Date: 20010202
Docket: T-1944-98
Citation: 2001 FCT 13
BETWEEN:
RICHARDSON INTERNATIONAL, LTD.
Plaintiff
- and -
ZAO RPK "STARODUBSKOE", J.S.K. SAKHALIN LEASING CO.
AND THE OWNERS AND ALL OTHERS INTERESTED IN
THE SHIP "MYS CHIKHACHEVA" AND HER CARGO
Defendants
REASONS FOR JUDGMENT
DUBÉ J.:
[1] The defendant vessel "Mys Chikhacheva" was arrested by the plaintiff at Nanaimo, British Columbia, on October 13, 1998, by virtue of a warrant of the same date based on a maritime lien for necessaries. The arrest gave rise to several complex issues including the ownership of the vessel, the determination of the proper law to be applied to the case and the existence of a maritime lien against the vessel.
1. Facts
[2] The plaintiff Richardson International Ltd. ("Richardson") is a corporation duly incorporated under the laws of the State of Washington, U.S.A., and carries on the business of purchasing and marketing fishery products on a worldwide basis. Between January 19, 1995, and December 19, 1996, there were two separate corporations, Richardson International Ltd. and RIL Ship Management Ltd., both of which were merged to form the present Richardson in 1998.
[3] The defendant ZAO RPK Starodubskoe ("Starodubskoe") is a corporation formed under the laws of Russia with an address on the Sakhalin Island. It has not filed a defence in the instant action and Richardson has obtained a default judgment against it in the state of Washington.
[4] The defendant J.S.K. Sakhalin Leasing Co., also referred to as J.S.K. Sakhalin Leasing Flot and referred to in these reasons as "Sakhalin Leasing" is a corporation formed under the laws of Russia. It has been struck out as a defendant by order of this Court dated November 27, 1998. The sole defendant is now Bering Trawlers Ltd. ("Bering"). It claims that it was at all material times the true owner of the "Mys Chikhacheva". The first key issue is to determine the real ownership of the vessel.
[5] Prior to 1995, Richardson had substantial experience in managing Russian fishing vessels and selling products from these vessels. It made contacts with Russian fishing enterprises in the Sea of Okhotsk. Some of these fishing enterprises were "kolkhozes", or collective enterprises originally established in the Soviet period. In late 1994, Mrs. Lynn Richardson, Chief Executive Officer of Richardson, was introduced to V. Moukhin, the general director of Starodubskoe which was previously known as the Fishing Kolkhoz Kotovsky ("Kotovsky") and operated some 15 fishing vessels. Among these were the "Yuzhnie Kurily", a "mother ship" or factory processing vessel, and two Sterkoder trawlers, the "Mys Chikhacheva" and the "Mys Slepikovskogo".
[6] In January 1995, Lynn Richardson went to the harbour master's office in Nevelsk, Sakhalin Island, in the company of Mr. Moukhin and a Russian employee of Richardson, Natasha Sabutskaya. There she was shown certificates of ownership for the three vessels indicating that they were owned by Kotovsky. Mr. Moukhin gave Lynn Richardson a copy of an official document dated November 16, 1994, relating to the change of name from Kotovsky to Starodubskoe and an English translation. Mr. Moukhin died in the spring of 1995 and was succeeded by Mr. Ivlev as the general director of Starodubskoe.
[7] In October 1995, Richardson and Starodubskoe entered into an arrangement pursuant to which Richardson would lend U.S. $4,000,000 to Starodubskoe for the purpose of refitting the "Yuzhnie Kurily" so that this vessel could process fish products meeting U.S. and Western European standards, and also to provide essentials to the three vessels to allow them to operate. Richardson was to have the exclusive right to market the products of the three vessels until the debt for the conversion of the "Yuzhnie Kurily" was repaid, and thereafter until the arrangement was terminated by one or the other party.
[8] This arrangement was reflected in a group of contracts executed in English and Russian on October 24 and 25, 1995, consisting in a mortgage on the "Yuzhnie Kurily", a promissory note, a marketing contract and an addendum to each of the three documents.
[9] The refit of the "Yuzhnie Kurily" was carried out at Pusan, Korea, from November 1995 to February 1996 at a cost of over U.S. $2.9 million, all paid through the Richardson loan.
[10] When the three vessels began fishing in the Sea of Okhotsk in early 1996, Starodubskoe requested Richardson to supply fuel and provisions to the vessels. The requests were to be approved by Mr. Dick Richardson, President of Richardson. All arrangements for the supply of provisions were made in Seattle, Washington. Some of the provisions were transferred from other fishing vessels and the remainder were shipped by a Seattle company to the Sea of Okhotsk. Richardson also paid for the salaries and travel expenses of technicians to service the fish processing machines on board the "Mys Chikhacheva".
[11] At the same time as Richardson was supplying the three vessels in the early spring of 1996, Starodubskoe was selling the production from the vessels to third parties in violation of the assignment of product and marketing contract. In fact, the very first trans-shipment of fish from the "Mys Chikhacheva" in the 1996 fishing season was delivered to a third party.
[12] When Richardson discovered this, it protested strongly about the breaches of contract but further trans-shipments continued to third parties as well as to Richardson.
[13] Finally, Starodubskoe sent a fax in May 1996 purporting to terminate its contracts with Richardson. On September 6, 1996, Starodubskoe signed an acknowledgment of global indebtedness to Richardson in the amount of U.S. $1,828,728.40. It was never paid. In 1997, Starodubskoe entered a form of bankruptcy in Russia. On October 27, 1997, the arbitration manager (a form of trustee) of Starodubskoe confirmed that the latter's debt to Richardson then stood at U.S. $2,206,344.00. Nothing was paid to Richardson by or on behalf of Starodubskoe.
[14] On October 13, 1998, the "Mys Chikhacheva" was arrested in Nanaimo, B.C. This was the first opportunity Richardson had to arrest the vessel. On July 23, 1999, Richardson obtained a default judgment against Starodubskoe in the U.S. District Court at Seattle, Washington. Richardson was unable to recover from the judgment as Starodubskoe was by then in Russian bankruptcy.
[15] Richardson heard from Bering for the first time at the commencement of this action. It had no prior notice of its existence or its alleged ownership of the "Mys Chikhacheva".
2. Ownership of the Vessel
[16] Evgueni Knijnikov was called by the plaintiff as an expert in Russian maritime law. He has practiced law for over 25 years. He is a member of the Russian Bar and also of the Washington State Bar Association, U.S.A., as a foreign law consultant. He studied the two documents obtained by Richardson: the Ship's Certificate issued on September 1, 1994, for the "Mys Chikhacheva" to Kotovsky and the November 16, 1994 Resolution re-registering the fishing kolkhoz Kotovsky into the Fishing Corporation Starodubskoe.
[17] In his opinion, the Ship's Certificate complies with the Russian law effective at that time, namely articles 19, 27, 30 and 34 of the Merchants Marine Code effective in Russia from 1968 through 1999. The Ship's Certificate is the conclusive proof of Kotovsky's right to the ownership of the vessel "Mys Chikhacheva". It is also clear from that document that the vessel did not have any previous ownership. The vessel was later transferred to Starodubskoe. The document of re-registration complies with the Russian law (article 57 of the Civil Code of the RF. He concluded as follows:
| 6. Based on the submitted documents and on the norms of the Russian Law effective at that time in Russia (1994), I have come to a firm conclusion that at the time of the registration of the vessel "Mys Chikhacheva" in port Nevelsk, Russia, no foreign company had the right of ownership to the vessel Mys Chikhacheva. The vessel was owned solely by fishing kolkhoz Kotovsky. Parallel registration of a vessel, right of ownership and flag, both in Russia and in any foreign country at the same time, is not allowed according to Article 27 of the Merchants Marine Code of the USSR. |
[18] The defendant Bering called as its expert in Cypriot maritime law, Panayiotis Neocleous, an advocate registered with the Cyprus Bar. He examined nine documents from the Cyprus Registry and a Certificate of Navigation under the Flag of Russia. He concluded that the "Mys Chikhacheva" is permanently registered under the Cypriot Flag and registered parallel out in the Russian Federation, the legal owners are Bering Trawlers Limited of Limassol, Cyprus, and section 23R of the Merchant Shipping Law of Cyprus prohibits any dealings with the ownership of the vessel unless they have been registered in accordance with the provisions of Cypriot law.
[19] In his opinion, "as of today's date the ownership of the Vessel remains unaltered and the registered legal owner of the Vessel is Bering Trawlers Limited".
[20] Bering also called its own expert in Russian maritime law, Peter Falileev, a partner in the Jurinflot International Law Firm of Moscow, Russia. He examined the same group of documents as were before Panayiotis Neocleous and also other Russian documents. He concluded that the "Mys Chikhacheva" was built for the account of Bering Trawlers Limited, Cyprus, and the vessel is the sole property of that company. The "Mys Chikhacheva" was provisionally registered under Cyprus Flag on June 21, 1996, and permitted to sail under the Flag of Russia because it was bareboat chartered by Bering, the owner, to Kotovsky.
[21] In his opinion, it is clear from the documents that the intention of Bering, as a registered owner, was to bareboat charter the vessel to Kotovsky and register the vessel under the Russian Flag. The Russian Fisheries Committee issued a consent for Kotovsky to bareboat charter the vessel on May 17, 1994. Before May 1999, when the Russian Shipping Merchant Code was adopted, bareboat chartered vessels were to be registered in a Ship Register as vessels owned by Russian entities.
[22] Mr. Falileev examined the Ship's Certificate dated September 1, 1994, and the Certificate of Navigation under the Flag of Russia dated September 14, 1995. He acknowledged that these documents do not contain a reference to Bering, the owner of the vessel, but that the name of Kotovsky appeared as owner. In his opinion, that "does not mean that this person is the owner in fact". At the time, the Instruction 1992 "provided the possibility of registration of bareboat chartered vessels in the Russian Federation but did not provide the special bareboat charter Register which was adopted only in 1999 ... Thus the Russian law in 1994 provided [the] possibility to register foreign vessels under the Russian flag on the basis of bareboat charter but unfortunately did not provide forms of Russian documents where owners and the charterers shall be stated ... This is a true reason for the confusion". He concluded as follows:
| 27. My above conclusion regarding the owner of the vessel "Mys Chikhacheva" contradicts the statement of Mr. Evgueni Knizhnikow. Mr. Knizhnikov declared that he analyzed the Ship's Certificate dated 1st of September 1994 and the document regarding reorganization of Rybkolhoz Kotovskij to ZAO RPK Starrodubskoe. On the basis of these documents he concluded that the Ship's certificate was the conclusive proof that Rybkolhoz Kotovskij was an owner of the vessel "Mys Chikhacheva". I believe that such conclusion of Mr. Knizhnikov is wrong because firstly he made it apparently without analyzing of all documents connected with the vessel and mentioned above. Secondly, nothing in the Russian shipping law which was in force in 1994 says that the Ship's Certificate is the conclusive proof of ownership. Thirdly, it is clear for me that Mr. Knizhnikov totally ignored the Russian practice (when the charterer may be stated as the owner in the relevant Certificates issued by Russian Harbour Masters). Additionally, the conclusion made on the second page of the statement of Mr. Knizhnikov that the title to the vessel "Mys Chikhacheva" belonged to Rybkolhoz Kotovskij and not to other persons because the parallel registration was not allowed in the Russian Federation is also totally wrong. The parallel registration (the registration of bareboat chartered vessels) was allowed in the Instruction 1992 what was described in detail by me above. All documents analyzed by me prove the true owner of the vessel "Mys Chikhacheva" is Bering Trawlers Limited and the charterer is Rybkolhoz Kotovskij. |
[23] Mr. Evgeniy Yarygin, Chairman of the Sakhalin Union of Fishing Collectives ("the Union"), testified at discovery and at the hearing on behalf of Bering. The Union has some 10,000 members and 21 organizations, including Bering and Starodubskoe. It owns 99.9% of the shares in Bering. The Union carries on general marketing activities, provides technology advice on the operations of vessels, legal services and government relations. He identified all the documents which formed the basis for the experts' opinions, including the loan agreement with the bank to build the vessels, the time charter from Bering to Kotovsky, the consent of the State Fishery Committee of the Russian Federation to Starodubskoe to bareboat charter the "Mys Chikhacheva", the builder's certificate of the "Mys Chikhacheva", the consent of the bank to bareboat charter in parallel registration of the vessels, various certificates of registry in Cyprus, and other related documents.
[24] He only became aware of the existence of Richardson in 1998 following the arrest of the "Mys Chikhacheva" in Canada. Starodubskoe being in default, the bank and Bering created a separate organization to operate the vessels and sublet it to a company by the name of Zaliv on December 9, 1996. The bareboat charter to Starodubskoe was cancelled.
[25] In his experience, the term "owner" in Russian means the operator responsible for the vessel and not the real owner because at the time the only real owner in Russia was the Government.
[26] Richardson claims that Bering itself is a sham, being a mere emanation of the Union. It falls within the meaning of that term as enunciated by the Supreme Court of Canada in Stubart Investments Ltd. v. Canada1. It is merely a company intended to create an appearance of legal rights and obligations different from those existing in reality. Mr. Yarygin, the Chairman of the Union, testified at the trial that Bering has no actual source of income, no business other than to be recorded as the nominal title holder of the "Mys Chikhacheva" and her sister ships in Cyprus, no employees, no bank account, nothing to do with the operation of a vessel. Finally, Bering and the Union are almost the same as the shares in Bering are 99.9% beneficially owned by the Union. Consequently, the Court may ignore the interposition of a sham corporation and look into the legal relations that are created in reality2.
[27] Richardson further submits that Bering is merely a corporate fiction that enables the Union to interchange the ownership of the vessels so as to avoid claims of creditors. The evidence of Mr. Yarygin that the operation of the "Mys Chikhacheva" from Starodubskoe to Zaliv, a wholly owned subsidiary of Starodubskoe, and then to Sakhalin Leasing Flot, another member of the Union, confirms that Bering is a mere fictitious entity.
[28] In my view, although these unfamiliar corporate structures and unusual transactions may appear to be devious and deceptive, the evidence adduced at the trial is not sufficient to allow me to lift the corporate veil. The test which must be met to pierce the corporate veil is heavy3.
[29] In a somewhat similar factual situation, the New Zealand High Court in The "Rangiora", "Ranginui" and "Takitimu"4, found that the ultimate beneficial owners of each vessel were the individual co-owners holding specified interests in each "partenreederei" (a German form of ship co-ownership) and that they were not to be treated in the same way as shareholders in a limited liability company. The creditors argued that despite this finding, the involvement of one particular individual by the name of Löwer, at each stage of the corporate and transactional structure, led to the conclusion that the structure was a sham, that South Pacific Shipping was in fact acting as agent of the owners through the management company owned and controlled by Löwer. The Court rejected this argument as follows:
| ... On the evidence currently before the Court, I see considerable difficulty in the way of the plaintiffs succeeding on the sham argument. The structure is not an unfamiliar one in the maritime and chartering industry. The concept of one-ship companies is well known. Frequently vessels are chartered by head and sub-charters to a convenient flag for crewing, financing and taxation purposes. By so doing the vessel may become more attractive both to investors and on the international chartering market. That is the explanation offered in the context of the present structure and I see no reason, on the currently available evidence, why that position should not be accepted at face. The involvement of Mr. Löwer in the company which acts as korrespondentreeder and in each of the Antigua and Barbuda head charter companies is not necessarily fatal to a genuine structure. Mr. Löwer and interests associated with him have individual interests in each of the three partenreederei. Mr. Löwer may well be the "brains" behind the formation of these partenreederei created to own and operate these ships. But that fact, on its own, does not mean that the structures are shams. Neither does it necessarily create a basis for lifting the corporate veil. |
[30] Similarly, in the instant case, I see considerable difficulty in the way of Richardson succeeding on the sham argument. More evidence, expert as well as factual, would be necessary for a Canadian court to declare that this type of collective structure, apparently acting legally in Russia, was used as a front to defraud creditors. Such a prominent collective Union, involving so many fishing organizations and vessels, surely must have a past and a public record on the Sakhalin Island. Richardson cannot have been the only party involved with the Union, Bering and/or Starodubskoe. It has not shown to my satisfaction that the unfamiliar Russian structure was merely a sham.
[31] I must therefore conclude that Starodubskoe is not, and has never been, the owner of the "Mys Chikhacheva". The owner has been, since the vessel was constructed, and continues to be Bering.
[32] However, Starodubskoe was at least a bareboat charterer and, under American law, a charterer is presumed to have the authority to procure necessaries and to create a maritime lien upon the vessel.
3. The Proper Law
[33] Richardson has pleaded that the American law governs this matter and produced the only American legal expert to testify on American law with respect to necessaries and maritime liens5. Bering has not pleaded the applicability of Russian law. In the absence of such pleading and proof thereof, the Court will presume that Russian law is the same as the law of the forum, in this instance, Canadian law6. However, the burden is on Richardson to show that the U.S. law applies. The latter provides for a maritime lien for necessaries. Canadian law does not7.
[34] It is common ground that this Court determines the applicable system of law by applying Canadian conflict of laws rules. These rules have been established by the Federal Court of Appeal as follows8:
| 1. Where the parties expressly or by implication choose the system of law that is to govern the contract, that will normally be held to be the proper law of the contract. |
| 2. Where the parties have not chosen the proper law, the court determines, in light of all the circumstances, the system of law with which the contract has the closest and most real connection. |
[35] It is Richardson's submission that the supply of necessaries to the "Mys Chikhacheva" was carried out within a pre-existing commercial relationship arising from a constellation of integrated contracts. Specific paragraphs from these contracts show a clear intention by the parties that the law in effect in the State of Washington was to govern the entire relationship. That law is U.S. law. Moreover, the system of laws with which the supply transactions had their closest and most real connection was the State of Washington. Richardson points specifically to clause 27 of the mortgage from Starodubskoe as mortgagor and Richardson as mortgagee on the vessel "Yuzhnie Kurily" dated October 24, 1995, which reads as follows:
| 27. Governing Law. To the extent not governed by the laws of Russia, the Mortgage shall in all respects be governed by and construed in accordance with the laws of the State of Washington. The Owner irrevocably submits to the nonexclusive jurisdiction of the state and federal courts situated in King County, Washington in any proceeding relating to this Mortgage and agree that any process or summons in any such action may be served by mailing to Owner a copy thereof. As used in this Section 27, "the laws of the State of Washington" include all laws of the State of Washington except the conflicts of laws |
| principles, it being the intent that the substantive laws of Washington shall always apply. |
[36] Richardson describes clause 27 as a prime component of the Richardson/ Starodubskoe's relationship. Clause 27 does, however, recognize that some aspects of the mortgage itself, such as registration of the document in the vessel's own port, would be governed by Russian law: where assets located in a particular country are pledged to secure an obligation, the law of that country necessarily governs some aspects of the way the security must be perfected. Nevertheless, the proper law of the underlying financing obligation is paramount and may be the law with which the overall transaction has its closest and most real connection.
[37] Clause 27 provides specifically that Starodubskoe submits to the jurisdiction of the state and federal courts in King County, Washington, in any proceeding related to the mortgage. This acceptance on the part of Starodubskoe reinforces the inference that the parties intended the law of Washington to apply.
[38] Richardson was a lender to Starodubskoe in U.S. dollars and the proper law of a loan will normally be that of the lender as expressed by the House of Lords in Tomkinson9. In the Tomkinson case, an English company conducted a railway undertaking in Cuba. It bought rolling stock worth $14,000,000 and decided to raise part of that sum in the United States of America. In that case, there was not an expressed choice of law. Lord Denning said at 1068:
| ... So considered, it seems to me that, in the absence of any express clause determining the proper law, the transaction should be governed by the law of the country of the lender. A borrower who comes from a foreign country seeking a loan must expect to conform to the laws of the country to which he comes: for otherwise he is unlikely to get the loan. The fact that the security is situate abroad is only material as necessitating the observance of the foreign law in the pledging and enforcement of the security. |
[39] The marketing contract between Starodubskoe as producer and Richardson as distributor dated October 25, 1995, a key document as related to necessaries, provides an arbitration clause which specifically directs that any dispute arising from, or in relation to, the contract shall be settled by arbitration under UNICITRAL arbitration rules and take place at Seattle, Washington, U.S.A. The clause reads as follows:
| Any dispute which might arise from or in relation to this contract, if not settled by negotiations, shall be settled by arbitration in accordance with UNICITRAL arbitration rules presently in force. |
| Place of arbitration shall be Seattle, Washington USA, the appointing authority shall be the President of Chamber of Commerce in Seattle. The number of arbitrators shall be three (3) and the language used for all documents and proceedings shall be English. Parties desire to execute the award of arbitration voluntarily. Court of arbitration shall base its award on the respective contract. |
[40] It is to be noted that UNICITRAL rules are United Nations rules of procedure and the substantive law to be applied would be local Washington law.
[41] According to Lord Wilberforce in Cie. Tunisienne v. Cie d'Armement (H.L.(E.))10 an arbitration clause is a weighty indication, as he wrote at 596:
| How strong, then, is the inference to be drawn from a (London) arbitration clause? That the selection of a certain place for arbitration and, by inference, of nationals or residents of that place as arbitrators, is an indication that the parties intended the law of that place to govern is a sound general rule. But it should not be treated as giving rise to a conclusive or irresistible inference, as recent pronouncements appear to suggest. ... So, unless otherwise constrained, I would regard the clause as a weighty indication, but one which may yield to others. |
[42] In that case there was another constraint in the sense that the law of the flag intervened and the Court held that the proper law of the contract was French law. There is no such constraint in the instant case.
[43] Although parole evidence, generally, is not admissible to clarify the terms of a contract, nevertheless Lynn Richardson was allowed to give evidence as to the circumstances surrounding the creation of the three contracts. She explained that she was aware that the Russian legal system was then in a state of turmoil and subject to rapid changes. It is why she wanted the whole operation to be carried out under U.S. law. She said that Richardson would never have lent money to Starodubskoe without the security of American law. While oral evidence cannot be used to contradict a contract, it is very relevant at times to establish the factual matrix, the context, the environment within which the document was created, as Lord Wilberforce said in Prenn v. Simmonds (H.L.(E.))11 (at 1383-84):
| In order for the agreement of July 6, 1960, to be understood, it must be placed in its context. The time has long passed when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations. There is no need to appeal here to any modern, anti-liberal, tendencies, for Lord Blackburn's well-known judgment in River Wear Commissioners v. Adamson (1877) 2 App.Cas. 743, 763 provides ample warrant for a liberal approach. We must, as he said, inquire beyond the language and see what the circumstances were with reference to which the words were used, and the object, appearing from those circumstances, which the person using them had in view. |
[44] Then Lord Wilberforce goes on to say further down (at 1384):
| I may refer to one other case, to dispel the idea that English law is left behind in some island of literal interpretation. In Utica City National Bank v. Gunn (1918) 118 N.E. 607 the New York Court of Appeals followed precisely the English line. Cardozo J. in his judgment refers, at p. 608, to "the genesis and aim of the transaction" citing Stephen's Digest of the Law of Evidence and Wigmore on Evidence. Surrounding circumstances may he says, "stamp upon a contract a popular or looser meaning" than the strict legal meaning, certainly when to follow the latter would make the transaction futile. "It is easier to give a new shade of meaning to a word than to give no meaning to a whole transaction." The whole judgment, as one may expect, combines classicism with intelligent realism. |
[45] Apart from the clear choice of law and the situs of the arbitration, many other indications in the contractual documentation point to an intention that American law would govern the transactions:
| (a) all payments under the mortgage and promissory note were to be in U.S. currency; |
| (b) the source of the financing provided to Starodubskoe was in the U.S.; |
| (c) all payments were to be made to Richardson at its address in Bellevue, Washington; |
| (d) the forms of the agreements were originally prepared in the U.S. by a U.S. lawyer; |
| (e) the interest rate under the mortgage and promissory note was fixed by reference to the prime rate of the U.S. Bank of Washington; |
| (f) the promissory note contains an express reference to Washington law. In addition, the definition of "business day" in the note excludes public holidays in the state of Washington. |
[46] Moreover, the evidence at the trial was to the effect that requests for the delivery of necessaries to the vessels were to be addressed to Richardson's Washington head office. If a request was accepted by Dick Richardson, the arrangements for the supply were made from that office. Usually, the supplies were procured in Seattle.
[47] The Federal Court of Appeal has held in St. John Shipbuilding v. Kingsland Maritime Corp.12 that where the law of a political sub-unit in a federal state is the proper law of a maritime contract and the maritime law of that state is federal, the federal maritime law is applied to the contract.
[48] In my view, the combination of these factors is overwhelming and clearly shows, not only that the parties have specifically chosen the law of the State of Washington, but also that, in light of all the circumstances, the system of law with which the constellation of contracts has the closest and more real connection is that law.
[49] Consequently, this Court must look at the U.S. maritime law regarding maritime liens arising from necessaries supplied to a vessel.
4. U.S. Maritime Lien
[50] Mr. Russell R. Williams, the only legal expert on U.S. maritime law to testify at the trial, was called by Richardson. Since 1991, Mr. Williams has been engaged almost exclusively in the practice of maritime law and the prosecution or defence of maritime lien claims before U.S. courts. His evidence, expressed in concise and lucid terms, may be abridged as follows.
[51] One who provides necessaries to a vessel is entitled to a maritime lien therefor13. The term necessaries includes services, labor, materials, and supplies provided to a vessel14. Necessaries also include money, skill, personal services, fuel, provisions, transportation costs and generally those things that allow a vessel to perform the functions for which she is engaged15.
[52] The provision of necessaries to a vessel may be direct or indirect. For instance, the advancing party is entitled to a maritime lien for the value of goods and services provided16. Payments made to a third party on behalf of a vessel may constitute advances which give rise to a maritime lien17.
[53] Maritime liens subsist even where the goods and services are supplied outside the United States18. There is a presumption that the supplier relied on the credit of the vessel19. The party opposing the claim to a maritime lien has the burden of overcoming this presumption by showing that the supplier relied solely on the personal credit of the owner20.
[54] The existence of other contractual security or guarantee (such as a mortgage or promissory note) for repayment does not defeat a maritime lien unless such liens are expressly waived in the relevant contract21. If there are several debts due to a creditor from the same debtor and the debtor does not specify how a payment is to be allocated among specific debts when the payment is made, the right to allocate the payment among the various items of indebtedness belongs to the creditor22.
[55] In the absence of proof of a contrary intention, it will be presumed in maritime cases that a creditor who holds secured as well as unsecured debt will allocate a payment to the unsecured debt before secured debt, and so leave the greatest security in place with respect to the remaining outstanding balance23. Where there is more than one security, a U.S. admiralty court will presume, in the absence of proof of contrary intent, that the creditor allocated payments first to the inferior security (in the instant case, the mortgage) so as to be able to claim the balance under the higher ranking security (the maritime lien)24.
[56] In cross-examination, Mr. Williams stated that the lapse of time is not an absolute bar to a claim for a maritime lien. In the instant case, there was no earlier possibility for Richardson to arrest the vessel.
[57] The expert also answered that Baader technicians' salaries and travel expenses would be considered necessaries under U.S. maritime law because their services were necessary to allow the vessel to fulfil her purpose. He said that the payment of port expenses which were themselves necessaries, such as repair costs, would also entitle a person who advanced money to pay them to claim a maritime lien. Under U.S. law both the owner or the charterer of a vessel may create a maritime lien by requesting necessaries for a vessel.
[58] Consequently, Starodubskoe was within the class of persons who may create a maritime lien by requesting necessaries for the "Mys Chikhacheva". Richardson provided the necessaries and remains the holder of a valid lien on the vessel.
5. Res Judicata
[59] Bering submits that since Richardson has now obtained a judgment in the United States District Court of Washington against Starodubskoe, which judgment includes all of the amounts due by Starodubskoe, the concept of res judicata precludes re-litigation of issues already determined between the parties25.
[60] Bering refers to the House of Lords' decision in The Indian Grace (Republic of India and Others v. India Steamship Company Limited26, but contrary to what Bering argued, the Court did not hold that "in the case of an unsatisfied foreign or domestic judgment in personam, further action in personam between the same parties is barred". That was merely an argument advanced by counsel. In fact, the Court specifically said at 8: "It is well established since the time of Dr. Lushington that a plaintiff who has an unsatisfied judgment in personam can proceed by an action in rem".
[61] In the instant case, the actions in personam and in rem involve different parties and the doctrine of res judicata has no application. The unsatisfied judgment obtained in the State of Washington was against Starodubskoe, whereas the case at bar is based upon a maritime lien on the vessel "Mys Chikhacheva" and, as submitted by Bering, against itself, the real owner of the vessel.
[62] Res judicata does not apply.
6. Waiver
[63] Bering concedes that, generally, it would be difficult to argue the concept of waiver in U.S. law because of the relatively strong position taken by U.S. courts against the concept. Nevertheless, Bering alleges that in the case at bar there are two definite indicia of waiver which show a clear intent on the part of Richardson to waive the maritime lien.
[64] First, the conclusion by Richardson, as revealed from the whole of the transactions, including the evidence of Mr. and Mrs. Richardson, that they did not need to take a mortgage against the "Mys Chikhacheva" or the "Mys Slepikovskogo". It was clear to them that they had obtained ample security from a mortgage against the vessel "Yuzhnie Kurily". Second, the August 22, 1996 account submitted by Richardson shows that, with the total revenue from the "Mys Chikhacheva" as against all the charges upon the vessel, there was nothing owing with respect to the two trawlers. That form of accounting constituted a clear message to Starodubskoe that Richardson's claim was really in respect of the unpaid balance of the debt incurred as a result of the refit of the mother ship "Yuzhnie Kurily".
[65] However, as stated by the expert Williams, not taking a mortgage against the "Mys Chikhacheva" does not defeat a maritime lien, unless liens were expressly waived in the relevant contract. Paragraph 14 of the mortgage against the "Yuzhnie Kurily" specifically states that the maritime lien rights of Richardson are preserved, even against that mortgaged vessel.
[66] The statement of August 22, 1996, does not constitute a waiver. It does not show on the part of the plaintiff a clear and purposeful intention to forego the lien, a requirement specified by Mr. Williams in paragraph 10 of his expert affidavit. Moreover, that statement was not prepared by Richardson's accounting department but was merely a document drawn by Dan Mehaffie, from the sales department, to try to convince Starodubskoe to pay its bills.
[67] There was no waiver on the part of Richardson.
7. Starodubskoe Legally Entitled to Assign Fish Products
[68] Bering claims that clause 2.1 of the Subordination Agreement between Kotovsky (Starodubskoe), Bering and the Bank dated June 21, 1994, assigning to the Bank all their rights in the sale proceeds, negates the effect of the subsequent assignment of fish products made by Starodubskoe to Richardson: Starodubskoe never had the requisite ability to enter into such an agreement.
[69] However, Richardson was never given a notice of that agreement or of any of the other documents created in Russia between these parties. The parties to that agreement allowed Starodubskoe to hold out that it was the owner of the vessel. Clearly, Richardson is not bound by such a document. It does not affect a maritime lien for necessaries attaching to the "Mys Chikhacheva" under U.S. law.
8. Quantum of the Maritime Lien
[70] In the statement of agreed facts, it is admitted that the plaintiff rendered accounts to Starodubskoe in respect of the vessel "Mys Chikhacheva" for the following:
| (a) invoices for fuel supplied to the vessel $247,017.15 |
| (b) reimbursement to the plaintiff for the $ 28,916.74 |
| cost of Baader technicians including |
| (c) invoices for provisions supplied to the $ 17,510.02 |
| (d) in respect of commissions on account $ 29,678.41 |
| of product trans-shipped from the |
[71] Following the evidence of Mr. Williams at trial, both parties agreed that item (d) in respect of commissions was to be struck out. But, at the trial, Richardson submitted another item, namely port expenses paid by Richardson to Korwell Corporation in the amount of $43,525.93. That additional amount was objected to by Bering on the ground that it was not included in the Statement of Claim and no motion was made at any time by Richardson to amend the Statement of Claim.
[72] Richardson concedes that until trial it did not appreciate that the Korwell invoice could be included with the necessaries. Nevertheless, the invoice was introduced in Court and proven at trial as exhibit P-8. Counsel for Bering was cross-examined on the document, without protest, and following the evidence of the U.S. maritime law expert, it was identified as a port disbursement account dated October 17, 1995, paid by Richardson's bank on December 13, 1995.
[73] Rule 75(1) of the Federal Court Rules allows a party to amend a pleading with leave of the Court at any time, provided the purpose is to make the document accord with the issues at the hearing, the other party has the opportunity to meet the new allegation, and the amendment will not result in a prejudice to the other party. The Korwell invoice has been established to be for one of the necessaries provided to the vessel, Bering's counsel had the opportunity to deal with it, and Bering has not established that it would suffer any prejudice27. In Meyer v. Canada28, a purely numerical amendment such as the one now sought was made at trial. The decision of the trial judge to allow the amendment was affirmed by the Court of Appeal.
[74] These port disbursements incurred in Korea where the "Yuzhnie Kurily" was refitted at Pusan. The refit was arranged and supervised by Richardson's employees from the Seattle office. The other two vessels the "Mys Chikhacheva" and the "Mys Slepikovskogo" were also in Korea during that period. Richardson gave evidence that Starodubskoe requested it to pay off the account of ship agent Korwell Corporation for port disbursements. Richardson paid the amount of U.S. $172,175.37. Of this amount, 25.28% or U.S. $43,525.93 had been incurred by the "Mys Chikhacheva". Had Richardson refused to pay the account the ship would not have been allowed to sail.
[75] Richardson supplied fuel to the "Mys Chikhacheva" for a total value of U.S. $247,017.15 (exhibit P-2, tabs 31-34) and supplied provisions for a total cost of U.S. $17,510.02 including freight and insurance charges (exhibit P-2, tabs 39-41). Richardson also paid the salaries and travel expenses of technicians to service the fish processing machines on the "Mys Chikhacheva". Under clause IV of the Marketing Agreement Richardson had to provide Baader technicians with a salary of $6,000 per month between December 29, 1995, and May 7, 1996, at the cost of U.S. $28,916.74 (exhibit P-2, tabs 35-38).
[76] As mentioned earlier, Starodubskoe did not file a statement of defence denying those claims and judgment against it was obtained by Richardson on July 23, 1999, in the U.S. District Court at Seattle.
[77] Bering claims that the amount of $71,700.00 paid by Richardson to Skico Limited of Hong Kong for fuel (exhibit P-2, tab 34) ought not to be included in the maritime lien as the amount required to be paid by Richardson was reduced to 13% by the U.S. Bankruptcy Court following Richardson's bankruptcy proceedings. I cannot see how, in equity, Bering would be allowed to benefit from a windfall resulting from a bankruptcy largely caused by Starodubskoe's breach of contract. Unpaid fuel costs, as necessaries, follow the "Mys Chikhacheva" under a maritime lien.
[78] Consequently, the sum now claimed by Richardson under maritime lien totals $336,969.84.
[79] As to the sums of money earned by Richardson from the sale of fish harvested by the three vessels, Richardson was entitled to allocate these amounts, first to the inferior security (the mortgage), and to claim the balance under the higher security (the maritime lien) pursuant to the uncontradicted opinion of Mr. Williams.
8. Disposition
[80] It follows that judgment is granted in favour of Richardson in the amount of $336,969.84 with pre-judgment interest (at the rate agreed to by the parties) and costs.
OTTAWA, Ontario
February 2, 2001
Judge
__________________
1 [1984] 1 S.C.R. 536">[1984] 1 S.C.R. 536 at 572-73.
2 Dominion Bridge Company Limited v. The Queen (1975), 75 D.T.D. 5150 (F.C.A.).
3 Pegasus Lines Ltd. S.A. v. Devil Shipping Ltd., [1996] F.C.J. No. 144 (T.D.), affirmed at (1996), 207 N.R. 293 (C.A.).
4 [2000] 1 Lloyd's Rep. 36 (N.Z.H.C.).
5 Winbigler v. Winbigler (1953), 10 W.W.R. (N.S.) 131 at 136 (B.C.S.C.) and Allen v. Hay (1922), 64 S.C.R. 76 at 80-81.
6 Fernandez v. The "Mercury Bell, [1986] 3 F.C. 454 (C.A.).
7 See Maritime Liens and Claims , 2d., William Tetley, at chap. 16, 551 to 618.
8 Ontario Bus Industries Inc. v. Ship "Federal Calumet" (1991), 47 F.T.R. 149 at 153 (T.D.); affirmed 150 N.R. 149 (F.C.A.).
9 Tomkinson v. First Pennsylvania Banking and Trust Co., [1961] A.C. 1007 at 1067-68, 1083-84 (H.L.)
10 [1971] A.C. 572 (C.A.).
11 [1971] 1 W.L.R. 1381, see also Gallen v. Allstate Grain Co. Ltd. et al. (1984), 9 D.L.R. (4th) 496.
12 (1981), 126 D.L.R. (3d) 332 at 341 (F.C.A.).
13 46 U.S.C. 31341-42.
14 Espirito Santo Bank of Florida v. M/V TROPICANA, 1992 A.M.C. 1672, 1679 (S.D. Fla. 1990).
15 International Seafoods of Alaska, Inc. v. Park Ventures, Inc., 829 F.2d 751, 756 (9th Cir. 1987).
16 Sasportes v. M/V SOL DE COPACABANA, 581 F.2d 1204, 1206-07 (5th Cir. 1978).
17 Tramp Oil & Marine, Ltd. v. M/V MERMAID I, 805 F.2d 42, 45 (1st Cir. 1986).
18 Exxon Corp. v. Central Gulf Lines, Inc., 780 F. Supp. 191, 194 (S.D.N.Y. 1991).
19 46 U.S.C. 31342(a)(3).
20 Ryan-Walsh, Inc. v. M/V OCEAN TRADER, 930 F. Supp. 210, 220-21 (D. Md. 1996); TTT Stevedores of Texas, Inc. v. M/VJAGAT VIJETA, 696 F.2d 1135, 1139-40 (5th Cir. 1983) and 1 T. Schoenbaum, Admiralty & Maritime Law, (2nd ed. 1994), at 497.
21 Newport News Shipbuilding & Dry Dock Co. v. S/S INDEPENDENCE, 872 F. Supp. 262, 266-67 & n.2 (E.D. Va. 1994).
22 Oakes Logging, Inc. v. Green Crow, Inc., 66 Wn. App. 598, 601, 832 P.2d 894 (1992) and Whitney-Fidalgo Seafoods, Inc. v. MISS TAMMY, 542 F. Supp. 1302 (W.D. Wash. 1982).
23 MISS TAMMY, supra, note no. 22.
24 THE HOME, 65 F. Supp. 94 (W.D. Wash. 1946).
25 See Re Ontario Sugar Co. , (1910) 22 O.L.R. 621 at 623, affirmed 24 O.L.R. 332 and Creighton v. Franko [1998] F.C.J. No. 1066, Court File No. T-646-98.
26 October 1997 (H.L.).
27 Canderel Ltd. v. Canada, [1994] 1 F.C. 3 (C.A.).
28 (1985), 62 N.R. 70 (F.C.A.).
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