On 3 November 2009, the bulk carrier Gem of Safaga was arrested following the issuing of a writ in rem by Euroceanica (UK) Ltd (Euroceanica). West Asia Maritime Ltd (West Asia) was identified as the relevant person for the purposes of the arrest. Gem of Safaga was arrested as a surrogate ship for the ships JBU Opal and JBU Onyx. These two ships were the subject of a time charterparty between Euroceanica and WAM Singapore Pte Ltd (WAMS), a subsidiary of West Asia. The reason for the arrest was that WAMS had failed to meet its ongoing payments under the two time charterparties.

The rules governing the two time charterparties identified West Asia as the party 'ultimately responsible' for the fulfilment of charterers' obligations.

West Asia sought to have the writ in rem set aside and the Gem of Safaga released for want of jurisdiction. Euroceanica had issued the writ pursuant to s 19 of the Admiralty Act 1988 (Cth) (the Act), based on a general maritime claim under s 4(3)(f) for West Asia's failure to pay hire in accordance with charterers' obligations. The content of s 19 is as follows:

A proceeding on a general maritime claim concerning a ship may be commenced as an action in rem against some other ship if:

(a) a relevant person in relation to the claim was, when the cause of action arose, the owner or charterer of, or in possession or control of, the first-mentioned ship; and

(b) that person is, when the proceeding is commenced, the owner of the second-mentioned ship.

Tedross Navigation SA (Tedross) and West Asia signed a memorandum of agreement for the sale of the Gem of Safaga on 2 February 2007. That agreement was altered by addendum no 1 on 16 February 2007 to include Four M Maritime Private Ltd (Four M) as an additional purchaser. Four M and West Asia held one share and nine shares in the ship respectively, totaling ten shares. The division of the ship into ten shares was required under the Indian Merchant Shipping Act 1958 (MSA). The division of shares was arranged through a co-ownership agreement between Four M and West Asia. The parties could not dispose of, sell, or transfer their legal or beneficial interest in their shares without the permission of both the other party and of the bank financing the purchase.

West Asia also held a variety of other responsibilities in connection with the acquisition, financing, and operation of the Gem of Safaga.

Purchase of the Gem of Safaga was completed on 21 March 2007. Both Four M and West Asia's shares in the ship were registered by the Registrar of Indian Shipping under the MSA at that time.

Held: Notice of motion dismissed and arrest upheld.

Rares J held that to satisfy ss 19(a) and 19(b), it was necessary to determine, respectively, whether West Asia was a 'relevant person', and whether it was 'the owner' of the Gem of Safaga at the time of arrest. A 'relevant person' under s 3 of the Act 'means a person who would be liable on the [maritime] claim in a proceeding commenced as an action in personam'. In addition, it was important to discern if West Asia fully, or only partly, owned the Gem of Safaga.

Euroceanica argued that, unlike in art 3.2 of the 1952 Arrest Convention, s 19 of the Act did not prohibit the arrest of surrogate ships partly owned by a relevant person. ​West Asia, on the other hand, contended that if Four M had a beneficial interest in the Gem of Safaga, no action in rem could be brought against the ship under s 19(b) of the Act. Rares J accepted the latter argument, on the grounds that the purpose of surrogate ship arrest is to force an appearance by the owner and not to interfere with the property interest of an unrelated party. In doing so, Rares J reiterated that art 3.2 of the 1952 Arrest Convention, importantly, restricted the right to proceed in rem to claims against sister ships owned solely by a relevant person or relevant persons.

However, Rares J came to the conclusion that West Asia was the sole owner of (and the relevant person in respect of) the Gem of Safaga for the purposes of s 19(b) of the Act. Reasons for this included how the initial memorandum of agreement and the negotiations for the sale of the Gem of Safaga were conducted without Four M and that Four M's financial assistance was not needed for the sale to go forward. There were no available financial records in evidence to illustrate that Four M had either assets or financial substance to support its role in the venture. Rares J concluded that, based on West Asia's board minutes, Four M had not given either commercial or financial consideration for its part in the purchase and its one share in the ship.

The one share in Four M's name was therefore beneficially owned by West Asia, and was held by Four M on resulting trust for West Asia. Additional reasons to those above for this conclusion were that accounting entries regarding Four M's share did not show it receiving or paying any money with respect to the interest, and West Asia had not paid Four M any of the earnings that it was owed in proportion to its single share. Further, West Asia had paid all necessary costs to date regarding the Gem of Safaga. Rares J also did not find that West Asia had disposed of or assigned any part of its beneficial interest in the Gem of Safaga.

Even after Four M was made a third party to the agreement, West Asia was solely responsible for performing the purchaser's obligations. None of the evidence indicated that Four M had acquired an equitable interest in its one share in the ship. As a whole, Four M's conduct during the sale and acquisition of the Gem of Safaga was decidedly passive. Rares J determined that West Asia was in complete control of the ship at all times.

[For the subsequent successful appeal in this case, see CMI603.]