Bow McLachlan & Co. v. The Ship "Camosun", (1908) 40 SCR 418

Supreme Court of Canada

Bow McLachlan & Co. v. The Ship "Camosun", (1908) 40 S.C.R. 418

Date: 1908-06-16

Bow Mclachlan and Company, (Plaintiff) Appellants;

and

The Ship "Camosun" (Defendant) Respondent

1908: March 6, 9; 1908: June 16.

Present: Sir Charles Fitzpatrick C.J. and Davies, Idington and Duff JJ.

ON APPEAL FROM THE EXCHEQUER COURT OF CANADA.

Admiralty law—Jurisdiction of the Exchequer Court of Canada— Claim under mortgage on ship—Action in rem—Pleading— Abatement of contract price—Defects in construction—Damages.

In an action in rem by the builders of a ship to enforce a mortgage thereon, given to them on account of the contract price for its construction, the owners, for whom the ship was built, may plead as a defence pro tanto that the ship was not constructed according to specifications and claim an abatement of the price in consequence of such default and that the loss in value of the ship, at. the time of delivery, attributable to such default, should be deducted from the claim under the mortgage.

Appeal from the judgment of the Exchequer Court of Canada which affirmed an order by Martin J., local judge in admiralty for British Columbia, overruling a demurrer and objections in law to a paragraph in the statement of defence.

The action was brought by the builders and mortgagees of the ship and invoked the statutory jurisdiction of the Exchequer Court of Canada, in admiralty, in respect of their mortgage by virtue of the "Colonial Courts of Admiralty Act, 1890," sec. 2, and the "Admiralty Act, 1891," 54 & 55 Vict. ch. 29 (D.), secs. 2, 3 and 4. It was sought to enforce a mortgage against

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the defendant ship merely, no personal claim being made under the covenants in the mortgage. The ship was arrested under a warrant and the writ served by nailing it to the mast The Union Steamship Company of British Columbia, as the owners of the ship at the time of the arrest, entered an appearance to the action and obtained an order releasing the ship upon bail. The plaintiffs claimed £21,638, sterling, with interest and expenses, condemnation of the bail given on release of the ship and judgment against the sureties.

The owners filed a defence, and with it a counterclaim, of which the material words were as follows:

The plaintiffs did not build the * * * ship * * * "Camosun" in accordance with * * * contract * * * but on the contrary * * * negligently and with defective work and materials, with the result that the said owners were forced to expend, in restoring and replacing defective materials and bad workmanship, £3638.

They gave particulars of the damages so claimed which were the same, and for the same amount, as the first particulars afterwards given under the paragraph, recited below, in question on this appeal.

The counterclaim was struck out on the ground that the Exchequer Court of Canada, in admiralty, had no jurisdiction to entertain claims or disputes arising out of breaches of contracts for the construction of ships, such subject matter not being within the admiralty, as distinguished from the common law or general plenary jurisdiction of the High Court in England, the admiralty jurisdiction alone of that court being attributed to Colonial Courts of Admiralty, by the "Colonial Courts of Admiralty Act, 1890," sec. 2.

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The respondents then obtained from Mr. Justice Martin leave to amend by pleading paragraph 7, now in dispute, the material allegations of which are:

Alternatively and by way of equitable defence to the plaintiffs' action, in the event of it being held that the said owners have made default under the said agreement and mortgages and that the plaintiffs are entitled to recover from the defendant in this action, the said owners say that the plaintiffs did not build the said ship "Camosun" in accordance with the terms of the contract, plans, etc., but on the contrary the said ship "Camosun" was built by the plaintiffs negligently and with defective work and materials, etc., with the result that the said owners were forced to expend in repairing and replacing defective materials and bad workmanship * * * the sum of £3638, particulars whereof have already been delivered to the plaintiffs, (as they had been under the counterclaim), and the defendants, the owners of the said ship "Camosun," claim they are in equity entitled to, and injustice should be permitted to set off and deduct from any and all sums of money which may be payable by the said owners to the plaintiff the said sum of £3638 so expended by them as aforesaid, with interest and costs.

The plaintiffs resisted the application on the ground that the paragraph was the counterclaim over again under another name. Martin J., allowed the amendment, and his order was affirmed by the Exchequer Court.

There never was any motion, in lieu of demurrer, to strike paragraph 7 off the files. It happened that the paragraph was put on the files under the order of Martin J., before the plaintiff had time to appeal from that order, and the plaintiffs asked that

if the said order is reversed, it be further ordered that the amended statement of defence delivered and filed herein in pursuance of the said order hereby appealed from be amended by striking out therefrom paragraph 7 thereof.

The owners gave the same particulars under paragraph 7 as they had already given under the counter-

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claim, being for expenses incurred in Monte Video, San Francisco, and Vancouver, by reason of the alleged breach of contract, demurrage, etc., etc.

The plaintiffs, by their reply, amongst other matters, pleaded estoppel, set forth the mortgage sued on, verbatim, reciting that it was given by one Legg in consideration of money lent to him by the plaintiff, covenanting to pay the amount of the mortgage and interest, and, for better securing repayment, mortgaging to the said plaintiffs 64 shares in the ship "Camosun," and the respondents' right to assert that the mortgage is for other than a loan of money was denied. They also took objections in law to paragraph 7, which may be stated shortly as follows:—

That the action is in rem against the ship, no claim being made against the respondents, and no defence, set-off or claim, equitable or otherwise, personal to the respondents, is admissible against the plaintiffs' claim; that the action is not and cannot be treated as an action for the price of the ship, and that the court has no jurisdiction to entertain actions for the price of ships, unless the ship is under arrest at the time of its commencement, which was not so in this case; estoppel by recital in the mortgage that it is given for a loan; that the claim in paragraph 7 is not a proper subject of set-off; that the court has no jurisdiction to entertain claims or disputes in regard to breaches of contracts to construct ships or for negligent or improper construction either by way of counterclaim, set-off or otherwise, and that any cause of action in assumpsit for the price of the ship was merged in the mortgage. They also raised the question that the cause of complaint in paragraph 7 arose outside the territorial jurisdiction.

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By rejoinder it was objected that the points of law raised were not open to the appellants because they were res adljudicata by the orders of Martin J., and Burbidge J., respectively, putting paragraph 7 on the record and dismissing appellants' appeal from that order.

All the points of law raised were heard before Martin J., who "held that paragraph 7 of the amended statement of defence constituted a good defence in law pro tanto to the action, that the defence could properly be pleaded and that the court had jurisdiction to entertain the questions thereby raised. On an appeal to the Exchequer Court of Canada, this decision was upheld by the judgment from which the present appeal is asserted, the late Mr. Justice Burbidge stating that he dismissed the appeal for the reasons which he had given on the former application.

Cassidy K.C., for the appellants.

Chrysler K.C. for the respondent.

The Chief Justice dissented from the judgment dismissing the appeal.

Davies J.—For the reasons given by the late Mr. Justice Burbidge, in the Exchequer Court, I agree, though entertaining many doubts, that this appeal should be dismissed.

I desire to emphasize his opinion as to the limitation set by law upon the defendant's right to claim an abatement upon the contract price of the ship in an action such as this.

In view of the claim made by the defendants in the particulars they have delivered, it may not be undesirable

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to re-state that the defendants have no right to set-off special or consequential damages arising out of the alleged breach of the building contract. Their rights to an abatement of the contract price of the ship if established at all must be limited to the difference at the time of delivery between the ship as she was and what she ought to have been according to the contract. Their right does not extend beyond this or cover damages on account of any subsequent necessity for more extensive repairs. See Mondel v. Steel[1], at page 871.

Idington J.—This is an appeal from the Exchequer Court of Canada, in admiralty, maintaining a pleading by way of a defence set up in answer to a suit to enforce a mortgage.

The respondents are the owners of the ship, which was built for them by the appellants, and a mortgage was given by respondents' trustee to appellants for the supposed balance of the price that was to be paid for the ship as and when completed according to plans and specifications.

The respondents allege amongst other things in answer to this mortgage claim that the ship never was completed, and in effect that a deduction of over three thousand pounds should be made in respect of the many omissions found to exist through failure to comply with the specification.

The wording of the pleading suggests some grounds of defence, possibly ill-founded in law or beyond the court's jurisdiction, but the late Mr. Justice Burbidge by the terms of his opinion judgment on a prior motion defined how far he thought respondents

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were entitled to go and they do not claim now to be entitled to go further than he so defined. They only claim the pleading attacked will support them that distance.

The issue thus raised before us is quite distinct and clear, and it is this; the mortgagees assert their mortgage was taken for a fixed sum understood to be the balance due on account of construction and that if anything was omitted in such construction the respondents must rely on a cross-action or separate action which it is said the court below has no jurisdiction to entertain.

The pleading, whatever may be said reproachfully of it, and much might I think be well said so in view of what counsel supporting it alleges to be the real facts, shews at all events that by reason of non-completion of the construction which was the very consideration for which the mortgage was given there never was nor can be justly due to the mortgagees the amount claimed to have been fixed and that proper reductions ought to be made in respect of their failure in regard to some parts of the consideration.

The consequential damages are discarded by the court below and in deference to that judgment are abandoned by the respondents so far as this action is concerned.

I have no manner of doubt that the court has ample power if not to reform the instruments at least to so rectify the results which the stated or settled account for which the mortgage was given might lead to if adopted, that judgment will not be given for more than that amount should have been for, or can rightfully stand for, just as fully as if by reason of express fraud as to a part or mistake in the addition

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of the figures entering into the computation the correct consideration had been unjustly augmented.

The proof may fail. The right to completion may have been expressly waived. Other considerations may have been substituted for the omitted parts.

That is something we have not just now to do with. Nor have we to do with the merit of paragraph 7 of the pleading as if it stood as a single plea. No point is or should be now made of that which as a mere matter of form or procedure may have been objectionable and liable to be struck out on motion so long as the frame of the whole statement discloses a defence and ha» not been permitted to so obscure the real issue that we should hold there is no possible defence shewn.

The sole contestation made here by appellants and deserving consideration is that the amount of the mortgage is so fixed no matter what partial failures there may have been of consideration that the wrong, if wrong there be, can only be remedied in another court and by another action.

In my view no other action is necessary. Everything within the ambit of the consideration for which or upon which the mortgage rests can be fully and effectually investigated by the court below in this action by means of any of the methods open to the court to determine such matters as may be necessary to determine the rights between the parties in that regard; saving of course the possible claims for consequential damages already disposed of and about which I say nothing.

The jurisdiction is founded upon section 11 of "The Admiralty Court Act, 1861" (24 & 25 Vict. ch. 10), which reads as follows:

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The High Court of Admiralty shall have jurisdiction over any claim in respect of any mortgage duly registered according to the provisions of "The Merchant Shipping Act, 1854," whether the ship or the proceeds thereof be under arrest of the said court or not.

When that Act was passed even the incidental jurisdiction arising from the necessity of the Admiralty Court dealing with mortgage claims by way of mortgage against ships under arrest by process of that court had only been duly recognized for some twenty years or so by 3 & 4 Vict. ch. 65.

Then only fourteen years after the passing of the "Admiralty Court Act," in 1861, the court's jurisdiction was transferred bodily to the new 'High Court of Justice by "The Supreme Court of Judicature Act, 1873," brought into effect in 1875.

Under these circumstances and the further circumstance arising from the operation of the last mentioned Act, to which I will presently refer, we need not be surprised at the absence of any precedent determining the questions now raised.

The language conferring the jurisdiction is so very sweeping and comprehensive that it possibly required some temerity to raise or extraordinary conditions to justify the raising of the question that a mortgagee seeking to enforce a claim has, under and by virtue of such language, the right to deny the mortgagor his ordinary right of defence involving an investigation of the very foundation of the mortgage claim.

Whether the development of such a jurisdiction should without specific provision follow the practice of an old existing court where rights of mortgagor and mortgagees were most usually dealt with, such as the then Court of Chancery, or that which the Admiralty Court had followed in dealing with maritime liens, as

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bottomry for example, it ought now, nothing in law being in the way, I venture to think, at all events since the "Judicature Act, 1873/' became operative, to be administered in such a way that justice be done, circuity of actions avoided, and needless multiplicity thereof be spared the unfortunate litigants.

The language being fitted for such purposes I would act in accordance with the views I thus suggest as possible and practicable. Although it was suggested, early in the argument, to the appellants' counsel that the "Judicature Act" might be found to have thrown obstacles in the way of depriving the defendant in such a case as this of the defence claimed, the point was not argued. A reference to that Act and consideration of section 24, sub-section 2, thereof tends to confirm the impression I had.

I am unable to find anything to restrict the High Court of Justice when exercising admiralty jurisdiction from applying the said sub-section 2.

The right of defence given there, if not previously existent, is not at all the case of The "Cheapside"[2], where entirely separate causes of action each independent in regard to the subject matter out of which it arose were the subject of some remarks strongly impressed upon us here.

It is to be remarked that the jurisdiction of the court below is to be

over the like places, persons, matters and things that the admiralty jurisdiction of High Court in England had (in 1890) whether existing by virtue of any statute or otherwise * * *.

That court in exercising that jurisdiction would, I assume, have acted upon the said sub-section 2 of section

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24 I cite, and surely there can be no manner of doubt as to the Court of Chancery on a mortgage suit entertaining such a defence.

Moreover, section 70 of the Merchant Shipping "Act," 17 & 18 Vict. ch. 104, which is as follows;

A mortgagee shall not by reason of his mortgage be deemed to be the owner of a ship or my share therein, nor shall the mortgagor be deemed to have ceased to be owner of such mortgaged ship or share, except in so far as may be necessary for making such ship or share available as a security for the mortgage debt,

is worthy of consideration.

It is borrowed from the civil law, parent of so much admiralty law, and is distinctly different in this regard from the usual idea that prevails with us as to the legal rights of the mortgagee, as owner of the thing mortgaged, subject only to be redeemed, and lends a reason why the security should be measured as the law and justice of the case require before adjudging the property to be sold or become that of another. It re-appears in substance in section 34 of the "Merchant Shipping Act, 1894." The mortgage in question was given by virtue of this latter Act.

A hypothec, by the civil law, pre-supposed an obligation that a simple agreement secured. It might be conditional as to a debt to be incurred, but only became effective when the debt came into existence.

The cases of The "Cathcart"[3], and The "Rose"[4], shew that, so far as the Admiralty Court, whilst a separate and independent jurisdiction, guided by a strong hand, developed this new jurisdiction, it was in accord with the spirit which the court below has

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evinced in the judgment complained of. It is in accord with that I think we. ought to act.

In leaving the case I may say the parties assume the jurisdiction in question covers a mortgage given as that under the "Shipping Act," 1894, though the expression in the "Admiralty Act" of 1861 mentions only mortgages under a then prior Act. As the parties are content I need not inquire how or express any opinion upon the question of how this jurisdiction proceeded upon is affected by such conditions or made effective in regard to a mortgage under an Act not named in nor anticipated by the original Act.

I think the appeal should be dismissed with costs.

Duff J.—I concur in the conclusion of the learned judge of the Exchequer Court and, subject to two observations, in his reasons also.

The first observation is that the rule in Mondel v. Steel[5], on which the defence impugned by the appellants is based, proceeds upon principles of English law which may or may not have a place in the law of Scotland; and I should not wish to be understood as implying an opinion that the claim of the owners to compensation for defects in the ship (by way of abatement in price or otherwise) is a claim whose validity is to be determined by the application of the law of England rather than the law of Scotland. The question does not arise on this appeal because a litigant who wishes in the Exchequer Court of Canada to rest his claim upon the law of Scotland (which in that court is a foreign law), must allege and prove it.

The second observation is, assuming the law of England—or what for this purpose is the same thing,

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the law of British Columbia—to apply, the owners will, in these proceedings, be entitled to the benefit of an abatement of the price only to the extent to which they shall shew that, by reason of the failure of the appellants to fulfil their contract, the value of the ship, at the time of delivery, was less than it would have been had the appellants been chargeable with no such default. I refer to this because, in some instances, the particulars of compensation claimed by the owners would appear to be outside the limits drawn by this rule.

Appeal dismissed with costs*

Solicitor for the appellants: Robert Cassidy.

Solicitors for the respondent: Davis, Marshall & Mac-Neill.

*Leave to appeal to Privy Council was granted by the Supreme Court of Canada, on 30th June, 1908, under the provisions of sec. 6, sub-sec. 2(a), of the "Colonial Courts of Admiralty Act, 1890," 53 & 54 Vict. ch. 27 (Imp.).