COMTOIS INTERNATIONAL EXPORT INC. Plaintiff v. LIVESTOCK EXPRESS BV AND, 2014 FC 475

Date: 20140515 Docket: T-2275-12 Citation: 2014 FC 475 Ottawa, Ontario, May 15, 2014 PRESENT: The Honourable Mr. Justice Annis BETWEEN: COMTOIS INTERNATIONAL EXPORT INC. Plaintiff and LIVESTOCK EXPRESS BV AND HORIZON SHIP MANAGEMENT COMPANY AND ZIRAAT FINANSAL KIRALAMA AS AND THE OWNERS AND ALL THOSE INTERESTED IN THE SHIP M.V. ORIENT I AND THE SHIP M.V. ORIENT I Defendants ORDER AND REASONS [ 1 ] This is an appeal of an order by Prothonotary Morneau dated December 10, 2013, by which the prothonotary dismissed the Motion for a Stay of Proceedings brought under paragraph 50(1) (

b) of the Federal Courts Act , RSC 1985, c F-7. The Defendant, Livestock Express BV, had sought an order staying the action for damages undertaken by the Plaintiff, Comtois International Export Inc in favour of arbitration in England on the basis of an arbitration clause contained in a booking note (the Booking Note) concluded between the parties on September 18, 2012. The Defendant seeks that Prothonotary Morneau’s decision be overturned, and that the proceedings be halted in favour of arbitration in England. [ 2 ] For the reasons that follow, the appeal is allowed.

Background [ 3 ] The Court adopts the factual background as set out by Prothonotary Morneau at paragraph 4 of his decision. [ 4 ] The Defendant, Livestock Express, is a ship charterer which, at the material time, operated the M/V Orient I, a specialized livestock carrier. [ 5 ] The Plaintiff, Comtois International Export Inc (“Comtois”), is a trader and exporter of cattle. [ 6 ] Comtois chartered the M/V Orient I to perform a voyage between either Becancour, Québec or St John, New Brunswick and Novorossiysk , Russia, carrying a cargo of livestock. [ 7 ] On September 18, 2012, a Booking Note was issued in Zeebrugge, Belgium setting out the terms of the carriage of the cargo of livestock. [ 8 ] The parties had agreed on an ice clause which formed part of the Booking Note and gave the carrier the option of loading the cargo in St.

John, New Brunswick if Becancour was not in an “ice-free condition” . [ 9 ] The Booking Note incorporated an arbitration provision by which the parties agreed that any disputes arising out of the contract or the carriage of the cargo would be governed by English law and would be referred to arbitration in England. [ 10 ] The vessel approached Canadian waters in early December 2012, and, based on forecasted ice conditions at the Port of Becancour, Livestock Express opted on December 12, 2012 to proceed to the alternative load Port of St John, New Brunswick and informed Comtois accordingly. [ 11 ] Comtois took exception with the decision of the carrier to load the cargo in St John, New Brunswick rather than Becancour, Québec. [ 12 ] A dispute arose between the parties regarding the election by Livestock Express to use St John as the alternative load port and more precisely the applicability of the “ice clause” in the Booking Note on the circumstances of the case. [ 13 ] On December 14, 2012, a Statement of Claim was issued by Comtois along with a warrant for the arrest of the vessel, naming Livestock Express along with the owners and ship managers of the M/V Orient I as in personam defendants and the M/V Orient I as in rem defendant. [ 14 ] On December 18, 2012, the vessel anchored at the Port of St John where the cargo of livestock was loaded between December 19-21, 2012.

The vessel sailed to Novorossiysk on December 22, 2012. [ 15 ] Comtois claimed $250,000 as damages, representing the additional costs of shipping the livestock to the Port of St John.

[16] The present action arises out of the contract for the charter of the M/V Orient I evidenced by the Booking Note. [17] On April 16, 2013, the Defendant served and filed a Motion for a Stay of Proceedings in favour of arbitration in England,basing its contention on the arbitration clause contained in the Booking Note. [18] On December 10, 2013, Prothonotary Morneau dismissed the Motion with costs. Impugned Decision [19] Prothonotary Morneau determined that

section 46 of the Marine Liability Act, SC 2001, c 6, (the Act) did not apply to theBooking Note pursuant to the decision of the Federal Court of Appeal in Canada Moon Shipping Co Ltd v Companhia SiderurgicaPaulista-Cosipa, 2012 FCA 284 (The Federal EMS), wherein the Federal Court of Appeal found that charter-parties are not covered bythe expression “contract for the carriage of goods by water” in

section 46 of the Act. [20] Prothonotary Morneau then continued to an analysis of the applicability to the Booking Note of

article 8 of the CommercialArbitration Code (the Code), set out in the

schedule to the Commercial Arbitration Act, RSC 1985, c 17 (2nd Supp) (the Arbitration Act),which provides that a court dealing with an arbitration clause, as in this case, shall refer the matter to arbitration. Prothonotary Morneaudetermined that there is no distinction between forum selection clauses and arbitration clauses, and that to the degree that such adistinction exists, it is irrelevant in light of the Court’s discretion under

section 50 of the Federal Courts Act, RSC, 1985, c F-7. He citedThe “Seapearl” v Seven Seas Corp, (FCA), [1983] 2 FC 161 [The Seapearl] at page 176 for the proposition that theFederal Court is not deprived of its jurisdiction to stay proceedings by contractual undertakings to submit disputes to a foreign court orarbitration.

As a result, Prothonotary Morneau found the existence of “strong cause” and the substantial risk of a denial of justice, drawingon the test developed by the Supreme Court in ZI Pompey Industrie v ECU-Line NV, 2003 SCC 27 , [2003] 1 SCR 450 [Pompey]at paragraph 39, which states that there must be evidence that it would not be reasonable or just in the circumstances to require a party toadhere to the terms of the clause in question.

At paragraph 19, the Court in Pompey referred to the factors developed in the Britishdecision The Eleftheria, [1969] 1 Lloyd’s 237 [the Eleftheria factors], that can be taken into account when performing this analysis. [21] In his determination that

article 8 of the Code does not displace the application of the Eleftheria factors in the case of anarbitration clause, Prothonotary Morneau stated that the Plaintiff “was unable to present to the Court a case that makes such a distinctionamong the types of clauses”. However, in its written submissions, the Defendant argued that the Federal Court of Appeal specificallyconsidered this issue in the case of Nanisivik Mines Ltd v FCRS Shipping Ltd, (FCA), [1994] 2 FC 662 (FCA)[Nanisivik] and concluded that

article 8 of the Code removed any discretion of the Court not to stay arbitration proceedings pursuant tosection 50 of the Federal Courts Act. Relevant legislative provisions [22] The relevant legislative provisions are: Marine Liability Act, SC 2001, c 6:

INSTITUTION OF PROCEEDINGS IN CANADA Claims not subject to Hamburg Rules 46.

(1) If a contract for the carriage of goods by water to which the Hamburg Rules do not apply provides for the adjudication or arbitration of claims arising under the contract in a place other than Canada, a claimant may institute judicial or arbitral proceedings in a court or arbitral tribunal in Canada that would be competent to determine the claim if the contract had referred the claim to Canada, where (

a) the actual port of loading or discharge, or the intended port of loading or discharge under the contract, is in Canada; (

b) the person against whom the claim is made resides or has a place of business, branch or agency in Canada; or (

c) the contract was made in Canada.

(2) Notwithstanding subsection (1), the parties to a contract referred to in that subsection may, after a claim arises under the contract, designate by agreement the place where the claimant may institute judicial or arbitral proceedings. PROCÉDURE INTENTÉE AU CANADA Créances non assujetties aux règles de Hambourg 46.

(1) Lorsqu’un contrat de transport de marchandises par eau, non assujetti aux règles de Hambourg, prévoit le renvoi de toute créance découlant du contrat à une cour de justice ou à l’arbitrage en un lieu situé à l’étranger, le réclamant peut, à son choix, intenter une procédure judiciaire ou arbitrale au Canada devant un tribunal qui serait compétent dans le cas où le contrat aurait prévu le renvoi de la créance au Canada, si l’une ou l’autre des conditions suivantes existe:

a) le port de chargement ou de déchargement — prévu au contrat ou effectif — est situé au Canada;

b) l’autre

partie a au Canada sa résidence, un établissement, une succursale ou une agence;

c) le contrat a été conclu au Canada.

(2) Malgré le paragraphe (1), les parties à un contrat visé à ce paragraphe peuvent d’un commun accord désigner, postérieurement à la créance née du contrat, le lieu où le réclamant peut intenter une procédure judiciaire ou arbitrale. Commercial Arbitration Act , RSC, 1985, c 17 (2nd Supp):

(1) This Act shall be interpreted in good faith in accordance with the ordinary meaning to be given to its terms in their context and in the light of its object and purpose. […]

SCHEDULE 1 (Section 2) COMMERCIAL ARBITRATION CODE

ARTICLE 8 ARBITRATION AGREEMENT AND SUBSTANTIVE CLAIM BEFORE COURT

(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

(2) Where an action referred to in paragraph (1) of this

article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court. 4.

(1) La présente loi est à interpréter de bonne foi, selon le sens courant de ses termes en contexte et compte tenu de son objet. […]

ANNEXE 1 (article 2) CODE D’ARBITRAGE COMMERCIAL

ARTICLE 8 CONVENTION D’ARBITRAGE ET ACTIONS INTENTÉES QUANT AU FOND DEVANT UN TRIBUNAL 1. Le tribunal saisi d’un différend sur une question faisant l’objet d’une convention d’arbitrage renverra les parties à l’arbitrage si l’une d’entre elles le demande au plus tard lorsqu’elle soumet ses premières conclusions quant au fond du différend, à moins qu’il ne constate que la convention est caduque, inopérante ou non susceptible d’être exécutée. 2.

Lorsque le tribunal est saisi d’une action visée au paragraphe 1 du présent article, la procédure arbitrale peut néanmoins être engagée ou poursuivie et une sentence peut être rendue en attendant que le tribunal ait statué. Federal Courts Act , RSC, 1985, c F-7:

(1) The Federal Court of Appeal or theFederal Court may, in its discretion, stayproceedings in any cause or matter (

a) on the ground that the claim is beingproceeded with in another court orjurisdiction; or (

b) where for any other reason it is in theinterest of justice that the proceedings bestayed.

(2) The Federal Court of Appeal or theFederal Court shall, on application of theAttorney General of Canada, stay proceedingsin any cause or matter in respect of a claimagainst the Crown if it appears that theclaimant has an action or a proceeding inrespect of the same claim pending in anothercourt against a person who, at the time whenthe cause of action alleged in the action orproceeding arose, was, in respect of thatmatter, acting so as to engage the liability ofthe Crown.

(3) A court that orders a stay under thissection may subsequently, in its discretion, liftthe stay. 50.

(1) La Cour d’appel fédérale et la Courfédérale ont le pouvoir discrétionnaire desuspendre les procédures dans toute affaire :

a) au motif que la demande est en instancedevant un autre tribunal;

b) lorsque, pour quelque autre raison, l’intérêtde la justice l’exige.

(2) Sur demande du procureur général duCanada, la Cour d’appel fédérale ou la Courfédérale, selon le cas, suspend les procéduresdans toute affaire relative à une demandecontre la Couronne s’il apparaît que ledemandeur a intenté, devant un autre tribunal,une procédure relative à la même demandecontre une personne qui, à la survenance dufait générateur allégué dans la procédure,agissait en l’occurrence de telle façon qu’elleengageait la responsabilité de la Couronne.

(3) Le tribunal qui a ordonné la suspensionpeut, à son appréciation, ultérieurement lalever. Issues [23] The relevant issues in these proceedings are the following: 1. Are the issues raised in the motion vital to the final issue of the case, or is Prothonotary Morneau’s order clearly wrong, in thesense that his exercise of discretion was based on a wrong principle or upon a misapprehension of facts, such that the Court can proceed toa de novo review? 2. Was Prothonotary Morneau correct in his determination that

section 50 of the Federal Courts Act supersedes

section 8 of the Code,giving the Court the discretion to apply the Eleftheria factors to determine whether there is strong cause to allow the Plaintiff to pursuelegal action in Canada despite the existence of the arbitration clause? 3. If the answer to question 2 is yes, has the Plaintiff demonstrated that “strong reasons” exist to allow the action to continue inCanada, notwithstanding the agreement to arbitrate?

Standard of Review [24] The parties agree that the standard of review for discretionary orders of prothonotaries is that such orders are not to bedisturbed on appeal unless the questions raised in the motion are vital to the final issue of the case, or unless the orders are clearly wrong,in the sense that the exercise of discretion by the prothonotary was based on a wrong principle or upon a misapprehension of facts(Pompey at para 18; Merck & Co v Apotex Inc, 2003 FCA 488 [Apotex] at para 19; Canada v Aqua-Gem Investments Ltd, (FCA), [1993] 2 FC 425 (CA), per MacGuigan JA, at pp. 462-63).

If Prothonotary Morneau’s decision meets one of those criteria,the discretion of the reviewing judge must be exercised de novo. [25] In this matter, the Prothonotary made a discretionary decision to refuse the Defendant’s request to refer the matter toarbitration. Had the motion been granted, it would have put an end to the active proceedings in the Federal Court and the merits of theclaim would have most likely been decided by an arbitration panel in England.

As a result, the Defendant contends that ProthonotaryMorneau’s decision meets the criteria for a de novo review in that the question raised in the motion is vital to the action, and therefore theappeal should be heard de novo.

The Court agrees with the Defendant that the refusal to grant a stay of proceedings is vital to theproceedings, in that it would put a halt to any potential arbitration proceedings in England. (See Ford Aquitaine Industries SAS v CanmarPride (Ship), 2005 FC 431 at para 53: “the stay imposed has a significant impact on whether the Canadian action will ever be tried”). [26] Furthermore, the Prothonotary erred when he stated that the Plaintiff was unable to provide the Court with a precedent

supporting the conclusion that

article 8 of the Code, if applicable, removes the discretion of the Court not to grant the stay. The FederalCourt of Appeal decision in Nanisivik was properly before him and determinative of this issue. I conclude therefore that the Prothonotaryapplied a wrong principle in failing to consider and apply Nanisivik. Analysis [27] The parties do not dispute the validity, operability, and enforceability of the arbitration clause contained in the Booking Note.As a result, the dispute falls within the meaning of clause 31(

b) of the Booking Note, which provides: All disputes arising out of this contract and the carriage of the Cargo shall be referred to arbitration in England, one arbitrator beingappointed by each of the parties and a third by the two so appointed. For disputes where the total amount claimed by either party does notexceed US $50,000, the arbitration shall be conducted in accordance with the Small Claims Procedure of the London MaritimeArbitrators’ Association. [28] Prothonotary Morneau was correct in his determination that

section 46 of the Act does not apply to the Booking Note becausethe contract in question is a charter-party. In The Federal EMS, the Federal Court of Appeal made clear that charter-parties are not subjectto

section 46. This conclusion was not seriously challenged by the Plaintiff. [29] It is noted that the Plaintiff subsequently argued that the Court should give consideration to the decision of the Federal Court ofAppeal in Incremona-Salerno Marmi Affini Siciliani (ISMAS) snc v Castor (The), 2002 FCA 479, [2002] FCJ No 1699 at paragraph 13where it was indicated that

section 46 of the Act applied when the Court exercised its discretionary power pursuant to

section 50 of theFederal Courts Act to stay a matter in respect of both choice of forum or arbitration clauses. However, this decision has no application inthis matter because of the holding in The Federal EMS that

section 46 does not apply to charter-party agreements. [30] As indicated above, I find that Prothonotary Morneau’s determination that the Court’s discretion under

section 50 of theFederal Courts Act allowing him to refuse the motion for a stay despite

article 8 of the Code to be irreconcilable with the decision of theFederal Court of Appeal in Nanisivik. [31] In Nanisivik, the Court noted that there had been differing conclusions in various previous decisions as to whether a MotionsJudge has a discretion under

article 8 of the Code to stay proceedings. The Court of Appeal brought to an end these diverging judicialopinions by concluding that stays involving arbitration clauses are mandatory under

section 8 without residual discretion. [32] The Court relied upon the interpretive provision of article 4 (1) of the Code, requiring that “shall” clearly means “must”, andnot “may”, in addition to policy grounds which it described as follows at pages 674-75: As stated, the choice is between the stay of proceedings as between the parties to the arbitration ensuing upon the reference without anexercise of judicial discretion, or granting a discretionary stay unless there are "strong reasons" not to.

All of the policy considerations thatmilitate in favour of the mandatory legislative requirement that a dispute subject of an arbitration agreement be referred to that arbitrationseem to me also to militate conclusively in favour of the staying of the litigation of the same issues until the arbitration award has beenmade. It seems far more likely that otherwise that disposition of those issues will resolve the entire litigation, if not among all the partiesat least among those party to the arbitration.

I conclude that, once a reference to arbitration has been made, there is no residual discretion in the court to refuse to stay all proceedingsbetween the parties to the arbitration even though there may be particular issues between them not subject of the arbitration. [33] The reasoning from Nanisivik has subsequently been applied in other decisions, namely in MacKinnon v National Money MartCompany, 2009 BCCA 103 at paragraph 69, where in reference to a similar provision, section 15(2) of the British Columbia ArbitrationAct, RSBC 1996, c 55, the BC Court of Appeal restated and applied the Federal Court of Appeal’s reasoning from Nanisivik: The legislative direction given to courts of law to defer to arbitral jurisdiction under s. 15(2) is just as mandatory as the counterpartprovision of the Code of Civil Procedure of Quebec.

The comment of the Federal Court of Appeal in Nanisivik Mines Ltd. v. F.C.R.S.Shipping Co.

Ltd. , (1994) 113 D.L.R. (4th) 536, in connection with the Commercial Arbitration Act, R.S.C. 1985, c. 17(2nd Supp.) is apposite: […] [34] Similarly, in GPEC International Ltd v Canadian Commercial Corporation, 2008 FC 414 at para 19, Justice Hugessen of thisCourt referred to Nanisivik in emphasizing the importance of heeding contractual undertakings to arbitrate disputes, and warning againstthe effects of frustrating parties’ expressed contractual intention to make use of arbitration by allowing one party to halt mandatoryarbitration proceedings in order to pursue alternative legal proceedings in another jurisdiction: [19] Furthermore, it would appear to me that as a matter of policy the Court should, whenever possible, favour recourse to arbitrationand discourage applications such as this one which necessarily have the effect (and perhaps even the object) of halting an arbitration inmid-stream and frustrating the parties’ expressed contractual intention to make use of this method for settling their disputes.

This is not acase in which the Court is called upon to apply the traditional three part test for granting interlocutory stays or injunctions (Manitoba(Attorney General) v. Metropolitan Stores (MTS) Ltd. (SCC), [1987] 1 S.C.R. 110, [1987] S.C.J. No. 6 (QL); RJR-MacDonald Inc. v. Canada (Attorney General), (SCC), [1994] 1 S.C.R. 311, [1994] S.C.J. No. 17 (QL)). Rather, it is acase of the Court having no discretion but to give effect to a clear direction founded in both statute and in policy to respect the parties’expressed desire to submit to arbitration (Nanisivik Mines Ltd. v. F.C.R.S.

Shipping Ltd., (FCA), [1994] 2 F.C. 662,[1994] F.C.J. No. 171 (C.A.) (QL)). [35] Moreover, the Prothonotary’s reliance on The Seapearl, above, for the proposition that no distinction should be drawn betweena forum selection clause and an arbitration clause was referred to in Nanisivik and thereby specifically overruled. The Plaintiff also cited

various cases after Nanisivik where The Seapearl had been relied upon, including the Supreme Court in ZI Pompey . However, none of these cases involved arbitration clauses. The references to The Seapearl in those matters were to support the proposition that in applying

section 50 of the Federal Courts Act to stay a choice of form clause, the usual tripartite stay test is ousted by the “strong grounds” test based on the Eleftheria criteria. [ 36 ] Finally, during oral pleadings the Plaintiff attempted to argue that

article 8 of the Code should not be relied upon because the arbitration agreement was “ incapable of being performed, ” as per the wording of the provision. The prejudice caused to the Plaintiff by the “ prohibitive costs for Comtois which ultimately would discourage it from suing in England, ” as found by the Prothonotary, were said to render the agreement incapable of being performed. I reject this submission as being without foundation. Reference to factors that might discourage a party from participating in arbitration proceedings are both speculative and not contemplated by the exemption in

article 8 any more than they would be in the context of an ordinary lawsuit said to be incapable of being performed. [ 37 ] Given the Court’s conclusion that it is bound by the Court of Appeal’s decision in Nanisivik which specifically applies to the facts in this matter, no purpose is served by considering the Defendant’s alternative argument that the Prothonotary wrongly exercised his discretion under

section 50 of the Federal Courts Act . [ 38 ] As a result, the appeal is allowed and an order for a stay of the action in favour of arbitration proceedings in England is granted. Costs are ordered payable to the Defendant in the amount of $2,220, as agreed upon by the parties. JUDGMENT THIS COURT’S JUDGMENT is that : 1. The appeal of the Prothonotary’s order dated December 10, 2013 is allowed; 2. An order is made staying the present action in favour of arbitration to be commenced in England in accordance with the terms of the governing Booking Note; 3.

The Plaintiff is to pay costs to the Defendant in the amount of $2,220. "Peter Annis" Judge FEDERAL COURT SOLICITORS OF RECORD DOCKET: T-2275-12 STYLE OF CAUSE: COMTOIS INTERNATIONAL EXPORT INC. v LIVESTOCK EXPRESS BV AND HORIZON SHIP MANAGEMENT COMPANY AND ZIRAAT FINANSAL KIRALAMA AS AND THE OWNERS AND ALL THOSE INTERESTED IN THE SHIP M.V. ORIENT I AND THE SHIP M.V. ORIENT I PLACE OF HEARING: Montréal, Quebec DATE OF HEARING: May 6, 2014 ORDER AND REASONS: ANNIS J. DATED: May 15, 2014 APPEARANCES : Hugo Babos-Marchand For The Plaintiff

Jean-Marie Fontaine For The Defendants SOLICITORS OF RECORD : Davies Ward Phillips & Vineberg Barrister and Solicitor Montréal, Quebec For The Plaintiff Borden Ladner Gervais LLP Lawyers, Patent & Trade-mark Agents Montréal, Quebec For The Defendants