Application of statutory limitations of liability in the face of silence by shippers and carriers for carriage of goods within Canada – Eric Machum and Luke Hunter, Metcalf & Company, Halifax, NS

CTLA Feature Articles and Case Notes

You Say it Best, When You Say Nothing at All…

Application of statutory limitations of liability in the face of silence by shippers and carriers for carriage of goods within Canada

Introduction

What happens when the parties to a contract for the carriage of goods don’t stipulate any liability terms and something goes wrong? Statutory liability provisions ride to the rescue (sometimes). In this article we examine such terms and conditions, primarily in the marine and road transport context. The terms of rail carriage in Canada have in the past been subject to considerable regulatory supervision but are now largely a matter of freedom of contract. Air cargo, while subject to standard terms for international transport, is also a matter for freedom of contract in the domestic context.

The default conditions for carriage of goods by water in Canada are the HagueVisby Rules [Rules] as incorporated into law by the Marine Liability Act, S.C. 2001, c. 6 [MLA]. In general, the Rules will apply unless the parties specifically turn their minds to excluding them, though there are potential applicability questions such as whether the contract in question is for the “carriage of goods” as that term has been judicially interpreted, or similarly whether particular cargo will be considered “goods” under the definitions contained in the Rules themselves. Some of these questions will be explored below.

For road carriage, all Provinces except Newfoundland & Labrador have legislated uniform conditions of carriage. The conditions themselves are very similar across the provinces – e.g., regarding the $2.00/ lb limit of liability, but there are legislative variations with respect to how the conditions of carriage apply or are incorporated into the contract of carriage, and around bill of lading issuing requirements. In accordance with the federal Conditions of Carriage Regulations, SOR/2005-404, extra-provincial trucking is subject to the conditions of carriage and limitations of liability set out in the laws of the province in which the transport originates. As will be seen, courts have wrestled with deciding whether to allow carriers to rely on the limitation of liability provisions in the uniform conditions in the absence of a bill of lading or other evidence about the carriage contract’s terms.

The courts in different provinces have at times gone in different directions on the applicability of the limitation of liability. This is largely based (ostensibly) on a nuanced reading of the different legislative language used, but it is clear too that different judges have simply brought different approaches and values to this problem. In response, some provinces, including Ontario, have legislated to try to settle the debate, but the issue likely remains live in other jurisdictions.

Eric Machum and Luke Hunter*

Marine

For carriage of goods by water the Hague-Visby Rules apply in accordance with subsections 43(1) and (2) of the MLA which state as follows: 43 (1) The Hague-Visby Rules have the force of law in Canada in respect of contracts for the carriage of goods by water between different states as described in Article X of those Rules. (2) The Hague-Visby Rules also apply in respect of contracts for the carriage of goods by water from one place in

Canada to another place in Canada, either directly or by way of a place outside Canada, unless there is no bill of lading and the contract stipulates that those Rules do not apply.

Applying the Rules by default to Canadian domestic shipping provides the obvious benefit of a uniform set of conditions for all water transport and also takes advantage of the balance struck between cargo and ship owning interests in the original negotiation of the Rules. Furthermore, given the widespread use of the Rules around the world, there is a large body of case law to which Canadian courts can turn when faced with cargo claims.

The basic bargain is that the carrier cannot completely excuse itself from all liability for loss or damage to “goods”, but in exchange it can limit its liability to a predictable measure, in the case of the Rules “666.67 units of account per package or unit or 2 units of account per

kilogramme of gross weight of the goods lost or damaged, whichever is the higher” (Article IV(5)(a)).

While the Rules normally only apply between states party, s. 43(2) of the MLA extends the application to purely domestic carriage if three conditions are met: 1. there is a “contract for the carriage of goods by water”; 2. there is no bill of lading; and 3. the contract stipulates that the Rules do not apply.

As a result, even a simple oral contract for marine transportation that is silent about the Rules may be subject to the standard conditions, including the limitation of liability in Article IV.

As early as 1959 the Supreme Court of Canada had held in Anticosti Shipping Co. v. St-Amand, [1959] S.C.R. 372 that a contract for the carriage of goods was “covered” by a bill of lading and therefore subject to the Hague Rules, even though the bill of lading was not issued at the time of the loss.

However, s. 43(2) of MLA was more squarely addressed by the Federal Court of Appeal in Mercury XII (Ship) v. MLT-3 (Belle Copper No. 3), 2013 FCA 96 [Mercury].

The case involved an oral contract to transport a truck loaded with building materials by tug and barge to an island near Vancouver. On the final return voyage, the barge swung while the truck was attempting to drive onto the barge and fell into the water. Crucially, as it turns out, the parties agreed the barge owner would be paid on an hourly basis for the use of the tug and barge and the truck operator remained on board the truck.

The barge owner, Mercury, sought to rely on the Hague-Visby Rules to take advantage of the one-year limitation period prescribed by the Rules. The truck owner argued that the Rules did not apply.

The trial judge linked the defined term, “contract for the carriage of goods” in s. 43(2) of the MLA to the term “contract of carriage” in the Rules and held that because the Rules require a contract “covered by a bill of lading or similar document of title”, the Rules could not apply domestically to an oral contract. However, this conclusion was overruled by the Federal Court of Appeal, which undertook a more thorough examination of s. 43(2) of the MLA.

The Federal Court of Appeal held that as it was faced with an oral contract, there was obviously no bill of lading, but as noted above, s. 43(2) of the MLA further requires that the contract between the parties stipulate that the Rules do not apply if those Rules are to be ousted. In the case, the oral contract made no reference at all to the Rules. The court accepted that an oral contract with no bill of lading that is silent on the Rules is therefore subject to them.

However, on the issue of whether the contract was a “contract for the carriage of goods by water”, the court held that in this case it was not. The court found that the contract was a time charterparty because the invoice for Mercury’s services was based on an hourly rate for the use of the tug and barge. The court then followed its earlier decision in Canada Moon Shipping Co. Ltd. v. Companhia Siderurgica PaulistaCosipa, 2012 FCA 284 [The Federal EMS], which had held that the term “contract for the carriage of goods by water” does not apply to charterparties, i.e., contracts for vessel hire.

In short, the scope of application of the Rules under s. 43(2) of the MLA is broader than that of the Rules themselves. In the domestic context, the Rules apply to all contracts of carriage, including those covered by waybills, non-negotiable receipts, or nothing at all. Merely overlooking or deciding not to issue a bill of lading will not oust the Rules.

Further interesting questions were raised in the Mercury case, but did not require a decision given the court’s determination that the contract was not a “contract for the carriage of goods by water”. For example, the “difficult” question whether the truck was “goods” within the meaning of s. 43(2) of the Act was left unanswered. It appears an argument was advanced before the court that the truck was not goods because it was only equipment used to load and unload the building materials. In our view, it is not clear why the use given the “goods” would be particularly relevant from the point of view of the carrier, the Rules, or s. 43(2) of the Act.

A further question, yet unanswered, is whether s. 43(2) of the MLA is concerned at all with undeclared deck cargo. If the definition of contract of carriage is broader under s. 43(2) of the MLA, then it is not clear why the definition of “goods” would not also be the same or broader than under the Rules.

Road

The application of statutory carriage conditions to informal contracts, or contracts without a bill of lading has also come up in the context of carriage of goods by road.

As noted above, the statutory uniform conditions of carriage are largely similar across Canada, but the bill of lading issuing requirements and the language used to apply the conditions to the contract vary. On that basis, and interpretive differences, the courts have also differed on whether a carrier can rely on the statutory limitation of liability in the absence of a bill of lading.

One of the early court of appeal cases on the issue of applying the statutory conditions to a carriage contract with no bill of lading is Corcoran v. Ehrlick Transport Ltd. et al., [1984] 46 O.R. (2d) 225 (O.N. C.A.) [Corcoran]. The contract was concluded orally for the carriage of a horse, and though a bill of lading was subsequently drawn up, it was never given to the shipper. The court held that the carrier could not rely on the limitation of liability, reasoning that allowing the carrier to do so would frustrate the statutory scheme by depriving the shipper of the opportunity to declare on the bill of lading the full value of the cargo and thus take the limitation of liability out of operation (this is the same mechanism that operates under Article IV(5)(a) of the Hague-Visby Rules cited above).

This finding was made notwithstanding that the Ontario act in force at the time stated that: 12(3) The conditions set out in

Schedule A [i.e., the standard

conditions including the limitation of liability] shall be deemed to be a part of every contract for the transportation of goods for compensation other than a contract for transportation for compensation between a freight forwarder and a shipper.

The equivalent of this clause in the Alberta legislation was given thorough consideration a few years later by the Alberta Court of Appeal in Hoskin v. West (Alta. C.A.), [1988] A.J. No. 1140 [Hoskin]. Like Corcoran, there was no bill of lading issued for the carriage and no indication that the parties had discussed the application of the uniform conditions or limitation of liability. The court in Hoskin, however, reached the opposite conclusion from the Ontario Court of Appeal and allowed the carrier to rely on the limitation of liability in the uniform conditions.

The court distinguished Corcoran on the basis that the relevant Alberta legislation placed the obligation to issue a bill of lading on either the shipper or the carrier, which the court found to be akin to the situation in Anticosti where the carrier was only required to issue a bill of lading on demand of the shipper.

However, what appears really to have persuaded the Alberta Court of Appeal was the language in the Alberta legislation which stated that: 5(1) Every agreement for the transportation of goods to which section 3 applies is deemed to include those terms and conditions contained in the conditions of carriage set out in

Schedule 3 [i.e., the uniform conditions of carriage including limitation of liability].

This is basically the same language as in the Ontario legislation, but was given interpretive primacy on the basis that the contract of carriage will always be concluded before the bill of lading is issued, and that the bill of lading is really just evidence of the contract’s terms – a point which was set out in Pyrene v. Scindia Navigation Company, [1954] 2 Q.B. 402 at 419, the case on which the Supreme Court of Canada relied in Anticosti.

Cases that have sought to reconcile these decisions have pointed to the variation in statutory language (see e.g., Byers v. United Parcel Service Canada Ltd., [2004] S.J. No. 411 (S.K. Prov. Ct.), but what really appears to have driven the decision in Hoskin is the mandatory deeming language being applicable to the contract, and placing less significance on what may in some cases be the formality of issuing the bill of lading, regardless of the regulatory directive to do so.

In B.C., prior to regulatory reform, the general rule was that the carrier would be denied the benefit of the limitation of liability in the uniform conditions where the requirements pertaining to issuance of the bill of lading were not strictly complied with, unless the parties agreed to other terms for their contract, either expressly, by course of dealings or industry practice (Paine Machine Tool Inc. v. Can-Am West Carriers Inc. (2003), 177 B.C.A.C. 142 (CA) at para. 25; in Valmet Paper Machinery Inc. v. Hapag-Lloyd AG, [2004] B.C.J. No. 2085 and Arnold Bros. v Western Greenhouse Growers Coop. Assn. (1992) 14 B.C.A.C. 220 (CA)). Similarly, in Hydro-Québec c. Grant Float Services Inc. (C.A.Q.), [1991] J.Q. no 2237, the Quebec Court of Appeal affirmed the lower court’s holding that the carrier could not rely on art. 12(1) in the uniform conditions where the carrier failed to issue a bill of lading.

Other provinces have similar language to the Alberta and Ontario statutes in Hoskin and Corcoran. For example, s. 7 of Nova Scotia’s Carriage of Freight by Vehicle Regulations, NS Reg 24/95 states: 7 Except as otherwise provided by or under these regulations, the following clauses are prescribed as uniform conditions of carriage of freight by a motor carrier and are deemed to be part of every contract for the carriage of freight by a motor carrier and shall be contained or incorporated by reference in every bill of lading relating to the carriage of freight by a motor carrier:

A recent small claims decision in Nova Scotia, Flying Fresh Air Freight (c.o.b. FFAF Cargo) v. Connors Transfer Ltd., [2020] N.S.J. No. 419 (N.S. Small Claims) [Flying Fresh] denied the carrier the right to limit liability under the statutory conditions as there was no bill of lading issued, nor did the contract mention the application of the uniform conditions. The parties did however have a long-standing commercial relationship which had its own terms limiting liability and which the adjudicator ultimately applied. The adjudicator referred to the Anticosti decision, but not to Corcoran or Hoskin so it is difficult to predict whether future cases in Nova Scotia will follow the same path as Flying Fresh.

Indeed, in Newfoundland an identical provision in s. 44 of its Regulations (now repealed) was held to apply and give the carrier the benefit of a limitation of liability regardless of the fact that no bill of lading was issued (Port Enterprises Ltd. v. Parsons Trucking Ltd., [1985] N.J. No. 300).

A legislative aspect that does not appear to have been raised before the adjudicator in Flying Fresh was the possible interaction between the federal Conditions of Carriage Regulations, SOR/2005-404 and the Nova Scotia Carriage of Freight by Vehicle Regulations, NS Reg 24/95.

Subsection 1(1) of the federal regulations state: 1 (1) Subject to subsection (2), the conditions of carriage and limitations of liability that apply to transport by an extra-provincial truck undertaking are those set out in the laws of the province in which the transport originates, as amended from time to time, that are applicable to transport by a motor carrier undertaking within that province.

It appears the shipments at issue in Flying Fresh were interprovincial, therefore, assuming the carriage in Flying Fresh was an “extra-provincial truck undertaking”, the transport at issue would be subject to “the conditions of carriage and limitations of liability … set out in the laws of the province in which the transport originates”, i.e., Nova Scotia.

The question is whether the federal legislation applies the whole of the Nova Scotia regulations or only the uniform conditions of carriage, which are just the

subparagraphs of s. 7.

If it is only the uniform conditions of carriage that apply, then the requirement to issue a bill of lading no longer appears to be an obstacle to the application of the limitation of liability contained in the uniform conditions and thus the $2.00/lb limit set out at s. 7(k) of the Nova Scotia regulations should have applied by operation of s. 1(1) of the federal provisions (though they may have been ousted by the parties’ existing agreement). This is the view set out by John S. McNeil, Q.C. in his Motor Carrier Cargo Claims, 5th ed. (2007), p. 48-49.

Some provinces, including Ontario, B.C. and Manitoba have responded to the Corcoran decision and those following it by amending the legislation to resolve the question in favour of the application of the uniform conditions, regardless of the issuance or not of a bill of lading. This is unsurprising given that the purpose of having uniform conditions is to encourage predictability in contractual relationships, and may also accord better with commercial practice in the trucking industry where it is unreasonable to expect bills of lading to be ‘issued’ for every shipment.

Thus, s. 191.0.1(2) of Ontario’s Highway Traffic Act, R.S.O. 1990, c. H.8 reads: (2) Where a person is hired for compensation to carry the goods of another person by commercial motor vehicle in circumstances where no contract of carriage has been entered into, then a contract of carriage shall be deemed to have been entered into, and the terms and conditions of the deemed contract of carriage shall be as set out in, and shall apply to such persons as are set out in, the regulations.

Another instance is s.2(2) of Manitoba’s Bills of Lading and Uniform Conditions of Carriage Regulation, Man Reg 16/2019: 2(2) The uniform conditions of carriage set out in Schedule A are deemed to be incorporated into any contract of carriage for the transportation of general freight by means of a vehicle on a highway, regardless of whether a bill of lading is issued as required under subsection (1).

In B.C., pursuant to s. 37.45 Motor Vehicle Act Regulations, BC Reg 26/58, as amended by B.C. Regulation 135/2003, a carrier need not issue a paper bill of lading if it issues electronic bills of lading and obtains a “letter of exemption” from the requirement to do so.

The Ontario and Manitoba amendments are wholly consistent with Anticosti and the underlying Pyrene v. Scindia Navigation Company judgment which gave precedence to the intentions of the parties and commercial practice – in which the contract of carriage is always concluded prior to drawing up and issuing the bill of lading – rather than the strictest compliance with regulatory requirements.

The conclusion is that for some provinces and probably inter-provincial road transport, the uniform carriage conditions will apply, including the limitations of liability, regardless of whether a bill of lading has been issued or whether the contract between the parties mentions the standard terms.

Furthermore, the legislative momentum appears to be towards ensuring that the uniform conditions apply in all cases unless the parties clearly agree otherwise. However, certain provinces, such as British Columbia and Quebec still place great emphasis on carrier compliance with the regulatory rules regarding issuance of bills of lading in order to access the limitation of liability in the uniform conditions.

Rail

Federally-regulated Canadian railways are now free to contract with individual shippers or groups of shippers, including on matters of limitation of liability, rather than being subject to regulated conditions of carriage and freight tariffs. See e.g., Canada Transportation Act, S.C. 1996, c. 10, s. 137.

Air

International cargo is subject to international conventions but liability for domestic cargo shipments is determined by the parties’ contract.