T Co Metals LLC (the plaintiff) was the receiver of steel products shipped on the Federal Ems from Brazil to Canada. The cargo was damaged. The plaintiff sued Canada Moon Shipping Co Ltd (Canada Moon) and Fednav International Ltd (Fednav), who were respectively the owner and time charterer of the vessel, in Canada. The defendants brought third party actions in Canada against the voyage charterer, Companhia Siderurgia Paulista-Cosipa (Cosipa), on the basis that: (i) the voyage charterer was responsible for cargo operations and the cargo was damaged during such operations; and (ii) Cosipa had issued a letter of indemnity (LOI) relieving the defendants from any liability and holding defendants harmless for cargo damage due to moisture condensation as a result of restricted ventilation of the cargo.

Cosipa sought to stay the third party proceedings because: (i) the voyage charterparty with Fednav contained an arbitration clause calling for arbitration in New York; and (ii) the arbitration clause in the voyage charterparty was incorporated into the terms of the bill of lading with Canada Moon.

The issues were therefore: (i) whether Cosipa was entitled to obtain a stay against the third party proceedings brought by Fednav and Canada Moon; and (ii) whether Canada was forum non conveniens for the third party claim.

Cosipa’s application was dismissed at first instance (see T Co Metals LLC v The Vessel Federal Ems (CMI437)), but was allowed on appeal (see T Co Metals LLC v The Vessel Federal Ems (CMI1152)). The defendants appealed to the Federal Court of Appeal.

Held: Cosipa’s stay against Fednav’s third-party proceedings is allowed. Cosipa’s stay against Canada Moon’s third-party proceedings is dismissed.

With regard to the stay against Fednav, the Court had to consider whether the legislative intervention in s 46(1) of the Marine Liability Act, SC 2001, c 6 (MLA) (ie Canada’s response to the jurisdictional problems which led to the adoption of art 21 and 22 of the Hamburg Rules) relieved Fednav from its arbitration agreement under the voyage charterparty. Under s 46(1), if a contract for the carriage of goods by water to which the Hamburg Rules do not apply provides for the arbitration of claims in a place other than Canada, a claimant may commence proceedings in Canada to determine if the contract had referred the claim to Canada if: (i) the load or discharge ports are in Canada; (ii) the respondent is based in Canada; and (iii) the contract was made in Canada. The question that follows is whether a voyage charterparty falls under the phrase 'contract for the carriage of goods by water' under s 46(1).

The Court noted that Pt 5 of the MLA, which incorporates s 46, essentially reproduced the 1993 statute giving effect in stages to two international Conventions not ratified by Canada. Thus, as part of the legal context, it was worth considering how these Conventions, the Hague-Visby Rules and the Hamburg Rules, came about, what they covered, and what mischief they were meant to address.

As noted in Edgar Gold, Aldo Chircop and Hugh M Kindred, Maritime Law (Toronto: Irwin Law, 2003) at pp 433-434, in the 19th century, common ocean carriers were treated virtually as insurers of the goods they carried. This led to the inclusion of very wide exclusions of liability clauses in the bills of lading issued by such carriers. Under the near-sacrosanct application of the 'freedom to contract' principle at that time, these provisions were enforced by the courts even if they were 'contracts of adhesion' for the most part. Clauses of the bills of lading were essentially boilerplate, and were dictated by the carriers. After an unsuccessful attempt at creating a more balanced international regime, a number of States, such as the United States (in 1893), Australia (in 1904), New Zealand (in 1908), and Canada (in 1910), adopted what might be considered the first consumer protection legislation regulating the rights and obligations of ocean carriers under bills of lading, albeit in the commercial world. As noted by the learned authors, it 'soon became clear that a proliferation of national legislation imposing different rules on merchant ships, which, by the nature of their business, call in many different countries, would cause legal confusion and inhibit trade' (ibid p 433).

Thus, shortly after the Comité Maritime International (CMI) was founded in 1897, efforts were made to establish an international uniform set of rules dealing with the rights and obligations of carriers under contracts of carriage of goods evidenced by bills of lading used by common carriers. This resulted in the Hague Rules of 1924, which Convention came into force in 1931. Those rules were widely adopted throughout the world. Canada incorporated them in its domestic legislation in 1936. Updating and revising the Hague Rules became necessary because of various technological developments in the shipping trade including, for example, the use of containers. The Hague-Visby Rules were adopted in 1968.

Then, in the mid-1970s, The United Nations Commission on International Trade Law (UNCITRAL) became interested in this topic for the first time and undertook to create a new Convention dealing with carriage of goods by sea. This resulted in the Hamburg Rules of 1978. These Rules were meant to also apply to new types of sea carriage documents used by common carriers - for example the sea waybill, which had different characteristics than the traditional bills of lading. These rules provided, among other things, for higher limits of liability than the Hague-Visby Rules and fewer excepted perils. They also applied to carriage from as well as to a Contracting State, and included, for the first time, detailed provisions dealing with jurisdiction and arbitration clauses (arts 21 and 22). As noted in Maritime Law (ibid p 434), 'About two dozen states, few of whom are significant maritime trading nations, apply the Hamburg Rules. The rest of the world operates under the Hague Rules or the Hague-Visby Rules or some variants of them.' Since the date of publication of this book, five more countries have implemented the Hamburg Rules. None are significant maritime trading nations.

In 1991, Australia adopted a two-step approach giving immediate effect to the Hague-Visby Rules (Sch 1 to the Australian Act) with some amendments. For example, like the Hamburg Rules, the Australian rules were meant to apply to other 'sea carriage documents', such as sea waybills, consignment notes and other non-negotiable documents. The Hamburg Rules were included in a second Schedule which ultimately never came into force. In effect, the Australian statute provided a maximum period of 10 years during which the Schedule containing the Hamburg Rules could be proclaimed in force. In 1993, Canada adopted a similar approach with a new Carriage of Goods by Water Act (1993 c 21, repealed), which extended the application of the Hague-Visby Rules to domestic shipments. The Carriage of Goods by Water Act also extended their application to shipments from countries that implemented the Hague-Visby Rules, even if, like Canada, they were not Contracting States within the meaning of that Convention. In 2001, the MLA was adopted to consolidate all Canadian legislation dealing with marine liability. Part 5 of the MLA replaced the 1993 Carriage of Goods by Water Act.

To complete this history, it is worth noting that the Rotterdam Rules were adopted in 2008. These rules cover more subject-matter than any of the previous Rules discussed above, and are meant to apply to all the contracts of carriage of goods covered by the Hamburg Rules, including for the first time any such contract concluded solely through electronic communication. These Rules have yet to come into force, although the United States, France, Spain, Sweden, Norway and the Netherlands are among the 24 signatories of the Convention.

The Court noted that none of the international regimes discussed above regulated the rights and obligations of parties to a charterparty. They all specifically mentioned that the Rules would essentially only come into play when a distinct contract for the carriage of goods exists or 'springs to life', for example through the endorsement of a bill of lading between a carrier and a person who is not a party to a charterparty.

The Court found that the mischief which art 21 and 22 of the Hamburg Rules (and consequently s 46(1) of the MLA) was meant to cure was that many carriers had boilerplate jurisdiction and arbitration clauses in their bills of lading, and the carriers would impose such clauses upon Canadian importers and exporters. Invariably, this would be to the detriment of the Canadian entities because they would be forced to agree to a foreign law and jurisdiction clause. This was a problem with the Hague-Visby Rules which did not deal with the issue of the choice of jurisdiction. Art 3.8 of the Hague-Visby Rules was also found to not have any impact on a carrier’s choice of jurisdiction; hence this led to an imbalance of bargaining power between carriers and their contractual counterparts. In light of the above, the reference to a 'contract of carriage of goods' under s 46(1) of the MLA therefore referred to contracts of carriage evidenced by bills of lading, because contracts covered by bills of lading are relevant to the mischief described above. Charterparties, on the other hand, had nothing to do with the mischief and there was no policy required to restrict the parties' freedom of contract. Charterparties therefore do not fall under ambit of 'contract of carriage of goods' under s 46(1).

Further, there is also no definition of a 'contract for the carriage of goods' under s 46 or Pt 5 of the MLA. Section 45 of the MLA refers to contracts for the carriage of goods by water between different States as described in art 2 of the Hamburg Rules. Reference is made to a variety of non-negotiable documents such as seaway bills, but these relate to the liner trader rather than the tramp trade of charterparties. There is no reference to charterparties in art 2 of the Hamburg Rules or s 45 of the MLA. On the other hand, bills of lading are the relevant contracts contemplated under s 46(1) of the MLA because s 43 of the MLA gives the Hague-Visby Rules the force of law in Canada and art 10 of the Hague-Visby Rules applies the Rules to bills of lading issued in any Contracting State.

By reason of the above, the voyage charterparty did not fall under s 46(1) of the MLA and there was no legislative intervention to relieve Fednav from its arbitration agreement under the voyage charterparty. Cosipa was entitled to stay Fednav’s third party proceedings.

Turning to the stay against Canada Moon, the Court found that, because the arbitration clause was incorporated into the bill of lading issued by Canada Moon, the contract between Canada Moon and Cosipa was caught by s 46(1) of the MLA. However, Cosipa took the position that it was not a party to the contract evidenced by the bill of lading. Canada Moon then argued that Cosipa had an obligation under the LOI (which was a stand-alone contract) to indemnify Canada Moon. Although the court found that the LOI was not a stand-alone contract and was merely an amendment of the terms of the voyage charterparty vis-à-vis Fednav, a different conclusion was reached for the LOI between Cosipa and Canada Moon. This was because, at the time of issuance of the LOI to Canada Moon, there was no contractual relationship between Canada Moon and Cosipa as the cargo had not yet been accepted and no bills of lading had been issued. The LOI was therefore a stand-alone contract and the arbitration clause in the voyage charterparty was not applicable against Canada Moon. Cosipa was not entitled to a stay against Canada Moon.

On the forum non conveniens issue, the Court agreed with the decision at first instance that the allegation that the Canadian Court was forum non conveniens had not been made out.