Insolvency of Intermediate Charterer - Entitlement to Freight
Byatt International S.A. v. Canworld Shipping Company Limited,, 2013 BCCA 427,
Not yet available.
Carriage of Goods - Arbitration Clause - Stay of Proceedings - Application of s.46 MLA to Charterparties
A cargo of cold-rolled steel coils was carried from Brazil to Toronto pursuant to bills of lading that incorporated the terms and conditions of a voyage charterparty between the exporter and the time charterer of the vessel. Pursuant to the terms of the voyage charterparty, the exporter was to be responsible for the loading, stowing and discharging of the cargo. The voyage charterparty also contained an arbitration clause in favour of New York arbitration. At the time of the loading of the cargo there was a disagreement between the Master and the exporter as to whether the cargo should be covered with plastic sheeting. To resolve this disagreement, the exporter provided a letter of indemnity holding the Master and owners harmless for any damage due to the use of the plastic sheets. Upon arrival of the cargo at Toronto, there was damage to the cargo and the plaintiff/consignee commenced this action against the ship owner and time charterer. The owner and time charterer, in turn, commenced third party proceedings against the exporter. The exporter then brought an application to stay the third party proceedings relying upon the arbitration clause in the voyage charterparty. The owner and time charterer opposed the stay arguing that s. 46 of the Marine Liability Act applied and the third party proceedings were entitled to be brought in Canada. Additionally, they argued that the letter of indemnity was a separate contract not subject to the arbitration clause. Finally, the owner alleged it was not a party to the voyage charterparty and therefore not bound by the arbitration clause.
At first instance (2011 FC 291), the Prothonotary dismissed the motion. On appeal to a Judge (2011 FC 1067), the Appeal Judge allowed the appeal and stayed the proceedings. The main issue was whether s. 46 of the Marine Liability Act applies to charter parties. The Appeal Judge noted that the ordinary meaning of the expression “contract for the carriage of goods by water” in s. 46 could support the inclusion of charter parties. However, relying heavily on the fact that the Hague-Visby and Hamburg Rules excluded charter parties, the Appeal Judge concluded that s. 46 did not apply to charter parties. The Appeal Judge further held that the letter of indemnity was not a separate contract but an amendment of the voyage charterparty and therefore any claim under the letter of indemnity was caught by the arbitration clause in the voyage charterparty. The owner and time charterer appealed.
Decision: Appeal dismissed vis a vis the time charterer and allowed vis a vis the owner.
Held: When interpreting words in a statute the entire context and the purpose must be considered and not just the "plain meaning" of the words used. It is important to note that none of the international conventions relating to carriage of goods by sea apply to charter parties. The imbalance in bargaining power that led to the various international conventions does not exist in relation to charter parties where the traditional mode of resolving charter party disputes is arbitration. Section 46 of the Marine Liability Act was intended to address perceived unfairness resulting from the application of jurisdiction and arbitration clauses in bills of lading. In the context of legislation dealing with the rights and obligations of common carriers, the expression "contract of carriage" should not be understood to include charter parties. Moreover, there is no policy reason why charter party contracts between commercial entities dealing directly with one another should not be enforced. Further, the Appeal Judge’s conclusion that the letter of indemnity was an amendment to the charter-party is logical and supported by the evidence. However, the owner was not a party to the voyage charterparty and is not bound by the arbitration clause in that charterparty.
Note: An application to appeal to the Supreme Court of Canada was dismissed on 16 May 2013.
Charters - Agreement to Insure -
Lafarge Canada Inc. v. JJM Construction Ltd., 2011 BCCA 453,
The parties entered into four identical charter parties pursuant to which the charterer was to be liable for damage to the barges except for normal wear and tear. The charterer was also responsible for obtaining hull and machinery insurance naming the owner as an additional insured. The barges were returned with damage but not all of the damage was covered by the insurance that had been obtained by the charterer.
The issue in the case was whether the agreement to insure relieved the charterer of liability to pay the repair costs for the uninsured damage.
The issue was first heard by an arbitrator who ruled in favour of the owner and ordered the charterer to pay damages of $650,000. The charterer obtained leave to appeal the arbitration award to the Supreme Court of British Columbia. At first instance (2010 BCSC 1851), the Chamber's Judge held that the party that agrees to insure cannot shelter behind that covenant to avoid liability for damage it causes. The Chamber's Judge also distinguished the cases relied upon by the charterer on the grounds that those cases involved subrogated proceedings brought by the insurer. The charterer appealed to the British Columbia Court of Appeal. The Court of Appeal (2011 BCCA 453) essentially agreed with the Chamber's Judge. The Court of Appeal referred to the various landlord and tenant cases relied on by the charterer and noted that in none of them was it held that a tenant who covenanted to obtain insurance was relieved from liability for damage.The Court did agree that where an insurance policy names two insureds the insurer has no right of subrogation against either but this was of no assistance to the charterer since these were not subrogation proceedings. The Court ultimately held that the covenant to insure was for the benefit of the owner and did not relieve the charterer of liability for damage.
Arbitration - Appeal of Arbitral Award - Factors to be Considered
Lafarge Canada Inc. v. JJM Construction Ltd., 2010 BCSC 1168,
The parties entered into four identical charter parties which required that disputes be settled by arbitration. Pursuant to the charter parties the charterer was to be liable for damage to the barges except for normal wear and tear and was also responsible for obtaining hull and machinery insurance naming the owner as an additional insured. The barges were returned with damage but not all of the damage was covered by the insurance that had been obtained by the charterer. At the arbitration the charterer argued that the agreement to insure relieved it of liability to pay the repair costs for the uninsured damage. The arbitrator disagreed, ruled in favour of the owner and ordered the charterer to pay damages of $650,000. The charterer then brought this application under the Commercial Arbitration Act of British Columbia for leave to appeal the arbitrator's decision. The Motions Judge considered the various factors relevant to an application for leave to appeal an arbitral award, namely, whether the issue was question of law and the importance of the issue to the parties or public. The Motions Judge held that the issue on appeal was a question of law that raised an important matter of principle and was of considerable financial consequence to the parties. The Judge further held it was not necessary for the applicant to show the arbitrator was "obviously in error". The test is whether there is sufficient substance to the proposed appeal to warrant its proceeding. In result, the Motions Judge allowed the application.
Practice – Stay of Proceedings – Jurisdiction – Charter Dispute
McDermott Gulf Operating Company v. Oceanographia Sociedad Anonima de Capital Variable, 2010 NSSC 118,
This was an application to stay proceedings commenced in the Nova Scotia Supreme Court on the basis that the court lacked jurisdiction simpliciter or was otherwise not the appropriate forum. The underlying claim by the plaintiff was for charter hire and other charges allegedly owed by the defendants. The first plaintiff was a Panamanian company and was the owner of the vessel which was registered in Barbados. The second plaintiff managed the charter party for the first plaintiff and was a Nova Scotia company. The defendants were resident in the United States or Mexico. The area of operations of the vessel that were the subject of the proceedings were entirely in Mexico. The Charterparty provided for Nova Scotia jurisdiction and Canadian law. The moving defendant was not the charterer under the Charterparty but it was the entity that obtained the benefit of the vessel and it appears that it had essentially assumed the obligations of the charterer. The Court first referred to the Nova Scotia Court Jurisdiction and Proceedings Transfer Act (“CJPTA”) which lists the circumstances where the court has jurisdiction. These include where there is an agreement on jurisdiction or where there is a real and substantial connection with the jurisdiction. The Court held that there was insufficient evidence of an agreement on jurisdiction given that the moving defendant was not a party to the Charterparty. The Court next considered whether there was a real and substantial connection with the province and noted that the CJPTA lists some of the factors to be taken into account when determining a real and substantial connection. The Court found that none of these factors were applicable but held that other factors may be taken into consideration including the connection of the parties to the jurisdiction, fairness, the involvement of other parties, comity and others. The Court reviewed these various factors and ultimately held that Nova Scotia did have jurisdiction. The Court further held that Mexico was not a more appropriate forum.
Interlocutory Injunctions – Mareva Injunction – Breach of Charter Party
Front Carriers Ltd. v. Atlantic & Orient Shipping Corporation, 2006 FC 18,
This was an application for a Mareva injunction to freeze the assets of the Defendant within British Columbia pending arbitration in London. The underlying action concerned an alleged repudiation of a charter party agreement between the parties. The motions Judge set out the applicable tri-partite test for an interlocutory injunction, being: 1. a preliminary assessment of the merits to ensure that there is a serious issue to be tried; 2. a determination that the applicant would suffer irreparable harm if the application is refused; and 3. an assessment as to which party would suffer greater harm from the granting or refusal of the injunction. Regarding the “serious issue” branch of the test, the motions Judge noted that the threshold for normal injunctive relief is that the issue is not frivolous or vexatious, however, the threshold for a Mareva injunction is more stringent, being, “a strong prima facie case”. The motions Judge then set out the specific criteria for a Mareva injunction, being: 1. the Plaintiff must make full and frank disclosure of all material matters; 2. the Plaintiff must give particulars of the claim including the points made against it by the Defendant; 3. the Plaintiff should give some grounds for believing the Defendant has assets in the jurisdiction; 4. the Plaintiff should give some grounds for believing that there is a risk of the assets being removed from the jurisdiction; and 5. the Plaintiff must give an undertaking in damages, which in suitable cases should be supported by a bond or other security. The motions Judge noted that the requirement of full and frank disclosure is flexible in that mere imperfections in affidavits or the non-disclosure of inconsequential or immaterial facts will not be fatal. The Judge applied these tests and ultimately granted the order requested. Appeals – Overruling Prior Panels – Appeals to Supreme Court
Charters– Bailment – Waiver of Subrogation
North King Lodge Ltd. v. Gowlland Towing Ltd. et al., 2005 BCCA 557,
This matter concerned liability for the sinking of the barge “Sea Lion VI”. The barge had been hired by the Plaintiff, the owner of the barge, to the first Defendant, a logging company, for use as an accommodation barge at a remote logging camp. One of the terms of the agreement was that the owner would provide a watchman. When the logging operations had ceased the second Defendant, the towing company, was retained to remove the log booms. In doing so the crew of the tug untied the port side mooring lines of the “Sea Lion VI” which had been tied to the log booms. Shortly thereafter the “Sea Lion VI” went aground and sank. The trial Judge found as a fact that the removal of the port lines caused the sinking. The trial Judge held that the contract between the owner and the logging company was one of bailment and that the logging company was liable for failing to promptly advise the owner when it became apparent that the barge was in danger. The trial Judge further held, however, that because the owner was required by the contract to provide a watchman it had the primary responsibility for the safe moorage of the barge. With respect to the liability of the towing company, the trial Judge held that the owner had committed a trespass by tying the barge to the log booms and that the duty owed by the towing company to a trespasser was to not intentionally harm the Plaintiff, act recklessly or without common humanity. He held that although the towing company did not act with reasonable care it did not breach these duties. In the result, the action against the towing company was dismissed and the liability for the sinking was apportioned 80% to the Plaintiff and 20% to the logging company. The owner appealed the dismissal of the action against the towing company and the logging company appealed the finding that it was 20% liable. The British Columbia Court of Appeal dismissed the appeal by the owner and allowed the appeal by the logging company. The Court of Appeal rejected the argument that there was an implied permission to moor to log booms, agreed that the tying of the barge to the boom sticks was an act of trespass and agreed that the duty owed to a trespasser was to act with common humanity. The Court of Appeal held that this duty had not been breached by the towing company. With respect to the appeal by the logging company, the Court of Appeal disagreed with the trial Judge that there was a contract of bailment. The Court of Appeal held that there was no transfer of possession of the barge, that the logging company had a mere licence to use the barge and that the contract between the owner and the logging company was a time charter. The Court of Appeal further held that there was no implied term in the charter that the logging company was to inform the owner of any dangers to the barge. Such a term was inconsistent with the requirement that the towing company keep a watchman on the vessel and was neither reasonable, in the circumstances, nor required to make the contract effective.
Bareboat Charter – Liability of Owner Under Safe Working Practices Regulations
M/S Apollo Tiger Shipping GmbH & Co. KG v. R, 2005 NBPC 16,
The registered owner of the subject vessel was charged with an offence under the Safe Working Practices Regulations passed pursuant to the Canada Shipping Act following an accident involving a crane on the vessel in which two stevedores were injured. The owner brought a non-suit motion following the conclusion of the Crown's case arguing that the vessel was under a bareboat charter at the time and that the definition of owner in the regulations did not include the registered owner under such circumstances. After extensively reviewing the definitions in the Canada Shipping Act and the regulations and noting the differences between the English and French versions of the definitions in the regulations the Court concluded that the definition of owner in the regulations did not extend to include the owner of a ship that was under a bareboat charter.
Stay of Proceedings – Arbitration Clause – MLA s. 46 – Charterparties – Bills of Lading and Incorporation of Charter Terms – Striking Claims
Dongnam Oil & Fats Co. v. Chemex Ltd. et al., 2004 FC 1732,
This matter concerned damage to a cargo of bleached tallow to be carried from Newark, New Jersey to Inchon, Korea. The cargo was to be carried on board the ship “Tuapse”. The “Tuapse” was owned by Novoship but chartered under a head charter to Chemex. The head charter provided for London arbitration. The Plaintiff and Chemex entered into a voyage charter party which again called for London arbitration. The cargo was loaded at Newark and two bills of lading were issued which incorporated the voyage charter party. The cargo was carried on board the “Tuapse” to Nanaimo, British Columbia where it was transhipped to another vessel for carriage to Korea. The cargo was allegedly damaged during the transhipment. The Plaintiff subsequently commenced this proceeding and the Defendants Novoship and Chemex brought applications to stay the proceedings in favour of London arbitration. The Plaintiff argued that s. 46 of the Marine Liability Act applied making the arbitration provisions inapplicable. The Prothonotary disagreed ruling that a transhipment from one vessel to another was not loading or discharging at a Canadian port within the meaning of s. 46(1)(a). The Prothonotary further noted that section 46 should be interpreted strictly since it was a restriction on freedom to contract. The Prothonotary then considered whether the arbitration provisions were incorporated. With respect to the dispute between the Plaintiff and Chemex he found that there was clearly an arbitration provision in the voyage charter and therefore concluded that he had no alternative but to allow the stay. With respect to the dispute between the Plaintiff and Novoship, however, there was no direct contractual relationship between these two and therefore he had to consider the effect of the bills of lading. In this regard he noted that if the bills of lading had specifically referred to the arbitration provision, Novoship would be entitled to a stay. In addition, if the bills of lading incorporated the charter party terms and those terms provided that the arbitration provision applied to disputes under the bill of lading, then Novoship would be entitled to a stay. However, in this case the terms of the voyage charter party did not provide that the arbitration provision applied to disputes under the bill of lading and the bills of lading did not specifically refer to arbitration. Accordingly, Novoship was not entitled to a stay. Two subsidiary issues dealt with in these reasons concerned applications to strike out a claim for a declaration the Plaintiff did not owe dead freight and a claim for wrongful arrest. The claim for a declaration on the dead freight issue was struck on the grounds that the issue had been decided in an arbitration. The claim for wrongful arrest was struck on the grounds the Plaintiff was not the owner or in possession of the cargo at the time it was arrested.
Charter Parties - Negotiation - Concluded Agreement
Champion International v. The “Sabina”, 2002 FCT 1122,
Again the issue in this case was whether there was a concluded agreement between the parties. The Plaintiff and Defendant, through their respective agents, had entered into negotiations for the carriage of the Plaintiff’s cargo. All substantial matters had been agreed with the exception of lay days and quantity of cargo which were characterized as “loose ends” by the Defendant. However, before these “loose ends” were dealt with the Defendant advised the Plaintiff that it had received another offer to time charter the ship which it intended to accept. The Plaintiff sued for breach of contract. The court agreed with the Plaintiff that although a formal contract was never signed there was agreement on the substantive terms and there was therefore an agreement which was breached by the Defendant.
Charter Parties - Negotiation - Concluded Agreement
Armonikos Corp. v. Saskatchewan Wheat Pool, 2002 FCT 799,
The issue in this case was whether a charter party had been concluded between the brokers acting for the parties. The Defendant argued that no charter party had been agreed because there had not been a meeting of the minds regarding a significant term, notably, whether the vessel to be chartered was certified by the International Transport Workers Federation. The court held, however, that the broker for the Defendant had not been particularly attentive to this issue and had confirmed the charter party without the inclusion of an ITF clause. Further, the court held that the broker for the Defendant did not view the absence of an ITF clause as an impediment to the charter party and, once the issue was squarely raised, agreed to a charter party with a modified ITF clause. As a consequence of the court’s finding that there was a binding charter party, the court stayed the present action in favour of London arbitration pursuant to an arbitration clause in the charter party.
Charter Parties - Set-off
Barber Dubai Shipping Agencies Co. v. Angel Maritime Inc., 002 CanLII 38097,
This was a dispute over fees payable to a broker by a shipowner. The charter party provided for daily demurrage which had been unpaid by the charterer. The shipowner attempted to set-off the unpaid demurrage from the fees payable to the broker. Both at first instance and on appeal the court held that the shipowner was not entitled to claim a set-off.
Bareboat Charter - Liability of Owner
North Ridge Fishing Ltd. v. The "Prosperity" et al., 2000 BCCA 283 ,
This was an appeal from a summary trial application. The appeal arose out of a net cutting incident that occurred during the roe herring fishery. The Plaintiff alleged that the Defendant vessel "Prosperity" negligently cut its net during the fishery resulting in a loss of fish. At the time, the "Prosperity" had been chartered for the entire 1997 herring season. A term of the agreement provided that only three named individuals were permitted to operate the vessel. One of those individuals did, in fact, operate the vessel. At issue in the summary trial and on appeal was whether the agreement was a charter by demise and the effect of such a charter by demise on the liability of the owner. The Court of Appeal held that the agreement did amount to a charter by demise as the owner effectively relinquished custody, possession and control over the "Prosperity" to the charterer. The fact that the charterer was required to appoint one of three named individuals to operate the vessel did not detract from this conclusion since it was the vessel’s insurer that required this condition and the owner had no right to chose which of the three named individuals would be appointed. The Court of Appeal further held that as all of the crew were appointed by the charterer, there was no vicarious liability on the part of the owner. A second issue on the appeal was whether the owner was negligent in failing to properly train the master or in holding him out as being properly trained. The Court of Appeal agreed with the Trial Judge that an owner of a ship under bareboat charter had no duty to train those manning the vessel and that simply agreeing to have the ship operated by one of three individuals was not a representation as to the training of those individuals. In the result, the appeal and the action against the owner was dismissed.
Charter Party - Option to Purchase - Substantial Performance
Sail Labrador Ltd. v. The "Challenge One",  1 SCR 265,
This was an appeal from the Federal Court of Appeal. The Appellant/Plaintiff had entered into a 5 year charter party with the Respondent/Defendant. The terms of the charter party included an option to purchase the vessel at the end of the five year term subject to "full performance" of its obligations under the charter party. Clause 10 of the charter party specified an annual payment and clause 11 provided that the annual payment was to be paid in seven monthly instalments. The practice of the parties was for the Plaintiff to provide the Defendant with seven post dated cheques at the beginning of each year. Due to an error by the Plaintiff's bank, the first cheque for the fifth year was returned insufficient funds. The Defendant then wrote to the Plaintiff advising that the option to purchase was void. The Plaintiff immediately rectified the non-payment and all subsequent payments were made on time. Pursuant to clause 25 of the charter party, the Defendant also requested that the Plaintiff provide it with all of the log books for the vessel. The Plaintiff failed to do so. At the conclusion of the charter term, the Plaintiff attempted to exercise the option to purchase but the Defendant took the position that the option was void because of the late payment and the failure to provide the log books.
At trial, the trial judge held that the Plaintiff had substantially performed its obligations under the charter party and was entitled to exercise the option to purchase. On appeal, the Federal Court of Appeal held that a party exercising an option to purchase must strictly comply with the conditions of the option and that, as the Plaintiff had not done so, it was not entitled to exercise the option. On further appeal, the Supreme Court of Canada held that the option to purchase was part of a bilateral agreement between the parties comprising both the charter and the option. As a bilateral contract the doctrine of substantial compliance was applicable and the court found that there had been substantial compliance by the Plaintiff. Further, the court held that the words used in the option were not precise enough to make time of the essence of the contract. On the issue of the Plaintiff's failure to provide the log books the court noted that pursuant to section 26 of the Canada Shipping Act the log books must remain on the vessel. Therefore, the court held that all the Plaintiff was required to do was to make the logs available for inspection on the vessel. In result, the appeal was allowed.
Charters - Brokerage Fee
Spellacy v. Marine Management Inc., 1998 No.4141, (Nfld. S.C.),
The issue in this case was the brokerage fee to which the Plaintiff was entitled. The Plaintiff had negotiated a two year charter of a tug at $1,100.00 per day with an option to purchase for $900,000.00. The option to purchase was exercised. The Plaintiff argued that he was entitled to a 5% commission on the basis that he was acting for both parties to the transaction and, pursuant to industry practice, was therefore entitled to a double fee. The Court held, however, that he acted only for the owner of the tug and was therefore only entitled to a fee of 2.5% of the sum of the total charter payments and the purchase price.
Charter party - Cancellation - right to damages
Melsa International Inc. v. Adecon Shipping Lines Inc. et.al., 1997 CanLII 5001 ,
This was an application by the defendant for summary judgment dismissing the Plaintiff's action. The Plaintiff's action was for breach of a charter-party agreement. The Plaintiff and Defendant had entered into a charter-party agreement in the Gencon form. The Defendant was not able to meet the agreed upon loading date and, as a consequence, the Plaintiff exercised its right to cancel the charter-party and found another vessel to carry the cargo. The Plaintiff claimed the difference in the freight payable under the two charter parties. The Defendant argued that pursuant to the charter-party the Plaintiff's remedy was to cancel the charter and that it had no right to claim damages. The Court reviewed the authorities and noted that a charterer who cancels a charter-party has a claim in damages if the failure of the ship to arrive by the cancelling date was a result of a breach on the part of the shipowner of his obligation to load by a particular date. In result, the Court found that there was a genuine issue for trial and dismissed the motion for summary judgment.
Charter Hire- Demurrage - Set-Off
Halla Merchant Marine Co. Ltd. v. The "Lok Maheshwari" et. al., 1997 No. T-279-96 (F.C.T.D.),
This was an application for summary judgment by the disponent owner of the Defendant ship against the charterer for charter hire. The charterer defended the application on the grounds that it had a right of set off in respect of a claim for demurrage. The Court held that there was no valid right of set off because the hire claim was for a different time period than the demurrage claim. The disponent owner was not, however, completely successful. The Court held that there was a genuine issue for trial in respect of some of the periods for which hire was claimed.
Stays of Proceedings - Arbitration Clause - Charter Party
Arbella S.A. v. The "Aghia Markella", 94 F.T.R. 229,
The subject matter of this dispute was whether the Defendant had breached a charter party when it failed to supply the ship on the date specified. The reason the Defendant could not supply the ship is that it had been detained by Canadian Coast Guard. The Plaintiff argued that the arbitration clause was inoperative because, at the time it was entered into, the parties did not contemplate that the dispute would relate to Canadian Coast Guard. The Court disagreed and referred the matter to arbitration in London.