T-2903-78
Orient Leasing Company Ltd. (Plaintiff)
v.
The Ship Kosei Maru (Defendant)
Trial Division, Marceau J.—Montreal, October
16, 17, 18, 19 and 20; Ottawa, November 10,
1978.
Maritime law — Default in ship's mortgage precipitating
action to enforce mortgage — Action launched by means of in
rem proceedings against ship — Ship's mortgage and parties
to mortgage subject to Japanese law, but ship in Canadian
waters, under arrest — Default occurring after order of Japa-
nese court made, pursuant to Japanese Corporate Reorganiza
tion Law — Realization on security in Japan not possible
except by recourses permitted by that statute — Whether or
not Japanese Corporate Reorganization Law and orders of
Japanese court made under that law, can affect Japanese ship
lying in Canadian port — Federal Court Act, R.S.C. 1970 (2nd
Supp.), c. 10, ss. 22, 43.
The Kosei Maru, a Japanese flag motor vessel, owned by a
company incorporated under the laws of Japan with its princi
pal place of business in Japan, was arrested in Hamilton,
Ontario, pursuant to a warrant issued at the instance of the
plaintiff, another Japanese company. This action is to enforce a
mortgage; it was launched by means of an in rem proceeding
against the vessel when she was lying in a Canadian port. If the
action in rem is a valid recourse in Canada, it must be a remedy
that must be used only for enforcing a valid substantive right.
The validity of the right that the plaintiff purports to assert
depends solely on the applicable Japanese law. The "sales
contract by instalments", by which plaintiff sold the Kosei
Maru to her current owners and the deed of mortgage were
valid contracts, subject to Japanese law. The ship's owners
applied for reorganization under a special Japanese statute, the
Corporate Reorganization Law. A Japanese court, pursuant to
that law, forbade the making of payments on debts (including
those incurred to the plaintiff). Recourse could be had, in
Japan, only under the Corporate Reorganization Law. Under
the applicable contracts, considered by themselves, there was
default which, were it not for the Japanese court's orders,
would otherwise entitle the plaintiff to foreclose on its mort
gage against the defendant ship. The issue is whether or not the
Corporate Reorganization Law of Japan, and the orders of the
Japanese court made under its authority, can affect the Kosei
Maru while lying in a Canadian port.
Held, the action is allowed. The Court's duty is to apply to
this case the law of Japan as it is today, and in order to
ascertain what that law is, in the absence of any direct court
precedent, the Court cannot adopt an approach that would lead
beyond the plain meaning of the statutory language and give a
provision of the law an interpretation contradicting a view
unanimously held, up to this day, by all the practitioners,
commentators and scholars of Japan. It is not for a Canadian
Court to initiate a completely new interpretation of a Japanese
statute. As the law now stands in Japan, the commencement of
corporate reorganization proceedings against the owners does
not preclude the plaintiff from foreclosing its mortgage and
asserting its rights against the defendant ship while lying in a
Canadian port, some of the events of default agreed upon in the
deed of mortgage having occurred. This Court, having jurisdic
tion to entertain an action in rem based on the foreclosure of a
mortgage against a ship lying in Canadian territory, has no
alternative but to recognize the plaintiffs right and give effect
to its claim.
ACTION.
COUNSEL:
Pierre Côté and Marcel Savard for plaintiff.
David Angus and Marc de Man for
defendant.
SOLICITORS:
Ogilvy, Montgomery, Renault, Clarke, Kirk-
patrick, Hannon & Howard, Montreal, for
plaintiff.
Stikeman, Elliott, Tamaki, Mercier & Robb,
Montreal, for defendant.
The following are the reasons for judgment
rendered in English by
MARCEAU J.: The Kosei Maru is a Japanese
flag motor vessel registered at the Port of Kobe,
Japan. She is owned by Issei Kisen Keisha, Ltd.,
("Issei Kisen"), a company incorporated under the
laws of Japan and having its principal place of
business in Japan.
On the 28th day of June, 1978, the Kosei Maru
was arrested at Hamilton, Ontario, pursuant to a
warrant issued by this Court at the instance of the
plaintiff, Orient Leasing Company Ltd., ("Orient
Leasing"), another Japanese company. The state
ment of claim alleged in substance that by virtue
of a "sales contract by instalments", Orient Leas
ing had sold the vessel to Issei Kisen for an agreed
sum payable by instalments, the payments thereof
being secured by a first ship mortgage on the
vessel which mortgage had been duly recorded
with the Kobe District Legal Affairs Bureau,
Japan, that the defendant and her owners had
defaulted under both the "sales contract by instal
ments" and the deed of mortgage, and were still in
default, after being duly placed on notice, and that
as a result Orient Leasing had the right to fore
close the mortgage and to enforce its claim against
the ship as mortgagee.
A motion to set aside the arrest as being an
abuse of the process of this Court was immediately
made on behalf of the defendant and her owners.
In the affidavit furnished in support of the motion,
the Court was informed that Issei Kisen was under
reorganization proceedings in Japan pursuant to
orders of the District Court of Kobe made under
the authority of the Corporate Reorganization
Law of Japan, as a result of which the company
was being run by court-appointed administrators.
It was contended that, pending these reorganiza
tion proceedings, under Japanese law the company
shipowner was prohibited from making any pay
ment to its creditors and that the plaintiff had no
substantive right to foreclose on the mortgage. The
motion to set aside was dismissed by the Appeal
Division of this Court, on the ground that it was
impossible at that early stage of the proceedings to
say that the mortgage was clearly not enforceable;
the action was to be allowed to go to trial, since
there was a "fairly arguable case". The case was
certainly arguable.
It came on for hearing at Montreal on October
16, 1978, and the trial lasted five full days.
Numerous documents (52) were produced in evi
dence and not less than seven expert witnesses,
four on behalf of the plaintiff, three of the defend
ant, were called upon to testify as to the state of
the Japanese law that appeared to be applicable.
The Court of Appeal was right when it foresaw
that difficult problems of law and fact would be
raised: these must now be defined and resolved.
In fact, the positions taken by the parties and
their respective counsel, both in the pleadings and
during the trial, have simplified the issues to some
extent.
There is no dispute as to the jurisdiction of the
Court. This is an action to enforce a mortgage; it
was launched by means of an in rem proceeding
against the vessel, at a time when she was lying in
a Canadian port and could be arrested. The juris
diction to entertain such an action in rem is defi
nitely conferred on the Federal Court by para
graph 22(2)(c), paragraph 22(3)(0 and
subsection 43(2) of the Federal Court Act.' The
fact that the vessel is a Japanese flag vessel, that
the parties are Japanese, that there is no Canadian
claim against the defendant and no Canadian
creditors of her owners, does not affect such juris
diction nor does it relieve the Court of its duty to
exercise it (see Antares Shipping Corporation v.
The "Capricorn" [1977] 2 S.C.R. 422; Interna
tional Marine Banking Co. Limited v. The MIT
"Dora" [1977] 2 F.C. 513). It is obvious, however,
that if the action in rem is a valid recourse in
Canada, it is a remedy that must be used only for
enforcing a valid substantive right.
There is also no dispute between the parties that
the validity of the substantive right the plaintiff
purports to assert depends solely upon the appli
cable Japanese law. The parties are Japanese and
the action is based on contracts that were entered
'22. ...
(2) Without limiting the generality of subsection (1), it is
hereby declared for greater certainty that the Trial Division has
jurisdiction with respect to any claim or question arising out of
one or more of the following:
(c) any claim in respect of a mortgage or hypothecation of,
or charge on a ship or any part interest therein or any charge
in the nature of bottomry or respondentia for which a ship or
part interest therein or cargo was made security;
(3) For greater certainty it is hereby declared that the
jurisdiction conferred on the Court by this section is applicable
(d) in relation to all mortgages or hypothecations of or
charges by way of security on a ship, whether registered or
not, or whether legal or equitable, and whether created under
foreign law or not.
43. ...
(2) Subject to subsection (3), the jurisdiction conferred on
the Court by section 22 may be exercised in rem against the
ship, aircraft or other property that is the subject of the action,
or against any proceeds of sale thereof that have been paid into
court.
into between them in Japan: these contracts are
undoubtedly governed by Japanese law.
It is moreover admitted on behalf of the defend
ant and her owners that the "sales contract by
instalments", by virtue of which the plaintiff sold
the Kosei Maru to Issei Kisen and the deed of
mortgage dated April 7, 1977, entered into in
order to secure the payments of the instalments,
were valid contracts having the same force and
effect under Japanese law as similar contracts
would have under our law.
Finally, it is not contested that Issei Kisen dis
honoured the promissory note it had drawn for the
monthly instalment that was to become due, under
the said contracts, on the 15th of February, 1978,
and that it has never paid any amount on account
of that debt notwithstanding the notice of default
given by the plaintiff.
While these admissions of course eliminate
issues that otherwise would have had to be deter
mined and even appear to afford some substance
to the action, they actually do not reach the real
problem raised by the proceedings. The problem
stems from facts I have already mentioned when
referring to the motion to set aside the arrest: they
are the following.
On the 26th day of January, 1978, Issei Kisen
applied to the District Court of Kobe, Japan, for
reorganization under a special Japanese statute,
the Corporate Reorganization Law. Pursuant to
that application, the District Court of Kobe, on
January 28, 1978, issued an interim order which,
inter alia, forbade the applicant from making pay
ment of any debts incurred by it prior to January
27, 1978, including those incurred to the plaintiff.
On the 7th day of February, 1978, the District
Court of Kobe issued further orders, including,
inter alia, the appointment of two "preservative
Administrators" to manage the affairs of the
applicant, pending consideration by the Court of
the application for reorganization. On the 21st day
of April, 1978, the District Court of Kobe
adjudicated upon and granted the application,
appointing the two "preservative Administrators"
as "Administrators" of the assets and affairs of the
applicant; the Court further directed that a reor
ganization plan be prepared to be filed in the
Court not later than November 30, 1978, and
ordered that all creditors of the company applicant
wishing to avail themselves of the applicable
recourses under the said Corporate Reorganization
Law file their claims and "details" of their secu
rity, if any, with the Court, on or before the 31st
day of May, 1978. On the 24th day of May, 1978,
the plaintiff complied with the order and filed its
claim including particulars of its security with the
District Court of Kobe.
Having regard to these facts, the argument
advanced on behalf of the defendant can readily be
anticipated. As a result of the orders made by the
District Court of Kobe under the Corporate Reor
ganization Law of Japan, the plaintiff was not
entitled to realize upon its security other than in
Japan through the process of the proceedings
pending in Japan. By arresting the vessel and filing
its statement of claim in this Court, the plaintiff
had violated the Corporate Reorganization Law of
Japan and the orders of the Court of Kobe made
thereunder; the action is illegal under Japanese
law, it would not be entertained by a Japanese
court, and to ask this Court to entertain it notwith
standing constitutes an abuse of process. More
over, under neither Japanese law nor the appli
cable contracts governed by Japanese law, had
there been any legal default on the part of the
owners which would entitle the plaintiff to fore
close in Canada on its mortgage against the ship.
The plaintiff naturally denied all of those con
tentions. Its submission was not that the law of
Japan ought to be disregarded and the orders of
the Japanese courts be ignored. Its submission was
that the Corporate Reorganization Law of Japan
can be effective only with regard to the property of
a debtor company existing within Japanese territo
ry and cannot affect property physically located or
situated outside Japan. It follows, according to the
plaintiff, that a creditor cannot be precluded, by
the issuing of orders made under the authority of
that law, from realizing upon its security against
property situated outside Japan, and an action to
this effect taken in a foreign jurisdiction is perfect
ly legal, does not constitute a violation of Japanese
law nor of any order made thereunder, and can in
no way be said to be an abuse of the process of the
foreign court. In the present case, argues the plain
tiff, both the sales contract by instalments and the
mortgage deed specifically provided that an
application for reorganization under the Corporate
Reorganization Law of Japan made by the debtor
company, as well as a failure on its part to pay any
instalment becoming due under the contracts, were
to be considered events of default, whatever might
be their cause, and there exists no reason why
these contractual provisions, which are perfectly
legal under Japanese law, should not be considered
fully effective and capable of sustaining a foreclo
sure action in this country.
The basic and indeed the sole issue in this case
can now be readily seen. That issue is whether or
not the Corporate Reorganization Law of Japan,
and the aforesaid orders made under its authority
pursuant to the application of Issei Kisen, can
affect the Kosei Maru while lying in a Canadian
port. I said the sole issue, as it is abundantly clear
that, under the applicable contracts considered by
themselves, there has been default which, were it
not for the aforesaid orders, would otherwise cer
tainly entitle the plaintiff to foreclose on its mort
gage against the defendant ship.
Before dealing with this difficult issue, two pre
liminary comments would, I think, be appropriate.
1. Since counsel for both parties, in their argu
ment before me, discussed at some length the
question of the burden of proof with regard to the
foreign law applicable which, for this Court, is, of
course, to be considered as a fact that must be
ascertained and proved as such, I wish to make a
few remarks on the subject. I expressed my dis
agreement, during the trial, with the contention
put forward by counsel for the defendant to the
effect that the plaintiff had to assume the entire
burden of proof, it being the party that had to
satisfy the Court that the action was well founded
in spite of the aforesaid orders made under the
Corporate Reorganization Law of Japan. I still
disagree with such a broad statement. In my view,
the fact that constitutes foreign law, although very
special in nature, is to be treated as any other fact
when the question of the onus of proof arises: the
party relying upon it to advance its contention
must prove it. In practice, however, the burden of
proof of such a fact, particularly when a difficulty
of interpretation is involved, may shift from one
side to the other during the course of the trial, thus
requiring both parties to adduce evidence relating
thereto, and the Court cannot but take into
account the whole of that evidence. It is only
where the Court is unable to arrive at any positive
conclusion as to some particular alleged effect of
the foreign law that the question of the burden of
proof may have a clear significance. This is not the
case here.
2. Foreign law, as a fact, must be proved by
skilled witnesses whose evidence can and must be
criticized but remains all the same the only basis
on which the Court can draw its conclusion.
Where the evidence of those witnesses is conflict
ing, the Court may have to "examine and construe
the passages cited for itself in order to arrive at a
satisfactory conclusion" (Phipson on Evidence,
l lth ed., paragraphs 1292-93). That is well known
and can be accepted without difficulty. But coun
sel for the defendant would like the last statement
to be further qualified: he contends that, in exam
ining and construing the foreign law applicable,
the Court should adopt the same attitude as if that
law was a law of this country. I cannot agree. In
my view, the function of this Court is to endeavour
to ascertain the state of the law in Japan today,
regardless of what it should be or may become
tomorrow under the possible creative influence of
the Japanese jurisprudence. In other words, it is
not for this Court to initiate a totally new
approach to the interpretation of a Japanese law.
These last remarks will be better understood when
reference is made to the evidence at trial, but as
they go directly to the gist of the problem, I
thought it might be helpful to make them at this
stage.
As previously stated, seven expert witnesses
were called upon to testify as to the interpretation
to be given to the Corporate Reorganization Law
of Japan and the effect the orders made there-
under in this case could have had on the defendant
ship while she was lying in a Canadian port. All of
them were very learned jurists, very familiar with
Japanese law and particularly with the Bankruptcy
Law and the Corporate Reorganization Law of
Japan. Two are leading scholars and authors, two
are retired judges, the others are practising law
yers. All of them, although in varying degrees,
have greatly impressed me. To choose between
their conflicting views would at first sight appear
to be an impossible task. Yet, it did not prove to be
so, as it turned out that there was no real choice to
be made among the various opinions expressed
simply because, when analyzed, these opinions
were not as divergent as they first appeared to be.
In other words, as a rapid review thereof will show,
the areas of apparent conflict between the expert
testimonies, for the needs of this trial, can and
must be reconciled.
Prior to 1952, there were three judicial devices
available in Japan for the liquidation or the
rehabilitation of insolvent debtors or those in seri
ous financial difficulties: a straight bankruptcy
proceeding, a composition proceeding, and an
arrangement proceeding for stock corporations. In
1952, corporate reorganization was added. The
new proceeding was adopted as a result of the
influence of the American occupation authorities
and its basic structure was borrowed from an
American model, the U.S. Bankruptcy Act, Chap
ter 10 Rules. However, it differed on many points
from its American counterpart: the new institution
had to fit into the Japanese civil law system and
harmonize with existing insolvency proceedings. In
1967, in order to remedy some failings which came
to light during the fifteen years following its enact
ment, the new law was subjected to a large-scale
amendment.
The objectives of the Corporate Reorganization
Law are somewhat different from and broader
than those of traditional bankruptcy proceedings.
They are not merely to aid and rehabilitate a
debtor in difficulty while assuring equal treatment
between his creditors. The law's first objective is to
find ways to maintain a business which is in
financial difficulty as a viable and productive con
cern. The legislators had in mind businesses of a
relatively substantial size, conducted in the form of
stock corporations, the activities of which could be
considered as having some influence on the nation
al economy and the labour market. Under the law,
the commercial activities of the corporation whose
application for reorganization is granted are to be
continued while the proceeding goes on; the busi
ness is maintained as before by one or several
court-appointed administrators. One of the basic
features of the law is that all of the creditors of the
corporation are affected by the reorganization that
is being carried on, and not only the unsecured
ones as in other traditional insolvency proceedings.
Commencement of a corporate reorganization
works automatically to prohibit the enforcement of
security interest (articles 67, 112, 123) and even
previous to that, while the application is being
considered, the secured creditors may be enjoined
by the Court from enforcing their rights (article
37). The secured creditors' remedy is the same as
that of the unsecured ones: they must file their
claim with the Court and be satisfied with what
may be given them pursuant to the reorganization
plan (articles 112, 123, 241).
This general information on the history of the
law and its main features, although brief and
somewhat superficial, is nevertheless sufficient, I
believe, to permit us to come to grips with the
problem we have to deal with here. The following
question is obviously at the root of that problem.
When a corporate reorganization proceeding is
commenced in Japan with regard to a corporation
that has assets in a foreign country, should such
proceeding be effective on the debtor's properties
situated abroad as well as on its properties situated
in Japan? This question, it can easily be seen, is a
fundamental one which arises with respect to any
bankruptcy or reorganization proceedings com
menced in any country when the debtor has assets
in another country, and the answer need be given
by domestic legislative policy, i.e. by the law of the
country where the proceedings are commenced,
since in the absence of specific international con
vention no principle of international law is
involved. Where the answer is in the affirmative,
the authors state that the "principle of universal
ity" has been adopted while, where the answer is in
the negative, the principle is called "principle of
territoriality". The reasons why a legislature might
adopt one principle rather than the other are not
here in question, although it can readily be seen
that while the "principle of universality" appears
to be more satisfactory in itself, to be given full
effect the cooperation of the foreign states is
required and it is certainly less in keeping with the
idea that insolvency proceedings are a form of
collective compulsory proceedings involving an
exercise of the sovereign power of a state.
The answer given by the Japanese legislature to
the question of the extra-territorial effect of the
corporate reorganization proceedings is different
from that found in the American legislation, and is
expressed in article 4 of the Law which, in the
translation that was furnished to the Court, reads
as follows:
Article 4. Reorganization proceedings commenced in Japan
shall be effective with respect to only those properties of the
company which exist in Japan.
2. Reorganization proceedings commenced in a foreign country
shall not be effective with respect to properties situated in
Japan.
3. Obligations, of which demand may be made by way of
judicial proceedings under the Code of Civil Procedure (Law
No. 29 of 1890), shall be deemed to exist in Japan.
This article 4 of the Corporate Reorganization
Law repeats verbatim article 3 of the Bankruptcy
Law enacted in 1922. No one in Japan, familiar
with the law, has ever doubted that the Japanese
legislature intended in 1952 to make the new
Corporate Reorganization Law subject to the same
territoriality principle as the Bankruptcy Law
already in force. And the legal doctrine in Japan is
unanimous as to the consequences that derive from
such a position. No one, so far, has ever publicly
disputed the principle that where bankruptcy or
corporate reorganization proceedings have been
commenced in Japan with regard to a Japanese
debtor, his creditors, whether Japanese or not, are
permitted by virtue of article 3 of the Bankruptcy
Law or article 4 of the Corporate Reorganization
Law, to take any steps or to institute any actions
or legal proceedings before a foreign court against
property situated outside Japan. And no one, so
far, has ever publicly disputed that creditors hold
ing mortgages on properties of a debtor, either
bankrupt or being reorganized, which are situated
outside Japan, are permitted to foreclose their
mortgages and assert their rights before the for
eign court having jurisdiction. In the sole judicial
decision that has dealt with either of the. two
sections, a decision dealing with section 3 of the
Bankruptcy Law, the traditional opinion was
clearly upheld. And to complete the picture I
should add that the main expert called on behalf of
the defendant, Professor Taniguchi, a leading au
thority in Japan, in his book on the insolvency law
published two years ago, did not hesitate to adopt
the traditional views along with all his colleagues.
Up to this point, the situation is clear: the seven
expert witnesses are all agreed. Their difference of
opinion takes shape only beyond this point. While
the experts for the plaintiff firmly believe that the
unanimously accepted interpretation of article 4 of
the Corporate Reorganization Law is strictly
founded in its wording and remains the only possi
ble one, Professor Taniguchi and the two other
jurists who testified for the defendant think other
wise, and expressed the opinion that the traditional
views could and should be put aside. Their thesis is
based on the following reasoning.
The "territoriality principle" embodied in the
laws of Japan dealing with insolvency proceedings
leads to obviously unsatisfactory results in all cases
where valuable foreign assets are involved, which
cases are bound to occur more and more often in
the future, in view of the increasing international
investments and economic activities of Japanese
industries and firms. In reorganization proceed
ings, a strict and unqualified application of the
principle can even lead to absurd results. The very
purpose of the law may be completely frustrated,
as the present case shows, since a shipping com
pany engaged in international trade may hardly
continue its operations with the prospect of seeing
its ships arrested abroad. It would appear that, not
only the legislators of 1952 and those of 1968, but
all of the commentators, practitioners and authors
have failed to properly address their minds to these
regrettable consequences. The "territoriality prin
ciple" should definitely be reconsidered, as to its
application, because it may restrict the effect of
Japanese insolvency proceedings more than is
necessary.
Of course, goes on the reasoning, a legislative
intervention would be the ideal remedy, but in the
meantime a new and different interpretation to
article 4 of the Corporate Reorganization Law
could be sustained that would minimize the ill
effects of its provisions as they have so far been
understood. It could first be recognized that Japa-
nese corporate reorganization proceedings have a
kind of "potential" effect over the foreign assets of
the company involved, in view of the fact that, if
these foreign assets are, for some reason, brought
into Japanese territory, they will become
automatically subject to the power of the court-
appointed administrator. It is indeed a "potential-
ity" which is all the more real since the adminis
trator has means to cause some of those assets to
be repatriated, either through the employees of the
company who are under his authority or through
the directors who are duty bound to cooperate with
him. Such "potentiality", when properly recog
nized, could then be considered as bringing the
foreign assets within the scope of article 4 of the
Law, at least to the degree required to make the
prohibition against individual collection applicable
thereto. Moreover, in the case of a ship, it is not
even necessary to rely on that new "potentiality"
concept: it could be said that even when it is in
foreign waters, by reason of its Japanese registry, a
ship continues to "exist" in Japan within the
meaning of article 4 and, more precisely, within
the meaning of the Japanese rather vague and
flexible word aru used therein. For the purpose of
the Corporate Reorganization Law, a ship would
always be deemed to be legally, if not physically,
"existing" in Japan.
The above summarizes as accurately as I can
the reasoning on which the opinions of Professor
Taniguchi and his two colleagues are based,
although I realize that the summary unfortunately
does not do justice to all of the subtleties of
thought which they expressed. Such a reasoning
appears to me difficult to accept as it shows obvi
ous weaknesses. On the one hand, the new inter
pretation suggested seems to me to go so far
beyond the express statutory language of the
enactment that I doubt whether any court could
accept it, however wide the powers of that court
might be to construe the law. On the other hand, it
might be true, as advanced by counsel for the
defendant, that for certain purposes a ship
remains, even abroad, under the law of the country
where she is registered (although, to my mind, the
only place where such a rule can possibly be held
to be applicable is on the high seas where a ship
would be deemed to be situated in her port of
registry, as she is then subject to no authority
except that of the State whose flag she flies), but
the purpose in question here is that of attachment
and indeed the criterion behind article 4 of the
Corporate Reorganization Law is manifestly the
possibility to be subject to a compulsory execution
by order of the Court, and in that sense it seems to
me impossible to hold that a ship lying in Hamil-
ton, Canada, can in law be deemed to "exist" in
Japan. But in any event, whatever be my difficulty
in accepting to go along the lines of reasoning
followed by the experts for the defendant, I simply
believe that I am not in a position that would
permit me to take their thesis into consideration
and appreciate it.
The comments I made at the outset may now be
seen in their true perspective. As I envisage it, my
duty is to apply to this case the law of Japan as it
is today, and in order to ascertain what that law is,
in the absence of any direct Court precedent, I
cannot adopt an approach that would lead me to
go beyond the plain meaning of the statutory
language and to give a provision of the law an
interpretation contradicting a view unanimously
held, up to this day, by all the practitioners, com
mentators and scholars of Japan. As I already
said, it is not for a Canadian Court to initiate a
completely new interpretation of a Japanese stat
ute, however regrettable its effects might suddenly
appear when read in its natural and traditional
sense.
In my opinion, as the law now stands in Japan,
the commencement of corporate reorganization
proceedings against the owners does not preclude
the plaintiff from foreclosing its mortgage and
asserting its rights against the defendant ship
while she is lying in a Canadian port, some of the
events of default agreed upon in the deed of mort
gage having undoubtedly occurred. The action was
not brought in violation of any Japanese law or of
any judicial orders made thereunder, since the
right it was meant to assert and enforce was a
valid one under the laws of Japan. The "jurisdic-
tion clause" agreed upon in article 18 of the sales
contract by instalments did not constitute a bar to
the proceedings, since that clause obviously related
only to a dispute between the parties in the execu
tion of the contract, and could not apply in the
event of foreclosure where the only court that
could have jurisdiction was that under the author
ity of which the ship could then be arrested. In
bringing the action in this Court the plaintiff was
not "forum shopping" nor was it abusing the pro
cess of the Court, since there was no other forum
where its right could be so asserted and enforced.
This Court, having undoubtedly jurisdiction to
entertain an action in rem based on the foreclosure
of a mortgage against a ship lying in Canadian
territory, has no alternative but to recognize the
plaintiffs right and give effect to its claim.
There remains the question of quantum. This
can be dealt with briefly. By his cross-examination
of the plaintiffs representative, counsel for the
defendant was able to show the high price Issei
Kisen paid to obtain the necessary financing it
required to add the Kosei Maru to the company's
fleet, but he came far short of making a case
against the agreements entered into by the parties
and on which the action is based. These contracts
are governed by the laws of Japan and there is no
suggestion whatever that under those laws they
would not be fully effective and enforceable.
The calculation of the amount due to the plain
tiff under the contracts is detailed in paragraph 12
of the amended statement of claim. It was
explained by the plaintiffs representative and was
not seriously disputed. I must accept it. The
amount is 1,216,211,875 yen or, converted to
Canadian dollars at the admitted rate of exchange
applicable as of the date of the filing of the
statement of claim, $7,613,480.
Together with this amount, the plaintiff claims
interest at the commercial rate of 12% per annum,
plus an additional 14.6% per annum giving effect
to the penalty clause stipulated in article 3 of the
sales contract by instalments, both to be computed
up to the time the vessel is sold and the funds
made available for distribution. I do not agree.
First, while the penalty stipulated in article 3 of
the sales contract by instalments, to which refer
ence is made in article 1 of the deed of mortgage,
is valid and must be enforced, my construction of
these documents leads me to believe that such
penalty was meant to cover all of the damages the
plaintiff could suffer by reason of a delay in
receiving its due. I do not see on what basis an
additional interest at the rate of 12% per annum
could be granted. Second, these contracts on which
the action is based can and must be given effect
only until judgment is rendered. Where the judg
ment is for a specific amount--which will be the
case here as prayed for—that amount cannot bear
interest after judgment at a higher rate than the
Canadian legal rate of 5% per annum.
Accordingly, the plaintiff will have judgment
against the defendant for the payment of the
amount of $7,613,480 together with interest at the
rate of 14.6% per annum from the 16th day of
October, 1978, until the date of judgment and its
costs of this action, and for the appraisement and
sale of the defendant ship, the Kosei Maru.
Counsel for the plaintiff may prepare and
submit an appropriate judgment to give effect to
these conclusions. If counsel cannot agree on the
terms of the pronouncement, oral or written sub
missions may be made to me. I shall then settle the
form of the judgment.
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.