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In Rem Actions and Stare Decisis

Published in the February 2006 issue of Transportation Notes - View Article

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On January 6, 2006 the Federal Court of Appeal rendered judgment in a matter relating to the arrest of cargo to secure damages for the breach of a contract of affreightment. Kremikovtzi Trade (“Kremikovtzi”) entered into a contract with Phoenix Bulk Carriers Limited (“Phoenix”) for the carriage of approximately 70,000 to 75,000 metric tons of coal on Phoenix’s ship from Vancouver to Bulgaria.

Kremikovtzi then entered into a contract with the owners of a different ship and loaded its cargo on that ship. Phoenix commenced an action, including a claim in rem against the cargo and in personam against the owners of the cargo. They caused the cargo to be arrested while on board the substituted ship in the port of Vancouver.
Kremikovtzi applied to the Federal Court for an order striking the statement of claim in rem and setting aside the warrant of arrest, which application was dismissed by Rouleau J. An appeal to the Federal Court of Appeal was successful.

In writing reasons for the Federal Court of Appeal, Nadon, JA stated that he considered himself bound by the case of Paramount Enterprises International Inc. v. An Zin Jiang (2000 CanLii 16788). Nadon, JA reviewed the caselaw dealing with the circumstances in which a Court may overrule its own decisions and concluded that this was not a case in which he should overrule a prior decision of his own Court. The issue must be resolved by the Supreme Court of Canada.

He went on to state that were he not bound, he would be inclined to have decided the case in favour of Phoenix.

The Paramount case was very similar to the case under consideration, in that it involved the arrest of a cargo arising from the cancellation of a contract of affreightment.
In the Paramount case, Decary, JA considered the application of section 43(2) of the Federal Court Act, which provides that the jurisdiction of the Federal Court may be exercised in rem against the ship “…or other property that is the subject of the action”. (continued on page 3)

He concluded that the subject of the action “…is the charter-party and the personal actions of the defendants” and not the cargo itself.

In expressing his disagreement, Nadon, JA stated that he considered that Decary, JA had taken too narrow a view of the words “subject of the action”. He expressed the view that there need not be a physical nexus between the cargo and the vessel to give rise to in rem rights, so long as the cargo could, as in this case, be clearly identified as the being the one contemplated under the contract which had been breached.

It remains to be seen if the case will be heard by the Supreme Court of Canada.