In November 1997 the Cypriot-flagged bulk and container carrier Nel was arrested at Vancouver by the Governor and Company of the Bank of Scotland (the plaintiff) as mortgagee. The owner of the Nel abandoned the ship, closed its office, removed the furniture and disappeared. The plaintiff was able to find a buyer and the Court ordered the sale of the vessel pendente lite at USD 5,000,000, apportioned at USD 4,910,450 and USD 89,550 for the ship and the bunkers aboard the ship respectively. Following the arrest, several other claimants came forward.

The Court was required to determine the priorities of those claims.

Held: The plaintiff’s mortgage is ranked below maritime liens but ahead of statutory rights in rem.

The basic ranking of claims in Canada is as follows:

1. Disbursements of the admiralty marshal or sheriff;

2. The costs of the sale, including those of the plaintiff in an action arising out of arrest, appraisal and sale, or in the alternative, the claim of a party, other than the plaintiff, who has been instrumental in bringing the ship to sale;

3. Possessory liens predating other liens;

4. Maritime liens;

5. Possessory liens arising after maritime liens;

6. Mortgages;

7. Statutory rights in rem, including for the supply of necessaries, which rank pari passu among themselves.

Here there are lien claimants who rely upon US maritime liens. The position of US maritime lien holders is that the holder of a substantive US maritime lien is able to bring the lien into Canada and then use Canadian procedural legislation found in the Federal Court Act, RSC 1985, c F-7 (the Act), and the Federal Court Rules, 1998 SOR/98-106, to enforce that lien. Effectively the right is US and the remedy Canadian. The result is that a US necessaries supplier, granted a maritime lien under of the United States Code, unlike the Canadian necessaries supplier, takes priority along with other maritime lien holders ahead of a mortgage.

The plaintiff conceded settlement of claims which, in effect, come out of the residual funds which would go to the plaintiff after resolving all of the lien claims which take priority. The claims of HBI International were compromised at USD 19,000 with costs of CAD 1,632.60. The Pacific Pilotage Authority settlement involved not a recognition but a voluntary grant of priority over the bank's mortgage. The third claim settled before the determination of priorities was that of Canpotex Shipping Services Ltd (Canpotex) for costs in the amount of CAD 3,000. Canpotex had already recovered USD 89,550 being the proceeds of the sale of the bunkers aboard the ship.

In addition to its claim secured by the mortgage on the ship, the plaintiff claims for expenditures in connection with the sale of the ship, principally crew wages and repatriation costs. There is no admiralty marshal’s expense. These costs paid by the plaintiff in the amount of USD 71,067.09 take a first priority.

The in rem claimants who rank below the plaintiff’s claim submit that there should be a departure from the usual order of priorities so that the plaintiff would rank below the claimants who do not hold maritime liens. Any change in the usual ranking of maritime priorities must be accomplished by equitable principles. The usual priorities should not be departed from except in very special circumstances, and the powers in equity to upset the long established orders of priority should be exercised only where necessary to prevent an obvious injustice.

The statutory right in rem holders submit that the plaintiff ought to have moved earlier against the ship and that, if this had been done, the suppliers of goods and services might have been put on notice and not have extended their credit. They say that it is inequitable that the plaintiff did not do so and by delaying the plaintiff has been enriched to some degree.

The argument that the plaintiff wrongfully delayed in moving against the ship is largely based upon supposition, innuendo and assumption. It is up to the party seeking to upset the established order of priorities to clearly demonstrate, without the use of hindsight, the special circumstances and the plainly unjust result. The claimants have not satisfied these criteria.

Alpha Bunkering supplied bunker fuel through a subcontractor in Panama in the amount of USD 168,174.53. Alpha Bunkering contends that the supply of bunkers resulted in a maritime lien either under Panamanian or US law. The bunkers were supplied in Panama. The parties specified that US law was to apply to the contract. A necessaries supplier in the US has a maritime lien, with a priority ahead of a foreign preferred mortgage, but if the necessaries are furnished outside the US, it ranks after a foreign preferred mortgage. The lien under which Alpha Bunkering claims is not a preferred maritime lien, both in the sense that it attached after the plaintiff’s mortgage was registered and that the maritime lien for necessaries furnished offshore similarly stands behind a preferred mortgage.

Aktina SA (Atkina) is a travel agent. It supplies air travel tickets for the movement of both crews and ship company personnel to and from ships on a worldwide basis. In 1996, Atkina and the owners of the fleet of which the Nel was a part, entered into an agreement whereby on instructions from the owners, Atkina would organise travels and purchase tickets.

Atkina was left with an outstanding account of USD 692,206.54. USD 57,938.56 of that amount relates to crew movement associated with the Nel. An offshore maritime lien may be brought into Canada to be enforced procedurally as a maritime lien even though the services rendered or the necessaries supplied giving rise to the offshore maritime lien would not give rise to a maritime lien in Canada. Here, all the factors involved were connected with Greece. The proper law of the contract is Greek law.

Atkina’s expert witness set out various claims under the Greek Code of Maritime Law, art 205, as maritime liens ranking ahead of a mortgage, but the supply of necessaries does not fall within that article. Claims in addition to those set out in art 205 are enforceable provided they fall within art 2 of the International Convention for the Unification of Certain Rules Relating to Maritime Liens and Mortgages and Protocol of Signature, Brussels 1926 (the MLM Convention 1926). Article 2 of the MLM Convention 1926 provides:

The following give rise to maritime liens on a vessel, on the freight for the voyage during which the claim giving rise to the lien arises, and to the accessories of the vessel and freight accrued since the commencement of the voyage: ...

(5) Claims resulting from contracts entered into or acts done by the master, acting within the scope of his authority, away from the vessel's home port, where such contracts or acts are necessary for the preservation of the vessel or the continuation of its voyage, whether the master is or is not at the same time owner of the vessel, and whether the claim is his own or that of ship chandlers, repairers, lenders, or other contractual creditors.

The Greek Supreme Court decision (No 229 of 1983) sets out that where an offshore company sells and delivers food, material and supplies to the master of a ship so that the ship may be preserved and continue on its voyage, and the master is acting within the scope of his authority, the supplier enjoys a lien ranking ahead of a preferred mortgage.

There are two problems which go to the root of the formation of a maritime lien and prevent a maritime lien arising under art 2.5 of the MLM Convention 1926. First, the agreement under which tickets are provided by Atkin to the owner of the Nel is specific. Tickets can only be issued ‘under telephone or other (written) order’ of the owner. The master has no right to request tickets from Aktina and therefore the master cannot contract or act in any way which might bring into play art 2.5 and trigger a maritime lien.

Second, art 2.5 of the MLM Convention 1926 requires, in order to establish a maritime lien, that the necessaries must have been ordered by the master. The case law referred to by Atkina’s expert witness is in terms of goods having been sold and delivered to the master and in terms of contracts made or works executed by the master. There is also case law out of France, which ratified the MLM Convention 1926, which makes it clear that a maritime lien for necessaries hinges upon whether the necessaries were ordered by the master.

There is no evidence that in fact the master of the Nel, or of any ship, entered into a contract with Aktina for the supply of airline tickets. At best it is a hope that the master might have ordered the airline tickets. This is not enough, as a maritime lien is an exceptional remedy, and there ought to be clear evidence as to how it has arisen within the wording of art 2.5 of the MLM Convention 1926.

Given that Atkina assisted the owner in staying in business by extending substantial credit for crew member movement and that Atkina tried to protect itself through in personam agreements it is regrettable that its claim to a maritime lien is denied. If Atkina has some species of in rem claim it is one coming behind the plaintiff as mortgage holder.

Ashland Chemical Company (Ashland) supplied necessaries to the Nel and sister ships. All of the sales and deliveries were subject to the laws of the US and as such Ashland claims maritime liens totally USD 88,168.59 of which USD 9,712.88 is claimed against the Nel. The claim against the Nel is irrefutable.

A US maritime lien grants the privilege of a substantive right in property, against a given ship, a right that travels with the ship, unconditionally until it is discharged. It is this substantive right which is the foundation of the US in rem proceeding, for the lien is separate and apart from any action in personam. This concept and underlying theory of the US maritime lien is based on the personification of the ship: a theory which is opposed to the English and Canadian procedural theory. The maritime liens which Ashland brings into Canada to enforce under Canadian sister ship procedure are rights against given ships, as opposed to substantive rights which might from time to time be attached to some other ships.

Sister ship procedure is set out in s 43(8) of the Act: 'The jurisdiction conferred on the Court by section 22 may be exercised in rem against any ship that, at the time the action is brought, is beneficially owned by the person who is the owner of the ship that is the subject of the action.'

Section 22 of the Act sets out the general maritime jurisdiction of the Court over navigation and shipping. The jurisdiction over claims in respect of goods, materials or services supplied to a ship, in essence necessaries, may be enforced as a statutory right in rem. This statutory right in rem arising out of a necessaries claim has a priority coming after maritime liens and after mortgages.

A substantive US maritime lien does not fit into the sister ship framework set out in s 43(8) of the Act for that section merely refers to the jurisdiction conferred by s 22 of the Act being enforceable in rem against the sister ship. It is not a right or privilege against one ship being enforced against another ship.

Canada has not ratified the International Convention for the Unification of Certain Rules Relating to the Arrest of Seagoing-Ships (the Arrest Convention 1952). However, the Supreme Court has pointed out that it may be appropriate to look at such a Convention when interpreting domestic legislation even if the domestic legislation is not ambiguous on its face.

Sister ship status under art 3 of the Arrest Convention 1952 is defined in terms of ownership of all the shares in both ships, by the same person or persons, at the relevant time when the claim arose. In contrast, beneficial ownership under the Act may be much broader than the Arrest Convention 1952 concept of legal ownership. Ashland might enforce all of its claims, sister ship and otherwise, against the Nel but the Court does not agree that those claims arising out of necessaries supplied to other ships may be enforced here against the Nel as maritime liens. Ashland shall have, as a maritime lien holder with priority ahead of the plaintiff, the sum of USD 9,712.88.

Sait Communications SA (Sait) of Antwerp, Belgium, claims a maritime lien in the amount of BEF 776,000, being USD 20,672.64. Belgian necessaries suppliers, by virtue of the MLM Convention 1926, have the benefit of maritime liens for contractual claims as set out in art 23(5) of the Belgian Maritime Code which provides:

Claims resulting from contracts entered into or acts done by the master, acting within the scope of his authority, away from the vessel's home port, where such contracts or acts are necessary for the preservation of the vessel or the continuation of its voyage, whether the master is or is not at the same time owner of the vessel, and whether the claim is his own or that of ship-chandlers, repairers, lenders or other contractual creditors.

The service contract was entered between Sait Communications SA and Ocean Profile Maritime Ltd as shipowner, and Leond Maritime Inc as agent of the shipowner. The contact not having been made by the master, acting within the scope of his authority, and away from the vessel’s home port, as is required by the Belgian Maritime Code, means that no maritime lien can arise.

The ship classification organisation, Bureau Veritas, based in France, claims USD 10,547.04 for various surveys carried out at Pohang, Korea. These surveys were undertaken pursuant to an agreement entered on 29 June 1995 between Bureau Veritas and Leond Maritime. Bureau Veritas say that under French law, the claim of Bureau Veritas created a maritime lien which existed at the relevant time, the surveys having been carried out in September 1997.

France ratified the MLM Convention 1926 and adopted it into its own law (including art 2.5). Thus a necessaries supplier, in certain instances, has a basis for a maritime lien. The Cour d’Appel de Paris has held that a claim by a supplier of bunkers was not privileged because the bunkers had not been ordered by the master. In fact, the supplier had dealt with the shipowner and was held to have relied on the latter’s credit. The same Court recognised the privilege of another supplier to the same ship because, in that case, the supplies had been ordered by the master.

In the present instance, Bureau Veritas clearly dealt with and contracted with the shipowner and not with the master. The claim of Bureau Veritas to a share of the sale proceeds based upon a maritime lien is denied. Any claim as a statutory right in rem or in personam would fall after the priority held by the plaintiff.

Mariners' Medical Clinic is a Vancouver organisation which supplies medical services to seafarers and furnishes medical supplies to ships for the use of seafarers. Mariners' Medical Clinic arranged a survey of the Nel’s medical supplies and provided medical supplies in order to bring the ship up to the statutory standard in November 1997. These services and supplies in the amount of USD 1353.31 were for the benefit of and the use by the crew members of the Nel.

Mariners' Medical Clinic has no ethical choice but to assist seafarers with their medical needs when called upon. They should not be forced to choose ships to which medical services should be denied. Just as the liens of seafarers are sacred, and the claims for maintenance and cure for seafarers who have become ill or injured as crew members, rank high in the US system of priorities, so ought the claims of those who provide for the basic and essential well-being of seafarers unless the circumstances dictate to the contrary.

In this instance, the circumstances are such that it is appropriate, proper and in keeping with the concept of justice, that the usual priorities be varied so as to place Mariner’s Medical Clinic in a position analogous to that of the holder of a maritime lien.

The holders of statutory rights in rem rank with a priority below that of a mortgagee. As such, in this instance there are no surplus funds available.