Judgments

[1995] 1 F.C. 3

A-224-93

Chaleur Fertilizers Ltd., a body corporate (Defendant/Appellant)

v.

Armada Lines Ltd. (now Clipper Shipping Lines) (Plaintiff/Respondent)

Indexed as: Armada Lines Ltd. v. Chaleur Fertilizers Ltd. (C.A.)

Court of Appeal, Isaac C.J., Pratte and Heald JJ.A.—Fredericton, June 2; Ottawa, July 12, 1994.

Maritime law — Contracts — Cargo carriage contract containing demurrage clause if cargo not available on stipulated lay days — When cargo delayed indefinitely respondent finding replacement cargo — Cargo arrested, released on security undertaking — Arrest, security undertaking set aside — Appeal from trial judgment awarding damages for lost revenue based on anticipatory breach, denying damages for unlawful arrest, maintaining security — Party relying on anticipatory breach must show fundamental breach — As demurrage liquidated damages for failure to complete loading, discharging in allowed laytime, no duty to prove actual loss or mitigate loss — Although loading extending beyond lay days, contract may still be performed — Respondent under continuing obligation to present ship for loading — Since demurrage provision indicating delay contemplated, failure to load within specified laydays not fundamental breach — No duty on owner of arrested cargo to take immediate action to have arrest, security undertaking set aside — Respondent liable for consequences of unlawful arrest.

This was an appeal from the trial judgment awarding the plaintiff/respondent damages for lost revenue. The respondent agreed to carry the appellant’s fertilizer from Belledune, New Brunswick to Lome, Togo. The booking note stipulated that the time for shipment was about March 20-22—to be confirmed. There was also a provision for a demurrage rate of U.S. $4,500 per day prorata if cargo and/or berth were not available. The appellant was unable to confirm the loading dates because of problems with its supplier, but indicated that March 31 was the latest possible date. The respondent entered into a time charter for the vessel Yue On, and notified the appellant that the ship would be present for loading “as per lay days indicated.” When the respondent learned that the Dahlia D, the ship carrying the fertilizer to New Brunswick, had foundered and been abandoned by her crew, it promptly booked a replacement cargo for loading at Montréal April 1-2. The Dahlia D had not gone down and the appellant continued to try to get the fertilizer to Belledune, but could not confirm a loading date. The respondent decided to treat the appellant’s advice that it was unable to confirm loading dates as prior notice of breach. The Yue On arrived at Montréal on March 27, loaded and left on April 8. The fertilizer was ready for shipment on April 9. On April 16 the respondent had the cargo of fertilizer arrested. It was released on bail on April 23, an undertaking being given to pay damages should any be awarded. The arrest and security undertaking were set aside on December 12, 1983. The Trial Judge found that the appellant had implicitly acknowledged the breach, thereby entitling the respondent to treat those circumstances as demonstrating an anticipatory breach and to proceed as it did. The appellant’s counterclaim for maintenance of security was dismissed as the time involved had been under the appellant’s control.

The issues were whether the Trial Judge had erred in (1) finding that the appellant had not communicated to the respondent that it would elect to pay demurrage for late loading; (2) concluding that the appellant had committed an anticipatory breach and (3) not awarding damages for unlawful arrest.

Held, the appeal and counterclaim should be allowed.

(1) The Trial Judge erred in finding that the appellant had not communicated that it would elect to pay demurrage to the respondent. The respondent’s agent acknowledged that responsible officials of the appellant had accepted liability for demurrage in appropriate circumstances.

(2) The Trial Judge erred in finding that anticipatory breach had occurred. Anticipatory breach occurs when a party, either expressly or impliedly, repudiates his contractual obligations before they fall due. The conduct of the repudiating party must be such that the other party is entitled to conclude that the repudiating party no longer intends to be bound by the provisions of the contract. There must be a total rejection of the obligations under the contract and lack of justification for such conduct. The respondent was entitled to treat the charter-party as repudiated only if it established that the conduct of the appellant amounted to a fundamental breach.

The purpose of demurrage is to compensate a shipowner for delay beyond the specified laytime. Demurrage is liquidated damages for a failure to complete the loading and discharging in the allowed laytime. Where the period of demurrage is unspecified, as here, the demurrage will run until the contract becomes frustrated or repudiated. Since demurrage is liquidated damages, the plaintiff need prove only a breach of contract. There is no need to prove actual breach or to mitigate the loss, as assumed by the Trial Judge. In contracts containing demurrage clauses, the contract may still be performed although loading extends beyond the lay days. The demurrage provision indicated that the parties contemplated the possibility of late arrival of the cargo. As the cargo was merely delayed, not destroyed, the appellant’s contractual obligations were not impossible of performance. Since the concept of demurrage contemplates eventual performance, the respondent was under a continuing obligation to present a ship for loading, whilst collecting the prescribed demurrage fees. The failure to load within the specified lay days was not of itself a fundamental breach. The appellant did not repudiate the contract. In spite of the anticipated delay, the appellant still wished the vessel to call at Belledune after March 31.

(3) There is no authority for imposing a duty upon the owner of the arrested cargo of a ship to take immediate action to have that arrest, or a related security undertaking set aside. Although Rule 1003, which sets out the criteria for the grant of a warrant for the arrest of property in an action in rem, does not require an undertaking in damages, it is a necessary inference that the plaintiff seeking to arrest a ship or its cargo must assume the consequences of an illegal arrest. The order setting aside the arrest was a finding by implication that the arrest was unlawful and the security unnecessary. The respondent was liable for the consequences of unlawful arrest.

STATUTES AND REGULATIONS JUDICILLAY CONSIDERED

Federal Court Rules, C.R.C., c. 663, R. 1003 (as am. by SOR/79-57, s. 18; SOR/92-726, s. 12; SOR/94-41, s. 7).

CASES JUDICIALLY CONSIDERED

APPLIED:

Suisse Atlantique Société d’Armement S.A. v. N.V. Rotterdamsche Kolen Centrale, [1967] 1 A.C. 361 (H.L.); Elesguro Inc. v. Ssangyong Shipping Co. Ltd., [1981] 2 F.C. 326; (1980), 117 D.L.R. (3d) 105; 19 C.P.C. 1 (T.D.); Third Chandris Shipping Corporation, Western Sealane Corporation and Aggelikai Ptera Compania Maritima S.A. v. Unimarine S.A. (The Genie, Pythia and Angelic Wings), [1979] 2 Lloyd’s Rep. 184.

REFERRED TO:

Asamera Oil Corporation Ltd. v. Sea Oil & General Corporation et al., [1979] 1 S.C.R. 633; (1978), 12 A.R. 271; 89 D.L.R. (3d) 1; [1978] 6 W.W.R. 301; 5 B.L.R. 225; 23 N.R. 181; “Cheshire Witch,” In re The (1864), 167 E.R. 402.

AUTHORS CITED

Fridman, G. H. L. The Law of Contract in Canada, 3rd ed. Toronto: Carswell, 1994.

Jackson, David C. Enforcement of Maritime Claims. London: Lloyd’s of London Press Ltd., 1985.

Schofield, John. Laytime and Demurrage. London: Lloyd’s of London Press, 1986.

APPEAL from trial judgment (Armada Lines Ltd. v. Chaleur Fertilizer [sic] Ltd. (1993), 60 F.T.R. 232 (T.D.)) awarding damages for lost revenue due to anticipatory breach of a charter-party containing a demurrage provision, and cross-appeal from denial of damages for unlawful arrest of cargo and for maintaining security. Appeal and cross-appeal allowed.

COUNSEL:

Thomas L. McGloan for defendant/appellant.

John H. Scott for plaintiff/respondent.

SOLICITORS:

Gilbert, McGloan, Gillis, Saint John, New Brunswick, for defendant/appellant.

McMaster Meighen, Montréal, for plaintiff/ respondent.

The following are the reasons for judgment rendered in English by

Pratte J.A.: I have read the reasons for judgment prepared by my brother Heald J.A. and, for the reasons he gives, I would dispose of the appeal and cross-appeal as he does.

* * *

The following are the reasons for judgment rendered in English by

Heald J.A.: This is an appeal from a judgment of the Trial Division wherein the plaintiff/respondent was awarded damages in the amount of $63,151.80 together with interest thereon calculated at 11.31% from April 16, 1982 to October 16, 1984, and interest on that total “from the date of judgment to the date of payment, at the rate of prime plus one.”[1]

The judgment also ordered that the respondent should recover its costs of the action except for those associated with the arrest of the cargo, the defendant’s application for bail and release from arrest which costs should be borne by the respondent. There was a further exception in the judgment which related to the cost of taking commission evidence from one Gullestrup. In her reasons for judgment, at page 239, the learned Trial Judge rejected the appellant’s counterclaim for damages arising out of the respondent’s arrest of the cargo on April 16, 1982. However, the formal judgment of the Court does not deal with the counterclaim (Appeal Book, at pages 154-155). The respondent also filed a cross-appeal with respect to the restricted award of “pre-judgment” interest.

THE FACTS

On February 23, 1982, the respondent agreed to carry a cargo of fertilizer owned by the appellant from Belledune, New Brunswick to Lome, Togo. This agreement was confirmed by an exchange of telexes dated February 23, 1982. The first telex was between the appellant and its agent, SCAC Transport Canada Inc. (SCAC). The second was between SCAC and the respondent’s agent Protos Shipping Ltd. (Protos). The first telex suggested a loading target date of March 20-22, 1982. SCAC’s confirming telex to Protos agreed that the target loading date was to be March 20-22, 1982 and was “to be confirmed by end of next week.”[2]

On February 25, 1982, a booking note was signed by representatives of both parties. By it, the vessel was yet to be nominated. It stipulated that the time for shipment shall be about “March 20-22, 1982--to be confirmed.” The agreed freight rate was “U.S. $80.00 per metric ton-free in/liner out.” There was also a provision for a demurrage rate “at load port … U.S. $4,500 per day prorata if cargo and/or berth not available.”[3]

By March 10, 1982, the respondent had not, as yet, received confirmation of the loading dates. The respondent’s agent, Protos, had been continuously seeking confirmation of the loading days from the appellant but had not received a firm reply. Protos insisted that this information be supplied by March 11.

The appellant had been unable to confirm the loading dates because 80% of the appellant’s fertilizer cargo, which was being shipped by it, was coming from Louisiana and the Louisiana supplier had been delayed in sending the fertilizer. The shipment left Louisiana on March 7, 1982, aboard the Dahlia D. It was expected to arrive in Belledune on March 14. On March 11, the appellant telexed its agent SCAC advising that the named vessel should show up at Belledune, N.B., Canada for loading “March 25-30 or 31/82 not later than March 31, 1982 but preferably March 27-28, 1982.”[4] The text of this telex was in turn forwarded by SCAC to Protos.

The respondent then went into the market to find an appropriate vessel. It experienced some difficulty in finding one. When the respondent asked the appellant if a later loading date could be agreed upon, the appellant’s answer was in the negative. The respondent was notified by telex dated March 15 that the appellant could only live with lay days[5] of March 25 to 31 because the shipment was “CIDA financed and fiscal yr [year] ends March 31.” This telex went on to state that the “shipper cannot ship or get paid if OBL [Ocean Bill of Lading] is dated later.”[6] The reason for this was that the appellant’s contract with CIDA called for delivery complete by March 31, 1982.

On March 17, the respondent entered into a time charter for the vessel Yue On. The respondent notified Protos on the same day that the Yue On had been designated and that the proposed schedule required it to be in Montréal from March 23 to March 27 and then in Belledune from March 30 to 31. In turn, Protos then informed the appellant, through SCAC, that the Yue On had been nominated and would be present for loading March 25 to 31/82 “as per lay days indicated” and that the vessel would “advise shipper via cable well in advance of arrival.”[7]

On March 16, 1982, the vessel carrying the fertilizer from Louisiana to the appellant, the Dahlia D, ran into ice problems in the Gulf of St. Lawrence and was abandoned by its crew when it foundered, about one day’s journey from Belledune. The appellant was informed of this occurrence at approximately 11:30 a.m. on March 16. The appellant informed SCAC of the situation. However neither the respondent nor its agent Protos was informed by the appellant or SCAC. Nevertheless, Protos did learn of these events informally and telexed the respondent on the late afternoon of March 17. On March 18 the respondent instructed Protos to book a cargo of 913 tons of kraft liner board (cardboard box type paper product) to replace the appellant’s cargo of fertilizer “in order to reduce damages for downfall of Belledune fertilizer.”[8] A booking note for the kraft liner board was signed on March 18. That booking note provided for the loading of the liner board in Montréal on April 1-2, 1982.[9]

On March 19, 1982, the respondent telexed the appellant and SCAC to the effect that it had been advised by the appellant that it would take not less than ten days to produce the balance of the cargo after receiving the raw materials from the Dahlia D and that only 20% of the cargo was available at that time. The telex also advised that the Dahlia D was “being towed to Gaspé with ten degree list and with substantial engine room flooding.”[10] The respondent suggested to the appellant in the same telex that “it is obvious that Armada cargo cannot possibly be load ready with lay days under bookingnote” and that it might be in each party’s interest to agree that the respondent “minimize dead freight claims” by loading any other cargo and not calling at Belledune. The respondent requested confirmation by 5:00 p.m. on March 19, 1982, but, at the request of the appellant, granted an extension until March 23, 1982.

The Dahlia D was viewed by a representative of the appellant on March 17. The vessel was still afloat. It was towed to the port of Gaspé Bay, arriving there on March 20. The holds were inspected and it was determined that the cargo was not damaged. What was not known, at this juncture, was whether the ship owners would elect to repair the ship so that it could complete its voyage, first to Belledune and then to Montréal or whether they would cancel the voyage at the port of Gaspé Bay. The appellant needed only to bag the fertilizer at its plant near Belledune. While the appellant had informed the respondent that the bagging would require ten days, the fact was that it would take only 5-6 days. Also, and contrary to what the appellant had told the respondent, the appellant, around March 19, negotiated an extension to its contract with CIDA.

On March 23, the parties learned that the Dahlia D was in the port of Gaspé Bay. The appellant informed the respondent that they were doing everything in their power to have the cargo in Belledune, that they hoped to have the cargo ready by April 5, 1982 and that they would advise the respondent of the new arrival time. On March 24, the respondent sent a telex to its agent, Protos, expressing its dissatisfaction with the way in which Protos had “handled this matter so far”[11] and stating that they wanted a firm reply from the appellant as to whether they wanted to pay demurrage or dead freight. The respondent also indicated that it could still be in Belledune on March 25, so it required an immediate response. Protos then informed SCAC and the appellant that since the cargo would not be available within the contract lay days and since it was unclear when the cargo would be available, the respondent would treat the appellant’s earlier advice as prior notice of breach and would endeavour to find a substitute cargo. A second telex was sent that day by Protos to the appellant indicating that the appellant had informed Protos that the appellant was still unable to confirm when the cargo would be available and that the respondent was therefore maintaining the position set out in the initial telex of the same day. The Yue On proceeded to Montréal arriving there on March 27. It loaded cargo including the kraft liner board and left Montréal on April 8. The fertilizer from Louisiana was taken by truck from the port of Gaspé Bay to Belledune. It was ready for shipment on April 9. There was considerable discussion as to whether the appellant would pay compensation. On April 16, the respondent had the cargo of fertilizer arrested. It was released on bail on April 23, an undertaking being given to pay damages if any should be awarded. The cargo was eventually shipped on April 28, 1982 on another vessel. The arrest of the cargo and the undertaking with respect to security was set aside by the order of Rouleau J. on December 12, 1983.

THE DECISION OF THE TRIAL DIVISION

The respondent’s action against the appellant claims the sum of $63,151.80, being the difference between the net revenue that it would have earned had it carried the appellant’s cargo and the actual revenue that it earned carrying the replacement cargo of kraft liner board. The parties agree that this loss is correctly quantified at $63,151.80. The respondent’s claim is based on the appellant’s breach of its obligation under the contract to provide the cargo for loading on the Yue On at Belledune. The learned Trial Judge, accepting the respondent’s argument, found that there was an implicit acknowledgment by the appellant of the breach which entitled the respondent to treat those circumstances as demonstrating an anticipatory breach and to proceed as it did.[12] The Trial Judge added:

With respect to the jurisprudence which states that a vessel should remain during all the scheduled loading days and that a delay in loading, unless unreasonable, is not a fundamental breach, none of those cases deal with a situation in which there had been a prior anticipatory breach which relieved the vessel from the [sic] presenting itself on the agreed upon loading days.[13]

The Trial Judge also found that the booking of the kraft liner board did not constitute a self-induced breach of contract. While the respondent took some risk in making the booking on March 18, the booking note indicated that either the Yue On or a substitute vessel would transport the kraft liner board.[14] The Trial Judge found that the respondent “did not, in fact, put itself into the position of being unable to load the defendant’s cargo until after the kraft liner board was loaded. It had not committed itself to loading that cargo before April 1-2. By that time, the plaintiff’s judgment of March 18 in expecting that an anticipatory breach would occur had been demonstrated to be correct.”[15]

Turning to the appellant’s counterclaim for damages arising out of the respondent’s arrest of the cargo on April 16, 1982, the Trial Judge concluded that there was no evidence that this arrest caused the appellant any damage as a result of delayed shipment apart “from the costs associated with the motion, first to obtain bail and secondly to set aside the arrest and consequent release of the undertaking.”[16]

Finally, the Trial Judge awarded interest on the amount awarded at 11.31% for a period of 30 months (from April 16, 1982 to October 16, 1984) and at the rate of prime plus one from the date of judgment. The reason given by the Trial Judge for restricting the pre-judgment interest was her view that the respondent should have brought the claim more expeditiously.

THE ISSUES

The appellant alleges that the learned Trial Judge erred in the following particulars:

(i) errors in fact since her judgment was based, in part on findings of fact that are not supported by the evidence;

(ii) error in law in concluding that the appellant had committed an anticipatory breach of contract; and

(iii) erred in not awarding damages to the appellant as set out in its counterclaim.

The respondent raises the additional issue, on cross-appeal, as to whether the Trial Judge erred in awarding pre-judgment interest only for a period of thirty months rather than for the whole time elapsed up to the day of judgment.

ANALYSIS

Error in Fact

The appellant submits that the Trial Judge erred in her findings of fact with respect to Exhibit P-23, which, in counsel’s submission, are not supported by the evidence. At page 238, the Trial Judge said:

There was a great deal of hindsight in Mr. Paulin’s evidence. He sought to convince the Court that he had continued to insist that the YUE ON call at Belledune and that he would elect to pay demurrage charges for late loading. Yet there is no evidence that he communicated that message to the plaintiff in response to the inquiry of March 24 when the plaintiff asked whether the defendant wished to pay demurrage, for deadfreight or did it have something else in mind. At that time, the YUE ON was in the vicinity of Belledune and could have presented itself for loading before proceeding to Montreal. [Emphasis added.]

Counsel for the appellant quite properly observes that the March 24 inquiry referred to by the Trial Judge was a telex from the respondent Armada to its agent Protos. It was not directed to the appellant, hence the appellant could hardly be expected to respond to a message which had never been sent to it. Furthermore, in the viva voce evidence of Mr. McGuigan, the traffic manager of Protos, there was an acknowledgement that responsible officials of the appellant had accepted liability for demurrage in appropriate circumstances.[17] On my appreciation of the evidence on this matter, both documentary and oral, I conclude that the Trial Judge was clearly wrong in her finding that Exhibit P-23 had been communicated to the appellant when the evidence demonstrates otherwise. In my view, this error substantially affected her final conclusion.

Errors in Law

The learned Trial Judge found that an anticipatory breach had occurred based on the circumstances which existed in the March 23-25 period. At page 238 she stated:

Most importantly, the defendant did not know when the cargo would be ready. The telex of March 23, from the defendant to SCAC, makes that abundantly clear. The defendant could not commit itself to any loading dates. It stated that it hoped it would be able to have the cargo ready by April 5 but would advise of a new ETA when it found out when the cargo would be available. Also, it was clear from the circumstances that whatever transpired the cargo of fertilizer was not going to be ready for loading by March 31. It would be unreasonable in such circumstances to expect the plaintiff to continue with the scheduling of the Belledune stop. As a commercial matter, it was reasonable for it to expect some definite commitment from the defendant as to when the cargo would be ready before agreeing to continue with a schedule which saw the YUE ON stopping at Belledune.

I do not think the fact that the defendant did not expressly agree to the cancellation of the contract prevents an anticipatory breach occurring. The defendant impliedly acknowledged the breach when it indicated that “the current ETA with you cannot be maintained … we will advise the new ETA as soon as we know when cargo … is available”. In the circumstances, it was clear that it was not possible for the defendant to perform its side of the contract. The plaintiff was therefore entitled to treat those circumstances as demonstrating an anticipatory breach and to proceed as it did.

With every deference, I am unable to agree that this conclusion is supported by the charter-party. This charter-party provided for demurrage payments in the event of late arrival of the cargo. As pointed out by counsel for the appellant, the cargo was merely delayed, not lost or destroyed. As will become apparent below, the possibility of late arrival of the cargo was clearly within the contemplation of the contracting parties. Accordingly, I do not agree that the appellant’s contractual obligations were impossible of performance.

Anticipatory breach occurs when a party, by express language or conduct, or as a matter of implication from what he has said or done, repudiates his contractual obligations before they fall due. The conduct of the repudiating party must be such that the other party to the contract is entitled to conclude that the repudiating party no longer intends to be bound by the provisions of the contract. For this type of breach to occur, there must be conduct amounting to a total rejection of the obligations under the contract and lack of justification for such conduct.[18] Put another way, on the facts in this case, the respondent was only entitled to treat the charter-party as having been repudiated (as it did on March 24, 1982) if it established, on the evidence, that the conduct of the appellant amounted to a fundamental breach.[19]

This record clearly establishes that the conduct of the appellant in this case did not amount either to a repudiation or a fundamental breach of the contract. It is important to note that the booking note entered into on February 25, 1982 contained a provision for demurrage which reads as follows:

Demurrage rate at load port: U.S. $4500.00 per day prorata if cargo and/or berth not available.

In the Suisse Atlantique case, supra, Viscount Dilhorne stated, at pages 393-394:

The provisions as to demurrage in the charterparty indicate that it was appreciated that the respondents might be in breach of the charterparty by detaining the vessel beyond the laydays and yet carry out the charterparty. I do not think that breach of the charterparty by detention beyond the laydays can be regarded as a breach of a fundamental term.

I agree with that view of the matter. One of the authorities on this subject is Laytime and Demurrage by John Schofield M.A. of Gray’s Inn.[20] Pursuant to Schofield’s survey of the common law, the purpose of demurrage is to compensate a shipowner or charterer for delay beyond the specified laytime. It is generally intended “to cover the vessel’s daily running costs, plus the profit the shipowner would have been able to earn, had his vessel been released timeously.”[21] Accordingly, demurrage is characterized as liquidated damages for a failure to complete the loading and discharging in the allowed laytime.[22] Where, as in this case, the period of demurrage is unspecified, the demurrage will run until the contract becomes frustrated or repudiated.[23]

While demurrage is payable in lieu of damages, there may be some question as to whether damages can ever be payable in addition to demurrage where the shipowner’s proved losses exceed the moneys payable as demurrage.[24] However, since demurrage is liquidated damages, it is not necessary for a plain- tiff to prove the actual loss or to mitigate the loss; the plaintiff need only show a breach of contract.[25]

A perusal of the reasons of the learned Trial Judge demonstrates that the inability of the appellant to guarantee a full cargo on the specified lay days influenced her to conclude that, in these circumstances, the respondent’s actions were justified. (See (1993), 60 F.T.R. 232, at page 238 quoted supra.) Implicit in this view of the matter is the assumption that the respondent was under a duty to mitigate. What distinguishes demurrage cases from other cases where there is a duty to mitigate (such as the situation in the case of Asamera Oil Corporation Ltd. v. Sea Oil & General Corporation et al., [1979] 1 S.C.R. 633) is that in contracts containing demurrage clauses, when the loading of the cargo extends beyond the lay days, the contract may still be performed. Moreover, since the concept of demurrage contemplates eventual performance, the respondent was under a continuing obligation to present itself for loading, whilst collecting the prescribed demurrage fees at the same time. The presence of the demurrage clause in the charter-party makes it apparent, in my view, that possible delay and resultant compensation therefor was within the contemplation of the contracting parties. There was evidence to the effect that delays are not uncommon in the shipping business. Mr. Gullestrup testified that the Yue On could be loaded in Montréal in 4 to 5 days. In fact, it took 13 days. Mr. Gullestrup said the lengthier time was due to the “usual delays.” He also stated that “unforseen delays you have in shipping all the time.”[26]

Accordingly, since a delay in shipping was contemplated in the charter-party, I do not think that a failure to load within the lay days specified in the contract, can, of itself, be considered to be a fundamental breach. The central issue for determination here was whether, since the appellant was unable to load during the lay days, it was reasonable for the respondent to treat the contract as being repudiated. On these facts, I am not persuaded that the appellant repudiated the contract. In spite of the anticipated delay, the appellant still wished the vessel to call at Belledune after March 31. This circumstance is not consistent with an intention to repudiate the contract. As indicated supra, in order for the respondent to be released from its obligations under the contract, it must demonstrate that the contract will be repudiated after the demurrage period begins to run. There was no such evidence in this case.

THE COUNTERCLAIM

By warrant of arrest dated April 16, 1982, the appellant’s cargo of fertilizer was arrested. The cargo was released on posting of security of $80,000 Canadian on April 23, 1982 and was shipped on April 28, 1982. The appellant did not proceed until December 12, 1983 to have the arrest and security undertaking set aside.

As noted herein, by order dated December 12, 1983, Rouleau J. set aside the warrant of arrest of the cargo and the security which the appellant had been required to post as a condition of release. That order was, in effect, a finding, by implication at least, that the arrest was unlawful and the security unnecessary.

The quantum of the appellant’s damages for maintaining security was agreed upon, by consent at the trial, in the amount of $36,651.27, but without prejudice to the right of the respondent to contest the entitlement to damages.[27]

However, the Trial Judge dismissed the appellant’s claim for maintaining security. She stated:[28]

To the extent that the defendant incurred costs in maintaining security, from April 23, 1982 to December 12, 1983, the length of time involved was a matter under its control. I have not been persuaded that the defendant suffered any damage for which compensation should be awarded, as a result of the arrest …

It is apparent from the above passage that she was concerned about the time delay between April 23, 1982 (the day the ship was released on bail) and December 12, 1983 (the date of release from arrest pursuant to the order of Rouleau J.). Clearly, it was her opinion that this time period was unduly lengthy. In essence, she was imposing a duty upon the owner of the arrested cargo of a ship to take immediate action to have that arrest (or a related security undertaking) set aside. I am not aware of any legal justification for the imposition of such a duty.

In the case of Elesguro Inc. v. Ssangyong Shipping Co. Ltd.,[29] Mr. Justice Collier expressed the view that the guidelines set out in the English cases for the issuance of a Mareva injunction should be applicable to Canadian maritime law. The guidelines to which he refers, are set out by Denning M.R. in the Third Chandris case.[30] By these guidelines, a plaintiff seeking a Mareva injunction must:

(i) make full and frank disclosure of all material matters within his knowledge;

(ii) provide full particulars of his claim;

(iii) give grounds for believing that the defendants have assets within the jurisdiction;

(iv) give some grounds for believing that there is a risk that the asset will be removed before the judgment or award is satisfied; and

(v) give an undertaking in damages--in case the plaintiff fails in its claim or the injunction turns out to be unjustified.

Rule 1003 [as am. by SOR/79-57, s. 18; SOR/92-726, s. 12; SOR/94-41, s. 7] of the Federal Court Rules [C.R.C., c. 663] sets out the criteria necessary for the granting of a warrant for the arrest of property in an action in rem. In my view, the guidelines set out in the Third Chandris case are consistent with the criteria established by Rule 1003. In each instance, the onus is undoubtedly cast upon the plaintiff to show that the arrest requested is necessary for the protection of its rights. Requirement (v) in the Third Chandris case, the undertaking in damages, clearly demonstrates that the plaintiff, who seeks the arrest, must carry the risk and burden of an illegal arrest, and the consequences flowing therefrom. While Rule 1003 does not specifically require an undertaking as to damages for wrongful arrest, I think it to be a necessary inference that the plaintiff assumes the consequences of such an arrest. The English authorities support the view that damages are payable where the arrest is without a proper legal foundation.[31] In my view, when a plaintiff seeks to arrest a ship or its cargo pursuant to Rule 1003, the plaintiff carries the burden of showing that the arrest was lawfully carried out.

If, however, subsequent illegality with respect to the arrest is shown, the plaintiff must suffer the consequences of that illegality. I am not aware of any authority in law which supports the view that there is an onus cast upon a defendant who owns the arrested cargo to immediately take steps to have the arrest set aside and that failure to take such steps expeditiously would act as a bar to any resultant counterclaim for damages. Such a result would, in my view, unfairly penalize the defendant cargo owner because of an intrusive, albeit often necessary, act by the plaintiff. In this case, the arrest of the cargo having been found to be without legal justification, the respondent is liable for the consequences of its unlawful act. As noted herein, those consequences have been quantified, by consent of the parties at $36,651.27.

Accordingly, and for these reasons, the counterclaim should be allowed with costs both here and in the Trial Division. The appellant is entitled to recover from the respondent the sum of $36,651.27 together with interest thereon calculated at 11.31% per annum from April 16, 1982, until date of payment.[32]

CONCLUSION

I would allow the appeal with costs both here and in the Trial Division and set aside the judgment of the Trial Division dated February 22, 1993.

I would also allow the counterclaim with costs both here and in the Trial Division and order that the appellant recover from the respondent the sum of $36,651.27 together with interest thereon calculated at 11.31% per annum from April 16, 1982, until date of payment.

Isaac C.J.: I agree.

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