Date: 19980205
Docket: T-2416-97
ACTION IN REM AGAINST THE SHIP "NEL"
AND IN PERSONAM
BETWEEN:
THE GOVERNOR AND COMPANY
OF THE BANK OF SCOTLAND,
Plaintiff,
- and -
THE OWNERS AND ALL OTHERS INTERESTED
IN THE SHIP "NEL" AND OCEAN PROFILE MARITIME LIMITED,
Defendants.
REASONS FOR ORDER
MR. JOHN A. HARGRAVE,
PROTHONOTARY
[1] On 3 December 1997 the bulk and container carrier Nel was sold, through a court approved sale, at $5,000,000.00 (US). The sale was organized by the mortgagee of the Nel, the Plaintiff, The Governor and Company of the Bank of Scotland (the "Bank of Scotland"), which paid various costs including those incidental to the sale and the claim of the crew for wages. Appropriate advertising took place, flushing out 15 lien claimants (the "Lien Claimants") with claims totalling $1,718,325.60 (US), not including the claim of the Plaintiff, $12,047,788.08 (US) .
[2] The claims put forward by the Lien Claimants, against the sale proceeds are, in some instances, complex. It could well be a number of months before validity and priority are determined. In the meantime the Bank of Scotland, in the position of judgment creditor, seeks recovery out of the sale proceeds of such sum as may be in excess of the amount, including interest and costs, required to satisfy the Lien Claimants.
[3] Some of the Lien Claimants have consented outright to this approach. Others agree in general, but with reservations as to terms. And not unreasonably, the motion is also opposed procedurally, as establishing an undesirable precedent and substantially, as leaving open the possibility of a shortfall of recovery to the Lien Claimants. Before turning to the merits of the motion there is a procedural point which deserves comment.
A PROCEDURAL MATTER
[4] This motion was initially set for 19 January, 1998, but was twice adjourned, finally to be heard 30 January, 1998. The adjournments were to facilitate discussions between counsel for the Bank of Scotland and counsel for the lien claimant, Shell Canada Limited ("Shell"). In the result the claim of Shell, against the Nel, was reduced by some $1,350,000.00 (US).
[5] Counsel for the Alfa Bunkering Co. Ltd. and for HBI International Ltd., who were apparently served with the motion material in a timely manner, did not until shortly before the hearing of the motion receive the revised Schedule of Lien Claimants, showing the very substantial reduction of the Shell claim. Those two counsel, whose clients claimed some $500,000.00 (US), apparently did not on 30 January have full instructions from their clients. They therefore sought, through counsel acting as an agent at the opening of the 30 January, 1997 hearing, an adjournment. Alternately, Alfa Bunkering Co. Ltd. sought an Order that the matter be heard by telephone conference. These requests were by way of an oral motion, unsupported by any material.
[6] I denied the motion for an adjournment. Leaving aside the last minute nature of the request for an adjournment, to allow the motion to proceed would not result in any prejudice to either Alfa Bunkering Co. Ltd. or to HBI International Ltd.
[7] While it would have been in keeping with the Federal Court trend to encourage the use of telephone conferences as an economic means of participating in the hearing of motions, the Court here in Vancouver does not have equipment or the facilities necessary to provide a telephone conference connection to a hearing at which a substantial number of counsel, a number large enough to require the use of a large court room, are also present. Our facilities, for hearing a motion by telephone, consist of a speaker phone and a small conference room. These facilities are inappropriate when a large number of counsel are present and wish to make submissions. Thus I denied the oral motion of counsel for Alfa Bunkering Ltd. to participate by telephone.
CONSIDERATION
[8] It is not an overstatement to say the owners of the Nel abandoned the ship at Vancouver. The owners left many outstanding claims against the Nel, including that of the crew for wages. The Bank of Scotland, mortgagees of the Nel and of several other vessels which provided security for their loan, stepped in to effect a sale and, among other things, to pay the crew and to repatriate some of the crew members.
[9] The sale of the ship and bunkers, which was completed quite shortly after the Bank of Scotland obtained the 3 December 1997 Sale Order, was at $5,000,000.00 (US). Those proceeds are made up of $89,550.00 (US) from the sale of the bunkers aboard the Nel and $4,910,450.00 (US) from the sale of the ship. The proceeds are presently in trust invested at 4"%.
[10] By the Order of 3 December 1997 the Bank of Scotland has priority against the sale proceeds for the costs of the sale motion and the reasonable costs of the sale itself, together with the cost of maintaining a skeleton crew aboard and for the preservation and insuring of the Nel. The Bank of Scotland, having paid crew wage accounts, has stepped into the shoes of the crew members. The Bank of Scotland also seeks $17,602,057.32 (Cdn) ($12,047,788.08 (US)) as mortgagee, being in the position of a judgment creditor, by default.
[11] The Lien Claimants, some of whom claim maritime liens and others who claim as necessaries suppliers have, as I have noted, claims totalling $1,718,325.60 (US) together with interest. In the case of Alfa Bunkering Co. Ltd., with a claim of $168,174.53 (US), interest is said to run at 24%. Empire International, who are stevedores, with a claim of $5,846.56 (US) seek interest at 18%, as does Tymac Launch Services Ltd., which claims $522.44 (US). Other claimants appear to be content with interest at the rate the court might ordinarily award.
[12] Counsel for the Bank of Scotland proposes that sufficient of the sale proceeds remain in trust to secure the full amount the Lien Claimants might achieve if all were fully successful. The security proposed is thus:
| Principle |
$1,718,325.60 |
| Interest for two years |
$322,000.00 |
| Costs |
$78,000.00 |
| Total |
$2,118,325.60 |
In arriving at this figure counsel for the Bank of Scotland assumes the Court might order interest at 7 "% where the invoices of the Lien Claimants do not specify a figure. Interest at 7 "% is presently a realistic and perhaps even generous figure, however interest rates might well rise during the time it will take to finally determine priorities. At least part of the answer to the possibility of rising interest rates is that, in addition to a $322,000.00 hold back from the sale proceeds to cover interest, the ongoing deposit would continue to earn interest at a going rate, 4 "% at present.
[13] On the basis of their calculation the Bank of Scotland requests payment out of that portion of the purchase price which is not necessary in order to amply secure all of the Lien Claimants, that is a payment out of $2,881,675.00 (US) and some accrued interest.
[14] Counsel for Ashland Chemical Company, with a claim of $88,168.59 (US) and who also acts for Empire International Stevedores Ltd., made spirited and not unreasonable opposition to the Bank of Scotland's motion. As to the concept of any payment at this time, Ashland's counsel, at least in part as a concerned admiralty practitioner, submits that priorities and amounts should be determined all at one time and that to do otherwise might establish an undesirable precedent. Further, counsel for Ashland Chemical and Empire International Stevedores Ltd., with some support, suggests that claims are traditionally secured in Vancouver at the amount of the claim plus 50%, in round figures, in this instance $2,600,000.00 (US). Yet other counsel are content with the amount of the sale proceeds which the Bank of Scotland calculates should be held back for the Lien Claimants, but as a compromise suggest that the Bank of Scotland give an unsecured undertaking to repay such amounts as might unexpectedly be required to cover any shortfall.
[15] There has been a practice in this Court to pay out, from sale proceeds, funds which are clearly in excess of the amount needed to secure those with claims of lien. This procedure is bounded by strict guidelines. An applicant for early payment must make full disclosure of other claimants: Textainer Equipment Management B.V. v. Baltic Shipping Company (The Nikolay Golovanov) (1995) 92 F.T.R. 267 at 271-272. Further, proceeds from a sale ought not normally to be distributed until all claims are before the Court: The Cerro Colorado [1993] 1 Lloyd's 58 at 62.
[16] In the present instance there has been appropriate advertising for lien claimants. The time within which claims must be filed with the court has run. And here I would refer to Rule 1008 (2) which bars any claim not made within the time set by the court. I would also refer to National Bank of Greece S.A. v. Macoil Inc. (1986) F.C.A. 24452 - 01, in which the Federal Court of Appeal pointed to Rule 1008 (2) as serving to completely bar an out of time claim. Thus I am satisfied that all of the claimants are now before the Court.
[17] Counsel for Ashland Chemical Company refers to Vrac Mar Inc. v. The Norsland [1972] F.C. 430, a decision of Associate Chief Justice Noël, for the proposition that priorities and amounts should all be resolved at the same time. In The Norsland, the ship was sold, free and clear, but the buyer then found itself held to ransom by the government of Panama claiming a lien for taxes as the price to close the Norsland's register. The purchaser of the Norsland asked to be subrogated to the lien claim of the government of Panama and that its own claim, including legal expenses of clearing title, be given priority, not because it ought to have priority, but as court costs. Associate Chief Justice Noël denied the motion. He was of the view that it would be best to determine priorities and amounts all at the same time when counsel for the other lien claimants had their tackle in order and might properly oppose the claim (p. 433). The case of the Nel is very different. There is more than enough money in trust to satisfy all of the lien claimants. Payment out to the Bank of Scotland which, after all, has taken the initiative in making the proceeds of the Nel available to creditors, is a reasonable approach, given all the circumstances. It does not establish any particular precedent, beyond adding to the traditional practice of early payment out in some instances, for each instance stands or falls on each own special circumstances.
[18] I recognize the point made by counsel for Ashland Chemical Company, that to allow payment out merely on the basis of a default judgment, without testing the affidavit evidence of the judgment creditor could, in certain circumstances, lead to abuse. However here the owner of the Nel has completely abandoned the vessel and has taken no part in the proceedings. To allow payment out to the mortgage holder, of the excess sale proceeds, beyond that required to adequately to secure the Lien Claimants, does not open the way to abuse. The only question is the amount of the proceeds of the sale of the Nel to be held back in order to properly secure the Lien Claimants.
[19] While some of the Lien Claimants may well fail to establish priority ahead of the Bank of Scotland, or may otherwise have their claims reduced, this is not the time to look at the merits of the claims. Rather, for the purpose of determining the amount of the security, I will assume each lien claimant will be successful. Thus the gross claim figure of $1,718,325.60 (US) is a starting point.
[20] I reject the past rule of thumb that security for a claim, interests and costs should be one and one half times the amount of the claim. That figure may, by chance, be appropriate at any given time. However the amount of security should be determined by the times and circumstances of each case.
[21] Allowing $322,000.00 for interest as proposed by the Bank of Scotland and adding in the short term interest rate of return on the balance of the security which will remain invested assumes that interest, over possibly the next several years, will not exceed about 12%, a little more or a little less depending upon the short term investment interest rate. While that figure may seem a generous assumption, one must remember that interest rates have, in the not distant past, soared well beyond 12%. An allowance of $400,000.00 for interest is more appropriate. While it may prove generous, it is my best estimate of a reasonably ample fund.
[22] As to costs, the Bank of Scotland would allow $78,000.00, again a substantial figure, however one must keep in mind that the recent changes to the Court's Tariff of Taxable Costs has moved recoverable costs closer to actual litigation costs: $78,000.00 would not go far in any serious litigation.
[23] While some of the Lien Claimants may realize their clear status as necessaries suppliers, with straight forward in rem claims, does not warrant active participation vis-a-vis the Bank of Scotland with a mortgagee's priority, other Lien Claimants do bring issues as to entitlement, quantum and priority which may well engender serious litigation. Here I have in mind that many of the off-shore Lien Claimants, all necessaries suppliers, who would have a mere right in rem in Canada, say they in fact have substantive maritime liens under the law of their own countries. This may be so in the case of Ashland Chemical Company, who may well claim a substantive maritime lien under American law. However other necessaries suppliers among the Lien Claimants say the laws in France, Greece and Panama entitle them to maritime liens. This entitlement could be the subject of spirited debate (and if such liens are in fact substantive maritime liens it will be a clear indication that protection to Canadian necessaries suppliers has lagged behind that in other countries whose economies also depend substantially on shipping to further export and import or other national goals).
[24] Some of the claims against the Nel are not only for necessaries supplied to that vessel but also for necessaries supplied to other vessels which may in some way be sister ships to the Nel. This is not a simple issue.
[25] Costs, at the end of the day, will not necessarily all come out of the sale proceeds of the Nel, but I do not wish to handicap whoever decides the issues of entitlement, quantum and priority when it comes to awarding costs. Thus the reserve for costs will be $100,000.00.
[26] Several counsel suggested that, as a term of receipt of early payment, the Bank of Scotland give an unsecured undertaking to repay any portion of their advance should that amount later be determined an excessive advance to the prejudice of the Lien Claimants. This is a practical suggestion, for it merely sets out, in a formal way, what one should reasonably expect to happen.
CONCLUSION
[27] Of the $5,000,000.00 (US) sale price and accrued interest the amount to be retained in trust and at interest, to secure the Lien Claimants, shall be the rounded figure of $2,220,000.00 (US). The Bank of Scotland may withdraw the balance of the sale proceeds and interest to date on filing their unsecured undertaking, in suitable terms, with the Court, to return to the Court any required portion of the amount withdrawn should it be necessary in order to meet the entitlements and priorities determined in due course by the Court.
[28] I thank counsel, both those with submissions to make on the substantial aspects of the motion and those who merely made their positions known and thus allowed the hearing to progress in an orderly and timely fashion.
(Sgd.) "John A. Hargrave"
Prothonotary
Vancouver, British Columbia
5 February, 1998
FEDERAL COURT TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
HEARING DATED: December 3, 1997
COURT NO.: T-2416-97
| STYLE OF CAUSE: THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND |
v.
| THE SHIP "NEL" et al. |
PLACE OF HEARING: Vancouver, BC
REASONS FOR ORDER OF MR. JOHN A. HARGRAVE, PROTHONOTARY
dated December 9, 1997
APPEARANCES:
Mr. Peter Bernard for Plaintiff
Ms. Shelly Chapelski for Claimant Canpotex Shipping Ltd.
Mr. Doug Morrison for Claimant Shell Canada Limited
Mr. John McLean for Claimant Aktina S/A
SOLICITORS OF RECORD:
Campney & Murphy for Plaintiff
Vancouver, BC
Connell, Lightbody for Canpotex Shipping Ltd.
Vancouver, BC
Bull, Housser & Tupper for Shell Canada Limited
Vancouver, BC
Edwards, Kenny & Bray for Aktina S/A
Vancouver, BC
McEwen, Schmitt & Co. for Petromarine Products
Vancouver, BC
Giaschi, Margolis for Legend Marine Singapore Proprietary PTE Ltd.
Vancouver, BC
Sproule Castonguay Pollack for Alpha Bunkering Co. Ltd.
Montréal, PQ