Date: 20081212
Docket: A-191-06
Citation: 2008 FCA 399
CORAM: RICHARD C.J.
PELLETIER J.A.
RYER J.A.
BETWEEN:
KENT TRADE AND
FINANCE INC.
and
PRAXIS ENERGY
AGENTS S.A.
and
CP3500
INTERNATIONAL LTD.
Appellants
and
JP
MORGAN CHASE BANK
and
JP MORGAN
EUROPE LIMITED
Respondents
REASONS FOR JUDGMENT
RICHARD C.J.
[1]
This
is an appeal from the decision of Gauthier J. (the “Priorities Appeal judge”)
which assessed the entitlement of various claims to the proceeds of the
judicial sale of a ship, the “Lanner” (the “vessel”). This decision was itself
an appeal of the Priorities Hearing before Morneau P., who held that the claim
of the vessel’s mortgagee prevailed over the claims of various necessaries
suppliers.
[2]
The
issue in this case is whether the appellants, which are suppliers of
necessaries to the vessel, should be granted maritime liens which would rank in
priority over the mortgage claim held by the respondent mortgagees.
Background
[3]
The
facts in this appeal are uncontraverted.
[4]
At
the request of the respondent mortgagees, JPMorgan Chase Bank and J.P. Morgan
Europe Ltd., the Liberian-flagged vessel was arrested in Halifax and sold by
the Federal Court in an admiralty action in rem. At all times relevant
to the claims of the appellants, the vessel was owned by a Liberian
corporation, Mystras Maritime Corporation and was managed by Arrow Co. Ltd.
(“Arrow”) of Greece.
The Four Claims
Kent Trade and Finance
Inc.
- Cartagena
[5]
The
appellant, Kent Trade and Finance Inc. (“Kent Trade”), incorporated under the
laws of the British Virgin Islands, supplied fuel oil to the vessel at the port
of Cartagena, Spain via an
unknown supplier. Kent Trade also supplied fuel oil to the vessel while docked
in Halifax,
Nova Scotia
via a Canadian supplier. The total amount of Kent Trade’s claim for fuel
provision is CAD $415,688.70. In the terms and conditions of sale, the
following provision was included:
This
agreement is subject to the laws of the United
States of America.
Praxis Energy Agents
S.A.
[6]
The
second appellant, Praxis Energy Agents S.A. (“Praxis”), is also a British
Virgin Islands corporation. Through an English company, Praxis supplied
the vessel with bunker fuel at the port of Pointe-à-Pierre, Trinidad. The
amount of the claim is CAD $225,599.23. The supply contract included the
following clause:
APPLICABLE LAW The Law
governing any and all disputes and all other matters/issues between the Company
and the Buyer and/or the Vessel shall be the U.S.A. Law. Such Law shall also
govern, but without limitation, all issues concerning the enforcement and the
application and status of maritime liens.
CP3500 International
Limited
[7]
The
final claim at issue in this appeal is asserted by CP3500 International Limited
(“CP3500”), incorporated under the laws of Cyprus. CP3500
arranged for a Singaporean supplier to provide combustion catalysts to the
vessel while in Singapore in the amount of CAD $6,257.25. The terms and
conditions of sale included the following arbitration clause:
ARBITRATION
All disputes which may arise between us concerning this transaction of the
invoiced goods shall be submitted to binding arbitrators […] all in accordance
with Washington State law.
[8]
Under
Canadian law, a supplier of necessaries to ships is accorded a statutory right in
rem, (paragraph 25 of Imperial Oil Ltd. v. Petromar Inc. (C.A.),
[2002] 3 F.C. 190 (C.A.) [Imperial Oil] and see paragraph 22(2)(m)
and subsection 43(3) of the Federal Courts Act, R.S.C. 1985, c. F-7). The
ranking of claims to the proceeds of a ship’s sale is decided by the law of the
forum (Todd Shipyards Corp. v. Altema Compania Maritima S.A., [1974]
S.C.R. 1248 at 1254 [Todd Shipyards]). A statutory right in rem ranks
below a mortgage, which is itself outranked by any maritime liens asserted
against the vessel (Todd Shipyards at 1259).
[9]
Under
U.S. law, a
necessaries supplier is afforded a maritime lien, by virtue of the Commercial
Instruments and Maritime Liens Act, 46 U.S.C. 31342 (1994):
§ 31342.
Establishing maritime liens
(a) Except as provided in
subsection (b) of this section, a person providing necessaries to a vessel on
the order of the owner or a person authorized by the owner—
(1) has a maritime lien on the vessel;
(2) may bring a civil action in rem to enforce the
lien; and
(3) is not required to allege or prove in the
action that credit was given to the vessel.
(b) This section does not
apply to a public vessel.
As noted by Justice Binnie in Holt Cargo
Systems Inc. v. ABC Containerline N.V. (Trustees of), [2001] 3 S.C.R. 907 [Holt
Cargo], foreign maritime liens, including those arising under the U.S.
statute, “will be recognized and given the same priority in Canada as would be
given to a maritime lien created in Canada under Canadian maritime law ‘unless
opposed to some rule of domestic policy or procedure which prevents the
recognition of the right’” (at paragraph 41, citing The Strandhill v. Walter
W. Hodder Co., [1926] S.C.R. 680 at 685 [The Strandhill]).
[10]
The
appellants, all necessaries suppliers, claim that they enjoy maritime liens by
virtue of the U.S.
choice-of-law provisions in the supply contracts and thus, their claims to the
vessel’s judicial sale proceeds should be satisfied ahead of the respondents’
mortgage. The respondent mortgagees, contend that American law is not the
proper law to apply and, even if it did govern, U.S. law does not
provide for a maritime lien in the circumstances at bar.
Judicial History
Priorities Hearing, 2005
FC 864
[11]
Morneau
P. did not accord maritime lien status to the claims of the suppliers and
ranked these claims behind that of the mortgagees. He decided that, because
the mortgagees were not parties to the supply contracts, the choice of law
clauses did not dictate which jurisdiction’s substantive law applied (at paragraph
59).
[12]
Morneau
P. then applied a conflict of laws analysis to each supply transaction in order
to determine if the United States was the jurisdiction to which it had the
closest and most substantial connection. Looking at various factors including
the vessel’s flag state, the location of supply, and the base of operations of
the vessel, he concluded that U.S. law was not applicable to these transactions
(at paragraph 61). Since no other law had been proved, he applied the law of
the forum, i.e. Canadian law. Consequently, he found that each supply
transaction only gave rise to a statutory right in rem, which was below
the mortgage in priority.
Priorities Appeal, 2006
FC 409
[13]
Justice
Gauthier also found that the appellants only had statutory rights in rem,
rather than maritime liens. She held that the choice of law clauses in the
supply contracts would only be determinative of the applicable law if the
vessel’s owner was personally liable under the contract. She found that there
was insufficient evidence to prove that the vessel’s manager had the authority
to bind the vessel’s owner since the contract between the two parties was not
before the court. Therefore, she applied the closest and most substantial
connection test to the transactions and agreed with Morneau P. that U.S. law did not
apply to the transactions.
[14]
Although
it was unnecessary to decide whether maritime liens would arise under American
law, Justice Gauthier decided that they would not. She found that the
respondent mortgagees’ expert witness was able to provide more specific
evidence that U.S. law would not provide a lien where the necessaries were
supplied by a foreign supplier to a foreign ship in a foreign country (at
paragraph 94).
Analysis
[15]
Whenever
a Canadian court is asked to apply the substantive law of a foreign
jurisdiction, it must apply a ‘choice of law’ analysis, using Canadian conflict
of laws rules (Dell
Computer Corp. v. Union des consommateurs, [2007] 2 S.C.R. 801 at paragraph
29; Ontario Bus Industries Ltd. v. Federal Calumet (The), [1992] 1 F.C.
245 at 252 (T.D.) [The Federal Calumet], aff’d (1992), 150 N.R. 149
(F.C.A.)).
General Approach to
‘Conflict of Laws’ Analysis
[16]
Absent
a statutory and/or treaty provision that directs the forum to apply a
particular choice of law rule, Canadian common law conflict of laws rules will
apply in a proceeding where the court is asked to apply foreign law. The first
step in such an analysis is the determination of the legal nature of the
questions or issues to be adjudicated (Castel & Walker, Canadian
Conflict of Laws, 6th ed., loose-leaf, vol. 1 (Markham:
LexisNexis, 2005) at § 3.1-3.2; Dicey, Morris & Collins, The Conflict of
Laws, 14th ed., vol. 1 (London: Sweet & Maxwell, 2006) at
2-001 to 2-045). This characterization must be performed since different
choice of law rules have been developed for different legal categories. For
example, characterization of the issue as tortious versus contractual will result
in the application of a different conflicts rule and may result in a different
outcome as to which jurisdiction’s substantive law governs.
[17]
Once
the issue is characterized as belonging to a particular legal category, the
court must then determine what choice of law rule applies to that particular
category (Castel & Walker at § 3.1). Application of the choice of law rule
should indicate which jurisdiction’s law should apply to this particular
matter.
[18]
After
the appropriate law is selected using Canadian choice of law rules, the court
will then apply that law to the issue. In general, foreign law must be
specifically pleaded and proved to the satisfaction of the court (Castel &
Walker at § 7.1; Dicey, Morris & Collins at Rule 18(1)). If the foreign
law is not pleaded or is insufficiently proved, the court will apply the law of
the forum (Castel & Walker at § 7.4).
Characterisation of the
issue and choice of law in the “Lanner” transactions
[19]
Since
there is no statutory or treaty rule mandating a particular choice of law rule,
I first must characterise the issue at bar. Prior to doing this, it is helpful
to review the nature of maritime liens.
[20]
The
maritime lien is “a true, substantive right in the property of another […], a
subtraction from the ship owner’s absolute ownership” (W. Tetley, International
Maritime and Admiralty Law (Montreal: Blais, 2002) at 482).
It is an ancient creature of the lex maritima and has no equivalent in
the common law (W. Tetley, Maritime Liens and Claims, 2nd ed.
(Montreal: Blais, 1998) at 60). This secured, in rem right against the
vessel:
arises without
registration or other formality when debts of a specific nature are incurred by
or on behalf of a ship. The lien creates a charge which “goes with the ship
everywhere, even in the hands of a purchaser for value without notice, and has
a certain ranking with other maritime liens, all of which take precedence over mortgages”
(The Tolten, [1946] P. 135 (C.A.), per Scott L.J., at p. 150).
It may be described, in that sense, as a “secret lien”.
Holt
Cargo at paragraph 26.
Furthermore, a maritime lien arises by
operation of law, rather than from tort or contract (Imperial Oil at
paragraph 26; see also Ventura Packers, Inc. v. FN Jeanine Kathleen, 305
F.3d 913 (9th Cir. 2002)).
[21]
As
noted by Justice Binnie in Holt Cargo, the reason for the privileged
status of maritime liens is practical (at paragraph 27):
The ship may sail under
a flag of convenience. Its owners may be difficult to ascertain in a web of
corporate relationships […]. Merchant seamen will not work the vessel unless
their wages constitute a high priority against the ship. The same is true of
others whose work or supplies are essential to the continued voyage. The
Master may be embarrassed for lack of funds, but the ship itself is assumed to
be worth something and is readily available to provide a measure of security.
Reliance on that security was and is vital to maritime commerce. Uncertainty
would undermine confidence.
[22]
While
Canadian law does not afford a maritime lien for the supply of necessaries,
other jurisdictions do, including the United States and France (Tetley, Maritime
Liens and Claims at 551). ‘Necessaries’ include repairs, supplies, towage,
and the use of dry docks and marine railways (Tetley, International Maritime
and Admiralty Law at 483).
[23]
The
United
States
has statutorily recognized a general maritime lien for necessaries since the
adoption of the Ship Mortgage Act in 1920 (Tetley, Maritime Liens and
Claims at 77). As mentioned above, the current legislation governing
necessaries liens is the U.S. Commercial Instruments and Maritime
Liens Act, 46 U.S.C. § 31301-31343 (1994). These liens arise at the moment
of supply to the vessel (Tetley, Maritime Liens and Claims at 596).
[24]
One
need only look at the facts of this case to see that maritime transactions may
involve a multitude of jurisdictions. As acknowledged by Justice Stone in Imperial
Oil, “it is not unusual in the marine shipping industry for fuel to
be supplied to a vessel under a contract between parties located in several
countries, negotiated in one country and performed in another sometimes by a
person who was not a party to the original contract” (at paragraph 22). While I
recognize that maritime liens are in rem rights, which arise by
operation of law and not from contract, I believe that the choice of law clause
in the supply contracts should generally govern maritime transactions,
including the rights which may arise from these transactions. The Supreme
Court of Canada has suggested that the principles of comity, order, and
fairness should guide the determination of conflict of laws issues (Spar
Aerospace Ltd. v. American Mobile Satellite Corp., [2002] 4 S.C.R. 205 at
paragraph 21). While the principles of comity and fairness will often be equivocal
in the case of maritime transactions, giving greater weight to proper law of
the supply contract would pay respect to the notion of ‘order.’ This would
encourage certainty and predictability in maritime transactions of a
jurisdictionally diverse character.
[25]
The
common law contractual choice of law rules provide that where there is an
express or implied choice of law by the parties to the contract, this law will
normally govern the contract and legal rights and obligations generated by the
contract (Drew Brown Ltd. v. Orient Trader (The), [1974] S.C.R. 1286 at
1288, 1314 & 1318; The Federal Calumet at 253; Richardson at
paragraph 28). Absent an express or implied choice of law by the parties, the
proper law of the contract is determined by assessing which jurisdiction has
the closest and most substantial connection (The Federal Calumet at 253;
Imperial Life Assurance Co. of Canada v. Colemenares, [1967] S.C.R. 443
at 448 [Imperial Life]).
[26]
While
the contractual choice of law clause in the contract should dictate the proper
law of the maritime transaction, I acknowledge that maritime liens are extra-contractual
rights. Therefore, I do not foreclose the possibility that, where a maritime
transaction is so strongly connected to a jurisdiction, this jurisdiction’s
substantive law, rather than the choice of law clause in the contract, should
govern the transaction. In Imperial Oil, Justice Stone held that
the U.S. choice of law clause in the supply contract did not govern the
transaction since the place of vessel registration, the residences of the ship
owner and charterer, and the place of supply delivery were all in Canada. Justice
Stone also suggested that the flag state of the vessel and the residence of the
supplier were significant factors in determining which jurisdiction had the
closest and most substantial connection to the transaction.
[27]
In
assessing the proper law to apply to the transactions at issue, Prothonotary
Morneau summarized the relevant connecting factors in a table. I reproduce
this table, with some modifications, below. In all cases, the vessel’s flag state and
the vessel owner’s country of residence is Liberia. The vessel’s base of operations and the
vessel manager’s country of residence is Greece.
|
Appellant
|
Appellant’s Country of Residence
|
Supplier’s Country of Residence
|
Location of Supply
|
Choice of law in Supply Contract
|
|
Kent Trade
|
British Virgin
Islands
|
Canada
|
Canada
|
U.S.A.
|
|
Unknown
|
Spain
|
U.S.A.
|
|
Praxis Energy
|
British Virgin Islands
|
England
|
Pointe-à-Pierre,
Trinidad
|
U.S.A.
|
|
CP3500
|
Cyprus
|
Singapore
|
Singapore
|
Washington State
(arbitration agreement)
|
[28]
It
is evident that U.S. law has been explicitly chosen to govern the
Kent Trade and Praxis Energy supply contracts. However, the Priorities Appeal
judge found that the choice of law in the contracts did not dictate that
American law applied due to insufficient evidence that the vessel’s owner was
personally liable under this contract.
[29]
Without
deciding whether personal liability of the owner is necessary for the choice of
law clause to be determinative of the proper law, I find that the Priorities
Appeal judge made a palpable and overriding error in holding that a contractual
link between the appellants and the vessel’s owner was not established by the
evidence. It is uncontested by the respondents that the management agreement
between the vessel’s owner and its manager was part of the record at the
Priorities Appeal. This agreement states that the manager, Arrow, had the
authority on behalf of the owner to do all things necessary for the management
of the vessel, including the arrangement of bunker fuel and lubrication oil
contracts. Furthermore, all invoices of the appellants were addressed directly
to Arrow, as manager of the vessel. As a result, a contractual link has been
established between the owner and the appellants.
[30]
Therefore,
even if personal liability of the ship owner is a necessary element of the
choice of law rule, the proper law of the Kent Trade and Praxis contracts,
based on choice of law rules, is American law.
[31]
In
the CP3500 contract, there is no explicit choice of law clause; however, there
is an arbitration clause stating that any arbitration between the parties is to
be decided in accordance with the law of the State of Washington. Even where
an arbitration clause only selects the forum of the arbitration, British and
Canadian courts normally take this clause as indicative of the proper law of
the contract (see e.g. Richardson at paragraphs 34-35; Compagnie
Tunisienne de Navigation S.A. v. Compagnie d’Armement Maritime S.A., [1970] 2 Lloyd’s Rep.
(H.L.)). On this basis, I find that the proper law of the CP3500 supply contract
is American law.
[32]
Since
the contractual choice of law clause should normally govern and there are no
other factors, or combinations of factors, which indicate that another
jurisdiction has a closer or more substantial connection to the maritime
transactions at hand, I disagree with the decisions below and conclude that American
law is the appropriate law to apply in this case.
Application of American
law
[33]
While
Justice Gauthier did not believe American law governed the transactions at
issue, she proceeded on the basis that it did and found that, based on the
expert testimony, American law would not grant maritime liens in the
circumstances of this case. The appellants and the respondents differ as to
the appropriate standard of review to apply where the trial judge has determined
the content of foreign law. It is not contested by either party that foreign
law is treated as a question of fact (Hunt v. T&N plc, [1993] 4
S.C.R. 289 at 306) which must be specifically pleaded by the party relying upon
it and proved to the satisfaction of the court (Castel & Walker at §
7.1). However, as noted by the English Divisional Court in Parkasho v.
Singh, [1967] 1 All E.R. 737 at 746 (approved by the English Court of
Appeal in Bumper Development Corp. v. Commissioner of Police of the Metropolis,
[1991] 4 All E.R. 638 at 645 [Bumper Development]), findings of foreign
law are “a question of fact of a peculiar kind.” The Ontario Court of Appeal
has recently recognized the unique position of an appellate court in reviewing
these findings of fact and held that they were reviewable on a standard of
correctness (General Motors Acceptance Corp. of Canada v. Town and Country
Chrysler Ltd. (2007), 88 O.R. (3d) 666, 2007 ONCA 904 at paragraphs 35-36).
[34]
This
issue does not have to be resolved in the present case since fresh evidence has
been admitted in the way of supplemental affidavits from the appellants’ and
respondents’ expert witnesses (Order of Décary J, November 6, 2007; Order of
Noël J, July 10, 2008). In light of the new evidence submitted prior to this appeal,
I must assess whether U.S. law would grant a maritime lien for
necessaries in any or all of the four transactions at issue.
[35]
Before
discussing the expert testimony as to the content of U.S. law, it is
helpful to discuss the role of expert witnesses, both in general and in the
context of proving foreign law. As recognized by the English Court of Appeal
in The General Medical Council v. Professor Sir Roy Meadow et
al.,
[2006] E.W.C.A. Civ. 1390, the duties and responsibilities of expert witnesses
in civil cases include the following (citations omitted):
1. Expert evidence
presented to the court should be, and should be seen to be, the independent
product of the expert uninfluenced as to form or content by the exigencies of
litigation.
2. An expert witness should
provide independent assistance to the court by way of objective unbiased
opinion in relation to matters within his expertise. An expert witness […]
should never assume the role of an advocate.
3. An expert witness should
state the facts or assumption upon which his opinion is based. He should not
omit to consider material facts which could detract from his concluded opinion.
4. An expert witness should
make it clear when a particular question or issue falls outside his expertise.
5. […]
6. If, after exchange of
reports, an expert witness changes his view on a material matter having read
the other side's expert's report or for any other reason, such change of view
should be communicated (through legal representatives) to the other side
without delay and when appropriate to the court.
[36]
While,
in general, both Mr. de Klerk (the expert witness for the appellants) and Mr.
Juska (the expert witness for the respondents) provided helpful evidence, I
feel it necessary to express my disapproval at the speculative and
argumentative nature of some of the testimony given by Mr. de Klerk. An expert
witness is entitled to give his opinion as to whether a judicial decision is
inconsistent with binding authority or the general state of the law; however, it
will generally be inappropriate for expert witnesses to comment on the
likelihood of a decision being upheld or reversed on appeal.
[37]
As
for the substance of the expert testimony, it appears that there is a
divergence in the U.S. District Courts and Circuit Courts of Appeal as to
whether a maritime lien would be established where a non-U.S. supplier has
provided necessaries to a foreign vessel in a foreign port. The English Court
of Appeal has suggested that it is “the duty of the judge when faced with
conflicting evidence from witnesses about a foreign law to resolve those
differences in the same way as he must in the case of other conflicting
evidence as to facts” (Bumper Development at 644). This is also the
approach taken in Re Duke of Wellington, [1947] Ch. 506 and Breen v.
Breen, [1961]
3 All E.R. 225. Determining the law of a foreign jurisdiction when such law
is unsettled presents a difficult task for a court. Therefore, I note that my
findings on U.S. law are based only on the affidavits and exhibits presented
before the Court, since it is generally inappropriate for a court to conduct
its own investigation into the foreign law (see Bumper Development at
644; Castel & Walker at § 7.3; Dicey, Morris & Collins at 262).
[38]
Very
few decisions were presented that addressed similar circumstances to those at
issue in this case: namely, would U.S. courts recognize a
maritime lien where a foreign supplier provided necessaries to a foreign ship
in a foreign port.
[39]
For
the proposition that the U.S. Maritime Liens Act does not apply to
foreign suppliers providing necessaries to foreign vessels in a foreign port,
Mr. Juska cites the decision from the Court of Appeals for the 11th
Circuit in Trinidad
Foundry & Fabricating Ltd. v. M/V K.A.S. Camilla, 966 F.2d 613 (11th
Cir. 1992). In this case, a Trinidad corporation had provided a
Norwegian-flagged ship with certain necessaries and performed repairs on the
foreign-owned vessel while docked at Trinidad. The repair contract provided
that English law would govern all aspects of the supply and repair agreement.
After the vessel’s owners failed to pay the outstanding balance on the repair
contract, the supplier brought an action in rem against the vessel and in
personam against the ship’s owners. The issue before the district court
and at appeal was whether the court had jurisdiction over the matter. U.S. courts have in rem
jurisdiction to enforce a maritime lien or whenever a U.S. statute provides for a
maritime action in rem or analogous proceeding. The supplier argued, inter
alia, that § 31342 of the U.S.
Maritime Liens Act recognized a maritime lien in the circumstances and
thus allowed the court to have in rem jurisdiction. The court rejected
that argument on two bases: firstly, it held that § 31342 does not provide for
a lien for supplies provided by a foreign supplier to foreign flag vessels in
foreign ports (at 617); and secondly, that § 31342 is not even applicable to
this case since the contract had stipulated that English law governs.
[40]
Similar holdings were made in two other cases cited by Mr.
Juska. In Metron Communications, Inc. v. MN Tropicana, 1993 A.M.C. 1264
(S.D. Fla. 1992), the court declined to recognize the existence of a lien where
a Danish corporation provided various services to a Bahamian-registered vessel
docked in a foreign port. Furthermore, in Swedish Telecom Radio v. M/V
Discovery I, 712 F. Supp. 1542 (S.D. Fla. 1988), the District Court commented
that:
[o]n its face, the statute appears to apply to
any person or entity regardless of nationality or the location at which the
goods were supplied or the services performed. However, the courts interpreting
the statute have provided a narrower scope. See Tramp Oil and Marine Ltd. v.
M/V Mermaid I, 805 F.2d 42 (1st Cir. 1986); Gulf
Trading, 658 F.2d at 367. “The primary concern of the Federal Maritime Lien
Act is the protection of American suppliers of goods and services.” Tramp
Oil, 805 F.2d at 46 (citing the Congressional reports which accompanied the
enactment of 1971 amendments to the Act). (at 1545)
[41]
The
first supplemental affidavit of Mr. Juska referenced a more recent case that
was decided by the District Court of Maryland. In Triton Marine Fuels Ltd.,
S.A. et al. v. M/V Pacific Chukotka, et al., 504 F. Supp. 2d 68 (D.C. Md.
2007) [Triton], a Maltese-registered vessel was owned by a Norwegian
corporation, bareboat chartered to a Russian company, and sub-chartered to a
U.S.-owned Cayman Islands corporation that had its principal place of business
in Seattle. The claimant, a Panamanian corporation, arranged through its
Canadian agent to supply the vessel with fuel in the Ukraine. The supply contract
contained a clause stating that the law of the United States governed the agreement.
The vessel’s owner moved for summary judgment on the basis that, even if the
choice of law provision was enforceable, the U.S. legislation would not create a maritime lien in
the circumstances at issue. The district court agreed that, as a matter of
law, no maritime lien for necessaries existed. In coming to its decision, the
court found that there were no policy reasons that would justify “the assertion
of United States law against the commandments of the laws of other nations that
do not recognize maritime liens for necessaries” (at 73).
[42]
Following
the decision in Triton, the Court of Appeals for the Ninth Circuit
released its decision in Trans-Tec Asia v. M/V Harmony Container et al.,
518 F.3d 1120 (9th Cir. 2008) [Trans-Tec]. The District
Court’s decision in this case had been cited by Mr. Juska in his first
supplemental affidavit for the proposition that, even where the supply contract
stipulated the application of American law, a foreign supplier would not obtain
a lien for necessaries provided to a foreign vessel in a foreign port.
However, following the submission of this affidavit, the Court of Appeals
reversed the District Court’s decision. This was brought to the attention of
this Court in the second supplemental affidavit of Mr. de Klerk.
[43]
In
Trans-Tec, a Malaysian-owned and flagged vessel, which was
chartered to a Taiwanese corporation, was provided with fuel bunkers by a
Singaporean corporation while docked in Korea. There was
a provision in the supply contract that indicated U.S. law was to
govern the transaction. After the supplier did not receive full payment for
the bunkers, it filed suit in California, asserting a maritime
lien against the vessel. The Court of Appeals relied on the plain language of
the statute to find that there was no restriction on the nationality of the
supplier or vessel, or on the location of the port of supply. The Court also
looked at the Congressional history to support that the Maritime Liens Act
was not restricted to American suppliers.
[44]
The
respondent in Trans-Tec argued that there is a presumption against
extraterritoriality in Congressional legislation. The Court of Appeals disagreed,
holding that admiralty law is extraterritorial by nature and since the parties
to the supply contract had chosen American law, the application of American law
would not interfere with the sovereignty of other nations. Addressing the
decision in Trinidad, the court noted that its analysis of the Maritime
Liens Act was skeletal, since the Eleventh Circuit had already decided that
English law applied to the transaction. Furthermore, since American law did
not apply in this case, the Court’s pronouncement that the Maritime Liens
Act did not grant a lien where the ship, port, and supplier were foreign was
mere dicta. The Court also found Swedish Telecom to be
unpersuasive on this basis, since the court had determined that Swedish law
applied to the transaction.
[45]
It
is Mr. Juska’s opinion that Trans-Tec was wrongly decided and he states
that he has been advised by counsel for the vessel owner that the Court of
Appeals decision will be appealed to the U.S. Supreme Court. Trans-Tec
is the only U.S. Court of Appeals case decided on much the same facts as the
four transactions at issue; namely, a foreign-flagged vessel, owned and
operated by non-American entities, docked at a non-U.S. port, being provided
with supplies by a non-U.S. company under a supply contract governed by U.S. law. I
acknowledge Mr. Juska’s assertion, supported by several U.S. Supreme Court
decisions, that Trans-Tec contradicts the long-established U.S. legal
principle that, absent a contrary intent, Congressional legislation does not
apply extraterritorially. However, I also note that the Ninth Circuit dealt
with this argument and dismissed it.
[46]
Although
I recognize that a decision of one Circuit’s Court of Appeals is not considered
binding precedent on the decisions of other Circuits, Trans-Tec is the
latest expression of the law from a U.S. appellate court.
Therefore, based on the expert evidence before us, I am satisfied that U.S. law would
recognize a maritime lien for necessaries where, under a supply contract
governed by U.S. law, a
foreign supplier provides goods or services to foreign vessels in a foreign
port.
[47]
There
is no aspect relating to any of the four transactions that would serve to
distinguish the circumstances at issue from those related in Trans-Tec.
Consequently, I conclude that the three appellants have proven to my
satisfaction that they each have a maritime lien against the “Lanner.”
Disposition
[48]
The
appeal will be allowed and the following amounts will be ordered to be paid
from the balance of the proceeds of the judicial sale of the vessel:
1) the sum of
$415,688.70 in capital to Kent Trade and Finance Inc. with interest to be
calculated at the rate stipulated in the supply contract;
2) the sum of
$225,599.23 in capital to Praxis Energies Agents S.A. with interest to be
calculated at the rate stipulated in the supply contract; and
3) the sum of
$6,257.25 in capital to CP3500 International Limited with interest to be
calculated at the rate stipulated in the supply contract.
[49]
Costs
will be granted to the appellants both in the Federal Court and in this Court.
"J. Richard"
“I agree
C. Michael Ryer J.A.”
PELLETIER J.A. (Dissenting)
[50]
I
have read the decision of the Chief Justice, and for the reasons which follow,
I find that I am unable to agree.
[51]
In
my view, there are two issues in this appeal. First, what is the effect to be
given to the choice of law clause which appears in a different form in each of
the contracts in question? Second, what is the effect to be given to Commercial
Instruments and Maritime Liens Act, 46 U.S.C. §31342 (1994) (the
Act)?
[52]
Assuming
for the purposes of argument that the interpretation of the contracts in
question is subject to United States law, and that the proper construction of
the contracts brings the Act into play, one is then left with the fact that the
application of the Act is a function of the U.S. Court of Appeals circuit in
which a vessel is arrested and sold. If the vessel is arrested and sold within
the jurisdiction of the Ninth Circuit, then the effect of the Act is to confer
a maritime lien on a foreign supplier of necessaries to a foreign ship in a
foreign port: see Trans-Tec Asia v. M/V Harmony Container, 518 F.3d 1120
(9th Cir. Mar. 11, 2008) [Trans-Tec]; paragraph 4 of Mr. Juska's Second
Supplemental Affidavit at page 441 of the Supplemental Appeal Book. If, on the
other hand, a vessel is seized and sold in a port falling within the
jurisdiction of the Eleventh Circuit, a maritime lien will not be found to
exist as a result of supply to a foreign ship in a foreign port by a foreign
supplier by virtue of that Court's decision in Trinidad Foundry and
Fabricating Ltd. v. M/V K.A.S. Camilla, 966 F. 2d 613 (11th Cir. 1992) (Trinidad
Foundry). Since the decision of one circuit of the U.S. Federal Court of
Appeals does not overrule the decision of another circuit of the same court,
both decisions are good law within the geographical limits of the circuit in
which they were decided. Both experts agreed that the U. S. Supreme Court has
not yet considered this question so that there is no decision binding on all U.S. courts on this
question.
[53]
The
present case involves a ship which was arrested and sold outside the United States, so that the
transaction is not one which falls within the geographical jurisdiction of any
of the circuits of the U.S. Federal Court of Appeals. Consequently, insofar as
Kent Trade and Finance Inc. and Praxis Energy Agents S.A are concerned, there
is no basis for preferring the jurisprudence of one circuit of the U.S. Federal
Court of Appeals over another.
[54]
This
is not a case of a court being forced to choose between conflicting affidavits
as to the state of the law of a foreign jurisdiction. It is clear that, in such
a case, the court must reach a conclusion on the state of foreign law in spite
of the conflict between the experts:
It is well settled that
a court faced with conflicting opinions as to foreign law is bound to make its
own decision as to that law. This is apparent from these passages from two
authorities:
(1) It is therefore
incumbent upon him to prove the law of the State of Washington. This he must prove as
matter of fact by the evidence of persons who are expert in that law… and it is
settled law that if the evidence of such witnesses is conflicting or obscure
the Court may go a step further and examine and construe the passages cited for
itself in order to arrive at a satisfactory conclusion…
Allen v. Hay (1922), 64 S.C.R. 76 at
80-81, Duff J.
(2) As I understand the
law of England… when you come to statute law itself, although it is right that prima
facie what must be considered is the evidence of the experts and not the
text of the law, when the experts differ as to its meaning an English court is
entitled and, if it is to perform its function properly, is, indeed, bound, to
apply its own mind, fortified by the opinion of the witnesses and giving what
weight it thinks ought to be given to it, to the text itself and to examine it
in order to make up its mind on the question of interpretation as between the
two sets of witnesses.
Rouyer Guillet & Cie.
v. Royer Guillet & Co., [1949] All E.R. 244 (C.A.) at 244, Lord Greene M.R.
[Sarabia v. Oceanic
Mindoro (1996), [1997] 2 W.W.R. 116 at para. 11 (B.C.C.A).]
[55]
In
this case, while there is a conflict between the opinions of the experts, there
is no dispute between them as to the state of the law within the geographical
jurisdiction of those circuits of the United States Court of Appeals which have
pronounced themselves on the interpretation of the Act. The Ninth Circuit has
ruled one way, the Eleventh Circuit has ruled another. Thus, the law to be
applied would normally be a function of the circuit in which it is to be
applied. As a result, the state of the law depends upon a fact which is absent
here, namely the presence of the arrested vessel in a port within the
geographical jurisdiction of one or the other of the circuits of the United
States Court of Appeals. Given that Trinidad Foundry, which ruled
against the availability of a maritime lien in the case of foreign suppliers to
a foreign ship in a foreign port, was decided in 1992, the parties who wished
to take the benefit of the Act could have stipulated the place at which U. S.
law was to be determined, and therefore the governing jurisprudence, as CP 3500
International Ltd. did in its contract (see paragraph 14 of Mr. de Klerk's
affidavit dated October 28, 2004).
[56]
In
the result, the proof of foreign law fails, not because of the conflicting
opinions of the experts, but because the state of the law with respect to
maritime liens is, at present, determined by the circuit in which the arrest
and sale of the ship occurs. Had the arrest and sale occurred at a U.S. port, the jurisprudence
of the Court of Appeals for that circuit would have been applied and the matter
resolved. Where the arrest and sale occur outside the United States, and no tie to any
particular circuit is proven, then the U. S. law applicable to that transaction has not been
proven.
[57]
Where
there is no proof of foreign law, the lex fori, the law of Canada,
applies: see Canadian Conflict of Laws, 6th ed., loose-leaf, vol. 1 (Markham: LexisNexis, 2005) at
§7.4, where Castel and Walker write:
If foreign law is not pleaded or, if pleaded, it
is not proved or is insufficiently proved, the court will apply the lex fori.
It was
once said that in the absence of proof the court would presume the foreign law
to be the same as the lex fori, but it is better to say that in all
cases where foreign law is not proved, the lex fori prevails as it is
the only law available…
[Emphasis
added.]
[58]
The
law of Canada does not recognize a
maritime lien for the supply of necessaries to a vessel so that the claims of
Kent Trade and Finance Ltd. and Praxis Energy Agents S.A. to priority over the
claims of the ship's mortgagees should be dismissed.
[59]
The
situation of CP3500 International Ltd. is different in that its choice of law
clause provides for arbitration under the laws of the State of Washington. At paragraph 14 of his
affidavit dated October 28, 2004, Mr. de Klerk states that Washington State Law
would include the law of the United States. Since Washington is in the Ninth Circuit, the law to be applied would
be the law as stated by the Ninth Circuit of the U.S. Federal Court of Appeals
in Trans-Tec. Given the connection with the Ninth Circuit, I would apply
the interpretation of the Act adopted by the United States Court of Appeals for
that circuit and allow CP 3500 International Ltd.'s claim for a maritime lien.
[60]
In
the result, I would dismiss the appeals of Kent Trade and Finance Inc. and
Praxis Energy Agents S.A. with costs and allow the appeal of CP 3500
International Ltd. with costs.
"J.D. Denis Pelletier"
Email this Content