Docket: T-272-15
Citation:
2016 FC 1281
Montréal, Quebec, November 17, 2016
PRESENT: The
Honourable Mr. Justice Harrington
ADMIRALTY ACTION IN REM AND IN
PERSONAM
|
BETWEEN:
|
|
VERREAULT
NAVIGATION INC.
|
|
Plaintiff
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|
and
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662901 N.B.
LTD.
AND
CAI GROUP INC.
AND
THE OWNERS AND
ALL OTHERS
INTERESTED IN
THE SHIP
“CHAULK LIFTER”
AND
THE SHIP
“CHAULK LIFTER”
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Defendants
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JUDGMENT AND REASONS
[1]
The tug Chaulk Determination and the
barge Chaulk Lifter, sister ships, came
to a sad end. The Chaulk Determination sank in the Port of Trois-Rivières.
She left behind unpaid bills and her owners left it to others to clean up the
resulting pollution and to remove her valueless wreck.
[2]
Meanwhile, the Chaulk Lifter had already
been arrested in Verreault Navigation Inc.’s shipyard at Les Méchins for
unrelated debts. She was later sold in this Court by the Acting Marshal for
$600,000. The claims filed against the proceeds of sale are in excess of
$6,500,000.
[3]
Some claims, totalling $136,856.16, which enjoy
priority, have already been paid out.
[4]
This is a motion for payment out of the balance
of $463,143.84, plus accumulated interest. I shall deal with the claims in the
order of their alleged priority.
[5]
In this case there are no maritime liens and
sufficient funds are on hand to pay in full the two claimants who assert
statutory liens to which the law gives priority. Consequently, there is no need
to rule as to how they rank as between themselves. A possessory lien ranks
next. There follow two registered mortgages, two claims against the Chaulk
Lifter as a sister ship, and finally a creditor who may not be a marine
creditor.
I.
Background
[6]
The Chaulk Determination and Chaulk
Lifter were both owned by 662901 N.B. Ltd. which was incorporated in March
2012. Registration of its purchase of the Chaulk Lifter was finalized
December 17, 2013. The record does not give the history of the Chaulk
Determination. The company’s sole officer and director was David Chaulk.
[7]
In addition to 662901 N.B. Ltd., David Chaulk
had other companies. There is understandable confusion on the part of the
creditors as the names of the companies may have been used interchangeably.
There is evidence that there was another company, Chaulk Air Inc., which may
have carried on business as CAI Logistics. There is reference in some of the
documents filed by different creditors to CAI Investments Inc., to CAI Group
Inc. and to 662903 N.B. Ltd.
[8]
The Chaulk Determination and Chaulk
Lifter arrived at the Port of Trois-Rivières, on November 27, 2013. The Chaulk
Determination only left as a wreck after she sank, on December 26,
2014.
[9]
On March 30, 2014, 662901 N.B. Ltd. issued a
promissory note to David Chaulk’s brother, Brent Chaulk in the amount of
$305,000. Among other things, the note states “security
is in the form of a marine mortgage on the vessel Chaulk Lifter.”
[10]
On June 15, 2014, 662901 N.B. Ltd. issued
a promissory note to David Chaulk’s father, Morris Chaulk in the amount of
$42,000. It likewise provides that security is in the form of a mortgage on the Chaulk Lifter.
[11]
Harbour dues were not paid on either ship.
Consequently, l’Administration portuaire de Trois-Rivières (hereinafter
Trois-Rivières) issued a Detention Order against both, on June 26, 2014.
[12]
A single mortgage in favour of Brent and Morris
Chaulk in the amount of $347,000 was registered July 18, 2014.
[13]
On August 20, 2014, 662901 N.B. Ltd. made an
arrangement with Trois-Rivières in which, in consideration of a partial payment
of what was owed in harbour dues and giving Trois-Rivières a mortgage for
$57,305.27, the Detention Order was lifted. Brent and Morris Chaulk gave
priority to Trois-Rivières’ mortgage.
[14]
The Chaulk Lifter arrived at Verreault’s
yard at Les Méchins on October 7, 2014, in order that various work be carried
out.
[15]
662901 N.B. Ltd. defaulted on the Trois-Rivières
mortgage. As a result, Trois-Rivières arrested the Chaulk Lifter on
December 12, 2014, while she was in Verreault’s dry dock. Verreault intervened
in that action and obtained a Court Order permitting her to be removed from the
dry dock. Otherwise, the Chaulk Lifter remained in Verreault’s
possession.
[16]
As aforesaid, the Chaulk Determination sank
on December 26, 2014.
[17]
Verreault then instituted this action against
the Chaulk Lifter. It was in this action that the ship was ordered to be
sold on June 23, 2015. The sale was completed against full payment of the
$600,000, on August 4, 2015.
II.
The Claimants
[18]
The claim with the highest priority is that of
the Acting Marshal. His claim, in the amount of $42,395.19, has already been
paid, so nothing further need be said.
[19]
Next are the costs in bringing the ship to sale.
These would include preparation, serving, and filing of the statement of claim,
affidavit to lead warrant of arrest, motion to sell, attending the auction, and
related matters. In this case, the costs are divided in two. It was
Trois-Rivières which first arrested the Chaulk Lifter, but it was
Verreault which brought her to sale. Trois-Rivières’ costs have already been
paid. Verreault’s are in the amount of $3,306.23, which shall be awarded.
[20]
There followed payment out of two preferred
claims, given priority under various provisions of the Canada Marine Act.
Transport Canada was paid $37,155.70 for outstanding harbour dues and for the
cost of repairing damage to its dock at Les Méchins, which was struck by the Chaulk
Lifter. The damage to the dock totalled $23,207.17. Trois-Rivières was paid
$57,305.27 for harbour dues unrelated to the mortgage, and its costs.
[21]
There remains in Court $463,143.84 plus a modest
amount of accumulated interest. The claims remaining to be dealt with are as
follows:
a) Verreault’s share of the costs in bringing the Chaulk Lifter
to sale;
b) Verreault’s claim, which enjoys a possessory lien which may not
cover the entire amount alleged to be owing;
c) Trois-Rivières which, in addition to holding a mortgage on the Chaulk
Lifter, has a claim against the Chaulk
Determination;
d) Brent and Morris Chaulk who hold a mortgage;
e)
The Canadian Coast Guard which took care
of the clean-up of the oil spill occasioned by the sinking of the Chaulk
Determination;
f) The Administrator of the Ship-source Oil Pollution Fund for security
to satisfy such claims as may be filed against the Fund by those who suffered
oil pollution damage caused by the Chaulk Determination; and
g) Ketah Investments Inc., a lender.
III.
The Claim of Verreault Navigation Inc.
[22]
Verreault obtained judgment in rem
against the Chaulk Lifter and in personam against 662901 N.B.
Ltd. and CAI Group Inc. in the amount of $217,551.67, with a pre and
post-judgment interest, and costs. It is common ground that neither company has
any assets apart from the Chaulk Lifter.
[23]
In addition to the judgment, which essentially
covered its services until the ship left the dry dock, it has additional claims
for wharfage, various movements of the barge, fuel supply and inspections. Its
total claim is in the amount of $373,726.98.
[24]
It undoubtedly enjoys a possessory lien which
outranks the two mortgages which pre-date the commencement of its work (Osborne
Refrigeration Sales & Services Inc v Atlantean (Ship), [1979] 2 FCR 661;
Scott Steel Ltd v Alarissa (The), [1996] 2 FCR 883; Governor and
Company of the Bank of Scotland v Nel (The), [2001] 1 FCR 408). To the
extent it may not have a possessory lien, it claims priority in custodia
legis.
[25]
Other parties, particularly Trois-Rivières,
while conceding there is a possessory lien for part of the claim, dispute the quantum.
Verreault charged for moving the ship from time to time, without a Court Order,
and allegedly made an unconscionable profit.
[26]
After Trois-Rivières arrested the Chaulk
Lifter while she was then in Verreault’s dry dock, Verreault intervened in
that action and obtained leave to remove her from the dry dock and to berth her
alongside. Thereafter, it moved her from time to time to anchor and back again,
to allow other ships to enter its dry dock. These moves were carried out
without leave of the Court. Once Trois-Rivières complained, a Court Order was
obtained permitting Verreault to move the ship at will. It supplied fuel while
she was alongside. When she was at anchor, its tug had to supply fuel to the
portable generator which was onboard. It was a cold winter.
[27]
Historically, those who held a possessory lien
were unable to arrest the ship. The arrest transferred possession to the
Marshal and so the possessory lien was lost (Montreal Dry Docks and Ship
Repairing Company, Limited et al v Halifax Shipyards, Limited (1920), 60
SCR 359). However, with the advent of the Federal Courts Act, an arrest
does not change possession (Rule 483). Consequently, Verreault could have arrested
the Chaulk Lifter but would hardly have done so while she was in its dry
dock, as a ship under arrest cannot be moved except on the consent of all
parties or by order of the Court. Verreault could not have serviced other ships
if the Chaulk Lifter were occupying its dry dock.
[28]
Subject to the deductions I am about to make, I
am satisfied that Verreault’s entire claim is covered by a possessory lien. The
Chaulk Lifter was in its possession. It certainly would not have
arrested her while in the dry dock. It was entitled to carry on its business.
The evidence of its president Richard Beaupré makes it clear that it would have
been too dangerous to leave the Chaulk Lifter where she was while other
ships were entering or leaving its dry dock. No one moved the Court that the
Marshal be put in possession and that he be authorized to hire an ocean going
tug to move the ship to Sept-Iles or Matane, at who knows what cost.
[29]
That being said, in an ideal world, the judgment
of the Court should take effect from the time of the writ as was stated by Lord
Esher, M. R. in The Cella (1888), 13 Probate 92 at p 87 “but if the money be in court, or the Court has possession of
the res, it can give effect to its judgment as if it had been delivered
the moment it took possession of the res”(see also Nordea Bank
Norge ASA v Kinguk (The), 2007 FC 434, 2007 FCJ No 593 at para 31).
On that basis there would be no claims for services rendered after the arrest,
save the Marshal’s fees and the cost of converting the ship into cash.
[30]
While Verreault benefits from a possessory lien,
there is also a downside thereto. It was Verreault, while moving the Chaulk
Lifter, which caused damage to Transport
Canada’s wharf. That claim was not incidental to the arrest and does not form
part of custodia legis. Therefore, that amount of $23,207.17 is to be
deducted.
[31]
Verreault’s accounts also included federal General
Sales Tax and Quebec Provincial Sales Tax. It had to pay these amounts, but as
it was unable to collect from the shipowner, it is entitled to a rebate
estimated at 25%.
[32]
Finally, I do not think Verreault should profit
on its services rendered which were not covered by its judgment. The parties
did not pursue this point on their cross-examination of Mr. Beaupré, but based
on the old rule of thumb that absent proof of sound market value of cargo, it
would be assumed to be CIF plus 10%. Verreault stated it would not object to a
10% deduction on those services.
[33]
According to my calculations, in addition to the
aforesaid $23,207.17, there should be a deduction of $4,056.61 with respect to
GST, $8,092.94 with respect to PST and $13,531.25 representing profit on
invoices 022175, 022177, 022180, 022184, and 022204. Consequently, I find that
Verreault has a possessory lien in the amount of $324,839.01.
IV.
L’Administration portuaire de Trois-Rivières
[34]
The principal amount of Trois-Rivières’ claim is
in the amount of $316,468.83. $56,305.83 is the amount of the mortgage it held
on the Chaulk Lifter. The balance of $260,181.00 is for sums owing on
the Chaulk Determination for further wharfage, clean-up and her removal
as she had been abandoned by her owners.
[35]
The claim is not contested save and except that,
with respect to the mortgage, Brent and Morris Chaulk submit that under the
subordination agreement, Trois-Rivières only has priority over their mortgage
in the amount of $17,261.98.
[36]
In order to decide this point, the contract
between the Chaulks and Trois-Rivières would have to be analyzed. However, it
is not necessary to do so as I am subordinating whatever claim the Chaulks have
to those of the other creditors.
[37]
Consequently, Trois-Rivières is entitled to
payment by priority, after Verreault, of $56,305.83 in virtue of its mortgage.
[38]
Despite whatever priority Trois-Rivières may
have had with respect to the Chaulk Determination, it is well
established that, as against the sister ship, the claim only carries with it an
ordinary right in rem, with no priority (Fraser Shipyard &
Industrial Centre Ltd. v Expedient Maritime Co (The Atlantis Two) (1999),
170 FTR 1; Holt Cargo Systems Inc v ABC Container Line, N B (The Brussel) (2000),
185 FTR 145; and The Nel, supra). Trois-Rivières’ claim with
respect to the Chaulk Determination in the amount of $260,181.00 shall
rank pari-passu with other ordinary creditors.
V.
Brent and Morris Chaulk
[39]
The owner of the Chaulk Lifter, 662901 N.B. Ltd. may or may not be indebted to the
Chaulks. It is clear that the mortgage was an attempt by David Chaulk to give
preference to his brother Brent and to his father Morris.
[40]
The evidence comprises affidavits from Brent
Chaulk, his wife Sherry Chaulk, exhibits attached thereto, and their
cross-examinations. Neither Morris Chaulk nor David Chaulk filed affidavits.
[41]
Brent Chaulk testified that he was authorized by
his father to speak on his behalf, as he is elderly and sometimes gets
confused. This raises the specter of Lloyd’s Bank v Bundy, [1974] 3 All
ER 757 (CA) as there is no evidence that Morris Chaulk benefited from
independent legal advice.
[42]
Brent and Sherry Chaulk were most forthright in
their evidence.
[43]
Brent Chaulk was owed $305,000 on eight
demand promissory notes issued by David Chaulk. The first of the promissory
notes is dated September 15, 2008 and the last June 11, 2014. The funds were
all transferred directly from Brent Chaulk’s account to the account of Chaulk
Air Inc. Only one of these loans, the one on June 11, 2014, in the amount of
$45,000 was made after 662901 N.B. Ltd. bought the Chaulk Lifter. In
April 2009, David Chaulk acknowledged in writing that the amount then owing,
which was $200,000, had been borrowed “for the cash
flow of CAI during the Department of National Defence project”.
[44]
Brent did not want to be out of pocket as
some of the loans to David were with funds taken from his lines of credit or,
at least on one occasion, a credit card. It was David who suggested that the
promissory notes bear interest at the rate of 12% per annum. He kept up his
interest payments until the spring of 2014.
[45]
At this point, Brent expressed some
concern as he had to pay the interest on his lines of credit himself. David
promised him cheques, but they were not forthcoming. Although
he had no intention of calling the loans, he pointed out to David that his days
as a commercial pilot were coming to an end and that he had to prepare for his
retirement.
[46]
It was David who proposed that the owner of the Chaulk
Lifter 662901 N.B. Ltd. issue a promissory note to cover the $305,000 then
owed in principal. That note refers to a mortgage which was later executed.
David told Brent “Don’t worry, you’re protected. I bought
this ship and here is a marine mortgage. You’re protected, you’re safe. You
will be the first one paid.”
[47]
Morris Chaulk had advanced to CAI Group $5,000
in September 2013, $30,000 in February 2014 and a final $10,000 June 17, 2014.
The balance of $42,000 was covered by a promissory note similar to that issued
to Brent Chaulk.
[48]
There is no evidence whatsoever that 662901 N.B.
Ltd. was given value or consideration which would cause it to mortgage the Chaulk
Lifter in favour of David Chaulk’s father and brother.
[49]
Brent Chaulk was not aware of the precise
structure of David Chaulk’s businesses. He was lending money to assist David in
the furtherance of his business interests. He did not take into account that
662901 N.B. Ltd. was a distinct person in law.
[50]
Had anyone bothered to put 662901 N.B. Ltd. into
bankruptcy, the mortgage being a charge on property in favour of a creditor who
was not dealing at arm’s length would be void as against the trustee (Bankruptcy
and Insolvency Act, Chapter B-3, s95). This Court has inherent power to
vary the ordinary ranking in the exercise of its admiralty and equitable
jurisdiction (The Kinguk, supra; and Ballantrae Holdings Inc v
“Phoenix Sun” (The), 2016 FC 570).
[51]
No doubt the Chaulks lent a helping hand out of
love for David. However, that love should not come at the expense of arm’s
length creditors. Should they have a claim at all against 662901 N.B. Ltd., it
ranks after the claims of ordinary creditors. The fund created by the sale of
the Chaulk Lifter will by then be exhausted.
VI.
The Canadian Coast Guard
[52]
The Coast Guard has submitted a claim in the
amount of $1,839,927.68 for out of pocket expenses incurred as a result of the
sinking of the Chaulk Determination. The
Coast Guard was obliged by law to respond to pollution incidents in Canadian
waters and so hired Sauvetage Maritime Ocean Inc. to contain, clean and refloat
the Chaulk Determination. The sum claimed
represents the amounts paid.
[53]
Although the Coast Guard undoubtedly enjoys high
priority were we dealing with the proceeds of the sale of the Chaulk
Determination, as opposed to the proceeds of
the sale of the Chaulk Lifter, it is an
ordinary creditor and will rank pari-passu with other ordinary
creditors.
VII.
The Administrator of the Ship-source Oil
Pollution Fund
[54]
This claim differs from the others in that it is
a claim for security in the event that the Fund is obliged to compensate
parties who may have suffered damages as a result of the pollution caused by
the sinking of the Chaulk Determination.
[55]
Persons who have suffered actual or anticipated
oil pollution damage may, in accordance with s 103 of the Marine Liability
Act, file a claim with the Administrator if that claim is referable to, in
this instance, the Bunker Convention which is Schedule VIII to the Act and
which has the force of law in accordance with s 70 of the Act.
[56]
Section 102 of the Act gives the Administrator
the right to commence an action in rem “against
the ship that is the subject of the claim, or against any proceeds of sale of
the ship that have been paid into court …”.
[57]
This is the first time that the Administrator
has had to proceed against a sister ship. In the normal course, shipowners are
well insured with underwriters who provide security without question.
[58]
While accepting that her claim against the proceeds
of the Chaulk Lifter carries with it no priority, the Administrator
seeks guidance from the Court as to what the nature of her claim would have
been against the Chaulk Determination.
She submits that she enjoys a maritime lien for damage caused by a ship in
accordance with s 22(2)(d) of the Federal Courts Act. This is countered
by Trois-Rivières which submits that the Administrator enjoys a special
legislative right, that no provision was even made for any priority as against
the wrong-doing ship, and that no provision was made to allow her to claim
against a sister ship.
[59]
Other parties made no submissions to the Court
in this regard, and indeed had no need to. Any remarks I would make as to the
nature of the claim against the Chaulk Determination would clearly be obiter,
and should be left for another day.
[60]
As regards the submission that the Administrator
may have no claim at all against the proceeds of the Chaulk Lifter, while it is true that s 102 of the Marine
Liability Act only refers to the proceeds of the sale of the ship which is
the subject of the claim, that section also gives the Administrator an action in
rem. The claim is one governed by Canadian Maritime Law if not under s
22(2)(d) of the Federal Courts Act, then certainly under s 22(1). Section
43(8) provides that jurisdiction conferred by s 22 may be exercised in rem
against any ship that is owned by the beneficial owner of the ship that is the
subject of the action.
[61]
There is nothing in the Marine Liability Act
which detracts from that provision, and so I am satisfied that the
Administrator has a claim against the proceeds of the Chaulk Lifter and
will rank pari-passu with other ordinary creditors.
[62]
In accordance with the Bunker Convention, the
security to which the Administrator is entitled is the Canadian equivalent of
1,510,000 Special Drawing Rights (SDR) as defined by the International Monetary
Fund. The Administrator had not gotten around to leading evidence as to the
Canadian equivalent. However, it was agreed that basing myself on the breach
day rule, I could visit the IMF’s website to determine the value of the SDR in
Canadian dollars on December 26, 2014, or if there was no quote for that day,
on the day next in which a quote was provided. The next quote was on December
29, 2014. The Canadian equivalent of 1 SDR was $1.685130. Consequently the Administrator’s
claim is for $2,544,546.30 (i.e. 1,510,000 SDR x $1.685130).
[63]
The Administrator’s share of the proceeds of the
sale is less than $45,000. The question arises whether that amount should
remain in Court, to be drawn upon if as and when the Administrator approves
payments. If no payments would be made, then this amount would be distributed
to the ordinary creditors.
[64]
As pointed out by Verreault, this process is
most impractical and may require numerous counsel to keep their files open for
years. To date, one claim has been filed with the Administrator, that of
Trois-Rivières. It is not, of course, for the Court to determine whether its
claim is covered in whole or in part by the Ship-source Oil Pollution Fund. In
addition, the Coast Guard might file a claim.
[65]
The most practical way to resolve this matter is
to have the funds paid to the Administrator. If as and when problems arise, she
may seek directions.
VIII.
Ketah Investments Inc.
[66]
Ketah’s claim arises from a loan agreement made
in December 2012 with 662903 N.B. Ltd. That loan was guaranteed by CAI
Investments Inc., Chaulk Air Inc., and David Chaulk. The purpose of the loan
was to put the ship Chaulk Tenacity then
in Swansea, Wales, in sufficient condition, free and clear of all claims, to
sail to an Eastern Canadian port.
[67]
Not only does this claim have nothing to do with
the Chaulk Lifter, but the Chaulk
Lifter’s owner, 662901 N.B. Ltd., does not
figure in the loan in any way. The Chaulk Tenacity
was not a sister ship as she was in different ownership. Accordingly, this
claim is dismissed.
IX.
Conclusion
[68]
After payment out of $324,839.01 to Verreault
and $56,305.83 to Trois-Rivières, of the $463,143.84 presently in Court, there
will remain $81,999.00. That amount is to be shared pro rata by
Trois-Rivières, which has a remaining claim of $260,181.00, the Coast Guard
which has a claim of $1,839,927.68, and the Ship-source Oil Pollution Fund
which has a claim of $2,544,546.30. Each of these creditors receives a payout
of 0.01765449% of the remainder. Trois-Rivières is entitled to $4,593.36, the Coast
Guard $32,482.97, and the Administrator of the Ship-source Oil Pollution Fund $44,922.65.
X.
Interest
[69]
This Court, in the exercise of its admiralty
jurisdiction, has considerable discretion with respect to pre-judgment and
post-judgment interest. See the Phoenix Sun,
supra. In my opinion, it would be unfair and unreasonable to award any
interest other than that the interest earned on the sums on deposit with this
Court which shall accordingly be shared pro rata.
XI.
Costs
[70]
There shall be no order as to costs, other than
Verreault’s share of the costs in bringing the Chaulk Lifter to sale.
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