Vol 13 (2016) - Issue 5

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Admiralty in rem Claims and Insolvency Law

The problem stated
In his eponymous work on maritime liens (Stevens & Sons, 1980), D.R. Thomas remarked acidly (at para. 99) that –
'The law of [insolvency] seems to have developed with little regard to the Admiralty proceeding in rem. Certainly it is difficult to fit the Admiralty proceeding into the legislative language of the relevant statutes which regulate [insolvency proceedings]. Yet the need for the latter to accommodate the action in rem and the potential conflict between the two processes is plain.'

This article seeks to provide some insight into the Admiralty action in rem for the benefit of those who, unlike Thomas, are not steeped in the Admiralty tradition.

In rem claims outlined
Admiralty jurisdiction in England and Wales (with siblings in Australia, New Zealand, Hong Kong, Singapore, Canada and South Africa) dates back to the early middle ages. Nowadays, however, it is derived in the first instance from the provisions of ss 20-22 of the Senior Courts Act 1981 ('SCA'). Those sections set out four broad areas of jurisdiction, of which the principally relevant one for present purposes is that of maritime claims. With the sole exception of claims for damages received by a ship, maritime claims may all be brought in rem.
The action in rem is the Admiralty Court’s defining feature, even though maritime claims can in most instances be brought in personam (i.e., against a named natural or legal person). In the action in rem, the claim is brought against a named ship, and the parties to the action are not named but are described (e.g., as 'The Owners of the Ship XYZ').
The action in rem enables property (usually a ship) to be arrested. Arrest contributes in some circumstances to the founding of jurisdiction, but that is not the concern of this article. It also compels the vessel’s owner to provide security for the underlying claim, failing which the vessel can be sold, even before trial, with the sum realised from the sale standing in place of the ship. The fund is then available to anyone with a judgment against the ship or its owner. For this reason, judicial sale removes all encumbrances from the vessel’s title.
If the fund is insufficient to meet all judgments against it, then it will be distributed following the relative priority accorded to the claims by the Admiralty Court. The ranking of claims is ultimately within the discretion of the Court, which may adjust it in order to reflect the justice of the case. The starting point, however, is the following prima facie order:
(1) The Admiralty Marshal’s costs and expenses connected with the arrest of the vessel and its appraisement and sale. (The Admiralty Marshal is the court official who effects arrest and administers vessels under arrest.)
(2) (i) The costs of the arresting party up to and including the arrest of the vessel concerned, and (ii) The costs of the party who obtained the order for the appraisement and sale of the vessel, for the period up to and including the order itself.
(3) Maritime liens.
(4) Possessory liens.
(5) Mortgages.
(6) Other statutory actions in rem.
(7) In personam claims.

If there is anything left in the fund once the above claims have been satisfied, the (former) owner is entitled to the balance. In an insolvency context, that will usually mean that the balance will be available for the non-Admiralty creditors of the owner.
The correct classification of the claim can therefore be make-or-break in terms of recovery. What, then, are these 'maritime liens' which rank ahead of classic real security such as mortgages? What are other statutory in rem claims? And what is it about them that they rank ahead of in personam claims?