T-1162-89
N.M. Paterson & Sons Limited (Plaintiff)
v.
The Ship Birchglen, Universal Metal Co. Limited,
Universal Metal Co. (N.S.) Ltd., Leonard Bujo-
kas, the Owners and All Others Interested in the
Ship Birchglen, the Tug Thunder Cape, Misner
Offshore Services (Canada) Ltd., the Owners and
All Others Interested in the Tug Thunder Cape,
the Tug Elmore M. Misner, Commerce Leasing
Limited, the Owners and All Others Interested in
the Tug Elmore M. Misner, Great Lakes Marine
Contracting Limited, North American Marine,
Inc., Her Majesty the Queen in Right of Canada
and the St. Lawrence Seaway Authority (Defend-
ants)
INDEXED AS: N.M. PATERSON di SONS LTD. V. BIRCHGLEN
(THE) (T.D.)
Trial Division, Joyal J.—Toronto, May 7; Ottawa,
June 26, 1990.
Maritime law — Liens and mortgages — Motion for decla
ration maritime lien vacated — Owners of tugs involved in
collision desiring to sell vessels — Underwriters undertaking
to make good any damage award to maximum of $1.15
million, more than value of tugs at judicial sale — Motion
dismissed — Effects of maritime liens and bail — Undertak
ing instead of bail recent development — Whether maritime
lien extinguished when security posted determined according
to facts of each case — Premature to declare lien extinguished
— Continuing existence of lien not stopping sale as contractual
techniques to eliminate risk posed by lien — Judicial interfer
ence would irreversibly shift risk from one side to other.
This was a motion for a declaration that a maritime lien was
extinguished in that an undertaking had been filed by insurers.
The defendant tugs were involved in a collision with the
plaintiff's ship causing damages alleged to exceed $3 million.
Their owners now wish to sell the tugs. The underwriters have
provided a letter of undertaking to make good any damage
award. The undertaking was not, however, joint and several,
but limited to the amount of risk to which each insurer had
subscribed and amounted to $1.15 million. The plaintiff
opposed the granting of such a declaration, pointing out that
the possibility of liens has not inhibited the purchase and sale of
ships, there being contractual techniques to avoid the risk posed
by liens. The plaintiff argued that something could happen
which would revive the lien in the absence of the declaration
sought. The underwriters might, for example, become insolvent,
reducing the value of the security. The issue was the extent to
which a maritime lien survives the acceptance of bail, guaran
tee or undertaking.
Held, the motion should be dismissed.
The exact legal nature of a maritime lien and what condi
tions apply to extinguish it are unclear. A maritime lien
attaches to a ship and gains priority without any court action,
deed or registration. It attaches at the happening of the event
and passes with the ship she is sold. A lien is discharged by the
payment and acceptance of the claim. Bail is an admiralty
process by which a res is either protected against arrest or
released from arrest by the substitution of a covenant to
discharge the obligation to pay a sum of money for the corpus
of the res. The effect of taking bail is to release the ship from
the action altogether. A guarantee in the form of an undertak
ing as an alternative to bail is a relatively recent development in
maritime law, but its effect is the same as bail. The effect of
posting of security by way of guarantee or undertaking is less
certain than that of bail because of its contractual nature. The
courts have been reluctant to adhere to the principle that a
maritime lien is completely extinguished upon the posting of
bail or other security. They have adopted a pragmatic
approach, and whether a maritime lien is extinguished when
security has been posted is determined according to the facts of
each case and such that the requirements of justice and equity
are met. In the circumstances, it would be premature for the
Court to declare the tugs free of encumbrances. The question
whether a maritime lien is extinguished can be resolved only
when there is an attempt to rearrest the tugs. Although grant
ing the order might facilitate disposal of the tugs, the continu
ing existence of the lien should not prevent their sale. While it
could be argued that the risk posed by a declaration vacating
the lien is minimal, the undertaking exceeded the value of the
tugs and that the fear that some of the insurers might become
insolvent is more hypothetical than real, the extent of any risk
is as applicable to a subsequent purchaser as to a current lien
holder. Should the Court interfere at this stage, it would
irreversibly shift that risk from one side to the other.
Finally, there was some doubt as to the Court's competence
to grant the order requested, in light of the limitations imposed
on the Court with respect to issuing declaratory judgments in
interlocutory proceedings as opposed to actions and the general
approach that only by judicial sale can the Court grant a
successful bidder a perfect title free and clear of all
encumbrances.
CASES JUDICIALLY CONSIDERED
DISTINGUISHED:
The City of Mecca (1879), 5 P.D. 28 (Adm. Div.); In re
The "Hero" (1865), BR. & L. 447 (H.C. of Adm.); In re
The "Volant" (1842), 1 W. Rob. 383 (H.C. of Adm.).
CONSIDERED:
In re The "Europa" (1863), BR. & L. 89 (P.C.); The
Kalamazoo (1851), 15 Jur. 885 (Adm. Ct.).
REFERRED TO:
The Majfrid (1943), 77 Ll. L. Rep. 127 (Adm. Div.).
AUTHORS CITED
Jackson, D. C. Enforcement of Maritime Claims,
London: Lloyd's of London Press Ltd., 1985.
Tetley, William Maritime Liens and Claims, London:
Business Law Communications Ltd., 1985.
Thomas, D. R. British Shipping Laws, Vol. 14, Maritime
Liens, London: Stevens & Sons Ltd., 1980.
COUNSEL:
Alain Pilotte for plaintiff.
Nyron B. Dwyer for defendant North Ameri-
can Marine, Inc.
Leilah Edroos for defendants the tug Thun
der Cape and Misner Offshore Services
(Canada) Ltd.
Sean Harrington for defendants the ship
Birchglen, Universal Metal Co. Limited, Uni
versal Metal Co. (N.S.) Ltd. and Leonard
Bujokas.
Kristine A. Connidis for underwriters.
Gordon Hearn for defendants Misner Off
shore Services (Canada) Ltd. and Great
Lakes Marine Contracting Limited.
SOLICITORS:
Marler, Sproule & Pilotte, Montreal, for
plaintiff.
Armstrong, Schiralli & Dunne, Toronto, for
defendant North American Marine, Inc.
Cassels, Brock & Blackwell, Toronto, for
defendants the tug Thunder Cape and Misner
Offshore Services (Canada) Ltd.
McMaster, Meighen, Toronto, for defendants
the ship Birchglen, Universal Metal Co. Lim-
ited, Universal Metal Co. (N.S.) Ltd. and
Leonard Bujokas.
Campbell, Godfrey & Lewtas, Toronto for
underwriters and for defendants Misner Off
shore Services (Canada) Ltd. and Great
Lakes Marine Contracting Limited.
The following are the reasons for order ren
dered in English by
JOYAL J.: The defendants the tug Thunder
Cape and its owners as well as the tug Elmore M.
Misner and its owners, apply by way of motion for
declaratory relief from this Court.
The defendants [also referred to as applicants]
seek in total five declaratory orders but three of
them cover substantially the same issue and are, to
say the least, somewhat controversial. The issue,
simply defined, is to determine to what extent, if
any, a maritime lien on a ship survives the accept
ance of bail, guarantee or undertaking by a claim
ant with respect to a claim which is the subject-
matter of the maritime lien. To give the issue its
proper factual base, a brief look at the background
of this litigation is warranted.
THE FACTS
It was on April 23, 1988, that the bulk carrier
M. V. Quedoc owned by the plaintiff was proceed
ing upbound the St. Lawrence Seaway at or about
Lake St-Louis. The fairway at that particular
location is fairly narrow and according to the
pleadings, the Quedoc was keeping well to star
board of the channel. At about the same time, the
ship Birch glen, a dead ship under tow by the tugs
Thunder Cape and Elmore M. Misner was
approaching downstream. The Birchglen was on its
way to Nova Scotia where it was to be scrapped. A
collision between the Quedoc and the Birchglen
occurred and the Quedoc suffered considerable
damages. These damages, according to the plain
tiff, exceed $3 million.
A claim in rem against the Birchglen and the
tugs Thunder Cape and Elmore M. Misner was
taken by the plaintiff [also referred to as respond
ent]. This was followed by a third party claim by
the Birchglen and its owners against the two tugs.
In due course, the tugs' underwriters moved in and
provided the plaintiff and the Birchglen with a
letter of undertaking to make good any damage
award which might ultimately be charged to the
tugs. That letter of undertaking, to which six
insurers subscribed, amounted to $1.15 million.
The undertaking, however, was not joint and sever
al between the insurers but limited to the amount
of individual risk to which each of the insurers had
originally subscribed.
It would now appear that the owners of the tugs
wish to sell or otherwise dispose of them. A buyer,
aware of the claim against the tugs, would never
theless wish to take title free and clear of all
encumbrances. Hence, the application by the
defendant tug owners for declaratory relief.
The relief sought is expressed in three different
paragraphs in the notice of motion but in essence,
it invokes the jurisdiction of this Court to declare
that for all purposes of the law, the undertaking
filed by the insurers and accepted by the plaintiff,
extinguish the maritime lien.
THE LAW
The institution of the maritime lien has had a
long, one might say, a hoary existence. It is similar
to deodand and forfeiture where a thing or a res
which might have caused damages becomes per
sonified and is accountable to any aggrieved party.
The following comments of Professor William
Tetley's in Maritime Liens and Claims,' are apt.
The traditional maritime lien, he states:
... is a secured right peculiar to maritime law (the lex
maritima). It is a privilege against property (a ship) which
attaches and gains priority without any court action or any
deed or any registration. It passes with the ship when the ship is
sold to another owner, who may not know of the existence of
the lien. In this sense the maritime lien is a secret lien which
has no equivalent in the common law; rather it fulfills the
1 London: Business Law Communications Ltd., 1985.
concept of a "privilege" under the civil law and the lex
mercatoria. 2
In addition "the lien" he says, "attaches at the
happening of the event." 3 Court proceedings only
confirm its existence so that between the happen
ing of the event and the court proceedings, the lien
remains inchoate.
In Thomas' Maritime Liens (British Shipping
Laws, Vol. 14), 4 the author cites the case of In re
The "Europa" (1863), BR. & L. 89 (P.C.), where
it is recorded that "A maritime lien follows the
ship into whosoever hands she may pass, and may
be enforced after a considerable lapse of time; but,
to affect the rights of third persons, reasonable
diligence in its enforcement must be used, other
wise the lien may be lost". 5
In the course of discussing the contexts in which
a maritime lien might extinguish, Thomas states as
follows:
It would seem to be the clearest of principles that the lien is
discharged by the payment and acceptance of the claim
advanced or such other sum as is acceptable to the lienee by
way of full satisfaction.°
The author goes on to say at page 287:
Bail is an Admiralty process by which a res is either protect
ed against arrest or released from arrest by the substitution of a
covenant to discharge the obligation of a defendant to pay a
sum of money for the corpus of the res.
And further:
In agreeing to bail the claimant must act reasonably and be
cautious not to demand an excessive bond, for such a demand
may result in a liability to damages for the unreasonable arrest
of the res or a claim for indemnity in respect of the cost
incurred in providing the inflated bail.
In The Kalamazoo (1851), 15 Jur. 885 (Adm.
Ct.), Dr. Lushington observed:
It is perfectly competent to take bail to the full value; but the
effect of taking bail is to release the ship in that action
altogether. It would be perfectly absurd to contend that you
2 Ibid., at pp. 40-41.
Ibid., at p. 136.
4 London: Stevens & Sons Ltd., 1980.
5 Ibid., at p. 282.
6 Ibid., at p. 286.
could arrest a ship, take bail to any amount, and afterwards
arrest her again for the same cause of action. The bail repre
sents the ship, and when a ship is once released upon bail she is
altogether released for that action.'
A relatively recent development in maritime
law, is the guarantee in the form of an undertaking
that takes the place of bail. Thomas had this to say
about that form of security:
A security by way of guarantee for judgment as an alterna
tive to bail is a relatively recent development. Although there
are technical differences between it and bail it is nonetheless to
the same effect as bail. Thus, subject to the qualifications
which appertain to bail, a valid and sufficient security will
operate to extinguish the lien of the claimant who in agreeing
to the security waives his right in rem against the res. 8
The foregoing comments of Mr. Thomas and
Dr. Lushington would appear to be rather persua
sive and give legitimacy to the principle that once
a claimant has consented to, or a Court has
accepted bail, or letters of guarantees or undertak
ings by underwriters, the res is not only released
from arrest but the maritime lien itself is extin
guished. It would therefore be logical for the
defendant tug owners, either on their own
representations or by way of a declaratory order of
this Court, to sell or otherwise dispose of the tugs
free and clear of all encumbrances. The logic is
there to support them: the maritime lien, being a
first charge or a privilege over the res, as in a
construction lien, and enjoying a priority over
mortgages and other registered charges, is sub
stituted by an agreed amount of security. The
imprimatur of that substitution is either by mutual
consent or by order of the Court. In either event,
the res, or the ship, which is the fundamental
guarantee to a claimant that there is an asset there
to satisfy his claim, can depend on the security
with equal comfort or serenity. In the meantime,
of course, the ship can ply through seas and
streams producing income to its owners which
income adds to the claimant's assurance that any
shortfall on his claim will be met by his personam
action. Concurrently, the substitution eliminates
the risk that the res on which the lien is exercised
At p. 886.
8 Thomas, supra, footnote 4, at p. 291.
might be lost by some casualty or other, resulting
in the loss of the lien itself. One could therefore
observe that in that sense, security acceptable in
both form and value minimizes the risk to which a
claimant is exposed and concurrently liberates an
income producing asset.
And so the question may be asked: What more
could a claimant reasonably expect? Whatever the
biblical roots of an action in rem and the fictional
personification of the thing, maritime liens evolved
in the United Kingdom out of a flowering mercan
tile tradition which perforce had to cope with
assets which were not immobilized like real estate
but which were extremely moveable and could
otherwise escape at the whim of master or owner
from effective execution. It was recognized that
legal rights and liabilities arising out of interna
tional maritime commerce required practical tech
niques different from those arising out of domestic
commerce generally.
It would therefore follow logically, as was said
in the Kalamazoo case, that once bail has been
provided, or some other kind of security has been
accepted by the claimant, there is a substitution of
the res for the security and the lien is extinguished.
This view was not only adopted in the Kalamazoo
case, but by Bucknill J. in The Majfrid (1943), 77
Ll. L. Rep. 127 (Adm. Div.). It is further endorsed
by Thomas in Maritime Liens where he states:
Where therefore bail is given to the full value of the claim, or
to the claim as limited by statute, or to the value of the res,
whichever is relevant in the particular case, together with the
costs of the claimant, the lien in respect of which the bail is
given is expunged and the res may not be subjected to
re-arrest.'
The author, however, goes on [at pages 288-
289] to qualify that principle by citing cases where
the provision of bail might not necessarily preclude
the possibility of a second arrest and where the lien
9 Thomas, supra, footnote 4, at p. 288.
may be revived "so as to activate a second judicial
process against the res in respect of the same cause
of action". Such was the finding in The City of
Mecca (1879), 5 P.D. 28 (Adm. Div.) where the
surety to a bail became insolvent; in In re The
"Hero" (1865), BR. & L. 447 (H.C. of Adm.),
where the original bail was found insufficient; in
In re The "Volant" (1842), 1 W. Rob. 383 (H.C.
of Adm.), where the bail was sufficient to pay the
claim but not its costs.
None of the circumstances above described
apply to the case before me. The respondent says
nevertheless that on the present state of the law, a
declaration from this Court that the tugs Thunder
Cape and Elmore M. Misner are no longer
charged with a lien and may be sold "free of
encumbrances" as in a judicial sale, should not be
made. Any one or more of the underwriters might
become insolvent, reducing the value of the secu
rity. Anything can happen which might otherwise
create conditions under which absent a declaration
from this Court, the lien might be revived.
In any event, says counsel for the respondent,
maritime liens go with the territory whenever ships
are bought and sold. The hallmark of a maritime
lien "is its secretive and unconditional quality"
and it travels with the property even into the hands
of bona fide purchasers for value. The presence of
undisclosed liens are always the subject of contrac
tual provisions and well known are the techniques
to insure the risk or eliminate it. In any event, the
case at bar, says counsel, is one where the lien is
well known, the claim has been quantified, the
terms of the undertaking are disclosed and admi
ralty counsel and underwriters are fully
experienced in dealing with whatever contingent
risk a continuing or unabsolved maritime lien
might impose on a knowledgeable or sophisticated
purchaser.
By the nature of a maritime lien, the existence
of which is virtually unknown to a purchaser, the
practical considerations submitted by respondent's
counsel would appear to make sense. What he
suggests, in essence, is that the possibility of a flaw
on title, as with a maritime lien, has not inhibited
the purchase and sale of ships and there is no
reason or justification at this stage for the Court to
interfere in the manner suggested by the
applicants.
CONCLUSIONS
It will be obvious that judges and writers are far
from unanimous on the exact legal nature of a
maritime lien and what conditions apply to extin
guish it. Professor D. C. Jackson in his Enforce
ment of Maritime Claims,'° puts it bluntly when
he says "it seems unclear whether, for the claim
ant, the bail is truly the substitute security". Yet
the author goes on to suggest that if "the bail turns
out to be defective, as for example, where a surety
becomes insolvent, the claimant should not be able
to return to the property for security. It would be
illogical", says the author, "to view bail as a
replacement of the property in respect of which it
is given and then allow recourse to that property if
the bail is defective. In that case it is as if the bail
was destroyed."
The analogy drawn by the author is certainly
apt when one considers the well-recognized princi
ple that a maritime lien can only exist or survive so
long as the res or the ship is in existence. A
maritime lien is extinguished if a ship is lost at sea.
That makes eminent sense. Yet, current doctrine
on the matter indicates that if such a ship be
salvaged, the maritime lien revives.
Professor Jackson refers also to the conse
quences which follow from the posting of security
by way of guarantee or undertaking as opposed to
bail. At pages 243-244 of his text, the author says
this:
The effect of the acceptance of security of this kind on a
maritime lien is less certain than that of bail, not only because
of its relative novelty but more because of its contractual
nature. It is clear that no English court would permit the
rearrest of the property or even the issue of another writ in rem
1 ° London: Lloyd's of London Press Ltd., 1985, pp. 242 et
seq.
while the undertaking remains in force. However, if for any
reason it was not fulfilled, it may be argued rather more
forcefully than with respect to bail that the power to arrest is
revived. A contractual understanding is surely a basis for
preventing or releasing from arrest and at the least an under
taking not to enforce the lien. But the lien would seem to
remain until at least judgment on liability.
Based on these observations, I can only observe
in turn that if the law is not clear when the res is
substituted by bail, it is yet less clear when the
security is contractual.
I must find, however, that notwithstanding the
unqualified opinion favourable to the applicants as
expressed by some authors, (for instance the posi
tion of Mr. Thomas, above cited), there appears to
be some reluctance by the courts to follow an
unfaltering path along the lines that a maritime
lien is completely extinguished upon the posting of
bail or other security. As I view the jurisprudence,
courts appear to adopt a fairly discretionary or
pragmatic approach on the question and whether
or not a maritime lien continues or is revived or is
extinguished when security has been put up, is
determined according to the facts of each particu
lar case and of the requirements that full justice
and equity be applied.
In the circumstances of the case before me, it is
at the very least premature for the Court to issue
the kind of order requested. It is the kind of order
which might facilitate the unfettered disposal of
the subject tugs but the continuing existence of the
lien, as I view the circumstances of the case,
should not be of a nature to stop the sale of the
tugs.
It might be said as against the respondent's
strenuous opposition to an order vacating the mari
time lien that the risk of such an order is minimal.
The joint but not several undertaking by the vari
ous insurers in a cumulative amount of $1.15
million represents the total insured value of the
tugs and I should believe what was said during the
course of the hearing in that this amount is com
fortably in excess of the price these tugs would go
for if they were otherwise subject to execution and
judicial sale.
It might also be argued against the respondent's
position, that the risk that an insolvency among
the several underwriters might reduce, to that
extent, the value of the security is more hypotheti
cal than real. The Court should not at this time
assume that all of the insurers named are at the
moribund stage or on the verge of collapse.
The extent of any risk, however real or hypo
thetical, is a matter that is nevertheless as appli
cable to a subsequent purchaser as to a current
lien holder. In other words, there is an equation of
risk in either camp. Should the Court interfere at
this stage, it could be said that it is irreversibly
shifting that risk from one side to the other.
I should not be so bold as to do so at this stage.
In my attempts to see my way clear through the
dark and murky ways of the issue, the applicable
principle is certainly not as unqualified as the
applicants would urge me to believe. I would even
entertain some doubt that the Court is competent
to grant the order asked for, keeping in mind the
limitations imposed on this Court on issuing
declaratory judgments on interlocutory proceed
ings as opposed to formal actions and on the
general approach that only by judicial sale can the
Court grant a successful bidder a perfect title free
and clear of all encumbrances.
I can only conclude from my perception of
current law that the real test as to whether the
maritime lien, in the circumstances I have
described, is extinguished, or endures in a state of
suspended animation or revives after a long period
of hibernation, can only be resolved whenever, in
due course, there should be an attempt to rearrest
the tugs. As I have observed earlier, it is at that
stage that a Court would properly apply its discre-
tion, one way or the other, so as to give full justice
to the cause.
I must, albeit with an absence of enthusiasm,
dismiss the applicant's motion. Costs shall be in
the cause.
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