Jan 5, 2016

Admiralty Practice - Judicial Sale - Depreciating Asset – Appeals – Exercise of Discretion

Offshore Interiors Inc. v. Worldspan Marine Inc., 2014 FC 655 (CanLII)

Facts: Sargeant and Worldspan Marine entered into a vessel construction agreement in February 2008 whereby Worldspan was to construct a vessel for Sargeant. During the course of construction disputes arose and construction was halted in April 2010. By the time construction ceased, approximately US$20 million had been advanced by or on behalf of Sargeant. The vessel was subsequently arrested in the Federal Court by Offshore, an unpaid supplier of materials, and Worldspan filed a petition in the British Columbia Supreme Court under the Companies Creditors’ Arrangement Act. Offshore was granted default judgment on 31 May 2011 in the amount of $273,000. Offshore subsequently obtained an order to market the vessel for sale at a price of US$18.9 million but, notwithstanding extensive marketing efforts, no buyer could be found. Offshore then found a buyer willing to pay $5 million for the vessel and brought this motion for an order that the vessel be sold by judicial sale for $5 million.

At first instance (2014 FC 625), the Prothonotary ordered that the vessel be sold reasoning that: the vessel had been under arrest for four years; moving the vessel from its current location, instead of selling, would involve risk of damage; the vessel was incomplete and had a limited market; the vessel had significantly declined in value and would depreciate further with additional delay; and additional costs of rent will continue to accrue if the vessel is not sold. The Prothonotary’s decision was appealed.


Decision: Appeal Dismissed, the vessel is to be sold.

Held: The first issue is whether the Prothonotary’s order is vital to the final determination of the case and ought to be reviewed de novo. Following Nordea Bank Norge ASA v “Kinguk”, 2006 FC 1290, the discretion should be exercised de novo. Sargeant argues that an order for judicial sale cannot be made when the mortgagee does not consent. Assuming there is a presumption against a sale when the mortgagee objects, that will not prevent a sale when it is warranted by the circumstances. Vessels are subject to rapid deterioration in value and this court has approved private sales where there is evidence the vessel is deteriorating, timing is essential and prior efforts to sell have not led to higher offers. Here the evidence is that the value of the vessel has substantially diminished. It was aggressively marketed without success for several years. Further marketing will not produce a better price than is currently offered. The evidence is that the current offer of $5 million is a fair offer and is approved.