Jan 5, 2016

Admiralty Practice - Whether agreement to accept LOU vitiated by mistake? - Can more than one sister ship be arrested?

Westshore Terminals Limited Partnership v. Leo Ocean, S.A., [2015] 3 FCR 712, 2014 FCA 231 (CanLII)

Facts: The defendant vessel collided with and caused significant damage to a trestle/causeway at the plaintiff’s coal loading facility. As a consequence of the collision, the plaintiff alleged that it had suffered damages in excess of $60 million. Immediately following the collision the plaintiff commenced an action and the defendant vessel was arrested. Counsel for the plaintiff and defendant ship owner then entered into discussions for the release of the vessel from arrest. The ship owner initially offered to provide a letter of undertaking in the amount of US$24 million, being the value of the defendant vessel, as security for the release of the vessel from arrest. Plaintiff’s counsel questioned ship owner’s counsel on the availability of sister ships to increase the value of the security to $100 million. Plaintiff’s counsel also suggested that the vessel be moved from the berth where it was arrested to permit operations at the terminal to resume. Ship owner’s counsel told plaintiff’s counsel that the basis for multiple sister ship arrests was very weak and that, in any event, the sister ships were likely fully mortgaged. Ship owner’s counsel further refused to consent to move the arrested vessel until the security issue was resolved. Plaintiff’s counsel, who had limited maritime law experience, consulted with a maritime law expert and ultimately agreed to accept a letter of undertaking in the amount of US$26 million. The letter of undertaking, which contained a provision that the plaintiff would refrain from arresting sister ships, was delivered to plaintiff’s counsel. The plaintiff then took the position that there was no binding agreement to accept the letter of undertaking as security and that it was free to arrest as many sister ships as necessary to obtain security for the value of its claim. The plaintiff argued that the agreement to accept the letter of undertaking was vitiated by reason of mistake of law (as to the right to arrest multiple sister ships and the amount of security that might be obtained) and coercion/economic duress (for refusing to move the ship from the berth).

At first instance (reported at 2014 FC 136), the motions Judge held the agreement to accept the letter of undertaking was not vitiated by mistake or duress and that, in any event, there was no right to arrest multiple vessels. On the issue of mistake, the motions Judge held that defendant’s counsel owed no duty to plaintiff’s counsel, who was experienced and had the assistance of experienced maritime counsel. With respect to duress, the motions Judge held that although the ship owner may have put pressure on the plaintiff, this did not amount to coercion of will and was not illegitimate. Finally, with respect to the availability of multiple sister ship arrests, the motions Judge held that section 43(8) of the Federal Courts Act did not permit multiple arrests. The plaintiff appealed the decision of the motions Judge respecting the issues of mistake and the availability of multiple arrests. (The duress issue was not appealed.)

Decision: Appeal dismissed.

Held: The motions Judge correctly concluded that there was nothing that vitiated the agreement on the grounds of mistake. The first mistake alleged was that plaintiff’s counsel had been erroneously advised by defendant’s counsel that the right to arrest multiple sister ships was weak. The motions Judge correctly held that defendant’s counsel owed no duty to the plaintiff or plaintiff’s counsel. Moreover, if plaintiff’s counsel was uncertain about the issues he could have consulted with his maritime law expert. The second mistake alleged was plaintiff’s counsel had been erroneously advised by defendant’s counsel that the security was limited to the value of the offending vessel. The motions Judge correctly concluded that this advice was correct. It was clear to all concerned that there was uncertainty as to the right to arrest more than one ship since that issue had never been directly considered by the courts. There is no mistake of law that vitiated the agreement.

The motions Judge further correctly held that there is, in fact, no right to arrest more than one ship. Section 43(2) of the Federal Courts Act allows a party to arrest the ship that causes the damage and section 43(8) allows a party to arrest a ship owned by the beneficial owner of the offending ship. Section 43(8) only deals with the arrest of sister ships. It does not address whether a sister ship can be arrested in addition to the offending vessel. By enacting s. 43(8) Parliament intended only to allow the arrest of a sister ship in lieu of the offending vessel. The fact that Canada did not adopt the Arrest Convention 1952 does not, as the appellant alleges, suggest Canada intended to allow multiple arrests. A claimant has the option of arresting either the offending vessel or a sister ship but not both. If Parliament had intended to allow multiple arrests, a dramatic departure from accepted practice, s. 43 would have been worded differently.