In 1987, the plaintiff, Colombo Drydocks Ltd, carried out work on the defendant ship, the Om Al-Quora. In 1989, while the ship was demise chartered to AEL Corp Ltd (AEL), a New Zealand company, the plaintiff arrested it for unpaid remuneration. A writ of summons in personam was issued against the registered owner, Etaiwi Shipping Co Ltd (Etaiwi), a Saudi Arabian company, and in rem against the vessel. In response, AEL applied for the vessel's release on the basis that since the vessel was demise chartered to AEL, Etaiwi could not be said to be the beneficial owner of the vessel.

Held: The release application is dismissed. The words 'beneficially owned as respects all shares therein' refer to title, rather than possession or control of a ship.

AEL referred to the in personam/ownership link in s 5 of the Admiralty Act 1973 (NZ) (the Act):

Actions in rem - ...

(2) In addition to the rights conferred by subsection (1) of this section, the admiralty jurisdiction of the High Court may be invoked by an action in rem in respect of all questions and claims specified in subsection (1) of section 4 of this Act (except claims specified in paragraph (n) of the subsection):

Provided that - …

(b) in questions and claims specified in paragraphs (d) to (r) (except paragraph (n)) of subsection (1) of section 4 of this Act arising in connection with a ship where the person who would be liable on the claim in an action in personam was, when the cause of action arose, the owner or charterer of, or in possession or in control of, the ship, the jurisdiction of the High Court may (whether the claim gives rise to a maritime lien on the ship or not) be invoked by an action in rem against-

(i) that ship if, at the time when the action is brought, it is beneficially owned as respects all the shares therein by, or is on charter by demise to, that person; …

The plaintiff's claim fell within the definitions of ss 4(l) and 4(m) of the Act. With the exception of the words 'or is on charter by demise to', the wording of s 5 of the Act is for all relevant purposes the same as s 3(4) of the Administration of Justice Act 1956 (UK) (the UK Act). That section has since been replaced by the Supreme Court Act 1981 (UK), s 21 of which is in the same terms as s 5(2)(b) of the Act.

In The St Merriel [1963] P 247, it was held that 'beneficially owned' was not defined in the UK Act. There might be circumstances where a ship is owned by one person - that is true ownership - where that person is the only person with a right to sell, and yet where the same ship is beneficially possessed or beneficially controlled, by some other person, such as in this case where the ship is under charter by demise. But the purpose of the words 'as respects all the shares therein' was to indicate the true owner, that is, the only person with a right to sell all the shares.

In The Andrea Ursula [1973] QB 265, Brandon J emphasised that a ship which is demise chartered is an example of a ship which is possessed and controlled by a person not the legal or equitable owner in the ordinary sense. He said that because of the extent of its possession and control a demise charterer had often been described as the owner pro hac vice or the temporary owner, and he cited authority to that effect. He concluded that the expression 'beneficially owned' was capable of more than one meaning, and that the object of the provision in which it occurred was to give effect by domestic legislation to two international Conventions of which the UK had become a signatory. He reached the conclusion that in conformity with the particular Conventions, a demise charterer was to be subject to having a ship arrested. He concluded, therefore, that the words 'beneficially owned' were to be interpreted as including the rights of a demise charterer.

Relying on The Andrea Ursula, AEL argued that it, rather than Etaiwi, was the beneficial owner of all the shares in the defendant ship. Additionally, it argued that as two parties could not simultaneously be the beneficial owner of the ship, it logically followed that Etaiwi was not the beneficial owner during the period of the demise charter. As a consequence, the action against Etaiwi could not be sustained, and there was no right of action in personam against AEL. AEL further argued that it did not have to be entitled to exclusive beneficial interest. It only had to have a sufficient interest to ensure that the owner did not have the beneficial ownership of all the shares in the ship. This argument depended on equating the words 'shares' and 'interests'.

In I Congresso del Partido [1978] QB 500, it was stated that the natural and ordinary meaning of the words 'beneficially owned' were not apt to apply to the case of a demise charterer, or any other person who had only possession of the ship, however full and complete such possession may be, and however much control over the ship it may have. The use of the word 'beneficial' was to allow for the peculiar English institution of the trust.

In The Permina 3001 [1979] 1 Lloyd’s Rep 327, a case from Singapore, the St Merriel and the Andrea Ursula were relied upon by the two contesting sides. The Court declined to follow the Andrea Ursula, and held that the ship was not beneficially owned as respect to all the shares therein by the person in full possession and control of the ship. The Court indicated that if there had been no question of authority in considering a question of language only, the words would not cover the case of a ship which was in full possession and control of a person who was not 'also' the equitable owner of all the shares therein. The Court said:

The word 'ownership' connotes title, legal or equitable whereas the expression 'possession and control', however full and complete, is not related to title. Although a person with only full possession and control of a ship, such as a demise charterer has the beneficial use of her, in our opinion he does not have the beneficial ownership as respects all the shares in the ship and the ship is not 'beneficially owned as respects all the shares therein' by him within the meaning of s 4(4).

In the Father Thames [1979] 2 Lloyd’s Rep 364, the Court decided to follow the line of decisions represented by I Congreso del Partido, and declined to follow the Andrea Ursula.

AEL argued that the Andrea Ursula should be followed, and that the other cases were incorrectly decided. The weight of authorities is against this argument. The words used are more apt to deal with questions of title, than possession: see I Congreso del Partido. There was also a special consideration in the Andrea Ursula, in that by virtue of a contract for sale, the property in the ship was to pass to the demise charterer at the expiration of the term of the charter. This may have had some influence on the thinking of the Judge in that case. However, it would not, in fact, have justified theoretically the different conclusions arrived at.

New Zealand is not a signatory to the Arrest Convention 1952, a fact which influenced the decision in the Andrea Ursula. There is a further consideration in New Zealand which must be considered. The matter was considered by the Special Law Reform Committee on Admiralty Jurisdiction which was responsible for reporting in connection with the reform of admiralty law in New Zealand. The Committee made suggestions as to the appropriate legislation designed to replace the earlier English statutes going back to the time of Richard II, which constituted admiralty law in New Zealand before the Act. In the course of its Report (presented to the Minister of Justice in March 1972), specific reference was made to the conflict of opinions expressed in the above cases. The Committee referred to the significance of the Arrest Convention 1952 in the decision of The Andrea Ursula, and said:

New Zealand is not a signatory to that Convention and it therefore follows that evidence of the terms of the Convention would have no bearing if the words 'beneficially owned' came before the Supreme Court for interpretation. It is almost certain that the earlier decision in the St Merriel would thus be followed.

Since a number of vessels in the New Zealand trade are on charter by demise it is the view of the Committee that the provisions of our legislation should leave no possible question of doubt as to the availability of the action in rem against a vessel on demise charter in the circumstances set out in paragraph (b) above.

The section was enacted in precisely the terms recommended by the Committee. The section reproduced the words of the equivalent section in the Administration of Justice Act (UK), with the addition of the words 'or as on charter by demise'.

AEL argued that these words were added merely ex abundante cautela, not to change the law, but to ensure that it should be so interpreted as to arrive at the conclusion in The Andrea Ursula. If the law had been as that case indicated, it would have been unnecessary to include the words, because they reinforce the distinction between title and possession referred to in the decisions already mentioned. That was certainly the view of the Committee recommending the legislation. That view was communicated to the Minister responsible for the legislation in its Report, and the legislation exactly followed the recommendation, from which it may reasonably be assumed that Parliament had it in mind. It follows that at the time when the action was brought, Etaiwi rather than AEL was the beneficial owner as respects all the shares in the defendant vessel for the purposes of s 5 of the Act.