Enforcement of Cuban maritime debts in the Canadian courts

CANADA has maintained a liberal commercial policy with Cuba since the Cuban revolution of 1959. In the last decade, Canadians have invested in Cuba in areas such as real estate, tourism, health and technological assistance. This has enabled Cuban tramp ships to call at Canadian ports on a regular basis, and has even enabled the establishment of a liner service from Canada's eastern ports to La Habana.

Simultaneously, Cuban vessels have continued to supply their ships with bunkers throughout the world. Cuba, through Cuflet Chartering, has chartered vessels from Greek, Israeli, and other shipowners, and has contracted with shiprepairers in Canada and worldwide.

Despite the embargo pressures imposed by legislation in America, and the withdrawal of Soviet assistance, Cuba has managed to survive commercially, but it has encountered major difficulties in honouring its contractual commitments. Due to its internal policies, freight moneys and export revenues are immediately allocated to social priorities, and are not preserved to maintain and consolidate its merchant shipping fleets. This creates a situation of major delays and defaults which are of great concern to foreign shipowners, bunker suppliers, shiprepairers, and affected creditors in related areas.

To exacerbate the problem, Cuba has a tendency to shift its shipping interests from one ministry to another. Until 1995, entities such as Cuflet Chartering and Empresa de Navegaci¢n Mambisa were transferred from the ministry of transport to the ministry of fisheries, under a body presently named Pesport.

Pesport has assumed control of various Cuban shipping fleets (Friomar, Coral, Poseidon, Cuflet) and related shipping activity. During 1995, the jurisdiction of Pesport was in turn reduced to the management and control of fishing fleets, and Antares - Asociaci¢n de Navieras de Cuba - was created to manage and control the merchant shipping lines.

These bureaucratic changes create havoc for creditors seeking payment for outstanding debts. Lines of communication are constantly discontinued, personnel are replaced, and disquieting silences are created which only add to the anxiety of creditors.

From a juridical point of view, Canada is imbued with two great legal traditions. The common law and English admiralty recourses constitute the law of the land. However, added to this tradition, the civil code and the Code of Civil Procedure of the Province of Quebec supplement the common law recourses.

Bureaucratic changes create havoc for creditors seeking payment for outstanding debts.

Thus, in Canada, there are four extraordinary recourses which may be invoked by creditors to protect claims against defaulting debtors who do not have permanent assets in the jurisdiction prior to judgment.

The first is the action in rem, or the arrest proceeding directed against the debtor ship. The second recourse is the sistership arrest, introduced in Canada in 1992. The third recourse is the Mareva injunction, which requires the creditor to provide an undertaking for damages. The fourth recourse is the seizure before judgment (saisie avant jugement). This latter recourse is derived from the civil law and the Quebec Code of Civil Procedure.

The seizure before judgment has been used efficiently in the Province of Quebec against Empresa Cubana de Fletes (Cuflet), the chartering arm of Cuba. This entity does not own ships, and is thus immune to attack by way of an action in rem or sistership arrest. Moreover, the seizure before judgment does not require the presentation of security for eventual damages which is imposed by the Mareva injunction.

More particularly, in February 1993, Richards Butler instructed Gottlieb & Pearson in Montreal to act on behalf of P & I clubs and Greek shipowners against Cuflet. Cuflet had chartered two ships from Greek shipowners, and accumulated a debt of $2.5m for unpaid charter hire. Cuflet admitted the debt, and signed an agreement setting out instalment payments during 1992. Nothing was paid by December, 1992.

At the end of February 1993, the Bahia De La Habana entered Canadian territorial waters, and berthed at Port Cartier, Quebec. This vessel appeared in Lloyd's Register as the property of Empresa de Navegaci¢n Mambisa (Mambisa) and the Government of the Republic of Cuba. This information further appeared in Lloyd's World Shipowning Groups.

A writ of seizure before judgment was presented in front of the Quebec Superior Court against Mambisa, Cuflet and The Government of the Republic of Cuba. The superior court judge granting the seizure, Mr Justice Melanáon, was satisfied that the doctrine of sovereign immunity could not be invoked, and on this ground, allowed the writ to be issued. The Bahia De La Habana was seized, and allowed to sail, under seizure, from Port Cartier to Montreal.

Mambisa then attacked the seizure in two stages. The first was based on a jurisdictional issue. Mambisa claimed that the charter parties entered into with Cuflet provided that in the event of a dispute the only appropriate jurisdiction would be England, on account of the London arbitration clauses in the charter parties. The issue was argued at length, but the Quebec Superior Court judge, Mr Justice Gomery, held that as the debt was admitted by Cuflet, there was no dispute between the parties, and the London arbitration clauses in the charter parties did not apply.

The second attack by Mambisa was to quash the seizure on grounds that the property seized, the Bahia De La Habana, did not belong to Cuflet or the Government of the Republic of Cuba, that Mambisa and the Government of the Republic of Cuba were not liable for the debts of Cuflet, and that since no fraud was alleged, in support of the seizure, there were no grounds for a seizure before judgment.

The case was eventually presented in front of Mr Justice Tingley of the Quebec Superior Court (Med Coast Shipping Ltd et al v The Government of the Republic of Cuba et al, 1993 AMC 2530).

On the issue of ownership of the Bahia De La Habana, the judge said that Mambisa had possession and use of the ship, and the right to dispose of same. Mambisa had assumed all the risks generally associated with an owner under the bareboat charter it entered into with the Spanish shipbuilder. Moreover, the vessel was registered under the Cuban flag as represented by the Ministry of the Interior of the Republic of Cuba. The judge concluded that Mambisa enjoyed all the incidents of ownership and the obligations of an owner.

On the second issue, relating to the liability of the Republic of Cuba for the debts of Cuflet, the judge said that, since Cuflet and Mambisa were agents or departments of Cuba, Cuba was liable for the debts claimed.

On the issue of fraud, the judge held that the failure or refusal to pay an acknowledged debt when due constituted a fraud.

Shortly after the decision was rendered, on April 6, 1993, Mambisa appealed the decision. But, later, it agreed to settle out of court. An agreement was reached on a figure, and payment effected. And Mambisa dropped its appeal.

The Bahia De La Habana sailed from Montreal on November 21, 1993, nine months after it was seized in Port Cartier.

The decision of Mr Justice Tingley had immediate repercussions for creditors worldwide. The decision permitted a foreign creditor of Cuba to invoke the Canadian courts (in the Province of Quebec) to enable it to obtain satisfaction for its debt by seizing a Cuban asset (ship or other asset of value). Thus, a series of creditors, including bunker suppliers, shiprepairers, banks and others, sought relief in the Province of Quebec. The majority of the claims were eventually settled prior to the institution of legal proceedings, based on the Bahia De La Habana decision.

Today, Cuba continues to struggle to pay its creditors. Substantial sums remain unpaid to bunker suppliers, shipowners and ship repairers. Both the Cuban entities and the creditors realise that paralysing Cuban assets exacerbates the problems. Since both parties ultimately realise the consequences of drastic measures, Cuban shipping interests have generally attempted to resolve their debts with elaborate payment schedules which have to be continuously monitored by their creditors.

During the Cuba Maritime '98 conference last year, Antares tried to assume a positive face towards maritime creditors. Yet, within three months of this event, the managing director of Cuflet Chartering was replaced, thus creating renewed uncertainty and suspicion. Today, debts remain unpaid, a trickle of payments subsists and the heated negotiations continue.