Transportation e-News - June 2010

Responsibility Determined for Pollution of Waters of Killer Whale Reserve

Responsibility has recently been determined for the much publicized pollution of the waters of the Robson Bight Ecological Reserve, a sanctuary to some of British Columbia’s killer whales.  On March 29, 2010 the Provincial Court of British Columbia found Ted Leroy Trucking Ltd. (“Leroy Trucking”) guilty of six counts of pollution charges that were laid under the Canada Shipping Act, the Fisheries Act and the Migratory Birds Convention Act.

The pollution charges were laid after a variety of Leroy Trucking’s logging equipment, alleged to contain more than 19,000 litres of petroleum products, fell overboard from a barge passing through the Robson Bight Ecological Reserve, thereby polluting the waters of the reserve. At the time, the barge was owned by Leroy Trucking and in tow of the tug M/V “Kathy L”, owned by Company G and captained by Company G's employee Captain S.  Leroy Trucking, Company G and Captain S were all charged.

Back to Top 

Olympic Aftermath: ATAC continues to seek compensation

Along with the Vancouver 2010 Olympics came flight restrictions that severely limited the operations of regional air carriers and flight schools.  Preliminary estimates are that the collective losses amount to over $7 million. 

The Air Transport Association of Canada (ATAC) has been lobbying the federal government to compensate affected operators since the security restrictions were first announced.  To date, no compensation has been offered and two letters to Prime Minister Stephen Harper have reportedly gone unanswered. 

On March 30, 2010, ATAC met with over a dozen impacted stakeholders.  It was decided that the group would continue to seek compensation from the federal government, and would consider any and all means, including litigation.  Since that time, ATAC has been compiling financial information regarding the losses incurred, a process which it is aiming to have completed by July 1, 2010.

Back to Top 

Court Orders Production of Cockpit Voice Recording

A judge of the Ontario Superior Court has ordered the Canadian Transportation Safety Board to produce a copy of the cockpit voice recording (“CVR”) in the multi-million dollar litigation which followed an overrun accident at Toronto’s Lester B. Pearson Airport.  On August 2, 2005, Air France Flight 358 approached Toronto Airport in a severe thunderstorm.  The aircraft landed almost halfway down the 9000 foot runway and reverse thrusters were not fully deployed for a further 17 seconds.  The aircraft left the end of the runway at approximately 80 knots, continuing over an open area until it slid into a ravine where it caught fire.

ICAO Annex 13, dealing with “Aircraft Accident and Incident Investigation”, provides that cockpit voice recordings and related transcripts shall not be made available unless a judge determines that disclosure outweighs the adverse effect on the integrity of future accident investigations.  In the United States and Europe, where domestic legislation echoes the ICAO language, safety authorities commonly disclose some or all of the contents of cockpit voice recordings, often attaching them as an appendix to accident investigation reports.

In Canada, the Transportation Safety Board has been far more rigorous in protecting the legal privilege conferred upon cockpit voice recordings by Section 28 of the Canadian Transportation Accident Investigation and Safety Board Act.  The disclosure of cockpit voice recordings has been aggressively opposed by Canadian pilot unions, who express concern that the contents of the recordings may be used for disciplinary purposes against pilots and argue that pilots may disable cockpit voice recorders rather than permit possible disclosure. 

The Ontario Superior Court judge concluded that the CVR contained “highly relevant, probative and reliable evidence that is central to the issues in the litigation”.  He found that there was no basis upon which one could conclude that the release of the CVR in this case (under appropriate restrictions of confidentiality) would interfere with aviation safety or damage relations between pilots and their employers.  On the contrary, he found that without the CVR evidence in this case, there would be a real risk that the parties and the Court would not have the best and most reliable evidence concerning the central issues in the case.  This case has been appealed by the Transportation Safety Board.  If the Court of Appeal sustains the trial court decision, it will provide a powerful precedent for a more balanced approach to the production of CVRs in Canada. 

Back to Top 

Legal Forum Selection:  My Place or Yours?

Honeywell Inc. leased an engine to Expedition Helicopters Inc. for use in its Astar 350 helicopter.  The engine failed and the aircraft crashed.  Expedition is located in Ontario and it sued Honeywell in Ontario.  Honeywell brought a motion to stay the action on the grounds that the Engine Lease Agreement contained a forum selection clause which stated that the Courts of Phoenix, Arizona, would have exclusive jurisdiction over any actions arising in connection with the engine lease.  Gauthier, J. of the Ontario Superior Court of Justice dismissed Honeywell’s motion and allowed the action to proceed in Ontario.

The language of the forum selection clause in the engine lease was clear and unambiguous.  While the Court acknowledged the importance of holding contracting parties to their agreements, it followed the decision of the Court of Appeal for Ontario in Mobile Mini Inc. v. Centre Line Equipment Rentals Ltd.:

“Although a forum selection clause will play a dominant role in deciding the appropriate forum, it is not determinative of that issue.”

A motion to stay a proceeding on the basis of a forum selection clause, which designates another jurisdiction as the appropriate forum, will be granted unless the plaintiff shows “strong cause” for not enforcing the clause.  Expedition argued that all of the evidence and witnesses necessary to prove its case existed in Ontario.

Interestingly, in a separate action commenced in South Carolina by the estate of a passenger killed in the accident, Honeywell had argued that Canada was a “far more appropriate and convenient forum for litigating the wrongful death action”.

Gauthier, J. noted Honeywell’s inconsistent position on jurisdiction and concluded that Honeywell’s motion “suggested an attempt at procedural advantage” as opposed to a genuine desire to have a trial in Arizona.

Back to Top 

Back in the Pilot's Seat: Transport Canada Takes Authority over Business Aviation Away from CBAA

Effective April 1, 2011, Transport Canada will take back the certification and oversight functions for business aviation (Subpart 604 operators) from the Canadian Business Aviation Association (CBAA).  Starting April 1, 2010, Transport Canada will begin enhancing its surveillance of the CBAA.

Transport Canada contracted these functions to the CBAA in 1999, when it initiated the “Flight 2005” program of self-regulation to promote a shared commitment to enhancing aviation safety in Canada and delegating safety management.

As a part of that program, Transport Canada introduced Canadian Aviation Regulation 604.01, which gave the CBAA certification and oversight functions for business aviation.  The CBAA committed to introducing and monitoring safety management systems (SMS) as a business tool in the management of flight operations.  Under the oversight of the CBAA, each operator was required to develop a safety management system that identified inherent operational risks, establish procedures for mitigating those risks and establish self-evaluation procedures.

Transport Canada's recent actions were in part motivated by an investigation report released last fall by the Transportation Safety Board, which identified serious deficiencies in an operator’s SMS.  The subject of the investigation was the crash of a Bombardier business jet at Fox Harbour on November 11, 2007.  In its report, the TSB observed:

“Since the inception of this new approach to regulating the Canadian Aviation Regulations (CARs) subpart 604 operators, Transport Canada did not exercise effective oversight of the CBAA, its accredited auditors or POC holders.  It did not have a program established to observe or participate in audits conducted by the CBAA’s accredited auditors to verify that this new approach was meeting its safety objectives.”

Canadian Transport Minister, John Baird, declared that the act of taking back Transport Canada's authority supported his previous comments in the House of Commons on December 1, 2009, when he stated that he "did not support outsourcing safety monitoring to organizations in the private sector" as he considers it to be a core responsibility of government and the department.

Implicit in this statement is the conclusion that the "Flight 2005" program is no longer Transport Canada policy.

Back to Top 

Global Process Systems Inc. & Anr v. Syarikat Takaful Malaysia
Berhad, [2009] E.W.C.A. Civ. 1398

In December, 2009, the English Court of Appeal handed down a decision which sheds new light on the difficult and changing meaning of the “inherent vice” exclusion in marine insurance policies. Inherent vice is a common exclusion, by statute and by time honoured wording. As the legal definition changes, so changes the claims that underwriters must pay. 

The classic definition of inherent vice was given in the 1983 English case of Soya v. White: “it means the risk of deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any fortuitous external accident or casualty.”

The Global Process case involved a large oil drilling rig which was carried as cargo on a barge from Texas to Malaysia via the Cape of Good Hope. The sea conditions were foreseeable, with 4 metre waves.  Fatigue cracking caused by repeated bending of the legs from the motion of the barge as it was towed caused one leg, and then others, to break and be lost.  Some degree of such fatigue cracking was inevitable. This claim raised the issue of whether underwriters can deny coverage based on inherent vice of the cargo, when the waves were no greater than reasonably expected. 

The trial judge held that there was no coverage because if the weather was foreseeable then the loss was not due to perils of the sea, and therefore must have been caused by an inherent vice in the cargo.  The Court of Appeal reversed that decision and found that there was coverage because the cause of the loss was a fortuity.

The policy in this case was a common all risks form, Institute Cargo Clauses (A), excluding among other things inherent vice. The UK Marine Insurance Act, 1906, like the Canadian Federal Marine Insurance Act (s.53(2)(b)) provides that inherent vice is excluded in every policy, unless the policy states otherwise.

In order to understand the Global Process decision and its implications, it is necessary to bear in mind some relevant legal principles. First, underwriters insure against risks which might happen, but not against events which must happen. Second, if there are two proximate causes of a loss, one of which is covered by the policy and the other is not excluded, the policy must pay for the whole of the loss. However, if there are two proximate causes, one of which is covered and one of which is expressly excluded, the policy does not pay. Third, inherent vice is not considered a proximate cause if there is a fortuity or accident that causes the loss. Only if a peril insured against is not a proximate cause can inherent vice be the sole and proximate cause of the loss.

The general rule is that the burden is on underwriters to prove an exclusion to coverage. The underwriter must therefore show that the proximate cause is inherent vice and that there was no other external and unexpected event which caused the loss. The difficulty in the Global Process case was that the waves experienced were entirely foreseeable, but they were not inevitable; the dispute was about whether such conditions were “fortuitous” within the definition of inherent vice in Soya, above. 

The Court of Appeal reformulated the test for what underwriters must prove in order to establish that the seas were so calm the cause of loss was probably inherent vice: the waves must be small enough that the parties understood that such waves would be bound to occur on any normal voyage of the kind being undertaken. This does not refer to certainty that they would occur, but reflects more than just reasonable foreseeability. It recognizes that an insurer would not cover damage to cargo flowing from the motion of a vessel in such seas, even if it was not certain to occur.

Applying the facts to the drilling rig, the Court of Appeal in Global Process found that the metal fatigue in the legs – which was the inherent defect – was not the sole cause of the loss.  The fatigue slowly weakened the legs.  Then, a “final straw” wave, which was foreseeable but not bound to occur on any normal voyage around the Cape of Good Hope, caused the leg to break, which then led the other legs to be at greater risk and break.  That “final straw” wave was from a fortuitous external cause and not “inherent vice”. Thus, the underwriter was obligated to pay for the loss.

One way to understand the reasoning in Global Process is that underwriters do not insure certainties, which are losses caused by things which were bound to occur. However, underwriters do insure the risk of things that are not bound to happen but might happen, which is a commercial risk for which businesses buy insurance; and includes losses like that in Global Process which, in hindsight, are probable but not inevitable.  Businesses would not buy insurance only against unforeseeable (i.e. extremely rare) events; if underwriters could exclude claims for “inherent vice” unless there was an extremely rare event, then underwriters could avoid most claims involving non-extreme weather.

Applying the decision to a local British Columbia voyage - for example, across Georgia Strait - to rely on inherent vice, underwriters will need a weather expert to prove what waves actually caused the damage, and that those waves were “bound” to occur on that voyage at that time. If conditions were worse than these inevitable waves, this is a fortuity, and the underwriter will not be able to avail itself of the inherent vice defence. This may be difficult to prove and it will be interesting to see where courts draw the line on the probability required.  For example, are the conditions required to be present 99% of the time to be considered “bound” to occur or would 95% suffice?

Back to Top 

Rotterdam Rules:  An Update

Since the official signing ceremony on September 23, 2009, the Rotterdam Rules, representing the culmination of 10 years of vast international negotiation, has been signed by 21 states, including the United States. Although it has not been ratified by any state, there is now pending US domestic legislation in which, if passed, it would adopt Rotterdam, which would then to apply to all contracts governed by, or invoking, US law.

If 20 countries ratify Rotterdam, it will be in force in those countries, as well as any who adopt it as domestic legislation. Although Canada has not signed or adopted Rotterdam, Canadians must prepare for the possibility that should the US and/or other major Canadian trading partners adopt it, Canada may do so as well, or at the very least, it will apply to contracts governed by the law of countries who have ratified it.

A prime objective of Rotterdam is to create a globally uniform liability regime for door-to-door carriage of goods. This article  briefly summarizes the anticipated effects of Rotterdam for the Canadian transportation industry, particularly cargo interests, which effects are largely negative.

Problems with Rotterdam

Rotterdam has failed to meet its goals in 4 major ways:

• Freedom of contract, to vary most terms of Rotterdam, is allowed for “volume contracts” which are broadly defined.  Carriers will arrange to carry most goods under “volume contracts”, adding great uncertainty to carriage of goods situations.
• The exceptions to the door-to-door provisions of Rotterdam are so broad that they do not solve the problem of inconsistent inland liability regimes in different countries.  Also, some provisions can be opted out of by ratifying states, including the choice of forum provisions.  Uniformity of law will not be achieved.
• The Rotterdam liability regime is significantly different from existing, established, liability regimes. Unless Rotterdam is immediately widely adopted (which is unlikely) it will create yet another unwanted liability regime.  Uniformity of law will be set back.
• The drafting is long, complex and difficult to understand in its original drafting language, English.  Interpretations of Rotterdam will vary between countries that adopt it. 

Effect of Rotterdam on Cargo Insurers
The overall effect of Rotterdam will be to allow ocean carriers to avoid, by bill of lading terms, liability for the damage that only they have the ability to prevent.  This will encourage carriers to cut costs by reducing safety precautions, increasing the number of claims for which the carriers will pay no direct costs.  Cargo interests and their insurers will bear these costs.

The effect on insurance policies will not be so much on wordings, but on loss ratios.

Effect of Rotterdam on Transport Intermediaries, Cargo Interests, and Contracting Parties
Freight forwarders will probably face more lawsuits under Rotterdam than at present.  Rotterdam is more likely to allow the ocean carrier to avoid liability under volume contracts, leaving forwarders more exposed to cargo claims because forwarders have more “one off” (not “volume”) contracts with shippers than do carriers.  The result is that freight forwarders, and cargo interests and terminal operators, should review all of their contracts and bill of lading forms in order to do their best to protect themselves from this extra, unlimited, level of liability that would be imposed by Rotterdam.  They will need appropriate liability insurance.

Effect of Rotterdam on Canadian Motor Carriers

(a)   Higher Liability Limit
The Rotterdam limit is often much higher than the C$4.41 / kg. in most Canadian provinces' motor carrier statutes. The Rotterdam limit is the higher of 3 SDR / kg. or 875 SDR per package.  The SDR is now worth about C$1.52, so the Rotterdam limit for a typical 10,000 kg. container with 1,000 valuable packages is 875,000 SDR, or C$1,330,000.  The present Canadian statutory C$4.41 / kg limit for that cargo is only C$44,100.

(b)   More Disputes About Which Limit May Apply   
The two possible limits described above will cause disputes. Even worse, if the shipment is a "volume contract" under Rotterdam, then multimodal carriers can limit their liability down to zero.  To avoid zero recovery, cargo claimants will sue motor carriers hoping to rely on the higher liability limits in Canadian statues.  Furthermore, if it is not a "volume contract", then multimodal carriers must pay the high Rotterdam limit to cargo interests, and will then try to recover that higher amount from motor carriers.

(c)   Uncertainty About Whether Rotterdam Applies To a Shipment
Rotterdam only applies to inland carriage that is part of a contract of carriage including a sea link.  It may be difficult for inland carriers to know in advance whether a particular shipment is a link in such a chain, and therefore, which liability regime applies - Rotterdam or the Canadian statutes.

Conclusions
In summary, the effect of Rotterdam would be:

• Increased uncertainty about contractual limits of liability and other terms, including whether the carrier can limit liability under Rotterdam or exclude liability completely if the shipment is a volume contract;
•  Increased shipper (including freight forwarder) legal liability for delay or failure to give instructions; and
• Increased costs of litigating cargo claim recoveries due to the greater complexity and uncertainty of the liability regime.

Back to Top 

Disclaimer

The content of this e-newsletter is intended to provide information on Alexander Holburn Beaudin & Lang LLP, our lawyers and recent developments in the law. Items and comments contained in our e-newsletter are not intended to be legal advice. Readers should consult with one of our lawyers before acting on any information contained in our e-newsletter. For more information on the firm or to comment on our e-newsletter, please contact Priscilla Wyrzykowski, Marketing and Communications Manager, at (604) 628-2734 or pwyrzykowski@ahbl.ca.