Phoenix Bulk Carriers Ltd. v. Kremikovtzi Trade, 2007 SCC 13, [2007] 1 SCR 588

                                                 SUPREME COURT OF CANADA

Between:

Phoenix Bulk Carriers Limited

Appellant

and

Kremikovtzi Trade also known as Kremikovski Trade

Respondent

Coram: McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron and Rothstein JJ.

______________________________

Phoenix Bulk Carriers Ltd. v. Kremikovtzi Trade, [2007] 1 S.C.R. 588, 2007 SCC 13

Phoenix Bulk Carriers Limited                                                                        Appellant

v.

Kremikovtzi Trade also known as Kremikovski Trade                              Respondent

Indexed as:  Phoenix Bulk Carriers Ltd. v. Kremikovtzi Trade

Neutral citation:  2007 SCC 13.

File No.:  31347.

2007:  February 14; 2007:  March 16.

Present:  McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron and Rothstein JJ.

on appeal from the federal court of appeal

Maritime law — Action in rem against cargo — Cargo owner entering into contract of affreightment with carrier but shipping cargo on vessel operated by another company — Carrier bringing in rem action against cargo — Federal Court of Appeal erred in striking in rem statement of claim and in setting aside arrest warrant of cargo — Arrested cargo “property . . . subject of the action” within meaning of s. 43(2)  of Federal Courts Act — Federal Courts Act, R.S.C. 1985, c. F‑7, s. 43(2) .

Courts — Federal Court — In rem jurisdiction — Section 43(2)  of Federal Courts Act  granting in rem jurisdiction “against the ship, aircraft or other property that is the subject of the action” — Meaning of expression “subject of the action” — “Physical nexus” approach to interpretation of s. 43(2)  to be rejected in favour of “identifiability” approach — Cargo “subject of the action” if cargo designated in contract of affreightment alleged to be breached — Federal Courts Act, R.S.C. 1985, c. F‑7, s. 43(2) .

Held:  The appeal should be allowed on the issue of in rem jurisdiction and the remaining two issues remitted to the Federal Court of Appeal.

Cases Cited

Not followed:  Paramount Enterprises International, Inc. v. An Xin Jiang (The), [2001] 2 F.C. 551.

Statutes and Regulations Cited

Federal Courts Act, R.S.C. 1985, c. F‑7, s. 43(2) .

APPEAL from a judgment of the Federal Court of Appeal (Nadon, Sharlow and Malone JJ.A.), [2006] 3 F.C.R. 475, 345 N.R. 61, [2006] F.C.J. No. 9 (QL), 2006 FCA 1, setting aside an order of Rouleau J. dismissing a motion to strike an in rem statement of claim and to set aside a warrant of arrest.  Appeal allowed.

Peter G. Pamel, Jean‑Marie Fontaine and Rick Williams, for the appellant.

John W. Bromley, for the respondent.

The following is the judgment delivered by

1                                   The Court — This appeal arises from the arrest of a cargo of coal on a ship.  The cargo was arrested as an interim security measure to secure the outcome of an arbitration proceeding in London, England.  The arbitration relates to an alleged breach of a contract of affreightment (or charter party) dated July 27, 2005.  The appellant alleges that, in breach of the contract, the respondent loaded the cargo on a competitor’s ship, the “M/V Swift Fortune”, resulting in a loss to the appellant of US$388,403.63.

2                                   The appellant commenced an action in rem against “The Cargo of Coal loaded on the ship ‘M/V Swift Fortune’”, and in personam against “The Owners of the Cargo and all others interested in the cargo of coal loaded on the ship ‘M/V Swift Fortune’”.  The appellant also sought, and received, a warrant to arrest the cargo from the Federal Court, and after the warrant was issued, caused the cargo to be arrested on board the “M/V Swift Fortune”.  The action itself has been stayed in favour of the arbitration proceedings in London.

3                                   The respondent brought a motion to set aside the warrant of arrest, and to strike the in rem statement of claim.  The motions judge, Rouleau J., dismissed the respondent’s motion.  The respondent appealed to the Federal Court of Appeal.  The Federal Court of Appeal allowed the appeal on the basis that it was bound by its earlier decision in Paramount Enterprises International, Inc. v. An Xin Jiang (The), [2001] 2 F.C. 551, but it indicated that it would have reached a different result but for the decision:  [2006] 3 F.C.R. 475, 2006 FCA 1.  Whatever the merits of the practice that led the Federal Court of Appeal to allow the appeal, its conclusion that s. 43(2)  of the Federal Courts Act, R.S.C. 1985, c. F-7 , was not satisfied in this case cannot stand.

4                                   For the reasons given by Nadon J.A., we agree that the narrow “physical nexus” interpretation of s. 43(2)  should be rejected, in favour of an “identifiability” test that asks whether the cargo is the cargo designated in the contract of affreightment alleged to be breached.  Applying this approach, we are satisfied that s. 43(2)  has been satisfied in this case.

5                                   Accordingly, we would allow the appeal on this point with costs throughout, and remit the matter to the Federal Court of Appeal for consideration of the two remaining issues.

Appeal allowed with costs.

Solicitors for the appellant:  Borden Ladner Gervais, Montréal.

Solicitors for the respondent:  Bromley Chapelski, Vancouver.