Maritime Law Case Study A.2 Federal Court Workshop William T. Cahill Cox & Palmer St. John’s, NL

Case Study The MV Deadbeat Adventurer, an artic cruise ship, has docked in St. John’s Harbour after cutting short its latest cruise. The owners, Deadbeat Shipping Company Ltd., a corporate incorporated in the Cook Islands. Crew has gone unpaid and is left stranded in St. John’s aboard the vessel. Other creditors (including the St. John’s Port Authority) have gone unpaid.

Federal Courts Act The Federal Court given “concurrent original jurisdiction” over Canadian maritime law or any other law relating to any matter coming within the class of subject of navigation and shipping. Subsection 22(2) itemizes a “open list” of maritime claims that can be brought in the Federal Court.

Federal Courts Act (cont) Section 43(2) provides that the jurisdiction conferred by the Federal Court in Section 22 may be exercised in rem against a ship or other property that is the subject of the action or against any proceeds of sale of the ship or other property that have been paid into Court.

Ship Arrest Arrest in rem in Canada follows procedures generally similar to those of the United Kingdom. The procedure for arresting vessels in Canada is set out in Part 13 of the Federal Courts Rules and, in particular, in Rule 481.

Sistership Arrest Section 43(8) of the Federal Court Act states: “The jurisdiction conferred on the Federal Court by section 22 may be exercised in rem against any ship that, at the time the action is brought, is owned by the beneficial owner of the ship that is the subject of the action.”

Affidavit to Lead Warrant In order to obtain a warrant for the arrest of a vessel a party must swear an Affidavit entitled “Affidavit to Lead Warrant” (Rule 481(1)). In most cases, because of the urgency involved in arresting a ship, the Affidavit is often sworn by counsel on information and belief.

Affidavit to Lead Warrant (cont) If it is a sistership arrest, then it must also state that the deponent has reasonable grounds to believe that the ship against which the warrant is sought is beneficially owned by the person who is the owner of the ship that is the subject of the action (Rule 482(2)(e)).

Warrant of Arrest May be issued at any time after the filing of an in rem statement of claim. Statement of claim must be served within 60 days of issuance (Rule 203(1)). Served by a sheriff by attaching a certified copy on some conspicuous part of the ship or attaching it to the cargo (Rule 479(1)(a) and 479(1)(b)).

Warrant of Arrest (cont) Possession of and responsibility for property continues in the person in possession immediately before the arrest (Rule 483(1)). The Court may order a sheriff to take possession on condition that the party assume responsible for any costs or fees (Rule 483(2)).

Movement of Arrested Property Movement of the property under arrest can only be done by consent of all parties and caveators, or by leave of the Court (Rule 484). Unauthorized movement of arrested property is punishable as contempt of court.

Release from Arrest Vessel may be released from arrest under the Federal Court Rules if, inter alia, the amount claimed is paid into Court or, if the amount claimed is greater than the appraised value of the property, if the appraised value is paid into Court.

Release from Arrest (cont) Alternatively, bail can be posted. Bail, under the Federal Court Rules, is a guarantee of a bank or a bond from a surety company licensed to do business in Canada or a bail bond. (Rule 486(1))

Release from Arrest (cont) If the amount of the security cannot be agreed, then an application to Court may be made to fix the amount (usually value of the property plus anticipated costs and prejudgment interest (usually 25% to 50%)).

Release from Arrest (cont) Where insurance is available to the vessel owner, whether through P&I Clubs or otherwise, a letter of undertaking is customarily provided to the claimant instead of a bond, however this is a matter of negotiation and is not addressed by the Federal Courts Rules.

Wrongful Arrest Damages for wrongful arrest may be awarded only where the plaintiff’s conduct amounts to “malice or gross negligence.”

Sale of Arrested Property Federal Court Rule 490 governs the sale of a ship or other arrested property. The Court may order the property sold with or without an appraisal or advertisement, and by auction or private contract.

Sale of Arrested Property (cont) When an arrested ship is sold by the Court the purchaser acquires complete title, free and clear of all liens under Canadian maritime law.

Priority of Claims The law of priorities under Canadian maritime law is largely non-statutory. Canada is not a party to any of the international conventions on maritime liens and mortgages.

Priority of Claims (cont) Validly created foreign maritime liens will generally be recognized and given the same priority as a lien created in Canada pursuant to Canadian maritime law.” The ranking of claims in Canada is well is well known and has been set out in a number of cases.

MV Deadbeat Adventurer Vessel sold by order of the Federal Court for $275, upon application by St. John’s Port Authority. St. John’s Port Authority granted “enhanced priority” over proceeds of sale. All other creditors and lien holders (including non-Canadian crew) left to share surplus proceeds.

Questions?