Federal Court Decisions

     T-1620-96

     ADMIRALTY ACTION IN REM AGAINST

     THE SHIP "WESTERNS HORIZON"

Between:

     HER MAJESTY THE QUEEN IN RIGHT OF CANADA

     AS REPRESENTED BY THE MINISTER OF

     SUPPLY AND SERVICES,

     Plaintiff,

     - and -

     HORIZONS UNBOUND REHABILITATION AND TRAINING

     SOCIETY (H.U.R.T.S.) and THE OWNERS AND ALL OTHERS

     INTERESTED IN THE SHIP "WESTERN HORIZON",

     Defendants.

     REASONS FOR ORDER

JOHN A. HARGRAVE

PROTHONOTARY

     These reasons arise out of the Plaintiff's motion to sell the "Western Horizon" pendente lite and portions of the motion of the Defendant, Horizons Unbound Rehabilitation and Training Society ("Horizons Unbound"), a society dedicated to the rehabilitation of young offenders through shipboard programmes, for a stay of the sale pursuant either to Rule 44 of the Canada Shipping Act or to section 50 of the Federal Court Act.

     Following the completion of the hearing of the motion on November 5, I reserved, but indicated to the parties that they ought to try to work out a resolution themselves. This seemed appropriate for in my view the "Western Horizon" is of little commercial value and probably only of use as a training ship. Given the vessel's size and configuration, she would be difficult to employ commercially. The Plaintiff's surveyor values the ship at $60,000.00, said to be a break-up value. Given as well the asbestos bulkhead and deckhead insulation, she would be impossible to scrap economically, which could be an embarrassment to all concerned. However, the parties have apparently not been able to reach a resolution.

BACKGROUND

     The events leading to the Crown's sale application, which go back some half dozen years, are too complex to set out in full. Instead I will touch largely upon what appears relevant to the two motions.

     In 1990 the Defendant, Horizons Unbound, in order to implement a training ship project for young offenders, obtained a 177 foot surplus trawler-rigged Fisheries and Oceanographic Research vessel, the "G.B. Reid", from what was then the Ministry of Supply and Services.

     The ship had been surveyed and valued in January of 1989. The survey makes it clear the ship, built to Lloyd's 100-A-1 standards and ice strengthened, which had then been laid up some four years, was essentially in the same condition as when laid up, but badly in need of maintenance. The fair market value was estimated at $250,000.00, the value being low, for as a side trawler she was outmoded and in any event had too small a hold capacity to be economical in any trade without costly modification.

     Horizons Unbound obtained the vessel for one dollar, in return for various undertakings as to the goals which Horizons Unbound would attain over the ensuing five years. I will refer to these goals as covenants.

     One of the covenants was to the effect that the vessel be refitted to acceptable standards as certified by the Canadian Coast Guard so as to be ready for its intended operation within eighteen months. The parties took this to hinge on the designation given to the vessel upon her registration in the ownership of Horizons Unbound. The "Western Horizon", as the "G.B. Reid", had been registered as a research vessel out of the Port of Ottawa. Horizons Unbound re-registered the vessel at the Port of Victoria as a yacht, being the only practical designation in Canada given both the original design and purpose of this ship and the covenant by Horizons Unbound not to operate their ship commercially in competition with the shipping industry for five years.

     The covenants were enforceable as part of an agreement collateral to a first registered marine mortgage in favour of the Crown, which in turn was collateral to a demand note for $200,000.00, without interest. Provided Horizons Unbound lived up to the covenants, the note would be cancelled and the marine mortgage discharged at the end of five years.

     Doctor Philip Ney, a physician, child psychiatrist and psychologist, with previous successful experience in treating young offenders in a marine training environment, was the driving force of Horizons Unbound. He put much into the project, including his own funds, some $130,000.00 of which is reflected in a second registered marine mortgage.

     Over the years much correspondence ensued between the Crown and Horizons Unbound as to whether the latter was complying with the covenants. Some of the correspondence, for example whether the "Western Horizon" was properly documented as a yacht, shows a certain degree of mindlessness on the part of the Crown. While the Crown's demand letter of March 6, 1995, by which it put Horizons Unbound on sixty days' notice to cure various alleged defaults, brings up the designation as a yacht and various other alleged breaches of the covenants, as defaults, the Crown now wisely seeks only to show a default of covenant 2(e)(i) that the vessel ". . . be ready for operation for its intended use within 18 months from the date of the transfer . . . " and of covenant 2(e)(ii):

To use the said vessel mainly for the purpose of rehabilitating no less than 10 young offenders from either Provincial or Federal penitentiary services at any time and not to allow that the said vessel discontinue to serve the intended purpose for any period of six months or more after being refitted and put into operation up until at least five (5) years from the date of transfer.

It is also clear from Horizons Unbound's material, for example the 1991 and 1992 treasurer's reports, that the Society was very much aware of the requirements set out in the covenants and that a breach could result in a loss of the ship.

     The Plaintiff did not immediately commence Federal Court proceedings and arrest the vessel when the alleged defaults of the covenants were not remedied, but rather, in May of 1995, seized the "Western Horizon" and is now mortgagee in possession. The Plaintiff's moorage for the vessel is alongside a floating drydock at the Esquimalt Graving Dock at a cost of $3,675.00 per month. Horizons Unbound contends the moorage cost is out of line with other local moorage and is excessive, particularly in that access to the vessel is poor and neither water nor electricity is available. To this end Dr. Ney personally recently paid some $1,600.00 for fuel for the "Western Horizon". This is a rather odd situation, as generally it is for a mortgagee in possession to properly look after a vessel subject of course to the proviso that such a mortgagee is not required to make large expenditures to prevent the deterioration of a vessel of low value. Here I would also note that the engine room telegraph in the wheel house has gone missing.

     The Plaintiff moves to have the vessel sold, pendente lite, on the grounds both of deterioration and of the ongoing cost of moorage. The moorage owing to April 30, 1996, is said to be $28,133.84, with ongoing moorage at the Esquimalt Graving Dock for six months at $3,675 per month, an additional $22,050.00. The total moorage bill, to the end of October 1996, is thus in excess of $50,000.00.

     That the vessel is deteriorating is clear from the affidavit material. Dr. Ney deposes that the "Western Horizon" was scheduled for dry docking when she was seized in May of 1995. The bottom is in need of maintenance, including replacement of zinc anodes, both of which require the vessel to be docked. Horizons Unbound also says the vessel is deteriorating as it is not being properly ventilated.

     The present value of the "Western Horizon", as set out in a survey of June 4, 1996, is said to be $60,000.00, which the surveyor characterizes as a breakup value, for he can suggest no ready market or use of the ship. Indeed, one could be tempted to conclude that the mortgagee in possession might have to pay to have the vessel broken up, for the surveyor reports "Much of the ship's insulation on bulkheads and deckheads is reported to be asbestos, as is the exhaust insulation.".

     Horizons Unbound say that since they took over the vessel in 1990 "hundreds of thousands of dollars and many donations of material and many hundreds of hours of work have gone into the ship.", that the donors, contributors and members of the society would be disappointed if the ship were sold for scrap, that the marine training project is viable and valuable and that to sell the ship at this point would bring an end to the society. The Plaintiff, for its part, questions the viability of Horizons Unbound in any event. This lack of viability seems, at least in part, to be borne out of Horizons Unbound's own material: "...we have not been able to obtain global funding that will allow us to have a full program for young offenders. " (November 1, 1993 letter from Dr. Ney, as president of Horizons Unbound, to Crown assets Distribution) and also Dr Ney's affidavit of September 20, 1996, in which he states the society has no funds to hire legal representation or to defend the action by reason of the Plaintiff's proceedings can not raise funds.

     Horizons Unbound say there are no outstanding bills owed by them and contend they are in a position to proceed with the project. Thus, Horizons Unbound submits, either the vessel ought to be released or the litigation ought to proceed to a conclusion and only then, if the Plaintiff succeeds, ought the "Western Horizon" to be sold.

ANALYSIS

Some Procedural Matters

     When a first mortgagee has gone into possession, the more usual procedure, particularly when there can be reasonable certainty as to the in rem creditors who exist, is for the first mortgagee to sell under power of mortgage. This process had initially been decided upon, however, on May 10, 1995, Dr. Ney registered a second mortgage to secure $132,990.53, representing his own or part of his own interest in the vessel by reason of payment of bills. The Crown Assets Distribution Centre decided not to proceed with any sale as a mortgagee in possession. However, had they chosen to do so their Bill of Sale, given as first mortgagee in possession, would have cleared title of Dr. Ney's second mortgage.

     As I have noted the "Western Horizon" is not presently under arrest. Thus the ship may not be sold by the Court under Rule 1007, which makes an arrest a pre-condition to sale under that Rule. However, the Court does have the jurisdiction to order a sale of a ship whether or not the ship is within the power of the Court by reason of arrest: see for example The Imperial Trusts Co. of Canada v. The "Lequesnoy", (1921) 20 Ex. C.R. 486. In the present instance any sale ought to be under Rule 1007 utilizing the procedure which will best serve the protection of the interests of all parties. Given that the "Western Horizon" is in the possession of the Plaintiff mortgagee and thus easily subject to an arrest by the Sheriff (with possession and responsibility remaining with the Plaintiff) this lack of arrest ought not to become cause, in this case, to send the parties away, require the Plaintiff to arrest and then re-hear a lengthy motion: it is a defect that can in this instance be remedied as a pre-condition to a court ordered sale.

     The Plaintiff wishes to have the conduct of the sale, submitting the Crown Assets Distribution Centre has the know-how to sell the ship and can accomplish it more efficiently and at a lower cost than would be the case were the "Western Horizon" sold by the Sheriff. It is not generally the Court's role to approve private sales, in effect rubber stamping what has already been done, perhaps to the detriment of the interests of other parties: see for example International Marine Banking Co. v. The "Dora" [No. 2], [1977] 1 F.C. 603. In The "Dora" Associate Chief Justice Thurlow denied the plaintiff's application to approve an arranged sale, being critical of the sale procedure adopted by the plaintiff. However, from time to time, in proper circumstances, the Court has allowed a party to have the conduct of a sale. This is particularly so when the vessel value is not great and the Sheriff's charges, which in this jurisdiction are substantial, would cut needlessly into the recovery of creditors. In the present instance no sale procedure has been commenced by the Plaintiff. Thus the Court, in the event of a sale order, can make appropriate provisions in order to protect the interests and priorities of creditors: I have in mind, as a possible example, Dr. Ney's recent expenditure for fuel, in the absence of a shore electrical power connection.

Sale of the Vessel

     Having disposed of various preliminary procedural points I now turn to consider the merits of the motions.

     The Defendant and the Intervenor, Dr. Ney, have filed much affidavit material dealing with the merit of Horizons Unbound's project to assist in the rehabilitation of young offenders. The concept of sea training for young offenders appears to be a proven one. Dr. Ney has a successful track record. Horizons Unbound's project may well have substantial merit. But that merit has no bearing on the Plaintiff's right to sell if there has been a default of the mortgage covenants, if the Plaintiff satisfies the onus of showing there ought to be a sale before the litigation has been completed and if Horizons Unbound are unable to show the sale ought to be either prohibited or stayed.

     I would also add that the inability of Horizons Unbound to have an ongoing functioning program for young offenders in place ought not to be taken as a reflection on the society or on Dr. Ney: rather it is the apparent result of a change in Provincial government and a resetting of budget priorities which no longer extend to a sea training program for young offenders.

     The Court may order the sale of a vessel before trial, whether or not the action is defended, if there is good reason: see for example Banco Do Brasil v. The "Alexandros Tsavliris" (1987), 12 F.T.R. 278 at 283.

     Horizons Unbound have also put in a good deal of evidence to show that they have a good arguable defence. This brings to mind an apt passage in Mr. Justice Brandon's decision in The "Myrto" [1977] 2 Lloyd's 243 in which he ordered the "Myrto" sold pendente lite:

It is neither necessary nor desirable for me to express, at this interlocutory stage of the action, any opinion as to whether the three defences so adumbrated are likely to succeed or fail at any trial of the action which may take place hereafter. It is sufficient for me to say that Counsel for the bank conceded, and in my view rightly and properly conceded, that those defences raised arguable issues of the fact and law for decision at such a trial. It follows that the action cannot be treated as a default action, in which the bank is bound in any event to obtain a large money judgment against the res, but as a contested action the outcome of which may be either way.

Whether there is an arguable defence is a factor, but the real issue, in the present instance, is whether it would be reasonable to keep the vessel under arrest until the trial of the action, or to sell the vessel now, or alternatively, to release the vessel.

     Mr. Justice Brandon's decision in The "Myrto" is also the first reported instance in which the Court of Queen's Bench, Admiralty Division, considered the sale, pendente lite, notwithstanding a defence had been filed. As to the owner's default, the judge determined that, on a balance of probabilities the owners, although willing to carry on with their operation, were impecunious and were unable to do so. He then noted, in dismissing the application to have the vessel released:

. . . an order for the release of the ship, made in interlocutory proceedings before trial, is a drastic order which should in my view only be made in a clear case, . . .

(p. 259)

This approach leaves to owners a remedy in damages.

     As to the application to sell the "Myrto", before the completion of litigation, Mr. Justice Brandon considered the ongoing expenses of maintaining the arrest until trial, which included moorage, crew wages, supply of fuel and necessaries and insurance, none of which were being paid for by owners and which would continue for perhaps eighteen months until the case should come to trial, or perhaps seven months if the trial were expedited. His reasoning for the sale order is well worth setting out:

I accept that the Court should not make an order for the appraisement and sale of a ship pendente lite except for good reason, and this whether the action is defended or not, [sic] I accept further that, where the action is defended and the defendants oppose the making of such an order, the Court should examine more critically than it would normally do in a default action the question whether good reason for the making of an order exists or not. I do not accept, however, the contention put forward for the owners, that the circumstances that, unless a sale is ordered, heavy and continuing costs of maintaining the arrest will be incurred over a long period, with consequent substantial diminution in the value of the plaintiffs' security for their claim, cannot, as a matter of law, constitute a good reason for ordering a sale. On the contrary, I am of the opinion that it can and often will do so. (p. 260)

He concluded by exercising his discretion to make the sale order for he felt it would be unreasonable to hold the vessel under arrest, at large expense, for at least seven months, for the result would be, assuming the mortgage holder succeeded, a reduced recovery by reason of the ongoing expenses of the arrest (p. 261).

     The "Myrto" was endorsed by another noted admiralty judge, Mr. Justice Sheen, in The "Gulf Venture" [1985] 1 Lloyd's 131 (Q.B.). The "Gulf Venture", valued at about $425,000.00 (U.S.), had been under arrest for some time, was deteriorating and was costing " 5,000 per month to maintain. The ship was the only asset to which the plaintiff could look for satisfaction. The owners were unwilling or unable to post " 250,000 bail. Mr. Justice Sheen was in no doubt that the "Gulf Venture" should be appraised and sold. (That Mr. Justice Sheen, in subsequent proceedings reported [1986] 1 Lloyd's 130, set aside his own decision on the grounds that intervenors were not given notice of the motion for sale, is not material.)

     Mr. Justice Sheen again followed The "Myrto" in The "Emre II", [1989] 2 Lloyd's 182, dealing with two motions, one for a stay on jurisdictional grounds, and the other for appraisal and sale pendente lite. The mortgagee's best case was a claim of some " 1,700,000. The value of the ship was just over " 1,000,000. The Admiralty Marshal had run up an account of " 38,000 and the ongoing cost of keeping the ship under arrest was approximately " 10,000 per month. The shipowner was unable to give security in order to obtain release. The Court made an order for sale, providing that it would not come into effect for 21 days to enable the solicitors for owners, if they were able, to give their personal undertaking to pay the costs of arrest on demand, in which case the vessel would remain under arrest, failing which the order for appraisement and sale would take effect.

     The final decision I shall touch on, as to the sale of a ship before trial, is The "Alexandros Tsavliris" [supra], a decision of Mr. Justice Collier, involving a contested default on a mortgage, which raised arguable issues of fact and law, issues not to be determined on the interlocutory sale application, but at trial. Mr. Justice Collier referred to The "Myrto" noting, despite arguable defences, the "Myrto" ". . . was headed for sale, at some point down the road" (p. 281).

     Mr. Justice Collier considered, among other things, whether the owners who remained in possession of and responsible for the ship while under arrest, might be able to maintain the vessel, ongoing interest on the mortgage and ongoing insurance costs. He exercised his discretion on one main ground: there appeared to be a defence to the mortgage action. He felt the balance of convenience favoured keeping the "Alexandros Tsavliris" under arrest until the outcome of the action.

     In The "Karey T" (1995), 83 F.T.R. 262, I summed up at p. 265 the elements which Mr. Justice Brandon considered in The "Myrto" and Mr. Justice Collier considered in The"Alexandros Tsavliris". The elements are as follows:

1.      The value of the vessel compared with the amount of the claim;

2.      Whether there is an arguable defence;

3.      Can the owner carry on: is it reasonable to assume that there must be a sale of the vessel at some point;

4.      Whether there will be any diminution in the value of the vessel or of the sale price by the delay, including the cost of keeping a man or a crew aboard the vessel the cost of maintaining the vessel and the cost of insuring the vessel;

5.      Whether the vessel will depreciate by further delay;

6.      Whether there is any good reason for a sale before trial.

In the present instance I have also kept in mind a basic tenet. A court ought not easily interfere between mortgagor and mortgagee so as to deprive a mortgagee of in hand security - see Hill v. Kirkwood (1880) XLII L.T. (N.S.) (C.A.) 105 AT 107:

The only thing we do in cases of mortgagee and mortgagor is to say that if mortgagor brings into court the amount that the mortgagor swears is due to him, the court will grant an injunction to restrain the sale, or to restrain the mortgagee from making away with the estate. (Lord Justice James)

It seems to me that the regular rule is this, that where the court interferes as between mortgagor and mortgagee at the instance of the mortgagor, the mortgagee, unless the court is in a position absolutely to decide that he has no right, must be put in safety, and the ordinary terms which are imposed on an interlocutory application are payment into court by the mortgagor of the amount which the mortgagee swears is due to him upon his security. (Lord Justice Cotton)

     In this present action the Plaintiff says Horizons Unbound did not have the "Western Horizon" ready for operation for it's intended use within 18 months of taking over the ship and did not, at relevant times, have an on going program for young offenders as required to satisfy covenants 2(e)(i) and (e)(ii). Horizons Unbound's evidence does not go to deny this. Rather, and the affidavit material is vague on this point, Horizons Unbound's evidence is that it did, at some point, run one program for more than ten young offenders within 6 months of taking possession of the ship. Horizons Unbound says it was prevented from using the vessel for it's intended purpose because it and the Coast Guard could not resolve safety and ship inspection requirements and specifications and because the change of provincial government and it's financial priorities shut off their supply of young offenders for whom to run programs.

     Prima facie this appears to be a case were there has been a default. I now turn to the frame work used in The "Karey T" [supra] to consider whether a sale ought to take place now, rather than wait for the outcome of an as yet unscheduled trial which will take place a number of months in the future.

(i) Value of Vessel and Amount of Mortgage:

     Where a ship owner has substantial equity in a ship, that maybe a reason to delay sale, for then the mortgagee has less at risk and the there may be a substantial injustice to the ship owner. Here, the reverse is the case: the "Western Horizon" might fetch $60,000.00 on a sale, as against a $200,000.00 mortgage.

(ii) Arguable Defence

     I am not particularly impressed with the evidence put forward by Horizons Unbound to establish that there has been no default. However, it is not for me to make a determination of the default issue on an interlocutory motion, for some of the submissions on behalf of Horizons Unbound might possible prove to be arguable defences.

     Dr. Ney, in his affidavit material, suggests there have been oral modifications to the covenants: I can see no basis for such. There is an indication that in 1993 Supply and Services Canada might entertain an amendment to the agreement collateral to the marine mortgage, subject to persuasion by it's lawyer and approval from the Minister of Supply and Services. Nothing appears to have come of this.

     Horizons Unbound urged that the Plaintiff induced it to carry on with their project, not withstanding various defaults. Certainly, the Plaintiff did not move to put the Defendant on notice as early as it might have, which Dr. Ney suggests was in 1992. However I do not see any positive acts of inducement, persuasion or leading on by the Plaintiff of the Defendant. Dr. Ney complains the Plaintiff, by it's action, it preventing the Society from maintaining the vessel: leaving aside whether the Society has the funds to maintain the vessel, to allow the Defendant to work on the vessel, while it is under seizure and awaiting sale, would be a leading on of the Society.

     Counsel for the Defendant submits there is yet another defence, that the demand note is faulty for it is a conditional note. The note is in a simple form. It is a demand note for $200,000.00 without interest. On it's face it not conditional. However counsel refers to Burton v. Cundle (1918) 14 O.W.M. 306 (H.C.) and to Edie v. Turkewich [1940] 2 D.L.R. 204 (Man. C.A.). Counsel the Plaintiff indicated that should this become a issue he wished to make representations. To my mind the two cases are not relevant to the present note.

    

     In Burton a contemporaneous collateral agreement made payment under the note conditional on the maker receiving money from third parties. That is a very different thing from the present collateral agreement containing covenants a breach of which is a default enabling the holder to make demand.

     In Edie v. Turkewich the document at issue was, on it's face, an unconditional promise to pay. However the plaintiff endorsee, Mr. Edie, had express notice that the payee could not give him clear title to the note by a simple endorsement, for the contract underlying the note was conditional on the delivery of a grain separator, which had never been delivered. In the result the plaintiff was not a holder in due course for he knew the payee could not assign the contract and note until the separator had been delivered. Further, the plaintiff knew the note did not become effective until the separator had been received, tested and accepted, none of which occurred. Put another way, the note was not unconditional in the hands of the plaintiff as he had no greater rights than had the payee. Again, this is a very different situation from a covenant in an agreement collateral to a mortgage and a note, the breach of which constitutes a default.

(iii) Inevitable Sale

     Horizons Unbound says it has put hundreds of thousands of dollars into the project together with much time and effort. It says there are no unpaid accounts, although there is certainly on-going moorage.

    

         The material of Horizons Unbound contains many letters seeking funds, but no current financial information or current balance sheets. There are balance sheets in the affidavit material, for the years ending 1990, 1991 and 1992. They show increasing deficit figures of $500.00 at the end of 1989, $37,000.00 at the end of 1990, $129,000.00 1991 and $141,000.00 at the end of 1992. The 1994 report to the annual general meeting of Horizons Unbound set out that the organization can no longer find funding for their young offenders program and that it would like to re-design the program to accept referrals, including private referrals from anywhere in the continent, in order to support the project.

     Dr. Byron Ehle as treasurer of Horizons Unbound sets out in his March 25, 1994 letter to the Minister of Supply and Services (exhibit F-12 to Dr. Ney's lengthier affidavit of November 3, 1996) that the covenants in the collateral agreement "... are now impossible to fulfil...". It is also clear that the inability to fulfil the covenants has nothing to do with the Plaintiff, but arises as a result of the change of plans and priorities by the Provincial Government.

     None of this reflects positively on the ability of Horizons Unbound to carry on with the project, even were it to obtain modified covenants or were it to obtain the vessel free and clear. Indeed, Horizons Unbound's own material and the present climate of government financial restraint point to an operation with a bleak outlook, one that may well dictate a sale of the vessel at some point.

(iv) Diminution of Value

     The issue here is whether there will be any diminution in the present modest value of the vessel, perhaps $60,000.00, by reason of on-going costs. Presently there is no substantial margin between total moorage costs and the value of the vessel. Whether or not the monthly moorage cost of $3,675.00 is excessive, and even assuming cheaper moorage might be found or bargained for, the cost of moorage might well be in excess of the value of the vessel by the conclusion of a trial many months from now.

     Horizons Unbound submits that the vessel ought not to be sold merely on the basis of the cost of moorage. The observation may be so, for generally, in the reported cases, moorage has not been a big item of expense. In the present instance moorage is a substantial on-going cost. But that is not the only reason the vessel ought to be sold at this point.

(v) Depreciation of vessel

     The June 1996 survey, a brief survey commissioned by the Plaintiff, indicates the vessel is not in good condition, but does not point to any on going deterioration.

     It is the material of Horizons Unbound which points to deterioration. Horizons Unbound has set out that the "Western Horizon" was to be drydocked in May of 1995 for needed bottom maintenance, including replacement of zinc anodes, the latter being necessary to prevent electrolytic damage to hull and underwater appurtenances. At this time the Society does not have funds to maintain the vessel and seems to have little prospect of raising funds in the immediate future. In addition, Horizons Unbound says the vessel is deteriorating by reason of a lack of proper ventilation. Dr. Ney, in his submission, said that the ship, in the hands of the Plaintiff, is "rotting": however there is also the question of how much a mortgagee in possession is required to spend on a vessel of little value. All of these are reasons for a sale at this point rather than have the vessel sit and deteriorate over the months until trial, regardless of the outcome of the trial.

(vi) Reason for Sale Before Trial

     We now come to the final and deciding issue in the analysis, whether there is any good reason for a sale before trial. There are four main reasons why there ought to be a sale before trial. The first reason is the on-going cost of moorage, which could well result in a moorage bill, by the time a trial is completed, in excess of the value of the vessel. Second, there is on-going depreciation, which could be very substantial, and here I refer to the present unknown condition of the bottom of the vessel, which ought to have been tended to in mid 1995. I do not fault the Plaintiff, for there is a limit to what the Plaintiff ought to be required to spend on a vessel, while the vessel is under seizure, where the appraised value is minimal and there is no apparent means of recouping expenditures on a sale. Third, on the only appraisal submitted by the Parties, showing a market value of perhaps $60,000.00, it is clear the owner has no equity in the vessel. The final reason is that the owner has not come forward to offer to share moorage, or to maintain the vessel, or to put up the value of the vessel, $60,000.00, as security: this and apparent financial state of Horizons Unbound lead me to believe that owners are in poor financial position and sale is an eventual inevitability.

     The vessel ought to be sold, before the trial in this matter, subject to a consideration of the Defendant's motion for a stay of the sale.

Stay of the Sale

     The Defendant Horizons Unbound and the intervener, Dr. Ney, urge the sale be prohibited pursuant to Section 44 of the Canada Shipping Act or stayed pursuant to Section 50 of the Federal Court Act.

    

     The Court of Appeal in Hill v. Kirkwood [supra] set out a strict and to-the-point approach to giving relief to a mortgagor: unless the Court is in a position to absolutely decide the mortgagee has no right, the mortgagee must be placed in a position of safety, failing which the Court will as a matter of practice, restrain or enjoin a sale only where the mortgagor brings into Court the amount of the mortgage.

     A position of safety for the mortgagee would include, as in the present instance, not having to stand by while the net realizable value of the vessel slips away by reason of ongoing costs and depreciation. On the measure set out by the Court of Appeal in Hill v. Kirkwood [supra] Horizons Unbound fail to have the sale restrained.

    

     Further, on the basis of Hill v. Kirkwood [supra], I am not about to release the "Western Horizon", without bail, to Horizons Unbound. It would be too drastic an order, in a case which seems to favour the Plaintiff, to release the ship, without security, to Horizons Unbound: see also The "Myrto" (Supra)at p.259. The Plaintiff is entitled to it's security. Should the Defendant prove successful at trial there can, in certain instances, be an award of damages for wrongful seizure of the ship. However, the Defendant and the Intervenor, on their motion, say the measure to apply should not be that of Hill v. Kirkwood [supra] but rather the criteria for a stay.

Stay of the Sale

    

     The criteria to apply in granting a stay is that set out by the Supreme Court of Canada in two cases, Attorney General of Manitoba v. Metropolitan Stores (MTS) Ltd. [1987] 1 S.C.R. 110 and RJR - MacDonald Inc. v. Canada [1994] 1 S.C.R. 311. I must determine first, on the basis of a limited review of the case on it's merits, whether there is a serious question to be determined; second, whether the refusal of a stay would result in harm the nature of which would be irreparable; and third, the balance of inconvenience as it affects each of the parties. Recently the Federal Court of Appeal applied the criteria, as set out in the RJ MacDonald case, in Translink France Outre Mer S.A. v. Pegisus Lines Ltd. S.A. an unreported decision of May 24, 1996, in action A-131-96, to stay a decision which would have the effect of releasing the ship " Viva America ". One of the factors the Court of Appeal considered and which does have bearing here is that the applicant, the owner of the "Viva America", was unable or unwilling to give an undertaking in damages as a condition of the stay.

    

     To begin I do not see that there is a serious question to be determined. The Plaintiff says the Defendant has defaulted on covenants 2(e)(i) and 2(e)(ii) sections to which I have referred earlier. To paraphrase, the covenants provide that the intended purpose for the "Western Horizon" is to take groups of at least 10 young offenders, from either the Provincial or Federal penitentiary service at any one time for rehabilitation programs. After a refit period of eighteen months, running from the taking over of the ship, Horizons Unbound is not to allow the "Western Horizon" to discontinue the service for any period of six months or more. Horizons Unbound submit it has meet these terms, but on it's own material it seems to have taken only one group of young offenders. Further, it is clear the ship's refit was not accomplished within 18 months of taking possession: for example see Dr. Ney's December 28, 1995 report (exhibit H3 to Dr. Neys lengthier affidavit of November 3, 1996) which indicates that as of December 1995 the refit was still ongoing. I do not see the default issue as being either a serious issue of fact or of law.

     Turing to irreparable harm, the Defendant and the Intervenor both submit that the loss of the "Western Horizon" would mean a large monetary loss to Horizons Unbound, who they say have put hundreds of thousands of dollars and much work into the ship. That loss might in theory be made good were the vessel sold by the Plaintiff and then the Defendant succeed at trial, by an award of damages. Similarly, the loss to the community and I think the resulting embarrassment to Horizons Unbound, who are concerned over the loss of community effort and donations, were the vessel to be sold now by the Plaintiff, could in theory be made good by the means of damages in favour of Horizons Unbound. However in this instance I recognize the difficulty of determining adequate compensation at trial, for on the one hand the ship is appraised at a $60,000.00 break up value, but on the other hand the donations of money, material, equipment and time would be very difficult to quantify and compensate. In addition, there is also an element of public interest in the project which would be harmed.

     Still dealing with irreparable harm Horizons Unbound raises an interesting question being the demise of the Organization itself were the vessel sold by the Plaintiff, for the society is identified with the ship. I sense, from the material and from present lack of government support, both financially and by way of no longer wishing to use the "Western Horizon" as a rehabilitation vehicle, that the future of Horizons Unbound is not that bright and may, not to far down the road, come to an inevitable end. However it also may be that Horizons Unbound could find niche dealing with rehabilitation of delinquents from outside the Federal and Provincial penitentiary service if they are no longer bound by the covenants: indeed, it is Dr. Ney's evidence that there is such an need.

    

     On balance, both on the basis of certain damages which may not be quantifiable and on the basis on the likely demise of Horizons Unbound, were the vessel to be sold, I am satisfied that to allow the sale to proceed would result in Horizons Unbound suffering irreparable harm.

     As to the balance of convenience, on the one hand the sale of the vessel will be damaging to Horizons Unbound, but on the other hand, to stay the sale would leave the Plaintiff with and asset the value of which will soon be less than the ongoing cost of keeping the vessel until completion of trial. Here I would note that the Defendant appears not to have the funds to offer to contribute to the cost of maintaining the vessel, nor has the Defendant made any undertaking in damages to make up for the ongoing costs of holding the "Western Horizon " until trial. The balance of convenience clearly favours the Plaintiffs.

Conclusion

     I am not prepared to stay the sale of the Ship for Horizons Unbound have satisfied only the criteria of irreparable harm: Horizons Unbound have failed to show either a serious question to be determined or that the balance of convenience is in it's favour.

     The Plaintiff may proceed with and have the conduct of the sale, as set out in an order of even date, provided the "Western Horizon" shall be placed under arrest, with the Plaintiff continuing to have possession of and responsibility for the ship. Beyond the serving of the arrest warrant and making the usual return, the

---

Sheriff shall have no part in the appraisal and sale process.

     Costs shall be in the cause.

                             (Sgd.) "John A. Hargrave"

                             Prothonotary

November 19th, 1996

Vancouver, British Columbia