Comeau's Sea Foods Limited, Smith Industries
North America Limited and Ralph Lord
(Plaintiffs)
v.
The Frank and Troy (Defendant)
Trial Division, Keirstead D.J.—Saint John,
N.B., May 13, 1971; Ottawa, November 2,
1971.
Maritime law—Ship in default on mortgage—Arrest and
sale—Priorities of creditors' claims—Damages by colli-
sion—Arrears of mortgage—Unpaid price of ship's radar—
Costs of sale and motion.
In June 1969 S installed a marine radar in defendant ship
for $2,255, of which only $600 had been paid by February
17, 1970, on which date the ship was mortgaged for $8,000
to C who was unaware that the radar was not paid for. S did
not in fact bill the ship for the radar until April 1970. On
February 5, 1971, the mortgage being in default, the ship
was arrested and later sold at public auction for $10,000 to
C. In March 1971 S issued a writ against the ship for the
balance owing on the radar. In May 1971 L issued a writ
against the ship claiming $3,209 for damages by collision at
sea: this claim was settled by agreement between the
parties.
Held, the order of priority in payment is: (1) the cost of
sale of the ship and of establishing priorities; (2) L's claim
for damages by collision; (3) C's claim on the mortgage; (4)
S's claim for the amount due on the radar.
Montreal Dry Docks and Ship Repairing Co. v. Halifax
Shipyards Ltd. (1920) 60 S.C.R. 359, Coastal Equip
ment Agencies Ltd. v. The "Comer" [1970] Ex.C.R. 13,
Argosy Marine Co. v. The Jeannot D [1970] Ex.C.R.
351, applied.
MOTION.
C. E. Haliburton for plaintiffs.
J. P. Barry for defendant.
KEIRSTEAD D. J.—By mortgage dated Febru-
ary 17, 1970 the 64 shares in the Motor Vessel
Frank and Troy owned by Hovey Dickinson
Russell were mortgaged to the plaintiff
Comeau's Sea Foods Limited. The principal
amount of the mortgage was $8,000.00. Interest
was payable thereon at the rate of 6% per
annum. The mortgagor defaulted in payment
and as of February 5, 1971 there was owing and
unpaid the sum of $8,258.50.
The vessel was arrested on February 5, 1971.
Order for sale at public auction was issued on
February 22, 1971 at a reserved bid of $10,-
000.00. The date of public auction was Wednes-
day, March 24, 1971. The vessel was sold at the
said public auction for the sum of $10,000.00.
On March 9, 1971 Smith Industries North
America Limited, a company duly incorporated
under the laws of Canada, issued a writ against
the Frank and Troy claiming:
The plaintiff's claim is against the Motor-Vessel Frank and
Troy for necessaries sold, namely, Kelvin Hughes (used)
type 17 transistorised Marine Radar for operation on 32
volts D.C. bearing serial number 11475 and including the
display, scanner, transmitter and motor generator, which
said necessaries were sold, supplied and installed in June of
1969, and the plaintiff claims the sum of $1,655.10 being
the sum owed to it and costs of this action.
On May 6, 1971 a notice of motion was
issued notifying the parties that on May 13,
1971 Counsel would be heard in regard to pri
ority of payments to the several claimants.
Affidavit dated May 11, 1971 was made by
Reginald D. Johnson, manager of Smith Indus
tries North America Limited, in which affidavit
he testified to the value of the radar equipment
and the cost of the installation thereof.
On May 12, 1971 L. Ralph Lord issued a writ
against the Frank and Troy claiming $3,209.90
in an action for damages by collision at sea. The
statement of claim was dated June 9, 1971.
Conditional appearance dated May 21, 1971
was entered subject to the right of the defend
ant to set aside the writ of summons. Negotia
tions were entered upon between the parties
and the matter was settled.
The liens which may attach to a ship, cargo or
freight under the principles of Admiralty law
may be classified as:
1. Maritime Liens;
2. Possessory Liens;
3. Statutory Liens.
A maritime lien may be defined as a privi
leged claim, upon maritime property, for ser
vices done to it or injury caused by it, arising
from the moment when the claim attaches,
travelling with the property unconditionally,
and enforced by means of an action in rem.
Possessory liens: At common law, a posses-
sory lienholder has the right to retain posses
sion of goods belonging to another until certain
demands of the lienholder have been satisfied.
The lienholder must remain continuously in
possession of the goods if the lien is to contin
ue. The lienholder has no power of sale unless it
has been given to him expressly by statute.
Possessory liens usually arise in connection
with a ship repairer's claim for repairs, a ship-
owner's claim for freight, or a cargo owner's
claim for general average contribution. A salvor
is also entitled to a possessory lien.
A possessory lien cannot be enforced in the
Admiralty Court, but it is recognized and pro
tected by the Court if the res has been arrested
to enforce another claim. A possessory lien
takes precedence over claims which give rise to
a statutory lien if action has not been com
menced to enforce the statutory lien. A posses-
sory lien does not take precedence over a previ
ously existing maritime lien, though it may take
priority over maritime liens arising subsequent
ly.
A possessory lienholder may have his lien
protected by the Admiralty Court by interven
ing in an existing action and requesting recogni
tion and protection. See The Tergeste, [1903] P.
26; Montreal Dry Docks and Ship Repairing Co.
v. Halifax Shipyards Ltd. (1920) 60 S.C.R. 359
at p. 370.
A statutory lien, as distinct from a maritime
lien which generally arises out of the inherent
jurisdiction of the Court of Admiralty, is a right
in rem arising out of the statutes conferring
jurisdiction on the Admiralty Court, commenc
ing with the Admiralty Court Acts of 1840 and
1861.
The enlarging statutes not only gave the
Admiralty Court jurisdiction over new types of
claims such as necessaries, but also increased
the jurisdiction of the Court over claims in
which it had an inherent jurisdiction, such as
collisions. For instance, the Admiralty Court
had inherent jurisdiction over collisions occur
ring on the high seas and the 1840 Act gave it
additional jurisdiction over collisions occurring
on waters within the body of a county.
A statutory lien differs from a maritime lien
in two respects:
(1) A statutory lien accrues only from the
day of the arrest and is subject to claims
already subsisting against the res: The Cella
(1888) 13 P.D. 82; and
(2) A statutory lien is defeated by a bona fide
transfer of the property for value: The Hen-
rich Bj5rn (1886) 11 A.C. 270.
Statutory liens are postponed to all maritime
liens, possessory liens, registered mortgages
which are in existence at the time the ship is
arrested to enforce the statutory lien.
Mortgages rank after maritime liens and
possessory liens. I quote from Roscoe's Admi
ralty Practice, 5th ed., page 55:
A mortgage ranks after persons having either maritime or
possessory liens, but before persons with only a right in
rem. A mortgage is a valid charge on the vessel from the
day it is given, but the rights of the plaintiff in rem only
become operative when his suit is actually instituted.
Priority between liens: The ranking of liens
becomes important when the value of the res is
insufficient to satisfy all the claims against it.
Certain general rules have been laid down to
determine priorities but these rules are subject
to many exceptions.
The order of preference between liens may
be generally stated to be as follows:
(i) Cost of rendering a fund available by the
sale of the res: The Immacolata Concezione
(1873) 9 P.D. 37;
(ii) Maritime liens;
(iii) Possessory liens;
(iv) Mortgages;
(v) Statutory liens.
The time when a lien attaches is material in
determining priorities. A maritime lien attaches
when the event giving rise to the lien occurs. A
possessory lien arises when the claimant
obtains possession of the property. A statutory
lien arises when a suit is instituted to enforce
the lien.
Counsel for Smith Industries North America
Limited referred to Falconbridge Law of Mort
gages, 3rd ed., page 483, sub-note (a) and pages
697 and 698. Also Sawyer v. Security Trust Co.
(1920-21) 61 S.C.R. 109 at page 117. These
references deal with the question as to whether
the mortgagee can be a purchaser at the mort
gage sale. It is to be noted that the order for
sale provided in section (5) that the said
Comeau's Sea Foods Limited shall have leave
to bid at the said sale. A reserve bid of $10,-
000.00 was fixed by the Court. The circum
stances were such that the Court was of the
opinion that the mortgagee should be accorded
leave to bid at the said sale. Advertisement of
the said sale by public auction was widely pub
lished. At the said sale by public auction no bids
were received other than that of Comeau's Sea
Foods Limited.
The claim of Smith Industries North America
Limited arose from the sale of a marine radar
with associated equipment. This marine radar
was installed on the Frank and Troy in June,
1969. The supplying of radar to the ship con
stituted a necessity.
In Argosy Marine Co. v. The SS "Jeannot D"
[1970] Ex.C.R. 351, Noël J., at page 357, said:
There can be no doubt that in our day and age the
purchase of radar for a ship is a major necessity and that
any prudent man would install such equipment on his ship.
Since the master here is also the owner of the ship, it
appears undeniable to me that he saw the radar he bought as
equipment necessary for the proper navigation of his ship.
In Aldershot Contractors Equipment Rental
Ltd. v. Ship "Protostatis"(1967) 67 D.L.R. (2d)
174, the action concerned the rental of a crane
which was to be used to help unload part of the
cargo of the ship Protostatis which had run
aground off Wolfe Island. I quote from Wells
D.J.A., at page 177:
What "necessaries" were was first authoritatively discussed
in the Court of Admiralty in England in a case known as
The "Riga" (1872), L.R. 3A. & E. 516. Sir Robert Phil-
limore, who gave the judgment of the Court in that case,
summed the matter up at p. 522, when he said:
I am unable to draw any solid distinction (especially since
the last statute) between necessaries for the ship and
necessaries for the voyage .. .
The "last statute" was the Act of 1861.
He then proceeded to state that he would follow the
doctrine of the common law laid down by Lord Tenterden
in the case of Webster v. Seekamp (1821), 4 B. & Ald. 352
at p. 354, 106 E.R. 966. Then, quoting from Lord Tenterd-
en, he said [p. 522]:
The general rule is, that the master may bind his owners
for necessary repairs done or supplies provided for the
ship. It was contended at the trial that this liability of the
owners was confined to what was absolutely necessary. I
think that rule too narrow, for it would be extremely
difficult to decide, and often impossible, in many cases,
what is absolutely necessary. If, however, the jury are to
inquire only what is necessary, there is no better rule to
ascertain that than by considering what a prudent man, if
present, would do under circumstances in which the
agent, in his absence, is called upon to act. I am of
opinion that whatever is fit and proper for the service on
which a vessel is engaged, whatever the owner of that
vessel, as a prudent man, would have ordered if present
at the time, comes within the meaning of the term "neces-
saries", as applied to those repairs done or things provid
ed for the ship by order of the master, for which the
owners are liable.
Does the claimant for necessaries have a
maritime lien? On this point I quote from the
judgment of Noël J. in the case of Coastal
Equipment Agencies Ltd. v. The "Comer"
[1970] Ex.C.R. 13 at page 31:
I must therefore conclude, after an exhaustive examina
tion of the main decision handed down on this subject, that
the claimant for necessaries supplied to a ship has no
maritime lien on the ship but, at the most, has a right to
bring an action in rem against the ship if the ship is still in
the hands of the same owner. Indeed, as we have seen, no
lien was created by the Act of 1840, or by the Act of 1861,
or even by the Act of 1891, or by any other subsequent
United Kingdom or Canadian Act. However, the claimant
for necessaries was conceded a certain right in rem which at
certain times has been vaguely called a statutory lien.
and at page 31 et seq.:
This action in rem, however, does not give any privilege
or lien or preference whatsoever, and the claimant for
necessaries seems to me to be in the same position as an
ordinary unsecured creditor. If he is an execution creditor,
he will be entitled to his costs of action but his claim will be
ranked only in accordance with the order of priorities set by
law. In fact, to give him, through the mere fact that he has a
simple right of action in rem, a right and specific privilege
which would deprive the same debtor's other creditors of
exercising their claims against the property seized, especial
ly after the corporation owning such property has made a
proposal under the Bankruptcy Act, seems to me inaccepta-
ble and based on no legal text or judgment. In fact, this
would be a serious blow to the principle whereby the
property of a debtor is the security of his creditors.
The mortgage held by Comeau's Sea Foods
Limited was dated February 17, 1970. The
marine radar was installed in June, 1969 at the
cost of $2,255.10. There is no evidence that a
conditional sales contract was entered into by
the parties and registered. The only payments
made on the mortgage were $500.00 paid on
November 27, 1970 and $100.00 paid January
27, 1971.
There is no evidence to indicate that the
mortgagee knew or ought to have known that
the marine radar was not paid for when the
mortgage was given by the owner and received
by Comeau's Sea Foods Limited.
One would have expected that the cost of the
marine radar and the associated equipment
would have been paid for shortly after thirty
days had elapsed from the date of the installa-
tion. The date of the billing invoice was April
24, 1970.
In my opinion Smith Industries North Ameri-
ca Limited was dilatory and careless in exercis
ing its rights in collecting the account and
delayed longer than was reasonable in exercis
ing its rights. In fact it seems that the action of
Comeau's Sea Foods Limited started on Febru-
ary 5, 1971 was the stimulus that caused Smith
Industries North America Limited to issue its
writ on March 9, 1971.
To protect its interest it was open to the
claimant Smith Industries North America Limit
ed to bid at the public auction.
Reference was made to the case of Montreal
Dry Docks and Ship Repairing Co. v. Halifax
Shipyards Ltd. (1920) 60 S.C.R. 359, in regard
to equitable considerations. In my respectful
view that case is distinguishable from the case
at bar.
The question of priorities was dealt with in
the case of The "Pickaninny"; George Ham-
mond & Co. (Interveners) [1960] 1 Lloyd's Rep.
533. In this case the mortgagees arrested the
ship. The interveners issued a writ against the
ship for £421 (including £206 in respect to
repairs). There were insufficient funds. The
mortgagees moved for an order that they were
entitled to priority over all other claimants
against the fund. The interveners claimed priori
ty for £206 because that expenditure was for
the benefit of and had accrued directly to the
mortgagees in the repairing of the Pickaninny.
They submitted to hold otherwise would not be
equitable.
It was held "that the interveners had failed to
prove that the mortgagees knew that the inter-
veners were giving the undertaking or that the
shipowners were insolvent, and that, therefore
there was no cause to depart from the usual
order of priorities that necessaries men came
after mortgagees, and that their claim only
attached when they issued the writ." Order was
made for payment out of the fund in Court.
I find that the claim of Comeau's Sea Foods
Limited, the mortgagee, ranks in priority of the
claim of Smith Industries North America
Limited.
The order of priority in payment is:
1. Costs of rendering the fund available by
sale of the res, and costs relating to establish
ing priorities;
2. The claim of L. Ralph Lord;
3. The claim of Comeau's Sea Foods
Limited;
4. The claim of Smith Industries North
America Limited.
I order that the claims involved be paid from
the fund according to the above priority.
In respect to the submission of Smith Indus
tries North America Limited for costs, although
unsuccessful, I think it was reasonable for this
claimant to raise the issue of priority. I order
that the claimant Smith Industries North Ameri-
ca Limited shall have costs in respect to the
hearing establishing priorities.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.