Digests

Neves v. Kristina Logos (The)

T-1041-95

2001 FCT 1034, MacKay J.

20/9/01

23 pp.

Appeals from Prothonotary's order setting priorities among claims against proceeds of sale by Court of defendant ship Kristina Logos--Standard of review of discretionary decision of Prothonotary set out in Canada v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425 (C.A.): discretionary orders of prothonotaries should not be disturbed unless clearly wrong, in that exercise of discretion based upon wrong principle or upon misapprehension of facts--Defendant Pratas and plaintiffs Neves brothers bought Kristina Logos from Clearwater--Unpaid portion of sale price, $250,000, secured by first maritime mortgage on vessel to vendor as mortgagee--Neves brothers claim to have provided 49% of purchase price plus costs of fitting out ship on understanding ship would be owned by Ulybel, Panamanian corporation in which would hold 49% of shares--Kristina Logos seized at sea pursuant to allegations of illegally fishing without licence, detained in April 1994--Master of ship (Tavares), owner (Pratas), also charged with fisheries offences--Clearwater initiated action claiming outstanding balance of $125,000 owed under mortgage, initiated proceedings to have Kristina Logos placed under arrest--Captain Tavares convicted in July 1994, resulting in order of forfeiture to Crown being issued against Kristina Logos--Conviction, forfeiture overturned in 1996, thereby returning ship to status of seized property--Plaintiffs commenced this action for declaration of 49% ownership interest in defendant ship--Defendants admitting plaintiffs entitled to 49% share in vessel, but asserting plaintiffs responsible for contributing proportional share of costs incurred in defending ship--Ulybel convicted of allowing Kristina Logos to fish illegally--Newfoundland Supreme Court imposed fines of $120,000, ordered $50,000 forfeiture to Crown--After Prothonotary's order, order of forfeiture set aside--Supreme Court of Canada not yet determining appeal from disallowance of forfeiture--Kristina Logos sold for $605,000--Proceeds remained in Court--Prothonotary erred in applying maritime law principles, thus erred in determining order of priorities--(1) Costs of bringing ship to sale having first priority for payment from fund--Sale undertaken pursuant to Court order--Marshall's expenses, fees approved by orders of Prothonotary, paid out of fund--While sale made before final judgment in plaintiffs' action, exercise of Court's discretion to order sale upheld on appeal--Costs of sale payable from proceeds--(2) Defendants disputing Clearwater's claim as mortgagee on ground outstanding balance on mortgage offset by monies owed by Clearwater to defendants--Prothonotary's conclusion that balance of $125,000 still owing under mortgage supportable on evidence--That $125,000 secured claim ranking ahead of all claims except those directly associated with sale--Order appealed from in error in ranking unsecured claims of Neves brothers and of Crown ahead of Clearwater mortgage claim--Prothonotary refused to include interest on mortgage claim since neither demand note nor mortgage provided for payment of interest for term of mortgage--That parties not specifying interest in contract in event of default not constituting acquiescence by Clearwater that interest would not apply in event of default, even though agreed would be no interest charged for relatively short term of contract--Payment of only principal amount of mortgage would result in unjust enrichment of owners of ship--Moreover Clearwater's claim including loss of opportunity to utilize funds--Interest recoverable--(3) Costs of repatriation of Portuguese crew at time of seizure ranked first in priority among unsecured creditors--No known ship's agent, and necessary to repatriate them to Portugal since had no means of sustenance and no status to remain in Canada--All creditors with interest in vessel liable to share in those costs--Claim not maritime lien or even claim in rem--Not claim of crewmen, but unsecured claim which Court in exercise of equitable jurisdiction recognizing in priority to all other unsecured claims--Represents necessary steps for which charterers might have been liable had they been before Court--In their absence, shipowners must bear cost--(4) If Supreme Court of Canada restores forfeiture, claim would rank after Crown's claim for cost of repatriation of crew and after Clearwater's mortgage claim, not ahead of that claim as prothonotary ordered--If restored, will not be claim in rem under admiralty law but another unsecured claim in personam against owner of vessel--Forfeiture, if restored, having priority ahead of claims of plaintiffs, defendant; also over fines assessed against Ulybel as result of conviction--Forfeiture should bear interest following sale--(5) Crown's claim for $120,000 for fines recognized as claim by unsecured creditor without priority except that arising under common law, ahead of other ordinary creditors, whose claims yet to be assessed, without interest--(6) Prothonotary erred in ranking plaintiffs' claim after costs of selling ship and payment of forfeiture, ahead of only claim recognized as secured, only in rem claim, that of mortgagee, and ahead of Crown's claim to recover fines assessed--Plaintiffs' claim no more than that of unsecured creditor--Not having priority over any other claimant--Plaintiffs' claim as beneficiaries of constructive trust accepted, but significant only vis-à-vis Ulybel, registered owner--(7) If agreement, outstanding balance of fund may be paid to Ulybel--If plaintiffs insist on payment of their share, 49% of balance of funds ordered paid to them--Remaining 51% to be paid to defendant Pratas--Crown's claim to recover costs incurred for maintenance of ship from date of arrest to date of sale not allowed--Such expenses not arising as result of arrest of ship under Court's process, but by virtue of seizure--From 1994 until 1996 Crown in possession as owner--Expenses incurred without consultation with other creditors, without seeking approval of Court or parties affected--Not qualifying as expenses made for benefit of all interested in ship when made--All claims allowed to bear interest from date of sale to date of payment.