Judgments

[1995] 3 F.C. 656

T-1941-93

James L. Ferguson (Plaintiff)

v.

Arctic Transportation Ltd. and the Owners and All Others Interested in the Ships AMT Transporter, Arctic Nutsukpok, Arctic Immerk Kanotik, Arctic Kibrayok, Arctic Kiggiak, Arctic Tukta, Arctic Tender, Arctic Tender II and J. Mattson (Defendants)

Indexed as: Ferguson v. Arctic Transportation Ltd. (T.D.)

Trial Division, Reed J.—Vancouver, August 8, 29 and September 6, 1995.

International law — State immunity — Application to add Panama Canal Commission as third party to damages action for injuries sustained by former Commission employee while piloting defendant’s barge through Canal — Commission charging tolls, controlling movement of vessels in Canal — State Immunity Act, s. 5 providing foreign state not immune “in any proceedings that relate to any commercial activity of foreign state” — Commission’s activities commercial — Not exempt as “agency of foreign state” as s. 2 definition requiring agency be separate from foreign state — Neither Panama Canal Treaty nor Act indicating Commission separate entity.

Practice — Service — Defendants seeking to add Panama Canal Commission as third party to damages action by former Commission employee for injuries sustained while piloting barge through Canal — Neither Federal Court Rules, R. 307 nor Convention referred to therein, applicable — R. 307 subordinate legislation — Convention governing service on private parties in contracting state, not on foreign governments — State Immunity Act, s. 9(2) governing service.

Practice — Parties — Third party proceedings — Application to add Panama Canal Commission as third party to personal injury action — Third party claim independent of main action — Action as between defendants, Commission not personal injury claim, but claim for indemnification — Commission within State Immunity Act, s. 5 exception to immunity from process because proceedings relating to commercial activity.

This was an application by the defendants to add the Panama Canal Commission as a third party to an action by its former employee claiming damages for injuries suffered while piloting a barge owned by Arctic Transportation Ltd. through the Canal. The Commission is responsible for the operation, management and maintenance of the Panama Canal. It charges tolls and controls the movement of vessels through the Canal.

Relying on the Commission’s self-description as “an agency of the executive branch of the United States government”, the defendants applied State Immunity Act, paragraph 9(3)(c), which provides that service on an agency of a foreign state may be made in accordance with any applicable rules of court. They followed the United States Federal Rules of Civil Procedure, except that they were unable to serve the District Attorney of the district within which the litigation was to be brought since the Commission was being sued in a Canadian court.

The Commission claimed immunity from process as part of a foreign state government. State Immunity Act, section 3 provides that a foreign state is immune from the jurisdiction of Canadian courts, except as otherwise provided by the Act. Section 5 provides that a foreign state is not immune “in any proceedings that relate to any commercial activity of the foreign state”. Alternatively, the Commission argued that section 5 was only intended to cover commercial claims and that this was a personal injury action.

The issues were whether the Commission was immune from the process; whether it was an agency of a foreign state; and which legislation governed service.

Held, the application should be dismissed.

Section 5 removed any immunity from the Commission. Its activities were commercial in nature, and it had failed to demonstrate its entitlement to immunity.

The action, as between the defendants and the Commission, was not a personal injury claim, but a claim for indemnification. The defendants were alleging negligence by the Commission. A third party claim is independent of and separate from the main action. In any event, section 5 states that immunity is lost with respect to any proceedings that relate to any commercial activity. It does not say that the proceedings have to be commercial proceedings. The claim related to the commercial activity in which the Commission was engaged.

The service on the Commission was improper. Paragraph 9(3)(c) refers to the rules of the domestic jurisdiction within which the proceeding is commenced, i.e. Canada. Also, the definition of “agency of a foreign state” in State Immunity Act, section 2 governed, not the Commission’s self-description. That definition requires that the legal entity that is an organ of the foreign state be separate therefrom. Factors which are relevant to separateness are: the amount of state control over the organization; whether it can sue or be sued in its own name; and whether it is a separate legal (corporate) entity. Neither the Panama Canal Treaty nor the Panama Canal Act supported the argument that the Commission was a separate entity.

Neither Federal Court Rules, Rule 307 nor the Convention referred to therein applied. Rule 307, which deals with service on a party to a proceeding who is outside of Canada, is subordinate legislation. The Convention governs service on a private party in a contracting state, not on foreign governments. State Immunity Act, subsection 9(2) prescribes the appropriate method of service.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, 15 November 1965, The Hague, 658 U.N.T.S. 163.

Federal Court Rules, C.R.C., c. 663, R. 307 (as am. by SOR/92-726, s. 1).

Federal Rules of Civil Procedure, U.S.C.S., Rule 4.

Panama Canal Act, 22 U.S.C.S. § 3601-3872 (1993).

Panama Canal Treaty between the United States of America and the Republic of Panama, 1977.

State Immunity Act, R.S.C., 1985, c. S-18, ss. 2 “agency of a foreign state”, 3, 5, 7(1), 9.

CASES JUDICIALLY CONSIDERED

APPLIED:

Ferranti-Packard Ltd. v. Cushman Rentals Ltd. et al. (1980), 30 O.R. (2d) 194; 115 D.L.R. (3d) 691; 19 C.P.C. 131 (H.C.); Trendtex Trading Corpn. v. Central Bank of Nigeria, [1977] 1 Q.B. 529.

DISTINGUISHED:

Re Canada Labour Code, [1992] 2 S.C.R. 50; (1992), 91 D.L.R. (4th) 449; 92 CLLC 14,025; 137 N.R. 81.

REFERRED TO:

D & J Coustas Shipping Co. S.A. v. Cia de Navegacao Lloyd Brashileiro (1990), 48 F.T.R. 161 (F.C.T.D.); Wire Rope Industries of Canada (1966) Ltd. v. B.C. Marine Shipbuilders Ltd. et al., [1981] 1 S.C.R. 363; (1981), 121 D.L.R. (3d) 517; 35 N.R. 288; Ogdensburg Bridge & Port Authority v. Twp. of Edwardsburg, [1967] 1 O.R. 87; (1966), 59 D.L.R. (2d) 537 (C.A.).

APPLICATION to add the Panama Canal Commission as a third party to an action claiming damages for injuries suffered by its former employee while piloting a barge through the Canal. Application dismissed.

COUNSEL:

No one appearing for plaintiff.

H. Peter Swanson for defendants.

Grant L. Ritchey for Panama Canal Commission.

SOLICITORS:

McEwen, Schmitt & Co., Vancouver, for plaintiff.

Campney & Murphy, Vancouver, for defendants.

Fraser, Quinlan & Abrioux, Vancouver, for Panama Canal Commission.

The following are the reasons for order rendered in English by

Reed J.: The defendants seek to add the Panama Canal Commission as a third party to these proceedings. The present motion concerns the method by which that organization should be served and whether or not that entity is, in any event, immune from process in this Court.

The plaintiff, Mr. Ferguson, commenced a claim in this Court for an award of damages for injuries he suffered while on board a barge, the AMT Transporter, which was owned by Arctic Transportation Ltd. The barge, at the time, was transiting the Panama Canal. The plaintiff was a pilot for and an employee of the Panama Canal Commission. From the examinations for discovery it appears that the Commission was in control of the defendants’ vessels while they were transiting the canal. Thus, the defendants seek to add the Commission as a third party.

The Panama Canal Commission disputes the validity of the service which has occurred and, in any event, states that it is immune from process in this Court. The claim for immunity is based on the assertion that the Panama Canal Commission is part of a foreign state government: the Government of the United States of America. I will deal first with the state immunity claim because the status of the Commission determines the type of service required and whether service, in any event, would be a futile step.

The State Immunity Act, R.S.C., 1985, c. S-18, section 3, provides that a foreign state is immune from the jurisdiction of all courts in Canada, except as otherwise provided by the Act. Section 5 of the Act provides that a foreign state is not immune “in any proceedings that relate to any commercial activity of the foreign state”.

I have no doubt that the activities of the Panama Canal Commission, as they are relevant for the purposes of this case, are commercial in nature. The Commission is responsible for the operation, management and maintenance of the Panama Canal. The Commission provides for the movement of vessels through the canal. It is paid significant amounts of money for this service. The Commission did not seriously dispute that it was engaged, at least, in part, in commercial activities. The burden is on the Commission to demonstrate its entitlement to immunity, if it wishes to rely on such.[i] It has not done so.

This is not a situation similar to that which existed in Re Canada Labour Code, [1992] 2 S.C.R. 50. In that case, the alleged commercial activity (the employment of civilian staff) was peripheral to the main foreign state activity (the operation of a military base). State immunity was therefore not lost. In the present case, the commercial activity (the charging of tolls for and the movement of vessels through the canal) is central to the Commission’s functions and to the transaction between the defendants and the Commission.

Having reached the conclusion that section 5 operates to remove any immunity from the Commission, which it might otherwise enjoy, I do not need to consider counsel’s arguments with respect to the proper interpretation of subsection 7(1).[ii] Counsel for the Commission argued that subsection 7(1) was not applicable because it was not intended to cover the type of operation of vessels engaged in by Panama Canal pilots but rather the operation of a vessel on a more long-term basis.

Counsel for the Commission argues, however, that even if the activity in which the Commission was engaged is commercial in nature, section 5, still, does not apply because the proceeding in this Court is a personal injury action. It is argued that section 5 is only intended to cover commercial-type claims (e.g. the breach of a trading agreement). I have not been persuaded by that argument. The action, as between the defendants and the Commission, is not a personal injury claim. It is a claim for indemnification from the Commission for any damages which the defendants might be called upon to pay the plaintiff. The defendants allege negligence by the Commission, its servants or agents, in the inspection of the AMT Transporter (now called the Arctic Tarsuit), prior to its transit of the Panama Canal, and in its movement through the canal.[iii] A third party claim is an independent and separate claim from the main action in the context of which it is commenced. It stands on its own. I would not characterize the defendants proposed third party claim as a personal injury action.

Even if the defendants’ third party claim was characterized as a personal injury action, I still do not think it would fall outside the purview of section 5. Section 5 states that immunity is lost with respect to “any proceedings that relate to any commercial activity” [underlining added]. It does not say that the proceedings have to be “commercial proceedings”. The claim in this case, albeit arising as a result of personal injuries sustained by a former Panama Canal pilot, is a proceeding that relates to the commercial activity in which the Commission was engaged. That is sufficient for the purposes of section 5.

The question left to be addressed is whether the Commission is part of a foreign state proper or is an agency of a foreign state. Section 9 of the State Immunity Act prescribes the relevant service requirements for each:

9. (1) Service of an originating document on a foreign state, other than on an agency of the foreign state, may be made

(a) in any matter agreed on by the state;

(b) in accordance with any international Convention to which the state is a party; or

(c) in the manner provided in subsection (2).

(2) For the purposes of paragraph (1)(c), anyone wishing to serve an originating document on a foreign state may deliver a copy of the document, in person or by registered mail, to the Under-Secretary of State for External Affairs or a person designated by him for the purpose, who shall transmit it to the foreign state.

(3) Service of an originating document on an agency of a foreign state may be made

(a) in any manner agreed on by the agency;

(b) in accordance with any international Convention applicable to the agency; or

(c) in accordance with any applicable rules of court.

(4) Where service on an agency of a foreign state cannot be made under subsection (3), a court may, by order, direct how service is to be made. [Underlining added.]

The defendants initially sought to serve the Panama Canal Commission by registered mail. Counsel for the Commission contacted counsel for the defendants and informed him that it was the Commission’s view that this service was ineffective. Counsel for the defendants then adopted a procedure, relying on paragraph 9(3)(c) of the State Immunity Act. In deciding to treat the Commission as an agency of a foreign state, instead of part of the foreign state itself, counsel relied upon correspondence from the Commission in which it described itself as “an agency in the executive branch of the United States government.” On the basis of advice received from a United States lawyer, the requirements necessary to serve an agency of the United States Government, pursuant to the United States Federal Rules of Civil Procedure[iv] were followed. The Commission having itself already been served by registered mail, a copy of the third party notice was also sent, by registered mail, to the Attorney General of the United States in Washington, D.C. The defendants could not fulfil the requirement, under the United States Federal Court Rules, of serving the District Attorney of the district within which the litigation was to be brought since the Commission was not being sued in a United States court. Counsel therefore served the District Attorney of the District of Columbia.

I am persuaded that counsel for the Commission’s argument, that this service was not proper, is correct. In the first place, paragraph 9(3)(c) must refer to the rules of the domestic jurisdiction within which the proceeding is commenced. Any other interpretation invites the difficulties which the defendants met in this case: not being able to comply with the foreign rules of court because those rules are designed to govern litigation commenced therein. Secondly, although the Commission referred to itself as “an agency in the executive branch of the United States government”, it is the definition of agency in the State Immunity Act, R.S.C., 1985, c. S-18, that governs, not the Commission’s self-description. Section 2 of that Act states:

2. …

“agency of a foreign state” means any legal entity that is an organ of the foreign state but that is separate from the foreign state;

Most of the jurisprudence which was cited involves attempts, prior to the enactment of the State Immunity Act, to determine whether an entity was separate from a foreign state for the purpose of making it answerable to suit in the particular Court in question. In this context, in Ferranti-Packard Ltd. v. Cushman Rentals Ltd. et al. (1980), 30 O.R. (2d) 194 [at page 196], the Ontario High Court referred to the reasoning of Lord Denning M.R. in Trendtex Trading Corpn. v. Central Bank of Nigeria, [1977] 1 Q.B. 529, at page 560:

I confess that I can think of no satisfactory test except that of looking to the functions and control of the organisation. I do not think that it should depend on the foreign law alone. I would look to all the evidence to see whether the organisation was under government control and exercised governmental functions.

The Court, then, went on to examine the constitutive legislation for the New York Thruway Authority. It was that organization whose status was under consideration. Factors which were assessed as relevant to the issue of separateness were: the amount of state control over the organization; whether it could sue or be sued in its own name; whether it was a separate legal (corporate) entity. This same approach was followed in Ogdensburg Bridge & Port Authority v. Twp. of Edwardsburg, [1967] 1 O.R. 87 (C.A.).

In the present case, the defendants rely on a number of features of the Panama Canal Treaty between the United States of America and the Republic of Panama, 1977 and on the Panama Canal Act, 22 U.S.C.S. § 3601-3872 (1993), in support of their contention that the Commission is an organ of the foreign state “that is separate from the foreign state.”

With respect to the Treaty, reference is made to those provisions which require the appointment of Panamanian nationals to the Board of the Commission and that, after January 1, 1990, the Administrator of the Commission is to be a Panamanian. These appointments, however, are to be made by “the United Stated of America”. The provisions of the Treaty which relate to the Administrator, Article III(3)(c) and (d), read:

(c)  The United States of America shall employ a national of the United States of America as Administrator of the Panama Canal Commission, and a Panamanian national as Deputy Administrator, through December 31, 1989. Beginning January 1, 1990, a Panamanian national shall be employed as the Administrator and a national of the United States of America shall occupy the position of Deputy Administrator. Such Panamanian nationals shall be proposed to the United States of America by the Republic of Panama for appointment to such positions by the United States of America.

(d)  Should the United States of America remove the Panamanian national from his position as Deputy Administrator, or Administrator, the Republic of Panama shall propose another Panamanian national for appointment to such position by the United States of America. [Underlining added.]

Reference is made to the nature of the activities being carried on by the Commission. It is argued that these are not normal state functions. Yet Article III(4) of the Treaty provides that the activities of the Commission will be performed in “carrying out the responsibilities and rights of the United States of America”. The provisions of the Treaty do not support an argument that the Commission is to be a separate entity.

With respect to the Panama Canal Act, reference is made to the fact that the Commission has authority to enter into contracts to lease office space and to borrow funds. But authority to lease office space is a very limited power and the authority to borrow funds is limited to borrowing from the United States Treasury (§ 3712a, § 3714). The borrowing cannot exceed $400,000,000.

In so far as the right to sue and be sued is concerned, the Commission’s authority, under the Panama Canal Act, cannot properly be characterized as such. The Commission is given authority to settle claims up to an amount of $50,000 and any such settlement “shall constitute a complete release by the claimant of his claim against the United States and against any employee of the United States acting in the course of his employment who is involved in the matter giving rise to the claim.” (§ 3761(c)) [Underlining added.]. The Commission is authorized to pay damages in certain circumstances: “when the injury was proximately caused by negligence or fault on the part of an officer or employee of the United States” (§ 3771(a), 3775). And, the acceptance by a claimant of an amount awarded to him shall be deemed to be, “in full settlement of such claim against the Government of the United States.” There is a provision that if an individual does not agree with a claim settlement offered by the Commission that person may “bring an action on the claim against the Commission in the United States District Court for the Eastern District of Louisiana” and that such action shall proceed according to the principles of law which apply “in like cases between a private party and a department or agency of the United States” (§ 3776). The relevant provision continues:

§ 3776. Actions on claims ….

Any judgment obtained against the Commission in an action under this subchapter may be paid only out of money appropriated or allotted for the maintenance and operation of the Panama Canal. An action for damages cognizable under this section shall not otherwise lie against the United States or the Commission, nor in any other court, than as provided in this section; nor may it lie against any officer or employee of the United States or of the Commission. [Underlining added.]

It is the President of the Unites States, not the Commission, who sets tolls and makes the rules respecting the measurements of vessels that can transit the canal (§ 3791). Commission employees are governed by “the laws of the United States regarding duties and responsibilities of Federal employees” (§ 3622(a)). And the section establishing the Commission (§ 3611) states:

3611. Panama Canal Commission: establishment

There is established in the executive branch of the United States Government an agency to be known as the Panama Canal Commission …. The Commission shall, under the general supervision of the Board … be responsible for the maintenance and operation of the Panama Canal and the facilities and appurtenances related thereto. The authority of the President with respect to the Commission shall be exercised through the Secretary of Defence.

As noted, the provisions of the Treaty are of little assistance. They contemplate the creation of a Commission but do not provide an indication as to whether it will be a part of or separate from the Government of the United States. The provisions of the Panama Canal Act, similarly, do not evidence a separate entity, as envisaged by the definition found in section 2 of the State Immunity Act. There is no separate legal corporate entity. There is no general right to sue and be sued. There is a limited right to settle claims on behalf of the United States Government and to pay out awards from appropriations. There is no general right to borrow money. Employees are subject to the duties and responsibilities imposed on federal employees. The President retains extensive control. The activity being undertaken is pursuant to an international treaty under which responsibilities devolve on the United States Government. I cannot conclude that the Commission is “an organ of the foreign state … that is separate from the foreign state”.

Counsel for the defendants argues that even if service has not been properly completed pursuant to paragraph 9(3)(c) of the State Immunity Act, it has been effected in accordance with paragraphs 9(3)(b) and 9(1)(b). Counsel relies upon Federal Court Rules [C.R.C., c. 663], Rule 307 (as am. by SOR/92-726, s. 1) and the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters [658 U.N.T.S. 163]. Both Canada and the United States have signed this Convention.

In so far as Rule 307 is concerned, while it covers service on a party to a proceeding who is outside of Canada, as subordinate legislation, it could not take precedence over the provision of a statute. Indeed, the Rule expressly provides for service in accordance with the Convention on Service Abroad, when service is in a contracting state.

I do not find in that Convention, however, provisions governing the service on foreign governments. Its terms are directed to service on private parties. I cannot read it, in conjunction with Rule 307, as overriding subsection 9(2) of the State Immunity Act, or providing a method of service described in paragraph 9(1)(b) of the State Immunity Act. I am of the view that the appropriate method of service, in this case, is found in subsection 9(2) of that Act.

Accordingly, the application will be dismissed. An extension of time to allow for service, in accordance with subsection 9(2) will be granted. While some argument might be made that counsel for the Commission’s appearance on the motion constituted a voluntary attornment to the jurisdiction, I understand that appearance to be conditional only—for the purpose of arguing the state immunity and service issues. Accordingly, I do not treat it as a voluntary attornment.

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