Primex Forest Products Ltd and Field Sawmills Ltd Partnership (the appellants) claimed salvage and survey expenses incurred when three booms of logs owned by them broke apart under tow by Harken Towing Co Ltd (the respondent). The Small Claims Court dismissed their claim, concluding that although certain exemption clauses in the contract were invalid, cll 1 and 3 of the contract were valid and exempted the respondent from liability.

The appellants appealed that decision.

This issues were:

1. Do the terms of the contract between the parties exempt the respondent from liability?
2. If not, are the damages for which the respondent is liable limited to CAD 500 by para 6 of the contract?
3. It is agreed that the respondent is liable to the appellants for CAD 9,522.26 unless it succeeds on either of these issues.

Held: Appeal allowed.

The relevant terms of the contract provide:

1. All services to be performed including towing, carriage of goods and storage are at the customer's, owner's or consignee's risk.

2. When the tow is from one place to another, both in Canada, this document is not a Bill of Lading or other negotiable instrument. It is a contract for the private carriage goods, an invoice, and a nonnegotiable receipt. The Carriage of Goods by Water Act (CGWA) as amended or re-enacted, and, if applicable, the Hague Rules or the Hague-Visby Rules as enacted in the CGWA shall not apply.

3. All exemptions and limitations of this contract shall extend to Harken Towing Co. Ltd. ("Harken"), the vessel, its master, officers, crew, employees, servants, agents, and independent contractors. For the purposes of this contract, the master of the vessel, her officers and crew shall be deemed to be the employees, servants or agents of the customer, owner, or consignee.

4. Harken, its vessel, master, officers, crew, employees, servants, agents, and independent contractors shall not be liable to any one for any loss, damage, expense, or costs, for personal injury or property damage, including economic loss, arising directly or indirectly, through negligence including gross negligence, or breach of contract while carrying out its obligations under this contract. Harken shall use due diligence to make and keep the tugboat seaworthy.

5. Any action for loss, damage or injury from any cause whatsoever shall be commenced within 30 days of the date when it is alleged to have occurred. Harken shall be entitled to all privileges, rights, defences and immunities in the CGWA and any regulations, or pursuant to any other statute, rule of law or equity.

6. If Harken is found to be liable to the customer, owner or consignee for any reason the amount of its liability shall not exceed the limitations set out in the Canada Shipping Act, or $500, whichever is the lesser. The owner agrees that this limitation of the amount of liability is a genuine pre-estimate of its damages.

7. The performance of this contract is subject to accident or damage to the vessel(s), machinery, equipment, and injury to master, officers, crew, employees, servants, agents or independent contractors, or labour disputes, or acts of God, or other circumstances that have a direct or indirect prejudicial effect on Harken being able to perform its obligations.

The trial Judge concluded that cll 2 and 5 are inconsistent and cl 4 too vague, making all three clauses unenforceable. He concluded that cll 1 and 3 are clear and applied them. However, to strike cll 4 and 5 while retaining cl 1, leaves cl 1 without the qualifications expressed in the contract as a whole, such as the obligation to use due diligence and the reverse onus of proof.

It cannot be said with certainty what has been agreed. Is it exemption from all liability (cl 1), or liability for negligence and breach of contract (cl 4) or loss whether or not due diligence is used? If there is some residue of liability on the tug owner, how can cl 1 apply?

The contract is not clear. The exemption provisions relied up on by the respondent are not enforceable.

The respondent says the limitation provision applies in any event to limit its liability to CAD 500. Clause 6 limits liability to CAD 500 and the amount set out in the Canada Shipping Act. It is agreed that on cl 6 alone, the CAD 500 limit would apply. However, the Hague-Visby Rules scheduled to the Carriage of Goods by Water Act refers in art 4 to an amount which the parties agree is greater than CAD 500, in the following words: 'neither the carrier nor the ship shall ... be, liable for any loss ... in an amount exceeding ...'.

The rules of construction for limitation clauses is not as exacting as for exclusion clauses. The inconsistency between cll 5 and 6 is of a different nature than the inconsistencies between cl 5 (the Hague-Visby Rules) and cll 1, 2, 4 and 5. On matters such as the burden of proof, liability for lack of seaworthiness caused by a lack of due diligence, and liability for failure to secure that the ship is properly manned and inconsistent limitation periods, the Hague-Visby Rules are so at odds with the express terms of the contract that they cannot be easily reconciled. In contrast, on the question of the limitation amount, the intent of the contract is more easily discerned and the inconsistency is not a polar difference. The limitation provision in the Hague-Visby Rules does not preclude an agreement for a lower amount. The intent of the contract is easily discovered, and limits the liability to CAD 500 in these circumstances.

The respondent is entitled to rely upon cl 6. The appellants' appeal is granted and they shall have judgment for CAD 500.