Supreme Court Judgments

Holt Cargo Systems Inc. v. ABC Containerline  N.V. (Trustees of), [2001] 3 S.C.R. 907, 2001 SCC 90

Frans G. A. De Roy and Thierry Van Doosselaere, as Trustees in

Bankruptcy of ABC Containerline N.V., the Owners, Charterers and

all others interested in the Ship “Brussel”, and the Ship “Brussel”           Appellants

v.

Holt Cargo Systems Inc.                                                                               Respondent

Indexed as:  Holt Cargo Systems Inc. v. ABC Containerline  N.V. (Trustees of)

Neutral citation:  2001 SCC 90.

File No.:  27290.

2001:  March 20; 2001:  December 20.

Present:  McLachlin C.J. and L’Heureux‑Dubé, Gonthier, Iacobucci, Major, Bastarache, Binnie, Arbour and LeBel JJ.

on appeal from the federal court of appeal

Courts ‑‑ Jurisdiction ‑‑ Federal Court of Canada ‑‑ Maritime law ‑‑ Stay of proceedings ‑‑ U.S. creditor bringing maritime law action against Belgian ship in Federal Court ‑‑ Belgian shipowner subsequently adjudged bankrupt in Belgium ‑‑  Quebec Superior Court making orders purporting to dispose of ship and proceeds of sale ‑‑ Whether Federal Court erred in exercise of its discretion to deny trustees’ application for stay of proceedings ‑‑ Federal Court Act, R.S.C. 1985, c. F‑7, s. 50 .

In late March 1996, a Belgian ship was arrested at Halifax in connection with an in rem action commenced by the respondent Holt, a U.S. company, in the Federal Court claiming a maritime lien for stevedoring services provided in the U.S.  The ship’s Belgian owner was subsequently adjudged bankrupt by the Belgian bankruptcy court and the appellants were appointed the trustees in bankruptcy.  In May the appellant trustees obtained an order of the Quebec Superior Court, Civil Chamber that “recognized and declared executory in Quebec” the Belgian bankruptcy order.  Their application to the Federal Court, Trial Division for an adjournment of the in rem proceedings against the ship was denied, and in default of defence, judgment was awarded to Holt against the ship, with leave to the trustees to challenge the precise quantum of the judgment if done promptly.  The Federal Court ordered the ship appraised and laid down the procedure for its sale.  The trustees then requested a stay of proceedings from the Federal Court “pending final disposition of the matter by the Superior Court”.  They produced various orders from the Quebec Superior Court sitting in bankruptcy one of which purported to dispose of the ship and the proceeds of sale.  The Federal Court, Trial Division declined to give effect to the orders of the Canadian bankruptcy court or to stay its own proceedings.  The Federal Court of Appeal upheld that decision.

Held:  The appeal should be dismissed.

A maritime lien validly created under foreign law will be recognized and given the same priority in Canada as would be given to a maritime lien created in Canada under Canadian maritime law unless opposed to some rule of domestic policy or procedure which prevents the recognition of the right.  Holt was entitled to have its maritime lien recognized by the Federal Court in these proceedings.

The Federal Court did not lose jurisdiction to proceed as a result of the various orders of the Quebec Superior Court sitting in bankruptcy.  The Federal Court trial judge was not exercising original, ancillary or auxiliary jurisdiction in bankruptcy,  but was dealing with in rem claims against the ship.  Having ruled that he would recognize Holt's security interest as a matter of maritime law, the trial judge rightly concluded that there was no jurisdictional barrier to the Federal Court continuing to adjudicate Holt's in rem action against the ship.  Insofar as Holt's claim was integrally connected to maritime matters, it lay within the jurisdiction of the Federal Court and it was for that court to decide whether or not to defer to the Belgian bankruptcy court having due regard both to international comity and convenience and to the rights of its own citizens or other persons who are under the protection of our laws. 

In addressing the issue of a stay, the trial judge acknowledged the importance of comity and international coordination in bankruptcy matters.  Having done so, he went on to place primary emphasis on the fact he was dealing with an in rem action by secured creditors against a ship which at the time of the bankruptcy the Federal Court had already arrested and at the time of the interventions of the Canadian bankruptcy court he had already ordered appraised and sold.

The appellants’ strongest argument is that the parties and the subject matter of the dispute are but weakly connected to Canada.  However, lack of substantive connection to any particular jurisdiction, including their home port, is a feature of ships engaged in international maritime commerce.  The trial judge considered the relevant factors in reaching his conclusion that the Federal Court was the appropriate forum to resolve Holt's secured claim against the ship.  He committed no error in principle and did not refuse to take into consideration any major element appropriate for the determination of the case.  In the absence of such error, the exercise of his discretion should be affirmed.

Cases Cited

Referred to:  Antwerp Bulkcarriers, N.V. (Re), [2001] 3 S.C.R. 951, 2001 SCC 91; Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), [1993] 1 S.C.R. 897; In re Treco, 240 F.3d 148 (2001); Laane and Baltser v. Estonian State Cargo & Passenger Steamship Line, [1949] S.C.R. 530; Q.N.S. Paper Co. v. Chartwell Shipping Ltd., [1989] 2 S.C.R. 683; The Tolten, [1946] P. 135; Olympia & York Developments Ltd. v. Royal Trust Co. (1993), 20 C.B.R. (3d) 165; Re Cadillac Fairview Inc. (1995), 30 C.B.R. (3d) 17; Roberts v. Picture Butte Municipal Hospital (1998), 64 Alta. L.R. (3d) 218; Re Walker (1998), 5 C.B.R. (4th) 123; Re Babcock & Wilcox Canada Ltd. (2000), 18 C.B.R. (4th) 157; Federal Business Development Bank v. Quebec (Commission de la santé et de la sécurité du travail), [1988] 1 S.C.R. 1061; The Strandhill v. Walter W. Hodder Co., [1926] S.C.R. 680; Todd Shipyards Corp. v. Altema Compania Maritima S.A., [1974] S.C.R. 1248; Marlex Petroleum Inc. v. Har Rai (The), [1987] 1 S.C.R. 57, aff’g [1984] 2 F.C. 345; Riordon Co. v. Danforth Co., [1923] S.C.R. 319; Husky Oil Operations Ltd. v. Minister of National Revenue, [1995] 3 S.C.R. 453; Galbraith v. Grimshaw, [1910] A.C. 508; Anantapadmanabhaswami v. Official Receiver of Secunderabad, [1933] A.C. 394; ITO--International Terminal Operators Ltd. v. Miida Electronics Inc., [1986] 1 S.C.R. 752; Zingre v. The Queen, [1981] 2 S.C.R. 392; Spencer v. The Queen, [1985] 2 S.C.R. 278; Hilton v. Guyot, 159 U.S. 113 (1895); Ordon Estate v. Grail, [1998] 3 S.C.R. 437; Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077; Hunt v. T&N PLC, [1993] 4 S.C.R. 289; Tolofson v. Jensen, [1994] 3 S.C.R. 1022; Canada Southern Railway Co. v. Gebhard, 109 U.S. 527 (1883); Allen v. Hanson (1890), 18 S.C.R. 667; Re Breakwater Co. (1914), 33 O.L.R. 65; Re E. H. Clarke & Co., [1923] 1 D.L.R. 716; Re Stewart & Matthews, Ltd. and The Winding‑Up Act (1916), 10 W.W.R. 154; Antares Shipping Corp. v. The Ship “Capricorn”, [1977] 2 S.C.R. 422; The Atlantic Star, [1973] 2 All E.R. 175; Harelkin v. University of Regina, [1979] 2 S.C.R. 561; Friends of the Oldman River Society v. Canada (Minister of Transport), [1992] 1 S.C.R. 3.

Statutes and Regulations Cited

Bankruptcy and Insolvency Act , R.S.C. 1985, c. B‑3 , ss. 2  “secured creditor”, 43(7), 69.3 [ad. 1992, c. 27, s. 36], 136(1), 183(1)(b), Part XIII [ad. 1997, c. 12, s. 118], 268(2), (3), (6) [idem], 269 [idem], 271(1) [idem].

Commercial Instruments and Maritime Liens Act, 46 U.S.C. § 31342.

Federal Court Act , R.S.C. 1985, c. F‑7 , ss. 3 , 17(6)  [rep. & sub. 1990, c. 8, s. 3], 22(1), 50(1).

Authors Cited

Benedict, Erastus Cornelius.  Benedict on Admiralty, vol. 1, 7th ed. New York:  M. Bender, 1974 (loose‑leaf updated April 2001, release 84).

Castel, J.‑G.  Canadian Conflict of Laws, 4th ed.  Toronto:  Butterworths, 1997.

Dicey and Morris on the Conflict of Laws, vol. 2, 13th ed.  Under the general editorship of Lawrence Collins.  London:  Sweet & Maxwell, 2000.

Fletcher, Ian F.  Insolvency in Private International Law:  National and International Approaches.  Oxford:  Clarendon Press, 1999.

Honsberger, John D. “Canadian Recognition of Foreign Judicially Supervised Arrangements” (1990), 76 C.B.R. (N.S.) 204.

Houlden, L. W., and Geoffrey B. Morawetz.  The 2001 Annotated Bankruptcy and Insolvency Act.  Scarborough, Ont.:  Carswell, 2000.

LoPucki, Lynn M. “Cooperation in International Bankruptcy:  A Post‑Universalist Approach” (1999), 84 Cornell L. Rev. 696.

Tetley, William.  Maritime Liens and Claims, 2nd ed.  Montréal:  Yvon Blais, 1998.

Ziegel, Jacob S.  “Ships at Sea, International Insolvencies, and Divided Courts” (1998), 50 C.B.R. (3d) 310. 

APPEAL from a judgment of the Federal Court of Appeal (1999), 173 D.L.R. (4th) 493, 239 N.R. 114, [1999] F.C.J. No. 337 (QL), affirming a judgment of the Trial Division, [1997] 3 F.C. 187, 127 F.T.R. 244, 146 D.L.R. (4th) 736, 46 C.B.R. (3d) 169, [1997] F.C.J. No. 409 (QL).  Appeal dismissed.

David G. Colford, for the appellants.

Thomas E. Hart and Jane O’Neill, for the respondent.

The judgment of the Court was delivered by

1                                   Binnie J. -- The problems of international bankruptcies have excited much recent judicial and academic commentary.  In this appeal, we are required to determine whether a maritime law proceeding by a U.S. creditor against a Belgian ship in a Canadian court ought to have been stayed in deference to a Belgian court dealing with the subsequent bankruptcy of its Belgian shipowner.  Deference to the Belgian bankruptcy court, it is argued, was required by the principles of international comity.  Despite the obvious benefits of international coordination of bankruptcies that spread their financial wreckage across multiple jurisdictions, the Federal Court of Canada declined to stay its proceedings under Canadian maritime law.  The present appeal is from its decision.  The companion case, Antwerp Bulkcarriers, N.V. (Re), [2001] 3 S.C.R. 951, 2001 SCC 91, released at the same time, deals with the appeal from the Quebec Court of Appeal on the bankruptcy side of the concurrent and interconnected proceedings.

2                                   The history of this litigation, in brief summary, is as follows.  On March 30, 1996, the M/V “Brussel” (the “Ship”) was arrested in Canadian waters near the entrance to Halifax harbour by order of the Federal Court of Canada.  A week later, its Belgian owner made an assignment in bankruptcy at Antwerp with debts vastly exceeding its assets.  The U.S. creditor, Holt Cargo Systems Inc. (“Holt”), persisted with its in rem action.  Four months later, after a storm of motions and applications in the Federal Court and the Superior Court of Quebec sitting in Bankruptcy, with periodic interventions by the Eleventh Chamber of the Commercial Court of the Judicial District of Antwerp (the “Belgian bankruptcy court”) and a related order by a U.S. bankruptcy court, the Ship was sold over the objection of the trustees in bankruptcy.  The Federal Court ruled that the proceeds of the sale are eventually to be distributed to secured creditors, including the respondent, depending on the outcome of this appeal.

3                                   The Superior Court of Quebec sitting in Bankruptcy (the “Canadian bankruptcy court”) played a potentially important role in responding to the request for assistance from the Belgian Commercial Court exercising Belgian bankruptcy jurisdiction.  However, I believe the trustees asked for more assistance from the Canadian bankruptcy court than could lawfully be given, and that the Federal Court did not err in principle in refusing a stay of the maritime law proceedings. 

4                                   I would therefore dismiss the appeal.

I.  Facts

5                                   The Ship was arrested at Halifax under a warrant of arrest issued at the instance of Holt, a U.S. company incorporated under the laws of New Jersey.  The warrant for arrest was issued in connection with an in rem action commenced by Holt the same day in the Federal Court of Canada against the “owners, charterers and all others interested in the ship”, and the Ship itself.  The M/V “Brussel” was owned by Antwerp Bulkcarriers N.V. which, with other interrelated companies, carried on the business of international carriage of goods by sea. 

6                                   Holt’s action was for unpaid fees and charges for stevedoring and other related services provided to the Ship at Gloucester City, New Jersey, in the United States between 1994 and 1996 inclusive.  No part of the debt was incurred in Canada and neither the Ship nor its creditors were ordinarily resident here. 

7                                   Following the arrest of the Ship, cargo and container owners, shippers, suppliers, insurers and others also filed claims in the Federal Court.  In total, statements of claim were filed in 27 separate actions.  Moreover, notices of claim were filed in Holt’s in rem action against the Ship by more than 20 claimants in response to the Federal Court’s order, discussed below, that the Ship be appraised and sold. 

8                                   On April 5, 1996, a week after the Ship’s arrest, the shipowner was adjudged bankrupt by the Belgian bankruptcy court, which appointed the appellants, T. Van Doosselaere and F. De Roy, as trustees in bankruptcy (the “Trustees”).  Under Belgian law, the Trustees were required to take possession of all assets of the bankrupt holding company and its bankrupt affiliated companies, wherever situated.  The major assets of the group of bankrupt companies were six cargo vessels, and at the time of the bankruptcy order at least five of these were under arrest in ports in Israel, Singapore, New Zealand, the Bahamas and, as stated, Canada.  Other assets owned or leased by the debtors, including unpaid freight and shipping containers, had also been arrested, detained or threatened with seizure at various locations throughout the world.  The Trustees filed applications in jurisdictions where proceedings had been commenced against the debtors seeking the release of the bankrupts’ assets from arrest, preventing further seizure and arrest of their assets, and directing the submission of all claims against them to the bankruptcy proceedings in Belgium.

9                                   Faced with these difficult circumstances, the appellant Trustees urged on the Federal Court on several occasions the need for international cooperation in the resolution of bankruptcies and insolvencies that cross national boundaries.  The effect of these arguments was to advocate deference to the Belgian courts, being the courts of the bankrupts’ domicile.  Adherence to what is sometimes called the “Grab Rule”, in which each national court takes charge of assets in its own jurisdiction for the benefit of creditors who win the race to its courthouse, was said to be destructive of international order and fairness.  (As will be seen, there is much merit in these submissions.)

10                               The “universalist” position advocated by the appellant Trustees was put forward in a series of motions and applications before the courts of Quebec and the Federal Court of Canada.  A detailed summary of the complicated procedural history of this dispute is set out in an Appendix to the judgment in the companion case, Antwerp Bulkcarriers, N.V., supra.  What follows is a summary of the motions and applications most relevant to this appeal:

May 3, 1996

The appellant Trustees appear before MacKay J. of the Federal Court, Trial Division, to support moving the Ship to a “safe berth” at Halifax and to “remain under arrest” at its new location “until further orders are given by this Court”.  Order granted.  The Ship was moved and remained there until its sale closed on August 1, 1996.

May 9, 1996

The appellant Trustees move ex parte before the Quebec Superior Court, Civil Chamber (i.e., not specified to be sitting in bankruptcy) and obtain an order which “recognized and declared executory in Quebec” the Belgian bankruptcy order (emphasis added).

May 13, 1996

The appellant Trustees apply to the Federal Court to have the in rem proceedings against the Ship adjourned for four weeks to enable them to make further inquiries about the claims and assets of the bankrupt estate.  They do not undertake to file a defence in the action, or indeed suggest that a valid defence exists.  MacKay J. expresses concern that the Ship has been under arrest for six weeks and that dock charges and other expenses are mounting.  He concludes that he is exercising a maritime law jurisdiction, not a bankruptcy jurisdiction.  The adjournment is denied.

May 14, 1996

In default of defence, judgment is awarded to Holt against the Ship for $572,128.06, with leave to the Trustees to challenge the precise quantum of the judgment if done promptly.

May 17, 1996

The Federal Court orders the Ship appraised and lays down the procedure for its sale.  The Trustees appeal.  They also seek review and reconsideration of the orders of appraisal and sale of the Ship.

June 14, 1996

The appellant Trustees request a stay of proceedings from the Federal Court “pending final disposition of the matter by the [Quebec] Superior Court”.  The Trustees produce an ex parte order dated June 11, 1996 obtained from the Quebec Superior Court sitting in Bankruptcy that purports to dispose of the Ship and the proceeds of sale.  Despite the Trustees’ participation in the Federal Court proceedings over the previous six weeks, no notice of the application in Montreal was given to the Federal Court litigants.  It subsequently emerges that the Quebec judge hearing the ex parte application was not told that the Ship has been arrested and ordered sold by the Federal Court.  The stay is denied for reasons eventually issued on April 9, 1997.  In MacKay J.’s view, this is still a maritime law case.

July 9, 1996

The appellant Trustees return before the Federal Court seeking to have the proceeds paid to them if the sale goes ahead, as ordered, on July 12.  They are now armed with a further order dated June 28, 1996 of the Quebec Superior Court sitting in Bankruptcy, in which Guthrie J. confirmed with variations the ex parte order of June 11, after notice to all interested parties and a full hearing on the merits.  It is the June 28, 1996 order that is the centrepiece of the appellants’ argument.  I therefore reproduce its relevant portions below:

. . . THE COURT:

                                                                   . . .

RECOGNIZES the Trustees as trustees in the bankruptcy of Antwerp Bulkcarriers, N.V., with the duty and power to take possession of, realise upon and confirm the assets of the Bankrupt situated anywhere in Canada, subject however to the rights, if any, of any creditors with claims secured under the laws of Canada, as by law provided;

PERMITS the sale of the ship “Brussel” to take place in accordance with the judgment rendered by the Federal Court of Canada, Trial Division, on May 17, 1996 provided that such sale is completed and the purchase price paid in full by the close of business in Halifax, Canada on July 12, 1996;

ORDERS that, in the event that the said sale is completed as aforesaid, the net proceeds of such sale (after payment of all expenses of advertisement of the sale, appraisal fees, insurance and all other costs, disbursements, commissions and other expenses necessary for the sale) be paid promptly to the Trustees for distribution amongst the creditors of the Bankrupt in observance of all their rights and in conformity with Belgian law;

ORDERS that, in the event the said sale is not so completed, the ship “Brussel” be delivered into the possession of the Trustees so that they can proceed to the sale of the said ship, locally or in any other place they consider more appropriate, and to the distribution of the net proceeds amongst the creditors of the Bankrupt in observance of all their rights and in conformity with Belgian law;

REQUESTS the aid of the Supreme Court of Nova Scotia with jurisdiction in bankruptcy, insofar as such aid may be necessary under the laws of Nova Scotia to give effect to the present judgment;

ORDERS that the present judgment be served promptly on Chief Justice of the Supreme Court of Nova Scotia, on the Marshall of the Federal Court of Canada in Halifax, on the Sheriff of the Halifax Regional Municipality, and on all parties who have asserted a claim in Canada in respect of the ship “Brussel”; . . .  [Emphasis added.]

11                               It is clear from the order of June 28, 1996 that the Canadian bankruptcy court is now asserting control over the Ship and the related proceedings.  It “permits” the sale ordered by MacKay J. to proceed, but only if it is completed by July 12.  The proceeds of sale are to go to the appellant Trustees, not to the secured claimants who are litigating in the Federal Court.  If the sale is not completed by July 12, the Ship is to be turned over to the Trustees irrespective of the orders of the Federal Court.  The Supreme Court of Nova Scotia is requested to “aid” in giving effect to these directions.

12                               As of July 1996, it will be noted, default judgment had been signed in the in rem action, the Ship had been appraised, and bids were being invited from potential purchasers.  MacKay J. eventually ruled that the Trustees could obtain the proceeds of sale only if they posted security to answer the claims of the secured creditors.  This was never forthcoming.  His reasons were compendiously explained in a subsequent judgment of April 9, 1997, as will now be described.

II.  Judicial History

A.  Federal Court, Trial Division, [1997] 3 F.C. 187

13                               MacKay J. said he accepted the principle of comity of nations but pointed out that “the Court is urged to respect jurisdiction claimed by others and to forego considering claims to relief in proceedings long established in maritime law” (para. 45).  The Trustees alleged that Holt was forum shopping, but MacKay J. said he was “not persuaded it did more than seek recovery of its claim against the vessel where the ship was located” (para. 46).

14                               MacKay J. “found no persuasive grounds . . . [for the Court] to stay its own processes which were then underway, and to permit determination of the outcome to be effectively left to the bankruptcy proceedings of the Commercial Court at Antwerp, recognized by the Superior Court of Quebec” (para. 47).  He was “not persuaded that matters before this Court were those of bankruptcy” nor had it been “suggested that any bankruptcy would be based in or administered by any court in Canada” (para. 47).  “[T]he balance of convenience favoured denying the stay since the majority of claimants, in Canada and the United States, appeared to be based on the east coast of North America with relatively easy access to the Court’s process in Canada” (para. 48).  Accordingly, the stay was refused. 

15                               The claim of the appellant Trustees to the proceeds of the sale of the Ship was based on their view that once the matter was before the bankruptcy court in Quebec, “it alone had jurisdiction over the assets of the bankrupt” (para. 72).  MacKay J. disagreed.  On the contrary, he ruled “the determinations of this Court in relation to the arrest of a ship, a judgment in default and the sale of the ship, or the determination of a claim by a secured creditor to the proceeds of the sale of the ship, [are not] proceedings in bankruptcy” (para. 74).  Therefore, in his view, the involvement of the Canadian bankruptcy court did not divest the Federal Court of jurisdiction.

16                               As to the Trustees’ argument that the Federal Court, even if it had jurisdiction, should in any event defer to the order for the distribution of the proceeds approved by the Quebec Superior Court sitting in Bankruptcy, MacKay J. held that Canadian law “does not establish a process that in any way bars a secured creditor from realizing on the security given by the debtor before its bankruptcy” (para. 80).  A maritime lien is a secured claim.  Accordingly, “a maritime lien, attaching before bankruptcy of a ship’s owner, may be enforced and the claim based upon it may be realized from proceeds of sale of a ship without restriction under the Bankruptcy and Insolvency Act , or, with respect to other views, by the courts acting under that Act” (para. 83).  MacKay J. thus concluded that Holt and the other secured creditors should have their secured claims paid out of the proceeds of sale in priority to the Trustees.  (In the end, the fund was exhausted by the secured claims.)

B.  Federal Court of Appeal (1999), 173 D.L.R. (4th) 493

17                               Noël J.A. observed, at para. 4, that Holt would “derive a distinct legal advantage” from having its claim determined by the Federal Court.  Relying on this Court’s decision in Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), [1993] 1 S.C.R. 897, he acknowledged that juridical advantage is but one factor to consider when determining whether a Canadian court should stay its proceedings in favour of a foreign court.  However, this factor takes on “considerable significance” (para. 4) when it arises in the normal course of litigation and not as a result of forum shopping.  Here there had been a finding that no such forum shopping had occurred.  “Having arrested the ship where it was found, the respondent could legitimately expect that Canadian maritime law would apply” (para. 5).  Using the words of this Court in Amchem, supra, Noël J.A. found that Holt’s “claim had a ‘real and substantial connection’ with Canadian maritime law and there was a ‘reasonable expectation’ that the rights arising thereunder would be enforced” (para. 5).  Accordingly, he concluded, MacKay J. did not err in exercising his discretion against a stay.

18                               With respect to the intervention of the Quebec Superior Court sitting in Bankruptcy, Noël J.A. said “comity also extends to domestic courts” (para. 10).  In his view, it was “significant that domestically at least, the secured nature of maritime liens has always been maintained in the context of bankruptcy proceedings without the need for either of the two jurisdictions to supersede one another” (para. 10).  By seeking an ex parte order from the Quebec Superior Court for the release of the Ship, “the appellants launched what is in effect a collateral attack on MacKay J.’s decision” (para. 12).  In Noël J.A.’s view, the proper approach would have been to seek “the assistance of the Federal Court which is the only Court that had jurisdiction over the arrested ship and the respondent’s in rem claim” (para. 13).  The appeal was accordingly dismissed.

III.  Relevant Statutory Provisions

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

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.

17.  . . .

(6)  Where an Act of Parliament confers jurisdiction in respect of a matter on a court constituted or established by or under a law of a province, the Trial Division has no jurisdiction to entertain any proceeding in respect of the same matter unless the Act expressly confers that jurisdiction on the Court.

22. (1) The Trial Division has concurrent original jurisdiction, between subject and subject as well as otherwise, in all cases in which a claim for relief is made or a remedy is sought under or by virtue of Canadian maritime law or any other law of Canada relating to any matter coming within the class of subject of navigation and shipping, except to the extent that jurisdiction has been otherwise specially assigned.

50. (1)  The Court may, in its discretion, stay proceedings in any cause or matter,

(a)  on the ground that the claim is being proceeded with in another court or jurisdiction; or

(b)  where for any other reason it is in the interest of justice that the proceedings be stayed.

Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 

2.  In this Act,

                                                                   . . .

“secured creditor” means a person holding a mortgage, hypothec, pledge,   charge, lien or privilege on or against the property of the debtor or any part thereof as security for a debt due or accruing due to him from the debtor, or a person whose claim is based on, or secured by, a negotiable instrument held as collateral security and on which the debtor is only indirectly or secondarily liable;

                                                     Stay of Proceedings

69.3 (1)  Subject to subsection (2) and sections 69.4 and 69.5, on the bankruptcy of any debtor, no creditor has any remedy against the debtor or the debtor’s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy, until the trustee has been discharged.

(2)  Subject to sections 79 and 127 to 135 and subsection 248(1), the bankruptcy of a debtor does not prevent a secured creditor from realizing or otherwise dealing with his security in the same manner as he would have been entitled to realize or deal with it if this section had not been passed, unless the court otherwise orders . . . .

                                                   Scheme of Distribution

136. (1)  Subject to the rights of secured creditors, the proceeds realized from the property of a bankrupt shall be applied in priority of payment as follows: . . .

                                                    Jurisdiction of Courts

183. (1)  The following courts are invested with such jurisdiction at law and in equity as will enable them to exercise original, auxiliary and ancillary jurisdiction in bankruptcy and in other proceedings authorized by this Act during their respective terms, as they are now, or may be hereafter, held, and in vacation and in chambers:

                                                                   . . .

(b) in the Province of Quebec, the Superior Court;

IV.  Analysis

20                               In this appeal we are urged to adopt a “universalist approach” to bankruptcies and insolvencies that affect more than one jurisdiction.  I accept at the outset that bankruptcies that engage multiple jurisdictions may not be administered effectively if each national court goes its own way with the assets that happen physically to be within its control.  The chaotic fact situation faced by the Trustees in this case, from Singapore to the Bahamas and Israel to New Zealand, is eloquent testimony to the need for judicial cooperation and international comity.

21                               Moreover, it must also be freely acknowledged that the connection between this litigation and Canada is relatively weak.  None of the parties (including the Ship) resides here.  The debt was incurred in the United States.  The shipowner resides in Belgium.  There are no bankruptcy proceedings in Canada other than those initiated by the appellant Trustees for recognition of various orders of the Belgian bankruptcy court.

22                               Canadian courts have become seized with the dispute only because the vagaries of maritime commerce carried the M/V “Brussel” into Canadian waters on March 30, 1996.  It was certainly open to the Federal Court to defer in these matters to the bankruptcy court of the bankrupt’s domicile.  The question is whether, as contended by the appellant Trustees, the Federal Court was obliged to do so.  If not, did the Federal Court nevertheless commit an error in the exercise of its discretion not to stay the in rem action in deference to the Belgian bankruptcy court?

23                               For present purposes, I accept the following convenient definitions of the “universalist approach” and the “territorialist approach” (sometimes referred to as the “Grab Rule”):

. . . courts and commentators have identified two general approaches to distributing assets in such proceedings.  Under the “territoriality” approach, or the “Grab Rule,” the court in each jurisdiction where the debtor has assets distributes the assets located in that jurisdiction pursuant to local rules.  Under the “universality” approach, a primary insolvency proceeding is instituted in the debtor's domiciliary country, and ancillary courts in other jurisdictions -- typically in jurisdictions where the debtor has assets -- defer to the foreign proceeding and in effect collaborate to facilitate the centralized liquidation of the debtor’s estate according to the rules of the debtor's home country.

(In re Treco, 240 F.3d 148 (2d Cir. 2001), at p. 153)

24                               The Federal Court was clearly of the view that it was not in this case choosing between the “universalist” approach and the “Grab Rule”.  It was making a choice between the conflicting demands of two international systems of commercial dispute resolution, namely the rules of maritime law, with long historical roots in the practicalities of ocean shipping, and more recent legal initiatives to establish coherent rules for the administration of international bankruptcies and insolvencies.  In its view, I think correctly, the choice was dictated not by some abstract rule of “universalism” but by what the Federal Court understood to be the specific circumstances and justice of this particular case.

A.  Maritime Law

25                               Shipping was one of the earliest activities that required international cooperation in the regulation of the rights and obligations of its participants.  “For the cradle of our maritime law we must turn to the Mediterranean Sea where the sea commerce has had a continuous history for nearly five thousand years”:  Benedict on Admiralty (7th ed. (loose-leaf)), vol. 1, at p. 1-4; and see generally W. Tetley, Maritime Liens and Claims (2nd ed. 1998), at pp. 7-8.  Maritime lawyers were forced to confront the need for rules to govern international commerce centuries before the “universalist  approach” became a key issue in bankruptcy.  Seamen, salvors, ship chandlers, repairers and other suppliers of essential goods and services to the ship in foreign ports required some assurance of payment.  They looked to the ship.  Common rules were essential because suppliers dealt with ships from many countries and the Masters found themselves in distant ports in an age when communications with ship owners were slow and unreliable.  In maritime commerce, “rules of practical convenience commanding general assent are a virtual necessity”:  Laane and Baltser v. Estonian State Cargo & Passenger Steamship Line, [1949] S.C.R. 530, per Rand J., at p. 545.  See also:  Q.N.S. Paper Co. v. Chartwell Shipping Ltd., [1989] 2 S.C.R. 683, at p. 695.  Practicality required an in rem proceeding against the ship as distinguished from an in personam action against the shipowner.  The need for predictability and uniformity was so strong that even the common law courts, ever protective of their own ways, ceded jurisdiction to specialized courts of admiralty applying a largely international law of maritime commerce.  As Professor Tetley, supra, writes, at p. 56:

[M]aritime law as we know it today is civilian in nature, finding its source in the lex maritima (the law maritime) which is a part of the lex mercatoria (the law merchant).  Maritime law was codified, international law and, in England, it was apart from, and opposed to, its nearly mortal enemy, the common law.

26                               The in rem interest in ships took many forms, some created by statute, others by mortgage, still others by possession.  One of the most ancient and effective forms of security was (and is) the maritime lien.  In this action, Holt claims a maritime lien for stevedoring services pursuant to the U.S. Commercial Instruments and Maritime Liens Act, 46 U.S.C. § 31342.  Broadly speaking, a maritime lien arises without registration or other formality when debts of a specific nature are incurred by or on behalf of a ship.  The lien creates a charge which “goes with the ship everywhere, even in the hands of a purchaser for value without notice, and has a certain ranking with other maritime liens, all of which take precedence over mortgages” (The Tolten, [1946] P. 135 (C.A.), per Scott L.J., at p. 150).  It may be described, in that sense, as a “secret lien”. 

27                               The reason for this privileged status for maritime lien holders is entirely practical.  The ship may sail under a flag of convenience.  Its owners may be difficult to ascertain in a web of corporate relationships (as indeed was the case here, where initially Holt named the wrong corporation as ship owner).  Merchant seamen will not work the vessel unless their wages constitute a high priority against the ship.  The same is true of others whose work or supplies are essential to the continued voyage.  The Master may be embarrassed for lack of funds, but the ship itself is assumed to be worth something and is readily available to provide a measure of security.  Reliance on that security was and is vital to maritime commerce.  Uncertainty would undermine confidence.  The appellant Trustees’ claim to “international comity” in matters of bankruptcy must therefore be weighed against competing considerations of a more ancient and at least equally practical international system -- the law of maritime commerce.

B.  Foreign Bankruptcy Orders

28                               The appellant Trustees take the position that once the Canadian bankruptcy court was activated on this file, its power and authority occupied the field in relation to matters pertaining to the bankrupt, so to speak, to the exclusion of courts not possessing bankruptcy jurisdiction.  This proposition is, in my view, too broad.

29                               I propose to make a few preliminary observations about the appellant Trustees’ position.  More detailed consideration follows.

30                               The first preliminary observation is that Antwerp Bulkcarriers, N.V. was not placed in bankruptcy under the laws of Canada.  The only proceedings before a Canadian bankruptcy court were for the recognition and implementation of the orders of the Belgian bankruptcy court.  Part XIII of the Bankruptcy and Insolvency Act  (the “Act ”), entitled “International Insolvencies”, was not yet in force at the time of these events.  Nevertheless, Canadian bankruptcy courts have long exercised a jurisdiction to come to the aid of foreign bankruptcy courts where it has been in their power to do so.  Part XIII put the stamp of parliamentary approval on an initiative supported by judges and scholarly practitioners, both before and after enactment of Part XIII:  see Olympia & York Developments Ltd. v. Royal Trust Co. (1993), 20 C.B.R. (3d) 165 (Ont. Ct. (Gen. Div.)), at p. 167; Re Cadillac Fairview Inc. (1995), 30 C.B.R. (3d) 17 (Ont. Ct. (Gen. Div.)); Roberts v. Picture Butte Municipal Hospital (1998), 64 Alta. L.R. (3d) 218 (Q.B.), at pp. 224 and 226; Re Walker (1998), 5 C.B.R. (4th) 123 (Ont. Ct. (Gen. Div.)); Re Babcock & Wilcox Canada Ltd. (2000), 18 C.B.R. (4th) 157 (Ont. S.C.); and see generally J. D. Honsberger, “Canadian Recognition of Foreign Judicially Supervised Arrangements” (1990), 76 C.B.R. (N.S.) 204. 

31                               My second preliminary observation is that the bankruptcy courts in Belgium and Canada had (and have) a legitimate interest in the in rem action in the Federal Court.  On May 9, 1996, when the Trustees obtained the order of recognition of the Belgian judgment, title to the M/V “Brussel”, however heavily encumbered, was still registered in the name of the bankrupt.  It is true that the market value of the Ship (ultimately sold for US$4.6 million) was a mere fraction of the first mortgage (about $68 million) held by the Belgian state bank, Société Nationale de Crédit à l’Industrie S.A. (“SNCI”).  It is also true that there were maritime liens and statutory charges that ranked ahead of the first mortgage.  The bankrupt company nevertheless retained legal title, and to that extent the Ship constituted part of the property of the bankrupt, at least as that term is understood in Canadian law:  Federal Business Development Bank v. Quebec (Commission de la santé et de la sécurité du travail), [1988] 1 S.C.R. 1061.

32                               Counsel for the respondent appeared to consider it dispositive of the appeal to characterize the issue before us as concerning “maritime law” as opposed to “bankruptcy law”.  The facts here present both aspects, and in my view, with respect, the issue before the Federal Court was one of finding the proper balance of relevant factors on the stay application as opposed to trying to preempt further debate with a “pith and substance” characterization of the nature of the proceeding.

33                               Thirdly, a Canadian bankruptcy court has a responsibility to consider the interests of the litigants before it and other affected parties in this country as well as the desirability of international cooperation and other relevant circumstances.  Its function is not simply to rubber stamp commands issuing from the foreign court of the primary bankruptcy.  Thus the exigencies of international cooperation were significant to both the Federal Court and the Canadian bankruptcy court, but they were not a factor that necessarily trumped all other factors.

34                               Fourthly, the Canadian bankruptcy court derives its authority from Canadian law.  When called upon to lend assistance to foreign bankruptcy courts, Canadian law requires our courts to consider as one of the relevant circumstances the juridical advantage which those disadvantaged by deferral to the foreign court would enjoy in a Canadian court.  I appreciate that over-emphasis on juridical advantage as a factor would lead to enthronement of the “Grab Rule” because claimants in the Canadian court will inevitably have a good reason why they do not wish to take their chances in the general bankruptcy in the court of the bankrupt’s domicile.  Nevertheless, all of the relevant factors must be weighed in a stay application and the nature and extent of juridical advantage for the various parties was clearly an important factor to throw into the balance.

35                               Fifthly, the public policy expressed in our own bankruptcy laws is a relevant consideration.  Bankruptcy usually signals at least a temporary “cease fire” against the bankrupt’s estate.  However, if this had been a Canadian bankruptcy, the statutory stay of a creditor’s action would have been of little practical relevance because s. 69.3  of the Act  exempts from the statutory stay (with exceptions not relevant here) proceedings by secured creditors to realize on their security.  Section 69.3(2)(a) would have authorized the Canadian bankruptcy court to order a postponement of no more than six months.  The effect of the Canadian bankruptcy court’s order in this case was a permanent stay of proceedings for realization of the security of the Ship in Canada.

36                               I now turn to the more detailed submissions of the parties.

C.  Issues Raised by the Present Appeal

37                               It is common ground that ordinarily the Federal Court, Trial Division, would have jurisdiction to arrest the Ship, to entertain Holt’s claim for debts incurred on the Ship’s behalf, to assess the validity of Holt’s claim to a maritime lien, to order the appraisal and sale of the Ship and to see the successful secured claimants paid out of the proceeds of sale.

38                               The Trustees advance three broad submissions in support of their position that once the shipowner was declared bankrupt on April 5, 1996, the Federal Court was “bound to act in comity with the direction” given by the Belgian bankruptcy court, whose edicts were recognized and accepted by the Canadian bankruptcy court.  Firstly, as already mentioned, they say that Canadian courts should follow a “universalist” rather than a “territorialist” approach to bankruptcy.  Secondly, they say that a Canadian court exercising admiralty jurisdiction (the Federal Court) must defer to or at least cooperate with (which in their eyes seems to amount to the same thing) the Canadian court exercising bankruptcy jurisdiction (the Quebec Superior Court).  Thirdly, the Trustees say that the response of Canadian courts should be “uniform” by which they appear to mean the Federal Court should have acceded to the request of the Belgian court because the Quebec Superior Court sitting in Bankruptcy had already done so.

39                               In light of these preliminary observations, I think the Trustees’ arguments may be conveniently addressed under the following headings:

1.                Did the respondent Holt possess a valid claim to a maritime lien under Canadian law against the M/V “Brussel” prior to the Belgian bankruptcy of the owners on April 5, 1996?

2.                Did Holt thereby enjoy a juridical advantage in Canada that would be in jeopardy if the Federal Court proceedings were stayed in deference to the Belgian bankruptcy court?

3.                Did the Federal Court err in treating Holt as a “secured creditor” as that term is understood in Canadian bankruptcy law?

4.                Did the Belgian bankruptcy of April 5, 1996 give the Belgian Trustees a valid claim to the Ship?

5.                Did the Federal Court of Canada lose jurisdiction to proceed as a result of the various orders of the Quebec Superior Court sitting in Bankruptcy?

6.                Even if the Federal Court retained jurisdiction, ought it nevertheless to have deferred to the Belgian bankruptcy court on the basis of “international comity” and the need for an integrated “universalist” approach to the bankruptcy?

7.                In light of the foregoing, did the Federal Court err in the exercise of its discretion to deny the Trustees’ application for a stay of proceedings?

40                               I will address each of these issues in turn.

1.    Did the Respondent Holt Possess a Valid Claim to a Maritime Lien Under Canadian Law Against the M/V “Brussel” Prior to the Belgian Bankruptcy of the Owners of April 5, 1996?

41                               A maritime lien validly created under foreign law will be recognized and given the same priority in Canada as would be given to a maritime lien created in Canada under Canadian maritime law “unless opposed to some rule of domestic policy or procedure which prevents the recognition of the right”:  The Strandhill v. Walter W. Hodder Co., [1926] S.C.R. 680, per Newcombe J., at p. 685.  The theory is that “[i]f a maritime lien exists it cannot be shaken off by changing the location of the res”:  Todd Shipyards Corp. v. Altema Compania Maritima S.A., [1974] S.C.R. 1248, at p. 1252.

42                               Under U.S. law, as stated, the respondent Holt acquired a maritime lien against the Ship at the moment when services were rendered in U.S. ports.  All such services were rendered prior to March 30, 1996.  The Ship thus arrived in Canadian waters burdened with a maritime lien.  A maritime lien would not have arisen under Canadian law for similar stevedoring services rendered to a ship at a port in Canada,  but the proper law giving rise to the debt was U.S. law, not Canadian law.

43                               It is Canadian law, once it recognizes the right, that grants the remedy and sets the priorities.  At Canadian law, a maritime lien ranks ahead of a ship’s mortgage (i.e., the $68 million claim of SNCI).  See Todd Shipyards, supra, at p. 1259, and Marlex Petroleum Inc. v. Har Rai (The), [1987] 1 S.C.R. 57, aff’g [1984] 2 F.C. 345 (C.A.).

44                               The appellant Trustees argue that a “universalist” approach to trans-border bankruptcies is a domestic policy opposable to recognition of the U.S. maritime lien in this case within the meaning of the Strandhill exception, but I do not think so.  Newcombe J. was looking to something offensive about the origin of the right being asserted (as was the case in Laane and Baltser, supra).  There is nothing offensive about the origin of Holt’s claim.  If stevedoring services had not been rendered, the Ship could not have unloaded its cargo at Gloucester City, New Jersey.  If Holt is to be defeated by considerations of “universalism”, it will be as a result of a balancing of relevant factors under s. 50  of the Federal Court Act  which authorizes the court, in its discretion, to stay its own proceedings.

45                               In my view, on the existing state of the law, Holt was entitled to have its maritime lien recognized as such by the Federal Court in these proceedings.

2.    Did Holt Thereby Enjoy a Juridical Advantage in Canada that Would Be in Jeopardy if the Federal Court Proceedings Were Stayed in Deference to the Belgian Bankruptcy Court?

46                               There were clear advantages to Holt in having its claim disposed of in Canada.  Firstly, at the time the Trustees intervened, Holt’s in rem action was undefended and speeding to a successful conclusion.  According to the anticipated timetable, its claim would be paid in full, plus expenses, within a matter of months.  The Belgian bankruptcy was still in the early stages of organization.

47                               Secondly, and more importantly, it seems clear that Holt’s claim would not enjoy the same priority in Belgium as it enjoyed under Canadian maritime law.

48                               In an affidavit sworn in this action on June 5, 1996, the appellant De Roy deposed that the applicable Belgian law “prohibits the arrest or execution by creditors of the debtor’s property to enforce preferential/lien claims” (para. 26).  De Roy further deposed that Belgian maritime law “gives specific priorities to certain types of claims” (para. 42) but declined to state whether such “priority” claims included that of Holt and other maritime lien holders.  In the hearing before Guthrie J. of the Canadian bankruptcy court, M^e Édouard Baudry, an experienced admiralty law practitioner arguing for the intervener, SNCI, who supported the appellant Trustees, expressed the common understanding of counsel that Holt would likely be disadvantaged if required to take its claim to Belgium:

Me ÉDOUARD BAUDRY

I would add, though, as my friend will no doubt tell you, that the possibility of an American maritime lien being recognized by Belgian Court is a . . .

THE COURT

Being maintained by the Antwerp Court is slimmer than in here?

Me ÉDOUARD BAUDRY

. . . is a lot slimmer than here.

THE COURT

I can understand that.

Me ÉDOUARD BAUDRY

I think we all . . .

THE COURT

I think that is one of the reasons, if not the major reason, why we’re here.

49                               Further, according to endnote 5 of the judgment of the Federal Court of Appeal, counsel for both parties conceded on the appeal that it was “unlikely that the respondent’s in rem rights could subsist in one form or another under Belgian bankruptcy laws” (emphasis added).

50                               While the onus was on the appellant Trustees to establish the grounds for a stay of proceedings, it was up to Holt to prove Belgian law if Holt wished to rely on any difference between the expected treatment of its claim under Belgian law as opposed to Canadian law.  The trial judge noted the absence of evidence on this point.  However, as the parties were apparently in agreement that Belgian law would not recognize Holt’s maritime lien both before Guthrie J. in the Canadian bankruptcy court, and subsequently in the present case before the Federal Court of Appeal, I do not think we should interfere with the Federal Court of Appeal on this factual point.  As Guthrie J. pointed out, the reason “we’re here” is that Holt’s claim enjoys a juridical advantage in the Federal Court of Canada that it would not command in the Belgian bankruptcy court.

3.    Did the Federal Court Err in Treating Holt as a “Secured Creditor” as that Term is Understood in Canadian Bankruptcy Law?

51                               Canadian bankruptcy law takes an expansive view of who is a secured creditor, as confirmed by the relevant provisions in the Act .  If Antwerp Bulkcarriers, N.V. had declared bankruptcy in Canada, there is no doubt that Holt would be considered “a person holding a . . . lien . . . against the property of the debtor . . . as security for a debt due” within the definition of “secured creditor” in s. 2  of the Act .  Once the Federal Court had determined as a matter of Canadian maritime law that Holt’s claim was secured by a maritime lien on the Ship itself, the bankruptcy court would be bound by that determination:  Riordon Co. v. Danforth Co., [1923] S.C.R. 319. 

52                               If this were a Canadian bankruptcy, Holt would have been entitled to realize on its security irrespective of the bankruptcy.  As Gonthier J. said in Husky Oil Operations Ltd. v. Minister of National Revenue, [1995] 3 S.C.R. 453, at para. 9, “the entire scheme of distribution is ‘[s]ubject to the rights of secured creditors’”.  The opening words of s. 136 (under the heading “Scheme of Distribution”) establish the priority of claims against the bankrupt’s estate subject always “to the rights of secured creditors”.  L. W. Houlden and G. B. Morawetz state that “[t]he policy of the Act  in the case of bankruptcy is not to interfere with secured creditors except in so far as may be necessary to protect the estate as to any surplus on the assets covered by the security” (The 2001 Annotated Bankruptcy and Insolvency Act (2000), at p. 346).  See also:  L. M. LoPucki, “Cooperation in International Bankruptcy:  A Post-Universalist Approach” (1999), 84 Cornell L. Rev. 696.

53                               I appreciate, of course, that “universalism” will not work if every jurisdiction only defers to the law of the primary bankruptcy where that law coincides precisely with the domestic law of the deferring court.  The fact remains, however, that Canadian public policy, expressed through the Act , strongly supports the rights of claimants whom we would regard as secured creditors.  Our law considers it in the interests of commercial activity generally that secured rights be protected.  It seems to me that MacKay J. correctly regarded Holt as a “secured creditor” in bankruptcy terms, and in the exercise of his discretion under s. 50  of the Federal Court Act , he was entirely justified in putting considerable weight on that factor.

4.    Did the Belgian Bankruptcy of April 5, 1996 Give the Belgian Trustees a Valid Claim to the Ship?

54                               Under the Belgian bankruptcy court’s order of April 5, 1996, the Trustees were given the duty and power to take possession of the assets of the bankrupt wherever located.  At that stage, the Ship was no longer in the possession of the bankrupt shipowner.  It was in the possession of the Marshal of the Federal Court at Halifax and subject to further orders of that court.

55                               In Canada, the bankruptcy order pronounced by the court of the domicile operated as an assignment by operation of law of the moveable assets of the bankrupt shipowner located in Canada, including its interest in the M/V “Brussel”, but this assignment is subject to any prior charges upon it recognized by Canadian law (J.-G. Castel, Canadian Conflict of Laws (4th ed. 1997), at pp. 564-65).

56                               In this respect, our conflict of laws rule is the same as the English rule set out by the editors of Dicey and Morris on the Conflict of Laws (13th ed. 2000), vol. 2, at p. 1184:

The general principle of English law is that bankruptcy, or any proceeding in the nature of bankruptcy, in a foreign country whose courts have jurisdiction over a debtor operates as an assignment to the trustee, assignees, curators, syndics or others, who under the law of that country are entitled to administer his property, of all his movables in England, if that is its effect under the foreign law.

See also I. F. Fletcher, Insolvency in Private International Law (1999), at pp. 61-62.

As in Canada, the assignment by operation of law of the debtor’s property is subject to a number of limitations, one of which as noted is that the property passes subject to existing charges recognized under English law:

The property in England passes subject to any existing charges upon it recognised by the law of England, even if these charges would be postponed under the law of the place of bankruptcy to the claim of the creditors, and even if under the English bankruptcy the charges would be defeated by the title of the trustee in bankruptcy.

(Dicey and Morris on the Conflict of Laws, supra, at pp. 1184-85)

57                               An illustration of the proposition that the trustee cannot obtain more of an interest than it was in the power of the debtor to assign is in Galbraith v. Grimshaw, [1910] A.C. 508 (H.L.).  In that case, creditors had obtained judgment in Scotland against a Scottish company and, having had the judgment extended to England, served a garnishee order on an English firm that was indebted to the Scottish debtor.  Two weeks later, the Scottish debtor became bankrupt.  The trustee sought to take possession of the garnisheed debt, but was refused by the House of Lords on the principle that the trustee “could not have it unless the bankrupt could himself have assigned it” (p. 511).  Accordingly, the trustee was not entitled to receive the debt free of the garnishee order “because the bankrupt could only have assigned it on November 12, subject to the garnishee order” (p. 511).  In  Anantapadmanabhaswami v. Official Receiver of Secunderabad, [1933] A.C. 394, the Privy Council extended the Galbraith analysis to debts that were the subject of collection proceedings in progress provided that at the date of the bankruptcy the bankrupt could not have assigned the debt clear of the plaintiff’s claim.

58                               While such a rule may be modified by statute, it has not been so modified in Canada in any way relevant to the question of the foreign bankruptcy before us.

59                               I conclude therefore that on April 5, 1996, the Belgian Trustees acquired under Canadian law the interest of the bankrupt shipowner in the M/V “Brussel” but that its interest was and remained subject to the prior claim of the secured creditors, including the maritime lienholders, who were seeking relief in the Federal Court, Trial Division.

5.    Did the Federal Court of Canada Lose Jurisdiction to Proceed as a Result of the Various Orders of the Quebec Superior Court Sitting in Bankruptcy?

60                               The Trustees argue that once the Belgian bankruptcy court issued its order on April 5, 1996, or, at the very latest, when the request for assistance was accepted by the Canadian bankruptcy court, the matter before MacKay J. became one of bankruptcy and thus within the exclusive jurisdiction of the Canadian bankruptcy court.  I have already rejected the Trustees’ notion that once a foreign bankruptcy court is activated it necessarily occupies the field in relation to matters pertaining to the bankrupt in this country.  I have also rejected the idea that “international coordination” necessitates the rubber stamping of orders made by the foreign bankruptcy court.

61                               The appellant Trustees nevertheless contend that the Federal Court lost jurisdiction because of the combined operation of s. 183(1)  of the Bankruptcy and Insolvency Act  and s. 17(6)  of the Federal Court Act .  Section 183(1) reads as follows:

183. (1)  The following courts are invested with such jurisdiction at law and in equity as will enable them to exercise original, auxiliary and ancillary jurisdiction in bankruptcy and in other proceedings authorized by this Act  during their respective terms, as they are now, or may be hereafter, held, and in vacation and in chambers:

                                                                   . . .

(b) in the Province of Quebec, the Superior Court;

(The Trustees commenced their proceedings in Montreal, Quebec, because that was the place of business of the shipowner’s agents in Canada.)

62                               Section 17(6)  of the Federal Court Act  provides:

17.  ...

(6)  Where an Act of Parliament confers jurisdiction in respect of a matter on a court constituted or established by or under a law of a province, the Trial Division has no jurisdiction to entertain any proceeding in respect of the same matter unless the Act  expressly confers that jurisdiction on the Court.

63                               The Trustees do not contend that the arrest of the Ship and the adjudication of claims under maritime law are bankruptcy matters.  Their position is that the bankruptcy order of the Belgian bankruptcy court, and the follow-up orders of the Canadian bankruptcy court, transformed a maritime matter into one of bankruptcy.  The corollary to this argument is that the Federal Court, which has no bankruptcy jurisdiction, thereby lost subject-matter jurisdiction in the case.

64                               In my view MacKay J. was not exercising original, ancillary or auxiliary jurisdiction in bankruptcy.  If he had, he would have been without jurisdiction and it would not be necessary to have recourse to s. 17(6)  of the Federal Court Act .  This is because s. 17(6)  presupposes that the Federal Court would have jurisdiction but for that subsection.  In ITO--International Terminal Operators Ltd. v. Miida Electronics Inc., [1986] 1 S.C.R. 752, at p. 766, this Court concluded that the Federal Court has jurisdiction only if certain conditions are satisfied, including a statutory grant of jurisdiction by the federal Parliament.  There has been no such statutory grant of bankruptcy jurisdiction to the Federal Court.

65                               The subject matter of the dispute before MacKay J. was the maritime lien asserted by Holt and the claims of other creditors to security in the Ship.  He was dealing with in rem claims against the Ship, not in personam claims against the shipowner.  It was apparent from the SNCI's intervention that its mortgage claim of $68 million would, if allowed, swallow whatever funds might be left after the claims of the maritime lienholders had been satisfied.  There was therefore no realistic possibility of any residual funds to which the Trustees could properly lay claim.

66                               The bankruptcy was certainly not irrelevant to the Federal Court proceedings.  The Trustees rightly demanded (and were accorded) rights of participation in the proceedings to protect the interest of the bankrupt shipowner.  There was a continuing bankruptcy aspect throughout the Federal Court proceedings after April 5, 1996 which MacKay J. acknowledged in his various orders.  Nevertheless, having ruled that he would recognize Holt’s security interest as a matter of maritime law, and having regard to the priority accorded to secured creditors in the order of the Canadian bankruptcy court dated June 28, 1996, he rightly concluded that there was no jurisdictional barrier to the Federal Court continuing to adjudicate Holt’s in rem action against the Ship.

6.    Even If the Federal Court Retained Jurisdiction, Ought It Nevertheless to Have Deferred to the Belgian Bankruptcy Court on the Basis of “International Comity” and the Need for an Integrated “Universalist” Approach to the Bankruptcy?

67                               I should first of all address the issue of “international comity” as it pertains to the present appeal and then move on to consider some of the more specific approaches that have been devised to solve problems arising from international bankruptcies.  I will then outline what I believe is the preferred approach in cases of this kind.

(a)  The Role of International Comity

68                               In Zingre v. The Queen, [1981] 2 S.C.R. 392, Dickson J. (as he then was) commented at p. 401 that “the courts of one jurisdiction will give effect to the laws and judicial decisions of another jurisdiction, not as a matter of obligation but out of mutual deference and respect”.

69                               Subsequently, in Spencer v. The Queen, [1985] 2 S.C.R. 278, at p. 283, Estey J. accepted as accurate the following definition of international comity:

“Comity” in the legal sense, is neither a matter of absolute obligation, on the one hand, nor of mere courtesy and good will, upon the other.  But it is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws:  Hilton v. Guyot, 159 U.S. 113 (1895), at pp. 163-64.

70                               The Canadian bankruptcy court in this case did not have a monopoly in the determination of what level of “deference and respect” was owed to the Belgian bankruptcy court.  Within its own bankruptcy jurisdiction, of course, it could and did make that determination.  Insofar as Holt’s claim was “integrally connected to maritime matters”, it lay within the jurisdiction of the Federal Court (Ordon Estate v. Grail, [1998] 3 S.C.R. 437, at para. 73) and it was for that court to decide whether to defer to the Belgian bankruptcy court “having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws”.

71                               In Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077, the Court expanded on the definition of international comity by noting that the twin objectives sought by private international law in general and the doctrine of international comity in particular were order and fairness.  This was reiterated in Hunt v. T&N PLC, [1993] 4 S.C.R. 289, at p. 325, and again in Tolofson v. Jensen, [1994] 3 S.C.R. 1022, at p. 1058, where the Court gave pre-eminence to the objective of order:

While, no doubt, as was observed in Morguard, the underlying principles of private international law are order and fairness, order comes first.  Order is a precondition to justice.

72                               It has been, of course, the objective of international maritime law for centuries to create conditions of order and fairness for those engaged in maritime commerce.

(b)  The “Universalist” Approach

73                               The Trustees argue that to achieve the twin objectives of order and fairness in an international insolvency, it is necessary to adopt the “universalist” approach because in fairness “the claims of creditors can be finally determined only by the court of the debtor’s domicile in accordance with the law of that place” (Castel, supra, at p. 553).  They advocate a “close networking between courts on an international level” (factum, at para. 36).

74                               In the case at bar the debtor’s domicile was Belgium, and the Trustees contend that the Federal Court erred in not requiring Holt and the other secured creditors to pursue their claims in that country.  The Trustees also argue that as the Quebec Superior Court decided to come to the aid of the Belgian bankruptcy court, the Federal Court ought, as a matter of “domestic” comity, to have deferred to that decision.

75                               There is much to be said for the proposition that primary insolvency proceedings having been instituted in Belgium, other jurisdictions where the bankrupt possessed assets should cooperate to the extent permitted by their respective laws with the Belgian courts.  The need for such international cooperation in bankruptcy and insolvency has been evident for a very long time, though the ever-continuing ascendency of multi-national enterprises and acceleration towards a global economy have made the underlying problems more acute.  As long ago as 1883, in the case of Canada Southern Railway Co. v. Gebhard, 109 U.S. 527 (1883), the United States Supreme Court said, at p. 539:

Unless all parties in interest, wherever they reside, can be bound by the arrangement which it is sought to have legalized the scheme may fail.  All home creditors can be bound.  What is needed is to bind those who are abroad.  Under these circumstances the true spirit of international comity requires that schemes of this character, legalized at home, should be recognized in other countries.

76                               The essence of the universalist approach advocated by the Trustees is that there ought to be a primary bankruptcy proceeding, title to assets locally situated should be vested in the foreign representative of the bankrupt estate, creditors should not be permitted to realize on a foreign debtor’s assets in the local courts outside the framework of the primary bankruptcy, and orders made in foreign bankruptcy proceedings should be recognized and enforced elsewhere.

77                               Professor J. S. Ziegel contrasts the “universalist” approach to the “territorialist” approach, earlier referred to as the “Grab Rule”, and concludes that most jurisdictions exhibit elements of both approaches:

International insolvency jurists have long classified countries and their conflict of laws rules according to their willingness to recognize and give effect to foreign insolvency orders and judgments.  Those regimes that are hospitable to extending such recognition are labelled universalist; those that deny such recognition are classified as territorialist.  Common law countries are often described as belonging among the universalist families, while civil law systems are believed to be territorialist.

However, the pigeonholing is misleading.  Common law countries differ as widely in their international insolvency rules as do civil law jurisdictions.  On closer examination it will be found that some of the jurisdictions that claim to be universalist only practise a very diluted form of universalism while countries labelled as territorialist in fact extend varying measures of recognition to foreign insolvency orders and foreign insolvency representatives.

(“Ships at Sea, International Insolvencies, and Divided Courts” (1998), 50 C.B.R. (3d) 310.  See also In re Treco, supra, and Castel, supra, at pp. 553-54.)

78                               Traditionally, only some of the key components of the universalist approach have been reflected in Canadian law.  While our courts generally favour a process of universal distribution and recognize a foreign trustee’s title to property, they also permit concurrent bankruptcies and protect the vested rights of what we regard as secured creditors under Canadian law.  With respect to the latter, the usual Canadian position has been that a foreign trustee in bankruptcy should have no higher claim on the secured assets of a bankrupt than if the bankruptcy had occurred here.  In a true universalist system the question of encumbrances would be settled by the law of the place of the bankruptcy (which may, as in this case, produce a result contrary to Canadian maritime law).

79                               Further, Canadian law has always recognized that initiation of foreign bankruptcy proceedings does not prevent concurrent insolvency proceedings in Canada:  see Castel, supra, at p. 565; Allen v. Hanson (1890), 18 S.C.R. 667;  Re Breakwater Co. (1914), 33 O.L.R. 65 (H.C.), and Re E. H. Clarke & Co., [1923] 1 D.L.R. 716 (Ont. S.C.).  The existence of two sets of proceedings obviously raises the spectre of conflicting decisions or approaches, although as noted in 1890 by Ritchie C.J. of this Court in Allen, supra, at p. 674, it is “the duty of the courts of both countries to see no conflict should arise”.  Conflict avoidance can take many forms, including dismissing or staying Canadian proceedings.  Section 43(7)  of the Bankruptcy and Insolvency Act  permits the court to dismiss a petition if it has “sufficient cause”.  This requirement may be satisfied if the debtor has been declared bankrupt elsewhere.  In fact, the courts have stayed liquidation proceedings where bankruptcy proceedings are on foot in a foreign jurisdiction:  Re Stewart & Matthews, Ltd. and The Winding-Up Act (1916), 10 W.W.R. 154 (Man. K.B.).  Similarly, in an appropriate case, the Federal Court can avoid conflict by staying its proceedings pursuant to s. 50  of the Federal Court Act .

80                               In short, Canada has adhered to a middle position (dignified by the name “plurality approach”) which recognizes that different jurisdictions may have a legitimate and concurrent interest in the conduct of an international bankruptcy, and that the interests asserted in Canadian courts may, but not necessarily must, be subordinated in a particular case to a foreign bankruptcy regime.  The general approach reflects a desire for coordination rather than subordination, with deference being accorded only after due consideration of all the relevant circumstances rather than automatically accorded because of an abstract “universalist” principle.  As pointed out by Professor Castel, supra, at pp. 554-55:

Under the doctrine of plurality which prevails in Canada, each country has the right, if it deems it advisable, to allow bankruptcy proceedings to begin in its territory by virtue of its bankruptcy law.  The court applies its own substantive law.  Thus, bankruptcies may be initiated in a number of countries with respect to the same debtor.  In Canada, this rigid doctrine is partially tempered by close cooperation with foreign courts.

81                               The question is whether, as argued by the appellant Trustees, this orientation in Canada ought now to be changed to a more “universalist” approach.

(c)  The 1997 Amendments to the Act 

82                               In April 1997 Parliament enacted Part XIII of the Bankruptcy and Insolvency Act , entitled “International Insolvencies”.  It applies only to bankruptcy proceedings initiated after September 30, 1997, and thus has no direct application here.  Nevertheless, it is worth noting that Parliament has continued the diluted universalism (or “plurality approach”) adopted by Canadian courts under the common law.  There is now, under Part XIII, specific authority to come to the aid of foreign courts and “foreign representatives” in the administration and adjudication of insolvencies that have international dimensions.  There is also authority for Canadian courts, under s. 271(1), to request “the aid and assistance of a court, tribunal or other authority in a foreign proceeding”.  The objective of these provisions is to facilitate the coordination of foreign and domestic insolvency proceedings.  Nevertheless, there is no rule requiring Canadian courts to refrain from entertaining concurrent proceedings.  On the contrary, concurrent proceedings are anticipated as Canadian courts are given authority under s. 268(3) to make orders that will result in a coordination of domestic and foreign proceedings, not the elimination of one in preference to the other.  By authorizing a Canadian court under subs. (2) to limit the domestic trustee’s authority to property situated in Canada, Parliament obviously anticipated that in certain cases a territorialist approach would be acceptable.  The amendments provide specifically that a court is not compelled to enforce any order made by a foreign court:  s. 268(6). 

83                               Moreover, s. 269 explicitly denies extraterritorial reach to foreign stay orders.  It says that a foreign stay of proceedings “does not apply in respect of creditors who reside or carry on business in Canada with respect to property in Canada unless the stay of proceedings is the result of proceedings taken in Canada”.

84                               It thus appears that Canadian public policy, expressed as recently as 1997 by Parliament, endorses the plurality approach developed over the years by the courts.

(d)  The Preferred Approach

85                               Given the almost infinite variations in circumstances that can occur in an “international bankruptcy”, the pragmatism of the “plurality” approach continues to recommend itself.  International coordination is an important factor, but it is not necessarily a controlling factor. 

86                               Where a stay is sought of Canadian proceedings in deference to a foreign bankruptcy court, the Canadian court before which the stay application is made (in this case the Federal Court) ought to be mindful of the difficulties confronting the bankruptcy trustees in the fulfilment of their public mandate to bring order out of financial disorder and the desirability of maximizing the size of the bankrupt estate.  These objectives are furthered by minimizing the multiplicity of proceedings, and the attendant costs, and the possibility of inconsistent decisions in relation to the same claims or assets.

87                               Nevertheless, courts must have regard to the need to do justice to the particular litigants who come before them as well as to the public interest in the efficient administration of bankrupt estates.  It would be inappropriate to elevate any one consideration to a controlling position in the exercise of a bankruptcy court’s discretion to dismiss a petition under s. 43(7) or to stay proceedings under Part XIII of the Act or in the Federal Court’s decision to stay proceedings under s. 50  of the Federal Court Act .  Discretion should not be thus predetermined.  The desirability of international coordination is an important consideration.  In some cases, it may be the controlling consideration.  The courts nevertheless have to exercise their discretion to stay or not to stay domestic proceedings according to all of the relevant facts of a particular case.

7.    In Light of the Foregoing, Did the Federal Court Err in the Exercise of its Discretion to Deny the Trustees’ Application for a Stay of Proceedings?

88                               The dollars and cents issue in this case should not be obscured entirely by the scholarly debate between universalists, pluralists and territorialists.  The Trustees advocate a “universalist” approach because it is in their interest, acting on behalf of all creditors, to take the proceeds of sale of the Ship home to Belgium for distribution according to Belgian law.  It is clearly not in the respondent’s interest, because it appears that Holt’s claim would not enjoy under Belgian law the priority it has under Canadian law.  If Holt is obliged to defend variations of the “territorialist” position, it is because it seems that is the only way its claim will be paid in full on a timely basis or perhaps at all.

89                               The Federal Court’s authority to stay proceedings is found, as noted, in s. 50  of the Federal Court Act :

50. (1)  The Court may, in its discretion, stay proceedings in any cause or matter,

(a) on the ground that the claim is being proceeded with in another court or jurisdiction; or

(b) where for any other reason it is in the interest of justice that the proceedings be stayed.

The principles on which the discretion should be exercised in this type of case were authoritatively settled in Amchem, supra.  Sopinka J., speaking for the Court, posed the question at p. 920, “is there a more appropriate jurisdiction based on the relevant factors”, to which he added at p. 921, “the existence of a more appropriate forum must be clearly established to displace the forum selected by the plaintiff” (emphasis in original).

90                               Amchem was a purely private piece of litigation involving product liability claims related to exposure to asbestos.  International bankruptcies have a public aspect, because it is in the public interest to facilitate the speedy resolution of the fallout from a financial collapse.  This does not change the Amchem analysis.  It is simply to emphasize an important public aspect of this case that was not present in the Amchem fact situation.

91                               The “natural forum” is the one to which the action has the most real and substantial connection (Amchem, at pp. 916 and 935).  Relevant circumstances include not only issues of public policy (as in this case) but also the potential loss to the plaintiff of a juridical advantage sufficient to work an injustice if the proceedings were stayed, the place or places where the parties carry on their business, the convenience and expense of litigating in one forum or the other, and the discouragement of forum shopping.  In short, within the overall framework of public policy, any injustice to the plaintiff in having its action stayed must be weighed against any injustice to the defendant if the action is allowed to proceed.  What is required is that these factors be carefully weighed in the balance.

92                               In addressing the issue of a stay, MacKay J. acknowledged the importance of comity and international coordination in a proper case.  Having done so, he went on to place primary emphasis on the fact he was dealing with an in rem action by secured creditors against a ship which at the time of the bankruptcy the Federal Court had already arrested and at the time of the interventions of the Canadian bankruptcy court (June 11 and June 28, 1996) he had already ordered appraised and sold.  Moreover, the order dated June 28 had expressly made the interest of the appellant Trustees subject “to the rights, if any, of any creditors with claims secured under the laws of Canada, as by law provided”.

93                               The appellants’ strongest argument is that the dispute is but weakly connected to Canada.  This Court, however, in Antares Shipping Corp. v. The Ship “Capricorn”, [1977] 2 S.C.R. 422, recognized that lack of substantive connections to any particular jurisdiction, including its home port, is a feature of ships engaged in international maritime commerce.  In that case, the Court refused to stay proceedings in rem in which three Liberian corporations contested in Canada the ownership of a Liberian registered ship.  Liberia, of course, is a flag of convenience.  Ships registered there may never have occasion to “go home”.  In Antares Shipping, the only connection to Canada was that the ship was arrested at the suit of one of the Liberian corporations while it was in Canadian waters.  Ritchie J., speaking for the majority, recognized that ocean-going ships present a particular problem.  At p. 453, he adopted the following observations of Lord Simon, dissenting, in The Atlantic Star, [1973] 2 All E.R. 175 (H.L.), at p. 197:

Ships are elusive.  The power to arrest in any port and found thereon an action in rem is increasingly required with the custom of ships being owned singly and sailing under flags of convenience.  A large tanker may by negligent navigation cause extensive damage to beaches or to other shipping:  she will take very good care to keep out of the ports of the ‘convenient’ forum.  If the aggrieved party manages to arrest her elsewhere, it will be said forcibly (as the appellants say here): ‘The defendant has no sort of connection with the forum except that she was arrested within its jurisdiction.’  But that will frequently be the only way of securing justice.

Belgium is not a “flag of convenience” like Liberia but the principle remains the same.  The “real and substantial connection” test must take into account the special lifestyle of ocean-going freighters.

94                               As to the appellants’ allegation that Holt was engaged in “forum shopping”, the further observations of Lord Simon quoted in Antares Shipping, at p. 453, are also apposite:

‘Forum-shopping’ is, indeed, inescapably involved with the concept of maritime lien and the action in rem.  Every port is automatically an admiralty emporium.  This may be very inconvenient to some defendants; but the system has unquestionably proved itself on the whole as an instrument of justice.

95                               With respect to juridical advantage, the trial judge stated that “there simply was no evidence of the comparative status of the plaintiff’s claim under Belgian and Canadian law” (para. 76).  On appeal, as mentioned, the Federal Court of Appeal noted that “both parties concede [that it was] unlikely that [Holt’s] in rem rights could subsist in one form or another under Belgian bankruptcy laws” (endnote 5).  The apparent concession at the hearing before the Federal Court of Appeal only adds to the weight of the arguments earlier accepted by MacKay J. to allow the in rem action to proceed.

96                               If, contrary to the concession in the Federal Court of Appeal, we were to assume in the Trustees’ favour that there was no juridical advantage to Holt or other secured creditors in keeping alive the in rem action in Canada, it means that there would equally be no advantage to the Trustees in moving the proceedings to Belgium.  The same secured creditors would (on that assumption) exhaust the proceeds of the sale of the Ship, but pay the additional penalty of the cost of duplicative proceedings in Belgium.  To talk of the benefits of the “universalist” approach to international bankruptcies in such circumstances is illusory.

97                               The trial judge also placed reliance on the convenience to the U.S. creditors of litigating in Canada rather than Belgium.  This factor is relevant (Amchem, supra, at p. 917) but would not, I think, be of great weight if the appellant Trustees had been able to show that justice required deference to the court of the domicile of the bankrupt.

98                               In summary, the trial judge considered the relevant factors in reaching his conclusion that the Federal Court was the appropriate forum to resolve the respondent’s claim.  He committed no error of principle and did not refuse “to take into consideration a major element for the determination of the case”:  Harelkin v. University of Regina, [1979] 2 S.C.R. 561, at p. 588; Friends of the Oldman River Society v. Canada (Minister of Transport), [1992] 1 S.C.R. 3, at p. 77.  In the absence of error, we are not entitled to interfere with the exercise of his discretion.

V.  Conclusion

99                               The appeal is dismissed with costs.

Appeal dismissed with costs.

Solicitors for the appellants:  Brisset Bishop, Montréal.

Solicitors for the respondent:  McInnes Cooper & Robertson, Halifax, Nova Scotia.