Judgments

[1996] 3 F.C. 821

T-275-90

Sail Labrador Limited (Plaintiff)

v.

The Owners, Navimar Corporation Ltée and All Others Interested in the Ship Challenge One, Her Equipment, Bunkers and Freights, and the Ship Challenge One, Her Equipment, Bunkers and Freights (Defendants)

Indexed as: Sail Labrador Ltd. v. Challenge One (The) (T.D.)

Trial Division, Nadon J.—Montréal, January 16, 17, 18; Ottawa, June 28, 1996.

Maritime law — Contracts — Ship owner refusing to honor option to purchase ship pursuant to charterparty clause, alleging breaches of charterparty disentitling plaintiff from exercising option — Substantial performance — “Spent breach” doctrine — De minimis rule — Court’s equitable jurisdiction.

Contracts — Option to purchase — Whether alleged breaches of charterparty disentitling plaintiff from exercising option to purchase ship — Substantial performance — “Spent breach” doctrine — De minimis rule — Court’s equitable jurisdiction.

In 1985, plaintiff Sail Labrador entered into a bareboat charter with defendant Navimar Corp. to charter the ship Challenge One for five years to provide passenger and freight ferry service between the ports of Jackson’s Arm and Harbour Deep in White Bay, Newfoundland. The charterparty included an option to purchase the ship after the five-year period, “subject to full performance”. When the plaintiff exercised the option, Navimar refused to accept the funds tendered and to execute the bill of sale, alleging that the plaintiff was disentitled to exercise the option by reason of having breached numerous provisions of the charterparty.

This was an action for a declaration that the plaintiff was entitled to exercise the option to purchase.

Held, the action should be allowed.

There was a breach of clause 11 of the charterparty providing for payments of hire by the plaintiff to Navimar “one payment (out of thirty-five) had been late due to an error made by a bank employee. That breach was quickly remedied.

There was also a breach of clause 25 of the charterparty providing that, if required, the plaintiff would, at the end of each voyage, supply Navimar with the deck and engine room logs for the vessel. The log books were not sent to Navimar regularly because there were no commercial photocopiers available.

There was no breach of the clause of the charterparty providing that the plaintiff would not change directors, shareholders or corporate control. Although there was a change of directors and shareholders of Sail Labrador, evidence revealed that Navimar agreed to the changes.

There was no breach of the clause of the charterparty providing that the charterer must provide a safe winter lay up for the ship. In 1987, the ship, which usually wintered in the port of St. John’s had to winter at Jackson’s Arm because it was unable to leave there when the harbour froze overnight. The plaintiff obtained the insurer’s consent and did everything required to ensure that the vessel would be safe. Furthermore, that clause did not require Navimar’s consent.

There was no breach of the clause of the charterparty providing that notice of Navimar’s ownership of the Challenge One would be fastened to the vessel, in a conspicuous place, and maintained there during the life of the charter. It was established that the notice was duly displayed on the bridge of the ship except for a few occasions when work was being performed on the ship.

There was no breach of the clause of the charterparty providing that the charterer should not make any stuctural changes in the vessel without first securing approval of the owner. The ship’s cargo hatch was enlarged but the owner was made aware of the change. Also, the cargo handling crane was replaced. In all probability, the owner was informed of the fact and, in any event, it was doubtful that replacement of the crane constituted a structural change which required Navimar’s consent. It was only a piece of equipment placed on the ship to load and unload cargo.

Nor was there a breach of the clause requiring Canadian Steamship Inspection’s approval for the replacement of the cargo hatch since regular inspections made it aware of the replacement.

Interpretation of the charterparty was governed by the general principles of common law relating to contracts.

It was clear in this case, that the parties could invoke the Court’s equitable jurisdiction to obtain relief.

The person who is entitled to exercise an option to purchase can, upon the occurrence of certain events solely within his or her control, compel a conveyance of the property to him or her. In this context, courts have held that minor divergences from the terms of a contract will not be considered breaches: de minimis non curat lex. English courts have also recognized an exception to the principle of strict compliance with all covenants before an option to purchase may be exercised: the doctrine of “spent breach” (where an option is conditional upon the performance of covenants, the person entitled to exercise an option will not be prevented from doing so because of past breaches of covenant if the breaches are “spent”, in the sense of not giving rise to a subsisting cause of action). This doctrine exists in Canadian law, although it is not so termed. In summary, courts have looked to the language of the contract itself to determine whether equity will intervene.

Courts have held that it requires clear language to make the option dependent on performance of the terms of the contract. Clause 30, setting forth the option to purchase, required the plaintiff to substantially perform its obligations under the charterparty. With regard to clause 11, the payment clause, the breach was remedied by the plaintiff when it was made aware of the banking error. When the option to purchase was exercised, the plaintiff was not in breach of clause 11. The obligation to pay had, by then, been performed. With respect to clause 25, in the circumstances of this case, and upon a true construction of clause 30, it would not be equitable to disentitle the plaintiff from exercising the option to purchase by reason of its failure to provide Navimar, at the end of each month, with copies of the deck and engine room log of the Challenge One.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Canada Shipping Act, R.S.C., 1985, c. S-9.

Federal Court Act, R.S.C., 1985, c. F-7, s. 3.

CASES JUDICIALLY CONSIDERED

APPLIED:

Canadian Long Island Petroleums Ltd. et al. v. Irving Industries Ltd., [1975] 2 S.C.R. 715; (1974), 50 D.L.R. (3d) 265; [1974] 6 W.W.R. 385; 3 N.R. 430; Mitsui & Co. (Canada) Ltd. v. Royal Bank of Canada, [1995] 2 S.C.R. 187; (1995), 142 N.S.R. (2d) 1; 123 D.L.R. (4th) 449; 407 A.P.R. 1; 32 C.B.R. (3d) 1; 180 N.R. 161; Sudbrook Trading Estate Ltd. v. Eggleton, [1983] A.C. 444 (H.L.); Finch v. Underwood (1876), 2 Ch. D. 310 (C.A.); Pierce v. Empey, [1939] S.C.R. 247; [1939] 4 D.L.R. 672; Kennedy & Beaucage Mines Ltd., Re, [1959] O.R. 625; (1959), 20 D.L.R. (2d) 1 (C.A.); Petrillo et al. v. Nelson (1980), 29 O.R. (2d) 791; 114 D.L.R. (3d) 273; 13 R.P.R. 222 (C.A.); Amyotte v. Urchyshyn and Urchyshyn (1978), 13 A.R. 27; 86 D.L.R. (3d) 106; 6 Alta. L.R. (2d) 26 (S.C.); Birchmont Furniture Ltd. v. Loewen, [1977] 3 W.W.R. 651 (Man. Q.B.); affd (1978), 84 D.L.R. (3d) 599; [1978] 2 W.W.R. 483 (Man. C.A.).

REFERRED TO:

J.M. Voith GmbH v. Beloit Corp., [1993] 2 F.C. 515 (1993), 47 C.P.R. (3d) 448; 61 F.T.R. 161 (T.D.); Teledyne Indust. Ltd. v. Lido Indust. Products Ltd. (1982), 31 C.P.C. 285; 68 C.P.R. (2d) 204 (F.C.T.D.); Comtab Ventures Ltd. v. R. in Right of Can. (1984), 35 Alta. L.R. (2d) 230 (F.C.T.D.); R. in right of Ontario et al. v. Ron Engineering & Construction (Eastern) Ltd., [1981] 1 S.C.R. 111; (1981), 119 D.L.R. (3d) 267; 13 B.L.R. 72; 35 N.R. 40; United Scientific Holdings Ltd v Burnley Borough Council, [1977] 2 All E.R. 62 (H.L.); United Dominions Trust (Commercial), Ltd. v. Eagle Aircraft Services, Ltd., [1968] 1 All E.R. 104 (C.A.); Grey v. Friar (1854), 4 H.L.C. 565; 94 R.R. 246; Bass Holdings Ltd. v. Morton Music Ltd., [1987] 2 W.L.R. 397 (Ch. D.); 283 Portage Avenue Ltd. v. Fidelity Trust Co. (1982), 18 Man. R. (2d) 7 (Co. Ct.); Sparkhall v. Watson, [1954] 2 D.L.R. 22; [1954] O.W.N. 101 (H.C.); Fingold v. Hunter, [1944] 3 D.L.R. 43; [1944] O.W.N. 287 (Ont. C.A.); McLaughlin v. Bodnarchuk (1957), 8 D.L.R. (2d) 596; 22 W.W.R. 60 (B.C.C.A.).

AUTHORS CITED

Furmston, M. P. Cheshire, Fifoot and Furmston’s Law of Contract, 12th ed. London: Butterworths, 1991.

Gebb, S. “The Demise Charter: A Conceptual and Practical Analysis” (1975), 49 Tulane Law Rev. 764.

Gilmore, Grant and Charles L. Black. The Law of Admiralty, 2nd ed. New York: Foundation Press, 1975.

Harper, E. “Demise Charters: Responsibilities of Owner or Charterer for Loss or Damage” (1975), 49 Tulane Law Rev. 785.

Lewison, Kim. The Interpretation of Contracts. London: Sweet & Maxwell, 1989.

Mocatta, Alan A. et al. Scrutton on Charterparties and Bills of Lading, 19th ed. London: Sweet & Maxwell, 1984.

Perell, Paul M. “Options, Rights of Repurchase and Rights of First Refusal as Contracts and as Interests in Land” (1991), 70 Can. Bar Rev. 1.

Wilford, Michael et al. Time Charters, 4th ed. New York: Lloyd’s of London Press, 1995.

ACTION for a declaration that the plaintiff was entitled, pursuant to a bareboat charterparty, to exercise the option to purchase the defendant ship. Action allowed.

COUNSEL:

Elizabeth Heneghan for plaintiff.

Normand Hébert for defendants.

SOLICITORS:

Elizabeth Heneghan, St. John’s, Newfoundland, for plaintiff.

Étude légale Alain Pilotte, Montréal, for defendants.

The following are the reasons for judgment rendered in English by

Nadon J.: This litigation arises from the defendant Navimar Corporation Limitée’s (Navimar) refusal to sell the ship Challenge One to the plaintiff. By its statement of claim, the plaintiff seeks to obtain a declaration that Navimar is in breach of a bareboat charterparty entered into on June 21, 1985. The relevant facts can be briefly summarized as follows.

THE FACTS

The plaintiff, Sail Labrador Limited (Sail Labrador) is a corporation incorporated under the laws of Newfoundland. Its registered head office is in St. John’s, Newfoundland.

The defendant, Navimar is a corporation incorporated under the laws of Canada. Its registered head office is in Québec City. At all material times, Navimar was the registered owner of the Challenge One.

Challenge One is a ship registered at the port of St. John’s, Newfoundland, bearing official number 804001, and having a gross tonnage of 83.66 and a registered tonnage of 37.75.

On June 21, 1985, Sail Labrador entered into a bareboat charter with Navimar to charter the ship Challenge One for five years, starting on June 21, 1985 (the charterparty). At all material times herein, the plaintiff employed the Challenge One to carry on its business as an operator of a passenger and freight ferry service between the ports of Jackson’s Arm and Harbour Deep in White Bay, Newfoundland, under contract with Her Majesty the Queen in Right of Canada, as represented by the Minister of Transport.

Pursuant to clause 30 of the charterparty, the plaintiff had the option to purchase the Challenge One after the five-year period of the charterparty for the sum of $200,000 upon notification to Navimar, in writing, no later than March 31, 1990. Part of clause 30 of the charterparty states that exercise of the option is “subject to full performance”.

This option was enforceable for only fifteen days from the time the notice was sent by Sail Labrador to Navimar, and was subject to cash payment and full performance of all its obligations in the charterparty including, but not limited to, payments being made promptly and in accordance with the schedule to clauses 10 and 11 of the charterparty (the option).

On January 5, 1990, Sail Labrador exercised the option by delivering a written notice to that effect to Navimar. On January 19, 1990, Sail Labrador tendered to Navimar $200,000 by certified cheque together with a bill of sale in the form required by the Canada Shipping Act.[1] Navimar refused to accept the funds and to execute the bill of sale, as requested by Sail Labrador.

At trial, Navimar admitted that the sum of $200,000 and a bill of sale in the statutory form had been tendered to it. However, Navimar denies that the plaintiff is entitled to exercise the option by reason of its breach of clauses 8, 9, 11, 15, 25, 28, 30, and 34 of the charterparty. I will now relate, in greater detail, the relevant facts as they pertain to Navimar’s allegations of breach so as to determine whether Navimar’s allegations are well-founded.

Navimar’s allegations of breach of contract

1.         Clause 34 of the charterparty

Clause 34 of the charterparty provides that, inter alia, the plaintiff will not, during the life of the charterparty, change directors, shareholders, or corporate control. Navimar alleges that, in breach of this provision, the plaintiff’s directors, shareholders, and corporate control were changed without its consent. Clause 34 states that:

Assignment

34. For the whole duration of this five (5) year agreement the Charterer shall not assign this Charter nor proceed to any change in its capital stock structure including but not limited to refrain from issuing any voting shares, changing any directors, shareholders, or changing control of the Company to any one except to the owner or a party named by the Owner.

In order to deal properly with this particular allegation, it is necessary to relate the events which led to the signing of the charterparty in June of 1985.

Navimar was founded in 1977 by Mr. Normand Hébert, who at that time, was a member of the Bar of the Province of Quebec. Mr. Hébert was admitted to the Bar in 1976 and practiced law until 1979.[2] In 1980, Mr. Hébert began a three-year apprenticeship as a pilot with the Laurentian Pilotage Association. In 1984, Mr. Hébert became a fully-fledged pilot, and he has exercised that profession ever since.

In 1984, Mr. Hébert was the Vice-President of Operations for Navimar. Mr. Hébert is now the sole shareholder of Navimar. In February 1985, Mr. Hébert contacted Mr. John Andrews, a shipbroker of St. John’s, Newfoundland, whom he had previously met, regarding employment for Navimar’s ship, the Challenge One. Mr. Andrews informed Mr. Hébert that the federal government sought to establish a ferry service between Jackson’s Arm and Harbour Deep, Newfoundland. At that time, the Challenge One was not licensed to transport passengers. Andrews suggested to Hébert that the Challenge One be chartered to a company which would bid for the ferry service contract. As Andrews had recently incorporated Sail Labrador, it was agreed that that company would put in a bid to obtain the ferry contract.

Sail Labrador’s bid was successful and, on May 29, 1985, an agreement was concluded between the federal government and Sail Labrador pursuant to which Sail Labrador agreed to maintain a passenger and freight service between Jackson’s Arm and Harbour Deep. To perform its contractual obligations, Sail Labrador would use the Challenge One. When Sail Labrador obtained the contract, the Challenge One was in winter lay up at Shelburne, Nova Scotia. A representative of the federal government proceeded to Shelburne and inspected the Challenge One. The ship was found to be suitable for the ferry service. Although the Challenge One was suitable, a refit would be necessary. The refit was carried out during the winter of 1984-1985. As appears from invoice no. 3981, dated July 22, 1985 sent to Navimar by Shelburne Marine Limited, then a division of Hall Corporation Shipping Ltd., the cost of refitting the Challenge One, i.e., to convert her into a passenger ship for the ferry service, amounted to $243,119.50.

Although the charterparty was entered into on June 21, 1985, Sail Labrador accepted delivery of the Challenge One on July 2, 1985, in conformity with clause 1 of the charterparty.

When Sail Labrador obtained the ferry contract from the federal government and entered into the charterparty with Navimar, its shareholders were John Andrews, Andrew Wells, and Vicki Stokes.

On June 21, 1985, at the request of Navimar, the parties to the charterparty and the shareholders of Sail Labrador entered into a pledge agreement “for the purposes of insuring that the terms and conditions of the Charter Party are observed and performed in accordance with the terms thereof”. Pursuant to the pledge agreement, the shareholders of Sail Labrador agreed to deliver forthwith to Navimar properly endorsed certificates of all the issued and outstanding shares. The certificates were endorsed as follows:

These shares are subject to the terms of a Pledge Agreement dated June 21, 1985, between the shareholders, Navimar Corporation Limited, and Sail Labrador Limited.

It was agreed between the parties to the pledge agreement that, upon “completion of all obligations of Sail Labrador pursuant to the Charterparty, Navimar shall re-transfer the shares to the shareholders.”

Clause 6 of the pledge agreement is relevant to the issue under discussion and provides that:

Notwithstanding any other agreement provided for herein, the Shareholders agree that no reorganization of or increase in the capital of Sail Labrador, no issuance of further shares, no change of directors or officers, no agreement to sell or pledge the undertaking of the company, and nothing that may jeopordize the financial stability of the company shall be made or done without first obtaining the express written consent of Navimar, which consent may be arbitrarily withheld.

Clause 7 of the pledge agreement sets forth a number of events referred to as “events of default” which, upon occurrence, would entitle Navimar to, inter alia, “exercise all of the privileges of a shareholder in its own right without any obligation to account to the shareholders”. In the event, Navimar did not invoke clause 7 of the pledge agreement.

During the operating season of 1985-l986, John Andrews was the partner in charge of operations for Sail Labrador. However, Andrews left the plaintiff in the fall of 1986. After Andrews’ departure, Andrew Wells assumed the management responsibilities, i.e., supervising the crew of the Challenge One, supervising the annual refit of the ship, required by Canada Steamship Inspection, dealing with the various suppliers to the ship, safety problems, and the company’s relationship with the shipping community.

During its first year of operation, Sail Labrador encountered financial difficulties and, in order to remedy this situation, Andrew Wells approached John McGrath, a lawyer of St. John’s and a member of the Bar of Newfoundland. Mr. McGrath reviewed Sail Labrador’s financial documents with his accountant and decided to invest $30,000 in the company. Mr. McGrath’s involvement in the company was cleared with the federal government who allowed Sail Labrador to carry on with its ferry contract. It was agreed that Mr. McGrath would have no day-to-day role with the company. Mr. McGrath was not aware of the terms and conditions of the charterparty but knew that Sail Labrador had chartered the Challenge One from Navimar for a period of five years. At no time did Mr. McGrath act as Sail Labrador’s lawyer.

On September 11, 1986, Mr. Hébert sent a telex to Sail Labrador, to the attention of Messrs. Andrews and McGrath, advising them that “Sail Labrador and its directors do not possibly comply with Charterparty 7-21-85, clause 34, and collateral agreement same date Clause 6 and other terms and conditions of both agreement[s] with Navimar Corp.” Mr. Hébert proceeded to give notice that Navimar was requesting Sail Labrador and its shareholders to “sign and execute all necessary documents required by Navimar Corp. to correct this situation within 5 days”.

Navimar’s telex came as a surprise to Mr. McGrath who was not aware of the collateral pledge agreement entered into on June 21, 1985. As a result, Mr. McGrath prepared an amended pledge agreement which he sent on September 17, 1986, to Mr. John Roil, an attorney with the firm of O’Neil, O’Reilly and Noseworthy, of St. John’s, Newfoundland. On September 18, 1986, Mr. Roil wrote to Mr. McGrath suggesting certain changes to the amended pledge agreement. Mr. Roil also indicated to Mr. McGrath that the share certificates would have to be endorsed so as to show that they were subject to the terms of the revised pledge agreement. Mr. Roil also indicated to Mr. McGrath that the shares should be endorsed so as to appoint him, as “trustee, the attorney to transfer the stock”. Mr. Roil undertook to hold the share certificates and not to act on them “except in the event that we are notified by Navimar Corporation Limited of an ‘event of default’”. Mr. Roil concluded his letter by stating that:

Our client would like us to telefax a copy of the Pledge Agreement later today, and your best efforts in having a final draft available would be appreciated.

On September 25, 1986, a revised pledge agreement was executed by Sail Labrador’s new shareholders, Donna McGrath, John W. McGrath, and Judy Diamond. The revised pledge agreement states that the new shareholders acquired their shares from John Andrews, Andrew Wells, and Vicki Stokes by way of a transfer of their shares in Sail Labrador on May 15, 1986.

On October 3, 1986, Mr. McGrath wrote to Mr. Roil enclosing the executed amended pledge agreement with the “requisite amendments to the said shares”. New certificates of Sail Labrador shares were issued and endorsed as per Mr. Roil’s request. The certificates were also endorsed to John F. Roil as “[a]ttorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises”.

According to Mr. McGrath, he returned the duly executed amended pledge agreement with the new shares endorsed, as requested by Mr. Roil, with his letter of October 3, 1986, and, “after this all went well, like a charm”. In effect, the matter relating to the corporate reorganization of Sail Labrador was raised for the first time by Navimar in a letter dated July 13, 1989. In that letter, at page 2 thereof, Mr. Hébert writes that:

As you well know Navimar never agreed yet to any change of directors or share holders of Sail Labrador Ltd. Despite the fact that no action was taken by Navimar up to now in that respect we wish to remind you that we reserve our rights for the future should it be appropriate to our point of view to take over Sail Labrador.

In a letter dated October 31, 1989, lawyers representing Sail Labrador responded to Mr. Hébert’s assertion that Navimar had not agreed to the corporate change. At page 3 of the letter, counsel for Sail Labrador states that:

5. It is incorrect to state that Navimar never agreed to any change of directors or shareholders of Sail Labrador Limited. Navimar has known for some time of the involvement of our client, Mr. John W. McGrath and his wife in the company and not only has chosen to do nothing about it but in fact has communicated and dealt with Mr. McGrath. Furthermore, Mr. McGrath had detailed discussions with Navimar’s then solicitor, Mr. John F. Roil, Q.C., in which he informed Mr. Roil of the change of ownership and, after discussions with him, prepared and forwarded to him a new draft pledge agreement reflecting the change in ownership of shares. Mr. Roil, acting on behalf of Navimar, requested certain changes in the agreement, all of which were complied with and a revised agreement, executed by the new shareholders and Sail Labrador Limited was provided to Mr. Roil along with the other documentation required by him. Significantly, in Mr. Roil’s letter of September 18, 1986 addressed to Mr. McGrath, he specifically stated that “our client would like us to telefax a copy of the pledge agreement later today…” thereby acknowledging that Navimar knew of the change of ownership and agreed with it. Furthermore, Mr. Roil stated that he would “undertake to hold the share certificates, and will not act on them except in the event that we are notified by Navimar Corporation Limited of an ‘event of default’”.

6. In view of these matters, it does not now lie in the mouths of your client to attempt to take the position that they did not accept a change of directors or shareholders of Sail Labrador Limited and to attempt to rely upon such fact for the assertion of rights under the Charter Party or the Pledge Agreement.

I agree entirely with the position taken in the above letter. There cannot be much doubt, in my view, that Navimar agreed to the change of directors and shareholders of Sail Labrador. At the trial, Mr. McGrath testified that as far as he was concerned, John Roil was Navimar’s legal counsel in regard to the matter of the pledge agreement. However, Mr. Hébert testified that John Roil was not his lawyer but “a post office box for me”. I do not find Mr. Hébert’s evidence credible. Mr. Roil, in his correspondence with Mr. McGrath, certainly appeared to believe that he was Navimar’s counsel. On the evidence, it is impossible to conclude that Mr. Roil was not Navimar’s lawyer. In my opinion, Navimar agreed to the change of directors and shareholders of Sail Labrador.

I am therefore of the opinion that the plaintiff is not in breach of clause 34 of the charterparty.

2.         Clause 11 of the charterparty

Clause 11 of the charterparty provided for payments of hire by the plaintiff to Navimar. Navimar alleges that the plaintiff failed to make its June 10, 1989 payment on time. Clause 11 provided for the following annual schedule of payments:

Annual Schedule Payments

11. The annual Charter hire shall be payable in seven (7) monthly instalments each and every year of the Charter in accordance with the following schedule.

First year of Charter 1985

1.	1985	August10th	$12,142.85
2.	1985	September10th	$12,142.85
3.	1985	October10th	$12,142.85
4.	1985	November 10th	$12,142.85
5.	1985	December 10th	$12,142.85
6.	1986	January 10th	$12,142.85
7.	1986	February 10th	$12,142.90

Second year of Charter 1986

1.	1986	August10th	$12,142.85
2.	1986	September10th	$12,142.85
3.	1986	October10th	$12,142.85
4.	1986	November10th	$12,142.85
5.	1986	December10th	$12,142.85
6.	1987	January10th	$12,142.85
7.	1987	February10th	$12,142.90

Third year of Charter 1987

1.	1987	August10th	$12,142.85
2.	1987	September10th	$12,142.85
3.	1987	October10th	$12,142.85
4.	1987	November10th	$12,142.85
5.	1987	December10th	$12,142.85
6.	1988	January10th	$12,142.85
7.	1988	February10th	$12,142.90

Fourth year of Charter 1988

1.	1988	August 10th	$12,142.85
2.	1988	September 10th	$12,142.85
3.	1988	October 10th	$12,142.85
4.	1988	November 10th	$12,142.85
5.	1988	December 10th	$12,142.85
6.	1989	January 10th	$12,142.85
7.	1989	February 10th	$12,142.90

Fifth year of Charter 1989

1.	1989	June10th	$12,142.85
2.	1989	July 10th	$12,142.85
3.	1989	August10th	$12,142.85
4.	1989	September10th	$12,142.85
5.	1989	October10th	$12,142.85
6.	1989	November10th	$12,142.85
7.	1989	December10th	$12,142.90

Payments herein above set out are payable to Owners at Quebec City in cash in Canadian currency by way of Bank Transfer and/or certified cheques deposited to the account of:

Navimar Corporation Ltd.

AT THE

Bank of Montreal

800, Place d’Youville

Quebec

Account / 1081-864

Should any one of the payments not be deposited as set forth herein, the Owner may forthwith withdraw the vessel from the service/or the Charterer without prejudice to any claim which the Owner may have against the Charterer pursuant to this Charter, nor to any additional rights and/or claims of the Owner pursuant to any collateral guarantee provided by Sail Labrador Ltd. and/or any one of its share holders and/or directors and/or any other guarantors.

As appears quite clearly from clause 11, Sail Labrador was obliged to make seven payments of hire to Navimar each year of the charterparty. Sail Labrador paid the sum of $12,142.85 to Navimar, during the five-year contractual period, on thirty-five occasions. On only one occasion did Sail Labrador fail to make its payment on time: June 10, 1989.

The evidence was to the effect that the cheque received by Navimar for the payment of the June 10, 1989 hire was returned by Sail Labrador’s bank by reason of insufficient funds. Mr. Wells explained that, at that time, the plaintiff had incurred extraordinary expenses to refit the Challenge One. In order to meet these expenses, the plaintiff obtained from its bank, the Royal Bank of Canada, an extension of its line of credit. However, due to an error made by a bank employee, when the cheque made payable to Navimar was presented, it was refused by reason of insufficient funds. Upon being notified by Navimar that the cheque had been refused by the Royal Bank, the plaintiff contacted its bankers. The matter was promptly addressed and Navimar received the payment of the June 10, 1989 hire. In the circumstances, there was a breach of clause 11 which, however, Sail Labrador quickly remedied.

3.         Clause 25 of the charterparty

By clause 25 of the charterparty, the parties agreed that the plaintiff, if required by Navimar, should, at the end of each voyage, supply Navimar with the deck and engine room logs for the vessel. Navimar alleges that it advised the plaintiff, by letter dated June 25, 1988, and again on July 13, 1989, that it required the logs and that the plaintiff failed to supply them. The relevant clause in the charterparty reads as follows:

Reports

25. The Charterer, shall keep the Owner informed of the arrival and departure of this vessel at and from all ports of call other than those referred to in Clause 3. At the end of each month the Charterer shall supply deck and engine room logs of the voyages if required by Owner.

The evidence shows that Navimar began requesting copies of the deck and engine room logs in July of 1989. Specifically, in his letter of July 13, 1989 to Sail Labrador, Normand Hébert writes:

LOG-BOOKS

Meanwhile, we hereby request that you supply us with deck and engine room logs of voyages done in 1989 at the end of each month pursuant to clause 25 of the charter-party including but not limited to voyages done to or from St. John’s for winter refit and lay up. We count on you to receive copies of these logs the first week of each month for the season 1989, the logs of January to June being requested within 7 days of receiving this letter.

In cross-examination, Andrew Wells explained that making photocopies of the log books in Jackson’s Arm was not an easy task in that there were no commercial photocopiers available. Therefore, photocopies of the log books were not sent regularly to Navimar, as required by clause 25. Thus, in the circumstances, the plaintiff breached clause 25. I will deal with the nature of this breach and the resultant consequences, infra.

4.         Clause 9 of the charterparty

Navimar alleges that the plaintiff breached clause 9 of the charterparty, wherein the parties agreed that:

Winter lay-up

9. During each winter as soon as the vessel is taken off her regular service, the Charterer shall provide for her safe lay up and bear all expenses related to safe keeping and putting her in dry dock when required by Canadian regulation and/or when necessary to proceed with any underwater repairs and maintenance.

The vessel shall not be left afloat during any winter in any port which is subject to ice conditions unless such ice does not threaten the safety of the vessel and provided that the vessel is fully insured for such conditions. All piping to be properly drained and/or filled with antifreeze when risk of freezing is possible and/or forecast.

Navimar alleges that the plaintiff breached this clause during the winter of 1987-1988, when, without its consent, the plaintiff laid up the vessel afloat at Jackson’s Arm, Newfoundland, a port subject to ice conditions, thereby threatening the safety of the vessel.

During the operating season, the Challenge One’s home port was Jackson’s Arm. At the end of every season, the plaintiff would lay up the ship at the port of St. John’s. However, in December of 1987, the plaintiff did not do so because the ship was unable to leave Jackson’s Arm. In effect, the harbour froze overnight and the Challenge One, scheduled to proceed to St. John’s on the following day, was trapped in Jackson’s Arm.

In view of this situation, the plaintiff communicated both with the Canadian Coast Guard and its insurers in order to obtain their approval to leave the Challenge One at Jackson’s Arm for the winter. On December 8, 1987, the Canadian Coast Guard wrote to Mr. Andrew Wells, a director of the plaintiff, to advise him that the Challenge One could remain at Jackson’s Arm “providing it is secured in a safe berth”. This information was passed on to the Challenge One’s insurers. In addition, the plaintiff advised its insurers that it would “make arrangements to have ice which may form, cut from around vessel from time to time”. Finally, the plaintiff informed its insurers that one of its employees would maintain the vessel “to ensure everything in order”. As a result of this information, the ship’s insurers gave their approval to the plaintiff to lay up the vessel at Jackson’s Arm.

Clause 9 of the charterparty does not require Navimar’s consent. The clause simply provides that the charterer must provide a safe lay up for the ship. It further provides that the vessel should not be left afloat in a port which is subject to ice conditions unless the ice does not threaten her safety and provided that she is fully insured for such conditions.

In the present matter, the plaintiff did take steps to protect the Challenge One from the ice and the ship’s insurers agreed to maintain coverage while she remained at Jackson’s Arm for the winter. In these circumstances, it is my opinion that the plaintiff did not breach clause 9 of the charterparty.

5.         Clause 15 of the charterparty

By clause 15 of the charterparty, the parties agreed that notice of Navimar’s ownership of the Challenge One would be fastened to the vessel, in a conspicuous place, and maintained there during the life of the charter. Navimar alleges that the plaintiff breached this obligation by failing to maintain the notice.

Clause 15 reads as follows:

Liens against the Vessel

15. Neither the Charterer nor the Master of the vessel shall have any right, power, or authority to create, incur, or permit to be imposed upon the vessel any liens whatsoever except for crew’s wages and salvage. The Charterer agrees to carry a properly certified copy of this Charter Party with the ship’s papers, and on demand to exhibit the same to any person having business with the vessel which might give rise to any lien thereon, other than liens for crew’s wages and salvage. The Charterer agrees to notify any person furnishing repairs, supplies, towage, or other necessaries to the vessel that neither the Charterer nor the Master has any right to create, incur, or permit to be imposed upon the vessel any liens whatsoever except for crew’s wages and salvage. The Charterer agrees to carry a properly certified copy of this Charter Party with the ship’s papers, and on demand to exhibit the same to any person having business with the vessel which might give rise to any lien thereon, other than liens for crew’s wages and salvage. The Charterer agrees to notify any person furnishing repairs, supplies, towage, or other necessaries to the vessel that neither the Charterer nor the Master has any right to create, incur, or permit to be imposed upon the vessel any liens whatsoever except for crew’s wages and salvage. Such notice, as far as may be practicable, shall be in writing. The Charterer further agrees to fasten to the vessel in a conspicuous place and to maintain during the life of this Charter, a notice reading as follows:

“This vessel is the property of NAVIMAR CORPORATION LTD. 83, St-Pierre Quebec. It is under Charter to SAIL LABRADOR LTD. and by the terms of the Charter neither the Charterer nor the Master has any right, power, or authority to create, incur, or permit to be imposed upon the vessel any liens whatsoever except for crew’s wages and salvage.”

According to Andrew Wells, the plaintiff displayed the notice of Navimar’s ownership of the Challenge One on the bridge of the ship but, on a few occasions, the notice was removed when work was being performed on the ship, and in particular, on the bridge. As a result, when, on two occasions, Mr. Hébert visited the Challenge One, the notice was not in its usual position. I accept Mr. Wells’ evidence on this point and, as a result, I am of the view that the plaintiff did not breach clause 15 of the charterparty.

6.         Clause 28 of the charterparty

Clause 28 of the charterparty reads as follows:

Alteration

28. The Charter shall not make any structural changes in the vessel without first securing the approval of the Owner.

Navimar alleges that Sail Labrador modified a cargo hatch on the vessel’s afterdeck and removed a cargo handling crane, without its consent.

I will deal first with Navimar’s contention that Sail Labrador made changes to the ship’s cargo hatch without its consent. Specifically, before the 1986 operating season, Sail Labrador enlarged the ship’s cargo hatch. According to Mr. Wells, the enlargement of the cargo hatch (from 4’ x 4’ to 5’ x 6’) was a condition which Sail Labrador had to meet in order to obtain the ferry contract from the federal government. Mr. Wells testified that this refit had not been properly done in May of 1985 and that all were agreed that it would have to be done in the following year. Mr. Wells further testified that the federal government provided funds to Sail Labrador to carry out the work in 1986. According to Andrew Wells, Normand Hébert knew that the cargo hatch was undersized and that it would have to be enlarged in due course. According to Mr. Wells, Mr. Hébert never indicated that he was opposed to this modification. On the other hand, Mr. Hébert testified that he had not been made aware of the modification of the cargo hatch.

I prefer the evidence of Mr. Wells to that of Mr. Hébert. I should perhaps point out here that I was not very impressed with Mr. Hébert’s testimony during the course of the trial. As I indicated earlier, in regard to Navimar’s allegation that the plaintiff had changed its directors and shareholders without its consent, I did not find Mr. Hébert very credible. Mr. Hébert did not impress me with his candour. On the contrary, I had the impression that, responding to questions in a forthright manner was not Mr. Hébert’s priority. I therefore accept Andrew Wells’ evidence that Mr. Hébert was aware of the enlargement of the cargo hatch. There is some corroborating evidence to support Mr. Wells’ evidence that the refit of the cargo hatch had not been effected, as intended, prior to the beginning of the 1985 operating season. In a memorandum dated March 10, 1986, entitled “MV Challenge One—refit 1986”, Mr. P. M. Bailey, Superintendent, Newfoundland Services, Marine Policy & Programs, Department of Transport, Government of Canada, informed Mr. J. P. Turcotte that the modification of the “small hatch” of the Challenge One had not been completed because the work “would have further delayed the vessel from entering service”. Specifically, Mr. Bailey stated that:

Item 4 was supposed to have been done by the Shelbourne shipyard prior to the vessel entering service. It was decided, as I recall, to operate the vessel with the small hatch as the modification would have further delayed the vessel from entering service. The need for a large hatch would be determined before further modification was done.

It will be recalled that the plaintiff took delivery of the Challenge One on July 2, 1985 even though the operating season normally ran from June 10 to January 2 of every year. Thus, in 1985, the Challenge One entered service some three weeks late. In the circumstances, I come to the conclusion that the plaintiff did not breach the charterparty when it enlarged the cargo hatch.

I now turn to Navimar’s second allegation of breach, and that is, that Sail Labrador replaced the ship’s cargo handling crane without its consent.

Before the Challenge One began the 1985 operating season, Sail Labrador placed a crane on board which, in the words of Mr. Wells, “was no good”. Wells testified that, subsequently, the plaintiff decided to replace the crane with a more suitable system and this was effected during the 1986 refit. The new crane was inspected by the Coast Guard’s Canadian Steamship Inspection Service (CSI) and was approved.

Mr. Wells testified that he could not state with certainty whether Navimar had been advised that the crane had been replaced. However, he assumed that Navimar must have been aware of the change since, pursuant to clause 24 of the charterparty, the vessel was inspected each year by an “inspector” appointed by Navimar. Also, Andrew Wells testified that he spoke regularly to Mr. Hébert and that Mr. Hébert had, on a number of occasions, visited the Challenge One.

As to Mr. Hébert, he testified that he had never been made aware of the fact that the crane had been replaced. Again, I am prepared to accept Mr. Wells’ evidence that, in all probability, Mr. Hébert was informed that the crane had been replaced. In any event, I am far from convinced that the replacement of the crane constitutes a structural change which required Navimar’s consent. In my view, a crane is simply a piece of equipment placed on a ship to load and unload cargo. That piece of equipment does not, in my view, form part of the ship’s structure.

7.         Clause 8 of the charterparty

Lastly, Navimar alleges that Sail Labrador did not obtain CSI’s approval for the replacement of the cargo hatch, as required by clause 8 of the charterparty. The clause provides that:

The Charterer shall, at its own expense, keep the said vessel in good running order and condition and in substantially the same condition as when received from Owner and have her regularly overhauled and repaired when necessary. For the whole duration of this Charter Party, the Charterer shall bear all costs and take all responsibility to maintain the vessel in class and in compliance with all Canadian Steamship Inspection board requirements including but not limited to replacement and/or repair of any mechanical components, engines, rudders, propellers, electronics, safety equipment, plating, structure, doors, port holes, windows, passenger and cargo facilities, boilers, navigation equipment, power plant pumps, etc.

Mr. Wells testified that a CSI representative from Corner Brook, Newfoundland, came to inspect the ship when she was being refitted for the 1986 operating season and was fully aware of the modification to the cargo hatch. Although CSI’s Montréal office did not have a record of the modification, I am satisfied that CSI was aware of the modification and that it complied with CSI’s requirements. It should also be remembered that the Challenge One, like all other Canadian ships, was subject to an annual inspection by CSI and that modification of a cargo hatch would not easily escape the attention of CSI surveyors.

I am therefore satisfied that Sail Labrador did not breach clause 8 of the charterparty, since the owner consented to the changes.

I have therefore concluded that the plaintiff did not breach clauses 8, 9, 15, 28, and 34 of the charterparty. I have also concluded that the plaintiff breached clauses 11 and 25. I will now examine the law relevant to the issue which I must decide. At the commencement of the trial, the parties informed me that they were agreed that there was only one issue for me to decide: in the circumstances of this case, did the plaintiff have the right to exercise the option to purchase, pursuant to clause 30 of the charterparty?

ANALYSIS

A.        INTRODUCTION

A demise[3] charter is the leasing of a vessel whereby the charterer acquires from the owner the exclusive right to possess and control the vessel for a specified period. In Shipbroking and Chartering Practice,[4] the authors describe a “bareboat charter with purchase option” as follows:

In practice this means that the financing party will place the hull and machinery — or in other words only the ship, without technical and personnel management — at the disposal of a charterer, who is to take care of the management and commercial operation, and this party has an option to purchase the ship at some agreed time at a mutually pre-fixed price. The revenue from the trading will be used for payment of the bareboat hire and the purchase price to formal owners as lessors and financing party. This type of deal is not favoured by owners, since they have no real control of the running and maintenance of the ship, and her condition at the end of the bareboat charter period, should the charterers for some reason not exercise their option to purchase, is not expected to be up to standard (judging from experience in too many cases). Besides this, the market may in the meantime have gone bad from the owners’ point of view, so they may be left with a non-employed ship which is in great and costly need of upkeep and overhaul.[5]

There is little case law directly on point in the area of charterparties by demise with option to purchase clauses. Since a demise charter effectively amounts to a lease of chattel, whereby the owner does not retain any interest in the ship other than that of ownership,[6] the interpretation of the charterparty is governed by general principles of common law relating to contracts. The principal interest the shipowner has, then, is in receiving payment under the terms of the charterparty and receiving the vessel back in good condition, ordinary wear and tear excepted, at the end of the term.[7] Scrutton on Charterparties[8] supports this interpretation:

A charter by demise is in effect a contract for the hire of a chattel, and is governed by the general principles of the common law relating to contracts of hire. There will therefore be implied in a charter by demise an undertaking that the ship is on delivery as fit for the purpose for which she is hired as reasonable care and skill can make her. The charterer’s liability for damage to the ship will be subject to the ordinary common law exceptions.[9] [Footnotes omitted.]

The position in American law is the same: charterparties are governed by ordinary contract law.[10] Under American law, like English law, a demise charter vests the incidents of ownership in the charterer, while the owner retains the right of reversion.[11] The charterer’s obligations under a demise charter are to pay the hire and to return the vessel in good condition, ordinary wear and tear excepted.[12]

B.        INTERPRETATION OF CONTRACTS WITH OPTIONS TO PURCHASE

1.         Jurisdiction of the Federal Court of Canada to Grant Equitable Relief

Although the parties have not raised this as an issue, it is, in my view, necessary to briefly review the jurisdiction of this Court to grant equitable remedies. Section 3 of the Federal Court Act[13] constitutes the Federal Court as a court of equity. That section reads:

3. The court of law, equity and admiralty in and for Canada now existing under the name of the Federal Court of Canada is hereby continued as an additional court for the better administration of the laws of Canada and shall continue to be a superior court of record having civil and criminal jurisdiction.

Notwithstanding that the Court is statutorily created, when the subject-matter is otherwise within its jurisdiction and where equitable principles are applicable to the issue, the Federal Court may exercise the powers and enforce the remedies available to a court of equity.[14] In appropriate cases, it is open to this Court to grant equitable relief from forfeiture.[15] It is clear, then, that parties may invoke the Court’s equitable jurisdiction to obtain relief.

2.         Interpretation of Contracts with Options to Purchase

a)         Definition

The meaning of an option to purchase was considered in Canadian Long Island Petroleums Ltd. et al. v. Irving Industries Ltd.:

An option gives to the optionee, at the time it is granted, a right, which he may exercise in the future, to compel the optionor to convey to him the optioned property.[16]

The essence of an option to purchase is that, when the option is granted, the person who is entitled to exercise the option can, upon the occurrence of certain events solely within his or her control, compel a conveyance of the property to him or her. The subject-matter of the option contract is not the sale of the property itself but the circumstances which will bring about a binding contract of sale.[17]

Paul M. Perell, in “Options, Rights of Repurchase and Rights of First Refusal as Contracts and as Interests in Land”,[18] lists the three principal features of an option:

1. Exclusivity and irrevocability of the offer to sell within the time period specified in the option;

2. Specification of how the contract of sale may be created by the option holder; and

3. Obligation of the parties to enter into a contract of sale if the option is exercised.

In Mitsui & Co. (Canada) Ltd. v. Royal Bank of Canada,[19] Major J., writing for a unanimous Supreme Court of Canada stated:

An option contract is an antecedent contract because it precedes the contract of purchase and sale that will result if the opportunity provided by the option is “seized upon” or exercised. Once an option is exercised, the parties discharge their obligations under the option contract by entering into the contract of purchase and sale. The exercise of an option is the election to buy property on the terms specified in the option agreement, and is the equivalent of accepting the irrevocable offer made in the option.

The mechanism of converting an option to purchase into a contract of purchase and sale has been described by Lord Diplock in Sudbrook Trading Estate Ltd. v. Eggleton:

The option clause cannot be classified as a mere “agreement to make an agreement.” There are not any terms left to be agreed between the parties. In modern terminology, it is to be classified as a unilateral or “if” contract. Although it creates from the outset a right on the part of the lessees, which they will be entitled, but not bound, to exercise against the lessors at a future date, it does not give rise to any legal obligations on the part of either party unless and until the lessees give notice in writing to the lessors, within the stipulated period, of their desire to purchase the freehold reversion to the lease. The giving of such notice, however, converts the “if” contract into a synallagmatic or bilateral contract, which creates mutual legal rights and obligations on the part of both lessors and lessees.[20]

The “giving of notice” in Sudbrook Trading was all that was required to exercise the option. Once the option was exercised, no further notice or consent was needed, as a fully enforceable contract of purchase and sale arose. This dictum was quoted with approval by Major J. in Mitsui, supra.

b)         De minimis rule

It is trite law that the courts have considered that minor divergences from the terms of a contract will not be considered breaches: de minimis non curat lex. This principle has been explicitly recognized in maritime law:

In considering whether any contractual obligation in a commercial contract has been broken, any divergence from the performance required by the contract which is negligible will be disregarded: Margaronis Navigation v. Peabody, [1964] 2 Lloyd’s Rep. 153.

In that case, Sellers, L.J., said: “It seems to me that in all cases the Court is called upon to consider the substance of the matter and will not regard or give effect to what are undoubtedly, in the view of the Court, trivialities, matters of little moment, of a trifling and negligible nature.” Diplock, L.J., said: “It seems to me that the law has always regarded a contract to deliver or load a specified quantity of goods as satisfied if that quantity has been delivered within the margin of error which it is not commercially practicable to avoid …”[21]

c)         The doctrine of “spent breach”

In British law, the rule regarding unilateral contracts, such as options to purchase, is that all conditions of the unilateral contract must be strictly performed, or no binding contract comes into existence at all.[22] In an early English case on the subject, Finch v. Underwood,[23] a tenant was entitled to renew his lease on the condition that the tenant’s covenants had been performed, one of which included keeping the property in good repair. At the end of the lease, the property required “trifling” repairs. The Court of Appeal held that the tenant was not entitled to renew because:

The tenant must take the covenant to renew as he finds it; if it contains conditions precedent he must comply with them before he can claim the benefit of it, and if he has not done so a Court of Equity cannot relieve him.

Diplock L.J. explained the rationale for this as follows:

… there is no room for any inquiry whether any act done by the promisee in purported performance of a unilateral contract amounts to a breach of warranty or a breach of condition on his part, for he is under no obligation to do or to refrain from doing any act at all. The second is that, as respects the promisor, the initial inquiry is whether the event, which under the unilateral contract gives rise to obligations on the part of the promisor, has occurred. To that inquiry the answer can only be a simple “Yes” or “No”. The event must be identified by its description in the unilateral contract; but if what has occurred does not comply with that description, there is an end of the matter. It is not for the court to ascribe any different consequences to non-compliance with one part of the description of the event than to any other part if the parties by their contract have not done so. See the cases about options: …. For the inquiry here is: “What have the parties agreed to do?”—not “What are the consequences of their having failed to do what they have agreed to do?” as it was in the Hong Kong Fir case. Such an inquiry cannot arise under a unilateral contract unless and until the event giving rise to the promisor’s obligations has occurred.[24] [Footnotes omitted.]

In English law, the courts have recognized an exception to the principle of strict compliance with all covenants before an option to purchase may be exercised. Where an option is conditional upon the performance of covenants, the person exercising the option will not be prevented from exercising the option because of past breaches of covenant if the breaches are “spent”, in the sense of not giving rise to a subsisting cause of action.[25]

The requirement that all terms of the contract must be strictly complied with prior to the exercise of an option to purchase is also maintained in Canadian law. In Pierce v. Empey,[26] a leading case on the issue, Duff C.J. stated:

It is well settled that a plaintiff invoking the aid of the court for the enforcement of an option for the sale of land must show that the terms of the option as to time and otherwise have been strictly observed. The owner incurs no obligation to sell unless the conditions precedent are fulfilled or, as the result of his conduct, the holder of the option is on some equitable ground relieved from the strict fulfilment of them ….[27]

Although Canadian law is clear that a person seeking to exercise an option has the burden of establishing that he has complied with the conditions precedent to the exercise of the option,[28] it is equally clear that this dictum leaves room for the operation of equitable doctrines to relieve the option holder from the obligation of strict performance of the conditions of the option.

The English doctrine of “spent breach” as an exception to the doctrine of strict compliance with all terms of the contract prior to exercising the option exists in Canadian case law, although it is not so termed. In an early case dealing with the matter, Laidlaw J.A. of the Ontario High Court of Justice held that whether a lessee can exercise an option to purchase despite a default in the performance of a covenant under a lease was dependant upon the intention of the parties as disclosed by the lease itself.[29] Their Lordships held that an option to purchase in a lease is a separate and independent contract and in the absence of express words in the lease making the option conditional upon the performance of covenants in the lease, the optionee may exercise his or her option although he or she may have been in breach of a covenant in the lease.[30]

In Petrillo et al. v. Nelson,[31] the Ontario Court of Appeal noted that options are to be construed like any other contract. While a condition precedent to the exercise of an option is due performance of all covenants, in order to show due performance, one does not have to show punctual performance. It is enough to show that the covenants have been performed at the time when the option is exercised. Weatherston J.A. canvassed the relevant authorities:

An option to renew or extend, or to purchase, whether contained in a mortgage, lease or any other document, is a matter of contract between the parties and is to be construed like any other contract. In Fingold v. Hunter, [1944] O.W.N. 287, [1944] 3 D.L.R. 43, an option to purchase depended “upon the due performance of all the covenants hereinbefore contained”. Robertson, C.J.O., said, at pp. 289-90 O.W.N., pp. 46-8 D.L.R.:

Due performance of the lessee’s covenants is a condition precedent: Finch v. Underwood (1876), 2 Ch. D. 310; Bastin v. Bidwell (1881), 18 Ch. D. 238; Simons v. Associated Furnishers, Limited, [1931] 1 Ch. 379. The burden is upon the lessee in such a case to show that he has performed the terms upon which his right depends: Forbes v. Connolly (1857), 5 Gr. 657 at 661. It is, however, well settled that to show due performance the lessee need not necessarily show punctual performance. It is enough to show that the covenants have been performed at the time when the lessor is required to observe or to perform his promise: Loveless v. Fitzgerald et al. (1909), 42 S.C.R. 254; Starkey v. Barton, [1909] 1 Ch. 284.

…

The reported decisions that I have been able to find all relate to options to renew, or options to purchase, properly so called. None of them is upon a provision similar in terms to that relied upon by the appellant in this case. The principle of these other cases would seem to be that when there is a condition precedent, as here, performance of which by him the lessee must establish in order to succeed against the lessor, the time at which he must establish such performance of the condition precedent is the time at which it is claimed that the lessor, on her part, failed to observe the terms of the provisions relied upon.

See also Sparkhall v. Watson, [1954] O.W.N. 101, [1954] 2 D.L.R. 22; Re Spiegel and Modernage Furniture Ltd., [1972] 1 O.R. 625, 23 D.L.R. (3d) 665; Re Pacella et al. and Giuliana et al. (1977), 16 O.R. (2d) 6, 77 D.L.R. (3d) 36.[32]

The view that any default under the contract need only be remedied prior to the exercise of the option in order to make the exercise of the option enforceable by the optionee was also taken by the Alberta Supreme Court in the case of Amyotte v. Urchyshyn and Urchyshyn.[33] In that case, one of the issues before the Court was whether a plaintiff who had entered into a lease with an option to purchase was precluded from exercising the option because of a late payment of rent. Brennan J. found that, first, the option clause was not phrased such that default on the lease by the plaintiff took away his rights under the option clause. His Honour went on to find that, second, even if the parties intended that default by the plaintiff would take away his rights under the option clause, any default by the plaintiff had been remedied by the time he exercised the option.[34] In so finding, Brennan J. relied on the case of Birchmont Furniture Ltd. v. Loewen,[35] a decision of the Manitoba Court of Queen’s Bench.

Birchmont involved a lease of lands and premises which gave the lessee an option to purchase “provided there be no default by the tenant in any of the terms and conditions, expressed or implied” during the lease period. The plaintiff (lessee) exercised the option to purchase within the time allowed for doing so. There had been default by the lessee under the terms of the lease, and the defendant raised this as a ground to refuse the plaintiff the right to exercise the option. All incidents of default had been remedied by the lessee at the time of the exercise of the option. After reciting numerous authorities, Wright J., in finding for the plaintiff, stated:

The governing date is of course the date the option is exercised. Since I have found no default continuing at that time plaintiff succeeds in its action for the right to purchase the property and it is not necessary to deal with the alternative claim for renewal of the lease.[36]

In summary, courts have looked to the language of the contract itself to determine if equity will intervene. Courts have held that it requires clear language to make the option dependent on performance of the terms of the contract.[37] Despite this, courts have taken different views on similar terms in lease contracts. In Sparkhall v. Watson,[38] a term of the option to renew was that the tenant must pay the rent “duly and regularly”. The Court interpreted this to mean punctually and on the due date. In McLaughlin v. Bodnarchuk,[39] however, this same phrase was interpreted to mean that a few late payments would not estop the tenant from exercising the option.

3.         Clause 30 of the charterparty

Clause 30 of the charterparty reads as follows:

Subject to full performance of all its obligations in this Charter Party including but not limited to payments being made promptly and in accordance with the schedule of Clause 10 throughout this Agreement, the Charterer shall have an option to purchase the vessel after the five (5) year period of this Charter for the sum of Two Hundred Thousand Dollars ($200,000.00) cash if he notifies the Owner in writing of his intention to purchase by no later than March 31, 1990.

This option shall be enforceable only for a period of fifteen (15) days from the time the Charterer’s notice is sent to Owner and is subject to cash payment.

Counsel for Navimar took the position that any breach of the charterparty by the plaintiff constituted a bar to the exercise of the option set forth in clause 30. On the other hand, counsel for the plaintiff argued that clause 30 required substantial performance only. Counsel further argued that minor breaches should not constitute a bar to the exercise of the option by her client.

I cannot agree with the position advanced by counsel for Navimar. In my view, clause 30 requires the plaintiff to substantially perform its obligations under the charterparty. As I have already made clear, it is my view that, save for clauses 11 and 25, the plaintiff is not in breach. With regard to clause 11, the plaintiff was late in respect of one payment of hire during the five-year period of the charterparty. That breach was remedied by the plaintiff when it was made aware of the banking error. Thus, when the plaintiff, on January 5, 1990, exercised the option to purchase by giving written notice thereof to Navimar, it was not in breach of clause 11 of the charterparty. The obligation to pay the hire had, by then, been performed.

The only remaining breach is that arising from the plaintiff’s failure to provide to Navimar, in a timely fashion, copies of all of the deck and engine room logs of the voyages of the Challenge One.

In my view, in the circumstances of this case, and upon a true construction of clause 30 of the charterparty, it would not be equitable to disentitle the plaintiff from exercising the option to purchase by reason of its failure to provide Navimar, at the end of each month, with copies of the deck and engine room logs of the Challenge One.

In my view, Sail Labrador has fully performed all of its obligations under the charterparty dated June 21, 1985, and is therefore entitled, to exercise the option to purchase set out at clause 30 of the charterparty. For these reasons, a declaration to that effect will be issued. The plaintiff shall be entitled to its costs.

In concluding, I would like to address a matter which arose at the beginning of the trial of this action.

At the beginning of the trial, it became apparent that Normand Hébert, the sole shareholder of the defendant Navimar, intended to represent Navimar as its counsel and also intended to testify on its behalf. Counsel for the plaintiff indicated that she did not have any objection to Mr. Hébert acting as counsel and testifying. With much reluctance, I concluded that the interests of justice would be better served if I allowed Mr. Hébert to testify and act as counsel. My reasons for that decision are as follows.

On October 17, 1994, the Associate Chief Justice ordered that the trial of this action would commence at Montréal on January 16, 1996. On January 5, 1996, counsel for Navimar filed an application for the postponement of the trial date, which application was dismissed by Jerome A.C.J. on January 10, 1996.

On January 11, 1996, Normand Hébert substituted himself as solicitor of record for Navimar. On January 12, 1996, he filed an application to obtain an order postponing the trial of the action. On January 15, 1996, I dismissed this further application to adjourn the trial. In his affidavit in support of the application to adjourn, Mr. Hébert stated that he had neither the experience nor the “compétence” [expertise] to adequately represent Navimar “lors de l’audition cédulée [sic] pour mardi prochain, le 16 janvier” [at the hearing scheduled for Tuesday January 16]. In my view, if Mr. Hébert dit not have the requisite expertise, he should not have undertaken to represent Navimar at the trial. Before Mr. Hébert substituted himself as solicitor of record, the solicitors of record for Navimar were étude légale Alain R. Pilotte, experienced maritime solicitors of the city of Montréal. I note from the record that Mr. Pilotte’s law firm had requested an earlier adjournment on the grounds that Alain Pilotte had “already been retained by a hearing in Québec on January 16, 1996, and as the mandate [Navimar’s mandate] was only given on January 5, 1996, it will be impossible for him to handle the case on that date”.

First of all, I note from the minutes of the January 10, 1996 hearing, following which Jerome A.C.J. dismissed the Alain Pilotte law firm’s application to adjourn the trial, that the Associate Chief Justice had indicated to the parties that he was prepared to postpone the hearing to January 17, 1996, to accommodate Mr. Pilotte who allegedly was scheduled to be in Québec on January 16, 1996. Secondly, the nature of this case is such that, in my view, Mr. Pilotte would not have had too much difficulty in properly representing Navimar even though his preparation time would have been slightly less than two weeks.

In the event, Mr. Pilotte did not have to apply to withdraw from the record since Mr. Hébert decided to substitute himself as solicitor of record. Mr. Hébert could have insisted that Mr. Pilotte’s law firm continue to act on behalf of Navimar. It is obvious that Mr. Hébert’s purpose in substituting himself as solicitor of record was to obtain the adjournment which the Associate Chief Justice had denied him.

Thus, in these circumstances, I concluded that the interests of justice required that the trial proceed as scheduled.

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