Federal Court Decisions

Date: 20040531

Docket: T-32-99

T-38-99

T-119-99

T-186-99

Citation: 2004 FC 795

Docket: T-32-99

BETWEEN:

                                          THE ROYAL BANK OF SCOTLAND plc

                                                                                                                                              Plaintiff

                                                                           and

                                              THE OWNERS AND ALL OTHERS

                                           INTERESTED IN THE SHIP "GOLDEN

                                TRINITY" AND GOLDEN TRINITY MARITIME INC.

Defendants

Docket: T-38-99

BETWEEN:

                                          THE ROYAL BANK OF SCOTLAND plc

                                                                                                                                              Plaintiff

                                                                           and

                                              THE OWNERS AND ALL OTHERS

                                         INTERESTED IN THE SHIP "KIMISIS III"

                                 AND MADONNA NAVIGATION (MALTA) LIMITED

                                                                                                                                      Defendants

Docket: T-119-99

BETWEEN:

                                          THE ROYAL BANK OF SCOTLAND plc

                                                                                                                                              Plaintiff

                                                                           and

                                              THE OWNERS AND ALL OTHERS

                                          INTERESTED IN THE SHIP "YPAPADI"

                                                  AND YPAPADI MARITIME INC.

                                                                                                                                      Defendants

Docket: T-186-99

BETWEEN:

                                                          NEDSHIP BANK N.V.

PREVIOUSLY KNOWN AS

NEDERLANDSE SCHEEPSHYPOTHEEKBANK N.V.

                                                                                                                                              Plaintiff

                                                                           and

                                              THE OWNERS AND ALL OTHERS

                                        INTERESTED IN THE SHIP "ZOODOTIS"

                                              AND ZOODOTIS NAVIGATION INC.

                                                                                                                                      Defendants

                                                        REASONS FOR ORDER

HARGRAVE P.                                                                                

TABLE OF CONTENTS

SUMMARY

[1]                 These reasons arise out of the Court-approved sales of four ships, Golden Trinity, Ypapadi, Kimisis III and Zoodotis and a priorities hearing, initially set for four days, but which concluded, after much diligent and thorough work by counsel, with 11 days of hearing.

[2]                 The vessels at issue in these proceedings were managed by Pronoia Ship Agents & Brokers Inc. ("Pronoia") and after their arrest were all, through excellent marketing, good vessel-condition and generally fortuitous circumstances, sold above appraised value, for a gross return of $17,771,639.15, that amount including several notionally separate sales of bunker fuel aboard. All of the figures I will use in these reasons are in American dollars, unless otherwise specified.

[3]                 Some 20 of the claims against the sale proceeds were settled on consent, largely on the basis that they constituted maritime liens with an evident priority to the sales proceeds. Included among the claims settled was that of IMS Oil Trading Ltd. v. The Zoodotis, T-48-99, a full and final settlement of $103,500.00 (US). The claim was not opposed: no costs are payable by or to anyone on the IMS claim. Some claimants abandoned or withdrew their claims, perhaps by reason of their apparent low priorities. The bulk of the balance of the sale proceeds have been paid out, principally to the two mortgagees, on the understanding that they may be called upon if they received too generous a portion.

[4]                 Claimants to the balance of the proceeds, as mortgages, are The Royal Bank of Scotland plc ("RBS"), the mortgagee of the Ypapadi, Golden Trinity and Kimisis III and Nedship Bank N.V. ("Nedship"), mortgagee of the Zoodotis. Those banks, caught in a falling market and by an unfortunate disruption in the management of the fleet to which the ships belonged, recognise that they will be losers regardless of the outcome of the present priority determination.

[5]                 The principal challenge that the banks face are the claims of Tramp Oil & Marine Limited ("Tramp") for bunkers supplied to the four defendant vessels and to various other ships, which were also managed by Pronoia, and which are said to be sisterships. Tramp bases its claims in part on a maritime lien for bunkers supplied to the Golden Trinity, but largely on a challenge of the security held by the banks and on the actions of the banks.

[6]                 The outcome of the priorities determination is as set out below, but one must keep in mind that some of the claims have had proceeds put toward them already:

(01)           Royal Bank of Scotland plc

-      Sheriff's fees and marshal's fees and expenses, as presented, as a first priority.

-      The balance available from the sale proceeds to go toward satisfying the claims of RBS after the payment of the maritime lien referred to below and the owned bunkers' claim of Tramp.

(02)           Nedship Bank N.V.

-      As there are no sistership rights of action and no remaining direct claims against the Zoodotis, taking priority over Nedship, the claim of Nedship succeeds to the extent of funds that are available.

(03)           Tramp Oil & Marine Limited

-      In this proceeding Tramp was granted settlement funds equal to the bunkers aboard the Golden Trinity and Kimisis III, in the amounts of $56,314.75 and $43,219.00.

-      Tramp's claim on a subrogated maritime lien at Long Beach against the Golden Trinity, in the amount of $55,211.10, is accorded the priority of a maritime lien. That amount include interest to 30 June 2001. Tramp will receive a pro rata share of interest as accumulated on the ship sales proceeds.

-      Tramp does not succeed in establishing a priority by way of contractual lien claims.

-      The vessels involved are not sisterships.

-      There being insufficient proceeds from which the banks might satisfy their claims, the concept of marshalling does not apply.

(04)           Calogeras Marine Inc. and Calogeras & Master Supplies Inc.

-      These claims are necessaries claims. They do not succeed because RBS and Nedship, as mortgage holders, take priority.

(05)           Aduanera Columbiana S.I.A. Ltd.

-      Aduanera succeeds in the amount of $5,338.62 together with a pro rata share of the interest which has accrued on the Golden Trinity sale proceeds.

(06)           United Maritime Supplies Inc.

-      United Maritime is an unpaid Canadian supplier of necessaries and as such, holding a priority below that of the mortgage holders, does not succeed.

I turn now to some general background.

SOME BACKGROUND AND SOME DETERMINATIONS

1)          There are some issues which require substantial legal analysis, issues which I will deal with in due course. There are, however, other issues which are more efficiently dealt with in the course of considering the relevant facts. I turn now to the vessels involved and their management.

The Vessels and Their Management

[7]                 At relevant times the Golden Trinity was owed by Golden Trinity Maritime Inc., the Ypapadi by Ypapadi Maritime Inc., the Kimisis III by Madonna Navigation (Malta) Limited ("Madonna") and the Zoodotis by Zoodotis Navigation Inc., all Liberian companies except for Madonna. Also involved, as alleged sisterships, are the Litrotis, said to be a sistership of the Zoodotis and the Agios Nikolas, Agni, Golden Eagle, Golden Horizon, Golden Polydinamos, Karadmyla, Mana, Mesitria, Ocean Spirit and Theonymphos, said to be sisterships of Golden Trinity, Kimisis III, Ypapadi and Zoodotis. Each one of the vessels were owned by separate companies, but all of the vessels were under the management of Pronoia of Piraeus, Greece. The principal of Pronoia was Mr Peter Lygnos.

[8]                 Those connected with and servicing the shipping industry knew that the dry bulk carrier market was in difficulty during relevant years, being between 1996 and 1998. It is fair to say that those involved in the present proceedings, as mortgage holders, Tramp as an in rem claimant supplying bunkers, and to a lesser degree the remaining suppliers of necessaries, were knowledgeable about the shipping industry. While of those presently claiming may have had concerns from time to time, each recognised that the Pronoia ships were well managed and appeared to be weathering the difficult times, until the event which resulted in the present crisis, the death of Mr Peter Lygnos on 7 July 1998. His experience and ability were key to the success of the whole operation. The fate of the operating company, Pronoia, the owing companies and all the vessels, which had been operating and surviving under the management of Peter Lygnos, through Pronoia, in good times and in difficult times, was sealed when Pronoia was taken over by the less experienced adult children of Peter Lygnos. This was unfortunate for all concerned. However I should return to an earlier and more favourable time when the Pronoia ships were being financed by RBS and by Nedship.

RBS Security

[9]                 In 1995 RBS, a knowledgeable maritime lender of Edinburgh, Scotland, decided to advance $60,000,000.00 to seven borrowers to refinance various vessels and provide working capital. Among the borrows were the owners of the Golden Trinity and Ypapadi. The loan was secured by marine mortgages dated 12 October 1995 and was pursuant to the terms of a loan agreement of 6 October 1995. Here I would note that I am satisfied that the mortgages of the Golden Trinity and Ypapadi, as well as the subsequent mortgages granted to RBS, were properly registered, constituting first registered charges over each of the vessels, or in the case of subsequent mortgage security, a second charge behind that already held by RBS: this is apparent from the evidence overall and from the fact that the opinions on the security given by Dr Bianchi and by Ms Diaz, experienced maritime lawyers familiar with marine securities, were neither subject to cross-examination nor contradicted by other evidence.

[10]            The relevant provisions of the lengthy loan agreement of 6 October 1995 need not be set out in full. It is sufficient to make various observations. The intent and indeed the effect of the loan agreement, and each of the mortgages, was to secure present and future advances, other expenses incurred by RBS and interest owed, from time to time, on a continuing basis. Each vessel owner as mortgagor and thus each vessel, was jointly and severally liable for the debt owed RBS: in effect, each borrower was a principal debtor, not a guarantor. Principal was to be paid in quarterly instalments, 27 instalments at $2,142,500.00 and a final instalment of $2,152,000.00. Finally, the loan agreement deals with default: the various events of default, include any late payment, breach of provision of the agreement and a general catch-all provision allowing RBS freedom to form an opinion that a change in financial condition of any of the borrowers, affecting the ability of such borrowers to pay its debts, constituted an event of default allowing RBS the option of making demand, at which point the loan became payable:

It is important to note here that the entitlement of RBS to make a demand, or otherwise invoke or rely upon an event of default, is permissive. Indeed, one would observe that in the case of a loan in the shipping industry, neither the lender nor the borrower would have it any other way, for each side would look for some flexibility in order to preserve an ongoing relationship during fluctuations in the worldwide shipping industry. In the event of a default RBS is to have an indemnity from the borrowers as to all consequences and the interest rate increases, but the default does not either bring the loan to an end or require RBS to take any immediate steps.

[11]            The terms applicable to the Golden Trinity and Ypapadi mortgages generally reflect the loan agreement terms, but also grant RBS more flexibility, including a liberty or entitlement allowing RBS, from time to time, to protect and maintain its security, at the expense of the mortgagors and the usual very broad enforcement powers exercisable by RBS "as and when it may see fit" (section 9.1): see also section 9.1 of the Deed of Covenant to the Kimisis III mortgage.

First Supplemental RBS Agreement

[12]            The schedule of payments under the first loan agreement of 6 October 1995 was amended by a supplemental loan agreement of 19 May 1997, which gave relief for quarterly payments 5 through 12, reducing them from $2,142,500.00 to $1,250,000.00, this reduction reflecting difficult times in the shipping industry. I accept that RBS made a reasoned and reasonable commercial decision to accommodate Mr Lygnos and Pronoia, the former having family resources upon which to draw. Further, I also accept that, as a practical matter, it would have been a form of commercial suicide on the part of RBS to call its loans and to realize on its mortgage security, or to take other drastic action, when RBS, even given the difficult times in the shipping market, was generally comfortable with its customers' resources, management and track record. The first mortgages of the Golden Trinity and the Ypapadi were amended on 19 May 1997, to reflect the first supplemental loan agreement. Here I would also observe that as of May 1997 RBS estimated the value of the fleet over which RBS held mortgage security at $130,500,000.00.

Kimisis Loan Agreement with RBS

[13]            On 19 June1998 RBS advanced $6,770,000.00 pursuant to a second loan agreement with the borrowers of the first loan and with Madonna in order to assist Madonna with the acquisition of the Kimisis III. The Kimisis III came from another branch of the Lygnos family. Apparently RBS felt that the vessel, under the management of Peter Lygnos and Pronoia, could be a going concern. The Kimisis loan was to be repaid by 31 October 2001, by way of quarterly instalments, the repayment schedule to be agreed in writing by RBS, the borrowers under the first loan agreement of 6 October 1995 and Madonna. Here I must keep in mind that one should not too easily characterized such a term as an agreement to agree which is too uncertain to result in a contract. Indeed, I have in mind the decision of Mr Justice of Appeal Morden in an Ontario case, Canada Square Corporation Ltd. v. Versafood Services Ltd. (1981), 130 D.L.R. (3d) 205 at 218 where, commenting upon a crudely and loosely expressed agreement to lease, he wrote:

In the present instance the parties involved were sophisticated bankers and shipowners, who required an ongoing relationship, but who recognised that the times were temporarily too uncertain to determine a repayment schedule in advance, yet needed each other's business in order to exist. Typical of drafting for banks and of standard form banking documents, the Kimisis III loan agreement contained broad enough wording in the Events of Default section to allow termination of the loan in the event that the parties could not reach agreement as to the scheduling of payments.

[14]            As underlying security for the Kimisis III loan Madonna granted to RBS a first Maltese account current mortgage of the Kimisis III and signed a Deed of Covenant to supplement the account current mortgage, which mortgage was registered 19 June 1998. This transaction had an effect on all of the other shipowners whose vessels were managed by Pronoia, in that they were required to grant RBS a second mortgage as further security for the Kimisis III loan. These mortgages appear, in the present context, as second preferred Panamanian mortgages of the Golden Trinity and the Ypapadi: the second mortgages are not by way of guarantee but are joint and several obligations to secure amounts from time to time owing. Again RBS, as mortgagee, has a wide discretion as to enforcement options.

Second Supplemental Agreement and Second Kimisis III Mortgage

[15]            The first loan agreement, of 6 October 1995 was further amended by a second supplemental agreement between all of the borrowers and RBS on 19 June 1998. Of relevance here, to submissions made by Tramp, was a further reduction in principal payments for 31 July and 30 October 1998 and 29 January 1999, each payment to be in the amount of $950,000.00. The balance of the first loan of 6 October 1995 was to be repaid pursuant to a schedule to be agreed in writing between RBS and all the borrowers, not later than 29 January 1999.

[16]            I will here note a structural weakness in the process of determining complex priorities to ship sale proceeds on a motion, as contrasted with a determination of priorities by way of a trial. On a motion there is no production of documents, as such, but rather only cross-examination on affidavits and documents coming within the scope of affidavit, a procedure which does not necessarily result in all relevant documents being before the Court.

[17]            In relation to the initial loan and the first loan agreement Madonna executed a second Maltese account current mortgage of the Kimisis III . In effect Madonna's position become the same as that of the initial borrowers, who were jointly and severally liable to RBS for all the funds advanced by RBS to the Pronoia fleet. The security consisted of a properly registered account current mortgage, dated 6 July 1998, the agreements of 6 October 1995 and 19 June 1997, a loan agreement and a deed of covenant of 6 July 1998 with the mortgage regulated by a guarantee of 6 July 1998, supplemented by the loan agreements and a deed of covenant of even date with the second mortgage.

[18]            Through oversight the guarantee of 6 July 1998 was not attached to any affidavit material sworn on behalf of RBS, although it was produced to Tramp for their cross-examination of the RBS deponent. Tramp chose not to cross-examine on the guarantee and thus it did not become a part of the record.

[19]            In the determination of priorities by way of a motion a plaintiff seeking to establish a priority must lay out its case in advance. The plaintiff cannot necessarily forecast all of the approaches that the various other in rem claimants may take, or the attacks on the security or the position of the plaintiff that they might make. In the result, from time to time, there may be a deficiency in the record before the court. It would be unfortunate if in future, priorities will come to be established with the full panoply of trial, rather than in a summary and inexpensive manner on a motion, however this is merely an observation.

[20]            In the present instance there less than a full record before the Court, the 6 July 1998 guarantee, being omitted from the RBS material. As I say, the guarantee was produced to Tramp during cross-examinations with Tramp choosing not to make part of the record by way of cross-examination. In that Tramp raised the issue of the guarantee only in a subsequent brief, it left RBS no chance of reply, a situation markedly at odds with what would be the case where priorities determine, as is the case, from time to time, by way of trial. This position of Tramp leads to a closer examination of the second mortgage security by which RBS obtained from Madonna a direct joint and several liability for the debt owed, by a group of vessel owners, by way of mortgage over the Kimisis III, all is set out in the relevant loan agreements and deed of covenant. To begin, the Kimisis III second mortgage provides, in part, that:                                                                                   

This mortgage sets out and incorporates an obligation secured against the Kimisis III: that there may be a document referred to in the mortgage which is not in evidence does not necessarily preclude the enforcement of a marine mortgage. Indeed, security documentation consisting merely of a ship's mortgage in statutory form will be interpreted and enforced pursuant to the common law bearing on mortgages of ships and the provisions of any relevant underlying legislation: see for examples Buchan on Mortgages of Ships: Marine Security in Canada, Butterworths, Toronto and Vancouver, 1986, at page 57 and Constant on The Law Relating to the Mortgage of Ships, Sweet & Maxwell, London, 1920 at pages 15 and 16, where Mr Constant makes it clear that while the statutory form of mortgage is mandatory, there is no requirement that it must be supplemented by a collateral marine agreement stipulating some further advantage. To the same effect, see Neves v. The Kristina Logos (2001), 220 F.T.R. 15 (F.C.T.D.) at 23, a decision of Mr Justice MacKay and Nova Scotia Barristers' Liability Claims Fund v. The Ashley Lynn (1994), 80 F.T.R. 141, (F.C.T.D.), a decision of Mr Justice Strayer, as he then was.

[21]            In the Kristina Logos (supra) Mr Justice MacKay did not have before him any interest rate for the mortgage but nonetheless, to avoid unjust enrichment resulting from the determination of priorities, was prepared to award the cost of borrowing, prime plus 3/8 percent per annum, as a fair resolution. In contrast, in the present instance, one need look no further than a loan agreement and a deed of covenant in order to determine an interest rate.

[22]            There is even some question as to whether the guarantee, referred to in the context of a direct liability, is either particularly relevant or at all necessary. Indeed, here I would refer to The Ashley Lynn (supra), beginning with the view of Roger T. Hughes, Q.C. set out in the looseleaf version of the Federal Court of Canada Service, Butterworths, Toronto, at paragraph 22:459, summarising The Ashley Lynn:

In the Ashley Lynn Mr Justice Strayer was faced with conflicting claims, one in personam based on the note and solicitor's negligence, in the Nova Scotia Supreme Court, and the other in rem by the assignee of the mortgage in the Federal Court. Mr Justice Strayer pointed out at page 144 that "[T]he action in this Court is and must be limited to the enforcement of the mortgage on the ship." and that " ... all that this Court can do is order enforcement of the mortgage for such amounts as may be owing under the loan for whose repayment the mortgage is secured (sic).". In my view, just as this Court, as a statutory court, has no jurisdiction over a promissory note, outside of section 23 of the Federal Court Act, dealing specifically with promissory notes where the Crown is a party, the Court has no direct jurisdiction over guarantees, but only by way of enforcement of a mortgage, although, as I pointed out, the mortgage of the Kimisis III is not one by way of guarantee, but on its face, on the loan agreements and on the deed of covenant, is a joint and several obligation.

[23]            To the extent that the guarantee might be relevant, there is substantial evidence of the guarantee, the existence of which is not denied and which is referred to in a second supplemental loan agreement and various other security documents, including in the second account current mortgage, in the relevant deed of covenant, in a power of attorney and a directors' resolution of 3 July 1998 and in the affidavit of Dr Philip Bianchi. Dr Bianchi, in exhibit B to its 29 May 2000 affidavit, sets out that he examined various documents, including the guarantee and the second Kimisis III mortgage. He gave his opinion that both of these documents were properly authorised, executed and delivered and constituted legal, valid and binding obligations. More important is that the second account current mortgage itself, without the need for collateral agreements, contains a covenant to pay:

The second Kimisis III mortgage would only come into play if there had been full recovery on the initial Kimisis III debt, in the amount of $6,770,000.00. However, the security over the vessels being structured as a joint and several obligation RBS, with an overall shortfall, need not apply funds in any particular manner.

[24]            As additional security for the 6 October 1995 loan Madonna was required to provide an account current mortgage against Kimisis III, accomplished 6 July 1998 and a second Deed of Covenant in order to provide additional security for that initial loan. Thus all three vessels became jointly and severally liable on all the money borrowed from RBS. I now turn to the advance of the money loaned by RBS.

Advance of Loan Proceeds

[25]            I accept as established the advancement of the initial loan proceeds of $60,000,000.00 as follows:

(01)     $26,159,117.97 transferred to Den Norske Bank in satisfaction of its loan to certain of the Borrowers;

(02)     $8,869,000.00 to RBS to liquidate loans held by some of the Borrowers;

(03)     $21,131,000.00 to RBS to liquidate loans held by some of the Borrowers;

(04)     $150,000.00 to RBS to pay for the facility fee of the First Loan;

(05)     $3,670,000.00 to Pluto Enterprises Corporation; and

(06)     Balance of $20,882.03 which remained in the account of Aigida Enterprises. Part of these funds were used to pay interest accrued ($1,739.93 and $4,072.12) on the liquidation of loans held by some of the Borrowers.

[26]            Tramp expresses some concern that the funds advanced by RBS, except as to Madonna and Kimisis III, were advanced to Aigida Enterprises Inc. and asked as to the consideration given by Aigida. Here I accept that the borrowers were associated companies with a parent company, Aigida. The borrowing from RBS was to refinance the ships owned and previously mortgaged to another lender by the subsidiaries and to make payments which benefited the subsidiaries. There is no want of consideration which might taint the position of RBS.

Default on RBS Loans

[27]            Following the death of the principal of Pronoia, Mr Peter Lygnos, who died in 1998, his two adult children were able to operate the company for a few months, however the borrowers, including Madonna, defaulted on a 30 October 1998 instalment of $950,000.00, being the payment due by the terms of the second supplemental agreement.

[28]            As I have already observed, a default did not automatically bring the operations of the borrowers to a halt. In this instance it is clear from the affidavit material that there were discussions between borrowers, including Madonna, and RBS, to see what might be done to remedy the default. RBS was not convinced that the business could be profitable under

the existing market conditions and particularly given the new management. Clearly the original borrowers and Madonna had become insolvent in that they were unable to pay either their creditors or RBS. Thus, as set out in the affidavit of Robert J. Manners sworn 4 February 1999, RBS gave formal notice of demand on 5 January 1999 in the amount of $51,397,026.70. The owners of the vessels which were mortgaged to RBS despatched those vessels to various ports where they were arrested by RBS and in due course sold by court orders.

Realizations and RBS Balances

[29]            In the Vancouver realizations on the four ships sold, and here I include the price of the Zoodotis, mortgaged to Nedship, in gross figures, including bunkers, was as follows:

[30]            The RBS loans are in two parts. There was an original $60,000,000.00 loan, which goes back to November 1995 and a smaller loan, of $6,770,000.00, to Madonna for the purchase of the Kimisis III. These loans were the joint and several obligations of all of the shipowners. In calculating the final balance owing there have been difficulties. Tramp questioned whether there had been a full accounting for funds received, both generally and particularly, as to the Kimisis III. One of the difficulties faced by RBS and also by Nedship has been the on-going nature of recovery of money to be applied to their loans, for various vessels were sold by courts in different parts of the world, some with arrangements that if the value of the vessel increased, or if a vessel was profitable beyond a certain amount in the hands of the new owners, RBS would enjoy further recovery against its loans.

[31]            When this matter neared readiness for hearing there were mortgage realization proceedings, in other jurisdictions, against the Pronoia fleet, with the potential of some further recovery. Initially RBS set out a balance owing, which was then a workable and realistic figure, as of June 2000, of $24,733,535.97, together with some accrued interest and ongoing interest and expenses. However the 19 July 2001 affidavit of Mr Manchester, filed at the hearing, provided an up-to-date accounting to take into account amounts realized in the interim on the sale of eight vessels which were mortgaged to RBS. The eight vessels were purchased by eight companies each of whom assumed part of the outstanding debt from the original loan and from the loan for the purchase of the Kimisis III, that outstanding debt to be repaid from any residual earnings or from the proceeds of a future sale of a vessel. Here I accept in part the accounting set out in and attached as exhibits to the Manchester affidavit of 19 July 2001 which sets out a principal balance on the Kimisis III loan to Madonna, as of 5 June 2001, of $1,861,750.00 and accrued interest of $18,745.75. As to the balance of the loan which was advanced to other borrowers, including Golden Trinity and Ypapadi Maritime Mr Manchester sets out a principal balance owing of $10,571,281.41 and accrued interest of $75,290.90, being a total debt owed to RBS of $12,527,068.06. However Mr Manchester notes a recently agreed re-sale of the vessels which were formally the Golden Trinity and Golden Prince, two of the vessels mortgaged to RBS, for $11,900,000.00: Mr Manchester goes on to expect that from these sales there will be a balance of approximately $3,690,000.00 to be applied against the outstanding balance owed RBS.

[32]            Mr Manchester estimates the "residual debt outstanding in both the original loan and the Kimisis loan of approximately US $8,743,000.00.". In arriving at this figure it is clear that Mr Manchester did not take into account the accrued interest as of the date of his calculation owing on the Kimisis III and original loan, of just over $94,000.00.

[33]            To the nearest $1000.00 I calculate that the outstanding debt owed to RBS is $8,837,000.00. I accept the evidence of Mr Manchester that there are no remaining assets which might surface by which to service principle or interest. I now turn to the claim of Nedship against the Zoodotis.

The Claim of Nedship Against the Zoodotis and Nedship's Security

[34]            By way of a broad overview, the claim of Nedship against the Zoodotis is for an advance related to a loan agreement of 26 March 1996, pursuant to which five joint and several ship-owning borrowers, including Zoodotis Navigation Inc. ("Zoodotis Navigation"), the Liberian owner of the Zoodotis, borrowed $40,000,000.00 from Nedship. The parent of each of the five vessel owners and borrowers was Aegean Enterprises Company Ltd., which was controlled by Peter Lygnos. Nedship assumed, without knowing the corporate structure of each shipowner, that Peter Lygnos was, by reason of his share holdings, at least the majority, and perhaps the sole owner of the companies which owned these vessels. At all relevant times, as with the vessels mortgaged to RBS, the Zoodotis was managed by Pronoia. The Zoodotis was arrested by another creditor, at Vancouver, on 8 January 1999, with an order for sale issuing, at the request of Nedship, 16 February 1999. The Zoodotis was sold on 10 March 1999, by the Court, for $4,950,000.00 and the bunkers aboard for $24,660.00, a total of $4,974,000.00. Nedship, which had conduct of the sale, claims deemed Marshal's expenses, including crew wages which it paid, in the amounts of $234,500. 65 (US) and $82,610.46 (CDN) as set out in Ms Novak's affidavit of 31 March 1999, together with a current shortfall, as of 28 June 2001 and as set out in Mr Bulling's 3 August 2001 affidavit, of $23,777,996.81, with daily interest of $5,909.82.

[35]            Following the sale Nedship took default judgment against the Zoodotis. Nedship, on appropriate undertakings, received prepayments from the Zoodotis sale proceeds, pending the determination of priorities, in the total amount of $3,227,016.00. Here I would observe that all of the direct claims against the Zoodotis have either been settled and paid, or have been withdrawn. There are, however, sistership claims of Calogeras Marine Inc., Calogeras & Master Supplies Inc. and Tramp Oil & Marine Limited of $657,528.74 (US). I now examine this in more detail.

[36]            The $40 million loan by Nedship, referred to above, was to refinance existing indebtedness and to provide capital with which to purchase the Zoodotis and a second vessel.

[37]            The $40 million loan was, in the instance of each ship in the fleet financed by Nedship, secured by first preferred agreed ships' mortgage. Funds were for advancement in three portions: $18,500,000.00 by 22 March 1996 and $9,000,000.00 and $12,500,000.00 by 22 June 1996.

[38]            In the case of the Zoodotis the registered first preferred mortgage, with a face value of $50 million, is dated 15 May 1996. As an account current mortgage it secured all sums of money which might from time to time be owing. Interest on the mortgage is specified at 1 1/8 % above the prime rate as designated, from time to time, by the London Interbank Eurocurrency Market. Again, as in the case of the fleet financed by RBS, Nedship included a provision, in its loan agreement, providing for joint and several liability by each borrower. The $40,000,000.00 loan was to be repaid through 27 quarterly instalments of $1,200,000.00 and a 28th quarterly instalment of $7,600,000.00. While the security documentation provided to Nedship sets out various events in default and a discretion to protect the security when Nedship thought fit, important in the present instance is provision 10.1 of the mortgage which allows Nedship freedom to proceed to enforce, or not to enforce, its security, or to grant time or indulgence, basically as it wished.

[39]            As in the case of RBS, Nedship did, indeed, grant indulgences to its borrowers pursuant to various addendums. These included a reduction in quarterly instalments by reason that the third advance was not drawn down in a timely manner, subsequently to add two new borrowers, to transfer financing to a new vessel and to deal with a third advance. The net result of all of this was to reduce the loan to $35 million. This second addendum, 11 July 1996, also amended a repayment schedule. It was followed by a third addendum of 4 December 1996, a fourth addendum of 5 December 1997 and a fifth addendum of 30 April 1998 the net result of which was to add an additional borrower, the owner of a vessel called the Gold Horizon and to reduce the remaining 21 of the initial 28 instalments, pursuant to the 30 April 1998 addendum, to four instalments of $675,000.00, ten instalments of $1,200,000.00, six instalments of $825,000.00 and a final payment of $9,850,000.00.

[40]            To bring the status of the loan up to the point of default, as seen by Nedship, a first advance of $18,500,000.00, of 22 March 1996, went largely to liquidate existing loans upon which some of the borrowers were liable, a second advance of 10 May 1996, in an amount of $9,000,000.00, went largely to the purchase of the Zoodotis with a part of the third advance, going in July of 1996 to the purchase of another vessel which joined the fleet, called the Nani. I now turn to the default and the amount owing.

Default and Debt Owed to Nedship

[41]            A number of unfortunate events, bearing on those interested in the Zoodotis, occurred in 1998. The dry bulk shipping market declined. The value of the Zoodotis declined. Peter Lygnos, the principal and manager of the Zoodotis, died, leaving successors who did not have the ability, in the view of Nedship, to see his shipping ventures through difficult times. In the result Nedship's borrowers, who were managed by Pronoia, including the owner of the Zoodotis, defaulted on a $675,000.00 payment which was due 22 September 1998.

[42]            While Nedship and its customers tried to work out a means by which the shipping operation could continue, Nedship itself was not assured such would be the case. The result was a 12 November 1998 notice of default, implementation of acceleration provisions and a demand.

[43]            As with the RBS mortgage debt, to arrive at an amount owing on the Zoodotis one must deal with, in effect, a moving target. A figure, correct when an affidavit or a brief is prepared and goes for duplication, may well be incorrect by the time the material is bound and filed. Given the magnitude of the mortgage debt, as compared with the funds available, one does not, however, need an absolutely accurate and up-to-date figure for Nedship's claim against the Zoodotis. I accept that in June 2001 Nedship's claim, including money paid to crew members and eligible ships' husbanding and legal expenses, was $23,777,996.81, with daily interest accruing at just over $5,900.00.

[44]            I have considered the validity of the Zoodotis mortgage in the light of the expert affidavit of Vassilis Etahanassiou, of Athens, a lawyer with appropriate credentials. His evidence is that the Zoodotis, at material times, was registered in the name of Zoodotis Navigation Inc. I accept that the mortgage was, under Greek law, properly registered and as first preferred mortgage effectively secures the entire loan of Nedship, up to the face value of the mortgage, $50,000,000.00. The evidence also establishes that the mortgage and loan agreement are in a proper form for enforcement before the Greek court. There is no reason why the mortgage and loan agreement are not enforceable in the Federal Court.

Claim of Tramp Oil & Marine Ltd.

[45]            I now turn to the claim of Tramp, a company incorporated in the United Kingdom and with office in England, from which it carries on business as an international supplier of marine bunker fuels. As such it supplied fuel oil and diesel to a number of ships operated by Pronoia, and is an unpaid supplier of these necessaries. As against the Golden Trinity and Kimisis III, the claim is not only for fuel oil and marine diesel oil, which I will refer to as bunkers, supplied directly to those two vessels, but also for bunkers which were supplied to other ships in the Pronoia fleet, which Tramp looks upon as sisterships. In the case of the Ypapadi the claim for bunkers is not a direct claim but is said to arise out of the sistership principle. In that the evidence in the four actions giving rise to these Reasons is common evidence and given the nature of Tramp's claim, particularly as to the sistership aspect, I will also, in this portion of the analysis, consider the claim of Tramp against the Zoodotis. Here there is no direct claim against the Zoodotis, but rather a sistership claim on the contention that the vessels of the fleet managed by Pronoia were sisterships of Zoodotis. In all, Tramp bunkered not only the Golden Trinity and Kimisis III, but also ten other ships, Agios Nikolas, Agni, Golden Eagle, Golden Horizon, Golden Polydinamos, Karadmyla, Mana, Mesitria, Ocean Spirit and Theonymphos, to which counsel for Tramp refers to as "Pronoia ships".

[46]            The bunkering by Tramp took place between 16 September 1998 and 20 December 1998, amounting to $781,360.02.    In the case of the RBS vessels, all of the bunkering occurred before the 5 January 1999 demand letter from that Bank. However only some $223,000.00 of bankers were supplied to Pronoia ships before the 11 November 1999 demand letter issued by Nedship.

[47]            The evidence of Tramp is that the bunkers were provided pursuant to the standard terms and conditions of October 1986. Relevant is that bunkers are supplied pursuant to the law and jurisdiction of the courts of England, that interest runs at 2% per month and that:

This bailment clause leads to a claim of ownership, by Tramp, to the bunkers which were on board the Golden Trinity and the Kimisis III on the sale of those ships, and by extension, to the proceeds of the sale of the bunkers. However, I would also note that Tramp reached a settlement with the RBS for bunkers aboard the Golden Trinity and the Kimisis III and was by that settlement granted the sums of $56,614.75 and $43,219.00. In addition, Tramp received $34,053.59 from the proceeds of the sale of the Mana and $11,990.00 from the proceeds of sale of the bunkers which were on board of the Karadmyla. Thus the total invoice amount of Tramp's claim, $781,360.02, is to have deducted from it $145,877.34, leaving a net claim of $635,482.68, this calculation being exclusive of interest.

[48]            As I say, the bunkers were supplied between 16 September 1998 and 20 December 1998. Tramp acknowledges that it was aware of the debts of Mr Peter Lygnos and of the financial situation of Pronoia and the owners of the other ships before it supplied the bunkers for which it now claims. It was not until shortly after the 19 December 1998 bunkering of the Golden Trinity that Tramp, which had an ongoing relationship with Pronoia going back to January 1996, became concerned. As a result it withdrew the credit facilities that it had provided.

[49]            Notwithstanding that Tramp reached a settlement through the argument of retained ownership of the bunkers aboard the Golden Trinity and Kimisis III, Tramp has several other approaches.

[50]            Pursuant to Tramp's invoice conditions, Tramp claims a contractual lien for the $73,881.28 worth of bunkers supplied to the Golden Trinity, leaving a net contractual lien of $55,211.10, as of 30 June 2001, together with interest at 2% per month. While the bunkers were supplied in the United States it is clear from the invoice conditions upon which Tramp relies that English law applies. However Tramp submits that as a supplier of bunkers by way of an American company, Petro-Diamond Incorporated in Long Beach, California, it is entitled to a maritime lien to the value of the Petro-Diamond invoice, $65,002.80, together with the Petro-Diamond invoice rate of interest at 18% per annum. On the basis of the Petro-Diamond invoice and interest Tramp's claim, as of 30 June 2001, as submitted on argument by Tramps's counsel, would be $93,597.52. Of course, from that calculation of the claim must be deducted the deemed credit of $56,614.75 being the settlement Tramp receives for the bunkers on board, at the time of the sale, as a deemed owner of the bunkers. As I will set out shortly, I accept the maritime lien by way of an American supplier argument: however the amount owing and secured by the lien, including interest, as of 30 June 2001, is $55,211.10. I do not need to consider the alternative submission that Tramp has a contractual lien, pursuant to its bunkers supply terms, together with interest, not at 18% per year, but at 2% per month.

[51]            Tramp also claims as a bare supplier of necessaries to Kimisis III in the net amount of $32,108.81. I need not take this sum into account for I have determined that the priority of the mortgage security of RBS, over the Kimisis III, stands above a statutory in rem claim, for there is to be no equitable re-ordering of priorities.

[52]            I now turn to the other facet of Tramp's claim, that of sistership. The submission is based on the contention that Golden Trinity, Kimisis III, Ypapadi and Zoodotis were sisterships and that each of the other 10 Pronoia ships bunkered by Tramp were sisterships and in turn sisterships of the Golden Trinity, Kimisis III, Ypapadi and Zoodotis. The sistership claim, which is against Golden Trinity, Kimisis III, Ypapadi and Zoodotis totals, principal and interest at 2% per month, $1,227,803.43.

ANALYSIS

[53]            I will first deal with the various approaches taken by Tramp in order to give its claims some priority over the positions of RBS and Nedship. Tramp raises a number of possibilities. However I am of the view that the underlying security of both RBS and Nedship is sound. Only if Tramp succeeds on its sistership submissions and the equities of the situation require Tramp to come ahead of the two banks in the recognised order of priorities, or if some of the claim of Tramp constitutes a maritime lien, will there be inroads into the recovery by the two banks. I will deal first with the claim of maritime lien.

Tramp's Maritime Lien Against Golden Trinity

[54]            Tramps's claim of maritime lien against Golden Trinity, as I have already indicated, is based upon the supply of bunkers in an American port by a bunkering firm acting on the instructions of Tramp. Tramp paid the price of those bunkers. Tramp's submission is that it is subrogation to the maritime lien of its American supplier, Petro-Diamond Incorporated, under the doctrine of subrogation and what Tramp's expert in foreign law, Andrew S. de Klerk, an American attorney, of New Orleans, with completely satisfactory credentials, refers to as the "so-called rule of advances". However before turning to the gist of the expert opinion I should deal with a point on which counsel for the banks and for Tramp disagree. Counsel for Tramp submits that I am bound by the views of the American expert and must treat those views as fact. Counsel for the banks submits that the Court may determine the fact of American law by looking at the cases, particularly where some matter is not covered. Counsel for Tramp submits that even were there was a gap in the affidavit of the American expert I may not apply Canadian law, although counsel goes on to submit that there are no gaps. Here I would observe that the view of Tramp's expert, Mr de Klerk, has neither been tested by cross-examination nor rebutted by other expert opinion.

[55]            In Allen v. Hay (1922), 64 S.C.R. 76 Mr Justice Duff pointed out that where the evidence of an expert, as to foreign law, is conflicting or obscure, a court may then go further and examine and construe the passages of American law that have been cited in order to arrive at a conclusion which is satisfactory (page 81), a concept relied upon some 25 years later by Mr Justice Anglin in Estonian State Cargo v. The Elsie, [1948] Ex. C.R. 435 at 443. Mr Justice Idington, who dissented as to the outcome in Allen v. Hay , took the principle a step further and said that there was "... no reason for our departing from the principle of the law, which is to take the law of a foreign state from the sworn evidence of expert witnesses testifying thereto, and so far as that is not established thereby relying upon our own law" (page 80). This concept of relying upon the law of the forum as a final resort is in line with Cross & Tapper on Evidence, Butterworths, London, 9^th Edition, 1999 at page 667 where the discussion is as to the proof of foreign law generally and the burden of proof:

2)          I would also add that the law of the United States is a fact in issue and, subject to any gaps or omissions, the expert affidavit as to American law should govern. However to the extent that the expert affidavit contains observations on the law of Canada, that is an element over which a Canadian trial judge, or in this instance a prothonotary, must determine as a fact. This is consistent with an observation of Chief Justice Isaac in Banco do Brasil S.A. v. Alexandros G. Tsavliris, [1992] 3 F.C. 735 (F.C.A.) at 747 where at issue was on the one hand, the law of England, being a fact determined through admissions and on the other hand the law of Canada, the determination of which was the sole responsibility of the trial judge.

3)          All of this being the applicable law, I have taken that I may consider the opinion of Mr de Klerk on maritime liens and the transfer of the benefit of a maritime lien, and then, if there is conflict or obscurity, look at the case law to which he refers and, even though there was no cross-examination and no expert affidavit evidence in reply, I may fill in any gaps with the application of Canadian law.

[56]            Mr de Klerk has looked at what appear to be all of the relevant documents and then sets out that having reviewed various affidavit evidence he bases his opinion on relevant facts including that:

(01)                 Pronoia, as agent for the Golden Trinity, ordered bunkers for the vessel by way of Petro-Diamond at Long Beach California, those bunkers being signed for by an officer aboard the Golden Trinity.

(02)                 Petro-Diamond invoiced Tramp for the bunkers and Tramp in turn invoiced Pronoia and the master and owners of the Golden Trinity and while Tramp was not paid, Tramp in turn paid Petro-Diamond's invoice in full on 19 January, 1999.

(03)                 Tramp's standard terms and conditions, of which Pronoia was well aware, provided for the application of English law but went on to provide for the acknowledgment of a creation of a lien, in addition to a bunker title retention clause.

(04)                 Petro-Diamond's standard terms and conditions provide for delivery of fuel not only on the credit of the buyer, but also the credit of the vessel, with the buyer warranting that Petro-Diamond will have and may assert a maritime lien, such lien to be interpreted in accordance with American statute and law.

(05)                 Based upon the bunker retention clause in Tramp's conditions, Tramp has settled part of its claim, making a partial recovery.

Mr de Klerk goes on to meet, head on, the contrasting terms, in the Tramp's conditions that English law applies and in the Petro-Diamond conditions granting a maritime lien.

[57]            To begin I agree that Petro-Diamond would be entitled to assert an American maritime lien against the Golden Trinity, notwithstanding that the Petro-Diamond invoice for the fuel is directed to Tramp.

[58]            I accept there is a presumption, under American law, that someone furnishing necessaries to a vessel acquires a maritime lien and moreover that anyone attacking this presumption has the burden of establishing that the supplier of necessaries purposely intended to forego a maritime lien: see First National Bank of Jefferson Parish v. M/V Lightning Power (1988), 851 F.2d 1543 (a decision of the Fifth Circuit of the US Court of Appeals). This concept of a grant of maritime lien extends to payments by a third party on behalf of the vessel and here Mr de Klerk refers to International Paint Co. v. M/V Mission Viking (1981), 637 F. 2d 382, again a decision of the Fifth Circuit of the US Court of Appeals: there an agent provided live aboard cleaners and caterers and the payment of their wages by that crewing agent was held to entitle the agent to a maritime lien by way of subrogation.

[59]            Mr de Klerk in his affidavit, then turns to the concept of subrogation by Tramp to the lien of Petro-Diamond, referring to Tramp Oil & Marine, Ltd. v. M/V "Mermaid I", 1987 AMC 866, a decision of the First Circuit of the United States Court of Appeals. At issue was whether Tramp, a middleman preceded by the owner and the charterer and succeeded by a head and a sub-supplier, might recoup its payment for fuel supplied to the vessel through a maritime lien, for as the court pointed out no one disputed that the head supplier and the sub-supplier, who provided the fuel as a necessary, were entitled to maritime lien. Perhaps the claim was based on a theory of the rule of advances. There the court relied on the passage from the 1986 edition of Benedict on Admiralty, section 33 at 3-12 through 3-13 for the proposition that:

The Court of Appeal then went on to analyse the rule of advances, setting out three requirements:

In the Mermaid I (supra) Tramp lost because Tramp had not received instructions from anyone in authority, for neither the vessel, nor the owner, nor the charterer knew of the existence of Tramp until Tramp had already made payment for the fuel to the supplier. However, while Tramp did not succeed in the Mermaid I, the Court certainly established the principle to be applied in order to bring into play the rule of advances.

[60]            In the present instance, in contrast with The Mermaid I (supra), there has been an ongoing relationship, for many years, between Tramp and Pronoia. Further, while I may and even should construe the concept of a maritime lien for necessaries liberally in favour of the supplier, as set out in The Tyson Lykes (1993) 837 F. supp. 1357, there is no doubt that the payment made by Tramp, to Petro-Diamond, was to satisfy the claim of the latter outstanding against the Golden Trinity, in fact an advance to a ship. Second, the advance was on ample authority, that of Pronoia. Finally, the money advanced by Tramp was used to satisfy the outstanding lien claim of Petro-Diamond. In effect the advance was made by Tramp on behalf of the ship to a third party, Petro-Diamond, which in the uncontradicted view of Mr de Klerk results in the subrogation of Tramp to the lien of Petro-Diamond.

[61]            What initially concerned me was the effect of the contract between Tramp and Pronoia and whether it is to the detriment of the maritime lien which has accrued through American law. More specifically the contract as between and Pronoia provides for the application of English law. Here Mr de Klerk refers to reasoning employed in The Governor and Company of the Royal Bank of Scotland v. M/V Maria S.J., 1999 WI 130632 (E.D. La. 1999), a decision of the United States District Court for the Eastern District of Louisiana. There the court pointed out that an English necessaries supplier, providing necessaries in the United States, could not raise its necessaries claim to a claim giving rise to a maritime lien by reason of the English law provision in the contract between the parties, for the parties were bound by their choice of law, English law, which did not provide a maritime lien for necessaries. Mr de Klerk deals with this issue by pointing out that the maritime lien claimed by Tramp in the present instance did not arise directly out of dealings between Tramp and Pronoia, but rather by way of subrogation mandated by the operation of American law when Petro-Diamond's account was paid by Tramp. His view is that such rights would not be affected by the terms of the contract between Tramp and Pronoia, including a choice of law term. Mr de Klerk also refers in his opinion to the contractual lien clause contained in Tramp's standard conditions:

[62]            The passage which I have quoted raises and answers two points, being the effect of the contractual lien clause contained in Tramp's standard terms and conditions and the effect of the choice of law provision on the maritime lien by way of subrogation.

[63]            Mr de Klerk does not go so far as to say that the contractual lien clause in the Tramp's standard terms and conditions is a maritime lien or the invention of a maritime lien, points touched upon by Mr Justice Muldoon in Textainer Equipment Management B.V. v. Baltic Shipping Co. (1994), 84 F.T.R. 108 (F.C.T.D.) at 110 and 113, however Mr Justice Muldoon did suggest, at page 110, that in commercial private litigation there was no state interest preventing a granting of a lien, although he did not decide the issue.

[64]            Justice of Appeal Stone wrote, in Imperial Oil Ltd. v. Petromar Inc. (2001), 283 N.R. 182 (F.C.A.), that a maritime lien does not arise from a contract, but from the operation of law (page 193). In Imperial Oil the Federal Court of Appeal began with the proposition that entitlement to a maritime lien depended upon whether American or Canadian law governed the supply of necessaries, in that case marine lubricants. The determination hinged not upon the structure for the supply of necessaries, ordered by American managers of vessels, through an American company utilizing agents in Canada to supply the necessaries, with New York City as the choice of law provision throughout, but upon all of the factors surrounding the supply of necessaries in the context of determining the proper law as suggested by Castel on Canadian Conflicts of Law, fourth edition, Toronto, Butterworths 1997. In Castel, at page 448, three approaches are suggested to determine the proper law: first, by a selection made by the parties; second, as may be inferred from the circumstances; and third, by determining the system of law with which the transaction has the closest and most real connection. In Imperial Oil the Court of Appeal rejected agreed law provisions and looked to other factors to rate, value and determine the closest and most real connection, concluding that the place of supply and delivery of the necessaries, being in Canada, should be accorded a somewhat greater weight for it was into Canada that the vessels were traded and there that the most economic benefit was obtained. The Court of Appeal decided that the supply contracts, in the light of all the other factors, seem less substantial.

[65]            Applying Imperial Oil (supra) I should, before accepting the opinion of the American expert, but then go on to determine the jurisdiction to which the bunkering transaction had the closest tie, rather merely to accept a determination of an expert as to the existence of a maritime lien without question: here see the critique of The Atlantis Two (1999), 170 F.T.R. 1 (F.C.T.D.), on appeal (1999), 170 F.T.R. 57 (F.C.T.D.) at page 197 of Imperial Oil (supra).

[66]            In the present instance a choice of law clause in the agreement between the British company, Tramp, which supplies bunker on a worldwide basis and the Greek company Pronoia, selects English law. However the Golden Trinity was flagged out of Panama and owed by a Maltese company. While the Golden Trinity was employed in worldwide trading, that vessel and others in the same fleet did considerable and substantial trade into the United States. The bunkers were physically supplied by an American company, Petro-Diamond, at Long Beach, California, on condition and warranty by and on behalf of the owners of the Golden Trinity, that Petro-Diamond would have and could assert a maritime lien, enforceable through American maritime law.

[67]            Given the nature of the worldwide bunkering trade there is no real connection with England, other than Tramp's choice of law clause. Vessel ownership, management and registration provide no common thread. However the evidence does indicate a pattern of trading by Pronoia vessels into the United States and substantial bunkering in American ports. More specific and in my view also to be given substantial weight, is the fact that the bunkering in Long Beach, California was by an agent who insisted on and, as a term of delivery of the bunkers, was granted a maritime lien and this even though a maritime lien would automatically arise as a matter of American law. It was in Long Beach that both the owners and the bunker suppliers benefited most in the commercial and economic sense. Just as the Court of Appeal discounted the choice of law clauses in Imperial Oil (supra) and determine that the factors, particularly the actual delivery of the marine lubricants in Canada, finding that Canada was the location most benefited, it is open to me to find that the commercial and economic benefit in this instance, which is mutual, arose in Long Beach, California. The American law is therefore the appropriate choice of the substantive law to govern.

[68]            The governing law being determined as required by the Federal Court of Appeal in Imperial Oil (supra), I am able to accept Mr de Klerk's view which is, in effect, that the supply of bunkers was governed by the substantive law of the United States, thus giving rise to a maritime lien and jurisdiction. This being determined I am in agreement with and able to follow Mr de Klerk's view that the right of Tramp to a maritime lien is by way of subrogation which occurred under American law when Petro-Diamond's invoice was paid by Tramp. I accept Mr de Klerk's view that an American court would recognize Tramp's subrogated maritime lien rights, but that is also my view after considering and applying what the Court of Appeal teaches in Imperial Oil (supra).

[69]            Here I will deal briefly with Tramp's submissions that it may have the full value of the Golden Trinity maritime lien for bunkers, against the Golden Trinity sale proceeds, not just a net value after deducting the value of bunkers retrieved by Tramp from the Golden Trinity, pursuant to the bunker ownership provision, at the time of sale.

[70]            Tramp submits that it need not credit anything from the sale of the Golden Trinity bunkers at Vancouver toward the sum secured by the Petrol Diamond maritime lien in which it holds a subrogated interest. Tramp maintains that to satisfy that maritime lien, money must come out of the sale proceeds of the Golden Trinity ahead of any funds paid RBS. This approach has several weaknesses. The payment to Tramp, of bunker sale proceeds plus interest and indeed some further interest from the ship sale proceeds, was in full satisfaction of its claim against the bunker proceeds. The payment was based on a retention of ownership clause in Tramp's standard terms, entitling Tramp to recover so much of the product as remained aboard the vessel at the time of sale, here because problems and costs of pumping off bunkers, in the form of the value of the bunkers at the time of sale. In effect, Tramp received money in place of product. To allow both payment for bunkers aboard and then a full-value subrogated recovery, would be to allow some double recovery. Visualizing the situation in another way, the bunkers notionally taken off the vessel in Vancouver were therefore never completely delivered to the vessel in such a way that would support an ongoing maritime lien for the full value of the bunkers. Moreover, as put by counsel for RBS, Tramp was entitled to receive a value of the bunkers sold at Vancouver, but not to apply that value to its general claim outside of its claim against the Golden Trinity bunkers. To allow otherwise would be a form of double counting.

[71]            This portion of Tramp's claim, for $55,211.10, which includes interest to 30 June 2001, is accorded the priority of a maritime lien.

Contractual Lien Claims by Tramp

[72]            Tramp also makes another direct claim, against the Kimisis III, $50,450.00 and interest at 2% per month, for bunkers supplied in Busan, Korea, claiming priority pursuant to a contractual lien. Here one of Tramp's submissions is that the amount realized on the sale of bunkers belonging to Tramp, at Vancouver, should be credited against the Busan bunkers account. As I have already set out, the notionally retrieved and sold Long Beach / Petro-Diamond bunkers are not to be credited to Tramp's general accounts owing, but are to represent a retrieval of the Long Beach / Petro-Diamond bunkers. Tramp, as a backup to its claim of maritime lien for bunkers supplied to the Golden Trinity, which I have allowed, also claims a contractual lien for that account.

[73]            Contractual liens are said to arise out of Tramp's standard bunkering terms which provide that when Tramp supplies bunkers to a vessel, in addition to any other security it "is agreed and acknowledged that the lien over the Vessel is thereby created for the price of the product supplied ..." (section 10.01 of Tramp's standard terms). In my view the priority of such a contractual lien falls below that of a mortgage and indeed does not raise such a claim above other statutory in rem necessaries claims.

[74]            To elaborate, while Mr Justice Muldoon left it open in Textainer Equipment (supra) for the parties to a contract to agree to a lien of their own making (page 110), but went on to observe that "... the Court does not suggest that the parties, by agreement, can invent a maritime lien where none has yet been discovered in Canadian maritime law." (page 113).

[75]            This was also the view of the Federal Court of Appeal in Imperial Oil (supra) at page 193. The whole area is neatly summed up in Thomas on Maritime Liens, British Shipping Laws, volume 14, Stevens & Sons, London, 1980 at page 24:

The concept here is that while a contractual lien clause may recognize or endorse a maritime lien, it cannot be the legal source of a maritime lien, for such a lien "comes into existence automatically without any antecedent formality". While it may well be that the effect of Tramp's standard conditions and their deemed acceptance by Pronoia on behalf of the Kimisis III did create a right of some description, I am not prepared to grant any such bilateral contractually founded right a priority which would defeat a third party with any established priority and here I have in mind both the priorities accorded holders of marine mortgage security and necessaries supplier's with a Canadian statutory in rem claim.

Maritime Liens and Sistership Procedure

[76]            While Tramp may have some American maritime liens for bunkers, against vessels which may be sisterships, those liens cannot be enforced as such using Federal Court sistership procedure in Canada: see for example The Nel, [2001] 1 F.C. 408 (F.C.T.D.) at 463 and following. Only were there is either a flaw in the security of RBS or Nedship, or a reduction in the priority of the mortgage security held by those banks, could Tramp succeed as an in rem necessaries claimant. I have already set out that the security, held by RBS and by Nedship, is proper security. That includes the actual shipping registry registration of the mortgages themselves which I have concluded was properly done, each mortgage constituting a first registered mortgage, with its prima facie evident priority, properly and effectively in place. Also referred to earlier is the overlooked RBS guaranty document relating to the Kimisis III, which omission I concluded is not fatal. I also noted that the advance of funds by way of various entities or for various purposes, so as to constitute valid consideration. Notwithstanding my observations, that Canadian sistership procedure does not assist the holder of an American maritime lien against a vessel that would be a sistership under Canadian procedure, sistership status is still a point which merits consideration.

[77]            Counsel spent several days on the issue of whether both the group of vessels financed by RBS and the group financed by Nedship were groups of sisterships and indeed might constitute one group of sisterships. At the time this was relevant because of the argument that the usual priorities, placing mortgage security above statutory necessaries rights in rem, ought to be adjusted, to give Tramp and presumably other necessaries suppliers, who did not have maritime liens, priority over RBS and Nedship as mortgagees, as was done, for example, in Scott Steel Ltd. v. The Alarissa, [1996] 2 F.C. 883, upheld (1997) 125 F.T.R. 284 (F.C.T.D.), by Mr Justice Richard, as he then was. However I have reached the conclusion that the present circumstances neither require nor allow a departure from the usual ranking of priorities. Aside from the effort put into submissions on the point by counsel, there are two reasons for making a sistership determination. First, there might well be an appeal. Second, the grouping of the vessels, as vessels with a sistership status, or with some less legalistic relationship, is a factor in considering the request of Tramp for equitable relief by way of altered priorities by reason of an alleged failure of RBS and of Nedship to move quickly enough against Pronoia, so as to give necessaries suppliers an early warning. With such groupings of ships RBS and Nedship do not have to make assessments of individual past records, present operations, financial circumstances, management capability, outlooks for the industry and particular trades engaged in by the vessel and the forecast for each operating entity, for a myriad of independent vessels, and then having to consider all of that in the context of their interest as mortgagees, a complex task with a number of possible and likely divergent outcomes. Rather, the two banks involved needed only to make a global assessment of a well-known group or entity, here Pronoia, of the parent companies of the individual owners, Aegean Enterprises Company Ltd. and Aigida Enterprises Inc. and of Peter Lygnos, with whom the two banks primarily dealt.

[78]            As evidence of a sistership relationship Tramp points to many factors involving common direction and management by Pronoia and by Peter Lygnos of the fleet which Tramp bunkered at the request of Pronoia. Of course, common management in itself is not conclusive evidence of a sistership relationship for it can, in some instances, merely be the result of overlapping factional minority ownership. Such factional minority ownership does not give rise to a sistership relationship, for sistership status under Federal Court Act section 43(8) is not governed by whether Peter Lygnos or a company controlled by him is an owner, but whether a known and fixed entity is the owner: see The Looiersgracht [1995] 2 Lloyd's Rep. 411 (F.C.T.D.) at 413 and following.

[79]            Tramp also submits, generally, that the fact that the owners of the vessels in the Pronoia fleet agreed to joint and several liability under the mortgage security granted on the vessels point to common ownership and a sistership relationship. This avenue is a substantial underpinning to the sistership submission. However, before turning to the numerous specific pieces of evidence, upon which Tramp relies, it is useful to look at the elements needed in order to constitute a group of ships as sisterships.

[80]            The background and purpose of sistership legislation is set out in Norcan Electrical Systems Inc. v. The FB XIX, [2003] 4 F.C. 938 (F.C.T.D.). To summarize, the sistership principle has its foundation in Article 3 of the International Convention for the Unification of Certain Rules Relating to the Arrest of Sea-going Ships, Brussels, 1952. Its purpose is to prevent an owner from improperly insulating his or her assets by putting each of a number of ships into separate companies in fact owned by that individual. While Canada has not ratified the 1952 Brussels Convention, it has enacted sistership legislation in section 43(8) of the Federal Court Act: indeed, as pointed in The FB XIX, Canada has taken two approaches, one in the English language and another in the French language, with the former making little sense and the latter being similar in form and effect to the 1952 Brussels Convention.

[81]            The English language version of section 43(8) is reflected in the decision in The Ryan Leet (1997), 135 F.T.R. 67 (F.C.T.D.), the contrasting French version apparently not being brought to the trial judge's notice.

[82]            The plain wording of the sistership provision in section 43(8) of the Federal Court Act, in the French version, sets out the sistership concept in a meaningful way in that it allows a plaintiff to exercise in rem jurisdiction against a ship which, at the time the action is brought, is owned by the beneficial owner of the ship that is the subject of the action. Here, if Tramp is able to establish that any of the dozen vessels which it bunkered and which did not pay were, at the material time, beneficially owned by the owners of the Kimisis III, the Golden Trinity or the Ypapadi, in the case of RBS ships, or of the Zoodotis in the case of Nedship, those ship constitute sisterships. In such an instance the Golden Trinity, Kimisis III, Ypapadi and Zoodotis, or the value of those ships, would be vulnerable to the claim of Tramp, of course subject to the usual priorities allowing the mortgage holders to be paid out first, with Tramp's sistership claim being subsidiary to the claims of the mortgage holders. Tramp's sistership claim, after making various allowances for what it has already received and including interest to 30 June 2001, amounts to $1,270,803.43.

[83]            I accept that there are many references in the cross-examination which go toward establishing direction and management of what have been referred to as the Pronoia ships. Certainly Pronoia requested of Tramp a supply of bunkers, the world over, but Tramp's invoices had been directed to not only the masters and owners of each vessel, but also to Pronoia. There is also evidence specific to the portion of the Pronoia fleet in which RBS is interested and that portion of the Pronoia fleet in which Nedship is interested.

[84]            In the case of RBS, their dealings with the Lygnos family, apparent principals of Pronoia, goes back to 1985. Perhaps an equally important event took place in May 1993, with a joint and several loan to various single-purpose companies, which companies were the nominal owners of ships which were the backbone of the Peter Lygnos operation, which Pronoia undertook would be managed by them. However the year 1996 is in this instance a better starting point, although I do not discount the re-financing of 1985 loans in 1993. More specifically, after 1996, the revenue from each of the Pronoia vessels which RBS held a mortgage was held in a pooled Pronoia bank account. The evidence on cross-examination of Andrew C Morgan and Robert James Manners, produced on behalf of RBS, is that Peter Lyons was the key man, a central figure, who managed most things in the Pronoia office and that RBS dealt with Peter Lygnos in all major matters, for he was the person with the ability to deal with the ships and their revenue through Pronoia. This stops short of establishing Peter Lygnos as the beneficial owner of the fleet managed by Pronoia.

[85]            This reliance by RBS on Peter Lygnos, as the man did almost everything at and who seemed to have control of Pronoia leads to an interesting relevant point. Imposed on drawdowns of various RBS facilities are preconditions, imposed by RBS for the 1995 and 1998 loan facilities, variously requiring, according the affidavit and cross-examination of Andrew C Morgan, of RBS, "a verbal statement of the legal and ultimate beneficial share holding of the Borrowers satisfactory in all respects (in the absolute discretion of RBS)" and "an oral confirmation satisfactory to (RBS) that the ultimate beneficial ownership of each of the Borrowers is vested in a person acceptable to (RBS)". Here is the test, parallel set out in the sistership provision of the Federal Court Act, section 48(3), as to beneficial ownership. It is interesting to pursue this further, for while it is not conclusive, the understanding of the term "ultimate beneficial ownership" by RBS has some bearing. I say this because one is seldom going to find sistership requirements laid out on a platter by owners: that is just not what the process of putting ships into individual companies, to limit exposure to liability, is all about. Rather, one must often take indications of sistership organization in small bits and pieces, where you are able to find them. Thus the meaning given by RBS to "ultimate beneficial ownership", by Andrew C Morgan on cross-examination, is relevant. At question 227 and following of his 12 April 2000 cross-examination Mr Andrew Morgan looked upon the ultimate beneficial owner, of each of the borrowing companies, as Aigida Enterprises Inc.. Further, as to the reference in the October 1995 loan agreement referring to various of the borrowers as being within the control and beneficial ownership of an individual or individuals acceptable to RBS, Mr Morgan agreed that the concept of ultimate beneficial ownership referred to at least Aigida Enterprises and which, although the bank did not know for certain, seemed to filter down to Peter Lygnos and his daughter, Crysanthe Lygnos. However, all that RBS could say at this point in the cross-examination, was that Aigida Enterprises Inc., in the view of the witness, was the ultimate beneficial owner of all the ships upon they relied as security. Here I would also refer to cross-examination questions and answers of Mr Morgan at 562 through 576. Yet this evidence is, to a substantial degree, contradicted by the evidence of RBS as to their requirement of a personal guarantee from the beneficial owner of ships which it financed, to which I now turn.

[86]            As another indication of beneficial ownership, within section 43(8) of the Federal Court Act, counsel for Tramp points out that RBS has historically always required a personal guarantee from whoever RBS perceived to be the beneficial owner, that is the ultimate beneficial owner, or person in control, where assets are owned by a single-purpose company. RBS considered the Lygnos family to be the ultimate beneficial owner and that Peter Lygnos, as head of the family, was expected to give the guarantee. In July 1993 Mr Lygnos gave RBS an unlimited personal guarantee for the joint and several obligations of the owners of the Golden Trinity, Ypapadi, Golden Prince, Sotiras and Pantodinamos. The loan to these companies, for which Mr Lygnos gave the unlimited personal guarantee, was fully paid out from the proceeds of the present loan. Leaving aside that the 1993 guarantee related to at least some degree of beneficial ownership of an earlier fleet, the view of RBS can only, at best, be evidence that beneficial ownership lay in or among the Lygnos family or its members.

[87]            Each of the single-purpose companies which borrowed under the RBS loan agreement of 6 October 1995 had, to the understanding of RBS, Aigida Enterprises Inc. as its parent company. Here Robert Manners, for RBS, agrees that it was the understanding of RBS that the ultimate beneficial owner of the Pronoia fleet was in the Peter Lygnos family. Certainly Pronoia, as represented by Peter Lygnos, together with his family, was making the decisions for the trading of the Pronoia fleet. The funds advanced by RBS, $60,000,000.00, went into an Aigida Enterprises Inc. bank account, acknowledged by RBS to be a Peter Lygnos account. Counsel for the banks points out that management of vessels and of funds does not necessarily establish beneficial ownership.

[88]            No one argues that Aigida Enterprises Inc., as parent of a number of one-ship companies, is the beneficial owner of the ships themselves. Tramps points out that Aigida Enterprises Inc., which had no operational office, was merely a nominal intermediary holding shares of the one-ship companies. RBS had no idea how Aigida Enterprises Inc. might control the ships: it was, according to Andrew Morgan of RBS, Pronoia which controlled the ships, Pronoia being represented by Peter Lygnos and his family, who made decisions. This does not advance the issue of beneficial ownership, for management decisions as to the trading ventures of the ships may not bear on and certainly is not conclusive of beneficial ownership.

[89]            The beneficial ownership of the Kimisis III is perhaps more convoluted. The Kimisis III initially belonged to the George Lygnos. RBS worked on the assumption that the purchase was organized by Peter Lygnos as head of the Peter Lygnos family.    That vessel was registered in Malta, requiring a Maltese holding company, called Madonna Navigation (Malta) Limited ("Madonna"). Of the shares of Madonna, 20% were owned by Aigida Enterprises. The remaining 80% were owned by Madonna Navigation Inc., which RBS understood to be beneficially owned by Peter Lygnos and his family. Thus with Aigida Enterprises Inc. being ultimately beneficially owned by Peter Lygnos and his family, a complete ultimate beneficial ownership was somewhere in the Peter Lygnos family: the actual ownership, as amongst family members, is not known. RBS considered the Kimisis III in no different way than it considered the ownership of the balance of the Pronoia fleet. When pressed RBS agreed that Peter Lygnos was key in all of this ownership, particularly in that he was the head of the Peter Lygnos family.

[90]            The evidence of Nedship's representatives as to the structure of its borrowers, is similar to that given on behalf of RBS. The Pronoia fleet financed by Nedship was operated as a single enterprise, with Peter Lygnos and his company, Pronoia, holding the ability to deal with the ships and the revenue produced by it. Here I do not put any weight on the fact that Nedship loan material referred to Pronoia as an "approved manager", for that is too close to the concept of a manager or contact person designated for shipping registry purposes. However it is pertinent that at all times Nedship dealt with Peter, Nikolas and Crysanthe Lygnos, looking upon Aegean Enterprises Company Ltd. as the parent of each one-ship company financed by Nedship. Here the ownership structure of the parent company is less clear, for Nedship knew only that the shares of Aegean were bearer shares.

[91]            I give no weight to the fact that Peter Lygnos was listed as the client in the records of Nedship, for Nedship points out that he is not the borrower, and that its name was used merely for reference. However, Nedship is certainly firm on the fact that Aegean Enterprises Company Ltd. was the parent company and, to their knowledge, the holder of all of the shares in each of the one-ship companies that Nedship dealt with in order to obtain security for the money they had loaned. However, taken as a whole, Nedship seemed uncertain as to the ownership of Aegean Enterprises, other than that Peter Lygnos had a controlling interest.

[92]            Of some assistance in dealing with the beneficial ownership of the vessels relied upon as security by Nedship is advice that went from the Nedship credit committee to the supervisory board of Nedship, relating to the $40,000,000.00 loan. In answering to questioning in cross-examination, counsel for Tramp subsequently received written advice from Nedship that it believed that the shareholder of each single vessel-owning company was Aegean Enterprises, which was ultimately controlled by Peter Lygnos. Moreover, both the Aegean Enterprises and Peter Lygnos provided unlimited guarantees for the loans to the ship-owning companies. However this is not a conclusive indication that beneficial ownership lay with Peter Lygnos, by way of a Aegean Enterprises, or otherwise. As a practical matter Nedship considered the equity of the registered owners of the vessels to be the equity of Peter Lygnos, subject to the proviso that Nedship did not know whether Peter Lygnos was, directly or indirectly, owner of all the shares involved. Here we know that Nedship dealt with both Peter Lygnos and his daughter, Crysanthe, in negotiating the five addenda to the Loan Agreement.

[93]            Perhaps the only possible answer to the issue of beneficial ownership is that given by Mr Krijthe of Nedship, at questions 512 and 513 of his cross-examination. There Mr Krijthe was bothered by the use of the word owner as applied to Peter Lygnos and responded, in part:

Mr Krijthe then agreed that Nedship "proceeded on the assumption that ... [Peter Lygnos] ... was the majority owner".

4)          Mr Krijthe while acknowledging that Peter Lygnos could make decisions, "... perhaps he first talked to his mother to get the approval." (answer 515). Indeed, while Mr Krijthe uses the term "ultimate ownership" to describe the interest of Mr Peter Lygnos, he was unsure as to whether Peter Lygnos was a 100% shareholder. This statement, at answer 691, is difficult to rationalize with Mr Krijthe's earlier evidence, however the sum total of that evidence is that Nedship was not completely certain as to the ownership and here I use ownership in the sense of beneficial owner, but generally felt that either Peter Lygnos, or Peter Lygnos and his family, were the beneficial owners.

[94]            While it is apparent from the minutes of the meetings of the boards' directors of each of the single-purpose ship owning companies, that the boards were identical, that again stops short of establishing the final beneficial ownership.

[95]            The ships in the Pronoia fleet were insured by Pronoia under the same insurance policy: that again does not establish the beneficial ownership needed to show a sistership relation.

[96]            The Plaintiff Banks, have taken the position that none of the vessels are sisterships. They place much emphasis on The Ryan Leet (supra), in which the court decided that the reference to "owner" in section 43(8) of the Federal Court Act referred to the registered owner: if the registered owner of each vessel was not the same, they were not then sisterships. The approach in The Ryan Leet was one required by the English version of section 43(8), even though it ignored the reasoning behind sistership legislation, giving a perverse result, out of step not only with the 1952 Brussels Convention, but also with the law as applied by other maritime nations with effective sistership legislation. However, as I pointed out in The FB XIX (supra) the Ryan Leet is distinguishable for the English language version of section 43(8) in reality makes no sense, having suffered in the translation, with the French version providing relevant meaning to the section and reflecting the provisions contained in the 1952 Brussels Convention. Thus, on the basis of the French version, as explained and adopted in The FB XIX, the Ryan Leet may be distinguished. However, on the facts in present instance this is, unfortunately for Tramp, of no assistance. I will elaborate.

[97]            The onus is on Tramp to demonstrate the beneficial ownership link, as is reflected in the French version of 43(8) which reads:

and is translated in The FB XIX (supra):

Clearly Parliament has put emphasis on beneficial ownership, a qualification of a concept of ownership. I now turn to the standard of proof required to establish beneficial ownership and a sistership relationship.

[98]            The standard by which to establish a sistership relationship is that of proof by a preponderance of evidence, or reasonable degree of probability, that it be more probable than not that the vessels in question are sisterships. Even though the sistership remedy, as a whole, is an extraordinary remedy that ought not to be lightly invoked, it is still this civil standard of proof which applies. A useful and often used explanation of the civil burden of proof is that set out by Mr Justice Cartwright in Smith v. Smith, [1952] 2 S.C.R. 312 at 331 - 332:

[99]            In the present instance there has, in the sense of sheer volume, been a preponderate amount of evidence. Heeding Smith v. Smith (supra) I have looked at the totality of the evidence, the circumstances and the consequences. However I am not able to say that the existence of the vessels as sisterships is more probable than their non-existence as sisterships: this is not an instance where probabilities are about equal, but where the absence of a sistership relationship is the more probable. I turn to examining the pertinent facts in the light of the standard of proof.

[100]        As it say, it is for the party alleging a sistership relationship between vessels to establish that relationship. This is a very difficult task to accomplish when, as is the case here, the registered owners and indeed all who might be beneficial owners, or have any first-hand knowledge, have walked away from their businesses and ships and there are neither available records nor individuals to provide evidence as to who enjoyed or was entitled to the profit and benefit derived from those ships. This leads to the concept of beneficial ownership.

[101]        The meaning of beneficial ownership was discussed by Mr Justice Rothstein, as he was then, in The Ryan Leet (supra) at page 69, who observed that Parliament could qualify the term owner: Parliament certainly did so in the French version of a sistership provision, section 43(8). The term beneficial owner, as a qualification of the term owner, was considered by the Court of Appeal in The Jensen Star (1989), 99 N.R. 42 (F.C.A.), at issue being whether there had been any change in beneficial ownership sufficient to defeat an in rem claim: Mr Justice of Appeal Marceau cautioned against importing English case law bearing on beneficial ownership and dealing with sistership legislation, for the sistership legislation in England dealt with beneficial ownership of shares in a vessel, while the Canadian case law deals with beneficial ownership of the vessel itself.

[102]        Mr Justice of Appeal Marceau, in The Jensen Star, went on to define beneficial owner as someone standing behind the registered owner, with the registered owner acting as an intermediary:

Mr Justice of Appeal Marceau's comment is particularly apt in that he equates beneficial owner with the French corresponding expression véritable propriétaire, the term used in the French version of our sistership provision. On this basis and because the English case law based on shares in a ship is not to be imported without question and because I must give some effect to the use of the concept of beneficial ownership, I do not need a fraud or a sham in order to look behind registered ownership in the sistership context. However, while all of this initially assists Tramp, I am not persuaded as to where beneficial ownership lies so as to determine whether there is an individual, or even a fixed group of individuals common to all of the Pronoia vessels, as beneficial owners or owner, by which to determine the Pronoia vessels to be sisterships. Here the burden includes establishing that there is not merely a common beneficial owner, but that the beneficial owner or owners are the same throughout as set out in The Looiersgracht (supra).    Tramp has not satisfied its burden.

[103]        Exploring ownership pursuant to the French version of the Federal Court sistership provision is thus not, as submitted by counsel for the Banks, an unauthorized or unjustified piercing of the corporate veil which might be permissible only in the instance of a sham or a fraud.

[104]        I have carefully considered whether the evidence submitted by Tramp, consisting of cross-examination of bankers and of documentary evidence, in connection with the vessels mortgaged to RBS and Nedship, produced by the Banks and on which the bankers were cross-examined. As requested by both counsel I have read a number of volumes of cross-examination in order to obtain an appropriate overview of the cross-examination. I listened to a number of days of submissions bearing on the sistership issue.

[105]        Tramp has established that the single-ship companies which owned vessels mortgaged to RBS and Nedship were subsidiaries of Aigida Enterprises Inc. and Aegean Enterprises Company Ltd. The links to Aigida Enterprises and to Aegean Enterprises Company Ltd. do not make these two parent companies beneficial owners for sistership determination purposes: for that reason Tramp tried to establish a passing through of beneficial ownership to Peter Lygnos. While both RBS and Nedship dealt with Peter Lygnos, as the person in charge, that does not establish him as the beneficial owner. The bankers who were cross-examined felt that the Pronoia fleet was probably owned by the Lygnos family, all in keeping with the fairly usual practice of Greek ship owning families, but that stops short of the reasonable degree of probability or the preponderance of evidence required to establish ownership by a single beneficial owner, or group of owners each with the same interest in all of the vessels.    At best Tramp has established a likelihood that Peter Lygnos was a beneficial owner, but not that he was the beneficial owner: there is a preponderance of probability that some other family members were also beneficial owners. All of this stop short of establishing the beneficial owner as required by section 43(8) of the Federal Court Act.

Priority to the Sale Proceeds

[106]        On the basis of that the Banks hold valid mortgage security and that, in some instances, Tramp ranks below them as a necessaries claimant, I now turn to Tramp's submission that the established priorities ought to be re-ordered in an equitable manner to provide some priority to Tramp. This submission is based on allegations that both RBS and Nedship ought to have moved sooner to realise against the ships on which they held mortgages and, because they failed to do so, Tramp continued to supply bunkers to the Pronoia fleet, for which it was not paid. In the result, Tramp submits that the two Banks have been unjustly enriched. Any existence of unjust enrichment, being an equitable doctrine should, in Tramp's view, result in a re-ordering of the usual priorities between maritime in rem claims.

[107]        The usual ranking of maritime claims, which illustrates the position of the two Banks as mortgagees and of Tramp, both as a maritime lien holder, in the case of bunkers supplied to the Golden Trinity in Long Beach, California and as a necessaries supplier of bunkers which do not constitute a maritime lien, is as follows:

This summary of priorities is set out in The Nel (supra) at 420, with the usual underlying cases as to priorities in Canada set out at page 419.

Equitable Re-ordering of Priorities

[108]        Tramp submitted that there ought to be an equitable re-ordering of the ranking of the necessaries claims for the supply of bunkers. A priority given to a supply of bunkers, under Canadian law, is below that given to holders of mortgage security, here RBS and Nedship.

[109]        Tramp's re-ranking argument is based on the submission that the two banks ought to have moved earlier to realize on their security, thus effectively shutting down the Pronoia operation at an earlier date, which would have provided a clear warning to Tramp and to other necessaries suppliers that they ought not to supply further bunkers, or anything else, on credit. In support of this line of argument Tramp has produced a chronology of events, in the case of RBS from September 1995 and in the case of Nedship from 1993. The former chronology runs some 30 pages and the latter 25 pages, however when one follows up on the references, the chronologies become truly massive catalogues of all events which might, in the view of Tramp, cause a thinking intelligent banker to become an anxious neurotic insomniac.

[110]        The usual priorities are not to be overturned merely because a lending bank is trying to work out a course of action that is of mutual benefit to its customers and to the bank. Bankers are not only not shipowners, but also need shipowners as continuing customers in order to survive themselves. In effect, maritime lenders, such as RBS and Nedship, in bad times, seek to preserve their security, that is to keep the mortgaged fleet operating so it is worth something, as an operating entity, beyond the breakup value of the individual vessels. This process contains many facets.

[111]        There is also a third party element: to keep a shipping company operating, a holder of mortgage security must not exert financial pressure on a shipowner, during hard times, to the extent that the owner has neither operating capital nor sufficient credit to operate and that includes being able to make certain the owner's fuel suppliers are prepared to continue to supply bunkers. Here both the shipowner and the banker realize that major bunker suppliers are sophisticated and in all likelihood know as much about general conditions in the shipping industry and perhaps as much about the shipowner's finances as does a bank. Indeed, that sophistication runs from a high degree of general knowledge of economic conditions and outlook for the shipping industry to a high degree of specific knowledge gained from personal contacts with shipowners. Bunker suppliers also tailor their bunker supply terms to fit both the nature of the business generally and the specific circumstances that may develop from time to time: this ranges from a general policy of charging very substantial monthly interest rates on overdue accounts, to special credit arrangements and limitations. Marine lenders commonly, during bad times in the shipping industry, adjust payment schedules to relatively more affordable sums. All of these conditions and interactions were present in this instance. However I will first turn to a summary of the law applicable to the equitable re-ordering of priorities.

[112]        Scott Steel Ltd. v. The Alarissa, [1996] 2 F.C. 883 (F.C.T.D.) contains a summary of the law bearing on the equitable re-ordering of priorities. In The Alarissa, Scott Steel, being the builder in possession, clearly had a possessory lien. The two lenders, who held mortgage security, took little notice of what their customer was having built, were surprised when their customer ran out of money by reason of change orders, which turned a basic self-propelled barge into a sophisticated ship, and thus moved to salvage what they could of the funds that each had provided. The bankers tried, unsuccessfully, to argue that the builder should have warned them of cost overruns brought about by reason of many changes in design made by the owner and thus, by failing to warn, the builder was estopped from obtaining the benefit of its priority over the banks. The banks felt that there had been an obvious injustice, with Scott Steel benefiting from a failure to volunteer information to the lenders and that this failure, for there were no misrepresentations, should prevent Scott Steel from obtaining any benefit at the expense of the lenders.

[113]        In The Alarissa no one paid any attention to the evolving circumstances of the ship building, other than the builder, who was hard pressed to keep up with changes and indeed really did not know, until the project was said to be complete, the extent and price of the vessel it was building. Those facts are in marked contrast with the facts in the present instance where, on the one hand, RBS and Nedship and Pronoia, and one the other hand, Pronoia and Tramp, were very aware of both general conditions of the industry and the conditions which were specific to Pronoia.

[114]        On the appeal of The Alarissa (1997), 125 F.T.R. 284 (F.C.T.D.), Mr Justice Richard, as was then, adopted the test used in the initial decision as follows:

Thus I must not depart from the usual long established order of priorities except in very special circumstances and only then if the departure is essential to prevent an obvious injustice. This represent a heavy onus on the part of the party seeking to re-order the usual ranking of claims.

[115]        As set out in The Alarissa (supra), it was not for the ship builder to go, behind the back of its customer, to the lender, in order to give notice of and explain what ought to have been obvious. In the present instance, we shall see that Tramp, RBS and Nedship were aware of the obvious difficulties facing Pronoia, given all of the circumstances.

[116]        In The Nel (supra) there was a departure from the usual order of priorities in the case of a medical clinic for seamen, which had no ethical choice but to assist mariners with their medical needs when and as called upon to do so. Therefore, because they had no choice whether or not to supply goods or services on credit, during times of uncertainty in world shipping, and the importance of providing for seamen who had become ill or injured, there were very special circumstances which, in keeping with the concept of justice, required the usual priorities to be altered so as to place the clinic in a position analogous to that of a maritime lien holder: see pages 478 - 479.

[117]        In Fraser Shipyard and Industrial Centre Ltd. v. Expedient Maritime Co. (The Atlantis Two) (1999), 170 F.T.R. 1 (F.C.T.D.) there was a sound case for altering the usual priorities in the case of a shipyard which had done work on and therefore very substantially enhanced the value of the vessel, to the benefit of all the claimants against the ship [ The Atlantis Two was varied on appeal, but only as to one of the maritime lien claims, (1999), 170 F.T.R. 57 (F.C.T.D.)]. In The Atlantis Two there was a clear increase in value, from scrap value to value as a going concern with a cargo to deliver. Thus it was appropriate for the ship repairer to have payment for a portion of its work, by which the value of the vessel, including an intrinsic value, was increased well above scrap value: that situation represented very special circumstances and was a means of avoiding a plainly unjust result.

[118]        In the context of the unenviable position of the necessaries suppliers I should also refer to Osborne Refrigeration Sales and Services Inc. v. The Ship Atlantean I (1982), 52 N.R. 10, 7 D.L.R. (4^th) 395, a decision of the Federal Court of Appeal. The case provides an illustration of the difficulty that necessaries suppliers have always had, in modern times, because their claims rank low, even below that of a mortgage owner, yet the necessary supplier has in some instances, enhanced the value of the vessel for the mortgage holder. In The Atlantean Mr Justice Pratte denied that necessaries, except to the extent ordered by the admiralty marshall, ought to have an enhanced priority. As a result a priority set out in that case, by the Court of Appeal, were the usual priorities, even though there was a certain degree of unfairness.

[119]        Tramps submits that if either Nedship or RBS had moved on its security earlier, say in August or September 1998, a month or two after Peter Lygnos had died, that would have been an indication either that Peter Lygnos and the Pronoia group were insolvent, or that a major lender had lost confidence in them, it is unlikely that Tramp would have agreed to supply further bunkers to ships managed by Peter Lygnos and the Pronoia group. More specifically, Tramp supplied bunkers on 14 occasions to Pronoia group vessels between 16 September and 20 December 1998, totally $781,360.02. In the result Tramp says that RBS and Nedship have been unjustly enriched, there being a corresponding deprivation to Tramp and, in Tramp's view, an absence of juristic reason for the enrichment: as to these three elements, making up unjust enrichment, see Sorochan v. Sorochan (1986), 29 D.L.R. (4^th) 1 at 5 (S.C.C.) and Garland v. Consumers' Gas Distribution Inc., 2004 SCC 25, an unreported 22 April 2004 decision of the Supreme Court of Canada. Both of the banks make arguments to the contrary, that they were not unjustly enriched. Moreover, the usual priorities in marine claims do provide a juristic reason, so along as there is not a requirement for an equitable re-ordering of the priorities in favour of Tramp.

[120]        Tramp's argument continues to the effect that RBS received no payments from the Pronoia group after 26 August 1998, with all of the Pronoia ships being bunkered by Tramp after that date. Moreover, Nedship received $493,920.97 on their loan on 29 September 1998, with only two of the Pronoia ships, from which the bunkers claim arises, Ocean Spirit and Theonymphos, being bunkered before 20 September 1998. Here, in its written argument, Tramp makes the point that the same unjust enrichment principle should be applicable to anyone supplying necessaries to any of the Peter Lygnos / Pronoia group and thus, after any date on which I determine that RBS and Nedship ought to have moved to enforce their security, other necessaries claimants ought to enjoy benefits similar to any enjoyed by Tramp.

[121]        Tramp submits that the Pronoia group of vessels and Peter Lygnos got into financial difficulties in the fall of 1996. This is a point which I reject, except to the extent that virtually all owners of bulk carriers were undergoing difficult times, something known throughout the shipping world. Moreover, one must keep in mind that Tramp received substantial payments after 11 November 1998 and indeed substantial payment two months after the Pronoia group of borrowers defaulted on their obligations to Nedship and to RBS. However I will return to the chronology that argument presented by Tramp. As I say, Tramp submits that the evidence demonstrates that the borrowers from both RBS and Nedship were in serious financial difficulties from about the fall of 1996 and were in even worse straits by July 1997 when substantial injections of new working capital were required.

[122]        Tramp submits that there were various defaults by the borrowers for at least two years before RBS and Nedship decided to call their loans and arrested the vessels. However one must again keep in mind that default under the loan agreements did not automatically result in some sort of a deemed demand or a requirement that a demand be made or a vessel arrested. Rather, as was the practice in bad times and certainly during that time, both RBS and Nedship adjusted payment schedules to make them more manageable for their customers. In addition to having difficulty in meeting the original payment schedules and the reduced payment schedules, Tramp points out that the Pronoia borrowers had breached an undertaking as to the vessel market value to the loan amount ratio, a procedure by which the banks kept track of vessel realization value as compared with the outstanding loan.

[123]        Next, Tramp points to the purchase by Peter Lygnos of the Chariot and of the Kimisis (later Kimisis III) from his brother George Lygnos in the spring of 1998. Here Nedship may have had some concern, however RBS did not object, for at that time they were of the view that those vessels, if operated by Peter Lygnos, would be going concerns. Here it is fair to say that both RBS and Nedship had the belief that Peter Lygnos was a survivor and that he and the Pronoia group would survive no matter how bad the market for bulk carriers.

[124]        Tramp is of the view that indulgences and accommodations granted by RBS and Nedship were an active intervention which eventually placed Peter Lygnos and the Pronoia group in a deficit position from which they could never recover. This submission continues that the indulgences and accommodations extended the operating life of the Pronoia group so that Tramp continued to supply bunkers, to the benefit of RBS and Nedship, for a longer period of time than would otherwise have been the case. This overlooks on-going payments by Pronoia to Tramp after 11 November 1998, some two months after default on the loans to RBS and to Nedship. Moreover, from the series of facsimile messages from Mr Warwick of Tramp, it is apparent that Tramp did not become overly concerned about Pronoia until late December 1998, when Pronoia failed to make a promised payment for bunker delivery.

[125]        At one point Tramp's submission was that RBS and Nedship had arranged sales of the Pronoia vessels, or had secretly purchased them, or had organised financing for buyers in such a way that RBS and Nedship might make some form of secret profit, including on any eventual re-sale. Tramp submits that such activity ought to be a cogent reason for the re-ordering of priorities. There is no evidence of any secret purchase by the banks. Further, the vessels were, for the most part, sold at open auctions, indeed a very competitive auction, with prices going over appraised values: that RBS was prepared to finance such purchase has no bearing. Finally, Tramp opposed supplemental affidavit material from RBS as to the overlooked security guarantee document, but was only too pleased when RBS submitted a final accounting, very late in the day, as was necessarily the case. I entirely reject the idea of any improper profit or eventual foreseeable and accountable recovery by either bank.

[126]        This observation, to the effect that further recovery is speculative and far too remote, deals with the notion that RBS and Nedship might, if the events unfolded in a certain favourable but unforeseen manner, be made whole again, whereas Tramp will have a substantial loss and thus ought to have a re-ordering of priorities.

[127]        Tramp, as a final point, submits that the purchase of the Kimisis, renamed Kimisis III, for $6,770,000.00 by Peter Lygnos from his brother George Lygnos, in the spring of 1998, was imprudent and should result in the re-ranking of Tramp's direct claim against the Kimisis III, for bunkers in Busan, South Korea, in December 1998 in the amount of $50,450.00. That RBS allowed and assisted the Pronoia group with the purchase of the Kimisis III was a reasonable decision at the time, for RBS felt that the vessel could be a going concern under Pronoia management. In hindsight it cost money to all concerned. But priorities are not re-ordered on hindsight.

[128]        Considering and analysing the evidence and argument presented by Tramp I am not convinced that Tramp has established the very special circumstances which would call for a re-ordering of the long-established priorities, to benefit either Tramp or other necessaries suppliers. This is all the more the situation when one considers the submissions and evidence of RBS and Nedship.

[129]        As I have already said, I reject the submission of Tramp that I should look at events which occurred before the death of Peter Lygnos as going to establish very special circumstances which should play any part in the re-ordering of priorities. Here counsel for RBS and Nedship points out that, contrary to the submissions of Tramp, the borrowers in this group of cases were not in financial difficulty at least from 1996 onward. Counsel concedes that the dry bulk carrier market, that engaged in by the Pronoia group, suffered a downturn in 1996. Many vessels entering into the market that year and there was also the so-called Asian Flu, with the downturn, contrary to expectations in 1997, continuing into 1998.

[130]        In the case of RBS, that bank's relationship with Peter Lygnos went back to 1985: Mr Lygnos had a sound track record, indeed, an unprecedented track record, and based on his demonstrated abilities as good operator and manager and the perceived underlying money in the Lygnos family, which might and indeed and apparently was used to tide over the operation during some of the difficult months, the confidence of his bankers. Both RBS and Nedship believed that Peter Lygnos and Pronoia would survive the difficult conditions. Indeed and this is one of the measures used by the lenders, the borrowers paid interest, in the case of RBS, until September 1998 and in the case of Nedship, up to and including October 1998. As to principal, in the case of Nedship, principal payments albeit on amended payment schedules, were current until March 1998 and in the case of RBS, the borrowers had met their obligations, in accordance with the various repayment schedules, before October 1998.

[131]        I should also look at the re-negotiation of the various payment schedules, a matter which Tramp submits was due to financial problems in the Pronoia group. Dealing first with Nedship, the first repayment schedule re-negotiation, 15 May 1996, was made to accommodate the purchase of the Zoodotis, for the exact amount of the price was not known when the initial loan agreement was signed. A second addendum relating to the Nedship loan, 11 July 1996, was made in order to produce a relevant payment schedule once all of the advances had been made and additionally security was added to benefit Nedship.

[132]        A third addendum for December 1996 came about when the dry bulk carrier market fell and along with it income from freight. Nedship considered this amendment to be prudent, given the conditions and the value of the vessels which it held as security.

[133]        A fourth addendum, a year later, 5 December 1997, came about when market conditions improved and the borrowers wished to buy another ship. Nedship refused to the financing for that purchase, but because of the approved dry bulk carrier market and the then loan to ship value ratio, Nedship released the Agni so that their customer could use that vessel as collateral elsewhere.

[134]        Some three months later the 1997 improved market conditions having been shown transitory, Nedship and its customers worked out a fifth loan agreement, 30 April 1998. In return for reduced payments, the borrowers agreed to give Nedship a mortgage over another vessel, the Golden Horizon. And about that time Nedship also made enquiry as to the trade debts of the Pronoia group: the advice they received did not change their view that Pronoia and the borrowers would survive the market downturn. That assessment based not only on the past performance of Peter Lygnos, but also the fact that the Pronoia group weathered the 1996 through 1998 period as well as or better than most other ship operators.

[135]        Nedship points out that during the period April 1998 until the death of Mr Lygnos, Nedship had discussions, from time to time, with Mr Lygnos and with his son and daughter, Crysanthe and Nikolas and continued those discussions with the son and daughter after the September 1998 default.

[136]        Here Nedship, while giving notice of default of November 1998, did not completely lose faith in Pronoia and in the ability of the borrowers to repay their debts, including money owed to trade creditors, until December 1998: at that point Nedship moved rapidly to arrest vessels in various jurisdictions and have those ships sold in court proceedings.

[137]        In the case of RBS, they made various concessions after the first four installments of $2,142, 500.00 were paid as required by the initial loan agreement. On 5 November 1996 the next installments were reduced to $1,250,000.00, however in exchange RBS received the agreement of the borrowers that they keep $3,000,000.00 on deposit at RBS International, a subsidiary of RBS. However here counsel concedes that this trust deposit, held in the Channel Islands, was subject to some misunderstanding, with the requirement being reduced to $1,000,000.00 on 27 July 1997.

[138]        There was a first supplemental agreement, between RBS and its customers, 19 May 1997, which provided for eight quarterly payments of $1,250,000.00 followed by 25 quarterly instalments of $2,276,937.50 with a final balloon payment of some $7,000,000.00. There followed some temporary postponements of payments, in most instances of a month or less, during the period running from July 1997 through May 1998, but those payments were in fact made within a reasonable time.

[139]        RBS then negotiated a second supplemental agreement, 19 June 1998, with payments being made, albeit late, at various times until 26 August 1998. The evidence of RBS is that it knew Peter Lygnos and the Pronoia group had been using cash reserves to support the operation of the fleet, which confirmed their belief that Peter Lygnos and Pronoia had reserve strength and that, under those circumstances, RBS pointed out that re-scheduling was a common place occurrence. Indeed, injection of their own money, by the Lygnos family was, to RBS, an indication of their strength. The decision to accommodate Peter Lygnos, with re-negotiated payments, was made by RBS on the strength of the record of Peter Lygnos and on the underlying wealth and cash reserves of the family. This leads to several judgments made by RBS, which objectively at the time seemed reasonable, but in hindsight perhaps resulted in some problems. RBS viewed the plight of their customer as a result of a deteriorating market, but felt, according to Robert Manners, of RBS that:

Mr Manners, in his cross-examination, was firm on this point and indeed, stood up well and by all appearances honestly, to lengthy and thorough cross-examination.

[140]        Mr Manners was equally firm on the decision to allow Peter Lygnos to purchase the Kimisis III, for the price was a good one, RBS felt the vessel would increase in value, which in fact proved to be the case and that it would add to the income stream. Certainly, according to Mr Morgan and Mr Manners, both of RBS, their bank was concerned about the market downturn and the liquidity of their customer and did obtain operating information, however according to their evidence it was not until December 1998 that RBS lost faith in Pronoia and their borrowers, including as to the ability of the borrowers to repay debts, both trade debts and to the bank. At that point the vessels were quickly arrested and in due course sold in court proceedings.

[141]        As to the argument that Nedship and RBS ought to have moved earlier, against the secured vessels, so that Tramp and other suppliers of goods and services would be put on notice, it was one made in The Atlantis Two (supra) at page 45 and following. In that instance it did not succeed because the mortgage holding bank felt that the situation was under control and that until the bank became convinced that its customers were insolvent, there was no reason to take immediate action on their security. There the bank had been misled by its customers, with the lien claimants, who tried to upset priorities, contending that the bank ought to have been more vigilant. As I pointed out at page 47, a court will lose sympathy with a mortgage holder who stands by, knowing full well that a third party is putting value to the ship, value for which the owner could not pay, with that value falling into the pocket of the mortgage holder on a forced. The concept in The Atlantis Two was, to paraphrase Mr Justice Hewson in The Pickaninny [1960] 1 Lloyd's Rep. 533 (Admin. Div.) at 537, the inequity of postponing a claimant, who expended money directly to the benefit of the mortgage holder if the mortgage holder knew that its customer was insolvent, but that to establish this there must be very strong reliable evidence: that is not the situation in the present instance.

[142]        Similarly, in The Nel (supra) at page 446 and following the Bank of Scotland was said to have delayed in realisation, thus prejudicing necessaries suppliers. Certainly there were some early warnings signs, during the same time period as the Pronoia fleet suffered from the downturn in the shipping industry, but the situation of the owners of The Nel was not very different from that of any other shipowners. In The Nel the owner had employment for its vessels, there was the possibility of the sale of one of the vessels and there was just not the strong reliable evidence required to upset priorities. There I made the comment that:

In the present instance Tramp has presented a better case than that of the bunker suppliers in The Nel, who relied upon hindsight and a good deal of supposition and assumption. However, in the present instance, while Tramp's case, as I say, better supported, it does not provides the strong reliable evidence, the special circumstances and the plainly unjust result needed to depart from the longstanding and well-known priorities.

[143]        There is also a parallel between The Atlantis Two (supra)and the present situation. In The Atlantis Two there had been a misleading by the shipowners of their banker, as to their true situation. In the present instance, Nedship had received general information from Pronoia, provided orally from time to time, as to their situation but did not have specific knowledge as to trade creditors until 5 November 1998, when Nedship received a brief summary of outstanding trade debts. Nedship explored further and received a detailed summary of trade debts on 20 December 1998. Up until that point, to say that Nedship ought to have acted earlier, would be to place far too high a standard, by way of hindsight, upon Nedship. The same can be said for RBS, for while it knew generally the situation of its customer, RBS had no reason to expect that the Pronoia group would not weather the downturn and indeed the death of Peter Lygnos, for the vessels continued to be employed and Pronoia continued to meet principal and interest payments. In the case of RBS it was not until Pronoia provided detailed material as to trade debts, between 1 November and 7 December 1998, that RBS had any reason to be concerned. In contrast, counsel for RBS and Nedship points out that on 28 August 1998 Tramp became very much aware of the situation, including trade debts, by way of a credit and situation report from LQM Petroleum Services Inc., who met with Crysanthe and Nikolas Lygnos and received then, and in the days to follow, a good deal relatively reassuring information as to the situation at Pronoia. It was at that point that Tramp agreed to extend the Pronoia credit line up to $400,000.00 (US). This is an indication that Tramp, as with RBS and Nedship, had a good deal of faith in the survival ability of Pronoia.

[144]        Tramp was a sophisticated supplier of bunkers: that same characterization applies to most necessaries suppliers, who do not operate on a cash basis but supply their goods and services without security. Tramp conducted a risk analysis, when supplying bunkers, as is evident from a number of exhibits attached to the 20 December 1999 affidavit of Mr Harrison, of Tramp, the exhibits in question being Tramp's standard form of bunker enquiry credit and stem check, which sets out, among other things, the current credit limit of Pronoia, bunkers on order and total exposure. From these forms it is clear that those approving each supply of bunkers at Tramp were well aware of the credit limit, of the exposure, in most instances well beyond the $400,000.00 (US) limit. While perhaps not content with the situation, Tramp was prepared to rely upon Pronoia to the extent of continuing to supply bunkers even toward the end of December 1998, when the exposure of Tramp was $458,000.00 beyond the agreed credit limit. Indeed, it was not until about 23 December 1998 that Mr Warwick, in a fax message to Pronoia, seemed to become concerned. Here I would adopt a submission made by counsel for RBS and Nedship to the effect that unfortunate circumstances, being a poor shipping market and the unexpected passing of Peter Lygnos, whose ability and experience were key to the operation of the fleet, together with the less successful management by Crysanthe and Nikolas Lygnos all came together at an unfortunate time, with a very bad result: that result should not be attributed to Nedship or RBS, who acted in a predicable and commercially reasonable and prudent way in managing and then enforcing their security. Overall I can find no justification, by way of the delaying argument, for avoiding the established priority of the banks as mortgage holders, over the unsecured necessaries suppliers, including Tramp.

[145]        There is also the issue of unjust enrichment, which not only did Tramp fail to establish to the necessary degree, but which is also answered by Nedship and RBS. The banks take an interesting approach, pointing out that Tramp received various payments in the fall of 1998. Tramp's payment scheduling summary, 6 November 1998, showed a debt to Tramp of $544,587.00. However the money owing under that initial debt was reduced by some $339,000.00 in payments received after 11 November 1998. The point here is that Tramp clearly received substantial payments, from Pronoia, for some two months after payments to the banks ceased.

[146]        Summing all of this up, both banks had a reasonable bona fide view, indeed a view taken in good faith, that Pronoia, together with Peter Lygnos, would survive the difficult shipping market in 1998. Had Mr Peter Lygnos not died in July 1998, it is reasonable to expect that Pronoia would still be operating, the banks would still be receiving its payments and Tramp would have continued its successful relationship as a supplier of bunkers to the Pronoia fleet. To say that the banks should have moved earlier is to a substantial degree an exercise in speculation and hindsight. Tramp on its own evidence has not satisfied the very substantial onus of showing that a departure from the conventional priorities is necessary to prevent an obvious injustice: Tramp as a sophisticated international bunkers supplier knew there were risks inherent in their trade and, as well as anyone, including other necessaries suppliers, could speculate on the result of the death of Peter Lygnos. All of this, on the part of Tramp, stops short of requiring a departure from the conventional ranking. All the more so when one considers the submissions made on behalf of and the evidence provided by RBS and Nedship. I will now turn to the position of the necessaries suppliers who remain a part of this action.

Claim of Calogeras Marine Inc. and Calogeras & Master Supplies Inc.

[147]        The claim of Calogeras Marine Inc. ("Calogeras"), of Montreal, is that of a long-established ship chandler and suppler of necessaries, including to ships said to be connected to George and Peter Lygnos.

[148]        The claim is for necessaries delivered to various vessels in Canada. More specifically, it is for $27,191.95 (CDN) as against the Agni, for supplies delivered on 22 and 23 April 1998; for $77,676.29 (CDN) as against the Golden Challenger for supplies delivered between 11 November and 6 December 1997; and for $7,971.04 (CDN) for supplies delivered to the Pantokrator on 22 August 1997: the total claim is $112,839.28 (CDN) together with interests at 24% per year.

[149]        The claim is well documented. It does not purport to be anything other than a statutory in rem necessaries claim which should, in the view of Calogeras, have the benefit of the Canada sistership provision of the Federal Court Act. Here Mr Ellas Kalogeras, president of Calogeras, sets out in his affidavit of claim that he believes the ships Agni, Golden Challenger, Pantokrator, Golden Trinity, Kimisis III, Ypapadi and Zoodotis were all beneficially owned, at all material times, "by the Lygnos brothers through one-ship companies;".

[150]        There is also a second claim by a related entity, Calogeras & Master Supplies Inc. ("Calogeras & Master"). This claim is for $7,784.92, again supported by the affidavit of Ellas Kalogeras, who was also present of Calogeras & Master, again a long-established ship chandler operating out of Montreal. The claim is for $7,784.92, together with interest at 24% per year, for necessaries delivered to the Litrotis at Port Cartier, Québec. Mr Kalogeras believes that the Litrotis and the Zoodotis were both beneficially owned, at all material times, by the same beneficial owner through one-ship companies.

[151]        Counsel for Calogeras and for Calogeras & Master takes a very direct approach. He wasted no time in coming to the point, that the claims are Canadian statutory in rem claims and are only good, as sistership claims, in the event that the vessels are found to be sisterships and the security held by RBS on the one hand and by Nedship, on the other hand, is defective, to the extent of allowing a Canadian necessaries claim to come in ahead of mortgage security. Here I would also observe that counsel does not attack any of the other claimants and that this should be reflected as to costs.

[152]        Counsel for Calogeras and for Calogeras & Master in a brief and able submission, relied upon the view of his principle that all of the vessels were beneficially owed by one of the Lygnos brothers and that all of the ships involved were abandoned by their owners at about the same time. Further, counsel points out that no one has challenged the affidavit evidence of Mr Kalogeras. The difficulty with this submission is that there is a substantial onus on the person alleging a sistership relationship.

[153]        To the contrary, counsel for Nedship and RBS points out that the Calogeras claim against the Agni, Golden Challenger and Pantokrator depend upon a sistership relationship with Golden Trinity, Kimisis III, Ypapadi and Zoodotis.

[154]        From the evidence of Mr Noordermeer, of Nedship, the Agni was owned by Aegean Navigation Inc. which had as a parent, a Liberian company, Aegean Enterprises Company Ltd. There is no evidence that the ownership of the Golden Challenger and the Pantokrator, which ships were not security for the loan of either bank, however they were managed by Pronoia. Further, the Golden Challenger and Pantokrator were operated by Zapayros Ship Agents and Brokers Inc., of Pirarus, Greece, that being evidence set out in the 16 March 1999 affidavit of Mr Kalogeras.

[155]        The evidence of Calogeras and of Calogeras & Master does not establish a sistership relationship. Even if it did, the security of RBS and Nedship being sound, the claims Calogeras and Calogeras & Master, as statutory rights in rem, come after the claims of the Plaintiffs, RBS and Nedship, as mortgage holders.

[156]        The claims of Calogeras and of Calogeras & Master are dismissed without costs payable by or to anyone.

Claim of Aduanera Columbia S.I.A. Ltd. Inc.

[157]        Aduanera Columbia S.I.A. Ltd. Inc. ("Aduanera") is a Columbia company supplying necessaries at Buenaventura, Columbia. Aduanera supplied goods to the Golden Trinity, in the amount of $100,663.48, being a net figure against payment received. I have allowed two items of the claim, as maritime liens, that been a levy for lights and buoys, in the amount of $1,961.53 and the other for pilot and tug, in the amount of $3,377.09. This is one of the alternatives suggested by counsel for Aduanera.

[158]        By way of explanation, the expert evidence as to foreign law, provided by Ms Alicia Pineda Pineda, of Santafe de Bogota, Columbia, who holds a masters degree in marine insurance law from the University of Southampton and who had practised in Hong Kong and is a member of the Association of Latin-American Shipowners is that Aduanera had a maritime lien according to Columbian legislation by way of debts arising from contract entered into by the captain of the vessel, acting within his legal authority and away from the port of registry. Ms Pineda acknowledges that the captain did not entered into a contract with Aduanera, but "the fact that the Captain must celebrate the contracts that give birth with the debts that having maritime lien has to be interpreted in conjunction with the other provisions of the Commercial Code.": I take this use of the word of celebrate in the sense of observing and proclaiming the contract. Ms Pineda goes on to set out, in her opinion, that Article 1495 of the Columbian Commercial Code designates the captain as a representative of the owner. Thus when the captain entered into contracts, for necessaries, it is as a representative of the owners. Further, Article 833 of the Columbian Commercial Code is said to establish that all contracts so celebrated by the master, on behalf of owners, leads to the proposition that if the Commercial Code grants a maritime lien to debts arising from contracts celebrated by the master as a representative of the owner, "... it must be understood that it also recognizes a maritime lien for these debts if the owners or their agent celebrate the contract.". This leads to the proposition that when a representative acts, according to Columbian laws it is understood that the entity represented acts as well, which I take to mean that when the master acts, it is understood that the owner acts as well.

[159]        The expert retained by RBS, Mr Felipe Vallejo, a lawyer practising in Santafe de Bogota, Columbia, has an impressive biography, including post-graduate work at Yale Law School, substantial work with various law firms, some university teaching and a suitable number of Articles and commentaries on maritime matters.

[160]        Mr Vallejo summarizes the argument made by Ms Pineda by saying that she submits that there is a maritime lien under Article 1556, Rule 6, of the Columbian Commercial Code, not by way of the master, but rather through the owners, directly, who entered into the contract with Aduanera and that according to Article 1495 of the Commercial Code, a captain is a representative of the shipowner, and the agent binds the principal, according to Article 833 of the Code.

[161]        Mr Vallejo begins with the assertion that the rules of law invoked by the expert for Aduanera are not applicable. Rule 6 of the Code refers to contracts executed or operations effected by the captain for the conservation / maintenance or safety of the ship or the continuation of the voyage. This leads to two points. First, the rule refers to the captain as contractor and debtor, not as creditor. The rule refers to the credit rights of suppliers and not those of the captain, owner or ship agent. Second, this right must be demonstrated, as a matter of law, with documents that the captain has executed or signed, that being a requirement in Article 1561, rule 9 of the Commercial Code, "And only the documents regarding pilot and tug services attached to the affidavit of claimant Aduanera, are signed by the captain of the Golden Trinity".

[162]        Mr Vallejo comments on the proof and the onus of proof in order to establish a superior position:

[163]        Mr Vallejo then goes on to give his opinion that the ship's agent's credit rights are not protected by a maritime lien on the vessel, for a ship agent is not among the persons mentioned as having maritime credit rights under Article 1556. However he does conceive that if a ship agent does pay an obligation to a creditor who is protected with a privilege right, such as for pilotage and tug services and for lights and buoys, Aduanera would become subrogated to that privilege. There then follows an acknowledgement that the pilotage and tug services were signed for by the master: that indicates to me that there is subrogated claim for $3,377.09. More questionable is whether the acts of Aduanera, in paying for lights and buoys, became subrogated to the claim. Mr Vallejo acknowledges that there is an argument that the acts of the shipping agent, on behalf of the vessel, is equivalent to the acts of the captain. However, Ms Pineda, if I understand her affidavit as to foreign law correctly and here I recognise some of the terminology may be more clear in Spanish than in the English she employs, is of the view that a maritime lien would be recognised by way of the agents.

[164]        On balance I am prepared to find a subrogated maritime lien, held by Aduanera, as to entry duties for lights and buoys, in the amount of $1,961.53 and by way of the master for pilot and tug services, in the amount of $3,377.09, a total of $5,338.62. Aduanera shall also have a pro rata share of the interest which has accrued on the Golden Trinity sale proceeds. Success being mixed, there will be no costs payable either to or by Aduanera.

United Maritime Supplies Inc.

[165]        United Maritime Supplies Inc. ("United Maritime"), of Vancouver British Columbia, is an unpaid supplier of necessaries, provided to the vessel at Vancouver on 7 August 1998. The claim was for $48,617.24, for a broad variety of necessaries.

[166]        Only through a re-ordering of priorities could United Maritime succeed.

[167]        In considering the claim of United Maritime I have given that firm, for the sake of argument, the benefit of all of the factors argued by Tramp which might go to a re-ordering of priorities. As I determined in the case of Tramp, it did not meet the onus of showing the special circumstances required to obtain a re-ordering of priorities.

[168]        It is unfortunate that Canadian necessaries suppliers do not have the same privilege of a maritime lien as do American suppliers. However, subject to a re-ordering of priorities, which is not established in this instance and indeed is not established in most instances, the solution must be by legislation.

[169]        The claim of United Maritime is dismissed. The arguments of each side on this claim took little time. It is appropriate that the dismissal be without costs payable by either side.

Sheriff's Fees, Wages, Repatriation and Marshal's Expenses

[170]        Both RBS and Nedship paid sheriff's fees and marshal's expenses which included crew wages on the sale of the vessels, the Golden Trinity and the Ypapadi in the case of RBS and the Zoodotis in the case of Nedship. The amounts paid as sheriff's fees and commissions are as follows:

Golden Trinity             GBP 6,032.00

CDN 5,313.61

USD 42,450.00

Ypapadi                       GBP 5,906.00

CDN 7,486.40

USD 38,200.00

Zoodotis                      GBP 2,000.00

CDN 4,582.16

USD 49,600.00

These amounts stand in first priority.

[171]        Also as a first priority are the substantial claims by the banks, for amounts paid by them, which are deemed marshal's expenses. These include wages paid to crew members, port and pilotage charges, provisions, water, repairs and crew repatriation costs. Those claims, totalling $751,961.00 (US) and $310,509.23 (CDN) in the case of RBS and $234,500.65 (US) and $82,610.46 (CDN) in the case of Nedship, also have a first priority.

CONCLUSION

[172]        A principal issue on this application to determine entitlement to ship sale proceeds, and indeed the issue which consumes the most hearing time by far, was whether the circumstances warranted a re-ordering the long-established priorities which, in Canada, place mortgage holders ahead of necessaries suppliers. The present ordering of priorities can produce at least some degree of unfairness to necessaries suppliers in Canada, who have only a right in rem. This is particularly apparent when one contrasts the position of the Canadian necessaries suppler with their American counterpart. Canadian courts have, on fairly rare occasions, been able to find special circumstances by which to rectify a plainly unjust result.

[173]        In difficult times there is also a good deal of tension between necessaries suppliers, particularly suppliers of large dollar amounts of bunkers, who deliver on credit, and maritime bankers, who must stand by their shipowners as long as is reasonable. Bunkers suppliers often, as in the present instance, feel that bankers have the advantage, for they ought to have a detail knowledge of the financial affairs of their customers. Bankers do not necessarily view the situation in the same way, believing necessaries suppliers have at least equal knowledge of the current financial affairs of shipowners. This was explained by Mr Krijthe, of Nedship, on cross-examination, in answered to the alleged inability of a necessaries supplier to know the liquidity of a shipowner, who said that bunkers suppliers had the experience to know whether or not they should deliver fuel and went on:

Mr Krijthe then went on to elaborate on the ability of necessaries suppliers to obtain information. Thus, while there may be some unfairness in the ranking system, it may not, as between a sophisticated necessaries supplier and a banker, be all that great.

[174]        In the present instance there is no more than the usual perception, on the part of necessaries suppliers, of unfairness. Here not only Tramp, but also the other necessaries suppliers who remained in this proceeding either had in fact good knowledge or the means of obtaining sufficient good knowledge in order to make educated decisions as to delivery of fuel on credit .

[175]        I was not able to determine that there was a failure, either on the part of RBS or Nedship, to move more promptly, either before the death of Peter Lygnos or after, which might result in special circumstances, or a plainly unjust result. This is so even were one to look back on the events through the use of hindsight. To leave priorities in their usual ranking produces an unfortunate result for Tramp and other necessaries suppliers, but to re-order priorities on the evidence presented by the suppliers would be to unreasonably penalize RBS and Nedship and all the more so when one considers the evidence presented the banks in order to set out what they did, both before and after the death of Peter Lygnos.

[176]        As agreed, if counsel for the banks, on the one hand and Tramp, on the other hand, cannot come to terms as to costs, that may be spoken to.

[177]        I thank counsel for their effort and for their patience in waiting for reasons.

(Sgd.) "John A. Hargrave"

                                                                                          Prothonotary

Vancouver, British Columbia

31 May 2004

                                                             FEDERAL COURT

                           NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                                         T-32-99, T-38-99, T-119-99 & T-186-99

STYLE OF CAUSE:                       The Royal Bank of Scotland plc v. The Ship "Golden Trinity" et al.

The Royal Bank of Scotland plc v. The Ship "Kimisis III" et al.

The Royal Bank of Scotland plc v. The Ship "Ypapadi" et al.

Nedship Bank N.V. v. The Ship "Zoodotis" et al.

DATES OF HEARING:                  28 - 29, 30 - 31 August, 4 September, 11 - 14 December 2001 & 17 - 18 January 2002

REASONS FOR ORDER:            Hargrave P.

DATED:                                           31 May 2004

APPEARANCES:                         

SOLICITORS OF RECORD: