Date: 20030310
Docket: T-194-97
Neutral citation: 2003 FCT 292
Toronto, Ontario, Monday, the 10th day of March, 2003
Present: Roger R. Lafrenière, Esquire
Prothonotary
BETWEEN:
CANADIAN IMPERIAL BANK OF COMMERCE
Plaintiff
- and -
THE OWNERS AND ALL OTHER INTERESTED
PARTIES IN THE SHIPS LE CHENE No. 1, L'ORME No. 1,
LE SAULE No. 1 and W.M. VACY ASH
Defendants
REASONS FOR ORDER AND ORDER
[1] This motion involves competing claims by the Plaintiff, the Canadian Imperial Bank of Commerce ("CIBC"), and by Chief Engineer Donald MacKenzie ("MacKenzie") upon the proceeds of sale of the vessels "LE CHÊNE NO. 1", "L'ORME NO. 1" and "LE SAULE NO. 1" (the "Defendant ships"). CIBC claims priority based on its mortgages on the Defendant ships. MacKenzie maintains that his claim for unpaid wages arising from his employment with the ships' owner takes precedence.
[2] The amount in dispute at the time the motion was brought by MacKenzie was $73, 286.84, less employment benefits he received, plus interest and costs. The issues have since been narrowed. First, CIBC does not dispute that MacKenzie is entitled to vacation pay of $9,878.40 and to personal expenses totalling $320.00. Further, it agrees that the said amounts are properly secured by maritime liens and take priority over its mortgages. Second, CIBC acknowledges, based on the decision of Pratte, J. (as he then was) in Karamanlis v. Norsland, [1971] F.C. 487, that this Court has jurisdiction to award damages for wrongful dismissal. It concedes as well, for the purpose of this motion, that a reasonable notice period would have been eight months. CIBC disagrees, however, that MacKenzie was wrongfully dismissed, or that he is entitled to recover annual bonuses. Moreover, CIBC maintains that even if the claims are established to be valid, they are not secured by a maritime lien, and consequently, do not rank ahead of CIBC's security.
[3] The principal issue is whether MacKenzie's claims for severance pay or damages for wrongful dismissal (hereinafter globally referred to as "severance pay") give rise to a maritime lien. Central to the dispute is the nature of the underlying contractual relationship between the employer and MacKenzie.
BACKGROUND
[4] The Defendant ships were owned by Socanav Inc. ("Socanav"), a large tanker company in Montreal. MacKenzie, who was previously employed as a Second Engineer with Gulf Canada Inc. since 1977, was hired by Socanav as a Chief Engineer on June 4, 1985. Socanav employed its own crews, including Mackenzie, on the Defendant ships and other vessels within its fleet. For the period from 1985 to 1997, MacKenzie's contract of employment did not relate to services on a particular ship, although he was primarily assigned to the vessel "LE CHÊNE NO. 1" .
[5] On September 20, 1996, Socanav filed a Notice of Intention to make a Proposal to creditors pursuant to the Bankruptcy and Insolvency Act. The Quebec Superior Court in bankruptcy (the "Bankruptcy Court") granted Socanav's petition to appoint an interim receiver, with the power to sell certain of its assets and to complete the sale to another company. The sale fell through, however, after the one of Socanav's vessels, the "M.V. VACY ASH", was seized by unpaid suppliers at a port in France on October 21, 1996.
[6] Due to its continued financial difficulties, Socanav entered into a short-term agreement with a numbered company on November 21, 1996 to operate the Defendant ships and to pay all costs relating to their maintenance. The agreement expired in early January 1997 and MacKenzie's employment was terminated shortly thereafter. Within a few weeks, the Bankruptcy Court declared Socanav bankrupt, retroactively to the date of filing of its notice.
[7] The Defendant ships were arrested by their mortgagee, CIBC, and ordered to be sold by this Court on March 10, 1997. Following their sale on April 7, 1997, which yielded $2,700,00.00, the proceeds were paid into Court pending satisfaction or disposition of third party claims. All of the claims by other third parties have since been resolved, and a number of payments have been made. MacKenzie is the sole remaining claimant against the balance of the funds standing to the credit of this action in the amount of $120,000.00, plus accrued interest. The monies have been held back from CIBC pending a determination of the quantum of MacKenzie's claim and its priority in relation to that CIBC. In light of the substantial shortfall in Socanav liquidation, it is critical to MacKenzie that his claim be protected by a maritime wages lien.
ANALYSIS
[8] I propose to deal with two matters before turning to the issue of MacKenzie's entitlement to a maritime lien for severance pay; first, MacKenzie's claim for unpaid bonuses and, second, his right to claim damages for wrongful dismissal.
Claim for Annual Bonuses
[9] According to MacKenzie, bonuses of up to $5,000.00 were paid annually to employees from 1986 to 1991. MacKenzie therefore claims $12,500.00, representing the average annual bonuses that he claims should have been paid to him over the last five years of the company's operations. This claim is not supported, however, by the evidence. In his affidavit, MacKenzie acknowledges that his employer stopped paying bonuses after 1991. Although senior management apparently informed the employees time and time again that annual bonuses would be "made up" the following year, the evidence falls short of establishing a firm commitment on the part of the employer to reinstate annual bonuses. The fact that the employees did not grieve the employer's failure to pay bonuses over the years suggests that they recognized that such payments were entirely discretionary. Since it has not been established that MacKenzie was entitled to bonuses under his contract of employment, or otherwise, (see Llido v. The "Lowell Thomas Explorer", [1980] 1 F.C. 339), I conclude that this portion of his claim should not be allowed.
Damages for Wrongful Dismissal
[10] MacKenzie claims that it was an implied term of his employment that reasonable notice or pay in lieu would be given in the event of dismissal. There is no dispute that Socanav's assignment in bankruptcy resulted in the termination of MacKenzie's employment. MacKenzie's claim for damages arises from the failure by his employer to provide adequate notice of termination. CIBC contends that Socanav cannot be faulted for failing to give notice of termination to its employees, since public disclosure of its financial difficulties would only have precipitated its demise. It submits that Socanav acted reasonably in its attempts to stave off bankruptcy and to continue its business, and that MacKenzie was therefore not dismissed voluntarily, but rather, that his employment was terminated by operation of law. I disagree.
[11] At common law, the ability of a terminated employee to seek damages for wrongful dismissal from a bankrupt employer is directly related to the manner in which the employer was assigned in bankruptcy. If the assignment occurred on the petition of a creditor, the employee's right to damages may not exist. However, where the assignment is made voluntarily, in the sense that it was the employer's choice to trigger the bankruptcy, the employer effectively terminates the employment: Re Kemp Products Ltd. (1978), 27 C.B.R. (N.S.) 1; Re Penningtons' Stores Ltd. (1996), 21 C.C.E.L. (2d) 318; and In Re Bryant, Isard and Co. (1922), 3 C.B.R. 352. Based on the evidence before me, I conclude that MacKenzie's employment relationship was terminated as a result of the act of the employer. Since termination was without cause and without notice, MacKenzie is entitled to damages for wrongful dismissal.
Entitlement to Maritime Lien
[12] Turning now to the principal issue in this motion, MacKenzie submits that he is entitled to a maritime lien in support of his claims for severance pay against the Defendant ships. A traditional maritime lien is a lien unique to the common law. It is a privileged claim upon maritime property. It is enforced, as with other claims, by means of an action in rem. A maritime lien arises by operation of law in respect of a limited number of claims under Canadian maritime law. These include claims for seamen's wages or remuneration. The opportunity to enforce a maritime lien is recognized by paragraphs 22(2)(o) of the Federal Court Act read together with subsection 43(3). Section 22(1)(o) of the Federal Court Act provides that the Trial Division has jurisdiction with respect to any claim by a master, officer or member of the crew of a ship for wages, money, property or other remuneration or benefits arising out of his employment.
[13] The maritime lien for wages has expanded to embrace any form of emolument properly described as "wages": The "Tacoma City", [1991] 1 Lloyd's Rep 330 (C.A.) at pp. 335 and 336 and The Halcyon Skies, [1976] 1 All ER 856 at 864-862. At first blush, it appears that severance pay, including damages for wrongful dismissal, are eligible for inclusion in a maritime wages lien. A seaman must show, however, a relationship between the severance pay and the particular ship in respect of which the lien is claimed. In this regard, I refer to the decision of Clarke, J. in The "Ever Success" (1999), 1 QB 824 at p. 832, where he said:
"In my judgment the authorities show that a master or a seaman is entitled to wages and thus to a coextensive maritime lien if he renders the service appropriate to his rank. That is as, say, master, chief engineer or seaman. He must be part of the crew of the ship but need not necessarily render the service on board the ship or live on board the ship, but the service must be in a real sense referable to the ship and the service must be rendered during a period when the particular claimant can fairly be said to be part of the crew of the ship."
[14] The need for the wages to be "referable to the ship" go to the very essence of a maritime lien. It is, after all, a lien over the ship only because the wages in question relate to the ship. In The "Tacoma City", supra, the fundamental reason for excluding severance pay from the lien was the fact that the right to payment stemmed not from a ship, or voyage contract, with the relevant ship-owner but a company service agreement with a distinct management company. The particular employment contract, or other circumstances, which give rise to the right to the compensation claimed must therefore be carefully considered.
[15] MacKenzie's claim for 8 months pay in lieu of notice is calculated and based on his 31 years at sea as an officer, of which 12 years were with Socanav. MacKenzie was hired as a full-time employee as of July 1, 1985 under a written contract providing a daily wage, payable 365 days a year, and a number of fringe benefits, including life insurance, health insurance and a pension fund. His long term employment agreement is similar to the company service agreement that was considered by the English Court of Appeal in The Tacoma City. As Ralph Gibson LJ explained at p. 336, the purpose of company service agreements was:
"... to provide a better alternative to the existing system under which the majority of seafarers entered into new contracts every time they signed new articles, and thus had no continuity of service and, in particular, were deprived of the benefits which long service might be expected to bring. Under the new system, a seafarer who made a company service contract was employed on terms which remained unaltered for the duration of the contract even though he might serve on a number of different ships owned by different companies within his company group."
[16] Company service agreements provide continuous employment notwithstanding the particular voyages or ships which may from time to time be involved. To extend a maritime lien to severance pay stemming from a company service agreement however, as opposed to specific maritime property, would be contrary to the rationale for a lien.
[17] If the true source of the severance pay is not a contract specific to a ship, but a company service agreement, the required link between severance pay and the ship is lacking. In those circumstances, the termination of employment has come about not because the seaman became surplus to the requirements of the ship, but rather, surplus to the requirements of the overarching employment relationship pursuant to the company service agreement. That was the situation in The "Tacoma City", supra, which I wholly adopt. In my view, the circumstances that gave rise to the claim for compensation stemmed from the company service agreement, not any agreement specific to the Defendant ships.
CONCLUSION
[18] In summary, although MacKenzie worked 8 out of his 12 years with Socanav crewing on the Defendant ships, I am unable to conclude that his claim for severance pay or damages are referable to the services he provided on the Defendant ships. For the above reasons, I conclude that the claimed wages in lieu of notice or damages for wrongful dismissal give no lien upon the Defendant ships, save and except for the vacation pay and personal expenses that were conceded by CIBC.
ORDER
THIS COURT ORDERS THAT:
1. The amount of $10,198.40, representing vacation pay of $9,878.40 and personal expenses of $320.00, plus any accrued interest on the said amount, shall be paid out to Chief Engineer Donald MacKenzie.
2. The balance of the monies paid into Court, plus accrued interest, shall be paid out to the Canadian Imperial Bank of Commerce.
3. There shall be no order as to costs.
"Roger R. Lafrenière"
Prothonotary
FEDERAL COURT OF CANADA
TRIAL DIVISION
Names of Counsel and Solicitors of Record
DOCKET: T-194-97
STYLE OF CAUSE: CANADIAN IMPERIAL BANK OF COMMERCE
Plaintiff
- and -
THE OWNERS AND ALL OTHER INTERESTED
PARTIES IN THE SHIPS LE CHENE No 1, L'ORME
No. 1, LE SAULE No. 1 and W.M. VACY ASH
Defendants
PLACE OF HEARING: TORONTO, ONTARIO
DATE OF HEARING: TUESDAY, JULY 10, 2001
REASONS FOR ORDER
AND ORDER BY: LAFRENIÈRE, P.
DATED: MONDAY, MARCH 10, 2003
APPEARANCES BY: Mr. Nigel H. Frawley
For the Plaintiff
Mr. Edouard Baudry
For the Defendants
SOLICITORS OF RECORD: BORDEN LADNER GERVAIS LLP
Barristers and Solicitors
Scotia Plaza
40 King Street West
Toronto, Ontario
M5H 3Y4
For the Plaintiff
LAVERY, DE BILLY
Barristers & Solicitors
Suite 4000
1 Place Ville Marie
Montreal, Quebec
H3B 4M4
For the Defendants
FEDERAL COURT OF CANADA
Date: 20030310
Docket: T-194-97
BETWEEN:
CANADIAN IMPERIAL BANK OF
COMMERCE
Plaintiff
- and -
THE OWNERS AND ALL OTHER INTERESTED PARTIES IN THE SHIPS LE CHENE No 1, L'ORME No. 1, LE SAULE No. 1 and W.M. VACY ASH
Defendants
REASONS FOR ORDER
AND ORDER
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