Canada: Canadian Court Asserts Jurisdiction In Case Involving Shipment From Taiwan to the U.S.

Last Updated: December 16 2010

Edited by Graham Walker

Mr. Justice Sean J. Harrington of the Federal Court rendered a decision on jurisdiction in a marine cargo claim and exercising his discretion on a motion under subsect. 50(1) of the Federal Courts Act in a case to which subsect. 46(1) of the Marine Liability Act applied.

Rich Palm, a Taiwanese company, sold roller chains and parts to Hitachi Maxco (a U.S. company) and shipped the cargo from Kaoshiung, Taiwan, to Portland, Oregon, aboard the YM PROSPERITY. Kuehne & Nagel Ltd. (KN Ltd.) of Taiwan, as agents of Transpac Container System Ltd. doing business as Blue Anchor Line (BAL - a Taiwanese company) issued a nonnegotiable bill of lading for the shipment. BAL acted as a NVOCC. BAL's bill of lading specified Hong Kong law and jurisdiction except as regards performance of the carriage, which, in the case of a shipment to the U.S. would be subject to U.S. COGSA. The bill of lading showed Rich Palm as shipper, Hitachi Maxco as consignee, and the carrier as BAL, the port of shipment as Kaoshiung, the port of discharge as Tacoma, Washington, and the place of delivery as Portland, Oregon. KN Ltd. entrusted the cargo to Dolphin Logistics (DL) as carrier which issued its own bill of lading. The DL bill of lading showed Kuehne & Nagel Ltd. as shipper, Kuehne & Nagel Inc. ("KN Inc." - the U.S. branch of the same company) as consignee, with delivery to be applied for to Shipco Transport of Tukwila, Washington. DL's bill of lading described KN Ltd. and KN Inc. as agents for BAL. KN Ltd. later issued a freight invoice to Hitachi Maxco for the freight owing on the shipment, purporting to act as agent for Hitachi Maxco in performing duties related to customs entry and release of the goods. The terms of that contract were to be construed according to the laws of the State of New York, with irrevocable jurisdiction given to the U.S. District Court and the State Courts of New York. Hanjin Shipping (whose involvement in the case was unclear) wrote to Shipco Transport saying it was informed by Yang Ming Marine Transport, as owners/operators of the carrying vessel, that the ship had encountered heavy weather on the voyage to the U.S., resulting in the loss overboard of, or heavy damage to, the container holding the cargo in question. Rich Palm and Hitachi Maxco took suit in the Federal Court of Canada against DL, BAL, KN Ltd. and KN Inc. for losses suffered by the cargo interests. The defendants moved for a stay of proceedings under subsect. 50(1) of the Federal Courts Act.

Harrington J. noted that the Federal Court's jurisdiction depended on the action pertaining to a federal legislative class of subjects, with federal law on point and the administration of that law conferred upon the Court. A claim for cargo loss or damage met those criteria, with both subject matter and juridical jurisdiction having been bestowed on the Federal Court in accordance with the definition of Canadian Maritime Law and subsect. 22(2) of the Federal Courts Act. There was also federal law to administer. The subject matter jurisdiction ("rationae material") was subject to no geographical limitations as to the place of shipment or intended shipment or the place of receipt or intended receipt of the cargo. The statements of claim in this case were purportedly personally served within Canada and the service, not having been contested, was apparently valid. The Federal Court always had discretion to hear a case on the merits notwithstanding a foreign forum selection clause, although jurisprudence had developed requiring the grant of a stay of proceedings in the light of such a clause in most cases. A forum non conveniens stay could be granted only if there was a more appropriate forum displacing the forum selected by the plaintiff. Subsect. 46(1) of the Marine Liability Act (MLA) applied in this case, as the defendants had an agency in Canada. But that provision, where applicable, had been interpreted so as to remove the Federal Court's discretion under subsect. 50(1) of the Federal Courts Act to stay proceedings only where a foreign jurisdiction or foreign arbitration clause was the sole factor justifying a stay. Subsect. 46(1) did not remove the Court's discretion to stay in other circumstances, where factors apart from the foreign forum selection clause militated in favour of sending of the case to the clearly more appropriate jurisdiction.

In determining whether or not to grant a stay in this case, Harrington J. placed little value on the New York jurisdiction clause of the freight invoice. It was issued after the bill of lading and covered KN Inc.'s activities as an agent for the cargo interests. That company was being sued, rightly or wrongly, as a carrier. Nor would that clause benefit the other moving parties. The defendants, alleged to be carriers, had the burden of proving absence of liability, given that the cargo had not been delivered in sound order and condition. They had not identified the evidence they wished to bring forward in defence or the witnesses they needed on many points. In The Cougar Ace, the Federal Court of Appeal considered that the motion judge had undervalued certain factors in dismissing the motion to stay, notably the residence of the parties, the witnesses and the experts, the existence of proceedings in another jurisdiction and the applicable law. BAL had not shown any advantage to proceeding in Hong Kong other than that it was that company's home jurisdiction. A suit there would probably be time-barred by the one-year limitation period of the Hague Rules. No suggestion had been made that U.S. law differed from Canadian law except for the customary freight unit limitation of liability. Both laws derived from the Brussels Convention of 1924. The basic rule was that the choice of forum rests with the plaintiff. There was no allegation of proceedings in any other Court in Hong Kong, New York or elsewhere. Accordingly, no other jurisdiction appeared clearly more appropriate than Canada and Harrington J. dismissed the motion for a stay.

Whilst the decision for the most part is probably a reasonable exercise of the Federal Court's discretion in respect of granting a stay of proceedings, it does raise an issue as to its jurisdiction over DL. Judgement was entered by default against DL on the basis that it failed to file a Statement of Defence after having been served at one Shipco Transport Inc. (Shipco) with an office located just outside of Montréal. Shipco's apparent principal place of business is in Tukwila, Washington. The Order specifies that the motion was dismissed and that all parties (but DL) were granted a delay of 30 days within which to file their Statement of Defence.

There was no mention as to whether service upon DL was valid. Arguably Shipco Montréal was not an agent or branch office and did not constitute a place of business of DL as contemplated by Section 46 of the MLA, but rather was simply a local agent of its principal in Washington. In those circumstances, it is submitted that the Federal Court would have been without jurisdiction (rationae personae) to hear the Plaintiffs' claim against DL. As there is no suggestion that DL had a branch or place of business in Canada or that it regularly makes use of an agent in Canada, the shipment was not to or from a port in Canada, the Plaintiffs were not Canadian based, the cargo was not destined to Canada, there was no provision in any of the contractual documents for the application of Canadian law, the carrying vessel apparently was not Canadian registered, the crew seemingly was not Canadian and DL was a foreign corporation, it seems likely that the Federal Court had no basis for maintaining jurisdiction against DL as a named defendant.

This highlights the need to analyze the facts and merits of each case before simply attorning to the jurisdiction of the Courts in this country as there may well be a basis to assert that the Courts are without jurisdiction. This is particularly true as there is a trend developing in the Courts to assume jurisdiction. To assert claims before the Federal Court can be attractive, especially for cargo shipped from or destined to the United States which, generally speaking, still applies a package limitation of $500. whereas the Courts in Canada would likely apply the Hague-Visby limitation.

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