Date: 20020122
Docket: T-2009-00
Neutral citation: 2002 FCT 73
ADMIRALTY ACTION IN REM AGAINST THE VESSEL GTS KATIE AND IN PERSONAM AGAINST THIRD OCEAN MARINE NAVIGATION COMPANY L.L.C.
BETWEEN:
FINANSBANKEN ASA
a body politic and corporate of Oslo, Norway
Plaintiff
and
THE VESSEL GTS KATIE,
THE OWNERS AND ALL OTHERS
INTERESTED IN THE VESSEL GTS KATIE,
THIRD OCEAN MARINE NAVIGATION
COMPANY L.L.C., a body politic and
corporate of Annapolis, Maryland, U.S.A.
Defendants
REASONS FOR ORDER
RICHARD MORNEAU, PROTHONOTARY
[1] This case raises the question of whether the claim by a supplier of necessaries in maritime law has priority in the scheme of collocation for the proceeds of sale of a ship over two mortgagees who are objecting in this proceeding to its having such status.
Facts
[2] Based on a verbal agreement, described by the supplier Clipper Inc. (hereinafter "Clipper") as sui generis, the latter is approaching the Court to have diverted from the proceeds of sale of the ship GTS KATIE ("the ship") the value which it says corresponds to property on the ship which the latter's owner Third Ocean Marine Navigation Company L.L.C. ("Third Ocean") transferred to it outright in consideration for necessaries which Clipper was preparing to supply and for necessaries supplied by the said supplier in the past.
[3] The property on the ship which Third Ocean transferred to Clipper on August 10, 2000 is described as follows: "40 boxes of ship's plans, manuals and drawings, 5 life rafts and 2 breathing apparatus [sic]".
[4] This property was transferred to Clipper in the following special circumstances.
[5] On August 10, 2000 Third Ocean already owed Clipper the sum of nearly U.S.$38,634.67 as a non-preferential claim for the supply of necessaries to the ship in the past.
[6] On August 10, 2000 the GTS KATIE, carrying Canadian military equipment, dropped anchor in the Port of Montréal. Part of the sea voyage was apparently difficult since, because of problems found by the Canadian government, the army boarded the ship while it was still at sea in order to induce the ship to head for Rimouski and then the Port of Montréal.
[7] When it got to the Port of Montréal the ship needed necessaries and it was then that Third Ocean approached a single supplier, Clipper. Of course, Third Ocean and Clipper already knew of the debts owed by Third Ocean to Clipper and knew that Clipper would hesitate to deal with Third Ocean a third time. The two entities knew that as they stood the past and future debts of Clipper would not benefit from the protection of a maritime lien.
[8] This was when the parties verbally came to the following agreement. Clipper would supply the vessel with necessaries (worth U.S.$6,290,090) and in consideration and in protection of this new debt - and past debts amounting to U.S.$38,634.67 - Third Ocean would transfer to Clipper ownership in the property described in para. [3] above ("the ship's property"), subject to Third Ocean's right to retake possession and ownership of the property if it paid the sum of U.S.$50,000, the value assigned by Clipper and Third Ocean both to the total value of the debts and the corresponding value of the property transferred, the ship's property.
[9] It should be noted that at the time ownership of the ship's property was transferred, the latter was subject to two registered mortgages. The first was in favour of the plaintiff in the case at bar, Finansbanken ASA ("the Bank"), and the second in favour of Lloyd Werft Bremerhaven ("Lloyd").
[10] As to what became of the ship, we note that after its arrival in the Port of Montréal on August 10, 2000 it was arrested by the Bank on November 2, 2000 and sold by Court order on December 2, 2000. In the meantime, on December 1, 2000, the Court by consent of the parties ordered return of the ship's property to the sheriff, stipulating that any rights which Clipper might wish to assert in that property would not thereby be lost.
[11] Accordingly, Clipper is now claiming the following remedies from the Court:
(a) a DECLARATION that Clipper Inc. had a proprietary interest to the extent of US$50,000.00 or its Canadian dollar equivalent at the time of payment in the vessel "G.T.S. KATIE" or her appurtenances and, in particular, in 40 boxes of the ship's plans, manuals and drawings, 5 life rafts and 2 breathing apparatus, of which it had the lawful possession and which it had relinquished under the protection of the Order of December 1, 2000;
(b) a DECLARATION that Clipper Inc. is entitled to the payment of US$50,000.00 plus interest at the same rate as that generated by the fund and costs to be taxed on a solicitor-client basis and that the said total sum be paid out by priority to any and all creditors immediately after the Marshall's or sheriff's expenses as money belonging to Clipper Inc.;
(c) ALTERNATIVELY, a DECLARATION that Clipper Inc. had a valid possessory lien over the vessel "G.T.S. KATIE" or her appurtenances and that its claim of US$50,000.00 with interest at the same rate as that generated by the fund plus costs to be taxed on a solicitor-client basis be paid out by priority to any and all creditors immediately after the Marshall's or sheriff's expenses as for a claim secured by a possessory lien;
(d) ALTERNATIVELY, a DECLARATION that Clipper Inc. holds a valid maritime lien as master's disbursements for the amount of US$6,290.09 and that its claim for the said amount plus interest at the same rate as that generated by the fund and costs to be taxed and that such amount be paid with the same priority as that granted to a maritime lien holder;
(e) for such other relief as the Court may find equitable to protect that right of ownership, possessory or maritime lien Clipper Inc. had in and against the ship and/or appurtenances as aforesaid.
[12] Aside from the value to be assigned to the ship's property (Clipper assigning U.S.$50,000 to the property, while according to the Bank and Lloyd only the "ship's plans, manuals and drawings" (hereinafter "the plans, manuals and drawings" or collectively "the documents") have some value, though intrinsic, while the ship's other property is worth at most $3,307.20), it appeared that the relevant dispute between the parties was first to see whether the documents were subject to the mortgage held by the Bank. If they were, the question then arose whether the Bank's consent to such a transfer was necessary. If so, it would have to be determined whether the Bank consented to Third Ocean varying the terms of the mortgage by transferring the documents to Clipper.
Analysis
[13] Before dealing with the essence of the analysis, a preliminary point must be considered.
[14] Clipper argued that Lloyd would not have a sufficient interest to challenge Clipper's position, since as second mortgagee it could quite probably be the case that ultimately no money would be available to satisfy Lloyd's debt, even in part. Clipper did not raise this argument until the hearing. Further, it did not enter in evidence a breakdown of the monies due on which the Court could assess the validity of its position. Consequently, I do not intend to exclude Lloyd from the discussion.
[15] First, therefore, it must be determined whether the documents were subject to the Bank's mortgage.
[16] The relevant clause of that mortgage reads as follows:
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 vessel or any part thereof or in or to the equipment and appurtenances aforesaid".
[17] In fact, the question is really whether the documents could be seen as falling within the word "appurtenances" as used in the mortgage.
[18] Referring to The Concise Oxford Dictionary of Current English, 8th ed., Clarendon Press, Oxford, 1990, and passages in The Eurostar, [1993] 1 Lloyd's Law Reports 106, at 111-112, Clipper argued that the word "appurtenances" is essentially limited to a piece of mechanical equipment.
[19] I do not share that view. First, it seems to me that the very general description contained in the mortgage clause cited above, and preceding the word "appurtenances", means that the word should not be given a limiting sense. Further, in Eurostar there is the following analysis, which indicates that what can be regarded as necessary to the proper operation of the ship must be seen as the latter's "appurtenances":
Gale v. Laurie, (1826) 5 B. & C. 156 was another action arising out of the same collision. Counsel for the plaintiffs relied on a passage in the judgment delivered by Abbott, C.J. in which he said:
The fishing stores were not carried on board the ship as merchandise, but for the accomplishment of the objects of the voyage; and we think, that whatever is on board a ship for the objects of the voyage and adventure on which she is engaged, belonging to the owners, constitutes a part of the ship and her appurtenances within the meaning of this Act, whether the object be warfare, the conveyances of passengers, or goods, or the fishery.
That case was decided long before ships carried fuel which would be consumed by engines providing motive power.
In re Salmon and Woods, ex parte Gould, (1885) Bankruptcy Reports 137 a Divisional Court held that certain fishing nets were not appurtenances of the boat named George and Charles. The reason for that decision was that there was no evidence as to what nets were appropriated to any particular ship. Mr. Justice Wills said that "ship and its appurtenances would include anything in fact which it would not be prudent to send a ship to sea without". It is, however, clear that the Court was only considering apparatus, gear or accessories. The Court was not applying its mind to consumable goods.
In Coltman v. Chamberlain, (1890) 25 Q.B.D. 328 it was held by Mr. Justice Charles, that a mortgage of a ship in precisely the same terms as that with which the Court is now concerned, passes to the mortgagee under the word "ship" articles necessary to the navigation of the ship or to the prosecution of the adventure which were on board at the date of the mortgage and articles brought onboard in substitution for them subsequently to the mortgage. The particular articles in question were a variety of sails and also two compasses, sidelights, masthead lights, and a small steam engine for lifting the fishing gear. The Court had no difficulty in deciding that all those articles were part of the ship.
[20] It is clear in the case at bar that the documents were essential to operation of the ship. They really had no value aside from its operation. They were only of value when they were being used on the ship. They were essential to proper operation of the ship and formed a part of it. In this sense, the documents were included in the word "appurtenances" as used in the mortgage, and indeed included in the word "vessels" as used in the mortgage.
[21] This conclusion implies that the Court must now see whether the Bank's consent was necessary for transferring the ship's property or whether Third Ocean could transfer that property as it liked.
[22] The parties debated the scope of s. 40 of the Canada Shipping Act, R.S.C. 1985, c. S-9, as amended, at great length. That section reads:
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40. A mortgage of a ship or a share in a ship does not have the effect of the mortgagee becoming, or the mortgagor ceasing to be, the owner of the ship, except to the extent necessary to make the ship or share available as security under the mortgage.
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40. Sous réserve de ce qui peut être nécessaire pour faire du navire ou de la part hypothéquée une garantie de la dette hypothécaire, le créancier hypothécaire n'est pas, du fait de l'hypothèque, réputé être propriétaire du navire ou de la part. Le débiteur hypothécaire n'est pas non plus réputé avoir cessé d'en être le propriétaire.
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[23] In the Bank's submission, the reservation contained at the end of this section makes the Bank the real owner of the ship. As a result, according to the Bank, Third Ocean did not have the right to deal with the ship's property without the Bank's consent. For Third Ocean, the section as a whole establishes that the true owner of the ship is the mortgagor, and in this sense Third Ocean did not have to obtain the Bank's agreement.
[24] As established earlier, it appears that the ship's property, and in particular the documents, were subject to the mortgage. To this extent, it would appear that even if it should be said that Third Ocean should be regarded as owner of the ship for other commercial purposes, when as in the case at bar a mortgage security is so dealt with as to reduce its value, the mortgagee must consent to such a development.
[25] This conclusion implies that the Court must now consider whether, as Clipper maintained, the Bank consented verbally with full knowledge of the facts to Third Ocean making the transfer.
[26] In the affidavit of Third Ocean's representative Mr. Margan, filed by Clipper in support of its claim, Margan made no statement regarding any contact with the Bank to ascertain the latter's consent to the transfer. It was not until his examination on his affidavit that he made the following argument (pp. 29 to 33 of the transcript):
Q. Mr. Margan, did you ask the bank's permission before giving to Clipper Ship Supplies the breathing apparatus and the life rafts and the amnufals, plans and documents?
A. Mr. Walters and I had discussions with the bank when we asked the bank to provide the funds to take care of the crew, and the bank said no. And we said we have a possibility of getting a line of credit, and the bank's comment to us was: "Do whatever it takes in order to secure the credit, and get yourself stabilized." So the bank was aware on numerous occasions of what we were doing.
Q. Sir, I am asking you specifically.
A. And I answered you the question.
Q. No. Did you -
A. That's the answer you are getting. The bank was aware. We asked the bank for money. The bank said they would not provide an additional line of credit. We told them that we could negotiate a line of credit in exchange for -- what do you call -- security. The bank said: "Do whatever it takes that you need to get your work done", and that's what we did. That's my answer. You dont't like it? I don't care.
Q. When you told the bank that you could get that line of credit in exchange for security -
A. Mr. Walters had that discussion.
Q. Mr. Walters had that discussion, and not yourself?
A. Correct.
Q. Are you --did you personally --
BY MAÎTRE VAILLANCOURT: Just one moment. Can you say for the record who Mr. Walters is.
A. He is my partner.
BY MAÎTRE TABIB: Mr. Vaillancourt, I don't think that you -- if you need to redirect on specific questions, you may do so at the end of my Cross-Examination. Please do not interrupt or butt in at this point.
BY MAÎTRE VAILLANCOURT: Proceed.
BY MAÎTRE TABIB:
Q. Did you personally yourself tell the bank that you intended to give these materials, documents, plans, life rafts, breathing apparatus to Clipper?
A. As far as I am concerned, the bank was aware of it.
Q. I have asked you a specific question. Did you personally - -
A. And you got my specific answer.
Q. I take it the answer was no. You did not - -
A. I said the bank was aware. The bank has letters. The bank was aware of what we did. The bank did not provide the funds. The bank knew the ship was in trouble. The bank told us to take care of it the best way we could take care of it. It was notified. The bank was told. We did what we had to do to stabilize the situation. For the benefit, by the way, of the bank.
Q. I am sorry?
A. For the benefit of the bank.
Q. Sir, I am asking you a simple question.
A. And I gave you a simple answer. The bank wanted the ship stabilized. We stabilized it. They didn't want the crew to arrest the ship. They told us to take care of it so the ship would not be arrested by the crew. And the bank pays eighty percent of the crew's wages, so all that we did was on behalf and the benefit of the bank. The bank got all the benefit, not us, because the alternative was that the crew would have arrested the ship on arrival, and there would have been a bigger mess for the bank. And the bank told us not to let the ship get arrested by the crew. So the bank was aware. The bank knew what was going on, and we stabilized the situation for the bank.
[27] Clipper forcefully argued that the Bank did not seek to contradict this passage from the transcript by contrary evidence. Consequently, it maintained that the Court should attach weight to this uncontradicted evidence, which in its submission established consent to the transfer.
[28] Mr. Margan's statement about a conversation with the Bank occurred in his cross-examination. The Bank cannot therefore reasonably be blamed for failing to address the problem in its evidence opposing Clipper's claim.
[29] As to the meaning of this passage, it does not seem to me that we can conclude from it that it contains convincing evidence of the fact that the Bank specifically knew that the ship's property was about to be transferred as security.
[30] As to the weight to be attached to the passage, it appears first that the conversation related by Mr. Margan is hearsay for the latter, since it was his partner who had the conversation. The foregoing passage does not indicate with which representative of the Bank the conversation took place. Further, even if Mr. Margan argued that in his view the Bank was aware of it, it does not appear from the passage that the Bank was clearly informed of the content of the arrangement to be concluded. Finally, it did not appear that at any relevant time following this conversation Third Ocean or Clipper made a point of formalizing such an arrangement with the Bank on paper.
[31] I therefore cannot give this hearsay evidence the weight needed to persuade me that the Bank agreed to such a transfer.
[32] I therefore cannot conclude that Clipper enjoyed over the ship's property a valid right of ownership which could be set up against the Bank and Lloyd, enabling it to obtain a declaration deducting the sum of U.S.$50,000 by priority in its favour from the proceeds of sale of the ship.
[33] Remedies (a) and (b) mentioned in para. [11] above are therefore dismissed. As it is not seeking here to be paid the price of the property which it supplied, and which it was preparing to supply to the ship, Clipper cannot rely here on any possessory lien. Remedy (c) mentioned in para. [11] is also dismissed.
[34] As regards a declaration that Clipper had a maritime lien described as for "master's disbursements", the conditions necessary for such a lien to exist are simply not present here. Those conditions are that the master incurred costs on his own credit and it was impossible for the master to contact the ship's owners. As we know, it was the shipowners' representative himself who incurred the expenses. The remedy in para. (d), mentioned in para. [11], also fails, and so therefore does the general remedy in para. (e).
[35] The Court must accordingly dismiss Clipper's arguments regarding any claim to protection, priority or diversion enabling it to be paid in priority over Bank and Lloyd, the whole with costs.
[36] On this last point, after hearing counsel for the parties, it appears to me that these costs should be awarded, to the Bank under column IV of the Tariff, and to Lloyd under column III, as the latter's participation is more limited than that of the Bank.
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Richard Morneau
Prothonotary
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MONTRÉAL, QUEBEC
January 22, 2002
Certified true translation
Suzanne M. Gauthier, C. Tr., LL.L
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Federal Court of Canada
Trial Division
Date: 20020122
Docket: T-2009-00
ADMIRALTY ACTION IN REM AGAINST THE VESSEL GTS KATIE AND IN PERSONAM AGAINST THIRD OCEAN MARINE NAVIGATION COMPANY L.L.C.
Between:
FINANSBANKEN ASA
a body politic and corporate of Oslo, Norway
Plaintiff
and
THE VESSEL GTS KATIE,
THE OWNERS AND ALL OTHERS
INTERESTED IN THE VESSEL GTS KATIE,
THIRD OCEAN MARINE NAVIGATION
COMPANY L.L.C., a body politic and
corporate of Annapolis, Maryland, U.S.A.
Defendants
REASONS FOR ORDER
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FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
FILE: T-2009-00
STYLE OF CAUSE: ADMIRALTY ACTION IN REM AGAINST THE VESSEL GTS KATIE AND IN PERSONAM AGAINST THIRD OCEAN MARINE NAVIGATION COMPANY L.L.C.
Between:
FINANSBANKEN ASA
a body politic and corporate of Oslo, Norway
Plaintiff
and
THE VESSEL GTS KATIE,
THE OWNERS AND ALL OTHERS INTERESTED IN THE VESSEL GTS KATIE, THIRD OCEAN MARINE NAVIGATION COMPANY L.L.C., a body politic and corporate of Annapolis, Maryland, U.S.A.
Defendants
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: December 19, 2001
REASONS FOR ORDER BY: RICHARD MORNEAU, PROTHONOTARY
DATED: January 22, 2002
APPEARANCES:
Mireille Tabib for the plaintiff
Trevor H. Bishop for Lloyd Werft Bremerhaven GMBH
Guy Vaillancourt for Clipper Inc. and EPG-MZ L.L.C./Peter Hornick
SOLICITORS OF RECORD:
Stikeman, Elliott for the plaintiff
Montréal, Quebec
Brisset Bishop for Lloyd Werft Bremerhaven GMBH
Montréal, Quebec
Guy Vaillancourt for Clipper Inc. and EPG-MZ L.L.C. and/or
Québec, Quebec Peter Hornick
Borden Ladner Gervais for Her Majesty the Queen in right of Canada
Montréal, Quebec and the Montréal Port Authority
Flynn, Rivard for Calogeras & Master Supplies Inc.
Montréal, Quebec
Gowling Lafleur Henderson for Andromeda Navigation Inc. and SDV
Montréal, Quebec Logistics (Canada Inc.)
De Man, Pilotte for Hempel Coatings (USA) Inc. and The
Montréal, Quebec State Ukrainian Crewing Company
Radnoff Pearl Slover Swedko Dwoskin for Macoil International S.A.
Ottawa, Ontario
Date: 20020122
Docket: T-2009-00
Montréal, Quebec, January 22, 2002
Before: Richard Morneau, Prothonotary
ADMIRALTY ACTION IN REM AGAINST THE VESSEL GTS KATIE AND IN PERSONAM AGAINST THIRD OCEAN MARINE NAVIGATION COMPANY L.L.C.
BETWEEN:
FINANSBANKEN ASA
a body politic and corporate of Oslo, Norway
Plaintiff
and
THE VESSEL GTS KATIE,
THE OWNERS AND ALL OTHERS
INTERESTED IN THE VESSEL GTS KATIE,
THIRD OCEAN MARINE NAVIGATION
COMPANY L.L.C., a body politic and
corporate of Annapolis, Maryland, U.S.A.
Defendants
ORDER
The Court must dismiss Clipper's claims to any claim for protection, priority or diversion allowing it to be paid in priority to Bank and Lloyd, the whole with costs.
On this last point, after hearing counsel for the parties, it appears to me that these costs should be awarded, to the Bank under column IV of the Tariff, and to Lloyd under column III, as the latter's participation is more limited than that of the Bank.
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(signed)
Prothonotary
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Certified true translation
Suzanne M. Gauthier, C. Tr., LL.L
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