

Essentially, the statutory limitation can be barred if the defendant can be proven to have acted with, essentially, “wilful recklessness” and with knowledge that the loss would probably result. In Canada and internationally, there have very few cases considering this issue. None of the cases have found that the behaviour of the defendant(s) was within the parameters contemplated by art. 4, above, sufficient to bar the imposition of the limitation of liability. (*1)

Case Law Review

(1) Gundersen v. Finn Marine Ltd. 2008 BCSC 1665.

Facts

This case involved the collision of the M.V. Coastal Launch with an island. The vessel was operated as a commercial water taxi at the date of loss. The plaintiff was onboard as a non-paying guest at the time of the accident. The evidence showed that the captain had fallen asleep at the helm and that he took no steps to avoid the collision. The plaintiff was injured upon being ejected from her bunk.

The defendants applied for a declaration of the statutory limit of liability as 175,000 units of account or, at that time, an amount of approximately $300,000. The plaintiffs’ argued that the limitation was much higher and, in any event, the captain, by falling asleep, was wilfully negligent or acted with reckless disregard and, they argued, that art. 4 should apply to deny the owners the ability to limit their liability.

Decision

The Court found that the act of falling asleep could not receive judicial notice as occurring either gradually or suddenly. The subject conduct required an element of intentionality, and any required recklessness was akin to gross negligence.

The Court, therefore, could not find that the captain falling asleep was intentional or that he was so extremely careless to be grossly negligent. Further, the Court could not find, on a balance of probabilities, that the captain knew that the plaintiff’s injuries would probably result from his behaviour.

While the captain was negligent in undertaking the trip after a particularly long day, his decision fell short of establishing a subjective foresight of the consequences required under art. 4 to bar the application of the statutory limitation of liability and the defendant was entitled to limit liability.

Gundersen was decided pre-Peracomo and considers gross negligence, which clearly now is not to be considered, see below. However, the ultimate result is still in keeping with current case law.

(2) Société Telus Communications et al v. Peracomo Inc. et al [2014] 1 SCR 621 (“Peracomo”)

This case involved the application of statutory limits to a claim for property damage. This case applied art. 4 at the trial and appeal levels. The defendants appealed and were successful. The Supreme Court of Canada granted the limitation of liability and declined to apply art. 4.

Facts

Mr. Vallée was an individual and sole proprietor and directing mind of Peracomo Inc., the owner/operators of a fishing vessel. One of Société Telus Communications’ (“Telus”) cables was regularly snagged by the defendants’ vessel while fishing. Mr. Vallée dragged a “brown cable” to the surface of the water and released his snagged anchor. After another snagging occurred a year later and believing the cable to be abandoned, Mr. Vallée forced the brown cable to the surface and attempted to cut it with a handsaw. When unsuccessful, he then successfully cut it with an electric circular saw. When Mr. Vallée’s anchors later became snagged again, they could be released easily because the cable was severed. Mr. Vallée again cut the cable on another occasion after another snagging and he hauled the cut segment to deeper waters. Telus began looking for the culprit of the vandalism and Mr. Vallée came forward. He was charged with (but acquitted of) committing mischief and wilfully damaging property and interfering with its lawful use.

Telus claimed that it had suffered damages in the amount of about $1,000,000 for repairs arising out of the damage to its submarine cables at the bottom of the St. Lawrence River.

Trial Decision

Peracomo Inc. and Mr. Vallée defended stating that the cables should have been buried and there had been insufficient notice of the existence of the cables. Mr. Vallée had also consulted some outdated charts. They also claimed the statutory limitation of liability. (*2)

At trial, the Federal Court found that notice of the existence of the cables was included in notices to mariners, were on current navigational charts and that Mr. Vallée and Peracomo Inc. should have been aware of the cable.

The Court found that Mr. Vallée had intentionally cut the cable with intention to cause the damage though he thought that the cable would not be repaired. The Court found that the loss was a “certainty” and the operator, Mr. Vallée, was “reckless in the extreme”. The Court found that, as per art. 4 of the Convention, neither the operator, Mr. Vallée, or Peracomo Inc. could limit liability to $500,000 under S. 29 (1) (b) of the MLA.

The defendants appealed to the Federal Court of Appeal.

Court of Appeal Decision

The Court of Appeal found that it was open to the trial judge to find that the cable was a navigational hazard within the meaning of the Charts and Nautical Publications Regulations, 1995 and that it was up to the defendants to be aware of the cable’s existence and that they had failed miserably in this regard. The defendants’ vessel had an outdated marine chart and unapproved electronic chart. The defendants argued that Mr. Vallée had sufficient knowledge of safe and efficient navigation that they did not have a duty to have the most up to date charts. The Court of Appeal disagreed stating that Mr. Vallée had no knowledge of the published notices to mariners. The Court of Appeal focused on the fact that Mr. Vallée had notice of the cable through the regular snagging some 7-8 times during a fishing season that had lasted only 8 weeks. He made no inquiries at all regarding the use or nature of the cable even though he knew it was there. He had an obligation to seek further and better information about the cable.

The defendants further argued that they did not have a duty of care to Telus, but the Court reminded the parties that the duty of care of ship operators not to damage underwater cables or pipelines has been long recognized. The defendants breached that duty by tampering with the cable before making any inquiries about it. Mr. Vallée had breached his statutory duty under the Regulations and also his common law duty of care to his neighbour below the waterline.

Mr. Vallée and Peracomo Inc. claimed the benefit of the statutory limit of liability, but Telus argued that art. 4 of the Convention barred the use of the limitation and the trial judge had agreed. Art. 4, repeated here for ease of reference, states:

Conduct barring limitation

A person liable shall not be entitled to limit his liability if it is proved that the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result.

The first prong was whether Mr. Vallée had the “intent to cause such loss” and the trial judge found that Mr. Vallée intended the damage. The trial judge did not then consider recklessness as an issue, but that indeed, at paragraph 87 of the judgment, the second prong was satisfied that “such loss was committed with knowledge that the loss would probably result” and in fact was “a certainty”.

The defendants argued that there was no intent by Mr. Vallée to cause damage as he thought that the cable was abandoned, had checked some (outdated) charts and so had no knowledge that monetary loss would result. The Court of Appeal did not agree and stated that the trial judge was clear that the only cause of the loss was the cutting of the cable and the intention to physically damage the cable. The damage was the diminution in value of the cable not the cost of its repair. In fact, the Court noted that there is no case law suggesting that “such loss” in art.

4 meant that the perpetrator would have to be aware of the value of the item damaged whether a ship or its cargo etc. The value of the loss was simply irrelevant.

The defendants argued that the burden of applying art. 4 was a heavy one. The Court of Appeal agreed stating that intention and actual knowledge are difficult to prove but that the standard is still one on a balance of probabilities. In this case, the plaintiffs had proven that the defendants’ conduct was committed with “intent to cause such loss” and “with knowledge that such loss would probably result”.

Mr. Vallée and Peracomo Inc. appealed to the Supreme Court of Canada.

At the Supreme Court of Canada

The Supreme Court of Canada dealt with, amongst other issues, whether an owner/operator of a vessel could limit his liability to $500,000 under the MLA despite what appeared to be his intentional or reckless conduct, being an act of willful misconduct.

The Supreme Court of Canada noted that the limitation of liability turned on Mr. Vallée’s degree of fault. Per art. 4, he would not be entitled to the limited liability if the loss resulted from his act “committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result”. The Court found that Mr. Vallée’s conduct did not meet the very high level of fault required to lose the benefit of the  limit on liability (*3). Accordingly, while it found that while Mr. Vallée was personally liable for the damage, he was nevertheless entitled to the limitation on liability under the Convention. Section 29 of the MLA limits liability for property damage caused by the operation of ships in the same class as the Realice at $500,000.  However, this limit does not apply if the loss “resulted from [the defendant’s] personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result”. The Supreme Court of Canada found that Mr. Vallée knew that he was cutting a cable and that this was sufficient to establish an intention to cause the loss. The Court noted that this was not enough to bar limitation, stating:

[23]…In my respectful view, the Federal Court of Appeal took too narrow an approach to the intent requirement under art. 4 of the Convention. It held, in effect, that if Mr. Vallée knew he was “cut[ting] the very cable for the loss of which he is sued”, the intent element of the Convention was satisfied. I cannot agree. This amounts to saying that all that is required to break the limit on liability is knowledge that one is interfering with property. Such an approach undermines the Convention’s purpose to establish a virtually unbreakable limit on liability and does not accord with its text.

[24]   I turn first to the Convention’s purpose. The contracting states to the Convention intended the fault requirement to be a high one — the limitation on liability was designed to be difficult to break … The Convention has been described as a “trade-off”: “As a quid pro quo for the increase of the [limitation] fund, the article providing for the breaking of limitation became tighter, so that it is almost impossible for the claimants to break the right to limit” … Meeting the threshold fault requirement requires a high degree of subjective blameworthiness … The fault standard set by art. 4 has been described as “a virtually unbreakable right to limit liability” … It is worth noting that the contracting states considered, but expressly rejected, the inclusion of “gross negligence” as a sufficient level of fault to break the liability limit…

[25] In my respectful view, the Federal Court of Appeal’s approach to breaking the limit on liability lowered the intended fault element and thereby undermined the Convention’s purpose to establish a virtually unbreakable right to limit liability.

[26] Turning to the text of the Convention, my view is that the Federal Court of Appeal’s approach fails to distinguish between, on one hand, the limitation of liability that relates to a “claim” and, on the other, the bar to the limitation which arises if there was intention to cause “the loss” that resulted from the act or omission of the person liable. As we shall see, the limitation is expressed in broad and generic terms while the intention required to break the limitation relates to specific consequences of the conduct of the person liable.

The Court went on to say in paragraph 28,

“…The bar arises only if the “loss” resulted from the intentional act of the person liable, or as a result of reckless conduct committed with knowledge that the loss was probable. This signals that the intention which invokes the bar must relate to more specific consequences of the person’s conduct than that captured by the sorts of generic consequences referred to by the word “claims”.  …. Before the bar arises, the loss must be shown to have resulted from the “personal act or omission” of the person liable “committed with the intent to cause such loss or recklessly and with knowledge that such loss, would probably result”.  As one leading text puts it, “the use of the words ‘such loss’ in Article 4 seem[s] to underline the fact that the right to limit is barred only if the type of loss intended or envisaged by the ‘person liable’ is the actual loss suffered by the claimant”:  Griggs, Williams and Farr, at p. 36 …”

The Court concluded that the “loss” that “resulted” from Mr. Vallée’s act was the diminution in value of the cable measured by the cost of repairing it.  Mr. Vallée did not intend to cause that “loss” or know that it was a probable consequence of his actions. The Court noted that Mr. Vallée thought the cable was useless – no matter how recklessly he may have reached that view and therefore did not think it would be repaired because he thought it had no value.

The Court, therefore, overturned the Federal Court of Appeal’s finding that it was sufficient to break the limit on liability under Article 4 because Mr. Vallée intended to cut the cable. Mr. Vallée did not intend the actual loss and so the limitation of liability held.

(3) J.D. Irving v. Siemens Canada Limited 2016 FC 69

J.D. Irving Limited (“JDI”) commenced an action seeking a declaration that it was entitled to limit its liability to $500,000 in relation to cargo (valued at $40,000,000) that had fallen into the sea, while being loaded on the deck of a barge on October 2008 in Saint John, New Brunswick.

Siemens Canada Limited (“Siemens”) had entered into a contract to supply a number of low-pressure rotors and a generator rotor to the New Brunswick Power Nuclear Power Corporation for the refurbishment and upgrade of its Point Lepreau nuclear generating station.

Siemens contracted with JDI to transport the modules and generator rotor from the Port of Saint John to Point Lepreau. JDI chartered a barge, the “SPM 125”, and a tug to assist with the move.

In October 2008, two of the rotors were placed on self-propelled multi-wheeled transporters owned by JDI. This allowed the rotors to be driven or rolled on and off the SPM 124. While in the process of loading the second transporter onto the barge, it tipped to starboard, fell over and off the barge into Saint John Harbour. The other rotor, which had been placed on the first transporter loaded onto the barge, immediately followed thereafter.

The issue before the Federal Court was whether JDI was barred by its conduct from limiting its liability to $500,000 and whether art. 4 of the Convention (as incorporated into the MLA) applied to bar the application of the limitation.

Siemens did not assert that any party intended to cause the loss but rather asked the Court to infer that JDI and others acted recklessly and with knowledge that the loss of the cargo would probably result. Siemens acknowledged that the loss must have resulted from the personal acts or omissions of the shipowner, JDI and those for whom it was responsible in law. JDI argued that Siemens failed to prove the actual cause of the incident or that a proven cause was recklessness.

The Federal Court reviewed the history and purpose of the Convention. The focus was to create a convention with a virtually unbreakable right to limit liability. Justice Strickland examined the Supreme Court of Canada decision in Peracomo and noted that recklessness in the context of art. 4 requires subjective knowledge that the loss that actually occurred would probably occur.

Justice Strickland found that the barge was suitable despite the fact that it was smaller than prior barges used. She also found that there was no evidence that JDI was made aware prior to the loss that there were any concerns about the barge and the operation.

Justice Strickland found that the sequence of the events leading to the loss was that the barge was and remained stable, but a number of factors contributed to the transverse stability of the second transporter being overcome. Her Honour found that there were a number of contributing factors to the loss, which in and of themselves, were minimal.

In dealing with whether the acts of the individuals involved were reckless, Justice Strickland stated, at paragraph 265, that recklessness is more than mere negligence or inadvertence and, while not necessarily a criminal or even a morally culpable matter, it does mean the deliberate running of an unjustified risk. Her Honour, at paragraph 267, confirmed that recklessness is to be assessed on a subjective standard. Absent any allegation of intent, the person challenging the right to limit must establish both reckless conduct and knowledge that the relevant loss would probably result. Further, at paragraph 267, she found that, while closely related the two factors are separate and cumulative; a challenge to the right to limit will fail if (for instance) only recklessness but not knowledge is established. Justice Strickland accepted the statement in MSC Mediterranean Shipping Co SA v Delumar BVBA and Others (*4) that knowledge means actual and not constructive knowledge. It does not include something that the relevant person ought to have known.

Justice Strickland found that JDI and another defendant’s personnel did not act recklessly and with the knowledge that the loss of the rotors would probably result. She granted the limitation of liability and accordingly art. 4 did not apply to bar the application of the limitation.

4) Woodbury et al v Woodbury (unreported)

This is a very sad case of a 9-year-old plaintiff who suffered a severe traumatic brain injury in a boating accident on Rice Lake in Ontario. He had been riding in a tube behind a pleasure craft operated by his father. The tube swung out and hit another pleasure craft. The Ontario Superior Court was tasked with assessing liability and damages but also considering whether the limitation of liability under the MLA of $1,000,000 applied (*5) and, if so, did the behaviour of the defendant(s) bar its application via art. 4, of the Convention, as incorporated into the MLA.

The Court, at paragraph 19, confirmed that the ordinary principles of negligence applied to the owner and operator of a boat and that, to avoid a finding of negligence, a person must exercise the standard of care that would be expected of an ordinary, reasonable and prudent person in the same circumstances. The Court found that the defendant father was negligent based on a number of reasons, including failing to keep a proper lookout and excessive speed. The issue was whether the defendant father could limit his liability to $1,000,000, an amount far below the amount of damages assessed, which damages totaled in the millions of dollars.
In assessing whether art. 4 should be applied, the Court confirmed the requirements or art. 4. A person liable shall not be entitled to limit his liability if it is proved that:

(a) the loss resulted from his personal act or omission; and

(b) committed with the intent to cause such loss; or

(c) recklessly and with knowledge that such loss would probably result.

The Court found that item (a) above was satisfied in that the minor plaintiff’s loss resulted from the personal act or omission of the defendant father.

Citing Gundersen, the Court applied the definition of recklessness stating “meaning something more than negligence or inadvertence. I think it means deliberately running an unjustifiable risk.”

(*6) The Court found that the defendant father had acted “recklessly” in that he ran an unjustifiable risk by speeding, consuming alcohol before and/or during his operation of the vessel (which had likely contributed to the loss), operating too close to shore and looking behind him.

However, the Court, while accepting the defendant father would have had knowledge of the “possibility” that the loss might result, His Honour could not find that the defendant father had acted with the knowledge that the loss (or a similar loss) would “probably” result and that both factors were required. The Court cited the Supreme Court of Canada in Peracomo at paragraph 35:

…the Supreme Court of Canada emphasized the extremely high bar in art. 4 of the Convention to “break” the limitation on liability in s. 29 of the MLA.. Cromwell J. noted at para. 24 that the contracting states to the Convention intended the fault requirement to be a high one….making comments such as “[I]t is almost impossible for the claimants to break the right to limit” and, “ Meeting the threshold fault requirements requires a high degree of subjective blameworthiness”. Further: “The fault standard set by art. 4 has been described as …. ‘an almost indisputable right to limit…liability’” (citations omitted).

[36] Cromwell J. also noted that the contracting states considered but expressly rejected the inclusion of “gross negligence” as a sufficient level of fault to break liability…

The loss, in this case, did not have to be the “exact” loss in question but the defendant father, at paragraph 37, “needed to have known he would probably collide with another boat”. The Court found that, while reckless, the defendant father did not act such that he knew that a collision with another boat was probable.
The Court also noted that the only moment when the defendant father knew that the collision was probable was when he was directly approaching the other vessel and there was, nor could there be, any suggestion that his attempt to avoid the collision was reckless.
The Court confirmed the defendant father’s entitlement to limit his liability to $1,000,000. Art. 4 could not be engaged to bar such application. The order for $1,000,000 was distributed as between the minor plaintiff’s claims ($990,000) and the mother’s dependant claim (similar to a Family Law Act claim) ($10,000). No award was made for interest, but costs were to be assessed over and above the $1,000,000.

Finally

Whether for cases involving property damage or personal injury, it would appear that case facts will likely have to be very extreme before the limitation of liability under the MLA and/or the Convention will be barred. The burden on the party seeking to invoke art. 4 and “break limits” is intended to be very heavy and may, in fact, be practically impossible. (*7)

Kim E. Stoll

Endnotes
(*1) Internationally, art. 4 of the Convention also applies to the various signatories though there are also only a few cases considering the issue.
(*2) Mr. Vallée and Peracomo also brought claim against their insurer, which had denied coverage based on the described “wilful misconduct”.
(*3) The Supreme Court of Canada did find that Mr. Vallée’s conduct constituted “wilful misconduct” regarding coverage under his insurance policy finding that there was no coverage thereunder.
(*4) [2000] 2 Lloyd’s Rep 399
(*5) Under S. 29 of the MLA, personal injury claims are limited to $1,000,000 for ships under 300 gross tonnage.
(*6) Albert E Reed & Co. v London & Rochester Trading [1954] 2 Lloyd’s Rep 463 (Q.B.) at 475
(*7) The author thanks and acknowledges her law partner, Rui Fernandes, whose articles in The Navigator are partly incorporated regarding the within Peracomo (April 2014 edition) and J.D. Irving (January 2016 edition) cases.

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4. Management of Offshore Oil and Gas Exploration in Canadian Waters East Coast

In the recent decision in Ecology Action Centre v. Canada (Environment and Climate Change), 2021 FC 1367 the Federal Court of Canada was faced with two judicial reviews of the Regional Assessment of Offshore Oil and Gas Exploratory Drilling East of Newfoundland and Labrador (the “Regional Assessment”) and the Regulations Respecting Excluded Physical Activities (Newfoundland and Labrador Offshore Exploratory Wells) (the “Regulation”) made by the Minister pursuant to paragraph 112(1)(a.2) of the Impact Assessment Act, S.C. 2019, c. 28, s. 1 [IAA]. The Regulation came into force on June 4, 2020.

The Sierra Club Canada Foundation, World Wildlife Fund Canada and Ecology Action Centre (the “Applicants”) opposed the regulatory scheme and the means by which it was implemented by the government of Canada. The Regional Assessment Committee prepared the Regional Assessment which forms part of the report (the “Final Report”) which was submitted to the Minister of Environment and Climate Change Canada.

The Federal Court noted at the outset of its reasons at paragraph 3:

…it is important to set out what the Final Report is not. It is not a report related to the production of oil and gas reserves. It is a report related to exploration. Exploration has been ongoing in the area under study for many years. Prior to the commencement of the Regional Assessment, the then Minister of Natural Resources for the Province of Newfoundland and Labrador described “exploration”, in part, as a “low impact” activity for which “potential impacts and standard mitigations are well known”. The then Minister of Indigenous Services, Seamus O’Regan, in speaking about the Regional Assessment, opined that the government of Canada is “working with the Province to improve the efficiency of the environmental assessment process for offshore projects, while continuing to maintain the highest standards of environmental protection”. Minister O’Regan’s comments were directed at the issue of duplication of the management of off shore oil and gas exploration in the east coast of the Province of Newfoundland and Labrador, an issue that the regulatory scheme put in place by the government of Canada was meant to eliminate.

The Court also noted that each of the three applicants were active participants, funded in part by Canadian taxpayers, in the Regional Assessment process. Each was named to the Technical Advisory Group (“TAG”). The TAG was composed of government departments and agencies, indigenous groups, environmental and industry organizations with interests, information and expertise related to the Regional Assessment. Under the Agreement, the TAG was responsible for gathering information, conducting analysis, and providing advice to the Committee. All were recipients of participant funding within the Regional Assessment process and within other environmental review processes regarding offshore oil and gas development.

The Court reviewed the legislative context surrounding the Impact Assessment Act (“IAA”). The IAA sets out the requirements related to the conduct of a regional assessment. The Regional Assessment was the first assessment conducted under the IAA.

The Respondent contended that the Final Report was not justiciable since it was not a “decision” subject to judicial review pursuant to the Federal Courts Act. The Federal Court agreed. It held that the Final Report was not a “decision”. It was an advisory report to the Minister that informed potential decisions. It was not justiciable.

The Federal Court then reviewed the challenge to the Regulation.

The Applicants contended that the validity of the Regulation had be reviewed on the standard of reasonableness. Gone, they said, is the vires test and anything akin to the correctness standard of review. They contended that a Court must ask “whether the decision bears the hallmarks of reasonableness – justification, transparency and intelligibility – and whether it is justified in relation to the relevant factual and legal constraints that bear on the decision”. The Federal Court held that the Regulation was to be reviewed based upon the standard of reasonableness.

The Applicants raised numerous issues challenging the reasonableness of the Final Report and hence the reasonableness of the Regulation. The Court noted the submission on reasonableness and noted that the Applicants had ample opportunity to participate in the Final Report. The Court also noted that the Supreme Court of Canada had previously noted that a prejudicial effect on a party is essential to establish a breach of procedural fairness. The Court concluded that there was no breach of procedural fairness.

The Court concluded that the Governor in Council enacted a Regulation that was based upon a reasonable Final Report. There was nothing about that report, or the manner in which it was prepared, that would tend to militate against the reasonableness of the Regulation.

The Court noted that it is not the role of the Court to assess the policy merits of the regulations, or to determine whether regulations are “necessary, wise or effective in practice.” To meet the test of reasonableness, a regulation must be consistent with the statutory purpose. A regulation will be inconsistent if it is “irrelevant, extraneous or completely unrelated to the statutory purpose.”

In dismissing the applications for judicial review the Court concluded:

Applicants have not met their burden. The Regulation does exactly what is anticipated by subsection 112(1)(a.2) of the IAA and is entirely consistent with the overall purpose and scheme of the IAA. When I consider the Terms of Reference, the factors to be considered, the Final Report, the GIS Tool, the Ministerial pronouncements, the participation by the various interest groups, the objectives of the IAA, the deference owed to decision-makers, the onus upon the Applicants to establish that the Regulation is unreasonable, the Minister’s regulation making power and the language of the Regulation, I conclude the Regulation meets the test of reasonableness. It meets the hallmarks of transparency, justification and intelligibility as set out in Dunsmuir v. New Brunswick, 2008 SCC 9 [2008] 1 SCR 190 at para 47and is justified in light of the relevant factual and legal constraints, as required by Vavilov (at para 85). [ Canada (Minister of Citizenship and Immigration v. Vavilov, 2019 SCC 65, 441 DLR (4th) 1]

Rui Fernandes

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5. Claim for Insurance for Damages to Fishing Vessel Dismissed for Delay

In Fennelly v. Lloyd’s Underwriters, 2021 NLSC 160 the Supreme Court of Newfoundland and Labrador dismissed the plaintiff’s claim for want of prosecution following a thirteen year delay. The Court found that the delay was inordinate and inexcusable.

The following was set out by the Court as a summary of the claim and the proceedings. The First Defendant was Lloyds Underwriters. The Second Defendant was the insurance broker who was also sued:

1. The Plaintiff claims that it is entitled to insurance proceeds arising from damages sustained by the Plaintiff’s fishing vessel the “Sandy Joanne” in or about January of 2006. At the time, the vessel was the subject of a policy of Marine Insurance underwritten by the First Defendant. The policy insured the vessel in the amount of $500,000 Canadian against total loss (actual or constructive) caused by named risks. The Second Defendant had acted as an insurance broker in placing this policy of insurance.

2. The Plaintiff made a demand for payment under the policy, resulting in the vessel being examined by two different investigators in 2007. The Plaintiff says that the average adjuster who inspected the vessel found that the cost of repairing the vessel exceeded $500,000 thereby triggering recovery under the policy of insurance.
The First Defendant, on the other hand, states that the report prepared as a result of its investigations found that the legitimate repair cost of the vessel was less than $500,000. The First Defendant further states that the coverage under the insurance policy applied only to the risks set out in the policy and only for a total loss. As a result it denied the Plaintiff’s demand for payment, thereby giving rise to this Court proceeding.

3. Following the denial of coverage, the Plaintiff filed a Statement of Claim on October 20, 2008 alleging breach of contract and negligent misrepresentation. Both Defendants filed separate Statements of Defence on December 1, 2008. All three parties filed Lists of Documents in 2009 with oral discoveries of the Plaintiff and a marine surveyor retained by the First Defendant taking place in 2010. Undertakings to provide additional information and documents were given by both the Plaintiff and First Defendant at these discovery examinations.

4. Additional documentation was disclosed by the Plaintiff resulting in the filing of a Supplementary List of Documents in May, 2011. However, differences arose between counsel for the parties as to the extent of other undertakings given at discovery and the manner in which they were to be fulfilled. This resulted in exchanges of correspondence between counsel for all three parties in 2011 and 2012 but no agreement was reached on certain issues including who was responsible for obtaining, paying for and copying records from Marine Safety Transport Canada (“MSTC”).

5. After counsel for the First Defendant was appointed as a judge in the fall of 2012, there was no communication between counsel until the spring of 2013 when a new counsel from within the same law firm was appointed for the First Defendant. The First Defendant then proceeded to comply with its undertakings from discovery and reinitiated communications with respect to production of the MSTC file. There was and remains no resolution of this issue.

6. Between 2011 and 2013, counsel for the Plaintiff and First Defendant also exchanged correspondence regarding the Plaintiff’s request to decommission the vessel. The Sandy Joanne had been in dry dock at Harbour Grace since 2007 and was in a deteriorated condition.</p.

7. Specifically, in correspondence dated August 7, 2012, counsel for the First Defendant acknowledged the Plaintiff’s advice that it would be decommissioning the vessel. The First Defendant asked that, for purposes of preservation of evidence, portions of the damaged frames be retained. Identification of the fames and the portions to be preserved as well as the removal and storage protocol and procedure was to be jointly discussed and agreed in advance between the parties’ respective marine surveyors.

8. The decommissioning of the vessel did not take place until September 2013. At that time, the First Defendant retained a marine surveyor to witness and photograph the demolition. Unfortunately, the demolition did not go as planned as the mid-ship section of the vessel caved in and the starboard quarter was crushed making it impossible to remove for inspection.

9. The First Defendant states that no further steps were taken by the Plaintiff to advance its claim until the filing of these applications. The Plaintiff’s counsel acknowledges the lack of communication but states that he did travel to Montreal to meet with a proposed expert in 2014. However, he did not communicate this to counsel for the Defendants.

The applications referred to in paragraph 9 above was an application by Lloyd’s Underwriters in 2016 to the Court and Justice McGrath (in 2016 NLTD(G) 1) held that the Plaintiff’s delay to that point was both inordinate and inexcusable.  However, Justice McGrath was not convinced that Lloyd’s would suffer prejudice by the delay and the application was dismissed.  A companion application brought by the Plaintiff for an Order that the proceeding be case managed under Rule 18A was also dismissed.

Precious little happened following Justice McGrath’s ruling in January 2016. The last piece of correspondence received by Lloyd’s or the broker was a Notice of Intent to Proceed in October 2017. There was a further 3.5 years of inactivity until the applicants brought a further action to dismiss.

The Court concluded that (at para. 16):

The Plaintiff was guilty of causing an inordinate and inexcusable delay in September 2015, following 9 and one half years of relative inactivity.  In light of this finding, one would have thought the Plaintiff would be more than expeditious in advancing the claim.  Quite remarkably, the precise opposite was the case.  I thus have no difficulty in concluding that the now 13-year delay is inordinate.

The Court added (at para. 17):

The explanation for the delay offered by the Plaintiff’s counsel was in essence a strategic one.  The Plaintiff was at the time pursuing a second, unrelated claim, which was older than the present one, and wished to see that to fruition first.  This explanation, which is hardly justification for the delay in this case, was not shared with either of the Defendants until the within application to strike.  The delay was inexcusable.

The Court noted that the broker in November 2015 had no recollection of a meeting with the claimant. The Court concluded that the broker’s memory would not have gotten any better at the time of this second application and concluded that the broker was prejudiced by the delay. The Court also found that while Lloyd’s did not allege prejudice, it was appropriated in the circumstance to infer prejudice, adding “We then have the common sense proposition that the longer the delay the greater the likelihood of prejudice.”

The Court dismissed the action.

Rui Fernandes

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