Timberwest Forest Corp (the plaintiff) entered into contracts to sell logs to Harwood Products Inc (Harwood). Under these contracts, the plaintiff would retain title, ownership and risk in the logs until they were delivered to and paid for by Harwood. Harwood made all the arrangements for the carriage of the logs, which were to be carried on deck by Pacific Link Ocean Services Corp (the defendant). The contract of carriage not only covered the logs owned by the plaintiff but also logs that were owned by Harwood in which the plaintiff had no interest. The contract of carriage incorporated a standard form bill of lading. The quoted freight rate specifically excluded cargo insurance. The plaintiff's marine cargo insurance policy stated, as an insuring condition, that there was a waiver of subrogation against the defendant.

The plaintiff filed a claim against the defendant for the loss of its shipment of logs. The issues, among others, before the Court, were:

1) Is the contract of carriage governed by the Hague-Visby Rules, which is given the force of law by the Marine Liability Act, SC 2001, c 6, Sch 3?

2) Is the cargo 'goods' as that term is defined in the Hague-Visby Rules?

3) Is the waiver of subrogation clause in favour of the defendant in the insurance policy of the plaintiff rendered null and void and of no force or effect by the Hague-Visby Rules?

Held: The contract of carriage is not governed by the Hague-Visby Rules; the cargo is not 'goods' as defined in the Hague-Visby Rules; the waiver of subrogation in favour of the defendant contained in the plaintiff’s insurance policy is not rendered null and void and of no force or effect by the Hague-Visby Rules.

Article 1.b of the Hague-Visby Rules provides that the Rules only apply to 'contracts of carriage covered by a bill of lading or any similar document of title'. An on-board bill of lading serves as a receipt for the goods and represents that they are in fact on board. It should also reflect their apparent order and condition. The bill of lading is invariably issued after shipment, and after the contract of carriage was made. Therefore, in the hands of the party who entered into the contract of carriage with the carrier, it may or may not evidence the terms and conditions of carriage. In this case, the bill of lading only forms part of the overall contract. Had the bill been consigned or endorsed to someone else, then in virtue of s 2 of the Bills of Lading Act, that person would have been 'vested with all rights of action and is subject to all liabilities in respect of those goods as if the contract contained in the bill of lading had been made with himself'. In such a case, the bill of lading would be the contract. There is no third-party consignee or endorsee, and so the bill of lading, which was never issued, would not really have served as a document of title. Nevertheless, these variables are relevant in considering whether the overall contract of carriage called upon the shipper to take out insurance for the carrier’s benefit, and, if so, whether that requirement runs contrary to the Hague-Visby Rules. Certainly, there is no such requirement in the carrier’s standard bill of lading form, but there may be in another part of the overall contract.

The parties disagree as to whether the bill of lading would have been subject to the Hague-Visby Rules. The Rules may be incorporated by contract or forced upon the parties by operation of law. Incorporation by contract would not help the plaintiff. Although the contract clearly indicates that the defendant intended to claim all the benefits of the Hague-Visby Rules or the United States COGSA, which is a modified version of the Hague Rules, the contract clearly stated that it accepted none of the liabilities imposed thereby with respect to cargo carried on deck. Thus, we have to consider whether the Hague-Visby Rules apply by operation of law.

It is common ground that all the logs were shipped on deck on this, and on previous voyages. Indeed, it has been admitted that there was no other way to carry logs on the Ocean Oregon. Timberwest must establish that the contract provided for the issuance of a bill of lading. It is not enough that Harwood and the plaintiff knew and consented that the cargo would be carried on deck. An additional requirement to oust the application of the Hague-Visby Rules is that the bill of lading so specifically states. Although the plaintiff submits that the contract was sufficiently clear to import the notion of the issuance of a bill of lading, it was not clear enough to then oust the application of the Rules by means of an on-deck bill of lading. It suggests that many of the exclusionary and limitation clauses are so contradictory that it is not clear on what basis the cargo was carried. That is an argument best saved for the liability portion of the trial.

Clause 9 titled 'Deck Cargo' provides that 'all cargo is carried on deck unless otherwise expressly stated in this Bill of Lading'. The only under-deck cargo which could be carried on the Ocean Oregon was liquid cargo in tanks. Thus the plaintiff cannot rely on the contract to submit that the shipment was covered by a bill of lading, without at the same time acknowledging that it would have been an on-deck bill of lading. It suggests, as is quite true, that if the on-deck statement were to be deleted from the bill of lading then the Hague-Visby Rules were applicable by operation of law, notwithstanding that the goods were carried on deck. However, cl 9 provides that cargo is carried on deck unless otherwise expressly stated. An express statement to the effect that the cargo was carried under deck would constitute a fraud on innocent purchasers of the bill of lading as a negotiable document. A deletion of the on-deck statement on the front of the bill of lading would be an amendment to the contract which had already been made, an amendment which obviously in the circumstances had not been agreed.

Consequently, the waiver of subrogation is not null and void and of no effect by virtue of application of the Hague-Visby Rules. However, should the Court have misconstrued the contract of carriage in that the reference to the rate not including insurance was a requirement that the shipper actually take out insurance for the carrier’s benefit, and if the bill of lading would not have stated that the cargo was actually carried on deck, then, even though the bill of lading was not negotiated to a third party without notice, the waiver would be invalid (St-Siméon Navigation Inc v Couturier, [1973] CanLII 172 (SCC), [1974] SCR 1176).

[For the unsuccessful appeal to the Federal Court of Appeal, see Timberwest Forest Corp v Pacific Link Ocean Services Corp 2009 FCA 119 (CMI1082).]