The case concerned the decision of the Keflavík District Magistrate regarding the allocation of the sale proceeds of the Eyjaness GK 131, which was sold at auction in a judicial sale on 25 June 2002. The appellant, Kolsvík ehf, the highest bidder in the auction, argued that its maritime lien claim should rank ahead of the statutory lien claim of the respondent, Lífeyrissjóði sjómanna (the Icelandic Seafarers' Pension Fund).

In the District Magistrate's bill of 26 June, it was assumed that the respondent and two named seafarers would receive an allocation of the sale price on the basis of art 197.1.1 of the Shipping Act/Siglingalög No 34/1985 (the Act) ['Wages and other remuneration to which the master, crew and other persons employed on a ship are entitled for work on board': cp art 4.1.1 MLM Convention 1967] in the following order: pension fund expenses to the respondent: ISK 1,123,591; seafarer GAG's wage claim: ISK 993,560; seafarer BK's wage claim: ISK 838,820. The remaining sales proceeds, less the ISK 30,000 sales fee to the State Treasury, were to be allocated to the appellant on the basis of art 197.1.3 of the Act ['Compensation for damage to property sustained in direct connection with the operation of the ship, provided that the claim is not based on a contract': cp art 4.1.4 MLM Convention 1967]: ISK 14,029.

The appellant based its claim on the fact that the decision to include the pension fund contributions to the respondent under art 197.1.1 of the Act was incorrect. The contributions were secured by a special statutory lien in art 7 of Act No 45/1999 on the Seamen's Pension Fund (the Pension Fund Act) and should therefore not be included under art 197.1.1 of the Act. As 60% of the respondent's claim is paid out of the shipowner's pocket as salary-related expenses, it should be indisputable that the shipowner's share of the contributions is not part of the seafarer's salary, and can therefore never fall under the concept of a salary within the meaning of art 197.1.1 of the Act. The explanatory memorandum to the Act states with regard to art 198 of the Act [cp art 5 MLM Convention 1967] that, despite the general rule stated in the article, a lien may take precedence over maritime liens if there are unambiguous instructions to that effect in the relevant law. In art 7 of the Pension Fund Act, there is no such unambiguous instruction, and therefore the respondent's statutory lien should be ranked after all maritime lien claims under art 197 of the Act, including the appellant's claim based on art 197.1.3 of the Act.

The respondent countered that it should be allocated part of the sale proceeds of the ship in accordance with art 197.1.1 of the Act, since it has a maritime lien over the ship for pension fund contributions, and the claim is considered part of the crew's wages or other remuneration in accordance with the wording of the cited provision.

The Reykjanes District Court held that art 198 of the Act states that maritime liens take precedence over all other liens on a vessel. This provision was explained in the comments to the bill to the current Act, that despite the wording of the first para of art 218 of the previous Maritime Act No 66/1963, it has been generally accepted in Iceland that various statutory liens take precedence over maritime liens, if there are unambiguous instructions to that effect in the relevant statute. Article 7 of the Pension Fund Act states that the contributions of fund members and wage payers shall constitute a statutory lien over the relevant ship and take precedence over all other liens. The instructions in art 7 are unambiguous - a statutory lien under this article takes precedence over all other liens, which refers to both contractual liens and other statutory liens, including maritime liens.

The appellant appealed to the Supreme Court.

Held: Appeal dismissed.

The appealed decision is affirmed except for costs. District Court costs and appeal costs are waived.