Judgments

[1995] 2 F.C. 609

T-1995-94

Textainer Equipment Management B.V. (Plaintiff)

v.

Baltic Shipping Company and the Motor Vessels Nikolay Golovanov, Akademik Gorbunov, Aleksandr Prokofyev, Aleksandr Starostenko, Aleksandr Ulyanov, Anatoliy Lunacharskiy, Anatoliy Vasilyev, Anna Ulyanova, Astrakhan, Baltiysk, Boris Zhemchuzhin, Budapesht, Dekabrist, Dmitriy Ulyanov, Evgeniy Mravinskiy, Georgiy Pyasetskiy, Georgiy Tovstonogov, Harry Pollit, Ilya Ulyanov, Inzhenier Bashkirov, Inzhenier Machulskiy, Ivan Chernykh, Ivan Derbenev, Kapitan Gavrilov, Kapitan Goncharov, Kapitan Khabalov, Kapitan Kanevskiy, Kapitan Kozlovskiy, Kapitan Primak, Kislovodsk, Kolomna, Kompozitor Musorgskiy, Komsomolsk, Kostroma, Krasnodon, Kronshtadt, Kudozhnik Pakhomov, Khudozhnik Romas, Lukhovitsy, Magnitogorsk, Mekhanik Konovalov, Mekhanik Yevgrafov, Murom, Nadezhda Krupskaya, Nadezhda Obukhova, Nikolay Krylenko, Nikolay Pogodin, Nikolay Tikhonov, Nikolay Tulpin, Novaya Ladoga, Novogrudok, Olga Ulyanova, Palekh, Pavlograd, Pavlovsk, Petr Masherov, Petrodvorets, Pioner Vyborga, Primorsk, Priozersk, Professor Tovstykh, Rostov, S. Kirov, Samarkand, Sestroretsk, Skulptor Konenkov, Skulptor Vuchetich, Skulptor Zalkalns, Smolensk, Stakhanovets Kotov, Stakhanovets Yermolenko, Sverdlovsk, Truskavets, Tykhon Kiselev, Ulan Bator, Valerian Kuybyshev, Vladimir Ilich, Warnemunde, William Foster, and the owners and all others interested in the said motor vessels (Defendants)

Indexed as: Textainer Equipment Management B.V. v. Baltic Shipping Co. (T.D.)

Trial Division, Nadon J.—Montréal, March 16 and 21, 1995.

Maritime law — Practice — Application to vary order for payment out of Court to plaintiff, intervener of portion of proceeds of judicial sale of defendant Baltic’s ships — Court unaware of other substantial claims against Baltic — Not requiring notice under R. 1008 to other possible claimants to file within fixed time or risk barring claim — R. 1008 procedure to be followed unless no real likelihood of prejudice to claimants — Party seeking to depart therefrom must provide all relevant information to Court, failing which order subject to variation — Court still able to exercise discretion on funds, parties — Holds funds from judicial sale for benefit of all creditors, not just arresting creditor — Plaintiff, intervener ordered to return funds paid out.

This was an application to vary an order for the payment out to the plaintiff Textainer and to Cronos Containers Limited, which had filed a caveat in these proceedings, of US $3 million from the proceeds of a judicial sale of two of the defendant’s ships. At the time the order was made it did not appear that any prejudice would result because the balance of the funds (US $8 million) would suffice to satisfy other possible claimants. The Court had been unaware that there were several other claimants asserting substantial claims against Baltic and its ships. Prior to authorizing the payment out, no order was made under Rule 1008 of the Federal Court Rules requiring notice to other possible claimants that they should file their claims within a fixed period of time, failing which their claims could be barred.

Held, the application should be allowed.

Baltic should have provided the Court with a complete picture of the claims situation. The procedure set out in Rule 1008 should only be departed from where the Court is satisfied, based on the information available to it, that other possible claimants’ rights in rem (against the res) will not in all likelihood be prejudiced. Rule 1008 is in line with current admiralty practice in the United States and the United Kingdom. The Court, in certain circumstances where long delays to file claims might cause hardship to the owner of the res, might order that claims be filed within a relatively short period of time, i.e. shorter than that which normally would be given to claimants. But when parties wish to depart from Rule 1008, the party making the application must provide to the Court all of the information which might be relevant to the making of that order. Failure to do so will result in the Court varying its order on application. Although the Court cannot revoke or vary its order once proceeds have been paid out, where the order was made without the benefit of relevant information, the Court should and must vary its order if at all possible. Here the Court has not parted with all of the funds. No judgments have been entered in favour of Textainer and Cronos, so that in effect these creditors have received an advance on their share of the fund. Both creditors are still before the Court so that the Court remains in a position to exercise its discretion on the funds and on these parties which claim an interest therein. In addition, both creditors have given undertakings to the Court with respect to the funds which they have received.

The Admiralty Court holds funds resulting from the sale of a ship for the benefit of all creditors, not just the arresting creditor. It does not reward the diligent, except where a claimant is guilty of laches.

As the ships were purchased at judicial sale, they were acquired free of all liens. Textainer and Triton were ordered to return to the marshal the funds which had been paid to them.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Federal Court Rules, C.R.C., c. 663, R. 1008.

CASES JUDICIALLY CONSIDERED

APPLIED:

Point Landing, Inc. v. Alabama Dry Dock & Shipbuilding Co., 261 F.2d 861 (5th Cir. 1958); Leoborg (No. 2), The, [1963] 2 Lloyd’s Rep. 441; Stream Fisher, The (1926), 26 Ll. L.R. 4; Africano, The, [1894] P. 141; The William F. Safford (1860), Lush. 69; The Volant, 1 Wm. Rob. 383.

CONSIDERED:

Textainer Equipment Management B.V. v. Baltic Shipping Co., [1995] F.C.J. No. 47 (T.D.) (QL).

REFERRED TO:

Markland, The (1871), 1 Asp. M.L.C. 44; Fairport (No. 4), The, [1967] 1 Lloyd’s Rep. 602.

APPLICATION to vary an order for the payment out of Court of a portion of the proceeds of a judicial sale of two of the defendant Baltic’s ships, made without notice of the existence of other substantial claims against the defendant and in the absence of a Rule 1008 order. Application allowed.

COUNSEL:

John G. O’Connor for plaintiff and caveator Cronos Containers Ltd.

Sean J. Harrington for defendants Baltic Shipping Company and M.V. Nikolay Golovanov.

Pierre G. Côté for caveator Container Applications International.

Richard Tarte for caveator Transamerica Leasing Inc.

Vincent M. Prager for caveator Triton Container International Ltd.

Marc de Man for caveators Canadian Pacific Limited, Soo Line Railway Company, and for claimants Matson Leasing Company Inc., Bridgehead Container Services Ltd., Trans Ocean Container Corp.

Jean-François Bilodeau for claimants Interpool Ltd., Mitsui& Co. Ltd., and Trac Lease Inc.

SOLICITORS:

Langlois, Robert, Gaudreau, Quebec, for plaintiff and for caveator Cronos Container Ltd.

McMaster Meighen, Montréal, for defendants Baltic Shipping Company and M.V. Nikolay Golovanov.

Ogilvy Renault, Montréal, for caveator Container Applications International.

McDougall, Caron, Montréal, for caveator Transamerica Leasing Inc.

Gottlieb & Pearson, Montréal for caveators Canadian Pacific Limited, Soo Line Railway Company Limited and for claimants Matson Leasing Company Inc., Bridgehead Container Services Ltd., Trans Ocean Container Corp.

Marler, Sproule, Castonguay, Montréal for claimants Interpool Ltd., Mitsui & Co. Ltd. and Trac Lease Inc.

Stikeman Elliott, Montréal, for caveator Triton Container International Ltd.

Brisset Bishop, Montréal, for purchasers of the ships Uniship Hellas Shipping & Trading S.A.

The following are the reasons for order rendered in English by

Nadon J.: On November 22, 1994, I ordered the sale of the in personam defendant’s ships, the Nikolay Golovanov and Khudozhnick Romas, for the sums of U.S. five point three five zero (5.350) million dollars and U.S. five point zero seven five (5.075) million dollars.

On November 22, 1994, I also ordered that the sums of U.S. two (2) million dollars and U.S. one (1) million dollars be paid out of the proceeds of sale of the two (2) ships to the plaintiff Textainer and to Cronos Containers Limited, which had filed a caveat in these proceedings.

On December 21, 1994, I heard an application by Triton Container International (Triton) for an order permitting it to intervene in these proceedings and for an order varying that part of my November 22 order pursuant to which U.S. three (3) million dollars were paid out of the proceeds of sale.

On December 23, 1994, I made the following order:

1.   The application to vary my order of November 22, 1994 is adjourned for further arguments to January 17, 1995 commencing in Montreal at 10:00 a.m.;

2.   The parties at liberty to file affidavits. Should cross-examination on affidavits be required, the parties will endeavour to complete them January 17, 1995.

3.   The plaintiff, Textainer, and the caveator Cronos will give to the court prior to 5 p.m. on December 30, 1994, that they will return to the Marshal should this Court so order when it disposes of the application to vary.

4.   Should Textainer and Cronos fail to give the above undertaking they will forthwith transfer US $2M and US $1M to their lawyers Langlois Robert who will hold the funds in trust, in an interest bearing account, until such time as this Court otherwise orders.

5.   Baltic Shipping Company will file, as soon as possible but prior to January 17, 1995 a list of those claimants who are or who might be asserting claims the proceeds of sale of 2 vessels sold pursuant to my order of November 22, 1994. The list will give an indication of the nature of the claim and the amount claimed.

6.   Should any party wish to obtain directions and/or wish to make an application which arises from this order they may do so. Until the application to vary is disposed of, I will remain seized of this matter.

7.   Costs will be addressed and dealt with when I dispose of the application to vary.

On January 17, 1995, I heard further arguments on Triton’s application to vary my November 22, 1994 order and following completion of the arguments, I reserved judgment. My judgment and reasons for judgment are as follows:

As I indicated in the reasons which I gave for my order of December 23, 1994 [[1995] F.C.J. No. 47 (T.D.) (QL)], I ordered the payment out of U.S. three (3) million dollars to Textainer and Cronos, because it did not appear to me, when making the payment out order, that any prejudice would result. Put another way, I felt that the balance of the funds, nearly U.S. eight (8) million dollars would suffice to satisfy other possible claimants. I was not made aware by Baltic that there were several claimants asserting substantial claims against Baltic and its ships.

I wish to make it clear, as I hope I did in my reasons for the December 23, 1994 order, that I am not in any way criticizing Mr. Harrington for failing to divulge this information to me. I am certain that Mr. Harrington did not believe that there was such a duty on him nor did he believe that this information was relevant. Unfortunately, I have formed the view that that information was highly relevant, and that it should have been divulged when the application for payment out was made. I can safely say that, in all likelihood, had I been aware of what I now know, that payment out order would not have been made.

Perhaps I should have been more vigilant and asked to be provided with this information. Be that as it may, I am still of the view that Baltic should have come forward and given me a complete picture of the claims situation.

In his very able arguments, Mr. Harrington pointed out to me that Rule 1008 [Federal Court Rules, C.R.C., c. 663] was not mandatory and thus that the Court had discretion to make a payment out order without advertising and without giving directions so as to give notice to other possible claimants that they should file their claims within a fixed period of time, failing which their claims could be barred.

In the case at bar, no such order was made prior to the order authorizing the payment out of U.S. three (3) million dollars. No such order was made as I was not aware of the existence of those claims which have now been filed pursuant to my order of February 10, 1995.

In my view, the procedure set out in Rule 1008[1] should only be departed from in those cases where the Court is satisfied, based on the information available to it, that other possible claimants’ rights in rem (against the res) will not, in all likelihood, be prejudiced.

Mr. Harrington submitted that since Baltic’s fleet was valued in excess of U.S. seven hundred and fifty (750) million dollars, the likelihood of prejudice was remote. Were I considering in personam rights, I (probably) would have to agree with Mr. Harrington. However, I am dealing here with in rem rights against the proceeds of sale of two (2) ships.

Rule 1008 is in line with the admiralty practice current both in the United States and in the United Kingdom. There cannot be many reasons which can justify a departure from the procedure provided in the Rule, as the clear purpose thereof is to protect those persons who have claims against the res and the proceeds of sale thereof.

In Point Landing, Inc. v. Alabama Dry Dock & Shipbuilding Co., 261 F.2d 861 (5th Cir. 1958), the U.S. Court of Appeals for the Fifth Circuit enunciated that principle in unequivocal terms where, at page 866, it said:

Liberality in allowing interventions mirrors not alone admiralty’s approach to do justice with slight regard to formal matters. It is a recognition of the unavoidable consequence of a sale of a vessel in an in rem proceeding. The sale cuts off the rights of all non-parties. The title from the marshal is good against the world. Unless one claiming a lien is given the opportunity of asserting his right as against the proceeds resulting from the sale which has been made or is in the course of being carried out, the rights are forever and irretrievably lost.

In Leoborg (No. 2), The, [1963] 2 Lloyd’s Rep. 441, Mr. Justice Hewson made it clear that the Admiralty Court favoured flexibility so as to enable all possible claimants against the res to assert their claims before distributing the proceeds of sale.

At page 443, the learned Judge states the following:

As a result of the warning which I gave in open Court, the following paragraph appeared in “Lloyd’s List and Shipping Gazette” on Oct. 11, 1963:

ADMIRALTY JUDGE’S WARNING

Claims Against “Leoborg” Should

be Brought Without Delay

Mr. Justice Hewson, in the Admiralty Court on Wednesday, warned claimants against the motor tanker Leoborg to bring their claims without delay.

The Leoborg was registered at the port of Landskrona, Sweden, at the time of her arrest at Middlesbrough in January, 1962. The proceeds of her sale amounted to 98,000.

His Lordship said that he had been informed by the Admiralty Registrar that up to the present 15 writs had been issued against the Leoborg for claims of various kinds, including necessaries, mortgage, wages, repairs, pensions contributions, masters’ wages and tug services.

Of these 15 claims only seven had so far come before the Court.

Further on he states:

“I shall make no order as to that, but may I point out that it is possible for some party who has proved his claim to move this Court by motion to be paid out despite existing preservation of priorities.”

After quoting the judgment in the Ernst, 6 Ll.L.Rep. 353, his Lordship added: “Although I can fix no limit, I have indicated a course of action by those who have already preferred their claims in order to stir those who have not taken action.”

That was over six weeks ago. No further claims have been preferred since then. I repeat, in default actions it is my view that there must be a reasonable limit to the time in which claims are brought against the fund. No hard and fast rule can be laid down as to the period of time in which claims in such cases should be brought and proceeded with. Each case must be decided upon its merits. It seems to me to be inconceivable that in a case where the first judgment in default was pronounced 21 months ago a claimant with any high priority, such as the holder of a maritime lien or a mortgage, should not have come forward with his claim unless he has been singularly lax in pursuing his own interests and in following the movements of this ship against which claims could be made.

And then, he says at page 444:

I feel that perhaps the Court should give, or try to give, some measure of guidance to the parties in the exceptional circumstances that have so surprisingly arisen, and they may wish to consider it upon these lines. A party having a claim upon which he has obtained judgment may wish to instigate a motion for determination of priorities, in which case, in my view, such motion should be served upon all parties to any proceedings against this ship in this Court. It seems to me that, in the exceptional circumstances which have arisen, such a motion should not be returnable for a considerable time, say, not less than two months from the date of issue of that notice of motion. I am suggesting such a lengthy period of time to enable the parties to consider what interlocutory steps they may wish to take. It may be that there will be questions of discovery and, if such matters cannot be resolved amicably between the parties, they may then have to have recourse to the Court.

These authorities reassure me in my view that Rule 1008 should be followed except where there is no real likelihood of prejudice to claimants. The Court, in certain circumstances where long delays to file claims might cause hardship to the owner of the res, might order that claims be filed within a relatively short period of time, i.e. shorter than that which normally would be given to claimants.

However, whenever parties wish to depart from Rule 1008, it is imperative that the party making the application provide to the Court all of the information which might be relevant to the making of that order. In cases where the owner of the ships is not defending, it might be more difficult to obtain proper information regarding the extent and number of possible claimants.

However, where the owner himself is seeking to depart from Rule 1008, the matter is obviously very different as the owner is usually aware of the number and extent of the claims.

Failure to provide relevant information will, in most cases, result in the Court varying its order on an application to do so.

Mr. Harrington, during the course of his arguments, referred me to the English decisions rendered in Markland, The (1871), 1 Asp. M.L.C. 44; Stream Fisher, The (1926), 26 L1. L.R. 4 and Fairport (No. 4), The, [1967] 1 Lloyd’s Rep. 602, for the proposition that once proceeds have been paid out, the Court cannot revoke or vary its order.

As I said in my order of December 23, 1994, I agree with this proposition in principle. However, where as here, the Court made its order without the benefit of relevant information, the Court should and, in my view, must vary its order if at all possible.

In the present matter, the Court has not parted with all of the funds but only with a portion thereof. No judgments have been entered in favour of Textainer and Cronos so that, in effect, these creditors have, for all intents and purposes, received an advance on their share of the fund. Both creditors are still before the Court so that the Court is still in a position to exercise its discretion on the funds and on these parties which claim an interest therein. In addition, both creditors have given undertakings to this Court with respect to the funds which they have received.

Perhaps the situation would have been different had judgments been entered in favour of Textainer and Cronos, since these parties would no longer be before the Court.

Mr. Harrington also submitted that the diligent should be rewarded. By that he meant, I believe, that since Textainer (and Cronos) had acted swiftly in commencing an action before this Court and in arresting two (2) of Baltic’s ships, the benefit of their action should not be passed on to other claimants.

There is some support in the older cases for Mr. Harrington’s submission. However, it appears that more recent authorities have gone against the older view. In the Stream Fisher, supra, Mr. Justice Bateson was faced with competing collision claims where one of the collision claimants took the position that priority fell to be decided in the order in which the collisions had occurred.

In deciding the issue, the learned Judge examined the ranking of claims in general. At page 8, he makes the following comments:

The result as to priority of lien seems to be this. First of all you could get priority if you obtained judgment first. Secondly, you could get priority by later lien, as in salvage and bottomry; and thirdly, there were the cases where they rank pari passu.

Now the first of those is not contended for here at all, probably because all judgments are now given subject to the question of priority being determined hereafter.

In Africano, The, [1894] P. 141, the President of the Probate Division, Sir Francis Jeune, had to decide an issue arising from claims filed by rival necessaries men. The learned Judge, at pages 146 and 147, posed the question for determination as follows:

In this case the one point actually raised for decision is perhaps a novel, but certainly a narrow one. It is whether, where a vessel has been sold and the proceeds brought into Court, claims for necessaries, in respect of which actions have been brought, take priority inter se in the order of the institution of the actions.

The Judge begins his analysis of the question at page 147 when he states:

It was contended by one set of claimants before the registrar that priority of distribution followed priority of writ; by the other that it followed priority of judgment. The registrar, in an excellent report, decided that neither contention was correct, and that the fund should be distributed as between these claimants pro ratâ.

The only appeal brought before me is by John Fry & Co., who before the registrar contended in favour of priority of writ.

He goes on to say that he cannot agree with any of these arguments.

And further on [at page 148], he comments that part of a judgment rendered by Dr. Lushington in The William F. Safford (1860), Lush. 69 where Dr. Lushington states that:

“The Court encourages suitors in actively enforcing their remedy, and gives preference to the party who is first in possession of a decree of the Court.”

Sir Francis Jeune makes the following comment at page 148:

It is not, perhaps, easy to understand why Dr. Lushington limited, as he appears to have done in that case, the advantages of priority to the earliest decree; but it is clear that he contemplated a decree as alone capable of conferring priority.

Then, further on, the learned Judge, at page 149, refers to words spoken by Dr. Lushington in the case of The Volant, 1 Wm. Rob. 383 and says:

This does not at all imply that the Court holds the property only for that plaintiff, or for that plaintiff in priority to others of the same class. The true view is, I think, that the Court holds the property, not only for the first plaintiff, but also for at least all creditors of the same class who assert their claims before any unconditional decree is pronounced.

And finally, at page 150, he says:

At the present time the decree in this court in an action for necessaries is either conditional in any case, or certainly, if there is any reason to suppose there may be other claims of equal rank; and, even if the decree were in any instance made in unconditional terms, I am inclined to think that so long as the funds remained in the hands of the Court it could and should be modified so as to let in other persons, who, without laches, put forward claims of a like character.

It is therefore clear, in my view, that on these authorities the Admiralty Court holds funds resulting from the sale of a ship, not only for the benefit of the arresting creditor, but for the benefit of all creditors.

On that view, it cannot be said that the Admiralty Court rewards the diligent, except where a claimant is guilty of laches.

Mr. Harrington pointed out to me that Baltic, Textainer and Cronos could have made private arrangements whereby, in consideration of their releasing the ships, Textainer and Cronos would have received a portion out of the private sales of the two (2) ships. However, such sales would not have affected claimants holding maritime liens and claimants who had a statutory right of arrest in respect of which suits had been commenced prior to the sales. Be that as it may, the sales of the two (2) ships were judicial sales and, as a result, the purchasers acquired the ships free and clear of all liens.

For these reasons, Triton’s application to vary my order of November 22, 1994 is allowed.

Textainer and Triton are hereby ordered to return the sums of U.S. two (2) million and U.S. one (1) million dollars to the marshal no later than March 24, 1995. Interest accrued on these sums since the marshal paid them out will go to the credit of Baltic. In other words, Textainer and Cronos may keep the interest money as if it had been paid by Baltic.

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