Striebel v. Chairman (The), 2002 FCT 995

Date: 20020923

Docket: T-687-02

Neutral citation: 2002 FCT 995

                                 ADMIRALTY ACTION IN REM AND IN PERSONAM

BETWEEN:

                                               MR. AND MRS. STEPHEN STRIEBEL

                                                                                                                                                        Plaintiffs

                                                                              - and -

                                              SOVEREIGN YACHTS (CANADA) INC.

                                    THE OWNERS AND ALL OTHERS INTERESTED

                                 IN THE MOTOR VESSEL CHAIRMAN, also known as

                                                  SOVEREIGN HULL NUMBER 7644

                                                                                                                                                    Defendants

                                                            REASONS FOR ORDER

GIBSON J.

Introduction

[1]                 By motion filed the 6^th of September, 2002, the defendant, Sovereign Yachts (Canada) Inc. ("Sovereign") appealed from an order of Prothonotary Hargrave in this matter dated the 27^th of August, 2002, and amended the 30^th of August, 2002, whereby bail for the release of the luxury motor yacht Chairman was fixed at $1 million (Canadian).

[2]                 Counsel for Sovereign urged that Prothonotary Hargrave erred in weighing the evidence before him, in making findings of credibility on evidence which was not yet the subject of cross-examination, in determining the merits of the claim of Sovereign, and in determining the reasonably arguable best case of Sovereign in this action.

   

[3]                 Counsel for Sovereign sought a special appointment on an expedited basis for the hearing of its appeal. In the result, less than 48 hours after responding materials on behalf of the plaintiffs were filed, the appeal came on for hearing at 8:00 a.m. on Thursday, the 19^th of September, 2002, at Vancouver.

   

Background

[4]                 In June 2000, the plaintiffs contracted with Sovereign to build the luxury motor yacht Chairman for them at a price of $6.5 million (US), the vessel to be completed and delivered the 30^th of June, 2001. The vessel remains uncompleted. Substantial disagreement exists between the plaintiffs and Sovereign as to the amount due Sovereign, as to the amount of work that remains to be done, as to the value of the work remaining to be done, and as to the time that will be taken to complete that work. It is sufficient to note for the purposes of these reasons that, to secure its claim, Sovereign seeks bail of $2 million (Canadian). It was not in dispute before me that, at the hearing before Prothonotary Hargrave, the plaintiffs took the position that he should assess Sovereign's claim as uncertain and without merit and urged that bail be set "in a nominal amount".

The Decision Under Review

[5]                 Prothonotary Hargrave, in his reasons for the decision under appeal, provided a very helpful summary of case law relating to quantum of bail. Paragraphs 14 to 22 of his reasons constituting that summary, are reproduced as a schedule to these reasons.

   

[6]                 At paragraph 23 of his reasons, Prothonotary Hargrave wrote:

Were I convinced that no special circumstances existing, [sic] security at $2 million, taking into account perhaps three years' interest at 6% and costs of perhaps $100,000.00, the security would be appropriate less, of course, that portion of the security which goes to secure North West, at $160,000.00 (Canadian). However, there are clearly special circumstances in this instance.

  

Prothonotary Hargrave then goes on to analyse what he considers to be the special circumstances on the evidence before him. He concludes at paragraphs [32] and [33] of this reasons in the following terms:

The question that a trial judge would eventually have to grapple with is the vast difference between Sovereign's estimate of labour costs to complete, $27,000.00 and the labour costs of the Striebels, largely actual expended labour costs and some labour costs to come, of $800,000.00. Should Sovereign's calculation be correct and taking into account that their calculation includes the claim of North West, the $2 million in security might be tenable. On the Striebel's calculation of labour, materials and equipment necessary to complete the vessel to the construction contract specifications, they will have a substantial claim over against Sovereign, for they will expend far more than the $6.5 million (US) and some extras, to have the luxury yacht for which they bargained.

  

The two sides are so far apart all one can say is that, even without analysing the evidence, the case is at present clearly incomplete. However, I am satisfied that Sovereign's claim will not succeed as presented. To require security for the claim, as presented, would be to make the security and indeed the effect of Sovereign's caveat oppressive. I am satisfied that Sovereign will have sufficient security if the gross security is set at $1 million with $160,000.00 of that amount being deducted and allocated in order to provide security for North Wet, the net balance going to secure Sovereign.

Analysis

1) Standard of Review

[7]                 In Canada v. Aqua-Gem Investments Ltd.^[1], Mr. Justice MacGuigan, for the majority, wrote at page 463:

... discretionary orders of prothonotaries ought not to be disturbed on appeal to a judge unless:

(a) they are clearly wrong, in the sense that the exercise of discretion by the prothonotary was based upon a wrong principle or upon a misapprehension of the facts, or

(b) they raise questions vital to the final issue of the case.

Where such discretionary orders are clearly wrong in that the prothonotary has fallen into error of law (a concept in which I include a discretion based upon a wrong principle or upon a misapprehension of the facts), or where they raise questions vital to the final issue of the case, a judge ought to exercise his own discretion de novo.

  

[8]                 Thus, if Prothonotary Hargrave exercised his discretion based upon a wrong principle or upon a misapprehension of the facts, or if his decision raises a question or questions vital to the final issue of the case, I should hear the application that was before him, de novo. In any other circumstances, I should not disturb Prothonotary Hargrave's exercise of discretion.

   

2) Misapprehension of the Facts

[9]                 Counsel for Sovereign did not allege that Prothonotary Hargrave misapprehended the facts underlying the issues that were before him. On the face of Prothonotary Hargrave's reasons I find nothing to indicate that he misapprehended the facts.

3) Questions Vital to the Final Issue of the Case

[10]            In C.P. Ships (Bermuda) Ltd. v. Panther Max Ex Canmar Supreme (The)^[2], I wrote at paragraph 12:

Further, I am satisfied that, in respect of his determination of an appropriate reduction of the quantum of security claimed, and in the determination of an appropriate additional sum for interest and expenses, the learned Prothonotary was not dealing with questions of principle or questions vital to the final issue of the case.

                                                                                      [emphasis added]

I am satisfied that the same could be said here, at least in respect of questions vital to the final issue of the case.

  

4) Discretion Based Upon a Wrong Principle

[11]            Counsel for Sovereign urged that Prothonotary Hargrave erred in law in basing his decision upon a wrong principle. More particularly, he urged that Prothonotary Hargrave erred in principle in weighing affidavit evidence that was before him, regarding Sovereign's reasonably arguable best case, particularly where no cross-examinations had been conducted on that affidavit evidence. In support of that proposition, he cited the following from paragraph 19 of the reasons of Justice Lutfy, as he then was, in Amican Navigation Inc. v. Densan Shipping Co. et al.^[3]:

It is on this very point that my approach appears to differ from that of the prothonotary. He preferred the conclusion drawn from the surveyor's report to the claim asserted by the plaintiff's president. Neither affiant was cross-examined. The speculative exercise in estimating the plaintiff's expenses, without cross-examining its representative, does not necessarily disprove the full amount of the plaintiff's claim for loss of profit. The uncertainty is apparent. The prothonotary himself allowed that the outcome before the arbitral tribunal might still favour the plaintiff with the disclosure of additional proof:

                                                                         . . . . .

  

The prothonotary correctly noted that his determination on bail would not bind the arbitrator on the merits. This begs the issue of the plaintiff's security if it succeeds before the arbitrator. In my view, by acknowledging that with additional proof the plaintiff might have greater success before the arbitrator, the prothonotary was implicitly recognizing that the plaintiff had a reasonably arguable case. It was wrong, in my respectful opinion, for the prothonotary to reduce to zero the security for the claim for loss of profits unless he concluded definitively that the plaintiff's reasonably arguable best case was, in effect, no case at all.

  

                                                                                                                           [quotation omitted]

  

[12]            With great respect, I am satisfied that the foregoing passage does not stand for the principle that a prothonotary may not weigh affidavit evidence regarding a party's reasonably arguable best case, whether or not that affidavit evidence has been cross-examined on. Rather, I am satisfied that it stands for nothing more than the proposition that it is a reviewable error to reduce to zero the security for a claim in circumstances where a prothonotary or judge has implicitly, or certainly explicitly, recognized that the party has a reasonably arguable best case. I find that my position is supported by the fact that Justice Lutfy went on, himself, on the facts before him, to reduce the security claimed, albeit not to zero, based upon the evaluation or weighing of affidavit evidence that had not been cross-examined on.

   

[13]            I conclude that Prothonotary Hargrave's decision under appeal was not made in error of law that might be described as an exercise of discretion based upon a wrong principle.

Conclusion

[14]            Based upon the foregoing analysis, I concluded that the decision of Prothonotary Hargrave that is here under appeal is not clearly wrong, in the sense that the exercise of his discretion was based upon a wrong principle or upon a misapprehension of the facts, and further that his exercise of discretion does not raise a question or questions vital to the final issue of this case. In the result then, against the guidance provided in Aqua-Gem, supra, the discretionary order of Prothonotary Hargrave that is here under appeal... "ought not to be disturbed on appeal...". Thus, this appeal was dismissed.

   

Costs

[15]            Costs will follow the event. Counsel for the plaintiffs submitted that costs should be fixed at $3000.000, payable forthwith. Given the urgency with which this appeal was brought forward on behalf of Sovereign, and the complete lack of merit that I have found in the appeal, I did not find this submission unreasonable. An Order as to costs has gone in favour of the plaintiffs with costs fixed at $3000.00, payable forthwith and in any event of the cause.

      

(Sgd.) "Frederick E. Gibson"

Judge

Vancouver, B.C.

September 23, 2002

                                SCHEDULE TO REASONS

                [Reproduced with technical errors as in original.]

Amount of Bail - The Case Law                       

[14]    The general rule which governs the amount of bail which must be provided, in order to obtain the release of       a properly arrested ship, is that it be equal to the secured party's reasonably arguable best case, interest and costs, limited by the value of the arrested vessel: see The Moschanthy, [1971] 1 Lloyd's Rep. 37 (Q.B.) at 44 and Brotchie v. The Karey T (1994), 77 F.T.R. 71 (F.C.T.D.) at 72.

[15]    Usually, but as we shall see, not always, the amount of bail is that claimed in the writ or statement of claim as the case may be: see for example Mayers on Admiralty Law and Practice in Canada, Carswell, 1916 at page 235.

[16]    In the present instance Sovereign takes the position that it is for Sovereign to delineate its reasonably arguable best case, relying on the wording of the 8 May 2002 Order, set out above and in particular that the bail is "to secure Sovereign's reasonably best case, costs and interest". This submission concludes that the Plaintiff, not having appealed the 8 May Order, any discussion of the amount of bail, other than that now claimed by Sovereign, is res judicata. I would observe first that the reference to "reasonable best case", which was agreed virtually by consent, expresses a notion or a concept of the measure of security, but not an absolute figure or the importation of any absolute figure. Second, while bail is usually in the amount claimed in the underlying pleading, a court has the discretion and jurisdiction, within limits, to determine the value of the reasonably arguable best case.

[17]    To elaborate, I refer in Atlantic Shipping (London) Ltd. v. The Captain Forever (1995), 97 F.T.R. 32     (F.C.T.D.) to the concept that while a court, in setting bail, ought not to pre-judge the case in order to determine what it is worth as there might be special circumstances by which to moderate bail, generally if a party gave bail as demanded and the bail was eventually proved excessive, there was a remedy for wrongful demand of security, in costs. I here refer to The Moschanthy (supra): see pages 45 and 46.

[18]    Mr Justice Muldoon found special circumstances in Lundberg v. The Manitou III, an unreported 6 December 1988 decision in action T-2180-88, [1988] F.C.J. No. 1124 where he commented on the usual practice of setting bail to include the sum total of the plaintiff's claim, including interest and costs, referred to uncertainties of the claim and set bail at one half of the claim itself, as sufficient to cover a claim, interest and costs:

The not unusual practice in admiralty and maritime law suits of exacting bail in a somewhat larger sum than the total of the plaintiff's claims, in order to release a ship from arrest is a crude technique: some would say crude, but effective. It is crude because that not unusual practice exacts security in whatever amount the plaintiff claims, plus an allowance for interest and costs. On the other hand, this is not the stage of the action at which an accurate assessment of the plaintiff's claims is to be, or can be, readily performed. Indeed, here, the plaintiff asserts claims for damages in what most probably are round, global estimates.

The plaintiff's claim appears to be based in paragraph 22(2) (o) of the Federal Court Act R.S.C. 1970 (2nd Supp.) Chap. 10., which accords jurisdiction in any claim or question arising out of the following:        (o)          any claim by a ... member of the crew of a ship for wages, money, property or other remuneration or benefits arising out of his employment. In light of the affidavit of Barry McGregor, it appears that the plaintiff will have to prove such employment, its times and agreed upon terms and conditions, if any. Proof of breach of the alleged agreement and any damages which might arise, not being wages or indeed any sums certain will also be incumbent upon the plaintiff. In light of the uncertainties of the claims and the desirability of maintaining the vessel and placing it in a position to keep participating in the various seasonal fisheries, bail fixed in a smaller sum than the total of the asserted claims appears to be a reasonable conclusion.

[19]    In The Gulf Venture, [1984] 2 Lloyd's Rep. 445 (Q.B.) Mr Justice Sheen applied a similar rough and ready approach to setting security: he felt the evidence was incomplete, but was satisfied that the claim would not succeed in full and therefore, while the claim endorsed on the writ exceeded £ 400,000, he set security at £ 250,000:

When plaintiffs are entitled to keep a ship under arrest until her owners provide security for their claim, that security must be for such sum of money as represents their reasonably arguable best case, including interest, and their costs of the action. There is plenty of scope for debate as to what sum should be secured in respect of this claim. I do not propose to analyse the evidence: it is incomplete. Such a procedure would be entirely inappropriate on a motion such as this. Although the claim endorsed on the writ is, as I have already said, for a sum in excess of £ 400,000, I was satisfied that the claim will not succeed in full. After some discussion with Counsel, the plaintiffs expressed their willingness to accept security in the sum of £ 300,000. I reached the conclusion that a lesser sum would be adequate and fixed the amount in the round sum of £ 250,000.

[20]    In The Tribels, [1985] 1 Lloyd's Rep. 128 Mr Justice Sheen, while allowing that the salvors were entitled to demand security up to what might be anticipated, on the basis of a reasonably arguable best case, interest and costs, looked upon the demand for security of £ 3.323 million as exorbitant, noting that counsel for the plaintiff conceded the point. He went on to set security at £ 1 million, adding that it might be that even £ 1 million was excessive.

[21]    A last case to which I shall refer, in this line of cases which the court has exercised a discretion in determining bail, in particular circumstances, is Amican Navigation Inc. v. Densan Shipping Co. (1997), 137 F.T.R. 132 (F.C.T.D.), a decision of Mr Justice Lutfy, as he then was. He observed, at page 135, that "arrest is a powerful weapon." and went on to say that the plaintiff had a right to be secured for the full amount of the claim, interest and costs, but that exceptional power which a law attach to arrest and the right to full security must be balanced so as not to be oppressive:

It is important, when considering a motion to alter the bail, to keep in mind the exceptional power the law has attached to arrest and the right to exact security for the full amount of the claim. The proper balance must be struck. The power to arrest should not be exercised oppressively and yet the plaintiff has the right to sufficient security. (Page 135)

Here I would note that at stake was the variation of bail, however the same principle applies in the case of a determination of bail. He then went on to apply the principle set out in The Moschanthy (supra).       

[22]    Mr Justice Lutfy rejected a speculative calculation as to the reasonably arguable best case, appearing in a survey report, noting that there could have been cross-examination. However, he did reduce the plaintiff's claim for a projected loss of profit of 60% of the gross revenue, for he found it difficult to imagine, using the plaintiff's own information and calculations, that a reasonably arguable best case for profit might be 60% of gross freight. Indeed, he found the circumstances arising from that sort of profit special and extraordinary, warranting intervention. He was satisfied that a profit of about 30%, on revenue, represented a sufficient level of bail to protect the rights of a plaintiff: see pages 138 and 139. In the result he reduced the bail from $650,000.00 to $436,784.00. I now turn to an application of all of this to the present instance and specifically to the security sought by Sovereign.

                          FEDERAL COURT OF CANADA

                                                         

                                       TRIAL DIVISION

    NAMES OF COUNSEL AND SOLICITORS OF RECORD

    

DOCKET:                   T-687-02

STYLE OF CAUSE: Mr. and Mrs. Stephen Striebel v. The Motor Vessel       "Chairman" et al.

                                                         

  

PLACE OF HEARING:                                   Vancouver, BC

  

DATE OF HEARING:                                     September 19, 2002

  

REASONS FOR ORDER :                           GIBSON J.

DATED:                      September 23, 2002

   

APPEARANCES:

  

David F. McEwen                                                FOR PLAINTIFFS

Murray A. Clemens, Q.C.                                                FOR DEFENDANTS

  

SOLICITORS OF RECORD:

McEwen, Schmitt & Co.                                                  FOR PLAINTIFFS

Vancouver

  

Nathanson, Schachter & Thompson                                 FOR DEFENDANTS

Vancouver