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Phoenix Redux: Marine Cargo Dispute Back to Federal Court of Appeal
Published in the January 2008 issue of Transportation Notes - View Article
This dispute arises out of a contract of affreightment (“COA”) under the terms of which Kremikovski Trade (“KT”) agreed to place a cargo of coal on the ship “Far Eastern Marine” for a voyage from Vancouver, Canada to Bourgas, Bulgaria. The cargo was placed on another vessel (the ship “Swift Fortune”) in breach of the COA and the Plaintiff, Phoenix Bulk Carriers, claimed for a loss of profit of some $390,000. The defendants named in the action, which was commenced in the Federal Court of Canada, were the owners of the cargo and the cargo itself. Accordingly, the plaintiff invoked both the personal and the in rem jurisdiction of the Court.
As the chronology is important for resolution of the dispute, it must be considered in detail. The cargo was loaded on the “Swift Fortune” between September 3 and 5, 2005. Phoenix commenced action on September 13 and filed an affidavit in support of a warrant for arrest of the cargo on the same day. On September 14, KT responded with a motion seeking an order to set aside the statement of claim and the warrant of arrest.
This initial motion had quite a complicated history which we reported upon twice before in this Newsletter (February, 2006 and April, 2007). The issue decided in the first round involved the interpretation of a statutory provision which identifies cargos which may be subject to the arrest procedure invoked by Phoenix. The relevant cargos are those which are “the subject of the action”. In brief, the Federal Court of Appeal thought it was bound by a previous decision to find that the cargo in this case did not fit within that statutory definition. It would accordingly have decided the case in favour of KT on that ground. KT also advanced other grounds for striking the statement of claim and warrant, but the Federal Court of Appeal thought it not necessary to deal with those. However, the Supreme Court of Canada reversed the Court of Appeal on the statutory interpretation point. As a result, KT’s motion was returned to the Federal Court of Appeal for resolution of the issues which were not dealt with in the first round.
The issues raised by KT were both procedural and substantive. It took exception to the adequacy of both the affidavit in support of the warrant and the statement of claim. It also challenged a key finding of fact made by the trial judge.
An affidavit in support of a warrant of arrest must set out the basis for invoking the in rem jurisdiction of the Court. The relevant statutory provision establishes that a prerequisite of the exercise of that jurisdiction is a certain factual nexus, namely that the property which is the subject of the action (which we know from round one includes the cargo in this case) must be beneficially owned by a single entity at the time the action is commenced and at the time when the cause of action arose. The affidavit does not specifically aver that this factual nexus was present, but instead avers that the claim “falls under” the relevant statutory provision. KT’s argument that this rendered the affidavit defective was not accepted by the Court.
KT’s next argument was also procedural in nature. It argued that the action in rem could not possibly succeed as, in its view of the statement of claim, there was no assertion of personal liability on the part of the beneficial owners of the cargo. While accepting the proposition that a claim in rem is really a claim against the owner of the res and that the in rem action can succeed only if the owner is personally liable, the Court found KT’s construction of the statement of claim overly narrow and technical. The statement of claim could have been drafted with greater precision, but the Court found that the essential allegations were made with sufficient clarity. The plaintiff is asserting that those who owned the cargo at the time the action was commenced also owned it when the cause of action arose. The identity of that owner, whether it be KT or some other entity, was not material for the purpose of assessing the adequacy of the statement of claim. Again, KT’s arguments failed.
This then brings us to the final question: who was the beneficial owner at the relevant times? In respect of this question there was conflicting evidence. Affidavits were filed on behalf of KT. The affiants stated that property in the cargo did not pass to KT until the vendor was actually paid, that being no earlier than September 13. If this should be a true statement of fact, KT would prevail as it would mean it could not have owned the cargo at the time the cause of action arose, which was not later than (and possibly earlier than) September 5 when the cargo was loaded on the “Swift Fortune”.
There was however conflicting evidence on the question of ownership. One of the persons who swore an affidavit on behalf of KT was cross examined and his evidence appeared to be that the property in the cargo passed to KT on “passing the ship’s rail”. On this view of the matter, KT became the beneficial owner as soon as the cargo was loaded.
Phoenix also advanced a legal argument respecting the relationship between the provisions of the sales agreement and the consequences of KT’s possession and control of the cargo.
In the end, the deciding factor was the nature of the proceedings. KT was seeking dismissal of the claim on a motion for summary judgment. To succeed in such a motion KT needed to prove that Phoenix could not possibly succeed and it was unable to meet this high standard. The Court concluded that Phoenix has an arguable case that KT was owner at all relevant times. Accordingly, the Court ordered that the action should be allowed to proceed to trial.
Kremikovtzi Trade v. Phoenix Bulk Carriers
2007 FCA 381