FEDERAL COURT OF AUSTRALIA

Sheehan v Lloyds Names Munich Re Syndicate Ltd [2017] FCA 1340

ORDERS

THE COURT ORDERS THAT:

1.    The applicant’s originating application filed on 2 August 2016 be dismissed.

2.    The applicant pay the costs of the respondent on a lump sum basis of $50,000.

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

REASONS FOR JUDGMENT

ALLSOP CJ:

1    This is a claim by the applicant, Mr Brendan Sheehan, for indemnity under an insurance policy underwritten by the respondent in respect of the cost of replacing the starboard engine of a motor yacht owned by the applicant. The claim for indemnity, which has been denied by the respondent, arises out of events that occurred on 17 September 2015, while the vessel was being operated by the applicant, that resulted in significant damage to the vessel’s starboard engine. The applicant contended that the damage to the engine was within the cover for accidental loss or damage under the policy.

2    There were two key areas of dispute between the parties in the proceeding: first, whether the damage amounted to accidental loss or damage within the meaning of the policy; and secondly, whether any of the exclusion clauses present in the policy were operative. Due to the way in which the exclusion clauses were drafted, much of the argument in relation to them turned on issues of causation; that is, what was, or were, the proximate cause or causes of the damage, and whether the cause or any of the causes was or were excluded under the policy. If the damage was accidental loss or damage under the policy, then this causal inquiry assumed paramount importance. The exclusions relied upon by the respondent were those for deliberate action by an insured, faulty design, inherent defect, structural breakdown, and motor seizure and overheating. The respondent abandoned reliance upon the exclusion for malicious damage.

3    At the hearing, the applicant agreed with the respondent’s quantification of the claim, being $95,797.67. This was comprised of $60,000.00 representing the market value of the engine immediately prior to the circumstances giving rise to the claim and $35,797.67 that represented the costs of removal and replacement of the engine.

4    Before moving to address the evidence, the submissions, and the ultimate disposition of Mr Sheehan’s claim, it is appropriate to say something about the preparation of this matter for hearing, and the use of a referee to resolve many of the technical factual issues that arose in the circumstances of this proceeding.

Procedural history and the referrals to the referee

5    This proceeding was commenced on 2 August 2016, and placed in the Insurance List. The parties initially attempted to resolve the matter at mediation before a Registrar of the Court, though this was ultimately unsuccessful.

6    On 30 November 2016, given the technical nature of the factual issues in dispute, with the agreement of the parties I referred a number of questions agreed by the parties to Mr Dennis Baker, a marine surveyor, for enquiry and report pursuant to s 54A of the Federal Court of Australia Act 1976 (Cth) and r 28.61 of the Federal Court Rules 2011 (Cth).

7    Section 54A of the Federal Court of Australia Act is as follows:

Referral of questions to a referee

(1) Subject to the Rules of Court, the Court may by order refer:

(a) a proceeding in the Court; or

(b) one or more questions arising in a proceeding in the Court;

to a referee for inquiry and report in accordance with the Rules of Court.

(2) A referral under subsection (1) may be made at any stage of a proceeding.

(3) If a report of a referee under subsection (1) is provided to the Court, the Court may deal with the report as it thinks fit, including by doing the following:

(a) adopting the report in whole or in part;

(b) varying the report;

(c) rejecting the report;

(d) making such orders as the Court thinks fit in respect of any proceeding or question referred to the referee.

8    Section 54A(3) sets out how the Court may deal with a report provided to it by a referee. This provision is supplemented by r 28.67 of the Federal Court Rules, which allows a party to ask the Court to do various things in relation to a referee’s report. Division 28.6 of the Federal Court Rules as a whole provides rules for the conduct of a referral to a referee more broadly.

9    The purpose of making a referral to a referee is to enable a partial resolution of the dispute: see Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 at 563 per Gleeson CJ. As Gleeson CJ explained in that case, after discussing the long history of such referrals, the findings of a referee are to be treated as if they are the verdict of a special jury: Super v SJP Formwork 29 NSWLR at 558-564. Referral to a referee permits, in particular, complex factual questions to be determined efficiently (without the necessity for resolution of contested expert evidence before a judge) by a person with the appropriate expertise. The use of such a procedure has been particularly common in building and construction cases in State courts for many years, though it should not be seen to be limited to such areas. Some subjects because of their character can be seen as amenable to analysis and conclusion by a qualified expert whose conclusions can be reviewed by a judge. Depending on the context, this approach (as it did in this case) may make for less costly and more efficient decision-making than trial by a judge evaluating contested and contrary expert evidence.

10    Once a referee’s report is provided to the Court, the Court will then hold an adoption hearing if adoption of the report is contested. The principles regarding the adoption of a referee’s report, albeit within the context of the Supreme Court Rules 1970 (NSW), were distilled succinctly, but comprehensively, by McDougall J in Seven Sydney Pty Ltd v Fuji Xerox Australia Pty Ltd [2004] NSWSC 902 at [12]. They include that a Court should be reluctant to allow factual issues determined by a referee to be argued afresh in Court: Seven Sydney [2004] NSWSC 902 at [12] per McDougall J; Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 at [7] per McDougall J. Some error of principle, absence or excess of jurisdiction or patent misapprehension of the evidence should generally be demonstrated to justify the rejection of the referee’s report: Super v SJP Formwork 29 NSWLR at 563. The Court will generally not reconsider disputed questions of fact where there exists factual material that is sufficient to entitle the referee to reach the conclusions that he or she did, particularly where the disputed conclusions are made in a technical area in which the referee possesses appropriate expertise: Seven Sydney [2004] NSWSC 902 at [12] per McDougall J. Furthermore, the discretion to reconsider a referee’s factual findings will generally only be exercised if the findings are such that no reasonable finder of fact could have made that finding: Franks v Berem Constructions Pty Ltd [1998] NSWCA 87 at 11 per Hodgson CJ in Eq. However, the determination of questions of law and the application of legal principles to facts found by the referee is a matter for the Court: Homebush Abbattoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605 at 609; Super v SJP Formwork 29 NSWLR at 563; and Seven Sydney [2004] NSWSC 902 at [12].

11    In Buckley v Bennell Design & Construction Pty Ltd [1978] HCA 20; 140 CLR 1 at 15, Stephen J discussed the character of a court order for an arbitrator or referee to decide a proceeding or part of a proceeding:

… As Mr. Quintin Hogg, as he then was, said in Law of Arbitration (1936), p. 193, such a reference “is a species of trial, and the decision is now equivalent to a form of judgment or verdict and not an award”. In such a reference the court’s procedures of adjudication are not abandoned in favour of extra-curial settlement of the dispute by arbitration. Instead the court directs that, for the better resolution of the particular proceedings initiated before it, resort should be had to this special mode of trial which the legislation has made available.

12    In Super v SJP Formwork 29 NSWLR at 558, in speaking of the use of referees, Gleeson CJ said:

There is a danger in seeking to resolve the present problem by relying upon broad generalisations which pay insufficient regard to the particular context. The proposition that all litigants are entitled to have a judge (or, presumably, a master) decide all issues of fact and law that arise in any litigation, is unsustainable. It ignores the existence, in many civil cases, of trial by jury.

13    The efficient determination of complex and technical factual issues by a referee is a procedure that can have significant benefits, particularly in cases that involve issues where an expert might better be able to assess the primary evidence and make findings than a Court, owing to the technical nature of the factual matters involved. The use of a referee may well (as it did in this case) obviate the need for each side to brief experts fully (or at all) to debate the matter in that the referee embodies the expertise necessary to resolve the issue upon presentation of relevant material by the parties. These are things that parties should bear in mind, particularly given the overarching purpose of civil litigation outlined in s 37M of the Federal Court of Australia Act and the obligation of parties to act consistently with that purpose mandated by s 37N. It is no way an abrogation of judicial responsibility to refer a dispute or part thereof to a referee. In an appropriate case it reflects an approach of long standing which has a flexibility and a feature of focused skill that can see cases resolved expeditiously. I agree with the helpful discussion by Lee J of the history and use of referees in Kadam v MiiResorts Group 1 Pty Ltd (No 4) [2017] FCA 1139 at [35]-[63].

14    In this case, Mr Baker provided an initial report dated 7 February 2017. At the request of the parties, on 29 May 2017 I referred a further set of questions to the referee to be answered after the engine had been stripped. Mr Baker filed a supplementary report dated 27 June 2017. Following a further request by the parties, on 2 August 2017 I referred a third set of questions to the referee and Mr Baker filed a further supplementary report dated 25 August 2017.

15    The parties were in agreement that the reports of Mr Baker should be adopted, although the applicant submitted that the conclusions of Mr Baker should not be adopted by the Court except as evidence of his views (as opposed to findings to be adopted). I accepted that submission and made orders at the hearing on 21 September 2017 that the three reports of Mr Baker be adopted by the Court as findings in the proceeding, subject to the question of casuation being a matter for the Court, though the Court would give such weight to the findings of Mr Baker as it saw fit.

16    The parties and their advisors in this matter are to be commended for their willingness to have the technical questions integral to the proceeding referred to a referee for determination and for the efficient and cost effective implementation of the orders. The matter was heard by the Court efficiently over part of a single hearing day. If this matter had been litigated in the traditional style, it is reasonable to expect that it would have proceeded for some days, with expert witnesses and cross-examination of these witnesses. The parties’ efficient approach to the resolution of this litigation has much to commend it. The reasonableness and efficiency of the approach can be seen later in the order for costs that included one half of the costs of the referee.

17    The parties also filed a statement of agreed facts, and the applicant filed and read two affidavits as evidence in addition to the findings provided in the three referee reports. Mr Sheehan was also cross-examined during the hearing.

Factual background

The vessel

18    The vessel that is the subject of these proceedings is Tiger, a 2009 model Sunseeker Manhattan bearing registration number EA220. It was purchased by the applicant in November 2014. The vessel is a monohull pleasure craft which was fitted with two MAN D28 diesel engines (one on the port side and one on the starboard side). This proceeding is concerned with damage to the starboard engine that was then installed on the vessel.

19    The vessel was equipped with a monitoring and diagnostic system manufactured by MAN, called the “MAN-Monitoring Diagnostic System” or “MMDS”. The system included liquid crystal display (LCD) panels located both at the main navigating and control console within the main cabin and at the further console on the fly bridge of the vessel. At each console there was a separate LCD display for each engine. In addition to the LCD displays, each console was fitted with five analogue gauges mounted immediately above the LCD panels. These gauges displayed the following readings: tachometer, lube oil pressure, coolant temperature, voltage and fuel tank level. In addition, there was a separate throttle for each engine.

20    The LCD panels had the capacity to display a wide range of engine alarms, including: engine oil pressure, engine oil temperature, gear box oil pressure, coolant temperature, coolant pressure, engine exhaust temperature, charge air temperature and boost pressure. When an alarm was triggered, both an audible and visual alarm was activated. The agreed statement of facts stated that the audible alarm was very loud. The alarms could not be overridden, though they could be ignored. The statement of facts stated that once the alarm was activated, continued operation of the engine while ignoring the alarm meant there was a high likelihood of the engine seizing. If an alarm was activated, the LCD panel switched automatically to an “alarm screen”, and the list of active alarms could also be manually accessed through pressing the “alarms” button on the side of the relevant LCD panel.

21    The vessel was also equipped with a “limp mode” whereby the engines default from the usual speed of approximately 2250 rpm to 1500 rpm. This mode activated in certain circumstances, one of which was activation of a “critical alarm” such as low lube oil pressure or high coolant temperature.

22    It was common ground that at the time of purchasing the vessel in November 2014, the applicant was provided with a manual which included operating instructions for the relevant alarms contained on the vessel. The applicant said in cross-examination that he had not read the manual and did not know it existed. The engine operating manual included warnings and advice relating to loss of engine oil pressure. These included the following:

Never let the engine run when dry, ie. without lube oil or coolant.

…

It is advisable to switch off the engine if an alarm of any kind is displayed in the engine monitoring and diagnostic system. If this is not possible for any reason, the engine should be run no faster than 1200 rpm until the fault is remedied.

…

If an engine/gear box alarm is displayed on the monitoring devices the engine is to be turned off or ie. operated at low load at max. 1200 rpm.

When the following alarms are displayed –

-    engine oil pressure/reduction of lubrication oil pressure;

-    engine coolant temperature/overheating of engine coolant;

-    engine charge – air temperature;

the engine is to be turned off immediately and the cause of the fault properly remedied, ie in a specialist workshop.

Do not put this engine into operation again until the fault has been eliminated.

23    The manual also contained instructions regarding the operation of the alarm systems:

The built-in buzzer is activated and the LED “alarm” flashes provided the engine alarm from the MNDS central unit or a configures alarm occurs. At the same time, the monitor switches automatically to the alarm screen;

…

After operating the acoustic acknowledgement (“horn ACKN button”)) the integrated buzzer switches off and the horn relay de-energises. With the visual acknowledgement (viz. your “ACKN button”) the flashing text and LED “alarm” becomes a continuous display.

…

Should an alarm condition occur, an alarm table is automatically displayed. This lists all advanced warnings, alarms and sensor fault alarms. An internal buzzer and the horn relay are activated at the same time. The collective alarm relay drops out after three seconds. The collective alarm relay issues a repeat pulse if another alarm was already active.

24    Between November 2014 and 17 September 2015, the applicant operated the vessel on a number of occasions. The engine data indicated, as found by the referee, that between 1 November 2014 and 16 September 2015 there were 72 alarms registered. The triggers for these alarms were explored in cross-examination.

The events of 17 September 2015

25    The damage to the starboard engine giving rise to this proceeding occurred on 17 September 2015. On that date, the applicant operated the vessel from Hillarys Yacht Club at Hillarys, Western Australia. The vessel had been serviced either on that day or the previous day. He took the vessel from its pen to the fuel jetty at idle speed (approximately 700 rpm). He then stopped and fuelled up the vessel for approximately 20 minutes. After fuelling, Mr Sheehan set both engines at idle rpm of approximately 700 rpm and navigated toward the marina heads. Once outside the marina, he increased the engine speed to the maximum of 2300 rpm.

26    Within only approximately five minutes, the alarm activated and the speed on both engines automatically slowed to approximately 1500 rpm. Limp mode had automatically engaged. The applicant sought to navigate the vessel back to the marina. Part way to the marina after about eight minutes the starboard engine shut down. He continued to operate the port engine at approximately 700 rpm to the pen, where he then shut down the port engine. The applicant then looked into the engine room bay, observing that the starboard side fuel tank was covered in oil and that there was oil throughout the bilge of the vessel. He contacted his mechanic, Mr Jovanovich, who had serviced the vessel on that day or on the previous day, and arranged for him to examine the vessel the following day.

Evidence of Mr Sheehan

27    In his affidavits, the applicant gave evidence that he did not check the alarm screen and gauges to determine why the alarm was activated, and said that he did not think there would be a problem because the engine had been recently serviced. He thought that if there was a problem the engine would have shut down automatically. In his affidavit affirmed on 8 December 2016, he stated:

19.    When the alarm sounded all the usual engine information disappeared from the electronic screens, and the screens said ‘alarm’, flashing red, and there were words along the lines that the engine speed had reduced and to limp home.

20.    I turned around to starboard and headed back south towards the Marina at less than 10 knots. I think it took about 10 mins to the Marina heads and all of this time the alarm was still going. I know I should have checked the screen and gauges to see why the alarm was going off, but I didn’t look at the gauges.

21.    I was concentrating on getting the vessel back [to its pen] and, having had her serviced that day didn’t think there would be a major problem. I thought that if it was a major problem the computer management system would have shut down the engine automatically.

…

29.    Had I shut the starboard engine down when the alarm activated it would have been saved, needing just a replacement oil cooler gasket and clean up. I should have shut the engine down but I concluded that it may not have been a serious situation since [his mechanic, Mr Jovanovich] had just serviced them.

30.    It had been my understanding that if serious the engine electronics would automatically shut the engine down within a safe time margin. I now know that this is not the case and the engine manual states that upon [the] alarm sounding the engine should be shut down immediately.

(emphasis added)

28    He also filed a further affidavit, affirmed on 11 August 2017, that annexed his draft and unsigned witness statement provided to the respondent’s solicitors earlier in the proceedings. In paras 8 and 9 of that statement, the applicant stated, in relation to his knowledge of the vessel’s alarm systems, that:

8.     I have had occasions previously when alarms had gone off. This was due to my error and I shut the engine down straight away when this occurred. In those cases it was not a serious problem which activated the alarms.

9.     I am not sure whether there is an override button for the alarms. When the alarm goes off at bottom of the screen it show and flashes and you get a buzzing audio from the console. It is very loud.

29    In the affidavit, he sought to give a “fuller explanation of the matters set out in paragraph 8” of the witness statement. That explanation was as follows:

6.    The previous vessel I owned, which was built in about 1979 or 1980, did not have a sophisticated engine or any alarms or electronics governing the engine. To turn the engine off you had to press a button.

7.    When I got my new boat, the Sunseeker 52, I continued to turn off the new engine by pressing a button. Every time I pressed the button to turn the engine off I heard a brief alarm sound. However I thought this was simply part of the process of turning off the engine and did not think it was a problem.

8.    After the incident which has given rise to these proceedings, I had a new engine installed, and a technician gave me some advice about how to operate the new engine. Part of that advice was that the engine should be turned off using the key not the button. He explained to me that the button I had been pressing was the “emergency stop button”. Prior to this time I did not know that pressing the “emergency stop button” was not the correct way to turn the engine off.

9.    To the best of my understanding every time I pressed the emergency stop button the engine will have generated an engine alarm.

10.    To the best of my knowledge there has only been one prior occasion on which I shut the engines down as a result of hearing an alarm. On this occasion I was still in the pen at Hillary’s Marina and I was just starting the vessel. I turned one of the two engines on and as I began to turn the other engine on I heard an alarm. As soon as I heard that alarm I turned both engines off. I immediately called the Sunseeker representative, who told me to check that both gears were in neutral. When I checked what gears the motors were in I noticed that I had inadvertently knocked one of the two engines into gear. I cannot now remember which. When I was trying to start it, therefore, the engine management system set off an alarm. When I returned the engine to neutral it started normally without any alarm.

30    During cross-examination by Mr Criddle, who appeared for the respondent, Mr Sheehan indicated that he had not read the engine operating manual prior to the events of 17 September 2015, and indeed gave evidence that he was not aware on that date that it existed.

31    Mr Sheehan gave evidence that his old vessel did not have LCD displays, and instead had an analogue tachometer and oil pressure gauge, which he admitted he would look at from time to time. He accepted that the photos of the LCD screens and gauges shown to him were consistent with those on the vessel he was operating on 17 September 2015 but stated that he did not habitually look at any particular analogue gauge. What he did depended on what he was doing with the vessel.

32    He also indicated that he was aware that the vessel with fitted with a “limp mode” or “safe home mode”, having been informed of as much by the sales representative. He also agreed with Mr Criddle’s suggestion that an alarm was displayed on the LCD screen for the starboard engine when the limp mode engaged. However, Mr Sheehan gave evidence that “the alarm did not say low oil pressure”. His evidence was that it said “limp mode” or “safe home mode”. Mr Sheehan accepted, however, that this alert was not what was stated in the manual and had not been able to be replicated. Nonetheless, he insisted that the LCD display did not say “low oil pressure” at any stage. It was also accepted by Mr Sheehan that he could have looked at the analogue gauges and observed that the starboard engine’s oil pressure had dropped significantly, but he emphasised that he did not look at the gauges.

33    It was suggested by Mr Criddle that when the alarm activated, the normal reaction would have been to investigate its cause. Mr Sheehan disagreed, as he was of the belief that he could safely “limp” back to the pen. This was the first time he had operated the vessel in limp mode. Rather than viewing the gauges he was concerned with getting the boat, which had recently been serviced and which had his son on board, back to the pen in conditions which, on his evidence, were “reasonably rough”.

34    In response to Mr Criddle’s question as to whether Mr Sheehan would have stopped the engine had he known the oil pressure was low, he replied, “Probably, yes. Absolutely”. His evidence was, however, that he did not see the gauges or observe that the oil pressure was low. Mr Criddle put to Mr Sheehan that the LCD screen actually stated that the oil pressure was low as the engine manual indicated it should have. Mr Sheehan’s reply was emphatic: “I disagree. You weren’t there”. Mr Sheehan accepted that the manual stated that that alarm would indicate that the oil pressure was low. His evidence was that this did not occur on the actual vessel and that the message on the screen “[d]efinitely didn’t say oil pressure”. He asserted that whilst a print out from the computer may have had “engine oil pressure” listed as a main alarm, this did not mean that this was what appeared on the actual LCD screen located on the vessel.

35    Mr Sheehan was also asked in cross-examination about the previous alarm activations recorded by the engine management system during the period he had owned the vessel. He stated that he had only ever had one previous alarm activation that related to the engine, which ocurred during the start up of the vessel while it was in the pen on another occasion. He knew it was an alarm as “alarm” was displayed on the LCD screen. He gave evidence that he immediately turned the engine off. In respect of the other times alarms had been activated, as recorded in the print out from the engine management system, Mr Sheehan gave evidence that these alarms related to either his incorrect procedure for turning off the engines (by pressing what was actually the emergency stop button) or occurred when he had briefly switched the ignition on to check readings such as the water level without “hitting the go button”. The ignition would then automatically switch off.

36    Over the course of the cross-examination, Mr Criddle sought to establish that Mr Sheehan had seen the gauges and realised that the alarm related to the low oil pressure; and that he made a deliberate and foolhardy decision to keep the engine running. As noted previously, he put to Mr Sheehan that the alarm on the LCD screen said the engine oil pressure was low. He based this proposition off what was contained in the engine manual, and the proposition that Mr Sheehan would have at least glanced at the analogue gauges. He suggested that Mr Sheehan should have been aware of the risk of low oil pressure. Indeed, Mr Sheehan accepted that if he had known the engine oil pressure was low he would have turned off the engine, which perhaps indicates against him having actually seen what Mr Criddle alleged was observed by Mr Sheehan.

37    I accept that Mr Sheehan’s account of events is truthful. He acknowledged that he would have turned off the engine if he had known the oil pressure was low. His evidence was consistently that he simply did not check the gauges, and that the alarm that he observed on the relevant LCD screen did not state it was related to oil pressure. I acknowledge the proposition put by Mr Criddle that the computer print out from the engine management system and the manual indicated that the message displayed on the screen may have indicated something about the engine oil pressure being low. However, I consider Mr Sheehan to be a truthful witness. In the circumstances of the events of 17 September 2015, which involved an unexpected engine alarm after having had the engine very recently serviced, rough seas, and having his son onboard, I am prepared to accept the gist of his recollection. That being so, Mr Sheehan’s conduct was undoubtedly an example of poor seamanship that bordered on negligence, though it is not necessary in this context for me to develop that observation to a conclusion. A reasonable operator of the vessel would have read the manual, checked the analogue gauges and scrolled through the list of alarms. Mr Sheehan’s evidence, however, is consistent in that he stated that he did not expect the damage to result to the engine, and believed that he was able to “limp home”. I find that Mr Sheehan did not observe any warning that engine oil pressure was low, that he thought he was able to “limp home” without damaging the engine and that if he had observed that the lube oil pressure was low then he would have turned off the starboard engine. He did not continue to operate the engine with awareness that the oil pressure was low or that continued operation of the starboard engine in limp mode would result in significant damage to that engine.

Conclusions of the Referee

Engine records

38    The referee conducted an examination of the engine records for 17 September 2015 and outlined these in his report dated 7 February 2017. Mr Baker concluded that the records indicated that the starboard engine ran at approximately 600 rpm for five minutes when navigating toward the marina heads before being immediately increased to its full speed of 2300 rpm for approximately two minutes. At this point, the alarm activated and triggered an immediate slowdown of both engines to 1500 rpm. At the time the alarm sounded, the lube oil pressure had dropped to 2.8 bar from approximately 6 bar. After the alarm sounded, the records indicate that the throttle of the starboard engine was manually pulled back to below the limp mode position but then, almost immediately, the throttle was manually increased to 1575 rpm. The engine speed was automatically limited to 1500 rpm due to the engine being in limp mode. The lube oil pressure continued to drop after the alarm sounded, and after approximately one to two minutes it dropped to 0 bar. Critically, the referee found that the engine began to suffer damage approximately 15 seconds after the alarm activated and the engine seized approximately six minutes after the alarm’s activation.

Findings

39    The referee made a number of findings in his initial, and most comprehensive, report dated 7 February 2017. Subject to the question of causation I adopt the referee’s findings of fact.

40    The referee concluded that the applicant had not complied with the operating manual and did not switch off the engine as was indicated in the operating manual. The manual stated that if an alarm were activated then the LCD display would switch automatically to the alarm screen. This was contrary to Mr Sheehan’s evidence. However, the referee noted that he was unable to verify the alarm system on the actual vessel to determine whether its actual operation was consistent with the manual.

41    Mr Baker also concluded that the damage to the engine would have been avoided if the engine had been stopped immediately when the alarm activated. At this point, the engine still had 2 bar lube oil pressure for another approximately 10 to 15 seconds. The alarm activated at 2.8 bar lube oil pressure, which was actually toward the end of the lube oil being drained. In the referee’s view, Mr Sheehan should have immediately stopped the starboard engine when the alarm sounded and/or was displayed on the starboard LCD panel. His view was that if the starboard engine had been shut down at the time the alarm sounded then no damage would have been done to the engine. Mr Baker also found that the starboard engine began to suffer damage approximately 15 seconds after the alarm activated and the vessel entered limp mode. The damage quickly accelerated as the lube oil pressure dropped, leading to the seizure of the engine when within six minutes of running at limp mode, the oil had drained out completely.

42    Furthermore, Mr Baker found that the oil cooler gasket was defective. He concluded that it suffered from a faulty design. The “fit/matching of the gasket to the oil cooler and engine block was poor, due to the partial mismatching of the oil supply hoses in the oil cooler and the engine block”. He noted that the configuration could be improved and, indeed, was improved by a subsequent version of the gasket that has an increased width around the sealing face and incorporated a silicon bead around the face of the gasket. Mr Baker’s view was that further improvements could be made to the configuration, which should have been taken into consideration during the initial design of the engine block and the oil cooler.

43    The referee concluded that the damage was “a direct result” of overheating and seizure of the engine due to the loss of lube oil pressure, though, as a matter of fact, the damage could also be considered to be a result of faulty design of the sealing arrangement between the lube oil cooler and the engine block. He opined that:

The failure of the gasket is therefore not to be considered to be related to a gradual deterioration of the gasket material, but due to poor design of the sealing arrangement, with assistance from poor engine operating practice.

44    The gasket failure was not due to mechanical breakdown; rather, the mechanical breakdown was due to the lack of lube oil pressure. Nor was the failure of the gasket due to mechanical malfunction. The malfunction (the seizure of the engine) was due to the lack of lube oil pressure. However, Mr Baker did consider that the gasket’s failure was:

… due to structural breakdown, as the gasket configuration was a poor match to the sealing faces of the oil cooler and engine block in the vicinity of the oil cooler supply hole and there was insufficient clamping force exerted on the gasket in this region of the gasket. The gasket therefore could not withstand the forces being exerted on it, leading to structural failure of the gasket.

45    This is really an expression of the referee’s view that the gasket was faultily designed and that this defective design led to the oil rapidly draining from the oil supply hole.

46    Mr Baker’s findings can thus be summarised as follows. The damage to the engine occurred as a result of its continued operation after the loss of lube oil pressure, which led to overheating and seizure. If the engine had been turned off immediately when the alarm sounded, the damage would not have occurred. Damage began to occur 10 to 15 seconds after the alarm sounded when the lube oil pressure reached 2.8 bar. The loss of lube oil pressure was due to the oil cooler gasket’s faulty design, and Mr Baker considered that the damage could therefore be considered to be a result of the faulty design of the sealing arrangement between the lube oil cooler and the engine block, and he concluded that the gasket could be considered to have failed as a result of a faulty design or inherent defect.

47    During the hearing, Mr Criddle drew attention to the annexure to Mr Baker’s initial report that contained a print out from the engine monitoring system and to which I have already referred in discussing the cross-examination of the applicant. That print out contained a graph of the lube oil pressure, referred to by the referee. Critically, the print out reveals that within a period of only approximately three seconds prior to the activation of the alarm, the lube oil pressure rapidly dropped from 6 bar to 2.8 bar. There was a dramatic fall in oil pressure, and the limp mode was activated. After the limp mode engaged, the lube oil pressure continued to drop until it reached zero within one to two minutes after the limp mode engaged. The engine then operated until it seized and shut down.

48    These findings foreshadow the ultimate question for determination in respect of the second aspect of this case, what was the legal cause (or, potentially, causes) of the damage to the starboard engine: the conduct of Mr Sheehan or the defective design of the gasket that led to its failure, or both?

Damage to the engine

49    In his initial report filed 7 February 2017, the referee concluded that the crankshaft of the starboard engine had been rendered unserviceable, due to seizure damage on the No 6 main bearing journal. The journal material had overheated and hard spots had been created on the material. It was also noted that the No 6 main bearing cap and its whitemetal slipper bearing had been destroyed, and that the overheating may have damaged the engine block.

50    In his supplementary report dated 27 June 2017, Mr Baker identified extensive damage to the engine, including heavy seizure of the No 1 and 6 main bearings and evidence of overheating of other parts of the engine. The damage is set out in substantial detail in that report.

51    Ultimately, Mr Baker concluded in his supplementary report dated 27 June 2017 that the engine could not be repaired, having subsequently identified damage to the engine block itself:

… The discovery of the overheated cast iron engine block in the region of No 6 main bearing saddle is a significant increase in the amount of damage to the engine caused by the engine being run after losing lube oil pressure.

It is the undersigned’s opinion that this closing-in (shrinkage/distortion) of the engine block across No. 6 main bearing saddle means that the engine block is unable to be satisfactorily repaired.

52    He considered that replacement of the engine was appropriate, and assessed the pre-accident value of the engine as $60,000. At the hearing of the matter, both parties indicated that they agreed with this valuation.

The policy

53    The terms and conditions of the policy were contained in the Nautilus Marine Insurance policy wording FL30007 dated 10 November 2010.

54    At page 12, the policy wording under a heading of “What you are insured against” sets out the cover for accidental loss or damage as follows:

Insured Event – You are covered for:

Accidental Loss or Damage

We will cover you or anyone you entrust to use your boat for accidental loss or damage to your boat and contents. This includes damage caused by fire, storm, impact, sinking and any other event not specifically excluded by the policy.

…

55    “Accident/accidental” is defined on p 23 as follows:

accident/accidental

means an event that you did not expect or intend to happen. It also includes a series of accidents arising out of the one event.

56    “Accident” and “accidental” are defined synonymously. Reading the two terms together, the policy provides cover for unexpected or unintentional loss of or damage to the vessel.

57    The exclusions to the cover for accidental loss or damage were also set out on p 12, and include the general exclusions under the policy:

Our Exclusions – You are not covered for the following:

(see also General Exclusions on pages 21-22)

…

•    Loss or damage specifically excluded under the other Insured Events listed in the policy.

58    The relevant general exclusions relied upon by the respondent were set out on pp 21-22 and were as follows:

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

…

•    inherent defects, structural faults, faulty workmanship or faulty design;

…

•    any illegal or deliberate action by you, or someone acting with your express or implied consent;

…

•    mechanical, structural, electrical or electronic breakdown unless directly caused by one of the insured events listed earlier in this PDS;

…

•    a motor caused by or resulting from seizure and/or overheating unless caused by an accident which is otherwise an accepted claim under the policy.

…

59    The chapeau of the general exclusions does not sit well with the wording of the (last) exclusion for seizure and/or overheating. The better construction of that exclusion is that it provides that the insured is not covered for loss or damage to a motor resulting from seizure and/or overheating unless caused by an accident which is otherwise an accepted claim under the policy.

60    The respondent abandoned any reliance on the exclusion for “malicious damage”, which had been asserted earlier in the proceedings.

Accidental loss or damage

61    The first issue is whether the damage to the starboard engine comes within the cover for accidental loss or damage provided by the policy. If it does, then the policy will respond unless any exclusion clause is operative.

62    It must be recalled that this is a question of construction, though it is to be informed by the principles that have developed around the question whether an event is an accident or loss is accidental loss for the purposes of insurance law. The meaning is ultimately to be determined based on the policy wording and context: Australian Casualty Co Ltd v Federico [1986] HCA 32; 160 CLR 513 at 525 per Wilson, Deane and Dawson JJ.

63    An “accident” has been variously described as an “unlooked-for mishap or an untoward event which is not expected or described” or “any unintended and unexpected occurrence which produces hurt or loss”: Fenton v J Thorley & Co [1903] AC 443 at 448 per Lord Macnaghten and 452 per Lord Lindley. See also Federico 160 CLR 513 at 533-534 per Wilson, Deane and Dawson JJ where this expression was adopted. It must involve something “fortuitous and unexpected”: De Souza v Home and Overseas Insurance Co Ltd [1995] LRLR 453 at 458. This accords with the definition contained in the policy wording of “accident/accidental” as an “event that you did not expect or intend to happen”.

64    The parties both cited the statement of Starke J in A F & G Robinson v Evans Bros Pty Ltd [1969] VR 885 at 896 where his Honour stated that, for the purposes of determining whether an event is an accident:

The test I think is, whether an ordinary, reasonable sensible [person], in the position of [the insured] would or would not have expected the occurrence … The test is I think objective and not subjective: whether an ordinary, reasonable man with the knowledge, information and experience of [the insured] reasonably would have expected the event that did happen …

…

It is true that the damage was unintended, but in these circumstances can it be said that it was unexpected? …

65    The test (to the extent that it is appropriate to refer to it as a test) is an objective one but, as the applicant correctly submitted, it incorporates the specific knowledge and experience of the person involved. The appropriate inquiry is therefore whether a reasonable operator of the vessel with the knowledge of Mr Sheehan would have expected the damage to the starboard engine to have occurred in the circumstances.

66    The applicant submitted that the damage was unexpected. Mr Hopwood drew attention to the fact that the engine had been serviced that day or the day before, had been operated for only 20 minutes and had entered limp mode, which Mr Sheehan believed was a mechanism that operated to protect the engine from damage. Mr Sheehan did not know the alarm related to lube oil pressure, did not observe it on the LCD screen and had not checked the analogue gauges. What Mr Sheehan did was make a mistaken assumption that no damage would occur if the vessel was in limp mode and that the engine would shut down automatically if there was a possibility of serious damage.

67    Although the respondent agreed with the principle to be applied, Mr Criddle contended that the damage could not be considered unexpected from the perspective of a reasonable person in the circumstances. A reasonable person would have read the manual, known about the operation of the alarms, recognised their significance and acted reasonably when an alarm activated. He submitted that I should find that Mr Sheehan’s conduct in ignoring the alarm and continuing to operate the engine was not reasonable and that the applicant’s failure to acknowledge and act upon the alarm meant that the damage was not objectively unexpected. A reasonable operator of the vessel would have been aware of the alarm system and turned off the engine. Mr Criddle also submitted that Mr Sheehan’s evidence should be rejected and that I should find that the alarm displayed on the LCD screen stated it related to low oil pressure. As noted above, I am satisfied that Mr Sheehan’s evidence was honest.

68    In the alternative, the respondent stated that the damage was not accidental within the meaning of the policy as Mr Sheehan knew of the risk of damage and deliberately chose to take it. Though one should guard against overreliance on labels in what is ultimately a constructional question in the context of the facts of each case, this is regularly referred to as the principle of “courting the risk”. An insured cannot recover under cover for accidental loss or damage where the insured has courted the risk in the sense that they were aware of the risk of loss or damage, but decided to take it: Gray v Barr [1971] 2 QB 554; Robinson [1969] VR at 897. The principle was helpfully summarised by Cooke J in Mount Albert City Council v New Zealand Municipalities Co-operative Insurance Co Ltd [1983] NZLR 190 at 194:

… [T]here is a category of cases falling short of a deliberate causing of the damage by the insured where his conduct is nevertheless so hazardous and culpable that the event cannot fairly be called an accident. It can only be a question of fact whether a case falls within this category. The insured’s knowledge of the risk must be important, in that unless the evidence justifies the inference that he deliberately incurred the risk one would be very slow to find that the event was other than an accident. On the other hand it seems to me not decisive that the risk may have been deliberately run or calculated. For instance, if the risk was reasonably seen by the insured as not a high one, the occurrence might still be found to be an accident.

It is not profitable to essay precise rules or semantics in this field. Facts and risks vary too greatly. One expression that has been used in some cases, and was used by Thorp J here, is “courting” the risk. If that is understood as a term stronger than merely running or incurring, and in the sense rather of inviting or wooing, I respectfully agree that it can be a useful test for the tribunal of fact to apply.

69    This passage was recently approved in Matton Developments Pty Ltd v CGU Insurance Ltd [2016] QCA 208 at [5] by McMurdo P.

70    It was submitted that Mr Sheehan courted the risk of damage to the engine by failing to read the manual, ignoring both the visual and audible alarms and, ultimately, in failing to turn off the starboard engine. In oral submissions, it was submitted that it was Mr Sheehan’s failure to look at the gauges and assess the oil pressure that should lead to a finding that he had “courted the risk”.

71    In response, reference was made to Mr Sheehan’s evidence, which I have accepted, that he was unaware that the activated alarm related to oil pressure. In those circumstances, he could not be taken to have been aware of the risk of damage and to have determined to take it. Mr Sheehan thought that the engine could be safely operated in “limp mode”. Thus, although Mr Sheehan was aware of the role of lube oil in the functioning of the engine, without knowledge that the alarm related to oil pressure he could not be considered to have courted the risk of damage to the engine caused by operating it without sufficient oil pressure. If he did not know of the risk, then he cannot have chosen to take it. As was conceded, if the evidence showed Mr Sheehan was aware the alarm related to oil pressure and that the engine would not shut down automatically, or that damage would occur in such a short period of time, then a different conclusion may have been open.

72    Though I accept Mr Sheehan’s evidence, I acknowledge that his conduct demonstrated poor seamanship. That does not, however, as a matter of course prevent these events being characterised as within the definition of “accident/accidental” under the policy or necessitate a conclusion that Mr Sheehan “courted the risk” of the damage. I accept the respondent’s contention that notions of good seamanship would have required Mr Sheehan to be familiar with the engine operating manual and the alarms installed on the vessel. However, it is clear from Robinson [1969] VR at 896 that the reasonable person for the purpose of determining whether the occurrence was unexpected is to be imputed with the knowledge and experience of the individual insured. In the circumstances, Mr Sheehan was not aware that the alarm related to oil pressure. He believed that the engine could be safely operated in limp mode without damage and did not expect damage to occur in such a short period of time. From the perspective of a reasonable person with this knowledge, the rapid damage to the engine was unexpected, as such a reasonable person would have believed that no damage would occur if the engine was operated in limp mode. The fact this turned out to be incorrect does not mean the damage was not unexpected.

73    Similarly, Mr Sheehan’s knowledge is critical to the question of whether he “courted the risk” of damage to the engine. This is made clear by Cooke J in the passage from Mount Albert [1983] NZLR at 194 extracted above. Mr Sheehan’s failure to check the analogue gauges when the alarm sounded was poor seamanship. However, it could not be said that Mr Sheehan was aware of the risk of significant damage to the engine and had chosen to take it in circumstances where he was unaware that the alarm related to low oil pressure, and made a mistaken assumption that the engine could be operated in “limp mode” without damage occurring. Cooke J made clear that a high standard must be reached for it to be concluded that an insured has “courted the risk”. It is not open to find that he “courted the risk” in circumstances where I have found that Mr Sheehan had no knowledge that the alarm related to lube oil pressure, even if that lack of awareness amounted to poor seamanship. A conclusion that he “courted the risk” requires that he was aware of the risk and made a conscious choice to take it.

74    In the light of the above, the damage to the starboard engine is accidental loss or damage within the meaning of the policy. It is thus relevant to consider whether the respondent’s liability is excluded by any of the exclusions in the policy.

Causation and the operation of the exclusion clauses

75    Much of the debate at the hearing (and the subject of further written submissions thereafter) focused on what should be considered to be the legal cause or causes of the damage to the starboard engine. This question is ultimately critical to whether the respondent is liable to indemnify the applicant, as the general exclusions are framed around damage “caused by or resulting from” the relevant excluded events.

76    The respondent relied upon a number of the general exclusions, as noted above. However, the applicant conceded that if his arguments about causation were not accepted then, at least, the faulty design exclusion would operate in relation to the defective oil cooler gasket.

77    The causal inquiry in insurance law is directed to the proximate cause of the relevant loss or damage. This means proximate in efficiency, not the last in time: Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350 at 369 per Lord Shaw; Global Process Systems Inc v Syarikat Takaful Malaysia Berhad (The “Cendor MOPU”) [2011] UKSC 5; 1 Lloyds Rep 560 at 564 [19] per Lord Saville and 568 [49] per Lord Mance. A proximate cause is determined based upon a judgment as to the “real”, “effective”, “dominant” or “most efficient” cause: see Leyland Shipping [1918] AC at 370 per Lord Shaw; Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corp Ltd [1974] QB 57 at 66 per Lord Denning MR. What is the proximate cause is to be decided as a matter of judgment reached by applying the commonsense knowledge of a business person or seafarer: see The “Cendor MOPU” [2011] l Lloyds Rep at 564 [19] per Lord Saville and 568 [49] and 576 [79] per Lord Mance. There does not need to be a single dominant, proximate or effective cause of loss or damage: McCarthy v St Paul International Insurance Co Ltd [2007] FCAFC 28; 157 FCR 402 at 430 [90]. In City Centre Cold Storage Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 739 (referred to in McCarthy 157 FCR at 430 [90]), Clarke J at 745 approached the question as follows:

… to determine in the first instance whether there is one effective cause. But, recognising that in the present case there are a number of contributing causes, I do not propose straining to isolate one if it seems to me that two or more causes operated with approximately equal effect.

78    In the present case, the referee made a factual finding that the loss of lube oil pressure was due to the faulty design of the gasket, which led to the evacuation of the oil and the ultimate damage to the engine. However, the referee also found that the damage would have been avoided if Mr Sheehan had turned the engine off immediately.

79    Both the applicant and respondent submitted that there was a single proximate cause of damage in this case. Mr Sheehan submitted it was his failure to turn off the starboard engine once the alarm activated. The respondent submitted that the sole proximate cause was the defective gasket, owing to its faulty design. However, if it was found that both of these constituted multiple proximate causes then the respondent placed reliance upon McCarthy 157 FCR at 429-438 [88]-[116], and its discussion of the so-called Wayne Tank principle, which is to the effect that where there are multiple proximate causes and one is an excluded event under the policy then the insured will not be able to recover. It was asserted that the application of this principle would see the applicant’s claim denied, as damage caused by faulty design was an excluded event under the policy. I will address the submissions of both parties on this issue in more detail shortly.

80    The following extract from McCarthy 157 FCR at 430-431 [91]-[93], 432 [97], 434 [104] and 438 [114] describes the approach to be taken where multiple proximate causes are found to exist, along with the proper analysis of the Wayne Tank principle:

91    It has been said that when an argument as to causation arises in respect of rival causes under a policy of insurance, the first task of the Court is to look to see whether one only of the causes can be identified as the proximate or efficient cause: The ‘Alizia Glazial’ [2002] 2 Lloyd’s Rep 421 at 431. Nevertheless, if, applying commonsense principles and recognising the commercial nature of the insurance policy that is the context of the question, two causes can be seen as proximate or efficient, the terms of the policy must then be applied to those circumstances. Once the availability of two relevantly proximate causes is accepted, care is necessary in analysing the response of an insurance policy. If there are two concurrent causes one falling within the policy, the other simply not covered by the terms of the policy, the insured may recover: Dudgeon v Pembroke (1877) 2 App Cas 284 at 297; Grill v General Iron Screw Collier Co (1866) LR 1 CP 600 at 611; City Centre Cold Store v Preservative Skandia at 743-45; Reischer v Borthwick [1894] 2 QB 548 at 551; Ocean Steamship Co Ltd v Liverpool and London War Risks Insurance Association Ltd [1946] 1 KB 561 at 575; and The ‘Miss Jay Jay’ [1987] 1 Lloyd’s Rep 82. …

92    More difficulty arises, however, where one can discern two proximate or efficient causes and one falls within, and the other is excluded from, the policy. That is the circumstance to which Wayne Tank was directed.

93    Wayne Tank¸ the cases referred to in Wayne Tank and other illustrations of the “principle” found in Wayne Tank can be seen as the operation of ordinary contractual principles upon facts revealing two proximate causes which are concurrent and interdependent, in the sense that neither would have caused the loss without the other. In such cases the two causes can be seen as inseparable and so, in effect, as joint: see, in a somewhat different context, Shipping Corporation of India Ltd v Gamlen Chemical Co Australasia Pty Ltd (1980) 147 CLR 142 at 163-64.

…

97    All the cases referred to in Wayne Tank involved factual circumstances in which the two proximate causes were concurrent and interdependent in the sense that neither would have caused the loss without the other. …

…

104    More difficulty may be encountered in circumstances where a policy excludes one cause, includes another and the loss is occasioned by the two causes operating concurrently, but independently, in the sense that each would have caused the loss without the other. At the outset, it may doubted that the solution in any given case is to be found in the application of any principle of insurance law, other than one which states that the rights of the parties to the policy are to be determined by reference to the terms of the contract as found. This was the principle applied by all three Lords Justices in Wayne Tank. Thus, it is always essential to pay close attention to the terms of any policy and the commercial context in which it was made, for it is out of these matters that the answer to the application of the policy to the facts will be revealed.

…

114    Once one concludes that, as a matter of construction of the contract, the insurer and insured have agreed that the cover does not extend to any loss caused by a particular cause, and that the loss was caused by that cause, the policy’s lack of response can be seen as evident. It is only if one concludes that the parties have agreed that the policy will not respond if the excluded cause must be the sole cause, for the existence of a concurrent and not excluded cause to be relevant. Again this is a question of construction of the policy.

81    Thus, the Court should first seek to identify a single proximate cause of the loss or damage. If a conclusion is reached that there are instead multiple proximate causes, and one is an insured event but the other is not, then the insured will be able to recover. However, where there are two proximate causes and these are concurrent and interdependent, and where one is an insured event and one is an excluded event then as a matter of construction of the policy the insured will not be able to recover. The causes are inseparable, and as one is excluded under the policy recovery will not be possible. See also The “Cendor MOPU” [2011] 1 Lloyds Rep at 564 [22] per Lord Saville and 578 [88] per Lord Mance.

82    The applicant submitted that there was a single proximate cause of the damage to the starboard engine in the form of Mr Sheehan’s failure to turn off the engine once the alarm sounded. Counsel for Mr Sheehan referred to Canada Rice Mills Ltd v Union Marine and General Insurance Co Ltd [1941] AC 55; Reischer v Borwick [1894] 2 QB 548 and Lind v Mitchell (1928) 32 Lloyd’s LR 70 as authorities illustrating two principles. First, that where there is a voluntary intervening act between a certain event and loss or damage, and that act is in accordance with principles of ordinary seamanship, then there is no break in the causal chain between a potential causal event and damage. Secondly, there was said to be a “corollary” principle to the effect that where there is an intervening act that is not in accordance with ordinary seamanship this breaks the causal chain, with the result that the intervening act will be the proximate cause. It was submitted that in the ordinary course of things a reasonable operator of the vessel would have turned the engine off when the alarm sounded. Mr Sheehan did not, and it was submitted that Mr Sheehan’s continued operation of the engine was analogous to a novus actus interveniens in tort law such that it became the sole proximate cause of the damage to the engine, overcoming the impact of the faulty design of the gasket. Relying upon the passage in City Centre Cold Storage extracted above, it was submitted that one did not need to strain the facts here to find a single proximate cause and that Mr Sheehan’s conduct should be considered to be the proximate cause of the damage. The defective design of the gasket may have led to its failure and the decrease in oil pressure, however, Mr Sheehan’s action was significantly more dominant than the design fault in bringing about the actual damage. As there was a single proximate cause, it was submitted that there was no role to play for the Wayne Tank principle discussed in McCarthy.

83    The respondent’s submission was also that, although not required, a single proximate cause could be identified. However, the respondent submitted that the sole proximate cause was the failure of the gasket due to faulty design, as it was the dominant and most efficient cause. Counsel indicated that “there [was] no real comparison in the causative input in the failure”. It was contended that there was no independent act by Mr Sheehan that enveloped the causal effect of the gasket failure. Mr Sheehan’s conduct led to the occurrence of what was an ultimately inevitable seizure of the engine caused by the defective gasket, and the damage to the engine started only 10 to 15 seconds after the alarm sounded.

84    If the Court was not satisfied that there was a single proximate cause, then the respondent submitted that it should conclude that there were multiple proximate causes. It submitted, however, that Mr Sheehan’s actions did not constitute a concurrent and interdependent cause of the damage, as his actions did not cause the damage in their own right independently of the defectively designed gasket. Mr Sheehan’s failure to turn off the motor was causally relevant only by reason of it bringing about the inevitable consequence of the gasket failure. With respect, it is difficult to see how this differs from an argument that it was a concurrent and interdependent cause. However, the respondent’s further submission was that if the Court found that both occurrences were concurrent proximate causes then as the gasket failure was the subject of an exclusion under the policy, Wayne Tank and McCarthy applied and the respondent was not liable to Mr Sheehan.

85    The approach taken by the parties to contend for a single proximate cause while also considering whether there may be multiple proximate causes is consistent with the principles outlined above from City Centre Cold Storage, Wayne Tank and McCarthy. It should be emphasised that this is not to be done in a staged inquiry, but as one which looks at all the facts and circumstances to determine the dominant and effective cause or causes. Furthermore, given the necessity of the gasket failure to the extensive damage that resulted after the engine continued to be operated by Mr Sheehan after the alarm sounded, there is an initially attractive argument that there were multiple concurrent causes of the damage. However, for the reasons that follow I am satisfied that there was one dominant and effective cause of the damage.

86    In my view, the proximate cause of the damage to the starboard engine was the rapid and massive evacuation within a short number of minutes of the engine lube oil, which was referrable directly to the gasket that was defective due to its faulty design.

87    The faulty design of the gasket led to the significant and rapid drop in oil pressure that continued until the engine ultimately seized and ceased operation only six minutes later. The finding of the referee was that the gasket failed before the alarm sounded, and within little more than three seconds the oil pressure dropped from 6.4 bar to 2.8 bar, at which point the alarm sounded. Within one to two minutes after limp mode engaged, the lube oil pressure had dropped to zero. The rapidity of the gasket failure is also illustrated by the fact that the referee found that damage began to occur to the engine only 10 to 15 seconds after the alarm sounded. This rapid and significant failure of the gasket indicates clearly that it was the dominant and indeed, most efficient, cause of the damage that ultimately occurred to the engine.

88    If this case had involved a different set of facts, for example, a slow oil leak that eventually resulted in damage to the engine due to the operator continuing to operate the engine, then there would be a case for saying that the operator’s actions were the cause of the damage (or perhaps that there were concurrent and interdependent proximate causes). However, given the rapidity and significance of the failure of the gasket, I am satisfied that it was the sole proximate cause in the circumstances of this case.

89    Thus, I agree with the applicant that the Wayne Tank principle does not apply in this case. However, I consider that the proximate cause of the damage was the failure of the gasket due to its faulty design. The referee found that the gasket was faultily designed, which led to its failure. This being the proximate cause of the damage means that the faulty design exclusion operates to exclude any recovery by the applicant from the respondent. This was conceded by the applicant at the hearing. It is therefore unnecessary to deal with the application of any of the other exclusion clauses relied upon by the respondent. Thus the application should be dismissed.

Costs

90    At the conclusion of the hearing, I ordered that the parties seek to agree upon a lump sum costs order to be paid to the successful party. The Court’s preference wherever practicable and appropriate to do so is to make a lump sum costs order: see Practice Note GPN-COSTS. The parties provided submissions as to this order. The parties came in with different “bids”. The applicant if he won wanted $40,000 including his half of the referee’s fees. The respondent wanted $65,000 on the same basis. May I say that the case was run effectively and efficiently by both sides. The costs reveal the real capacity to run litigation of some real complexity in a superior court shortly and cost effectively. The legal practitioners and the clients are to be congratulated for how they approached the resolution of a small but complex commercial dispute. In view of those submissions and considering all the circumstances, I propose to award the sum of $50,000 to the respondent in respect of its costs.

91    Accordingly, the orders that I will make are:

1.    The applicant’s originating application filed on 2 August 2016 be dismissed.

2.    The applicant pay the costs of the respondent on a lump sum basis of $50,000.

Associate:

Dated:    17 November 2017