Harry Sargeant III v. Al-Saleh

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

Précis: The Federal Court of Appeal held that a foreign fraud judgment in a non-maritime matter could not support a claim in rem and was outside the jurisdiction of the Federal Court.

Facts: Sargeant and Worldspan entered into an agreement for the construction of a vessel by Worldspan. Sargeant advanced funds to build the vessel which were secured by a builder’s mortgage. Sargeant advanced approximately $11 million towards the construction and then entered into a loan agreement with Comerica to finance the completion of the building. Sargeant’s interest in the construction agreement was assigned to Comerica. Comerica advanced an additional $9 million towards the construction. A dispute then arose concerning the costs of construction and construction was halted. The vessel was arrested in Federal Court and Worldspan filed a petition in the British Columbia Supreme Court seeking relief under the Companies Creditors Arrangement Act (“CCAA”) of British Columbia. Pursuant to the process adopted in the two courts, in rem claims against the vessel were to be decided in the Federal Court and all other claims were to be decided in the British Columbia CCAA proceedings. Al-Saleh sought an order for leave to file an in rem claim to enforce a judgement obtained from the Florida Circuit Court. The judgment was in the amount of US$28 million and was for fraud and conspiracy to commit fraud in relation to a business scheme that had nothing to do with maritime matters. Al-Saleh alleged some of the monies of which he was defrauded were paid to Worldspan and used in the construction of the vessel and that this gave rise to an in rem claim. Sargeant opposed the application and by its own motion requested that the Al-Saleh claim be dismissed.

At first instance (unreported), the Prothonotary granted the motion of Al-Saleh, held the court had jurisdiction to adjudicate the in rem claim, recognized the Florida judgment and dismissed the motion of Sargeant. Sargeant and Comerica appealed and were successful, in part. On appeal (2013 FC 1204) the appeal Judge held that: (a) the court had jurisdiction to adjudicate the in rem claim; (b) the Sargeant motion should be dismissed; and, (c) the Florida judgment should not be recognized and enforced. With respect to the Florida Judgment, the appeal Judge held that the relief granted in that judgment did not fall within the Federal Court’s jurisdiction pertaining to Canadian maritime law and therefore could not be recognized and enforced. Sargeant and Comerica further appealed on points (a) and (b).

Decision: The appeal is allowed and the in rem claim of Al-Saleh (the “Respondent”) is dismissed.

Held: Both the Prothonotary and the appeal Judge were clearly wrong when they decided the Federal Court had jurisdiction to entertain the Respondent’s claim. The claim does not relate to any subject matter over which the court has jurisdiction. It cannot succeed and must be dismissed. The Respondent alleges that the funds of which he was defrauded were used to finance the construction of the vessel and that he therefore has an interest in the vessel. He also asserts that the doctrines of constructive trust and unjust enrichment support his claim. He finally adds that he can trace his property to the vessel. In essence, the Respondent alleges that his claim is one for an ownership interest in a ship pursuant to s. 22(2)(a) of the Federal Courts Act. The Appellant argues that a claim of an ownership interest is not sufficient to support jurisdiction. That is not correct. “There can be no doubt whatsoever that once a claim is held to fall within one of the heads found in subsection 22(2) of the Act, there is necessarily substantive maritime law to support the claim.” However, the question is, does the Respondent’s claim fall within s. 22(2)? The Respondent could not have brought in Federal Court the claim that he brought in the Florida court as it has nothing to do with maritime law. This is why the appeal Judge correctly refused to recognize the Florida judgment. There must be a body of federal law essential to the disposition of the case before the Federal Court has jurisdiction. There is no such federal law here. Further, the Respondent’s claims are not “so integrally connected to maritime matters as to be legitimate Canadian maritime law within federal competence”. Rather the claim raises issues that are within the exclusive legislative jurisdiction of the provinces.

Comment: Perhaps the most interesting point made in this decision is the statement that where a claim falls within s. 22(2) of the Federal Courts Act there is necessarily substantive maritime law to support it.