T-1399-88
Sydney Steel Corporation, a body corporate
(Plaintiff)
and
MTO Maritime Transport Overseas Ltd., a body
corporate and Rohde & Liesenfeld Projects Inc., a
body corporate (Defendants)
and
Mercurio Maritimo S.A., a body corporate and
Golden Union Shipping Company S.A., a body
corporate (Third Parties)
INDEXED AS.' SYDNEY STEEL CORP. V. MTO MARITIME
TRANSPORT OVERSEAS LTD. (T.D.)
Trial Division, MacKay J.—Halifax, May 12;
Ottawa, June 3, 1992.
Practice — Parties — Third party proceedings — Applica
tion by defendant R & L for order converting action into claim
by latter against third parties — Plaintiff claiming damages for
breach of charterparty agreement and other damages — Appli
cant granted leave to issue third party notice against third par
ties and to serve them ex funs — Claim for indemnity of
alleged damages and expenses settled by agreement between
applicant and plaintiff — Applicant arguing order sought
within Court's jurisdiction under R. 1716 — Order also said to
be procedural only — Third parties' arguments more convinc
ing — Court declining to vary procedural rights of third par
ties in dealing with claim against them — Rights not to be done
away with over objections of third parties — Application dis
missed.
Federal Court jurisdiction — Trial Division — Application
for order converting action into claim by defendant applicant
against third parties — Whether order within Court's jurisdic
tion under R. 1716 — Third parties attacking order for want of
jurisdiction — Order sought could deprive third parties of pro
cedural rights including preliminary right to contest Court's
jurisdiction in relation to claim against them — Third parties'
arguments more persuasive — Claim against third parties rais
ing serious questions about continuing jurisdiction of Court,
either of substantive or procedural nature.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Federal Court Act, R.S.C., 1985, c. F-7.
Federal Court Rules, C.R.C., c. 663, RR. 1716, 1718,
1730.
Negligence Act, R.S.O. 1990, c. N. 1.
APPLICATION by defendant R & L for an order
converting an action to one in which that defendant's
third party claim would be the continuing raison
d'être of the action. Application dismissed.
COUNSEL:
John D. Murphy, Q. C., for plaintiff.
A. William Moreira for defendant Rohde &
Liesenfeld Projects Inc.
David G. Colford for defendant MTO Maritime
Transport Overseas Ltd.
Vincent M. Prager for third parties.
SOLICITORS:
Stewart McKelvey Stirling Scales, Halifax, for
plaintiff.
Daley, Black & Moreira, Halifax, for defendant
Rohde & Liesenfeld Projects Inc.
Brisset Bishop and Davidson, Montréal, for
defendant MTO Maritime Transport Overseas
Ltd.
Stikeman, Elliott, Montréal, for third parties.
The following are the reasons for order rendered in
English by
MACKAY J.: In this application the corporate defen
dant Rohde & Liesenfeld Inc. ("R&L"), seeks an
order that would, in effect, convert this action, initi
ated by the plaintiff Sydney Steel Corporation ("Syd-
ney Steel") to one in which that defendant's claim
filed against the third parties would be the continuing
raison d'être of the action. With consent of the plain
tiff and of the other corporate defendant, MTO Mari
time Transport Overseas Ltd. ("MTO"), the order
sought would direct that Sydney Steel and MTO
cease to be parties in this action, that R&L file and
serve an amended statement of claim in respect of its
claim against the, third parties, and that the proceed
ing brought by R&L against third parties proceed and
be tried as if it were in all respects an action between
plaintiff and defendants.
The various claims involved arise from agreements
relating to the charter of a vessel. The plaintiff, hav
ing arranged by agreement with MTO to charter ves
sels to carry steel rails from Sydney, N.S. to Mexico,
relied upon expressed terms of its charterparty with
MTO and alleged undertakings by MTO and R&L
that one vessel in question was properly equipped to
discharge cargo at Mexican ports by its own cranes
and equipment without the necessity to rely on shore-
based cranes. It is alleged that upon arrival at Tam-
pico, Mexico, the vessel was unable to discharge
cargo using its own equipment and the plaintiff is
said to have incurred unanticipated costs in arranging
for shore-based cranes to unload the vessel. By its
statement of claim, the plaintiff claimed damages for
breach of the charterparty agreement and other dam
ages as well.
MTO was a sub-charterer of the vessel and R&L
was head charterer. The vessel was owned by one of
the third parties, a Greek corporation, and operated
by the second third party, a Panamanian corporation.
The action was begun by statement of claim filed
July 16, 1988, by Sydney Steel against MTO and
R&L as defendants. MTO served and filed on R&L a
notice to co-defendant, pursuant to Rule 1730 [Fed-
eral Court Rules, C.R.C., c. 663], dated February 10,
1989, and a third party statement of claim dated
March 6, 1989, claiming indemnity in respect of any
liability of MTO to Sydney Steel. By order of April
25, 1989, R&L was granted leave to issue a third
party notice against the two third parties and leave to
serve them out of the jurisdiction. That notice was
served and an appearance was entered on behalf of
the third parties in October of 1989. An order for
third party directions was granted in respect of the
third party claim of R&L against the third parties on
May 31, 1990, and a third party statement of claim on
behalf of R&L against those third parties was filed
July 13, 1990, claiming indemnity, for any liability,
under its charterparty agreement with the third par
ties.
Preliminary procedural steps by the various parties
included the filing of a list of documents on behalf of
the plaintiff and on behalf of R&L. Witnesses on
behalf of R&L and on behalf of Sydney Steel were
examined on discovery by counsel for the third par
ties in April, 1991, and all but one of the undertak
ings then given were subsequently fulfilled. In Febru-
ary, 1991, counsel representing MTO was permitted
by order to withdraw as solicitor of record for that
party and replacement counsel has not subsequently
been named. Commencing in February 1991, discus
sions between R&L and Sydney Steel commenced
with a view to settlement of the claim by the plaintiff
against R&L. Ultimately these led to settlement with
a general release executed by Sydney Steel on Nov-
ember 15, 1991. From April 1991 discussions and
correspondence between counsel for R&L and for the
third parties continued from time to time with R&L
seeking consent to an order in the nature of that now
presented to the Court, which is opposed by the third
parties.
For R&L it is urged that the order sought is within
jurisdiction of the Court pursuant to Rule 1716 and
that it should he granted. That Rule provides in part:
Rule /7/6. (I) No action shall be defeated by reason of the
misjoinder or nonjoinder of any party; and the Court may in
any action determine the issues or questions in dispute so far
as they affect the rights and interests of the persons who are
parties to the action.
(2) At any stage of an action the Court may, on such terms
as it thinks just and either of its own motion or on application,
(a) order any person who has been improperly or unnecessa
rily made a party or who has for any reason ceased to be
a proper or necessary party, to cease to be a party.....
Subsections (3) and (4) of Rule 1716 provide that
when an order is made under the rule, the statement
of claim or declaration must be amended accordingly
and the order shall contain directions as to conse-
quential pleadings or other proceedings and the Court
may, upon application, issue supplementary direc
tions.
Counsel for R&L submits that the order sought is
within the Court's jurisdiction under Rule 1716, that
the rule is intended to facilitate proceedings in a man
ner convenient for those who are necessary parties
and to remove from the action those who are not nec
essary parties. Rule 1716, it is urged, should be
broadly interpreted to encourage settlement of claims
and failure to grant the order here sought would be
contrary to that objective. Subsection (2) of the Rule
permitting the Court to remove any party at any stage
for any reason is expressed without restriction and
should be construed to permit removal from the
action even of the plaintiff by which it was originally
commenced where, as here, the third party claim is
grounded upon a separate cause of action, not depen
dant upon the existence of an action between the
plaintiff, Sydney Steel, and the defendants, MTO and
R&L.
As to discretion of the Court, R&L submits the
order sought should be granted because:
1) it serves the convenience of the Court and of the
parties, to permit resolution of the claim against
third parties with the least expense and the least
delay;
2) it permits resolution of that claim expeditiously,
avoiding complications attendant on commencing
another action to pursue that claim and avoiding
the possible duplication of steps already taken,
including provision for service and claims against
third parties ex juris; indeed, it is urged that with
an amended statement of claim that R&L is pre
pared to file without delay, and upon filing plead-
ings by way of defence and reply, the claim against
the third parties is virtually ready to proceed to
trial;
3) it would create little risk of prejudice to the third
parties who have yet to plead a defence and thus
have no admissions on the record which would
limit their defence, and who would not be deprived
of any defence to the claim that would have been
available to them in the action as originally
framed. On the other hand, it is submitted failure to
grant the order sought would be prejudicial to the
applicant here in that its investment in time and in
costs incurred in seeking to resolve the claims
involved in the action as originally framed would
be lost and there would be delay in resolution of its
claim against third parties.
For R&L it is also urged that the substance of its
claim against third parties, for indemnity in respect
of damages suffered and expenses incurred by reason
of alleged breach of the terms of the charterparty
involved, is not significantly changed, even if the
basis for the claim is no longer a judgment but mon
ies paid in settlement to avoid judgment. In this light
it is urged that the order sought is procedural only, to
facilitate resolution of R&L's claim against third par
ties, and it would not adversely affect the third par
ties' position in a substantive way, in comparison
with their position in the original action.
For the third parties, counsel submits that Rule
1716 does not include circumstances where the plain
tiff may be removed from an action it commenced
and the action continued in relation to a third party
claim. The plaintiff is a necessary party to an action;
if the plaintiff becomes unnecessary the action disap
pears, or at least the basis for the action does. A com
parison is drawn between the terms of Rules 1716
and 1718; the latter expressly providing for the possi
bility of proceeding with a counterclaim by a defen
dant in a situation where the principal action has been
discontinued. No similar possibility is provided for
expressly in Rule 1716. Reference was also made to
the Ontario Negligence Act [R.S.O. 1990, c. N. 1]
permitting actions to continue against other tort-
feasors even where the plaintiffs original involve
ment is discontinued. It is urged that unless there be
express provision for exceptions, the general princi
ple that there must be a plaintiff for an action should
be seen to underlie Rule 1716 so that the order here
sought would he beyond the Court's jurisdiction
under that Rule.
Moreover, it is urged that to grant the order here
sought would create the risk of significant prejudice
to the third parties, or at the very least great doubt
concerning any assessment of relative prejudice to
the parties by grant or refusal of the application, so
that in the light of opposition by the third parties, the
order sought should be denied. Counsel for the third
parties points to procedural concerns if the order
were to be granted, concerns relating to the basis of
their involvement in the action on a third party
notice, the factual basis for which has now changed
significantly, and their appearance, entered in
response, and with conditions related, to that notice.
It is urged the order sought would deprive third par
ties of procedural rights of importance, including the
preliminary right to contest the jurisdiction of this
Court, in relation to the claim against them. Those
rights are said to he important, since any ties to
Canada for the original claim have virtually disap
peared and the charterparty between R&L and third
parties, which was concluded in New York, provides
for arbitration in the United States.
Underlying the concerns of the third parties are the
following factors. The basis for the third party notice,
and its service ex juris, issued by the Court was set
out in the affidavit of Mr. Ruediger, an officer of
R&L sworn at Houston, Texas on March 23, 1989,
which included the following references to facts no
longer capable of being established at least in the
manner then foreseen:
paragraph 10:
... if in the judgment of this Honourable Court the Vessel did
not conform with any of the terms of any of the Charter Parties
relating to her employment, or if representations as to her fit
ness were made by any person for whose acts or omissions
R&L is responsible, whether to the Plaintiff or to MTO, then
R&L claims against Mercurio Maritimo SA and Golden Union
Shipping Company SA for indemnity in respect to any liability
which R&L may have to either or both of the Plaintiff or
MTO,
paragraph 13:
... in addition to any claims by the Plaintiff and MTO against
R&L, R&L has claims against MTO for unpaid charter hire
and for demurrage arising out of the Trip Charter Party
attached hereto as Exhibit "A", and I have instructed R&L's
solicitors to seek to recover such monies by way of counter
claim herein against MTO.
paragraph 14:
... because this litigation in this Honourable Court involves
matters and determinations of fact and of law which will nec
essarily be in issue in R&L's pursuit of its claim for indemnity
against Mercurio Maritimo SA and Golden Union Shipping
Company SA and because such claim cannot, to the best of my
knowledge, be pursued in the United States of America (the
place of business of R&L) any less inconveniently to Mercurio
Maritimo SA or Golden Union Shipping Company SA that
would be the case in Canada, it is my respectful view that the
Federal Court of Canada is a forum appropriate from the point
of view of R&L for the pursuit of such claim.
This affidavit led to the issue of the third party notice
which included the words
AND TAKE NOTICE that the Defendant, R & L claims to
be indemnified by you, Mercurio Maritimo S.A. and/or
Golden Union Shipping Company S.A. against any liability
which R & L may have to either or both of the Plaintiff and
MTO, on grounds that ....
It is urged that this notice, and the affidavit leading to
its issue, clearly tie any claim by R&L against the
third parties to the claim of the plaintiff against MTO
and R&L and the claim by MTO against R&L. More
over, the notice is said to tie any liability of the third
parties to the liability of R&L as that liability may be
established by judicial determination, a determination
that may no longer he made, because of the settle
ment negotiated by R&L.
Moreover, it is urged the factors underlying juris
diction of this Court in relation to the original claim
by Sydney Steel and the claim of MTO are no longer
relevant, in view of the settlement of their respective
interests, in the claim by R&L against third parties.
Both Sydney Steel and MTO are Canadian corpora
tions and the claim arose in relation to a charterparty
concluded in Canada. Now, what is left as a proposed
action in this Court is a claim for indemnity of
alleged damage and expenses, settled by agreement
between R&L and Sydney Steel, said to have been
incurred as a result of incidents in Mexico, recovery
of which is allegedly based on a charterparty con
cluded in the United States, specifically including a
clause for arbitration of disputes in the United States,
between parties who are not resident in Canada and
have no continuing connection with Canada. If an
action were initiated in relation to such a claim,
unconnected to the claim here originally filed by
Sydney Steel, it is suggested the Court would decline
jurisdiction, and at the very least the third parties as
intended defendants would be free to submit a pre
liminary motion contesting the Court's jurisdiction in
advance of trial. To grant the motion now sought
would deprive third parties of that opportunity.
Finally, the order now sought would, it is urged,
change the basis on which the third parties entered an
appearance in the action originally framed. In that
appearance they specifically reserved the right to
raise the provision for arbitration of claims by R&L
under its charterparty with the third parties. Their sta
tus in the original action is defined by directions for
third party proceedings issued by the Court with con
sent of the third parties which specifically provide
that the third party issue shall he tried at the trial of
the action between plaintiff and defendants (para-
graph 4), that the third parties were at liberty to file a
defence to the plaintiff's statement of claim (para-
graph 5) and to appear at trial and participate as per
mitted by the Trial Judge (paragraph 6) and that the
third parties would be bound in relation to the third
party issue by the final judgment of the Court in the
action between plaintiff and defendants (paragraph
7). Now there is to be no trial of the plaintiff's claim,
and thus no opportunity for third parties to question
it. The proposed order would mean that the third par
ties would be in a worse position than if they had not
elected to file an appearance, a position which denies
them certain procedural safeguards established in
relation to their participation in the action originally
framed. Counsel for the third parties referred to con
sistent advice to counsel for R&L, that the third par
ties did not concur in any settlement of the claims of
the plaintiff and MTO by R&L.
I find the arguments of the respondents, the third
parties, the more persuasive. It may be that in a par
ticular case, settlement of a plaintiff's claim against a
defendant would not automatically result in effective
discontinuance of an interrelated claim by the defen
dant against a third party. Nevertheless, where, as
here, the third party is ex juris and is joined by notice
and its own appearance only in a manner that is
expressly dependant upon establishment of the origi
nal claim in a trial in this Court, the Court will
decline to order arrangements that would vary the
procedural rights of the third parties in dealing with
the claim against them. Those procedural rights, ordi
narily included expressly in directions concerning
third party proceedings are intended to secure to third
parties the opportunity to contest the original claim
upon which another seeks to claim indemnity or to
recover against them. Those rights should not be
done away with over the objections of third parties,
even though that may provide an efficient and expe
ditious process for dealing with the claim against
third parties. Particularly, is this so where that claim,
no longer interrelated with a claim originally framed
by a plaintiff, in itself and standing alone raises seri
ous questions, here touched upon but not fully
argued, about continuing jurisdiction of the Court,
either of a substantive nature under Canadian mari
time law within the Federal Court Act [R.S.C., 1985,
c. F-7], or of a procedural nature that the Court is not
a forum conveniens, particularly in light of an express
agreement for arbitration elsewhere.
Thus, I am not prepared to grant the order sought
by the applicant.
I raised with counsel at the hearing whether the
motion should be treated in part rather than as a
whole. The third parties would not object to that por
tion of the motion dismissing the plaintiff and MTO
as necessary parties, and if this were done, an order
dismissing the action in its entirety. Of course, there
was no notice of the suggested dismissal of the
action. Counsel for R&L on the other hand urged that
if the motion in its entirety was not approved it
should be dismissed. Since it is a motion by R&L, the
latter course I follow, absent any agreement and
because that is the normal course.
For the third parties, it was urged that costs should
follow the outcome on this motion but in my view,
costs may more appropriately be dealt with in the
cause, whatever may be the final outcome of these
proceedings.
An order goes dismissing the application by R&L,
with costs in the cause.
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