[1997] 1 F.C. 899
T-539-92
Olbert Metal Sales Limited and Metalplate Trading N.V. (Plaintiffs)
v.
Cerescorp. Inc., Longitude Transport Co., John Doe Corporation, Norsul Internacional S.A. and the Ship Harmac Dawn, Her Owners and All Others Interested in Her (Defendants)
Indexed as: Olbert Metal Sales Ltd. v. Cerescorp Inc. (T.D.)
Trial Division, Hargrave P.—Vancouver, November 25 and December 5, 1996.
Maritime law — Practice — Motion by supplier of steel rods arriving damaged at Vancouver to discontinue as plaintiff four and one half years after action for damages commenced by subrogated cargo underwriters — Motion dismissed — Some evidence damages occurred prior to or during loading while supplier owner — Sufficient to give supplier interest as plaintiff — Potential prejudice to defendants, late date, possible motivation avoidance of discovery, plaintiff’s location in remote part of world, likelihood plaintiffs uncooperative, also considered.
Maritime law — Contracts — Bill of lading marked “FISLO” (Free in Stow, Liner Out), indicating shipper’s obligation to load, stow, with cost of discharge included in ocean freight — Commercial invoice indicating sale FOB — When goods sold FOB, immediate transfer of risk on loading to buyer — Cash against documents not defeating intent contract terms be FOB — Once cargo loaded, stowed, supplier having no further interest.
Practice — Discovery — Production of documents — One of plaintiffs in action by subrogated cargo underwriters seeking to discontinue when pressed for examination for discovery, production of documents — Party seeking discontinuance says documents have been destroyed — Defendants moving for affidavit verifying destruction of documents — Given plaintiff’s remote location (Netherlands Antilles), attitute toward litigation, destruction of documents, justice requiring denial of motion for discontinuance.
This was a motion for leave for Metalplate, the supplier of steel rods which had arrived at Vancouver in a damaged condition, to discontinue as plaintiff. The action for damages, by subrogated cargo underwriters, was commenced four and one half years ago. Although initially uncertain when ownership of the steel had passed, the plaintiffs now say that risk passed when the steel crossed the ship’s rail, with title following when the consignee received and paid for the bill of lading. The defendants opposed discontinuance on the basis that it was not clear when title passed, that Metalplate might have information as to how the damage (rusting) occurred, either pre-shipment or during loading, and that Metalplate wished to discontinue in order to avoid discovery. Defendants had been pressing for Metalplate’s documents and for examination for discovery of a witness from Metalplate. Metalplate had advised that any documents had been destroyed.
The bill of lading was marked “FISLO” (Free in Stow, Liner Out), indicating that it was the shipper’s obligation to load and stow, with the cost of discharge included in the ocean freight. It was sent by mail and presumably paid for before the ship arrived. The commercial invoice indicated that the sale was FOB Rio de Janeiro, and that the price was payable in cash against documents.
Held, the motion should be dismissed.
The apparent inconsistencies between the bill of lading and commercial invoices were reconcilable. When a seller ships goods FOB there is on loading an immediate transfer of risk and usually of property to the buyer who insures the goods. If the seller retains the bill of lading as a hedge against default, it does not mean that risk of loss or damage or interest remains with the seller. The cash against documents term did not defeat the intent of the contract that the terms be FOB. Once the bundles of steel were loaded and stowed, Metalplate had no further interest. However, if damages pre-existed loading, or happened either during loading or stowing, then such occurred when the steel rods were the property of Metalplate. The surveyor had stated that the rusting was fresh water rusting which he presumed occurred before or during loading. This evidence of damage, while the steel rod belonged to Metalplate, was enough to give Metalplate an interest as plaintiff.
Additionally, if Metalplate were allowed to discontinue, it could prejudice the defendants, who would have no means to find and explore evidence as to what had happened to the steel before it was stowed aboard ship. Finally, it appeared that avoidance of discovery was a factor triggering the motion to discontinue, which, coupled with the prejudice to the defendants, was sufficient to deny the discontinuance. Given the plaintiff’s remote location (Netherlands Antilles), attitude toward the litigation and its destruction of documents, the defendants could expect little cooperation. It was far too late to abandon the action to the prejudice of the defendants. Justice required that all proper interests be represented. Defendants’ motion, for affidavits confirming destruction of documents, should be adjourned to allow counsel to reach agreement.
STATUTES AND REGULATIONS JUDICIALLY CONSIDERED
Special War Revenue Act, R.S.C. 1927, c. 179.
CASES JUDICIALLY CONSIDERED
APPLIED:
Johnson v. Canada, [1990] 1 F.C. 275 (1989), 30 F.T.R. 120 (T.D.); Steel Co. of Canada v. The Queen, [1955] S.C.R. 161; [1955] 2 D.L.R. 593; [1955] CTC 21; (1955), 55 DTC 1022; revg Queen, The, v. Steel Co. of Canada Ltd., [1953] Ex. C.R. 200; [1953] CTC 255; (1953), 53 DTC 1154; Browne v. Hare (1858), 3 H. & N. 484; 157 E.R. 561; Martin v. B.C. (Govt.) (1986), 3 B.C.L.R. (2d) 60; [1986] 3 C.N.L.R. 84 (S.C.); Frebold and Another v. Circle Products Ltd., [1970] 1 Lloyd’s Rep. 499 (C.A.).
REFERRED TO:
Stock v. Inglis (1884), 5 Asp. M.L.C. 294 (C.A.); affd (1885), 10 App. Cas. 263.
AUTHORS CITED
Benjamin, J. P. A Treatise on the Law of Sale of Personal Property with references to the French Code and Civil Law, 8th ed. London: Sweet & Maxwell, 1950.
Kennedy, A. R. Contracts of Sale. C.I.F., 2nd ed. London: Stevens and Sons, 1928.
Sassoon, David M. C.I.F. and F.O.B. Contracts, 4th ed. London: Stevens & Sons, 1995.
MOTION for discontinuance. Motion dismissed.
COUNSEL:
Kim A. Wigmore for plaintiffs.
Peter Swanson for defendants Longitude Transport Co., the Ship Harmac Dawn, and Norsul Internacional S.A.
Mark L. Barr for defendant Cerescorp Inc.
SOLICITORS:
A. B. Oland Law Corporation, Vancouver, for plaintiffs.
Campney & Murphy, Vancouver, for defendants Longitude Transport Co., the Ship Harmac Dawn, and Norsul Internacional S.A.
Owen, Bird, Vancouver, for defendant Cerescorp Inc.
The following are the reasons for order rendered in English by
Hargrave P.: In early 1991 the Harmac Dawn carried a parcel of cargo consisting of some 130 tonnes of steel rod, made up into bundles wrapped with plastic and wood slatting, from Rio de Janeiro to Vancouver. On arrival at Vancouver the cargo owner’s surveyor found the packaging to be damaged and the steel rods suffering from advanced fresh water rusting, which the surveyor presumed to have occurred either before or during loading in Brazil.
Subrogated cargo underwriters began this action in March of 1992 naming, as plaintiffs, both Olbert Metal Sales Limited (Olbert Metal), the consignee, and Metalplate Trading N.V. (Metalplate), the supplier, for underwriters and their counsel were, at that point, unsure when ownership of the steel had passed. Olbert Metal is an Ontario company. Metalplate has an office and place of business in The Netherlands Antilles off the coast of Venezuela.
Now, nearly six years after the event, and four and one half years after the action was commenced, and under pressure for production of documents and examination for discovery of Metalplate, the plaintiffs ask leave that Metalplate might discontinue. All of the defendants oppose and, in turn, the defendants Longitude Transport and Norsul Internacional bring a motion for documents, discovery and relief related to Metalplate’s request that it be allowed to discontinue.
THE TWO MOTIONS
Two motions came on for hearing on November 25, 1996. The plaintiffs’ motion is to allow Metalplate to discontinue, for the plaintiffs now say risk passed when the steel crossed the ship’s rail, with title following afterwards at an unspecified time when Olbert Metal received and paid for the bill of lading (and other documents) which had been sent by mail. The defendants oppose the discontinuance on the basis that it is not clear when title passed, that Metalplate might well have information as to how the rusting occurred, either pre-shipment or during loading, and moreover, the defendants submit, Metalplate’s discontinuance is merely for the purpose of avoiding discovery. The defendants have been pressing for Metalplate’s documents and for examination for discovery of a witness from Metalplate for some time. In this regard Metalplate advises, through counsel, that it does not have any documents, for they have been destroyed.
The motion of the defendants Longitude Transport Co. and Norsul Internacional S.A., the owners and the charterers, is for Metalplate’s affidavit verifying the destruction of documents; for Olbert Metal’s affidavit of documents, which would also confirm the destruction of various documents including all of the documents arising out of the sale of the steel rod as salvage; that Metalplate, within 30 days, nominate a witness for examination for discovery; and, if Metalplate is to be allowed to discontinue, the right to add a counterclaim or cross-demand against Metalplate, so that demand might be served on Metalplate’s counsel before the discontinuance comes about. The proposed counterclaim or cross-demand is consistent with the defences of the Vancouver Stevedores, Cerescorp and of Longitude and Norsul, who allege insufficient packing (a comment made by one of the surveyors) and pre-shipment fresh water rusting damage of the steel, which was carried under a clean bill of lading.
While the bill of lading is clean (there is no loading survey), the defendants say the packaging of the steel rod was such that any pre-shipment rusting damage could not be seen.
CONSIDERATION
The bill of lading is marked “FISLO”, short form for “Free in Stow, Liner Out”, indicating it is the shipper’s obligation to load and stow, with the cost of discharge included in the Ocean freight. The commercial invoice contains different but reconcilable terms, that the sale is FOB Rio de Janeiro and that the price is payable in cash against documents: as I have said, the bill of lading was sent to Canada by mail and presumably paid for sometime before the ship arrived. These apparent inconsistencies, between the bill of lading and the commercial invoice, and within the commercial invoice itself, can be reconciled.
When a seller ships goods FOB there is on loading an immediate transfer of risk and usually of property to the buyer, who insures the goods. For the seller to retain the bill of lading, as a hedge against a possible default, does not lead to the conclusion that any risk of loss or damage or interest remains with the seller: see for example Stock v. Inglis (1884), 5 Asp. M.L.C. 294 (C.A.), at pages 297-298; affirmed by the House of Lords (1885), 10 App. Cas. 263.
David M. Sassoon in C.I.F and F.O.B Contracts, 4th ed., London: Sweet& Maxwell, 1995, in considering FOB delivery observes that the courts “have sometimes referred to property considerations instead of confining themselves to the independent and narrower issue of transferred risk” (at page 456). That may well be a valid point, however the Supreme Court of Canada dealt with passage of property in an FOB transaction in Steel Co. of Canada Ltd. v. The Queen, [1955] S.C.R. 161. At issue was a passage of property, absent physical delivery, which triggered tax under the Special War Revenue Act [R.S.C. 1927, c. 179]. The Exchequer Court had held that property under an FOB contract passed when the goods were delivered to the carrier’s warehouse: Queen, The, v. Steel Co. of Canada Ltd., [1953] Ex. C.R. 200. The majority of the Supreme Court of Canada held property in the goods had not passed to the purchasers by mere delivery to the carrier’s warehouse.
As to when property passed under an FOB contract and while this is obiter, it is very persuasive, Chief Justice Kerwin and Justice Fauteux referred to a passage from Benjamin on Sale [A Treatise on the Law of Sale of Personal Property with references to the French Code and Civil Law, 8th ed.] indicating risk under an FOB contract passed once the goods were put on board the ship and then went on to say, at page 165:
This does not mean that in all F.O.B. cases the property in the goods contracted to be sold passes only when the goods are so put on board, but the circumstances in the present instance do not take it out of the general rule.
This was not an oversight, or confusion of risk and property, for at issue under the Special War Revenue Act was the passage of property. Justices Locke and Taschereau were not so explicit, however they did refer both to the above-quoted passage from Benjamin on Sale, as to the passing of risk and to a passage from A. R. Kennedy in Contracts of Sale. C.I.F., 2nd ed., which clearly sets out that under an FOB contract both property and risk pass when the goods are put aboard the vessel.
The next step is to consider the effect, if any, of the cash against documents term. In Browne v. Hare (1858), 3 H. & N. 484; 157 E.R. 561 the plaintiff shipped vegetable oil FOB Rotterdam, the bill of exchange to be accepted and paid for by the defendant buyers, on delivery of the bills of lading, by a three-month bill of exchange. The bill of lading, endorsed by the buyer, together with an invoice and bill of exchange, were mailed to a broker for presentation to the buyer, however, the ship and cargo became a total loss before presentation of the documents. The buyer refused to pay. The majority of the Court of Appeal were of the view that both property and risk had passed to the buyer on shipment under the FOB term of the contract. The Court pointed out that the seller did not issue the particular form of the bill of lading in order to retain the goods, but only to secure the price: the securing of the price by that means was not inconsistent with the FOB contract. In the present instance the cash against documents term does not defeat the intent of the contract that the terms be FOB.
Similarly, in Frebold and Another v. Circle Products Ltd., [1970] 1 Lloyd’s Rep. 499 the Court of Appeal dealt with an FOB shipment, payment to be made by cash against documents. The buyer argued that passing of property did not occur until the shipping documents were paid for. Lord Justice Edmund Davies, who wrote the lengthiest of the three judgments, held that delivery was completed when the goods were put aboard the ship. Lord Justice Widgery, at page 504, found it was a normal FOB contract and that the presumption of delivery was not rebutted merely because the sellers had instructed their banks not to hand over the goods until payment. Sir Frederic Sellers is more explicit as to the effect of an FOB contract, setting out that when the goods are shipped “[t]he property in them passes to the buyer, who is responsible for the freight and the goods are at the buyer’s risk” (at page 505). He then went on to consider whether there was evidence to alter the essential terms of an FOB contract: he concluded that the requirement of cash before the goods would be handed over was not inconsistent with the intention to pass property on shipment FOB (loc. cit.).
To summarize at this point, on the material available, I must conclude that once the bundles of steel rod were loaded and stowed, Metalplate had no further interest. However, if damages pre-existed loading, or happened either during loading or during the course of stowing, such occurred when the steel rods were the property of Metalplate. The Lloyd’s surveyor at Vancouver, who acted for the plaintiff, Olbert Metal, clearly states his view that the rusting, by reason of the reaction to the silver nitrate test, was fresh water rusting which he presumes occurred before or during loading. This evidence of damage, while the steel rod belonged to Metalplate, is enough to give Metalplate an interest as a plaintiff. But there are other reasons which require Metalplate to continue as a party to these proceedings.
The subrogated underwriters who bring this action may be content to take the chance that they may not recover if the damage occurred before their insured, Olbert Metal, obtained any interest. But that could well prejudice the defendants, including the vessel owners and charterers, who could not assess the bundled and wrapped cargo for pre-existing fresh water rusting and who, without the opportunity to find out when and why Metalplate destroyed their documents, or to examine Metalplate for discovery to learn their manufacturing and wrapping practices, will have no means to find and explore evidence as to what happened to the steel before it was stowed aboard ship.
At this point I should touch on a decision of Madam Justice Reed’s, Johnson v. Canada, [1990] 1 F.C. 275 (T.D.), in which some of the plaintiffs sought leave to discontinue. Their sole motive was to avoid examination for discovery. Leave to discontinue was denied, at pages 286-287:
In my view the present situation is simply not a situation where the Court should exercise its discretion and allow discontinuance of an action by the plaintiffs. The motive and only motive in seeking discontinuance is to seek to avoid discovery. The Court should not exercise its discretion in support of that endeavour. For that reason alone, I would refuse to grant the discontinuance sought in this case. There is, in addition, given the unsettled nature of jurisprudence, some uncertainty as to whether a discontinuance would prejudice the defendants. It is possible that a judgment given consequent upon an action framed in the name of band(s) alone would not bind all band members. As Mr. Justice McEachern said in the Martin case, supra, the object at this stage of proceedings should be to cover all bases. To adopt a procedure which is rife with uncertainty and which would increase rather than decrease the potential for interlocutory litigation is not appropriate.
The sole reason in the present instance may not be to avoid production of documents and examination for discovery, for Metalplate does submit that on counsel properly assessing the claim it appeared Metalplate had no interest once the steel rod passed over the ship’s rail during loading. I have determined this lack of interest argument is faulty for property remained with Metalplate until the steel rod was loaded and stowed. However, even if I am in error in my assessment that damage may well have occurred when Metalplate had an interest in the steel rod, I am not about to exercise my discretion and allow Metalplate to discontinue at this rather late date, given the pressure put on Metalplate for production of documents and examination for discovery, leading up to their motion to discontinue. Avoidance of discovery may not be the factor triggering their motion to discontinue, but it gives every appearance of being a factor which, coupled with prejudice to the defendants, are sufficient argument against allowing the discontinuance.
Madam Justice Reed also considered prejudice to the defendant in the Johnson case, there because of uncertainty whether the remaining plaintiffs, Indian bands, as opposed to the Band and its members, might be bound by the outcome of the action. In the present case there is, as I have indicated, a very real potential for prejudice to the defendants by reason of the denial of a way in which they might satisfy themselves as to pre-existing damage, or alternatively, that damage could not have occurred while Metalplate had property in the goods, evidence which ought to be within the knowledge of Metalplate as supplier and shipper, with a duty to load and stow.
I am aware that if Metalplate has evidence, such may make them a witness, but does not necessarily make them a necessary party. But as a factual matter we have a plaintiff who gives an address in The Netherlands Antilles, well off the beaten track and from whom, given its attitude toward the litigation and its destruction of documents, the defendants can likely expect little cooperation, particularly in that the defendants allege pre-existing damage. In addition it is now four and a half years since Olbert Metal and Metalplate began this action: it is now far too late for Metalplate to abandon this action to the prejudice of the defendants.
This leads me back to a comment made by Madam Justice Reed in the passage which I have quoted from the Johnson case, that at an interlocutory stage the object is to cover all bases. She referred to a passage from Martin v. B.C. (Govt.) (1986), 3 B.C.L.R. (2d) 60 (S.C.), a decision of Chief Justice McEachern, in which she looked upon the interlocutory process as a problem-solving exercise and felt that the best that could be done was to cover all bases by ensuring that all proper interests were represented and then leave it to the trial judge to decide the matter on the evidence. This is what I believe justice requires in this instance.
As to the motion of the defendants Longitude Transport and Norsul Internacional, items 1, 2 and 3 are adjourned and may be reset for hearing by letter request if counsel are unable to agree. Item 4 is denied in that Metalplate remains a plaintiff.
I thank counsel for well-done presentations. Costs will be in the cause.