Ship of a insolvent ship owner can be arrested, the ship owner
will be replaced with the liquidator in place and stead of the ship
owner.
In The Brussel an American stevedoring company, pursuant to an
arrest warrant issued out of the Federal Court, arrested the “Brussel”
at Halifax claiming in excess of US $400,000 for unpaid stevedoring and
related services supplied to the vessel in US ports. A week after the
arrest the owner was judged to be bankrupt by the Commercial Court of
Antwerp. The Antwerp court appointed trustees to the bankruptcy of the
owner and a number of affiliated companies and these trustees were in
due course added as party defendants to the Canadian in rem proceedings.
In the discharge of their responsibilities under Belgian law, the
trustees sought to take possession of all the assets of the bankrupt
owner, wherever situated, for the purpose of orderly liquidation and
distribution of the proceeds to the creditors of the owner in accord
with Belgian bankruptcy law. The bankrupt owner’s principal asset was,
of course, the vessel then under arrest in Halifax.
Predictably, the owner did not defend the claim within the time required
by the Federal Court Rules and the American stevedoring company made the
usual application to the Court for appraisal and sale of the vessel. The
sale was vigorously opposed by the trustees, who went so far as to bring
an ex parte application before the Quebec Superior Court sitting in
Bankruptcy for an order requiring that the “Brussel” be delivered to the
trustees. This order was in fact made but following a series of
applications to both the Federal Court and the Quebec Superior Court the
vessel was sold in any event and the proceeds were paid into court.
The trustees then applied to the Federal Court for an order that the
whole of the proceeds from the sale of the vessel be paid out to them
for distribution to all creditors of the owner according to Belgian
bankruptcy law. The Federal Court rejected the trustees’ application,
holding that the validity and priority of claims made by secured in rem
claimants were to be determined by the Federal Court exercising its in
rem jurisdiction notwithstanding that bankruptcy proceedings were
continuing elsewhere. Moreover, it was held that whether an in rem
claimant is “secured” or not is a matter to be determined by Canadian
maritime law. The Federal Court was of the view that a maritime lien is
a secured in rem claim and that “a maritime lien created under
applicable foreign law is a secured claim under the laws of Canada”.
The decision of the Trial Division was appealed to the Federal Court of
Appeal and the decision of the Quebec Superior Court was appealed to the
Quebec Court of Appeal.
The Federal Court of Appeal dismissed the appeal holding that a
legitimate legal advantage would accrue to the stevedoring company if
its claim was adjudicated in the Federal Court since it was unlikely the
Belgium courts would recognise the secured in rem claim. Further, the
Federal Court of Appeal held that there was a "real and substantial
connection" with Canada in that Canada was where the ship was arrested.
The Federal Court of Appeal was also critical of the trustee's use of
the Quebec Superior Court to obtain an order enjoining the Federal Court
from releasing the arrested ship. They said the trustee should have
sought the assistance of the Federal Court. The Quebec Court of Appeal
held that even if the matter was properly characterized as one of
bankruptcy and not maritime law, the Superior Court did not have any
jurisdiction to make an order against the Federal Court. Both decisions
were appealed to the Supreme Court of Canada.
Supreme Court Decisions in the above case
The appeal to the Supreme Court of Canada from the Federal Court of
Appeal was dismissed on the narrow ground that the trial judge did not
err in exercising his discretion to deny the trustee’s application for a
stay of the proceedings in the Federal Court. In doing so the Supreme
Court recognised that the Federal Court could order the sale of an
arrested vessel and distribute the proceeds to secured claimants
notwithstanding the existence of foreign bankruptcy proceedings. The
Supreme Court held that the Federal Court was not obliged to stay the in
rem proceeding in every case where the owner of the res was subject to
foreign bankruptcy proceedings.
The Supreme Court said that the principles on which the discretion
should be exercised were authoritatively settled in Amchem Products Inc.
v. British Columbia (Workers’ Compensation Board). According to Amchem,
the court should ask whether there is “a more appropriate jurisdiction
based on all the relevant factors”. These relevant factors include “not
only issues of public policy (as in this case) but also the potential
loss to the plaintiff of a juridical advantage sufficient to work an
injustice if the proceedings were stayed, the place or places where the
parties carry on their business, the convenience and expense of
litigating in one forum or the other, and the discouragement of forum
shopping.”
The Supreme Court went on to say, and there was nothing surprising in
this, that within the overall framework of public policy, any injustice
to the plaintiff in having its action stayed must be weighed against any
injustice to the defendant if the action is allowed to proceed; what is
required is that the relevant factors be carefully weighed in the
balance.
The juridical advantage to the Brussel plaintiff of proceeding in Canada
was clear: the plaintiff was an American supplier with an American
maritime lien that would be given priority over the ship’s mortgage in
Canadian in rem proceedings but not in the foreign bankruptcy
proceedings.
According to the Supreme Court, the trustees’ strongest argument in
favour of a stay was that the dispute between the plaintiff and the
shipowner was but weakly connected to Canada. The Supreme Court’s answer
to this argument, which has very important implications for future
cases, is that “the lack of substantive connections to any particular
jurisdiction, including its home port, is a feature of ships engaged in
international maritime commerce”. The real and substantial connection
test, said the Supreme Court, must take into account the “special
lifestyle of ocean-going freighters”. In the case of in rem proceedings
the defendant vessel’s lack of a substantial connection with Canada is
to be given little weight.
The trustees’ argument that the American lien claimant was
forum-shopping was similarly dismissed, with certain observations of
Lord Simon being considered apposite:
“Forum-shopping” is, indeed, inescapably involved with the concept of
maritime lien and the action in rem. Every port is automatically an
admiralty emporium. This may be very inconvenient to some defendants;
but the system has unquestionably proved itself on the whole as an
instrument of justice.
The appeal to the Supreme Court of Canada from the decision of the
Quebec Court of Appeal was dismissed on the grounds that the assertion
of jurisdiction by the Canadian bankruptcy court did not oust the in rem
jurisdiction of the Federal Court. The bankruptcy court had no power to
deal with a ship already “captured” by competent order of the Federal
Court and, in any event, the issuance of what amounted to an “anti-suit
injunction” against the parties before the Federal Court improperly
attempted to restrict that court’s ability to exercise its in rem
jurisdiction.
Supreme Court said:
Once it determined that the Federal Court had maritime law jurisdiction
to deal with the Ship, the Canadian bankruptcy court ought to have
recognized that the Trustees’ proper remedy was a stay application to
that court. It ought not to have issued what amounted to an anti-suit
injunction against the litigants in the Federal Court.
The conclusions which may be drawn from the Brussel decision seem to be:
1. The Federal Court (or any other court) exercising in rem jurisdiction
is not obliged to stay the in rem proceedings in favour of foreign
bankruptcy proceedings and in the usual case (the Brussel being a usual
case) the court will not exercise its discretion to stay the in rem
proceedings.
2. A court exercising in rem jurisdiction has primacy over the
bankruptcy court in determining the distribution of the proceeds from
the judicial sale of a bankrupt owner’s vessel, at least so far as the
claims are made by secured in rem creditors, and the priorities will be
determined according to Canadian maritime law, not in accord with the
law of the bankruptcy.
3. Whether an in rem claimant is secured or not is to be determined by
the recognition rules of Canadian maritime law.
