These proceedings involved competing claims between three claimants against a fund from the proceeds of the judicial sale of the Yangtze Fortune, a Liberian-flagged container vessel converted for use as a livestock carrier. The first issue was whether the claim of Soar Harmony Shipping Ltd (SH), the registered owner of the vessel, should have been brought against the fund. The second issue related to the priorities of the valid claims in the distribution of the fund.

Dan-Bunkering (Singapore) Pte Ltd (DB) brought a claim against the ship for bunkering claims. Australasian Global Exports Pty Ltd (AGE) brought a claim against the ship for damages for breach of a booking note. Soar Harmony Shipping Ltd (SH), the registered owner, commenced its in rem proceeding against the vessel on the basis that it had bareboat chartered the vessel to Yangtze Fortune Co Ltd (YF), which had failed to pay charter hire from the 20th instalment. Other claimants included the mortgagee of the vessel, the Export-Import Bank of China, and another supplier of bunkers, China Merchants Energy Trading (Singapore) Pte Ltd. The former discontinued its claim, while the latter filed out of time and was refused leave to proceed. After judicial sale and payment from the fund of the costs of arrest and sale and the undisputed priority claims of the crew, approximately USD 4.7 million and AUD 40,000 remained for distribution.

The three claimants expressed their claims as general maritime claims under s 4(3) of the Admiralty Act 1988 (Cth) (the Act). They relied on s 18 of the Act, asserting that the demise charterer of the vessel, YF, was the 'relevant person', ie the in personam debtor as defined in s 3(1) of the Act.

Held: The three claimants should each participate pari passu in the fund, rateable with reference to the values of their respective claims.

SH’s claim, as with the claims of DB and AGE, relies on s 18 of the Act. That section provides:

Right to proceed in rem on demise charterer’s liabilities

Where, in relation to a maritime claim concerning a ship, a relevant person:

(a) was, when the cause of action arose, the owner or charterer, or in possession or control, of the ship; and

(b) is, when the proceeding is commenced, a demise charterer of the ship;

a proceeding on the claim may be commenced as an action in rem against the ship.

The unique feature of SH’s claim is that it was the shipowner when it commenced a proceeding against the vessel under s 18, and it is the beneficial owner of the fund created from the proceeds of the judicial sale of the vessel. It may seem curious that a person can bring an action against its own property in respect of a debt owed by someone else, and in that way gain an advantage in respect of other creditors that the owner would not otherwise have. That curiosity - acknowledging that other creditors would characterise it at a higher level, perhaps as high as injustice - is what underlies much of what was submitted by both DB and AGE. The parties did not refer to any cases where the shipowner has proceeded in that fashion. Nonetheless, all parties made their submissions on the assumption that if SH could establish the requirements of s 18, it was entitled to commence its action. That is to say, it was not contended that the extension of the availability of the action in rem against a vessel to the debts of the demise charterer was not also available to the owner of the vessel.

As explained by Allsop J in Comandate Marine Corp v The Ship Boomerang I [2006] FCAFC 106, 151 FCR 403 [19]-[21] (CMI622), it used not to be the case that an action in rem was available in respect of the debts of the demise charterer. That, however, changed with the enactment of s 21(4) of the Senior Courts Act 1981 (UK) (then the Supreme Court Act 1981 (UK)) and in Australia with the enactment of s 18. Those developments were preceded by art 3.4 of the Arrest Convention 1952 which provides that:

When in the case of a charter by demise of a ship the charterer and not the registered owner is liable in respect of a maritime claim relating to that ship, the claimant may arrest such ship or any other ship in the ownership of the charterer by demise ... .

Professor Francesco Berlingieri has observed that the provision 'was adopted without a clear understanding of its possible consequences” and with “no clear understanding amongst the delegates on the nature and purpose of the provision': F Berlingieri, A Commentary on the 1952 Arrest Convention, Berlingieri on Arrest of Ships (6th ed, Informa, 2017) vol I at [11.92], [11.100].

Those observations of Professor Berlingieri were animated, in particular, by obscurity in the wording of art 3.4, which meant that it was not clear whether a vessel could be arrested even in respect of the debts of persons with a relationship with the ship other than the owner or demise charterer. That was cleared up by arts 3.1.e and 3.3 of the Arrest Convention 1999: F Berlingieri, A Commentary on the 1999 Arrest Convention, Berlingieri on Arrest of Ships (6th ed, Informa, 2017) vol II at [8.47]-[8.52], [8.69]. See also Sam Hawk v Reiter Petroleum Inc [2016] FCAFC 26, 246 FCR 337 [45] per Allsop CJ and Edelman J (CMI14).

Section 18 of the Act requires a connection between the relevant person (being the debtor in personam) and the defendant vessel at two distinct points in time. The one is when the cause of action arose, and the other is when the proceeding was commenced. It is the latter that is presently relevant.

It was explained in Law Reform Commission, Civil Admiralty Jurisdiction (Report No 33, Australian Government Publishing Service, 1986) (ALRC Report No 33) at [131] that the value in extending the right of action in rem in respect of the debts of the demise charterer lies in the position of demise charterers as persons effectively in control of the ship. Attention was drawn to the tendency historically to emphasise the ways in which a demise charterer, because it has legal possession of the ship, is similar to an owner and in a legally different position to other charterers. The Commission at [136] recommended the extension essentially on the basis that it had become the generally accepted scope of the statutory right of action in rem in comparable countries, citing Singapore, Hong Kong, New Zealand, South Africa, Canada, and the UK. The Commission did not discuss the question of a claim by the owner against its own ship based on the in personam debt of the demise charterer.

The extension is to be understood in Australia against the backdrop of the nature of the action in rem as, fundamentally, an action against the ship: Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192, 157 FCR 45 at [120], [128] per Allsop J, Finkelstein J agreeing. If the relevant person is the demise charterer, even if the owner appears in the action to defend against the claim, the action does not thereby become (or also become) an action in personam; it remains an action in rem and the owner does not become personally liable for a judgment against it to the full extent of the claim: Comandate Marine at [109].

Understood in that way, an action by the owner against its own property is perhaps less curious than it might initially have seemed. In the absence of other claimants against the vessel, it is hard to conceive of a case where the owner would arrest its own ship in pursuit of a general maritime claim based on the in personam liability of the demise charterer - a proprietary claim would be different. That is because the logical end point to such an action is judgment against the vessel and then its sale and distribution of the proceeds to meet the judgment. Why would an owner go through such a process to get paid out of the proceeds of its own property? But where there are other claimants against the vessel, as in the present case, it is understandable why an owner would wish its claim to compete to share in the proceeds of sale of the vessel.

Whatever the considerations are for and against the wisdom of the extension as a policy choice, the Court's task is to interpret the statute and to apply it. The language of s 18 is clear enough - it does not appear to limit application of this section to claims other than any claim by the vessel’s owner, and no submission was put to that effect. There may be some debate as to just what it means to be 'the demise charterer' of the vessel, and in particular whether actual physical possession of the vessel by the purported charterer at the relevant time is an essential element, but that does not bear on the justice or otherwise of the owner being able to claim.

The position is that once the requirements for an action in rem under s 18 have been established, there is no discretion available to the court to dismiss or not recognise the claim, such as by releasing the vessel from arrest: Atlasnavios Navegacao LDA v The Ship Xin Tai Hai (No 2) [2012] FCA 1497, 215 FCR 265 at [80] per Rares J (CMI1920).

It is uncontroversial that the determination of priorities is an equitable jurisdiction and, although in theory the Court exercises its discretion afresh in the circumstances of each case, in practice there is a well-settled order of priorities. The court must consider whether there are any particular circumstances such that justice requires that the prima facie order be disturbed. See Patrick Stevedores No 2 Pty Ltd v The Proceeds of Sale of the Vessel MV Skulptor Konenkov (1997) 75 FCR 47, 50-51 (CMI1467). Justice Sheppard described the settled order of priorities 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. ...

(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. ...

(iii) A claim with a maritime lien ranks first and has priority over all other types of claim. ...

(iv) Claims by mortgagees; ...

(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.

In The Pickaninny [1960] 1 Lloyd's Rep 533, 537 - an unfortunately named vessel - Hewson J said that there would have to be very strong reliable evidence before a court could upset the normal run of priorities and that the court must be slow to depart from the usual order of priorities. The exposition by Belinda Ang Saw Ean J in The Posidon [2017] SGHC 138, [2017] 2 Lloyd’s Rep 390 [23]-[27] is to the same effect. The parties accept it as correctly reflecting the state of the law to be applied.

All three claimants in this case rank together in the same class, ie class (v) above. Thus, the question becomes whether there is reason to disturb the prima facie ranking of those claims pari passu 'by reference to equity, public policy, commercial expediency and justice' or because 'the circumstances are exceptional and equity demands such a course to be taken.' There is no sufficient reason to depart from the ordinary rule with regard to the priority of the claims of the three claimants before me. They should therefore each participate pari passu in the fund, rateable with reference to the value of their respective claims.