T-2416-97
The Governor and Company of the Bank of Scotland (Plaintiff)
v.
The Owners and All Others Interested in the Ship Nel and Ocean Profile Maritime Limited (Defendants)
Indexed as: Governor and Company of the Bank of Scotlandv. Nel (The)(T.D.)
Trial Division, Hargrave P."Vancouver and Montéal (teleconference), May 27 and June 25; Vancouver, July 2, 1998.
Maritime law — Creditors and debtors — Motion by necessaries supplier to compel production of documents showing any collateral benefits obtained by mortgagee for which should account, making more funds available to lien claimants — Procedure preliminary to determination of priorities to proceeds of judicial sale of ship — Bank's claim as mortgagee will substantially exhaust sale proceeds — Documents relevant if necessaries claimants, holding only statutory rights in rem, able to require Bank to marshal — Marshalling equitable right whereby Court ordering creditor, having secured right on more than one res or fund belonging to debtor, or security from two or more debtors for same debt, to exercise right on security in manner in best interests of all creditors — Formerly, unsecured creditors had right to benefit of marshalling — Overlooked in recent Canadian cases concerned with in personam right of creditors — Those cases limited to facts, not to be followed as contrary to equitable doctrine of marshalling — Production of commitment letter ordered.
Equity — Doctrine of marshalling — As between mortgagee, creditor — Priorities to proceeds of judicial sale of ship — Authoritative definitions of marshalling referred to — Whether unsecured creditors have benefit of marshalling — Equity engineered redress of marshalling so that no man made rich by another's injury — Canadian case law limiting availability of marshalling to be departed from to uphold obvious legal principles.
This was a motion by a necessaries supplier for production of documents on which the plaintiff's nominee might be cross-examined during the procedure leading up to a determination of priorities to the proceeds of the judicial sale of the Nel. The plaintiff mortgagee will be looking to the sale proceeds to satisfy its claim. If it holds a priority coming after the marshal's sale costs, its claims will substantially exhaust the sale proceeds. Alpha Bunkering wishes to cross-examine the Bank's nominee to determine whether the Bank obtained any collateral benefit as lender to the new owners of the Nel, for which it should account thus making more funds available to the lien claimants. Such information is relevant only if the necessaries claimants do not have maritime liens ranking ahead of the Bank, but are able to require the Bank to marshal. Marshalling is an equitable process whereby the Marshall or the court orders a creditor who has a secured right on more than one res or fund belonging to the debtor, or security from two or more debtors for the same debt, to exercise his right on the security in a manner which will be in the best interests of all creditors.
The issue was whether an unsecured creditor is able to rely on the doctrine of marshalling.
Held, the motion should be allowed.
Equity engineered the redress of marshalling as an application of the maxim that no man ought to be made rich out of another's injury. Under Canadian law, necessaries suppliers with mere rights in rem are in the same position as unsecured creditors. The plaintiff referred to various cases for the proposition that unsecured creditors cannot avail themselves of the doctrine of marshalling. In England, marshalling applies to cases of double security generally to afford equitable redress. While English cases and authorities which treat marshalling as a broad equitable concept to give relief where needed, including to mere holders of oral and written contracts, are not binding on the Federal Court, they are persuasive. The early cases setting out the scope of the doctrine of marshalling do not suggest that it is not available to ordinary contractual creditors. Indeed, the opposite is true. In the past, unsecured creditors always had a right to the benefit of marshalling. Yet some Canadian courts, in certain circumstances, seem to have limited the availability of this remedy, departing from equitable concepts by specifically denying it to ordinary creditors, but without any real reason. The doctrine of stare decisis notwithstanding, current precedent on the right to marshal should not be followed blindly. Given the law surrounding the equitable roots of marshalling, a departure from recent case law was necessary to uphold what are plain and obvious principles of law. Furthermore, the cases cited by the Bank could be limited to their facts. They dealt with the rights of in personam creditors, not with those of in rem creditors. Production of the commitment letter to the in rem claimants would not be denied on the dubious proposition that mere in rem creditors may not benefit from marshalling.
statutes and regulations judicially considered
Administration of Estates Act, 1925 (U.K.), 15 Geo. 5, c. 23.
Federal Court Act, R.S.C., 1985, c. F-7, s. 22(2)(m).
cases judicially considered
applied:
Aldrich v. Cooper (1803), 8 Ves. Jun. 382; 32 E.R. 402 (Ch.); Coastal Equipment Agencies Ltd. v. The Comer, [1970] Ex. C.R. 13; affd [1971] S.C.R. v.
distinguished:
Williamson v. Loonstra et al. (1973), 34 D.L.R. (3d) 275 (B.C.S.C.); Bread Man Inc. (Re) (1979), 21 O.R. (2d) 59; 89 D.L.R. (3d) 599; 29 C.B.R. (N.S.) 58 (S.C.); Allison (Re) (1995), 22 O.R. (3d) 102; 30 C.B.R. (3d) 144; 44 R.P.R. (2d) 237 (Gen. Div.).
considered:
Benson Bros. Shipbuilding Co. (1960) Ltd. v. The Miss Donna, [1978] 1 F.C. 379 (T.D.); National Provincial Bank Ltd. v. Katz, [1960] Ch. 179; Allison (Re) (1998), 38 O.R. (3d) 337 (C.A.).
referred to:
Trimmer v. Bayne (1803), 9 Ves. Jun. 209; 32 E.R. 582 (Ch.).
authors cited
Halsbury's Laws of England, vol. 16, 4th ed. reissue. London: Butterworths, 1992.
Story, Joseph. Commentaries on Equity Jurisprudence, 3rd English ed. by A. E. Randall. London: Sweet and Maxwell, 1920.
Tetley, William. Maritime Liens and Claims, 2nd ed. Montréal: International Shipping Publications, 1998.
MOTION for production of documents showing any collateral benefit received by the mortgagee for which it should account thus making more of the proceeds of the judicial sale of the Nel available to unsecured creditors. Motion allowed.
appearance:
Peter Bernard for plaintiff.
John Bromley for claimant Campotex Shipping Services Ltd.
Christopher Giaschi for claimant Legend Marine Singapore Pte. Ltd.
Jonathan S. McLean for claimants Aktina SA, Bureau Veritas and Mariners Medical Clinic.
David F. McEwen for claimants Petro Marine Products, Ashland Chemical Inc. and Empire International Steavadores Ltd.
Doug G. Morrison for claimant Shell Canada Limited.
Michael J. Bird for claimant Sait Communications SA.
Louis Buteau for claimant Alfa Bunkering Co. Ltd.
Marc de Man and Andrea J. Sterling for claimant HBI International.
A. Barry Oland for claimant Pacific Pilotage Authority.
solicitors of record:
Campney & Murphy, Vancouver, for plaintiff.
Bromley, Chapelski, Vancouver, for claimant Campotex Shipping Services Ltd.
Giaschi, Margolis, Vancouver, for claimant Legend Marine Singapore Pte. Ltd.
Edwards, Kenny & Bray, Vancouver, for claimants Aktina SA, Bureau Veritas and Mariners Medical Clinic.
McEwen, Schmitt & Co., Vancouver, for claimants Petro Marine Products, Ashland Chemical Inc. and Empire International Steavadores Ltd.
Bull, Housser & Tupper, Vancouver, for claimant Shell Canada Limited.
Owen, Bird, Vancouver, for claimant Sait Communications SA.
Sproule, Castonguay, Montréal, for claimant Alfa Bunkering Co. Ltd.
Gottlieb & Pearson, Montréal, for claimant HBI International.
A. B. Oland, Vancouver, for claimant Pacific Pilotage Authority.
The following are the reasons for order rendered in English by
Hargrave P.: These reasons which touch on the doctrine of marshalling as between mortgagee and creditor, arise out of the motion of Alfa Bunkering Co. Ltd. (Alfa Bunkering), a necessaries supplier and claimant to the proceeds of the judicial sale of the Nel. Alfa Bunkering wishes to have the plaintiff, The Governor and Company of the Bank of Scotland (the Bank of Scotland) produce various documents on which its nominee might be cross-examined during the procedure leading up to a determination of priorities to the sale proceeds.
BACKGROUND
The judicial sale and the purchase of the Nel were organized by the Bank of Scotland. The Bank of Scotland also financed both the purchase of the Nel and of the Blue L, the latter vessel a sister ship sold by a South African court.1
The Bank of Scotland, both in this Canadian proceeding and in the South African proceeding, looks to the sale proceeds to satisfy claims for money lent and secured by mortgages on the Nel and the Blue L and on several other vessels in the same ownership; in effect the Bank of Scotland held, at material times, a fleet mortgage. If the Bank of Scotland, as a mortgagee, holds a priority coming after the marshal's sale costs, its claims will substantially exhaust the sale proceeds of at least the Nel.
Counsel for Alfa Bunkering, which looks to the Nel proceeds to satisfy its claim, submits it has a maritime lien, but is concerned that if Alfa Bunkering is found to be the holder of a mere statutory right in rem, coming behind a mortgage in priority, there will be no funds left from the sale of the Nel once the claim of the Bank of Scotland is satisfied. Alfa Bunkering wishes to make certain that the Bank of Scotland, through its nominee, be thoroughly cross-examined, an examination going beyond the usual proof of security and accounting, to test for any collateral benefit the Bank of Scotland might have obtained as lenders to the new owners of the Nel. Counsel for various other claimants are in a similar position to that of Alfa Bunkering.
When the motion initially came on for hearing various counsel for the lien claimants, who brought and who supported the motion, could not produce evidence of the Bank of Scotland receiving a collateral benefit and to that extent any exploration would be an improper fishing expedition. However, counsel submitted that the financing of the purchase of the Nel and of the Blue L is a special circumstance and thus the Bank of Scotland ought to produce various documents bearing on its post-sale involvement with the two vessels, including the commitment letter and the loan agreement between the Bank of Scotland and the present owner of the Nel who is also the buyer and owner of the Blue L. Counsel for Alfa Bunkering submits that there might be a close connection between the former owner and the new owner of the Nel and Blue L and that perhaps the new owner remains responsible to the Bank of Scotland for some portion of the original debt. Again, this was an unsupported submission.
Counsel for the Bank of Scotland had not seen any of the requested material, but submitted that production was not only irrelevant, but also an uncalled for intrusion into the affairs of the new owner.
I ordered the documents produced to the Court for examination, adjourning the motion pending that examination, with the parties to reattend in due course. To assist the parties I provided each counsel with a copy of a memorandum, being my assessment of the documents, before the motion resumed, the disputed documents being again placed in a sealed envelope, this time in the possession of the Court.
Essentially I found the documents irrelevant, except to the extent that the commitment letter indicated the loan secured by the mortgage of the Blue L was substantially in excess of both the appraised value and the purchase price of that ship. Now there may be a perfectly good reason for the apparent advance in excess of the purchase price, for example funds earmarked for dry docking or repairing the ship, to the benefit of both owner and mortgage holder, but that is not the present issue.
Counsel for Alfa Bunkering, with support from counsel for other claimants, submits this excessive loan figure could, if the loan proceeds were not entirely advanced, result in a bonus to the Bank of Scotland on repayment. Further there is an indication that if the venture went well and the Nel, a twenty-four-year old vessel in a presently declining market, were to increase in value, during the modest term of the mortgage and be sold for more than her purchase price, a price which was consistent with the then appraised value, the Bank of Scotland would participate in that profit. All of this, submit counsel, is a collateral benefit for which the Bank of Scotland should account, for it could make more funds available to the lien claimants. The latter so-called collateral benefit, a possible participation in a very speculative profit, is too far removed and too uncertain to be relevant. The former, a possible bonus to the Bank of Scotland on the financing of the Blue L, is only relevant if the necessaries claimants do not have maritime liens, ranking ahead of the Bank of Scotland, but only hold statutory rights in rem and are able to require the Bank of Scotland to marshal.
The concept of marshalling was brought up by counsel and therefore I touched upon it in my memorandum to counsel indicating that if counsel "wished to broach the matter of marshalling and the Blue L , or other vessels involved, that ought to be done, to the extent that it may be proper, on cross-examination": at the time I had doubts as to whether the doctrine of marshalling applied and thus the reservation, "to the extent that it may be proper" for there is some authority that creditors of all types are not necessarily entitled to the benefit of marshalling. I now turn to a consideration of the motion, beginning with the concept of marshalling.
CONSIDERATION
There are some very involved formulations of the concept of marshalling and here I have in mind traditional definitions such as that set out in the 4th edition (reissue) of Halsbury's Laws of England, Volume 16, paragraph 876 at page 785. However the basic concept of marshalling is very simple:
. . . a person having resort to two funds shall not by his choice disappoint another, having only one. [Trimmer v. Bayne (1803), 32 E.R. 582, at p. 583, a Chancery decision of Sir William Grant, Master of the Rolls.]
One of the authorities to which the Master of the Rolls was referred in Trimmer v. Bayne was an earlier case, Aldrich v. Cooper (1803), 32 E.R. 402 (Ch.), in which Lord Chancellor Eldon wrote, at page 407:
. . . a person having two funds shall not by his election disappoint the party having only one fund; and equity, to satisfy both, will throw him, who has two funds, upon that which can be affected by him only; to the intent that the only fund, to which the other has access, may remain clear to him. [See also Halsbury's, supra, footnote 3, at page 785.]
Tetley on Maritime Liens and Claims, 2nd edition, International Shipping Publications, 1998, describes marshalling in the following straight forward terms (at page 857):
Marshalling is the equitable process, whereby the Marshall or the court orders a creditor who has a secured right on more than one res or more than one fund belonging to the debtor, or security from two or more debtors for the same debt, to exercise his right on the security in a manner which will be in the best interests of all creditors. The Marshal or court must also take into consideration the best interests of third parties and even of the debtor. Marshalling was often used in respect to bottomry bonds.
Counsel for the Bank of Scotland submits there is a limitation on marshalling, that in Canada and in British Columbia an unsecured creditor is not able to rely upon the doctrine of marshalling to cause a mortgagee to proceed against security in any particular way. In order to consider this concept I must first establish the position of a necessary supplier with a mere statutory right in rem. Certainly in England the necessary supplier becomes a secured creditor on the issuance of a writ in rem: see a discussion of this in Tetley on Maritime Liens and Claims (supra), at pages 556-557. But such is not the case in Canada.
The position of a necessaries claimant, with a right in rem, is set out in Coastal Equipment Agencies Ltd. v. The Comer, [1970] Ex. C.R. 13, in which Mr. Justice Noël dealt particularly with the position of necessaries suppliers when the owner of various defendant ships had made a proposal in bankruptcy, but also generally with the position of a necessaries supplier under what is now paragraph 22(2)(m) of the Federal Court Act [R.S.C., 1985, c. F-7]. He pointed out that none of the legislation or decisions permitted him to say that the in rem right conferred any privilege or lien whatsoever, although an in rem action against a ship, an extraordinary right, could be advantageous (page 31). He went on at pages 31 and 33 to say:
This action in rem, however, does not give any privilege or lien or preference whatsoever, and the claimant for necessaries seems to me to be in the same position as an ordinary unsecured creditor. If he is an execution creditor, he will be entitled to his costs of action but his claim will be ranked only in accordance with the order of priorities set by law. In fact, to give him, through the mere fact that he has a simple right of action in rem, a right and specific privilege which would deprive the same debtor's other creditors of exercising their claims against the property seized, especially after the corporation owning such property has made a proposal under the Bankruptcy Act, seems to me unacceptable and based on no legal text or judgment. In fact, this would be a serious blow to the principle whereby the property of a debtor is the security of his creditors.
Mr. Justice Addy, in Benson Bros. Shipbuilding Co. (1960) Ltd. v. The Miss Donna, [1978] 1 F.C. 379 (T.D.), at page 383, notes that Mr. Justice Noël's decision in The Comer that "the right of action in rem gives no privilege, lien or preference of any kind and that the supplier of necessaries is still in the same position as an ordinary creditor", was upheld by the Supreme Court of Canada in an unreported decision 25 March 1971 [[1971] S.C.R. v]. Clearly, in the present instance, if those who supplied necessaries to the Nel cannot, by various means, for example through the application of substantive foreign law, bring themselves within the ambit of maritime lien holders, they must be, under Canadian law, necessaries suppliers with mere rights in rem which leave them in the position of unsecured creditors.
Counsel for the Bank of Scotland, as I have said, refers in written argument to various cases for the concept that unsecured creditors are not able to avail themselves of the doctrine of marshalling. Counsel opposing did not meet this last minute written argument with any case law, perhaps by reason of a clear lack of time to prepare. However there is case law to the contrary. I turn first to three representative cases from among those referred to by counsel for the Bank of Scotland.
In Williamson v. Loonstra et al. (1973), 34 D.L.R. (3d) 275, at pages 278-279, Mr. Justice Ruttan, of the B.C. Supreme Court, noted that marshalling did not apply in favour of an unsecured creditor:
The doctrine does not extend to all creditors of every degree, it does not apply in favour of an unsecured creditor and it does not apply in favour of a judgment creditor unless he has obtained a charge on the estate that he seeks to have marshalled in his favour.
In support of this proposition Mr. Justice Ruttan refers to several authorities, but does not look at any of the earlier cases which set out and considered the concept of marshalling.
Mr. Justice Saunders, of the Supreme Court of Ontario, referred to the passage from the Williamson case in Re Bread Man Inc. (1979), 21 O.R. (2d) 59, at page 63, and noted that:
It is also logical that unsecured credits [sic] of debtors should not be protected for in the absence of a statutory provision, they should have no better right to the fund than the debtor himself.
This might seem to offend against a number of equitable maxims and doctrines. The Ontario Court General Division also referred to Loonstra in Allison (Re) (1995), 22 O.R. (3d) 102, applying it against unsecured creditors, however the Ontario Court of Appeal took a somewhat different tack when it considered Re Allison, a point I will touch on in due course.
The line of Canadian cases referred to by counsel for the Bank of Scotland bothers me in that marshalling was, at one time, available to simple contract holders, that is to holders of written or verbal contracts: see for example Aldrich v. Cooper (supra) in which simple contract creditors were entitled to stand in the place of creditors by specialty, that is in the place of creditors by deed, thus gaining the benefit of marshalling. This concern about simple contract creditors and specialty creditors no longer exists, for as the editors of Halsbury's point out in Volume 16 (supra) at paragraph 879: formerly simple contract creditors might look only to a personal estate for satisfaction, yet specialty contract debtors might look to both real and personal estates and thus, as between creditors, simple contract creditors were entitled to have assets marshalled in their favour so as to throw the specialty creditors on the real estate. This distinction between specialty and simple contract debtors was abolished in England by 1869 and subsequent legislation which is summed up in the Administration of Estates Act, 1925 (U.K.) [15 Geo. 5, c. 23]. However the concept of allowing contract creditors to marshall still does exist in England. Here I have in mind National Provincial Bank Ltd. v. Katz. Aldrich v. Cooper was considered in National Provincial Bank Ltd. v. Katz, [1960] Ch. 179, at page 190. There Mr. Justice Danckwerts (as he then was) also referred to a wide application of marshalling from Story's Equity Jurisprudence:2
In the sense of the courts of equity, the marshalling of assets is such an arrangement of the different funds under administration as shall enable all parties, having equities thereon, to receive their due proportions, notwithstanding any intervening interests, liens or other claims of particular persons to prior satisfaction, out of a portion of those funds. [Story, 1920 edition, at p. 239.]
From this beginning Mr. Justice Story [at page 239] goes on to note that equity, in engineering redress in cases involving marshalling, in order to prevent the creditor, with more than one choice of funds from which to satisfy a debt, from defeating other claimants by taking his satisfaction to the exclusion of such claimants, is doing little more than applying the maxim nemo ex alterius detrimento fieri debet locupletior: no man ought to be made rich out of another's injury:
. . . where there exist two or more funds, and there are several claimants against them, and at law one of the parties may resort to either fund for satisfaction, but the others can come upon one only; there, courts of equity exercise the authority to marshal (as it is called) the funds, and by this means enable the parties whose remedy at law is confined to one fund only, to receive due satisfaction. The general principle upon which courts of equity interfere in these cases is, that, without such interference, he who had a title to the double fund would possess an unreasonable power of defeating the claimants upon either fund, by taking his satisfaction out of the other, to the exclusion of them. So that, in fact, it would be entirely in his election, whether they should receive any satisfaction or not. Now, courts of equity treat such an exercise of power as wholly unjust and unconscientious; and therefore will interfere, not, indeed to modify or absolutely to destroy the power, but to prevent it from being made an instrument of caprice, injustice, or imposition. Equity, it affording redress in such cases, does little more than apply the maxim, Nemo ex alterius detrimento fieri debet locupletior.
Story notes that the principle of marshalling is not limited to the administration of assets, or competing mortgagees, but indeed applies to cases of double security generally in order to afford equitable redress. Certainly the English cases and authorities which treat marshalling as a broad equitable concept to give relief where needed, including to mere holders of oral and written contracts, are not binding on the Federal Court, yet they are persuasive. There is no suggestion in the early cases setting out the scope of the doctrine of marshalling that it is a remedy barred to ordinary contractual creditors. The opposite is true. Yet some Canadian courts, in certain circumstances, seemed to have applied that limitation, departing from equitable concepts and specifically denying the relief of marshalling to ordinary creditors, but I think without any real reason.
Now it is the policy of courts to stand by applicable precedents, thus avoiding disturbing a point settled by a court of equal or superior jurisdiction. Thus parties can have some general certainty as to the law that ought to be applied when facts are similar. This doctrine, the doctrine of stare decisis, is one of policy. It should be departed from only when a departure is necessary to vindicate plain and obvious principles of law. This present dispute over the right to marshal is an issue on which current precedent ought not to be followed blindly, particularly given the law surrounding the equitable roots of marshalling. However the cases cited on behalf of the Bank of Scotland can also be dealt with in another way, by limiting them to their facts.
The Loonstra case (supra) may be distinguished as the interest of the creditors, in that instance, through the mortgagor, that is, a pure in personam claim. In the present instance the creditors have an in rem interest. This rationalization does no violence to the original concept of marshalling, which clearly extended to contractual creditors, yet does not disturb either Loonstra or Re Bread Man, which is based on Loonstra.
In deciding that Alfa Bunkering ought to have access to the commitment letter in order to explore marshalling I also take comfort in the approach taken by the Ontario Court of Appeal in its 27 February 1998 decision in Allison (Re) (1998), 38 O.R. (3d) 337. There the Court of Appeal agreed with the Trial Judge as to the outcome, but not on the basis that the doctrine of marshalling did not apply in favour of an unsecured creditor. The Court of Appeal refused to deal with this point because the debtors, found by the Trial Judge to be common debtors, were clearly not and to apply the doctrine of marshalling would have required one of them, the holder of a parcel of land, to pay the debts of another debtor, the holder of another parcel of land: thus clearly marshalling did not apply for it was not intended to create such an inequity between two debtors. However, in touching on the doctrine of marshalling and particularly Aldrich v. Cooper (supra) the Court of Appeal was very careful to leave it open as to the nature of a creditor who might seek marshalling. The Court of Appeal, at page 341, summed up the Aldrich case by saying that marshalling is an equitable right to prevent a creditor, who may resort to two funds, from defeating another creditor who is limited to only one fund:
The right to marshal securities is an equitable one intended to prevent a creditor who can resort to two funds from defeating another creditor who can resort to only one of them.
In that paragraph the Court went on to discuss marshalling in terms of creditors. In the next paragraph, at page 342, the Court referred to two criteria to be met before marshalling might be applied:
The first criterion is that there must be a creditor or mortgagee who has access to two properties of a debtor to which he or she can resort for payment of the amount owing . . . . The second criterion is that there must be a creditor ranking behind or inferior to another creditor or mortgagee of a common debtor with a claim against one of the properties available to the superior creditor or mortgagee. Such an inferior creditor can invoke the assistance of equity to cause or marshal the superior creditor or mortgagee to satisfy the mortgage debt from the property against which the inferior creditor has no recourse so that the property will be available to the inferior creditor, or if this is impossible, or unfair to the superior creditor, equity may allow the inferior creditor to stand as the superior creditor in relation to the property against which the inferior creditor otherwise has no recourse.
Several points arise from this paragraph. First, the Ontario Court of Appeal makes it clear that marshalling may be invoked against either a doubly secured creditor or mortgagee. Second, the Court of Appeal does not refer to an inferior mortgagee taking the benefit of marshalling, but rather only to a creditor ranking behind or inferior to another creditor or mortgagee of a common debtor. Third, that inferior creditor may take a benefit against a superior creditor or superior mortgagee. Fourth and finally, as an alternative, equity may allow the inferior creditor to stand as the superior creditor in relation to property against which the inferior creditor otherwise has no recourse. It is clear from all of this that the Ontario Court of Appeal, given the broad scope and long- standing of Aldrich v. Cooper, did not wish to be dragged into a consideration of whether Aldrich v. Cooper was wrongly decided, or whether the case improperly or incompletely stated the law in referring to the right of simple contract creditors, that is creditors by oral or written agreement, to stand in place of creditors by specialty, that is in place of creditors by deed. But the Ontario Court of Appeal, through its choice of words, supports the broad interpretation of marshalling set out in Aldrich v. Cooper.
CONCLUSION
The cases referred to by counsel for the Bank of Scotland, assuming they are correct, merely deal with the right of in personam creditors, not with the right of in rem creditors and as such may be distinguished. However, going back to more basic case law, it is clear from Aldrich v. Cooper that unsecured creditors always had, in the past, a right to the benefit of marshalling. This is something which has been overlooked in the more recent Canadian cases concerned with the in personam right of creditors in real estate and in bankruptcy situations.
I prefer the basic concept of marshalling set out in Aldrich v. Cooper, which the Court of Appeal in Re Allison discussed at length, even though it was not interested in deciding the rights of unsecured creditors.
The production of the commitment letter, which may well be pertinent and relevant, were the doctrine of marshalling to be applied, is not to be denied on the somewhat dubious proposition that marshalling cannot be applied in favour of mere in rem creditors.
The Court will produce the commitment letter to the in rem claimants at the end of the period during which appeal of these reasons may be made or dispose of the commitment letter as ordered following any appeal. Costs shall be in the cause.
1 The two ships are now named, respectively, Seagull Harmony and Seagull Fame, however for the purpose of these reasons I shall refer to both by their original names.
2 Commentaries on Equity Jurisprudence, Honourable Mr. Justice Story, LL.D. 3rd English ed., by A. E. Randall, published 1920 by Sweet and Maxwell, London. While the original author was American the case law referred to is almost entirely English.