Date: 20061027
Docket: T-1588-06
Citation: 2006
FC 1290
BETWEEN:
NORDEA
BANK NORGE ASA
Plaintiff
and
THE OWNERS AND ALL OTHERS
INTERESTED IN THE SHIP "KINGUK", THE SHIP "KINGUK", THE
OWNERS AND ALL OTHERS INTERESTED IN THE SHIP "AQVIQ", THE SHIP
"AQVIQ", AND FAROCAN INCORPORATED
Defendants
REASONS FOR ORDER
GAUTHIER, J.
UPON an appeal by the Defendant Farocan
Inc. and by Newfound Resources Ltd. (NRL) from the order of Prothonotary
Morneau dated October 16, 2006, authorizing the sale of two sister ships, the
MV Kinguk and the MV Aqviq on the terms set out in his order;
HAVING REVIEWED the material filed by the
parties, NRL and by Fishery Products International Ltd (FPI), and heard the
various counsel’s representations yesterday (videoconference and telephone
conference);
UPON CONSIDERING that the standard of
review applicable to this discretionary decision is set out in Merck Inco,
Inc. v. Apotex Inc., 2003 FCA 488, [2004] 2 F.C.R. 459 (F.C.A.) at para.
19. The issue before the Prothonotary in this instance was whether plaintiff
could realize its mortgage security over both vessels by selling them forthwith
to FPI as pursuant to a default judgment that awarded plaintiff $5,252,270.59
plus interest from October 16 as well as all other expenses secured by the
mortgage that it may incur. The Court agrees with the parties that this issue is
vital to the final determination of the case and of their rights. Given this
finality, the Court will therefore exercise its discretion de novo.
UPON noting that the fact that the Court
exercises its discretion de novo does not mean that it can consider
evidence that was not before Prothonotary Morneau. It is trite law that the
Court must make its decision on the basis of the record as it existed when the
decision under appeal was rendered. Thus, the Court has not considered the
affidavit of Mr. Quinlan, filed on October 19, 2006;
UPON determining that paragraph
490 of the Federal Courts Rules, SOR/98-106 specifically provides that
the Court may order the sale of a ship without appraisal, by public auction or
private contract, with or without advertisement;
[1]
There is
no doubt that generally the Court will provide for a formal appraisal and for
advertisement as this was the traditional rule in admiralty practice for many
years. However, as noted by Prothonotary Hargrave in Franklin Lumber Ltd. v.
Essington II (ship), 2005 FC 95, the terms and mechanics for the sale of a
ship are discretionary and essentially depend on the particular circumstances
of each case. Essington II, above, and Bank of Scotland v. The Nel (1997), 140 F.T.R. 271
provide examples of cases where it was found appropriate to sell ships
privately and without formal court ordered appraisals. In each case, the Court
was satisfied by the evidence adduced that the best interest of the creditors
and the owner were properly protected because the proceeds of the sale
represented the fair market value of the ships.
[2]
Farocan
and NRL rely on the decision of Justice Allison Walsh in Sea-Tec Fabricators
Ltd. v. Offshore Fishing Co., [1985] F.C.J. No. 236 and of the Associate
Chief Justice Thurlow in International Marine Co. v. The Dora, [1977] 2
F.C. 513. These cases confirm that each case ought to be decided on its own
facts and on the basis of the evidence before the Court. They are clearly
distinguishable from the present case.
[3]
In Sea-Tec
Fabricators, above, there was no evidence before the Court as to the fair
market value of the ship. The Court indicated that it could not presume, in the
absence of any information, that the purchase price that was proposed by the
mortgagee represented a fair price for the vessel. It also confirmed that the
purpose of a court ordered appraisal is to give some indication to the Court of
the value of the vessel.
[4]
In The
Dora, above, there was clear evidence before the Court (see paragraph 18)
to justify the refusal to approve the proposed sale of the vessel. Such
evidence included: an older sister ship and a comparable vessel had been
recently sold for amounts substantially higher than the proposed offer; the
opinion of three brokers that the vessel could fetch a much-higher rate.
[5]
In the
present case, the Court is satisfied that the process adopted to obtain FPI’s
offer of $5,800,000, maximized the sale proceeds that could be available for
distribution to the creditors. A feature of this process was the sale of both
vessels “en bloc”.
[6]
The Bank
presented satisfactory evidence that the purchase price offered by FPI is well
above the fair market value of those ships. I accept the evidence of Mr. Graham
Roome, Executive VP and COO of FPI, that this offer comprises a special premium
based on strategic business reasons involving its harvesting operations.
Farocan and NRL have simply not established that a formal court-ordered appraisal
and further advertisement are necessary to ensure that these two vessels are
sold at their fair market value. Nor have they established that the interest of
the creditors would be better served by selling each ship separately.
[7]
In
reaching this conclusion, the Court considered, among other things, the
argument of Farocan and NRL that the Court should give little weight to the
valuation provided by Mr. Ture Korsager, managing director of Atlantic Shipping
A/S because of his financial interest (commission if the sale is approved) in
the matter.
[8]
In his
affidavit evidence, Mr. Korsager refers to many facts which have not been
disputed by Farocan or NRL. For example, it is undisputed that Farocan itself
had chosen this well established firm to market its vessel when it decided to
sell the Aqviq in August 2004. It is this firm that evaluated the Aqviq for her
owner on October 5, 2004. It is undisputed that since then Atlantic Shipping
and Mr. Korsager actively marketed the Aqviq to potential clients worldwide,
including those in Canada. It is also agreed that,
despite a material reduction in the asking price, the vessel was not sold.
There is no indication that any offer was ever presented to Farocan.
[9]
The Aqviq
has been laid up for two years. It will require time and money to put her back
in Class.
[10]
Since the
Bank got involved, it also appears that Atlantic Shipping has been involved in
seeking a buyer for the Kinguk. It brought FPI to the negotiations table.
[11]
In his
affidavit, Mr. Korsager concludes that the current market value of both ships
is between $4,500,000 and $5,000,000. While Farocan and NRL may suggest that Mr.
Korsager is not objective, it is worth noting that the figures he states are
corroborated by a second opinion filed by the Bank. That opinion, dated October
9, 2006, was put forth in an affidavit by Mr. Bjorgvin Olafsson, managing
director of BP Shipping Limited, another international shipbroker specializing
in the sale and purchase of fishing vessels. He places the fair market value of
the Aqviq in class as between DKK 10-12 million (about $2,000,000 and
$2,400,000) and that of the Kirguk at between DKK 12-14 million (about $2,400,000
and $2,800,000) (the difference in value between the sister ships is based on
the fact that Aqviq has been laid up for some time). He could not give an
accurate estimate of their value “out of class”.
[12]
Farocan
and NRL have produced no evidence by any independent party indicating that
these opinions were flawed or that these shipbrokers were not qualified to give
these opinions. There is no evidence that a formal appraisal based on accepted
appraisal standards would arrive at values significantly different than those
of the Bank.
[13]
It was
argued that a Canadian appraiser would be in a better position to assess the
true value of these Canadian flag vessels. There is no evidence on this point
and Farocan’s own decision to appoint Atlantic Shipping when it decided to sell
the Aqviq does not support this view.
[14]
Farocan
and NRL have produced little more than speculative evidence. NRL is not a
creditor of Farocan. It is an unsuccessful bidder in the final round of
competitive bidding organized by the Bank. Their best offer at that time was
CDN $5,260,000 for the two vessels. However, as indicated by Mr. McNamara, the
President of NRL who signed the only affidavit filed in support of Farocan and
NRL’s position, first and foremost NRL was interested in acquiring the Kinguk.
It was somewhat forced to bid for the Aqviq by the Bank. Even prior to the
final round of negotiations, NRL sought another way of acquiring the vessel(s).
They sought the purchase of Farocan’s shares in the hopes that Farocan would
then be able to obtain financing that would allow it to clear the mortgage on
their vessels before a successful bid or court-ordered sale could take place.
[15]
There is
no evidence that CDN $5,800,000 is not the maximum proceeds one could
reasonably expect from the sale of these two vessels. There is no evidence that
further advertisement could bring new bidders. Mr. McNamara only says that if
the vessels were not sold “en bloc”, the individual price of the Kinguk would
be higher, particularly because NRL is interested in acquiring this vessel for
strategic reasons. Mr. McNamara gives no indication as to how much the sale of
the Aqviq could bring and if anybody would be interested in purchasing her separately
in the context of a public auction.
[16]
Mr.
McNamara attests that it is NRL’s intention to finalize the purchase of Farocan
and to make arrangements with all existing creditors to satisfy their debts in
the best manner possible given the financial circumstances of Farocan. He
further suggests that NRL is well positioned to do this given that the company
has existing business relationships with many of Faracon’s creditors. NRL has
not, however, produced any evidence to show that any such creditors support or
approve this scheme.
[17]
The
plaintiff is not seeking to sell the vessels pending litigation. The Bank is
simply executing its judgment against its debtors’ assets. Orders calling for
appraisal and advertisement before a sale were never intended to be used as a
mean to extend a delay during which the defendant can redeem its mortgage and
thereby avoid a judicial sale altogether. The only focus today is the value of
the property to be sold and the best way to ensure that it is sold at an
appropriate price.
[18]
The Court
is satisfied that it is fair and just and in the best interest of all concerned
that the sale to FPI be approved. The terms and conditions of this sale shall
be in accordance with the terms set out in my Order.
[19]
There
appears to be no need in this case to create separate funds for each vessel to
protect potential creditors who hold a maritime lien or any other security on
only one vessel; this is particularly so given the amount of the mortgage
compared to the amount of the sale. Nonetheless, it is possible in theory that
such a situation may arise. Therefore, should it prove necessary to establish
separate funds, the Court is satisfied to rely on the evidence of
Mr. Bjorgvin Olafsson for the purpose of declaring that any such funds
should be established on the following basis: 54% of the proceeds of sale for
the Kinguk and 46% of the proceeds for the Aqviq.
“Johanne Gauthier”
MONTRÉAL, Quebec
October 27, 2006
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