Antwerp Bulkcarriers, N.V. (Re), 2001 SCC 91, [2001] 3 SCR 951

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.