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. Goderich-Exeter Railway Company Limited v. Shantz Station Terminal Ltd.

In Goderich-Exeter Railway Company Limited v. Shantz Station Terminal Ltd. (Ont CA, 2020) the Court of Appeal considers rarely litigated railway law, here the issue of 'demurrage'. In particular, must a right to demurrage be expressly set out in a contract:
[1] The appellant, Goderich-Exeter Railway Company Limited (“GEXR”), appeals from the dismissal of its claim against the respondents for “demurrage”. Demurrage is a charge by a railway to a shipper for the detention of the railway’s equipment and assets—its railcars—beyond a specified amount of “free time” allowed for loading or unloading.[1] When properly payable, demurrage compensates the railway for the extended use of its assets and equipment and encourages their prompt return to the transportation network.

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The Common Law Required A Contract

[39] There is strong authority for the proposition that, at common law, a shipper’s obligation to pay freight charges – that is, charges for the movement of traffic – is based on a contract with the carrier. In some cases, that contract may be implied. For example, in N.Y. Central R. Co. v. Joseph Dolan & Sons Ltd., 1928 CanLII 487 (ON CA), [1929] 1 D.L.R. 817 (Ont. C.A.), at p. 820, this court adopted, with approval, the following statement:
Ordinarily, the person from whom the goods are received for shipment assumes the obligation to pay the freight charges; and his obligation is ordinarily a primary one. This is true even where the bill of lading contains, as here, a provision imposing liability upon the consignee. For the shipper is presumably the consignor; the transportation ordered by him is presumably on his own behalf; and a promise by him to pay therefor is inferred (that is, implied in fact), as a promise to pay for goods is implied, when one orders them from a dealer.
[40] Demurrage, as “one of those rates or charges…[that] relates to the movement of traffic” is a subset of freight charges: Canadian National Railway v. Neptune Bulk Terminals (Canada) Ltd., 2006 BCSC 1073 at paras. 95-96. Accordingly, the basis for a claim for demurrage would be the existence of a contract between the shipper and the carrier.

[41] In support of its argument that no contract is necessary, GEXR points to the fact that charges for demurrage by railways have both a long history and a firm underpinning in business efficacy and fairness. It submits that descriptions of the nature of the claim do not state that it is a function of contract.[42] For example, in North-West Line Elevators Association et al. v. Canadian Pacific Railway and Canadian National Railway et al., 1959 CanLII 54 (SCC), [1959] S.C.R. 239, Rand J. stated at p. 244:
[T]he principle of exaction for delay in loading and unloading in water transportation has been known and applied for centuries. Its appropriateness to railway carriage can be assumed to have been recognized and acted upon both in England and in North America certainly from the middle of the nineteenth century.

Delay in loading or unloading cars of freight violates the implied understanding when equipment is placed at the disposal of shipper or consignee that no more than reasonable time shall be taken for either purpose. The profitable and efficient use of equipment is an important item of the costs reflected in the freight rates charged and is an essential in good railway management. That a railway is to supply expensive equipment in order to furnish, gratis, a storage means for shippers and consignees, reveals, on its mere statement, its own absurdity [Citation omitted; Emphasis added.]
[43] As a further example, in Turner, Dennis & Lowry Lumber Co. v. Chicago, M & St. P. Ry. Co., 271 U.S. 259 (1926), Brandeis J. stated at p. 262:
One cause of undue detention (of rail cars) is lack of promptness in loading at the point of origin, or in unloading at the point of destination. Another cause is diversion of the car from its primary use as an instrument of transportation by employing it as a place of storage, either at destination or at reconsignment points, for a long period while seeking a market for the goods stored therein. To permit a shipper so to use freight cars is obviously beyond the ordinary duties of a carrier. The right to assess charges for undue detention existed at common law. Now, they are subject, like other freight charges, to regulation by the Commission. Demurrage charges are thus published as a part of the tariffs filed pursuant to the statutes. [Emphasis added.]
[44] I do not read either statement as suggesting that there is a right to charge demurrage to a party with whom the railway has no contract at all.

[45] The dispute in Turner was between a person to whom lumber had been shipped and the railway that carried it. It was not a dispute between parties who had no contractual relationship. Brandeis J. rejected the consignee’s contention that the demurrage charge was a penalty which could not be legally imposed by the railway or approved by its statutory regulator. His reference to demurrage previously having been a common law right does not suggest, at least as viewed through the lens of Ontario law, that it existed outside of contract; it simply contrasted how the right was previously governed (exclusively by the common law, which governed when and how a contract came into existence and the extent to which it could be enforced) with how the right came to be regulated (in part by statute).

[46] The issue in North-West Line Elevators was whether the Board of Transport Commissioners (then the statutory regulator of railway rates and charges) had correctly considered itself to be without authority to disallow a railway’s tariff that provided for demurrage charges to shippers. In dismissing the appeal, Rand J. did not say anything that suggested a railway could charge demurrage to a person with whom it had no contract to ship or carry goods. Rather, his statement is more consistent with the view that, where there is a contract between a shipper and a railway for the movement of freight, a right to charge demurrage will be implied into that contract as the freight rates otherwise charged will necessarily have been based on the profitable and efficient use of the railway’s equipment (subject to compliance with the statutory regulation of rates and charges of railways).


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