Judgments

[1993] 2 F.C. 293

A-157-91

Prudential Assurance Company Ltd. and 130850 Canada Inc. (Appellants) (Plaintiffs)

v.

Her Majesty the Queen in Right of Canada, Kintetsu World Express Inc. and S.E.B. Cargo Inc. (Respondents) (Defendants)

Indexed as: Prudential Assurance Co. v. Canada (C.A.)

Court of Appeal, Hugessen, MacGuigan and Létourneau JJ.A.—Montréal, March 30; Ottawa, April 16, 1993.

Federal Court jurisdiction — Trial Division — Trial Judge dismissing action for damages for loss of cargo against air carrier and sufferance warehouse for want of jurisdiction — Sufferance warehouse releasing cargo to third party without requiring proof of authorization — Federal Court having jurisdiction — Federal Court Act, s. 23(b) constituting statutory grant of jurisdiction — Action based on Carriage by Air Act, which incorporates Warsaw Convention as “law of Canada” — Art. 18 covering loss of cargo — Act and Convention federal laws providing relatively complete code for carriage by air.

Air law — Sufferance warehouse releasing cargo to absconding third party without proof of authorization — Air carrier and sufferance warehouse liable for damages arising therefrom under Warsaw Convention, Art. 18 — Liability not limited under Art. 25 — Sufferance warehouse aware delivery to unauthorized person likely to preclude cargo coming into hands of rightful owner.

Crown — Torts — Upon notification of arrival of imported goods in Canada, cargo owner delivering appropriate documents to Canada Customs for customs clearance — Before could return to obtain delivery of merchandise, unknown third party misrepresenting self as owner’s authorized agent and obtaining delivery of goods — Crown having no legal obligation to cargo owner — Never having physical custody of cargo — According to Warsaw Convention, incorporated into laws of Canada by Carriage By Air Act, only air waybill document of title — Air waybill never in possession of Canada Customs.

This was an appeal from the trial judgment dismissing the action against defendants Kintetsu World Express Inc. and S.E.B. Cargo Inc. for want of jurisdiction and dismissing the action against the Crown on the merits. 130850 Canada Inc. (F.M. Electronique) was notified of the arrival at Dorval Airport of its goods from Japan by Kintetsu, its air carrier under the waybill. It delivered the appropriate documents to Canada Customs for customs clearance, but before it could return the next day to obtain delivery of the merchandise, an unknown third party misrepresented himself to the Customs Office and the warehouse as F.M. Electronique’s authorized agent and obtained delivery of the goods. Prudential Assurance Company Ltd. compensated F.M. Electronique under an insurance contract and was subbrogated to the rights of its insured. The Trial Judge dismissed the action against Kintetsu and S.E.B. Cargo (the sufferance warehouse) for want of jurisdiction and rejected the allegation of negligence by the customs officer in not requiring proof of identification because Canada Customs did not assume any legal obligation to F.M. Electronique and there was no causal connection between any fault by Crown employees and the loss suffered. The Crown never had the cargo in its possession.

The issues were whether the Federal Court had jurisdiction over Kintetsu and S.E.B. Cargo and if so, whether they were liable; and whether the Crown was liable.

Held, the appeal against Kintetsu World Express Inc. and S.E.B. Cargo Inc. should be allowed; the appeal against the Crown should be dismissed.

The Federal Court had jurisdiction over Kintetsu and S.E.B. Cargo. The three requirements for Federal Court jurisdiction set out in ITO—International Terminal Operators Ltd. v. Miida Electronics Inc. et al. are: (1) a statutory grant of jurisdiction by the federal Parliament; (2) an existing body of federal law which is essential to the disposition of the case and which nourishes the statutory grant of jurisdiction; and (3) the law on which the case is based must be “a law of Canada” as the phrase is used in Constitution Act, 1867, section 101. The first requirement was met by Federal Court Act, paragraph 23(b), which explicitly establishes concurrent jurisdiction in the Court over the subject-matter of aeronautics as well as over undertakings extending beyond the limits of a province. The appellants’ case was based on the Carriage by Air Act, although not specifically pleaded. A party needs to plead only the material facts upon which its case is based, not the applicable law. That Act provides that the “provisions of the Warsaw Convention … have the force of law in Canada in relation to any carriage by air to which the Convention applies”. The Warsaw Convention is thus “a law of Canada”, and satisfies the third requirement for Federal Court jurisdiction. Article 18 of the Convention provides that the carrier is liable for damage sustained in the event of the loss of cargo during the carriage by air, which is defined to include the period during which the cargo is in charge of the carrier, whether at an aerodrome or on board an aircraft. Since the sufferance warehouse of S.E.B. Cargo and the Canada Customs premises are located within the aerodrome, Article 18 of the Warsaw Convention explicitly covers the loss of the cargo. With respect to the second requirement for Federal Court jurisdiction, the Carriage by Air Act and the incorporated Warsaw Convention are federal laws which provide a relatively complete code for carriage by air. A claim made exclusively under federal law is not necessary for jurisdiction, so long as the claim is determined to some material extent by federal law.

The Trial Judge correctly held that the Crown had no legal obligation to F.M. Electronique. The appellants admitted the Crown never had physical custody of the cargo, but argued that the Crown had custody of documents belonging to F.M. Electronique which were equivalent to documents of title. Article 16 of the Convention requires the consignor to attach to the air waybill such documents as are necessary to meet the formalities of customs, octroi or police before the cargo can be delivered to the consignee. The consignor is liable to the carrier for any damage occasioned by the absence, insufficiency or irregularity of any such information or documents, unless the damage is due to the fault of the carrier or his agents. Canada Customs was alleged to have the responsibilities of a bailor or custodian while the documents were temporarily in their possession for verification, during which time they were stolen through misdelivery on the part of the Crown. The Convention makes it clear that it is only the waybill itself which functions as the document of title. The air waybill was never placed in the custody of Canada Customs and therefore the appellants’ objection to the Trial Judge’s reasons for decision could not be maintained.

The liability of Kintetsu and S.E.B. is established by Article 18 of the Convention. Limitation of liability is available only in the circumstances provided by Article 25 of the Convention. It does not apply if the damage resulted from an act or omission of the carrier done with intent to cause damage or recklessly and with knowledge that damage would probably result, and provided that, in the case of such act or omission of a servant or agent, it is also proved that he was acting within the scope of his employment. S.E.B. Cargo had the onus of taking such care as to ensure proper delivery, and from the facts it was concluded that S.E.B. Cargo not only must have been, but was aware that delivery to an unauthorized person was very likely to preclude the cargo’s coming into the hands of its rightful owner. It was no defence to maintain that it had no special instructions from F.M. Electronique as to delivery of its cargo or that it was S.E.B. Cargo’s practice always to deliver goods on the mere production of a customs release. S.E.B. Cargo was not only a sufferance warehouse having responsibility to the Crown not to deliver goods without a release, but was first of all a warehouse, owing a duty to consignees not to yield up their cargo without proper authorization. There was no evidence of a custom in the industry to surrender cargo on the production of a release, but only of this particular warehouse. To deliver cargo without requiring authorization is to act at one’s own peril. Since S.E.B. Cargo was acting within its authority from Kintetsu, Kintetsu could not escape from the malfeasance of its agent acting in the course of its authority.

Federal Court Act, section 41 does not provide for prejudgment interest, but case law has established a successful party’s right thereto. There was no negation of interest in the contract. Since there is no provision in the Federal Court Act as to the rate of prejudgment interest, Article 1056c of the Civil Code of Lower Canada applied. It provides that there may be added to the interest award an indemnity computed by applying a percentage equal to the excess of the interest rate fixed according to section 28 of the Act respecting the Ministère du Revenu over the legal interest rate. In order to place the appellants in the situation they would have been in if the loss had not occurred, they should be awarded the higher rate, to be determined on a reference unless the parties can agree on the appropriate rate.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Act respecting the Ministère du Revenu, R.S.Q., c. M-31, s. 28.

Canadian Charter of Rights and Freedoms, being Part I of the Constitution Act, 1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44], s. 7.

Carriage by Air Act, R.S.C. 1970, c. C-14 [now R.S.C., 1985, c. C-26], s. 2(1).

Civil Code of Lower Canada, art. 1056c.

Convention for the Unification of Certain Rules Relating to International Carriage by Air. Signed at Warsaw, October 12, 1929 [R.S.C., 1985, c. C-26, Schedule I], Arts. 5, 10, 11, 13, 16, 18, 22, 25.

Crown Liability Act, R.S.C., 1985, c. C-50.

Federal Court Act, R.S.C., 1985, c. F-7, ss. 23(b),(c), 41, 52(b)(i).

Protocol to Amend the Convention for the Unification of Certain Rules Relating to International Carriage by Air. Signed at Warsaw on 12 October 1929 (The Hague, September 28, 1955) [R.S.C., 1985, c. C-26, Schedule III].

CASES JUDICIALLY CONSIDERED

APPLIED:

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; Bensol Customs Brokers Ltd. v. Air Canada, [1979] 2 F.C. 575; (1979), 99 D.L.R. (3d) 623 (C.A.); R. v. Imperial General Properties Limited, [1985] 1 F.C. 344; (1985), 16 D.L.R. (4th) 615; [1985] 1 CTC 40; 85 DTC 5045; 56 N.R. 358 (C.A.); Roberts v. Canada, [1989] 1 S.C.R. 322; [1989] 3 W.W.R. 117; (1989), 35 B.C.L.R. (2d) 1; 25 F.T.R. 161; 92 N.R. 241; Sze Hai Tong Bank Ltd. v. Rambler Cycle Co. Ltd., [1959] A.C. 576 (H.L.); Algonquin Mercantile Corp. v. Dart Industries Canada Ltd., [1988] 2 F.C. 305; (1987), 17 C.I.P.R. 68; 16 C.P.R. (3d) 193; 79 N.R. 305.

CONSIDERED:

Varnam v. Canada (Minister of National Health and Welfare), [1988] 2 F.C. 454; (1988), 50 D.L.R. (4th) 44; 17 F.T.R. 240; 84 N.R. 163 (C.A.); Wilder v. Canada, [1988] 2 F.C. 465; [1988] 2 C.T.C. 77; (1988), 88 DTC 6393 (C.A.); Swiss Bank Corp. v. Air Canada, [1982] 1 F.C. 756; (1981), 129 D.L.R. (3d) 85 (T.D.); affd [1988] 1 F.C. 71; (1987), 44 D.L.R. (4th) 680; 83 N.R. 224 (C.A.); R. v. Tutton, [1989] 1 S.C.R. 1392; (1989), 48 C.C.C. (3d) 129; 69 C.R. (3d) 289; 13 M.V.R. (2d) 161; 98 N.R. 19; 35 O.A.C. 1; R. v. Waite, [1989] 1 S.C.R. 1436; (1989), 48 C.C.C. (3d) 1; 69 C.R. (3d) 323; 13 M.V.R. (2d) 236; 98 N.R. 69; 35 O.A.C. 51; R. v. Anderson, [1990] 1 S.C.R. 265; [1990] 2 W.W.R. 481; (1990), 64 Man. R. (2d) 161; 53 C.C.C. (3d) 4811; 75 C.R. (3d) 50; 19 M.V.R. (2d) 161; 105 N.R. 143; R. v. Hundal, No. 22358, judgment dated 11/3/93, S.C.C., not yet reported.

REFERRED TO:

R. v. Wholesale Travel Group Inc., [1991] 3 S.C.R. 154; (1991), 67 C.C.C. (3d) 193; 8 C.R. (4th) 145.

AUTHORS CITED

Black’s Law Dictionary, rev. 4th ed., St. Paul, Minn: West Publishing Co., 1968, “gross negligence”.

Corpus Juris Secundum, 13 C.J.S. Carriers 417.

Gwertzman, M. J. The Law of Transportation in its Relation to Transportation Insurance, Larchmont, New York: McCade Press, 1950.

Magdelénat, Jean-Louis. Air Cargo; Regulation and Claims, Toronto: Butterworths, 1991.

Shawcross, C. N. and K. M. Beaumont. Air Law, 4th ed. by Peter Martin, London: Butterworths, 1983.

APPEAL from trial judgment ((1991), 43 F.T.R. 147). Appeal against Kintetsu World Express Inc. and S.E.B. Cargo Inc. allowed; appeal against Crown dismissed.

COUNSEL:

Jean El Masri for appellants (plaintiffs).

Marie Nichols for respondent (defendant) Her Majesty the Queen.

Beryl Baron for respondent (defendant) Kintetsu World Express Inc.

SOLICITORS:

McDougall, Caron, Montréal, for appellants (plaintiffs).

Deputy Attorney General of Canada for respondent (defendant) Her Majesty the Queen.

Baron & Abrams, Montréal, for respondent (defendant) Kintetsu World Express Inc.

The following are the reasons for judgment rendered in English by

MacGuigan J.A.: This is an appeal from a judgment of the Trial Division rendered on January 25, 1991, and reported at (1991), 43 F.T.R. 147, in which: (1) the appellants’ action against the respondent Kintetsu World Express Inc. (“Kintetsu”) was dismissed with costs; (2) their action against the respondent S.E.B. Cargo Inc. (“S.E.B. Cargo”) was dismissed without costs,[1] the dismissal in both cases being on the grounds of lack of jurisdiction in the Federal Court; and (3) the appellants’ action against Her Majesty the Queen in Right of Canada (“The Crown”) was dismissed on the merits, with costs. The Trial Judge reserved the appellants’ right to bring actions in the provincial courts against Kintetsu and S.E.B. Cargo.

The case arises out of the importation of 7,000 electronic units from Japan to Canada by the appellant 130850 Canada Inc. (“F.M. Electronique”). On February 9, 1987, F.M. Electronique (a business with only two employees) received notice from Kintetsu its air carrier under the air waybill,[2] that its goods had arrived at Dorval Airport. F.M. Electronique accordingly delivered the appropriate documents to Canada Customs for customs clearance, and returned on the following day to collect the official release (no duties were payable), with the intention of then proceeding to the sufferance warehouse of S.E.B. Cargo to obtain delivery of the merchandise. However, an unknown third party had got there first, misrepresenting himself to the Customs Office and the warehouse as the authorized agent of F.M. Electronique, thereby obtaining delivery of all the goods.

The appellant Prudential Assurance Company Ltd. (“Prudential”) compensated the appellant $18,715.74 under a contract of insurance (the claim was for $18,905 less a deductible amount) and was subrogated to the rights of F.M. Electronique, with which it joined to sue the respondents jointly and severally.

I

The first question which arises is the preliminary issue as to Federal Court jurisdiction over Kintetsu and S.E.B. Cargo.

The essential requirements to support a finding of jurisdiction in the Federal Court were restated in a much quoted passage by McIntyre J. in ITO—International Terminal Operators Ltd. v. Miida Electronics Inc. at al., [1986] 1 S.C.R. 752, at page 766, as follows:

1. There must be a statutory grant of jurisdiction by the federal Parliament.

2. There must be an existing body of federal law which is essential to the disposition of the case and which nourishes the statutory grant of jurisdiction.

3. The law on which the case is based must be “a law of Canada” as the phrase is used in s. 101 of the Constitution Act, 1867.

Although the respondent Kintetsu nominally contested the presence of all three requirements in the case at bar, in my opinion there can be no serious issue that the first requirement, viz. a statutory grant of jurisdiction by the federal Parliament has been met. Paragraph 23(b) of the Federal Court Act, R.S.C., 1985, c. F-7, explicitly establishes concurrent jurisdiction in the Court over the subject-matter of aeronautics, as well as over undertakings extending beyond the limits of a province, as follows:

23. Except to the extent that jurisdiction has been otherwise specially assigned, the Trial Division has concurrent original jurisdiction, between subject and subject as well as otherwise, in all cases in which a claim for relief is made, or a remedy is sought under an Act of Parliament or otherwise in relation to any matter coming within any of the following classes of subjects, namely,

…

(b) aeronautics; and

(c) works and undertakings connecting a province with any other province or extending beyond the limits of a province.

In Bensol Customs Brokers Ltd. v. Air Canada, [1979] 2 F.C. 575, this Court upheld a claim for damages as a result of the loss of cargo in air transportation brought under the federal Carriage by Air Act, R.S.C. 1970, c. C-14 [now R.S.C., 1985, c. C-26]. The Trial Judge distinguished the Bensol case on the basis that that Act had been specifically pleaded, unlike in the case at bar.

Such a distinction is clearly untenable. It is established law that a party needs to plead only the material facts on which its case is based, not the applicable law: R. v. Imperial General Properties Limited, [1985] 1 F.C. 344 (C.A.), at pages 351-352. The absence in the pleadings of reference to federal legislation is therefore irrelevant.

The Carriage by Air Act is in fact the source of the appellants’ case. The key provision incorporates the whole of the Warsaw Convention of 1929 on International Carriage by Air and the Amending Protocol of 1955, to both of which Canada and Japan are parties, as follows:

2. (1) The provisions of the Convention set out in Schedule I, in so far as they relate to the rights and liabilities of carriers, passengers, consignors, consignees and other persons and subject to this section, have the force of law in Canada in relation to any carriage by air to which the Convention applies, irrespective of the nationality of the aircraft performing that carriage.

(2) Subject to this section, the provisions of the Convention set out in Schedule I, as amended by the Protocol set out in Schedule III, in so far as they relate to the rights and liabilities of carriers, passengers, consignors, consignees and other persons, have the force of law in Canada in relation to any carriage by air to which the Convention as so amended applies, irrespective of the nationality of the aircraft performing that carriage.

(3) The Governor in Council may from time to time, by proclamation published in the Canada Gazette, certify who are the High Contracting Parties to the Convention, in respect of what territories they are respectively parties, to what extent they have availed themselves of the Additional Protocol to the Convention and who are the parties to the Protocol set out in Schedule III, and any such proclamation is, except in so far as it has been superseded by a subsequent proclamation, conclusive evidence of the matters so certified.

The language of subsection 2(1), in providing that “[t]he provisions of the Convention … have the force of law in Canada in relation to any carriage by air to which the Convention applies” are a particularly broad legislative mandate. The Warsaw Convention is thus in all respects “a law of Canada”, thus satisfying the third requirement for Federal Court jurisdiction.

The applicable provision of the Convention as to the liability of a carrier is Article 18, which reads in part as follows:

Article 18

(1) The carrier is liable for damage sustained in the event of the destruction or loss of, or of damage to, any registered baggage or any cargo, if the occurrence which caused the damage so sustained took place during the carriage by air.

(2) The carriage by air within the meaning of the preceding paragraph comprises the period during which the baggage or cargo is in charge of the carrier, whether in an aerodrome or on board an aircraft, or, in the case of a landing outside an aerodrome, in any place whatsoever.

Since the sufferance warehouse of S.E.B. Cargo as well as the premises of Canada Customs are located within the aerodrome, Article 18 explicitly covers the loss of the cargo in the case at bar.

With respect to the second requirement for Federal Court jurisdiction, viz., a nourishing body of federal law, it is important to note the dictum by Wilson J. for the Supreme Court in Roberts v. Canada, [1989] 1 S.C.R. 322, at pages 330-331, that the second and third elements of the jurisdictional test often overlap:

While there is clearly an overlap between the second and third elements of the test for Federal Court jurisdiction, the second element, as I understand it, requires a general body of federal law covering the area of the dispute, i.e., in this case the law relating to Indians and Indian interests in reserve lands, and the third element requires that the specific law which will be resolutive of the dispute be “a law of Canada” within the meaning of s. 101 of the Constitution Act, 1867. No difficulty arises in meeting the third element of the test if the dispute is to be determined on the basis of an existing federal statute. As will be seen, problems can, however, arise if the law of Canada which is relied on is not federal legislation but so-called “federal common law” or if federal law is not exclusively applicable to the issue in dispute.

This point is particularly apposite in the case at bar, because a reading of the Carriage by Air Act and the incorporated Warsaw Convention makes it clear that federal law here provides a relatively complete code for carriage by air. This will become even more apparent in the discussion of limitation of liability, infra. The appellants also referred the Court to considerable jurisprudence from other countries to the same effect.

The decision of this Court in Bensol established that, even if the validity of the subrogation in favour of the insurance company is not governed by federal law, a claim made exclusively under federal law is not necessary for jurisdiction so long as the claim is determined to some material extent by federal law.[3]

No argument was raised in this case as to federal constitutional jurisdiction to enact the whole of the Warsaw Convention, but in any event such a contention might not be successful in this Court in the light of the concurring reasons by Le Dain J.A. (at pages 583-584) to the effect that federal constitutional jurisdiction extends to the whole of air transportation.

I must therefore conclude that the Trial Judge was in error in dismissing the action against Kintetsu and S.E.B. Cargo on the ground of want of jurisdiction.

II

With respect to the appellants’ claim against the Crown, based on the Crown Liability Act, R.S.C., 1985, c. C-50, I set out in full the reasons for decision of the Trial Judge (at pages 153-156):

The legal basis of the plaintiffs’ action against Her Majesty the Queen is the Crown Liability Act, which states in s. 3:

“3(1) The Crown is liable in tort for the damages for which, if it were a private person of full age and capacity, it would be liable

(a) in respect of a tort committed by a servant of the Crown; or

(b) in respect of a breach of duty attaching to the ownership, occupation, possession or control of property.”

It must first be determined whether Her Majesty had any legal obligation to F.M. Electronique.

As I said in Danzas, (T-2259-82 (p. 14); affirmed in A-621-85) citing Cattanach, J., in Keystone ([1982] 1 F.C. 487), the function of the customs is to secure the Crown’s revenue, not to provide services to the public. No contractual or legal obligation existed in the case at bar between F.M. Electronique and the Crown. In short, the only allegation of negligence made against the customs employees was made under the Crown Liability Act and consisted in giving a customs release to an individual without the latter having formally identified himself by a card or by producing a power of attorney.

Can any liability be ascribed to Her Majesty on account of the fault of one of her servants?

It was admitted by both sides that this case arose out of a delict committed by an unknown third party, who falsely represented himself at the customs counter as an authorized agent of F.M. Electronique so as to obtain the customs release, which he used to go and get the goods from S.E.B. Cargo.…

It should also be noted that the customs office never had the said goods in its possession throughout this operation. On their arrival in Montreal the goods carried by Kintetsu Express Inc. went directly to S.E.B. Cargo Inc., where they were warehoused. Moreover, these electronic units were not subject to customs duties.

The plaintiffs however alleged that the customs officers committed two major errors, namely:

(a) making an incorrect entry in the computer for 1,855 Japanese yen instead of 1,855,000, which gave the receipt a value of $16.11 instead of $16,105;

(b) failing to ask the self-styled representative of F.M. Electronique for proof of identification.

The court considers that a mistaken entry in the computer has no direct bearing on clearance of the goods through customs to an unauthorized third party. Whether the receipt amounted to $16.11 or $16,105 is unimportant since in these particular circumstances no customs duty was payable. The function of the customs office was limited in the case at bar to giving the customs release.

The allegation of negligence by the customs officer in not requiring proof of identification by the self-styled representative of F.M. Electronique also cannot be accepted. The chief of commercial operations at Dorval, Alex Paquet, explained Customs Canada’s policy in this regard: in general customs officers do not have to ask an individual who comes to the counter for proof of identification. It is only in cases of doubt that, in their discretion, they may ask an individual for identification or to provide a power of attorney. In the case at bar Mrs. Riendeau, who apparently served the alleged representative of F.M. Electronique, did not think it necessary to ask this individual for a power of attorney. There was nothing to suggest that there might have been an information leak at F.M. Electronique and that the person who appeared to clear the goods was not duly authorized to do so. A false proof of identity or false power of attorney could in any case have been presented and the result would have been the same.

The Crown thus cannot be held liable for the loss suffered by F.M. Electronique, first, because Customs Canada assumed no legal obligation to this plaintiff, and second, because no fault by Her Majesty’s employees was shown to have any causal connection with the loss suffered by the plaintiffs. The damage was due primarily to an information leak by an unknown perpetrator.

The Federal Court has also recognized in Kathy Zien (R. v. Zien (1986), 64 N.R. 282; 26 D.L.R. (4th) 121, A-1506-84) and Economic Trading (Economic Trading Ltd. v. R., [1969] 1 Ex.C.R. 401) that the Crown cannot be held liable as a depository when it did not have the goods which were the subject of the action in its possession at any time. In the case at bar, the Crown never had possession of the 7,000 electronic units.

For these reasons, as the plaintiffs have not proven:

1. that the Crown had the said electronic units in its possession,

2. a legal obligation by the Crown to the plaintiffs,

3. acts of faults by officers of the Crown, and

4. a direct cause-and-effect relationship between the acts alleged and the damage suffered,

the plaintiffs’ action against Her Majesty the Queen is dismissed with costs.

I am in complete agreement with the learned Trial Judge that the Crown had no legal obligation to F.M. Electronique, generally for the reasons given by him. Indeed, the law was changed in 1986 to remove customs officers’ previous requirement to check powers of attorney (transcript of evidence, December 4, 1990, p.m., at page 81).

The appellants admitted that the Crown never had physical custody of the cargo, but argued that the Crown had custody of documents belonging to F.M. Electronique which were equivalent to documents of title. In particular, the appellants referred to a document (Appeal Book, at page 99) required by Article 16(1) of the Warsaw Convention to be attached to the air waybill. Article 16(1) reads as follows:

Article 16

(1) The consignor must furnish such information and attach to the air waybill such documents as are necessary to meet the formalities of customs, octroi or police before the cargo can be delivered to the consignee. The consignor is liable to the carrier for any damage occasioned by the absence, insufficiency or irregularity of any such information or documents, unless the damage is due to the fault of the carrier or his agents.

Canada Customs was alleged to have the responsibilities of a bailor or custodian while the documents were temporarily in their possession for verification, during which time they were stolen through misdelivery on the part of the Crown.

However, it seems apparent to me from a reading of the Convention that it is only the air waybill itself which functions as the document of title. Section 3 of the Chapter II of the Convention (Articles 5 through 16) is entitled “Air Waybill”, and although the loss of an air waybill does not affect the existence or the validity of the contract of carriage (Article 5(2)), an air waybill is nonetheless established in Articles 10 and 11 as prima facie evidence of a contract, with the consignor responsible for its correctness, and in Article 13(1) the carrier is required to hand over to the consignee the air waybill along with delivering the cargo:

Article 10

(1) The consignor is responsible for the correctness of the particulars and statements relating to the cargo which he inserts in the air waybill.

(2) The consignor will be liable for all damage suffered by the carrier or any other person by reason of the irregularity, incorrectness or incompleteness of the said particulars and statements.

Article 11

(1) The air waybill is prima facie evidence of the conclusion of the contract, of the receipt of the cargo and of the conditions of carriage.

(2) The statements in the air waybill relating to the weight, dimensions and packing of the cargo, as well as those relating to the number of packages, are prima facie evidence of the facts stated; those relating to the quantity, volume and condition of the cargo do not constitute evidence against the carrier except so far as they both have been, and are stated in the air waybill to have been, checked by him in the presence of the consignor, or relate to the apparent condition of the cargo.

…

Article 13

(1) Except in the circumstances set out in the preceding Article, the consignee is entitled, on arrival of the cargo at the place of destination, to require the carrier to hand over to him the air waybill and to deliver the cargo to him, on payment of the charges due and on complying with the conditions of carriage set out in the air waybill.

The air waybill itself was never placed in the custody of Canada Customs, and I am therefore of the opinion that the appellants’ objection to the Trial Judge’s reasons for decision cannot be maintained.

III

With respect to the liability of Kintetsu and S.E.B. Cargo, consistently with his refusal of jurisdiction the Trial Judge made no findings. Since the relevant evidence, however, is all in the record, this is an appropriate case for this Court, being so empowered by subparagraph 52(b)(i) of the Federal Court Act, to come to the conclusion the Trial Judge would have reached if he had considered the matter.

Since the law is covered by the statutory code of the Carriage by Air Act, the liability of the respondents Kintetsu and S.E.B. Cargo is established by Article 18 as set out, supra, which makes a carrier “liable for damage sustained in the event of the … loss of … any cargo,” provided that the loss took place during the carriage by air, defined to include the period during which the cargo is in charge of the carrier or its agent in an aerodrome.

The defence pleaded was as to the limitation of liability for loss of cargo, the amount of which is provided by Article 22(2) of the Convention, as restated by the 1955 Protocol of The Hague. However, such a limitation of liability is available only in the circumstances provided by Article 25, as restated by the 1955 Protocol. Article XIII of the Protocol, amending Article 25 of the Convention, reads as follows:

Article XIII

In Article 25 of the Convention—paragraphs (1) and (2) shall be deleted and replaced by the following:

“The limits of liability specified in Article 22 shall not apply if it is proved that the damage resulted from an act or omission of the carrier, his servants or agents, done with intent to cause damage or recklessly and with knowledge that damage would probably result; provided that, in the case of such act or omission of a servant or agent, it is also proved that he was acting within the scope of his employment.”

Since it is common ground that there was no intent to cause damage on the part of the respondent, the only questions to be addressed are whether S.E.B. Cargo’s actions were “done … recklessly and with knowledge that damage would probably result” and whether S.E.B. Cargo was acting within the scope of its employment by Kintetsu.

It was submitted by the appellants that the misdelivery without verification was done recklessly, with knowledge that damage would probably result from the wrong person’s getting the cargo, and that S.E.B. Cargo was obviously acting within the scope of its employment, its function being precisely the proper delivery of the cargo to F.M. Electronique.[4]

On its side, Kintetsu contended that its only decision in the matter was to select a bonded warehouse to receive and warehouse imported goods, hardly an act which by any standard would be defined as an act of gross negligence. It also argued that it was limited by law in its choice of warehouses for imported goods. However, on this latter point, even if I were to assume, without deciding, that such a limitation on Kintetsu’s freedom of action were relevant, the testimony of the Canada Customs representative was to the effect that there were twenty-four such sufferance warehouses at Dorval at the time (transcript of evidence, December 4, 1990, p.m., at page 13)[5] and therefore a great deal of discretion on its part as to choice of warehouse.

The appellants relied on the decision of Walsh J. in Swiss Bank Corp. v. Air Canada, [1982] 1 F.C. 756 (T.D.), upheld generally by this Court, [1988] 1 F.C. 71. This decision was said to be consistent with the law as normally applied to all carriers in cases of misdelivery as illustrated in “Carriers”, Corpus Juris Secundum, 13 C.J.S. Carriers §417, and M. J. Gwertzman, The Law of Transportation in its Relation to Transportation Insurance, s. 94-96.

Swiss Bank Corp. v. Air Canada was a case of loss of a parcel of bank notes in the course of air transport. Walsh J. held at trial, following the French Court of Cassation, that an objective test was necessary to determine whether the fault of the carrier or its employees was intentional or reckless, before concluding that on the facts there that the fault was intentional. In light of his finding as to the existence of intention, this Court did not find it necessary to consider the question of recklessness.

In domestic criminal law, where the concept of recklessness has to be more precise, since much more is at stake, the primary issue as to whether the standard is subjective or objective is not yet settled. In R. v. Tutton, [1989] 1 S.C.R. 1392 and R. v. Waite, [1989] 1 S.C.R. 1436, the Supreme Court split over the kind of mens rea required for a conviction of criminal negligence. In R. v. Anderson, [1990] 1 S.C.R. 265, at page 271, Sopinka J. speaking for a unanimous Court, did not attempt to resolve the issue, but noted that “A finding that the impugned conduct is a marked departure from the standard [of an ordinary prudent person] is accordingly, central to both the objective and subjective approaches.” He accordingly concluded that in that case a conclusion of recklessness could not be drawn on either basis.

In its recent decision in R. v. Hundal (No. 22358, March 11, 1993 [not yet reported]) the Supreme Court had to consider the mens rea required for the Criminal Code offence of dangerous driving in the light of the Charter [Canadian Charter of Rights and Freedoms, being Part I of the Constitution Act, 1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44]] requirement (section 7) of an element of fault for an offence carrying the possibility of imprisonment. Cory J. held for the Court that a modified objective test rather than a subjective test was all that was required, so that it was unnecessary for criminal liability to establish that the particular accused was aware of the consequences of his or her driving as a pure subjective intent would have required.

In my view it is unnecessary for the present decision to get into the refinements of domestic criminal law as to recklessness. Whatever the criminal law standard of recklessness, the civil law interpretation of the various concepts of negligence (including recklessness as used in that context) is arguably objective: see, e.g., the view of La Forest J., a partisan of a subjective component for recklessness in a criminal context, in R. v. Wholesale Travel Group Inc., [1991] 3 S.C.R. 154, at page 210. Moreover, the issue in the case at bar was argued on the basis of so-called gross negligence or gross fault by Kintetsu. The very definition of “gross negligence” cited by Kintetsu, from Black’s Law Dictionary, rev. 4th ed., 1968 incorporates the concept of “such a gross want of care and regard for the rights of others as to justify the presumption of wilfulness and wantonness,” where the emphasized words indicate the adoption of an objective standard.

In any event, I am persuaded that the result would be the same in the case at bar whether the standard of recklessness be subjective or objective. S.E.B. Cargo had the onus of taking such care as to ensure proper delivery, and it can be concluded from the facts that it not only must have been but was aware that delivery to an unauthorized person was very likely to preclude the cargo’s coming into the hands of its rightful owner. In other words, the result is so obvious that it would be the same whether taken subjectively or objectively. As Lord Denning put it in Sze Hai Tong Bank Ltd. v. Rambler Cycle Co. Ltd., [1959] A.C. 576 (H.L.) at page 586:

It is perfectly clear law that a shipowner who delivers without production of the bill of lading does so at his peril. The contract is to deliver, on production of the bill of lading, to the person entitled under the bill of lading.

It is no defence for the respondents to maintain that they had no special instructions from F.M. Electronique as to delivery of its cargo or that it was S.E.B. Cargo’s custom always to deliver goods on the mere production of a customs release. S.E.B. Cargo was not only a sufferance warehouse having responsibility to the Crown not to deliver goods without a release. It was also, and first of all, a warehouse, owing a duty to consignees not to yield up their cargo without proper authorization. Even if I were to assume, without deciding, that a custom on the part of the sufferance warehouse industry to surrender cargo on the production of a release, without more, were a justification, there is no evidence whatsoever on the record here as to the custom of the industry, but only of this particular warehouse. For it to deliver cargo without requiring authorization is to act at its own peril.

A final argument attempted by Kintetsu was that the Trial Judge concluded that the thief or thieves would have equally had false documents which would have, in the ordinary course of carrying on of the trade, satisfied any standards of identity. What the Trial Judge actually said (at page 155) was as follows:

A false proof of identity or false power of attorney could in any case have been presented and the result would have been the same.

Quite apart from the fact that the Trial Judge was dealing with the liability of the Crown, not of Kintetsu, there is not a shred of evidence in the case as to what the defrauder had in his possession at the time. A speculative hypothesis cannot take the place of the fundamental obligation of exercising due diligence.

Since there can be no reasonable question that S.E.B Cargo was acting within its authority from Kintetsu, Kintetsu therefore cannot escape from the malfeasance of its agent acting in the course of its authority.

IV

The only remaining issue is as to interest. Section 41 of the Federal Court Act makes no provision for prejudgment interest but this Court established in Algonquin Mercantile Corp. v. Dart Industries Canada Ltd., [1988] 2 F.C. 305, a successful party’s right to prejudgment interest. Indeed, in Swiss Bank Corp. v. Air Canada, supra, this Court reversed the Trial Judge for not allowing prejudgment interest. Pratte J.A. wrote for the majority (at page 79):

Apart from exceptional cases, the Convention limits the carrier’s liability significantly. In view of the generality of the language of paragraph 18(1), I think one has to conclude that in the rare cases in which such liability is not limited, the authors of the Convention intended the victim to be compensated in full for the damage sustained. That means that he is to receive compensation which will place him in the situation he would have been in if the loss had not occurred: that is, in a case like the one at bar in which the goods lost consisted of a sum of money, the victim must receive in addition to the amount lost the interest he would undoubtedly have earned if the loss had not taken place. I therefore consider that the Convention gave the respondent the right to claim interest on the sum of money lost from the date on which delivery would ordinarily have been made to the date of the judgment. That being so, contrary to what the Trial Judge held, the provisions of the contract of carriage could not divest him of this right. Under paragraph 23(1) of the Convention, such provisions are null and void.

In the case at bar, there is no negation of interest in the contract.

Since there is no provision in the Federal Court Act as to the rate of prejudgment interest, it is necessary to have recourse to provincial law. The Quebec Civil Code of Lower Canada provides in article 1056c as follows:

Art. 1056c. The amount awarded by judgment for damages resulting from an offence or a quasi-offence shall bear interest at the legal rate as from the date when the action at law was instituted.

There may be added to the amount so awarded an indemnity computed by applying to the amount, from such date, a percentage equal to the excess of the interest rate fixed according to section 28 of the Act respecting the Ministère du Revenu R.S.Q., chapter M-31 over the legal interest rate.

In order to place the appellants in the situation they would have been in if the loss had not occurred, they should be awarded the higher rate.

The rate by which the legal rate from February 10, 1987, to the date of judgment should be increased in accordance with the provisions of article 1056c should be determined on a reference, unless the parties can agree on the appropriate amount among themselves.

V

In the result, the appeal against the defendants Kintetsu and S.E.B. Cargo must be allowed, the decision of the Trial Division of January 25, 1991, set aside in relation to those defendants, which are jointly and severally ordered to pay the appellants the sum of $18,715.74, with prejudgment interest from February 10, 1987, to the date of judgment, and interest at the legal rate thereafter, the rate of prejudgment interest to be determined on a reference to the Senior Prothonotary, unless the parties can themselves agree on the amount. The appellants should have their costs both on appeal and at trial against the defendant Kintetsu. The appeal against the Crown must be dismissed with costs.

Hugessen J.A.: I agree.

Létourneau J.A.: I agree.

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