Date: 20100325
Docket: T-1914-08
Citation: 2010 FC 332
Ottawa, Ontario, March 25, 2010
PRESENT: The Honourable Mr. Justice Harrington
ACTION
IN REM AND IN PERSONAM
BETWEEN:
WORLD FUEL SERVICES
CORPORATION
Plaintiff
and
THE SHIP “NORDEMS” AND
THE OWNERS AND ALL OTHERS INTERESTED IN
THE SHIP “NORDEMS”, AND
REEDEREI “NORD” KLAUS E. OLDENDORFF GMBH AND
PARTENREEDEREI m.s. “NORDEMS” AND PARKROAD
CORPORATION
Defendants
REASONS FOR JUDGMENT AND
JUDGMENT
[1]
This
is no simple action on account for unpaid bunkers supplied to the ship Nordems,
at the instance of her now bankrupt time charterer Parkroad Corporation. The
questions which arise in these cross-motions for summary judgment are whether
the owners and managers of the Nordems are also personally liable, and even if
they are not, whether the Nordems is liable in rem.
[2]
The
answer lies in the differences in Canadian maritime law between a statutory
right in rem and a maritime lien, privity of contract, agency, as well
as the relevance of a choice of law clause in identifying the proper law of a
contract.
[3]
By
offer and acceptance apparently communicated in Korea, Parkroad Corporation,
the Korean sub-time charterer of the Cyprus flag bulk carrier m.s. Nordems
contracted with either the plaintiff, an American corporation, or its
affiliate, World Fuel Services (Singapore) Pte Ltd., a Singapore corporation,
for the purchase of bunkers which were taken onboard in South Africa. Parkroad
went bankrupt without paying for same.
[4]
Thereafter,
the plaintiff arrested the m.s. Nordems in Baie Comeau. The ship was released
on bail furnished by her owners. Although named as a defendant, Parkroad has
not appeared.
[5]
The
plaintiff’s case is that Parkroad contracted not only on its own behalf, but
also on behalf of the ship and her owners. The provisions of the contract deem
it to have been made in the United States. It is expressly
governed by American law which creates a maritime lien over the ship, even should
it be that her owners and managers are not personally liable.
[6]
The
defendant German owners and managers deny that they were in a contractual
relationship with the plaintiff. They deny that Parkroad had actual or
ostensible authority to purport to contract on their behalf and to purport to contract
on the credit of the ship. Whatever the proper law governing the
non-contractual relationship between them and the plaintiff may be (there are
several possibilities), that law is not the law of the United States and has not
been alleged and proven to differ from Canadian domestic maritime law. Under
Canadian maritime law, a necessaries man does not enjoy a maritime lien, and
only has an action in rem if the owners are personally liable. Although
there is a presumption under our law that necessaries are furnished on the
credit of the ship, that presumption is rebuttable, and has been rebutted in
this case.
[7]
The
owners take the further position that if per chance United States law should
apply, it does not give the plaintiff a maritime lien on the m.s. Nordems in
the circumstances of this case. There was insufficient American flavour to the
underlying transaction. They add that the plaintiff has no standing to sue. It
is merely acting as a front man for World Fuel Services (Singapore) Pte Ltd. in
an effort to bolster the American aspects of the transaction.
[8]
Each
side has moved for summary judgment in support of its respective contentions.
Although the provenance of some of the documents before the Court is somewhat
sketchy, those documents, together with the mutual understanding of the
parties, allow the Court to come to a conclusion.
[9]
Two
primordial findings of fact drive my analysis of the legal issues in this case.
Parkroad had no actual authority from the owners or managers of the Nordems to
contract for the supply of bunkers on their behalf, or on the credit of the
ship. They were expressly prohibited from so doing. However, World Fuel
Services Corporation had no actual knowledge of that fact. The importance of
these findings is that, briefly put, the maritime law of the United
States,
the law selected by World Fuel Services Corporation and Parkroad to govern
their contract, is such that a necessaries man is presumed to have contracted
on the credit of the ship. That presumption can only be rebutted by
establishing that the necessaries man had actual knowledge that the contracting
party did not have authority to bind the ship. If that presumption is not
rebutted, American law creates a maritime lien on the ship. On the other hand,
under Canadian maritime law, apart from a few exceptions which are not relevant
here, a necessaries man does not enjoy a maritime lien. Under sections 22 and
43 of the Federal Courts Act, he has a statutory right in rem
against the ship, but only if her owners are personally liable. As in American
law, there is a presumption that the necessaries were ordered on the credit of
the ship. However it is not necessary to establish actual knowledge of lack of
authority on the part of the necessaries man to rebut that presumption.
[10]
I
consider it useful at the outset to highlight some of the distinctions between
a maritime lien and an ordinary action in rem, which I usually refer to
as a statutory right in rem, and explain why our choice of law rules
make Canada a popular forum for American necessaries men who extend credit to
time charterers.
[11]
There
are a number of important distinctions between a maritime lien and a statutory
right in rem. Only one is relevant in this case, that being that a
maritime lien may exist even though the owners of the ship are not personally
liable. A maritime lien arises at the moment of the transaction, be it for
instance a collision, while a statutory right in rem only comes into
existence when proceedings are instituted, or perhaps only when the action in
rem is served on the ship (this issue was extensively reviewed in the light
of English statutes by Mr. Justice Brandon in the “Monica S”, [1968] P. 741,
[1967] 3 All E.R. 740, [1967] 2 Lloyd’s Rep. 113). The maritime lien travels
with the ship into the hands of third-party purchasers for value. However a
potential action in rem is defeated by a legitimate change of ownership,
although the original owners, of course, if personally liable in the first
place, remain liable.
[12]
In
the event of a marshal’s sale by which all blemishes on the ship, including
maritime liens, are transferred to the fund thereby created (Osborn
Refrigeration Sales and Services Inc. v. Atlantean I (the) (1982), 7 D.L.R.
(4th) 395, 52 N.R. 10 (F.C.A.)) and if the fund so generated is not
sufficient to satisfy all creditors, maritime lien holders enjoy a high
priority. They outrank mortgage creditors, who in turn outrank ordinary
creditors. The holder of a maritime lien is, generally speaking, a secured
creditor in bankruptcy proceedings while the holder of a statutory right in
rem, at least a right in rem which has not been perfected prior to
the bankruptcy, is not.
[13]
Three
cases which review these issues, and their historical bases, are the decisions
of Mr. Justice Le Dain in Marlex Petroleum Inc. v. The Ship Har Rai and the
Shipping Corporation of India Ltd., [1984] 2 F.C. 345, 1984 AMC 1649, aff’d
without additional reasons at [1987] 1 S.C.R. 57, of Mr. Justice Stone in Imperial
Oil Ltd. v. Petromar Inc., 2001 FCA 391, [2002] 3 F.C. 190, 2002 AMC 536,
and of Mr. Justice Binnie in Holt Cargo Systems Inc. v. ABC Containerline
N.V. (Trustees of), 2001 SCC 90, [2001] 3 S.C.R. 907 (the Brussel).
[14]
It
has also been well established, in cases to which I shall refer, that if our
choice of law rules lead us to the conclusion that the transaction is governed
by another system of law, and that law has been proven to differ from ours, we
will give effect to it. Canada is an attractive forum to necessaries men
who enjoy a maritime lien under the proper law of their transaction in that in
ranking priorities our law gives the necessaries men the status of a maritime
lien, a status which a Canadian necessaries man does not enjoy. This is not the
situation in England. See Bankers
Trust International Ltd. v. Todd Shipyards Corp. (the Halcyon Isle), [1981]
A.C. 221 (P.C.), [1980] 2 Lloyd’s Rep. 325, 1980 AMC 1221. In England, priorities
are considered to be a matter of procedure to be governed by the lex fori,
rather than a matter of substance. This point is discussed in Dicey, Morris
& Collins, The Conflict of Laws, 14th ed. (London: Sweet &
Maxwell, 2006) at para. 7-033 in support of their rule 17 which provides “All
matters of procedure are governed by the domestic law of the country to which
the Court wherein any legal proceedings are taken belongs (lex fori).” Thus
in a competitive worldwide market an American necessaries man runs less risk in
extending credit.
[15]
Canadian
domestic law was amended last year to give necessaries men carrying on business
in Canada a maritime
lien against a foreign ship. The services must have been provided at the
request of the owner or a person acting on his behalf. There is no indication
that the case law pertaining to the rebuttable presumption of authority has
been overridden. (An Act to Amend the Marine Liability Act and the Federal
Courts Act and to make consequential amendments to other Acts, S.C. 2009,
c. 21, s. 139))
[16]
I
mention these distinctions because it is difficult to extract the general
principles set out in the wealth of jurisprudence which touch upon the issues
in this case. Many are such that the proper law was so obvious the Court did
not need to embark on a choice of law analysis. Many deal with priorities
arising from a marshal’s sale which did not generate sufficient funds to
satisfy all creditors. Others deal with the effect of a private sale. A prime
example is the Lanner (JP Morgan Chase Bank v. Lanner (The), 2006
FC 409, [2007] 1 F.C.R. 289, 2006 AMC 812, rev’d in Kent Trade and Finance
Inc. v. JP Morgan Chase Bank, 2008 FCA 399, 305 D.L.R. (4th) 442, 388 N.R.
39). This was a priorities case. In first instance, Madam Justice Gauthier held
that the necessaries man only had a statutory right in rem and so did
not outrank a mortgage. The Federal Court of Appeal came to the conclusion that
the necessaries man, under the applicable foreign law, did have a maritime lien
and so had priority over the mortgage creditor. In this case it does not matter
if World Fuel Services has a maritime lien or only a statutory right in rem.
In either case it is entitled to judgment and full payment from the bail. If it
has neither, the action in personam against the owners of the Nordems and
the action in rem against the ship shall be dismissed.
RULES PERTAINING TO
SUMMARY JUDGMENT
[17]
During
the course of these proceedings, Rules 213 and following of the Federal
Courts Rules which deal with summary judgments were amended, but these amendments
do not affect the outcome herein. The factual evidence consisted of the
affidavit of Rüdiger Knust, a senior executive of the defendant Reederei “Nord”
Klaus E. Oldendorff GmbH, the ship’s managers. He set out some general
underlying principles of time charters, for instance that it is usually the
time charterer who orders and pays for bunkers, but as well testified to some
facts which might be considered hearsay, and produced some documents to which
the Nordems’ owners and managers were not party. However, plaintiff’s counsel
does not contest the accuracy of Mr. Knust’s statements, and does not object to
the documents he produced, including the sub-time charter to Parkroad. Mr.
Knust was not cross-examined.
[18]
On
the other hand, the plaintiff did not even make use of a witness to produce its
documents. The Court was informed that they were identified in an affidavit of
documents served upon the defendants. Counsel for the defendants not only did
not object to their production, but even relies on some of them in support of
defendants’ motion for dismissal of the action.
[19]
The
only other evidence before the Court is that of United States law. The
defendants, who filed their motion first, submitted an affidavit from Michael
Marks Cohen, a prominent New York attorney most
knowledgeable in these matters. The plaintiff countered with an affidavit from
another well-known American attorney, Stephen Simms of Baltimore. Both
attorneys readily made the point that there is a divergence of opinion among
various United States Circuit Courts of Appeals and brought to the Court’s
attention all that could possibly be brought to bear on the subject. The Court
found their expert evidence most helpful, in the event that American law should
apply.
THE CHARTERPARTIES
[20]
A
shipowner may trade a ship for his own account, or charter her to others. There
are various types of charterparties, the prime attributes of which are
conveniently set out in Scrutton on Charterparties and Bills of Lading, 21th
ed. (London: Sweet & Maxwell, 2006) at 55-61. The various charterparties to
which the Nordems was subject were all time charters. The shipowner employs the
master and crew and through them maintains possession of the ship, which trades
on the commercial orders of the time charterer. A time charter is to be
contrasted with a charter by demise, the most common form of which is a
bareboat charter, wherein the master and crew are servants of the charterer who
has actual physical possession of the ship.
[21]
By
time charter made in Oslo, 9 May 2007, in the well-known New York Produce
Exchange Form (NYPE93), the owners of the Nordems, Partenreederei m.s. Nordems of
Hamburg, time chartered the Nordems to AS Klaveness Chartering of Oslo for a period
of between 34 and 37 months in charterers’ option, delivery to take place the
following day. Clause 7 provided, among other things, that the charterers were
to provide and pay for all bunkers. Clause 23 went on to say:
The Charterers will not directly or
indirectly suffer, nor permit to be continued, any lien or encumbrance, which
might have priority over the title and interest of the Owners in the Vessel.
The Charterers undertake that during the period of this Charter Party, they
will not procure any supplies or necessaries or services, including any port
expenses and bunkers, on the credit of the owners or in the Owner’s time.
[22]
The
charterparty called for arbitration at London, with
disputes to be governed by English law.
[23]
The
charterparty allowed the charterers to subcharter, which they did. In fact,
there is a string of seven sub-time charters, the last being from Cosco Oceania
Chartering Pty Ltd. of Australia to Parkroad Corporation
of South
Korea.
The only sub-charter filed in court is the one made in Taipei, 25 October
2007, between Cosco and Parkroad, also in the New York Produce Exchange Form.
The time charter period was to be a minimum of 11 and a maximum of 13 months at
charterers’ option. The delivery date was not specifically set out. The
charterparty contains the identical boiler plate printed clauses relating to
the payment of bunkers and the prohibition of lien. This charterparty was also
subject to English law and English arbitration.
[24]
Mr.
Knust’s information, which was not contested, is that Parkroad took delivery of
the Nordems at Irago, Japan, on 25 February 2008. Notwithstanding
the terms of the subcharter, Cosco informed the owners that Parkroad
redelivered on 30 October 2008. It is noteworthy that at no time during the
course of the Parkroad subcharter, or thereafter prior to her arrest at Baie
Comeau, did the Nordems call at an American port.
THE DELIVERY OF THE
BUNKERS
[25]
The
first of the documents filed by the plaintiff is an email dated 15 October 2008
from Daniel Park of World Fuel Services Seoul to operation@parkroad.co.kr,
which actually confirms the revision of an earlier order with the quantity
increased. The seller was identified as “World Fuel Services,” with payment on
30 days credit. The buyer was identified as “ms Nordems and/or master and/or
owners, Messrs. Parkroad Corporation.” The bunkers were to be physically
delivered by Chevron South Africa (Pty) Ltd. at Cape Town. The email
went on to say:
All sales are on the credit of the VSL.
Buyer is presumed to have authority to bind the VSL with a maritime lien.
Disclaimer stamps placed by VSL on the bunker receipt will have no effect and
do not waive the seller’s lien. This confirmation is governed by and
incorporates by reference seller’s general terms and conditions in effect as of
the date that this confirmation is issued. These incorporated and referenced
terms can be found at www.wfscorp.com. Alternatively, you may inform us if you
require a copy and same will be provided to you.
[26]
Corporate
records indicate that World Fuel Services Seoul is actually part of World Fuel
Services (Singapore) Pte Ltd.
[27]
The
bunker delivery receipt on Chevron’s letterhead shows delivery of 500.001 metric
tons at Cape
Town
on 16 October 2008. The master stamped the receipt as follows: “This
service/supply is for the account of vessel’s Time Charterers, Messrs. Parkroad
Corp. On behalf of vessel’s owner, I herewith declare that neither owner nor
vessel are responsible for payment of this service/supply.” I consider this
disclaimer meaningless as it apparently was issued after the bunkers were
accepted on board. At least, there is no evidence that the stamp was not placed
on the receipt until after the fact.
[28]
Thereafter,
on 20 October 2008, “World Fuel Services”, a division of “World Fuel Services (Singapore) Pte. Ltd.”
issued an invoice addressed to “ms Nordems and/or her owners/operators and
Parkroad Corporation” at an address in South Korea, in the amount
of US$304,905.97. The addressees were directed to wire transfer funds to Chicago for the
account of World Fuel Services.
[29]
The
first correspondence directly addressed to the defendants Partenreederei m.s. “Nordems”
and Partenreederei “Nord” Klaus E. Oldendorff GmbH was on 8 December 2008 bearing
the caption “IMMINENT ARREST OF M/V NORDEMS.” The letter was directed to the
attention of the Finance Director, carbon copy to Chartering Department, with
the following email address: chartering@reederei-nord.de. The correspondence was
on the letterhead of World Fuel Services Corporation, Miami, and
threatened arrest unless payment was made forthwith.
WORLD FUEL SERVICES
GENERAL TERMS AND CONDITIONS
[30]
The
plaintiff has produced an 11-page document titled The World Fuel Services
Corporation Marine Group of Companies – General Terms and Conditions. These
terms and conditions apply to a group of companies said to be headquartered in Miami, including
World Fuel Services (Singapore) Pte. Ltd., and their
respective subsidiaries and/or affiliates and/or branch offices. The recital of
various subsidiaries, affiliates and branch offices indicates that this group
of companies carries out business in a good part of the world.
[31]
Clause
7, which deals with payment, states that unless otherwise provided, sales are
on a cash in advance or irrevocable letter of credit basis. In this case the
confirmation gave 30 days’ credit, and so was subject to credit approval by the
seller’s credit department in Miami. “[a]nd it is agreed that contract
formation has occurred in Florida.”
[32]
Clause
8, which deals with credit and security, provides that product is sold on the
credit of the ship, as well as the promise of the buyer to pay therefore. And
“the Buyer warrants that the Seller will have and may assert a maritime lien
against the Receiving Vessel for the amount due for the Products delivered.” If
the contract was via an agent, then that agent, as well as its principal, is
fully bound by the obligations imposed by the contract. Subclauses d. and e. go
on to say:
1.
Buyer
acknowledges the Seller has relied on vessel ownership listings provided in
Lloyd’s Register of International Shipowning Groups (Lloyd’s Register –
Fairplay Ltd.) and/or Fairplay World Shipping Directory (Fairplay Publications Ltd.)
and/or www.seasercher.com and/or any other available resource to
establish and/or confirm same. If Buyer is listed or otherwise indicated as the
registered, beneficial or group fleet owner of any vessel listed in Lloyd’s,
Buyer warrants and agrees that all other vessels listed in the same beneficial
ownership shall be construed as true sisterships in the same beneficial
ownership.
2.
All sales
made under these terms and conditions are made to the registered owner of the
vessel, in addition to any other parties that may be listed as Buyer in the
confirmation. Any bunkers ordered by an agent, management company, charterer,
broker or any other party are ordered on behalf of the registered owner and the
registered owner is liable as a principal for payment of the bunker invoice.
[33]
Clause
15 requires that all communications be sent to the attention of the particular
seller at the Miami address.
Interestingly enough, it also provides that “no ambiguity in any provision of
the General Terms or Confirmation shall be construed against a party by reason
of the fact it was drafted by such party or its counsel.”
[34]
Finally,
clause 17 provides that the general terms, and each sale, are governed by the
laws of the United States and the State of Florida, without
reference to conflict of law rules. Nevertheless the seller is entitled to
assert its right of lien or attachment in any country in which it finds the
vessel.
[35]
These
general terms and conditions, and confirmation of order, attempt to cover every
possible permutation and combination which may arise in the delivery of bunkers
to a ship. They recognize the possibility that the bunkers may have been
ordered by and on the account of a charterer who had no authority to bind the
ship or her owners. Indeed, if the plaintiff relied upon Lloyd’s Register of
Shipping, it would have known perfectly well that Parkroad was not the owner of
the Nordems and that the owners could be found at an address in Germany. It knew, or
ought to have known, that Parkroad was not the ship’s port agent, as another
was identified in the order confirmation. Furthermore, it accepted orders from
Parkroad with respect to other ships which according to Lloyd’s have no
connection whatsoever to the owners of the Nordems.
[36]
The
contract brings to mind what Mr. Justice Idington had to say about a contract
of carriage evidenced by a bill of lading in Vipond v. Furness Withy &
Co. (1916), 54 S.C.R. 521 at 524-5:
It was
clearly intended thereby, that the carrier should run no risk, and the
unfortunate shipper should, if possible, bear all the risks, of every kind that
the long experience of generations of carriers have discovered might be run by
them in the course of their business. It seems clear from reading this
wonderful instrument that so soon as a new risk had been discovered, some new
words were introduced into the form of bills of lading used by these carriers.
Thus there had grown as quaint and complex a document as legal knowledge of
decided cases and mariners' experience could suggest, well suited to entrap the
unwary shipper tempted to accept a through rate and shut his eyes to all
implied therein.
[37]
As
to the defendants’ assertion that the party which contracted with Parkroad was not
World Fuel Services Corporation but rather World Fuel Services (Singapore) Pte. Ltd., there
is simply not enough information in the record to allow me to dismiss the
action on that basis. Given the credit provisions and the general terms and
conditions, I will proceed on the basis that World Fuel Services Corporation of
Miami is a proper
plaintiff, but that it does not lie in the mouth of World Fuel Services (Singapore) Pte. Ltd.
to later claim that it is the contracting party, and is not bound by the
judgment herein.
THE PROPER LAW
[38]
The
conflict of law rules which determine the proper law of the relationship
between World Fuel Services and the ship Nordems and her owners are those of
the forum, i.e. those which form part of Canadian maritime law. As stated by
Chief Justice Laskin in Tropwood A.G. v. Sivaco Wire & Nail Co., [1979]
2 S.C.R. 157 at 166-7:
What is raised by the appellant, shortly put, is whether it is
open to the Federal Court, in exercising its jurisdiction in the matter brought
before it, to determine, pursuant to conflict of law rules of the forum, a
choice of law rule to govern the determination of the suit. In the present
case, the Federal Court has jurisdiction over the appellant and over the cause
of action and there is a body of law which it can apply. It is my opinion that
this body of law embraces conflict rules and entitles the Federal Court to find
that some foreign law should be applied to the claim that has been put forward.
Conflicts rules are, to put the matter generally, those of the forum. It seems
quite clear to me that s. 22(3) of the Federal Court Act, which I have already
referred to, envisages that the Federal Court, in dealing with a foreign ship
or with claims arising on the high seas may find it necessary to consider the
application of foreign law in respect of the cause of action before it.
[39]
It
is well established and was reiterated by the Federal Court of Appeal in Imperial
Oil and in the Lanner, above, and the authorities cited
therein, that barring the application of principles of public policy, parties
to a contract are free to expressly chose the governing law. Otherwise the
Court must weigh the factors which connect the case to one system of law or
another. Although American law gives a maritime lien in circumstances where
Canadian domestic maritime law does not, our sense of public policy is not
offended (The Har Rai, above).
[40]
There
are two points which must be kept in mind. The first is that the Court will
apply its own domestic law unless satisfied that another law is applicable, a
law which must have been alleged and proven as a fact to be different. As the
only foreign law alleged is American law, strictly speaking the Court does not
have to determine the proper law, but rather only if American law is the proper
law. The second point is that it may not even be necessary to determine whether
American law is applicable at all. If, as stated earlier, the owners of the
Nordems are party to the World Fuel Services contract, or if they have not
rebutted the weaker presumption under our law that the bunkers were supplied on
the credit of the ship, it does not matter which substantive law applies. World
Fuel Services would be entitled to judgment even if it only has a statutory
right in rem.
THE LAW OF AGENCY
[41]
Therefore,
my point of embarkation is to determine whether under the common law of agency,
which forms part of Canadian maritime law (Q.N.S. Paper Co. v.
Chartwell Shipping Ltd., [1989] 2 S.C.R. 683, 1989 AMC 2798), the owners
of the Nordems are bound by the contract purportedly made on their behalf by
Parkroad. If so, that is the end of the matter. If not, then the issue becomes whether
the presumption that the necessaries were supplied on the credit of the ship
has been successfully rebutted.
[42]
As
noted by Professor G.H.B. Fridman in the Law of Contract in Canada, 5th
ed. (Toronto: Thomson-Carswell,
2006) at 114:
A contract is a personal matter between
the parties who are privy to its making; only such a party can acquire rights
or be subjected to liabilities under it.
Although that principle has been relaxed
when it comes to stipulations which benefit third parties (Fraser River Pile
& Dredge Ltd. v. Can-Dive Services Ltd., [1999] 3 S.C.R. 108, 1999
AMC 2840), it still holds true when it comes to efforts to burden a
third party. Of course, the owners of the Nordems are not a third party at all
if Parkroad was acting as their agent.
[43]
Did
Parkroad lie to World Fuel Services? Of course it did. Had it paid for the
bunkers upfront no one would have been the wiser. As Professor Fridman notes at
page 152: “What is meant by authority? This concept breaks down into various
categories, namely, expressed, implied, usual, customary and apparent or
ostensible authority” (footnote omitted). It is clear that the owners of the
Nordems did not expressly authorize Parkroad to order bunkers on their credit
or on the credit of the ship. On the contrary, Parkroad was expressly
prohibited from so doing through the chain of charterparties.
[44]
However,
lack of actual authority is not the end of the matter. The actions of the
parties must be considered. It would be enough to establish that the
necessaries man knew it was dealing with a time charterer as principal, rather
than as an agent. The decision of Mr. Justice Collier in Westcan Stevedoring
Ltd. v. Armar (The), [1973] F.C. 1232 (T.D.), is often cited. However in
this case, the general terms and conditions of the contract provide that
Parkroad was contracting both as a principal and as an agent for the owners.
This concept is well known in maritime law, and forms the basis of the Himalaya
Clause in bills of lading wherein the carrier not only contracts on its own
behalf, but also on behalf of its servants, agents and subcontractors. The
validity of such clauses was upheld by the Supreme Court in the ITO-International
Terminal Operators Ltd. v. Miida Electronics Inc., [1986] 1 S.C.R.
752, 1986 AMC 2580 (the Buenos Aires Maru) and in London Drugs v. Kuehne
& Nagel International Ltd., [1992] 3 S.C.R. 299.
[45]
I
believe the answer lies in two cases: the decision of Mr. Justice Marceau,
speaking for the Federal Court of Appeal, in Mount-Royal/Walsh Inc. v. Jensen
Star (The), [1990] 1 F.C. 199, 99 N.R. 42, and the decision of the Supreme
Court of Canada in Chartwell Shipping, above.
[46]
The
Jensen Star is usually cited to dismiss the proposition that a demise
charterer is the beneficial owner of a ship within the meaning of section 43 of
the Federal Courts Act. However, it also dealt with the supply of
necessaries to the Jensen Star while under demise charter. At pages 216 and
following, Mr. Justice Marceau referred to a number of decisions rendered since
the Federal Court came into existence and noted that a statutory right in rem
requires the owner to be personally liable. He was of the view that under our
system the protection of the shipowner overrides protection of the necessaries
man.
[47]
He
noted the prima facie presumption that necessaries are supplied on the
credit of the ship and her owner, and set out three possibilities at pages 216
and 217:
[…] Is it not
a fact that there are three possibilities which have to be reckoned: the owner
may have contracted himself, or he may have authorized someone to contract on
his personal credit, or he may have expressly or implicitly authorized a
person, in possession and control of a ship, to contract on the credit of the
ship (rather than on the entirety of his personal assets). But, I
essentially agree that liability as a result of some personal behaviour and
attitude on the part of the owner is required. Would that mean, though,
that a judgment in rem cannot be rendered without being accompanied by a
judgment in personam against the owner? If it were so, the whole notion of a
distinct action in rem would be defeated, it seems to me, and to my knowledge
no one has ever contended that such could be the case (Comp D.C. Jackson, Enforcement
of Maritime Claims, 1985, at p. 59). (emphasis added)
[48]
In
that case the individual who ordered the work done on the ship was an officer
of both the owners and the demise charterers, a related corporation. Mr.
Justice Marceau thereby found “the involvement required for the validity of the
action in rem, involvement which consisted in acting through its
president in such a manner as to authorize tacitly Jensen Shipping to contract
on the credit of the vessel and engage, to that extent, its personal liability.”
There is nothing of that sort here. Thus the mere fact of entering into a
demise charter does not give the charterer actual or ostensible authority.
[49]
According
to its contract with Parkroad, World Fuel Services relied on commercial
registries, such as Lloyd’s Register of Shipping, to identify the owners
of ships. I directed during the hearing that the relevant entries from the
Register at the time be produced. The owners are stated to be Partenreederei
m.s. Nordems. The contract clearly demonstrated World Fuel Services’ own
experience that the person ordering bunkers may not have actual authority to
bind the ship. Had it followed the general provisions of its contract, which
was not to extend credit, it would either have been paid or would not have delivered
the bunkers at all.
[50]
In
my opinion it was on notice and should have verified with the owners whether or
not Parkroad had authority. In Chartwell Shipping, above, the
necessaries were ordered by a party which declared itself to be an agent, but
which did not identify its principal. The Court held that the agent was not personally
liable and was of the view that the necessaries man, in that case a stevedore, was
put on inquiry. In this case we are dealing with the reverse situation, but the
same principle holds true.
[51]
I
therefore conclude that under domestic Canadian maritime law the owners of the
Nordems, much less her managers, are not personally liable and so the action
would be dismissed in rem and in personam.
DOES AMERICAN LAW APPLY
[52]
Having
come to this stage, it is now necessary to consider whether our conflict rules
direct us to American law and, if so, whether that law gives World Fuel
Services a maritime lien on the Nordems. As aforesaid, since the owners of the
Nordems are not in a contractual relationship with World Fuel Services, the
choice of law clause therein has less significance than otherwise. I think it fair
to say that based on the facts set out in the various cases, the Courts have
not been entirely consistent in the manner in which they ascertain the proper
law. I must emphasize our choice of law rules direct us to foreign substantive
law, without renvoi, i.e. not to the conflict rules of that jurisdiction. See
Dicey, above at pp.73 and ff.
[53]
What
factors then connect this case to the United States? The plaintiff’s best
case is that it is an American corporation and that because credit was extended
the contract was deemed to have been made in the United States. Payment was
to be made to a bank in the United States. The contract with
Parkroad was governed by American law, with non-exclusive American
jurisdiction. On the other hand, the bunkers were ordered in South Korea and
delivered in South Africa to a Cypriot flag ship, owned and managed out of Germany. At no
relevant time did the Nordems ply American waters, and the ship was arrested in
Canada.
[54]
A
convenient starting point for the proposition that Canada will give effect to a
foreign maritime lien even in circumstances where there is no such lien under
our domestic law is the decision of the Supreme Court in Strandhill (The) v.
Walter W. Hodder Co., [1926] S.C.R. 680, 1927 AMC 244. No choice of law
analysis was required as the plaintiff carried on business in the United
States,
and furnished necessaries to the appellant ship in an American port under a
contract made with the owner in the United States. The ship was
thereafter sold which required the Court to determine whether the plaintiff
enjoyed the maritime lien “droit de suite” against the ship in her new
ownership.
[55]
In
Todd Shipyards Corp. v. Altema Compania Maritima S.A. (the Ioannis Daskalelis),
[1974] S.C.R. 1248, [1974] 1 Lloyd’s Rep. 174, 1973 AMC 176, the plaintiff, an
American corporation, repaired the defendant ship at the behest of her owners
in the United
States.
The ship was subsequently arrested and sold in Canada. It was held
that Todd Shipyards had a maritime lien which had priority over the mortgagee.
[56]
In
the Har Rai, mentioned earlier, by contract made in the United
States,
the plaintiff supplied bunkers to a foreign flag ship in an American
port. The ship was under charter and, in fact, the delivery of the bunkers was
arranged by the charterers’ agent. The plaintiff did not actually know that the
Har Rai was under charter and that the charterparty contained a prohibition
of lien clause. Again the Court did not consider it necessary to carry out a
choice of law analysis. The plaintiffs enjoyed a maritime lien under American
law and effect thereto was given in Canada.
[57]
However
such an analysis was carried out by Mr. Justice Stone in Imperial Oil,
above. The facts were such that there were only two possible proper laws, those
of the United
States
or those of Canada. The two
ships in question were Canadian-flagged, owned by a Canadian corporation and
under demise charter to another Canadian corporation. On the other hand, the
demise charterers’ managers were American and contracted with an American
bunker supplier on terms subject to American law. The bunkers were supplied in Canada. For the
most part, the ships traded in the Great Lakes, i.e. in both Canada and the United
States.
[58]
The
Court determined that absent a contract with the shipowner (as opposed to one
with the charterer) which contains a choice of law clause (which is the case
here), the proper law is not the law of the contract but rather the law with
which the transaction has the closest and most substantial connection. Canada was selected
as having closer connections to the transaction, taking into account ship
registration, flag, ownership, possession in Canada by a Canadian demise
charterer, operation of the vessels from a base in Canada, and the
actual supply of the fuel in Canada.
[59]
In
reviewing the jurisprudence, Mr. Justice Stone noted at para. 28: “When the
place of contracting is the same as the place of performance, the court may
find it practically impossible to apply any other law to the contract.”
[60]
He
also said at para. 22:
While
the present controversy involves transactions said to be connected to either
Canada or the United States, it is not unusual in the marine shipping industry
for fuel to be supplied to a vessel under a contract between parties located in
several countries, negotiated in one country and performed in another sometimes
by a person who was not a party to the original contract. Fortunately,
complexities of that order are not present in the fact situation to be examined
in this appeal.
Such complexities are present however in
this case.
[61]
Mr.
Justice Stone also considered the 1953 decision of the United States Supreme
Court in Lauritzen v. Larsen, 345 U.S. 571, 1953 AMC 1210, not that it
was in any way binding, but rather because it set out a number of factors which
are useful in determining the proper law. Although treated as a tort case, the Lauritzen
approach was later applied in the United States to maritime law
generally. The seven factors listed in that case were: a) the place of the
wrongful act; b) the law of the flag; c) the domicile of the injured seaman; d)
the allegiance of the defendant shipowners; e) the place where the employment
contract was made; f) inaccessibility of a foreign forum; and g) the law of the
forum.
[62]
I
do not think that the decision of Mr. Justice Stone stands for the proposition
that the proper law must be selected. As he mentioned, there were only two
possibilities in that case, while in this there are several. The question here
is whether, in all the circumstances, American law is the proper law.
[63]
The
issue in the Brussel, above, was whether the action in Canada by a
necessaries man (an action in which the Brussel was sold) should be stayed as
the Belgian owners of the Belgian flag Brussel had gone bankrupt in Belgium. It was
clear that if Holt’s claim proceeded on the merits in Belgium, it would be
treated as an ordinary creditor and entitled to little or no dividend. The
action was not stayed as otherwise Holt would be deprived of its maritime lien.
Holt was an American corporation which rendered services to the Brussel in the United
States.
At para. 41, Mr. Justice Binnie, speaking for the court, said:
“A maritime lien validly created
under foreign law will be recognized and given the same priority in Canada as would be given to a
maritime lien created in Canada under Canadian maritime law
--- ” (Emphasis added)
[64]
In
Kirgan Holding S.A. v. The Panamax Leader, 2002 FCT 1235, 225 F.T.R.
273, 2002 AMC 2917, there was no connection whatsoever with the United States
save a choice of law clause between the bunker supplier and the bareboat
charterer. It was held that since the bareboat charterers had complete
possession and control of the ship, the plaintiff was entitled to rely on
presumed authority to bind the shipowner. I find this decision difficult to
reconcile with the decision of the Court of Appeal in the Jensen Star.
The claim for necessaries in that case succeeded not because of presumed
authority on the part of the demise charterer, but rather because of the close
relationship between the owners and the demise charterers and the fact that the
individual who ordered the ship repairs was an officer of both. In any event,
if presumed authority is based on possession of the ship, a time charterer such
as Parkroad does not have possession (but see Imperial Oil, above).
[65]
The
last case to which I refer is the Lanner, above. Although Chief Justice
Richard, speaking for the majority, stated that the choice of law clause in the
supply contract should generally govern maritime transactions, the necessaries
in question were ordered by the owner’s manager who had authority to do all
things appropriate including to arrange for bunkers. As a result, a contractual
link was established between the bunker supplier and the owners. That is not
the case here. He specifically refrained from commenting on the situation
arising from the choice of law clause in a contract to which the shipowner was
not privy.
[66]
In
my opinion, the non-American factors outweigh the American ones. These include
the flag of the ship (Cyprus), the domicile of her owners (Germany), the place
where the offer to purchase bunkers was accepted (South Korea), the place where
the bunkers were delivered (South Africa), and the place where
the ship was arrested (Canada). If it is necessary to choose among these
laws, the proper law is that of South Africa. There are only two
points of contact between the ship owner and the plaintiff. The first is South Africa where the
bunkers were supplied. If a maritime lien exists, it existed from that moment.
Had credit not been extended, the plaintiff would have been in position to
arrest the ship then and there. Since the law of South Africa has not been
alleged and proven to differ from Canadian law, the arrest would be set aside
as there is no personal liability on the part of the owners and as the
presumption that the bunkers were delivered on the credit of the ship has been
rebutted. The bunker receipt signed by the master does not even refer to World Fuel
Services. The receipt is on the letterhead of Caltex Oil (SA) (Pty) (Ltd), with
a Cape Town post office address and Cape Town telephone number. That
receipt gives no indication whatsoever that the plaintiff was Caltex’s unnamed
principal. The second point of contact was Canada, the place
of arrest.
[67]
In
my opinion this conclusion accords with Canadian maritime law. The different
result in the decisions of the Federal Court of Appeal in Imperial Oil and
in the Lanner is that in the latter there was a contract between the
necessaries man and the shipowner, while in the former there was not. Absent a
contract, we must tote up the points of contact. In a fact situation which has
contact with several jurisdictions, pride of place must be given to the place
where the necessaries were provided. In my opinion, in the circumstances of
this case, that fact alone, or if necessary coupled with the place of arrest,
outweighs the other factors.
THE MARITIME LAW OF THE
UNITED STATES
[68]
Should
my analysis be wrong, and the proper law of the transaction is that of the United
States,
it is only appropriate that I make findings of fact, based on the evidence
before me, as to the state of that law. The maritime lien given to necessaries men
by American law has come up for discussion so often in our courts that we risk
forgetting that our pronouncements are findings of fact based on the record,
not the determination of points of law. Indeed, the American law on this
subject is developing so rapidly that in the Lanner, above, the Federal Court
of Appeal permitted fresh evidence based on cases which arose after the matter
was heard in first instance. Not only is there a division in the case law, the
governing statute has been amended over time. The starting point of any
analysis is the United States Commercial Instruments and Maritime Lien
Act,
46 U.S.C. § 31341. That law creates a maritime lien on a ship in favour of a
supplier who furnished her with necessaries, such as bunkers, “on the order of
the owner or a person authorized by the owner.” As it currently stands, persons
presumed under the statute to have authority to procure necessaries include a
charterer. The necessaries man has a maritime lien and is not required to prove
that credit was given to the ship.
[69]
Both
Mr. Simms, called by the plaintiff, and Mr. Marks Cohen, called by the defendants,
agree that the presumption of authority is only rebutted by establishing that
the necessaries man actually knew that authority was lacking. Although American
law thus encourages necessaries men to turn a blind eye to reality, our sense
of public policy is not so offended as to refuse to give effect to the maritime
lien provisions of the United States, should they be otherwise applicable (the Har
Rai, above).
[70]
Apart
of the express terms of the statute, Mr. Simms relies on the 1992 decision
of the United States Court of Appeals for the Fifth Circuit in Liverpool
& London S.S. P&I Ass’n v. m/v Queen of Leman, 296 F. 3d 350, the 2008
decision of the Ninth Circuit in Trans-Tech Asia v. m/v Harmony Container, 518
F. 3d 1120, 2008 AMC 684, and the decision of the Fourth Circuit in 2009 in Triton
Marine Fuels v. m/v Pacific Chukotka, 575 F. 3d 409, 2009 AMC 1885. These
decisions appear to run contrary to the 1973 decision of the Second Circuit in Rainbow
Line, Inc. v. m/v Tequila, 480 F. 2d 1024, 1973 AMC 1431, which is strongly
relied upon by Mr. Marks Cohen.
[71]
When
there is a divergence of opinion and a divergence in the foreign case law, this
Court is entitled to consider whether the cases cited support the propositions
advanced by the experts. Furthermore, according to Castel & Walker, Canadian
Conflict of Laws, 6th ed. (Markham: LexisNexis,
2005) at para. 7.3, and the authorities cited therein:
Where the witness puts in materials as
part of his or her evidence, the court is entitled to examine these materials,
and where there is conflicting evidence as to the interpretation to be placed
upon the materials, the court may scrutinize them and form its own conclusion
on them (footnotes omitted).
[72]
Dealing
with these cases in chronological order, the issue in the Tequila was whether
a breach of a charterparty by the shipowner gave rise to a maritime lien in
favour of the charterer with priority over a ship mortgage. The Court noted
that maritime liens arise separately and independently from the agreement of
the parties, and that rights of third parties cannot be affected by the
contract. It held, following Lauritzen, that virtually all points of contact
in the transactions giving rise to the dispute as to the priority status of the
charterer, as opposed to the mortgagee, were with the United States. The only
British contacts were registration and nominal ownership of a ship whose real
owners were American.
[73]
In
the Queen of Leman, it was held that under American law unpaid maritime
insurance premiums give rise to a maritime lien. The ship had been arrested and
sold in the United
States.
The insurance contract was governed by English law which did not provide a
maritime lien. In holding that the underwriters had a maritime lien, the Court
primarily relied upon the terms and conditions of the ship’s entry in the
protection and indemnity association. It held:
We interpret the P&I rules to provide
generally for the choice of English substantive law, but to except from this
choice of law the substantive issue of whether a maritime lien exists in the
first place. Under the contract, that question, like the enforcement of such a lien,
is to be determined by the law of the local jurisdiction. We therefore conclude
that in this case the P&I rules call for the application of United States substantive law to determine
the existence of maritime liens.
[74]
I
did not find this reasoning helpful in a situation such as the present in which
the ship was arrested in Canada, a jurisdiction which does not give a
necessaries man a maritime lien.
[75]
In
the Harmony Container, in which Mr. Simms acted for the successful
bunker supplier, the ship flew the Malaysian flag and was owned by a Malaysian
corporation. They chartered her to a Taiwanese corporation which operated her
in a loop which included regular calls in California. The
charterers’ manager contacted a bunker intermediary who obtained the quote from
Trans-Tech of Singapore. The bunkers
were delivered in South Korea. Thereafter the charterers went bankrupt
without settling the bill. The ship would have been arrested in Long Beach had the new
owners not voluntarily provided U.S. security. As in the
present case, the bunker supply contract incorporated American law.
[76]
The
Court selected the proper law as if there were no choice of law clause and came
to the view that Malaysian law governed contract formation. It considered the
place where the bunkers were delivered was somewhat fortuitous. It went on,
however, to find that Malaysian law permitted the selection of another law and
then gave effect to American law, including the maritime lien, without
determining whether under Malaysian law the shipowner was party to the contract.
It expressly preferred the decision of the Queen of Leman over that of
the Tequila.
[77]
In
the Pacific Chukotka, a foreign corporation provided bunkers on the
order of a subcharterer at a foreign port. Under the head charter the owners
had required that all bunkers were to be purchased for the charterer’s account,
at its own expense, and specifically provided that the charterer had no
authority to create, incur or permit a maritime lien . The bunker supply
contract, as might be expected, called for the application of American law and
identified the buyer as the ship and her master, owners, managing owners,
operators, managers, disponent owners, charterers and agents, jointly and
severally. The owner’s argument that it was not privy to and not bound by the
choice of law provision in the bunker contract was dismissed. The Court
emphasized that this argument ignored the fact that this was an in rem
action asserting a maritime lien against the ship, rather than an in
personam claim against the owners. The inquiry was not whether the parties
to the supply contract had authority to bind the owners, but whether they had
authority to bind the ship.
[78]
The
Court also noted the split of authority between the Second Circuit’s position
in the Tequila, above, and the position of the Fifth Circuit in the Queen
of Leman, above, and the Ninth Circuit in the Harmony Container,
above. The Fourth Circuit preferred the decisions of the Fifth and Ninth Circuits.
[79]
Mr.
Marks Cohen makes the point, which I consider persuasive, that American law
would not apply of its own force, but rather through a choice of law process in
a contract to which the owners of the Nordems were not party. Another most
significant point is that in the cases relied upon by Mr. Simms, the ships were
either arrested or security was provided in the United States in order to
prevent their arrest. If this matter were to proceed in a United
States
court, the presence of the ship by way of arrest would be lacking. The court
would be limited to declaring whether or not a United States maritime
lien attached. The Queen of Leman places considerable emphasis on the
law of the place where rights can be enforced, which in this case is Canada.
[80]
Furthermore,
in the Harmony Container and Pacific Chukotka, there were other
American contacts, apart from the arrests or right of arrest in the United
States.
In the Harmony Container, the Court was not concerned with the potential
extraterritorial application of American law because apart from security posted
in the United States, the ship regularly sailed into California.
[81]
In
the Pacific Chukotka, the subcharterer, although incorporated in the Cayman
Islands, had its principal place of business in the State of Washington. The ship,
owned by Green Pacific, traded to various ports, including those in the United
States.
[82]
The
Court stated:
Green Pacific first argues that the
choice-of-law provision in the Bunker Confirmation cannot bind Green Pacific or
its property without its knowledge or consent. Green Pacific’s argument,
however, ignores the fact that this case involves an in rem action
asserting a maritime lien against the Vessel, rather than an in personam claim
against Green Pacific as the Vessel’s owner. As such, the relevant inquiry is
not whether the parties to the supply contract had authority to bind the Vessel
owner, but whether the parties had the authority to bind the Vessel. In
the case of a maritime lien, the vessel itself is viewed as the obligor,
regardless of whether the vessel’s owner is also obligated. See Amstar Corp.
v. S/S ALEXANDROS T., 664 F. 2d 904, 908-09 (4th Cir. 1981);
see also Black’s Law Dictionary 943 (8th ed. 2004) (“[The maritime
lien] arises by operation of law and exists as a claim upon the property,
secret and invisible.”) (quoting Griffith Price, The Law of Maritime Liens
1 (1940)) (emphasis added).
[83]
I
prefer the opinion of Mr. Marks Cohen over that of Mr. Simms. There must be
more than an American choice of law clause in a contract to which the owners
are not privy in order for American courts to give effect to a maritime lien.
Three key elements were missing: a) the bunkers were not supplied in the United
States;
b) the ship never traded to the United States; and c) the ship was not arrested
in the United
States.
[84]
With
respect, a step was missing in the Pacific Chukotka analysis. The United
States
statute did not apply of its own force, but rather by way of a choice of law
clause in a contract to which the owners were not party. On the general
principles of agency applicable in the United States, I accept
that absent other connecting factors the court has to first find the owners
were bound by the contract before applying American substantive law. I find as
a matter of fact that the Tequila reflects American law.
[85]
I
am called, as a matter of fact, to determine what American law is, not what an American
Court
would decide if the Nordems had been arrested in the United States rather than
in Canada. An American
Court
would apply its own conflict of law rules, just as a Canadian Court applies its
conflict of law rules. Mr. Simms did not make that distinction. He pointed out
that in the Tequila the Second Circuit’s decision turned on a choice of
law analysis, which concluded there was a U.S. based
maritime lien for breach of a charterparty. He added
“Here, in this situation of a provision
of necessaries (bunkers) to the Vessel on a charterer’s order, through a
contract incorporating United States law, there is only one nation’s law to
apply, that of the United States, to conclude that World Fuel holds an in
rem maritime lien against the Vessel.”
Even if Mr.
Simms is right when it comes to predicting what a Court in the United States would
do, his opinion is of no relevance as Canadian choice of law rules do not
direct us to the laws of the United States. It is not enough that there be a
contract. There must be a contract to which the owners are privy, absent other
sufficient factors connecting the transaction to the United States.
[86]
In
summary, the shipowners were not party to the World Fuel Services contact and
are not bound by its terms. Parkroad had no actual or ostensible authority to
contract on their behalf or on the credit of the ship. The presumption that the
bunkers were supplied on the credit of the ship has been successfully rebutted.
United
States
law is not the proper law. Even if it were, it did not create a maritime lien
on the ship or impose personal liability on her owners or managers. The action in
rem and the action in personam against them fail.
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