'Grappling with the Nettle': Common Law Possessory Liens in Admiralty Law

• Author: James McGeorge
• Position: LLB (Hons), BSc. The author would like to thank Associate Professor Paul Myburgh for his invaluable supervision and guidance, as well as the anonymous journal referees for their helpful comments on the final draft of this paper. Thanks also to Olga Ostrovsky for her support and comments on earlier draft versions
• Pages: 136-151

(2012) 26 A&NZ Mar LJ

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‘GRAPPLING WITH THE NETTLE’:

COMMON LAW POSSESSORY LIENS IN ADMIRALTY LAW

James McGeorge*

1 Introduction

The maritime lien is not the only type of lien that exists in admiralty. Possessory liens also occasionally arise in

the maritime context. In contrast to claims generally encountered in admiralty proceedings, possessory liens are

sourced from the common law. One of the most frequent situations where possessory liens arise in the admiralty

context is where repair work is undertaken on a ship but payment is not forthcoming. The ship repairer is

entitled to retain possession of the ship under a possessory lien until payment is made. Although this scenario

appears to be straightforward, contentious disputes have arisen regarding the ability of the lienholder to retain

the possessory interest while simultaneously instigating the arrest and sale of the ship by the Admiralty Court to

obtain the amount owed.

The conflict between the common law and admiralty jurisdictions has a long history, and has most recently

arisen in the New Zealand decision of Babcock Fitzroy Ltd v The Ship ‘The M/V Southern Pasifika’.

1 The

central issue was whether the ship repairer (Babcock) could actively enforce its possessory lien through in rem

proceedings and receive its dues from the subsequent sale of the ship, or whether the actions taken by Babcock

to enforce the lien resulted in the loss of the possessory lien. This question has remained unresolved, despite

being considered in several cases across multiple jurisdictions,2 as judges have found it unnecessary to ‘grapple

with the nettle’ of possessory liens in admiralty.3 Babcock advances the law on this issue by allowing possessory

lienholders to enforce their claims through admiralty proceedings. Although this conclusion is desirable, the

reasoning is unclear and is at risk of being questioned in future proceedings. This article aims to provide an

explanation of the Babcock developments that is more defensible and brings greater clarity to this area of the

law.

The article first examines the long-standing conflict between admiralty and other competing jurisdictions,

revealing th e conflict in Babcock to be a manifestation of a broader problem. The fundamental principles of

possessory liens are also discussed in Part 2 of the article to provide background to the situation in Babcock.

Part 3 of this article addresses the opportunity provided in Babcock by describing the extent to which the issue is

addressed by Priestley J, while also identifying what was left unresolved. A rationalisation of the decision is

explained in Part 4 of the article by systematically analysing the obstacles to a resolution between possessory

liens and admiralty. Part 5 explores the difficulty that, although a better understanding of Babcock resolves the

relatively simple conflict between possessory liens and lower-ranked maritime claims, elegant solutions for

more complicated factual scenarios are difficult to provide at the fringes.

2 Admiralty and Common Law Possessory Liens

2.1 Admiralty and Competing Regimes

Babcock demonstrates the difficulty of accommodating common law possessory liens in the admiralty context.

But it is just one example of the much broader historical conflict between the admiralty jurisdiction and the

common law. The origins of the admiralty jurisdiction lie in the King’s vesting of ‘broad and vague’ powers to

the Admiral to exercise disciplinary powers over maritime actions.4 These powers ‘carved away some of the

* LLB (Hons), BSc. The author would like to thank Associate Professor Paul Myburgh for his invaluable supervision and guidance, as well

as the anonymous journal referees for their helpful comments on the final draft of this paper. Thanks also to Olga Ostrovsky for her support

and comments on earlier draft versions.

1 [2012] NZHC 1007.

2 Ireland in The Acacia (1880) 4 Asp MLC 254; and Singapore in The Dwima 1 [1996] SGHC 83, [1996] 2 SLR 670; and The Honey I

[1987] 2 MLJ 427.

3 Adopting the language of Lai J in The Honey I, above n 2, 428. See also Sian, D, ‘Some Aspects of the Possessory Lien in Actions in Rem’

(1988) 30 Malaya L Rev 312.

4 Ryan, E, ‘Admiralty Jurisdiction and the Maritime Lien: An Historical Perspective’ (1968) 7 West Ont L Rev 173.

Possessory Liens in Admiralty

(2012) 26 A&NZ Mar LJ

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jurisdiction claimed by the courts of the common law’.

5 Centuries of arm-wrestling followed,6 until the

Admiralty Court was merged with the Common Law and Equity Courts in the English Judicature Acts of the

nineteenth century.7 New Zealand has ‘never been subject to [this] sweeping unification’ due to the relatively

recent conception of New Zealand admiralty jurisdiction.8 However, the New Zealand Court of Appeal has

controversially held that the admiralty and civil jurisdictions are always exercised concurrently, in line with the

English approach.9 Irrespective of the extent of this unification,10 issues remain due to the lingering competition

between claims sourced in different jurisdictions. These issues are manifested by the clashes between admiralty

and other areas of law such as statutory rights of forfeiture, insolvency proceedings and possessory claims

arising from the common law.

There is general understanding of the priority rankings of various maritime claims such as maritime l iens,

mortgages and statutory rights of action in rem. Difficulty ensues when claims from other jurisdictions attempt

to compete with maritime claims over the same security, which is usually a single ship. It must first be

established whether, despite the existence of competing claims, the sale of a vessel by the Court Registrar

confers clean title on the purchaser.11 The second consideration is whether one jurisdiction has exclusive access

to the security at the loss of the competing jurisdiction, or whether the claims may co-exist and both have effect

against the one item of security.12 The clashes between maritime law and statutory rights of detention,13

forfeiture14 or insolvency15 claims provide guidance on the confrontation with the common law possessory lien.

A fundamental principle of maritime law is that the judicial sale of a ship should result in clean title, with the

ship free of any encumbrances.16 Only judicial sale allows the determination of all claims against the ship, as a

private sale may only satisfy specific claims.17 A private sale could therefore result in a ship that continues to be

subject to various claims, thereby drastically reducing the value and price of a ship sold by private sale.18

Judicial sale provides unencumbered title and therefore maximises the value of the vessel. It is in all the

claimants’ interests to maximise the value of the ship at judicial sale as it provides increased chances of

satisfying their claims from the proceeds of sale.19

Port authorities are an example of a claimant that in some circumstances may have a statutory power of

detention and the right to sell the vessel.20 However, such a sale does not result in clean title, leaving the

purchaser with a ship that is still subject to admiralty claims.21 In cases where this statutory right of sale clashes

with admiralty claims that seek to arrest and sell the ship, the best solution is suggested to be that the Admiralty

Court may effect judicial sale, but transfer the statutory claim of the port authority ‘with equivalent priority to

the proceeds of sale in court’.22 As a result, both the statutory claim of the port authority and the maritime

claims can be solved in one proceeding as well as encouraging ‘the maritime interests of the World’.23

The argument in favour of the Admiralty Court resolving all competing claims against a ship in one

proceeding24 has been extended to the clash of maritime claims and forfeiture provisions. In Readhead v The

Admiralty Marsha l, a ship was subject to both forfeiture and maritime claims. It was suggested that an order of

5 Ibid, 173.

6 See generally Ryan, above n 4; see also Myburgh, P, ‘Richard Cooper Memorial Lecture: Admiralty Law — What is it Good For?’ (2009)

28 UQLJ 19, 22-25.

7 Judicatur e Act 1873 (UK); Judicatur e Act 1875 (UK). See also Myburgh, P, ‘Admiralty in Wonderland’ [2005] LMCLQ 302, 305.

8 See Myburgh, above n 7, 305; see also Admiralty Act 1973(NZ), s 3(2).

9 See Myburgh, above n 7, 305; and Danzas AG v Hally Press Ltd (2004) 17 PRNZ 181, 188-189.

10 For criticism of the Danzas decision, see generally Myburgh, above n 7.

11 Derrington, S, ‘My Ship, My Castle: The Forfeiture of Property Rights in the Admiralty Law Context’ (2007) 26 UQLJ 341.

12 Debis Financia l Services (NZ) Ltd v The Cray Fishing Vessel ‘Stryker’ [2005] NZAR 385, [1], [2] and [11]; see Derrington, above n 11,

342.

13 See Corps v Owners of the Paddle Steamer Queen of the South (The Queen of the South) [1968] P 449; adopted in New Zealand in Hill v

The Ship James Cook [1997] 3 NZLR 752.

14 Readhead v The Admiralty Marshal (the Aliza Glacial) (1998) 87 FCR 229; and Stryker, above n 12.

15 For discussion of the clash between admiralty law and insolvency claims, see Devlin, J, ‘The UNCITRAL Model Law on Cross-Border

Insolvency and its Impact on Maritime Creditors’ (2010) 21 JBFLP 95. See also Myburgh, above n 6, 33.

16 The Acrux [1962]1 Lloyd’s Rep 405; and The Sierra Nevada [1932] 42 Lloyd’s Rep 309.

17 The Tremont (1841) 1 Wm Rob 163, 164; All-Weather Investments Ltd v Sealord Charter s Ltd CA24/97, 19 February 1997; and Browne,

J, ‘The Extinction of Maritime Liens’ [2003] LMCLQ 361.

18 The Acrux, above n 16, 409.

19 The Queen of the South, above n 13, 465.

20 See The Queen of the South, above n 13.

21 See The Sierra Nevada, above n 16, 310

22 The Queen of the South, above n 13, 461; see The Freightline One [1986] 1 Lloyd’s Rep 266.

23 The Acrux, above n 16, 409.

24 Derrington, above n 11, 350.