Judgments

T-2655-95

Methanex New Zealand Ltd. (Plaintiff)

v.

Fontaine Navigation S.A., Tokyo Marine Co. Ltd., The Owners and all Others Interested in the Ship "Kinugawa" (Defendants )

Indexed as: Methanex New Zealand Ltd.v. Kinugawa (The) (T.D.)

Trial Division, Hargrave P."Vancouver, October 20, 1997; Ottawa, January 9, 1998.

Maritime law — Contracts — Motions to stay Federal Court action for damages to cargo in favour of (i) arbitration in London in accordance with contract of affreightment; (ii) litigation in Japan in accordance with bill of lading — Upon commencement of action, P&I issuing letter of undertaking to file defence to Federal Court action in consideration of ship not being arrested — Motions denied — Letter of undertaking superseding contractual arbitration provision, bill of lading jurisdiction clause — Constituting strong reason to depart from prima facie rule, jurisdiction clauses must, as contractual undertakings, be honoured — Substantial factors to deny Tokyo District Court as venue for litigation also constituting strong reasons.

Maritime law — Practice — Motions to stay Federal Court action for damages to cargo in favour of (i) arbitration in London in accordance with contract of affreightment; (ii) litigation in Japan in accordance with bill of lading — Defendants not denying responsibility for contamination of cargo — Party may not give notice of arbitration, Court will not order stay of action in favour of arbitration, if no genuine dispute — Usually application for stay of action in Federal Court, commenced contrary to contractual agreement to submit disputes to foreign court, must be allowed in accordance with general rule to honour contractual undertakings, unless strong reasons by virtue of which justice requiring trial should take place where action commenced — Substantial factors to deny Tokyo District Court as litigation venue — Must be bona fide reason to litigate in another jurisdiction — Defendants not showing bona fides by making necessary concessions which would allow procedure in another jurisdiction with minimum of prejudice to plaintiff i.e. security for claim, waiver of limitation provisions.

Estoppel — Motions to stay Federal Court action for damages to cargo in favour of (i) arbitration in London in accordance with contract of affreightment; (ii) litigation in Japan in accordance with bill of lading — Day after litigation commenced, letter of undertaking issued to accept service, file defence in accordance with Federal Court Rules, in consideration for ship not being arrested — Letter of undertaking superseding arbitration provision, estopping defendant, Tokyo Marine, from applying for stay — Contractual agreement as to jurisdiction not immutable — Plaintiff keeping its part of bargain by not arresting ship — Having agreed to file defence on behalf of all defendants, without reference to arbitration, no right of arbitration in London or of litigation in Japan remaining.

These were two separate motions to stay this action for damage to a cargo of methanol carried from British Columbia to Japan in the Panamanian tanker Kinugawa. There was little doubt as to the source of the contamination: cracks in two cargo tanks. The defendant, Tokyo Marine Co. Ltd., sought to arbitrate in London, as provided in the contract of affreightment (COA), dated February 24, 1994. The defendant, Fontaine Navigation S.A., sought to litigate in Japan, as provided in the bill of lading. While the COA provided for issuance of bills of lading in the form annexed to the contract, no bill of lading was ever annexed. An unsigned Tokyo Marine Co. Ltd. bill of lading, dated August 7, 1995, was subsequently issued. It incorporated a charter party dated February 24, 1994 between Tokyo Marine Co. Ltd. and the plaintiff. It contained an identity of carrier clause to the effect that if Tokyo Marine Co. Ltd. was not the owner or demise charterer of the carrying vessel, the contract of carriage, evidenced by the bill of lading was then a contract between the plaintiff and Fontaine Navigation S.A., the owner of the vessel. The bill of lading required that any disputes be subject to the jurisdiction of the Tokyo District Court. It also provided that if the plaintiff commenced legal proceedings against the carrier in any other jurisdiction, the plaintiff, even if successful before the Tokyo District Court, would have to pay to the carrier the full amount of any eventual judgment, together with interest at 15%. It also imposed a 5 million yen penalty for commencing a proceeding in any jurisdiction other than that of the Tokyo District Court. The bill of lading provided that if there was a conflict between the charter party (COA), the identity of the carrier and jurisdiction clauses in the bill of lading would prevail. The day after the present litigation was commenced, the P & I Club issued a letter of undertaking, confirming the claim against the ship, and undertaking, in consideration of the plaintiff refraining from arresting the ship, to accept service and to file a defence on behalf of the defendants in accordance with the Rules of the Federal Court; and to pay any judgment of the Federal Court including costs and interest up to $450,000. It reserved to "vessel or owners" any rights or defences.

Held, the motions should be denied.

The London arbitration was denied because there was no evidence of the existence of any dispute to send to arbitration. A party may not give notice of arbitration unless there is a disputed claim, and a court will not order a stay of an action in favour of arbitration if there is no genuine dispute.

Furthermore, the letter of undertaking estopped Tokyo Marine Co. Ltd. from applying for a stay of proceedings in order to arbitrate in London. It was, in effect, a current agreement between the plaintiff and Tokyo Marine Co. Ltd. to litigate the cargo damage in Canada, superseding the arbitration provision. The letter of undertaking did not specifically raise any objection to the jurisdiction of the Federal Court. A contractual agreement as to jurisdiction is not immutable. The parties to a contractual arbitration clause, just as the parties to a contractual jurisdiction clause, may recast their dispute resolution mechanism to supersede arbitration with litigation. The plaintiff kept its part of the bargain and, although it had a warrant, did not arrest the Kinugawa. Having agreed to file a defence on behalf of all of the defendants, without any reference to or exception in favour of arbitration, there was no residual right of arbitration in London or of litigation in Japan.

Litigation in the Tokyo District Court was not an option for Tokyo Marine Co. Ltd., because there was no evidence that it was a demise charterer of the Kinugawa, a requirement to qualify as a carrier under the bill of lading and fall heir to the Tokyo District Court jurisdiction clause in the bill of lading.

London arbitration was not an option for Fontaine Navigation S.A. for while the COA, in the guise of a charter party, was incorporated into the bill of lading, the Tokyo jurisdiction clause in the bill of lading clearly overrode the arbitration provision in the COA.

Having agreed in return for good and valuable consideration to file a defence in this Federal Court action, it could not renege on that bargain and insist on litigation in the Tokyo District Court. Also, while an application for a stay of an action commenced in the Federal Court, contrary to a contractual agreement to submit disputes to a foreign court, must usually succeed because, as a general rule, contractual undertakings must be honoured, the existence of some other more appropriate and convenient forum for the pursuit of the action and for securing proper justice must be considered. Once a defendant establishes the jurisdiction clause, and shows that there is a more appropriate forum elsewhere, the plaintiff must show that there are special circumstances and strong reasons, by virtue of which justice requires that the trial should take place where the action has been commenced. Assuming that Fontaine Navigation S.A. established the jurisdiction clause in the bill of lading, i.e. Tokyo, there were strong reasons why the Tokyo District Court was not a suitable and proper forum for the present action, as compared with the Federal Court. Litigation in Tokyo would take three or more years from commencement to conclusion, as there is no concept of summary judgment to expedite proceedings in Japan as there is in Canada. There is also a lack of compulsory pre-trial discovery, and relevant documents must be translated into Japanese, a substantial cost which is generally not recoverable, or at least not in full. Interest only runs from the time of filing the writ, which at best would be well over two years after the plaintiff had suffered the damage. There is no compound interest. There is no recovery of lawyers' fees from an unsuccessful party in Japan. The largest number of witnesses with relevant information are likely in North America. Procedural advantages accruing to a defendant, in an offshore jurisdiction, can be a strong reason to deny a stay. The forum selection clause, which reduced the plaintiff's remedies and lessened the defendant carrier or ship's liability before the Tokyo District Court, and its penal provision would probably be void in Canada. That clause not only relieved the carrier of liability, but given current interest rates, would give the carrier a profit. Even the possibility of this clause being considered by the Tokyo District Court was a substantial reason to deny a stay. The same reasoning applied to the 5 million yen penalty. Under Japanese law, the carrier is apparently the shipowner alone, while under Canadain law either the shipowner or the charterer, or even both may be the carrier. As a result, reference to the Court in Japan would be a lessening of liability to the ship owner and thus become a distinct advantage to the defendant. Duplicate proceedings, which run the risk of conflicting judgments and waste time and money, are always strong grounds for refusing a stay. Having found that Tokyo Marine Co. Ltd. was not entitled to a stay in order to arbitrate in London, but must litigate in Canada, it was more appropriate to deny a stay to Fontaine Navigation S.A. than to allow it to run a duplicate set of proceedings in Japan. In order to obtain a stay, there must be a bona fide reason and desire to litigate in another jurisdiction, beyond merely gaining some procedural or substantive advantage. It is usual for a defendant to show its bona fides by making the necessary concessions which would allow procedure in another jurisdiction with a minimum of prejudice to the plaintiff, for example, security for a claim when security has already been posted in one jurisdiction but is not likely to be obtained in the offshore jurisdiction; and a waiver of any applicable limitation provisions. The letter of undertaking, to the extent that it dealt with payment of judgments or appeals therefrom, was limited to payment of a judgment of the Federal Court of Canada. The defendants, who had had nearly two years to think about their motion for a stay and who knew that time for suit had run out before speaking to their motion for a stay, did not waive any time for suit so that the plaintiff might be able to commence a new proceeding in Japan.

statutes and regulations judicially considered

Commercial Arbitration Code, being Schedule to the Commercial Arbitration Act, R.S.C., 1985 (2nd Supp.), c. 17, arts. 8, 16.

Hague-Visby Rules, being Schedule I to the Carriage of Goods by Water Act, S.C. 1993, c. 21.

International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading and Protocol of Signature, Brussels, August 25, 1924 ("Hague Rules"), Art. 3.

cases judicially considered

applied:

Nanisivik Mines Ltd. v. F.C.R.S. Shipping Ltd., [1994] 2 F.C. 662; (1994), 113 D.L.R. (4th) 536; 167 N.R. 294 (C.A.); Heyman v. Darwins, Ltd., [1942] 1 All E.R. 337 (H.L.); Elizabeth H., The, [1962] 1 Lloyd's Rep. 172 (Adm.); Maersk Inc. v. Coldmatic Refrigeration of Canada Ltd. (1994), 74 F.T.R. 70 (F.C.T.D.); Seapearl (The Ship M/V) v. Seven Seas Dry Cargo Shipping Corporation of Santiago, Chile, [1983] 2 F.C. 161; (1982), 139 D.L.R. (3d) 669; 43 N.R. 517 (C.A.); Eleftheria, The, [1969] 1 Lloyd's Rep. 237 (Adm.); Donohue Inc. et al. v. Ship Ocean Link et al. (1995), 94 F.T.R. 69 (F.C.T.D.); Pine Hill, The, [1958] 2 Lloyd's Rep. 146 (Q.B.).

distinguished:

Skagway Terminal Co. v. The Ship —Daphne— et al. (1988), 42 D.L.R. (4th) 200; 15 F.T.R. 63 (F.C.T.D.).

considered:

Gulf Canada Resources Ltd. v. Arochem International Ltd. (1992), 66 B.C.L.R. (2d) 113; 1 W.A.C. 158 (C.A.); Carling O'Keefe Breweries of Canada Ltd. v. CN Marine Inc., [1990] 1 F.C. 483; (1989), 104 N.R. 66 (C.A.); Carling O'Keefe Breweries of Canada Ltd. v. CN Marine Inc., [1987] 2 F.C. 107; (1986), 7 F.T.R. 178 (T.D.).

referred to:

T1T2 Limited Partnership v. Canada (1994), 23 O.R. (3d) 66 (Gen. Div.); Deluce Holdings Inc. v. Air Canada (1992), 12 O.R. (3d) 131 (Gen. Div.); Ocean Fisheries Ltd. v. Pacific Coast Fishermen's Mutual Marine Insurance Co. (1997), 125 F.T.R. 20 (F.C.T.D.); Spiliada, The, [1987] 1 Lloyd's Rep. 1 (H.L.); Nile Rhapsody, The, [1992] 2 Lloyd's Rep. 399 (Q.B.); Trans-Continental Textile Recycling Ltd. v. Erato (The), [1996] 1 F.C. 404; (1995), 106 F.T.R. 278 (T.D.); Cormorant Bulk-Carriers Inc. v. Canficorp (Overseas Projects) Ltd. (1984), 54 N.R. 66 (F.C.A.); Caribbean Ispat Ltd. et al. v. Companhia De Navegacao Lloyd Brasilairo et al. (1992), 59 F.T.R. 207 (F.C.T.D.).

authors cited

Holtzmann, H. M. and J. E. Neuhaus. A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary. Boston: Kluwer Law and Taxation Publishers, 1989.

Mustill, M. J. and S. C. Boyd. The Law and Practice of Commercial Arbitration in England, 2nd ed. London: Butterworths, 1989.

MOTIONS to stay action for damage to cargo (i) to arbitrate in London (as provided in the COA), or (ii) to litigate in Japan (as provided in the bill of lading). Motions denied.

counsel:

David F. McEwen for plaintiff.

Douglas G Morrison for defendants.

solicitors:

McEwen, Schmitt, Vancouver, B.C., for plaintiff.

Bull, Housser & Tupper, Vancouver, B.C. for defendants.

The following are the reasons for order rendered in English by

Hargrave P.: This motion by the two corporate defendants for two separate stays, one to arbitrate in London and the other to litigate in Japan, arises out of an action for damage to a portion of a cargo of methanol carried from Kitimat, B.C. to Sodugaura, Japan in the Panamanian tanker Kinugawa. Some of the cargo arrived in Japan contaminated: it was sold into the Korean market at Ulsan. The arrest that might have taken place in this Federal Court action was averted by a provision of a letter of undertaking given on behalf of the defendants on 15 December 1995.

There would seem little doubt as to the source of the contamination, a result of cracks in two cargo tanks, but that is only a peripheral matter in this present motion. At issue are the defendants' requests for stays: they say there should be arbitration in London, and litigation before the Tokyo District Court. In addition to submissions as to why neither of these jurisdictions ought to apply, the plaintiff refers to the letter of undertaking as containing an agreement to litigate in the present Federal Court proceedings. With this brief introduction I now turn to some relevant background material and then to the reasoning by which both stays must be denied.

BACKGROUND

To begin, the claim involves an August 1995 shipment of some 5,215 metric tonnes of methanol from Kitimat to Japan. Testing of the methanol at Kitimat apparently showed no contamination. However samples taken at Japan and at the final discharge port for part of the cargo in Korea and analyzed in Houston, Texas, showed contamination by ethylene dichloride of the methanol carried in centre tanks 4 and 8. These two tanks were repaired after the voyage: the subsequent joint inspection at Vancouver established that cracks in the two tanks had been repaired by welding.

As to transportation documentation, there is a contract of affreightment (COA) between the plaintiff and the defendant, Tokyo Marine Co. Ltd., dated 24 February 1994. The COA is a substantial agreement covering up to 400,000 metric tonnes of product over two years, with a minimum of 24 sailings out of Kitimat and 4 sailings out of New Plymouth, New Zealand, to Asian ports in 1994. The COA contains a London arbitration clause:

Any dispute arising out of or in connection with this Contract shall be submitted to arbitration held in London and for this purpose the terms of clause 24 of the ASBATANKVOY Voyage Charter Party annexed to this Contract shall be incorporated in and apply to this Contract with all necessary modifications. (clause 18)

English Law is to govern (clause 19). While the COA provides for issuance of bills of lading "in the form annexed to this Contract" (clause 17), it would seem that no bill of lading was ever annexed to the COA. The COA is said to contain the entire agreement (clauses 25 and M33).

A Tokyo Marine Co. Ltd. bill of lading, dated 7 August 1995, was issued for the methanol aboard the Kinugawa: the copy provided to the Court is an unsigned bill of lading apparently intended to be signed by agents on behalf of the master. The bill of lading incorporates what is referred to as a charter party dated 24 February 1994, between Tokyo Marine Co. Ltd. and Methanex New Zealand Ltd.

The bill of lading also contains an identity of carrier clause to the effect that if Tokyo Marine Co. Ltd. is not the owner or demise charterer of the carrying vessel, the contract of carriage, evidenced by the bill of lading, is then a contract between Methanex New Zealand Ltd. and Fontaine Navigation S.A., the owner of the vessel, with Tokyo Marine Co. Ltd. to be merely an agent. It is interesting to note that both Fontaine Navigation S.A. and Tokyo Marine Co. Ltd. have the same address in Japan. The material filed on behalf of the defendants does not explain the relationship between Fontaine Navigation S.A. and Tokyo Marine Co. Ltd., or whether Tokyo Marine Co. Ltd. chartered the Kinugawa in order to fulfil its commitments to carry methanol under the COA.

The particular bill of lading issued for this voyage of the Kinugawa requires that any disputes be subject to the jurisdiction of the Tokyo District Court, perhaps a common enough provision in some circumstances, but then comes a purely Draconian provision, one which would distress any shipper and ought to embarrass a legitimate carrier who has negotiated an extensive affreightment agreement:

. . . (if Methanex New Zealand Ltd.) . . . despite the provisions of this clause, commence any legal proceedings, including litigation, arbitration, claims and/or any other action (hereinafter the "Proceedings") against the Carrier or any Third Persons (hereinafter collectively the "Claimees"), in any jurisdiction other than the aforesaid, the Claimees shall be entitled to claim against the Claimants any loss and damages incurred thereby, including but not limited to the legal costs, expenses and detention loss of any vessel arrested by the Claimants, plus a penalty of 5,000,000 Japanese yen regardless of whether or not the court, with which the Claimants filed the Proceedings, grants the stay of the Proceedings or accepts jurisdiction thereon. If the Claimants succeed in recovering any sum from the Claimees and/or other parties, including the Claimees' underwriters, P&I Club and Guarantors, by commencing Proceedings in any court or jurisdiction other than the Tokyo District Court, the Claimees shall be entitled to recover fully from the Claimants such an amount plus interest at 15% per annum. (Clause 5 of bill of lading).

Little wonder this bill of lading was not attached to the COA.

To further complicate matters, the face of the bill of lading, issued for this particular cargo, purports at one point to accept and at another point to abrogate the rate and payment of freight specified in the COA, with the proviso that if there is a conflict between what is referred to as the charter party (of 24 February 1994"the date of the COA) the identity of carrier and jurisdiction clauses in the bill of lading (among other clauses) shall prevail. One wonders why Tokyo Marine Co. Ltd. would negotiate in good faith and enter into a substantial contract of affreightment with Methanex New Zealand Ltd., an agreement which seems to cover all eventualities and which is to run for two years and would then allow a mere vessel owner to dictate radically new and different terms, indeed unreasonable terms, to its substantial customer, Methanex New Zealand Ltd.

In any event, the day after the present litigation was commenced and an arrest warrant issued, and apparently in response to the likelihood of arrest, the United Kingdom Mutual Steam Ship Assurance Associate (Bermuda) Ltd. (the P & I Club) issued a letter of undertaking, dated 15 December 1995, in favour of Methanex New Zealand Ltd. confirming the claim against the ship and undertaking, in consideration of the Methanex New Zealand Ltd. refraining from arresting the ship to take the following steps:

(1) To instruct Messrs. Campney & Murphy to accept service of the Statement of Claim in the Federal Court of Canada and to file a Defence on behalf of the defendants in accordance with the terms and provisions of the Rules of the Federal Court of Canada.

(2) To pay any settlement of this claim, judgment of the Federal Court of Canada, or final appeal therefrom, including costs and interest, up to an amount not exceeding $450,000. This provision is intended for the sole benefit of the plaintiff and shall not prevent the plaintiff from demanding payment hereunder forthwith after judgment of the Federal Court Trial Division, but nothing herein shall prevent the defendants from making application to the Court for a stay of execution on the basis of this security or the bail referred to in Paragraph (3).

(3) To furnish upon demand bail if an when required by you in an amount not exceeding C$450,000 in the aforesaid litigation. In the event such bail is furnished it is agreed that the undersigned shall have no further obligation under Paragraph (2) hereof.

The letter of undertaking then concludes:

This letter is written entirely without prejudice as to any rights or defences which the vessel or owners may have, none of which is to be regarded as waived.

ANALYSIS

Letter of Undertaking

It is convenient to comment, at this point, on the letter of undertaking. The letter was given by Campney & Murphy as agent for the P & I Club. The motion and material for the stay were prepared and filed by Campney & Murphy, however Bull, Housser & Tupper succeeded them, both in setting down the motion for hearing, after several adjournments and in arguing the motion and thus are to be regarded as counsel of record for the defendants.

Interestingly the letter of undertaking acknowledges a claim against ship, owners "and others". The undertaking in the letter is clear, that in consideration of the ship not being arrested, Campney & Murphy are to be instructed "to file a Defence on behalf of the defendants". The defendants, in the action, are named as the ship, Fontaine Navigation S.A. and Tokyo Marine Co. Ltd.: in that the statement of claim predates the letter of undertaking the letter of undertaking is broad enough to secure any claim against both Fontaine Navigation S.A. and Tokyo Marine Co. Ltd. The letter of undertaking then narrows slightly in the last paragraph to reserve to "vessel or owners" any rights and defences.

The affect of this letter of undertaking, quite a usual letter in its form, is worth considering in the context of the claims both of the defendant, Tokyo Marine Co. Ltd., to arbitrate in London as provided for in the COA and of the defendant, Fontaine Navigation S.A., to litigate before the Tokyo District Court as provided in the bill of lading.

London Arbitration

Clause 18 of the COA, as set out above, provides for the resolution of disputes by arbitration in London. Clause 18 also incorporates Clause 24 of an Asbatankvoy Voyage Charter Party, said to be annexed to the COA, but absent from the copy of the COA presented to the Court. However the incorporation of Clause 24 of the Asbatankvoy form, with the necessary changes being made, is clear enough. The Asbatankvoy form sets out the arbitration procedure.

The narrow view, at this point, is that I must refer any dispute between Methanex New Zealand Ltd. and Tokyo Marine Co. Ltd. to arbitration pursuant to article 8 of the Commercial Arbitration Code, which code Canada has adopted by way of the Commercial Arbitration Act, R.S.C., 1985 (2nd Supp.), c. 17. Article 8 provides for mandatory arbitration if there is an arbitration agreement:

Article 8

. . .

(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

This is of course subject to any jurisdictional objections and indeed, to whether there is a dispute which is a subject of an arbitration agreement.

The plaintiff submits the present claim does not fall within the ambit of arbitration, for there is no dispute: the plaintiff's evidence is that the defendants have never denied responsibility for contamination of the cargo which occurred after loading and before discharge.

Article 16 of the Commercial Arbitration Code allows a tribunal to rule on its own jurisdiction, but that power is neither exclusive nor final: it is subject to review by a court, particularly in the case of a proceeding brought under article 8: see for example Holtzmann and Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary, Boston: Kluwer Law and Taxation Publisher, 1989, at pages 478-479 and at page 486.

Indeed, a court may interpret an arbitration provision and then analyze the claim to determine if, on a proper interpretation, the matter falls within the disputes and differences to be decided by arbitration. If the claim is not in respect to a matter which the parties have agreed to arbitrate, the court has a discretion to exercise outside of the parameters imposed by paragraph (1) of article 8 of the Commercial Arbitration Code: see for example T1T2 Limited Partnership v. Canada (1994), 23 O.R. (3d) 66 (Gen. Div.), at page 73; Deluce Holdings Inc. v. Air Canada (1992), 12 O.R. (3d) 131 (Gen. Div.), at pages 149-151; Gulf Canada Resources Ltd. v. Arochem International Ltd. (1992), 66 B.C.L.R. (2d) 113 (C.A.), at page 120 and Ocean Fisheries Ltd. v. Pacific Coast Fishermen's Mutual Marine Insurance Co. (1997), 125 F.T.R. 20 (F.C.T.D.), at page 25 and following. Indeed, in the Gulf Canada Resources case Mr. Justice Hinkson notes that the matter does not end when the application for a stay points to an arbitration agreement, for the court does have a residual jurisdiction when it is clear that the dispute is outside of the term of an arbitration agreement. All of this is consistent with a passage in Nanisivik Mines Ltd. v. F.C.R.S. Shipping Ltd. [1994] 2 F.C. 662 (C.A.), at page 671:

In my opinion, the Motions Judge had no discretion in the circumstances but to refer the claim of Nanisivik against Canarctic to arbitration nor had he any discretion as to the reference of Zinc Corp.'s claim provided it was bound by the arbitration agreement. [Emphasis added.]

This idea of whether a party is bound by an arbitration agreement was put slightly differently, but with the same effect, by the House of Lords in Heyman v. Darwins, Ltd., [1942] 1 All E.R. 337, at page 345 where Lord Macmillan said:

Where proceedings at law are instituted by one of the parties to a contract containing an arbitration clause and the other party, founding on the clause, applies for a stay, the first thing to be ascertained is the precise nature of the dispute which has arisen. The next question is whether the dispute is one which fall within the terms of the arbitration clause. Then sometimes the question is raised whether the arbitration clause is still effective or whether something has happened to render it no longer operative.

The Heyman case certainly predates the Commercial Arbitration Code, however the principle, of examining the nature of the dispute and whether it falls within the arbitration clause and then determining whether there might have been an intervening event making the arbitration clause ineffective, is perfectly valid today.

Still dealing with the examination of the dispute, or rather of the absence of any dispute, there is an interesting passage dealing with just this and with the procedural consequences in Mustill and Boyd, The Law and Practice of Commercial Arbitration in England, 2nd ed., Butterworths, 1989, at page 12:

First, since most arbitration clauses express the right and obligation to arbitrate in terms of `disputes', the claimant cannot ordinarily give a valid notice of arbitration unless his claim is disputed. Moreover, in the absence of a `dispute' (which has been understood as meaning a genuine dispute) the Court will not order that the action should be stayed so that the matter can be referred to arbitration. The procedural consequences are important, for this principle opens the way for the plaintiff, even in a case governed by an arbitration clause, to employ the summary mechanisms of the Court where the defendant has no defence at all to the claim, or only a spurious defence. What happens is this. The claimant commences an action in the High Court, and states on affidavit his belief that there is no defence to the claim. The defendant must then respond, also on affidavit, showing reasons why he does have a defence. If the Court accepts the contention of the plaintiff, it will refuse to stay the proceedings and will instead give immediate judgment for the plaintiff.

In effect, neither may a party give notice of arbitration unless there is a disputed claim, nor will a court order a stay of an action in favour of arbitration, if there is no genuine dispute.

The defendant, Tokyo Marine Co. Ltd., says the principles enunciated in this passage from Mustill and Boyd do not apply by reason of clause 24 of the Asbatankvoy form, which captures the jurisdiction: clause 24 refers to the arbitration of "differences and disputes", which may be a little wider. However there are two answers to this proposition. First, the arbitration provision in this instance is as to "disputes" as set out in clause 18 of the COA: Asbatankvoy clause 24, as it is utilized in this instance, is merely to set out the procedure for arbitration. Second, there is no more reason to send a sham difference or an undisputed difference to arbitration than to send a sham dispute to arbitration.

In the present instance the affidavit evidence of the plaintiff, through Mr. Frank Wendt, a director of Waterfront Shipping Company Limited, a wholly owned subsidiary of the Methanex group of companies, is that he has "discussed this claim with representatives of Tokyo Marine Co. Ltd. and they have not expressed any defence to the claim," (paragraph 16 of the Wendt affidavit sworn 20 August 1996).

In contrast, although some 14 months passed between the filing of the Wendt affidavit and the hearing of this motion, during which time Tokyo Marine Co. Ltd. might have responded, without being taken to have made a substantive statement on the case which would trigger the pitfalls in article 8 of the Commercial Arbitration Code, Tokyo Marine Co. Ltd. has remained silent. As a result, there is no evidence of the existence of any dispute to send to arbitration. But there is another reason to deny London arbitration and that is an estoppel arising out of the letter of undertaking.

Letter of Undertaking

The letter of undertaking given by the P & I Club, the relevant parts of which are set out above, provides for good and valuable consideration and gives clear undertakings first, to accept service and second, which is relevant here, "to file a Defence on behalf of the defendants in accordance with the terms and provisions of the Rules of the Federal Court of Canada." The question is whether this is a new agreement between Methanex New Zealand Ltd. and Tokyo Marine Co. Ltd., superseding the arbitration provision and thus estopping Tokyo Marine Co. Ltd. from applying for a stay of proceedings. One must note that the letter of undertaking does not specifically raise any objection to the jurisdiction of the Federal Court.

In order to pursue this idea of estoppel one must first distinguish Skagway Terminal Co. v. The Ship —Dephne— et al. (1988), 42 D.L.R. (4th) 200 (F.C.T.D.), a decision of Mr. Justice Collier. In Daphne, which arose out of dock damage at Skagway, a letter of undertaking was given to prevent the arrest of the ship at Vancouver. No action had then been commenced, but the letter of undertaking provided that if an action were filed, solicitors would accept service and file a defence, without prejudice to any rights or defences. Mr. Justice Collier denied the stay application on the basis that Alaska was not a convenient forum, but in passing he rejected an argument of attornment to the Canadian jurisdiction by reason of the letter of undertaking. Key to distinguishing The Daphne is first the claim, one in tort, and second, the fact that no action had been commenced when the letter of undertaking was given: from the second point it follows that there could be no attornment. In the present instance we are dealing with contractual provisions, provisions which, with appropriate consideration and agreement, may always be modified by the parties and that is what in fact happened. Indeed, Mr. Justice Hewson, in The Elizabeth H., [1962] 1 Lloyd's Rep. 172 (Adm.), recognized this ability to contract a new.

In The Elizabeth H. the shipowner applied for a stay so a dispute, arising out of damage to and short delivery of a cargo of lard, might be arbitrated. In that instance the vessel was arrested. The owners obtained a release of the Elizabeth H. on the strength of a letter of undertaking, given by the Bilbrough P & I Club, which undertook to pay amounts for which owners might be held liable, up to a given figure and undertook [at page 175] that "if called upon . . . to instruct Solicitors to accept on behalf of Owners service of Proceedings brought by any of your clients". Mr. Justice Hewson characterized the letter of undertaking as a bargain, for which there was consideration, by which solicitors would accept service on behalf of owners of any proceedings and that this undertaking was a clear invitation to continue the action, without any hint of arbitration. Moreover, the fact that the defendant owners of the Elizabeth H. had sat by in silence for 18 months, before bringing on the application for a stay, the defendants were held to have assented to the Court's jurisdiction through their silence. These factors were sufficient to show that the defendants, or their agents, had agreed to accept the Court's jurisdiction and thus vary the arbitration clause: see page 179.

Also relevant is Maersk Inc. v. Coldmatic Refrigeration of Canada Ltd. (1994), 74 F.T.R. 70 (F.C.T.D.), in which the plaintiff tried to enforce an English law and jurisdiction clause in order to obtain a stay of the defendant's counterclaim. Mr. Justice Rothstein held that the plaintiff, having put the case into the Federal Court, with the defendant not objecting, such resulted in an amendment of the jurisdiction provision in the bill of lading on which the plaintiff was suing (see page 73). The Maersk case is factually some distance from the present situation involving a letter of undertaking, but the principle is the same. A contractual agreement as to jurisdiction is not immutable. The parties to a contractual arbitration clause, just as the parties to a contractual jurisdiction clause, may recast their dispute resolution mechanism to supersede arbitration with litigation.

In the present instance, Methanex New Zealand Ltd. kept its part of the bargain and, although it had a warrant, did not arrest the Kinugawa. Moreover, the terms of the P & I Club letter of undertaking received by Methanex go further than those in The Elizabeth H., for not only is there an undertaking to accept service, as there was in the The Elizabeth H. letter of undertaking, but there is a further undertaking to file a defence on behalf of all of the defendants. Granted, the letter of undertaking reserves any rights and defences of "vessel and owners", but it does not specifically reserve the rights and defences of all of the defendants. Further, having agreed to file a defence on behalf of all of the defendants, without any reference to or exception in favour of arbitration, there is no right of arbitration in London or of litigation in Japan left to reserve or to trigger either arbitration pursuant to the Commercial Arbitration Code or litigation under the jurisdiction clause in the bill of lading. For this reason also, a stay of the proceedings to arbitrate in London, is refused, for the letter of undertaking, a contract to abide by the jurisdiction of the Federal Court of Canada, now governs in place of the arbitration provision in the COA. The letter of undertaking is, in effect, a current agreement between Methanex New Zealand Ltd. and Tokyo Marine Co. Ltd. to litigate the cargo damage here in Canada.

Litigation in the Tokyo District Court

Litigation in the Tokyo District Court is not an option for Tokyo Marine Co. Ltd., for only if they were demise charterers of the Kinugawa, of which there is no evidence, might they qualify as a carrier under the bill of lading and fall heir to the Tokyo District Court jurisdiction clause in the bill of lading. One also suspects that Tokyo Marine Co. Ltd. would not wish to litigate in Tokyo, for it would be an embarrassment to have to admit that after negotiating, apparently in good faith, the exhaustive COA, which clearly sets out London arbitration with an extensive procedural gloss, it intended hamstringing its substantial customer with the surprised thrust of a rather nasty jurisdiction clause hidden in a bill of lading not attached to the COA.

Just as litigation in Tokyo is not an option open to Tokyo Marine Co. Ltd., London arbitration is not an option for Fontaine Navigation S.A. for while the COA, in the guise of a charter party, is incorporated into the bill of lading for the transportation of the methanol by Fontaine Navigation S.A., as the owner of the Kinugawa, the Tokyo jurisdiction clause in the bill of lading clearly overrides the arbitration provision in the COA by reason of the 5th printed clause on the face of the bill of lading. However, there are two lines of reasoning which both lead to the conclusion that Fontaine Navigation S.A. may not obtain a stay of the present proceedings in order to take advantage of litigation in Tokyo.

The first line of reasoning is set out at length above: having agreed, in return for good and valuable consideration, to file a defence in this Federal Court action, Fontaine Navigation S.A. can scarcely renege on that bargain and insist on litigation in the Tokyo District Court.

The second and more conventional analysis of a bill of lading jurisdiction clause begins with the presumption that an application for a stay of an action commenced in the Federal Court, contrary to a contractual agreement to submit disputes to the foreign court, must usually succeed for, as a general rule, contractual undertakings must be honoured: see for example The Ship M/V Seapearl v. Seven Seas Dry Cargo Shipping Corporation of Santiago, Chile, [1983] 2 F.C. 161 (C.A.), at pages 176-177. However, this rule is not an absolute rule as pointed out by Mr. Justice Brandon (as he then was) in Eleftheriam, The [1969] 1 Lloyd's Rep. 237 (Adm.), a decision which the Federal Court and the Federal Court of Appeal have either considered or quoted from in many instances, including in the Seapearl (supra). The much quoted passage from The Eleftheria is at page 242:

The principles established by the authorities can, I think, be summarized as follows: (1) Where plaintiffs sue in England in breach of an agreement to refer disputes to a foreign Court, and the defendants apply for a stay, the English Court, assuming the claim to be otherwise within the jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not. (2) The discretion should be exercised by granting a stay unless strong cause for not doing so is shown. (3) The burden of proving such strong cause is on the plaintiffs. (4) In exercising its discretion the Court should take into account all the circumstances of the particular case. (5) In particular, but without prejudice to (4), the following matters, where they arise, may be properly regarded: (a) In what country the evidence on the issues of fact is situated, or more readily available, and the effect of that on the relative convenience and expense of trial as between the English and foreign Courts. (b) Whether the law of the foreign Court applies and, if so, whether it differs from English law in any material respects. (c) With what country either party is connected, and how closely. (d) Whether the defendants genuinely desire trial in the foreign country, or are only seeking procedural advantages. (e) Whether the plaintiffs would be prejudiced by having to sue in the foreign Court because they would (i) be deprived of security for that claim; (ii) be unable to enforce any judgment obtained; (iii) be faced with a time-bar not applicable in England; or (iv) for political, racial, religious or other reasons be unlikely to get a fair trial.

The effect of The Eleftheria and its open-ended list of considerations and the Seapearl may be summed up by saying it is not a matter of adding up points for and against a stay, but rather it involves the consideration of the existence of some other forum which is more appropriate and more convenient for the pursuit of the action and for securing proper justice; that a court ought to exercise its jurisdiction by granting a stay unless there are strong reasons to the contrary; and that while the onus is initially on the defendant to establish the jurisdiction clause and to show that there is a more appropriate or proper forum elsewhere, once that is accomplished the burden then shifts to the plaintiff to show that there are special circumstances and strong reasons, by virtue of which justice requires, that the trial should take place where the action has been commenced.¹

The first question is whether the defendant, Fontaine Navigation S.A., as the Applicant, has gotten over the initial hurdle, that of establishing which forum selection clause applies. Counsel for the plaintiff doubts this burden has been met. He submits that in Canada Tokyo Marine would be a carrier as it negotiated the COA and in all manner of action held itself out to be the carrier. In the result, the bill of lading would be merely a receipt with the COA being the contract of carriage, while in Japan a court would ignore the factual matrix in favour of a legal presumption created by the demise clause in the bill of lading. Leaving that aside the submission continues that in a Canadian court the Applicant must clearly show that it is the carrier and that the clause it relies on, a clause decisive of the obligations of the party in the dispute, is contained in the contract. From this it follows that the defendants, who have deliberately not chosen to provide any evidence of their relationship with each other and with the transportation, cannot satisfy the Court as to which contract is the operative one and thus the application must fail as it did in Donohue Inc. et al. v. Ship Ocean Link et al. (1995), 94 F.T.R. 69 (F.C.T.D.) and in Pine Hill, The, [1958] 2 Lloyd's Rep. 146 (Q.B.).

Now the matter of jurisdiction is fairly complex in this instance and it is certainly arguable that there is no applicable forum selection clause. However I would not go so far: indeed, all the parties did make a selection as to forum, the Federal Court of Canada under the letter of undertaking and, in the case of Fontaine Navigation S.A., who is the owner of the Kinugawa and there being no evidence of Tokyo Marine Co. Ltd. as a demise charterer, the jurisdiction clause in the bill of lading may also be relevant.

To begin, I will assume and I believe properly so, that Fontaine Navigation S.A. has established the jurisdiction clause in the bill of lading, albeit perhaps to the surprise of Methanex New Zealand Ltd., who might have thought the COA and London arbitration governed transportation of its methanol and any problems which might arise in the course of that transportation. Fontaine Navigation S.A. has also provided the affidavit evidence and the rebuttal affidavit evidence of one Makoto Hiretsuka, a marine lawyer with excellent credentials who practices in Tokyo and who assists Fontaine Navigation S.A. in establishing a prima facie case, that the District Court in Tokyo is an appropriate venue, although to be fair Mr. Hiretsuka, in his affidavit material, to a great extent engages in dealing with assertions made by the plaintiff's expert, Mr. Ohki Hirata.

Mr. Hirata is a partner with SAH & Co., formerly Shimada, Seno, Amitani and Hirata, of Tokyo, Japan. His practice is almost exclusively maritime. Having examined the bill of lading he concedes that the Japanese Carriage of Goods by Sea Act of 1992 enacting the Hague-Visby Rules [being Schedule I to the Carriage of Goods by Water Act, S.C. 1993, c. 21], would apply and that the shipowner, Fontaine Navigation S.A., rather than Tokyo Marine Co. Ltd., is the contracting carrier. Mr. Hirata is of the view that litigation in Tokyo would take three or more years from commencement to conclusion, for there is no concept of summary judgment, to expedite proceedings as there is in Canada.

Mr. Hirata points to a particular difficulty, at least at the time at which he prepared his affidavit evidence, in the lack of compulsory pre-trial discovery. Under exceptional circumstances, an opposing party may be forced to give limited discovery of documents, but Mr. Hirata does not know of any instance in which such a discovery order has been obtained in respect of a cargo claim. Mr. Hirata points to the requirement that relevant documents be translated into Japanese, a substantial cost which is generally not recoverable, or certainly not recoverable in full.

While interest is awarded by Japanese courts, it usually runs only from the time of filing the writ, which at best, in the present instance, would be well over two years after the plaintiff suffered the damage. There is no compound interest.

Costs follow the event in Japanese litigation. However, there is no recovery of lawyers' fees from an unsuccessful party in Japan: this is not a point of major strength, but it has a cumulative effect on the outcome of this motion.

Mr. Hiretsuka responds to this material saying that in 1998 there will be a new court regime which will expedite proceedings; that if defendants do not adopt delaying tactics the court may render judgment within two years; that there is some production of documents, although the party requiring production must show the judge that the opposing party should possess certain documents and that they are important to the case; and that "the judge usually will suggest that the opposing party produce such documents" (there appears to be no real sanction other than that the judge might form an unfavourable conclusion).

Mr. Hiretsuka suggests most claims of the present sort settle in Japan. But this is so universally. One might also observe that the discovery requirements in Canada, as opposed to those in Japan, probably makes the settlement of such claims in Canada even more likely.

Mr. Hirata then responded to Mr. Hiretsuka: Mr. Hirata generally stands by his guns and makes a fairly convincing argument of it. Finally, we have another affidavit from Mr. Hiretsuka, which does not particularly advance matters. Fortunately the question of jurisdiction is not merely a matter of adding up the points, for and against, made by experts in the law of the jurisdiction in question: rather I may consider all of the circumstances in this particular case, as was done in the Eleftheria.

I now turn to other factors which indicate that the Tokyo District Court is not a suitable and proper forum for the present action, as compared with the Federal Court. These factors constitute strong reasons to overcome the contractual jurisdiction clause in the bill of lading.

To begin, the evidence of cargo condition on shipment and much of the evidence of its contaminated condition and the reason for the contamination, will come from witnesses in British Columbia and in Texas and through documents prepared in English. Were this evidence given in a Japanese court the additional expenditure of time and money would be substantial. The defendants' material on this point, given the lead time on the motion, is rather weak: it is to the effect that "it would appear" the witnesses involved in testing the contaminated cargo in Korea "would be" residents of Japan and "presumably, would prefer to give evidence in the Japanese language" (paragraph 5 of Mr. Swanson's affidavit of 7 February 1996). Further, in the same vein, inspection, maintenance and vessel classification records are not kept, but "would be kept" in Tokyo. At best this indicates that there might be some witnesses and some documents in Japan. However, there is no certainty that witnesses from the ship would have to be brought from Japan, anymore than from wherever their current ships might happen to be. It is likely that witnesses could be at sea, or in New Zealand, the United States, Japan, Korea, Panama and Canada, but it is fair to say that the largest number of witnesses with relevant information are likely in North America. Here I would note this is a factor in testing for an appropriate jurisdiction, but perhaps not an overly important factor given today's ease of moving witnesses about, albeit at a cost. I now turn generally to procedural advantage: procedural advantages accruing to a defendant, in an offshore jurisdiction, can be a strong reason to deny a stay.

Often delay, in itself, is an indication that a defendant seeks a procedural advantage when a stay is eventually sought. Here the action has begun and the statement of claim served in December of 1995. The defendants filed their motion for a stay in February of 1996. There were many adjournments on consent, some at the request of the plaintiff, before the motion was eventually heard in October 1997. In the present instance I do not read too much into this delay, however there are a number of clear advantages which would accrue to the defendant, Fontaine Navigation S.A., if it were to obtain a stay in order to litigate before the Tokyo District Court.

A portion of the forum selection clause itself seeks to bestow an advantage. It both reduces the plaintiff's remedies and lessens the liability of the defendant carrier or ship before the Tokyo District Court. This clause and its penal provision would in Canada, in all likelihood, be void as contrary to Article 3, paragraph 8 of both the Hague Rules [International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading and Protocol of Signature, Brussels, August 25, 1924] and the Hague-Visby Rules, by reason of relieving the carrier from liability. As the clause reads, the plaintiff, even as a successful plaintiff before the Tokyo District Court, would have to pay to the defendant, as the price of commencing this action in the Federal Court and obtaining security for the claim, the full amount of any eventual judgment, together with interest at 15%. This would not only relieve the carrier of liability, but given current interest rates, would give the carrier a profit. Even the possibility of this clause being considered by the Tokyo District Court is a very substantial reason to deny a stay.

The same line of reasoning and conclusion applies to the 5,000,000 yen penalty the jurisdiction clause would invoke when a proceeding is commenced, as it is here, in any jurisdiction other than that of the Tokyo District Court.

Both of the Japanese lawyers who gave affidavit evidence on the pros and cons of the Tokyo District Court as a venue in which to litigate were in agreement that, as a matter of Japanese law, if there is a demise clause or identity of carrier clause, the shipowner is deemed to be the carrier. This is an advantage to the defendant in favour of litigation in Japan, for the Federal Court of Appeal has on two recent occasions pointed out that the issue of who is the carrier is a question of fact: Cormorant Bulk-Carriers Inc. v. Canficorp (Overseas Projects) Ltd. (1984), 54 N.R. 66 (F.C.A.) and Carling O'Keefe Breweries of Canada Ltd. v. CN Marine Inc., [1990] 1 F.C. 483 (C.A.), hereinafter Newfoundland Coast. In the Newfoundland Coast, the claim involved the loss overboard of three twenty-foot containers of beer somewhere between St. John's and Happy Valley, Labrador. At issue was a demise clause and whether CN Marine Inc., as time charterer, or the actual owner of the Newfoundland Coast, was the carrier. Mr. Justice Stone, in writing the reasons for the Court, points out that current judicial thinking favoured the validity of a demise clause, but that it is unwise to lay down hard and fast rules of general application, for just who is the carrier depended upon the circumstances and the terms of the documentation. Indeed, in some instances, charterers, by both word and deed, may undertake to act as a carrier and thus bind themselves, as principle, under the contract of carriage with the shipper. That was the situation in the Newfoundland Coast, where the charterer, CN Marine, bound itself to act as carrier. However, both the Trial Judge [[1987] 2 F.C. 107] and the Court of Appeal went further and held the demise clause null, void and of no effect under Article 3, paragraph 8 of the Hague Rules in that it purported to relieve the time charterer of any duty to properly and carefully stow the goods. Counsel for the plaintiff sums this up by pointing out that under Japanese law the carrier is apparently the shipowner alone, while under Canadian law either the ship owner or the charterer, or even both, may be the carrier. As a result, reference to the Court in Japan would be a lessening of liability to the ship owner and thus become a distinct advantage to the defendant.

Duplicitous proceedings, which would be the result of a stay in the present matter, are always strong grounds for refusing a stay: see for example Donohue Inc. et al. v. Ship Ocean Link et al. (supra) and Pine Hill (supra). In the former, Mr. Justice Wetston dismissed a motion for a stay in part because of duplicity of litigation and thus the substantial risk of conflicting judgments leading to prejudice. In the latter, The Pine Hill, Mr. Justice McNair noted that duplicate proceedings might not only result in inconsistent findings of fact by two different tribunals, but also would waste of time and money (at page 151). These concerns are very real when applied to the present situation, for I have found that Tokyo Marine Co. Ltd. is not entitled to a stay in order to arbitrate in London, but must litigate in Canada: it is clearly much more appropriate to deny a stay to Fontaine Navigation S.A. than to allow it to run a duplicate set of proceedings in Japan.

In order to obtain a stay there must be a bona fide reason and desire to litigate in another jurisdiction, going beyond merely gaining some procedural or substantive advantage. It is usual, in such an instance, for a defendant to show its bona fides by making the necessary concessions which would allow procedure in another jurisdiction with a minimum of prejudice to the plaintiff. Here I have in mind two usual considerations: those of security for a claim when security has already been posted in one jurisdiction but is not likely to be obtained in the offshore jurisdiction; and, a waiver of any applicable limitation provisions. A transfer of the use of security and a waiver of any limitation-bar, were both, by way of example, offered in Caribbean Ispat Ltd. et al. v. Companhia De Navegacao Lloyd Brasilairo et al. (1992), 59 F.T.R. 207 (F.C.T.D.). In the present instance, the letter of undertaking, to the extent that it deals with payment of judgments or appeals there from, is limited to payment of a judgment of the Federal Court of Canada. This is a strong reason to deny a stay.

Perhaps more important, the defendants, who had nearly two years to think about their motion for a stay and who knew that time for suit had run out many months before speaking to their motion for a stay, did not think to give instructions to waive any time for suit so that the plaintiff might be able to commence a new proceeding in Japan. This, again, is a strong reason to deny a stay.

CONCLUSION

As a basic starting point I must give full weight to the prima facie case for a stay which arises from contractual provisions, the present arbitration clause in the COA and the jurisdiction clause in the bill of lading, for it is mandatory in the case of a valid and subsisting arbitration clause and it is very desirable, in the absence of a clearly more appropriate forum as an alternative to that suggested in the bill of lading, to hold the parties to their bargains. As Mr. Justice Brandon pointed out in The Eleftheria (supra), a "Court must be careful not just to pay lip service to the principle involved, and then fail to give effect to it because of a mere balance of convenience" (page 245).

In the case of the arbitration provision in the COA between Methanex New Zealand Ltd. and Tokyo Marine Co. Ltd., and also, in the case of the jurisdiction clause in the bill of lading between Fontaine Navigation S.A. and Methanex New Zealand Ltd., the provisions of the letter of undertaking show that in return for release of the Kinugawa, the defendants undertook to file a defence in the present action. This clearly abrogates both the contractual arbitration provision and the bill of lading jurisdiction clause.

The letter of undertaking by itself satisfies the test that there must be strong reasons to depart from the prima facie rule, that jurisdiction clauses must, as contractual undertakings, be honoured. This test was forcefully put by Mr. Justice Pratte J.A. in Seapearl (supra), who allowed the appeal from the decision of the Trial Judge to grant a stay on a mere balance of convenience. Mr. Justice Pratte pointed out that "As a rule, it is certainly in the interest of justice that contractual undertakings be honoured" (at page 176). He then went on to elaborate [at pages 176-177]:

Prima facie, an application to stay proceedings commenced in the Federal Court in defiance of an undertaking to submit a dispute to arbitration or to a foreign court must succeed because, as a rule, contractual undertakings must be honoured. In order to depart from that prima facie rule, "strong reasons" are needed, that is to say reasons that are sufficient to support the conclusion that it would not be reasonable or just, in the circumstances, to keep the plaintiff to his promise and enforce the contract he made with the defendant.

In the present instance the plaintiff has clearly met the test in several ways.

In addition to the letter of undertaking being an appropriate reason to deny a stay, there are also substantial factors, and indeed strong reasons, to deny the Tokyo District Court as a venue for litigation between Methanex New Zealand Ltd. and Fontaine Navigation S.A. The cumulate effect of these factors and reasons is to clearly establish strong reasons to deny the stay, for it would be neither proper, reasonable, nor just to hold Methanex New Zealand Ltd. to the contractual provision set out in the bill of lading.

The Federal Court is the appropriate venue for this litigation. The motion for the stays is denied. However, I would add that while there has been a winner and a loser on the motion, argument by both counsel was well done.

¹ As to this shifting burden of proof see The Spiliada, [1987] 1 Lloyd's Rep. 1 (H.L.) at p. 10; The Nile Rapsody, [1992] 2 Lloyd's Rep. 399 (Q.B.) at p. 409 and Trans-Continental Textile Recycling Ltd. v. The Erato, [1996] 1 F.C. 404 (T.D.), at pp. 411-412.