Phoenix Bulk Carriers Ltd. v. Kremikovtzi Trade

The Court — This appeal arises from the arrest of a cargo of coal on a ship. The cargo was arrested as an interim security measure to secure the outcome of an arbitration proceeding in London, England. The arbitration relates to an alleged breach of a contract of affreightment (or charter party) dated July 27, 2005. The appellant alleges that, in breach of the contract, the respondent loaded the cargo on a competitor’s ship, the “M/V Swift Fortune”, resulting in a loss to the appellant of US$388,403.63.

The appellant commenced an action in rem against “The Cargo of Coal loaded on the ship ‘M/V Swift Fortune’”, and in personam against “The Owners of the Cargo and all others interested in the cargo of coal loaded on the ship ‘M/V Swift Fortune’”. The appellant also sought, and received, a warrant to arrest the cargo from the Federal Court, and after the warrant was issued, caused the cargo to be arrested on board the “M/V Swift Fortune”. The action itself has been stayed in favour of the arbitration proceedings in London.

The respondent brought a motion to set aside the warrant of arrest, and to strike the in rem statement of claim. The motions judge, Rouleau J., dismissed the respondent’s motion. The respondent appealed to the Federal Court of Appeal. The Federal Court of Appeal allowed the appeal on the basis that it was bound by its earlier decision in Paramount Enterprises International, Inc. v. An Xin Jiang (The), [2001] 2 F.C. 551, but it indicated that it would have reached a different result but for the decision: [2006] 3 F.C.R. 475, 2006 FCA 1. Whatever the merits of the practice that led the Federal Court of Appeal to allow the appeal, its conclusion that s. 43(2) of the Federal Courts Act , R.S.C. 1985, c. F-7 , was not satisfied in this case cannot stand.

For the reasons given by Nadon J.A., we agree that the narrow “physical nexus” interpretation of s. 43(2) should be rejected, in favour of an “identifiability” test that asks whether the cargo is the cargo designated in the contract of affreightment alleged to be breached. Applying this approach, we are satisfied that s. 43(2) has been satisfied in this case.

Accordingly, we would allow the appeal on this point with costs throughout, and remit the matter to the Federal Court of Appeal for consideration of the two remaining issues.