Norcan Electrical Systems Inc. v. Feeding Systems A/S, 2003 FCT 702

Date: 20030602

Docket: T-1959-02

T-2091-02

Citation: 2003 FCT 702

                                                  ADMIRALTY ACTION IN REM AGAINST

THE SHIPS "FB XIX" and "FB XX"

                                                                    and IN PERSONAM

                                                                                                                                  Docket: T-1959-02

BETWEEN:

                                            NORCAN ELECTRICAL SYSTEMS INC.,

                                  doing business as FEEDING SYSTEMS CANADA

                                                                                                                                                         Plaintiff

                                                                                 and

                                  FEEDING SYSTEMS A/S, and THE OWNERS AND

                                       ALL OTHERS INTERESTED IN THE SHIPS

                                                             "FB XIX" and "FB XX"

                                                                                                                                               Defendants

                                                                                                                                                     T-2091-02

BETWEEN:

                                            NORCAN ELECTRICAL SYSTEMS INC.,

                                  doing business as FEEDING SYSTEMS CANADA

                                                                                                                                                         Plaintiff

                                                                                 and

                       FEEDING SYSTEMS A/S, FEEDING SYSTEMS CHILE LTDA.,

                and THE OWNERS AND ALL OTHERS INTERESTED IN THE SHIPS

                                       "FB XIX", "FB XX", "FB XXII", and "FB XXII"

                                                                                                                                               Defendants

                                                            REASONS FOR ORDER

HARGRAVE P.

[1]                  Underlying the present two motions, brought by Normentor A/S, assignees of the interests and liabilities of the Defendant, Feeding Systems A/S, to set bail in action T-1959-02 and to either strike out the claim or set bail in T-2091-02, are two claims for necessaries.

[2]                  The first action, T-1959-02, which I shall call the Canadian necessaries claim, is fairly straightforward, for it involves necessaries in the amount of $74,929.75 supplied to the Defendant vessels FB XIX and FB XX in Canada by the Canadian Plaintiff. Both of the vessels, which are referred to as silo barges, in that they are used to store food for fish farming operations, are under arrest by means of warrants issued by the Court. There is also a submission in the Plaintiff's affidavit material that this claim is one founded on a possessory lien.

[3]                  The second claim is more complex. It involves necessaries supplied by the same Canadian Plaintiff to the FB XXII and FB XXIII, which are said to be sister ships to the FB XIX and FB XX. I shall refer to this claim as the sister ship proceeding. The sister ship proceeding, quite legitimately, reopens The Ryan Leet (1997) 135 F.T.R. 58 in which a fundamental difference between the English and French versions of the Court's sister ship provision, section 43(8) of the Federal Court Act, was apparently not argued. In the sister ship proceeding the Plaintiff claims a principal amount of $212,357.35.

Background

[4]                  By way of background, in the Canadian necessaries claim the only challenge is a dispute as to whether Feeding Systems A/S has an offsetting claim against the Plaintiff. The evidence on this is contradictory. Here I keep in mind that bail is normally set to reflect the reasonably best arguable case of the arresting party, together with an allowance for interest and costs and that, except in exceptional circumstances, I ought to follow this general rule.

[5]                  The Defendants have not provided evidence of the value of FB XIX and FB XX although they have a pending sale. The evidence of the Plaintiff is that, as is where is, those two vessels would not fetch more than $200,000.00 each. That is the value which I shall use.

[6]                  The FB XIX, XX, XXII and XXIII, built in Estonia, while of substantial size, are apparently not registered vessels. However both sides accept that the FB XIX and XX, the vessels arrested here in Canada, are owned by Feeding Systems A/S. This ownership did not change after the bankruptcy of Feeding Systems A/S, for the vessels were only conditionally assigned to Normentor A/S. At material times the FB XXII and XXIII were owned by Feeding Systems Chile Ltd.

[7]                  The affidavit material filed on behalf of Normentor A/S establishes that at the material time the shares of Feeding Systems Chile were owned by the Defendant, Feeding Systems A/S. I also accept not only that Feeding Systems Chile was an agent of and fully controlled by Feeding Systems A/S, but that Feeding Systems A/S had guaranteed the Chilean debts of Feeding Systems Chile. From this, says the Plaintiff, it follows that the Chilean vessel FB XXII and XXIII and the arrested Canadian vessels, FB XIX and XX, are sister ships. Thus the latter two vessels are open to the additional claim for $212,357.35 for necessaries supplied by the Plaintiff to the Chilean vessels FB XXII and XXIII. Counsel for Normentor A/S, on the basis of his client's affidavit material, makes the point that notwithstanding the ties between Feeding Systems A/S and Feeding Systems Chile Ltda., those entities are two separate companies.

Consideration

Approach to Analysis

[8]                  In setting bail, I must not encroach upon the field reserved for whoever will deal with entitlement to judgment and to determination of priorities. Rather, I test against an appropriate standard which must be satisfied if the Plaintiff's in rem claim is to be secured so that it may progress for the determination of priorities. If the matter is to progress to a priorities hearing I have not been asked to render a judgment as to the entitlement of the Plaintiff, but rather to set appropriate bail figures. The bail is not an indication of what the Plaintiff will in fact realize, but rather a somewhat rough measure of what the Plaintiff might recover on its reasonably best arguable case.

[9]                  To elaborate, Normentor A/S seeks to have the sister ship claim struck out either because there is no reasonable cause of action against the sister ship barges or because there is want of jurisdiction under section 43(8) of the Federal Court Act. It must be plain, obvious and beyond doubt, as set out for example in Hunt v. Carey Canada Inc., [1992] F.C.R. 959, Operation Dismantle Inc. v. The Queen, [1985] 1 F.C.R. 441 and Canada (A.G.) v. Inuit Tapirisat of Canada, [1980] 2 F.C.R. 735 that the claim will not succeed. I should also keep in mind that serious issues of law should not be decided on a summary motion to strike out a pleading unless the issues of law are so futile as to warrant striking: see for example Vulcan Equipment Co. v. Coats Co., [1982] 2 F.C. 77 (F.C.A.) at 78, leave to appeal refused (1981), 63 C.P.R. (2d) 261n (S.C.C.). In the case of the sister ship claim I have found that the Plaintiff has a reasonably arguable case for bail and thus am not prepared to strike out the claim for want of jurisdiction, for want of a reasonable cause of action or otherwise.

Law as to Setting Bail

[10]            As to setting bail, the general rule is that a Plaintiff is entitled to bail in an amount sufficient to cover his or her reasonably arguable best case, together with interest and costs, limited by the value of the wrongdoing vessel: see for example Brotchie v. The Karey T, (1994) 77 F.T.R. 71 at 72, The Moschanthy [1971] 1 Lloyd's Rep. 37 (Q.B.) at 44, a decision of Mr. Justice Brandon. As to the cap on bail at the value of the ship, see The Staffordshire (1872) 1 Asp. M.L.C. 365 at 372 (P.C.), The Charlotte [1920] P. 78 at 80 and McGuffie on Admiralty Practice, British Shipping Laws, Volume 1, Stevens and Sons Limited of London, 1964 at page 140. This cap on bail applies even though the claim, costs and interest may exceed the value of the arrested ship.

[11]            Of course, the amount of bail is at the discretion of the Court, which may release a vessel on appropriate terms and security: see for example Argosy Seafoods Ltd. v. The Atlantic Bounty (1991), 45 F.T.R. 114 (F.C.T.D.) at 120 where Mr. Justice MacKay allowed that there might be a departure from the general rule as to the amount of bail where the circumstances were "quite extraordinary". This approach is in line with the decision of Mr. Justice Brandon in The Moschanthy (supra) at 43, where he pointed out that it was wholly inappropriate, on a bail hearing, for the Court "...to embark on a close examination of the merits of the Plaintiffs' claim, both as regards liability and amount and to form a concluded view against the Plaintiff on such merits...". This is not to say that the Court may not make a rough and ready assessment of the likelihood that a claim will not succeed in full and as a result discount the amount of security: see The Gulf Venture [1984] 2 Lloyd's Rep. 445 at 449, a decision of Mr. Justice Sheen. However, as I pointed out in Atlantic Shipping (London) Ltd. v. The Captain Forever (1995), 97 F.T.R. 32 at 37, The Manitou III, an unreported 6 December 1988 decision of Mr. Justice Muldoon in T-2180-88, [1988] F.C.J. No. 1124, The Moschanthy (supra) and the Tribels [1985] 1 Lloyd's Rep. 129 "... stand for the proposition that a Court, in an interlocutory proceeding to set bail, ought not to try the case in order to determine the value of the Plaintiff's reasonably arguable best case, in setting security, unless there are special circumstances.". Certainly special circumstances may include claims which contain major uncertainties, or where the security requested is exorbitant. But generally speaking, if the security demanded and posted is excessive, there is a separate remedy for wrongful demand of excessive security.

Some Sister Ship Considerations

[12]            The law bearing on whether or not there is a sister ship claim is more interesting. The appropriate starting place is The Arrest of Seagoing Ships Convention, Brussels, 10 May 1952. The Convention provides, in part:

Through this wording the Convention confines the arrest of a ship, in the case of a maritime claim, to one ship. However, as Tetley on Maritime Liens and Claims, 2^nd edition, Blais International Ship Publications, 1998 points out at page 1031, the one ship may be either the offending ship or any other ship in the same ownership and here we are looking to see if ownership of the shares in the companies that own the vessels, are in the same ownership.

[13]            Sister ship legislation becomes fairly clearly if one keeps in mind that its purpose was to prevent an owner from improperly insulating assets by putting each ship into a separate company in which the overall owner held all of the shares. A current example of sister legislation is the British approach set out in the Supreme Court Act 1981. Under section 21(4)(b) of that legislation, as pointed out by Tetley (supra) at page 1035, a claimant can arrest either:

This summation is derived from The Lloyd Pacifico [1995] 1 Lloyd's Rep. 54. Tetley then goes on to point out at page 1025 that the British provision has not entirely complied with the 1952 Convention. At page 1039 Tetley goes on to look at the problem of one-ship companies the shares of which are held by single shareholders and the ascertaining of beneficial ownership.

[14]            In contrast to all of this, Canada has not ratified the 1952 Convention. However section 43(8) of the Federal Court Act does provide a form of sister ship arrest:

Evident here is that there is no limit, under the Canadian sister ship legislation on the number of ships which may be arrested. Canadian sister ship legislation was dealt with in The Ryan Leet (1997), 135 F.T.R. 67. In that instance the plaintiffs commenced an action against Terra Nova Sea and her owners, Kenworthy Limited, arresting the Ryan Leet on the basis that it was a sister ship of the Terra Nova Sea. Secunda Marine Services Limited, the owner of the Ryan Leet, moved for various relief, including the setting aside of the arrest of the alleged sister ship Ryan Leet.

[15]            In The Ryan Leet the court decided that the reference to "owner" referred to the registered owner in each instance. Thus the registered owners of the two vessels not being the same there could be no sister ship arrest under the Canadian legislation. This limitation of sister shp arrest, to vessels with identical registered owners, is contrary to sister ship legislation in most if not all other jurisdictions. However, on the basis of the English version of section 43(a) of the Federal Court Act, there is no alternative interpretation, even though this may seem perverse, for Canada is generally a ship-employing country, not a ship-owning country.

[16]            Counsel for the Plaintiff submits a compelling argument by comparing the French and English versions of section 43(8), a point apparently not argued before Mr Justice Rothstein. I accept the translation of the French-language version of the section as follows:

For ready comparison the English version of section 43(8) is as follows:

Here we have a reversal, in the French and English versions, of the terms "beneficially owned" and "owner", giving very different meanings to the two versions.

[17]            The translation, which I say I accept, is provided by Mr Victor DeMarco, a long-time partner with the Brisset Bishop firm of Montreal and a member of the Canadian Maritime Law Association. Mr DeMarco was not cross-examined on his affidavit. The affidavit ends on an interesting note:

However interesting this footnote, which may indicate a slip between the original French language draft and the subsequent English translation of the provision, I cannot accept it as evidence. That would require the affidavit of Ms Danèle Dion. Rather, I must work with the clearly different wording and look for an arguable best case on that basis.

[18]            Applicable principles of statutory interpretation, in instances in which French and English versions of legislation do not match, are set out in Flota Cubana de Pesca v. Canada (MCI) (1997), 221 N.R. 356 (F.C.A.) at 366 and following, Beothuk Data Systems Ltd., Seawatch Division v. Dean, [1998] 1 F.C. 433 (F.C.A.) and [1983] 1 S.C.R. 2">Abrahams v. Canada (Attorney General), [1983] 1 S.C.R. 2.

[19]            The test sets out by Mr Justice of Appeal Stone in Flota Cubana includes a purposive reading of the statute as a whole; an acceptance of French and English versions on an equal footing, rather than giving automatic preference to one language over another; and an attempt to reconcile by identifying and adopting a shared meaning, which is not always determinative for the shared meaning principle will be discarded where an alternative interpretation, based on the intent and meaning that best ensured the attainment of an objective, is a more appropriate approach: these principles are discussed at pages 362 through 364 of Flota Cubana. Mr Justice Stone then goes on to refer to the dissenting decision of L'Heureux-Dubé in Canada (Attorney General) v. Mossop, [1993] 1 S.C.R. 554 at 618 that "it is the meaning which furthers the purpose of the legislation which must prevail". He points out that this approach has since been endorsed by various courts, including by the Supreme Court of Canada and is set out in Driedger on Construction of Statutes, 3^rd edition, Butterworths at 234 where the editor points out that a court will often examine the legislative origin and history of a statutory provision to effect a reconciliation of conflicting French and English versions: Flota Cubana at 364. Mr Justice Stone pursues this examination of legislative history at page 367 and following and, in that instance, accepted the broader interpretation expressed in the English version of the legislation.

[20]            In Beothuk Data System Ltd. (supra) Chief Justice Isaac, beginning at page 454, considered the shared meaning rule, but felt that it ought not to be used, to the exclusion of other means of analysis, to resolve a conflict between English and French versions of legislation (page 455). He went on to point out that in Beothuk (supra) it was not a case one language version being ambiguous and the other clear, but rather of one version being capable of a broader meaning. He then posed the question not as a matter of which version of a statute was better literature, but rather, regarding the whole of the legislation, in both versions, what did Parliament in fact intent, referring to the 2^nd edition of Driedger on Construction of Statutes at page 171.

[21]            Of course, there are always short and pragmatic approaches to this sort of issue. For example Madam Justice Wilson in [1983] 1 S.C.R. 2">Abrahams (supra) after a good deal of analysis and some doubts, suggested a resolution in favour of the claimant (page 10), or as in Re Price (1973) 8 N.B.R. (2d) 620 (Q.B.), the French version was accepted because the English version was virtually meaningless.

[22]            In the present instance the French and English versions of section 43(8) of the Federal Court Act do not share a meaning, other than to allow some form of sister ship arrest.

[23]            The English version, as considered in The Ryan Leet, allows the arrest of a second vessel which is in the same ownership as what I will call the wrongdoing vessel. The Ryan Leet properly reflects the English version of section 43(8), however the English version of section 43(8) is contrary to the 1952 Arrest Convention, which extends arrest by way of beneficiary ownership, bringing home a claim to a ship directly owned by someone who is also a beneficial owner, of the wrongdoing vessel. This is also the effect of the British legislation, which is modelled on the 1952 Arrest Convention sister ship provision. This, if one looks at history of the sister ship concept, is what was intended. In addition to extending the rights of claimants to claim against ships under common beneficial ownership, another purpose of the legislation is to allow those with claims against a wrongdoing ship to attach the assets of the de facto economic power behind that ship.

[24]            The plain wording of the French version of section 43(8) allows an arresting party to invoke the concept of beneficial ownership in a meaningful way. Thus, were the French version of 43(8) of the Federal Court Act to be applied to the present situation, the Plaintiff has at least a substantial and reasonably arguable case that the FB XIX and FB XX, being vessels owned by Feeding Systems A/S, are liable as sister ships because Feeding Systems A/S has beneficial ownership of the wrongdoing vessels, FB XXII and FB XXIII, by way of ownership of the shares of Feeding Systems Chile, which is the owner of the latter two vessels.

[25]            On this analysis, which includes a consideration of the purpose and intent of sister ship legislation, one need not employ the suggestion of Madam Justice Wilson, in [1983] 1 S.C.R. 2">Abrahams (supra), that a claimant be given the advantage of the most favourable linguistic version of legislation.

[26]            All this is not to say that the Plaintiff has a sure and certain sister ship claim against the vessels under arrest in the Federal Court, for that is to be determined after a full hearing of the matter, not merely on a fixing of bail. But rather, it is to say that the Plaintiff has a reasonably best arguable case for the sister ship status of the FB XIX and FB XX on which to require bail.

Amount of Bail

[27]            Subject to court order an arresting claimant is entitled to maintain the arrest of the ship until the claim has been satisfied or security posted in one or more of various usual forms. Bail, as security to achieve the release of an arrested ship, must be looked upon as being a substitution of personal security to take the place of the arrested ship as security for what may be received: see for example Marsden on The Law of Collisions at Sea, British Shipping Laws, volume 4, 1961, Stevens and Sons Limited, London at page 146. In this sense, bail, or other security, is the full value of the plaintiff's reasonably best arguable case, interest and costs, without diminution or discount.

[28]            While the full value concept is the general rule, the Court does have the discretion to release the vessel on appropriate terms, but any departure from the general rule should only be undertaken when the circumstances are "quite extraordinary" for an arrest to be deemed valid and the plaintiffs' claim anticipated as being capable of being established: see for example The Moschanthy (supra) at 43 and The Atlantic Bounty (supra) at page 120. In The Atlantic Bounty Mr Justice MacKay set bail at $295,000.00, being less than the plaintiff claimed because counsel for the plaintiff had acknowledged that a portion of the claim might not be enforceable in the Federal Court. However, despite efforts to have bail further reduced below the $295,000.00 figure, Mr Justice MacKay pointed out that the various arguments which might lead to release from arrest did not go to quantum and that "In such a motion the arrest is deemed to be valid and the claims of the plaintiff, at least at this stage in proceedings, must be anticipated as being capable of being established." (page 120).

[29]            In the present instance there is some suggestion, and it goes no further, that there will be a counterclaim against the Plaintiff which the deponent of an affidavit sworn on behalf of Normentor A/S, by its principal, sets at "close to $2,000,000.00 CDN". I do not see this as extraordinary circumstances by which I should discount the claim of Norcan Electrical Systems Inc. That is an issue best left to the hearing of the matter, when there will be the opportunity to fully examine proof of the claims.

[30]            In the case of the Canadian necessaries claim, it is presented at $74,929.75, a figure I accept as a reasonable arguable best case. Interest rates are presently low. However I must also consider that even if the parties move along smartly to readiness for trial, hearing dates are by no means immediate. I therefore add an approximate allowance to cover interest for two and a half years at a reasonable borrowing rate, 6% and, compounded semi-annually, say $11,660.00. As to taxable costs, I allow $18,000.00. This is a little lower might otherwise be the case because there will be some common elements in proceeding with the Canadian necessaries claim and the sister ship claim. In total, bail or other appropriate security for the Canadian necessaries claim will be, in round figures, $104,650.00.

[31]            Taking the same approach to the sister ship claim, I accept that the reasonably arguable best case is $212,357.35. While I recognise that the Plaintiff would like interest at 1.25% per month, there is insufficient material by which to substantiate that rate. Thus the interest will, again, be at 6% compounded semi-annually for two and a half years. In round figure this will be $32,800.00.

[32]            As to costs, while taking into account that the actions may well proceed in tandem, I also recognise that the sister ship claim will be more difficult to litigate, may well require extensive discovery and will incur substantial disbursements. I therefore put taxable costs at $45,000.00. Thus bail for the sister ship proceeding will total, in round figures, $289,800.

[33]            The total bail, for the release of the two ships, FB XIX and FB XX, in round figures, will be $394,450.00. This figure is consistent with the value of the two vessels, put by Mr Hines, for the Plaintiff, in his affidavit at "not more than CDN $200,000.00 each". In that there is nothing to indicate that one or the other of the FB XIX or FB XX might be worth marginally more than the other, bail is set at $197,225.00 for each.

Bail as a Common Fund

[34]            Counsel for the Plaintiff, I believe on the basis that the bail or security might be to the full value of the vessel, which is the case, expressed a concern that the bail or security be impressed with any possessory lien held by the Plaintiff. On reflection, this is appropriate, for while the bail provided to the Court to secure the Plaintiff is in lieu of the security as represented by the arrested vessel, there is case law to the effect that such a fund, even though constituted through the effort of the Plaintiff, might become a common fund available to all in rem claimants. There are various cases to this effect, leaving aside the obvious in which a ship owner may take steps to limit overall liability by paying a common fund, or the full value of the vessel, into court. This common fund concept is touched upon in The Roberta [1938] P. 1. In The Roberta bail was put up for only part of the value of the vessel to plaintiffs which brought an action in rem and arrested the ship. Subsequent claimants, who took no part in the arrest, then decided to look to that existing bail to satisfy their claims: they were denied, on the basis that it was not a common fund. Among the ways in which a common fund might be established are, as I say, by a ship owner offering bail either to the limit of the liability of or to the value of the vessel, bail being a payment to the court, or by an undertaking to put up bail to the full value of the ship, or by a court order for the sale of the ship. Here I would refer to The Joannis Vatis [1922] P. 92 in which a plaintiff, having carriage of litigation, approached other potential claimants to ask for their participation. Some declined. However, since the bail was to the full value of the Joannis Vatis, the arresting plaintiff had to share that fund with other in rem claimants, even though they had declined to participate in the first instance. Similarly in The Russland [1924] P. 55, the fund arising from the judicial sale of the vessel became a common fund for the benefit of a number of salvors.

[35]            In the present instance, the security being at or near the value of the arrested barges, it may well be a common fund if it is provided in the form of bail. Were that the case it would be disbursed to various claimants as their priorities might appear. Thus the concern of counsel for Plaintiff is a real one. In The Russland Mr Justice Hill did look at priorities, I think as a matter of course. However, so that there is no confusion, the Plaintiff's existing priorities in connection with the Defendant vessels will carry through in support of proper and permitted claims as against any bail provided.

[36]            I thank counsel for interesting presentations.

[37]            One set of taxable costs to the Plaintiff under Column III of Schedule B, above mid range, as the taxing officer may allow or as may be agreed, payable at the end of the day.

(Sgd.) "John A. Hargrave"

                                                                                              Prothonotary

Vancouver, British Columbia

2 June 2003

                                                   FEDERAL COURT OF CANADA

                                                                    TRIAL DIVISION

                             NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                                            T-1959-02 and                                                                                                                           T-2091-02

STYLE OF CAUSE:                        Norcan Electrical Systems Inc. v. The Ships "FB XIX" and "FB XX" et al.

and

Norcan Electrical Systems Inc. v. The Ships "FB XIX", "FB XX", "FB XXII" and "FB XXIII" et al.

PLACE OF HEARING:                  Vancouver, British Columbia

DATE OF HEARING:                      28 April 2003

REASONS FOR ORDER:            Hargrave P.

DATED:                                              2 June 2003

APPEARANCES: