Re: Bernard LLP v.

In Admiralty Practice on (Updated )

Précis: A law firm was entitled to interplead disputed funds notwithstanding that the Federal Court had ordered the funds paid to one of the claimants.

Facts:A yacht was ordered to be sold by the Federal Court with the proceeds of sale to be deposited into the trust account of the petitioner. Before the vessel was sold, CCAA proceedings were commenced in the British Columbia Supreme Court. In the CCAA proceedings an order was made appointing a “Vessel Construction Officer” and authorizing that officer to borrow funds to prepare a plan to complete the construction of the yacht. The “Vessel Construction Officer” borrowed $144,000 from an interested party, Sargeant, to perform this task. The Federal Court granted a first charge on the vessel for these borrowed funds. Sargeant then assigned his interest in the charge to BHT and brought an application in Federal Court to pay out the funds. That application was contested on the grounds that the assignment was fraudulent. The Federal Court ordered the funds to be paid to Sargeant. Sargeant then appealed on the grounds that the funds should have been made payable to BHT but did not obtain a stay of the order pending appeal. The petitioner then brought an application in the British Columbia Supreme Court for the right to interplead the funds and was granted such an order. Sargeant appealed.

Decision: Appeal dismissed.

Held: The central complaint is that this court should not make an interpleader order when there is an order of the Federal Court which has determined who is entitled to the funds. However, the Federal Court itself recognizes that it has limited jurisdiction to address the fraudulent allegations regarding the assignment and has further recognized that this court has jurisdiction to hear the interpleader application. The Federal Court order is not a final determination of who is entitled to the funds in these circumstances. This is a proper case for an interpleader order.