[1] This is an appeal from a judgment of Dubé J. ("the Trial Judge") dated February 2^nd, 2001, as amended on February 20^th, 2001. Richardson International Ltd. ("Richardson") arrested the vessel Mys Chikhacheva owned by Bering Trawlers Ltd. ("Bering"), at Nanaimo, British Columbia on October 13, 1998 by virtue of a warrant arising from a maritime lien for necessaries. The Trial Judge held that Bering owned the vessel, that the proper law of the contract governing the provision of necessaries was American law, and that Richardson was entitled to a maritime lien and judgment against the vessel.

[2] A maritime lien has been defined as a secured right peculiar to maritime law. It is a privilege against a vessel which attaches and gains priority without any court action or any deed or any registration. It passes with the vessel when the vessel is sold to another owner, who may not know of the existence of the lien. In this sense the maritime lien is a secret lien which has no equivalent in the common law; rather, it fulfils the concept of a "privilege" under the civil law and the lex mercatoria (see Tetley, Maritime Liens and Claims, 2^nd ed. (Montreal: Blais, 1998) at 59-60)).

[3] Maritime liens for necessaries are not recognized under Canadian law (see Mount Royal/ Walsh Inc. v. "Jensen Star" (The), [1990] 1 F.C. 199), but are provided for in American maritime law. Generally speaking, a lien for necessaries will arise where a supplier has, on the order of the owner or person authorized by the owner, provided an item to a vessel which is reasonably necessary for the vessel to perform its business. Such items explicitly include repairs, supplies, towage, and use of a dry dock or marine railway: 46 U.S.C.A. 31301(4). The list has been extended by case law to include those items reasonably needed in the ship's business.

FACTS

[4] A detailed understanding of the facts as determined by the Trial Judge is essential in order to dispose of this appeal.

[5] Richardson is a corporation incorporated under the laws of the State of Washington, one of the United States of America, and carries on the business of purchasing and marketing fish products on a worldwide basis. As early as 1988-89, Richardson began purchasing fish from the Polish fishing fleet operating in the Sea of Okhotsk. In 1989-90, Lynn Richardson, the chief executive officer of Richardson, travelled to Moscow and Vladivostok to arrange logistical support for the Polish fishers. Later, Richardson began to have contacts with Russian fishing enterprises in the Far East, some of which were collective enterprises originally established in the Soviet period.

[6] As its business expanded, Richardson began to explore commercial activities with Russian fishers, hoping to find a Russian fishing enterprise with a processing vessel capable of producing a sufficient quantity and quality of fish product to meet its standards. In exchange for marketing rights to fish products, Richardson intended to provide the eventual Russian fishing collective with management services or financing for vessel improvements and operations, or both.

[7] Bering is the owner of the ship Mys Chikhacheva, which is the subject of these proceedings, and itself is owned by the Sakhalin Union of Fishing Collectives ("the Union"). The Union has some 10,000 members, including ZAO RPK Starodubskoe ("Starodubskoe"), a corporation formed under the laws of Russia, and also owns a number of organizations including Bering. The Union carries on general marketing activities, and provides technical advice on the operations of vessels, as well as legal services and government relations.

[8] In late 1994, Ms. Richardson was introduced to V. Moukhin, the general director of Starodubskoe which operated 15 fishing vessels, including the Yuzhnie Kurily, a factory processing vessel, and two trawlers, the Mys Chikhacheva and the Mys Slepikovskogo. In January 1995, Ms. Richardson again went to Russia and was shown certificates of ownership for the three vessels indicating that they were all owned by Kotovsky, Starodubskoe's corporate predecessor. Mr. Moukhin provided Ms. Richardson with a copy of an official document relating to the change of name from Kotovsky to Starodubskoe and an English translation.

[9] Richardson agreed to lend up to US$4,000,000 to Starodubskoe ("the Refit Loan") for the purpose of refitting the Yuzhnie Kurily so that this vessel could process fish products which met both North American and Western European standards. Richardson was to have the exclusive right to market the products of the three vessels until the debt for the conversion of the Yuzhnie Kurily was repaid, and thereafter until the arrangement was terminated by one of the parties. This arrangement was reflected in a group of documents ("the Security Package") executed in English and Russian in October of 1995, consisting of a mortgage on the Yuzhnie Kurily, a promissory note, a marketing agreement ("the Marketing Contract"), and addenda to each of these documents.

[10] Richardson did not intend to profit from the loan in isolation from its other transactions with Starodubskoe. Richardson borrowed funds from the U.S. Bank of Washington at 1.5% over the prime rate, and in turn lent those funds at the same rate to Starodubskoe. The promissory note stipulated that all payments under the mortgage and promissory note were to made in United States currency at Richardson's civic address in Bellevue, Washington.

[11] The documents comprising the Security Package were originally drawn by Richardson's American lawyers, but were amended by non-legal personnel of Starodubskoe and Richardson during the give and take of their negotiations. Key to the issue of the existence of a maritime lien in this appeal are certain provisions in the Security Package documents. For example:

a. A mortgage of the Yuznhie Kurily granted to Richardson by Starodubskoe ("the mortgage"), the relevant portions of which read as follows:

RECITALS

...

B. The Loan Agreement. The Mortgagee [Richardson] has agreed to make a loan to the Owner [Starodubskoe] in an amount not to exceed [US$4,000,000.00] (the "Loan"), which is evidenced by a promissory note of even date herewith (the "Note"). The Loan may be advanced in one or more installments, may be subject to repayment and subsequent relending, and may be less than the above-indicated amount, but in all cases the Loan shall be evidenced by the Note.

C. Purpose of the Mortgage. The purpose of this Mortgage is to secure the Mortgagee's interest under the Note and in respect of the Loan. ...

COVENANTS, TERMS, AND CONDITIONS

1. Promise to Comply. The Owner shall pay the indebtedness evidenced by the Note, the Loan and this Mortgage with interest and shall observe, perform, and comply with each and every one of the covenants, terms, and conditions in the Note and this Mortgage, express or implied. The Note is incorporated herein by reference. In the event of any conflict or inconsistency between the terms of this Mortgage and the terms of the Note, the terms of the Note shall control.

...

4. Perfection of Mortgage. The Owner [Starodubskoe] shall comply with and satisfy at its cost all the provisions of the laws of Russia in order to establish, perfect, and maintain this Mortgage as a first preferred mortgage on the Vessel and on all additions, improvements, and replacements made in or to it.

...

5.3 Vessel Registration. The Vessel is and shall remain registered or documented under the laws of Russia. Owner represents and warrants that the Vessel is not presently registered or documented in any other jurisdiction. The Owner shall maintain the Vessel's documents under the laws of Russia and comply with all the provisions of the laws of Russia for operation in the Russian fisheries.

14. Recording of Instruments; Other Security. ... This Mortgage shall not prevent Mortgagee from asserting any maritime lien rights it may otherwise have in respect of the Vessel as a result of payments it makes to the shipyard undertaking work on the Vessel and shall not otherwise displace or otherwise effect [sic] such lien rights, even if the sums which give rise to such maritime lien rights are also the subject of this mortgage.

...

19.2. Foreclosure. The Mortgagee may exercise all the rights and remedies of foreclosure and otherwise given to mortgagees by the laws of Russia, and by the laws of other jurisdictions, to the extent necessary and desirable.

...

19.6. Remedies Under Law. The Mortgagee may exercise any and all remedies available to the Mortgagee under the laws of the Russian Federation, and the Uniform Commercial Code of the State of Washington and other laws of United States.

...

27. Governing Law. To the extent not governed by the laws of Russia, the Mortgage shall in all respects be governed by and construed in accordance with the laws of the State of Washington. The Owner irrevocably submits to the nonexclusive jurisdiction of the state and federal courts situated in King County, Washington in any proceeding relating to this Mortgage and agree that any process or summons in any such action may be served by mailing to Owner a copy thereof. As used in this Section 27, "the laws of the State of Washington" include all laws of the State of Washington except the conflicts of laws principles, it being the intent that the substantive laws of Washington shall always apply.

b. A promissory note from Starodubskoe to Richardson, incorporated by reference in the Mortgage, the last paragraph of which reads as follows:

The provisions of the Marketing Agreement that concern dispute resolution, including, without limitation, arbitration and the exceptions thereto, and governing law are incorporated by this reference.

c. The Marketing Contract made in favour of Richardson, in which the arbitration clause reads as follows:

IX. ARBITRATION

Any dispute which might arise from or in relation to this contract, if not settled by negotiations, shall be settled by arbitration in accordance with UNCITRAL arbitration rules presently in force.

Place of arbitration shall be Seattle, Washington USA, the appointing authority shall be the President of Chamber of Commerce in Seattle. The number of arbitrators shall be three (3) and the language used for all documents and proceedings shall be English. Parties desire to execute the award of arbitration voluntarily. Court of arbitration shall base its award on the respective contract.

[12] The refit of the Yuzhnie Kurily was completed in Korea in February of 1996 at a cost of over US$2.9 million, and was paid with advances from Richardson under the Refit Loan. When the three vessels began fishing in the Sea of Okhotsk in early 1996, Starodubskoe orally requested that Richardson supply fuel and provisions and Richardson agreed. Amounts paid out by Richardson for these supplies were added to the indebtedness under the mortgage, as were amounts paid by Richardson pursuant to the Marketing Contract for the costs of fish processing machine technicians ("Baader Technicians") required for the vessels. These expenditures made by Richardson for the benefit of Starodubskoe ultimately gave rise to the maritime lien at issue in this appeal.

[13] While Richardson was supplying the three vessels in the early spring of 1996, Starodubskoe was selling the product from the vessels to third parties in violation of the Marketing Contract, specifically the provisions of the addendum to that contract, which provided for the assignment of all product of the ship to Richardson as security for the Refit Loan. Richardson protested the breaches of the Marketing Contract but further transhipments nonetheless continued to third parties as well as to Richardson. Finally, Starodubskoe sent a fax in May of 1996 purporting to terminate its relationship with Richardson.

[14] On September 6, 1996, Starodubskoe signed an acknowledgment of "global indebtedness" to Richardson in the amount of US$1,828,728.40, but it was never paid. Richardson and Starodubskoe both eventually entered forms of bankruptcy in their respective countries. In October of 1997, Starodubskoe's arbitration manager, a form of trustee, confirmed in a written acknowledgment that the debt to Richardson then stood at US$2,206,344, but nothing was paid to Richardson by or on behalf of Starodubskoe. Included in the total accounts that Richardson rendered to Starodubskoe were accounts in respect of the vessel Mys Chikhacheva for the following amounts:

a. Invoices for fuel supplied to the vessel in a total amount of:	$247,017.15
b. Reimbursement to [Richardson] for the cost of Baader Technicians including travel expenses:	$28, 916.74
c. Invoices for provisions supplied to the vessels:	$17.510.02
d. In respect of commissions on account of product transhipped from the Mys Chikhacheva:	$29,678.41
TOTAL	$323,122.32

a. Invoices for fuel supplied to the vessel in a total amount of:

$247,017.15

b. Reimbursement to [Richardson] for the cost of Baader Technicians including travel expenses:

$28, 916.74

c. Invoices for provisions supplied to the vessels:

$17.510.02

d. In respect of commissions on account of product transhipped from the Mys Chikhacheva:

$29,678.41

TOTAL

$323,122.32

[15] Following the arrest of the Mys Chikhacheva, Richardson obtained a default judgment against Starodubskoe in the U.S. District Court at Seattle, Washington but was unable to recover on the judgment. The evidence disclosed that Starodubskoe was the bareboat charterer of the Mys Chikhacheva from Bering, the real owner of the vessel. Richardson learned of Bering for the first time at the commencement of its action, and had no prior notice of Bering's existence or its ownership of the Mys Chikhacheva.

[16] At trial, Richardson abandoned the component of its maritime lien claim for commissions in the amount of US$29,678.41. However, Dubé J. allowed Richardson's application, made during final submissions, to amend its pleadings to include a new claim for port expenses in the amount of US$43,525.93 for a total claim of US$336,969.84.

[17] Based on expert evidence provided by Richardson, the Trial Judge found that Bering was the owner of the Mys Chikhacheva, but that Richardson's maritime lien for necessaries was nonetheless valid in the amount of US$336,969.84, based on the fact that Starodubskoe was a bareboat charterer of the Mys Chikhacheva. The issues on this appeal now include the proper law of the contract for the provision of necessaries, whether a maritime lien exists, as well as questions of waiver, set-off, and the calculation of the total amount of the lien.

ISSUES

[18] The appellant raises four types of errors on the part of the Trial Judge:

a. Errors relating to determination of the proper law of the contract;

b. Errors relating to determination of whether Richardson had waived its right to a maritime lien over the Mys Chikhacheva;

c. Errors relating to requirements in the Marketing Contract that the costs of supplies and services were to be set-off against the value of fish transhipments; and

d. Errors relating to the amount awarded by the Trial Judge.

Issue 1: Errors related to determination of the proper law of the contract

[19] In its pleadings, Richardson alleged that the proper law of the contract was American, and produced an American legal expert, Russel R. Williams, to testify with respect to its laws of necessaries and maritime liens. While Bering did not plead the applicability of Russian law or produce a Russian expert, the Trial Judge correctly noted that the burden remained on Richardson to show that American law applied. The parties agreed at trial, however, that if the Canadian choice of law rules were to be applied, those rules were established by this Court in Ontario Bus Industries Inc. v. Ship "Federal Calumet", (1992), 150 N.R. 149 (FCA).

[20] Bering now asserts that the Trial Judge erred in law and fact in his conclusion that the proper law of the contract was American law. Bering argues that the proper law is that of Russia, but since it has not been proven, the applicable law is the law of Canada, applying Fernandez v. "Mercury Bell" (The), [1986] 3. F.C. 454.

[21] In particular, Bering suggests that Dubé J. erred insofar as he relied on various clauses in the Security Package to find both an express and implied choice of American law as the proper law of the contract, and that American law had the closest and most substantial connection to the contract. Bering argues that, since Richardson has admitted in its statement of claim that the necessaries were provided under the terms of the Marketing Contract and addendum, only the terms of that contract are relevant. In Bering's view, the other documents, namely, the promissory note and the mortgage, were ancillary to the Marketing Contract. It follows from this assertion that all connecting factors arising from the mortgage and promissory note must be disregarded, and that the Trial Judge's reliance on the House of Lords decision in Tomkinson v. First Pennsylvania Banking and Trust Co., [1961] A.C. 1007 pointing to the law of the lender is misplaced.

[22] Turning to the Marketing Contract, Bering notes that there is no explicit choice of law clause in that document, and, accordingly, this Court must apply the rule in "Federal Calumet", supra, and determine, with reference to all the circumstances, which law has the closest and most substantial connection to the contract. In asserting that Russian law, not American law meets this test, Bering relies on Castel, Canadian Conflict of Laws, 3^rd ed. (Toronto: Butterworths, 1994), at 561. There, the author indicates that "when the place of contracting is the same as the place of performance, the Court may find it practically impossible to apply any other law to the contract."

[23] In this case, Bering points to the nature and location of the subject matter, and the place and residence of the parties, which, in its view, indicates that Russian law is closest in connection to the contract. In particular, it stresses that:

a. All contracts were negotiated and executed in Russia;

b. The vessels harvested fish in waters off eastern Russia, in the Sea of Ohkotsk, which is surrounded on three sides by Russia;

c. The vessels sailed under the Russian flag;

d. The vessels were either owned or bareboat chartered by Russian corporations;

e. Fish transhipments were to take place either in or adjacent to Russian waters;

f. It is "implicit" that supplies and services would be likewise provided, and were in fact so provided;

g. The vessels were Russian and Polish in origin; and

h. Starodubskoe's place of residence is Russia, and Richardson carried on business in Russia (though its head office was in Washington).

[24] Bering also argues that the Trial Judge placed too much weight on the arbitration clause in the Marketing Contract. That clause indicate that the situs of the arbitration is to be Washington, the appointing authority is the President of the Seattle Chamber of Commerce, the language of the arbitration is to be English, and the arbitration is to proceed under UNCITRAL Arbitration Rules. Bering refers specifically to Rule 33, which provides that the parties themselves must choose the proper law and that, should they fail to do so, the arbitral tribunal will apply the conflict of laws rules it deems applicable. Accordingly, since the parties did not explicitly choose the proper law, Bering submits that Russian law has the closest connection to the contract, and should apply.

[25] Finally, Bering also argues that the Trial Judge erred in considering parole evidence from Lynn Richardson as to the intention of the parties when the Security Package was executed. This evidence is said to be irrelevant and self-serving, and should not have been admitted.

[26] This Court in "Federal Calumet", supra, indicated that a trial judge's determination of the proper law of a contract will be granted high levels of curial deference, being analogous to a finding of fact. In that case, Marceau J.A. stated orally:

His finding must be seen, therefore, essentially as a finding of fact which should not be overturned on appeal, since it is based on an appreciation of the circumstances from which the legal system that was most closely connected to the transaction could be inferred.

[27] I also note, however, that in the very recent decision of this Court in Imperial Oil Ltd. v. Petromar Inc., 2001 FCA 391, Stone J.A. concluded that the determination of the proper law of a contract, in a case where the parties to the litigation have proceeded on an agreed statement of facts, was a question of mixed law and fact rather than one of fact simpliciter. In this case, it is not necessary to determine whether the question of the proper law is purely factual or a question of mixed law and fact, because, in my analysis, there is no basis under either characterization for interfering with the determination made by Dubé J.

[28] The parties agree, and are correct to say, that "Federal Calumet", supra, mandates the proper process for determining the proper law of a contract. First, the Court must determine whether there is an express choice of law by the parties. If there is none, then the Court must determine whether the proper law can be inferred from the terms of the contract and the surrounding circumstances, an exercise that requires the Court to determine the system of law that has the closest and most real connection to the contract: see [1967] S.C.R. 443">Imperial Life Assurance Co. of Canada v. Colmenares, [1967] S.C.R. 443 at 448, where Ritchie J. stated as follows:

the problem of determining the proper law of a contract is to be solved by considering the contract as a whole in light of all the circumstances which surround it and applying the law with which it appears to have the closest and most substantial connection.

This approach was also approved in Imperial Oil, supra.

[29] Turning to the reasons of the learned Trial Judge, he held that there was, in fact, an express choice of American law in clause 27 of the mortgage agreement. That clause reads:

Dubé J. reached that conclusion on the basis that the supply of necessaries to the Mys Chikhacheva was carried out within a pre-existing commercial relationship arising from the Security Package. The question, then, is whether he properly considered the mortgage agreement at all.

[30] In my analysis, Dubé J. properly considered the totality of the contractual relationship between Richardson and Starodubskoe. Upon my review of the Security Package, it is clear that none of the documents provide comprehensively for the supply of necessaries to the vessels. Instead, as Richardson suggests, the supply of necessaries by Richardson to Starodubskoe appears to be a key element in ensuring the attainment of the goal behind the entirety of the Security Package, that is, the marketing of and profit from processed fish products. The Marketing Contract provides only for the provision of Baader Technicians and for a set-off for "packaging, supplies and services," and makes no specific mention of fuel or other provisions.

[31] The addendum to the Marketing Contract provides for security over the products created on the three vessels, and thus, in my view, links the Marketing Contract to the other components of the Security Package. The addendum, portions of which are handwritten, reads as follows:

It is understood that PRODUCER [Starodubskoe] is requesting RSM [Richardson] to finance and manage re-furbishing of the M/v "Yuzhnie Kurily.

RSM shall provide financing, technology and future vessel management based upon and contingent upon the PRODUCER assigning all production of sterkoder trawler class vessels "MYS SLEPIKOVSKOGO" and "CHIKHACHEVA" to RSM as collateral. This assignment may be in the form of either a marketing contract or full vessel management.

[Handwritten portion appears as follows:]

Payment terms on loan for converting M/V Yuzhnie Kurily are as follows:

Oct. 1996 - 10% of money owed

May, 1997 - 30%

Oct., 1997 - 20%

May, 1998 - 40%

Until such time as the loan is repaid RIL holds title to all products produced on board MYS SLEPIKOVSKOGO, MYS CHIKHACHEVA, and M/V Yuzhnie Kurily. Also, RIL will hold a mortgage on M/V Yuzhnie Kurily as collateral.

In my analysis, the addendum to the Marketing Contract grants a security in favour of Richardson over all production from the three vessels until the Refit Loan is fully repaid. This surely indicates that the parties understood and intended their relationship to be governed by a complex series of interrelated components, and not discrete, stand-alone contracts; a conclusion bolstered by recitals in the mortgage which incorporate by reference the promissory note and Refit Loan. As a result, I conclude that the Trial Judge was correct in having recourse to the full factual matrix behind the relationship between Richardson and Starodubskoe.

[32] Even if the Marketing Contract were considered in isolation on the basis that it is the only contract governing the supply of necessaries, I would conclude that the proper law is that of the United States. The Marketing Contract contains no express choice of law and therefore it would be necessary to determine the system of law that has the closest and most substantial connection to the Marketing Contract: [1967] S.C.R. 443">Imperial Life Assurance Co. of Canada v. Colmenares, supra.

[33] In my analysis, the most compelling of all the factors in this case is the presence of the arbitration clause in the Marketing Contract. As Castel, supra, writes at 596:

If the parties agree that arbitration shall take place in a particular legal unit, the court will usually, although not always, conclude that the parties have impliedly chosen the law of the legal unit of arbitration as the proper law. Similarly, if the parties agree that the courts of a particular legal unit shall have jurisdiction over the contract, there is a strong inference that the law of that legal unit is the proper law. [emphasis added]

In this case, the arbitration clause reads as follows:

Any dispute which might arise from or in relation to this contract, if not settled by negotiations, shall be settled by arbitration in accordance with UNCITRAL arbitration rules presently in force.

[34] In my view, this clause is indicative of the parties implied intention to have American law apply. Though not determinative, the arbitration clause is highly persuasive. In Compagnie Tunisienne de Navigation S.A. v. Compagnie d'Armement Maritime S.A., [1971] A.C. 572 (H.L), both Lords Diplock and Wilberforce commented on the persuasive value of the arbitration clause in the absence of a contrary intention in the contract. Lord Diplock was of the view that

...an arbitration clause is generally intended by the parties to operate as a choice of the proper law of the contract as well as the curial law and should be so construed unless there are compelling indications to the contrary in the other terms of the contract... [emphasis added]

[35] No contrary intention appears on the face of the Marketing Contract. Further, Castel, supra, at 596 provides a list of possible factors which would indicate the applicability of American law in this case:

Other factors from which the courts have been prepared to infer the intentions of the parties as to the proper law are the legal terminology in which the contract is drafted, the form of the documents involved in the transaction, the currency in which payment is to be made, the use of a particular language, a connection with a preceding transaction, the nature and location of the subject matter of the contract, the residence (but rarely the nationality) of the parties, the head office of a corporation party to the contract, or the fact that one of the parties is a government. The proper law cannot be determined retrospectively by an event which at the time the contract was made was merely an uncertain event in the future. Nor can the contract float in an absence of law until the proper is determined, nor can it change from one legal unit to another on the happening of subsequent events. [emphasis added]

[36] Certain of these factors are neutral. For example, the language of the Marketing Contract, the residence and head office of the parties, and the location of the subject matter do not point to either of the possible choices of law. However, the legal terminology and form of the document appears to favour American law, as the agreements in their original form were drafted by American lawyers; the currency is expressed to be in U.S. dollars; and, in terms of the Marketing Contract's connection to preceding transactions, the Marketing Contract incorporates by reference in the addendum the promissory note and mortgage, which grants security to ensure repayment of that loan. Undoubtedly, the mortgage and promissory note were executed to enable the parties to enter into the Marketing Contract. Even when one considers that the contract was executed in Russia, and performance was to occur, at least partly, in Russia, it is clear that the proper law is, by implication, American.

[37] I take comfort from the reasons of Lord Morris of Borth-Y-Gest in Tomkinson, supra, at 1083-4. In that case, the parties had decided that the law of Cuba would apply to matters arising from the title to property, located in Cuba and held by an American creditor as security. Lord Morris held that references in the contract to Cuban law under such circumstances was not necessarily to be taken as an implied choice of Cuban law as the proper law of the contract. This was especially true where the circumstances, on balance, indicated the implied choice of American law.

[38] I am also of the opinion that the Trial Judge erred in law by considering irrelevant parole evidence from Lynn Richardson regarding her intentions when executing the contract. While the Trial Judge couched the admission of this evidence in terms of gaining a fuller appreciation of "the factual matrix, the context, the environment within which the document was created...", it is also true that he found Mrs. Richardson's comments as to her intentions to be material. The general rule is that, except under limited circumstances, a party may not make representations or give evidence as to his or her subjective intention at the time the contract was made (see Eli Lilly & Co. v. Novopharm Ltd. et al, [1998] 2 S.C.R. 129). In this case, there are no special circumstances allowing for its admission. However, in my analysis, his ultimate conclusion remains supportable even in the absence of the parole evidence, as such evidence is but one minor component among many that support his conclusion.

Issue 2: Errors related to determination of whether Richardson had waived its right to a maritime lien over the Mys Chikhacheva

[39] Dubé J. also concluded that there had been no waiver of the maritime lien for necessaries on the part of Richardson. Bering had conceded at trial that waiver would be difficult to argue because of the strong position taken by U.S. courts against the concept, but, nevertheless, Bering argued that in this case there were two definite indicia of waiver on the record. First, Bering pointed to the fact that Richardson did not require a mortgage against the Mys Chikhacheva or the Mys Slepikovskogo. However, as Russel R. Williams, the American expert, noted, the failure to take a mortgage over the Mys Chikhacheva does not defeat a maritime lien, unless the lien was expressly waived in the relevant contract. Paragraph 14 of the mortgage against the Yuzhnie Kurily (see paragraph [11], supra) specifically states that the maritime lien rights of Richardson are preserved, even against that mortgaged vessel; a fortiori, Richardson must not have waived the right to place liens over unmortgaged ships like the Mys Chikhacheva.

[40] Bering also argues that the August 22, 1996 account submitted by Richardson shows that, with the total revenue from the Mys Chikhacheva as against all the charges upon the vessel, there was nothing owing with respect to the two trawlers. It follows that Richardson's claim was actually in respect of the unpaid balance of the debt incurred as a result of the refit of the factory processing vessel, Yuzhnie Kurily, rather than in respect of the Mys Chikhacheva. Dubé J. rejected the argument, reasoning that it did not show on the part of Richardson a clear and purposeful intention to forego the lien; a requirement specified by American law.

[41] Bering now asserts that Richardson did, in fact, waive its rights to a maritime lien for necessaries and relies on the Security Package to submits that Richardson was "clearly satisfied" that its security would be sufficient to cover any debt incurred by Starodubskoe. Bering could not, however, point to any clear documentary or parole evidence which indicates an unequivocal waiver of lien rights.

[42] In response, Richardson relies on the fact that no express waiver has ever been executed, and that clause 14 of the mortgage indicates an express intention on its part to preserve any lien rights which may be available. In light of these facts, in my view, the only possible conclusion is that the Trial Judge was correct in holding that no waiver had occurred. This is especially so given the strong presumption against such waiver under American law, a presumption found as a fact by the Trial Judge. In my view, Dubé J. correctly decided the issue of waiver in this case.

Issue 3: Errors related to requirements in the Marketing Contract that the costs of supplies and services were to be set-off against the value of fish transhipments

[43] Bering relies on Part IV and clause VI.3 of the Marketing Contract, asserting that Richardson was under a contractual duty to deduct the cost of any supplies and services provided to Starodubskoe from the value of fish shipped from Starodubskoe to Richardson. Clause VI.3 provides for the deduction of the cost of "packaging, supplies and services" from the amount due to Starodubskoe. A similar set-off is in place for the provision of Baader Technicians in Part IV. Bering asserts that the Trial Judge erred, since, had the set-off been recognized, Starodubskoe would have had a $550,000 credit balance as opposed to a $323,000 debt for provision of necessaries. Further, it is said that the Security Package does not authorize Richardson to apply the proceeds from Starodubskoe's shipments in any other manner. Bering also argues that the contra proferentum rule should apply, and the contract, in the face of ambiguity, be construed against Richardson, the drafter of the contract.

[44] Bering also asserts that the Trial Judge erred in holding that the mortgage was inferior in priority to the lien rights. The lien rights would take priority under American law only, which presumes that, in the absence of a contrary intention, a creditor will allocate funds first to unsecured debt, and then to secured debt. Likewise, where there is more than one security, a creditor is presumed to apply funds first to the inferior security. Bering submits that the Trial Judge erred in applying this presumption in light of the Marketing Contract which, in the clearest of terms, indicates that a set-off shall occur whereby the cost of necessaries is deducted from the value of product provided by the three vessels. Hence, the value of the proceeds of the fish transhipments must be presumed to apply first to the cost of supplies and services, not to Starodubskoe's unsecured "global debt" to Richardson.

[45] Richardson counters that the set-off is inapplicable to the necessaries supplied in this case, and, in any event, the set-off was not intended to become operative until the debt underlying the Refit Loan was extinguished by virtue of the addendum to the Marketing Contract. This addendum, reproduced supra, provides that "[Richardson] shall provide financing, technology, and future vessel management based upon and contingent upon [Starodubskoe] assigning all production of [the ships] to [Richardson] as collateral." The handwritten addition to the addendum indicates that Richardson would hold title to all production from the vessels until such time as the Refit Loan was repaid.

[46] It would be unusual to have, on the one hand, a clear intention in the addendum that funds realized from fish transhipments would be applied to the Refit Loan, and on the other, an intention to set-off the cost of necessaries against those funds. The situation becomes increasingly more difficult when one considers that Richardson held the product as security for the Refit Loan. It would be curious indeed for Richardson, in the face of a clear agreement to apply funds to the Refit Loan, to then apply set-off provisions which would hinder the fulfilment of that agreement. It follows that, in my opinion, the set-off provisions cannot become operative until an amount was actually "due" to Starodubskoe--a situation which could not arise until it had met its obligations under the addendum, and repaid the entire loan amount. Hence, in my analysis, the set-off in the Marketing Contract does not operate in the manner urged by Bering. I am satisfied that the operation of the set-off clauses is subordinate to the language in the addendum to the Marketing Contract.

[47] Further, if the Court can be satisfied that Richardson's lien for necessaries ranks ahead of the mortgage or loan debt in priority under American maritime law, then it would be presumed that Richardson would first allocate those funds to the mortgage or loan, since they would be inferior. The Trial Judge made a specific finding of fact in this regard, noting at paragraph 54 that "[t]he existence of other contractual security or guarantee (such as a mortgage or promissory note) for repayment does not defeat a maritime lien unless such liens are expressly waived in the relevant contract" [see Newport News Shipbuilding and Dry Dock Co. v. S.S. Independence, 872 F.Supp. 262 (E.D. Va. 1994), at pp. 266-267.]. It follows that the lien for necessaries ranks first in priority, and the set-off provisions of the Marketing Contract do not operate to take priority over Richardson's lien in terms of allocation of funds as between debts. Since proof of foreign law is a question of fact, the Trial Judge's decision is entitled to considerable deference in this regard. In my view, given the addendum to the Marketing Contract and the Trial Judge's finding that American maritime law precludes the application of the set-off provisions, Bering's argument on the set-off issue must fail.

Issue 4: Errors related to the amount awarded by the Trial Judge

[48] Rule 75 of the Federal Court Rules, 1998 provides for applications to amend pleadings, if such amendments are on terms which "will protect the rights of all the parties." The test under Rule 75 is that set out by this Court in Canderel Ltd. v. The Queen, [1994] 1 F.C. 3 (FCA), where it was stated that an amendment should be allowed "at any stage of an action," subject to three provisos: the amendment must be made for the purpose of determining the real questions alive between the parties; amendment would not prejudice to the opposing party in a manner not compensable with costs; and the amendment must serve the interests of justice. Further, the nearer the end of the proceeding, the more difficult it becomes to prove an amendment does not work an injustice.

[49] In this case, Richardson sought to amend its maritime lien claim at the last possible stage of the action, that is, just prior to its closing argument. It argued that it was unaware that port expenses (the "Korwell Invoices") could be claimed as necessaries until its own American legal expert explained that such expenses were, in fact, properly the basis of a maritime lien. The Korwell Invoices had been introduced in court and proven at trial as an exhibit, and Bering's counsel cross-examined on the documents without protest. Dubé J. allowed the amendment under subrule 75(1) as Bering was unable to demonstrate prejudice.

[50] Bering now argues that the Trial Judge erred in allowing Richardson to amend its claim to include the Korwell Invoices at such a late stage in the trial. Bering alleges that it was unaware that the invoices were included in Richardson's claim until closing argument and further asserts that the amounts referred to in the invoices are not reflective of the heads of damage originally claimed in the statement of claim. As such, the amendment cannot be regarded as merely numerical, and, at the argument stage amounts to trial by ambush.

[51] It is true that the application for leave to amend came at an extremely late stage in the trial, and it is unusual that Richardson would have learned of the Korwell Invoices' relevance from its own expert witness. However, the key element in the Canderel test is, in my view, "the interests of justice." I note that counsel for Bering did not apply for an adjournment or to reopen Bering's case when the amendment was sought. Mr. Richardson was present and could have been recalled for further cross-examination, but that was not done. Accordingly, in light of Bering's failure to demonstrate any prejudice, I fail to see how Dubé J. erred in granting the amendment.

[52] Further, in light of Bering's failure to attack the Korwell Invoices on the basis that they were irrelevant, or were not necessaries, it is difficult to view the addition of the invoice as anything more than a numerical alteration to the sum total of the lien amount, a type of amendment which was expressly authorized by this Court in Meyer v. Canada (1985), 62 N.R. 70 (FCA), on the basis that such amendments are in the interests of justice, and cannot act to prejudice the opposing party in a meaningful way. I might add that this is especially true where the invoices were disclosed in the discovery process and were entered as an exhibit at trial. Under these circumstances, I fail to see how the inclusion of these invoices amounts to trial by ambush. In any event, the Trial Judge's decision was discretionary in nature, and, in the absence of a clear error of law, is therefore entitled to significant deference. I am satisfied that Dubé J.'s decision gave sufficient weight to all the relevant circumstances, and should thus be shielded from appellate review (see Reza v. Canada, [1994] 2 S.C.R. 394).

[53] Bering also asserts that the Trial Judge erred in including the full value of an invoice from Skico Fuel Company of Hong Kong (the "Skico Invoice"), given that Richardson had been held responsible only for 13% as part of its bankruptcy in the United States. Bering urges that granting judgment for the full amount confers a windfall on Richardson, and contends that Richardson should not benefit from such windfall, especially since Skico can pursue its shortfall against Starodubskoe and the Mys Chikhacheva.

[54] With regard to the Skico Invoice, Dubé J. concluded that, in equity, Bering should not be allowed to gain the benefit of a windfall resulting from a bankruptcy caused largely by Starodubskoe's breach of contract. He held that American maritime law provides that unpaid fuel costs, as necessaries, follow the Mys Chikhacheva under a maritime lien. The Trial Judge's decision is based on the application of American law, insofar as necessaries follow the vessel under a maritime lien. His finding as to the applicability of American law is one of fact, and therefore is entitled to substantial deference in the absence of a palpable and overriding error.

[55] As Tetley, supra notes at 59-60, a maritime lien can be referred to as a "secret lien," in that it passes with the vessel even when it is sold to an unsuspecting new owner. As a result, any claim for unpaid fuel costs would follow the Mys Chikhacheva, which received the benefit of the fuel without payment. For this reason, I am persuaded that the Trial Judge correctly weighed the equities before him. The ship gained a windfall in receiving fuel without payment, and to require the owner to bear the cost of that benefit is neither inequitable nor in contradiction of established principles under American maritime law. In my view, Richardson's bankruptcy does not disrupt this position, especially when one considers that Bering received the benefit of chartering the Mys Chikhacheva to Starodubskoe, whose conduct resulted in the present litigation.

[56] I would dismiss the appeal with costs.

"B. Malone"

J.A.

"I agree

B.L. Strayer

J.A."

"I agree

K. Sharlow

J.A."

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Bering Trawlers Ltd. v. Richardson International Ltd., 2002 FCA 97

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2002 FCA 97