Date: 19990209
Docket: T-38-99
BETWEEN:
THE ROYAL BANK OF SCOTLAND plc.,
Plaintiff,
- and -
THE OWNERS AND ALL OTHERS INTERESTED IN
THE SHIP "KIMISIS III" AND MADONNA
NAVIGATION (MALTA) LIMITED,
Defendants.
REASONS FOR ORDER
MR. JOHN A. HARGRAVE,
PROTHONOTARY
SUMMARY
[1] The motion of the Plaintiff, the Royal Bank of Scotland plc., is for an Order that Noga Commodities (Canada) Inc. ("Noga"), who filed a caveat against the release of the Kimisis III and who is the owner of a cargo of 37,663 metric tonnes of wheat recently loaded aboard the ship, be required to remove the cargo at Noga's own expense so that the ship might be offered for sale.
[2] The Plaintiff is the mortgagee of the Kimisis III, under a fleet mortgage. The Plaintiff has not gone into possession of the ship, but plans to shortly apply for a Court ordered sale. With this sense of urgency in mind, I granted short leave and approved the service of the motion material, which had been served by facsimile. Similarly, Noga received approval of the service of their material, late and by facsimile.
[3] At the conclusion of argument, I denied the motion, without prejudice to the Plaintiff again raising the issue on an application for the sale of the ship, for the Plaintiff, albeit because of the rush nature of the motion and by reason of some surprise to Plaintiff's counsel, of a perfectly legitimate nature in Noga's material, had not provided answers to some questions relevant to the issue of cargo removal. Moreover, and most important, the motion was premature. These reasons are both by way of explanation of the decision and to indicate some of the areas that must be dealt with when this issue is revisited.
BACKGROUND
[4] Many ship owners, small and large, have gotten into difficulties in recent months. One of those most recently in difficulty is Lygmar Shipping, whose fleet of some 20 ships is mortgaged to the Plaintiff. Lygmar has abandoned four ships in British Columbia waters, including the Kimisis III, which is presently lying at anchor in Prince Rupert Harbour.
[5] The Plaintiff, quite properly, in order to provide for the seamen aboard, applied for and obtained a priority, to any sale proceeds, to cover various essential disbursements, including for fuel, water and groceries, so long as the Royal Bank of Scotland brought a motion for a Court ordered sale within a given time.
[6] The Plaintiff, being of the view that a light ship, as opposed to one loaded with grain, would be easier to sell and would bring a better price, brought the present motion to require Noga to discharge its cargo at its own expense, within 14 days, failing which Noga should attend and show cause why it should not be deemed to have abandoned its cargo, worth some $7,000,000 (US): this was the sort of order obtained in The Offi Gloria, a 22 May 1992 decision of Mr. Justice Holland of the High Court of New Zealand in Admiralty, action AD47/92, on the basis of The Jogoo, [1981] 1 Lloyd's 513 and The Myrto (No. 2), [1984] 2 Lloyd's 341, both decisions of Mr. Justice Sheen, upon which decisions I will touch in due course.
[7] In support of the application, the Plaintiff points out that the ship, as presently crewed, is costing some $60,000 (US) a month to maintain and that some $40,000 (US) of this amount is to pay the crew, a crew that cannot be trimmed to a caretaking size until the cargo is removed. The Plaintiff is also concerned that the cargo be discharged so potential buyers might inspect the holds, tank tops and double bottoms, failing which, according to counsel, who swears the supporting affidavit, "... the vessel will be less desirable to potential purchasers and the Plaintiff's security represented by the value of the vessel will be impaired.". The Plaintiff is also concerned as to possible cargo deterioration.
[8] Noga meets these general concerns with some quite specific material. The cost of discharging the wheat, which cannot take place for at least two weeks because the available grain vacuvators, from Portland, Oregon, will shortly be in use to discharge an arrested sister ship, will be about $1,100,000 (US) so long as there is no more rain than usual in Prince Rupert. An attending SGS surveyor was of the view, as of 27 January 1999, that the wheat, which was loaded at the end of December, 1998, both the wheat and the hatch covers being in good condition, can safely remain aboard for another month or two. Noga has obtained a valuation of the Kimisis III from a ship broker at $4,200,000 (US). That broker notes that while, as a general rule, it is easier to sell a ship on a cargo-free basis:
| "... the fact that the vessel has cargo on board may not have too significant an effect on the value of the vessel, provided that the cargo owners are willing to pay a reasonable market freight level to the new owners for a voyage down to Mexico." |
Noga says that it is prepared to pay the original freight, $700,000, being a good rate given the present market, and that while Noga has provided an interim supply of wheat to the Mexican millers, those millers still wish the Kimisis III cargo of grain. Noga is clear that it has no intention of abandoning the cargo, but that the discharge is expensive and may be entirely needless.
[9] While there are some shortcomings in the material filed by each side I would also note that counsel have done a remarkable job of putting together a great deal of relevant material in a short time. By way of example is the affidavit of Mr. Leo G. Murphy, of Falmouth, Massachusetts, sworn on the weekend. Mr. Murphy is the president of Murphy Maritime Inc., ship and cargo brokers, who were involved in fixing the charter of the Kimisis III on behalf of Noga for the present cargo of grain from Prince Rupert to Vera Cruz, Mexico and Brownsville, Texas. He goes on to say:
| 4. I was contacted on or about Friday, January 29, 1999 by Mr. Vagelis Marinakis of Curzon Maritime Ltd., a company which operates a fleet of ships and is based out of Piraeus, Greece and London, England. Mr. Marinakis called from London and indicated that he was aware of the situation involving the "Kimisis III"and was aware that Noga Commodities (Canada) Inc. was a client of Murphy Maritime Inc. He expressed an interest in purchasing the "Kimisis III" and indicated a willingness to carry the cargo of wheat on board to Mexico pursuant to the terms of the charterparty on the vessel. |
| 5. Curzon Maritime Ltd. and Mr. Marinakis have been ship operators for a considerable period of time and have extensive experience and a good reputation for the management and operation of ships world wide. In our telephone conversation on or about January 29, 1999, Mr. Marinakis indicated to me, and I verily believe it to be true, that he knew representatives of The Royal Bank of Scotland through previous business contacts and that he would approach them about the feasibility of a purchase of the "Kimisis III" with the cargo on board. |
| 6. On or about February 1, 1999 I had a further conversation with Mr. Marinakis who indicated that he was still interested in purchasing the vessel and prepared to carry the cargo to its destination, however, he had been advised by a representative of The Royal Bank of Scotland that it would not be possible to arrange a sale of the vessel with the cargo on board and that the Bank was not interested in selling the vessel with the cargo on board. |
To summarize Mr. Murphy's evidence, Curzon Maritime Ltd., an established ship operator out of Greece and London, was interested in purchasing the ship and carrying the cargo to Mexico, that Mr. Marinakis of Curzon Maritime Ltd. knew representatives of the Plaintiff and approached them, only to be told that "... it would not be possible to arrange a sale of the vessel with the cargo on board and that the Bank was not interested in selling the vessel with the cargo on board.".
CONSIDERATION
[10] I would note that on the West Coast there have been two recent Federal Court ordered sales of ships with cargo aboard, the new owner to carry the cargo to the intended destination. Such sales are perhaps not the norm, but in each case the price paid was reasonable and indeed, in one instance, over the apparent appraised value. Perhaps the cargo aboard these ships, which gave to the new owners at least one fully employed voyage at a decent rate, can be an inducement, particularly given the present state of the shipping industry.
[11] Counsel for Noga suggested that, in the absence of Canadian case law on point, it was open for me to follow American law governing the responsibility for the cost of discharging cargo from a ship, subject to a Court ordered sale. Counsel referred to The Poznam, [1927] A.M.C. 723, The Amilia, [1963] A.M.C. 1447 and The Alexander's Unity, (1995) 41 F. (3d) 1107, for the general proposition that expenses incurred by a cargo owner in discharging cargo from a ship subject to sale were in the nature of custodia legis expenses. Custodia legis expenses include money expended to preserve and maintain an arrested ship and which expenditures have a preferred status.
[12] The general English rule is that it is for a cargo owner of a ship which has been sold by Court order to remove the cargo at its own cost, failing which the Admiralty Marshall in possession of the ship may discharge and store the cargo and, if need be in order to recoup that expense, sell the cargo. In instances in which the cargo owners remove their own cargo their claim would be against the ship owner for damages. All of this is set out in The Myrto (supra) at page 352 and The Jogoo (supra) at page 517. This general proposition has been followed elsewhere in English common law jurisdictions, for example by Mr. Justice Cons of the High Court of Admiralty in Hong Kong in The Mingren Development [1979] HKLR 159. However, Mr. Justice Cons, while following the English authorities, did suggest a modern equitable approach for he felt there was no perfect solution, the English and American Courts having taken very different approaches:
| Obviously there is no perfect solution. Financial disaster, like any other disaster at sea, is likely to cause suffering to the innocent. The argument that the suffering should fall primarily on the mortgagee I find largely emotional. It is true that he may sometimes have a free choice of when and where he arrests the ship and may thus be able to lessen the impact on others. But so sometimes do other claimants. No one can, as a general rule, be blamed for exercising his rights at such time as he thinks most proficious himself. If he takes undue advantage in any particular circumstance the Court may take that into account against him when exercising its discretion. [page 163] |
The important concept from The Mingren Development is that while there is no perfect solution to shield an innocent cargo owner when a marine mortgagee enforces its security, a court may look to see if the mortgagee has taken undue advantage of the situation and then the court may exercise its discretion accordingly.
[13] While the affidavit of Mr. Leo Murphy does perhaps raise a question as to whether the Plaintiff is taking any undue advantage by indicating to a potential purchaser of the Kimisis III that it was not possible to arrange a sale of the vessel with cargo aboard and that it was not interested in such a transaction, there may well be another side to the proposal of Curzon Maritime Ltd. to purchase the Kimisis III and carry Noga's cargo to its destination. It would be best for all concerned if that possibility were dealt with further, certainly by the Plaintiff and perhaps also by Noga, if it is able to develop further material given more time. However, I do not need to make a finding, at this point, as to whether the cost of discharging cargo should fall upon the cargo owner, the general rule under English law, or whether the cost of discharge of cargo should be a Marshall's expense in getting the ship ready for sale, the American approach, or whether equitable considerations, as suggested by Mr. Justice Cons in The Mingren Development, ought to apply.
[14] Neither counsel nor I are aware of any reported case in which a cargo owner has been ordered to remove its cargo, where either there has not been a court order for a sale or the mortgage holder has not gone into possession. It is not for a court to order a benign cargo, a cargo properly loaded aboard, off a ship, merely because there is the possibility, or even likelihood, that the ship will be sold and the if that sale takes place the ship might fetch a better price empty than loaded. The present motion is premature, given that the Plaintiff has neither gone into possession nor moved for a Court ordered sale.
CONCLUSION
[15] It is commendable that the Plaintiff looks ahead to a prompt sale and, in its view, concluding that the cargo ought to be discharged in order to obtain the best price for the ship, moves now to obtain an order for discharge of cargo. However, as recent Federal Court ordered ship sales in Vancouver show, it is possible to sell a ship, at a reasonable and even a good price, with cargo aboard and reasonable freight payable.
[16] However, I ought not to order cargo removed when an order for the sale of the Kimisis III has not yet been sought, and even when the sale order has been granted it may be possible to obtain Mr. Justice Cons' elusive perfect solution if, on further exploration, a sale with cargo aboard and generous freight payable proves possible and profitable. This is an aspect which both The Royal Bank of Scotland and Noga Commodities (Canada) Inc. ought to explore and then provide further material in support of their positions when a sale order is sought.
[17] There may be some delay in making arrangements for the discharge of the Kimisis III, should that have to take place, but such delay is more illusory than real. The available grain vacuvators, not a common item on the West Coast where grain loading, not grain discharging, is the norm, are first to be used to discharge grain from another ship here in B.C. It may well be several weeks before the vacuvators will be available to Noga should discharge of its cargo become necessary.
[18] I commend counsel for their excellent submissions.
(Sgd.) "John A. Hargrave"
Prothonotary
Vancouver, British Columbia
February 9, 1999
FEDERAL COURT TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
HEARING DATED: February 8, 1999
COURT NO.: T-38-99
STYLE OF CAUSE: THE ROYAL BANK OF SCOTLAND plc.
v.
| THE OWNERS AND ALL OTHERS INTERESTED IN THE SHIP "KIMISIS III" AND MADONNA NAVIGATION (MALTA) LIMITED |
PLACE OF HEARING: Vancouver, BC
REASONS FOR ORDER OF MR. JOHN A. HARGRAVE, PROTHONOTARY
dated February 9, 1998
APPEARANCES:
Mr. Gary Wharton for the Plaintiff
Mr. Jack Buchan for Noga Commodities Inc.
SOLICITORS OF RECORD:
Campney & Murphy
Vancouver, BC for Plaintiff
Mr. Jack Buchan
Cohen, Buchan
& Edwards for Noga Commodities Inc.