Trucking companies that hold themselves out to the public as carriers of goods for hire are generally given the legal description of “common carrier”. This is in distinction to “private carriers” who may only carry freight selectively for certain companies.
At common law, the liability of a common carrier is onerous. A common carrier’s liability practically amounts to the liability of an insurer. If a common carrier picks up goods in an undamaged condition and delivers them in a damaged condition, the carrier will be liable for that damage notwithstanding that there may have been no negligence on its part. This onerous liability is subject to only a few defences at common law, which are acts of God or the Queen’s enemies, riots, strikes, defects or inherent vice in the goods or acts of default of the shipper or owner (such as improper instructions respecting pick up or delivery or improper packing or securing on the shipper’s part).
While Canadian Maritime Law is governed by federal law, and is thus applied truly consistently across Canada, inland marine or motor truck transport law is governed separately by each of the 10 provinces and 3 territories in Canada.
In an attempt to encourage trade by easing the onerous liability of a common carrier, the provinces of Canada have enacted conditions of carriage, virtually uniform throughout all 10 provinces, which are meant to define the contract of carriage between a carrier and shipper or owner of goods. These “Uniform Conditions” are meant to be incorporated into the bill of lading, a document which identifies the parties and subject matter of the contract of carriage and evidences the terms of that contract.
The Uniform Conditions provide a number of protections to the carrier in the event of cargo damage. One of the most significant issues is a provision which allows the carrier to limit its liability to $2.00 per pound based on the weight of the cargo unless the shipper of the goods declares a different value (in which case the shipper will likely be charged a premium for the extra risk the carrier is assuming). Also in the Uniform Conditions are notice provisions which may have the effect of extinguishing a cargo owner’s claim if no notice is given during the notice period. There is also a provision to protect the carrier in the event that he is given cargo of extraordinary value and the extraordinary nature of the cargo is not disclosed or apparent on loading.
The Uniform Conditions in each province are in force by virtue of each province’s motor carrier legislation, and regulations under that legislation. The Federal Government of Canada has delegated to the provinces the right to regulate extra-provincial truck undertakings as if they were local undertakings pursuant to the Motor Vehicle Transport Act, S.C. 1987, c. 35. The result of the provincial regulation is that each province has its own motor carrier transport legislation which have subtle differences. The regulations in each province set out the Uniform Conditions, calling them by slightly different names in some cases.
The way in which the regulations make the Uniform Conditions part of the contract of carriage becomes significant as it varies from province to province. The regulations generally require that the Uniform Conditions be incorporated or contained in the bills of lading issued by carriers at the time of pick up. Many of the regulatory schemes of the provinces go further, stating that the Uniform Conditions are deemed to be part of every contract for carriage made in that province. The importance of this feature is discussed in the sections below.
Importance of Issuing the Bill of Lading
A carrier’s right to limit liability is often determined by whether a bill of lading has been properly issued. The answer to whether a bill of lading has been properly issued will vary from one part of the country to another due to differences respecting incorporation of Uniform Conditions.
The way in which the Uniform Conditions are incorporated into contracts of carriage in the different provinces is not completely uniform. As a result, it is important to ascertain what law (i.e. of what Province) will govern the contract at the outset of the cargo claim.
Of note, seven out of ten of the provinces deem their Uniform Conditions to apply to contracts of carriage made in those provinces as a matter of law. The provinces that do not have this language are British Columbia, Saskatchewan, and Prince Edward Island. These jurisdictions require that the bill of lading is issued in compliance with the Regulations and that the Uniform Conditions are contained or incorporated into the bill of lading in order for them to form part of the contract of carriage.
The following discussion looks at three different approaches to limitation of liability for motor carriers across Canada. We have classified these approaches as: (1) statutory; (2) contractual; and (3) common law.
A. The Statutory Approach
Most Provinces have enacted legislation that prescribe limits of liability for motor carriers. However, as noted above, the statutory approach is not consistent from Province to Province. To illustrate the point, we will discuss relevant legislation in three Provinces containing key differences that will impact exposure and claims handling in those Provinces.
(i) British Columbia
In British Columbia the Uniform Conditions are not deemed to apply as a matter of law. The British ColumbiaMotor Vehicle Act Regulations (B.C. Reg. 26/58) set out the requirements for issuance of a bill of lading at s. 37.39. The requirements are many but it is suggested that at a minimum the bill of lading must contain the Uniform Conditions or a notation to the effect that they are incorporated by reference into the contract. The bill of lading should contain the notice provisions in the Uniform Conditions on its face. The Regulations also call for a statement in conspicuous form that the carrier intends to limit its liability (if such is the case) and that the bill of lading have a space where the shipper can declare a value for the shipment.
The crucial requirement for the Uniform Conditions to apply in British Columbia is that the bill of lading containing or incorporating them must be signed by the shipper of the goods at the time the goods are loaded. A bill of lading that complies with the Regulations in every other respect may not import the Uniform Conditions into the contract if this requirement is not met.
The British Columbia case Shooters Production Services Inc. v. Arnold Bros. Transport Ltd. [2003] B.C.S.C. No. 92 is an illustration. The carrier damaged a mobile broadcast trailer while hauling it from Ontario to Vancouver. The parties agreed that British Columbia law applied to the contract of carriage. The carrier prepared a bill of lading which complied in all respects with the Motor Vehicle Act Regulations but which was not presented to the shipper at the time of shipment. Rather, it was given to the consignee or recipient of the trailer for signature at the completion of the transportation. The British Columbia Supreme Court found that nothing in the bill of lading, including the Uniform Conditions, formed part of the contract of carriage. The rationale was that the terms in the bill of lading could not have been agreed on by the parties if the shipper of the goods had never seen them or had an opportunity to see them. A similar situation, where a bill of lading was in existence but was found not to have been sent to the shipper was recently decided in the same way, in the same month, by the British Columbia Court of Appeal in Payne Machine Tooling v. CanAm West Carriers Inc., [2003] B.C.J. No. 138.
(ii) Alberta
In Alberta the Uniform Conditions are deemed to apply as a matter of law. The Alberta Traffic Safety ActRegulations (AR 313/2002) set out the requirements for issuance of a bill of lading. It is significant to note that the requirements do not contain a direction requiring a carrier to issue the bill of lading, but instead require that a bill of lading be prepared by either the shipper or the carrier. Section 3(2) specifies the information and terms that are required to be in the bill of lading. Section 5(1) sets out that “every agreement for the transportation of goods to which section 3 applies is deemed to include those terms and conditions contained in conditions of carriage set out in the Schedule 3”. Schedule 3 sets out the Uniform Conditions.
The leading Alberta case is Hoskin v. West (1988), 55 D.L.R. (4th) 666 (Alta. C.A.). The carrier damaged a printing press while it was being loaded onto its truck. This damage occurred before the bill of lading was signed. The Court of Appeal ruled that the carrier would be entitled to limitation of liability whether or not a bill of lading was completed and signed by both the consignor and the carrier. The court found that the failure to comply with the requirements set out in Section 3 of the Regulations may compromise a breach of the Regulation, “but that does not alter or detract from the limitation on liability imposed on the agreement to transport by the statutory deeming provisions”.
(iii) Nova Scotia
Contracts of motor carriage in Nova Scotia are regulated by the Nova Scotia Motor Vehicle Act, R.S.N.S. 1989, c. 293. The “Uniform Conditions of Carriage” are found in the Regulations to the Motor Vehicle Act entitled “Carriage of Freight by Vehicle Regulations”, N.S. Reg. 24/95. That Regulation provides at Section 7 that:
Except as otherwise provided by or under these regulations, the following clauses are prescribed as uniform conditions of carriage of freight by a motor carrier and are deemed to be part of every contract for the carriage of freight by a motor carrier and shall be contained or incorporated by reference in every bill of lading relating to the carriage of freight by a motor carrier
The Nova Scotia Regulation also provides that at the time a motor carrier accepts freight for transport, it must issue a bill of lading that complies with the Regulations: s. 8. The bill of lading is to be signed by the shipper of the freight “as an acceptance of all the terms and conditions” in the bill of lading: s. 9(2). Among other things, the bill of lading is required under the Regulation to show the name of the carrier and consignor, particulars of the goods comprising the shipment, a space where a shipper may declare a value for the shipment, a statement to indicate that the Uniform Conditions apply, a statement to indicate any limitation of the motor carrier’s liability, and a verbatim statement of the notice requirements in the Uniform Conditions: s. 9(8).
The deeming language in s. 7 of the Regulation is significant. As noted above, similar language is contained in the motor carrier regulatory schemes in seven out of the ten provinces. What the language leaves open for argument is despite a carrier’s failure to issue a bill of lading at the time of shipment that complies with the Regulations, the Uniform Conditions form part of the contract of carriage as a matter of law and the carrier may rely on the protections contained therein. Case law from other provinces which use this deeming language support that proposition.
An interesting difference between the law of Nova Scotia and the law of Alberta is that the Nova Scotia Regulation sets out specifically in Section 8 that a motor carrier must issue the bill of lading. This difference in the legislation may allow the Hoskin v. West decision to be distinguished when applying Nova Scotia law. With that said, the importance attached to the deeming nature of the Alberta legislation by the Court of Appeal in Hoskin v. West suggests that they would have reached the same conclusion they did regardless of who was required to issue the bill of lading.
The Nova Scotia legislation has not been specifically tested in the courts. The case of McKinnon v. Acadian Lines Ltd. (1977), 24 N.S.R. (2d) 20 is an example of the Nova Scotia courts bending over backwards to disallow limitation of liability to a carrier. The carrier lost McKinnon’s trunk upon arrival in Halifax, but prior to the time of pick up. The carrier had held the goods for two to three weeks, and the court concluded that the statutory conditions did not apply to allow limitation on those facts. The court found that once the trunk was placed in storage by the carrier at its depot the legal relationship became a matter of bailor and bailee, and not that as prescribed in the motor carrier legislation.
Due to the court’s inherent reluctance to give effect to exculpatory clauses a court may apply the Nova Scotia Regulation more akin to the British Columbia Regulation.
B. The Contractual Approach: Through Bills of Lading and the Himalaya Clause
While Regulations in some Provinces will not allow a motor carrier to rely on the statutory limits of liability prescribed by the relevant legislation unless the carrier has issued a separate bill of lading, motor carriers may still be able to rely on limits of liability prescribed in an original bill of lading issued between the cargo owner and primary (ocean) carrier. In these circumstances, a motor carrier’s failure to issue its own bill of lading in accordance with the Regulations may not necessarily disentitle the motor carrier from limiting its liability in reliance on the through bill of lading
A “through bill of lading” is a uniform shipping contract regularly used in multi-modal transport operations, the defining feature of which is that it leaves open the issue of who will actually perform the carriage. The contract permits the original carrier (sometimes referred to as the multi-modal transport operator) to either perform the carriage itself, or to subcontract the actual carriage to a third party. Commonly through bills of lading are issued where the port of origin and port of destination are not served by regular shipping lines, and it is necessary to discharge the goods at an intermediary port to be re-loaded for a second (or subsequent) voyage. Through bills of lading may be extended by express wording to inland transportation from seaport to ultimate destination.
A key feature of the through bill of lading is the so-called “Himalaya Clause,” which purports to extend a bill of lading’s exemption and limitation of liability clauses to third parties before loading and after discharge. While Himalaya Clauses have been upheld by the courts, the effect of the clause and its extension to connecting carriers depends on the express language used, and on the court’s interpretation of the reasonable expectations of the parties.
The decision of Groberman J. in Valmet Paper Machinery Inc. v. Hapag-Lloyd AG (2002), 4 B.C.L.R. (4th) 136 (S.C.); aff’d (2004), 34 B.C.L.R. (4th) 211 (C.A.) illustrates that the extension of a Himalaya Clause to third party carriers depends, primarily, on the express wording of the contract – and, in particular, whether the parties intended to limit the liability of all third party carriers or bailees who participated in the loading, unloading and continuing transport of the equipment to its final destination.
In Valmet, the plaintiff (cargo-owner) hired Hapag-Lloyd to transport a piece of equipment known as a Winbelt Rewinder Frame from the point of manufacture in Germany to Port Alberni, British Columbia. Hapag-Lloyd, in turn, subcontracted a segment of the carriage – notably, the inland transport from Vancouver to Port Alberni – to H.A. Davis Transport Ltd. While en route from Vancouver to Port Alberni, the Rewinder fell off the defendant’s tractor-trailer unit, was hit by a logging truck, and was found to be a total loss. At trial, the Plaintiff was awarded $1,244,272 for the loss. H.A. Davis appealed the decision on the ground that the trial judge erred in failing to find that the bill of lading issued by Hapag-Lloyd covered the continued carriage of the Rewinder from Vancouver to Port Alberni and protected them from liability. On this theory, H.A. Davis claimed that they were entitled to the protection of the contractual limit of liability, which would have reduced damages to $117,923.40.
The trial judge found that the Hapag-Lloyd bill of lading contained terms covering both multi-modal transport and port-to-port shipments. In the case of the container shipments, it was clear that the multi-modal terms applied, and the limitations of liability in the bill of lading would extend to any carrier who was responsible for the handling of the containers at any stage of the journey from Germany to Port Alberni. The case of the Rewinder, however, was different, since the relevant terms of the bill of lading were marked with a “Pier-to-Pier Traffic” stamp, which the court interpreted as evidence that Hapag had undertaken no responsibility for ground transportation. Consequently, H.A. Davis could not claim the benefit of the limitation clause.
The presence of the “Pier-to-Pier” stamp is a factual peculiarity of the Valmet case, but it is a good example of the emphasis that the court places on the printed terms of the contract when considering whether the contracting parties intended to limit the liability of successive carriers. Had the multi-modal terms of the contract applied to the inland transport of the Rewinder, it is likely that the Court would have reached a different result, and found that H.A. Davis could rely on the Himalaya Clause. This is apparent from the Reasons for Judgment in Valmet, where Groberman J. observes that there is no strict legal impediment to the extension of Himalaya Clauses to third party carriers, given the right contractual wording. Groberman J. further recognized that the application of the Himalaya Clause was not dependent on the third party carrier having knowledge of the Clause or endorsing the Clause through some positive act, such as “ratification.” Rather, the extension of the Himalaya Clause to the third party carrier depended on two fundamental questions: namely,
(a) Did the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the contractual provision?
(b) Are the activities performed by the third party seeking to rely on the contractual provision the very activities contemplated as coming within the scope of the contract in general, or the provisions in particular again as determined by reference to the intentions of the parties?
Where these questions are answered in the affirmative based on the express wording of the contract, the third-party carrier may invoke the Himalaya Clause to limit its liability.
C. The Common Law Approach: Relaxation of the Privity Doctrine
Traditionally, the doctrine of “privity of contract” presented a complete bar to a third party claiming the benefit of a contractual limitation clause. The principle underlying the privity doctrine was that the extension of contractual benefits to third parties would distort the voluntary allocation of risk at the heart of a commercial contract, and interfere with the contracting parties’ primary right to determine the terms of their commercial relationship. Two decisions of the Supreme Court of Canada in the 1990s have carved out a “principled exception” to the privity rule that has particular application to multi-modal contracts of carriage, and that supports the decision of the Court in Valmet Paper.
In London Drugs v. Kuehne & Nagel International Ltd., [1993] 3 S.C.R. 299 (S.C.C.), the plaintiff, London Drugs Ltd., had contracted with the defendant, Kuehne & Nagel International Ltd., for the storage of a transformer. The contract included a clause that limited the liability of the “warehouseman” to $40 for any damage to the transformer. While moving the transformer, the defendant’s employees dropped it, causing approximately $34,000 in damage. At trial, the employees were held liable for the full amount of the loss on the ground that they were not parties to the contract, and consequently, were not entitled to rely on the limitation of liability clause. The Supreme Court of Canada ultimately reversed the trial decision and held that the employees were entitled to rely on the limitation of liability clause even though they were not parties to the contract. In its decision, the Court created a principled exception to the privity doctrine that will apply where (a) the parties intend to extend the contractual benefit to a third party; and (b) the third party performs the very activities contemplated as coming within the scope of the contract.
Following the Supreme Court of Canada’s decision in London Drugs, supra, two questions remained. The first was whether the exception created in London Drugs was limited to employee-employer relationships, and the second was whether the parties were entitled to subsequently vary a limitation of liability clause that purported to protect a third party. These issues were addressed in Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., [1999] 3 S.C.R. 108.
In Fraser River, Can-Dive Services Ltd. chartered a barge from Fraser River Pile & Dredge Ltd. The barge was subsequently lost in heavy weather due to the negligence of Can-Dive. Fraser River’s insurance policy included a clause that waived the insurer’s right to bring a subrogated claim against the charterers. The question that arose was whether the Can-Dive could rely on the waiver of subrogation clause, even though it was not a party to the insurance contract.
Iacobucci J., writing for the Court, made it clear that the exception created in London Drugs was a principled one that applied whenever:
(a) the parties to the contract intended to extend the benefit in question to the third party seeking to rely on the contractual provision, and;
(b) the activities performed by the third party seeking to rely on the contractual provision are the very activities contemplated as coming within the scope of the contract in general, or the provision in particular.
It would seem that both requirements of the test enunciated in London Drugs and Fraser River can be satisfied by a properly worded multi-modal bill of lading. The existence of a Himalaya Clause may evidence the parties’ express intention to extend the carrier’s limitations to stevedores, terminal operators and other third parties. The second branch of the test may also be satisfied in the case of a successive carrier, since multi-modal contracts of carriage often contemplate that third parties may have custody of the goods for segments of the voyage. Still, the initial bill of lading will not likely extend to protect subsequent carriers unless the bill specifically notes that it applies for that portion of the voyage completed by that other carrier. If the destination or delivery point detailed within the initial bill references a location reached before the connecting carrier’s portion is commenced, the bill will not likely apply to protect that carrier.
Conclusion
The liability of a motor carrier at common law is onerous. The provincial legislatures have all enacted Uniform Conditions designed to mitigate the effects that potential liability could have on trade and commerce. Because the requirements a carrier must meet in order to benefit from these protections are different from province to province, a claims handler faced with a cargo claim must be sensitive to the issue of which law applies.
Because of the small but critical difference in the regulatory regimes of some provinces in Canada, the importance of determining which province’s law applies to the contract of carriage should not be forgotten in the early stages of adjusting a cargo claim. In some Provinces, a bill of lading will need to be properly issued by the carrier before that carrier can rely on prescribed statutory limits of liability, while legislation in other Provinces may deem the limits of liability to apply to every “agreement for the transportation of goods” so long as a bill of lading was issued at some point in the voyage.
All that said, the Valmet decision confirms that Underwriters and claims handlers will need to look beyond the relevant carrier’s improperly issued bill of lading even in those provinces that require the proper issuing of such documents. A carrier that either failed to issue or that improperly issued a bill may still be able to rely on the limits of liability prescribed in the original bill of lading issued between the cargo owner and primary (ocean) carrier as long as that bill of lading specifies that it applies to multi-modal operations, and there is a Himalaya Clause extending the benefits of the bill of lading to third party carriers. In these circumstances, a motor carrier’s failure to issue its own bill of lading in accordance with the Regulations may not disentitle the motor carrier from limiting its liability in reliance on the through bill of lading.
