T-4035-78
Techno Maritime Limitée (Plaintiff)
v.
Deep Diving Systems Limited and the Vessel
Techno Balsam (Defendants)
and
Farquhar Bethune Insurance Ltd. (Intervenant)
Trial Division, Walsh J.—Montreal, March 11;
Ottawa, March 24, 1980.
Maritime law — Contracts — Action to obtain judgment in
rem — Claim for towage arising out of s. 22(2)(k) of the
Federal Court Act — Whether the Court can exercise its
jurisdiction pursuant to s. 43(3) of the Act with respect to such
a claim — Whether defendant was beneficial owner of the
vessel at the time when the cause of action arose — Date of
cause of action — Federal Court Act, R.S.C. 1970 (2nd
Supp.), c. 10, ss. 22(2)(k), 43(3) — Quebec Code of Civil
Procedure, art. 68(2).
By agreement made September 29, 1977 and registered on
October 18, 1977, defendant purchased the vessel Techno
Balsam from plaintiff who, on October 18, 1977, entered into a
towage agreement with defendant whose first cheque in settle
ment of it was returned n.s.f. when deposited. On September
29, 1977, defendant sold the vessel to the intervenant. However,
as of June 1, 1978, the vessel was sold back by intervenant to
defendant who mortgaged it in favour of the intervenant. The
issue, which arises out of section 43(3) of the Federal Court
Act, is whether the Court can exercise its jurisdiction in rem in
favour of the plaintiff who already has a judgment in personam
against Deep Diving Systems Limited, with respect to plain
tiffs claim for towage. Plaintiff argues that the requirements of
section 43(3) have been met in that defendant Deep Diving
Systems Limited was the beneficial owner of the vessel at the
time when the action was brought, i.e. on or about September
8, 1978 (a fact which is undisputed by the parties) and that
same defendant who was liable on the claim in personam, was
the beneficial owner of the ship when the cause of action arose,
i.e. the moment the towing contract was entered into. Accord
ing to plaintiff, it is significant that section 43(3) should refer
to the time when the cause of action "arose" and not to the
time when the cause of action "accrues". The sole question to
be decided is the date at which plaintiffs cause of action arose.
Held, plaintiffs action is dismissed. The towing contract
between plaintiff and defendant merely had the effect of giving
the defendant the right to insist that it be executed by plaintiff
and conversely gave the plaintiff the right following execution
to be paid within 30 days after submission of its invoice for the
services so rendered. Neither party could sue on it at the time
the contract was signed. The present action is for payment of a
sum of money and plaintiff only had a right to bring such
action when the contract was completed and duly invoiced and
not paid.
The Monica S. [1967] 3 All E.R. 740, referred to. The
National Drying Machinery Co. v. Wabasso Ltd. [1979]
C.A. 279, referred to. Mario v. Société Radio-Canada
[1978] C.S. 509, referred to. Bradford Old Bank, Ltd. v.
Sutcliffe [1918] 2 K.B. (C.A.) 833, referred to. Lewington
v. Raycroft [1935] 4 D.L.R. 378, referred to. Yellowega v.
Yellowega (1969) 66 W.W.R. 241, referred to.
ACTION.
COUNSEL:
G. Vaillancourt for plaintiff.
G. P. Barry for intervenant.
SOLICITORS:
Langlois, Drouin & Associés, Quebec City,
for plaintiff.
McMaster Meighen, Montreal, for interve-
nant.
The following are the reasons for judgment
rendered in English by
WALSH J.: This matter came on for trial on the
issue of whether plaintiff which already has a
judgment in personam against defendant Deep
Diving Systems Limited can now obtain a judg
ment in rem against the vessel Techno Balsam
which is opposed by the intervenant which is credi
tor of a mortgage on the vessel. Defendant is not
contesting. There is little dispute as to the facts,
the issue being one of law arising out of the
provisions of section 43(3) of the Federal Court
Act, R.S.C. 1970 (2nd Supp.), c. 10, which reads
as follows:
43....
(3) Notwithstanding subsection (2), the jurisdiction con
ferred on the Court by section 22 shall not be exercised in rem
with respect to a claim mentioned in paragraph 22(2)(e), (J),
(g), (h), (i), (k), (m), (n), (p) or (r) unless, at the time of the
commencement of the action, the ship, aircraft or other prop
erty that is the subject of the action is beneficially owned by the
person who was the beneficial owner at the time when the cause
of action arose.
The claim arises out of section 22(2)(k) of the Act
being a claim for towage, and it is intervenant's
contention that the vessel was not beneficially
owned by defendant at the time when the cause of
action arose, although it is not denied that it was
so owned at the time of the commencement of the
action on or about September 8, 1978.
In view of the various contracts and agreements
which were made by plaintiff and defendants on
the one hand and defendants and intervenant on
the other it is necessary to review the various
dates, some of which are of especial significance.
On or about September 2, 1977, defendant Deep
Diving Systems Limited offered to purchase the
vessel then owned by plaintiff docked at Sorel,
Quebec, for $325,000. On September 29, 1977, an
agreement was made between plaintiff and defend
ant for the sale of the vessel and the bill of sale
was duly registered on October 18, 1977. On the
same date, October 18, plaintiff by letter to
defendant undertook to tow the vessel from Sorel
to Thunder Bay, Ontario, for a maximum price of
$15,000, to arrive there not later than October 24,
1977. The manner in which the charges were to be
calculated is set out therein. On December 16,
1977, plaintiff invoiced defendant in the amount of
$15,205. On June 8, 1978, plaintiff and defendant
agreed that the amount of the invoice now
amounting to $15,909 including interest would be
paid by three cheques of $5,303 each, the first
payable on July 31, 1978, the second August 31,
1978, and the third September 30, 1978. The
agreement concludes "If the cheques are delivered
to Techno Maritime Limited within three weeks of
the present date and can be cashed in due time
then this agreement will constitute a final settle
ment of the said invoice". The cheques were deliv
ered by letter dated June 20 but the first cheque
dated July 31, 1978, was returned n.s.f. when
deposited in the bank on August 17.
Although plaintiff refers to the cheques in its
proceedings it must be found that the action is
actually brought on the towage contract since the
claim includes a demand for 18% interest based on
the clause in the contract calling for such interest
when accounts are not paid within 30 days. In fact
had plaintiff treated the agreement of June 8,
1978, by virtue of which the three cheques were
issued as creating a novation and replacing the
claim for towage then this Court would not have
jurisdiction to entertain such a claim, and in any
event there could be no action in rem.
Intervenant for its part had on October 14,
1977, entered into an agreement with defendant
Deep Diving Systems Limited to purchase the
vessel for the price of $350,000 then to lease her to
said defendant on terms set out therein. A further
agreement of October 18, 1977, provided that the
said intervenant would provide cheques to enable
defendant to complete the purchase from Techno
Maritime Limitée and that immediately on such
closing full title to the vessel would then be con
veyed to intervenant. This sale was also registered
on October 18, 1977. Intervenant then chartered
the vessel to defendant Deep Diving Systems Lim
ited, but defendant defaulted on a number of the
payments due with the result that intervenant then
resold the vessel to defendant, for a price of $1, the
bill of sale being dated on June 1, 1978, but for
some reason not registered until August 15. On the
same day defendant mortgaged the vessel in the
amount of $350,000 in favour of intervenant. This
also was not registered until August 15. It was
explained in evidence that this gave intervenant
better security than a mere personal claim against
the defendant as charterer of the vessel would have
done.
Plaintiff produced a copy of a list of expendi
tures made by intervenant on behalf of Cansub
(which was explained in evidence as being a joint
venture between subsidiaries of defendant and
intervenant) up to September 27, 1978, in the
amount of $148,841.06. Included in these expenses
were two transfers to McMaster and Company,
attorneys for intervenant re Techno Maritime
Limitée on September 19, 1978, in the amounts of
$16,000 and $2,000 respectively.
Plaintiff obtained a default judgment in perso-
nam against defendant on March 19, 1979, for
$15,909 with interest at 18% from June 8, 1978
and costs, which provided that a charge be regis
tered against the vessel for this amount pursuant
to Rule 1900 of the Rules of this Court. A writ of
fieri facias was issued on March 29, 1979 and
plaintiff also attempted to garnishee the sum of
$18,000 allegedly held back by intervenant from
defendant and deposited in the hands of interve-
nant's attorney. This is the $18,000 referred to in
the statement. This was dismissed by judgment of
Mr. Justice Marceau on April 23, 1979 without
prejudice to the right of plaintiff to resubmit the
issue of the garnishment if it could establish that
intervenant was a judgment debtor of defendant
for this amount.
One other document was produced by plaintiff
namely an agreement entered into on October 18,
1977, between intervenant and defendant at the
same time as the bare boat charter between them.
This agreement provides that on the expiration of
the charter, and provided the lessee has fulfilled its
obligations thereon it can on payment of a further
sum of $1 purchase the vessel from intervenant
(the name of the boat is variously given as Techno
Balsam, MIL Balsam, and The Salvager, but
nothing turns on this). This agreement further
gave an option to defendant Deep Diving Systems
Limited to purchase the boat on payment of three
months' rent for an amount equal to the remaining
unamortized principal balance of $350,000. There
does not appear to be anything in this agreement
which affects the title of intervenant to the vessel
as of October 18, 1977.
In summary defendant purchased the vessel
from plaintiff on September 29, 1977, the agree
ment being registered on October 18, 1977, and
defendant sold the vessel the same day to interve-
nant by agreement registered October 21, and
immediately obtained a charter for her. As of June
1, 1978, however, the vessel was sold back by
intervenant to defendant and intervenant's mort
gage for $350,000 placed on the vessel. For the
period from October 18, or (if the date of registra
tion is taken) from October 21, 1977, to June 1,
1978, the vessel belonged to intervenant. However,
when the proceedings were commenced on Sep-
tember 8, 1978, the vessel indisputably belonged to
defendant. The sole question to be decided is the
date at which plaintiff's cause of action arose. The
cause of action did not give rise to a maritime lien
but was for a maritime debt which can be enforced
in this Court by proceedings in rem provided that
this is not prevented by the provisions of section
43(3) of the Federal Court Act (supra). There are
three dates in issue, namely October 18, 1977,
when the towage agreement was entered into,
December 16, 1977, when the invoice was ren
dered by plaintiff to defendants, and possibly June
8, 1978, when cheques subsequently found to be
n.s.f. were issued in settlement of it. I have already
rejected the argument however that a novation was
created by the acceptance of them or that proceed
ings could not have been brought before that date.
Another possible date which was referred to is the
date of completion of the towage to Thunder Bay,
apparently sometime in November. Defendant did
not own the vessel however in the period between
October 18 (or at the latest October 21), 1977 and
June 1, 1978.
Plaintiff submitted a very complete memoran
dum of authorities, both British and Canadian,
dealing with actions in rem. Most of the jurispru
dence referred to deals however with the owner
ship of the vessel at the time of the institution of
the action in rem, which is not the issue in the
present case, although certain judicial statements,
taken out of context, would give some support to
plaintiff's claim. For example counsel refers to a
statement of Brandon J. in The Monica S. [1967]
3 All E.R. 740 in which at page 756, in reference
to the decision in the case of The Beldis [1935] All
E.R. Rep. 760, he stated:
I think that he meant exactly what he said, that a person
having a statutory right of action in rem without a maritime
lien, could exercise that right provided that, at the date of
bringing the action, the res was in the ownership of the person
liable on the claim.
Later on at page 760 he states however:
The first requirement is that the person who would be liable on
the claim in personam should have been the owner or charterer
of, or in possession or control of, the ship when the cause of
action arose. The second requirement is that, at the time when
the action is brought, the ship would be beneficially owned as
respects all shares in it by that person.
What he refers to as the first requirement is
precisely what is set out in section 43(3).
It is not necessary or proper to go outside of the
wording of section 43(3) as the wording of it is
quite clear and it must be complied with.
Plaintiff contends however that it is significant
that the wording of this section refers to the time
when the cause of action "arose" and in the
French version "a pris naissance" and not to the
time when the cause of action "accrues". In this
connection it is argued that the cause of action
arose the moment the towing contract was entered
into.
Counsel concedes that the cause of action only
accrued when a suit could be maintained thereon,
which was certainly not before the invoice was
rendered on December 16, establishing the amount
of the claim, and in fact probably not until 30 days
thereafter since the towing contract provided that
interest at 18% would be paid only when the
account was 30 days overdue, and the invoice itself
bore the notation "condition net 30 days". A suit
on it before that date would therefore presumably
;lave been premature. Some of the Quebec juris
prudence cited in support of plaintiff's contention
must be read with care moreover since article
68(2) of the Quebec Code of Civil Procedure,
dealing with the place where action must be
brought, uses the term "where the whole cause of
action has arisen". In the case of The National
Drying Machinery Co. v. Wabasso Ltd. [1979]
C.A. 279 (now on appeal before the Supreme
Court) Mayrand J. stated at page 288:
[TRANSLATION] Moreover in contractual matters the place
where the cause of action arose ("a pris naissance") is as much
if not more so where the contract was made rather than that
where the inexecution of it caused a prejudice.
Reference was also made to the case of Marion v.
Société Radio-Canada [1978] C.S. 509 in which
Justice Tôth in discussing where an action should
be brought stated in a footnote that a right of
action originates in the contract which it seeks to
have recognized rather than in its violation since
the "lien de droit" between the parties results
from the contract and that therefore the tribunal
competent to hear an action for damages for fail
ure to execute it is that where it was contracted
rather than that where failure to execute took
place or where the work was done. Other cases
which were cited supported this proposition, but
they were all merely dealing with the proper place
for bringing action.
Against this intervenant cited other jurispru
dence. In the case of Bradford Old Bank, Ltd. v.
Sutcliffe [1918] 2 K.B. (C.A.) 833 at page 848
Scrutton L.J. stated:
When the statute of James provided that actions must be
commenced within six years "next after the cause of such
actions" it meant after the occurrence of all the facts which the
plaintiff must prove as part of his case—that is, at the time
when the plaintiff could first have brought his action and
proved sufficient facts to sustain it.
Reference was also made to the Ontario case of
Lewington v. Raycroft' in which the judgment of
the Ontario Court of Appeal held at page 380:
The requirement that an action must be commenced within six
years after the cause of action arose means that it must be
commenced within six years after the occurrence of all the facts
which the plaintiff must prove as part of his case, that is, that
the time begins to run when the plaintiff could first have
brought an action and proved sufficient facts to sustain it.
In a Manitoba case of Yellowega v. Yellowega 2
Hunt J. stated:
A cause of action for each payment arises when the payment is
due and unpaid and, clearly, the payments which did not
become due until during the six-year period immediately
preceding the issuance of the statement of claim are not barred
by this statute.
As plaintiff points out all these cases deal with
prescription, which clearly does not run until the
commencement of the period from which the right
of action accrues.
It would appear that the intention of section
43(3) is to protect a purchaser of a vessel from
having it seized in rem as a result of claims against
the former owner, which could only be made after
the purchase, for a maritime debt due by the
former owner which did not create a maritime lien.
The towing contract between plaintiff and defend
ant merely had the effect of giving the defendant
the right to insist that it be executed by plaintiff
and conversely gave the plaintiff the right follow
ing execution to be paid within 30 days after
submission of its invoice for the services so ren
dered. Neither party could sue on it at the time the
contract was signed, and later on the same day the
vessel was sold. The present action is for payment
of a sum of money due by virtue of the towage
contract and plaintiff only had a right to bring
such action when the contract was completed and
duly invoiced and not paid. While it might have
been preferable had section 43(3) used the words
"right of action" rather than "cause of action" it is
nevertheless difficult to conclude that plaintiffs
cause of action arose the moment the towage
contract was signed.
[1935] 4 D.L.R. 378.
2 (1969) 66 W.W.R. 241, at page 243.
Further arguments were made on behalf of
plaintiff. The first of these was to the effect that
despite the sale by defendant to intervenant on
October 18, 1977, there was no real transfer of
beneficial ownership in view of the provisions of
the bare boat charter granted at the same time.
While this is a somewhat unusual document in
that the defendant Deep Diving Systems Limited
as charterer (referred to as lessee) had the right to
purchase the ship at any time, and moreover after
fulfilling its obligation for seven years under the
charter would for $1 be able to purchase her, it
appears to me that this is merely a form of charter
combined with a promise of sale, and whatever
rights it may have given to defendant Deep Diving
Systems Limited to reacquire ownership of the
vessel, as in fact it eventually did on June 1, 1978,
the title to the vessel clearly was vested in the
intervenant in the interval, so it cannot be contend
ed that Deep Diving Systems Limited was at all
times the beneficial owner of her.
A further argument raised by plaintiff deals
with the $18,000 which according to plaintiff
intervenant withheld from payments otherwise due
to defendant as security for plaintiff's claim
against defendants. Intervenant contends that this
money is not due by it to defendants as defendants
owe it a great deal more than this. In any event if
plaintiff is able to establish that this is money
belonging to defendant and owing by intervenant
to defendant it can by virtue of its judgment in
personam attempt to garnishee this money. That is
not an issue which is before the Court in the
proceedings seeking judgment in rem against the
vessel Techno Balsam. The conclusion of plain
tiff's action therefore seeking that arrest of the
vessel Techno Balsam be maintained until defend
ant has paid or guaranteed an amount sufficient to
satisfy its claim is dismissed with costs in favour of
intervenant.
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.