Canada: Federal Court Enjoins Ontario Proceedings In Limitation Action

Last Updated: November 24 2011
Article by Graham Walker

Most Read Contributor in Canada, November 2016

A loading catastrophe raises considerable questions in terms of governing legislation, jurisdiction, and potential liability limitations.

In J.D. Irving, Limited v. Siemens Canada Limited, Siemens Canada supplied three steam turbine rotors to New Brunswick Power Nuclear Corporation (NBPNC) for its Point Lepreau Nuclear Generating Station in New Brunswick. Siemens contracted with J.D. Irving, Limited (Irving) to move the rotors from Saint John harbour to Point Lepreau. Irving bareboat chartered a tug and barge from Superport Marine Services Ltd. (Superport) for this carriage. Irving also engaged Maritime Marine Consultants (2003) Inc. (MMC), marine architects, to approve the stability of the barge, determine the appropriate lashing and securing arrangements and calculate a ballasting plan for loading the rotors onto the barge. Siemens engaged BMT Marine and Offshore Surveys Limited (BMT) to provide marine surveying services relating to the handling and transportation plan for barging the rotors. During loading of the rotors onto the deck of the barge, two of them fell into Saint John harbour, sustaining serious damage.

Siemens took suit in the Ontario Superior Court of Justice against Irving, BMT (represented by BLG's Jeremy Bolger and Robin Squires), MMC and Superport, alleging breach of contract, negligent misrepresentation, negligence and/or gross negligence and failure to warn, and claiming damages of $40 million (later increased to $45 million), as well as pre-judgment and post-judgment interest and costs. Siemens also claimed joint and several indemnification from Irving, MMC, BMT, and Superport for all claims that NBPNC might assert against it. The day before Siemens sued in Ontario, Irving had commenced an action in the Federal Court, naming Siemens, MMC, Superport and NBPNC as defendants and seeking a declaration of entitlement to limit its liability for the incident to $500,000, plus interest to the date of constitution of the limitation fund, pursuant to the Marine Liability Act (MLA). MMC also commenced an action in the Federal Court, seeking to limit its liability under the MLA, and naming Siemens, Irving, Superport, NBPNC and BMT as defendants. Irving and MMC, in their limitation actions, sought the constitution and distribution of a limitation fund in the Federal Court under the MLA. BMT claimed contribution and indemnity and other relief against AXA Corporate Solutions (AXA) as insurer of the cargo. Siemens later commenced a second action in the Ontario Superior Court of Justice, claiming $45 million in damages against twelve individuals, including a principal of MMC and Atlantic Towing Limited (an Irving subsidiary). Siemens sought a stay (temporary and permanent) of the Federal Court limitation actions of both Irving and MMC, arguing that neither of those companies was entitled to limit its liability under the MLA.

Rejecting Siemens' contention that its claim was not maritime in nature, Heneghan J. invoked the Federal Court's admiralty jurisdiction over Canadian maritime law under subsect. 22(1) of the Federal Courts Act and, in particular over claims for loss of cargo, damage to goods carried in a ship and agreements for the use of a ship under paras. 22(2)(e), (h) and (i) of that statute. That grant of jurisdiction was nourished by the MLA, including the Convention on the Limitation of Liability for Maritime Claims, 1976 (and its 1996 Protocol), in force pursuant to that Act. Siemens' claim was essentially a maritime law claim. The incident occurred on the water. Marine surveyors prepared the rotors for transportation. A cargo insurer was involved. The rotors were aboard a ship.

Transport Canada investigated the occurrence under the authority of the Canada Shipping Act, 2001. The misrepresentations alleged related to preparing for loading the barge, raising an issue of seaworthiness - an admiralty matter. The breach of contract and negligence claims related to an agreement for the carriage of goods by sea. MMC, as a marine surveyor, was hired to provide marine architectural services, and Irving's liability for its acts could be assessed pursuant to art. 1(4) of the Limitation Convention. BMT provided marine surveying services concerning the handling and transportation plan, which services were related to navigation and shipping. Siemens' claim was directly connected with commercial shipping. Canadian maritime law would govern the issues Siemens raised regarding the limitation of liability of Irving, MMC and BMT. There was therefore concurrent admiralty jurisdiction in the Federal Court and the Ontario Superior Court of Justice over the issues of both liability and limitation.

Justice Heneghan ruled that denying Siemens an interlocutory stay in this case would not prejudice Siemens. A permanent stay was also denied, because Siemens had failed to demonstrate a "sufficient evidentiary foundation" for its contention that Irving, MMC and BMT were not entitled to limit their liability under art. 4 of the Limitation Convention, on grounds of recklessness. Denying the stay would not risk any duplication of proceedings because Siemens could fully pursue its liability claim in the Federal Court. Conversely, however, staying the limitation action would work an injustice to Irving, MMC and BMT, who had a presumptive right to limit liability by bringing an action and applying for directions in Federal Court, which alone could constitute a limitation fund.

The court further ordered the constitution of a limitation fund to be available to the shipowner and any other person for whom it was responsible to answer the aggregate of all claims arising out of the incident. There was no merit in Siemens' contention that a limitation fund was only needed when the loss was international and property had been arrested. Justice Heneghan also enjoined further proceedings in the Ontario Superior Court of Justice or any other court or tribunal, including any arbitral tribunal. The lack of jury trials in Federal Court, the wider discovery permitted in the Ontario Court and the hiring of an expert witness to prepare a report for that court, were not sufficient grounds for allowing the Ontario action to proceed. The learned judge concluded: "Contrary to Siemens' submission, the Federal Court is the most efficient forum to determine all the issues relative to the Incident. It is beyond doubt that the Federal Court has jurisdiction over the issue of liability. Only the Federal Court has jurisdiction over the constitution and distribution of a limitation fund. While such a fund may be incidental to the determinations of liability and limitation, having the entirety of the proceedings considered in one court would be the most efficient. The issue of entitlement to limit can be determined in the limitation actions." (para. 156).

With BLG representing BMT, further proceedings in this case will be followed closely.

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