Jurisdictional Showdown: Federal Court Order Prevails
Over Bankruptcy Court's Exercise of Jurisdiction Over Bankrupt Shipowner's
It was a jurisdictional confrontation of sorts between
the Quebec Superior Court exercising Bankruptcy jurisdiction and
the Federal Court of Canada exercising Maritime law jurisdiction
on both federal and international levels. In the opening words of
the Supreme Court of Canada in Re Antwerp Bulkcarriers, N.V.:
"Two courts exercising authority granted by Parliament over
their respective subject matters came into collision over the sale
of a ship."
Holt Cargo Systems Inc. ("Holt") rendered
stevedoring services to the Ship M/V "Brussel" and thereby
acquired a maritime lien against the Ship itself under the law of
the United States which is enforceable in Canada with the same priority
as is given to maritime liens created here. Invoices sent to the
shipowner for stevedoring services remained unpaid.
The Ship entered Canadian waters at Halifax harbour.
Holt commenced an in rem action for the collection of the
secured debt and procured the Ship's arrest by order of the Federal
Court of Canada. The Ship's owner, Antwerp Bulkcarriers N.V., was
subsequently adjudged bankrupt by order of a Belgian bankruptcy
court. The trustees in bankruptcy sought to realize on the assets
of the bankrupt worldwide for distribution to the creditors according
to the law of Belgium.
At no time did the shipowner declare bankruptcy in
Canada. There were no Canadian bankruptcy proceedings separate and
apart from recognition of the Belgian bankruptcy.
Trustees obtained a declaration from the Quebec Superior
Court (not at that stage specified to be sitting in bankruptcy)
recognizing and declaring executory "in Quebec" the Belgian
bankruptcy order of April 5, 1996, and vesting in the appellant
Trustees the property of the bankrupt, "subject however, to
the rights, if any, of any creditors with claims secured under the
laws of Canada, as by law provided".
In concurrent proceedings in the United States and
before the Federal Court of Canada, the Trustees attempted to prevent
Holt and other creditors from realizing on their security. A temporary
order was granted, with respect to proceedings in the United States,
but the U.S. court declined to order U.S. creditors to halt proceedings
elsewhere. The Trustees obtained intervenor status at the Federal
Court in the in rem proceeding against the Ship. Nevertheless,
the Federal Court refused to grant a stay and proceeded to grant
default judgment to Holt in its undefended action against the Ship.
(This decision in Holt Cargo v. ABC Containerline was affirmed
by the Federal Court of Appeal and subsequently by the Supreme Court
of Canada at the same time this appeal was decided.)
The Trustees then obtained an order from the Belgian
bankruptcy court purporting to command the delivery of the Ship
to the Trustees for sale and distribution of the proceeds, and praying
in aid the help of "all Canadian courts" to give effect
to this order. This was followed by an order from the Quebec Superior
Court sitting in bankruptcy directing the proceeds of the sale of
the ship to be paid to the trustees "for distribution amongst
the creditors of the Bankrupt in observance of all their rights
and in conformity with Belgian law".
The bankruptcy court order also requested the aid
of the Supreme Court of Nova Scotia with jurisdiction in bankruptcy,
and ordered that the judgment be served on the Marshal of the Federal
Court of Canada in Halifax where the ship had been arrested under
Federal Court order. This bankruptcy court order was in conflict
with the rules and procedures and, eventually, the order of the
The Quebec Court of Appeal allowed Holt's appeal,
finding that in the circumstances it was not open to the Canadian
bankruptcy court to make the orders it did. The trustees appealed
to the Supreme Court of Canada.
The trustees argued that while the Federal Court had
jurisdiction to make the in rem order under its maritime law jurisdiction,
the supervening bankruptcy transformed the maritime law action into
a bankruptcy matter and this overrode the powers of the Federal
Court which has no bankruptcy jurisdiction.
The Supreme Court of Canada dismissed the appeal.
The court concluded that the bankruptcy court had no power in the
circumstances to take over disposal of the Ship already subject
to the process of the Federal Court and to order a permanent stay
of the in rem action in the Federal Court, as was the purported
effect of the bankruptcy court order. The court gave three reasons
for its conclusion:
1. The assertion of jurisdiction by the Canadian
bankruptcy court did not oust the maritime law jurisdiction of the
Federal Court. The Federal Court maritime jurisdiction, once properly
exercised, was never lost by the subsequent bankruptcy.
2. The bankruptcy court had no power to deal with
an asset (the Ship) already captured by the competent order of another
superior court in Canada (the Federal Court). The ship was in the
possession of the Federal Court Marshal, not the bankrupt. Neither
the Ship nor the proceeds of its sale was available to be sent back
to Belgium by a Canadian bankruptcy court.
3. In any event, the issuance of what amounted to
an "anti-suit injunction" against the parties before the
Federal Court improperly attempted to restrict that court's ability
to exercise its jurisdiction. The maritime law jurisdiction of the
Federal Court was not obliterated by the supervening bankruptcy.
The order of the bankruptcy court did not "occupy the field",
and on the contrary, the order of the Canadian bankruptcy court
made the authority of the trustees subject to the rights of secured
creditors. Once the bankruptcy court determined that the Federal
Court had maritime law jurisdiction to deal with the Ship, the Canadian
bankruptcy court ought to have recognized that the trustee's proper
remedy was a stay application to that court.
Insufficiency of Packing Triggers Exclusion Clause 4.3 of the Institute
In Rainbow Technicoloured Wood Veneer Ltd. v. Guardian
Insurance Company of Canada  FCA 28 (Fed. C.A.) the Federal
Court of Appeal affirmed the decision of Justice Dubé who
held that a machine improperly stuffed into a container and damaged
during transit was not covered by the Institute Cargo Clauses (A).
The court held that a container stuffed by independent contractors
of the assured prior to commencement of transit was subject to exclusion
4.3 in the A Clauses.
Clause 4.3 specifies that "loss, damage or expense
incurred by insufficiency or unsuitability of packing or preparation
of the subject-matter insured (for the purpose of this Clause 4.3
"packing" shall be deemed to include stowage in a container
or liftvan but only when such stowage is carried out prior to attachment
of this insurance or by the Assured or their servants). The court
rejected the assured's argument that the insufficiency of stowage
is not excluded by Clause 4.3 so long as the assured was not responsible
for the stowage. The court held that the stowage into the container
occurred prior to the commencement of transit - the departure of
the container from the assured's warehouse.
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