FEDERAL COURT OF AUSTRALIA Stingray Boats v Denmeade [2004] FCA 1222 ADMIRALTY AND MARITIME JURISDICTION – ordinary rules as to priorities – agreement as to order of priority and quantum of payments. Admiralty Act 1988 (Cth) Patrick Stevedores No 2 Pty Ltd v Proceeds of Sale of the Vessel MV Skulptor Konenkov (1997) 75 FCR 47 referred to STINGRAY BOATS (a firm) v PHILIP DENMEADE No Q 159 of 2002 ESANDA FINANCE CORPORATION LTD (ACN 004 346 043) v THE PROCEEDS OF THE SALE OF THE VESSEL BEING 12M ALUMINIUM SHIP IDENTIFICATION NUMBER 2523Q No Q 101 of 2004 SPENDER J BRISBANE 15 SEPTEMBER 2004 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY IN ADMIRALTY Q 159 OF 2002 BETWEEN: STINGRAY BOATS (a firm) APPLICANT AND: PHILIP DENMEADE RESPONDENT Q 101 OF 2004 BETWEEN: ESANDA FINANCE CORPORATION LTD (ACN 004 346 043) APPLICANT AND: THE PROCEEDS OF SALE OF THE VESSEL BEING 12M ALUMINIUM SHIP IDENTIFICATION NUMBER 2523Q RESPONDENT JUDGE: SPENDER J DATE OF ORDER: 15 SEPTEMBER 2004 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The Federal Court Marshal be paid the sum of $643.64 for costs of the arrest and sale from the proceeds of sale of the vessel being 12 metre aluminium ship, identification number 2523Q. 2. Stingray Boats be paid the sum of $17,000 for costs of arrest and sale of the vessel from the proceeds of sale of the vessel being 12 metre aluminium ship, identification number 2523Q. 3. Esanda Finance Corporation Ltd be paid the balance remaining from the proceeds of sale of the vessel being 12 metre aluminium ship, identification number 2523Q. 4. There be no order as to costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY IN ADMIRALTY Q 159 OF 2002 BETWEEN: STINGRAY BOATS (a firm) APPLICANT AND: PHILIP DENMEADE RESPONDENT Q 101 OF 2004 BETWEEN: ESANDA FINANCE CORPORATION LTD (ACN 004 346 043) APPLICANT AND: THE PROCEEDS OF SALE OF THE VESSEL BEING 12M ALUMINIUM SHIP IDENTIFICATION NUMBER 2523Q RESPONDENT JUDGE: SPENDER J DATE: 15 SEPTEMBER 2004 PLACE: BRISBANE REASONS FOR JUDGMENT 1 The orders for judgment and for costs is, pursuant to the Admiralty Act 1988 (Cth), a statutory lien over the boat. The ordinary rule as to priorities is that mortgages enjoy a priority over statutory liens. That, however, is subject to the qualification that is referred to by Sheppard J in Patrick Stevedores No 2 Pty Ltd v The Proceeds of Sale of the Vessel MV Skulptor Konenkov (1997) 75 FCR 47 ("Skulptor Konenkov") where his Honour said at 50-51: '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 N. Meeson, 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 while 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. In the present case I am concerned only with the marshal's expenses, the costs of the first and second plaintiffs in arresting and obtaining the order for the sale of the vessel, and with a number of claims said to be general maritime claims which need to be considered. These include the amounts recovered by way of judgment by the first two plaintiffs. There is no issue but that these claims rank after the marshal's expenses and their own costs of having the vessel arrested and sold. Questions, however, arise in relation to many of the claims of the remaining claimants each of whom has brought an action to recover a judgment in rem against the fund. No claim can rank as a general maritime claim unless it is the subject of a judgment in rem against the ship or the fund representing it consequent upon its sale: see the earlier judgment.' 2 What that passage makes plain is that when one is determining priorities of claims, the expenses of the Marshal rank first. They are a first charge on the proceeds of sale. After the expenses of the Marshal have been satisfied, Sheppard J said: '…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.' 3 What that means is that the costs of Stingray Boats in its action, up to and including the arrest of the vessel, and the costs of Stingray Boats, which was the party that obtained the order for appraisement and sale, those costs being up to and including the date of the making of the order for appraisement and sale, rank after the Marshal's costs, but prior to any mortgagee claim. 4 The statutory lien is in respect of the judgment and other costs of the litigation which are not included in that category of costs, being the costs up to and including the arrest of the vessel and the cost to the party who obtained the order for appraisement and sale, up to and including the date of the making of that order. It therefore follows that, of the amount paid into Court - the amount in Court being the proceeds of the sale of the vessel - the first order would be that, out of that sum, the Marshal be paid the sum of $643.64. It would then be necessary for the Court to determine, or be satisfied of the costs of Stingray Boats up to and including the arrest of the vessel, and the costs of Stingray Boats in obtaining the order for appraisement and sale, those costs being up to and including the date of the making of that order. 5 Mr Gynther, on behalf of Stingray Boats, has asserted that the costs of Stingray Boats for the arrest and sale of the vessel, including the amounts paid by way of contribution by Stingray Boats to the costs of the Marshal in the sum of $10,000, total $17,328.19. I have not conducted an inquiry as to the correctness of the quantum of that claim, although it is clear that something of that order falls within the category (ii) discussed by Sheppard J in Skulptor Konenkov. 6 The mortgagee has a judgment for $115,062.62, plus costs. The amount in Court would not be able to satisfy that amount after it has been reduced by the payment of the Marshal's expenses of $643.64, and the precise amount which is payable to Stingray Boats pursuant to the quantification of Stingray Boats costs up to and including the arrest of the vessel, and its costs in obtaining the order for appraisement and sale up to and including the date of the making of that order. 7 Esanda has reached agreement with Stingray Boats that since the sum available to it is insufficient to meet the entirety of its claim, recognising the priority which goes to the costs of Stingray Boats in respect of the arrest and sale of the vessel, Stingray Boats be paid out of the net proceeds after the Marshal's costs had been paid, the sum of $17,000.00, and that Esanda will be paid the balance. 8 Mr Schmidt, on behalf of Esanda, has told the Court that he has received instructions that Esanda will not pursue Mr Denmeade in respect of any sums that might in fact have been owing pursuant to a personal guarantee given to support the mortgage. Mr Denmeade has argued that the mortgagee's claims should be paid first. As I have indicated, the mortgagee has priority over general maritime claims, but it does not have priority in respect of the costs of the arresting party and the costs of the party who obtained an order for appraisement and sale. 9 It is clear that, rather than diminishing Mr Denmeade's position, the position adopted by Esanda has resulted in a preferred position for him so far as any claims that Esanda might have had on him subsequent to today. There is no reason, then, why I should not make the orders to give effect to the agreement between Esanda and Stingray Boats. As to what might be the position between Stingray Boats and Mr Denmeade, none of the orders that I propose to make will have any effect on the entitlement or the quantum of the claim which Stingray Boats may have against Mr Denmeade, save, of course, that the payment of $17,000 out of the funds in court would have to be taken into account. 10 I order that: (a) The Federal Court Marshal be paid the sum of $643.64 for costs of the arrest and sale from the proceeds of sale of the vessel being 12 metre aluminium ship, identification number 2523Q. (b) Stingray Boats be paid the sum of $17,000 for costs of arrest and sale of the vessel from the proceeds of sale of the vessel being 12 metre aluminium ship, identification number 2523Q. (c) Esanda Finance Corporation Ltd be paid the balance remaining from the proceeds of sale of the vessel being 12 metre aluminium ship, identification number 2523Q. (d) There be no order as to costs. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender . Associate: Dated: 27 September 2004 Counsel for the Applicant: Q159/02 Mr Mark Gynther Solicitor for the Applicant: Lyon Smith Commercial Lawyers The respondent appeared on his own behalf Solicitor for the Applicant: Q101/04 Deacons Lawyers Date of Hearing: 15 September 2004 Date of Judgment: 15 September 2004