Docket: T-1865-02
Neutral citation: 2003 FCT 53
ADMIRALTY ACTION IN REM
AND IN PERSONAM
BETWEEN:
NHM INTERNATIONAL INC.
Plaintiff
and
F.C. YACHTS LTD.,
THE OWNERS AND ALL OTHERS
INTERESTED IN THE MOTOR VESSEL ALL RISKS,
also known as F.C. YACHTS LTD. HULL NUMBER QFY76003K102
Defendants
[1] These reasons arise out of a motion to set bail for the release of the All Risks, presently under arrest, for procedural reasons, by the Plaintiff, NHM International Ltd., who will in due course become the owner of the vessel. The All Risks is also being held by the caveat of F.C. Yachts Ltd., the builder and intended beneficiary of the security.
[2] The All Risks was to have been a 77-foot yacht, but for reasons unknown to the NHM International Ltd., turned out to be 81 feet in length. Here there is no doubt that the 81-foot vessel is the same vessel that was to be 77 feet in length. The All Risks is to leave Vancouver later this month by deep sea carrier, for delivery to Florida.
[3] Before considering the appropriate amount of security, which I have set at $125,000.00 (US), made up of US funds and a Canadian dollar bond and an additional payment into Court of $71,000.00 (US) as a holdback on the price of the All Risks, the vessel being built by F.C. Yachts Ltd., some relevant background is in order.
BACKGROUND
[4] On 7 December 2000 NHM International Inc. and F.C. Yachts Ltd. entered into a letter agreement to execute a building contract for construction and delivery of a 76-foot by 20-foot yacht for $2,372,000.00 (US), best efforts to be made to complete and deliver by 1 November 2001. Throughout, unless noted to the contrary, I will use American dollars.
[5] The building contract, prepared by F.C. Yachts Ltd. and headed "Yacht Construction Contract", was modified by the principal of NHM International Inc. and subsequently produced by F.C. Yachts Ltd. in that modified form, which included a reference to the vessel as being in fact 77 feet in length, for delivery "by approximately November 2, 2001", with the builder agreeing to "... construct the Vessel for a fixed price of Two Million Three Hundred Seventy Two Thousand U.S. Dollars ($2,372,000.00 U.S.D.)". Inexplicably, while the building contract was signed on behalf of F.C. Yachts Ltd., the Plaintiff did not sign the building contract. However, both NHM International Inc. and F.C. Yachts Ltd. carried on with the project as though the building contract, dated 14 December 2000, was a binding agreement.
[6] F.C. Yachts Ltd., as builder and owner of the vessel, gave to NHM International Inc., the buyer and intended ultimate owner of the vessel, a builder's mortgage, to secure the equity of NHM International Inc. in the vessel as it might stand from time to time by reason of deposit and progress payments, which mortgage was recorded at the Vancouver, B.C., Office of the Shipping Registry. The builder's mortgage was accompanied by an initial opinion letter from counsel for F.C. Yachts Ltd. to counsel for NHM International Inc., dated 11 January 2001. The builder's mortgage refers to the construction agreement of 14 December 2000 as does a second opinion, from counsel for F.C. Yachts Ltd. to counsel for NHM International Inc., dated 23 July 2002.
[7] NHM International Inc. made the first scheduled payment of $162,200.00 on 12 January 2001. That payment consisted of the 10% deposit, of $237,200.00, less an earlier payment of $75,000.00. There followed regular progress payments, going toward the price of $2,372,000.00, interspersed with invoices and payments, some quite small and some very substantial, relating to change orders.
[8] Pertinent among the invoices is one dated 17 September 2002 referring to "Price As Per Contract" of $2,372,000.00, together with various charges for upgradings and credits, resulting in a total price of $2,464,362.23. I accept that the balance owed by NHM International Inc., to F.C. Yachts Ltd., on the basis of the 17 September 2002 invoice, amounted to $152,125.20, including the $71,000.00 holdback, being 3% of the $2,372,000.00 price set out in the building contract. Here I note that the parties have referred to the holdback as $71,000.00 and $71,100.00.
[9] Here I would note that under the building contract and the invoices to which I have referred, Provincial Sales Tax and the Goods and Services Tax were not an issue, for the building contract provided for offshore delivery, thus taking advantage of the Federal Excise Tax Act provision, exempting the vessel from taxation if "the property is, or is to be, delivered or made available outside Canada ..." [section 142(2)(a)] and the British Columbia Social Service Tax Act which provides, in part, that "... tangible personal property shipped by the seller for delivery outside of British Columbia ..." [section 77(b)] is exempt from Provincial Sales Tax.
[10] In the view of NHM International Inc. progress on the All Risks, which was to have been delivered in November 2001, was unsatisfactory. Work on the vessel had apparently come to a standstill, yet there remained deficiencies to be made good. Thus, on 6 November 2002, just over a year after the vessel ought to have been delivered, NHM International Inc. went into possession of the All Risks as mortgagee in possession and had the sheriff arrested the vessel in this Federal Court proceeding. At that point counsel for F.C. Yachts Ltd. wrote to counsel for NHM International Inc. to say that the latter was not properly in possession of the All Risks for the mortgage security, the same security on which that solicitor had given an opinion, was invalid. Counsel for F.C. Yachts Ltd. then went on to say, in that 6 November 2002 letter "as you are aware, a minimum US $150,000.00 remains owing under the contract.". Subsequently, counsel for NHM International Inc. wrote to counsel for F.C. Yachts Ltd. to advise a holdback of $71,100.00 (US) would be paid into Court and went on to ask as to the amount of security which F.C. Yachts Ltd. might require. At that point NHM International Inc. was having various deficiencies corrected and work done at another shipyard.
[11] In response to the request that counsel for F.C. Yachts Ltd. advise as to security, counsel wrote to say that his client was prepared to accept $2,250,000.00 (CDN) as bail. This came as something of a surprise, for until then it seemed that both sides, relying upon the purchase price of $2,372,000.00, payments made and the various invoices, including that of 17 September 2002, had been working on the basis that about $150,000.00 remained owing. However, F.C. Yachts Ltd. produced a Final Statement of Account of 11 December 2002.
[12] The F.C. Yachts Ltd. Final Statement of Account, 11 December 2002, which was for construction of a yacht on a cost plus basis, amounted to $5,030,846.00 (CDN), or in round figures, using a current rounded conversion rate of 0.65, about $3,270,000.00 (US), some $805,000.00 (US) over the price as set out in the building contract plus extras, a price worked with and verified many times, by both sides, until the F.C. Yachts Ltd. "Final Statement of Account" of 11 December 2002.
[13] The next day, 12 December 2002, counsel for F.C. Yachts Ltd. wrote to counsel for NHM International Inc., to say that his client ought to be secure for potential Provincial Sales Tax and Federal Goods and Services Tax which might be owed, on the basis that the All Risks had been documented or registered in the United States by NHM International Inc., an unsubstantiated allegation.
[14] At this point, NHM International Inc. had offered to pay the holdback, together with the contract price balance at 150% to cover principals, interest and costs , as bail, into Court, a total of $71,100.00 for the holdback and $175,000.00 as bail. In contrast F.C. Yachts Ltd. had requested the Canadian dollar equivalent of about $1,982,000.00 (US) as security. Thus, the present application.
CONSIDERATION
[15] Bail is a substitution of personal, in the sense of cash or guarantee security, for in rem asset security. The bail represents the ship, so far as the claimant taking the security is concerned. An in rem claimant who has arrested a vessel is entitled to security for principal, interest and costs, to represent his or her reasonably best arguable case. Failing agreement a court which is asked to set bail must, on the one hand, be satisfied as to the sufficiency of the bail, but, on the other hand, must not pre-judge the case. Here a party seeking security is in a position of strength and must not abuse that position. Indeed, courts have always taken a dim view of excessive demands for security and here I would refer, by way of example, to The "George Gordon" (1884), 9 P.D. 46, The "Irish Fir" (1943), 76 Lloyd's Rep. 51, The "Tribels" (1985), 1 Lloyd's Rep. 128 and Amican Navigation Inc. v. Densan Shipping Co. (1997), 137 F.T.R. 132. Bail is to represent reasonable security for a plaintiff, or here, for a claimant which has lodged a caveat. I completely reject the concept put forward, on two occasions during argument by counsel for F.C. Yachts Ltd., that bail ought to be ordered in such a substantial amount as to have the supposedly salutary effect of forcing a party to negotiate. I will consider this in a little more detail.
Amount of Bail: Some Applicable Case Law
[16] I pointed out in Striebel v. Sovereign Yacht (Canada) Inc., an unreported 30 August 2002 decision in action T-687-02, 2002 FCT 925, that there is a general rule governing the amount of bail to be provided in order to release a properly arrested vessel. The bail should be equal to the claimant's reasonable best arguable case, together with interest and costs, with an upper limit of the value of the arrested vessel itself. In Striebel I referred to The Moschanthy [1971] 1 Lloyd's Rep. 37 (Q.B.) at 44 and to Brotchie v. The Karey T (1994), 77 F.T.R. 71 (F.C.T.D.) at 72. As Mayers on Admiralty Law and Practice in Canada, Carswell, 1916 points out at page 235 bail is usually, but as we shall see not always, the amount claimed in the writ or statement of claim as the case may be. Here I would make two observations. First, a reasonably arguable best case expresses a notion or a concept of a measure of the security that ought to be provided, which is not an absolute figure or the importation of an absolute figure. Second, while bail is often, and conveniently so, the amount claimed in the pleading underlying the arrest, a court has the jurisdiction and discretion, again within reasonable limits and in special circumstances, to determine the value of the reasonably arguable best case, however this leads to an important point: a court in setting bail ought not to pre-judge the case.
[17] To elaborate on this point of not pre-judging the case I refer to Atlantic Shipping (London) Ltd. v. The Captain Forever (1995), 97 F.T.R. 32 (F.C.T.D.) at 37 for the concept that while a court setting bail ought not to pre-judge the case in order to determine the value the reasonably arguable best case, it may find special circumstances by which to moderate bail and this is aside from any eventual remedy, in costs, for demand of excessive security, for example as in The Moschanthy (supra ) at pages 45 and 46.
[18] In Lundberg v. The Manitou III, an unreported 6 December 1988 decision in action T-2180-88, [1988] F.C.J. No. 1124, Mr Justice Muldoon commented on the usual admiralty practice of setting bail in a somewhat large sum than the claim as crude but effective measure of security, the amount in excess of the claim as presented to go toward interest and costs. However, he conceded that an accurate assessment of the claim could not usually be formed at the time of setting bail because there were too many uncertainties. There he set bail at one half of the claim, viewing it as sufficient to cover the reasonably arguable best case, interest and costs.
[19] Mr Justice Sheen applied a similar rough and ready approach to setting security in The Gulf Venture, [1984] 2 Lloyd's Rep. 445 (Q.B.). There the claim endorsed on the writ was an excess of £ 400,000. He felt the evidence was incomplete, but was satisfied that the claim would not succeed in full and therefore set security at £ 250,000:
| When plaintiffs are entitled to keep a ship under arrest until her owners provide security for their claim, that security must be for such sum of money as represents their reasonably arguable best case, including interest, and their costs of the action. There is plenty of scope for debate as to what sum should be secured in respect of this claim. I do not propose to analyse the evidence: it is incomplete. Such a procedure would be entirely inappropriate on a motion such as this. Although the claim endorsed on the writ is, as I have already said, for a sum in excess of £ 400,000, I was satisfied that the claim will not succeed in full. After some discussion with Counsel, the plaintiffs expressed their willingness to accept security in the sum of £ 300,000. I reached the conclusion that a lesser sum would be adequate and fixed the amount in the round sum of £ 250,000. (Page 449) |
[20] Mr Justice Sheen again dealt with setting security on the basis of a reasonably arguable best case, interest and costs, In The Tribels, [1985] 1 Lloyd's Rep. 128. In The Tribels salvors demanded security of £ 3.323 million. Mr Justice Sheen felt the amount was exorbitant, going on to set security at £ 1 million, an amount which he felt might still be excessive.
[21] This Court has exercised its discretion, to determine bail, where the circumstances of the case require it, on a number of occasions, including in Amican (supra), being a decision of Mr Justice Lutfy, as he then was. A partial list of the Federal Court cases involving determination of bail is set out in footnote 7, at page 139 of Amican (supra).
[22] Mr Justice Lutfy made the observation in Amican, at page 135, in leading into his analysis, that "arrest is a powerful weapon", crediting this statement to the 1996 edition of Jackson on Enforcement of Maritime Claims, LLP Limited, London, at page 311. Mr Justice Lutfy went on to observe that while a plaintiff had a right to be secured for the full amount of a claim, interest and costs, one must keep in mind, in considering bail, the exceptional power of the remedy so that, in the result, a proper balance be struck between sufficient security and oppression:
| It is important, when considering a motion to alter the bail, to keep in mind the exceptional power the law has attached to arrest and the right to exact security for the full amount of the claim. The proper balance must be struck. The power to arrest should not be exercised oppressively and yet the plaintiff has the right to sufficient security. (Page 135) |
[23] In Amican (supra) the issue was variation of bail. The same principle applies in the determination of bail. Mr Justice Lutfy in Amican (supra) went on to apply the principles set out in The Moschanthy (supra). He rejected what he believed to be a speculative calculation of the reasonably arguable best case set out in a survey report. In the present instance, in passing, I would note that the amount for which NHM International Inc. was apparently able to insure the vessel for, supposedly based on a surveyor's valuation, which has not been produced by anyone, is not relevant. Mr Justice Lutfy, in his case, went on to reduce the claim for a projected loss of profit of 60% of gross revenue, finding it difficult to image such a profit. He looked upon the circumstances as special and extraordinary, warranting intervention so as to reduce bail to a level reasonably sufficient to protect the rights of the plaintiffs.
Security for F.C. Yachts Ltd.
[24] The figures used by the parties throughout this project, with the exception of those used in the so-called final account of 11 December 2002, were in American dollars. As I have said, in these reasons I have used American dollars except where I have indicated otherwise and where I have made conversions I have used a round figure rate current as of the date of these reasons, 0.65.
[25] NHM International Inc., leading up to this application, offered security, based on the 14 December 2000 building contract, progress payment invoices for and payment for changes and extras, and the 17 September 2002 builder's invoice, in the amount of $71,100.00 as the contractual holdback and a bail bond of about $122,000.00, the bonding figure being one and one half times the remaining balance of the purchase price, calculated on the basis of the original building contract price, extras, payments and credits.
[26] F.C. Yachts Ltd. justifies their demand for bail in the Canadian dollar equivalent of about $1,462,500.00 (U.S.), for the price of the vessel, on the basis there never was a contract to produce the All Risks at a fixed price. In the view of F.C. Yachts Ltd. it is therefore entitled to labour costs of $2,885,732.00 (CDN), material plus 15% at $1,737,506.00 (CDN), "miscellaneous costs" of $170,833.00 (CDN) and administration and office overhead of $236,775.00 (CDN), totalling $5,030,846.00 (CDN), or in round figures about $3,270,000.00 (US), which is about $805,000.00 in excess of the purchase price referred to in the 14 December 2000 building contract and in the 7 December 2000 letter of intent, making appropriate allowances for extras and credits. F.C. Yachts Ltd. also seeks security for Provincial Sales Tax and Federal Goods and Services Tax which it says, by reason of NHM International Inc. arresting the vessel and going into possession, as mortgagee in possession, might now be owed by F.C. Yachts Ltd. This supposed liability is put at $729,472.67 (CDN) for which F.C. Yachts Ltd. seeks security in the amount of $800,000.00 (CDN), being an additional $512,000.00 (US). Thus, the total American dollar equivalent security sought by F.C. Yachts Ltd. is in the order of $1,980,000.00.
[27] The tremendous discrepancy between the security offered, on the basis of the 14 December 2000 building contract and the subsequent dealings between the parties, on the one hand and the final account of F.C. Yachts Ltd. of 11 December 2002, together with the demand for security to cover what F.C. Yachts Ltd. believed to be a potential tax liability on the other hand, are special and indeed extraordinary circumstances which warrant a consideration and examination of appropriate bail. The examination may be made in a rough and ready manner, considering various factors and propositions of law, without deciding the case.
[28] Dealing first with the price for the vessel, one must not overlook the trite proposition of law that a contract may be oral, or written, or both and may be found, in the absence of a formally executed contract, in the actions of the parties. Specifically applicable in this instance is the concept that when one party signs a contract, as did F.C. Yachts Ltd. in the case of the 14 December 2000 contract which it drafted and re-drafted, and delivers it to the other party, whose actions show acceptance of those contractual terms, there is an enforceable contract between the parties, although one of the parties may not have formally executed the contract. Here NHM International Inc. has, for some reason, not signed the 14 December 2000 building contract, yet there is a contract in the terms of the 14 December, 2000 building contract. There are a number of cases to this effect. I refer to three such cases.
[29] First, in Brogden v. Metropolitan Railway Co. (1877), 2 A.C. 666 (H.L.), a decision of the House of Lords, a contract prepared by agents for the principals, for delivery of coal, was signed by the appellant, Brogden, and returned to an agent for Metropolitan Railway Company who did nothing further and in particular, never arranged for execution. However, Mr Brogden supplied coal and the Railway accepted that coal as though the contract were in place and indeed, the contract was mentioned in correspondence between the parties. Subsequently, Mr Brogden supplied the coal in a short or irregular manner, for the price agreed did not make the bargain a good one. Disagreement between the parties arising, Mr Brogden denied there was any contract which bound him to provide a regular supply of coal at a set price in a rising market. Lord Cairns observed, at page 672, that even though the parties might have intended an agreement expressed in a most solemn and complete form (instead of a document which had only been signed by one side), there might be a consensus between the parties. Indeed, at page 680, Lord Cairns found a clear consensus between the parties, arrived at by one side signing the document and approbation given by the Metropolitan Railway in its course of dealing. However it is instructive to look at an earlier passage by which Lord Cairns reached that conclusion. He referred to a letter from an agent for Messrs Brogden which clearly referred to the agreement as a contract, but then went on to say:
| But, my Lords, over and above that, I must say that having read with great care the whole of this correspondence, there appears to me clearly to be pervading the whole of it the expression of a feeling on the one side and on the other that those who were ordering the coals were ordering them, and those who were supplying the coals were supplying them, under some course of dealing which created on the one side a right to give the order, and on the other side an obligation to comply with the order. If it had not been so, I cannot conceive how when there were these repeated complaints against the Messrs. Brogden for short or irregular supplies, and when they say more than once that the prices they were receiving from the Metropolitan Company did not make their bargain a good one, or did not make the Metropolitan Company good customers, how it was that if they did not feel that there was a contract somewhere or other entitling the Metropolitan Company to a supply, and binding the (the Brogdens) to supply coal, they did not say, If you do not like the mode in which we are supply, or the extent to which we are supplying, it is quite easy for you to get your supplies elsewhere, and we are under no obligation to supply you. They do not do that; on the contrary, they go on asking for indulgence and consideration in a way which it appears to me to be impossible to account for, except upon the footing which they recognise in the letter I have read of the 25th of July, that there was a contract under which there was some maximum or other up to which they were bound to supply the coal.
(Pages 679 - 680)
|
Here is clear recognition that even though one of the parties did not formally execute the contract, the actions of the parties showed acceptance of the written terms, resulting in a de facto contract on those terms. Applying Brogden to the present instance, there are more than enough letters and invoices, from F.C. Yachts Ltd. and reciprocating material, including payments, to constitute a contract clearly in terms set out in the 14 December 2000 contract for a vessel at a fixed price. Moreover, unless the contract were for a vessel at a fixed price, there would be no reason to make adjustments by way of change orders and billings for those change orders. As I say, this is not a determination of the outcome which I make, but rather is set out in order to show that, on the material produced by and for F.C. Yachts Ltd. they do not have a reasonably arguable case that there is not a contract. This is all the more the situation when one considers the documents prepared by and on behalf of NHM International Inc. and the overall actions of both sides.
[30] The second case to which I will refer is Dr. T. Torfason Inc. v. 338058 B.C. Ltd. (1994), 1 B.C.L.R. (3d) 370, a decision of the BC Court of Appeal. In that instance the plaintiff executed a lease drafted by the landlord. The plaintiff then paid the specified increased rent, which the defendant accepted, even though it did not sign the lease, which was for five years and included the provision that the landlord installed a heat exchanger, the latter not being accomplished. The Court of Appeal looked upon the acceptance of the increased rent as an action would be regarded, by a reasonable observer, as the acceptance by the landlord of the lease, even though the lease had been amended by the plaintiff before signing and return:
| [12] I conclude that acceptance of the increased rent for three months would be regarded by the reasonable observer as evidence of acceptance by the landlord of the proposed terms of lease, as contained in its letter of September 11, 1992, and in its lease document as amended and returned by Dr. Torfason on behalf of his company: see Brogden v. Metropolitan Railway Co. (1877), 2 App. Cas. 666 (H.L.); such an observer would not conclude that in accepting increased rent known to be predicated on acceptance of the corporate tenant, installation of a heat exchanger and five years' security of tenure, the landlord meant instead to make Dr. Torfason its tenant under a new unwritten month-to-month lease without any assurance that a heat exchanger would be installed. |
Here, the Court of Appeal applied Brogden and denied the landlord's assertion that the lease was not for five years, but was some new unwritten month-to-month lease.
[31] In the present instance, F.C. Yachts Ltd. clearly accepted the progress payments specified under the 14 December 2000 contract and also accepted payment for its billings for extras. Again this leads one to the conclusion that the argument that the agreement was for the construction of a vessel at cost plus is not a reasonable one in the face of an agreement to construct the vessel for a fixed price, a concept acted upon by both partes and particularly by F.C. Yachts Ltd. up until the final bill of 11 December 2002.
[32] The third case, Schiff Food Products Inc. v. Naber Seed & Grain Co. Ltd., [1997] 1 W.W.R. 124 (Sask. Q.B.) involved the failure of the defendant to supply the plaintiff with oregano. The defendant denied a contractual relationship on the basis that nowhere in any of the documents, including that offering to supply oregano, did the defendant's signature appear. Mr Justice Wedge began with the basic proposition that parties may be contractually bound without signing documents where a contract may be inferred by the reasonable construction of conduct:
| [8] Naber's denial of a contractual relationship is based upon the fact that nowhere on the documents does Naber's signature appear indicating acceptance of Schiff's offer.
[9] It is a basic principle of law that, subject to statutory requirements, parties may be contractually bound without signing documents. Acceptance need not be in writing but may be inferred by conduct. If authority for this last proposition is required, it may be found in St. John Tug Boat and Irving Refinery, [1964] S.C.R. 614. Ritchie J. said at p. 621-2: The test of whether conduct, unaccompanied by any verbal or written undertaking, can constitute an acceptance of an offer so as to bind the acceptor to the fulfilment of the contract, is made the subject of comment in Anson on Contracts, 21st ed., p. 28, where it is said: The test of such a contract is an objective and not a subjective one, that is to say, the intention which the law will attribute to a man is always that which his conduct bears when reasonably construed, and not that which was present in his own mind. So if A allows B to work for him under such circumstances that no reasonable man would suppose that B meant to do the work for nothing, A will be liable to pay for it. The doing of the work is the offer; the permission to do it, or the acquiescence in its being done, constitutes the acceptance.
[10] Naber's conduct in submitting the sample, in not taking action upon receiving the letter of August 4, 1992 and particularly in a December 22, 1992 response to a demand from Schiff for performance, all point directly to the existence of a contract between Schiff and Naber.
|
This is a plain statement of the principle, an objective test that the intention attributed to a party to a transaction is that borne out by conduct, reasonably construed. Here it would be unreasonable and indeed inconceivable and extravagant to argue that bail ought to reflect a contract to construct the All Risks on a cost plus basis.
[33] As an alternative counsel for F.C. Yachts Ltd. says that if there was a contract, or if there was no definitive contract, F.C. Yachts Ltd. ought to be entitled to recover the fair and reasonable value of work done and materials supplied. Here F.C. Yachts Ltd. refers to Canadian Vickers Ltd. v. The Susquehanna (1918), 18 Ex.C.R. 210 and to Jesionowski v. Gorecki (1992), 55 F.T.R. 1. These cases may be distinguished by the fact that no price was ever discussed. That is not the present situation.
[34] A proper approach to the present situation is that of quantum valebant which, in contrast to an award of quantum meruit for services, involves goods sold and delivered. Fridman on the Law of Contract, 3rd edition, 1994, Carswell of Canada, deals with quantum valebant at page 701. Such a claim may be broad where there has been no precise sum fixed for remuneration, which on the material is not the situation here, or where the original contract has been replaced, by implication, by another contract. In such a situation the aggrieved party claims not for damages for breach of contract, but for a sum representing the value of the goods sold and delivered.
[35] Whether the claim is in quantum meruit or in quantum valebant, the test for the application of the principle is the same: the contract must have been rescinded or discharged, with mutual obligations ceasing to exist, in order to claim on that basis, for while the contract continues to exist the obligations and rights of the parties are limited to those set out in the contract: see for example Morrison-Knudsen Co. v. BC Hydro and Power Authority (1978), 85 D.L.R. (3d) 186 (B.C.C.A.) at 224. In Morrison-Knudsen the BC Court of Appeal set out four pre-conditions for establishing a quantum meruit claim and here I would again note that quantum valebant is an action analogous to quantum meruit:
(i) it is for the claimant to show that there has been a fundamental breach bringing the contractual relationship to an end, thus freeing the parties from any further performance;
(ii) it is for the innocent party to elect either to affirm a contract and sue for damages or to elect to treat the breach as a fundamental breach and accept it as such, thus terminating the contract and thereafter being relieved of any duty of further performance;
(iii) the election must be made promptly and communicated to the guilty party; and
(iv) the election to accept the contract as repudiated cannot be made after full performance by the injured party and thus quantum meruit claims are excluded on the completion performance under a contract (see Morrison-Knudsen at pages 225, 228, 230 and 231).
Just as full performance of a contract excludes quantum meruit claims, here completion by and or Final Statement of Account from F.C. Yachts Ltd. excludes a claim for quantum valebant.
[36] In the present instance F.C. Yachts Ltd. has presented no evidence to even suggest that it comes within the elements of the test set out by the Court of Appeal in Morrison-Knudsen. F.C. Yachts Ltd. made no election to bring the contract to an end, but decided to continue to carry on with it, even in the absence of execution by NHM International Inc. Finally, this quantum valebant claim was only advanced after F.C. Yachts Ltd. say they had completed all of the work, and the present litigation had been commenced and the vessel delivered by Court Order to the Plaintiff. In all of the circumstances quantum valebant does not result in a reasonably arguable case or a basis for security going beyond what F.C. Yachts Ltd. might reasonably argue as its best case for security under the building contract.
[37] To allow this matter to proceed, with security on the basis of cost plus construction of the vessel, ignoring the conduct of the parties over many months and the documents generated, would be to allow an abuse, both as to the use of the arrest and bail procedures of the Court and an abuse of NHM International Inc. This is all the more so in that the move for greater security may well have been designed to force negotiations on NHM International Inc., with the latter being in an impossible position.
[38] In setting security which is parallel to that set out in the 14 December 2000 contract I am not deciding that it may be the amount to which F.C. Yachts Ltd. is entitled. Here I specifically note that I am ignoring a very substantial counterclaim, being expenditures of NHM International Inc. to put All Risks into a usable and seaworthy condition. Those expenditures may well have been made in a proper manner entitling NHM International Inc. to succeed. However, I do not take account of them here for there are many gaps in that evidence. The effectiveness of the NHM International Inc. counterclaim will have to await a full hearing.
[39] I now turn to the issue of security for what F.C. Yachts Ltd. believes to be a potential tax liability.
PST and GST Liability
[40] The contract of 14 December 2000 provides for offshore delivery. This is a common provision in the case of an exported Canadian-built vessel. It is a legitimate technique by which to avoid payment of Provincial Sales Tax and Federal Goods and Services Tax and indeed, as I have already pointed out, is provided for in the provincial Social Services Tax Act, R.S.B.C. 1996, Chapter 431exempting "... tangible personal property shipped by the seller for delivery outside British Columbia, ..." from Provincial Sales Tax [section 77(b)]. There is similar provision in the Excise Tax Act, R.S.C. 1985, Chapter 15, exempting tangible personal property from GST where "... the property is, or is to be, delivered or made available outside Canada to the recipient ..." [section 142(2)(a)].
[41] F.C. Yachts Ltd. presents no law on the point, but submits the possibility that NHM International Inc., having gone into possession as mortgagee in possession and having arrested the All Risks in this Federal Court proceeding, has somehow taken delivery from F.C. Yachts Ltd., the owner recorded at the Vancouver Office of the Canadian Shipping Registry. The arrest of a vessel, even by a mortgagee in possession, without more, does not either constitute the mortgagee an owner or provide evidence of delivery by the builder. Similarly, I know of no law which constitutes a mortgagee in possession an entity which has taken delivery and thus ownership. A mortgagee in possession may have some of the trappings of an owner, but without taking further steps and here I have in mind the possibility of foreclosure, does not take delivery and become an owner thus opening the way for the imposition of sales tax or goods and services tax. To summarize, neither going into possession as mortgagee in possession, nor arresting the vessel, constitute delivery of the vessel.
[42] F.C. Yachts Ltd. also submits that NHM International Inc. have taken positive steps by which to take or acknowledge delivery, thus triggering Provincial Sales Tax and the Federal Goods and Services Tax. In particular, F.C. Yachts Ltd. says that the All Risks has been registered either in the American Virgin Islands or elsewhere in the United States. Here F.C. Yachts Ltd. produces two forms. The first is an American abstract of title which confirms that F.C. Yachts Ltd. built the All Risks for NHM International Inc. It goes no further. It does not set out the ownership of the vessel or any other particulars of the vessel at all. The second form is an American Coast Guard "Builder's Certification and First Transfer of Title", a form largely not filled out, the only substance being that the president of F.C. Yachts Ltd. certifies that he supervised the construction of the vessel at and on behalf of F.C. Yachts Ltd. Nothing is said as to ownership.
[43] In contrast, NHM International Inc. provided the uncontradicted affidavit evidence of Denise Francois, a US Virgin Islands' lawyer, who has been instructed by NHM International Inc. to represent that company in the registration of the All Risks in the Virgin Islands. She deposes that she had commenced the registration process, but that she "... cannot complete the registration until the Bill of Sale is delivered by FC to NHM." and that bill of sale been filed with the United States Department of Planning and Natural Resources. She goes on to set out that she has been advised; by the principal of NHM International Inc. that he has not yet received a bill of sale from F.C. Yachts Ltd. and that registration cannot be completed and a Certificate of Registry Release until the bill of sale has been provided.
[44] On the material which has been presented it is an inconceivable, extravagant and unreasonable position to argue for substantial additional bail on the basis that the vessel has been transferred while still within Canada and in the ownership of F.C. Yachts Ltd. There is no reasonably arguable case for the securing of F.C. Yachts Ltd. for Provincial Sales Tax and Goods and Services Tax liability.
CONCLUSION
[45] In the present instance NHM International Inc. and F.C. Yachts Ltd. are far apart. Some aspects of the evidence are incomplete. However, I am satisfied that the claim of F.C. Yachts Ltd., for the price of the All Risks on a cost plus basis, is inconceivably extravagant and, as presented, will not succeed to the extent of the $1,980,000.00 security sought. To require security for the claim of F.C. Yachts Ltd., as the claim is presented, would be clearly unreasonable and indeed excessive, oppressive and abusive. I am satisfied that F.C. Yachts Ltd. will have sufficient security if it is set, as I have ordered, at $125,000.00 (US), being, in the terms of the Order, a bailbond for $190,552.00 (CDN) and additional security of $3,000.00 (US), together with a sum of $71,000.00 (US) paid into Court to constitute the holdback on the price of the All Risks.
[46] Here I would again note that what I have set out above is not a decision on the case. Rather it is the application of the test which examines special circumstances which may require bail to be modified or set to reflect appropriate security for a reasonably arguable best case, including interest and costs. The test is not whether bail is oppressive or abusive, although that is also the case here, where the bail sought did not reflect a reasonably arguable best case and indeed was exorbitant.
[47] I have not analysed the evidence, for not only does it appear incomplete, but also, that would be inappropriate. It is a task for the trial judge. However, the real and arguable questions which a trial judge may eventually have to determine is not whether the agreement to build was cost plus, or the liability for Provincial Sales Tax and Federal GST, but rather the amount of the balance owing under the 14 December 2000 building contract and the substance of the counterclaim of NHM International Inc. for expenditures to complete the All Risks and to render the All Risks a usable and seaworthy vessel.
(Sgd.) "John A. Hargrave"
Prothonotary
Vancouver, British Columbia
21 January 2003
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1865-02
STYLE OF CAUSE: NHM International Inc. v. F.C. Yachts Ltd. et al.
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: 13 January 2003
REASONS FOR ORDER: Hargrave P.
DATED: 21 January 2003
APPEARANCES:
David F McEwen FOR PLAINTIFF
K Joseph Spears FOR DEFENDANTS
SOLICITORS OF RECORD:
McEwen, Schmitt & Co. FOR PLAINTIFF
Barristers & Solicitors
Vancouver, British Columbia
Spears and Company FOR DEFENDANTS
Barristers & Solicitors
Vancouver, British Columbia