In Rem Actions and Arrest - Case Summaries
The database contains 78 case summaries relating to In Rem Actions and Arrest. 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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Arrest - Charter - Reasonably Best Arguable Case - Security for Costs - London Arbitration
Norstar Shipping and Trading Ltd. v. The Rosy (Ship), 2019 FC 1572
Précis: The Federal Court set bail for release of a ship and ordered security for costs relating to a charter dispute that was subject to London Arbitration.
Facts: This was a motion to set bail. The defendant’s ship was chartered by the plaintiff for a period of six months with an option to extend for a further six months plus or minus 15 days. The plaintiff argued that the defendant repudiated the charter. The ship was arrested and security was posted by a letter of undertaking. The actual factual matters in dispute regarding the charter were to be resolved by London arbitration and not by the Federal Court. The defendant sought to fix bail at CAD $328,535 plus 30% for interests and costs, and the plaintiff argued bail should be fixed at U.S. $635,870 plus 30% interests and costs.
Decision: Bail set at U.S. $635,870 plus 30% (CAD $1,101,733.10)
Held: The general rule for determining the amount of bail required to obtain the release of an arrested vessel is the arresting party's reasonably best arguable case, plus interests and costs, limited to the value of the arrested vessel. A court can reduce the amount claimed where circumstances are quite extraordinary or there are special circumstances. The Court found nothing on record that was quite extraordinary or special that merited departure from the general rule, or that the amount of security sought was exorbitant or the power of arrest was used in an oppressive fashion. The plaintiff’s supporting affidavit laid out its best reasonably arguable case. Accordingly the Court set bail at the amount claimed by the plaintiff in its statement of claim plus 30% uplift. As the plaintiff was a non-Canadian entity it was ordered to pay into Court security for costs at 12% of the bail amount pursuant to Rule 416(1).
Bail - Arrest - Contractual Dispute Giving Rise to In Rem Remedy
Provincial Holdings Limited / Gestion Provincial Limitée v. Océan Nouveau-brunswick Inc., 2019 FC 1567
Précis: The Federal Court refused to set aside an arrest warrant and set bail for the arrested property, a floating dry dock.
Facts: In this motion the defendant sought to quash the arrest warrant, set aside the arrest and release the in rem defendant without bail, or alternatively set bail so as to secure its release. The plaintiff entered into a contract with the defendant for the construction of a floating dry dock on 24 October 2016. A third party was also party to the build contract. The contract called for the dock to be built at a shipyard located in New Brunswick operated by the defendant, to be worked on by New Brunswick workers and also contained an arbitration clause. Subject to some minor finishing work the dock was 95% complete and was about to be put in the water for sea trials. The defendant wanted to tow the dock to a place in Quebec where it proposed to carry out the finishing work after sea trials. The plaintiff contested that the work had to be completed by New Brunswick workers and could not be done outside of the New Brunswick shipyard save for any portion which was not “reasonably possible” to be performed there, all of which being reflected in the build contract and forming an integral part thereof. The plaintiff then filed in the Federal Court for the immediate possession of the dock and arrest of same. Specifically, the plaintiff sought a declaration of a right to some form or concept of possession in the dock pursuant to the build contract that allows it to require the dock remain at the New Brunswick yard for the completion of the finishing work. The defendant contested the remedy chosen by the plaintiff to sue and secure its claim.
Decision Motion granted in part; bail set at $260,000.00
Held: The Court limited its ruling on this motion to whether the arrest warrant should be quashed and whether this is an appropriate case to set bail as the principal dispute (ie. whether the finishing work was to be completed in New Brunswick) was to be determined by arbitration per the contract. The Court held that a breach of obligation in a contract, although personal, can be pursued in rem provided the court has jurisdiction to entertain the claim. Here, the jurisdiction stemmed from s. 22(2)(a) FCA. As this was not a motion to strike the in rem claim, the Court need not determine the merits of the plaintiff’s assertion to the possessory claim. The Court rejected the defendant’s argument that with 95% of the $12 million project already completed the plaintiff was “using a sledge hammer to kill a fly”, holding that it is entirely proper to use the procedural remedy of an arrest to secure its contractual rights regardless of the quantification of those rights. On the evidence before the Court there was no justification for setting aside the arrest without bail, and bail was therefore set at $260,000 to take into account interest and costs, including costs of arbitration.
Sinking and Discharge of Oil - Summary Judgment - Reasonable Costs
Canada (Ship-Source Oil Pollution Fund) v. Dodds, 2019 FC 146
Précis: The Federal Court granted summary judgment in favour of the plaintiff against the registered owner defendant, despite the vessel being under arrest at the time of sinking.
Facts: The plaintiff brought this subrogated, summary trial action seeking judgment in the amount of $839,863.02 for, inter alia, minimizing and preventing pollution damage from the sinking and discharge of oil from the ship “Farley Mowatt” between 24 June 2015 and 5 August 2015. The plaintiff contended that under Part 6 of the Marine Liability Act, the defendant was at all times the unregistered owner of the ship. The defendant argued that access to the wharf where the ship was located was denied by the Port Authority, claiming that the Port Authority was the last person in immediate possession and control of the ship. The defendant did not file any affidavit evidence, with the plaintiff filing an affidavit with exhibits outlining the clean-up steps taken by the Canadian Coast Guard to contain the spill, and invoices for that work. A memorandum of fact and law was also filed by the plaintiff, which referenced Part 6 of the Marine Liability Act. The plaintiff relied on an earlier decision of the Federal Court which concerned the ship in question, where the defendant was named as owner of the ship. The plaintiff contended on that basis that the defendant was the owner of the ship at the time of sinking and pollution.
Decision Judgment for the plaintiff.
Held: The defendant made only oral submissions and tendered no evidence by way of affidavit, and did not provide any evidence to the contrary to refuse the amount claimed by the plaintiff. No cross examination of the affidavit evidence or exhibits was made by the defendant. The Court looked to Rule 483 of the Federal Court Rules which provides that arrest of a ship does not affect an owner’s responsibility for the ship nor possession of the ship. The Court then noted s.91 of the Marine Liability Act for the definition of “owner” and also s. 43 of the Canada Shipping Act to determine that the defendant was the owner of the ship. The Court then went on to consider whether there was a genuine issue for trial arising from the amount claimed by the plaintiff, holding that the plaintiff had shown there was no genuine issue for trial for the amount claimed.
Stay - Jurisdiction - Rem Proceedings - Turbines - Vessel
OpenHydro Technology Canada Ltd. (Re) v. , 2018 NSSC 283
Précis: A provincial court may defer to the Federal Court to adjudicate existing in rem claims against a bankrupt.
Facts: While under Bankruptcy and Insolvency Act proceedings, on 23 October 2018 Openhydro requested that the BIA proceedings be converted to the Companies’ Creditors Arrangement Act with the issuance of an Initial Order and a Charging Order, seeking a 30 day stay of proceedings. The stay was opposed by creditors which had preexisting Federal Court actions against the Scotia Tide, a vessel owned by Openhydro, and an offshore turbine control center owned by Openhydro, on the ground that if there was to be a stay it should be decided by the Federal Court and not the Nova Scotia Supreme Court. Those opposed creditors did not object to the issuance of the Initial Order or Charging Order except with respect to the scope and application of the proposed stay of proceedings, which is part of the CCAA process to allow arrangement of the insolvent company to creditors.
Decision: Initial Order and Charging Order granted, subject to decision on the scope of the temporary stay.
Held: In reliance on the S.C.C. decisions of Holt Cargo Systems and Antwerp Bulkcarriers, the Court found that the Federal Court continues to have jurisdiction over the in rem claims advanced by the respondents, despite the on-going CCAA proceedings. In doing so, the Court looked at the decision in Sargeant III  BCSC 767 to reconcile CCAA proceedings with Federal Court actions, deciding that each court should exercise their respective jurisdictions cooperatively. Key to this was Federal Court in rem proceedings pre-dated the CCAA stay and Initial Order request. Accordingly, the Court found that the in rem proceedings were exempt from the stay created by the Initial Order and requested the Federal Court for aid and recognition.
Court Order Compliance - Strike Claim - Scheduling Orders - Dismiss the Matter for Delay
Avic Catic Beijing Cl. Ltd. v. Hong Xing (Vessel), 2018 FC 774
Précis: The Federal Court dismissed the third party's motion to strike the plaintiffs' statement of claim on the basis of delay in the prosecution of their claim, and ordered the matter to proceed pursuant to mandatory scheduling orders.
Summary not yet available.
Judicial Sale - Early Distribution of Proceeds - Best Arguable Case - Interest
Saam Smit v. The Hanjin Vienna, 2017 FC 745
Précis: The Federal Court permitted partial payment out of proceeds from the sale of a vessel after assessing the best reasonable cases of the various claimants.
Facts: As a consequence of the well publicized international insolvency of Hanjin Shipping Co. Ltd., one of its chartered vessels, the “Hanjin Vienna”, was arrested and later sold by order of the Federal Court for the sum of US$6,676,000. Her bunkers were sold for an additional US$939,000. Various claims were filed against against the vessel which totalled approximately US$3,600,000. In view of the fact that the proceeds of sales exceeded the claims, the former owner of the vessel moved for payment out of the surplus funds to it.
Decision: Motion granted, in part.
Held: The first issue to be determined is whether the proceeds from the sale of the bunkers should be taken into account in determining if there is a surplus. This depends on the ownership of the bunkers at the time of sale but the evidence of ownership is too unclear at the present time. Accordingly, the proceeds from the sale of the bunkers shall not be included in determining if there is a surplus.
All of the parties are agreed that sufficient funds must be retained in Court to secure the best reasonably arguable cases of the various claimants taking into account principal, interest and costs. Taking into account that as a simple rule of thumb a 30% markup is applied to the principal amount of a claim to take into account interest and costs, and further taking into account that interest in admiralty matters is a function of damages and is left to the discretion of the court, the owners are entitled to a surplus of US$1,855,908.
Release from Arrest - Pending Appeal
Platypus Marine Inc. v. TATU (Ship), 2016 FC 1095
Précis: The Federal Court ordered that a Caveat Release be set aside and released the defendant ship from arrest notwithstanding an impending appeal.
Summary not yet available
Arrest Pending Appeal - Jurisdiction of Court of Appeal
Platypus Marine Inc. v. The ship Tatu, 2016 FCA 224
Précis: The Federal Court of Appeal held that it did not have the original jurisdiction to order the arrest, the continuance of an arrest, or the release of a vessel. That power belongs to the Federal Court.
Summary not yet available
B.C. Admiralty Rules – Arrest – Sale Pendente Lite – Shareholder’s Dispute – Application of PPSA
Avina v. The Ship Sea Senor, 2016 BCSC 749
Précis: The B.C. Supreme Court refused to set aside an arrest but also refused to order the sale of a vessel under arrest pendente lite.
Facts: The plaintiff and defendant purchased a vessel together through a company incorporated by the defendant and of which the defendant was the sole director. Differences arose between the parties leading to the plaintiff’s commencement of this action and the arrest of the vessel. The plaintiff brought this application to sell the vessel pendente lite. The defendant opposed and brought its own application to set aside the arrest.
Decision: Both motions are dismissed.
Held: With respect to the plaintiff’s motion to sell the vessel pendente lite, the plaintiff argues that the vessel is deteriorating and a sale is necessary to halt the deterioration in value. However, the defendant’s evidence is that the vessel is not seriously deteriorating and this evidence is more convincing. Further, the value of the plaintiff’s claim is modest relative to the value of the vessel and it appears the defendant has an arguable defence. In the circumstances, an order for sale is not necessary or expedient.
The defendant argues that the arrest of the vessel should be set aside on the grounds that the dispute between the parties is a shareholder’s dispute and that there is no basis for the exercise of the court’s maritime law jurisdiction. However, Rule 21-2 of the Supreme Court Civil Rules provides that an action in rem may be brought whenever permitted in the Federal Court of Canada. The claim is “with respect to title, possession or ownership of a ship or any part interest therein” within the meaning of s.22(2)(a) of the Federal Courts Act . The claim could have been brought in rem in the Federal Court and is a claim for relief under or by virtue of Canadian maritime law. This is sufficient to dismiss the defendant’s application.
In Rem Actions - Arrest - Change of ownership - Issue Estoppel
Fingad Shipping Ltd. v. Ningbo Arts & Crafts Imp & Exp. Co. Ltd., 2015 FC 851
Précis: The court applied issue estoppel and struck an in rem action on the grounds that a French court had previously determined the owner at the time of the commencement of the action was not the same as at the time the cause of action arose.
Facts: The plaintiffs contracted with the defendant for the construction of several vessels, including the defendant vessel, the “Chemical Aquarius”. The contracts were subsequently cancelled and arbitral proceedings were held. In 2012 the “Chemical Aquarius” was sold by the corporate defendants. In 2013 the plaintiffs obtained arbitral awards against the corporate defendants, substantial portions of which were outstanding. In April 2015 the plaintiffs commenced a proceeding in France to enforce the arbitral awards and had the “Chemical Aquarius” arrested. On 7 May 2015 the French court lifted the arrest of the vessel. On 3 July 2015 the plaintiffs commenced this action in the Federal Court for the amounts outstanding and again arrested the “Chemical Aquarius”. The plaintiffs also commenced a separate application in the Federal Court for recognition and enforcement of the arbitral awards. The defendants then brought this application to strike the statement of claim or, alternatively, to set aside the arrest.
Decision: Application granted. The statement of claim is struck.
Held: To succeed in this application the defendants must show it is “plain and obvious” the statement of claim has no merit. The burden is high and the court should only strike a pleading in the clearest of cases. The facts pleaded are to be taken as true but the legal conclusions that are alleged to flow from such facts are not entitled to the same presumption. The defendants argue that the owner of the “Chemical Aquarius” at the time this action was commenced was different from the owner at the time of the events giving rise to the action and, therefore, there is no right of action in rem. In particular, the defendants argue that this issue was determined by the French court in a decision that gives rise to issue estoppel. The three pre-conditons for issue estoppel are: (1) the same question has been decided; (2) the judicial decision that creates the estoppel is final; and (3) the parties are the same in both actions. Conditions 2 and 3 are not disputed and the only condition at issue here is whether the French court decided the same issue. Although the French court was dealing with the 1952 Arrest Convention, the central issue in that decision was the same as the central issue in the present motion, namely, whether the ownership of the “Chemical Aquarius” had changed. The French court held the vessel could not be arrested because of the change in ownership. The issue was considered in full and the decision was final. The plaintiffs now say they have new evidence that was not considered by the French court. To allow new evidence would “permit parties to gut issue estoppel of any substantial meaning”. Accordingly, the conditions for issue estoppel are satisfied.
Arrest of Cargo by Unpaid Seller Set Aside - Insolvency of Buyer - s. 69 Bankruptcy Act Stays - Jurisdiction of Federal Court
LF Centennial Pte. Ltd. v. TRLU7228664 et al (Containers), 2015 FC 214
Précis: An in rem plaintiff has no right to commence proceedings and arrest in Federal Court when there are ongoing insolvency proceedings in a provincial superior court and an outstanding order under the Bankruptcy and Insolvency Act staying all proceedings.
Facts: The plaintiff is a buying agent on behalf of garment retailers and had acted as buying agent for Mexx. In December 2014 Mexx became insolvent. A stay of proceeding under the Bankruptcy and Insolvency Act was put in place and various insolvency related orders were made by the Quebec superior court. On 23 December 2014 the plaintiff commenced this in rem” proceeding against various shipments and had the cargo arrested. The plaintiff did not obtain leave from the Quebec superior court before commencing the proceeding. The plaintiff alleged it was an unpaid seller exercising its right of stoppage in transit. Mexx and its receiver brought this application to quash the arrest and strike the statement of claim.
At first instance, the Prothonotary held the plaintiff had no right to bring this proceeding without first obtaining leave from the Quebec superior court. In reaching this conclusion the Prothonotary distinguished Holt Cargo Systems Inc v ABC Containerline NV (Trustees of), 2001 SCC 90 on the basis that in Holt the ship had been arrested and sold before the bankruptcy proceedings had been commenced. The plaintiff appealed.
Decision: Appeal dismissed.
Held: Section 188(2) of the Bankruptcy and Insolvency Act is prescriptive and mandatory. It requires all courts to act in aid of the bankruptcy/insolvency court. The Prothonotary had no discretion and was bound to come to the aid of the superior court to ensure the stay was respected. The plaintiff did not obtain leave before commencing this proceeding and the proceeding is therefore ineffective. The Prothonotary correctly distinguished the Supreme Court’s decision in Holt as nowhere in that decision is there a consideration of the s. 69 stay of proceedings. A more fundamental distinction between this case and Holt is that Holt concerned bankruptcy proceedings and secured creditors whereas this matter concerns insolvency proceedings. In bankruptcy proceedings secured creditors are not affected by the stay of proceedings but the stay does apply to secured creditors in insolvency proceedings. Additionally, the plaintiff’s claim flows exclusively from a commercial contract of sale with no maritime component. The mere fact the garments were carried on a ship does not establish a sufficient connection to make it subject to maritime law. The underlying claim does not relate to shipping and navigation and does not fall within the court’s admiralty jurisdiction.
Jurisdiction - In Rem Proceedings - Constructive Trust - Whether Alleged Proceeds of Fraud used to Construct Vessel Support In Rem Action
Harry Sargeant III v. Al-Saleh, 2014 FCA 302
Précis: The Federal Court of Appeal held that a foreign fraud judgment in a non-maritime matter could not support a claim in rem and was outside the jurisdiction of the Federal Court.
Facts: Sargeant and Worldspan entered into an agreement for the construction of a vessel by Worldspan. Sargeant advanced funds to build the vessel which were secured by a builder’s mortgage. Sargeant advanced approximately $11 million towards the construction and then entered into a loan agreement with Comerica to finance the completion of the building. Sargeant’s interest in the construction agreement was assigned to Comerica. Comerica advanced an additional $9 million towards the construction. A dispute then arose concerning the costs of construction and construction was halted. The vessel was arrested in Federal Court and Worldspan filed a petition in the British Columbia Supreme Court seeking relief under the Companies Creditors Arrangement Act (“CCAA”) of British Columbia. Pursuant to the process adopted in the two courts, in rem claims against the vessel were to be decided in the Federal Court and all other claims were to be decided in the British Columbia CCAA proceedings. Al-Saleh sought an order for leave to file an in rem claim to enforce a judgement obtained from the Florida Circuit Court. The judgment was in the amount of US$28 million and was for fraud and conspiracy to commit fraud in relation to a business scheme that had nothing to do with maritime matters. Al-Saleh alleged some of the monies of which he was defrauded were paid to Worldspan and used in the construction of the vessel and that this gave rise to an in rem claim. Sargeant opposed the application and by its own motion requested that the Al-Saleh claim be dismissed.
At first instance (unreported), the Prothonotary granted the motion of Al-Saleh, held the court had jurisdiction to adjudicate the in rem claim, recognized the Florida judgment and dismissed the motion of Sargeant. Sargeant and Comerica appealed and were successful, in part. On appeal (2013 FC 1204) the appeal Judge held that: (a) the court had jurisdiction to adjudicate the in rem claim; (b) the Sargeant motion should be dismissed; and, (c) the Florida judgment should not be recognized and enforced. With respect to the Florida Judgment, the appeal Judge held that the relief granted in that judgment did not fall within the Federal Court’s jurisdiction pertaining to Canadian maritime law and therefore could not be recognized and enforced. Sargeant and Comerica further appealed on points (a) and (b).
Decision: The appeal is allowed and the in rem claim of Al-Saleh (the “Respondent”) is dismissed.
Held: Both the Prothonotary and the appeal Judge were clearly wrong when they decided the Federal Court had jurisdiction to entertain the Respondent’s claim. The claim does not relate to any subject matter over which the court has jurisdiction. It cannot succeed and must be dismissed. The Respondent alleges that the funds of which he was defrauded were used to finance the construction of the vessel and that he therefore has an interest in the vessel. He also asserts that the doctrines of constructive trust and unjust enrichment support his claim. He finally adds that he can trace his property to the vessel. In essence, the Respondent alleges that his claim is one for an ownership interest in a ship pursuant to s. 22(2)(a) of the Federal Courts Act. The Appellant argues that a claim of an ownership interest is not sufficient to support jurisdiction. That is not correct. “There can be no doubt whatsoever that once a claim is held to fall within one of the heads found in subsection 22(2) of the Act, there is necessarily substantive maritime law to support the claim.” However, the question is, does the Respondent’s claim fall within s. 22(2)? The Respondent could not have brought in Federal Court the claim that he brought in the Florida court as it has nothing to do with maritime law. This is why the appeal Judge correctly refused to recognize the Florida judgment. There must be a body of federal law essential to the disposition of the case before the Federal Court has jurisdiction. There is no such federal law here. Further, the Respondent’s claims are not “so integrally connected to maritime matters as to be legitimate Canadian maritime law within federal competence”. Rather the claim raises issues that are within the exclusive legislative jurisdiction of the provinces.
Comment: Perhaps the most interesting point made in this decision is the statement that where a claim falls within s. 22(2) of the Federal Courts Act there is necessarily substantive maritime law to support it.
In Rem Actions – Arrest – Lien for Demurrage – Appropriate Security - Time Limited Guarantee
BBC Chartering Carriers GmBH & Co. KG v. Jindal Steel & Power Limited, 2014 FC 1205
Précis: The Federal Court refused to set aside an arrest where the underlying claim was by a charterer for demurrage. The court also held that time limited security to obtain the release of an arrest was not acceptable.
Facts: The plaintiff and defendant entered into a voyage charter on the Gencon form with the plaintiff as owner (in fact it was a time charterer) and the defendant as the charterer. The defendant was also the shipper of the cargo covered by bills of lading which were subject to the charter party. The charter party contained a lien clause that gave the plaintiff a lien on cargo for freight, dead-freight, demurrage and claims for damages. The plaintiff commenced these proceedings claiming demurrage and other expenses at discharge and arrested the cargo. The defendant then brought this motion to set aside the arrest on the basis there was no jurisdiction in rem. The plaintiff also brought a motion to enforce an agreement to provide security.
Decision: The defendant’s motion is dismissed. The plaintiff’s motion is granted.
Held: The defendant argues that the arrest should be set aside and the in rem action struck because the lien created by the charter party is a possessory lien and, since the plaintiff gave up possession, it no longer has a lien. The difficulty with this argument is the lien clause includes demurrage at discharge which implies that possession would be given up. At this stage of the proceeding it is arguable that the plaintiff has, at least, an equitable charge on the cargo. Consequently, the motion to set aside the arrest is dismissed. With respect to the security motion, the dispute arises because the security offered by the plaintiff is a bank guarantee with a two year time limit. This is not satisfactory. Security which lapses is no security at all. The cargo will not be released unless there is a guarantee by a Canadian chartered bank. If the guarantee has an expiration date, it must also have an evergreen clause stipulating it is to be automatically renewed. If the bank decides not to renew, the guarantee must provide that the agreed amount of security will be deposited with the court.
Practice - Whether agreement to accept LOU vitiated by mistake? - Can more than one sister ship be arrested?
Westshore Terminals Limited v. Leo Ocean S.A. (The Cape Apricot), 2014 FC 136 2014 FCA 231
Précis: The Federal Court of Appeal held that a letter of undertaking given to secure the release of a vessel from arrest was valid and binding and further held that s. 43(8) of the Federal Courts Act did not permit the arrest of multiple vessels.
Facts: The defendant vessel collided with and caused significant damage to a trestle/causeway at the plaintiff’s coal loading facility. As a consequence of the collision, the plaintiff alleged that it had suffered damages in excess of $60 million. Immediately following the collision the plaintiff commenced an action and the defendant vessel was arrested. Counsel for the plaintiff and defendant ship owner then entered into discussions for the release of the vessel from arrest. The ship owner initially offered to provide a letter of undertaking in the amount of US$24 million, being the value of the defendant vessel, as security for the release of the vessel from arrest. Plaintiff’s counsel questioned ship owner’s counsel on the availability of sister ships to increase the value of the security to $100 million. Plaintiff’s counsel also suggested that the vessel be moved from the berth where it was arrested to permit operations at the terminal to resume. Ship owner’s counsel told plaintiff’s counsel that the basis for multiple sister ship arrests was very weak and that, in any event, the sister ships were likely fully mortgaged. Ship owner’s counsel further refused to consent to move the arrested vessel until the security issue was resolved. Plaintiff’s counsel, who had limited maritime law experience, consulted with a maritime law expert and ultimately agreed to accept a letter of undertaking in the amount of US$26 million. The letter of undertaking, which contained a provision that the plaintiff would refrain from arresting sister ships, was delivered to plaintiff’s counsel. The plaintiff then took the position that there was no binding agreement to accept the letter of undertaking as security and that it was free to arrest as many sister ships as necessary to obtain security for the value of its claim. The plaintiff argued that the agreement to accept the letter of undertaking was vitiated by reason of mistake of law (as to the right to arrest multiple sister ships and the amount of security that might be obtained) and coercion/economic duress (for refusing to move the ship from the berth).
At first instance (reported at 2014 FC 136), the motions Judge held the agreement to accept the letter of undertaking was not vitiated by mistake or duress and that, in any event, there was no right to arrest multiple vessels. On the issue of mistake, the motions Judge held that defendant’s counsel owed no duty to plaintiff’s counsel, who was experienced and had the assistance of experienced maritime counsel. With respect to duress, the motions Judge held that although the ship owner may have put pressure on the plaintiff, this did not amount to coercion of will and was not illegitimate. Finally, with respect to the availability of multiple sister ship arrests, the motions Judge held that section 43(8) of the Federal Courts Act did not permit multiple arrests. The plaintiff appealed the decision of the motions Judge respecting the issues of mistake and the availability of multiple arrests. (The duress issue was not appealed.)
Decision: Appeal dismissed.
Held: The motions Judge correctly concluded that there was nothing that vitiated the agreement on the grounds of mistake. The first mistake alleged was that plaintiff’s counsel had been erroneously advised by defendant’s counsel that the right to arrest multiple sister ships was weak. The motions Judge correctly held that defendant’s counsel owed no duty to the plaintiff or plaintiff’s counsel. Moreover, if plaintiff’s counsel was uncertain about the issues he could have consulted with his maritime law expert. The second mistake alleged was plaintiff’s counsel had been erroneously advised by defendant’s counsel that the security was limited to the value of the offending vessel. The motions Judge correctly concluded that this advice was correct. It was clear to all concerned that there was uncertainty as to the right to arrest more than one ship since that issue had never been directly considered by the courts. There is no mistake of law that vitiated the agreement.
The motions Judge further correctly held that there is, in fact, no right to arrest more than one ship. Section 43(2) of the Federal Courts Act allows a party to arrest the ship that causes the damage and section 43(8) allows a party to arrest a ship owned by the beneficial owner of the offending ship. Section 43(8) only deals with the arrest of sister ships. It does not address whether a sister ship can be arrested in addition to the offending vessel. By enacting s. 43(8) Parliament intended only to allow the arrest of a sister ship in lieu of the offending vessel. The fact that Canada did not adopt the Arrest Convention 1952 does not, as the appellant alleges, suggest Canada intended to allow multiple arrests. A claimant has the option of arresting either the offending vessel or a sister ship but not both. If Parliament had intended to allow multiple arrests, a dramatic departure from accepted practice, s. 43 would have been worded differently.
Pleadings - Striking - In Rem Actions - Arrest - Shareholder Dispute - Federal Court Jurisdiction
General MPP Carriers Ltd. v. SCL Bern AG, 2014 FC 571
Précis: The Federal Court has no jurisdiction over a shareholders dispute even though the company was a “one ship company”.
Facts: The plaintiff loaned the first defendant US$5 million for a 40% interest in the defendant ship "SCL Bern". The loan was secured by a shareholders agreement granting the plaintiff 40% of the shares of the second defendant, the owner of the "SCL Bern". The remaining 60% of the shares were owned by the first defendant. The shareholders agreement included provisions concerning a right of first refusal and prohibiting the disposal of shares. In particular, the plaintiff was prohibited from disposing of its shares to third parties but could require the second defendant to purchase its shares at a specified price upon the giving of notice. The plaintiff alleged that it gave the appropriate notice but the second defendant refused to purchase the shares. The plaintiff commenced proceedings in Switzerland and obtained judgement against the second defendant, which was under appeal. The plaintiff then commenced these proceedings and arrested the "SCL Bern". The plaintiff alleged it was a part owner of the "SCL Bern" and that it had suffered damages as a result of the defendant's breach of the shareholders agreement. In the alternative, the plaintiff alleged that the $5 million loaned was secured by a mortgage or charge on the "SCL Bern". The defendants brought this motion to strike the in rem action and set aside the arrest on the basis that the Federal Court had no jurisdiction.
Decision: The in rem action is struck and the arrest set aside.
Held: The test for striking pleadings is whether it is plain and obvious the claim discloses no reasonable cause of action. The onus on the party seeking to strike pleadings is a heavy one. The evidence discloses that the registered owner of the "SCL Bern" is the second defendant and there is no mortgage or charge registered against the vessel. The plaintiff acquired an interest in the shares of the second defendant, not an ownership interest in the vessel. It is quite clear that the plaintiff's claims arise from alleged breaches of the shareholders agreement concerning the sale of shares. The dispute is therefore one of corporate law not maritime law. The subject matter is not so integrally connected to maritime matters as to fall within maritime law.
In Rem Actions - Arrest - Setting Aside - Whether Grinding Dust Damage is Damage Done by a Ship
081768 BC Ltd v. The Ship Aestival, 2013 FC 899
Précis: The Federal Court held that an in rem action was available whenever damage was done by those in charge of a ship with the ship as the instrument.
The plaintiff’s vessel was allegedly damaged by grinding dust that emanated from the defendant vessel while it was undergoing repairs. Both vessels had been hauled out of the water and were on land. The plaintiff commenced in rem proceedings and arrested the defendant vessel. The defendant brought this motion to set aside the arrest on the ground the plaintiff’s claim did not disclose an in rem cause of action in that the damage was not “caused by a ship” as required by section 22(2)(d) of the Federal Courts Act. In the alternative, the defendant asked the court to set bail.
Decision: Bail fixed in the amount of $58,000.
Held: Section 22(2)(d) (which refers to “damage caused by a ship either in collision or otherwise”) is to be interpreted using a functional and operational test. It is not necessary that the ship be engaged in navigation when the damage is done. It is also irrelevant if the ship is in the water, in dry-dock or on land. “Damage caused by a ship” includes damage done by those in charge of a ship with the ship as the noxious instrument. The language of s. 22(2)(d) is broad enough to cover any damage done to a third party by those in charge of the vessel. Pursuant to ss. 43(2) and 22(2)(d) of the Federal Courts Act, the plaintiff’s claim is a valid claim in rem. With respect to bail, the general rule is that bail must be sufficient to cover the plaintiff’s reasonably arguable best case, including interest and costs, but limited by the value of the arrested vessel.
Comment: This decision is in line with previous authority that has generally given a broad interpretation to the term “damage caused by a ship” and a corresponding wider scope for in rem actions.
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.
Stays of Proceedings - Second action Pending - Setting Aside Arrest
Quin-Sea Fisheries Limited v. The Broadbill I , 2013 FC 575
The plaintiff and defendants entered into an agreement whereby, in consideration of a loan by the plaintiff, the defendants granted a mortgage over the defendant vessel and agreed to make its catch available to the plaintiff for one year following the year the loan was repaid. The loan was repaid but the defendants failed to sell their catch to the plaintiff. As a result, the plaintiff commenced proceedings in the Supreme Court of Newfoundland for a mandatory injunction requiring the defendants to sell their catch to it. That injunction was refused on the grounds that there was no irreparable harm. The plaintiff then commenced these proceedings and arrested the vessel in Federal Court. The defendants brought this motion to stay the Federal Court proceedings on the grounds that parallel proceedings existed in the Supreme Court of Newfoundland.
Decision: Motion dismissed.
Held: The plaintiff was not acting in a vexatious manner when it sought to arrest the vessel after failing to obtain the injunction. The Supreme Court of Newfoundland has no specific admiralty rules dealing with arrest and an injunction is a very different procedure from an action in rem. It is not unusual for a party to take action in the Federal Court merely to obtain security. It would be inappropriate to stay the Federal Court proceedings at this time although at some point in time one of the actions must be stayed.
Carriage by Sea - Application of Hague-Visby Rules - In Rem Actions - Change of Ownership - Damage Done by a Ship
The Mercury XII (aka Wells Fargo) v. The MLT-3, 2012 FC 738 2013 FCA 96
Précis: The Federal Court of Appeal held that the hire of a tug and barge was not a contract of carriage to which the Hague-Visby Rules applied.
The plaintiff's truck was dumped into the water while being loaded onto a barge. At the time, the lines securing the barge to the loading ramp had been untied due to the rising tide. As a consequence, the barge moved away from the ramp when the truck was half on the barge. The driver of the truck applied the air brakes of the truck hoping to stop the movement of the barge away from the ramp but this was unsuccessful and the front end of truck became submerged. The parties then attempted to pull the truck onto the barge by attaching a line between the tug and truck. However, the truck tipped and sank. The plaintiff brought this action in rem against the barge and in personam against the owner/charterer of the tug and barge. In their defence, the defendants alleged the plaintiff was contributorily negligent and that there was no in rem action as the barge was not the instrument of damage. A further issue was whether the one year limitation period in the Hague-Visby Rules applied.
The trial Judge held (cited as Wells Fargo v The Barge "MLT 3", 2012 FC 738) that the defendants were 90% at fault and the plaintiff 10%. The defendants were negligent for loading the truck without having the mooring lines attached. The plaintiff was negligent for applying the air brakes. Concerning the existence of a claim in rem against the barge, the trial Judge held s. 22(2)(d) of the Federal Courts Act requires that "the ship itself must be the actual instrument by which the damage was done". As the barge was not the actual instrument of the damage, he held there was no claim under s. 22(2)(d) and no action in rem. With respect to the application of the one year limitation period in the Hague-Visby Rules, the trial Judge noted that section 43(2) of the Marine Liability Act provides that the rules apply to domestic carriage "unless there is no bill of lading and the contract stipulates that the Rules do not apply". The trial Judge held, however, that the lack of a bill of lading was sufficient by itself to oust the Rules. He said “oral contracts not evidenced by or incorporated into a bill of lading or similar document are not caught by subsection 43(2) of the Marine Liability Act”. The defendants appealed the ruling that that the one year limitation period in the Hague-Visby Rules did not apply.
Decision: Appeal dismissed.
Held: The trial Judge decided this issue on a grounds that had not been argued before him and the parties were in agreement that the Judge was wrong in holding that s. 43(2) of the Marine Liability Act limits the application of the Hague-Visby Rules to written contracts. The conclusion of the trial Judge was, nevertheless, correct. The appellant must prove all elements of s. 43(2) for the Rules to apply. The respondent argued that the contract was not “from one place in Canada to another place in Canada” since the contract was for a round-trip. This is “an unduly formalistic interpretation”. However, the respondent’s argument that there was no contract for the carriage of goods is accepted. A contract for the carriage of goods within the meaning of s. 43(2) does not include a contract for the charter or hire of a vessel. The plaintiff has not proven a contract for the carriage of goods. In fact, the evidence suggests a contract of hire rather than a contract of carriage. The contract was “for the use of the Tug and Barge” and charges were “on an hourly basis” regardless of whether there was cargo on the barge.
Comment: The parties also addressed whether the trial Judge had erred in holding the Hague-Visby Rules did not apply simply because no bill of lading had been issued. The Federal Court of Appeal did not address these arguments since it concluded the Rules did not apply on other grounds.
Federal Court Jurisdiction - Action vs Provincial Crown - In Rem Proceedings
Canada v. Toney, 2011 FC 1440 2012 FCA 167
This was an in rem and in personam action against both the federal and provincial crowns and a vessel owned by the Alberta government. The action concerned a fatal accident that occurred on an Alberta lake. The plaintiffs alleged that the defendants were negligent in their performance of search and rescue duties. The Alberta defendants moved to strike the in rem action on the basis that the vessel had been sold prior to the commencement of the action and also moved to strike the in personam action against them on the basis that actions against a provincial crown should be commenced in the provincial courts. The federal defendants also moved to stay the action or to have it struck as an abuse of process. At first instance, the trial Judge allowed the motions only with respect to the action in rem. The trial Judge held that the sale of the vessel prior to the commencement of the action did defeat the action in rem but it did not affect the action in personam. The trial Judge (2011 FC 40) held that the fact one of the defendants was a provincial crown was irrelevant as the action (and the Federal Court’s jurisdiction) was not grounded in s. 17 of the Federal Courts Act (which governs actions against the Federal Crown) but in s.6 and following of the Marine Liability Act. The Alberta defendants appealed.
Decision: Appeal dismissed.
Held: The Federal Court of Appeal Court noted that it was undisputed the plaintiffs’ claims fall within the subject of navigation and shipping and within the express terms of section 22 of the Federal Courts Act. It was not plain and obvious that the Federal Court was without jurisdiction.
Comment: In Toney v. Canada, 2012 FC 1412, the same point was brought to the court on a question of law (as opposed to the above case which was a motion to strike). At first instance the Federal Court held that it had jurisdiction in personam against a province in a maritime matter. However, on appeal, at 2013 FCA 217, the Federal Court of Appeal held that the Federal Court has no jurisdiction over a provincial crown.