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K+N ‘Absolutely right’ in refusal to alter Bill of Lading: Federal Court

Last month Gavin Magrath won summary judgment in favour of our client Kuehne + Nagel in respect of freight, demurrage, interest, and costs, all outstanding in respect of the consignment and carriage of 22 containers of crude sulfur from Irricana, Alberta, to  Haldia, India. In reaching judgment, Justice Harrington of the Federal Court considered and clarified several issues of interest to readers:

  1. Improper Changes to Bills of Lading;
  2. “No Set-off” CIFFA STCs provision upheld;
  3. Breach-date currency conversion rate; and
  4. Admiralty interest pursuant to the Interest Act.

Background

Agrimax approached K+N in June 2008 for assistance in arranging the carriage of a large consignment of crude sulfur from Canada to India. The sale had been in the works for several months, and payment was subject to a Letter of Credit that had been amended several times to show progressively later shipped-by dates. The last version of the L/C required, inter alia, for transport documents to show the cargo as being shipped on or before 31 August 2008.

The consignment was arranged and the 22 containers were in fact taken in charge on 25 August 2008 and the bills were so marked. From Irricana they were taken by truck to Vancouver, where they were ultimately loaded as intended aboard the OOCL Kuala Lumpur on 3-4 September 2008, and the bills were once again marked accordingly.

On arrival, the consignee’s bank refused to negotiate the payment, asserting that the ‘on board’ date of 4 September 2008 was outside the limit provided under the L/C. The shipper tried to renegotiate the L/C terms but to no avail. They also asked K+N to re-issue amended bills of lading to either show an ‘on board’ date prior to 31 August, or to remove the ‘on board’ notation altogether and leave only the ‘shipped’ notation of 25 August 2008. K+N refused.

Both the shipper and K+N also took the position that the ‘on board’ date satisfied the Letter of Credit. However, the shipper chose not to litigate the refusal to negotiate the L/C with the banks, and accordingly their refusal was simply taken as a fact and its correctness was not an issue as between K+N and Agrimax.

In the result, the cargo was abandoned at Haldia and, after accumulating over USD$60,000 in demurrage and local charges, was seized by the local authorities. As is frequently the case, K+N paid both freight and demurrage to the ocean carrier and brought suit against its customer for the outstanding charges.

Improper changes to Bills of Lading

Central to Justice Harrington’s decision was the question of the requested change to the markings on the bill of lading. Agrimax asserted that K+N’s marking of the ‘on board’ date, or its refusal to remove that marking, were negligent and causative, and Agrimax asserted this position both by way of Defence in the Federal Court and by way of an originating Claim in the Alberta Court of Queen’s Bench.

“Carriers are often pressured to issue false documents,” Justice Harrington noted, and quoted Justice Wright (as he then was) by analogy: “the practice of issuing clean bills of lading when goods are damaged is very reprehensible. It leads to trouble, and the people who do it ought to suffer trouble.”

He concluded that “Kuehne + Nagel was absolutely right in its refusal to alter the bill of lading… [they] avoided trouble by doing the right thing.”

“No Set-off” Provision Upheld

Although he had so disposed of the counterclaim, Justice Harrington did not leave the alternative unexamined. “Even if there is some merit to the Alberta action by Agrimax, the terms and conditions of the contract between the parties incorporate those of the Canadian International Freight Forwarders’ Association (CIFFA). Those terms specifically provide that a claim with respect to cargo cannot be used in set-off of a freight claim.”

Of course, Forwarders will recognize this position as being of commercial importance because cargo is generally much more valuable than freight, and accordingly all debtors owing freight could easily allege damage, even minor, partial damage, that could be raised as set-off against 100% of freight charges. While set-off of debts is generally permitted at common law, the CIFFA terms incorporate by contract the admiralty rules protecting carriers from set-off  of cargo claims against freight.

In support of this position Justice Harrington cited the case of Locher Evers International v Canada Garlic Distribution Inc, 2008 FC 319, another case of summary judgment in which Gavin Magrath was counsel to the successful forwarder.

Breach Date Exchange Rate

With the Canadian and US dollars near parity, and with many claims taking two or three years or more to litigate to judgment, exchange rate concerns will be a concern to many litigants. Justice Harrington gave a glimpse of the breadth and depth of his legal knowledge in providing a brief review of the modern history of the exchange rate rule.

The breach-date rule was changed by the (English) House of Lords in Miliangos v George Frank Textiles Ltd. [1976] A.C. 443 in favour of the rate of exchange as at the date of judgment; this rule was also adopted by the Ontario Courts and is sometimes imagined to be the law of the land.

The 1984 decision of the Federal Court of Appeal in N.V. Bocimar S.A. v. Century Insurance Co. (“The Hasselt”), however, applied the breach date rule in a general average claim, and while overturned on other grounds the Supreme Court did not interfere with that part of the decision. The breach-date rule has been applied repeatedly since then in the Federal Court jurisprudence.

“This Court is not in the business of currency speculation,” according to Justice Harrington: the breach date determines the loss, and any further advantage or disadvantage arising from currency speculation or fluctuation may be dealt with in punitive or exemplary damages.

Admiralty Interest under the Interest Act

Justice Harrington correctly noted that s. 36 of the Federal Courts Act governs interest, and in the usual course applies the interest rate according to the procedural law of the province in which the claim arose. Subsection (2), however, applies to causes of action arising outside or in more than one Province,and provides for interest at “any rate that the… Court considers reasonable in the circumstances.”

The claim had involved substantial procedural delay by Agrimax, and at the date of judgment commercial interest rates were (and continue to be) extraordinarily low. The Court exercised its discretion in awarding interest pursuant to the Interest Act,  which provides a general rate of 5% where interest is stipulated to be calculated by law without further specification.

Ref: Kuehne + Nagel Ltd. v. Agrimax Ltd., [2010] FC 1303, Gavin Magrath of Magrath O’Connor LLP for the plaintiff.

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