A-170-82
The Ship M/V Seapearl of Cyprus Registry and
her owners and all others interested in the said
ship and Patmos Navigation Company, a corpora
tion having its principal place of business at
Limassol, Cyprus (Appellants)
v.
Seven Seas Dry Cargo Shipping Corporation of
Santiago, Chile (Respondent)
Court of Appeal, Thurlow C.J., Pratte J. and
Lalande D.J.—Montreal, June 21; Ottawa, July
21, 1982.
Maritime law — Appeal from order of Trial Division refus
ing stay of proceedings instituted by respondent for damages
for breach of charterparty — Clause 17 of charterparty pro
viding for settlement of disputes through arbitration in Eng-
land — Trial Division denying stay on ground balance of
convenience favoured settling dispute in Canada — Appellants
contending Trial Judge failed to properly exercise discretion
under s. 50(1) of the Act — Appeal allowed — Federal Court
Act, R.S.C. 1970 (2nd Supp.), c. 10, s. 50(1).
Jurisdiction — Federal Court — Charterparty providing for
arbitration in England — Federal Court not deprived of
jurisdiction but having discretion to stay proceedings com
menced in defiance of contract — Federal Court Act, R.S.C.
1970 (2nd Supp.), c. 10, s. 50 (1).
The respondent entered into a charterparty with the appel
lant, Patmos, according to which the appellant's ship, the
Seapearl, was to carry a cargo of copper concentrate, owned by
the respondent, from Tocopilla, Chile to Quebec City. The
charterparty contained an arbitration clause which outlined the
manner in which any dispute arising out of the contract would
be settled. After the Seapearl had arrived in Quebec such a
dispute arose when the respondent contended that the ship did
not possess the characteristics it was described as having in the
charterparty and that, as a result, it carried less cargo at a
higher cost. The respondent brought an action in the Trial
Division claiming damages for breach of the charterparty and
arrested the ship in an attempt to secure its claim. The appel
lant, Patmos, referred the matter to arbitration pursuant to
clause 17 of the charterparty. It then, having obtained release
of its ship by giving the respondent a letter of guarantee from
the Bank of Montreal, brought an application for a stay of the
action commenced in the Trial Division on the ground that the
matter was, pursuant to the terms of the charterparty, to be
decided by arbitration in England. The Trial Division dismissed
this application on the ground that, in the circumstances, the
balance of convenience favoured having the proceedings con
ducted in Canada. The appellants contend that by basing his
decision on the balance of convenience, the Trial Judge failed
to properly exercise his discretion under subsection 50(1) of the
Federal Court Act. Subsection 50(1) provides that the Court
may, in its discretion, stay proceedings in any cause or matter
on the ground that the claim is being proceeded with in another
court or jurisdiction or where, for any other reason, it is in the
interest of justice that the proceedings be stayed.
Held (Thurlow C.J. dissenting), the appeal should be
allowed.
Per Pratte J.: The fact that a contract contains a clause
whereby the parties have agreed to submit their disputes to a
foreign court or an arbitrator does not deprive the Federal
Court of jurisdiction. The Court may, however, in the interests
of justice, exercise its discretionary power under paragraph
50(1)(b) to stay proceedings where they have been commenced
in defiance of the agreement. In that this power is discretionary
in nature, the Court of Appeal must uphold the decision of the
Trial Division unless it was arrived at on an incorrect basis or
was otherwise plainly wrong. In this case, the Trial Judge, by
basing his decision on the balance of convenience, applied a
wrong principle. The prima facie rule is that a court must grant
a stay of proceedings commenced in defiance of a contractual
undertaking. Before a court may depart from this general rule
there must be sufficiently strong reasons to support the conclu
sion that it would not be reasonable or just in the circumstances
to keep the plaintiff to his promise and enforce the contract. In
this case the facts that the witnesses are in Quebec; that the
appellant, Patmos, has submitted a cross-demand which cannot
be dealt with by arbitration; that the respondent brought the
action in the Federal Court prior to the commencement of
arbitration and appointed its arbitrator conditionally only when
those proceedings began; and that the respondent would be
deprived of the security of the guarantee from the Bank of
Montreal because that security only applied to an order of the
Court, do not constitute sufficiently strong reasons why the
respondent should not be held to its contract.
Per Lalande D.J.: The respondent's case was weak in com
parison with the English cases in which stays have been refused
to allow claims to proceed in foreign courts designated in bills
of lading covering goods delivered to consignees in England
who were parties to the proceedings.
Per Thurlow C.J. dissenting: The fact that the parties agreed
to settle disputes by arbitration gives rise to a strong prima
facie case for staying the proceedings. However, the bringing of
an action is not, in itself, a breach of the charterparty and the
law is well established that the presence of an arbitration clause
in a contract does not deprive the Court of its jurisdiction to
entertain a claim for breach of the contract. Nevertheless,
unless there is an exceptional case or a strong balance of
argument in favour of permitting the action to proceed, where a
party insists that the terms of the contract be adhered to, the
Courts favour requiring the determination of the respective
rights in the manner agreed upon. Nothing in the reasons of the
Trial Judge is persuasive that he was unaware of this principle
or that his conclusion could not have been reached on the basis
of the material before him. Although the Trial Judge did refer
to the balance of convenience within the context of his reasons,
this reference should not be interpreted as meaning anything
more than that, on the whole, the respondent had made out its
case and tipped the scale in favour of refusing a stay. It is
unclear how much weight the Trial Judge attached to the letter
of guarantee. However, given that the ship had been sold in the
interim and that there was no evidence of the existence of
interests in England or Canada from which an arbitration
award could be recovered, the loss of this security would leave
the respondent with no other way of enforcing its claim and this
is, in itself, a strong reason for refusing a stay.
CASES JUDICIALLY CONSIDERED
APPLIED:
The "Adolf Warski" and The "Sniadecki", [1976] 1
Lloyd's Rep. 107 (Q.B.), affirmed [1976] 2 Lloyd's Rep.
241 (C.A.); Kitchens of Sara Lee (Canada) Ltd. et al. v.
A/S Falkefjell et al. (The "Makefjell"), [1975] 1 Lloyd's
Rep. 528 (Q.B.); [1976] 2 Lloyd's Rep. 29 (C.A.);
Owners of Cargo Lately Laden on Board The Ship or
Vessel Eleftheria v. The Eleftheria (Owners), [1969] 2
All E.R. 641; [1969] 1 Lloyd's Rep. 237 (Adm.); The
"Fehmarn", [1957] 1 Lloyd's Rep. 511 (P.D.A.); [1957]
2 All E.R. 707 (P.D.A.); [1958] 1 All E.R. 333 (C.A.);
Zapata Offshore Co. v. The "Bremen" and Unterweser
Reederee G.M.B.H. (The Chaparral!), [1972] 2 Lloyd's
Rep. 315 (U.S. Sup. Ct.); Bristol Corporation v. John
Aird & Co., [1913] A.C. 241; YTC Universal Ltd. v.
Trans Europa, [1973] 1 Lloyd's Rep. 480 (C.A.); Owners
of Cargo Ex "Athenee" v. "Athenee", [1922] 11 LI. L.
Rep. 6 (C.A.).
REFERRED TO:
The Golden Trader, [1975] 1 Q.B. 348.
COUNSEL:
P. G. Côté for appellants.
G. Vaillancourt for respondent.
SOLICITORS:
Ogilvy, Renault, Montreal, for appellants.
Langlois, Drouin, Quebec City, for respond
ent.
The following are the reasons for judgment
rendered in English by
THURLOW C.J. (dissenting): The issue in this
appeal is whether the learned Trial Judge properly
exercised the discretion vested in him by subsec
tion 50(1) of the Federal Court Act [R.S.C. 1970
(2nd Supp.), c. 10], when he refused to stay the
respondent's action pending arbitration of the
claim in London under a provision of a charter
between the appellant, Patmos Navigation Com
pany, and the respondent. The provision read:
17. That should any dispute arise between Owners and the
Charterers, the matter in dispute shall be referred to three
persons at London, one to be appointed by each of the parties
hereto, and the third by the two so chosen; their decision or that
of any two of them shall be final, and for the purpose of
enforcing any award, this agreement may be made a rule of the
Court. The Arbitrators shall be Baltic Exchange Members.
Under subsection 50(1) of the Federal Court
Act, the Court may, in its discretion, stay proceed
ings in any cause or matter,
s0.(1)...
(a) on the ground that the claim is being proceeded with in
another court or jurisdiction; or
(b) where for any other reason it is in the interest of justice
that the proceedings be stayed.
The charter was arranged in Germany and was
for a single voyage from a Chilean port to Quebec.
It was made between the appellant, Patmos Navi
gation Company, a Cypriot company, owner of the
Seapearl, a vessel of Cypriot registry, and the
respondent, a corporation having its principal
place of business in Chile. Neither party has any
place of business in or connection with Canada, or
England.
The vessel loaded a cargo of some 10,395.7
metric tons of copper concentrate in bulk at Toco-
pilla, Chile, and proceeded to Quebec where, on
November 27, 1981, she was arrested at the suit of
the respondent in an action for damages for breach
of the charter, based on allegations of:
(a) the loading having been carried out contrary
to law and contrary to the IMCO regulations by
which the loading, stowing, trimming, carriage
and discharge were to be carried out,
(b) misrepresentation that the vessel was cap
able of carrying 10,700 metric tons of copper
concentrate in lower holds, and
(c) misrepresentation that the vessel was flush
throughout.
The damages claimed included items arising from
delays at the loading and discharge ports alleged
to be due to the vessel not being flush throughout
and excessive discharge costs resulting therefrom,
and from the inability of the vessel to carry a
cargo of 10,700 metric tons, and a further item
representing the value of the 304.3 tons of cargo
not shipped. The vessel was released from arrest on
December 7, 1981 on the appellants giving a letter
of guarantee of the Bank of Montreal, submitting
to the jurisdiction of the Federal Court of Canada,
and undertaking to pay, up to a stated amount,
any judgment of the Court obtained on the claim
or, up to the same amount, any sum agreed by way
of a settlement. Upon her release the vessel was
forthwith delivered to a purchaser.
In the meantime, following the arrest of the
vessel, the appellant Patmos had appointed an
arbitrator in London and, in order to avoid a
seven-day limitation provided by the arbitration
legislation in England and to protect its right to
name an arbitrator, the respondent, on December
8, 1981, also appointed an arbitrator, at the same
time instructing him that he had no authority to
act and to take no action until the proceedings in
the Federal Court should be settled or concluded. I
pause to note that the affidavit filed by the appel
lants in support of the application for a stay of
proceedings, after citing clause 17 of the charter-
party, states:
9. I am informed by Mr. G.M.S. Molfetas, legal representative
of Defendants in Greece and do verily believe that in accord
ance with said clause 17, Plaintiff appointed its arbitrator in
London, Mr. Clifford A.L. Clark and Defendants appointed
their arbitrator, Mr. A.J. Kanzantzis;
In my view this gives the impression that it was
the respondent which invoked the arbitration
clause whereas if the clause can be said to have
been invoked by anyone in respect of the respond
ent's claim—as opposed to the claim asserted in
the arbitration proceeding by the appellant Pat-
mos—it was the appellant Patmos which invoked
the arbitration and it did so after the action in the
Federal Court had been commenced and the vessel
had been arrested. The case is thus not one in
which the respondent has vexatiously brought pro
ceedings to enforce its claim in two jurisdictions.
Some two months later the appellants brought a
motion for an order staying proceedings in the
action on the grounds that "the claim is being
proceeded with in another jurisdiction and that it
is in the interests of justice that said proceedings
be stayed". In support of the motion the affidavit
to which I have referred was filed. Apart from
preliminary matters not in dispute and the para
graph respecting the appointment of arbitrators, it
contained the following:
10. I am informed by Captain C. Alexandrou, Defendants'
representative in New York and do verily believe that the vessel
"Sea Pearl" was built in Sunderland, England, under Lloyd's
Classification Society and that, since one of the issues arising
between the parties herein relates to the ship's description, that
is, that the "Sea Pearl" was wrongly represented by Defendants
as being "flush throughout" (as appears from paragraphs 12,
13, 14 and 15 of Plaintiffs Statement of Claim) witnesses from
England might be called to give evidence on this issue, some
witnesses from the builders are readily available in England
should the matter be arbitrated in London, England;
11. I am informed by Captain C. Alexandrou, Defendants'
representative in New York and do verily believe that the vessel
"Sea Pearl", formerly known as the "Custodian", was then
flying the British flag, was owned by Charente S.S. Co. Ltd. of
England and managed by T. & J. Harrison of Liverpool and
that again witnesses from the former owners and managers
might be called to give evidence on the issue mentioned in
paragraph 10 hereof and that those witnesses are readily
available in England should the matter be arbitrated in
London, England.
12. Plaintiff also alleges in its Statement of Claim, particularly
in paragraphs 4 and 11 thereof, that the "Sea Pearl" was to
carry a cargo of copper concentrates which was to be loaded,
stowed and trimmed, carried and discharged as per IMCO
regulations and that said cargo was carried contrary to IMCO
regulations but since IMCO, that is, Intergovernmental Mari
time Consultive [sic] Organization, has its headquarters in
London, England, witnesses would be readily available to testi
fy on this issue should the matter be arbitrated in London,
England;
13. Following the arrest of the "Sea Pearl" by Plaintiff, a
letter of guarantee was provided to Plaintiff by Defendants
through the Bank of Montreal as appears from copy of said
letter of guarantee attached hereto as exhibit "C" to this my
affidavit and Plaintiff can enforce its award, if successful,
through this Honourable Court and be paid accordingly;
14. It appears from copy of said time charter-party attached
hereto as exhibit "A" to this my affidavit that Canadian Law
does not apply to it.
These paragraphs, in my view, add little if any
support for the motion. The first two refer to
witnesses who "might be called", in the one case
"witnesses from the builders" on an issue as to
whether a 21-year old vessel was flush throughout,
and in the other "witnesses from the former own
ers" on the same issue. These witnesses are said to
be readily available in England. Nothing is said as
to how many of such witnesses "might be called"
or as to what savings in the costs of obtaining their
evidence might result if the matter were to be
determined in England rather than in Canada.
Moreover, I fail to understand what useful admis
sible testimony witnesses, who are said to be readi-
ly available in England to testify, could be expect
ed to contribute on the issue as to whether the
cargo was loaded, stowed, trimmed, carried and
discharged as per IMCO regulations or contrary
thereto. Further, paragraph 13 is, on its face, an
opinion and quite plainly suffers from the possibili
ty that it may be held to be erroneous having
regard to the decision in The Golden Trader.'
With respect to paragraph 14, there is no evidence
that the applicable law, be it English, German,
Chilean or Cypriot, differs from the Canadian law.
A supplementary affidavit filed on February 17,
1982 in support of the motion exhibits a copy of a
letter of February 8, 1982 from the appellant to
the arbitrator it had named giving elaborate
details of a claim being asserted by the appellant
in the arbitration and a copy of a proposed order
for directions. This affidavit, in my opinion, adds
nothing to enhance the position of the appellant.
The strength of its case, and it is not inconsider
able, lies in the fact that by the charter the parties
agreed to the settlement of disputes arising from
the charter by arbitration which by itself gives rise
to a strong prima facie case for staying proceed
ings in the action.
The law is well established, 2 however, that the
presence of an arbitration clause in a charter does
not deprive the Court of its jurisdiction to enter
tain a claim for breach of the charter. To bring an
action is not itself a breach of the charter or of the
arbitration clause in it. Resort to the Court for the
settlement of a claim is the right of anyone includ
ing one who has agreed to determination by
another means, the only question arising as a
result of such an agreement being that of whether
the Court in the particular situation should, if an
adverse party insists, require the complainant to
submit to the determination of his rights in the
manner agreed upon. The courts lean to this
course but do not stay their hand or decline to
exercise their jurisdiction when what has variously
' [1975]I Q.B. 348.
2 Bristol Corporation v. John Aird & Co., [1913] A.C. 241
per Lord Moulton at p. 256; and citations 3, 4, 5, 6 and 7 infra.
been characterized as a "strong", 3 or "excep-
tional" 4 case or a case in which there was a
"strong balance of argument" 5 in favour of per
mitting the action to proceed appears. Examples of
what may amount to a case justifying the refusal
of a stay appear from the following cases.
In the ` Athenee", 6 Bankes L.J. summed up the
case thus [at page 6]:
I think the learned Judge was justified, upon the materials
before him, in refusing to exercise his discretion. It is not
disputed that this contract is one of the class in which a Judge
of the Courts of this country has a discretion as to whether he
will or will not stay the action to enable the parties to go to the
tribunal which they selected. The learned Judge, in my opinion,
is entitled to take all the circumstances into account, particu
larly the fact that the vessel is under arrest, and the fact of the
dispute being in reference to the condition of the onions on
arrival, and the fitness of the ship to carry them. Apparently
there has been a survey at which both parties were represented;
and the witnesses of the material facts are all in this country. I
think there was an abundance of material upon which the
learned Judge, if he thought right, could have exercised his
discretion in the way he did.
In the same case, Atkin J. said [at pages 6-71:
I agree, and I should like to add this. This is a clause by
which the parties no doubt have agreed that disputes should be
referred to a foreign tribunal. There is no indisposition on the
part of the Courts of this country to give effect to such a
bargain: but such a bargain is treated as equivalent to an
arbitration clause.
The question arises in respect of a clause to refer to a foreign
tribunal as to a clause to refer to a domestic tribunal, whether
there are proper reasons for not enforcing it. To my mind there
were ample reasons for the learned President not enforcing it in
this case. I think the balance of convenience and the substantial
advantage which the plaintiffs have by suing in this country
(and which they lose by not being able to proceed in rem
against this ship), and many other advantages such as in
respect of proof of loss, a matter which any commercial tri
bunal would wish should be decided, if possible, having regard
to the evidence obtained at the time by inspection of the vessel
and so on—all those grounds seem to me to afford ample
reason for the learned President coming to the conclusion that,
in the circumstances of this particular case, the clause in the
contract should not be given effect to.
3 The "Fehmarn", [1957] 1 Lloyd's Rep. 511 (P.D.A.) per
Willmer J. at p. 514.
4 YTC Universal Ltd. v. Trans Europa, [1973] 1 Lloyd's
Rep. 480 (C.A.) per Denning L.J. at p. 481.
5 The "Adolf Warski" and The "Sniadecki", [1976] 1
Lloyd's Rep. 107 (Q.B.) per Brandon J. at p. 112.
6 Owners of Cargo Ex "Athenee" v. "Athenee", [1922] 11 LI.
L. Rep. 6 (C.A.).
In The "Fehmarn", Willmer J. (as he then was),
put the matter thus [at page 514]:
Where there is an express agreement to submit to a foreign
tribunal, clearly it requires a strong case to satisfy the Court
that that agreement should be overridden and that proceedings
in this country should be allowed to continue. But, in the end, it
is, and must necessarily be, a matter for the discretion of the
Court, having regard to all the circumstances of the particular
case. That being so, I do not think it would be profitable to
refer in detail to the numerous cases which were cited to me,
where the principle as I have tried to state it has been stated
over and over again, but the discretion of the Court was
exercised one way or other having regard to the circumstances
of the particular case.
After discussing the facts and the submissions
put forward on both sides, he proceeded [at pages
515-516]:
I have already said that I do not find this at all an easy
matter to determine. One's natural inclination is to say that
these parties have made their bargain and should keep to it.
Moreover, I think it is right to say that this Court must assume,
and I do assume, that equal facilities for trying the case exist in
Russia as exist in this country, and that the parties will get just
as fair a trial in Russia as they will get here. But, having made
all due allowances for that, in the end I have come to the
conclusion that the plaintiffs have shown sufficient grounds for
displacing the prima facie presumption, grounds which are, in
my judgment, sufficient to entitle them to take advantage of
the undoubted jurisdiction of this Court.
Having read the solicitors' correspondence, I am bound to
say that I cannot fail to be left with the impression that the
defendants do not really want this case to be tried in Russia.
They have, in the course of correspondence, already expressed
willingness, on certain terms, to have it disposed of in this
country, and one is left with the suspicion that the principal
object of the defendants is not to achieve a trial in Russia, but
merely to make it more difficult for the plaintiffs to assert their
claim.
In making those observations, I do not wish it to be thought
that I am accepting the argument addressed to me on behalf of
the plaintiffs to the effect that the defendants have not acted
bona fide. I do not wish it to be thought that I am making any
observations on the bona fides of the defendants. They are
entitled to fight their case with all the weapons at their
disposal. The weapon, they have chosen in this motion is a
perfectly legitimate weapon to use. But it is the fact that, if I
were to stay these proceedings which have already been
launched, I might be depriving the plaintiffs of any remedy at
all. It is not as though the defendants' ship was a Russian ship
belonging to an organization domiciled in Russia. There seems
to be no possible guarantee that, if I ordered these proceedings
to be stayed so as to enable the plaintiffs to start alternative
proceedings in Russia, any judgment obtained would necessari
ly be of any value to them at all. Of course, it is equally true to
say that the ship, being a German ship and not yet having been
arrested, may keep clear of this country so as to avoid arrest,
and that, in those circumstances, there is no guarantee that a
judgment obtained in this country would be enforceable. But
the fact is that there are at least proceedings under way in this
country. If I stay them and leave the plaintiffs to start afresh in
Russia, costs will be thrown away, there will inevitably be
delay, and I apprehend that, if the plaintiffs' witnesses have to
go to Russia, there will be very considerable added expense in
disposing of the case.
All that, I think, is sufficient to justify me in the conclusion
which I have already stated, namely, that the plaintiffs have
proved enough to discharge the burden of proof which is upon
them.
A third example is the case of The `Adolf
Warski ", 7 a case in which security had been pro
vided to cover the claim wherever judgment might
be obtained. All three Judges of the Court of
Appeal held the Trial Judge's discretion had not
been exercised erroneously in denying a stay on the
principal ground of the more ready availability of
the evidence of surveyors of the cargo in England.
Sir Gordon Willmer, after referring to a number
of considerations put forward, said [at page 249]:
Most of these considerations the learned Judge found, I think
with justification, to be fairly evenly balanced. But in his view
the most important factor to be considered was that of the
evidence to be called in support of either party's case in order to
ensure a fair trial of the dispute. He pointed out that upon
discharge the cargo was surveyed by English cargo surveyors
representing both parties. Both parties also employed English
fruit pathologists to report on the cause of the damage. The
learned Judge envisaged, I think quite rightly, that it would
probably be necessary to call oral evidence from at least four
English expert witnesses. This would be easy enough to arrange
if the trial were to take place in England, but it would be a
matter of no little difficulty and considerable expense if these
English expert gentlemen had to travel to Poland to give their
evidence. Nor would it be easy for them to present expert
evidence of this character through interpreters in a foreign
Court. Further, as pointed out by the learned Judge in the
passage from his judgment which I have quoted, if the defend
ants persist in the defence adumbrated on their behalf, it could
well be necessary to call witnesses from Chile to speak as to the
condition of the cargo when loaded and as to any instructions
which may have been given by the shippers with regards to the
temperatures to be maintained during the voyage. As to possi
ble difficulties in obtaining visas for such witnesses to enter
Poland, the evidence seemed to be extremely vague. But cer
tainly no such difficulties would be likely to arise if such
witnesses had to be brought to England to give their evidence.
Having weighed these various considerations the learned
Judge stated his conclusion (at p. 112 of [1976] 1 Lloyd's Rep.)
as follows:
I accept that the arguments with regard to evidence are
not all one way. Nevertheless, I think that, when the question
7 The "Adolf Warski" and The "Sniadecki", [1976] 2
Lloyd's Rep. 241 (C.A.) at p. 249.
of the feasibility, convenience and cost of placing before a
Court the main evidence necessary to enable these claims to
be decided justly are looked at in all their aspects, there is a
strong balance of argument in favour of trial in England
rather than in Poland.
For that reason the learned Judge came to the conclusion that,
leaving aside the factor of the time bar in Poland, the Court
should exercise its discretion by refusing a stay and allowing
the actions to proceed in England.
I might or might not have reached the conclusion myself had
I been sitting at first instance. As I have already indicated, the
arguments in favour of one view or the other seem to me to be
very evenly balanced. But I do not think it can be denied that
there was abundant material on which the learned Judge could
properly come to his conclusion. I am certainly quite unable to
say that his exercise of his discretion was plainly wrong. In
these circumstances, I agree that the learned Judge's decision
should be affirmed and the appeal dismissed.
In the present case the respondent filed an
affidavit which, after referring to the charter, con
tains the following paragraphs:
4. As may be seen from paragraph 9 of the Statement of
Claim filed in this action on November 22, 1981, the Plaintiff
claims that upon arrival at Quebec the vessel was overloaded, a
point which will require testimony from Quebec City ocular
witnesses;
5. As may be seen from paragraphs 12 to 15 of the said
Statement of Claim the Plaintiff alleges the breach of rider
clause number 29 of the time charter, annexed to Me Savard's
affidavit as exhibit "A", in that the vessel was not "flush
throughout", a point which will require testimony from Quebec
witnesses;
6. As may be seen from paragraph 16 of the said Statement of
Claim the Plaintiff also alleges breach of rider clause number
29 in that the cargo was not stowed, as contracted, in the lower
holds of the vessel, another point which requires local Quebec
City witnesses;
7. As may be seen from paragraph 5 of the said Statement of
Claim the Plaintiff alleges short shipment of cargo contrary to
this same rider clause 29 of the time charter; I am personally
aware of the fact that both parties to this action named local
Quebec City surveyors to verify these claims, the Defendants
having named Mr. Louis Rhéaume and the Plaintiff Mr. René
Laroche;
8. As may be seen from paragraphs 20 and 21 of the Statement
of Claim the Plaintiff alleges unloading and trimming problems
in Quebec, a point which will require numerous Quebec City
witnesses who worked on the unloading gangs aboard the vessel
at the Quebec harbour;
9. As it appears in paragraph 21 of the said Statement of
Claim there is also involved the question of excess loading port
costs encountered in Chile; I have been credibly informed by
Mrs. Lise Martel, a registered travel agent of the firm Voyage
2000 of Quebec City that the round-trip price of bringing a
witness of Chile to Quebec City is approximately $1,500.00
(Cdn) whereas taking the same witness to London, England
would cost 1600 pounds or more than twice the price and I
verily believe Mrs. Martel for she is an independent travel
agent with no interest in this claim;
10. In all, the great bulk of the evidence necessary to support
Plaintiff's claim is in Quebec City and any additional evidence
is more easily accessible to Quebec City; as a result the relative
convenience and expense of trial favors Canada;
11. As it appears in rider clause 29 of the time charter,
annexed to Me Savard's affidavit, the "SEAPEARL" was built
21 years ago;
12. As may be seen from paragraph 10 of the Statement of
Claim Plaintiff alleges breach of the I.M.C.O. regulations,
international regulations requiring judicial interpretation only,
which this Court will be asked to do;
13. As it appears from a perusal of the said time charter
annexed to Me Savard's affidavit as exhibit "A", no clause
stipulates that the laws of a foreign country need be applied by
this Court;
14. As it appears in paragraphs 3 and 4 of Me Savard's
affidavit, neither party is connected with England in any way
whatsoever;
15. In his affidavit Me Savard states, at paragraph 9, that
Plaintiff appointed Mr. Clifford A.L. Clark to act as arbitrator,
while, in fact, following the naming of an arbitrator by Defend
ants, I personally communicated with Mr. Clark in order to
prevent the delay effects of section 7 of the English Arbitration
Act, 1950 which stipulates that following the naming of an
arbitrator the other party must name its own within 7 days or
be foreclosed from so doing; therefore Mr. Clark was chosen on
a conditional basis, to act as the Plaintiffs arbitrator only if
this Court refused to exercise its jurisdiction, as may be seen
from a copy of the telex communication between Mr. Clark and
myself annexed hereto as exhibit "A" of this, my affidavit;
16. As appears from the letter of guarantee annexed to Me
Savard's affidavit as exhibit "C", the Defendants' bank pro
mises to indemnify the Plaintiff; however three points in par
ticular appear in this letter: first, the Defendants' bank submits
to the jurisdiction of the Federal Court of Canada alone (clause
1 of the said exhibit "C"); secondly, the guarantee applies to a
final judgment "on the merits" rendered by this Court (clause
3 of the said exhibit "C"); thirdly the guarantee applies to a
compromise or settlement between the parties "in the said
proceedings" (clause 3 of the said exhibit "C");
17. Our firm consented to a release of the "SEAPEARL" in
consideration of the letter of guarantee annexed to Me Savard's
affidavit alone; as it appears in the above paragraph the letter
has no effect vis-Ã -vis an arbitration award or a settlement
while in arbitration; therefore arbitration proceedings would
deprive Plaintiff of security for his claim.
In dismissing the appellants' application, the
learned Trial Judge endorsed the record as follows:
There appears [sic] to be witnesses in both London and here,
and, if Plaintiff agreed to arbitration in London it did so
conditionally and to protect its rights there but at the same
time indicating it wished to proceed in the Federal Court.
Defendant's counter-claim filed with the arbitrator in London
can equally be invoked here. The letter of guarantee specifies
that Plaintiff invokes the Federal Court jurisdiction (this does
not of course bind Defendant). While the burden is on Plaintiff
to establish that the proceedings should be carried on here
rather than by arbitration in London, it appears that the
balance of convenience suggests that this is the case. In the
exercise of my discretion therefore I dismiss Defendant's
motion to stay the proceedings with costs.
On the appeal counsel quite properly empha
sized the need of a strong case, something excep
tional or something unjust in the situation, to
overcome the obligation of parties to abide the
term of their contract providing for arbitration
which, in this case, showed on its face, by an
alteration to the printed form so as to substitute
London for New York, that the parties had given
consideration to it and regarded it as a vital part of
the contract between them.
There is much to be said for that view, particu
larly in light of the fact that the parties chose
arbitration in a country with which neither had
any connection. But, giving the argument all the
weight it should have, I have not been persuaded
either that the learned Trial Judge was not fully
aware of the power of the appellants' case or that
his conclusion was not one that he might reach on
the material before him. Moreover, I do not find in
his reasons, short and somewhat obscure as they
appear, any basis for disturbing his order.
The evidence respecting the availability and
expense of necessary witnesses in my view heavily
favours the respondent's position. The witnesses
most likely to be needed are in Quebec. The
surveyors for both sides are there. The cost of
transporting Chilean witnesses to Quebec is con
siderably less than the cost of transporting them to
London. It is possible there may be witnesses in
London as well but the learned Trial Judge was
not unaware of that and I would assume that he
appreciated where the balance lay. He mentioned
the burden on the respondent and the balance of
convenience, as did Atkin L.J. in the "Athenee".
In the context of the learned Trial Judge's reasons,
I do not think that his reference to the balance of
convenience should be read as meaning anything
more than that on the whole the respondent had
made out its case and tipped the scale in favour of
refusing a stay.
The learned Trial Judge also mentioned the
letter of guarantee in a sentence which leaves
uncertain how much weight he attributed to it and
how he regarded the matter of the security
obtained by the respondent on the release of the
vessel from arrest. In my view, the fact that the
respondent, having lawfully obtained that security,
may well lose it if the action is stayed supports the
learned Trial Judge's conclusion and is, in itself, a
strong reason for refusing a stay. The ship having
been sold by the appellant, there is no way the
respondent can obtain other security or enforce its
claim by arresting the ship in this country or
elsewhere after the arbitration and nothing in the
record indicates that there are assets of the appel
lant in Canada or in England from which an
arbitration award in favour of the respondent
could be recovered.
I would dismiss the appeal with costs.
* * *
The following are the reasons for judgment
rendered in English by
PRATTE J.: This is an appeal from a judgment
of the Trial Division refusing to stay an action
brought by the respondent against the appellant.
The appellant, Patmos Navigation Company, is
a corporation having its principal place of business
in Limassol, Cyprus; it is the owner of the Sea-
pearl, a vessel registered in Cyprus. The respond
ent, Seven Seas Dry Cargo Shipping Corporation,
has its principal place of business at Santiago,
Chile. Neither the appellant nor the respondent
has any connection with Canada.
Pursuant to a time charterparty made at Ham-
burg, West Germany, on October 14, 1981, the
appellant Patmos chartered its ship to the respond
ent for one voyage from Tocopilla, Chile, to
Quebec City. The ship was to carry "a cargo of
copper concentrate to be loaded, stowed and
trimmed, carried and discharged as per IMCO
regulations". The charterparty contained a guar
antee that the vessel could "load/carry 10,700
metric tons copper concentrate in lower holds". It
also contained an arbitration clause reading as
follows:
17. That should any dispute arise between Owners and the
Charterers, the matter in dispute shall be referred to three
persons at London, one to be appointed by each of the parties
hereto, and the third by the two so chosen; their decision or that
of any two of them shall be final, and for the purpose of
enforcing any award, this agreement may be made a rule of the
Court. The Arbitrators shall be Baltic Exchange Members.
After the arrival of the ship at Quebec, a dispute
arose between the parties. It was the respondent's
contention that the Seapearl did not possess the
characteristics described in the charterparty and
had, for that reason, carried less cargo at a higher
cost. The respondent brought an action in the Trial
Division claiming $413,109.46 U.S. from the
appellant as damages for breach of the charterpar-
ty; it also arrested the Seapearl. Those proceedings
were commenced on November 27, 1981.
On December 1, 1981, the appellant, acting
pursuant to clause 17 of the charterparty, referred
the dispute to arbitration and appointed a Mr.
Kazantzis as its arbitrator. A few days later, the
respondent, Seven Seas, appointed a Mr. Clark to
act as its arbitrator in the event that the proceed
ings commenced in the Trial Division were stayed.
On December 7, 1981, counsel for the appellant
supplied counsel for the respondent with a letter of
guarantee from the Bank of Montreal. As a conse
quence, the respondent consented to the release of
the appellant's ship.
A short time later, the appellant applied to a
Judge of the Trial Division for an order staying the
action on the ground that the claim raised in it was
a claim that, under clause 17 of the charterparty,
was to be decided by arbitration in London. The
Judge dismissed the application by an order read
ing as follows:
ORDER
There appears [sic] to be witnesses in both London and here,
and, if Plaintiff agreed to arbitration in London it did so
conditionally and to protect its rights there but at the same
time indicating it wished to proceed in the Federal Court.
Defendant's counter-claim filed with the arbitrator in London
can equally be invoked here. The letter of guarantee specifies
that Plaintiff invokes the Federal Court jurisdiction (this does
not of course bind Defendant). While the burden is on Plaintiff
to establish that the proceedings should be carried on here
rather than by arbitration in London, it appears that the
balance of convenience suggests that this is the case. In the
exercise of my discretion therefore I dismiss Defendant's
motion to stay the proceedings with costs.
This appeal is directed against that order.
Contractual undertakings whereby parties agree
to submit their disputes to a foreign court or to
arbitration do not deprive the Federal Court of its
jurisdiction. However, when proceedings are com
menced in defiance of such an undertaking the
Court has the discretion to order that the proceed
ings be stayed. Paragraph 50(1)(b) of the Federal
Court Act confers on the Court the discretionary
power to stay proceedings where "it is in the
interest of justice that the proceedings be stayed."
As a rule, it is certainly in the interest of justice
that contractual undertakings be honoured.
It is well established that in reviewing a discre
tionary decision of a judge of first instance upon
an application to stay proceedings on the ground
that the parties have agreed to submit their dis
putes to arbitration or to a foreign jurisdiction, a
court of appeal must uphold the decision made by
the judge "unless it was arrived at on a wrong
basis or was plainly a wrong decision." 8
On what basis or according to what principle did
the motion Judge exercise his discretion in this
case? As I read his order, it was made on the basis
that the proceedings commenced in the Trial Divi
sion had to be stayed unless it appeared more
convenient that the issues between the parties be
decided by the Court in Canada rather than by
arbitration in London. In other words, the Judge
decided on a mere balance of convenience. In so
doing, the learned Judge applied what I consider
to be a wrong principle. Prima facie, an applica
tion to stay proceedings commenced in the Federal
Court in defiance of an undertaking to submit a
dispute to arbitration or to a foreign court must
8 The "Adolf Warski" and The ' Sniadecki", [ 1976] 2
Lloyd's Rep. 241 (C.A.), at p. 245, per Cairns L.J.
succeed because, as a rule, contractual undertak
ings must be honoured. In order to depart from
that prima facie rule, "strong reasons" are needed,
that is to say reasons that are sufficient to support
the conclusion that it would not be reasonable or
just, in the circumstances, to keep the plaintiff to
his promise and enforce the contract he made with
the defendant. This is the principle which is now
applied in England 9 and in the United States; '°
that is also, in my opinion, the principle that
should be applied in this Court.
The decision under attack having been based on
a wrong principle, it is necessary for this Court to
determine whether the circumstances of this case
are such that it can be said that there are strong
reasons for not complying with the arbitration
clause. Four circumstances are invoked by the
respondent as constituting "strong reasons" for not
complying with the arbitration clause:
1. Many of the witnesses are from Quebec City;
2. the appellant (defendant in first instance) has
submitted to the arbitrators a cross-demand that
cannot be disposed of by arbitration;
3. the respondent brought its action in the Trial
Division before the commencement of the arbi
tration proceedings and, when those proceedings
were commenced, appointed its arbitrator condi
tionally; and
4. the respondent would be deprived of security
if its claim were to be decided by arbitration in
London since the letter of guarantee from the
Bank of Montreal supplied by the appellant
merely guaranteed the payment of sums to be
awarded by the Court.
9 The "Adolf Warski" and The "Sniadecki", [1976] 1
Lloyd's Rep. 107 (Q.B.), affirmed [1976] 2 Lloyd's Rep. 241
(C.A.); Kitchens of Sara Lee (Canada) Ltd. et al. v. AIS
Falkefjell et al. (The "Makefjell "), [ 1975] 1 Lloyd's Rep. 528
(Q.B.); [1976] 2 Lloyd's Rep. 29 (C.A.); Owners of Cargo
Lately Laden on Board The Ship or Vessel Eleftheria v. The
Eleftheria (Owners), [1969] 2 All E.R. 641; [1969] 1 Lloyd's
Rep. 237 (Adm.); The "Fehmarn", [1957] 2 All E.R. 707
(P.D.A.); [1958] 1 All E.R. 333 (C.A.).
10 Zapata Offshore Co. v. The "Bremen" and Unterweser
Reederee G.M.B.H. (The Chaparrall), [1972] 2 Lloyd's Rep.
315 (U.S. Sup. Ct.).
I do not think that the fact that many witnesses
are from Quebec City is very important in this
case. Certainly it could not be expected when the
charterparty for the voyage from Chile to Canada
was signed in Hamburg that the arbitration clause
would only apply to cases where all or most of the
evidence would be found in England.
As to the cross-demand made by the appellant
in the arbitration proceedings, it does not, in my
view, help the respondent's case. By that cross-
demand the appellant claims from the respondent
a sum representing the hire due for the period
during which the ship Seapearl was under arrest
and, in the alternative, damages for the wrongful
arrest of the ship. Counsel for the respondent
argued that this claim could not be disposed of by
the arbitrators because, in his view, a claim for
wrongful arrest of a ship cannot be decided unless
the proceedings in which the arrest was made have
terminated in favour of the persons aggrieved by
the arrest. He said that, for that reason, it would
be preferable if both the respondent's claim and
the appellant's counterclaim were decided by the
Federal Court. I reject that argument. If the coun
terclaim made by the appellant is a claim which,
under clause 17 of the charterparty, had to be
referred to arbitration, I do not see why the arbi
trators could not dispose of it.
Respondent's counsel also invoked, in support of
his contention that the action in the Trial Division
should be allowed to proceed, the fact that the
respondent brought its action in the Trial Division
before the commencement of the arbitration pro
ceedings and the additional fact that, when those
proceedings were commenced, he appointed its
arbitrator conditionally. I do not understand how
these facts may help the respondent. All that I can
infer from them is that the respondent, by its
conduct, has not impliedly agreed that the arbitra
tion clause was to be complied with.
The last argument put forward by counsel for
the respondent was based on the assumption that,
if the case were to be decided by foreign arbitra
tors, the respondent would lose the benefit of the
letter of guarantee supplied by the appellant to
obtain the release of its ship. Counsel for the
appellant answered that this assumption was
gratuitous and that, in his view, the stay of the
proceedings in the Trial Division would not deprive
the respondent of its security. I am not too sure of
that. The terms of the letter of guarantee are such,
in my view, as not to guarantee the payment of an
award made by an authority other than the Feder
al Court. And that Court may lack the authority
to give judgment in the proceedings before it on
the sole basis of a foreign award. Moreover, in any
event, if the proceedings in the Trial Division are
stayed, the appellant may be entitled to be
released from the guarantee that has been given to
obtain the release of its ship. " However, it is not
necessary to resolve those questions because, in my
view, even if it is assumed that the stay of the
proceedings in the Trial Division would, in effect,
deprive the respondent of its security, this is not a
factor which, in the circumstances of this case, I
would consider sufficient to justify a refusal of the
stay. If the material before us showed or suggested
that, in the absence of security, the respondent will
not be able to obtain payment of the amount that
may be awarded by the arbitrators, then the
proper course, in my view, would not be to reject
the application for a stay of the proceedings but to
grant that application on the term that alternative
security be provided outside the Court to satisfy
the award of the arbitrator. However, I do not
think that the Court would be justified in imposing
such a term on the appellant because I cannot find
anything in the record showing that the respondent
will suffer a real prejudice from the loss of the
security.
I am, for those reasons, of the opinion that the
respondent failed to show sufficiently strong rea
sons why it should not be held to its contract. I
would, therefore, allow the appeal with costs, set
aside the decision of the Trial Division and, pro
nouncing the decision that should have been pro
nounced, grant the appellant's application with
costs and order that the proceedings in this case be
stayed until the issues between the parties have
been decided by arbitrators in accordance with
clause 17 of the charterparty.
* * *
" See: The Golden Trader, [ 1975] 1 Q.B. 348.
The following are the reasons for judgment
rendered in English by
LALANDE D.J.: I have read the reasons for
judgment of the Chief Justice and those of Mr.
Justice Pratte.
I agree with Mr. Justice Pratte's statement of
the principle to be applied in this appeal from an
order refusing a stay under subsection 50(1) of the
Federal Court Act, and that the respondent has
not shown a strong enough case to allow it to
disregard the arbitration clause in the charterpar-
ty.
In my respectful view the respondent's case is
weak when one compares it to the cases in the
English courts, referred to in my colleagues' rea
sons, where stays were refused to allow claims to
proceed in foreign courts designated in bills of
lading covering goods delivered to consignees in
England who were parties to the proceedings.
Here we have a dispute between a foreign owner
and a foreign charterer centred on the carrying
capacity and structural features of a vessel built in
England. The consignee of the cargo delivered in
Quebec is not a party to the dispute. Regulations
of the International Maritime Consultative Organ
ization concerning carriage of copper concentrates
are also involved. IMCO's headquarters are in
London. I doubt very much any Quebec witnesses
will need go to London for the arbitration.
As to the security that respondent obtained in
Quebec by arresting the vessel, I give it no weight
in the balance of argument 12 because it was
obtained as a consequence of action heedless of
provisions of the charterparty.
I would dispose of the appeal as proposed by
Mr. Justice Pratte.
12 The expression "strong balance of argument" in order to
overcome a prima facie case for a stay, such as this one is, is
Mr. Justice Brandon's at first instance in The "Adolf Warski"
and The "Sniadecki", [1976] 1 Lloyd's Rep. 107 (Q.B.),
affirmed [1976] 2 Lloyd's Rep. 241 (C.A.).
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.