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Case Comment: Canadian National Railway Company v. Sumitomo Marine & Fire Insurance Company Ltd.
Published in the March 2008 issue of Transportation Notes - View Article
On February 28, 2008, the Supreme Court dismissed an application for leave to appeal from a decision by the Quebec Court of Appeal in a case involving the destruction of a shipment of goods and the liability of CN under the provisions of the Canada Transportation Act (Act). The Quebec decision has a significant implication for claims involving transportation of goods by rail in Canada.
The Court of Appeal found in CN’s favour in interpreting the word “shipper” under the Act to mean the trucking company that CN contracted with on a limited liability basis according to the applicable tariff, rather than the ultimate recipient of the goods. The Court also found that the Act provides an exclusive regime for establishing liability. We reported on the decision of the Quebec Court of Appeal in our August 2007 edition.
In that decision, the Court of Appeal consideried an appeal from a 2004 decision of the lower court in a matter between Sumitomo Marine and Fire Insurance Co. (Sumitomo) and Canadian National Railway Co. (CN). Sumitomo insured a cargo of electronic products imported by Sanyo Canada Inc. (Sanyo) from Hong Kong. Sanyo retained Schenker of Canada Ltd. (Schenker) as freight forwarder. The goods were carried by ship from Hong Kong to Vancouver and Schenker retained a trucking company, TransX Ltd. (TransX) to arrange for the carriage of the goods from Vancouver to Montréal. TransX in turn contracted with CN which undertook the trans-continental carriage.
While enroute, the train derailed and Sanyo’s goods were completely destroyed. Sumitomo indemnified Sanyo to the extent of some $306,000 for the loss of its goods. TransX received $62,254 from CN, which represented a $2.00 per pound limitation in accordance with a tariff in effect at the time. TransX remitted that amount to Sanyo and Sanyo reimbursed Sumitomo to that extent. Sumitomo commenced an action against CN to recover the difference between $306,000 and the $62,000 that CN had already paid. CN admitted liability, subject to its right to limit liability.
The trial judge considered section 137 of the Act which provides in part:
“137 (1) A railway company shall not limit or restrict its liability to a shipper for the movement of traffic except by means of a written agreement signed by the shipper……”
He stated that a contract of carriage had been entered into between Sanyo and TransX, which was evidenced by a bill of lading. That bill of lading showed Sanyo as both shipper and consignee. Two carriers were involved in the transportation, TransX and CN. From the standpoint of the trial judge, Sanyo was the “shipper” within the meaning of section 137 of the Act and did not enter into a contract with CN. Consequently, CN could not limit its liability and was liable to Sanyo (Sumitomo) for the full amount of the claim.
CN appealed to the Québec Court of Appeal, which rendered its judgment on July 10, 2007. The Court of Appeal considered whether or not Sanyo was the “shipper” within the meaning of s. 137. The definition of “shipper” in the Act is not particularly helpful (“…a person who sends or receives goods by means of a carrier…”). However the Court said that the definition must be considered in the context of the Act as a whole and in particular with reference to certain sections which require negotiations between the railway and the shipper with respect to various modalities of the transportation contract, including the price. Consequently, the “shipper” must be somebody who has a direct, effective and real contact with the railway.
The implications of the fact that TransX entered into this contract as shipper requires consideration both of the interpretation of the Act and the Act’s constitutional effect. The Court undertook a constitutional analysis and came to the following conclusions:
The provisions of the Act which concern the obligations and responsibilities of a rail carrier are an integral part of valid Federal legislation;
Accordingly, these provisions constitute the only basis on which an action for freight loss may be maintained against CN;
Because the Act creates a special liability regime, there is no need to have recourse to the Québec Civil Code for the purpose of filling any void left by the Federal enactment.
Thus the stage was set for a complete victory for CN. When the Court found that TransX had entered into signed contracts with CN for the carriage of goods, that it was the “shipper” within the meaning of section 137 of the Act and that at the time of the loss CN tariff 8066 applied to define the rights and obligations of the parties, it followed that CN was entitled to limit its liability in accordance with the tariff. The applicable limit was $2.00 per pound and CN had already paid this amount.
Since the liability of CN was determined by the special liability regime defined by the Act, and since that regime created an exclusive remedy, there could be no question of responsibility to any other party on any other basis. Thus, on the reasoning accepted by the Court, the liability of a rail carrier engaged in interprovincial transportation of goods in Canada should be governed by the basic principle applicable to air carriers engaged in international carriage by air: there is only one cause of action and one possible remedy.
Canadian National Railway Company v. Sumitomo Marine & Fire Insurance Company Ltd., [2007] SCCA 490 (CanLII)