T-2934-76
International Marine Banking Co. Limited
(Plaintiff)
v.
M/T Dora and Abyreuth Shipping Company Lim
ited (Defendants)
[No. 2]
Trial Division, Thurlow A.C.J.—Montreal,
August 16, 18 and 20; Ottawa, August 24, 1976.
Maritime law—Practice—Application for order to sell
arrested vessel by private contract—Statement of claim served
on vessel but not on corporate defendant—No application for
leave to serve ex juris —Affidavit evidence that price offered
best obtainable, inadmissible—Plaintiffs affidavit of belief in
their truth, admissible—Negotiations for sale without approv
al or authority of Court—Preference given to highest tenderer
contrary to intent of Rule 1007(2)(a)(v)—Plaintiffs procedures
and evidence dubious—Application dismissed—Federal Court
Rules 1003 and 1007(1 ),(2),(3),(4) and (5).
Plaintiffs action commenced July 27, 1976 and the vessel
was arrested the same day. Statement of claim was served on
the vessel but not on the corporate defendant and no applica
tion for leave to serve that defendant ex juris was made. Time
for entering appearance or filing defence was unexpired.
Present application was opposed by charterer, by provisioners
of necessaries and by defendants who gave an acceptable
undertaking to enter an appearance.
Held, the application is dismissed. Rule 1007 provides for the
appraisement and sale of arrested property. Plaintiff has sought
to rely on Rule 1007(1), but since the coming into force of the
Federal Court Act, the Court has proceeded under Rule
1007(2), which describes in detail the reasons and methods for
selling property arrested by the Court. In any event, what is
contemplated is a sale on terms and under conditions ordained
in advance by the Court and not the approval and adoption by
the Court of a sale already arranged by the plaintiff. Plaintiff
claims that costs of maintenance are high, but an order under
Rule 1003(10) could be applied for so as to place the responsi
bility of maintaining the vessel in the hands of the marshal.
Evidence that price tentatively accepted by plaintiff was the
best obtainable consists of two inadmissible affidavits plus the
plaintiff's affidavit that he believes the facts stated in them to
be true. However, the practice of giving the highest tenderer a
preferred opportunity to accept a counter offer is contrary to
the intent of Rule 1007(2)(a)(v). The procedures followed were
neither a satisfactory substitute for what the Court might have
prescribed nor calculated to achieve the best price obtainable
and the Court is not satisfied that the price negotiated was the
best available.
APPLICATION for retroactive order.
COUNSEL:
G. Vaillancourt for plaintiff.
V Prager for M/T Dora.
M. Nadon for Trans-Asiatic Oil Ltd.
M. Savard for Golden Eagle Canada Limited.
P. Q. Davidson for Pera Shipping Corp.
E. Baudry for Clipper Ship Supply Ltd. and
Hitachi Shipbuilding and Engineering.
F. de B. Gravel and S. Harrington for Joseph
Christopher Twite.
SOLICITORS:
Langlois, Drouin & Laflamme, Quebec, for
plaintiff.
Stikeman, Elliott, Tamaki, Mercier & Robb,
Montreal, for M/T Dora.
Martineau, Walker, Allison, Beaulieu,
Phelan & Mackell, Montreal, for Trans-
Asiatic Oil Ltd.
Chauvin, Marler & Baudry, Montreal, for
Golden Eagle Canada Limited, Clipper Ship
Supply Ltd. and Hitachi Shipbuilding and
Engineering.
Brisset, Bishop & Davidson, Montreal, for
Pera Shipping Corp.
Gravel & Associates, Quebec, for Joseph
Christopher Twite.
The following are the reasons for order ren
dered in English by
THURLOW A.C.J.: This is an application by the
plaintiff for an order that the defendant vessel be
sold to Pera Shipping Corporation of Liberia by
private contract, before judgment, without
appraisement and without notice, for $5,900,000.
Having regard to the normal procedure of this
Court it is an extraordinary application and what
preceded it must be regarded as extraordinary as
well.
The vessel is a motor tanker of some 95,000
dead-weight tons. She is presently under arrest at
Quebec in this and another action, the other
having been brought at the suit of her master on
behalf of himself and the crew for wages in the
amount of $175,000. Several caveats against her
release have also been filed.
The plaintiff's action was commenced on July
27, 1976. A warrant was issued and the vessel was
arrested the same day. The statement of claim was
also served on the vessel. It has not been served on
the corporate defendant and no application for
leave to serve that defendant ex juris has been
made. The claim is upon three mortgages for
amounts totalling more than $9,000,000. The time
for entering an appearance or filing a defence has
not expired.
The application was opposed by counsel on
behalf of Trans-Asiatic Oil Limited, a party claim
ing to be interested as charterer under a time
charter which has two years to run, by counsel on
behalf of two caveators whose claims are for neces
saries, and by counsel on behalf of the defendants,
on his giving the Court an acceptable undertaking
with respect to the entry of an appearance by the
defendants.
Rule 1007 of the Rules of this Court which
provides for the appraisement and sale of arrested
property contains the following provisions:
Rule 1007. (1) The Court may, either before or after final
judgment, order any property under the arrest of the Court to
be appraised, or to be sold with or without appraisement, and
either by public auction or by private contract, and may direct
what notice by advertisement or otherwise shall be given or
may dispense with the same.
(3) If the property is deteriorating in value, the Court may
order it to be sold forthwith.
(4) The Court may, either before or after final judgment,
order any property under arrest of the Court to be removed, or
any cargo under arrest on board ship to be discharged; and
generally, after the institution of an action, may make any
order or decree for the safety and preservation of any ship or
cargo under arrest, as well as any order for the disposal of
perishable goods under arrest on such terms as it may deem
proper.
(5) The appraisement, sale, removal of property, and the
discharge of cargo shall be effected under the authority of a
commission addressed to the marshal. (Forms 40 to 44).
Paragraphs (1) and (2) and most of (3) and (4)
are old Rules. They were in the Rules of the
Exchequer Court of Canada in Admiralty from at
least as far back as 1916 when Mayer's Admiralty
Law and Practice in Canada was published. It is
paragraph (1) that the plaintiff invokes as author
ity for the order sought. There is, however, a
further rule embodied in paragraph (2) under
which, as I understand, the Court has proceeded
since its enactment at the time of the coming into
force of the Federal Court Act in 1971. It reads:
(2) Without limiting paragraph (1), the Court may, either
before or after final judgment, order
(a) that, where any property is under the arrest of the Court,
it be advertised for sale in accordance with directions con
tained in the order, which may include any or all of the
following:
(i) offers to purchase will be under seal addressed to the
marshal,
(ii) offers to purchase will all be opened at the same time
in open court,
(iii) the sale will not necessarily be to the highest or any
other bidder,
(iv) the parties will be notified of the session of the Court
at which the opening of offers will take place and the sale
will be made pursuant to an order of the Court made at
that session, or subsequently, after the parties have had an
opportunity to be heard,
(v) after the opening of the offers, the Court may, after
hearing the parties, if it is doubtful that a fair price has
been offered, order that the amount of the highest offer be
communicated to the other persons who made offers or to
some other class of persons or otherwise take such steps as
seem expedient with a view to obtaining a higher offer,
(vi) any other direction that seems appropriate to the
circumstances of the particular case; or
(b) that an agent be employed for the sale of any such
property, with authority to sell subject to such conditions as
are stipulated in the order or subject to subsequent approval
by the Court, on such terms as to compensation of the agent
for his services as may be stipulated in the order.
It will be observed that regardless of which Rule
is invoked what is contemplated is a sale on terms
and under conditions ordained in advance by the
Court with a view to the protection of the interests
of all parties rather than upon the submission for
approval and adoption by the Court as its act of a
sale arranged in advance by a plaintiff to suit his
own purposes on terms and under conditions
acceptable to and prescribed by him.
The justification put forward for so marked a
departure from the normal practice of the Court is
that the expenses of maintaining the vessel while
under arrest and the loss in keeping her idle are
high and the vessel can be expected to deteriorate
physically and particularly so if she is not kept
manned and maintained by an adequate crew.
I do not accept that the vessel will suffer undue
physical deterioration by standing idle long enough
to permit normal court procedures leading to her
appraisement and sale to be carried out, provided
she is adequately manned in the meantime, and I
see no valid reason why such manning cannot be
arranged through the instrumentality of the mar
shal, if the plaintiff secures an order under Rule
1003(10) and provides the marshal with the secu
rity for their wages and his other costs and fees as
required by that Rule.
With respect to expense and loss the material
put before the Court in support of the application
gives no clear impression of how much would be
involved in maintaining the vessel under arrest.
There is evidence that a firm of ships' agents have
charged the plaintiff sums totalling $34,784 for
the period from August 1 to August 16, of which
$15,550 is for dockage, $5,000 for watching and
security, $9,634 for tugs, pilot and linesmen for
shifting twice, $3,000 for miscellaneous expenses
and $1,600 for commission. The amount does not
cover medical care for crew, repatriation charges,
provisions, bunkering, repairs, water, deserters,
etc. In particular, it appears to take no account of
insurance. There is also evidence that the wages of
the 37 officers and men of the crew amount to
$1,189.57 per day. On an earlier application, it
was estimated that the wages of a skeleton crew of
17 officers and men would amount to approxi
mately $600 per day. Roughly averaging the
$35,000 over a 16-day period yields a figure of
$2,200 per day and adding $1,200 for crews'
wages brings the figure to $3,400. Interest at 10%
per annum on the value of the vessel roughly
estimated at $6,000,000 would add another $1,800
per day to the loss being incurred. These items
would, it seems, total about $5,200 per day. There
is no evidence of how much the other items might
cost. But assuming that the whole amount for both
expenses and loss from keeping the vessel idle
would reach $10,000 a day, in proportion to the
size and value of the vessel, I do not think such
costs would be exceptional and I am, therefore, not
persuaded that there is any urgency in the situa-
tion sufficient to justify a departure from the
normal practice of the Court. The vessel is big, the
investment which she represents is large and the
expenses and losses are large in proportion. That is
all that is unusual about them.
I turn now to what was put before the Court in
support of counsel's submission that the price of
$5,900,000 offered by Pera Shipping Corporation
was the best obtainable and should be approved.
The evidence consisted of an affidavit by the plain
tiff's solicitor which referred to two other affida
vits, and expressed the belief that the information
contained therein was true. One of the affidavits
referred to was that of David Edward Demeza, a
director of Galbraith Wrightson Limited, a firm of
shipbrokers of London, England, the other that of
Michael David Revell, an officer of the plaintiff
company. The two last mentioned affidavits had
been filed in support of the application but objec
tion was taken to them and it was not shown that
they were admissible. The plaintiff's solicitor
thereupon adopted the expedient of filing his own
affidavit of belief in their truth. Objection was
taken to this as well but it appears to me that the
affidavit is admissible and the objection goes only
to its weight.
Briefly what the affidavits show is that:
(1) Prior to July of this year the vessel had been
circulated for sale by its owners, who were in
financial difficulties, at a suggested price of 6.25
million dollars.
(2) As the vessel was controlled by the Israeli
based MFC group it was blacklisted by Arab
countries.
(3) In the opinion of Galbraith Wrightson the
value of the vessel on the basis of prompt deliv
ery as is and where is and free of charter party
commitment was 5.5 million dollars.
(4) On the plaintiff's instructions Galbraith
Wrightson obtained estimates of its value on
that basis from three other ship brokers who
valued it on August 3, 1976, at 5.5, 5.15 and 6
millions, respectively.
(5) Prior thereto efforts were made by Gal-
braith Wrightson to negotiate a sale of the
vessel with the balance of her time charter and
several offers had been received at 5.2 million
dollars but the negotiations were dropped when
it became clear that the vessel was about to be
arrested on arrival at Quebec.
(6) On July 29, following the arrest, Galbraith
Wrightson, on the plaintiff's instructions, cir
cularized the vessel on a worldwide basis as
being available on an as is, where is, basis, at
Quebec, free of charter, and that prospective
buyers should first inspect and then submit
clean offers.
(7) Some fourteen shipping companies indicat
ed an interest in inspecting the vessel and in the
week following the circular several of them did
inspect the vessel.
(8) On August 5, again on the plaintiff's
instructions, Galbraith Wrightson sent a telex to
the prospective buyers who had been given per
mission to inspect requiring offers by 1:00 p.m.
the following day.
(9) As a result a number of prospective buyers
indicated they were not prepared to continue
negotiations but five offers ranging from 4.7 to
5.767 millions were received.
(10) Following a discussion with the plaintiff,
Galbraith Wrightson made a counter offer to
the highest offerer, Pera Shipping Corporation,
at 5.9 million which "after several exchanges"
was accepted.
The telex of August 5 asking for offers read:
RE: M.T. "DORA"
REFERENCE YOUR INTEREST IN ABOVE TANKER WE NOW
INSTRUCTED BY INTERNATIONAL MARINE BANKING CO. LTD.,
MORTGAGEES OF VESSEL (WHICH IS CURRENTLY UNDER
ARREST IN QUEBEC CITY UNDER JURISDICTION OF THE FED
ERAL COURT OF CANADA) TO INVITE OFFERS FOR HER PUR
CHASE SUCH OFFERS TO BE IN OUR HANDS WITHIN 13.00
HOURS TOMORROW 6TH AUGUST.
OFFERS ARE REQUIRED ON FOLLOWING BASIS:
1.
PRICE ... TO BE PAID IN CANADIAN DOLLARS CASH WITH 10
PERCENT DEPOSIT TO BE LODGED WITH MARINE MIDLAND
BANK, EITHER NEW YORK OR LONDON AS STAKE HOLDERS
WITHIN TWO BUSINESS DAY PRICES/TERMS BEING AGREED BY
TELEXED EXCHANGES, RELEASABLE, TOGETHER WITH BAL
ANCE IN CASH WITHIN 2 BUSINESS DAYS OF NOTICE OF
READINESS BEING GIVEN.
2.
SALE TO BE OUTRIGHT BUYERS HAVING EITHER APPROVED
RECORDS AND VESSEL AFTER INSPECTION OR WAIVED THEIR
RIGHTS IN THIS CONNECTION.
3.
VESSEL TO BE DELIVERED "AS-IS-WHERE-IS" SAFELY
AFLOAT IN QUEBEC. NOTICE OF READINESS TO BE TENDERED
IMMEDIATELY AFTER FORMALITIES ACCORDANCE PARA
GRAPH 6 HEREIN COMPLETED.
4.
VESSEL IS SOLD WITH EVERYTHING BELONGING TO HER ON
BOARD BUYERS ARE TO PAY EXTRA FOR REMAINING BUNK
ERS UNUSED LUB. OILS, STORES AND PROVISIONS AT CUR
RENT MARKET PRICE PORT OF DELIVERY, PAYMENTS TO BE
MADE CONCURRENT WITH DELIVERY. PRIVATE EFFECTS OF
MASTER, OFFICERS AND CREW ARE EXCLUDED. ALSO HIRED
EQUIPMENT (IF ANY).
5.
AT TIME OF SETTLEMENT BUYERS WILL BE SUPPLIED WITH
FOLLOWING DOCUMENTS:-
(I) BILL OF SALE STATING VESSEL FREE OF ENCUM
BRANCES EXECUTED BY THE AUTHORITY OF THE FEDERAL
COURT OF CANADA.
(II) COPY OF COURT ORDER AUTHORISING THE SALE.
6.
SALE IS SUBJECT TO CLEARANCE BEING OBTAINED FROM THE
FEDERAL COURT OF CANADA FOR VESSEL TO BE TRANS
FERRED TO THE BUYERS FREE OF CHARTER. SUCH CLEAR
ANCE TO BE OBTAINED BETWEEN 16-23RD AUGUST 1976.
SHOULD CLEARANCE NOT BE OBTAINED BY 23RD AUGUST
SALE IS AUTOMATICALLY CANCELLED AND THE DEPOSIT
REFUNDED IMMEDIATELY TO THE BUYERS.
7.
SHOULD BUYERS FAIL TO PAY BALANCE OF PURCHASE
MONEY AS ABOVE THE 10 PERCENT DEPOSIT SHALL IMMEDI
ATELY BE FORFEITED.
WE WOULD POINT OUT THERE WILL BE NO SALE CONTRACT-
THE TERMS AS NEGOTIATED WILL BE INCORPORATED INTO A
LETTER OF UNDERTAKING SIGNED BY BUYERS AND
ADDRESSED TO THE FEDERAL COURT OF CANADA AND INTER
NATIONAL MARINE BANKING CO. LIMITED, SUCH LETTER TO
BE IN HANDS OF IMB LATEST TUESDAY 1300 HOURS 10/8.
IMB WILL GIVE A WRITTEN UNDERTAKING TO BUYERS THAT
THEY WILL REFUND THE DEPOSIT PLUS INTEREST THEREON
IN THE EVENT THAT THE SALE IS CANCELLED ACCORDANCE
PARA. 6.
WE EXPECT TO RECEIVE INSTRUCTIONS TO COUNTER FIRM
TOMORROW AFTERNOON TO THE BEST PROPOSAL MADE ON
ABOVE TERMS.
The letter of August 9 from Pera Shipping
Corporation addressed to the Marine Midland
Bank Limited and not to the Court embodying the
terms of the proposed sale said:
MOTOR TANKER "DORA" -BUILT 1972, ABOUT 95,600 D.W.T.
We confirm various telephonic and telexed exchanges last
Friday with Galbraith Wrightson Limited from which you will
have understood that our Company has agreed to purchase the
above motortanker on the following basis:-
1. The price is to be 5,900,000 Canadian dollars cash.
2. We have today arranged to transfer 10% of the purchase
money, namely 590,000 Canadian dollars, to Marine Mid
land Bank, 55 Moorgate, London, which amount is to be held
by you as stakeholders pending finalisation of negotiations.
3. We will pay the full purchase money within two business
days of Notice of Readiness for delivery being given, it being
our understanding that such Notice of Readiness will be
tendered immediately after the sale of the vessel has been
cleared by the Federal Court of Canada, and in exchange for
the documents referred to in para. 6 sub-paragraphs (1) and
( 2 ).
4. We have inspected the vessel in Quebec and have also
inspected Class Records and do not require any further
inspections and are accordingly prepared to purchase on an
outright basis with delivery "as is, where is" safely afloat in
Quebec.
5. We are prepared to pay extra for remaining bunkers,
unused lubricating oils, stores and provisions at the current
market price at port of delivery.
We agree that private effects of Master, Officers and Crew
are excluded from the sale, also hired equipment (if any).
Otherwise the vessel is to be delivered to us with everything
belonging to her on board.
6. We accept that there will be no formal sale agreement
and that once all Court formalities have been cleared the
only documents which will be supplied by the sellers will
be:-
1. Bill of Sale stating vessel is free of encumbrances
executed by the authority of the Federal Court of Canada.
2. Copy of Court Order authorising the sale.
7. We understand that our purchase of the m.t. "DORA" is
subject to the clearance of the Federal Court of Canada
enabling the vessel to be transferred to us free of charter and
that such clearance should be obtained between the 16th and
23rd August 1976.
8. If clearance is not obtained by 23rd August 1976 our
commitment to purchase is immediately cancelled and
Marine Midland Bank Ltd. will immediately refund to us the
590,000 Canadian dollars referred to in paragraph (1) to
gether with interest thereon.
9. In the event that we fail to pay the balance of the
purchase money as agreed above, we accept that the 10%
deposit-590,000 Canadian dollars—is immediately forfeit-
able.
Two further points should be mentioned, first,
that the plaintiff is a subsidiary of the Marine
Midland Bank Limited referred to in the letter
and, second, that none of this was done with the
approval or authority of this Court in which the
vessel was from July 27 under arrest.
I am of the opinion that for the purposes of a
sale by this Court both the one-week period
allowed for inspection and the twenty-four hour
period in which to submit offers was unreasonably
short and unsatisfactory. It appears to me that this
alone may account for the fact that several pros
pective buyers indicated they were no longer pre
pared to continue negotiations when the demand
for offers within so short a time was made. More
over the practice of giving the highest tenderer a
preferred opportunity to accept a counter offer is
contrary to what appears to be the intent of Rule
1007(2) (a) (v).
Accordingly I am not prepared to approve the
procedures followed either as being a satisfactory
substitute for what might have been prescribed by
the Court had an application been made, or as
calculated to achieve the best price obtainable.
The fact of the matter, as I view it, is that the
procedure is one prescribed by the plaintiff as
satisfactory for its own purposes and the proposed
sale which has resulted from it is not a sale by the
Court at all but a sale by the plaintiff for which it
now seeks the endorsement of the Court to give the
transaction the appearance of a sale by the Court.
I would not, therefore, be prepared to grant the
order sought even if I were satisfied that the 5.9
million price is as high as any price likely to be
obtained on a sale by the Court.
I am, however, not at all satisfied that the price
negotiated is the best available. Affidavits which
carry as much weight as those of the plaintiff have
been put before the Court indicating:
(1) that normal practice would have called for a
much higher counter offer than 5.9 million
dollars;
(2) that an offer of 5.9 million was in fact made
by the second highest bidder before the arrange
ments for the proposed sale were completed;
(3) that an older sister ship was sold on August
8, 1976, for 6.25 millions;
(4) that a comparable vessel under charter for
one year with an option to renew for a further
year was sold on or about August 7, 1976, for 8
million dollars;
(5) that the opinions of three brokers place the
value of the vessel at 6.6 million U.S., 6.5
million U.S. and 6.3 million U.S., all, however,
based on normal sale conditions rather than on
an as is, where is, basis;
(6) that the first of these estimates is by the
same broker who placed the value, on an as is,
where is, basis, at 5.150 million when estimating
the value for the plaintiff earlier in this month;
(7) that Fidelity Ocean Navigation Limited of
Monrovia (of which nothing more is known) has
offered 6.1 million less 2% commission for the
vessel on an as is, where is, basis and to deposit
$610,000 upon the Court's confirmation of sale.
It is not, as I see it, my function on this applica
tion to decide how much the vessel is worth or will
bring or to endeavour to evaluate whose opinion is
entitled to the greatest weight. To approve the
price obtained in so unusual a transaction requires
at the least that the Court be fully satisfied that it
is the best price obtainable. Both the procedures
followed and the material in the affidavits to
which I have referred put this very much in doubt.
The application accordingly fails and it will be
dismissed.
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.