Date: 20010501
Docket: T-1705-00
Neutral Citation: 2001 FCT 416
BETWEEN:
UNITOR ASA, a body politic and corporate of Oslo, Norway
Plaintiff
AND:
The Vessel M.V. "SEABREEZE I", and The Owners and All
Others Interested in the Vessel M.V. "SEABREAZE I" and
PREMIER CRUISE LINES LTD., a body politic and
corporate of Cape Canaveral, Florida, U.S.A.
Defendants
AND:
DLJ CAPITAL FUNDING INC., a body corporate
Intervener
[1] This is an application by Greenwich Insurance Company and NAC Reinsurance Corporation (the "applicants") for an order directing the intervenor, DLJ Capital Funding Inc. ("DLJ") to provide the applicants with its response to a list of questions exploring whether DLJ may have resold the defendant vessel "SEABREEZE I" (the "vessel") or had made arrangements to resell the vessel following its judicial sale pursuant to an order of this Court dated December 1, 2000.
[2] The facts leading up to this application are as follows. The intervenor DLJ was mortgagee of a fleet of five ships formerly owned and operated by Premier Operations Limited, one of which was the vessel "SEABREEZE I".
[3] On September 14, 2000, at the instance of the plaintiff Unitor ASA, the vessel was arrested at Halifax. Pursuant to a motion brought by the plaintiff in this Court, an order was rendered on October 24, 2000, ordering that the vessel be sold by private treaty to be arranged by joint Canadian and American brokerage firms nominated by the plaintiff, and to be appraised by an appraiser jointly selected by the two brokerage firms. Donaldson Lufkin & Jenrette Securities Corporation, a related company of DLJ, made the only offer to brokers to purchase the vessel, at the price of US$1.75 million.
[4] By order dated December 1, 2000, this Court, again on the plaintiff's motion, approved the sale of the vessel, at the price of US$1.75 million to Donaldson, Lufkin & Jenrette Securities Corporation or its nominee. The nominee took title to the vessel on December 7, 2000. The "SEABREEZE I" departed Halifax on December 13, 2000, destined for Charleston, South Carolina, and was lost in a storm south of Cape Cod on or about December 17, 2000.
[5] The Order of October 24, 2000, which provided for the conduct of the sale of the vessel, also required that creditors file claims against the fund generated by the sale no later than January 10, 2001. Sixty claims were filed. On March 22, 2001, this Court ordered that certain claims against the proceeds of the vessel's sale, the "Initial Claims", be severed for early adjudication, and a series of deadlines for completion of various procedural steps in respect of the claims so identified was set out.
[6] The four claims of DLJ, which are included among the Initial Claims, can be summarized as follows:
(a) DLJ's claim for reimbursement of amounts paid to, or for the repatriation of, the crew, in respect of which DLJ claims to be the subrogee and assignee of the crew's maritime lien security, pursuant to the Court's Order of September 26, 2000;
(b) DLJ's claim for reimbursement of amounts paid for the maintenance of the vessel while under arrest, in respect of which DLJ claims to be entitled to priority equivalent to that of the Admiralty marshal, pursuant to the Court's Order of October 18, 2000;
(c) DLJ's claim for reimbursement of certain amounts based on its priority as subrogee of the crew's position as maritime lien holders, or alternatively priority equivalent to that of the Admiralty marshal on grounds that such payments were reasonably necessary to preserve the value of the vessel for the benefit of all claimants; and,
(d) DLJ's claim for the value of bunkers on board the vessel at the time of her sale, on grounds that DLJ was, in part, the purchaser and owner of those bunkers and a secured creditor entitled to those bunkers as security for monies owed to it.
[7] On April 19, 2001, the applicants filed the present Notice of Motion seeking an order compelling DLJ to produce documentation and to answer questions concerning the possible resale of the SEABREEZE I in cross-examination of the deponent of its Affidavits of Claim. The grounds for the application are stated in the Notice of Motion as follows:
1. Pursuant to the Court Order dated December 1, 2000, the Vessel was sold by judicial sale to Donaldson Lufkin & Jenrette Securities Corporation, a company related to DLJ, the Vessel's mortgagee, or its nominee based upon a bid by Donaldson Lufin Jenrette Securities Corporation being slightly in excess of the appraised value of the Vessel, which appraisal was based on scrap value.
2. Information contained in media reports following the sinking of the Vessel subsequent to its judicial sale suggest that DLJ had resold or made arrangements to resell the Vessel as a going concern following the judicial sale, possibly at substantial profit.
3. The Applicants' counsel has requested voluntary disclosure of information of the sort sought to be compelled in this Motion and DLJ has refused such disclosure.
4. Information and documentation related to any dealings or intended dealings with the Vessel by DLJ, which would be relevant to whether the Court should on equitable grounds alter the priorities which could otherwise be applicable to DLJ's claims, would be in the possession of DLJ and should be disclosed so as to ensure these issues will be before the Court upon the adjudication of the priorities of competing claims to the proceeds of sale of the Vessel.
[8] The legal principles which are applicable to cross-examination have been succinctly stated by Hugessen, J. in Merck Frosst Canada Inc. v. Canada (1997), 80 C.P.R. (3d) 550 at p. 555 as follows:
It is well to start with some elementary principles. Cross-examination is not examination for discovery and differs from examination for discovery in several important respects. In particular:
a) the person examined is a witness not a party;
b) answers given are evidence not admissions;
c) absence of knowledge is an acceptable answer; the witness cannot be required to inform him or herself;
d) production of documents can only be required on the same basis as for any other witness, i.e. if the witness has the custody or control of the document;
e) the rules of relevance are more limited.
[9] In the present case, DLJ maintains that none of the moving parties' demands for documentary production or their proposed inquiries on cross-examination are in any way relevant to the issues which will be before the Court in the context of its Initial Claims. In Merck Frosst, Hugessen, J. defined relevance in the following terms:
For present purposes, I think it is useful to look at relevance as being of two sorts: formal relevance and legal relevance.
Formal relevance is determined by reference to the issues of fact which separate the parties. In an action those issues are defined by the pleadings, but in an application for judicial review, where there are not pleadings (the notice of motion itself being required to set out only the legal as opposed to the factual grounds for seeking review), the issues are defined by the affidavits which are filed by the parties. Thus, the cross-examination of the deponents of an affidavit is limited to those facts sworn to by the deponent and the deponent of any other affidavits filed in the proceeding.
Over and above formal relevance, however, questions on cross-examination must also meet the requirement of legal relevance. Even when a fact has been sworn to in a proceeding, it does not have legal relevance unless its existence or non-existence can assist in determining whether or not the remedy sought can be granted . . .
(emphasis added)
[10] The applicants' position at the hearing before me was that these comments with respect to cross-examination and formal and legal relevance are not necessarily applicable in the context of admiralty law. In support of that argument, counsel for the applicants relied upon the decision of Prothonotary Hargrave in Royal Bank of Scotland v. The "Golden Trinity" (2000), 186 F.T.R. 288.
[11] I do not agree with the applicants' interpretation. In Golden Trinity a ship had been sold and proceedings were underway with respect to priorities of the proceeds of sale. One of the parties that claimed against the sale proceeds wished to pursue cross-examination beyond the four corners of the affidavit of claim of the vessel's mortgagee, the Royal Bank of Scotland. After quoting the above passages in Merck Frosst, Prothonotary Hargrave stated as follows at p. 292:
In these passages there are several important principles. First, there is the matter of formal relevance based on issues of fact, defined by the pleadings in an action, but by affidavits in judicial review, there being no pleadings as such. Second, this leads to the observation that cross-examination on an affidavit ". . . is limited to those facts sworn to by the deponent and the deponent of any other affidavits filed in the proceeding". Third, there is legal relevance, the test there being assistance in determining whether the remedy sought might be granted.
Here I would make two observations. First, that a summary determination of priorities to ship sale proceeds by means of a motion in an action does not fall neatly into either category of formal relevance. This is because the pleadings on which a vessel sale is obtained are usually of marginal relevance, at best, in defining any issues relevant to priorities. Yet the affidavits may also fall short in defining the issues, particularly where a claimant, well aware of weaknesses in its claim, avoids all mention in its affidavit of what may be a basic but hidden problem, leaving the other opposed claimants to perhaps stumble upon the factual weakness if they are able to guess its nature and are allowed to cross-examine outside the deponent's affidavit. Second, I believe that Mr. Justice Hugessen's comments point to the proposition that cross-examination must have a factual basis, but that the factual basis may be gleaned not only from the affidavit of the deponent being examined, but also from any other affidavits filed in the proceeding.
[12] In the present case, the moving parties' demands for documentary production and their proposed inquiries on cross-examination relate to the identity of the purchaser at the judicial sale and its corporate relationship to DLJ; whether the ship was resold by that purchasers prior to her loss; was there any agreement to resell the ship in existence or under negotiation at any relevant time; and, what were the particulars of the ship's insurance at the time of her loss.
[13] There are however, no facts on record concerning any of these matters. The only reference to any of these topics are statements in press clippings and which are attached as exhibits to the affidavit filed in support of the present motion. While these newspaper articles may constitute evidence of the existence of those media accounts, the assertion of facts contained in those accounts, namely, who owned the vessel, whether there was a "buyer in the wings", the amount for which the ship was insured, are speculative at best and are most certainly not, in Mr. Justice Hugessen's words, "facts sworn to by the deponent and the deponent of any other affidavits filed in the proceeding". Accordingly, there is no "factual basis" before the Court to support the formal relevance of the inquiries proposed to be made by the applicants on cross-examination.
[14] Nor has the test for legal relevance, as articulated by Hugessen J. in Merck Frosst and adopted by Prothonotary Hargrave in The Golden Trinity, been satisfied here. A fact does not have legal relevance "unless its existence or non-existence can assist in determining whether or not the remedy sought can be granted."
[15] In my view, it is clear beyond dispute that none of the applicants' proposed inquiries are legally relevant to any of the issues which will come before the Court for determination following the cross-examination of DLJ's deponents. The substantive issues before the Court, and in respect of which cross-examination is pending, are only those eight out of sixty claims filed against proceeds of sale which are identified as "Initial Claims" in the Court's order of March 22, 2001.
[16] The remedy sought by DLJ in the Initial Claims asserted by it is reimbursement with priority equivalent to that of the Admiralty Marshal, or to that of the unpaid crew, or as owner of the bunkers. The documents which have been demanded and the matters on which cross-examination is proposed, would not be of any assistance in determining whether that remedy can be granted and they cannot therefore, be considered as legally relevant to the issues which will be before the Court in the context of DLJ's Initial Claims.
[17] In their written submissions, the moving parties state the reason they are seeking the information in question is that it "would have allowed us to assess whether such resale or arrangements to resell may have contravened DLJ's obligations as a mortgagee bidding in the judicial sale, so as to have implications for the ranking of its claims against the Vessel's proceeds of sale. However, any questions relating to the duties of a mortgagee upon a judicial sale of a vessel, and whether any such duties were breached here by DLJ, are not relevant to any aspect of the adjudication by this Court of any of the Initial Claims.
[18] The applicants directed my attention to the decision in Royal Bank of Scotland v. The "Nel", [2001] 1 F.C. 408 (T.D.) wherein the duties of a mortgagee in cases of this nature were discussed. In their written representations, the applicants discuss how the Court "employed a constructive trust as a means of redress against the Bank of Scotland." However, I note that in The Nel, the constructive trust argument was one of the bases upon which Prothonotary Hargrave found it equitable to credit "secret profit" against the outstanding claim on the mortgage. As already stated, whatever impact the sought after evidence may or could have on the DLJ claim as mortgagee is not legally relevant to the remedies sought in the DLJ Initial Claims. In any event, there is no basis upon which to conclude that the sought-after evidence, even if it should turn out to be as asserted, would or could afford any basis for maritime lien claimants to request the Court to equitably alter the normal ranking of priorities.
[19] For these reasons, the application is dismissed.
JUDGE
OTTAWA, Ontario
May 1st, 2001
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1705-00
STYLE OF CAUSE:UNITOR ASA v. THE VESSEL M.V. "SEABREEZE I" ET AL.
PLACE OF HEARING: HALIFAX
DATE OF HEARING: APRIL 25, 2001
REASONS FOR ORDER OF ROULEAU, J.
DATED: MAY 1, 2001
APPEARANCES:
RICHARD SOUTHCOTT FOR CLAIMANTS
DAVID HENLEY GREENWICH INSURANCE
AND NAC REINSURANCE
A. WILLIAM MOREIRA FOR INTERVENOR
SOLICITORS OF RECORD:
STEWART McKELVEY STIRLING SCALES FOR CLAIMANTS
HALIFAX GREENWICH INSURANCE,
NAC REINSURANCE ET AL.
DALEY, BLACK & MOREIRA FOR INTERVENOR
HALIFAX
STIKEMAN ELLIOTT FOR PLAINTIFF
MONTRÉAL AND CLAIMANTS
HUESTIS RICH FOR CLAIMANTS
HALIFAX
DE MAN, PILOTTE FOR CLAIMANTS
MONTRÉAL
COX HANSON O'REILLY MATHESON FOR CLAIMANTS
HALIFAX
COX HANSON O'REILLY MATHESON FOR CLAIMANTS
ST. JOHN'S
METCALF & COMPANY FOR CLAIMANTS
HALIFAX
CLARK DRUMMIE FOR CLAIMANTS
SAINT JOHN
McINNES COOPER FOR CLAIMANTS
HALIFAX
PINK BREEN LARKIN FOR CREW MEMBERS
HALIFAX
BROMLEY CHAPELSKI FOR CLAIMANTS
VANCOUVER