Atlantic yacht & ship Inc. V. Sovereign yachts (Canada) Inc., 2003 FC 965

Date: 20030808

Docket: T-984-03

Citation: 2003 FC 965

BETWEEN:

                                                    ATLANTIC YACHT & SHIP INC.

                                                                                                                                                          Plaintiff

                                                                                 and

                                           SOVEREIGN YACHTS (CANADA) INC. and

                                 THE OWNERS AND ALL OTHERS INTERESTED IN

                                THE SHIP "STATUS QUO" also known as SOVEREIGN

                                                       HULL NUMBER SYCC9162001

                                                                                                                                                    Defendants

                                                            REASONS FOR ORDER

HARGRAVE P.

[1]         In August of 1999 the Plaintiff, Atlantic Yacht & Ship Inc. ("Atlantic") entered into a marketing agreement, some form of a personal service contract, with the Defendant shipbuilder, Sovereign Yachts (Canada) Inc. ("Sovereign") whereby Atlantic would provide marketing and brokerage services for Sovereign at a commission of 5% of the price of vessels for which Atlantic found a buyer. In February of 2002 Atlantic delivered to Sovereign Mr. Don Davis of Florida, U.S.A. as a buyer for a 138-foot yacht, to be built by Sovereign, now called Status Quo, the vessel being for export to the United States in order to avoid Canadian sales tax. On 16 February 2002, Sovereign entered into a $10,925,000 (US) construction agreement with Mr. Davis. At the same time Sovereign and Atlantic entered into a commission agreement for brokerage, again a personal service contract whereby, as progress and any other payments were made by Mr. Davis to Sovereign, Sovereign would, within a week, pay 5% to Atlantic. There were other terms in the commission agreement, however they are not relevant for the approach I have taken to the present successful motion, that of Mr. Davis, to strike out Atlantic's in rem claim against the Status Quo, is based on the jurisdiction of the Court.

CONSIDERATION

[2]         Sovereign made substantial commission payments to Atlantic, then ran into financial difficulties and ceased to pay the agreed 5% commission. Thus the present action by Atlantic against Sovereign in personam and against the Status Quo in rem.

[3]         In all probability Mr. Davis has fully paid Sovereign for the yacht, leaving only a mortgage placed on the vessel by Sovereign in favour of Caterpillar Financial Services Corporation, which is an obligation of Mr. Davis. Indeed, by a supplemental agreement of September 2002, between Mr. Davis and Sovereign, the latter acknowledged that Mr. Davis had and continued to build a beneficial interest in the Status Quo and that Sovereign continued to hold legal title in trust for Mr. Davis.

[4]         Mr. Davis, as beneficial owner (subject to paying for the equity of redemption involved in the Caterpillar mortgage) and second mortgagee, now finds the Status Quo under arrest at the suit of the broker, Atlantic. When one thinks of all of this through it is quite anomalous, to say the least, that a broker, having contracted with a builder to find a buyer for a vessel and having successfully found the buyer, could then turn around and arrest that same vessel which beneficially belongs to that buyer. Indeed, here we have a third party, Mr. Davis, who had contracted to purchase and receive a large yacht free and clear of claims except as to that of Caterpillar Financial Services, but who now discovers the demand by Sovereign's broker, Atlantic, against Sovereign, being enforced by a claim against the Status Quo, a vessel in which Sovereign in all probability has only a bare legal interest or the interest of a bare trustee.

[5]         In submitting that the Status Quo ought to be released from arrest, counsel for Mr. Davis has raised a number of issues, including not only the lack of a right of a broker to sue the buyer's vessel in rem as a result of a breach of an in personam contract between broker and builder, but also that well before the action was commenced the whole of the beneficial ownership in the Status Quo had passed to Mr. Davis, thus cutting off any in rem claim by virtue of section 43(2) of the Federal Court Act: section 43(3) provides that certain uncrystallized in rem claims are cut off by a change in beneficial ownership. While counsel for Mr. Davis may well be right in these analyses, I have struck out the in rem aspect of the Statement of Claim by a more direct route, that of lack of in rem jurisdiction in the Federal Court, over the res, by which to enforce Atlantic's claim.

[6]         I begin with the proposition that an in rem proceeding will only lie if there is a connection between the claim and the defendant vessel of a type which would bring it within the statutory in rem jurisdiction of the Federal Court. Here I recognize that the onus on a party desiring to strike out a pleading, that it must be plain, obvious and beyond doubt that the action is so clearly futile that it has not the slightest chance of success, is a stringent onus.

[7]         In taking this jurisdictional approach I have kept in mind that the Supreme Court, in ITO-International Terminal Operators v. Miida Electronics [1986] 1 S.C.R. 752 observed that "An historical approach may serve to enlighten, but it must not be permitted to confine." (p. 774). Mr. Justice McIntyre went on to define Canadian Maritime law in very broad terms which "...would include an unlimited jurisdiction in relation to maritime and admiralty matters. ...Those matters are not to be considered to have been frozen by the Admiralty Act 1934. On the contrary, the words "maritime" and "admiralty" should be interpreted within the modern context of commerce and shipping." (loc. sit.). Mr. Justice McIntyre went on to caution against encroachment on matters which are in pith and substance, matters of local concern involving property, civil rights or other matters exclusively within the jurisdiction of provinces. In taking this expanded view of Canadian maritime law, which I believe should be applied not only to section 22(1) generally, but also to the specific heads of section 22(2), I must still keep in mind that even in utilizing a contemporary approach I should consider the natural meaning on reading through the provision at issue: I must not distort the statutory jurisdiction granted to the Federal Court by giving a forced and unreasonable reading to sections of the Federal Court Act which are relevant in the present instance.

[8]         As I say, I have determined that the Federal Court does not have jurisdiction which would allow the broker, Atlantic, to claim in rem against the Status Quo. This want of jurisdiction approach was taken by Mr. Justice Joyal in Corostal Trading Ltd. v. Catalina (1986) 6 F.T.R. 233. In Corostal at issue was a claim arising out of a contract for the sale of a ship, not in the sense of a claim between vendor and purchaser, but by a third party, presumably a ship broker.

[9]         Mr. Justice Joyal looked upon the action in rem as an extraordinary remedy. However he began with the proposition that in the absence of a right in rem the Court had no jurisdiction to entertain a claim in contract. He considered the subjects or particular fields set out in section 22(2) of the Federal Court Act. He found nothing "which would clothe the Court with the necessary jurisdiction." (page 234). He went on to strike out the action and to annul the arrest of the vessel.

[10]       Mr. Justice Joyal concluded with the comment that because there was not jurisdiction under any of the heads of section 22(2) of the Federal Court Act, he did not need to consider section 43 of the Federal Court Act and explore beneficial ownership when the cause of the action arose, in order to determine if there might be in rem enforcement.

[11]       In the present action the Statement of Claim is in contract, being a marketing and brokerage services contract and a separate later contract in the form of a commission agreement. There is no claim, set out in the Statement of Claim, against Mr. Davis. The Statement of Claim is thus not helpful for while it is styled as an action in rem and in personam, there is neither a discernable in rem claim nor a plea providing a nexus between the contracts and the vessel Status Quo.

[12]       The affidavit to lead warrant is more helpful. While it does not set out a factual connection between the Status Quo and either the brokerage contract or the commission contract, it does contain a bare assertion that:

3. ...

(g)            The basis of invoking the in rem jurisdiction of the Court is that the claim under the Commission Agreement is tied to and made with respect to the proceeds of the sale of the Status Quo, pursuant to Section 22(2)(a) of the Federal Court Act. In addition, the claim under the Commission Agreement arises out of a contract relating to the construction and equipping of the Status Quo, pursuant to Section 22(2)(n) of the Federal Court Act.

This assertion seems to contain an admission that the commission agreement relied upon by Atlantic is once removed from the building agreement between Sovereign and Mr. Davis. By section 43(2) of the Federal Court Act the jurisdiction conferred by sections 22(2)(a) and (n) of the Federal Court Act, relied upon by Atlantic and to which I will turn shortly, may be exercised in rem. Thus I must examine sections 22(2)(a) and (n) of the Federal Court Act, in the light of section 43(2) of the Act in order to determine if there is any possibility of Federal Court jurisdiction.

[13]       Section 43(2) of the Federal Court Act provides that:

There are two relevant concepts here: first, the exercise of an in rem claim against a ship; and second, the exercise of an in rem claim against proceeds of sale that have been paid into Court. It is the second concept that presents difficulties for Atlantic: even if one were to assume that the commission payments are somehow sale proceeds, none have been paid into Court to support an in rem claim. The exception contained in section 43(2), which is a bar to an in rem claim under certain section 22(2) heads, involves certain conditions of beneficial ownership, an avenue which I need not explore.

Section 22(2)(a) of the Federal Court Act

[14]       Sections 22(2)(a) and (n) of the Federal Court Act provide as follows:

[15]       On its ordinary and natural meaning section 22(2)(a) of the Federal Court Act deals with in rem jurisdiction as to title, possession or ownership of a ship or an interest in a ship. It goes on to grant jurisdiction over "the proceeds of sale of a ship", however not only should the proceeds flow from the primary objective of the provision, a claim as to title, possession or ownership, but also, there are clearly no proceeds involved, but rather only a commission, much of which has been paid. There are no funds in Court, as required by section 43(2), in order to allow in rem procedure. That I ought not to construe section 22(2)(a) in a narrow manner is clear from [1980] 1 S.C.R. 553">Antares Shipping v. The Capricorn [1980] 1 S.C.R. 553 at 566. However [1980] 1 S.C.R. 553">The Capricorn dealt with a claim between parties to a contract for the sale and purchase of a ship and is thus not of any direct assistance in the present context of a claim by Atlantic as a yacht broker who is not a party to the sale and purchase agreement between Sovereign and Mr. Davis.

[16]       I am unaware and have not been referred to any reported cases, other than Corostal (supra) dealing with a ship brokerage type claim, being a claim which does not involve a dispute as to title, possession or ownership. Certainly Corostal is authority for want of jurisdiction under section 22(2)(a).

[17]       Also of some assistance is the view expressed in Jackson on Enforcement of Maritime Claims, 3^rd Edition, LLB Professional Publishing, London 2000, at page 46, that the parallel provision in the Supreme Court Act of 1981, given its broadest interpretation, by way of the residual jurisdiction of the British High Court of Admiralty, usually referred to as the "sweeping up provision", now being section 20(1) of the Supreme Court Act of 1981, does not extend the jurisdiction as to ownership to a mere personal creditor. This limitation is as to section 30 of the Merchant Shipping Act of 1894, as amended 1988, but by analogy is applicable to the present claim of jurisdiction. For the authority for this proposition in Jackson and a full discussion of the position of a personal creditor, see The Mikado [1992] 1 Lloyd's 163, a decision of Mr. Justice Sheen.

[18]       Atlantic submits that its agreements with Sovereign amount to an assignment of a portion of each payment made by Mr. Davis to Sovereign as the Status Quo took shape in Sovereign's shipyard. Even accepting this analysis, it does not assist in establishing an in rem claim against the ship Status Quo.

[19]       Clearly no in rem jurisdiction in favour of Atlantic, as a personal contractual creditor of Sovereign, may be found in section 22(2)(a) of the Federal Court Act. Here I do not consider whether the Federal Court has jurisdiction between Atlantic and Sovereign on a purely contractual matter: that may be for another day. I now turn to section 22(2)(n) of the Federal Court Act.

Section 22(2)(n) of the Federal Court Act

[20]       Section 22(2)(n) deals with contractual claims arising out of the construction, repair or equipping of a ship. In the present instance the contract between Sovereign and Mr. Davis was for the construction of a vessel. As I understand the position of Atlantic it is in part that Atlantic was closely involved in negotiating the contract between Davis and Sovereign and indeed a construction contract would not exist without that facilitation by Atlantic and the agreement between Atlantic and Sovereign as to commission. Thus Atlantic contends that it should come within section 22(2)(n) of the Federal Court Act.

[21]       Atlantic also submits that it was to have contributed $75,000 from its last commission payment towards the purchase of a tender for the Status Quo. There is no evidence to suggest other than that the $75,000 was a discount to relieve Sovereign of that much of the commission which was to be paid by it to Atlantic. Sovereign might have used that money to provide a tender for the Status Quo, but there is no contractual evidence of such an obligation to Mr. Davis on the part of Sovereign. There is nothing to raise Atlantic into the position of having provided equipment or necessaries, to the Status Quo, which would in turn give rise to an in rem claim against the Status Quo. Indeed, nothing having been provided to the Status Quo, in way of a tender, there can be no in rem claim on the tender argument.

[22]      

The case of Atlantic Sandblasting & Coatings Inc. v. Marine Industries Limited [1982] 2 F.C. 883 is also instructive. There a contract for ship repair was negotiated and entered into between Atlantic Sandblasting, on the one hand, and Marine Industries on the other hand, being to repair the Gulf MacKenzie, which was owned by the Defendant Gulf Canada Limited. The latter took no part in the negotiations. There was no evidence either that the repairer was looking to the ship (or for that matter to the shipowners) for payment, or that the shipowner somehow induced performance of the repair contract: this is analogous to the present situation, with Mr. Davis having no part in the contracts between Atlantic and Sovereign. In Atlantic Sandblasting the Court looked both to section 22(2)(m) bearing on provision if necessaries and to section 22(2)(n) of the Federal Court Act to determine if there was in rem jurisdiction. Associate Chief Justice Jerome wrote "I quickly set aside paragraph 22(2)(n) since there is no allegation of any contractual involvement on the part of the owners." (page 885). That is the present situation. There is no allegation in the Statement of Claim as to any involvement by Mr. Davis in either of the two contracts between Atlantic and Sovereign. Certainly Atlantic may have had prior dealings with Mr. Davis and may have offered some inducements to Mr. Davis in order to get him to contract with Sovereign for the construction of the vessel. However, there is no evidence or allegation of contractual involvement by Mr. Davis in the contract between Atlantic and Sovereign and thus section 22(2)(n) of the Federal Court Act must be set aside as a source of in rem jurisdiction.

CONCLUSION

[23]       The standard which Mr. Davis must meet in order to succeed in striking out any in rem aspect of the Statement of Claim is very strict. He must show that it is plain, obvious and beyond doubt that the in rem claim is so clearly futile that it has not the slightest chance of succeeding. He has clearly met that standard. The action will therefore proceed without any in rem aspect, which aspect is struck out.

[24]       As the Court of Appeal pointed out in Paramount Enterprises International Inc. v. An Xin Jiang [2001] 2 F.C. 551 at page 566:

Once it has been decided that an action in rem was not permitted, it follows that the warrant could not have been issued and was void ab initio. At the stage of a motion to strike out the proceeding in rem, the Court is merely observing that the warrant of arrest must suffer the same fate of the proceeding in rem to which it is attached.

The action in rem against the Status Quo is dismissed. Following the Court of Appeal in Paramount Enterprises, the warrant, being void ab initio, has no effect and thus the vessel is released from arrest.

[25]       Costs normally follow the event. However counsel for the Plaintiff requested that costs be dealt with later. If counsel for Atlantic and for Mr. Davis cannot agree, costs may be spoken to at a convenient time.

(Sgd.) "John A. Hargrave"

    Prothonotary

August 8, 2003

Vancouver, British Columbia

                                       FEDERAL COURT

    NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                   T-984-03

STYLE OF CAUSE: Atlantic Yacht & Ship Inc. V. Sovereign Yachts (Canada) Inc. et al

PLACE OF HEARING:                                   Vancouver, B.C.

DATE OF HEARING:                                     July 31, 2003

REASONS FOR :    Hargrave, Prothonotary

DATED:                      August 8, 2003             

APPEARANCES:

Mr. Stephen D. Gill                                              FOR PLAINTIFF

Ms. Lilac Bosma

Mr. Peter Bernard                                                FOR DON DAVIS, MORTGAGEE & BUYER OF SHIP "STATUS QUO"

SOLICITORS OF RECORD:

Edwards, Kenney & Bray                                                 FOR PLAINTIFF

Vancouver, B.C.

Bernard & Partners                                              FOR DON DAVIS,

Vancouver, B.C.                                                  MORTGAGEE & BUYER OF SHIP "STATUS QUO"