T-556-84
Thorne Riddell Inc., the Trustee of the Estate of
Can-Inter Foods Ltd., a Bankrupt (Plaintiff)
v.
Nicolle N Enterprises Inc., and The Motor Vessel
Nicolle N (Defendants)
Trial Division, Addy J.—Vancouver, January 21
and 25, 1985.
Maritime law — Demise bare boat charter — Action by
trustee in bankruptcy against charterer arising from custom
process agreements between latter and bankrupt — Ship owner
moving for leave to file conditional appearance to object to in
rem jurisdiction — Applicant relying on Federal Court cases,
following British admiralty law, holding where contract for
necessaries and no maritime lien, no right in rem unless
registered owner responsible for debt — Demise charterer
having ownership interest — Actual and apparent authority of
master — Purposes of maritime law — Necessity for uniform
ity — Under American statute law, in rem action maintainable
for necessaries — Practice in other trading nations — Propo
sition British admiralty laws binding on Canadian courts
unless changed by statute rejected — Motion granted, action
not for necessaries and contracting parties aware applicant was
owner and its credit not involved — Warrant of arrest
cancelled.
Jurisdiction — Federal Court — Trial Division — Mari
time law — Bankruptcy — Action to declare agreements
reviewable under Bankruptcy Act, not under contract for
necessaries — Whether overpayment between related compa
nies to detriment of creditors — Whether Federal Court or
Supreme Court of province where bankruptcy order issued
having jurisdiction — Apart from Bankruptcy Act aspect,
whether Federal Court having jurisdiction in view of cases
holding no action in rem against ship unless registered owner
legally responsible for debt — Whether Canadian courts
bound by British admiralty laws — Action in rem against ship
dismissed, action not being for necessaries and parties aware
owner's credit not involved — Bankruptcy Act, R.S.C. 1970, c.
B-3, ss. 3, 78, 153(1) (as am. by S.C. 1972, c. 17, s. 2; S.C.
1974-75-76, c. 48, s. 24).
Can-Inter Foods Ltd. ("Can-Inter") entered into certain
agreements, including a contract for the supply of necessaries
for the defendant ship Nicolle N, with defendant Nicolle N
Enterprises Inc., ("Nicolle Enterprises"), a related company,
which was also, at all relevant times, the charterer by way of
demise of the ship. Subsequently, an order in bankruptcy was
issued by the Supreme Court of British Columbia in respect of
Can-Inter. The plaintiff trustee in bankruptcy takes the posi
tion that there was overpayment between the related companies
to the detriment of creditors and that the payments made by
the bankrupt constituted a reviewable transaction under the
Bankruptcy Act. The trustee therefore instituted an action in
this Court and obtained a warrant for the arrest of the ship.
The warrant could not, however, be executed as the ship
remained outside the Court's jurisdiction.
Equitable Life Leasing Corporation ("Equitable Leasing"),
the owner of the ship Nicolle N, obtained leave to file a
conditional appearance to object to the in rem jurisdiction of
this Court over the defendant ship, and for an order that the
statement of claim be struck out as against the ship and that
the warrant of arrest of the ship be set aside.
The fundamental question is whether there is jurisdiction in
rem in the present case in any event or whether the proper
forum is the Supreme Court of British Columbia pursuant to
subsection 153(1) of the Bankruptcy' Act.
Held, the motion should be granted, the statement of claim
as against the ship, struck, the action in rem against the ship,
dismissed and the warrant of arrest, cancelled.
In English case law, where there are mere contracts for
necessaries and no maritime lien can exist, there is no right in
rem against the ship unless the actual registered owner can also
be held legally responsible for the debt. In the Federal Court,
there are cases which seem to point to that conclusion, but they
are distinguishable (see the Westcan, McCain and Steel Dol
phin cases).
Since a charterer by way of demise is considered the owner
pro tempore of the ship during the voyage for which she is
chartered, it would seem unnecessarily restrictive of commerce
and of the movements of ships not to presume that an action for
necessaries might be maintainable in rem against the ship when
the charterer would be responsible at law for those supplies.
Since uniformity in that respect is very desirable and since in
many countries it has been decided that an action in rem is
maintainable for necessaries, it might well be time to depart
from rather narrow British common law distinctions which
evolved in English Admiralty Courts in the days when Britain
ruled the seven seas.
In any event, that question deserves a thorough hearing
because it is doubtful that those principles of British admiralty
law are to remain immutable and forever binding on our courts
unless changed by statute.
However, in the present case, the fact is that the defendant,
as a bare boat charterer, contracted with the bankrupt as a
sub-charterer of the bare boat for certain mutual benefits and
considerations, among which were necessaries and equipment
for the ship. The contracts were completely performed and the
supplies paid for. The present action does not involve the supply
of necessaries or equipment for the ship itself in any way. The
parties were aware that Equitable Leasing was the owner and
that its credit or liability was not in any way involved in the
contracts. There is, therefore, no ground upon which an action
in rem could be maintained.
CASES JUDICIALLY CONSIDERED
APPLIED:
Goodwin Johnson v. The Ship (Scow) A.T. & B. No. 28,
[1954] S.C.R. 513.
DISTINGUISHED:
Westcan Stevedoring Ltd. v. The "Armar", [1973] F.C.
1232 (T.D.); McCain Produce Co. Ltd. v. The M.V.
"Rea", [1978] 1 F.C. 686 (T.D.); Gabriel Aero-Marine
Instruments Limited v. The Ship M.V. "Steel Dolphin"
et al., judgment dated August 28, 1984, Federal Court,
Trial Division, T-1536-83, not reported; Logistec Corp. v.
The "Sneland", [1979] 1 F.C. 497 (T.D.).
REFERRED TO:
Sir John Jackson Ld. v. "Blanche" (Owners of SS.) The
Hopper No. 66, [1908] A.C. 126 (H.L.); The "Mogi-
leff', [1921] P. 236 (Adm.).
COUNSEL:
D. G. Schmitt for plaintiff.
J. W. Perrett for defendants.
SOLICITORS:
Shrum, Liddle & Hebenton, Vancouver, for
plaintiff.
Campney & Murphy, Vancouver, for defend
ants.
The following are the reasons for order ren
dered in English by
ADDY J.: The present motion involves an
application by Equitable Life Leasing Corporation
(hereinafter called "Equitable Leasing") as owner
of the defendant ship for, among other things,
leave to file a conditional appearance for the pur
pose of objecting to the in rem jurisdiction of this
Court against the defendant ship, and for an order
that the statement of claim be struck out as
against the ship and that a warrant of arrest of the
ship issued in the action be set aside. Leave to file
a conditional appearance was granted.
The action itself involves a claim by the plaintiff
as trustee in bankruptcy for Can-Inter Foods Ltd.,
(hereinafter called "the bankrupt") against the
defendant Nicolle N Enterprises Inc., (hereinafter
called Nicolle Enterprises). The order in bankrupt
cy was issued by the Supreme Court of British
Columbia in June 1983.
The allegations in the statement of claim may
be briefly summarized as follows:
1. That Nicolle Enterprises was the owner of the
defendant ship and had entered into what is
referred to as custom process agreements, includ
ing a bare boat charter with the bankrupt for the
1981-1982 Alaska herring and salmon seasons in
consideration of certain fixed processing fees and
other disbursements.
2. That pursuant to the agreements, the bankrupt
paid for and provided various equipment supplies,
wages, etc., which totalled an amount much in
excess of the true value of what it received in
return from Nicolle Enterprises.
3. That Nicolle Enterprises and the bankrupt are
related companies and that the agreements made
between them are not arm's length transactions.
4. That the payments made by the bankrupt con
stituted a reviewable transaction pursuant to sec
tions 3 and 78 of the Bankruptcy Act, R.S.C.
1970, c. B-3.
5. That the plaintiff is entitled to claim the differ
ence between the value of what was provided and
the fair market value of the charter.
A warrant of arrest has been issued in the action
but not executed as the ship is no longer within the
jurisdiction.
It is now undisputed that the defendant Nicolle
Enterprises was never the owner of the defendant
ship but was, in turn, the charterer by way of
demise of the ship from the applicant, Equitable
Leasing, who is the true owner. That particular
charter was terminated on November 28, 1984 by
notice of default and the vessel is presently in the
possession of the applicant in the United States.
Several arguments were advanced by the appli
cant including one to the effect that the action is
essentially not one under a contract for the supply
of necessaries for a ship but, on the contrary, has
been instituted in order to declare the agreements
between Nicolle Enterprises and the bankrupt as
reviewable transactions, since it is undisputed that
the necessaries were supplied under the contracts
and were paid for. The existence, performance and
effect of the contracts between the original parties
are not in actual issue, the real point in issue being
that there was overpayment between related com
panies to the detriment of creditors. It was there
fore argued that the proper forum for trying this
issue is the Supreme Court of British Columbia,
pursuant to subsection 153(1) of the Bankruptcy
Act [as am. by S.C. 1972, c. 17, s. 2; S.C. 1974-
75-76, c. 48, s. 24], and not the Federal Court of
Canada.
Altogether apart from the question of whether,
where a case otherwise falls within the jurisdiction
of this Court and involves as an incidental issue
the question of whether a transaction is reviewable
under the Bankruptcy Act, this Court would still
have jurisdiction, the fundamental question before
me is simply whether there is jurisdiction in rem in
the present case in any event.
There does exist jurisprudence following certain
English decisions, which points to the conclusion
that where there are mere contracts for necessaries
and where no maritime lien can exist, such as a
lien for crews' salaries, there is no right in rem
against the ship unless the actual registered owner
can also be held legally responsible for the debt.
(See: Westcan Stevedoring Ltd. v. The "Armar",
[1973] F.C. 1232 (T.D.); McCain Produce Co.
Ltd. v. The M.V. `Rea", [1978] 1 F.C. 686 (T.D.)
and Gabriel Aero-Marine Instruments Limited v.
The Ship M.V. "Steel Dolphin" et al., judgment
dated August 28, 1984, Federal Court, Trial Divi
sion, T-1536-83, not reported.) The applicant
relied on this principle.
I do not believe that any of these decisions
actually stand for the bare proposition advanced
by counsel for the applicant that, in no case, unless
the actual registered owner could be held personal
ly liable, any action in rem can lie against the ship
for the supply of necessaries, although the lan
guage in some cases might seem to lead to that
conclusion. In the Westcan case, supra, the claim
was for stevedoring services for the loading of
cargo which cannot, in my view, be considered as
necessaries for the operation of a ship. Further
more, it appears clearly that the plaintiff knew
that services were not being ordered by or on the
credit of the actual owners. Similarly, in the case
of Logistec Corp. v. The "Sneland", [1979] 1 F.C.
497 (T.D.), the contract was not for necessaries for
navigating the ship but for stevedoring services for
loading it. In the Steel Dolphin case, supra, the
plaintiff was also fully and completely aware of
who the owner was and was fully aware that the
work was not being ordered on the credit of the
owner who was present during part of the time
when the work was being carried out. In the
McCain case, supra, the Trial Judge made it very
clear that he was basing his decision on the finding
that the charter in question did not constitute a
demise charter.
A demise charter creates an ownership interest
in a ship. The charterer by way of demise has been
held to become, for the time of the charter, the
owner of the vessel. (Scrutton on Charter Parties
and Bills of Lading, 18th Ed., page 45.) The term
"owner" has also been given a broad interpreta
tion. (See Sir John Jackson Ld. v. "Blanche"
(Owners of SS.) The Hopper No. 66, [1908] A.C.
126 (H.L.).)
In The Mogileff case, [1921] P. 236 (Adm.),
mentioned in three of the above cases, one finds
the following passage [at page 243]:
One who supplies to a ship, upon the order of the master,
necessaries which it is not within the actual or apparent author
ity of the master to order on the credit of the owner, has no
right to recover against the owner by any proceedings whether
in personam or in rem.
The crux of the matter lies in the fact that the
master of a ship under demise charter might have
the actual authority of the charterer under a
demise charter to order necessaries for the ship
and generally always does. He also generally has
the apparent authority to do so. Cartwright J., as
he then was, dealt with the position of a charterer
by way of demise in the Supreme Court of Canada
case of Goodwin Johnson v. The Ship (Scow) A.T.
& B. No. 28, [1954] S.C.R. 513. He stated at page
537:
The statements mentioned, when sought to be related to a claim
for a maritime lien on a vessel causing damage, can be recon
ciled by reading the expression "owner" as used in such phrases
as, "the liability to compensate must be fixed, not merely on
the property, but also on the owner through the property", as
including "charterer by way of demise". To so construe it
would be in accordance with the judgment of the House of
Lords delivered by Lord Tenterden in Colvin v. Newberry and
Benson ((1832) 1 CI. & Fin. 283 at 297) in which he speaks of
"the person to whom the absolute owner has chartered the ship,
and who is considered the owner pro tempore, during the
voyage for which the ship is chartered".
Although the case dealt with a maritime lien, it is
difficult to see how the legal position qua owner of
a charterer by way of demise should be changed or
considered differently when he or his agent orders
the supply of ordinary necessaries required for the
operation of the ship.
As has often been stated, the principles of mari
time law came into being in order to govern,
regulate and encourage international trade and the
movements of ships and commerce through the
world. Where an owner turns over a ship to
another person under a demise bare boat charter,
knowing full well that it will be sailing to foreign
ports and that it will be obliged to take on fuel and
other supplies from time to time, it would seem, at
first sight, in any event, to be impractical and
unnecessarily restrictive of commerce and of the
movement of ships to expect that the suppliers in
all these cases would be required to receive prepay
ment in specie or to check with the actual regis
tered owners at or through the port of registry in
whatever corner of the world it might be, to
enquire whether proper authority had been grant
ed before supplying that ship with the essential
requirements to enable it to continue on its voyage.
Whether it be by virtue of presumed or implied
authority or otherwise, unless the supplier is put on
notice or has reason to suspect that the actual
owner has forbidden the credit of the ship to be
pledged, then it would seem that an action for such
necessaries might well be maintainable in rem
against the ship when its owner pro tempore, that
is, the charterer by way of demise, would be
responsible at law for those supplies.
Admiralty law is the one branch of our law
where there is a real and very practical require
ment that uniformity be maintained to the greatest
extent possible with other trading nations. It is also
very much in our national interest that this uni
formity be accomplished since many contracts and
commercial dealings are frequently being carried
out by our ships in many jurisdictions and often
during a single voyage. In the United States by
statute an action in rem is maintainable for neces
saries. Many other maritime trading nations might
well have recognized this principle in practice by
allowing any ship whose legitimate Master has
ordered necessaries to be arrested and seized
before judgment for non-payment and to be held
answerable for same whether the procedure be
called an action in rem or otherwise and whether
or not the ship is to be named in the action as a
party.
It might well be time for our courts to depart
from some of the rather narrow British common
law distinctions applied by English admiralty
courts which evolved in the days when Britain
truly ruled the seven seas and understandably
enough felt that its laws should govern internation
al relations and trade.
In any event, the question of whether an action
in rem for true necessaries is capable of being
maintained at all where they have been ordered by
the authorized agent of a charterer by way of
demise is not one which I am inclined to decide on
a motion of this kind. The maritime customs and
laws of other great trading nations today on this
particular issue would be of great interest and
might well have a considerable bearing on the
ultimate decision. I do not accept the proposition
that because we adopted the principles of the
admiralty laws of England as they existed many
years ago, those principles are to remain immu-
table and forever binding on our courts unless
changed by statute.
Although I am declining to strike out the action
in rem on the last mentioned ground, the appli
cant, in my view, does have another very important
argument. The simple fact is that the defendant, as
a bare boat charterer, contracted with the bank
rupt as a sub-charterer of the bare boat for certain
mutual benefits and considerations among which
were necessaries and equipment for the ship. The
contracts were completely performed and the sup
plies were paid for. The present action does not
involve the supply of necessaries or equipment for
the ship itself in any way. In so far as the parties
themselves are concerned, it is obvious that when
they contracted they were fully aware that Equita
ble Leasing was in fact the owner and that its
credit or liability was not in any way involved in
the contracts. There is absolutely no ground for an
action in rem to be maintained.
The motion is granted. As against the ship
Nicolle N, the statement of claim will be struck
out and the action dismissed. The warrant of arrest
will be cancelled. The applicant will be entitled to
its costs of this motion.
ORDER
UPON the application of Equitable Life Leasing
Corporation, the latter having been granted leave
to file a conditional appearance herein as owner of
the vessel Nicolle N,
THIS COURT DOTH ORDER:
1. That the statement of claim as against the ship
Nicolle N be struck out.
2. That the action in rem against the said ship be
dismissed.
3. That the presently outstanding warrant of arrest
be delivered back to the Court for cancellation.
4. That the applicant be granted its costs of this
motion.
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