Lakeland Bank v. The Ship NEVER E NUFF, 2016 FC 1096 (2016-09-30)
Facts: The plaintiff loaned funds to the first defendant in 2007 for the purchase of a vessel and registered a mortgage against the vessel in the United States, the location of the vessel at the time. The first defendant defaulted on the loan and the plaintiff obtained an in personam judgment against him in the United States. The plaintiff was, however, unable to obtain an in rem judgment against the vessel as it had been moved to Canada and resold to the second defendant. The plaintiff learned of the sale in January 2009. In June 2012, the plaintiff brought this proceeding in the Federal Court of Canada in personam against the first and second defendants and in rem against the vessel. The court dismissed the in personam claim against the first defendant on the grounds that the Statement of Claim was never served on him and, in any event, the issue of his liability was res judicata. The court also dismissed the in personam claim against the second defendant as he was merely an innocent purchaser for value without notice of the mortgage. The remaining issue was the in rem claim and the validity of the mortgage.
Decision: Judgment for the plaintiff on the action in rem.
Held: The in rem action against the vessel was vigorously defended by the second defendant who argued, first, that the plaintiff had failed to prove the mortgage was valid under American law. However, the plaintiff was not required to present evidence of American law because it was not asserting any greater rights under American law than under Canadian law. With no evidence of American law, Canadian law is presumed to apply. The mortgage was valid under Canadian law and lack of registration is of no effect.
The second defendant next says the claim is subject to a three-year limitation period under either American law or pursuant to s. 140 of the Marine Liability Act. The plaintiff has not led proper evidence of a three-year limitation period under American law and fails on this account. With respect to the three-year limitation period contained in s. 140 of the Marine Liability Act, this limitation period does not apply since it was only enacted in September 2009 and does not have retroactive effect. In the Federal Court limitation/prescription periods are matters of procedure governed by the lex fori, except perhaps with respect to matters arising wholly within Quebec. The applicable limitation period is six years under s. 39(2) of the Federal Courts Act. The Statement of Claim was filed in June 2012, within six years of the plaintiff becoming aware of the sale.
Finally, it is argued that under Quebec law the mortgage is invalid since it was not registered as required by the Quebec Civil Code. If this was purely a Quebec matter, the mortgage could have been registered under the Civil Code and enforced in the Federal Court. It does not, however, follow that failure to register renders the mortgage unenforceable. This is a constitutional issue that must be considered in light of Ordon v Grail,  3 SCR 437, as modified by Marine Services International Ltd. v Ryan Estate, 2013 SCC 44. They set out four factors to consider, each of which are addressed below.
(1) Is a mortgage on a ship a matter within exclusive federal competence under the navigation and shipping power?
Although contracts of sale and insurance are within provincial competence as being matters of property and civil rights, the sale of a ship and marine insurance are also matters of navigation and shipping and form part of Canadian maritime law. Mortgages on maritime property clearly fall within Canadian maritime law and are subject to federal jurisdiction.
(2) Is there a federal statutory counterpart to the provisions of the Quebec Civil Code?
It is not necessary to determine if there is a federal statutory counterpart to the provisions of the Quebec Civil Code in this matter as the Canada Shipping Act 2001 would not have applied to an American ship and an American mortgage.
(3) If there is no federal statutory counterpart, should non-statutory Canadian maritime law be altered?
Canadian maritime law need not be altered as it currently recognizes unregistered mortgages.
(4) If the non-statutory Canadian maritime law should not be changed, does the provincial law trench upon a protected core of federal competence?
The provincial law in this case does trench upon a protected core of federal competence. This is not a case such as Ryan Estate where it was noted provincial workers’ compensation laws had applied to maritime matters for more than a century. Here, in the case of conflict, federal law is paramount.
Comment: The learned Judge appears to conflate the constitutional doctrines of interjurisdictional immunity and paramountcy. On the one hand, he discusses trenching upon the protected core of federal competence which is the language of interjurisdictional immunity. On the other hand, he says that the federal law is paramount, which is the language of paramountcy. It is therefore unclear which doctrine was ultimately relied upon to reach the decision that federal law applied. Moreover, to the extent that the Judge relied on the doctrine of paramountcy, he appears to have applied the doctrine to non-statutory Canadian maritime law which is, in essence, the common law. However, in Marine Services International Ltd. v Ryan Estate, 2013 SCC 44, the Supreme Court of Canada said that the paramountcy doctrine does not apply to an inconsistency between the common law and a valid provincial enactment.