FEDERAL COURT OF AUSTRALIA

Pantaenius Australia Pty Ltd v Watkins Syndicate 0457 at Lloyds [2016] FCA 1

ORDERS

THE COURT:

1.    DECLARES that, in the events which have happened, the respondent was not justified in refusing to pay the claim for indemnity made by Arthur Phillips upon it on 27 June 2013 under Policy of Insurance No PRI-213636 in respect of the loss of the yacht, Froia II (the vessel), by reason only of the act or acts of the said Arthur Phillips in causing the vessel to clear Australian Customs and Immigration at Fremantle WA in May 2013 for the purpose of leaving Australian waters in order to compete in the Fremantle WA to Bali Indonesia sailboat race in that month or by reason only of the act or acts or omissions on the part of the said Arthur Phillips in not clearing Australian Customs and Immigration before the vessel ran aground off Cape Talbot WA on 22 June 2013 while undertaking the return journey from Bali after completing the said race.

2.    DECLARES that the respondent is liable to indemnify the said Arthur Phillips for the loss of the vessel as a result of its running aground on a reef near Cape Talbot WA on 22 June 2013.

3.    DECLARES that the respondent is liable to contribute 48% of the total of all payments made by the applicants, or by one or more of them, by way of indemnity under Policy No 130934583 issued by the first applicant to the said Arthur Phillips in respect of the loss of the vessel as a result of its running aground on a reef near Cape Talbot WA on 22 June 2013.

4.    ORDERS that the parties confer and agree the amount of the said contribution together with interest thereon at the appropriate rate up to and including 29 January 2016.

5.    ORDERS that, by 27 January 2016, the parties notify the Associate to Foster J by email of the amount of the said contribution and interest.

6.    ORDERS that the quantum of the said contribution and interest thereafter be determined on the papers.

7.    ORDERS that the respondent pay the applicants’ costs of and incidental to the proceeding with the exception of those costs the subject of costs orders already made.

8.    GRANTS liberty to apply to all parties in respect of Orders 4, 5 and 6 above upon three (3) days’ notice or upon such shorter notice as Foster J might allow.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

FOSTER J:

1    This proceeding concerns a claim for contribution between two insurers arising out of the total loss of a large luxury yacht, the Froia II (the vessel), which ran aground off Cape Talbot WA on 22 June 2013 while returning to Australia from Indonesia. Cape Talbot is located in the north-east of Western Australia on the Timor Sea.

2    The second to fourth applicants are the underwriters who underwrote an insurance policy issued by the first applicant (Pantaenius) to Arthur Phillips in respect of the vessel. Pantaenius was the nominated agent for the applicants under that policy. I shall refer to that policy as “the Pantaenius policy”.

3    At all relevant times, Mr Phillips owned and operated the vessel. The Pantaenius policy (Policy No 130934583) was described as a “Pantaenius Sale & Motor Yacht Insurance Policy”. The general terms and conditions of the Pantaenius policy were set out in a Product Disclosure Statement prepared on 1 March 2013 (the Pantaenius PDS). That policy was issued on 30 April 2013 and provided cover in respect of the vessel for the period from 4.00 pm EST on 4 May 2013 to 4.00 pm EST on 4 May 2014. The agreed fixed value of the vessel under the Pantaenius policy was $275,000. The Pantaenius policy provided cover in respect of a specified cruising area delineated by certain navigational limits which were set out on p 2 of the Policy Schedule under the heading “General Terms and Conditions”. The details of those limits are not presently relevant. In addition to cover in respect of that area, the Pantaenius policy provided additional optional cover in the following terms:

In addition to the Cruising Area nominated this quote covers participation in the Fremantle, WA to Bali Race or Rally and the return voyage from Bali to WA, and includes pre-arranged and notified cruising in convoy to return to Australian waters. All boats must have returned to Australian Territorial waters by 30 June 2013.

4    The respondent is a syndicate of underwriters at Lloyds who underwrote an insurance policy issued by Nautilus Marine Agency Pty Ltd (Nautilus) to Mr Phillips in respect of the vessel (the Nautilus policy). The Nautilus policy was styled “Nautilus Marine Boat Insurance Policy”. It was issued on 20 November 2012 and provided cover in respect of the vessel for the period from 4.00 pm on 1 December 2012 to 4.00 pm on 1 December 2013. The agreed sum insured in respect of the total loss of the vessel under the Nautilus policy was $250,000.

5    The general terms and conditions of the Nautilus policy were set out in a Product Disclosure Statement (the Nautilus PDS) which was one of the documents constituting the Nautilus policy.

6    On 22 June 2013, the vessel struck a reef near Cape Talbot and was severely damaged. It soon proved to be unsalvageable.

7    On 27 June 2013, Mr Phillips made a claim against Pantaenius under the Pantaenius policy. Pantaenius accepted liability under that policy and paid out a total of $341,179.51 in respect of that claim. On the same day, Mr Phillips also lodged a claim under the Nautilus policy. Nautilus declined indemnity by letter dated 1 July 2013.

8    In its letter declining indemnity, Nautilus referred to the circumstance that, when the vessel ran aground on 22 June 2013, it was returning from Bali after completing the Fremantle to Bali race and had not yet cleared Australian Customs and Immigration (Australian Customs) on the return voyage.

9    Nautilus accepted that the vessel was in Australian waters when the accident occurred but nonetheless denied indemnity. It relied upon a clause which is found on p 11 of the Nautilus PDS (the p 11 clause). That clause provided (inter alia) that, in the event that the vessel intended to enter foreign waters, all cover under the policy would be suspended between the time when the vessel cleared Australian Customs for the purpose of leaving Australian waters and the time when it cleared Australian Customs on return. Nautilus argued that, at the time when the vessel ran aground, because it had not yet cleared Australian Customs on its return from Bali, cover under its policy was, according to the terms of the policy, suspended.

10    In subsequent correspondence, the solicitors for Pantaenius claimed contribution from Nautilus. They argued that s 54(1) of the Insurance Contracts Act 1984 (Cth) (the Act) was engaged in the present case. The solicitors for Nautilus countered by contending that there was no relevant act of the type which would engage s 54(1) of the Act.

11    For these reasons, the critical question in the present case is whether s 54(1) of the Act was ever engaged. The applicants contended that, if s 54(1) was engaged, Nautilus was not permitted to refuse to pay the claim made by Mr Phillips and was thus liable to the applicants to contribute to the total sum paid to or on behalf of Mr Phillips under the Pantaenius policy in respect of the loss of the vessel by reason of the application of the principles of dual insurance.

12    On 3 September 2014, Pantaenius commenced the present proceeding. The second to fourth applicants were subsequently added as parties. The respondent was later joined as an additional respondent and is now the only respondent.

13    In this proceeding, the applicants claim contribution from the respondent as another insurer liable in respect of the same loss for which they had indemnified Mr Phillips, being the loss of the vessel. Their primary claim was initially for 50% of their outlays (viz $170,589.75) plus interest and costs. In the alternative, they claimed contribution in such amount as the Court might consider just plus interest and costs. They also sought appropriate declaratory relief.

14    By the time of the hearing before me, there was no real dispute about quantum. The sum insured in respect of the total loss of the vessel under the Pantaenius policy was $275,000. Under the Nautilus policy, the relevant sum was $250,000. If the relative contributions of each insurer were to be calculated pro rata, as the applicants submitted they should be, the ratio of their respective contributions would be 52% by the applicants and 48% by the respondent. Thus, if the applicants were to succeed entirely in their claims in the present proceeding, they would be entitled to judgment in the amount of $163,766.17 (being 48% of $341,179.51) plus interest and costs. Ultimately, the amount which the applicants claimed was $163,766 plus interest and costs. The respondent did not put any submission against this approach to quantum.

15    The parties agreed the relevant facts and issues and recorded their agreement in a document dated 5 March 2015 and entitled “Revised Statement of Agreed Facts and Issues” (RSOAF). That document became Exhibit A at the hearing. The only evidence tendered before me were the facts set out in the RSOAF and the documents annexed to the RSOAF.

The Voyage and Grounding

16    At pars 4 to 12 and 15 of the RSOAF, the parties agreed the relevant facts concerning the relevant voyage and the grounding of the vessel in the following terms:

4.    On 4 May 2013, the Vessel departed Fremantle Yacht Club to take place in a yacht rally from Fremantle to Bali. Before leaving the Fremantle Yacht Club, the Vessel cleared customs at around 9am that day at the Fremantle Yacht Club.

5.    On 10 May 2013, the Vessel left Australian waters about 200 nautical miles north of Exmouth and continued towards Bali, where the rally concluded.

6.    On 17 June 2013, the Vessel cleared Indonesian customs at the Port of Kupang, East Timor and departed for Australia, for its return trip.

7.    On 18 June 2013, Phillips contacted Customs in Canberra, at a time when it was anchored on the north west corner of the island of Roti, and advised that the Vessel was expected to arrive in Darwin on 24 June 2013, where it would clear Australian customs.

8.    On 20 June 2013, Mr Phillips recorded in his log that the Vessel entered Australian waters in the vicinity of Pee Shoal at around 1am (Latitude 11 48.09S, Longitude 124 32.51E). It then proceeded to Napier Broome Bay where it dropped anchor at Geranium Harbour at about 1pm on 21 June 2013 (Latitude 13 52.2S, Longitude 123 28.8E).

9.    On 22 June 2013 the Vessel departed Geranium Harbour for Darwin at about 8am, and at 10.30am it ran aground at Cape Talbot (Latitude 13 44.74S, Longitude 126 45.35). Thereafter Mr Phillips attempted to salvage the Vessel.

10.    On 25 June 2013, Phillips notified Pantaenius that it had hit a reef off Napier Broome Bay on 22 June 2013. Pantaenius was the issuer of an insurance policy to Phillips.

11.    On 26 June 2013, Nautilus confirmed to Pantaenius, without admission of liability, that it was happy to negotiate costs in relation to salvaging the Vessel up to 50% and subject to reserving underwriter’s rights in relation to indemnity under and in connection with its policy.

12.    On 28 June 2013 a Marine Surveyor reported to Pantaenius that the Vessel was no longer salvageable and that the operation had become a Wreck Removal in accordance with the WA Department of Transport direction.

…

15.    At and prior to the time of Grounding, the Vessel was within 250 nautical miles of mainland Australia, being the “Geographical Limits” specified on the Certificate of Insurance issued under the Nautilus Policy. At no time from the Vessel reentering the zone within 250 nautical miles off mainland Australia did the Vessel clear Australian Customs and Immigration, and it was not reasonably possible for the Vessel to have cleared Australian Customs at any time prior to arriving at Darwin.

The Policies

17    The terms of the Pantaenius policy and the terms of the Nautilus policy were agreed among the parties for the purposes of the present proceeding. Both policies were occurrence based policies. That is, cover was provided only in relation to events which occurred during the period of cover.

18    All parties accepted that the Pantaenius policy responded to Mr Phillips’ claim.

19    According to the definition of “policy” on p 25 of the Nautilus PDS, the Nautilus policy included the Nautilus PDS, Mr Phillips’ insurance application and the Certificate of Insurance including any endorsements issued by Nautilus.

20    In the end, all parties accepted that, at the time when it ran aground, the vessel had not cleared Australian Customs upon its return from Bali. For this reason, according to the p 11 clause, cover under the Nautilus policy was suspended at the time when the vessel ran aground. Therefore, unless s 54(1) of the Act was engaged in the present case, the Nautilus policy did not respond to the loss which was the subject of Mr Phillips’ claim.

21    The p 11 clause appears immediately before the insuring clauses in the Nautilus PDS. It is set out under the heading: “Other important matters” and “Geographic limits and period of insurance”.

22    The precise terms of the p 11 clause were:

Geographic limits and period of insurance

Cover is only provided under the policy in relation to events causing loss damage or liability which occur:

•    within the geographic limits specified on your Certificate of Insurance. All cover provided by the policy will be automatically suspended when your boat clears Australian Customs and Immigration for the purpose of leaving Australian waters and will recommence when it clears Australian Customs and Immigration on return; and

•    during the period of insurance.

However we will provide cover in the following circumstances:

•    if your boat goes beyond the geographic limits to reasonably respond to an unforeseen emergency;

•    if your boat goes beyond the geographic limits because of circumstances beyond the reasonable control of the person in charge or control of your boat;

•    if you advise us you will go beyond the geographic limits and we agree to extend cover in writing.

23    The expression “Australian waters” is not defined in the Nautilus policy.

24    On p 12 of the Nautilus PDS, Nautilus agreed that it provided cover to Mr Phillips under the Nautilus policy for loss or damage to the vessel and its contents caused by (inter alia) fire, storm, impact, sinking and any other event not specifically excluded by the policy. This description of the relevant cover is consistent with the Summary of Cover set out on p 4 and p 5 of the PDS.

25    The relevant Certificate of Insurance issued by Nautilus to Mr Phillips is dated 20 November 2012. It provided that the sum insured in respect of the vessel itself was $250,000.

26    The basis clause set out on p 1 of that Certificate was in the following terms:

Taking the information provided by you or some other person on your behalf as the basis for this insurance, we agree to cover you, subject to the conditions, exclusions, and endorsements of the policy during the insurance period or any subsequent renewal period provided that the total premium is paid or agreed to be paid for this insurance to become effective.

27    On p 2 of the Certificate of Insurance, the following appeared:

Geographic Limits

250 nautical miles off mainland Australia and Tasmania

All terms and exclusions of your policy remain unaltered and effective unless otherwise varied by endorsement.

28    On p 3 of the Certificate of Insurance, the following clause was set out:

145 Sailboat Racing up to 100 NM

This policy is extended to cover you for loss or damage to your boat caused by one of the Insured Events [as defined in the Nautilus PDS] while competing in sailboat races, within the geographical limits of the policy [emphasis added], which do not exceed a distance of 100 nautical miles.

29    There were no other relevant endorsements applicable to the cover provided under the Nautilus policy.

30    In the Nautilus PDS (at p 24), “geographic limit(s)” was defined as meaning:

… all waters within Australia and those waters off the coast of Australia as restricted or noted on your Certificate of Insurance.

31    The Nautilus PDS included a standard provision extending cover to loss or damage incurred while the vessel is competing in a sailboat race of up to 100 nautical miles in length. The Fremantle to Bali race was greater than 100 nautical miles in length.

32    In addition to basic sailboat racing cover, Nautilus also offered by way of optional cover extended sailboat racing cover in respect of a race of more than 100 nautical miles in length. Such cover was available for an additional premium. In April 2013, Mr Phillips enquired about the cost of such extended sailboat racing cover for the upcoming Fremantle to Bali race but declined to take out such extended cover with Nautilus. Instead, he procured cover with Pantaenius under the Pantaenius policy. That policy not only provided cover while the vessel was actually competing in the Fremantle to Bali race but also provided cover for the return journey.

33    Under the Nautilus policy, Nautilus agreed to pay the reasonable costs of salvaging the wreck in addition to the sum insured for the vessel noted on the relevant Certificate of Insurance.

34    On p 21 and p 22 of the Nautilus PDS, the General Exclusions applicable under the Nautilus policy are set out. The chapeau to this section of the PDS and the first general exclusion were in the following terms:

Like most insurance policies, there are general exclusions that apply to all covers.

You are not covered for any loss or damage caused by or resulting from, or the costs incurred from or of:

•    your boat while competing in a sailboat race of more than 100 nautical miles unless the optional benefit for Extended Sailboat Racing Cover has been selected by you and has been noted on your Certificate of Insurance;

The Amounts Paid to or on behalf of Mr Phillips

35    At par 16 of the RSOAF, the amounts paid out by Pantaenius to or for Mr Phillips on behalf of the applicants were specified as follows:

36    At par 17 of the RSOAF, the parties agreed that, for the purpose of this proceeding:

…  in the event the Nautilus Policy responds, the amounts of the Claim Payments are recoverable under the Nautilus Policy, and that the market value of the Vessel for the purposes of the Nautilus Policy was $250,000.

37    The Claim Payments were the amounts set out at par 16 of the RSOAF. The total of those payments was $341,179.51.

38    After Nautilus declined indemnity, Mr Phillips sought a review of Nautilus’ decision to decline indemnity. Nautilus continued to decline indemnity after that review was completed. Between November 2013 and January 2014, the solicitors for the parties exchanged correspondence in which they set out their respective positions and arguments in support of those positions.

The Agreed Issues

39    At par 26 of the RSOAF, the applicants and the respondent set out the agreed issues for determination by the Court in the following terms:

(a)    First, whether the refusal of Nautilus to pay the claim made by Mr Phillips under the Nautilus policy in respect of the loss of the vessel was a refusal to which s 54(1) of the Act applies;

(b)    Second, if the answer to (a) is “yes”, whether the respondent is entitled to reduce its liability to Mr Phillips by any, and if so what, amount for the purpose of s 54 of the Act;

(c)    Third, whether the respondent is liable to pay equitable compensation to Pantaenius in respect of the Claim Payments and, if so, in what amount.

Consideration

Issue (a)—Was s 54(1) of the Act engaged?

40    At all relevant times, s 54 of the Act provided:

54    Insurer may not refuse to pay claims in certain circumstances

(1)    Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer’s liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer’s interests were prejudiced as a result of that act.

(2)    Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim.

(3)    Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act.

(4)    Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act.

(5)    Where:

(a)    the act was necessary to protect the safety of a person or to preserve property; or

(b)    it was not reasonably possible for the insured or other person not to do the act;

the insurer may not refuse to pay the claim by reason only of the act.

(6)    A reference in this section to an act includes a reference to:

(a)    an omission; and

(b)    an act or omission that has the effect of altering the state or condition of the subject matter of the contract or of allowing the state or condition of that subject matter to alter.

41    The High Court recently considered s 54 of the Act in Maxwell v Highway Hauliers Pty Ltd (2014) 252 CLR 590 (Maxwell). In that case, the plaintiff in the proceeding below, Highway Hauliers Pty Ltd, owned a fleet of vehicles which it used to operate an interstate freight transport business. The vehicles included prime movers and trailers able to be linked together in double combinations known as “B Doubles”.

42    The plaintiff entered into a contract of insurance with certain Lloyds underwriters. Under the contract, the insurers indemnified the plaintiff against specified loss, damage or liability occurring to or in respect of its vehicles during the period from 29 April 2004 to 30 April 2005.

43    An endorsement forming part of the relevant contract of insurance stated that no indemnity was provided unless the particular vehicle was being operated by a driver who had a prescribed driver profile score in a psychological test approved by the insurers.

44    During the period of insurance, the plaintiff claimed indemnity from its insurers in respect of two accidents involving its vehicles. The drivers of the vehicles involved in both accidents had not undertaken an approved test.

45    The insurers denied indemnity upon the ground that the relevant drivers had not undertaken the approved test, relying upon the endorsement to which I have referred.

46    At the trial, it was conceded by the insurers that the fact that each vehicle was being operated by an untested driver could not reasonably be regarded as being capable of causing or contributing to any loss incurred by the insured as a result of either accident and that the insurers’ interests had not been prejudiced as a result of the vehicles being so operated. For this reason, s 54(2) was not relevant.

47    In the Supreme Court of Western Australia, it was held that s 54(1) of the Act applied to the case with the consequence that the Court rejected the insurers’ only defence.

48    The High Court agreed with the conclusions reached by the Supreme Court and dismissed the appeal. The Court (comprising Hayne, Crennan, Kiefel, Bell and Gageler JJ) delivered a joint judgment.

49    After outlining the relevant facts (at 593–595 [1]–[11]), the Court commenced its consideration of the s 54 issue at 595 [12].

50    At 596 [17]–[18], the Court summarised the insurers’ argument in the following terms:

17.    The argument of the Insurers focussed on the contractual effect of the relevant endorsement being that no indemnity was provided under the Policy in respect of an accident which occurred when a vehicle was being operated by an untested driver. The substantive effect of the Policy, as the Insurers put it, was that the claims for indemnity which the Insured made were for damage to vehicles whose drivers had a characteristic that removed the accidents from the scope of cover. Their argument reduced to the proposition that the “claim” to which s 54(1) refers is limited to a claim for an insured risk.

18    For that proposition the Insurers sought to rely on reasoning of the plurality in this Court in FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd [(2001) 204 CLR 641], as interpreted and applied in the Court of Appeal of the Supreme Court of Queensland in Johnson v Triple C Furniture & Electrical Pty Ltd [[2012] 2 Qd R 337]. The Court of Appeal of the Supreme Court of Western Australia declined to follow Johnson in the decision under appeal, as more recently did the Court of Appeal of the Supreme Court of New South Wales in Prepaid Services Pty Ltd v Atradius Credit Insurance NV [(2013) 302 ALR 732].

51    As I have already mentioned, the insurers’ argument in Maxwell was ultimately rejected by the Court.

52    At 597 [19]–[20], the Court referred to the objects of s 54 of the Act in the following terms:

19    The Act is described in its long title as an Act to reform and modernise the law relating to certain contracts of insurance so that a fair balance is struck between the interests of insurers, insureds, and other members of the public and so that the provisions included in such contracts, and the practices of insurers in relation to such contracts, operate fairly.

20    The more specific objects of s 54 of the Act were explained in the report of the Australian Law Reform Commission which recommended its introduction [Law Reform Commission, Insurance Contracts, Report No 20, (1982). See also Australia, House of Representatives, Insurance Contracts Bill 1984, Explanatory Memorandum at 78-80]. Those objects included striking a fair balance between the interests of an insurer and an insured with respect to a contractual term designed to protect the insurer from an increase in risk during the period of insurance cover [Law Reform Commission, Insurance Contracts, Report No 20, (1982) at xxxi-xxxii, 132-140]. That balance was to be struck irrespective of the form of that contractual term. In particular, no difference was to be drawn between a term framed: as an obligation of the insured (eg “the insured is under an obligation to keep the motor vehicle in a roadworthy condition”); as a continuing warranty of the insured (eg “the insured warrants he will keep the motor vehicle in a roadworthy condition”); as a temporal exclusion from cover (eg “this cover will not apply while the motor vehicle is unroadworthy”); or as a limitation on the defined risk (eg “this contract provides cover for the motor vehicle while it is roadworthy”) [Law Reform Commission, Insurance Contracts, Report No 20 (1982), pp 140, 289-290].

53    The Court then referred to Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652 (Antico). At 597–598 [21], the Court said:

Antico v Heath Fielding Australia Pty Ltd [(1997) 188 CLR 652] established, conformably with those objects, that s 54 takes as its starting point nothing more than the existence of a claim and of a contract the effect of which is that the insurer may refuse to pay that claim by reason of some act which the insured (or someone else) has done or omitted to do after the contract was entered into; it does not postulate a liability of the insurer to pay the claim that has been made. In terms consistent with the reasoning of the majority [(1997) 188 CLR 652 at 669–670, 673], Brennan CJ there said that s 54(1) [(1997) 188 CLR 652 at 660–661]:

“focuses not on the legal character of a reason which entitles an insurer to refuse to pay a claim – falling outside a covered risk, coming within an exclusion or non-compliance with a condition – but on the actual conduct of the insured, that is, on some act which the insured does or omits to do ... It is engaged when the doing of an act or the making of an omission would excuse the insurer from an obligation to pay a claim for a loss actually suffered by the insured.”

54    At 598 [22], the Court noted that the Antico construction to which it referred at 597 [21] was inconsistent with the insurers’ proposition that the “claim” to which s 54(1) refers is limited to a claim for an insured risk. The Court then referred to FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641 (FAI) at 659 [40]. The Court said that the plurality in FAI emphasised at 659 [40] that s 54(1) “directs attention to the effect of the contract of insurance on the claim on the insurer which the insured has in fact made” and that “no distinction can be made”, for the purposes of s 54(1) of the Act, “between provisions of a contract which define the scope of cover, and those provisions which are conditions affecting an entitlement to claim”. These latter remarks were taken from FAI at 656 [33].

55    At 598–599 [23]–[27], the Court then said:

23    The Insurers sought support for their argument from a statement of the plurality in FAI that the section “does not operate to relieve the insured of restrictions or limitations that are inherent in [the] claim” [(2001) 204 CLR 641 at 659 [41]]. They misapply that statement in equating its reference to restrictions or limitations that are inherent in a claim with any restriction or limitation on the scope of the cover that is provided under the contract. A restriction or limitation that is inherent in the claim which an insured has in fact made, in the sense in which the plurality in FAI used that terminology, is a restriction or limitation which must necessarily be acknowledged in the making of a claim, having regard to the type of insurance contract under which that claim is made.

24    Thus, as explained in FAI, the making of a claim under a “claims made and notified” contract necessarily acknowledges that the indemnity sought can only be in relation to a demand made on the insured by a third party during the period of cover [(2001) 204 CLR 641 at 659 [42]]. The section does not operate to permit indemnity to be sought in relation to a demand which the third party omitted to make on the insured during the period of cover but made after that period expired. Similarly, the making of a claim under a “discovery” contract, of the type in issue in FAI itself, necessarily acknowledges that the indemnity sought can only be in relation to an occurrence of which the insured became aware during the period of cover [(2001) 204 CLR 641 at 659-660 [43]].

25    The making of a claim under an “occurrence based” contract, the type of insurance contract in the present case, necessarily acknowledges that the indemnity sought can only be in relation to an event which occurred during the period of cover. That restriction or limitation is inherent in a claim which is made under such a policy. But it is of no moment in the present case.

26    Here the fact that each vehicle was being operated at the time of the accident by an untested driver is properly characterised as having been by reason of an “act” that occurred after the contract of insurance was entered into. There was an omission of the Insured to ensure that each vehicle was operated by a driver who had undertaken a PAQS test or an equivalent program approved by the Insurers. That omission occurred during the Period of Insurance.

27    The Insured having made claims seeking indemnity under the Policy in relation to accidents which occurred during the Period of Insurance, it is sufficient to engage s 54(1) that the effect of the Policy is that the Insurers may refuse to pay those claims by reason only of acts which occurred after the contract was entered into. Precisely how the Policy produced that effect is not to the point. The conclusion of the Court of Appeal in the present case was correct.

56    At 599 [28], the Court expressly disapproved of the ratio decidendi of Johnson v Triple C Furniture & Electrical Pty Ltd [2012] 2 Qd R 337 at 354–355.

57    As was the case in Maxwell, the claim made by Mr Phillips against Nautilus under the Nautilus policy was a claim made under an occurrence based contract of insurance. The making of such a claim necessarily acknowledges that the indemnity sought can only be in relation to an event which occurred during the period of cover. That restriction or limitation is inherent in the claim. In the present case, the period of cover under the Nautilus policy was from 4.00 pm on 1 December 2012 to 4.00 pm on 1 December 2013. The loss of the vessel occurred on 22 June 2013. Clearly, the indemnity sought in the present case related to an event which occurred during the period of cover under the Nautilus policy.

58    In Maxwell, the High Court emphasised the need for courts which are required to consider the application of s 54 of the Act to concentrate on the words of the section. As the Court noted at 597–598 [21], s 54 takes as its starting point the existence of a claim and of a contract the effect of which is that the insurer may refuse to pay that claim by reason of some act which the insured (or someone else) has done or omitted to do after the contract was entered into.

59    A critical element which must exist before s 54(1) is engaged is an “act of the insured or of some other person” occurring after the insurance contract was entered into which constitutes a legitimate basis under the relevant contract of insurance for the insurer to refuse to pay the particular claim.

60    Section 54(6) of the Act explains and arguably extends the concept of “act” when used in s 54(1).

61    The applicants submitted that, in construing the Nautilus policy, the Court was required to consider the purpose of the policy and the risks against which the policy provided cover. They went on to submit that the scope of cover provided under the Nautilus policy was restricted by a geographic limitation. They submitted that, upon the true construction of the Nautilus policy, cover was only provided when the vessel was sailing in Australian waters. The applicants then argued that, although the expression “Australian waters” is not defined in the Nautilus policy, it can be readily understood as meaning waters within the Australian mainland and Tasmania and waters within 250 nautical miles off mainland Australia and Tasmania. The content thus given to the expression “Australian waters” is derived from the definition of “geographic limit(s)” on p 24 of the Nautilus PDS read with the Certificate of Insurance. The material of particular relevance is the text under the heading “Geographic Limits” on p 2 of that Certificate (as to which, see [27] above) and the mention of geographic limits under the heading “145 Sailboat Racing up to 100 NM” on p 3 of that Certificate (as to which see [28] above).

62    The applicants then submitted that the Nautilus policy was a policy which insured against the risk of an event, such as the grounding and the loss of the vessel in the present case, occurring within Australian waters at a time when the respondent was on risk under the policy. In support of this submission, the applicants relied upon the reasoning of Meagher JA in Prepaid Services Pty Ltd v Atradius Credit Insurance NV (2013) 302 ALR 732 (Prepaid) at 763–768 [125]–[144] with whom Macfarlan and Emmett JJA agreed. In Prepaid, the Court ultimately held that s 54 of the Act was not engaged because the subject matter of the claim made in that case was never covered by the policy in any event.

63    At 766 [135]–[136] of Prepaid, Meagher JA said:

135    The way in which the provisions of the policy describe and define that event or risk will vary between different types of policy, and sometimes between policies which provide the same type of cover. It is here that matters of form are not to dictate the outcome when considering the effect of the contract: East End at 403-404. It nevertheless remains necessary, in addressing that effect, to have regard to the nature of the risk and subject matter insured as well as the commercial or other context in which the insurance is written, to the extent that evidence of that kind is admissible on that question of construction.

136    In Australian Hospital Care, the significant point of difference between the plurality and Gleeson CJ was in the characterisation of the effect of the contract and the identification of the event insured. Gleeson CJ considered that the effect of the contract was to indemnify against third party claims made, or potential claims notified, during the policy period: at [11]. The plurality considered that the effect of the contract, particularly by reason of condition 3, was to indemnify against any claim, or occurrence likely to give rise to a claim, of which the insured became aware during the policy period, and irrespective of whether that occurrence was notified during that period: at [23] and [43]. Kirby J also considered that to be the effect of the contract: at [59] and [60]. The actual claim made by the insured was for an indemnity against liability for an occurrence of which the insured first became aware during the period of cover. If the effect of the contract was as Gleeson CJ considered it to be, the claim made by the insured did not involve an insured event because no third party claim had been made or potential claim notified during the policy period. The reason for refusal of the insured's claim would not have been an act or omission of the insured and s 54(1) would not have applied. The effect of the contract as characterised by the plurality led to the opposite conclusion: at [46].

64    I agree with the observations made by Meagher JA at 766 [135] of Prepaid. I propose to approach my consideration of the Nautilus policy with those observations in mind.

65    In FAI, the plurality (McHugh, Gummow and Hayne JJ), at 655–656 [32]–[33], said:

32    It is convenient to deal at this point with the New South Wales decisions mentioned earlier. As Gleeson CJ rightly pointed out in East End [(1991) 25 NSWLR 400 at 403] “by choosing words of generality and avoiding reference to the particular type of contractual provision that might produce the result that the insurer may refuse to pay a claim, the legislature … evinced an intention to avoid the result that the operation of s 54 depends upon matters of form”. Some of the suggested bases for confining the operation of s 54 have, however, depended on the form of the contract of insurance. In argument in East End, it was suggested that there were two bases on which the apparent generality of its words could, and should, be qualified. It was argued that its operation should be limited to cases in which the insurer relied on some condition of, or exclusion in, the contract to deny liability. That is, it was suggested that the form of the contract of insurance (and, in particular, whether the basis for refusing liability was to be found in a condition or exclusion) should determine the operation of s 54.

33    The first basis proffered for this construction was that the words “refuse to pay a claim” inferred that there was prima facie a liability, but that the liability was to be avoided “by reason of some act [or omission] of the insured or of some other person”. This was said to occur only if a loss was within the cover provided by the policy but a condition or exclusion operated to allow the insurer to refuse to pay the claim [East End Real Estate Pty Ltd v C E Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400 at 408 per Mahoney JA; cf Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 414 per Handley JA]. We do not accept that the words “refuse to pay a claim” lead to the suggested inference. Moreover, the distinction between “cover” on the one hand, and “condition or exclusion” on the other, is a distinction that depends on the form of the contract and not on its substantive effect. No distinction can be made, for the purposes of s 54, between provisions of a contract which define the scope of cover, and those provisions which are conditions affecting an entitlement to claim. The substantive effect of the contract can be determined only by examination of the contract as a whole.

66    The plurality then discussed East End Real Estate Pty Ltd (t/as City Living) v C E Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400 (East End); FAI General Insurance Co Ltd v Perry (1993) 30 NSWLR 89; Greentree v FAI General Insurance Co Ltd (1998) 44 NSWLR 706; and Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (1998) 44 NSWLR 186 at 227.

67    At 658–660 [39]–[46], the plurality continued:

39    The reasoning in Greentree and in Permanent Trustee v FAI should, therefore, be rejected but the actual decision in each was right. Although the distinctions suggested in those cases are open to the criticisms we have made, the discussion reveals that there is thought to be a difficulty in reading the section literally. That difficulty stems from an intuitive rejection of a construction of s 54 which would require an insurer to pay a claim where there has been no event during the period of cover which the insured could have relied on as engaging the insurer's obligations under the contract. In the end, however, the difficulty is more apparent than real. Close attention must be given to the elements with which s 54 deals: the effect of the contract of insurance between the parties; the “claim” which the insured has made; and the reason for the insurer's refusal to pay that claim.

40    Section 54 directs attention to the effect of the contract of insurance on the claim on the insurer which the insured has in fact made. It is not concerned with some other claim which the insured might have made at some other time or in respect of some other event or circumstance. It requires the precise identification of the event or circumstance in respect of which the insured claims payment or indemnity from the insurer. For example, in Greentree the insured claimed indemnity against liability for a claim which the third party had first made on it outside the period of cover. (To distinguish between the claim which a third party makes on the insured, and the claim which the insured makes on the insurer, it is convenient to refer to the former as the “demand” by the third party.) The insured's claim necessarily incorporated a temporal dimension. The contract of insurance applied only if the third party's demand on the insured was made within the period of cover. The insured's claim on the insurer therefore had to identify when the demand was made. That being so, the claim could not properly be described without that temporal element.

41    Even if the fact that the third party made no demand on the insured within the period of cover were said to be an “omission” it is, nevertheless, of the first importance to recognise that the claim to which s 54 refers is the claim by the insured on the insurer that was actually made. It is not a claim for indemnity against some other demand (such, for example, as a demand assumed to have been made during the period of cover). Section 54 does not permit, let alone require, the reformulation of the claim which the insured has made. It operates to prevent an insurer relying on certain acts or omissions to refuse to pay that particular claim. In other words, the actual claim made by the insured is one of the premises from which consideration of the application of s 54 must proceed. The section does not operate to relieve the insured of restrictions or limitations that are inherent in that claim.

42    The restrictions that are inherent within a claim vary according to the type of insurance in issue. Under an “occurrence” based contract, no claim can be made under the contract unless the event insured against takes place during the period of cover. Under a “claims made and notified” policy, if no demand is made by a third party upon the insured during the period of insurance, any claim that may subsequently be made by the insured on the insurer (that is, the claim to which s 54 refers) would necessarily acknowledge that indemnity is sought in relation to a demand not of a type covered by the policy (because not within the temporal limits that identify those demands in relation to which indemnity must be given).

43    In the context of “discovery” contracts, containing clauses such as condition 3, the analysis is similar. If an insured “become[s] aware of any occurrence which may subsequently give rise to a claim” during the period of cover, an event of the type contemplated by the contract of insurance has occurred. Any subsequent claim would be for indemnity against a demand of a type covered by the contract.

44    It is apparent that, in the circumstances considered in Greentree, the effect of the contract of insurance was that the insurer might refuse to pay the claim that had been made. This was not, however, by reason of any act or omission of the insured or some other person. The claim made by the insured was for indemnity against liability for a demand that was not a demand of the kind dealt with by the policy because it was not a demand by a third party made within the period of cover. The reason for refusal was not some act or omission of the insured or some other person. It was that the policy did not extend to the demand referred to in the claim for indemnity.

45    By contrast, if a third party had made a demand on the insured during the period of cover but, for whatever reason, the insured had not notified the insurer of the making of that demand until after the period of cover ended, it is apparent that the effect of the contract, but for s 54, would be that the insurer may refuse to pay the insured's claim only by reason of the failure to notify the fact of the demand.

46    Similarly, in the present case, the claim which the insured made on FAI was for indemnity against liability for an occurrence of which the insured first became aware during the period of cover. The effect of the contract of insurance is that FAI could refuse to pay that claim by reason only of the fact that the insured did not give notice of the occurrence to it. Section 54, therefore, requires the conclusion that FAI may not refuse to pay the insured's claim. The effect of the contract of insurance, but for s 54, would be that the insurer may refuse to pay the insured’s claim by reason only of the omission of the insured to notify the occurrence which, at the time, was one which might subsequently give rise to a claim by the third party against it. That being so, the section is engaged. No prejudice to the insurer's interests was suggested.

68    The applicants submitted that the geographic limitations specified in the Nautilus policy were akin to the temporal limitation in the policy under consideration in FAI.

69    The respondent agreed that the Nautilus policy provided cover only while the vessel was within the specified geographic limits. However, it submitted that the Nautilus policy prescribed how the geographic limits stipulation was to operate at a practical level in circumstances where the person in charge of the vessel intends to leave Australian waters. In those circumstances, so the respondent submitted, cover was not provided from the moment that the insured vessel cleared Australian Customs until it again cleared Australian Customs on the return journey. The respondent went on to submit that the Nautilus policy was an occurrence based policy for a sea journey subject to prescribed geographic limits and that the prescription of those limits included specific terms governing the scope of cover in circumstances where the insured vessel intended to leave Australian waters. The respondent submitted that the case was on all fours with the decision in Prepaid.

70    It may be accepted that the clear policy intent of the Nautilus policy is that cover is not provided at all in respect of journeys where the intention of the person in charge of the insured vessel is to leave Australian waters.

71    It was ultimately submitted on behalf of the applicants that the claim made by Mr Phillips was a claim under the policy for loss and damage occasioned to the vessel while it was in Australian waters, that is to say, within the geographic limits of the Nautilus policy. For this reason, they contended that the claim was within the risk covered by the policy subject to the operation of any relevant exclusions.

72    The applicants then submitted that the automatic suspension referred to in the p 11 clause, as a matter of construction, took effect as if it were an exclusion clause rather than a limitation on the scope of coverage provided under the policy. In support of that proposition, they relied upon the fact that no premium rebate or adjustment was offered during any period of suspension and the circumstance that the respondent did not treat the policy as having come to an end, when the suspension period began and as recommencing when the suspension period ended. Rather, so it was submitted, the policy continued in full force and effect and the premium remained payable in respect of the risk insured.

73    The applicants submitted that the effect of the contract of insurance must be determined as a matter of construction and paying due regard to the substance of the matter, unconstrained by distinctions between provisions which define the scope of cover and conditions or exclusions which affect the entitlement of an insured to claim (citing Meagher JA in Prepaid at 764–765 [130] and Gleeson CJ (Clarke JA agreeing) in East End at 403–404. In East End, the Chief Justice said (at 403C-D to 404B):

The respondent seeks to answer the appellant's argument in two ways, one depending upon general considerations as to the construction of s 54, and the other depending upon the relationship between s 54 and another provision of the Act to which reference will be made below.

The respondent’s first submission is that s 54 has nothing to say concerning acts (or omissions) which form part of the definition of the risk insured. According to the respondent the reference in the section to the hypothesis that the effect of a contract would be that the insurer may refuse to pay a claim covers such matters as warranties, conditions, and perhaps exclusions, but not matters directly affecting the ambit of the insurance cover. In the present case, it is observed, the appellant is only covered in respect of claims both made and notified during the period of cover. Reliance is placed upon a statement made by Handley JA, in a different context, in Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 414 to the effect that s 54 does not widen the cover in a policy but, subject to the abatement provided for, it prevents that cover being lost through breach of a condition.

I do not read the language of s 54 so narrowly. Unlike s 18 of the Insurance Act 1902 it is not in its terms limited to providing relief in the event of a failure by the insured to observe or perform a term or condition of the contract of insurance. Even in relation to s 18, there was room for argument as to the ambit of the expression “term or condition”: cf Accident Insurance Mutual Ltd v Sullivan (1986) 7 NSWLR 65 at 71-72 per Priestley JA. When an insurer desires to frame a policy of insurance in such a way that a particular act or circumstance will bring about the result that the insurer is not liable to the insured there is often a range of drafting techniques available to produce that result, and the selection of one rather than the other may be a matter of form and not of substance. In the case of a policy of professional indemnity insurance there may be a condition obliging the insured promptly to notify all claims received, or, as in the present case, the insurance may be expressed to cover only claims that are not only received but also notified during a particular period.

In my view, by choosing words of generality and avoiding reference to the particular type of contractual provision that might produce the result that the insurer may refuse to pay a claim, the legislature has evinced an intention to avoid the result that the operation of s 54 depends upon matters of form. As a matter of ordinary language, it is perfectly appropriate to say in the present case that the effect of the contract of insurance is such that, but for s 54, the respondent may refuse to pay the appellant’s claim. The circumstance that this comes about because of the language of that part of the contract of insurance which defines the risk rather than by reason of a breach of a condition of the policy does not seem to me to be material. The case falls within the general words of the section and I see no justification for reading them down.

74    The applicants ultimately submitted that the suspension under the Nautilus policy ought to be read, consistently with authority and principle, as being amenable to the beneficial operation of s 54 of the Act. This was because the suspension did not go to the nature of the risk covered by the policy but simply operated as if it were an exclusion.

75    In my judgment, when careful consideration is paid to the terms and structure of the Nautilus policy, it is, as was submitted by the applicants, an occurrence based policy which provided cover to Mr Phillips against loss or damage to the vessel caused by (inter alia) impact or sinking or any other event not specifically excluded by the policy occurring while the vessel was within Australian waters at any time between 4.00 pm on 1 December 2012 and 4.00 pm on 1 December 2013, being the period when the respondent was on risk under that policy.

76    The loss of the vessel occurred while the respondent was on risk (viz on 22 June 2013) and when the vessel was within Australian waters. “Australian waters” for the purposes of the Nautilus policy are those waters within the land mass of the Australian mainland and the island of Tasmania and those coastal waters which are within 250 nautical miles of the Australian mainland and the island of Tasmania.

77    The respondent did not agree to cover Mr Phillips for loss or damage to the vessel wherever it sailed: There were geographic limits on the cover provided. Those limits constrained the scope of that cover.

78    However, the provision suspending cover when the insured vessel cleared Australian Customs for the purpose of leaving Australian waters was almost always going to come into effect well before the insured vessel actually left Australian waters. Usually, as was the case here, the suspension period would commence while the insured vessel is in its home port—here, Fremantle WA. The suspension provision was in the nature of an exclusion and did not operate as one of the contractually prescribed elements of the geographic limits on the scope of cover itself.

79    For these reasons, and for the reasons advanced by the applicants, I accept the submissions made on behalf of the applicants as to the scope of cover provided under the Nautilus policy and as to the correct characterisation of the suspension provision. It follows that, in my judgment, the suspension provision is amenable to the beneficial operation of s 54 of the Act.

80    I now turn to the question of whether the respondent’s entitlement to refuse to pay Mr Phillips’ claim, either in whole or in part, was by reason of some act on the part of Mr Phillips or of some other person, being an act that occurred after the Nautilus policy was entered into but not being an act in respect of which s 54(2) applies.

81    In their Third Further Amended Statement of Claim filed on 6 March 2015, at par 24, the applicants described the relevant act or omission relied upon by them for the purposes of s 54(1) as:

… the re-entry, presence, operation and sailing of the vessel into the Geographical Limits of the Nautilus policy, being 250 nautical miles off mainland Australia and Tasmania (the Nautilus Policy Zone) without having cleared Australian Customs and Immigration from the time of re-entry until and including at that time, or alternatively at the time of the [grounding on 22 June 2013].

82    In the Written Submissions filed on behalf of the applicants, the relevant act or omission was said to be the sailing or presence (re-entry) of the vessel in Australian waters without having cleared Australian Customs on its return from Indonesia. Although there was some momentary confusion in oral submissions, I took the applicants to be maintaining at the hearing the position as pleaded and as outlined in their Written Submissions.

83    The respondent contended that, in the circumstances of the present case, there was no act or omission of the type contemplated by s 54(1). The respondent submitted that the alleged act is not an act that would have permitted it to deny indemnity. It argued that cover ceased to be available and was suspended from the time that the vessel cleared Australian Customs in Fremantle in May 2013 and was never reactivated. The reason that cover was not reactivated was that the vessel never cleared Australian Customs on the return journey. The respondent submitted that the circumstance that the vessel had not cleared Australian Customs on the return journey was not the result of any act or omission on the part of Mr Phillips. It submitted that Mr Phillips never had an opportunity to clear Australian Customs on the return journey. It submitted that the act or omission relied upon by the applicants was in truth a non-event.

84    In my view, the circumstance that the vessel was sailing within Australian waters but had not yet cleared Australian Customs on the return journey from Indonesia to Australia when it ran aground on 22 June 2013, taken in isolation, is not an act or omission of the relevant kind contemplated by s 54(1) of the Act. This is because it was not the re-entry, presence, operation and sailing of the vessel in Australian waters, looked at in isolation, that provided a basis for the respondent to deny indemnity. Rather, it was the vessel’s departure from Fremantle Harbour in the first place, for the purpose of leaving Australian waters, having cleared Australian Customs, which led to the automatic suspension of cover under the Nautilus policy by reason of the terms of the p 11 clause. Cover remained suspended at all relevant times thereafter because the vessel was never cleared by Australian Customs on the return journey. The suspension was put into place as a result of acts on the part of Mr Phillips which occurred after the Nautilus policy was entered into. Those acts were leaving Fremantle Harbour with the intention of leaving Australian waters and clearing Australian Customs.

85    The act or omission expressly relied upon by the applicants in their pleading and in their Written Submissions as the act or omission which engaged s 54(1) in the present case may be characterised as Mr Phillips’ failure to clear Australian Customs before running aground. Looked at only in that way, the pleaded act or omission invites the retort made by the respondent to the effect that it was a non-event (ie not an act or omission within s 54(1)) because it was not a positive act and because Mr Phillips had no opportunity to clear Australian Customs before running aground.

86    However, the only reason that there is any point at all in focussing upon the circumstance that the vessel had not cleared Australian Customs upon the return journey from Bali after completing the Fremantle to Bali sailboat race is that, because it cleared Australian Customs in May 2013 at Fremantle and intended to leave Australian waters at the time that it did so, cover under the policy was suspended. In other words, it is a necessary pre-condition to the relevance of par 24 of the applicants’ pleading and their Written Submissions that cover was suspended in the first place.

87    There is no dispute about the relevant facts.

88    In the circumstances, I propose to approach the question of whether there was a relevant act or omission in the present case within the meaning of s 54(1) of the Act by having regard to the circumstance that the reason cover was suspended in the first place was because the vessel left Fremantle and cleared Australian Customs with a view to leaving Australian waters. No prejudice is caused to the respondent by my taking such an approach.

89    By causing the vessel to clear Australian Customs for the purpose of leaving Australian waters in order to compete in the Fremantle to Bali sailboat race, Mr Phillips committed an act or acts within the meaning of that term in s 54(1) which led the respondent to refuse to pay his claim being an act which occurred after the Nautilus policy was entered into.

90    For this reason, subject to s 54(2), I am of the view that s 54(1) was engaged in the present case.

91    Although some reliance was placed upon s 54(5)(b) by the applicants in their pleading, the point was not addressed in submissions. I took it to be abandoned. In those circumstances, for present purposes, subss (3), (4) and (5) of s 54 may be ignored.

Issue (b)—Is s 54(2) of the Act engaged and can the Respondent Reduce its Liability under the Nautilus Policy to Nil?

92    The respondent argued that it could reduce its liability under the Nautilus policy to nil. It also relied upon s 54(2) of the Act.

93    The respondent submitted that, by entering the waters near Cape Talbot, Mr Phillips did an act capable of causing or contributing to the insured loss. The proposition was that the loss simply would not have occurred had the vessel not entered into those waters. It was said that there was a direct causative link between entering those waters and the loss of the vessel. It was also submitted that entering into that particular geographic area was a factual precondition to the vessel running aground where it did.

94    Ultimately, the respondent submitted that, had the vessel not entered upon the actual sea journey which it undertook in May and June 2013, it would not have run aground.

95    In answer to these submissions, the applicants contended that these submissions amounted to a “but for” test which, in their submission, was not the appropriate test for assessing whether there was sufficient prejudice to the respondent to justify reducing their claim to nil or whether s 54(2) of the Act was engaged.

96    The applicants submitted that the correct approach in a case such as the present is to adopt a form of “with and without” test of causation. They argued that, if that were done in the present case, the nature of the risk would have been precisely the same whether the vessel had cleared Australian Customs or not. The applicants submitted that the onus of establishing an entitlement to reduce the claim to nil or to refuse to pay the claim under s 54(2) rested upon the respondent.

97    It was also submitted on behalf of the applicants that the respondent had failed to establish any prejudice within the meaning of s 54(1) occasioned by it as a result of the act or acts of Mr Phillips which otherwise engaged s 54(1).

98    I agree with the substance of the applicants’ submissions.

99    However, because I have concluded that the relevant act or acts which engaged s 54(1) at least included clearing Australian Customs in early May 2013 at Fremantle for the purpose of leaving Australian waters in order to compete in the Fremantle to Bali sailboat race, it is necessary to consider whether that act or those acts increased the risk that the vessel would run aground in Australian waters off Cape Talbot. The applicants’ submissions on this point were directed to the circumstance that the vessel had re-entered Australian waters and not yet cleared Australian Customs on its return journey from Bali. However, in substance, the same considerations apply whether one is looking at the return journey or the initial departure. There is no evidence before me that would support the proposition that the mere fact that the vessel left Fremantle in early May 2013 for the purpose of competing in the Fremantle to Bali sailboat race and cleared Australian Customs on that occasion added to the risk that it would run aground off Cape Talbot which is within Australian waters. In any event, to my mind, the proposition that the risk would be increased by those circumstances seems somewhat fanciful. That proposition may be tested in the following way. Had the vessel left Fremantle in early May 2013, not for the purpose of competing in the Fremantle to Bali sailboat race but only for the purpose of sailing to Darwin and not cleared Australian Customs because it was not obliged to do so, but nevertheless ran aground off Cape Talbot, as it did, the loss thereby suffered would clearly have been covered under the Nautilus policy. This would be so because the loss the subject of such an hypothetical claim would have occurred within Australian waters at a time when there was no suspension of cover in effect. The position may have been different had the vessel sunk in Indonesian waters or while sailing on the high seas but that is not the present case.

100    For the above reasons, I consider that the respondent has failed to make out any entitlement to refuse to pay the claim under s 54(2) of the Act and has also failed to demonstrate the requisite prejudice contemplated by s 54(1) of the Act.

Issue (c)—Contribution

101    The applicants contend that, because both the Pantaenius policy and the Nautilus policy responded to the loss suffered by Mr Phillips when the vessel ran aground, the applicants are entitled to claim equitable compensation in accordance with the principles recognised in Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 (Albion). In particular, they rely upon the observations of Kitto J at 352 (with which Windeyer J agreed) where his Honour said:

What attracts the right of contribution between insurers, then, is not any similarity between the relevant insurance contracts as regards their general nature or purpose or the extent of the rights and obligations they create, but is simply the fact that each contract is a contract of indemnity and covers the identical loss that the identical insured has sustained; for that is the situation in which “the insured is to receive but one satisfaction” (to use Lord Mansfield’s expression) and accordingly all the insurances are “regarded as truly one insurance”: Sickness and Accident Assurance Association Ltd. v. General Accident Assurance Corporation Ltd [(1892) 19 Rettie, at p.980; 29 Sc. L.R. 836 at p.837].

102    The applicants claim 48% of their outlays by applying the pro rata principle approved by Kitto J in Albion at 350.

103    The respondent submitted that, as a matter of principle, an insurer cannot underpin its claim for contribution against another insurer liable for the same loss by relying upon s 54 of the Act in order to establish the liability of that other insurer to the relevant insured.

104    In HIH Claims Support Ltd v Insurance Australia Ltd [2009] VSC 434; (2009) 15 ANZ Insurance Cases 61-824 (HIH Claims Support), at first instance, the trial judge noted that the insurer against whom contribution was sought in that case argued that s 54 of the Act only applies to assist an insured, not another insurer seeking contribution. His Honour found it unnecessary to decide the point.

105    The respondent submitted that this point was not addressed by the High Court when HIH Claims Support went on appeal to that Court (see the judgment at (2011) 244 CLR 72). The respondent then submitted that, upon the true interpretation of s 54, it was intended to be for the sole benefit of insured persons and was not intended to assist insurers in claims for contribution against other insurers.

106    I do not find these submissions persuasive.

107    The whole purpose of s 54(1) is to strike a fair balance between the interests of an insured person and that person’s insurer when the strict application of the relevant policy terms and conditions might work an unfairness. The intention of the legislature is to stop insurers from relying upon certain contractual provisions to refuse to pay a claim. There is no reason to deny to an insurer claiming contribution the benefit of the consequences of the correct application of s 54(1) in favour of that insurer’s insured.

Conclusions

108    For all of the above reasons, I have come to the conclusion that the applicants should succeed in their claims for relief in the present proceeding. As I have already noted, there was no serious dispute relating to quantum by the time of the hearing before me. My present view is that the amount of the contribution to which the applicants are entitled is $163,766.

109    I propose to make appropriate declarations now and to give the parties an opportunity to agree the judgment sum. The relevant calculation should proceed upon the basis that the amount of the requisite contribution is $163,766, as submitted on behalf of the applicants, and that the applicants are entitled to interest on that amount from 1 December 2013. I have chosen that date because it is a reasonable time after the initial demand for contribution was made by the applicants against the respondent.

110    I see no reason why costs should not follow the event.

111    There will be orders accordingly.

Associate:

Dated:    5 January 2016

SCHEDULE OF PARTIES