"It was very embarrassing. I nearly walked away from the table but I stayed still ... I think he must have been drinking on board before he came to the function.
"I asked his supply officer and asked 'what's wrong with your boss?' He said 'maybe we've been at sea too long, six weeks is a long time'."
Commander Butcher was relieved of his duty when the ship arrived at the Devonport Naval Base on Friday.
Commander David Toms has assumed the role as head of the $540 million frigate.
Commander Butcher, who has had a decorated career with the navy since 1989, was eventually escorted from the function by the commanding officer of HMNZS Endeavour.
Defence Minister Wayne Mapp said the incident was significant because of Commander Butcher's seniority.
"But there is an investigation being held and I don't intend to prejudge the outcome of that."
Asked if he thought there was an issue with drinking in the military, Dr Mapp said: "Well, there are 10,000 people in the Defence Force. Theytend to be at the younger end of the spectrum.
"It probably reflects a bit of a cultural issue that New Zealand as a nation has."
Dr Mapp said he had had discussions with the Chief of Defence Force over the years on the same issue because it came up from time to time.
The navy has a history of alcohol-related problems, and several years ago a captain - one rank up from commander - was advised to resign before the navy took action over his drinking.
A retired navy officer said in years past, when the daily rum issue was around, the messes would open at lunch time "It was pretty open slather and there was a lot of drinking around ships," he said. "It is now really, really controlled a lot more."
Alcohol was also available on ships but the officer said although the mess bars were still open, there was more responsibility about drinking at sea.
A Defence Forces official said the navy took issues around alcohol consumption "very seriously".
It has a number of alcohol awareness and behaviour programmes for its crew members.
She said all navy recruits participate in the Kia Kaha programme which instils navy core values and aids individuals and groups to make good decisions within the community.
"The programme teaches values, personal accountability and the courage to do the right thing for themselves and their colleagues."
No charges have been laid against the commander but the Provost Marshal Navy, a senior naval officer, and naval police special investigators would be making inquiries.
- additional reporting NZPA