Fibreco Pulp Inc. v. Star Shipping A/S

In Admiralty Practice, In Rem Actions and Arrest on (Updated )

This was an appeal from the order of a Motions Judge upholding the decision of a Prothonotary in which the Prothonotary ordered that the action be stayed not only against parties to an arbitration agreement but also against Defendants not parties to the agreement. The case involved two shipments of pulp from Squamish, British Columbia to Finland via Rotterdam. The Plaintiffs were the vendor of the pulp, the buyer of the pulp for resale, and the ultimate buyer/consignee of the pulp. The Defendants were the Squamish terminal, the charterers, Star Shipping A/S, and the owners of the various ships that carried the pulp. The buyer of the pulp and Star Shipping had entered into a contract of affreightment that contained an arbitration agreement in favour of London arbitration. The Prothonotary held that pursuant to the Commercial Arbitration Act he had no alternative but to grant a stay of proceedings against Star Shipping. The Prothonotary noted that the more interesting question was whether the action ought to be stayed against the other Defendants who were not parties to the agreement. The Prothonotary referred to Nanisivik Mines Ltd. v Canarctic Shipping Co. Ltd., (1994), 113 D.L.R. (4th) 536, where the Federal Court of Appeal ordered a stay against persons not parties to an arbitration agreement on the grounds that "disposing of the issues between the two parties to the arbitration agreement might, more likely than not, resolve the entire litigation". In reliance on this decision, the Prothonotary noted that London arbitration "may well resolve the whole claim" and consequently ordered that the entire action be stayed.

A secondary issue in this case was whether the in rem action against one of the Defendant ships ought to be set aside and the security given by the shipowner returned. The grounds were that there had been a change in the beneficial ownership of the ship after the voyage in question but before the action was commenced. (For certain specified claims, including cargo claims, section 43(3) of the Federal Court Act requires that the ship’s beneficial ownership be the same at the time of commencement of the action as it was when the cause of action arose.) The Court granted the motion and ordered that the in rem proceeding be struck and that the security be returned.

On appeal, the Motions Judge noted that the Prothonotary’s reasons were detailed and sound and the appeal was dismissed. On further appeal, the Federal Court of Appeal noted that there were multiple competing jurisdictions none of which were ideal. Nevertheless, the Court of Appeal found no error on the part of the Prothonotary and dismissed the appeal. In the result, the action was stayed.