Docket: T-1116-15
Citation:
2015 FC 851
Montréal, Quebec, July 10, 2015
PRESENT: The Honourable Mr. Justice Locke
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BETWEEN:
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FINGAD SHIPPING
LTD., CHEMSHIP B.V., and CHEMICAL SAILOR LTD.
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Plaintiffs
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and
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NINGBO ARTS
& CRAFTS IMP & EXP. CO. LTD., ZHEJIANG HANGCHANG SHIPBUILDING
INDUSTRY CO. LTD. (PREVIOUSLY NAMED LINHAI HANGCHANG SHIPBUILDING
INDUSTRY CO., LTD.)
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Defendants
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ORDER AND REASONS
[1]
In the present action against two corporate
defendants (Ningbo Arts & Crafts Imp & Exp. Co. Ltd. [Ningbo] and
Zhejiang Hangchang Shipbuilding Industry Co. Ltd. (previously named Linhai
Hangchang Shipbuilding Industry Co., Ltd.) [collectively the corporate
defendants]) and an in rem defendant (the ship “Chemical Aquarius” [the
Ship]), Huarong Huiyin Limited [HH], the registered owner of the Ship seeks an
Order:
- Abridging the delays of presentation of the present motion;
- Striking out the
Statement of Claim, dismissing the action, and setting aside the Warrant
of Arrest on the grounds that:
a)
No material facts have been pleaded in the
Statement of Claim that could underlie any claim, and as such, the pleadings
disclose no reasonable cause of action;
b)
The provisions of the Federal Court Rules
relating to the commencement of actions is not the vehicle to be used when what
is sought is the enforcement and recognition of an Arbitral Award;
c) The proceedings are an abuse of process as the matter between the
Plaintiffs and in personam Defendants have already been determined with
the issuance of a series of Arbitration Awards, and thus res judicata;
- Alternatively, setting aside the Warrant of Arrest issued
against the in rem Defendant vessel, “Chemical Aquarius”, on the
basis that the Plaintiffs do not benefit from a statutory right in rem
against the vessel as they do not have a corresponding right in
personam against the owners of the said vessel, Huarong Huiyin
Limited;
- Alternatively, striking out the Statement of Claim, in whole or
in part, and dismissing the action, or that part of the action relating to
the recovery of legal costs, since this Honourable Court lacks
jurisdiction to adjudicate in respect thereof;
- Alternatively, setting bail for the Release of the in rem
Defendant vessel;
- Awarding costs to the applicant on a lump sum basis in the
amount of $7,500.00;
- Granting such other and further relief as this Court by deem
just;
[2]
In the absence of any objection by the
plaintiffs to the hearing of this motion on an urgent basis, I have undertaken
to consider it. Accordingly, I grant the relief sought in point 1 above.
[3]
As explained below, I am prepared to grant the
relief sought in point 3 above. As a result, it is not necessary for me to
address the relief sought in points 2, 4 and 5.
I.
Background
[4]
The present action has its origin in a series of
contracts dating from 2007 whereby the plaintiffs contracted with the corporate
defendants for the building of vessels. The Ship was the result of one of these
contracts. Following a dispute between the plaintiffs and the corporate defendants,
the plaintiffs cancelled the contracts in 2010. Arbitral proceedings followed
which resulted in arbitral awards in 2013 against the corporate defendants.
Most of the amounts awarded in the arbitration have since been paid, but there
remain substantial amounts owing to the plaintiffs.
[5]
Until June 2012, the vessel that later became
the Ship was owned by the corporate defendants. At that time, it was purportedly
sold to HH. The purported sale was registered on July 6, 2012. The plaintiffs
challenge the genuineness of this purported sale. They allege that HH is simply
a front for the corporate defendants and that the corporate defendants remain
the beneficial owners of the Ship. The dispute over the genuineness of this
purported sale is at the centre of the present action and of HH’s present
motion. The plaintiffs have set out detailed allegations to support their
position that the purported sale of the Ship was not genuine. For the purposes
of this decision, it is not necessary to discuss those detailed allegations.
[6]
The plaintiffs commenced the present action
against the corporate defendants and the Ship on July 3, 2015 seeking a
condemnation for the defendants to pay the amounts outstanding from the
arbitral awards, as well as the judicial sale of the Ship. On the same day, on
the strength of an affidavit to lead warrant, and by virtue of Rule 481 of the Federal
Courts Rules [the Rules], the plaintiffs obtained the issuance of a warrant
for the arrest of the Ship.
[7]
Also on the same day, the plaintiffs commenced a
separate proceeding before this Court, an ex parte application (Court
No. T-1118-15) for the recognition and enforcement of the arbitral awards
pursuant to Rules 326 and following of the Rules. On July 8, 2015, Prothonotary
Richard Morneau issued an Order accordingly in that application. HH argues that
this application is the appropriate vehicle for enforcing the arbitral awards
and that the present action is inappropriate. Because of my conclusions below,
it is not necessary for me to decide on the appropriateness of using the
present action to enforce the arbitral awards.
[8]
In April 2015, the plaintiffs made similar
efforts to enforce the arbitral awards and arrest the Ship in France. After the
seizure of the Ship in France, HH sought (much as it has in the present motion)
to have the seizure lifted on the basis that the owner of the Ship is not one
of the debtors of the arbitral awards. This resulted in a decision dated May 7,
2015 of the Tribunal de Commerce de Terre et de Mer du Havre [the French
Tribunal] lifting the seizure of the Ship.
[9]
HH now seeks to have the arrest warrant for the
Ship lifted here in Canada. Because the arrest warrant is an adjunct to the
action in rem (see Rule 481 of the Rules), HH must be successful in
having the action, or at least the in rem portion of it, struck out in order
to have the arrest warrant lifted.
[10]
Central to HH’s argument is subsection 43(3) of
the Federal Courts Act, RSC 1985, c F‑7 which provides that this
Court’s jurisdiction with respect to claims arising out of contracts relating
to the construction, repair or equipping of a ship may not be exercised in
rem unless, at the time of the commencement of the action, the ship 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. The issue between
the parties on this motion concerns whether HH is actually the beneficial owner
of the Ship.
II.
Analysis
[11]
The parties are agreed that the threshold for
striking out a pleading is high. A party seeking to strike out a pleading must
establish that it is “plain and obvious” that
the pleading has no merit on one of the grounds listed in Rule 221 of the
Rules. The fact that the claim is a novel or difficult one is not a sufficient ground to strike the claim. The burden on the defendant is very high and the
Court should exercise its discretion to strike only in the clearest of cases: Coastal Float Camps Ltd v Jardine Lloyd
Thompson Canada Inc, 2014 FC 906 at para 11 [Coastal Float Camps]. The
fact that the Plaintiff might face an uphill battle in proving its claim should
not deprive it of the opportunity to do so: Coastal Float Camps at para
19. The court’s approach should be generous and err on the side of permitting
novel or arguable claims to proceed to trial: R v Imperial Tobacco Canada
Ltd, 2011 SCC 42 at paras 19-21.
[12]
The parties are also agreed that, for the
purpose of a motion to strike, the facts alleged in the Statement of Claim are
to be taken as true. However, this principle does not extend to legal
conclusions asserted from those facts. These are not entitled to be
automatically taken as true.
[13]
HH has asserted several grounds for concluding
that the present action should be struck out. One of these grounds is based on
the principle of issue estoppel: that the French Tribunal has already addressed
the issue of the arrest of the Ship in enforcement of the arbitration awards and
the genuineness of the Ship’s sale to HH, and therefore the plaintiffs should
not be allowed to reassert the same argument.
[14]
The key authority on the subject of issue
estoppel is Danyluk v Ainsworth Technologies, [2001] 2 S.C.R. 460 (SCC) [Danyluk].
Justice Binnie, speaking for the Court, stated at para 18:
The law rightly seeks a finality to
litigation. To advance that objective, it requires litigants to put their best
foot forward to establish the truth of their allegations when first called upon
to do so. A litigant, to use the vernacular, is only entitled to one bite at
the cherry.
[15]
Analysis of issue estoppel involves two steps. The
first step is to determine whether the moving party has established three
preconditions for the operation of issue estoppel. The second step is to
determine whether, as a matter of discretion in light of a series of factors,
issue estoppel ought to be applied: Danyluk at para 33.
A.
Preconditions for issue estoppel
[16]
With regard to the first step, the three
preconditions for issue estoppel are set out in Danyluk at para 25:
(1) that the same question has
been decided;
(2) that the judicial decision
which is said to create the estoppel was final; and,
(3) that the parties to the judicial
decision or their privies were the same persons as the parties to the
proceedings in which the estoppel is raised or their privies.
[17]
The only one of these preconditions that is in
dispute is the first. HH argues that the same issues were before the French
Tribunal as are present here: the parties dispute (i) the seizure of the
Ship in order to secure the corporate defendants’ debt resulting from the
arbitral awards, and (ii) whether the Ship was genuinely transferred to HH
such that it is actually owned by an entity other than the corporate defendants
who are the debtors, and the seizure should therefore be lifted. In oral
argument, HH’s counsel provided a detailed, side-by-side comparison of the
issues raised in the Statement of Claim in the present action, and the issues
addressed by the French Tribunal. On this basis, HH argues that the same
question as is before the Court in the present action was decided by the French
Tribunal.
[18]
The plaintiffs have several arguments against
HH’s position. Firstly, they argue that the proceeding in France simply sought
interim relief to obtain security on the debt, and was not a decision on the
merits. From my reading of the decision of the French Tribunal, it does not
appear that the issues identified in the previous paragraph were not considered
in full. Whether or not the proceeding in France was interim, the issues appear
to have been considered and the decision was final.
[19]
The plaintiffs also note that they cite new
evidence that was not considered by the French Tribunal. However, based on the
goal of finality in litigation and the obligation for litigants to “put their best foot forward” and to take only “one bite at the cherry” (Danyluk at para 18),
I am not satisfied that new evidence of the kind cited by the plaintiffs is
sufficient to avoid estoppel. To conclude otherwise would permit parties to gut
issue estoppel of any substantial meaning by simply raising new evidence in a
subsequent proceeding.
[20]
The plaintiffs note that the decision of the
French Tribunal cites the 1952 Convention on the Arrest of Sea-going Ships
which is not applicable in Canada. In my view, this is a difference without a
distinction. The key point in both France and in Canada is that there must be a
link between the owner of the ship in question and the debt. This issue is
addressed in both countries.
[21]
The plaintiffs note that the French Tribunal was
concerned about loose translation of documents from Chinese into English, and
only a few documents then further translated into French. Though it is true
that English is an official language in Canada (which is not the case in France),
and therefore documents in English do not present a difficulty here, this
distinction does not address the problem of the loosely translated Chinese
documents. In my view, the French Tribunal’s concern on that score applies
equally here.
[22]
Moreover, the French Tribunal went on to observe
that the evidence submitted did not directly prove that HH was not the true
owner of the Ship. In making this observation, the French Tribunal acknowledged
that the plaintiffs’ evidence concerning the genuineness of the transfer of
ownership was, at best, suggestive; it was not sufficiently compelling to
overcome the evidence of the transfer of ownership to HH in 2012.
[23]
Finally, the applicants argue that the treatment
of facts is different in the present motion in that they must be taken as true.
From my reading of the decision of the French Tribunal, I see no indication
that it failed to take any of the facts alleged in the Canadian action (which
were also raised in the French proceeding) as true. As mentioned in the
previous paragraph, the French Tribunal’s concern was that the evidence relied
on by the plaintiffs was indirect and insufficient.
[24]
In conclusion, I am satisfied that the central
issue before the French Tribunal (the fictitiousness of HH as an entity) is the
same as the central issue in the present motion, and that the first
precondition for issue estoppel is satisfied. As indicated above, the other two
preconditions are not disputed.
B.
Exercise of discretion
[25]
With regard to the list of factors that should
be considered in the exercise of discretion as to whether issue estoppel ought
to be applied, the parties focus on the last of the factors identified in Danyluk:
the potential injustice (see para 80).
[26]
The plaintiffs argue that the potential
injustice they face if issue estoppel is applied in the present case is that
its case will not be heard on its merits, either in Canada or in France. However,
as indicated above, I see no indication in the decision of the French Tribunal that
the issues the plaintiffs seek to have considered in the present action were
not considered in full in the French proceeding. In fact, the decision of the
French Tribunal gives every indication that these issues were heard and
considered. I am not satisfied that applying issue estoppel in the present case
would result in an injustice of the kind contemplated in Danyluk.
[27]
Accordingly, I am not inclined to exercise my discretion
to refuse to apply estoppel in this case.
C.
Conclusion on issue estoppel
[28]
Even applying the high threshold for striking
out of pleadings, it is my view that it would be an abuse of the process of the
Court (see Rule 221(1)(f) of the Rules) to permit the allegation at paragraph
76 of the Statement of Claim (that the ownership of the Ship remained at all
material times with Ningbo, and that HH is a front or sham standing in lieu of
Ningbo) to stand. In my view, that allegation should be struck.
[29]
It follows from this that paragraph 1(c) of the
Statement of Claim should also be struck, and that the style of cause of the
present action should be modified (i) to remove reference to the action
being “in rem”; and (ii) to remove the
defendants “The ship ‘Chemical Aquarius’” and “The owners and all others interested in the ship ‘Chemical
Aquarius’”.
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