Judgments

[2002] 3 F.C. 125

T-361-99

2001 FCT 1046

Mediterranean Shipping Company S.A. Geneva (Plaintiff)

v.

Sipco Inc. (Defendant)

Indexed as: Mediterranean Shipping Co. S.A. Geneva v. Sipco Inc. (T.D.)

Trial Division, Blais J.—Montréal, June 26; Ottawa, September 25, 2001.

Maritime Law — Carriage of Goods — Action for recovery of unpaid ocean freight for carriage of nine containers — Earlier shipment of seven containers of tires arriving one container short — Other containers not clearing customs because bill of lading referring to seven containers — Defendant alleging subject to customer charge-backs, incurring storage, handling, re-inspection charges — Pleading legal, equitable set-off as defence; counterclaiming for losses arising from breach of contract, negligence — Evidence, admissions establishing defendant owed plaintiff US$30,150 for ocean freight — Unless stated otherwise in contract, defendant cannot raise set-off of claim for damages as defence against claim for unpaid freight—Therefore defendant not entitled to set-off under equity — As contract not permitting set-off, legal set-off not available as defence — Plaintiff negligent in handling of seventh container, but counterclaim dismissed as damages not proven.

Maritime Law — Practice — In action for recovery of unpaid ocean freight, defendant pleading defence of set-off, counterclaiming for damages arising from breach of contract, negligence — Counterclaim not prescribed by Hague-Visby Rules, Art. III(6), discharging carrier from all liability in respect of goods unless suit brought within one year of delivery — One-year delay running from delivery, not discharge — Delivery taking place on day last piece of cargo actually or constructively delivered — Defendant says seventh container delivered in July 1998 — Defence and counterclaim filed in June 1999, within one year of delivery.

Maritime Law — Torts — Shipment of seven containers of tires arriving one container short — Other containers not clearing customs because bill of lading referring to seven containers — Defendant, in action for unpaid freight, counterclaiming for damages due to negligence — Stating subject to customer charge-backs, incurring storage, handling, re-inspection charges — Hague-Visby Rules, incorporated into Canadian law by Carriage of Goods by Water Act, Art. III(2) requiring carrier to properly, carefully load, handle, stow, keep, care for, discharge goods carried — Duty at loading very broad — Principles of proof running through cases dealing with Rules reviewed — Plaintiff negligent in handling seventh container, but defendant shared part of responsibility when asked that bill of lading be signed even though not accurate — Plaintiff’s responsibility not limited by limitation clauses in bill of lading as Art. III(8) making null, void any clause in contract of carriage relieving carrier from liability for damage to goods arising from negligence — Counterclaim failed, however, because defendant not proving damages.

Equity — Defendant, in action for recovery of unpaid freight charges for carriage by sea, seeking set-off of damages for breach of contract, negligence in earlier carriage by sea when one container arriving late, resulting in storage, handling, re-inspection charges to defendant — Unless stated otherwise in contract, defendant cannot raise set-off of damages as defence against claim for unpaid freight — Defendant not entitled to set-off under equity.

This was an action for recovery of unpaid ocean freight in the amount of US$30,150 (C$43,189.88) and related charges for the carriage by sea of nine containers of tires from Toronto to Bandar Abbas, Persian Gulf under an ocean bill of lading dated April 22, 1998. Four months earlier the defendant had shipped seven sea containers containing tires to Bandar Abbas. Six containers arrived according to schedule, but the seventh did not arrive until months later, having apparently been left at Halifax. As a result, the first six containers were unable to clear customs because the documentation indicated that seven containers were to be cleared. The defendant stated that it was subject to charge-backs by its customer in Iran and incurred other expenses such as the costs of transferring, storage, insurance, handling and reinspection of the first six containers, legal fees, replacement of tires which were damaged by extended shipping, and banking charges. It submitted that it was entitled at law and in equity to claim a set-off. It also alleged breach of contract or negligence, as a result of which it was unable to secure a reorder from its customer and lost profits from a new transaction. The plaintiff submitted that the defendant could not claim set-off in respect of a different contract of carriage; the bill of lading specifically provided that no set-off exists against the carrier’s claim for freight; a claim for damages for breach of contract or negligence cannot be set-off against a claim for freight; and the defendant’s claim for damages was unrelated to the contract of carriage. In defence to the counterclaim, it argued that the contract of carriage provided that any claim for freight is always due whether the goods arrive or not, or whether they arrive damaged or not. Moreover, the defendant had no right to deduct from the freight, or to set-off against the freight, any claim it might have against the plaintiff. The plaintiff also submitted that the bill of lading was expressly subject to the Hague-Visby Rules, under which it would have no liability for the damages claimed, and under which the plaintiff was entitled to limit its liability. The plaintiff argued that the action was prescribed by those Rules.

The issues were: (1) whether the defendant owed the plaintiff the amount of US$30,150 for ocean freight and related charges; (2) whether the defendant was entitled to set-off the plaintiff’s claim; and (3) whether the plaintiff breached its contract or was negligent in handling the containers, and whether the defendant incurred damages.

Held, the plaintiff’s claim was allowed, and the defendant’s counterclaim was dismissed for failure to provide any evidence of damages.

(1) The plaintiff had the burden of proving that the defendant owed it the charges it alleged. There was evidence relating to the carriage by sea of the nine containers which, together with admissions by the parties, was sufficient to establish that the defendant owed the plaintiff US$30,150.

(2) Set-off is the “right of a debtor to claim that his liquidated debt due to a creditor shall be expunged by another liquidated debt … due by the creditor to him”. Unless stated otherwise in the contract, the defendant cannot raise set-off of its claim for damages as a defence against the plaintiff’s claim for unpaid freight. The plaintiff submitted that the contract of carriage provides that no set-off exists against the carrier’s claim for freight, relying on a clause in the bill of lading. The defendant was not aware of the limitation and exclusion clauses that the plaintiff was relying upon because the parties had simply agreed that the plaintiff would provide the documentation, but the plaintiff never brought the terms of the fine print on any such documents to the defendant’s attention. For the purpose of the set-off argument, it did not matter whether or not the defendant was aware of the limitation regarding set-off since it could not use the defence under equity and, since the contract did not permit set-off, legal set-off was not available either as a defence. If the defendant wanted to rely on set-off, it should have added a clause to that effect to the contract. Even if the bill of lading was silent regarding set-off, the defendant would not have been able to rely on the defence unless the contract explicitly so provided.

The defendant also brought a counterclaim for losses allegedly resulting from the breach of contract or negligence. The plaintiff submitted that the defendant’s action was prescribed by the Hague-Visby Rules, which were incorporated into Canadian law by the Carriage of Goods by Water Act. Article III(6) thereof discharges the carrier from all liability in respect of the goods unless suit is brought within one year of their delivery or of the date when they should have been delivered. The plaintiff said that the defendant began its action over one year following the scheduled arrival. The one-year delay runs from delivery, not discharge and delivery takes place on the day that the last piece of cargo, the seventh container in this case, has been discharged and actually or constructively delivered. The defendant stated that the seventh container was delivered in the first week of July 1998. Given that the defendant filed its defence and counterclaim on June 18, 1999, the defendant began its action within one year of the delivery and therefore the counterclaim was not prescribed under the Hague-Visby Rules.

(3) Hague-Visby Rules, Article III(2) requires the carrier to properly and carefully load, handle, stow, keep, care for and discharge the goods carried. This duty at loading is very broad. It means that the cargo is loaded safely, that it is loaded without delay and stowed in such a manner that it can be found for quick and safe discharge. The three principles of proof running through the cases dealing with the Rules are: (1) the carrier is prima facie liable for loss or damage to cargo received in good order and out-turned short or in bad order; (2) the parties are in general required to make proof of whatever facts are available to them; and (3) the onus of proof means making proof to a reasonable degree. After reviewing what each party had proved, the Court concluded that the plaintiff was negligent in handling the seventh container. However, the defendant shared a part of the responsibility when it asked that the bill of lading be signed even though only six of the seven containers had arrived, thus causing problems with the Iranian customs.

The plaintiff’s responsibility was not limited by the clauses in the bill of lading. Hague-Visby Rules, Article III(8) provides that any clause in a contract of carriage relieving the carrier or the ship from liability for damage to goods arising from negligence shall be null and void.

But the counterclaim failed because the defendant failed to provide any evidence of damages. The evidence regarding the cost of transferring, storage, insurance and handling of the first six containers was not sufficient to establish on the balance of probabilities that the defendant suffered these losses. There was no invoice from the warehouse, no details as to how the various fees were calculated, and no dates were provided regarding the time of storage. These details should have been available to the defendant, and should have been submitted into evidence. The defendant also failed to demonstrate on a balance of probabilities that it paid US$15,000 to its client for the reinspection of the cargo. The only evidence of out-of-pocket expenses incurred by the defendant was a statement in an affidavit as to the amount. No documents were provided in support thereof. That contention without any other explanation was not sufficient to establish on a balance of probabilities that the amount was incurred or paid. Since no evidence was provided in support of the allegation that the defendant incurred legal fees because of the plaintiff’s negligence, the defendant was not entitled to reimbursement of those fees. Although there was evidence of a claim for replacement of units found defective as a result of damage suffered in prolonged shipping, no evidence was adduced regarding how the claim was dealt with. The claim by the defendant for banking charges and interest was not substantiated. As to the claim for loss of profit, the evidence was insufficient to conclude that binding contracts were reached between the defendant and its client. In any event, even if valid contracts had been concluded, the evidence did not establish, on a balance of probabilities, that the contracts were lost because of the plaintiff’s negligence.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Carriage of Goods by Water Act, S.C. 1993, c. 21, s. 7(1).

Hague-Visby Rules, being Schedule I to the Carriage of Goods by Water Act, S.C. 1993, c. 21, Sch. I, art. III(2),(6),(8), IV(2)(q), VII.

Federal Court Rules, 1998, SOR/98-106, r. 189(1).

International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading and Protocol of Signature, Brussels, August 25, 1924 (“Hague Rules”).

CASES JUDICIALLY CONSIDERED

APPLIED:

S/S Steamship Co. v. Eastern Carribean Container Line S.A., [1986] 2 F.C. 27 (1986), 26 D.L.R. (4th) 472; 66 N.R. 74 (C.A.); Pantainer Ltd. v. 996660 Ontario Ltd. (c.o.b. Molisana Imports) (2000), 5 B.L.R. (3d) 237; 183 F.T.R. 211 (F.C.T.D.); Loeb v. S.S. Washington Mail, 150 F. Supp. 207 (S.D. N.Y. 1956); Francosteel Corp. v. Fednav Ltd. (1990), 37 F.T.R. 184 (F.C.T.D.).

AUTHORS CITED

Tetley, William. Marine Cargo Claims, 3rd ed. Montréal: Yvon Blais, 1988.

ACTION for recovery of unpaid ocean freight and related charges for the carriage by sea of nine containers of tires from Toronto to Bandar Abbas; counterclaim for damages arising from breach of contract and/or negligence in the carriage by sea of seven containers of tires under an earlier bill of lading. Action allowed, and counterclaim dismissed for failure to provide evidence of damages.

APPEARANCES:

J. Kenrick Sproule for plaintiff.

Stephen M. Turk for defendant.

SOLICITORS OF RECORD:

Sproule & Pollack, Montréal, for plaintiff.

Davis & Turk, Toronto, for defendant.

The following are the reasons for judgment rendered in English by

[1]        Blais J.: This is a simplified action by Mediterranean Shipping Company (the plaintiff), for recovery of unpaid ocean freight and related charges in relation to the carriage by sea of nine containers.

[2]        In its defence, Sipco Inc. (the defendant) has pleaded a legal and equitable set-off as a result of damages it incurred arising from the carriage by sea of seven sea containers. The defendant also issued a counterclaim for losses that resulted to it because of the plaintiff’s breach of contract/negligence in relation to the January 20, 1998 shipment of the seven sea containers and corresponding bill of lading. The losses claimed by the defendant in its counterclaim are in excess of the set-off pleaded as a defence.

FACTS

Principal claim

[3]        The plaintiff, a contractual carrier, claims the amount of C$43,189.88 and interest on the basis that the defendant owes it the amount of US$30,150, representing ocean freight and related charges in relation to the carriage by sea of nine containers said to contain 462 units heavy-duty off-road tires from Toronto to Bandar Abbas, Persian Gulf, under ocean bill of lading MSCU-MO82233585 dated April 22, 1998, at Montréal.

[4]        The plaintiff explains that the defendant has refused and/or neglected to pay the plaintiff the aforesaid sum of US$30,150, despite having been put duly on notice to do so by the plaintiff on repeated occasions.

Statement of defence and counter claim

[5]        The defendant explains that on January 20, 1998, under ocean bill of lading MSCU-MO7499293, it shipped, from Toronto to Bandar Abbas, Persian Gulf, with the plaintiff, seven sea containers containing tires valued at approximately US$250,000. The shipment of the seven sea containers was one shipment out of many to a customer in Iran, which fact was known to the plaintiff.

[6]        The defendant further explains that six of the seven sea containers arrived at Bandar Abbas according to schedule. However, one sea container never arrived according to the schedule and as contracted for. Rather, the seventh sea container remained in Halifax, Nova Scotia, and eventually arrived at Bandar Abbas, sometime in early July 1998, months after its scheduled arrival.

[7]        As a result of the mis-shipment, the first six containers shipped were unable to clear customs due to the fact that the documentation associated with the shipment, as prepared by the plaintiff, indicated that seven containers were to be cleared.

[8]        The defendant was first informed of the mis-shipment by its customer in Iran and immediately advised the plaintiff of the problem which in turn led to the locating of the missing container and its ultimate delivery to Bandar Abbas. The plaintiff had in fact lost track of the seventh container and had no record indicating that this one container was still in the shipyard in Halifax.

THE PLAINTIFF’S POSITION

Principal claim

[9]        The plaintiff claims:

(a) The amount of C$43,189.88;

(b) Interest at the Bank of Canada Prime commercial lending rate calculated from April 22, 1998 until payment;

(c) Costs of the action.

[10]      The plaintiff is of the view that the amount of US$30,150 is equivalent to no less than C$43,189.88 and that the defendant is well and truly indebted to plaintiff in the amount of no less than C$43,189.88.

Statement of defence and counterclaim

[11]      In its reply and statement of defence to the counterclaim, the plaintiff submits that the allegations regarding the set-off are irrelevant and illegally pleaded since the allegations are in respect of a different contract of carriage, which is not the subject of the present action and, more particularly, is unrelated to the plaintiff’s claim for freight.

[12]      The plaintiff explains that the defendant is not entitled to set-off any alleged claim for breach of contract or negligence against the plaintiff’s claim for freight because:

(a) The terms and conditions of the relevant contract of carriage provide that no set-off exists against the carrier’s claim for freight as appears from clause 16 of the relevant bill of lading;

(b) The claim for damages resulting from an alleged breach of contract or negligence cannot be set-off against a claim for freight and this in virtue of the applicable law;

(c) The claim for damages which the defendant seeks to set-off against the plaintiff’s claim for freight is unrelated to the contract of carriage in virtue of which the plaintiff has instituted the proceedings in recovery of unpaid freight.

[13]      In defence to the defendant’s counterclaim, the plaintiff states that the terms and conditions respecting the contract of carriage which is the subject of the plaintiff’s principal claim, and which also govern the contract of carriage in virtue of which the defendant has counterclaimed for damages, provide that any claim for freight is always due to the plaintiff whether the vessel of goods arrive at port of destination or not, whether one or the other be lost during the voyage, or whether the goods arrive damaged or short.

[14]      Moreover, the plaintiff is entitled to payment of the whole freight from the defendant and defendant has in no case the right to deduct from the freight or to set-off against the freight any claim it should have against the plaintiff, including shortage or damage, as appears from clause 16 of the relevant bills of lading.

[15]      Subsidiarily, the plaintiff submits that clause 1 of the relevant bills of lading provides that the terms and conditions thereof are subject to the Hague Rules [International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading and Protocol of Signature, Brussels, August 25, 1924] and/or the Hague-Visby Rules [being Schedule I of the Carriage of Goods by Water Act, S.C. 1993, c. 21].

[16]      Consequently, the damages claimed, if any, which may have occurred by reason of the alleged late delivery of one container resulted from a cause for which the carrier would have no liability under the Hague or Hague-Visby Rules, namely:

- Perils of the sea;

- Act or omission of the shipper or owner of the goods, his agent or representative;

- Insufficiency of packing;

- Inherent defect, quality or vice of the goods;

- Any other cause arising without the actual fault or privity of the carrier and without the fault or neglect of the servants of carrier.

[17]      Furthermore, the carrier/plaintiff is entitled to limit its liability pursuant to the terms and conditions of the relevant bills of lading and as prescribed by the Hague and Hague-Visby Rules.

[18]      In any event, the plaintiff alleges that the damages claimed are grossly exaggerated and are far in excess of the damages which the shipment would have suffered by the time it was discharged from the vessel and/or delivered under the bills of lading.

[19]      Moreover, the present action was commenced more than one year after the shipment, which is the subject of the defendant’s counterclaim, was delivered at the port of discharge.

[20]      The action is, on its face, prescribed in virtue of the Hague Rules or the Hague-Visby Rules. The plaintiff pleads the application of Canadian maritime law and avails itself of all terms, conditions, notations made on the relevant bills of lading which apply in its favour.

THE DEFENDANT’S POSITION

Statement of defence and counterclaim

[21]      The defendant alleges that the plaintiff breached its contract with the defendant to properly ship and deliver the seven sea containers to the defendant’s customer in Bandar Abbas. The defendant also contends in alternative that the plaintiff was negligent in handling the seven sea containers.

[22]      As a result of the breach of contract/negligence with respect to the mis-shipment of the seven sea containers, the defendant incurred damages for which it is entitled in law and equity to claim a set-off against the claims of the plaintiff. The defendant explains that it was subject to charge backs by its customer in Iran and other expenses such as:

- Costs of transferring, storage, insurance and handling of the first six containers which could not be cleared by customs until the seventh container arrived: US$9,334;

- Cost of reinspection of the seven containers due to interruption of the proper and timely custom clearance claimed by the Iranian customer and out-of-pocket expenses for the defendant’s representative to travel to Bandar Abbas: US$16,750;

- Legal fees incurred in Iran: US$2,900;

- Replacement CIF Value of Defective Units (defects having been caused by the extended time (six months) the tires remained in the containers): US$29,754;

- Banking charges and interest incurred as a result of a performance bond guarantee in the amount of US$104,000 which had to be kept in place as collateral by the Iranian customer—US$4,183.

[23]      The total of the set-off claimed is US$62,921.

[24]      The defendant pleads that it kept the plaintiff fully apprised of all events surrounding the mis-shipment and its dealings with its Iranian customer and that on a number of occasions the plaintiff’s representative advised, acknowledged and warranted to the defendant that it would fully reimburse the defendant for all charges and expenses incurred in relation to the mis-shipment.

[25]      The defendant also claims by counterclaim damages as follows:

(a) Damages for breach of contract and/or negligence and/or breach of warranty in the amount of US$32,771 after the set-off amounts listed above or US$62,921 before the set-off amounts listed above;

(b) Damages for loss of profit in the amount of US$150,000, amended at the hearing to US$192,265;

(c) Interest at the Bank of Canada Prime commercial lending rate calculated;

(d) Costs on a solicitor and client basis.

[26]      The defendant in its counterclaim relies on the allegations set out in the statement of defence.

[27]      As a result of the breach of contract and/or negligence of the plaintiff with respect to the shipment of the seven containers, all of which is set out above, the defendant was unable to secure a reorder from its Iranian customer as envisaged and approved and as a result lost profits on a new transaction concerning the sale of OTR tires valued at US$2,300,000. Said sale would have allowed for a gross profit of US $150,000, amended at the hearing to US $192,265 which the defendant now claims against the plaintiff in law and equity.

ISSUES

1. Does the defendant owe the plaintiff the amount of US$30,150, representing ocean freight and related charges in relation to the carriage by sea of nine containers said to contain 462 units heavy-duty off-road tires from Toronto to Bandar Abbas, Persian Gulf under ocean bill of lading MSCU-MO82233585?

2. Is the defendant entitled to set-off the plaintiff’s claim on the basis of the damages allegedly incurred by the defendant when the plaintiff allegedly breached its contract with the defendant or acted negligently in shipping and delivering seven sea containers to the defendant’s customer in Bandar Abbas pursuant to ocean bill of lading MSCU-MO7499293?

3. Did the plaintiff breach its contract with the defendant or was the plaintiff negligent in handling the seven sea containers and did the defendant incurred damages?

ANALYSIS

1.         Does the defendant owe the plaintiff the amount of US$30,150, representing ocean freight and related charges in relation to the carriage by sea of nine containers said to contain 462 units heavy duty off-road tires from Toronto to Bandar Abbas, Persian Gulf under ocean bill of lading MSCU-MO82233585?

[28]      The defendant did not dispute the fact that the plaintiff incurred those charges and that the defendant did not pay the plaintiff for these charges. However, the plaintiff has the burden of proving that the defendant owes it the charges it alleges.

[29]      There is evidence relating to the carriage by sea of the nine containers at Tab 4 of the plaintiff’s answers to the written examination. The 12th document at tab 4 is the Booking Reference for the shipment under ocean bill of lading MSCU-MO82233585.

[30]      The 29th document is a description of the shipment where the price of US$ 30,150 appears.

[31]      The 30th document is the bill of lading MSCU-MO82233585 rider.

[32]      Considering the evidence before the Court and admissions by the parties, I have no hesitation to conclude that the defendant owes the plaintiff the amount of US$30,150.

2.         Is the defendant entitled to set-off the plaintiff’s claim on the basis of the damages allegedly incurred by the defendant when the plaintiff allegedly breached its contract with the defendant or acted negligently in shipping and delivering seven sea containers to the defendant’s customer in Bandar Abbas pursuant to ocean bill of lading MSCU-MO7499293?

[33]      W. Tetley in Marine Cargo Claims, 3rd ed. (Montréal: Yvon Blais, 1988) defined set-off as follows at page 894:

Set-off today can be defined as the right of a debtor to claim that his liquidated debt due to a creditor shall be expunged by another liquidated debt (or part thereof) due by the creditor to him.

[34]      W. Tetley explains the Canadian law regarding set-off at pages 904-908:

1) Introduction

The Canadian law regarding set-off of a claim for cargo loss or damage against a claim for freight has been inconsistent, first leaning towards the American position, but later drawing nearer to the English position. Earlier decisions, both in respect to carriage by sea and inland transport, permitted set-off for loss or damage to cargo as against a claim for freight. No judgment has suggested, however, that the set-off could take place after the one-year delay for suit of the Hague Rules had expired.

Although the Federal Court Rules and the principle of equitable set-off have been invoked to permit set-off, two appellate court decisions have ruled against a cargo damage claim being used to set-off a claim for freight.

2) The Right to Freight

As in England and the United States, freight is due in Canada upon delivery even if the cargo is damaged, unless the contract of carriage stipulates the contrary. Usually, the bill of lading or voyage charterparty declares that freight is due «ship or cargo, lost or not lost»; such a stipulation only reiterates the carrier’s basic right to freight.

3) Early Canadian Decisions

Early Canadian Admiralty marine decisions permitted set-off for cargo loss or damage against freight. When the cargo claim was contested, both claims were heard at the same time in the form of claim and counterclaim.

Similarly, decisions dealing with land transport have favoured the right of a cargo owner to plead loss or damage to cargo as a defence or counterclaim to an action for freight.

A counterclaim by the carrier for general average contribution was permitted by the Supreme Court of Canada against a claim for cargo damage.

4) The Federal Court Rules

The Federal Court Rules presently and historically have encouraged set-off of a claim for loss or damage to cargo against a claim for freight. Rule 418 [now Rule 186] describes a pleading which is similar in many ways to the American defence of recoupment and reads as follows:

« Where a claim by a defendant to a sum of money (whether of any ascertained amount or not) is relied on as a defence to the whole or part of a claim made by the plaintiff, it may be included in the defence by way of compensation or as a set-off against the plaintiff’s claim, whether or not it is also added as a counterclaim or cross-demand. »

This rule points out that the defence of set-off may also be added as a counterclaim or cross-demand. Rule 1717 [now Rule 189] reads:

« (1) A defendant in any action who claims that he is entitled to any relief or remedy against a plaintiff in the action in respect of any matter, whenever and however arising, may, instead of bringing a separate action, make a counterclaim or cross-demand in respect of that matter.

(2) A counterclaim or cross-demand shall be included in the same document as the defence. »

…

5) Equitable Set-off

Canadian Admiralty courts have an equitable jurisdiction giving them discretion which they have on occasion tried to use for the purpose of setting off a cargo damage claim against a claim for freight. Equitable set-off has been said to be more accurately described as an « equitable defence » since « the defendant can in equity set up his loss in diminution or extinction of the contract price. It is in the nature of a defence. »

6) The Present Position

The two recent Federal Court of Appeal decisions of St. Lawrence Construction Ltd. v. Federal Commerce and Navigation Co. Ltd. and S/S Steamship Co. Ltd. v. Eastern Caribbean Container Line seem to have ended the trend that pointed towards a wider application of set-off as a defence in Admiralty claims

Indeed, the trial Judge in St. Lawrence Construction Ltd. thought that the question of set-off against unpaid freight charges had become « somewhat academic ». He concluded, after referring to a number of decided cases, that there could not be a defence of set-off, since the claim was not liquidated until it was assessed by agreement or by reference. The Court of Appeal sided with the trial Judge and observed that the two Quebec cases relied upon by the respondent in first instance had been well refuted by « the modern cases (which) appear strongly to support the appellant’s argument that a set-off against freight is not permitted in a case of this kind. »

The decision of the Federal Court of Appeal in S/S Steamship Co. Ltd. also disapproved of the use of set-off as a defence to a claim for freight, but on different grounds. Its reasoning did not make the right to set-off contingent on the fact that the claim was liquidated; rather the Court of Appeal relied on the English Admiralty rule against set-off as being a « substantive rule of long standing which is part of the Canadian maritime law as defined in sect. 2 of the Federal Court Act »:

«“Canadian maritime law’ means the law that was administered by the Exchequer Court of Canada on its Admiralty side by virtue of the Admiralty Act or any other statute, or that would have been so administered if that Court had had, on its Admiralty side, unlimited jurisdiction in relation to maritime and admiralty matters, as that law has been altered by this or any other Act of the Parliament of Canada; »

The English Admiralty rule had also been recognized in the trial Judge’s decision, but since it « has not been clearly endorsed by the Canadian courts », the trial Judge was « prepared to find that the defence of set-off ought to be allowed … ».

The basis for the Federal Court of Appeal’s refusal to recognize set-off as a defence to a cargo damage claim seems to be in accord with the subsequent definition of « Canadian maritime law » given by the Supreme Court in The Buenos Aires Maru:

« … the term “Canadian maritime law’ includes all that body of law which was administered in England by the High Court on its Admiralty side in 1934 as such law may, from time to time, have been amended by the federal Parliament, and as it has developed through judicial precedent to date. »

Hence, there is a Canadian consensus established that a cargo damage claim cannot be set-off against a carrier’s claim for unpaid freight although an English court has permitted equitable set-off against a claim for time charter hire. [Footnotes omitted.]

[35]      In S/S Steamship Co. v. Eastern Carribean Container Line S.A., [1986] 2 F.C. 27 (C.A.), the Federal Court of Appeal concluded that the English admiralty rule against set-off was part of the Canadian maritime law. The Federal Court of Appeal held [at pages 28-30]:

The appellant had obtained judgment by default against Eastern Caribbean Container Line S.A. (“Eastern”) for the sum of $111,296.05. It commenced garnishee proceedings against Brunswick International Seafood Ltd. (“Brunswick”) which allegedly owed a sum of US$8,700 to Eastern as freight for the carriage of goods under a maritime bill of lading. An order to show cause was issued under Rule 2300(1) [Federal Court Rules, C.R.C., c. 663]. Brunswick appeared in answer to that order and denied its liability. It did not deny having promised to pay Eastern the sum of US$8,700 as freight for the transportation by ship of a certain quantity of fish from Saint John, New Brunswick, to Port-au-Prince, Haiti; it did not deny, either, that Eastern had in effect transported the fish to its destination. However, it said that Eastern had undertaken to deliver the fish at Port-au-Prince on June 1, 1984, and had in fact, delivered it only on June 26, 1984. Brunswick asserted that, as a result of that delay, it had suffered damages in the amount of US$12,000 that it was entitled to recover from Eastern. It concluded that, as a result, it owed nothing to Eastern and that, for that reason, the application for a garnishee order should be dismissed.

…

Dubé J. rightly acknowledged [at page 287] that “[a] review of the English common law in admiralty matters discloses that set-off for damages cannot be raised as a defence in an action for freight under a bill of lading”. In his opinion [at page 291], however, that prohibition “has not been clearly endorsed by the Canadian courts” and, for that reason, he was [at page 292] “prepared to find that the defence of set-off ought to be allowed in the instant case”.

In our view, the English admiralty rule here in question is a substantive rule of long standing which is part of the Canadian maritime law as defined in section 2 of the Federal Court Act [R.S.C. 1970 (2nd Supp.), c. 10]. The fact that it has not yet “been clearly endorsed by the Canadian Courts” is of no consequence; it is enough that it has not been clearly rejected in any of the cases cited by Dubé J.

He, therefore, should have held that Brunswick could not set off its claim for damages against Eastern’s claim for freight. [Notes omitted.]

[36]      In Pantainer Ltd. v. 996660 Ontario Ltd. (c.o.b. Molisana Imports) (2000), 5 B.L.R. (3d) 237 (F.C.T.D.), a motion for summary judgment to recover amounts owing by the defendant for freight and ancillary charges was brought by the plaintiffs. The defendant claimed that damage to cargos and financial losses attributed to alleged breaches of contract by the plaintiffs gave it a right to set-off against the claim. Teitelbaum J. concluded [at paragraphs 84-85 and 94]:

The general rule that freight must be paid without deduction, unless the parties have agreed otherwise, is derived from the 1977 case of Aries Tanker Corporation v. Total Transport Ltd., [1977] 1 Lloyd’s Rep. 334 (H.L.) often referred to as “The Aries” where Lord Simon of Glaisdale articulated the following at page 340:

Freight, representing the original rule, stands uneroded, like an outcrop of pre-Cambrian amid the detritus of sedimentary deposits. That freight must, in the absence of stipulation to the contrary, be paid without deduction has been stated in successive editions of Scrutton and Carver. Charters have always been negotiated in light of this rule.

In the case at bar, the defendant claims that damage to the cargo and financial losses attributed to alleged breaches of contract by the plaintiffs give it a right to set-off against the freight claim. However, under the terms and conditions of the transport documents, the parties did not agree to contract out of the general rule that the freight charges must be paid without deduction and no penalty clause.

…

I am of the view that there is nothing in the terms and conditions set out by the parties to suggest that the old English rule that freight must be paid without deduction is not applicable, and therefore, I find that the defendant is owing the amount of $144,037.98 to the plaintiffs.

[37]      Therefore, unless stated otherwise in the contract, it appears that the defendant cannot raise set-off of its claim for damages as a defence against the plaintiff’s claim for unpaid freight.

[38]      According to the plaintiff, the terms and conditions of the relevant contract of carriage provide that no set-off exists against the carrier’s claim for freight, the whole as more fully appears from clause 16 of the relevant bill of lading.

[39]      Clause 16 of the bill of lading MSCU-MO7499293 (exhibit E attached to the affidavit of Ata Olfati) stipulates:

16. Freight. The freight is always due to the Carrier whether the vessel or goods arrive at port of destination or not, whether one or the other be lost during the voyage, or whether the goods arrive damaged or short. The Carrier shall be entitled to the payment of the whole freight (as deadfreight without deduction) from the Merchant for all the goods which after a fixed arrangement may not have been delivered by him to the ship. The Merchant has in no case the right to deduct from the freight or to set-off against the freight any claim he should have against the Carrier, including leakage, slackage, shortage or damage. The Merchant shall pay any extra expenses incurred as a consequence of the cargo not being delivered in accordance with the provisions in Clause 5.

(a)   No weighing of goods is to take place on board the vessel without permission of the Carrier. Any expense for weighing onboard as well as extra expenses for discharging and delivery arising or resulting from weighing on board are to be borne by the Merchant, any custom of the port notwithstanding.

(b)   Goods once shipped cannot be taken away by the Merchant except upon Carrier’s consent and against payment of full freight and compensation for any extra expenses through such taking away.

(c)   All dues, taxes and charges or other expenses in connection with the goods shall be paid by the Merchant.

(d)   The Merchant shall reimburse the Carrier in proportion to the amount of freight for any increase of war risk insurance premium and war risk increase of the wages of the maser, officers and crew and for any increase of the cost for bunkers and for deviation or delay caused by war or warlike operations or by government directions in such connection. [My emphasis.]

[40]      It has to be noted however that in his affidavit, Ata Olfati, an officer and a director of the defendant, explains that it was agreed between the plaintiff and the defendant that the plaintiff would provide:

-      A bill of lading covering the entire shipment with a rider confirming the content of each shipment, number of containers, container seals, weights and number of units of tires stores in each container;

-      Packing lists;

-      Freight invoices; and

-      Classification certificates certifying that the goods, with full description, have been shipped on board a classified vessel by the S/S Steamship Co. Ltd. as agents for the plaintiff.

[41]      Ata Olfati points out that at no time were the terms of the fine print on any of these documents brought to the attention of the defendant by the plaintiff. The plaintiff never reviewed the terms of the documents with the defendant at all. The defendant was not aware of the limitation and exclusion clauses that the plaintiff is now relying upon.

[42]      For the purpose of the set-off argument, I do not believe that it matters if the defendant was aware or not of the limitation regarding set-off since it cannot use the defence under equity and since the contract does not permit set-off, legal set-off is not available either as a defence. If the defendant wanted to rely on set-off, it should have added a clause to that effect in the contract and have the plaintiff agree to it. Even if the bill of lading was silent regarding the defence of set-off, the defendant would not have been able to rely on the defence unless the contract explicitly provided that the defendant could rely on the defence of set-off.

[43]      However, although the defence of set-off is not available, the defendant also brought a counterclaim for losses it alleges resulted from the breach of contract or negligence of the plaintiff. Since a counterclaim is essentially an independent action, the defendant may still be granted damages for the losses alleged.

[44]      Subsection 189(1) of the Federal Court Rules, 1998 [SOR/98-106] provides:

189. (1) A defendant who claims to be entitled to relief against a plaintiff may make a counterclaim instead of bringing a separate action.

[45]      The plaintiff is of the view that the defendant’s action is prescribed in virtue of the Hague Rules or the Hague-Visby Rules. These Rules were incorporated into national law under the Carriage of Goods by Water Act, S.C. 1993, c. 21. Subsection 7(1) provides:

7. (1) The Hague-Visby Rules have the force of law in Canada.

[46]      Article III(6), third paragraph, of the Hague-Visby Rules provides:

Article III

6….

Subject to paragraph 6bis the carrier and the ship shall in any event be discharged from all liability whatsoever in respect of the goods, unless suit is brought within one year of their delivery or of the date when they should have been delivered. This period may, however, be extended if the parties so agree after the cause of action has arisen.

[47]      The date of arrival at the port of destination may not be the date of delivery under Article III(6) of the Hague-Visby Rules.

[48]      W. Tetley in Marine Cargo Claims, supra, explains that the one-year delay runs from delivery not discharge. At pages 671-672 he defines the term “delivery” as follows:

Actual delivery takes place when the carrier or the carrier’s stevedore or terminal agent actually transfers possession of the goods to the consignee, or to a person named by the consignee.

…

Constructive delivery takes place when notice has been given of the place and date of arrival of the vessel, the goods have been discharged into a fit and safe place, separated and made ready for delivery, and the consignee has had reasonable time to pick them up. [Footnote omitted.]

[49]      At page 673, W. Tetley further explains:

In the case of a large lot, delivery takes place on the day that the last piece of cargo has been discharged and actually or constructively delivered. [Footnote omitted.]

[50]      At note 9, in Marine Cargo Claims, page 673, the author refers to Loeb v. S.S. Washington Mail, 150 F. Supp. 207 (S.D. N.Y. 1956) and stated:

A vessel landed her cargo October 8, 1951. Consignee received some cargo on October 11, 1951. Some of its cargo however was missing and sorting of all the cargo discharged from the vessel continued until October 31, 1951 when the last cargo was delivered to various consignees and it was determined that consignee’s remaining cargo had been lost. Suit was brought by consignee for this shortage on October 14, 1952, and the Court ruled that suit could be brought validly until October 31, 1952.

[51]      The evidence shows that the defendant’s information is that the seventh container did not arrive at its destination until sometime in early July 1998. The plaintiff has never advised the defendant as to when it believes that the seventh container arrived at its destination.

[52]      In the plaintiff/cross-defendant’s answers to the written examination at question 5(e), the plaintiff explained as follows:

Plaintiff hereby refers to documents 15, 17 and 18 of Plaintiff’s Affidavit of Documents. For greater certainty and clarity, the seventh container sailed on the “Atlantic Cartier” V. 818 from Halifax on May 12, 1998 and was transhipped upon the MSC “Martina” V. 9821-1 and sailed from Antwerp on May 26, 1998. The container arrived thereafter at the Port of Destination in early June. There is no supporting documentation available at this juncture in respect of the exact date of arrival at destination.

[53]      It has to be noted, as was explained by W. Tetley in Marine Cargo Claims, supra, at page 673 that:

Clauses in the bill of lading, declaring that delivery takes place at discharge are null and void in respect of the one year delay for suit because the Hague and Hague/Visby Rules specifically call for suit up to one year from delivery, not discharge. [Footnote omitted.]

[54]      The plaintiff filed its statement of claim on March 2, 1999. The defendant filed its defence and counterclaim on June 18, 1999. According to the plaintiff, the defendant began its action over one year following the scheduled arrival.

[55]      Pursuant to affidavits and examination of witnesses, it is not yet clear when precisely the seventh container was delivered.

[56]      I accept that the one-year delay runs from delivery not discharge, as stated by W. Tetley, at page 671 (op.cit.) and that delivery takes place on the day that the last piece of cargo, the seventh container in the case at bar, has been discharged and actually or constructively delivered, as was again stated by W. Tetley at page 673 (op.cit.).

[57]      The affidavit of Mr. Olfati says that the seventh container was delivered in the first week of July 1998. Mr. Olfati again reiterated his statement in his cross-examination at trial (page 203 of the transcript).

[58]      Given that the defendant filed its defence and counterclaim on June 18, 1999, the defendant began its action within one year of the delivery and therefore, the defendant’s counterclaim is not prescribed by virtue of the Hague Rules or the Hague-Visby Rules.

3.         Did the plaintiff breach its contract with the defendant or was the plaintiff negligent in handling the seven sea containers and did the defendant incurred damages?

[59]      The Hague-Visby Rules provide at article III(2):

Article III

…

2. Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried.

[60]      W. Tetley in Marine Cargo Claims, supra, at page 527, explains that this duty at loading is very broad:

This duty at loading is extremely broad. It means that the carrier is to see that cargo is loaded safely, that it is loaded without delay and stowed in such a manner that it can be found for quick and safe discharge.

[61]      He continues at page 530:

The obligation to load is stringent—being qualified by the words « properly and carefully ». There is considerable, erroneous jurisprudence to the effect that the duty « to load » which appears in art. 3(2) among the obligations « to load, handle, stow, carry, keep, care for, and discharge » is not stringent but that a carrier need only exercise due diligence when loading. Due diligence, however, only appears in the Hague and Hague/Visby Rules at art. 3(1) and art. 4(1), i.e. due diligence to make the ship seaworthy and at art. 4(2)(p) « latent defects not discoverable by due diligence ». The obligation to load at art. 3(2) is not qualified by the words « due diligence » but by the words « properly and carefully », which is a stringent obligation. [Footnotes omitted.]

[62]      W. Tetley in Marine Cargo Claims, supra, at page 133, explains that there are three principles of proof that run as unbroken threads through Hague and Hague/Visby Rules jurisprudence. W. Tetley states them as follows [at pages 133, 137 and 139]:

… the carrier is prima facie liable for loss or damage to cargo received in good order and out-turned short or in bad order.

…

… the parties are in general required to make proof of whatever facts are available to them.

…

… the onus of proof does not mean providing all the circumstances to the point of absurdity, but means making proof to a reasonable degree.

[63]      He also explains at page 142, that although the Hague and Hague-Visby Rules do not set out an order of proof in a marine cargo claim and its defence, there is a surprising similarity in the order of proof demanded by the courts of nations which have adopted the Hague and Hague-Visby Rules. The order of proof is as follows, at pages 142-143:

(i)    The claimant must first prove his loss.

(ii)   The carrier must then prove a) the cause of the loss, b) that due diligence to make the vessel seaworthy in respect of the loss was taken and c) that he is not responsible by virtue of at least one of the exculpatory exceptions of the Rules;

(iii)  Then, various arguments are available to the claimant.

(iv)  Finally, there is a middle ground where both parties may make various additional proofs.

1) What the Claimant must Prove:

Initially, it is the claimant who has the burden of proof, and to make his case he must prove all six of the following facts:

a)    That the claimant is the owner of the goods and/or is the person entitle to make the claim.

b)    The contract or the tort (delict).

c)    That the person claimed against is the responsible person.

d)    That the loss or damage took place in the carrier’s hands. This is usually done by proving the condition of the goods when received by the carrier and the condition at discharge.

e)    The physical extent of the damage or the loss.

f)     The actual monetary value of the loss or damage.

2) What the Carrier must Prove

The carrier must then prove all three of the following:

a)    The cause of the loss.

b)    Due diligence to make the vessel seaworthy at the beginning of the voyage, in respect of the loss.

c)    One of the following exculpatory clauses:

i)     Error in navigation and management of the ship.

ii)    Fire.

iii)    Perils of the Sea and similar exceptions, being Acts of God; Acts of War; Acts of Public Enemies; Restraint of Princes; Quarantine; Strikes; Riots; Saving Life.

iv)   Act or omission of the shipper.

v)    Inherent vice.

vi)   Insufficiency of packing.

vii)   Latent defects.

viii)  Any other cause.

3) The Various Arguments then Available to the Claimant:

a)    Negligence at loading.

b)    Negligence in stowage.

c)    Lack of the cargo.

d)    Negligence at discharge. [Footnotes omitted.]

[64]      Justice Rouleau in Francosteel Corp. v. Fednav Limited (1990), 37 F.T.R. 184 (F.C.T.D.), held as follows regarding the burden of proof for negligence [at page 194]:

It is clear from the jurisprudence that the plaintiff bears the burden of proving that the goods were damaged while in the carrier’s possession; this is generally accomplished by proof that the goods were tendered in good condition to the carrier, and were ultimately received in a damaged condition. This accomplished, the carrier must show that the damage fits within an excepted clause of the Hague Rules; if they succeed, the onus shifts to the plaintiff to adduce evidence that the damage was caused by the carrier’s negligence. If, on the other hand, the carrier cannot establish that the damage is due to an excepted cause, the burden remains on him to prove that the loss was not caused by his negligence. (See Vancouver SS. Co. v. Herdman & Sons (1933), 45 Ll. L. Rep. 223; Kruger Inc. et al v. Baltic Shipping Co. (1989), 57 D.L.R. (4th) 498, at p. 502; Associated Metals and Minerals Corp. v. Etelac Suomin Laiva (1989), A.M.C. 677; Caemint Food Inc. (1981), A.M.C. 1801).

[65]      In order to determine whether the parties met the rules of evidence as explained by W. Tetley, I will now assess the written evidence and the evidence provided by the witnesses at trial.

[66]      Regarding what the claimant must prove, the defendant has proven the following facts:

(a) The defendant is the owner of the goods;

(b) There was a valid contract between the parties and the plaintiff was negligent in handling the seventh container;

(c) The person claimed against (the plaintiff herein) is the responsible person;

(d) The loss or damage took place in the carrier’s hands, i.e. the plaintiff’s hands;

(e) The defendant also demonstrated the physical extent of the damage or the loss, which is the delivery of the seventh container in the first week of July 19, 1999 which was supposed to be delivered in March, pursuant to the defendant’s suggestion; and finally

(f) The defendant has put some evidence regarding the actual monetary value of the loss or damage, which we will review in detail later.

[67]      In responding to what was established by the defendant, the carrier (the plaintiff in the case at bar) in return proved the following:

(a) Pursuant to affidavits and cross-examination of witnesses, it seems that the cause at law of the loss is mismanagement of the seventh container which seems to be admitted by the carrier;

(b) The carrier proved due diligence to make the vessel seaworthy at the beginning of the voyage, in respect of the loss;

[68]      In my view, the carrier failed to identify any of the exculpatory clauses mentioned by W. Tetley to explain the four-month delay in delivering the seventh container.

[69]      Finally, the Court should assess the arguments that could be raised by the defendant to explain the loss. These are as follows:

(a) There was probably negligence at loading when they realized that only six out of the seven containers were loaded on board. Nevertheless, the defendant insisted that the bill of lading indicate that seven containers were loaded even though only six containers were really loaded on board. There is no allegation that the cargo was delivered in bad condition. The allegation is that the damage occurred when the containers were in storage;

(b) There is no evidence or arguments that there was any negligence in stowage;

(c) There is an argument that there was a lack of cargo, in February, when they were loading in Halifax; nevertheless, the cargo was finally delivered in total in July 1999, so the real loss is not the lack of the cargo but the negligence in delivering the seventh container;

(d) There is no evidence or arguments relying to negligence at discharge.

[70]      To make a long story short, only six containers were loaded on February 2, 1998.

[71]      The evidence at the hearing was that Mr. Manuk, who was an employee of the plaintiff, received a phone call from Mr. Saeed, who was a consultant for the defendant, regarding the fact that only six containers were loaded on the ship. The defendant’s representative then asked that the bill of lading be for seven containers even if only six containers were shipped.

[72]      That particular evidence shows that both parties, on February 3, 1998, the day after the vessel left Halifax with six containers, knew that one container was missing.

[73]      In my view, to fulfill its contract and commercial commitment, the plaintiff should have taken all possible steps to ensure that the seventh container be loaded on the next available vessel from Halifax to Europe.

[74]      It did not happen. It is only when the six containers were stored in Iran and that the Iranians realized that there was one container missing that the plaintiff finally woke up and took the steps to locate the container in Halifax and ship it to Iran.

[75]      It is at this very moment that the carrier started to locate the missing container and took the necessary steps to ship it from Halifax, where it still was in May, to the final point of discharge, in July.

[76]      The plaintiff’s employees testified, in good faith, and I have no hesitation to conclude that the plaintiff was negligent in handling the seventh container.

[77]      However, the evidence also shows that given that the bill of lading was for seven containers, there was a problem at discharge when the defendant’s client tried to custom clear the six containers and the Iranian customs realized that there were only six containers and not seven as stated on the bill of lading.

[78]      Therefore, I also take into account the fact that the defendant shared a part of the responsibility when it asked that the bill of lading be signed even though not accurate. In fact, it is that particular point that caused problems at the point of delivery when the Iranian customs were concerned with the fact that only six containers were delivered while the bill of lading stated that seven containers were supposed to be delivered.

[79]      The plaintiff argued at the hearing that the bill of lading limits its responsibility toward the defendant. The plaintiff relied on clauses 4 and 17 of the bill of lading which state:

4. THE SCOPE OF VOYAGE. The voyage herein undertaken shall include usual or customary or advertised ports of call whether named in this contract or not, also ports in or out of the advertised geographical, usual or ordinary route of order, even though in proceeding thereto the vessels may sail beyond the port of discharge or in a direction contrary thereto, or depart from the direct or customary route or in a direction contrary thereto. The vessel may call at any port for the purpose of the current voyage or of a subsequent voyage. The vessel may omit calling at any port or ports whether scheduled or not, and may call at the same port more than once, either with or without the goods on board, and before and after proceeding towards the port of discharge, adjust compasses, dry-dock, go on ways or to repair yards, shift berths, undergo degassing, wiping or similar measures, take fuel or stores, land stowaways, remain in port, sail without pilots, tow and be towed, and save or attempt to save life or property, and all of the foregoing are included in the contract voyage. The vessel shall never be called upon to proceed to a place where she cannot safely get and lie always afloat.

…

17. PERIOD OF RESPONSIBILITY. The Carrier or his agent shall not be liable for loss or damage to the goods during the period before loading and after discharge from the vessel, howsoever such loss or damage arises. Goods in the custody of the Carrier or his servants before loading and after discharge, whether being forwarded to or from the vessel or whether awaiting shipment landed or stored, or put into hulk or craft belonging to the Carrier, or not or pending transhipment at any of the whole transport are in such custody at the sole risk of the Merchant and the Carrier shall not be liable for loss or damage arising or resulting from any cause whatsoever. If goods are shipped to or from the U.S.A. US COGSA shall apply before loading and after discharge as long as the goods remain in the custody and control of the Carrier.

[80]      The plaintiff also relied on clause 7 which provides:

7. DEPARTURE AND ARRIVAL DATES in the Carrier’s liner position lists, sailing lists and other advertisements, are given without any warranty, and no claims shall be acceptable for any change in the dates nor even in the case of the vessel’s non-departure for whatever cause. Carrier shall have the right to change sailing and arrival dates without notice.

[81]      Article III(8) of the Hague-Visby Rules states:

Article III

…

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.

[82]           Article VII of the Hague-Visby Rules also provides:

Article VII

…

Nothing herein contained shall prevent a carrier or a shipper from entering into any agreement, stipulation, condition, reservation or exemption as to the responsibility and liability of the carrier or the ship for the loss or damage to, or in connection with the custody and care and handling of goods prior to the loading on and subsequent to the discharge from the ship on which the goods are carried by water.

[83]      W. Tetley, in Marine Cargo Claims, supra, at page 843 explains:

The criterion as to the validity of a limitation clause is whether the clause contravenes the Hague or Hague/Visby Rules or reduces the carrier’s responsibilities under those Rules.

A rule of thumb in respect to the validity of a limitation clause is whether the clause falls within the exculpatory exception of art. 4(2)(q). This was succinctly stated in Canadian National Steamships v. Bayliss (Lady Drake):

« The defence resting upon the bill of lading exception referred to can have no separate effect and becomes merged in the exceptions contemplated by Article IV, Rule 2(q). In other words, such clause does not give to the carrier any greater protection than he has under said subsection (q). » [Footnotes omitted.]

[84]      Article IV(2)(q) states:

Article IV

…

2. Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from

…

(q) any other cause arising without the actual fault and privity of the carrier, or without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.

[85]      W. Tetley, in Marine Cargo Claims, supra, at pages 852 and 853, further explains:

The Supreme Court of the United States set out the rule in respect to valid limitation clauses in The Vallescura, a pre-COGSA case, where the bill of lading contained an exception against « decay ». Without declaring the exception invalid, the Court required the carrier to fulfill its responsibilities under the Harter Act, i.e. to care for cargo, to provide proper stowage, etc.:

« Here the stipulation was for exemption from liability for a particular kind of injury, decay. But the decay of a perishable cargo is not a cause; it is an effect. It may be the result of a number of causes, for some of which, such as the inherent defects of the cargo, or, under the contract, sea peril making it impossible to ventilate properly, the carrier is not liable. For others, such as negligent stowage, or failure to care for the cargo properly during the voyage, he is liable. The stipulation thus did not add to the causes of injury from which the carrier could claim immunity. It could not relieve him from liability for want of diligence in the stowage or care of the cargo. »

…

In Levatino v. Gen. Steam Navigation Co., part of a cargo of chestnuts was discharged, following which the vessel was drydocked for a day. The remainder of the cargo was discharged after the drydocking, but there had been a 40% drop in the market. It was held:

« Under the circumstances of this case, the exculpatory clauses of the bills of lading that the carrier is not required to deliver in time to meet any particular market or at any particular time; that it is not liable for special or consequential damages; and that it might drydock—are lawfully operative and valid, because they in nowise attempt to exempt the carrier from the consequences of negligence, fault or failure to perform any duty owing to the plaintiffs. [Footnotes omitted.]

In other words, the clause did not give the carrier any more rights than he had under the Rules.

[86]      In my view, the plaintiff is trying to use the limitation clauses on the bill of lading to exempt itself of the consequences of its negligence. Such is not permitted under Article III(8) of the Hague-Visby Rules and therefore, I find that the plaintiff’s responsibility is not limited by the clauses in the bill of lading.

[87]      However, the question remains whether the defendant can be granted damages.

[88]      Before pushing further any analysis as to the kind of damages the defendant can be awarded either in contract or in negligence, I will examine the question whether the defendant has proven that it suffered losses.

[89]      The defendant claims that it suffered losses due to the fact that the seventh container only arrived at its destination in July. The defendant claims damages in the amount of US$62,921. These damages are set as follows in the commercial invoice dated December 14, 1998 and sent by the defendant to the plaintiff:

(a) Cost of transferring, storage, insurance and handling of the first 6 containers—US$9,334;

(b) Cost of reinspection of Cargo and out of pocket expenses for the defendant to travel to Bandar Abbas—US$16,750;

(c) Legal fees—C$4,350.00 @ US$1.5 = C$1 = US$2,900;

(d) Replacement CIF value of defective units—US$29,754;

(e) Banking charges and interest incurred by the defendant—US$4,183;

[90]      The defendant also claims damages for loss of profit in the amount of US$192,265.

[91]      The plaintiff argued at the hearing that there was no proof of any of these heads of damages.

[92]      Regarding the cost for transferring, storage, insurance and handling, the plaintiff noted that there was no warehousing bill and there was no evidence of the amount being charged by a warehouse to the receiver.

[93]      The defendant pointed out that in evidence was a copy of a bank draft (Tabs 17 and 23 of the defendant’s list of documents) which showed that the defendant indemnified or paid 7,000,000 Rials to its buyer, 4,000,000 Rials of which were allegedly for warehousing. The defendant also noted that in evidence was a fax dated June 27, 1998 (Tab 15 of the defendant’s list of documents) and sent by Commodity Procurement & Distribution Centre, the defendant’s client in Iran, which stated that 7,000,000 Rials were owed by the defendant to its client in relation to six dispatched containers. The defendant’s client explained in the fax that it paid 4,000,000 Rials for warehousing, local insurance and container transferring from the area to another place and that the container’s demurrage charges came to 3,000,000 Rials.

[94]      The defendant also observed that a second fax dated August 8, 1998 (Tab 19 of the defendant’s list of documents) was sent by its client asking that a cheque amounting to 7,000,000 Rials be issued for “relevant costs for the containers which (illegible) have had delay in arrival”.

[95]      However, at the hearing, the plaintiff explained that Robert Woo, by e-mail, (Tab 23 of the plaintiff’s amended list of documents), contacted the agent in Iran and asked about the arrival date of the feeder vessel carrying the six containers in Bandar Abbas, asked what was the free time of storage at the terminal, what were the storage costs and whether those terms were negotiable.

[96]      Counsel for the plaintiff then explained that the agent answered in his letter (Tab 23 of the plaintiff’s amended list of documents) that the free time for containers at the discharge port is 20 days. He also indicated the storage rates in Rials. Counsel for plaintiff made a quick calculation based on the arrival date of the six containers which was deemed to be the first week of May for the purpose of the calculation, although everybody agreed that it was probably later in May. Counsel also suggested that based on the evidence, the containers were held for storage no more than a month. However, he used 45 days in his calculation, since the containers might have arrived in the first week of May.

[97]      Without taking into account the free storage time of 20 days, counsel for the plaintiff calculated the storage fees as being 36,000 Rials. According to the plaintiff’s agent, the storage fees were as follows:

- 15 days at 400 Rials per day;

- 15 days at 800 Rials per day;

- 15 days at 1200 Rials per day;

[98]      As was noted by counsel for the plaintiff, the amount calculated is nowhere near the millions of Rials alleged by the defendant. There is an important difference between 4,000,000 Rials and 36,000 Rials. Counsel for the plaintiff argued that although there is evidence that the defendant paid 7,000,000 Rials for transferring, storage, insurance and handling, it is not possible to know from the evidence what the payment was for.

[99]      I agree with the plaintiff that the defendant’s evidence regarding the cost of transferring, storage, insurance and handling of the first six containers is not sufficient to establish on the balance of probabilities that the defendant suffered these losses. There is no invoice from the warehouse, no details as to how the various fees were calculated, no dates were provided regarding the time of storage. These details should have been available to the defendant, and should have been submitted into evidence.

[100]   The evidence is not sufficient to prove that the defendant had to pay fees for transfer, storage, insurance and handling of the six containers due to the late arrival of the seventh container.

[101]   Regarding the second head of damages, the cost of reinspection of cargo and out of pocket expenses for the defendant to travel to Bandar Abbas, counsel for the plaintiff noted that there is no invoice from anybody that may have inspected the cargo. Although there was mention that a report was made, the report was not submitted in evidence. Counsel for the plaintiff observed that the results of the report were not known and that no bill with respect to that inspection was submitted.

[102]   Counsel for the defendant explained that documents 22, 24, 27 and 28 are relevant in assessing the cost of reinspection of cargo. Document 22 is the fax dated August 8, 1998 from Commodity Procurement & Distribution Centre. Pursuant to the fax, the defendant’s client request US$15,000 from the defendant.

[103]   Document 24, is a letter from the defendant to its client confirming that it will make the necessary arrangements to remit the sum of US$15,000. Document 27 is a letter from the Royal Bank of Canada confirming that it has remitted the amount of US$15,000 to the defendant’s client. Document 28 also is a confirmation that the defendant’s client received US$15,000.

[104]   Although the above documents refer to an amount of US$15,000 being transferred from the defendant to its client, the documents do not explain the purpose of the transfer. The only explanation regarding this payment is made by Ata Olfati in the defendant’s answers to written examination. He explains that the goods were inspected by Industrial Engineering and Inspection Company (IEI) of Iran and that the defendant’s office in Teheran advised that a report was made by IEI to the client in respect of a certain number of tires examined by IEI. Mr. Olfati also stated that the amount of US$15,000 was the payment for the cost of reinspection of the cargo.

[105]   In my view, the evidence is insufficient and I cannot conclude that the defendant had to pay US$15,000 to its client for the reinspection of the cargo. I accept that the amount of US$15,000 was paid by the defendant to its client. However, the evidence does not permit me to conclude that the amount paid was for the reinspection of the cargo since the only evidence is the bald statement of Mr. Olfati and no other document was provided to support his contention. As was noted by the plaintiff, a report was allegedly made but it was not submitted into evidence, no invoice was submitted to confirm that reinspection of the cargo was done. There is no evidence as to the date it took place. There is no evidence coming from the persons that conducted the reinspection and even the evidence from the defendant’s client does not explain what the amount paid was for. The defendant has failed to demonstrate on a balance of probabilities that it paid US$15,000 to its client for the reinspection of the cargo.

[106]   In terms of the out-of-pocket expenses, counsel for the plaintiff noted that although the documents showed that it related to some kind of travel, no invoices for any kind of travel expenses were submitted. Further, it is not possible to know why a person went there and there is no report from the person. Counsel for the plaintiff was of the view that there was a complete lack of the documents that one would submit to prove the expense.

[107]   Once again, the only evidence of the expenses incurred by the defendant regarding the out-of-pocket expenses is from Mr. Olfati who stated in his supplementary affidavit that the travel expenses were in the amount of US$1,750. No documents were provided in support of his contention. There is no documentary evidence whatsoever that US$1,750 was ever paid for travel expenses and in my view, Mr. Olfati’s contention without any other explanation or supporting documents is not sufficient to establish on a balance of probabilities that the amount was incurred or paid.

[108]   Counsel for the plaintiff then examined the legal fees claimed by the defendant and again noted that no legal bill was adduced into evidence. He observed that it is not possible to know what the legal fees were for and that once again there was a complete paucity of any kind of backup on this item.

[109]   I have reviewed the evidence, and the only reference regarding legal fees is found in the “commercial invoice” sent by the defendant to the plaintiff. Since no evidence was provided in support of the allegation that the defendant incurred legal fees because of the plaintiff’s negligence, I cannot conclude that the defendant is entitled to reimbursement of these fees.

[110]   On the issue of the replacement CIF value of defective units, counsel for the plaintiff pointed out that the component of the insurance cannot be claimed as the insurance was covered in Iran. Secondly, counsel for the plaintiff argued that there was no proof of any defective units. He explained that although there is a bald statement that 35 units were defective, there is no evidence of any replacement of any of these units and no evidence that there was a shipment of another 35 units. Furthermore, there is no evidence as to the physical damage that would have ensued because of the delay in clearing the goods from customs. However, there is evidence that the defendant got paid in full, and there is evidence that the defendant was released from its performance guarantee.

[111]   On this issue, the defendant submitted into evidence a fax dated October 22, 1998 from its client confirming that 35 units were found defective as a result of damage suffered in prolonged shipping. The defendant also submitted a document explaining how the amount claimed by the client, i.e. US$29,754, was calculated.

[112]   The evidence does not support a finding that the amount was paid by the defendant to its client or that the tires were replaced. Although the evidence is to the effect that there was a claim, no evidence was adduced regarding how the claim was dealt with.

[113]   Regarding the banking charges and interest incurred by the defendant, counsel for the plaintiff maintained that there was no evidence substantiating the amount claimed by the defendant.

[114]   The defendant submitted a fax dated August 25, 1998, from the Société Générale (Canada) advising the defendant that the Société Générale was going to deduct C$3,829.40 from the defendant’s Canadian deposit. The amount of C$2,980.85 set out in the fax was for the commission and charges relating to the balance due as per the letter dated October 1, 1997 and May 1, 1998. An amount of C$339.64 was for the claim by the Bank Tejerat in their swift of August 25, 1998 as well as an amount of C$308.91 which was claimed by the bank Tejerat in their swift dated August 25, 1998. An additional sum of C$200 was added for the cost of the Société Générale swift/telex.

[115]   In a letter dated November 26, 1998, the Société Générale advised the defendant that the performance guarantee was cancelled and that enclosed was a cheque being the refund of the deposit plus interest less the commission and charges as per the Société Générale’s fax dated August 25, 1998.

[116]   Counsel for the plaintiff observed that it appeared that the amount of C$2,980.85 was a balance due in respect of the performance bond prior to its extension. Counsel for the plaintiff submitted that this was indicative of the lack of substantiation of the claim.

[117]   I agree with the plaintiff that the amount of C$2,980.85 referred to in the letter dated May 12, 1998 refers to a balance due as per letters dated October 10, 1997 and May 1, 1998 and therefore appears to relate to a balance due prior to the extension of the guarantee. Furthermore, it has to be noted that the defendant claims banking charges and interest in the amount of US$4,183. However, the defendant did not explain how it arrived at that amount and the evidence submitted does not support a finding that the defendant incurred charges in the amount of US$4,183. Further, it is not clear what the amounts stated in the fax dated August 25, 1998 were for. It shows that the Bank Tejerat claimed certain amounts in its swifts dated August 25, 1998, however, the swifts submitted in evidence do not claim the same amount as stated in the fax. Therefore, it is not possible to know what the amounts claimed related to and whether it related to the extension of the performance guarantee.

[118]   Lastly, counsel for the plaintiff argued that there are no documents regarding the loss of profit alleged by the defendant. There is an invoice that the defendant claims is the contract it lost. Counsel for the plaintiff observed that there is no proof of any binding contract and because of this, it is very difficult to see how the defendant can complain of the business loss. Counsel for the plaintiff submitted that there was a complete absence of any substantiation of a contract and indeed any connection, if there was negligence, between the loss of that contract and the alleged negligence.

[119]   According to the defendant, the Kala Resana Company, of the Ministry of Energy, was advised by the Commodity Procurement & Distribution Centre, the defendant’s client in Iran, to “hold back” the imminent issuance of a letter of credit which was in furtherance of a new confirmed order to supply 60 additional containers of tires valued at US$2,064,000 pending the resolution of the missing container of shipment No. 8.

[120]   The defendant also explained that a follow-up order for supply and delivery of an additional 1000 units of tires valued US$748,000 and placed by the Ministry of Road and Transportation, was put on hold based on the Commodity Procurement & Distribution Centre’s information regarding the missing container.

[121]   Regarding the order from Kala Resana Company, the defendant submitted a pro forma invoice dated June 11 , 1997 and sent to Kala Resana Company. The invoice confirms that the price for the order of heavy-duty tires would be US$2,064,240 and gives the various terms and conditions of the offer. It also states that the offer is valid for 21 days from the date of its issuance.

[122]   The defendant also submitted a fax dated January 31, 1998, from Kala Resana Company, advising, regarding the status of the letter of credit, that the banking procedures were started through Kala Resana Company’s advising bank, and that God willing, Kala Resana Company would be able to announce the opening of the said letter of credit accordingly and promptly.

[123]   The plaintiff argues that there was no evidence of a binding contract.

[124]   Mr. Olfati explained at the hearing that in order to have a binding contract with the Iranian customer, a pro forma invoice must be issued. Based on the pro forma invoice which outlines all the terms and conditions, the customer will then give the order. According to Mr. Olfati, the confirmation of the order is the fax dated January 31, 1998, from Kala Resana Company advising that banking procedures were started through the advising bank. Mr. Olfati explained that the fax dated January 31, 1998 was the confirmation that there was a binding contract between the Iranian customer and the defendant.

[125]   The defendant also submitted a pro forma invoice dated December 19, 1997 in support of its contention that it was unable to secure a follow-up order for supply and delivery of an additional 1000 units of tires because of the plaintiff’s negligence. This pro forma invoice also sets out the terms and conditions of the offer and confirm that the pro forma invoice is valid for 30 days from the date of its issuance.

[126]   In my view, the evidence is insufficient to conclude that binding contracts were reached between the defendant and its client. In any event, even if I were to conclude that valid contracts had been concluded, the evidence does not establish on a balance of probabilities that the contracts were lost because of the plaintiff’s negligence. I have not a single piece of evidence showing that the contract, if there is, was cancelled in relation with the plaintiff’s negligence. Therefore, no damages will be awarded regarding the defendant’s alleged loss of profit.

[127]   In conclusion, the claim by the plaintiff is granted and the counterclaim by the defendant is dismissed.

THE COURT ORDERS THAT:

- The defendant pay the plaintiff the amount of C$46,174.73 plus interest at 8% calculated from April 22, 1998 until payment. The parties have agreed that the exchange rate of 1.5315 will apply.

- The counterclaim by the defendant is rejected given that the defendant cannot provide any evidence of damages.

- The decision on costs is reserved. The parties shall provide written submissions pursuant to costs, no later than October 19, 2001.