Canastrand Industries Ltd (the plaintiff) purchased 22,880 bales of twine from a Brazilian company. The twine was loaded onto the Lara S for shipment to Toronto. The Lara S was owned by Armadaores Lara SA (Armadaores), and was time chartered by Kim-Sail Ltd (Kim-Sail). The bill of lading acknowledged receipt of the cargo in apparent good order and condition. During the course of the voyage, the Lara S encountered heavy winds and seas. When the Lara S arrived in Toronto, it was found that some of the cargo had shifted and had been severely damaged.

The bill of lading issued by the master of the Lara S stated that 'the contract evidenced by this Bill of lading shall be construed and governed by US law'. However, the booking note provided that 'The Hague Rules … as enacted in the country of shipment shall apply to this contract. When no such enactment is in force in the country of shipment, the corresponding legislation of the country of destination shall apply, but in respect of shipments to which no such enactments are compulsorily applicable, the terms of the said Convention shall apply.'

The plaintiff brought an action against Kim-Sail and Armadaores (the defendants) for damages caused to the twine. The issues before the Court, among others, were: 1) the cause of the damage and specifically whether it arose as a result of insufficient packaging; and 2) whether the defendants were 'carriers' under the bill of lading.

Held: Judgment in favour of the plaintiff.

According to the general principle of proof with respect to cargo damage claims, the carrier is prima facie liable for loss or damage to cargo received in good order and out-turned short or in bad order. Once the cargo owner establishes a prima facie case, the carrier can then shift the burden of proof back to the cargo owner by establishing that the loss or damage is attributable to one of the excepted perils set out in art 4 of the Hague Rules. Thereafter, the cargo owner must establish the carrier’s negligence or both that the ship is unseaworthy and that the loss is caused by that unseaworthiness.

Regarding the first issue, the exculpatory clauses that were referred to in this case were: perils of the sea (art 4.2.c); insufficiency of packaging (art 4.2.n) and any other cause (art 4.2.q). The Court found that there was no serious argument that a 'peril of the sea' was the cause of the damage to the cargo. The evidence established that the use of pallets was the usual and customary way of packaging twine and that the cargo was properly stowed in the normal way. The defendants failed to prove that insufficient packaging was the cause of the damage.

Regarding the second issue, the use of two contradictory choice-of-law clauses in the bill of lading and the booking note was confusing. In case of possible alternative interpretations of conflicting provisions, one must give priority to that which was adopted last. Since the bill of lading was issued later than the booking note, the choice-of-law provision found in the bill of lading should prevail. Thus, US law should prevail in this case. However, the evidence as to the position under US law was unsatisfactory, and the resultant gap was best filled by the application of Canadian law. Under Canadian law, since the Lara S was not under a demise charter and the bill of lading was signed on behalf of the master, Armadaores would be liable as a carrier. Accordingly, liability must attach to Armadaores jointly and severally with Kim-Sail.