T-1174-87
Banco do Brasil S.A. (Plaintiff)
v.
The Owner and All Others interested in the Ship
Alexandros G. Tsavliris and the Ship Alexandros
G. Tsavliris (Defendants)
and
Nikolas Hiotis, on his own behalf and on behalf of
the Crew of the Ship Alexandros G. Tsavliris
(Intervenors)
and
Pan American Steamship Lines Inc. and Euro-
pean-Overseas Steamship Lines N.V. (Second
Intervenors)
and
Astrapi Maritime Limited (Third Intervenor)
and
Zodiac Maritime Agencies Ltd. (Fourth Interven-
or)
T-1381-87
Pan American Steamship Lines Inc. and Europe-
Overseas Steamship Lines N.V. (Plaintiffs)
v.
The Ship Alexandros G. Tsavliris, Panalex Ship
ping Company Limited and all Others interested
in the Vessel Alexandros G. Tsavliris and Banco
do Brasil S.A. (Defendants) *
INDEXED AS: BANCO DO BRASIL S.A. v. ALEXANDROS G.
TSAVLIRIS (THE) (T.D.)
Trial Division, Strayer J.—Vancouver, April 2, 3,
4, 5 and 6; Ottawa, April 27, 1990.
Conflict of laws — Choice of law — Maritime law — Torts
— Claim for damages by ship charterers against mortgagee on
grounds latter wrongfully induced breach of charterparties and
* Editor's Note: The reasons for judgment have been amend
ed, but not in any material respect, pursuant to a motion for
reconsideration thereof. The Trial Judge found that the passage
to which exception was taken was clearly obiter and decided
that it should be stricken from his reasons. The decision is
reported immediately following these reasons for judgment, at
page 283.
bills of lading by threatening ship's arrest — Tort committed
in England — For tort committed abroad to be actionable in
Canada, acts must be actionable if committed here and not
justifiable where committed — Acts (inducement of breach of
contract) torts if committed in Canada — Mortgagee liable in
tort for interfering with performance of contract by ship where,
as here, mortgagee's security not impaired and owner not
unwilling or unable to perform contract — Case of first
impression in terms of both Canadian and English law — As
matter of Canadian law, mortgagee liable for threats of arrest
as well as for arrests where result is interference — Acts not
justifiable in England under English law.
Maritime law — Torts — Claim for damages by charterers
against mortgagee on grounds latter wrongfully induced
breach of charterparties and bills of lading by threatening
ship's arrest — According to maritime common law, mort
gagee liable in tort for interfering with performance of contract
where, as here, security not impaired and owner not unwilling
or unable to complete contract — Liability for interfering with
performance of contract whether due to arrest or threat
thereof.
The ship Alexandros G. Tsavliris was built in Brazil, regis
tered in Greece and flew a Greek flag. The purchase price was
secured by a first mortgage assigned to Banco do Brasil. Her
owner defaulted under the mortgage in November 1981. No
payments were made after November 1984. In January 1986,
the owner proposed a rescheduling of the debt. The proposal
was rejected in December 1986. In January 1987, the ship was
time-chartered for transporting cargo from Europe to the west
coast of North America. Shortly thereafter, the mortgagee,
through its solicitors in England, advised the ship's owner that
it had decided to enforce its rights against the ship at the
earliest opportunity, in Panama. When negotiations aimed at
foregoing an arrest broke down, the charterers instructed the
ship to proceed around Cape Horn en route to the west coast.
She arrived in New Westminster, British Columbia two and
one-half months later than scheduled. The ship was then arrest
ed and sold. This was an action by the charterers for damages
resulting from the Bank's refusal to permit the voyage to be
continued on reasonable terms by transit through the Panama
Canal and thereby wrongfully inducing breach of charterpar-
ties and bill of lading contracts.
Held, the action should be allowed.
The issues were: (1) what law governed the charterers'
claim? and (2) was the Bank liable in accordance with that
law?
The applicable choice of law rule in tort actions was laid
down in Phillips v. Eyre: for a tort committed abroad to be
actionable in Canadian courts the acts complained of would
have to be (1) actionable if committed in Canada, and (2) not
justifiable where committed.
The tort alleged was part of those common law developments
in respect of admiralty matters which formed part of "Canadi-
an maritime law" as defined in section 2 of the Federal Court
Act. In the absence of Canadian case law on the matter, the
parties agreed that the laws of Canada and England were the
same and assumed that Canadian courts would follow maritime
common law as it has developed in England. It was also
common ground that the common law liability of a ship's
mortgagee for interference in the performance of a contract
made by a ship's owner for the employment of that ship was as
set out in The Myrto case. In essence, if a mortgagee elects to
exercise its mortgage rights at a time when the vessel is under
contract, it will be answerable in tort to the parties to such
contract unless the mortgagee's intervention is justified because
that contract impairs its security or because the owner is
unwilling or unable to complete the contract. The continuation
of the voyage through and beyond the Panama Canal would not
have impaired the Bank's security and the owner was willing
and able to perform the contract.
As to whether The Myrto applied to threats of arrest as well
as to actual arrests, this was a case of first impression in terms
of both Canadian and English law. As a matter of Canadian
law, The Myrto principles applied equally to threats, the threat
being unlawful where the act threatened would itself be unlaw
ful and where the result achieved was the same.
The tort, inducement of breach of contract, was not justifi
able where it occurred. It took place in London, England, where
the important decisions surrounding the arrest were made.
Whether the Bank's actions in England were justified had to be
determined in accordance with the principles in The Myrto
even though the instant case was not on all fours with it.
Damages was an available remedy in the case at bar under The
Myrto principles.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Federal Court Act, R.S.C., 1985, c. F-7, s. 2.
Federal Court Rules, C.R.C., c. 663, R. 324.
CASES JUDICIALLY CONSIDERED
APPLIED:
Phillips v. Eyre (1870), L.R. 6 Q.B. 1 (Ex. Ch.); The
Myrto, [1977] 2 Lloyd's Rep. 243 (Q.B.D. Adm. Ct.);
Roman Corporation Ltd. et al. v. Hudson's Bay Oil and
Gas Co. Ltd. et al., [1973] S.C.R. 820; (1973), 36 D.L.R.
(3d) 413.
REFERRED TO:
ITO—International Terminal Operators Ltd. v. Miida
Electronics Inc. et al., [1986] 1 S.C.R. 752; The Fanchon
(1880), 50 L.J. Ad. 4 (P.D. & A.).
AUTHORS CITED
Castel J.-G. Canadian Conflict of Laws, 2nd ed. Toronto:
Butterworths, 1986.
McLeod J. G. The Conflict of Laws, Calgary: Carswell
Legal Publications, 1983.
COUNSEL:
Peter D. Lowry and J. W. Perrett for Banco
do Brasil.
Nils E. Daugulis and M. Nordman for second
intervenors.
SOLICITORS:
Campney & Murphy, Vancouver, for Banco
do Brasil.
Bull, Housser & Tupper, Vancouver, for
second intervenors.
The following are the reasons for judgment
rendered in English by
STRAYER J.:
Relief Requested
The matter for disposition by me in these pro
ceedings is a claim for damages against the Banco
do Brasil S.A., mortgagee of the ship Alexandros
G. Tsavliris. The claim is brought by the charter-
ers of that ship for a voyage in 1987, on the
grounds that the bank wrongfully induced breach
of the charterparties and bills of lading. This claim
is set out in both the statement of defence and
counterclaims filed by the two charterers in action
T-1174-87 and in their statement of claim in
action T-1381-87. The two actions were ordered to
be tried together, by order of the Associate Chief
Justice of March 29, 1990. It was agreed by the
parties that the latter statement of claim could be
treated as the pleading of their claim on behalf of
the charterers, Pan American Steamship Lines
Inc. (hereinafter "Pan American") and European-
Overseas Steamship Lines N.V. (hereinafter
"Euro-Lines").
It should also be noted at this point that the
claim by the charterers to priority over the Bank,
with respect to the fund resulting from the sale of
the vessel in Vancouver pursuant to the order of
this Court, was abandoned during the trial.
Facts
In 1974 Panalex Shipping Co. Ltd. (hereinafter
"Panalex"), a Liberian company, contracted with
a Brazilian shipbuilder to construct the Alexan-
dros G. Tsavliris (hereinafter the Alexandros) for
a purchase price of (U.S.) $12,050,200. Of this
amount a sum of some 10.2 million dollars was to
be paid by eighteen semi-annual instalments with
interest. This sum was secured by promissory notes
and a first preferred ship's mortgage, all of which
were assigned to the Banco do Brasil (hereinafter
the "Bank"). The ship when constructed was regis
tered in Greece and the mortgage and assignment
were also entered in the Greek registry. The ship
sailed under the Greek flag.
At the same time, Panclaire Shipping Ltd., a
company associated with Panalex through the
Tsavliris family, concluded a contract with the
same shipbuilder to construct a sister ship to be
known as the Claire A. Tsavliris (hereinafter the
Claire).
Panalex made payments under the mortgage up
to and including the instalment due May 18, 1981
and then went into default under the mortgage on
November 18, 1981 by failing to pay the amounts
due at that time. A rescheduling had been agreed
upon with the Bank on November 16, 1984 but
Panalex defaulted two days later by being unable
to pay all of the amounts due on that date. No
payments whatever were made by Panalex, the
owners of the Alexandros after November 18,
1984. On January 10, 1986 the owner proposed a
further rescheduling of the debt. This proposal was
rejected by decision within the Bank on April 3,
1986 but the owner was not advised by the Bank
until December 29, 1986 that it would not approve
the rescheduling and that the owner was to pay
forthwith all amounts outstanding.
During this period the Alexandros had been laid
up at Piraeus in Greece, from April 13, 1986 to
January 13, 1987. There is no evidence of the
Bank seeking the whereabouts of the ship until it
instructed its London solicitors on December 8,
1986 to make inquiries.
On January 23, 1987 Pan American chartered
the Alexandros for a voyage to North America
and sub-chartered it to Euro-Lines. The charter
was for delivery of the vessel to the charterers in
Santander, Spain on January 25, 1987. The vessel
was to load steel products there, at three ports in
Germany, and at Antwerp, Belgium and was then
to proceed to the west coast of North America,
discharging cargo at Los Angeles, Oakland, Port-
land, and Seattle in the United States, and ending
at New Westminster, B.C. Its estimated date of
arrival in British Columbia was March 16, 1987.
The value of the cargo was approximately (U.S.)
$12,000,000. This was a time charter.
On January 26, 1987 the day after the charter-
ers took delivery of the vessel, the Bank learned of
the time charter and the planned destinations. It
also learned of the whereabouts of the Claire on
which the mortgage payments were also in default.
On February 12, 1987 the Bank sent instructions
from its headquarters in Rio de Janeiro to its
London office, directing that office to instruct its
London solicitors to take action to seize both the
Claire and the Alexandros. The solicitors were to
be instructed to take care to arrest the Alexandros
in a jurisdiction which "also considers the interests
of the Bank". The London solicitors, the firm of
Coward Chance, directed the arrest of the Claire
at Durban, South Africa. On February 27, 1987
the London firm of Constant and Constant, solici
tors for the owners of the Claire and the Alexan-
dros, sent a telex message to Mr. Best of Coward
Chance asking that the Bank release the Claire.
On March 2, 1987 Mr. Best replied by telex on
that subject and also advised Constant and Con
stant with respect to the Alexandros, which he
understood was then on a voyage carrying cargo to
the U.S. west coast, that:
Our instructions are to enforce our clients' rights against this
vessel at the earliest opportunity ....
On March 3, 1987 a meeting took place in London
between Mr. Best, Mr. Biggs of the London
branch of the Bank, and Mr. George Tsavliris who
represented the owners of the Claire and the Alex-
andros. At that meeting it was confirmed that the
Bank would continue the arrest of the Claire.
When the subject of the Alexandros came up,
according to the evidence of Mr. Best, Mr. Tsavli-
ris said that if the Claire were not released then
the Bank would not be allowed to arrest the Alex-
andros. He referred to the possibility of it being
sent to Taiwan instead to be broken up for scrap.
However, a telex sent by Mr. Biggs reporting to
his superiors in Rio de Janeiro on this meeting also
said that Mr. Tsavliris had said, with respect to
the Claire, that if it were released and allowed to
complete its voyage he would be prepared to
arrange for it to be arrested at another convenient
port. Mr. Tsavliris was also reported to be willing
to go to Brasil to discuss matters with the Bank
there. On March 5 Mr. Tsavliris called Mr. Best
directly asking if the Claire was to be released.
Mr. Best advised him that it was fairly certain that
the vessel would not be released and that it would
be sold. When he raised the subject of the Alexan-
dros, Mr. Tsavliris said that the Bank "could
forget" about the Alexandros. Mr. Best agreed in
cross-examination that Mr. Tsavliris could well
have understood from the meeting of March 3 that
the Bank was prepared to arrest the Alexandros in
Panama, and certainly that conclusion could have
been drawn as well from the telex quoted above
which Mr. Best sent to Constant and Constant on
March 2.
In the meantime Mr. Best had been working
with lawyers in Panama to ascertain whether the
Alexandros had yet transited the Canal and its
current location. On March 5 he instructed
Panama lawyers to prepare the documents for
arrest, and on March 6 he instructed them to make
the arrest.
On March 5 while the Alexandros was
approaching the Panama Canal it was instructed
by its owner to stop in international waters. On
March 6 Mr. Tsavliris for the owner sent a telex to
the Bank with respect to rescheduling the loans.
On that day the charterers were advised by the
owner that the latter had information that the
Bank would arrest the vessel in Panama and that
therefore the master had been directed to delay
arrival at the Canal.
By March 10 the charterers had been in touch
with the Bank through their solicitor, Mr. Taylor
of the firm of Shaw and Croft in London. On the
same date Mr. Best spoke by telephone to Mr.
Brewster of Constant and Constant, the owner's
solicitors. Mr. Brewster said the owner was pre
pared to give an undertaking to complete the
voyage if the Alexandros was not arrested, but
Mr. Best indicated he could not recommend such a
solution to the Bank. From then until April 3 there
was a series of negotiations, mostly between the
solicitors for the Bank and for the charterers in
London, but some times involving New York law
yers for the charterers and Mr. Hans Knickrehm,
Executive Vice-President of both charterers, who
is based in Houston, Texas. It is not necessary to
go through all the details of these negotiations. It
may be noted that the Bank did not give instruc
tions to its London solicitor, Mr. Best, until March
19 as to what terms it would accept to forego
arrest in Panama. Negotiations finally broke down
in early April over the following term of a draft
agreement on which the Bank insisted.
7. The Charterer undertakes for the Bank's benefit not to bring
any claim against the Bank in any jurisdiction in respect of
any alleged interference by the Bank with the performance
of the Charterparty and the Bill of Lading contracts.
The Bank insisted on the inclusion of this term but
the charterers ultimately refused. It may be noted
that, had such a term been agreed to, the present
action could not have been brought.
During these negotiations the vessel remained in
the Caribbean. It took on bunkers and supplies in
Venezuela and on April 3, 1987, after the break
down of negotiations, the charterers instructed it
to proceed around Cape Horn en route to Los
Angeles. This the vessel did, arriving in Los
Angeles on May 15 where it completed discharg
ing on May 19. The ship was arrested that day by
the Bank and was later released from arrest pursu
ant to an agreement between the Bank and the
charterers. The vessel then proceeded to Oakland,
Portland, Seattle, and New Westminster discharg
ing cargo in each of these ports. It arrived in New
Westminster on June 2, 1987 some two and one-
half months after the original estimated day of
arrival.
On June 3 the vessel was arrested by the Bank
at New Westminster and sold pursuant to the
order of this Court for the amount of (Canadian)
$3,722,100. There have been numerous proceed
ings concerning the Alexandros but I am advised
by counsel that the present claim is the only
matter outstanding with respect to the disposition
of the fund. The charterers were admitted into
action T-1174-87 as second intervenors pursuant
to an order of Collier J. on July 23, 1987. Prior to
that the charterers had already commenced action
T-1381-87 against the Bank and others. The coun
terclaim then filed in action T-1174-87 essentially
duplicated, in so far as the Bank was concerned,
the statement of claim already filed in T-1381-87.
For this reason the two matters were tried together
on the basis of the pleadings in T-1381-87.
The charterers allege that the Bank refused to
permit the voyage to be prosecuted on reasonable
terms by transit through the Panama Canal, and
thereby wrongfully induced breach of their chart-
erparties and of Euro-Lines' bill of lading con
tracts. The charterers claim damages in respect of
the additional expenses to which they were put by
reason of the delay and extra distance travelled in
the voyage, and by the settlement of claims against
them made by consignees or receivers because of
the delay of delivery of the cargo.
Issues
The essential issues to be determined are: (1)
what law governs the claim of the charterers? (2)
is the Bank liable in accordance with that law?
Conclusions
Choice of Law
The cause of action here is an alleged tort
committed by the Bank against the charterers, the
alleged tort being that of causing or inducing the
breach of the charterparties and the bills of lading.
It was accepted by this Court, when Collier J.
allowed the charterers to intervene in action
T-1174-87, that this Court has jurisdiction to
entertain such an action. The Bank has submitted
itself to this jurisdiction and it has a major asset
here, namely its claim to the fund resulting from
the sale of the vessel.
The choice of law rule in tort actions accepted
by Canadian courts has been that laid down by the
Court of Exchequer Chamber in England in Phil-
lips v. Eyre' and the cases which have followed it;
namely, that for a tort committed abroad to be
actionable in Canadian courts the acts complained
of (1) would have to be actionable if committed in
Canada, and (2) must not be justifiable in the
place where they were in fact committed. 2
It is therefore clear that to be actionable in this
Court the acts complained of must amount to a
tort by Canadian law. As will be demonstrated,
there is a tort recognized as part of maritime law
which the charterers say would give rise to liability
here if committed in Canada. It appears that such
(1870), L.R. 6 Q.B. 1 (Ex. Ch.).
2 See generally, McLeod, The Conflict of Laws (1983) pp.
534-542; Castel, Canadian Conflict of Laws (2nd ed., 1986), at
pp. 597-613.
a tort, if it be established, would form part of those
specialized developments of the common law in
respect of admiralty matters forming part of
"Canadian maritime law" as defined in section 2
of the Federal Court Act.' It is thus part of federal
common law uniform throughout the country.
The charterers also contend that in this case the
acts complained of occurred in England. Therefore
to meet the two-pronged test in Phillips v. Eyre'
they must not have been "justifiable" under Eng-
lish law. The Bank denies that the acts complained
of occurred in England and contends that, wher
ever they occurred, they were fully justified as
legitimate steps taken by the Bank in the exercise
of its rights as first preferred mortgagee in circum
stances where the mortgagor was badly delinquent
in payments.
To determine where the alleged tort occurred, it
will be useful first to determine whether the acts
complained of amount to a tort under Canadian
law and if so, how that tort is defined.
Was there a tort actionable in Canada?
Counsel were unable to cite any Canadian cases
on this subject. Instead, they agreed that the law
of Canada and the law of England are the same, it
being assumed that Canadian courts would follow
maritime common law as it has developed in Eng-
land. It was also common ground that the common
law liability of a ship's mortgagee for interference
in the performance of a contract made by a ship's
owner for the employment of that ship, is defined
in The Myrto case: 5
The principles of law which these authorities establish, in
relation to a case where the owner of a ship, having mortgaged
her to a mortgagee to secure a loan, remains in possession of
her, can, in my view, be summarized as follows:
3 R.S.C., 1985, c. F-7; see generally ITO—International
Terminal Operators Ltd. v. Miida Electronics Inc. et al.,
[1986] 1 S.C.R. 752, at pp. 768-774.
4 Supra, note 1.
5 [1977] 2 Lloyd's Rep. 243 at pp. 253.54 (Q.B.D. Adm.
Ct.).
(1) The owner is entitled, subject to one exception, to deal
with the ship (and that includes employing her under a contract
with a third party) in the same way as he would be entitled to
do if the ship were not mortgaged.
(2) The one exception is that the owner is not entitled to
deal with the ship in such a way as to impair the security of the
mortgagee.
(3) Where the owner makes a contract with a third party for
the employment of the ship, of such a kind and made or
performable in such circumstances, that the security of the
mortgagee is not impaired, and the owner is both willing and
able to perform such contract, the mortgagee is not entitled, by
exercising his rights under the mortgage, whether by taking
possession, or selling, or arresting the ship in a mortgage action
in rem, to interfere with the performance of such contract.
(4) The mortgagee is, however, entitled to exercise his rights
under the mortgage without regard to any such contract made
by the owner with a third party for the employment of the ship
in two cases:
(a) where the contract is of such a kind, and/or is made or
performable in such circumstances, that the security of the
mortgage is impaired;
(b) where, whether this is so or not, the owner is unwilling
and/or unable to perform the contract.
(5) Where the mortgagee, by exercising his rights under the
mortgage, interferes with a contract made by the owner with a
third party for the employment of the ship in circumstances
where he is not, in accordance with (3) and (4) above, entitled
to do so, he commits a tort (or actionable wrong in the nature
of a tort) against the third party.
(6) The remedies available to the third party against the
mortgagee in respect of such tort or actionable wrong are as
follows:
(a) where the mortgagee interferes by taking possession or
seeking to sell, an injunction restraining him from doing so;
(b) where the mortgagee interferes by arresting the ship in a
mortgage action in rem, an order for the release of the ship
from arrest in such action;
(c) further or alternatively to (a) or (b) above, damages.
(7) The question whether a particular contract made by the
owner with a third party for the employment of the ship is of
such a kind, and/or is made or performable in such circum
stances, as to impair the security of the mortgagee, is a question
of fact.
(8) It is open to a Court as a matter of law to find as a fact
that a particular contract is made or performable in such
circumstances as to impair the security of the mortgagee, if the
evidence shows that the owner is impecunious, that he can only
perform the voyage to which the contract relates, if at all, on
credit, and that the ship is already subject to pressing liabilities
and charges. The Manor above.
(9) The further question, whether the owner is willing
and/or able to perform a particular contract, is also a question
of fact.
The essential point to note at the outset is that
according to this accepted authority there are cir
cumstances where the normally lawful exercise of
contract rights under the mortgage may become
unlawful as a tort.
The charterers contend that the Bank as mort
gagee is liable pursuant to these principles,
because paragraphs (3) and (4) recognize that a
mortgagee is not entitled in these circumstances to
interfere with the performance of a contract such
as a charterparty through arrest or threatened
arrest. They contend that the conditions for the
exercise of the mortgagee's right to arrest as
spelled out in paragraph (4) were not met here:
that is, the charterparty did not impair the Bank's
security under the mortgage; and the owner was
not unwilling or unable to perform the contract.
The charterers also argue that the onus was on the
Bank to show that their security would be prejud
iced and for this proposition they rely on the
decision in The Fanchon. 6
I am satisfied that if the acts of the Bank had
been committed in Canada they would have
amounted to a tort. The essential fact is that the
Bank, knowing that the vessel was under charter
and bound for the west coast of North America,
made it impossible for the owner to perform the
contract in a reasonable time and by the route that
was commonly understood to be the intended
route, by threatening, and preparing for, the arrest
of the vessel in Panama. No doubt, vis-a-vis the
owners, it had every right to enforce its mortgage
by arrest at any time, the mortgage being badly in
arrears. But the common law as expressed in The
Myrto provides that if a mortgagee elects to exer
cise those mortgage rights at a time when the
vessel is under contract, it will be answerable in
tort to the other parties to such contract; this will
be the case unless the mortgagee's intervention is
justified because that contract impairs its security
or because the owner is unwilling or unable to
6 (1880), 50 L.J. Ad. 4 (P.D. & A.).
complete the contract. I am unable to conclude
that either of those conditions applied here.
With respect to impairment of security, it must
be noted in the first place that the good faith and
seriousness of purpose of the Bank must be ques
tioned in respect of its decision at this particular
moment to effect an arrest. The mortgage on the
Alexandros had been in default since November
18, 1984 and indeed regular payments had not
been made since May, 1981. Although the owners
had proposed to the Bank on January 10, 1986 a
further rescheduling the Bank did not notify the
owner until December 29, 1986 of its rejection of
that proposal. In the meantime the vessel had been
laid up at Piraeus from April 13, 1986 until Janu-
ary 13, 1987. It was not until December 8, 1986
that the Bank made inquiries as to the where
abouts of the ship through its London solicitors. If
there had been any serious concern at the Bank
about protecting its security some action would
surely have been taken before that time. The vessel
was laying without cargo in Greece for some nine
months, surely representing a golden opportunity
for arrest by a first preferred mortgagee under a
mortgage registered in Greece where the law gives,
according to the expert evidence, every priority to
the mortgagee. No explanation was ever provided
as to why this was not done. Even after the charter
was entered into, the Bank had time to effect an
arrest in Europe before the vessel was loaded. The
Bank was advised on January 26, 1987, of the
charter of the Alexandros which was commencing
loading that day at Santander, Spain. The reasons
given on examination for discovery, by its repre
sentative, for the Bank not taking enforcement
action right then were completely specious.'
Nor has the Bank proven to my satisfaction that
the charterparty or its performance in any way
seriously impaired the Bank's security. There was
nothing to suggest that the rates on the charter
7 Examination for discovery of Paulo Cesar Trinidade,
questions 258-268.
were other than normal market rates. The charter-
er was to pay the major expenses including fuel,
loading and discharge costs, port expenses, pilot-
age, etc. The owner was to pay for crew, mainte
nance and insurance. There was no evidence that
the owner's share was not being paid prior to the
voyage being interrupted off Panama. On March
11, a few days after the interruption of the voyage,
the charterers offered through their solicitors in
London to fund the whole of the voyage up to and
including discharge in Vancouver and to pay for
total loss insurance. This would have permitted the
voyage to continue without any increased risk of
further liens attaching to the vessel in priority to
the Bank's security.
The principal contention of the Bank is that the
owner as represented by Mr. George Tsavliris
could not be trusted to complete the voyage, and
that there was a serious danger that he would
instead divert the ship to Taiwan to have it cut up
for scrap thus putting it and its proceeds beyond
the reach of the Bank. It was thus argued that the
conditions set out in paragraph (4) of The Myrto
principles were met here: namely that the security
of the mortgage would be impaired if the voyage
continued beyond Panama, and the owner was
unwilling to complete the voyage pursuant to the
contract.
To some extent these suspicions harboured by
the Bank were based on the experience of another
bank trying to exercise security over another vessel
of the Tsavliris group, the Patriotis. While it was
suggested that the Patriotis had been concealed
from its mortgagee, there was no clear evidence on
this subject nor was it demonstrated that the
Banco do Brasil had any precise information at the
relevant time of decision to arrest the Alexandros
as to what had occurred in the case of the Patrio-
tis. I was unwilling to accept as evidence in the
present case some general statements made by the
English Court of Appeal in a case involving differ
ent parties as to efforts to hide the Patriotis, in a
proceeding concerning that vessel. Yet this was the
only information invoked as to the unreliability of
the Tsavliris group in such matters which could
have been available to the Bank on February 12,
1987, the day it directed its London solicitors to
arrest both the Claire and the Alexandros. Mr.
Tsavliris's later, somewhat extravagant, comments
obviously arose out of the arrest of the Claire.
These comments made to Mr. Best in London on
March 3 and March 5 indicated that the owner
would try to divert and conceal the Alexandros.
While these threats were intemperate and impru
dent it is hard to see how they could be taken
seriously. The Bank would or should have had a
fairly clear idea by this time as to the value of the
cargo, which was several times that of the vessel. It
was not credible that the Alexandros would either
be emptied of its cargo by the owner, other than at
the ports of destination pursuant to the charter, or
that the cargo would be illicitly carried, at the
expense of the Tsavliris group, to Taiwan. The
effect of such actions on the reputation of the
Tsavliris shipping group would have been enor
mous, as Mr. Best himself observed to Mr. Tsavli-
ris on March 3. Such threats must be seen as part
of an escalation starting with the arrest of the
Claire on February 27 and the threat conveyed in
London on March 2 to arrest the Alexandros
while it was fully laden with cargo and in the
midst of a voyage under charter. In fact by March
10 the owner's solicitor had advised the Bank's
solicitor that the owner was willing to give an
undertaking to complete that voyage.
I therefore conclude as a matter of fact that the
continuation of the voyage through and beyond the
Panama Canal would not have impaired the secu
rity of the mortgage, and that the owner was
willing and able to perform that contract both
prior to the interruption of the voyage off Panama
and thereafter. This view is reinforced by the fact
that the voyage was continued by the owner pursu
ant to the instructions of the charterer (or, in one
instance, in accordance with the original charter
notwithstanding the subsequent instructions of the
charterer) reaching all the destinations originally
prescribed.
It was argued on behalf of the Bank that The
Myrto principles cannot apply where only a threat
of arrest, not an actual arrest, is complained of. It
was also argued that these principles can only
apply where the "interference" consists of an
unlawful act.
On the first point it is true that The Myrto case
itself involved an actual arrest and not a threat of
arrest. The present case would appear to be one of
first impression in terms of both Canadian and
English law. I am prepared to conclude, as a
matter of Canadian law, that The Myrto princi
ples apply equally to threats. It may be convenient
to quote principle (3) once again:
(3) Where the owner makes a contract with a third party for
the employment of the ship, of such a kind and made or
performable in such circumstances, that the security of the
mortgagee is not impaired, and the owner is both willing and
able to perform such contract, the mortgagee is not entitled, by
exercising his rights under the mortgage, whether by taking
possession, or selling, or arresting the ship in a mortgage action
in rem, to interfere with the performance of such contract.
This paragraph states that the mortgagee is not
entitled in the circumstances "to interfere with the
performance of such contract". While the threat of
arrest is not mentioned as a means I am satisfied
that the same rationale should apply to threats.
Normally a threat is lawful or unlawful depending
on whether the act threatened would itself be
lawful or unlawful.' As it is clear from The Myrto
that the mortgagee is not entitled to "interfere"
with the performance of the contract by arrest,
then it should follow that the mortgagee cannot
achieve the same result—as it did here—by a
threat to arrest. There can be no doubt that the
threat was real: papers were filed in Panama on
March 6 on the instructions of the Bank's solici
tors in London and all that remained to be done
was for the vessel to come within Panamanian
waters.
8 See e.g., Roman Corporation Ltd. et al. v. Hudson's Bay
Oil and Gas Co. Ltd. et al., [1973] S.C.R. 820, at p. 829.
Equally, I fail to understand the argument that
The Myrto principles only apply where the act
complained of is unlawful, and that the arrest of a
vessel by a mortgagee is not unlawful. Accepting,
as counsel agree, that The Myrto represents the
law of Canada and determining, as I must, wheth
er if all the acts had been committed in Canada
there would be liability in tort under the principles
of The Myrto, I am unable to see why there would
not. What The Myrto means is that in such cir
cumstances the mortgagee is not entitled to
enforce its security through arrest, at least not
without incurring the risk of liability in tort to the
charterers or others having contracts with the
owner for the employment of the ship. If the
interference were per se unlawful regardless of
circumstances there would, of course, be no need
to resort to the principles of The Myrto.
There was some dispute as to whether the chart-
erparty had in fact been breached, or whether the
charterers had simply acquiesced in the delay by
March 10 and then assumed the direction of the
voyage themselves. It is clear that as a practical
matter the Bank "interfered" (to use The Myrto
expression) with the normal and proper perform
ance of the charterparties and bills of lading to
which the charterers were entitled.
I am therefore satisfied that, had all the acts
complained of occurred in Canada, there would
have been liability in tort to the charterers for the
increased costs flowing to them as a result of the
interference with the normal course of the voyage
which interference appears to have commenced, at
the latest, on March 6.
Were the acts justifiable where they occurred?
To answer this question one must first ascertain
where the acts which would constitute a tort in
Canada did in fact occur. The tort is that of
inducement of breach of contract. Without
attempting to define for all purposes the locus of
such a tort, it appears to me that in this case it can
be regarded as having been committed in London.
It was in London on March 2, March 3, and
March 5, that the Bank's London solicitors con
veyed the threats to the owner's solicitors and to its
representative, Mr. Tsavliris, that the Bank would
arrest the Alexandros when it reached Panama.
This was followed up by the London solicitors for
the Bank issuing instructions to Panamanian law
yers on March 5 and 6 to prepare and then to file
arrest documents in that country. The evidence
indicates the probability, and this was not refuted,
that the resulting decision on behalf of the owner
to interrupt the voyage was taken by Mr. Tsavliris
in London. The evidence also indicates that
throughout this time the day-to-day decisions were
being taken on behalf of the Bank by Coward
Chance, their London solicitors, pursuant to very
general instructions given on February 12th to
take enforcement action against both the Claire
and the Alexandros. I believe these circumstances
are sufficient to fix the locus of the tort as Eng-
land. There are many other factors suggesting
England as the dominant jurisdiction, were one to
apply the test of the "proper law of the tort".
Among these is the fact that the charterparties
both provided for arbitration in London. I am not
however adopting that approach.
Turning then to the law of England I must again
determine in accordance with The Myrto whether
the Bank's actions in England were justified. I was
assisted in ascertaining the law of England by the
expert evidence of Mr. Nicholas V. Taylor, an
English solicitor testifying on behalf of the chart-
erers, and Mr. Kenneth Stuart Rokison, Q.C. an
English barrister testifying on behalf of the Bank.
They provided me with their respective, and some
what conflicting, views on the implications of The
Myrto in respect of facts such as those which I
have before me. Mr. Taylor defined the principles
flowing from The Myrto in a manner sufficiently
broad to cover the present situation. Mr. Rokison,
on the other hand, raised some important consider
ations as to why The Myrto should not be applied
beyond the particular facts involved in that case.
He sees The Myrto as an exception to the general
principle that one should not be liable for exercis
ing one's own rights whatever the consequences
may be to other people. Therefore he would not
expect that exception to be broadened beyond
cases of actual interference so as to cover merely
threatened interference with the voyage. Even if a
threat were seen as a tort, the proper remedy
would be an injunction. In his view an English
court would still look to the legality of the threat
ened act in the place where it was to be carried
out. That is, in the present circumstances he would
say that the legality of the threat should be mea
sured by the law of Panama where the arrest
would have taken place. He did not, nor of course
was he entitled to, express an opinion on the law of
Panama with respect to a possible tort of interfer
ence by mortgagees in the performance of con
tracts for the employment of vessels under
mortgage.
It is clear that the present case is not on all fours
with The Myrto. In that case there had been an
arrest in England and the remedy in question was
the release of the vessel. I have been provided with
conflicting opinions by experts as to whether the
principles of The Myrto would or would not be
extended by an English court to cover a case such
as the present. There being no agreement on this
point, and foreign law being ultimately a matter of
fact to be found by the trial judge, I must make a
finding of my own as to the relevant law of Eng-
land. I can only do this by deduction from the
principles enunciated in The Myrto. For the rea
sons which I have set out above in connection with
the determination of Canadian law on the subject,
it appears to me that the principles enunciated in
The Myrto must logically be taken to apply to a
case such as the present. If in the circumstances
the mortgagee is precluded, in the exercise of his
rights, from interference with a contract for
employment of a vessel by arrest of the vessel, it
logically follows that he must also be liable if he
achieves the same result through a threat of arrest
where he has the means of carrying out that
threat. Otherwise, in a case such as the present
one, it would be relatively easy and risk-free for
the mortgagee to stop a voyage by threat of arrest
and coerce the charterers into all manner of com
mitments in order for them to gain the benefits of
a lawful contract previously made by them with
the owner. I do not accept that that is the law of
England or of Canada.
Mr. Rokison and counsel for the Bank also
sought in effect to read out of subparagraph (6)(c)
of The Myrto principles, quoted above, the remedy
of damages. Again, drawing from the language of
that judgment, and putting aside conflicting expert
evidence, I am unable to exclude damages as a
remedy. Paragraph (5) of those principles states
that, where the mortgagee interferes in circum
stances described there, "he commits a tort (or
actionable wrong in the nature of a tort) against
the third party". Paragraph (6) goes on to say that
the remedies available to the third party in respect
of such tort are as follows:
(a) where the mortgagee interferes by taking possession or
seeking to sell, an injunction restraining him from doing so;
(b) where the mortgagee interferes by arresting the ship in a
mortgage action in rem, an order for the release of the ship
from arrest in such action;
(c) further or alternatively to (a) or (b) above, damages.
Counsel for the Bank contended that unless the
mortgagee had interfered by one of the means
referred to in subparagraph (a) or (b), that is by
taking possession, seeking to sell, or arresting the
ship, then the damages referred to in (c) were not
available. I am unable to read the paragraph in
that way. It appears to me that the literal meaning
is that once a tort has been established then the
third party is entitled to damages or, if one of the
particular means of interference referred to in (a)
or (b) has occurred then the third party is entitled
additionally or alternatively to the particular
remedies referred to in those subparagraphs.
In short, the tort is that of interference which
may be committed by actual taking of possession
or arrest of the vessel or it may be achieved by
threats to do the same things. Once injury flows
from those threats then the tort is completed and
damages are available. It would be a curious doc
trine indeed that limited the remedies for a tort to
injunctions or release of a vessel wrongfully seized.
It is injunctive relief which is the exception, not
the rule, in tort remedies.
Further, in applying the choice of law rules as
laid down in Phillips v. Eyre 9 I need not, in order
to find liability, be satisfied that the charterers
could have had the specific remedy of damages
had they sued in England. All I need to find is that
the threats in question were not justified under
English law, in order to sustain a tort action in
Canada. I am satisfied that Canadian law itself
should allow damages in such a case.
I am therefore satisfied that a tort was commit
ted in England that was actionable under Canadi-
an law and under English law and that the Bank is
liable for loss caused to the charterers flowing
from the interruption of performance of the chart-
erparty and bills of lading, which interruption
commenced on March 6, 1987.
This finding is of course in no way a vindication
of the owner of the Alexandros which has acted
unfairly, unwisely, and in frequent disregard of its
contractual obligations both to the Bank and to the
charterers. The Bank however has also acted
erratically: for example in doing nothing to enforce
its security until the Alexandros had finally
obtained and commenced to perform under a
charterparty, and then interfering with its opportu
nity to earn money under that charterparty in a
way which did nothing to enhance the Bank's
security. Ultimately it refused to allow the vessel
to transit the Panama Canal because of its concern
over the possibility that such an action as the
present might be brought against it by the charter-
ers. Its insistence on a waiver clause precluding
such an action had nothing to do with protecting
its security. The Bank was also very slow to make
9 Supra, note 1.
decisions or give instructions. It failed to reply to
telex messages—one on March 11 and two on
March 13, from the charterers. Due to a strike it
was virtually incommunicado for more than a
week during a most critical stage of the negotia
tions at the end of March. The result is that it has
caused a substantial loss to the charterers without
achieving any legitimate goals of its own.
Disposition
There will therefore be judgment for the chart-
erers, Pan American and Euro-Lines, for damages
suffered by them resulting from the breach of the
charterparties and, in respect of Euro-Lines,
resulting from the breach of its bill of lading
contracts. By agreement of the parties there will
be a reference to ascertain damages. Costs are
awarded to Pan American and to Euro-Lines who
are hereby requested to prepare a formal judgment
and seek the consent of the Bank. If consent is
obtained an application for the entry of formal
judgment can be made under Rule 324 [Federal
Court Rules, C.R.C., c. 663] but if some further
problem arises it may be necessary to have the
matter spoken to.
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.