Date: 20020402
Docket: T-2009-00
Neutral Citation: 2002 FCT 339
BETWEEN:
FINANSBANKEN ASA
Plaintiff
and
THE VESSEL "GST KATIE"
THE OWNERS AND ALL OTHERS INTERESTED IN
THE VESSEL "GST KATIE"
THIRD OCEAN MARINE NAVIGATION COMPANY L.L.C.
Defendants
REASONS FOR ORDER AND ORDER
BLAIS J.
[1] This is a motion to overturn an order of the Prothonotary Mr. Richard Morneau, dated January 22, 2002. The order dismissed the claim of Clipper Inc.
RELEVANT FACTS
[2] Following an epic voyage across the Atlantic Ocean, and after being boarded and inspected by members of the Canadian Forces, the vessel "GTS Katie" finally arrived in Montréal during the summer of 2000.
[3] Subsequently, the boat was put up for sale and a number of Court orders provided for both the conditions of sale and how creditors with claims against the "GTS Katie" could assert their rights.
[4] Both the plaintiff Finansbanken ASA and Clipper Inc. asserted their rights by filing claims.
[5] The plaintiff asserted its rights as a first mortgagee, while Clipper Inc. filed a claim that at the time when the boat was seized, in November 2000, an agreement was reached between the owners of the boat (Third Ocean Marine Navigation Company L.L.C.) and Clipper Inc. to the effect that Clipper Inc. undertook to supply some necessities such as food for the crew and some antifreeze and that in return the boat's owners had transferred the ownership and possession of certain property including inter alia forty boxes of documents pertaining to the ship (some drawings, designs and operating manuals), life-saving equipment and some respirators.
[6] The said property referred to above was located on the eve of the sale of the ship and, under an agreement between the parties, was also given to the sheriff for him to sell.
[7] Counsel for Clipper Inc. informed the Court that his client had not thought it appropriate to oppose the bank's claim since it recognized the validity of its first mortgage.
[8] However, the bank opposed Clipper Inc.'s claim both when filing a notice of contestation and subsequently, when filing its written submissions in opposition to the claim of Clipper Inc.
[9] It appears that the property supplied by Clipper Inc. to the ship "GTS Katie" is worth approximately $6,000, while the property given as security was worth more than $40,000.
[10] It appears from the record that the owner of the ship already owed more than $36,000 to Clipper Inc. and that the property given as security was to cover not only the value of the goods given by Clipper Inc. to the ship, i.e. the food, but also the value of the prior debts owing to Clipper Inc. by the ship's owner.
[11] In a decision rendered January 22, 2002, the prothonotary Mr. Richard Morneau dismissed the claims of Clipper Inc. in regard to any application for protection, priority or distraction, allowing it to be paid in priority to the bank and Lloyd's, which are the two mortgagees in this matter.
ANALYSIS
[12] The Federal Court of Appeal, per Mr. Justice MacGuigan, has previously explained the parameters of the Court's intervention in an appeal from a discretionary order of a prothonotary. In Canada v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425, MacGuigan J.A. wrote, at pages 462-63:
I also agree with the Chief Justice in part as to the standard of review to be applied by a motions judge to a discretionary decision of a prothonotary. Following in particular Lord Wright in Evans v. Bartlam, [1937] A.C. 473 (H.L.) at page 484, and Lacourcière J.A. in Stoicevski v. Casement (1983), 43 O.R. (2d) 436 (Div. Ct.), discretionary orders of prothonotaries ought not to be disturbed on appeal to a judge unless:
(a) they are clearly wrong, in the sense that the exercise of discretion by the prothonotary was based upon a wrong principle or upon a misapprehension of the facts, or
(b) they raise questions vital to the final issue of the case.15
Where such discretionary orders are clearly wrong in that the prothonotary has fallen into error of law (a concept in which I include a discretion based upon a wrong principle or upon a misapprehension of the facts), or where they raise questions vital to the final issue of the case, a judge ought to exercise his own discretion de novo.
___________________
15 It should be noted that Lord Wright's phrase "the final issue of the case" is quite different from "the final issue in the case." Lord Wright means "vital to the result of the case" rather than "vital to the ultimate issue on the merits of the case."
As to which judge to follow in Evans v. Bartlam, it is true that what Lord Atkin said in at p. 478 could imply that in every case a judge must exercise his own discretion: "His own discretion is intended by the rules to determine the parties' rights: and he is entitled to exercise it as though the matter came before him for the first time. He will, of course, give the weight it deserves to the previous decision of the Master: but he is in no way bound by it." But even if these words are to be given their full extension, in contradistinction to the opinion of Lord Wright, it would be by no means clear that he carried a majority of the House with him on the point. Only Lord Thankerton concurred with him. Lord Russell of Killowen did not deal directly with the matter, and Lord Roche, appearing to recognize no distinctions in the views expressed, concurred with everyone. In any event, what the appellant needed to establish was the opposite point of view to that she contended Lord Atkin held, viz., that the master's discretion should always govern, but in fact she endorsed a modified version of Lord Wright's rule, and was unable to sustain it.
[13] I must acknowledge that the order rendered by Prothonotary Morneau raises questions vital to the final issue of the case. The effect of the prothonotary's decision was purely and simply to dismiss the claim of Clipper Inc., and I have no hesitation in finding that the judge's intervention is warranted in the circumstances.
[14] However, if I may refer to the note cited in the decision of MacGuigan J.A., although the judge is entitled to exercise his discretion as though the matter had come before a judge of the Federal Court for the first time, it is appropriate that the Court should take into consideration the decision rendered by the prothonotary. Although I do not feel I am bound by that decision, it must be examined with great deference.
[15] It seems that the boat's owner was in a difficult, if not delicate situation, upon its arrival in Montréal. He may have been somewhat constrained to assign the ownership of certain property on the vessel in order to guarantee that Clipper Inc. would supply certain goods, among them some foodstuffs. However, that is no justification for flouting the legitimate rights of the mortgagees.
[16] While there is an understandable interest in furnishing security for the supply of necessities worth about $6,000, it is surprising that the owners of the boat would, in exchange, undertake to provide security that is apparently eight times greater than the value of the goods supplied, and covers some prior debts of the vessel owing to the same supplier. The property given as security belonged to the bank; it is often easier to be generous with property belonging to others.
[17] This kind of last-minute transaction designed to furnish security on property that cannot be justified in any way is a voidable transaction in most cases, since it is made without consideration or for consideration that generally exceeds the value of the property in question.
[18] Furthermore, the plaintiff bank had outlined its mortgage rights at the first opportunity and Clipper Inc. had chosen not to dispute them.
[19] Counsel for Clipper Inc. has not managed to persuade me that the bank ever agreed to this oral last-minute transaction, and the fact that the goods were being sought up to the last minute and that in the end it was only on the eve of the vessel's sale that the sheriff was able to recover the property that was the subject matter of the transaction in order to proceed with the sale demonstrates the absence of both consent and knowledge of the transaction on the part of the bank.
[20] Counsel for Clipper Inc. suggests that the cross-examination of Mr. Margan, the representative of Third Ocean, shows that the bank was aware of this transaction.
[21] Counsel for Clipper Inc. argues that, in the proper course, if the bank wished to contradict these statements, it should have filed some evidence either through an affidavit by a representative of the bank or otherwise, and that the evidence from Mr. Margan's testimony remains uncontradicted evidence amounting to consent to the transfer of the said property.
[22] I have carefully reviewed the way in which the prothonotary examined this question and I am unable to find any error whatsoever in his assessment of the evidence or in the decision he rendered following his analysis. If counsel for Clipper Inc. considers that the bank's allegations in opposition to his claim, based on its mortgage, are somewhat belated, the same criticism can easily be made of him in regard to his decision not to challenge at the very least its claims that the property obtained as security was not covered by the mortgage, if not the validity of the bank's equity.
[23] Counsel for Clipper Inc. has not managed to persuade me either that the various boxes of documents including the drawings and specifications of the boat, the operating manuals and a number of items of equipment needed for navigation were not covered by the relevant clause in the mortgage, which is examined in paragraph 16 of the prothonotary's decision:
the whole of the vessels TOGETHER with all of the boilers, engines, machinery, masts, boats, anchors, cables, chains, tackles, apparel, furniture, fittings, equipment, fuel, consumable, stores and all other appurtenances to the vessel appertaining or belonging whether now owned or hereafter acquired whether on board or not and all additions, improvements and replacements here and after made in or to the vessel or any part thereof or in or to the equipment and appurtenances aforesaid.
[24] Prothonotary Morneau analyzed in detail the submissions of both the bank and Clipper Inc., and analyzed the correspondence they exchanged.
[25] The argument that the prothonotary should not have considered or examined the terms of the mortgage held by the bank, since it appeared only as an appendix to the evidence submitted in support of its own claim, has no foundation whatever in my opinion and must be rejected outright. The bank's mortgage is the very basis of its claim. Clipper Inc. could not ignore it, and still less could the prothonotary. Notwithstanding the laudable and often persuasive efforts of counsel for Clipper Inc. in support of his submissions, and notwithstanding the Court's obvious sympathy for a supplier of goods and services of last resort for a vessel which, while not in distress seemed to have a pressing need for supplies, and in particular foodstuffs, this is not a situation analogous to a shipwreck or a hopeless situation, and I clearly cannot go against the law, and, as I said earlier, flout the legitimate rights of the first mortgagee in this case.
[26] Following the reasoning adopted by the Court of Appeal, and the facts that led the prothonotary to render the decision he did, the applicant has failed to persuade me that the order rendered by Prothonotary Morneau was clearly wrong in that the exercise of his discretion was based upon a wrong principle or upon a misapprehension of the facts.
[27] For all these reasons, the motion to overturn the decision of Prothonotary Morneau is dismissed with costs.
Pierre Blais
Judge
OTTAWA, ONTARIO
April 2, 2002
Certified true translation
Suzanne M. Gauthier, LL.L., Trad. a.
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET NO: T-2009-00
STYLE:
FINANSBANKEN ASA
and
THE VESSEL "GST KATIE"
THE OWNERS AND ALL OTHERS INTERESTED IN
THE VESSEL "GST KATIE"
THIRD OCEAN MARINE NAVIGATION COMPANY L.L.C.
PLACE OF HEARING: Québec, Quebec
DATE OF HEARING: March 21, 2002
REASONS FOR ORDER OF MR. JUSTICE BLAIS
DATED: April 2, 2002
APPEARANCES:
Guy Vaillancourt FOR CLIPPER INC.
Mireille Tabib FOR THE PLAINTIFF
SOLICITORS OF RECORD:
Guy Vaillancourt FOR CLIPPER INC.
Québec, Quebec
Stikeman Elliot FOR THE PLAINTIFF
Montréal, Quebec
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