CA019659 Vancouver Registry Court of Appeal for British Columbia BETWEEN: BURRARD TOWING CO., a joint venture between GEORGIA TOWING COMPANY LTD. and PASSAGE TOWING COMPANY LIMITED PLAINTIFFS (RESPONDENTS) AND: REED STENHOUSE LIMITED/REED STENHOUSE LIMITEE, d.b.a. ALEXANDER & ALEXANDER and the said ALEXANDER & ALEXANDER DEFENDANTS (RESPONDENTS) AND: GUARDIAN INSURANCE CO. OF CANADA, BLACK SEA & BALTIC GENERAL INSURANCE CO. LTD., ROYAL INSURANCE CO. OF CANADA, FEDERATION INSURANCE CO. OF CANADA and EAGLE STAR GROUP DEFENDANTS (APPELLANTS) Before: The Honourable Chief Justice McEachern The Honourable Madam Justice Southin The Honourable Madam Justice Ryan N. E. Daugulis and D. G. Morrison Counsel for the Appellants J. W. Bromley and S. A. Chapelski Counsel for the Respondents, Burrard Towing Co., Georgia Towing Company Ltd. and Passage Towing Company Limited Place and Date of Hearing: Vancouver, British Columbia 27th February, 1996 Place and Date of Judgment: Vancouver, British Columbia 7th May, 1996 Written Reasons by: The Honourable Madam Justice Southin Concurred in by: The Honourable Madam Justice Ryan Concurring Written Reasons by: (Page 13, para. 25) The Honourable Chief Justice McEachern Concurred in by: The Honourable Madam Justice Ryan CA019659 Vancouver Registry Court of Appeal for British Columbia BURRARD TOWING CO. et al v. GUARDIAN INSURANCE CO. OF CANADA et al REASONS FOR JUDGMENT OF MADAM JUSTICE SOUTHIN: 1 This is an appeal by the defendants below from a judgment pronounced the 10th November, 1994: THIS COURT ORDERS AND DECLARES that Policy No. OCP/93728(A) issued by the Defendant Underwriters provides insurance coverage to the Plaintiff and the tug "MANSON" for the claim of A.B.C. Recycling Ltd. arising out of an incident on July 25, 1994; 2 What happened was described by the learned trial judge thus [(1995), 100 B.C.L.R. (2d) 92 at 95-96]: On July 10, 1994, A.B.C. Recycling Ltd. asked Burrard [the plaintiff] to carry scrap metal from Middle Point near Campbell River to Seattle, Washington. On July 15, Burrard hired the TRANSPORTER 5, an unmanned barge, from North Arm Transportation Ltd. In accordance with an implied term of the hiring, Burrard through Reed made a declaration to the Underwriters to add the TRANSPORTER 5 to the policy under the Automatic Acquisition Clause. * * * On July 20, 1994, the tug MANSON towed the barge TRANSPORTER 5 to Middle Point for loading of scrap metal by A.B.C. On July 25, the MANSON returned to Middle Point to tow the TRANSPORTER 5 to Seattle. About one hour after leaving Middle Point, while under tow of the MANSON, the TRANSPORTER 5 capsized. The TRANSPORTER 5 was damaged and the scrap metal lost. [This barge is variously called in the documents in the appeal book, the TRANSPORTER V and the TRANSPORTER 5. As the president of North Arm Transportation Ltd. uses the designation "5", I assume that is correct.] 3 The appeal book is singularly unenlightening as to the terms of the contract between A.B.C. and the respondent. It does, however, contain this demand from A.B.C. to the respondent: RE: TRANSPORTER #5 - LOAD OF SCRAP METAL AS YOU ARE AWARE, THE ABOVE BARGE LADEN WITH 3047 TONNES OF OUR SCRAP METAL OVERTURNED IN GEORGIA STRAIT WHILE UNDER TOW BY YOUR TUG BOAT NAMED "MANSION" ON JULY 25, 1994. ALL OF OUR CARGO WAS LOST OVERBOARD. WE MUST HOLD YOUR COMPANY WHOLLY RESPONSIBLE FOR THE LOSS OF OUR CARGO. THE VALUE OF THE CARGO WAS $97.32 U.S. PER TONNE. AT AN EXCHANGE RATE OF $1.38 PER U.S. $, THIS CALCULATES OUT TO A LOSS OF $409,216.00. PRIOR TO THE COMMENCEMENT OF THE VOYAGE, WE HAD SPECIFICALLY INQUIRED AS TO YOUR INSURANCE COVER FOR THIS KIND OF LOSS AND HAD BEEN ASSURED BY YOU THAT SUITABLE COVERAGE WAS IN PLACE. PLEASE ARRANGE FOR THE IMMEDIATE PAYMENT OF THE VALUE OF OUR LOST CARGO. ALSO BE ADVISED THAT IF IMMEDIATE PAYMENT IS NOT FORTHCOMING, WE WILL ALSO BE HOLDING YOU RESPONSIBLE FOR ALL OTHER CONSEQUENTIAL LOSSES THAT WE MAY HAVE SUFFERED AS A RESULT OF THE ABOVE MARINE CASUALTY. 4 It is common ground, as I understand it, that the contract between the respondent and North Arm was a charter by demise. 5 The question then is whether the policy in issue indemnifies the respondent for any claim by A.B.C. Recycling Ltd. for the loss of cargo. 6 The insurance policy contained these terms which in the document appear in the order in which I recount them [I have lettered each portion for convenience of reference hereafter]: NOW KNOW YE that we the Assurers do hereby bind ourselves, each COMPANY for itself only and not one for another and in respect only of the due proportion of each Company, to pay to the Assured or the Assured's Executors or Administrators, all such loss, damage or liability as herein provided that the Assured may sustain during the stated period, not exceeding in all the sum insured, as properly apportioned to the sums, or to the percentages or proportions of the sum insured, subscribed against our names respectively. If the Assured shall make any claim knowing the same to be false or fraudulent as regards amount or otherwise, this Policy shall become void and all claim thereunder shall be forfeited. * * * [Here followed a schedule of vessels, each with a number.] [A] CONDITIONS; - SP-23 (Revised 1/56) form as attached including attachment. - American Institute F.C. & S. clauses (Hulls) - September 8, 1959 as attached. - Accidental Pollution Extension as attached. - Institute Radioactive Contamination Exclusion Clause 1/10/90 as attached. Items 1 to 5: - Subject to Towers Legal Liability Endorsement as attached. [It is common ground that the MANSON was a vessel subject to that endorsement.] * * * ** WITH RESPECT TO CHARTER OF STEEL CARGO SCOWS AND/OR BARGES: COVERAGE IS EXTENDED TO COVER STEEL CARGO SCOWS AND/OR BARGES (NOT EXCEEDING 240' REG. LENGTH) THAT THE ASSURED MAY CHARTER SUBJECT TO THE POLICY TERMS AND CONDITIONS AND AN ADDITIONAL PREMIUM OF $10.00 PER DAY OR PART MAXIMUM $2,000.00 PER ANNUM EACH SCOW AND/OR BARGE. [B] WARRANTED: * * * 3.B With respect to tows of F.R.P.D. equipment and/or cargo made under the terms of their specific contract (as per copy provided to these insurers): Assured shall require that all tows and cargo thereon are inspected by the master or designated ships officer when initiating tow, to ensure in apparent good order, secure and suitable for the intended voyage. Appropriate entries are to be promptly made in ship's log to include drafts fore and aft where appropriate for intended voyage, air draft where appropriate, confirmation nil list and that couplers, bridles, lines etc. are in good order. [I quote 3.B because it contains the word "cargo" to which I shall refer again. F.R.P.D. is Fraser River Pile Driving with whom, I take it, the respondent had an ongoing contract of some sort.] * * * [C] TOWERS LEGAL LIABILITY ENDORSEMENT (TUGS ONLY) In consideration of an Additional Premium of $ as agreed and notwithstanding the provision of exclusion 9 of the SP-23 attachment on the policy, coverage is extended to include Legal Liability of the Assured arising out of ownership, use or operation of the vessel(s) in respect of loss of, or damage to, or loss of use of, her tow (including the log rafts), or the property thereon, or the freight thereon, or damage done by the said tow, by collision or otherwise, in accordance with Clause 4 and 5 of the SP-23 form on the policy. It is understood and agreed that a $10,000.00 deductible shall apply in respect of any one accident or occurrence covered by this extension. Coverage under this extension shall not, however, increase the Limit of Liability insured by the policy in respect of any one accident or occurrence. This extension shall not cover loss of, or damage to, or loss of use of, the tow (including log rafts), the property thereon, or the freight thereon, where such tow is the property of the Assured. * * * [D] ATTACHED TO PROTECTION AND INDEMNITY SP-23 (Revised 1/56) EXCLUSIONS: Notwithstanding anything to the contrary contained herein this insurance EXCLUDES; * * * 8. Liability in respect of Cargo on board vessels insured herein. 9. Any loss, damage, expense or claim with respect to any vessel or craft in tow of the vessel named herein and/or cargo thereon: provided that this exclusion shall not apply to salvage services rendered in an emergency to a ship or vessel in distress. [There followed the Hulls Clause and the Accidental Pollution Extension Clause which are irrelevant to this cause.] * * * [E] PROTECTION AND INDEMNITY SP-23 (Revised 1/56) * * * The Assurer hereby undertakes to make good to the Assured or the Assured's executors, administrators and/or successors, all such loss and/or damage and/or expense as the Assured shall as owners of the vessel named herein have become liable to pay and shall pay on account of the liabilities, risks, events and/or happenings herein set forth: * * * (4) Liability for loss of, or damage to, any other vessel or craft, or to the freight thereof, or property on such other vessel or craft, caused by collision with the vessel named herein, insofar as such liability would not be covered by full insurance under the ............................. ..(including the four-fourths running-down clause). (a) Claims under this clause shall be settled on the principle of cross-liabilities to the same extent only as provided in the running-down clause above mentioned. (b) Claims under this clause shall be divided among the several classes of claims enumerated in this policy and each class shall be subject to the deduction and special conditions applicable in respect of such class. (c) Notwithstanding the foregoing, if any one or more of the various liabilities arising from such collision has been compromised, settled or adjusted without the written consent of the Assurer, the Assurer shall be relieved of liability for any and all claims under this clause. (5) Liability for loss of or damage to any other vessel or craft, or to property on such other vessel or craft not caused by collision, provided such liability does not arise by reason of a contract made by the assured. Where there would be a valid claim hereunder but for the fact that the damaged property belongs to the Assured, the Assurer shall be liable as if such damaged property belonged to another, but only for the excess over any amount recoverable under any other insurance applicable on the property. (6) Liability for damage to any dock, pier, harbor, bridge, jetty, buoy, lighthouse, breakwater, structure, beacon, cable, or to any fixed or movable object or property whatsoever, except another vessel or craft, or property on another vessel or craft. Where there would be a valid claim hereunder but for the fact that the damaged property belongs to the Assured, the Assurer shall be liable as if such damaged property belonged to another, but only for the excess over any amount recoverable under any other insurance applicable on the property. (7) Liability for cost or expenses of, or incidental to, the removal of the wreck of the vessel named herein when such removal is compulsory by law, provided, however, that: (a) There shall be deducted from such claim for cost or expenses, the value of any salvage from or which might have been recovered from the wreck, inuring, or which might have inured, to the benefit of the Assured. (b) The Assurer shall not be liable for such costs or expenses which would be covered by full insurance under the ........................ or claims arising out of hostilities or war- like operations, whether before or after declaration of war. (8) Liability for loss of, or damage to, or in connection with cargo or other property, excluding mail and parcel post, including baggage and personal effects of passengers, to be carried, or which has been carried on board the vessel named herein:.... [Emphasis mine.] 7 It is common ground that the TRANSPORTER 5 became a "vessel" within SP-23. Thus, if, during this adventure, the tow line had broken, thereby causing the TRANSPORTER 5 to hit a dock, the under- writers would be bound, under clause (6), to indemnify the respondent for its liability for damage to the dock. 8 What the appellants say is that by virtue of exclusion 8 in [D], they are not liable for loss of cargo. I do not understand the respondent to deny that, if [E] and [D] constituted the whole of the insuring clauses and exclusions, that would be so, but the respondent replies that that is not all there is to this policy and that by virtue of [C], the cargo exclusion is itself excluded. 9 In approaching any question of this kind, one must start with the principle expressed by Lord Sumner in Becker, Gray & Co. v. London Assurance Corp., [1918] A.C. 101 (H.L.), adopted by this Court in Collier v. Insurance Corp. of British Columbia (1995), 100 B.C.L.R. (2d) 201 at 223: One need only ask, has the event, on which I put my premium, actually occurred? This is a matter of the meaning of the contract, and not, as seems sometimes to be supposed, of doing the liberal and reasonable thing by a reasonable assured. 10 He was there speaking of the causa proxima rule but the principle is the same whether one is discussing the causa proxima rule or any other aspect of marine insurance law. (For an interesting application of this rule, although it is not mentioned by name, as well as the importance of maintaining the orthodox meaning of words used in contracts of marine insurance, see Shell International Petroleum v. Gibbs, [1983] 1 All E.R. 745 (H.L.).) 11 So, in this case, the question is: Did these insurers undertake the risk of indemnifying this insured for legal liability to the owner of a cargo for loss or damage to that cargo carried upon a dumb barge which this insured supplied for the purpose? 12 For the appellants, Mr. Daugulis submits, and I agree with him, that despite the way the document is put together, the proper way to read this policy is to begin, because it is first mentioned in [A], with [E], then to go to [D], and then to [C]. 13 He also submits, and this is the nub of his argument, as I understand it, that this policy of insurance taken as a whole insures these tugboat owners for liability arising, inter alia, from contracts of towage entered into by them and not from liabilities which they might incur under contracts of affreightment entered into by them, whether carried out by towing a vessel in their control into which the cargo was put or carrying cargo on the tug itself if the tug were big enough to carry any cargo. 14 Historically, at least, the true contract of towage envisages a vessel, the tug, propelling another vessel which, for some reason, has lost its ability to propel itself or requires to be assisted because of navigational hazards (see e.g. The Baltyk, [1947] 2 All E.R. 560). Often, the arrangement is such that the tug is under control of the tow and not vice versa. 15 In R. Davison & A. Snelson, The Law of Towage, (London: Lloyd's of London Press, 1990), the authors commence by saying: The conventional definition of towage is "the employment of one vessel to expedite the voyage of another, when nothing more is required than the accelerating of her progress". [The Princess Alice (1849) Wm. Rob. 138.] Having regard to the fact that tugs very often enable the vessel towed to perform manoeuvres in restricted waters which she would be quite unable to perform without tug assistance, it is perhaps unduly restrictive to define towage as involving nothing more than the acceleration of progress and a more practical definition is that found in the United Kingdom Standard Conditions for Towage And Other Services namely [See Chapter 3 for a full discussion of these conditions.]: Towing is any operation in connection with the holding, pushing, pulling, moving, escorting or guiding of or standing by the Hirer's vessel... However defined, towage is based upon the employment of one vessel by another, that is to say upon a contract (whether express or implied) to employ that vessel. [Emphasis mine.] 16 On this coast, it is common for bulk cargoes to be transported in scows or dumb barges and has been for over a century. What exactly the difference is, if there is indeed a difference, between a scow and a dumb barge is of no moment in this appeal. It is also common, but perhaps less common than formerly, for logs to be boomed and then towed. It may be a nice question whether a contract to take a log boom from A to B, by means of a tug pulling the boom, is a contract of towage or one of affreightment. But I have no difficulty in holding that a contract to move goods from one place to another by means of a tug and barge, both supplied by the tug owner, is a contract of affreightment or, in the more modern phrase, a contract for the carriage of goods. 17 From the cargo owner's point of view, the tug and barge are one vessel and, to the owner of the cargo, the owner of the vessel with whom he contracted is in no different circumstance from what he would be if he transported the goods on a self-propelled barge or in a coastal freighter. 18 To put it another way, the fact that a vessel called a tug has a tow, does not mean that the undertaking upon which the tug is engaged is a contract of towage. 19 If one looks at exclusions 8 and 9 in light of the difference between the two types of contract, it becomes clear that exclusion 8 excludes liability for claims arising from contracts of affreightment and exclusion 9 excludes liability for towage in its technical sense. This interpretation is reinforced by the concluding words of exclusion 9 which envisage a liability arising from an attempt at salvage in an emergency Ä an obligation which every ship by the tradition of the sea owes to another ship in distress. 20 The Towers Legal Liability Endorsement contains, in its opening passage, the words "notwithstanding the provision of exclusion 9". If the proper construction and intention of that endorsement was as the respondent submits, the words would be "notwithstanding exclusions 8 and 9". 21 In my opinion, [C] applies only to a tug engaged in towage in the true sense, save that it extends towage to log rafts, albeit a contract to tow a log raft, strictly speaking, may not be a contract of towage but a contract of affreightment. 22 I am fortified in that opinion by the absence from [C] of the word "cargo" which in the law of shipping and in the law of marine insurance customarily means that which a ship carries and for the carriage of which the shipper pays the shipowner freight. 23 Having come to this conclusion, I find it unnecessary to address the issue canvassed by counsel of whether a vessel chartered by demise can be said to be the "property" of the charterer within the meaning of that term in the concluding paragraph of [C]. I would leave that issue to be resolved when its resolution is essential to the determination of an appeal. 24 I would allow the appeal and dismiss the action against the appellants. "THE HONOURABLE MADAM JUSTICE SOUTHIN" I AGREE: "THE HONOURABLE MADAM JUSTICE RYAN" REASONS FOR JUDGMENT OF CHIEF JUSTICE McEACHERN: 25 I have had an opportunity to read the Reasons for Judgment prepared by Madam Justice Southin on this appeal. I agree with the conclusion she reaches, and with her reasons for deciding that coverage in this case was excluded by Exclusion 8 of the Attachment to SP-23. 26 On the further question of whether the plaintiff would also fail because Transporter 5, during the currency of the demise charter, must be characterized as "property" of the insured for which coverage under the Towers Legal Liability Endorsement (Tugs Only) was not extended, I too find it unnecessary to express an opinion. 27 It may, however, be useful to say that "property" may not be the best word to describe what the underwriters had in mind. The many cases cited by counsel suggest the concept of a temporary property interest arising from a charter by demise may result from difficulties of communication in earlier times when ships were on distant voyages and it was necessary to equate the charterer with the owner for various marine and mercantile purposes. 28 The historical reasons for maintaining this concept, at least for insurance purposes, may have passed. It would be better if underwriters in future used more precise language to describe what risks they intend, and do not intend, to accept. Some well understood words or phrases, such as "owned or chartered" or "leased" would save considerable difficulty. 29 As already mentioned, however, it is unnecessary to decide whether a vessel under demise charter is the property of the charterer for insurance purposes, and I shall accordingly say nothing further on that subject. 30 It follows that I, too, would allow this appeal and dismiss the action. "THE HONOURABLE CHIEF JUSTICE McEACHERN" I AGREE: "THE HONOURABLE MADAM JUSTICE RYAN"