Judgments

     A-406-96

Belships (Far East) Shipping (Pte.) Ltd., Northsouth Shipmanagement Pte. Ltd., Canadian Transport Company Limited, The Owners and Charterers of the Vessel Beltimber, and The Vessel Beltimber (Appellants)

v.

Canadian Pacific Forest Products Limited-Tahsis Pacific Region, Stevens & Co. S.A., Denderwood NV, All those persons having an interest in the Cargo Laden on Board the Vessel Beltimber (Bs/L Nos. 351 and 352) (Respondents)

Indexed as: Canadian Pacific Forest Products Ltd.-Tahsis Pacific Regionv.Beltimber (The) (C.A.)

Court of Appeal, Stone, Linden and Létourneau JJ.A. "Ottawa, May 26 and June 10, 1999.

Maritime law — Carriage of goods — Appeal from trial judgment allowing action for damages for loss of part of cargo of lumber stowed on deck — Trial Judge holding loss caused by master's negligence — Bills of lading, Clause 8 exempting carrier from liability for loss, damage to deck cargo howsoever caused — Trial Judge holding Clause 8 not excluding liability for negligence — Applying third test for construction of such exclusion clause in Canada Steamship Lines Ld. v. The King — Canada Steamship tests not displaced by Hunter Engineering Co. v. Syncrude Canada Ltd. — Latter distinguishable, based on 1980 H.L. decision; subsequent English cases not indicating ratio thereof should be preferred to Canada Steamship — English, Canadian courts continuing to apply Canada Steamship — Apart from statute, and subject to terms of contract, at common law carrier of goods by sea undertaking to carry goods at own absolute risk, except for loss, damages caused by acts of God or of Queen's enemies or inherent defect in goods themselves or default of shipper — Also impliedly undertaking ship seaworthy unless relieved of that obligation by contract — Applying Canada Steamship tests, Clause 8 broad enough to exclude —negligence—, but not intended to exclude liability for negligence — Intended to exclude liabilities other than negligence imposed at common law i.e. damage naturally concomitant with deck stowage including damage by sea-water, rain or wind — Implied warranty of seaworthiness exposing appellants to another potential head of liability apart from negligence to which Clause 8 would also apply.

This was an appeal from the trial judgment allowing a claim for damages for loss of part of a cargo of lumber, and holding that the loss was not excluded by the contract of affreightment. The cargo was carried on deck as expressly stated in the bills of lading, which included an exclusion clause (Clause 8) exempting the carrier from liability for loss of or damage to deck cargo, howsoever caused. The Trial Judge concluded that the loss had been caused by the master's negligence, and that Clause 8 did not exclude liability for negligence. He applied the third test for construction of such an exclusion clause set out in Canada Steamship Lines Ld. v. The King, which provides that if the words are wide enough in their ordinary meaning, to cover negligence on the part of the servants, the Court must consider whether the head of damage may be based on some ground other than that of negligence. The Trial Judge found that such a "ground" existed in the case law governing common carriers who are "strictly liable at common law for any loss or damage". Apart from negligence, therefore, the appellants would be liable for damage "naturally concomitant with deck stowage including damage by sea-water, rain or wind", all of which he regarded as predictable heads of liability against which the relevant exemptions contained in the bills of lading could operate and which the contracting parties necessarily had in mind in agreeing to the terms of the contract. In addition, the presence of "negligence" in other clauses and its absence from Clause 8 was found to be significant. The issues were whether the Canada Steamship tests for the construction of an exclusion clause applied in light of Hunter Engineering Co. v. Syncrude Canada Ltd., wherein the Supreme Court of Canada held that the doctrine of fundamental breach of contract did not displace an exclusion of liability clause, but rather, that the language of such a clause must be given its natural and true construction; and, if the Canada Steamship tests were applicable, whether the Trial Judge erred in applying them to the construction of Clause 8.

Held, the appeal should be dismissed.

The tests in Canada Steamship have not been displaced by Hunter Engineering and therefore Clause 8 of the present contracts for the carriage of goods by sea had to be construed in the light of those tests.

The tests in Canada Steamship were not mentioned in Hunter Engineering, which addressed the use of fundamental breach in the context of enforcing an exclusion clause. Such was not the issue herein. Moreover, the rejection of the fundamental breach doctrine in that case was expressly based on the 1980 decision of the House of Lords in Photo Production Ltd. v. Securicor Transport Ltd. There is no indication in subsequently decided English cases that the ratio of that decision is now to be applied in preference to the tests in Canada Steamship. Indeed English and Canadian courts have continued to apply those tests to the construction of a broadly worded exclusion clause in a contract that did not expressly exclude liability for negligence.

In MacKay v. Scott Packaging and Warehousing Co. (Canada) Ltd., which applied Hunter Engineering, the Federal Court of Appeal determined that an exclusion clause which excluded liability for "any damage (howsoever caused) to the goods" had effectively excluded liability for negligence, although "negligence" was not expressly mentioned. But the contract therein was not a contract for the carriage of goods by sea per se , but a form of forwarding contract. The defendant was not burdened with the obligations imposed at common law upon a carrier by sea for safe carriage and delivery and seaworthiness.

The Hague Rules did not apply herein because the definition of "goods" in Article 1(c) exempts any cargo which the contract of carriage states is carried on deck. Therefore the appellants were subject to the obligations of a carrier by sea at common law unless those obligations were modified by the contracts in issue.

The unlikelihood that one party to a contract would intend to absolve the other from negligent performance of the contract appears to lie at the root of the Canada Steamship tests. Therefore, the question was whether there were heads of liability at common law other than negligence imposed upon a carrier of goods by sea. In general terms, such a carrier incurs "the same liability as a common carrier in respect of loss or damage to the goods". Apart from statute and subject to the terms of the contract, the carrier undertakes to carry the goods at his own absolute risk, with the exception of loss or damage caused by acts of God or of the Queen's enemies or inherent defect in the goods themselves or default of the shipper. In addition, the carrier impliedly undertakes that the ship is seaworthy unless relieved of that obligation by a term of the contract. By this undertaking the carrier ensures that the ship is fit both to encounter the perils of the voyage and to receive and carry the cargo safely. The tests in Canada Steamship and ITO are particularly applicable to the construction of an exclusion clause in a contract for the carriage of goods by sea, wherein carriers are exposed to liability for loss of goods that is in addition to that of negligence.

Although the word "negligence" does not appear in Clause 8 of the bills of lading, the language of Clause 8 is broad enough to exclude negligence. Given the context of the contracts, Clause 8 was not intended to exclude liability for negligence but for other heads of liability imposed on the appellants at common law i.e. "damage that is naturally concomitant with deck stowage including damage by sea-water, rain or wind". Liability for this type of damage is "other than that of negligence" and is not "so fanciful or remote that the proferens [the person in whose favour the clause is made] cannot be supposed to have desired protection against". The parties must have contemplated the possibility of such situations. In addition, the implied warranty of seaworthiness exposed the appellants to another potential head of liability that was quite apart from negligence. This, too, constituted a head of liability to which Clause 8 would apply.

statutes and regulations judicially considered

Carriage of Goods by Water Act, R.S.C., 1985, c. C-27, s. 2, Sch.

International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading and Protocol of Signature, Brussels, 25 August, 1924 ("Hague Rules"), Art. 1(c), 3(1).

Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, Brussels, 25 August 1924 (Brussels, 23 February, 1968) ("Visby Rules").

cases judicially considered

applied:

Canada Steamship Lines Ld. v. The King, [1952] A.C. 192 (P.C.); ITO—International Terminal Operators Ltd. v. Miida Electronics Inc. et al., [1986] 1 S.C.R. 752; (1986), 28 D.L.R. (4th) 641; 34 B.L.R. 251; 68 N.R. 241; Smith v South Wales Switchgear Ltd, [1978] 1 All ER 18 (H.L.); Raphael, The, [1982] 2 Lloyd's Rep. 42 (C.A.); Rutter v. Palmer, [1922] 2 K.B. 87 (C.A.).

distinguished:

Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426; (1989), 57 D.L.R. (4th) 321; [1989] 3 W.W.R. 385; 35 B.C.L.R. (2d) 145; 92 N.R. 1; MacKay v. Scott Packing and Warehousing Co. (Canada) Ltd., [1996] 2 F.C. 36; (1995), 192 N.R. 118 (C.A.).

considered:

Gillespie Bros. & Co. Ltd. v. Roy Bowles Transport Ltd. Rennie Hogg Ltd. (Third Party), [1973] 1 Lloyd's Rep. 10 (C.A.).

referred to:

Good Friend, The, [1984] 2 Lloyd's Rep. 586 (Q.B. (Com. Ct.)); Alderslade v. Hendon Laundry Ld., [1945] K.B. 189 (C.A.); Beaumont-Thomas v. Blue Star Line, Ltd., [1939] 3 All E.R. 127 (C.A.); Thin v. Richards, [1892] 2 Q.B. 141 (C.A.); Vortigern, The, [1899] P. 140 (C.A.); McFadden v. Blue Star Line, [1905] 1 K.B. 697; Paterson Steamships, Ld. v. Canadian Co-operative Wheat Producers, Ld., [1934] A.C. 538 (P.C.); Wade v. Cockerline, [1905] Com. Cas. 47 (K.B.); affd [1905] Com. Cas. 115 (C.A.); Elder, Dempster & Co. v. Paterson, Zochonis & Co., [1924] A.C. 522 (H.L.); Friso, The, [1980] 1 Lloyd's Rep. 469 (Q.B. (Adm. Ct.)); Galileo, The, [1914] P. 9 (C.A.); Photo Production Ltd. v. Securicor Transport Ltd., [1980] A.C. 827 (H.L.); Dorset County Council v. Southern Felt Roofing Co. Ltd. (1989), 29 Co. L.R. 61 (C.A.); E.E. Caledonia Ltd. v. Orbit Valve Plc, [1994] 2 Lloyd's Rep. 239 (C.A.); Cavell Developments Ltd. v. Royal Bank of Canada (1991), 78 D.L.R. (4th) 512; [1991] 4 W.W.R. 266; 54 B.C.L.R. (2d) 1 (C.A.); Upper Lakes Shipping Ltd. v. St. Lawrence Cement Inc. (1992), 89 D.L.R. (4th) 722 (Ont. C.A.); Zippy Print Enterprises Ltd. v. Pawliuk, [1995] 3 W.W.R. 324 (B.C.C.A.), [1995] 3 W.W.R. 324; (1994), 100 B.C.L.R. (2d) 55; 20 B.L.R. (2d) 170 (C.A.); Murray v. Bitango (1996), 184 A.R. 68; 135 D.L.R. (4th) 443; [1996] 7 W.W.R. 163; 38 Alta. L.R. (3d) 408 (C.A.); Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd, [1983] 1 All ER 101 (H.L.); Mitchell (George) (Chesterhall) Ltd. v. Finney Lock Seeds Ltd., [1983] Q.B. 284 (C.A.); MacKay v. Scott Packing and Warehousing Co. (Canada) Ltd. (1994), 75 F.T.R. 174 (F.C.T.D.).

authors cited

Canadian Code of Safe Practice for Ships Carrying Timber Deck Cargoes. Ottawa: Canadian Marine Transportation Administration, 1974.

Carver's Carriage by Sea, 13th ed. by R. Colinvaux. Vol. 1. London: Stevens & Sons, 1982.

Grand dictionnaire encyclopédique Larousse. Paris: Larousse, 1995, "métacentre".

Halsbury's Laws of England, 4th ed., Vol. 43. London: Butterworths, 1983.

Halsbury's Laws of England, 4th ed. reissue, Vol. 5(1). London: Butterworths, 1993.

Shorter Oxford English Dictionary on Historical Principles. Oxford: Oxford University Press, 1973, "metacentre".

APPEAL from trial judgment (Canadian Pacific Forest Products Ltd. v. Belships (Far East) Shipping (Pte.) Ltd. et al. (1996), 111 F.T.R. 11 (F.C.T.D.)) allowing a claim for damages for part of a cargo of lumber that was lost from the deck of the Beltimber, and holding that the loss was not excluded by the contract of affreightment. Appeal dismissed.

appearances:

Nick J. Spillane for appellants.

J. Kenrick Sproule for respondents.

solicitors of record:

McMaster Gervais, Montréal, for appellants.

Sproule, Castonguay, Pollack, Montréal, for respondents.

The following are the reasons for judgment rendered in English by

[1]Stone J.A.: This appeal is from a judgment of Noël J. dated April 23, 1996 in an action in admiralty,¹ allowing a claim for damages for part of a cargo of lumber that was lost overboard from the deck of the ship Beltimber in December 1991 and holding that the loss was not excluded by the contract of affreightment. The cargo was shipped from Nanaimo, British Columbia, to Antwerp, Belgium, under two identical bills of lading which contained an exclusion clause. At the time of the carriage the ship was owned by the first appellant and was time chartered to the third appellant. The parties agreed at trial that those respondents were "both bill of lading carriers" and in the event the carriers were found to be responsible for the damages claimed "that they are jointly and severally liable to pay the damages".²

The decision at trial

[2]The facts surrounding the loading, stowing and carrying of the cargo on the ship's deck are not disputed. The cargo was shipped in pre-slung modules, two packages high and two packages wide. It was stowed by the agent of the third appellant (C.T. Co.), whose basic method of stowing on hatch No. 4 was described by Noël J. as follows:³

The stow on hatch no. 4 was 10 layers of packages high, corresponding to a total height above the hatch cover of approximately 6.7 m. Thus, the total height of the stow above the weather deck was just under 9.5 m. The first two layers of lumber packages atop hatch no. 4 (first layer of modules) were stowed in a fore and aft direction, in line with the vessel. The next two layers were stowed athwartships, and ran the full width of the hatch cover. The packages in the top six layers (the top 3 module layers) were stowed in a fore and aft direction and were bricklaid in this direction to avoid stacking them in columns. Small angular restraints (approximately 2.5 ft high) called "lumber chocks" were placed along the edge of the hatch coaming to restrain the movement of the bottom tier of cargo. Two by six inch dunnage was used between package layers 2 and 3 (module layers 1 and 2) and between package layers 6 and 7 (module layers 3 and 4) to bind the stow and ensure the transfer of weight from the upper packages to the lower packages. There were several plastic-wrapped packages stowed athwartships in the second module layer, and there were some plastic-wrapped packages stowed fore and aft on the bottom module layer (resting on the hatch cover). There were plastic-wrapped packages on the wings or outer portions of the stow. The fact that some packages were plastic-wrapped was not taken into account by C.T. Co. in the stowage, nor was it taken into account by the Captain of the Beltimber in his evaluation of the stow. [Footnotes omitted.]

The cargo was secured with lashing material that consisted of chains, links, turnbuckles and eyepads, all of which was supplied by C.T. Co. As Noël J. found:⁴

The stow on hatch no. 4 had 10 pairs of chains (lashings). Because the deck lashing terminals were spaced 1.5 m. apart, there was a lashing every 1.5 m. around the stow. As a result, some of the bundles that were stowed athwartships would not have direct contact with any chains. There were no chains in a fore and aft direction. Packages stowed on the outer edges (fore and aft) of the stow would also not have been in contact with any chains. [Footnote omitted.]

[3]The Canadian Code of Safe Practice for Ships Carrying Timber Deck Cargoes of July 1, 1974 (the Code)⁵ and the C.T. Co.'s own Standard Operating Procedures were in evidence. These latter procedures provided in section 16(c) that: "Whenever practical or possible the stow should . . . [have] packages alternated fore and aft and athwartships above the hatch in order to interlock, however, the top two packages should always be fore and aft" and that the "deck stow should also be `brick-laid' in the fore and aft direction to avoid stacking of packages in a column". The same paragraph contained the advice that there be "one or more non-adjacent tiers stowed athwartships when above the hatches to produce a binding effect within the cargo". Noël J. commented on these requirements as follows in the light of the evidence of Captain Day, a witness called by the appellants:⁶

The logic behind the codification, insofar as it relates to the notion that athwartship packages should not be stowed adjacent to one another, is obvious. Athwartship packages stowed in adjacent layers have a greater propensity to be propelled out of a stow in the event of a severe roll because they rest on each other end to end in the direction of the movement thereby increasing their susceptibility to skid out. Although Captain Day did not say so explicitly, I take it from his testimony that this concern would somehow have been alleviated by the advent of specialized ships and bonded packages of uniform size.

    . . .

The packages of timber were loaded in modules, two packages in width and two packages in height which, once deposited on board the ship, formed a single "tier" according to the interpretation given to the Code on the West Coast. While this practise gives rise to obvious efficiencies, it also has significant repercussions on the composition of the stow. The first is that dunnage can only be placed between every second layer of packages, that is on the top of each module. In the case at hand, the evidence reveals that dunnage was only placed between the second and third layer of packages and between the sixth and seventh layer of packages. The second is that the ability to bind the stow by bricklaying layers of fore and aft packages with athwartships layers is severely compromised. Indeed, as the stow in issue demonstrates, only one module out of five can be placed athwartships. This is because, as pointed out by Captain Day, the top two modules must always remain in the fore and aft position. As otherwise the Code requires that no two modules be placed athwartships in an adjacent position, and as the bottom module must also remain in a fore and aft direction, it follows that only the second and third modules from the bottom can be placed in an athwartship direction. . . . The third and more significant repercussion stemming from the change in practice is that it allows for the loading of athwartship packages adjacent to one another across the width of the stow in circumstances where no dunnage can be inserted between these packages, as again occurred in the case at hand. [Emphasis added; footnotes omitted.]

[4]After discharging other cargos at Portsbury, England, and then at Brake, Germany, the Beltimber departed Brake for Antwerp with only the respondents' cargo remaining on deck. Noël J. found that at the time of departure the Beltimber had a GM of 4.69 metres⁷ which rendered her "stiff" in that her rotation was "short" and "fast" and the rolling period of eight seconds duration. He characterized the effects of this condition on the cargo in the light of the evidence of Captain Knott and Captain Paines, expert witnesses called by the respondents and the appellants, respectively, as follows:⁸

A stiff ship suffers from excessive stability and according to Captain Knott, a GM of 4.69 m. is adversely large by any standard and a rolling period of 8 seconds can be described as vicious. Indeed, it is said to create a whiplash effect when the roll of the ship reverts from starboard to port. As pointed out by Captain Paines, a stiff ship will, by virtue of its rapid roll, impart a dynamic force onto its cargo and lashings. The higher the cargo stands from the ship's centre of gravity, the faster the movement imparted by the roll, and the greater the dynamic forces acting on the lashings. It will be recalled that when the Beltimber sailed from Brake, the cargo on the No. 4 hatch was an 850 metric tonne block of cargo which was made of some 553 individual packages. It was no longer surrounded by other cargo either fore or aft and stood approximately at mid ship, some 9.5 m. in height above the weather deck. [Emphasis added; footnote omitted.]

Noël J. also found that the ship's master had not bothered to obtain weather forecasts before departing Brake because in the words of the master with a ship of this size, "we sail no matter what".⁹ On December 26, 1991 during this leg of the voyage, in high wind and heavy seas, the cargo was lost overboard. After carefully examining the evidence, Noël J. concluded that the loss was caused by the negligence of the master:¹⁰

Having regard to the forecast conditions, the historical weather data, the state of the cargo, the vessel's GM, its bow profile, and the constricted waters that were ahead of him, Captain Pettersen made a navigational error when he left Brake in the circumstances that he did. In my view, a competent master properly informed as to the weather would either have stayed in port or reconfigured the cargo as Captain Knott suggested be done. Captain Pettersen further disregarded the preservation of the on-deck cargo when, after he became aware of the continued weather deterioration, he persisted on his course into the constricted waters of the T.S.S. [German Bight Traffic Separation Scheme] rather than heading into the North Sea where he could have brought his vessel head to wind.

It is apparent from the evidence that the only reservation which Captain Pettersen had about sailing in bad weather was dictated by the capability of his ship to navigate. In his words, the Beltimber could sail no matter what. This type of thinking is consistent with my finding that Captain Pettersen gave no consideration to the preservation of the cargo for which he was responsible. In my opinion, Captain Pettersen acted negligently when he decided to leave Brake in the circumstances that he did and thereafter in maintaining his course after he became aware that the weather was in fact deteriorating severely. Captain Pettersen knew or ought to have known that he was thereby putting the on-deck cargo in peril. His decision to sail from Brake and thereafter to maintain his course is the direct cause of the loss of the cargo. [Footnote omitted.]

[5]In view of the condition of the lashings as found upon survey after the Beltimber arrived at Antwerp, Noël J. concluded that there had been a gradual deterioration of the stow just prior to the loss. He specifically found:¹¹

The evidence however shows that not a single lashing component fractured or broke. Only one pear link was found to have elongated. This very localized damage is not consistent with dynamic forces uniformly exerted on every lashing, as they would be in a unitized stow. It indicates that a localized force was exerted on one lashing, which could only have occurred as the stow began to break up. In this respect, I accept Captain Knott's opinion to the effect that the generally intact and unbroken state of the lashing suit suggests that there was a gradual deterioration of the stow. This deterioration probably began with the slippage of one or two packages out of the stow due to the very heavy rolling and pitching motion of the Beltimber, followed by a rapid domino-like disintegration of the stow as the rapid roll of the ship propelled the packages into the sea. [Emphasis added; footnotes omitted.]

[6]Each of the bills of lading was stamped on its face with the words "on deck at shipper's risk" and included the following as Clause 8 on its reverse side:¹²

8. The Carrier shall be at liberty to cause goods to be stowed, either in whole or in part, on deck. Goods may be stowed in poop, forecastle, deck house, shelter deck, passenger space or any other covered-in space commonly used in the trade for the carriage of goods, and when so stowed shall be deemed for all purposes to be stowed under deck. Goods stowed on deck shall be at all times and in every respect at the risk of the Shipper/Consignee. The Carrier shall in no circumstances whatsoever be under any liability for loss of or damage to deck cargo, howsoever the same be caused except that, in the event of jettison of deck cargo, there shall in that respect be a right of contribution in general average in favour of any party interested in the adventure.

The principal issue at trial was whether Clause 8 of the bills of lading immuned the appellants from liability for the loss. The appellants' argument that it did was rejected by Noël J., who concluded after a review of the authorities that this broad clause did not exclude liability for negligence. The issue in this appeal is whether he erred in so concluding.

[7]Noël J.'s conclusion that the language employed in Clause 8 did not exclude negligence was based upon a line of English and Canadian authorities, beginning with Canada Steamship Lines Ld. v. The King¹³ and ending with ITO—International Terminal Operators Ltd. v. Miida Electronics Inc. et al.¹⁴ In Canada Steamship, supra, [at page 203] a clause in a warehousing contract excluded liability of the lessor of a shed for "detriment, damage or injury of any nature to . . . goods . . . placed . . . in the . . . shed". The shed and its contents were destroyed by fire, which was caused by the gross negligence of the lessor's servants. Lord Morton of Henryton enunciated the following approach for a consideration of such an exclusion clause:¹⁵

Their Lordships think that the duty of a Court in approaching the consideration of such clauses may be summarized as follows:"

(1) If the clause contains language which expressly exempts the person in whose favour it is made (hereafter called "the proferens") from the consequences of the negligence of his own servants, effect must be given to that provision. Any doubts which existed whether this was the law in the Province of Quebec were removed by the decision of the Supreme Court of Canada in The Glengoil Steamship Company v. Pilkington.

(2) If there is no express reference to negligence, the court must consider whether the words used are wide enough, in their ordinary meaning, to cover negligence on the part of the servants of the proferens. If a doubt arises at this point, it must be resolved against the proferens in accordance with article 1019 of the Civil Code of Lower Canada: "In cases of doubt, the contract is interpreted against him who has stipulated and in favour of him who has contracted the obligation."

(3) If the words used are wide enough for the above purpose, the court must then consider whether "the head of damage may be based on some ground other than that of negligence," to quote again Lord Greene in the Alderslade case . . . The "other ground" must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it; but, subject to this qualification, which is no doubt to be implied from Lord Greene's words, the existence of a possible head of damage other than that of negligence is fatal to the proferens even if the words used are prima facie wide enough to cover negligence on the part of his servants. [Footnotes omitted.]

He went on to conclude on these tests that the clause in question did not exclude the liability of the lessor for negligence. The same tests¹⁶ were applied by the majority in ITO—International Terminal Operators, supra, to exclude liability for negligence of a bailee for reward under a warehousing agreement that contained a broadly worded exclusion clause but omitted the word "negligence".

[8]Similarly, Noël J. was of the view that the language of Clause 8 was not such as to exclude the appellants' liability for negligence. He regarded the third test of Lord Morton as requiring that he consider whether a head of damage may be based on some ground other than that of negligence because, in the words of the learned Law Lord, "the existence of a possible head of damage other than that of negligence" would be "fatal" to the appellants. Noël J. found that such a "ground" existed in the case law governing common carriers who, in his words, are "strictly liable at common law for any loss or damage".¹⁷ Apart from negligence, therefore, the appellants would be liable for damage "naturally concomitant with deck stowage including damage by sea-water, rain or wind",¹⁸ all of which he regarded as "predictable heads of liability against which the relevant exemptions contained in the Bills of Lading could operate and which the contracting parties necessarily had in mind in agreeing to the terms of the contract".¹⁹ In addition, the presence of the word "negligence" in clauses 9 and 11 of the bills of lading and its absence from Clause 8 was of significance to Noël J. As he put it:²⁰

In my view, the use of the word "negligence" in clauses 9 and 11 of the Bills of Lading cuts down the otherwise broad language of clause 8, with the result that it cannot reasonably be construed as exempting the carrier from its negligence or that of its servants.

The parties' submissions

[9]The appellants raise two major arguments against the judgment below. They contend that the Canada Steamship tests for the construction of an exclusion clause have been overtaken by the decision of the Supreme Court of Canada in Hunter Engineering Co. v. Syncrude Canada Ltd.²¹ In that case the doctrine of fundamental breach of contract was held not to displace an exclusion of liability clause in a contract but, rather, that the scope of such a clause is primarily a matter of construction. Secondly, the appellants submit that, assuming the Canada Steamship tests are applicable, Noël J. erred in applying them to the construction of Clause 8. They contend, indeed, that apart from the negligence that was found at trial no other head of damage exists in this case even assuming, as the Trial Judge held, that the appellants' liability to the respondents under the contracts is that of a common carrier. They also argue that given the special roles of clauses 9 and 11, the presence of the word "negligence" therein is not a reliable indication that the parties did not intend to exclude negligence under Clause 8.

[10]The respondents, for their part, submit that the tests in Canada Steamship, supra, remain good law in Canada as is shown by the decision in ITO—International Terminal Operators.²² They contend, therefore, that Noël J. did not err in approaching the construction of Clause 8 with those tests in view. They argue, in any event, that Noël J. did not err in relying on the wording of clauses 9 and 11 for assistance in construing Clause 8.

Analysis

[11]As was noted by Noël J., the application of the Hague Rules²³ to the contracts of carriage in issue was excluded by virtue of Article 1(c) of those Rules, in that the definition of "goods" exempts any "cargo which by the contract of carriage is stated as being carried on deck and is so carried". As we have seen, the face of the bills of lading explicitly stated that the cargo was being "carried on deck" and the cargo was, in fact, so carried. I agree, therefore, that the contracts were not subject to the Hague Rules but that the appellants were subject to the obligations of a carrier by sea at common law unless those obligations were modified by the contracts in issue.

[12]Lord Morton's third test may be of particular application with regard to a contract for the carriage of goods by sea where, as here, the nature and extent of a carrier's liability is to be determined by common law principles. Thus the rationale and the effect of this test on a contract for sea carriage need to be examined. The unlikelihood that one party to a contract would intend to absolve the other party from negligent performance of the contract appears to lie at the root of the Canada Steamship tests. This is borne out by the cases. In Gillespie Bros. & Co. Ltd. v. Roy Bowles Transport Ltd. Rennie Hogg Ltd. (Third Party),²⁴ for example, Buckley L.J. stated that "it is inherently improbable that one party to a contract should intend to absolve the other party from the consequences of the latter's own negligence". Later, in The Raphael , May L.J. expressed himself similarly when he stated:²⁵

On the other hand if there is a head of liability upon which the clause could bite in addition to negligence, because it is more unlikely than not that a party will be ready to excuse his other contracting party from the consequences of the latter's negligence, the clause will generally be construed as not covering negligence. [Emphasis added.]

In ITO—International Terminal Operators, supra, McIntyre J., after quoting extensively from the reasons of May L.J. including the passage I have just recited, indicated that the matter there before him "should be approached in this fashion".²⁶

[13]The question thus becomes: Is there a head, or heads, of liability at common law other than negligence imposed on a carrier of goods by sea? In general terms, such a carrier incurs "the same liability as a common carrier in respect of loss or damage to the goods".²⁷ Apart from statute and subject to the terms of the contract, the carrier undertakes to carry the goods at his own absolute risk, acts of God or of the Queen's enemies or inherent defect in the goods themselves or default of the shipper alone excepted.²⁸ In addition, the carrier impliedly undertakes that the ship is seaworthy²⁹ unless relieved of that obligation by a term of the contract. By this undertaking the carrier ensures that the ship is fit both to encounter the perils of the voyage and to receive and carry the cargo safely on the voyage.³⁰

[14]Neither Canada Steamship, supra, nor ITO—International Terminal Operators, supra, was concerned with the construction of a contractual provision that purported to absolve a carrier of goods by sea from common law liability for loss or damage to the goods. The tests stemming from these cases reveal that they are, indeed, particularly applicable to the construction of an exclusion clause in a contract for the carriage of goods by sea. In Rutter v. Palmer,³¹ the scope of such a clause was addressed. Scrutton L.J. there referred to the common law liability of a carrier under such a contract in the following terms:³²

Then there are the cases of contracts for carriage by ship or barge. The owner of the vessel being prima facie liable for the unseaworthiness of his vessel and for negligence of himself and his servants, when the question is how far a clause excepting him from liability, without mentioning either seaworthiness or negligence, will except him from liability for one or the other, the Courts insist more strictly on the liability of the shipowner.

In the same case, Atkin L.J. added the following:³³

I accept the proposition that if a party to a contract would except himself from liability he must express himself in plain words. There is a class of contracts in which words purporting in general terms to exempt a party from "any loss" or to provide that "any loss" shall be borne by the other party, have been held insufficient to exempt from liability for negligence. Those are contracts by sea or land. The liability of the carrier is not confined to his acts of negligence or those of his servants; it extends beyond liability for negligence; therefore when a clause in the contract exempts the carrier from any loss it may have a reasonable meaning even though the exemption falls short of conferring immunity for acts of negligence. This is the reason at the root of the shipping cases . [Emphasis added.]

It is to be noted as well that Rutter, supra, was one of the cases relied on by Lord Greene in Alderslade v. Hendon Laundry, Ld.,³⁴ a case that, in turn, was relied upon by Lord Morton in Canada Steamship, supra. A sea carrier is thus held to a duty of safe delivery of the goods at destination as well as to the exercise of skill and care; failure of either duty renders him liable for the loss so caused unless it is excluded by the contract.³⁵ In addition, as we shall see, the carrier is liable for loss caused by a breach of his implied warranty of seaworthiness.

[15]I now consider the application of Lord Morton's tests to the present case. The word "negligence" does not appear in Clause 8 of the bills of lading. I agree with Noël J., however, that the language employed in that clause is broad enough to exclude negligence. The question thus becomes whether by that broad language the parties intended to exclude the appellants' negligence. I respectfully agree that given the context of the contracts in question, the language of Clause 8 was not meant to exclude liability for negligence but for other heads of liability imposed on the appellants at common law. Noël J. exemplified such liability as "damage that is naturally concomitant with deck stowage including damage by sea-water, rain or wind". Given the scope of the appellants' common law liability, I agree that liability for this type of damage is, in the words of Lord Morton, a liability "other than that of negligence" and that it is not "so fanciful or remote that the proferens cannot be supposed to have desired protection against". To adopt the words of Lord Keith of Kinkel in Smith ,³⁶ applying the Canada Steamship tests in another context: "the possibility of such situations must be taken to have been in the contemplation of the parties and not only provides ample content for the clause but casts considerable light on the intention to be gathered from the language used".

[16]It would seem to me, as well, that a carrier by sea at common law is exposed to another potential head of liability beyond that of negligence. I refer to the carrier's implied undertaking of seaworthiness. That obligation has been held to attach at the time of loading and departure on the voyage and at all stages thereof to destination.³⁷ Liability for its breach is imposed regardless of the carrier's negligence.³⁸ Noël J. found on the evidence that the cargo was not properly stowed on the ship's deck, that the ship's GM at departure from Brake was too high and that the cargo on No. 4 hatch ought to have been reconfigured before departure given the sea conditions reasonably to be experienced at the time of year on the intended route. Noël J. did not consider whether these conditions amounted to a breach of the implied obligation of seaworthiness. Although bad stowage was found at trial, I am not persuaded that this amounted to a breach of that obligation. It seems to me that the ship was fit to receive and carry the cargo in safety at the time it was stowed on board.³⁹ However, where bad stowage renders the ship unfit for the intended voyage as, for example, where it causes the ship to be unstable or excessively stable, then a condition of unseaworthiness might exist.⁴⁰ I need not determine the point. What is significant is that this implied warranty exposed the appellants to another potential head of liability that is quite apart from negligence. This, too, constituted a head of liability to which Clause 8 would apply.⁴¹

[17]It follows from the foregoing that, in my view, Clause 8 did not exclude liability for the appellants' negligence. In view of the foregoing, it is not necessary to consider the further argument that Noël J. erred in relying on clauses 9 and 11 of the bills of lading for the construction of Clause 8.

[18]The remaining issue arises from the decision of the Supreme Court of Canada in Hunter Engineering, supra, and in the application of that decision by this Court in MacKay v. Scott Packaging and Warehousing Co. (Canada) Ltd.⁴² It is that Clause 8 must be construed in the manner required by Hunter Engineering and not otherwise. I do not read that case as laying down so broad a principle. The tests in Canada Steamship, supra, are nowhere mentioned in Hunter Engineering, supra, either by Dickson C.J. or Wilson J. or by McIntyre J. in his concurring reasons. That case established that the doctrine of fundamental breach does not, by itself, preclude the operation of an exclusion clause but, rather, that the language of such a clause must be given its natural and true construction. Both Dickson C.J.⁴³ and Wilson J.⁴⁴ made it clear that they were there addressing the use of fundamental breach in the context of enforcing an exclusion clause. Such is not the issue in the present case. Moreover, the rejection of the fundamental breach doctrine in the context of that case was expressly based on the 1980 decision of the House of Lords in Photo Production Ltd. v. Securicor Transport Ltd.⁴⁵ I can find no indication in subsequently decided English cases that the ratio of that decision is now to be applied in preference to the tests in Canada Steamship, supra. Indeed, the courts of England have continued to apply those tests to the construction of a broadly worded exclusion clause in a contract that did not expressly exclude liability for negligence. The Raphael, supra, is not the only post-1980 case to have done so.⁴⁶ Canadian courts have done likewise.⁴⁷

[19]I turn to consider this Court's decision in MacKay, supra. The defendant sought to exclude its liability by virtue of an exclusion clause for non-delivery of goods at destination. That clause was broadly worded, to exclude the defendant's liability "for any loss or failure to produce or damage (howsoever caused) to the goods" and limited the liability of the defendant to a fixed amount "per cubic foot" of each item lost or damaged. The Court determined that the clause had effectively excluded liability for negligence despite the fact that the word "negligence" did not appear in it. In doing so, the Court had particular regard to certain passages in the reasons of McIntyre J. in ITO—International Terminal Operators, supra, to Photo Production, supra, to subsequent English decisions,⁴⁸ and to Hunter Engineering, supra. Applying this recent jurisprudence, the Court concluded that negligence on the part of the defendant, although not expressly mentioned in the exclusion clause, was nevertheless excluded by its broad terms. Writing for the Court, Robertson J.A. stated:⁴⁹

The phrase "howsoever caused" as incorporated in both the exemption and limitation portions of the clause, in my view, is capable of encompassing not only negligence, but also other causes. Obviously, the clause would not apply in cases where fraud or bad faith is established. In the present case, what is intended as a limitation of liability regardless of how the liability might attach in law; ex-negligence, gross negligence, strict liability or vicarious liability. In my view, it is clear that the conduct that resulted in the appellant's loss is within the scope of the above clause.

[20]It must be observed that the contract there in question was not a contract for the carriage of goods by sea per se, but a form of a forwarding contract. This was noted by Robertson J.A. who pointed out that the owner of the lost goods had "retained the respondent shipper to effect his move" from Canada to England.⁵⁰ At trial, Gibson J. noted that the contract was for moving the plaintiff's belongings from Toronto to London "under the door to door concept of international moving".⁵¹ That the defendant did not thereby become the "carrier" of the goods on the sea leg of the movement nor assume responsibilities as such appears evident from the "Delay in Transit" clause of the contract. That clause provided that: "it is a condition that the terms set forth in the Bills of Lading, Consignment Notes or other documents issued by the participating carriers are accepted by the Company as agent for the customer and that the said terms shall be deemed to form part of this Contract" (emphasis added).⁵² Thus particular contracts with carriers participating in moving the goods were to be made between the plaintiff and such carriers. It does not appear, therefore, that the defendant was burdened with the obligations imposed at common law upon a carrier by sea for safe carriage and delivery and for seaworthiness. Accordingly, those potential heads of liability could not figure in the construction of the exclusion clause contained in the master agreement between the plaintiff and the defendant.

[21]I am satisfied from the existing jurisprudence that the tests in Canada Steamship, supra, have not been displaced by Hunter Engineering, supra, and, therefore, that Clause 8 of the present contracts for the carriage of goods by sea must be construed in the light of those tests. As we have seen, those tests have guided the courts in construing exclusion clauses in other contractual settings as well. We are here concerned with a setting where, as I have indicated, the Canada Steamship tests appear to have particular application, given that the appellants were exposed to liability for loss of the goods that was in addition to that of negligence.

[22]I would dismiss the appeal with costs.

Linden J.A.: I agree.

Létourneau J.A.: I agree.

¹ The judgment at trial is fully reported as Canadian Pacific Forest Products Ltd. v. Belships (Far East) Shipping (Pte.) Ltd. et al. (1996), 111 F.T.R. 1 (F.C.T.D.).

² Admissions and agreed statement of facts, Appeal Book, Vol. I, at p. 10.

³ Supra, note 1, at p. 17.

⁴ Ibid., at p. 18.

⁵ Ottawa, Canadian Marine Transportation Administration.

⁶ Supra, note 1, at pp. 23-24.

⁷ This is the metacentric height which gives a measure of a ship's stability. "Metacentre" is defined in The Shorter Oxford English Dictionary on Historical Principles (Oxford: Oxford University Press, 1973) at p. 1314 as follows: "The limiting position of the point of intersection between the vertical line passing through the centre of gravity of a floating body when in equilibrium and the vertical line drawn through the centre of buoyancy when the body is slightly displaced; the shifting centre . To ensure stable equilibrium this point must be above the centre of gravity".

⁸ Supra, note 1, at p. 27.

⁹ Ibid.

¹⁰ Ibid., at p. 31.

¹¹ Ibid., at p. 32.

¹² Appeal Book, Vol. II, at p. 292.

¹³ [1952] A.C. 192 (P.C.).

¹⁴ [1986] 1 S.C.R. 752.

¹⁵ Supra, note 13, at p. 208.

¹⁶ I use this word in preference to "guidelines" with the acknowledgement that other courts have preferred the latter description (see e.g. Raphael, The , [1982] 2 Lloyd's Rep. 42 (C.A.), per May L.J., at p. 48). In a subsequent decision, Smith v South Wales Switchgear Ltd, [1978] 1 All ER 18 (H.L.), the word "tests" continued to be used. There appears agreement, nevertheless, that the office of the "tests" is to assist the courts in construing the language of an exclusion clause and must be applied with that objective in view.

¹⁷ Supra, note 1, at p. 36.

¹⁸ Ibid., at p. 37.

¹⁹ Ibid.

²⁰ Ibid. Clause 9 is a "both-to-blame" clause, while clause 11 concerns the transhipping or forwarding of cargo to destination.

²¹ [1989] 1 S.C.R. 426.

²² Supra, note 14, at p. 795, where McIntyre J. acknowledged, however, that some difficulties had been caused by the qualification in the third test, in consequence of which the cases "have endeavoured to relax the qualification".

²³ These Rules are contained in the International Convention for the Unification of Certain Rules Relating to Bills of Lading and Protocol of Signature signed at Brussels August 25, 1924. The Rules in the schedule to the Carriage of Goods by Water Act, R.S.C., 1985, c. C-27, would, by virtue of s. 2 of the statute, have applied had the cargo come within the definition of "goods" in Article 1(c). It is not disputed the Hague Rules impose a lesser obligation on the carrier in respect of the duty of seaworthiness than that imposed at common law. Art. 3(1) thereof requires the carrier "before and at the beginning of the voyage, to exercise due diligence to . . . make the ship seaworthy". The 1924 Convention was amended by the Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, Brussels, 25 August 1924 , Brussels, February 23, 1968, which is commonly referred to as the Visby Rules.

²⁴ [1973] 1 Lloyd's Rep. 10 (C.A.), at p. 19.

²⁵ Supra, note 16, at pp. 49-50.

²⁶ Supra, note 14, at p. 798.

²⁷ Halsbury's Laws of England, 4th ed. (London: Butterworths, 1983), Vol. 43, at p. 282.

²⁸ Ibid.

²⁹ Ibid. See also Halsbury's Laws of England, 4th ed. (reissue) (London: Butterworths, 1993), Vol. 5(1), at p. 322.

³⁰ See e.g. Good Friend, The, [1984] 2 Lloyd's Rep. 586 (Q.B. (Com. Ct.)), and the cases referred to therein.

³¹ [1922] 2 K.B. 87 (C.A.).

³² Ibid., at p. 92.

³³ Ibid., at p. 94. R. Colinvaux, Carver's Carriage by Sea, 13th ed., vol. 1 (London: Stevens & Sons, 1982) observes at p. 141 that Rutter, supra, "puts the matter in the context embracing law maritime" and that Atkin L.J. was "there applying that principle to a carrier of goods by sea".

³⁴ [1945] K.B. 189 (C.A.).

³⁵ See Beaumont-Thomas v. Blue Star Line, Ltd., [1939] 3 All E.R. 127 (C.A.), per Scott L.J., at p. 130.

³⁶ Supra, note 16, at p. 32.

³⁷ Thin v. Richards, [1892] 2 Q.B. 141 (C.A.); Vortigern, The, [1899] P. 140 (C.A.); McFadden v. Blue Star Line, [1905] 1 K.B. 697.

³⁸ See Thin, supra, note 37. As it was put by Lord Wright, referring to the obligation of seaworthiness at common law in Paterson Steamships, Ld. v. Canadian Co-operative Wheat Producers, Ld., [1934] A.C. 538 (P.C.), at pp. 546-547: "At common law, seaworthiness of the ship in a contract for sea carriage has, if necessary, to be shown to have existed at the commencement of the voyage, but unseaworthiness involves no liability on the shipowner unless it has caused the damage complained of . . .; but the obligation to provide a seaworthy ship is absolute, and is not limited to due diligence to make it so".

³⁹ See e.g. Wade v. Cockerline, [1905] Com. Cas. 47 (K.B.); affd at p. 115 (C.A.); Elder, Dempster & Co. v. Paterson, Zochonis & Co., [1924] A.C. 522 (H.L.), at p. 561.

⁴⁰ Compare Friso, The, [1980] 1 Lloyd's Rep. 469 (Q.B. (Adm. Ct.)).

⁴¹ Words such as "at shipper's risk" do not exclude liability for this "fundamental obligation": per Lord Sumner in Galileo, The, [1914] P. 9 (C.A.), at p. 25.

⁴² [1996] 2 F.C. 36 (C.A.).

⁴³ Supra, note 21, at p. 463.

⁴⁴ Ibid., at p. 481.

⁴⁵ [1980] A.C. 827 (H.L.).

⁴⁶ See e.g. Dorset County Council v. Southern Felt Roofing Co. Ltd. (1989), 29 Con. L.R. 61 (C.A.); E.E. Caledonia Ltd. v. Orbit Valve Plc, [1994] 2 Lloyd's Rep. 239 (C.A.).

⁴⁷ See e.g. Cavell Developments Ltd. v. Royal Bank of Canada (1991), 78 D.L.R. (4th) 512 (B.C.C.A.); Upper Lakes Shipping Ltd. v. St. Lawrence Cement Inc. (1992), 89 D.L.R. (4th) 722 (Ont. C.A.); Zippy Print Enterprises Ltd. v. Pawliuk, [1995] 3 W.W.R. 324 (B.C.C.A.); Murray v. Bitango (1996), 184 A.R. 68 (C.A.).

⁴⁸ Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd, [1983] 1 All ER 101 (H.L.); Mitchell (George) (Chesterhall) Ltd. v. Finney Lock Seeds Ltd., [1983] Q.B. 284 (C.A.).

⁴⁹ Supra, note 42, at p. 44.

⁵⁰ Ibid., at p. 40.

⁵¹ MacKay v. Scott Packaging and Warehousing Co. (Canada) Ltd. (1994), 75 F.T.R. 174 (F.C.T.D.), at p. 177.

⁵² Ibid., at pp. 181-182.