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Canadian Maritime Law: “Subject of the Action” Considered Again
Published in the June 2007 issue of Transportation Notes - View Article
Maritima de Ecologia, S.A de C.V. (“Maritima”) is a Mexican corporation which supplies well-testing ships to the Mexican offshore oil industry. Well-testing ships are specialized ships used in minimizing environmental damage. Maritima had two such ships under charter to its client, Pemex Exploracion y Produccion (“Pemex”), an oil company owned by the Mexican government.
In late 2005, Pemex informed Maritima that it needed a third well-testing ship. Maritima asked Secunda Marine Services Ltd. (“Secunda”) of Dartmouth, Nova Scotia, to find them a suitable vessel. In March of 2006, Secunda advised Maritima that it had entered into a contract to purchase the vessel Maersk Defender from A.P. Moller-Maersk A/S (“Maersk”) of Denmark. Forty million dollars would be spent to modify the ship to Pemex’s requirements. The vessel would be renamed Voyager Sea, would be delivered to Maritima between June 18 and August 18, 2007 and would be made available to Maritima for a period of 1,826 days.
By an agreement entered into in March of 2006, Maersk agreed to sell the ship to a company designated by Secunda, I.S. Atlantic Corporation Inc. (“Atlantic”). In July of 2006, Maritima entered into a charter party in the Bimco supplytime charter party form (the “charter party”) with Atlantic. However, in early November 2006, Atlantic obtained information which caused it to believe that the Mexican government would not issue a navigation permit to a foreign flagged vessel for a period of more than two years. Consequently, Atlantic advised Maritima that the charter party had been frustrated and that it was excused from performance by reason of force majeure.
The Maersk Defender was sold to I.S. Pacific Corporation (“Pacific”) on December 12, 2006, renamed the Emerald Sea and chartered to another company.
Pursuant to the arbitration clause in the charter party Maritima commenced arbitration proceedings in London, England. It also commenced two actions in the Federal Court of Canada. The first action was against the owners and all others interested in the ship MAERSK DEFENDER, also known as the VOYAGEUR SEA, and against Atlantic and Secunda. The second action was identical to the first, except that Pacific was also added as a defendant. In both actions Maritima sought specific performance of the charter party and delivery of the vessel to Atlantic. It also sought injunctive relief preventing the defendants from interfering with the sale and delivery of the ship from Maersk to Atlantic.
The first action was commenced on December 4, 2006, before the Maersk Defender had been sold to Pacific. The second action was commenced on December 12, 2006, the same day as the sale. Maritima was apparently not aware that the ship had been sold. Concurrently with the commencement of the second action, the vessel was arrested in Vancouver.
In response, all of the defendants brought motions. Atlantic asked for the dismissal of the actions against it or, in the alternative, that the actions be stayed pending arbitration in London. Pacific sought the dismissal of the actions against it and the release from arrest of its vessel. Secunda sought the dismissal of actions against it.
The motions judge set aside the arrest because, in his view, the requirements of subsection 43(3) of the Federal Courts Act (the “Act”) had not been met. That section provides that the Federal Court’s jurisdiction may be exercised in rem only against the ship that is the subject of the action. Relying on the decision of the Federal Court of Appeal in Paramount Enterprises International Inc. v. An Xin Jiang (The), he concluded that the vessel was not “the subject of the action” within the meaning of the subsection. He also stayed the proceedings in both actions, pending the London arbitration..
All parties appealed to the Federal Court of Appeal, which concluded that the motions judge had erred in his interpretation of subsection 43(2). When the motions judge made his order, the Supreme Court of Canada had not yet rendered its decision in Phoenix Bulk Carriers (reported on in the February, 2006 and April, 2007 editions of Transportation Notes) which overturned the Paramount decision. In the opinion of the Federal Court of Appeal the Maersk Defender was clearly “the subject of the action”. However, that conclusion did not put an end to the discussion of whether the Federal Court’s jurisdiction could be exercised in rem against the vessel. Subsection 43(3) of the Act provides that with regard to certain claims, including the claim in this case, the jurisdiction in rem can only be exercised where, at the time of the commencement of the action, the ship is “beneficially owned by the person who was the beneficial owner at the time when the cause of action arose”.
The Court found that Maritima’s cause of action arose on December 1, 2006 and that the beneficial owner of the ship at the time the cause of action arose was not the beneficial owner when the action was commenced. At the time of its arrest on December 12, 2006, the vessel belonged to Pacific. Between December 1 and 12, 2006, it belonged to Maersk. Furthermore, the Court’s jurisdiction in rem can only be exercised against a ship where there is in personam liability on the part of its owner. In this case Maritima dropped its claim for specific performance of the charter party when it learned that the ship had been sold and the only purpose for its claim against Pacific was to obtain security for the claim it was advancing in the London arbitration.
Because the proceedings against Secunda and Pacific were brought for the sole purpose of obtaining security in respect of the London arbitration it was found that there was no cause of action against them and the actions were struck. The proceedings against Atlantic were stayed, since the only relief sought was specific performance and injunctions restraining interference with the sale of the ship. As Maritima had accepted Atlantic’s repudiation of the charter party, these remedies were no longer required. It was held that if at a later date Maritima was in need of an interim measure of security in connection with the London arbitration, it could apply to the Court for an order lifting the stay or institute separate proceedings seeking a precise remedy.
Maritima de Ecologia, S.A. de C.V. v. Maersk Defender (Ship), 2007 FCA 194 (CanLII)