This matter arose out of the loss of 15 cartons of integrated circuits valued at US$1,403,000 and carried by air from San Francisco to Toronto. The shipment left San Franciso on August 10, 1996, and arrived at Toronto on the morning of August 11, 1996. It was then placed in the Air Canada cargo warehouse but was never seen again. The Plaintiff consignee commenced this action for the value of the lost cargo against its cargo underwriter and the air carrier.
The air carrier defended the action arguing that the Plaintiff had not proven the value or the contents of the cargo, that it had delivered the goods to a courier for delivery to the Plaintiff and that it was, in any event, entitled to limit its liability pursuant to the Warsaw Convention. The only evidence adduced at trial as to the value and content of the shipment was the air waybill, the packing list and the commercial invoice. The carrier objected to the admission of these documents on the basis that they were hearsay and not properly admissible. The Court, however, held that these documents were business records within the meaning of the Canada Evidence Act and were admissible to prove both the content and value of the shipment. The carrier’s second argument, that it had delivered the cargo to a courier, was also rejected by the Court. The Court found as a fact that although the courier driver had signed for the cargo he did not in fact receive the cargo as it could not be located by the air carrier. The Court next considered whether the air carrier could limit its liability under the Warsaw Convention and held that it could not. There were two reasons advanced by the Court for this decision. First, the Court found that the air waybill was not in conformity with Article 8 of the Convention in that it did not contain the name of the airport departure, the name of the first carrier, whether the weight was in pounds or kilograms and the nature and quantity of the goods. Relying upon American case law, the Court held that if an air carrier fails to include the particulars required by Article 8 of the Convention in the air waybill then, pursuant to Article 9, the carrier is not entitled to limit liability. Second, the Court held that the Plaintiff had proven that it was more probable than not that the cargo was stolen by an employee of the carrier or with the complicity of an employee of the carrier and that there was an irresistible inference that such employee was in the course and scope of his employment when the theft occurred. Accordingly, the Court held that there was "wilful misconduct" and that the carrier was not entitled to limit its liability.
With respect to the insurance issues, the cargo underwriter denied coverage on the basis that it had cancelled the policy of insurance prior to the loss and also on the basis that the assured had failed to disclose prior losses. The shipment was insured under an open cargo policy that provided that it could be cancelled upon 30 days written notice "but such cancellation shall not affect any risks which have already attached hereunder". The policy further provided that notices mailed to the broker were deemed to have been received by the assured. On July 10, 1996, the underwriter faxed a notice of cancellation to the broker giving 30 days notice of cancellation and stating that the cancellation would be effective on August 10, 1996. The underwriter took the position that the policy was cancelled as of 12:01 a.m. on August 10, 1996. The Court, however, held that there were three problems with the underwriter’s notice of cancellation. First, the notice of cancellation was vague and imprecise in that it did not say how the 30 days was to be calculated and did not specify the exact time on August 10, 1996, the cancellation would be effective. The Court held that the notice of cancellation could be interpreted to mean that coverage would be in force for the entire day of August 10, 1996. Second, the policy required that the notice of cancellation be mailed to the broker. Third, the policy also contained statutory conditions which contained clauses dealing with termination that were different from those in the body of the policy and which the underwriter made no attempt to comply with. The Court therefore held that the policy was ambiguous and the underwriter had failed to give proper notice of cancellation. The Court next turned to the issue of whether the policy was void ab initio by reason of the assured’s failure to disclose at the time it applied for the policy that it had suffered prior losses. The evidence disclosed that the assured’s broker had advised the underwriter that there had been no losses except for one lost package (value $300.00) three years earlier. This information was not accurate. In fact, the assured had suffered a series of losses in the hands of its courier totalling $18,000.00. This information did not come to the attention of the underwriter until after the loss in issue. The underwriter submitted that these facts were material to the risk and should have been disclosed. The underwriter led the evidence of an expert independent underwriter to the effect that the courier losses would have caused him to either increase the premium or modify the conditions of carriage. The Court, however, found as a fact that the Defendant underwriter would have written the risk even if it had been advised of the prior losses. Under these circumstances it was irrelevant what an independent underwriter would have done. The Court held that a successful defence on the basis of material non-disclosure requires proof that, if the facts had been disclosed, the underwriter who wrote the risk would have declined the risk or required a higher premium and evidence from an independent "prudent" underwriter to the same effect. Accordingly, the Court held that the underwriter had failed to prove material non-disclosure and the underwriter was held liable for the insured value of the lost cargo. (Note: The underwriter was not without a remedy as there was a recovery from the air carrier which is detailed below under "Carriage of Goods".)