FEDERAL COURT OF AUSTRALIA
MARINE INSURANCE – whether underwriter bound to indemnify assured under policy in respect of damages to the vessel and the cost of its repair – question of the terms of the policy and its relationship to a lineslip arrangement between the underwriter and a broker – whether underwriter could cancel the policy for non-receipt of premiums – whether broker is liable for failing to ensure that the policy covered all the items of loss sustained – whether assured relied on the existence of that coverage in taking up the policy
PRINCIPAL AND AGENT – whether intermediate parties acted as agents for the underwriter or the assured
WORDS AND PHRASES – “lineslip”
Trade Practices Act 1974 (Cth) ss 52 and 82
Evidence Act 1995 (Cth) ss 76, 79 and 183
Marine Insurance Act 1909 (Cth) s 59
Marine Insurance Act 1906 (UK) s 53(1)
Bugg v Day (1949) 79 CLR 442 cited
Arnotts Limited v Trade Practices Commission (1900) 24 FCR 313 cited
HG v The Queen (1999) 160 ALR 554 cited
Pownall v Conlan Management Pty Limited (1995) 12 WAR 370 cited
March v Stramare (1991) 171 CLR 506 cited
Avel Pty Ltd v Multicoin Amusements Pty Ltd (1990) 171 CLR 88 cited
Vines v Djordjevitch (1955) 91 CLR 512 cited
Banque Commerciale SA, en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 cited
Coast Ferries Ltd v The Coast Underwriters Ltd (1971) 23 DLR (3d) 226 not followed
The “Brentwood”  2 Lloyd’s Rep 232 cited
Coast Ferries Ltd v Century Insurance Company of Canada  2 SCR 477 cited
Guardian Assurance Co Ltd v Underwood Constructions Pty Ltd (1974) 48 ALJR 307 distinguished
Prentis Donegan & Partners Ltd v Leeds & Leeds Co Inc  2 Lloyd’s Rep 326 applied
Power v Butcher (1829) 10 B & C 329 at 340 cited
Universo Insurance Co of Milan v Merchants Marine Insurance Co Ltd  1 QB 205 cited
Universo Insurance Co of Milan v Merchants Marine Insurance Co Ltd  2 QB 93 cited
O’May on Marine Insurance 1993
N Geoffrey Hudson and J C Allen The Institute Clauses 2nd ed. 1995
Arnould’s Law of Marine Insurance and Average British Shipping Laws Vol III (1997)
JETOPAY PTY LIMITED v
OCEAN MARINE MUTUAL INSURANCE ASSOCIATION (EUROPE) OV & ORS
NG 1156 OF 1997
SYDNEY 17 DECEMBER 1999
IN THE FEDERAL COURT OF AUSTRALIA
SEALAND INSURANCE BROKERS PTY LIMITED
HARBOUR PACIFIC UNDERWRITING MANAGEMENT PTY LIMITED
HARBOUR PACIFIC UNDERWRITING MANAGEMENT PTY LIMITED
FIRST CROSS CLAIMANT
OCEAN MARINE MUTUAL INSURANCE ASSOCIATION (EUROPE) OV
CROSS DEFENDANT TO FIRST CROSS CLAIM
SEALAND INSURANCE BROKERS PTY LIMITED
SECOND CROSS CLAIMANT
HARBOUR PACIFIC UNDERWRITING MANAGEMENT PTY LIMITED
CROSS DEFENDANT TO SECOND CROSS CLAIM
OCEAN MARINE MUTUAL INSURANCE ASSOCIATION (EUROPE) OV
THIRD CROSS CLAIMANT
HARBOUR PACIFIC UNDERWRITING MANAGEMENT PTY LIMITED
CROSS DEFENDANT TO THIRD CROSS CLAIM
REASONS FOR JUDGMENT
1 This litigation arises from a denial of liability by Ocean Marine Mutual Insurance Association (Europe) OV (“OMM”) on a claim by Jetopay Pty Limited (“Jetopay”) as marine underwriter pursuant to a marine insurance policy. The claim is in respect of engine failure sustained by the fishing vessel “Santo Rocco di Bagnara” (“the vessel”) on or about 25 July 1997. Jetopay at all material times was the owner of the vessel. Jetopay seeks a declaration that OMM is bound to indemnify it under the policy in respect of damage to the vessel and the cost of its repair, and seeks judgment in an amount of $307,171 together with interest and costs. Jetopay also sues the second respondent Sealand Insurance Brokers Pty Ltd (“Sealand”) which was retained by it as broker to arrange insurance of the vessel, on the ground that it should have been covered for such loss. The basis for this claim is founded on an alleged breach of ss 52 and 82 of the Trade Practices Act 1974 (Cth) (“TPA”), an alleged breach of its retainer and in negligence.
2 Against Harbour Pacific Underwriting Management Pty Ltd (“Harbour Pacific”), Jetopay seeks damages pursuant to s 82 of the TPA on the ground of misleading and deceptive conduct.
3 The primary area of dispute, however, is whether the losses sustained by Jetopay are covered by the OMM policy. Associated with that question is the issue whether that policy had been lawfully cancelled by OMM in May 1997, before the loss was incurred in late July. If OMM is held not liable then Jetopay claims that Sealand was in breach of its duty as broker, in breach of its retainer and in breach of s 52 of the TPA in not ensuring that the policy covered the loss sustained. Jetopay claims that Sealand failed to procure a policy as required by its retainer which adequately covered loss of earnings, included an additional peril’s clause and provided for a deductible amount of only $12,000 as opposed to the $20,000 provided in the cover. Against Harbour Pacific, the question is whether, by conduct in the form of positive misrepresentation or by failure to disclose relevant matters, Harbour Pacific was guilty of deceptive and misleading conduct in relation to its authority to act on behalf of OMM or to receive payment on its behalf.
4 There are several cross-claims but at this point it is not necessary to refer to them and they will be considered later in these reasons.
5 The relevant time-frame is from the beginning of 1996 through to the end of 1997. During 1997 there were a series of discussions and communications between various persons who for the most part lodged statements in these proceedings. The strands of the history over this period are to some extent discrete, and it is convenient to summarise the evidence of the principal witnesses by way of background.
6 The principal of Jetopay is Mr Rocco Musumeci who is a fisherman. He identifies the fishing region as the South East fishery of the Pacific Ocean. His evidence is to the following effect. In 1984 he arranged for the vessel to be built, and since then it has been owned and operated by Jetopay. The vessel is of steel construction and is twenty-nine metres in length with a gross registered tonnage of 156 tonnes. In July 1994, the vessel suffered a “total engine failure” while at sea and it was taken to Nelson in New Zealand where it was repaired. After repair, and with the exception of a mechanical problem experienced in Hobart in September 1994, the vessel carried out commercial fishing operations with very few and mostly insignificant mechanical problems until July 1997. Over that period from 1994 to 1997, Jetopay arranged for the vessel to be regularly inspected and maintained, though it did not keep logbooks of the maintenance or repairs. The vessel was also surveyed by the Australian Maritime Safety Authority “AMSA” on an annual basis. In particular, the vessel was the subject of a survey in July 1997, before the incident, when she was given a clean certificate.
7 From 1 August 1995 to 1 August 1996, the vessel was insured by Sunderland Marine Mutual Insurance Company Limited (“Sunderland”), which at that time was the main insurer in the fishing vessel market in Australia, acting through Marine and General Insurance Services Pty Ltd as brokers.
8 In June 1996, Mr Musumeci was interested in obtaining a better price for Jetopay’s marine insurance cover and he spoke with Mr Tressider of Sealand in relation to this. Mr Tressider then arranged an extension of the Sunderland policy from 1 August to 21 August 1996 to enable him to approach other insurers in the market. There were a number of discussions and communications between Mr Musumeci and Mr Tressider during July and August 1996.
9 In August 1996, Mr Tressider informed Mr Musumeci that he had obtained three quotations in relation to marine insurance cover for the vessel and made an appointment to discuss these with Mr Musumeci on 29 August 1996. At this meeting, Mr Tressider pointed out that Harbour Pacific was a large, reliable and reputable international insurance company. He indicated that with Harbour Pacific he could get a low excess on machinery breakdown claims of $12,000 and a cheaper premium than that paid by Jetopay under the Sunderland policy. Mr Musumeci indicated that he did not want a higher deductible amount for machinery breakdown than currently included in the Sunderland policy. Mr Tressider said that he would finalise the proposal and send it to Harbour Pacific, and would then issue him an invoice for the first of the premium payments, which were to be made on a quarterly basis. There was no mention up to that point of time of any involvement of any other party as broker or intermediary. In particular, there was no reference to Europeene Assurance et Reassurance Agencies (“EAR”) of Monte Carlo.
10 Mr Musumeci says that thereafter he promptly paid the insurance premiums to Sealand up to the time when on 26 July 1997 he was informed there was engine damage to the vessel. On 29 July, Mr Stevenson, the skipper of the vessel, informed Mr Musumeci that the engine damage was much worse than originally anticipated. Mr Musumeci then informed Mr Tressider of the engine failure and said he wanted to know whether the insurance company would pay for the damage. He was anxious to obtain confirmation.
11 On 18 August 1997, Mr Musumeci says that Mr Tressider informed him for the first time that the policy did not have additional perils cover or cover for loss of earnings, and that the deductible was in fact $20,000. Mr Tressider’s evidence was that he did not recall whether he had informed Mr Musumeci of this prior to July 1997. Mr Musumeci says that at no time prior to the 1997 breakdown had he ever received a copy of the Harbour Pacific Insurance Schedule. Nor was he told that any documents provided to Sealand were inconsistent with the terms he had asked Mr Tressider to include.
12 An affidavit of Mr Tressider was filed in which he recounts that he was a director of Sealand up to 1 September 1997 and that he had been an insurance broker in the fishing industry since about 1971. In response to a request by Mr Tressider, Mr Musumeci had provided him with a copy of the Sunderland policy relating to the vessel. Mr Tressider notes in his evidence that for the policy year 1994/1995 the policy provided the following:
“(a) the sum insured was $1.2 million,
(b) the deductible for hull and machinery under clause 12 of the Institute Fishing Vessel Clauses was $25,000 and for additional machinery under clause 13, $15,000,
(c) the loss of earnings contribution was, in excess of 30 days, 1% of the sum insured up to a period of 150 days.”
13 The 1995/1996 renewal was on the same terms and conditions as for the previous year.
14 Meanwhile, another part of the history was unfolding concerning the arrangements with Harbour Pacific and EAR. In the period April 1996 through August 1996, Mr Peter Grzonkowski, a Director of Harbour Pacific, contacted Mr Tressider and informed him that his company was keen to enter into arrangements for the underwriting of fishing vessels in Australia and that the proposed insurer would be OMM which was a European mutual Professional and Indemnity club of substance.
15 On 16 July 1996, Sunderland sent proposed renewal terms for the vessel for the year 1996 to 1997 including a quotation of premium at $52,114. Mr Tressider sent Mr Grzonkowski a copy of the proposed Sunderland policy and sought from him Harbour Pacific’s proposed rates and terms. On 23 July he received draft terms from Harbour Pacific which included an excess of $20,000; a loss of earning clause with a maximum of $12,000 in any one claim; the standard Institute Additional Peril clauses for hulls; and some restrictive terms which were not considered acceptable by Mr Tressider. The following day Mr Tressider sought further clarification of certain provisions by facsimile. On 26 July Harbour Pacific responded and proposed a premium of $43,550, about $9,000 below the Sunderland proposal. At this time Mr Musumeci expressed interest in cheaper insurance. On about 7 August, Mr Tressider met with Mr Grzonkowski to discuss terms for the insurance and it was agreed between them that the deductible would increase from $12,000 to $20,000 on the basis that certain other clauses would be changed. Further negotiations ensued. In the discussions over this period Mr Musumeci told Mr Tressider that he wanted the cover originally quoted with the extra options available including loss of earnings, additional perils and defence cover. He also asked that the terms should be at least as favourable as Sunderland. On 21 August 1996 Mr Tressider says that Mr Musumeci told him that he wanted to place the insurance with Harbour Pacific. A meeting took place on 29 August between Messrs Musumeci and Tressider at which Mr Tressider pointed out that the Harbour Pacific policy had similar terms to Sunderland but there were a couple of areas which were still being negotiated and that he would press for these terms. He told Mr Musumeci that Harbour Pacific was keen to underwrite the business and get into the industry and that was why the premiums were cheaper. At that meeting Mr Tressider filled out most of the proposal form for Mr Musimici on the basis of questions asked by him and answers furnished by Mr Musumeci. The proposal at that stage also included cover for additional perils.
16 There were further negotiations between Harbour Pacific and Sealand, and in September 1996 Harbour Pacific sent Sealand the proposed policy wording. Mr Tressider was not content with the wording. Some time prior to December 1996, Mr Grzonkowski told Mr Tressider that he could not get loss of earnings and additional perils and that the insurers would not agree to those terms. Mr Tressider says that he does not recall informing Mr Musumeci of this conversation, but points out that the Sunderland policy at this time did not have additional perils cover for the vessel and he believed that the savings on the premiums were more important to Mr Musumeci than the availability of a loss of earnings clause. In December 1996, Mr Tressider received the policy wording from Harbour Pacific and returned it seeking a correction. No response was received. It was not until 19 August 1997, after the breakdown, that Harbour Pacific sent Sealand a complete copy of the policy. Mr Tressider says that he relied on Mr Grzonkowski’s ability and authority to effect Jetopay’s insurance on behalf of OMM, and that he relied on Mr Grzonkowski to secure terms at least as favourable as the Sunderland policy which included the loss of earnings clause but not an additional perils clause.
17 Mr Grzonkowski gave evidence in which he asserted that Harbour Pacific was an underwriting agent and not an insurance broker and that it did not write business as an insurance broker. In early 1996, he was keen for Harbour Pacific to secure a position as an underwriting agent in what he describes as a “niche market” for insurers comprising insurers who provided marine cover for fishing vessels. His aim, in the first half of 1996, was to arrange a lineslip agreement with an underwriter in the London or European markets for the purpose of providing fishing boat cover for Australian operators. He describes a lineslip agreement as an agreement which has predetermined conditions, rates and terms of trade of the insurance to be provided. By entering into such an agreement, the underwriter indicates that it will sponsor and support the underwriting agent or “producer” under the lineslip arrangement in respect of all cover placed pursuant to the arrangement. The existence of such a lineslip arrangement of the type contemplated allows an underwriting agency to issue policies of insurance on behalf of an insurer subject to the terms of the particular arrangement, and involves a continuing relationship.
18 After some contact with London brokers, Mr Grzonkowski made contact with OMM through an intermediary, Mr Gresty of EAR who was based in Monte Carlo. In May 1996 Mr Grzonkowski travelled to the head office of OMM in Brussels and spoke with representatives of OMM and Mr Gresty. He sets out in his evidence the stages through which negotiations proceeded for the establishment of the lineslip arrangement.
19 On about 18 July 1996, Mr Grzonkowski spoke with Mr Tressider in relation to insuring the vessel of Mr Musumeci. He sought further information and this was duly given to him. On 6 August he sent a fax to Mr Gresty of EAR confirming that pending confirmation of terms and conditions Jetopay would seek cover in respect of the vessel. On 7 August 1996, Mr Grzonkowski instructed EAR to “bind from today’s date with quarterly instalments at a rate of 3% on 1.2 million” and “to increase the deductable from 12,000 to 20,000.” On 8 August 1996, he received a fax from EAR stating that “the risk is attached” and requesting details of the engine in order to finalise the cover. He says that shortly prior to this, on 5 August 1996, OMM signed and issued a lineslip agreement to operate from 1 July 1996. This agreement described the “assured” as “clients attaching per Harbour Pacific Underwriting Management Pty Ltd”. The agreement also provided that Harbour Pacific had the right to appoint a surveyor and to order all necessary actions to obtain relief or indemnity and ensure that time extensions are requested. EAR was named the intermediary for the business in the lineslip agreement. Mr Grzonkowski says that it was his understanding that the cover for the vessel was placed under the lineslip agreement.
20 A statement was filed by Mr Paul Haerden the Claims Manager of Ocean Management Europe NV (“OME”), which acts as correspondent for the management company of OMM. Mr Haerden has only held that position since 1 February 1997 and was not directly involved in the making of the line slip arrangements. However, he says he has examined the records of OMM relating to the claim by Jetopay. He says that OMM is an independent mutual insurance association which offers to its members a comprehensive range of coverage including protection and indemnity, freight, demurrage and defence cover, together with war risks and hull and machinery insurance. He says that OMM was paid only three of the four instalments of the premium for insurance on the vessel. He attaches to his statement a bundle of correspondence and what he describes as a copy of the policy as issued by OMM in relation to Jetopay. This document is important. It is on a letter-head entitled “Europeene Assurance et Reassurance Agencies”. The policy is described as “Marine, Hull and Machinery plus P & I Lineslip”. The assured is referred to as “Clients attaching per Harbour Pacific Underwriting Management Pty Ltd”. The insurance period is expressed as twelve months from 1 July 1996. There is a cancellation clause which specifies “60 days for either party, 30 days after a claim”. The conditions include the Institute Fishing Vessel Clause CL346; the Institute’s Additional Perils Clause CL347; rules and Bye-Laws of Ocean Marine Mutual Protection and Indemnity Association Ltd for Class 1 P & I; and the Institute War Clauses. Against the heading “CLAIMS, HANDLING AND SETTLEMENTS”, it is stated that Harbour Pacific has the right to appoint a surveyor and to order all necessary actions to obtain relief or indemnity, and to ensure that time extensions are requested and that final settlement of any claim is in the hands of “The Managers” of the Association. Under the heading “ADMINISTRATION PROCEDURES”, it is stated that the intermediary for the business is “Européene Assurance and Reassurance Agencies S.A.”. Attachments under the lineslip agreement are expressed to be as agreed between the producer (Harbour Pacific) and “The Managers” for the Association.
21 Also annexed to the statement of Mr Haerden is a policy schedule prepared on behalf of OMM on 28 October 1996, which describes the assured as Jetopay and the broker as EAR. It identifies the vessel and states the premium as $36,725, and the insurance period is said to commence from 21 August 1996 and to expire on 21 August 1997. Mr Haerden says that on 28 October 1996, Transport Management Europe NV (“TME”) which was correspondent for the Managers for OMM at the time, issued to EAR a debit note for $34,125 representing the premium to be paid to OMM for cover from 21 August 1996 to 21 August 1997. On the same day, OMM issued a credit note to EAR for $5,118.75 for EAR’s brokerage on the premium. Mr Haerden attached a copy of both the debit note and the credit note to his statement.
22 A letter from EAR to OME, also attached to Mr Haerden’s statement, states that the policy is being returned because it does not correspond to the policy issued by Harbour Pacific which does not include the additional perils clause. The letter notes further that the deductible has been increased to $20,000. A series of faxes are then annexed to the statement in relation to payments sent on behalf of OMM to EAR, which require payment of outstanding premiums within seven days and state that otherwise the entries will be cancelled forthwith without further notice.
The relevant insurance provisions
23 Jetopay and OMM in their submissions point to different documents as identifying the terms of the hull and machinery insurance cover under the policy underwritten by OMM, however the conditions of the cover expressly identified in the documents are the same. I accept the documents relied on by Jetopay, comprising Schedules and attachments, as identifying the terms of the cover. Those documents were sent by Harbour Pacific to Sealand with a cover letter dated 19 August 1997 identifying the bundle of documents as “a fully claused copy of the Insured’s policy documentation”.
24 Schedule 1 deals with Hull and Machinery policy and provides:
“CONDITIONS: Hull and Machinery
Institute Fishing Vessel Clauses, 20.7.87 (CL. 346) amended as follows:
Cls. 12: A$20,000
Cls. 13 additional deductible – Nil
Cls. 18 amended to cover 4/4th collision liability;
Cls. 19 amended to exclude any compensation for loss of use
Cls. 20 limited to what is stated under 20.1.1.;
Cls. 23 replaced by “Cancelling Returns Only”;
Cls. 24 deleted;
Cls. 25 deleted;
Institute War and Strikes Clauses – Hulls – Time, – 1.10.83 (Cl. 281)
Institute Radioactive Contamination Exclusion Clause, 1.10.90 (Cl.356)”
25 The signature clause to the Schedule states that:
“This insurance is placed through Harbour Pacific Underwriting Management Pty Ltd (ACN 003406611), underwritten by: -
Ocean Marine Mutual Insurance Association (Europe)
26 The document is dated at Sydney, 8 January 1997.
27 The termination clause of the Institute Fishing Vessel Clauses provides:
This clause 4 shall prevail notwithstanding any provision whether written typed or printed in this insurance inconsistent therewith.
Unless the Underwriters agree to the contrary in writing, this insurance shall terminate automatically at the time of
4.1 change of the Classification Society of the vessel …
4.2 any change … in the ownership or flag, transfer to new management, or charter…
4.3 requisition for title or use of the vessel …”
28 The Perils clause reads:
6.2 This insurance covers loss or damage to the subject-matter insured caused by :
6.2.4 negligence of repairers or charterers provided such repairers or charterers are not an Assured hereunder.
provided such loss or damage has not resulted from want of due diligence by the Assured, Owners or Managers.”
29 Clause 12 relates to the deductible and reads as follows:
12.1 No claim arising from the peril insured against shall be payable under this insurance unless the aggregate of all such claims arising out of each separate accident or occurrence (including claims under Clauses 8, 10, 18 and 20) exceeds … in which case this sum shall be deducted …”
30 As quoted above, Schedule 1 specifies the figure of $20,000 as the deductible in Clause 12.
31 Clause 21 is concerned with Notice of Claims and reads as follows:
“21 NOTICE OF CLAIMS AND TENDERS
21.1 In the event of accident whereby loss or damage may result in a claim under this insurance, notice shall be given to the Underwriters prior to survey and also, if the Vessel is abroad, to the nearest Lloyd’s Agent so that a surveyor may be appointed to represent the Underwriters should they desire.
21.4 In the event of failure to comply with the conditions of this Clause 21 a deduction of 15% shall be made from the amount of the ascertained claim.”
32 The Institute War and Strikes Clauses incorporated into the policy are concerned with war, strikes and terrorist related risks. However, clause 5 of those clauses is not, in terms, expressly so limited. It provides for termination as follows:
“5.1 This insurance may be cancelled by either the Underwriters or the Assured giving 7 days notice (such cancellation becoming effective on the expiry of 7 days from midnight of the day on which notice of cancellation is issued by or to the Underwriters). The Underwriters agree however to reinstate this insurance subject to agreement between the Underwriters and the Assured prior to the expiry of such notice of cancellation as to new rate of premium and/or conditions and/or warranties.”
33 I now turn to the specific questions for decision.
Is the 1997 damage within the cover? – repairer’s negligence
34 This question is essentially one of fact. As identified above, Schedule 1of the policy dealing with Hull and Machinery Insurance incorporates the Institute Fishing Vessel Clauses dated 20 July 1987 with amendments. This is reference to the standard clauses issued by the Institute of London Underwriters for attachment to time policies insuring fishing vessels against partial or total loss. The relevant clause which relates to “PERILS” covered is cl 6, which is quoted above. It refers to loss or damage to the subject matter insured caused by the negligence of repairers, provided that such loss or damage has not resulted from want of due diligence by the Assured, Owners or Managers.
35 OMM called no evidence on the repairer’s negligence question nor did it cross- examine any of the experts who provided the reports tendered by Jetopay. Instead, OMM submitted that there was no admissible evidence to support the claim of repairer’s negligence because none of the reports, it is said, should be admitted in evidence. The six reports were tendered and admitted over the objection of OMM. After hearing argument I admitted each of the reports and I now set out my reasons for so doing.
36 OMM submitted that the reports were inadmissible on several grounds. It is said that the expertise of those providing the reports is not established. Further, it is said that the reports refer to and rely on primary facts which were not established nor identified. It submitted that it is not possible to determine the extent to which inadmissible and secondary hearing evidence has influenced the opinions and that it is necessary that expert opinion must identify all the facts relied on in providing an opinion. In particular, the objection was taken that the reports on their face refer to matters which are not matters of direct observation
37 The starting point for consideration of this question is s 79 of the Evidence Act 1995 (Cth) (“the Evidence Act”) which provides that :
“If a person has specialised knowledge based on the person’s training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge.” (Emphasis added)
38 The reference to the opinion rule is to the common law principle that evidence of opinion is normally not admissible: see also s 76 of the Evidence Act.
39 In elaboration of the argument it is submitted that in order to be admissible the expert report must disclose the basis of the opinion and the facts relied on; and these facts musts be proven by admissible evidence: see Bugg v Day (1949) 79 CLR 442 at 462; Arnotts Limited v Trade Practices Commission (1900) 24 FCR 313 at 348-349. It is necessary for a witness to identify the expertise which is brought to bear and to differentiate between the assumed facts and the opinion in question: see HG v The Queen (1999) 160 ALR 554 at 562-564 per Gleeson CJ and 583-584 per Hayne J, in which the opinions of the “expert” went “well beyond” his legitimate field of expertise as a psychologist. See also Pownall v Conlan Management Pty Limited (1995) 12 WAR 370 at 375-7.
40 In considering the admissibility of the reports tendered, it is important to bear in mind that it is permissible for the Court to examine the reports and to draw appropriate inferences from the form and contents of them. Section 183 of the Evidence Act provides:
“If a question arises about the application of a provision of this Act in relation to a document or thing, the court may:
(a) examine that document or thing ; and
(b) draw any reasonable inferences from it as well as from other matters from which inferences may properly be drawn.”
41 The relevant provision of the Evidence Act for present purposes is of course s 79, quoted above, which concerns the admission of opinion evidence. Having regard to s 138 and the authorities cited above, it is in my view, permissible in applying s 79 to take into account the factual context in which the document was produced; the description and designation of the person making it; the contents and language of the document and the nature of the assertions made in it; the form of the document, and the expressed qualifications of the person making it as set out in the document.
42 When deciding on the admissibility of an expert report it is also important to consider the evidentiary context in which the evidence is tendered, and this involves a consideration of other evidence adduced including other reports tendered. It is not essential that any single report should express a final conclusion on the question under consideration. The evidence may be part of a mosaic of evidence into which the particular report or expert opinion fits. It may be that in certain cases an expression of expert opinion when considered alone may not assist the determination of the issue in question, but when considered in the context of other factual and expert material may lend support to a relevant conclusion. The determination of the question under consideration may depend on a series of expert opinions which approach the issue from a different angle. It is then for the Judge to determine whether the document is of assistance. The present case in my view is a case where these considerations apply.
43 Reports from four persons were tendered for the plaintiff. Two of these were by Mr John Lucas on a letter-head entitled:
“John M. Lucas Marine Surveying Pty Limited
Marine Surveyors & Loss Assessors”
44 The letter-head also refers to “Commercial Hull” and “Fishing Vessels”. The first report of Mr Lucas is dated 4 August 1997. He refers to having inspected the partially dismantled engine. The dismantling had been done by two engineers from the vessel. He also refers to finding that there appeared to be an oil failure, whereby oil did not reach the upper part of the engine. He refers to pistons numbers 1 and 4, which had seized. He refers to observations that camshaft loads were unserviceable and to crankshaft journels which were marked. He also refers to damage to bearings which he observed. Of particular relevance is his observation that there was a blocked oil gallery and that this could have been the main cause of the damage. He refers to the history of the vessel and to the rebuilding of the engine in New Zealand in 1994 and to the fact that it had only run approximately 5,000 hours since rebuilding. He recommended the installation of a new engine.
45 In his further report of 15 August 1997, Mr Lucas confirms that he inspected the engine on 29 July 1997, four days after the incident. He expresses an opinion in response to reports from Lee Parker and another expert Christopher Wells, who was not called, that there had been problems over the years and that possible oil contamination contributed to the last breakdown. He expresses the belief that certain repairs carried out in Nelson, New Zealand did not relate to the bottom end of the engine. His reason for forming this view was the cost of repairs which was in the vicinity of $58,000.
46 On a reading of these two reports, in the absence of cross-examination, or evidence to the contrary, the inference can reasonably be drawn that Mr Lucas carried on business as a marine surveyor and loss assessor and that he had familiarity with commercial hull, fishing vessels and other craft. From the content of the report it is apparent that he had some understanding of the practical operation of the engine and vessel under consideration and that he actually inspected the vessel and the engine and made a number of specific observations in relation to it. From this material he formed a view which is of relevance to the proceedings, namely that oil blockage could have been the cause of the damage. I am satisfied, having regard to the above matters, that while there is inadmissible material referred to in the report, in the sense that reference is made to facts which have not been proved, the substance of his reports is the expression of expert opinion as to the state of the engine based on personal observation. When read together with the other expert evidence and with the factual material referred to above I consider that it is relevant and admissible.
47 The next report objected to is that of Mr Crosby, of 1 September 1997. It is on a letter-head entitled:
“Crosby & Co
Consulting Marine Surveyors and Engineers
D. W. Crosby J.P.
C. ENG, F. I. MAR. E. F.C M S”
48 Mr Crosby describes himself as a surveyor. The report is expressed to be a Survey Report. He states that he examined the engine on 25 and 26 August 1997, one month after the incident, which had been partially dismantled and removed from the vessel. He describes the damage which he saw as serious, and he notes fifteen specific matters of personal observation and opinion in relation to the engine. He describes the engine and states it to be robust but says that it has a vulnerable area. He points out that lubrication takes place by spraying oil through small orifices only 0.5 millimetres in diameter, and that the small orifices are very vulnerable to any particulate debris which can accrete in the orifices. He expresses a view that the damage which he observed could not be described as “fair wear and tear” which is further borne out by specific photographs. Having regard to the random nature of the damage, it was apparent to him that some of the orifices were working and doing their job and some were totally or partially blocked either permanently or intermittently. His opinion was that the engine was repairable but that the cost of repair would exceed the cost of a replacement engine of another make. Finally, he expressed an opinion that the damage was a direct consequence of the negligence of the New Zealand repairers in 1994, specifically in that they failed to clean out the lube oil system properly after completion of repairs.
49 A reading of this report, particularly in circumstances where it was open to OMM to call evidence in opposition and to require Mr Crosby for cross-examination, satisfies me that the report is admissible. I am also satisfied that it is directly relevant to the question as to the causation of the failure of the engine. Insofar as criticism is made that there is either no reasoning or that it is not a reasoning process which should be accepted, I do not agree.
50 There were also tendered two reports by Mr Lee Parker, whose address is Rockliff Marine & Engineering Pty Limited, Tasmania. His two reports are dated 14 August 1997 and 19 August 1997. He saw the vessel the day after the incident as the vessel returned from the fishing trip. He inspected the engine. He refers to a considerable number of observations which he made on inspection, and to the conclusions which he drew from those observations. He says he was involved with repairing the engine after its repair and return from New Zealand. He had kept photographic evidence of the engine’s condition from the time it was rebuilt and returned from New Zealand and says that these showed a dramatic increase in component damage from that time up to the present. In his conclusion he also expresses the view that the damage was not consistent with normal wear and tear. He considers that poor performance of previous overhauls caused contamination of the lubrication system, which in turn caused a gradual yet premature failure of components outside their normal wear schedule. In his second report dated 19 August, he refers to reports by Mr Christopher Wells which he had seen and he confirms his earlier conclusion in relation to the engine and his opinion that contamination of the oil had caused bearing damage.
51 Again, while I will not repeat the comments made in relation to the other reports, it is evident that this material is relevant and in my view, the reasoning process has not been shown to be untenable. I am not persuaded that there is any obvious error in the reasoning process, or in his reliance on his own observations, such as would warrant rejection of the report in evidence. No such defect was pointed to in submissions.
52 The final report tendered was that of Mr Hughes, dated 23 August 1997. From the form of the report and his recounting of the matters he observed, it is apparent that Mr Hughes certainly has qualifications to make the observations and express the conclusions which he does. His approach to the report is to state what he observed and then to express conclusions as to the importance of the specified defects observed and the likely consequences. After considering his observations of thirteen specified functioning parts of the engine, he concludes that there had been abnormal abrasive wear and adhesion damage which was destructive to many of the engine’s components. He expresses the view that it was the result of debris generated at the time of previous engine failures which had not been properly cleaned up during the process of repairing the engine. This debris had entered the lubrication system where even more debris had been generated by the oil pump and transported to other parts of the engine. Again, for similar reasons to those stated in earlier remarks, I am satisfied that this report is admissible.
53 In summary, the expert reports in the present case set out the matters of personal observation upon which it can reasonably be inferred the opinions were based. Notwithstanding that a number of other matters were referred to, the processes of reasoning from the personal observations are sufficiently apparent to make the reports admissible.
54 Accordingly, I find that for above reasons each of the reports is admissible.
55 Moreover, in the absence of any contrary evidence or cross-examination, I conclude on the basis of these reports, and on the evidence of Mr Musumeci as to maintenance, that the proximate cause of the July 1997 engine failure, more likely than not, was repairers’ negligence, specifically, the negligence of those who carried out the repairs which took place in 1994 in not taking proper steps to clean up debris. No intermediate or other plausible cause is indicated on the evidence and as a matter of common sense and practicality, I find that the effective and proximate cause of the 1997 failure was repairers’ negligence: see March v Stramare (1991) 171 CLR 506 at 514.
The proviso – due diligence
56 The proviso to clause 6.2.4 of the Institute Fishing Vessel Clauses quoted above is that loss or damage to the subject matter insured in respect of which the claim is made must not result from want of due diligence by the assured, owners or managers.
57 As Counsel for Jetopay points out, there is no allegation of want of due diligence by OMM in the pleadings and no evidence has been brought by OMM to support this contention. I accept the evidence of Mr Musumeci that after the repairs in Nelson, New Zealand in 1994, the vessel experienced no relevant significant mechanical problems up to the date of the 1997 failure. I am satisfied that during that period the vessel was regularly inspected and repaired, and was also surveyed. Mr Musumeci gave evidence that he was present during some of the surveys of the vessel and he annexed to his affidavit copies of the relevant Survey Certificates. On the evidence, I am not satisfied that the loss or damage resulted from want of due diligence either by Jetopay or anyone on its behalf. I am affirmatively satisfied that there was due diligence exercised by the assured and its agents.
Onus of proof of due diligence
58 OMM also raised a question as to the onus of proving due diligence. This depends on whether the proviso is considered to be an element in establishing liability of OMM or whether it is an exception. If it were the former, the onus would be on Jetopay to negative lack of due diligence, and if it were the latter case, the onus would be on OMM: see Avel Pty Ltd v Multicoin Amusements Pty Ltd (1990) 171 CLR 88 at 119-120 per McHugh J; Vines v Djordjevitch (1955) 91 CLR 512 at 519 and Banque Commerciale SA, en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 285.
59 The position in the authorities on the onus of proof in the proviso to clause 6.2.4, is that the weight of authority supports the position that the onus of proving want of due diligence is on the insurer and not the assured: see, for example, O’May on Marine Insurance 1993 at p 137-138, where the view is expressed that in practice underwriters generally accept that the onus to show that the loss resulted from the lack of diligence rests on the underwriters. The practice, it is said, is to treat the proviso as an exception which requires the conditions relied on to be proved by the underwriters if they wish to base a defence on it. It also appears to be the position under United States law as O’May points out. The only case cited to the contrary is a decision of Ruttan J in the British Columbia Supreme Court in Coast Ferries Ltd v The Coast Underwriters Ltd (1971) 23 DLR (3d) 226 at 232-233 where his Honour simply states the conclusion without reference to any authority that:
“Since the owner is relying upon unseaworthiness the burden also rests upon the owner to show the other condition set forth in s. 41(5) of the [Marine Insurance Act 1960 (BC)], that such unseaworthiness was without his privity. Moreover, in the claim under the insurance policy the burden rests upon the assured to show that he has not been guilty of undue negligence leading to the accident which occurred.”
60 Clause 2 of the policy in that case covered loss or damage directly caused by negligence of the Master, but there was a proviso that such loss or damage must not have resulted from want of due diligence by the assured, the owners or manager of the vessel. It was their want of due diligence to which his Honour referred at 233.
61 The Coast Ferries case went on appeal to the Court of Appeal of British Columbia where it was dismissed, but that Court expressly stated that it did not need to express an opinion on the question of burden of proof in relation to the proviso, because it was fully satisfied on the evidence that the owner was wanting in due diligence in seeing that the vessel was properly loaded: see The “Brentwood”  2 Lloyd’s Rep 232 at 233. An appeal was then taken to the Supreme Court of Canada but that too was dismissed. The Supreme Court also expressed no view on this point: see Coast Ferries Ltd v Century Insurance Company of Canada  2 SCR 477 at 483. The case provides an unsatisfactory basis from which to derive a general principle as to onus of proof where such a view is contrary to accepted practice. Accordingly, in the present case I consider that the better view as to the operation of the due diligence proviso is that the onus rests on the insurer to establish want of due diligence in accordance with the accepted practice of insurers.
Did the damage occur within the period of cover?
62 OMM submits that it did not. It submits that Jetopay has not discharged the onus which it bears to establish that the loss occurred within the time frame of one year from 21 August 1996. It submits that the damage was suffered by way of a gradual process of deterioration over a period from the carrying out of the repairs in 1994 up to the time when the breakdown occurred in 1997. Consequently, an indeterminate amount of the damage was suffered outside the period insured by OMM. In respect of this submission, OMM refers to the High Court decision in Guardian Assurance Co Ltd v Underwood Constructions Pty Ltd (1974) 48 ALJR 307. The circumstances of that case were quite different. It concerned costs incurred by the owner of the property pursuant to obligations under its insurance policy to take all reasonable precautions to prevent loss, damage or liability. Mason J who gave the judgment for the Court thought it was proper to infer that the work in question, in that case, was undertaken by the assured to protect and restore an excavation in order to avoid further damage which might result in collapse of a building. As his Honour stated in that case at 309:
“What is to my mind decisive is that the evidence establishes that the damage to the installations and office block disturbed the physical integrity and enduring quality of the excavation itself. The submission in all its unattractive simplicity is that, although the respondent would be indemnified if it stood by and allowed the office block to collapse, it is not indemnified when it incurs expense in preventing or minimising damage or liability.” (Emphasis added)
63 There is no suggestion in the present case that the build up of the debris attributable to the defective repairs ever manifested itself or could have been reasonably discovered after the repairs in New Zealand and before the total engine failure in July 1997 in such a way that it could have been expected that preventive measures be taken to avoid failure of the engine as in the Guardian Assurance case. The present policy is concerned with damage to the insured subject matter caused by the negligence of the repairers. In my view, the repairers’ negligence on the evidence has been shown to be the proximate cause of the relevant damage, and that damage occurred at the time when the engine failed as a matter of common sense and practicality.
64 Whichever view is taken in the present case as to onus, the evidence before me is in my view more than sufficient for the finding I make that the insured damage was not occasioned by want of due diligence.
Was the policy cancelled by OMM in May 1997 prior to the engine failure?
65 OMM submits that the policy had been cancelled prior to the engine failure on the ground that Jetopay had failed to make due payment of the third instalment of premium. It says that the Notice of 14 May sent to EAR operated to automatically cancel the insurance cover at the expiry of 7 days in the event of non-payment. In order to support this submission reliance is placed on the facsimile sent by OME to Mr Gresty of EAR on 14 May 1997 which reads as follows:
“SUBJECT OUTSTANDING HULL PREMIUM:
SANTO ROCCO DI BAGNARA: AUD 8531.25
According to our records the contributions due in respect of the above entry remain outstanding and no monies have been received as at the date of this fax.
In accordance with the provisions of Rule 2.1 we hereby call upon you to pay the outstanding monies in full within the next 7 days that is on or before the 21st day of may [sic]1997. If these monies are not received by the due date then the entries will be cancelled forthwith without further notice or other formalities.
The premium, taxes and policy costs due within the cancellation period remain payable and Ocean Management Europe NV/SA will take such necessary action to recover all the outstanding monies, together with interest and costs.”
66 In submissions, Counsel for Jetopay handed to the Court a table showing particulars of premium payments and the dates on which they were made as indicated in evidence. This is not an agreed table but on the evidence I am satisfied that it reflects sufficient details of relevant payments made to EAR to make a decision on this point.
67 That table is as follows:
SANTO ROCCO DI BAGNARA
Due: 21.12.86 [sic]
The double question marks indicate that the date cannot be identified.
68 It should also be noted that on 9 December 1996 and 11 February 1997 two earlier letters in practically identical terms to that of 14 May 1997 had been sent in relation to earlier instalments by OME on behalf of OMM to EAR, yet no attempt was made to cancel the cover on the basis of non-payment in accordance with those notices.
69 There are several obstacles to acceptance of the submission of OMM that the policy was cancelled before the failure of the vessel’s engine or indeed at all.
70 The first is that OMM could not point to any provision which entitled it to give such a notice. Although the “Notice” purports to be given in accordance with “provisions of Rule 2.1”, counsel for OMM could not point to any provision in any document which fits that description or indeed to any provision which entitled it to issue such a cancellation apart from the War clauses to which I will refer later. It was submitted that the reference to Rule 2.1 in the letter should be read in some unspecified way as a reference to Clause 13B of the P & I Rules of the Ocean Marine Mutual Marine Insurance Association (Europe) OV (Exhibit 2), which provides for cancellation of insurance cover on seven days notice for failure to pay premium. No basis was provided for such a speculation. Those P & I Rules are not incorporated by the insurance documents. The Hull and Machinery Schedule 1 issued to Jetopay does not refer to those Rules. The Certificate of Entry and Acceptance into the Association makes it clear that the Association Rules referred to in that document only apply to P & I and Freight, Demurrage and Defence cover. There is no indication of the incorporation of any such Rules as applicable to Hull and Machinery cover, though they are specifically referred to in the Schedule of P & I cover. Nor has it been proved that the Rules which were tendered in evidence (Exhibit 2) were those applicable in the relevant period during 1996 and 1997. OMM submits that the Rules were expressly incorporated into the lineslip agreement, and therefore if the insurance cover was placed pursuant to the lineslip, the Rules were incorporated unless expressly excluded. I do not accept this submission. The lineslip agreement incorporates in its conditions Rules and Bye Laws at Ocean Marine Mutual Protection and Indemnity Association Ltd specifically for Class 1 P & I. It is made more clear that they only were intended to apply to P & I cover by the content of the Rules themselves which are concerned with P & I matters. The lineslip arrangement does refer to the Rules or Bye-Laws of Ocean Marine Mutual Protection and Indemnity Association Ltd but there is no evidence that this is the same entity as that referred to in Exhibit 2, being “Ocean Marine Mutual Insurance Association Europe OV”, and on its face it appears to be a different entity.
71 In addition, even if the Rules in exhibit 2 were relevant and applicable (which I do not accept), the Notice requiring payment was given to EAR and not to the member, Jetopay, as required by Rule 13B which provides for cancellation. There is a proviso to Rule 39B in Exhibit 2, which provides for service on an intermediary who caused the application of a ship to be entered into the association, but this only applies where the association has not been provided with the address of the member for entry in the Register of Members. In the present case it is common ground that OMM had notice of the address of Jetopay in the proposal form. In my view it cannot be said therefore that OMM did not have the address for entry. Accordingly, the Notice even if it had any contractual basis was not served in accordance with the Rules and could not cancel the insurance cover.
72 Having regard to this material, in my opinion, the Hull and Machinery cover of Jetopay was not cancelled by the letter of 14 May 1997 from OMM to EAR.
Cancellation – War Risks clauses
73 OMM as a further alternative, contended that it was entitled to cancel the insurance under Clause 5 of the incorporated Institute War and Strikes Clauses which reads:
This insurance may be cancelled by either the Underwriters or the Assured giving 7 days notice (such cancellation becoming effective on the expiry of 7 days from midnight of the day on which the notice of cancellation is issued by or to the Underwriters). The Underwriters agree however to reinstate this insurance subject to agreement between the Underwriters and the Assured prior to the expiry of such notice of cancellation as to new rate of premium and/or conditions and/ or warranties.”
74 Counsel contended notwithstanding the context in which this sub-clause applies, that nevertheless it should be read as a general power of cancellation of the policy by either side on seven days notice subject to negotiation as to reinstatement.
75 This argument is not accepted. First, as a matter of construction the reference to “this insurance” is a reference to the war and strikes Perils referred to in cl 1 of the Institute War and Strikes Clauses. It is not a general power of cancellation. This construction is also assisted by the provisions of cl 4.2 which exclude loss, damage, liability or expense covered by the Institute Time Clauses concerning Hulls, although this exclusion relates to those clauses referable to 1 October 1983.
76 As the text writers indicate the underlying purpose of cl 5 is directed to war and strike situations and it is designed to enable underwriters to negotiate variation of the rate of premium and conditions of insurance in the event of a serious change of circumstances relating primarily to war risks. See N Geoffrey Hudson and J C Allen The Institute Clauses 2nd ed. 1995 at p 247-248 and Arnould’s Law of Marine Insurance and Average British Shipping Laws Vol III (1997) at par 370-374. As both authors point out, the last paragraph on the page containing the Institute War and Strikes Clauses is to the effect that the insurance shall not become effective if, subsequent to its acceptance by the underwriters and prior to the intended time of its attachment, there has occurred any event which would have automatically terminated the insurance under the provisions of cl 5. This is consistent with the limitation of the cancellation provision in cl 5 to situations where there is risks arising from wars and strikes.
77 Furthermore, any suggestion that the cancellation was intended to operate under the provisions of cl 5 of the Institute War and Strikes Clauses sits uneasily with the wording of the Notice which in fact was given and which was referable to a different unidentified clause.
Non-receipt of premium
78 Jetopay submits that OMM was not entitled to cancel the cover for non-receipt of the third instalment of premium because the payment was made to OMM. It points to the fact that the premium was paid by Jetopay on 24 February 1997 to its broker Sealand, who received it on 25 February and on-paid it to Harbour Pacific which received it on 19 March. It also says that on 21 March payment was made by Harbour Pacific to EAR. Jetopay submits that the OMM policy issued to Jetopay was placed through Harbour Pacific with Harbour Pacific acting as agent for OMM, and in those circumstances payment of instalments of premium to Harbour Pacific were payments to OMM even though OMM may not have received the premium from its agent EAR within the required period.
79 Schedule 1 of the policy, which is on the letterhead of Harbour Pacific, states that the insurance was placed through Harbour Pacific and underwritten by OMM. In my view, the relationship between the parties for the purposes of payment of premium was that Sealand was acting as broker for Jetopay and in this capacity placed the insurance through Harbour Pacific and EAR with their principal OMM. In the lineslip agreement the “intermediary” for the business is expressed to be EAR. The attachments to the lineslip were to be as agreed between the producer, Harbour Pacific, and the Managers for OMM. The lineslip agreement provided that all debit/credit notes would be issued directly to EAR, which in turn would collect premiums due 45 days following receipt of monthly statements and would make monthly payments at 60 days to the Managers for OMM which would confirm receipt. In my view, the legal framework in which the payments took place was that EAR was to act as “collection” agent for OMM in respect of premium instalments, which in turn was responsible for collecting from Harbour Pacific. In particular, EAR was given authority from OMM to negotiate the insurance, and it had authority from OMM to issue the policy Schedules dated 8 January 1997 and to receive premiums for on-payment to OMM.
80 It is true that in evidence Mr Grzonkowski indicated that in some respects Harbour Pacific acted in the interests of Jetopay and that the position is not clear as to general agency, but in substance Harbour Pacific had secured the agency to write insurance in Australia on behalf of OMM and to act as its agent. EAR was charged with the collection of premiums Accordingly, I am not satisfied that there has been established that there was any non-payment of premiums which could give rise to cancellation, because all payments were clearly made to EAR as collector for OMM.
81 A further and alternative response to the assertion that the third premium instalment was not paid and that therefore OMM was entitled to cancel the cover is provided by s 59 of the Marine Insurance Act 1909 (Cth) which provides :
“59(1) Unless otherwise agreed, where a marine policy is effected on behalf of the assured by a broker, the broker is directly responsible to the insurer for the premium, and the insurer is directly responsible to the assured for the amount which may be payable in respect of the losses, or in respect of the returnable premium.
(2) Unless otherwise agreed, the broker has, as against the assured, a lien upon the policy for the amount of the premium and his charges in respect of effecting the policy; and, where he has dealt with the person who employs him as a principal, he also has a lien on the policy in respect of any balance on any insurance account which may be due to him from such person …”
82 The provisions of s 59(1) are identical with those of s 53(1) of the United Kingdom Marine Insurance Act 1906, passed three years earlier, which reflected the custom of the marine insurance market in England at that time. This marine insurance custom was recently considered by Rix J in Prentis Donegan & Partners Ltd v Leeds & Leeds Co Inc  2 Lloyd’s Rep 326 at 334-5, in relation to an automatic termination clause which purported to operate on late payment of a premium or an instalment of premium. His Lordship there pointed out that by reason of the custom which underlies s 53(1) of the identical UK Act, the premiums are deemed to be paid by the broker to the underwriter, thus satisfying the payment requirements in the policy, and then lent back by the underwriter to the broker. This is acknowledged to be a legal fiction but it is settled and has important ramifications in the present case. Where the policy contains an express clause requiring the assured to pay a premium to the underwriter, the liability remains that of the broker and not that of the assured. His Lordship concluded at 335 that:
“It follows that the automatic termination clause cannot operate under English law to forfeit the policy, for the assured’s obligations in respect of premium will always have been timeously discharged.”
83 This principle is long-standing and well established: see Power v Butcher (1829) 10 B & C 329 at 340 and Universo Insurance Co of Milan v Merchants Marine Insurance Co Ltd  1 QB 205 at 209; affirmed on appeal at  2 QB 93 per Lord Esher at 96, per Smith LJ at 96 and per Chitty LJ at 99.
84 In the Prentis Donegan case the Court was concerned with an “automatic termination” clause which provided:
“This policy shall automatically terminate … and all liability of the Underwriters herein shall end at noon of the tenth day following non-payment of any of the last three instalments on the due date thereof …”
85 Notwithstanding this provision, Rix J held that the clause could not operate to terminate the policy because according to the accepted custom, albeit a legal fiction, payment of the premium must be taken to have been made.
86 In the present case the insurance was effected through a broker, namely Sealand, and therefore s 59 applied. The relevant instalment of premium, the third payment, was paid by Jetopay to Sealand and on-paid to Harbour Pacific within time which in turn paid EAR. Accordingly, even if Harbour Pacific and EAR were considered to be brokers for Jetopay as OMM contends, all brokers received the payments. I do not accept, however, that either Harbour Pacific or EAR were brokers. Their role was more consistent with that of being intermediary agents for OMM. That is the way they saw themselves and carried out their functions in relation to Sealand, Jetopay and OMM. OMM contends that s 59 is silent as to whether the insurance cover can be cancelled for non-payment of premium and it cannot therefore affect any right to cancel the policy. The difficulty with this argument is that it is inconsistent with long established practices explained in the Prentis Donegan case and other authority, and is contrary to the principles formulated by text writers.
87 Accordingly, I am satisfied that independently of the other arguments as to cancellation there has not been any failure to pay a premium which could ground a cancellation of the insurance cover in the present case.
Quantum of the claim
88 OMM submits that the claim of Jetopay should be limited to items relating to the new engine, its installation and parts.
89 In my view, the specific claims made, with exception of legal costs which are not pressed as damages, are recoverable as damages. These costs were incurred in having to arrange for repair of the vessel and included travel, accommodation and other expenses necessary or incidental to supervise the repairs including bank charges. The wages claim was made an expense which the applicant was to bear while the vessel was under repair and I am satisfied that this cost flowed from the breakdown and is within cover.
90 OMM has claimed that it is entitled to a 15% set-off because it received no notice prior to survey. This argument was not pleaded. The submission is based on the provisions of Clause 21.1 of the Institute Fishing Vessel Clauses which provide:
“21.1 In the event of accident whereby loss or damage may result in a claim under this insurance, notice shall be given to the Underwriters prior to survey and also, if the Vessel is abroad, to the nearest Lloyd’s Agent so that a surveyor may be appointed to represent the Underwriters should they so desire.
21.4 In the event of failure to comply with the conditions of this Clause 21 a deduction of 15% shall be made from the amount of the ascertained claim.”
91 The evidence satisfies me that notice was given to Sealand of the claim on or about 29 July 1997 and this was relayed to Harbour Pacific on that date recommending John Lucas as surveyor. Mr Lucas subsequently inspected the engine and reported to Harbour Pacific. This report is referred to earlier and is in evidence. I am satisfied that the notification to Harbour Pacific was sufficient notification prior to survey within clause 21 and that therefore no deduction should be made.
92 OMM has also sought to claim a deduction for the amount of the fourth instalment paid by Jetopay but not received by OMM. The first point to note in respect of this submission is that it was not pleaded. In any event, I would reject it on the basis of the above findings. OMM’s only possible claim for the amount of the fourth instalment in these proceedings would be against Harbour Pacific as its broker (see s 59(2) of the Marine Insurance Act 1909 (Cth) quoted above), and while it was not pleaded, I note that this too would be unsuccessful on the finding that EAR was paid the last instalment as collection agent for OMM.
93 For the above reasons, I am satisfied that Jetopay has made out its claim against OMM. It will, however, be necessary to make some adjustments in the amount claimed having regard to the reasons given above, and this can be considered when Short Minutes of Order have been brought in by the applicant.
Claim by Jetopay against Sealand for the deductible figure and the exclusion of loss of earnings
94 In view of the conclusions which I have reached above the outstanding matter in relation to Sealand is the claim that Sealand breached its duty to Jetopay because it failed to obtain a deductible amount of only $12,000 as opposed to $20,000 provided for in the cover, it failed to obtain loss of earnings cover, and it failed to notify Jetopay of their omission.
95 The short answer to this submission is that in my view the concern of Mr Musumeci was to obtain a policy at a lower premium than that payable under the Sunderland policy, and that neither the lack of loss of earnings cover under the policy nor the $20,000 deductible in lieu of the $12,000 discussed, were matters that would have caused Mr Musumeci to refuse the cheaper insurance available from OMM. In the course of cross-examination, Mr Musumeci agreed that a policy with a loss of earnings provision with a $50,000 maximum would not have been of great significance to him if the policy were to cost an additional $9,000 in premiums. He agreed that he would not have pressed a loss of earnings requirement if the premium was $10,000 more, and his position was similar in relation to the deductible amount.
96 Accordingly, I do not consider that Jetopay has made out his claim against Sealand in respect of the non-inclusion of the $12,000 deductible figure or the exclusion of loss of earnings.
Jetopay’s claim against Sealand for additional perils
97 This claim in respect of the non-inclusion of the additional perils clause does not arise in view of the conclusion reached with respect to the operation of clause 6.2.4 which covers the damage sustained in the present circumstances without the need to invoke additional perils clause.
Jetopay’s claim against Harbour Pacific
98 In view of the conclusions which I have reached as to the non-cancellation of the cover and the payment of premiums to Harbour Pacific on behalf of OMM, the claim by Jetopay against Harbour Pacific does not arise.
99 The substance of this claim is that Harbour Pacific had a duty to convey the Notice of Intention to cancel the policy to Jetopay or Sealand and failed to do so. In view of the conclusion which I have reached that OMM was not entitled to cancel the policy because the premiums were received by it or received on its behalf and because there was no provision entitling it to cancel this claim, has not been made out.
100 Alternatively it is said that if OMM is liable to Jetopay then Harbour Pacific is a joint tortfeasor liable to Jetopay, in respect of the same loss or damage. For reasons given earlier I am also of opinion that this cannot be made out because Harbour Pacific is not a tortfeasor and has not breached any duty to OMM in respect of cancellation notice or otherwise.
101 Jetopay has succeeded in its claim against OMM but there must be an adjustment in relation to quantum with respect to legal costs. Jetopay does not succeed in relation to its claim against Sealand. The cross-claims by Sealand and by Harbour Pacific do not arise. The cross-claim by OMM against Harbour Pacific is dismissed. I direct the applicant to serve draft Short Minutes on the other parties to give effect to these reasons and to bring them in. The Short Minutes should also include proposed orders as to costs and I will hear the parties on costs and the form of the orders when the matter is next before me.
I certify that the preceding one hundred and one (101) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.
Dated: 17 December 1999
Counsel for the Applicant:
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Solicitor for the Applicant:
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Counsel for the First Respondent:
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Solicitor for the First Respondent:
Ebsworth & Ebsworth
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Counsel for Second Respondent:
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Solicitor the Second Respondent:
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Counsel for the Third Respondent:
M K Minehan
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Solicitor for the Third Respondent:
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Date of Hearing:
13-15 September 1999,
26 October 1999
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Date of Judgment:
17 December 1999