Antwerp Bulkcarriers, N.V. (Re), [2001] 3 S.C.R. 951, 2001 SCC 91
Antwerp Bulkcarriers, N.V. Bankrupt
Thierry Van Doosselaere and
Frans G. A. De Roy, as Trustees in Bankruptcy
of Antwerp Bulkcarriers, N.V. Appellants
v.
Holt Cargo Systems Inc. and
Container Applications International Inc. Respondents
Indexed as: Antwerp Bulkcarriers, N.V. (Re)
Neutral citation: 2001 SCC 91.
File No.: 27905.
2001: March 20;
2001: December 20.
Present: McLachlin C.J. and L’Heureux‑Dubé,
Gonthier, Iacobucci, Major, Bastarache, Binnie, Arbour and LeBel JJ.
on appeal from the court of appeal for quebec
Bankruptcy and insolvency ‑‑ Courts ‑‑
Jurisdiction ‑‑ Quebec Superior Court ‑‑ U.S. creditor
bringing maritime law action against Belgian ship in Federal Court ‑‑
Belgian shipowner subsequently adjudged bankrupt in Belgium – Federal Court
action proceeding to default judgment ‑‑ Superior Court making
orders purporting to dispose of ship and proceeds of sale ‑‑
Whether Superior Court had jurisdiction to pronounce orders intended to
neutralize effects of Federal Court judgments.
In late March 1996, the respondent Holt commenced an in
rem action for the enforcement of a maritime lien against a Belgian ship
that had sailed into Canadian waters. The ship was arrested by order of the
Federal Court. The ship’s owner was subsequently adjudged bankrupt by the
Belgian bankruptcy court. The appellant trustees obtained an order of the
Quebec Superior Court, Civil Chamber that recognized and declared executory in
Quebec the Belgian bankruptcy order “subject however, to the rights, if any, of
any creditors with claims secured under the laws of Canada, as by law
provided”. Notwithstanding the intervention by the trustees, backed by the
order of the Quebec Superior Court, the Federal Court granted default judgment
and proceeded to exercise its maritime jurisdiction to have the ship appraised
and sold. The respondent Holt, a maritime lienholder, was a secured creditor.
The appellant trustees then obtained an order from the Quebec Superior Court
sitting in bankruptcy directing the proceeds of the sale of the ship to be paid
to the trustees “for distribution amongst the creditors of the Bankrupt in
observance of all their rights and in conformity with Belgian law”. This order
was in conflict with the rules and procedures and, eventually, the order of the
Federal Court. The order also requested the aid of the Supreme Court of Nova
Scotia with jurisdiction in bankruptcy, and ordered that the judgment be served
on the Marshal of the Federal Court of Canada in Halifax. The Quebec Court of
Appeal allowed Holt’s appeal, finding that in the circumstances it was not open
to the Canadian bankruptcy court to make the orders it did.
Held: The
appeal should be dismissed.
The Canadian bankruptcy court had no authority to
enjoin the Federal Court at Halifax from carrying into execution its order for
appraisal and sale of the ship, nor was it appropriate for the court to request
the intervention of the Nova Scotia Supreme Court to obtain compliance with
such an order. A Canadian bankruptcy court had no authority in the
circumstances of this case to take over disposal of a ship already captured by the
process of the Federal Court of Canada.
The assertion of jurisdiction by the bankruptcy court
did not oust the maritime law jurisdiction of the Federal Court, once properly
engaged by the commencement of the in rem action and the arrest of the
ship. The considerations underlying rules of comity apply with even greater
force between the units of a federal state than they do internationally. Once
it determined that the Federal Court had maritime law jurisdiction to deal with
the ship, the Canadian bankruptcy court ought to have recognized that the
trustees’ proper remedy was a stay application to that court. It ought not to
have issued what amounted to an anti‑suit injunction against the
litigants in the Federal Court. Had the bankruptcy occurred in Canada, the
Superior Court would have had no authority to command the Federal Court to stay
the proper discharge of its maritime law jurisdiction. It did not acquire by
its endorsement of international comity a jurisdiction it did not otherwise
have.
Cases Cited
Applied: Holt
Cargo Systems Inc. v. ABC Containerline N.V. (Trustees of), [2001] 3 S.C.R.
907, 2001 SCC 90; Morguard Investments Ltd. v. De Savoye, [1990] 3
S.C.R. 1077; Bank of Montreal v. Metropolitan Investigation & Security
(Canada) Ltd., [1975] 2 S.C.R. 546; referred to: In re The
Moratorium Act (Sask.), [1956] S.C.R. 31; The Strandhill v. Walter W.
Hodder Co., [1926] S.C.R. 680; Todd Shipyards Corp. v. Altema Compania
Maritima S.A., [1974] S.C.R. 1248; Amchem Products Inc. v. British
Columbia (Workers’ Compensation Board), [1993] 1 S.C.R. 897.
Statutes and Regulations Cited
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3, ss. 2 “bankruptcy”, “secured
creditor”, 69.3(1) [ad. 1992, c. 27, s. 36], (2)(a) [idem],
136(1), 183(1)(b), Part XIII [ad. 1997, c. 12, s. 118].
Federal Court Act, R.S.C. 1985, c. F‑7, s. 22 .
Authors Cited
Leonard, E. Bruce.
“Recognition and Access in International Insolvency Proceedings: The Canadian
Perspective”. Paper delivered at the INSOL International Regional Conference
of the Americas, Toronto, March 1995.
APPEAL from a judgment of the Quebec Court of Appeal
(2000), 187 D.L.R. (4th) 106, [2000] Q.J. No. 685 (QL), allowing in part an
appeal from a decision of the Quebec Superior Court (1996), 43 C.B.R. (3d) 284,
48 C.B.R. (3d) 109, [1996] Q.J. No. 4500 (QL). Appeal dismissed.
Mark E. Meland,
for the appellants.
Richard L. Desgagnés and Véronique Marquis, for the respondents.
The judgment of the Court was delivered by
1
Binnie J. -- In this
appeal, we are confronted, rather unusually, with an issue of domestic comity.
Two courts exercising authority granted by Parliament over their respective
subject matters came into collision over the sale of a ship.
2
On June 28, 1996, the Quebec Superior Court sitting in Bankruptcy (the
“Canadian bankruptcy court”) purported to enjoin an in rem action in
admiralty that had earlier proceeded to default judgment in the Federal Court
of Canada against the M/V “Brussel” (the “Ship”).
3
This is the appeal of the Canadian bankruptcy court order as varied by
the Quebec Court of Appeal. In the companion appeal, Holt Cargo Systems
Inc. v. ABC Containerline N.V. (Trustees of), [2001] 3 S.C.R. 907, 2001 SCC
90, released concurrently, we address the Federal Court of Appeal’s refusal to
enter a stay of the in rem action despite the supervening bankruptcy of
the shipowner.
4
The order of the Canadian bankruptcy court dated June 28, 1996 was
varied by the Quebec Court of Appeal because it was construed as a collateral
attack [translation] “intended to
neutralize the effects of judgments rendered by the Federal Court” ((2000), 187
D.L.R. (4th) 106, para. 40). I agree with the Quebec Court of Appeal that
in this instance the Canadian bankruptcy court overreached its authority. The
appellant trustees in bankruptcy (the “Trustees”) had applied to the Federal
Court, Trial Division for a stay of proceedings. The application was dismissed
in a series of rulings by MacKay J. of that court. The Trustees appealed
the dismissal to the Federal Court of Appeal. That was their proper remedy.
The Canadian bankruptcy court had no authority to enjoin the Marshal of the
Federal Court at Halifax (who was specifically ordered to be served with its
order) from carrying into execution the Federal Court’s order dated May 17,
1996, for appraisal and sale of the Ship. Nor was it appropriate for the
Canadian bankruptcy court to request the intervention of the Nova Scotia
Supreme Court to obtain compliance with its order in the event Federal Court
officials chose to respect the orders of their own court rather than defer to
the order of the bankruptcy court.
5
In my view, the decision of the Quebec Court of Appeal was correct and
the appeal should be dismissed.
I. Facts
6
The respondent Holt Cargo Systems Inc. (“Holt”) rendered stevedoring
services to the Ship at Gloucester City, New Jersey, U.S.A., between July 1994
and March 1996. Holt thereby acquired a maritime lien against the Ship itself
under the law of the United States which, under our law, is enforceable in
Canada with the same priority as is given to maritime liens created here.
Invoices sent to the shipowner for stevedoring services remained unpaid.
7
In time, the Ship sailed into Canadian waters. On March 30, 1996, it
arrived at the entrance to Halifax harbour. Holt commenced an in rem
action for the collection of the secured debt and procured the Ship's arrest by
order of the Federal Court of Canada.
8
Less than a week later, the Ship’s owner, Antwerp Bulkcarriers, N.V.,
was adjudged bankrupt by order dated April 5, 1996, of the Eleventh Chamber of
the Commercial Court for the Judicial District of Antwerp (the “Belgian
bankruptcy court”). The appellants, Van Doosselaere and De Roy, were
named trustees and given the mandate to realize on the assets of the bankrupt
worldwide for distribution to the creditors according to the law of Belgium.
9
It is important to note that at no time did the shipowner declare
bankruptcy in Canada. There were no Canadian bankruptcy proceedings separate
and apart from recognition of the Belgian bankruptcy.
10
The complicated procedural history of this dispute in the Canadian
courts is set out in detail in an Appendix to this judgment.
II. Judicial
History
A. Quebec
Superior Court, Baker J., May 9, 1996
11
Within a month of the shipowner's bankruptcy, the appellant Trustees had
applied for recognition of the Belgian judgment by the Quebec Superior Court,
Civil Chamber (i.e., not at that stage specified to be sitting in bankruptcy).
By order dated May 9, 1996, Baker J. recognized and declared executory “in
Quebec” the Belgian bankruptcy order of April 5, 1996, vesting in the appellant
Trustees the property of the bankrupt “subject however, to the rights, if any,
of any creditors with claims secured under the laws of Canada, as by law
provided” (hereinafter referred to as the “secured creditors provision”).
12
In concurrent proceedings in the United States and before the Federal
Court of Canada, the appellant Trustees attempted to prevent Holt and other
creditors from realizing on their security. They applied to the United States
Bankruptcy Court for the Southern District of New York, seeking an order enjoining
U.S. creditors (including Holt) from collection proceedings in the United
States or elsewhere. A temporary order was granted on May 16, 1996, with
respect to proceedings in the United States, but the U.S. court declined to
order U.S. creditors to halt proceedings elsewhere.
13
On May 14, 1996, armed with the order of Baker J., the Trustees
presented themselves before MacKay J. of the Federal Court, Trial Division
and obtained intervener status in the in rem proceeding against the
Ship. They did not at that time apply for a stay of proceedings. They sought
a four-week adjournment to allow them to assess all claims and the assets of
the bankrupt. The Federal Court expressed concern that the Ship had already
been under arrest for six weeks, incurring significant dockage and other
continuing charges. The appellants did not suggest that they knew of any
possible defence to the action. Further delay would be expensive. The request
for an adjournment was denied.
14
On May 14, 1996, the Federal Court proceeded to grant default judgment
to Holt in its undefended action against the Ship.
15
Incidental procedural orders were given on May 17, 1996 for the
“appraisement” and sale of the Ship.
16
It was not until June 14, 1996 that the appellant Trustees went before
the Federal Court for a stay of further proceedings “pending final disposition
of the matter by the Superior Court, District of Montreal, Sitting in
Bankruptcy and Insolvency Matters”. The appellant Trustees also applied for
reconsideration of the default judgment and of the incidental orders for the
appraisal and sale of the Ship.
17
The background to the June 14th stay motion requires explanation. The
Trustees had returned to the Belgian bankruptcy court on June 10, 1996, and
obtained an order purporting to command the delivery of the Ship to the
Trustees for sale and distribution of the proceeds, and praying in aid the help
of “all Canadian courts” to give effect to this order. It is not apparent from
the record before us whether the Trustees disclosed to the Belgian bankruptcy
court the default judgment of May 14, 1996, and the orders for the
“appraisement” and sale of the Ship then being implemented in Canada.
B. Quebec
Superior Court, Halperin J., June 11, 1996
18
On June 11, 1996, the appellant Trustees laid before Halperin J. of the
Canadian bankruptcy court at Montreal the order issued the day previously, June
10, by the Belgian bankruptcy court. Although the Trustees had been
participating with the other interested parties for more than a month in the
Federal Court proceedings, no notice was given to any of them. The order of
Halperin J., obtained ex parte, more or less adopted the order of
the Belgian bankruptcy court. It ordered the suspension of all “measures of
attachment” against the M/V “Brussel” and enjoined further proceedings. It
also ordered delivery of the Ship to the appellant Trustees. Halperin J.
suspended the effect of this aspect of his order until the affected parties could
be notified and be given the opportunity to make submissions. The Canadian
bankruptcy court order thus countermanded the Federal Court order for appraisal
and sale dated May 17, 1996, a fact which inexplicably was not brought to the
attention of the ex parte motions judge by the Trustees. Another
important feature of the order of Halperin J. is that it did not include
the “secured creditors provision” included in the earlier order of
Baker J. The Belgian Trustees were thereby accorded higher rights than if
the shipowner had declared bankruptcy in Canada.
19
June 11, 1996 was also an important date in the Federal Court action.
The Belgian state bank, Société Nationale de Crédit à l’Industrie S.A.
(“SNCI”), intervened to protect its claim to a security interest in the Ship
under its first and second mortgages of about $68 million. Whatever faint hope
the appellant Trustees may have had that the sale of the Ship would produce
some money over and above the secured creditors more or less ceased at that
time.
20
The Federal Court, Trial Division was advised of the ex parte
order of Halperin J. but nevertheless dismissed the Trustees’ motion for a
stay of proceedings on June 14, 1996. In the view of MacKay J., the
Federal Court was seized with a maritime law matter, not a bankruptcy matter.
21
Despite the dismissal of their stay application, the appellant Trustees
returned to the Canadian bankruptcy court for further assistance.
C. Quebec
Superior Court (1996), 43 C.B.R. (3d) 284
22
On June 28, 1996, Guthrie J. of the Canadian bankruptcy court confirmed,
with important variations, the terms of the order of Halperin J. He did,
however, criticize the appellant Trustees for their failure to disclose
numerous important and relevant matters to the ex parte motions judge,
including the facts that (1) the Ship was arrested prior to the date of the
bankruptcy in Belgium; (2) Holt had been claiming a maritime lien from the
outset and the validity of that claim had been recognized in the order of the
Federal Court pronounced May 14, 1996; (3) the Federal Court proceedings had
been ongoing since March 30, 1996 and counsel for the Trustees had been
actively involved in these proceedings since May 3, 1996; and (4) the Federal
Court had ordered the sale of the Ship on May 17, 1996 and counsel for the
Trustees had participated in the drafting of that order.
23
With respect to the invocation of international comity, Guthrie J.
noted that “multinational and cross-border insolvencies have risen to an unprecedented
level of activity and significance” (para. 23). Of “increasing weight in the
global commercial arena” is the goal of predictability and this “requires that
each interested jurisdiction demonstrate respect for the legitimate interests
of the other jurisdictions” (para. 28). In Canada, he noted, recent decisions
suggest that Canadian courts are taking a more open view toward the recognition
of foreign proceedings. Although Morguard Investments Ltd. v. De Savoye,
[1990] 3 S.C.R. 1077, was an interprovincial case, it “has clear implications
for international recognition and enforcement issues in Canada” (para. 30).
24
Guthrie J. said he was faced with “a ‘collision’ between the
jurisdiction of the Commercial Court of Antwerp, Belgium, legitimately applying
Belgian bankruptcy law to the bankruptcy of a Belgian corporate citizen, and
the jurisdiction of the Federal Court, legitimately applying Canadian maritime
law to a ship owned by the Bankrupt and located in Canada”, both of which “have
been properly exercising their respective jurisdictions” (para. 35). One of
the courts, he said, needs to decline jurisdiction. In his view, “the
expeditious and economical administration of the Bankrupt’s estate can best
take place before the Belgian Commercial Court in Antwerp” (para. 35). Public
policy is frustrated when “national prejudices and complexities of judgment
recognition proceedings are allowed to delay . . . immediate access
to the appropriate assets” (para. 36).
25
The formal order of Guthrie J. declared that the Superior Court of
Quebec, sitting in Bankruptcy, had come in aid of the Belgian bankruptcy court
and recognized the appellants as trustees in bankruptcy who have “the duty and
power to take possession of, realise upon and confirm the assets of the
Bankrupt situated anywhere in Canada”. Guthrie J. restored the secured
creditors provision, i.e., recognizing “the rights, if any, of any creditors
with claims secured under the laws of Canada, as by law provided”. The order
of Guthrie J. then addressed in specific terms what was to be done with
the Ship. He was prepared to “permit” the sale to take place in accordance
with the order of the Federal Court dated May 17, 1996, “provided that such
sale is completed and the purchase price paid in full by the close of business
in Halifax, Canada on July 12, 1996”. If sold, the net proceeds of sale were
to “be paid promptly to the Trustees for distribution amongst the creditors of
the Bankrupt in observance of all their rights and in conformity with Belgian
law” contrary to the priority assigned by Canadian maritime law and,
eventually, by the Federal Court to maritime lienholders and other secured
creditors. In the event that the sale was not completed as provided in the
Federal Court order, the Ship was to be delivered to the Trustees so that they
could attend to its sale either locally or elsewhere. This again was contrary
to the ongoing procedural framework established under the Rules of the Federal
Court.
26
Given the importance of the precise terms of the June 28, 1996 order,
its relevant provisions are set out below:
. . . THE COURT:
. . .
DECLARES that the Superior Court of Québec, sitting in bankruptcy and
insolvency matters, has come in aid of the Belgian Commercial Court of the
Judicial District of Antwerp pursuant to the request contained in the judgment
of the President of such Court rendered in Antwerp on June 10, 1996;
RECOGNIZES the Trustees as trustees in the bankruptcy of Antwerp
Bulkcarriers, N.V., with the duty and power to take possession of, realise upon
and confirm the assets of the Bankrupt situated anywhere in Canada, subject
however to the rights, if any, of any creditors with claims secured under the
laws of Canada, as by law provided;
PERMITS the sale of the ship “Brussel” to take place in
accordance with the judgment rendered by the Federal Court of Canada, Trial
Division, on May 17, 1996 provided that such sale is completed and the purchase
price paid in full by the close of business in Halifax, Canada on July 12,
1996;
ORDERS that, in the event that the said sale is completed as aforesaid,
the net proceeds of such sale (after payment of all expenses of
advertisement of the sale, appraisal fees, insurance and all other costs,
disbursements, commissions and other expenses necessary for the sale) be
paid promptly to the Trustees for distribution amongst the creditors of the
Bankrupt in observance of all their rights and in conformity with Belgian law;
ORDERS that, in the event the said sale is not so completed, the
ship “Brussel” be delivered into the possession of the Trustees so that
they can proceed to the sale of the said ship, locally or in any other place
they consider more appropriate, and to the distribution of the net proceeds
amongst the creditors of the Bankrupt in observance of all their rights and in
conformity with Belgian law;
REQUESTS the aid of the Supreme Court of Nova Scotia with
jurisdiction in bankruptcy, insofar as such aid may be necessary under the laws
of Nova Scotia to give effect to the present judgment;
ORDERS that the present judgment be served promptly on Chief Justice of
the Supreme Court of Nova Scotia, on the Marshall of the Federal Court of
Canada in Halifax, on the Sheriff of the Halifax Regional Municipality, and
on all parties who have asserted a claim in Canada in respect of the ship
“Brussel”; . . . [Emphasis added.]
27
Armed with the June 28, 1996 order, the appellant Trustees renewed their
stay application to the Federal Court in July 1996 when the sale of the Ship
was under consideration. The appellant Trustees again relied on the order of
Guthrie J. in September 1996 when the Trustees sought to have the proceeds of
the sale paid to them. On each occasion, the Federal Court dismissed the
application and declined to follow the direction laid out for it by the
Canadian bankruptcy court.
D. Quebec
Court of Appeal (2000), 187 D.L.R. (4th) 106
28
On March 14, 2000, the appeal taken by Holt and another secured
creditor, Container Applications International Inc., was allowed.
Gendreau J.A., who delivered the reasons for the court, was [translation] “inclined to share” (para.
32) Guthrie J.’s view that this litigation was properly characterized as a
bankruptcy matter. However he believed the Canadian bankruptcy court did not
have the power to order the Federal Court of Canada to return the Ship (or the
proceeds from its sale) to the trustees or [translation]
“to require the Nova Scotia Supreme Court to ensure enforcement of [its] order”
(para. 32). The Federal Court was properly seized of the matter and, following
an adversarial proceeding, had [translation]
“dismissed the motion for a stay of proceedings filed by the trustees and
allowed the Holt action, acknowledging the secured lien on the proceeds of the
sale of the vessel” (para. 32). In light of this background, it was not open to
the Canadian bankruptcy court to make the orders it did, for they [translation] “directly challenged and
overruled a judgment of the Federal Court, a Superior Court of record in
Canada” (para. 34). What the Quebec Superior Court did [translation] “was nothing less than an
attack on a judgment already rendered by another jurisdiction, in other words,
a collateral attack” (para. 34).
29
Gendreau J.A. agreed with the Trustees that the Quebec Superior Court
has jurisdiction in bankruptcy matters but said this was not the issue. The
question is whether it can pronounce orders [translation]
“which are intended to neutralize the effects of judgments rendered by the
Federal Court and order that matters be dealt with otherwise than previously
ordered” (para. 40).
III. Relevant
Statutory Provisions
30
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3
Interpretation
2. In this Act,
.
. .
“secured creditor” means a person holding a
mortgage, hypothec, pledge, charge, lien or privilege on or against the
property of the debtor or any part thereof as security for a debt due or
accruing due to him from the debtor, or a person whose claim is based on, or
secured by, a negotiable instrument held as collateral security and on which
the debtor is only indirectly or secondarily liable;
Stay
of Proceedings
69.3 (1) Subject to subsection (2) and
sections 69.4 and 69.5, on the bankruptcy of any debtor, no creditor has any
remedy against the debtor or the debtor’s property, or shall commence or
continue any action, execution or other proceedings, for the recovery of a
claim provable in bankruptcy, until the trustee has been discharged.
(2) Subject to sections 79 and 127 to 135 and
subsection 248(1), the bankruptcy of a debtor does not prevent a secured
creditor from realizing or otherwise dealing with his security in the same
manner as he would have been entitled to realize or deal with it if this
section had not been passed, unless the court otherwise orders, but in so
ordering the court shall not postpone the right of the secured creditor to
realize or otherwise deal with his security, except as follows:
(a) in the case of a security for a debt
that is due at the date the bankrupt became bankrupt or that becomes due not
later than six months thereafter, that right shall not be postponed for more
than six months from that date; . . .
Scheme
of Distribution
136. (1) Subject to the rights of secured
creditors, the proceeds realized from the property of a bankrupt shall be
applied in priority of payment as follows: . . .
Jurisdiction of Courts
183. (1) The following courts are invested
with such jurisdiction at law and in equity as will enable them to exercise
original, auxiliary and ancillary jurisdiction in bankruptcy and in other
proceedings authorized by this Act during their respective terms, as they are
now, or may be hereafter, held, and in vacation and in chambers:
. . .
(b) in the Province of Quebec, the Superior Court;
IV. Analysis
31
The international coordination of bankruptcy and insolvency disputes
that cross national boundaries and engage multiple jurisdictions is of crucial
importance. National bankruptcy laws express the policies and priorities of
their enacting countries. A multinational bankrupt with widespread corporate
and business connections may leave creditors scrambling in different courts in
different countries in costly and inefficient attempts to salvage their
financial position. As Guthrie J. noted in this case (at para. 24):
The clash of interests and the myriad of conflict of laws issues that
arise in multinational reorganizations or restructurings are such that it is
remarkable that multinational reorganizations or co-operative liquidations can
ever be successful at all.
(Quoting E. B. Leonard, “Recognition and Access in International
Insolvency Proceedings: The Canadian Perspective”, paper delivered at the
INSOL International Regional Conference of the Americas, Toronto, March 1995.)
32
The Belgian Trustees were thus perfectly at liberty to seek the
assistance of Canadian courts to deal efficiently and effectively with the
assets in Canada of the bankrupt, which was a corporation domiciled in Belgium,
even though the important 1997 amendments adding Part XIII (“International
Insolvencies”) to the Bankruptcy and Insolvency Act (the “Act ”) had not
then come into effect.
33
The initial order of Baker J., sitting in the Quebec Superior
Court, Civil Chamber, had declared the bankruptcy order executory “in Quebec”
only. It was apparently accepted that the inherent jurisdiction of that court
could not dispose of a ship located in another province. Subsequent orders
invoked the Quebec Superior Court’s jurisdiction “in bankruptcy”. The
appellants contend that the grant of bankruptcy jurisdiction in s. 183 of
the Act conferred cross-Canada jurisdiction to come to the aid of foreign
bankruptcy courts even prior to enactment of Part XIII.
34
Section 183(1) invests a Canadian bankruptcy court with “such
jurisdiction at law and in equity as will enable [it] to exercise original,
auxiliary and ancillary jurisdiction in bankruptcy and in other
proceedings authorized by this Act ” (emphasis added). The word “bankruptcy”
was defined in general terms by this Court in In re The Moratorium Act
(Sask.), [1956] S.C.R. 31, per Rand J., at p. 46:
Bankruptcy is a well understood procedure by which an insolvent
debtor’s property is coercively brought under a judicial administration in the
interests primarily of the creditors.
The Belgian
bankruptcy arrangement fits that definition.
35
The appellants contend that s. 183 should not be read restrictively
to limit the court's jurisdiction (prior to enactment of Part XIII) to
only Canadian bankruptcies. They point out that the definition of bankruptcy
in s. 2 of the Act is not so restricted. In grammatical terms, the words
“this Act ” could and should, it is said, be read as qualifying “other
proceedings” in the text quoted above rather than qualifying the entire phrase
starting with “in bankruptcy”. Parliament must have assumed that Canadian
bankruptcy courts had jurisdiction in relation to foreign bankruptcies when it
conferred additional powers to assist “International Insolvencies” under the
new Part XIII of the Act in 1997.
36
It is not necessary to decide this point because, in my view, assuming,
without deciding, that the Canadian bankruptcy court had jurisdiction in this
respect, it had no power in the circumstances of this case to take over
disposal of the Ship already subject to the process of the Federal Court and to
order a permanent stay of the in rem action in the Federal Court, as was
the purported effect of the June 28, 1996 order.
37
I say this for three reasons:
1. The assertion of jurisdiction by the Canadian bankruptcy court did
not oust the maritime law jurisdiction of the Federal Court;
2. The bankruptcy court had no power to deal with an asset (the Ship)
already captured by the competent order of another superior court in Canada
(the Federal Court); and
3. In any event, the issuance of what amounted to an “anti-suit
injunction” against the parties before the Federal Court improperly attempted
to restrict that court’s ability to exercise its jurisdiction.
I will address
these points in turn.
1.
The Assertion of Jurisdiction by the Canadian Bankruptcy Court Did
Not Oust the Maritime Law Jurisdiction of the Federal Court
38
The maritime law aspect in this case is co-extensive with the claims of
creditors who were adjudged, as a matter of Canadian law, to have security in
the Ship. The proceedings are in rem. The Ship itself is the effective
defendant. No relief was offered to creditors of the bankrupt shipowner who
lacked a secured interest in the M/V “Brussel”.
39
The appellant Trustees do not contest the statutory authority of the
Federal Court under s. 22 of the Federal Court Act, R.S.C. 1985,
c. F-7 , and relevant rules, to do what it did in terms of maritime law.
Their argument is that the supervening bankruptcy of the shipowner transformed
a maritime law action into a bankruptcy matter, and this overrode the powers of
the Federal Court which has no bankruptcy jurisdiction. This proposition is
rejected for the reasons set out in the companion appeal of Holt Cargo
Systems Inc., supra.
40
The Federal Court’s maritime jurisdiction, once properly engaged by the
commencement of the in rem action and the arrest of the Ship on March
30, 1996, was never lost. The subsequent bankruptcy of the shipowner in
Antwerp, initiated after Holt had taken steps in Canada to realize on its
security, did not have that effect. All of the proceedings taken thereafter in
the Federal Court were usual and normal maritime law proceedings against a
ship. Moreover, all of the orders of the bankruptcy court (with the brief
aberration of the ex parte order of June 11, 1996) contained the secured
creditors provision, which expressly made the Trustees’ claim to possession
“subject however, to the rights, if any, of any creditors with claims secured
under the laws of Canada, as by law provided”.
41
The appellant Trustees contend that the secured creditors provision
protected only secured rights acquired initially under Canadian law,
such as the claim for fees by the Atlantic Pilotage Authority, and not secured
rights acquired elsewhere, such as Holt's maritime lien. The provision,
however, speaks of rights secured (not “acquired”) under the laws of Canada,
and a maritime lien acquired under the proper law of the debt (in this case the
United States) is an interest protected and “secured” under Canadian law: The
Strandhill v. Walter W. Hodder Co., [1926] S.C.R. 680, and Todd
Shipyards Corp. v. Altema Compania Maritima S.A., [1974] S.C.R.
1248.
42
The insertion of the secured creditors provision was consistent with the
policy of Canadian bankruptcy law. The Act provides a comprehensive scheme for
the realization and distribution of a bankrupt's estate, including a broad
statutory stay of execution or other proceeding for the recovery of a claim
provable in bankruptcy (s. 69.3(1)). The statutory stay, however, does
not apply to “prevent a secured creditor from realizing or otherwise dealing
with his security in the same manner as he would have been entitled to realize
or deal with it . . . unless the court otherwise orders”
(s. 69.3(2)) (emphasis added). Had this been a Canadian bankruptcy, the
most the court could have ordered was a stay of six months (s. 69.3(2)).
This power was not invoked by the Canadian bankruptcy court in this case,
perhaps because there was no Canadian bankruptcy as such.
43
This is not to say that foreign bankruptcy orders will only be
recognized here if they faithfully mirror the provisions of Canadian bankruptcy
law. It is to say, however, that protection of secured creditors is a strong
public policy in our bankruptcy scheme, and on the facts of this case
Baker J. and Guthrie J. quite appropriately gave effect to it in
their respective orders.
44
Accordingly, not only did the intervention of the Canadian bankruptcy
court fail to oust the jurisdiction of the Federal Court, the orders containing
the secured creditors provision did not, as I view them, purport to do so.
2.
The Bankruptcy Court Had No Power to Deal with an Asset (the Ship)
Already Captured by the Competent Order of Another Superior Court in Canada,
Namely the Federal Court
45
On April 5, 1996, the date of the bankruptcy, the Ship was in the
possession of a Marshal of the Federal Court of Canada, not the bankrupt. The
Marshal was acting under the order and supervision of the Federal Court. The
bankruptcy court order of June 28, 1996 purported to dictate a different fate
for the Ship (if the sale did not close by July 12, 1996) and the proceeds of
its sale than had been ordered by the Federal Court. The Marshal of the
Federal Court was subjected to inconsistent directions from the two superior
courts. This dilemma is unacceptable.
46
In Bank of Montreal v. Metropolitan Investigation & Security
(Canada) Ltd., [1975] 2 S.C.R. 546, the Court was confronted with an
order of the Manitoba Court of Queen's Bench that purported to dispose of funds
held by the Bank of Montreal which had previously been garnisheed under an
order of the Quebec Superior Court. The Manitoba order declared the funds to
be held in trust for claimants under the Manitoba Builders and Workmen Act,
R.S.M. 1970, c. B90. The order of the Quebec Superior Court had a year
earlier attached the same fund at the suit of the Manitoba Development
Corporation and others. Compliance by the Bank of Montreal with the Manitoba
court order would have been disobedient to the order of the Quebec Superior
Court, and vice versa. On appeal from the Manitoba courts, Laskin C.J.
stated, at p. 557:
Unless this Court is in a position (and it is not in these appeals) to
rule on the validity of the Quebec garnishment, it cannot with any propriety
approve an order of one provincial Court that purports to deal with assets
already captured by the competent order of another provincial Court, and
particularly an order of the Court of the province where those assets are
situated.
47
While there is not the same geographic diversity of jurisdiction here,
there is a diversity of subject matter jurisdiction, and in my opinion, the
strictures of Laskin C.J. apply in this case. The Ship having been
“captured” by the processes of the Federal Court, neither it nor the proceeds
of its sale was available to be sent back to Belgium by a Canadian bankruptcy
court.
3. In Any Event, the Issuance of What
Amounted to an “Anti-Suit Injunction” Against the Parties Before the Federal
Court Improperly Attempted to Restrict That Court’s Ability to Exercise Its
Jurisdiction
48
Although the Canadian bankruptcy court order of June 28, 1996 is not
self-styled as an anti-suit injunction, and it does not name the parties before
the Federal Court as defendants, nevertheless it is framed to have that
effect. Payment of the proceeds of sale to the appellant Trustees in obedience
to the bankruptcy court order of June 28, 1996 would require disobedience to the
Federal Court order of May 17, 1996. In effect, after the Federal Court
refused a stay, the bankruptcy court arrogated to itself the authority to take
over the future course of events. It was indirectly disposing of a ship in the
possession of another superior court which, as I have suggested, it could not
do directly.
49
Even a foreign court could normally expect a higher degree of
deference. While this appeal raises issues of bankruptcy court jurisdiction
rather than forum non conveniens, the discussion in Amchem Products
Inc. v. British Columbia (Workers’ Compensation Board), [1993] 1 S.C.R.
897, at p. 932, is apposite:
If, applying the principles relating to forum non conveniens
outlined above, the foreign court could reasonably have concluded that there
was no alternative forum that was clearly more appropriate, the domestic court
should respect that decision and the application should be dismissed. When
there is a genuine disagreement between the courts of our country and another,
the courts of this country should not arrogate to themselves the decision for
both jurisdictions. [Emphasis added.]
50
Here there was a valid in rem action proceeding in the Federal
Court. The maritime law jurisdiction was not obliterated by the supervening
bankruptcy. The orders of the bankruptcy court did not “occupy the field” to
the exclusion of the Federal Court. On the contrary, as stated, the June 28,
1996 order of the Canadian bankruptcy court made the authority and power of the
appellants subject to the rights of secured creditors. The Canadian bankruptcy
court ought not, at one and the same time, to have seemingly protected the
rights of secured creditors (equivalent, in any event, to the protection they
would have enjoyed in a Canadian bankruptcy) while at the same time preventing
Holt and other secured creditors of the Ship from proceeding under maritime law
with the realization of their security before the Federal Court.
51
The Trustees rely on the principles of international comity but, as
pointed out by this Court in Morguard, supra, the considerations
underlying rules of comity apply with even greater force between the units of a
federal state than they do internationally (p. 1098). In that case, it
will be recalled, a British Columbia resident was successfully sued in Alberta
on an Alberta mortgage even though he had no continuing connection with that
province. It was held, per La Forest J., at p. 1102,
that courts in one province should give “full faith and credit” to judgments
given by a court in another province or territory, so long as that court has
“appropriately exercised” its jurisdiction. This case was referred to by
Guthrie J. in his reasons of June 28, 1996 (at para. 30), but he seems to
have been attracted more by La Forest J.'s references to
international comity than to the ratio decidendi of the case which is,
to repeat, that “full faith and credit” is owed by Canadian courts to each
other when acting appropriately within their respective jurisdictions.
52
The rationale adopted by this Court in Morguard applies to the
present appeal. The Federal Court, with a statutory grant of maritime law
jurisdiction, was engaged in the determination of claims within its statutory
jurisdiction. It possessed no bankruptcy jurisdiction and needed none for the
task at hand. After giving consideration to the order of Baker J. dated May 9,
1996, it proceeded to render default judgment and arrange for the appraisement
and sale of the Ship, as it was entitled to do.
53
At the same time, the Canadian bankruptcy court exercised a distinct and
separate jurisdiction in coming to the aid of the Trustees of the estate of the
bankrupt shipowner. The Trustees had a proper role in protecting the interests
of the bankrupt shipowner in this country, and the intervention of the Canadian
bankruptcy court was potentially useful in that regard. The bankruptcy court’s
support for international coordination of bankruptcies that engage different
national jurisdictions has much merit, as does its condemnation of delay
created by narrow “national prejudices”. The issue here, however, relates to
jurisdiction, not judicial policy. Once it determined that the Federal Court
had maritime law jurisdiction to deal with the Ship, the Canadian bankruptcy
court ought to have recognized that the Trustees’ proper remedy was a stay
application to that court. It ought not to have issued what amounted to an
anti-suit injunction against the litigants in the Federal Court.
54
The appellant Trustees did in fact move for a stay in the Federal Court
and acted entirely properly in bringing to the attention of that court the
orders of the Belgian bankruptcy court (which were addressed to “all” Canadian
courts) in support of their application for a stay of proceedings. With or
without the intervention of the Canadian bankruptcy court, then, it was open to
MacKay J. of the Federal Court to enter a stay if he considered it
appropriate to do so, or to decline to accede to the request of the appellant
Trustees, which he did.
55
Had the bankruptcy occurred in Canada instead of Belgium on April 5,
1996, the Quebec Superior Court would have had no authority to command the
Federal Court to stay the proper discharge of its maritime law jurisdiction.
The Quebec Superior Court did not acquire by its endorsement of international
comity a jurisdiction it did not otherwise have.
V. Conclusion
56
I would therefore dismiss the appeal with costs.
Appendix:
Summary of Court Proceedings
1996
March 30 Holt initiates in rem
proceedings in the Federal Court, Trial Division (“FCTD”) against the Ship and
its owners; the Ship is arrested and taken into the custody of the local
Sheriff at Halifax as Marshal of the Federal Court.
April 5 Shipowner declared bankrupt by
Belgian bankruptcy court.
May 3 Trustees cause motion to be made in
FCTD to move Ship from anchor to a “safe berth” at Halifax and to “remain under
arrest” at its new location “until further orders are given by this Court”.
Order granted. The Ship was moved and remained there until its sale closed on
August 1, 1996.
May 7 Holt applies to FCTD for default
judgment and an order for the appraisal and sale of the Ship.
May 9 Trustees apply to the Quebec
Superior Court (not specified to be sitting in Bankruptcy) for an order that
the April 5, 1996 judgment of the Belgian bankruptcy court “be recognized and
declared executory in Quebec” (emphasis added). Order granted by
Baker J. who also ordered that the property of the bankrupt be vested in
the Trustees subject to the rights “of any creditors with claims secured
under the laws of Canada” (emphasis added).
May 13 Trustees unsuccessfully seek
adjournment of Holt’s motions for default judgment, appraisal, and sale of the
Ship.
May 14 No defence to Holt’s claim having
been filed, FCTD grants default judgment against the Ship in the amount of
$572,128.06 (subject to further verification as to amount) to be paid out of
the proceeds of sale of the Ship or any bail posted by the Trustees for its
release from arrest.
May 16 Trustees obtain from the United
States Bankruptcy Court for the Southern District of New York a temporary
restraining order enjoining Holt and other creditors from disposing of the
bankrupt’s property in the United States or prosecuting claims against it or
its property in the United States. Court refuses to enjoin United States
creditors (including Holt) from pursuing claims against the bankrupt company or
its assets in jurisdictions outside the United States.
May 17 FCTD orders appraisal and sale of the
Ship subject to judicial confirmation.
May 27 Trustees apply to FCTD for
reconsideration and a stay of the default judgment of May 14, 1996 and the
order of appraisal and sale of May 17, 1996, and file a notice of appeal to the
Federal Court of Appeal from the default judgment.
June 7 Trustees apply to FCTD for the
first time to be added as parties to the Federal Court action for the purpose
of filing a conditional appearance and renewing motions for reconsideration and
a stay of proceedings for six months. The Trustees did not undertake to file a
defence.
June 10 Trustees obtain an order from the
Belgian bankruptcy court requesting the aid of Canadian courts to deliver to
the Trustees the Ship free and clear of “all measures of attachment”, to
suspend all pending proceedings of “attachment”, and to require any further
claims against moveables to be prosecuted only against the Trustees under the
laws of Belgium.
June 11 Trustees apply ex parte to Quebec
Superior Court sitting in Bankruptcy and, without disclosing Federal Court
proceedings, obtain an order “coming to the aid” of the Belgian Court to
implement its order of June 10. Halperin J. temporarily suspended some
provisions of his order to permit notification of interested parties and
further submissions.
June 12 FCTD adds Trustees as defendants and
permits them to file a conditional appearance. Trustees file no defence. FCTD
also adds as an intervener Société Nationale de Crédit à l’Industrie S.A. (“SNCI”),
the Belgian state bank that holds first and second ranking mortgages on the
Ship that total about $68 million.
June 14 The Trustees request that “the
action be stayed ‘pending final disposition of the matter by the [Quebec]
Superior Court . . .’” sitting in Bankruptcy. Their application
is dismissed the same day.
June 28 Quebec Superior Court sitting in
Bankruptcy, per Guthrie J., confirms June 11 order, but varies it to allow FCTD
to sell the Ship provided proceeds of sale are paid to Trustees to be
distributed to creditors in accordance with Belgian bankruptcy law. If the
sale does not proceed as scheduled, FCTD is to deliver possession of the Ship
to the Trustees. The Quebec Superior Court “calls in aid” the Supreme Court of
Nova Scotia in Bankruptcy to assist if necessary to “give effect to the present
judgment”.
July 8 The order of Guthrie J. is
appealed to the Quebec Court of Appeal, thereby staying further bankruptcy
proceedings in Canada until disposition of the appeal. Trustees seek to lift
the stay without success.
July 9 FCTD orders M/V “Brussel” to be
sold by auction.
July 24 FCTD approves highest bid of US
$4.6 million for the Ship.
August 1 Ship sold and proceeds paid into
FCTD.
Sept. 19 Trustees apply to FCTD, based in
part on June 28 order of Quebec Superior Court, to have sale proceeds paid out
to them.
1997
April 9 FCTD rules that no payment is to be
made to the Trustees unless they post adequate security to cover claims of
secured creditors, “including those that establish a claim as a secured
creditor by virtue of a maritime lien or a mortgage or other secured claim, in
relation to the ship “Brussel”, as recognized under Canadian maritime law”.
Trustees appeal to the Federal Court of Appeal.
1999
March 12 Federal Court of Appeal dismisses
appeal from FCTD judgment dated April 9, 1997. (It is this judgment which
forms the basis of the companion appeal to this Court.)
2000
Feb. 11 FCTD concludes that only secured
creditors ranking ahead of the SNCI mortgage will be paid out of the proceeds
of the Ship's sale.
March 14 The Quebec Court of Appeal allows
in part the appeal from the order of Guthrie J. dated June 28, 1996.
Appeal dismissed with costs.
Solicitors for the appellants: Goldstein, Flanz &
Fishman, Montréal.
Solicitors for the respondents: Ogilvy Renault, Montréal.