Date: 20020426
Docket: T-1944-98
Neutral Citation: 2002 FCT 482
BETWEEN:
RICHARDSON INTERNATIONAL, LTD.,
Plaintiff,
- and -
ZAO RPK "STARODUBSKOE", J.S.K. SAKHALIN
LEASING CO. AND THE OWNERS AND
ALL OTHERS INTERESTED IN THE SHIP
"MYS CHIKHACHEVA" AND HER CARGO,
Defendants.
REASONS FOR ORDER
HARGRAVE P.
[1] These reasons arise from a misunderstanding of the basic nature of security given in order to secure the release of an arrested ship, from a Court Order ignored and from the manner in which the provider of the security responded to deny payment when demand was made. The result was a motion to condemn the provider of the security, the Royal Bank of Canada (the "Bank"), to pay some $550,000.00 (U.S.). While the motion was resolved by consent during an adjournment, with the Plaintiff then achieving a speedy result, the motion ought not to have been required. It is in order to provide brief reasons so that this sort of problem, a problem which, granted, is relatively infrequent, never repeats itself.
BACKGROUND
[2] By way of background, the "Mys Chikhacheva", a substantial deep sea fishing vessel, was arrested 13 October 1998, with the Bank providing a guarantee, in lieu of bail, to obtain the release of the ship on 2 December 1998. That guarantee, which was in the amount of $485,000.00 (U.S.) was replaced by a similar guarantee of 9 April 2001, in the amount of $551,000.00 (U.S.), the operative portion of which is as follows:
KNOW ALL MEN BY THESE PRESENTS THAT WE, ROYAL BANK OF CANADA, A CHARTERED BANK UNDER THE LAWS OF CANADA HAVING AN OFFICE AT INTERNATIONAL TRADE CENTRE-B.C., P.O. BOX 11146, R2 LEVEL, 1025 WEST GEORGIA STREET, AT THE CITY OF VANCOUVER, IN THE PROVINCE OF BRITISH COLUMBIA, HEREBY SUBMIT OURSELVES TO THE JURISDICTION OF THE COURT AND CONSENT THAT IF THE OWNERS OF THE SHIP ‘MYS CHIKHACHEVA' SHALL NOT PAY WHAT MAY BE ADJUDGED AGAINST THE SHIP IN THE ABOVE-NAMED ACTION OR ANY APPEAL THEREFROM, OR A SUM AGREED TO BE PAID UNDER A SETTLEMENT AGREEMENT FILED WITH THE COURT, EXECUTION MAY ISSUE AGAINST US, OUR SUCCESSORS AND ASSIGNS, GOODS AND CHATTELS, FOR A SUM NOT EXCEEDING FIVE HUNDRED FIFTY ONE THOUSAND AND 00/100'S UNITED STATES DOLLARS (USD.551,000.00).
This guarantee wording is usual. Indeed, it substantially follows the Federal Court form for a bail bond, Form 486A, except that rather than being an undertaking from a bonding company it is the guarantee of the Bank, a guarantee permitted by Rule 486(1)(a), to pay any judgment in this action or any subsequent appeal in the event that the owners of the ship do not pay.
[3] In due course the Plaintiff succeeded at trial with Mr. Justice Dubé granting judgment on 20 February 2001, in American dollars, for payment "without conversion of currency from the guarantee bond provided to obtain the release of the Mys Chikhacheva . . . , issued by the Royal Bank of Canada . . .": as I have indicated, the original bond was replaced by a bail bond in similar terms issued 9 April 2001.
[4] On 22 March 2002, the Federal of Appeal upheld the decision of Mr. Justice Dubé. On 26 March 2002 solicitors for the Plaintiff made demand, by letter, upon solicitors for the Defendant owner, requiring payment by 3 April 2002. There followed some discussion as to a draft bill of costs, however that is not pertinent. On 15 April 2002 solicitors for the Plaintiff again wrote to solicitors for the Defendant shipowner, the initial demand then being three weeks old, requiring payment on the next day. From the correspondence it may be that there was some misunderstanding as to whether payment ought to have been held up until the parties could agree upon costs, a very substantial scale of costs having been awarded against the Defendant. On the one hand, the new deadline was a quick one, but on the other hand, a substantial time had gone by since the Court of Appeal's judgment and initial demand. Here I do not fault counsel for the Defendant, but rather observe that the chain for seeking and receiving instructions, through offshore agents and bankers to owners on Sakhalin Island, off the east coast of Russia, apparently could not cope with the need to provide instructions within three weeks.
[5] In any event, and I think this is understandable given the apparent state of the fishing industry in Russia, solicitors for the Plaintiff decided to proceed with making demand upon the Bank, this being accomplished 16 April, demanding payment by close of business 19 April 2002.
[6] The response of the Bank was a document produced, not in Vancouver where the guarantee was issued, but in Toronto, called a "Discrepancy Advice" essentially denying payment because:
Court order presented does not state that claims to be made by McEwen Schmitt and funds to be made payable to McEwen, Schmitt in trust.
This rather abrupt response, to a clear guarantee and a clear court order for payment, apparently came about because someone, in the heading of the guarantee, above the style of cause, had provided that the beneficiary of the guarantee was the Federal Court of Canada, Trial Division, at Vancouver.
CONSIDERATION
Initial Failure of Security
[7] The initial failure of the security and the perfunctory manner in which the Bank dealt with what it perceived to be a deficiency, in the face of the payment order of Mr. Justice Dubé, forcing the Plaintiff to bring a motion for payment on 22 April, deserves comment.
[8] Leaving aside the order for payment of the judgment from the guarantee, the Bank might have been technically correct in denying liability to the Plaintiff by reason of a heading, at odds with the body of the guarantee, placed clearly without reason, on the guarantee. However, the Bank ought to have been more perceptive and aware of the nature of security by which the release of a vessel from arrest is obtained and thus have treated the situation with the practical mind and quickness which the circumstances required. Instead, the Bank issued a standard form discrepancy advice and oral advice, denying payment under the guarantee, on the basis that only the Federal Court of Canada might claim under the guarantee. This was clearly wrongheaded advice, for it ignored the clear basis of the guarantee, that in return for the release of the ship execution might issue against the Bank if the owners of the "Mys Chikhacheva" did not pay the amount found owing by the Court.
Construction of Contractual Security
[9] The Court of Appeal in The "Rio Assu" [1999] 1 Lloyds 115 dealt with an analogous situation, a letter of undertaking on which a mutual marine underwriting association, commonly called a P & I Club tried, without success, to renege using a technical argument. The case is also pertinent in the present instance both because the trial decision, also reported in the same place, sets out the underlying rationale for security in order to obtain the release of a vessel from arrest and because the Court of Appeal, agreeing with the trial judge, sets out principles for construing agreements, including contractual undertakings given to obtain release from arrest.
[10] In the first instance Mr. Justice Clarke observed that a party, having arrested a vessel, was well secured and that there was no reason why a plaintiff, accepting a letter of undertaking, should be less well-protected than if the vessel had either remained under arrest or actual cash bail been provided:
For its part LB [Lloyd Brasileiro, the demise charterer] had the choice of leaving the vessels under arrest or providing appropriate bail or security. If it left the vessels under arrest, they would either be sold by order of the Court pendente lite or would remain under arrest until judgment on the merits. In either of those events, if the plaintiffs succeeded in their action in rem, the proceeds of the sale of the vessels would be available for the enforcement of a judgment . . . If bail was provided it would be in the form of an undertaking given by sureties to the Court, which would again be available to the plaintiffs if they were successful . . . The remaining possibility was that the plaintiffs would accept contractual security. A club letter is a common form of contractual security.
The advantage to the plaintiffs of a club letter was that the club was correctly perceived as solvent and likely to remain so. There is no reason why the plaintiffs should have accepted a club letter which gave them less protection than if the vessels remained under arrest or bail was provided. Neither they nor . . . [their lawyers] . . . on their behalf would have done so if they had thought about it. Thus if it had been suggested to them that the club would not be liable under the letter of undertaking if . . . [the demise charterer] . . . ceased to exist they would not have accepted the letter in those terms (page 119).
From this one may observe that security, be it a Protection and Indemnity Club letter or a guarantee, as in the present instance, ought to be as substantial, risk free and available as either the arrested vessel tied to the dock and ready for execution, or a bail bond. Lord Justice Waller, of the Court of Appeal, agreed with the trial judge at pages 124 and 125.
[11] Taking all of this into account it is incumbent upon anyone in the business of offering contractual security in order to achieve the release of a vessel from arrest to be readily available to respond in the event that the owner of the ship, who has had the vessel released from arrest and has had the use of the vessel, is unwilling or unable to make prompt payment when found liable.
[12] Both the trial judge and the Court of Appeal offered useful insights into the construction of contracts, including contractual security, relying upon the principle in Investors Compensation Scheme Ltd. v. West Bromwich Building Society [1998] 1 W.L.R. 896 at pages 912-913. In Investors Compensation Scheme the House of Lords held that to interpret a contractual document the goal was to find the meaning that the document would convey to a reasonable person, someone having all of the background knowledge reasonably available to the parties. The substance of the document was the meaning it would convey to such a reasonable person, looking at the complete background and purpose of the document, notwithstanding the actual wording of the document. Lord Hoffmann observed that the modern principles of purposive construction of contractual documents were not always sufficiently appreciated, with the modern principles being summarized at pages 912-13:
(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the "matrix of fact," but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. . . .
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. . . .
(5) The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191, 201:
"if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense."
Key in the present instance is that the guarantee given by the Bank ought to have been construed in relation to the factual matrix and circumstances in which it arose, with proper regard to the commercial purpose of the guarantee, taking into account " . . . absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.".
[13] It ought to have been clear to the Bank both that the guarantee was to secure the Plaintiff which had given up its sound in rem security, not the Federal Court of Canada, and that it ought to have moved with good grace and alacrity to make good under its guarantee. All the more so given the unequivocal 20 February 2001 Order of Mr. Justice Dubé that the Plaintiff's judgment be paid from the Bank's guarantee.
[14] Certainly payment from the guarantee was eventually agreed upon among counsel for the Plaintiff, the Defendant and the Bank, however given the circumstances and Mr. Justice Dubé's order, the issue ought never to have arisen. This therefore leads to the issue of costs on the present motion.
Costs
[15] Counsel for the Plaintiff estimated that the legal work connected with the delay in payment of the judgment and this motion has cost his client about $3,000.00. He suggested costs in the order of $1,000.00, payable equally by the Bank and by the owner of the ship, Bering Trawlers Ltd. He submitted that costs might be awarded against the Bank because, although not a party it had, by the guarantee, submitted itself to the jurisdiction of the Court. I do not see that a submission to the jurisdiction of the Court gives an entity the status of a party. Rather, it is a yielding to the Court, preventing an entity from raising jurisdiction as a bar, by agreeing to grant to the Court the right to deal with the entity submitting to jurisdiction, that entity in turn being bound by any result or order. That differs from being a plaintiff, defendant or third party within the definition of a party in Rule 3.
[16] I considered costs against a non-party in Re Bodnarchuk [1995] 3 F.C. 300 at 303 and following. In Bodnarchuk pre-1998 Rule 344(1) applied. Present Rule 400(1) is arguably a little broader, however the wording in Rule 400(1), setting out that the Court has full discretion to determine "by whom costs are to be paid", would seem, by Rockwell Developments Ltd. v. Newtonbrook Plaza Ltd. (1972) 27 D.L.R. (3d) 651 (Ont. C.A.) at 659 to be limited to which party to the proceeding ought to pay costs.
[17] I have also considered whether the implied jurisdiction of the Court might be invoked to award costs against the Bank. While it may be a close thing, I do not see the conduct of the Bank as amounting to the abuse necessary to invoke costs against the Bank as an entity which is not a party, as was done by the Ontario Court of Appeal in Re Sturmer and the Town of Beaverton (1912) 2 D.L.R. 501 at 509-510. While substantial costs against the Bank would be appropriate if it were a party, I do not feel that I should award costs against the Bank as a non-party.
[18] As to costs against the defendant shipowner, it appears that Bering Trawlers Ltd., as opposed to its counsel, forced the present motion by failing to deal with settlement of the judgment in a timely manner. It may also be that, once the Plaintiff had the attention of the shipowner and of the Bank, the actual motion might have been adjourned a few days to allow the matter to be resolved. In any event, the Plaintiff having achieved its purpose, payment of the judgment, costs of $500.00, payable to the Plaintiff by Bering Trawlers Ltd., are appropriate.
(Sgd.) "John A. Hargrave"
Prothonotary
Vancouver, British Columbia
26 April 2002
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1944-98
STYLE OF CAUSE: Richardson International, Ltd. v.
The Ship "Mys Chikhacheva"
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: April 24, 2002
REASONS FOR ORDER: HARGRAVE P.
DATED: April 26, 2002
APPEARANCES:
Mr. David McEwen FOR PLAINTIFF
Mr. Peter Bernard FOR DEFENDANT
Ms. E. Jane Milton FOR ROYAL BANK OF CANADA
SOLICITORS OF RECORD:
McEwen Schmitt & Co. FOR PLAINTIFF
Vancouver, British Columbia
Campney & Murphy FOR DEFENDANT
Vancouver, British Columbia
Bull, Housser & Tupper FOR ROYAL BANK OF CANADA
Vancouver, British Columbia
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