Source: http://citoyens.soquij.qc.ca/php/decision.php?ID=AE80793A19319E9720F68E399F023906&captchaToken=03AO9ZY1A0qWEdSKGMh27BgrvKgtSMIQ6LI79O6UQbvkXi4sQduEUwBl6nQk5KWSm4kOQ-XJG2-n5qrlwgBJjRxVZ3Cnc4ibV-OqhyhPHKDlJPbYvHpkf62hroXOxQaO4LAkq3dOyyLacweM0uZScosoWTUgTrW7PaaAlXzGHFpt1VL816ImRF9-E2lEVZ5e_WX4rhPH8fw2M_9PyoOS33wXoqaba3hV7uc1M7lpirZt24xd9blVGGCbR3fS-mBC9Mv5ZmCgvRwqgtQNuBI4O6EY6vtb1V0jdtxJgdHBDy21VZbi4KMgx2t9rD-4w5lzEY-UY0YhfKF1GwcyG52LRbWO5xbOyYpj0oVg
Timestamp: 2019-05-20 05:16:11+00:00

Document:
2017 QCCA 1471
(500-17-060283-101)
APPELANTES - défenderesses / demanderesses reconventionnelles
INTIMÉES - demanderesses / défenderesses reconventionnelles
LLOYDS UNDERWRITERS AND INSTITUTE OF LLOYDS UNDERWRITERS (ILU) COMPANIES SUBSCRIBING TO POLICY NUMBER B0856 09H0016 AND AIM INSURANCE (BARBADOS) SCC
INTIMÉES - demanderesses en reprise d’instance
[1] Les appelantes se pourvoient contre un jugement rendu le 23 novembre 2015 par la Cour supérieure du district de Montréal (l’honorable Marie-Anne Paquette) qui leur ordonne de payer aux intimées une indemnité de 5 661 830,33 $ avec intérêt et l’indemnité additionnelle depuis le 27 octobre 2009.
[2] Pour les motifs du juge Mainville auxquels souscrit le juge Healy dans ses motifs, la COUR :
[4] INFIRME le jugement attaqué;
[5] ACCUEILLE en partie l’action des intimées;
[6] REJETTE la demande reconventionnelle des appelantes;
[7] ORDONNE aux appelantes de payer aux intimées la somme de 78 900 $ avec intérêt et l’indemnité additionnelle depuis le 27 octobre 2009, avec frais de justice en appel et en première instance, incluant les frais d’expertises;
[8] Pour d’autres motifs, le juge Vézina aurait rejeté l’appel, avec frais.
Me George J. Pollack
Me Victor De Marco
[9] Les appelantes du groupe Wärtsilä vendent aux Intimées, le groupe TDi, pour l’un de ses navires, une assise de moteur et un vilebrequin remis à neuf (a new bedplade and a reconditioned crankshaft). Le prix de vente est de plus d’un million de dollars.
[10] L’assemblage des pièces du vilebrequin se fait à l’usine de Wärtsilä.
[11] Quelque dix mois plus tard, le moteur subit un bris majeur et le navire est immobilisé durant plusieurs mois. Le préjudice des Intimées - le montant en est admis - est de 5 661 830 $.
A- Question de fait
[14] La Juge de première instance tranche sans réserve que le problème origine de la fixation défectueuse de la bielle lors de l’assemblage à l’usine de Wärtsilä.
[15] Voici quelques faits tirés de la preuve qui la mènent à cette conclusion :
a) Le bris est causé par le manque de serrage d’un des deux boulons de la bielle sur l’unité 5L.
b) Les employés de TDi n’ont pas desserré l’écrou sur le boulon qui a causé le bris depuis le moment de l’achat du moteur.
c) Un boulon, même suffisamment serré, peut se desserrer en l’absence d’intervention.
d) TDi a présenté une preuve d’expert convaincante démontrant que le vice était présent au moment de la vente.
e) L’assemblage n’était inspecté ni assujetti à aucun contrôle de qualité par Wärtsilä.
f) La procédure d’assemblage de Wärtsilä faisait défaut, et celle-ci a manqué de rigueur dans la planification, la supervision et la conduite des travaux d’assemblage.
[16] Quant aux faits, Wärtsilä ne fait, en appel, que reprendre sa théorie de cause sans pointer une erreur dans celle retenue par la Juge. Elle réitère que c’est le seul incident de cette nature (un serrage insuffisant) qui soit survenu sur les centaines de bielles fixées sur des moteurs semblables. Elle réaffirme que le travail à l’usine est bien fait et que la procédure appropriée est suivie. Elle nous renvoie à ses experts selon qui il est « impossible », si la bielle était mal serrée au départ, que le bris du moteur ne survienne qu’après 13 600 heures de marche.
[17] Sur ce dernier point, la Juge a plutôt retenu l’opinion contraire de l’experte des Intimées. Elle écrit à son sujet :
[83] Mrs. Banuta’s experience is vast, undisputable, highly reliable and relevant to the expert issues in this case. Wärtsilä also participated in the elaboration of the testing protocol which she followed for the metallurgical investigation conducted after the failure of the engine on the Camilla Desgagnés. Wärtsilä experts fully relied on the result of her investigations.
[18] Certes, les experts divergeaient d’opinion, mais les constats de fait de la Juge sont étayés sur la preuve et Wärtsilä n’y a démontré aucune « erreur manifeste et déterminante », qui seule - la règle est bien établie - justifie une intervention de la Cour.
[19] Ce moyen de fait est mal fondé.
B- Questions de droit
[20] Quant au droit, Wärtsilä soumet le syllogisme suivant. La vente de pièces d’un moteur de navire relève du droit maritime et non du droit civil. Or, selon le droit maritime, la clause du contrat qui limite la période de garantie est valable et la dégage de toute responsabilité puisque le bris est survenu après cette période. Wärtsilä écrit :
78. [Wärtsilä] therefore submit that inasmuch as the Incident occurred after the Warranty had expired, and as the parties had agreed in the Contract that the implied warranty of fitness would not apply, Appellants are entitled to disclaim liability for Respondents’ claim.
[21] Avant de discuter de droit maritime ou droit civil, il est opportun de faire certaines distinctions relatives à la responsabilité du vendeur.
1- Distinctions relatives à la responsabilité du vendeur
a) Distinction entre une clause de limitation de la période de garantie et une d’exclusion de toute garantie
[22] Il importe de distinguer une clause d’un contrat de vente qui limite la période de garantie de celle par laquelle le fabricant[1] (ou le vendeur) d’un bien se dégage de toute responsabilité relative à sa qualité.
[23] Selon la dernière clause, rien n’est garanti, ni que le bien est exempt d’un vice caché ni, par exemple, qu’un moteur fonctionnera bien après la vente. Le Code civil le permet[2] et consacre une formule « lorsque l’acheteur l’achète à ses risques et périls » (when a buyer buys property at his own risk); d’autres expressions au même effet sont aussi couramment utilisées : « vendu tel que vu » ou même simplement « sans garantie ». Dans le Black’s Law Dictionnary, on trouve « sale as is » et « sale with all defects ».
[24] Par contre, selon la première clause, celle de limitation de la période de garantie, le fabricant garantit l’absence de vices cachés lors de la vente et, comme ici, le bon fonctionnement du vilebrequin, même si ce n’est que pour un temps limité.
[25] On voit aisément la différence. Dans le cas d’une vente « sans garantie », si le moteur cesse de fonctionner quelques jours après la vente, l’acheteur ne peut poursuivre son vendeur. Par contre, si la vente prévoit une période de garantie, même limitée à quelques mois, l’acheteur a un recours contre le vendeur, il pourra faire annuler la vente et être indemnisé.
b) Distinction de l’obligation de qualité du vendeur et celle de toute personne de réparer le préjudice causé
[26] Il importe encore de distinguer la responsabilité du vendeur en vertu de la garantie contre les vices cachés, qui découle de l’obligation de qualité, de celle de toute personne en vertu du droit commun, qui oblige à réparer le préjudice causé par sa faute.
[27] L’importance de la distinction provient du fait que, dans presque tous les cas de vices cachés, l’acheteur ignore la cause du problème et il n’est donc pas en mesure de prouver s’il résulte d’une faute du vendeur ou du fabricant. La garantie contre les vices cachés crée alors une présomption de faute du vendeur en faveur de l’acheteur, laquelle fonde son action en justice.
[28] On en a une illustration dans la fameuse affaire Kravitz[3] où l’acheteur d’une automobile s’est retrouvé avec un « citron », selon l’expression populaire. Malgré plusieurs tentatives, son concessionnaire n’est pas parvenu à trouver la source du problème et à remettre l’auto en bon état de fonctionnement. À plus forte raison, l’acheteur était-il incapable de prouver la cause du problème et une faute du fabricant. Grâce à la présomption résultant de l’obligation de qualité, la vente a été annulée et l’acheteur indemnisé.
[29] Lorsque le vendeur limite - dans la mesure où la loi le lui permet - la période de garantie, cette présomption de faute de sa part disparaît à l’expiration de la période stipulée et l’acheteur ne peut plus l’invoquer pour fonder une action contre son vendeur.
[30] En somme, si pour des raisons inexpliquées le moteur flanche avant l’expiration de la période de garantie, le fabricant devra en répondre, mais il n’en sera pas de même si la période est expirée. Par contre, si la raison en est expliquée et démontre sa faute, alors le fabricant sera tenu responsable peu importe la période de garantie, la seule limite de l’action devenant alors celle du délai de prescription.
[31] Ici, on se trouve dans la seconde situation où la source du problème, la raison du mauvais fonctionnement du moteur, est connue, c’est le serrage insuffisant de la bielle d’un piston à l’usine de Wärtsilä.
[32] Certes, TDi engage son action en invoquant la garantie contre les vices cachés, ce qui l’oblige à prouver que le vice existait au moment de la vente. Mais, comme celle-ci coïncide avec l’assemblage du vilebrequin, la preuve de l’insuffisance de serrage au moment de la vente démontre ipso facto une faute du fabricant/vendeur, ce qui nous amène à la responsabilité générale de droit commun.
[33] C’est ainsi que la Juge conclut à la fois que le bris du moteur révèle l’existence d’un vice caché et une faute causale de Wärtsilä :
[98] This improper torque of the nut of the big stud on unit 5L was therefore present at the time of the sale.
[104] Wärtsilä is thus liable for the defect in the crankshaft and bedplate assembly which it delivered to TDI in February 2007 and for all the related damages.
c) Quid de ces distinctions ici?
[34] Ces distinctions établies, le syllogisme de Wärtsilä est en porte-à-faux. Elle devait, pour échapper à sa faute, démontrer non pas simplement que la période de garantie est expirée, mais bien que la vente a été conclue aux risques et périls de l’acheteur (at his own risk), ce qui est nettement plus exigeant.
[35] À mon avis, il est incompatible de garantir la qualité du vilebrequin, ne fût-ce que pour six mois, et prétendre l’avoir vendu sans garantie aucune.
[36] Wärtsilä invoque la loi (UK) Sales of Goods Act de 1893, (56,57 Vict. c.71) mais le droit commun a évolué depuis lors. Dans l’affaire Kravitz, par exemple, le fabricant est tenu responsable malgré l’absence de contrat entre lui et l’acheteur du véhicule, ce qui était impensable auparavant.
[37] L’arrêt National Bank of Canada c. Rogers[4] signale cette évolution :
[43] Le droit maritime canadien comprend le droit appliqué par les tribunaux d’amirauté en Angleterre jusqu’en 1934, qui a évolué au gré de la jurisprudence et les lois canadiennes (ITO-International Terminal Operators c. Miida Electronic Ltd, [1986] 1 RCS 752. Le (UK) Sales of Goods Act faisait partie de ce droit […]
[38] L’argumentation de Wärtsilä porte entièrement sur l’obligation de qualité du bien vendu. Elle écrit :
62. [Wärtsilä] submit that the application of Canadian maritime law to the present dispute compels the application of the common law rules. These rules include implied contractual terms that oblige vendors and manufacturers to supply goods that are fit for their intended purpose. […]
67. Even if the provisions of the (UK) Sale of Goods Act had not been received into Canadian maritime law, the common law implied warranty of fitness for purpose predated and was the basis for that (and similar Canadian) legislation. […]
77. […] It is also clear that the provision [du contrat de vente] specifically ousts the application of the implied warranty of fitness.
[39] Dans l’arrêt Chabot v. Ford Motor Co. of Canada Ltd. (1982)[5], la Cour suprême de l’Ontario analyse l’effet d’une clause d’exclusion dans un contrat de vente de voiture. La clause se lisait ainsi :
[7] […] The new vehicle warranty is the only warranty applicable to such new vehicle or chassis and is expressly in lieu of all other warranties, expressed or implied, including any implied warranty of merchantability or fitness for a particular purpose…
et la Cour considère que l’exigence d’être propre à l’usage n’est pas écartée :
[Je souligne car j’y reviens plus loin.]
[72] … The condition (of fitness for a particular purpose) implied by virtue of the section can hardly be said to be a warranty given with the goods sold. It is made by law a part of the sale itself. […]
[40] À mon avis, Wärtsilä a restreint sa garantie contre les vices cachés, mais elle n’a pas pour autant stipulé une clause « aux risques et périls » de l’acheteur (at his own risk) qui seule pouvait la dégager d’une faute causale de sa part.
[41] Notons que le Code civil interdit au fabricant et au vendeur professionnel de limiter sa responsabilité (C.c.Q., art. 1728 et 1733). Ce qui n’est plus contesté en appel par Wärtsilä dont les moyens sont tous conditionnels « if Canadian maritime laws applies… ».
[42] En somme, la limitation de la période de garantie contre les vices cachés stipulée par Wärtsilä ne la dégage pas de son obligation de réparer le préjudice causé à autrui par sa faute. Ce qui est le cas ici, où il est prouvé que l’insuffisance de serrage d’un boulon, la cause du préjudice, n’est pas le fait des préposés de TDi sur son navire, mais bien de ceux de Wärtsilä à son usine.
2- Droit maritime ou droit civil
[43] Traitant de cette question, la Juge rappelle la règle pour déterminer quel droit s’applique :
[20] While the laws of the Parliament govern matters of “Navigation and Shipping” (Constitution Act, 1867, s. 91(10)), the laws of the relevant province apply to matters of “Property and Civil Rights” (Constitution Act, 1867, s. 92(13)).
[24] The test uniformly applied to determine whether Canadian maritime law applies is the following:
[Soulignement de la Juge]
puis, elle l’applique aux faits de l’affaire :
[26] The current matter relates to the sale of a marine engine.
[27] Issues relating to the obligations arising from such a contract of sale are not integrally connected to the pith and substance of the Parliament’s jurisdiction over navigation and shipping, as defined above.
[28] More particularly, the contract for the sale of a marine engine is not integrally connected, for instance, to issues of safe carriage of goods over the sea, movement of goods on and off a ship (shipping), seaworthiness of a ship or good seamanship (navigation). It is also not integrally connected to applicable admiralty law, rules, principles or practices or international maritime conventions.
[31] Wärtsilä is sued as the seller of the crankshaft and bedplate. It is not sued as a party performing a contract that pertains to the pith and substance of navigation and shipping activities.
[32] As the contract for the sale of the engine and of the bedplate was formed in Montreal, the laws of Quebec therefore apply to the present dispute.
[44] Je partage cet avis.
[45] Ce point de vue est aussi celui du juge de Montigny de la Cour fédérale dans 9171-7702 Québec inc. c. Canada[6]. Voici quelques extraits de ses motifs :
- la question à trancher, droit maritime ou droit civil :
[20] …un contrat de vente portant sur un navire est-il régi par le droit maritime ou par le droit civil de la province où le contrat a été formé? […]
- la source de la compétence fédérale sur la navigation est la constitution canadienne et non une loi fédérale :
[24] […] Il va de soi que ni l’un ni l’autre des deux ordres de gouvernement ne peut de son propre chef et unilatéralement s’arroger le pouvoir d’interpréter le texte constitutionnel en légiférant sur la question.
- la compétence fédérale est très étendue :
[30] [références omises] Sur la base de ces principes, la jurisprudence a reconnu au Parlement un vaste pouvoir de légiférer non seulement sur les eaux navigables … les ouvrages reliés à la navigation … et les ports … mais également sur la réglementation de la navigation…, sur la responsabilité découlant d’accidents maritimes…, sur la responsabilité en cas de perte ou dommages à des marchandises transportées par bateau…, sur l’assurance maritime…, sur la réparation, la construction et l’entretien des navires… ainsi que sur le pilotage et le remorquage des navires…
- le caractère véritable d’un contrat de vente de navire :
[31] Qu’en est-il des contrats de vente portant sur un navire? S’agit-il là d’une matière qui relève, intrinsèquement ou par analogie avec les matières mentionnées précédemment, du droit maritime? Ou doit-on plutôt conclure que, de par son caractère véritable, un tel contrat relève plutôt du droit civil? La Cour suprême ne s’est jamais directement prononcée sur la question […]
- la distinction entre la propriété d’un navire et son enregistrement :
[33] […] il n’y a pas de lien étroit entre le transfert de propriété d’un navire (par opposition à son enregistrement) et le droit maritime.[…]
- l’enseignement le plus récent de la Cour suprême qui réduit la portée des immunités juridictionnelles :
[39] …il faut prendre acte d’une décision plus récente rendue par la Cour suprême dans l’affaire Banque canadienne de l'Ouest c Alberta, 2007 CSC 22, [2007] 2 RCS 3 [Banque canadienne de l'Ouest], qui a considérablement réduit la portée des immunités interjuridictionnelles. […]
- et favorise une interprétation souple et flexible du fédéralisme :
[42] La Cour [suprême] s’est par la suite employée à décrire les effets pervers de cette doctrine [des immunités interjuridictionnelles] : elle favorise indûment la législation fédérale au détriment de la législation provinciale et n’est pas compatible avec l’interprétation souple et flexible du fédéralisme, […]
- ne retenant la doctrine des immunités juridictionnelles que s’il y a entrave :
[43] Il appert donc de cette décision que la doctrine des immunités interjuridictionnelles est d’une portée limitée, et qu’elle est soumise à deux limites importantes. Tout d’abord, ce n’est que dans l’hypothèse où une loi adoptée par un niveau de gouvernement « entrave » (sans nécessairement stériliser ou paralyser) le contenu essentiel d’une compétence relevant de l’autre ordre de gouvernement que la doctrine s’appliquera. […]
- puis il conclut à l’absence d’entrave :
[44] À la lumière de ces derniers développements, il m’apparaît encore moins crédible de prétendre que les lois provinciales encadrant la vente et l’exécution d’un contrat de vente ne puissent recevoir application lorsque l’objet de la vente est un navire. De telles lois n’entravent certainement pas la compétence fédérale sur la navigation et les expéditions par eau, dont le noyau dur consiste plutôt à réglementer les divers aspects du commerce maritime et de la circulation sur les eaux notamment pour assurer une certaine uniformité ainsi que la conformité avec le droit applicable au niveau international.[…]
- et à l’application du droit civil :
[47] Pour tous les motifs qui précèdent, je suis donc d’avis que c’est le droit québécois des contrats qui doit être appliqué au présent litige, et que la réponse aux questions formulées par le Protonotaire doit trouver sa source dans le Code civil du Québec et plus particulièrement dans le chapitre premier du titre premier du livre cinquième de ce code portant sur la vente.
[46] La Loi de 2001 sur la marine marchande du Canada[7] oblige le « propriétaire d’un bâtiment… de veiller à ce que celui-ci soit immatriculé », mais la Loi ne définit pas le droit de propriété ni n’édicte des dispositions pour l’établir. Manifestement la Loi nous renvoie alors au droit commun concernant ce concept.
[47] Et, si le propriétaire du navire décède, on ne cherchera pas dans le droit maritime pour savoir qui en hérite.
[48] À mon avis, l’établissement de propriété et son transfert, par contrat de donation entre vifs ou à cause de mort, relève du droit commun, c’est-à-dire du droit civil au Québec, comme la Loi d’interprétation fédérale[8] le confirme :
8.1 8.1 Both the common law and the civil law are equally authoritative and recognized sources of the law of property and civil rights in Canada and, unless otherwise provided by law, if in interpreting an enactment it is necessary to refer to a province’s rules, principles or concepts forming part of the law of property and civil rights, reference must be made to the rules, principles and concepts in force in the province at the time the enactment is being applied.
[49] Ici, le droit de propriété du vilebrequin est passé de Wärtsilä à TDi par un contrat de vente conclu au Québec. Il faut donc « avoir recours aux règles, principes et notions » du droit civil pour l’interprétation et l’application de ce contrat.
[50] Le Code civil fait de l’obligation de garantie un élément essentiel de toute vente conclue par un fabricant ou un vendeur professionnel. Tout comme dans l’arrêt ci-dessus cité[9] de la Cour suprême de l’Ontario « the condition (of fitness for a particular purpose) … is made by law a part of the sale itself ».
[51] Les moyens de droit de Wärtsilä ne sont pas fondés. Le Code civil régit la vente intervenue et Wärtsilä ne pouvait limiter sa garantie. En outre, sa faute est prouvée et les clauses du contrat ne la dégagent pas de l’obligation de réparer le préjudice causé.
[52] En somme, vendre un vilebrequin non fonctionnel, c’est vendre un amas de pièces qui y ressemble sans vraiment en être un. La commune intention des parties était pour l’acheteur de payer plus d’un million de dollars pour un vilebrequin fonctionnel et pour le vendeur de lui assembler et livrer un tel vilebrequin à ce prix.
[53] Pour ces motifs, je suis d’avis de rejeter l’appel, avec les frais de justice.
REASONS OF MAINVILLE J.A.
[54] This appeal concerns a dispute between a Canadian merchant shipping corporation and its marine insurers against a Dutch manufacturer and supplier of marine propulsion systems with respect to damages incurred by a cargo vessel plying the Eastern and Arctic Canadian waters, the MV Camilla Desgagnés (the “Camilla”), following the failure of the ship’s main engine in 2009. The trial judge found that the failure had resulted from improper torque applied to a stud during the replacement of the engine’s crankshaft and bedplate in early 2007, when the ship had been towed to Halifax for repairs.
[55] I am of the view that Canadian maritime law governs the dispute. The contract for the main engine repairs performed in Halifax to the Camilla provides for a limited warranty and limitations of liability. The sophisticated commercial parties to that contract specifically set their minds to the issue of warranties and liabilities. Through negotiations, they allocated between themselves the risks resulting from the contract. Under Canadian maritime law, the commercial contract between the parties must prevail. As a result, I would allow the appeal, set aside the trial judge’s decision and order the appellants to pay the sum of €50,000 (converted to $78,900) to the respondents with interest and costs.
[56] Except for the cause of the improper torque applied to the stud, the facts are not in dispute.
[57] The Camilla is owned and operated by Transport Desgagnés Inc. (“TDI”) which, with Desgagnés Transarctik Inc. and Navigation Desgagnés Inc., forms part of a large Canadian merchant shipping conglomerate. The Camilla is an ocean-going general cargo ship principally operating in Eastern Canadian and Arctic waters.
[58] The crankshaft and bedplate of the main engine of the Camilla became damaged beyond repair in October of 2006 while it was in Pond Inlet. TDI contacted Wärtsilä Canada Inc., a subsidiary of Wärtsilä Nederland B.V. (collectively referred to as “Wärtsilä”) which sent a technician to Pond Inlet for the purposes of inspecting and assessing the damage and recommending repair options. The ship was towed to Halifax to undergo repairs. Wärtsilä proposed several repair options. TDI opted for a reconditioned crankshaft assembled on a new bedplate together with related equipment, as well as new marine style connecting rods.
[59] Wärtsilä’s proposal to TDI offered a six-month warranty period as well as general terms and conditions limiting its liability. The provisions of Wärtsilä’s General Terms and Conditions Spare Parts (2005) relating to warranty and to liability read as follows :
6.1 The Supplier shall repair or replace, at its discretion, as soon as reasonably possible, any defect in the Spare Parts which appears during the warranty period as a result of defective material or workmanship, provided, always when required by the Supplier, that such part or parts be returned to the Supplier at the Supplier’s cost to the place instructed by the Supplier. The Buyer shall immediately take appropriate steps to prevent any defect from becoming more serious and to enable the Supplier to rectify the aforesaid defect. In order to receive this remedy, any warranty claims or requests with respect to this warranty must be made in writing without delay and within fourteen (14) days at the latest from the discovery during the warranty period.
6.2 Replaced parts shall become the Supplier’s property. The Supplier shall bear only the costs of repairing or replacing the defective parts at the Supplier’s works as well as the costs occasioned by the transport of the defective and of the repaired or replaced parts between the respective manufacturer’s works and the place of delivery as originally agreed in the delivery terms.
6.3 The warranty period in respect of the Spare Parts begins at delivery and ends six (6) months from the date of the replacement or twelve (12) months from the date of delivery, whichever occurs first.
6.4 The warranty period in respect of parts which have been repaired or replaced under the warranty shall be three (3) months from the date of repair or replacement or until the expiration date of the original warranty period of the Spare Part, whichever occurs later, under the same terms, conditions and limitations of liability, as those applicable to the Spare Part. This provision shall not apply to non-replaced, original parts of the equipment. Under no circumstances shall the warranty period of any part exceed eighteen (18) months from the date of commencement of the original warranty period as stipulated above in subclause 6.3.
6.5 This warranty does not cover any defect due to or connected with : 1) any materials or components or design provided by the Buyer or on behalf of the Buyer; 2) negligence or other improper acts or omissions of the Buyer, its employees or agents or other third parties; 3) other than original Spare Parts supplied by the Supplier; 4) improper installation or alterations carried out without the Supplier’s consent in writing; 5) parts, accessories or attachments which are not sold, supplied or expressly approved in writing by the Supplier or ; 6) Spare Parts provided by the Supplier that are warranted directly to the Buyer by another manufacturer. This warranty does not cover any defects that are caused by or connected with the design, normal wear and tear, the use of unsuitable material or consumables by the Buyer, fluctuation in the grid or with any use, maintenance, service or operation of the equipment or the Spare Parts or any part thereof which is not in conformity with the Supplier’s or any of its subcontractor’s manuals, instructions or specifications or which is otherwise not in accordance with normal industry practice. The warranty obligation does not include any cranage, electricity, scaffolding, assisting work, docking, diving, demounting, mounting or travel and boarding costs of the Supplier’s personnel or representatives.
6.6 THIS IS THE ONLY WARRANTY APPLICABLE TO THE SPARE PARTS AND EXPRESSLY REPLACES ANY OTHER WARRANTIES, GUARANTEES, OBLIGATIONS AND LIABILITIES EXPRESS OR IMPLIED INCLUDING ANY OTHER WARRANTIES, GUARANTEES, OBLIGATIONS OR LIABILITIES AGAINST NON-CONFORMITY OR DEFECTS, HIDDEN OR OTHERWISE, AND ANY OTHER OBLIGATION, TERM OR LIABILITY IN RESPECT OF OR RELATING TO THE SPARE PARTS WHETHER IN CONTRACT OR IN LAW AND THE BUYER HEREBY WAIVES ALL OTHER REMEDIES, WARRANTIES, GUARANTEES AND LIABILITIES, EXPRESSED OR IMPLIED, ARISING BY LAW OR OTHERWISE (INCLUDING WITHOUT LIMITATION ANY OBLIGATIONS OF THE SUPPLIER WITH RESPECT TO ANY FITNESS FOR PURPOSE, MERCHANTABILITY OR SATISFACTORY QUALITY).
7. SUPPLIERS LIABILITY
7.1 IN NO EVENT, WHETHER AS A RESULT OF BREACH OF CONTRACT. BREACH OF WARRANTY, TORT (INCLUDING (WITHOUT LIMITATION) NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE, AND WHETHER ARISING BEFORE, DURING OR AFTER ANY WARRANTY PERIOD SHALL THE SUPPLIER BE LIABLE FOR ANY INDIRECT, CONTINGENT, SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES, INCLUDING (WITHOUT LIMITATION) FOR ANY LOSS OF ACTUAL OR ANTICIPATED PROFITS OR REVENUE OR ANTICIPATED SAVINGS, PUNITIVE OR EXEMPLARY DAMAGES, THE COST OF SUBSTITUTED EQUIPMENT OR SPARE PARTS, TOWAGE CHARGES, POLLUTION REMEDIATION COSTS, DOCKING OR DIVING COSTS, DAMAGE TO ANY VESSEL, ENGINE ROOM OR POWER PLANT SITE, YARD OR OTHER PROPERTY (INCLUDING DAMAGE TO GOODS OWNED BY THE BUYER), COST OF LABOR OR THE REMOVAL OR REINSTALLATION OF THE EQUIPMENT OR SPARE PARTS OR ANY PART THEREOF, COSTS FOR ANY ADDITIONAL TESTS (INCLUDING, WITHOUT LIMITATION, SEA TRIALS). DEBRIS REMOVAL, OR FOR LOSS OF TIME OR USE OF ANY EQUIPMENT, INSTALLATION SYSTEM, OPERATION OR SERVICE INTO WHICH PARTS MAY BE PUT, OR WITH RESPECT TO WHICH ANY SERVICES MAY BE PERFORMED BY THE SUPPLIER, HOWEVER CAUSED OR ARISING. THIS LIMITATION ON THE SUPPLIER'S LIABILITY SHALL APPLY TO ANY LIABILITY FOR DEFAULT UNDER OR IN CONNECTION WITH THE EQUIPMENT, HARDWARE, SOFTWARE, GOODS, PARTS AND/OR SERVICES DELIVERED HEREUNDER, WHETHER BASED ON WARRANTY, FAILURE OF OR DELAY IN DELIVERY OR OTHERWISE. This exclusion of liability, however, does not apply to unlawful intent on the part of the Supplier.
7.2 In no case shall the Supplier's liability cover such damages as could not have been foreseeable at the time of the conclusion of the Contract. Notwithstanding any other provision of the Contract, the Supplier’s maximum liability shall never exceed fifty-thousand euro (50.000 €).
[60] At the outset, it is useful to review the contract negotiations leading to the agreed contract terms, including the agreed warranty and limitation of liability provisions. These negotiations and the agreed terms are set out in Exhibits P-2, P-15, P-16, D-3, D-28, D-29 and D-33.
[61] After numerous exchanges between TDI and Wärtsilä, on October 17, 2006, Mario Rossi, of TDI, faxed to Dieter Hohoff, of Wärtsilä, TDI’s proposal for a price of $1,175,000 CAD FOB Halifax and with the following warranty condition: « WARRANTY: we propose 6 months after the completion of the repairs OR 5,000 engine running hours. »
[62] In an email dated October 18, 2006, 12:32 p.m., Dieter Hohoff responded for Wärtsilä:
We are pleased to receive your purchase order 070002525 in the amount of CAD $ 1 175 000.00 and appreciate your confidence in Wärtsilä but would like to propose the following comments/changes:
1. We will accept CAD $ 1 175 000.00 FOB Halifax, but which will only refer to the actual freight costs, all other costs like broker, custom clearance, local costs in Halifax and transportation from Halifax port to the vessel are not covered by Wärtsilä.
This is a major additional concession by Wärtsilä.
2. The warranty condition cannot be altered as this is a standard part of the Wärtsilä head office directive.
We hope the above is acceptable to you and kindly take into consideration that we are now covering as well the freight costs to Halifax which was not covered in our final proposal.
[63] Mario Rossi responded for TDI on October 18, 2006, 4:53 p.m. :
Thank you for your confirmation below; which in principle we accept.
However, as per our various telecoms, the warranty portion of 6 months starting from completion of repairs is absolutely unacceptable.
As explained, due to a very strong market and the loss of our charter, our vessel will in all probability remain approx. 4 months alongside; therefore it is our contention that the 6 months option will not give Transport Desgagnes a proper comfort level and thus totally unfair.
[64] On October 19, 2009, 9:29 a.m., Dieter Hohoff for Wärtsilä made a new warranty proposal to TDI :
Subject to further discussion we are prepared to make an amendment to the standard Wärtsilä “General Terms & Conditions of Spare Parts 2005”, paragraph 6.3 to extend the time period from 6 month to 9 month with the stipulation that the “Camilla” will not be employed for a period of 4 month following completion of the repair. The special warranty extension will not be valid if the “Camilla” will be operating immediately after the repair period.
Furthermore we kindly ask you to make a revision to your purchase order to cover the changes in the payment period and the warranty conditions.
[65] Mario Rossi responded to TDI on October 19, 2006, 10:36 a.m. :
We confirm that changes in the PO will be made with respect the delivery “4 weeks ex Zwolle, Netherland”
However your extended warranty should read something like this : “if in the event that the ship is laid up for an extended time during the 6 month warranty period; then this applicable laid up time will be added to the original six month period”
[66] Dieter Hohoff accepts for Wärtsilä by email dated October 19, 2006, 10:45 : « Please proceed with the amendment, we agree. »
[67] The final revised purchase order issued by TDI is dated October 19, 2006, and reads as follows:
A) As per reference B, please supply the following engine parts including :
1) new bedplate
2) Reconditioned crankshaft 1mm undersize, complete with counterweights, gear wheel, stub shaft and fitted bolts
3) Main bearings, axial bearing and connecting rod bearings
4) 1 set of new marine type connecting rods, with special hydraulic tool
5) Set of fitted bolts for vibration damper.
B) PRICE: CAD $1, 175, 000.00 —F.O.B. Halifax (Any additional transportation costs to be dealt with separately). For custom purpose only, the invoice should give a price per item. Transport Desgagnés Inc. will proceed with the custom clearance in Canada.
C) PAYMENT CONDITION : 25 % with the order
25 % when goods are ready for shipment from factory Zwolle, Netherland
25 % upon arrival of parts at Halifax
25 % within 30 days after parts have arrived at Halifax
D) DELIVERY : 4 weeks after reception of the order, ex. Zwolle, Netherland, please send the order by seafreight to :
C O M/V Camilla Desgagnés
Port of Halifax, Halifax
E) WARRANTY: 6 months as specified by Wartsila conditions with agreed amendment “If in the event that the ship is laid up for an extended time during the 6 month warranty period; then this applicable laid up time will be added to the original six month period.”
F) Our purchase order number is 070002525.
G) Please send the order confirmation to the undersigned.
[68] Wärtsilä accepted this purchase order that same day :
00 0003 * PARTS : 12 TM 410 R 1 11 75000.00 11 75000.00
2) Reconditioned crankshaft 1mm undersize,
complete with counterweights, gear wheel,
stub shaft and fitted bolts.
3) Main bearings, axial bearing and
4) 1 set of new marine type connecting rods
with special hydraulic tool
5) Set of fitted bolts for vibration camper
ABOVE IS BASED ON WARTSILA’S GENERAL TERMS
AND CONDITIONS OF SPARE PARTS 2005.
OTHER TERMS AND CONDITIONS AS STATED IN YOUR FAX
ORDER “10/19/06 THU 12:43” PARAGRAPH B) TO G)
SUB - TOTAL 1 175 000.00
[69] Once the contract terms were agreed, the components were assembled at Wärtsilä’s workshop in Zwolle, Netherland, between November 13 and 28, 2006. A Wärtsilä team installed the crankshaft in the bedplate and this was shipped to Halifax and installed in the engine room of the Camilla under supervision of Wärtsilä personnel while it was undergoing engine repairs in Halifax harbour in January and February of 2007.
[70] The Camilla went back into service in February of 2007. Some two and a half years later, on October 27, 2009, after it had been in operation for 13,653 hours, the Camilla’s main engine suffered a major failure as the ship was sailing on the St. Lawrence River in the vicinity of Les Escoumins.
[71] TDI commenced proceedings in the Quebec Superior Court against Wärtsilä for recovery of its damages and profit loss while the Camilla was out of service. The quantum of the claim was admitted at $5,661,830.33. TDI was partially indemnified ($4,714,002.01) by its marine insurers, Lloyds Underwriters and Institute of Lloyds Underwriters (ILU) Companies subscribing to Policy Number B0856 09H0016 and Aim Insurance (Barbados) SCC (collectively referred to as « Lloyds »). Lloyds filed a continuation of suit.
[72] It is common ground between the parties that the engine failure was caused by improper torque being applied to a stud. As a result of stresses caused by this, the stud broke, leading materials to be projected through the main engine and thus causing extensive damage.
[73] The basis of the claim was set out as follows in the Amended Motion to Institute Proceedings:
10. Upon investigation and metallurgical testing, it was ascertained that the origin and root cause of the incident was the failure of the connecting rod 5L big end bolt. The failure was identified metallurgically to have initiated a fatigue crack on the big end bolt directly caused by the improper tightening of the big end bolt of the connecting rod H piece of no. 5L unit which was fully assembled by Wärtsilä prior to shipment of the complete crankshaft to the vessel.
14. The crankshaft assembly provided by Wärtsilä was not fit for the intended purpose, was not of merchantable quality and contained a latent defect not apparent or known to the Plaintiffs nor discoverable by the exercise of due diligence.
15. The Plaintiffs relied on the expertise of Wärtsila in choosing and purchasing Wärtsilä engine parts and would not have purchased the said crankshaft assembly had it been made aware of the defect.
16. The latent defect existed at the time of sale of the crankshaft assembly to TDI by the Wärtsilä Defendants who were a professional seller, supplier and manufacturer, and the latent defect was caused by the personal fault and negligence of Wärtsilä, its servants, employees and agents.
[74] In its defence, Wärtsila denied liability on the ground that it would have been impossible for the engine of the Camilla to have been in service for over 13,500 hours after the installation of the crankshaft had improper torque been applied to the stud at assembly time. It also relied on the contract terms, notably the warranty and limitations of liability terms:
45. Quite apart from the fact that Wärtsilä Netherland’s quality control procedures are such that the Crankshaft could not have left the factory with a loose or improperly torqued big-end stud in the connecting rod for Cylinder Unit 5-L, had such a defect, in fact, existed when the Crankshaft was installed aboard the vessel, the failure described in the Motion would have occurred soon after the MV Camilla Desgagnés went back into service in February 2007.
46. In the present case, the failure occurred after the engine had been in service for 13,653 hours after the installation of the Crankshaft in February 2007. Given the tremendous stresses that the connecting rods were under, it is impossible for the engine to have remained in service for as long as it did if the big-end studs of the connecting rod of Cylinder Unit 5-L had not been properly assembled and torqued.
48. Defendants state, therefore, that if the big-end stud failed, then such failure occurred for reasons beyond Defendants’ control and for which Defendants are not in any way liable.
49. Without limiting the generality of the foregoing, Defendants state that there is in fact evidence to suggest that Plaintiff’s employees carried out maintenance work on the connecting rod on Cylinder Unit 5-L at a time and under circumstances unknown to Defendants and that during the course of such maintenance work they would have loosened the studs that secured the big-end caps on that connecting rod.
52. Whatever the explanation for the failure, it is clear that Defendants are not in any way liable for same. Even if they were, any legal and/or conventional warranty that Defendants may have given was limited in time to six months from when the vessel went back into service, the whole as more fully appears from the Contract.
53. That six month warranty period had long since expired when the incident occurred in October 2009.
54. Plaintiff is an experienced and professional vessel operator and has a long history of purchasing marine engines and engine components for use aboard its ships. Plaintiff understood full well that, inasmuch as it was purchasing reconditioned equipment, Defendants were only prepared to give a limited warranty in respect of same and Plaintiff agreed to such limited warranty in an informed fashion.
56. Defendants hereby invoke to their benefit all of the limitations and immunities contained in the Terms & Conditions, including provisions of section 7 thereof, in virtue of which Defendants are not liable for indirect or consequential damages such as those claimed by Plaintiff, and in virtue of which Defendants liability for damages is, in all cases, limited to and capped at €50,000.
58. Plaintiff’s claim and the present action is subject to and governed by Canadian Maritime law and not by the civil law of the Province of Quebec.
[75] There were two main issues before the trial judge, one of law and the other of fact: (a) whether Canadian maritime law or the provisions of the Civil Code of Quebec (“C.C.Q”) applied to the dispute, and (b) whether the improper torque applied to the stud resulted from an error of Wärtsilä or from some subsequent event.
[76] In a judgment dated November 23, 2015 (2015 QCCS 5514) (“Trial Judgment”), the Honourable Marie-Anne Paquette (“Trial Judge”) decided both issues in favour of TDI and Lloyds and ordered Wärtsilä to pay them $5,661,830.33.
[77] The Trial Judge found that Canadian maritime law did not apply on the ground that the dispute related to the sale of a marine engine, a matter she deemed not to be integrally connected to maritime matters:
[27] Issues relating to the obligations arising from such a contract of sale are not integrally connected to the pith and substance of the Parliament's jurisdiction over navigation and shipping, as defined above.
[29] Moreover, there is no practical necessity for uniform federal law to prescribe, for instance, the rules governing the seller's obligations to provide warranty regarding the quality of the product sold. The fact that such rules may vary depending on the applicable provincial law of contracts does no hinder the efficient and coherent conduct of the activities of navigation and shipping.
[30] Neither the extraterritorial use of the good sold nor the fact that the good sold will be used in connection with maritime activities drag such sale out of the ambit of the legislature's power over Property and Civil Rights. Although related to maritime activities, the current dispute is not integrally connected with same.
[78] The application of Quebec civil law had two major consequences which were determinative to the resolution of the factual and legal dispute.
[79] First, under articles 1726 to 1730 of the C.C.Q. in the case of a sale by a professional seller, the latent defect is presumed to have existed at the time of the sale unless the seller or manufacturer proves, on a balance of probabilities, that the defect is due to improper use by the buyer; the seller is further presumed to have known the existence of the defect at the time of the sale.
[80] Second, the professional seller or the manufacturer cannot rely on a limitation of liability clause unless it rebuts the presumption that it knew of the existence of the defect at the time of the sale; evidence of good faith or of ignorance of the defect or an honest belief in the adequacy of the product is not enough: ABB Inc. v. Domtar Inc., 2007 SCC 50, [2007] 3 S.C.R. 461, at paras. 56, 69, 72, 73 and 102-106.
[81] These rules starkly contrast with those applicable under the common law should Canadian maritime law govern the dispute. In Canada, the common law rule is that a latent defect must affect an essential characteristic of the good and make the good unfit for its intended use. The onus is on the buyer to prove that the latent defect was known to the seller or that the seller showed reckless disregard for what it should have known: ABB Inc. v. Domtar Inc., at para. 80.
[82] Furthermore, contrary to Quebec law, the common law has no specific rule for the special case of professional sellers and buyers. In principle, a limitation of liability clause in a contract between two merchants will be valid unless it is declared to be unenforceable either for unconscionability or because failure to discharge the obligation to which it applies would amount to a fundamental breach of contract. Even where a fundamental breach has been established, in a common law context, the court must still analyze the limitation of liability clause in light of the general rules of contract interpretation. If the words can reasonably be interpreted in only one way, it will not be open to the court, even on grounds of equity or reasonableness, to declare the clause to be unenforceable since this would amount to rewriting the contract negotiated between the parties: ABB Inc. v. Domtar Inc., at paras. 81-84.
[83] The Trial Judge’s finding with respect to the application of Quebec civil law thus essentially sealed the fate of the proceedings.
[84] Despite the evidence presented by Wärtsilä that the improper tightening resulted from maintenance work performed by TDI employees and despite its expert reports establishing that the fracture initiation site originated from the surface, a fact compatible with failure occurring after a few thousand hours (1,000 - 2,000 hours) of operations following improper tightening and incompatible with a failure occurring after more than 13,000 hours of engine use, the Trial Judge concluded that the civil law presumption had not been rebutted:
[62] Rebutting the presumption of article 1729 C.C.Q. indeed requires more than raising doubts on the adequacy of the buyer's use or maintenance of the good sold. Unless the professional seller or manufacturer shows, on a balance of probabilities, that the defect is due to improper maintenance by the buyer, the presumption that the defect existed at the time of the sale still applies. Such a demonstration may be made either by direct evidence or by presumption.
[63] The evidence on which Wärtsilä relies raises legitimate scientific questioning on the timing of the incident and shows that TDI's interventions were not perfect at all times and in all respects. However, it falls short of demonstrating that TDI employees have or probably have loosened the nut on the big end stud 5L.
[85] The application of Quebec civil law was also dispositive of Wärtsilä’s reliance on the contract’s warranty limitations:
[99] The contract which the parties entered into incorporates Wärtsilä's standard terms and conditions for spare parts. Section 6.3 of such standard terms and conditions, as modified at TDI's request, provide that the warranty runs for 6 months from the time the Camilla Desgagnés returned to service. They also limit Wärtsilä's liability to €50,000 (CAN $79,000).
[100] However, these limitation provisions are not enforceable in the case at hand, as Wärtsilä did not rebut the presumption of knowledge of the existence of the defect.
[101] As mentioned above, Wärtsilä's bad faith and knowledge of the existence of the defect at the time of the sale is presumed. In this context, any contractual exclusion or limitation of its liability for latent defect is considered fraudulent. In principle, Wärtsilä is thus not authorized to contractually limit its obligations in respect of latent defects.
First Issue: Does Canadian maritime law or Quebec civil law apply to the dispute?
[87] Canadian maritime law is defined in the Federal Courts Act, as stated by McIntyre J. in the seminal case of ITO - Int’l Terminal Operators v. Miida Electronics, [1986] 1 S.C.R. 752 [“ITO”], at pp. 771 and 774:
I would be of the opinion then that the term 'Canadian maritime law' includes all that body of law which was administered in England by the High Court on its Admiralty side in 1934 as such law may, from time to time, have been amended by the federal Parliament, and as it has developed through judicial precedent to date.
In my view the second part of the s. 2 definition of Canadian maritime law [in the then Federal Court Act] was adopted for the purpose of assuring that Canadian maritime law would include an unlimited jurisdiction in relation to maritime and admiralty matters. As such, it constitutes a statutory recognition of Canadian maritime law as a body of federal law dealing with all claims in respect of maritime and admiralty matters. […]
[88] This was further elaborated by La Forest J. in Whitbread v. Walley, [1990] 3 S.C.R. 1273, at p. 1290:
In the case of the Federal Court's jurisdiction over maritime and admiralty matters, that body of law is referred to in s. 22 of the Federal Court Act as "Canadian maritime law". As already explained, this Court has ruled that such a body of law does exist. It has also found that it is federal law that comes within Parliament's power to legislate in respect of navigation and shipping under s. 91(10) of the Constitution Act, 1867: see ITO, at p. 777. It follows that an inquiry as to the scope and substantive content of the Federal Court's jurisdiction over Canadian maritime law is simultaneously an inquiry as to the scope and content of an important aspect of Parliament's exclusive jurisdiction over navigation and shipping.
[89] Paragraphs 22(2)(m) and (n) of the Federal Courts Act, R.S.C., 1985, c. F-7, clearly set out that any claim in respect of goods, materials or services wherever supplied to a ship for its operation or maintenance, as well as any claim arising out of a contract relating to the construction, repair or equipping of a ship, fall within the Federal Court’s jurisdiction under Canadian maritime law:
Navigation et marine marchande
Compétence maritime
[90] It is undisputable that any claim resulting from the contract between TDI and Wärtsilä falls under these provisions, since it is unquestionably a “contract relating to the […] repair or equipping of a ship”. In the absence of a constitutional challenge - as was the case in Whitbread v. Walley, above - these provisions of the Federal Courts Act dispose of the issue: Canadian maritime law applies.
[91] The Trial Judge did not refer to paragraphs 22(2)(m) and (n) of the Federal Courts Act in her reasons. She rather proceeded to analyze the issue of the applicability of Canadian maritime law in a statutory vacuum. This was an error of law.
[92] Instead of applying Parliament’s clear and unequivocal legislative intent as to the scope of Canadian maritime law, the Trial Judge relied on Isen v. Simms, 2006 SCC 41, [2006] 2 S.C.R. 349 - a case concerning the improper use of a bungee cord on land for securing a small sailboat for highway transport - to conclude that the supply of marine engine parts to an ocean-going ship used for commercial cargo transportation while it was being repaired in the Halifax harbour was not integrally connected with maritime activities: Trial Judgment, at paras. 24-31.
[93] These conclusions not only run counter to the clear language of section 22 of the Federal Courts Act, they are also at odds with general principles of maritime law as well as the unbroken jurisprudence of the Supreme Court of Canada and of the Federal Courts.
[94] I start with general principles of maritime law.
[95] It seems to me self-evident that the repair and supply of engine parts to a ship is intrinsically related to its seaworthiness and therefore directly and integrally connected to navigation and shipping. Cargo ships need ports to load and unload and engines to move from port to port. The proposition that the supply of marine engine parts to carry out repairs to a cargo ship is not integrally connected with marine activities seems untenable, since such repairs are essential to allow the ship to operate on water (navigation) and to move goods from port to port to deliver cargo (shipping).
[96] It is not capriciously that the construction, repair or equipping of a ship falls under Canadian maritime law. The suppliers of marine equipment and the operators of commercial shipping vessels have a clear interest in ensuring that Canadian maritime law applies. By its very nature, a ship can move over water and from port to port. Moreover, determining the ownership of a ship, particularly a foreign vessel, is not an easy task. As a result, when a ship is in need of repairs, suppliers of services and parts need to know that payment guarantees are available, while operators of the ships need to be able to secure urgent repairs.
[97] As a result, suppliers of equipment to ships can rely on the in rem jurisdiction of the Federal Court and proceed to the required supplies and repairs with some confidence of being paid. Likewise, ship operators and captains can rely on the value of the ship itself to encourage suppliers to provide required repairs and equipment so as to allow the commercial maritime activities of the ship to continue. For this purpose, suppliers of equipment and repairs to a ship benefit from a maritime lien to the ship which flow from Canadian maritime law: William Tetley, Maritime Liens and Claims, 2nd ed., Montreal, International Shipping Publications, 1998, at p. 652.
[98] As the eminent maritime law expert William Tetley clearly sets out in his treatise concerning Maritime Liens and Claims, the supply of equipment to a ship is undoubtedly integrally connected to maritime matters (at p. 653):
A claim for equipping a ship, under sect. 22(2)(m) or (n), has been held to fall within the admiralty jurisdiction of the Federal Court of Canada, even where the goods or equipment concerned were supplied under a conditional sales agreement, whereby the supplier of the item retained ownership until full payment of the price, because the matter was so integrally connected to maritime matters as to be legitimate Canadian maritime law within federal competence. Admiralty jurisdiction under sect. 22(2)(m) and (n) has also been held to exist even where the repair work is done on land, as long as the work is integrally connected with maritime matters.
(See also A. Chircop, W. Moreira, H. Kindred and E. Gold, Canadian Maritime Law, 2nd ed., Toronto, Irwin Law Inc., 2016, at pp. 387-389).
[99] This connection to maritime matters largely flows from the requirement of seaworthiness of the shipping vessel, a requirement which is itself an integral part of all maritime law, including numerous international conventions. As Professor Tetley explains in International Maritime and Admiralty Law, Montreal, International Shipping Publications, 2002, at pp. 52-53:
Seaworthiness runs like a thread through all maritime and admiralty law in various forms. It is found, for example, as an obligation to exercise due diligence to make the ship seaworthy under the Hague and Hague/Visby Rules (art. 3(1)(a)) and in voyage charterparties. It is an absolute obligation to make the ship seaworthy under demise and time chaterparties (which may be contracted out of and usually is), as a warranty of fitness in tug and tow contracts, as an implied warranty in hire of seamen, in sale of a ship, in marine insurance and must have been exercised by the shipowner when claiming a contribution from cargo-owners in general average.
[100] The fact that the construction, repair or equipping of a ship is integrally connected to shipping and navigation has, moreover, been recognized time and again by the Supreme Court of Canada and the Federal Courts.
[101] In Wire Rope Industries of Canada (1966) Ltd. v. B.C. Marine Shipbuilders Ltd. et al., [1981] 1 S.C.R. 363, B.C. Marine Shipbuilders Ltd. and Straits Towing Ltd. (“B.C. Marine”) commenced proceedings in the Federal Court against F.M Yorke & Son Limited (“Yorke”) claiming damages for breach of a contract of towage and for negligence resulting in the loss of their barge. Yorke issued a third party notice directed to Wire Rope Industries of Canada (1966) Ltd. (“Wire Rope”) and later filed a statement of claim for indemnity for any damages for which it might become liable to B.C. Marine. Yorke alleged negligence on the part of Wire Rope in the resocketing of a cable used in towing the barge and breach of an implied warranty of fitness of its work. Wire Rope denied negligence in the resocketing and also denied any implied or express warranty as to the quality of its work. A jurisdictional question arose as to whether Yorke’s claim against Wire Rope, which alleged breach of contract and negligence in the resocketing, fell within Canadian maritime law. Relying on paragraphs 22(2)(m) and (n) of the Federal Courts Act, the Supreme Court of Canada unanimously found that it did:
[p. 375] […] The jurisdictional question arises, however, because of the claims against Wire Rope which allege a breach of contract and negligence in the resocketing of the main towing cable. The issue then is, do such claims fall within the jurisdiction of the Federal Court, or are they governed by provincial law and therefore come within the jurisdiction of the Supreme Court of British Columbia?
[p. 377] Turning to the case at bar, the claim against Wire Rope by Yorke alleges negligence in the resocketing of the main towing cable pursuant to a contract made regarding such work, and claims an indemnity for loss caused by a breach of that contract. The claim by B.C. Marine and Straits involves negligence in the resocketing operation which resulted in their loss. It will be observed that the root of both claims lies in the work done by Wire Rope in resocketing the cable and that the cable was part of the equipment of the tug Lorne Yorke, a seagoing vessel which was involved in the marine accident that gave rise to this action. That such a claim formed part of admiralty law which was incorporated into Canadian law by the Canadian Admiralty Act of 1891 seems clear. […]
[pp. 378-379] Section 22(1) gives a general statement of jurisdiction, and s. 22(2) (m) and (n) reproduced hereunder are apt to cover the claims in question here and in part are a restatement of the jurisdiction of the British Admiralty Courts contained in s. 6 of the 1840 Statute cited above:
(m) any claim in respect of goods, materials or services wherever supplied to a ship for her operation or maintenance including, without restricting the generality of the foregoing, claims in respect of stevedoring and lighterage;
I am therefore of the view that the claims made against Wire Rope come within Canadian maritime law as defined in the Federal Court Act. There can be no doubt in my mind that the substantive law relating to these claims falls within federal legislative competence under s. 91.10 of the British North America Act, being in relation to navigation and shipping. There is therefore law of Canada relating to the issues arising in this case upon which the jurisdiction of the Federal Court may operate.
[102] Likewise, in Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210 [“Bow Valley Husky”], a case which is fact similar to the one at hand, the Supreme Court of Canada was required to determine whether a claim for damage to an oil rig resulting from a fire that was caused by defective equipment was governed by Canadian maritime law. In that case the plaintiffs had argued that Canadian maritime law should not apply since the defective equipment had no relationship to the rig’s navigational equipment and because the claims were advanced in contract and tort rather than navigation and shipping. This submission was rejected by McLachlin J. who, though dissenting in part on the question of the contractual exclusion of the duty to warn, held the majority view on the application of Canadian maritime law:
[86] This is not a case that “is in ‘pith and substance’ a matter of local concern involving property and civil rights or any other matter which is in essence within exclusive provincial jurisdiction under s. 92 of the Constitution Act, 1867”: ITO, supra, at p. 774, per McIntyre J. I conclude that the issues for resolution in this case are integrally connected with maritime matters, and fall to be resolved under Canadian maritime law.
[103] The Federal Courts have consistently held the same view:
- In Hawker Industries Limited v. Santa Maria Shipowning and Trading Company, S.A., [1979] 1 F.C. 183 (C.A.), the Federal Court of Appeal found that “a contract for repair of a ship that arrives in port after becoming disabled at sea is a subject matter that falls within that same body of Canadian maritime law.”
- In Canadian General Electric Co. Ltd. v. The Queen (indexed as Canada v. Canadian Vickers Ltd.), [1979] 2 F.C. 410 (C.A.), the Federal Court of Appeal was called upon to determine whether an action in warranty under a contract to supply and install generators on the icebreaker Louis St-Laurent was a claim arising out of a contract relating to the construction, repair or equipping of a ship within the scope of paragraph 22(2)(n) of the Federal Court Act (as it was then called). It concluded that it was.
- In Dome Petroleum Ltd. v. Excelsior Enterprises Inc. (1989), 30 F.T.R. 9, the Federal Court found that a claim for breach of contract and negligence in the repair of the stern bushing of a ship was related to Canadian maritime law as set out in section 22 of the Federal Court Act (as it was then called).
- In Charles R. Bell Ltd. v. The Stephanie Colleen (1990), 36 F.T.R. 210, the claim in payment arising from a conditional sale agreement of a marine diesel engine package and associated parts and equipment to be installed in a ship was found by the Federal Court to be covered by paragraph 22(2)(n) and therefore subject to Canadian maritime law.
- In I. Deveau Fisheries Ltd. v. Cummins Americas, Inc. (c.o.b. Cummins Diesel) (1996), 115 F.T.R. 254, the plaintiff commenced an action in Federal Court against the defendant alleging negligence or breach of contract with respect to repairs conducted to the engines of the vessels “Janica II” and “Sylvialyn II”. The defendant initiated third party proceedings for work done on land to the cylinder head of the engine of the “Sylvialyn II”. Both the main action and the third party proceedings were found to fall within navigation and shipping as outlined in paragraphs 22(2)(m) and (n) of the Federal Court Act (as it was then called).
- In Offshore Interiors Inc. v. Harry Sargeant III and Comerica Bank, 2013 FC 1266, conf. 2015 FCA 46, a claim arising out of a contract relating to the construction of a ship was found to fall within navigation and shipping as outlined in paragraph 22(2)(n) of the Federal Courts Act.
[104] In summary, the supply of marine engine parts by Wärtsilä to Halifax for the repair of the ocean-going cargo ship Camilla was integrally related to the marine operations of that ship. TDI’s and Lloyds’ claims against Wärtsilä fall squarely within paragraphs 22(2)(m) and (n) of the Federal Courts Act in that these are claims “in respect of goods, materials or services […] supplied to a ship for the operation or maintenance of the ship […]” and “[…] arising out of a contract relating to the […] repair or equipping of a ship”. These claims are clearly maritime in nature.
[105] As Canadian maritime law governs, it is the common law of contract and tort which applies to the dispute, since Canadian maritime law is a body of federal law encompassing principles derived from the law applied by the Admiralty Court. This law applies uniformly across Canada whatever court may exercise jurisdiction in a particular case. As stated by McIntyre J. in ITO, at p. 779:
It is my view, as set out above, that Canadian maritime law is a body of federal law encompassing the common law principles of tort, contract and bailment. I am also of the opinion that Canadian maritime law is uniform throughout Canada, a view also expressed by Le Dain J. in the Court of Appeal who applied the common law principles of bailment to resolve Miida's claim against ITO. Canadian maritime law is that body of law defined in s. 2 of the Federal Court Act. That law was the maritime law of England as it has been incorporated into Canadian law and it is not the law of any province of Canada.
[106] This was confirmed in Q.N.S. Paper Co. v. Chartwell Shipping Ltd., [1989] 2 S.C.R. 683, at pp. 696-698, in Whitbread v. Walley, above, at p. 1288, and again in Ordon Estate v. Grail, [1998] 3 S.C.R. 437, at para. 68. As stated in Bow Valley Husky, at paras. 88-89:
[88] Policy considerations support the conclusion that marine law governs the plaintiffs’ tort claim. Application of provincial laws to maritime torts would undercut the uniformity of maritime law. The plaintiff BVHB argues that uniformity is only necessary with respect to matters of navigation and shipping, such as navigational rules or items that are the subject of international conventions. I do not agree. There is nothing in the jurisprudence of this Court to suggest that the concept of uniformity should be so limited. This Court has stated that “Canadian maritime law”, not merely “Canadian maritime law related to navigation and shipping”, must be uniform. BVHB argues that uniformity can be achieved through the application of provincial contributory negligence legislation as all provinces have apportionment provisions in the statutes. However, there are important differences between the various provincial statutes. These differences might lead over time to non-uniformity and uncertainty. Difficulty might also arise as to what province’s law applies in some situations.
[89] The plaintiffs argue that this Court’s decision in Stein v. The Ship “Kathy K”, [1976] 2 S.C.R. 802, provides that provincial laws can apply to maritime matters in the absence of federal law. Assuming this is so, it does not advance the plaintiffs’ case. On the view I take, there is no “gap” that would allow for the application of provincial law. While the federal government has not passed contributory negligence legislation for maritime torts, the common law principles embodied in Canadian maritime law remain applicable in the absence of federal legislation. The question is not whether there is federal maritime law on the issue, but what that law decrees.
[107] This Court held accordingly in Administration de la voie maritime du Saint-Laurent c. Canron Inc., J.E. 97-140, [1996] J.Q. No. 3965 (QL) (majority opinion of Beauregard J.A.) and in CSL Group c. Administration de la voie maritime du Saint-Laurent, J.E. 97-139, [1996] J.Q. No. 3966 (QL) (dissenting opinion of Fish J.A.) (leave to appeal to the SCC dismissed July 3, 1997: [1997] S.C.C.A. No. 52 (QL)). The main issue in that case was whether the users of the St. Lawrence Seaway could sue the Seaway Authority for the economic damages they suffered following the temporary closing of the Seaway as a result of the obstruction of navigation caused by the road and rail lift bridge spanning the Seaway at Valleyfield being left in a partially raised position as a result of a failure of the bridge mechanism. Though they disagreed as to whether or not a claim of economic loss was available, both Beauregard J.A. and Fish J.A. (as he then was) agreed that the claim was governed by Canadian maritime law and that, as a result, Quebec civil law could not be applied in light of the uniform application of maritime law throughout Canada. Fish J.A. stated the matter as follows in his dissenting opinion reported at J.E. 97-139, [1996] J.Q. No. 3966 (QL), at paras. 48-52 of the QL ed.:
[48] In considering whether CSL's claim against the Authority was governed by maritime law or provincial civil law, Denis J. was largely guided by the essential nature of the demand and by the importance of treating cases relating directly to navigation in a uniform manner.
[49] He found that the Valleyfield Bridge was a maritime structure, since it was converted from a fixed to a vertical lift bridge upon the construction of the Seaway, and that CSL's claim related to its navigational activities.
[50] Denis J. thus concluded that CSL's action is governed by maritime law.
[51] He concluded as well that the civil law of Quebec could not be applied in a parallel manner.
[52] I agree with these conclusions, which are in my view dictated by International Terminal Operators (I.T.O.) Ltd. v. Miida Electronics (The Buenos Aires Naru), [1986] 1 S.C.R. 752 and Monk Corp. v. Island Fertilizer Ltd., [1991] 1 S.C.R. 779; Q.N.S. Paper Co. v. Chartwell Shipping Ltd., [1989] 2 S.C.R. 683; and Whitbread v. Walley, [1990] 3 S.C.R. 1273.
Beauregard J.A. expressed the same opinion in his reasons reported at J.E. 97-140, [1996] J.Q. No. 3965 (QL), at paras. 220-221 of the QL ed.:
[220] Je partage l'opinion du juge qu'entre l'appelante et les usagers maritimes, c'est le droit maritime canadien qui trouve application: la réclamation des usagers maritimes en est une par des usagers d'une voie d'eau navigable contre l'organisme qui a le contrôle de cette voie d'eau et qui aurait, au mépris de ses obligations, causé des dommages aux usagers, en bloquant la voie d'eau. V. I.T.O. - International Terminal Operators c. Miida Electronics, [1986] 1 R.C.S. 752.
[221] Le droit maritime canadien comprend les principes de la common law canadienne, mais ne comprend pas les dispositions québécoises en matière de responsabilité civile. V. I.T.O. - International Terminal Operators c. Miida Electronics, déjà cité, et Chartwell Shipping Limited c. Q.N.S. Paper Company Limited, [1989] 2 R.C.S. 683.
[108] The principle that a claim governed by Canadian maritime law excludes the application of Quebec civil law was again recently reiterated by this Court in Labonté c. Voyageur Marine Transport Ltd., 2012 QCCA 1940, at para. 10.
[109] In closing on this matter, I deem it appropriate to answer two arguments put forward by my esteemed colleague Vézina J.A. with respect to the application of Quebec civil law. First, the decision of de Montigny J. (as he then was) in 9171-7702 Québec inc. (c.o.b. Surplus JT) v. Canada, 2013 FC 832 [“Surplus JT”] has no bearing on the present case. Second, section 8.1 of the Interpretation Act, R.S.C., 1985, c. I-21 does not incorporate Quebec civil law into Canadian maritime law.
[110] Surplus JT dealt exclusively with a contract for the sale of a vessel, a matter which is not specifically enumerated under section 22 of the Federal Courts Act dealing with the scope of Canadian maritime law, contrary to a “contract relating to the construction, repair or equipping of a ship” which is specifically enumerated therein. Moreover, in his reasons in Surplus JT at paras. 31-32, de Montigny J. questioned the conclusion of the Supreme Court of Canada in Antares Shipping Corporation v. The Ship 'Capricorn' et al., [1980] 1 S.C.R. 553 [“Antares”] providing that the title, possession or ownership of a ship falls under navigation and shipping. In essence, de Montigny J. proceeded to overturn that decision of the Supreme Court of Canada. Finally, de Montigny J. recognized at para. 30 of his reasons that a contract relating to the construction, repair or equipping of a ship falls under navigation and shipping and forms part of Canadian maritime law:
Based on these principles, case law granted Parliament broad law-making authority not only on navigable waters, navigation works and ports, but also on the regulation of navigation, on the liability for maritime accidents, on the liability in case of loss or damage to goods shipped by sea, on marine insurance, on the repair, construction and maintenance of vessels and on the driving and towing of vessels.
(References omitted and emphasis added)
[111] Consequently, insofar as the decision of the Federal Court in Surplus JT is good law and that of the Supreme Court of Canada in Antares is not, an issue which need not be commented on in the context of this appeal, it has no bearing on the litigation at issue which involves a “contract relating to the construction, repair or equipping of a ship”.
[112] As for section 8.1 of the federal Interpretation Act, it provides for the equal status of the common law and the civil law with respect to property and civil rights, “unless otherwise provided by law / sauf règle de droit s’y opposant”. This exclusion precludes the application of Quebec civil law where Canadian maritime law governs the claim.
[113] Louise Maguire Wellington sets out the applicable principle as follows in Émergence d’une nouvelle terminologie bijuridique dans les lois fédérales, TERMIUM Plus/Chronique de langue/Recherche:
Lorsqu’une règle de droit exclut l’application de la législation provinciale à titre supplétif, on dit qu’il y a dissociation. Par exemple, la définition de « droit maritime canadien » à l’article 2 de la Loi sur la Cour fédérale exclut expressément l’application du droit privé provincial. C’est ce que l’on entend par « sauf règle de droit s’y opposant ». Il en est également ainsi lorsqu’une loi fédérale définit une notion comme « conjoint de fait » plutôt que de s’en remettre à la législation provinciale.
[114] The same position is expressed by Professor André Braën in “Le rôle du droit civil québécois et l’utilisation du droit comparé en droit maritime canadien”, (2013) 43 R.D.U.S. 561, at p. 584, fn. 88 when discussing the effects of the Federal Law-Civil Law Harmonization Act, No. 1, L.C., 2001, c. 4 and of the Federal Law-Civil Law Harmonization Act, No. 2, L.C., 2004, c. 25 on Canadian maritime law:
Cette législation a pour objet de faire du droit provincial en matière de propriété et de droit civils le droit supplétif pour ce qui est de la législation fédérale dans les provinces sauf règle de droit s’y opposant. Évidemment, l’approche de la Cour suprême du Canada dans le domaine maritime constitue une règle de droit s’opposant à l’application du droit civil.
Second Issue: Under Canadian maritime law, are the appellants responsible for the damages which occurred to the main engine of the Camilla?
[115] On the sale of goods, the traditional rule under the common law was caveat emptor (“buyer beware”), save only where an action could be sustained in deceit on the ground that the seller knew the defect or for breach of express warranty. However, this traditional rule was somewhat modified under the common law so as to introduce an implied remedy in the case of latent defect which could not have been revealed on the examination of the sold goods. As noted by Lord Wright in Cammell Laird & Co., Ltd. v. Manganese Bronze & Brass Co., Ltd., [1934] A.C. 402 (H.L.), at p. 430, this “seems to have been the earliest form in which the common law declared the remedy of implied warranty in sales of good.” See also S.U. Waddams, “Strict Liability, Warranties and the Sale of Goods”, (1969) 19:2 UTLJ 157, at p. 159.
[116] This implied remedy was codified in the (UK) Sales of Goods Act, 1893, 56-57 Vict., c. 71, section 14, and expanded to include that where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply, in such a case there is an implied warranty or condition that the goods shall be reasonably fit for such purpose.
[117] English admiralty law as applied in 1934 included the (UK) Sales of Goods Act since English courts applied that statute to the sale of ships and the supply of equipment to vessels: Cammell Laird & Co., Ltd. v. Manganese Bronze & Brass Co., Ltd., above; Casden v. Cooper Enterprises Ltd. (1993), 151 N.R. 199 (F.C.A.), [1993] F.C.J. No. 124 (QL). In National Bank of Canada v. Rogers, 2015 FC 1207, at para. 43, Justice Harrington of the Federal Court specifically held that Canadian maritime law incorporates the (UK) Sales of Goods Act, a proposition which Wärtsilä recognizes as correct and to which I subscribe, as it is consistent with the ITO, Q.N.S. Paper Co. v. Chartwell Shipping Ltd. and Bow Valley Husky cases and with the definition of Canadian maritime law found in section 2 of the Federal Courts Act. As McIntyre J. noted in ITO at p. 776:
Having found that Miida's claim against ITO falls within the scope of Canadian maritime law, the question then arises as to the substantive content of that law. Canadian maritime law, as a body of substantive law, encompasses the principles of English maritime law as they were developed and applied in the Admiralty Court of England (The Queen v. Canadian Vickers Ltd., supra, and authorities cited therein, pp. 683-84. In 1934 when, as has been noted, a body of admiralty law from England was incorporated into Canadian law, the Admiralty side of the High Court of Justice had jurisdiction in cases of contract and tort which were considered to be admiralty matters. In dealing with such cases, the court applied the necessary common law principles of tort and contract in order to resolve the issues.
Thus, the body of admiralty law, which was adopted from England as Canadian maritime law, encompassed both specialized rules and principles of admiralty and the rules and principles adopted from the common law and applied in admiralty cases as these rules and principles have been, and continue to be, modified and expanded in Canadian jurisprudence. (See, for example, the judgment of this Court in Wire Rope Industries of Canada (1966) Ltd. v. B.C. Marine Shipbuilders Ltd., [1981] 1 S.C.R. 363, in which common law principles of negligence and contract law were employed to resolve the appeal.)
[118] As previously noted at paras. [81], [115] and [116] above, the common law rule is that a latent defect must affect an essential characteristic of the good and make the good unfit for its intended use; the onus is on the buyer to prove that the latent defect was known to the seller or that the seller showed reckless disregard for what it should have known; it is the seller’s burden to prove that the product was unfit for its intended purpose. As stated in the Supreme Court of Canada decision of ABB Inc. v. Domtar Inc., above, at para. 80:
[80] In Canada, the common law rule is that a latent defect must affect an essential characteristic of the good and make that good unfit for its intended use: Tony’s Broadloom & Floor Covering Ltd. v. NMC Canada Inc. (1995), 22 O.R. (3d) 244 (Gen. Div.), aff’d (1996), 31 O.R. (3d) 481 (C.A.); Jenkins v. Foley (2002), 215 Nfld. & P.E.I.R. 257, 2002 NFCA 46. The onus is on the buyer to prove that the latent defect was known to the seller or that the seller showed reckless disregard for what he or she should have known. However, where it has been established that the seller could have obtained information about an essential characteristic of the good, the seller cannot simply allege an honest belief: Parlby Construction Ltd. v. Stewart Equipment Co., [1972] 1 W.W.R. 503 (B.C.S.C.), at pp. 507 and 509-10.
[119] In this case, Wärtsilä’s position is that TDI and Lloyds have failed to meet their burden in light of the fact that it is scientifically impossible for the Camilla’s engine failure to have occurred as a result of an improper torque applied to the stud at the time of assembly of the bedplate.
[120] The stud failed after the ship’s reconditioned engine had been in operation for 13,653 hours following its rebuild in Halifax in early 2007. Wärtsilä’s expert evidence, given by marine engineer John Poulson and metallurgist Joseph Crosson, was that the failure was caused by the improper torque given to the stud. However, when the fracture initiation site originates from the surface of the stud, as was the case here, failure always occurs within 2,000 hours of operation. That expert evidence was supported by scientific literature. As a result, Wärtsilä’s position was that it would have been impossible for the stud to survive 13,653 hours of engine operation had it not been properly stretched by its employees at the time of assembly. The engine failure therefore resulted from some other intervention occurring within 2,000 hours of the failure, most probably an intervention by TDI employees when performing maintenance work on the engine. Moreover, Wärtsilä relied on the evidence in the record tending to show TDI’s intervention.
[121] The Trial Judge recognized that Wärtsilä’s evidence raised legitimate scientific issues. She nevertheless found that evidence insufficient to rebut the presumption under article 1729 C.C.Q. since under her interpretation of the civil law, only evidence of improper maintenance by the buyer would allow Wärtsilä to succeed: Trial Judgment, at paras. 62-63 reproduced above at para. [84].
[122] Had the Trial Judge limited her factual and legal analysis to this, I would have found in favour of Wärtsilä, since the application of the presumption under article 1729 C.C.Q. was an error in law and the evidence submitted by Wärtsilä, taken alone, was compelling.
[123] However, the Trial Judge did not limit her factual findings to the simple question of evidence of improper maintenance by TDI. Rather,
(a) she found, as a matter of fact, that despite evidence to the contrary, TDI personnel had not loosened or removed the stud which caused the failure (Trial Judgment, at paras. 65-74);
(b) she preferred the testimony of Marina Banuta, an expert engineer specialized in failure analysis and mechanical breakdowns, who held that the failure was compatible with insufficient original tightening of the stud at the time of assembly at Wärtsilä’s facilities (Trial Judgment, at paras. 75-86); and
(c) she further found that flaws were demonstrated in the procedure which Wärtsilä followed for the assembly, including lack of quality control to ensure that the assembly was done in accordance with instructions and with applicable standards (Trial Judgment, at paras. 87-97).
[124] These findings allowed the Trial Judge to conclude, as a matter of fact, that the “improper torque of the nut of the big stud on unit 5L was therefore present at the time of the sale” (Trial Judgment, at para. 98).
[125] Though there is much evidence to the contrary, there is nevertheless sufficient evidence in the record to support this factual conclusion of the Trial Judge. As an example, the testimony of the expert witness Marina Banuta was clear with respect to rebutting Wärtsilä’s principal submission respecting failure within 2,000 hours of engine operation: Transcript of the rebuttal testimony of Marina Banuta given on September 25, 2015, p. 130 line 18, to p.133 line 9, reproduced at pp. 2392-2395 of the Appellant’s Brief. Though this testimony does not explain why Wärtsilä’s experts are wrong in holding that, when fracture initiation originates from the surface, failure must occur within 2,000 hours of operation, the Trial Judge was free to accept the contrary testimony of Marina Banuta and to prefer it over other compelling expert testimony.
[126] It is not the function of this Court to revaluate the evidence when the Trial Judge has done so and her decision reasonably rests on a sufficient evidentiary record: H.L. v. Canada (Attorney General), 2005 SCC 25, [2005] 1 S.C.R. 401, at paras. 52-58; Van de Perre v. Edwards, 2001 SCC 60, [2001] 2 S.C.R. 1014, at para. 15. Though I would not necessarily have come to the same factual conclusions as those of the Trial Judge, I am nevertheless bound by these conclusions.
[127] In light of the factual findings of the Trial Judge, to which I must defer, and applying the correct burden of proof to the dispute, I can only conclude that TDI and Llyods have met their burden of proving that the goods supplied by Wärtsilä had a latent defect affecting an essential characteristic and making them unfit for their intended use: Smith v. Inglis Ltd. (1978), 83 D.L.R. (3d) 215, at p. 218; Farro et al v. Nutone Electricla Ltd. et al. (1990), 68 D.L.R. (4th) 268 (Ont. C.A.), [1990] O.J. No. 492 (QL), at para. 19 of the QL ed.
Third Issue: Can Wärtsilä rely on the terms of the contract to exclude or limit its liability?
[128] The Trial Judge correctly found that the contract the parties entered into incorporated Wärtsilä’s standard terms and conditions, as modified at TDI’s request:
[99] The contract which the parties entered into incorporates Wärtsilä's standard terms and conditions for spare parts. Section 6.3 of such standard terms and conditions, as modified at TDI's request, provide that the warranty runs for 6 months from the time the Camilla Desgagnés returned to service. They also limit Wärtsilä's liability to €50,000 (CAN $ 79,000).
[129] The Trial Judge found both the warranty terms and the limitation of liability terms of the contract unenforceable under Quebec civil law. However, such is not the case under the common law applicable to the contract pursuant to Canadian maritime law.
[130] An implied warranty for latent defect or a condition of fitness for purpose, whether deriving from common law or statute, does not preclude the parties to a contract from excluding or limiting such warranty or condition or from otherwise limiting their liabilities.
[131] In Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426 [“Hunter”], at pp. 448-450, 481 and 497-498, all judges of the Supreme Court of Canada panel hearing the case found that a contractual clause providing that “[t]he Provisions of this paragraph represent the only warranty of the Seller and no other warranty or conditions, statutory or otherwise shall be implied”, was sufficient to oust the application of an implied warranty for latent defect under the common law and the condition of fitness for purpose under the Ontario Sale of Goods Act, R.S.O., c. 421, s. 15.
[132] There is little doubt that the ousting of implied warranties and of a condition of fitness must be done by clear and unambiguous language and that an exclusion clause should be strictly construed against the party seeking to enforce it: Hunter, at p. 497. Such clear and unambiguous language is found in this case in clause 6.6 of the contract which is reproduced at paragraph [59] above. For ease of reference, I reproduce again here this clause:
[133] Turning now to the limitations of liability clauses, the leading cases are Hunter and Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69 [“Tercon”].
[134] The five-judge panel in Hunter was unanimous in the result and gave effect to the exclusion clause there at issue. Dickson C.J. and Wilson J. both emphasized that there is nothing inherently unreasonable about exclusion of liability clauses and that they should be applied unless there is a compelling reason not to give effect to the parties’ undertakings. Dickson C.J. and Wilson J. however diverged with respect to this last point, Dickson C.J. addressing the problem through the doctrine of “unconscionability”, while Wilson J. preferring a two-stage test involving the identification of a fundamental breach and an assessment of the circumstances to determine whether that breach should escape liability.
[135] The policy behind this approach is rooted in the importance of respecting negotiated risks allocation in commercial contracts between business entities. In Hunter, at p. 459, Dickson C.J. referred to the reasons of Lord Diplock in Photo Production Ltd. v. Securicor Transport Ltd., [1980] A.C. 827 to state the policy:
My Lords, the reports are full of cases in which what would appear to be very strained constructions have been placed on exclusion clauses, mainly in what to-day would be called consumer contracts and contracts of adhesion… In commercial contracts negotiated between business-men capable of looking after their own interests and of deciding how risks inherent in the performance of various kinds of contract can be most economically borne (generally by insurance), it is, in my view, wrong to place a strained construction upon words in an exclusion clause which are clear and fairly susceptible of one meaning only even after due allowance has been made for the presumption in favour of the implied primary and secondary obligations.
[136] It is only “where the contract is unconscionable, as might arise from situations of unequal bargaining power between the parties, should the courts interfere with agreements the parties have freely concluded”: Hunter, at p. 462 (Dickson C.J.) or where the limitation or exclusion of liability is “unfair, unreasonable or otherwise contrary to public policy, according to Wilson J.”: Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423, at para. 52, such as in the case of the sale of toxic food products, for which a contractual exclusion of limitation of liability clause would be unenforceable: Tercon, at para. 118.
[137] The applicable principle, therefore, is that a court has no discretion to refuse to enforce a valid and applicable contractual exclusion clause unless the plaintiff can point to some paramount consideration of public policy sufficient to override the public interest in freedom of contract and defeat what would otherwise be the contractual rights of the parties: Tercon, at para. 82 (Binnie J. dissenting, but supported on this point by Cromwell J., at para. 62).
[138] To escape that principle, the plaintiffs (here TDI and Lloyds) must meet the test set out as follows by Binnie J. in Tercon, at paras. 121-123:
[139] In this case, there is no doubt that the limitations of liability terms apply. The terms of clauses 7.1 and 7.2 of the contract are clear and unambiguous. These terms are reproduced in paragraph [59] above.
[140] Moreover, with respect to the last sentence of clause 7.1 which sets aside the exclusion of liability in the event of unlawful intent on the part of Wärtsilä, no evidence of such unlawful intent can be found in the record, nor do TDI or Lloyds suggest that such unlawful intent exists. As a result, I can only conclude that the limitation of liability terms of the contract apply.
[141] Can these terms be deemed unconscionable at the time the contract was made as might arise from the unequal bargaining power between the parties? I answer “no” to this question. The contract was made between two companies in the commercial market place who are of roughly equal bargaining power. Both are familiar and experienced with this type of contract. Both freely negotiated the contract terms and brought particular care and attention to the warranty provisions. There is no evidence to suggest that Wärtsilä was guilty of any sharp or unfair dealing. Wärtsilä supplied what was bargained for, even though it had defects, and TDI used the product for a long time after expiration of the contractual warranty terms. This is not a case in which the vendor is seeking to repudiate almost entirely the burdens of the transaction. There is no abuse of freedom to contract here.
[142] Put simply, TDI bargained for what it got and clearly accepted the allocation of risks set out under the contract terms. It cannot now rely on the courts to reallocate those risks in its favour. Between commercial parties, pricing and costs (notably insurance costs) are driven in part by the allocation of risks, and it is not the function of the courts to transfer such risks from one commercial party to the other when they have themselves allocated it. TDI was free to secure an alternative supplier, was free to install a new engine rather than a reconditioned one, and could have negotiated otherwise the allocation of risks, as it did with the warranty provisions of the contract. TDI is now barred from renegotiating the contract terms through the courts. The allocation of risks in commercial contracts is a matter dealt with through negotiations and insurance rather than litigation.
[143] Since the limitation of liability clause is held valid and applicable, should it nevertheless be deemed unenforceable because of the existence of overriding public policy considerations? Again, I answer “no”. Neither TDI nor Lloyds has raised such public policy considerations, and none exist in this case. This is not a contract between unequal bargaining parties, such as a consumer contract, nor is there a compelling public policy which would render unenforceable limitation of liability terms in a commercial contract. On the contrary, the limitation terms here at issue, which do not exclude liability flowing from unlawful intent, raise no public policy concerns.
[144] Since the limitation of liability clause applies, Wärtsilä’s liability is limited to €50,000. This amount must be converted into Canadian currency for the purposes of the judgment: Currency Act, R.S.C. c. C-52, art. 12; Carsley Silk Co. c. Koechlin Baumgartner & Cie, [1972] C.A. 267; Cohen v. Hill Samuel & Co. Ltd., [1989] R.J.Q. 2078 (C.A.), p. 2083; Équipements Stosik inc. v. Hock Seng Lee Heavy Industries, sdn bhd, 2007 QCCA 1531, para. 11; Edelman v. Stendel, [1990] R.L. 430 (C.A.), p. 434-436; Armtec ltée v. Exportation et développement Canada/Export Development Corporation, 2007 QCCA 99, para. 39-44. In this case, the respondents seek interest as of the date of the failure of the main engine of the Camilla, namely as of October 27, 2009. In these circumstances, it is appropriate to convert the amount of €50 000 using the conversion rate published by the Bank of Canada for noon October 27, 2009, namely 1.5780, providing for an amount of $78,900 CAN. This is essentially the conversion rate implicitly accepted by the Trial Judge at para. 99 of her judgment.
WÄRTSILÄ’S CROSS DEMAND
[145] In its Defence and Cross Demand, Wärtsilä claims from TDI an amount of $95,720.40 for services performed following the engine failure of the Camilla to attend aboard the ship and perform an inspection of the engine to determine if any of its parts were salvageable. The Trial Judge dismissed that claim on the ground that it involved expenses “which Wärtsilä incurred in relation to a latent defect which Wärtsilä presumably knew existed at the time it sold the bedplate and crankshaft assembly to TDI”: Trial Judgment, at para. 106.
[146] Though the basis on which this claim was rejected was wrong since no presumption of the knowledge of a latent defect applies under Canadian maritime law, the claim should nevertheless be dismissed on the ground that Wärtsilä would have nevertheless incurred these expenses in the course of inspecting the engine and the engine parts to ascertain what repairs, if any, were possible and to determine the cause of the failure for the purpose of defending itself in the litigation. Wärtsilä’s appeal with respect to the cross demand should therefore be dismissed.
[147] I would therefore allow in part the appeal, set aside the Trial Judgment, and rendering the judgment which should have been rendered, I would allow in part the Amended Motion to Institute proceedings, dismiss the cross demand, order Wärtsilä Canada Inc. to pay jointly to Transport Desgagnés Inc. and Lloyds the sum of $78,900, together with interest and the additional indemnity since October 27, 2009, the whole with costs in first instance and in appeal, including expert fees.
ROBERT M. MAINVILLE, J.A.
REASONS OF HEALY J.A.
[148] I concur with the reasons of Mainville J.A. and I agree with the disposition he proposes.
[149] Without the parts and repairs at issue in this case The Camilla was inoperable as a ship. It could not be returned to service without them. For two reasons therefore I am persuaded that Canadian maritime law applies in this matter. First, the application of Canadian maritime law is explicitly contemplated by paragraphs 22(m) and 22(n) of the Federal Courts Act.[10] Second, the application of Canadian maritime law is required where the issue is integrally related to maritime matters. In this case the issue concerns a contract that would make The Camilla operable as a ship. Mainville J.A. demonstrates convincingly that this meets the test established and applied in a broad array of cases.[11] As Rothstein J. said in Simms v. Isen, the application of maritime law is “in essence a line drawing exercise.” [12] That case is distinguishable precisely because the factual context was too remote from maritime matters and far from “integrally connected” to them.
[150] With respect to the second and third issues discussed by Mainville J.A., I agree with him and with his disposition of the appeal.
[1] C.c.Q., Art. 1730. Sont également tenus à la garantie du vendeur, le fabricant, toute personne qui fait la distribution du bien sous son nom ou comme étant son bien et tout fournisseur du bien, notamment le grossiste et l’importateur.
Art. 1730. The manufacturer, any person who distributes the property under his name or as his own, and any supplier of the property, in particular the wholesaler and the importer, are also bound to a seller’s warranty.
[2] C.c.Q., Art. 1733. 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.
Art. 1733. A seller may not exclude or limit his liability unless he has disclosed the defects of which he was aware or could not have been unaware and which affect the right of ownership or the quality of the property.
An exception may be made to this rule where a buyer buys property at his own risk from a seller who is not a professional seller
[3] General Motors Products of Canada Ltd. c. Kravitz, [1979] 1 R.C.S. 790.
[4] National Bank of Canada c. Rogers, 2015 C.F. 1207.
[5] 1982 CanLII 2051 (On SC).
[6] 9171-7702 Québec inc. (Surplus JT) c. Canada, 2013 CF 832.
[7] L.C. 2001, ch. 26.
[8] L.R.C. (1985), ch. I-21.
[10] R.S.C. 1985, c. F-7.
[11] See paragraphs 87 - 114 of his reasons.
[12] [2006] 2 S.C.R. 349, paragraph 21.

References: art. 1728
 CSC 
 art. 12
 Art. 1730

Art. 1730
 Art. 1733

Art. 1733