J.D. Irving Limitation Supplementary Reasons

On January 22^nd, 2016 Federal Court of Canada released its decision in J.D. Irving, Limited v. Siemens Canada Limited 2016 FC 69. This was an action commenced by J.D. Irving Limited (“JDI”) seeking a declaration that it was entitled to limit its liability to $500,000 in relation to cargo (valued at $40,000,000) that had fallen into the sea, while being loaded on the deck of a barge on October 15^th 2008 in Saint John, New Brunswick. A commentary on the decision is found in the Fernandes Hearn LLP newsletter of January 2016.

On March 7^th, 2016 the Court released supplementary reasons on a distinct issue. (*1)

To recap, Siemens Canada Limited (“Siemens”) had entered into a contract to supply a number of low pressure rotors and a generator rotor to the New Brunswick Power Nuclear Power Corporation for the refurbishment and upgrade of its Point Lepreau nuclear generating station.

Siemens contracted with JDI to transport the modules and generator rotor from the Port of Saint John to Point Lepreau. JDI chartered a barge, the “SPM 125”, and a tug to assist with the move. JDI retained Maritime Marine Consultants (2003) Inc. (“MMC) to provide naval architectural and consulting services. Mr. Don Bremner (“Bremner”) was the principal and owner of MMC. BMT Marine and Offshore Surveys Limited (“BMT”) was retained by Siemens and its insurer, AXA Corporate Solutions, to provide marine surveying services for the move of the cargo. The attending surveyor was Mr. Douglas Hamilton (“Hamilton”).

On October 15^th, 2008 two of the rotors were placed on self-propelled multi-wheeled transporters owned by JDI. This allowed the rotors to be driven or rolled on and off the SPM 124. While in the process of loading the second transporter onto the barge, it tipped to starboard, fell over and off the barge into Saint John Harbour. The other rotor, which had been placed on the first transporter loaded onto the barge, immediately followed.

The supplementary reasons deal with the discrete issues of whether MMC and Bremner are entitled to the benefit of the limitation pursuant to Article 1(4) of the Limitation Convention. Article 1(4) states:

If any claims set out in Article 2 are made against any person for whose act, neglect or default the shipowner or salvor is responsible, such person shall be entitled to avail himself of the limitation of liability provided for in this Convention.

It was not disputed the JDI was a shipowner as defined in Article 1(2) of the Limitation Convention. MMC and Bremner argued that Article 1(4) extends the class of persons entitled to limit liability to include independent contractors, provided that the shipowner is responsible for the actions of the independent contractor as a matter of law.

MMC and Bremner asserted that an independent contractor or expert who renders a ship unseaworthy by his act, neglect or default saddles the shipowner, JDI in this case, with personal legal liability.  To the extent that the “SPM 125” was not seaworthy, JDI “is responsible for any shortcomings of his agents or subordinates in making the [vessel] seaworthy at the commencement of the transportation of the particular cargo.” MMC and Bremner submitted that the task of making the “SPM 125” seaworthy was a core function of JDI and the role of MMC and Bremner in preparing the loadout plan was in furtherance of that core function.  The concept of “responsibility” in Article 1(4) speaks to this relationship.  According to MMC and Bremner, if the “SPM 125” was unseaworthy then JDI is liable to Siemens and that liability is neither distinguished or diminished by engaging MMC and Bremner to carry out the duty. Thus, MMC and Bremner are persons for whose act, neglect or default JDI is responsible.

The Court noted that the evidence was clear that MMC contracted with JDI, pursuant to the Irving Equipment Purchase Order, to provide naval architecture services for the subject cargo move.  Further, the Court noted the evidence that JDI and MMC had a longstanding relationship, that MMC provided particular expertise that JDI indicated it did not have in-house, and that MMC and Bremner were described by JDI as part of its team.  It was also noted without question that MMC and Bremner were required to and did provide advice on the suitability and use of the “SPM 125” for the safe loading and transport of the LP Rotors.

The Court concluded, however, that this did not suffice to make MMC and Bremner persons for whose act, neglect or default JDI, as the shipowner, was “responsible” which would entitle them to avail of limitation under Article 1(4). Justice Strickland noted that there was no evidence or suggestion that Bremner was retained by JDI in his personal capacity or that he was an employee of JDI.  There was also no suggestion that Bremner, at any time, acted other than in his capacity as a principal of MMC.  Rather, MMC acted as an independent contractor in providing naval architectural services to JDI. The Court stated:

The relationship of an employer and an independent contractor, unlike that of employer and employee or servant or agent, typically does not give rise to a claim for vicarious liability.  In this case, the evidence is that JDI entered into contract for services with MMC.  MMC provided naval architectural services that JDI did not have in-house.  JDI did not supervise or control MMC’s work.  MMC is an independent corporate entity that was in business on its own account.  In sum, the nature of the relationship between JDI and MMC was not one that attracted vicarious liability.  Therefore, while MMC may have been retained by JDI on many occasions in the past and JDI may have relied on MMC for provision of naval architectural services, under Canadian law this is not sufficient to make JDI vicariously liable or responsible for MMC’s acts or omissions (671122 Ontario Ltd v Sagaz Industries Canada Inc, 2001 SCC 59 at paras 46-47; 1292644 Ontario Inc (Connor Homes) v Canada (National Revenue), 2013 FCA 85 at paras 23, 39-41; KLB v British Columbia, 2003 SCC 51).  

The mere fact that JDI contracted with MMC to provide naval architectural services that were a necessary part of, or integral to, or a core function of the cargo move was insufficient to found legal responsibility as described in Article 1(4) under the Limitation Convention.

Justice Strickland further added:

Secondly, the Griggs article, relied upon by MMC and Bremner, states that it is by no means clear what is meant by the word “responsible” as used in Article 1(4).  Griggs acknowledges that this could be interpreted broadly or narrowly.  This potential for diverging interpretations is evidenced in Shipowners’ Limitation of Liability (Frederick, MD: Aspen, 2012) at 35 by Barnabas WB Reynold and Michael N Tsimplis.  The authors of that text state that the purpose of the words “persons for whose act, neglect or default the shipowner or salvor is responsible” is to prevent a claimant circumventing the right to limit by suing the wrongdoer rather than the ship, the previous success of that approach having led to the introduction of Himalaya clauses (see Adler v Dickson (The Himalaya), [1954] 2 Lloyd’s Rep 267 and, for their acceptance in Canadian law, London Drugs Ltd v Kuehne & Nagel International Ltd, [1992] 3 SCR 299).

[16]      Reynold and Tsimplis go on to say that the extension of the right to limit to persons for whom the shipowner is responsible clearly covers the master and crew members when they act within the scope of their employment.  “However, anyone who can show that he is linked to the shipowner in a way that makes the shipowner responsible would be entitled to limit liability” (p 35).  They suggest that under English law this could include pilots because their negligence makes the shipowner liable, although pilots are also entitled by statute to limit their liability to a much lower limit.  However, the authors also state that independent contractors and others involved in the shipping business may not fall within the definition, including ship’s agents, stevedores and classification societies (see also Michael Tsimplis and Richard Shaw, “The Liabilities of the Vessel” in Yvonne Baatz, ed Maritime Law, 3d (UK: Routledge, 2014) 222 at 277-278).

[17]      Further, Aleka Mandaraka-Sheppard notes in Modern Maritime Law, Volume 2: Managing Risks and Liabilities, 3rd Edition (New York: Routledge, 2013) at p 746-747 that Article 1(4) is mainly concerned with granting an independent right of limitation to those people for whose act, neglect or default the shipowner, or manager, or operator, or salvor will be vicariously liable.

Given the ambiguity that arises from the wording of Article 1(4) and the various possible interpretations of that Article, the Court found it necessary to examine The Travaux Préparatoires of the LLMC Convention 1976 and of the Protocol of 1996 (the “travaux”), as compiled by the Comité Maritime International (“CMI”), in an effort to ascertain the intention of the Member States as regard Article 1(4) within the context and purpose of the Limitation Convention.

Justice Strickland’s review of the CMI materials, and the recorded debates of the Member States during the drafting of the Convention led her to conclude that the travaux provides no clear answers. However, she concluded that what can be taken from them is that there was certainly no explicit intention to extend the category of persons who are entitled to limit their liability pursuant to Article 1(4) to include independent contractors. If anything, the travaux tends to suggest that the underlying premise of Article 1(4) is that “responsibility” remains tied to the vicarious liability of the shipowner and that a narrow interpretation was intended.

Justice Strickland concluded that JDI, as the shipowner, was not vicariously liable for the acts, neglect or default of its independent contractor, and that MMC and its principal Bremner were not entitled to limit their liability pursuant to the Limitation Convention.

Endnotes

(*1) 2016 FC 287