Phoenix Bulk Carriers Ltd. v. Kremikovtzi Trade

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

By contract of affreightment between the Appellant and the Respondent, the Respondent agreed to ship a cargo of coal on the Appellant’s vessel. In alleged breach of this contract, the Respondent entered into a second contract of carriage with another shipowner and loaded the coal on board that shipowner’s vessel. The Appellant commenced an in rem proceeding against the cargo and caused the cargo to be arrested while on board the other ship. The Respondent then brought an application to strike the Statement of Claim in rem and set aside the arrest. At first instance the application was refused but, on appeal to the Federal Court of Appeal, the appeal was allowed and the Court ordered that the Statement of Claim in rem be struck and the arrest set aside. The Court of Appeal held that it was bound by its decision in Paramount Enterprises International Inc. v The “An Xin Jiang”, [2001] 2 F.C. 551, which was indistinguishable from the facts in the present case. However, and most interestingly, the Court of Appeal wrote that Paramount Enterprises International Inc. v The “An Xin Jiang” had been wrongly decided. The issue in both cases was the interpretation of s. 43(2) of the Federal Court Act which permits in rem jurisdiciton against “the property that is the subject of the action”. In the Paramount case it was held that the cargo was not “the subject of the action” because the Plaintiff never had physical possession, referred to as the “physicial nexus” test. This was considered to be too narrow an interpretation. The Court said it preferred a broader “identifiability” test, meaning the action in rem must relate to the specific property contemplated in the contract at issue. However, the Court of Appeal held that it could not overrule a prior decision of another panel of the court unless the decision was manifestly wrong in the sense that the other panel had overlooked a relevant statutory provision or a case that ought to have been followed. As this test had not been met, the Court of Appeal said it was bound by its prior decision.

The Appellant appealed to the Supreme Court of Canada. The Supreme Court in very short reasons said that they agreed that the words in s. 43(2) “subject of the action” should not be given a narrow interpretation. The “physical nexus” test of Paramount Enterprises International Inc. v The “An Xin Jiang” should be rejected in favour of an “identifiability” test that asks whether the cargo is the cargo designated in the contract of affreightment alleged to be breached. Applying this approach s.43(2) was satisfied.