LF Centennial Pte. Ltd. v. TRLU7228664 et al (Containers)

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

Précis: An in rem plaintiff has no right to commence proceedings and arrest in Federal Court when there are ongoing insolvency proceedings in a provincial superior court and an outstanding order under the Bankruptcy and Insolvency Act staying all proceedings.

Facts: The plaintiff is a buying agent on behalf of garment retailers and had acted as buying agent for Mexx. In December 2014 Mexx became insolvent. A stay of proceeding under the Bankruptcy and Insolvency Act was put in place and various insolvency related orders were made by the Quebec superior court. On 23 December 2014 the plaintiff commenced this in rem” proceeding against various shipments and had the cargo arrested. The plaintiff did not obtain leave from the Quebec superior court before commencing the proceeding. The plaintiff alleged it was an unpaid seller exercising its right of stoppage in transit. Mexx and its receiver brought this application to quash the arrest and strike the statement of claim.

At first instance, the Prothonotary held the plaintiff had no right to bring this proceeding without first obtaining leave from the Quebec superior court. In reaching this conclusion the Prothonotary distinguished Holt Cargo Systems Inc v ABC Containerline NV (Trustees of), 2001 SCC 90 on the basis that in Holt the ship had been arrested and sold before the bankruptcy proceedings had been commenced. The plaintiff appealed.

Decision: Appeal dismissed.

Held: Section 188(2) of the Bankruptcy and Insolvency Act is prescriptive and mandatory. It requires all courts to act in aid of the bankruptcy/insolvency court. The Prothonotary had no discretion and was bound to come to the aid of the superior court to ensure the stay was respected. The plaintiff did not obtain leave before commencing this proceeding and the proceeding is therefore ineffective. The Prothonotary correctly distinguished the Supreme Court’s decision in Holt as nowhere in that decision is there a consideration of the s. 69 stay of proceedings. A more fundamental distinction between this case and Holt is that Holt concerned bankruptcy proceedings and secured creditors whereas this matter concerns insolvency proceedings. In bankruptcy proceedings secured creditors are not affected by the stay of proceedings but the stay does apply to secured creditors in insolvency proceedings. Additionally, the plaintiff’s claim flows exclusively from a commercial contract of sale with no maritime component. The mere fact the garments were carried on a ship does not establish a sufficient connection to make it subject to maritime law. The underlying claim does not relate to shipping and navigation and does not fall within the court’s admiralty jurisdiction.