Federal Court Decisions

                                                                                     Date: 20020129

                                                                                  Docket: T-958-95

                                                    Neutral Citation: 2002 FCT 100

ACTION IN REM AND IN PERSONAM AGAINST THE VESSEL

"KAPITONAS GUDIN" AND ALL THOSE PERSONS INTERESTED IN HER

BETWEEN:

                                 NOVA STEEL LTD. AND

                      J.B. MULTI-NATIONAL TRADE INC.

                                                                                                   Plaintiffs

                                                   - and -

                        LITHUNIAN SHIPPING COMPANY

             AND M.V. "KAPITONAS GUDIN" AND HER

                          OWNERS AND CHARTERERS

                                                                                           Defendants

                              REASONS FOR JUDGMENT

LEMIEUX J.:

A.        BACKGROUND

[1]    The central issue in the trial of this action is whether sea water caused the damage to a shipment of 240 hot rolled steel coils weighing 4,510 metric tons (the "cargo") purchased by Nova Steel Ltd. ("Nova Steel"), a Canadian steel processor, through J. B. Multi-National Trade Inc., a Canadian steel broker, from Unibros Steel Co., an international steel broker based in Limassol, Cyprus ("Unibros") at US $370 per metric ton for a total purchase price of US $1,668,700.00, cost and freight discharged at the Port of Montreal.

[2]    The cargo was manufactured in Russia, railed to Riga, Latvia, where it was off-loaded on a dock in the port. On January 27, 1995, it was then loaded onboard the M.V. Kapitonas Gudin (the "Captain Gudin"), a bulk carrier, which discharged it at the Port of Montreal on February 20/21, 1995. The bill of lading issued by her Master in Riga contained the following remarks: "1. Partly rust stained". 2. Wet before shipment" which was acceptable as such coils are shipped unprotected.

[3]    This action was tried together with action T-1597-95. Samuel, Son & Co. Ltd., is the plaintiff there with a shipment of 279 cold rolled galvanized coils weighing 2,990.11 metric tons carried onboard the Captain Gudin at the same time as Nova Steel's cargo of hot rolled steel coils. Separate reasons will be issued concurrently in Action T-1597-95. Both sets of reasons are to be read together.

[4]                 Samuel, Son & Co. Ltd. was also the owner of another shipment of cold rolled steel carried by the Captain Gudin on her voyage. The problems with that shipment were not the subject of any action in this Court. The Court was, however, informed it was processed as an insurance claim related to metallurgical production defects.

[5]                 Both parties agree the applicable law is found in the Hague-Visby Rules which is Schedule I of the Carriage of Goods by Water Act. Technically, the Hague-Visby Rules only apply to a shipment from a signatory country but not to a signatory country which would exclude its application in this case. The parties agreed to go forward because Lithuania is also a signatory to the International Convention giving rise to the Hague-Visby Rules.

[6]                 Articles III and IV setting out the rights and obligations of the carrier provide:     

[7]                 At trial, the defendants abandoned the following excepted perils which had been pleaded in the statement of defence:

· act, neglect or fault of the Master and crew;

· perils of the sea except to the extent condensation damage is involved;

· act of God;

· latent defects; and

· any other cause arising without the actual fault or privity of the carrier.

[8]                 Nova Steel claims the hot rolled steel coils (the "coils") were damaged by contact with sea water while in the care and custody of the defendants. The coils were "pitted" when sea water ate into them rendering them unfit for their intended use -- making of shoe brakes for automobiles. Nova Steel claims a loss of $585,654.40 after accounting the coils' salvage value to which is to be added $67,062.67 for additional charges (mainly on account of freight, pickling and oiling, rewinding and storage) and the amount of $70,201.42 for expert costs in the investigation. Pre-judgment interest at 6.58%, post-judgment and costs are also asked for.

[9]                 The defendants deny liability. No damage to the goods was caused by them. They say no sea water entered the Captain Gudin during its voyage from Riga to Montreal. They allege the wet condition of the cargo and the water evidenced on arrival was because they were loaded wet and arose from condensation occasioned during the voyage by either a combination of cargo or ship sweat or sweating of the holds of the ship.

[10]            In addition, the defendants allege the damage to the coils either occurred prior to their being loaded onboard the Captain Gudin (either during transit from the mill in Russia to the port of loading or while on the dock at Riga awaiting loading) or was caused while the cargo was sitting in open air on the dock in Montreal or was being transported to Cambridge, Ontario, when, in either case, it was exposed to road salt. Damage could also have arisen by exposure to chemicals such as potash or urea at some point in time either prior to or after discharge.

[11]            Defendants add if the goods were rejected, it was not because of pitting but because of mill defects in the steel coils.

[12]            On damages, the defendants say Nova Steel did not appropriately mitigate its damages by quickly removing the coils after discharge and arresting, by pickling or otherwise, the spreading salt corrosion. They did not get the best salvage value. They say Nova Steel double accounted some expenses which would have been incurred in any event and certain items in salvage are not allowable because they are a compromise with its insurers.

[13]            It is useful, I think, at this stage to identify the burdens of proof in cargo claims. These were summarized by Justice Pinard in Kruger Inc. v. Baltic Shipping Co., [1988] 1 F.C. 262 (F.C.T.D.), affirmed by the Federal Court of Appeal in [1989] F.C.J. No. 229, March 31, 1989. Justice Pinard wrote:

It is also essential, at this stage, to look at the question of burden of proof. In cases like the present one, where the contract of carriage is one to which the Carriage of Goods by Water Act is applicable, I consider the following test to be appropriate:

1)                     Initially, the cargo owners need only establish their interest in the cargo, the fact that it was not delivered in the same apparent good order and condition as received on board and the value of cargo lost or damaged. If the carrier offers no defence, the plaintiffs will obtain judgment.

2)                     The carrier can then shift the burden of proof back to the plaintiffs by establishing that the loss or damage is attributable to one of the excepted perils set out in Article IV of the Hague Rules.

3)                    Thereafter the cargo owners must establish the carrier's negligence or both that the ship was unseaworthy and that the loss was caused by that unseaworthiness.

4)                     If these points, in the context of unseaworthiness, are established, the carrier can only escape liability by establishing that due diligence was exercised to make the ship seaworthy.

[14]            In this case the defendants rely upon the following excepted perils:

· perils of the sea to the extent condensation damage occurred;

· act or omission of the shipper or owner of the goods alleging              defective packaging;

· inherent defect, quality of the goods alleging mill defects in the coils.         

[15]            I also refer to Justice Blais' recent decision in Voest-Alpine Stahl Linz GmbH et al. v. Federal Pacific Ltd. et al. (1999), 174 F.T.R. 69 (F.C.T.D.) where he set out the burden of proof and adopted the approach suggested by Professor William Tetley in his Marine Cargo Claims quoting the learned author as follows on the order of proof demanded by the courts:

(i) The claimant must first prove his loss;

(ii) The carrier must then prove

(a)        the cause of the loss,

(b)        that due diligence to make the vessel seaworthy in respect of the loss was taken and   

(c)        that he is not responsible by virtue of at least one of the exculpatory exceptions of the Rules;

(iii) Then, various arguments are available to the claimant;

(iv) Finally, there is a middle ground where both parties may make various additional proofs.

B. FURTHER BACKGROUND

[16]            There are a number of facts not in dispute or controverted.

[17]            First, hot rolled steel coils do not require any packaging protection as do cold rolled galvanized coils. A claused bill of lading in this case stating the goods are "atmospherically rusty, rust stained, partly rust stained, wet before shipment or similar" is acceptable for the cargo and for payment on the letter of credit. It is expected hot rolled coils will evidence wetness or atmospheric rust through oxidization and exposure to the elements. Rust spots do not affect the integrity of the coils since these will be eliminated after undergoing a normal cleaning process through pickling to remove the mill scale which is always present on such coils.

[18]            Second, the Captain Gudin's voyage took it across the Baltic Sea, down through the English Channel, across the North Atlantic south of Cape Race, Newfoundland and then into the Cabot Straight, the St-Lawrence and Montreal. The weather during the voyage was not unusual for that time of the year but the vessel did encounter, at times, during the period of February 10 through 14, 1995, very heavy winds and heavy seas.

[19]            Third, when the stevedores began discharging the cargo in Montreal on February 20, 1995, they observed it was wet. Federal Marine Terminals, mandated to unload the cargo, on behalf of Unibros, delivered, that day, a letter to the Master of the Captain Gudin which read:

This is to advise you that coils in all holds are partially wet. The hatch tank tops have some quantity of water of as yet unknown origin. It has not been determined if same is due sea water ingress. Surveyor appointed on behalf of the vessel and/or Charterer is aware of the situation.

[20]                         On February 21, 1995, Captain Pozela, the Captain Gudin's Master replied:

In reply to your letter of February 20, 1995, I wish to declare that the water found in the hatches is not sea water.

During loading of the cargo of Cold rolled steel coils at Ventspils January 18-23, 1995 and Hot rolled steel coils at Riga January 25-27, 1995, coils were loaded from open storage and notations made in the Mate's Receips[sic] to that effect.

During the Trans-Atlantic voyage, we experienced large temperature differences from +16C on Feb. 08/95 to -10C on February 15/95 -- at the same time, the water temperature varied from +10C to + 01C.

The hatches are in good, sound condition and no sea water entered the holds during the sea voyage and the small quantity of water found in the holds is from loading wet coils in the loadport and condensation during the voyage due to the large temperature difference noted above.

[21]            On February 21, 1995, the Captain Gudin's Master issued a Note of Protest, part of which reads:

During the voyage, the vessel encountered heavy weather on Feb. 10, 11, 12, 13 and 14 with winds from SW-NW to Beaufort Force 11. The vessel was labouring, pitching and rolling very severely up to 30^o each side, in full storm sea and swell conditions. Vessel also snipping very heavy seas continuously overall decks and hatch lids. The vessel also altered her courses and speeds to Master's orders as required for conditions. These particulars from ship's deck log extract filed.

[22]            Fourth, the shipment was discharged at the Port of Montreal during light flurry activity and was stored on Federal Marine Terminals' docks in open air.

[23]            Fifth, there was a strike in the Port of Montreal during February/March of 1995 which the plaintiffs say prevented the cargo leaving the port and being delivered in a timely fashion to Nova Steel in Cambridge, Ontario or at Metco in Montreal. Metco is a wholly owned subsidiary of Nova Steel.

[24]            Sixth, there is no disagreement between the parties that a positive silver nitrate test on the coils is only prima facie evidence of the presence of sea water. In order to confirm that presence, chemical analysis must be performed.

C. NOVA STEEL'S CASE

1.         On liability

[25]            Nova Steel's case rests primarily on survey reports and testing which it says conclusively establish the pitting damage to the coils, leading to rejection by Nova Steel's or Metco's customers, was caused by sea water ingress during the voyage. It also relies on a translation of certain entries in the Captain Gudin's deck log book.

[26]            The first survey relied on is that of Captain William Morrison who examined both types of steel coils on February 20/21, 1995, when the ship's hatches to the holds, of which there are six, were opened. He observed rust streaks on the hatch coamings which he testified is a sign of sea water ingress. This observation of hatch leakage was corroborated by Mr. Woodfine, Commercial Manager at Unibros Canada who also attended the ship for its discharge.

[27]            Captain Morrison found, for hatches No. 2 and 3, evidence of water entry after or forward end under the hatch coamings. He also observed water had collected on the tank tops which are undulations in the floor of the ship's holds for hatches 3, 4, and 6. He took silver nitrate tests in holds No. 2, 3, 4 and 6 which he wrote indicated the presence of sea water. Hatch No. 1 was not opened and sighted because it had no cargo. In hatch No. 5 all coils in the hatch square were rusted, a rust typical to that found by heavy condensation.

[28]            Captain Morrison re-attended the Captain Gudin the next day where he reported linking up with Mr. Tony Steggerda, a surveyor he believed was acting on behalf of the vessel owners but who was actually representing the charterers of the vessel. His survey report notes a lengthy conversation with Mr. Steggerda on the cause of damage. He said it was agreed the cause of the damage was a combination of salt and fresh water contact. Captain Morrison testified at trial as did Messrs. Woodfine and Steggerda.

[29]            Roger Daigneault, Vice-President Purchasing for Nova Steel, testified that on March 6, 1995, four coils were trucked from the Port of Montreal to Metco's processing facilities in Montreal where some coils were cut and sent to several customers who rejected the product because of surface damage. He testified Metco was lucky to clear four coils out of the port because of the strike.

[30]            Mr. Daigneault testified it was only on March 29, 1995, Nova Steel was able to start clearing, in earnest, the cargo from the Port of Montreal. That day some coils began to be trucked to Cambridge, Ontario and another two were sent to Metco's facility in Montreal. Some coils were shipped directly to Kleen Steel, the only batch pickler in Quebec and to Sidbec-Dosco, a steel producer.

[31]            Mr. Daigneault testified, when Kleen Steel unwrapped the coils, they immediately discovered the pitting problem and so reported to Metco. Other coils were shipped to Nelson Steel, a pickler in Stoney Creek, Ontario, with facilities permitting pickling as the coils were unwound which enabled a better assessment of the inside condition of the coils.

[32]            Mr. Jose Amiot, the General Manager at Metco, also testified. He confirmed the four coils received on March 6, 1995, two of which were unwound and processed into steel plates, were for its customers, namely, Atelier Beauroc, and Acier Roger.

[33]            He testified Beauroc rejected the steel plates because of salt water damage and returned them to Metco. Acier Roger also rejected the coils because of salt water damage but also because its thickness and flatness exceeded specification tolerance.

[34]            The reports from the picklers and the rejection from customers caused a series of surveys to be conducted both at the facilities of Nova Steel in Cambridge, Ontario, where 133 coils had been delivered and were in storage as well as various locations in Montreal where 107 coils were still on the docks, a small quantity (47 perhaps) were in the Montreal warehouse of Metco, Nova Steel's subsidiary, and others were in Nova Steel's facilities at Dorval. This initiative, which began in the last week in April 1995, was coordinated by William Park, a marine surveyor with Toplis and Harding, acting on behalf of cargo underwriters.

[35]            Mike Talwar, a surveyor who testified at trial and who had been retained by Unibros to determine whether the cause of the damage was mill related, examined three coils on April 27, 1995 at Nova Steel's Cambridge facility: one coil had been pickled and had been rejected; the other two had not been through the pickling process and showed positive results to the silver nitrate test.

[36]            On the coil which had been pickled he reported seeing pitting scratches on the surface and edges indicating to him salt water damage. He measured the coil and determined gauge was no problem. He could see no mill related problem.

[37]            He reported much the same results on the unprocessed unpickled coils which were unwound and exhibited pitting. On one coil the gauge of the steel was in excess of the thickness tolerance but Mr. Talwar was of the view this was not a problem because the customer was getting more steel than ordered.

[38]            Mr. Talwar concluded it was apparent the majority of the damage was due to contamination by sea water. He reported it had been agreed between all parties because of the sea water contamination, pitting had occurred on the surface of the material. The coils had been rejected on account of rust/pitting and for no other reason.

[39]            Mr. Park undertook to examine the balance of the coils on the dock in Montreal as well as in other locations in the Montreal area.

[40]            Mr. Park, retained by Nova Steel's insurers, completed a survey report dated September 18, 1995, where he reported on various surveys he conducted as did his associate in Montreal, Don Angel. Both testified at trial. By May 8, 1995, he and Mr. Angel had checked every unprocessed coil, i.e. 180 out of 240 coils, and designated each with either an X or a checkmark according to whether they reacted positively to the silver nitrate test. Out of the 180 coils, 120 reacted positive.

[41]            Mr. Park noted on May 4, 1995, he, together with Mr. R. Cuthbert, a steel expert, attended at Nelson's Steel in Stoney Creek to witness the pickling of four coils which had no traces of salt water, the intention being for the steel expert to examine for possible mill, surface and gauge problems. He writes in his report Mr. Cuthbert, who did not testify at trial, concluded the steel appeared to be in line with industry standards.

[42]            After having segregated all unprocessed coils reacting positively to the silver nitrate test and, after a meeting with Nova Steel on May 29, 1995, it was decided to further inspect the suspect X coils by unwinding them completely and visually examining and photographing the steel as it moved by. Forty (40) of the X coils were examined this way to establish a correlation between the outward appearance of a coil and the condition inside the coil in order to determine whether the coil could be classified as workable or unworkable. The unworkable coils, which were pitted, were put up for salvage sale.

[43]            As part of the verification process, Mr. Angel arranged to have a chemical analysis performed on three samples out of forty-seven (47) coils located at Metco. Nancy Mercereau, a chemist with Technitrol.Eco provided Captain Angel with a June 13, 1995 report concluding the steel coils had been contaminated by salt water. She testified at trial.

[44]            Mr. Park also took three scrapings of corrosion from coils he had inspected and submitted them for analysis by David Gordon of Technitrol Expertise Inc. in Toronto who provided him with a May 9, 1995 report confirming all samples had been in contact with salt water. Mr. Gordon testified at trial.

[45]            Nova Steel then commissioned a study from Technitrol.Eco who provided a report on December 6, 1996. The study was headed by Ludwig Cambal, an expert metallurgist, who was called as a witness, to testify on steel production, the features of hot rolled steel and on the sea water corrosion test simulating the conditions in the holds of the ship he had performed.

[46]            As for the simulation test, a certain number of clean and undamaged plates of hot rolled steel from the cargo were exposed for twenty (20) days to a wetting cycle by having synthetic sea water dripping on the stacked plates for five minutes every four hours. He examined the plates after twenty (20) days and compared these to parts of the original coil which had exhibited pitting corrosion. The pitting patterns of the test plates and the plates from the damaged coil were identical. He then performed the same drip test for periods of three, six, nine and fifteen days. He found once the plates were exposed to dripping for nine days, the material was rejectionable. He concluded the pitting corrosion initiated by sea water during transportation was in itself sufficient to render the coils unacceptable. In Mr. Cambal's opinion, as an expert metallurgist, the storage at the Port of Montreal and exposure to atmospheric conditions was not a factor in the rejectionability of the coil.

[47]            Violeta Davoliute testified at trial. She was recognized as an expert translator from Lithuanian to English. She reviewed the deck log of the Captain Gudin, written in Lithuanian, between February 10 to 15, 1995. She provided two reports: the first is dated August 27, 2001 and the second is dated September 14, 2001.

[48]            The following are the translated extracts from the deck log of the Captain Gudin as set out in Ms. Davoliute's August 27, 2001 report:

(1)        February 10, 1995, Chief K.P. at 03:00 hrs:

The vessel is swaying strongly from side to side, rocking back and forth, and is experiencing vibration. Sea water is periodically flooding the main deck and the hatches to the holds. Chief K.P.

(2)             At 08:00 hrs. the same day Chief K.P. wrote the following:

During this shift, the vessel was swaying strongly from side to side rocking back and forth. Sea water was repeatedly flooding the main deck and the hatches to the holds.

(3)             On February 11, 1995, the deck log at 08:00 hrs. from Chief K.P.'s handwritten entries reads:

For the duration of this shift the vessel was swaying strongly from side to side, and rocking back and forth. The angle of the vessel's heeling to the sides was 25% of the flanks. The main deck and the hatches to the holds were repeatedly flooded by seawater.

(4)             For February 12, 1995, the following entry is recorded at 15:00 hrs:

... The vessel has been prepared to sail under fog conditions.

(5)       For February 13, 1995, the deck log entries were:

(1) At 05:35:

We have started pumping the bilges of all the holds.

(2) At 07:35:

We have finished pumping the bilges of all the holds.

(3) At 08:00:

For the duration of the present shift the ship was rocking strongly back and forth. Huge quantities of water were repeatedly flooding the main deck and the hatches to the holds. For the duration of this shift, the base of the (cranes, winches) used for climbing-down into the sluices (the phrase might be erroneous because research should be done on the meaning of gerviu) broke off, the ventilation pipe between holds no. 2 and 3 have been bent. Chief K.P.

(4) At 12:00:

We are sailing against the storm. Because the wind, which is w-25-30 metres/second and the waves, which reach approximately 10/12 meters in height, we are keeping the vessel directed against the waves, against the wind. The speed of the ship is 2-3 miles per hour. The waves are flooding the deck and the hatches to the holds.

(5) At 17:00:

The vessel is swaying strongly from side to side, and rocking back and forth and vibrating. Seawater is repeatedly flooding the main deck and the hatches to the holds. During the time of this shift we pumped out the water from the bilges of the holds several times.

(6) At 22:00:

During the time of this shift the vessel was rocking back and forth and water was repeatedly flooding the main deck and the hatches to the holds. Chief K.P.

(6)       For February 14, 1995, the deck log entries were as follows:

(1) At 00:10:

We started pumping the bilges of holds No. 3 and 4.

(2) At 00:45:

We finished the pumping.

(3) At 05:35:

We started pumping all of the bilges of all the holds.

(4) At 07:40:

We finished pumping the bilges of all the holds.

(5) At 14:00:

Water has been found inside the hold No. 3. We have started to fill the afterpeak with ballast. We have started pumping the water out of hold No. 3.

(6) At 15:03:

We have finished filling the afterpeak with ballast.

(7)       For February 15, 1995, the deck log records the Captain Gudin entering an ice field and sailing through it for the better part of the day.

[49]            In her supplementary report dated September 14, 2001, Violeta Davoliute addressed her translation of the deck log entry for the time 14:00, on February 14, 1995, which was:

Water has been found inside the hold No. 3. We have started to fill the afterpeak with ballast. We have started pumping the water out of hold No. 3.

[50]            She notes her first report did not translate the Lithuanian word "uzbortinis", a compound adjective which, when read in combination with the Lithuanian word "vanduo" can be translated as "overboard water" or, if read literally, "the water from outside the vessel". She writes:

Bearing in mind the given context, it also would be accurate to translate the combination of words "uzbortinis vanduo" as "sea water". Therefore the translation of the first sentence of the entry for 14:00 on February 14, 1995, should read: "Sea water has been found inside the hold No. 3". This is an accurate translation to the best of my knowledge and ability.

[51]            Nova Steel's case on liability was rounded out by the testimony of Robert Hunter, formerly its Director of Materials and Captain Melvyn Fernandez. Mr. Hunter identified that up to 50% of the hot rolled steel coils destined to Nova Steel, Cambridge, had been purchased for resale to Fenwick Friction ("Fenwick") to be made into brake shoes in which case the customer is somewhat more lenient on surface finishing, gauge and thickness tolerances but not where pitting was exhibited. He confirmed Fenwick rejected the coils because of pitting.

[52]            Mr. Hunter confirmed the results he had received from the pickling plants of Kleen Steel and Nelson Steel which evidenced severe pitting to the coils likely caused by salt water.

[53]            He described the oiling efforts taken by Nova Steel to arrest or prevent the seepage of water into the coils. He described the steel market in 1995 as hot because of the shortage of Canadian supply which forced Nova to import. In this context, he testified the reason Nova could not take delivery sooner was because of the strike. He stated Fenwick did not reject the coils because of any mill problems.

[54]            Captain Melvyn Fernandez provided an expert report on the probable cause of the damage to both cargoes, hot rolled and cold rolled galvanized steel coils and whether the wind or sea conditions experienced were unusual for that time of the year.

[55]            The second aspect of his report need not be developed because the defendants are not claiming perils of the sea on that account but he did say the Captain Gudin experienced rough weather with storm-like conditions for the most part of her voyage.

[56]            Captain Fernandez' opinion was taken from survey reports and log extracts made available to him. In particular, he relied on Miss Davoliute's translation.

[57]            He concluded, after examining Captain Morrison's survey, Anthony Steggerda's survey and lab tests, the M.V. Captain Gudin was not water tight.

[58]            On cross-examination he expressed the view looking at the inside of hatch coaming does not indicate anything about the water tightness of the ship: he would examine the hatch covers, the gaskets, the cleats and the wedges.

[59]            He said it would be difficult to examine the hatch covers if they were open but acknowledged you could examine the compressor bar on the hatch coaming.

[60]            He described three tests used in determining water tightness: ultrasonic tests, a hose test (which is the most prevalent) and a chalk test.

[61]            He admitted a change from +16C to -8C was a very big difference in temperature. He also said if loaded wet, the cargo would have dried off with ventilation.

(2)        Nova Steel's case on damages

[62]            Nova Steel's case on loss or damage incurred was put in through the testimony of William Park of Toplis & Harding and that of Robert Hunter.

[63]            Two recovery mechanisms were used to quantify the loss in value of the hot rolled steel coils which Nova Steel had purchased: either sale at auction or retention by Nova Steel at various discounted prices. Which mechanism was used depended whether the coils had been identified as X-coils or had been checkmarked. The X-coils had tested positive to silver nitrate; the checkmarked ones had not.

[64]            After rewinding and inspecting over forty of the X-coils, it was determined that sufficient correlation existed between the outward appearance of the coil and the condition of its insides and that the X-coil assessment process could be completed without unwinding every X-coil. All remaining X-coils were inspected and designated either workable or unworkable. The workable coils were sent for pickling and processing in the usual manner and the unworkable coils were set aside for salvage sale.

[65]            Toplis & Harding arranged the salvage sale of 1,724.83 metric tons of rejected, damaged steel on behalf of Nova Steel. They invited sealed bids with a ten percent (10%) deposit from interested potential buyers throughout North America. They also advertised the sale by tender through the "Metal Bulletin", an international weekly journal for the steel industry. A total of five offers were received by the closing date of September 5, 1995, the highest value of which was Lombard Metals Corporation who offered $482,475.66 ($431,395.66 after deducting applicable taxes).

[66]            The loss on the remaining X-coils was assessed by way of percentage allowances. Two coils which were found pitted throughout after the salvage sale were retained at a fifty percent (50%) allowance and a thirty percent (30%) allowance was approved for 400.5 metric tons of the remaining workable X-coils. The fifty percent (50%) allowed for the two pitted coils roughly equated to the salvage value expected and the thirty percent (30%) allowance on the workable X-coils was derived from Nova's experience during unwinding and processing of similar coils up to the time of the salvage sale.

[67]            With respect to the coils which had a checkmark, representing 1.431.13 metric tons, Toplis & Harding agreed with Nova Steel's position some allowance had to be made for the likelihood of hidden damage to those. Ultimately, a seven percent (7%) allowance was agreed. This figure reflected Nova Cambridge's experience with the checkered coils which they had processed by the time of the closure of the salvage sale on September 5, 1995. After deducting the reported industry standard of two percent (2%) scrap on each of the coils processed, Toplis & Harding arrived at an average additional scrap rate for surface problems of three point five percent (3.5%) on the processed checkered coils. Using this three point five percent (3.5%) as the basis for negotiation, Toplis & Harding then considered the risk of significant rust damage to a checkered coil being found during the process and eventually agreed to a seven percent (7%) allowance on the remaining checkered coils.

[68]            Mr. Hunter corroborated the testimony which Mr. Park had given in terms of the salvage values and expenses incurred by Nova Steel.

D.        THE DEFENDANTS' POSITION

(1)        On liability

[69]            The defendants' position was advanced through the testimony of two surveyors Messrs. Anthony Steggerda, Mr. Tilak Raj Khanna and by Mr. AMR Rouchdy, a chemist who provided two reports of his analysis on the five water samples (one for each hold) taken by Mr. Steggerda and the sponge used to collect that water. Captain Pozela, the Captain Gudin's Master, took the stand as did Frans Coppers, a maritime consultant and a marine and cargo surveyor who was the defendants' main expert witness.

[70]            Anthony Steggerda's survey is dated February 28, 1995, a survey conducted at the request of Christensen Shipping Corporation, who are the agents for the charterer. The purpose of his attendance on the Captain Gudin on February 20 and 21, 1995, was to inspect its hatches and cargo prior to discharge. This is what he wrote about the condition of the cargo and holds:

All hot rolled coils evidenced from light to heavy surface or atmospheric rust and were wet in places in way of the hatch coamings, evidencing water to have dripped from the coamings. (Water marks).

The cold rolled coils also evidenced water marks and wet areas in way of the hatch coamings.

The tanktops evidenced some water having collected in the numerous indentations of the tanktops. (These indents being normal for vessels engaged for years in the bulk cargo trade).

Inspection of the hatch covers and seals found these to be in a rust free and reasonable maintained condition.

The hatch coamings were found rust free and did not evidence those water marks which could evidence ingress of sea water.

The bottom edges of the coamings evidenced wetness but were found to be fresh water.

The water found on the tanktops was sampled by ourselves in conjunction with the crew and found to be basically fresh water.

As the vessel had encountered heavy weater[sic] conditions during the transit, the Master issued a Sea Protest... . Stevedores issued a letter of Reserve against the presence of wet cargo.

The samples of water from the tanktops for each hatch were taken and sealed and will be held in storage for a period of 60 days.

We would note that the Master's Statement that heavy condensation took place during the transit to be correct following our perusal of the Temperature records from the vessel's Log.

[71]            The first of Captain Khanna's two reports is dated June 7, 1995, and is addressed to the Shipowners' Assurance Management Ltd., representing the shipowner's interests. It is a joint survey with Don Angel and William Park conducted over a number of days: May 30, June 1 and June 5, 1995.

[72]            On May 30, 1995, he performed a joint survey with Don Angel at Metco Steel in Montreal and at sections 47/48 in the Port of Montreal. He reported forty-seven (47) coils were stored inside the shed at Metco. He wrote this:

Salt water stains were noted on the edges of plates but no salt water stains were noted on the round of the coils.... salt water stains were noted confined upto about 22 inches from the outer ply, in the form of a segment.

[73]            Of his visit on the docks, he observed ninety-three (93) coils were stored on the open dock area, exposed to the elements. He wrote that about fifty (50) coils were tick marked and was informed by Don Angel these coils were tested at the early stages and showed negative results to silver nitrate tests. He reported the balance of the coils showed rust stains on the edges of the plates but the silver nitrate tests were mostly negative. Light pitting was noted on some coils on the round. He said Mr. Angel had selected and marked with spray paint fifteen (15) coils, representing different sizes and levels of rust staining to be taken to Nova Steel for unwinding, running and inspection, to determine the condition of the steel plate inside the coil.

[74]            Captain Khanna then reported on his June 1, 1995 joint survey with William Park attending the premises of Nova Steel in Cambridge, Ontario, where they were shown two coils which were run and rewound and cut in two halves. He said salt water stains were noted on both coils. Captain Khanna also mentioned they were shown two other coils both pickled and oiled and cut in two halves. One coil was noted with scratches and pit marks. The other coil was reported wavy with coil breaks but no pit marks. Some coils were reported with a gauge problem. They were shown another coil, pickled and oiled by Kleen Steel in Montreal and they observed light pitting.

[75]            Captain Khanna commented on his June 5, 1995 joint survey with William Park at Nova Steel's premises in Dorval and Metco Steel's warehouse in Ville St-Pierre. He acknowledged Roland Cuthbert's presence.

[76]            At Nova Steel, Dorval, four coils were run and rewound. All four coils showed patches of fresh water on sheets within the coils and silver nitrate tests were negative throughout. Captain Khanna said those coils were brought in from sections 47/48 Port of Montreal after the joint survey on May 30, 1995. He reported an additional four coils were run after their attendance and were reported with similar results.

[77]            He then advised of the survey at Metco where two coils were run and cut into plates. One coil showed heavy rust, moderate pitting and heavy instances of coil breaks. The other coil showed moderate rust stains in patches with clear areas in between. The rust stains showed silver nitrate tests with positive results.

[78]            He said Metco advised the surveyors a major complaint was with the coil breaks which is a mill defect.

[79]            Captain Khanna's second survey report is dated June 30, 1995. He repeated his previous June 5 survey report findings and provided his conclusions and cause of damage. This is what he wrote:

1. As noted earlier, the vessel had experienced heavy weather during the voyage and condensation was noted in all holds, which is to be expected.

2. Also, as the Master stated in his letter, the coils were loaded from open storage at the loadport, exposed to the elements and in wet condition. We noted that the level of water stains were upto about 22" from the outer ply, in the form of a segment. Substantial number of coils were not affected by salt water, which makes us believe that when the coils were stored on the open area at the loadport, coils in the front storage were more exposed to the spray from the dock water.

3. It is noted that the bill of lading was notated by the Master as "Partly Rust Stained" and "Wet before shipment".

4. We note from the "Pre-Discharge Survey" report the water found on the tank tops was noted to be basically fresh water by the surveyor in attendance. It should be noted that indents on tanktop plating are normal on a bulk carrier, especially after many years of service as this vessel. It is noted that this vessel is seventeen 17 years old, built in 1978. During condensation, it would be normal for water logging in these indents.

5. Surveyor in attendance at "Pre-Discharge Survey" noted no evidence of any ingress of water from the hatch coamings or hatch covers.       

6. During our survey at various locations, we noted mostly fresh water stains, except at Metco. We believe that the coils at Metco are the ones which were most exposed to the dock water spray at the loadport.

7. We were advised at the various locations during our survey that a major complaint was regarding coil breaks which is a mill defect.

8. Finally, in our opinion, the damages attributed to the subject shipment are not related to the vessel's transit but were caused due to the coils being stored on the open areas at loadport . . . . [emphasis mine]

[80]            AMR Rouchdy, a chemist, tested samples of water which the crew of the Captain Gudin had collected from the tank tops in Anthony Steggerda's presence. He also tested the sponge which the crew had used to collect the water. Based on his analysis, both dated April 4, 2001, he stated during his testimony that the water he analysed was not fresh water nor sea water but a dilution of another type of water.

[81]            The Master of the Captain Gudin, Captain Pozela, testified at trial.

[82]            Captain Pozela is an experienced Master. He produced a certificate from the Russian Classification Society dated August 15, 1994 and valid until August 28, 1997, attesting to the Captain Gudin's seaworthiness by meeting all international standards.

[83]            He confirmed the vessel was on a time charter to Broden A.B.

[84]            He joined the ship in Riga when loading was almost completed and, as a result, did not see the loading in Ventspils. He described the ship's hatch covers and how they closed hydraulically. He pointed to the ventilators in the hatch covers and described the sounding pipes, flush with the ship's deck, used to measure water in the bilges when the weather is good.

[85]            He was of the view the Captain Gudin's voyage was a normal one for that time of the year with winds of 3.6 and 3.7 Beaufort scale except when entering into the Cabot Straight when the vessel experienced strong winds, Beaufort scale 10, but this did not last long.

[86]            He testified as to the dramatic change in temperature during the voyage from minus 12C to plus 16C which would cause substantial condensation.

[87]            Captain Pozela met surveyor Steggerda and testified Mr. Steggerda told him the water in the holds was fresh water.

[88]            While he challenged Violeta Davoliute's translation in a few instances, he acknowledged generally the translation was acceptable but was not technically correct because the translator was not a mariner and did not use a mariner's language. He added she missed some important words such as "controlled pumping of the bilges". He did not accept her translation of "uzbortinis vanduo" to mean sea water.

[89]            He expressed the view that if hatches were closed, it was impossible for water to seep into them because the hatches would have to have been broken (released).

[90]            At page 235 of the transcript of his testimony, he testified that after leaving Montreal and before taking on another cargo at Dalhousie, Nova Scotia, he checked the holds and they were fine.

[91]            Captain Pozela acknowledged the practice of cleaning the holds of the Captain Gudin with salt water before each voyage without hosing them down with fresh water to remove the salt.

[92]            During his testimony, he referred to advice dated October 12, 2001, which Lithuanian Shipping had received from two professors at the University of Klaipeda, in Klaipeda, Lithuania, dated October 12, 2001. They had been provided with a photocopy of page 19 from the deck log which contains the entry at 14h00 hours on February 14, 1995. The professors noted the combined words "uzbortinis vanduo" are unusual in the Lithuanian language and the translation into English is "outside water". In their opinion, the correct translation of the entry is read: "14h.00 the outside water (or just - water) has been found in hold No. 3".

[93]            With the consent of counsel for the plaintiffs, two test reports taken in Latvia were filed. The defendants had water samples from the river Daugava at Riga on August 23, 2001 and the waters from the River Venta at Ventspils, also taken that same day, tested by the Laboratory of Hygienic Investigations at the Ministry of Welfare of the Republic of Latvia.

[94]            The test of the waters of the River Daugava showed those waters were fresh water while those of the River Venta contained 3% sea water.

[95]            Frans Coppers provided expert evidence on behalf of the defendants. His main report is dated August 28, 2001. He issued a further report dated September 25, 2001, commenting on the survey reports issued by William Park and Captain Morrison. The way Mr. Coppers went about to prepare his main report was to review several of the documents which had been generated by surveyors as well as Technitrol.Eco's analysis and Mr. Cambal's simulation test.

[96]            In his direct oral testimony, Mr. Coppers reached the following conclusions on a number of issues:

(1)        the nature of cargo and ship sweat and how condensation occurs with a steel cargo;

(2)        commenting on the photographs taken by surveyor Steggerda, he did not see rust streaks on the hatch coamings and concluded the hatches did not leak;

(3)        he was of the opinion the rust streaks shown in the three coloured photographs taken by Captain Morrison was not sea water but from condensation;

(4)        Captain Khanna's photographs did not reveal salt because reaction to salt to a silver nitrate test would have been different;

(5)        the white substance shown in Mr. Park's photos was not salt for a number of reasons. In his view, the white substance appearing in those photos was potassium or calcium.

[97]            Of the Nova Steel cargo, his conclusion in his written expert report reads:

The coils were transported from the steel mill, deep inside Russia, to the loading port. The method of transport (barge/train/road) from the mill to Riga is unknown. The coils had been stored on the open dock at Riga for a considerable period of time, during the winter months, prior to loading. The goods were stored close to the water/dock's edge. There is documented heavy air/water pollution at the port of loading. The coils were loaded aboard the ship in a wet condition. The coils were stored, exposed to the elements and possible contamination by road salt in Montreal. The simulated seawater drip test proved that wetting by undiluted seawater for up to 6 days, did not cause rust damage justifying a rejection of the material. The coils were wet prior to and at time of loading, and remained wet throughout the voyage, which would have diluted any direct salt water wetting on board the vessel into a mostly fresh water solution. (This opinion is confirmed by the analysis of the tanktop water by Phillip Services Analytic.) There is no evidence of seawater entry inside the cargo holds of the vessel. Therefore, it is my considered [sic] that the rust pitting noted during the follow-up damage survey was not the result of possible salt water wetting on board the carrier, but the result of exposure of the coils to chlorides prior to loading aboard the ship in Riga. [emphasis mine]

(2)        The defendants' case on damages

[98]                         The defendants' case on damage and on allowable items was not directly addressed by any of the defendants' witnesses but rather was derived from cross-examination by counsel and in argument.

[99]                         Counsel for the defendants was concerned Nova Steel had not mitigated its damages by clearing the cargo from the Port of Montreal in a timely fashion and by taking measures such as washing the coils with fresh water or putting them through the pickling process in order to arrest the spreading of the corrosion.

[100]        Counsel did not think Nova Steel obtained the highest and best use for the damaged coils. He pointed to a chart in exhibit P-37 from Fenwick Friction for surface 9 where pits of 1/4 inch in diameter were not rejectionable for some uses and this was the highest measurement Dr. Cambal got through his experiments.

[101]        He argued that certain expenses should be disallowed because they would have been incurred in any event. Those expenses related to freight charges moving the product out of Montreal to destination because those freight charges were to the account of Nova Steel or Metco.

[102]        He argued for the non-recognition of the discounts accorded to Nova Steel by the insurer on the coils retained by Nova Steel and not put up for auction. He relied on Justice Nadon's decision in Union Carbide Corp. v. Fednav et al. (1997), 131 F.T.R. 241

[103]        He pointed to the substantial costs for experts which he said really dealt with the insurance claim and not in the context of trial preparation. That was particularly so of Dr. Cambal's simulation study.

(E)             ANALYSIS

(1)        The plaintiffs' initial burden

[104]        It is clear from Kruger, supra, and from Francosteel Corp. v. Fednav Ltd. (1990), 37 F.T.R. 184, Nova Steel has the initial burden of demonstrating the hot rolled coils were tendered in good condition to the Captain Gudin for delivery. A clean bill of lading is generally accepted as establishing prima facie proof of this.

[105]        The plaintiffs' evidence must establish this fact on the preponderance of probabilities: i.e. it is more likely than not the coils were tendered in good order (see, Smith v. Smith et al., [1952] 2 S.C.R. 312).

[106]        Notwithstanding it is normal such coils are shipped unprotected and a claused bill of lading "partially rust stained; wet before shipment" is acceptable, it is my view Nova Steel's evidence has not demonstrated the coils were in good order when tendered to the Captain Gudin.

[107]        While there was some evidence when the cargo was manufactured, there was no evidence how it was stored at the producing mill and the conditions it encountered during the lengthy rail trip from mill to port. We know the coils were stored in open air on the docks but nothing else. Moreover, the actual condition of the coils when loaded could only be determined after unwrapping except for the outside round of the coil.

(2)        The plaintiffs' burden in negligence and unseaworthiness

[108]        The fact the plaintiffs have not established the coils were tendered to the Captain Gudin in apparent good order does not end the matter. The plaintiffs may establish liability if they can demonstrate the Captain Gudin was the proximate cause of the damage sustained.

[109]        Justice Rouleau in Francosteel Corp., supra, quoting with approval Acwoo International Steel Corp. v. M/V Hosei Maru et al., [1989] A.M.C. 2894 and Caemint Food Inc., [1981] A.M.C. 1801, said this:

Although the plaintiff has not proven that the goods were delivered to the carrier in good condition and discharged in damaged condition, it may still be able to establish that the damage was due to acts of the carrier... . A shipper or consignee who has not proved delivery in good condition may nevertheless establish a prima facie case for recovery by producing sufficient evidence that the nature of the damage suffered indicates that the damage occurred while the cargo was in the carrier's custody.

In order to convince the Court that the damage occurred while the cargo was in the carrier's custody, the plaintiff would have to establish, by a preponderance of evidence, that the proximate cause of the rust was either precipitation or condensation forming in the ship's hold.

[110]        In the case before me, the damage to the coils was the pitting. The plaintiffs can make out the Captain Gudin's liability if they establish sea water or sea salt was present in the Captain Gudin's holds during the voyage. The evidence is clear that sea salt causes pitting and fresh water does not.

[111]        The evidence advanced by the plaintiffs on this point is, in my view, overwhelming. I am completely satisfied the pitting damage to the coils occurred while they were in the custody of the Captain Gudin because they were exposed to sea water or sea salt during the voyage.

[112]        As I see it, the defendants hardly challenged the plaintiffs' evidence the coils suffered pitting damage. The burden of their evidence is such pitting damage was not caused when in the custody of the carrier because no sea water entered the Captain Gudin. The pitting damage occurred either in the load port or after discharge. Moreover, the pitting damage was not the reason for the plaintiffs' loss; mill defects were.

[113]        I need only briefly touch upon the evidence led by the plaintiffs which already has been summarized in these reasons.

[114]        The pitting damage was established through the reports from Kleen Steel and Nelson Steel and by the survey reports with supporting photographs of Mike Talwar and William Park (assisted by Don Angel) and by responsible officials of Nova Steel and Metco. Even Captain Khanna, for the defendants, in his survey report, acknowledges the presence of pitting but said the pitting was caused at the load port. So does Frans Coppers in the conclusion to his first expert report.

[115]        The likely presence of sea water or sea salt in the holds of the Captain Gudin during the voyage was established through the evidence of Captain Morrison who tested the water in the tank tops when the Captain Gudin's hatches were opened. He concluded that water was a combination of sea water and fresh water, a conclusion supported by chemical analysts Mercereau and Gordon who analysed rust scrapings taken from sample coils. This conclusion was also supported by the defendants' own analyst, AMR Rouchdy who analysed the water from the tank top which had been gathered with a sponge.

[116]        There is also the evidence of Captain Pozela who confirmed the likely presence of sea water or sea salt in the holds of the ship through the practice of washing the holds with sea water without rinsing them off with fresh water. Anthony Steggerda agreed, if this was done, the carrier would be at fault because sea salt, present when the sea water dried through ventilation combined with condensation, could cause serious damage to the cargo. In other words, he agreed with the proposition set out by A. Sparks in his book Steel, Carriage by Sea, page 14 (1988 Edition).

[117]        Also, I am satisfied, on the balance of probabilities, sea water entered the Captain Gudin's holds during the voyage. The evidence is clear the Captain Gudin experienced very heavy seas and heavy winds which submerged the hatches and the decks with sea water during several days of its voyage which Captain Khanna said could put pressure on the hatches. Captain Morrison referred to another possibility: entry through the ventilators. The Captain Gudin was an old ship.

[118]        The ship's deck logs contain such evidence. I accept Ms. Davoliute's translation which is consistent with the translation provided for by the professors at Klapedia University. It is consistent with Captain Pozela's Sea Note Protest. Surveyor Steggarda testified her translation was in line with the results of the chemical analysis by AMR Rouchdy of the samples he took.

[119]        I draw a negative inference the second mate who wrote the relevant entries was not called to testify to deny he did not write sea water was entering the ship's holds.

[120]        Captain Morrison, corroborated by Kevin Woodfine, testified he saw rust streaks on the hatch coamings, evidence the hatches had leaked.

[121]        Anthony Steggerda, who had not made any silver nitrate tests during his survey, did not dispute the Morrison/Woodfine observation. He said perhaps he did not see the rust streak on the hatch coaming because it was wet when he examined it. He went on to say he did not know if sea water had entered the Captain Gudin but based on what AMR Rouchdy found in his analysis there was salt in the water.

[122]        Mr. Steggerda further acknowledged the limited tests for the tightness of the hatches he was able to perform.

[123]        All of this evidence taken in its totality supports the finding of sea water or salt presence during the voyage causing substantial damage.

[124]        On this basis, I find negligence on the part of the Captain Gudin. It was certainly negligent to flush the holds with salt water without flushing them with fresh water when the next cargo to be carried was a steel cargo.

[125]        The Captain Gudin was unseaworthy because it was not watertight and allowed sea water entry.

[126]        The defendants did not advance any cogent evidence for a due diligence defence.

[127]        I deal with some of the evidence put forward by the defendants as to the cause of the pitting and the real reason for Nova Steel's loss.

[128]        Captain Khanna concluded the pitting damage was caused by sea spray at the load port. That theory was put to rest by Dr. Bodsay's rebuttal evidence which reviewed the analysis on the waters taken at Riga where the hot rolled steel coils were stored in the open and loaded on board. The waters from that river did not contain any sea water; it was fresh water.

[129]        Dr. Bodsay also commented upon AMR Rouchdy's report. He confirms what AMR Rouchdy said in testimony that the water he tested was a combination of fresh water and sea water. Dr. Bodsay said the analysis done by AMR Rouchdy on the five samples taken from the five holds was on average 38% salt water and in one sample was as high as 45% salt water.

[130]        The defendants suggested the real reason for the plaintiffs' loss were attributable to mill defects. I cannot accept that submission because it goes against the weight of the evidence I received.

[131]        Messrs. Daigneault, Amiot and Hunter of Nova Steel and Metco, confirmed the reasons their customers rejected the coils was because of the pitting. These witnesses acknowledged some coils may have shown some signs of mill defects or out of spec gauges but they clearly stated those were minor production defects within the tolerances of their customers. I accept their evidence noting, however, in one case, that of Acier Roger, another reason was mill defect. This other reason does not nullify the fact Acier Roger did reject on account of pitting.

[132]        Mike Talwar's survey was to identify mill defects. His survey shows, except in one case, the coils he examined were within spec. It was his view the one coil out of spec would not have been a reason for rejection because the customer was getting more steel than he bargained for.

[133]        I was impressed by the way William Park conducted his survey. He was backed up by Don Angel. He had the assistance of a steel expert who did not testify and what he told him was hearsay. Notwithstanding that, Mr. Park's actions in identifying workable and unworkable coils were guided by what Mr. Cuthbert had told him. He would not have acted the way he did if mill defects had been present as this would have been contrary to his entire approach and the way he proceeded with which I find no basis for criticism.

[134]        I do not accept Frans Coppers' position that the evidence did not establish, on a balance of probabilities, sea water or sea salt was not present during the time the coils were in the defendants' custody and control and I do so for a number of reasons.

[135]        First, Mr. Coppers based his conclusion because he saw no photograph which showed rust streaks on the side of the hatch coamings. If he did not see such photograph, to him, there was no evidence of sea water entry.

[136]        A court of law cannot decide cases adopting such a restrictive approach. It must consider all of the evidence, weigh it and decide on the balance of probabilities (not on the basis of beyond a reasonable doubt which is the standard seemly advanced by Mr. Coppers) whether sea water ingress took place.

[137]        Second, I think his criticism of the survey results, including the results of Captain Khanna for the defence, are not warranted. His criticisms were based on his reviewing the photographs only and discounted the testimony of the surveyors were present who explained how the silver nitrate tests were taken, why some photographs did not show up the silver nitrate tests as well, and why the silver nitrate tests may not prove positive on the round of the coils because of removal by rain. Mr. Coppers, as noted, was not present to inspect the cargo.

[138]        Third, he acknowledged he did not have an explanation for the presence of sea water in the holds in the form of _ / _ sea water to fresh water.

[139]        Fourth, he exaggerated or was wrong on some of the evidence such as the coils were loaded "saturated with water" or they were discharged in Montreal in the rain which was not the case.

[140]        Fifth, his view that the cause of the pitting was through chloride exposure at loadport is not supported by any evidence and is contrary to Dr. Bodsay's evidence in rebuttal, based on the analysis done in Latvia, which showed the Rivers Venta and Daugava to have fresh waters.

[141]        Counsel for the defendants raised several legal issues on to the quantum of damages claimed and I deal with those now.

[142]        First, counsel for the defendant cited Union Carbide Corp., supra, for the proposition that documents prepared for the purpose of establishing a claim under insurance policies are not admissible in order to prove quantum. The plaintiffs must, as Mr. Justice Nadon ruled, establish they have suffered a loss and the amount of that loss. In doing so, they cannot rely on any agreements or bargains struck with their insurers.

[143]        Specifically, Justice Nadon ruled evidence of a 35% allowance testified to by a surveyor retained by insurers to ascertain the losses payable under the relevant policies was no evidence of the loss actually suffered by the plaintiff who did not testify.

[144]        As noted in this case, some allowances, varying from 50%, 30% and 7% were arrived at.

[145]        In my view, the circumstances before Justice Nadon in Union Carbide Corp., supra, whose reasoning I accept in its entirety, were not those present in the case before me since Mr. Hunter testified on behalf of the plaintiffs on the very point which Justice Nadon said was lacking in his case.

[146]        Mr. Hunter was shown by his counsel exhibit P-55 which is William Park's survey report on damage. Mr. Hunter stated he had assisted in the preparation of that document for Mr. Park (transcript, November 5, 2001, page 177).

[147]        Mr. Hunter was taken to page 15 of William Park's report which sets out the coils which were damaged and the allowances granted. He said he recognized the document clearly. His attention was directed to column G setting out the allowances for the damaged goods and he said that was his understanding.

[148]        As noted, William Park's report explains how the allowances were arrived at. In particular, the 7% allowance for the steel retained by it reflected Nova Steel's experience in Cambridge with the checkered coils which it had processed by the time of the closure of the salvage sale on September 5, 1995.

[149]        Mr. Hunter was subject to cross-examination. He was asked whether he was involved in any way in the allowances. He answered he was certainly involved with Mr. Park in reviewing the coils (transcript, November 5, page 218).

[150]        On the basis of this record, I am satisfied the allowances arrived at represented the loss Nova Steel experienced and were proof of such loss.

[151]        Counsel for the Captain Gudin then asserted Nova Steel did not mitigate its damages. It did not take delivery fast enough and did nothing to arrest the spreading of the pitting. The evidence of the witnesses for Metco and Nova was that a strike at the Port of Montreal prevented them from taking immediate delivery. In cross-examination, Mr. Hunter testified he would have taken the steel right away "in a heartbeat" (transcript, November 5, 2000, page 198).

[152]        Mr. Hunter also testified on the efforts taken to prevent the spreading of the pitting. It consisted of spraying the coils with oil to retard corrosion. This is explained in his report to a superior at Nova Steel and is exhibit P-90. From a review of the evidence fresh water hosing in February was impractical and pickling perhaps ineffective depending on the conditions.

[153]        In any event, Dr. Cambal's simulation test proved the damaged coils were rejectionable after seven days of being exposed to distilled sea water.

[154]        Based on the record, I see no substance to the defendants' argument on this point.

[155]        Counsel for the defendants relied upon the Federal Court of Appeal's decision in Amjay Cordage Limited v. the Ship Margarita, (court A-854-76) for the proposition the measure of damages should be without the profit received by J.B. Multinational Trade Inc. when it resold the goods to Nova Steel (approximately $20 per ton being the difference between $370 per ton sold to Nova and $350 paid to Unibros).

[156]        Amjay, supra, was not a case where a broker was involved. However, I read that case for the proposition the value for calculation of damage (absent evidence of sound market value) is the invoice price paid by the person suffering the loss. Here, Nova Steel suffered the loss. It was the only true plaintiff. On this basis, I reject the defendants' argument.

[157]        On double accounting, the only area I had trouble with is the Montreal/Cambridge charge. I asked both counsel to get together to resolve the issue and in argument I did not hear counsel for the defendants‘ dissatisfaction. As to the other charges, I am satisfied they would not have been incurred in any event.

[158]        Counsel for the defendant challenges the payment of surveyors' fees and Mr. Cambal's experiment. He provided no authority. Professor Tetley in the third edition of Marine Cargo Claims at page 356 states:

If surveyors are employed by the consignee to calculate the extent of the loss and to suggest ways to keep the loss at a minimum, then their fees should be the responsibility of the carrier. Normally, however, surveyors are employed to settle claims between the consignee and the underwriters. The expense of these services of the surveyor cannot be charged against the carrier.

[159]        Counsel for the defendants did not substantiate his argument that the plaintiffs, in retaining their experts, crossed the line into the impermissible realm of hiring surveyors to settle a claim.

[160]        I am of the view the surveyors' expenses were related to determining the loss, its extent and cause. I see no evidence the surveys were incurred to settle claims between Nova and its insurers. Specially, Dr. Cambal's experiment was done for the purpose of determining the defendants' liability by establishing the time when the cargo was rejectionable. The damage was not exacerbated by the wait in Montreal.

[161]        The defendants allege deficient packaging. That allegation has no merit. The witnesses who testified on the point all said the way these coils were shipped was in accordance with industry standards, i.e. unpackaged.

[162]        The defendants alleged the damage was caused by road salt at the port or on the 401. They offered no evidence as to the condition the 401 was in at the relevant time and did not establish, through cross-examination, the condition of the goods on arrival in the Hamilton-Cambridge area.

[163]        In terms of any salt put down on the dock where the coils were placed, I accept William Parks' answer there was no discernable pattern on the coils to establish this. He gave the example the coils stacked on the second tier in the back which proved silver nitrate positive.

[164]        I did not take the defendants to have raised an objection based on lack of notice thus triggering the application of subsection 3(6) of the Hague-Visby Rules. In any event, notice of loss or damage was given the very first day.

[165]        Lastly, I am satisfied the salvage sale was an appropriate discovery mechanism to find the highest and best use for the damaged coils including those whose pits may have measured ¼" thus useful for some purposes according to Fenwick Friction. Furthermore, I find there was no undue delay in realizing the salvage, in all of the circumstances, for which an adjustment to the measure of damages should be made as suggested by counsel for the defendants.

F.         DISPOSITION

[166]        For all of these reasons, the plaintiffs' action succeeds with costs. Nova Steel has judgment against the defendants in the amount of $585,654.40 for damage to the cargo; $67,062.67 for additional expenses and $70,201.42 for expert costs in the investigation. Nova Steel is entitled to 6.58% pre-judgment interest and to post-judgment interest.

                                                                                                                           "François Lemieux"   

                                                                                                                                          J U D G E          

OTTAWA, ONTARIO

JANUARY 29, 2002