T-1789-75
Green Forest Lumber Limited (Plaintiff)
v.
General Security Insurance Company of Canada
(Defendant)
Trial Division, Addy J.—Toronto, May 18, 19, 20
and 21, June 7, 8 and 9, 1976; Ottawa, January
18, 1977.
Maritime law Insurance — Contract between plaintiff
and Canadian International Development Agency representing
foreign company — Whether defendant under an obligation to
insure plaintiff or to issue a policy in plaintiffs name
Whether plaintiff has insurable interest Whether construc
tive total loss involved so as to entitle plaintiff to give notice of
abandonment — Effect of s. 23 of The Marine Insurance Act
of Ontario on plaintiffs claim — The Marine Insurance Act,
R.S.O. 1970, c. 260, ss. 22, 23 and 24.
Plaintiff made a contract with the Canadian International
Development Agency acting on behalf of a foreign company to
export lumber in two shipments. Plaintiff bought and loaded
the lumber and ordered insurance through its brokers for which
the defendant issued a covering note. The ship was grounded
and took in some water. The plaintiff notified the defendant
and then gave written notice of abandonment of the cargo,
which the defendant rejected. The plaintiff alleges that it was
justified in abandoning the cargo and claims, in addition to the
insurance, expenses involved in filing security to prevent arrest
of the lumber by the ship's charterer, interim insurance of the
lumber, costs of transhipment and reloading and labour.
Defendant claims that it is not liable to the plaintiff because
the plaintiff had no interest in the insurance and was not
insured or intended to be insured. No policy was issued on
behalf of the plaintiff and the defendant was under no obliga
tion to issue any such policy. The defendant further denies that
there was constructive total loss of the cargo justifying aban
donment; the loss was negligible and the plaintiff failed to
minimize it in any way.
Held, the action is dismissed. Although the defendant
received an insurance premium from the plaintiff through
brokers acting at all times as agents of the plaintiff, the policy
was taken out in compliance with the requirements of CIDA
and it was understood that the plaintiff's name and its extra
hidden protection under the Timber Trade Federation clauses
were not to be shown on the policy or the certificate. The
plaintiff has thus failed to establish any obligation on the part
of the defendant to issue a policy in its favour. As to whether
the plaintiff had an insurable interest, under the terms of the
contract between the plaintiff and its suppliers, the plaintiff
had an insurable interest in the lumber once it was on board
ship. As to the nature and amount of the loss, constructive total
loss only occurs where the subject-matter, although not in fact
totally lost, is likely to become so from the improbability,
impracticability or expense of repair or recovery. This is a
matter of fact and cannot be decided by the insured unilaterally
electing to abandon the cargo. The plaintiff failed to establish
constructive total loss, but would, if the action were not dis
missed, be entitled to $10,000 as compensation representing the
cost of replacing the lumber damaged or destroyed by the
storm or the unloading, plus the - cost of insuring the new
shipment and the cost of transhipment and reloading the cargo
salvaged onto another vessel. The plaintiff would also be en
titled to indemnity for any liability established against it by the
charterers.
Bhugwandass v. Netherlands India Sea and Fire Insur
ance Company of Batavia (1889) 14 App. Cas. 83; Royal
Exchange Assurance Corporation v. Tod (1891-92) 8
T.L.R. 669; Mowat v. Goodall (1915) 24 D.L.R. 781
(C.A.); Colonial Insurance Company of New Zealand v.
Adelaide Marine Insurance Company (1887) 12 App. Cas.
128 (P.C.); J. Aron and Co. (Incorporated) v. Miall
(1928-29) 34 Comm. Cas. 18; York-Shipley, Inc. v.
Atlantic Mutual Insurance Company (1973) 474 F.2d 8;
Assicurazioni Generali v. SS. Bessie Morris Co., Limited
[1892] 1 Q.B. 571; Goss v. Withers (1758-1761) 2 Burr.
683, 97 E.R. 511; Anderson v. Wallis (1813-14) 2 M. & S.
240, 105 E.R. 372; Doyle v. Dallas (1831) 1 M. & Rob.
48, 174 E.R. 17 and Robertson v. Stairs (1875) 10 N.S.R.
345 (C.A.), applied.
ACTION.
COUNSEL:
P. F. M. Jones and N. H. Frawley for
plaintiff.
V. M. Prager for defendant.
SOLICITORS:
McMillan, Binch, Toronto, for plaintiff.
Stikeman, Elliott, Tamaki, Mercier & Robb,
Montreal, for defendant.
The following are the reasons for judgment
rendered in English by
ADDY J.: The plaintiff, an exporter of lumber,
entered int9 a contract with the Canadian Interna
tional Development Agency (hereinafter referred
to as "CIDA") representing the "Office du Com
merce de la Tunisie" for the sale, c.i.f. Tunisian
ports, of various sizes and quantities of lumber.
The relevant purchase order confirmation dated
the 22nd of May, 1974 specified eastern Canadian
spruce, pine, fir of construction grade either kiln
dried and/or air dried and/or part air dried to
green but anti-stain treated as permitted by weath
er conditions, with deliveries to commence July
and August 1974 and to be complete by December
1974. Payment was to be made against delivery of
documents which were to include bill of lading,
invoice, packing certificate, insurance certificate
and inspection certificate.
The plaintiff entered into a contract with James
Richardson Co. Limited of Cap Chat, Quebec, and
executed a purchase order dated the 3rd of Octo-
ber 1974 covering various sizes and quantities of
the lumber to be shipped. A shipment of this
lumber was to be carried on board the vessel
Elarkadia from Grande Vallée. The plaintiff
ordered insurance by telex through its agents
Marsh & MacLennan Limited (hereinafter called
"the brokers") and claims that the order was upon
terms known as Lloyd's Institute Cargo clauses
(f.p.a.). The defendant, as a result of the request,
issued a covering note bearing No. 801581. Some
1,194,000 board feet of various sizes of the lumber
were to be loaded aboard the Elarkadia at Grande
Vallée, Quebec, by James Richardson Co. Lim
ited. Loading commenced on the 25th of Novem-
ber and by the morning of the 26th some 559
bundles representing 997,045 board feet had been
loaded, when a heavy gale caused the vessel to
break her moorings and, being unable to navigate
out of the harbour into safe water, was grounded a
short distance from the loading dock. The vessel
continued to be pounded by heavy seas during the
remainder of that storm and again on the 2nd and
3rd of December 1974 by a further north-easterly
gale. Some water entered the vessel.
The plaintiff gave verbal notice of the grounding
of the vessel to Canadian Marine Underwriters
Limited of Toronto who were authorized by the
defendant to receive all such notices. The under
writers sent a marine surveyor, one Mr. Matheson
of Universal Marine Consultants Limited of
Montreal, to attend at Grande Vallée to investi
gate matters and advise inter alia as to the salvage
of the lumber.
From the 6th to the 9th of December 1974, the
lumber was removed from the vessel and taken to
the premises of James Richardson Co. Limited.
The plaintiff by its agents, by letter dated the
15th of December 1974, gave notice of abandon-
ment of the lumber to the defendant through
Canadian Marine Underwriters Limited. The
notice of abandonment was rejected by letter dated
the 16th of December 1974.
The plaintiff replaced the lumber by other
lumber purchased from Lacroix Lumber Limited
of Carleton -sur-mer, Quebec. This lumber was
loaded on the ship John M. Rehder which sailed
from Carleton -sur-mer on the 22nd of December
1974. The defendant also issued an insuring cer
tificate No. 801586 covering this lumber. The
plaintiff was paid for the replacement lumber by
CIDA.
The plaintiff alleges that it was justified in
giving a notice of abandonment in the circum
stances as the lumber, although not physically
destroyed, was a constructive total loss because its
exposure to sea-water rendered it unfit for its
intended purpose, that is, for export as anti-stain
treated green lumber in conformity with the pur
chase order and that the cost of reconditioning
whatever could be reconditioned and of reforward-
ing the lumber would exceed its value upon arrival
at the intended destination.
The plaintiff therefore claims to be entitled to
the value of policy less a credit which it received
from James Richardson Co. Limited for the repur-
chase and resale by it of the lumber off-loaded
from the stranded Elarkadia.
Furthermore, as the plaintiff rejected a claim of
Matthew Ship Chartering Limited for freight and,
as a result, was obliged to file a security bond to
avoid arrest of the lumber and also had caused
insurance to be taken out on the lumber in the
interim, it also claims additional sue and labour
expenses against the defendant for these expenses.
The defendant totally denies all liability to the
plaintiff on the grounds, among others, that the
latter had no interest in the policy of insurance,
that it was not the insured, that it was not the
person intended to be insured in accordance with
the orders placed, that no policy was in fact issued
in favour of the plaintiff and that it is not obliged
to issue any. It also denies that there was a con
structive total loss or any loss at all for that matter
because the anti-staining was not affected any
more by the water which might have reached the
lumber as a result of the grounding than in any
normal sea-voyage on the Atlantic at that time of
the year for lumber stowed on deck. It adds fur
ther that if there was any damage, it was minimal
in nature and that the plaintiff failed to take the
required steps to minimize any such damage and
that, in any event, the defendant has always
offered to pay on behalf of the persons insured for
the loss of 5,000 board feet as well as the cost of
transhipment of the entire cargo from Grande
Vallée, Quebec, to Carleton, Quebec, and to pay
for the loading aboard another vessel as well as
any freight claim against such insured by the
owners of the Elarkadia. The defendant also seeks
to avoid liability on the grounds that no formal
policy bearing its corporate seal was ever issued.
The English cases prohibiting recovery unless a
policy is issued, are based on the fact that such an
action constitutes an offence under the English
Stamp Act of 1891. As to cases where the princi
ple was applied—see Motor Union Insurance
Company, Limited v. Mannheimer Versicherungs
Gesellschaft' and the English Insurance Company
Limited v. Official Receiver and Liquidator of
National Benefit Assurance Company, Limited 2 .
Apart from the provisions of the Stamp Act,
there has never been any reason why specific
performance of such an agreement to issue a policy
should not be allowed. See Arnould, British Ship
ping Laws, Volume 9, The Law of Marine Insur
ance and Average 1 3 ; Bhugwandass v. Netherlands
India Sea ,and Fire Insurance Company of
Batavia 4 ; and Royal Exchange Assurance Corpo
ration v. Tod 5 , therein referred to, both being
cases dealing with insurance law as it existed
previous to the enactment of the Stamp Act.
There, of course, exists no Stamp Act in Canada
and I can see no reason whatsoever why the Eng-
lish cases based on it should be applied.
' [1933] 1 K.B. 812.
2 [1929] A.C. 114.
3 By Kendal and Bailhache, at page 49.
° (1889) 14 App. Cas. 83.
5 (1891-92) 8 T.L.R. 669.
Although a formal policy bearing the seal of the
company was not actually issued, the defendant
was under an obligation to issue one and it could
have been sued for specific performance. Equity
looks upon that as done which ought to be done
(14 Halsbury's Laws of England, 3rd ed., page
532) and the matter should be treated as if a
policy had actually been issued. (See Westminster
Woodworking Co. v. Stuyvesant As. Co. 6)
The defendant, however, argues that section 23
of The Marine Insurance Act' of Ontario consti
tutes a statutory impediment to recovery in the
present case.
The parties agree that The Marine Insurance
Act of Ontario applies to the present case and this
seems quite proper in view of the situs of the
agreement to issue a policy or at least a covering
note. The relevant sections of that Act read as
follows:
22. A contract of marine insurance is deemed to be conclud
ed when the proposal of the assured is accepted by the insurer,
whether the policy is then issued or not, and for the purpose of
showing when the proposal was accepted, reference may be
made to the slip or covering note or other customary memoran
dum of the contract.
23. A contract of marine insurance is inadmissible in evi
dence unless it is embodied in a marine policy in accordance
with this Act and the policy may be executed and issued either
at the time when the contract is concluded or afterwards.
24. A marine policy must specify,
(a) the name of the assured or of some person who effects
the insurance on his behalf;
(b) the subject-matter insured and the risk insured against;
(c) the voyage or period of time, or both, as the case may be,
covered by the insurance;
(d) the sum or sums insured; and
(e) the name or names of the insurers.
25. (1) A marine policy must be signed by or on behalf of
the insurer; provided that in the case of a corporation the
corporate seal may be sufficient, but nothing in this section
shall be construed as requiring the subscription of a corporation
to be under seal.
Although section 23 of The Marine Insurance
Act provides that a contract of marine insurance is
inadmissible in evidence, unless it is embodied in a
marine policy in accordance with that Act,
6 (1915) 25 D.L.R. 284 at p. 287.
7 R.S.O. 1970, c. 260.
section 23 must be read in the light of section 22
which states that a contract of marine insurance is
deemed to be concluded when the proposal of the
assured is accepted by the insurer whether a policy
is issued or not and of section 24, which lays down
the requirements of an insurance policy, and also
of section 25 which states that, although the policy
must be signed on behalf of the insurer, it need not
bear the corporate seal of the insurer.
In the case at bar, I find no difficulty in coming
to the conclusion that the certificate of insurance
issued contains all of the elements enumerated in
section 24 and that it was duly executed on behalf
of the insurer on the insurer's express authoriza
tion. It therefore constitutes a policy for the pur
pose of section 23 and is admissible in evidence as
such.
On this issue and altogether apart from the
actual evidence of there being in fact a policy in
existence, the defendant, in several places in the
statement of defence, clearly admits the existence
of a policy. This is an admission in a pleading
adverse to the interest of the party pleading it and
must be conclusively taken as proven. The policy
would therefore be taken as existing even if its
existence as a policy had not been established in
evidence.
The cargo certificate of insurance as issued by
the defendant was filed at trial as Exhibit P-75. It
shows CIDA and the Office du Commerce de la
Tunisie (the consignees) as the insured, with loss
payable to CIDA. The defendant refuses to issue
one in the name of the plaintiff or one showing the
plaintiff in any way whatsoever on the policy or
certificate.
The question therefore arises as to what was the
actual agreement between the parties. Did the
defendant have an obligation toward the plaintiff
to issue a policy in its name as insured or as loss
payee, which would permit equity to consider the
policy as having been issued?
Although the defendant maintained the contrary
at trial, I find as a fact that the evidence estab
lished that the plaintiff has paid and the defendant
is deemed to have received the required premium.
There is uncontradicted evidence of Doherty
that the assured paid the premium to its broker
(see Exhibit P-20)., Due to long established prac
tice among insurers and insurance brokers pay
ment by the assured to its broker discharges the
duty of the assured in order to complete its con
tract with the insurer. The broker becomes the
debtor of the insurer for payment. (See Mowat v.
Goodall 8 and Arnould on Marine Insurance 9 .)
I find also as a fact that the brokers were at all
times relevant to the issues between the parties the
agents of the plaintiff and were never the general
nor the special agents of the defendant.
I find further that, in accordance with the
uncontradicted evidence of one Lawrence Doherty,
the Vice-President of the brokers, they, in the past,
had looked after the insurance requirements for
the plaintiff under an open policy with a Swiss
firm. They were requested by the plaintiff to
obtain insurance from a Canadian insurance com
pany to cover the risk in this case as this was one
of the requirements of CIDA for any purchases
which it was financing. The witness Doherty stated
that he was not at that time aware of the actual
terms of the contract except that CIDA required
the plaintiff to supply an invoice, a bill of lading
and an insurance policy. His instructions came
from the plaintiff and he would be looking to it for
payment but he knew that CIDA was involved
somehow.
As a result of the plaintiff's request, he caused
the underwriters of the defendant to be contacted
and the latter were requested to place insurance
with "average coverage" for the consignee, which
Mr. Doherty considered to be adequate to cover
the letter of credit and the consignee, since "aver-
age coverage" provided protection against the five
basic risks of stranding, sinking, burning, collision
and heavy weather. He further stated that he then
verbally requested a broader coverage for the ben
efit of the plaintiff incorporating what is known as
the "Timber Trade Federation (or T.T.F.)
clauses," that is, clauses approved and required by
members of the British Federation of Timber
Trade Merchants. He also testified that these
8 (19 15) 24 D.L.R. 781 (C.A.).
9 14th ed., ss. 107, 108 at pp. 132 and 133.
clauses are well known to both the insurance busi
ness and the timber trade and that he wanted
private coverage for the plaintiff by means of the
T.T.F. clauses, and requested same from the
defendant.
When instructions were finally received by the
brokers as to the requirements of CIDA, it became
evident that the plaintiff was neither to be the
named assured nor was it to be mentioned on the
policy as one of the parties who had an interest
therein or to whom any loss would be payable.
Page 4 of the purchase order confirmation from
CIDA, dated the 22nd of May 1974 and filed at
trial as Exhibit P-5, contains the following para
graph regarding insurance policies:
It shall be your responsibility to arrange suitable coverage for
the material shipped. The Canadian International Development
Agency/Office du Commerce de la Tunisie shall be shown as
the beneficiary. Any monies payable as a result of a claim will
revert to CIDA for further purchase. Insurance must be
arranged through a Canadian underwriter. CIDA is to be
advised the name and address of the underwriter prior to
arranging coverage.
On being advised of this requirement by their
client, the plaintiff, the brokers informed the
insurers through the underwriters that the plaintiff
was not to be shown on the policy. The only
written communications between the brokers and
the underwriters regarding the proposed insured
and the type of coverage are contained in two telex
messages which were filed as Exhibits. The first
one, a telex of the 24th of October 1974, was filed
as Exhibit P-60. It contains the following
statements:
INSURING TERMS WITH AVERAGE (W.A.) FOR CONSIGNEE TO
APPEAR ON CERT. BUT TIMBER TRADE FEDERATION CONDI
TIONS ENDORSED FOR GREEN FOREST.
The witness Doherty stated that he sent this
because he wished the insurance issued in the
name of the plaintiff. But this was before the
brokers became aware of the actual requirements
of CIDA. At the outset he only knew that CIDA
was involved to some extent. On being questioned
by me at the trial he stated that when he became
aware that he was not to have a policy issued in
the name of the plaintiff because of the dictates of
CIDA, he had a private understanding with the
underwriters that Green Forest Lumber Limited
would be protected no matter how the policy read.
He wanted Timber Trade Federation clauses as a
private hidden cover for the account of the plain
tiff and did not feel that any evidence was neces
sary to establish this coverage. He requested that
the plaintiff not be shown on the policy.
The second telex (Exhibit P-62) dated the 22nd
of November 1974 reads as follows:
DETAILS OF SECOND SHIPMENT VESSEL 'ARKADIA' BUILT
1958 GROSS 5109 NET 2506 EX `IRENES FAITH' SAILING NOV
23/74 GRAND VALLEE/CARLETON QUE TO SFAX TUNISIA
APPROX VALUE LUMBER DLRS 1,100,000.
INSURING TERMS O/D F P A
U/D W A AND W S R AND C C
(ON DECK F.P.A.-UNDER DECK/WITH AVERAGE COVERAGE
AND WAR, STRIKES, RIOTS AND CIVIL COMMOTION.) [The
words in parenthesis are mine.]
It is worthwhile noting here that no mention was
made in this telex that the plaintiff be insured in
any way with T.T.F. coverage or otherwise. This is
all the more important since on the 12th of
December the witness Doherty confirmed by telex
(Exhibit 66) with his client, the plaintiff, that the
placement -order with Canadian Marine Under
writers was made on the 22nd of November 1974.
In his evidence Mr. Doherty also confirmed in his
testimony that Exhibits 62 and 66 referred to the
terms which were to be shown on the insurance
certificate.
I therefore find as a fact that there was an
original oral request that the plaintiff would be
protected under T.T.F. clauses, that, subsequently,
after the brokers became aware of the require
ments of CIDA, the terms were changed and that
the actual coverage on the policy was to be as
requested in the second telex and finally that there
was an understanding that neither the plaintiff's
name nor T.T.F. clauses were to be shown in any
way on the policy or on any certificate.
I must therefore conclude that not only has the
plaintiff failed to establish any obligation on the
part of the defendant to issue a policy in its favour
but that the contrary has been established in evi
dence by the above-mentioned witness called by
the plaintiff. The certificate issued and produced
at trial as Exhibit 75 is all that the defendant was
obliged to issue. Any original oral undertaking to
cover the plaintiff by T.T.F. clauses, since the
undertaking is not embodied in the policy and
since it was not understood that it would be
embodied eventually in the policy by oral agree
ment or otherwise, cannot be admissible in evi
dence by reason of section 23 of the Act. In the
circumstances of the present case, section 23 is an
absolute bar to the right of recovery of the plaintiff
otherwise section 23 would be absolutely
meaningless.
The action will therefore be dismissed with
costs.
In the event, however, of there being an appeal
and there being a contrary finding on this issue, it
might be useful that I comment briefly on two
other matters, namely the issue of whether the
plaintiff had an insurable interest and the question
of the nature and amount of the loss.
On the first issue, the evidence established clear
ly that each piece of lumber until it was stowed on
board was at the risk of the lumber suppliers,
James Richardson Co. Limited the contract be
tween them and the plaintiff being "f.o.b. stowed
ship." See Colonial Insurance Company of New
Zealand v. Adelaide Marine Insurance
Company 10 .
In so far as the Tunisian consignees were con
cerned, the contract with them was c.i.f. (cost,
insurance and freight). This allows risk to pass
when shipment is ready and on transfer of the
documents, the vendor being able to obtain pay
ment of the goods before their arrival at their
destination and even when they are lost in transit.
The risk on shipment passes to the buyer even
though he may still have the right to reject the
goods on arrival, if they are not in accordance with
the terms of the contract.
In my view, however, there might . in certain
circumstances be a distinction drawn between the
case of a purchaser contracting for a shipment of
goods or of a specific cargo on a c.i.f. basis and
that of a purchaser contracting to buy quantity of
goods c.i.f., which may be sent in as many loads or
shipments 'as the vendor might decide. In the
former case, the risk does not pass to the buyer
10 (1887) 12 App. Cas. 128 (P.C.).
until the ship is completely loaded and the cargo
contracted for complete, while in thé latter, the
risk might very well be held to pass as each part of
the total amount of goods purchased is loaded
aboard a ship for shipment to the purchaser.
For the purpose of deciding this issue in the
present case, it is not necessary to find when the
property in the lumber passed to the purchaser for,
although property and risk usually pass simultane
ously, this does not apply to c.i.f. contracts and it
has been held that, where the policy has been
assigned to him, the buyer may sue although he
has no insurable interest in the goods at the time
the damage occurred. See J. Aron and Co. (Incor-
porated) v. Miall". The c.i.f. seller on the other
hand cannot sue subsequently to shipment because
he has no insurable interest in the goods. See
York-Shipley, Inc. v. Atlantic Mutual Insurance
Company 12 . Where goods are not purchased afloat
by the seller for shipment to the consignee, the
seller must arrange for a contract of affreightment
with the carrier and the cargo is shipped by the
seller when loaded aboard the ship destined to
carry it to the consignee, and the shipping docu
ments are received from the carrier.
In the present case the contract with the Tuni-
sian purchasers called for the quantity of wood
purchased to be furnished "en deux tranches"
which means in two blocks or portions. In the
context of the agreement, since the lumber had to
be transported by ship, "en deux tranches" can
only mean "en deux expéditions" or "en deux
envois par mer", in other words "in two ship
ments". The first shipment had already been sent
and therefore the total quantity remaining to be
shipped had to be loaded aboard the Elarkadia.
Until the total amount of lumber remaining was
loaded aboard the ship, the lumber loaded aboard
did not constitute a shipment and the risk did not
pass to the purchaser. There, therefore, remained
in the plaintiff until the entire cargo was loaded,
an insurable interest in the lumber which had been
stowed aboard and which was no longer at the risk
of the mill owners, James Richardson Co. Limited.
" (1928-29) 34 Comm. Cas. 18.
12 (197 3) 474 F.2d 8.
Finally, I wish to deal with the nature and
amount of the loss.
The plaintiff alleges that he is entitled to claim
for constructive total loss. Constructive total loss is
a concept peculiar to marine insurance and the loss
is considered as having occurred even where the
subject-matter is not in fact totally lost, but is
likely to become so from the improbability,
impracticability or expense of repair or recovery.
(See Assicurazioni Generali v. SS. Bessie Morris
Co., Limited".)
Unlike actual total loss, which is a loss in law
and in fact, constructive total loss is a total loss in
law, although not a total loss in fact. A proper
notice of abandonment given under conditions,
which warrant it, entitles the insured to claim a
total loss against his insurer.
It is clear, however, that the conditions must
warrant the notice and if the circumstances are not
such that it is unlikely that the assured can recover
the goods, or if the property is not so badly
damaged that the cost of repairing would exceed
the value of the goods, or if the absolute destruc
tion or irretrievable loss would not appear to be
unavoidable, the insured cannot elect to turn what
at the time of abandonment is only an average loss
into a total loss merely by giving a notice of
abandonment. (See Goss v. Withers 14 per Lord
Mansfield at 697, also Lord Ellenborough in An-
derson v. Wallis 15 .)
Constructive total loss occurs where such cir
cumstances exist, where a prudent uninsured
owner, in the exercise of the soundest judgment,
would have sold the cargo as she lay rather than
try to save or repair it. The cost of saving and
repairing must however exceed the full repaired
value. There must be such a preponderating excess
of expense that no reasonable man could hesitate
as to the propriety of selling under the circum-
13 [1892] 1 Q.B. 571.
14 (1758-1761) 2 Burr. 683, 97 E.R. 511.
15 (1813-14) 2 M. & S. 240, 105 E.R. 372.
stances, rather than repairing. (See Morris v.
Robinson 16 ; Irwin v. Hine"; and Doyle v.
Dallas 18 .)
The lumber was certainly not a total loss, for the
evidence clearly establishes that all of the ship
ment was later sold on the open market at the
regular market price for lumber of the grades
specified in the original contract except for a very
small quantity which was sold as a lower grade of
lumber. Where there has not been in fact a total
loss, the burden of proof is of course on the insured
to establish affirmatively that there existed in the
circumstances a constructive total loss. (See Rob-
ertson v. Stairs 19 .)
A great amount of expert evidence was adduced
by both sides as to the actual extent of the damage
caused the lumber loaded aboard the Elarkadia by
the two storms. The experts called on behalf of the
plaintiff and those called on behalf of the defend
ant expressed not only conflicting views but, to a
large extent, diametrically opposed ones which
would lead to widely different results. For that
reason, the circumstances leading up to the inspec
tions made by the experts are particularly relevant.
No physical examination by lumber experts was
made before the cargo was unloaded and the
physical inspection made after unloading was
extremely limited and spotty due in part to the
bitter weather but mainly, I believe, to the fact
that, after removal from the ship, the lumber was
transported to the mill yard and dumped there in
haphazard fashion without much of an effort being
made to pile or to segregate it in any way,
although it had been stowed in four different holds
and although other evidence adduced clearly
established that there was a great difference as to
the extent to which the lumber might have been
affected by the stranding and by sea-water in each
of the four hblds. At the time of the unloading and
immediately following it and before the actual
inspections, the weather was exceptionally foul and
cold as a result the lumber was covered with snow
and ice in the mill yard before any experts attend
ed there.
16 (1824-5) 3 B. & C. 196, 107 E.R. 706.
17 [1950] 1 K.B. 555.
18 (1831) 1 M. & Rob. 48, 174 E.R. 17.
19 (1875) 10 N.S.R. 345 (C.A.).
In my view, the evidence establishes that the
lumber was unloaded and dumped at random in
the yard without any attempt to segregate it,
mainly if not entirely because the plaintiff, without
sending anyone with any knowledge of the effects
of anti-stain treatment to inspect the cargo,
assumed the responsibility of informing the
Marine Surveyor Matheson, by telephone at
Grande Vallée, that the entire shipment was no
longer suitable for shipment to Tunisia as anti-
stain treated lumber. In such a case, the cost of
unpacking the bundles, washing the lumber,
retreating it and repacking it and transporting it
for reshipment might very well have exceeded the
cost of ordering new anti-stain treated lumber, and
abandonment would have been justified. I find
that the plaintiff conveyed absolutely incorrect
information to Matheson who had no previous
knowledge of anti-stain treatment and no particu
lar knowledge of lumber and was concerned with
the whole salvage operation. The lumber in No. 1
hold was unaffected, the lumber in hold No. 3 was
merely exposed to spray. At most, only holds Nos.
2 and 4 were tidal and the witness B. R. Johnson
maintained that only hold No. 4 was tidal. In any
event, I find that even at high tide there was a
maximum of five feet of water in both of these two
holds. It has not been established that the lumber
which was exposed to tidal sea-water in holds Nos.
2 and 4 was being actively washed or submitted to
currents of sea-water to any great extent.
The ship was grounded with a 3° list toward the
sea and I accept the evidence that the waves were
not breaking over the deck but that heavy spray
from breaking waves was going over the ship.
Snow was also being blown across the decks.
I find that the plaintiff has failed to establish
that any large proportion of the lumber in holds
Nos. 2 or 4 or any of the lumber in the other two
holds had been exposed to sea-water to a greater
degree than it would have been had it been shipped
as deck cargo. It was clear from the evidence that
it had been the intention to ship part of the lumber
on deck and it was also clear that any deck cargo
aboard a ship crossing the Atlantic at that time of
the year would most likely be exposed to seawater.
from both spray and breaking waves.
The plaintiff phoned the suppliers of the anti-
staining chemical in the United States and
inquired whether the anti-staining of the lumber
on board a ship wrecked in a storm, which had
been exposed to the sea during a storm, would still
be effective and whether the lumber would still be
fit for shipment on to the consignees in Tunisia as
anti-stain treated lumber. It is not at all surprising
that the agent of the supplier, without any actual
knowledge of the extent of the exposure to sea-
water and on being consulted by a person who
himself had no personal knowledge of the circum
stances, would have been acting very imprudently
if he did not answer in the negative. To do other
wise would have been exposing himself to a possi
ble action in damages as there is no doubt that
washing in sea-water will dissolve to some extent
and render less effective the anti-staining if it has
been applied recently to the lumber and has not
had the time to form a proper chemical bond with
the wood.
In these circumstances, to have advised the
Marine Surveyor that on the advice of experts the
anti-staining of the entire cargo was no longer
effective and that the lumber was no longer fit for
transhipment to Tunisia is certainly not the action
of a careful and prudent owner exercising sound
judgment. This decision would not have been taken
under such circumstances had the plaintiff con
sidered itself uninsured.
I therefore find as a fact that the plaintiff either
incorrectly assumed that the entire cargo was unfit
for shipping and mad,e that assumption without
taking the normal precautions that a careful and
prudent uninsured owner would be expected to
take of having it examined on the spot by a
knowledgeable person or that the plaintiff reckless
ly, and because it considered itself insured, arbi
trarily chose to condemn and abandon the entire
cargo. The conclusion seems obvious: the plaintiff
has completely failed to establish a constructive
total loss.
As to the extent of the loss, the evidence of the
experts regarding the effect of sea-water on the
lumber which had been anti-stain treated is of
considerable importance.
The experts were all handicapped because they
only saw the lumber after it had been dumped in
the mill yard and did not have the opportunity of
examining it as it was in the ship nor were they in
a position to observe the extent to which the
lumber was actually washed by the action of the
sea. On the last-mentioned issue, two of the
experts of the plaintiff, one Mr. Nagel and one Dr.
Goulet founded their conclusions to a considerable
extent on their observation of dirt, grit and sand on
the outside of certain bundles of lumber and on
planks on the inside of two of the bundles. The
very natural conclusion was drawn from the pres
ence of that dirt that in order for it to have
penetrated bundles of lumber to such an extent as
to dirty the planks within the centre of certain
bundles there must have been considerable wash
ing by sea and silt.
The evidence establishes, however, that some
bundles were broken open as they were being
unloaded and the individual pieces were scattered
about on the dirt, sand and mud of the temporary
approach road and ramp which had to be con
structed by bulldozers by the salvors in order to
reach the ship with the trucks and machinery to
unload the lumber. These loose boards were subse
quently tied up again in bundles without being
washed or rinsed in any way and were dumped in
the mill yard along with the unbroken bundles. I
accept the evidence of the witness Matheson, who
supervised the unloading, to the effect that the
breaking of certain packages of lumber and the
subsequent bundling of that loose lumber resulted
in a final count of 534 bundles after off-loading
had been completed, as opposed to 559 original
bundles loaded, although all of the lumber was in
fact unloaded. I also accept his evidence that there
was no dirt or silt in the holds of the Elarkadia.
I therefore find that, on the balance of
probabilities, the dirt observed by the witnesses
Nagel and Goulet on the interior of certain pack
ages of lumber resulted from this last-mentioned
cause rather than from the penetration of sea-
water with dirt and grit into holds Nos. 2 or 4 and
from there into the lumber. In any event the
plaintiff has failed to establish that the only two
bundles on the interior of which he observed dirt
were not among those which had broken open
during the process of unloading.
When considering the soiling of the lumber, it
must be borne in mind that, previous to the
unloading, Mr. Matheson had been informed by
the plaintiff that the entire shipment was unfit for
delivery for the reason which I have previously
stated. I have already commented on the erroneous
nature of this information which was passed on to
Matheson. It would not be unreasonable to sup
pose under the circumstances that greater care
might have been taken of the lumber during the
unloading, had the person responsible been unload
ing it for immediate reshipment as lumber still fit
for the purpose for which it was being purchased
by the consignee. However, no evidence was led by
the defence on this point and it must be assumed
that the soiling of the lumber was not attributable
to the erroneous information passed on by the
plaintiff.
During the trial much was said about the soiled
lumber, but, in considering the evidence, one finds
that very few bundles were in fact found which
were soiled either on the outside or on the inside.
As a matter of fact, very few bundles were exam
ined at all. This was of course due in part at least
to the condition of the weather at the time of
inspection and the amount of snow which had
fallen before witnesses attended at the mill yard.
The burden of course rests squarely on the plain
tiff to establish the extent of the soiling, this lack
of proof must also be considered in the light of
subsequent resale of the entire shipment without
having to downgrade it except for a very minimal
quantity.
As to the action of salt water on the anti-stain
treated lumber, I accept the evidence of the wit
ness Baikowitz rather than the opinion of the
experts of the plaintiff, to the effect that the three
chlorophenols in the anti-stain chemical which is
known as Permatox 120D used in treating this
lumber, react with the acids in the wood and, after
a period of three days, form a water insoluble
chemical, namely, penta or tetrachlorophenol, and
that there is little, if any, probability of it being
washed away from the surface of lumber with
water. I also accept his evidence to the effect that
the non-ionic chloride atoms in the preservative
would not be removed by leaching with water. It is
interesting to note in this regard that though the
product information from the manufacturer states
that freshly treated lumber should be protected
from water, no stipulation is made concerning
protection from water of lumber where the treat
ment is not fresh.
The evidence of Dr. Goulet, called on behalf of
the plaintiff, as to the amount of chlorine detected
in the analysis of the pieces contaminated by
sea-water, is of very little assistance when one
considers his additional evidence that, in his view,
the anti-staining chemical would be leached off
also by water. The same element, that is chlorine,
is found in the chlorophenols constituting the anti-
staining chemical and that, contrary to what was
done by the expert of the defence, no control
sample of anti-stain treated wood which was not
exposed to sea-water was analyzed nor was any
test made of the salinity of the sea-water at
Grande Vallée, in spite of the fact that salinity
varies considerably throughout the oceans. Fur
thermore, there was no test made as to the actual
rate of absorption of salt from sea-water by
lumber of the type under consideration, or of any
lumber, for that matter. I therefore agree that the
presence of chlorine can be of little assistance
unless its source and the rate of absorption of salt
from sea-water have been determined.
I therefore conclude that the plaintiff would be
entitled to compensation for the replacement of a
comparatively small quantity of the lumber in
holds Nos. 2 and 4 damaged by possible removal
of some anti-staining and of a certain quantity of
lumber which was soiled during the unloading as
well as of some 2,000 board feet which were
physically destroyed.
It is quite difficult in this particular case to
assess the actual amount of damage to the lumber
since the entire thrust of the evidence adduced by
the plaintiff was toward the establishment of a
constructive total loss based on destruction of the
anti-staining treatment by the slightest exposure to
sea-water rather than the determination of the
extent of the actual loss or damage to the lumber
by soiling and of the amount of lumber actually
washed to any extent by the tide.
I would, in the circumstances, fix the amount of
$10,000 as fair compensation representing the cost
of replacing that damaged or destroyed by the
storm or by the unloading due to the inclement
weather which prevailed at the time and the make
shift unloading facilities.
To this amount of $10,000 would have been
added the cost of insuring the new shipment in the
amount of $5,554. There would also have been the
trucking costs for transporting some 977,045
board feet from Grande Vallée to Carleton -sur-
mer at $20 per thousand board feet, that is
$19,540, and additional charges of some $2,000
for unloading from the trucks and $5,000 for
reloading aboard the ship John M. Rehder. The
total of these items amounts to some $42,094.
There is also the matter of a claim for $93,000
made in another action instituted by the charterers
of the Elarkadia against the plaintiff herein for
freight. This claim is being resisted by the plain
tiff. Liability of the plaintiff to pay this amount
has not been clearly established at trial and though
there appears to be some doubt as to the plaintiff's
liability for this freight there is no doubt that if the
plaintiff has been insured by the defendant under
the policy in issue, with the benefit of standard
T.T.F. clauses as claimed, the defendant would be
responsible to indemnify and save harmless the
plaintiff against any such claim including of course
the cost of resisting it. The plaintiff would thus
have been entitled to claim a declaration to that
effect.
For the reasons previously stated regarding the
effect of section 23 of The Marine Insurance Act
of Ontario as applied to the circumstances of the
present case the action is dismissed with costs and
judgment shall issue accordingly.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.