2011 QCCA 2173, 2011 QCCA 2173

Unofficial English Translation Mediterranean Shipping Company, s.a. c. Courtiers Breen ltée 2011 QCCA 2173 COURT OF APPEAL CANADA PROVINCE OF QUEBEC MONTREAL REGISTRY No. 500-09-020392-106 (500-22-124776-066) DATE: November 23, 2011 CORAM: THE HONOURABLE FRANÇOIS PELLETIER, J.A. JULIE DUTIL, J.A. JACQUES DUFRESNE, J.A. MEDITERRANEAN SHIPPING COMPANY S.A. APPELLANT – Defendant v. BREEN BROKERAGE LTD. RESPONDENT – Plaintiff and MEDITERRANEAN SHIPPING COMPANY (CANADA) INC.

IMPLEADED PARTY – Defendant JUDGMENT [ 1 ] The appellant, a maritime container carrier, appeals from a judgment of the Court of Quebec, District of Montreal (the Honourable Judge François Bousquet), rendered on January 11, 2010, that ordered it to pay the respondent $39,142.57 for the partial loss of a cargo of clementines during transport between South Africa and Montreal. [ 2 ] It is admitted that, for the purpose of the appeal, the clementines were in good condition when the cargo was entrusted to the appellant at the point of origin for shipment to Montreal in a refrigerated container.

It is not contested that the cargo was still in good condition upon arrival at the Port of New York. After verification by the port authorities, the container was placed on a train for Montreal. Upon its arrival in Montreal, the consignee noted that much of the fruit was damaged.

The clementines were then resold at a discount on the secondary market. [ 3 ] The trial judge concluded that the damage to the clementines was the result of extended interruptions of the refrigeration system after the container was unloaded at the Port of New York. [ 4 ] The judge found that the direct cause of the damage was the disconnection of the container’s refrigeration system from any source of electricity for 11 hours on June 26, 2005, and for 9 hours on June 27, the next day, when the outside temperature was particularly high (“excessively warm outdoor air temperatures”).

That finding of fact by the judge is not contested in appeal. It is also not contested that the disconnection was due to the appellant or its servants. [ 5 ] Since the damage occurred in the land portion of the transport, the bill of lading attests to the contract of carriage, and common law rules apply. [ 6 ] The judge tried to reconcile the two liability exemption clauses in the bill of lading, which read as follows: 14. (

b) REEFER, CHILLED OR HEATED CARGO. … The carrier shall not be liable for breakdown of such machinery, unless caused by the carrier's negligence. … … (

d) The Carrier shall not be responsible for loss or damage to fruit or vegetables due to deterioration, decay, rot, heat or frost, discolouration, change of skin texture, not for marked, cut or stained bags or boxes or other packages of freight. Fruits, vegetables and other perishable Goods are carried expressly at the sole risk of the Merchant . [Emphasis added.] [ 7 ] Referring to the three guidelines set out by the Privy Council in Canada Steamship Lines Ltd. [1] (hereinafter, “ CSL ”), the judge set aside the application of the so-called liability exclusion or exemption clauses of the bill of lading (clauses 14(

b) and 14(d)), as

he believed that the prolonged stoppages of the refrigeration system at the Port of New York were the result of the negligence, even the gross negligence, of the appellant or its servants. [ 8 ] The guidelines to which the judge referred, which have been cited many times in the case law, [2] involve three components: Their Lordships think that the duty of a court approaching the consideration of such clauses may be summarised as follows: (

i) If the clause contains language which expressly exempts the person in whose favour it is made (hereafter called "the proferens ") from the consequence of the negligence of his own servants, effect must be give to that provision. Any doubts which existed as to whether this was the law in the Province of Quebec were removed by the decision of the Supreme Court of Canada in Glengoil S.S. Co. v.

Pilkington (2). (ii) If there is no express reference to negligence, the court must consider whether the words used are wide enough, in their ordinary meaning, to cover negligence on the part of the servants of the proferens.

If a doubt arises at this point, it must be resolved against the proferens in accordance with s. 1019 of the Civil Code of Lower Canada: “In cases of doubt, the contract is interpreted against him who has stipulated and in favour of him who has contracted the obligation.” (iii) If the words used are wide enough for the above purpose, the court must then consider whether “the head of damage may be based on some ground other than that of negligence” to quote again LORD GREENE, M.R., in the Alderslade case (1).

The “other ground” must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it, but, subject to this qualification, which is, no doubt, to be implied from LORD GREENE'S words, the existence of a possible head of damage other than that of negligence is fatal to the proferens even if the words used are, prima facie , wide enough to cover negligence on the part of his servants. [ 9 ] The judge pointed out that the first of those clauses does not rule out the liability of the carrier in the event of negligence. As for Clause 14(

d) of the bill of lading, he rejected the appellant’s argument based on the Latin maxim ejusdem generis by interpreting it as follows: [ translation ] [68] Clause 14-D applies to any perishable good and Clause 14-B provides for the carrier’s liability if a breakdown of the refrigeration system is the result of its negligence. The liability provided for in Clause 14-B is said to be deprived of any scope if it is decided that the words “sole risk of the Merchant”, in Clause 14D, [ translation ] “were sufficiently general, in their ordinary

interpretation , to encompass negligence on the part of the servants”. [69] The Court therefore concludes that the exemption clauses on the back of the bill of lading do not protect MSC in the event of negligence. [References omitted.] [ 10 ] That

interpretation depends on the second guideline of the test in CSL . [ 11 ] The appellant raises two questions: • Does Clause 14(

d) of the contract of carriage exclude liability for negligence? • Is the absence of an explanation for the interruption of the electrical supply to the refrigerated container sufficient to conclude that it was grossly negligent? [ 12 ] With respect, the judge was wrong to base his conclusion on the inopposability of the clauses pertaining to the exemption for negligence. In fact, negligence can be a source of liability for the carrier under the exemption clause 14(

b) of the bill of lading when the merchandise is transported in refrigerated containers. Through the effect of Clause 14 (d), however, the contract of carriage excludes negligence as a source of damages when it involves the carriage of fruit, vegetables and other perishable goods. This exemption clause indicates that, for those perishable goods, carriage is “at the sole risk of the Merchant”, i.e. at the sole risk of the shipper or consignee, as the case may be. [ 13 ] In this case, the application of the exemption clause 14(

d) as a bar to the carrier’s liability must be analyzed in accordance with the third guideline of the test in CSL . Author William Tetley said the following about this third guideline: The third of these guidelines has given the courts some difficulties and its stringency has been relaxed somewhat. In The Raphael , the English Court of Appeal stated that, when considering whether the liability could be based on some other ground than negligence (e.g. delay, misperformance, contractual liability for

an act which is also a tort, or nuisance, conversion and detinue), the court must discard a possible ground which the parties were unlikely to have contemplated at the time the contract was entered into.

If a clause is wide enough to exclude liability for negligence, the court will give effect to that exclusion, unless it appears that the clause was intended to exclude some other ground of liability in addition to negligence. [3] [Citations omitted.] [ 14 ] Under the third guideline, it must be ascertained whether the parties could have intended the exemption clause to protect the appellant against a ground other than negligence under that head of damage. [ 15 ] To reiterate the criterion as stated in CSL , [4] “[ t]he ‘other ground’ must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it ….”. [ 16 ] The Court of Appeal for Ontario has considered the third guideline of the CSL test: In seeking to apply Lord Morton's third test, we should not ask now whether there is or might be a technical alternative head of legal liability which the relevant exemption clause might cover and, if there is, immediately construe the clause as inapplicable to negligence.

We should look at the facts and realities of the situation as they did or must be deemed to have presented themselves to the contracting parties at the time the contract was made, and ask to what potential liabilities the one to the other did the parties apply their minds, or must they be deemed to have done so. [5]

[ 17 ] The appellant argues that the expression “at the sole risk of the Merchant” in Clause 14(

d) excludes negligence. That is true, but there is another ground besides negligence here. That “other ground” is related, in this case, to the carrier’s non-performance of the contractual obligation. [ 18 ] The shipper’s requirement that the cargo be carried in a refrigerated container involves the corresponding obligation for the carrier not only to provide a refrigerated 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, incurs the appellant’s liability in this case. [ 19 ] Clause 14(

d) of the bill of lading, written in sufficiently broad terms to rule out negligence as a ground of liability, certainly did not aim to exonerate the carrier of liability in the event of non-performance of an obligation related to a major element of the contract of carriage. The failure here is related to an essential requirement of the contract: the cargo of clementines had to be carried in a refrigerated container. Exemption clause 14(

d) therefore cannot be set up against the respondent, since it cannot cover the failure to meet the contractual obligation that the carrier undertook to fulfill. [ 20 ] Given this conclusion, it is not necessary to rule on the second ground of appeal relating to gross negligence. [ 21 ] Lastly, the conclusion of the judgment a quo, which allowed the respondent’s claim and ordered the appellant to reimburse the respondent for the partial loss of the cargo of clementines, is therefore correct, and consequently the appeal should be dismissed. [ 22 ] THEREFORE : [ 23 ] DISMISSES the appeal, with costs.

FRANÇOIS PELLETIER, J.A. JULIE DUTIL, J.A. JACQUES DUFRESNE, J.A. Mtre Jean-Marie Fontaine and Mtre Daniel Grodinsky Borden Ladner Gervais For the appellant Mtre Pierre G. Champagne DeGrandpré Joli-Coeur For the respondent Date of hearing: November 16, 2011