Ship Building and Repairs

Priorities - Whether s.139 MLA applies to construction of ships? - Meaning of Foreign Ship - Whether personal liability of owner required?

Comfact Corporation v. Hull 717, 2012 FC 1161,  2013 FCA 93

The builder of the defendant ship became insolvent and went under the Companies Creditors Arrangement Act while in the course of constructing the ship. The plaintiff was a subcontractor of the builder who had supplied welding services to the ship but had not been paid. The ship was being built for a Norwegian corporation but was recorded in the Canadian registry. The plaintiff claimed to have a maritime lien pursuant to s. 139 of the Marine Liability Act. The mortgagee of the ship (who defended the in rem action) denied the existence of a lien. The trial Judge agreed with the mortgagee and held that the plaintiff did not have a lien. In his reasons (at 2012 FC 1161) the trial Judge noted that s. 139 of the Marine Liability Act (“MLA”) grants a maritime lien against a foreign vessel in respect of claims that arise out of the supply of goods, materials or services to the foreign vessel or out of a contract relating to the repair or equipping of the foreign vessel. He further noted that s. 139 does not expressly include ship construction. He said, as a matter of statutory construction, that the omission of a reference to ship construction in s. 139 and its inclusion in s.22(2)(n) of the Federal Courts Act gave rise to a presumption that the omission is deliberate. Further, although interesting issues were raised as to whether s. 139 of the MLA did away with the requirement that the liability of the owner be engaged before an action in rem could be maintained, the trial Judge said those issues would have to be decided another day. The plaintiff appealed.

Decision: Appeal dismissed.

Held: The Federal Court of Appeal was not persuaded that providing manpower to a shipbuilder for the construction of a vessel amounts to the provision of services within the meaning of s. 139 of the MLA.

Construction Mortgage - Entitlement of Purchaser/Mortgagee to Return of Advances

Offshore Interiors Inc.  v. Worldspan Marine Inc., 2013 FC 221, 

Pursuant to a vessel construction agreement the builder was to retain title to the vessel until delivery to the purchaser and the purchaser was to make periodic payments in the nature of advances to the builder. The advances were to be secured by a continuing first party security interest supported by a mortgage. A current account Builder’s Mortgage was filed in the ship registry in favour of the purchaser. Disputes arose during the course of construction of the vessel with the result that construction ceased and the builder filed a petition under the Companies Creditors’ Arrangement Act of British Columbia. By order dated 29 August 2011 the Federal Court established a process for claims against the vessel which included a condition that the claimant have an existing enforceable claim in rem against the vessel. A claim was filed by the purchaser/mortgagee for repayment of the funds advanced. The builder brought this application for a declaration that the mortgage did not create a lien or charge on the vessel other than to secure delivery.

Decision: Declaration granted that the mortgage does not create a lien or charge in the vessel other than to secure delivery.

Held: The question of whether there was an obligation under the mortgage requiring that funds advanced be repaid depends on the construction of the vessel construction agreement and mortgage. There is no express provision requiring repayment of funds advanced for the construction of the vessel. Despite the mortgage stating it is a “current account” mortgage, there is no evidence that an account current is created by the vessel construction agreement which clearly allowed the builder to retain all advances. The parties contemplated that all monies advanced would be used in the construction of the vessel and not exist as a fund.

Ship Building - Insolvency - Stay of Proceedings

Worldspan Marine Inc. (Re) v.  , 2011 BCSC 1758, 

The issue in this case was whether a stay of proceedings previously granted under the Companies Creditors Arrangement Act to allow an insolvent ship builder to refinance should be continued. The intended buyer of the partially constructed yacht opposed the builder’s application to continue the stay. The buyer wanted to lift the stay so that he could appoint a receiver for the vessel and exercise his remedies. The Court noted that a stay should only be granted or continued when it would further the objective of facilitating a plan of arrangement between the debtor and its creditors. Other factors included the debtor’s progress towards a restructuring and the relative prejudice. The Court reviewed the various steps that had been taken and ultimately granted the continuation of the stay noting that “at this stage, a CCAA restructuring still offers the best option for all of the stakeholders”.

Ship Building - Default Judgement

Offshore Interiors Inc. v. Worldspan Marine Inc., 2011 FC 904, 

This was an appeal from an order of a Prothonotary in which the Prothonotary refused to allow the defendant to file a defence out of time and gave default judgement. The underlying action was a claim by a cabinet maker for the costs of cabinets installed on a yacht. The Appeal Judge considered the issues anew and found that there was a contract between the parties the important terms of which were clear. The work was done, invoices were sent but the invoices were not paid. The Appeal Judge found that the defendants offered no evidence to contradict the existence of a contract. In result, the Prothonotary’s order was affirmed.

Ship building - Insolvency -Stays of Proceedings

Sargeant v. Worldspan Marine Inc., 2011 BCSC 767, 

This matter concerned a partially constructed yacht, an insolvent builder and many unhappy creditors. Some of the creditors had commenced proceedings in the Federal Court and obtained either arrest warrants against the vessel or caveats. The builder brought this application in the British Columbia Supreme Court under the Companies Creditors ArrangementAct seeking, inter alia, a stay of the Federal Court proceedings so that it could develop a viable restructuring plan that would allow it to complete the construction of the yacht. Although the Court granted much of the relief requested, including a general stay of all proceedings, the Court refused to specifically stay the Federal Court proceedings “as a matter of comity”. Instead, the Order of the Court included a specific request to the Federal Court for its assistance to recognize the stay. The Court noted that the British Columbia Supreme Court and the Federal Court “working cooperatively and each exercising its own jurisdiction should be able to avoid any insuperable conflicts between their respective jurisdictions”.

Ship Building - Negligence - Damages

Van Duren v. Chandler Marine Inc., 2010 NSSC 139, 

The plaintiffs contracted with the defendant for the building of a vessel. Upon completion, the vessel was sailed from Dartmouth, Nova Scotia to the island of St. Eustatius in the Netherlands Antilles. The evidence established the vessel experienced a multitude of problems during the voyage and the plaintiffs brought this action in contract and negligence against the shipbuilder. The plaintiffs‟ first argument was that it was not economical to repair the vessel and presented expert evidence to this effect. The Court did not accept the expert evidence. The Court did, however, find that the defendant had breached the building contract and was negligent. The damages included a claim for mental distress which was allowed in the amount of $15,000. The plaintiffs‟ claim for lost income was disallowed on the grounds, inter alia, that it was not foreseeable.

Ship Repair - Repair Costs

Lindsay  v. Spiller, 2009 BCSC 575, 

This was a dispute over the repair of a motor yacht. The repairer claimed for repair costs, storage and other costs. The boat owner alleged that some of the work and expenses were incurred without his authority and that other amounts were not properly itemized and were not reasonable. The Court extensively reviewed the evidence and agreed, in part, with the boat owner that some charges were not authorized and others were not properly itemized or reasonable. In result, however, the repairer did recover a substantial portion of his claim.

Ship building - Government Procurement – Standing

Irving Shipbuilding Inc. v. Canada (Attorney General), 2009 FCA 116, 

This was an application for judicial review under s. 18.1 of the Federal Courts Act challenging the awarding of a contract by the Government of Canada to provide service support for its Victoria Class submarines. The applicants were two sub-contractors of an unsuccessful bidder. Surprisingly, and fatally for the applicants, the unsuccessful bidder was not part of the proceedings. The applicants argued that there was a conflict of interest in that some employees of the successful bidder had been involved in an earlier test program that gave it inside knowledge and an unfair advantage. The application was dismissed on the grounds, first, that the applicants had no standing since they were not “directly affected” by the decision, and second, on the grounds that there was no conflict of interest. On appeal, the Court of Appeal upheld the Judge at first instance but for slightly different reasons. The Court of Appeal held that the applicants were not owed a duty of fairness either at contract, since they were not the unsuccessful bidder, or at common law. Further, since they were not owed a duty of fairness they were not "directly affected" by the decision awarding the service contract and, therefore, had no status under s. 18.1 of the Federal Courts Act. An application for leave to appeal the decision to the Supreme Court of Canada was dismissed (see 2009 CanLII 57521)

Ship Repair - Negligence - Exclusion Clauses - Summary Trial

656925 B.C. Ltd. v. Cullen Diesel Power Ltd., 2009 BCSC 260, 

This was a summary trial application by the defendant to dismiss the claim of the plaintiff on the basis that the contract of repair between the parties included an exclusion clause. The Court held there was insufficient evidence to grant a summary judgment and dismissed the application. However, in the course of its reasons the Court noted that exclusion clauses could be set aside “even in the context of a purely commercial relationship” where the enforcement of the clause would be unconscionable, unfair or unreasonable. The Court further noted that this could be assessed both at the time of breach as well as the time the contract was made.

Ship Repair - Unconscionable Transaction - Quantum Meruit - Intereference With Contractual Relations

Nanaimo Shipyard Ltd. v. Keith, 2008 BCSC 1150, 

The Defendant’s vessel ran aground and was severely damaged near Nanaimo, B.C. The grounding occurred a mere 100 yards from the Plaintiff’s shipyard. The Plaintiff’s employees secured the vessel, brought it to the shipyard and hauled it out of the water. The next day the Defendant was presented with a work order for the work done the previous day. The Defendant signed the work order. The work order included a “residency fee” of $350 per day and a “lay day fee” of $4,500 per day. The Defendant’s insurance company advertised for bids to repair the vessel. The Plaintiff bid but was not successful and the repair contract was given to another company. The main issue in the case was whether the Plaintiff was entitled to charge the “lay day fee” and “residency fee”. On this issue the Court found as a fact that the Plaintiff had advised the Defendant that the residency fee would be negotiable. The Court also found that the terms were vague with no clear meaning. Accordingly, the Court held that there was no agreement to pay the lay day or the residency fees. The Court also considered whether the agreement was unconscionable. The Court noted that unconscionability required, first, proof of inequality in the positions of the parties arising out of ignorance, need or distress and second, proof of substantial unfairness of the bargain obtained by the stronger. Once these factors are shown, the burden of proof shifts to the stronger party who must prove that the bargain is fair, just and reasonable. Applying this test, the Court held that there was unconscionability. The Court also found that there was unconscionability under the Business Practices and Consumer Protection Act of British Columbia. Although the unconscionability invalidated the signed work order, the Court held that the Plaintiff was entitled to be paid for its work and the use of its facility on a quantum meruit basis. Claims by the Plaintiff against the underwriters of the Defendant for interference with contractual relations and breach of warranty of authority were dismissed.

Ship building - Extras

D’Eon Boatbuilding Limited v. Thankful Too Family Fisheries Inc.,  2008 FC 923 , 

This was an action to recover the unpaid balance of construction costs incurred in building a fish boat. There were two factual issues in the case; one involved which of two quotes was the contract between the parties and whose accounting of extras was to be accepted. The Judge reviewed the evidence and granted judgment to the builder for approximately $28,000.

Ship Building - Fundamental Breach - Rescission - Repudiation - Forfeiture - Relief from Forfeiture

Hansen  v. "Trinity" (The), 2007 BCSC 821, 

The Plaintiffs in this case sought the return of in excess of $300,000 they had paid towards the purchase of a sailing vessel being built for them by the Defendants. The Plaintiffs alleged that there was a fundamental breach of the building contract entitling them to rescission of the contract. The breaches related to alleged welding defects in the hull. The Defendants counterclaimed for damages and alleged the Plaintiffs had forfeited their part payments. The Court reviewed the evidence and found that the Plaintiffs had failed to prove the welds were defective. Accordingly the claim of fundamental breach was dismissed and the Court found that the Plaintiffs had repudiated the contract by refusing to complete the purchase. The Court noted that the Plaintiffs had thereby forfeited their part payment of the purchase price but considered whether relief from forfeiture should be granted. The Court calculated the total loss suffered by the defendants at $234,000 and compared this to the sum forfeited of $317,000. The Court concluded that the sum forfeited was not out of all proportion to the loss suffered and declined to grant relief from forfeiture.

Ship Building – Quantum Meruit – Wrongful Arrest

Intertech Marine Limited v. Menendez (The “Nautica”), 2006 FC 1445, 

The Plaintiff and the Defendant entered into a series of agreements for the construction of a pleasure yacht by the Plaintiff for the Defendant. During the construction the parties also discussed the possibility of entering into an arrangement to use the yacht being built to promote sales of further yachts. In anticipation of this happening the Plaintiff said that it chose to forego billing various costs during the construction. The arrangement to sell further yachts never materialized and the Plaintiff provided the Defendant with a final billing of almost $250,000 which the Defendant refused to pay. This action was then brought by the Plaintiff who also arrested the yacht. The Defendant counter-claimed for costs relating to the wrongful arrest of the yacht. Upon reviewing the various agreements between the parties, the trial Judge noted that the final agreement contained a clause stipulating that the Plaintiff would complete the yacht for a fixed price. Although the Plaintiff's evidence was that this clause had been inserted for the “Bank”, the trial Judge found the clause to be determinative. The Plaintiff also argued that it was entitled to the amount based on quantum meruit principles. The trial Judge held, however, that in order for the Plaintiff to recover on quantum meruit principles it was necessary that there be at least an agreement in place to the effect that the costs of Plaintiff would be recovered from the sale of sister yachts. She found as a fact that there was never any such agreement reached. In result, the Plaintiff's claim was largely dismissed except for a few items that were legitimately “extras”. With respect to the counter-claim, the Judge dismissed the counter-claim as it was conceded that the arrest was not unlawful if even a small amount was awarded to the Plaintiff.

Ship Repair – Negligence – Mitigation

Deep Shore Marine Contracting Inc. v. The “Polish Princess”, 2005 FC 1469, 

The Plaintiff, a ship repairer, brought this action to recover the amount of unpaid invoices. The Defendant counter-claimed alleging the Plaintiff damaged his vessel by failing to protect it from the elements and further alleging that the Plaintiff unreasonably delayed in completing the repairs causing him to lose a sale of the boat. The Prothonotary decided the issues in favour of the Plaintiff holding that the amounts of the invoices were properly owing by the Defendant to the Plaintiff, that there was no damage caused to the vessel while in the possession of the Plaintiff and that any delays were caused by the Defendant's failure to pay instalments. Additionally, the Prothonotary held that the Plaintiff had failed to mitigate any damage caused to the vessel by promptly repairing same and that the arrest of the vessel by the Plaintiff did not excuse the Defendant from its obligation to mitigate.

Ship repairer’s liability – Fire damage – Faulty Repair

Fiddler Enterprises Ltd., et al v. Allied Shipbuilders Ltd., 2003 FCT 463, 

A fire occurred in the funnel of a fishing vessel in the vicinity of the exhaust mufflers/silencers. The Plaintiff owners alleged that during repairs to the vessel’s exhaust system the Defendants had installed an inadequate gasket and had not allowed for expansion and contraction in the system. The issue in the case was the origin of the fire. The Plaintiffs’ expert said that the leaking exhaust gasses due to the faulty repair ignited unburned hydrocarbons in the exhaust gasses. The Defendants' expert said that the source of ignition was diesel fuel spilled from a fuel tank vent line that terminated inside the funnel. The Court held that the Plaintiffs, who had the burden of proving the cause of the fire, had failed to show conditions under which the exhaust gasses could have ignited. They also failed to show that soot which had built up in the funnel could have ignited. The Court did not accept that the Defendants' theory of a fuel spill from the vent line had been proven either but, as the Plaintiffs carried the burden of proof, the claim failed.

Ship Repair - Negligence - Damages

Matson Navigation v. Victoria Shipyard Co., 2001 BCSC 1344, 

The Plaintiff in this matter claimed that the Defendant Shipyard had obstructed a vent with sandblast grit in the No. 5 port wing ballast tank while sandblasting during a refit. As a result of the obstruction, the ballast tank became over-pressurized during ballasting operations and significant damage was caused to the hull. Upon inspection approximately 76 pounds of compacted sand blast grit was found inside and completely blocking the vent. It was not disputed that the sandblast grit came from the Defendant’s sandblasting operations of the ballast tank. The Defendant nevertheless argued that it was not liable. The Defendant alleged that the damage was wholly or partly caused by the Plaintiff in that: the vents were fitted with flash screens which was unusual and permitted the accumulation of sandblast grit; the Plaintiff had specifically instructed the Defendant to sandblast the vents as well as the tank; that the Plaintiff failed to properly maintain the vents; and the Plaintiff failed to check the vents. The Court rejected all of these arguments. The Court found: that the presence of flash screens are to be anticipated and that they were easily detected; that the Plaintiff had not instructed the Defendant to sandblast the vents and that there was a substantial body of credible evidence that the vents should not have been sandblasted; that there was no lack of maintenance on the part of the Plaintiff; and that the Plaintiff had no obligation to check the vents before ballasting. In result, the Court found the Defendant solely liable for the damage. The Plaintiff was awarded damages for temporary and permanent repairs and expenses, for lost charter income, for interest expense and price fluctuations during the delayed delivery of the cargo and compound prejudgment interest.

All Risks Coverage - Wear and Tear - Repairer's Negligence

Bevan  v. Gartside Marine Engines Ltd. et al., 2000 BCPC 31, 

This was an action against a repairer and an insurer under an all risks policy for damage caused when a transmission overheated. The Plaintiff alleged that the repairer had been negligent in performing prior repairs to the trolling valve control linkage. The Plaintiff further alleged that the damage was covered by his all risks policy. The repairer denied negligence and the insurer defended on the basis of an exclusion in the policy excluding liability for damage caused by wear and tear and mechanical breakdown. The Court found that there could have been multiple causes of the transmission failure including pre-existing damage, wear and tear and improper use of the trolling gear by the Plaintiff or previous owners. As a result, the Court held that negligence on the part of the repairer had not been proven. With respect to the claim against the insurer, the Court noted that there are limits to the coverage afforded by an all risks policy and that the Plaintiff was required to prove that the cause of the transmission failure "was due to a casualty". The Court held that the Plaintiff had not proven that the loss was due to a casualty and coverage was denied.

Repairers Negligence

Altenburger  v. Buzaglo, [2000] O.J. No. 4438 (Ont. S.C.), 

This was an action by a boat repairer to recover the cost of repairs effected for storage costs. The Defendant argued that most of the repair work was unnecessary or not authorized and that the Plaintiff had caused damage to the boat while in his possession. The Court had little difficulty finding the Defendant liable for the repair costs which had been approved as fair and reasonable by a surveyor. The Court also found the Defendant liable for storage charges as the Plaintiff had specifically advised the Defendant that he would charge for storage. With respect to the Defendant’s counterclaim that the boat was damaged because the Plaintiff failed to cover it, the Court noted that the Defendant was aware the boat was not covered and could have covered it himself. Further, the Defendant was aware that marinas normally charge an additional amount to cover boats and the Defendant was not paying the Plaintiff. Accordingly, the counterclaim was dismissed.

Liability of Steamship Inspectors

Nickerson  v. Canada, 1999 CanLII 8040, 

This was an action against two steamship inspectors for providing the Plaintiff with negligent advice. The facts were that the inspectors wrote a letter to the Plaintiff recommending, inter alia, that he coat the wood core of his vessel with a suitable wood preservative before applying fibre glass. The Plaintiff alleged that in reliance on this advice he purchased and applied creosote to his vessel. The Plaintiff was later advised that fibre glass would not bond to wood coated with creosote. Accordingly, the Plaintiff brought this action for damages in the amount of $500,000. Unfortunately for the Plaintiff, the court completely disbelieved him. The court found as a fact that the plaintiff did not creosote his vessel as he alleged. Further, the court held that even if the Plaintiff did creosote the vessel the inspectors were not liable. The inspectors merely advised the Plaintiff to apply a suitable wood preservative. The court held that the Plaintiff had the duty to make necessary inquiries to determine what a suitable preservative would have been. Finally, the court held that, in any event, the Plaintiff's vessel had deteriorated to such an extent that it was beyond repair and any advice given by the inspectors would have been to no avail.

Vessel Construction and Design - Liability of Steamship Inspectors

Glovertown Shipyards Ltd. v. Hickey,  [1999] N.J. No. 169, (Nfld. S.C.)., 

This was an action by the Plaintiff shipyard to recover the balance owing on a ship construction contract with the Defendant purchaser. The purchaser alleged that the vessel was constructed with numerous defects that amounted to a fundamental breach of contract by the shipyard and rendered the ship not fit for the purpose for which it was intended and not of merchantable quality. The purchaser further counterclaimed against the shipyard and against the ship's designer and steamship inspectors alleging their negligence resulted in the loss of the vessel at sea. In a judgment of 216 pages the court held that the ship when delivered was seaworthy, fit for the purpose intended and was of merchantable quality. The court noted that, although a number of problems were experienced by the vessel after delivery, these problems were repairable and were all dealt with by the shipyard and/or by suppliers of equipment. Accordingly, the court found that there had been no fundamental breach of the contract by the shipyard and allowed the shipyard's claim for the balance of the purchase price. With respect to the counterclaim, the court found some negligence on the part of the shipyard and the designers of the vessel but held that this negligence was not causative of the loss of the vessel. The cause of the loss was determined to be due primarily to the negligence of the purchaser in selecting an unqualified Master and to the negligence of the Master in the management and navigation of the vessel. Additionally, the court found that the steamship inspectors were negligent in their failure to reasonably interpret and apply the regulations and provisions of the Tonnage Guidelines under the Canada Shipping Act. The court apportioned liability and costs 65% against the purchaser and Master and 35% against the steamship inspectors.

Manufacturers Duty to Warn

Seamaid Fishing Ltd. v. 328174 B.C. Ltd., 1995 CanLII 254, 

This was an action in negligence for failure on the part of a manufacturer of rebuilt injectors to warn of defects in the injectors. In December, 1988, twelve fuel injectors, rebuilt by the Defendant, were installed in the Plaintiff's vessel. In April, 1989, one of these injectors failed after only 200 hours service when a tip broke off. In that same month another injector installed on a second ship also failed when a tip broke off. In August, 1990, another of the injectors in the Plaintiff's vessel failed when the injector tip broke off and serious engine damage resulted. The Court acknowledged that there was a duty to immediately warn of any defect or danger in the injectors. However, the Court found that the chances of a third injector failure were very remote and, accordingly, the manufacturer was under no duty to warn of this remote possibility.

Ship repair - Sale of Goods Act

Gaudet v. Gallien Boats Ltd., 1995 CanLII 3457, 

This was an action against a boat builder for damages in negligence and for breach of the implied warranties under the Sale of Goods Act. The Defendant had installed a breather on the Plaintiff's engine. The motor was subsequently damaged when a nut from the breather became lodged in a piston. The Defendant was held liable for the damages.