JPMorgan Chase Bank v. Mystras Maritime Corp.

JPMorgan Chase Bank v. Mystras Maritime Corp.
Court (s) Database
Federal Court Decisions
Date
2005-06-17
Neutral citation
2005 FC 864
File numbers
T-531-03
Decision Content
Date: 20050617
Docket: T-531-03
Citation: 2005 FC 864
ADMIRALTY ACTION IN REM
BETWEEN:
JPMORGAN CHASE BANK (formerly
The Chase Manhattan Bank)
and
J.P. MORGAN EUROPE LIMITED (formerly
Chase Manhattan International Limited)
Plaintiffs
and
MYSTRAS MARITIME CORPORATION
and
THE OWNERS AND ALL OTHERS
INTERESTED IN THE SHIP "LANNER"
and
THE SHIP "LANNER"
Defendants
REASONS FOR ORDER
RICHARD MORNEAU, PROTHONOTARY:
Introduction
[1] In this motion, a bank, on the one hand, and a number of suppliers of necessaries, on the other hand, are competing for all or part of the balance of the proceeds of a judicial sale of a ship.
[2] The bank will prevail unless, as one possibility, certain suppliers can claim via their contract a maritime lien under U.S. maritime law and thereby rank before the bank in the traditional order of priority or, as a second possibility, some suppliers are able to demonstrate through some very persuasive evidence that there is reason to rearrange this order of priority in the interests of equity owing to very special circumstances, and that it is essential to disrupt these priorities in order to prevent an obvious injustice.
[3] For the following reasons, I do not think the suppliers have established either of these possibilities. Consequently, the bank will be authorized by the order accompanying these reasons to receive in full the balance of the proceeds of sale of the vessel.
Facts
[4] The facts essential to a proper understanding of this decision are the following, in my opinion.
[5] The plaintiffs (hereinafter collectively the Bank) establish their situation as mortgagees primarily through an affidavit of Ms. Parisa Suvarnatemee dated July 30, 2003.
[6] Ms. Suvarnatamee is an officer of the Bank and in her affidavit (the Bank's claim affidavit) she testifies to the following facts. It should be noted that Ms. Suvarnatemee was not cross-examined on her affidavit although the order of this Court, dated September 15, 2004, provided a period for the Bank and the suppliers as claimants to conduct cross-examinations on affidavits. In fact, apart from the attack on the validity of the mortgage held by the Bank against the disputed vessel, "The Lanner" (hereinafter the Lanner), the facts and information recited in the Bank's claim affidavit have not been challenged by the suppliers.
[7] Thus the Bank establishes in its claim affidavit that on August 1, 2000, it signed a loan agreement (the loan) with three borrowers covering an amount of $27,500,000 (this amount is in U.S. dollars, as are all the other amounts referred to in these reasons). The loan establishes that the three borrowers are bound jointly and severally.
[8] The three borrowers were composed of the defendant Mystras Maritime Corporation (Mystras), Twin Seas Shipping Corporation (Twin Seas) and Alchemy Shipping Corporation (Alchemy).
[9] At all relevant times, Mystras was the owner of the Lanner, Twin Seas was the owner of the vessel Peregrine and Alchemy of the vessel Hobby.
[10] The loan provided that as security the borrowers gave the Bank an assignment of all profits or revenues that the three ships might bring in.
[11] The loan also provided as security a grant in favour of the Bank of a first mortgage. The Bank's claim affidavit establishes that this mortgage was registered on August 3, 2000 with the authorities of Liberia, the "Bureau of Maritime Affairs of the Republic of Liberia".
[12] We note at this point that the validity of this mortgage in light of Liberia's legal requirements for mortgage registration has been challenged by the suppliers. We will have occasion, at the beginning of the analysis, at paragraphs 23 et seq., to come back to this attack.
[13] As might be suspected, since the Bank eventually recovered the ships covered by the mortgage, the borrowers were in breach of their obligations under the loan.
[14] Indeed, an initial event of default under the loan occurred in February 2002, when the borrowers began failing to deposit with the Bank the revenues derived from the operation of the mortgaged ships.
[15] A second event of default occurred at the end of June 2002, and at the end of December 2002 when the borrowers failed to repay respectively two amounts owing to the Bank as payments in principal on the loan.
[16] Although the Bank in early January 2003 demanded that the borrowers remedy these breaches, they did nothing and in early March 2003, the Bank notified the borrowers that it was demanding immediate payment of all sums owing under the loan.
[17] It was in March 2003 that the Bank took possession of the three ships covered by the loan. They have since been sold.
[18] An accounting prepared by the Bank through its affidavit of claim and an affidavit of a Maxine Graves - an accounting that has not been challenged - leads us to find that as of December 30, 2004, a sum of $10,772,659.37 was still owing by the defendant and borrower Mystras under the loan.
[19] The Lanner was sold for $6,900,002. Of this sum, close to $4.2 million was paid to various claimants, including a partial payment to the Bank, leaving a balance of $2.7 million that is now in dispute between the Bank and the remaining suppliers.
[20] The latter, fifteen (15) in all, were represented by three different law firms. Where applicable, each attorney indicated at the hearing that he was adopting on behalf of his clients the submissions made by the other two counsel acting for the suppliers.
[21] In terms of such representation, these suppliers were as follows:
(1) Kent Trade & Finance Inc. (Kent Trade);
(2) E.N. Bisso & Son, Inc. (E.N. Bisso);
(3) Chengxi Shipyard (Chengxi);
(4) Huashun Ocean Shipping Supply Co. Ltd. (Huashun);
(5) Suderman & Young Towing Company, L.P. (Suderman);
(6) Praxis Energy Agents S.A. (Praxis);
(7) CP3500 International Ltd. (CP3500);
(8) Gulf Marine Industrial Supplies, Inc. (Gulf Marine);
(9) Robin Maritime Agencies LLC (Robin Maritime);
(10) Robin Ship Agency (South Atlantic) LLC (Robin Ship);
(11) Ashland Specialty Chemical Company (Ashland);
(12) Marine Fuels Ltd. (Marine Fuels);
(13) Hellas Supply Co. Inc. (Hellas);
(14) International Paint Inc. (International Paint);
(15) Calogeras and Master Supplies, Inc. (Calogeras).
[22] All of these entities (hereinafter collectively and as already designated "the suppliers") have supplied either to the Lanner or to a series of about twelve (12) other oil-tanker vessels (which these suppliers all see as sister ships or twins of the Lanner) goods, work or services that all qualify as necessary supplies for the purposes of paragraphs 22(2)(m) and (n) of the Federal Courts Act, R.S.C. 1985, c. F-7, as amended, and the traditional or usual order of priority. As an indication, we are essentially in this case talking about supplies in fuel oil and sometimes paints and towing services, and even repairs to the Lanner when it was in China (Chengxi claim).
Analysis
[23] It appears to me that the analysis herein should appropriately be divided into three major parts.
[24] First, it will be necessary to rule on the validity and effectiveness of the mortgage held by the Bank.
[25] Second, it will be necessary to consider the claims of certain suppliers who argue that they hold a maritime lien on the Lanner under a provision of their contract with the Lanner's owner; a provision that basically establishes that the parties accept the general maritime law of the United States. In the case of Calogeras, its contract seeks by itself to create a maritime lien.
[26] Third and finally, we will consider the contention of a number of suppliers that there should in this case be a rearrangement of the traditional order of priority in the interest of equity.
1. Validity and effectiveness of the Bank's mortgage
[27] It was the suppliers Hellas and International Paint that developed this point at the hearing. However, I assume that the other suppliers adopt what Hellas and International Paint say.
[28] The suppliers Hellas and International Paint supplied some ships they consider sister ships of the Lanner. Hellas and International Paint - like the other suppliers who supplied other vessels considered sister ships of the Lanner - each acknowledge (with the exception of the supplier Calogeras) that they can claim against the Lanner only a right in rem as provided by law : the statutory right in rem that is found in theory in point 7 of the usual order reproduced hereunder in paragraph 39.
[29] The interest for these suppliers, including Calogeras, in attacking the validity of the Bank's mortgage lies in the fact that this mortgage ranks higher than they do in the traditional order of priority. If the mortgage is removed, their claim could be satisfied in whole or in part by the balance of the proceeds of sale of the Lanner.
[30] In their written submissions filed after the Bank tendered its affidavit of claim, Hellas and International Paint simply point in a general way to their attack, as follows, in paragraph 6(a):
6. a) the lack of legal evidence as to the validity of Plaintiff's alleged mortgage and as to whether such mortgage secures Plaintiffs' alleged claim;
[31] At the hearing, counsel for these suppliers noted that, in light of the requirements of the law of Liberia, the Bank did not have any experts' affidavits equivalent to those on which my colleague Hargrave P. relied when he held, in Royal Bank of Scotland plc v. Golden Trinity (The), [2004] F.C.J. No. 992 (hereinafter The Golden Trinity) that the mortgages submitted to him were valid.
[32] My attention was more specifically drawn to paragraph 10 of that judgment, in which my colleague states:
10. In 1995 RBS, a knowledgeable maritime lender of Edinburgh, Scotland, decided to advance $60,000,000.00 to seven borrowers to refinance various vessels and provide working capital. Among the borrows were the owners of the Golden Trinity and Ypapadi. The loan was secured by marine mortgages dated 12 October 1995 and was pursuant to the terms of a loan agreement of 6 October 1995. Here I would note that I am satisfied that the mortgages of the Golden Trinity and Ypapadi, as well as the subsequent mortgages granted to RBS, were properly registered, constituting first registered charges over each of the vessels, or in the case of subsequent mortgage security, a second charge behind that already held by RBS: this is apparent from the evidence overall and from the fact that the opinions on the security given by Dr. Bianchi and by Ms. Diaz, experienced maritime lawyers familiar with marine securities, were neither subject to cross-examination nor contradicted by other evidence.
[33] I do not think my colleague intended, by this extract, to create a requirement with precedential value and establish that this Court's recognition of the validity and effectiveness of any mortgage registered in a foreign country depended on the production of affidavits of lawyers specializing in the maritime law of the country in question.
[34] In the case at bar, absent any cross-examination of the affiant who produced the Bank's affidavit of claim, I am satisfied on the basis of this affidavit and the exhibits it contains that the Bank's mortgage is valid and effective and that the mortgage and the loan it secures are enforceable in this Court in this case.
[35] Since the Bank's mortgage is a valid security, it is now necessary to look at whether the contract between certain suppliers and the owner of the Lanner allows them to accede to the status of maritime lienholders in regard to necessaries supplied to the Lanner, given the reference to U.S. maritime law in these contracts.
II. Contractual provision and applicable substantive law
[36] No one questions that the intention expressed by the parties to a contract becomes the law between them. I think this concept or limitation must be borne in mind when we assess and distinguish the instant case from the decisions of this Court in Textainer Equipment Management B.V. v. Baltic Shipping Company, [1994] F.C.J. No. 1267 (hereinafter Textainer Equipment Management), and Kirgan Holding S.A. v. Panamax Leader (The) (2002), 225 F.T.R. 273.
[37] In this case, however, the suppliers (1) Kent Trade, (6) Praxis, (7) CP3500, (11) Ashland and likewise, in the end, (15) Calogeras, are asking that a provision in their procurement contract with the owners of the Lanner, a provision basically providing that the contract is subject to the general maritime law of the United States, be the only factor governing the applicable substantive law and the suppliers' priority status. The suppliers, therefore, are unmistakeably seeking to assert against the Bank, inter alia, a provision of a contract to which the Bank is not a party.
[38] The interest these suppliers have in seeing American maritime law apply lies in the following observations.
[39] In Governor and Company of the Bank of Scotland v. Nel (The) (T.D.), [2001] 1 F.C. 408 (hereinafter The Nel), my colleague Hargrave P. describes the usual priorities, as follows, at page 419:
SOME USUAL PRIORITIES
[4] The priorities given to maritime claims in Canada are set out in a number of cases including Comeau's Sea Foods Ltd. v. The Frank and Troy, [1971] F.C. 556 (T.D.); Todd Shipyards Corp. v. Altema Compania Maritima S.A., [1974] S.C.R. 1248 [hereinafter referred to as The Ioannis Daskalelis]; Osborn Refrigeration Sales and Service Inc. v. The Atlantean I, [1979] 2 F.C. 661 (T.D.); Llido v. The Lowell Thomas Explorer, [1980] 1 F.C. 339 (T.D.); Scott Steel Ltd. v. Alarissa (The), [1996] 2 F.C. 883 (T.D.); upheld on appeal (1997), 125 F.T.R. 284; Fraser Shipyard and Industrial Centre Ltd. v. Atlantis Two (The) (1999), 170 F.T.R. 1 (F.C.T.D.); and Holt Cargo Systems Inc. v. Brussel (The), [2000] F.C.J. No. 197 (T.D.) (QL). These cases, taken together, principles from which I have applied, deal extensively with most of the priorities issues which one might encounter.
[5] Returning to the basic ranking of in rem claims in Canada, it is as follows:
1. Disbursements of the admiralty marshall or sheriff;
2. The costs of the sale, including those of the plaintiff in an action arising out of arrest, appraisal and sale, or in the alternative, the claim of a party, other than the plaintiff, who has been instrumental in bringing the ship to sale;
3. Possessory liens predating other liens;
4. Maritime liens;
5. Possessory liens arising after maritime liens;
6. Mortgages;
7. Statutory rights in rem, including for the supply of necessaries, which rank pari passu among themselves.
[Emphasis added]
[40] It is common ground that under the above list, a supplier of necessaries comes within point 7, and thus ranks behind a mortgagee.
[41] The same supplier's situation is very different under U.S. maritime law where the supplier is a maritime lienholder. This finding is fully established in the following extracts from the decision of the Federal Court of Appeal in Imperial Oil Ltd. v. Petromar Inc. (2001), 209 D.L.R. (4th) 158 (hereinafter Imperial Oil), where Stone J.A., for the Court, states at pages 161-62 and 171-72:
[1] This appeal from an order of the Trial Division dated August 16, 2000, raises an issue of whether, having regard to Canadian conflict of laws rules, the supply of marine lubricants in Canada to two Canadian-registered vessels pursuant to an arrangement made by their manager with corporations in the United States, gave rise to a maritime lien under the maritime law of the United States or, instead, to a statutory right in rem against the vessels under Canadian maritime law.
[2] As the appellant submits, it would appear that the policy of the law in the United States is to protect the interest of suppliers by granting a maritime lien for necessaries supplied to a vessel. By contrast, the policy of Canadian maritime law is to deny a supplier such a lien and, instead, leave that person with either a right in personam against the debtor or, in the circumstances described below, a statutory right in rem against the vessel. Canadian policy would seem to be more protective of the vessel's interests in this regard. By processing a maritime lien the supplier of a vessel under the law of the United States occupies a far superior position to that of a supplier of a vessel under Canadian maritime law. As a maritime lienholder under the law of the United States, the supplier is entitled to rank above non-maritime lienholders and others including mortgagees. In Canada, by contrast, the supplier of a vessel ranks well down the scale of priorities as compared with maritime lienholders. Herein lies the conflict between the two systems of law.
....
[24] In finding in favour of Petromar, the Trial Judge distinguished between the relevant maritime law of the United States and that of Canada on the point. As has been noted, under the maritime law of the United States, unlike that of Canada, a maritime lien for necessaries exists. The term "necessaries" includes marine lubricants supplied to a vessel. This right to a maritime lien for necessaries is currently provided for in the Commercial Instruments and Maritime Liens Act, 46 U.S.C. paras. 31301-31343, particularly paragraph 31342 which reads:
31342. Establishing maritime liens
(a) Except as provided in subsection (b) of this section, a person providing necessaries to a vessel on the order of the owner or a person authorized by the owner -
(1) has a maritime lien on the vessel;
(2) may bring a civil action in rem to enforce the lien; and
(3) is not required to allege or prove in the action that credit was given to the vessel.
(b) This section does not apply to a public vessel.
It will be noticed that by these provisions the lien is intended to attach whether the necessaries are supplied on the order of the vessel owner or of a person authorized by the owner
[25] The Trial Judge noted and the parties agreed that Canadian maritime law does not recognize a maritime lien for necessaries. This is apparent from an examination of the relevant provisions of the Federal Court Act, R.S.C. 1985, c. F-7. While subsection 22(2) of that Act lists various matters over which the Federal Court is granted jurisdiction, the Court's jurisdiction in rem over claims included in section 22 is, by subsection 43(3), so limited that a claim "in respect of goods, materials or services .... supplied to a ship for the operation or maintenance of the ship" provided for in paragraph 22(2)(m), cannot be enforced in an action in rem "unless, at the time of the commencement of the action, the ship ... that is the subject of the action is beneficially owned by the person who was the beneficial owner at the time when the cause of action arose". The result in law is that an unpaid supplier of goods to a vessel cannot claim the benefit of a maritime lien against the vessel. Instead, such a person is left to bring an action in rem against the vessel provided its beneficial ownership has not changed between the date the cause of action arose and the date the action is commenced, or to pursue the debtor in an action in personam in this Court or elsewhere. The case law both in England and in Canada is clearly to the effect that a supplier of necessaries is not entitled to a maritime lien but only to a statutory right in rem which is sometimes referred to as a "statutory lien". That law is conveniently summarized in Coastal Equipment Agencies Ltd. v. The Ship "Comer", [1970] Ex. C.R. 12; Mount Royal/Walsh Inc. v. The Ship Jensen Star, [1990] 1 F.C. 199 (C.A.).
[42] This Imperial Oil judgment is not only of interest for the foregoing remarks, but also seems to me to be central for disposing of the claims hereunder against the Lanner. In fact, in Imperial Oil, the Court had to assess the appropriate weight to be given to a contractual clause referring to U.S. maritime law but to which the plaintiff, Imperial Oil Ltd., was not a party.
[43] In this judgment, Imperial Oil Ltd., the owner of the ships Le Brave and A.G. Farquharson, chartered them to Socanav. This charterer assigned the management of the ships to the Star corporation. Star, in return, entered into a contract with Petromar, a supplier of marine lubricants. Petromar had itself previously contracted with the corporation E.C.I. in relation, if I understand correctly, to supplies that were to be given to Petromar. The contract between Star and Petromar and the contract between Petromar and E.C.I. contained a provision with respect to the application of the law of the State of New York.
[44] In a declaratory action brought by Imperial Oil Ltd., the Federal Court, in the Trial Division, then on appeal, had to consider the following question submitted by the parties in a motion for a decision on a question of law:
Whether Petromar Inc. has a maritime lien on the vessels M.V. "LE BRAVE" and M.V. "A.G. FARQUHARSON" as a result of the supply to the said vessels of marine lubricants.
[45] As we saw in the quotation reproduced at paragraph 41, supra, Stone J.A. acknowledged at paragraph 2 in fine of his reasons that the situation being analyzed involved a conflict between two legal systems.
[46] Later, at paragraph 14, Stone J.A. holds that it is under the Canadian conflict of laws rules that the choice of U.S. or Canadian substantive law must be resolved. The judge states:
[14] The parties agree that the determination of applicable substantive law is to be made according to Canadian conflict of laws rules. They also agree that if the transactions are governed by United States substantive law, the supply of marine lubricants gives rise to a maritime lien enforceable by way of an action in rem against the vessels and that Petromar is entitled to judgment for the unpaid debt as converted to Canadian currency; correspondingly, if the transactions are governed by Canadian substantive law, the appellant is entitled to a declaration that Petromar has no maritime lien in rem against the vessels.
[47] At paragraph 16 of his decision, Stone J.A. refers as follows to the approach and the test adopted by the trial judge in determining whether U.S. or Canadian law should govern the situation then under review (as we will see very shortly, Stone J.A. indicated his agreement with this choice of test):
[16] The Trial Judge first selected the test he considered appropriate for determining whether the law of Canada or of the United States should govern the transaction. It was his view that the appropriate test was: With what jurisdiction did the transactions have "the closest and most substantial connection"? In applying that test, the Trial Judge examined and weighed a number of factors which it was argued connected the transactions more closely to either Canada or the United States. Before doing so he turned for guidance to American jurisprudence enumerating various connecting factors to be weighed and assessed. In the leading American case of Lauritzen v. Larsen, 345 U.S. 571 (1953) the Supreme Court of the United States set out, at 583-591, seven connecting factors or points of contact to be weighed and considered "alone or in combination" in determining whether liability for an injury sustained by a seaman on board a Danish ship in Cuban waters should be governed by the Jones Act, 46 U.S.C. para. 688 or by some foreign system of laws.
[48] It will be noted that Stone J.A. emphasizes that the trial judge drew on the factors contained in the decision of the United States Supreme Court in Lauritzen v. Larsen, 345 U.S. 571 (1953) (hereinafter the Lauritzen judgment).
[49] The suppliers in our case argued strongly against resorting to the Lauritzen judgment, which cites connecting factors to be considered in determining which jurisdiction presents the closest and most substantial connection. In their view, the appropriate jurisdiction is the one appearing in the clause in the parties' contract. They add that Lauritzen is a case of extra-contractual liability, a context that is different from the one at bar, therefore.
[50] I am unable to follow the suppliers on this point. In Imperial Oil, the Court was looking at a contractual situation. Stone J.A. notes not only that the trial division had referred to Lauritzen but emphasizes, still at paragraph 16 of his reasons, that six years after its decision in Lauritzen, the U.S. Supreme Court
[...] extended the Lauritzen approach so as to "guide courts in the application of maritime law generally": Romero v. International Terminal Operating Co., 358 U.S. 354 (1959).
[51] Later on in his analysis in Imperial Oil, Stone J.A. adopted Lauritzen in paragraph 31 of his reasons, stating:
[31] There is no dispute that the Lauritzen factors as supplemented and applied by the courts in the United States should be considered and weighed in determining whether the transactions have "the closest and most substantial connection" to the substantive law of Canada or of the United States. It would seem helpful to take those factors into account despite the fact that they have been prescribed by the United States Supreme Court whose judgments are not binding on Canadian courts.
[52] Previously, at paragraph 30 of his reasons, Stone J.A. had ultimately said he agreed with the closest and most substantial connection test adopted by the trial judge:
[30] Before the Trial Judge and again in this Court, the appellant urged that the "closest and most substantial connection" choice of law test alluded to by Castel, supra, and in the British and Canadian jurisprudence with respect to the proper law of contract, should be applied here. In my view, the Trial Judge was correct in selecting that test.
[53] On the basis of the test he had just adopted, Stone J.A., at paragraphs 35 and 37 of his reasons, differs from the trial judge on the appropriate jurisdiction and situates the weight to be accorded to one or more contracts to which Imperial Oil, the plaintiff, was not a party - contracts containing a clause that would have ranked the suppliers higher in priority through the application of U.S. maritime law. At paragraph 35, it is stated:
[35] The Trial Judge considered the contracts between Star and Petromar and between Petromar and E.C.I. for supply of the marine lubricants to the vessels to be the most significant connecting factor. As has been noted, the parties to those contracts were American and the law of the United States was made applicable to issues of construction, validity and performance. The appellant was not, however, a party to either contract. Nor was Socanav.
[Emphasis added]
[54] And at paragraph 37:
[37] While the Trial Judge was correct in considering and weighing the United States contracts as a factor, and while that factor carries considerable weight, I am not persuaded that it is the most significant factor.
[55] For the purposes of selecting Canada as the jurisdiction with the closest and most substantial connection, Stone J.A. accepts the contracts as a connecting factor but indicates that it is likely of limited weight. At paragraph 39 of his reasons, he states:
[39] The base of operations factor was not considered and weighed by the Trial Judge. However, during oral argument on appeal, at the invitation of the bench, counsel addressed this factor. When the factor is weighed with other factors connecting the transactions to Canada, that which connected the transactions to the United States i.e. the supply contracts, seems less substantial. The actual deliveries of the marine lubricants were made in Canada where the vessels were registered, where both the shipowner and the demise charterer had their respective bases of operations and centres of management and where the vessels traded.
[56] The suppliers in this case argued that Imperial Oil should be distinguished on the grounds, first, that the contracts reviewed by the Court in Imperial Oil contained no clause electing U.S. law, and second, that the Court in that judgment was looking at contracts that by and large were twice removed from the plaintiff Imperial Oil Ltd. This remoteness argument is based on the fact that Socanav was not a party to the contract between Star and Petromar, and thus that Imperial Oil Ltd., which ultimately came behind Socanav, was still less a party.
[57] I do not find either of these arguments persuasive.
[58] In regard to the lack of a clause electing the applicable law, this proposition, when I examine it, appears simply incorrect since, as we saw previously in paragraph 53, in the quotation from the reasons of Stone J.A., a choice of laws was provided in the contracts.
[59] As to the fact that Imperial Oil Ltd. was twice removed from the contracts in question, it is of little importance whether this remoteness factor is or is not present, in my opinion. What is important is that Imperial Oil Ltd. - like the Bank here - is simply not a party to the contracts that it is sought to assert against it.
[60] As for the suppliers (1) Kent Trade, (6) Praxis, (7) CP3500 and (11) Ashland, the Bank included a table in its written submissions. This table, which I reproduce below with some modifications introduced during the hearing, reflects a similar approach to that taken by the Federal Court of Appeal in Imperial Oil. It by and large illustrates that apart from the residence of the claimant Ashland (which is, moreover, challenged by the expert's affidavit of William Juska, dated January 4, 2005, at paragraph 39, and filed by the Bank), no connecting factor links the procurement by these suppliers to the United States. Here is this table:
Claimant
LANNER's Flag State
Vessel Owner's Country of Residence
LANNER's Base of Operations
Location of Supply
Supplier's Country of Residence
Claimant's Country of Residence
(1) Kent Trade & Finance Inc.
Liberia
Liberia
Greece
Canada
Canada (Imperial Oil)
Virgin Islands
(1) Kent Trade & Finance
Liberia
Liberia
Greece
Spain
unknown
Greece
(6) Praxis EnergyAgents S.A.
Liberia
Liberia
Greece
Trinidad
England (BP Marine)
Virgin Islands
(7) CP3500 International Ltd.
Liberia
Liberia
Greece
Singapore
Singapore (CP3500 Asia Pte Ltd.)
Cyprus
(11) Ashland Specialty Chemical Company
Liberia
Liberia
Greece
South Africa
The Netherlands
United States
[61] Even if Ashland's residence were sufficiently established and even if, for all of these suppliers, the presence of the contract each is relying on were placed in the balance, the United States cannot be taken to be the jurisdiction with the closest and most substantial connection, in my opinion. Since the maritime law of the United States is not applicable, then, and the law of no other jurisdiction has been argued or proved, it comes down to applying the maritime law of Canada, by default. (See, for example, The Golden Trinity, at paragraph 56). In this regard, as we saw earlier, under Canadian maritime law a supplier of necessaries does not have a maritime lien and ranks lower than a mortgagee in the traditional priorities.
[62] Consequently, and very clearly, I am unable to hold that the suppliers (1) Kent Trade, (6) Praxis, (7) CP3500 and (11) Ashland are each maritime lienholders against the balance of the proceeds of judicial sale of the Lanner.
[63] As for the supplier (15) Calogeras, I think its situation is not really different from that of the four suppliers just discussed above. Accordingly, the preceding reasons apply to it mututis mutandis.
[64] Calogeras nevertheless sought to assert its eligibility for a maritime lien under clauses 8a) and 14a) in the contract for necessaries that it signed. It appears from the scheme of Calogeras' presentation that it is solely in terms of the contract clauses reproduced below that it seeks recognition of a maritime lien.
[65] These clauses are summarized as follows in paragraphs 9 and 10 of its written submissions:
9. Said General Terms and Conditions provide at clause 8a) that the goods and services provided by Calogeras were supplied on the credit of the supplied vessel and of its sister ships and that, therefore, Calogeras holds and is entitled to assert a maritime lien against the supplied vessel or any of its sister ships for all amounts due to Calogeras;
10. Said General Terms and Conditions provide at claude 14a) that Calogeras shall be entitled to assert its maritime lien in any country where the subject vessel or its sister ships may be found. The creation and existence of a maritime lien in favour of Calogeras over the subject vessel or its sister ship shall be governed by the general law of the United States of America and the laws of the State of New York. For the purpose of asserting Calogeras' maritime lien, all goods and services shall be deemed as having been supplied to the subject vessel in the port of New York, regardless of the actual location of the port(s) where the subject deliveries were in fact effected (see paragraph 9 of Mr. Kottos'Affidavit of Claim);
[66] It must be said first that the supplies referred to here were supplies to some of the twelve (12) ships that the suppliers in general, including Calogeras, regard as sister ships of the Lanner. This is indicated by paragraphs 3, 4, 11 and 12 of the written submissions filed by Calogeras, which are reproduced here:
3. Moreover, Calogeras admits that it has settled with the Plaintiff the invoices directly applicable to supplies furnished to the M.V. "LANNER". Thus, its claim is reduced by the principal amount of CA$74,846.83;
4. Thus the claim of Calogeras is for the principal or capital amount of $550,881.12;
...
11. In accordance with the Affidavit of Mr. James F. Sweeney, a New York Maritime lawyer, having practised American Maritime Law for more than twenty-four years, and after his reading of the Affidavit of Claim of Mr. Kottos, and Calogeras' General Terms and Conditions, the supplies furnished by Calogeras to the vessels MERLIN, LANNER, FALCON, PEREGRINE, KITE, ELEONORA, RAVEN, GOLDER EAGLE, HARRIER, CONDOR and OSPREY, as set out at paragraph 14 of Mr. Kottos' Affidavit of Claim, all qualify as necessaries for the purposes of the vessels, creating an American maritime lien against the respective vessels which benefited from such supplies;
12. In addition, Mr. Sweeney states that under United States law, an enforceable lien can be created by agreement between the vessel and the ship supplier. Thus, pursuant to clause 14 of Calogeras' General Terms and Conditions, under American law, Calogeras has a valid maritime lien enforceable against the supplied vessel or any sister. Moreover, according to clause 14 of Calogeras' General Terms and Conditions, and recognizing that under American law, a maritime lien can be created by contract, supplies furnished to any sister ships conferred a maritime lien in favour of Calogeras on the M.T. LANNER;
[67] It ought to be clear, therefore, that clauses 8a) and 14a) of the Calogeras contract are an attempt to be more clear and direct than the clauses of the four suppliers reviewed previously in that the latters' clauses referred only to American maritime law, which it was said created the maritime lien. Here, in the case of Calogeras, it is the contract clauses directly that themselves attempt to create, to give rise to, this lien.
[68] The fact that the clauses submitted by Calogeras are so drafted does not alter the fundamental fact that the Bank was not a party to the Calogeras supply contracts. Thus, under the judgment in Imperial Oil, these contracts cannot be asserted against it.
[69] We note in passing that even under a connecting factors analysis in determining the jurisdiction with the closest and most substantial connection, I do not think the United States and its maritime law could be adopted. Besides, it will be noted that Calogeras did not seek on the off chance to analyze its own situation in terms of connecting factors. It relied on its contractual clauses.
[70] This reliance on some contractual clauses in an effort to create, to contractually give rise to a maritime lien, brings us back to the judgment in Imperial Oil, in which the Court, in its analysis of the nature and characteristics of a maritime lien - an analysis that must be closely associated with the ratio of that judgment - eventually held that under both Canadian maritime law and American maritime law a contract cannot create a maritime lien. At paragraphs 26 and 27 of the judgment, the Court states its position in the following words:
[26] It seems clear from The "Bold Buccleugh", supra, and, indeed, as the Trial Judge pointed out, a maritime lien arises not from contract but from operation of law in respect of a limited number of claims under Canadian maritime law. These include claims for damage, for seamen's or master's wages or remuneration or for salvage services. The opportunity of such claimants to enforce a maritime lien is recognized by paragraphs 22(2)(d), (j) and (o) of the Federal Court Act read together with subsection 43(3) thereof. A maritime lien for claims of this nature arises by operation of law rather than from the fact that they may originate either in tort or in contract.
[27] The courts of the United States have recognized that the lien arises by operation of law. Thus in Gulf Trading & Transportation Co. v. The Vessel Hoegh Shield, 658 F. 2d 363 (5th Cir. 1981), cert. denied, 457 U.S. 1119 (1982), involving a claim in an action in rem by a supplier (Gulf) of bunker fuel oil and a time charterer (Multinational) for the benefit of a Norwegian ship, Circuit Judge Brown stated at 366:
Gulf's claim to a maritime lien in the Vessel arises by operation of law rather than by contract because the Vessel's owner was not a party to the contract between Gulf and Multinational. The present controversy, and the validity of the maritime lien imposed upon the Vessel, is broader than the failure...to pay for the necessaries provided to the Vessel.
Earlier, in Rainbow Line, Inc. v. M/V TEQUILA, 480 F. 2d 1024 (2d Cir. 1973), Chief Judge Anderson remarked, at 1026:
But maritime liens arise separately and independently from the agreement of the parties, and rights of third persons cannot be affected by the intent of the parties to the contract...
[Emphasis added]
[71] More recently, at paragraphs 76 to 78 of his decision in The Golden Trinity, supra, my colleague Hargrave P. made similar remarks, while appropriately distinguishing Textainer Equipment Management:
[76] Contractual liens are said to arise out of Tramp's standard bunkering terms which provide that when Tramp supplies bunkers to a vessel, in addition to any other security it "is agreed and acknowledged that the lien over the Vessel is thereby created for the price of the product supplied ..." (section 10.01 of Tramp's standard terms). In my view the priority of such a contractual lien falls below that of a mortgage and indeed does not raise such a claim above other statutory in rem necessaries claims.
[77] To elaborate, while Mr. Justice Muldoon left it open in Textainer Equipment (supra) for the parties to a contract to agree to a lien of their own making (page 110), but went on to observe that "... the Court does not suggest that the parties, by agreement, can invent a maritime lien where none has yet been discovered in Canadian maritime law." (page 113).
[78] This was also the view of the Federal Court of Appeal in Imperial Oil (supra) at page 193. The whole area is neatly summed up in Thomas on Maritime Liens, British Shipping Laws, volume 14, Stevens & Sons, London, 1980 at page 24:
A maritime lien arises solely by operation of law and independently of agreement inter partes. No maritime lien can be created by agreement which is not already recognised as a maritime lien under the maritime law. Moreover, to the extent that a recognised maritime lien is expressly provided for by agreement, the agreement itself is not