Caterpillar Financial Services Corporation v. Boale Wood & Company

In Maritime Liens, Mortgages & Priorities on (Updated )

Précis: The British Columbia Court of Appeal confirmed the trial judgment holding that an administrative charge under the Companies Creditors Arrangement Act applied to the proceeds from the sale of a vessel and had priority over a mortgage.

Facts: The petitioner, Worldspan Marine Inc., was a builder of custom yachts who had entered into a contract for the construction of a 144′ yacht. During the course of construction, a dispute arose with the purchaser. As a result, the purchaser ceased making payments and the petitioner sought the protection of the Companies Creditors Arrangement Act (“CCAA”). A Monitor was appointed by court order under that act and a stay of all proceedings against the petitioner was ordered. The court’s initial order included an “Administration Charge” to secure the fees and expenses of the Monitor which were to rank in priority to all other security in the “Non-Vessel Property”. “Non-Vessel Property” was all property of the petitioner other than the 144′ yacht. (In rem claims against the yacht were being addressed in the Federal Court.) Caterpillar held a mortgage over another vessel owned by the petitioner, the “A129”, which was located in the State of Washington. Caterpillar commenced foreclosure proceedings in Washington and had the “A129” arrested there. The U.S. Bankruptcy Court subsequently granted a “Recognition Order”, at the request of the petitioner, under Chapter 15 of the U.S. Bankruptcy Code recognizing the British Columbia CCAA proceedings as the “Foreign Main Proceeding” and staying any execution against the assets of Worldspan located in the United States. The “A129” was subsequently released from arrest and sold with the proceeds to be dealt with in the CCAA proceedings. The sale order provided that Caterpillar was to have a first priority to the proceeds but subject to the potential claim of the Monitor for “Administrative Charges”. Caterpillar applied for an order declaring that the “Administration Charges” did not attach to the proceeds from the sale of the “A129” or, alternatively, that Caterpillar’s claim under its mortgage had priority to the Administrative Charge. Caterpillar argued, inter alia, that under Canadian maritime law the “Administrative Charge” was a statutory lien which ranks below the mortgage.

At first instance (reported at 2013 BCSC 1593), the Judge held that the “super priority” given by s. 11.52 of the CCAA trumps the ranking of claims in rem under Canadian maritime law and that the “Administrative Charge” therefore had priority over the Caterpillar mortgage. Caterpillar appealed.

Decision: Appeal dismissed.

Held: There are two different issues that are relevant: first, did the “Administrative Charge” attach to the “A129” in rem; and second, what is the status of the charge in light of both the CCAA proceedings and the “Recognition Order”. With respect to the first issue, there is nothing in the CCAA to suggest that it has extra-territorial application to in rem property outside of Canada. Neither the CCAA nor the orders made in this case support a conclusion that the “Administrative Charge” attached in rem to the “A129”. With respect to the second issue, the “Administrative Charge” gave priority over all creditors on “Non-Vessel Property” including the proceeds. The order creating the “Administrative Charge” was made in accordance with the CCAA and the “Recognition Order” of the U.S. Bankruptcy Court did not purport to limit in any way the process of realization to be undertaken under the CCAA. Once the Canadian proceedings were recognized as the foreign main proceeding, it was entirely for the British Columbia Supreme Court to determine priority. Thus, although the “Administrative Charge” did not attach in rem, it does attach to the proceeds from the sale of the “A129” and gives the Monitor priority.