Date: 20000817
Docket: T-1492-97
BETWEEN:
IMPERIAL OIL LIMITED
Plaintiff
- and -
PETROMAR INC. and
PETROMAR MARKETING INC.
Defendants
REASONS FOR ORDER AND JUDGMENT
MacKAY J.
[1] This is a proceeding, pursuant to Federal Court Rule 220 and an Order by Mr. Justice Teitelbaum, dated March 8, 1999, for determination of a question of law on the basis of an Agreed Statement of Facts and an agreed question of law. That question is:
| 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. |
[2] It is agreed that if, in accord with Canadian law concerning conflict of laws, the claim of the defendants for the supply of marine lubricants is governed by the substantive law of the United States then a maritime lien is enforceable in this Court by an action in rem against the vessels, but if the claim is governed by Canadian substantive law, no maritime lien enforceable by an action in rem exists against the vessels. Further, it is agreed the result in this action shall also be binding on the parties in action T-2675-97.
[3] The parties filed with the Court an Agreed Statement of Facts, including agreed consequential relief depending upon the answer to the agreed question. The statement provides as follows:
| 1. At all material times, the Plaintiff, Imperial Oil Limited ("Imperial"), a corporation duly incorporated pursuant to the laws of Canada, was the registered owner of the M.V. "Le Brave" and the M.V. "A.G. Farquharson" ("the vessels"). |
| 2. The vessels were at all material times registered at the port of Toronto, Ontario, Canada and flew the Canadian flag. |
| 3. The Defendant, Petromar Inc. ("Petromar") is a U.S. corporation, at all material times carrying on the business of distribution and sale of marine lubricants; its place of business is located in the U.S.A. |
| Agreements Relating to the Use of the Vessels |
| 4. Pursuant to charterparties dated September 1, 1986, (the "demise charterparties"), attached as Schedules 1 and 2 hereto, the vessels were demise-chartered by their then owner, Texaco Canada Inc. to La Societe Sofati/Socanav, both Canadian companies. The vessels were subsequently sold to Imperial and the demise charterparties were assigned to the Imperial as owner and to Socanav Inc. ("Socanav") as charterer. |
| 5. Socanav was at all material times a Canadian corporation, carrying 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. It also owned and operated tanker vessels in the international trade. |
| 6. On January 26, 1993, Imperial and Socanav entered into an agreement ("the master agreement"), attached as Schedule 3 hereto, incorporating the demise charterparties. |
| Agreements between Socanav, Star and Petromar |
| 7. Socanav contracted with Star Ship Management Ltd. ("Star"), a company registered in the United States of America with its office and place of business at Miami, Florida, which specializes in the management of vessels owned by third parties, for the management of its fleet, including the vessels. The terms of the agreement between Socanav and Star are unknown to the parties. |
| 8. By agreement dated May 1, 1995, (the "Petromar/Star Lubricants agreement"), attached as Schedule 4 hereto, Petromar contracted with Star for the supply of marine lubricants to be delivered on the instructions of Star to various vessels Star managed around the world, including those managed on behalf of Socanav and, more particularly, the vessels. |
| 9. By agreement dated October 26, 1989, ("the Petromar/E.C.I. Lubricants agreement"), attached as Schedule 5 hereto, Petromar contracted with Exxon Company International ("E.C.I."), a Division of Exxon Corporation, which owns approximately 69% of the shares of Imperial. Under the Petromar/E.C.I. Lubricants agreement, E.C.I. agreed to sell and deliver marine lubricants to customers solicited by Petromar. |
| 10. According to the terms of the Petromar/E.C.I. lubricants agreement, the deliveries of marine lubricants were to be made by "Supplying Companies" as specified in E.C.I.'s booklet, "Parts, Supplies & Service for Marine Lubricants" and in E.C.I.'s "International Contract Price List for Marine Lubricants." According to those documents, Imperial was designated a "Supplying Company" for Eastern Canada ports. |
| The Supply of Lubricants |
| 11. Pursuant to the Petromar/Star Lubricants agreement, on various dates between March 11, 1996 and August 6, 1996, Imperial, as E.C.I.'s designated supplying company, supplied the vessels with marine lubricants at a cost of US$79,211.10 at various Canadian ports, the whole as appears from various invoices attached as Schedule 6 hereto. Petromar paid E.C.I. for the lubricants but alleges it has not been paid by Star or by Socanav. |
| 12. At the time of supplying the vessels, Petromar knew that they were owned by Imperial. |
| The Applicable Law Governing the Contracts |
| 13. Paragraph 20.1 of the master agreement stipulated that the agreement and the relationship of the contracting parties, Imperial and Socanav, shall be determined and construed according to the laws of Ontario and the maritime laws of Canada. |
| 14. Paragraph 23 of the demise charterparties, assigned to Imperial as owner and Socanav as charterer, stipulated that the charterparties and the relationship between the contracting parties shall be determined and construed according to the maritime laws of Canada. |
| 15. Article IX of the Petromar/Star Lubricants agreement stipulated that the construction, validity and performance of that agreement shall be governed by the laws of the State of New York to the exclusion of any other legal system. |
| 16. Article 13.9 of the Petromar/E.C.I. Lubricants agreement stipulated that the construction, validity and performance of the agreement shall be governed by the laws applicable in the state of New York to the exclusion of any other legal system. |
| Claim Against the Vessels |
| 17. Petromar claims a maritime lien against the vessels by virtue of the circumstances referred to above. |
| 18. The parties agree that: |
| (a) the determination of the applicable substantive law is to be made according to Canadian rules of conflict of laws; |
| (b) if Petromar's claim against the vessels is 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 Petromar is entitled to judgment in an amount equal to the sum of US$79,211.10 converted to Canadian currency at the average rate of exchange prevailing between March 11 and August 6, 1996 together with prejudgment interest from August 6, 1996 to the date of judgment; |
| (c) if Petromar's claim against the vessels is governed by Canadian Substantive law, it has no maritime lien against the vessels and no right in rem against the vessels and Imperial is entitled to a declaration to that effect; |
| (d) the result in this action shall be binding on the parties in action no. T-2675-97; and |
| (e) the successful party shall be entitled to its costs on such terms and scale as this court may in its discretion determine. |
[4] The matter came on for hearing in Toronto on August 19, 1999 and after hearing counsel for the parties judgment was reserved. Upon consideration of the submissions made at the hearing, an order now has issued declaring that, in the circumstances of this case, in response to the question asked by the Order of March 8, 1999:
| Yes 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 those vessels of maritime lubricants. |
[5] In other words, as expressed in the Agreed Statement of Facts, Petromar's claim is governed by United States substantive law and the claim for supply of marine lubricants gives rise to a maritime lien enforceable in this Court by an action in rem against the vessels. The Order now issued directs consequential relief in accord with paragraphs 18(b), (d) and (e) of the Agreed Statement of Facts.
The Positions of the Parties
[6] The parties agree that this Court must apply Canadian law concerning conflicts of laws to resolve the apparent conflict between United States substantive law which, by statute, provides for a maritime lien against a vessel in this case of a claim for necessaries, and Canadian substantive law which provides for no such lien in the case of a similar claim. Here the parties agree not only on the facts but also on the approach to resolution of the question. Ultimately, they agree on the characterization of the issue but not on the significance of contract or other factors to be assessed in determining the choice of law.
[7] The first step requires reference to any Canadian statute which may over-ride the common-law principles of conflicts of laws. If there be none, the second step is to characterize the issue arising on the facts as being an issue of tort, of contract or some other branch of law. If this issue is one of contract, the Court must examine any explicit or implicit choice of law made by the parties. If further analysis is needed, the last step is to look at all the connecting factors between the issue and the jurisdictions, Canada or the United States, that have an interest in the issue, and to choose the law of that jurisdiction which has the most significant and closest connection for the resolution of the issue.
[8] The parties accept that it is well settled that a maritime lien arising under United States statutory law in a claim for necessaries supplied,1 or repairs provided,2 in the United States will be recognized and enforced in this Court under Canadian maritime law. That lien is enforceable in an action in rem, even if the claim is one arising without direct authority or personal liability of the owner of the vessel.3 Moreover, a maritime lien arising under the United States statute has been enforced in this Court even where necessaries were delivered outside the United States.4
[9] For the plaintiff it is urged that the context of the case must be borne in mind. Here, the ships in question are registered in Canada, with a Canadian owner, operated by a Canadian company under a Canadian charter party, concluded in Canada which provided for Canadian law to apply to its application or interpretation, and the necessaries were supplied in Canada by a Canadian supplier, that by happenstance is also the owner of the vessels.
[10] The position of the plaintiff, Imperial Oil, is that Petromar's claim against the vessels raises an issue to be classified as maritime law, not one of tort or contract. In written submissions, the significance of the place where necessaries are supplied or services are rendered was stressed as the basis of recognition in Canadian jurisprudence of foreign maritime liens enforceable by an action in rem in this Court. That significance was qualified when this matter was heard, as appeared appropriate in light of the recent recognition of maritime liens arising under U.S. law in cases of provision of necessaries outside the United States, including their provision in Canada, in Fraser Shipyard (The "Atlantis Two").5
[11] The position of Petromar acknowledges the issue should be characterized as one of maritime law, but it stressed the significance in Canadian jurisprudence of recognition of the law of the jurisdiction of the contract under which the necessaries are supplied. Here the key contract, it is urged, was that between Petromar and E.C.I., made in the United States, for delivery of supplies to Petromar's customers around the world through E.C.I.'s delivery contracts, for payment to be made in the United States. That contract, like the contract between Star Ship Management and Petromar, provided it was to be governed by the laws applicable in the state of New York to the exclusion of any other legal system. The importance of recognizing choice of law clauses in contracts was emphasized by Petromar, and in a case like this it served the interests of certainty among the parties in supply of lubricants to customers of Petromar, such as Star Ship Management, which manage ships owned in various countries and trading at various ports around the world. There was no suggestion that Socanav, which contracted with Star Ship Management for its services, limited its contract to the two vessels here in question; rather it contracted for management of its fleet including vessels engaged in international trade.
[12] There was no contract between the parties in this action, and thus the issue between them cannot be characterized as one of contract. The choice of U.S. law for dealing with matters arising under the contracts between E.C.I. and Petromar and between Petromar and Star Ship Management is not in itself determinative of the issue in this case.
[13] In seeking resolution of this matter, I turn first to consider whether the Canada Shipping Act6 may be relevant, as the plaintiffs suggested, in support of its preferred resolution of the choice of law. I then return to the matter of characterizing the issue and choice of law.
Canada Shipping Act, s. 275
[14] For the plaintiff, Imperial, it is urged that the outcome it seeks, that is, recognition that Canadian law should apply to the determination of the existence of any lien, would be consistent with section 275 of the Canada Shipping Act, the only legislative provision relating to conflicts of laws in regard to shipping matters in Canada. That section is contained in Part III of that statute, entitled "Seamen", and it reads:
| 275. Where in any matter relating to a ship or to a person belonging to a ship there appears to be a conflict of laws, if there is in this Part any provision on the subject that is hereby expressly made to extend to that ship, the case shall be governed by that provision, but if there is no such provision, the case shall be governed by the law of the port at which the ship is registered. |
275. Lorsque, dans une question relative à un navire ou à une personne appartenant à un navire, il semble y avoir conflit de lois, si la présente partie renferme une disposition sur ce point qui y soit expressément déclarée applicable à ce navire, l'affaire est régie par cette disposition; sinon, elle est régie par la loi du port où le navire est immatriculé. |
[15] Under this provision, unless expressly provided otherwise under that Part of the Act, a conflict of laws is to be governed by the law of the port of a ship's registration, in this case Toronto, so that Canadian law would be applicable. The defendants, however, point out that this clause is found in the Part of the Act dealing with seamen, a context demonstrating that it is not applicable to the dispute between the parties in this case. Counsel for the parties referred to two cases considering section 275: Sembawang Reefer Lines (Bahamas) Ltd. v. Ship "Lina Erre" et al.7 and Ferguson v. Arctic Transportation Ltd.8
[16] In Sembawang, supra, the issue was whether a lien existed following a collision involving a Panamanian ship in Greek waters. The ship was subsequently sold and registered in Italy. The claimant for a lien arrested the ship in Montréal and the defendants, the new owners, argued that the lien had expired under both Greek and Italian law. Mr. Justice Dubé made reference to section 275 at paragraphs 5-6 of his reasons, though he did not rely on it for his decision:
| However, s. 275 of the Canada Shipping Act provides that in the case of a conflict of laws the law of the port where the ship is registered would apply. The section does not specify whether it refers to the port of registry at the time of the collision (in this case, Panama) or at the time of the arrest (Italy). |
| It appears from the evidence of the legal experts filed in this motion that the right to exercise the maritime lien was extinguished, or time-barred, when the vessel was arrested in Montreal, whether Greek, Italian or Panamanian law is applied. |
[17] In Ferguson, supra, the issue was a claim in tort by the pilot of a ship who was injured when navigating the "Arctic Tarsiut" through the Panama Canal. The ship was registered in Canada and the action was commenced here. Madam Justice Reed considered section 275, in paragraph 47 of her reasons, in relation to the choice of law applicable, as follows:
| Counsel for the plaintiff argues that section 275 of the Canada Shipping Act, R.S.C. 1985, c. S-9, applies and pursuant to that section Canadian law must apply. ... Section 275 is found in Part III of the Canada Shipping Act . That part is entitled "Seamen". It deals with matters such as the hiring and firing of seamen, the payment of their wages, apprenticeship indentures, and working conditions on Canadian ships. Section 275 applies to matters that arise in that context. It does not apply to an action by a foreign pilot with respect to a tort claim that arose out of events occurring in a foreign jurisdiction. |
[18] I agree with the analysis of Madam Justice Reed. In my opinion, section 275, although it reads "in any matter relating to a ship or to a person belonging to a ship" is intended to speak only to matters dealt with in Part III of the Canada Shipping Act .9 If it were otherwise, Parliament would be deemed to have intended to change long-standing conflicts of laws principles, in relation to "any matter relating to a ship ...", that is in maritime law matters relating to a ship, not in other fields of law, and to have done so without any apparent significant debate. In my opinion, section 275 is not applicable to the issue that arises in the case at bar for that issue does not relate to the interests of seamen.
Characterization of the issue and Choice of Law
[19] I agree that this case raises an issue of maritime law, a distinct branch of the law not here dependant upon contract relationships between the parties. A maritime lien for necessaries as it exists under United States law is not a contractual lien. The U.S. Court of Appeal for the Fifth Circuit, in Gulf Trading & Transportation Co. v. Vessel Hoegh Shield10 elaborated on the nature of the lien:
| A distinction must be drawn at the outset between the express contract to provide bunkers involving only Gulf and Multinational and the application of the maritime lien in favor of Gulf against the vessel. 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 of Multinational to pay for the necessaries provided to the Vessel. |
[20] Under United States maritime law, by statute, the provision of necessaries, gives rise to a lien upon the credit of the vessel, and not necessarily upon the personal credit of the masters or owners. A contract is not required to bind the vessel. Whether a lien exists depends on meeting statutory requirements. Here it is agreed those requirements are met if United States law is to apply in determination of the existence of a maritime lien.
[21] In my opinion, the jurisprudence of this Court, in decisions in the case of Fraser Shipyard (The "Atlantis Two"),11 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.
[22] 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.
[23] This result, in my view, is supported by the assessment of the system of law with which the issue has the closest and most real connection.
[24] In the context of conflict of laws regarding maritime liens, the decision of Lauritzen v. Larsen,12 by the United States Supreme Court, provides a basis for considering the connecting factors that may be relevant in such cases. In Gulf Trading & Transportation Co. v. M/V Tento,13 that case was referred to as follows:
| The Court"s approach [in Lauritzen ] was to set forth the points of contact between the transaction and various jurisdictions and to weigh and evaluate them. Its review included the place of the wrongful act, the flag of the ships, allegiance or domicile of the injured seaman, allegiance of the shipowner, place of signing the employment contract, accessibility of a foreign court, and the law of the forum. |
| In a subsequent decision, the Supreme Court declared that the factors in Lauritzen were not exhaustive. |
[25] While American decisions are not binding upon this Court, the approach there adopted is helpful. In the case at bar, there are a number of connecting factors between the issue and the law of Canada and that of the United States respectively. They are, in no particular order:
| < & nbsp; The plaintiff is a Canadian company. |
| < & nbsp; The vessels are registered at the Port of Toronto, Canada. |
| < & nbsp; The charterer, Socanav, is a Canadian company. |
| < & nbsp; The charter party had an explicit choice of law provision in favour of Canadian law. |
| < & nbsp; The charterer was engaged in domestic trade in Canada, and it did operate some vessels in international trade. |
| < & nbsp; Socanav contracted in the U.S. with Star Ship Management Ltd., an American company, for the management of its fleet, including the two vessels in question here. |
| < & nbsp; Star Ship Management entered into a contract in the U.S. with Petromar, a United States company, for the sale and provision of marine lubricants to the vessels Star managed around the world. |
| < & nbsp; Petromar contracted in the U.S. with E.C.I. for the supply of marine lubricants to Petromar"s clients on a worldwide basis, and while E.C.I.'s national origin is not specified in the Agreed Statement of Facts, it is assumed to be a United States company. |
| < & nbsp; 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. |
| < & nbsp; Imperial, a Canadian company, provided the necessaries to the vessels in Canada under arrangements made by E.C.I. with Imperial. |
| < & nbsp; The provision of the necessaries took place in Canada. |
[26] 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 for the application of law as it applied in New York state. Another significant agreement, not included in the Agreed Statement 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.
[27] The agreements for supply of the necessaries are the most significant connecting 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.
[28] In written submissions, Imperial submitted that recognizing a maritime lien for Petromar's claim would permit it to do indirectly what it has covenanted that it would not do directly, referring to Petromar's undertaking to bear the credit risk and collection responsibility in respect of sales and deliveries under the Petromar/E.C.I. agreement. I am not persuaded this is the result, for Petromar's obligations under that agreement, essentially to guarantee payment for supplies delivered, are owed to E.C.I. and apparently have been fulfilled. Further, I am not persuaded that the terms of the Imperial/Socanav charter, provided, as the plaintiff suggests, that Socanav would not permit liens against the vessels. Rather, the charter party appears to accept that liens might arise but Socanav was responsible to indemnify and keep harmless the owner against any liens on the vessels, and responsible to ensure that liens or encumbrances on the vessels did not continue.
[29] I am not persuaded that the factors of registration of the ships in Canada, or their ownership here or the supply of necessaries in Canada are as significant for the choice of law as the plaintiff urges. If Petromar's claim were against a foreign vessel in generally similar circumstances except those factors, i.e. if the lubricants had been supplied to foreign registered ships, owned abroad, at ports abroad or even in Canada, Petromar's claim to a maritime lien would be essentially the same as in this case, and equally entitled to recognition as a maritime lien in this Court.
Conclusion
[30] In this case, on the facts as agreed to by the parties, the issue in question is governed by the substantive law of the United States, the system of law with which, in my opinion, the issue has the closest and most substantial connection. Therefore, as the parties agreed, Petromar has a maritime lien in relation to the two vessels owned by the plaintiff. That lien would be enforceable by an action in rem.
Thus an Order issued, with the question posed by the March 8, 1999 Order answered in the affirmative. The Order provides consequential relief as the parties agreed in paragraphs 18(b), (d) and (e) of the Agreed Statement of Facts.
(signed) W. Andrew MacKay
JUDGE
OTTAWA, Ontario
August 17, 2000
__________________1 The Ship "Strand Hill", [1926] S.C.R. 680.
2 Todd Shipyards v. Altema and the Ship "Ioannis Daskalelis", [1974] S.C.R. 1248.
3 Marlex Petroleum, Inc. v. The "Har Rai", [1994] 2 F.C. 345 (C.A.), aff'd [1987] 1 S.C.R. 57.
4 Fraser Shipyard and Industrial Centre Ltd v. Expedient Maritime Company Ltd. (1999), 170 F.T.R. 1 (T.D.), upheld on this point in [1999] F.C.J. No. 1212 (T.D.).
5 Supra, note 4.
6 R.S.C. 1985, c. S-9.
7 (1989), 30 F.T.R. 31 (T.D.).
8 [1998] F.C.J. No. 634 (T.D.).
9 See generally J.-G. Castel, Canadian Conflict of Laws (Toronto: Butterworths, 1997) 4th ed., at p. 605, and note the reference to s-s. 575(3) of the Canada Shipping Act, excepting from limitations of liability under the Act in the case of contracts of services governed by foreign law.
10 685 F.2d 363 at 366 (1981).
11 Supra, note 4.
12 345 U.S. 571 (1953).
13 694 F.2d 1191 at 1193 (9th Cir. 1982).