Todd Shipyards Corp. v. Altema Compania Maritima S.A., [1974] SCR 1248

Supreme Court of Canada

Todd Shipyards Corp. v. Altema Compania Maritima S.A., [1974] S.C.R. 1248

Date: 1972-12-22

Todd Shipyards Corporation (Plaintiff-intervenant) Appellant;

and

Altema Compania Maritima S.A. (Plaintiff) Respondent;

and

The Ship “Ioannis Daskalelis” Defendant.

1972: November 27, 28, 29; 1972: December 22.

Present: Abbott, Martland, Ritchie, Hall and Spence JJ.

ON APPEAL FROM THE EXCHEQUER COURT OF CANADA

Mortgages—Mortgaged ship—Maritime lien validly acquired abroad—Right in rem determined by lex loci—Precedence of such claims governed by lex fori.

Appellant effected necessary repairs in the United States to defendant ship, which was registered in Greece. The ship was owned by a Panamanian company and was subject to a mortgage registered in Greece in favour of respondent, also a Panamanian company. As a consequence of financial difficulties defendant ship found it impossible to meet its obligations under the mortgage. The ship was arrested, ordered to be sold and purchased by respondent, who then filed a Statement of Claim alleging that the amount of the mortgage, together with interest, was due and owing to it and should be paid out of the proceeds of the sale, which had been paid into Court by order. Appellant submitted a Statement of Defence alleging that it had become the holder of a maritime lien in the United States, which it was entitled to enforce in Canada in priority to the claim by respondent. The Exchequer Court granted precedence to the claim by respondent; hence the appeal to this Court.

Held: The appeal should be allowed.

In principle a maritime lien acquired under the law of a foreign state will be recognized and may be enforced here, if the tribunal, to which the party asserting the right to the lien has resorted, has the requisite jurisdiction (lex loci). The necessary repairs furnished by appellant gave rise to a maritime lien against defendant ship which is enforceable in this country, but the question of whether that lien takes precedence over respondent’s mortgage claim must

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be determined according to the law of Canada, namely the lex fori. Under Canadian law the claim of a mortgagee whether registered or unregistered and whether in possession or not ranks below the claims of persons having a maritime lien on the mortgaged ship. Although the supplier of necessaries is not entitled to a maritime lien under Canadian law, the claim for necessary repairs furnished in the United States is recognized as creating that particular kind of lien and as being enforceable as such in Canadian courts. It follows that appellant’s claim must be accorded priority over the mortgage held by respondent.

APPEAL from a judgment of the Exchequer Court of Canada. Appeal allowed.

W.O. Forbes, for the appellant.

John R. Cunningham, for the respondents.

The judgment of the Court was delivered by

RITCHIE J.—This is an appeal from a judgment of Mr. Justice Sheppard sitting in his capacity as Deputy Judge of the Exchequer Court of Canada in the Admiralty District of British Columbia, which was rendered on the 20th of November 1970, (before the repeal of the Admiralty Act by the proclamation of the, Federal Court Act on June 1st, 1971.)

The issue before the learned trial judge was concerned with the priority to be accorded to a number of different claims against a fund held in court “to the credit of all actions in rem against the said “Ioannis Daskalelis” (hereinafter referred to as “the ship”). In this Court the issue was narrowed to the question of whether or not a claim for the cost of necessary repairs to the ship by the appellant which were effected in the United States of America in March, 1963, constituting a maritime lien in that country, is entitled to rank ahead of a document registered as a mortgage in Greece on December 20, 1961, which purports to mortgage the ship to the respondent.

The defendant ship which was registered in Greece was owned by a Panamanian company and the respondent mortgagee was also incorpo-

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rated in Panama. The evidence indicates that the ship’s mortgage which was registered in Greece was the sole asset of this company.

Although the circumstances under which the mortgage was executed and indeed the very existence of the respondent company at the date when the consideration therefor was allegedly given were all put in question by the appellant’s counsel, the learned trial judge appears to have treated the document as a valid mortgage, and having regard to the conclusion which I have reached as to the applicable law respecting the status of that mortgage even if it were valid and enforceable, I do not find it necessary to express any final view as to its validity.

The appellant, Todd Shipyards Corporation, performed necessary repairs to the defendant ship at the company’s shipyards in New York at the request of those responsible for the management of the ship at a cost of approximately $82,000. The bill for these repairs has never been paid but it is apparent that at least from April 1964, the ship was in serious financial difficulties to the point of the crew’s wages falling into arrears, and between April and June she was operating to a large degree on cash advanced personally by a Mr. Manolakis who was a director of the company which owned the ship and of the respondent, over both of which companies he appears to have exercised effective control. On the 4th of June, 1964, a radiogram was sent to the master of the defendant ship giving notice of default under the mortgage and requiring him to proceed directly to Vancouver to await further instructions from the mortgagee, and when the ship arrived at Vancouver she was arrested, ordered to be sold and was purchased by the respondent plaintiff, the purchase price in the amount of $168,000 being paid into court by order of Mr. Justice Norris whereby it was further ordered that the question of priorities amongst the claimants be reserved until later order. On May 30th, 1967, the respondent corporation filed a Statement of Claim alleging inter alia that the amount of its

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mortgage, together with interest, was now due and owing to it and should be paid out of the proceeds of the sale which had been paid into Court.

On October 18th, 1967, Todd Shipyards Corporation, which had intervened in the action, filed a Statement of Defence setting out that it had furnished certain necessary supplies and performed necessary repair work to the defendant ship in New York, the particulars of which totalled $82,188 and alleging that:

The aforesaid supplying of necessary supplies and repair work to the Defendant Ship at the request of her Owners and their aforesaid representatives constituted a contract subject to the laws of the United States of America, entitling Todd to reasonable compensation in the aforesaid amounts, and to a maritime lien securing the same;…

and further alleging that:

By furnishing the said supplies and performing the said repairs between approximately the 18th and 26th days of March, 1963, Todd became ipso facto the holder of a valid and subsisting maritime lien against the defendant ship “IOANNIS DASKALELIS”, which it was and is entitled to enforce in this Honourable Court in priority to the claims of persons not holding such liens, and particularly in priority to the Plaintiff’s claim under its alleged mortgage herein.

It is not questioned that by virtue of 46 United States Code, para. 971 and 972, the appellant’s claim for necessary repairs gave rise to a maritime lien in the United States of America which in that country would have taken precedence over the mortgage claim, nor is it questioned that in Canada a claim for necessary repairs made in this country does not entitle the claimant to such a maritime lien under the law applicable in Canadian Admiralty Courts. Paragraph 971 of the United States Code reads as follows:

Any person furnishing repairs, supplies, towage, use of dry dock or marine railway, or other necessaries, to any vessel, whether foreign or domestic, upon the order of the owner of such vessel, or of a person

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authorized by the owner, shall have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall not be necessary to allege or prove that credit was given to the vessel.

The jurisdiction of this Court to entertain an action in rem to enforce a lien for necessaries supplied to an American ship in an American port was challenged in The Ship “Strandhill” v. Walter W. Hodder Company[1], (hereinafter referred to as “The Strandhill”) where it was argued that:

The Exchequer Court of Canada in Admiralty has no jurisdiction to enforce by action in rem a lien created by the law of the United States under facts and circumstances that would not give rise to a maritime lien under British Admiralty law.

That case did not involve a question of priorities as between competing creditors but was concerned solely with the jurisdiction of Canadian Admiralty Courts to entertain the action. In rendering the judgment at first instance in the Nova Scotia Admiralty District, Mellish, L.J.A., said:

If a maritime lien exists it cannot be shaken off by changing the location of the res. A foreign judgment in rem creates a maritime lien and even although such a judgment could not have been obtained in the courts of this country, it will be enforced here by an action in rem. But a maritime lien may be created by foreign law otherwise than by a judgment in rem; and if it be so created I think it can be equally enforced here in the same way. If the plaintiffs have lawfully acquired the right to the res even under foreign law, it would be strange if they had not the liberty to enforce it here in the only court providing relief in rem.

When the case came to this Court, Mr. Justice Newcombe, who delivered the majority judgment, first examined the jurisdiction of the High Court of Admiralty in England relating to claims for a ship’s necessaries and cited the provisions

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of the English statutes which establish such jurisdiction; he went on to say:

The Exchequer Court of Canada, having been declared, in pursuance of the Colonial Courts of Admiralty Act, 1890, 53-54 Vict., c. 27, to be a court of Admiralty, has, on its Admiralty side, under s. 2, subs. 2 of that Act, jurisdiction

over the like places, persons, matters and things, as the Admiralty jurisdiction of the High Court in England, whether existing by virtue of any statute or otherwise, and the Colonial Court of Admiralty may exercice such jurisdiction in like manner and to as full an extent as the High Court of England, and shall have the same regard as that court to international law and the comity of nations.

And, by s. 3, in interpreting the Admiralty jurisdiction, so conferred, in its application to this Dominion, ‘Canada’ is to be read in substitution for ‘England and Wales.’

Now, in view of these enactments I apprehend that if a provision, corresponding to that of the United States statute which I have quoted, had been enacted in England, the High Court of Admiralty would have found itself adequately equipped to enforce it, in the cases provided for in the Acts of 1840 and 1861. And, seeing that equivalent local jurisdiction exists, the Exchequer Court of Canada is empowered, when, in those cases, the claim for necessaries is secured by a maritime lien, to enforce that lien, notwithstanding that the right may have been acquired under the law of a foreign country.

Mr. Justice Newcombe, however, had been careful to point out that “It must… be remembered that it is the right and not the remedy which is regulated by the lex loci.”

In the case of Baker Carver and Morell Inc. v. The Astoria[2] at p. 1026, Mr. Justice Maclean, who was then President of the Exchequer Court, had occasion to consider this Court’s judgment in The Strandhill, supra, and he said:

In the first place that case clearly establishes the principle that a maritime lien acquired under the law of a foreign state, will be recognized and may be enforced here, if the tribunal to which the party

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asserting the right to the lien has resorted, has the requisite jurisdiction.

I do not find it necessary to go further than the decision in The Strandhill to find authority for holding that the necessary repairs furnished by Todd Shipyards Corporation in New York gave rise to a maritime lien against the defendant ship which is enforceable in this country, but the further question to be determined in this case is whether that lien takes precedence over the respondent’s mortgage claim, and in my view this question must be determined according to the law of Canada (i.e. the lex fori). In this regard, it appears to me that the law of England is correctly summarized in the following passage of Cheshire’s Private International Law, 8th Ed. at p. 676 where the learned author says:

Where, for instance, two or more persons prosecute claims against a ship that has been arrested in England, the order in which they are entitled to be paid is governed exclusively by English law.

In the case of a right in rem such as a lien, however, this principle must not be allowed to obscure the rule that the substantive right of the creditor depends upon its proper law. The validity and nature of the right must be distinguished from the order in which it ranks in relation to other claims. Before it can determine the order of payment, the court must examine the proper law of the transaction upon which the claimant relies in order to verify the validity of the right and to establish its precise nature. When the nature of the right is thus ascertained the principle of procedure then comes into play and ordains that the order of payment prescribed by English law for a right of that particular kind shall govern.

The italics are my own.

Some confusion appears to have existed as to the priority to be given to a foreign maritime lien in England as a result of the case of The Tagus[3] where the correct ranking of mortgagees and of the master of an Argentine ship was disputed. In that case the master claimed a lien for wages earned and disbursements expended

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in the course of several voyages. His right to a lien for these sums was restricted by Argentine law to the last voyage, but by English law it extended to all voyages made under his captaincy. His rights as against the mortgagees could only be settled after their nature and extent had been determined, and although it would seem that it would have been more consistent with principle to determine the nature of his rights according to the law of Argentina (the lex loci where the ship belonged), the Court regarded the question as purely remedial and held in accordance with English law that the master was entitled in priority to the mortgagees to the whole of his wages and disbursements.

In the case of The Colorado[4], the principle of recognizing that the nature of the right in rem fell to be determined according to the lex loci was reasserted. In that case the contest was between one party holding a valid French mortgage on the ship entitling him in France to a right equivalent to a maritime lien, whereas the other party was claiming for necessary repairs done to the ship in the United Kingdom. The learned trial judge held that the valid French mortgage took priority and when the matter was considered in the Court of Appeal, Scrutton L.J. said, at p. 109:

The fallacy of the appellants’ argument appears to be that because the French Courts would give a French necessaries man, or a necessaries man suing in the Courts of France, priority over the claimant under a hypothèque, therefore an English Court should give an English necessaries man similar priority. The answer is that the appellants are not asking for French remedies, but English remedies; and the English law postpones them to persons who have what is equivalent to a maritime lien.

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Although the decision in The Colorado is somewhat clouded by the fact that the judges purport to follow the decisions in the cases of The Millford[5], and The Tagus, supra, in both of which the English courts disregarded the proper law of the contract and gave the master of a foreign ship the benefit of an English maritime lien for wages and disbursements, it nevertheless appears to me that The Colorado is authority for the contention that where a right in the nature of a maritime lien exists under a foreign law which is the proper law of the contract, the English courts will recognize it and will accord it the priority which a right of that nature would be given under English procedure.

The case of The Zigurds[6], was cited by the respondent as authority for the contrary proposition, but when it is examined it will be found that the claim made in England by German suppliers of necessaries in a German port was asserted on the basis that according to German law if the ship were under arrest in Germany they would have had rights analogous to those given by a maritime lien and should therefore rank in priority to other claimants. Their claim was denied because the evidence called in proof of the foreign German law only went so far as to show that if the ship had been arrested by a German court they would enjoy priority over other creditors in the administration of claims, but did not prove that their claim would be recognized in Germany as being equivalent to an English maritime lien. In the result, the English court treated them as ordinary creditors and their claim as such was determined by English law (lex fori). This case is a further example of the practice of the English courts to accord to a foreign claimant the same priority which would have been accorded to a creditor of that particular kind in England.

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It should be observed that in the present case the learned trial judge’s conclusion was at least in some degree coloured by the fact that he misapprehended the facts of The Colorado case, supra, when he stated in the course of his reasons for judgment:

In the ‘Colorado’ 1923 P. 102, a French vessel, subject to French hypothèque, was arrested in England, and those who had supplied the vessel with necessaries in France claimed priority according to the French law. It was held that the necessaries created no maritime lien according to English law, and hence no priority.

As I have indicated, the necessaries in that case were supplied in the United Kingdom and the case had nothing to do with determining the nature of the right which would have been accorded to a claimant who had supplied the necessaries in France.

In finding that the appellant should rank as holding a lien but not a maritime lien and that it should therefore rank after the mortgage, Mr. Justice Sheppard not unnaturally placed some reliance on the judgment of Sir Douglas Hazen in Marquis v. The Ship Astoria[7], where an American mortgage was accorded priority over a lien for necessaries furnished in the United States notwithstanding that the suppliers claimed a maritime lien in the United States. In the course of his reasons for judgment, Hazen L.J.A. makes it plain that the conclusion which he reached is based almost entirely on an article published in Volume 26 of the Harvard Law Review of 1913. This article was written before The Colorado, supra, had been decided and insofar as it affords authority for the conclusion reached in The Astoria, I would not follow it.

It is, however, noteworthy that in The Astoria, the learned judge appears to have been influenced by the fact that the suppliers of necessaries made no inquiry as to whether a mortgage existed or not at the time when they gave credit to the ship. In this regard the learned judge says, in part:

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It was open to the parties supplying the necessaries and who have established claims in reference thereto, to have ascertained previous to doing so that a mortgage existed against the ship, and had they taken the necessary steps to so ascertain they could, by refusing to give credit, have saved themselves any loss which had been incurred, and it would seem an act of injustice if they should be given preference over the mortgagee who had lent his money on the strength of the security afforded by the ship.

To the extent that the reasons for judgment in The Astoria are based on this premise, the facts recited by the learned judge bear no resemblance to those disclosed in the evidence in the present case.

In this case, before the work on the ship had been completed, the appellant secured a report from Dun and Bradstreet, the well-known credit reporting agency, indicating that those responsible for the ship’s management had stated the ship to be free and clear of any mortgage and a representative of the appellant testified that when it later appeared that the “attorney in fact” for the respondent company had signed a “consent by mortgagee” in relation to certain insurance, he had the following conversation with that attorney:

As I stated before when I noticed that the Consent by Mortgagee was signed by Mr. Desiato I remarked that I was surprised that there was in fact a mortgage, inasmuch as Mr. Desiato’s previous discussions with Mr. Perry indicated that there was no mortgage on the vessel. Mr. Desiato’s reply to me was that I should go back to Mr. Perry and tell him not to worry about it. That in fact there was no mortgage. It was just a family matter.

It is thus apparent that inquiries respecting the mortgage were made in the present case and the circumstances which appear to have excited the sympathy of the learned judge in The Astoria have no relevance to the claim for necessary repairs in this case. In my view the decision in The Astoria not only fails to give effect to the applicable law, but is based upon facts which are clearly distinguishable in the present case.

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As I have indicated at the outset, I consider that the decision of this Court in The Strandhill, supra, affords ample authority for the proposition that effect is to be given to the present appellant’s claim as if it were a valid maritime lien.

In considering the effect to be given to a valid maritime lien on a mortgaged ship under Canadian law, I find the law to be correctly and succinctly stated by Mr. E.C. Mayers in his well-known work on Admiralty law and Practice in Canada where he says, at p. 71:

The claim of a mortgagee whether registered or unregistered and whether in possession or not ranks below the claims of persons having a maritime lien on the mortgaged ship.

Although the supplier of necessaries is not entitled to a maritime lien under Canadian law and all the cases cited by the learned author are concerned with claims which are so recognized in this country, these cases nevertheless clearly indicate that a valid maritime lien takes priority over a mortgage, and as the claim for necessary repairs furnished in the United States is recognized as creating that particular kind of lien and as being enforceable as such in Canadian courts, if follows, in my opinion, that the appellant’s claim in this case must be accorded priority over the mortgage held by the respondent.

For all these reasons I would allow this appeal with costs both here and in the court below and direct that the judgment of the Exchequer Court of Canada, British Columbia Admiralty District, be varied by ranking the appellant’s claim for necessaries and repairs furnished in the United States of America, plus costs for payment out of the proceeds of the sale of the defendant ship, ahead of the respondent’s claim under its mortgage.

Appeal allowed with costs.

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Solicitors for the appellant: Owen, Bird & McDonald, Vancouver.

Solicitors for the plaintiff, respondent: Macrae, Montgomery, Hill & Cunningham, Vancouver.