Offshore Interiors Inc. v. Worldspan Marine Inc.

In Admiralty Practice, Judicial Sales on (Updated )

Précis: The Federal Court refused to reallocate the priority of claims against proceeds of sale of a vessel.

Facts: This matter involved three interlocutory motions relating to the priority of claims and ranking of those claims against the $5 million in sale proceeds of a vessel which was sold on 7 July 2014. The underlying facts relate to the construction of a luxury yacht pursuant to a vessel construction agreement (“VCA”) dated 29 February 2008 between Sargeant and Worldspan. Sargeant advanced $20 million to Worldspan and was granted a builder’s mortgage over the vessel, which Sargeant ultimately assigned to Comerica Bank. The validity of that builder’s mortgage was affirmed by the Federal Court and Federal Court of Appeal in December 2013 and February 2015 respectively. In the present motion, Sargeant sought an order that the breach of the VCA was irrelevant for determining the priorities of the in rem claims against the vessel. Worldspan sought an order that Sargeant or Comerica was in breach of the VCA for failing to pay claims certificates to Worldspan’s subcontractors. Offshore, Restaurant and Continental, who were all trade creditors to the vessel and Worldspan’s subcontractors, sought declarations that they enjoyed priority over the claim of Sargeant.

Decision: All motions dismissed; Sargeant entitled to proceeds of sale.

Held: The Court found that it was not necessary to determine if the VCA was breached in order to determine the ranking of priorities. While the VCA created rights between Sargeant and Worldspan which had implications for Offshore, Restaurant and Continental, the priority and ranking of claims to the proceeds of sale involves in rem claimants and not those with personal claims against Sargeant or Worldspan, which are to be determined before the British Columbia Supreme Court. Moreover, as Worldspan raised no new legal issue that would change the prior decisions of the Federal Court of Appeal, the principles of stare decisis applied. As such the specific clauses relied on by Worldspan and the creditors in the VCA need not be considered. The Court rejected the argument of the in rem claimants that by Sargeant’s failure to pay Worldspan for the claims certificates, Sargeant benefitted from the work done on the vessel and a failure to reallocate the sale proceeds would create an unjust enrichment for Sargeant. In doing so the Court found nothing in the evidence before it that any one of the in rem creditors performed work that enhanced the value of the vessel, or that there was improper or underhanded behaviour by Sargeant that would trigger the Court’s equitable jurisdiction to reallocate the ordinary priority of claims. Accordingly, the builder’s mortgage took priority over all other asserted claims.