The Lord Strathcona
| Jurisdiction | England & Wales |
| Judgment Date | 15 July 1925 |
| Date | 15 July 1925 |
| Court | Probate, Divorce and Admiralty Division |
Shipping - Mortgage - Insolvent Shipowners - Mortgagees' Application for Sale - Intervention by Charterers - Mortgagees with Notice of Charterparty - Shipowners unable to perform Charter - Sale by Marsha free from Obligations of Charter.
The plaintiffs were the mortgagees of a vessel which had been chartered by her owners, the mortgagors, for a succession of seasons on the St. Lawrence River with options for renewal which did not expire until 1932. The plaintiffs brought an action in rem against the shipowners, who were in financial difficulties, claiming judgment for the validity of the mortgages and an order for the sale of the vessel by the marshal. No appearance was entered by the defendants and judgment was given condemning the vessel and ordering her sale. Thereupon the charterers intervened and claimed (a) a declaration that the charterparty was binding on the mortgagees, who had notice of its existence when the mortgages were executed, and (b) an injunction to restrain the plaintiffs from exercising their right to an order for the sale of the vessel except subject to the terms of the charterparty. The interveners also alleged that the mortgages were invalid:—
Held, (1.) that the interveners had no locus standi to dispute the validity of the mortgages but were only entitled to be heard on the question whether the plaintiffs ought to be restrained from exercising their rights in such a way as to interfere with the interveners' contractual rights under the charterparty.
(2.) That whether or not the charterparty was binding on the mortgagees, inasmuch as the shipowners, by reason of their financial position, were incapable of performing it, a sale at the instance of the mortgagees would not interfere with the performance of a contract which was already impossible of performance by the parties thereto: the principle therefore on which Lord Chelmsford decided De Mattos v. Gibson (
Authorities reviewed on the question whether a charterparty entered into with the owners of a ship binds a subsequent mortgagee with notice.
TRIAL of an issue between mortgagees and charterers (interveners) in a mortgage action.
The plaintiffs (mortgagees) were the Old Colony Trust Co.; the defendants (mortgagors) were “the owners of the steamship Lord Strathcona (and freight)”; the interveners were the Dominion Coal Co., Ld., who counterclaimed against both plaintiffs and defendants.
The facts, which are fully set out in the judgment, shortly stated were as follows: Under two registered mortgages the plaintiffs brought an action in rem against the defendants claiming (i.) judgment for the validity of their mortgages, (ii.) judgment against the ship and freight for the amount due to the plaintiffs under the mortgages, and (iii.) an order for the sale of the ship by the marshal. No appearance was entered by the defendants, and on January 26, 1925, judgment was given by default condemning the ship and ordering her sale. On February 11 the Dominion Coal Co. entered an appearance as interveners, and by an order of March 3 the sale of the ship stood over pending the trial of the issue.
The interveners raised two questions: (1.) They disputed the validity of the mortgages on the ground that the Lord Strathcona Steamship Co. (No. 1), the then owners of the ship, was never properly constituted according to the laws of Canada, and therefore that all the subsequent transfers, bills of sale and mortgages were void. (2.) They alleged that a charterparty entered into in 1914 between themselves as charterers and the Lord Curzon Steamship Co., the company then owning the Lord Strathcona, for a succession of seasons on the St. Lawrence River with options for renewal not expiring till 1932, was binding on the plaintiffs as mortgagees who were aware of the existence of the charterparty before the transfer to them of the first mortgage and before the execution of the second mortgage. The interveners accordingly claimed against the plaintiffs and the Strathcona Companies an injunction which, in effect, would prevent the marshal from selling the Lord Strathcona except subject to the obligations of the charterparty.
The plaintiffs, in answer to the counterclaim, denied that the charterparty was binding on them; alleged that the security was being impaired and that the owners were not in a financial position to carry out the charterparty; and that by dealing with and treating the mortgagors as owners the interveners were estopped from alleging that the Lord Strathcona Co. (No. 1) was not properly constituted and that accordingly its subsequent transactions were invalid. The Strathcona Companies did not appear.
Sir Leslie Scott K.C., Balloch, and F. Hinde for the interveners. The main question is whether the mortgagees are bound by the charter of which it is now admitted they had notice before the execution of the one mortgage and before the transfer of the other. The second point is that according to Canadian law the mortgages were void because the Lord Strathcona Steamship Co. (No. 1) proceeded to the allotment of its shares without having first filed a prospectus or a statement in lieu thereof, contrary to the provisions of the Canadian Companies Acts, and accordingly all the subsequent transfers and mortgages were invalid and void.
[HILL J. How can interveners take that point? What right have they to do more than intervene to protect their interest?]
They raise the question in order to protect their interests under the charter, for if the mortgages are invalid the plaintiffs have no power of sale at all. The point is one which could have been raised in the name of the Attorney-General in Canada.
[HILL J. You are not raising it in that way and you will have to satisfy me as to the locus standi of the interveners to raise the question.]
On the main question, the dictum of Knight Bruce L.J. in De Mattos v. GibsonF1, that a mortgagee is bound by a prior charter of which he has notice, has been recognized and acted on for upward of three-quarters of a century. It was referred to and not dissented from in The Celtic KingF2, and in Herne Bay Steamboat Co. v. Hutton.F3 Stirling L.J. treated De Mattos v. GibsonF1 as an authority for granting an injunction: see also Cory & Co. v. StewartF4, where, however, it is not clear whether the charter was before or after the execution of the mortgage. A well established commercial doctrine ought not to be disturbed: London Founders Association v. ClarkeF5; British and Foreign Insurance Co. v. Wilson Shipping Co.F6; Atlantic Shipping and Trading Co v. Louis Dreyfus & Co.F7
Assuming the charterparty to be binding on the mortgagees, they can only sell free from its obligations if they can show that the charterers will not be prejudiced by the sale, e.g., if the shipowners themselves could not perform the charterparty. The onus is on the mortgagees to prove this, and the facts show that but for the interference of the mortgagees the shipowners would have tendered the vessel to the charterers in the spring of the present year. The charterparty was remunerative; the mortgagees have prevented the vessel from trading, and they cannot be heard to say that the owners by reason of their financial disabilities could not have successfully traded with the vessel. The sale therefore can only take place subject to the purchaser undertaking to carry out the charterparty.
W. A. Greene K.C., Alfred Bucknill, H. S. G. Buckmaster and Sinclair Johnston for the plaintiffs. Except in the case of a charter by demise made before the mortgage a mortgagee, even with notice, is not bound by a charterparty entered into with his mortgagor, and the headnote to...
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