i) Crosby Molasses Company Limited v Scot Stuttgart (Ship), 2024 FC 1358
Background
On September 4, 2020, ED & F Man Liquid Products LLC (the “Charterer”) entered into a charterparty with Scot Stuttgart S.A. (the “Owner”), which owned M/T Scot Stuttgart (the “Ship”). The charterparty was made to transport two cargoes of molasses from Guatemala to New Brunswick (the “Charterparty”). The Charterparty stipulated that any disputes between the Owner and Charterer must be resolved through arbitration in New York and that any claim must be presented within ninety days of discharge of the cargo (the “Arbitration Clause”).
The cargoes of molasses were transported pursuant to two bills of lading (the “Bills of Lading”). The consignee of both Bills of Lading was Crosby Molasses Company (the “Consignee”).
The Consignee alleged that the molasses was damaged during transit due to contact with epoxy flakes in the Ship’s tanks. Therefore, on January 14, 2022, the Consignee commenced several proceedings, including claims against the Owner in Federal Court.
The Owner filed a motion to stay the Consignee’s action on the grounds that the claim should proceed to arbitration. The Owner argued that the Consignee was bound by the Arbitration Clause because the Bills of Landing incorporated the Arbitration Clause by reference.
The Decisions
An Associate Judge dismissed the Owner’s motion to for a stay, which the Owner appealed to a Justice of the Federal Court.
Both the Associate Judge and Justice held that the first Bill of Lading contained conflicting and unexplained references to a 2016 charterparty. Therefore, that first Bill of Lading did not validly incorporate the Charterparty’s Arbitration Clause and could not be used to stay the Consignee’s litigation against the Owner.
The second Bill of Lading did incorporate the Arbitration Clause, but the Arbitration Clause’s ninety day deadline to submit a claim conflicted with the dispute resolution time limits set by the Hague Rules and Hague-Visby Rules that the Bill of Lading also referenced. Because of that inconsistency, the Associate Judge concluded that the Arbitration Clause did not bind the Consignee.
However, the Federal Court Justice held that the inconsistent time limits did not render the Arbitration Clause unenforceable. A paramount clause in the Bills of Lading explicitly stated that the time limits under the Hague Rules and Hague-Visby Rules would take precedence. As a result, the Arbitration Clause remained valid but its time-limit provision would be overridden by the limitations periods in the applicable Hague or Hague-Visby Rules.
The Federal Court also considered whether section 46 of the Marine Liability Act, which allows a party to sue or arbitration in Canada even if a contract for the carriage of goods by water provides for arbitration outside of Canada, prevented the Owner from relying on the Arbitration Clause. Based on the application of the Commercial Arbitration Act, and other considerations, the Justice held that section 46 of the Marine Liability Act did not prevent the Owner from relying on the Arbitration Clause if it commenced arbitration in Canada.
As a result, the Federal Court held that the Arbitration Clause was properly incorporated into Bill of Lading 2 and that Owner could enforce the Arbitration Clause against the Consignee if the Owner sought arbitration in Canada and waived any time bar defence.
ii) RS Marine Ltd v M/V Terre Neuvas (Ship), 2024 FC 1825
Background
The dispute in RS Marine Ltd. v. M/V Terre Neuvas (Ship), arose from an agreement signed in November 2022 between RS Marine Ltd. (“RSM”), Murphy Marine Ltd. (“MML”), and SPM Ocean SAS (“SPM”). The agreement included financial arrangements to purchase and mortgage the Ship, vessel crewing, and fishery operations. It also contained a dispute resolution clause.
By 2023, tensions escalated over financial disagreements, prompting RSM to seek the arrest of the Ship in Canada. In response, SPM counterclaimed for damages. However, SPM also sought a stay of the litigation. Among other things, SPM argued that the dispute resolution clause constituted a binding arbitration agreement.
Decision
The dispute resolution clause at issue referenced mediation and stated that the mediator’s decision would be binding. As the Federal Court held, however, the intent of the dispute resolution clause was unclear. The Court noted that mediation typically does not involve judicial decision-making, which is a cornerstone of arbitration. The parties also did not offer any affidavit evidence regarding the intent of the dispute resolution clause.
As a result, the Court was not persuaded that the parties entered into a binding arbitration agreement that could be relied upon to stay RSM’s action against SPM.
Key Takeaways
Although foreign arbitration clauses in contracts for the carriage of goods by water may not apply, Canadian courts will generally enforce mandatory arbitration agreements in other types of maritime contracts. As the two recent cases above highlight, however, those arbitration agreements must clearly and consistently express the parties’ intent to submit their disputes to arbitration. Otherwise, the arbitration agreement may not be considered mandatory and could not be used to stay litigation in favour of arbitration.
If you are drafting or disputing an arbitration agreement in a maritime-related contract, please contact Ian Breneman, a member of our Maritime Practice Group.
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