General MPP Carriers Ltd. v. SCL Bern AG

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

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.