eCaseNote 2006 No. 02

FRUSTRATED FISHERS: TRUST AGREEMENTS AND THE SALE OF FISHING LICENCES

Careen v. Fewer & Strathie Ltd. 2003 NLCA 33, 226 Nfld. & P.E.I.R. 346 Doucette v. Jones 2005 NBQB 144, E.T.R. (3d) 98

Our firm recently reviewed the above-noted cases and thought a brief summary would be of interest to clients involved in the fishing industry.

In the 2003 Newfoundland case of Careen v. Fewer & Strathie Ltd., Mr. Careen entered into an agreement to sell fishing licences to Fewer and Strathie Ltd. Under this agreement, Mr. Careen undertook to continue to hold the licences in his name, in trust for Fewer and Strathie Ltd., and executed a formal declaration of trust.

Fewer and Strathie Ltd. later formally requested that Mr. Careen transfer the licences, but Mr. Careen failed to do so. Mr. Careen then made an assignment in bankruptcy, and a trustee in bankruptcy was appointed. Fewer and Strathie Ltd. applied to the court for an order directing Mr. Careen to sign a letter of direction to the federal Department of Fisheries and Oceans (“DFO”), and to do anything else required to effect the transfer of the licences, and sought an alternative order that the trustee be authorized to sign on Mr. Careen’s behalf. Mr. Careen initially complied with the consent order by delivering a letter to DFO directing them to re-designate his licence to Fewer and Strathie Ltd., but later attended at the offices of DFO to cancel the re-designation. Fewer and Strathie Ltd. made a further application to the court for an order requiring either Mr. Careen or the trustee to execute the necessary transfer documents.

The court ordered that, as the contract had been partly performed prior to Mr. Careen’s declaration of bankruptcy, and as the trustee had chosen to affirm the contract, the trustee must honour the obligations of the contract. The trustee was ordered to sign all documentation necessary to effect the transfer of the licences to Fewer and Strathie Ltd.

In the 2005 New Brunswick case of Doucette v. Jones, Mr. Jones sold his snow crab licence to Mr. Doucette. Under agreements signed by the parties, including a trust agreement, all of which were quite similar to those in the Careen scenario, Mr. Jones was to make all efforts to transfer the licence to Mr. Doucette, and would hold the licence in trust for Mr. Doucette until the transfer could be effected.

The relationship between the parties broke down when Mr. Jones refused to make further attempts to transfer the licence in view of a transfer restriction by DFO that prevented licencees from transferring their licences to third parties. Mr. Doucette, knowing that the transfer restriction was impeding the purchase of the licence, wrote to DFO, explaining that he had purchased the licence from Mr. Jones, that it was being held in trust for him, and requested that DFO remove the restriction.

DFO responded stating that it did not recognize the type of arrangement that Mr. Doucette and Mr. Jones had entered into. DFO took the position that fishing licences were issued as a privilege, one which did not confer any property rights that could be legally sold, bartered or bequeathed. Further, DFO stated that the arrangement between Doucette and Jones amounted to an attempt to circumvent the existing licencing policy, and that the department would not condone such activity. DFO officials made it clear to Mr. Jones that if he wanted to continue to have an unrestricted snow crab licence, he would have to put an end to his trust agreement with Mr. Doucette.

The New Brunswick court examined the impact of a 2003 DFO Discussion Document on trust agreements made between licencees and third parties. In that Discussion Document, DFO stated that it would not bound by the provisions of such trust agreements. The court accepted that, although this document was published after this case arose, DFO had clearly already been concerned about this type of activity when it began to scrutinize the relationship between Mr. Doucette and Mr. Jones. The Discussion Document stated that “trust agreements” that purport to transfer the beneficial use of a licence, although they have not been held to be illegal by the courts, contravene DFO’s owner-operator and fleet separation policies, since they would allow an entity other than the licence-holder to control a licence in the inshore fleet.

The court ultimately held that the trust agreement, while legal, was not binding on DFO. As DFO had exercised its discretion in such a way as to make the transfer of the licence to Mr. Doucette impossible, the court ruled that the contract for the sale of the licence was frustrated and was thus at an end. This left the rights and liabilities of the parties to be determined under New Brunswick’s Frustrated Contracts Act.

In conclusion, the two decisions, together, demonstrate DFO’s changing position with respect to trust agreements and the sale of fishing licences. In Careen, the Newfoundland court gave effect to the transfer of licences held in trust by the vendor for the purchaser. In that case, neither party raised any issue with respect to DFO’s policies on the sale of licences, and the issue was not addressed by the court. However, more recently in Doucette, the New Brunswick court effectively held that the issuing of a licence by DFO did not confer to the licencee any property rights that can be sold or otherwise transferred to any non-licencee third party.

Should you wish to receive a full copy of these decisions, or discuss their implications, feel free to contact our office at your convenience.



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