Bank of Scotland v. Ship Nel et al., (2000) 189 F.T.R. 230 (TD)

• Court: Federal Court (Canada)
• Case Date: January 06, 1999
• Jurisdiction: Canada (Federal)
• Citations: (2000), 189 F.T.R. 230 (TD)

Bk. of Scotland v. Ship Nel (2000), 189 F.T.R. 230 (TD)

MLB headnote and full text

Temp. Cite: [2000] F.T.R. TBEd. SE.005

Action In Rem against the Ship "Nel" and In Personam

The Governor and Company of the Bank of Scotland (plaintiff) v. The Owners and All Others interested in the Ship "Nel" and Ocean Profile Maritime Limited (defendants)

(T-2416-97)

Indexed As: Bank of Scotland v. Ship Nel et al.

Federal Court of Canada

Trial Division

Hargrave, Prothonotary

August 2, 2000.

Summary:

In November 1997 the Bank of Scotland arrested a ship at Vancouver for default under an account current mortgage. The Bank found a buyer and there was a court-ordered sale of the ship and its bunkers for $5,000,000 (U.S.). The maritime lien claims ranking in priority to the Bank's mortgage were not in issue. However, the claims of necessaries suppliers, ranking after the mortgage because they were mere rights in rem and not maritime liens, depended upon the scope of the claims secured by the fleet mortgage (i.e., if the Bank's claims were enforceable, there would be nothing left for the necessaries suppliers to share in unless they were found to have a maritime lien ranking ahead of the mortgage).

A Prothonotary of the Federal Court of Canada, Trial Division, held that the Bank had an enforceable claim under the mortgage, subject only to a reduction of $1.7 million in the claim to reflect the profit the Bank received of the purchase and resale of a sister ship. The Prothonotary held that none of the necessaries suppliers had a maritime lien ranking ahead of the mortgage. Except for the claim of the Mariners' Medical Clinic, the Prothonotary refused to vary the priorities.

Admiralty - Topic 8328

Practice - Actions in rem - Sale - Purchase by mortgagee and resale for profit - A bank had a ship arrested in Vancouver following default under a fleet mortgage - The ship was sold and the issue was priority of claims - Another ship secured by the mortgage had been sold in South Africa - The bank purchased the ship at the court-ordered sale for $3,300,000 with a pre-arranged agreement to immediately sell it to a third party for $5,000,000, yielding a $1,700,000 profit out of the reach of other claimants - A Prothonotary of the Federal Court of Canada, Trial Division, held that the bank was the trustee for any surplus realized on a sale and must act in good faith - The profit should have been accounted for - The Prothonotary imposed a constructive trust on the bank on the basis of unjust enrichment - Accordingly, for the purposes of the priority hearing, the profit on resale was deemed to have been received by the bank and to have been applied toward satisfaction of its fleet mortgage - See paragraphs 34 to 47.

Admiralty - Topic 8330

Practice - Actions in rem - Sale - Sale proceeds - Entitlement to - In rem claimants who did not hold maritime liens claimed that the court should exercise its equitable jurisdiction to depart from the usual order of priorities to give them priority over a bank's fleet mortgage - A Prothonotary of the Federal Court of Canada, Trial Division, stated that special circumstances must exist to displace the bank from the usual position below a maritime lien but above a statutory right in rem - The in rem claimants submitted that the bank's delay in not moving earlier on its security constituted such exceptional circumstances making it inequitable for the bank to rank in priority to their claims - The Prothonotary declined to displace the usual priorities - The in rem claimants failed to establish that an earlier realization on the security was called for or that earlier action would have materially assisted them - There was no obvious injustice that needed remedied in equity - See paragraphs 60 to 66.

Admiralty - Topic 8342

Practice - Actions in rem - Liens - Maritime liens - Priorities - [See Admiralty - Topic 8330 ].

Admiralty - Topic 8345

Practice - Actions in rem - Liens - Maritime lien for necessities - Bunker fuel - At issue was whether the supplier of bunker fuel for a ship (by an American agent in Panama) had a maritime lien - A Prothonotary of the Federal Court of Canada, Trial Division, held that American law applied under a jurisdiction clause - According to American maritime law, the bunker fuel supplier had a maritime lien and the lien ranked ahead of a bank's claim under a fleet mortgage - The Prothonotary agreed that "an off-shore necessaries supplier, such as a supplier of fuel, operating from a jurisdiction which does not grant maritime liens for necessaries, using an American agent, who in turn supplies the actual necessaries in an off-shore port, may claim an American maritime lien" - See paragraphs 71 to 83.

Admiralty - Topic 8345

Practice - Actions in rem - Liens - Maritime lien for necessities - Crew travel costs - The owner of a fleet of ships owed monies to a Greek travel agent who provided air travel tickets for the movement of crews and personnel to and from the various ships worldwide - One of the ships was arrested in Vancouver and sold under court order - At the priorities hearing, the travel agent claimed a maritime lien for necessaries under Greek law - A Prothonotary of the Federal Court of Canada, Trial Division, assumed that a maritime lien was available under Greek law for such a claim - However, the travel agent failed to prove the maritime lien - To establish a maritime lien the necessaries must have been ordered by the master of the ship - Here, the master had no such authority - The master indicated crew requirements to the owner and the owner arranged with the travel agent for the tickets - See paragraphs 84 to 99.

Admiralty - Topic 8345

Practice - Actions in rem - Liens - Maritime lien for necessities - A Prothonotary of the Federal Court of Canada, Trial Division, stated that "money advanced to provide necessaries, or to pay for necessaries already purchased, is recoverable as a necessary" - See paragraph 30.

Admiralty - Topic 8347

Practice - Actions in rem - Liens - Maritime lien created by law of foreign jurisdiction - A Prothonotary of the Federal Court of Canada, Trial Division, stated that "an offshore maritime lien may be brought into Canada to be enforced procedurally as a maritime lien even though the services rendered or necessaries supplied giving rise to the offshore maritime lien would not give rise to a maritime lien in Canada" - See paragraph 88.

Admiralty - Topic 8347.1

Practice - Actions in rem - Liens - Maritime liens - Enforcement - Sister ship procedure - A supplier had American maritime liens for necessaries (chemicals) for a ship arrested in Vancouver and sold under court order - Section 43(8) of the Federal Court Act (sister ship procedure) provided that jurisdiction may be exercised in rem against any ship beneficially owned by the owner of the arrested ship - At a priorities hearing, the supplier claimed that the maritime liens against nine sister ships owned by the owner of the arrested ship (through separate shell companies) were enforceable against the arrested ship - A Prothonotary of the Federal Court of Canada, Trial Division, held that only the arrested ship was subject to the maritime lien and the priority if afforded - A maritime lien enforceable against a sister ship was enforceable only as a statutory lien (i.e., statutory rights in rem) - See paragraphs 100 to 123.

Equity - Topic 5001

Merger - General - A Prothonotary of the Federal Court of Canada, Trial Division, stated that "the doctrine of merger is bounded by the principle that 'there will be no merger unless the cause of action is the same in both actions, and the plaintiff had an opportunity of recovering in the first action (namely the action in which the judgment was given) what he seeks to recover in the second ... Indeed, a plaintiff may bring successive actions, arising out of the same circumstances, so long as those circumstances give rise to different causes of action." - See paragraph 54.

Equity - Topic 5041

Merger - Judgments - General - The bank obtained default judgment in December 1997 under a fleet mortgage (approximately $12 million) - At the priorities hearing, other claimants submitted that the bank's claim should be capped at the default judgment amount, excluding $2 million added to the claim after that date - The claimants submitted that the bank's claim crystallized on the date of default judgment and the doctrine of merger applied - A Prothonotary of the Federal Court of Canada, Trial Division, rejected the submission - It was the remedy that merged with the judgment, leaving a debt to survive and where the bank had more than one remedy (e.g. collateral security), that remedy survived unimpaired by the default judgment - The Prothonotary stated that the bank obtained judgment on its debt, but "also holds a mortgage which gives rise to a claim against the res as represented by the sale proceeds of the [ship], in effect a remedy by way of the mortgage, to be exercised, to the full amount owing, in the present priority hearing." - See paragraphs 48 to 59.

Interest - Topic 5486

Interest as damages (prejudgment interest) - Particular claims - Maritime matters - A Prothonotary of the Federal Court of Canada, Trial Division, set out the following guidelines respecting prejudgment interest on maritime claims: "(1) Where a contract specifies a rate, that will be applied to the date of the sale of the [ship]; (2) Where there is no agreed rate applicable to a Canadian cause of action, provincial prejudgment interest rates may be effected; (3) Where there is no agreed contractual rate applicable to an off-shore claim, the federal Interest Act may be relevant; and (4) None of these general principles detract from the Federal Court's Admiralty jurisdiction to award pre and post-judgment interest at a rate which the court views as appropriate given the circumstances of the claim and the positions of the claimants. I shall apply these guidelines in the present instance, utilizing the court's discretion, being the fourth principle set out above, as follows: (1) Where the interest rate is set by contract, that rate shall govern from the date of the inception of the claim to the date of the order for sale of the [ship], 3 December, 1997; (2) If there is no contractual rate, the rate, to the date of the sale of the [ship], shall be 7%; and (3) post-judgment interest where there is no contractual rate shall be the average interest rate paid on the sale price fund of the [ship]." - See paragraphs 13 to 14.

Restitution - Topic 62

Unjust enrichment - What constitutes - [See Admiralty - Topic 8328 ].

Trusts - Topic 2346

Constructive trusts - Basis for imposition - Unjust enrichment - [See Admiralty - Topic 8328 ].

Cases Noticed:

Comeau's Sea Foods Ltd. v. Ship Frank and Troy, [1971] F.C. 556 (T.D.), refd to. [para. 4].

Todd Shipyards Corp. v. Alterna Compania Maritima S.A. and Ship Ioannis Daskalelis, Re, [1974] S.C.R. 1248; [1974] 1 Lloyd's Rep. 174, refd to. [para. 4].

Osborne Refrigeration Sales and Service Inc. v. Ship Atlantean I, [1979] 2 F.C. 661 (T.D.), refd to. [para. 4].

Llido v. Ship Lowell Thomas Explorer, [1980] 1 F.C. 339 (T.D.), refd to. [para. 4].

Scott Steel Ltd. v. Ship Alarissa et al., [1995] 2 F.C. 883; 111 F.T.R. 81 (T.D. Protho.), affd. (1997), 125 F.T.R. 284 (T.D.), refd to. [para. 4].

Fraser Shipyard and Industrial Centre Ltd. v. Expedient Maritime Co. et al. (1999), 170 F.T.R. 1 (Protho.), refd to. [para. 4].

Holt Cargo Systems Inc. v. Ship Brussel (2000), 185 F.T.R. 1 (T.D.), refd to. [para. 4].

Cleveland v. Boak (1906), 39 N.S.R. 39 (C.A.), refd to. [para. 21].

Ship Underwriter, Re (1868), 1 Asp. Mar. Law Cas. 127, refd to. [para. 30].

Ship Sophie, Re, [1842] 1 W. Rob. 368; 166 E.R. 610, refd to. [para. 30].

Ship Riga, Re (1872), L.R. 3; A & E 516, refd to. [para. 30].

Banco Do Brasil S.A. v. Ship Alexandros G. Tsavliris et al. (1994), 68 F.T.R. 284 (T.D.), refd to. [para. 32].

Osborne Refrigeration Sales and Service Inc. v. Ship Atlantean I (1979), 100 D.L.R.(3d) 11 (F.C.T.D.), varied (1984), 52 N.R. 10; 7 D.L.R.(3d) 11 (F.C.A.), refd to. [para. 32].

Ostgöta Enskilda Bank v. Starway Shipping Ltd. (1994), 78 F.T.R. 304 (T.D.), refd to. [para. 33].

Peat v. Gresham Trust Ltd., [1934] A.C. 252 (P.C.), refd to. [para. 33].

Ship Wilsons, Re, [1841] 1 W. Rob. 172; 166 E.R. 537, refd to. [para. 40].

Tse Kwong Lam v. Wong Chit Sen, [1983] 1 W.L.R. 1349 (P.C.), refd to. [para. 40].

Frost Ltd. v. Ralph and Roy (Rob) Investments Ltd. (1980), 40 Nfld. & P.E.I.R. 207; 115 A.P.R. 207 (Nfld. T.D.), refd to. [para. 43].

Federal Business Development Bank v. Ralph (1988), 71 Nfld. & P.E.I.R. 231; 220 A.P.R. 231 (Nfld. C.A.), refd to. [para. 43].

Dunne v. Minister of National Revenue (1995), 93 F.T.R. 115 (T.D.), refd to. [para. 43].

Jesionowski v. Gorecki and Ship Wa-Yas (1993), 55 F.T.R. 1 (T.D.), refd to. [para. 44].

European Central Railway Co. (ex parte Oriental Financial Corp.) (1876), L.R. 4 Ch. D. 33 (C.A.), refd to. [para. 50].

Cockshutt Plow Co. v. Kornyssyn, [1931] 3 W.W.R. 771 (Sask. K.B.), refd to. [para. 51].

Creighton v. Franko (1998), 151 F.T.R. 2 (T.D.), refd to. [para. 51].

McElroy v. Cowper-Smith, [1967] S.C.R. 425, refd to. [para. 52].

Montres Rolex S.A. v. Minister of National Revenue, [1988] 2 F.C. 39 (T.D.), refd to. [para. 52].

Greathead v. Bromley (1798), 7 T.R. 455; 101 E.R. 1973 (K.B.), refd to. [para. 53].

Brunsden v. Humphrey (1884), 14 Q.B.D. 141 (C.A.), refd to. [para. 54].

King v. Hoare (1844), 153 E.R. 206, refd to. [para. 55].

Thorne v. Ball (1920), 50 D.L.R. 85 (Ont. C.A.), refd to. [para. 56].

Price v. Moulton (1851), 10 C.B. 561; 138 E.R. 222, refd to. [para. 56].

Ship Skyptron, Re (1985), 621 F.Supp. 171 (La. Dist. Ct.), refd to. [para. 61].

Ship Alaskan Harvester, [1990] A.M.C. 853 (U.S. Dist. Ct.), refd to. [para. 61].

Metaxas et al. v. Ship Galaxias et al., [1989] 1 F.C. 386; 19 F.T.R. 308 (T.D.), refd to. [para. 64].

Ship Strandhill, Re, [1926] S.C.R. 680, refd to. [para. 78].

Marlex Petroleum Inc. v. Ship Har Rai et al., [1984] 2 F.C. 345; 53 N.R. 1 (C.A.), affd. [1987] 1 S.C.R. 57; 72 N.R. 75, refd to. [para. 102].

Hollandsche Aannaming Maatschappij B.V. v. Ship Ryan Leet et al. (1998), 135 F.T.R. 67 (T.D.), refd to. [para. 109].

National Corn Growers' Association et al. v. Canadian Import Tribunal, [1990] 2 S.C.R. 1324; 114 N.R. 81, refd to. [para. 110].

Ssangyong Australia Pty. Ltd. et al. v. Ship Looiersgracht et al., [1995] 2 Lloyd's Rep. 411; 85 F.T.R. 265 (T.D. Protho.), refd to. [para. 110].

Mount Royal/Walsh Inc. v. Ship Jensen Star et al., [1990] 1 F.C. 199; 99 N.R. 42 (F.C.A.), refd to. [para. 112].

Sommers v. Canada, [1959] S.C.R. 678, refd to. [para. 114].

2747-3174 Quebec Inc. v. Régis des permis d'alcool du Québec et autres, [1996] 3 S.C.R. 919; 205 N.R. 1, refd to. [para. 114].

Ship Evpo Agnic, Re, [1988] 2 Lloyd's Rep. 411 (C.A.), refd to. [para. 116].

Ship Leoborg (No. 2), Re, [1964] 1 Lloyd's Rep. 380 (H.C. Adm.), refd to. [para. 118].

Ship Beldis, Re, [1936] P. 51, refd to. [para. 118].

Ship Julindur (1853), 1 Sp. Ecc. & Ad. 71; 164 E.R. 42, refd to. [para. 118].

Ship Acrux, [1965] P. 391, refd to. [para. 118].

Ship John G. Stevens, Re (1898), 170 U.S. 113, refd to. [para. 137].

Statutes Noticed:

Federal Court Act, R.S.C. 1985, c. F-7, sect. 22(1), sect. 22(2)(m), sect. 43(8) [para. 107].

Authors and Works Noticed:

Dunlop, C.R.B., Creditor-Debtor Law in Canada (2nd Ed. 1994), pp. 200 [para. 55]; 202, 203 [para. 58].

Gilmour and Black, The Law of Admiralty (2nd Ed. 1975), s. 9-84 [para. 61].

Halsbury's Laws of England (4th Ed. 1976), vol. 16, p. 869 [para. 51]; vol. 26, p. 274 [para. 50]; vol. 26, para. 551 [para. 54].

Jackson, Enforcement of Maritime Liens (2nd Ed. 1998), p. 391 [para. 118].

Parks, Tug and Tow (3rd Ed. 1994), p. 784 [para. 105].

Price, The Law of Maritime Liens (1940), p. 115 [para. 105].

Spencer-Bower, Turner and Handley, The Doctrine of Res Judicata (2nd Ed. 1969), generally [para. 55].

Tetley, William, Maritime Liens and Claims (1st Ed. 1985), p. 258 [para. 96].

Tetley, William, Maritime Liens and Claims (2nd Ed. 1998), pp. 607 [para. 133]; 875 [para. 80]; 1032 [para. 118]; 1230, 1231 [para. 17].

Counsel:

Peter Bernard, for the plaintiff;

Louis Buteau, for the claimant, Alpha Bunkering Co.;

Jonathan McLean, for the claimant, Aktina S.A.;

David McEwen, for the claimant, Ashland Chemical Co.

Solicitors of Record:

Campney & Murphy, Vancouver, British Columbia, for the plaintiff;

Sproule Castonguay, Pollack, Montreal, Quebec, for the claimant, Alpha Bunkering Co.;

Edwards, Kenny, Bray, Vancouver, British Columbia, for the claimant, Aktina S.A.;

McEwen, Schmitt & Co., Vancouver, British Columbia, for the claimant, Ashland Chemical Co.

This case was heard on January 6, 1999, at Vancouver, B.C., before Hargrave, Prothonotary, of the Federal Court of Canada, Trial Division, who delivered the following judgment on August 2, 2000.

                                                                                                   

INDEX

Paragraph #s
SOME USUAL PRIORITIES			4 - 8
CLAIMS			9 - 10
	Exchange Rates		11- 12
	Interest on Claims		13 - 14
	Payment of Crew Wages and Costs of Sale		15 - 18
	The Mortgagee		19
		(a) Form of Mortgage	20 - 22
		(b) The Claim of the Bank of Scotland	23 - 25
		(c) Recovery by the Bank of Scotland	26 - 28
		(d) Attacks on the Bank of Scotland Security	29 - 33
		(e) Indirect Profit on Purchase and Resale of the Blue L.	34 - 47
		(f) Early Crystallization of the Bank of Scotland Claim	48 - 59
		(g) Ranking of the Bank of Scotland's Claim	60 - 66
		(h) Summary of Amounts Payable to the Bank of Scotland	67 - 70
	Claim of Alpha Bunkering		71 - 83
	Claim of Aktina S.A.		84 - 99
	Claim of Ashland Chemical Company		100 - 123
	Claim of Sait Commuications S.A.		124 - 129
	Claim of Bureau Veritas		130 - 135
	Claim of Mariners' Medical Clinic		136 - 139
	Holders of Statutory Rights In Rem		140 - 141
ABANDONED CLAIMS			142
CONCLUSION			143