A-650-85
S/S Steamship Company Ltd. (Appellant)
v.
Eastern Carribean Container Line S.A. (Respon-
dent)
INDEXED AS: S/S STEAMSHIP CO. V. EASTERN CARRIBEAN
CONTAINER LINE SA. (F.CA.)
Court of Appeal, Pratte, Hugessen and Lacombe
JJ.—Montreal, February 25 and 26, 1986.
Maritime law — Creditors and debtors — Garnishment —
Defence of set-off not available to garnishee in action for
freight under bill of lading — Possibility of garnishee order
giving appellant preference over all creditors of probably
insolvent respondent company not justifying refusal to issue
order — Federal Court Rules, C.R.C., c. 663, RR. 500,
2300(1),(2)(b) — Federal Court Act, R.S.C. 1970 (2nd Supp.),
c. 10, s. 2.
Having obtained judgment by default against the respondent,
the appellant commenced garnishee proceedings against one of
the respondent's debtors which owed the latter some money as
freight for the carriage of goods under a maritime bill of
lading. At a show cause hearing, the garnishee denied its
liability, claiming to have suffered more damages as a result of
a delay for which the respondent was responsible than what it
owed to the respondent.
The garnishee order was refused, the Court below having
found that the garnishee was entitled to set off its claim for
damages against the respondent's claim for freight. It was held
that the English admiralty rule prohibiting set-off in such a
case had not been clearly endorsed by the Canadian courts. It
was further held that, as there were doubts as to the solvency of
the respondent, the Court should exercise its discretion by
refusing to issue a garnishee order since its issuance would
create a preference in favour of the appellant.
Held, the appeal should be allowed.
The English admiralty rule against set-off is a substantive
rule of long standing which is part of the Canadian maritime
law as defined in section 2 of the Federal Court Act. It is
enough that the rule has never been clearly rejected.
Any preference given to the appellant would be the direct
consequence of the application of the rule against set-off. If this
result is unavoidable, then so be it. The possibility that the
order would give preference to the appellant over all other
creditors of a company that is probably insolvent does not
justify refusing to issue the order. Apart from the rules that
apply in the case of bankruptcy, there are no rules that provide
for the fair distribution of the assets of an insolvent debtor
among all its creditors.
CASES JUDICIALLY CONSIDERED
REFERRED TO:
Meyer v. Dresser (1864), 33 (Part II) L.J.C.L. (N.S.)
289 (Trinity Term); The "Brede", [1973] 2 Lloyd's Rep.
333 (C.A.); Aries Tanker Corporation v. Total Trans
port Ltd. (The "Aries"), [1977] 1 Lloyd's Rep. 334
(H.L.); A/S Gunnstein & Co. K/S v. Jensen Krebs and
Nielson (The "Alfa Nord"), [1977] 2 Lloyd's Rep. 434
(C.A.); Wire Rope Industries of Canada (1966) Ltd. v.
B.C. Marine Shipbuilders Ltd. et al., [1981] 1 S.C.R.
363; Tropwood A.G. et al. v. Sivaco Wire & Nail Co. et
al., [1979] 2 S.C.R. 157; Gaherty, Appellant, and Tor-
rance et al., Respondents (1862), VI L.C. Jur. 313
(Q.B.); Halcrow & Lemesurier (1884), X Q.L.R. 239
(Q.B.); Spindler, et al. v. Farquhar (1905), 38 N.S.R.
183 (C.A.); The Insurance Company of North America
v. Colonial Steamships Limited, [1942] Ex.C.R. 79;
Kaps Transport Ltd. v. McGregor Telephone & Power
Construction Co. Ltd. (1970), 13 D.L.R. (3d) 732 (Alta.
C.A.); St. Lawrence Construction Limited v. Federal
Commerce and Navigation Company Limited, [1985] 1
F.C. 767; 56 N.R. 174; 32 C.C.L.T. 19 (C.A.).
COUNSEL:
Gerald P. Barry for appellant.
Martine Tremblay for respondent.
SOLICITORS:
Barry & Associates, Montreal, for appellant.
Harris, Allain, Thomas, Mason, Montreal,
for respondent.
The following are the reasons for judgment
rendered in English by
PRATTE J.: This is an appeal from a judgment
of the Trial Division (Dubé J.) [[1985] 2 F.C.
284] dismissing an application made by the appel
lant for a garnishee order.
The appellant had obtained judgment by default
against Eastern Carribean Container Line S.A.
("Eastern") for the sum of $111,296.05.1t com
menced garnishee proceedings against Brunswick
International Seafoods Ltd. ("Brunswick") which
allegedly owed a sum of US $8,700 to Eastern as
freight for the carriage of goods under a maritime
bill of lading. An order to show cause was issued
under Rule 2300(1) [Federal Court Rules,
C.R.C., c. 663]. Brunswick appeared in answer to
that order and denied its liability. It did not deny
having promised to pay Eastern the sum of US
$8,700 as freight for the transportation by ship of
a certain quantity of fish from Saint John, New
Brunswick, to Port-au-Prince, Haiti; it did not
deny, either, that Eastern had in effect transported
the fish to its destination. However, it said that
Eastern had undertaken to deliver the fish at
Port-au-Prince on June 1, 1984, and had in fact,
delivered it only on June 26, 1984. Brunswick
asserted that, as a result of that delay, it had
suffered damages in the amount of US $12,000
that it was entitled to recover from Eastern. It
concluded that, as a result, it owed nothing to
Eastern and that, for that reason, the application
for a garnishee order should be dismissed.
Dubé J. ruled in favour of Brunswick and
refused to issue a garnishee order. He based his
decision on two considerations. First, he was of the
view that Brunswick, contrary to what had been
argued by the appellant, was entitled to set off its
claim for damages against Eastern's claim for
freight. Second, he thought that, as there were
doubts as to the solvency of Eastern, he should
exercise his discretion in the matter by refusing to
issue a garnishee order since the issuance of such
an order would have created a preference in favour
of the appellant.
We are all of opinion that this judgment must
be set aside.
Dubé J. rightly acknowledged [at page 287] that
"[a] review of the English common law in admiral
ty matters discloses that set-off for damages
cannot be raised as a defence in an action for
freight under a bill of lading."' In his opinion [at
page 291], however, that prohibition "has not been
' The learned Judge referred to the following authorities in
support of that proposition:
Meyer v. Dresser (1864), 33 (Part II) L.J.C.L. (N.S.) 289
(Trinity Term); The "Breda", [1973] 2 Lloyd's Rep. 333
(C.A.); Aries Tanker Corporation v. Total Transport Ltd.
(The "Aries"), [ 1977] 1 Lloyd's Rep. 334 (H.L.); AIS
Gunnstein & Co. K/S v. Jensen Krebs and Nielson (The
"Alfa Nord"), [1977] 2 Lloyd's Rep. 434 (C.A.). See also:
42 Halsbury (4th), paras. 411-416.
clearly endorsed by the Canadian courts" and, for
that reason, he was [at page 292] "prepared to
find that the defence of set-off ought to be allowed
in the instant case".
In our view, the English admiralty rule here in
question is a substantive rule of long standing
which is part of the Canadian maritime law as
defined in section 2 of the Federal Court Act
[R.S.C. 1970 (2nd Supp.), c. 10]. 2 The fact that it
has not yet "been clearly endorsed by the Canadi-
an Courts" is of no consequence; it is enough that
it has not been clearly rejected in any of the cases
cited by Dubé J. 3
He, therefore, should have held that Brunswick
could not set off its claim for damages against
Eastern's claim for freight.
As to the second ground of the judgment, it is
equally ill-founded. That ground is that it would
be unfair to give a preference to the appellant over
the other creditors of Eastern and, more particu
larly, over Brunswick. Insofar as the garnishee
order would give a preference to the appellant over
Brunswick, that preference would be the direct
consequence of the application of the rule against
set-off. And it would be illogical, to say the least,
to hold at the same time that the rule against
set-off must be applied and that its result must be
avoided. Insofar as the garnishee order would give
a preference to the appellant over all the other
creditors of a company that is probably insolvent,
that possibility could not justify the learned
2 See, inter alia, Wire Rope Industries of Canada (1966) Ltd.
v. B.C. Marine Shipbuilders Ltd. et al., [1981] 1 S.C.R. 363
and Tropwood A.G. et al. v. Sivaco Wire & Nail Co. et al.,
[1979] 2 S.C.R. 157.
3 Gaherty, Appellant, and Torrance et al., Respondents
(1862), VI L.C. Jur. 313 (Q.B.); Halcrow & Lemesurier
(1884), X Q.L.R. 239 (Q.B.); Spindler, et al. v. Farquhar
(1905), 38 N.S.R. 183 (C.A.); The Insurance Company of
North America v. Colonial Steamships Limited, [1942]
Ex.C.R. 79; Kaps Transport Ltd. v. McGregor Telephone &
Power Construction Co. Ltd. (1970), 13 D.L.R. (3d) 732 (Alta.
C.A.); St. Lawrence Construction Limited v. Federal Com
merce and Navigation Company Limited, [1985] 1 F.C. 767;
56 N.R. 174; 32 C.C.L.T. 19 (C.A.).
Judge's refusal to issue the garnishee order. Apart
from the rules that apply in case of bankruptcy, we
do not know of any rules that provide for the fair
distribution of the assets of an insolvent debtor
among all its creditors. As there is no reason to
believe Eastern to be bankrupt, the refusal of the
garnishee order in this case merely prevents the
appellant from reaching one of its debtor's assets
without ensuring in any way that it be distributed
fairly among its creditors.
For those reasons, the appeal will be allowed
with costs, the judgment of the Trial Division will
be set aside and, as requested by the appellant,
Brunswick will be ordered to pay into Court the
Canadian funds equivalent of the freight due to
Eastern under Bill of Lading M.V. Fomalhaut No.
415 dated 12 June, 1984 (such sum to be agreed
on by the parties, or failing such agreement, to be
assessed by a referee under Rules 500 and follow
ing) with interest thereon from July 19, 1985, (the
date of the judgment of first instance) at the rate
paid on funds deposited into Court.
As the garnishee order to show cause was not
served on Eastern, dispensation having been grant
ed pursuant to Rule 2300(2)(b), we think it pru
dent, in the circumstances, to order that the judg
ment herein as well as any application to have the
monies paid out of Court be served on that
company.
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.