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"Never E Nuff" Issues in Cross Border Mortgage Enforcement

by Gavin Magrath (Magrath's International Legal Counsel)

Facts:

The plaintiff, a US bank, had lent an American individual (McMahon) USD$146,390 for the purchase of the “Never E Nuff” , a 38-foot pleasure craft, and had registered the mortgage with the US Coast Guard in 2007.

In 2008 the debtor ceased making payments on the loan, and the bank instituted proceedings against the vessel and the debtor in the US District Court. The mortgagor ultimately obtained judgment for approximately USD$191,000 against the debtor, but the in rem claim against the vessel could not proceed, however, as it could not be found and served.

During depositions in 2009, however, the plaintiff learned that the vessel was located in Canada under the ownership of a Mr. St.-Germain, who had purchased the vessel without notice of the mortgage for good value. In June 2012 the bank instituted proceedings in the Federal Court against the original debtor McMahon, the current owner St.-Germain, and in rem against the vessel, for the amount of the US judgment plus interest and costs.

Decision:

The Federal Court of Canada has jurisdiction under s,22(3)(d) of the Federal Courts Act in relation to all ship mortgages, whether legal or equitable, registered or not, foreign or domestic, and was therefore an appropriate venue.

The debtor McMahon had not been served, so the claim was dismissed against him. The Court also found no cause of action personally against the owner, Mr. St.-Germain, for the debt or mortgage, and he also was released, leaving only the arrested vessel as defendant to the mortgage claim.

As Justice Harrington noted, while the principle of comity obligates Canadian courts to respect the in rem judgments of foreign Admiralty courts (see City of Mecca (1879). 5 P D 28), the vessel in the US claim had not been served and the in rem claim had not proceeded; this was a claim to enforce a mortgage.

The defendant argued that the bank had not proven a valid mortgage under US Law, as inter alia US law had not specifically been argued. Justice Harrington rejected this claim: first, as the plaintiff was not seeking any greater benefit under US law than Canadian it was not necessary to prove any difference; second, relying on JP Morgan Chase Bank v the Lanner, 2006 FC 409 (CanLII), where foreign law is not pleaded or sufficiently proved it is assumed to be the same as the lex fori. The Mortgage would have been a valid instrument under Canadian law, that did not need to be registered, and the Court accepted it was a valid mortgage under US law.

Finally, the question arose as to whether the claim, brought in 2012, should be statute barred. The earliest point at which the cause of action could have arisen was the improper 2007 sale of the vessel; certainly, the bank knew by 2009 when evidence was given in the context of their US lawsuit.

While s. 39(2) of the Federal Courts Act applies a limitation period of six years for claims arising “otherwise than in a province”, s.140 of the Marine Liability Act provides a limitation of three years for causes of action arising under Canadian Maritime Law. The latter provision cam into force on 21 September 2009, more recently than the general provision for foreign claims in the Federal Courts Act, and accordingly the 3-year time bar for maritime claims displaces the older and more general 6-year time bar for foreign claims generally under the FCA. However, statutes of limitations are not interpreted retroactively to deny a party of an acquired right (Angus v Sun Alliance Insurance Co, 1988 CanLII 5 (SCC), [1988] 2 SCR 256), and therefore the September 2009 restriction should not deprive the plaintiff of the right it had acquired in 2007 to claim within 6-years under then-applicable FCA provisions.

In the result, while the personal claims (and counterclaims) were dismissed, the Court granted judgment in rem against the vessel for the enforceable mortgage amount of US $132,042.55 in principal and US $24,241.79 in interest as at the date of claim (2012), plus pre-judgment interest at the rate of 5% provided for under the Interest Act, RSC 1985, c I-15.

Ref: Lakeland Bank v. Never E Nuff (Ship), 2016 FC 1096 (CanLII)

November 27, 2016

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