Date: 20010626
Docket: T-186-99
Citation: 2001 FCT 706
BETWEEN:
NEDSHIP BANK N.V. PREVIOUSLY KNOWN AS
NEDERLANDSE SCHEEPSHYPOTHEEKBANK N.V.,
Plaintiff,
- and -
THE OWNERS AND ALL OTHERS INTERESTED
IN THE SHIP "ZOODOTIS" AND
ZOODOTIS NAVIGATION INC.,
Defendants.
REASONS FOR ORDER
HARGRAVE, P.
[1] The Plaintiff, Nedship Bank N.V. ("Nedship"), seeks security for costs against Tramp Oil & Marine Limited ("Tramp"), the latter being a supplier of bunker fuel to sister ships of the Zoodotis and who asserts an in rem claim to the sale proceeds of the Zoodotis. Tramp is not a party to this litigation but rather, as I have said, a claimant whose entitlement to payment is to be determined in the future by way of a priorities hearing, brought by motion, in which Tramp, other claimants, and the Plaintiff will contend.
[2] In that Tramp is an English company, thus ordinarily resident out of Canada, Nedship believes it may have insufficient assets in Canada to pay any award of costs and may have another proceeding for similar relief pending elsewhere. Nedship, relying on Rule 416(1), a discretionary rule, seeks security for costs. Rule 416 provides for security for costs as against a plaintiff in favour of a defendant. Here the Plaintiff relies in part upon Rule 415, a rule which was new in 1998:
415. Application - Rules 416 to 418 apply, with such modifications as are necessary, to parties bringing and defending counterclaims and third party claims, to applicants and respondents in an application and to appellants and respondents in an appeal.
Nedship submits that Tramp is an "Applicant" within Rule 415, and thus, with all the necessary changes being made in Rule 416, may be called upon to provide security for costs in favour of Nedship. Alternately, Nedship submits that Tramp, by asserting substantive rights against the ship sale proceeds, has become a virtual plaintiff and thus may be directly subject to an order for security for costs under Rule 416.
[3] The motion is unsuccessful: however, these reasons provide an opportunity, based on the Mikado of Japan‘s case, to set out what may be a more appropriate manner of intervention by in rem claimants who wish not only to present their own claims, but also wish to assert substantive rights by way of attacking the positions of other claimants.
Analysis
[4] To begin, the Federal Court is a statutory Court. Thus, in general, I have no authority to grant security for costs payable by the claimant Tramp, in favour of the Plaintiff Nedship, outside of the Rules. This is clear from Mentmore Manufacturing Co. Ltd. v. National Merchandise Manufacturing Co. Inc., (1975) 19 C.P.R. (2nd) 175, in which Mr. Justice Cattanach notes, at page 175, that neither a rule of Court nor a statutory provision had been brought to his attention authorizing a Trial Division Judge to fix security for costs in the case of an appeal. He went on to say that, in the absence of such a rule specifically conferring jurisdiction upon a Trial Judge, he was without jurisdiction to grant the motion and thus denied it.
[5] The concept of want of jurisdiction to award costs outside of the Federal Court Rules was picked up by Mr. Justice Strayer, as he then was, in Midway Manufacturing Co. v. Bernstein, (1989) 23 F.T.R. 295, in which he characterized as extraordinary the proposition that a plaintiff might seek security for costs from a defendant who might be insolvent. In that instance, the previous rule, Rule 446(1), provided the statutory framework for jurisdiction. It was a rule that applied only where a defendant sought security for costs from a plaintiff: the rule did not touch upon the provision for security for costs by a defendant. That being the case, Mr. Justice Strayer was of the view that he had no authority to make an Order in favour of the plaintiff.
[6] Mentmore Manufacturing and Midway Manufacturing stand for the concept that Tramp must come clearly within either Rule 415, so that Nedship may gain the benefit of Rule 416, or Rule 416 itself. Here, Nedship takes two tacks. First, Nedship characterizes Tramp as falling within the Rule 415 phrase extending Rule 416 to cover "applicants and respondents", or second, that Tramp has assumed the role of a plaintiff by asserting substantive rights going beyond a mere laying out of an entitlement to a portion of the sale proceeds, with claimants challenging one another in the roles of applicant and respondent on a priorities motion. Thus, I must consider first, whether Tramp might fall into the definition of an applicant or respondent, and second, whether Tramp stands in the shoes of a plaintiff by reason of having in fact become a virtual Plaintiff.
Rule 415 Route to Security for Costs
[7] Rule 415, through which a participant in legal proceedings, other than a defendant, may gain entry to Rule 416 and security for costs, is to be interpreted by referring to Rule 2 of the Federal Court Rules. Rule 2 defines an Applicant as a party bringing an Application, an Application in turn being a proceeding referred to in Rule 300. Rule 300 governs Applications, in the sense of judicial review, together with various other proceedings, all within Part 5 of the Federal Court Act, which governs Applications. Rule 415 thus cannot be applied merely because a participant in a motion happens to be in the position of the applicant or respondent on the motion.
[8] Tramp is clearly not a party, in the sense of Rule 415, which refers to "parties bringing and defending counterclaims and third party claims". Rather, Tramp is one of a number of claimants, claimants which include the Plaintiff Nedship, who are asserting in rem claims against the sale proceeds of the Zoodotis.
[9] All considered, Rule 415 has no application in the present instance.
Tramp as a Virtual Plaintiff
[10] The position of Nedship is that by challenging its priority as mortgagee to the sale proceeds, or alternately by seeking to set aside the Nedship mortgage, Tramp is asserting substantive rights as against both the sale proceeds and Nedship. From this it is said to follow that Tramp stands in the shoes of a plaintiff and thus, assuming various criteria set out in Rule 416 are met, Tramp should as a virtual plaintiff post security.
[11] Counsel for Nedship refers to Wilkerson v. The City of Victoria [1895] III B.C.R. 367, in support of security from a virtual plaintiff. However, that case is based upon a different principle, being that a person who claims a right to property and applies of his or her own accord to be admitted as a defendant in an action may be ordered to give security: see, for example, Vavasseur v. Krupp, (1878) 9 Ch.D. 351, a matter in which the Master of the Roles allowed the Mikado of Japan leave to become a defendant on payment of £ 100 as security for costs, a decision upheld by the Court of Appeal, and Apollinaris Company v. Wilson, (1886) 31 Ch. D. 632, a decision in which Vavasseur v. Krupp was referred to in argument, the Court of Appeal leaving it open as to what should be done as to costs if the appellant were added as a defendant. Vavasseur v. Krupp and the Mikado of Japan lead to a relevant aside.
[12] I have waited for an opportunity to call in the Mikado of Japan, on a maritime priorities proceeding, for his case not only provides an on-point illustration of an applicable principle for requiring security for costs from some claimants, but also offers a germane digression into what might be the proper perspective for an in rem claimant who wishes to do more than merely present and defend a position.
[13] The position of a claimant in a contemporary priorities proceeding, where a claim is not only presented, but the claimant also submits material, including affidavit expert evidence and substantial argument contrary to the plaintiff's case, or to the cases of other claimants, to explain why those claims are fundamentally wrong or without foundation, has not, to my knowledge, been explored. It may be that, in order to obtain the right to make such substantive submissions, a claimant ought to seek to be joined as a party defendant and make the argument from that position, just as did the Mikado of Japan who claimed, as his, naval shells over which the plaintiff and the defendant, in the Krupp case, were contending. For that privilege, the Mikado of Japan posted £ 100 security for costs. This appears a sensible route which in rem claimants to ship sale proceeds might well be required to adopt. I now return to what is more directly related to the arguments of Nedship and of Tramp.
[14] Rowe v. Thomas [1924] Ex. C.R. 117, also referred to by counsel for Nedship, is more instructive. There, two parties, plaintiff and defendant in a patent conflict case, each claimed affirmatively to be the first inventors and thus entitled to the patent. The court considered the defendant to have a position indistinguishable from the plaintiff, each being as much a plaintiff as the other, and therefore vulnerable to an order for security for costs. I take this to be an extension of the long-established principle that when a company brings a proceeding which, in its substance, is more than a mere defensive proceeding, a court has the discretion to order security for costs: see, for example, City of Moscow Gas Company v. International Financial Society (1872) 7 Ch. App. 225, in which the defendant's bill in Chancery was not merely a cross-bill acting as a defence to the original suit, but rather sought to enforce an agreement on terms different from those contended by the plaintiff, thus the defendant might be open to give costs as a plaintiff, although the issue of security for costs was decided on the fact of the winding up and, thus, impecuniosity of the defendant company.
[15] In The King v. Myers Canadian Aircraft Co. Ltd. [1927] Ex. C.R. 49, the president of the Exchequer Court dealt with a claim by a plaintiff for costs from a defendant. Costs were denied in that the defendant did not assert any substantive right whereby he might become a virtual plaintiff. In the course of the reasons, Mr. Justice Maclean refers to a common law rule that if a defendant asserted a substantive right he became a virtual plaintiff and might be compelled to give security for the costs of any proceeding by him to assert substantive rights:
It is the plaintiff who brings the defendant Myers into court to decide whether the patents in question are valid, and I fail utterly to see why that defendant Myers should be asked to give security for costs. He is making no application to the court whatever in connection with the patents. If he were, in any way, the rule that where a defendant is asserting a substantive right and so becomes a virtual plaintiff might be applied to him, and he might be compelled to give security for costs of any such proceeding by him. (Page 51)
It is interesting that from a jurisdictional viewpoint the Exchequer Court, a statutory court, did not have jurisdiction to grant costs against a defendant but, by characterizing the defendant as a quasi-plaintiff, could accomplish indirectly that which it was unable to accomplish directly.
[16] In the past, the issue of security for costs from a claimant in a priorities proceeding seems never to have arisen. This was probably because, in a traditional priorities hearing, the claimants merely presented and defend their entitlement, and thus their position in the hierarchy of priorities. More recently, it is usual to have claimants challenging one another. Here, Tramp certainly asserts some substantive rights and I say this even though there are no pleadings, in the traditional sense, on a motion for determination of entitlement to ship sale proceeds.
[17] The traditional situation, with no calls on a claimant to provide security, was and probably still is appropriate where the claimant presents a claim and may not be able to provide security, yet who ought not to be barred from participating, a category which would almost always include at least seamen with maritime liens. In passing, I have considered whether the principle, that a defendant putting forth a substantive position on an interlocutory motion should not be treated as a plaintiff for the purpose of security for costs, has any application. This situation was touched upon In re B (Infants) [1965] 1 W.L.R. 946, a Chancery Division decision, at page 948. However, a priorities determination by motion, as opposed to such a determination after a full trial, does not fall within the ambit of an interlocutory proceeding, which is defined as:
...those applications only are considered interlocutory which do not decide the rights of parties, but are made for the purpose of keeping things in statu quo til the rights can be decided, or for the purpose of obtaining some direction of the Court as to how the cause is to be conducted, as to what is to be done in the progress of the cause for the purpose of enabling the Court ultimately to decide upon the rights of the parties. (Gilbert v. Endean (1878) 9 Ch. D. 259 at 268-269, a decision of the Court of Appeal)
Clearly, a priorities determination by motion is not interlocutory.
[18] On further reflection, the answer to the concept that it may be undesirable, and indeed wrong at law, to label a claimant in a priorities hearing as a plaintiff susceptible to security for costs, lies in distinguishing the cases in which a party, a defendant, has been held to be a virtual plaintiff. The case law examples to which I have been referred and to which those cases in turn lead, in which security for costs in favour of a plaintiff has been granted, all evolve about the role of the defendant as a party, a defendant in the manner of a virtual plaintiff, as opposed to an entity such as Tramp who is merely a claimant and, not being a party, can be no more than a pseudo-plaintiff.
[19] By way of further distinction, costs may not generally be levied against those who are not parties to the litigation, subject to some special instances, generally where there has been abuse. This is so even though Rule 400, by which the court has the discretionary power to award costs including as to "...the amount and allocation of costs and the determination of by whom they are to be paid." This rule is broader than former Rule 344, which did contain a reference to parties. However, the Ontario Court of Appeal in Rockwell Developments Ltd. v. Newtonbrook Plaza Ltd. (1972) 27 D.L.R. (3d) 651 (Ont. C.A.) considered that portion of the Judicature Act of Ontario providing that costs are to be "...in the discretion of the court or judge, and the court or a judge has full power to determine by whom and to what extent the costs shall be paid." This provision is, as I have noted, similar to our Rule 400. There, after an exhaustive study of the authorities, the Ontario Court of Appeal decided that the discretion to determine by whom costs are to be paid was, notwithstanding the apparent breadth of the discretion, limited to parties to the proceedings:
It is my view that a literal interpretation of the words in s. 82 "and the court or judge has full power to determine by whom and to what extent the costs shall be paid" would lead to obvious absurdities, and that the decisions to which I have already referred correctly held that such a literal interpretation should not be given to the words in question. In my view the words "by whom" should be interpreted to mean "by which of the parties to the proceeding before the court or judge". (Rockwell Developments at p. 659)
Conclusion
[20] Clearly, there is no authority under the Federal Court Rules, or otherwise, to award costs against or to require security for costs from an entity which is not a party. This is so even where the non-party is a claimant to ship sale proceeds. Thus, the motion must fail.
[21] In future, where a claimant goes beyond merely presenting and defending a claim, progressing to providing substantive argument and material in an attempt to diminish or even void a claim of a party or another claimant, consideration ought to be given to joining such a claimant as a defendant, that defendant posting security for costs as the price of becoming a defendant.
(Sgd) "John A. Hargrave"
Prothonotary
Vancouver, B.C.
June 26, 2001
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-186-99
STYLE OF CAUSE: NEDSHIP BANK N.V. v. THE "ZOODOTIS"
PLACE OF HEARING: VANCOUVER, BC
DATE OF HEARING: November 22, 1999
REASONS FOR ORDER OF MR. JOHN A. HARGRAVE, PROTHONOTARY
DATED: June 26, 2001
APPEARANCES:
Mr. Peter Bernard FOR PLAINTIFF
Mr. Glenn Morgan FOR CLAIMANT, TRAMP OIL & MARINE LTD.
SOLICITORS OF RECORD:
Campney & Murphy
Vancouver, BC FOR PLAINTIFF
Davis & Co.
Vancouver, BC FOR CLAIMANT, TRAMP OIL & MARINE LTD.