Case: Patrick Stevedores No 2 Pty Ltd v The Proceeds of Sale of the Vessel MV Skulptor Konenkov (1997) 75 FCR 47
Outcome: followed
In Patrick Stevedores No 2 Pty Ltd v The Proceeds of Sale of the Vessel MV Skulptor Konenkov (1997) 75 FCR 47 at 50 51, Sheppard J said: Neither the provisions of the Admiralty Act nor those of the Admiralty Rules deal generally with the priority of claims against the proceeds of sale of a vessel arrested and sold by the Court. The English practice should be followed in Australia. There was no submission that I should do otherwise. The order of priorities is stated in Meeson N, Admiralty Jurisdiction and Practice (1993). It is there said (at 159-161) that, although there is a well-settled order of priorities which is regularly applied by the Court, this order is only a prima facie ranking. The determination of priorities is an equitable jurisdiction and in theory the Court exercises its discretion afresh in the circumstances of each case. In practice, the court follows the well-settled order of priorities and then considers whether there are any particular circumstances where justice requires it to disturb that prima facie order. The overall framework of priorities is said to be straightforward. It is as follows: (i) The Admiralty marshal's charges and expenses are a first charge on the proceeds of sale and will be paid out in priority to any other claim. The marshal's charges and expenses will include the expenses incurred in effecting the arrest, in maintaining the arrest, for example in paying port dues or for the cost of a shipkeeper and supplies required to maintain the ship whilst under arrest. Also included will be any other expenses authorised by the Court to enable the ship to be sold for the best possible price. (ii) After the expenses of the marshal have been satisfied, priority is granted to the original arresting party in respect of the costs of his action up to and including the arrest and the costs of the party who obtained the order for appraisement and sale up to and including the date of the making of that order. All these costs were incurred by the original plaintiffs. (iii) A claim with a maritime lien ranks first and has priority over all other types of claim. There are no maritime liens involved in the present case. (iv) Claims by mortgagees; there is no such claim in the present case. (v) Claims of others entitled to proceed in Admiralty in rem will be subject to maritime liens and mortgages but will have priority over general creditors of the shipowner, except those who have perfected their execution prior to the issue of the writ in rem. (vi) The claims of in personam creditors of the owner and of the res will be last, having no priority. (vii) The owner of the res is entitled to the balance remaining, if any. 7 Although the determination of priorities is an exercise of the Court's equitable jurisdiction, theoretically it exercises its discretion afresh in the circumstances of each case. As all the potentially affected parties have had an opportunity to make submissions as to whether the normal priority rules should apply, and some including the Bank of Kuwait and the Middle East have accepted that they should apply, and none has submitted that they should not apply, in the exercise of my discretion, I determine that those principles should apply. 8 In accordance with those principles, those who have a judgment against the ship have agreed to the Admiralty Marshal's charges and expenses having been paid as a first charge on the proceeds of sale and in priority to any other claim. The charges and expenses include the Marshal's expenses incurred in effecting the arrest, in maintaining the arrest, and in supplies to maintain the ship whilst under arrest and to secure its sale for the best possible price. There is no dispute as to the amounts paid to the Marshal having properly been treated as a first charge on the proceeds of sale held in the ship account. Hence, the Admiralty Marshal has been paid either directly or in reimbursement to the plaintiff for advances made to the Marshal's account by the plaintiff on account of expenses to be paid by the Marshal the sum of US$547,484.20. There were six separate orders made for payment of, or reimbursement of, the Marshal's expenses. They were, as necessary, converted into US$ at the time of payment as the ship account and the bunker account were established in US$. Those amounts were paid from the ship account. 12 As the above observations of Sheppard J indicate, the fourth priority of claims, ahead of other in rem claims, will be claims by the mortgagee. As noted, I have determined that the Bank of Kuwait and the Middle East does have a mortgage over the ship securing the advances made to the ship and its owners by the Bank of Kuwait and the Middle East. Its mortgage, although its validity was determined by the law of Kuwait (see The "Angel Bell" [1979] 2 Lloyd's Rep 491 at 495), is treated in the priority sequence on the same basis as a domestic mortgage. See Jackson DC, Enforcement of Maritime Claims (4th ed, LLP London, 2005) p 581. There has been no submission that I should not follow that principle.