Date: 20071130
Docket: T-1796-07
Citation: 2007
FC 1257
Ottawa, Ontario, November
30, 2007
PRESENT: The Honourable Mr. Justice Harrington
ADMIRALTY ACTION IN REM AGAINST A
VESSEL BEARING
HULL NO. QFY10703E709 AND HER
SISTER-SHIP, A VESSEL
BEARING HULL NO. QFY96003E507 and IN
PERSONAM
AGAINST SPLASH HOLDINGS LTD.
BETWEEN:
F.C.
YACHTS LTD.
Plaintiff
and
THE OWNERS AND ALL OTHERS
INTERESTED IN THE VESSEL BEARING
HULL NO. QFY10703E709 AND
HER SISTER-SHIP, A VESSEL BEARING
HULL NO. QFY96003E507
and SPLASH HOLDINGS LTD.
Defendants
REASONS FOR ORDER AND ORDER
[1]
On the
face of it, this is a most peculiar action. A shipowner has arrested its own
ship in order to secure a claim against the mortgage holder, which it
characterizes as the "beneficial owner". The mortgage holder submits
that this cannot be done, that it is not the beneficial owner, and so has moved
to have the arrest set aside. I have come to the conclusion that the mortgage holder
is right.
[2]
The
plaintiff, F.C. Yachts Ltd., is building two yachts for the account of the
corporate defendant Splash Holdings Ltd. Splash has allegedly failed to make
progress payments due on the second. This gives rise to an action in
personam against it which is within the jurisdiction of this Court as, to
use the words of s. 22(2)(n) of the Federal Courts Act, it is a
claim "arising out of a contract relating to the construction, repair or
equipping of a ship."
[3]
The first
yacht, bearing hull number QFY96003E507, commonly described at "the
100", as it is 100 feet in length, is at an advanced stage of construction
and at the present time is far more valuable than the second, "the 107".
F.C. Yachts has taken an action in rem against both yachts. It has
arrested the 100 as a sister-ship to the 107, the ship which is the
subject of the action. The contractual documents (one distinct set for
each yacht) describe F.C. Yachts as the owner. It is shown as such in the
public records maintained by the Registrar of Shipping. However, upon
completion of the contract and against payment, it is obliged to deliver the
yacht and transfer title to Splash. Splash in turn was given certain security
rights against the yachts in the event of a default during construction by F.C.
Yachts as builder. It holds separate builder's mortgages against each.
[4]
If Splash
were the recorded owner of the yachts (a ship under construction is publicly
"recorded" rather than "registered"), F.C. Yachts would
have had an action in rem against the 107 and could have arrested the
100 as a sister-ship. However, it must live with the contracts it has made and,
in my opinion, cannot proceed in rem against either. Although ownership
has its advantages, on the facts of this case, F.C. Yacht would have been
better off holding a builder's mortgage, or even holding no security at all.
[5]
The plaintiff
rests its claim on s. 43 of the Federal Courts Act which deals with the
Court's admiralty jurisdiction in personam and in rem. It is the
Court's in rem jurisdiction which is in dispute here. Section 43(2)
provides that jurisdiction may be exercised in rem against the ship that
is the subject of the action. Notwithstanding that general wording, it is well
established that a statutory right in rem, unaccompanied by a maritime
lien, does not lie unless the personal liability of the owner of the ship is
engaged (Westcan Stevedoring Ltd. v. Armar (The), [1973] F.C.J. No. 152,
[1973] F.C. 1232, Mount Royal/Walsh Inc. v. Jensen Star (The)(C.A.),
[1990] 1 F.C. 199, 99 N.R. 42 (F.C.A.), Maritima De Ecologia, S.A. de C.V.
v. Maersk Defender (The), [2007] F.C.J. No. 709, 366 N.R. 162). The
question becomes: Who is the owner?
[6]
Sections
43(3) and 43(8) go on to provide:
|
43. (3) Despite
subsection (2), the jurisdiction conferred on the Federal Court by section 22
shall not be exercised in rem with respect to a claim mentioned in paragraph 22(2)( e),
( f), (g), (h), ( i), ( k), ( m), (
n), ( p) or (r) 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.
(8) The jurisdiction conferred on the
Federal Court by section 22 may be exercised in rem against any ship that, at the time
the action is brought, is beneficially owned by the person who is the
owner of the ship that is the subject of the action.
|
43.
(3)
Malgré le paragraphe (2), elle ne peut exercer la compétence en matière
réelle prévue à l'article 22, dans le cas des demandes visées aux alinéas
22(2) e), f), g), h), i),
k), m), n), p) ou r), que si, au moment où l'action est intentée, le
véritable propriétaire du navire, de l'aéronef ou des autres biens en cause
est le même qu'au moment du fait générateur.
(8) La compétence de la Cour fédérale
peut, aux termes de l'article 22, être exercée en matière réelle à
l'égard de tout navire qui, au moment où l'action est intentée,
appartient au véritable propriétaire du navire en cause dans l'action.
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The modified question becomes: Who is the beneficial owner?
[7]
Since a
claim under a shipbuilding contract does not carry with it a maritime lien, it
is a requirement of s. 43(3) that in order to proceed in rem there must
have been no change in beneficial ownership between the time the cause of
action arose and the time the action was instituted. In this case, there has
been no change in either the legal or beneficial ownership, at any time.
[8]
In order
to ascertain whether Splash is the beneficial owner, recourse must be had to
the shipbuilding contracts. Splash relies on rules 221 and 488 of the Federal
Courts Rules. To the extent the motion is advanced on the ground that the
Statement of Claim discloses no reasonable cause of action in rem, no
evidence is to be heard. Evidence is permitted, however, if moved on the ground
that the action is, for example, vexatious or is an abuse of process. Certainly
no bad faith has been alleged. However, rule 488 provides that when a ship,
which is not the subject of the action, has been arrested, the owner or any
other person interested therein (i.e. the mortgage holder) may bring in a
motion for her release. Motions are usually accompanied by affidavits, and so I
consider the affidavits filed by both parties to be relevant.
[9]
An arrest
of maritime property, such as ship or cargo, interrupts commerce. The
modalities thereof should be dealt with on an urgent basis. Part 13 of the Federal
Courts Rules, beginning at rule 475, contemplates other motions as well,
which could lead to the fixing of bail, or to the release of arrested property
at any time, with or without bail. This is not to say that all matters dealing
with the arrest of a res, including the setting aside of the warrant,
can be dealt with at the outset of proceedings. There may be instances where
the facts are unclear, or a legal proposition is so inextricably tied in with
those facts that a decision cannot be made on a summary basis. See, for
instance, the decision of the Ontario Court of Appeal in Law Society of Upper Canada v. Ernst & Young (2003), 65 O.R. (f3d) 577,
222 D.L.R. (4th) 577. However this is not one of those cases.
[10]
Ownership
of a ship during construction is, as between the builder and the purchaser, a
matter of freedom of contract. As the parties have clearly expressed their
intention, it is not necessary to refer to either the (U.K.) Sale of
Goods Act, 1893 as being part of Canadian maritime law (ITO-International
Terminal Operators Ltd. v. Miida Electronics Inc., [1986] 1 S.C.R. 752, 28
D.L.R. (4th) 641), or the British Columbia Sale of Goods Act as the
contracts are to be interpreted "under the laws of the province of British
Columbia and the laws of Canada applicable therein."
[11]
Two cases
which make the point are Sir James Laing & Sons Limited v. Barclay,
Curle & Co., Limited, [1908] A.C. 35, a decision of the House of Lords
on appeal from the Court of Session, Scotland, and Re Blyth Shipbuilding and
Dry Docks Company Limited, Forster v. Blyth Shipbuilding and Dry Docks Company
Limited, [1926] 1 Ch. 494 (C.A.). In the Sir James Laing, the
contract did not specifically deal with title. However, there were provisions
that the ship would not be delivered and finally accepted until conditions of
the contract had been fulfilled and after sea going trials. Then, against a
bank guarantee for the final payment instalment, the "usual
certificates" would be handed over. It as held that it was the intention
of the parties that property not pass until delivery. As Lord Loreburn LC said
at page 43:
I think the contract was for a completed
ship, and the risk lay upon the builders until delivery, and there was no
intention to make delivery or depart with the property until the vessel was
completed.
[12]
In Re Blyth, like Sir James Laing,
the purchase price was paid by instalments. However, the contract specifically
provided that from payment by the purchasers of the first instalment, the ship
and all materials appropriated for her would, subject to the builders lien,
become and remain the absolute property of the purchasers. It was held that the
property in the uncompleted ship had passed to the purchasers. See Halsbury's
Laws of England, 4th ed., vol.
(43(1)), page 113, para. 159.
[13]
The 107
contract which includes a yacht construction agreement, and a security
agreement perfected by a builders' mortgage, calls for instalment payments
during the course of construction and for delivery after sea trials. At
delivery the builder is required to deliver, among other things, a bill of
sale. The contract specifically provides that the builder hold title during
construction; title and risk only to pass upon delivery. In turn, F.C. Yachts
as owner granted Splash the aforesaid builder's mortgage. In my opinion, Splash
Holdings' interest in the 107 is exactly what the contract says it is. It is
the mortgagee. It is not a beneficial owner within the meaning of s. 43(3) of
the Federal Courts Act. No trust has been created.
[14]
It is open
to argument that Sir James Laing and Re Blyth are distinguishable
because they did not plumb distinctions between legal and beneficial ownership.
Indeed, unless facts are alleged to the contrary, one would assume the
registered owner has both legal and beneficial title. Although it appears that
there was some advantage from a Goods and Services Tax point of view for the
foreign purchaser only to take title after delivery outside Canada, it does not follow that F.C.
Yachts was holding title for the benefit of the purchaser. It was holding title
for its own benefit. Although it was under a contractual obligation to deliver
a bill of sale once Splash satisfied all its own obligations, Splash had no
real interest in the ship any more than the interest of a purchaser, without
possession, of an existing ship under a contract of sale which provides that
tile is only to pass upon delivery.
[15]
The case
most on point is the Federal Court of Appeal's decision in the Jensen Star
above. The plaintiff had a series of claims under section 22(2)(n) of
the Act arising out of contracts relating to the repair or equipping of a ship,
and so did not benefit from a maritime lien. Between the time some of the causes
of action arose and the time the action was instituted, the shipowner, Jensen
Shipping Limited, obtained fresh financing and sold the ship to a newly formed
company, Jensen Holdings Limited. There was some, but not a complete, community
of shareholding. Jensen Holdings in turn bareboat chartered the ship back to
Jensen Shipping. Although the shipowner had an action in personam
against Jensen Shipping Limited with respect to the pre-sale invoices, its
action in rem was lost. Although Jensen Shipping was both the legal and
beneficial owner of the Jensen Star prior to the sale, it did not
continue as beneficial owner because it was the bareboat or demise charterer.
[16]
Mr.
Justice Marceau speaking for the Court of Appeal said at pages 209 and 210:
The problem, however, is that I simply do not see how a court could
suppose that Parliament may have meant to include a demise charterer in the
expression "beneficial owner" as it appears in subsection 43(3).
Whatever be the meaning of the qualifying term "beneficial", the word
owner can only normally be used in reference to title in the res itself,
a title characterized essentially by the right to dispose of the res.
The French corresponding word "propriétaire" is equally clear in that
regard. These words are clearly inapt to describe the possession of a demise
charterer. In my view, the expression "beneficial owner" was chosen
to serve as an instruction, in a system of registration of ownership rights, to
look beyond the register in searching for the relevant person. But such search
cannot go so far as to encompass a demise charterer who has no equitable or
proprietary interest which could burden the title of the registered owner. As I
see it, the expression "beneficial owner" serves to include someone
who stands behind the registered owner in situations where the latter functions
merely as an intermediary, like a trustee, a legal representative or an agent.
The French corresponding expression "véritable propriétaire" (as
found in the 1985 revision, R.S.C., 1985, c. F-7) leaves no doubt to that
effect.
[17]
Certainly,
a party who has a contractual right to purchase a ship in the future, assuming
all conditions are met, cannot be considered an owner. While sitting as a
trial judge Mr. Justice Marceau had earlier held that the purchaser of a ship
under a contract which provided that title would pass upon delivery was not the
owner thereof (Magnolia Ocean Shipping Corporation v. Soledad Maria (The),
T-744-81, 30 April 1981).
[18]
The
distinction between a statutory right in rem, which requires beneficial
ownership at two points of time, and a maritime lien, which does not, is a
matter of history. For the most part maritime liens precede the (UK) Admiralty Acts of 1840 and 1861.
Claims thereafter usually only benefited from a statutory right in rem,
which more recently has been extended to sister-ships. In the Jensen Star,
Mr. Justice Marceau referred to Coastal Equipment Agencies Ltd. v. Comer
(The), [1970] Ex. C.R. 13, where Mr. Justice Noël set out much of that
history. See also Anglo-Soviet Shipping Company v. Beldis (The) (1936),
53 Ll. L. Rep. 255 (C.A.) which was framed as an action in rem against a
sister-ship.
[19]
I agree
with F.C. Yachts' proposition that registration, or in this case
"recording", is not conclusive and that the Court should enquire into
all the circumstances affecting the right of property in the yachts. However the
case of Robillard v. St. Roch (The), (1921) 21 Ex. C.R. 132, illustrates
the type of circumstance in which one may be the beneficial owner of a ship
that is registered in the name of another. In that case, the sale of the ship
was set aside as the purchaser knew the vendor, the registered owner, was
committing a fraud on the real owner. The trial judge found that the registered
owners were only nominees or trustees or "prête-noms" holding title
for the benefit of the real owner. Favourable references were made to that
case in Antares Shipping Corp. v. Capricorn (The), [1980] 1 S.C.R. 553,
111 D.L.R. (3d) 289. F.C. Yachts is in no sense fronting for Splash.
[20]
Although
there are slight differences in language, the contract with respect to the
sister-ship, the 100, is to the same effect. F.C. Yachts is the legal and
beneficial owner of both ships and so cannot arrest either. Consequently, it is
not necessary for me to consider Splash's other argument which is that in order
to arrest a sister-ship, the beneficial owner thereof must be the registered
owner of the ship which is the subject of the action. It relies on the decision
of Mr. Justice Rothstein, as he then was, in Hollandcshe Aannaming
Maatschappij v. Ryan Leet (The), [1997] F.C.J. No. 1098, [1997] 135 F.T.R.
67. Prothonotary Hargrave distinguished the Ryan Leet in Norcan
Electrical Systems Ltd. (c.o.b. Feeding Systems Canada) v. Feeding Systems A/S, [2003] 4 F.C. 938, [2003]
F.C.J. No. 904 and in Royal Bank of Scotland plc v. Golden Trinity (The),
[2004] F.C.J. No. 992, 254 F.T.R.1, on the grounds that there is a significant
difference between the English and French versions of section 43(8), and that
only the English version was apparently put before Mr. Justice Rothstein.
[21]
As vexing
as subsection 43(8) of the Federal Courts Act is, more particularly in
the placement of "beneficially" as opposed to "veritable",
I need not interpret it in order to reach a conclusion. It is a problem best
left for another day.
[22]
For these
reasons, the in rem portions of the statement of Claim are struck, the
warrant of arrest set aside, and the 100 released from arrest subject to giving
prior notice to those who have filed caveats, the whole with costs. Such other
remedies as F.C. Yachts may have are not before me and are not affected by this
decision.
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