The appellant, Baltic Shipping Co Ltd (Baltic), owned the Samarkand and chartered it to Translink Shipping Ltd (Translink). Translink (now in liquidation) subchartered the vessel to the respondent, Pegasus Lines SA (Pegasus). Pegasus claimed in tort for costs allegedly incurred due to a negligent misrepresentation by the vessel's master regarding the vessel's cargo capacity. Baltic accepted that it was vicariously liable for the master's negligence (if any). The vessel was arrested and released following moneys paid into Court as security. Baltic applied to set aside the writ of arrest and to have the security released. This was refused at first instance by the High Court. Baltic appealed.

The issues were: (1) Does the claim fall within s 4(1)(h) of the Admiralty Act 1973 (NZ) (the Act) so as to allow Pegasus to maintain an action in rem against the vessel? (2) What is the correct approach to be adopted by the Court when jurisdiction on an in rem claim is challenged? Is the matter to be judged solely by reference to the pleadings, or should the Court also consider the merits of the pleaded claim?

Section 4(1)(h) of the Act reads: 'The court shall have jurisdiction in respect of the following questions or claims: ... (h) any claim arising out of any agreement relating to the carriage of goods in a ship or to the use or hire of a ship'.

Baltic's first argument was that the claim did not arise out of the charterparties, or out of the contracts for the carriage of cargo. Baltic argued that there was insufficient connection with the charterparties to enable the claim to be properly described as 'arising out of' either or both charterparties. The claim was based on the additional cost incurred by Pegasus in meeting its obligations under its contracts for the carriage of cargo in the ship. In Baltic's view, a much stronger connection was required to satisfy those words. Further, Baltic argued that s 4(1)(h) of the Act allowed only a limited range of tort claims, and thus far there had been no claim for negligent misstatement in the admiralty jurisdiction in New Zealand or in England. Baltic argued that s 4(1)(h) was mainly used for straightforward cargo claims under bills of lading or charterparties. Baltic accepted, however, that s 4(1)(h) was not confined to agreements between the parties to the litigation.

In response, Pegasus argued that s 4 of the Act was concerned with the in personam jurisdiction in admiralty, not with the jurisdiction in rem which arises under s 5 of the Act. Pegasus argued that jurisdiction depends on the nature of the claim that is made, not on its strength or otherwise. The words in s 4(1)(h) 'any claim arising out of any agreement' were words of wide import and go further than claims 'under' the agreement.

Both parties cited Samick Lines Co Ltd v Owners of the Antonis P Lemos (The Antonis P Lemos) [1985] AC 711 (EWCA and HL) (CMI2212). Pegasus argued that the present case was like The Antonis P Lemos. Baltic disagreed.

Baltic's second argument was that on an application to challenge the admiralty jurisdiction of the Court, it is insufficient for the plaintiff to show that the claim as pleaded falls within the jurisdiction. The plaintiff should show that the claim is one of substance by producing at least some evidence.

Held: Appeal dismissed.

Baltic's first and second arguments were rejected. Pegasus's claim was within s 4(1)(h) of the Act. Section 4(1)(h) covers claims arising out of the charter and subcharter of the vessel, and claims arising out of the contracts in the form of booking notes entered into by Pegasus for the carriage of specific cargo. '[A]rising out of' should be given the wider meaning of 'connected with' rather than the narrower meaning of 'arising under' (The Antonis P Lemos 726-731) for four reasons: (1) a domestic statute designed to give effect to an international Convention (here, the Arrest Convention 1952) should in general be given a broad and liberal construction: Stag Line Ltd v Foscolo, Mango & Co Ltd [1932] AC 328, 350 (HL); James Buchanan & Co Ltd v Babco Forwarding & Shipping (UK) Ltd [1978] AC 141 (HL); (2) there was a clear indication in the arrangement and wording of art 1.1 of the Arrest Convention 1952 that the expression 'arising out of' was there used in the wider of the two meanings of which it was capable; (3) it followed that the rearrangement and rewording of art 1.1 of the Arrest Convention 1952 contained in the relevant section of the statute cannot have been intended to substitute a narrow meaning for the wider meaning which the expression 'arising out of' has in art 1.1 of the Arrest Convention 1952; and (4) the wider meaning was unchallenged for some 26 years: Schwarz & Co (Grain) Ltd v St Elefterio Ex Arion (Owners) (The St Elefterio) [1957] P 179 and The Sennar [1983] 1 Lloyd's Rep 295. The Court's task is simply to ask whether, giving the English language its ordinary and natural meaning, the claim arises out of the agreement (Petrofina SA v AOT Ltd (The Maersk Nimrod) [1991] 1 Lloyd's Rep 269, 276). The Antonis P Lemos sheds 'little light on the degree of connection that must exist between a claim and an agreement to found jurisdiction under [s 4(1)(h)]'.

Turning to the facts of this case, the claims by Pegasus arose out of the charterparties for the use or hire of the vessel, and out of the booking notes for the carriage of goods in the vessel. Both are essential components of the alleged cause of action. It was the charterparties which placed the master, as Baltic's employee, in the alleged special relationship with Pegasus to give rise to a duty of care in advising the charterer of stowage capacity for the purposes of the return journey which was to be undertaken under them. The breach of that duty is the cause of action alleged. In this respect the present claim falls within the reasoning in The Antonis P Lemos. Damage is an essential part of the cause of action, and it is the booking notes which Pegasus entered into which gave rise to its loss. The claim does not arise 'under' the charterparties or the booking notes, but it clearly arises 'out' of them. The link in each case is direct and real and the claim as pleaded sits comfortably within the ordinary meaning of the words of s 4(1)(h). Nevertheless, the present case and The Antonis P Lemos are not the same. Pegasus was unable to carry the cargo for which it had issued booking notes. The Antonis P Lemos involved a claim for additional cost of unloading by lighter on completion of the voyage.

As to Baltic's second argument, on a preliminary challenge to jurisdiction, the question whether the claim is one arising out of an agreement of the kind referred to in s 4(1)(h) is to be decided by looking at the nature of the claim to see whether the plaintiff has an arguable case without reference to evidence supporting the strength of the claim. However, ownership, if in issue, must be decided on the motion to set aside on the evidence and not merely on pleadings: s 5(2)(b) of the Act; The Aventicum [1978] 1 Lloyd's Rep 184; The Owners of the Ship Shin Kobe Maru v Empire Shipping Co Inc [1994] HCA 54, (1994) 181 CLR 404, 426 (HCA); The St Elefterio; I Congreso del Partido [1978] QB 500, 536. The validity or strength of the claim will be relevant to the different application of striking out proceedings as frivolous or vexatious: The Moschanthy [1971] 1 Lloyd's Rep 37, 42. The cases of Marine Expeditions Inc v The ship Akademik Shokalskiy [1995] 2 NZLR 743 (NZHC) and Reef Shipping Co Ltd v The ship Fua Kavenga [1987] 1 NZLR 550 (NZHC) (CMI2060) are distinguishable.

While agreeing with the other judges, McGechan J wrote a separate judgment and framed the appeal into the following two issues: (1) Whether the claim, in tort for negligent misstatement, falls within s 4(1)(h) of the Act; and (2) The correct approach as to onus and standard of proof when in rem jurisdiction is challenged. As to issue (1), McGechan J stated that the plaintiff under s 4(1)(h) and The Antonis P Lemos principles must show a sufficient connection between the 'agreement' and the tort claim brought. As to issue (2), where there is no factual issue, question of onus and standard do not arise. The plaintiff simply needs to show that the pleadings fits within the Act: The St Elefterio and The Moschanthy. However, if factual preconditions (or mixed preconditions of fact and law) are in issue, questions of onus and standard can arise. The wise plaintiff should be ready to prove these on the balance of probabilities though the Court might appreciate the difficulty of doing so at the threshold interlocutory stage. Examples of factual preconditions include the 'agreement' relating to carriage of goods or use or hire of a ship under s 4(1)(h) of the Act, the additional requirement (postulated by s 5(2) for certain s 4(1) categories, including s 4(1)(h)) for identical beneficial ownership or demise charter at times when cause of action arose, and when proceedings commenced. In this case, there is no dispute as to ownership or agreement(s). Given that factual preconditions are not in issue, and that the plaintiff's pleadings fit the Act, jurisdiction is established.

Separately, the Court disagreed with Baltic's argument that the indorsement of the writ did not show that Pegasus's claim arises out of the agreements of the kind referred to in s 4(1)(h), and that subsequent pleadings cannot cure this defect: The Lorena [1973] 1 NZLR 507, 513 (NZHC) (The Lorena). It was unnecessary for the Court to decide whether the statement of claim can be referred to for the purpose of determining the validity of the arrest, but McGechan J stated that the statement of claim should be used as the primary basis for jurisdictional decision and found The Lorena unpersuasive.