Maritime Liens, Mortgages & Priorities
Commentaries are intended as an introduction or overview of the topic. The commentaries for some topics are more detailed than others but none of them should be taken as a complete and full recitation of the law applicable to the topic.
Maritime Liens, Mortgages and Priorities
The substantive law applicable to maritime liens, ship's mortgages and priorities differs significantly from the law that is applied to land based property as does the procedural law.
The law applicable to mortgages on ships is dependant on whether the particular ship is a "registered" vessel under the Canada Shipping Act, 2001. If the ship is a registered vessel, sections 65 through 72 of the Canada Shipping Act, 2001 apply. These provisions require that mortgages and transfers of mortgages be in the from prescribed and be registered in the Canadian Register of Vessels (s.65(2) & .71). (Failure to register the mortgage can result in a loss of priority as in British Columbia v. PT Car and Yacht Rental Inc., 2003 BCSC 1073.) The Act further provides that priorities as between mortgages is by order of registration unless all mortgagees consent otherwise in writing (s.67). The first mortgagee of a registered vessel is empowered with the right to sell the vessel (s.69(1)). A subsequent mortgagee may not sell the vessel without an order of the Federal Court or the consent of the prior mortgagees (s.69(2)). Finally, the Act provides that a registered mortgage is not affected by the bankruptcy of the owner and the mortgagee has priority over creditors or the trustee in bankruptcy.
The form prescribed for a mortgage of a registered vessel is very brief containing little more than the names of the parties and a space to enter the nature of the consideration and whether there is a collateral agreement. Due to the fact that sections 65 through 72 of the Canada Shipping Act, 2001 provide relatively little regulation over ship's mortgages, it is customary, if not universal, for there to be a collateral agreement containing the full terms of the mortgage agreement. Such a collateral agreement will normally contain extensive terms including: charging provisions (what is being mortgaged); representations and warranties of the mortgagor; repayment terms; insurance requirements; and remedies on default (including a right of private sale and appointment of a receiver).
It is to be noted that the Personal Property Security Acts of British Columbia (s.4(b)), Nova Scotia (s.5(j)), Prince Edward Island (s.4(j)), Newfoundland (s.5(j)) and New Brunswick (s.4(j)) specifically exempt mortgages registered under the Canada Shipping Act from the application of those acts. The Quebec Civil Code (s. 2714) similarly exempts ships registered under the Canada Shipping Act. The laws of the other provinces are silent on the issue which can present difficulties as in Royal Bank v. 1132959 Ontario Ltd., 2008 CanLii 40231.
With respect to unregistered vessels, there are no federal statutory provisions similar to sections 65 through 72 of the Canada Shipping Act, 2001. Such vessels are subject to the provisions of the provincial Personal Property Security Acts which do not exempt unregistered vessels. However, there may be a constitutional issue as to whether the provincial Personal Property Security Acts can validly regulate mortgages on unregistered vessels. (This is particularly so when addressing priorities between mortgages and maritime liens where the provincial act and maritime common law can have different results.) Nevertheless, many practitioners register such mortgages under the provincial acts, which seems prudent.
Types of Liens
There are various liens recognized in maritime law. The categories are traditional maritime liens, possessory liens and statutory liens. All can be, and should be, enforced by way of an action in rem which means that proceedings should generally be commenced in the Federal Court as opposed the provincial superior courts (with the possible exception of the Supreme Court of British Columbia which is the only superior court with rules providing for in rem proceedings.)
Traditional Maritime Liens
A traditional maritime lien is a lien unique to maritime law. It is a privileged claim, upon maritime property that accrues from the moment the claim arises. It travels with the ship unconditionally, even into the hands of bona fide purchasers for value whether with or without notice (This is its defining characteristic.). It is enforced, as with other claims, by means of an action in rem. The traditional maritime liens are claims for seaman's wages, salvage, collision damage, Master's disbursements and bottomry (virtually non-existent today).
Traditional maritime liens have a priority ranking above mortgages.
The common law possessory lien is recognized under Canadian maritime law. Such a lien requires continued uninterrupted possession or it lost. Possessory liens usually arise in the context of ship repairs and claims for freight. Such a lien has priority over mortgages and also over any subsequently accruing maritime liens. However, maritime liens that attached prior to the possession of the possessory lien claimant have priority.
Provincial statutes that provide for registration of liens and the continuation of the lien after possession is given up, such as the Repairers Lien Act and Warehouseman's Lien Act of British Columbia, have been held to apply to liens on ships. (see for example, False Creek Harbour Authority v. The “Shoda”, 2002 FCT 275) However, there is a constitutional issue as to whether such statutes can validly apply.
Statutory liens are liens created by a validly enacted statute. They have the priority given to them by the statute that created them. There are many such liens including:
- claims by the Master and crew for wages which rank in priority to all but marshall's costs and salvage claims (Canada Shipping Act, 2001, s. 86(1), (2) and (4));
- claims by the Master for disbursements which rank in priority to all but wage claims, marshall's costs and salvage claims (Canada Shipping Act, 2001, s. 86(2.1));
- claims in respect of fines or debts due the Minister have a super priority ranking above Marshall's expenses (Canada Shipping Act, 2001, s.226(2));
- claims by a carrier for any amounts due which must be perfected by notice and gives a right of sale (Canada Shipping Act, 2001, s. 248-9));
- claims by a Port Authority for amounts owing which rank in priority to all but claims for wages (Canada Marine Act, s.122); and
- claims in respect of goods, materials or services supplied to the foreign vessel and claims arising out of a contract for the repair or equipping of a foreign vessel by a person carrying on business in Canada which are given the status and priority of a "maritime lien". (Marine Liability Act, s. 139).
Foreign Maritime Liens
Liens that arise outside of Canada and have a status equivalent to a "maritime lien" under the foreign law applicable to the claim are recognized by Canadian courts as traditional maritime liens and have the priority of a traditional maritime lien. In other words, the law that determines the nature of the lien is the foreign law but the law applied in the ranking of the lien is Canadian law. This is different from the law that is applied elsewhere, such as the UK, where both the nature of the lien and its priority are determined by the local law.
Ranking of Claims
The priority of claims against a ship are ranked generally as follows:
- Marshall' Costs and expenses, being the costs and expenses of the sale of the ship;
- Possessory liens that attach prior to a traditional maritime lien;
- Maritime liens (traditional maritime liens and Marine Liability Act, s. 139 claims);
- Possessory liens that attach subsequent to a maritime lien;
- Registered mortgages; and
- Unregistered mortgages;
Statutory liens will have the priority dictated in the statute that created the lien.
In rem creditors/claimants have no special priority. Their claims will rank equally after mortgages.
Variations to the Usual Ranking
The court has an inherent discretion to depart from the usual ranking of priorities in appropriate cases. In order to depart from the usual order of priorities the Court must be satisfied that the usual ranking would produce "an obvious injustice" or " a plainly unjust result". It has been noted in many authorities that there is a heavy onus on the person seeking to depart from the usual ranking and that very strong and reliable evidence is required. Not surprisingly, there are few cases in which the usual ranking is upset by equitable considerations. Most of the authorities acknowledge the discretion but then refuse to exercise it. One of the few cases in which the discretion was exercised is Fraser Shipyard & Industrial Centre Ltd. v. The Atlantis Two, 1999 CanLII 8369, 1999 CanLII 8498.
The procedure for determining priorities is always for one claimant to commence an in rem action and to arrest the ship. Sometimes, more than one action is commenced and more than one arrest warrant is served. After the arrest, an application is made to the court for the sale of the vessel. All parties who have filed Caveats against Release are served with the application. Usually the Order authorizing the sale of the vessel will require that an advertisement be placed in local papers as well as one or two international shipping publications. The advertisement invites tenders and notifies all creditors of the pending sale. The Order and advertisement usually require that any creditors with a claim against the ship must file their claims by affidavit in the court by a specified date. Sometimes the Order will provide for cross-examination, otherwise, special orders to cross-examine must be obtained. Once all claims are filed and cross-examinations are completed a hearing is held to determine the priorities. Evidence at the hearing is by affidavit and cross-examination transcript. At the hearing, each claimant presents their claims and the other claimants may, if they deem it expedient, oppose the claim.
For additional information, see the following papers:
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Scope of Cross-Examination and Production of Documents
Royal Bank of Scotland plc v. The "Golden Trinity" et al.,  4 FC 211
This motion considered the scope of cross-examination on affidavits of claim in a proceeding to determine priorities. The Prothonotary reviewed the various authorities relating to the issue and noted that the authorities supported both a narrow approach and a broad approach, depending on the context. The Prothonotary borrowed concepts from both approaches to arrive at some broad general principles as to the proper scope of cross-examination on affidavits of claim in a priorities hearing. First, cross-examination on affidavits must have factual underpinnings in the deponent’s affidavit, in other affidavits filed, in answers giving rise to collateral questions or in the documents attached to affidavits or otherwise produced. Second, the deponent of an affidavit of claim is an agent for and swears the affidavit on behalf of a party or claimant. He or she therefore has a duty to inform himself or herself. The duty to inform is not akin to what would be required on an examination for discovery but is bounded by relevance and whether the inquiry would be unduly onerous. Third, the production of documents on a cross-examination is governed by Rules 87 (Examinations out of Court), 91(2)(c) (Production for inspection at examinations), and 94 (Production on examinations). The documents must be relevant and in the possession, power and control of the person being examined, however, the scope is not as broad as discovery of documents. The scope is limited by relevance, the amount of material requested and whether it would be unduly onerous to require production.
Cross-Examination - Substitution of Deponents - Right to Chose Deponent
Nedship Bank N. V. v. The "Zoodotis", 2000 CanLII 15471
The Plaintiff mortgagee was unable to produce the deponent of its affidavit of claim for cross-examination and brought this application for leave to substitute another witness for cross-examination. The Court stated that the general rule was affidavits will be struck out if the deponent is not produced for cross-examination and replacement affidavits will not be allowed in the absence of justifiable grounds. The Court concluded, however, that to strike out the affidavit would be unjust and unjustifiable and allowed the Plaintiff to file a second affidavit adopting the contents of the first and to produce the deponent of the second affidavit for cross-examination. The Court further held that the cross-examining party had the right to chose the witness who would depose the second affidavit and be produced for cross-examination.
Assessment of Costs
Holt Cargo Systems Inc. v. The "Brussel", 2000 CanLII 15144
This was an assessment of costs pursuant to a court order granting the Plaintiff costs on a solicitor and client basis for the arranging of the appraisal and sale of the "Brussel". The submitted Bill of Costs was challenged on the basis that it included many matters not related to the appraisal and sale and on the basis that it included fees rendered for parties other than the Plaintiff. On the first issue the Court held that the items in the Bill of Costs not related to appraisement and sale were insignificant. On the second issue the Court held that the Bill of Costs had to be reduced by deleting the fees related to clients other than the Plaintiff.
Priorities - Port Corporations - Pilotage - Foreign Maritime Liens - Sister Ships - Contractual Liens
Holt Cargo Systems Inc. v. The "Brussel", 2000 CanLII 14954
This was a hearing to determine priorities to the sale proceeds of the Defendant vessel. The claimants and their claims were: Holt Cargo Systems for costs of sale and Marshall's expenses; Halifax Port Corporation for port dues owed by the "Brussel" and her sister ships; Atlantic Pilotage Authority for pilotage services rendered to the "Brussel" and her sister ships; American maritime lien holders for goods and services supplied to the "Brussel" and to sister ships of the "Brussel"; the mortgagee for the mortgage debt; Canadian necessaries suppliers; and, the Trustee in Bankruptcy of the bankrupt ship owner. The court gave priority over the mortgagee to the claims of Holt Cargo Systems, the Halifax Port Authority, the Pilotage Authority and the various American maritime lien claimants who had supplied goods and services to the "Brussel". All of the other claimants ranked after the mortgagee, meaning they recovered nothing.
The claim of Holt Cargo Systems for the costs and disbursements related to the sale of the "Brussel" were granted a priority as were other costs which the court had previously ordered would be given a priority equivalent to Marshall's expenses.
The claim of the Halifax Port Corporation was granted a priority for port dues owed by the "Brussel" on the basis that section 43(5) of the Canada Ports Corporation Act gave it a priority over all other claims except the claims of seamen for wages. The Port Corporation was, however, not given priority for port dues owed by sister ships of the "Brussel". The court held that this claim was a mere statutory right of action in rem ranking behind the mortgagee.
The claim of the Atlantic Pilotage Authority was allowed and given priority for the services rendered to the "Brussel" but not for the services rendered to sister ships. In awarding the Pilotage Authority a priority the court noted that the Pilotage Act did not confer a priority, however, the Prothonotary was referred to Osborn Refrigeration Sales and Service Inc. v The Ship "Atlantean I",  2 F.C. 661, varied on other grounds 7 D.L.R. (4th) 395, and Ultramar Canada Inc. v Pierson Steamships Ltd. et al., (1982), 43 C.B.R. (N.S.) 9, which did grant a lien for pilotage services. On the basis of these authorities, and because the other claimants appeared to not contest the claim, the court granted the lien for pilotage services. (Note: The authorities on this point are not unanimous. In Ostogota Enskilda Bank v Starway Shipping Ltd., (1994), 78 F.T.R. 304 at 306, Muldoon J. said it had not been established "that there is in law a maritime lien for Canadian pilotage services". This decision was apparently not brought to the attention of the court in The "Brussel".)
With respect to the American lien claimants, the Trustee challenged the recognition of and the priority given to such liens and invited the court to reconsider these issues. The court held that the recognition and priority of such liens had been established by the Supreme Court of Canada and that it was not the role of the court to question established authority unless the circumstances were exceptional, which they were not. The court did, however, hold that the American claimants who had supplied goods and services to sister ships of the "Brussel" were not entitled to maritime liens and, therefore, were not entitled to a priority.
The court ordered that the balance of the sale proceeds after payment of all of the above creditors would go to the mortgagee who had a claim in excess of $68 million.
One of the other claimants, Halterm, had paid the wharfage for the "Brussel" to the Halifax Port Corporation and claimed to be subrogated to the statutory lien of the Port Corporation. The court found, however, that there was no evidence of an explicit assignment of the Port Corporation’s lien rights and further noted that the Canada Ports Corporation Act was silent regarding whether such rights could be assigned. The court ultimately held that there had been no assignment in favour of Halterm. In reaching this decision the court was careful to note that it did not "foreclose the possibility that a maritime right in rem or other lien may be assignable". (Note: in The "Atlantis Two" the court approved of an assignment of the seamens’ liens for repatriation costs to the Crown.)
Another claimant, Bridge Oil, alleged that it was entitled to a maritime lien for bunkers supplied to the "Brussel" in Belgium based on Article 2(5) of the Unification of Certain Rules Relating to Maritime Liens and Mortgages, 1926, which gives a maritime lien for contracts entered into by a Master provided, inter alia, the vessel is away from her home port and the contracts were necessary for the preservation of the ship or the continuation of the voyage. The court disallowed the lien claim on the grounds that the bunkers were ordered by the owner and not the Master.
A lessor of containers alleged that it had a maritime lien for unpaid lease payments on containers supplied to the "Brussel". The lease agreement expressly provided that the lessor was to have a contractual lien against the lessee’s vessels. The court held that such a lien has no special priority as against third parties. (Note: In The "Atlantis Two" the Prothonotary seemed to suggest that a contractual lien might be of some effect in a priorities hearing.)
Priorities - Charterer's Claims - Foreign Maritime Liens - Sister Ships - Equitable Jurisdiction
Fraser Shipyard & Industrial Centre Ltd. v. The Atlantis Two, 1999 CanLII 8369 1999 CanLII 8498
This was a hearing to determine priorities to the sale proceeds of the Defendant vessel. The claimants and their claims were: a bunker supplier for bunkers supplied pursuant to a court order granting a priority as Marshall's expenses; the crew for wages; the Master for disbursements; the Crown for the costs of repatriating the crew; the charterer for bunkers supplied to the ship and for damages for breach of charter party; suppliers of necessaries claiming foreign maritime liens in respect of both goods supplied to the Defendant ship and goods supplied to sister ships; the sub-charterer for breach of charter party; the mortgagee; and a ship repairer, without possession, for work done to the vessel to remedy deficiencies noted in a Port State Control Detention Order.
The court allowed the claim of the bunker supplier pursuant to the previous court order as a first claim on the proceeds after the costs of sale. Next in priority was the claim of the crew and officers for wages and of the Master for disbursements for food for the crew, who had been abandoned by the owner. Next in priority was the claim of the Crown for the costs of repatriating the crew, which was a claim and priority that had been assigned to the Crown by the crew pursuant to an earlier court order.
The court next considered the claim of the charterer for fuel and damages for breach of charter party . With respect to the claim for fuel, the charterer claimed both for fuel consumed at Vancouver and for fuel on board the vessel when sold. The charterer’s claim for priority in respect of fuel consumed was disallowed by the court on the grounds that the charterer did not obtain a court order in advance of supplying fuel to the vessel. The court considered whether there were any special circumstances that might justify a variation in the normal order of priorities but held that there were no such special circumstances. The charterer was, however, entitled to the value of bunkers not consumed and on board the vessel when she was sold, this fuel being the charterer’s property. With respect to the charterer's claim for breach of charter party, the court held that the charter party made it clear that it was subject to English law and under both English and Canadian law there is only a statutory right in rem as a remedy for breach of a charter party and no priority.
With respect to the claims of foreign necessaries suppliers, primarily American suppliers, the court was invited to reconsider the fairness of allowing such suppliers a priority when their Canadian counterparts had only a right of action in rem. The court declined to do so but noted that it may be time for Canadian necessaries suppliers to press for legislative change. The court allowed the claims of all but one the American suppliers but only in respect of goods delivered to the "Atlantis Two". One claim allowed was in respect of goods supplied to the "Atlantis Two" at Mexico and Vancouver by a Norwegian company through an American agent. A claim that was disallowed at first instance was a claim in respect of cylinder heads sold F.O.B. Houston, Texas and delivered to Australia and Vancouver. The Prothonotary found that there was no evidence that the goods were, in fact, delivered to the vessel and held therefore that no maritime lien arose. On appeal, (1999 CanLii 8369) Rouleau J. found that the shipping invoices clearly indicated that the cylinder heads were to be shipped to a specifically identified vessel (the "Atlantis Two") in Australia and Vancouver. This, he held, was sufficient to establish delivery to the vessel and to find a maritime lien.
It is noteworthy that, insofar as the claims by American suppliers were for the supply of goods or services to sister ships of the "Atlantis Two", the court held that such claims did not attract a maritime lien and were mere rights of action in rem with no priority.
With respect to the claim of the sub-charterer for breach of charter party, the court held that this claim was governed by American law by virtue of an arbitration clause in the charter party calling for New York arbitration. The court considered the expert evidence that had been filed and concluded that pursuant to American law the sub-charterer had a maritime lien. Accordingly, the court found that the claim of the sub-charterer ranked ahead of the mortgagee. In doing so, the court acknowledged that this was a higher ranking than the sub-charterer would enjoy under American law. This result flows from the fact that the substantive nature of the lien is determined by American law yet the ranking of priorities is determined by Canadian law.
The court then turned to the claims of the mortgagee and the shipyard. The shipyard argued that it was entitled to priority over the mortgagee on two grounds: first, it argued that the mortgagee should lose its priority because it had been dilatory in enforcing the mortgage; second, it argued that the court in the exercise of its equitable discretion should grant it an enhanced priority because of the mortgagee’s delay in enforcing the mortgage and because the repairs done to the vessel (most, if not all repairs were done prior to the arrest) had added to the value of the vessel to the benefit of all creditors. With respect to the first argument the court accepted that a dilatory mortgagee might lose its priority if there was strong evidence the mortgagee knew money was being spent on the ship by the repairer and knew that the ship owner was insolvent. However, the court found as a fact that the mortgagee was not aware of the insolvency of the owner and was not fully apprised of the extent and value of the repairs being undertaken by the repairer. Accordingly, the court held that the mortgagee did not lose its priority. The court next considered whether it ought to exercise its equitable discretion to grant the shipyard an enhanced priority. The shipyard relied on various factors justifying an enhanced priority including that the repairs were done to correct deficiencies that had resulted in a detention order against the vessel being issued by Port State Control and that as a result of the work done by it the detention order was lifted and the value of the vessel was significantly enhanced. The shipyard argued that all of this increase in value would go to the mortgagee who had been dilatory in enforcing its mortgage if the usual ranking was not altered. The court ultimately agreed with the shipyard that there would be an unjust enrichment if the usual order of priorities was not altered. The court, therefore, granted the shipyard a priority equivalent to that of the American maritime lien claimants to the extent of US$220,000.00, being the increase in the value of the vessel consequent upon the repair work.
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.
Priorities - Storage Charges
The "Barkley Sound" v. Canadian Imperial Bank of Commerce, 1999 CanLII 5871
This was an application to determine priorities. At issue was whether a ship repairer in possession could claim priority over the mortgagee for storage charges and interest. The court found that the repairer had retained possession of the vessel and that the storage charges were incurred for the purpose of protecting the repairer's interest. Under these circumstances, the court held that such charges cannot be added to the maritime lien. On the matter of interest the court held that the repairer was entitled to interest at 5% per annum in priority to the bank. A secondary issue in the case was whether a supplier of goods to the vessel could obtain a priority over the bank on the basis of unjust enrichment. The court held that the supplier was a simple unsecured creditor and that he had not established any of the requirements of unjust enrichment.
Removal of Cargo
Bank of Scotland plc v. Kimisis III (Ship), 1999 CanLII 7651
This was a motion by a mortgagee for an order that the owner of a cargo of wheat on board the "Kimisis III" remove the cargo at its expense. The motion was denied on the grounds that it was premature as the mortgagee had not entered into possession of the vessel and had not applied for a court ordered sale. However, during the course of his reasons, Prothonotary Hargrave noted that there was a difference between the English approach to the removal of cargo from a ship under arrest and the American approach. The English approach is that the costs of discharging the cargo should fall upon the cargo owner whereas the American approach is that the costs of discharging cargo are in the nature of custodia legis and are therefore recoverable from the fund in priority to other claims. (Note: It would appear to be an open question which of these two approaches a Canadian court will follow.)
Priorities - Bunkers
The Bank of Scotland plc. v. The "Nel",  2 FC 578
This was an application by a shipping agent and ad hoc supplier of bunkers to recover from the sale price of the Defendant vessel the value of bunkers sold with the ship and supplied by the applicant. The supplier did not render an invoice to the ship owner when the bunkers were delivered. The supplier said it intended to recover the price of the bunkers from the freight when paid and led evidence that it did not intend to sell the bunkers to the owner until the freight was paid. The court was satisfied that the intention of the supplier was to not transfer title in the bunkers to the ship owner until it was paid in full. The court therefore held that property in the bunkers had not passed and the supplier was entitled to the proceeds from the sale of the bunkers.
Affidavits - supplemental Affidavits
The Governor and Company of the Bank of Scotland v. The "Nel",  2 FC 417
This was a motion by the Plaintiff for leave to rely upon documents produced by it at cross examination and for leave to file a supplementary affidavit of claim. The Prothonotary held that documents produced at the cross examination did not form part of the evidence to be used at the upcoming priorities hearings unless cross-examining counsel wished to rely upon a document and then related or explanatory documents could be relied upon by the Plaintiff. The Prothonotary further held that the Plaintiff was barred by Rule 492 from filing a supplementary affidavit.
Container storage charges as Marshall's expenses
Holt Cargo Systems Inc. v. The Brussel, 1997 CanLII 5128 1998 CanLII 8959
This was an application by a terminal operator to recover movement and storage charges for abandoned containers from the proceeds of sale of the Defendant ship as if those charges had been a Marshall's expense of arrest. The containers had been off-loaded from the Defendant ship pursuant to a Court order. The motions judge granted the application, reasoning that the charges were incurred for the benefit of all cargo owners to facilitate the sale of the vessel and that, if the ship had not been unloaded when it was, the Marshall would have had to make those arrangements. On appeal (1998 CanLII 8959), the Federal Court of Appeal said they could not find fault with the order of the motions judge and dismissed the appeal.
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.
The Governor and Company of the Bank of Scotland v. The , 1998 CanLII 9082
This was motion by in rem creditors of the Defendant vessel to compel production from the Plaintiff mortgagee of various documents relating to the financing of the Defendant ship and of a sister ship. In the course of his reasons the Prothonotary considered at length the doctrine of marshalling and whether it could apply to the benefit of in rem creditors. The Prothonotary held that notwithstanding some Canadian case law to the contrary, unsecured creditors, and particularly in rem creditors could benefit from marshalling. (Note: The application of the doctrine of marshalling forces a secured creditor with two funds or securities, one of which other claimants have a claim against, to exhaust his rights against the fund or security that the other claimants have no access to before proceeding against the "shared" fund or security.)
Priorities - Master's Disbursements
Doris v. The "Ferdinand", 1998 CanLII 8451
The Plaintiff was the C.E.O. of a company that in turn owned 12 other companies each of which owned one ship. The ships were floating homes. The Plaintiff alleged that as Master of the ships he disbursed funds for the payment of maintenance expenses. The Plaintiff claimed a maritime lien for Master's disbursements in respect of such payments. The Plaintiff's claim was disallowed. The Court held that the payments by the Plaintiff were for operating expenses of the company (primarily for principal and interest payments on loans) and not for necessaries. Further, the Court held the payments were not made by the Plaintiff in the capacity of Master but in his capacity as a shareholder. Finally, The Court held that a critical element of a Master's disbursement is the Master's inability to communicate with owners and that such element was totally missing in this case.
Priorities - Classification and Survey Feese
Fraser Shipyard and Industrial Centre v. The 'Atlantis Two, No.T-111-98 (F.C.T.D.)
This was an application by Lloyd's for an order that it be given priority for amounts due to it for classification services rendered to the "Atlantis Two" in 1997 and 1998. At the time of the motion the "Atlantis Two" had been ordered to be sold pendente lite. The Acting Marshall had requested that Lloyd's make it books and records available to potential purchasers. Lloyd's refused to do so or to provide further classification services unless the Acting Marshall agreed to pay its outstanding account in full. The Acting Marshall declined to pay the outstanding account and the matter came before the court on the motion by Lloyd's. At the initial hearing of the motion the Prothonotary urged the parties to attempt to reach a settlement of the dispute. The parties were, in fact, able to achieve a settlement which was ultimately included in an Order. The settlement was that Lloyd's would make its records available but reserved the right to claim priority for its fees. Notwithstanding the settlement, the Prothonotary issued reasons in which he commented that Lloyd's came to the court with "unclean hands" and that, under the circumstances, it would have been premature and improper to have granted Lloyd's immediate priority. The Prothonotary further commented that the English practice of having the Marshall recommend payment of classification society fees at the conclusion of the sale (provided there has been an enhanced sale price as a result of the classification societies cooperation) was a sensible and workable practice.
Payment out of Court Pendente Lite
The Governor and Company of the Bank of Scotland v. The "Nel", 1998 CanLII 7467
This was an application by the Plaintiff mortgagee for payment out of Court of part of the proceeds from the sale of the Defendant vessel. The Prothonotary noted that there has been a practice to pay out, from sale proceeds, funds which are clearly in excess of the amount needed to satisfy the claims against the vessel provided full disclosure is made of other claimants and all claims are before the Court. The Court was satisfied that more than sufficient funds would be left in Court after the payment out and that all claimants had had an opportunity to lodge claims. The Court therefore ordered that the excess funds could be paid out upon the undertaking of the Plaintiff to repay any portion of the advance should it later be determined the advance was excessive to the prejudice of the other claimants.
Equitable Jurisdiction to Depart From Normal Order of Priorities
Scott Steel Ltd. v. Alarissa , 1997 CanLII 4792
This was an appeal from the order of the Prothonotary setting the priorities among various claimants to the proceeds of the Court ordered sale of the stern wheeler "Edmonton Queen". The contest was between the builder who had a possessory lien over the vessel, the mortgagee who held a builder's mortgage which matured into a registered mortgage and a supplier of goods and services. The usual ranking of priorities in such a case would be that the possessory lien holder would rank first (after the Marshall's fees), the mortgagee would rank second and the supplier of goods and services last. The mortgagee argued that the Court had the jurisdiction to depart from the usual order of priorities. The Court upheld the decision of the Prothonotary to not depart from the usual order of priorities unless very special circumstances were shown or it was necessary to prevent an obvious injustice. The Court found no such obvious injustice and declined to interfere with the usual order of priorities. The decision also contains an useful discussion of the standard of review upon an appeal from a Prothonotary's order.
priorities - normal order
Brotchie v. The Karie T, No. T-2369-93 (F.C.T.D.)
In this matter the Court confirmed that the normal order of priorities upon the sale of an arrested vessel is as follows: first, to the Admiralty Marshall for reasonable charges and disbursements; second, to holders of maritime liens such as those arising out of a collision; and third, to holders of registered mortgages.