Charters of Ships
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Charters - Bunkers - Bankruptcy of OW Bunkers - Liens - Practice - Interpleader - Parole Evidence – Appeals - Standard of Review
Canpotex Shipping Services Limited v. Marine Petrobulk Ltd., 2015 FC 1108 2017 FCA 47
Précis: The Federal Court of Appeal held that the trial Judge erred in relying upon parole evidence when interpreting bunker supply contracts and further held that the error was sufficiently serious so as to constitute an error in principle justifying review to the standard of correctness.
Facts: Canpotex obtained bunkers from OW Bunkers (“OW”) for two foreign registered vessels that it chartered. The bunkers were actually supplied by the defendant, Marine Petrobulk (“MP”), a Canadian bunker supplier. MP invoiced OW for the bunkers and OW invoiced Canpotex. Before any of the invoices were paid, OW became insolvent and subsequently bankrupt. Pursuant to various court orders and agreements, any sums owing to OW were to be collected by ING, its receivers. MP and ING both claimed entitlement to payment of the amounts owing by Canpotex in respect of the bunkers supplied. Canpotex brought this action and, pursuant to a consent order made by the Prothonotary under Rule 108, deposited the amount owing into a trust account. Canpotex then brought this application for a declaration that the payment of the funds into trust extinguished its liabilities and any in rem claims against the vessels. MP and ING each brought their own applications for declarations that they were entitled to the funds. ING also opposed the relief requested by the plaintiff.
A critical issue was the relevant contractual documents that applied to the purchases. This issue arose because Canpotex and OW had negotiated a Fixed Price Agreement that included as Schedule 3 a set of terms and conditions. However, because market conditions were not favourable, no purchases were made by Canpotex under this agreement. Rather, the parties were agreed that all purchases made by Canpotex were “spot purchases” not subject to the Fixed Price Agreement. Nevertheless, Canpotex led evidence and argued that Schedule 3 of the Fixed Price Agreement was intended to and did apply to “spot purchases”. This issue was important because Schedule 3 to the Fixed Price Agreement provided that “where the physical supply of the fuel is being undertaken by a third party… these terms and conditions shall be varied accordingly”. In contrast, OW’s General Terms and Conditions, which were referred to in the bunker confirmations, provided that “where the physical supply of the Bunkers is being undertaken by a third party which insists that the Buyer is also bound by its own terms and conditions… these Terms and Conditions shall be varied accordingly”.
At first instance (2015 FC 1108), the motions Judge: (1) allowed the plaintiff's interpleader application; (2) ordered that the full amount of MP’s invoice be paid out of the funds held in trust; (3) ordered that the balance of the funds in trust be paid to OW/ING; and (4) declared that the in personam liability of the plaintiff and the in rem liability of the vessels would be extinguished upon the payments being made. In reaching this result, the motions Judge accepted the evidence of Mr. Ball of Canpotex that the purchases were subject to Schedule 3 of the Fixed Price Agreement. He further held that pursuant to Schedule 3 of the Fixed Price Agreement the terms and conditions were varied to include MP’s Standard Terms and Conditions. He then applied MP’s Standard Terms and Conditions and held that the plaintiff and OW were both customers of MP and were jointly and severally liable to pay it for the bunkers delivered. OW/ING appealed.
Decision: Appeal allowed. The matter is referred back to the Judge for reconsideration.
Held: Interpleader relief is available where “two or more persons make conflicting claims”. The claims must pertain to the same subject matter, must be mutually exclusive and must be such that the applicant faces an actual dilemma as to how he should act. The only claims here that are conflicting and can give rise to interpleader relief are the contractual claims of OW and MP. The assertion of a maritime lien against the vessels by MP under s. 139 of the Marine Liability Act is not a conflicting claim as it is a claim against the vessels and their owners not Canpotex. It was wrong for the trial Judge to extinguish the shipowners’ liability in relation to any s. 139 claim.
The Judge erred in considering Mr. Ball’s evidence which led him to err in concluding that Schedule 3 of the Fixed Price Agreement applied to the purchases at issue. There is nothing in the contractual documents to support his oral evidence. The trial Judge should not have used that oral evidence to replace or overwhelm the words used in the contractual documents. “The parole evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing.” In failing to follow the principles of contractual interpretation the Judge erred in law and, although errors of contractual interpretation are normally errors of mixed fact and law and not subject to a standard of correctness, this error constitutes an extricable error in principle and is subject to the standard of correctness. Therefore, this matter is referred back to the trial Judge for reconsideration.
Charter Parties – Default – Forfeiture
Re: Northern Transportation Company v. , 2016 ABQB 522
Précis: Failure to make charter payments was an event of default for which, in the circumstances, there was no right to reinstatement or relief from forfeiture.
Facts:In October 2013 NTCL and ITB entered into an agreement (the “Purchase Agreement”) pursuant to which NTCL was to purchase from ITB 19 vessels and related assets for $12.9 million. The agreement provided for a closing date of 31 May 2018. Contemporaneously, the parties entered into a Charter Party and Equipment Lease Agreement (the “Lease Agreement”) pursuant to which ITB chartered/leased the vessels to NTCL pending the closing of the Purchase Agreement. The Lease Agreement provided for monthly charter/lease payments to be made by NTCL which were eventually to be applied towards the purchase price under the Purchase Agreement. NTCL failed to make the lease payments due in February and March 2016. On 8 April 2016 ITB gave notice that it considered the failure to make the payments an event of default, the effect of which was to make the purchase subject to an earlier closing date. NTCL responded by attempting to make the delayed payments but ITB refused to accept them. Pursuant to the provisions of the two agreements, the parties then entered into a 30-day dispute resolution period. Before that period concluded, NTCL applied for protection under the Companies’ Creditors Arrangement Act . NTCL then made this application in the CCAA proceedings for orders, inter alia, that it was not in default of the Lease Agreement or, alternatively, that the Lease Agreement be reinstated or, in the further alternative, for relief from forfeiture.
Held:The Lease Agreement defined an event of default as including failure to make punctual monthly payments. It further provided that NTCL would have 10 days to rectify such failure if the failure was “due to oversight, negligence, errors or omissions”. NTCL argues that this 10-day grace period applied and that it made the payments within the 10 day period. However, the non-payment of the two lease payments was intentional and does not come within “oversight, negligence, errors or omissions”. NTCL alternatively argues that the Alberta Personal Property Security Act permits a debtor to reinstate a lease by making up the overdue payments. This is the effect of the Alberta Act but the Lease Agreement provides that it is governed by British Columbia law and the British Columbia Personal Property Security Act provides no such remedy for a corporate debtor. Finally, NTCL requests relief from forfeiture but there is no forfeiture in this case. ITB has not elected to repossess the vessels but has instead elected for an early closing date. As there is no forfeiture, the court cannot grant relief against it.
Carriage of Goods - Is Transportation Services Contract a Charter? - Application of Hague-Visby Rules - Agreements to insure
AGF Steel Inc. v. Miller Shipping Limited, 2016 FC 461
Précis: The court held that a transportation services contract between the parties was, in fact, a contract for the charter of a ship and the Hague-Visby Rules did not apply.
Facts:The plaintiff and the defendant, Miller Shipping (“Miller”), entered into a contract for the transportation of 43,000 metric tonnes of steel rebar over 8 voyages by tug and barge. The contract was called a “Time Charter Party”, identified the plaintiff as “charterer” and referred to “Employment of the Vessel” and “Hire”. The contract contained a so-called “knock for knock” clause stipulating, inter alia, that each party would be liable for all losses, costs, damages and expenses incurred by the party on account of loss of or damage to its property. The contract also contained insurance clauses requiring the plaintiff to obtain cargo insurance and Miller to obtain Hull and Machinery insurance and protection and indemnity insurance. The first two voyages were completed without incident. During the third voyage on 10 May 2013 the barge capsized with the loss of the entire cargo. The plaintiff commenced suit for the value of the lost cargo (in excess of $8 million) against Miller and its various subcontractors including the actual owner of the tug and barge and the surveyor that surveyed and approved the stowage of the barge. Miller brought this summary judgment application for a declaration that it was not liable. The plaintiff opposed the application.
Decision: The application is allowed, in part.
Held: The test on a summary judgment application is that there is no genuine issue for trial. The onus is high and is on the party bringing the application. Summary judgment should be granted only in the clearest of cases.
Miller argues that the contract between the parties is a charterparty and that the contract excludes the liability of Miller and the other defendants. The plaintiff, on the other hand, argues that the contract is one for the carriage of goods by water, that the Hague-Visby Rules apply, that any exclusion or limitation clauses in the contract are rendered invalid by article III, r.8 of those rules and that, in any event, on a proper interpretation, the contract does not exclude the liability of Miller and the other defendants. Thus, there are two issues: first, is the contract governed by the Hague Visby Rules; and, second, if the contract is not governed by the Hague Visby Rules, do the “knock for knock” and insurance clauses exclude the liability of Miller and the other defendants.
The nature of the contract between the parties is a discrete issue that is capable of being determined by summary judgment as the principal evidence required to assess its nature is the contract itself. The contract is entitled “Time Charter Party”, describes the plaintiff as “charterer” and refers to “Employment of the Vessel” and to “Hire”. This is sufficient to find the contract is a charterparty and not covered by the Hague-Visby Rules. Accordingly, the parties were free to negotiate their own terms concerning liability. However, the contractual interpretation of the “knock for Knock” and insurance clauses is an issue of mixed fact and law which is not appropriate for summary judgment. These issues will proceed to trial.
Redelivery of chartered ship with excessive bunkers - Jurisdiction of Federal Court
Aquavita International S.A. v. M/V Pantelis (Ship), 2015 FC 180
Précis: The Federal Court held that it did have jurisdiction over a claim by a sub-charterer for excessive bunkers on board the ship when re-delivered at the conclusion of the sub-charter.
Facts: The plaintiff was the sub-sub time charterer of the defendant vessel “Pantelis”. The plaintiff commenced this proceeding alleging that when it re-delivered the vessel there were bunkers aboard belonging to it and that these bunkers were consumed the defendants. The plaintiff arrested the “Pantelis”. The defendants brought this motion to strike the action and set aside the arrest on the grounds that the court was without jurisdiction.
Decision: Motion dismissed.
Held: The owners argue that s. 22(2)(m) of the Federal Courts Act has no application as the plaintiff was not a bunker supplier. However, a claim need not fall within one of the categories in s. 22(2) to be within the court’s admiralty jurisdiction. It is sufficient if a claim falls within s. 22(1) which is coextensive with Parliament’s jurisdiction over navigation and shipping What is at issue in this case “is fuel on board a ship, which fuel was allegedly used to propel her over the ocean blue. Nothing could be more maritime.”
Booking Note - Charters - Arbitration Clause - Stay of Proceedings - Appeals - Standard of Review
Comtois International Exports Inc. v. Livestock Express BV, 2013 FC 1239 2014 FC 475
Précis: The court had no discretion to not enforce an arbitration clause in a charter party/booking note.
Facts: The defendant was the operator of the “Orient I”, a special livestock carrier. The plaintiff entered into a voyage charter of the vessel for a single voyage between Canada and Russia. The charter party was apparently contained in a booking note issued in Belgium. The booking note incorporated an arbitration clause in favour of London and a choice of law clause selecting English law. The booking note also contained an ice clause which gave the defendant the option of loading the cargo in St. John, New Brunswick if the port of Becancour, Quebec was not in ice free condition. The defendant in fact did sail to St. John because of forecasted ice conditions at Becancour. The loading of the cargo at St. John increased the plaintiff’s costs by $250,000. The plaintiff claimed this amount from the defendant alleging it had no right to change the port of loading to St. John. The defendant brought this motion for a stay of proceedings on the basis of the arbitration clause in the booking note.
At first instance (reported at 2013 FC 1239), the Prothonotary dismissed the motion for a stay of proceedings. The Prothonotary held that s. 46 of the Marine Liability Act did not apply as the contract between the parties was a charter party. However, he also held that the Court had discretion to grant a stay under s. 50 of the Federal Courts Act and that the plaintiff had discharged the heavy burden of establishing the existence of strong grounds for denying the stay on this basis. The Prothonotary noted that there was nothing linking this matter to England and that an arbitration in England would result in prohibitive costs for the plaintiff, a small company of 6 employees. The defendant appealed.
Decision: Appeal allowed.
Held: With respect to the standard of review applicable in this case, the refusal to grant a stay of proceedings is a discretionary order vital to the final issues in the case. Therefore the Court can proceed with a de novo review on this appeal.
The Prothonotary correctly held that s. 46 of the Marine Liability Act did not apply as the contract was a charter party and s. 46 does not apply to charter parties. However, the Prothonotary was in error when he held the Court had discretion to grant a stay under s. 50 of the Federal Courts Act. Article 8 of the Commercial Arbitration Code removes any discretion to grant a stay as was held by the Federal Court of Appeal in Nanisivik Mines Ltd v FCRS Shipping Ltd, 1994 CanLII 3466.
Insolvency of Intermediate Charterer - Entitlement of Owner to Sub-Freight
Byatt International S.A. v. Canworld Shipping Company Limited,, 2013 BCCA 427
Précis: The British Columbia Court of Appeal confirmed the ship owner’s right to direct the payment of sub-freights to itself.
The owner of the ship “Loyalty” granted a time charter to KLC who, in turn granted a time charter to MUR who, in turn, granted a voyage charter to Canworld for a voyage from Vancouver to Australia carrying sulphur. Canworld contracted with the shipper, Prism, to carry the sulphur cargo to Australia. MUR paid its hire to KLC but KLC defaulted on its payment of hire to the owner. The owner then sought to exercise a lien on the freight owing by the shipper to Canworld and the shipper paid the freight into court. Insolvency proceedings were commenced in Korea concerning KLC. Those proceedings were settled on terms that the owner recovered approximately $10 million of the $16 million owed to it. However, the settlement terms further provided that any amounts recovered by the owner from sub-hires or sub-freights were to be deducted from the settlement amount. Subsequently, this motion was brought before the British Columbia Supreme Court for directions as to how the funds paid into court by the shipper ought to be paid out. The owner argued it was entitled to the funds on the basis of its lien rights and the terms of the bill of lading. MUR and others argued that, given the terms of the settlement in the Korean insolvency proceedings, it would be inequitable to order the payment to the owner since the person who would ultimately benefit would be KLC, the entity that was responsible for the dispute. At first instance, the motions Judge agreed and ordered the funds paid to Canworld who could then satisfy its debt to MUR. The ship owner appealed.
Decision: Appeal allowed.
Held: The motions Judge appears to have decided the case on the basis of his interpretation of what would be a fair result whereas he was required to base his decision on legal and equitable principles. There is no equitable principle supporting the motions Judge’s conclusions. There is no unjust enrichment or double recovery and there is not sufficient evidence for a conclusion that a payment to the owner would benefit KLC. There seems little question that, pursuant to the terms of the head charter party, the owner has the right to direct the payment of sub-freights to itself.
Carriage of Goods - Arbitration Clause - Stay of Proceedings - Application of s.46 MLA to Charterparties
T. Co. Metals LLC v. The Federal Ems, 2011 FC 291 2012 FCA 284
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.