Admiralty Practice

Judicial Sales - Priorites - Costs - Procedure in Priorities Disputes

Cameco Corporation v. The "MCP Altona", 2013 FC 177, 

The “MCP Altona” was sold by judicial sale following a spill of yellowcake uranium in one of her holds. Following the sale, the mortgagee of the vessel brought an application for payment out of the proceeds of sale. Cameco, the owner of the uranium cargo, defended that motion arguing that it had priority over the mortgagee. The court ultimately determined (at 2013 FC 23) that the mortgagee had priority and ordered payment of the proceeds to it. The mortgagee now moved for costs from Cameco on an enhanced basis.

Decision: The mortgagee is entitled to its costs against the cargo owner based on the Tariff.

Held: The procedure in priorities disputes is similar to that for applications. Each party is to file written submissions supported by affidavits and documents to be relied on. Parties are entitled to cross-examine affiants. Although Cameco was unsuccessful in challenging the mortgagee’s priority, it had legitimate points. Further, although the issues were complicated and interesting, for the reasons given in Universal Sales, Ltd v Edinburgh Assurance Co, 2012 FC 1192, costs should be based on the tariff.
Comment: In Universal Sales, Ltd v Edinburgh Assurance Co, 2012 FC 1192, the court held that there must be reprehensible conduct to justify an order for enhanced costs.

Liens - Mortgages - Priorities - Necessaries Lien - Salvage Convention

Cameco Corp. v. The "MCP Altona", 2013 FC 23, 

The “MCP Altona” was sold by judicial sale following a spill of yellowcake uranium in one of her holds. Following the spill, the plaintiff, the owner of the uranium cargo, arranged and paid for the discharge of the uranium cargo as well as other cargo on the ship and undertook remedial efforts to clean the ship. The plaintiff allegedly incurred expenses in excess of $8 million. The plaintiff sought priority to the proceeds of sale for these costs over the mortgagee of the vessel. The plaintiff argued that it should have priority on four grounds: 1. the discharge of the cargo and remediation of the ship were necessary to bring the ship to sale and those costs should enjoy a priority akin to marshal’s expenses; 2. the services it rendered to the vessel have the status of a maritime lien pursuant to s. 139 of the Marine Liability Act; 3. the services it rendered to the ship were in the nature of salvage services having a priority pursuant to the International Convention on Salvage, 1989; and 4. the court ought to exercise its equitable jurisdiction to alter the usual order of priorities in its favour.

Decision: The mortgagee has priority.

Held: The costs of discharging the cargo and cleaning the ship form part of the plaintiff’s claim against the ship owner and are not to be equated with marshal’s expenses. The plaintiff was not a volunteer but was acting under compulsion of law. With respect to s. 139 of the Marine Liability Act, which grants a maritime lien to Canadian suppliers of goods or services to a foreign ship, the goods or services must be supplied at the request of the shipowner. They were not so supplied. There was no contract with the shipowner. With respect to the claim for a salvage maritime lien, the law of salvage requires that the services be voluntary, the adventure be in danger at sea and the salvage efforts be successful. The International Convention on Salvage, 1989 did not alter the law of salvage other than in relation to compensation for protection of the environment. The ship was not in danger once she arrived at the port and the plaintiff was not acting as a volunteer. Finally, with respect to the equitable ranking of priorities, the thread which ties recent cases on equitable ranking together is unjust enrichment. The mortgagee did not lull the plaintiff into doing something it would not have done in any event. The plaintiff acted not as a volunteer but as it was required to do by law. There is no reason to change the usual priorities.

Assessment of Sheriff's Costs

TAM International Inc. v. The MCP Altona, 2012 FC 1168,  2013 FC 9

The defendant ship was ordered to be sold and the order of sale provided that all reasonable expenses and agency fees necessary for the preservation, safekeeping or maintenance of the vessel were to be treated as sheriff’s costs. Upon assessment of the sheriff’s costs certain invoices and expenses were contested by one of the parties. The contested invoices included: amounts paid to the ship’s manager; invoices for parts ordered before the arrest; invoices to maintain the registration of the vessel; wages and associated expenses of a full complement of crew members; invoices for alcohol; and other miscellaneous invoices. The Assessment Officer (2012 FC 1168) allowed some but not all of the disputed amounts. The Assessment Officer found the expenses paid to the ship’s manager were reasonable and necessary and were allowed. Invoices for items or services not necessary for the preservation, safety or management of the vessel were disallowed. The invoices for parts ordered outside of the period covered by the order of sale were not allowed. The invoices for maintaining the registration of the vessel were allowed only for the period applicable to the arrest and sale, which was 1/24 of the entire period. The wages and associated expenses of all but two crew members were allowed, the number being arrived at based on the safe manning certificate of the vessel. Invoices for alcohol were disallowed as not reasonable. The mortgagee appealed those parts of the award with regard to manning and flag registration.

Decision: Appeal Dismissed.

Held: The Court should not intervene in an assessment officer’s decision absent an error in principle or an award of an amount so unreasonable as to suggest such an error. With regard to manning, no evidence was submitted as to the minimum crew required during anchorage. With regard to the flag registration, the decision to allow the expenses only to the date of sale does not reflect an error in principle.

Practice - Intervenors – Judicial Sale

Keybank National Association v. The “Atchafalaya”,  2010 FC 406 (CanLII）, 

This was a motion to intervene and to set aside an in rem judgment and order for sale. The intervenor was Dragage Verreault (“DV”), the plaintiff in another action who had a claim against the same vessel. The plaintiff in this action, Keybank, had been advised of the other action. Keybank obtained a judgment in this action on consent and provided DV with a copy of that judgment. Keybank later brought a motion for sale which DV attempted to delay but because DV did not obtain intervenor status its requests were refused and the order for sale was granted. DV then brought this application. The Court held first that DV as an arresting party had an interest in the ship and was entitled to intervene. The Court further held that the judgment should be set aside, primarily on the grounds that Keybank ought to have given DV prior notice of its application for judgment. With respect to setting aside the order for sale, the Court said that this should be determined by the justice who ordered the sale.

Ownership - Matrimonial Dispute – Sale – Stay of Proceedings

Ricci v. Tully, 2009 FC 493, 

This was a dispute between a husband and wife involved in divorce proceedings as to the ownership of a sailboat named “Forever Lost”. The boat was purchased with funds raised by the plaintiff/wife from a mortgage on her home but was registered in the name of the defendant/husband. The plaintiff claimed that she was the equitable owner of the boat and the defendant claimed that the boat was a gift to him from the plaintiff. The defendant/husband was living on the boat but had failed to make payments as required by a previous court order and had failed to maintain insurance on the vessel as required. The issue before the Court was whether to grant the plaintiff an order of sale. The defendant argued that the Federal Court should stay the proceedings to permit the issues to be determined in the divorce proceedings in the Provincial Family Court. The Court held that it clearly had jurisdiction to deal with the sailboat but noted that it should not become “a surrogate divorce court for warring spouses”. The Court ordered the sale of the vessel and directed how the proceeds were to be applied with the balance, if any, to be paid into the Court to await the outcome of the divorce proceedings.

Extension of time for Service and Arrest – Order for Sale Pendente Lite

Franklin Lumber Ltd. v. The “Essington II” et al.,  2005 FC 95, 

This was an application by a mortgagee for a substantial extension of time (more than six years) within which to serve and arrest the vessel and a further application for Court approval of a private sale pendente lite. In deciding to grant the time extension, the Prothonotary applied the three-part test from Registered Public Accountants Association of Alberta v. Society of Professional Accountants of Canada, (2000) 5 C.P.R. (4th) 527 that the applicant must demonstrate a continuing intention to pursue the claim, that there is an arguable case and that there is no prejudice to the defendant by granting the extension. This test was to be applied within the context of the “overarching” principle of ensuring justice is done between the parties. In this case, the Prothonotary considered the fact that the dispute was essentially between family members to be particularly significant. In view of the fact that the vessel owner had not found a buyer in seven or eight years, but had at one time agreed to sell the vessel to the present buyer at the same price, the Prothonotary also made an Order for the private sale of the vessel pendente lite without appraisal and on the terms that a down payment of just under 8% of the sale price would be paid into Court immediately with closing approximately four months thereafter. The elements to be considered in deciding whether to order a sale pendente lite are open-ended, but the Prothonotary noted that they include: 1) the value of the vessel compared to the amount of the claim; 2) whether there is an arguable defence; 3) whether the owner can carry on, that is, whether there must be a sale at some point; 4) whether there will be any diminution in the value of the vessel or of the sale price by the delay; 5) whether the vessel with depreciate by further delay; and 6) whether there is any good reason for a sale before trial.

Extension of time - Stay

Global Enterprises International v. The Ships “Aquarius”,“Sagran” and “Admiral Arciszewski”, 2001 FCT 605, 

This was an application by the Polish trustee in bankruptcy of the Defendant shipowner for an extension of time in which to file an appeal of an order authorizing the sale of the Defendant ships and for a stay of the sale proceedings. The Prothonotary reviewed the case authorities on time extensions and noted that an applicant must generally show an intention to appeal before the time ran out, that the appeal has merit, a reasonable explanation for the delay and that the other parties are not prejudiced. The Prothonotary held that the applicant had failed to address these issues in its affidavit evidence and further found that there was prejudice to the other parties given that the vessels were incurring substantial expenses and a delay might frustrate a sale. The Prothonotary next considered the stay application. The proper test on such an application is that there must be a serious question to be tried, there must be irreparable harm if the application is refused and the balance of convenience must be considered. The Prothonotary noted that the applicant’s material did not suggest the sale order was in error and was silent as to irreparable harm. On the matter of balance of convenience, the Prothonotary was of the view that the balance of convenience favoured an early sale of the ships.

Reconsideration of Sale Order

Annacis Auto Terminals (1997) Ltd. v. The "Cali", 1999 CanLII 8667, 

This was a motion by the mortgagee to vary an order of sale. The motion arose because one of the terms of the sale order was that any moorage charges from the date of the sale order to the time the ship left the berth were to be given priority as sheriff's costs. At the time it was contemplated that the ship would leave the berth within 45 days of the sale. However, the ship remained at the berth 75 days after the sale and it was not apparent that she would be leaving any time soon. This resulted in ever increasing moorage charges which, as each day passed, meant a smaller recovery for the mortgagee. Although the court clearly had sympathy for the mortgagee, it held that the words "liberty to apply" in the sale order did not confer a right to vary the order. The court held that the order was final and binding. The court did, however, suggest that if a motion was brought pursuant to Rule 399(2) that the mortgagee might obtain some relief by way of an assignment of the claim of the dock owner against the purchaser of the ship.

Priorities - Advance Payments Out of Court

Bank of Scotland v. The "Golden Trinity" et al.,, 1999 CanLII 8106 , 

These reasons dealt with a reconsideration of a previous Order made from the bench allowing an advance payment to the mortgagees of the Defendant vessel from the sale proceeds of the Defendant vessel. The court confirmed the previous Order on the grounds that the advertising and search of lien claimants had been completed, the funds remaining in court were sufficient to satisfy all claimants with a reserve for costs and interest, and the mortgagees had undertaken to return the advances should that be necessary.

Sale - Delay in Payment - Forfeiture

Nedship Bank N.V. v. The Zoodotis, 1999 CanLII 7789, 

This was an application by the second highest bidder for the Defendant vessel to set aside an ex parte order that extended by two days the deadline by which the successful bidder was to pay the purchase price. The ex parte order was granted because there had been a transfer error by bankers. The court refused the application holding that forfeiture is a drastic event and should not be ordered "to penalize a bona fide buyer who has run afoul of a bank clerk who cannot cope with a bank transfer".

Court Ordered Sale

Annacis Auto Terminals (1997) Ltd. v. Cali (Ship), 1999 CanLII 7496, 

This was an application for reconsideration of an Order in which the court gave the owners until October 31, 1998 to complete a private sale of the ship failing which the ship would then be sold by the Court. The applicant was of the view that the order was deficient in that it ought to name the Sheriff who would conduct the court ordered sale and provide the Sheriff's address as the place where the Sheriff would receive bids. The Prothonotary held, however, that given the circumstances it was premature to include such particulars in the Order and Commission for Sale.

Production of Documents

The Governor and Company of the Bank of Scotland v.  The "Nel", 1998 CanLII 8628 (FC), 

This was an application to strike out the affidavit of claim of the Plaintiff on the grounds that proper production of documents had not been made or, in the alternative, an order for production. During the course of his reasons the Prothonotary noted that a cross examination on an affidavit is not as free ranging as an examination for discovery and is not to be used to obtain full production of documents.

Sale Pendente Lite

The Governor and Company of the Bank of Scotland v. The "Nel", 1997 CanLII 5901 , 

This was an application by the mortgagee of the Defendant vessel for Court approval of a private sale. The mortgage covered four vessels and was outstanding in the amount of US$12 million. All of the vessels were in various stages of sale proceedings and it appeared likely that there would be a deficiency under the mortgage even after all the vessels were sold. The Court noted that a sale pendente lite could be ordered "for good reason". The Court found good reason in the fact that the "Nel" was loaded with sulfur, a cargo that is notorious for causing corrosion damage. The Court therefore approved the sale.

Sale Pendente Lite

The Queen v. The “Western Horizion”, No.T-1620-96 (F.C.), 

This was a motion by the Plaintiff to sell the "Western Horizon" pendente lite and a motion by the Defendant to stay any such sale. The Plaintiff was the holder of a registered mortgage against the vessel in the amount of $200,000.00. The vessel, however, was only valued at approximately $60,000.00. The Plaintiff's motion was allowed by the Court on the grounds that: there was a large discrepancy between the value of the ship and the mortgage; the ongoing cost of moorage could exceed the value of the vessel by the conclusion of a trial; the vessel was deteriorating; and, the Defendant had not come forward to offer to share the moorage or maintain the vessel or put up security of $60,000.00. The Court also declined to order a stay of the sale finding that there was no serious issue to be determined and that the balance of convenience did not favour a stay.

Sale Pendente Lite

Mario Neves et.al. v.  The "Kristina Logos" , 1997 CanLII 4814, 

This was an application by the Crown for leave to sell the Defendant vessel pendente lite. The application was granted on the grounds that the costs of maintaining the vessel amounted to over $500,000.00 and the ongoing cost was $60,000.00 per year. Further, there was evidence the vessel was deteriorating in value and its classification certificate would soon expire.