Date: 20100414
Docket: T-79-10
Citation: 2010
FC 406
Montréal, Quebec, April 14, 2010
PRESENT: The Honourable Madam Justice Tremblay-Lamer
ADMIRALTY ACTION IN REM AGAINST
THE SHIP “ATCHAFALAYA”
AND IN PERSONAM AGAINST PROTEUS
CO.
BETWEEN:
KEYBANK NATIONAL ASSOCIATION,
A CORPORATE BODY
Plaintiff
and
THE OWNERS AND ALL OTHERS
INTERESTED IN THE SHIP
“ATCHAFALAYA” and PROTEUS CO.
Defendants
REASONS FOR ORDER AND ORDER
[1]
This is a motion for leave to
intervene and to set aside the in rem portion of a summary judgment
rendered by Justice Johanne Gauthier on February 23, 2010, and an Order of
Appraisal and Sale rendered by Justice Heneghan on March 11, 2010, brought
pursuant to sections 109 and 399 of the Federal Courts Rules, S.O.R./98-106
(the Rules), by Dragage Verreault Inc. (DV).
BACKGROUND FACTS
[2]
DV
arrested the defendant ship “Atchafalaya” (the Ship) on December 23,
2008. It is involved in proceedings in rem against the Ship and in
personam against its owners in this Court’s file T-1290-08. DV has notified
the plaintiffs, Keybank National Association (Keybank), of that action on July
5, 2009.
[3]
On January
13, 2010, Keybank’s solicitor, Mr. Spicer, contacted DV’s solicitor, Mr.
Buteau, and was provided with a copy of DV’s pleadings in its action against
the Ship and its owners. Keybank filed the present action against the Ship and
its owners on January 18, 2010. It did not serve or otherwise notify DV at the
time. DV learned of this action by February 4, 2010.
[4]
Mr. Buteau
then wrote to Mr. Spicer, requesting a copy of Keybank’s pleadings and asking
whether and when they had been served upon the Ship. Mr. Spicer replied that
this had been done on January 26. However, as DV eventually found out, this was
not the case: Keybank only served the pleadings on the in personam
defendants.
[5]
On
February 16, 2010, Keybank moved for summary judgment in the action. It
did not notify DV of its motion. Upon consent of the defendants, Justice
Gauthier granted summary judgment on February 23, 2010, as requested by
Keybank. DV’s solicitors were not present at or aware of the hearing which led
to this judgment.
[6]
Keybank
forwarded a copy of the summary judgment to DV on February 24, 2010, and
notified it that it intended to move for the sale of the Ship. DV apparently
only became aware of this in early March of 2010, due to Mr. Buteau being away
from his office. It also became aware that Keybank’s statement of claim had not
been served on the Ship.
[7]
On March
11, upon Keybank’s motion, Justice Elizabeth Heneghan rendered an Order of
Appraisal and Sale of the Ship. DV had been
served with the notice of motion and attempted to have its hearing postponed,
but did not seek leave to intervene in the action, and as it was not a party,
its requests were denied.
[8]
DV is now
seeking leave to intervene in the action and requests that the in rem portion
of the summary judgment as well as Justice Heneghan’s Order of Appraisal and Sale be set aside. Pursuant to Justice
Gauthier’s direction, it has filed its motion for hearing at a general sitting
of the Court, rather than before her.
ISSUES
[9]
There are
three issues for this Court to decide:
a. Should DV be granted leave to
intervene in this case?
b. Should the in rem
portion of the summary judgment be set aside?
c. Should the Order of Appraisal
and Sale be set aside?
DISCUSSION
Should DV be granted leave to intervene
in this case?
[10]
DV argues
that, having arrested the Ship, it has an interest in it which may be adversely
affected by the outcome of this action. The Ship is the only security for a
claim it is pursuing against its owners. In fact, the identity of the Ship’s
owners is matter of controversy, and will be decided at the trial of DV’s
action (T-1290-08), as Prothonotary Morneau (Admiralty Action In Rem v. M/V
Atchafalaya (Ship),
2009 FC 273) and Justice Luc Martineau (in an unpublished order) both
recognized. DV
should, therefore, be allowed to intervene to protect its interests by moving
to have the summary judgment and the ensuing Order of Appraisal and Sale set aside.
[11]
Keybank
opposes DV’s intervention. While it acknowledges DV’s interest in the Ship, it
argues that the Order of Appraisal and Sale protects this interest by ensuring that
the Ship will be sold at a fair market price. Furthermore, there is no real
public interest which DV’s intervention would protect; interest in the proper
service on the Ship of the in rem proceedings is merely academic. In
addition, DV failed to seek leave to intervene at the earliest possible time,
whether after having learned of these proceedings on February 4, 2010, or after
having learned of Keybank’s intention to move for an Order of Appraisal and Sale in late February or early March.
Accepting DV’s intervention at this late stage would cause considerable
disruption. Finally, the interests of justice would not be served by allowing
the intervention, because it is based on a technicality; would present no new
arguments to the Court; and, in any event, there is no evidence that it is
necessary to protect DV’s interests.
[12]
I do not
accept Keybank’s arguments.
[13]
First, I
agree with DV that its interest in the Ship entitles it to intervene in the
action. In Shibamoto & Co v. Western Fish Producers Inc. (Trustees
of), (1991), 50 F.T.R. 231 (F.C.T.D.), this Court concluded that a party
whose interest in a res can be adversely affected by the outcome of in
rem proceedings has the right to participate in such proceedings. This
principle applies in the case at bar, because a judicial sale of the Ship
resulting from the summary judgment will adversely affect DV’s interests if the
sale price is insufficient to satisfy its claim against the Ship’s owners. In
fact, participation in proceedings in rem by a party having such an
interest can occur as matter of course, without that party bringing a formal
motion to intervene. (See, for example, the Court’s recorded entries in
its file T-1620-01, showing appearances by solicitors for “Crew Members in the
file T‑1266-01” and “Plaintiff in the file 1266-01” at the hearing of a
motion for the sale of the ship “Arcadia” on November 6, 2001; see also the
Court’s recorded entries in its files T-531-03 and T‑470-03; T-2009-00;
and T-1705-00.)
[14]
Second, DV
was not late in moving to intervene. While DV was aware of this action by the
time Keybank moved for (and the in personam defendant consented to)
summary judgment, Keybank did not notify DV of its motion. Further, Keybank
brought its motion for summary judgment before the expiry of the normal delay
for filing a defence in the action, so that DV did not know what the in
personam defendant’s position was. It could not anticipate that the in
personam defendant would not defend the action and would consent to summary
judgment against it. Thus it could not make an informed decision as to whether
or how to intervene. Therefore, in my view, DV cannot be said to have
been negligent in not having sought to intervene at that stage. In fact, it did
not seek to intervene in the action because Keybank failed to give it notice of
its motion for summary judgment despite having recognized that DV could be
“directly affected” as an in rem creditor if the proceeds of the Ship’s
sale do not amount to its fair market value.
[15]
Finally,
in my opinion, DV’s intervention will serve the interests of justice. It is in
the interests of justice that a party who ought to have made its views on a
matter known to the Court be able to do so, in accordance with the principle audi
alteram partem. This is all the more so where, as here, the matter
proceeded on consent of the in personam defendant of the action and thus
DV’s intervention is necessary if the Court is to be presented with any debate
on the remedies sought by Keybank. As for Keybank’s argument that an
intervention at such a late stage is disruptive, it cannot stand. Keybank has
only itself to blame for the disruption, which it could have avoided by taking
easy and obvious steps to give notice to DV, whose interest in this case it had
already acknowledged.
[16]
Thus leave
to intervene is granted to DV.
Should the in rem portion of summary judgment in
this case date February 23, 2010, be set aside?
[17]
The Rules
provide that, on motion, this Court can vary a previous order if, inter alia,
it was made “in the absence of a party who failed to appear … by reason of
insufficient notice of the proceeding,” (para. 399(1)(b)) or “by reason
of a matter that arose or was discovered subsequent to the making of the order”
(para. 399(2)(a)).
[18]
DV
contends that such is the situation in this case. It expected that the
plaintiff, whom it had made aware of its own proceedings against the Ship,
would return the courtesy and notify it of its own action. But it did not get
notice of these proceedings, in which it had an interest. Nor did it get notice
of the application of summary judgment, and thus could not make its position
known to the Court before summary judgment was rendered. In addition,
solicitors for the plaintiff failed to serve their statement of claim in this
action on the Ship; as the provisions of the Rules that apply to service
on an in rem defendant are mandatory, a judgment resulting from
proceedings not properly served is a nullity.
[19]
Keybank
submits that DV’s argument is based on a mere technicality, i.e. its
failure to serve the statement of claim on the Ship. Furthermore, paragraph
399(1)(b) of the Rules only applies to a “party,” which DV was
not at the time of the summary judgment, so that it cannot avail itself of this
provision. As for paragraph 399(2)(a), the Court ought not to apply it
lightly, given the public interest the finality of judgments, and should not
apply it in this case because the matter was properly decided between the
parties, while DV failed to seek leave to intervene.
[20]
In any
event, the “matter that arose or was discovered subsequent to the making of the
order,” to which paragraph 399(2)(a) of the Rules refers, must
have a determinative influence on the decision. According to Keybank, a
technical irregularity of the service in rem could not have such an
influence, and service in the case at bar complied with the spirit, if not the
letter, of the Rules. The aim of service in rem is “to get the
true defendants into court,” and this has been accomplished by serving the
statement of claim on the Ship’s owners. Alternatively, it is to give notice of
the action to all those concerned, and this has also been done. In any case,
the Ship is currently neither manned nor working; complying with the
formalities of the Rules would have been futile.
[21]
Further,
Keybank contends that even if its failure to serve the statement of claim on
the in rem defendant was a violation of the Rules, the Court
should not set aside the summary judgment. A procedural irregularity can be
cured, especially if the party whom it affects suffered no real prejudice. Such
is the case here: DV has been aware of the proceedings since February 4, 2010,
and has not alleged that it would have done anything differently had Keybank
properly served the Ship. Alternatively, the proper remedy in case of an
irregularity of service is to re-effect the service in compliance with the Rules.
Such a remedy, however, would be moot here, since all those interested in the
Ship already participate in the proceedings.
[22]
Again, I am not persuaded by
Keybank’s arguments. I do not take as narrow a view as it does of the “matter”
which “was discovered subsequent to the” summary judgment. The difficulty in
this case is not merely that Keybank failed to follow the Rules’ procedural
requirements. Much more importantly, because of its failure to give notice of
its early motion for summary judgment to DV, Justice Gauthier rendered the
summary judgment unaware of DV’s interest in the Ship and of its
position with respect to Keybank’s proposed course of action. Those are the
“new matters” which are potentially determinative of the Court’s disposition of
this case.
[23]
As I
explained above, DV cannot be faulted for having failed to intervene in this
case before Justice Gauthier rendered the summary judgment part of which it now
seeks to have set aside. Because Keybank kept it in the dark as to the course
of these proceedings, it is disingenuous for it to claim that the matter was
properly decided between the parties. Even though DV was not a party at the
time the summary judgment was delivered, it had an interest in this matter, and
Keybank’s actions prevented it from asserting this interest.
[24]
Accordingly,
I set aside the in rem portion of the summary judgment.
Should the Order of Appraisal and Sale dated March 11, 2010, be set
aside?
[25]
DV submits
that, having set aside the in rem portion of the summary judgment in this
matter, this Court should also set aside the Order of Appraisal and Sale, since it “was obtained by Keybank on
the basis of a judgment which is a nullity.” DV adds that it had insufficient
notice of Keybank’s notice of motion, which resulted in the Order of Appraisal
and Sale. Furthermore, and in any
event, Keybank simply cannot have the Ship sold without having arrested it,
which it has not.
[26]
DV insists
that the carrying out of the Order of Appraisal and Sale will cause it prejudice. The sale of the
Ship, which is highly specialized and may be of interests to operators of such
vessels around the world, is insufficiently advertised under the terms of the
order, no broker is involved to promote it. Furthermore, the sale is not by
sealed bids, and thus not in accordance with the standard practice under the
recent decisions of this Court. In addition, the appraiser appointed under the
order has already acted for both Keybank and the in personam defendant
in this action.
[27]
Finally,
DV submits that if this Court finds that the Order of Appraisal and Sale may only be set aside or varied by
Justice Heneghan, it should be stayed pending a continuation of the hearing of
this Motion before Justice Heneghan.
[28]
Keybank,
for its part, relies on subsection 399(3) of the Rules, which provides
that “[u]nless the Court orders otherwise, the setting aside or variance of an
order ... does not affect the validity or character of anything done or not
done before the order was set aside or varied.” It also contends that its right
to have the Ship sold depends not on the summary judgment, but on the fact that
the Ship has been arrested, and also on its contract with its owners. Finally,
the terms of the Order of Appraisal and Sale are sufficient to protect the creditors,
including DV. It should not be interfered with, especially since it is already
being carried out.
[29]
In
my view, the setting aside of the in rem portion of the summary judgment
is a “matter that arose … after the making of the” Order of Appraisal and Sale within the meaning of
paragraph 399(2)(a) of the Rules. Thus it may justify
setting aside of this order. However, the decision to do so or not should be
made by Justice Heneghan, who issued the Order of Appraisal and Sale. I will, therefore,
stay its operation until Justice Heneghan takes a final decision on this
matter.
[30]
For
these reasons, DV’s motion for leave to intervene is granted; the in rem
portion of the summary judgment is set aside; and the operation of the Order of
Appraisal and Sale is stayed until Justice Heneghan hears the motion to have it set
aside. Costs of this motion are payable by Keybank to DV in accordance with
Column 5 of Tariff B.
ORDER
THIS COURT ORDERS that:
1. DV’s motion for
leave to intervene is granted;
2. The in rem
portion of the summary judgment rendered by Justice Gauthier on February 23,
2010, is set aside;
3. The operation of
the Order of Appraisal and Sale is stayed until Justice Heneghan hears DV’s
motion to have it set aside;
and
4. The costs of this motion are payable
by Keybank to DV and shall be calculated in accordance with Column 5 of Tariff
B.
“Danièle Tremblay-Lamer”
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