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Federal Court - Maritime Jurisdiction. Inuksuk I (Ship) v. Sealand Marine Electronics Sales and Services Ltd
In Inuksuk I (Ship) v. Sealand Marine Electronics Sales and Services Ltd (Fed CA, 2023) the Federal Court of Appeal considered a lawsuit in maritime law, where - amongst other interesting things - one 'arrests' ships, and once security is paid, they are released again.
In these quotes the court (repeatedly) finds that the Federal Court, while it had jurisdiction over "services and parts supplied to a commercial vessel", had no jurisdiction over an equitable set-off defence regarding "the purchase of non-marine equipment":[51] Wärtsilä made it clear that the Federal Court has jurisdiction over services and parts supplied to a commercial vessel. There is no issue that the respondent’s claim was properly before the Federal Court.
[52] In my view, there can also be no issue that how one describes an item on an invoice cannot be determinative of whether the Federal Court has jurisdiction. One may call a house a ship in a sale contract, but this will not be sufficient to ground the Federal Court’s jurisdiction over the sale of that house.
[53] Even when one only considers the language of section 22 of the Federal Courts Act per se (which is not itself determinative), it has always been the position of this Court that one cannot construe this provision in such a way as to convert what is not a maritime claim into a maritime claim (Harry Sargeant III v. Al-Saleh, 2014 FCA 302, 468 N.R. 205 at para. 94).
[54] What is at issue here is the validity of transactions that have absolutely nothing to do with the operations of the two defendant vessels in the actions in rem. Whether the purchase of non-marine equipment through an alleged fraudulent scheme caused a loss to the appellants has no integral connection per se to navigation and shipping. The fact that it may have an integral connection to the operations of Baffin or the other defendants in personam is neither here nor there. The commercial activities or the non-for-profit activities of the parties are not a sufficient connection. It is in fact undisputable that, but for the equitable nature of the defence relied upon by the appellants, the cross-claim, whether presented as a defence or by way of a counterclaim, is entirely within the jurisdiction of the Newfoundland and Labrador courts, where these matters are currently being litigated. It is for this very reason that the respondent instituted its action in respect of non-marine items before the Newfoundland and Labrador courts.
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[57] I now turn to the appellants’ thesis. They argue that the principles of equity are so broad and foundational that they allow the Federal Court to consider this equitable defence—which, on its own, is not integrally connected to navigation and shipping—as long as the Federal Court has jurisdiction on the main claim. As argued, equity would be a distinct source of substantive principles.
[58] The issue with the appellants’ argument is that they do not explain how it relates to the broader Canadian constitutional context. A matter that falls outside the federal powers identified in the Constitution Act, 1867 (U.K.), 30 & 31 Vict., c. 3, reprinted in R.S.C. 1985, Appendix II, No. 5 cannot be within the jurisdiction of the Federal Court. It is worth repeating again that the appellants conceded that the substantive grounds at the foundation of their defence of equitable set-off would not normally come within the power of navigation and shipping. They have not explained how the subject matter of their defence of equitable set-off would come within any federal power identified in the Constitution Act, 1867.
[59] Equity, in itself, cannot confer to the Federal Court jurisdiction over a matter that does not come within the federal powers identified in the Constitution Act, 1867. In my opinion, the only way the appellants’ argument can fit in the existing constitutional context is if they argue that equitable principles somehow bring the character of their cross-claim within the federal power because it becomes a matter integrally connected to navigation and shipping.
[60] For equitable set-off to apply, it requires a close connection between the cross-claim on which the defence is based and the plaintiff’s claim. Because of this close connection, it may be arguable that the cross-claim would be characterized as integrally connected to the federal power over navigation and shipping.
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[68] What may appear to be closely connected claims to a person unfamiliar with maritime law—such as claims and cross-claims arising from the very same contract, in those cases a time charter party—still do not meet the closeness requirement. This is because only claims that deprived the charterer of the use of the ship would go to the root of the transaction and directly impeach the right of the ship owner to claim the charter hire for the use of the vessel. Similarly, this Court found in The Didymi that cross-claims for damages done to the vessel or for increases in the charter hire due to a saving of fuel or to the vessel performing beyond her warranted speed capabilities did not go to impeach the charterer’s claim that it had been deprived of the use of the ship during drydocking. They could not be the basis of an equitable set-off. They were each separate and distinct claims, having no bearing whatsoever on the claim for hire; however, the cross-claim could be the subject of a counterclaim.
[69] Obviously, in The Didymi, both the claim and the cross-claims involved maritime matters integrally connected to navigation and shipping. In my view, it is somewhat telling that, to my knowledge, there are no reported cases in Canada or in the United Kingdom where the factual matrix involved a claim that is clearly not integrally connected to maritime activities, yet was alleged or found to directly impeach or to go to the root of a claim whose character is integrally connected to navigation and shipping.
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[71] This cross-claim simply could not impeach on the respondent’s title to claim, nor does it go to the root of the claim for the marine supplies and services to the ships. It does not meet the criteria necessary to establish a valid defence based on an equitable set-off. Thus, the Federal Court could not have jurisdiction to examine the appellants’ defence of equitable set-off, even on the approach suggested by the appellants.
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