Allianz Australia Insurance Ltd v Smeaton

[2016] ACTCA 59

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
COURT OF APPEAL

Case Title:

Allianz Australia Insurance Ltd v Smeaton  

Citation:

[2016] ACTCA 59

Hearing Date:

7 November 2016

DecisionDate:

16 November 2016

Before:

Burns , Elkaim and Perry JJ

Decision:

  (a)    The appeal is dismissed.

  (b)    The appellant is to pay the respondents’ costs of the appeal.

Catchwords:

APPEAL – PRACTICE AND PROCEDURE – insurance – interpretation of s 54(3) of the Insurance Contracts Act 1984 (Cth) – whether the insured has proved that no part of the loss that gave rise to the claim was caused by the act – which State’s licensing scheme should apply – cross-jurisdictional matter.

Legislation Cited:

Civil Liability Act 2003 (Qld), s 19

Insurance Contracts Act 1984 (Cth), ss 54(2), 54(3)

Transport Operations (Marine Safety) Regulations 2004 (Qld), s 95(3)

Parties:

Allianz Australia Insurance Limited (Appellant)

Todd Smeaton (First Respondent)

Scott Smeaton (Second Respondent)

Nathan Patrick Whittington (Third Respondent)

Representation:

Counsel

Mr R Cavanagh SC with Mr D Lloyd (Appellant)

Mr G Smith (First and Second Respondents)

Mr A Black SC with Mr J Wilson (Third Respondent)

Solicitors

McCullough Robertson Lawyers (Appellant)

Johnston Legal (First and Second Respondents)

Stacks Law Firm (Third Respondent)

File Number:

ACTCA 18 of 2016

Decision under appeal: 

Court:  Supreme Court of the ACT

Before:  Mossop AsJ

Date of Decision:         18 April 2016

Case Title:  Whittington v Smeaton

Citation: [2016] ACTSC 76

THE COURT:

1. On 27 November 2010 Mr Nathan Whittington (the third respondent) was seriously injured in an accident involving a jet ski on the Ross River in Queensland. The machine was being driven by Mr Scott Smeaton (the second respondent). It was owned by his brother, Mr Todd Smeaton (the first respondent).

1. The jet ski was insured by the appellant. The policy covered the activities of the second respondent when he was operating the jet ski with the permission of its owner.

1. The third respondent sued the first and second respondents for damages arising from his injuries. The appellant was called upon to indemnify the Smeatons for any damages for which they were found to be liable to the third respondent. The appellant refused to do so. The first and second respondents accordingly joined the appellant to the proceedings in case they were found liable to the third respondent.

1. For convenience, the third respondent will be referred to as Mr Whittington, the first and second respondents will be referred to as Todd Smeaton and Scott Smeaton respectively. The appellant will be referred to as Allianz or the insurer.

1. The matter came on for hearing before Mossop AsJ on 4 April 2016. His Honour delivered his judgment on 18 April 2016. He found in favour of Mr Whittington against the Smeatons and he found in favour of the Smeatons against Allianz.

1. Damages had been agreed between the parties in the sum of $800,000. Accordingly judgments were entered in favour of the successful parties for this sum.

1. This appeal is by Allianz alone. Quoting from the appellant’s written submissions: “The single issue on this appeal is whether the First and Second Respondents discharged the onus of proof cast upon them by virtue of s 54(3)” of the Insurance Contracts Act1984 (Cth) (the “ICA”).

1. The limited scope of the appeal means that there is no challenge to the facts as found in the court below.

The relevant facts

1. Mr Whittington was 18 years of age when the accident occurred. He was a serving member of the Australian Army. In the course of his training he became a close friend of Scott Smeaton. He was introduced by Scott Smeaton to his brother, Todd Smeaton.

10.  The Smeaton brothers had a good deal of experience with boats. This included the use of jet skis and participation in waterskiing. Todd Smeaton obtained a full boating licence in New South Wales when he was 16 years of age. In April 2009, also in New South Wales, he obtained a personal watercraft licence (a PWC licence). This type of licence is necessary to legally operate a jet ski.

11.  Scott Smeaton had been involved with boats since he was a child. He was a regular water-skier. He was also very familiar with the use of a jet ski having operated such a vehicle on “hundreds of occasions” in “varying water conditions” prior to the accident. He obtained a boating licence in New South Wales when he was 16. As at the date of the accident he did not have a PWC licence. After the accident he obtained this licence in New South Wales. He was successful on his first attempt and had not carried out any preparation before sitting for the test.

12.  Todd Smeaton owned a jet ski which he often used on the Ross River in Queensland. He had taken out a Club Marine insurance policy with Allianz. The relevant liability clause in the policy was as follows:

Further, regard must be had to the circumstances known to a person in the position of the plaintiff. Those circumstances all pointed to a risk of any harm (let alone the actual harm which materialised) being not an obvious risk.  In particular:

(a)   the proposed nature of the activity was the towing of a waterskier (rather than more adventurous use of the jet ski);

(b)   the assurance to or agreement with the plaintiff that he would not get wet;

(c)   the manner in which the activity had been conducted on previous occasions and in particular the absence of any incident on those previous occasions;

(d)   the fact that the activity was to be undertaken on an relatively uncrowded area of water in calm conditions;

(e)   the absence of any other factor (such as the use of alcohol or reckless or irresponsible behaviour) either on previous occasions or the occasion of the accident, which would indicate to a reasonable person an increase in the risk involved in the activity.

13.  Without more, the liability provisions set out above would cover the use of the jet ski when under the control of Scott Smeaton, assuming he was operating it with the permission of his brother, Todd. There was no issue that that was the case when the accident occurred.

14.  The policy also contained exclusion clauses. As relevant here, they were:

Section 2-Liability to other people

What We cover

We will cover the following persons for their legal liability to pay compensation in circumstances specified in 1. to 5. below, up to the sums insured noted on the Schedule inclusive of legal costs and expenses (as specified in 6. below), to another party.

1.Use of Your Boat

You or any person in charge or control of Your Boat with Your permission (excluding boat builders, repairers, yacht clubs and marine operators except as provided by this section), for death or injury and/or damage to property during the Period of Insurance caused by or arising out of the use of Your Boat within the Geographic Limits;

General exclusions

These exclusions apply to Sections of the Policy.

…

Persons in control

Any claim arising from an incident involving Your Boat or any boat covered by this Policy, when that boat is under the control of:

·     an unlicensed person when a licence is necessary;

·     a person without adequate experience to reasonably control that boat;

...

This exclusion does not apply if You can prove that:

·     You did not know or had no reason to suspect that the person with control of that boat was such a person; or

·     as a result of an unforeseen emergency, it was reasonable for such a person to assume control of that boat.

15.  The important part of the exclusion provisions concerns the use of the boat under the control of “an unlicensed person when a licence is necessary.” It was common ground that a licence was necessary to operate the jet ski and that Scott Smeaton did not have an appropriate licence.

16.  The accident occurred in this way: On 27 November 2007 Mr Whittington and Scott Smeaton gathered at a hotel to have a meal. They did not consume any alcohol. After the meal the plaintiff and the Smeaton brothers met at the Ross River Reserve. The jet ski was in the water.

17.  The Smeaton brothers decided to water-ski. Mr Whittington was asked if he would act as an observer by sitting, facing backwards, on the jet ski and watching the water-skier who was being towed by the jet ski. The intent was that he should convey any signals given by the water-skier to the driver of the jet ski and also tell him of any mishap that befell the water-skier. Mr Whittington accepted the role.

18.  Initially Scott Smeaton was the water-skier and his brother was the driver of the jet ski. A little later the Smeaton brothers changed roles. Mr Whittington remained as the observer. As he was being pulled by the jet ski, Todd Smeaton fell off his water skis. Mr Whittington saw this and told the driver. Scott Smeaton turned the jet ski in order to return to his brother. In the course of the turn Mr Whittington was leaning forward to retrieve the tow rope. During the turn the jet ski traversed the wake of another vessel. As a result of the rocking of the jet ski Mr Whittington was unseated. He fell into the water. His leg became tangled in the towrope and was significantly injured. Ultimately he underwent a below the knee amputation of his left leg.

Conclusions at the hearing

19.  Mossop AsJ found negligence on the part of both Smeaton brothers. There is no challenge here to those findings.

20. In addition to finding negligence, his Honour also rejected a defence under s 19 of the Civil Liability Act 2003 (Qld) arising from an allegation that Mr Whittington had been involved in a “dangerous recreational activity.” His Honour found that the present facts did not amount to such an activity. He stated from paragraph 61:

[61] The conclusion that acting as an observer on a jet ski was not an activity that involves a significant risk of physical harm is reinforced by the fact that the plaintiff participated in the activity on the basis that he would not get wet.  This constituted a limitation on his participation, agreed to by the defendants, which qualified the nature of the activity so as to reduce any danger that might otherwise be involved.

[62] In my view, in the light of the particular circumstances in which the activity was carried out and the expert evidence as to the risks involved, there was not “a significant degree of risk of physical harm” to a person in the position of the plaintiff.

21.  His Honour also rejected an assertion that the fall suffered by Mr Whittington was as a result “of the materialisation of an obvious risk.”

22.  Once again there is no challenge here to the findings concerning a dangerous recreational activity or the existence of an obvious risk.

Findings on the insurance issue

23. It is appropriate to commence by setting out s 54:

Sect 54 – Insurer may not refuse to pay claims in certain circumstances

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

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

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

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

(5)Where:

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

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

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

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

(a)an omission; and

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

24.  His Honour’s consideration of the insurance policy commences at paragraph 69 of his judgment.

25. The insurer’s argument was firstly that s 54(2) enabled the insurer to deny the claim. This point was not an issue. The insurer, secondly, said that the insured had not met the level of proof required by s 54(3) to disentitle the insurer from refusing the claim under s 54(2).

26.  His Honour initially, and correctly, observed:

Therefore, subject to the operation of s 54 of the Insurance Contracts Act, any claim under the policy in relation to the present incident was excluded. (Paragraph 73)

27.  A little later his Honour summarised the task facing the Smeatons:

Therefore the claim by the defendants against Allianz depends upon whether or not the defendants have proved for the purposes of subsection (3) that no part of the loss that gave rise to the claim was caused by the act of Scott Smeaton in driving the jet ski while unlicensed, and hence that Allianz may not refuse to pay the claim by reason only of the act. In other words, if the defendants prove that the fact that Scott was unlicensed was not causally related to the loss for which indemnity is sought, then by operation of s 54 the defendants will be entitled to indemnity. (Paragraph 77)

28.  Allianz submitted that some of the acts of negligence of Scott Smeaton were the subject of matters addressed in obtaining the relevant licence in Queensland. If he had obtained the licence he would have been aware of his deficiencies and they would have been corrected. There would not then have been an accident. Accordingly the failure to obtain a licence was an act that gave rise to at least a part of the loss. In that circumstance indemnity could be properly denied by Allianz.

29. His Honour described “the exercise required by s 54(3)” as follows:

The exercise required by s 54(3) depends upon a comparison between the position that would have existed if Scott had been licenced and the position that in fact existed. If the defendants have proved that, on the balance of probabilities, the accident would still have occurred and the same damage suffered if Scott had been licenced, then they will have proved that no part of the loss was caused by unlicensed driving of the jet ski. (Paragraph 79).

30.  There was no challenge to this description of the “exercise”. This is an important point for reasons that will become evident below.

31.  Having set out the test, or exercise, his Honour then examined the legislation relating to the obtaining of a PWC licence. He noted that in Queensland an applicant for a licence was assessed by an accredited trainer whereas in New South Wales no “hands on” training was necessary. It is patent that the test in New South Wales is significantly easier to pass than that in Queensland and that the content of the former test is much less than that of the latter.

32.  His Honour ultimately decided, that whether the test had been taken in Queensland or New South Wales, it would not have made any difference to the actions of Mr Scott Smeaton in the events comprising the accident.

33.  The appellant, however, had as a central plank of the appeal that it was only the Queensland licensing requirements that should have been examined by his Honour. If this had occurred, argued the appellant, his Honour would have found that if Mr Scott Smeaton had taken the test, it would have made a difference to his actions on the day. Therefore, said the appellant, his Honour’s conclusions about the Queensland test were in error.

The basis of the appeal

34.  In both written and oral submissions the appellant summarised the appeal through this question: “Would it have made any difference to the actions of Scott Smeaton, in driving the jet ski, that he had undertaken the licence requirements?” The respondents’ put the issue this way: “Whether Scott Smeaton, if licensed, would have behaved as he did that day?” There is no difference between the two characterisations of the issue.

35. The appellant submitted that the information Scott Smeaton would have gathered in complying with the licensing requirements would have influenced the manner in which he drove the jet ski. If that were the case, and the influence would have in turn lessened the likelihood of the acts of negligence, then the insured could not rely on s 54(3). For this purpose it was important that the Queensland licensing requirements were taken as the requirements that would have influenced the act.

36.  The appellant pointed out a number of matters, generally arising from the report or evidence of the expert, Mr Lang, to demonstrate this point. For example:

(a)In paragraph 27 of his report Mr Lang refers to training in making turns at speeds up to and over 35 kmh and on different types of surfaces including the presence of a wake.

(b)In paragraph 31 Mr Lang refers to the focus in the course on “communication with any passengers on board the jet ski so that the operator is able to make their passenger aware of any water surface irregularities or any other collision risks.”

(c)In paragraph 32 Mr Lang refers to the avoidance of unexpected and sudden turns and being “aware of the effect of the wake of other vessels and the wake of the jet ski where there is a passenger on board the jet ski.”

37.  The appellant then submitted that his Honour had made a number of errors in not finding that Scott Smeaton would not have acted differently if the above matters had been part of his previous training.

38.  Although the appellant’s point has some initial appeal it assumes that the Queensland, and not the New South Wales, licensing requirements should have been at the base of the Court’s approach.

39.  This Court does not agree. The appellant submitted that because the accident occurred in Queensland and because Queensland law applied to the accident then it must follow that the Queensland licensing requirements should be applied. There are two difficulties with this submission:

(a)It is also Queensland law that a licence obtained in another state was equally valid. Section 95(3) of the Transport Operations (Marine Safety) Regulations 2004 (Qld) states: If the recreational ship is a personal watercraft, the person must also hold a personal watercraft licence or a current equivalent licence under the law of another State.

(b)If the task before his Honour was to examine what difference being licensed would have made, it was appropriate to first conclude where any such licence would have been obtained.

40.  The evidence overwhelmingly demonstrated that Scott Smeaton would have obtained a licence in New South Wales. The appellant submitted that because Scott Smeaton was currently stationed in Queensland, that meant he would most likely have obtained a licence in Queensland. However his evidence was unequivocal:

Mr LLOYD:            So you could have done a course in Queensland too, couldn’t you?

Mr SMEATON:        No; because my licence was in New South Wales.

Mr LLOYD:            You didn’t have to apply for a licence in New South Wales?

Mr SMEATON:        If I wanted to do – get my PWC – which I originally had my boat licence in New South Wales, the steps are – the next one after the boat licence is PWC.

MR LLOYD:           Is that your understanding of the way the regulations work?

Mr SMEATON:        That’s New South Wales, yes.

41.  It is consistent with the above answers that Scott Smeaton regarded New South Wales as his place of residence notwithstanding that his postings took him to other parts of Australia.

42.  If any licence that Scott Smeaton would have obtained would have been obtained in New South Wales then it follows that the New South Wales licensing requirements are relevant. The appellant did not make an absolute concession but, through learned Senior Counsel, agreed that the appellant’s position was significantly weaker if the New South Wales licensing requirements were applied.

43.  The appellant submitted that in this scenario it could only point to a general requirement for safety to suggest that Scott Smeaton may have acted in a different manner had he taken the New South Wales licence. It is clear however from Scott Smeaton’s description of his later taking of the licence that it was a very simple exercise which, had it been taken before the accident, would have made no difference to his actions on the day.

44.  Returning to the judgment below it is clear that his Honour considered the central question both on the assumption that a Queensland licence was necessary and a New South Wales licence was necessary. He concluded at paragraph 109:

In the light of these findings it is not necessary to attempt to resolve the question of principle that arises as to which of the two schemes it is relevant to consider when determining the question posed by s 54(3), namely whether or not the failure to have a relevant licence caused any part of the loss. That would involve considering the counterfactual situation in which Scott had a relevant licence. Because of the terms of s 95(3) of the Transport Operations (Marine Safety) Regulations 2004 (Qld), a licence could either be a Queensland licence or a licence from another state. Given that Scott did not in fact obtain a licence in New South Wales or Queensland, but might reasonably, given his circumstances, have obtained one in either jurisdiction, the determination of what circumstance should be applied for the purposes of the causation question is difficult. It is resolved in this case by my finding that licensing in either jurisdiction would not, on the balance of probabilities, have made any difference.

45.  Once it is accepted that the New South Wales licensing requirements were the relevant requirements to be examined and that complying with them before the accident would have made no difference to Scott Smeaton’s actions then the appeal must fail.

46.  For completeness, the Court is not convinced that the result would have been any different had the Queensland licence requirements been applied. Submissions on behalf of the third respondent demonstrated that the detail and focus in Mr Lang’s report could be somewhat diluted. For example:

(a)The adverse conditions referred to in paragraph 7.4 of the manual did not relate to the wake of a different vessel but rather to that created by the jet ski performing a figure of ‘8’ manoeuvre.

(b)Passenger safety under paragraph 7.5.10 of the manual referred only to the holding on of forward facing pillion passengers.

(c)Although the competency standard suggested a significant time during the test of the applicant being on the water, in reality each applicant was only tested, on the water, for about 10 minutes.

(d)60% to 70% of the applicants were novices and there was an overall failure rate of about 3%. This would suggest that the licence requirements were easily met and would not have been any sort of challenge, let alone carry a necessity for learning, on the part of Scott Smeaton.

47.  It is apparent therefore that the appellant’s primary argument must fail.

48.  A final matter that needs consideration is the appellant’s submission that the onus was shifted in the court below. The appellant did not raise this point in oral submissions but nevertheless the Court feels it appropriate to briefly deal with it.

49. There is no doubt that the onus under s 54(3) is on the insured. This was recognised in paragraph 79:

The exercise required by s 54(3) depends upon a comparison between the position that would have existed if Scott had been licenced and the position that in fact existed. If the defendants have proved that, on the balance of probabilities, the accident would still have occurred and the same damage suffered if Scott had been licenced, then they will have proved that no part of the loss was caused by unlicensed driving of the jet ski.

50.  Having correctly stated that the onus lay with the insured, his Honour set out the evidence of the Smeatons and then, from paragraph 101, made findings on whether the licence would have made a difference. Although the wording of paragraph 105 might suggest a shifting of the onus it is clear that from the overall approach of his Honour that this did not occur. In any event the evidence put forward by the Smeatons is more than sufficient to establish the required proof on a balance of probabilities.

51.  The resulting orders are:

(a)The appeal is dismissed.

(b)The appellant is to pay the respondents’ costs of the appeal.

I certify that the preceding fifty-one [51] numbered paragraphs are a true copy of the Reasons for Judgment of the Court.

Associate:

Date:  16 November 2016