NHM Internatinal Inc. v. F.C. Yachts Ltd. et al.

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

This matter concerned a dispute over the construction of a vessel. The Defendant had agreed to construct the vessel for a fixed price and progress payments were made by the Plaintiff during the course of construction. The vessel was, however, not completed on time and the Plaintiff went into possession as mortgagee under a builder’s mortgage. The Plaintiff also arrested the vessel and brought this motion to set bail. The Plaintiff proposed that bail be set at the amount owing under the fixed price contract plus the hold back amount. The Defendant argued that the fixed price contract was not valid as it had not been signed and that bail should be set on the basis of a cost plus contract. The Court noted that bail was to be set at an amount equal to the claimants best arguable case plus interest and costs but also noted that a proper balance must be struck and the power to arrest must not be exercised oppressively. The Court held that the Defendant’s argument that the fixed price contract was invalid was unreasonable, inconceivable and extravagant and refused to set bail on the basis of a cost plus arrangement. The Court also considered an argument advanced by the Defendant that the taking of possession of the vessel by the Plaintiff as mortgagee was a delivery of the vessel in Canada which attracted a liability for the payment of provincial sales tax and goods and services tax. The Court rejected this argument holding that neither going into possession as mortgagee nor arresting the vessel constituted delivery. In later Reasons (2003 FCT 373) the Court dealt with a request by the Plaintiff for an award of costs of the motion in the amount of $14,000. The Court reviewed the case law as to when solicitor client costs might be awarded and noted that it is only done in exceptional cases or where there has been misconduct. The Court declined to order solicitor client costs in the requested amount of $14,000 but did consider that the extreme positions taken by the Defendant justified a “deterrent element” and ordered lump sum costs in the amount of $9,000.