Kremikovtzi Trade --Thumbs Up

What with all the excitement of security certificates and election result publication bans, it is with a certain sense of relief that we turn to the Red Nine's latest on the limits of in rem jurisdiction in admiralty cases.

Phoenix Bulk is in the business of transporting cargo by ship. It says Kremikovtzi Trade contracted with it to move some coal from Vancouver to Bulgaria. But -- if Phoenix Bulk is to be believed -- instead of following through with this contract, Kremikovtzi arranged with the owners of the Swift Fortune to transport the coal on that ship instead.

The question is whether Pheonix Bulk can "arrest" the cargo in the Swift Fortune. This turns on whether the Federal Court as an admiralty court has in rem jurisdiction over the cargo, which in turn depends on whether it is the "subject" of the action.

In its 2000 Paramount Enterprises International Inc. v. The An Xin Jiang decision, the Federal Court of Appeal ruled that the cargo that is the subject of a contract of this nature is not the "subject" of an action for breach of that contract. The Court of Appeal in Kremikovtzi Trade thought that this was wrong, but binding on it. The SCC rather tersely just said that since it was not bound by Paramount, it was free to overrule it.

Neither court really says why Paramount is wrong. Statutory interpretation cases can be resolved just from intuitions about what words "plainly" mean. But I think more satisfying reasoning is available here.

What do the parties agree to in a contract of "affreightment"? One thing the carrier gets is the security that if it isn't paid, it has possession of the cargo. This security means it can charge less than it would if it didn't have this way to reduce its risk.

Let's suppose the cargo is not delivered at all. What is the carrier deprived of? Most obviously, the carriage price. But it also loses the security possession of the cargo provides.

The Court in Paramount was dead right to say that not all property remotely connected with an admiralty case could be the "subject" of the action. But it ignored how central possession of the cargo is to what a carrier bargains for.

So it was good that Paramount was overruled. I'm not sure it would have killed the court to show its work a bit more though, so this is a pretty limited "thumbs up."

Case Comment of Phoenix Bulk Carriers Ltd. v. Kremikovtzi Trade, 2007 SCC 13