View Article by alicejenny


									                                                                                                                Volume 6, Issue 5— May 2010

Ship owner not liable for lien incurred by sub-charterer
The Federal Court of Canada recently re-          arrested in Baie-Comeau, Québec and then                      Inside This Issue
leased an interesting decision on a claim by a    released on bail.
bunker supplier against the ship Nordems and      An action was commenced by World Fuel             Passenger File is Privileged ······· 2
her owners. The motor vessel Nordems is           Services Corporation of Miami in the Federal
owned by a German corporation, was time-                                                            Transport Canada Inspectors ····· 3
                                                  Court of Canada and it brought a motion for
chartered to a Norwegian corporation and          summary judgment seeking to recover the           End of the Line ························· 4
then sub-time chartered 7 times, with the last    amount that it was owed. The Defendants
sub-time charterer being Parkroad Corpora-        brought a cross-motion for summary judg-
tion of South Korea. The original time char-      ment, seeking the dismissal of the action. The
ter from the owners and the sub-charter to                                                          American law applied to this case, the Plain-
                                                  Plaintiff argued that American law should         tiff would have the benefit of a maritime lien.
Parkroad both contained a clause stipulating      govern and that American law would grant a
that the charterers would not procure bunkers                                                       He therefore noted that it may be necessary
                                                  valid maritime lien over the ship. The con-       to consider the proper law of the contract.
on the credit of the owners and would not         tract between World Fuel Services Corpora-
permit any lien or encumbrance to be placed                                                         However, he also pointed out that if Cana-
                                                  tion and Parkroad was stipulated to be gov-       dian law applied and it were established ei-
on the ship.                                      erned by the maritime law of the United           ther that the Owners were a party to the
In October of 2008, the ship took on              States. Justice Harrington began by review-       World Fuel Services contract or if the Own-
$300,000 worth of bunkers in Cape Town,           ing the principles which would apply in both      ers failed to rebut the presumption that the
South Africa. The purchase was arranged           Canada and the United States, which can be        bunkers were supplied on the credit of the
between Parkroad and World Fuel Services          summarized as follows:                            ship, World Fuel Services would be entitled
Seoul which is part of World Fuel Services        1. Under the maritime law of the United           to judgment, even if it only had a statutory
(Singapore) PTE Ltd. The bunkers were             States a necessaries man is presumed to have      right in rem.
physically delivered by Chevron South Af-         contracted on the credit of the ship. That
rica. An e-mail from World Fuel Services to                                                         He therefore went on to consider whether
                                                  presumption can only be rebutted by estab-        under the law of agency, the owners of the
Parkroad stipulated that the buyer was pre-       lishing that the necessaries man had actual
sumed to have authority to bind the vessel                                                          Nordems were bound by the contract purport-
                                                  knowledge that the contracting party did not      edly made on their behalf by Parkroad.
with a maritime lien. After the bunkers had       have authority to bind the ship.
been delivered, the master of the vessel                                                            Clearly the Owners did not expressly author-
stamped the delivery receipt to the effect that   2. If that presumption is not rebutted, Ameri-    ize Parkroad to order bunkers on their credit,
the delivery was “for the account of Parkroad     can law creates a maritime lien on the ship.      as the provisions of the charter parties pro-
Corporation” and that “neither the owner, nor                                                       hibited it from doing so. For there to have
                                                  3. Under Canadian maritime law, apart from
vessel, was responsible for payment of the                                                          been implied authority, there had to have
                                                  a few exceptions, a necessaries man does not
service/supply”. Thereafter, World Fuel Ser-                                                        been some action on the part of the Owners
                                                  enjoy a maritime lien. Rather, he has a statu-
vices addressed an invoice to “MS Nordems                                                           which could have caused the necessaries man
                                                  tory right in rem against the ship, but only if
and/or her owners/operators and Parkroad                                                            to have concluded that the bunkers were be-
                                                  her owners are personally liable.
Corporation” at an address in South Korea.                                                          ing ordered on behalf of the Owners. There
The first that the owners heard of it was in      4. In Canadian law, there is also a presump-      was no such action in this case. Indeed, the
December of 2008 when they received a             tion that the necessaries were ordered on the     World Fuel Services contract made it clear
communication relating to the imminent ar-        credit of the ship, but that presumption can be   that they were aware that the person ordering
rest of the M/V Nordems. This correspon-          rebutted without proof of actual knowledge        bunkers may not have actual authority to bind
dence was on the letterhead of World Fuel         of lack of authority on the part of the neces-    the ship. They were on notice and could have
Services Corporation of Miami. When pay-          saries man.
                                                                                                                                 (Continued on page 3)
ment was not forthcoming, the vessel was          Justice Harrington seemed satisfied that if

                                                                                                                                         May 2010 | 1
Disruptive passenger not entitled to airline’s privileged file
A flight attendant on an Air Canada flight       Given that the Personal Information Protec-        investigative reports could not be privileged,
observed a passenger drinking beer that had      tion and Electronic Documents Act                  as they were by their nature preliminary to an
not been served to him.                          (“PIPEDA”) did not grant the Privacy Com-          assessment that a claim or complaint could
The flight attendant informed the passen-        missioner jurisdiction to rule on an assertion     not be resolved without litigation. The Court
ger, Mr. Juergen Dankwort, that this was in      of privilege, the Court found that she was not     held that litigation need only be a “reasonable
violation of the Canadian Aviation Regula-       entitled to inspect documents over which           prospect” at the time a report was prepared,
tions and the passenger surrendered his          privilege was claimed and so could not stipu-      not that litigation needed to be a certainty.
beer to the flight attendant.                    late the steps Air Canada had to take to sat-      The Privacy Commissioner also argued that
                                                 isfy her that the documents were truly privi-      Air Canada had waived privilege by mention-
However, the passenger accused the flight        leged.
attendant of being very rude to him in the                                                          ing the fact of its investigation to the passen-
course of this interaction, while the flight     Of the five documents over which Air Can-          ger in its letter to him. The Court rejected
attendant stated that it was the passenger       ada asserted privilege, the Court found that       this argument as well, as Air Canada had
who was behaving disruptively. The flight        only one was not privileged and should be          simply referred to its investigation, not the
attendant notified the captain of the inci-      produced. The documents included:                  legal advice given within that investigation:
dent and the passenger was met by an Air         (1) the flight attendant’s initial incident             In this case, Air Canada made no mention
                                                                                                         whatsoever of its legal advice. It simply
Canada customer service representative and           report;                                             gave its understanding of facts which had
the RCMP when he arrived at his destina-         (2) his follow-up report;                               been obtained as a result of an investigation,
tion (no charges were laid against him).                                                                 an investigation which was carried out in
                                                 (3) the report of the customer service repre-           reasonable contemplation of litigation.
The passenger wrote to Air Canada to com-            sentative who met the passenger when
plain about the way he was treated.                                                                 The Court also found that Air Canada would
                                                     the plane arrived;                             not be obliged to provide the passenger with
Air Canada investigated the matter and           (4) a report from the captain of the aircraft;     facts from its investigation – the passenger
wrote back to the passenger, advising him            and                                            would be entitled to this information only if
that it had investigated his complaint and                                                          he sued Air Canada, and even then he could
that, in its opinion, the flight attendant had   (5) a witness statement from a passenger.
                                                                                                    only have made use of that information
acted appropriately. The passenger contin-       Only the customer service representative’s         within the context of that lawsuit. Nothing in
ued to correspond with Air Canada, finally       report was held not to be privileged, as it was    PIPEDA required Air Canada to disclose
demanding that Air Canada produce its file       created as a stand-alone document before the       facts contained in a privileged document,
on him. Air Canada refused to do so,             involvement of the legal department:               other than in court proceedings.
claiming privilege, and the passenger sub-            [the customer service representative’s re-
sequently complained to the federal Pri-                                                            The Privacy Commissioner had also re-
                                                      port] was a routine end of shift synopsis
vacy Commissioner.                                    prepared after both he and the RCMP offi-     quested that the Court award damages to the
                                                      cers had spoken to Mr. Dankwort. It was       passenger in the range of $5,000 to $10,000.
The Privacy Commissioner asked that Air               clear that no charges were going to be laid
Canada make its file available to the pas-            against Mr. Dankwort who exhibited no         Although the Court did order Air Canada to
senger. Air Canada refused to do so on the            animosity towards [the customer service       produce one document to the passenger, it
                                                      representative].                              held that Air Canada’s claim of privilege
basis of privilege, and provided the Privacy
Commissioner with particulars of the docu-       The Court held that, as the dominant purpose       over this document had been made in good
ments and the privilege claimed.                 for which the report was created was not to        faith. It noted that Air Canada had placed the
                                                 obtain legal advice or because a lawsuit was       passenger’s account of what occurred in its
The Privacy Commissioner then asked Air          contemplated, it could not be considered           file, the Privacy Commissioner’s usual rec-
Canada to file an affidavit identifying the                                                         ommendation when it has a complaint with
documents over which privilege was                                                                  dramatically opposed versions of an event.
claimed and its basis for asserting the privi-   The other documents were clearly created
                                                                                                    The Court also found that Air Canada had let
lege. Air Canada refused to file the re-         under the reasonable anticipation that a com-
                                                                                                    the matter be, rather than pursuing the pas-
quested affidavit and the Privacy Commis-        plaint or lawsuit would be filed against the
                                                                                                    senger for a possible breach of the Canadian
sioner brought a Notice of Application to        flight attendant and Air Canada, and so were
                                                                                                    Aviation Regulations:
the Federal Court for an order:                  protected by litigation privilege and/or solici-
                                                                                                         Given Air Canada’s inaction, all we are left
                                                 tor/client privileged.                                  with is a disagreement as to what was said,
(1) declaring that the Privacy Commis-
                                                 The Court rejected the limitations the Privacy          by whom, to whom and in what tone of
    sioner was entitled to require Air Can-                                                              voice. I see no reason to award any dam-
    ada to produce the affidavit requested;      Commissioner attempted to place on Air                  ages.
    and                                          Canada’s claim of privilege. The Privacy
                                                 Commissioner argued that Air Canada could          The Court awarded Air Canada its costs of
(2) requiring Air Canada to produce its          not claim privilege over its investigative         the application.
    file to the passenger.                       reports as most of the work was conducted by               Privacy Commissioner of Canada v. Air Canada
The Court held that the Privacy Commis-          a paralegal. The Court pointed out that the                                              (2010 FC 429)
sioner did not have the right to demand that     paralegal was supervised by legal counsel
Air Canada justify its assertion of privilege    and dismissed this argument.
by way of a detailed affidavit.                  The Privacy Commissioner also argued that

                                                                                                                                             May 2010 | 2
Ship owner not liable for lien incurred by sub-charterer (cont’d)

(Continued from page 1)                           jurisdiction. While our courts will generally        accepted (South Korea), the place where the
                                                  give effect to a choice of law clause in a con-      bunkers were delivered (South Africa), and the
verified with the Owners as to whether or not     tract, in this case the contract was not with the    place where the ship was arrested (Canada).
Parkroad had authority. The presumption that      shipowner but between the bunker supplier            There were only two points of contact between
the bunkers had been ordered on the credit of     and the charterer. In that circumstance the          the bunker supplier and the owners of the ship.
the ship had been rebutted.                       proper law is not the law of the contract but        One was Canada, where the ship was arrested.
Justice Harrington then went on to consider       the law with which the transaction has the           The other was South Africa, where the bun-
whether or not American law applied to the        closest and most substantial connection. Jus-        kers were supplied.
contract. He began by pointing out that our       tice Harrington went on to conclude that in
                                                  this case the non-American factors outweighed        Since the law of South Africa had not been
choice of law rules direct our courts to for-                                                          proven to differ from Canadian law the arrest
eign substantive law, without renvoi.             the American ones.
                                                                                                       was set aside and the Plaintiff’s action was
In other words, our courts will not take into     These included the flag of the ship (Cyprus)         dismissed.
consideration the conflict rules of the foreign   the domicile of her owners (Germany), the
                                                                                                                           World Fuel Services Corporation v.
                                                  place where the offer to purchase bunkers was                       The Ship “Nordems” et al, 2010 FC 332)

Transport Canada inspector’s powers read narrowly by Court
The recently decided case of R. v. Canadian        would be conducted. This letter further indi-        Court relied on section 27 of the Act. This
Pacific Railway Company demonstrates the           cated that the purpose of the inspection             section indicates that a railway safety inspec-
importance of the proper delineation of pow-       would be to monitor the railway’s compli-            tor has to be designated by the Minister of
ers for a Transport Canada railway inspector.      ance with the Regulations. In relation to this       Transportation (“the Minister”) and further
If such an inspector is not specifically desig-    inspection, TC requested to see the risk as-         that the matters in respect of which the per-
nated to investigate certain issues, s/he may      sessment undertaken by CPR for the pro-              son may exercise the powers of a railway
not be entitled to disclosure and, as in this      posed project in accordance with ss. 2(e) and        safety inspector shall also be designated. The
case, copies of internal documents in the          (f) of the Regulations. TC invoked its powers        power to request documents could only exist
possession of a railway company.                   under section 28 of the Act, which grants a          with respect to the matters for which the
The case concerns a charge laid against the        railway safety inspector the ability to enter a      inspector was designated by the Minister.
Canadian Pacific Railway Company (“CPR”)           place where the railway carries out its opera-       In this case, the inspector was designated by
under the Railway Safety Act for failure to        tions, carry out an inspection and require a         the Minister with respect to Operations and
comply with a request made by an inspector         person appearing to be in charge of the place        Equipment. However, it was not within this
for copies of CPR documents. The issue             to produce any documents for the purpose of          inspector’s power to act with respect to
arose out of the proposed construction of a        making copies.                                       Safety Management Systems. Thus, despite
siding track at a railway crossing. The siding     An e-mail exchange followed between TC               hearing evidence that TC’s concerns with the
track was objected to by residents of sur-
                                                   and CPR regarding the copying of the risk            proposed siding construction were in fact
rounding communities, so CPR altered the
                                                   assessment. CPR indicated that while a copy          operational (the lack of access of emergency
construction proposal such that in accordance      would be produced at the meeting, it would           services at blocked crossings), the court
with legal requirements, it was no longer
                                                   not allow the TC inspector to retain a copy of       found that operational concerns were not
required to file notice with Transport Canada      the document. A number of persons from TC            officially conveyed to CPR in the initial let-
(“TC”).                                            attended at the inspection, and a request for a      ter, which only alluded to the Regulations.
At the heart of the matter was a concern of        copy of the document was reiterated by the           Finally, the Court noted that a designation by
residents about delays that could arise at the     inspector. CPR again refused, on the basis           the Minister under s. 27 of the Act specifi-
crossing, blocking the access of emergency         that providing copies was against company            cally distinguishes between Operations and
services. The only way in which TC could           policy.                                              Safety Management Systems. This led the
monitor the construction of the siding track       The focus of the Court in addressing the             Court to conclude that “the integration of
was by exercising its inspection powers un-
                                                   charge laid against CPR was whether the TC           safety into day-to-day operations is a func-
der the Safety Management Systems Regula-          inspector who issued the formal request for a        tion of ‘safety management systems’ and not
tions (“the Regulations”) appended to the          copy of the risk assessment had the legal            ‘operations’.”
Railway Safety Act (“the Act”). In accordance      authority to do so. The Court found that he          As such, the inspector was not authorized in
with sections 2(e) and (f) of the Regulations,     did not, and therefore that CPR was not              law to make a demand for copies of the risk
railways are required to have a process for
                                                   guilty of the charge.                                assessment. Presumably, an inspector with a
identifying safety issues and concerns, evalu-
ating and classifying risk by means of a risk      In reaching its conclusion, the Court focused        designation in Safety Management Systems
                                                   on the following factors. First, it stressed that    would be the only person authorized to carry
assessment, and risk control strategies for
                                                   the official letter issued to CPR notifying it       out the inspection and make such a demand.
risks that have been classified as unaccept-
able or tolerable with mitigation.                 of the upcoming inspection indicated that the                     R. v. Canadian Pacific Railway Company,
                                                   purpose of the inspection would be to ensure                                               2010 ABPC 130
Officials of TC wrote to the persons in            compliance with the Regulations. Next, the
charge at CPR indicating that an inspection

                                                                                                                                            May 2010 | 3
End of the Line (2006 Implementing Provisions Agreement)
In the November 2009, edition of this news-        vention, thereby rendering such provisions                   a tariff.
letter we reported on the near certain death of    unjust and unreasonable”. It suspended the                   In any event, the ATA decided it could not
Bill C-310, Canada’s first attempt at a “bill of   tariff revisions subject to further investiga-               delay implementation of the amended 2006
rights” for air travelers. Earlier that month,     tion.                                                        IPA any further. On November 9, 2009, it
the Standing Committee on Transport, Infra-        The thrust of the Agency’s criticism was the                 applied to the U.S. DOT for approval of the
structure and Communities recommended              failure of the revised tariff to set out all of the          amendments to the 2006 IPA. The ATA indi-
that the House proceed no further with the         provisions of the Montreal Convention. The                   cated that, on approval, the amended 2006
Bill. As anticipated, the Bill was voted down      Air Transport Association of America                         IPA would apply to all countries except Can-
when it came up for a final vote in the House      (“ATA”), which represented Delta in the                      ada. The DOT approved the IPA by Order
of Commons on May 5, 2010. Thus this par-          ensuing discussions with the Agency, pointed                 2009-12-20 of December 23, 2009.
ticular initiative is certainly at an end. How-    out that tariffs have never purported to set out
ever, there is reason to believe that another                                                                   The Canadian Transportation Agency was
                                                   all the provisions of the Conventions. This                  thus left in a rather awkward position. Carri-
attempt to introduce such legislation will be      state of affairs has been accepted by regula-
made this Fall.                                                                                                 ers represented by the ATA were in a posi-
                                                   tors throughout the world. Indeed the Agency                 tion to, and did in fact, begin filing terms of
Meanwhile, on May 3rd the Canadian Trans-          itself has routinely accepted for filing tariffs             carriage applicable to all countries except
portation Agency, which is an active propo-        which do not meet the standard it was now                    Canada which were more favourable to pas-
nent of passenger rights, issued a decision        applying to the Delta filing.                                sengers than the terms governing carriage to
which brings an end to a three year struggle       Discussions between the ATA and the                          Canada. The Agency recognized and ac-
over the issue of appropriate tariff filings in    Agency continued and in June 2009 the ATA                    knowledged that the revisions made by the
recognition of the 2006 Implementing Provi-        submitted revised tariff language. While the                 ATA “were designed to respond to the
sions Agreement (“2006 IPA”) whereby sub-          Agency recognized that this language would                   Agency’s concerns and . . . that there are
scribing carriers agree to amend their terms       provide passengers with some additional                      particular benefits associated with the tariff
of contract to incorporate provisions of the       benefits, it was not satisfied that the changes              language”. It would provide uniformity and
Warsaw and Montreal Conventions.                   went far enough. The Agency stood by the                     would provide “passengers with rights that
The Agency has, with some apparent reluc-          view it had expressed in the Show Cause                      are additional to those appearing in tariff
tance, agreed to allow the filing of tariffs       letter—the “tariff should be a stand-alone                   provisions currently on file with the
incorporating the amended 2006 IPA.                document avoiding references to other docu-                  Agency.”
The history of this struggle goes back to Oc-      ments unrelated to the tariff. Passengers                    Having said this the Agency went on to reaf-
tober 2006, when the U.S. Department of            should be able to fully understand their rights              firm its commitment to a “stand-alone docu-
Transportation approved the original 2006          in law simply by reading the tariff”.                        ment” standard. However, its commitment to
IPA. In April of 2007, Delta Air Lines filed       It is difficult to understand how this objective             this principle did not prevent it from approv-
an amendment to its general rules tariff with      could be accomplished. The exact nature of                   ing the amended 2006 IPA wording, thus
the Agency to give effect to the 2006 IPA.         the rights given by the Conventions is a sub-                permitting uniformity in the rules governing
The Agency responded with a Show Cause             ject of a rich and complex jurisprudence and                 carriage to and from Canada and between
letter in which it concluded that the “tariff      it would be entirely impossible to capture all               international points.
provisions do not afford to passengers all the     the nuances and qualifications which exist                                           Canadian Transportation Agency,
rights that are extended by the Montreal Con-      today, much less those which may evolve, in                                                     Decision 161-A-2010

Gerard Chouest                                     James P. Thomson                                             Carlos P. Martins
Gerard Chouest
(416) 982-3804                                     (416) 982-3805                                               (416) 982-3808
(416) 982-3804                                                 
Tae Mee Park                                       Ioana Bala                                                   Chris Dearden
Tae Mee Park
(416) 982-3813                                     (416) 982-3810                                               (416) 982-3812
(416) 982-3813                                                      

                   33 Yonge Street Suite 201,      Our transportation law group represents the interests of carriers in litigation of personal injury, property loss and
                   Toronto, Ontario, CANADA        commercial disputes. We also advise on insurance and regulatory issues and represent clients before the courts,
                                                   agencies, tribunals and authorities with important jurisdiction over transportation undertakings.
                   Phone: 416 982-3800
                   Fax: 416 982-3801               These Transportation Notes are intended to provide general information and do not constitute legal advice.
                                                   Readers should consult legal counsel on matters of interest or concern raised by anything in this publication.
                                                   We welcome your comments and suggestions.

                                                                                                                                                        May 2010 | 4

To top