T-129-83
J. Gary Boudreau (Applicant)
v.
Registrar of Shipping, Customs House, Halifax,
Arthur B. Earle (Respondent)
Trial Division, Jerome A.C.J.—Halifax, January
19, April 21; Ottawa, September 15, 1983.
Maritime law — Practice — Application for mandamus to
compel registration of bill of sale and new mortgages relating
to ship sold pursuant to Court order — Two outstanding
registered mortgages — Registration refused because bill stat
ing 'free and clear of all encumbrances" while order not so
stating — Refusal consistent with Departmental and long-
established British practice — Court-ordered sale in action in
rem conferring clear title — Continued registration would give
prior mortgagees excessive rights — Appropriate for sale
order to determine rights of prior mortgagees — Advertise
ments may represent that title will be unencumbered — Clear
title not meaning prior mortgages discharged — No deletion of
registrations until sale — Same treatment for warrants and
caveats as for mortgages — Failure of order to deal with prior
mortgages not preventing registration by innocent purchaser —
Application granted.
A foreclosure action with respect to the ship Logan Lassie
resulted in an order for commission and sale and, subsequently,
an order authorizing the Sheriff to sell the vessel. There
remained two mortgages registered against the ship. The She
riff executed a bill of sale to the applicant, which bill specified
that the ship was being conveyed "free and clear of all encum
brances". Neither of the aforementioned orders contained such
a phrase. indeed, before signing the first of the orders, Mr.
Justice Addy had struck those words from the draft submitted.
The applicant presented the executed bill of sale for registra
tion, together with two new mortgages. Because of the discrep
ancy between the bill and the orders, the Assistant Registrar of
Shipping refused to register the documents.
This refusal was consistent with the normal practice of
Transport Canada. At the time of a bill's registration, officials
customarily re-registered any prior existing mortgages not
specifically dealt with in the sale transaction. Also, when
presented with a bill executed by a person other than the
registered owner of the vessel concerned, the Registrar had to
satisfy himself of the person's authority to execute; and since,
in this instance, the authority derived from a Court order which
did not specify that the ship was to be sold "free and clear",
re-registration of prior mortgages would, again, have been the
norm.
The applicant sought a writ of mandamus directing the
Registrar to register the bill of sale and the new mortgages.
Held, the application is granted.
It has previously been decided, both by the Federal Court
and in England, that the sale of a vessel pursuant to a court
order in an action in rem confers on the purchaser a clear title.
If, as in the present case, there is a failure to apply this rule, a
manifest injustice will result. Prior mortgagees have claims
against the proceeds of the sale, and if they were, in addition, to
remain on title and retain the protection afforded by registra
tion, they would enjoy rights far greater than those contemplat
ed by the law. It is appropriate that the rights of prior
mortgagees be determined by the original order for sale, inas
much as the order forms a part of the judgment in an action in
which the prior mortgagees were served as parties.
In the case of The MIT "Dora", Associate Chief Justice
Thurlow (as he then was) adopted the view that the advertise
ments for a sale should not contain any statement that the ship
will be sold "free and clear" of encumbrances. The concerns
which he expressed are valid; however, such concerns relate
only to the possibility that the sale might not be recognized
outside Canada, or to conflict with unregistered claims which,
despite non-registration, may entail lien rights. They do not
relate to encumbrances appearing on the Canadian Registry.
Accordingly, the Court does have the authority to make certain
representations to prospective purchasers, and if the rights of
prior mortgagees are dealt with in the order of sale, there is no
reason for excluding from the advertisements, which usually
are set forth in the order, a statement to the effect that the
mortgages will not encumber the purchaser's title.
The fact that the purchaser is to get a clear title does not
mean that the prior mortgages are discharged. As noted, the
prior mortagee's right to claim against the proceeds of sale
survives, and so do personal rights and obligations on the
covenant. The mortgage must not be deleted until the sale has
actually occurred. An order for sale may properly specify that
upon delivery of a bill of sale, warrants of arrest and caveats
are to be dealt with in the same manner as prior mortgages.
The practices of Transport Canada are the same as those
that have long been followed by registrars of British ships.
Nonetheless, in the case at bar, simple justice demands that the
applicant, an innocent purchaser acting in good faith, not be
prevented from registering his documents merely because the
order authorizing the sale did not deal with the registration of
prior existing mortgages.
CASES JUDICIALLY CONSIDERED
APPLIED:
The "Tremont", [1841] I W. Rob. 163; 166 E.R. 534
(Eng. Adm. Ct.); The "Acrux", [1962] 1 Lloyd's Rep.
405 (Eng. Adm. Ct.); International Marine Banking Co.
Limited v. The MIT "Dora" et al., order dated Septem-
ber 7, 1976, Federal Court—Trial Division, T-2934-76,
not reported.
REFERRED TO:
National Bank of Canada v. The Ship "Carapec No. I"
et al., order dated April 26, 1983, Federal Court—Trial
Division, T-7935-82, not yet reported.
COUNSEL:
E. A. N. Blackburn for applicant.
M. F. Donovan for respondent.
W. R. Corkum for Canadian Imperial Bank
of Commerce.
J. G. Spurr for The Nova Scotia Fisheries
Loan Board.
SOLICITORS:
Crowe, Thompson, Haynes & Ashworth,
Halifax, for applicant.
Deputy Attorney General of Canada for
respondent.
W. R. Corkum, Halifax, for Canadian
Imperial Bank of Commerce.
Attorney General of Nova Scotia, Halifax,
for The Nova Scotia Fisheries Loan Board.
The following are the reasons for order ren
dered in English by
JEROME A.C.J.: This is an application for a writ
of mandamus directing the respondent to register
the bill of sale executed by Horatio Morrow, She
riff for the County of Guysborough, in the prov
ince of Nova Scotia, pursuant to an order of the
Honourable Mr. Justice Collier, J.F.C.C., on the
12th day of October, 1982, and also a first and
second mortgage with the Canadian Imperial
Bank of Commerce. This judicial sale was held
pursuant to a foreclosure action [T-3728-81]
brought by The Nova Scotia Fisheries Loan Board
against Warren Manthorne with respect to the
vessel Logan Lassie.
In the order for commission and sale dated the
22nd day of June, 1982, Mr. Justice Addy, in
referring to the description of the ship Logan
Lassie, to be placed in the public notice, ordered,
in part, that:
6. ...
(c) The basis of the sale of the Ship "LOGAN L ASSIE" shall
be as is and where is as it now lies afloat at Drum Head,
Nova Scotia, particulars not guaranteed.
Subsequently, in the order for sale dated the
12th day of October, 1982, the Honourable Mr.
Justice Collier ordered:
2. Horatio Morrow, High Sheriff of the County of Guysbor-
ough is hereby vested with the authority of this Court to convey
to the purchaser all of the sixty-four (64) shares of the ship
"LOGAN LASSIE", the basis of the sale to be as is where is, as
the ship now lies, particulars not guaranteed, and at the risk
and expense of the purchaser upon the execution of the bill of
sale....
The executed bill of sale transferring ownership of
the ship to the applicant, and two mortgages to the
Canadian Imperial Bank of Commerce, were pre
sented for registration at the Registry of Shipping
for the Port of Halifax. The Assistant Registrar of
Shipping refused to register them because the bill
of sale contained the term "free and clear of all
encumbrances", whereas neither the order of Mr.
Justice Addy, nor the order of Mr. Justice Collier,
contained such a phrase. In fact, Mr. Justice Addy
struck those words from the draft order. The dis
crepancy between the Court orders and the bill of
sale placed the Assistant Registrar of Shipping in
an uncertain position regarding the status of the
prior mortgages to Bergengren Credit Union and
to The Seal Harbour Credit Union registered as
second and third mortgages on the ship Logan
Lassie.
I first heard argument at Halifax on January
19, 1983, and ordered a second hearing for Halifax
on April 21, 1983, at which time testimony was
given by Captain Peter John Ady, Chief of Ship
Registration for Transport Canada. Captain Ady
testified that the normal practice for the registra
tion of bills of sale is to bring down any prior
existing mortgages which are not specifically dealt
with in the transaction. As a second consideration,
but equally important, where a bill of sale is
executed by any person other than the registered
owner of the vessel, the Registrar must satisfy
himself in respect to the authority for execution. In
this case, that authority was in the form of a Court
order, but one which contained no direction that
the vessel be sold "free and clear", so that the
prior mortgages would normally have been re-reg
istered immediately following the registration of
the bill of sale. These procedures, while not specifi
cally authorized by statute or jurisprudence, are a
matter of long-established instructions to regis
trars of British ships.
The first question to be dealt with relates to the
effect in law of a judicial order of sale. Counsel for
the applicant and for the Canadian Imperial Bank
of Commerce argued that the mortgages with
Bergengren Credit Union and The Seal Harbour
Credit Union should have become extinguished by
operation of law on the issuance of a judicial order
of sale. In support of this proposition both counsel
relied on the English case, The 'Acrux",' wherein
Mr. Justice Hewson quoted [at page 408] the
words of Dr. Lushington in the case of The
"Tremont": 2
The jurisdiction of the Court (—that is, the Admiralty
Court—) in these matters is confirmed by the municipal law of
this country and by the general principles of the maritime law;
and the title conferred by the Court in the exercise of this
authority is a valid title against the whole world, and is
recognized by the courts of this country and by the courts of all
other countries.
Mr. Justice Hewson further provided reasons for
the court granting a clean title [at page 409]:
Were such a clean title as given by this Court to be challenged
or disturbed, the innocent purchaser would be gravely pre
judiced. Not only that, but as a general proposition the mari
time interests of the world would suffer. Were it to become
established, contrary to general maritime law, that a proper
sale of a ship by a competent Court did not give a clean title,
those whose business it is to make advances of money in their
various ways to enable ships to pursue their lawful occasions
would be prejudiced in all cases where it became necessary to
sell the ship under proper process of any competent Court. It
would be prejudiced for this reason, that no innocent purchaser
would be prepared to pay the full market price for the ship, and
the resultant fund, if the ship were sold, would be minimized
and not represent her true value.
In the unreported case of International Marine
Banking Co. Limited v. The M/T `Dora" et al.,'
the Honourable Associate Chief Justice Thurlow
(as he then was) clearly - states [at page 8] this
' [19621 1 Lloyd's Rep. 405 (Eng. Adm. Ct.).
2 (1841), l W. Rob. 163 (Eng. Adm. Ct.), at page 164; 166
E.R. 534, at page 534.
Order dated September 7, 1976, Federal Court—Trial
Division, T-2934-76.
Court's view on the legal effect of an order for sale
in an action in rem:
In the notice of motion the plaintiff asks that the ship be
advertised for sale as being "free and clear of all liens, charges,
mortgages, encumbrances and claims". In my opinion that is
the effect under the law of this country of a sale by this Court
in an action in rem.
Associate Chief Justice Thurlow was, however, of
the opinion that a statement of the legal effect of
the order for sale should not appear in the adver
tisement for the following reasons [at pages 8-9]:
... it is not for the Court or the Marshal or those acting for
him to make representations as to the effect of such a sale
because the Court can give no guarantee that its sale will be
recognized by the law of other countries as having that effect.
And for the same reasons it does not seem to me to be good
practice to include in the Marshal's bill of sale either a
covenant or statement of its supposed effect. All the Marshal
can give is a transfer vesting the ship in the purchaser as fully
and completely as that may be done by virtue of the order of
the Court authorizing him to execute the bill of sale.
Counsel for the plaintiff argued that it was of great impor
tance that the advertising contain the statement that the ship is
sold "free and clear of all liens, etc.", since prospective pur
chasers would be likely to bid more if told in that way that a
clear title would be given. That, however, as it seems to me, is
the reason why, when no assurance can be given, no such
representation, which could be deceptive, should be made, and
why prospective purchasers should be left to seek and act on the
advice of their counsel as to the effect of the sale and the kind
of title obtainable through it. The most that, as I see it, can
properly be said in the advertisement is that the vessel is to be
sold pursuant to a commission for its sale issued by the Federal
Court of Canada in an action in rem against the vessel.
While I agree with the concerns expressed by
the then Associate Chief Justice, it seems to me
that this Court does have the authority to make
certain representations and guarantees to a pros
pective purchaser under a Court-ordered sale. The
earlier decisions confirm that a judicial sale deliv
ers clear title. Concerns expressed about a specific
declaration to this effect in the order for sale or
public advertisement relate, not to encumbrances
on the Canadian Registry, but to possible lack of
recognition in other jurisdictions or to conflict with
other claims within Canada which, although
unregistered, may enjoy lien rights. As against
these, the present situation creates a manifest
injustice. It is clear that prior mortgagees have a
claim against the proceeds of the judicial sale.
Were they to continue at the same time to remain
on title as security against the vessel, they would
clearly enjoy rights far beyond those contemplated
by the law. In this regard, I consider it significant
that no contention was advanced in these proceed
ings on behalf of the holders of the prior mort
gages that they should enjoy this double advan
tage.
It is appropriate that the rights of the prior
mortgagees be resolved in the original order for
sale since it is, in part, judgment in an action in
which the prior mortgagees have been served as
parties. Furthermore, if these problems are
addressed in the order for sale in the appropriate
way, I see no reason why a statement to that effect
cannot be made in the public advertisements of the
intended sale which normally form a part of such
an order. At the same time, it must be noted that
the prior mortgages are not truly discharged in
that the rights to claim against the proceeds of the
sale are preserved as are personal rights and obli
gations on the covenant. Furthermore, any nota
tion respecting deletion of the mortgage must not
take place when the sale is ordered, but only when
an actual sale takes place. I addressed the same
concerns in the sale of the ship Carapec No. 1 in
the case of National Bank of Canada v. The Ship
"Carapec No. 1" et al., 4 and I am satisfied that
the order for sale may contain paragraphs that
upon delivery of the bill of sale, warrants of arrest
or caveats are to be dealt with in the same manner
as prior mortgages.
In this case, Boudreau, an innocent purchaser
acting entirely in good faith, has acquired this ship
through judicial sale, only to find that the Court
order did not deal with the registration of prior
existing mortgages. As a result, he is unable to
register the mortgages which were given in secu
rity for the funds to purchase the ship, a result
which no party to these proceedings supports.
Simple justice demands that an order go directing
the Registrar:
J Order dated April 26, 1983, Federal Court—Trial Division,
T-7935-82, not yet reported.
1. To register the bill of sale executed by
Horatio Morrow, Sheriff for the County of
Guysborough, in the province of Nova Scotia,
transferring title to the ship Logan Lassie to J.
Gary Boudreau, and also a first and second
mortgage with the Canadian Imperial Bank of
Commerce.
2. That at such time as J. Gary Boudreau
presents said bill of sale to the Registrar of
Shipping for the Port of Halifax, or to the Ship
Registration Division, Department of Transpor
tation, the Registrar shall delete the prior exist
ing mortgages from the Registry and shall
endorse on the appropriate place in the Registry
that the deletion is pursuant to this order.
The applicant herein shall be entitled to receive
from the Registrar of Shipping a transcript of
the Registry for the ship Logan Lassie showing
deletion of said mortgages, but nothing herein
contained shall be construed so as to detract
from the right of The Fisheries Loan Board,
Bergengren Credit Union or The Seal Harbour
Credit Union Ltd., to claim against the proceeds
of sale in Court as if said mortgages remained in
full force and effect, and for any deficiency
thereof in accordance with their legal rights.
3. That at such time as the bill of sale is
delivered by Horatio Morrow, High Sheriff of
the County of Guysborough, to J. Gary Bou-
dreau, any warrants of arrest or caveats to
which the ship Logan Lassie is subject shall
forthwith become void without the necessity of
releases or withdrawals of caveat being filed,
and such rights as may exist shall attach to the
funds in Court.
In these circumstances, the applicant, J. Gary
Boudreau, should have his costs against the Regis
trar. This is not a reflection on the position taken
by the Registrar who seemed to me to have little
choice. I make the award in this case because Mr.
Boudreau is innocent, and because the beneficiary
of these proceedings is to some extent the Regis
trar who is able to clarify, for future reference, a
situation which has been quite troublesome in the
past. I think it is appropriate, therefore, that the
costs of the proceeding be borne out of public
funds.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.