Date: 20090317
Docket: T-1290-08
Citation: 2009 FC 273
ADMIRALTY ACTION IN REM
BETWEEN:
DRAGAGE VERREAULT INC.
Plaintiff
and
THE SHIP M/V ATCHAFALAYA
and
ITS OWNERS AND ALL
OTHERS
INTERESTED IN THE SHIP
ATCHAFALAYA
Defendant
REASONS
FOR ORDER
PROTHONOTARY MORNEAU
[1]
This is a motion by the defendants—and by Proteus Co.,
which states that it is the owner of the disputed ship—under Rule 221 of
the Federal Courts Rules (the Rules) in response to the statement of
claim in rem and the arrest of the ship; they are also requesting that
the ship be released from arrest.
[2]
According to the defendants (hereinafter Proteus, which was
given leave to intervene to make submissions), there is no cause of action in
rem against the ship, the dredge M/V Atchafalaya (the dredge
Atchafalaya), which has been under arrest since December 20, 2008,
because, they say, the record does not disclose Proteus’ personal (or in
personam) liability. Without personal liability, there can be no action in
rem against the dredge Atchafalaya which, according to Proteus, is its property.
[3]
It should be noted that the entire statement of claim is in
rem and that if an order striking out is made, the entire statement of
claim will be struck out.
Background
[4]
Certain more specific facts will be added in the Analysis
below, but for purposes of the essential background, we point out the
following.
[5]
A company by the name of Mines Seleine, a division of the Canadian
Salt Company Limited (hereinafter Seleine), is the owner and operator of a salt
mine in the Îles-de-la-Madeleine, province of Quebec. The salt from this mine is sent by boat from the port of Grande‑Entrée in
the Îles-de-la-Madeleine.
[6]
To get to the port of Grande-Entrée, ships must use a channel that is about 10,000 metres
long.
[7]
This channel must be maintained at a certain depth, and in
September 2007 Seleine issued a call for tenders to carry out the necessary
dredging during the summer of 2008.
[8]
The plaintiff (hereinafter Dragage Verreault) submitted a
bid that Saleine eventually accepted, and they entered into a contract on July
22, 2008 (the Main Contract). The contract provided that all work
sub-contracted to B+B Dredging Company (hereinafter B+B) would be completed on
or before October 31, 2008.
[9]
Dragage Verreault’s bid stated that it would use its own dredge,
Port Méchins, and the dredge Atchafalaya.
[10]
In fact, the Port Méchins could only complete
roughly 10% of the dredging because at the same time, it also had to dredge the
channel in the North Traverse, which is downstream from the Île d’Orléans, for
Public Works and Government Services Canada.
[11]
Dragage Verreault had already made sure that the dredge Atchafalaya
would be available by signing a preliminary agreement on October 4, 2007, with B+B
(the 2007 Preliminary Agreement).
[12]
The 2007 Preliminary Agreement provided, inter alia,
that B+B would post a surety bond in the minimal amount of $2,000,000, which
roughly corresponded to the cost of the work to be carried out by B+B.
[13]
Having obtained the Main Contract, Dragage Verreault signed
a contract on July 23, 2008, in which it subcontracted the dredging
of a certain amount of material (the Subcontract) to B+B.
[14]
It should be noted that this Subcontract (which is
reproduced at pages 76 to 82 of Proteus’ motion record filed on
February 16, 2009, (Proteus’ record)) refers to two Appendices, Appendix A and
B, in clauses 1 and 10 to 12 of the Subcontract, which read as
follows:
1. B+B
undertakes to execute part of the dredging works based on cubic meters, and the
fees for its work will be calculated and determined according to the
quotation already furnished on the third of October 2007, attached hereto
(APPENDIX A), which constitutes integral part of the present . . . ;
10. B+B undertook,
in virtue of the previous agreement signed last October between the parties, to
provide Verreault with proof of a surety bond for its entire share of works,
upon the signature of the present;
11. For
administrative reasons, B+B is not able for the time being to furnish and
provide Verreault with such surety bond;
12. Verreault following
banking confirmations, accepts the personal guarantee of Mr. Witt Barlow,
sole owner of B+B, to guarantee the obligations of B+B contained in the present
and also the completion by B+B of its share of works, such personal guarantee
is attached hereto (APPENDIX B) and constitutes integral part of the present;
[Emphasis added.]
[15]
Appendix A, which is a quote that B+B provided to
Dragage Verreault on October 3, 2007, contains the following clause:
Our pricing
is based on the information provided and:
. . .
3. Utilizing our
Hopper Dredge “Atchafalaya”.
[16]
Appendix B is a personal guaranty of performance from
Mr. Barlow and reads as follows:
APPENDIX B
TO SUBCONTRACTING AGREEMENT DATED 23TH DAY
OF JULY 2008, (Dragage d’entretien du chenal de navigation à Grande-Entrée aux
Îles-de-la-Madeleine (Québec), Canada)
PERSONAL GUARANTY OF
PERFORMANCE
The undersigned, Witt Barlow (« Guarantor »),
acknowledges that it will be to his direct financial interest and benefit that
the performance of the work to be accomplished pursuant to the attached
Subcontracting Agreement by and between Dragage Verreault, Inc. and B+B
Dredging Company be completed in accordance with the terms contained therein.
Further, Guarantor hereby acknowledges that this Guaranty is required by Verreault,
as a condition precedent and material inducement to enter into the attached
Subcontract.
Now therefore, for and in consideration of the execution of
the foregoing Subcontract by Verrault, Guarantor hereby unconditionally and
irrevocably personally guarantees the prompt performance by B+B, with whom, the
Guarantor will be solidary liable toward Dragage Verrault, of all of the
convenants, undertakings, terms and conditions of B+B to be kept and performed
by B+B.
The present surety ship is, like the subcontract subject to
the applicable laws in the Province of Quebec, and any litigation
will have to be submit [sic] to a judicial court of the District of Quebec
City.
The Guarantor, by the present, renonces to the benefit of
discussion and division.
AND THE GUARANTOR HAS SIGNED:
AT CHICAGO, IL.
On this 23 day of July, 2008
(signed)
[17]
In an amended statement of claim in rem filed on
December 19, 2008, in this Court docket (then re-amended lastly on
February 11, 2009), Dragage Verreault alleges that B+B breached various
provisions in the Subcontract. These breaches, including a significant delay in
bringing the dredge Atchafalaya to the Subcontract location, caused Dragage
Verreault, in turn, to breach its obligations under the Main Contract, which led
Seleine to pursue Dragage Verreault for several million dollars. Dragage
Verreault’s current statement of claim totals $7,794,402.
Analysis
[18]
If Dragage Verreault arrested the dredge Atchafalaya
on December 20, 2008, it was because Dragage Verreault via its president, Ms. Claudette
Verreault, who signed two affidavits, one dated February 19, 2009 (the
Verreault I affidavit), and the other dated February 23, 2009 (the Verreault II
affidavit), maintains as a central premise that, at all relevant times, Mr. DeWitt Dukes
Barlow III (hereinafter Mr. Barlow) [translation]
“. . . constantly represented that he was acting as an owner or on behalf of the
owners of the dredge Atchafalaya.”
[19]
Is it clear and obvious at this stage, on a motion to
strike out, that this reading is without merit?
[20]
If that is not the case, Proteus’ motion cannot be granted,
even if the Court on the merits makes a different finding based on the balance
of probabilities, including Proteus’ central statement that Ms. Verreault simply
wanted to believe that B+B was the owner of the dredge without asking specific
questions on this point and without receiving a confirmation of this from Mr. Barlow.
[21]
With respect to the tests for striking out, the following passage
from Hodgson et al. v. Ermineskin Indian Band et al. (2000), 180 F.T.R.
285, page 289 (affirmed on appeal: 267 N.R. 143; leave to appeal to the
Supreme Court of Canada dismissed: 276 N.R. 193) establishes that a motion that
raises the issue of jurisdiction or the lack of a cause of action under
paragraph 221(1)(a) of the Rules must be clear and obvious for the
Court to grant it. This passage also points out that evidence is admissible on
the issue of jurisdiction.
[9] I agree that a motion
to strike under rule 221(1)(a) [previously rule 419(1)(a)] on the ground that
the Court lacks jurisdiction is different from other motions to strike under
that subrule. In the case of a motion to strike because of lack of
jurisdiction, an applicant may adduce evidence to support the claimed lack of
jurisdiction. In other cases, an applicant must accept everything that is
pleaded as being true (see MIL Davie Inc. v. Société d’exploitation et de
développement d’Hibernie ltée (1998), 226 N.R. 369 (F.C.A.), discussed in
Sgayias, Kinnear, Rennie, Saunders, Federal Court Practice 2000, at
pages 506-507).
[10] . . . The “plain and
obvious” test applies to the striking out of pleadings for lack of jurisdiction
in the same manner as it applies to the striking out of any pleading on the
ground that it evinces no reasonable cause of action. The lack of
jurisdiction must be “plain and obvious” to justify a striking out of pleadings
at this preliminary stage.
[Emphasis added.]
(See also the Federal Court
decision of December 4, 2007, in Kremikovski Trade v. Phoenix Bulk Carriers
Limited (The M/V SWIFT FORTUNE) 2007 FCA 381, paragraph [33], for an
application of Hodgson, supra, on the issue of our Court’s jurisdiction
in rem).
[22]
Moreover, the parties are not disputing the state of the
law in our Court that there must be personal liability on the part of the ship owners
in order for an action in rem against that ship to be commenced.
[23]
This state of the law is evident from the following
passages of the May 18, 2007, decision by the Federal Court of Appeal in Maritima
de Ecologica, S.A. de C.V. v. Maersk Defender (Ship) 2007 FCA 194, at
paragraphs 32 to 36:
[32] In any event, the fact that the beneficial
ownership of the ship may have been the same at the two relevant dates is not
sufficient to confer in rem jurisdiction on the Federal Court. The law
is clear that the Court’s jurisdiction in rem can only be exercised
against a ship where there is in personam liability on the part of its
owner. In other words, unless the owner’s liability is engaged, the Federal
Court’s in personam jurisdiction under section 22 and subsection 43(1)
of the Act cannot be exercised in rem against the ship.
[33] That view was enunciated by Collier J. in Westcan
Stevedoring Ltd. v. Armar (The), [1973] F.C. 1232 (F.C.T.D.), where the
learned Judge explained that it was not permissible for the Court to exercise in
rem jurisdiction under 43(2) against a vessel whose owner had no personal
liability towards the claimant. In the Judge’s opinion, it was the owner’s in
personam liability which allowed the Court to exercise its jurisdiction in
rem against the ship.
[34] More recently, that point of view was reaffirmed
by this Court in Feoso Oil Ltd. v. Ship “Sarla” (1995), 184 N.R. 307. At
issue in Feoso Oil, supra, was whether the owners of the ship were
entitled to a summary judgment dismissing the action brought against them in
rem by the supplier of unpaid bunkers. The shipowners argued that as there
was no privity of contract between them and the supplier, the Court’s
jurisdiction could not be exercised in rem against their vessel.
[35] In concluding that there was a “genuine issue” of
fact which only a trial could resolve and, hence, dismissing the shipowners’
motion for summary judgment, the Court made it clear that its jurisdiction
under paragraph 22(2)(m) of the Act, i.e. “any claim in respect of
goods, materials or services wherever supplied to a ship for the operation or
maintenance of the ship, including, without restricting the generality of the
foregoing, claims in respect of stevedoring and lighterage”, could not be
exercised in rem unless there was liability on the part of the ship’s
owners. At paragraphs 10 and 11 of his Reasons for the Court, Stone J.A.
explained the principle in the following terms:
[10] Although the issue in this appeal goes to the correctness
of the order, it is important to understand the principles of Admiralty law
upon which the case and its merits must ultimately turn. According to the
appellant, the bunkers in question were supplied to the defendant Ship upon a
request made by or on behalf of owners and therefore that the appellant is
entitled to proceed by way of this action in rem. The court’s
jurisdiction over such a claim is conferred by s. 22(2)(m) of the Federal
Court Act, which reads:
(m) Any claim in respect of goods, materials or services
wherever supplied to a ship for the operation or maintenance of the ship,
including, without restricting the generality of the foregoing, claims in
respect of stevedoring and lighterage;
The goods and services of the kind referred to in this
paragraph are sometimes described as “necessaries”, a term which appeared in
former enactments of the United Kingdom. By virtue of subsections 43(2) and (3)
of the Act, the jurisdiction conferred by s. 22(2)(m) shall not be
exercised in rem:
… unless, at the time of the commencement of the action,
the ship, aircraft or other property that is the subject of the action is
beneficially owned by the person who was the beneficial owner at the time when
the cause of action arose.
[11] What is clear from
these provisions is that the right to proceed in rem for a claim falling
within paragraph 22(2)(m) [NOTE: the same goes with respect to a claim
falling within paragraph 22(2)(i)] exists only if at the time the action
is commenced the ship is beneficially owned by the person who was the
beneficial owner at the time the cause of action arose. (see Mount
Royal/Walsh Inc. v. Ship Jensen Star et al., [1990] F.C. 199; 99 N.R. 42
(F.C.A.)). There is further refinement. It is well established that the
fact that beneficial ownership has not changed since the necessaries were
supplied is not in itself sufficient to support a statutory right in rem.
The cases are all to the same effect, that it is only where the owners of a
ship have incurred a debt for necessaries supplied that the creditor acquires a
right to proceed in rem against their ship. Thus, in Ship
Tolla, Re. [1921] P. 22, a claim for necessaries was asserted in an action in
rem for expenses incurred at the request of the master while the ship was
under a time charter. At page 24, Hill J. stated the applicable principle as
follows:
Unless there is a liability on the part of the owners there
cannot be a remedy in rem against the ship.
(See also e.g. Westcan
Stevedoring Ltd. v. Ship Armar, [1973] F.C. 1232 (T.D.) and the Jensen
Star, supra) In the case at bar, unless it be exceptional, application of
the above principle will mean that the appellant could not sustain an action in
rem in the absence of proof that the bunkers were supplied to the defendant
Ship at the request of owners or by someone acting on their behalf and in a
position to bind them.
[Emphasis added]
[36] On the basis of these authorities, I must
conclude that the Court could not exercise in rem jurisdiction against
the vessel. The only claim asserted by the appellant is that which is being
asserted in the London Arbitration against Atlantic and in
respect of which the appellant has commenced actions in the Federal Court in
order to obtain interim protection. As I have already made clear, Atlantic is
not and has never been the owner of the MAERSK DEFENDER. Consequently,
whatever the validity of the appellant’s claim against Atlantic, the MAERSK
DEFENDER cannot be arrested in respect of that claim. At all material times
herein, the vessel was owned by A.P. Moller-Maersk A/S and the respondent
Pacific. The appellant has not commenced any proceedings, nor has it sought any
remedies, against these parties. Consequently, it is my view that there is
simply no basis, on the facts before us, which would allow the Court to
exercise in rem jurisdiction against the vessel.
[24]
In the case before us, in an affidavit dated February 13,
2009 (the Barlow I affidavit), Mr. Barlow essentially describes at paragraphs 1
to 9 a dynamic regarding the different roles of B+B and Proteus with respect
to the dredge Atchafalaya. These paragraphs, without the exhibits
referred to, read as follows:
1.
I am the President of B+B Dredging Company (“B+B”) and Proteus Co.,
and as such have personal knowledge of the matters deposed to herein except
where knowledge is obtained by way of information and belief in which case I
have stated the source of the information and my belief in the truth of such
information;
2.
Both Proteus Co. and B+B were incorporated under the laws of Illinois, United States
of America on November 21st, 1996 and on
November 27, 1006 [sic], respectively. A true copy of their respective
Certificates of Incorporation is attached to my Affidavit as Exhibit “A”;
3.
Proteus Co. carries on business of equipment rental and B+B carries on
business as a dredge from their head office located in Chicago, Illinois;
4.
I am the sole shareholder of B+B; A true copy of the B+B share
register is attached to my Affidavit as Exhibit “B”;
5.
I own 75% of the shares in Proteus Co. and Matthew McCleery of Gilford,
Connecticut, owns 25% of the shareholdings in Proteus Co. A true copy of the
Proteus Co. shareholder register dated December 19, 2008 is attached to my
Affidavit as Exhibit “C”;
6.
Proteus Co. is the sole owner of the M/V “Atchafalaya” (the
“Vessel”). A true copy of the United States of America Department of Homeland
Security United States Coast Guard Certificate of Documentation dated
June 17, 2008 is attached to my Affidavit as Exhibit “D”;
7.
The Vessel is chartered to B+B under a bareboat charterparty dated
July 16, 1998 (the “Charterparty”). A true copy of page 1 of the
Charterparty is attached to my Affidavit as Exhibit “E”;
8.
B+B entered into an agreement for dredging services with Dragage Verreault
Inc. (“Verreault”) on July 23, 2008 (the “Sub-Contract”). A true copy of
the Sub-Contract is attached to my Affidavit as Exhibit “F”;
9.
The Sub-Contract expressly refers in its recitals to an earlier agreement
between Verreault and B+B dated October 4, 2007 (the “2007 Agreement”). A true
copy of the 2007 Agreement is attached to my Affidavit as Exhibit “G”;
[25]
Accordingly, despite the existence of the two companies, B+B
and Proteus, and his presence or participation in them, Mr. Barlow
contends, in short, that Proteus did not have a contractual relationship with
Dragage Verreault, nor can it be concluded that he authorized B+B to pledge the
credit of Proteus or of the dredge Atchafalaya.
[26]
It should be noted here that, during the negotiations
between the parties, essentially from September 2007 to July 23, 2008,
Mr. Barlow, as the Court understands, did not feel or perceive that he
could or should clarify to Dragage Verreault all the indications and
distinctions contained in paragraphs 1 to 7 of his affidavit I. If
we understand Mr. Barlow, this was because Ms. Verreault did not ask any
questions along that line. However, it is clear throughout the cross‑examination
of Ms. Verreault on her affidavit, on the basis of the following factors inter
alia, that Ms. Verreault did not feel that she should not trust the information
she had been given.
[27]
If we go back in time to the beginning of October 2007, that
is, to when the 2007 Preliminary Agreement was entered into (see paragraph [11],
supra), Dragage Verreault had received a quote from B+B the day before,
in which, as already stated in paragraph [15], supra, B+B made the following
statement:
Our pricing
is based on the information provided and:
. . .
3.
Utilizing our Hopper Dredge “Atchafalaya”.
[Emphasis added.]
[28]
On February 27, 2008, to satisfy the federal government’s
requirements for issuing a coastal trading licence to Dragage Verreault, B+B
sent a series of certificates regarding the dredge Atchafalaya to Mr. Babineau at Dragage Verreault. Although the
vast majority of them do not specify who is the owner or operator of the dredge
Atchafalaya and three certificates refer to Proteus as the owner, the
fact remains that one certificate, the ABS certificate, lists B+B as the owner.
Although the Court on the merits might consider that this certificate cannot or
could not constitute a serious indication of the ownership of the dredge Atchafalaya
for someone experienced in the maritime field, it is nonetheless true that this
document adds to the representations in the 2007 Preliminary Agreement. The
Court here is silent and does not find against Dragage Verreault based on the
fact that this certificate refers to B&B Dredging Co., not to B+B, since
it is clear that, at that time, Dragage Verreault could certainly not
appreciate that the way the letters B and B in the name were connected meant
that this could be a company other than B+B.
[29]
Furthermore, for this document as, for example, for the
letter dated October 3, 2007, from Hanover Insurance discussing the possibility
that the insurance company might stand surety for B+B, it is not clear and certain
that these documents were circulating without Mr. Barlow’s knowledge. On the
contrary, at least with respect to the ABS certificate, it is clear from the
cross‑examination of Mr. Barlow on his affidavit, that, although he
maintains this certificate is erroneous as to ownership, the fact remains that
Mr. Barlow used this certificate dated December 1, 2004 (which would still
be drafted the same way today). In addition, it is at the very least odd that
the certificate was issued like that in 2004 when B+B apparently only had the
status of charterer as at July 16, 1998, and that B&B Dredging Co. no
longer existed at that time.
[30]
Moreover, some e-mails that the parties sent between June
24 and July 1, 2008, cast doubt on the ownership of the dredge Atchafalaya. In fact, on June 24,
2008, Mr. Barlow spoke of “our dredge”. On July 1, 2008, he spoke of
“. . . the appraisals of our equipment”. On June 26, 2008, Mr. Barlow
stated in an e-mail:
I am the sole owner of the dredging company. I do
not have any other assets approaching that value. For Verrault’s information
only, the (recently) appraised value of the dredging assets, net of debt, is in
excess of $18 million. I can make these appraisals available to you if
required. . . .
[31]
Then came a letter dated July 7, 2008, sent to the banker
for Dragage Verreault by one Mr. Vitale of KeyBanc Capital Markets, the
banker for B+B. The letter states the following:
[translation]
Attention:
Mr. Robert Dubord
Manager, Commercial Accounts
To the best of my knowledge, the two dredging vessels
owned by B+B Dredging have a net value after accounting for outstanding
debt (for which these two vessels are pledged) of approximately $18 million
as of today. Please contact B+B Dredging directly for copies of the appraisals
should they be needed. . .
[Emphasis added.]
[32]
Although Mr. Barlow was not copied with this letter,
it is not clear, in my view, that it cannot be considered that this letter might
have reflected Mr. Barlow’s instructions. Thus, I cannot consider that the only
purpose of this letter was to state the value of Mr. Barlow’s personal patrimony
for purposes of the personal guarantee of performance that would eventually be
attached as Appendix B to the Subcontract.
[33]
It is true that as of July 23, 2008, the Subcontract did
not contain any specific clause that sought Proteus’ liability or credit or the
credit of the dredge Atchafalaya. Furthermore, the Subcontract was
supported by Mr. Barlow’s personal guarantee, not by any other guarantee
involving the patrimony of Proteus or of the dredge Atchafalaya.
[34]
However, I consider that it is not clear and obvious that
Mr. Barlow’s conduct and the words he or his mandataries used from time to time
between October 2007 and July 23, 2008, did not suggest to Dragage Verreault
that B+B was the owner of the dredge Atchafalaya. Looked at another way,
given that only Mr. Barlow was aware of all the ramifications that he described
in paragraphs 1 to 7 of his affidavit I, it cannot be ruled out that he pledged
the credit of the dredge through the same conduct and words.
[35]
Thus, it cannot be ruled out at this stage that Dragage
Verreault may be correct when it states the following at paragraphs 54, 57
and 67 of its written representations filed in response to this motion:
54. . . . It appears from the above that
Mr Barlow purported to engage the credit of the dredges and presented
himself as the sole owner of B+B Dredging. Mrs. Verreault was justified at
that period (June and July 2008) to believe that B+B Dredging was the owner of
the M/V ATCHAFALAYA or that B+B Dredging was authorized implicitly of otherwise
to engage the credit the dredges.
57. We find that Mr. Barlow being the
controlling shareholder of Proteus Co, the alleged dredge owner, being the sole
owner of B+B Dredging and their authorized representative implicitly contracted
for the vessels. . .
67. In the present instance, Mr Barlow is the
beneficial owner [of] the vessels as he refers to his vessels in all
situations, offers personal guarantee on vessels purportedly owned by Proteus
to execute the obligations of B+B Dredging. It appears from the above that
D[ragage] V[erreault] contracted with the beneficial owners of the M/V
ATCHAFALAYA.
[36]
I believe that such statements are authorized in law by the
following teachings of Mr. Justice Marceau of the Federal Court of Appeal
in Mount Royal/Walsh Inc. v. The “Jensen Star”, [1990] 1 FC 199 (FCA)
1989 CarswellNat 603, where he wrote at paragraph 30:
. . . It is 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. .
.
[Emphasis added.]
[37]
Moreover, I do not intend to draw adverse inferences based
on subsection 81(2) of the Rules from the fact that Dragage Verreault did
not provide one or more affidavits of Mr. Babineau or Mr. Lapointe in
addition to or instead of Ms. Verreault’s affidavits.
[38]
For these reasons, the motion by the defendants and Proteus
will be dismissed with costs according to column III of Tariff B.
“Richard Morneau”
Certified true
translation
Mary Jo Egan, LLB
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