T-548-84
Atlantic Lines & Navigation Company Inc.
(Plaintiff)
v.
The Ship Didymi and Didymi Corporation
(Defendants)
Trial Division, Reed J.—Vancouver, March 16;
Ottawa, May 11, 1984.
Maritime law — Security — Ship arrested in Canada in
action for damages for breach of time charter even though
parties not Canadians and causes of action not arising in
Canada — Application to strike out statement of claim or stay
proceedings and release ship pending disposal of arbitration
proceedings initiated in England pursuant to arbitration clause
— Jurisdiction of Federal Court invoked primarily to obtain
security — Corporate defendant one-ship company — Agree
ment to resort to arbitration not implying renunciation to
requiring security — Plaintiff's evidence award not recoverable
need not be very strong — Order for release of ship on
undertaking security to be provided — No stay of proceedings
ordered — Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10,
s. 22.
Following breaches of the time charter-party it had entered
into with the corporate defendant, the plaintiff commenced
arbitration proceedings in England, in accordance with the
arbitration clause agreed to in the charter.
Even though none of the parties is Canadian and even though
the causes of action did not arise in Canada, the plaintiff
initiated in this Court an action for damages based on the same
causes of action and obtained the arrest of the defendant ship in
a Canadian port.
This is an application to strike out the statement of claim or
to stay the action and, in any event, to release the ship from
arrest without any security having to be provided.
Held, the application should be allowed in part: the ship
should be released from arrest on an undertaking by the
defendants' solicitors that satisfactory security would be
provided.
Arbitration is being actively pursued in England. It is clear
that there is no present intention to actively pursue proceedings
in this Court: the jurisdiction has been invoked primarily to
obtain security for the claims being made. Since the Court's
jurisdiction is recognized by all parties, the issue is whether the
Court's discretion should be exercised to stay the proceedings
and release the ship in the absence of any security being
provided by the corporate defendant. There will be no stay of
proceedings since the parties do not care one way or the other,
the proceedings here not being actively pursued.
In both the Seapearl and the Vasso cases, where the Court's
jurisdiction was used to arrest a ship even though arbitration
had been contractually ageed to, the ship was released without
further security being required. In the first case, it was on the
basis that the interested party would not suffer any prejudice
from the loss of the security, and in the second case, because
the party had failed to disclose material facts and was, at the
same time, actively pursuing both arbitration proceedings and
court proceedings.
Both those cases can be distinguished on their facts. The
corporate defendant herein is a one-ship company and the
plaintiff might suffer prejudice from the loss of the security;
only the arbitration proceedings are being actively pursued; and
there was no important non-disclosure. Furthermore, there are
cases, such as The Rena K, The Atlantic Star and The Makef-
jell, severely limiting the scope of the comments in the Vasso
case.
As to whether the loss of security would prejudice ultimate
recovery of an award by the plaintiff, the burden of proof
required of the plaintiff should not be very exacting. The whole
development of in rem proceedings in admiralty flowed from
the necessity of allowing a plaintiff to proceed against the
defendant in the courts of the place where an award could be
satisfied (because the res was there), regardless of whether
there was any connection between the place of suit and the
claim being made.
CASES JUDICIALLY CONSIDERED
APPLIED:
The Rena K, [1979] Q.B. 377; The Atlantic Star, [1974]
A.C. 436 (H.L.); The Makefjell, [1975] 1 Lloyd's Rep.
528 (Q.B.).
DISTINGUISHED:
Seapearl (The Ship M/V) v. Seven Seas Dry Cargo
Shipping Corporation of Santiago, Chile, [1983] 2 F.C.
161; 139 D.L.R. (3d) 669 (C.A.); The Vasso (formerly
Andria), [1984] 1 Lloyd's Rep. 235 (Eng. C.A.).
COUNSEL:
S. Harry Lipetz for plaintiff.
J. William Perrett for defendants.
SOLICITORS:
Ray, Connell, Lightbody, Reynolds & Heller,
Vancouver, for plaintiff.
Campney & Murphy, Vancouver, for defend
ants.
The following are the reasons for order ren
dered in English by
REED J.: This is an application by the defend
ants to strike out the plaintiff's statement of claim
or to stay the plaintiff's action and in either event
to release the ship Didymi from arrest. This
application came on before me on March 16, 1984
within hours of the time at which the ship was set
to sail for Finland. After hearing the motion I
indicated that the ship would only be released
from arrest upon the giving of appropriate security
by the defendants. At the same time, I indicated
that should counsel so request I would file written
reasons. Such request having been made, my rea
sons follow.
The statement of claim filed March 15, 1984
discloses that the plaintiff, Atlantic Lines & Navi
gation Company Inc., is incorporated under the
laws of Panama; its place of business is in Hous-
ton, Texas. The defendant Didymi Corporation is
incorporated under the laws of Monrovia, having
its place of business in Piraeus, Greece.
It is alleged in the statement of claim that the
following breaches by the defendants of a time
charter occurred during the course of that charter:
first, that the defendant Didymi Corporation pre
maturely dry-docked the vessel, necessitating the
plaintiff's chartering of another vessel; second,
that the Didymi was not loaded to draft, resulting
in shut-out cargo; third, that the vessel was on
another occasion overloaded, necessitating its
lightening on arrival at Port Said, Egypt, with
associated expenses.
The charter in question contains an arbitration
clause which provides that:
Any dispute arising out of this Contract shall, unless the parties
agree forthwith on a single arbitrator, be referred to the final
arbitrament of the arbitrators carrying on business in London
who shall be members of the Baltic Exchange, one to be
appointed by each of the parties, with power to such arbitrators
to appoint an umpire, who shall be a member of the Baltic
Exchange.
The plaintiff commenced arbitration proceed
ings in London respecting the premature dry-dock
ing in December, 1981 and these have reached the
stage of close of pleadings. Arbitration proceedings
respecting the claim concerning failure to load
cargo were commenced in April, 1982 and the
parties expect a hearing during the summer of
1984. The claim arising from the alleged overload
ing and lightening was submitted to arbitration on
March 16, 1984, the day on which the present
application was brought.
There is no evidence that any of the events
underlying the three damage claims presently
being submitted to arbitration in London took
place in Canadian ports.
The defendant ship was redelivered to the
defendant corporation by the plaintiff, on the ter
mination of the time charter, on February 29,
1984.
The affidavit filed in support of the plaintiff's
response to the defendants' motion states:
... I have been informed ... and verily believe ... that
"Didymi Corporation is a one ship company. If security is not
granted for these bona fide claims there is, we believe, a real
risk that any future arbitration award may not be - honoured"
The defendants' argument that the ship should
be released without any security being given was
based primarily on two cases: the Court of Appeal
decision in Seapearl (The Ship MIV) v. Seven
Seas Dry Cargo Shipping Corporation of San-
tiago, Chile, [1983] 2 F.C. 161; 139 D.L.R. (3d)
669, and a recent English Court of Appeal decision
respecting the Vasso (formerly the Andria) which
is to be published in the March Lloyd's Law
Reports [The Vasso (formerly Andria), [1984] 1
Lloyd's Rep. 235].
It was not seriously disputed that this Court has
jurisdiction both to arrest and to entertain the
proceedings for breach of the charter. (See Sea-
pearl (The Ship MIV) v. Seven Seas Dry Cargo
Shipping Corporation of Santiago, Chile (supra),
per Thurlow C.J. [dissenting] at [page 167 F.C.]
page 673 D.L.R. and section 22 of the Federal
Court Act [R.S.C. 1970 (2nd Supp.), c. 10].)
The English Court of Appeal decision (the
Vasso case) to which counsel for the defendants
referred also makes this very plain [at page 241]:
... we find ourselves unable to agree with his [the Trial Court
Judge's] view that the Court has no jurisdiction to arrest a
ship, or to maintain an arrest, where the purpose of the plaintiff
is simply to obtain security for an award in arbitration proceed
ings. We are ourselves unable to conceive of a case where the
jurisdiction of the Court depends upon the purpose of the
plaintiff in invoking the Court's jurisdiction. Generally speak
ing, the word "jurisdiction" simply expresses a power of the
Court—in cases such as the present, the power of the Court—
to "hear and determine", i.e., to adjudicate upon, certain types
of claim. These types of claim are set out in the lettered
sub-paragraphs of what used to be s. 1(1) of the Administration
of Justice Act, 1956 (now s. 20(2) of the Supreme Court Act,
1981); and, as appears from s. 3(4) of the 1956 Act (now s.
21(4) of the 1981 Act) that jurisdiction may be invoked by an
action in rem in the case of some, though not all, of those types
of claims.
... the only prerequisite of the Court's jurisdiction to issue a
warrant for arrest is that a writ must have been issued in an
action in rem.
It follows that we are, with respect, unable to agree with the
opinion expressed by Mr. Justice Brandon that an Admiralty
Court has no jurisdiction to arrest, or to maintain an arrest of,
a ship when the purpose of the plaintiff is simply to obtain
security for an award in arbitration proceedings; ...
It was admitted by counsel that this Court's
jurisdiction as it relates to the case at bar is the
same as that of the English Admiralty Court
referred to in the Vasso decision.
Accordingly, I viewed the issue here as one of
whether or not the Court's discretion should be
exercised to stay the proceedings and release the
ship in the absence of any security being provided
by the defendants.
Counsel for the defendants argued that it should
be so exercised and based his argument on the two
cases mentioned above. He cited particularly the
decision of Mr. Justice Pratte in the Seapearl case
(supra) at [pages 176-177 F.C.] page 681 D.L.R.:
Prima facie, an application to stay proceedings commenced in
the Federal Court in defiance of an undertaking to submit a
dispute to arbitration or to a foreign court must succeed
because, as a rule, contractual undertakings must be honoured.
In order to depart from that prima facie rule, "strong reasons"
are needed, that is to say reasons that are sufficient to support
the conclusion that it would not be reasonable or just, in the
circumstances, to keep the plaintiff to his promise and enforce
the contract he made with the defendant. This is the principle
which is now applied in England (The "Adolf Warski" and
The 'Sniadecki", [1976] 1 Lloyd's Rep. 107 (Q.B.), affirmed
[1976] 2 Lloyd's Rep. 241 (C.A.); Kitchens of Sara Lee
(Canada) Ltd. et al. v. AIS Falkefjell et al. (The "Makefjell"),
[1975] 1 Lloyd's Rep. 528 (Q.B.); [1976] 2 Lloyd's Rep. 29
(C.A.); Owners of Cargo Lately Laden on Board The Ship or
Vessel Eleftheria v. The Eleftheria (Owners), [1969] 2 All E.R.
641; [1969] 1 Lloyd's Rep. 237 (Adm.); The "Fehmarn",
[1957] 2 All E.R. 707 (P.D.A.); [1958] 1 All E.R. 333 (C.A.).)
and in the United States; (Zapata Offshore Co. v. The "Bre-
men" and Unterweser Reederee G.M.B.H. (The Chaparral!),
[1972] 2 Lloyd's Rep. 315 (U.S. Sup. Ct.).) that is also, in my
opinion, the principle that should be applied in this Court.
This case, however, is unlike that which was
before the Court of Appeal in the Seapearl. In
that case the plaintiff had agreed, by arbitration
clause in the relevant time charter, to submit
claims to arbitration in London. While an arbitra
tor for this purpose had been appointed it was
clear that the plaintiff had no intention of pursuing
the arbitration route. Instead he hoped to have the
claim litigated in the Federal Court. In the present
case the plaintiff has been actively pursuing the
arbitration route pursuant to the arbitration clause
of the charter. It is clear that there is no present
intention to actively pursue proceedings in this
Court. The jurisdiction has been invoked primarily
to obtain security for the claims being made. The
order sought from me, in this case, by the defend
ants is not for the purpose of staying duplicative
proceedings, or ones brought in a forum other than
that agreed upon by the parties, but merely as a
device to avoid the giving of security, bank guaran
tee, or club letter by the defendants for the claims.
In the Seapearl case it is true that staying the
proceedings negated the effect of the bank guaran
tee that had been given to the plaintiff since that
guarantee related only to proceedings determined
by the Federal Court but this was a secondary
result of the Court of Appeal's decision; the prime
purpose was to require the parties to resolve their
dispute in the forum which had been contractually
agreed upon. In addition, Mr. Justice Pratte said
at [page 179 F.C.] page 683 D.L.R. of that case:
If the material before us showed or suggested that, in the
absence of security, the respondent will not be able to obtain
payment of the amount that may be awarded by the arbitra
tors, then the proper course, in my view, would not be to reject
the application for a stay of the proceedings but to grant that
application on the term that alternative security be provided
outside the Court to satisfy the award of the arbitrator. How
ever, I do not think that the Court would be justified in
imposing such a term on the appellant because I cannot find
anything in the record showing that the respondent will suffer a
real prejudice from the loss of the security.
The disposition I have made of this case, in my
view, falls within the ambit of the principles enun
ciated by Mr. Justice Pratte. While I have not
ordered a stay of proceedings (the parties really do
not care whether one is given or not since such
proceedings are not being actively pursued), I have
released the ship on the defendants' solicitors
undertaking that appropriate security will be pro
vided. Also while in the Seapearl case, Mr. Justice
Pratte could say [at page 179 F.C.; page 683
D.L.R.] that the record disclosed nothing which
would show that the plaintiff might suffer preju
dice from the loss of security, in the case before me
there is some evidence to this effect; that is the risk
referred to in the affidavit, quoted above, which
was filed in support of the plaintiff's case.
The second case to which counsel for the
defendants referred was the recent decision of the
English Court of Appeal in The Vasso (formerly
Andria) to be published in the March Lloyd's Law
Reports. (Counsel was unable to provide me with
the exact style of cause although a copy of the text
of the decision was made available.)
In that case the Court of Appeal stayed pro
ceedings instituted by the plaintiff for damage
suffered by goods carried by the defendant ship
under a charter-party and discharged security the
defendants had provided to obtain release of the
vessel from arrest. The facts in that case need to
be set out in some detail.
The plaintiff's damage claim arose in February,
1979. The plaintiff thereupon commenced three
proceedings: one in Greece; an in rem proceeding
in the Admiralty Courts of England; a third, in
personam action in the Commercial Court of Eng-
land. The writs in the latter two proceedings, while
issued, were not served. The parties then com
menced negotiations and eventually entered into
an ad hoc arbitration agreement for the resolution
of the dispute. This agreement was conditional on
the discontinuance of the proceedings started in
the courts of Greece. It was not conditional upon
the discontinuance of the English proceedings
because the defendant did not know of them, the
writs never having been served. In July, 1981, the
Andria was sold to other shipowners and she
became the Vasso. At that time the arbitration
proceedings between the plaintiff and the defend
ant were actively being pursued in the usual way.
When the vessel entered English waters, under
new ownership, the plaintiff served the writ and
had the vessel arrested in an attempt to ensure
security for its claim. The affidavit sworn to lead
the warrant for arrest made no mention of the fact
that the parties had in April 1981, after the
damage claim had arisen, entered into an ad hoc
arbitration agreement, nor that the arbitration was
being actively pursued. The defendants provided a
P. and I. Club undertaking to obtain release of the
vessel and then brought proceedings to have the
action in rem stayed and the security discharged.
In coming to its decision respecting the exercise
of discretion, the Court of Appeal said [at page
242]:
... the Court's jurisdiction to arrest a ship in an action in rem
should not be exercised for the purpose of providing security for
an award which may be made in arbitration proceedings. That
is simply because the purpose of the exercise of the jurisdiction
is to provide security in respect of the action in rem, and not to
provide security in some other proceedings, for example, arbi
tration proceedings.
The Court also said, however [at page 2411:
The Court's decision whether to exercise either of those powers
[stay of proceeding or discharge of security] may be affected by
the manner in which, or the purpose for which, the plaintiff has
proceeded.
And with respect to the particular facts of the case
[at pages 242-243]:
Not only has he [the plaintiff] failed to disclose material facts
to the Court on an ex parte application; but he has actively
pursued proceedings in Court at the same time as actively
pursuing arbitration proceedings, which is (unless the plaintiff
is seeking, on appropriate evidence, security in the action on the
principle in The Rena K) vexatious. If so, the Court may, on
learning of the material facts, order the release of the ship from
arrest; and may order the discharge of any security provided
consequent upon the arrest.
Mr. Buckley for the appellants submitted that, on the facts
at the time, they were entitled to have the ship arrested on the
principle in The Rena K, because the respondents, having
disposed of their only asset, would in all probability have no
means to satisfy any arbitration award ... But the difficulty
with this submission is that, although the facts may have been
there to support the obtaining of security in the action on The
Rena K principle, they were not deposed to in the affidavit
sworn to lead the warrant of arrest, which in due course led to
the club giving its letter of undertaking. It is axiomatic that in
ex parte proceedings there should be full and frank disclosure
to the Court of facts known to the applicant, and that failure to
make such disclosure may result in the discharge of any order
made upon the ex parte application, even though the facts were
such that, with full disclosure, an order would have been
justified ....
The Court of Appeal's comments, in the first
quotation set out above, which seem to indicate
that a court should always exercise its discretion so
as to stay proceedings and release a vessel from
arrest without security being given when the par
ties have agreed to arbitration proceedings, must
have been intended to carry a narrower meaning
than a literal reading indicates. A broad interpre
tation of the Court of Appeal's comments would
be inappropriate on the basis of the very jurispru
dence referred to in the Vasso case itself. Indeed,
in the paragraph immediately above the comments
in question, reference is made to The Rena K,
[1979] Q.B. 377 and the fact that in that case
security was ordered to stand even though arbitra
tion was in progress. Such order was made because
it was possible that the plaintiffs might have had
to pursue the action in rem (perhaps using an
unsatisfied arbitration award for the purpose of an
issue estoppel) in order to obtain payment of the
arbitration award. At pages 403-404 of The Rena
K decision, the Court stated:
... it was suggested for the shipowners that a party to an
arbitration agreement should be treated as having, by entering
into such an agreement, abandoned the rights which he would
otherwise have had to security for any claim covered by the
agreement.
I do not accept this proposition at all. The choice of forum
for the determination of the merits of a dispute is one thing.
The right to security in respect of maritime claims under the
Admiralty law of this country is another. This distinction has
been recognized and given effect to by the way in which the
court has exercised its discretion in foreign jurisdiction clauses
and vexation cases, in which it has either treated the plaintiffs
right to security as a material factor in refusing a stay (The
Athenee (1922) 11 Ll.L. Rep. 6 and The Fehmarn [1957] 1
W.L.R. 815), or else has only granted a stay subject to a term
for the provision of alternative security: The Eleftheria [1970]
P. 94 and The Atlantic Star [1974] A.C. 436, and more
recently The Makefjell [1975] 1 Lloyd's Rep. 528; [1976] 2
Lloyd's Rep. 29.
If this distinction between choice of forum on the one hand
and right to security on the other is recognized and given effect
to in foreign jurisdiction clause cases and vexation cases, I
cannot see any good reason why it should not equally be
recognized and given effect to in arbitration cases ...
In addition, the reasoning of the House of Lords
in The Atlantic Star, [1974] A.C. 436, would
seem diametrically opposed to a broad interpreta
tion of the comments in the Vasso case. In the
Atlantic Star decision a majority of the members
of the Court held that the plaintiff in question
should be required to comply with an arbitration
clause which had been contractually agreed upon
and litigate in Belgium. But, in coming to this
decision, considerable importance was attached to
the fact that the defendant had agreed to give
security for any award that might thereby be
issued against it. Lord Reid, at page 454, said:
... I would not regard a foreigner who arrests a ship in
England as necessarily forum shopping. The right to arrest a
ship is an ancient and often a necessary right. Not only may
there be difficulty otherwise in establishing jurisdiction in an
appropriate forum, but the arrest gives to the arrester what
may be a very necessary security.
In the present case, however, that is not so. Proceeding in the
appropriate Belgian forum offers no difficulty and the appel
lants have offered to provide security there.
And Lord Wilberforce, at page 470:
The reason, normally, for bringing proceedings in rem here is,
by means of the procedure of arrest, to obtain security for the
claim.... If the object of suing here is to obtain security, it
could hardly be denied that this was an "advantage" which a
plaintiff can legitimately seek, and which it would be an
injustice to deny. But in the present case this is not so. The
defendants, owners of the Atlantic Star, are the Holland
America Line, one of the leading shipping enterprises, located
in the Netherlands ....
As regards security, he will have all that he needs if he sues in
Antwerp.
See also Lord Kilbrandon at page 478 and Lord
Simon of Glaisdale [dissenting] at page 472.
I would also make reference to a passage in The
Makefjell, [1975] 1 Lloyd's Rep. 528 (Q.B.)
where Mr. Justice Brandon required the parties to
resolve their dispute in Oslo, Norway, in accord
ance with the terms of the bill of lading. In
determining the final form of Mr. Justice Bran-
don's order, the following interchange took place,
at page 535:
Mr. Justice BRANDON: Yes. May I just ask you about the
question of security? If there is to be a stay in the action in
rem, it would, I think, properly be upon terms that you
provided equivalent security in Norway.
Mr. DEAN: My instructions, and those of my learned Leader,
always have been, my Lord, that the defendants are prepared to
offer reasonable security in Norway.
In the light of this jurisprudence it seems to me
the comments in the Vasso case must not be
interpreted too broadly. There is no doubt that in
that case there was ample reason to justify the
Court exercising its discretion to allow the release
of the vessel without requiring security: e.g. the
absence of full disclosure in the plaintiffs affida
vit; the fact that the plaintiff had issued writs in
the English courts but not disclosed this fact to the
defendant during the course of the negotiations
leading up to the agreement to arbitrate; the fact
that those writs were not served until the vessel
was in the hands of a third party.
The suggestion was made in this case that the
plaintiff was similarly less than forthright because
it was not disclosed that the plaintiff had withheld
approximately $228,952 (U.S.) of vessel hire
which was due to the defendants on February 29,
1984. The plaintiffs total claim is for approxi
mately $497,884 (U.S.). I do not think the non-
disclosure of this fact, in the affidavit to lead
warrant, is of such a nature as to mislead. It is not
at all comparable to the type of non-disclosure
which occurred in the Vasso case and I would not
exercise my discretion against the plaintiff merely
on this account. The sum withheld by the plaintiff
is, of course, a factor to be taken into account in
determining what amount of security is appropri
ate, as counsel for the plaintiff readily admitted.
There is one last point to be considered. Counsel
for the defendants argued that even if it were
appropriate in some circumstances to refuse to
release a ship from arrest, in a case such as the
present, only upon alternative security being given,
this should not be done unless there was fairly
strong evidence that any arbitration award would
not be recoverable. Reference was made to the
reasoning of Mr. Justice Pratte at [page 179 F.C.]
page 683 D.L.R. of the decision in the Seapearl
case (supra). I do not think that Mr. Justice Pratte
addressed his mind to the type of evidence or the
degree of proof necessary. He merely noted that he
found nothing in the record before him "showing
that the respondent will suffer a real prejudice
from the loss of the security."
Where it is clear that loss of security cannot
prejudice ultimate recovery of an award by the
plaintiff, as in the Atlantic Star case (supra), then
there is no need for a conditional release of the
vessel. Or, as so often happens, when the defend
ant has voluntarily provided security of one form
or another, no issue arises. But, in other cases I do
not think the burden of proof required of the
plaintiff should be very exacting. After all it is the
defendant's financial situation and intentions with
respect to the disposition and handling of the
vessel which are relevant; factors much more
within the knowledge of the defendant than the
plaintiff. We must not forget that often the two
will be half a world apart and such information
will not be readily available to the plaintiff. The
whole development of in rem proceedings in admi
ralty flowed from the necessity of allowing a plain
tiff to proceed against the defendant in the courts
of the place where an award could be satisfied
(because the res was there). Thus such suits were
allowed regardless of whether there was any other
connection between the place of suit and the claim
being made.
Consequently, I concluded that the plaintiff had
met the requirements upon him in this case.
Accordingly, an order was granted releasing the
defendant's vessel from arrest on an undertaking
given by the defendants' solicitors that security
would be provided in an amount and form satisfac
tory to the plaintiff.
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.