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Salvage and Wrecks

Case Summaries

Liens - Mortgages - Priorities - Necessaries Lien - Salvage Convention

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

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

Decision: The mortgagee has priority.

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

Marine Insurance - Wreck Removal - Liability of Underwriters for Expenses - Sue and Labour

Universal Sales Limited v. Edinburgh Assurance Co. Ltd., 2012 FC 418

The plaintiffs (the insureds) sought indemnity from the defendants (their insurers) for a settlement payment of $5 million made by them to the federal government related to the costs of raising the “Irving Whale”. The payment was made in settlement of a proceeding brought by the Crown for $42 million. The plaintiffs did not obtain the prior approval of their underwriters before making the settlement. The plaintiffs also claimed for sue and labour expenses of $3.6 million and defence costs of $1.8 million. The insurers denied coverage alleging the plaintiffs were not required to make the settlement payment and that there was no coverage under the policy.

Decision: Plaintiff awarded judgment, in part.

Held: With respect to the claim for sue and labour expenses, the trial Judge denied this claim on the basis that the expenses did not diminish or avert a loss under the policy. This was so because the estimated costs at the time the expenses were incurred were in excess of $21 million but the policy limit was only $5 million. Thus, the sue and labour expenses could not possibly have benefited the underwriter. With respect to the settlement payment, the trial Judge held that he was satisfied that the plaintiffs would have been held liable to the Crown in nuisance if the settlement payment had not been made. With respect to the claim for defence costs, the trial Judge was of the view that these should be apportioned between the plaintiffs and underwriters on the grounds that both benefited from these costs. He somewhat arbitrarily apportioned these defence costs 25% to underwriters and 75% to the plaintiffs.

Wrecks - Right to Salvage Sovereign Warship - Provincial Statutes

Chameau Exploration Ltd. v. Nova Scotia (Attorney General), 2007 NSSC 386

This interesting case concerned attempts to explore what was believed to be the 1812 wreck of a Royal Navy sloop. The case came before the court as an application for judicial review of a decision of the Executive Director of the Nova Scotia Museum. The Director had declined to issue a research permit to explore the wreck under the Nova Scotia Special Places Protection Act. Such a permit was required to carry out any exploration or excavation. The decision to decline the permit was because of a letter received from the British High Commission claiming ownership and sovereign immunity over the wreck as a warship but the applicant was not given the opportunity to make submissions on the British claim. The Court held that this was a breach of procedural fairness and quashed the decision of the Director. The Court did not, however, order that the permit be granted or decide the merits of the British claim. (Note: It is interesting that no challenge seems to have been made to the constitutional validity or applicability of the Special Places Protection Act, a provincial statute. One would think it at least arguable that the provinces have no jurisdiction over wrecks and the exploration and salvage thereof.

Constitutional Law – Division of Powers – Log Salvage - Forest Act – Salvage Convention

Early Recovered Resources Inc. v. British Columbia, 2005 FC 995

The issue in this case was the constitutional validity or applicability of: first, Part 9 of the Forest Act of British Columbia and the associated Log Salvage Regulation passed pursuant thereto; and second, the Canada Shipping Act and the International Convention on Salvage (the “Salvage Convention”). Part 9 of the Forest Act and the Log Salvage Regulation regulate, inter alia, the recovery of logs adrift within a prescribed geographic area. The Plaintiff argued that the Forest Act and Log Salvage Regulation were invalid regulation by the province of “marine salvage”, a core element of exclusive federal jurisdiction over navigation and shipping. The Judge reviewed relevant authorities and held that the appropriate approach to the analysis was to employ a “pith and substance” analysis to determine: 1. whether the impugned provisions intrude on a federal head of power and to what extent; 2. If they do intrude, are they nevertheless part of a valid provincial legislative scheme; and, 3. If they are part of a valid provincial scheme, are they sufficiently integrated with that scheme. The Judge specifically rejected the suggestion that the appropriate analysis was to apply the “inter-jurisdictional immunity” test set out in Ordon v Grail, [1998] 3 SCR 437. He held that the “inter-jurisdictional immunity” doctrine need not be considered if the pith and substance of the impugned provision does not intrude into a power of the other government. He then reviewed the provisions of Part 9 of the Forest Act and the associated regulations and noted that Part 9 provided a framework for dealing with forestry resources that had become drift timber and needed to be recovered and salvaged to realize its value. He held that these provisions had nothing to do with navigation and shipping and that any connection with navigation and shipping was tenuous. He further held that Part 9 of the Forest Act and the regulations were an integral part of a valid resource management scheme and even if they intruded on the federal navigation and shipping power such intrusion was merely incidental and did not affect the constitutional validity of the legislation. The Judge then considered the constitutional validity of the Canada Shipping Act and the Salvage Convention insofar as they purported to regulate the recovery and sale of logs and the distribution of the proceeds of sale. He addressed the issue of whether logs were “property” within the meaning of the convention and held that they were. He then declared that the Canada Shipping Act and the Salvage Convention were invalid insofar as they purported to regulate the recovery and sale of logs and the distribution of the proceeds of sale. The reason given for this declaration was to remain consistent with his previous holding that the Forest Act was valid provincial legislation.

Salvage – Jurisdiction over Aircraft – Protection of Finders' Rights

Brooks Aviation Inc. v. Boeing SB-17G, 2004 FC 710

This was an application by the Plaintiff for summary judgment in respect of a claim for salvage. The res was a B-17 aircraft that had crash landed on a lake in Labrador during the winter of 1947. The following year the aircraft sank during the spring thaw. The wreck was discovered by the Plaintiff in July 1998. The Plaintiff sought a declaration for the following relief: that the Federal Court had exclusive jurisdiction to determine the salvage claim; that the Plaintiff had a maritime lien; that the Plaintiff had possession of the res and that other parties are enjoined from interfering with the Plaintiff's salvage rights; and, that the Plaintiff was entitled to a full and liberal salvage award. On the question of jurisdiction the Court noted that the Federal Court had maritime jurisdiction and that the law of salvage was a traditional area of maritime law. The Court specifically considered whether section 449 of the Canada Shipping Act limits the law of salvage to aircraft on or over the seas, tidal waters or Great Lakes. The Court held, however, that this section did not limit the traditional maritime law which had been extended to aircraft. (Note: In reaching this conclusion the Court refused to follow a contrary decision Smith v Smith, [1979] 4 WWR 665.) The Court then turned to the salvage claims. It noted that a claim of salvage requires: that the res be in peril; that the salvor be a volunteer; and that the salvage be successful. The Court found that the res was in peril and that the Plaintiff was a volunteer but, as the aircraft had not yet been recovered, the salvage was not yet successful. Accordingly, the Court held that the Plaintiff did not yet have a salvage claim. However, the Court did indicate it was prepared to protect the Plaintiff's priority rights as finder of the res upon further application of the Plaintiff.

Joinder of Parties – Owners of Salved Property

Early Recovered Resources Ltd.  v.  Gulf Log Salvage Co-operative Association et al.,  2003 FCT 549

This was a motion to add two associations of forestry companies who were owners of logs as either interveners or defendants in the Plaintiff’s action for salvage in respect of 17 unidentified logs from the BC coast. In the original action, the Province had been named as a Defendant but had a limited interest to stumpage fees which had likely already been paid prior to salvage. After noting that the style of cause should have been in rem to name the 17 unidentified logs, the Prothonotary held that the owners of the salved property, who would be liable for the salvage claim, should be defendants as they should have notice and be afforded the chance to protect their position. The two associations had an interest in rem in the logs (although ownership was unidentified) and an interest in protecting the existing log recovery system. The motion was granted adding the associations as defendants.

Salvage Awards

Cox  v. The "Trade Up", 1998 CanLII 7481

This was a reference to determine a salvage award. The Plaintiff successfully salvaged the Defendant vessel which had been stranded on rocks. The salvor had retained two other vessels to assist him in the salvage and paid the owners of those vessels what the court considered "overgenerous" amounts. The Court noted that salvage awards "are intended to award a person who comes to the aid of a vessel in distress, and to reward that person handsomely so as to encourage persons to render aid in the future. Salvage awards are not intended to provide a living for the maritime community of the area in which salvage takes place." The Court ultimately awarded the Plaintiff $15,000.00 being 1.5 times the actual and prospective out of pocket expenses of the Plaintiff.

Insurer - Whether Volunteeer

General Accident Indemnity Company  v. The "Panache IV", [1998] 2 FC 455

This case has a good discussion of salvage. The case involved a claim for a salvage award by the underwriter of the "Panache IV". The "Panache IV" had an insured value of $275,000.00 and sank in deep waters under suspicious circumstances. The underwriter, suspecting the vessel had been scuttled, undertook salvage efforts. After two failed attempts the underwriter was finally able to raise the vessel. The raising of the vessel provided crucial evidence that the vessel had, in fact, been scuttled. The salvage of the vessel cost the underwriter in excess of $307,000.00. The salved vessel was sold for slightly in excess of $30,000.00. The underwriters sought a salvage award out of the sale proceeds to defray some of the costs of the salvage. The mortgagee of the vessel, who was owed approximately $240,000.00, opposed the salvage award arguing that the underwriter was a party interested in the vessel and its services were not therefore rendered voluntarily such as to attract a salvage award. The Court, however, held that the underwriter was entitled to a salvage award and awarded the underwriter $12,000.00 plus additional expenses of $2,600.00.

Jurisdiction - Rights of the Crown

Ontario  v. Mar-Dive Corp., 1996 CanLII 8103

This very interesting case concerned a dispute over the ownership of and salvage rights to the S.S. "Atlantic", a double-sided wheeled paddle steamer that sank in 1852 on the Ontario side of Lake Erie. The competing claimants were the Crown in the Right of Ontario, Michael Fletcher, a diver who had found and marked the wreck in 1984, and various U.S. companies whose principals found the wreck in 1989. The U.S. companies removed various artifacts which they transported to California. They then commenced proceedings in California which resulted in a judgment granting them salvage rights and recognizing their "uncontested claim of title". The California District Court further issued an injunction against Fletcher who continued to dive on the wreck. The U.S. companies then sought to enforce this judgment in Ontario. The Ontario Court General Division, however, declined to do so. The Ontario Court held that the District Court of California did not have jurisdiction as there was no real and substantial connection with California. The Court further found that even if the California Court had jurisdiction the judgments were obtained by means of half-truths and artificiality and as such it would be against public policy to enforce them. The Court then went on to consider the claim of the Ontario Crown to ownership. The Court held that the "Atlantic" had been abandoned by her owners at the time of the sinking. It further held that the vessel became the property of the Crown either as owner of the lake bed in which the vessel had become embedded or pursuant to the Crown's Royal Prerogative which entitles it to all unclaimed wrecks.