Desgagnés Transport Inc v Wärtsilä Canada Inc

is a major Canadian constitutional law ruling by the Supreme Court of Canada concerning the interplay of federal and provincial jurisdictions under the Constitution Act, 1867.

Background
In October 2006, Desgagnés Transport (a subsidiary of Groupe Desgagnés, and hereafter abbreviated "D" for brevity) purchased engine parts for its ship MV Camilla Desgagnés from Wärtsilä Canada (the Canadian unit of Wärtsilä, abbreviated "W"). The contract included a limited warranty and limited W's liability to €50,000. The choice of law clause stated that the contract would be governed pursuant to the laws in force at the office of W, which was Montreal. In that regard, a reconditioned crankshaft was mounted onto a new bedplate at W's factory in Zwolle in November 2006 and delivered to the ship at Halifax in February 2007.

The crankshaft sustained a catastrophic failure in October 2009, while the vessel was on route on the Saint Lawrence River near Les Escoumins. D claimed that the incident arose from a latent defect that arose during the original assembly, which W denied. W also stated that the warranty period specified in the contract had already expired, which was allowed under Canadian maritime law, while D submitted that such limitation clauses are not enforceable in Quebec civil law insofar as they concern latent defects.

The courts below
At the Superior Court of Quebec, Paquette SCJ stated that the test was, "Is the activity at stake so integrally connected to maritime matters such that it is practically necessary for Parliament to have jurisdiction over same, in order to properly exercise its legislative power over navigation and shipping?" She held that it was not, the Civil Code of Quebec therefore applied, and ruled that the contract's limitation clauses were void under and. D was awarded around $5.66 million in damages.

By 2-1, the appeal was allowed at the Quebec Court of Appeal. In the majority ruling, Mainville JA stated that the lower court had erred in law by not noting that Canadian maritime law explicitly included matters concerning the supply of ships as well as their construction and repair. As Canadian maritime law has been held to include the UK Sale of Goods Act 1893 (under which limitation clauses are allowed in sale contracts), W's warranty expiry was held to be valid.

At the Supreme Court of Canada
Appeal was allowed with costs throughout, setting aside the judgment of the Court of Appeal and restoring that of the Superior Court. The Justices split 6-3 as to the reasoning behind the ruling, and both sides were at variance with the reasons given by the lower courts.

Scope of Canadian maritime law
The majority began its analysis by first considering the scope of Canadian maritime law, observing that it is:

"... 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."

The Court's prior decisions in the field "make clear that Canadian maritime law is a comprehensive body of law, uniform throughout Canada, that purports to deal with all claims in respect of maritime and admiralty matters, subject only to the scope of the federal power over navigation and shipping under s. 91(10) of the Constitution Act, 1867". It is also a distinct body of law:

"... while the same Canadian court may now adjudicate common law, civil law, and Canadian maritime law aspects of a dispute, each body of law is distinct within the Canadian system. And when Canadian maritime law validly governs a dispute, that body of law represents a seamless and ubiquitous web that is capable of resolving any legal dispute...."

Besides being "a comprehensive body of law", it has also been described as "a seamless web", and, "where Canadian maritime law does not provide a specific rule governing the situation at hand, courts must extract and adopt relevant principles of law from both the common law and civil law, where appropriate, so as to provide for a coherent resolution to the dispute." In 1997, responding to a submission that there was an absence of law concerning a maritime matter, McLachlin J (as she then was) declared:

"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."

In essence, Canadian maritime law is limited only by the constitutional division of powers. In Ordon Estate, the Court stated that:

"The first step [when determining whether provincial statutes may apply in a maritime context] involves a determination of whether the specific subject matter at issue in a claim is within the exclusive federal legislative competence over navigation and shipping under s. 91(10)of the Constitution Act, 1867.... The test for making this determination is to ask whether the subject matter under consideration in the particular case is so integrally connected to maritime matters as to be legitimate Canadian maritime law within federal legislative competence."

Application to the matter at issue
The Court observed that the Court of Appeal's analysis was incomplete, having stopped without considering whether there could be provincial jurisdiction as well in the matter. The majority's division of powers analysis proceeded as follows:

The concurrent ruling
The minority held that jurisdiction was ultimately based on an analysis of its pith and substance, and stated that both courts below had erred in their application of the test. In the present case, it is the "pith and substance" test, and not the "integral application" test, that "must be used to determine whether a matter comes within navigation and shipping or property and civil rights." It also expressed the idea that it may now be time to lay the "integral application" test to rest.

It noted that the Sale of Goods Act 1893 in the English courts was applied by the King's Bench Division, as opposed to the Probate, Divorce and Admiralty Division of the High Court of Justice, and was thus never part of the admiralty law considered by the latter Division. It therefore did not arise in the present context, and so the property and civil rights power within provincial jurisdiction applied.

It further clarified that its ruling did not express an opinion as to whether Parliament could pass legislation with respect to contracts of trade at sea, or whether the "double aspect" doctrine could possibly apply.

Impact
One commentator noted that this decision "has potentially far-reaching implications for contracts and disputes involving the transportation of goods across borders and the construction of projects under federal jurisdiction." Another thought that "maritime lawyers and constitutional experts are going to be parsing this decision for years".

Desgagnés departs from prior jurisprudence of the SCC in the field that held that maritime law must be uniform throughout Canada, and by implication allows for provincial legislation to apply to contracts in industries otherwise governed by federal law. The Court's observation that the paramountcy doctrine did not apply where the Parliament of Canada has not legislated on a particular aspect is seen as an invitation for such action to take place.

By holding that Canadian maritime law is a body of law separate from either common or civil law, and that the dispute could have been avoided by a more precisely worded choice of law clause, parties to future maritime contracts will need to carefully consider consequences of their drafting. However, the Civil Code of Quebec could conceivably prohibit relying on such a clause, as a matter of public order.