This was an appeal from a decision of the Trial Division declaring that the Defendant had a maritime lien. The issue in the case was whether the contract for the supply of marine lubricants was subject to American law and, consequently, whether the Defendant had a maritime lien. The Defendant, an American corporation, supplied lubricants through a sub-contractor to two Canadian registered ships owned by the Plaintiff at various Canadian ports. The ships were under demise charter to another Canadian corporation and were managed by an American corporation. The contract between the Defendant and the ships’ manager contained a choice of law provision calling for American law to be applied. Similarly, the contract between the Defendant and its sub-contractor who actually delivered the lubricants contained an American choice of law provision. There was no direct contract between the Defendant and the Plaintiff shipowner. The Plaintiff argued that the supply of lubricants should be governed by Canadian law because of s. 275 of the Canada Shipping Act (which provides a choice of law rule that matters relating to a ship shall be governed by the law of the port of registry) and because Canada was the place with the closest and most real connection to the transactions. At trial, on the issue of the application of s. 275 of the Canada Shipping Act, the Trial Judge held that this section applied only to matters dealt with in Part III of the Act (ie. in relation to seamen) and had no application to the case at bar. On the second issue, the Trial Judge recognized that there were a number of factors connecting the matters in issue to both Canada and the United States. However, the most significant factors were the contracts relating to the supply of lubricants both of which applied American law. In the result, the Trial Judge held that the contracts for the supply of lubricants were governed by American law and that the Defendant had a maritime lien.
On appeal, the Federal Court of Appeal reviewed the nature of a maritime lien and noted that such liens arise not from contract but by operation of law. The Court concluded that the Trial Judge had correctly determined that the law to be applied was the law with the “closest and most substantial connection” to the transaction and that this involved weighing various factors. The Court of Appeal held, however, that the Trial Judge erred in holding that the United States contracts were the most significant factors. The Court of Appeal considered that the most significant factor was that the demise charterer had its base of operations in Canada where the vessels traded and were based. When that factor was weighed with other factors connecting the transactions to Canada the proper law was the law of Canada. In result, the appeal was allowed and the Defendant did not have a maritime lien.