Worldwide: Surrogate Ship Arrest – who is "in control of" a chartered vessel, and who is the "owner"?

Last Updated: 7 January 2010
Article by Michael Mitchell

Euroceanica (UK) Ltd v Ship "Gem Of Safaga" (as surrogate for the ships "JBU Opal" and "JBU Onyx") [2009] FCA 1467

In Brief

  • An attempt to overturn a surrogate ship arrest has failed, even though the relevant person was not the charterer of the surrogate vessels, and did not hold all of the shares in the arrested vessel.
  • The court found that "control" of a surrogate ship must be assessed in a "practical business sense" and thus the time charterer may not be in control.
  • The owner of a share in an arrested vessel actually held its share on a resulting trust (as it never gave consideration for its share). In any case, the putative owner did not profit from the earnings of the vessel nor did it exercise indicia of ownership such as appointing the master and crew


The Panamax-size bulk carrier "Gem of Safaga" was arrested at Port Kembla on 3 November 2009. West Asia Maritime Ltd (West Asia) was identified as the relevant person in the writ.

The plaintiff, Euroceanica (UK) Ltd (Euroceanica) claimed damages for unpaid hire on two ships ("JBU Onyx" and "JBU Opal") which it had time-chartered to a subsidiary of West Asia, WAM Singapore Pte Ltd (WAMS). Euroceanica contended that the Gem of Safaga was arrested as a surrogate for the JBU Onyx and JBU Opal, claiming unpaid hire in excess of USD2,500,000 on a general maritime claim under section 4(3)(f) of the Admiralty Act 1988 (Cth).

Section 19 of the Admiralty Act 1988 (Cth) provides for surrogate ship arrest:

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

  1. 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
  2. that person is, when the proceeding is commenced, the owner of the second-mentioned ship". [emphasis added]

Section 19 thus closely resembles other regimes for surrogate ship arrest, e.g. section 21(4) of the Supreme Court Act 1981 (c. 54) (UK).

Application to set aside writ in rem

West Asia applied to set aside the writ in rem against the Gem of Safaga for want of jurisdiction, or otherwise to dismiss the proceedings, essentially on two bases:

  1. it was not "in ... control of" the surrogate ships, as they were chartered to its subsidiary WAMS;
  2. it was not the "owner" of the arrested ship, as it only held 9 out of 10 shares in the ship, with the other share being held by a different company (Four M).

Whether West Asia was "in control" of the surrogate ships

WAMS entered into timecharters of the two surrogate ships on 4 April 2008 for 5 years plus 30 days. At the same time, Euroceania, West Asia and WAMS executed a side letter that provided:

"It is mutually agreed between Euroceanica (UK) Ltd, United Kingdom, as Owners, and WAM Singapore Pte Ltd, as Charterers, that West Asia Maritime, No 4 Moores Road, Chennai, India shall always be ultimately responsible for the true fulfilment of Charterers' obligations under the above Timecharter Party."

After the charter commenced, West Asia exercised control of the commercial operation of the ships, e.g. by giving voyage instructions to the masters and deciding the ports of call and cargoes to be carried. However, WAMS also exercised some responsibilities under the charterparty.

Rares J noted international authority such as the Privy Council in "The Utopia"2 and the Singapore Court of Appeal in "The Permina 3001"3 that control of property is not necessarily related to or dependent upon title to that property.

He noted that the side letter did not just require West Asia to cause its subsidiary to fulfil the charterer's obligations, but to do so itself. West Asia had caused its subsidiary WAMS to enter into the charterparties, and thereafter made the important operational decisions.

Rares J held that the test under s 19 was one of "a practical, business sense", and in this sense West Asia was in control of the surrogate ships for the purpose of s 19(a) of the Admiralty Act 1988 (Cth).

Whether West Asia was the "owner" of the arrested ship

West Asia had purchased the arrested ship, "Gem of Safaga" for USD13,600,000 on 2 February 2007. The memorandum of agreement (using BIMCO Saleform 1993) described the purchaser as West Asia "... or its nominee, [West Asia] to remain fully responsible for the correct and proper fulfilment of all the buyers' responsibilities, undertakings and liabilities under this agreement".

On 16 February 2007 the parties executed an addendum to the memorandum of agreement which introduced Four M as an additional purchaser, but repeated the above term that West Asia remained fully responsible to ensure completion.

On 20 February 2007 West Asia and Four M executed a co-ownership agreement providing that the co-owners would not be partners but that West Asia would hold nine shares and Four M the remaining one share in the ship4. It also provided that Four M authorised West Asia to act on its behalf in respect of a wide variety of matters relating to the acquisition, financing and operation of the ship, including to: act as commercial manager of the ship for the duration of the agreement; fix her on any charter with any charterer, on any terms at West Asia's discretion; decide on the technical management of the ship; enter contracts on behalf of the co-owners; and give all notices and instructions in relation to the vessel.

Rares J held that West Asia was the "owner" of the arrested ship for the purpose of s 19(b) of the Admiralty Act, on the following bases:

  1. The requirement under s 19(b) of "ownership" effectively means beneficial ownership5. Thus the Australian legislation is aligned with international conventions and legislation governing surrogate ship arrest in South Africa, United Kingdom and New Zealand.6

  2. The manner in which West Asia purchased (and later paid for) all ten shares on 2 February 2007, and only afterward directed that one share be transferred into the name of Four M, created a presumption at common law that Four M held that one share on a resulting trust for West Asia7.

    This presumption was not overturned by any evidence brought by West Asia. Financial records did not disclose that Four M ever gave consideration to West Asia for its introduction into an existing contract to purchase the vessel. West Asia retained all the earnings of the vessel since its acquisition (albeit one tenth of these were recorded in ledger accounts in the name of Four M, but never paid to Four M). There was simply no explanation for the "apparent generosity of Four M in leaving its profit share in West Asia's hands for over two years".

    Therefore Rares J held that he was not satisfied that West Asia effectively assigned or disposed of any part of the beneficial interest in the ship which it acquired on entry into the 2 February 2007 purchase agreement.

  3. West Asia's conduct was consistent with it having incorporated the ship, as its property, into its fleet and business of a shipping line. In particular, it appointed the master and officers of the ship (which is a "strong indicium of ownership of a ship during a maritime adventure"8), and it registered the ship in its sole name with its P&I Club9.
  4. Although obiter, Rares J noted that Indian authority indicated that the unwritten Indian maritime law was aligned with internationally accepted concepts of the degree of beneficial ownership to justify arrest of a vessel - namely that the owner must have, at least, the beneficial right to sell or dispose, not of shares in the ship, but the ship itself.10.

West Asia's application to set aside the arrest was therefore dismissed.


It is respectfully submitted that the decision is consistent with international maritime law on surrogate ship arrest, and usefully illuminates and extends that body of law. When considering whether a person is "in control of" surrogate ships, one must consider the "practical, business sense" in which control is exercised.

When considering whether a person is "owner" of the arrested ship, two important considerations arise:

  1. Did the putative owner give consideration for its share of the vessel? If not, it may in fact hold its share on a resulting trust for the person who did provide the consideration;
  2. Has the putative owner been involved in operational actions or decisions which are indicative of ownership, e.g. choosing the master and crew, or registering the vessel with a P & I Club? One would presume, however, that this would not apply to a situation where another party acts as agent for the owner, but with the appropriate share of earnings remitted to the owner (which did not happen in this case).

1 Rares J (unrep), 9 December 2009

2 [1893] AC 492 at 498-499

3 [1979] 1 Lloyd's Rep at 329 per Wee CJ

4 The ship being divided into ten indivisible shares pursuant to sections 25(a) and (c) of the Indian Merchant Shipping Act, 1958

5 Cape Moreton 143 FCR at 85 [168]; Kent v SS "Maria Luisa" (No 2) (2003) 130 FCR 12 at 33-34 [61]-[66] per Tamberlin and Hely JJ; Malaysia Shipyard and Engineering Sdn Bhd v "Iron Shortland" as the Surrogate for the Ship "Newcastle Pride" (1995) 59 FCR 535 at 547D-F per Sheppard J

6 See Art 3(2) of the 1952 Brussels Arrest Convention, s 21(4)(b) of the Supreme Court Act 1981 c 54 (UK), s 5(2)(b)(ii) of the Admiralty Act 1973 (NZ) and s 3(7)(a)(i) of the South African Admiralty Jurisdiction Regulation Act 105 of 1983.

7 Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 at 363-364 per Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ

8 Baumwoll Manufactur von Carl Scheibler v Furness [1893] AC 8 at 17 per Lord Herschell LC

9 However, Rares J did not draw any conclusion from evidence that West Asia sometimes appears as owner of nine shares in the vessel, and sometimes as sole owner, various registries maintained by the Republic of India, ship classification societies, and Lloyd's register.

10 MV "Sea Success I" (AIR 2002 Bombay) at 184 [56] and MV "Elisabeth" (AIR 1993 SC 1014) at [64]-[65]

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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