Imperial Oil Ltd. v. Petromar Inc. (C.A.) [2002] 3 F.C. 190
Date: 20011214
Docket: A-583-00
(Trial Division Court File No. T-1492-97)
Neutral citation: 2001 FCA 391
CORAM: STONE J.A.
BETWEEN:
IMPERIAL OIL LIMITED
Appellant
(Plaintiff in the Trial Division)
and
PETROMAR INC. and PETROMAR MARKETING INC.
Respondents
(Defendants in the Trial Division)
Heard at Ottawa, Ontario, on November 14, 2001.
Judgment delivered at Ottawa, Ontario, December 14, 2001.
REASONS FOR JUDGMENT BY: STONE J.A.
CONCURRED IN BY: DÉCARY J.A.
ROTHSTEIN J.A.
Date: 20011214
Docket: A-583-00
(Trial Division Court File No. T-1492-97)
Neutral citation: 2001 FCA 391
CORAM: STONE J.A.
BETWEEN:
IMPERIAL OIL LIMITED
Appellant
(Plaintiff in the Trial Division)
and
PETROMAR INC. and PETROMAR MARKETING INC.
Respondents
(Defendants in the Trial Division)
REASONS FOR JUDGMENT
[1] This appeal from an order of the Trial Division dated August 16, 2000, raises an issue of whether, having regard to Canadian conflict of laws rules, the supply of marine lubricants in Canada to two Canadian registered vessels pursuant to an arrangement made by their manager with corporations in the United States, gave rise to a maritime lien under the maritime law of the United States or, instead, to a statutory right in rem against the vessels under Canadian maritime law.
[2] As the appellant submits, it would appear that the policy of the law in the United States is to protect the interest of suppliers by granting a maritime lien for necessaries supplied to a vessel. By contrast, the policy of Canadian maritime law is to deny a supplier such a lien and, instead, leave that person with either a right in personam against the debtor or, in the circumstances described below, a statutory right in rem against the vessel. Canadian policy would seem to be more protective of the vessel's interests in this regard. By processing a maritime lien the supplier of a vessel under the law of the United States occupies a far superior position to that of a supplier of a vessel under Canadian maritime law. As a maritime lienholder under the law of the United States, the supplier is entitled to rank above non-maritime lienholders and others including mortgagees. In Canada, by contrast, the supplier of a vessel ranks well down the scale of priorities as compared with maritime lienholders. Herein lies the conflict between the two systems of law.
THE ACTION
[3] The action in the Trial Division was commenced in July, 1997. In that action the appellant sought a declaration that the respondents have no maritime lien against the vessels under the law of the United States. Presumably, the purpose of the action was to prevent an anticipated arrest of the vessels in Canada by Petromar Inc. to enforce a maritime lien created by United States law for unpaid marine lubricants supplied to the vessels in Canada between the months of March and August, 1996. Subsequent to the filing of the pleadings, the parties consented to an order of the Trial Division for determination of the following question of law:
Whether Petromar Inc. has a maritime lien on the vessels M.V. "LE BRAVE" and M.V. "A.G. FARQUHARSON" as a result of the supply to the said vessels of marine lubricants.
The parties agree at the same time that this question be determined on the basis of the Agreed Statement of Facts which is contained in the record. That statement appears verbatim in the learned Trial Judge's reported reasons for judgment[1] and has attached to it the various agreements and other documents referred to therein.
[4] In December 1997, Petromar commenced an in rem action (No. T-2675-97) against the vessels in which Petromar claims a maritime lien under the maritime law of the United States in respect of the unpaid price of the same marine lubricants that are the subject of the present appeal. The parties agree that the result in the present action shall be binding on the parties in that action.
FACTUAL BACKGROUND
[5] The salient facts may be briefly summarized.
[6] The vessels M.V. "LE BRAVE" and M.V. "A.G. FARQUHARSON", registered at the Port of Toronto, were at all material times owned by the appellant and flew the Canadian flag.
[7] By separate charter-parties dated September 1, 1986 the vessels were demise chartered by their then owners to a partnership composed of La Societé Sofati Ltée and Socanav Inc., Canadian corporations. The partnership had its principal place of business in Montreal. Each of these agreements provided (Clause 23) that "the relationship between the parties hereto shall be determined and construed according to the maritime laws of Canada". The charter-parties were later assigned to Socanav Inc. of Montreal by agreement dated November 7, 1986 by Texaco Canada Inc., the then owners of the vessels. The parties agreed that at all material times Socanav carried on business mainly in Canada, primarily on the Great Lakes, St. Lawrence Seaway and Canadian East Coast, in the transportation of petroleum products in bulk and that Socanav also owned and operated tanker vessels in international trade. On February 24, 1989, the appellant acquired control of Texaco Canada Inc. Later, on August 23, 1989, the name of Texaco Canada Inc. was changed to McColl Frontenac Inc. By a term in each charter-party, the demise charterer obliged itself to "supply and fuel the vessel entirely at its expense and by its procurement" (Clause 5(c)) and to maintain, equip and repair the vessels (Clause 5(a), (b) and (c)). In the description of each vessel (Clause 1(a)), there is reference to "CSI Home Trade", which is not explained. Counsel agree, nevertheless, that "Home Trade" has the meaning assigned to it in the definition of "home-trade voyage" in section 2 of the Canada Shipping Act, R.S.C. 1985, c. S-9 and the regulations made thereunder.
[8] By agreement dated January 26, 1993, between Socanav and Imperial Oil, a partnership composed of the appellant and McColl Frontenac Petroleum Inc., it was agreed that the charter-parties dated September 1, 1986 would "remain in full force" (Art. 3.1). By this agreement Socanav acquired the "right to provide all of the maritime transportation requirements of Imperial's liquid petroleum products in Eastern Canada" save for products carried on certain Canadian registered vessels owned and operated by the Imperial partnership as well as additional movements of products exported from or imported into Canada. The parties agreed that the agreement and the relationship between the parties hereto "shall be determined and construed according to the laws of Ontario and the maritime laws of Canada whichever shall apply".
[9] On an undisclosed date, Socanav Inc. entered into an agreement with Star Ship Management Ltd. ("Star"), a United States corporation with office and place of business in Miami, Florida by which Star undertook to manage Socanav's fleet of vessels including the M.V. "LE BRAVE" and the M.V. "A.G. FARQUHARSON". The agreement is not in evidence.
[10] By agreement dated May 1, 1995, Star contracted with the respondent Petromar Inc., a United States corporation with offices in the city of New York, for the supply of marine lubricants to be delivered at the request of Star to various vessels managed by Star including the vessels here in issue. The initial paragraph of this agreement reads:
Subject to the terms and conditions hereinafter set forth, PETROMAR agrees to cause to be sold and delivered the Exxon Marine Lubricants referred to in Article II hereof, at the ports referred to in Exxon's booklet "Ports, Supplies & Service for Marine Lubricants" (hereinafter "Port List") and in Exxon's "International Contract Price List for Marine Lubricants" (hereinafter "Price List") in effect at the time and place of delivery, which publications are incorporated herein by reference and made a part hereof, and Buyer agrees to purchase and receive the same from such Supplying Company as may be specified in said Port and Price Lists or otherwise designated to Buyer by PETROMAR. If this contract is signed by an agent for a principal as Buyer hereunder, then such agent shall be liable not only as agent but also for the performance of all obligations of the principal hereunder.
Star agreed to follow the procedure in the Port List in placing orders for deliveries (Art. IV). The parties also agreed that "all orders are to be placed with PETROMAR" and that should Star "either directly or indirectly or through its agent place the order with Supplying Company, the delivery shall not be made until PETROMAR has confirmed the order." The agreement contained a clause providing that its "construction, validity and performance...shall be governed by the laws applicable in the State of New York to the exclusion of any other legal system". (Art. IX).
[11] Earlier, by agreement of indefinite duration dated October 26, 1989, Petromar contracted with Exxon Company International ("E.C.I."), a division of Exxon Corporation, with offices in the State of New Jersey, under which E.C.I. agreed to sell and deliver marine lubricants to customers solicited by Petromar. Part of the preamble of this agreement reads as follows:
This agreement is made...for ECI to sell and deliver, or cause to be sold and delivered, marine lubricants (hereinafter "Products") to customers solicited by Petromar whose vessels may have requirements at ports served by ECI and its supplying/delivering companies (hereinafter "Supplying Company(y) (ies)". Upon entry into written Implementing Agreement(s) between Petromar and ECI regarding such customers, their vessels and requirements and any additional terms and conditions agreed upon, ECI shall sell and deliver, or cause to be sold and delivered, in accordance with the following:
[12] There then follows a set of elaborate provisions governing the sale and delivery of marine lubricants by E.C.I. or a supplying company to a customer solicited by Petromar. The products to be sold and delivered were to be listed in Exxon's Port List in effect at the time and place of delivery (Art. 1, sec. 1.1); all orders were to be placed in writing by Petromar (Art. 2, sec. 2.1); the price of each product was to be as listed in the Exxon's Price List at the time and place of delivery and, if not so listed, the price set by the supplying company at the time and place of delivery (Art. 3, sec. 3.1); the supplying company was to obtain a completed delivery receipt signed by the Captain or Chief Engineer of the vessel (Art. 5, sec. 5.1); title to bulk delivery of products was to pass directly from the supplying company to Petromar's customer at the vessel's connecting flange (Art. 7, sec. 7.1); Petromar was to make full payment of the purchase price to E.C.I. regardless of whether it was ultimately able to collect from its customers (Art. 8, sec. 8.1); the purchase price of the product was to be paid to E.C.I. by Petromar "in U.S. dollars" within 45 days from the date of the supplying company's invoice to Petromar's customer (Art. 9, sec. 9.2); the assertion of liens against the vessels by E.C.I., Petromar and/or supplying company for unpaid price of delivered products was expressly reserved (Art. 9, sec. 9.5). Finally, the agreement required that its "construction, validity and performance...shall be governed by the laws applicable in the State of New York to the exclusion of any other legal system". (Art. 13, sec. 13.9)
[13] Between March 11, 1996 and August 6, 1996, the appellant, as an E.C.I. designated "Supplying Company", supplied the M.V. "LE BRAVE" and M.V. "A.G. FARQUHARSON" at Montreal and Sarnia with quantities of marine lubricants at a cost of U.S. $79,211.10. Petromar paid E.C.I. for these purchases but alleges that it has not been paid by either Star or Socanav. At the time of supplying the lubricants Petromar was aware that the vessels were owned by the appellant.
[14] The parties agree that the determination of applicable substantive law is to be made according to Canadian conflict of laws rules. They also agree that if the transactions are governed by United States substantive law, the supply of marine lubricants gives rise to a maritime lien enforceable by way of an action in rem against the vessels and that Petromar is entitled to judgment for the unpaid debt as converted to Canadian currency; correspondingly, if the transactions are governed by Canadian substantive law, the appellant is entitled to a declaration that Petromar has no maritime lien in rem against the vessels.
THE JUDGMENT BELOW
[15] The learned Trial Judge determined that the transactions were governed by the maritime law of the United States and, accordingly, that Petromar was entitled to a maritime lien. While he allowed pre-judgment interest he limited it to the period from August 6, 1996, to the date of judgment at the average prime bank rate prevailing through that period.
[16] The Trial Judge first selected the test he considered appropriate for determining whether the law of Canada or of the United States should govern the transaction. It was his view that the appropriate test was: With what jurisdiction did the transactions have "the closest and most substantial connection"? In applying that test, the Trial Judge examined and weighed a number of factors which it was argued connected the transactions more closely to either Canada or the United States. Before doing so he turned for guidance to American jurisprudence enumerating various connecting factors to be weighed and assessed. In the leading American case of Lauritzen v. Larsen, 345 U.S. 571 (1953) the Supreme Court of the United States set out, at 583-591, seven connecting factors or points of contact to be weighed and considered "alone or in combination" in determining whether liability for an injury sustained by a seaman on board a Danish ship in Cuban waters should be governed by the Jones Act, 46 U.S.C. para. 688 or by some foreign system of laws. Justice Jackson, for the majority, gave the following rationale for that approach, at 582:
International or maritime law in such matters as this does not seek uniformity and does not purport to restrict any nation from making and altering its laws to govern its own shipping and territory. However, it aims at stability and order through usages which considerations of comity, reciprocity and long-range interest have developed to define the domain which each nation will claim as its own. Maritime law, like our municipal law, has attempted to avoid or resolve conflicts between competing laws by ascertaining and valuing points of contact between the transaction and the states or governments whose competing laws are involved. The criteria, in general, appear to be arrived at from weighing of the significance of one or more connecting factors between the shipping transaction regulated and the national interest served by the assertion of authority. It would not be candid to claim that our courts have arrived at satisfactory standards or apply those that they profess with perfect consistency. But in dealing with international commerce we cannot be unmindful of the necessity for mutual forbearance if retaliations are to be avoided; nor should we forget that any contact which we hold sufficient to warrant application of our law to a foreign transaction will logically be as strong a warrant for a foreign country to apply its law to an American transaction.
The factors listed by Justice Jackson are: (1) the place of the wrongful act; (2) the law of the flag; (3) the allegiance or domicile of the injured seaman; (4) the allegiance of the defendant shipowners; (5) the place where the employment contract was made; (6) inaccessibility of a foreign forum; (7) the law of the forum. Six years later, the same Court extended the Lauritzen approach so as to "guide courts in the application of maritime law generally": Romero v. International Terminal Operating Co., 358 U.S. 354 (1959).
[17] In this context, the Trial Judge went on to consider eleven different factual elements from the situation presented by the case. These were: (1) The plaintiff is a Canadian corporation; (2) the vessels are registered in Canada; (3) the charterer, Socanav, is a Canadian corporation; (4) the charter-parties contain an explicit choice of law provision in favour of Canadian law; (5) the charterer was engaged in domestic trade in Canada and did operate some vessels internationally; (6) the charterer contracted with Star, a United States corporation, to manage its fleet including the two vessels here in question; (7) Star entered into a contract in the United States with Petromar, a United States corporation, for the sale and supply of marine lubricants to vessels managed by Star around the world; (8) Petromar contracted in the United States with E.C.I. for the supply of marine lubricants to Petromar's clients on a world-wide basis; (9) the choice of law in both the Star/Petromar contract and in the E.C.I./Petromar contract is the law applied in the State of New York, or the law of the United States; (10) the appellant, a Canadian corporation, provided the necessaries to the vessels under arrangements by E.C.I. with the appellant; (11) the necessaries were supplied to the vessels in Canada.
[18] In characterizing the issue as one of maritime law and the choice of law as that of the United States, the Trial Judge was heavily influenced by the decision of the Prothonotary at Vancouver in Fraser Shipyard and Industrial Centre Ltd. v. Expedient Maritime Co. (The "Atlantis Two") (1999), 170 F.T.R. 1 (Proth.); and the appeal therefrom, Fraser Shipyard and Industrial Centre Ltd. v. Expedient Maritime Co. (The "Atlantis Two") (1999), 170 F.T.R. 57 (T.D.), which he viewed as determinative. It was his view that this result was supported by an assessment of the system of law with which the transactions had the closest and most real connection. He then proceeded to an examination of the Atlantis Two and to factual connections between the transactions and the legal systems of either Canada or the United States, and then concluded at paragraphs 21, 22, 26 and 27 of his reasons:
In my opinion, the jurisprudence of this Court, in decisions in the case of Fraser Shipyard (The "Atlantis Two"), has determined the issue of characterization and the choice of law applicable in circumstances where, as in this case, a maritime lien arising under United States law is claimed for necessaries supplied to a vessel in Canada. In that case, Prothonotary Hargrave upheld a claim for a maritime lien where supply of necessaries to a vessel in Canada was effected by arrangements made by a United States firm in New York on behalf of a Norwegian contractor. On appeal of that decision in regard to another claim, Mr. Justice Rouleau upheld the appeal, allowing on the facts, a maritime lien for which Hargrave P. had found insufficiently supported by the evidence. The lien existing under United States law for necessaries supplied to a ship in a Canadian port was accepted by Rouleau J. as enforceable in this Court.
I see no reason to depart from a similar conclusion in this case, characterizing the issue as one of maritime law, with the choice of law in the circumstances of this case being that of United States law, recognizing that United States substantive law is applicable to determining whether a maritime lien exists.
...
Among these connecting factors the most significant, in my opinion, is the series of contracts by which the necessaries were supplied to the vessels. Those concerning the provision of marine lubricants were the Star Ship Management/Petromar contract and the Petromar/E.C.I. contract, both concluded in the United States, each with provision of the application of law as it applied in New York state. Another significant agreement, not included in the Agreed Statements of Facts, must have been in place, that is, one between E.C.I. and Imperial. The latter company can hardly say that it was unaware, in supplying lubricants to its own vessels operated by Socanav, that it was ignorant of the directions by E.C.I. to provide the lubricants, or that those directions would result from a contract-based commercial relationship between E.C.I. and a representative of Socanav or an agent of the latter.
The agreements for supply of the necessaries are the most significant connection factors for choice of law in relation to the issue, in my opinion. Not only would there be no issue in the absence of these agreements, for there would have been no supply of lubricants, but those agreements are consistent with modern international commerce, fostering specialization in international commercial relations, presumably fostering cost savings, and introducing a substantial measure of certainty through specified choice of law provisions.
ARGUMENT ON APPEAL
[19] The appellant submits that the Trial Judge erred in viewing the decisions in the Atlantis Two as determinative and, particularly, that he misinterpreted the decision of the Prothonotary therein. The appellant further submits that the Trial Judge erroneously considered or gave disproportionate weight to the terms of the contracts between Petromar and Star and between Petromar and E.C.I. Finally, the appellant argues that the Trial Judge failed to give any weight to the many connecting factors linking the transactions to Canada.
[20] Petromar submits that the decisions in the Atlantis Two are relevant and that they were not misinterpreted by the Trial Judge. Petromar also argues that the Trial Judge directed his mind to the factors linking the case to Canada before determining the system of laws with which the transactions had the closest and most real connection. Petromar contends that the Trial Judge correctly decided that the most significant factor in this regard was the series of contracts by which the necessaries were supplied to the vessels in Canada. Indeed, Petromar submits the assessing and weighing of the various connecting factors by the Trial Judge amounted to a finding of fact that ought not to be interfered with by this Court unless the Trial Judge made a palpable and overriding error which affected his assessment of the facts.
[21] In the cross-appeal, Petromar submits that the Trial Judge erred in not allowing the full contractual rate of interest of 18.5% per annum provided for in the contract between Star and Petromar on the unpaid debt, rather than allowing pre-judgment interest from August 6, 1996 to the date of judgment, at the average bank lending rate prevailing through the period between March 11, 1996 and August 6, 1996. The argument here is that by a well established principle of Canadian maritime law the Court in its discretion may award pre-judgment interest as an integral part of the damages in respect of rights either ex contractu or ex delicto in order to supply a remedy that conforms to the over-arching principle of restitutio in integrum .
ANALYSIS
[22] While the present controversy involves transactions said to be connected to either Canada or the United States, it is not unusual in the marine shipping industry for fuel to be supplied to a vessel under a contract between parties located in several countries, negotiated in one country and performed in another sometimes by a person who was not a party to the original contract. Fortunately, complexities of that order are not present in the fact situation to be examined in this appeal.
The maritime lien
[23] Before consulting conflict rules or principles, it will be useful to examine the nature and characteristics of a maritime lien. The classic judgment of Sir John Jervis in The "Bold Buccleugh" (1850-51), 7 Moo. P.C. 267 (P.C.), defined the maritime lien as it is currently understood in Canadian maritime law. That decision was significantly influenced by the views of Story J. in The Nestor, 18 F. Cas. 9 (No. 10,126) (C.C.D. Me. 1834). At 284-85 Sir John Jervis stated:
A maritime lien does not include or require possession. The word is used in Maritime Law not in the strict legal sense in which we understand it in Courts of Common Law, in which case there could be no lien where there was no possession, actual or constructive; but to express, as if by analogy, the nature of claims which neither presuppose nor originate in possession. This was well understood in the Civil Law, by which there might be a pledge with possession, and a hypothecation without possession, and by which in either case the right travelled with the thing into whosesoever possession it came. Having its origin in this rule of the Civil Law, a maritime lien is well defined by Lord Tenterden, to mean a claim or privilege upon a thing to be carried into effect by legal process; and Mr. Justice Story (1 Sumner, 78) explains that process to be a proceeding in rem, and adds, that wherever a lien or claim is given upon the thing, then the Admiralty enforces it by a proceeding in rem, and indeed is the only Court competent to enforce it. A maritime lien is the foundation of the proceeding in rem, a process to make perfect a right inchoate from the moment the lien attaches; ...a maritime lien exists, which gives a privilege or claim upon the thing, to be carried into effect by legal process. This claim or privilege travels with the thing, into whosesoever possession it may come. It is inchoate from the moment the claim or privilege attaches, and when carried into effect by legal process, by a proceeding in rem, relates back to the period when it first attached.
See also The Two Ellens (1872), 8 Moo. N.S. 398 (P.C.); The Heinrich Björn (1885), 10 P.D. 44 (C.A.); The Sara (1889), 14 A.C. 209 (H.L.); The Dictator, [1892] P. 304 (P.D.); The Ripon City, [1897] P. 248 (P.D.); Currie v. McKnight, [1897] A.C. 97 (H.L.); The Gemma, [1899] P. 285 (C.A.); The Dupleix, [1912] P. 8 (P.D.). Later, in the last century, the maritime lien was described by Scott L.J. in The Tolton, [1946] P. 135 (C.A.), at 144, as "one of the first principles of the law of the sea and very far reaching in its effect". The principle enunciated in The"Bold Buccleugh" has been adopted in Canada: see e.g. The Ship "Strandhill" v. Walter W. Hodder Company, [1926] S.C.R. 680; Goodwin Johnson Limited v. The Ship (Scow) AT & B No. 28, [1954] S.C.R. 513. It is apparent that a maritime lien constitutes a bundle of rights rather than a single right.
[24] In finding in favour of Petromar, the Trial Judge distinguished between the relevant maritime law of the United States and that of Canada on the point. As has been noted, under the maritime law of the United States, unlike that of Canada, a maritime lien for necessaries exists. The term "necessaries" includes marine lubricants supplied to a vessel. This right to a maritime lien for necessaries is currently provided for in the Commercial Instruments and Maritime Liens Act, 46 U.S.C. paras. 31301-31343, particularly paragraph 31342 which reads:
31342 Establishing maritime liens
(a) Except as provided in subsection (b) of this section, a person providing necessaries to a vessel on the order of the owner or a person authorized by the owner -
(1) has a maritime lien on the vessel;
(2) may bring a civil action in rem to enforce the lien; and
(3) is not required to allege or prove in the action that credit was given to the vessel.
(b) This section does not apply to a public vessel.
It will be noticed that by these provisions the lien is intended to attach whether the necessaries are supplied on the order of the vessel owner or of a person authorized by the owner.
[25] The Trial Judge noted and the parties agreed that Canadian maritime law does not recognize a maritime lien for necessaries. This is apparent from an examination of the relevant provisions of the Federal Court Act. R.S.C. 1985, c. F-7. While subsection 22(2) of that Act lists various matters over which the Federal Court is granted jurisdiction, the Court's jurisdiction in rem over claims included in section 22 is, by subsection 43(3), so limited that a claim "in respect of goods, materials or services...supplied to a ship for the operation or maintenance of the ship" provided for in paragraph 22(2)(m), cannot be enforced in an action in rem "unless, at the time of the commencement of the action, the ship...that is the subject of the action is beneficially owned by the person who was the beneficial owner at the time when the cause of action arose". The result in law is that an unpaid supplier of goods to a vessel cannot claim the benefit of a maritime lien against the vessel. Instead, such a person is left to bring an action in rem against the vessel provided its beneficial ownership has not changed between the date the cause of action arose and the date the action is commenced, or to pursue the debtor in an action in personam in this Court or elsewhere. The case law both in England and in Canada is clearly to the effect that a supplier of necessaries is not entitled to a maritime lien but only to a statutory right in rem which is sometimes referred to as a "statutory lien". That law is conveniently summarized in Coastal Equipment Agencies Ltd. v. The Ship "Comer", [1970] Ex. C.R. 12; Mount Royal/Walsh Inc. v. The Ship Jensen Star, [1990] 1 F.C. 199 (C.A.).
[26] It seems clear from The "Bold Buccleugh", supra, and, indeed, as the Trial Judge pointed out, a maritime lien arises not from contract but from operation of law in respect of a limited number of claims under Canadian maritime law. These include claims for damage, for seamen's or master's wages or remuneration or for salvage services. The opportunity of such claimants to enforce a maritime lien is recognized by paragraphs 22(2)(d), (j) and (o) of the Federal Court Act read together with subsection 43(3) thereof. A maritime lien for claims of this nature arises by operation of law rather than from the fact that they may originate either in tort or in contract.
[27] The courts of the United States have recognized that the lien arises by operation of law. Thus in Gulf Trading & Transportation Co. v. The Vessel Hoegh Shield, 658 F. 2d 363 (5th Cir. 1981), cert. denied, 457 U.S. 1119 (1982), involving a claim in an action in rem by a supplier (Gulf) of bunker fuel oil and a time charterer (Multinational) for the benefit of a Norwegian ship, Circuit Judge Brown stated at 366:
Gulf's claim to a maritime lien in the Vessel arises by operation of law rather than by contract because the Vessel's owner was not a party to the contract between Gulf and Multinational. The present controversy, and the validity of the maritime lien imposed upon the Vessel, is broader than the failure...to pay for the necessaries provided to the Vessel.
Earlier, in Rainbow Line, Inc. v. M/V TEQUILA, 480 F. 2d 1024 (2d Cir. 1973), Chief Judge Anderson remarked, at 1026:
But maritime liens arise separately and independently from the agreement of the parties, and rights of third persons cannot be affected by the intent of the parties to the contract...
It would appear as well that by the maritime law of the United States, a maritime lien possesses the same general characteristics as those which were identified by the Privy Council in The Bold Buccleugh. See e.g. Cardinal Shipping Corporation v. M/S SEISHO MARU, 744 F. 2d 461 (5th Cir. 1984), at 466 and the cases and textwriters cited therein and, in particular, G. Gilmore and C. Black, The Law of Admiralty, 2nd ed. (The Foundation Press: New York, 1975), at 595. See also F. Wiswall, The Development of Admiralty Jurisdiction and Practice Since 1800 (University Press: Cambridge, 1970), at 155-169.
Conflict of laws principles
[28] An important point in limine is in discovering relevant Canadian conflict of law principles for determining whether the substantive law of Canada or of the United States is to be applied in determining whether Petromar is entitled to a maritime lien under the law of the United States or merely to a statutory right in rem against the vessels under Canadian maritime law. No Canadian case has been drawn to our attention in which the proper law of a maritime lien was determined. In J.-G. Castel, Canadian Conflicts of Laws, (4th Ed.) (Toronto: Butterworths, 1997), at paragraph 448, the learned author commented as follows with reference to conflict rules for determining the proper law of contract:
448. Scope of the doctrine of the proper law
The proper law of the contract governs most contractual issues. The proper law may be determined in three ways: (1) by express selection by the parties; (2) by selection inferred from the circumstances; or failing either of these, (3) by judicial determination of the system of law with which the transaction has the closest and most real connection. Actually, it would be better to consider two possibilities only: where there is an express selection and where there is no express selection. The distinction between express selection and inferred selection is artificial. If the parties had wished to select the proper law they would have done so. Furthermore, except, perhaps, for the lex validitatis, the factors which are taken into consideration in determining the inferred proper law are the same as those that will enable the court to select the system of law with which the transaction has its closest and most real connection.
(emphasis added) (footnote omitted)
Later, at paragraph 452, the learned author added:
452. No express or inferred choice of the proper law
Where the parties have not expressed a choice as to the proper law and no such choice can be inferred, the proper law of their contract is the system of law with which the transaction has the closest and most real connection. In such a case the court does not seek to find some presumed or fictitious intention of the parties, but rather holds the contract to be governed by the system of law with which it is most closely and really connected, for that is what it is presumed that reasonable business persons would have decided.
In determining with which system of law the transaction is most closely and really connected, the court should look at all the circumstances.
Whilst firm rules cannot be laid down, it is clear that the court will look at such factors as the place of contracting, the place of performance, the place of residence or business of the parties, and the nature and subject-matter of the contract. When the place of contracting is the same as the place of performance, the court may find it practically impossible to apply any other law to the contract. In that case it seems obvious that the state or province where these two events have occurred is most interested in having its system of law applied to issues arising under the contract.
(emphasis added) (footnotes omitted)
[29] This approach is consistent with that taken by the Supreme Court of Canada in Imperial Life Assurance Co. of Canada v. Colmenares, [1967] S.C.R. 443, where Ritchie J. stated at 448:
It now appears to have been accepted by the highest Courts in England that the problem of determining the proper law of a contract is to be solved by considering the contract as a whole in light of all the circumstances which surround it and applying the law with which it appears to have the closest and most substantial connection.
This test was adopted by the Privy Council in Bonython v. Commonwealth of Australia, where Lord Simonds said at p. 219:
...the substance of the obligation must be determined by the proper law of the contract, i.e., the system of law by reference to which the contract was made or that with which the transaction had its closest and most real connexion.
This approach to the problem was restated in the House of Lords in Tomkinson v. First Pennsylvania Banking and Trust Co., per Lord Denning at p. 1068 and Lord Morris of Borth-y-Gest at p. 1081.
The many factors which have been taken into consideration in various decided cases in determining the proper law to be applied, are described in the following passage from Cheshire on Private International Law, 7th ed., p. 190:
The court must take into account, for instance, the following matters: the domicil and even the residence of the parties; the national character of a corporation and the place where its principal place of business is situated; the place where the contract is made and the place where it is to be performed; the style in which the contract is drafted, as, for instance, whether the language is appropriate to one system of law, but inappropriate to another; the fact that a certain stipulation is valid under one law but void under another;...the economic connexion of the contract with some other transaction;...the nature of the subject matter or its situs; the head office of an insurance company, whose activities range over many countries; and, in short, any other fact which serves to localize the contract.
(emphasis added)
See also Ontario Bus Industries Inc. v. Federal Calumet (The), [1992] 1 F.C. 245 (T.D.), and on appeal (1992), 150 N.R. 149 (F.C.A.); Richardson International, Ltd. v. ZAO RPK "Starodubskoe" et al, [2001] 3 F.C. 41 (T.D.).
Choice of law test
[30] Before the Trial Judge and again in this Court, the appellant urged that the "closest and most substantial connection" choice of law test alluded to by Castel, supra, and in the British and Canadian jurisprudence with respect to the proper law of contract, should be applied here. In my view, the Trial Judge was correct in selecting that test. Moreover, such an approach is favoured by maritime conflict of laws textwriters: see e.g. W. Tetley, International Conflict of Laws (Montreal: International Shipping Pub., 1994), at 596. Further, in Todd Shipyards Corporation v. Altema Compania Maritima S.A. (The Ship "Ioannis Daskalelis"), [1974] S.C.R. 1248, at 1254, Ritchie J. cited with approval on the following passage in Cheshire's Private International Law (8th ed.) (London: Butterworths, 1970), at 676, as correctly summarizing the law of England:
Where, for instance, two or more persons prosecute claims against a ship that has been arrested in England, the order in which they are entitled to be paid is governed exclusively by English Law.
In the case of a right in rem such as a lien, however, this principle must not be allowed to obscure the rule that the substantive right of the creditor depends upon its proper law. The validity and nature of the right must be distinguished from the order in which it ranks in relation to other claims. Before it can determine the order of payment, the court must examine the proper law of the transaction upon which the claimant relies in order to verify the validity of the right and to establish its precise nature. When the nature of the right is thus ascertained the principle of procedure then comes into play and ordains that the order of payment prescribed by English law for a right of that particular kind shall govern.
(emphasis added)
[31] There is no dispute that the Lauritzen factors as supplemented and applied by the courts in the United States should be considered and weighed in determining whether the transactions have "the closest and most substantial connection" to the substantive law of Canada or of the United States. It would seem helpful to take those factors into account despite the fact that they have been prescribed by the United States Supreme Court whose judgments are not binding on Canadian courts. In The Equitable Life Assurance Society of the United States v. Larocque, [1942] S.C.R. 205, at 239, Rinfret J. made clear, however, that although decisions of the United States Supreme Court are not binding in this country, "they are, it need hardly be stated, entitled to the greatest respect". While generally the decisions of the lower courts of that country are not entitled to the same respect here, in the present case involving a question of United States substantive law, it would seem unwise to totally ignore the jurisprudence of those courts especially here with respect to choice of law in claims for a maritime lien for necessaries supplied in Canada pursuant to contracts made in the United States.
[32] The present case is not to be confused with a long line of Canadian cases to the general effect that a maritime lien created by the law of the United States for necessaries furnished or supplied to a vessel in that country will be recognized and enforced in an action in rem in Canada: The "Strandhill", supra; Todd Shipyards Corporation v. Altema Compania Maritima S.A. (The Ship "Ioannis Daskalelis"), supra; Marlex Petroleum, Inc. v. The Ship "Har Rai", [1984] 2 F.C. 345 (C.A.); Marlex Petroleum Inc. v. "Har Rai" (The), [1987] 1 S.C.R. 57. These cases stand in stark contrast to the decision of the Privy Council in Bankers Trust International Limited v. Todd Shipyards Corporation (The "Halcyon Isle"), [1981] A.C. 221 (P.C.), which held that the proper law of a contract for repairs to a ship is the law of England where the action was commenced and not of the law of the United States where the repairs were made.
[33] As has been noted, The Trial Judge viewed the decisions of the Trial Division in the Atlantis Two, supra, as determinative of the choice of law issue. The Atlantis Two was arrested while lying at anchor at Vancouver in respect of various claims in rem. Among these claims was a claim for necessaries supplied to the vessel in Australia and Vancouver, f.o.b. Houston, Texas. Another was for necessaries supplied to the vessel at Vancouver by a Norwegian firm acting through its American agent. The learned Prothonotary at Vancouver determined on the evidence that no maritime lien under United States law arose for the necessaries supplied from Houston, Texas. On appeal, however, Rouleau J. found some evidence in the record to the effect that the necessaries were actually supplied to the vessel and accordingly allowed the supplier's claim for a maritime lien under the maritime law of the United States. In determining whether to recognize a maritime lien under the law of that country for the necessaries supplied through an American agent at Vancouver, the Prothonotary was guided by expert evidence of the law of that country with respect to a maritime lien for the same. That evidence was to the effect that "a maritime lien arises in favour of a supplier even if the goods and services are provided in a foreign port". In my view, counsel for the appellant quite properly points out that nowhere in the Atlantis Two decisions was an attempt made to determine the choice of law issue. Instead, the Court appears to have rested its decisions on the expert evidence adduced without first considering whether the rights of the claimants were to be determined according to the substantive law of the United States or of some other country. Thus the case cannot be viewed as determinative on choice of United States law over that of Canadian or some other law.
[34] Policy considerations such as these have not escaped the notice of courts in the United States. Thus the Supreme Court of the United States in Hellenic Lines Ltd. v. Rhoditis, 398 U.S. 306 (1970) stated at 309:
The significance of one or more factors must be considered in light of the national interest served by the assertion of [United States] jurisdiction.
This view was expanded upon by Circuit Judge Kennedy (as he then was) in Gulf Trading & Transportation Co. v. The M/V TENTO, 694 F. 2d 1191 (9th Cir. 1982), cert. denied, 103 S. Ct. 2091 (1983), where he observed at 1194:
Though we have not ruled on the appropriate approach for choice of law in the context of maritime liens, to hold that the choice of law in such cases is controlled by the significance of multiple contacts is consistent with our previous holdings, both in maritime cases involving other types of disputes and in non-maritime contract choice of law cases. A single contact approach would run counter to an important principle, which is the desirability, even the necessity, of accommodating the legitimate interests of separate sovereignties in vindicating their own legal policies. Lauritzen, 345 U.S. at 582, 73 S. Ct. at 928. This principle is of special import in admiralty, where international relations are delicate.
I agree that the need to accommodate legitimate state interests must be kept in mind in weighing and assessing the various connecting factors.
Law governing the transactions
[35] The Trial Judge considered the contracts between Star and Petromar and between Petromar and E.C.I. for supply of the marine lubricants to the vessels to be the most significant connecting factor. As has been noted, the parties to those contracts were American and the law of the United States was made applicable to issues of construction, validity and performance. The appellant was not, however, a party to either contract. Nor was Socanav. The first of these contracts was entered into between Petromar and Star, the vessel's manager. However, the record does not reveal whether Star contracted with Petromar on behalf of Socanav or on its own behalf. That contract between Star and Socanav is simply not in evidence. This is not a case where Star was itself in possession of the vessels such that Petromar was entitled to rely on presumed authority to bind the appellant: Goodwin Johnson, supra. As has been noted, if, on the other hand, the connecting factors linked the transactions to United States law, a maritime lien would attach regardless of lack of possession if in fact Star was authorized to order the marine lubricants. Although the agreement between Socanav and Star is not in evidence, it would seem logical to infer that Star was in fact authorized by the charterer to order the marine lubricants in issue given that the vessel owner placed responsibility for procuring necessaries on the charterer under the terms of the charter-parties. Even assuming that to be so, the question remains whether the factors under consideration point to the United States or to Canada as the country with which the transactions had the closest and most substantial connection.
[36] The appellant submits that while all relevant factors are to be weighed and valued, the place where the marine lubricants were supplied i.e. Montreal and Sarnia, is the most important connecting factor to be considered in this case. The submission here is that the selection of this factor would provide commercial interests with a simple, certain and straight-forward test that could be easily applied in practice. The selection of a single connecting factor without regard to others has been frowned upon by the courts in the United States. Thus in M/V TENTO, supra, Circuit Judge Kennedy pointed out, at 1195, that the selection of the place where supplies are furnished to the exclusion of other factors would be "unwise in the maritime context". Here in Canada, too, Professor Tetley has emphasized in Maritime Liens and Claims (London: Business Law Communications; Montreal: International Shipping Pub.,1985), at 527, that in the absence of statutory or contractual directions:
...facts and circumstances of the problem...are "connecting factors" or "contacts" and are the basic "raw materials" of conflict of laws...It is these factors that the court uses to link the particular set of circumstances of the case to a particular law. Usually there are many connecting factors to consider. They may be the place of the contract, the place of the delict or tort, the place of carrying out of the contract, the flag of the ship, the nationality of the crew, the domicile of the vessel owners or the domicile of the charterers. All the connecting factors must be ascertained and valued in order to determine the applicable law amongst the laws of the competing states.
I accept that it would be unwise to single our one factor as controlling but, rather, that all connecting factors be considered and evaluated in order for legitimate state interests to be accommodated. To my mind, in the present case the places of delivery in Canada should be accorded somewhat greater weight when viewed in the context of the several other factors connecting the transactions to Canada.
[37] While the Trial Judge was correct in considering and weighing the United States contracts as a factor, and while that factor carries considerable weight, I am not persuaded that it is the most significant factor. Petromar argues however that the selection of that factor amounted to a finding of fact that ought not to be disturbed. I am unable to accept this contention. The facts were agreed to by the parties. They were not in dispute. What gave difficulty was the application of the law to the agreed facts. The Court was faced with deciding on the basis of the those facts whether the transactions had a closer and more substantial connection to United States substantive law or to Canadian substantive law. This, in my view, involved a question of mixed law and fact rather than one of fact simpliciter.
[38] The factors linking the transactions to Canada included vessel registration, flag, ownership, possession in Canada by demise charterer, operation of the vessels from a base in Montreal, and actual supply of the lubricants in Canada. Among these several factors the one that, in my view, is deserving of significant weight is that the operations of Socanav, the demise charterer, was based in Canada at the time the marine lubricants were supplied and it was Canada, where the vessels traded and were based, that was most economically benefited by the lubricants. In the United States, the base of operations of the shipowner was regarded by the Supreme Court in Hellenic Lines, supra, at 309, as "another factor of importance" to be assessed. This factor has been weighed ever since in appropriate cases by the courts of that country. Thus in the M/V TENTO, supra, involving a claim for a maritime lien by an American supplier of fuel oil in Italy by arrangement with the charterer of a Norwegian vessel, Circuit Judge Kennedy stated, at 1193:
In a subsequent decision, the Supreme Court declared that the factors in the Lauritzen were not exhaustive. Hellenic Lines, Ltd. v. Rhoditis, 398 U.S. 306, 309, 90 S. Ct. 1731, 1734, 26 L. Ed. 2d 252 (1970). The vessel's "base of operations," that is, the shipowner's centre of management and the location most benefited economically by the business of the vessel, is also relevant. Id. at 309, 90 S. Ct. at 1734.
These views were later adopted in a case involving the supply of bunker oil in South Africa by a London based supplier to a vessel whose owners were also based in London: Forsythe International U.K. Ltd. v. M/V RUTH VENTURE, 633 F. Supp. 74 (D. Or. 1985), at 77.
[39] The base of operations factor was not considered and weighed by the Trial Judge. However, during oral argument on appeal, at the invitation of the bench, counsel addressed this factor. When the factor is weighed with other factors connecting the transactions to Canada, that which connected the transactions to the United States i.e. the supply contracts, seems less substantial. The actual deliveries of the marine lubricants were made in Canada where the vessels were registered, where both the shipowner and the demise charterer had their respective bases of operations and centres of management and where the vessels traded. Although the parties agree that Socanav carried on its business primarily on the Great Lakes, St. Lawrence Seaway and the Canadian East Coast, it is clear from the agreement of January 26, 1993 that Socanav acquired the right under Article 6.1 thereof to provide all of the appellant's transportation requirements of liquid petroleum products in Eastern Canada. The underlying purpose of that agreement, apparently, was to provide for the continuing use of the vessels to that end while the two demise charter-parties remained in effect. Nothing in the record suggests that in transporting petroleum products in Eastern Canada the vessels traded into the United States. All of this would suggest that Canada was the location most benefited economically by the business of the vessels. It is probably unnecessary to add that it was not by mere happenstance, mishap or some other fortuitous circumstance that the vessels were supplied in Canada, but more likely because the charterer's base of operations was located here.
DISPOSITION
[40] For the foregoing reasons, I would allow the appeal with costs here and below and would declare that Petromar does not have a maritime lien against the vessels M.V. LE BRAVE and M.V. "A.G. FARQUHARSON". I would also dismiss Petromar's action in Court File No. T-2675-97. As the appellant had not filed a Statement of Defence in that action or incurred other party and party costs, I would make no order as to costs in that action. As I would allow the appeal, it follows that the cross-appeal should be dismissed with costs.
"A.J. STONE"
J.A..
"I agree
Robert Décary j.a."
"I agree
"Marshall Rothstein"