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Forum Selection: Mazda Canada Case Overturned
Published in the August 2008 issue of Transportation Notes - View Article
In September 2007, the Federal Court refused to stay proceedings instituted in Canada, although the contract in question contained a very clearly worded forum selection clause which referred all disputes to the Tokyo District Court in Japan. The case, which we reported upon in the October 2007 edition of this newsletter, focused upon the impact of section 46 of the Maritime Liability Act which applies to contracts of carriage of goods by water. This federal legislation, enacted to counter the perceived injustice of transportation contracts which frequently give jurisdiction in maritime matters to a court with little or no connection with the contract, stipulates that certain parties may institute proceedings in Canada, notwithstanding a contrary jurisdiction selection clause. Relying on this provision, the Judge at first instance refused to stay an action commenced in British Columbia for recovery of damages occasioned when a cargo of automobiles was lost at sea. The Federal Court of Appeal has now reversed that decision on the basis that Japan is clearly the appropriate jurisdiction.
The Cougar Ace sailed from the port of Yokohama laden with a shipment of Mazda automobiles. The intended ports of discharge were in British Columbia and Oregon. In the course of routine ballasting operations on the high seas, the vessel took on a severe list and a number of vehicles being transported were lost. Mazda Canada was the owner of 1,563 of the lost vehicles. It commenced an action in the Federal Court of Canada.
The charterer of the vessel, Mitsui O.S.K Lines, commenced an action in Japan, seeking a declaration of non-liability. Mazda USA commenced proceedings in the U.S. District Court of Oregon. This last action was dismissed. Mazda USA responded by appealing and by suing in Japan. Mitsui’s claim for a declaration has been consolidated with Mazda’s damages action in Japan. A further action was commenced in Japan by the owner of Isuzu trucks which were also lost in the incident.
The Canadian proceedings were in rem against the vessel and in personam against the vessel’s owner. The time charterer and three crew members were also named as defendants.
Section 28 of the contract of transportation provided: “The contract evidenced or contained in this Bill of Lading shall be governed by Japanese law. . . Unless otherwise agreed, any action against the Carrier thereunder must be brought exclusively before the Tokyo District Court in Japan.”
As the trial Judge noted, but for s. 46 of the Maritime Liability Act, the outcome would have been a foregone conclusion. Canadian courts reliably give effect to forum selection clauses in commercial matters and the issue was the extent to which s. 46 requires a difference in approach.
The Federal Court of Appeal, in reversing the trial Judge and granting a stay, began by stating that the law is now “relatively well-settled”. Section 46 “eclipses the former Canadian law” and the contract of carriage is no longer controlling. Under the legislation, the fact that a port of discharge is in Canada is one of the grounds which results in a claimant being able to institute Canadian proceedings notwithstanding an unfavourable jurisdiction selection clause.
The Maritime Liability Act does not, however, displace the doctrine of forum non conveniens. Although a claimant may institute proceedings in Canada, a defendant remains free to seek a stay of those proceedings on the basis of FNC.
Thus, it is clear that the trial Judge had a discretion to stay the action. He declined to do so. The first question which arose on appeal was the basis on which an appellate court should interfere with a discretionary decision. This has been the subject of much judicial consideration in Canada during the last few months and the Court did not review the issues in any detail. It simply noted that appellate intervention should not be undertaken lightly but that errors of law require intervention and “a certain amount of reevaluation” of the evidence. It concluded that the trial Judge did not exercise his discretion properly and that reversal was necessary.
There is general agreement respecting the factors which are to be taken into account on an FNC application. Most commonly cited is a non-exhaustive list of ten factors: residence of the parties and witnesses, location of material evidence, place of negotiation and execution of contract, existence of proceedings in another jurisdiction, location of assets, applicable law, plaintiff’s choice of forum, interests of justice, interests of the parties and foreign recognition of any resulting judgment.
The Court of Appeal concluded that the trial Judge erred in law in that he undervalued certain factors and overemphasized others. In what follows we review the most significant findings of the Court of Appeal. We will do so in the same order as the Court, except that we promote to the forefront a factor which we believe is of the greatest general significance: When a case is governed by s. 46 of the Maritime Liability Act, what if any importance should be given to a forum selection clause in deciding whether to grant a stay. The answer given by the Court of Appeal, which appears to us to be very sound, is that the weight given will be context specific. The Court explains:
“In this case, however, the clause is not one of those offensive ones that gives jurisdiction of a Court that has little or no connection to the contract, which often treated Canadians so unfairly. On the contrary, here there exists a long-standing relationship between the parties, who have dealt with one another over many years on the basis that the Japanese courts will have jurisdiction in a context where Japan has a close connection to the arrangements made. In these circumstances, the jurisdiction clause is a factor that deserved to be given more weight favouring Japan, where it might not deserve such weight if the links with Japan were more tenuous.”
We return now to a sequential review of the decision of the Court of Appeal. The first factor which the trial Judge failed to give adequate attention to was the existence of proceedings in Japan. The time charterer is pursuing a declatory action there and two consignees of lost vehicles are pursuing damage claims. It seems likely all three actions will be consolidated. The evidence before the Court was that the matters are proceeding expeditiously. The issues in question are complex and the proceedings are certain to involve significant expense. These are factors which “weigh very heavily in favour of Japan”. Furthermore, international comity favours deferral to the Japanese Court. The fact that the Canadian action was commenced first “is not of any importance”.
The Court of Appeal also found that residence of the parties and witnesses is an important factor which points to Japan as the appropriate venue. The condition of the vessel is in issue and this will require evidence respecting the dry docking of the vessel in Japan. The loading and inspection of the vessel prior to departure and preparation for the voyage as well as the ballasting operation will all require witnesses from Japan, Singapore, Myanmar and the Phillipines. As against this, the only witnesses from Canada will be those needed to describe the contract with Mazda Canada and to quantify its losses.
The law of the contract is Japanese law. The trial Judge improperly dismissed this by saying he was not aware of any differences between Japanese and Canadian law on the issues involved. The Court of Appeal disagreed, identifying “complicated legal questions that have not yet been resolved in Japan”. In particular, it would be appropriate for a Japanese court to decide “the issue of due diligence in relation to the seaworthiness of the vessel prior to the voyage and its relationship to the issue of the defence of error in the management of the vessel under the Hague-Visby Rules.”
These issues should be dealt with “in Japan in Japanese by Japanese Judges and lawyers” and not by Canadian judges “totally unaware of the actual Japanese jurisprudence and its legal system.”
The trial Judge was concerned by the fact that under Japanese law it seems more likely that the plaintiff would be faced with a limitation of liability defence which would not be available in Canada. There are two errors underlying this concern. First of all, it is not clear whether limitation of liability would be dealt with under Canadian law, even if the matter should proceed in Canada. In the second place, the Court of Appeal referred to precedent for the proposition that the “availability of higher damages in a jurisdiction is not a factor justifying the refusal of a stay, provided that substantial justice could be done in that jurisdiction.”
Finally, the trial Judge considered three factors which are not on the normal list. This is appropriate as the list is non-exhaustive. However, the Court of Appeal found fault with the weight given to these additional factors.
The first question is whether the provisions of the Maritime Liability Act are evidence of a public policy which should favour Canadian plaintiffs in FNC proceedings arising out of marine losses. It is a legal error to suppose that such a policy exists. All the relevant portion of the Act does is give the claimant in Canada his day in court. It relieves from the prescriptive force of a jurisdiction selection clause, to allow an action to be commenced, but it says nothing about how a court is to identify the appropriate forum once that action is challenged on the basis of forum non-conveniens. Likewise, the trial Judge’s conclusion that the advantages of the Canadian in rem procedure was a factor in favour of Canadian jurisdiction found no support in the Court of Appeal.
It is at this point that the Court expressed the view that will, we believe, be the most important consequence of the case in the long run. This is the point, made earlier in this article, that even where s. 46 of the Maritime Liability Act does apply to permit the commencement of an action, a well drafted jurisdiction selection clause may continue to be a factor of considerable importance.
We expect that a major issue in any FNC application involving section 46 will be the “reasonableness” of the jurisdiction selection clause and that clauses which select a jurisdiction with a strong rational connection to the parties and their transactions will continue to survive the challenge of section 46.
Mitsui v. Mazda
2008 FCA 219