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Canadian Klockner Ltd. (Plaintiff) v.
D/S A/S Flint, Willy Kubon, and Federal Com merce and Navigation Company Limited (Defendants)
Trial Division, Heald J.—Toronto, September 4; Ottawa, October 9, 1973.
Maritime law—Short delivery—Demise clause in bill of lading—Charterer relieved of liability for short delivery— Nullity of clause under Art. III, paragraph 8 of Hague Rules.
The bill of lading for a cargo of steel shipped to plaintiff on the Mica, which was under charter to F, contained a demise clause, exculpating the charterer from liability for short delivery.
Held, plaintiff was entitled to damages for short delivery against the charterer. The exculpatory clause in the bill of lading was null and void in virtue of Art. III, paragraph 8 of the Hague Rules.
Blanchard Lumber Co. v. S. S. Anthony II, 259 Federal Supplement 857, followed.
ACTION for damages. COUNSEL:
D. L. D. Beard, Q.C. for plaintiff.
P. F. M. Jones for Federal Commerce and Navigation Co. Ltd.
P. G. Cathcart for Flint, Willy Kubon.
SOLICITORS:
Du Vernet, Carruthers & Co., Toronto, for plaintiff.
McMillan and Binch, Toronto, for defendants.
HEALD J.—The plaintiff is an Ontario cor poration with head office at Toronto. It is a subsidiary of a large German steel manufactur ing corporation. The parent corporation also has subsidiaries elsewhere than in Canada, notably in Belgium. The plaintiff's business consists of purchasing steel in Europe and then selling it to "end-users" or "warehousers" in the Toronto and Montreal areas. Plaintiff has no warehouses of its own, its practice being to have its Canadi- an customers pick up their particular shipment at the dock.
In 1968, the plaintiff effected a sale of steel to Staiman Steel Ltd. of Rexdale, Ontario. Plaintiff ordered said steel from its German parent who in turn arranged to supply said order through its Belgian subsidiary. Said shipment was shipped from Antwerp, Belgium on board the vessel S.S. Mica as is evidenced by clean bill of lading No. 1 (Exhibit P-1) dated at Ant- werp on September 9, 1968. Said bill of lading was issued by the defendant Federal Commerce and Navigation Company Limited (hereafter Federal Commerce) on behalf of the master of the vessel. Lloyd's registry apparently indicated that the S.S. Mica was owned by the defendant D/S A/S Flint (hereafter Flint) a Norwegian corporation and was managed by the defendant Willy Kubon (hereafter Kubon). At all relevant times, said vessel was under charter to the defendant Federal Commerce although no details of the nature of the charterparty were tendered in evidence. The shipment was con signed to the plaintiff at Toronto. The bill of lading says that subject shipment carried the following marks and numbers:
T 1755
Klockner Size
Toronto
No. 1 and up
The significance of said marks and numbers was explained in evidence by Mr. Klaus Frieling- haus, who was employed by the plaintiff at all relevant times. Frielinghaus testified that when plaintiff purchased goods for customers, they identified the goods with their customer's refer ence number. In this case, the customer was Staiman Steel Ltd. of Rexdale, Ontario and Stai- man's reference number was T 1755. Thus "T 1755 Klockner" was placed on all of the bun dles making up the entire shipment.
The Bill of Lading went on to describe the shipment as containing:
(a) Nine bundles of angle bars of varying dimensions;
(b) 11 Bundles of Wide Flange Beams
(c) 82 pieces of Wide Flange Beams and finally
(d) 6 Bundles I-Beams 6" 40'.
108 packages
The customer's mark, as above described, served as a means of identifying the goods in question—without said mark, it would not be possible to reconcile a particular shipment with the production of that shipment. Thus, it would not be possible to produce a mill certificate for an unidentified shipment. The mill certificate becomes important because it describes in detail the various properties of the steel in question. For example, it details the yield point p.s.i. (the number of pounds pressure the steel can be subjected to before giving way); the tensile strength (the limit to which the steel can be subjected in pulling) and the heat no. (steel is produced in heats thus a particular item or items can be identified by the heat number). Accord ingly, it is absolutely essential that any one purchasing steel must know its tensile strength, its yield point, etc., in order to be confident that it has the qualities necessary for the job it is designed to do.
Frielinghaus said that during the period in question he was- in the habit of personally inspecting incoming shipments before delivery was accepted by plaintiff's customers. He said the system of tagging customarily used in ship ments like subject shipment was to use metal tags approximately 5" by 2" in size on which tag would be the order number, the name of the consignee, the bundle numbers and sometimes the port of destination. He said that on bundles of steel, there were usually three tags, one at each end and one in the centre.
The invoices from plaintiff's parent company (Exhibit P-2) and the Exporter's Declaration— Certificate of Value (Exhibit P-4) both confirm that subject shipment had the marks and num bers set out above and contained the bundles and pieces of steel as set out above.
The vessel left Antwerp for Toronto, made no stops in between, and docked in Toronto on September 22, 1968. Discharge of the cargo commenced on September 23, 1968 and was completed on September 27, 1968.
Frielinghaus, as was his custom, attended at the Toronto docks during the off-loading to inspect subject shipment. He found all of the items set out in the bill of lading except item (d)—the 6 bundles of I-Beams 6" 40'. The balance of the shipment was all together in one place on the pier at the time of his visit. He says that initially he was not alarmed that a portion of his shipment was missing because sometimes the stevedores would unload different parts of the same shipment in different places on the dock. He discussed the situation with two employees of the Toronto Harbour Commission who said they would call him when the missing 6 bundles were located. Some time later, one of the Harbour Commission employees did notify him to the effect that the 6 missing bundles had been found. He said that he went down to the dock where he was shown 6 bundles of steel. He says that the only markings on these bundles were metal tags bearing the words "4055 Duluth". He said that on the basis only of these markings, identification was impossible. Accordingly, he sent a telex to the plaintiff's parent company wherein he reported the loss of the 6 bundles of 10 pieces each of 6 x 12.5 I-Beams and stating that, instead, 5 bundles of 8 pieces each and 1 bundle of 5 pieces had been found with a label marked "4055 Duluth". He asked the parent company to check into the matter to see if said bundles were in fact the 6 missing bundles from subject shipment.
Because of the fact that none of the bundles had 10 pieces, and none of them had proper marks and numbers, Frielinghaus refused to accept the said bundles as being the missing bundles. He pointed out that their customer, Staiman, would expect and require a mill certifi cate which he could not provide because he could not identify the steel which had been found as the steel described in the bill of lading and in the mill certificate which he had received from the parent company.
Frielinghaus did not receive any information from Germany to confirm the possibility that the bundles marked "4055 Duluth" found on the dock were in fact the 6 missing bundles.
Accordingly, on November 20, 1968, he wrote to Federal Commerce asking for a certifi cate to the effect that plaintiff's shipment was short-landed to the extent of the said 6 bundles of I-Beams, said short-landed certificate being necessary to enable him to make the necessary claim on plaintiff's insurance company. There after, some correspondence between Frieling- haus on behalf of the plaintiff and Federal Com merce ensued, culminating in Federal Commerce's letter of August 29, 1969 to the plaintiff in which Federal Commerce denied lia bility, taking the position that the 6 bundles of I-Beams found on the dock were in fact the missing I-Beams from plaintiff's shipment, that they were wrongly marked by the shipper in Europe and relying on that portion of clause nine of the bill of lading under which the ship per warrants that all packages shall be clearly and durably stamped or marked in letters and numbers together with the name of port of discharge and that said markings shall corre spond with the markings and numbers inserted in the bill of lading.
Under date of September 10, 1969, Frieling- haus, for the plaintiff, replied to said letter repeating the plaintiff's position that the bundles found on the dock were rejected by the plaintiff because they could not be identified as belong ing to the plaintiff and submitting that clause 9 of the bill of lading had no application because the origin and destination of the cargo found on the dock had never been established.
Thus, the issue was joined between the par ties and this action was subsequently commenced.
The two employees of the Toronto Harbour Commission who dealt with Frielinghaus in respect of the missing bundles were called as witnesses by the defendant Federal Commerce. They were Lawrence Green, "over and short
clerk", and his supervisor, Robert Butler. The evidence of Green and Butler conflicts with the evidence of Frielinghaus in one material particu lar only, that is concerning the tags attached to the bundles found on the dock. Green and Butler both said that the wording on the tags was "Klockner Duluth" whereas Frielinghaus was positive that the wording was "4055 Duluth". There was also some discrepancy between them as to whether the tags were metal with a stencilled imprint into the metal or a metal tag with white cardboard facing on which the wording was imprinted by a black stencil.
After giving careful consideration to the tes timony of all three witnesses on this issue, I have concluded that I should accept the evi dence of Frielinghaus where it conflicts with the testimony of Green and Butler. Green and Butler had responsibility in respect of all the steel shipments on the S.S. Mica and most of the S.S. Mica's cargo was steel, whereas Frie- linghaus' sole concern was the plaintiff's ship ment as set out in Exhibit P-1, the particular shipment designated for Staiman Steel. Addi tionally, his recollection now of the series of events occurring in 1968 is corroborated by what he did in 1968. I refer to his telegram of October 24, 1968 in which he described the bundles found on the dock as being marked "4055 Duluth".
In contrast to the very precise and accurate evidence of Frielinghaus, the evidence of Green and Butler is somewhat vague and generalized. Green conceded that he looked at only four of the six bundles in question so he is not able to say what tagging was on the other two bundles. He said that he was not concerned with whether the bundles found had the same number of pieces in them as the invoice called for. His approach to the situation was exemplified by his statement that "we needed six bundles" and we were "interested in settling the claim". Butler admitted that he had refreshed his memory from documentation prepared by Green at the time
and that when he testified as to the markings on the tags, he was doing so based on Green's documents. He did not count the pieces in each bundle either. He did not check the dimensions to see if they tallied with the dimensions in plaintiff's bill of lading. As a matter of fact he admitted in cross-examination that there was no proof that the steel found on the dock even came from the S.S. Mica.
I accordingly find as a fact, on the evidence adduced before me that the six bundles of I-Beams 6" 40' with the marks and numbers: "T 1755 Klockner, Size, Toronto No. 1 and up" as described in bill of lading No. 1 (Exhibit P-1) were not delivered in Toronto by the vessel S.S. Mica.
I think that Frielinghaus acted quite properly in refusing to accept six other bundles of I-irons which had been found on the dock as a substitu tion for his missing cargo. In the first place, the proposed substitution bundles contained only 45 pieces of I-irons rather than 60. Secondly, the identification marks were different. There was no way he could identify the shipment or guar antee to his customer that the chemical proper ties were the same other than by having a chemical test carried out and I do not think there was any obligation on the plaintiff to go to this expense in the circumstances.
I agree with plaintiff's counsel when he says that this is a simple case of non-delivery of a portion of a ship's cargo. The question of liabili ty is, however, not so simple.
The plaintiff instituted this action against the owner of the vessel, its manager and the charterer.
The defendants Flint and Kubon (owner and manager) pleaded, inter alia, in their statement of defence that any claim the plaintiff may have had against them was time-barred since "no action was instituted by the plaintiff within the time prescribed by the Hague Rules which, pur suant to paragraph 3 of the terms and conditions
of the said Bill of Lading are incorporated into the contract of carriage evidenced by the said Bill of Lading." (See paragraph 4—statement of defence of Flint and Kubon.)
I agree that the Hague Rules apply in this instance and that there is a limitation period of one year from the date of delivery of the goods or the date when the goods should have been delivered (see Hague Rules—Article III para graph 6). Since discharge of the ship's cargo was completed on September 27, 1968, it seems to me that the one year limitation period would run from that date. The writ in this action was issued on June 1, 1970, well beyond the one year limitation period. That, however, is not an end of the matter because the plaintiff replies that the defendant, Federal Commerce, granted to the plaintiff various suit time extensions up to and including June 6, 1970 and that said extensions granted by Federal Commerce were given on behalf of all of the defendants herein. The defendants deny this and say that any extensions given by Federal Commerce were given by it for and on behalf of itself only as one of the defendants in the action.
In support of its position that the extensions given by Federal Commerce were also given on behalf of the other two defendants, the plaintiff called Mr. Jack Potter to give evidence at the trial. Mr. Potter is Vice-President and Toronto manager of Hayes, Stuart & Co., Ltd., Marine Survey and Average agents. This company was engaged as plaintiff's agents to handle subject cargo loss claim. Consequently, Potter entered into correspondence with Federal Commerce concerning plaintiff's claim. On August 20, 1969, Potter asked Federal Commerce by a letter addressed to it in Montreal for an exten sion of suit time for three months because the negotiations between them were still continuing. By letter dated September 15, 1969, and written to Hayes, Stuart & Co., Ltd., Federal Com merce granted a suit time extension to Decem- ber 27, 1969. A copy of this letter was sent by Federal Commerce to the defendant Kubon in Norway. Since negotiations were still contin-
uing, Hayes, Stuart & Co., Ltd. by letter dated December 11, 1969 to Federal Commerce asked for a further suit time extension until March 27, 1970. By letter dated December 16, 1969 and written to Hayes, Stuart & Co., Ltd., Federal Commerce granted a further suit time extension to March 27, 1970 (Exhibit P-27).
Exhibit P-27 has the following notation in the bottom left hand corner:
C. C. Willy Kubon
Engen 32, Bergen, Norway
P.S. Kindly authorize similar extension on owners behalf
Letter negotiations continued between Federal Commerce and Hayes, Stuart & Co., Ltd. By letter dated March 4, 1970, because of the con tinuing negotiations, Hayes, Stuart & Co., Ltd. asked for still another extension to June 6, 1970. Federal Commerce, by letter to Hayes, Stuart & Co., Ltd. dated March 16, 1970 grant ed said extension to June 6, 1970 (Exhibit P-30). Exhibit P-30 was signed by Federal Com merce and no copies of said letter were sent to anyone else.' Plaintiff then issued the writ on June 1, 1970, within the last suit time extension to June 6, 1970. On these facts, the plaintiff asks me to find that the various suit time exten sions granted by Federal Commerce were made by Federal Commerce not only for itself but also on behalf of the other two defendants herein. Mr. Potter in his evidence said that he was dealing at all times with Federal Commerce and assumed that they had authority on behalf of the owners.
The plaintiff is in reality arguing an agency by estoppel which would arise if the defendants Flint and Kubon had so acted as to lead the plaintiff to believe that they had authorized Federal Commerce to act on their behalf in the matter of granting the suit time extensions. In such a case the onus would be on the plaintiff to prove either real or ostensible authority. Fur-
thermore, no representation made solely by the agent as to the extent of his authority can amount to a holding out by the principal (see Halsbury's Laws of England, 4th ed. p. 434, paragraph 72).
Thus, it would be necessary to show that the defendants Flint and Kubon, by some affirma tive conduct or representations, had given the plaintiff the impression that Federal Commerce had authority to grant suit time extensions on their behalf.
On the facts of this case, the plaintiff clearly fails in this submission. Potter never, at any time, in any of his correspondence with Federal Commerce, requested suit time extensions from Flint and Kubon. When Federal Commerce did grant the extensions, it is clear from the corre spondence that it did so acting only on behalf of itself as one of the defendants in the action. A copy of two of the suit time extension letters was sent to the defendant Kubon in Norway but I attach little significance to this. The intent here could have been to keep Kubon informed. The letter of December 16, 1969 (Exhibit P-27) contained a P.S.: "Kindly authorize similar extension on owners behalf". Potter said he interpreted this to mean that Federal Commerce had authority on behalf of Kubon to grant the extension. Counsel for the defendants Flint and Kubon, on the other hand, submits that the P.S. meant that Hayes, Stuart & Co., Ltd., were being told to obtain authority from the owners for the suit time extension. This submission is made on the basis that Hayes, Stuart & Co., Ltd. knew who the owners were, knew that there was a demise clause in the bill of lading which could possibly relieve the charterers from liability and that, in these circumstances, Hayes, Stuart & Co., Ltd. did not act reasonably in assuming the authority of Federal Commerce without looking into the matter and taking steps to protect the plaintiff's interest. I agree with this submission of counsel for the defendants Flint and Kubon. It was held in Colonial Bank v. Cady (1890) 15 A.C. 267 that only where the circumstances show unequivocally that a person acting on the basis of the apparent authority of an agent was reasonably justified in assuming that such an agent could deal with the title to
shares, could the scope of the agent's apparent authority cover the third party and estop the real owner.
In the case at bar, I do not think Hayes, Stuart & Co., Ltd. acted reasonably and took reasonable steps to protect the plaintiff's inter ests as against these parties in so far as suit time extensions were concerned.
I therefore find that the suit time extensions granted by Federal Commerce are binding only on the said defendant Federal Commerce and that, accordingly, plaintiff's cause of action against the other two defendants, Flint and Kubon, is time barred.
Plaintiff's action against the defendants Flint and Kubon is accordingly dismissed with costs.
This leaves the question as to the liability of Federal Commerce.
This defendant's first ground of defence is by reference to clause 9 of the bill of lading and in particular paragraphs 2 and 3 thereof wherein the shipper warranted that the marking on the articles shall correspond with the markings and numbers on the bill of lading. This defence has been disposed of by my finding that the I-beams found on the dock had not been established as being the missing portion of plaintiff's cargo. Even if it were assumed that the I-irons found on the dock were the plaintiff's missing cargo, the bill of lading is prima facie evidence as to the marks and numbers (see Hague Rules, Article III, paragraph 4) on the cargo which prima facie presumption has not been rebutted by any contrary evidence in this case.
This defendant's second, and probably main line of defence is the presence in the bill of lading of clause 2 thereof which reads as follows:
2. PARTIES TO THE CONTRACT.
The Contract evidenced by this Bill of Lading is between the Merchant and the Owner of the vessel named herein (or substitute) and it is therefore agreed that said Shipowner alone shall be liable for any damage or loss due to any breach or non-performance of any obligation arising out of the contract of carriage, whether or not relating to the vessel's seaworthiness. If, despite the foregoing, it is adjudged that any other is the Carrier and/or bailee of the goods shipped hereunder, all limitations of, and exonera- tions from, liability provided for by law or by this Bill of Lading shall be available to such other.
It is further understood and agreed that as the Company or Agents who has executed the Bill of Lading for and on behalf of the Master is not a principal in the transaction, said Company or Agents shall not be under any liability arising out of the contract of carriage, nor as Carrier nor bailee of the goods.
This clause was referred to by counsel for the plaintiff as a form of "demise clause". Counsel for the defendant Federal Commerce described said clause 2 as an "identity of parties clause". It seems to me, however, that clause 2 goes much further than merely dealing with the iden tity of the parties.
By Article I of the Hague Rules, "carrier" is defined to include a charterer who enters into a contract of carriage with a shipper. On the facts of this case, the defendant Federal Commerce would certainly be included in that definition. The bill of lading is clearly between said defend ant and the shipper. By Article III, paragraph 2 of the Hague Rules, the carrier is under an obligation to properly and carefully load, handle, stow, carry, keep, care for and dis charge the goods carried. By clause 3 of the bill of lading, said bill of lading is made subject to the Hague Rules. Thus, the position is, that but for the existence of clause 2, the defendant Federal Commerce would be liable for non- delivery of a portion of plaintiff's cargo. As I read clause 2, it is clearly an exculpatory clause, which, if given effect to, would result, in this case, in relieving the said defendant from liabili ty in a case where it would otherwise be liable.
In my opinion, clause 2 of the bill of lading here is clearly the kind of clause contemplated by Article III, paragraph 8 of the Hague Rules which reads as follows:
8. Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to or in connection with goods arising from negligence, fault or failure in the duties and obligations provided in this Article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect.
A benefit of insurance or similar clause shall be deemed to be a clause relieving the carrier from liability.
That s to say, clause 2 is a clause relieving the carrier from liability for loss of goods aris ing from a breach of duty as provided in Article III of the Hague Rules and by said paragraph 8 of the said Rules, I have the view that clause 2 of the bill of lading is rendered null and void and of no effect.
I was not referred by counsel to any Canadian cases where the so-called demise clause was struck down under Article III, paragraph 8 of the Hague Rules but I was referred to a decision of the United States District Court, the case of Blanchard Lumber Company v. S. S. Anthony II 259 F. Supp. 857, wherein a demise clause, similar in all material respects to clause 2 in this bill of lading, was declared null and void as being contrary to Section 1 of the Harter Act which said Section 1 is similar to said Article III, paragraph 8 of the Hague Rules.
It is also interesting to note that in Tetley's Marine Cargo Claims at pages 52 to 54 thereof, the author gives seven reasons why, in his view, demise clauses similar to the one being here considered are "misleading, anomalous and invalid". Many of the comments therein apply to the facts of this case'. I accordingly adopt the reasoning of the author in the above noted ref erence as my own.
For the above reasons, I have concluded that clause 2 of subject bill of lading is invalid, thus leaving the defendant Federal Commerce liable for non-delivery of plaintiff's 6 bundles of I-beams. At the trial, plaintiff proved that its resulting loss amounted to $1,675.18 and is accordingly entitled to judgment for that amount together with its costs of the action against the defendant Federal Commerce.
On the question of costs, plaintiff's counsel has asked me to make what is commonly referred to as a "Bullock Order". It is proper to make such an order where, in the opinion of the Court, it was reasonable, in all the circum stances, for the plaintiff to sue all the parties which it did sue, notwithstanding that, under the judgment, he was successful against one defendant and unsuccessful against the other two defendants 2 .
After consideration of the circumstances in this case, I have concluded that I should make such an order. At the time of the issuance of the writ, plaintiff was faced with the fact that the bill of lading was issued by the defendant Fed eral Commerce. And yet, said bill of lading contained a demise clause, which, if given effect to, might relieve Federal Commerce of all liabil ity. Then, by reference to Lloyd's registry, plaintiff knew that the other two defendants had proprietary interests in the vessel in question. There was nothing in the evidence before me to indicate that plaintiff was ever apprised of the contents of the charterparty nor of the relation ship between the defendant Federal Commerce and the other two defendants. Indeed, there was no evidence of this relationship adduced at trial. I think the plaintiff had every right to sue all three defendants. There is the additional cir cumstance that the counsel representing the defendant Federal Commerce was a member of the same firm as counsel representing the other two defendants. Were I not to accede to plain tiff's request for a Bullock Order, the net result would be that the plaintiff would be deprived of most, if not all, of his party and party costs and in view of my belief that he acted reasonably in suing all three parties, I think this result would be unfair to the plaintiff.
Lest it be suggested that plaintiff acted unrea sonably in proceeding to trial against the defendants Flint and Kubon once they had filed a defence on the basis that any claim against them was time-barred, I should say that while I felt that the plaintiff took too much for granted in assuming that the defendant Federal Com merce was acting for the other two defendants in granting the suit time extensions, I believe that this position was one which the plaintiff was entitled to take at trial and to try to prove by evidence at trial and that plaintiff should not be penalized in costs because of its failure to establish this position at trial.
In the result, I direct that the plaintiff be allowed to add to its costs against the defendant Federal Commerce, any and all costs which are taxable against it by the defendants Flint and Kubon. I further direct that the plaintiff be allowed to include in its taxable disbursements, the sum of $260.00, being the transportation expenses of the witness Klaus Frielinghaus, a resident of Essen Germany who was a most necessary witness in proving the plaintiff's case. Frielinghaus was able to come to Canada for the trial on a charter flight, thus, his transportation cost was considerably less than if he had paid a normal airline fare. This disbursement is includ ed under Tariff A, Rule 3(1) of the Federal Court Rules as being reasonable and proper in the circumstances.
' In this case for example, there was no evidence as to the contents of the charterparty—whether it was a demise chart- erparty or not.
2 English Supreme Court Practice 1970, vol. 1, p. 835. See also: Holmested and Gale, Ontario Judicature Act and Rules of Practice, vol. 1, pp. 342 and 343.
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