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The Pith and Substance of Marine Engine Supply

A recent Supreme Court of Canada decision in respect of a claim by a shipping company against a supplier of marine engine parts turned on the question of whether or not Canadian Maritime Law or Quebec civil law should govern the dispute. Characterization of the pith and substance of the dispute was crucial to the decision, and questions of overlap and Federal paramountcy were also considered.

Facts: Following an accident that damaged the crankshaft of the main engine of the plaintiff’s vessel, the plaintiff purchased a reconditioned crankshaft from a provider in Montreal, Quebec. The contract limited the supplier’s damages to $50,000, provided a six-month warranty, and indicated the contract was to be governed by the laws of Quebec. Subsequently (and well after the six-month warranty period expired) the main engine suffered a failure and the shipping company brought suit against the Quebec based supplier seeking damages of more than $5 million.

Under the Art 1733 of the Civil Code of Quebec (CCQ), damage limitations such as the $50,000 limit adopted in the service contract are unenforceable where the seller knew or ought to have known of defects affecting ownership or quality of goods:

Le vendeur ne peut exclure ni limiter sa responsabilité s’il n’a pas révélé les vices qu’il connaissait ou ne pouvait ignorer et qui affectent le droit de propriété ou la qualité du bien.

Accordingly, the conflict between Canadian Maritime Law and the CCQ was a key issue as the $50,000 contractual limitation would be enforceable under Canadian Maritime Law, while damages would be unlimited under the CCQ.

Decisions below: The Trial judge found that while the subject of the dispute did concern maritime activities, it was essentially a contract for the local supply of materials and services, and subject to the CCQ as a matter of law and contract. She also found that the crankshaft supplied had contained a latent defect that resulted in the subsequent failure and damage. Accordingly, pursuant to Art 1733, damages could not be limited.

The Court of Appeal allowed the appeal in part, finding that the dispute was governed by Canadian Maritime Law, which displaced Art 1733 of the CQQ on the basis of federal paramountcy, an accordingly the defendant was entitled to rely on the $50,000 limitation.

Decision: The Supreme Court allowed the appeal and restored the trial judge’s decision. The Court found that Art 1733 of the CQQ applied and was not displaced by Canadian Maritime Law, so the defendant could not limit its liability. While all judges agreed in the outcome, however, three judges provided different but concurring reasons, arriving at the same result by a different process.

The majority of six judges held that sale of marine engine parts for a commercial vessel is integrally connected to navigation and shipping and therefore falls under the federal authority over those matters as enumerated at s.91(1) of the Constitution Act, 1867.

However, Art 1733 of the CQQ is valid legislation dealing in pith and substance with property and civil rights in the province pursuant to s.92(13) of the Constitution Act, 1867. This gives rise to a “double aspect” scenario, where the CQQ and Maritime Law overlap on the facts and both validly apply (see Canadian Western Bank v. Alberta, [2007] 2 S.C.R. 3, 2007 SCC 22).

The doctrine of Federal Paramountcy provides that valid Federal legislation prevails over conflicting Provincial legislation, with the provincial law rendered inoperative to the extent of the conflict. The doctrine does not apply in this case, as Canadian Maritime Law is largely a body of common law, with no specific federal legislation acting to oust the valid legislative provisions of the CQQ.

Under the doctrine of interjurisdictional immunity, the core heads of power set out under sections 91 and 92 may be protected from the effects of a law validly passed by the other order of government. For this doctrine to apply, the impugned provision must undermine essential, vital elements of the power. In this case, it is not necessary to the Federal government’s authority over navigation and shipping generally to oust all provincial law in respect of the regulation of contracts for supply of commercial marine equipment. The relevant provision of the CQQ did not undermine the core of the federal head of power over navigation and shipping, and the doctrine of interjurisdictional immunity did not apply.

A minority of three judges agreed with the disposition of the case but rejected the majority’s “integral connection” analysis as being an unnecessary addendum to the pith and substance test (and apparently unique to the maritime law context). They held that the subject matter of the dispute was, pith and substance, one of property and civil rights, and therefore the CQQ prevails. Sale of goods is a matter within provincial jurisdiction and did not form part of the body of laws administered by the English courts of Admiralty. Sale of goods – even goods with some relation to maritime activities such as marine engine parts – does not involve carriage of goods, seamanship of crew, seaworthiness of vessels, or any matter subject to international maritime convention; sale of goods does not become a subject of maritime law simply because the particular goods sold have some relation to marine activities.

Having found the matter was in pith and substance a provincial matter, neither paramountcy nor interjurisdictional immunity needed to be considered.

Ref: Desgagnés Transport Inc. v. Wärtsilä Canada Inc. 2019 SCC 58

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