Supreme Court of Canada Bulletin - November 2019

Desgagnés Transport Inc. v. Wärtsilä Canada Inc., 2019 SCC 58

Constitutional law — Division of powers — Navigation and shipping — Property and civil rights

On appeal from a judgment of the Quebec Court of Appeal (2017 QCCA 1471), setting aside a decision of Paquette J., 2015 QCCS 5514.

In October 2006, an accident damaged the crankshaft and the bedplate of the main engine of a shipping company’s ship. The shipping company opted to purchase a reconditioned crankshaft from a supplier. The parties entered into a contract which was formed in Montréal, Quebec, the supplier’s place of business. It contained a six‑month warranty, and limited the supplier’s liability to €50,000. The choice of law clause in the agreement indicated that the contract was to be governed by the laws in force at the office of the supplier. Well after the warranty expired, the ship’s main engine suffered a major failure. The shipping company sued the supplier, founding its claim upon a latent defect in the engine parts purchased from the supplier.

The trial judge concluded that the crankshaft sold by the supplier contained a latent defect that caused the damage to the ship. She then determined that the dispute was governed by the Civil Code of Québec (“C.C.Q.”), rather than Canadian maritime law. She was of the view that while the dispute over the sale was related to maritime activities, it was not integrally connected to them. Accordingly, the limitation of liability clause in the parties’ contract was unenforceable and the supplier was liable for the full quantum of damages. The majority of the Court of Appeal allowed the appeal in part. It found that Canadian maritime law governed the dispute, and hence that the supplier was entitled to rely on the limitation of liability clause, which restricted its liability to €50,000. The shipping company appeals to the Court.

Held: The appeal should be allowed and the trial judge’s conclusions restored.

Per Moldaver, Karakatsanis, Gascon, Côté, Rowe and Martin JJ.:

The C.C.Q. governs this dispute. Therefore, the supplier cannot rely on the limitation of liability clause in the parties’ contract. The sale of marine engine parts intended for use on a commercial vessel is sufficiently and integrally connected to navigation and shipping so as to come within federal legislative authority under the federal power enumerated at s. 91(10)  of the Constitution Act, 1867, and therefore be validly governed by Canadian maritime law. However, art. 1733 C.C.Q. which pertains to warranties in contracts of sale, is also a validly enacted provincial law that, in pith and substance, concerns a matter of property and civil rights pursuant to s. 92(13) of the Constitution Act, 1867, and that remains applicable and operative. The sale of marine engine parts thus gives rise to a double aspect scenario: a non‑statutory body of federal law and a provincial law both validly directed at the same fact situation overlap. Neither interjurisdictional immunity nor federal paramountcy ousts the application of art. 1733 C.C.Q.; it is therefore ultimately the law governing this dispute. Since art. 1733 is a legislative enactment, Canadian non‑statutory maritime law does not prevail over it.

Canadian maritime law is a comprehensive body of federal law, uniform throughout Canada, that purports to govern and 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. Much of Canadian maritime law is non‑statutory law, meaning that its principles are derived from precedent and custom and that it is liable to be developed judicially unless it is supplanted by validly enacted federal legislation. Canadian maritime law exists as a body of law with its own distinct identity, in parallel to the common law. 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 falling within the scope of its application because Canadian maritime law develops rules by analogy where a matter falls within its ambit. In order to ascertain whether Canadian maritime law may apply to a dispute, it is necessary to determine whether the matter comes within the scope of navigation and shipping under s. 91(10)  of the Constitution Act, 1867. Canadian maritime law governs any matter that is integrally connected to maritime or admiralty matters. Its non‑statutory scope is established by case law.

The two stages of the division of powers analysis are characterizing the matter at issue and classifying it according to the different heads of legislative power. This analysis takes on a particular form where navigation and shipping — and more particularly, Canadian non‑statutory maritime law — is concerned. When it comes to a dispute purportedly governed by Canadian maritime law, courts must determine, on a case‑by‑case basis, whether Canadian maritime law can validly extend to that dispute. Where the purportedly applicable Canadian maritime law is non‑statutory, characterization is crucial; the matter should be characterized by looking at the substantive law at issue and to the particular fact situation. Where the dispute is one in contract, what matters is the nature of the agreement at issue — as understood in light of the terms of the contract, its purpose, and the circumstances in which it was formed. The matter must always be characterized with precision for the sufficiency of the connection with the federal power over navigation and shipping to be properly assessed. The maritime context at issue must be identified narrowly enough to make it possible to determine, at the classification stage, whether the matter comes within the federal power over navigation and shipping. In the present case, the matter at issue can be characterized, with sufficient precision, as the sale of marine engine parts intended for use on a commercial vessel.

The second stage, described as classification, requires courts to determine the classes of subjects into which the matter falls. It may require considering the scope of the relevant head of power. The application of specific tests stating the scope of the particular powers is rather common and often necessary to the proper working of the division of powers. Parliament’s power over navigation and shipping has been broadly construed in recognition of the national importance of the maritime industry, thereby permitting the development of uniform legal rules that apply across Canada. However, broad federal powers must necessarily be kept within proper bounds, especially where they have the potential to overlap significantly with provincial powers, as with navigation and shipping. This head of power is not defined by reference to a discrete area of law but instead covers activities. Consequently, Parliament can legislate, through public law and private law rules, so as to establish the framework of legal relationships arising out of navigation and shipping activities, thereby bringing within federal legislative authority matters that would otherwise fall within provincial legislative authority. Insofar as contract rules and principles are directed at activities that are integral to navigation and shipping, they can come within federal legislative authority. This interpretation of federal legislative authority is specific to navigation and shipping.

The integral connection approach should be used to assist in determining whether a matter properly comes within the navigation and shipping power. The ultimate question is whether the maritime elements of the matter are sufficient to render it integrally connected to the navigation and shipping head of power. This test is important for the purpose of avoiding an encroachment on matters coming within provincial legislative authority and it must be applied rigorously to avoid expanding the federal power over matters that are only remotely related to navigation and shipping. The integral connection test encompasses a number of non‑exhaustive factors, which may receive different weight depending on the facts of a given case. In the present case, the factors relevant to the integral connection test overwhelmingly support the view that the sale of marine engine parts intended for use on a commercial vessel is integrally connected to navigation and shipping.

A finding that Canadian maritime law can validly regulate a dispute does not end the analysis in the presence of an overlapping provincial rule. The division of powers analysis that unfolds from the modern conception of federalism expressed in Canadian Western Bank v. Alberta, [2007] 2 S.C.R. 3, 2007 SCC 22, applies to the overlap between navigation and shipping and provincial heads of power, just as it does for other classes of subjects under the Constitution Act, 1867. The double aspect doctrine recognizes that the same fact situations can be regulated from different perspectives, one of which may relate to a provincial power and the other to a federal power. The federal power over navigation and shipping is not watertight and remains subject to this flexible understanding of the division of powers. A valid provincial enactment will be allowed to have incidental effects on a federal head of power unless either interjurisdictional immunity or federal paramountcy are found to apply. It follows that these doctrines must be applied to navigation and shipping in the same way as in all division of powers cases.

The sale of goods is a matter that comes plainly within the provincial power over property and civil rights under s. 92(13) of the Constitution Act, 1867. The mere fact that such a matter, in the context of a sale of marine engine parts, also falls under the navigation and shipping power does not undermine the validity of the relevant C.C.Q. provisions. In the present case, the sale of marine engine parts for use on a commercial vessel can be addressed both from the broad perspective of regulating the sale of goods, which constitutes an exercise of the provincial power over property and civil rights, and from the narrower perspective of the exercise of the federal power over navigation and shipping. The two sets of contract rules and principles are thus valid.

According to the doctrine of interjurisdictional immunity, the core of exclusive heads of power under the Constitution Act, 1867, can be protected from the effects of a law validly enacted by the other order of government. If the doctrine is found to apply, the impugned provisions remain valid but are declared inapplicable to matters that would fall under the core of the exclusive head of power of the other order of government. For the doctrine to apply, the impugned provision must trench on the core of an exclusive head of power under the Constitution Act, 1867 and the effect of this overlap must impair the exercise of the core of the head of power. It is necessary to identify the essential, vital elements of the head of power in question by reference to the jurisprudence. The core of the head of power is necessarily narrower than the scope of the power, here reflected in the integral connection test. The core of navigation and shipping does not apply to the contractual issues raised by the current claim as it is not essential for the exercise of federal competence over navigation and shipping that only one body of law — Canadian maritime law — regulate contracts of sale for commercial marine equipment. Interjurisdictional immunity therefore does not apply in this case.

According to the doctrine of federal paramountcy, when valid provincial and federal legislation are incompatible, the federal law prevails and the provincial law is declared inoperative to the extent of the conflict. The purpose of the federal paramountcy doctrine is to ensure that federal legislative intent will prevail when it conflicts with valid provincial laws. However, to have rules that are created by courts prevail over valid legislation would upset the proper interaction in common law systems between rules created by courts and those enacted by legislative authorities. It would therefore run contrary to the purpose of the paramountcy doctrine to declare that the non-statutory rules of Canadian maritime law can prevail over valid provincial legislation. The paramount position of federal legislative intent over provincial legislative intent in certain circumstances cannot be extended to the law developed by courts who exercise admiralty jurisdiction in Canada. As the rules of Canadian maritime law that would arguably be applicable in this case are non-statutory, this case does not present a conflict between a provincial and a federal law so as to trigger the doctrine of federal paramountcy. Article 1733 C.C.Q. is therefore operative and governs the dispute between the shipping company and the supplier.

Per Wagner C.J., and Abella and Brown JJ.: 

There is agreement with the majority that the C.C.Q. governs the shipping company’s claims and that the appeal should therefore be allowed. However, the division of powers issues raised by this appeal are to be resolved as they are in respect of any head of power — that is, by applying the pith and substance test. While the claim at issue in this case touches upon issues of navigation and shipping, it raises, in pith and substance, a matter coming within property and civil rights, in relation to which the National Assembly of Quebec exclusively may make laws. Accordingly, by operation of arts. 1729 and 1733 of the C.C.Q., the supplier, as a “professional seller”, cannot rely on its contractual limitation of liability, and the shipping company is entitled to the full agreed‑upon quantum of damages.

The pith and substance test applies to determining whether a matter comes within navigation and shipping within the meaning of s. 91(10) of the Constitution Act, 1867, just as it applies to determining whether a matter comes within any other head of power. Applying the pith and substance test typically begins by characterizing an impugned law or provision in order to assign it to a head of power since, in most cases, courts are presented with a law enacted either by Parliament or a provincial legislature, and the parties’ dispute is over whether that law is intra vires or ultra vires its enacting body. However, where, as in this case, there is no law to assign to either of those heads of power but rather a claim for damages and loss of profit, the division of powers analysis requires identification of the subject matter engaged by the claim, which must be assigned to one of the Constitution’s heads of power. Whether the matter is raised by a law or a claim does not change which order of government has the constitutional authority to legislate with respect to the matter. In many cases, identifying the matter at issue will resolve the allocation of the matter to a head of power with little difficulty. Examining a claim, rather than a statute, to determine the matter at issue is frequently required in cases in which it is alleged by one party that a matter falls within Parliament’s authority over navigation and shipping, much of the law relied upon by litigants and courts in navigation and shipping cases is non‑statutory. There is disagreement with the majority that the issue is about jurisdiction over a substantive body of law rather than jurisdiction over a claim. The majority analyzes the dispute between the parties (i.e. the law as applied to the facts), which is indistinguishable from characterizing a claim and entails the same inquiry.

Having identified the relevant matter, a court must determine which level of government has legislative authority in relation thereto. Depending on these determinations, however — the matter and which level of government holds legislative authority — the analysis as to the applicable law may not end there. Recourse to constitutional doctrines such as paramountcy and interjurisdictional immunity may be necessary. These constitutional doctrines apply to matters said to come within Parliament’s power over navigation and shipping, as they would apply to any matter said to come within any other head of power.

Section 22 of the Federal Courts Act  (“FCA ”) does not, and cannot, define the scope of Parliament’s legislative authority over navigation and shipping. It is merely a statutory grant of jurisdiction by Parliament to the Federal Court. While Canadian maritime law is a body of federal law which governs matters falling within s. 91(10)  of the Constitution Act, 1867, it is the head of power itself — that is, navigation and shipping — which defines the boundaries of federal jurisdiction. Merely because a matter arises in a maritime context does not automatically consign the matter to navigation and shipping. Although s. 22 of the FCA  may represent Parliament’s considered view of what constitutes “Canadian maritime law”, it cannot be taken as stating the content of Parliament’s legislative authority over navigation and shipping under s. 91(10). It does not define Canadian maritime law or create operative law. The division of powers inquiry does not end simply because a claim can be shown to fall within s. 22(2); a mere grant of jurisdiction to the Federal Court is ineffective without an existing body of federal law to nourish the statutory grant of jurisdiction. Parliament may not, by enactment, define the scope of its legislative authority so as to displace the operation of the pith and substance test as the means by which a matter is determined to come within or fall outside that legislative authority. The fact of a legislative grant of jurisdiction to the Federal Court is therefore legally insignificant to a division of powers analysis.

Where a matter is said to come within Parliament’s legislative authority over navigation and shipping, there is no logical basis to apply a different test based on whether an integral connection to Canadian maritime law is shown. A division of powers analysis always entails applying the pith and substance test. One cannot apply the pith and substance test to determine whether a matter comes within provincial legislative authority, while applying a different test to determine whether it comes within federal legislative authority. The division of powers analysis is a single determination, made by applying a single test, about which heads of power a particular matter comes within. The integral connection test superimposes an additional test onto the pith and substance test; it speaks not to whether a particular activity falls within s. 91(10) , but to the depth of the connection between that activity and the federal power over navigation and shipping. No such test exists for the other heads of power, and no such test should be applied in determining whether a matter falls within Parliament’s legislative authority over navigation and shipping.

Concerns for uniformity cannot drive the division of powers analysis. Uniformity of maritime law is an important consideration in deciding the scope of Parliament’s legislative authority over navigation and shipping. It properly drives how matters falling within federal heads of power are treated, particularly where the laws governing such subject matters apply across provincial boundaries. However, uniformity does not drive the prior inquiry into whether matters come within those federal heads of power at all. Concerns for uniform treatment of matters coming within a federal head of power such as navigation and shipping cannot always prevail, so as to oust provincial laws of general application. Section 91(10)  is not a watertight compartment granting authority for federal laws whose operation cannot be incidentally affected by provincial heads of power. Such an understanding of s. 91(10)  would be squarely opposed to the Court’s jurisprudence on federalism, and to the modern realities of the Canadian federation. The Court has held that the law favours, where possible, the concurrent exercise of power by both levels of government. There is room for the application of provincial laws in the maritime context. Although this leaves the doctrine of interjurisdictional immunity with an exceedingly limited role in the division of powers analysis, this is not cause for concern. Interjurisdictional immunity should not be the first recourse in a division of powers dispute — a broad application of interjurisdictional immunity is inconsistent with the notion of flexible federalism and fails to account for the fact that overlapping powers are unavoidable.

Resort to the dominant tide of pith and substance should be favoured over resort to interjurisdictional immunity, which forms a mere undertow of federalism jurisprudence. Attempting to define a core of federal jurisdiction poses dangers, particularly in the context of broad and general heads of federal power that apply to numerous activities. Courts must thus be especially cautious when attempting to define the core of navigation and shipping, as the federal head of power over navigation and shipping is undeniably broad. Interjurisdictional immunity risks creating serious uncertainty and, Parliament can always make its legislation sufficiently precise to leave those subject to it with no doubt as to the application of provincial legislation.

While the scope of legislative authority conferred upon Parliament in relation to navigation and shipping is undeniably broad, courts must be careful to ensure that it does not swallow up matters that fall within provincial legislative authority, whether over property and civil rights, or other provincial heads of power. The first step in determining the matter raised by the shipping company’s claim is to characterize the nature of the contract. The claims arising in this case relate to the contractual terms agreed to between the parties pursuant to a contract for the sale of goods. As such, the matter at issue is the sale of goods, albeit in the maritime context. This characterization is consistent with the Court’s past jurisprudence. In cases that concern whether a matter falls within s. 91(10) or 92(13) of the Constitution Act, 1867, the Court has repeatedly defined the matter as a given area of private law in the maritime context. This characterization also reflects the appropriate degree of precision.

The weight of Canadian jurisprudence supports the conclusion that the sale of goods, even in the maritime context, is, in pith and substance, a matter coming within the jurisdiction conferred on provincial legislatures by s. 92(13). Sale of goods in the maritime context did not form part of the historical body of law administered by the English admiralty courts. There is nothing particularly “maritime” about the sale of goods that would require its consignment to Parliament’s legislative authority. Sale of goods does not involve the safe carriage of goods, shipping, the seaworthiness of a ship, good seamanship, or international maritime conventions, nor are there special rules of procedure governing the sale of goods in the maritime context which would benefit from the uniform application across jurisdictions. Where the provinces have developed a comprehensive body of law governing the sale of goods, there is no good reason for the Court to disregard it merely because the claim arising from a particular sale bears some relation to maritime activities. Such an expansive definition of a federal head of power would be an affront to a principal source of provincial legislative competence to regulate local trade and commerce and, therefore, to the constitutional division of powers, which is the primary textual expression of the principle of federalism in the Canadian Constitution. Accordingly, the claim in this case raises a matter which is, in pith and substance, one of property and civil rights, exclusive legislative authority over which rests with the provincial legislatures under s. 92(13) and the provisions of the C.C.Q., including arts. 1729 and 1733 thereof, govern the dispute. Since the claim raises, in pith and substance, a matter falling solely within s. 92(13), there is no need to consider whether to apply the doctrines of paramountcy or interjurisdictional immunity.

Citation:                 Desgagnés Transport Inc. v. Wärtsilä Canada Inc., 2019 SCC 58

SCC File No.:        37873

Joint Reasons for Judgment:         Gascon, Côté and Rowe JJ. (Moldaver,                                                                       Karakatsanis and Martin JJ. concurring)

Joint Concurring Reasons:             Wagner C.J. and Brown J. (Abella J. concurring)

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