FEDERAL COURT OF AUSTRALIA

Swashplate Pty Ltd v Liberty Mutual Insurance Company trading as Liberty International Underwriters [2020] FCAFC 137

ORDERS

THE COURT ORDERS THAT:

1.    Appeal allowed.

2.    The orders of the primary judge be set aside and in lieu thereof it be ordered that the separate question in the orders of the Court made on 14 June 2019 that is:

Pursuant to Federal Court Rule 30.01 the Court determine as separate question whether or not the Applicant is entitled to indemnity in respect of its claim for the cost of repairs to aircraft 56044 VH-TOS under policy of insurance SY-HEL-17-900043 for damage sustained during carriage of the aircraft from Picayune, Mississippi to Queensland in May to July 2018

be answered 'Yes, the Applicant is entitled to indemnity'.

3.    The respondent do pay the appellant's costs of the appeal.

4.    The question of the appropriate orders as to costs of the proceedings before the primary judge concerning the separate question be remitted to the primary judge.

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

REASONS FOR JUDGMENT

THE COURT:

1    On 24 May 2017, Austbrokers, an Australian insurance broker, arranged an insurance facility with Liberty Mutual Insurance Company (Liberty), a company registered for trading in Australia. The facility provided for the terms on which Liberty agreed to issue single transit insurance for helicopters to insureds represented by Austbrokers as well as the premiums that were payable for each transit (Facility). The terms of the Facility were recorded in a master placement slip (Master Slip) which incorporated a policy wording and certain specified conditions and exclusions.

2    One insured represented by Austbrokers was Swashplate Pty Ltd (Swashplate). In 2018, it purchased a helicopter that was located in Picayune, Mississippi in the United States of America. Under the purchase agreement, the helicopter was delivered to Swashplate at Picayune in May 2018. Swashplate made arrangements to ship the helicopter to the Sunshine Coast Airport in Queensland, Australia. In the course of those arrangements, it requested Austbrokers to arrange insurance for the transit of the helicopter. A placement slip was provided by Austbrokers to Liberty in terms that reflected the Master Slip (Placement Slip). The Placement Slip was accepted by Liberty.

3    The helicopter was damaged in transit. It was common ground that the cause of the damage was insufficiency or unsuitability in the way the helicopter was packed for transit. Swashplate made a claim under the terms of insurance that had been arranged by Austbrokers. An issue arose as to whether the insurance cover applied.

4    In proceedings in this Court the issue as to whether Swashplate was entitled to indemnity was stated for determination as a separate question. On the hearing of that separate question, it was determined by the Chief Justice that Swashplate was not entitled to indemnity. Swashplate now appeals against that decision.

5    Speaking generally, the position of Liberty in the appeal is that the insurance took effect from a point in time that commenced after the transit was underway because of a provision in the Placement Slip that said that the period of insurance was from 19 May 2018. On that basis, Liberty relies upon the terms of an exclusion under the policy that applies where loss or damage was caused by an insufficiency or unsuitability in packing carried out before the 'attachment' of the insurance.

6    Swashplate maintains that the insurance applied to the whole of the transit and in addition, by a 'Static Cover' extension, for a further period of up to five days before loading. As the packing was within that period, it maintains that the defective packing occurred after the risk 'attached' and therefore the insurance responds to the claim.

Appeal grounds and notice of contention

7    Though expressed as nine separate grounds, in broad terms, the notice of appeal alleges two errors by the primary judge.

8    First, it is said that the primary judge erred in finding that the insurance cover commenced on the date of 19 May 2018 specified in the Placement Slip and his Honour should have found that the coverage was for the whole of the transit plus the period of the Static Cover.

9    Second, and alternatively, it is said that if the cover commenced on the date of 19 May 2018 specified in the Placement Slip then the primary judge erred in finding that the commencement of insurance cover was to be measured according to Picayune time (where the transit commenced). Instead, it is said that his Honour should have found that the insurance cover commenced at the beginning of the specified date, measured according to Australian Eastern Standard Time (AEST) (being the standard time measurement where the Placement Slip was arranged).

10    In response, Liberty says that there was no error in the reasoning of the primary judge. Further, by notice of contention, it says that if the insurance attached when the helicopter was first moved for the purpose of immediate loading then the judgment should be affirmed on the ground that the packing occurred after that point in time. However, in the course of the oral hearing, neither party contended that the insurance commenced when the helicopter was first moved for the purpose of immediate loading. Therefore, the point of contention does not fall for consideration.

Outcome

11    For the following reasons, the principal ground of appeal should be upheld and the separate question should be answered in the affirmative.

The terms of the insurance cover

12    The Master Slip specified the policy wording, conditions, exclusions, extensions and premium payable (based upon agreed value for the helicopter being shipped) on which Austbrokers could obtain single transit insurance during the term of the Facility it recorded. It provided for premiums and deductibles to be expressed in AUD or USD amounts. It applied to inland transit within Australia and to worldwide imports into and exports from Australia. It was issued to an Australian broker and was stamped by Liberty as identified by its Australian Business Number.

13    Because the Master Slip recorded the terms of a Facility pursuant to which insurance would be made available for a single transit of a helicopter if and when such insurance was sought, there was no insurance unless and until a placement slip for a specific contract of carriage was arranged under the Facility.

14    The duration of the Facility specified in the Master Slip was expressed in the following terms:

PERIOD OF INSURANCE    Risks attaching during the period

From:    23 May 2017

To:    22 May 2018    both dates inclusive LST

15    The fact that the duration of the Facility was specified by reference to when risks would attach assumes significance in the way the appeal is argued for Swashplate. At this point it is sufficient to note that the 'Period of Insurance' described in the Master Slip, being the duration of the Facility and not a period of insurance as such, was defined by reference to when risks would attach. Though described as a period of insurance, in context it was the period of a Facility under which insurance could be placed by the issue of a Placement Slip on the agreed terms in respect of the single transit of a helicopter.

16    It is common cause that the reference to LST is to Local Standard Time. However, there is an issue as to whether the reference was to LST in the place where the Facility was arranged or LST in the place where the risk would attach.

17    Relevantly for present purposes, the Master Slip described insurance in terms that incorporated the Institute Cargo Clauses (A) 2009 (ICC(A)).

18    The ICC(A) terms agreed to be incorporated in any policy arranged according to the Facility described the circumstances in which the insurance would attach in the following way (cl 8.1):

Subject to clause 11 below, this insurance attaches from the time the subject-matter insured is first moved in the warehouse or at the place of storage (at the place named in the contract of insurance) for the purpose of the immediate loading into or onto the carrying vehicle or other conveyance for the commencement of transit.

19    Clause 8.1 went on to provide that the insurance 'continues during the ordinary course of transit and terminates [upon the earliest of certain specified events]'. It is significant that the duration of the insurance as described in the ICC(A) commences prior to loading and continues during the ordinary course of transit. The terminating events are considered below. At this point it is to be noted that there are various events by which the continuation of the transit may be brought to an end. Further, the duration of the insurance described in the Facility begins and ends by reference to the timing of these described events, not by reference to identified dates or the timing of when the particular insurance was arranged or agreed.

20    Clause 11 then provided that the insured must have an insurable interest at the time of loss and stated that the insured:

… shall be entitled to recover for insured loss occurring during the period covered by this insurance, notwithstanding that the loss occurred before the contract of insurance was concluded, unless the [insured was] aware of the loss and the Insurers were not.

21    It is to be noted that the terms of cl 11 contemplate the possibility that insurance may be arranged in circumstances where the contract of insurance was concluded after the period covered by the insurance as determined by the ICC(A) terms, namely after the point when the subject-matter is first moved for the purpose of immediate loading. So, under the ICC(A), the commencement of cover is not determined by the time of entry into the contract of insurance. It may start before that time by occurrence of the first movement of the goods for immediate loading.

22    As to termination of the attachment of the insurance, cl 8.1 provides for termination on the earliest of four events, namely:

(1)    On completion of unloading at the destination named in the contract of insurance.

(2)    On completion of unloading at a place used for storage other than in the ordinary course of transit (even if prior to the destination named in the contract).

(3)    When the insured elected to use any carrying vehicle or container for storage other than in the ordinary course of transit.

(4)    On expiry of 60 days after completion of discharge over the side of a vessel at the final port of discharge.

23    There is also provision for termination of the insurance if the contract of carriage is terminated at a port or place other than the destination unless prompt notice is given to the insurer and continuation of cover is requested, subject to an additional premium if required (cl 9).

24    It can be seen that the period of attachment of the insurance is defined by the terms of the ICC(A) by reference to a continuing and uninterrupted sequence of events by which the subject-matter insured undertakes a single transit from one place to another.

25    By cl 1 of the ICC(A), the insurance covers all risks of loss or damage except as excluded.

26    The ICC(A) also has an exclusion expressed in the following terms (cl 4.3):

In no case shall this insurance cover … loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-matter insured to withstand the ordinary incidents of the insured transit where such packing or preparation is carried out by [the insured] or their employees or prior to the attachment of this insurance (for the purpose of these Clauses 'packing' shall be deemed to include stowage in a container and 'employees' shall not include independent contractors)

27    It is to be noted that the exclusion also relies on the point of 'attachment of this insurance' to define the extent of the exclusion.

28    The Master Slip also addressed the extent of coverage for packing. It included a condition that 'coverage includes loading and/or unloading but not the risk of disassembly/re-assembly/packing/unpacking of the units'. Somewhat strangely, the condition was followed by a further condition requiring the cargo to be professionally packed, stowed and carried and/or packing and stowage to be overseen by a qualified aircraft engineer. However, these two conditions may be construed together with the terms of cl 4.3 of the ICC(A) in the following way. The condition about professional packing indicates that the policy (at least in some circumstances) was intended to cover damage during transit that was the consequence of the way the helicopter was packed. If all damage that was the consequence of the way the helicopter was to be packed was to be excluded then a condition as to the way the packing was to be undertaken would be redundant. Therefore, reading the conditions in the context of cl 4.3 of the ICC(A), it appears that the first condition simply makes clear that damage during the activity of packing or unpacking is not covered. On that basis, damage in transit the cause of which may be traced back to packing may be covered (depending on when the insurance attached and whether the requirements as to the nature of the packing were met).

29    There is no claim that the packing was carried out by Swashplate or its employees and the evidence is to the effect that it was supervised by employees acting for the vendor. There is also no claim of breach of the condition that the cargo had to be professionally packed or be overseen by a qualified engineer or both. There is also no claim that all liability for damage consequent upon defective packing was excluded. Therefore, nothing turns on these aspects.

30    The next point to note is that the Master Slip also included the following extension:

Coverage is extended to include Static Cover for up to 5 days prior to loading.

31    Despite its capitalisation, the term 'Static Cover' is not defined. It was not suggested that it was a term of art. Therefore, it is coverage of a kind and extent that is to be determined by construing the word 'static' in context. It is coverage that, in express terms, applies prior to loading. Further, the period that the Static Cover applies is to be measured from the point of loading. It is a period the duration of which cannot be known with certainty until loading has occurred. It is the event of loading which determines when the five day period is to run. Therefore, by reason of the Static Cover extension, instead of the ICC(A) simply providing that coverage commences when the helicopter is first moved for immediate loading, it is also necessary to consider the extension that provides for 'Static Cover' for up to five days prior to loading.

32    Both before the primary judge and on appeal it was accepted by Liberty that the extension effected by the Static Cover was for coverage of the same kind as that afforded under the policy wording for the transit insurance. Therefore, the Static Cover extension had the effect of extending the whole of the transit coverage described in the Master Slip to include a period of up to five days for which the helicopter was static prior to loading. Therefore, no issue arose as to whether the Static Cover was of a different kind to the transit coverage.

33    The actual insurance cover was recorded in the Placement Slip issued by Austbrokers under the terms of the Facility created by the Master Slip and accepted by Liberty on 22 May 2018. The Placement Slip described Swashplate and a related entity as the insured. It reflected the same terms and layout as the Master Slip save in the following material respects:

(1)    As to the 'Period of Insurance' it said:

From:    19 May 2018

To:        Date of arrival at Sunshine Coast Airport QLD

(2)    In addition to specifying the Geographical Limits of coverage it included the following additional description for 'Voyage':

From Picayune (Mississippi) to Sunshine Coast (QLD)

(3)    Instead of the premium table in the Master Slip it included a premium calculated by reference to that table. So, the risk was rated by reference to the premiums set out in the Facility document not by the quotation of a premium for the particular transit cover recorded in the Placement Slip.

(4)    It was endorsed and signed by Liberty with the date 22 May 2018.

34    As has been noted, the Placement Slip was sent by Austbrokers to Liberty after the transit of the helicopter to the Sunshine Coast was underway. The main dispute between the parties concerns whether the Placement Slip provided cover for the period of the voyage (as described in the Placement Slip) plus the period of the Static Cover extension or whether it only covered that part of the voyage that occurred from and after 19 May 2018 measured according to Picayune time.

The relevant events

35    The chronology of relevant events is not in dispute. Most of the relevant events occurred in Picayune. However, arrangements for the issuance of the Placement Slip were made by communications with Mr Williams, an employee of Austbrokers who was in Australia, and then further communications between Mr Williams and Ms Baker, an employee of Liberty who was also in Australia.

36    To understand the proper sequence, the following account is expressed by reference to time as measured in Picayune (with additional references to AEST where communications occurred that involved Mr Williams or Ms Baker or both of them).

37    On 15 May 2018, Mr Yip, an employee of Becker Helicopters Services Pty Limited, the company to be responsible for the operation of the helicopter (and a joint insured with Swashplate under the policy), went to Picayune Airport and observed the helicopter being dismantled and packed in a hangar at the airport.

38    The process of dismantling and packing the helicopter was overseen and supervised by a Mr Smith from Skyline Aviation Inc, a company associated with the vendor of the helicopter.

39    On 17 May 2018, the agreement to purchase the helicopter was entered into by Swashplate. It provided for the helicopter to be collected by Swashplate from Picayune.

40    Also on 17 May 2018, the dismantled components of the helicopter were placed in boxes and prepared for loading. At the end of that day at 6.38 pm, Mr Yip sent a text message to Mr Williams at Austbrokers. It said:

Do we have transit insurance for two containers each with a Bell 427 travelling from Picayune airport to Maroochydore?

AEST when the text message was sent was 9.38 am on 18 May 2018.

41    The container to be used for the transportation of the helicopter in issue arrived at Picayune airport about 3.00 pm the next day, 18 May 2018. The container was set down outside the hangar. The helicopter was loaded into the container. For this to occur temporary axels and wheels were fitted to the helicopter so it could be pushed into the container. The aircraft was tied down inside the container, but no chocks or blocks were installed. The axels and wheels were left in place so that the helicopter could be unloaded from the container when it arrived at its destination. The doors to the container were then closed and the helicopter was ready to be moved. This was shortly before 5.00 pm. The container was then loaded onto the back of a truck and the truck left at around 5.00 pm.

42    At 10.48 pm the same day (18 May), Mr Williams sent an email to Ms Baker at Liberty. AEST was then 1.48 pm on 19 May 2018. The email said:

Please find attached Placement Slips for agreement in respect of two policies being placed under our existing Facility.

I know you are away. As discussed, happy for you to finalise paperwork once you return.

43    One of the placement slips was for the helicopter.

44    It is to be noted that the email referred to the Placement Slips as being provided 'under our existing Facility' and paperwork was to follow in due course.

45    At 6.11 pm on 20 May 2018, Ms Baker sent an email to Mr Williams referring to the earlier Facility placement email from Mr Williams. AEST was then 9.11 am on 21 May 2018. The email said:

Thanks for your email. Likewise I note the inception date on these ones is the 19th April. Can you please confirm the correct date.

46    Two points may be made about this short email. First, there could have been no uncertainty about when Liberty received the email to which it responds. It is date and time marked as 1.48 pm on 19 May 2018 (AEST). That email enclosed the placement slip. Therefore, the email itself established when, in fact, Austbrokers took the step to place the insurance. The fact that clarification was being sought by Ms Baker as to the 'inception date' suggests that the date was some date other than when the Placement Slip was itself placed with Liberty. It was an invitation to Austbrokers to identify some date other than when the Placement Slip was provided to Liberty. Second, the expression 'inception date' may be contrasted with terms such as commencement date or coverage date. Inception is a word that is commonly used to describe the starting point of an activity, undertaking or process rather than the commencement of a liability or obligation. In context, it is more apt to express an inquiry as to when the activity of the transit of the helicopter (being the activity to be covered by the insurance) will start than an inquiry as to when the coverage will start. An inquiry as to the former reflects the agreed terms of the Master Slip which, as has been noted, provided for commencement or 'attachment' by reference to an agreed event, namely first movement for immediate loading. An inquiry as to the latter would suggest that Austbrokers as the broker had some discretion to specify when the policy would commence, a most unlikely scenario.

47    For both those reasons, the email from Ms Baker was not asking Mr Williams to specify the commencement date for the coverage to be afforded by the policy. Of course, it is a separate question of construction of the Placement Slip as to whether, nevertheless, that was the description of the Period of Insurance operated. However, to the extent that the exchange of the emails to this point is said to be about the commencement date for coverage and some significance is said to attach to that characterisation, that claim should not be accepted.

48    About half an hour later, at 6.37 pm on 20 May 2018, Mr Williams responded to Ms Baker with an apology. He said the correct date was 19 May 2018 and he attached an amended placement slip for the transit of the helicopter. It appears that the amendment made was as to the Period of Insurance, specifically the 'From' date which was changed from 19 April 2018 to 19 May 2018.

49    It was submitted for Swashplate that, in the context of the email exchange and the terms of the Master Slip, the 'From' date of 19 May 2018 stated as the Period of Insurance specified in the Placement Slip was no more than a representation as to when it was thought that the risk covered by the Placement Slip would commence. It was submitted that the representation was made in order to establish that the Placement Slip concerned cover that was within the Period of Insurance as specified in the Master Slip. That is to say, it was a representation that the inception of the transit covered by the insurance was expected to be from 19 May 2018 and therefore it fell within the terms of the Facility recorded in the Master Slip (with the consequence that it was appropriate to use the agreed premium schedule to calculate the premium and to reflect the agreed terms in the Placement Slip). This contention is considered below.

50    However, at this point, it may be noted that the text message from Mr Yip and the email exchange between Mr Williams and Ms Baker are not inconsistent with that characterisation. Mr Williams received the inquiry from Mr Yip by a text in the morning of 18 May 2018 AEST. It was an inquiry about containers travelling from Picayune. Mr Williams was communicating with Ms Baker within Australia. In that context, as a communication in Australia in response to Ms Baker, it was not inaccurate to refer to the inception of the transit as being 19 May 2018. In fact, due to the time difference, 19 May was yet to commence in Picayune.

51    Ms Baker responded to Mr Williams about a day later saying 'On that basis I confirm cover bound with effect from the 19th May. Please find my stamped and signed slips noting the same attached'. One of the slips was for the helicopter's transit from Picayune to the Sunshine Coast.

52    Again, the language used does not specify that the cover is to commence or attach from 19 May 2018. Rather, the email refers to cover 'bound with effect from' that date. This is a statement that could establish when the agreement was to be taken to have been made, a date which had significance for the purposes of cl 11 of the ICC(A). It is also a statement to be considered in the context of the nature of the insurance that was being placed, namely transit insurance under the Facility recorded in the Master Slip. Mr Williams and Ms Baker were not engaged in a negotiation of insurance terms. Mr Williams was informing Mr Baker about the exercise of a right that Austbrokers had under its Facility to place transit insurance on the agreed terms set out in the Master Slip (and the incorporated policy wording of the ICC(A)).

53    Therefore, to the extent that submissions advanced for Liberty sought to rely upon the content of the email from Ms Baker, it does not assist. It is not contractual in character. It is equivocal as to the characterisation of the date that was inserted in the Placement Slip. Contrary to the submission for Liberty, it does not manifest a punctilious concern to identify the correct date from which cover is to be bound in the sense of delimiting the period of time within which a risk is insured. Its content is not evidence of facts known to both parties that aid the construction.

54    It was found by the primary judge, and is not challenged on appeal, that the communications between Mr Williams and Ms Baker occurred without any discussion of the stage that had been reached in the activity of storing or moving or dealing with the helicopter. Therefore, a common understanding as to the stage of the transit of the helicopters and the fact that the transit had commenced is not to be attributed to Swashplate and Liberty when construing the terms of the insurance as arranged.

55    Thereafter, the Placement Slip was issued and dated 22 May 2018 being the date that it was issued in Australia. It was issued under cover of an email stamped as being sent on 22 May 2018 at 1.39 pm (being AEST). It described the voyage as being 'From Picayune (Mississippi) to Sunshine Coast (QLD)'. It described the Period of Insurance as being from 19 May 2018 to the date of arrival at Sunshine Coast Airport.

56    If the beginning of 19 May 2018 is computed according to Picayune time then it commences well after the helicopter was loaded on to the truck and, in addition, would be just over an hour after the email was sent by Mr Williams to Ms Baker with the relevant placement slip. Construing the insurance cover afforded by the Placement Slip as commencing from the beginning of 19 May 2018 local time in Picayune would mean, in effect, that the commencement of the insurance post-dated the commencement of the transit of the helicopter and was well after any earlier period of Static Cover. If time is computed according to AEST then it includes, at least, the period when the helicopter was moved into the container and the bracings were affixed (without chocks to the temporary wheels).

57    The bracings used to tie down the helicopter during transit broke and, as a result, the helicopter was found to be damaged when the container was opened on arrival at the Sunshine Coast.

Principles of proper construction

58    It is well established that contracts of insurance are to be construed according to the same principles of construction that are applied to commercial instruments in general: McCann v Switzerland Insurance Australia Limited [2000] HCA 65; (2000) 203 CLR 579 at [22] (Gleeson CJ), [74] (Kirby J); and Wilkie v Gordian Runoff Limited [2005] HCA 17; (2005) 221 CLR 522 at [15] (Gleeson CJ, McHugh, Gummow and Kirby JJ).

59    The applicable principles were summarised in Onley v Catlin Syndicate Ltd as the Underwriting Member of Lloyd's Syndicate 2003 [2018] FCAFC 119 at [33] (Allsop CJ, Lee and Derrington JJ) as follows:

Necessarily, a policy of insurance is assumed to be an agreement which the parties intend to produce a commercial result … as such, it ought to be given a businesslike interpretation being the construction which a reasonable business person would give to it. The contract is naturally enough interpreted, in a temporal sense, as at the date on which it was entered into. The Courts frequently have regard to the contextual framework in which a contract is formed, to the extent to which it is known by both parties, to assist in identifying its purpose and commercial objective. It goes without saying that a construction that avoids capricious, unreasonable, inconvenient or unjust consequences, is to be preferred where the words of the agreement permit.

(citations omitted)

60    In construing a commercial instrument, the Court gives effect to the common intention of the parties as manifested in the language they have chosen. It requires a consideration of the language used in the instrument, the circumstances addressed by the instrument and the commercial purpose or object that the instrument secures, and it requires a consideration of the instrument as a whole: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 at [46]-[51], [59] (French CJ, Nettle and Gordon JJ); see also the summary of the principles in Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219 at [42].

61    Where, as here, a commercial instrument is executed pursuant to an obligation in another commercial instrument it should be given a construction that conforms to the terms of that other commercial instrument: Zhu v The Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530 at [83] (Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ). Where there has been a series of inter-connected agreements, the task of construing one of them must be undertaken within the context of the others: Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29 at [81] (McLure P, Newnes JA and Le Miere J agreeing). These are but specific examples of the Court having regard to objective evidence of the commercial purpose of the transaction or dealing effected by the commercial instrument.

62    Further, the regulatory context in which a contract of insurance was concluded is part of the context to be considered in construing the policy: see the approach in CGU Insurance Limited v Porthouse [2008] HCA 30; (2008) 235 CLR 103 at [43]-[58]; Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45 at [9]-[12]; Amcor Limited v Construction, Forestry, Mining and Energy Union [2005] HCA 10; (2005) 222 CLR 241 at [13], [30], [50], [64]; and Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119 at [113]. Also, reference may be made to the practice that is followed in arranging insurance (and instruments brought into existence as part of that practice) that form part of the context for the policy instrument: Birla Nifty Pty Ltd v International Mining Industry Underwriters Ltd [2014] WASCA 180; (2014) 47 WAR 522 at [57]-[59] (McLure P, Buss and Newnes JJA agreeing).

The reasoning of the primary judge

63    The primary judge reasoned as follows:

(1)    A reasonable business person would seek to understand the terms of the Placement Slip and the incorporated wording of the ICC(A) by reference to the Master Slip and the future commercial undertakings that it envisaged (at [52]).

(2)    An important matter of context was that the insurance anticipated by the Master Slip was for a single transit helicopter cargo policy (at [53]).

(3)    The Master Slip anticipated insurance for 'risks attaching' from 23 May 2017 to 22 May 2018, both inclusive LST which, by reference to the way the ICC(A) terms describe the way risk attaches (namely, movement in the place of storage for immediate loading) lead to the conclusion that the reference is to the time and date at the place where the relevant activity occurs (at [54]-[55]).

(4)    In construing the Placement Slip, the key question is what part is played by the identified date of 19 May 2018 placed adjacent to the words 'Period of Insurance' (at [58]).

(5)    The submission advanced for Liberty might be said to change the nature and form of the insurance that was arranged from that which was anticipated by the Master Slip (at [60]).

(6)    Matters that supported the construction contended for by Swashplate were: (a) the Placement Slip does not specify whether 19 May 2018 is to be measured according to LST; (b) if it was intended to change the nature of the insurance from that contemplated by the Master Slip, such precision might be expected; (c) the 'Period of Insurance' was used in the Master Slip to specify the period within which attachment of insurance must occur for it to be covered by the Facility not to designate when the insurance would commence and terminate (being work done by the terms of the designated ICC(A) terms); and (d) there was no express or apparent intention to depart from the nature, structure and form of the policy anticipated by the Master Slip when one might have expected such wording in the context if it was intended (at [61]).

(7)    One of the difficulties with the approach urged by Swashplate (to the effect that the period of insurance on the Placement Slip was indicative only) was that it was 'somewhat ungainly in failing to give contractual force and operation to apparently important words marking out the commencement of cover: "Period of Insurance" and it failed to give the underwriter any clear knowledge of when it came on risk for Static Cover' (at [62], [64]).

(8)    The commencement of transit cover under cl 8.1 of ICC(A) will be an activity about which it will be difficult to be precise and with the additional Static Cover the underwriter, by specifying a date, will know that risk attaches from that date being the local time where that cover commences. Then if goods are destroyed such that they are never loaded it will be clear that the insurer will be on risk (at [65]).

(9)    The fact that such a construction would give the language of the packing exclusion in cl 4.3 little work to do was noted (at [65]).

(10)    However, an approach which construed the Period of Insurance as identifying a precise date when Static Cover may commence was said to give relevant work to all provisions of the wording (at [69]).

(11)    On that basis the packing exclusion in cl 4.3 plainly applied because the packing was carried out prior to the commencement of 19 May 2018 in Picayune (at [69]).

(12)    In conclusion at [72], his Honour said:

I do not see any basis for reading a part of the operative placement slip, the first of the contractual documents, as non-contractual and only indicative as to when the commencement of the voyage was anticipated.

64    It can be seen that the reasoning of the primary judge recognised the force of much of what was advanced by Swashplate to support its construction, but his Honour was ultimately persuaded by two considerations to the construction contended for by Liberty. First, Swashplate's construction gave no real contractual force to language which was expressed in terms that appeared to be intended to have operative effect as establishing the period of insurance cover. Second, there was a commercial rationale for the specification of a precise date as to when the insurance risk on the Static Cover extension would commence, namely the underwriter would know precisely when it was on risk. But for those matters, it appears that the primary judge would have been persuaded by the contentions advanced by Swashplate. The delicate nature of the issue is evident from his Honour's observation that the resolution of the arguments is not straightforward (at [51]), an observation with which we would respectfully agree.

65    Nevertheless the task is at hand and must be confronted. In that regard, the final matter to note concerning the reasoning of the primary judge is that as to the 'Period of Insurance' specifying when Liberty was on risk, his Honour reasoned in the following way (at [66]) concerning the possibility that the Static Cover might commence on a particular date, but loading was then delayed until a point beyond five days from when the Static Cover commenced:

If 19 May 2018, Picayune time, can be taken as the time that Static Cover commences, the insurer is on risk from that date. Risk has attached during the Facility period. If loading is delayed until 25 May, the cover, though initially attached on 19 May, will only respond for damage to the static property occurring from 20 to 25 May. This way of looking at the matter resolves a number of difficulties. First, the operative placement slip by identifying 19 May 2018 (Picayune time) does not change any features of the policy. It gives a starting date for cover under the Static Cover extension. If loading takes place within five days, say on 23 May 2018, the Static Cover is for four days (contemplated by the words 'up to 5 days' in the Static Cover extension). If the loading takes place outside five days, say on 25 May 2018, the Static Cover is for five days (up to 5 days), but from 20 May. This time from which risk attaches (19 May 2018) is within the Facility period, and so risk under the policy attaches within the Facility period, even if the transit cover commences from loading (on 25 May on this hypothesis).

66    The significance of this reasoning is that it addresses the possibility of an hiatus in cover if the Static Cover was to start on a nominated date and loading did not occur for more than five days thereafter. Obviously, such a result would be uncommercial, a matter that would count against a construction that introduced that possibility. The reasoning by the primary judge as to whether that possibility would arise if 19 May 2018 was to specify when insurance was to commence is to the effect that if there is a delay in loading for more than five days after the start of the period of insurance then, in that event, the coverage is still only for the five days before loading. On that reasoning, contractual liability arises under the policy from the specified date, but coverage under the Static Cover does not begin until five days before loading. The consequence is that the specified date of 19 May 2018 is not actually the commencement of when the risk attaches (being the topic addressed by the terminology 'Period of Insurance' as used in the Master Slip). Rather, it is the earliest date upon which the period of insurance may commence. However, risk does not actually attach until five days before loading which may be well after 19 May 2018 depending on how long after that date it takes until the helicopter is loaded. So, if packing occurs after the specified 'Period of Insurance' but risk does not attach straight away because there is a delay of more than five days until loading, then it would seem that the exclusion in cl 4.3 would apply even though the Period of Insurance had commenced.

67    In short, on the construction adopted by the primary judge the specified date is not actually the commencement of the period of insurable risk. Rather, it becomes the earliest possible date upon which the risk may commence. This aspect assumes significance because the Master Slip when it uses the term 'Period of Insurance' is, as the primary judge found, specifying a period by reference to when risk actually attaches. It also assumes further significance when it comes to considering the way the end of the period of insurance was described (a matter that does not appear to have received particular attention in the submissions advanced before the primary judge) and how that sits with the policy terms and the character of the insurance as transit insurance.

The context in which the 'Period of Insurance' terminology should be construed

68    The argument for Swashplate on appeal, had particular regard for three matters: (a) achieving a coherent and commercial construction having regard to all aspects of the wording used; (b) giving proper contextual effect to the nature of the Facility arranged and recorded in the Master Slip as well as the statutory context to be discerned from the terms of the Marine Insurance Act 1909 (Cth); and (c) the incongruity that would arise if the insured risk (as expressly defined) was agreed to attach at one point yet liability in respect of that defined risk was determined by a separate agreed date. Though the argument made was of the same character as that put to the primary judge, there were a number of important respects in which the argument was refined to emphasise the significance of the terms of the Facility for the proper construction of the Placement Slip.

69    Excluding the statutory context (considered separately below), the following additional aspects to those considered by the primary judge were addressed in the submissions on appeal.

70    First, the Period of Insurance as specified in the Placement Slip had two aspects, a 'From' date and a 'To' date. If particular significance was to be given to the first aspect (being 'From: 19 May 2018') then significance of a similar kind must be given to the second aspect (being 'To: Date of Arrival at Sunshine Coast Airport QLD'). However, if the specified 'To' date was given significance as specifying when Liberty was no longer on risk then the detailed provisions in the ICC(A) concerning termination of the risk under the policy would be replaced by a provision that meant that risk terminated only when the helicopter arrived at Sunshine Coast Airport. The detailed provisions that terminated the risk if there was unloading at a place for storage before reaching the final planned destination would not apply. Further, the language used meant that there would be no certain date when the underwriter went off risk. If indeed Liberty was concerned to know precise dates as to when it was at risk then that was not reflected in the language used as to the end of the Period of Insurance. Therefore, this aspect was said to point to the Period of Insurance serving a different purpose to that identified by the primary judge.

71    Secondly, the Placement Slip specified a voyage from Picayune to the Sunshine Coast. There was no provision in the Master Slip as to a specified voyage. Instead it simply identified the geographical limits of the Facility. Therefore, the specification of the voyage to which the Placement Slip applied was as conscious an inclusion as the Period of Insurance and those words had to be given a meaningful operation. The construction contended for by Liberty had the consequence that the commencement of the risk was determined not by the point in time where loading occurred (extended by five days under the Static Cover), but rather could commence once the transit was underway (as was claimed by Liberty to be the position in the present case). This was inconsistent with the express provision that the insurance would apply to a voyage that commenced in Picayune.

72    Thirdly, the Master Slip in referring to the Period of Insurance used the terminology of risk attaching. That terminology is to be found cl 8.1 of the ICC(A) as to duration ('this insurance attaches from the time the subject-matter insured is first moved in the warehouse') and cl 4.3 as to the exclusion for defective packing ('prior to the attachment'). Therefore, the scope of the Facility was defined on the basis that the insurance that would be arranged would attach in the manner provided for in the ICC(A). It was attachment of that kind that determined whether the broker was entitled to place insurance with Liberty knowing that Liberty was obliged under the Facility to accept that insurance. A construction of the Placement Slip that resulted in the risk attaching by reference to a specific date was not insurance of the kind contemplated by the Facility. It would be a different risk and would be rated differently. Yet, the Placement Slip included a premium and unadjusted policy wording as specified in the Master Slip.

73    Fourthly and relatedly, the Period of Insurance as stated in the Placement Slip did not use the language of attachment of risk and termination of risk which would be expected if indeed it was specifying dates with that purpose that were intended to replace the terminology of the policy as expressed in the ICC(A).

74    Fifthly, the ICC(A) expressly contemplated that the insurance may be arranged after risk had attached and that formed part of the Master Slip record of the terms of the Facility. Therefore, inherent in those terms was the prospect that events would have occurred which could give rise to liability at a time when Liberty did not know it was on risk. A construction of the Period of Insurance as used in the Placement Slip to the effect that it was designed to address that same issue but in a manner that was inconsistent with that wording settled upon in the Master Slip was inconsistent with the terms of the Facility.

75    Sixthly, insurance that started from a specified date that might occur part way through a continuous transit could lead to uncommercial results of a kind that single transit insurance as described by the policy wording the subject of the Master Slip avoided. In particular, when the subject-matter of the policy arrived damaged at the end of a single transit, if it was covered for only part of the transit it may be extremely difficult to attribute the damage to an event that occurred during one particular part of the journey that took place after a specified date. The evident commercial purpose behind a voyage policy was to enable the owner of the subject-matter to be able to look to the insurer for indemnity without inquiries of that kind. That commercial purpose was frustrated by the construction for which Liberty contended.

Statutory context

76    The Marine Insurance Act applies to marine insurance: s 6. For the purposes of the Act, a contract of marine insurance may apply to any land risk incidental to any sea voyage: s 8(1). Amongst other things, a contract of marine insurance must specify 'the voyage, or period of time, or both, as the case may be, covered by the insurance': s 29(c). Section 31(1) provides:

Where the contract is to insure the subject-matter at and from, or from one place to another place or to other places, the policy is called a voyage policy, and where the contract is to insure the subject-matter for a definite period of time the policy is called a time policy. A contract for both voyage and time may be included in the same policy.

77    The distinction assumes significance because certain of the statutory provisions apply only to voyage policies: see Division 8 of Part II of the Act. For that reason, the legislative context means that it would be a significant step for a party to alter the terms of what was otherwise a voyage policy in a respect that meant it was no longer a policy that insured the subject-matter at and from one place to another.

78    Further, the Act provides that a marine insurance policy may be in the form of the Second Schedule: s 36(1). The statutory rules for construction of the policy include the following:

Where the subject-matter is insured 'lost or not lost,' and the loss has occurred before the contract is concluded, the risk attaches unless, at such time, the assured was aware of the loss, and the insurer was not.

79    Finally, the Act regulates the circumstances in which a representation as to a matter of expectation or belief may allow the insurer to avoid the contract of insurance: s 26. This form of regulation may give consequence to a representation about when risk was expected to attach (being the construction advanced for Swashplate).

80    Some of the submissions advanced sought to attach significance to the distinction between a voyage policy and a time policy. However, it is recognised that a policy may be a mixed policy and the policy in the present case may be described in those terms, as was identified by the primary judge (at [74]), by reference to Gambles v Ocean Marine Insurance Co of Bombay (1876) 1 Ex D 141. Therefore, those broad statutory distinctions do not assist. The task at hand requires contextual construction of the language used by the parties to record the insurance in this particular case.

Contextual sequence

81    The context in which the Placement Slip (and its incorporated policy wording) is to be construed unfolded sequentially. That sequence means that each step provides part of the context in which the next step is to be considered. It was as follows.

82    First, the ICC(A) took effect on 1 January 2009 as standard industry clauses that covered all risks for a single transit. It provided for risk to attach from when the subject-matter was first moved for the purpose of immediate loading. It provided for the insured risk to continue during the ordinary course of transit. It then provided for the risk to terminate on completion of unloading or a point at which the subject-matter was placed in storage and the transit ceased (even if that was prior to arrival at the planned destination). Therefore, it provided for a voyage policy.

83    The ICC(A) also excluded liability for loss or damage caused by defective packing prior to the attachment of the policy. It expressly allowed for the possibility that the insurance might be arranged after risk had attached according to the provisions of the ICC(A). In that event, there was an exclusion for liability only if the insured was aware of the loss and the insurer was not aware of the loss at the time the contract of insurance was concluded.

84    Second, Austbrokers arranged a Facility by which it could place insurance with Liberty described as 'Helicopter Cargo Insurance (single transit)'. The Facility provided for agreed terms of insurance and a schedule of premiums based upon the value of the subject-matter. The terms that were incorporated included the ICC(A). The Facility also provided for an extension for Static Cover of up to five days before loading (which, in context, must refer to loading as described in the ICC(A)). The Facility was for insurance for risk attaching between specified dates. Importantly, the Facility, in terms, did not contemplate cover that commenced from a nominated date. Rather, by incorporating the ICC(A) as the operative clauses as to the nature of the cover it contemplated, the Facility provided for cover that was for a single transit the duration of which commenced and terminated as described in the ICC(A), but extended to include Static Cover.

85    In the course of submissions a question was posed as to what would occur if the insurance was arranged, but loading did not occur because the subject-matter was destroyed before loading. This is an ambiguity introduced by deploying the device of specifying the duration of the Static Cover as being up to five days before loading. It is an ambiguity that is still present on the construction contended for by Liberty, as was recognised by the primary judge in the reasoning at [66] (quoted above). In that sense it is not a question the resolution of which assists the resolution of the present issue. Nevertheless, it may be observed that the commercial purpose of the Static Cover would be defeated if it did not apply if the subject-matter was damaged (being the very kind of risk that the Static Cover extension was designed to cover) and, as a result, loading did not occur. It may be noted that it would be a question of fact as to when '5 days prior to loading' was to be calculated in circumstances where loading did not occur because the subject-matter was damaged. If loading proceeded then the actual events would establish that point in time. If loading did not occur by reason of prior damage it would still be possible to prove by reference to likely future events whether the damage was '5 days prior to loading'. In those circumstances, 'loading' would be an expected event rather than an actual event.

86    Therefore, the context in which the Placement Slip came to be construed was one in which the Facility itself provided for voyage cover with a Static Cover extension, not for overall cover the commencement of which was to be established by reference to an agreed point in time.

87    Third, the Facility contemplated insurance being arranged by Austbrokers issuing a placement slip for a single transit. If the placement slip conformed to the Facility, Liberty was obliged to issue cover on the agreed terms and for the agreed premium. This contextual matter meant that it was unlikely that Austbrokers when it issued the Placement Slip intended to propose insurance of a kind that did not conform to the Facility. It also meant that Liberty was unlikely to accept the Placement Slip on the agreed premium if it proposed different cover. What Liberty would need is confirmation that the Placement Slip was within the Period of Insurance specified in the Master Slip.

88    Fourth, the Period of Insurance in the Master Slip was defined by reference to the risk attaching in the manner described in the incorporated policy wording, relevantly ICC(A). It was not a period that could be described definitively until the time of first movement of the subject-matter for the purposes of loading was known. Therefore, if Austbrokers wanted to state to Liberty why a particular placement slip (in this case the Placement Slip) conformed to the period of time covered by the Master Slip it could do no more than provide an estimate of when it expected that date to be. It would be insufficient to simply state something such as the date of commencement of the transit in Picayune, Mississippi. Liberty would have no inkling from such a statement as to whether the proposed insurance fell within the Period of Insurance for the Facility. As to the transit to be covered, that could be made clear by specifying, as the Placement Slip did, that the Voyage was from Picayune to the Sunshine Coast. The subject-matter, being the helicopter could also be specified. In context, these are the particular matters that would be expected to be specified in a placement slip issued under the Facility recorded by the Master Slip. It is not to be expected that Austbrokers would specify a date when Liberty went on risk. Attachment of risk was addressed by the ICC(A) and the Static Cover extension.

Proper construction of the 'Period of Insurance' terminology in the Placement Slip

89    In the above context, the commercial construction of the words adjacent to the description 'Period of Insurance' in the Placement Slip is that they specify the basis upon which the particular transit is said to be within the Period of Insurance specified in the Master Slip. They are not specifying when the insurance cover is to commence and terminate. Those are matters determined by the policy wording specified in the Master Slip and expressly adopted in precisely the same terms in the form and language of the Placement Slip.

90    The construction contended for by Liberty would give the Placement Slip an operation of a kind that was fundamentally different to that provided for by the Facility. It would be a construction that was inconsistent with the express language identifying the voyage to be covered. It would cause the arrangement of the Static Cover extension to fundamentally alter the nature of the primary transit cover.

91    It would also manifest the possible consequence of denuding the insurance of its primary commercial character, namely insurance for the risks attendant with the whole of a voyage (and not earlier or later risks) of a kind which did not require the insured to attribute loss or damage to an event that occurred after a nominated point in time which, due to the exigencies associated with arranging shipment and insurance, may be during the course of a journey. It would do so despite the Master Slip plainly providing for a voyage policy with the addition of Static Cover.

92    The construction contended for by Swashplate means that the insurance is of the kind described in the Master Slip and the language about Period of Insurance is given a sensible and commercial construction. Significantly, as was submitted for Swashplate in the appeal, if the statement as to the Period of Insurance as specified in the Placement Slip was not a genuine representation then that may be a matter that would affect the validity of the policy. Therefore, it is not the case that the Period of Insurance, as specified, lacked significance.

93    Once it is recognised that the Static Cover is not a compelling reason why the underwriter needed to know by reference to a specific date when the cover commenced, the only possible commercial justification for the alternative construction disappears. As the terms of the Master Slip (and incorporated wording show), Liberty agreed to provide insurance on a worldwide basis for single transit of helicopters on terms that did not require certainty as to the date when the risk commenced or the date when the risk terminated. That certainty was to be provided by clauses in the ICC(A) that described the events when the risk attached and, importantly, also described events as to when the risk terminated. They also agreed to provide Static Cover by way of an extension for up to five days prior to the specified event which determined when risk attached, namely loading. It was not five days from a date to be specified. It was to be five days calculated from the point of loading. For reasons explained, providing Static Cover calculated in that way had commercial logic.

94    As against such a construction, the interpretation contended for by Liberty would fundamentally alter the nature of the cover the subject of the Facility agreed with Austbrokers. It would do so in circumstances where there is no intimation at all that the parties intended to agree upon the provision of cover of a kind that was fundamentally different to that described in the Master Slip. It would expose Swashplate as the broker's client to the risk that there would be no cover if the transit commenced before the placement slip was issued, an outcome that the ICC(A) expressly addressed and avoided.

Conclusions and orders

95    For the reasons we have given, and with great respect, we would disagree with the decision of the primary judge and uphold the primary basis upon which the appeal was advanced.

96    As a result, it is not necessary to consider the second basis. Had we been persuaded that the primary basis for the appeal should be rejected then we would not have been persuaded that there was error in the primary judge's conclusion that the date to which reference was made was the date where the relevant event occurred. It may be accepted that the dealings occurred in Australia under the terms of the Master Slip which indicates close connection with Australia. However, it provides for worldwide coverage. It contemplates significance for particular events, such as first movement for loading, which may occur anywhere in the world. In those circumstances, the reference in the Master Slip to LST (when AEST might have been expected if significance was to be given to time at the place where there are dealings to arrange the insurance) is best explained by an intention to refer to the time in the place where the event occurred. The date in the Placement Slip should be construed in that context. That approach is, as the primary judge explained, consistent with authority.

97    As we have explained, the notice of contention does not fall for consideration. It was advanced only against the prospect that it was claimed that the policy commenced when the helicopter was first moved for loading. It was common ground in oral argument that the competing positions were between commencement of risk five days before that date (Swashplate) or the beginning of 19 May 2018 measured in Picayune time (Liberty).

98    Therefore, the appeal should be allowed, the decision of the primary judge should be set aside and in lieu thereof the separate question should be answered in the affirmative. It was agreed that the costs of the appeal should follow the event, but Liberty sought to make submissions as to costs of the proceedings before the primary judge once the outcome was known. There should be orders that Liberty pay the costs of appeal and any issue as to costs of the primary hearing that the parties are unable to resolve should be remitted to the primary judge.

Associate:     

Dated:    13 August 2020