6—PRIORITIES
Chapter 6
Priorities
Introduction
6.1 Where the amount of claims exceeds the proceeds of sale, the court must determine the manner in which the proceeds should be distributed.1 It does this through the exercise of an equitable jurisdiction to rank claims according to an order of priority. However, before considering the manner in which the Admiralty Court exercises this jurisdiction, it is necessary to examine the position of three classes of creditors which effectively fall outside this scheme as the treatment of their claims may affect the amount to be distributed according to the order of priority. Those creditors are:
- (i) a body with a statutory power of detention and sale,
- (ii) a person with a common law possessory lien, and
- (iii) a solicitor with a lien.
6.2 In summary, the right of the holder of a statutory power is superior to the right of the Admiralty Marshal, and thus the claim falls outside the order of priorities altogether. The right of the holder of a possessory lien, while inferior to the right of the Admiralty Marshal, will be acknowledged by the court so that he is not prejudiced by the arrest and dealing with the ship by the court. The lien of a solicitor effectively constitutes a charge which is recognised by the Admiralty Court in a similar way to any other charge on the property sold by the court.
Statutory Power of Detention and Sale
Examples of statutory powers
6.3 Various statutes give power to public bodies to detain and sell vessels and cargoes. Probably the most important of these powers are the following2:
Section 44 of the Harbours Docks and Piers Clauses Act 1847
6.4 This provides:
“If the Master of any Vessel in respect of which any Rate is payable to the Undertakers refuse or neglect to pay the same, or any Part thereof, the Collector of Rates may, with such Assistance as he may deem necessary, go on board of such Vessel and demand such Rates, and on Nonpayment thereof, or of any Part thereof, take, distrain, or arrest, of his own Authority, such Vessel, and the Tackle, Apparel, and Furniture belonging thereto, or any Part thereof, and detain the Matters so distrained or arrested until the Rates are paid; and in case any of the said Rates shall remain unpaid for the Space of Seven Days next after any Distress or Arrestment so made, the said Collector may cause the Matters so distrained or arrested to be appraised by Two or more sworn Appraisers, and afterwards cause the Matters distrained or arrested, or any Part thereof, to be sold, and with the Proceeds of such Sale may satisfy the Rates so unpaid, and the Expenses of taking, keeping, appraising, and selling the Matters so distrained or arrested, rendering the Overplus (if any) to the Master of such Vessel upon Demand.”
Section 74 of the Harbours Docks and Piers Clauses Act 1847
6.5 This provides:
“The Owner of every Vessel or Float of Timber shall be answerable to the Undertakers for any Damage done by such Vessel or Float of Timber, or by any Person employed about the same, to the Harbour, Dock, or Pier, or the Quays or Works connected therewith, and the Master or Person having the Charge of such Vessel or Float of Timber through whose wilful Act or Negligence any such Damage is done shall also be liable to make good the same; and the Undertaker may detain any such Vessel or Float of Timber until sufficient Security has been given for the Amount of Damage done by the same. . .”
6.6 These or similar provisions are contained in the enabling Acts of virtually all harbour authorities.
Effect of sale under statutory powers
6.7 A sale by a harbour or other authority exercising its statutory power of sale will give title free of all mortgages on the ship,3 but not free of maritime liens as only a sale by the Admiralty Marshal can give such title.
Statutory right superior to power of Admiralty Marshal
6.8 It is clear on the authorities that the statutory powers of a harbour undertaking or other body are superior to, and override, the power of the Admiralty Marshal to arrest a ship in an Admiralty action in rem: “The statutory power of sale for reimbursement of harbour authorities is not within the ambit of priorities.”4 So a harbour authority may apply to the court to have the ship released from arrest to enable it to exercise its statutory power of sale upon its undertaking to pay the surplus proceeds of sale into court.5
Priority lost if statutory rights not exercised
6.9 However, this privileged status only applies to the exercise of the statutory power and will not therefore apply where the harbour authority does not exercise its power of detention, but instead seeks to enforce its claim by means of an ordinary Admiralty action in rem.6 In such circumstances, the claim will attract only the same priority as any other claim of that type.7
Effect of court sale upon statutory rights
6.10 The effect of a sale by the Admiralty Marshal upon these statutory rights is not clear on the authorities as they presently stand.
6.11 In The “Emilie Millon”,8 at the time a ship entered a dock belonging to the Mersey Docks and Harbour Board, she was subject to a maritime lien for wages. The ship was arrested in the wages action, judgment was given and the ship ordered to be sold. Dock dues were owing to the Board who had a statutory right of detention. At first instance, the judge had ordered “that the ship would be sold free of the Board’s rights and any right of the Board to payment of their charges in priority to other claimants which they may be entitled under their Acts of Parliament be preserved against the fund in Court”. The fund in court was likely to be insufficient to pay the dock dues and the Board therefore appealed. It was held by the Court of Appeal that the Board was entitled to detain the vessel, whoever her owner was until the dues were paid, and that the court could not deprive the Board of that statutory right without their consent.
6.12 In The “Countess”9 the House of Lords held that although a shipowner’s right to limit liability under section 1 of the Merchant Shipping Act 1900 limited the amount a harbour authority could claim under its statutory rights in respect of damage done to a dock, the statutory right to detain a vessel was not so affected, so that the harbour authority did not share the limitation fund pari passu with the other claimants, but was entitled, having exercised its statutory power of detention, to be paid before the other claimants. In that case, Lord Birkenhead LC described the right as a “statutory possessory lien”.10 Such a description appears too simplistic in so far as the statutory right carries with it a power of sale, the holder of a possessory lien having no such power.
6.13 Given the existence of this overriding statutory right, the question arises as to how the potential conflict between the exercise of the statutory right and the exercise of the court’s power of sale should be resolved. This question arose in The “Spermina”11 where the harbour authority, for reasons known only to itself, refused to consent to an order whereby their rights would be fully protected by being transferred to the proceeds of sale, which in that case would have been sufficient to meet their claim. This attitude was considered by Hill J to be “most unreasonable”, but nevertheless he considered that the authority was acting within its rights. He therefore held that he could not resolve the situation by ordering the harbour authority to give up their statutory right in return for being granted equivalent rights against the proceeds of sale, as this would have been contrary to the decision of the Court of Appeal in The “Emilie Millon”.12 However, in the end he persuaded the authority to adopt that course.
6.14 So too in The “Sea Spray”,13 where property had been arrested after the exercise by a harbour authority of a statutory power of detention in respect of wreck removal, Bargrave Deane J ordered the harbour authority to sell the ship and cargo and reimburse themselves first out of the proceeds of sale of the cargo and pay the balance into court, presumably because he did not consider that he could order a sale by the court in such circumstances. It is implicit in this order that the sale by the harbour authority will be a sale free of all encumbrances, the maritime lien being transferred to the proceeds of sale. In The “Ousel”14 this effect of such a sale was made explicit, Willmer J stating15 that “It is not, I understand, disputed that the harbour authority, exercising their statutory power of sale, sell free of encumbrances.” This view is however contrary to the previous opinion of Hill J in The “Spermina“, and it was not considered to be the law subsequently by Brandon J in The “Queen of the South”.16 It is suggested that the view expressed in The “Ousel” was plainly wrong as a matter of law, unless it can be rationalised on the grounds that the harbour authority is to be treated as in some way exercising its power of sale on behalf of the court so as to attract the effect of a court sale.
6.15 In The “Countess” the harbour authority detained a vessel and it was ordered to be released on payment into court, and Lord Birkenhead LC said that “the sum in Court represents the vessel for this purpose”17 and that it was subject to the lien of the harbour authority.18
6.16 The conflict between the decision of the Court of Appeal in The “Emilie Millon”19 and the House of Lords in The “Countess” was considered in a Scottish case, The “Sierra Nevada”,20 in which it was held that in Scotland the statutory right of a harbour authority was transferred to the proceeds of sale where the ship was sold by the court with the consent or acquiescence of the harbour authority, and therefore the harbour authority took in priority to the mortgagees. Lord Fleming based his decision on the principle that the effect of a court sale in Scotland was to transfer the vessel free of all claims against it, and this included the claims of the harbour authority. This reasoning is equally applicable to a sale by the Admiralty Marshal in England, as was recognised by Brandon J in The “Queen of the South”.21
6.17 It is suggested that as a matter both of principle and of public policy, a sale of a vessel by the Admiralty Court must transfer the vessel free of all claims which could be enforced against the ship, however they arise. It cannot have been the intention of Parliament that by granting statutory powers of detention and sale this ancient principle of maritime law was to be abrogated. Should this point arise for decision in the future it is suggested that the reasoning of Lord Fleming in The “Sierra Nevada”, which Brandon J found attractive in The “Queen of the South”, ought to be followed by the court. In The “Freightline One”22 Sheen J said23:
“I unhesitatingly agree with everything said by Mr Justice Brandon in The ‘Queen of the South’. If the matter were free from authority other than the Scottish case The ‘Sierra Nevada’, (1932) 42 Ll.L.Rep 309, I should follow that decision. It is in the interest of litigants that the Admiralty Court should be able to sell a ship free of all liens and rights of seizure and detention provided that the priority of all interested parties is preserved. But there is in this case even less reason than there was in The ‘Queen of the South’ to resolve the problem which has appeared to exist since the decision of the Court of Appeal in The ‘Emilie Millon’.”
6.18 However, in The “Queen of the South”, Brandon J avoided having to decide this point of law by resolving the matter in a practical way by authorising the Marshal to pay off the claims of the harbour authority and to include such expenses in his expenses of sale, and this is the practice which is now followed by the Admiralty Court and so to this extent the point is of academic interest only.
6.19 In The “Freightline One”24 Sheen J re-stated the current practice25:
“At this stage it is desirable that I should state the current practice of the Admiralty Marshal when he is aware of the fact that a port authority has a claim for unpaid pre-arrest charges against the owner or master of a ship in respect of which that authority has a statutory power to seize and detain the ship until the debt has been paid and if necessary, sell the ship. The current practice has arisen as a result of what was said by Mr Justice Brandon in The ‘Queen of the South’ [1968] 1 Lloyd’s Rep 182; [1968] P 449 at pp. 193 and 465.
It is, of course, a matter for the port authority to notify the Admiralty Marshal if there is a debt in respect of which that authority may wish to exercise its right to detain a ship. The port authority will necessarily be aware when a ship in its port has been arrested. If the Court makes an order that the ship be appraised and sold and the Marshal has been informed by the port authority that there are in respect of that ship pre-arrest charges outstanding, the Marshal requires that authority to provide him with an itemised account of such charges and a copy of the relevant sections of the Act of Parliament which confers on the authority a right of detention and sale for non-payment. The Marshal also requires from the port authority an undertaking that it will not exercise its right of detention and sale in respect of the outstanding charges, even though such charges be not paid in full, or at all, in the event of the net proceeds of the sale of the ship proving insufficient to pay all outstanding charges. If a port authority were to decline to give such an undertaking the Admiralty Marshal would make an application to the Court for further directions. If the port authority wishes to take advantage of The ‘Queen of the South’ practice, that authority must give an undertaking which will enable the Admiralty Marshal to sell the ship free of encumbrances, including any right which the port authority might have to seize and detain the ship.
If, on receipt of the documents requested, the Admiralty Marshal is satisfied that the authority has power to detain and sell the ship he will write to all interested parties in the following terms:
‘Dear Sirs, “The XYZ” 1985, Folio. . . I enclose Notice of an Application which I intend to make to the Admiralty Registrar at 10.15 a.m. on (such and such day) next for leave to pay to the Port of… Authority the sum of £. . . in respect of dock dues arising before the arrest of “The XYZ” and which have not been paid by the owners of the ship.
I am satisfied that the Port of. . . Authority had power to detain and sell ” The XYZ” for their unpaid dock charges by virtue of sections 44 and 45 of the Harbours Docks and Piers Clauses Act 1847 and section . . . of the . . . Corporation Act 19 . . ., and they gave me their undertaking not to detain this ship under their powers when I sold her and her new owners wished to remove her from . . . dock.
My application to the Admiralty Registrar follows the procedure laid down by the Admiralty Judge in the case of The ‘Queen of the South” which is reported in [1968] 1 Lloyd’s Reports 182 at p. 194.
I shall be obliged if you would kindly let me know if you are able to consent to an Order on the terms of my application. Once this application has been disposed of I shall be able to prepare my Account Sales. Yours faithfully, V E. Ricks, Admiralty Marshal.’
The Marshal then makes his application to the Registrar in accordance with the notice he has given.
If the Marshal is not satisfied that the port authority has power to detain and sell the ship for the charges in question or if he is not satisfied as to the amount of those charges, he notifies the port authority that he does not propose to make an application on their behalf. He refers them to the practice note which appears in para. 75/12/1 of the Supreme Court Practice. The note states:
‘Where some doubt arises as to the right of a harbour or dock authority to detain a ship that authority should seek a declaration from the Court.’”
6.20 In that case, Sheen J held that no order of the court was required to preserve a statutory right of detention in favour of the port and that by intervening and consenting to an order for sale pendente lite upon the clear understanding that they would not be prejudiced by such sale, their right to be paid by the Marshal a proper sum in respect of pre-arrest charges was preserved.
Common Law Possessory Liens
Shiprepairer’s possessory lien
6.21 The common law possessory lien most relevant to actions in rem is that of the repairer who has carried out work to a ship upon the instruction of the owner or someone authorised by the owner.26 The repairer’s lien covers the price of the work done, i.e. the agreed price or a reasonable charge for both materials and labour and any incidental expenses. However, absent express contractual agreement, the lien does not extend to other charges, e.g. for keeping the ship after the repairs have been completed or for damages for breach of contract.27
Possessory lien requires possession
6.22 In order to assert a possessory lien, the repairer must take possession of the ship. In The “Narada”,28 the master and crew remained on board the vessel during repairs and the issue arose as to whether in such circumstances the yard had obtained possession of the ship so as to enable them to assert a possessory lien. Brandon J said:
“It appears to me . . . that the question whether in such case possession is handed over or not sufficiently to found a possessory lien is a question of fact and degree in each case. It must, as it seems to me, depend on the extent and character of the repairs which are done, and on whether the repairers are of such a kind as to necessitate the shiprepairers being in overall or effective possession of the ship, despite the fact that the master and crew remain on board.”
On the facts of that case he held that the repairers did have a possessory lien. Phillimore J had come to a similar conclusion in an earlier case, The “Tergeste”29 where he said30:
“It is said that they had no possessory lien, because the master and crew were on board; if that were the rule a great number of shipwright’s liens would be disturbed. That man has a lien who has such control of the chattel as prevents it being taken away from his possession. He may admit other persons or workmen to access to the chattel, and other tradesmen may claim a possessory lien over the chattel or part of it, but if it cannot be got out of the dock or yard without the consent of the owner of the dock or yard, the owner of the dock will have a possessory lien. . . “
6.23 In Barr v Cooper31 when part of the repairs to a vessel were completed, she was moved off a slip and into a dock where the repairs were completed. Whilst in the dock she was moved from time to time under the orders of the harbour master and it was held that the repairers had not parted with possession so as to lose their lien.32
6.24 For the purposes of priority the lien commences as soon as the ship enters the yard,33 but continues only for so long as the repairer retains possession of the ship,34 and once possession is lost the lien expires and is not revived by a subsequent regaining of possession,35 unless the possession is lost by reason of fraud when the subsequent regaining of possession will revive the lien.
6.25 The court will not authorise the removal of the ship from the de facto possession of the repairer and preserve for them instead some kind of notional possessory lien.36 Provided possession is maintained, the lien will continue even though the claim has in the meantime become statute barred.37 However, the possessory lien will be lost by giving credit or accepting security for payment at a later date38 and will be extinguished upon payment or tender of the amount due.
Possessory lien holder must surrender ship to the Admiralty Marshal
6.26 The position of a person exercising a common law possessory lien, for example a repairer, as against the Admiralty Marshal, is well settled:
“it is the duty of the material man not to contend with the Admiralty Marshal; to surrender the ship to the officer of the Court, and let the officer of the Court, under the order of the Court, remove and sell her; but when he has done that, the Court undertakes that he shall be protected, and that he shall be put exactly in the same position as if he had not surrendered the ship to the Marshal.”39
In surrendering the ship to the Admiralty Marshal, the repairer is not thereby surrendering possession of the ship. In The “Arantzazu Mendi”40 Lord Atkin said41:
“The ship arrested does not by the mere fact of arrest pass from the possession of its then possessors to a new possession of the Marshal. His right is not possession but custody. Any interference with his custody will be properly punished as a contempt of the Court which ordered arrest, but, subject to the complete control of the custody, all the possessory rights which previously existed continue to exist, including all the remedies which are based on possession.”
6.27 In the light of this dictum, the question arises as to whether a repairer can rely upon his possessory lien if it is actually he, and not some other creditor, who institutes the action in rem against the ship and thereby causes the ship to be arrested. In a case decided before Lord Atkin’s statement of the effect of arrest, The “Acacia”,42 Townsend J sitting in the High Court of Admiralty (Ireland) refused to hold that, by arresting, a repairer lost his possessory lien. In the course of giving judgment he said43:
“There is another and serious question to be considered, which was glanced at by counsel for the plaintiffs in his opening statement, and not much relied upon until the case had almost closed; nor can I say that it has ever been fully argued. It is this: assuming that Messrs. Harland and Wolff had a valid possessory lien on the vessel for repairs done and materials supplied, have they, by the institution of suit for the recovery of their account, now forfeited their possessory lien? No doubt, if Messrs. Harland and Wolff had not been active, if they had rested upon their rights, and if suit had been brought by some other creditor, the case of Williams v Alsupp would apply, and the court would not dispossess them of their possessory lien without the satisfaction of their demand. A possessory lien may be lost or waived in various ways, as by claiming goods as one’s own, or on the foot of an old debt, or by a party not in possession of them… Now, just at the close of the argument in this case, the case of Jacobs v Latour44 was mentioned, which was said to rule in the present case. In Jacobs v Latour goods were taken in execution by a sheriff under a fi. fa. sued out by a person claiming a possessory lien on the goods, and were sold to that person by the sheriff: it was held that the lien had been thereby waived. But is a common law writ identical with a warrant of this court? The writ of fi. fa. is an execution directed to the sheriff commanding him to cause the debt ‘to be levied’. The warrant of this court is merely a process commanding the marshal to arrest the property proceeded against, which when arrested is deemed to be in the custody of the marshal, although it may really remain in the hands of the party claiming the lien. The fact is, that in this case the vessel has never left the possession of Messrs. Harland and Wolff, and is this moment fastened to their quay; the marshal seems to have adopted their possession; his possession is merely constructive and technical, for the actual possession is still with the defendants. . . I am reluctant to decide for the first time that the effect of an Admiralty arrest is to destroy the lien for the active enforcement of which it was sued out, or that a party having a valid claim up to that moment can be deemed to forgo it by asking the statutory aid of the court to make it effectual. In the absence, therefore, of authority to show that the taking out of the Admiralty warrant would discharge the possessory lien, I cannot in reason or in justice hold that Messrs. Harland and Wolff are to lose the fruit of their expenditure. . . “
6.28 It would appear that the view of Townsend J is supported by the subsequent dictum of Lord Atkin. Considering the question simply as a matter of principle, if possession is not lost by arrest, the only other ground for denying the status of possessory lien holder to the repairer who arrests the ship would be on the ground that he thereby waived the possessory lien by taking alternative security afforded by the action in rem. However, waiver only occurs in such circumstances if it is clear that the alternative security is inconsistent with the continuance of the possessory lien. In Angus v McLachlan45 after considering the authorities46 Kay J said: “As I understand the law it is not the mere taking of a security which destroys the lien, but there must be something in the facts of the case, or in the nature of the security taken, which is inconsistent with the existence of the lien, and which is destructive of it.”
6.29 There appears no reason why simply by invoking the Admiralty jurisdiction in rem and arresting the vessel, thereby enabling it to be sold by the court, the holder of a possessory lien should be held to have waived his right to the security afforded by his possessory lien.47 The position of the holder of a common law possessory lien is distinguishable from the position of the holder of a statutory right of detention and sale, as the statutory scheme provides its own scheme for the sale of the ship and the handling of the proceeds of sale and the right to take the proceeds of sale without reference to priorities arises by virtue only of the exercise of the statutory right.
Possessory lien subject only to existing maritime liens
6.30 The possessory lien holder has priority over all other claims save for maritime liens which were already in existence at the time the possessory lien was exercised,48 and this is so even if the subsequent action of the repairers has benefited the maritime lien holder by increasing the value of the vessel.49 It is submitted that where, prior to the exercise of a possessory lien, an Admiralty claim form in rem has been issued in respect of a claim which does not give rise to a maritime lien, the possessory lien will be subject to that claim also, the effect of issuing the claim form being to secure such a claim as if it were a maritime lien.50
Solicitor‘s Lien
6.31 A solicitor who recovers or preserves property for a client has a lien or charge on the property so recovered or preserved for his fees. This is so at common law51 and by statute.52 The solicitor’s lien has priority over the holder of a garnishee order53 and a statutory right of action in rem where the claim arises after the commencement of the action in connection with which the solicitor’s fees were earned.54 It does not however have priority over maritime liens.55 The lien will be lost where the ship is sold or mortgaged to a person without notice of the claim.56
Distribution of the Fund in Court
6.32 Before turning to consider the question of the determination of the respective priorities of the substantive claims of claimants against the fund, it should be noted that two particular categories of costs and expenses are afforded a paramount status by the court and constitute prior charges on the fund before its distribution to any claimant. Those categories are (a) the charges and expenses of the Admiralty Marshal and (b) the costs of the producer of the fund, being the costs of the arresting party and the costs of the party who has obtained the order for appraisement and sale.