Vrac Mar Inc. (Suppliant)
v.
Demetries Karamanlis et al. and The Ship Nors-
land (Respondents)
Trial Division, Noël A.C.J.—Montreal, April
10; Ottawa, April 14, 1972.
Maritime law—Order for sale of ship free of encum-
brances—Arrears of taxes owing country of registration—
Payment required to obtain Canadian registration—Subro-
gation—Caveat against distribution of sale proceeds.
The Norsland, registered in Panama, was sold for $111,-
000 pursuant to an order of this Court for her sale free of
encumbrances. Subsequently the purchaser was obliged to
pay $3,943 to the Republic of Panama for arrears of taxes
owing that country in order to obtain Canadian registration.
In addition the purchaser incurred legal expenses in connec
tion with the change of registration.
Held, on an interlocutory motion, the purchaser was
entitled to be subrogated to Panama's rights in respect of
the $3,943 paid that country and allowed to file a caveat
against distribution of the proceeds in court with respect to
such sum and the amount of the legal expenses pending
final determination by this Court.
MOTION.
Richard Gaudreau for Vrac Mar Inc.
Edouard Baudry for Demetries Karamanlis et
al.
David F. H. Marler for First Pennsylvania
Banking & Trust Co.
Peter R. D. MacKell, Q.C. for Fried Krupp
G.m.b.H. and Strider Maritime Co. Ltd.
NOEL A.C.J.—In its amended motion Vrac
Mar Inc., the successful bidder for the ship
M/V Fort George (Ex M/V Norsland) in a court
sale dated September 15, 1971, under an order
made by this Court on August 18, 1971, extend
ed by a further order on September 13, 1971,
asks that an order be made to
(a) allow subrogation of rights in its favour
for the sum of $3,943.95;
(b) allow filing of the caveat attached to its
motion;
(c) order that the amount of $7,318.47 be
given priority of payment with interest from
the proceeds of sale of the Norsland;
(d) order that the costs of this motion be paid
from the proceeds of sale of the Norsland.
The order for sale made by this Court on
August 18, 1971 provided that sale of the ship
Norsland should be as follows:
That the basis of the sale of the ship Norsland shall be as
is, where is, as she now lies afloat at Longue Pointe,
particulars not guaranteed, free and clear of all liens,
charges, mortgages, encumbrances and claims and with a
clean bill of sale.
Suppliant contends that when it paid a price
of $111,000 for the ship, it was guaranteed that
it would receive ownership of the latter and the
said• ship would be free of any encumbrance or
maritime or other lien. It states, however, that
unfortunately the said ship was not free of any
encumbrance, since in order to have the ship
registered with the Canadian Ministry of Trans
port, it had to carry out certain formalities
called "Proof surrender Panama documenta
tion" and furnish proof that the Norsland's
register was closed. In the submission of suppli
ant the Government of Panama held an alleged
maritime lien on the said ship for arrears of
certain taxes incurred in 1969, 1970 and 1971,
and refused to close the Norsland's register as
long as these sums were unpaid.
Suppliant stated that it was accordingly
obliged to incur considerable expense and pay
certain sums of money in order to have the ship
registered in Canada, as follows:
(a) paid to the Republic of Panama
through the legal firm of Lette,
Marcotte, Biron and Sutto $3,943.95
(b) fees and expenses paid to the
legal firm of Lette, Marcotte, Biron
and Sutto 676.75
(c) paid to the Consul General of
Panama for the necessary consular
documents to be issued closing the
log in Panama 89.00
(d) paid to the Consul General of
Panama 759.25
(e) legal and extra-legal fees for
suppliant's counsel, Langlois, La-
flamme and Gaudreau 1,299.52
(f) general expenses incurred by
Vrac Mar Inc. 550.00
TOTAL $7,318.47
It thus appears that suppliant's claim includes
an amount of $3,943.95 paid to the Republic of
Panama, and $3,374.52 paid to counsel and for
travel and other expenses, incurred in Ottawa
for the purpose of obtaining Canadian
registration.
Suppliant first requests this Court to recog
nize the subrogation of rights granted to suppli
ant by the Republic of Panama, signed by the
Chargé d'Affaires of the Consulate of Panama
in Montreal, Manuel de J. Rojas C., in the
amount of $3,943.95, paid by suppliant in set
tlement of all moneys owed to the government
of Panama for taxes due by the ship Norsland,
its owners or other persons with an interest in
the said ship, or in the moneys deriving from
sale of the said ship, as stated in the said
subrogation. I feel it is proper to recognize by
these presents that in consequence of the pay
ment made by suppliant to the Republic of
Panama, in the amount of $3,943.95, the said
suppliant is and is deemed to be subrogated to
the rights of the Republic of Panama. It appears
from the record of this case, however, that on
September 4, 1971 the Republic of Panama
filed a-caveat for the amount of $2,187.15 only,
and as we have seen, subsequently claimed an
amount of $3,943.95, or $1,758.80 more.
Although it seems strange that a lower amount
should be claimed in the record by a caveat, and
payment of a greater amount demanded, there
may be an explanation. Further, it does not
appear that the regulations relating to the caveat
required that an amount be stated, though it is
always better to indicate the amount owing or
claimed. Suppliant will therefore be permitted
to file a caveat against distribution and payment
of money for the sums it is claiming in right of
the Republic of Panama, on condition, obvious
ly, that it establishes in court, in the proceeding
for final proof of claims and their priority,
entitlement to a share of the sum claimed, and
its priority in the list of claims. The amounts
claimed for counsel's fees to provide suppliant
with clear title are a debt arising after the date
of sale of the ship, and filed after the date set
for filing claims in the order for sale of the ship,
and the question is whether such a claim can be
considered in arriving at the order of priority. In
any case here the amounts so paid will have to
be proven for the services rendered. In these
circumstances I do not see, any objection to
allowing the caveat to include these amounts,
but the value of the services rendered will also
have to be proven when a final decision is
given, and the right to claim these sums deter
mined, as well as their order of priority. The
motion requests that the amount of $7,318.47
be given priority of payment to suppliant, with
interest, from the proceeds of sale of the Nors-
land. Certainly, if this amount has priority or
enjoys a special position, it will have to be paid
accordingly. However, this is not what suppli
ant is seeking. If I have understood its motion
correctly it is seeking to have the amount treat
ed as Court costs, and paid as such. Concerning
the objection raised by the three counsel for the
other creditors to having the Court determine
the apportionment and priority of the total debt
of $7,318.47, as well as the right to claim these
amounts at this stage of the proceedings, and
their claim that they have not had sufficient
time to contest this motion, which in my opin
ion moreover should also be decided in the
proceedings instituted for final decision on
these claims, I feel it is best to adopt this
solution, and these questions will have to be
settled at that time. However, I must stress the
fact that if the ship's purchaser was unable to
have it registered by the Canadian Ministry of
Transport, this is due only to the existence of s.
7(2) of the Canada Shipping Act, R.S.C. 1970,
c. S-9 which states that:
7. (2) Every British ship that is owned wholly by persons
qualified to be owners of British ships and that is not
registered out of Canada may be registered in Canada.
(Italics mine.)
I must also note that under s. 2 of the Canada
Shipping Act, "British ship" includes a Canadi-
an ship, and under s. 6, a ship is a "British ship"
if it is wholly owned by
(a) a British subject within the meaning of
the British Nationality Act, 1948, as amended
from time to time;
(b) a body corporate incorporated under the
law of a Commonwealth country and having
its principal place of business in that country.
On the other hand, the Republic of Panama,
after filing a caveat for $2,585.15, refuses to
comply with the proceedings for sale of the
ship, and observe the order of this Court giving
the purchaser a clear title. I do not for the
moment wish to characterize this action by that
country. I would say nevertheless that the
refusal to comply with a judgment of this Court
after filing a claim, in addition to being an
affront to a Canadian court, represents a refusal
by that country to abide by the decisions of a
court in another country, and an exception to a
rule honoured by every nation in the world.
Indeed, if other countries, or other debtors,
decided to follow this bad example, it would
create confusion in an area which can be effec
tively controlled only with the good faith of all
seafaring nations. I therefore feel it is urgent
and necessary, if the prestige of the decisions of
our courts is to be maintained, and other coun
tries or debtors dissuaded from following the
example of the Republic of Panama, that the
responsible authorities take steps to make the
necessary amendments to the Canada Shipping
Act, so that registration of a foreign vessel
cannot be used to block registration in Canada
of a ship sold under an order of this Court. I
feel it is worth noting here that although Canada
requires payment by shipowners only of certain
charges known in English as "user charges",
the Republic of Panama requires payment of
annual taxes as well.
The Court accordingly allows subrogation of
rights in suppliant's favour for the amount of
$3,943.95, and allows filing of the caveat for
this amount as well as for the amount of $3,-
374.52; but the whole is subject to the appor
tionment and priority of these amounts, as well
as entitlement, being determined in court at the
final decision on claims and their priority. The
costs of this motion shall be treated as costs in
the case and also determined at the final deci
sion on claims.
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