Canada (Ship-Source Oil Pollution Fund) v. Cormorant (Ship)

In Judicial Sales, Pollution (Ship Source) on (Updated )

Précis: The Federal Court refused a motion for judicial sale of an arrested vessel pendente lite where the sale would not abate the costs or liabilities of its arrest.

Facts: The Port of Bridgewater (the “Port”) sought an order allowing the ex-Canadian naval vessel Cormorant (the “Vessel”) to be sold pendente lite, to authorize the Port to take any reasonable step to effect that sale, and for the proceeds to be paid into Court less legal and Marshall’s fees to satisfy claims that may be made following notification to potential claimants. The Vessel was subject to claims by both the Port and the Administrator of the Ship Source Oil Pollution Fund following its sinking and subsequent pollution in 2015. Ownership of the Vessel was a live issue. In 2009 the Vessel was sold through judicial sale by the Court to a Nevada-based corporation whose president was a one Neil Hjelle, which then attempted recommissioning of the Vessel. In 2013 those recommissioning efforts ceased, and Mr. Hjelle sold the Vessel for a sum of $10 to a Mr. Richard Welsford, acting in his capacity as a sole director of a numbered Nova Scotia limited company or as sole director of the Port. Neither the numbered company nor the Nevada based company were in good standing at the time of the sale. The Port argued that the sale was void as the Nevada company’s status had lapsed so that it was still the lawful owner until it ceased to exist, at which time the Vessel then passed in escheat to the province of Nova Scotia. The Nevada company and Mr. Hjelle argued the sale of the Vessel was valid and the ownership transferred to the either the Port or the numbered company.

The Vessel was appraised in 2017 for $40,000.00, but went on to note that it is “unlikely that the Vessel would be sold for even $40,000.00”. The parties to the motion agreed that the sale order should imposed conditions of removal of the vessel from the Port and disposed of or removed from Canada. The Port adduced no evidence of interested buyers. The Port further argued that the immediate sale of the Vessel was justified as it was a threat to navigation, the Canadian Coast Guard requested to inspect it as a “vessel of Concern” and that it appeared to be subject of the measures to remove or dismantle pursuant to the not-yet-in-force Wrecked, Abandonded or Hazardous Vessels Act (“WAHVA”). The Port, by affidavit of Mr. Welsford, stated that the sale or disposal of the vessel under WAHVA is likely to be less favourable to creditors than a sale the Port could obtain, and if the Court were to find the Port were the legal owners of the Vessel then it could be held liable for any additional costs of measures taken under WAHVA. Further deposed was that the Port harboured two other Vessels that, if the Port had obtained a writ of seizure of the Vessel, could all be marketed and towed to take advantage on an “economies of scale” basis.

The Nevada company, Mr. Hjelle and the Administrator opposed the order sought given the sale was unlikely to generate any material proceeds which would protect the creditors of the Vessel, and that the Port’s purpose in selling the Vessel would be to deflect any liability under WAHVA to the Port or the numbered company.

Decision: Motion dismissed.

Held: The Court looked to its own jurisprudence in The Essington II for guiding elements considering a sale pendente lite. In finding that no party wished to assert ownership of the Vessel, the only elements applicable were those that affect the creditors’ interests and the potential application of WAHVA as either a component of the creditors’ interest or as another “good reason” for a sale before trial. The Court had little evidence of the intrinsic value of the vessel despite the 2017 valuation report, which was concluded two years earlier and doubted that the vessel would be sold for even $40,000.00. The Court found no evidence tendered that would support the reasonable likelihood that any buyer could be found who would be willing or able to safely remove and/or dispose of the vessel, and in doing so judged unlikely that any significant proceeds can be obtained from the sale of the vessel, by auction or by private sale. More importantly, the Court was satisfied that judicial sale would deflect and displace future liabilities arising from the ownership. As WAHVA was not in force at the time of the judgment, the Court declined to opine on the Administrator’s arguments on that point.