Offshore Interiors Inc. v. Worldspan Marine Inc.

In Maritime Liens, Mortgages & Priorities, Other Practice Topics on (Updated )

Précis: The Federal Court will not require parties to litigate issues in another court. The priorities as between the builder and purchaser/mortgagee depend on the wording of the contractual documents.

Facts:Worldspan and Sargeant entered into a vessel construction agreement (“VCA”) for the construction of a yacht by Worldspan for Sargeant. Disputes arose during the course of construction which resulted in the vessel being arrested by Offshore, an unpaid supplier of materials and services. Various claims were filed against the vessel including claims by Sargeant and Worldspan. Sargeant claimed $20 million based on a builder’s mortgage granted to it by Worldspan to secure the advances made by Sargeant to Worldspan towards the construction of the vessel. Worldspan claimed $5 million in respect of amounts alleged to be due and owing to it by Sargeant and which it further alleged were secured by the VCA with a priority above the builder’s mortgage. The vessel was eventually sold by the Federal Court for $5 million, leaving a substantial shortfall. Meanwhile, a petition under the Companies Creditors’ Arrangement Act was filed by Worldspan and suits and countersuits were filed by Worldspan and Sargeant in the British Columbia Supreme Court.

At first instance (2016 FC 27), there were two motions before the Federal Court, one by Sargeant and another by Worldspan, both of which were dismissed. The motion by Sargeant was for an order that the in personam claims between it and Worldspan must proceed in the British Columbia Supreme Court leaving only the in rem claims to be addressed in the Federal Court. This motion was dismissed by the motions Judge on the grounds that Sargeant chose the Federal Court to adjudicate its in rem claims and that this must include the ability to address the underlying in personam liability. The motion by Worldspan was for an order that its claim for unpaid advances had priority over the builder’s mortgage claims. The motions Judge reviewed the various contract documents including section 12.1 of the VCA which provided that Sargeant’s first priority for advances was subordinate to “Builder’s right to receive payments pursuant to this Agreement”. Although Worldspan argued that this section created a condition that it be paid in full before Sargeant could exercise its mortgage security, the motions Judge held that this section merely gave Worldspan the right to deduct any amounts owed from the mortgage claim.

Worldspan appealed the dismissal of its motion.

Decision:Appeal dismissed.

Held: Although the appellant laid out a contractual interpretation that would support its appeal, the motions Judge adopted an equally plausible construction. There was evidence to support the construction adopted by the motions Judge and, therefore, there was no palpable and overriding error.