Date: 20060111
Docket: T-1763-05
Citation: 2006 FC 18
Ottawa, Ontario, January 11, 2006
PRESENT: THE HONOURABLE MR. JUSTICE BLAIS
BETWEEN:
FRONT CARRIERS LTD.
Plaintiff
and
ATLANTIC & ORIENT
SHIPPING CORPORATION
Defendant
REASONS FOR ORDER AND ORDER
OVERVIEW
[1] This is a motion brought by Front Carriers Ltd. (the plaintiff) for an interlocutory injunction (Mareva injunction) to freeze Atlantic & Orient Shipping Corporation's (the defendant) assets within British Columbia pending arbitration in London, United Kingdom (UK), and for the defendant to provide an affidavit listing its British Columbia assets. The plaintiff is seeking to recover from the defendant in excess of US$9,000,000.00 by way of arbitration, which it says it lost by reason of the repudiation of the charterparty agreement between the parties.
[2] The defendant is also seeking a motion for an order setting aside the order for interim injunction of Mr. Justice Harrington dated October 11, 2005 and extended by an order of Mr. Justice Teitelbaum dated October 24, 2005. Both motions are heard together and one order will dispose of the matter.
FACTS
[3] The plaintiff is the disponent owner of a bulk carrier built in 2005 by Imabari Shipyard Ltd. (Imabari), now known as M/V "Double Happiness" (the vessel). Simpson Spence & Young (SSY) represented the plaintiff in the negotiations of the charterparty in question. In 2004, SSY negotiated 8 charters with the A & O group of companies and Mr. Juan Lee was involved in all of the 8 negotiations on behalf of the A & O group of companies, including A & O Nevis.
[4] In February and March of 2005, SSY, as agents for the plaintiff, negotiated with Mr. Lee, who either was, or held himself out as being, Deputy Managing Director of A & O Singapore for the charter of a new vessel by A & O Nevis for a period of between 24 and 26 months commencing between June 1 and September 30, 2005.
[5] On March 7, 2005, an agreement was reached to charter the vessel at a hire rate of US$31,500.00 per day. More than four months later, shortly before the date for delivery of the vessel, on July 12, 2005, Mr. Lee advised SSY that he did not have the authority to charter the vessel because he was no longer employed by A & O.
[6] The plaintiff accepted the conduct of A & O Nevis as a repudiation or renunciation of the contract and served notice that it would hold A & O Nevis responsible for damages for breach of contract. The plaintiff and defendant are both currently undergoing arbitration in London, UK.
[7] The plaintiff applied for and obtained a Mareva injunction against the defendant on August 26, 2005, in Singapore. The aforementioned decision is being appealed by the defendant.
[8] The funds which are subject to the request for Mareva injunction in the present matter originate from a separate proceeding. In action T-1405-04, Trans-Pacific Shipping Company (TP) arrested the bunkers in the M/V Nordsund on the basis that they were assets of A & O in the British Virgin Islands (A & O BVI) against which company TP held an arbitration award for breach of a charterparty in respect of the M/V Grand Orchid.
[9] A & O Nevis intervened in that action and claimed that, in fact, they were the owners of the bunkers on the M/V Nordsund. As a result, TP commenced a further action T-1843-04 against all of the A & O group of companies and their principal Mr. Murray Wilgus.
[10] The bunkers were released pursuant to an order of this Court on the basis that A & O Nevis pay CAD$200,000.00 security into the trust account of the Bernard & Partners, pending a settlement or disposition of that action. On or about October 11 and 12, 2005, the actions by TP were settled.
[11] Regarding the present matter, on October 11, 2005, Justice Harrington granted an ex parte interim Mareva injunction to the plaintiff which included an injunction over the funds held by Bernard & Partners.
[12] On October 24, 2005, Justice Teitelbaum ordered the transfer of the funds from the trust account of Bernard & Partners to the trust account of Stikeman Elliott LLP, and extended the interim Mareva injunction. The interim Mareva injunction was again extended by Chief Justice Lutfy on November 10, 2005, pending disposition in this Court of the motions brought by the parties.
Issue
[13] Have the requirements of an interlocutory Mareva injunction been met?
Analysis
[14] The tripartite test for interlocutory injunctions was set out by the Supreme Court of Canada in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 at page 334 as follows:
Metropolitan Stores adopted a three-stage test for courts to apply when considering an application for either a stay or an interlocutory injunction. First, a preliminary assessment must be made of the merits of the case to ensure that there is a serious question to be tried. Secondly, it must be determined whether the applicant would suffer irreparable harm if the application were refused. Finally, an assessment must be made as to which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits.
[15] A Mareva injunction is a specific interlocutory injunction that is only granted if certain conditions are met. The tripartite criteria mentioned above for interlocutory injunctions are merged with the separate distinct criteria of a Mareva injunction.
[16] The criteria to be applied in determining whether the plaintiff should obtain a Mareva injunction were set out by the English Court of Appeal in Third Chandris Shipping Corp.et al. v. Unimarine S.A. [1979] 1 Q.B. 645 and confirmed by the Federal Court of Appeal in Marine Atlantic v. Blyth (1993) 113, D.L.R. (4th) 501 (supra) at paragraph 5:
1. The plaintiff should make full and frank disclosure of all matters in his knowledge which are material for the judge to know.
2. The plaintiff should give particulars of his claim against the defendant, stating the ground of his claim and the amount thereof, and fairly stating the points made against it by the defendant.
3. The plaintiff should give some grounds for believing that the defendant has assets [in the jurisdiction].
4. The plaintiff should give some grounds for believing that there is a risk of the assets being removed before the judgment or award is satisfied.
5. The plaintiff must, of course, give an undertaking in damages ... [which] in a suitable case ... should be supported by a bond or security: and the injunction only granted on it being given, or undertaken to be given.
[17] Regarding the first condition of the Mareva injunction, the defendant argues that the test for full and frank disclosure is very onerous. By contrast, the plaintiff submits that the test leaves some room for flexibility and interpretation by this Court. I agree with the plaintiff's proposition which was confirmed by Justice Malone in Coca-Cola Ltd. v Pardhan (c.o.b. Universal Exporters)[2003] F.C.J. No. 22, at paragraphs 26 and 27:
In any event, an inflexible application of the duty of full and frank disclosure is to be avoided and failure to make full disclosure is not always fatal. Ex parte applications are, of necessity, brought on an urgent basis with little time to prepare supporting materials, and orders should not be set aside on account of mere imperfections in the affidavits or because inconsequential facts have not been disclosed. (See Robert J. Sharpe, Injunctions and Specific Performance, Loose-Leaf Edition (Toronto: Canada Law Book, 2001), para. 2.45.)
Accordingly, even if the Judge had made a finding of material non-disclosure, such a finding would not have led automatically to the discharge of the Anton Piller order. Rather, the effect of non-disclosure would have remained as a matter within his discretion.
[18] A parallel can be drawn between Justice Malone's position regarding full and frank disclosure with Anton Piller orders and the Mareva injunction found in the present matter. That is, mere imperfections in affidavits or the non-disclosure of inconsequential facts does not necessarily mean the discharge of the order. The discretion ultimately remains in the hands of the Judge.
[19] The defendant submits that the plaintiff failed to discharge its duty of full and frank disclosure with respect to the following five matters:
1. The plaintiff did not properly disclose the defendant's position with respect to the alleged, Charterparty, and in particular, did not disclose the defendant's position that to the extent that a Charterparty existed it was between the defendant and a corporation other than the plaintiff.
2. The plaintiff indicated that there was a signed agreement between the parties dated March 7, 2005, when in fact no such signed agreement existed.
3. The plaintiff made unsupported and improper allegations as to the character of the defendant while failing to properly disclose that it had conducted a background check on the defendant before the creation of the alleged Charterparty.
4. The plaintiff did not properly disclose that the defendant had, through A & O Singapore, responded to the plaintiff's defense club or that the defendant had responded to the plaintiff's notice to arbitrate with respect to the alleged Charterparty.
5. The plaintiff relied on inadmissible unattributed hearsay evidence with respect to the defendant's affairs.
[20] Turning to the first point, the defendant claims that when the plaintiff applied for an interim injunction ex parte in the present matter, it knew there were past disputes concerning the action taking place in Singapore as well as the arbitration taking place in London, UK, regarding the real name of the corporation. That is, the plaintiff knew there existed confusion as to whether it should be referred to as Front Carriers Ltd. or Front Carriers Inc.
[21] The plaintiff submits that any uncertainty was due to a minor misnomer that has since been rectified. I agree with the plaintiff's position and conclude that the confusion caused by the use of "Inc." as opposed to "Ltd." was due to an inconsequential clerical error and does not constitute a material fact for the purpose of the application for the Mareva injunction.
[22] Turning to the second matter regarding full and frank disclosure, the defendant argues that the plaintiff should have disclosed the fact that there was no signed agreement between the parties. In looking at the evidence before me, I am of the opinion that the defendant's argument is inconsequential. Despite the fact that there was no signed agreement, the evidence is clear in demonstrating that an accord was reached through an email exchange (see Exhibits "HAB 2" of Mr. Billung's affidavit). In maritime business transactions, the use of email is often used in the context of charterparties. As such, I find that there was a binding charterparty, and the fact that it occurred by means of an email exchange as opposed to a signed agreement is not material to the full and frank disclosure requirement of the Mareva injunction.
[23] Turning to the third matter regarding full and frank disclosure, the defendant claims that the plaintiff made unsupported and improper allegations as to the character of the defendant while failing to properly disclose that it had conducted a background check on the defendant before the creation of the alleged charterparty. I must reject the defendant's allegation regarding the background check as it is not supported by the evidence. As mentioned by the plaintiff, the evidence plainly states that enquiries were made regarding the defendant's identity. For example, an email exchange makes it clear that the plaintiff wanted to know who was fixing the vessel (see plaintiff's motion record page 91). As such, I cannot conclude that background checks were improperly disclosed.
[24] Turning to the fourth matter, the defendant claims that the plaintiff failed to properly disclose the fact that the defendant had, through A & O Singapore, responded to the plaintiff's defense club and that the defendant had responded to the plaintiff's notice to arbitrate with respect to the alleged charterparty. The defendant acknowledges that the plaintiff's materials were not completely silent on the aforementioned elements. However, the defendant feels those elements should have been specifically mentioned by the plaintiff given that the latter stressed the elusiveness of the defendant.
[25] The plaintiff acknowledges that A & O Singapore sent a brief fax on August 24, 2005 and that A & O Nevis appeared in the London arbitration. However, the plaintiff contends that those events do not address its concerns regarding whether or not A & O Nevis is still operating a business. The plaintiff submits that A & O Nevis has never given an office address in any of its response material, nor has it furnished any evidence of ongoing business operations. Further, the plaintiff mentions that no decision makers or people working for A & O Nevis have come forward to swear affidavits on its behalf (except for its lawyers and an external auditor).
[26] The defendant addresses the plaintiff's concerns by expressing that it is engaging in ongoing business operations. As evidence of this, the defendant mentions the 43 negotiated charters with members of the A & O group of companies including A & O Nevis since 2002. Further, the defendant mentions that 8 negotiated charters have taken place since 2004 involving Mr. Lee.
[27] I find the defendant's evidence of ongoing business operations unsatisfactory. Out of the multitude of ways the defendant could have illustrated current business activity, I find it highly suspect that it chose past negotiations as evidence of ongoing business operations. Particularly, I find it troubling that there is no evidence since Mr. Lee's departure from A & O Nevis, of current business activity.
[28] Given all the troubling concerns and the related evidence regarding whether or not the defendant was still operating as a business, the failure of the plaintiff to stress that the defendant sent a fax and is partaking in arbitration is immaterial regarding the requirement to full and frank disclosure.
[29] Turning to the fifth matter regarding full and frank disclosure, the defendant submits that the plaintiff relied on inadmissible hearsay evidence with respect to the defendant's affairs. Specifically, the defendant takes issue with the events mentioned by the plaintiff concerning A & O Nevis receiving hire from a subcharter on the motor vessel "Harmonic Progress".
[30] The plaintiff mentioned and the defendant admitted that following the granting of a Mareva injunction, A & O Nevis rearranged its business affairs so that the subcharterer made the charter payments directly to the owner or disponent owner, and no further funds flowed to the bank account of A & O Nevis in Singapore.
[31] The plaintiff alleged that once the bank account in Singapore became the subject of a Mareva injunction no further funds were paid into the account. The defendant alleges that the transfer of funds was a business decision and had nothing whatsoever to do with the Mareva injunction. I find the defendant's argument unsatisfactory given that the evidence submitted does not demonstrate a business rationale for the decision to transfer the funds. The Court must infer that it was done to defeat the plaintiff's claims and avoid the injunction.
[32] Based on the opinion expressed above and the evidence before me, I am satisfied that the plaintiff has met the first requirement of the Mareva injunction, that is, it has provided full and frank disclosure.
[33] The second requirement of the Mareva injunction implies that the plaintiff properly set out the particulars of its claim. This criterion encompasses elements of the serious issue obligation outlined in the tripartite test for the granting of an interlocutory injunction.
[34] This Court has recognized that the threshold to be met by an applicant regarding the "serious issue" branch of the tripartite test for granting injunctive relief is low (see North American Gateway Inc. v. Canada (Canadian Radio-Television and Telecommunications Commission) (1997), 47 Admin. L.R. (2d) 24). It is not the job of the Court at this early stage of the proceedings to evaluate the merits of the issue but to establish, upon review of the record and submissions of parties, that the issue is not frivolous or vexatious.
[35] With this being said, Justice Dubé in Allergan pharmaceuticals Inc. et al v. Bausch & Lomb Inc. et al (1985) 7 C.P.R. (3d) 209 at pages 212 to 213, recognized that in certain situations, such as with Mareva injunctions, a more stringent threshold should be applied.
[36] Such a position was confirmed by Justice Tremblay-Lamer in Pegasus Lines Ltd. S.A.v. Devil Shipping Ltd. [1996] F.C.J. No. 144, at paragraph 62 and 63, whereby she adopted the position of Justice Estey of the Supreme Court of Canada in Aetna Financial Services v. Feigelman [1985] 1 S.C.R. 2 at page 25:
The gist of the Mareva action is the right to freeze exigible assets when found within the jurisdiction, wherever the defendant may reside, providing, of course, there is a cause between the plaintiff and the defendant which is justiciable in the courts of England. However, unless there is a genuine risk of disappearance of assets, either inside or outside the jurisdiction, the injunction will not issue.
His Lordship added at page 27:
The condition precedent to entitlement to the order is the demonstration by the plaintiff of a "strong prima facie case" . . . and not merely . . . "a good arguable case". . .
[37] In order to demonstrate a "strong prima facie case", the plaintiff must show through affidavit evidence that all the elements of the case have been established to justify final judgment. I find that the affidavit evidence illustrates that the defendant refused to be bound by the charterparty agreement and that this serves to illustrate that the plaintiff has a strong prima facie case. This being said, I am also convinced the plaintiff set out the particulars of his claim and met the second requirement for the granting of a Mareva injunction.
[38] I am also satisfied that the plaintiff met the third condition of the Mareva injunction by demonstrating that the defendant has assets in Canada. The evidence illustrates that the defendant has at least $200,000 held in a Stikeman Elliott LLP trust account.
[39] I am also of the opinion that the plaintiff met the fifth requirement of the Mareva injunction by giving an undertaking for damages. Mr. McEwen, at paragraph 19 of his affidavit, has indicated that he is authorized by Front Carriers to undertake on their behalf that they will pay any damages suffered by the defendants if it is held that the injunction was wrongly granted.
[40] The more contentious issue in the present matter concerns the fourth condition of the Mareva injunction, that is, whether the plaintiff has illustrated that it has sufficient grounds for believing that there is a risk of the defendant's assets being removed before judgement or award is satisfied. In Marine Atlantic (supra) the Federal Court of Appeal, stressed at paragraphs 8 and 9 that the overriding consideration of a Mareva injunction :
[...]is whether the defendant "threatens to so arrange his assets as to defeat his adversary, should that adversary ultimately prevail and obtain judgment, in an attempt to recover from the defendant" (per Estey J., Aetna Financial Services v. Feigelman, supra, at p. 24).
The removal of assets from the jurisdiction by a resident defendant in the normal course of its business, without there being any suggestion of an intent to defeat or frustrate any eventual judgment recovery by the plaintiff, is not enough to support a Mareva injunction.
[41] The Ontario Court of Appeal in R. v. Consolidated Fastfrate Transport Inc. (1995), 125 D.L.R. (4th) 1, at pages 14 and 15, suggested that the decisive question regarding the appropriateness of granting a Mareva injunction is whether the purpose of the defendant "when removing assets from the jurisdiction or the dissipating or disposing of them is for the purpose of avoiding judgment".
[42] In order to meet the risk factor of the Mareva injunction test, the plaintiff must establish that there is a possibility that the defendant would remove or dissipate its assets from a certain jurisdiction solely for the purpose of frustrating any possibility of the plaintiff being able to collect on a judgement. Further, if the plaintiff wants to submit past behaviour as examples of removal or dissipation of assets, it must be illustrated that that past behaviour was not committed in the normal course of business.
[43] The conduct of the defendant has been elusive regarding the failure to respect the charterparty. As previously mentioned, the defendant has been unable to illustrate that it continues to operate as a business entity. The defendant's use of examples of past business activity as evidence of ongoing operations is unsatisfactory. I find the defendant's failure to provide current proof of ongoing business operations suspect.
[44] Further, as previously mentioned, the failure of the defendant to provide sufficient reasons as to why funds stopped flowing into the A & O Nevis account in Singapore once a Mareva injunction was granted vis-à-vis the Harmonic Progress strengthens the plaintiff's position that the defendant will attempt to remove of dissipate funds in the present matter if an injunction is not granted.
[45] I find that the defendant's behaviour illustrates that there is indeed a risk that the defendant would attempt to frustrate the plaintiff's attempts to collect on a future judgement. There exists a threat that the Canadian funds could be removed or dissipated, other than out of the normal course of business, if a Mareva injunction is not ordered.
[46] I find that the plaintiff has satisfied the criteria for a Mareva injunction.
ORDER
THIS COURT ORDERS THAT:
- The motion for interlocutory injunction is granted;
- An order is granted restraining the defendant whether by themselves, their servants or agents, or any of them or otherwise, howsoever from removing from the jurisdiction or disposing of or dissipating, pledging, charging, assigning or otherwise dealing with any of the defendant's assets in Canada, including in particular funds held in trust by Stikeman Elliot LLP pursuant to the order of this Court made on August 9, 2005, in Action T-1405-04, and orders of this Court on October 11, 2005 and October 24, 2005, in file T-1763-05.
- The defendant shall disclose forthwith to the plaintiff, by way of an affidavit sworn by one of their directors on behalf of the defendant, all the defendant's assets within Canada whether in the defendant's own name or not and whether solely or jointly owned, giving up-to-date information about the value, location and details of all such assets, including in respect of any bank account, the name and address of the branch, the name of the account holder, and the number of the account and the amount of the credit balance on the date of this order.
- The defendant's requests to set aside the order for interim injunction issued by Justice Harrington, dated October 11, 2005, and the order for interim injunction issued by Justice Teitelbaum, dated October 24, 2005 are denied.
- With costs in favour of the plaintiff payable forthwith in any event of the case.
"Pierre Blais"
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