T-2648-84
S/S Steamship Co. Ltd. (Judgment creditor)
v.
Eastern Caribbean Container Line S.A. (Judg-
ment debtor)
and
Brunswick International Seafoods Ltd. (Garni-
shee)
Trial Division, Dubé J.—Montreal, May 13;
Ottawa, July 19, 1985.
Maritime law — Garnishment — Whether garnishee can set
off as against judgment creditor damages due to delay against
freight owing to judgment debtor under bill of lading —
English rule prohibiting set-off against freight in admiralty
actions not clearly endorsed by Canadian courts — Discretion
ary power of Court not to grant order where to do so would
result in inequity — Judgment debtor insolvent — To grant
order would favour judgment creditor as against all other
creditors — Defence of set-off allowed — Garnishment order
refused.
Practice — Garnishment — Whether garnishee can invoke
defence of set-off for damages for freight due under bill of
lading as against judgment creditor — R. 2300(8) authorizing
Court to summarily determine question — R. 418 providing
for set-off whether in counterclaim or cross-demand — Dis
cretionary power of Court — Garnishment order refused in
view of applicable equitable principles and doubts as to judg
ment debtor's solvency — Federal Court Rules, C.R.C., c. 663,
RR. 418, 2300(1),(8) — Rules of the Supreme Court, 0. 49, R.
5 (Eng.).
The judgment debtor, Eastern Caribbean, undertook to deliv
er a cargo of perishable goods sold by the garnishee, Brunswick
International, from New Brunswick to Haiti. The delivery date
was set for June 1, 1984. The cargo was actually delivered on
June 26, 1984. The purchaser accepted late delivery subject to
a reduction in the purchase price. As a result, the garnishee
now owes to the purchaser the sum of $12,000 U.S. The freight
payable to Eastern on the bill of lading is in the amount of
$8,700 U.S. Brunswick International therefore claims that it
owes nothing to Eastern. The question is whether a garnishee
can set off as against the judgment creditor damages due to
delay against freight owing to the judgment debtor under a bill
of lading.
Held, the garnishment order is denied.
Under the English common law in admiralty matters, set-off
for damages cannot be raised as a defence in an action for
freight due under a bill of lading. However, such a prohibition
has not been clearly endorsed by the Canadian courts. Refer-
ence was made to Canadian cases which appeared to indicate
that set-off may be available in an action for freight. Assuming
that there is an arguable case in favour of set-off, the Court
proceeded to determine the question whether such a defence
may be raised by a garnishee against a judgment creditor.
English authorities have clearly established that where set-off is
a good defence in an ordinary action, it may also be invoked by
the garnishee against the judgment creditor.
Under Rule 2300(8) of the Federal Court, where the garni
shee disputes liability to pay the debt claimed, the Court may
summarily determine the question at issue. Rule 418 specifical
ly provides a party with the right of set-off, whether it is added
as a counterclaim or a cross-demand. Under Rule 2300(1), the
power to grant a garnishee order is discretionary. Such an order
may be refused where it would be inequitable to grant it. In the
case at bar, it appears that the judgment debtor may presently
be involved in bankruptcy proceedings. In such a case, it would
be inequitable to order the garnishee to pay a sum of money to
a judgment creditor, thus favouring it against all other credi
tors. The conduct of admiralty business would not be advanced
by such treatment. Therefore, the defence of set-off ought to be
allowed and the garnishment order denied.
CASES JUDICIALLY CONSIDERED
CONSIDERED:
Gaherty, Appellant, and Torrance et al., Respondents
(1862), VI L.C. Jur. 313 (Q.B.); Halcrow & Lemesurier
(1884), X Q.L.R. 239 (Q.B.); Spindler, et. al. v. Farqu-
har (1905), 38 N.S.R. 183 (C.A.); The Insurance Com
pany of North America v. Colonial Steamships Limited,
[1942] Ex.C.R. 79; Kaps Transport Ltd. v. McGregor
Telephone & Power Construction Co. Ltd. (1970), 13
D.L.R. (3d) 732 (Alta. C.A.); Tapp v. Jones (1875), 10
L.R.Q.B. 591; Rymill v. Wandsworth District Board
(1883), Cab. & El. 92 (Q.B.); Hale v. Victoria Plumbing
Co. Ltd., [1966] 2 Q.B. 746 (C.A.); Pritchard v. West-
minster Bank, Ltd. (Westminster Bank, Ltd., Garnishee),
[1969] 1 All E.R. 999 (C.A.); Lee (George) & Sons
(Builders) Ltd v Olink, [1972] 1 All ER 359 (C.A.).
REFERRED TO:
St. Lawrence Construction Limited v. Federal Commerce
and Navigation Company Limited, [1985] 1 F.C. 767; 56
N.R. 174; 32 C.C.L.T. 19 (C.A.); Meyer v. Dresser
(1864), 33 (Part II) L.J.C.L. (N.S.) 289 (Trinity Term);
Aries Tanker Corporation v. Total Transport Ltd. (The
"Aries"), [1977] 1 Lloyd's Rep. 334 (H.L.); A/S Gunn-
stein & Co. K/S v. Jensen Krebs and Nielson (The "Alfa
Nord"), [1977] 2 Lloyd's Rep. 434 (C.A.); R H & D
International Ltd v IAS Animal Air Services Ltd, [1984]
2 All ER 203 (Q.B.); The "Brede", [1973] 2 Lloyd's
Rep. 333 (C.A.).
COUNSEL:
Gerald P. Barry for judgment creditor.
Martine Tremblay for garnishee.
SOLICITORS:
Barry & Associates, Montreal, for judgment
creditor.
Harris, Allain, Thomas, Mason, Montreal,
for garnishee.
The following are the reasons for order ren
dered in English by
Dust J.: The question to be answered in these
garnishee proceedings is whether or not a garni
shee ("Brunswick") can set off as against the
judgment creditor ("S/S Steamship") damages
due to delay against freight owing to the judgment
debtor ("Eastern") under a bill of lading. More
generally speaking it must be determined whether
this is an appropriate case for the issuance of a
garnishment order under Federal Court Rule 2300
[C.R.C., c. 663].
The essential facts, as set out in Brunswick's
affidavit, are as follows. On May 25, 1984 Bruns-
wick sold perishable goods (herring) to Maison
Villard, Port-au-Prince, Haiti. Eastern undertook
to take the cargo from Saint John, New Brunswick
on May 28, 1984 and to deliver them to Port-au-
Prince, Haiti, on June 1, 1984. Eastern only left on
June 12, 1984 and did not arrive until June 26,
1984. Maison Villard accepted the late delivery
subject to a readjustment downwards in the pur
chase price, as a result of which Brunswick is in
the process of paying to Maison Villard its claim
against it of U.S. $12,000. (The freight payable to
Eastern on the bill of lading is in the amount of
U.S. $8,700.) Brunswick therefore claims that it
owes nothing to Eastern.
Logically, the first issue to be resolved is wheth
er or not, in an ordinary action between two
parties ("Eastern" against "Brunswick"), a
defendant could raise the defence of set-off against
a claim for payment of freight under a bill of
lading and, secondly, whether that defence may be
raised by a garnishee ("Brunswick") against a
judgment creditor ("S/S Steamship") in garnishee
proceedings.
A review of the English common law in admiral
ty matters discloses that set-off for damages
cannot be raised as a defence in an action for
freight due under a bill of lading.' That rule has
been referred to recently by the Federal Court of
Appeal in St. Lawrence Construction Limited v.
Federal Commerce and Navigation Company
Limited. 2 In an obiter statement Stone J. said as
follows [at page 196 N.R.; 54 C.C.L.T.]:
But in view of the fact that the point has become academic it is
unnecessary to say anything more upon the question except
possibly to observe that the modern cases appear strongly to
support the appellant's argument that a set-off against freight
is not permitted in a case of this kind.
It would appear that the English authorities
recognize that the rule is not in accordance with
the general principles as applied in non-admiralty
commercial matters. In The "Brede" case [supra],
Lord Denning stated that freight due under a bill
of lading ought to be paid promptly so as to avoid
unscrupulous claims from causing undue delay in
the good conduct of business. According to the
Master of the Rolls such claims should be made in
separate actions by the cargo-insurers subrogated
in the claims of the cargo-owners against the
shipping company.
The House of Lords admitted in the Aries
Tanker case (supra) that the rule is in large
measure arbitrary, but concluded that certainty in
admiralty dealings, coupled with the awareness by
all parties concerned of the rules, provided suffi
cient reason for not disturbing a long-standing rule
of admiralty law.
The difficulty in the instant case is that the
English authorities do not necessarily reflect the
law applicable in Canada. In the St. Lawrence
Meyer v. Dresser (1864), 33 (Part II) L.J.C.L. (N.S.) 289
(Trinity Term); The "Brede", [1973] 2 Lloyd's Rep. 333
(C.A.); Aries Tanker Corporation v. Total Transport Ltd.
(The "Aries"), [1977] 1 Lloyd's Rep. 334 (H.L.); AIS Gunn-
stein & Co. K/S v. Jensen Krebs and Nielson (The 'Alfa
Nord"), [1977] 2 Lloyd's Rep. 434 (C.A.). See also: 42 Hals -
bury (4th), paras. 411-416.
2 [1985] 1 F.C. 767; 56 N.R. 174; 32 C.C.L.T. 19 (C.A.).
Construction decision (supra) the Federal Court
of Appeal noted that two Quebec cases Gaherty,
Appellant, and Torrance et al., Respondents 3 and
Halcrow & Lemesurier 4 went the other way. The
first Quebec action was for freight and it was met
by a defence of set-off or counterclaim due to
water damage. It was held that the damage could
be set off against the freight. In the second Quebec
decision it was held that damages for bricks
destroyed by a faulty unloading technique could be
set off against a claim for freight.
In addition to the two Quebec cases other
Canadian cases would appear to indicate that set-
off may be available in an action for freight.
For instance, in Spindler, et. al. v. Farquhar, 5
an action in a Nova Scotia Court to recover freight
on the basis of a charter-party (not a bill of
lading), the defendant successfully counterclaimed
for damages amounting to the value of the cargo
of fish which rotted due to the master's unjustifi
able delay in delivery.
The Exchequer Court of Canada, on appeal
from an Ontario District Judge in admiralty in
The Insurance Company of North America v.
Colonial Steamships Limited 6 dealt with an
action which involved a claim for damages to the
cargo by the endorsee of the bills of lading and the
owner of the cargo (being the plaintiff insurance
company). The shipowner counterclaimed for a
general average contribution. The defendant was
found not liable and the counterclaim succeeded.
It should be noted that the English rule prevent
ing set-off for damages in an action for freight on
a bill of lading in admiralty matters has recently
3 (1862), VI L.C. Jur. 313 (Q.B.).
4 (1884), X Q.L.R. 239 (Q.B.).
5 (1905), 38 N.S.R. 183 (C.A.).
6 [ 1942] Ex.C.R. 79.
been held to apply equally in England to freight
due under a contract of carriage for ground trans
portation (R H & D International Ltd v IAS
Animal Air Services Ltd).' Such may not be the
law in Canada as viewed by the Alberta Court of
Appeal.
In Kaps Transport Ltd. v. McGregor Telephone
& Power Construction Co. Ltd., 8 that Court heard
an action for recovery of an amount due on a
contract of carriage by truck where the defendant
raised the defence of set-off for damage to the
goods shipped. The plaintiff moved to have the
set-off or counterclaim struck out. It was held that
striking out was not necessary as the claim could
be conveniently disposed of in the same action.
Assuming for the moment that there is an
arguable case that a defendant may invoke a
defence of set-off for damages in an ordinary
action for freight due under a bill of lading in
Canada, the second question now comes into play,
as to whether or not such a defence may be raised
by a garnishee against a judgment creditor.
Under the English jurisprudence it is clear that
where set-off is a good defence in an ordinary
action, it may also be invoked by the garnishee
against the judgment creditor. In Tapp v. Jones, 9
Blackburn J. says in obiter that the garnishee may
set off a cross-debt owing to him by the judgment
debtor. In Rymill v. Wandsworth District Board, 10
the garnishee owed the judgment debtor a sum for
construction work. However, the latter owed a
larger amount to the garnishee under a contract of
indemnity protecting the garnishee against any
third party action for damages arising from the
construction. The Court held that a defence of
set-off was available to the garnishee against the
judgment creditor. In Hale v. Victoria Plumbing
[1984] 2 All ER 203 (Q.B.).
8 (1970), 13 D.L.R. (3d) 732 (Alta. C.A.).
9 (1875), 10 L.R.Q.B. 591.
10 (1883), Cab. & El. 92 (Q.B.).
Co. Ltd.," a much more recent decision, the garni
shee allegedly owed the judgment debtor a sum for
work performed on a subcontract. The garnishee
disputed any debt on the grounds that the subcon
tract had been badly performed. This was held to
be a counterclaim amounting to an equitable set-
off even though the garnishee had instituted no
action. Thus, an unliquidated sum of damages for
shoddy performance was set off against the
amount owing on the subcontract. The English
rules in question in that case were virtually identi
cal to Federal Court Rules 418 and 2300(8). The
latter reads as follows:
Rule 2300. .. .
(8) Where the garnishee disputes liability to pay the debt
claimed to be due or accruing due from him to the judgment
debtor, the Court may summarily determine the question at
issue or order that any question necessary for determining the
liability of the garnishee be tried in any manner in which any
question or issue in an action may be tried.
Thus, that Rule authorizes the Court to sum
marily determine the question at issue, or order
that any question necessary for determining the
liability of the garnishee be tried. In the present
proceedings, Brunswick has filed an affidavit and
was represented by counsel. The affiant was not
cross-examined: his evidence has to be accepted as
true for the purpose of this motion. Nothing was
heard from Eastern. According to counsel, it
would appear that the solvency of Eastern is in
doubt and it may presently be involved in bank
ruptcy proceedings. Obviously, in such a case there
would be no merit in paying freight promptly as
the payment would not go to the shipping company
but to a creditor. The conduct of admiralty busi
ness would not be advanced by favouring one
creditor to the detriment of the other creditors.
And, as revealed from my review of the Canadian
jurisprudence in the matter, the certainty about
the English rule against set-offs in admiralty, is
not clearly perceived in Canada.
" [19661 2 Q.B. 746 (C.A.).
Over and above the English rule against set-off
in admiralty, there may be equitable reasons for
not issuing a garnishee order. Under English
Order 49, Rule 5 of the Rules of the Supreme
Court 1965 [S.I. 1965/1776], it has been held that
the words "the Court may" (which also appear in
Federal Court Rule 2300(1)) render the power to
grant a garnishee order discretionary. Such an
order has been refused where it would be inequit
able to grant it. In Pritchard v. Westminster Bank,
Ltd. (Westminster Bank, Ltd., Garnishee), 12 it was
held by Lord Denning M.R. that in a case where
the judgment debtor is insolvent the rules of insol
vency apply and no preference ought to be created
among the creditors by way of garnishment.
In Lee (George) & Sons (Builders) Ltd y
Olink, 13 it was held that if the solvency of a
judgment debtor is in doubt the money in the
hands of the garnishee may be ordered paid into
Court, pending an inquiry into the solvency of the
judgment debtor.
Thus, whereas English jurisprudence has defi
nitely established the rule against set-off in admi
ralty actions under a bill of lading, such a prohibi
tion has not been clearly endorsed by the Canadian
courts. The broad power of the Federal Court to
strike out a pleading under Rule 419, where a
party has no reasonable cause, may always be
invoked in these matters. Moreover, our Rule 418
specifically provides a party with the right of
set-off, whether it is added as a counterclaim or a
cross-demand. Furthermore, I must bear in mind
the inequity of such an order which would com
mand Brunswick to pay a sum of money to a
judgment creditor, to which it owes nothing, thus
favouring it as against all other creditors of an
apparently insolvent company which may turn out
to be itself indebted to Brunswick.
12 [1969] 1 All E.R. 999 (C.A.).
13 [1972] 1 All ER 359 (C.A.).
On my view of the law I am prepared to find
that the defence of set-off ought to be allowed in
the instant case. Even if I am wrong in this
conclusion, I think that the applicable equitable
principles and doubts as to the solvency of the
judgment debtor make this an appropriate case for
the exercise of my discretion not to allow a gar-
nishment order.
The judgment creditor ("S/S Steamship")
remains, of course, free to pursue other means of
enforcing its judgment against the judgment
debtor ("Eastern"). Furthermore, I wish to make
it quite clear that my decision as to the defence of
set-off only applies as between the judgment credi
tor and the garnishee ("Brunswick") in these gar-
nishment proceedings. The order which will follow
shall not constitute a res judicata or an issue
estoppel as between Eastern and Brunswick.
ORDER
The garnishment order is denied and there shall
be no attachment of money. No costs to any of the
parties.
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.