SAAM SMIT CANADA INC. v. SAAM SMIT, 2017 FC 745

Date: 20170731 Docket: T-1455-16 Citation: 2017 FC 745 Ottawa, Ontario, July 31, 2017 PRESENT: The Honourable Mr. Justice Harrington BETWEEN:SAAM SMIT CANADA INC.

AND SAAM SMIT VANCOUVER INC.PlaintiffsandOWNERS AND ALL OTHERS INTERESTED IN THE SHIP “HANJIN VIENNA”, THE SHIP “HANJIN VIENNA”, CONTI 24CONTI LISSABON, OWNERS AND ALL OTHERS INTERESTED IN THE SHIP “HANJIN GENEVA”, THE SHIP “HANJINGENEVA”, CONTI 15 CONTI PORTO, AND CONTI HOLDING GMBH & CO KG AND EACH OF THE SHIPS ASSISTERSHIPS OF EACH OTHERDefendants ORDER AND REASONS (On Owners’ Motion for Partial Payment Out) [1] The Hanjin Vienna was sold by Order of this Court for US$ 6,676,000.00, to be deducted therefrom US$ 157,284.47covering the Marshal’s fees and expenses.

In addition, the fuel on board was sold for US$ 939,727.66. The principal amount of theclaims against the proceeds (leaving aside the former shipowners’ own claim) is, as expressed in U.S. Dollars, about US$ 3,600,000.

Theformer owners have moved for payment out to them of the proceeds they submit are surplus to and are not required to secure the allegedcreditors’ claims. [2] It is common ground that sufficient funds should be held under Court control to secure the claimants’ best reasonablyarguable cases in principal, interest and costs; (see The Moschanthy, [1971] 1 Lloyd’s Rep 37; and Amican Navigation Inc v DensenShipping Co, (1997) (FC), 137 FTR 132). [3] However, there are five issues requiring a decision:

a) Should the proceeds of the sale of the bunkers and other fuel be taken into account at the present time in determining if there is asurplus?

b) What are the best reasonably arguable cases on the principal amounts claimed?

c) What are the best reasonably arguable cases as to the award of interest?

d) What are the best reasonably arguable cases as to the award of costs?

e) What should be done with the owners’ claim of US$ 2,068,643.80 against the proceeds of the sale of their own ship and thebunkers? I. The Bunkers [4] At the time the Hanjin Vienna was arrested, it is likely that the bunkers and other fuel then on board belonged to her time-charterer, Hanjin Shipping Co. Ltd., which has gone bankrupt in South Korea. The ship remained on charter for several months, eventhough hire was not paid. In the normal course, under the terms of the charter party, on redelivery, the owners took over the bunkers.This is said to have occurred in late November 2016.

Thus, whatever the prior situation, in the normal course, the bunkers and other fuelbelonged to the shipowners at the time of the Marshal’s sale.

Furthermore, the shipowners submit that when all is said and done, for allintents and purposes, most of the bunkers and fuel on board had been purchased and paid for by them. [5] This begs the question: can the bunkers, in effect, be sold while the ship and its appurtenances are under arrest (BallantraeHoldings Inc v The Phoenix Sun, 2016 FC 570 at paras 25 and following)? [6] In any event, the record is far too murky to reach a final decision as to ownership of the bunkers at relevant times. [7] All those who assert claims in rem against the Hanjin Vienna certainly have claims in personam against Hanjin Shipping Co.Ltd.

The issue on the merits will be whether they have maritime liens, statutory liens, or actions in rem against the Hanjin Vienna. Herformer owners are contesting the validity of all of these claims. Should they be successful, it is certainly arguable that the bunkers andother fuel may have been owned by Hanjin Shipping Co. Ltd. and constitute a separate fund available to those creditors. Consequently,at the present time, I will only consider the proceeds of the sale of the ship.

II. The Principal Amounts Claimed [8] Although the former owners of the Hanjin Vienna hope in due course to defeat all the claims of the alleged creditors, I amaccepting for the moment that the claimants have a reasonably arguable case on the merits. All I have done is taken the administrationfee of one of them, World Fuel Services Inc., into my calculation of interest. III. Interest [9] In this Court, interest, in Admiralty matters, is a function of damages left to the discretion of the Court (The Phoenix Sun,above at paras 147 and following, together with the authorities cited therein).

The Court may decide not to apply the rate agreed betweenthe immediate parties to the contract. In cases where the claims exceed the proceeds, the Court may not award any interest prior to thesale of the ship, even on claims carrying with them a maritime lien, and thereafter only at the rate of interest earned by the proceeds. [10] It is common to markup the principal amount of the claim by 30% to cover interest and costs. In times when commercialinterest rates were much higher, the markup was usually 50%.

I accept what the late Prothonotary Hargrave said in Bank of Scotland vThe Nel, (1998) (FC), 144 FTR 47 at para 20, that the rule of thumb may by chance be appropriate but that theamount of security should be determined by the times and circumstances of each case. [11] It may well be that a 30% markup is not enough on smaller claims, and too much on larger claims. Nevertheless, although Ihave to look at the claims one by one, in a cursory manner, it must be kept in mind that the security remains a common pledge of thealleged creditors.

Consequently, I have begun my analysis with a 30% markup. [12] Only two of the claimants had pitched their claims in U.S. Dollars: World Fuel Services Inc. and Ali El-Husseini. The othersall provided services in Canada and had billed Hanjin in Canadian Dollars. This Court must give judgment in that currency. However,since the proceeds are currently being held in U.S. Dollars, I have converted the Canadian claims into that currency at the rate of 0.79,which is the approximate current rate of exchange. It should be noted that the Canadian Dollar has strengthened about 2.5% against theU.S.

Dollar since the sale was approved in February of this year. [13] Four creditors claim a contractual annual interest rate: World Fuel Services Inc. 24%; the Saam Smit companies 26.85%; DPWorld Prince Rupert Inc. 19.56%; and Canadian National Railway 12%. This is to be contrasted with the current Canadian bank primerate of 2.95% and the legal rate under the Interest Act of 5%. [14] Those parties also suggest that three years will pass before these matters are finally resolved. That may be so, but I venture tosay it will only take approximately one year for decisions on the merits in first instance.

Thereafter, and in accordance with s. 37 of theFederal Courts Act, judgment interest is calculated on the laws enforced in the Province where the cause of action arose or, if the causeof action arose outside or in more than one Province, at a rate the Court considers reasonable. [15] To the extent some of the causes of action solely arose in British Columbia, ss. 7 and 8 of the Court Order Interest Act, RSBC1996 c.79, provide for post-judgment interest at the annual simple interest rate that is equal to the prime lending rate of a bank to thegovernment, which currently is 2.7%.

However, s. 8 provides that the Court may vary that rate. [16] In my calculations, I am allowing for post-judgment interest at the simple rate of 5%. On that basis, World Fuel ServicesInc.’s claim for interest is 34% (24%, plus 5%, plus 5%). In like fashion, the Saam Smit companies’ interest claim, all in, is 36.85%; DPWorld Prince Rupert Inc.’s is 19.56%; and Canadian National Railway’s is 22%. [17] The following three columns set out my calculations in U.S.

Dollars: [Blank / En Blanc] Principal Principal +30% Principal + 30% orcontractual interestWorld Fuel Services Inc. 788,694.29 1,025,302.58 1,056,850.35Ali El-Husseini 29,868.04 38,828.45 38,828.45Pacific Pilotage Authority27,303.25 35,494.23 35,494.23Saam Smit Cos. 128,957.94 167,645.32 176,478.94DP World Prince RupertInc. 779,443.76 1,013,276.89 1,009,874.34 Canadian National Railway1,712,025.07 2,225,632.59 2,088,670.59Prince Rupert PortAuthority 120,482.49 156,627.24 156,627.24 Total 3,586,774.84 4,662,807.30 4,562,824.14 [18] On that basis, the claim of Canadian National Railway actually falls by over $135,000, and the claims overall by about$100,000. [19] Had Hanjin Shipping Co.

Ltd. gone bankrupt in Canada, claims for future interest would not be receivable. Any surplus ofassets over liabilities would be paid out to the creditors at the annual rate of 5% (s.143 Bankruptcy and Insolvency Act). [20] Although I very much doubt that the Court would award these unrealistic rates of interest which, at this stage at least, appearto have no bearing on making the claimants whole again, I am not yet prepared to drive them from the judgment seat. World FuelServices Inc. claims a U.S. maritime lien.

Although U.S. jurisprudence appears to be divided, there is at least one case which has heldthat the lien extends to contractual interest. The exchange of affidavits as to U.S. law has yet to take place. Furthermore, Prothonotary

Hargrave awarded contractual interest rates in Fraser Shipyard and Industrial Centre Ltd v Expedient Maritime Company Ltd, (1999) (FC), 170 FTR 1 (the Atlantis Two). IV. Costs [21] In my opinion, a hold-back of the principal amounts claimed plus 30%, i.e. US$ 4,662,807.30, more than adequately securesthe claimants, without taking into account the proceeds of the sale of the bunkers and accrued interest on the proceeds which, as of July18, 2017, was US$ 13,624.43. V. The Owners’ Claim [22] The owners claim that they expended US$ 2,068,643.80 maintaining the ship for the benefit of all creditors.

These expenses,they submit, should be paid out by priority. The owners cannot claim there is a surplus on hand, receive payment thereof and continuetheir claim against the balance. They would, in effect, be double-dipping. The only way they are entitled to receive payment of a surplusnow is by reducing their priorities claim dollar for dollar. They have now done so in writing with respect to the ship. They are entitled tomaintain their full claim against the bunkers. [23] Consequently, they are entitled to payment out of US$ 1,855,908.23 (US$ 6,676,000 minus US$ 157,284.47 minus US$4,662,807.30). VI.

Conversion Into Canadian Currency [24] It was convenient for all concerned to maintain the proceeds of sale in U.S. Dollars. However, Pacific Pilotage Authority, theSaam Smit companies, DP World Prince Rupert Inc., Canadian National Railway and Prince Rupert Port Authority would like to havetheir security held in Canadian Dollars. Since this Court only renders judgment in Canadian Dollars, this request is reasonable.

Mindfulthat all the proceeds of the sale of the ship and the bunkers are the pledge of all the creditors, irrespective of the currency in which theyare held, I order that, when the U.S. term deposits become due, US$ 4,662,807.30 be converted into Canadian currency and held on thesame basis. ORDER IN T-1455-16 (On Owners’ Motion for Partial Payment Out) THIS COURT ORDERS that: 1. For reasons given, the motion of Conti 24, Alemania Schiffahrts-GmbH & Co.

KG MS “Conti Lissabon”, the former owners of theship Hanjin Vienna, for payment out of proceeds of her sale surplus to the secured claims of the creditors, is granted in part. 2. Their solicitors, who are holding the proceeds in trust, are ordered to pay to them the sum of US$ 1,855,908.23. 3. Their solicitors are also ordered to convert US$ 4,662,807.30 into Canadian currency on the same basis. 4. Costs in the cause. “Sean Harrington” Judge FEDERAL COURT SOLICITORS OF RECORD DOCKET: T-1455-16

STYLE OF CAUSE: SAAM SMIT CANADA INC. AND SAAM SMIT VANCOUVER INC v OWNERS AND ALL OTHERS INTERESTED IN THE SHIP “HANJIN VIENNA”, THE SHIP “HANJIN VIENNA”, CONTI 24 CONTI LISSABON, OWNERS AND ALL OTHERS INTERESTED IN THE SHIP “HANJIN GENEVA”, THE SHIP “HANJIN GENEVA”, CONTI 15 CONTI PORTO, AND CONTI HOLDING GMBH & CO KG AND EACH OF THE SHIPS AS SISTERSHIPS OF EACH OTHER PLACE OF HEARING: Vancouver, British Columbia DATE OF HEARING: JULY 18 and 20, 2017 ORDER AND REASONS: HARRINGTON J. DATED: July 31, 2017 APPEARANCES : Jason Kostyniuk Stephen Carey FOR CONTI 24, ALEMANIA SCHIFFAHRTS-GMBH & CO.

KG MS “CONTI LISSABON”, THE FORMER OWNERS OF THE SHIP “HANJIN VIENNA” John Bromley FOR THE PLAINTIFFS AND PRINCE RUPERT PORT AUTHORITY J. William Perrett FOR ALI EL-HUSSEINI Peter Swanson FOR DP WORLD PRINCE RUPERT INC. AND PACIFIC PILOTAGE AUTHORITY Richard Desgagnes FOR CANADIAN NATIONAL RAILWAY Christopher Giaschi FOR WORLD FUEL SERVICES INC. No one appearing FOR THE VANCOUVER FRASER PORT AUTHORITY No one appearing for gct canada limited partnership SOLICITORS OF RECORD : Alexander Holburn Beaudoin & Lang LLP Barristers and Solicitors Vancouver, British Columbia FOR CONTI 24, ALEMANIA SCHIFFAHRTS-GMBH & CO.

KG MS “CONTI LISSABON”, THE FORMER OWNERS OF THE SHIP “HANJIN VIENNA” Norton Rose Fulbright Barristers and Solicitors Vancouver, British Columbia FOR THE PLAINTIFFS AND PRINCE RUPERT PORT AUTHORITY J. William Perrett Law Corporation Barristers and Solicitors Vancouver, British Columbia FOR ALI EL-HUSSEINI Bernard LLP Barristers and Solicitors Vancouver, British Columbia FOR DP WORLD PRINCE RUPERT INC.

AND PACIFIC PILOTAGE AUTHORITY Brisset Bishop Barristers and Solicitors Montreal, Quebec FOR CANADIAN NATIONAL RAILWAY Giaschi & Margolis Barristers and Solicitors Vancouver, British Columbia FOR WORLD FUEL SERVICES INC. Gall Legge Grant & Munroe LLP Barristers and Solicitors Vancouver, British Columbia FOR THE VANCOUVER FRASER PORT AUTHORITY

Owen Bird Law Corporation Barristers and Solicitors Vancouver, British Columbia for gct canada limited partnership