Date: 20101026
Docket: T-531-03
Citation: 2010 FC
1053
Admiralty
action in rem
BETWEEN:
JPMORGAN CHASE BANK
(formerly The Chase
Manhattan Bank), a body corporate
and
J.P. MORGAN EUROPE
LIMITED
(formerly Chase Manhattan International Limited), a body corporate
Plaintiffs
and
MYSTRAS MARITIME
CORPORATION
a body corporate
and
THE OWNERS AND ALL
OTHERS
INTERESTED IN THE SHIP
“LANNER”
and
THE SHIP “LANNER”
Defendants
and
BORDEN LADNER GERVAIS LLP
Applicant
and
KENT TRADE
& FINANCE INC.
and
GEORGE
SAROGLOU
and
JOHN MICHAELIDES
Respondents
REASONS FOR JUDGMENT AND
JUDGMENT
TREMBLAY-LAMER J.
[1]
This
is an appeal from a decision of Prothonotary Richard Morneau, dated June 14,
2010, whereby the Court declined jurisdiction ratione materiae over
determining, as between two former shareholders and directors of the judgment
creditor, who was entitled to the proceeds of the in rem action
ultimately decided in Kent Trade and Finance Inc. v. JP Morgan Chase Bank,
2008 FCA 399, [2009] 4 F.C.R. 109 (Kent Trade). For the reasons that
follow, the appeal is dismissed.
1. Facts
[2]
In
2003, JP Morgan Chase Bank took possession of the “LANNER” due to an unpaid
mortgage. The Bank proceeded to sell the “LANNER” for $6.9 million (USD), of
which $2.7 million became the subject of a dispute between various
creditors. Kent Trade and Finance (Kent Trade), a British Virgin Islands
corporation, claimed a portion of these proceeds as it had provided fuel oil to
the “LANNER” for which it had not been compensated. The disputed amount became
the subject of an in rem action against the proceeds of the judicial
sale in the Federal Court.
[3]
Kent
Trade was ultimately awarded a portion of the proceeds in a decision of the
Federal Court of Appeal dated December 12, 2008 (Kent Trade, above). As of December
19, 2009, the sum awarded, including interest accrued, amounted to
approximately $1.2 million. This amount was paid to Kent Trade’s counsel,
Borden Ladner Gervais (BLG). Kent Trade, by this point, had ceased to exist. Thus,
BLG was uncertain as to who was entitled to the money. As such, on December 21,
2009, BLG filed a Motion for Directions under Rule 108 of the Federal Courts
Rules, SOR/98-106 (the Rules) to commence interpleader proceedings.
[4]
Two
former shareholders and directors of Kent Trade, Mr. George Saroglou (the “Appellant”)
and Mr. John Michaelides, each indicated to the Court that they were entitled
to the money. Both Mr. Saroglou and Mr. Michaelides referenced an agreement
dated February 21, 2007 (the Agreement). In the Agreement, Mr. Saroglou agreed
to transfer his shares in Kent Trade to Mr. Michaelides (in addition to
agreeing to pay an outstanding loan owed by Kent Trade) in exchange for being
assigned the right to certain proceeds that might arise from the fuel oil claim
against the “LANNER”.
[5]
On
February 2, 2010 the Federal Court issued an order under Rule 108 accepting the
$1.2 million being held by BLG. The Court ordered the parties to file a
proposed process for determining the competing claims. However, at the same
time, the Court raised the issue as to whether it had jurisdiction to decide
the matter. In the subsequent claim records submitted by the two parties, Mr.
Saroglou and Mr. Michaelides disagreed on the question of jurisdiction. Mr. Saroglou
argued that the Court did have jurisdiction, Mr. Michaelides disagreed. Mr.
Michaelides declined to argue the substantive elements of his claim against the
proceeds until the question of jurisdiction was determined.
[6]
On
June 14, 2010, Prothonotary Morneau issued an order whereby the Court declined
jurisdiction ratione materiae over the dispute. The Prothonotary decided
that the matter was, in pith and substance, a disagreement as to the
interpretation or implementation of an agreement concerning a share transfer and
its consequences. He referred to the Supreme Court of Canada’s decision in ITO
- International Terminal Operators Ltd. v. Miida Electronics Inc., [1986] 1
S.C.R. 752, 68 N.R. 241 (ITO) and found that the subject matter in
dispute was not so integrally connected to maritime matters as to be considered
a maritime law matter. Prothonotary Morneau indicated that the Court would hold
the amount at issue until a competent authority provided instructions as to how
it should be distributed.
[7]
On
June 25, 2010, Mr. Saroglou filed a Notice of Appeal regarding this decision. The
sole issue on appeal is whether this Court has jurisdiction over the dispute
between Mr. Saroglou and Mr. Michaelides as to who, as between the two of them,
is entitled to the proceeds awarded to Kent Trade as a result of the in rem action
against the “LANNER”.
2. Analysis
[8]
The
Appellant rightly points to the test outlined by the Supreme Court of Canada in
ITO, above for the purposes of determining whether the Federal Court has
jurisdiction over the current dispute. In ITO at para. 11, the Supreme
Court of Canada indicated that in order to find that the Federal Court has
jurisdiction, the following three requirements must be met:
1. There must be a statutory grant of
jurisdiction by the federal Parliament.
2. There must be an existing body of
federal law which is essential to the
disposition of the case and which
nourishes the statutory grant of jurisdiction.
3. The law on which the case is based
must be "a law of Canada" as the phrase is
used in s. 101 of the Constitution
Act, 1867.
[9]
The
Appellant argues that the first requirement is met. He indicates that the
judicial sale of the “LANNER” is captured by the statutory grant of
jurisdiction found under s. 22(2)(a) of the Federal Courts Act, R.S.
1985, c. F-7 (FCA). Further, it points out that the maritime lien for
the provision of fuel oil is captured by s. 22(2)(m) of the FCA. Finally,
it argues that the dispute with respect to the assignment of a right in rem
against the proceeds of the sale of the “LANNER” (which constitutes maritime
property) in relation to a claim arising from fuel oil supply falls under s.
22(1) of the FCA by virtue of being a claim in which “a remedy is sought
under or by virtue of Canadian maritime law”.
[10]
Finding
that the current dispute constitutes a matter falling within the ambit of
Canadian maritime law is sufficient to satisfy both the second and third
requirement of the ITO test. As Prothonotary Morneau correctly indicated
in his reasons, the Supreme Court in ITO instructed that in order to
determine whether a particular case involves a maritime or admiralty matter, it
must be established that “the subject-matter under consideration… is so integrally
connected to maritime matters as to be legitimate Canadian maritime law” [ITO,
above at para. 20; emphasis added]. The Court was clear that although the words
“maritime” and “admiralty” are to be interpreted within the modern context of
commerce and shipping, the ambit of Canadian maritime law must nonetheless be
limited by the constitutional division of powers. The Federal Court must “avoid
encroachment on what is in ‘pith and substance’ a matter of local concern
involving property and civil rights or any other matter which is in essence
within exclusive provincial jurisdiction” (ITO, above at para. 20).
[11]
Prothonotary
Morneau decided that the subject matter under consideration was not integrally
connected to maritime matters. Instead, he found that the subject matter was,
in pith and substance, essentially a matter of local concern involving property
and civil rights.
[12]
The
Appellant argues, however, that the requirement of integral connection has been
broadly interpreted by subsequent jurisprudence such that the current dispute
is captured. He argues that the Prothonotary erred by failing to consider the
Supreme Court’s decision in Monk Corp. v. Island Fertilizers Ltd.,
[1991] 1 S.C.R. 779, 80 D.L.R. (4th) 58 (Monk) whereby the Court
determined that contracts which are not maritime in nature may, nonetheless,
fall within the jurisdiction of the Federal Court as being integrally connected
to maritime matters. The Appellant argues that the Prothonotary ended his
analysis after determining that the contract was not maritime in nature. The Appellant
suggests that the Prothonotary failed to evaluate whether, despite not being a
maritime contract, the claim itself was nonetheless integrally connected to
maritime matters.
[13]
I
do not see how this case is of assistance to the Appellant in the current context.
The claim in Monk directly involved resolving a dispute as to the
parties’ maritime obligations – specifically, obligations relating to the
discharge of cargo. However, in this case, the dispute with respect to the
maritime obligations (i.e. the claim re: payment for the supply of fuel oil)
has been resolved. What remains is a dispute over the interpretation of an
agreement between shareholders as to the right to the funds resulting from a
successful claim. While the decision in Monk does indicate that parties can
assume maritime obligations even if they are not parties to a formal maritime
agreement, it does not assist the Appellant in arguing that the agreement
currently before the Court, in which no maritime obligations are assumed, is
nonetheless integrally connected to maritime matters.
[14]
The
Appellant also looks to the Global Cruises S.A. v.
Naftiko Apomahico Tameio (1991), 48 F.T.R. 13, 28
A.C.W.S. (3d) 1020 (F.C.T.D.) (Global Cruises) decision for assistance. The
Appellant argues that Global Cruises stands for the proposition that
when a cause of action flows from the judicial sale of a ship, and cannot be
separated therefrom, the cause of action is integrally connected to maritime
matters for the purposes of the ITO test.
[15]
In
Global Cruises, the Federal Court ordered a vessel to be sold by way of
public auction. The plaintiff submitted the highest bid. However, the defendant
held a lien on the vessel. In order to facilitate the sale of the ship to the
plaintiff, the Court ordered the defendant to release its lien. The defendant
indicated that it would comply, but ultimately failed to honour that
representation. The plaintiffs brought an action in the Federal Court asserting
that their rights arising from the sale proceedings were invaded by the
negligent misrepresentation of the defendant. The defendant questioned the
Court’s jurisdiction to entertain the matter. The Court found that the cause of
action asserted by the plaintiff flowed from, and could not be separated from,
the judicial sale of the ship in question. Since the misrepresentations of the
defendant were made in the course of the sale proceedings, the Court found that
the action was founded in maritime law.
[16]
Unlike
the dispute in Global Cruises, the current dispute can be separated from
the central maritime aspect. The maritime aspect, in this case, was the claim
over compensation for the supply of fuel oil. This aspect has been determined
in Kent Trade’s favour. Although the current dispute, as between Mr. Saroglou and Mr.
Michaelides, can be said to “flow from” the award to Kent Trade - in the sense
that if there were no award to Kent Trade, there would be no dispute as to who
is entitled to it – the current dispute, nonetheless, is completely separable
from the maritime aspect.
[17]
Ultimately,
there is no basis for finding that the dispute under consideration in the
current matter is integrally connected to maritime matters. As such, the second
and third requirements of the ITO test are not satisfied. It is, thus,
unnecessary to consider the first requirement.
[18]
The
Appellant further argues that the Court has jurisdiction to determine who is
entitled to a sum awarded in one of its judgments. Since Kent Trade no longer
exists, the Appellant argues that it is incumbent upon the Court to ensure the
transfer of the proceeds arrives at its rightful owner. In this regard, the Appellant
points to two decisions which indicate that the Court has jurisdiction over the
enforcement of its judgments. It cites Trans-Pacific Shipping Co. v.
Atlantic & Orient Trust Co., 2005 FC 311, 137 A.C.W.S. (3d) 1083 (Trans-Pacific)
and MacDonald v. Swecan International Ltée (1990), 40 F.T.R. 272, 25
A.C.W.S. (3d) 276 (MacDonald).
[19]
Both
the Trans-Pacific and MacDonald cases stand for the proposition
that the Federal Court, once it has issued a judgment, has the jurisdiction
necessary to ensure effective enforcement of that judgment against the judgment
debtor involved. In Trans-Pacific, the Court found that it had the
jurisdiction necessary to make certain corporate law-related determinations in
order for an arbitral award that had been registered in the Federal Court to be
effectively enforced against the debtor corporation involved. In MacDonald,
Justice Pinard, discussing the Federal Court’s ability to enforce one of its
judgments against a judgment debtor, indicated:
I therefore conclude that in a case where
the Federal Court of Canada is recognized as having full jurisdiction, such
jurisdiction is not automatically extinguished when judgment is given in the
main action, but rather it subsists in any proceedings relating to the
enforcement of that judgment.
[20]
This
case is different from both Trans-Pacific and MacDonald. Here,
the Court’s judgment does not need to be “enforced” as the proceeds of the sale
of the “LANNER” have already been collected and paid out to Kent Trade. The
fact that Kent Trade is no longer a going concern does raise a new question as
to whom, amongst the corporation’s shareholders (or presumably even its
creditors), is entitled to the proceeds. However, this can hardly be considered
a matter of enforcement of the original judgment.
[21]
For
the foregoing reasons, it is plain and obvious that this Court lacks
jurisdiction with respect to the current dispute between Mr. Saroglou and Mr.
Michaelides. Consequently, the appeal is dismissed with costs.
JUDGMENT
THIS COURT
ORDERS that the appeal be dismissed with costs.
“Danièle
Tremblay-Lamer”
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