Valmet Paper Machinery Inc. v. Hapag-Lloyd AG

The Plaintiff was the shipper of a piece of heavy equipment from Helsinki to Port Alberni, British Columbia. The equipment was carried by sea from Helsinki to Vancouver and by truck from Vancouver to Port Alberni. Ten kilometres short of its destination the equipment fell off the truck and was a constructive total loss. The Defendant motor carrier admitted liability but claimed to be entitled to limit liability pursuant to the provisions of the Hapag-Lloyd bill of lading or, alternatively, pursuant to the terms of its own bill of lading and the provisions of the Motor Carrier Act or, in the further alternative, pursuant to custom. The trial Judge found that the Defendant could not rely upon the Hapag- Lloyd bill of lading as this was a “port to port” bill of lading which did not apply to the carriage beyond Vancouver. This finding was primarily based on a notation on the face of the bill of lading that the carriage was “pier to pier traffic”. (Although obiter dicta, the Judge considered an argument by the Defendant that it could rely upon a Himalaya clause in the Hapag-Lloyd bill of lading notwithstanding that it had failed to ratify the clause. The Defendant argued based on recent developments in the law of privity of contract that ratification of a Himalaya clause is no longer required. The Judge agreed.) The Judge then considered the effect of the Defendant’s own bill of lading and the provisions of the Motor Carrier Act. The Motor Carrier Act and Regulations expressly required the carrier to issue a bill of lading and to obtain the signature of the shipper at the time of pick up and further stipulated the information such a bill of lading should contain. The Judge found that the Defendant had not issued a bill of lading to the shipper at the commencement of the carriage and that the bill of lading that was later prepared during the course of carriage from Vancouver to Port Alberni did not comply with the requirements set out in the Motor Carrier Act. The Judge then considered the Defendant’s argument that it ought to be allowed to limit liability based on a custom in the industry that liability is limited to $4.40 per kilogram. The Judge found, however, that the custom was based on the legislation in the Motor Carrier Act and held that where the Act had not been complied with it would be inappropriate to circumvent the legislative requirements through the application of custom. The Judge did concede that in a case where both parties were aware that liability was to be limited the failure to issue a bill of lading would not prevent the court from enforcing the limitation. That was not the case here and, accordingly, the Judge held that the Defendant was not entitled to limit liability. On appeal, the British Columbia Court of Appeal held first that the ocean bill of lading created two regimes: the first covered the carriage by sea to Vancouver; the second covered the inland carriage from Vancouver. The Court of Appeal held that the “Multimodal Transport” clause of the bill of lading had the effect of authorizing Hapag-Lloyd to enter into a contract as agent for and on behalf of the Plaintiff for the onward carriage of the goods from Vancouver. The Court further held that the Himalaya clause in the bill of lading protected only sub-contractors of Hapag-Lloyd and was not effective in protecting carriers hired by Hapag-Lloyd as agent for the merchant, which was the case here. With respect to the issue of whether the Defendant could rely upon the limits of liability in the Motor Carrier Act and Regulations, the Court of Appeal noted that the Plaintiff was sophisticated and was aware that carriers inevitably limited their liability and for this reason elected to obtain insurance and not to declare a value for the goods. The Court of Appeal further noted that the custom or practice in this market was not to issue a bill of lading at the time the goods are picked up. Nevertheless, the Court held that such “usage is contrary to law, and an illegal usage, unless perhaps express consent is given to it, cannot avail”.