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T-682-84
Horst Lietz (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Cullen J.—Toronto, May 8; Ottawa, May 13, 1985.
Customs and excise — Flying bridge added to vessel in U.S.
— Unlawful importation — Unpaid duty — Seizure by Crown
— Outstanding charges owing to marina company — Vessel sold by Court order to satisfy debt — Plaintiff purchasing vessel, free and clear of all liens — Whether Crown's rights arising prior to Court order superseded thereby — S. 2 Customs Act providing for automatic forfeiture upon unlawful importation — Title immediately vesting in Crown — By order in rem, Court vesting title to ship in purchaser — Judicial order being in rem, binding on world, including Crown
— Court order superceding Crown's rights — Failure by Crown to secure duty not barring recourse against former owner — Customs Act, R.S.C. 1970, c. C-40, ss. 2, 18, 150, 163, 164, 165, 175, 176, 180, 192, 205 (as am. by S.C. 1974-75-76, c. 5, s. 5), 231 — Federal Court Rules, C.R.C., c. 663, R. 474.
Maritime law — Seizure of vessel by Crown — Unpaid duty
— Proceedings instituted against vessel to satisfy outstanding charges owing to marina — Court ordering sale of vessel to plaintiff free and clear of all liens — Whether Court order superceding Crown's rights arising prior to order — Under s. 2 Customs Act, unlawful importation of goods resulting in auto matic forfeiture, thus vesting title in Crown — Order in rem creating "absolute and antecedent lien" in favour of claimants in rem — Title vested in purchaser — Judicial order being in rem, binding on world, including Crown — Crown's rights abrogated by Court sale — Customs Act, R.S.C. 1970, c. C-40, s. 2.
CASES JUDICIALLY CONSIDERED APPLIED:
Minna Craig Steamship Company v. Chartered Mercan tile Bank of India, London and China, [1897] 1 Q.B. 460 (C.A.).
CONSIDERED:
Marun, Tvrtko Hardy v. The Queen, [1965] I Ex.C.R. 280; The Queen v. Sun Parlor Advertising Company, et al., [1973] F.C. 1055 (T.D.); Johnson v. The SS. Bella (1922), XXI Ex.C.R. 305; Sleeth v. Hurlbert (1895), 25 S.C.R. 620.
COUNSEL:
M. A. Davis and R. Davis for plaintiff. Carolyn P. Kobernick for defendant.
SOLICITORS:
Bresver, Grossman, Scheininger & Davis, Toronto, for plaintiff.
Deputy Attorney General of Canada for defendant.
The following are the reasons for order ren dered in English by
CULLEN J.: The plaintiff, Horst Lietz, is a businessman and resides in the City of Toronto, in the Municipality of Metropolitan Toronto, in the Province of Ontario. The defendant is Her Majes ty the Queen in Right of Canada as represented by the Minister of National Revenue for Customs and Excise. On or about the 17th day of March 1982, the plaintiff purchased all of the shares of Lefroy Harbour Company Limited (Lefroy Harbour), an Ontario corporation operating a marina in Lefroy, Ontario. The vessel Carole Ann III was docked at Lefroy Harbour, having undergone repairs prior to the purchase of Lefroy Harbour by the plaintiff.
At the time of the purchase of Lefroy Harbour by the plaintiff, there was unpaid duty not declared to Canada Customs by the former owner of the vessel, one Dr. Paul Stewart, a Canadian citizen. The unpaid duty was for certain improve ments to the vessel, in particular, a new flying bridge had been added to the vessel in the United States of America.
In or about the month of April 1982, the plain tiff unsuccessfully attempted to locate Dr. Stewart to collect outstanding storage and repair charges owed to Lefroy Harbour. On or about the 19th day of May 1982, Lefroy Harbour commenced pro ceedings against the vessel in the Federal Court to have the vessel sold by Court order and have the debt satisfied out of the proceeds of sale. By order of Mr. Justice Walsh dated August 3, 1982, the vessel was ordered appraised and advertised for sale by way of sealed tenders. His Lordship further ordered that a public notice of sale be published once in the Globe and Mail.
The subsequent order of sale by Mr. Justice Jerome dated August 31, 1982 provided, inter alla:
1. That one, Horst Lietz, having submitted the only bid for the purchase of the defendant ship, which bid exceeded the appraised price for said ship is entitled to retain said ship for his own use.
2. That the basis of the sale to said Horst Lietz is that he shall take the ship as is and where is as it now lies afloat at Lefroy Marine, Lefroy, Ontario, particulars not guaranteed, free and clear of all liens, charges, mortgages, encumbrances and claims.
3. That the balance of the purchase price of the defendant ship shall be paid into this Court on or before the 30th day of September 1982. At the time of said payment into this Court, all necessary documents for the transfer of title of said ship to Horst Lietz shall be delivered by the District Administrator of this Court.
4. That there shall be published in the Globe and Mail once only, a public notice to all creditors or any others having claims against the defendant ship or the proceeds derived therefrom and there shall be no payments out of the proceeds derived from the sale of the defendant ship until 30 days after the publication of said notice.
5. That the District Administrator of this Court do all further acts and execute all necessary docu ments in execution of this order.
On or about the 26th day of May 1983, as a result of an investigation by the employees of the defendant into the illegal importation of the flying bridge, the said flying bridge was seized from the plaintiff pursuant to the provisions of sections 18, 175, 176, 180, 192, 205 and 231 of the Customs Act, R.S.C. 1970, c. C-40 as amended [by S.C. 1974-75-76, c. 5, s. 5]. On or about the 2nd day of June 1983, the plaintiff forwarded a deposit in the amount of $13,718.54 to the defendant which sum represented the amount required to release the goods from seizure. The plaintiff gave notice to the defendant that the monies were paid in protest and without any admission of liability.
On or about the 12th day of January 1984, a ministerial decision was rendered in this matter pursuant to section 163 of the Customs Act which provided that $8,258.50 be retained out of the deposit and be forfeited and that the balance of the deposit in the amount of $5,460.04 be returned. On or about the 18th day of January 1984, the plaintiff gave notice pursuant to section 164 of the Customs Act that he would not accept the ministerial decision and requested that the matter be referred to the Federal Court pursuant to section 165 of the Customs Act. On or about the 26th day of January 1984, the plaintiff was advised that this was not a case the Minister would refer to the Federal Court and was referred to section 150 of the Customs Act. The plaintiff commenced this action in the Federal Court seek ing, inter alia, the return of his deposit.
The parties have proceeded pursuant to Rule 474 of the Federal Court Rules [C.R.C., c. 663] on a determination of a question of law and have characterized it as follows: where a person pur chases a vessel pursuant to an order of the Federal Court of Canada granting title free and clear of all liens, charges, mortgages, encumbrances, and claims, are the rights of Her Majesty the Queen in Right of Canada arising prior to the issuance of said order pursuant to section 2 of the Customs Act extinguished or superseded by the said order?
The action, which was the subject of the order of the Associate Chief Justice, was brought by Lefroy Harbour Company Limited against the ship Carole Ann III and not against Dr. Stewart. The plaintiff in that action sought payment from Dr. Stewart before commencing its action against the ship.
The law is quite clear that Dr. Stewart had a duty to report when the ship arrived in Canada. He did not do so, as required by section 18 of the Customs Act. Section 180 spells out that failure to comply results in a forfeiture of the goods. Section 2 of the Customs Act clearly spells out that forfeit ure shall accrue at the time and by commission of the offence, in respect of which the penalty of forfeiture is imposed. In other words, the forfeiture is automatic at the time of the offence and that is the case here, namely, Dr. Stewart's failure to
report resulted in a forfeiture; put another way, title vested in the Crown immediately. Cattanach J. in Marun, Tvrtko Hardy v. The Queen, [1965] 1 Ex.C.R. 280 states, at page 295:
The language of the section does not require that the goods be found in the custody of that particular person.
The forfeiture is not brought about by any act of the Customs officials or officers of the Department, but it is the legal unescapable consequence of the unlawful importation of the goods....
and later [at pages 296-297]—and note the similarity with this case,
None of the parties knew of the claim for duty and all were innocent of the unlawful importation.
The purpose of section 203 [now 205] is clearly to protect a person who innocently comes into possession of unlawfully imported goods and without means of knowing they were unlawfully imported, from prosecution ... but ... not to vest title to unlawfully imported goods in such person. [The under lining is mine.]
This view was accepted and followed by Urie J. in The Queen v. Sun Parlor Advertising Company, et al., [1973] F.C. 1055 (T.D.), at page 1065:
... the provisions of sections 180 and 205 are mandatory and forfeiture occurs automatically upon unlawful importation of goods by virtue of section 2(1) of the Customs Act, .. .
At the time of the order of Mr. Justice Walsh— namely August 3, 1982, title to the ship was clearly vested in the Crown, although this fact was not known by anyone, either at the time of the first order or the subsequent order of the Associate Chief Justice on August 31, 1982.
Johnson v. The SS. Bella (1922), XXI Ex.C.R. 305 is a clear authority for the proposition that "a judicial sale of a vessel under the decree of a Court, without jurisdiction to order such sale is an absolute nullity" [page 305].
Did the Court here have jurisdiction? Counsel for the plaintiff argues that the order of the Associate Chief Justice was an "order in rem" and therefore binding on the world, including the
Crown. Citing a definition from 16 Halsbury, counsel submits that we have here "the judgment of an admiralty court establishing a lien". The plaintiff, citing Minna Craig Steamship Company v. Chartered Mercantile Bank of India, London and China, [1897] 1 Q.B. 460 (C.A.), at pages 464-465, a decision by Lord Esher M.R.:
But, when the ship is condemned by a Court having jurisdiction to condemn her in rem, by that condemnation the property in the ship is taken out of the former owners, and she becomes the ship of the claimants in the proceedings in rem to the extent of their claim. They of course have not the possession of the ship, and cannot sell the ship or transfer her when sold. She is in the hands of the Court, which orders her sale and gives title to the purchaser, and, when the sale has taken place, the purchase- money is paid into court. [The underlining is mine.]
And later, citing Lopes L.J. at pages 467-468,
We can therefore only deal with it as a judgment in rem, as a conclusive judgment binding upon all the world.... It is a declaration as to the status of the ship, binding upon everybody, and no English Court can impeach it. It is a judgment declaring an absolute and antecedent lien in the persons in whose favour the German Court has decided, and we cannot say that the defendants on account of anything that has happened are bound to give up to the liquidator of the company or to anybody else that which has been given to them as the fruits of that lien.
Here Lefroy Harbour sought to enforce a lien, and even though the Crown had had no actual notice, the vessel was sold. In my view the judg ment of the Associate Chief Justice was a judg ment in rem and binding on the world, including the Crown.
In Sleeth v. Hurlbert (1895), 25 S.C.R. 620, at page 630, a decision of the Supreme Court of Canada, Sedgewick J. states:
A judgment in rem is an adjudication pronounced upon the status of some particular subject-matter by a tribunal having competent authority for that purpose. Such an adjudication being a solemn declaration from the proper and accredited quarter that the status of the thing adjudicated upon is as declared, concludes all persons from saying that the status of the thing adjudicated upon was not such as declared by the adjudication.
The action was styled in the name of the ship and the plaintiff was clearly taking an action in rem. This was accepted by Mr. Justice Walsh and Associate Chief Justice Jerome. Had the plaintiff
sued Dr. Stewart then it would have been a clear case of an action in personam.
The Crown has called the order secured by Lefroy Harbour Company Limited an order in personam, exercised in rem. I cannot concur, and really wonder if such a position is credible. I cannot see this action by Lefroy Harbour Com pany Limited as other than an action in rem to secure its claim, and the order, having been made, is binding. The Crown is not without resources or responsibility. It had two opportunities to secure duty, namely, when the ship came into Canada and had to report to Customs, and following the advertisement in the Globe and Mail which notice Mr. Justice Walsh felt was adequate for all third parties. The Crown still has recourse to the party responsible in the first instance, Dr. Stewart.
The decision then is that the order of the Feder al Court of Canada granting title free and clear of all liens, charges, mortgages, encumbrances and claims supercedes the right of Her Majesty the Queen in Right of Canada arising prior to the issuance of the said order pursuant to section 2 of the Customs Act.
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