GENERAL MPP CARRIERS LTD. Plaintiff v. SCL BERN AG,, 2014 FC 571

Date: 20140614 Docket: T-1331-14 Citation: 2014 FC 571 Ottawa , Ontario , June 14, 2014 PRESENT: The Honourable Madam Justice Strickland ADMIRALTY ACTION IN REM AND IN PERSONAM BETWEEN: GENERAL MPP CARRIERS LTD.

Plaintiff and SCL BERN AG, SCL REEDEREI AG, AND THE OWNERS AND ALL OTHERS INTERESTED IN THE SHIP "SCL BERN" Defendants ORDER AND REASONS [ 1 ] This is a motion of the defendants SCL Bern AG, on its own behalf and on behalf of the in rem defendant, the M.V. “SCL Bern” (Vessel), seeking to strike out the Statement of Claim and set aside the warrant of arrest issued against the defendant Vessel on the basis that this Court lacks jurisdiction to hear the dispute.

Background [ 2 ] The Defendant SCL Bern AG (SCL Bern) is a company incorporated pursuant to the laws of Switzerland and is the registered owner of the Vessel, a 140 metre, multipurpose container vessel of Swiss flag. The Vessel was built and registered in 2005. [ 3 ] On or about August 15, 2008, SCL Reederei AG (SCL Reederei) and MPP Carriers Ltd (MPP) entered into a Shareholders’ Agreement which was executed by Mr. Hansjurg Grunder, on behalf of SCL Reederei, and Mr. Talal Hallak, on behalf of MPP.

The Shareholders’ Agreement states, amongst other things, that those parties directly hold 100% of the shares in SCL Bern and includes provisions concerning the right of first refusal and prohibition on disposal of the shares: Right of first refusal 12. Should any Party wish to dispose of their shares, it may only offer to sell its shares to the other Party. The Party which is entitled to purchase the shares shall within 30 days of the date of receipt of the offer reply in writing whether and to what extent it wishes to exercise its right of first refusal. Prohibition on disposal 13. Mr.

Talal Hallak shall not be entitled to dispose of his shares in SCL Bern AG to third parties. Any transfer of title for consideration or for no consideration, be it pursuant to a sale, exchange, gift, any provisions of property law, contribution or such like shall be deemed to be a disposal. Mr.

Talal El-Hallak shall, however, have as exit possibility the one time right, after 5 years of owing the shares, that is to say in June 2013, to sell his shares in SCL Bern AG to the majority shareholder (SCL Reederei AG, Bern) at a price representing 125% of his investment (5% per year), meaning here US $5,000,000.00 + 25% = US $6,250,000.00.

The condition for the exercise of this right is that he must give notice of 12 months (in June 2012) to the buyer, before selling the shares to the majority shareholder as above. [ 4 ] The Shareholders’ Agreement also contains arbitration and applicable law clauses, the latter stipulating that the agreement shall be governed exclusively by the laws of Switzerland. [ 5 ] MPP alleges that notice under clause 13 of the Shareholders’ Agreement was given triggering the share sale provisions, however, that payment was not received. MPP initiated debt enforcement proceedings against SCL Reederei in Switzerland.

On April 25, 2014 the Bern-Mittelland Regional Court, Civil Division in Switzerland granted judgment in favour of MPP in the amount of 3,391,837.50 Swiss Francs (approximately $3,750,000 USD) plus interest and costs. That judgment is currently under appeal. [ 6 ] On May 28, 2014 MPP caused a Statement of Claim to be issued out of this Court naming SCL Reederei and SCL Bern as in personam defendants and the Vessel as the in rem defendant in this action. The Statement of Claim seeks damages in the amount of USD $3,750,000 plus interests and costs.

[7] The Statement of Claim, the content of which is described more fully below, claims that the Defendants breached the termsof the Shareholders’ Agreement and that MPP suffered damages as a result. More specifically, that the Defendants have failed to payMPP the amount owed for its ownership in SCL Bern in accordance with the Shareholders’ Agreement. MPP claims that it has anownership interest in the Vessel by virtue of a 40% ownership stake in SCL Bern. Alternatively, that the US$5,000,000 loan to theDefendants SCL Bern and SCL Reederei was secured by way of a mortgage or charge on the Vessel in favour of MPP. MPP claimsdamages in rem against the Vessel pursuant to sections 22(2)(

a) and (

c) and 43(2), and, in personam against SCL Bern, pursuant tos.22(2)(

a) and (c), of the Federal Courts Act, RSC, 1985, c F-7 (FCA) and relies on section 22(3)(

a) and (

d) in instituting theseproceedings in Canada. [8] Based on the Statement of Claim and an Affidavit to Lead Warrant sworn by Mr. Hallak, the Vessel was arrested on May 30,2014. [9] On June 5, 2014 the Defendants filed the subject motion on an urgent basis seeking to strike out the Statement of Claim andto set aside the arrest pursuant to Rules 221 and 488(1) of the Federal Courts Rules, SOR/98-106 (Rules). Positions of the Parties Defendants’ Position [10] The Defendants submit that MPP’s claim is a shareholder dispute which does not fall within this Court’s maritimejurisdiction.

As the right of arrest is the procedure adjunct of the in rem action, in order to set aside the warrant of arrest a defendantmust apply to strike out the statement of claim (Rule 481(1); North Saskatchewan Riverboat Co v 573475 Alberta Ltd (1995), 96 FTR166 at para 8; Paramount Enterprises International, Inc v An Xin Jiang (The), (FCA), [2001] 2 FC 551 at p 566(CA) [Paramount]; MIL Davie Inc v Hibernia Management and Development Co (1998), (FCA), 226 NR 369 atparas 7- 8 (FCA) [MIL Davie]; Cameron v Ciné St Henri Inc, (FC), [1984] 1 FC 421, [1983] FCJ No 141 (QL)(TD) atpara 7). [11] As to MPP’s claim with respect to title, possession or ownership of the Vessel, its Statement of Claim acknowledges that SCLBern is the registered owner which is confirmed by an extract from the Swiss Shipping Registry.

MPP therefore cannot argue that it hastitle to or a registered ownership interest in the Vessel. Further, the Statement of Claim and the Shareholders’ Agreement demonstratethat while MPP alleges that it is a part owner of the Vessel, what it actually owns is 40% of the shares of SCL Bern. Under Swiss law, ashareholder does not own the assets of the company in which it holds shares.

Further, the proceedings in the Swiss courts do not includeor involve a claim in respect to the Vessel. [12] The Statement of Claim is merely an action to recover money allegedly owed under the Shareholders’ Agreement and it is nota claim in respect to the title, possession, ownership, mortgage, hypothecation or charge on the Vessel.

The Shareholders’ Agreement isa corporate agreement inseparable from SCL Bern’s Articles of Association and Swiss company law and is not an agreement pertainingto navigation and shipping and does not mention the Vessel (Quebec and Ontario Transportation Co v Incan St Laurent (The), (SCC), [1980] 2 SCR 242 [The Incan St.

Laurent]; Trawlercat Marine Inc v Folden, [2002] FCJ No 1601 at para 13 (QL)(TD) [Trawlercat]; JPMorgan Chase Bank v Mystras Maritime Corporation, 2010 FC 1053 at paras 2-4 [JPMorgan]; Atlantic Yacht &Ship Inc v Sovereign Yachts (Canada) Inc et al, 2003 FC 965 [Atlantic Yacht & Ship]). [13] As to the claim in respect of a mortgage, hypothecation or charge on the Vessel made pursuant to s. 22(2)(

c) of the FCA, theSwiss Ship Registry indicates that the only mortgagee or lien holder is the Swiss Confederation. A request made under Rule 206 forproduction of any document evidencing a mortgage or charge on the Vessel did not result in production of any such documents. Whilethere was reference to an email, on its face, this did not purport to grant any form of mortgage, charge or other security on the Vessel. [14] No material facts have been plead nor evidence produced to support a claim made pursuant to s. 22(2)(

c) of the FCA. [15] Further, the term “charge on” in s. 22(2)(

c) of the FCA is limited to charges in the nature of a mortgage (Modern MaritimeLaw p.29; Jackson D.C., Enforcement of Maritime Claims, 4th edition (London: LLP, 2005) at paras 2.128 and 2.129; Tetley, William,Maritime Liens and Claims, 2nd ed. (Montreal: Les Editions Yvon Blais, 1998) at pp. 478-479; The “St.

Merriel”, [1963] 1 Lloyd’s Rep63 at pp. 67 & 68; Logistec Corporation v The Ship Sneland, (FC), [1979] 1 FC 497 at para 4; The Acrux, [1965] 1Lloyd’s Rep at p. 572). [16] In sum, the Defendants submit that the evidence clearly establishes that MPP cannot make out a cause of action under eitherof the two grounds of admiralty jurisdiction which it cites in support of its allegations. In the absence of subject-matter jurisdiction asdefined by s. 22 of the FCA, there can be no in rem jurisdiction pursuant to s .43(2).

The Statement of Claim must therefore be struckout, the action dismissed and the Warrant of Arrest quashed. MPP’s Position [17] MPP submits, based on the Affidavit of Mr. Talal Hallak filed in response to the motion to strike, that there was an agreementbetween Mr. Hallak and Mr.Grunder, described as the principal behind SCL Reederei and Enzian Ship Management AG, thatUS$5,000,000 would be advanced to assist in the financing or capitalization of the Vessel such that MPP would have a 40% interest inthe Vessel.

This was implemented by SCL Reederei having 60% and MPP having 40% of SCL Bern, a one ship company that owns theVessel. Mr. Hallak’s intention and believe was that MPP was to own 40% of the Vessel. Whether that 40% was of SCL Bern or theVessel itself was not important as the result was intended to be the same, which was a 40% ownership interest in the Vessel once theright to sell was triggered. The Vessel was arrested on the basis that MPP claims that it is a part owner of the Vessel, it has triggered itsright to sell and has not been repaid its

part interest in the Vessel.

[18] MPP submits that to succeed in striking out an in rem claim the Defendants must establish that it is plain, obvious and beyonddoubt that the in rem claim is so clearly futile that it has not the slightest chance of success (Atlantic Yacht & Ship, above at para 23;Dragage Verreault Inc v Atchafalaya, 2009 FC 273 at paras 19, 21 [Dragage Verreault]; Western Stevedoring Co v Anadolu Guney(The), [1988] FCJ No 649 (QL)(TD) [The Anadolu Guney].

The Supreme Court has held that a claim will only be struck out if it is plainand obvious, assuming all facts pleaded to be true, that the pleading discloses no reasonable cause of action (R v Imperial TobaccoCanada Ltd, 2011 SCC 42 at paras 11, 21-22 [Imperial Tobacco]; Hunt v Carey Canada Inc, (SCC), [1990] 2 SCR 959[Hunt]; VISX Inc v Nidek Co, [1998] FCJ No 871 (QL)(CA); Apotex Inc v Canada (Governor in Council), 2007 FCA 374 at paras 16,21).

Further, the novelty of a pleaded cause of action should not serve as a reason for the claim’s dismissal, as the Court should focus onwhether there is a reasonable prospect that the claim will succeed if the facts pleaded can assume to be true.

Based on this, MPP submitsthat the action should not be struck out simply because questions regarding vessel ownership interests, acquired by purchase of corporateshares in a one ship company, have not been fully settled in Canada. [19] Further, where there are triable issues relating to the proper ownership of a vessel the Court should not strike out an in remclaim (Dragage Verreault, above). [20] MPP also submits that it is not necessary for the claim to fall strictly under s. 22(2)(

a) or another of the enumeratedsubsections to support an in rem action. It need only have “a claim for relief or a remedy sought under Canadian Maritime law or relatingto any matter coming within the class of subject of navigation and shipping” pursuant to s. 21(1). Thus, even if MPP’s claim does not fallwithin s. 22(2)(

a) or (c), it falls within s.22(1) or a claim pursuant to Canadian Maritime law. Ownership and financing of vessels isintegrally connected to maritime commerce and carrying out the activity of shipping (ITO – International Terminal Operators Ltd vMiida Electronics Inc, (SCC), [1986] 1 SCR 752 at para 20 [ITO]). The modern approach to Canadian Maritime lawshould include disputes with regard to the financing of vessels and the corporate entities which may be employed for the limited purposeof financing vessels.

So long as MPP’s claim falls within s. 22, then it can proceed in rem against the ship that is the subject of the actionpursuant to s. 43(2) (Marlex Petroleum Inc v The Har Rai, (FCA), [1984] 2 FC 345 (FCA); Kuhr v The FriedrichBusse, [1982] FCJ No 54 (QL) [The Friedrich Busse]; Balodis v The Prince George, [1984] FCJ No 266). [21] Further, s. 22(2)(

a) uses the words “with respect to” and should be interpreted broadly (Antares Shipping Corporation v TheShip “Capricorn” et al, (SCC), [1980] 1 SCR 553 paras 9-10 [The Capricorn]) to include disputes relating to one shipholding companies (Paull v Munday (1979), 36 LGRA 303 at 306; R v Nowegijick, (SCC), [1983] 1 SCR 29 at para 7).This is an untested and unsettled point of Canadian law and should be heard and determined on its merits. [22] While the claim or controversy may be coloured by the fact that there is an intervening company that holds ownership of theVessel, SCL Bern, this does not make it any less a claim or question arising out of a claim to the ownership of the Vessel in thesecircumstances. [23] The Vessel is the subject of the action and is therefore subject to the Court’s in rem jurisdiction pursuant to s. 43(2) of theFCA.

The identifiability test applies, being whether the ship is the ship designated in the contract or dispute which is alleged to havebeen breached (Phoenix Bulk Carriers Ltd v Kremikovtzi Trade, 2007 SCC 13, [2007] 1 SCR 588, rev’g 2006 FCA 1 at paras 38-39[Kremikovtzi Trade]). [24] The words “subject of the action” should be interpreted broadly. To be the subject of the action, the ship to be arrested doesnot have to be the cause of the action (Kremikovtzi Trade, above, at para 40).

Therefore, the Court may exercise its jurisdiction in rem ifthe property against which a claimant seeks to exercise its in rem rights is the subject of the action. Here, MPP has arrested the ship thatis the very heart of the contract alleged to have been breached and is the subject of the action. [25] MPP also submits that the cases relied on by the Defendants are, in the circumstances of this case, distinguishable. Theseinclude The Incan St.

Laurent, Atlantic Yacht & Ship, Trawlercat and JPMorgan, all above. [26] Further, that the Court must look at the dispute in terms of the real issue between the parties, which is a dispute over partialownership of a vessel and the right to be paid out its ownership interest pursuant to the agreement.

The substance or underpinnings of theclaim and the relief sought must be considered in evidencing maritime jurisdiction cases and the arguments of the parties should beviewed in whole (Shibamoto & Co v Western Fish Producers, Inc, [1989] FCJ No 900 (QL)(TD) [Shibamoto]; Alcan Primary Metal, adivision of Rio Tinto Alcan Inc v Groupe Maritime Verreault Inc, [2011] FCJ No 1622 (QL)(CA) [Alcan]). [27] Similarly, it should be recognized that the financing of the Vessel, the involvement of the company whose sole purpose wasto own it and the Shareholders Agreement are inseparable.

Further, the Court is also one of equity which looks to intent rather than form(Textainer Equipment Management BV v Baltic Shipping Co, [1994] FCJ No 1267 at para 13). Thus, while SCL Bern owns the Vessel,the intent of the arrangements was for MPP to have a 40% interest in it. [28] MPP submits that it cannot be said that a dispute which centres around the investment into a ship, albeit through a “one-shipcompany”, is not a matter falling within the wide jurisdiction of navigation and shipping. Therefore, the Defendants’ motion should bedismissed.

Legislation [29] The relevant provisions of the FCA are as follows: Navigation and shipping Navigation et marine marchande

(1) The Federal Court 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. 22.

(1) La Cour fédérale a compétence concurrente, en première instance, dans les cas — opposant notamment des administrés — où une demande de réparation ou un recours est présenté en vertu du droit maritime canadien ou d’une loi fédérale concernant la navigation ou la marine marchande, sauf attribution expresse contraire de cette compétence. Maritime jurisdiction Compétence maritime

(2) Without limiting the generality of subsection (1), for greater certainty, the Federal Court has jurisdiction with respect to all of the following: (

a) any claim with respect to title, possession or ownership of a ship or any

part interest therein or with respect to the proceeds of sale of a ship or any

part interest therein; […] (

c) any claim in respect of a mortgage or hypothecation of, or charge on, a ship or any

part interest therein or any charge in the nature of bottomry or respondentia for which a ship or

part interest therein or cargo was made security; […]

(2) Il demeure entendu que, sans préjudice de la portée générale du paragraphe (1), elle a compétence dans les cas suivants :

a) une demande portant sur les titres de propriété ou la possession, en tout ou en partie, d’un navire ou sur le produit, en tout ou en partie, de la vente d’un navire; […]

c) une demande relative à un prêt à la grosse ou à une hypothèque, un privilège ou une sûreté maritimes grevant tout ou

partie d’un navire ou sa cargaison; […] Jurisdiction applicable Étendue de la compétence

(3) For greater certainty, the jurisdiction conferred on the Federal Court by this

section applies (

a) in relation to all ships, whether Canadian or not and wherever the residence or domicile of the owners may be; […] (

d) in relation to all mortgages or hypothecations of, or charges by way of security on, a ship, whether registered or not, or whether legal or equitable, and whether created under foreign law or not.

(3) Il est entendu que la compétence conférée à la Cour fédérale par le présent

article s’étend :

a) à tous les navires, canadiens ou non, quel que soit le lieu de résidence ou le domicile des propriétaires; […]

d) à toutes les hypothèques ou tous les privilèges donnés en garantie sur un navire — enregistrés ou non et reconnus en droit ou en equity — , qu’ils relèvent du droit canadien ou du droit étranger. Jurisdiction in personam 43.

(1) Subject to subsection (4), the jurisdiction conferred on the Federal Court by

section 22 may in all cases be exercised in personam. Jurisdiction in rem

(2) Subject to subsection (3), the jurisdiction conferred on the Federal Court by

section 22 may be exercised in rem against the ship, aircraft or other property that is the subject of the action, or against any proceeds from its sale that have been paid into court. […] Compétence en matière personnelle 43.

(1) Sous réserve du paragraphe (4), la Cour fédérale peut, aux termes de l’

article 22 , avoir compétence en matière personnelle dans tous les cas. Compétence en matière réelle

(2) Sous réserve du paragraphe (3), elle peut, aux termes de l’

article 22 , avoir compétence en matière réelle dans toute action portant sur un navire, un aéronef ou d’autres biens, ou sur le produit de leur vente consigné au tribunal. […] [ 30 ] The relevant portions of Rule 221 are:

Motion to strike 221.

(1) On motion, the Court may, at anytime, order that a pleading, or anythingcontained therein, be struck out, with orwithout leave to amend, on the ground that it (

a) discloses no reasonable cause of action ordefence, as the case may be, […] (

c) is scandalous, frivolous or vexatious, […] (

f) is otherwise an abuse of the process of theCourt, and may order the action be dismissed orjudgment entered accordingly. Evidence

(2) No evidence shall be heard on a motionfor an order under paragraph (1)(a). Requête en radiation 221.

(1) À tout moment, la Cour peut, surrequête, ordonner la radiation de tout oupartie d’un acte de procédure, avec ou sansautorisation de le modifier, au motif, selon lecas :

a) qu’il ne révèle aucune cause d’action ou dedéfense valable; […]

c) qu’il est scandaleux, frivole ou vexatoire; […]

f) qu’il constitue autrement un abus deprocédure. Elle peut aussi ordonner que l’action soitrejetée ou qu’un jugement soit enregistré enconséquence. Preuve

(2) Aucune preuve n’est admissible dans lecadre d’une requête invoquant le motif visé àl’alinéa (1)a). Analysis [31] This motion was brought on an urgent basis and was heard on June 10, 2014. On June 12, 2014, counsel for the Defendantswrote to the Court advising that circumstances were such that a decision was now required as soon as possible. Security for the release ofthe Vessel has not been posted. This order with reasons, accordingly, has been rendered on an urgent basis.

While the reasons are not asfulsome as may be desired, the outcome, however, remains the same. [32] I have concluded that the heart of this matter, even when viewed in whole, is a shareholder’s dispute and falls outside thejurisdiction of this court. [33] The test with respect to striking out pleadings under Rule 221 is whether it is plain and obvious that the claim discloses noreasonable cause of action (Hunt, above).

The “plain and obvious” test also applies when a lack of jurisdiction is the basis for the motionto strike (Hodgson v Ermineskin Indian Band No 942 (2000), (FC), 180 FTR 285, aff’d [2000], 267 NR 143 (FCA),leave to appeal refused [2001] SCCA No 67 (QL); Kremikovtzi Trade, above; Kona Concept Inc v Guimond Boats Ltd, 2005 FC 214 atparas 12-13).

The onus of proof on the party seeking to strike pleadings is a heavy one (Apotex Inc v Syntex PharmaceuticalsInternational Ltd (2005), 2005 FC 1310 , 44 CPR (4th) 23 at para 31). [34] Where an objection is taken to jurisdiction, the Court must be satisfied that there are jurisdictional facts or allegations of suchfacts supporting an attribution of jurisdiction.

The existence of the necessary jurisdictional facts will normally be found in the pleadingsand the affidavits filed in support of or in response to the motion to strike (MIL Davie, above at paras 8- 9; Trawlercat, above at paras 3,17). [35] In this case, the relevant pleadings as contained in the Statement of Claim can be summarized as follows: • MPP alleges that it loaned SCL Bern and SCL Reederei US$5,000,000 “in exchange for a 40% ownership stake in the Vessel.

Tofacilitate the loan, the Plaintiff and the Defendant entered into a Shareholders’ Agreement (the Agreement) signed on August 15, 2008”(para 6); • Under the Shareholders’ Agreement the combined shares of MPP and SCL Reederei “amounted to 100% ownership interest in“one-ship” company SCL Bern AG” (para 7); • “The Agreement granted the Plaintiff an option to sell its interest in the Vessel” (para 9); • The Plaintiff claims that the Defendants breached the terms of the Shareholders’ Agreement and that it suffered damages as aresult.

More particularly, “The Defendants have failed to pay the Plaintiff the amount owed for the Plaintiff’s ownership in SCL BernAG in accordance with the Agreement between the Defendants and the Plaintiff” (para 12(a)); • “The Plaintiff claims that it has an ownership interest in the Vessel by virtue of a 40% ownership stake in the Defendant SCL BernAG.

In the alternative, the Plaintiff claims that the US$5,000,000 loan to the Defendants SCL Bern AG and SCL Reederei was securedby way of a mortgage or charge on the Vessel in favour of the Plaintiff” (para 13); • The Plaintiff claims damages in rem pursuant to s. 22(2)(

a) and (

c) and s. 43(2) of the FCA and in personam pursuant to s.22(2)(

a) and (

c) of the FCA “as it is the owner of the Vessel” (paras 14-15).

[ 36 ] The Shareholders’ Agreement is attached as an exhibit to the Affidavit of Daniele Favalli, a partner with the law firm of Vischer AG, Swiss counsel for SCL Reederei filed by the Defendants in support of this motion. It is also an exhibit to the Affidavit of Talal Hallak, filed by MPP in response to the motion to strike. [ 37 ] The Shareholders’ Agreement is made between SCL Reederei and MPP. It states that those parties directly hold 100% of the shares of SCL Bern. As to the purpose of the agreement: The spirit and purpose of this Shareholders’ Agreement 2.

The purpose of this Shareholders’ Agreement is to supplement the rights and obligations of the Parties pursuant to company law and the Articles of Association, in order to ensure in the long term that all parties participate equally in the success or lack of success of SCL Bern AG on the basis of their shareholdings. Should this agreement not contain any provision, the Articles of Association shall apply. [ 38 ] The Board of Directors of SCL Bern was required to reach a unanimous decision in relation to the sale and purchase of shareholdings and the consent of Mr. Hallak (clause 8).

And, as noted above, the Shareholders’ Agreement contained clauses pertaining to the right of first refusal and the prohibition on share disposal (clauses 12 and 13), a clause relating to the transfer of shares (clause 14) and arbitration and applicable law clauses (clauses 19 and 20). [ 39 ] The Shareholders’ Agreement contains no reference of any kind to the Vessel. [ 40 ] The Affidavit of Mr. Favalli deposes that under Swiss law, owning of shares of a company does not give an ownership interest in the assets of that company.

He states that the fact that MPP owns 40% of the shares of SCL Bern does not mean that it owns 40% of the assets of SCL Bern and it would be entitled to dispose or otherwise take actions with respect of any assets of that company. [ 41 ] As noted above, it is not disputed that SCL Bern is the registered owner of the Vessel. An extract from the Swiss Ship Register is attached as an exhibit to the Affidavit of Finbarr Murphy filed in support of the Defendants’ motion.

This also demonstrates that MPP does not have a mortgage or other charge against the Vessel recorded on that register. [ 42 ] The Shareholders’ Agreement confirms that MPP acquired an interest in the shares of SCL Bern in consideration of its US$5,000,000 investment. [ 43 ] In his Affidavit, Mr. Hallak deposes that it was agreed between himself and Mr. Grunder and that MPP would advance US$5,000,000 to be used to finance the Vessel in exchange for which MPP would be entitled to a 40% ownership interest in the Vessel. In support of this, attached as an exhibit to the Affidavit, is an email from Mr. Grunder to Mr.

Hallak, dated October 10, 2007. This states that for good order, he would like to confirm the agreements made on September 25, 2007: “1. investment into bern you will buy 40% of the shares of scl bern fpr us-$ 5 mio…” [ 44 ] Mr.

Hallak also attached as an exhibit to his affidavit an email from him to Enzian Ship Management AG dated March 1, 2008 stating that he had asked a financial advisor and planner “…to organize on my behalf the setting of General MPP Carriers – being the 40% buyer of the SCL Bern as well as organize the transfer – shares purchase agreement…” and asks if his advisor can contact the recipient in that regard. [ 45 ] Mr. Hallak deposes that these emails demonstrate the intent that MPP was to be the purchaser of 40% of the Vessel.

Further, that in his view, ownership of the company and ownership of the Vessel in the circumstances of a one-ship company, is the same thing. The intent was that MPP was to own 40% of the Vessel. [ 46 ] It is against these pleadings and facts that jurisdiction must be considered. MPP in the Statement of Claim has relied on sections 22(2) (

a) and (

c) and

section 43 of the FCA as the jurisdictional basis of its claims. In its submissions MPP takes the view that even if its claim does not fall precisely within those subsections there will be jurisdiction so long as the claim falls within section 22(1), being a claim for relief or a remedy sought under Canadian maritime law or any other law of Canada relating to any matter coming within the class of subject of navigation and shipping. I agree with that view. The enumerated claims in s. 22(2) are simply illustrative of and do not limit the jurisdiction described in s. 22(1). [ 47 ]

Section 22 addresses the threshold jurisdictional requirement. Once that hurdle has been met then, pursuant to section 43(1), the jurisdiction conferred on the Court by

section 22 can in all cases be exercised in personam . Pursuant to section 43(2), that jurisdiction can be exercised in rem against the ship or other property that is the subject of the action with certain exceptions stated in section 43(3). In Kremikovtzi Trade , above, at para 44 , Justice Nadon stated that once it has been determined that the action relates to an agreement that falls within the purview of

section 22 , the enquiry then turns to what constitutes the subject of that particular action. [ 48 ] In ITO , above the Supreme Court stated that jurisdiction in the Federal Court depends on there being three things: (1) a statutory grant of jurisdiction by Parliament; (2) an existing body of federal law, essential to the disposition of the case, which nourishes the statutory grant of jurisdiction; and (3) law underlying the case falling within the scope of the term “a law of Canada” used in s.101 of the Constitution Act, 1867 .

In the context of jurisdiction for maritime claims, the second element must fall within Canadian maritime law as defined by the FCA and as interpreted by the Supreme Court and the third element is satisfied by the Canada Shipping Act or the FCA (see also Isen v Simms , 2005 FCA 161 at para 62 , rev’d on other grounds, 2006 SCC 41 ).

In the context of the constitutional limits that may apply to Canadian maritime law, the Supreme Court in ITO stated that a court in determining whether or not any particular case involves a maritime or admiralty matter must avoid encroachment on what is in pith and substance a matter of local concern involving property and civil rights or any other matter which is in essence within the exclusive provincial jurisdiction under

section 92 of the Constitution Act, 1867. The Supreme Court stated that, “It is important, therefore, to establish that the subject-matter under consideration in any case is so integrally connected to maritime matters as to be legitimate Canadian maritime law within federal legislative competence.” [ 49 ] Thus, the starting point in determining whether this Court has jurisdiction in this matter is that it must be a case falling within

section 22(1) generally, if not sections 22(2)(

a) or (

c) specifically. [50] The Defendants refer to The Incan St. Laurent, above. That was an appeal of a judgment dismissing the plaintiff’s actionbased on a lack of jurisdiction. The action was based on the provisions of a joint venture agreement which was one of the three contractsrelating to a rail transportation project. The action alleged that under the joint interim agreement the plaintiff was the beneficial owner ofa one-half interest in the respondent ship and that the respondent company had failed to transfer one-half of the rights to the ship to theplaintiff as required by the agreement.

The appeal was dismissed.

The Federal Court of Appeal found that the claim could not be said tobe a claim based on Canadian maritime law because of the necessary relationship to the rights and obligations created by the jointventure agreement were inseparable from those created by other agreements to construct terminals. [51] In the related matter of Canadian Pacific Ltd v Quebec North Shore Paper Company, (SCC), [1977] 2 SCR1054, the Supreme Court had held that an action based on an alleged failure to perform the obligation to construct a terminal and to setaside all three contracts relating to the rail transportation project was governed by Quebec civil law and was beyond the jurisdiction ofthe Federal Court.

Accordingly, the Federal Court of Appeal in The Incan St. Laurent held that the same must be true of an action basedon certain rights considered by the joint venture agreement but necessarily related to the same obligation. The contracts were to beviewed as a whole and as such were not matters that fell with Canadian maritime law. [52] The Defendants assert that the Shareholders’ Agreement is likewise an inseparable part of a set of agreements, comprised ofit, the SCL Bern Articles of Association and company law as indicated by clause 2 of the Shareholders’ Agreement.

This demonstratesthat the Shareholders’ Agreement falls squarely within the category of corporate agreements rather than an agreement pertaining tonavigation and shipping. And, as demonstrated by the proceedings in Switzerland as described in the Affidavit of Mr. Favalli, this matteris in essence a shareholders dispute, being whether the option to sell the shares of SCL Bern pursuant to clause 13 of the Shareholders’Agreement was properly triggered. [53] MPP says that the dispute over the partial interest in The Incan St.

Laurent, above was in connection with the failed railtransport project and was subject to several other agreements all of which were not within were not within the jurisdiction of the Court. It is therefore distinguished from this situation which concerns two businessmen involved in the shipping business entering intoarrangements for the financing of a ship. [54] While I am not convinced that the Shareholders’ Agreement, the Articles of Association and company law can be viewed asinseparable and intertwined in the same manner as the contracts in The Incan St.

Laurent, I do think that it is quite clear that MPP’sclaims arise from the alleged breach of the Shareholders’ Agreement concerning the sale of the shares of SCL Bern. The reference in theShareholders’ Agreement to the Articles of Association and company law adds to the characterization of the dispute, and therefore theclaim, as one of corporate and not maritime law. It is very significant that the Shareholders’ Agreement does not refer to the Vesseleither directly or indirectly nor to any marine activity or connection.

Nor, and contrary to the allegation contained in paragraph 9 of theStatement of Claim, does it grant MPP an option to sell its interest in the Vessel. What it offers is the opportunity for MPP to sell itsshares in SCG Bern to SCL Reederei “at a price representing 125% of his investment (5% per year), meaning US$5,000,000.00 +25%+US$6,250,000.00”. [55] I am also not convinced that the Supreme Court’s decision in The Capricorn, above, is overly helpful to MPP. While it is truethat it found that the Federal Court of Appeal’s construction of s. 22(2)(

c) was unduly narrow, it also stated that the question that lay atthe heart of the appeal was whether or not the Federal Court was clothed with jurisdiction to entertain an action for the enforcement of aconcluded contract for the sale of a ship by delivery and execution of a bill of sale i.e. possession of a ship by way of specificenforcement: …We are not concerned here with the merits of the claim; the sole question at issue is whether the Federal Court is clothed withjurisdiction to entertain it and as any claim for delivery, however it may arise, is necessarily a claim of entitlement to transfer ofpossession and s. 22(2)(

a) expressly confers jurisdiction over "any claim or question arising out of a claim to title, possession orownership of a ship", I am satisfied that the Federal Court has jurisdiction over the subject matter of this appeal… [56] The claim in The Capricorn, above, was a claim between two parties to the contract of the sale and purchase of a ship andsought a declaration of ownership of the ship and its delivery to the plaintiff. This can be contrasted to the heart of the matter in thepresent dispute between MPP and the Defendants which is an alleged breach of a Shareholders’ Agreement.

The ship owner, SCL Bernis not a party to that agreement. [57] Trawlercat, above, concerned an alleged breach of copyright through the use of the plaintiff’s ship drawings as well as analleged breach of a contract to execute a purchase and construction agreement. The plaintiff relied on s. 22(1) and s. 22(2)(

m) or (

n) ofthe FCA to support an in rem claim against the vessel allegedly built in reliance on the subject drawing. [58] With respect to the copyright claims, Prothonotary Hargrave stated: [12] In reaching the conclusion that a copyright claim ought not to sound in rem, I have kept in mind that I should interpret section22(1) of the Federal Court Act broadly. I have also kept in mind that the reference to remedies being sought under or by virtue ofCanadian maritime law should not be confined to a traditional or historic approach, but should be interpreted in a modern and relevantcontext: here seek Monk Corporation v.

Island Fertilizers Ltd., (SCC), [1991] 1 S.C.R. 779 at 795. This approach ofbroad

interpretation allows the Federal Court jurisdiction into subject matter "so integrally connected with maritime matters as to belegitimate Canadian maritime law..." (loc. cit.). [13] A further difficulty I have with finding jurisdiction within section 22(1) of the Federal Court Act is that the copyright claiminvolved plans supplied for a ship neither built nor in existence.

This is because the claim, involving copyright in a vessel's plans sent to aprospective customer so he might visualize the nature of the vessel, neither falls within the scope of admiralty or maritime law asincorporated into the laws of Canada, nor falls within the federal legislative jurisdiction in respect of navigation and shipping: see forexample Quebec and Ontario Transportation Co. v. The "Incan St. Laurent" (1979) (FCA), 104 D.L.R. (3d) 139 at141 - 142 (F.C.A.), affirmed (SCC), [1980] 2 S.C.R. 242.

[14] Certainly there have been cases in the Federal Court involving yacht design and here I have in mind, as an example, BaylinerMarine Corporation v. Doral Boats Ltd. (1985), 5 C.P.R. (3d) 289 (F.C.T.D.) and (1986), 10 C.P.R. (3d) 289 (F.C.A.). However,Bayliner did not have an in rem aspect. Indeed, I do not see how copyright or industrial design matters might be enforced in rem. In remjurisdiction depends upon coming within

section 22 of the Federal Court Act, enforced in rem as authorized by section 43(2) and asexcepted in section 43(3). This leads back to a consideration of whether the claim of the Plaintiffs come within section 22(2), (

m) or (n),which I will deal with shortly. [59] Prothonotary Hargrave concluded: [27] There is nothing pleaded in this action, or explained in the affidavit material, by which the clothe of Federal Court with thenecessary in rem jurisdiction to allow the arrest of the Amity.

While the in personam aspect of this claim may fall within Federal Courtlegislative competency, a point not argued on this motion, it is not sufficient, in order to establish in rem jurisdiction, merely for thesubject matter to have some connection with a ship. [28] The subject matter of the action does not come within Canadian maritime law or within the general provision providingjurisdiction under the heading of Navigation and Shipping, section 22(1) of the Federal Court Act, or within the included maritimejurisdiction which is more specifically set out in section 22(2). [29] All of this being the case the in rem claim is struck out and here I would refer, by way of precedent, to Bornstein SeafoodsCanada Ltd. v.

Hutcheon (1997), (FC), 140 F.T.R. 241 (F.C.T.D.). There Mr. Justice Gibson dealt with the settingaside the arrest of a ship, the cause of action being alleged transfer of a misappropriated fishing quota. Mr. Justice Gibson was unable tofind that the subject matter either fell within section 22(1) or the relevant portions of section 22(2) of the Federal Court Act and indeed,was unable to "... conclude that the subject matter of this action is so integrally connected to maritime matters as to be legitimateCanadian maritime law." (page 251).

He concluded that the subject matter of the action did not fall within the jurisdiction of the FederalCourt as either Canadian maritime law or any other law coming within the subject of navigation and shipping. As such, he held the inrem action unfounded. Accordingly, the warrant for arrest could not stand (loc. cit.). This is the situation in the present instance. [30] All of this is not to say that the in personam action might not, to some degree, succeed. Rather, the action shall now proceedpurely as an in personam action, with the Amity being released from arrest.

Costs of this motion to the Defendants in any event. [60] In my view, the approach taken in Trawlercat, above, is equally applicable here. While the copyright pertained to a vessel,Prothonotary Hargrave could not see how copyright or industrial design matters could be enforced in rem.

Similarly here, it is difficultto see how a dispute arising out of a Shareholders’ Agreement can, without more, result in the arrest of a ship not mentioned in theagreement and which is owned by another party. [61] In JPMorgan, above, JP Morgan took possession of the The Lanner due to an unpaid mortgage, the vessel was ultimately sold.Kent Trade and Finance (Kent Trade), a creditor, was awarded a portion of the sale proceeds, but, the company has ceased to exist. Twoof its shareholders claimed an entitlement to the money.

They referenced an agreement by which one shareholder agreed to transfer hisshares in Kent Trade to the other in exchange for being assigned the right to proceeds of the claim against the vessel. [62] The Prothonotary found that the matter was, in pith and substance, a disagreement as to the

interpretation or implementationof an agreement concerning a share transfer and its consequences. Based on ITO, above, he found that the subject matter in dispute wasnot so integrally connected to a maritime matter as to be considered to be a maritime law matter and declined jurisdiction. [63] On appeal of that decision, Justice Tremblay-Lamer confirmed that the Prothonotary rightly referred to the ITO test.

Theappellant argued that the first requirement of the test, that there must be a statutory grant of jurisdiction by the Federal Parliament, hadbeen met and that finding that the dispute constituted a matter falling within Canadian maritime law was sufficient to satisfy the secondand third requirements of ITO. [64] Further, that the judicial sale of the vessel was captured by the statutory grant of jurisdiction under s. 22(2)(

a) of the FCA aswas the maritime lien for the provision of the fuel oil by s. 22(2)(m). The dispute with respect to the assignment of a right in rem againstthe proceeds of the sale of the “Lanner” (constituting maritime property) in relation to a claim arising from fuel oil supply, fell within s.22(1) of the FCA by virtue of being a claim in which “a remedy is sought under or by virtue of Canadian maritime law”. Further, that therequirement of integral connection was to be interpreting broadly (Monk Corp v Island Fertilizers Ltd, (SCC), [1991] 1SCR 779 [Monk]).

The appellant also argued that after determining that the contract was not maritime in nature, the Prothonotary hadfailed to evaluate whether, despite not being a maritime contract, the claim itself was nonetheless integrally connected to a maritimematter. [65] Justice Tremblay-Lamer did not agree and found that the dispute with respect to the maritime obligation (being the claim forpayment for the supply from fuel) had been resolved. All that remained was the

interpretation of an agreement between shareholders asto the right to the funds resulting from a successful claim.

Although the current dispute between the shareholders could be said to flowfrom the award to Kent Trade, the current dispute was completely separable from the maritime aspect, being the claims for compensationfor the supply of fuel. [66] As there was no basis for finding that the dispute under consideration in the matter before her was integrally connected tomaritime matters and the second and third requirements of the ITO test were not satisfied, there was no need to consider the firstrequirement. [67] I agree with the Defendants’ reasoning that while it can be said, in this case, that the dispute indirectly “involves” the Vessel,in that it is the principal asset of SCL Bern, the current dispute is separate from that maritime aspect as it relates solely to theShareholders’ Agreement and the sale of the shares in the ship owning company. [68] Put otherwise, in pith and substance, MPP’s claim arises out of the Shareholders’ Agreement and is a shareholder dispute.There is a sufficient degree of separation between that claim and the maritime aspect of this matter, being the fact that the Vessel is held

as the sole asset of a company in which MPP has a 40% share, that the subject matter of the dispute is not integrally connected to maritime matters falling within Canadian maritime law. [ 69 ] I would also note that in Atlantic Yacht & Ship , Prothonotary Hargrave kept in mind ITO , above, and the expanded view of Canadian maritime law. However, he stated that he must not distort the statutory jurisdiction granted to the Federal Court by giving a forced and unreasonable reading to the relevant provisions, being s. 22(2) (

a) and (

n) in that case. A similar concern arises in this circumstance. [ 70 ] Based on the pleadings contained in the Statement of Claim and the affidavits filed in connection with the jurisdictional challenge, in my view, MPP’s claim is not one for relief made or a remedy 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 pursuant to s. 22(1) . The heart of the matter, even when viewed in whole, is a shareholder’s dispute.

Unlike Shibamoto , above the contract in dispute did not involve the services of a ship nor or any other maritime aspect. Further, MPP did not provide funds to SCL Bern to finance its operations or those of the Vessel, it invested in SCL Reederei. In my view, this is distinguishable from the underpinning of the contract at issue in Shibamoto . [ 71 ] Given this finding, it is not necessary to consider the enumerated claims in s. 22(2) relied upon by MPP. However, I would noted that while MPP frames its s. 22(2) (

a) claim as one arising out of the ownership of the Vessel, based on the facts of this case, I am unable to agree with that characterization. The Statement of Claim states that the claimed damages arise from the breach of the Shareholders’ Agreement, but the agreement does not concern the Vessel. The Statement of Claim acknowledges that the Vessel is owned by SCG Bern. MPP claims it has an ownership interest in the Vessel by virtue of its ownership stake in SCL Bern. While MPP has a shareholding interest the SCG Bern, the affidavit evidence of Mr.

Favalli is that share ownership does not give an ownership interest in the assets of the company nor a right to dispose of those assets. [ 72 ] Mr. Hallak’s affidavit speaks of his intention that MPP would be the buyer and owner of the Vessel. This affidavit was filed in response to the jurisdictional challenge, but it attached only two emails to establish an ownership interest and intention. One of these refers to only the share purchase, the other is unclear and both predate the Shareholders’ Agreement. Mr. Hallak deposes that he and Mr.

Grunder have had dealings together in the shipping business for at least the last ten years. They are not unsophisticated parties. Mr. Hallak’s affidavit also references his use of legal and financial advisors in connection with the subject transaction.

This was a $5,000,000 investment and it could reasonably be expected that the claimed intention could be easily documented for purposes of establishing jurisdiction but it was not. [ 73 ] As to s. 22(2)(c), the Statement of Claim asserts that MPP loaned SCL Bern and SCL Reederei US$5,000,000 in exchange for a 40% ownership stake in the Vessel as facilitated by the Shareholders’ Agreement. Further, that the loan was secured by way of a mortgage or charge on the Vessel.

While MPP submits that, viewed in context, the Shareholders’ Agreement is a form of a ship financing agreement and therefore is maritime in nature, the pleadings and affidavit evidence do not support this. The Shareholders’ Agreement makes no reference to a loan or to the Vessel and it is not in dispute that no mortgage has been affected by MPP. The pleadings are not supported by facts confirming the existence of a mortgage and the affidavit evidence confirms that there is no mortgage. The affidavit of Mr. Hallak also does not assert the existence of a loan nor provide evidence of one or its terms and conditions.

This aspect of the claim therefore cannot succeed. MPP also submits that it holds an equitable mortgage that would support the claim, however, for many of the same reasons set out above I do not agree. Further, the pleadings also do not assert an equitable mortgage or charge. [ 74 ] As the s. 22 jurisdictional threshold has not been met, the exercise of that jurisdiction in rem , pursuant to section 43(2), does not come into play. Even if it did, based on the foregoing, it is the Shareholders’ Agreement and not the Vessel which is the subject of the present dispute.

As stated by Justice Nadon in Kremikovtzi Trade , “In other words, the action in rem must relate to the specific property contemplated in the contract at issue.” The only property contemplated by the Shareholders’ Agreement is the shares in SCL Bern. [ 75 ] MPP takes the view that because the Vessel is held by a one ship company that this enhances its claim to an ownership interest and that this is, therefore, a novel claim. One ship companies are not new. They have long been used as shipping owning vehicles, often for the purpose of limiting potential liabilities arising from the operation of the ship.

That is, if there were company owned assets other than the single ship, those corporate assets could be looked to by a creditor seeking to satisfy a claim against the ship or the ship owning company. By having only one asset, the ship, other assets or ships would, in most circumstances, be protected from such claims. The mere fact that a company has only one asset does not vary the right of its shareholders to claim an ownership interest in that asset. Regardless of whether a company has one ship, ten ships or multiple assets, without more its shareholders hold shares, not title to the corporate assets.

While MPP describes one ship companies as an area of unsettled law, it did not refer to jurisprudence supporting that position. In my view, this aspect of the claim is not novel or unsettled nor, in these circumstances, does it serve to establish a claim to ownership as contemplated by s. 22(2)(a). [ 76 ] The Court must be satisfied that there are jurisdictional facts or allegations of such facts supporting an attribution of jurisdiction. The existence of the necessary jurisdictional facts will normally be found in the pleadings and the affidavits filed in support of or in response to the motion to strike.

Here, the facts do not support a finding of jurisdiction for the present dispute. THIS COURT ORDERS that 1 . the in rem action against the Defendant Vessel is struck out; 2 . the warrant has no effect and the Vessel is released from arrest; 3 . the Defendants shall have their costs. "Cecily Y. Strickland" Judge

FEDERAL COURT SOLICITORS OF RECORD DOCKET: T-1331-14 STYLE OF CAUSE: GENERAL MPP CARRIERS LTD. v SCL BERN AG, SCL REEDEREI AG, AND THE OWNERS AND ALL OTHERS INTERESTED IN THE SHIP "SCL BERN" PLACE OF HEARING: Toronto, ONTARIO DATE OF HEARING: JUNE 10, 2014 ORDER AND REASONS: STRICKLAND J. DATED: June 14, 2014 APPEARANCES : Marc D. Isaacs For The PLAINTIFF Michael C. Smith and Jean-Marie Fontaine For The DEFENDANT SOLICITORS OF RECORD : Isaacs & Co. Barristers and Solicitors Toronto, Ontario For The PLAINTIFF Borden Ladner Gervais, s.e.n.c.r.l., s.r.l. Toronto, Ontario For The DEFENDANT