Ship Building and Repair
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The database contains 32 case summaries relating to Ship Building and Repair. The summaries are sorted in reverse date order with 20 summaries per page. If there are more than 20 summaries, use the navigation links at the bottom of the page.
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Sale of Marine Crankshaft - Product Liability - Defects -Exclusion Clause - Application of Provincial Law
Transport Desgagnes Inc. v. Wartsila Canada Inc., 2015 QCCS 5514 2017 QCCA 1471
Précis: The Quebec Superior Court held that the sale of a marine engine was governed by provincial law and that pursuant to such law the vendor's limitation clause could not be relied on. On Appeal, the Court of Appeal reversed holding the contract was governed by Canadian maritime law and the limitation clause was valid. (The appeal has not yet been summarized.)
Facts: The plaintiff purchased a new bedplate and reconditioned crankshaft from the defendant for installation in one of its vessels. The defendant assembled and mounted the crankshaft to the bedplate in November 2006 and delivered both items to the plaintiff at Halifax in February 2007. On 27 October 2009, after 13,653 running hours, the new crankshaft suffered a catastrophic failure. The plaintiff commenced this proceeding for damages in excess of $5.6 million. It was undisputed that the failure was caused by insufficient tightening of “the big end stud of the connecting rod of unit 5L”. The plaintiff alleged that the crankshaft was defective when delivered whereas the defendant alleged the plaintiff was responsible for the improper tightening during routine maintenance. The defendant also relied upon the terms of the sale contract between the parties which provided a six month limited warranty and a limitation of liability equivalent to approximately $80,000. The plaintiff argued that the limitation of liability was invalid in the circumstances and pursuant to the Civil Code of Quebec.
Decision: The plaintiff is entitled to judgment.
Held: The issues in the case are: (1) whether the transaction is governed by Canadian maritime law or Quebec civil law; and, (2) based on such governing law, is the defendant liable or entitled to limit its liability.
(1) With respect to the applicable law, this matter relates to a contract of sale and such contracts are not integrally connected to the pith and substance of Parliament’s jurisdiction over navigation and shipping. Although related to maritime activities, this matter is not integrally connected with same. Moreover, there is no practical necessity for a uniform federal law to prescribe the rules governing a seller’s obligations. The fact that such rules may vary by province does not hinder the efficient and coherent conduct of the activities of navigation and shipping. Therefore, as the contract of sale was formed in Quebec, it is the laws of Quebec that apply.
(2) Pursuant to the Civil Code of Quebec: a seller of property is required to warrant that the property to be sold is free of latent defects (art. 1726); in the case of a sale of property by a “professional seller”, a defect is presumed to have existed at the time of sale if the property malfunctions or deteriorates prematurely (art. 1729); and, a seller may not exclude or limit liability unless the defects of which he was aware or could not have been unaware are disclosed (art. 1733). These provisions apply here. The defect is presumed to have existed at the time of sale and this presumption has not been rebutted on the balance of probabilities. The defendant, as a professional seller, is presumed to have known of the existence of a defect at the time of sale and is deemed to be acting in bad faith. This has the effect of rendering any exclusion or limitation clause invalid unless the seller rebuts the presumption of bad faith. Evidence of the seller’s good faith or ignorance of the defect or honest belief in the adequacy of the product sold is not enough. The seller must either demonstrate that the buyer or a third person caused the defect or that only scientific or technological discoveries made after the product was sold would have permitted discovery of the defect at the time of sale.
Comment: On appeal(2017 QCCA 1471), the Quebec Court of Appeal reversed the trial judgment holding the contract was governed by Canadian maritime law and the limitation clause was valid. (The appeal has not yet been summarized.)
Criminal Interest Rate - Ship Repair
Platypus Marine Inc. v. The Ship Tatu, 2016 FC 501 2017 FCA 184
Précis: The court reduced interest to $35,000 from $100,000 on the basis that the rate charged was a criminal rate.
Facts:The plaintiff provided ship repair and maintenance services to the defendant vessel. The plaintiff had provided an estimate outlining the work to be done and the defendant accepted that estimate. The estimate included various terms, none of which referenced interest on overdue amounts. The plaintiff sent several invoices all of which were “DUE UPON RECEIPT” but which again, did not reference interest. The plaintiff led contradicted evidence of an oral agreement that interest of US$100,000 would be paid. The defendant brought this application for a determination that no interest was owed.
Decision:$35,000 in interest is owing.
Held:The interest alleged to be owing represents an interest rate in excess of 60% per annum and is therefore a criminal rate of interest under the Criminal Code. In these circumstances, an appropriate interest rate is 5% per annum as provided by the Interest Act which works out to $35,000.
Note: This judgment was overturned on appeal to the Court of Appeal, 2017 FCA 184. The appeal judgment has not yet been summarized.
Vessel Damaged Falling from Cradle - Bailment - Exclusion Clause - Spoliation of Evidence - Survey Costs as Damages - Appeals - Interpretation of Contract is mixed Fact and Law
Forsey v. Burin Peninsula Marine Service Centre, 2014 FC 974 2015 FCA 216
Précis: The Federal Court refused to give effect to an exclusion clause on the grounds that it did not expressly or impliedly exclude negligence.
Facts: The plaintiff’s/respondent’s fishing vessel was lifted out of the water and placed on a cradle at the premises of the defendant/appellant for the purpose of repairs and maintenance. The cradle failed 13 days later causing the vessel to fall, as a consequence of which it was damaged. The respondent claimed against the appellant for the damages to the vessel and for the costs of fuel containment and clean up. The appellant denied liability saying the cradle was constructed by the respondent and further relied upon a sign that provided “Boats stored at Owner’s Risk” and an exclusion clause that provided:
“I understand and agree that the securing and locking of my boat is my responsibility, and not that of the said Marine Service Centre, or of its agents, servants, employees, or otherwise. Furthermore I agree to indemnify and save harmless the said Marine Service Centre and its officers, agents, employees, servants or otherwise from, any claims on my part with respect to the same.”
At first instance (2014 FC 974) the trial Judge held that a bailment was created and that the cradle had been constructed by the defendant. As bailee, the burden was on the appellant to prove that it was not negligent in relation to the fitness of the materials used to construct the cradle and the manner in which it was constructed. She held that this onus had not been discharged. In doing so she noted that the materials used to construct the cradle were disposed of by the appellant within 48 hours of the incident. She held that this gave rise to a presumption that the materials were intentionally destroyed, which was not rebutted, and an adverse inference that the materials were unfit. With respect to the exclusion clause, the trial Judge held that neither the sign nor the exclusion clause in the contract expressly or impliedly excluded liability for negligence. She also applied the rule of contra proferentum to the words “securing and locking” in the exclusion clause and held that they did not transfer responsibility for the safety of the vessel to the respondent. In result, the respondent was entitled to damages for the vessel (which was declared a constructive total loss), the containment and clean-up costs and the costs of a surveyor. The survey costs were recoverable notwithstanding they were not paid for by the respondent on the grounds that they were a natural and probable consequence of the tort. The appellant appealed.
Decision: Appeal dismissed.
Held: The two issues on appeal are whether the trial Judge erred in drawing an adverse inference for destruction of evidence and whether she erred in her interpretation of the exclusion clause. The appellant argues there was no evidence supporting an inference the cradle materials were intentionally destroyed and that the issue was not pleaded and was raised by the trial Judge propio motu. It argues that procedural fairness was breached as it was not given a chance to respond to the trial Judge’s theory of the case. The respondent, however, notes that the issue had been pleaded, raised in advance of the trial and was argued at trial. In the circumstances, there was no procedural unfairness. The true question is whether the trial Judge made a palpable and overriding error in concluding the appellant failed to rebut the inference of negligence. The appellant as bailee had the onus of proving it was not negligent which required it to prove the materials used to construct the cradle were in good condition. Having removed those materials, the appellant could not disprove the presumption of negligence. There was no need on the part of the trial Judge to find the appellant intended to destroy the materials.
With regard to the exclusion clause, the parties disagree as to the meaning of the words “securing and locking”. The appellant says these words refer to the placing of the vessel on the cradle whereas the respondent says they refer to the securing of lines, buoys and equipment and the locking of hatches, doors and windows. The trial Judge applied the contra proferentem rule of construction and, because it was clear the erection of the cradle was the responsibility of the appellant, held the words could not have had the meaning advocated for by the appellant. There is no basis to interfere with this holding. The main concern of contractual interpretation is to determine the parties’ intent and scope of their understanding. This is not a question of pure law but of mixed fact and law and can only be interfered with on appeal if there is a palpable and overriding error. There is no such error. Moreover, even if the word “securing” was given the meaning advocated for by the appellant, the clause would not protect it since it is not an exclusion clause. Once the appellant assumed the responsibility for securing the vessel, it was bound to secure it properly.
Damage to Ship during Lifting Operation - Bailment - Presumption of Liability - Exclusion Clauses
Capitaines Propriétaires de la Gaspésie (A.C.P.G.) Inc. v. Pêcheries Guy Laflamme Inc., 2014 FC 456 2015 CAF 78
Précis: The Federal Court and Federal Court of Appeal gave effect to an exclusion clause in a ship lifting contract notwithstanding that the clause did not specifically refer to negligence.
Facts: The fishing boat "Myrana I" was damaged when it was dropped into the water while being lifted with a crane. The ship owner demanded damages in excess of $550,000 from the crane operator and its employee operating the crane at the time. The crane operator and employee denied liability and further asserted that they were protected by an exclusion clause in the contract. The crane operator, its employee and their insurer commenced this action for a declaration that they had no liability. The defendant ship owner counter-claimed for damages to the ship. The exclusion clause in the contract provided "I accept liability for any risk resulting from the towage, docking, wintering and/or launching of this vessel, and I release the Owner of this dry dock and its Operator, ____, from any civil liability resulting from these associated operations or handling".
At first instance (2014 FC 456), the trial Judge held the plaintiffs had failed to rebut the presumption that they were liable as bailees. However, the Judge further held the exclusion clause was broad enough in scope to cover any negligence. The Judge relied on Tercon Contractors v British Columbia, 2010 SCC 4, where Justice Binnie said "There is nothing inherently unreasonable about exclusion clauses..." and added that there are many valid reasons for contracting parties to use exemption clauses, most notable to allocate risks. The trial Judge further held that the clause was neither abusive nor draconian and that the defendant should have been aware of it as the contract was sent to the defendant on at least 36 prior occasions. The defendant appealed.
Decision: Appeal dismissed.
Held: The interpretation of a contract is a question of mixed fact and law and is reviewable only if the trial Judge made a palpable and overriding error. The same is true of the Judge’s conclusion as to whether the exclusion clause was harsh or unconscionable. The defendant argues that the clause does not expressly exclude negligence and the trial Judge failed to read it contra proferentem. However, the clause in question releases the plaintiff from “any civil liability” and it is clear that the term “liability” is synonymous with negligence. There was no ambiguity in the clause so as to attract the contra proferentem doctrine. In addition, the Judge’s finding that the defendant was bound by the exclusion clause is supported by the evidence as is his conclusion that the clause was not abusive or draconian. “Allocating the risks makes it possible to avoid disputes and the great expenses these entail.”
Liability for Repair Costs in Excess of Quotation - Liability of Repairer for Damage During Launching
Ehler Marine & Industrial Service Co. v. M/V Pacific Yellowfin (Ship), 2015 FC 324
Précis: A repair quote was held to be an agreed price when given in response to a request for a "reasonably accurate estimate" and "hard" numbers.
Facts: The plaintiff ship repairer provided an estimate to re-fasten and re-caulk the defendant’s wooden vessel pursuant to a request for proposals that asked for a “reasonably accurate estimate” for 15 seams below the waterline. The estimate included some items that were quoted on the basis of the actual time and materials to be expended and other items, including the re-caulking and re-fastening, that were not so qualified. The final costs for the re-caulking and re-fastening exceeded the estimate. Additionally, when the vessel arrived at the repair yard it was discovered that there were more than 15 seams below the waterline that required re-caulking and re-fastening. It was agreed that the additional seams would be repaired but the plaintiff thought the agreement was to proceed on a time and materials basis whereas the defendant thought there would be proration of the original contract price. Finally, during the launching of the vessel, the vessel was damaged. The plaintiff commenced proceedings to recover the actual amount of the re-caulking and re-fastening and the defendant counterclaimed for the damage caused to the vessel during launching.
Decision: Judgment for the plaintiff, in part. The counterclaim is dismissed.
Held: The plaintiff argues the estimate was only a “best guess” and that it was entitled to charge on the basis of actual time and materials expended on the repair. The defendant argues that the estimate was an agreed amount that would be charged. The proper test is not what the parties subjectively believed the terms of the contract to be but what a reasonable person would understand the contract to be. Such a person would conclude in the circumstances that the estimate was an agreed price. The fact that the estimate did not qualify the disputed items as being billed on a time and materials basis favours this interpretation as does the fact that the defendant asked for a “reasonably accurate estimate” and “hard numbers”. In relation to the additional seams, a reasonable person would similarly conclude that the price for the additional work would be prorated based on the original contract. With respect to the counterclaim, the evidence of the damage is incomplete and contradictory and the counterclaim is therefore dismissed.
Fire Damage to Vessel While Being Repaired – Applicable Law - Direct Action Against Insurer – Liability of Repairer
Langlois v. Great American Insurance Company, 2015 QCCS 791
Précis: The Quebec Superior Court held that there was a right of direct action against the insurer of a ship repair yard under the provisions of the Civil Code.
Facts: The plaintiff’s fishing boat was damaged by fire while it was being repaired/welded at a ship yard. The plaintiff’s boat was insured by the defendant, GAIC, who was also the liability insurer of the shipyard. GAIC assigned an adjuster who obtained several quotes to repair the damage caused by the fire but no agreement was reached between the plaintiff and GAIC as to the extent of the damage and necessary repairs. The plaintiff later hired his own surveyor whose estimate of damage and repairs was approximately twice that of GAIC’s adjuster. GAIC then retained another surveyor for yet another estimate and submitted a cheque to the plaintiff in the amount of $781,000 “as full and final payment”. The plaintiff commenced this action against both GAIC and the shipyard.
Decision: Judgment for the plaintiff.
Held: The first issue is whether the applicable law is Canadian maritime law or the Quebec Civil Code. As was held in Triglav v. Terrasses Jewellers Inc,  1 SCR 283, Canadian maritime law applies to contracts of marine insurance and, therefore, the Civil Code is not applicable to that part of the claim against GAIC. However, as to the claim against the ship yard and GAIC as its insurer, the applicable law is the Civil Code because the repairs were being done on dry land and there were no navigation or maritime operations involved. The plaintiffs therefore have a direct cause of action against GAIC as the liability insurer of the shipyard pursuant to articles 2501 & 2628 of the Civil Code. With respect to the amount the plaintiff is entitled from GAIC under his own insurance policy, the plaintiff is entitled to an additional $69,000. With respect to the liability claim, there is a strong presumption that the shipyard is liable given the fire started while welding was being done and this presumption has not been rebutted.
Comment: (1) This decision is reported in French only and the summary is based upon a translation that may be imperfect. (2) The holding that the liability claim against the ship yard is not subject to Canadian maritime law is doubtful. Since Wire Rope Industries v B.C. Marine Shipbuilders,  1 S.C.R. 363, there has been no doubt that contracts and torts involving ship repair are subject to Canadian maritime law. However, this would not necessarily mean that articles 2501 and 2628 of the Civil Code would not apply. They may well apply incidentally pursuant to the double aspect doctrine.
Construction Mortgage - Entitlement of Purchaser/Mortgagee to Return of Advances – Interpretation of Contracts – Standard of Review on Appeal
Offshore Interiors Inc. v. Worldspan Marine Inc., 2013 FC 1266 2015 FCA 46
Précis: The Federal Court of Appeal dismissed an appeal and confirmed the trial judgment holding that a Builder's mortgage secured advances made by the purchaser and that the builder was under an obligation to repay those advances.
Facts: 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 in the British Columbia Supreme Court under the Companies Creditors’ Arrangement Act. The plaintiff, a supplier of goods and services to the vessel, also commenced these proceedings in the Federal Court for unpaid invoices and had the vessel arrested. In the B.C. Supreme Court action an order was pronounced on 22 July 2011 providing that any claimant with an in rem claim against the vessel could pursue that claim in the Federal Court. The Federal Court issued an order on 29 August 2011 establishing a process for the filing of in rem claims against the vessel which included a requirement that any claim be described with sufficient particulars so the court could establish whether it was a proper in rem claim and determine its priority. A claim was filed in the Federal Court by the purchaser/mortgagee for repayment of the funds advanced. The plaintiff brought this application for a declaration that the mortgage did not create a lien or charge on the vessel other than to secure delivery of the vessel. If correct, the effect would be that the funds advanced by the purchaser/mortgagee would be excluded from its claim.
At first instance (2013 FC 221), the Prothonotary granted the declaration sought. The Prothonotary said the question of whether there was an obligation under the mortgage that funds advanced be repaid depended on the construction of the vessel construction agreement and mortgage. The Prothonotary held there was no express provision requiring repayment of funds advanced for the construction of the vessel. Despite the mortgage stating it was a “current account” mortgage, the Prothonotary found no evidence that, in fact, an account current was created by the vessel construction agreement which allowed the builder to retain all advances. The Prothonotary found the parties contemplated that all monies advanced would be used in the construction of the vessel and not exist as a fund. The purchaser/mortgagee appealed.
On appeal (2013 FC 1266), the appeal Judge allowed the appeal holding:
(1) The Prothonotary correctly recognized that he was to determine the intent of the parties based on the language of the contract documents and correctly identified the principles of interpretation but failed to properly apply those principles. The purpose of the mortgage was to provide a continuing security interest in the vessel to secure the advances. It was intended to be effective as against third parties and was not limited to securing the delivery of the Vessel. Although the documents did not state the advances were a loan, they did state they would be made “on account”.
(2) Although there was no express requirement for repayment of advances, considering the agreements as a whole and within the factual matrix, there was an implied obligation to repay the advances. With respect to the Prothonotary’s reasoning that the funds advanced were not a loan because they would be used in the construction and not available as a fund, the purpose of any loan is to permit the borrower to spend the monies lent. A commercial absurdity would result if the advanced funds could not be used for the intended purpose and instead had to be set aside to create a fund. The sums advanced comprised the “account current” secured by the mortgage, even in the absence of an explicit reference in the construction agreement. It was not necessary to specify the amount owing or the time of repayment in the mortgage when there was sufficient detail in the construction agreement. It is also difficult to see how the mortgage could be intended to only secure the delivery of the vessel when the construction agreement expressly states it is to create a first priority security interest to secure advances.
(3) In addition, the purchaser has a claim pursuant to s. 22(2) (n) of the Federal Courts Act (which addresses claims arising out of the construction, repair or equipping of a ship), which can be addressed at the priorities hearing.
The plaintiff appealed to the Federal Court of Appeal. There were four issues on appeal, namely:
(1) What is the correct standard of review?
(2) Was the appeal Judge plainly wrong in her interpretation of the agreements?
(3) Was the appeal Judge plainly wrong in concluding there was an implied repayment obligation in the construction agreement?
(4) Did the appeal Judge err in law in her consideration of s. 22(2)(n) of the Federal Courts Act?
Decision: Appeal Dismissed.
(1) The standard of review enunciated in Bristol-Myers Squibb Co. v. Apotex Inc., 2011 FCA 34, applies to issues 2 and 3, i.e. whether the appeal Judge was plainly wrong in her interpretation of the agreements and in concluding there was a repayment obligation. The test is whether the appeal Judge “had no grounds to interfere with the Prothonotary’s decision or, in the event such grounds existed, if the Judge’s decision was arrived at on a wrong basis or was plainly wrong”. The proper test for issue 4, is whether the appeal Judge was correct in her conclusions with respect to s. 22(2)(n) of the Federal Courts Act.
(2) In Sattva Corp. v. Creston Moly Corp., 2014 SCC 53, the Supreme Court set out the guiding principles for contractual interpretation to determine the intent of the parties and the scope of their understanding. The contract is to be read as a whole giving the words their ordinary and grammatical meaning consistent with the surrounding circumstances. However, the surrounding circumstances “must never be allowed to overwhelm the words of that agreement” and must consist of “objective evidence of the background and facts”. The court should interpret the contract in accord with sound commercial principles and good business sense and avoid commercial absurdity. The appeal Judge was aware of these principles and applied them in construing the documents. After proper consideration she held the intent of the parties was to secure the advances which were in the nature of a loan. She did not imply a term of repayment. The Prothonotary’s finding that no “account current” was created because the advances were to be used in the vessel construction and not kept in a fund does not withstand scrutiny. It ignores the express wording in the Builder’s Mortgage which refers to an “account current” and would render the mortgage of no force or effect to secure delivery. Moreover, it ignores the essential promise of a builder’s mortgage which is to pay the mortgagee. While the documents may be unclear as to when and how advances are to be repaid, this is not fatal.
(3) The appeal Judge’s conclusion that there was an implied repayment term was an alternative conclusion. As she was correct in her interpretation, this issue need not be considered.
(4) There is no doubt the appeal Judge was correct in concluding that the purchaser had a claim falling within s. 22(2) (n) of the Federal Courts Act. This section provides that the Federal Court has jurisdiction over “any claim arising out of a contract relating to the construction, repair or equipping of a ship”.
Damage to Vessel Caused by Grinding Dust – Liability – Practice - Summary Judgment – Motion for Non-Suit – Joint and Several Liability
0871768 B.C. Ltd. v. Aestival (Vessel), 2014 FC1047
Précis: One of two defendants was found liable for damage caused to an adjacent vessel by grinding dust. As the damages were separate and divisible, it was not a case of joint and several liability.
Facts: The plaintiff commenced these proceedings for damage allegedly caused to his vessel by grinding dust, including metal particles, that spread from the defendant vessel. The plaintiff’s vessel had been on blocks next to the defendant vessel while grinding work was being carried out. The defendants were the owner of the defendant vessel and a repairer hired by that owner. The defendants denied liability. Shortly before trial the defendant owner brought an application for non-suit and/or no-evidence and, at the trial brought a motion to file affidavit evidence.
Decision: Judgment for the plaintiff against the defendant owner but not the repairer.
Held: With respect to the non-suit motion, there is doubt as to whether such a motion is compatible with a motion for summary judgment or summary trial but, in any event, the defendant owner did not comply with the time requirements for bringing such a motion. Moreover, even if the motion for non-suit had been properly brought, it would not succeed as the plaintiff has established a prima facie case. The defendant owner says there is no causal link between the grinding and the damage done to the plaintiff’s vessel but there is some evidence supporting causation and this is sufficient to dispose of the non-suit motion.
The defendant owner’s motion to file affidavit evidence is also dismissed. Non-suit rules require a defendant to elect whether to call evidence. If they elect to call no evidence, the non-suit motion is decided immediately and the defendant forfeits the right to call evidence.
The plaintiff has established the four elements necessary to support its claim against the defendant owner, those elements being: a duty of care; breach of the standard of care, causation and compensable damage. On the evidence there was a duty of care. The vessels were “neighbours” in close physical proximity and the defendants knew or should have known that the defendant vessel should be tarped before sanding or grinding. It was reasonably foreseeable that failure to contain debris would cause damage to other vessels. The standard of care is that expected of an ordinary, reasonable and prudent person in the same circumstances as the defendant. Grinding without a tarp or other containment mechanism was in breach of the standard of care. However, the evidence establishes that only the defendant owner was carrying out grinding on 26 July 2012 and only the defendant repairer was carrying out the grinding on 27 July 2012. Accordingly, the defendant owner breached the standard of care on 26 July and the defendant repairer breached the standard on 27 July. With respect to causation, the proper test is the “but for” test. The plaintiff must prove that “but for” the negligence of the defendant the damage would not have occurred. This burden has been met but, because the damages caused by the 26 July grinding are divisible and separate from the damages caused by the 27 July grinding, this is not a case of joint and several liability. Each defendant is liable only for the damages caused by their own negligent acts. The defendant owner is liable for the damage caused as a result of the grinding that occurred on 26 July. The defendant repairer would have been liable for any damage caused on 27 July but no damage was caused to the plaintiff’s vessel that day.
Liens and Mortgages - International Insolvencies - Ranking of Administration Charge - CCAA Trumps Canadian Maritime Law
Caterpillar Financial Services Corporation v. Boale Wood & Company, 2013 BCSC 1593 2014 BCCA 419
Précis: The British Columbia Court of Appeal confirmed the trial judgment holding that an administrative charge under the Companies Creditors Arrangement Act applied to the proceeds from the sale of a vessel and had priority over a mortgage.
Facts: The petitioner, Worldspan Marine Inc., was a builder of custom yachts who had entered into a contract for the construction of a 144’ yacht. During the course of construction, a dispute arose with the purchaser. As a result, the purchaser ceased making payments and the petitioner sought the protection of the Companies Creditors Arrangement Act (“CCAA”). A Monitor was appointed by court order under that act and a stay of all proceedings against the petitioner was ordered. The court’s initial order included an “Administration Charge” to secure the fees and expenses of the Monitor which were to rank in priority to all other security in the “Non-Vessel Property”. “Non-Vessel Property” was all property of the petitioner other than the 144’ yacht. (In rem claims against the yacht were being addressed in the Federal Court.) Caterpillar held a mortgage over another vessel owned by the petitioner, the “A129”, which was located in the State of Washington. Caterpillar commenced foreclosure proceedings in Washington and had the “A129” arrested there. The U.S. Bankruptcy Court subsequently granted a “Recognition Order”, at the request of the petitioner, under Chapter 15 of the U.S. Bankruptcy Code recognizing the British Columbia CCAA proceedings as the “Foreign Main Proceeding” and staying any execution against the assets of Worldspan located in the United States. The “A129” was subsequently released from arrest and sold with the proceeds to be dealt with in the CCAA proceedings. The sale order provided that Caterpillar was to have a first priority to the proceeds but subject to the potential claim of the Monitor for “Administrative Charges”. Caterpillar applied for an order declaring that the “Administration Charges” did not attach to the proceeds from the sale of the “A129” or, alternatively, that Caterpillar’s claim under its mortgage had priority to the Administrative Charge. Caterpillar argued, inter alia, that under Canadian maritime law the “Administrative Charge” was a statutory lien which ranks below the mortgage.
At first instance (reported at 2013 BCSC 1593), the Judge held that the “super priority” given by s. 11.52 of the CCAA trumps the ranking of claims in rem under Canadian maritime law and that the “Administrative Charge” therefore had priority over the Caterpillar mortgage. Caterpillar appealed.
Decision: Appeal dismissed.
Held: There are two different issues that are relevant: first, did the “Administrative Charge” attach to the “A129” in rem; and second, what is the status of the charge in light of both the CCAA proceedings and the “Recognition Order”. With respect to the first issue, there is nothing in the CCAA to suggest that it has extra-territorial application to in rem property outside of Canada. Neither the CCAA nor the orders made in this case support a conclusion that the “Administrative Charge” attached in rem to the “A129”. With respect to the second issue, the “Administrative Charge” gave priority over all creditors on “Non-Vessel Property” including the proceeds. The order creating the “Administrative Charge” was made in accordance with the CCAA and the “Recognition Order” of the U.S. Bankruptcy Court did not purport to limit in any way the process of realization to be undertaken under the CCAA. Once the Canadian proceedings were recognized as the foreign main proceeding, it was entirely for the British Columbia Supreme Court to determine priority. Thus, although the “Administrative Charge” did not attach in rem, it does attach to the proceeds from the sale of the “A129” and gives the Monitor priority.
Marine Insurance - Ship Repairer's Legal Liability - Application of Provincial Laws - "Faulty Design" Exception - Notice of Loss Requirement
Verreault Navigation Inc. v. The Continental Casualty Company, 2014 QCCS 2879
Précis: The Quebec Superior Court held that a claim against underwriters for indemnity under ship repairer liability policies was governed by Canadian maritime law and not the civil law of Quebec and where the court further held that the underwriters were not liable based on a “faulty design” exclusion in the policy and a notice/reporting provision.
Facts: The plaintiff ship repairer sued its primary liability underwriter (Continental) and its excess liability underwriter (Lombard Insurance Company of Canada) to recover costs incurred to correct certain deficiencies in the heating, ventilating and air conditioning (HVAC) system of a passenger ferry it had repaired for the Government of Canada. The actual defective work had been done by a subcontractor of the plaintiff. The underwriters denied liability on two grounds: first, that the policies contained a "faulty design" exception which applied in the circumstances; and, second, that both policies excluded losses not discovered and reported within one year of delivery of the vessel to the customer.
Decision: Action dismissed.
Held: The claim is subject to uniform Canadian maritime law and not Quebec civil law. The "faulty design" exception of the two policies applies since the HVAC equipment installed on the ferry was inadequate and defective. At the time of its installation, the equipment did not comply with applicable state-of-the-art standards for such systems on passenger vessels operating in Canada. In addition, the notice of loss was given more than 12 months after the redelivery the ferry to the Government, contrary to the requirements of both policies. This was a violation of the assured's obligation of utmost good faith under s. 20 of the Marine Insurance Act.
Jurisdiction - Sale of Property not in Canada
SDV Logistiques (Canada) Inc. v. Dieselgenset Type 8M 25, Engine No. 45085 EX the Barge Andrea, 2013 FC 671
Précis: The court held that it had no jurisdiction to sell property that was not located in Canada.
The plaintiff, at the request of a ship builder, arranged for the pick-up and storage of generators at the Port of Hamburg. The generators were intended to be installed in two vessels being built by the builder. The builder originally paid the storage charges but ran into financial difficulties and ceased to make payments leaving the plaintiff with a debt owing of in excess of $200,000. The plaintiff brought these proceedings in personam against the successor of the builder and the mortgagee of the vessels and also brought in rem proceedings against the generators and other cargo. A Warrant of Arrest was issued but was never served with the result that the action proceeded solely as an in personam action. The plaintiff, nevertheless, brought a motion pursuant to Rule 379 for an order that the generators be sold. At first instance, the Prothonotary refused the order. The plaintiff appealed.
Decision: Appeal dismissed.
Held: Rule 379 cannot be applied because the generators are not and have never been in Canada and there is no evidence the generators are likely to deteriorate. Further, for the court to order the sale of property outside of the jurisdiction, there must be some enabling statutory provision and there is none. Consequently, the court has no jurisdiction to issue the order requested.
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
Précis: The Federal Court of Appeal agreed with the trial Judge that s. 139 of the MLA did not give a lien to a subcontractor who supplied manpower to construct a vessel.
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 court is 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.
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.