Canadian Steamship Lines Analysis

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Table of Contents

Abstract
Introduction
Tort risks
Contractual risks
Du Plessis et al’s Risk Management Model
How CSL can use the law for its benefit
Conclusion
References

Abstract

In the ordinary course of carrying out business, a firm exposes itself to various risks. One key risk among the myriads of risks is the legal risk. A business firm runs the risk of being sued in courts of law either in breach of contract or in tort. Torts are civil liability claims that arise from a breach of a duty that the business firm owes to its customers and indeed to the rest of the world. In this paper, I analyse the legal risks that face Canadian Steamship Lines (CSL) which is one of Canada’s biggest shipping companies. The analysis of this company shall look into contracts and tort risks that the company faces and find out how this company is facing the many legal risks that it runs.

Introduction

Canadian Steamship Lines (CSL) was incorporated in Canada East in 1845 as a provider of freight services along St. Lawrence River. The company had a small fleet of river boats that ferried goods for commerce purposes along the St. Lawrence and later, the Welland Canal that opened up to the Great Lakes. Over the years, the company became a major shipping line in the Great Lakes region mainly due to the industrial booms that followed after the two world wars. Coal and steel were the major contributors to the success of the shipping line especially due to the huge demand for both in Ontario, Quebec and Pennsylvania.

Today, CSL forms part of the Canadian CSL Group that includes CSL (itself) based in Montreal, Quebec and CSL International based in Beverly, Massachusetts in the USA. As a conglomerate, the CSL group manages the world’s largest fleet of dry bulk self-unloading vessels and is estimated to handle bulk cargo shipments of over 30 million tonnes in capacity. The company prides itself in having the most modernized fleet with the latest cargo handling technology. Recently, CSL invested an amount of over $ 200 million Canadian dollars to upgrade its fleet to utilize the latest in self-unloading technology (CSL Group, 2011).

The Company considers itself as being versatile, flexible and reliable in its service provision and has poised itself to provide quality service that meets customer’s needs. CSL has a dedicated team of 500 employees who have ensured that the Company remains competitive in the Great Lakes and St. Lawrence Seaway. Over the years, the Company has asserted its position as the dominant player in the shipping sector in these two markets and handles a significant share of the coal, iron ore, gypsum and grain cargo shipping services. CSL currently has over 400 contracts with suppliers and it annually purchases over $ 100 million Canadian dollars worth of goods and services from them. Additionally, it spends about $16 million in contracts with Canadian shipyards for maintenance of its fleet (CSL Group, 2011).

The shipping business runs so many risks many of the legal in nature. This is one of the reasons why I chose CSL for my research. The Company has had to take so many risk management measures due to the environmental impact of its activities. In addition, it also has so many contracts with Canadian suppliers which increase its legal risks. Over the years, CSL has been faced with various legal problems such as liability for oil spillage with a good example being the spillage on 12^th July 2010 in which one of CSL’s vessels, the M/V Richelieu, spilled tonnes of oil at Cote Ste. Catherine along the St. Lawrence Seaway. Additionally, CSL bears several legal responsibilities for its 500 employees.

Another reason why CSL is a good choice for this study is that it is a Canadian company and since most of its business is in Canada, Canadian law applies thus conflict of law issues do not arise. In addition, CSL just like other shipping companies occasionally finds itself in court over suits in tort. The choice of CSL is thus informed by its vulnerability to legal risks and also the availability of research data on the same. The next part of this research shall look into the tort risks faced by CSL, contracts and the legal risk management tools in line with Du Plessis et al (2011) legal risk management tool.

Tort risks

Just like other shipping companies, CSL is vulnerable to risks from suits in tort. Tort risks arise from the company’s civil duty towards others and to avoid doing acts that would cause injury to others. As a shipping company, CSL is liable for suits in tort arising from pollution of the Great Lakes and St. Lawrence Seaway area. Pollution is usually in the form of spillage of some of the cargo it ships across these water bodies such as oil and other industrial chemicals. While the company has an environmental policy that seeks to provide guidance to its seafarers on steps to avoid pollution and also by ensuring that its ships are probably maintained to avoid leakages, there are still incidents of spillages with the most recent being the July 2010 oil spillage on the St. Lawrence Seaway.

Tort risks that arise from such spillages come from damage of property, marine life and also health risks to human beings drawing water from the Great Lakes. In all these cases the tort of negligence is invoked since spillages stem from the company’s failure to take due care in their handling of cargo. In suits for negligence, the company has a burden to prove that it exercised care and caution.

The other tort risk that the company faces stems from its large number of employees. The company’s employees impose liability on CSL to ensure that it provides safe and reasonable working conditions. Any injury or harm suffered by an employee in the course of employment would give rise to a cause of action in tort against the company. Again the tort of negligence would apply in the circumstance and the company has to show that it provided safe and reasonable working standards and would not have reasonably foreseen the injury or harm suffered by the employee.

These tort risks place the company in a precarious position since negligence brings rise to an action in both liquidated and unliquidated damages which means that the company could end up paying huge sums of money in damages. Judging from the fact that the company has over 500 employees and also that the Great Lakes and St. Lawrence Seaway serve thousands of the Canadian and American populace, the risk faced by the company is gargantuan and has to be maintained to avoid the huge losses that may accrue if the company was to found liable for negligence.

In anticipation of the above tort risks, the company has an environmental policy where it commits itself to; the continuous development and implementation of an Environmental Management System (EMS), increased environmental awareness, educating its employees on how to preserve the environment, conducting audits to verify the company’s compliance with the EMS, evaluating the company’s environmental impact, monitoring the state of its vessels at all times to ensure environmental compliance and supporting application of green technologies in its vessels’ design and operation.

In addition, the company has a code of corporate responsibility which among other things, CSL pledges to; treat all its employees fairly and comply with all laws and regulations pertaining to employees rights, provide a clean, safe and healthy work environment that is in line with the best industry practices, ensure that all CSL employees take reasonable precaution in avoiding injury to themselves, colleagues and members of the wider community and that the code shall act as a guideline for all ethical practices within and without the company. Part of the code holds that the company owes members of the wider community a duty of care and therefore CSL shall conduct itself as a responsible corporate body that undertakes ethical business practices and protects the environment as a first priority.

Contractual risks

Being a giant shipping company, CSL does business with over 800 firms that supply raw materials such as iron ore, coal and gypsum across the Great Lakes. Additionally, the company has contracts with the government for carriage of infrastructural goods. The company also ferries the bulk of grain and oil in the region. Due to its service delivery, the company finds itself doing business with diverse players in both the US and Canadian economies.

As a sound business practice and also as a legal requirement, CSL has to enter into contract for every transaction with these companies. This means that at one point in time, the company may have as many as 500 contracts in force. This raises the companies risk to breach of contracts substantially since it has a fleet of 19 vessels, 11 of which are self-unloaders and the other 8 are bulk carriers. In total, the CSl Group controls a fleet of 38 ships (CSL Group, 2011). However, judging from the number of contracts in force and the number of ships, the company runs a serious risk of breach of contract.

Most of the contracts the company signs are standard form contracts. This means that the terms of contract apply across the board in terms of obligations and liability. In these contracts, CSL undertakes to transport customer’s cargo with conditions that the company shall accept minimum liability in case of damage or delays in delivery of goods. However, under the law, there are certain liabilities that the company cannot escape from under the doctrine of strict liability as established in the case of Canadian Shipping Lines V the King. In this case, the company had a contract with the Crown which had a clause stating that the latter would keep a certain freight shed in a state of repair. The shed had $ 533,584 worth of goods; $ 40,714 worth belonged to CSL. The shed was set on fire by an employee who was repairing it using an oxy-acetylene torch negligently since he should have used a hand drill.

Clause 7 of the contract between CSL and the Crown stated that ‘the lessee shall not have any claim for damage to goods being in the said shed.’ There was another clause which stated that “the lessee shall at all times indemnify the lessor from and against all claims by whomsoever made in any manner based upon, occasioned by or attributable to the execution of these presents, or any action taken or things done by virtue hereof, or the exercise in any manner of rights arising hereunder.” Based on clause 7, the crown denied liability for the negligent acts stating that the clause excluded it from such liability. It was held that such liability fell under strict liability and could not be escaped with a mere insertion of an express clause in contract.

From the above case, the company shall be liable for all breaches of contract that arise from its own negligence or fault. However, the common practice is that the shipping company requires that the cargo owner insure their goods against any likely contingencies. Nevertheless, insurance companies usually avoid liability that arises out of negligence or an intentional act by the insured. Insurance therefore cushions the shipping company from most of the risks that may arise out of breach of contractual terms.

To avoid further liability, CSL states in its code of corporate responsibility that it shall engage in trading practices that are fair to its business partners and which make business sense. The company further commits itself to avoid practices that frustrate the business concerns of its customers. It further pledges to ensure that customer satisfaction remains a key priority. According to Du Plessis et al (2011) legal risk management tool, risk avoidance is one way of minimizing or eliminating legal risks. CSL employs a risk avoidance policy by ensuring that it only takes up contracts that it can deliver within a certain period of time. This is prudent since contracts that the company cannot see through with its available resources are more or less likely to be breached.

Contracts form an essential part of CSL business. The company has key contracts with the Canadian government and big players in the manufacturing industry. In 2004 alone, CSL had $168 million worth of government contracts (CSL Group, 2011). The company also transports raw materials for giant corporations such as Power Corporation, Buhler Industries and Bulk Barn among others. Through these contracts CSL is able to secure its business and has recourse in case customers default in payment. These contracts also shield CSL from liabilities that it would have been liable for had it not excluded its liability expressly in contract. Contracts also set terms and state the duties that both parties are to undertake thus ensuring that there is certainty and uniformity in business.

Du Plessis et al’s Risk Management Model

The model deals with analysis of legal risk management. It advocates a four pronged approach in tackling legal risks. The first is the identification of legal risks which involves assessment of key areas of the company such as finance, accounting, marketing, production, human resources and information systems. The next step in the identification of risks involves the evaluation of business decisions such as in standard form contracts, ownership and use of land, hiring and firing employees and financial arrangements. Assessment of business relationships is also a key part of risk identification and it involves looking into relationships with clients, employers, suppliers and lenders. In our organization, CSL, the areas that need risk identification are mainly the standard form contracts and business relationships.

Other risks to be identified are in the financial and accounting areas to ensure that all payments are handles as per contract. The next stage is the evaluation and measurement of risk which involves the measurement of the probability and severity of loss. In this case, the legal risks involved are unquantifiable in terms of suits in tort but for breaches of contract, the loss assessed is the actual damage caused by the breach. The reason why it is hard to quantify legal risks is that courts sometimes decide to offer general damages and at times punitive damages that may run into millions of dollars depending on the nature of the case.

The third stage in Du Plessis et al (2011) approach is the devising of a risk management plan. The plan involves the utilization of the four measures that pertain to risk management. These are; risk avoidance, risk retention, risk reduction and risk transference. Risk avoidance is the complete stoppage of all activities that may lead to the loss. Risk retention is the recognition of that loss and absorbing it when it occurs, risk reduction is the implementation of measures that reduce the chance of risk. Finally risk transference involves transfer of the financial risk to a third party who agrees to pay in the event of the loss in exchange for some form of consideration e.g. insurance. The fourth stage is the implementation of the plan.

Using the model, CSL can utilize any of the above measure to handle the contractual and tort risks that we have seen above. Risk avoidance would involve rejection of business proposals that would increase the legal risks faced by the company such as refusal to carry certain cargo that would cause so much damage if spilled. Additionally, the company can avoid contractual legal risks by avoiding the acceptance of too many shipping contracts at a time since that would increase the chances of breach of contract.

Risk reduction would involve measure by CSL to ensure that risk is minimized such as teaching their employees how to contain risks by applying safety standards at all times. Another way to reduce risks is to exclude certain types of liability expressly in the contract. Risk transference would involve taking up of marine insurance for cargo thus excluding CSL from liability.

How CSL can use the law for its benefit

The law acts as a guideline to ensure that certain standards are met and that doing business is open and efficient. Certain provisions such as the requirement for standard form contracts in shipping through the maritime rules help shipping companies ensure uniformity and certainty both of which are very important for business. The law also provides rules that deter unfair competition and monopolies in industries. This would help to shield CSL from the disadvantages that would arise had bigger shipping companies been allowed to operate unchecked.

Through the provisions of Canada’s Marine Act of 1998 which is described as “An Act for making the system of Canadian ports competitive, efficient and commercially oriented, providing for the establishing of port authorities and the divesting of certain harbors and ports, for the commercialization of the St. Lawrence Seaway and ferry services and other matters related to maritime trade and transport”, CSL can now enjoy the benefits of freer and more efficient ports. Canadian laws also make provisions for marine insurance through the Marine Insurance Act which serves to reduce shipping companies’ liability for loss or damage to cargo.

Conclusion

As we have see, CSL as a company is faced by many legal risks that arise out of the ordinary course of doing business. It is thus important for the company to ensure that it puts in measures to reduce the risks through the model presented by Du Plessis et al.

References

CSL Group. An Overview of the Company. Web.

Du Plessis, D., Enman, S., Gunz, S., and O’Byrne, S (2011). Canadian Business and the Law. Montreal: Nelson Education.

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