A-246-82
St. Lawrence Construction Limited (Plaintiff)
v.
Federal Commerce and Navigation Company Lim
ited and Tande Shipping Limited (Defendants)
and
Federal Commerce and Navigation Company Lim
ited (Counter-Claimant)
v.
St. Lawrence Construction Limited (Counter-
Defendant)
Court of Appeal, Urie, Mahoney and Stone JJ.—
Montreal, November 5, 6, 7 and 8, 1984; Ottawa,
January 4, 1985.
Maritime law — Transport of goods by water — Stranding
of barge — Damages due to delay in delivery of goods —
Whether due diligence exercised to make vessels seaworthy
"Per package" limitation of liability under Hague Rules —
Limitation of liability under Canada Shipping Act s. 647 not
applicable — Whether action lay in tort as well as in contract
— General average situation — Canada Shipping Act, R.S.C.
1970, c. S-9, s. 647(2) — Carriage of Goods by Water Act,
R.S.C. 1970, c. C-15, Sch., Art. 1(b), 111 1(a), 3, 8, 1V 5 —
Civil Code of Lower Canada, art. 1053.
The facts, along with certain of the issues dealt with in this
judgment, are set out below in the Editor's note.
Held, the appeal should be allowed in part and the cross-
appeal dismissed.
The appellant, Federal Commerce and Navigation Company
Limited, failed to exercise the "due diligence" required by
Article III, rule 1(a) of the Hague Rules. The peculiarities of
the wind in the area were well known and an adequate survey
would have found that the barge with its cargo stowed as it was
could not be controlled by the tug in the wind conditions that
developed.
The Trial Judge erred in denying the appellant the benefit of
the "per package" limitation under Article IV, rule 5 of the
Hague Rules. Even though no bill of lading was issued, the
important thing is that the issuance of one was contemplated,
as in the decision of the Supreme Court of Canada in Anticosti
Shipping Co. v. St -Amand. The overriding intention was that
the appellant should be able to limit its liability in terms of
Article IV, rule 5 if it became necessary to do so. That
intention ought not to be frustrated because of the absence of a
bill of lading when all that was left to do was to ask for it. The
appellant is therefore entitled to limit its liability to $500 per
package or unit of cargo. And the language of Article IV, rule
5 is sufficiently broad to cover loss or damage for delay in
delivering the cargo.
The Trial Judge was correct in denying the limitation of
liability under subsection 647(2) of the Canada Shipping Act.
The stranding and consequent loss were directly related to the
decision of management to select for the survey a person
without towing expertise. As a result, it decided to make use of
a tug which was unfit. Therefore, the stranding and resulting
loss did not occur without the "actual fault or privity" of the
appellant.
The respondent, St. Lawrence Construction Limited, is en
titled to recover damages for delictual fault or negligence
notwithstanding the existence of the contract of carriage (see
Wabasso Ltd. v. National Drying Machinery Co., [1981] 1
S.C.R. 578, at page 590). But on the other hand, the respon
dent ought not to be able to sidestep contractual provisions
limiting liability merely by asserting delictual fault. As was
said in the Elder, Dempster case, limitation of liability must
apply "whatever the form of action".
It cannot be said that, because the barge was safe, a true
general average situation did not exist. While the barge was not
in a position of imminent danger of destruction, neither was it
in a position of mercantile safety. It was completely immobil
ized. As was said in The Glaucus case, "it is no use saying that
this [...] property [...] is safe, if it is safe in conditions where
nobody can use it". However, the law is clear that a carrier is
not entitled to recover from a shipper a contribution in general
average where the general average situation was brought about
by his own actionable fault.
CASES JUDICIALLY CONSIDERED
APPLIED:
Goodfellow (Charles) Lumber Sales Ltd. v. Verreault et
al., [1971] S.C.R. 522; [1971] 1 Lloyd's Rep. 185;
Anticosti Shipping Co. v. St -Amand, [1959] S.C.R. 372;
The "Raphael", [1982] 2 Lloyd's Rep. 42 (C.A.); The
Glaucus (1948), 81 LI. L. Rep. 262 (Adm.); Goulandris
Brothers Ltd. v. B. Goldman & Sons Ltd., [1958] 1 Q.B.
74; Federal Commerce and Navigation Co. Ltd. v. Eise-
nerz, [1974] S.C.R. 1225; Monarch Steamship Co. Ld. v.
Karlshamns Oljefabriker (AIB), [1949] A.C. 196 (H.L.);
Smith, Hogg & Co., Ltd. v. Black Sea & Baltic General
Insurance Company, Ltd. (1939), 64 LI. L. Rep. 87
(C.A.).
EXAMINED:
Harland & Wolff Limited v. The Burns & Laird Lines,
Limited, [1931] S.C. 722 (Scot. Sess.); Anns v. Merton
London Borough Council, [1978] A.C. 728 (H.L.);
Elder, Dempster & Co. v. Paterson, Zochonis & Co.,
[1924] A.C. 522 (H.L.); Nunes Diamonds (J.) Ltd. v.
Dominion Electric Protection Co., [1972] S.C.R. 769;
Wabasso Ltd. v. National Drying Machinery Co., [1981]
1 S.C.R. 578.
REFERRED TO:
Baxter's Leather Company v. Royal Mail Steam Packet
Company, [1908] 2 K.B. 626 (C.A.); Gosse Millard v.
Canadian Government Merchant Marine, [1927] 2 K.B.
432; Pyrene Company, Ltd. v. Scindia Steam Navigation
Company, Ltd., [1954] 1 Lloyd's Rep. 321 (Q.B.D.);
Renton & Co., Ltd. v. Palmyra Trading Corporation,
[1956] 2 Lloyd's Rep. 379 (H.L.); Commercio Transito
Internazionale vs. Lykes Bros. S.S. Co., [1957] 1 A.M.C.
1188 (2nd Cir.); Lennard's Carrying Company Limited v.
Asiatic Petroleum Company Limited (1915), 13 Asp.
M.L.C. 81 (H.L.); Robin Hood Mills Ltd. v. Paterson
Steamships Ltd., [1937] 3 D.L.R. 1 (P.C.); Leval &
Company Incorporated v. Colonial Steamship Limited,
[1961] S.C.R. 221; British Columbia Telephone Com
pany and Others v. Marpole Towing Ltd., [1971] S.C.R.
321; Czarnikow (C.) Ltd. v. Koufos, [1969] 1 A.C. 350
(H.L.); Dominion Chain Co. Ltd. v. Eastern Construc
tion Co. Ltd. (1976), 12 O.R. (2d) 201 (C.A.); Power v.
Halley (1978), 88 D.L.R. (3d) 381 (Nfld. S.C.); Surrey
(District of) v. Carroll-Hatch & Associates Ltd. et al.
(1979), 101 D.L.R. (3d) 218 (B.C.C.A.); Midland Bank
Trust Co. Ltd. v. Hett, Stubbs & Kemp, [1979] Ch. 384;
Can. Western Natural Gas Co. Ltd. v. Pathfinders Sur
veys Ltd. (1980), 12 Alta. L.R. (2d) 135 (C.A.); Kienzle
v. Stringer (1981), 35 O.R. (2d) 85 (C.A.); Coggs v.
Bernard (1703), 2 Ld. Raym. 909 (K.B.); Nugent v.
Smith (1876), 1 C.P.D. 19, reversed 423 (C.A.); Belfast
Ropework Company v. Bushell, [1918] 1 K.B. 210;
S.M.T. [Eastern] Ltd. v. Ruch, [1940] 1 D.L.R. 190
(N.B.S.C.); Paterson Steamships, Ld. v. Canadian Co
operative Wheat Producers Ld., [1934] A.C. 538 (P.C.);
Bretherton v. Wood (1821), 3 Brod. & Bing. 54 (Ex.
Ch.); Liver Alkali Company v. Johnson (1874), L.R. 9
Exch. 338; Stag Line, Ld. v. Foscolo, Mango & Co., Ld.,
[1932] A.C. 328 (H.L.); Esso Petroleum Co. Ltd. v.
Mardon, [1976] Q.B. 801 (C.A.); Batty v. Metropolitan
Property Realisations Ltd., [1978] Q.B. 554 (C.A.);
Maryon (John) International Ltd. et al. v. New Bruns-
wick Telephone Co., Ltd. (1982), 141 D.L.R. (3d) 193
(N.B.C.A.); Donoghue v. Stevenson, [1932] A.C. 562
(H.L.); Hedley Byrne & Co. Ltd. v. Heller & Partners
Ltd., [1964] A.C. 465 (H.L.); Dorset Yacht Co. Ltd. v.
Home Office, [1970] A.C. 1004 (H.L.); Junior Books
Ltd. v. Veitchi Co. Ltd., [1983] 1 A.C. 520 (H.L.);
Kamloops (City of) v. Nielsen et al., [1984] 2 S.C.R. 2;
54 N.R. 1; Simpson v. Thomson (1877), 3 App. Cas. 279
(H.L.); Margarine Union G.m.b.H. v. Cambay Prince
Steamship Co. Ltd., [1969] 1 Q.B. 219; Schiffahrt-Und
Kohlen G.m.b.H. v. Chelsea Maritime Ltd. (The "Irene's
Success"), [1981] 2 Lloyd's Rep. 635 (Q.B.); Union of
India v. N. V. Reederij Amsterdam, [1963] 2 Lloyd's
Rep. 223 (H.L.).
COUNSEL:
Blake Knox for St. Lawrence Construction
Ltd.
Jean Brisset and David Colford for Federal
Commerce and Navigation Co. Ltd.
SOLICITORS:
Simmard & Desjardins, Montreal, for St.
Lawrence Construction Ltd.
Brisset, Bishop, Davidson & Davis, Montreal,
for Federal Commerce and Navigation Co.
Ltd.
The following are the reasons for judgment
rendered in English by
STONE J.:
EDITOR'S NOTE
This is an important judgment for its discussion
of the issues of due diligence, the "per package"
limitation provided for in the Hague Rules, limita
tion of liability under the Canada Shipping Act
and general average. Even more important is the
question as to whether there can be concurrent
liability in contract and tort in a case of this kind.
That issue had not been dealt with in any prior
Canadian case. The full text of the judgment of
the Court on the above-mentioned issues is here
reported.
In view of the fact that the judgment ran to
some 42 pages in the English version, the Editor
has decided to prepare an abridgment covering
the following matters: the facts; terms of the
contract; grounds of appeal and cross-appeal;
the Hague Rules; the issues of unseaworthiness,
fuel expenses in respect of airlifted cargo, set-off
for freight charges, rate of interest and costs.
This is an appeal and cross-appeal from a
judgment allowing the respondent St. Lawrence
Construction Limited's claim for damages and
dismissing the appellant Federal Commerce and
Navigation Company Limited's counterclaims for
limitation of liability and a contribution in general
average. The respondent is a road construction
company and the appellant an owner and opera
tor of ships. The parties entered into an agree
ment for the transportation, using a tug and
barge, of construction equipment and supplies to
a remote site near James Bay. The barge went
aground on a shoal. While part of the cargo was
removed by the tug and by helicopters, delivery of
some of the goods was delayed by about four
months. The respondent claimed damages of
$2,650,000 in respect of the delay. The appellant
sought a general average contribution including
the cost of building ice bridges from the barge to
the construction site. The respondent relied upon
the Hague Rules and the Canada Shipping Act as
to limitation of liability.
The contract, in the form of a letter, contained a
Paramount Clause by which the terms in the Bill of
Lading were subject to the provisions of the
Canadian Water Carriage of Goods Act, 1936. It
further provided that the carrier would not be
responsible for any loss due to delay of the
goods. The agreement contained provisions as to
general average and a new Jason clause.
Walsh J. found that the stranding resulted from
unseaworthiness and that the appellant had not
exercised due diligence to make the tug and
barge seaworthy. Because the fault was that of
top management, the appellant might not benefit
from the "per package" limitation under the
Hague Rules nor could it limit its liability under the
Canada Shipping Act.
The following were among the eight grounds of
appeal: (1) the stranding was caused by naviga
tional errors for which the appellant was not
liable; (2) due diligence to make the barge and
tug seaworthy had been exercised; (3) the limita
tions in the Hague .Rules and the Act did apply
and (4) no action in tort lay.
In its cross-appeal, one of the respondent's
arguments was that the Trial Judge erred in find
ing that a true general average situation existed.
As to the issue of unseaworthiness, the Trial
Judge held that errors of navigation were not the
actual cause of the stranding. Rather, the tug's
power was inadequate to avert the mishap when
the wind freshened. This should have been fore-
seen by the appellant when it selected a tug for
this job. The tug was unfit for the purpose. That
finding by Walsh J. was in accordance with the
evidence. Reference might be made to the opin
ion of Lord Wright in Monarch Steamship Co. Ld.
v. Karlshamns Oljefabriker ( A/B), [1949] A.C.
196 (H.L.) at page 226 pointing out that "the
essence of unseaworthiness ... is that the
unseaworthy ship is unfit to meet the peril". In the
case at bar, the navigational "errors" were but
by-products of unseaworthiness and not in them
selves the cause of the stranding. There is au
thority for the proposition that, where there would
have been no loss but for the ship's unseaworthy
condition, shipowners are liable even although
there be negligence on the part of the master:
Smith, Hogg & Co., Ltd. v. Black Sea & Baltic
General Insurance Company, Ltd. (1939), 64 Ll.
L. Rep. 87 (C.A.).
Due Diligence
The appellant next asserts that it exercised due
diligence as it was required to do under Article III,
rule 1(a) of the Hague Rules and, accordingly,
that it is not liable for the loss. That is clear from
Article IV, rule 1 which also places the burden of
proving the exercise of "due diligence" upon the
appellant. It is apparent that had the appellant
conducted an adequate survey it would have found
that the barge with its cargo stowed as it was could
not be controlled by the Nelson River in the wind
conditions that developed. The appellant appears
to have paid insufficient attention to the effect of
wind resistence from the fuel tanks on the ability
of the tug to control the barge. Moreover, had it
made an adequate investigation it would have
found that the wind was susceptible of sudden
change in direction and velocity. This aspect seems
not to have been sufficiently probed. The informa
tion was readily available as is evident from the
evidence of Captain Gjerde.
The Hague Rules represent a bargain made by
carrier and cargo interests. In Canada, that bar
gain received legislative sanction in 1936. Prior to
their adoption at a diplomatic conference in 1924,
the doctrine of freedom of contract enabled a
carrier to contract out of his common law liability
virtually at will. In the absence of express agree
ment, liability of a common carrier for the safety
of goods carried was absolute except for loss or
damage caused by act of God or of the Queen's
enemies or for inherent vice of the goods. (See e.g.
Baxter's Leather Company v. Royal Mail Steam
Packet Company, [1908] 2 K.B. 626 (C.A.);
Gosse Millard v. Canadian Government Merchant
Marine, [1927] 2 K.B. 432.) The situation at
common law was thought to be unsatisfactory in
the case of goods carried under a bill of lading
constituting both a contract of carriage and a
document of title. Third parties, particularly,
acquiring an interest in a bill of lading had no
opportunity of examining in advance its often com
plex and divergent terms. There thus developed a
call for standardization of terms of bills of lading,
particularly as used in international trade. The
Hague Rules resulted. They placed upon the ship
per and the carrier certain responsibilities and
liabilities and conferred certain rights and
immunities. The carrier's common law obligation
to make his ship seaworthy was modified by
Article III, rule 1(a) requiring, instead, that he
exercise "due diligence" to do so before and at the
beginning of the voyage. Fulfillment of that obli
gation immunizes the carrier from liability for loss
or damage caused by unseaworthiness.
In my judgment, a carrier does not exercise due
diligence where, as here, he plans and executes a
mode of carriage by ships that he knows or should
know are unfit to cope with weather conditions
reasonably to be expected during the voyage. Had
it exercised due diligence, the appellant would
have discovered that the tug selected for the job
was incapable of controlling the barge with its
cargo stowed as it was. The peculiarities of the
wind in the area were well known. Ignorance of
them on the part of the appellant cannot be
excused. It ought to have made it its business to
get this information before deciding to commit the
barge to the care of the Nelson River. Had the tug
been fit to tow the barge with its cargo stowed as it
was, the drift to port would have been controlled
and (adopting the above quoted words of Lord
Wright) the tug and barge "would have passed
through the peril unscathed".
The nature of the duty resting upon a carrier
under Article III, rule 1(a) was discussed by the
Supreme Court of Canada in Goodfellow
(Charles) Lumber Sales Ltd. v. Verreault et al.,
[1971] S.C.R. 522; [1971] 1 Lloyd's Rep. 185
where Ritchie J. stated (at page 540 S.C.R.; page
193 Lloyd's Rep.):
When the Maxine Footwear case, supra, was heard in this
Court ([1957] S.C.R. 801), a dissenting judgment was deliv
ered by Mr. Justice Cartwright (as he then was). The dissent
ing reasons for judgment were affirmed in the Privy Council
and in the course of them Mr. Justice Cartwright adopted the
following definition of the due diligence required by art. III,
Rule 1:
'Due diligence' seems to be equivalent to reasonable dili
gence, having regard to the circumstances known, or fairly to
be expected, and to the nature of the voyage, and the cargo
to be carried. It will suffice to satisfy the condition if such
diligence has been exercised down to the sailing from the
loading port. But the fitness of the ship at that time must be
considered with reference to the cargo, and to the intended
course of the voyage; and the burden is upon the shipowner
to establish that there has been diligence to make her fit.
In my judgment, the appellant has not shown, as it
was bound to do, that it fulfilled the duty cast
upon it by Article III, rule 1(a) of the Hague
Rules requiring it to exercise due diligence before
and at the beginning of the voyage to make the
vessels seaworthy.
"Per Package" Limitation
The appellant contends that the Trial Judge
erred in denying it the benefit of "per package"
limitation under Article IV, rule 5 of the Hague
Rules. The respondent answers by saying that the
appellant is not entitled to so limit its liability
because a bill of lading was neither issued nor
contemplated. The contract, it argues, was a spe
cial one because the shipper and the receiver of the
goods were one and the same. Article IV, rule 5, it
claims, presupposes the existence of a bill of lading
as well as an opportunity for a shipper to protect
himself against limitation by declaring a higher
value for insertion in a bill of lading covering the
contract of carriage.
The appellant argues that the Trial Judge
denied limitation because he was of the view that
the stranding and consequent loss were caused or
contributed to by the "actual fault or privity" of
the appellant. That, of course, is the familiar test
to be met by those seeking limitation of liability
under section 647 of the Canada Shipping Act
[R.S.C. 1970, c. S-9]. In introducing his consider
ation of the subject the learned Judge stated [at
page 73 of his reasons]:
The second legal issue raised on the question of liability is
the privity of defendant company for errors which were made
and its claim to exemption from liability for acts of masters of
vessels or its servants in the navigation or management of the
ship. This limitation is based on ... the Hague Rules adopted
in Canada by The Water Carriage of Goods Act, 1936 [S.C.
1936, c. 49]....
After quoting in part the provisions of Article IV,
rule 5 and discussing at some length the question
whether the appellant's liability could be limited
pursuant to section 647 of the Canada Shipping
Act, the Trial Judge concluded that the provisions
of that section could not be invoked because the
stranding had not occurred "without the actual
fault or privity" of the appellant. He seemed to
imply, for the same reason, that the provisions of
Article IV, rule 5 could not be invoked but I
confess that his reason for so concluding is not
entirely clear to me. Nevertheless, as he denied the
claim to "per package" limitation under the
Hague Rules, it becomes necessary to deal with
the point on this appeal.
The right to limit liability pursuant to Article
IV, rule 5 of the Hague Rules, unlike the right of
limiting liability pursuant to section 647 of the
Canada Shipping Act, does not depend upon the
liability arising "without the actual fault or privi-
ty" of the carrier. On the contrary, Article IV, rule
5 provides that neither the carrier nor the ship
shall "in any event be or become liable". A carrier
may limit his liability for loss or damage caused by
unseaworthiness even where he has failed to exer
cise due diligence as required by Article III, rule
1(a). The "actual fault or privity" of the carrier,
as such, plays no part in the matter.
The respondent relies upon the decision of the
Scottish Court of Session in Harland & Wolff,
Limited v. The Burns & Laird Lines, Limited,
[1931] S.C. 722. There, the plaintiff entered into a
contract for the carriage by sea of its machinery
from Glasgow to Belfast. The contract was made
by correspondence and provided that the convey
ance was to be "at owners' risks and subject to
conditions of carriage shown in our sailing bills".
The sailing bills provided that where there was no
bill of lading, cargo was only received subject to
certain expressed conditions including that the
defendant would not be liable for "unseaworthi-
ness or unfitness in ship ...". The cargo was lost
overboard due to unseaworthiness and the plaintiff
sued. He argued that the contract was subject to
the Carriage of Goods by Sea Act, 1924, 14 & 15
Geo. 5., c. 22 (U.K.), that the contractual immuni
ty from liability could not prevail and that the
defendant had failed in its duty to exercise due
diligence. These arguments were rejected, Lord
President Clyde observing (at page 728):
As appears from the correspondence above referred to, the
contract of affreightment in the present case was a highly
special one. It was not only not actually "covered" by a bill of
lading; but a bill of lading (as that document is known and used
in the custom of merchants) was alien to its purpose. That
purpose was not mercantile (for the goods were neither sold nor
for sale) but was limited to the transport of the machinery—
which the pursuers had specially made in their Glasgow shops
at Finnieston for a particular ship they were building in their
Belfast yard—from Finnieston to that yard. I do not see what
contractual part a bill of lading capable of being used as a
document of title could have played in such a contract of
affreightment, or how the contract of carriage in this case could
have been "covered" by a bill of lading.
The parties themselves had agreed, in effect, that
no bill of lading would be issued and, accordingly,
that the carriage was to be governed by the re
maining provisions of the sailing bills. A bill of
lading was never contemplated by the parties to
the governing contract.
The appellant relies upon the decision of the
Supreme Court of Canada in Anticosti Shipping
Co. v. St -Amand, [1959] S.C.R. 372 which
applied the decision of the English High Court of
Justice in Pyrene Company, Ltd. v. Scindia Steam
Navigation Company, Ltd., [1954] 1 Lloyd's Rep.
321 (Q.B.D.). The plaintiff, wishing to have his
truck transported from the Ile d'Anticosti to
Rimouski on the mainland, arranged to have it
done by the defendant shipping company. A bill of
lading was filled out by a clerk in the shipping
company's office but it was mislaid and not issued.
While conceding liability for damage done to the
truck during the voyage, the defendant sought to
limit its liability to $500 on the basis of Article IV,
rule 5. The plaintiff contended that Article IV,
rule 5 was inapplicable as a bill of lading had not
been issued and, accordingly, that that "contract
of carriage" as defined in Article I(b) of the Rules
was not "covered" by a bill of lading. The Court
rejected this argument, Rand J. stating (at page
375):
It was an ordinary transaction, and if, as the respondent's
agent, he did not see fit to demand a bill of lading—as by art.
III rule (3) he had the right to do—it cannot affect what on
both sides was contemplated.
I am satisfied that here, too, by incorporating
the Hague Rules into the contract of carriage, the
parties intended to treat the transaction as an
ordinary one and that the Rules would apply to it.
It is true that a bill of lading was not issued but
that is immaterial provided the issuance of one was
contemplated by the parties. I think one was con
templated. As 1 see it, the overriding intention was
that the appellant should be able to limit its liabili
ty in terms of Article IV, rule 5 if it became
necessary to do so. A standard form bill of lading
was annexed and the appellant's dock receipts
incorporated "the terms, conditions, exceptions
and liberties set out in the bill of lading in current
use ...". That intention ought not now to be frus
trated because of the absence of a bill of lading
when the respondent as shipper of the cargo had it
within its power to demand and secure one pursu
ant to Article III, rule 3 any time after the appel
lant received the goods into its charge. I therefore
hold that the appellant is entitled by the contract
of carriage to limit its liability for any loss or
damage to or in connection with the goods in an
amount not exceeding $500 per package or unit of
cargo. I am also of the view that the language of
Article IV, rule 5 is sufficiently broad as to
embrace loss or damage for delay in delivering the
cargo (Renton & Co., Ltd. v. Palmyra Trading
Corporation, [1956] 2 Lloyd's Rep. 379 (H.L.),
per Lord Morton of Henryton at page 390; Com-
mercio Transito Internazionale vs. Lykes Bros.
S.S. Co., [1957] 1 A.M.C. 1188 (2nd Cir.)). In
the course of the hearing counsel for the appellant
informed the Court that he was not seeking to rely
upon the provisions of clause 12 of standard form
bill of lading purporting to exclude all liability for
delay, but only to limit liability in accordance with
Article IV, rule 5. That being so it becomes un
necessary to consider whether, as claimed by the
respondent, that clause was rendered null and void
by virtue of Article III, rule 8 of the Hague Rules.
It will be necessary to return to this subject in
discussing the appellant's contention that the
recoverable damages subject to limitation are for
breach of the contract and not for a tort as the
Trial Judge held.
Limitation of Liability—Canada Shipping Act
The appellant contends that, should it become
necessary to do so, it is entitled to limit its liability
in accordance with subsection 647(2) of the
Canada Shipping Act. It reads in part:
647....
(2) The owner of a ship, whether registered in Canada or
not, is not, where any of the following events occur without his
actual fault or privity, namely,
(d) where any loss or damage is caused to any property,
other than property described in paragraph (b), or any rights
are infringed through
(i) the act or omission of any person, whether on board
that ship or not, in the navigation or management of the
ship, in the loading, carriage or discharge of its cargo or in
the embarkation, carriage or disembarkation of its passen
gers, or
(ii) any other act or omission of any person on board that
ship;
liable for damages beyond the following amounts, namely,
In my judgment, the Trial Judge was correct in
denying this limitation of liability and his conclu
sion should stand. The decision to enter into the
contract of carriage was made by Mr. Bell, a
vice-president of the appellant, after receiving a
report and recommendation from the survey team
dispatched by him to James Bay. It is unnecessary
to repeat what has already been said concerning
the inadequacies of the survey and consequent
shortcomings in the report. Mr. Bell was not a
seafaring man. Yet he did not select for this
important survey a person with towing expertise.
Had he done so it is probable that appropriate
enquiries concerning the weather reasonably to be
anticipated during the towing operation would
have been made and he might then have been
persuaded not to use the Nelson River alone to tow
the barge up-river. He occupied a high managerial
position with the appellant, making his acts "the
very actions of the company itself" (Lennard's
Carrying Company Limited v. Asiatic Petroleum
Company Limited (1915), 13 Asp. M.L.C. 81
(H.L.); Robin Hood Mills Ltd. v. Paterson
Steamships Ltd., [1937] 3 D.L.R. 1 (P.C.); Leval
& Company Incorporated v. Colonial Steamship
Limited, [1961] S.C.R. 221; British Columbia
Telephone Company and Others v. Marpole
Towing Ltd., [1971] S.C.R. 321).
In my view, Mr. Bell's decision was directly
related to the stranding which occurred when the
barge with her cargo stowed as it was could not be
controlled by the tug powered as it was in the wind
conditions that were encountered. The right to
limit liability in accordance with the provisions of
the Canada Shipping Act is an important one
which ought not to be denied except as required by
the statute. In this case, the stranding and conse
quent loss was caused by unsearworthiness rather
than by an error committed in the navigation of
the tug or the barge. It lay in management's own
decision to make use of a tug which was unfit.
That being so, in my judgment, the stranding and
resulting loss did not occur without "the actual
fault or privity" of the appellant and the Trial
Judge was correct in denying limitation of liability
pursuant to section 647 of the Canada Shipping
Act.
Tort Damages
The appellant attacks the judgment below on a
further ground, asserting that the Trial Judge
erred in allowing what he referred to as "tort
damages which are a direct and forseeable conse
quence of the delay". The Trial Judge's conclusion
in this regard was that the damages were caused
by the fault of the appellant by "imprudence,
neglect or want of skill" within the meaning of
Article 1053 of the Quebec Civil Code. In its
pleading the appellant relied upon clause 12 of the
form bill of lading as excluding all liability for
"delay". The respondent expressly pleaded that
the stranding was "due solely to negligence and/or
gross negligence and breach of contract of the
Defendant". The learned Judge concluded that
clause 12 could not avail the appellant because, as
he put it [at page 101], "this action is not based
solely on contract but is also based on tort". In his
view, therefore, clause 12 was ineffectual. As the
argument based upon that clause was abandoned
before us, it is unnecessary to consider whether
that clause constituted an attempt, contrary to
Article III, rule 8 of the Hague Rules, to relieve
against or lessen liability. The Trial Judge did not
discuss that possibility.
The appellant contends that the respondent's
damages must be for a breach of contract and only
for a breach of contract because the negligence
complained of occurred in the actual performance
of the contract and not otherwise. The point is of
some importance to parties to a contract of car
riage based upon the Hague Rules made in the
above circumstances as it raises the issue whether
a party to such a contract may, on the basis of the
same facts, sue for damages for delictual fault as
well as for contractual fault. Counsel for the
appellant asserts that if we were to allow the
judgment below on this point to stand a shipper of
goods by water would reap a virtual bonanza
through the simple expedient of framing his action
in tort or delict in order to sidestep contractual
protections in favour of the carrier either exclud
ing or limiting liability.
Traditionally, the remedy at common law of a
plaintiff suffering loss due to non-performance of a
contractual obligation was, with few exceptions,
damages for breach of contract (see e.g. Czarni-
kow (C.) Ltd. v. Koufos, [ 1969] 1 A.C. 350
(H.L.)). The exceptions are in actions for profes
sional negligence (see e.g. Dominion Chain Co.
Ltd. v. Eastern Construction Co. Ltd. (1976), 12
O.R. (2d) 201 (C.A.); Power v. Halley (1978), 88
D.L.R. (3d) 381 (Nfld. S.C.); Surrey (District of)
v. Carroll-Hatch & Associates Ltd. et al. (1979),
101 D.L.R. (3d) 218 (B.C.C.A.); Midland Bank
Trust Co. Ltd. v. Hett, Stubbs & Kemp, [ 1979]
Ch. 384; Can. Western Natural Gas Co. Ltd. v.
Pathfinders Surveys Ltd. (1980), 12 Alta. L.R.
(2d) 135 (C.A.); Kienzle v. Stringer (1981), 35
O.R. (2d) 85 (C.A.)) and against a person exercis
ing a "common calling" such as a common carrier
who is duty bound to carry goods safely subject to
the few exceptions already mentioned (Coggs v.
Bernard (1703), 2 Ld. Raym. 909 (K.B.); Nugent
v. Smith (1876), 1 C.P.D. 19, reversed 423 (C.A.);
Belfast Ropework Company v. Bushell, [ 1918] 1
K.B. 210; S.M.T. [Eastern] Ltd. v. Ruch, [1940] 1
D.L.R. 190 (N.B.S.C.); and see also Paterson
Steamships, Ld. v. Canadian Co-operative Wheat
Producers Ld., [1934] A.C. 538 (P.C.), at page
544). The liability of a common carrier is action
able on the case "which action wants not the aid of
a contract to support it" (Bretherton v. Wood
(1821), 3 Brod. & Bing. 54 (Ex. Ch.), page 62).
Although not strictly a common carrier, a carrier
of goods by sea incurs the liability of a common
carrier (Liver Alkali Company v. Johnson (1874),
L.R. 9 Exch. 338). The Hague Rules modified
these common law principles in the case of car
riage of goods by sea under a contract covered by
a bill of lading (Stag Line, Ld. v. Foscolo, Mango
& Co., Ld., [1932] A.C. 328 (H.L.) per Lord
Atkin at page 340). Thus, for example, the carri
er's obligation to make his ship seaworthy became
by the Hague Rules an obligation to exercise "due
diligence" to make it so. The trend in recent years
toward granting relief in tort for negligent
performance of a contractual obligation notwith
standing the existence of a contractual relationship
has not been limited to cases of professional negli
gence or negligence of those exercising common
callings (Esso Petroleum Co. Ltd. v. Mardon,
[1976] Q.B. 801 (C.A.); Batty v. Metropolitan
Property Realisations Ltd., [1978] Q.B. 554
(C.A.)), and liability in tort for professional negli
gence has been rested upon broad grounds rather
than upon the mere existence of contractual rela
tionship (Maryon (John) International Ltd. et al.
v. New Brunswick Telephone Co., Ltd. (1982),
141 D.L.R. (3d) 193 (N.B.C.A.)).
The past few years has seen a virtual revolution
in the development of the common law of negli
gence, triggered by the decision of the House of
Lords in the case of Donoghue v. Stevenson,
[ 1932] A.C. 562 and expanded by its decisions in
Hedley Byrne & Co. Ltd. v. Heller & Partners
Ltd., [ 1964] A.C. 465 and Dorset Yacht Co. Ltd.
v. Home Office, [1970] A.C. 1004. More recently,
in Anns v. Merton London Borough Council,
[1978] A.C. 728, the House of Lords summed up
the current position as to when a prima facie duty
of care arises and the limitations upon its scope in
these words of Lord Wilberforce (at pages
751-752):
Through the trilogy of cases in this House—Donoghue v.
Stevenson [1932] A.C. 562, Hedley Byrne & Co. Ltd. v. Heller
& Partners Ltd. [1964] A.C. 465, and Dorset Yacht Co. Ltd. v.
Home Office [1970] A.C. 1004, the position has now been
reached that in order to establish that a duty of care arises in a
particular situation, it is not necessary to bring the facts of that
situation within those of previous situations in which a duty of
care has been held to exist. Rather the question has to be
approached in two stages. First one has to ask whether, as
between the alleged wrongdoer and the person who has suffered
damage there is a sufficient relationship of proximity or neigh
bourhood such that, in the reasonable contemplation of the
former, carelessness on his part may be likely to cause damage
to the latter—in which case a prima facie duty of care arises.
Secondly, if the first question is answered affirmatively, it is
necessary to consider whether there are any considerations
which ought to negative, or to reduce or limit the scope of the
duty or the class of person to whom it is owed or the damages
to which a breach of it may give rise: see Dorset Yacht case
[ 1970] A.C. 1004, per Lord Reid at p. 1027.
This important decision was applied in Junior
Books Ltd. v. Veitchi Co. Ltd., [1983] 1 A.C. 520
(H.L.) dealing with liability for pure economic loss
and by a majority of the Supreme Court of
Canada in Kamloops (City of) v. Nielsen et al.,
[ 1984] 2 S.C.R. 2; 54 N.R. 1.
In support of his argument that the respondent's
cause of action lies in contract alone, counsel for
the appellant places heavy reliance upon the deci
sion of the House of Lords in Elder, Dempster &
Co. v. Paterson, Zochonis & Co., [ 1924] A.C. 522.
Although the contract of carriage in that case was
not subject to the Hague Rules, it is the principle
of that decision and its subsequent treatment in
this country that is emphasized by the appellant.
The case involved the carriage by sea of casks and
butts of palm oil covered by a bill of lading issued
by the charterer and excluding liability for dam
ages arising from other goods by stowage. The
barrels were overstowed with other cargo the
weight of which crushed them and in consequence
the palm oil was lost. The cargo owner brought an
action for breach of contract or alternatively for
negligence and joined both the charterer and the
shipowner. It was asserted that there had been
negligent stowage and that the negligence had
arisen independently of the contract so as to render
the bill of lading exclusion inapplicable, especially
in the case of the shipowner. These arguments
were rejected. It was held that the charterer and
the shipowner alike were protected by the bill of
lading. Viscount Finlay thought that there was
liability for unseaworthiness but he, too, rejected
the alternative argument based upon tort giving
the following as his reasons for so doing (at page
548):
If the act complained of had been an independent tort uncon
nected with the performance of the contract evidenced by the
bill of lading, the case would have been different. But when the
act is done in the course of rendering the very services provided
for in the bill of lading, the limitation on liability therein
contained must attach, whatever the form of the action and
whether owner or charterer be sued. It would be absurd that
the owner of the goods could get rid of the protective clauses of
the bill of lading, in respect of all stowage, by suing the owner
of the ship in tort.
The other Law Lords agreed but for different
reasons. It seems to me that the words of Viscount
Finlay quoted above stand clearly for the proposi
tion that a party to a contract of carriage will not
succeed in getting rid of an expressed exclusion
contained in the contract by casting his action in
tort unless the tort was unconnected with the
performance of the contract evidenced by a bill of
lading.
In 1972 the Elder, Dempster case was applied
by the Supreme Court of Canada in Nunes Dia
monds (J.) Ltd. v. Dominion Electric Protection
Co., [1972] S.C.R. 769. There, the respondent
contracted to supply and install an alarm system in
a safe belonging to the appellant, a Toronto dia
mond merchant. The contract expressly excluded
"conditions, warranties and representations" made
by the respondent, its officers, servants or agents
other than those contained in the document. It also
contained a clause limiting liability to $50 for any
case of failure to perform the service. Diamonds
were stolen from the safe when it was broken into.
The Supreme Court of Canada agreed with the
courts below that there had been no breach of
contract in-that the system had functioned proper
ly but had been clearly by-passed by the burglars.
The appellant relied as well upon certain extra-
contractual statements as founding a cause of
action apart from contract for negligent misstate
ment on the principle of the Hedley Byrne case.
The majority of the Court concluded that the
statements were not actionable but in rejecting the
point Pigeon J., speaking for the majority, had this
to say (at pages 777-778):
Furthermore, the basis of tort liability considered in Hedley
Byrne is inapplicable to any case where the relationship be
tween the parties is governed by a contract, unless the negli
gence relied on can properly be considered as "an independent
tort" unconnected with the performance of that contract, as
expressed in Elder, Dempster & Co. Ltd. v. Paterson, Zochonis
& Co., Ltd. ([1924] A.C. 522), at p. 548. This is specially
important in the present case on account of the provisions of
the contract with respect to the nature of the obligations
assumed and the practical exclusion of responsibility for failure
to perform them.
That case, of course, was not concerned with a
contract for the carriage of goods by water. But
even so, the Supreme Court of Canada, like the
House of Lords in the Elder, Dempster case,
would not permit a party to a contract to escape
the effect of an express provision excluding a
liability arising within the contractual relationship
that existed between the parties.
As will be seen from the professional liability
and other cases referred to above, even more water
has passed under the keel since 1972. Moreover, in
1981 the Supreme Court of Canada discussed the
co-existence of contractual and delictual fault in
the case of Wabasso Ltd. v. National Drying
Machinery Co., [1981] 1 S.C.R. 578. There, the
appellant sought in an action instituted in the
Superior Court at Trois-Rivières to fix the
respondent, a United States firm, with liability
based upon Article 1053 of the Quebec Civil Code.
A few years after the respondent had installed
certain equipment in the appellant's premises at
Trois-Rivières the premises were destroyed by fire
which, allegedly, was caused by the fault of the
respondent. The respondent attacked the jurisdic
tion of the Superior Court on the ground, inter
alia, that the action was for a breach of contract
made in the United States. The appellant claimed
that the Superior Court had jurisdiction because
"the action is based on facts and acts which
occurred at Trois-Rivières, and the wrongful acts
... occurred at Trois-Rivières". It was argued that
because of the existence of the contract there could
be no delictual fault, but the Supreme Court of
Canada disagreed. The principle of the case, it
seems to me, is very broadly stated and is found in
these few words of Chouinard J., speaking for the
Court, (at page 590):
I conclude that the same fact can constitute both contractual
fault and delictual fault, and that the existence of contractual
relations between the parties does not deprive the victim of the
right to base his remedy on delictual fault.
So far as I am aware, the question whether there
can be concurrent liability in contract and in delict
in a case of this kind has not been the subject of a
prior decision of a court in this country. In my
view, it needs to be answered in the light of the
foregoing discussion. Before doing so, I would note
in passing that a cause of action in tort against a
carrier has been held to lie at common law in
favour of a third party provided he owned the
goods at the time of the loss (Simpson v. Thomson
(1877), 3 App. Cas. 279 (H.L.), at pages 289-290;
Margarine Union G.m.b.H. v. Cambay Prince
Steamship Co. Ltd., [1969] 1 Q.B. 219, at pages
236-237). Moreover, a buyer of goods has been
held to have a good cause of action in tort against
a carrier notwithstanding that he did not own the
goods at the time of the loss (Schiffahrt-Und
Kohlen G.m.b.H. v. Chelsea Maritime Ltd. (The
"Irene's Success"), [1981] 2 Lloyd's Rep. 635
(Q.B.)).
I have concluded that the learned Trial Judge
correctly decided that the respondent is entitled to
recover damages for delictual fault or negligence
notwithstanding the existence of the contract of
carriage. That, it seems to me, results from the
broad principle laid down in the Wabasso case.
Failure to exercise due diligence constituted a
contractual fault as well as a delictual fault. I
would regard that failure, as Lord Devlin did in
Union of India v. N. V. Reederij Amsterdam,
[1963] 2 Lloyd's Rep. 223 (H.L.), at page 235, as
"negligence". I do not see how its character as
such is altered merely by the existence of a con
tractual relationship creating a corresponding con
tractual duty. As I see it, it was this negligence
that caused the stranding and for it the appellant
is answerable in delict as well as in contract.
On the other hand, I fully agree with the appel
lant's contention that the respondent ought not to
be able to sidestep contractual provisions limiting
its liability merely by asserting delictual fault. To
borrow Viscount Finlay's phrase in the Elder,
Dempster case (at page 548) limitation of liability
must apply "whatever the form of the action".
Clearly, the respondent cannot recover its damages
twice over and those damages, when ascertained,
are to be limited "per package or unit" as I have
already decided. In this regard the following words
of Sir John Donaldson M.R. in The "Raphael",
[1982] 2 Lloyd's Rep. 42 (C.A.) commend them
selves to me as expressing the principle which I
think should be applied here. He said (at page 46):
But I know of no case in which words of exclusion have been
held to operate in relation to a liability for breach of an
obligation in contract, but not to affect liability for breach of
the self-same obligation in tort. Indeed, the whole concept of a
hypothetical discussion between two parties, other than law
students, which led to such an agreement is patently absurd.
The parties did not lay down at trial a sufficient
evidentiary basis upon which we can determine the
measure of the respondent's damages. They were
content, it appears, to have the Trial Judge decide
the case on its merits and to have the damages
referred. In my view, which heads of damages
claimed are recoverable must be determined in the
Trial Division. That cannot be done by the referee
whose function it is to calculate the amount of
damages following that determination. The matter
ought therefore to be remitted to the Trial Division
to make its determination upon evidence adduced
by both sides. After that, the reference may pro
ceed for a calculation by the referee of recoverable
damages.
General Average
The appellant asserts that the Trial Judge erred
in concluding that the proportionate share of gen
eral average attributable to the respondent's inter
est in the adventure and totalling $604,763.64, is
not recoverable. The respondent supports that con
clusion but adds a further argument against recov
ery. It says that general average ought not to have
been declared in the first place because a true
general average situation did not exist. The barge
remained firmly stranded on the shoal without
prospect of being refloated until after break-up of
the ice in the summer of 1973. Refloating of the
barge in the summer of 1973 became possible only
after the removal of certain items of cargo.
I have some difficulty in acceding to the
respondent's argument. The barge was virtually
high and dry at low tide. The general average
surveyor who was present at the refloating opera
tion reported that "it was touch and go" whether
the operation would succeed. It was done with an
anchor and tackle. A tug was present but, for lack
of water, it had to stand off. The barge had to be
moved from the shoal over a sandy bottom and
across two other sand banks which she touched
during the operation. In the words of the surveyor:
"The barge slowly came off the bank, stopped,
started, grounded, but eventually it was afloat."
The barge appeared not to have been in a position
of imminent danger of destruction; nor, while it
remained on the shoal, was it in a position of
mercantile safety. It was completely immobilized.
I think the following words of Willmer J. in The
Glaucus (1948), 81 Ll. L. Rep. 262 (Adm.) (at
page 266) cover the situation here:
It is no use saying that this valuable property, worth something
approaching a million pounds, is safe, if it is safe in circum
stances where nobody can use it. For practical purposes, it
might just as well be at the bottom of the sea.
I therefore agree that a true general average situa
tion did exist in this case.
On the other hand, the law is also clear that a
carrier is not entitled to recover from a shipper a
contribution in general average where the general
average situation was brought about by his own
actionable fault. The position is made clear in
Goulandris Brothers Ltd. v. B. Goldman & Sons
Ltd., [1958] 1 Q.B. 74. In that case the Court was
called upon to interpret Rule D of the York-
Antwerp Rules, 1950:
Rights to contribution in general average shall not be affect
ed, though the event which gave rise to the sacrifice or expendi
ture may have been due to the fault of one of the parties to the
adventure; but this shall not prejudice any remedies which may
be open against that party for such fault.
Pearson J. concluded that "rights" to a general
average contribution could be overriden by "reme-
dies" for faults. He said (at pages 92-93):
In my view that is clearly the intended mode of operation of the
two parts of rule D, and it affords the clue to the interpretation
of the rule. The first part refers to the rights to contribution in
general average as they will be set out in the average adjust
ment, and these are properly and naturally called "rights,"
because normally the holder of such rights is entitled to receive
payment. But the second part of the rule provides that the first
part is not to prejudice remedies for faults. That implies that in
some cases the remedies referred to in the second part of the
rule will override the rights referred to in the first part; in other
words, the second part operates as a proviso, qualifying, over
riding, cutting down or derogating from the first part. The
rights may be nullified or defeated or diminished or otherwise
affected by the remedies. In that sense the rights referred to in
the first part of the rule are prima facie rights because they are
subject to the remedies.
The position, therefore, is that the claimants have their
prima facie right to recover from the respondents contribution
in general average, but the respondents may be able to defeat
that right by using their "remedies" for the claimants' "fault."
The Supreme Court of Canada gave Rule D a
similar interpretation in Federal Commerce and
Navigation Co. Ltd. v. Eisenerz, [ 1974] S.C.R.
1225. See also "Lowndes & Rudolph, General
Average and the York Antwerp Rules", 10th ed.,
British Shipping Laws, Vol. 7, para. 67 at pages
36-37.
Moreover, the contract of carriage incorporated
the "New Jason Clause" which, on a fair interpre
tation does not entitle the appellant to recover a
contribution in general average from cargo if it
was responsible for the situation "by statute, con
tract; or otherwise". In my judgment, the Trial
Judge correctly concluded that the appellant
cannot recover a general average contribution. The
appellant was obliged to exercise due diligence to
make the tug and barge seaworthy. Its failure to
do so was due entirely to its own negligence and it
was that negligence that caused the stranding and
the resulting loss. Had due diligence been exer
cised, as it ought to have been, the stranding would
not have occurred and declaration of general aver
age would have been unnecessary. As the appellant
was itself at fault it cannot expect the respondent
to contribute anything in general average.
The Trial Judge deferred a decision on the
appellant's counterclaim for 50% of the cost of
helicopter fuel until after a reference. That was
unnecessary since the amount was liquidated and
no further proof was required. It was unfair that
the appellant should continue out-of-pocket for
the cost of this fuel.
The cross-appeal against the refusal to allow
the respondent to set-off its damages against the
balance of freight charges had become academ
ic, the freight having been paid pursuant to a
judgment. There was much authority supporting
the Trial Judge in holding that there could not be a
set-off in a case of this kind.
In its amended statement of claim, the respond
ent had claimed "interest at the legal rate" on its
damages. The Trial Judge allowed interest at 5%.
Although this Court had dismissed an application
to amend the amended statement of claim to
claim interest in excess of the "legal rate", that
was not a bar to raising the interest rate issue on
this cross-appeal. Since the application was con
cerned only with the propriety of allowing an
amendment to the pleading subsequent to trial,
the principle of res judicata did not apply. But no
attempt to claim an increased interest rate was
made prior to judgment and no evidence support
ing a higher rate was led at trial. This aspect of
the cross-appeal should accordingly be rejected.
The appellant's argument, that a decision as to
costs should have awaited completion of the ref
erence, could not be accepted. The Trial Judge
correctly decided that the respondent should
have judgment. Variation of that judgment upon
appeal did not justify interference with that exer
cise of discretion.
The appeal should succeed in part and the
cross-appeal fail. The defendant may limit its
liability pursuant to the Carriage of Goods by
Water Act but not under the Canada Shipping
Act.
URIE J.: I agree.
MAHONEY J.: I agree.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.