T-258-75
Benson Bros. Shipbuilding Co. (1960) Ltd.
(Plaintiff)
v.
The Ship Miss Donna and Babcock Fisheries Ltd.
(Defendants)
and
The Mercantile Bank of Canada (Intervener)
T - 753 - 75
Benson Bros. Shipbuilding Co. (1960) Ltd.
(Plaintiff)
v.
The Ship Miss Delphine and Babcock Fisheries
Ltd. (Defendants)
and
The Mercantile Bank of Canada (Intervener)
Trial Division, Addy J.—Vancouver, March 4 and
7; Ottawa, June 10, 1977.
Maritime law — Action for money owed for ships' repairs
— Arrest of ships — Defendant adjudged bankrupt — No
leave of Bankruptcy Court to continue proceedings — Whether
arrest creates statutory lien and overcomes stay of proceedings
— Bankruptcy Act, R.S.C. 1970, c. B-3, ss. 2, 49(1),(2) —
Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10, s. 22(2)(g).
The plaintiff, who had effected repairs without receiving
payment on two ships owned by the defendant and mortgaged
to the intervener, issued a claim for money due and caused the
two ships to be arrested. The defendant subsequently was
adjudged bankrupt. The intervener and its receiver-manager
secured the release of the vessels and exercised a power of sale,
realizing much less than the outstanding mortgages. As the
plaintiff does not have leave of a bankruptcy court to continue
this action, the absolute prohibition of section 49(1) of the
Bankruptcy Act operates as a stay from the effective date of
the bankruptcy, unless the plaintiff is a secured creditor. The
plaintiff argues that he acquired a statutory lien against each
ship because of, and from the moment of, each arrest.
Held, the actions are dismissed. A person who has effected
repairs on a ship, on relinquishing possession and therefore
abandoning any possessory lien, is in the same position as an
ordinary creditor since no maritime lien exists. When a person
seeks to recover the money due him by action in rem and
arrests the ship, he does not put himself in a higher category
and acquire a statutory lien as contemplated by the Bankruptcy
Act. Since an arbitration in rem is merely procedural, the arrest
of a ship following the commencement of an action is also only
procedural: it provides a remedy but does not create any special
vested right in the claimant. The plaintiff, therefore, did not
become a secured creditor by reason of the arrest of the ships.
The Henrich Bjorn (1886) 11 App. Cas. 270, followed;
The Two Ellens (1872) L.R. 4 P.C. 161, followed; The
Alexander Larsen (1841) 1 W. Rob. 288, followed; Coast
al Equipment Agencies Ltd. v. The "Comer" [1970]
Ex.C.R. 13, followed; Atlantic Salvage & Dredging Ltd. v.
The Calgary Catalina [1970] Ex.C.R. 1006, followed. The
Zafiro. John Carlbom & Co., Ltd. v. Owners of S.S.
Zafiro [1959] 2 All E.R. 537, referred to.
ACTION.
COUNSEL:
M. Bray for plaintiff.
R. A. Easton for defendants and intervener.
SOLICITORS:
McMaster, Bray, Cameron & Jasich, Van-
couver, for plaintiff.
Russell & DuMoulin, Vancouver, for defend
ants and intervener.
The following are the reasons for order ren
dered in English by
ADDY J.: These two cases were tried together.
The defendant company, Babcock Fisheries Ltd.,
was the owner of the ships involved in each action.
The ships had both been mortgaged to the
intervener, The Mercantile Bank of Canada, by
the same two mortgage debentures, one issued on
the 26th of March 1974 and the other on the 24th
of September 1974. These mortgages, totalling
several millions of dollars, were not at that time
registered under the Canada Shipping Act' but
were filed with the Registrar of Companies in
Victoria, British Columbia, pursuant to the Com
panies Act 2 of British Columbia.
1 R.S.C. 1970, c. S-9.
2 S.B.C. 1973, 21-22 Elizabeth II, c. C-18.
The plaintiff effected repairs on both ships: in
the case of the Miss Donna, during the month of
June 1974 in the amount of $6,556.80, and in the
case of the Miss Delphine, during the month of
July 1974 in the amount of $2,496.24. After the
repairs were effected, the ships were released to
the defendant company by the plaintiff without
payment having been made for the repairs.
Because of a default in paying the mortgage
debentures, pursuant to powers contained therein,
the intervener appointed a receiver-manager of the
undertaking of the defendant company. The latter
took possession of the ships before the end of
December 1974 until their sale.
In order to obtain payment for the repair bills,
the plaintiff issued a claim in this Court on the
29th of January 1975, in the case of the Miss
Donna, and caused the ship to be arrested on the
same day. It took the same action against the Miss
Delphine on the 5th and 6th of March 1975.
Between the time that both actions were
instituted as aforesaid, more specifically on the
30th of January 1975, pursuant to a covenant for
further assurances contained in the mortgage
debentures, additional forms of mortgages were
executed by the defendant company. These forms
conformed to the Canada Shipping Act and were
duly registered against both ships pursuant to that
Act. The liabilities secured and assets mortgaged
were of course the same as those mentioned in the
two mortgage debentures.
By order of the Supreme Court of British
Columbia, on the 13th of February 1975, the
receiver-manager was relieved of his receivership
in order that he might give special consideration to
the interests of the intervener, pursuant to section
113 of the Companies Act of British Columbia.
On the 6th of May 1975, a petition in bankrupt
cy against the defendant company was filed by
another creditor of the defendant and ten days
later the defendant company was duly adjudged
bankrupt and a trustee in bankruptcy was appoint
ed. The defendant company still remains an undis-
charged bankrupt and the present proceedings
were continued against the trustee in bankruptcy.
In order to obtain the release from arrest of the
two ships, the intervener and its receiver-manager,
on the 13th of June 1975, paid into Court pursuant
to Rule 1006(2)(a) the sum of $14,000 for the
Miss Donna and $5,000 in the case of the Miss
Delphine, whereupon both ships were duly
released.
Subsequently, both ships were sold by the
intervener pursuant to its power of sale under the
debenture mortgages, the Miss Donna for the sum
of $126,000 on the 18th of June 1975 and the
Miss Delphine for the sum of $82,000 on the 9th
of July 1975.
The amount outstanding on the mortgages
greatly exceeds the amount realized on the sale of
the ships and of the other assets covered by the
debenture mortgages.
Many issues were raised at trial pertaining to
the nature, validity, effect and priority of the
debenture mortgages in so far as they might affect
the claims of the plaintiff. However, one of the
more basic or fundamental issues was whether the
plaintiff could proceed with the actions after the
6th of May 1975 by reason of the bankruptcy of
the defendant company and the operation of sec
tion 49 (1) of the Bankruptcy Act'.
No leave of the Bankruptcy Court was obtained
to continue the present actions and therefore the
absolute prohibition contained in section 49(1)
would operate as a stay as of the effective date of
bankruptcy, unless the plaintiff is a secured credi
tor and is thus permitted to realize on his security
pursuant to section 49(2), notwithstanding the
intervening bankruptcy.
The relevant part of section 49(2) reads as
follows:
... a secured creditor may realize or otherwise deal with his
security in the same manner as he would have been entitled to
realize or deal with it if this section had not been passed, unless
the court otherwise orders ....
"The court", of course, means the court having
jurisdiction in bankruptcy matters or a judge
thereof or, for certain matters, its registrar.
3 R.S.C. 1970, c. B-3.
Section 2 of the Bankruptcy Act defines
"secured creditor" in part as follows:
... a person holding a mortgage, hypothec, pledge, charge, lien
or privilege on or against the property of the debtor or any part
thereof as security for a debt due or accruing due to him ....
The plaintiff argued that, by reason of the arrest
of the ship, he acquired in each case from that
moment a statutory lien against the ship and
became a secured creditor as defined in section 2
of the Bankruptcy Act, which I have quoted above,
and was therefore entitled to proceed in his actions
against the ships by virtue of section 49(2) to
which I have also referred.
Repairs to a ship undoubtedly constitute the
supplying of necessaries. Notwithstanding some
contrary findings in other jurisdictions, it has long
been settled that, in common law jurisdictions, the
supplying of necessaries does not create a maritime
lien or privilege against the ship in favour of the
supplier of necessaries, and the latter has no pref
erence over other creditors. (See The Henrich
Bjorn° and The Two Ellens 5 .)
A person who has effected repairs on a ship,
once he has relinquished possession of it and has
therefore abandoned any possessory lien to which
he might have been entitled, is therefore in the
same position as an ordinary creditor since he has
no maritime lien. When such a person seeks to
recover the monies due him by action in rem and
arrests the ship, he does not by so doing put
himself in any higher category and acquire a statu
tory lien or at least a statutory lien which would
constitute him a lienholder as contemplated by
section 2 of the Bankruptcy Act.
In Coastal Equipment Agencies Ltd. v. The
"Comer" 6 Noël J., as he then was, stated that the
right of action in rem gives no privilege, lien or
preference of any kind and that the supplier of
necessaries is still in the same position as an
ordinary creditor. That decision was upheld by the
° (1885) 10 P.D. 44; (1886) 11 App. Cas. 270.
5 (1872) L.R. 4 P.C. 161.
6 [1970] Ex.C.R. 13.
Supreme Court of Canada in an unreported deci
sion dated the 25th of March 1971' and was
subsequently followed and applied by my brother
Walsh J. in Atlantic Salvage & Dredging Ltd. v.
The Calgary Catalina'.
I am fully cognizant of certain statements as to
the arrest of a ship constituting a statutory lien
made in The Zafiro. John Carlbom & Co., Ltd. v.
Owners of S.S. Zafiro" and in the extracts from
English cases quoted therein, and I am also aware
of the fact that the Zafiro case does not appear to
have been considered by Noël J. in the Comer
case.
I, however, feel that the expression "statutory
lien" has been rather loosely used at times or, at
least, given a somewhat extended meaning. Typi
cal examples of true statutory liens are those
which arise out of the various Mechanics Lien
Acts enacted by the provinces. In these cases, it is
not, as in the case of a ship, a mere question of the
Court possessing a certain right of control over the
asset and the power to sell it should the plaintiff be
successful and the judgment remain unsatisfied,
but, a true vested right in the object of the lien
itself is given directly to the lienholder, i.e., the
workman, supplier, contractor or subcontractor,
provided certain statutory conditions are met.
The view expressed by Noël J. in the Corner
case, supra, seems to be the correct one. He quotes
with approval from The Alexander Larsen 10 case
The Corner matter was decided by Noël J. at the same time
as two other cases, one involving The Ship Victorien Marie and
the other The Ship Ghislain. All were owned by the same
company and the same plaintiff was claiming in all three cases.
As the facts were indistinguishable and the legal issues identi
cal, when the appeals reached the Supreme Court of Canada, a
consent was signed to the effect that only one appeal would be
heard and that the decision would apply to all three cases. The
appeal before the Supreme Court of Canada is styled as
Coastal Equipment Agencies Ltd. v. The Ship Ghislain
[unreported: appeal dismissed with costs, March 25, 1971].
P.S.: The Comer case has been incorrectly described in the
reports; the true name being C. Orner.
' [1970] Ex.C.R. 1006.
9 [1959] 2 All E.R. 537.
10 (184U 1 W. Rob. 288.
at page 294 where in referring to the Admiralty
Court Act" Dr. Lushington states as follows:
... in the first place the statute does not create a lien upon the
vessel at all; the debt has no foundation upon the statute ....
The statute therefore simply confers upon the Court a jurisdic
tion to be employed in every lawful mode which the Court has
the power to exercise for enforcing the payment; it might be by
arresting the person of the owner if he were resident here, or by
arresting the property in case a necessity occurred. Secondly,
the Court having this jurisdiction conceded to it; would be
bound to exercise that jurisdiction equitably: and in so doing it
would protect the interests of all persons having a bona fide lien
upon the property; as, for instance, subsequent purchasers
without notice.
Noël J. at pages 31 and 33 of the above-cited
report of the Comer case concludes as follows:
I must therefore conclude, after an exhaustive examination
of the main decisions handed down on this subject, that the
claimant for necessaries supplied to a ship has not maritime
lien on the ship but, at the most, has a right to bring an action
in rem against the ship if the ship is still in the hands of the
same owner. Indeed, as we have seen, no lien was created by
the Act of 1840, or by the Act of 1861, or even by the Act of
1891, or by any other subsequent United Kingdom or Canadian
Act. However, the claimant for necessaries was conceded a
certain right in rem which at certain times has been vaguely
called a statutory lien.
In fact, as long ago as 1886 (cf. The Beldis (supra) p. 72)
the remedy of the action in rem was given to creditors of the
shipowner for maritime debts which were not secured or guar
anteed by a lien and privilege, and in such case the seizure of
the ship resulted in giving the creditor what was called a "legal
nexus" over the property so seized from his debtor.
It seems to me that this right does not go beyond the right of
an ordinary creditor suing and executing. This, moreover, it
seems to me, is the meaning of the words expressed by Lord
Bramwell in Northcote v. Bjorn (supra) when, dealing with
actions before the Admiralty Court, he declared at p. 283:
Proceedings might be in personam without the res being
affected. And when they were in rem, though a security
might be obtained for the payment of what was recovered, it
might well be that there was no lien.
It would, indeed, be extraordinary for a claimant for neces
saries who is an unsecured creditor without any preference to
become a secured creditor merely by bringing an action in rem
before the Admiralty Court.
As a matter of fact, examination of the above-mentioned
Acts and decisions clearly indicates to us, that the action in rem
and the seizure of the res in maritime law was initially only a
mere procedural means used for ensuring the execution of the
judgment and giving the Admiralty Court jurisdiction at a time
" 1840 of England, 3 & 4 Victoria, c. 65.
when in the United Kingdom the action in rem was the only
possible remedy before that Court (cf. The Beldis (supra) pp.
73 and 74). Indeed I do not see in any of the Acts or decisions
on this subject anything which would permit me to say that this
procedure confers any privilege or lien whatsoever, although
the right to bring an action in rem against an inanimate object
like a ship constitutes an extraordinary right and, in certain
cases, one which is advantageous for the person who can avail
himself of it.
This action in rem, however, does not give any privilege or
lien or preference whatsoever, and the claimant for necessaries
seems to me to be in the same position as an ordinary
unsecured creditor. If he is an execution creditor, he will be
entitled to his costs of action but his claim will be ranked only
in accordance with the order of priorities set by law. In fact, to
give him, through the mere fact that he has a simple right of
action in rem, a right and specific privilege which would
deprive the same debtor's other creditors of exercising their
claims against the property seized, especially after the corpora
tion owning such property has made a proposal under the
Bankruptcy Act, seems to me inacceptable and based on no
legal text or judgment. In fact, this would be a serious blow to
the principle whereby the property of a debtor is the security of
his creditors.
I agree with these statements of the law. Since an
action in rem is merely procedural, the arrest of a
ship, following the instituting of the action, must
also be merely procedural: it merely provides a
remedy and does not create any special legal
vested right in the creditor or claimant which did
not exist previously.
In England, the arrest also provided a method of
establishing jurisdiction for the Courts of Admiral
ty. Originally, a ship could only be arrested where
a maritime lien or privilege in fact existed or
where there was some right by way of mortgage or
otherwise which created a vested right in the res.
The procedure of arrest was gradually extended to
other cases only because of a conflict which existed
between the courts of common law and the admi
ralty courts during which the latter saw their
jurisdiction gradually being taken away. In order
to preserve or re-establish to some extent their
original rather broad jurisdiction in maritime
causes, the Court of Admiralty, as a means of
obtaining jurisdiction in any particular matter
involving a ship, permitted the arrest of the ship
where no lien or special privilege or mortgage
whatsoever existed.
In Canada, a ship can be arrested wherever the
Federal Court possesses jurisdiction in admiralty
over it. For instance, a ship may be arrested by a
plaintiff who might only have a claim for general
damages for personal injuries under section
22(2)(g) of the Federal Court Act 12 . Surely, such
a person, because he chooses to proceed in rem
against the ship in lieu of merely proceeding in
personam against the owner, does not, by so doing,
acquire the special status of a secured creditor
under the Bankruptcy Act and thus become en
titled to proceed against the ship to the detriment
of and in priority to the other ordinary creditors of
the bankrupt.
Since the plaintiff by reason of the arrest of the
ships did not become a secured creditor, it there
fore appears clear that he had no right to proceed
with the action after the bankruptcy without leave
of a court having jurisdiction in bankruptcy.
The fact that, subsequent to the bankruptcy, the
intervener obtained the release of the ships, by
posting bail therefor, in no way changes the nature
of the claim or more specifically its character as a
non-secured claim. The monies paid into Court,
however, would have to remain there pending the
ultimate disposition of this action by trial or other
wise, or pending further order of this Court.
Since, as a result of section 49(1), the plaintiff
could not proceed with the trial of the action and
the trial could therefore not take place, it would be
improper for me to express any opinion on the
various issues raised by the parties at the hearing.
The costs thrown away of the abortive trial and
of the proceedings leading up to it are reserved to
the judge ultimately charged with the trial or other
disposition of this action.
An order will issue accordingly.
12 R.S.C. 1970 (2nd Supp.), c. 10.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.