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Case Comment: Catalyst Paper Corporation v. Companhia de Navegação Norsul
Published in the February 2009 issue of Transportation Notes - View Article
First a brief update: In our September edition we commented on a decision of the British Columbia Court of Appeal which upheld the position of BC Rail in a case involving injury to a trespasser. The Supreme Court of Canada has denied leave to appeal. Accordingly the vindication of BC Rail stands as the last word.
The Supreme Court of Canada also recently brought an end to a dispute concerning the existence of a shipping contract between a Brazilian shipping company and a British Columbia forest products company. It dismissed an application for leave to appeal the decision of the British Columbia Court of Appeal.
The plaintiff/respondent Catalyst Paper Corporation had for many years, Catalyst had contracted with Companhia de Navegação Norsul to ship newsprint and paper products to Catalyst’s customers in Central and South America. In September 2003, the parties began negotiations for a new contract of affreightment (CoA) covering a three-year period from 2004-2006. The negotiations were mainly conducted by local cargo agents for the parties over the span of three months. In early 2004, Norsul sold one of its divisions to another carrier, Gearbulk. The latter was not “entirely enthusiastic” about taking on the obligations of a CoA at the rates negotiated by its predecessor and the issue which arose was whether there was a concluded agreement which should be binding on Gearbulk.
Norsul argued that several terms lacked certainty and, most importantly, that the parties were never ad idem concerning responsibility for liability, also known as “cargo care provisions”, a significant aspect of a CoA. This argument failed at trial where the judge held that a contract did exist and that any unresolved items were only minor items that remained to be “ironed out”.
A considerable body of evidence relating to the negotiations between the local agents was referred to at the appeal. The appeal court concluded that the parties and their agents are sophisticated parties experienced in all relevant matters including methods of negotiation in the shipping industry. Catalyst pointed to the evidence of the correspondence, the long history of the parties’ dealings and the fact that a vessel was loaded, departed and invoiced in early 2004, apparently pursuant to what the parties considered was a new CoA.
However, the appeal court concluded that Norsul and Catalyst did not, prior to the sale of the undertaking by Norsul, reach agreement on essential terms relating to cargo care in any new CoA. While there was an historical pattern suggesting Norsul would indemnify for cargo damage, there was evidence the parties were still negotiating the details of the cargo care provision when Gearbulk took over. The appeal court held that these are significant matters in the context of the CoA and that the reasonable observer would not be able to discern any clear agreement between the parties on the cargo care issues. Certain individuals, including a Director of Norsul, suggested the parties thought they had an agreement. In the eyes of the appeal the individuals who made those comments were mistaken.
Catalyst relied on case law in support of its proposition that the long history of dealings between the parties could have significance in assessing their likely ability or proclivity to agree on points in dispute. However, the appeal court distinguished those cases. They involved negotiations between the same parties. Here the intervening sale of the Norsul undertaking had great significance. While the ultimate agreement of unresolved questions likely would have been worked out over time by the two well-disposed negotiating parties, the factual situation shifted dramatically when the division was sold to Gearbulk. The trial judge’s failure to fully appreciate the “dramatic change in circumstances” brought by the sale of the Norsul assets/undertaking was palpable error. The appeal court concluded that the arrangements between the parties became in effect frozen in time as of early January 2004 with the Gearbulk transaction. Furthermore, even if the trial judge was correct in assuming the parties would have likely reached agreement, he was in error in finding that all essential terms were resolved. The issue of cargo care liability had not been agreed on, and this was fatal to the conclusion that there existed an enforceable agreement.
Catalyst Paper Corporation v. Companhia de Navegação Norsul
2008 BCCA 336