T-2297-87
S. R. Krochenski in his capacity as Deputy Mar
shal of the Federal Court of Canada (Plaintiff)
v.
The Ship Galaxias, The Owners of the Ship
Galaxias and Others interested in her (Defen-
dants)
and
McMaster, Bray, Cameron & Jasich, a partner
ship, Marshall Bray and Timothy P. Cameron,
those defendants identified under numbers 24-87
in Schedule "A" to the statement of claim in this
action (Third Parties)
and
Naftikon Apomahicon Tameion (Third Party)
INDEXED AS: CANADA (DEPUTY MARSHAL, FEDERAL COURT
OF CANADA) V. GALAXIAS (THE)
Trial Division, Rouleau J.—Vancouver, January 4,
5, 6, 7 and 8; Ottawa, April 8, 1988.
Maritime law — Liens and mortgages — Greek ship arrest
ed for lien, mortgage and wage claims — Ship ordered sold by
Court — Greek Minister of Merchant Marine refusing issu
ance of deletion certificate pending satisfaction of claims of
Greek seamen's pension fund — Law of Canada applies where
ship sold by judicial sale pursuant to Canadian court order —
Purchaser takes ship free and clear of all encumbrances — No
covenant title registrable in Greece — Declaration ordered that
bill of sale vested clear title.
Conflict of laws — Maritime law — Judicial sale of ship —
Refusal of Greek government to issue deletion certificate until
Greek seamen's wage claims satisfied — Where ship sold by
judicial sale pursuant to court order in Canada, no conflict of
laws problem arises with regard to sale itself — Substantial
connections with Canada so Canadian law would apply even if
conflict of laws rules resorted to.
This is an application for declarations that delivery of the bill
of sale of the Greek cruise ship, Galaxias, vested title free and
clear of all encumbrances and fully satisfies the Deputy Mar
shal's obligations pursuant to the order for sale. The ship was
ordered sold following its arrest as a result of lien, mortgage
and wage claims. A bill of sale, vesting clear title, was drawn
up in accordance with directives received from the Court. The
closing of the sale was delayed due to the purchaser's reserva
tions regarding validity of the title because the Greek Minister
of Merchant Marine refused to issue the necessary deletion
certificate for Greek registration pending satisfaction of claims
raised by the Greek seamen's pension fund. The purchaser
counterclaimed for damages as a result of failure to convey
clear title, in that the ship could not be registered in the Greek
registry.
Held, the declarations should be granted and the counter
claim and third party proceedings dismissed.
Where a ship is sold by judicial sale pursuant to a court order
in Canada, no conflict of laws problem arises with respect to
the sale itself. Even if Canadian law did not automatically
apply to the sale of this ship, the connections with Canada were
sufficient that, even resorting to conflict of laws rules, Canadi-
an law would apply. A court ordered sale in an action in rem
conveys the ship free and clear of all liens. The existence of a
phrase such as "free and clear of all encumbrances" does not
add to or subtract from any rights which the purchaser will
enjoy. The Canadian judicial sale does not carry with it,
however, a guarantee that the integrity of the sale will be
recognized by all foreign governments, and no wording should
appear in the bill of sale or order which would suggest that this
is the case. There is nothing in the bill of sale, order or
advertisement which would constitute either an express or
implied covenant that title would be registrable in Greece.
Although Canadian courts expect courts and governments of
other nations to respect their orders and judgments, particular
ly in the area of maritime law, the Federal Court can exercise
no control in this regard. The Court could avoid the matter
being raised and return to the former practice of deleting
phrases such as "free and clear of all encumbrances"; however,
those involved with shipping believe that this would result in a
substantial reduction in the prices obtained for vessels upon
Court sales.
CASES JUDICIALLY CONSIDERED
APPLIED:
Orient Leasing Co. Ltd. v. The "Kosei Maru", [1979] 1
F.C. 670 (T.D.); Boudreau v. Registrar of Shipping,
[1984] 1 F.C. 990 (T.D.); International Marine Banking
Co. Limited v. The "Dora", T-2934-76, Thurlow A.C.J.,
judgment dated 7/9/76, not reported.
CONSIDERED:
Stephens' Estate v. Minister of National Revenue,
Wilkie, Morrison, Smith, Statham (Deputy Sheriff,
County of Oxford) Constable Ross and Davidson (1982),
40 N.R. 620 (F.C.A.); Vrac Mar Inc. v. Demetries
Karamanlis, [1972] F.C. 430 (T.D.); Athens Cape Navi-
era S.A. v. Deutsche Dampfschiffarhtsgesellschafi
"Hansa" Aktiengesellschaft and Another (The "Baren-
bels"), [1984] 2 Lloyd's Rep. 388 (Q.B.).
REFERRED TO:
In re The "Tremont", [18411 1 W. Rob. 163; 166 E.R
534 (Eng. Adm. Ct.); The "Acrux", [1962] 1 Lloyd's
Rep. 405, (Eng. Adm. Ct.); Lietz v. The Queen, [1985] I
F.C. 845 (T.D.).
COUNSEL:
J. E. Gouge and K. A. G. Bridge for plaintiff.
M. Bray for third parties.
C. J. O'Connor for Global Cruises.
SOLICITORS:
Lawson, Lundell, Lawson & McIntosh, Van-
couver for plaintiff.
McMaster, Bray, Cameron & Jasich, Van-
couver, for third parties.
Ladner Downs, Vancouver, for Global
Cruises.
The following are the reasons for judgment
rendered in English by
ROULEAU J.: These reasons relate to the oral
judgment rendered by me in the above-styled
action in Vancouver, British Columbia, on January
6, 1988.
Although the facts are not substantially in issue
in this matter, for the sake of easy reference, I
include a very brief resume of how these parties
came before the Court.
The Greek registered cruise ship Galaxias sailed
from Piraeus, Greece, in the spring of 1986. It
proceeded through the Panama Canal and sailed
up the western seaboard of North America having
stopped in Acapulco, to engage a band of musi
cians. In June, 1986, the Galaxias sailed into
Vancouver harbour with a full crew aboard. It was
berthed there during the summer of 1986 and by
means of certain connections to the shore was
established as a "floating hotel" for the enjoyment
of visitors to the world exhibition in Vancouver,
called "Expo 86", being hosted by that city.
In the fall of 1986, financial problems developed
with respect to the continued operation of the
Galaxias and, on September 1, 1986, it was arrest
ed pursuant to a warrant issued by this Court on
the application of Baseline Industries Ltd., a whar-
finger. Since that date numerous claims have come
to light including several wage claims, (Metaxas v.
Galiaxas (The), T-2406-86, Villanueva-Velasquez
et al., T-2325-86, and Katerelos et al., T-318-87),
a possessory lien claim (Baseline), a mortgage
claim (National Bank of Greece S.A.) and most
importantly, a somewhat novel claim for a mari
time lien purportedly legislated by the Greek gov
ernment in favour of the Greek seamen's union,
Naftikon Apomahicon Tameion (hereinafter
referred to as N.A.T.).
S. R. Krochenski, the plaintiff in this action, a
sheriff of British Columbia was appointed as a
Deputy Marshal of the Federal Court of Canada,
to carry out the commission of sale of the
Galaxias. After one false start, wherein the ship
was advertised for sale and no adequate offers
were received, the ship was readvertised in several
international newspapers, pursuant to the order of
Madam Justice Reed, dated April 27, 1987 (subse-
quently amended, referred to throughout as the
order for sale). As a result of this advertisement,
an offer of $1.1 million was received from the
defendant, Global Cruises S.A., and accepted,
being the highest tendered. A bill of sale was
drawn up in accordance with directives received
from the Court with the concordance of some of
the creditors of the ship. The order for sale stated
inter alia:
5. The M.V. Galaxias shall be sold, where is, as is, with all
faults as they now lie, without any allowance for deficiency in
length, weight, quantity or quality or any defect or error
whatsoever, particulars not guaranteed, free and clear of all
encumbrances.
6. The Deputy Marshall [sic] of the Federal Court of Canada
shall be vested with the right to execute a Bill of Sale,
transferring the vessel to the successful purchaser of the vessel,
free and clear of all encumbrances.
Problems arose shortly thereafter. The time for
the closing of the sale was extended several times,
as the purchaser was encountering difficulties in
financing the balance of the purchase price appar
ently due to questions raised by prospective inves
tors regarding the status of the Galaxias in the
Greek registry. The purchaser became uneasy with
respect to the attitude taken by the Minister of
Merchant Marine in Greece regarding the transfer
of title of the Galaxias clear of all encumbrances
in the Greek shipping registry in Piraeus. The
Minister objected to the issuance of the necessary
deletion certificate and made it contingent on the
satisfaction of the claims raised against the
Galaxias in action no. T-2406-86 by N.A.T., the
Greek seamen's pension fund.
As a result of the refusal of the Minister to issue
the necessary deletion certificate in Greece, and
the reservations which the purchaser held with
respect to the validity of the title passed to him in
the bill of sale, Deputy Marshal Krochenski com
menced this action against the purchaser Global,
as well as all the claimants of the proceeds of the
Galaxias. The Deputy Marshal seeks a declaration
from the Court that he has fulfilled his duty with
respect of the order of sale or commission of sale,
or any other contract that might exist between the
parties and that, furthermore, the bill of sale,
worded pursuant to the Court order of sale does
convey title in the Galaxias to the purchaser, "free
and clear of all encumbrances".
Global has filed a defence to the statement of
claim and has also counterclaimed with respect to
the costs and damages which it claims were
brought about by the failure of the Deputy Mar
shal to convey the ship "free and clear of all
encumbrances" and, as it presently stands, unregi-
strable in the Greek registry. N.A.T. has been
named a third party to this action, as have the law
firm McMaster, Bray, Cameron & Jasich and
many of the claimants to the proceeds of the sale.
THE POSITION OF THE DEPUTY MARSHAL
I am satisfied that the Deputy Marshal was at
all times acting as an officer of the Court and was
bound to carry out its orders with all due diligence.
(Stephens' Estate v. Minister of National Reve
nue, Wilkie, Morrison, Smith, Statham (Deputy
Sheriff County of Oxford) Constable Ross and
Davidson (1982), 40 N.R. 620 (F.C.A.).
It is not the position of the Deputy Marshal to
question any order of the Court, but merely to
ensure that its terms were complied with and I am
satisfied that he has done so.
Some jurisprudence with respect to the proper
law of the contract of sale of the Galaxias was
cited to me by counsel, but I have no difficulty in
stating that it is the law of Canada which applies.
Where a ship is sold by a judicial sale pursuant to
a Court order in Canada, I do not see that any
conflict of laws problem arises with respect to the
sale itself, (the disposition of the proceeds is a
different question). The sale of the Galaxias has
occurred as a result of the recognition of substan
tive rights held by the parties before this Court,
and as a judicial sale is a remedy attaching to such
rights, it is governed by the laws of Canada, the
lex foci (Orient Leasing Co. Ltd. v. The "Kosei
Maru", [1979] 1 F.C. 670 (T.D.)).
Even if I am not correct in my assumption that
the law of Canada would automatically apply to
the sale of the Galaxias, counsel has pointed out
that there exists in any event substantial connec
tions with Canada which warrant a finding that
Canadian law would apply even in construing con
flict of law rules. It therefore remains for me to
determine the nature of the title conveyed to
Global pursuant to the order of sale.
TITLE CONVEYED BY A JUDICIAL SALE
It has long been recognized in both Canadian
and British maritime laws, that a court ordered
sale in an action in rem such as the case before me,
conveys the subject ship to the purchaser free and
clear of all liens. In re The "Tremont", [1841] 1
W. Rob. 163; 166 E.R. 534 (Eng. Adm. Ct.); The
"Acrux", [1962] 1 Lloyd's Rep. 405, (Eng. Adm.
Ct.); Lietz v. The Queen, [1985] 1 F.C. 845
(T.D.).
The importance of this notion was discussed by
Associate Chief Justice Noël (as he then was) in
the case of Vrac Mar Inc. v. Demetries Karaman-
lis, [1972] F.C. 430 (T.D.), at page 434:
On the other hand, the Republic of Panama, after filing a
caveat for $2,585.15, refuses to comply with the proceedings
for sale of the ship, and observe the order of this Court giving
the purchaser a clear title. I do not for the moment wish to
characterize this action by that country. I would say neverthe
less that the refusal to comply with a judgment of this Court
after filing a claim, in addition to being an affront to a
Canadian court, represents a refusal by that country to abide
by the decisions of a court in another country, and an exception
to a rule honoured by every nation in the world. Indeed, if other
countries, or other debtors, decided to follow this bad example,
it would create confusion in an area which can be effectively
controlled only with the good faith of all seafaring nations. I
therefore feel it is urgent and necessary, if the prestige of the
decisions of our courts is to be maintained, and other countries
or debtors dissuaded from following the example of the Repub
lic of Panama, that the responsible authorities take steps to
make the necessary amendments to the Canada Shipping Act,
so that registration of a foreign vessel cannot be used to block
registration in Canada of a ship sold under an order of this
Court.
To me it is evident that the Court in ordering
the judicial sale of a vessel within its jurisdiction is
doing so pursuant to the laws of Canada, and that
it is these laws that apply to the transaction.
Although I agree with the view expressed by Noël
A.C.J. above, I do not see any indication that,
despite his disappointment with the attitude taken
by the Government of Panama, he considers the
sale, made in that case "free and clear of all
encumbrances", to have been ineffectual in con
veying clear title to the purchaser. If in fact, there
are other jurisdictions which will ignore the effect
of a judicial sale in Canada, this is a political
problem, in respect of which the Federal Court of
Canada can be of no assistance.
In my opinon, the existence of a phrase such as
"free and clear of all encumbrances" or anything
of that ilk in a bill of sale pursuant to a Court
order, does not add to or subtract from any rights
which the purchaser at such a sale will enjoy. The
integrity of the Canadian judicial sale arises from
its inherent nature and this is the only representa
tion which the Court makes to the public in order
ing the sale of the vessel. The prospective purchas
ers are free to inspect the vessel and determine its
condition and value. The one aspect of the sale
that the purchaser need not investigate is the title
that the purchaser will receive under Canadian law
whether so stated in the Court order, or the bill of
sale or not. The purchaser will take free and clear
of all encumbrances according to the laws of
Canada and although it is clear that Canadian
courts desire and expect that the courts and gov
ernments of other nations will respect its orders
and judgments, particularly in the area of mari
time law, this is not an area over which the
Federal Court exercises control, nor is it appropri
ate that it attempt to do so.
It is evident, that in a private sale between
parties, the inclusion or exclusion of a warranty or
representation with respect to the existence of liem
or encumbrances is of great significance, as it may
determine the respective rights of the parties under
the contract. For example in the case Athens Cape
Naviera S.A. v. Deutsche Dampfschiffarhtsgesell-
schaft `Hansa" Aktiengesellschaft and Another,
(The "Barenbels"), [1984] 2 LLoyd's Rep. 388
(Q.B.), the significance of this phrase was exhaus
tively reviewed by Mr. Justice Scrutton, when
faced with construing a private sale where the
contract contained the term "free from all encum
brances or any other debts whatsoever". It is to be
noted that this discussion was predicated by the
following comments, at page 390:
A maritime lien attaches to a vessel and can be enforcer
against the vessel despite a change in ownership, even if the
writ is issued after the change in ownership. A maritime lien
an encumbrance on a vessel, not defeasible within a reasonable
time by a change of ownership, unless that change is effecter
by a sale by a Court exercising Admiralty Jurisdiction,
[Emphasis added.]
Counsel have brought to my attention several
cases in the Federal Court in which the issue of the
construction of a term such as the one under
discussion in this case was addressed, albeit in
obiter. In my view, none of these cases derogate
from the general proposition which I have
outlined, namely that the judicial sale has the
effect of conveying the res to the purchaser free
and clear, whether it is so stated in the bill of sale
and order for sale or not.
In the case of Boudreau v. Registrar of Ship
ping, [1984] 1 F.C. 990 (T.D.), the registration of
a ship's title with prior mortgages extinguished
after a judicial sale was delayed by the respondent
because the relevant order did not contain an
assertion that title was conveyed free and clear of
all encumbrances. Associate Chief Justice Jerome
stated, at page 993, referring to the Registrar's
refusal to register clear title:
These procedures, while not specifically authorized by statute
or jurisprudence, are a matter of long-established instructions
to registrars of British ships.
The above case dealt primarily with a proce
dural problem based on the wording of the Court
order, and the bill of sale. The Court was quite
clear in stating that the failure to include the
words "free and clear of all encumbrances" in the
order for sale had not in any way affected the title
of the purchaser in the vessel.
Counsel have further pointed out to me the
existence of the unreported decision of Associate
Chief Justice Thurlow [as he then was] in Interna
tional Marine Banking Co. Limited v. The
"Dora", T-2934-76, September 7, 1976. The
Associate Chief Justice states, at page 8 of the text
of his reasons:
One further point should be mentioned. In the Notice of
Motion the plaintiff asks that the ship be advertised for sale as
being "free and clear of all liens, charges, mortgages, encum
brances and claims". In my opinion that is the effect under the
law of this country of a sale by this court of an action in rem.
The Associate Chief Justice went on to discuss
in obiter the impact of including such a phrase in
the court order and advertisements relating to the
sale and concluded that in his opinion such a
phrase should be omitted. To the extent that the
term "claims" in this phrase could include a spuri
ous claim, or one which is not recognized under
Canadian maritime law, I would agree with the
Associate Chief Justice's comments. As stated
above, the Canadian judicial sale does not carry
with it the guarantee that the integrity of the sale
will be recognized by all foreign governments and
no wording should appear in the bill of sale or the
order which would suggest to purchasers that this
is the case.
In the case before me however, the relevant
order and bill of sale contains the phrase "free and
clear of all encumbrances" and for the reasons
discussed, I believe that it was appropriate and
correct to do so. I therefore find that the purchaser
Global has had conveyed to it title to the Galaxias
free and clear of all encumbrances.
Furthermore, I do not see anything in the order,
the bill of sale or the advertisement which would
constitute either an express or implied covenant
that the title of the Galaxias would be registrable
in Greece. It would be impossible for a Canadian
court to make such a covenant a term of a judicial
sale. I am therefore of the opinion that the Deputy
Marshal is entitled to the relief sought as follows:
a) a declaration that the obligations of the Deputy
Marshal to Global Cruises S.A., pursuant to the
order for sale and the commissions for sale, have
been fully discharged by the delivery of the bill of
sale referred to hereinabove; and
b) a declaration that the execution and delivery of
the bill of sale referred to hereinabove has vested
title in the Galaxias free and clear of all encum
brances and fully satisfies the obligations of the
plaintiff to deliver such title to Global.
The Deputy Marshal is entitled to his costs.
Although I do sympathize with the problems
encountered by Global in Greece, I am dismissing
the counterclaim. The ship has been duly regis
tered in Antigua, and as I have stated previously, I
am satisfied that the Deputy Marshal has fulfilled
all of his obligations to the Court and hence to the
purchaser. I am hopeful that the order with
respect to the payment of the claim to N.A.T. in
the main action (T-2297-87) will in some way
allay the concerns that Global has exhibited in
filing the counterclaim.
The third party proceedings fall.
I would like to add in obiter that, in order to
promote the free flow of maritime traffic, coun
tries have, generally speaking, agreed to apply a
uniform set of admiralty rules and laws. This does
not, however, prevent any country from legally
completely ignoring, or setting aside any normally
accepted practice or any law which is universally
recognized in admiralty matters or even a rule of
law which that country might previously have
adopted by treaty. This is precisely what territorial
jurisdiction means and, until there exists some
world authority with a superior global enforceable
overriding jurisdiction, this is what we all must live
with.
Undoubtedly it would be very easy for the mem
bers of this Court to avoid the matter ever being
raised and return to the former practice of deleting
phrases such as the ones under discussion from all
orders for sale of a ship. However, admiralty law
yers and all lay people in the shipping world,
involved in any way in the purchase and sale of
ships, will invariably feel that this would greatly
reduce the amounts which can be .obtained from
Court sales of vessels and render some ships com
pletely unsaleable. The legitimate claims of many
Canadian and foreign creditors would thus be
defeated by the resulting ridiculously low pay
ments into court of purchase prices.
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.