Ship Building and Repair
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The database contains 35 case summaries relating to Ship Building and Repair. The summaries are sorted in reverse date order with 20 summaries per page. If there are more than 20 summaries, use the navigation links at the bottom of the page.
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Contract - Breach - Vessel - Build
G C Lobster Ltd. v. B Atkinson Boat Builders Limited, 2019 NSSC 342
Précis: The Supreme Court of Nova Scotia found the defendant boat builder liable to pay the plaintiff for costs associated with completion of a fishing vessel where the build contract was mutually repudiated.
Facts: This was a contractual dispute between the plaintiff and defendant regarding an extension to the aft end of a fishing vessel which the defendant was to build. By written quote the specifications, purchase price, payment schedule and additional costs for extras were outlined but no completion date was stated. The plaintiff wanted the extension strengthened for scallop dragging, but it was not contemplated that the vessel was to be used in the scallop fisheries. If the vessel was to be used in the scallop fishery, the defendant wanted the plaintiff’s principal to sign a waiver of liability. The plaintiff’s principal refused to sign and in turn the defendant refused to transport the vessel to water and complete construction. The plaintiff’s principal’s father then got involved and signed the waiver for the plaintiff. The plaintiff then took control of the vessel. The plaintiff completed the construction without the involvement of defendant, and brought this action for costs of, among other things, remedying deficiencies, completing the work, and delay associated costs. The defendant counterclaimed for the outstanding contract price less the value of the work completed by the plaintiff.
Decision: Defendant required to pay plaintiff $762.59.
Held: The Court found there was no completion date agreed upon, further holding that if wrong about there being a completion date that any completion date would be a vague term and therefore unenforceable. As the waiver was signed by the plaintiff’s principal’s father, who did not have authority to contract on the plaintiff’s behalf, the plaintiff did not waive any claim related to the extension. The Court held that, if not for the disagreement between the parties, the defendant would have completed the further work on the vessel in a reasonable time and held that the inability of the parties to restore the working relationship resulted in mutual repudiation and acceptance of the contract. Therefore the defendant could recover the contract price, less the value of uncompleted work and reasonable costs of remedying the deficiencies.
Stay - Irreparable Harm - Vessel
Worldspan Marine Inc. v. Sargeant, 2019 FCA 207
Précis: The Federal Court of Appeal granted a motion for stay of the payment of vessel sale proceeds pending the determination of a creditor's claim to those proceeds.
Facts: Worldspan and Restaurant moved to request the stay of the order of the Federal Court (2019 FC 546) that permitted the proceeds of sale of the vessel to be paid to Sargeant. In the Court below, Worldspan, brought a motion seeking that Sargeant or Comerica Bank was in breach of the VCA for failure to pay claims certificates to Worldspan when due, and Offshore and Restaurant brought motions that their claims ranked in priority to that of Sargeant. The Federal Court dismissed those motions and it was that order directing payment to Sargeant which was appealed in this present motion. Sargeant argued the stay should not be granted as Worldspan and Offshore were in default of previous orders awarding costs to him, and Restaurant was in breach of the order for costs from the 2019 FC 546 action.
Decision: Restaurant motion granted, Worldspan motion dismissed.
Held: The failure of a person to comply with a court order may be a basis for denying a stay that is requested by that person. As such the Court only had to address the motion for stay of Restaurant as they were not in default of any outstanding costs orders prior to the order under appeal in this action, and in using its discretionary power under s. 50 of the FCA the Court held it would not be in the interest of justice to deny Restaurant’s request for stay because Worldspan and Offshore are in default of paying their outstanding cost awards. The Court applied the RJR-MacDonald test to determine if a stay should be granted. The Court held that Restaurant’s appeal was neither frivolous or vexatious, and that Restaurant established irreparable harm on the basis of Sargeant’s unwillingness to pay a judgment against him in Florida. The Court also held that the balance of convenience favours granting the stay as Sargeant had a history of avoiding payment of judgments against him and the difficulty in Restaurant to collect on a judgment (if successful) outweigh the inconvenience of Sargeant in waiting for his money if the stay was granted.
Multi-Party Arbitration - Contracts of Design and Construction - SeaBus - Notice a Nullity
South Coast British Columbia Transportation Authority v. BMT Fleet Technology Ltd., 2018 BCCA 468
Précis: The British Columbia Court of Appeal held that multi-party arbitration relating to three marine design and construction contracts could not be commenced by a single notice to arbitrate.
Facts: South Coast British Columbia Transportation Authourity (“TransLink”) gave a notice to arbitrate pursuant to the Arbitration Act, R.S.B.C. 1996, c. 55 in April 2011, seeking to arbitrate four contracts under one arbitrator, without consent of the responding parties BMT Fleet Technology Ltd., International Marine Consultants Ltd., and Victoria Shipyards Ltd. The notice contained details of the alleged deficiencies in the performance of the contacts by the three companies. In this appeal only three of the contracts were in question, which related to the design and construction of TransLink’s SeaBus service. The three contracts each dealt with different aspects of the SeaBus’ design and construction, and each contract contained an arbitration clause under the B.C. Arbitration Act. The contracts stated that if no exception is made to the application of the Rules of the British Columbia International Commercial Arbitration Centre, then the parties have agreed to conduct arbitration under the Centre’s Rules. The TransLink-Victoria Shipyards contract differed from the other two in that it allowed for arbitration only under the agreement’s force majeure clause and specified arbitration before a three-person panel. In May 2011, the Centre wrote to TransLink informing them that three Notices to Arbitrate must be filed with the Centre, instead of only one, as there were three different contracts and none of which were related to each other. TransLink failed to file separate notices. TransLink filed a petition in the Supreme Court of British Columbia in August 2016 and in September 2017 obtained a declaration that arbitration was commenced in April 2011 and a single arbitrator was appointed. BMT and IMC appealed the BCSC Order, arguing in the Court of Appeal that the court below failed to notice s. 21 of the Arbitration Act which permits multi-party arbitration only if all parties agree to the appointment of one arbitrator and agree to steps taken to consolidate the disputes.
Decision: Appeal allowed, Order set aside.
Held:The Court of Appeal found that the essence of the arbitration clause is comprised of both consent and privacy. TransLink sought a different procedure than one contemplated by the contracts, the arbitration clauses and the Arbitration Act. The Court of Appeal found that the BCSC judge did not address s. 21 of the Arbitration Act in light of the facts at bar and whether consolidation without consent fundamentally changed the character of the arbitration from that which was contractually agreed. The Court of Appeal decided this case based on multi-party admiralty arbitration cases, notably the Eastern Saga  2 Lloyd’s Rep. 373 and the Smaro  1 Lloyd’s Rep. 225, to hold that arbitration may address only the contract giving rise to the dispute. TransLink’s notice called on the respondents to engage in arbitration before a single arbitrator which was not known to the Arbitration Act, and only under s. 21 of that act would TransLink have been able to commence the type of arbitration contemplated in its April 2011 notice.
Sale of Marine Crankshaft - Product Liability - Application of Provincial Law – Sales of Goods Act – Limitation of Liability
Transport Desgagnes Inc. v. Wartsila Canada Inc., 2015 QCCS 5514 2017 QCCA 1471
Précis: The Quebec Court of Appeal held that the sale of a marine engine was governed by Canadian maritime law and the vendor was entitled to rely upon the limitation clause in its contract.
Facts: The respondent purchased a new bedplate and reconditioned crankshaft from the appellant for installation in one of its vessels. The appellant assembled and installed the bedplate and crankshaft at Halifax in February 2007. On 27 October 2009, after 13,653 running hours, the new crankshaft suffered a catastrophic failure. The respondent commenced this proceeding in the Quebec Superior Court for damages in excess of $5.6 million. It was undisputed that the failure was caused by insufficient tightening of a connecting rod. The respondent alleged that the crankshaft was defective when delivered whereas the appellant alleged the respondent was responsible for the improper tightening during routine maintenance. The appellant also relied upon the terms of the sale contract between the parties which: provided for the repair or replacement of any defect discovered within six months; excluded all other warranties; and, limited the appellant’s liability to €50,000. The validity of the limited warranty and limitation depended on whether the transaction was governed by Canadian Maritime law or the law of Quebec.
At first instance the Trial Judge held that the transaction related to the sale of a marine engine and that this was not something integrally connected to the pith and substance of Parliament’s jurisdiction over navigation and shipping. Therefore, the dispute was not governed by Canadian maritime law but by the law of Quebec. Applying the Civil Code, the trial Judge held that the defect was presumed to have existed and to have been known to the seller at the time of sale and that any exclusion or limitation clause in the contract was invalid. Accordingly, judgment was rendered in favour of the plaintiff/respondent. The appellant appealed.
Decision: Appeal allowed in part.
Held: There are three issues on the appeal namely:
(1) Does Canadian maritime law or Quebec law apply to the sale transaction?
(2) If Canadian maritime law applies, are the appellants liable? and
(3) If the appellants are liable, do the contractual terms apply to exclude or limit that liability?
(1) The first issue is whether Canadian maritime law or Quebec law applies to the transaction. It is undisputable that the contract in issue is one relating to repair or equipping of a ship within the meaning of s. 22(2) (m) and (n) of the Federal Courts Act. In the absence of a constitutional challenge, these provisions are dispositive and Canadian maritime law applies. The trial Judge failed to consider these provisions which was an error in law. Her conclusions are counter to the clear language of s. 22 of the Federal Courts Act and are at odds with the unbroken jurisprudence of the Supreme Court of Canada and the Federal Courts, which have recognized time and again that construction, repair or equipping of a ship are integrally connected to shipping and navigation. Therefore, Canadian maritime law applies to the exclusion of the law of Quebec.
(2) The second issue is whether the appellants are liable under Canadian maritime law. Canadian maritime law includes the (UK) Sales of Goods Act, 1893, 56-57 Vict., c. 71 and the implied warranty of fitness therein. Under that law, the onus is on the buyer to prove a latent defect that was known to the seller or that the seller showed reckless disregard for what it should have known. Based upon the findings of fact of the trial Judge, the respondent met this onus and the appellant is liable.
(3) The final issue is whether the appellant can rely upon the limited warranty and limitation clause in the contract. Under Canadian maritime law a limitation of liability clause is valid and the implied warranties can be excluded by contract. There is nothing inherently unreasonable about exculpatory clauses and they should be applied unless unconscionable when made or there is otherwise some paramount consideration of public policy that outweighs the very strong public interest in the enforcement of contracts. The contract between the parties does exclude the implied warranties and does limit the liability of the appellant. Accordingly, the appellant is entitled to limit its liability under the contract to €50,000.
Comment: Given that (1) the limited warranty under the contract was for a six month period, (2) the defect was discovered well outside the limited warranty period and (3) any other implied warranties had been excluded by the contract, it is not clear to the writer why the appellant was found liable to the respondent at all. )
Criminal Interest Rate - Ship Repair
Platypus Marine Inc. v. The Ship Tatu, 2016 FC 501 2017 FCA 184
Précis: Interest accrues in maritime law cases regardless of whether it is addressed in a contract.
Facts: The plaintiff provided ship repair and maintenance services to the defendant and rendered ten invoices in respect of the work done. Each of the ten invoices was marked “Due Upon Receipt” but made no mention of interest. The defendant failed to pay the first nine invoices. Shortly after the tenth invoice was sent, the parties entered into an oral agreement whereby the plaintiff granted an extension of four months to pay the outstanding invoices and the defendant agreed to pay $100,000 as a lump sum interest payment. The defendant failed to pay the agreed interest. The trial Judge held that the interest payment of $100,000 represented an interest rate in excess of 60% per annum and was therefore a criminal rate of interest under the Criminal Code, RSC 1985, c. C-46. The trial Judge allowed interest at 5% per annum as provided by the Interest Act, RSC 1985, c. I-15 and awarded only $35,000 to the plaintiff on account of interest. The plaintiff appealed.
Decision: Appeal allowed.
Held: The issue of whether the interest rate is criminal depends in part on whether the interest is calculated from the date of the oral agreement or from the date of the respective invoices. The defendant says it should be calculated from the date of the oral agreement since there was no agreement on interest before then. However, in maritime cases pre-judgement interest is always awarded as a function of damages. There was no need for a prior agreement on interest. Therefore, interest is to be calculated from the due date of the respective invoices and, when so calculated, does not exceed a rate of 60% per annum. The plaintiff is entitled to the agreed $100,000 on account of interest.
Vessel Damaged Falling from Cradle - Bailment - Exclusion Clause - Spoliation of Evidence - Survey Costs as Damages - Appeals - Interpretation of Contract is mixed Fact and Law
Forsey v. Burin Peninsula Marine Service Centre, 2014 FC 974 2015 FCA 216
Précis: The Federal Court refused to give effect to an exclusion clause on the grounds that it did not expressly or impliedly exclude negligence.
Facts: The plaintiff’s/respondent’s fishing vessel was lifted out of the water and placed on a cradle at the premises of the defendant/appellant for the purpose of repairs and maintenance. The cradle failed 13 days later causing the vessel to fall, as a consequence of which it was damaged. The respondent claimed against the appellant for the damages to the vessel and for the costs of fuel containment and clean up. The appellant denied liability saying the cradle was constructed by the respondent and further relied upon a sign that provided “Boats stored at Owner’s Risk” and an exclusion clause that provided:
“I understand and agree that the securing and locking of my boat is my responsibility, and not that of the said Marine Service Centre, or of its agents, servants, employees, or otherwise. Furthermore I agree to indemnify and save harmless the said Marine Service Centre and its officers, agents, employees, servants or otherwise from, any claims on my part with respect to the same.”
At first instance (2014 FC 974) the trial Judge held that a bailment was created and that the cradle had been constructed by the defendant. As bailee, the burden was on the appellant to prove that it was not negligent in relation to the fitness of the materials used to construct the cradle and the manner in which it was constructed. She held that this onus had not been discharged. In doing so she noted that the materials used to construct the cradle were disposed of by the appellant within 48 hours of the incident. She held that this gave rise to a presumption that the materials were intentionally destroyed, which was not rebutted, and an adverse inference that the materials were unfit. With respect to the exclusion clause, the trial Judge held that neither the sign nor the exclusion clause in the contract expressly or impliedly excluded liability for negligence. She also applied the rule of contra proferentum to the words “securing and locking” in the exclusion clause and held that they did not transfer responsibility for the safety of the vessel to the respondent. In result, the respondent was entitled to damages for the vessel (which was declared a constructive total loss), the containment and clean-up costs and the costs of a surveyor. The survey costs were recoverable notwithstanding they were not paid for by the respondent on the grounds that they were a natural and probable consequence of the tort. The appellant appealed.
Decision: Appeal dismissed.
Held: The two issues on appeal are whether the trial Judge erred in drawing an adverse inference for destruction of evidence and whether she erred in her interpretation of the exclusion clause. The appellant argues there was no evidence supporting an inference the cradle materials were intentionally destroyed and that the issue was not pleaded and was raised by the trial Judge propio motu. It argues that procedural fairness was breached as it was not given a chance to respond to the trial Judge’s theory of the case. The respondent, however, notes that the issue had been pleaded, raised in advance of the trial and was argued at trial. In the circumstances, there was no procedural unfairness. The true question is whether the trial Judge made a palpable and overriding error in concluding the appellant failed to rebut the inference of negligence. The appellant as bailee had the onus of proving it was not negligent which required it to prove the materials used to construct the cradle were in good condition. Having removed those materials, the appellant could not disprove the presumption of negligence. There was no need on the part of the trial Judge to find the appellant intended to destroy the materials.
With regard to the exclusion clause, the parties disagree as to the meaning of the words “securing and locking”. The appellant says these words refer to the placing of the vessel on the cradle whereas the respondent says they refer to the securing of lines, buoys and equipment and the locking of hatches, doors and windows. The trial Judge applied the contra proferentem rule of construction and, because it was clear the erection of the cradle was the responsibility of the appellant, held the words could not have had the meaning advocated for by the appellant. There is no basis to interfere with this holding. The main concern of contractual interpretation is to determine the parties’ intent and scope of their understanding. This is not a question of pure law but of mixed fact and law and can only be interfered with on appeal if there is a palpable and overriding error. There is no such error. Moreover, even if the word “securing” was given the meaning advocated for by the appellant, the clause would not protect it since it is not an exclusion clause. Once the appellant assumed the responsibility for securing the vessel, it was bound to secure it properly.
Damage to Ship during Lifting Operation - Bailment - Presumption of Liability - Exclusion Clauses
Capitaines Propriétaires de la Gaspésie (A.C.P.G.) Inc. v. Pêcheries Guy Laflamme Inc., 2014 FC 456 2015 CAF 78
Précis: The Federal Court and Federal Court of Appeal gave effect to an exclusion clause in a ship lifting contract notwithstanding that the clause did not specifically refer to negligence.
Facts: The fishing boat "Myrana I" was damaged when it was dropped into the water while being lifted with a crane. The ship owner demanded damages in excess of $550,000 from the crane operator and its employee operating the crane at the time. The crane operator and employee denied liability and further asserted that they were protected by an exclusion clause in the contract. The crane operator, its employee and their insurer commenced this action for a declaration that they had no liability. The defendant ship owner counter-claimed for damages to the ship. The exclusion clause in the contract provided "I accept liability for any risk resulting from the towage, docking, wintering and/or launching of this vessel, and I release the Owner of this dry dock and its Operator, ____, from any civil liability resulting from these associated operations or handling".
At first instance (2014 FC 456), the trial Judge held the plaintiffs had failed to rebut the presumption that they were liable as bailees. However, the Judge further held the exclusion clause was broad enough in scope to cover any negligence. The Judge relied on Tercon Contractors v British Columbia, 2010 SCC 4, where Justice Binnie said "There is nothing inherently unreasonable about exclusion clauses..." and added that there are many valid reasons for contracting parties to use exemption clauses, most notable to allocate risks. The trial Judge further held that the clause was neither abusive nor draconian and that the defendant should have been aware of it as the contract was sent to the defendant on at least 36 prior occasions. The defendant appealed.
Decision: Appeal dismissed.
Held: The interpretation of a contract is a question of mixed fact and law and is reviewable only if the trial Judge made a palpable and overriding error. The same is true of the Judge’s conclusion as to whether the exclusion clause was harsh or unconscionable. The defendant argues that the clause does not expressly exclude negligence and the trial Judge failed to read it contra proferentem. However, the clause in question releases the plaintiff from “any civil liability” and it is clear that the term “liability” is synonymous with negligence. There was no ambiguity in the clause so as to attract the contra proferentem doctrine. In addition, the Judge’s finding that the defendant was bound by the exclusion clause is supported by the evidence as is his conclusion that the clause was not abusive or draconian. “Allocating the risks makes it possible to avoid disputes and the great expenses these entail.”
Liability for Repair Costs in Excess of Quotation - Liability of Repairer for Damage During Launching
Ehler Marine & Industrial Service Co. v. M/V Pacific Yellowfin (Ship), 2015 FC 324
Précis: A repair quote was held to be an agreed price when given in response to a request for a "reasonably accurate estimate" and "hard" numbers.
Facts: The plaintiff ship repairer provided an estimate to re-fasten and re-caulk the defendant’s wooden vessel pursuant to a request for proposals that asked for a “reasonably accurate estimate” for 15 seams below the waterline. The estimate included some items that were quoted on the basis of the actual time and materials to be expended and other items, including the re-caulking and re-fastening, that were not so qualified. The final costs for the re-caulking and re-fastening exceeded the estimate. Additionally, when the vessel arrived at the repair yard it was discovered that there were more than 15 seams below the waterline that required re-caulking and re-fastening. It was agreed that the additional seams would be repaired but the plaintiff thought the agreement was to proceed on a time and materials basis whereas the defendant thought there would be proration of the original contract price. Finally, during the launching of the vessel, the vessel was damaged. The plaintiff commenced proceedings to recover the actual amount of the re-caulking and re-fastening and the defendant counterclaimed for the damage caused to the vessel during launching.
Decision: Judgment for the plaintiff, in part. The counterclaim is dismissed.
Held: The plaintiff argues the estimate was only a “best guess” and that it was entitled to charge on the basis of actual time and materials expended on the repair. The defendant argues that the estimate was an agreed amount that would be charged. The proper test is not what the parties subjectively believed the terms of the contract to be but what a reasonable person would understand the contract to be. Such a person would conclude in the circumstances that the estimate was an agreed price. The fact that the estimate did not qualify the disputed items as being billed on a time and materials basis favours this interpretation as does the fact that the defendant asked for a “reasonably accurate estimate” and “hard numbers”. In relation to the additional seams, a reasonable person would similarly conclude that the price for the additional work would be prorated based on the original contract. With respect to the counterclaim, the evidence of the damage is incomplete and contradictory and the counterclaim is therefore dismissed.
Fire Damage to Vessel While Being Repaired – Applicable Law - Direct Action Against Insurer – Liability of Repairer
Langlois v. Great American Insurance Company, 2015 QCCS 791
Précis: The Quebec Superior Court held that there was a right of direct action against the insurer of a ship repair yard under the provisions of the Civil Code.
Facts: The plaintiff’s fishing boat was damaged by fire while it was being repaired/welded at a ship yard. The plaintiff’s boat was insured by the defendant, GAIC, who was also the liability insurer of the shipyard. GAIC assigned an adjuster who obtained several quotes to repair the damage caused by the fire but no agreement was reached between the plaintiff and GAIC as to the extent of the damage and necessary repairs. The plaintiff later hired his own surveyor whose estimate of damage and repairs was approximately twice that of GAIC’s adjuster. GAIC then retained another surveyor for yet another estimate and submitted a cheque to the plaintiff in the amount of $781,000 “as full and final payment”. The plaintiff commenced this action against both GAIC and the shipyard.
Decision: Judgment for the plaintiff.
Held: The first issue is whether the applicable law is Canadian maritime law or the Quebec Civil Code. As was held in Triglav v. Terrasses Jewellers Inc,  1 SCR 283, Canadian maritime law applies to contracts of marine insurance and, therefore, the Civil Code is not applicable to that part of the claim against GAIC. However, as to the claim against the ship yard and GAIC as its insurer, the applicable law is the Civil Code because the repairs were being done on dry land and there were no navigation or maritime operations involved. The plaintiffs therefore have a direct cause of action against GAIC as the liability insurer of the shipyard pursuant to articles 2501 & 2628 of the Civil Code. With respect to the amount the plaintiff is entitled from GAIC under his own insurance policy, the plaintiff is entitled to an additional $69,000. With respect to the liability claim, there is a strong presumption that the shipyard is liable given the fire started while welding was being done and this presumption has not been rebutted.
Comment: (1) This decision is reported in French only and the summary is based upon a translation that may be imperfect. (2) The holding that the liability claim against the ship yard is not subject to Canadian maritime law is doubtful. Since Wire Rope Industries v B.C. Marine Shipbuilders,  1 S.C.R. 363, there has been no doubt that contracts and torts involving ship repair are subject to Canadian maritime law. However, this would not necessarily mean that articles 2501 and 2628 of the Civil Code would not apply. They may well apply incidentally pursuant to the double aspect doctrine.
Construction Mortgage - Entitlement of Purchaser/Mortgagee to Return of Advances – Interpretation of Contracts – Standard of Review on Appeal
Offshore Interiors Inc. v. Worldspan Marine Inc., 2013 FC 1266 2015 FCA 46
Précis: The Federal Court of Appeal dismissed an appeal and confirmed the trial judgment holding that a Builder's mortgage secured advances made by the purchaser and that the builder was under an obligation to repay those advances.
Facts: Pursuant to a vessel construction agreement the builder was to retain title to the vessel until delivery to the purchaser and the purchaser was to make periodic payments in the nature of advances to the builder. The advances were to be secured by a continuing first party security interest supported by a mortgage. A current account Builder’s Mortgage was filed in the ship registry in favour of the purchaser. Disputes arose during the course of construction of the vessel with the result that construction ceased and the builder filed a petition in the British Columbia Supreme Court under the Companies Creditors’ Arrangement Act. The plaintiff, a supplier of goods and services to the vessel, also commenced these proceedings in the Federal Court for unpaid invoices and had the vessel arrested. In the B.C. Supreme Court action an order was pronounced on 22 July 2011 providing that any claimant with an in rem claim against the vessel could pursue that claim in the Federal Court. The Federal Court issued an order on 29 August 2011 establishing a process for the filing of in rem claims against the vessel which included a requirement that any claim be described with sufficient particulars so the court could establish whether it was a proper in rem claim and determine its priority. A claim was filed in the Federal Court by the purchaser/mortgagee for repayment of the funds advanced. The plaintiff brought this application for a declaration that the mortgage did not create a lien or charge on the vessel other than to secure delivery of the vessel. If correct, the effect would be that the funds advanced by the purchaser/mortgagee would be excluded from its claim.
At first instance (2013 FC 221), the Prothonotary granted the declaration sought. The Prothonotary said the question of whether there was an obligation under the mortgage that funds advanced be repaid depended on the construction of the vessel construction agreement and mortgage. The Prothonotary held there was no express provision requiring repayment of funds advanced for the construction of the vessel. Despite the mortgage stating it was a “current account” mortgage, the Prothonotary found no evidence that, in fact, an account current was created by the vessel construction agreement which allowed the builder to retain all advances. The Prothonotary found the parties contemplated that all monies advanced would be used in the construction of the vessel and not exist as a fund. The purchaser/mortgagee appealed.
On appeal (2013 FC 1266), the appeal Judge allowed the appeal holding:
(1) The Prothonotary correctly recognized that he was to determine the intent of the parties based on the language of the contract documents and correctly identified the principles of interpretation but failed to properly apply those principles. The purpose of the mortgage was to provide a continuing security interest in the vessel to secure the advances. It was intended to be effective as against third parties and was not limited to securing the delivery of the Vessel. Although the documents did not state the advances were a loan, they did state they would be made “on account”.
(2) Although there was no express requirement for repayment of advances, considering the agreements as a whole and within the factual matrix, there was an implied obligation to repay the advances. With respect to the Prothonotary’s reasoning that the funds advanced were not a loan because they would be used in the construction and not available as a fund, the purpose of any loan is to permit the borrower to spend the monies lent. A commercial absurdity would result if the advanced funds could not be used for the intended purpose and instead had to be set aside to create a fund. The sums advanced comprised the “account current” secured by the mortgage, even in the absence of an explicit reference in the construction agreement. It was not necessary to specify the amount owing or the time of repayment in the mortgage when there was sufficient detail in the construction agreement. It is also difficult to see how the mortgage could be intended to only secure the delivery of the vessel when the construction agreement expressly states it is to create a first priority security interest to secure advances.
(3) In addition, the purchaser has a claim pursuant to s. 22(2) (n) of the Federal Courts Act (which addresses claims arising out of the construction, repair or equipping of a ship), which can be addressed at the priorities hearing.
The plaintiff appealed to the Federal Court of Appeal. There were four issues on appeal, namely:
(1) What is the correct standard of review?
(2) Was the appeal Judge plainly wrong in her interpretation of the agreements?
(3) Was the appeal Judge plainly wrong in concluding there was an implied repayment obligation in the construction agreement?
(4) Did the appeal Judge err in law in her consideration of s. 22(2)(n) of the Federal Courts Act?
Decision: Appeal Dismissed.
(1) The standard of review enunciated in Bristol-Myers Squibb Co. v. Apotex Inc., 2011 FCA 34, applies to issues 2 and 3, i.e. whether the appeal Judge was plainly wrong in her interpretation of the agreements and in concluding there was a repayment obligation. The test is whether the appeal Judge “had no grounds to interfere with the Prothonotary’s decision or, in the event such grounds existed, if the Judge’s decision was arrived at on a wrong basis or was plainly wrong”. The proper test for issue 4, is whether the appeal Judge was correct in her conclusions with respect to s. 22(2)(n) of the Federal Courts Act.
(2) In Sattva Corp. v. Creston Moly Corp., 2014 SCC 53, the Supreme Court set out the guiding principles for contractual interpretation to determine the intent of the parties and the scope of their understanding. The contract is to be read as a whole giving the words their ordinary and grammatical meaning consistent with the surrounding circumstances. However, the surrounding circumstances “must never be allowed to overwhelm the words of that agreement” and must consist of “objective evidence of the background and facts”. The court should interpret the contract in accord with sound commercial principles and good business sense and avoid commercial absurdity. The appeal Judge was aware of these principles and applied them in construing the documents. After proper consideration she held the intent of the parties was to secure the advances which were in the nature of a loan. She did not imply a term of repayment. The Prothonotary’s finding that no “account current” was created because the advances were to be used in the vessel construction and not kept in a fund does not withstand scrutiny. It ignores the express wording in the Builder’s Mortgage which refers to an “account current” and would render the mortgage of no force or effect to secure delivery. Moreover, it ignores the essential promise of a builder’s mortgage which is to pay the mortgagee. While the documents may be unclear as to when and how advances are to be repaid, this is not fatal.
(3) The appeal Judge’s conclusion that there was an implied repayment term was an alternative conclusion. As she was correct in her interpretation, this issue need not be considered.
(4) There is no doubt the appeal Judge was correct in concluding that the purchaser had a claim falling within s. 22(2) (n) of the Federal Courts Act. This section provides that the Federal Court has jurisdiction over “any claim arising out of a contract relating to the construction, repair or equipping of a ship”.
Damage to Vessel Caused by Grinding Dust – Liability – Practice - Summary Judgment – Motion for Non-Suit – Joint and Several Liability
0871768 B.C. Ltd. v. Aestival (Vessel), 2014 FC1047
Précis: One of two defendants was found liable for damage caused to an adjacent vessel by grinding dust. As the damages were separate and divisible, it was not a case of joint and several liability.
Facts: The plaintiff commenced these proceedings for damage allegedly caused to his vessel by grinding dust, including metal particles, that spread from the defendant vessel. The plaintiff’s vessel had been on blocks next to the defendant vessel while grinding work was being carried out. The defendants were the owner of the defendant vessel and a repairer hired by that owner. The defendants denied liability. Shortly before trial the defendant owner brought an application for non-suit and/or no-evidence and, at the trial brought a motion to file affidavit evidence.
Decision: Judgment for the plaintiff against the defendant owner but not the repairer.
Held: With respect to the non-suit motion, there is doubt as to whether such a motion is compatible with a motion for summary judgment or summary trial but, in any event, the defendant owner did not comply with the time requirements for bringing such a motion. Moreover, even if the motion for non-suit had been properly brought, it would not succeed as the plaintiff has established a prima facie case. The defendant owner says there is no causal link between the grinding and the damage done to the plaintiff’s vessel but there is some evidence supporting causation and this is sufficient to dispose of the non-suit motion.
The defendant owner’s motion to file affidavit evidence is also dismissed. Non-suit rules require a defendant to elect whether to call evidence. If they elect to call no evidence, the non-suit motion is decided immediately and the defendant forfeits the right to call evidence.
The plaintiff has established the four elements necessary to support its claim against the defendant owner, those elements being: a duty of care; breach of the standard of care, causation and compensable damage. On the evidence there was a duty of care. The vessels were “neighbours” in close physical proximity and the defendants knew or should have known that the defendant vessel should be tarped before sanding or grinding. It was reasonably foreseeable that failure to contain debris would cause damage to other vessels. The standard of care is that expected of an ordinary, reasonable and prudent person in the same circumstances as the defendant. Grinding without a tarp or other containment mechanism was in breach of the standard of care. However, the evidence establishes that only the defendant owner was carrying out grinding on 26 July 2012 and only the defendant repairer was carrying out the grinding on 27 July 2012. Accordingly, the defendant owner breached the standard of care on 26 July and the defendant repairer breached the standard on 27 July. With respect to causation, the proper test is the “but for” test. The plaintiff must prove that “but for” the negligence of the defendant the damage would not have occurred. This burden has been met but, because the damages caused by the 26 July grinding are divisible and separate from the damages caused by the 27 July grinding, this is not a case of joint and several liability. Each defendant is liable only for the damages caused by their own negligent acts. The defendant owner is liable for the damage caused as a result of the grinding that occurred on 26 July. The defendant repairer would have been liable for any damage caused on 27 July but no damage was caused to the plaintiff’s vessel that day.
Liens and Mortgages - International Insolvencies - Ranking of Administration Charge - CCAA Trumps Canadian Maritime Law
Caterpillar Financial Services Corporation v. Boale Wood & Company, 2013 BCSC 1593 2014 BCCA 419
Précis: The British Columbia Court of Appeal confirmed the trial judgment holding that an administrative charge under the Companies Creditors Arrangement Act applied to the proceeds from the sale of a vessel and had priority over a mortgage.
Facts: The petitioner, Worldspan Marine Inc., was a builder of custom yachts who had entered into a contract for the construction of a 144’ yacht. During the course of construction, a dispute arose with the purchaser. As a result, the purchaser ceased making payments and the petitioner sought the protection of the Companies Creditors Arrangement Act (“CCAA”). A Monitor was appointed by court order under that act and a stay of all proceedings against the petitioner was ordered. The court’s initial order included an “Administration Charge” to secure the fees and expenses of the Monitor which were to rank in priority to all other security in the “Non-Vessel Property”. “Non-Vessel Property” was all property of the petitioner other than the 144’ yacht. (In rem claims against the yacht were being addressed in the Federal Court.) Caterpillar held a mortgage over another vessel owned by the petitioner, the “A129”, which was located in the State of Washington. Caterpillar commenced foreclosure proceedings in Washington and had the “A129” arrested there. The U.S. Bankruptcy Court subsequently granted a “Recognition Order”, at the request of the petitioner, under Chapter 15 of the U.S. Bankruptcy Code recognizing the British Columbia CCAA proceedings as the “Foreign Main Proceeding” and staying any execution against the assets of Worldspan located in the United States. The “A129” was subsequently released from arrest and sold with the proceeds to be dealt with in the CCAA proceedings. The sale order provided that Caterpillar was to have a first priority to the proceeds but subject to the potential claim of the Monitor for “Administrative Charges”. Caterpillar applied for an order declaring that the “Administration Charges” did not attach to the proceeds from the sale of the “A129” or, alternatively, that Caterpillar’s claim under its mortgage had priority to the Administrative Charge. Caterpillar argued, inter alia, that under Canadian maritime law the “Administrative Charge” was a statutory lien which ranks below the mortgage.
At first instance (reported at 2013 BCSC 1593), the Judge held that the “super priority” given by s. 11.52 of the CCAA trumps the ranking of claims in rem under Canadian maritime law and that the “Administrative Charge” therefore had priority over the Caterpillar mortgage. Caterpillar appealed.
Decision: Appeal dismissed.
Held: There are two different issues that are relevant: first, did the “Administrative Charge” attach to the “A129” in rem; and second, what is the status of the charge in light of both the CCAA proceedings and the “Recognition Order”. With respect to the first issue, there is nothing in the CCAA to suggest that it has extra-territorial application to in rem property outside of Canada. Neither the CCAA nor the orders made in this case support a conclusion that the “Administrative Charge” attached in rem to the “A129”. With respect to the second issue, the “Administrative Charge” gave priority over all creditors on “Non-Vessel Property” including the proceeds. The order creating the “Administrative Charge” was made in accordance with the CCAA and the “Recognition Order” of the U.S. Bankruptcy Court did not purport to limit in any way the process of realization to be undertaken under the CCAA. Once the Canadian proceedings were recognized as the foreign main proceeding, it was entirely for the British Columbia Supreme Court to determine priority. Thus, although the “Administrative Charge” did not attach in rem, it does attach to the proceeds from the sale of the “A129” and gives the Monitor priority.
Marine Insurance - Ship Repairer's Legal Liability - Application of Provincial Laws - "Faulty Design" Exception - Notice of Loss Requirement
Verreault Navigation Inc. v. The Continental Casualty Company, 2014 QCCS 2879
Précis: The Quebec Superior Court held that a claim against underwriters for indemnity under ship repairer liability policies was governed by Canadian maritime law and not the civil law of Quebec and where the court further held that the underwriters were not liable based on a “faulty design” exclusion in the policy and a notice/reporting provision.
Facts: The plaintiff ship repairer sued its primary liability underwriter (Continental) and its excess liability underwriter (Lombard Insurance Company of Canada) to recover costs incurred to correct certain deficiencies in the heating, ventilating and air conditioning (HVAC) system of a passenger ferry it had repaired for the Government of Canada. The actual defective work had been done by a subcontractor of the plaintiff. The underwriters denied liability on two grounds: first, that the policies contained a "faulty design" exception which applied in the circumstances; and, second, that both policies excluded losses not discovered and reported within one year of delivery of the vessel to the customer.
Decision: Action dismissed.
Held: The claim is subject to uniform Canadian maritime law and not Quebec civil law. The "faulty design" exception of the two policies applies since the HVAC equipment installed on the ferry was inadequate and defective. At the time of its installation, the equipment did not comply with applicable state-of-the-art standards for such systems on passenger vessels operating in Canada. In addition, the notice of loss was given more than 12 months after the redelivery the ferry to the Government, contrary to the requirements of both policies. This was a violation of the assured's obligation of utmost good faith under s. 20 of the Marine Insurance Act.
Jurisdiction - Sale of Property not in Canada
SDV Logistiques (Canada) Inc. v. Dieselgenset Type 8M 25, Engine No. 45085 EX the Barge Andrea, 2013 FC 671
Précis: The court held that it had no jurisdiction to sell property that was not located in Canada.
The plaintiff, at the request of a ship builder, arranged for the pick-up and storage of generators at the Port of Hamburg. The generators were intended to be installed in two vessels being built by the builder. The builder originally paid the storage charges but ran into financial difficulties and ceased to make payments leaving the plaintiff with a debt owing of in excess of $200,000. The plaintiff brought these proceedings in personam against the successor of the builder and the mortgagee of the vessels and also brought in rem proceedings against the generators and other cargo. A Warrant of Arrest was issued but was never served with the result that the action proceeded solely as an in personam action. The plaintiff, nevertheless, brought a motion pursuant to Rule 379 for an order that the generators be sold. At first instance, the Prothonotary refused the order. The plaintiff appealed.
Decision: Appeal dismissed.
Held: Rule 379 cannot be applied because the generators are not and have never been in Canada and there is no evidence the generators are likely to deteriorate. Further, for the court to order the sale of property outside of the jurisdiction, there must be some enabling statutory provision and there is none. Consequently, the court has no jurisdiction to issue the order requested.
Priorities - Whether s.139 MLA applies to construction of ships? - Meaning of Foreign Ship - Whether personal liability of owner required?
Comfact Corporation v. Hull 717, 2012 FC 1161 2013 FCA 93
Précis: The Federal Court of Appeal agreed with the trial Judge that s. 139 of the MLA did not give a lien to a subcontractor who supplied manpower to construct a vessel.
The builder of the defendant ship became insolvent and went under the Companies Creditors Arrangement Act while in the course of constructing the ship. The plaintiff was a subcontractor of the builder who had supplied welding services to the ship but had not been paid. The ship was being built for a Norwegian corporation but was recorded in the Canadian registry. The plaintiff claimed to have a maritime lien pursuant to s. 139 of the Marine Liability Act. The mortgagee of the ship (who defended the in rem action) denied the existence of a lien. The trial Judge agreed with the mortgagee and held that the plaintiff did not have a lien. In his reasons (at 2012 FC 1161) the trial Judge noted that s. 139 of the Marine Liability Act (“MLA”) grants a maritime lien against a foreign vessel in respect of claims that arise out of the supply of goods, materials or services to the foreign vessel or out of a contract relating to the repair or equipping of the foreign vessel. He further noted that s. 139 does not expressly include ship construction. He said, as a matter of statutory construction, that the omission of a reference to ship construction in s. 139 and its inclusion in s.22(2)(n) of the Federal Courts Act gave rise to a presumption that the omission is deliberate. Further, although interesting issues were raised as to whether s. 139 of the MLA did away with the requirement that the liability of the owner be engaged before an action in rem could be maintained, the trial Judge said those issues would have to be decided another day. The plaintiff appealed.
Decision: Appeal dismissed.
Held: The court is not persuaded that providing manpower to a shipbuilder for the construction of a vessel amounts to the provision of services within the meaning of s. 139 of the MLA.
Ship Building - Insolvency - Stay of Proceedings
Worldspan Marine Inc. (Re) v. , 2011 BCSC 1758
The issue in this case was whether a stay of proceedings previously granted under the Companies Creditors Arrangement Act to allow an insolvent ship builder to refinance should be continued. The intended buyer of the partially constructed yacht opposed the builder’s application to continue the stay. The buyer wanted to lift the stay so that he could appoint a receiver for the vessel and exercise his remedies. The Court noted that a stay should only be granted or continued when it would further the objective of facilitating a plan of arrangement between the debtor and its creditors. Other factors included the debtor’s progress towards a restructuring and the relative prejudice. The Court reviewed the various steps that had been taken and ultimately granted the continuation of the stay noting that “at this stage, a CCAA restructuring still offers the best option for all of the stakeholders”.
Ship Building - Default Judgement
Offshore Interiors Inc. v. Worldspan Marine Inc., 2011 FC 904
This was an appeal from an order of a Prothonotary in which the Prothonotary refused to allow the defendant to file a defence out of time and gave default judgement. The underlying action was a claim by a cabinet maker for the costs of cabinets installed on a yacht. The Appeal Judge considered the issues anew and found that there was a contract between the parties the important terms of which were clear. The work was done, invoices were sent but the invoices were not paid. The Appeal Judge found that the defendants offered no evidence to contradict the existence of a contract. In result, the Prothonotary’s order was affirmed.
Ship building - Insolvency -Stays of Proceedings
Sargeant v. Worldspan Marine Inc., 2011 BCSC 767
This matter concerned a partially constructed yacht, an insolvent builder and many unhappy creditors. Some of the creditors had commenced proceedings in the Federal Court and obtained either arrest warrants against the vessel or caveats. The builder brought this application in the British Columbia Supreme Court under the Companies Creditors ArrangementAct seeking, inter alia, a stay of the Federal Court proceedings so that it could develop a viable restructuring plan that would allow it to complete the construction of the yacht. Although the Court granted much of the relief requested, including a general stay of all proceedings, the Court refused to specifically stay the Federal Court proceedings “as a matter of comity”. Instead, the Order of the Court included a specific request to the Federal Court for its assistance to recognize the stay. The Court noted that the British Columbia Supreme Court and the Federal Court “working cooperatively and each exercising its own jurisdiction should be able to avoid any insuperable conflicts between their respective jurisdictions”.
Ship Building - Negligence - Damages
Van Duren v. Chandler Marine Inc., 2010 NSSC 139
The plaintiffs contracted with the defendant for the building of a vessel. Upon completion, the vessel was sailed from Dartmouth, Nova Scotia to the island of St. Eustatius in the Netherlands Antilles. The evidence established the vessel experienced a multitude of problems during the voyage and the plaintiffs brought this action in contract and negligence against the shipbuilder. The plaintiffs‟ first argument was that it was not economical to repair the vessel and presented expert evidence to this effect. The Court did not accept the expert evidence. The Court did, however, find that the defendant had breached the building contract and was negligent. The damages included a claim for mental distress which was allowed in the amount of $15,000. The plaintiffs‟ claim for lost income was disallowed on the grounds, inter alia, that it was not foreseeable.
Ship Repair - Repair Costs
Lindsay v. Spiller, 2009 BCSC 575
This was a dispute over the repair of a motor yacht. The repairer claimed for repair costs, storage and other costs. The boat owner alleged that some of the work and expenses were incurred without his authority and that other amounts were not properly itemized and were not reasonable. The Court extensively reviewed the evidence and agreed, in part, with the boat owner that some charges were not authorized and others were not properly itemized or reasonable. In result, however, the repairer did recover a substantial portion of his claim.