A decision rendered in 2011 by the Quebec Court of Appeal in Mediterranean Shipping Company S.A. v Courtiers Breen Ltée on interpretation principles which must be followed in cargo damage cases arising from breakdowns of reefer container equipment may have missed readers’ attention because it was drafted in the French language.
The carrier was alleged to have been negligent in the care of a cargo of clementines carried from South Africa to Montreal. Upon arrival, the cargo was found to have been damaged due to two lengthy interruptions of the refrigeration system (11 hours and 9 hours) while the reefer container was in a port terminal. There was no explanation for the interruptions. Following the unloading of the cargo and upon further inspection, the reefer equipment was found to be in good order and condition without need for repair.
The carrier invoked its clause in the bill of lading: “The carrier shall not be liable for breakdown of such machinery, unless caused by the carrier’s negligence….Fruits, vegetables and other perishable Goods are carried expressly at the sole risk of the Merchant”. Since the loss fell outside of the Hague-Visby Rules’ period, the rules of common law applied. The carrier argued that there was no proven negligence and that the meaning of “at the sole risk of the Merchant” included any negligence of the carrier that might be inferred by way of rebuttable presumption.
The Court reviewed the test set out in Canada Steamships Lines Ltd. v The King [1952] AC192, [1952] 1 Lloyds Rep. 1(P.C.) which can be paraphrased as follows:
(1) if the clause expressly exempts from negligence a party in whose favour it is stipulated, then effect must be given to that provision;
(2) if there is no express reference, then the court must consider whether the words used are wide enough in their ordinary meaning to cover negligence of the party in whose favour it is stipulated and, where there is a doubt, then it must be interpreted against him;
(3) if the words are wide enough, then the court must consider whether there exists some ground of liability other than negligence and, if so, then that ground of liability is fatal to the party relying on the exclusion clause.
The Court followed the Federal Court of Appeal decision in Canadian Pacific Forest Products Ltd. v. Belships (Far East) Shipping (PTE.)Ltd. [1999] 4 F.C.320, [1999]A.M.C.2606 which held that the clause “on deck at shipper’s risk” was insufficient to exclude responsibility for both negligence and unseaworthiness, which has led some carriers to rephrase the exclusion to “on deck at shipper’s risk, including negligence”.
The court found that the shipper’s requirement that the cargo be carried in a reefer container involved not only that the carrier provide a reefer container, but also to keep the refrigeration system in operation throughout the transport. “The partial, but nonetheless substantial, non-performance of the contract of carriage, namely, the failure to keep the refrigeration system in operation” was a breach of the contract, apart from any alleged negligent performance, which was not proven. Therefore, the clause “at the sole risk of the Merchant”, while wide enough to include possible negligence of the carrier, was interpreted against it in the event of partial non-performance of the contract.
Although the court did not cite Exportadora Santa Elena et al. v AP Moller-Maersk A/S[2010] EWHC3224 (Comm.), its position is consistent with its detailed exposition of a carrier’s liability exposure for excessive and/or unexplained “power-offs” which would constitute a breach of contract and that the burden is on the carrier to explain and justify on operational grounds any “power-offs” that occur during transit to avoid liability.
What still remains to be explored is the extent to which carriers can shift the burden of risk for breakdowns in reefer equipment, particularly older equipment which has been in service for a long time. Breakdowns may be caused by wear and tear over a period of time or even by latent defects which unaccountably manifest themselves after a long period of time in operation. Neither may be discoverable by the carrier using due diligence, even in cases where the carrier can prove the cause of the breakdown and the exercise of due diligence by means of a historical record of inspection, maintenance and of reported incidences of possible failure where remedial action was taken. The limitation, of course, is that an exclusion clause cannot be so drafted that it would destroy the purpose of the contract – to transport cargo whose preservation requires a supply of air set at an agreed temperature.
Unfortunately, there was no discussion about whether the same considerations would apply to limitation of liability clauses. In Canada, as elsewhere, limitation clauses are interpreted more liberally than general exclusion clauses, but they are given effect in accordance with their terms. If those terms are not all-encompassing of any and all heads of damage, it will come as an unpleasant surprise to the carrier when it discovers that it cannot even benefit from a limitation stipulated in the event of loss whose cause can be known and occurs outside the ocean voyage. (If the cause of the loss cannot be known, then it is presumed to have occurred at the stage where the claimant would benefit from the highest limitation of liability, if there is one, usually found in the Hague-Visby Rules).
Mediterranean Shipping Company S.A. v Courtiers Breen Ltée 2011 QCCA2173 is accessible at http://www.canlii.org under the section linking Quebec/Cour d’appel judgments and an unofficial English translation is available at http://www.jugements.qc.ca/
With thanks to David G. Colford of Brisset Bishop, Montreal, for preparing this article.
