1
 
   
 

The priority of claims becomes important when the total value of claims exceeds the total value of assets available.

Order of priorities

There is a well-settled order of priorities, which has emerged over the years reflecting the various public policy considerations.

The overall framework of priorities is as follows:
Maritime liens have priority over all other types of claims no matter in which order the claims arise. It would appear, however, that the maritime lien attaches only to the shi p in relation to which the claim arose, hence, if a maritime claim is enforced by arresting a sister-ship, the claim loses its status as a maritime lien and has a lesser priority
Possessory lien holders have priority over all other claims except for maritime liens which were already in existence at the time the possessory lien was exercised. The possessory lien most relevant to admiralty actions is that of the repairer who has carried out work on a ship. In order to assert a possessory lien the repairer must take possession of the vessel.
Mortgages are subject to a maritime lien (whether it arises before or after the mortgage is created) but take priority over all other claims which give right to an action against the rem but which are not maritime liens.
Statutory rights of actions in rem rank last.

With the exception of maritime liens for salvage, maritime liens in the same category rank on an equal footing. In the case of competing salvage liens, the last in time prevails over liens for earlier salvage service. The rationale for this rule is that the late salvage services, by preserving the chattel preserve also the maritime liens of earlier salvors.

Difficult questions arise, however, in ranking maritime liens of different categories. This is mainly due to the various public policy considerations upon which the different maritime liens are based. Traditionally the law attached great importance to safe navigation at sea and accordingly a claim for damage done by a ship has the greatest priority. Next in importance is the preservation of property and so a claim for salvage is given a greater priority than a wages lien. Last of all is the lien for Master’s disbursements.

This approach was challenged in a recent case before the Admiralty Court (“The Ruta” [2000] 1 Lloyd’s Reports p. 359)

Facts
On 10 October 1997 in the course of the outward passage from Ipswich, the Ruta collided with 3 yachts lying at anchor. One of the yachts sank and was rendered a constructive total loss. The other two were both less severely damaged.

During 1998, new crew took over the Ruta. On 15 September 1998, the Ruta was arrested in the Republic of Ireland at the instance of Morline Ltd, who were the managers and also the mortgagees of the vessel. The owner of one of the yachts which was damaged during the collision issued a caveat against the release of the vessel and on 25 September took over the arrest from Morline.

Following negotiation, the owner of the yacht accepted a letter of undertaking from Ruta’s P&I club (Ocean Marine Mutual Insurance Association Ltd) and the vessel was released on 2 October 1998.

By 27 October the Ruta was arrested in France at the instance of the owner of the other two yachts. By that time, Ruta’s P&I club had gone into liquidation and refused to give security.

The Ruta was released so that she could complete a laden voyage to the UK and earn freight, but was re-arrested at Immingham and thereafter sold for US$167,163.

In the meantime a substantial backlog of unpaid crew wages had built up.
The issues
Under the traditional approach of priority the entire net proceeds of sale would have been absorbed by the claims from the owners of the yachts. This approach was challenged by the wages claimants. They argued that there were no hard and fast rules in respect of this or indeed any other priority issue. The Admiralty Court approached the issue of priority in a broad discretionary way, having regard to considerations of equity and public policy. It was further argued that, in the light of the authorities, the particular features of the present case which justified priority of the wages claim over the collision claim were (a) that the wages were earned after the collision occurred, (b) the claimants were not themselves responsible for the imposition of the collision damage lien (c), in comparison to the collision damage claimants, the wages claimants could fairly be regarded as preservers of the res, (d) the interests of mariners were a special concern of the Admiralty Court, (e) with the owners being insolvent, the wages claimants had no alternative remedy.
Having considered the authorities, Mr Justice Steel held that questions of priority are not capable of being compartmentalised in the form of strict rules of ranking. On the facts of the case, the wages claims had priority over the collision damage claims.
Mr Justice Steel summarised the considerations which were relevant in achieving justice as follows:
Neither creditor could claim the status of preserver of the res.
Considerations of public policy were evenly matched. The interests of mariners were high in the concerns of the Admiralty Court.
The contrast between the voluntary nature of the wages lien and the involuntary nature of the damage lien might afford some justification for giving priority to the damage lien, but once again the seamen had no option but to continue to volunteer their services.
The decisive factor, however, in resolving the case was the fact that the wages claimants had no alternative forms of redress. The owners of the Ruta were insolvent and the only option open to the crew was recovery from the proceeds of sale. In those circumstances Mr Justice Steel held that considerations of public policy justified according to the crew a very high level of priority.

Maritime Lien

Not every claim is enforceable by a action in rem, and not every claim enforceable by an action in rem attracts a maritime lien.

English law recognises a fairly limited set of maritime liens consisting of claims for

a) salvage
b) damage received by a ship,
c) seamen’s wages and
d) master’s wages and disbursements.
Possessory Liens

The possessory lien most relevant to admiralty actions is that of the repairer who has carried work on a ship.

In order to assert a possessory lien the repairer must take possession of the vessel. A possessory lien depends on possession. Once possession is lost, the lien expires

Statutory Rights in Rem

English statute has extended the right to an action in rem in respect of a further list of claims, known as statutory rights in rem. These include:

a) Claims for loss of life or personal injury as a consequence of any defect in a ship or the equipment.
b) Claims for loss or damage to goods carried in a ship.
c) Claims arising out of an agreement relating to the carriage of goods in a ship or to the use or hire of a ship.
d) Claims for towage, or pilotage in respect of a ship.
e) Claims for the supply of goods or materials to a ship for her operation or maintenance.
f) Claims in respect of the construction, repair of equipment of a ship or in respect of dock charge or dues.
 

Regulated by the Solicitors Regulation Authority