T-682-84
Horst Lietz (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Cullen J.—Toronto, May 8;
Ottawa, May 13, 1985.
Customs and excise — Flying bridge added to vessel in U.S.
— Unlawful importation — Unpaid duty — Seizure by Crown
— Outstanding charges owing to marina company — Vessel
sold by Court order to satisfy debt — Plaintiff purchasing
vessel, free and clear of all liens — Whether Crown's rights
arising prior to Court order superseded thereby — S. 2
Customs Act providing for automatic forfeiture upon unlawful
importation — Title immediately vesting in Crown — By
order in rem, Court vesting title to ship in purchaser —
Judicial order being in rem, binding on world, including Crown
— Court order superceding Crown's rights — Failure by
Crown to secure duty not barring recourse against former
owner — Customs Act, R.S.C. 1970, c. C-40, ss. 2, 18, 150,
163, 164, 165, 175, 176, 180, 192, 205 (as am. by S.C.
1974-75-76, c. 5, s. 5), 231 — Federal Court Rules, C.R.C., c.
663, R. 474.
Maritime law — Seizure of vessel by Crown — Unpaid duty
— Proceedings instituted against vessel to satisfy outstanding
charges owing to marina — Court ordering sale of vessel to
plaintiff free and clear of all liens — Whether Court order
superceding Crown's rights arising prior to order — Under s. 2
Customs Act, unlawful importation of goods resulting in auto
matic forfeiture, thus vesting title in Crown — Order in rem
creating "absolute and antecedent lien" in favour of claimants
in rem — Title vested in purchaser — Judicial order being in
rem, binding on world, including Crown — Crown's rights
abrogated by Court sale — Customs Act, R.S.C. 1970, c.
C-40, s. 2.
CASES JUDICIALLY CONSIDERED
APPLIED:
Minna Craig Steamship Company v. Chartered Mercan
tile Bank of India, London and China, [1897] 1 Q.B. 460
(C.A.).
CONSIDERED:
Marun, Tvrtko Hardy v. The Queen, [1965] I Ex.C.R.
280; The Queen v. Sun Parlor Advertising Company, et
al., [1973] F.C. 1055 (T.D.); Johnson v. The SS. Bella
(1922), XXI Ex.C.R. 305; Sleeth v. Hurlbert (1895), 25
S.C.R. 620.
COUNSEL:
M. A. Davis and R. Davis for plaintiff.
Carolyn P. Kobernick for defendant.
SOLICITORS:
Bresver, Grossman, Scheininger & Davis,
Toronto, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for order ren
dered in English by
CULLEN J.: The plaintiff, Horst Lietz, is a
businessman and resides in the City of Toronto, in
the Municipality of Metropolitan Toronto, in the
Province of Ontario. The defendant is Her Majes
ty the Queen in Right of Canada as represented by
the Minister of National Revenue for Customs and
Excise. On or about the 17th day of March 1982,
the plaintiff purchased all of the shares of Lefroy
Harbour Company Limited (Lefroy Harbour), an
Ontario corporation operating a marina in Lefroy,
Ontario. The vessel Carole Ann III was docked at
Lefroy Harbour, having undergone repairs prior to
the purchase of Lefroy Harbour by the plaintiff.
At the time of the purchase of Lefroy Harbour
by the plaintiff, there was unpaid duty not
declared to Canada Customs by the former owner
of the vessel, one Dr. Paul Stewart, a Canadian
citizen. The unpaid duty was for certain improve
ments to the vessel, in particular, a new flying
bridge had been added to the vessel in the United
States of America.
In or about the month of April 1982, the plain
tiff unsuccessfully attempted to locate Dr. Stewart
to collect outstanding storage and repair charges
owed to Lefroy Harbour. On or about the 19th day
of May 1982, Lefroy Harbour commenced pro
ceedings against the vessel in the Federal Court to
have the vessel sold by Court order and have the
debt satisfied out of the proceeds of sale. By order
of Mr. Justice Walsh dated August 3, 1982, the
vessel was ordered appraised and advertised for
sale by way of sealed tenders. His Lordship further
ordered that a public notice of sale be published
once in the Globe and Mail.
The subsequent order of sale by Mr. Justice
Jerome dated August 31, 1982 provided, inter alla:
1. That one, Horst Lietz, having submitted the
only bid for the purchase of the defendant ship,
which bid exceeded the appraised price for said
ship is entitled to retain said ship for his own use.
2. That the basis of the sale to said Horst Lietz is
that he shall take the ship as is and where is as it
now lies afloat at Lefroy Marine, Lefroy, Ontario,
particulars not guaranteed, free and clear of all
liens, charges, mortgages, encumbrances and
claims.
3. That the balance of the purchase price of the
defendant ship shall be paid into this Court on or
before the 30th day of September 1982. At the
time of said payment into this Court, all necessary
documents for the transfer of title of said ship to
Horst Lietz shall be delivered by the District
Administrator of this Court.
4. That there shall be published in the Globe and
Mail once only, a public notice to all creditors or
any others having claims against the defendant
ship or the proceeds derived therefrom and there
shall be no payments out of the proceeds derived
from the sale of the defendant ship until 30 days
after the publication of said notice.
5. That the District Administrator of this Court do
all further acts and execute all necessary docu
ments in execution of this order.
On or about the 26th day of May 1983, as a
result of an investigation by the employees of the
defendant into the illegal importation of the flying
bridge, the said flying bridge was seized from the
plaintiff pursuant to the provisions of sections 18,
175, 176, 180, 192, 205 and 231 of the Customs
Act, R.S.C. 1970, c. C-40 as amended [by S.C.
1974-75-76, c. 5, s. 5]. On or about the 2nd day of
June 1983, the plaintiff forwarded a deposit in the
amount of $13,718.54 to the defendant which sum
represented the amount required to release the
goods from seizure. The plaintiff gave notice to the
defendant that the monies were paid in protest and
without any admission of liability.
On or about the 12th day of January 1984, a
ministerial decision was rendered in this matter
pursuant to section 163 of the Customs Act which
provided that $8,258.50 be retained out of the
deposit and be forfeited and that the balance of
the deposit in the amount of $5,460.04 be
returned. On or about the 18th day of January
1984, the plaintiff gave notice pursuant to section
164 of the Customs Act that he would not accept
the ministerial decision and requested that the
matter be referred to the Federal Court pursuant
to section 165 of the Customs Act. On or about the
26th day of January 1984, the plaintiff was
advised that this was not a case the Minister would
refer to the Federal Court and was referred to
section 150 of the Customs Act. The plaintiff
commenced this action in the Federal Court seek
ing, inter alia, the return of his deposit.
The parties have proceeded pursuant to Rule
474 of the Federal Court Rules [C.R.C., c. 663]
on a determination of a question of law and have
characterized it as follows: where a person pur
chases a vessel pursuant to an order of the Federal
Court of Canada granting title free and clear of all
liens, charges, mortgages, encumbrances, and
claims, are the rights of Her Majesty the Queen in
Right of Canada arising prior to the issuance of
said order pursuant to section 2 of the Customs
Act extinguished or superseded by the said order?
The action, which was the subject of the order
of the Associate Chief Justice, was brought by
Lefroy Harbour Company Limited against the
ship Carole Ann III and not against Dr. Stewart.
The plaintiff in that action sought payment from
Dr. Stewart before commencing its action against
the ship.
The law is quite clear that Dr. Stewart had a
duty to report when the ship arrived in Canada.
He did not do so, as required by section 18 of the
Customs Act. Section 180 spells out that failure to
comply results in a forfeiture of the goods. Section
2 of the Customs Act clearly spells out that forfeit
ure shall accrue at the time and by commission of
the offence, in respect of which the penalty of
forfeiture is imposed. In other words, the forfeiture
is automatic at the time of the offence and that is
the case here, namely, Dr. Stewart's failure to
report resulted in a forfeiture; put another way,
title vested in the Crown immediately. Cattanach
J. in Marun, Tvrtko Hardy v. The Queen, [1965]
1 Ex.C.R. 280 states, at page 295:
The language of the section does not require that the goods be
found in the custody of that particular person.
The forfeiture is not brought about by any act of the
Customs officials or officers of the Department, but it is the
legal unescapable consequence of the unlawful importation of
the goods....
and later [at pages 296-297]—and note the
similarity with this case,
None of the parties knew of the claim for duty and all were
innocent of the unlawful importation.
The purpose of section 203 [now 205] is clearly to protect a
person who innocently comes into possession of unlawfully
imported goods and without means of knowing they were
unlawfully imported, from prosecution ... but ... not to vest
title to unlawfully imported goods in such person. [The under
lining is mine.]
This view was accepted and followed by Urie J.
in The Queen v. Sun Parlor Advertising Company,
et al., [1973] F.C. 1055 (T.D.), at page 1065:
... the provisions of sections 180 and 205 are mandatory and
forfeiture occurs automatically upon unlawful importation of
goods by virtue of section 2(1) of the Customs Act, .. .
At the time of the order of Mr. Justice Walsh—
namely August 3, 1982, title to the ship was
clearly vested in the Crown, although this fact was
not known by anyone, either at the time of the first
order or the subsequent order of the Associate
Chief Justice on August 31, 1982.
Johnson v. The SS. Bella (1922), XXI Ex.C.R.
305 is a clear authority for the proposition that "a
judicial sale of a vessel under the decree of a
Court, without jurisdiction to order such sale is an
absolute nullity" [page 305].
Did the Court here have jurisdiction? Counsel
for the plaintiff argues that the order of the
Associate Chief Justice was an "order in rem" and
therefore binding on the world, including the
Crown. Citing a definition from 16 Halsbury,
counsel submits that we have here "the judgment
of an admiralty court establishing a lien". The
plaintiff, citing Minna Craig Steamship Company
v. Chartered Mercantile Bank of India, London
and China, [1897] 1 Q.B. 460 (C.A.), at pages
464-465, a decision by Lord Esher M.R.:
But, when the ship is condemned by a Court having jurisdiction
to condemn her in rem, by that condemnation the property in
the ship is taken out of the former owners, and she becomes the
ship of the claimants in the proceedings in rem to the extent of
their claim. They of course have not the possession of the ship,
and cannot sell the ship or transfer her when sold. She is in the
hands of the Court, which orders her sale and gives title to the
purchaser, and, when the sale has taken place, the purchase-
money is paid into court. [The underlining is mine.]
And later, citing Lopes L.J. at pages 467-468,
We can therefore only deal with it as a judgment in rem, as a
conclusive judgment binding upon all the world.... It is a
declaration as to the status of the ship, binding upon everybody,
and no English Court can impeach it. It is a judgment declaring
an absolute and antecedent lien in the persons in whose favour
the German Court has decided, and we cannot say that the
defendants on account of anything that has happened are
bound to give up to the liquidator of the company or to
anybody else that which has been given to them as the fruits of
that lien.
Here Lefroy Harbour sought to enforce a lien,
and even though the Crown had had no actual
notice, the vessel was sold. In my view the judg
ment of the Associate Chief Justice was a judg
ment in rem and binding on the world, including
the Crown.
In Sleeth v. Hurlbert (1895), 25 S.C.R. 620, at
page 630, a decision of the Supreme Court of
Canada, Sedgewick J. states:
A judgment in rem is an adjudication pronounced upon the
status of some particular subject-matter by a tribunal having
competent authority for that purpose. Such an adjudication
being a solemn declaration from the proper and accredited
quarter that the status of the thing adjudicated upon is as
declared, concludes all persons from saying that the status of
the thing adjudicated upon was not such as declared by the
adjudication.
The action was styled in the name of the ship
and the plaintiff was clearly taking an action in
rem. This was accepted by Mr. Justice Walsh and
Associate Chief Justice Jerome. Had the plaintiff
sued Dr. Stewart then it would have been a clear
case of an action in personam.
The Crown has called the order secured by
Lefroy Harbour Company Limited an order in
personam, exercised in rem. I cannot concur, and
really wonder if such a position is credible. I
cannot see this action by Lefroy Harbour Com
pany Limited as other than an action in rem to
secure its claim, and the order, having been made,
is binding. The Crown is not without resources or
responsibility. It had two opportunities to secure
duty, namely, when the ship came into Canada
and had to report to Customs, and following the
advertisement in the Globe and Mail which notice
Mr. Justice Walsh felt was adequate for all third
parties. The Crown still has recourse to the party
responsible in the first instance, Dr. Stewart.
The decision then is that the order of the Feder
al Court of Canada granting title free and clear of
all liens, charges, mortgages, encumbrances and
claims supercedes the right of Her Majesty the
Queen in Right of Canada arising prior to the
issuance of the said order pursuant to section 2 of
the Customs Act.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.