Benson-Brown v HIH Casualty & General Insurance Ltd
[2001] WASC 6
•17 JANUARY 2001
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: BENSON-BROWN -v- HIH CASUALTY & GENERAL INSURANCE LTD & ANOR [2001] WASC 6
CORAM: WHEELER J
HEARD: 16-20, 23-26, 30-31 OCTOBER, 1-3, 6-7, 9, 13-14 AND 16 NOVEMBER 2000
DELIVERED : 17 JANUARY 2001
FILE NO/S: CIV 2748 of 1990
(lead action)
CIV 2749 of 1990
CIV 1013 of 1994
BETWEEN: CLIVE BENSON-BROWN
Plaintiff
AND
HIH CASUALTY & GENERAL INSURANCE LTD
First DefendantALLIED INSURANCE BROKERS PTY LTD
Second Defendant
Catchwords:
Contract - Contract of insurance - Representations by broker to insurer - Survey - Proposal
Contract - Contract of insurance - Terms - Intentions of parties - Objectively ascertained
Contract - Formation - Facsimile message
Contract - Contract of insurance - Construction - Terms - Incorporation of terms - Institute Yacht clauses
Insurance - Marine insurance - Value of vessel
Insurance - Marine insurance - Arson - Standard of proof - Motive - Ignition mechanisms
Insurance - Marine insurance - Risk - Duty of disclosure to insurer - Performance of vessel - Duty of broker to advise client insured to make disclosure - Material non-disclosure - Fire fighting equipment
Insurance - Waiver by insurer of right to disclosure of all material facts
Insurance - Brokers and agents - Prudent broker - Whether false or fraudulent representations
No new point of principle
Legislation:
Marine Insurance Act 1909, s 9, s 24(1), s 27, s 28, s 29
Result:
Action dismissed
Representation:
Counsel:
Plaintiff: Mr S J Browne & Mr S J S Holt
First Defendant : Mr G R Hancy
Second Defendant : Mr C J L Pullin QC & Mr A J Davidson
Solicitors:
Plaintiff: Stephen Browne Lawyers
First Defendant : Phillips Fox
Second Defendant : Downings Legal
Case(s) referred to in judgment(s):
Akedian Co Ltd v Royal Insurance Australia Ltd (1998) 10 ANZ Insurance Cases 61-398
Brinkibon Ltd v Stahag Stahl GmbH [1983] 2 AC 34
British and Foreign Marine Insurance Co Ltd v Gaunt [1921] 2 AC 41
C R Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd [1973] 2 NSWLR 7
Citizens Insurance Company of Canada v Parsons [1881] 7 App Cas 96
Codelfa Construction v State Rail Authority of NSW (1982) 149 CLR 337
Cohen Sons & Co v National Benefit Assurance Co Ltd (1924) 18 Ll L Rep 199
Empirnall Holdings v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523
Johnson v Guardian Assurance Co Ltd (1931) 31 SR(NSW) 386
Mayne Nickless Ltd v Pegler [1974] 1 NSWLR 228
McLeod v S.I.M.U. Mutual Association (1987) 4 ANZ Ins Cas 60-784
Reese Bros Plastics Ltd v Hamon-Sobelco (1988) 5 BPR 11, 106
Transport Industries Insurance Co Ltd v Longmuir [1977] 1 VLR 125
Case(s) also cited:
Australian Casualty Co v Federico (1986) 160 CLR 513
BP Refinery (Westernport) Ltd v Hastings Shire Council (19977) 52 ALJR 20
Commonwealth of Australia v Verwayen (1990) 170 CLR 394
Demagogue Pty Ltd v Rumenski (1992) 39 FCR 31
Eureka Insurance Co v Robinson [1867] 56 PA 256
Gates v City Mutual Life Assuarance Society Ltd (1986) 160 CLR 1
Lotus Manufacturing Co Ltd v Sun Alliance Insurance Ltd (1987) 4 ANZIC 60-782
McQueen v Phoenix Mutual Insurance Co (1879) 29 UC C P 511
NSW Leather Co Pty Ltd v Vanguard Insurance Co Ltd (1991) 25 NSWLR 699
NRMA Insurance Ltd v Elchaar & Anor (1993) 7 ANZ Ins Cas 61-169
Outlook Credit Union Co-operative Ltd v Commercial Union Assurance Co Ltd (1988) 5 ANZ Ins Cas 60-842
Pan Atlantic Insurance Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501
Sharp and Roarer Investments Ltd v Sphere Drake Insurance PLC & Ors ("The "Moonacre") [1992] 2 QB 501
Steadfast Insurance Co Ltd v F & B Trading Co Pty Ltd (1971) 125 CLR 578
Transport Industries Insurance Co Ltd v Longmuir [1977] 1 VLR 125
Visscher Enterprises Pty Ltd v Southern Pacific Co Ltd [1981] Qd R 561
Wilson v Harvey Trinder (NSW) Pty Ltd [1973] 2 NSWLR 870
WHEELER J: The vessel "Fantastic" (also known as" Fantastique") was a pleasure boat approximately 20 metres in length. Its building had commenced in 1986. It had been put into the water in late 1989. It seems to be common ground between the parties that by late June 1990 the vessel was practically completed, although a number of difficulties were experienced in its operation and a number of adjustments had to be made after it was put into the water. On 28 June 1990 it caught fire and burnt to the water line, being totally lost.
The plaintiff Mr Benson-Brown ("Benson-Brown") alleges that the vessel was his, that he had insured it with the first defendant for the sum of $1M, and that the first defendant is liable to pay but has wrongfully refused to pay that sum. He claims that sum together with exemplary damages and interest from the first defendant, which was at most relevant times called C E Heath Casualty and General Insurance Ltd ("the insurer" or "Heaths"). The second defendant ("the broker" or "AIB") is the insurance broker through whom it is alleged that contract of insurance was entered into with the first defendant.
A number of actions were consolidated in this matter. I do not think it is necessary to go through the competing contentions at this stage. However, it is convenient to set out briefly the significant number of issues which arise. In summary form, they are as follows:
•Was the plaintiff the owner of the vessel?
•If a contract of insurance was entered into, was the vessel insured for the sum of $1M?
•What was the value of the vessel when it was lost?
•Was the agreement to enter into a contract of insurance on the part of the first defendant conditional upon the provision of a satisfactory proposal and satisfactory survey, or, was the first defendant's liability to pay under the contract (if any) conditional upon those matters?
•Were false representations fraudulently made by the broker to the insurer that a survey was being undertaken and/or a proposal prepared, and did such representations induce entry into of a contract of insurance?
•Did the plaintiff fail to disclose to the insurer certain factors which could have affected the decision of a prudent underwriter to enter into a contract of insurance, they being, generally, the fact that the vessel did not perform to specifications during trials prior to its loss, and that it did not have certain safety devices?
•Was it a term of the contract of insurance (if any) that no liability attached in respect of claims arising through fire or explosion unless the vessel was equipped with an automatic fire extinguishing system, or a fire extinguishing system having controls at the steering position (which it is common ground that this vessel did not have)?
•Is it the case that the plaintiff deliberately caused the destruction of the vessel himself?
A large number of the issues as between the first defendant and the plaintiff are common as between the plaintiff and the second defendant. However, so far as the broker is concerned, the particular issues are whether:
•The broker did carry out certain instructions to arrange a contract of insurance given by or on behalf of the plaintiff.
•The broker advised the plaintiff of the insurer's requirements in respect of a complete proposal, and satisfactory survey, and the fire extinguishing system exclusion (if these were requirements).
•If the false and fraudulent representations alleged by the first defendant were made, was the broker in doing so acting as agent of the insurer rather than of the plaintiff.
The Business Affairs of Benson-Brown
The way in which Benson-Brown arranged and conducted "his" business is relevant to issues of ownership of the vessel, to whether a contract of insurance existed at the relevant time, to misrepresentation issues, and to a possible motive for arson. It is convenient to set out a thumbnail sketch here.
Prior to 1985, it is not clear what Benson-Brown's business activities consisted of. He advised me that he had a number of discretionary trusts, had been involved with a cotton farm, with cattle embryos and with a number of business entities. So far as the organisation of his business affairs was concerned (in the sense of determining what entity should carry out what business and how assets and liabilities should be allocated between his entities) he said he had simply become overwhelmed at that earlier time and had told his accountants to "just do it". That is, he had asked his accountants to organise his affairs without detailed reference to him. His understanding was that the point of having these various entities was to minimise taxation. His evidence was also that he did not really understand the differences between himself in a personal capacity and companies which were effectively controlled by him.
From 1985 to 1990 Benson-Brown's enterprises were fewer in number, it seems. A chart, entitled "Annexure A", setting out relevant corporate structures is Appendix 1 to these reasons. He was in effective control of a company called Leisure Corporation of Australia Ltd ("LCA"). This company owned at times from 1985 onwards, business names under which traded a discotheque called Club Atlantis at the Observation City Hotel in Perth, a Club Atlantis Nightclub in Bunbury and a hairdressing business called "Hairforce". Benson-Brown also effectively controlled or had interests in entities called Twenty Fifth Klin Pty Ltd ("TFK"), Capital Leisure Corporation Pty Ltd ("CLC") and CBB Holdings Pty Ltd ("CBB Holdings"). His recollection was that CLC ran certain businesses in Victoria (discotheques and/or nightclubs), which were effectively operated by another director of that entity and that CBB Holdings owned a house at Sherbrooke in Victoria but to his recollection did nothing else. His period as a director of TFK was brief and nothing turns on it.
So far as his taxation and accounting affairs were concerned, Benson-Brown gave evidence to the effect that all he did was to keep relatively simple records of what income was received and what payments he had made from which cheque account, and then to send all the relevant documents off to his accountants at the end of the year for analysis. He took no further interest in them.
In the day-to-day running of the business, it was his evidence that he was assisted throughout this period by Ms Mackie ("Mackie"). His evidence was to the effect that Mackie's duties included secretarial, bookkeeping and general assistance and that, as he had never been very good with paperwork or administrative detail, her assistance was important to him. However, it is plain that Mackie did not have any real decision-making role in respect of Benson-Brown's businesses. Her experience at the time at which she began to work for him was purely secretarial.
There was extensive cross-examination of Benson-Brown and a degree of cross-examination of Mackie as to how matters such as incoming mail were dealt with, and who would determine whether accounts were to be paid and when, and matters of that kind. In that respect, I am satisfied that Mackie played an extremely limited decision-making role. It was her part to collect and to open mail (although sometimes this would be done by Benson-Brown himself) and to put before him anything which required a decision of any significance or which required expenditure. Her evidence was that Benson-Brown would not uncommonly delay payment of creditors and that he would determine which creditors were to be paid, and when. The many writs and judgments against various Benson‑Brown entities tendered by the second defendant reveal that payment could be deferred until creditors lost patience, and sued.
Correspondence sent out by the businesses was either dictated by Benson-Brown, or Benson-Brown would tell Mackie in general terms what information he wanted in a letter and she would prepare a draft for his approval. The only sorts of correspondence that she would draft and send on her own initiative were very simple letters such as those which might enclose a cheque in payment of an account. It appears that within the office there was letterhead for the relevant companies and also blank paper and that when Mackie prepared a letter, the choice of letterhead was generally made by her, based on her understanding of the content of the letter and of the entity to whom or to which the letter was to be sent. Of course, where a letter was signed by Benson-Brown personally, it would have been necessary for him to see the letter before it was sent, in order to sign it.
Mackie appeared to be, as Benson-Brown acknowledged in cross-examination that she was, a diligent and conscientious employee. I am satisfied that she would have brought to the attention of Benson-Brown any correspondence or other matters (such as telephone messages) other than very routine or trivial ones. Benson-Brown was clearly the only person actively involved in the day to day running of, and decision making concerning, "his" businesses. In my view, Benson-Brown clearly appreciated that he had a number of separate business entities and that this fact could be used to his advantage; however, he appears to have made no attempt to understand, and did not understand, what his responsibilities may have been to those separate entities or to their creditors.
Ownership of the Vessel
The plaintiff asserts that he was the owner of the vessel, or alternatively had certain insurable interests in it. The first defendant denies ownership, and there are disputes about the insurable interest issue also. I am, however, satisfied that the plaintiff has established, on the balance of probabilities, that he was the owner of the vessel at the time of both the insurance and the fire.
The only alternative potential owners, or holders of an interest in the vessel, to which the first defendant points, would have been either Farrell Enterprises Pty Ltd or CLC trading as "Leisure Craft". In respect of Farrell Enterprises, the first defendant points to a certificate of insurance in respect of the vessel which notes Farrell Enterprises as having an interest in it, and to a letter dated 16 December 1987 written by Mr Farrell on behalf of Farrell Enterprises in which he states that title has "now passed" to CLC trading as Leisure Craft and that Farrell Enterprises "has no further interest" in the vessel.
Mr Farrell gave evidence, which I accept, as follows. He had been involved for many years in businesses concerned with the building of substantial vessels. Farrell Enterprises was the holding company of his family trust. Benson-Brown was his friend and he knew at the time at which Benson-Brown wished to build his vessel that Benson‑Brown had no contacts in the ship building industry and that it would be to Benson-Brown's advantage if he ensured that Benson‑Brown dealt with reputable trades people and suppliers and if he allowed Benson-Brown to purchase materials "through" him, or through the business Oceanfast of which he was then Chief Executive Officer (in order to take advantage of the purchasing power of Oceanfast). As a result, certain supplies were purchased in Mr Farrell's or in Oceanfast's name and when invoices arrived they were sent to Benson-Brown. Benson-Brown would either pay accounts directly or would reimburse Mr Farrell. On reflection, he thought it possible that he might have had at various times a ship builder's lien in respect of the vessel but he never regarded either himself, Farrell Enterprises, or Oceanfast as having an interest. He was not sure how the name of Farrell Enterprises came to be on the insurance documents, and in relation to the letter he said all that he was writing it for was to verify that he had no interest in the vessel. It was clear from all the evidence that Mr Farrell had very limited involvement with the vessel, although he did inspect it on occasions and advised Benson-Brown in relation to it. The evidence regarding Farrell Enterprises is incapable of supporting the view that Mr Farrell or Farrell Enterprises was at any relevant time the owner of the vessel.
So far as CLC was concerned, the position is somewhat more complex. However, the first plans for the vessel were drawn in June 1986. Both the date and the name of the plaintiff as client appear on those plans. Construction was commenced in 1986. The plaintiff did not acquire control of CLC until 25 February 1987. These circumstances obviously beg the question of who could have been the owner in 1986, if not the plaintiff?
It is, of course, conceivable that ownership may have passed to CLC at some stage. There are documents which tend to suggest CLC was at some stage the owner. Those which most clearly point to that conclusion are a statutory declaration of the plaintiff dated December 1987 (exhibit 49) in which he says that he is the Director of CLC and that the vessel is the property of that company. This was apparently a document which accompanied part of the documentation relating to certain bills of sale. The bills of sale came about because in late 1987 and again in 1988 Benson-Brown sought from Allied Westralian Finance Limited ("AWFL") finance of $200,000, later rising to $250,000 or perhaps $265,000, in order to assist with the construction of the vessel. Required to grant a bill of sale over the vessel, he either executed or caused to be executed (the fixing of the company's common seal not always being witnessed by him) bills of sale on behalf of CLC as grantor. A variety of other names appeared in these documents as additional covenantors, they being the plaintiff himself, CBB Holdings and on occasion TFK.
A number of letters of about that period are written from AIB to CLC in respect of insurance of the vessel or on CLC letterhead or Leisure Craft letterhead to AIB in respect of that insurance. It is my view that Benson-Brown would have seen them. Benson-Brown himself signed an authorisation dated 8 December 1987, which authorises AWFL to disburse the moneys advanced to satisfy the pre-existing bill of sale apparently held in the name of Farrell Enterprises and CLC.
As to these matters, Benson-Brown said: that he did not examine the bills of sale in any detail but simply signed where he was asked to; in relation to the statutory declaration, he did not recall it but said that it was factually incorrect; and so far as correspondence was concerned, he appeared to be attempting to foster the impression in his evidence that Mackie may well have undertaken most of the correspondence without reference to him.
There are contemporary indications that the plaintiff regarded the vessel at all relevant times as his own. Certificates of insurance and related documents dealing with ship builders' insurance from 1987 onwards give the name of the insured person as Benson-Brown and others, those others from time to time being Farrell Enterprises Pty Ltd and AWFL. Assuming as I do that Benson-Brown either himself directly arranged the insurance or instructed Mackie to do so, that is a strong indication of his view. In May 1989 Benson-Brown wrote to AWFL in relation to a deed which it had requested that he sign relating to the vessel, explaining that he was not able to do so as it incorrectly identified CLC as the owner of the vessel when he was in fact the owner of the vessel. I should note in relation to this that it was put to Benson-Brown that his reason for doing so at this stage was that he was in dispute with AWFL about repayment and was concerned that it might seek to enforce the bill of sale against CLC. It later appears that the vessel was seized by the bailiff for a time in relation to a debt of CLC and that Benson-Brown took steps to claim the vessel as his own; those proceedings were settled.
So far as payment is concerned, there is no way of ascertaining on the documents before me where all of the payment for construction of the vessel came from. There are examples of invoice, quotation, and specification papers addressed variously to "Leisure Craft" to Benson-Brown personally and to Oceanfast (eg exhibits 75, 7, and 223). Benson-Brown's evidence was that some payments were made from his personal cheque account and others by Leisure Craft. Records of those payments are not now available. Finally, when the vessel came to be registered Benson-Brown caused it to be registered in his own name, in March 1990.
It seemed to me to be clear from the evidence that the vessel was a "personal" project of Benson-Brown's in the sense that he took a very close interest in it. He had always had an interest in motor vehicles of various kinds, often owning more than one at a time, and he had had a long interest in motor racing. Construction of the vessel appears to me to have been an extension of these interests to an interest in "high performance" vessels. Although there was material from time to time emanating from Benson-Brown suggesting that he might well sell the vessel upon its completion or at some time not long afterwards, it is my view that he had at the time of commencing construction no very clear idea of what he intended to do with the completed vessel. The project of building the vessel was apparently a mixture of very expensive hobby and speculative business venture.
In the end, my view that the plaintiff has established his ownership of the vessel at the relevant time stems from a number of factors. First, no other possible owner could realistically be suggested at the time at which construction commenced. From the time of construction some of the relevant documents (particularly relating to insurance) make sense only if the vessel was owned by the plaintiff personally. The "hobby" aspect of the undertaking tends to suggest personal rather than corporate business ownership. The indications to the contrary, I think, can be explained by a probable view on Benson-Brown's part that he was more likely to obtain an advance for construction of the vessel if AWFL believed that it was owned by the company CLC. I do not accept that he had no idea of the content of the bills of sale or of the statutory declaration which he signed stating that CLC was the owner. It is my view that he signed these documents however, because he regarded them as the most expeditious way of obtaining the finance, whatever may have been the true position at law as to the ownership of the vessel. That he was prepared to do so does not reflect any credit on him, but is consistent with the view which he expressed, and which I accept he held, that the legal operation of his various entities was a matter purely for his accountants and his lawyers and was not a matter with which he had to concern himself.
The Value of the Vessel
This question is relevant to a number of issues in the trial, as well as being itself a discrete issue. As I have already noted, the documents which exist demonstrating how much was paid for the construction of the vessel are at best incomplete. However, assistance in valuing the vessel can be derived from the report of Mr Leckie and from the evidence of Mr Box.
In May 1988, when the hull was structurally complete and the internal layout was approximately 90 per cent complete, Mr Leckie, who is a marine surveyor and qualified naval architect, inspected and valued the vessel. He estimated the value of materials and components which he inspected, and the figure at which he arrived was $634,000. However, in order to arrive at a market value upon completion, he added a number of components, they being design and insurance, "trials/warranty" and - the most significant addition - a 20 per cent estimate of the builder's margin or profit. With those sums added, the total estimated value of the vessel on completion was $790,000. With some modest allowance for possible inflation, one would then expect the value of the vessel as at 1990, if Mr Leckie were correct, to be in the vicinity of $800,000.
However, Mr Leckie conceded that a number of the values that he attributed to particular components were estimates which were susceptible of some variation. In his notes taken in May 1988, he included in respect of some items a possible further variation in cost. In each case the possible variation was upwards. If one added together all of the possible variations, one finds that the sum of them all comes to $164,000, giving the vessel a potential value before any margins are added of $798,000 and, if margins are kept as Mr Leckie indicated, a total value of the vessel on completion of $986,000. Mr Leckie of course pointed out that some items might have been overestimated by him, so that variations downward were possible. However, it is to be noted that his notes made at the time of inspection do not include any note of potential downward variation, so that it rather seems that he has taken a conservative approach and that any inaccuracy would be on the side of undervaluing rather than overvaluing the vessel.
Mr Box is the owner of a firm of marine brokers, which is the largest firm of boat brokers in Western Australia. In 1989 he managed the Aquarama Marina in East Fremantle, where the vessel was penned for a time shortly after being put in the water. He allowed the vessel to use the pen free of charge because he viewed it as something of a "drawcard". During 1989 he was aware that the vessel was experiencing performance problems and had not been wholly completed. He would have valued it at around $700,000, having regard to the performance problems which it was then experiencing. However, he agreed that if the performance problems had been eliminated, the market value of the vessel would have been considerably greater. A market value of $1M would not have surprised him. In each case, this was a market value if the vessel were to be sold within Western Australia. He was aware that vessels of this type were more popular overseas and could reach a much higher price if sold to a purchaser in, for example, the United States or the Middle East. He agreed that if its performance difficulties could be overcome it would have been a "spectacular" vessel.
By the time of the fire, some but not all of the performance problems of the vessel had been overcome. There may have been a problem of excessive noise, although differing views were expressed by those who gave evidence as to what the source of the noise was and whether it indicated a problem. It appears that a significant degree of noise may have been associated with the air intake and with the operation of the three large engines fitted to the vessel, even if everything were functioning properly, so I do not place much weight on this issue. However, the principal problem which still appears to have existed at that time was that the vessel did not reach the speed which might have been expected of it. This was plainly a real drawback in what had been designed as a high performance vessel. Nevertheless, having regard to the valuation evidence to which I have referred, it appears to me that the vessel would have been at the time of the fire reasonably regarded as being worth in the region of $850,000 if sold in the domestic market in its condition at the time. It would not have been unreasonable of the plaintiff to assume, as he said in his evidence he did, that it might in the relatively near future (assuming continued improvement in performance) have been possible for it to be sold either on the domestic market at a figure approaching $1M or overseas for a somewhat greater sum.
The Arson Issue
The defendants, who raised this issue, bear the burden of proving that the loss of the vessel was caused by the deliberate act of the plaintiff. Although the standard of proof is that of the balance of probabilities, the seriousness of the allegation affects the clarity of proof required: Transport Industries Insurance Co Ltd v Longmuir [1977] 1 VLR 125.
The defendants' case is a circumstantial one. They assert that the plaintiff's agent in setting fire to the vessel was Peter Allen ("Allen"), an employee of the plaintiff for some considerable time. It is asserted that the plaintiff had a motive to set fire to the vessel, in that he was in financial difficulties, the vessel was not performing well, was not worth what he paid for it, and would have been difficult to sell, and he therefore caused Allen to set fire to it in order to obtain the insurance money. To this end, it is said that he arranged, or attempted to arrange, $1M worth of cover on the vessel during the months leading up to the fire and that he took out legal expenses insurance at about the time of the fire in case there should be any dispute with the insurers. It is alleged that, having regard to the way in which the engines were constructed and to the safety equipment which was on the vessel, there was no method of ignition (other than a deliberate fire) which could be described as more than a mere possibility. The finding of what was called a "Vetus" gas detector switch in an "off" position in the remains of the hull of the vessel and the finding of the remains of a plastic bucket together with certain wires and other objects pointed to a mode of ignition; it was said that these pointed to the probability that the gas detector switch had been deliberately turned off and that then petrol in the bucket had been used as a means of ignition. I will return to the description of the alleged means of ignition shortly.
I do not find that the plaintiff caused the destruction of the vessel himself. My reasons are both positive and negative. First, it is my view that aspects of the plaintiff's and Allen's conduct point to the unlikelihood of there being a deliberate plan to set fire to the vessel. Second, I reject a number of the matters upon which the defendants rely as circumstances suggesting that the ignition must have been deliberate. In relation to these circumstances, I accept that, as was said in Longmuir, the onus of proof is applied at the final stage of reasoning and one does not divide the process of reasoning into stages and, at each stage, apply some particular standard of proof. I also accept that each fact which is proven may gain support from others, so that it is not proper to consider an individual allegation in isolation. However, on the view that I take of the facts, there is simply not enough in the circumstances relied upon by the defendants, and particularly when those circumstances are considered together with the view which I have formed about probabilities which flow from ordinary human nature, to lead to a conclusion that arson was the probable cause of the fire.
In order to consider why I have reached the view that there are matters suggesting it is improbable that either Allen or the plaintiff deliberately set fire to the vessel, it is desirable to outline certain of the circumstances leading up to the fire and the events of the day in which the fire occurred.
I mention first, only in order to dispose of it, the question of legal expenses insurance. The plaintiff had been involved in a considerable amount of litigation over the years. A great deal of it was of fairly straight forward debt collection type, when suppliers were suing him for materials or services supplied to him or to one of his various companies. However, there was other and more substantial litigation. There were apparently disputes arising about the quality of work or materials supplied in relation to the discotheques, and litigation dealing with those matters. Most importantly, in 1987 the plaintiff had invested $250,000 in something described as "European Capital Markets Pty Ltd" which he considered to be a legitimate investment of some kind, while it subsequently appears that those funds were diverted and were lost by some unknown person at the TAB. Not surprisingly, litigation followed. Against that background, it is hardly surprising or unusual that the plaintiff insured against legal expenses insurance when unsolicited mail offering such insurance arrived at his office.
Turning to the insurance of the vessel, there are a number of issues. First, the defendants point to the fact that the cover on the vessel was increased from $250,000 to $1M in the six months leading up to the fire, notwithstanding that the vessel had been substantially completed for a number of years, and had been in the water since 1989. However, it was in early 1990 that the vessel was transferred from being moored in the river and taken on occasional brief excursions there to a berth at Hilary's Boat Harbour, where it was intended to use it much more extensively than had hitherto been the case and in the open sea. It is plain from all the evidence that the plaintiff is not a man who likes to spend money unnecessarily, and it seems to me entirely plausible that he would underinsure the vessel until such time as he perceived that there was a situation in which it might be subject to real risk. The beginning of 1990 appears to me to have been such a time. It is further asserted by the defendants that the vessel was over insured, but for the reason I have already given I do not accept this contention.
It is to be noted that if the plaintiff did arrange insurance of $1M with a view to destroying the vessel, or maintain that insurance with a view to doing so, he did so carelessly. He did not personally arrange the insurance, but entrusted it to Mackie. Some correspondence and some telephone conversations during the periods of insurance were directed to Mackie or to him suggesting that the insurers required a survey of the vessel and a completed proposal form for the insurance to be maintained. He provided neither. Indeed, in March 1990 he wrote to the insurance broker noting that the proposal form which it had requested him to complete, had not been enclosed with the letter of request. He took no steps to follow that up or to ensure that a proposal form was received and completed by him. He took no steps to ascertain the detail of, or any relevant terms and conditions of, any policy of insurance which might exist in relation to the vessel.
It is true that his evidence was to the effect that he would have expected the broker to bring to his attention any terms breach of which might have put his insurance cover at risk. However, the plaintiff was a man of some business experience in a range of businesses. Notwithstanding that his businesses do not appear to have been characterised by close attention to detail (particularly regarding book-keeping and legal matters); it nevertheless appears to me to be curious, to say the least, that he did not take steps to ensure that he had done everything within his power to ensure that any requirements of his insurer had been meticulously complied with, in a situation where it is alleged that he was contemplating claiming a very significant sum from that insurer.
Next, it is alleged that the plaintiff set up a false "alibi". That is, that he contrived to give the appearance that the vessel was being taken out in winter, in order to rehearse for the taking of a video of the vessel on the following day, which would be used for the purpose of selling the vessel to prospective purchasers. Again, if he did so, he did it most ineptly. One would have expected a person creating a false alibi of this kind to ensure that there were, for example, documents created and retained in his possession which related to the plan for filming the vessel and the way in which the video taping would take place. At the very least, one would expect a quote or some other document from the potential photographer(s). No such document has been produced by either the plaintiff or any of his witnesses. Further, one would have expected that, at least where the potential witnesses to the alibi were friends of the plaintiff, he would have told them all a consistent story and taken some steps to ensure that the memory of that story remained fresh in their minds. However, witnesses who were friends or acquaintances of Allen and of the plaintiff were called on behalf of the plaintiff and give evidence which differed from the plaintiff's in a substantial number of respects concerning the way in which the arrangements to take photographs or videos had been made. (Monaghan, Morgan and Burton, particularly).
It is convenient now to turn to the events of the day in question. It is not in dispute that there could well have been a significant quantity of fuel on board the vessel (perhaps in the region of 2,000 litres) and that when the vessel did burn, it burnt fiercely, so that portions of the superstructure collapsed. It appears not to be disputed that the fire originated in the engine room and that the engine room had at the relevant time an open hatch, which enabled one to climb between the deck and the engine room by means of a ladder. The plaintiff invited onto the vessel on that day his employee Allen, a young woman by the name of Crystal Atkins, who was to serve as a model in the photographs that were to be taken, his friend and financial adviser of some years, Mr Morgan, and either the plaintiff or Allen invited Separovich, who was 16 years of age and who was a friend of Allen's.
The plaintiff, having invited all these people onto the vessel, in circumstances in which it is alleged that he knew that the vessel was to be set on fire, made no apparent attempt to keep track of them. His friend Mr Morgan was below decks in the toilet at the time at which the fire began and had to be called on more than one occasion before he came up on deck. Ms Atkins appears to have been at the helm with the plaintiff. There is no suggestion in any of the evidence, or in any of the statements made at the time by various people, which were tendered in evidence, that particular attention was paid on that day by anyone to matters such as the whereabouts of life jackets or other safety equipment (although Separovich conceded that it was possible that Allen had indicated to him, in a fairly off-hand sort of way, where the life jackets were). Life jackets were, of course, carried on the vessel, but this was to be expected since they would have been required by the Navigable Waters Regulations (reg 52A).
On the arson hypothesis, Allen caused the fire at the plaintiff's request. Allen had been an employee of the plaintiff for about 15 years and was something of a jack of all trades, being employed to "fix the secretary's flat tyre, fix problems that bouncers couldn't handle [at the nightclubs] and to fix everything". There is no evidence as to his level of remuneration.
The defendants can point to no incentive given to Allen to set the fire, although they suggest that he was rewarded for doing so, noting that he was made a director of World Wide Leisure Group subsequent to the fire and "may have been" provided with a car. Neither of these suggestions survives scrutiny, in my view. The plaintiff had Mackie as a director of some companies, but it was clear that she had no role other than the purely formal one of signing documents and that she gained no benefit. Allen was made a director some 12 months after the fire, at a time when Mackie thinks that she had probably by then left the plaintiff's employ for a time and had then returned for a further period. So far as the car is concerned, the only evidence of that proposition is that it was suggested to the plaintiff in cross-examination, and he did not positively deny it, saying only that he knew that Allen had a car but could not recall it being provided by him or one of his companies.
To accept that Allen caused the fire involves also accepting the proposition that, knowing that he was going to do so, he invited his 16 year old friend, Mr Separovich ("Separovich"), who had no reason for being on the vessel other than a pleasure outing, to accompany him. Further, it appears from Separovich's evidence that when Allen went down into the engine room (either to set up the fire or to check why a previous attempt to set the fire had not already succeeded, on the defendants' scenario) he did so at a time when Separovich was no more than a metre and a half from the open hatch and able, if he wished, (as he apparently had done while the vessel was in dock a little earlier) to look in and see what Allen was doing.
The fire was sudden and may or may not have been accompanied by some sort of explosion. In any event, Allen very quickly left the engine room - on the view suggested by Separovich, he may have been "blown" out - and dived or fell straight into the water. Once there, according to Separovich, he screamed out, "I can't swim. I've got my clothes on. I've been burnt". He had been burnt, although fairly superficially, to his head, arms, armpits and part of one side and spent a short time in hospital as a result. Whether Allen could not swim at the time because he was not a particularly strong swimmer or whether he was hampered by his clothing does not in my view matter. The point of that evidence, which was not seriously challenged, was that Allen must have known that once the fire had commenced he would probably be leaving the vessel very rapidly, and that he apparently made no attempt either to dress suitably or to ensure that a life jacket was readily accessible to him.
Separovich did not remember many of the events, and did not seem particularly interested in having his memory jogged, saying on a number of occasions words to the effect of "I don't care" (whether about the fire or the court proceedings, or both, is not clear). However, that fact makes it all the more likely that the few details that he did say that he recalled were genuine recollections of what had occurred, and I accept his evidence as to what he saw and heard.
It must be accepted that $1M is a very considerable sum, and that a person who was desperate to improve his financial position might well be prepared to take risks with his personal safety. However, the principal weaknesses of the defendants' case in relation to the arson are, to my mind, the fact that it requires the conclusion that both the plaintiff and Allen (the latter with no discernible motive) were prepared to put at risk not only their own lives but also those of innocent bystanders who were friends or acquaintances; and that Allen did so in circumstances where any activity of his in attempting to set fire to the engine room could have been readily observed. A further conclusion is required, on the arson hypothesis, that, although the plaintiff was so anxious to receive the insurance money that he was prepared to put his safety at risk, he did not take the elementary precaution of checking the terms and conditions of his insurance cover.
It is convenient to turn briefly to the question of motive. It may be accepted that the plaintiff was from time to time in financial difficulties. It may also be accepted that during the three years or so leading up to the fire he had had difficulty with a number of significant investments, in which moneys had either been lost or payments had not been made to him at a rate which had been contractually agreed. He was indebted to the Australian Taxation Office, although he was paying this tax off by instalments in what seem to have been small and manageable amounts.
So far as the plaintiff's overall financial position was concerned, the first defendant produced a report of Mr Halse ("Halse"), an experienced insolvency practitioner. His analysis of the plaintiff's personal financial position as at 30 June 1990 showed that he had assets exceeding his liabilities by almost $400,000. However, Halse expressed the view that the plaintiff was unable to pay his debts as and when they fell due. There are a number of critical assumptions in that analysis, which require further consideration.
First, as a current liability of the plaintiff, he took into account a sum of approximately $125,000 which he considered would have been due and payable in respect of sales tax on completion of the vessel. It is not necessary, I think, to go into the detail of why such a sum would have been due. However, it does not necessarily follow that the plaintiff would have taken the view that that sum was a current liability. He was already repaying a considerable sum to the Australian Taxation Office in instalments, and, had he thought about it, might well have formed the view that sales tax could be dealt with in the same way. More importantly, the letter from the Australian Taxation Office to him in relation to this matter tended to suggest that that sum would fall due only when the vessel was sold, rather than when it was completed.
A further current liability referred to by Halse, was the sum of approximately $267,000 owed to AWFL in relation to the finance for the vessel. The assumption was that that sum was due and payable immediately. However, on 26 April 1990, the plaintiff had entered into a deed of variation with AWFL, which provided for that sum to be repaid by 14 October 1990, with interest payable monthly in arrears. The due date had not arrived at the time the vessel was destroyed. It does appear, having regard to the plaintiff's financial position, that he would have been unable to repay that sum without selling the vessel; however, his evidence was that he expected that that liability would be able to be simply "rolled over". Notwithstanding that AWFL had indicated that no further extension past October 1990 would be possible, it would be consistent with the plaintiff's approach to his business affairs, in my view, for him to have formed the opinion that he may well have been able to defer repayment, provided that he continued to meet interest payments. The only remaining liabilities of the plaintiff personally were a bank overdraft and some credit cards amounting to a total of less than $25,000; these are the type of financial obligations which are normally repayable in instalments, and no detail of the terms is known.
Mr Halse's other significant assumption is that the vessel would not have been able to have been sold immediately, but that it would have taken more than 90 days to dispose of it had the plaintiff wished to do so. I am sure that this assumption is correct. He also formed the view, however, that the vessel was worth no more than $750,000. In my view, this is not the case; I have already expressed my views both as to its value and as to the view which the plaintiff could reasonably have taken as to its possible value.
I accept, therefore, the plaintiff's evidence that so far as he was concerned, he did not take the view that his current liabilities were in excess of his current assets. Provided he was able to continue to meet the repayments on his liabilities, he would not have been in immediate need of further funds.
It is not clear how the plaintiff was meeting his living expenses and repayments of his debts. His taxable income for the years preceding 1990 had been very low. His evidence tended to stress that his "taxable" income (which he obviously regarded as something very different from his real income) was not to be taken as any indication of his personal cashflow. His evidence was that during 1990 he had been receiving payments of a significant nature from an international automotive group and that, since those payments were received overseas, he had considered that he did not need to declare them as income in Australia. Whether or not that be the case, it seems to me likely that this was a case in which the plaintiff's available funds may well have significantly exceeded the amount displayed as taxable income on his income tax returns.
There appears to have been an element of "creative accounting" in relation to the plaintiff's various entities which makes it impossible to discern what the true position may have been. For example, the company CBB Holdings in the year ended 30 June 1999 described its income producing activity on the relevant taxation return as "consulting services". Its balance sheet recorded one of its intangible assets as over $81,000 worth of "goodwill" and its profit and loss statement included motor vehicle expenses exceeding $20,000. So far as I can discern from the evidence of the plaintiff, the only thing which CBB Holdings did during the year ending 1989 was to own the house, Sherbrook Manor, in which he resided. Neither the goodwill nor the expenses have been able to be explained.
In my view it is unnecessary, and probably pointless, to attempt to analyse in detail the position of companies effectively controlled by the plaintiff. I have reached the view that he personally was not insolvent. A number of related entities may have been, but their liabilities consisted very substantially of directors' loans and loans to either the plaintiff or related entities, which I think should realistically be disregarded for present purposes (and which, for the purpose of this exercise, I have not counted as assets of his).
In summary, I have reached the view that it may well have been that the plaintiff found difficulty in meeting his financial commitments from time to time, and that that difficulty may have been increasing as time went on towards the date of the fire. However, his position does not appear to have been a desperate one and seems to me unlikely to have been such as would have prompted a decision to set fire to his vessel.
I now turn to consider briefly the question of possible ignition mechanisms other than the deliberate lighting of a fire.
The defendants suggest that there is no possible source of fuel on the vessel and that neither is there a possible ignition source. The question of a fuel source can be dealt with fairly briefly. There was evidence that the fuel lines on the vessel were stainless steel, or braided stainless steel. It was improbable that such material would leak. However, there was evidence that not all of the fuel lines were steel, and that there were some rubber hoses. The most likely source of a leak was a pressurised line coming fully or partly off its connection. If a pressurised line came off entirely, it was likely the engine would stop in a fairly short space of time, which would have stopped the fuel pump from pumping almost immediately. However, if a pressurised line came only partly off its connection, fuel might well continue to flow. The evidence was that the fuel was supplied in excess of the amounts actually needed by the engines, so that if there were a leak caused by a line coming partly off its connection, it was possible for the engine to continue to function while petrol continued to leak from the line. It is true that checks were done for leaks and that there is no evidence of any prior experience of fuel leak of any kind on the vessel, but the witness, Mr Slako ("Slako"), under cross-examination conceded that it was not unusual for fuel lines to shake loose during sea trials (that is early in the life of the vessel after it was put in the water).
The engine room was equipped with sensors which would detect petrol vapour and sound an alarm and these did not apparently detect petrol vapour before the fire. However, the engine room was also equipped with extremely powerful fans which were designed to purge the engine room air at a very rapid rate. The reason for the fans was to prevent the build-up of petrol vapour which could cause an explosion. As the plaintiff's witness, Mr Apgar ("Apgar"), pointed out, the fans would remove petrol vapour but not of course a pool or stream or spray of petrol, and it was possible for petrol to lie in the engine room undetected if the fans were removing the vapour as the petrol vaporised.
It is primarily upon Apgar's evidence that I rely in reaching the view that a fire could have arisen without deliberate ignition. He had no training specifically in fire investigation. However, he had qualifications in physics and in chemistry and fluid mechanics, among others. The bulk of his present practice is that of a mechanical engineer. He accepted that, generally, petrol would not ignite if it came into contact with a hot surface. However, in relation to the particular type of engines in use on the vessel, his evidence was:
"Most of the time you can spill fuel all over an engine and you won't get a fire, but it is possible, and these again are extremely high performance engines. These are not your ordinary car engines. These are huge things, with air compressors or blowers on them, and they would run very hot. "
The evidence of Apgar in that respect is reinforced by the evidence which suggested that at one stage relatively soon after the vessel had been put in the water, some of the insulation material which surrounded the engines disintegrated and had to be replaced by superior quality insulation.
Apgar also gave evidence about the possible small gaps in insulation and about the "imperfect joints" common in ignition systems so that, in his view, making a system "explosion proof" requires an enormous amount of care, Again, that evidence is reinforced by the evidence of a number of witnesses who suggested that, at least in Australia, high performance vessels of this kind with petrol engines were regarded with some disfavour because of what was considered to be the danger of fire. It is also reinforced by the evidence of those witnesses, called primarily to deal with insurance issues, whose evidence was to the effect that a prudent insurer in deciding whether to insure this vessel would have required to know what fire-fighting systems were in operation and would probably have required that there be an automatic fixed fire-fighting system.
In the particular circumstances of the day of the fire, the vessel was doing a relatively low speed of 6 knots and was only a few hundred metres outside the harbour. However, prior to leaving the harbour the engines had been idled for some time to warm them up. It therefore appears to me that it cannot be said that it is more probable than not that a fire could not have begun accidentally.
It is desirable to deal, however briefly, with the mechanism which the first defendant advances as the likely way in which the fire was caused.
The arson thesis rests upon the discovery in the burnt out remains of the boat, of the charred remains of what appeared to be a set of ordinary jumper leads attached at one end to the remains of a 12-volt battery (used to start the auxiliary generator engine). The other end of the leads terminated in a mass of wire material located on the remains of a burnt and melted yellow plastic bucket located generally in the bilge area of the vessel. Some of the wire which appears to have been connected to one end of one of the jumper leads, was insulated wire of a type which was used in stereo systems. It was not wire apparently used anywhere else in the vessel.
Sergeant Dabelstein ("Dabelstein") conducted an experiment, a video tape of which I have viewed, running a 12-volt current through jumper leads connected to a coil of insulated wire set in a plastic bucket containing a small amount of petrol. On his second attempt he was able to ignite the petrol. It is to be noted that a substantial quantity of smoke appears to have been generated at the time of ignition, and that Separovich did not notice smoke until after the fire had started. The thesis is that this is how Allen is likely to have created the fire.
It is said that further weight is given to that thesis by the fact that the two gas detector (Vetus) switches were located in the remains of the vessel and that, while one was too badly damaged to be able to ascertain its position, the other one was in a closed position which would have deactivated the fuel sensor units. Further, a screwdriver was found in the bilges, the blade of which was of a size which would have fitted into the clips fitted to the vessel's fuel lines and which would therefore have been able to undo them. In relation to these last two items, I note that the screwdriver appears to have been a common type, and it is difficult to place any weight on its discovery. So far as the Vetus switches were concerned, it was not satisfactorily explained in evidence how it was known that one was in an "off" position; it was apparently not possible for the witnesses to tell whether the switch tendered as an exhibit was on or off.
So far as the plaintiff was concerned, his explanation for the presence of the other items in interrogatories dated 7 August 1996 was to the effect that jumper leads were connected to the jet auxiliary unit and to the generator motor battery in order to start the generator motor. In addition he said there were two jumper lead "bulldog" clips attached to leads which at the other end were permanently connected to a hand-held bilge pump which was kept in the bilge bucket in the engine room. In his evidence in chief in this case, he said that in the yellow bucket was a hand-held bilge pump, a length of wire about 4 metres long and a cloth. The hand-held pump had small bulldog clips attached to the end of black and red wire. The other ends of the wires were attached to the electric motor (of the bilge pump). When operating the pump, the negative wire was clipped onto the hull and the positive wire was clipped to a further wire which he obtained from CLC. The other end of the wire would be wrapped around the positive end of the 12-volt battery.
So far as a possible connection to the generator motor battery was concerned, in order to start the generator motor, it should be noted that one of the items apparently located in the remains of the vessel was a square black object which was identified by one witness as resembling a trickle charger. Apgar gave evidence that he would not have been surprised to see jumper leads attached to a trickle charger and that a plastic bucket would be a logical place to store them because of the conductivity of the vessel. However, he appeared to agree in cross-examination with the suggestion that the fact that the leads had been found at terminating in the bucket, did not appear to be consistent with the hypothesis that any trickle charging had been taking place at the relevant time. Precisely where the object resembling a battery charger was located, and by whom, is unclear; the only evidence on that point is that of the police photographer who said that he "wouldn't have a clue" what he was photographing when he took the relevant photograph or where the object had come from. I should add, to complete the summary of evidence relating to the trickle charger hypothesis, that the evidence of the fire investigation expert called by the first defendant was broadly to the effect that while it was theoretically possible to do so, this would not have been a safe or efficient way of ensuring that the battery was recharged, for reasons which he gave.
The bilge pump hypothesis received more attention. The plaintiff's evidence in this respect was supported by the evidence of Mr Venditelli ("Venditelli"), who said that he lent to Allen a small bilge pump about 15 cms long and about 3 inches in diameter, with a plastic casing and a small electric motor, and a shaft which was probably made of steel or stainless steel. He said that Allen used the pump attached to a battery to clean the engine room, pumping the dregs of the bilge into a bucket or drum if the water was oily, or over the side if it was clean. He said that Allen was meticulous in keeping the engine room clean. There was evidence to the effect that when the vessel was at the marina at Hilarys, any oily water from the bilge would have been required to be placed in a container or receptacle of some kind, since owners of vessels were not permitted to discharge dirty water into the marina.
I accept the evidence of Venditelli. Although he was to a degree connected with the plaintiff, in the sense that he was a friend of Allen's and had been Allen's flatmate at about the relevant time, he did not appear to me to be attempting to tailor his evidence in order to suit the plaintiff. For example, when shown certain photographs showing what appeared to be the jumper lead clips, he did not attempt to identify them as clips which he had seen in use in connection with the pump. Nor did he attempt to identify the screwdriver as his. Although his evidence was that he had lent Allen a screwdriver which broadly answered the description of that found on the vessel, he said that the photograph of the screwdriver which was found did not appear to be a photograph of his screwdriver.
It is to be noted that the explanation given by the plaintiff of the way in which the bilge pump operated does not appear to be entirely consistent with the way in which the leads were found; in particular, as I understand the plaintiff's evidence, there would have been no reason for both ends of the jumper leads to have been attached to the battery. It would perhaps be unsurprising if he were not entirely clear as to the way in which the pump was used if it was Allen's job to ensure the cleanliness of the engine room. Unfortunately, no one explored in evidence with Venditelli the way in which Allen connected the pump, although he was cross-examined about other aspects of its use, such as where the water from the bilge was discharged.
The defendants point to the fact that no bilge pump or remains of a bilge pump (assuming that the plastic may well have melted but that some metal components would have survived, even in distorted form) was found in the vessel. They assert that this indicates that the plaintiff's account of there being a bilge pump connected to wires and kept in a bucket was false. However, I would not infer from the fact that the remains of a bilge pump have not been produced, that no bilge pump ever existed. After the fire, a considerable quantity of sand - up to half a metre in depth in the engine room - was dumped into the hull of the vessel. This may have disturbed a number of items. Also, it is plain that the vessel, which remained on the beach for some time in its burnt state, had been tampered with. Portions of the engines had been tampered with and parts of them had been stolen. Some small items with no apparent connection to the vessel were found in it; for example, an empty soft drink can. It is of course unlikely that the burnt out remains of a small bilge pump would have been of interest to anyone so as to have been stolen, but such remains may have been disturbed so as to end up in a location where their significance might not have been appreciated.
Further, I do not accept that everything of potential relevance was located by those examining the vessel. There is no evidence that Mr Allardyce ("Allardyce") or Dabelstein, both of whom were closely involved in the inspection and excavation of items from the sand, were looking specifically for anything resembling the remains of the bilge pump. Further, the conflicting accounts which they gave of the way in which the excavation of the sand and the finding of various items of relevance took place, does not inspire confidence in the accuracy of their evidence. So far as Allardyce was concerned, he said that he was the person who in fact dug the sand out of the engine room and his evidence was that he was "really very careful because of the situation and the nature. I was very, very careful that it was dug in a very, very slow manner, so it wouldn't disturb things in situ …".
Dabelstein, however, in discussing whether photographs shown to him reflected the way in which items were found on the vessel said:
"… if someone finds something and says to me 'what do you think this is' I can't turn around and say 'let's not let that happen. Let's put it back there and photograph it before you pick it up' that's what I'm saying. When we put these things back 'Where was it found?' 'It was found here.' 'Right, we will put it there and photograph it' because a person who has picked it up may not have identified it as a part that was significant to the inquiry. So as close as we could get to, we reconstructed the scene as best we could under the circumstances …".
It appears that the excavation was conducted by a number of people, who may have had differing ideas about the significance of what they found. I do not accept that every item of possible relevance was discovered or recorded.
Insuring the Vessel
It is convenient now to make findings of fact in relation to the dealings between Mackie, the plaintiff and AIB on the one hand, and between AIB and Heaths on the other.
It is desirable to refer to the entire history of insurance of the vessel by way of background, and then to deal in more detail with transactions taking place on or after 23 January 1990. The first record of any insurance is in a "placing slip", which shows insurance commencing on 4 December 1986 in the sum of $140,000 "rising to $500,000", with the cover recorded as "Institute Builders' Risk clauses 01/12/77". This was a placing slip issued to what was then Atlantica Australia Insurance Ltd (which later became C E Heath and later again HIH Csualty and General Insurance Ltd). The placing slip was a document which was issued by AIB.
To expain the "placing slip", the general procedure seems to have been that following a telephone conversation between a person from AIB on behalf of an insured and a proposed insurer, in which agreement was reached concerning the acceptance by the insurer of the risk, AIB would then produce a document which was in a single A3 size sheet, perforated down the centre. One half of the sheet was in the form of a certificate of insurance which was sent to the insured and one in the form of a placing slip which was sent to the insurer. It recorded details such as the name of the insured, the period of cover and the risk. The placing slip which was received by the insurer was at Heaths used as a document to generate records which in due course resulted in the broker being billed for the premium for the relevant cover.
It appears that sometime during late 1987, Mackie made an inquiry of AIB about increasing the amount of cover to $1M. By letter addressed to the plaintiff but marked attention "Marianne" (which Mackie understood to be a misspelling of her name), AIB advised that cover would not be increased until the insurers were provided with a survey of the vessel and with written instructions. Mackie replied on the plaintiff's behalf that a quotation only had been sought and that the insurance would be left as it was. The letter suggested that the plaintiff was not enthusiastic about providing a survey at his expense in order to obtain further cover.
Shipbuilders' risk insurance appears to have been maintained at a level of $250,000 (it is not entirely clear how or precisely when this figure was arrived at) for some time.
In early 1988 AIB wrote to Mackie to the effect that because there had been no reply to previous correspondence (which does not seem to have been before me) it was assumed that the cover was no longer required and that it had lapsed as from 15 January 1988. However, it was then apparently renewed and extended to 30 April 1988. A further extension took place until December 1988, with the interest of AWFL noted on it.
In January 1989 AIB sent a telex to Mackie seeking her advice as to whether renewal was required from December 1988 to December 1989, and if so seeking payment of the premium by 19 January. By further telex dated 3 February, addressed to Mackie, AIB noted that because there had been no reply to the first telex, the cover would be cancelled unless she contacted AIB that day. On that date also a credit note issued recording that the policy had been cancelled from 15 December 1988. Mackie said that she would have brought to the attention of the plaintiff, the fact that his insurance was about to be cancelled.
Next, on 30 March 1989 Mackie telephoned AIB saying that the vessel was being moored that night and seeking cover for it. Mr Bamberger ("Bamberger") of Heaths advised Ms Johnson ("Johnson") of AIB that until a survey was received the vessel would only be covered if not run or navigated. He also sought further information, including information about its speed.
On 3 April 1989, Johnson telephoned Mackie and advised her that cover would be provided only while the vessel was moored and pending survey. She said she needed particularly to know the value of the vessel and its speed. By letter dated 6 June 1989, AIB wrote to Mackie advising that cover was provided pending survey only and while the vessel was not run. She was asked to ensure that the survey included reference to the value and speed of the vessel and the letter continued that AIB "must have" confirmation of a survey for continued cover. There was apparently no response to that and a letter of 14 June from AIB (presumably reflecting advice from Heaths) advised Mackie that the insurer was now "off risk" again. Mackie did not recall the detail of her conversations in relation to this period with Johnson and she did not recall these letters, although she did not dispute they had been received by her. It is my view that she did receive them and pass them on to the plaintiff.
Two things are of particular note out of the preceding history. The first is that the plaintiff was apparently prepared to leave the vessel without cover - or at least without any cover which included navigation - from the period 15 December 1988 through to 23 January 1990. This included a time while the vessel was being run in the Swan River on a number of occasions. It is also to be noted that both telephone conversations and correspondence of this period between Johnson of AIB on the one hand and Mackie on the other, made it clear that a survey was an important condition without which full insurance cover for the purpose of navigation would not be provided.
It also follows from the evidence in relation to these earlier periods of insurance, that the evidence of Johnson (now Ms Reed) is to be preferred to that of Mackie. I accept that Mackie was doing her best as an honest witness to recall the relevant events. However, she did not keep notes of the conversations, while Johnson did. She did not recall the detail of the conversations (hardly surprising after so many years) and did not recall receiving correspondence which it is my view that she would have received at the time. Further, Johnson was engaged in the business of insurance and was careful to take notes of any issue which might be relevant while, so far as Mackie was concerned, attempting to arrange insurance for the vessel was only one of a number of very diverse tasks which she performed for the plaintiff, in relation to which she had no particular expertise, and she was therefore less likely to single out any features of those conversations as being of particular relevance so as to recall them later.
Turning to the period from 23 January 1990 onwards, the evidence of relevant conversations comes from Mackie, Johnson and Mr Hamilton ("Hamilton"), who replaced Bamberger as the person dealing with the insurance of this vessel at Heaths. Although Mackie said that she became more "involved with" the vessel, so as to have a better recollection of conversations regarding insurance at about this time, her recollection does not appear to me to be as clear and detailed as that of Johnson and, again, she has no notes made at the time to assist her in refreshing her memory. I therefore prefer the evidence of Johnson to that of Mackie where there is any conflict.
As between Johnson and Hamilton there are also some areas of dispute. In relation to these I generally prefer the evidence of Johnson. In relation to those conversations where each of them made a note, Johnson's notes of the conversation appear to me to be clearer and more detailed. Further, in those areas where there is a dispute and there is also some documentary material, it is the recollection of Johnson which is, I think, borne out by the documents. In particular, there is some dispute, in relation to one telephone conversation, as to whether Hamilton advised Johnson of the premium during the course of that conversation or during a later conversation on 5 February. Hamilton thought that he had advised Johnson at the time. However, Johnson did not recall his advising her of the premium at that time and said that it was her practice to make a note of the premium where she had been told what it was. Her note of the relevant conversation contains no reference to the premium. Hamilton's note of the relevant conversation does contain a reference to the premium. However, the portions of that note dealing with premium calculation are in much smaller handwriting than the other portions of the note, and the appearance of the note strongly suggests that the premium calculations have been incorporated in the note at a later time. There is no suggestion of any sinister reconstruction of the note; it seems that what may have occurred is that Hamilton was referring back to his note at some later stage in order to calculate a premium and simply used the same piece of paper, for convenience, to record that premium calculation. The version of the facts which follows, then, relies upon the evidence of Johnson where there are competing versions of the relevant events.
On 23 January 1990, Mackie rang Johnson, again requesting insurance cover for the vessel. She provided certain detail about the vessel, including the size and number of engines and said that the vessel was moored at Pier 21 in Fremantle and would be moved to Hillarys Boat Harbour. Mackie said that the Department of Marine and Harbours would be carrying out a "check" of the vessel at Hillarys. Johnson informed her that it was likely that until Heaths were provided with a survey, they would only agree to cover in dock and for the sum of $250,000. Mackie asked that cover initially be arranged for three months, as it was possible that the vessel would be sold now that it had been completed "and was ready for sea trials". It was agreed that Mackie would check with the plaintiff the level of cover required and would contact Johnson further. Mackie said that she would follow up the provision of a survey. It was Mackie's evidence that she told the plaintiff that a survey was required.
Johnson then telephoned Heaths to arrange a cover note in the sum of $250,000. She spoke to Hamilton. She told him that Heaths had been on risk previously when the boat was being built, that it was now finished and was to be moved to Hillarys, and it was to undergo a Marine and Harbours check at Hillarys. She also explained that the boat would be surveyed. Hamilton agreed "to hold the vessel covered on the basis that a survey would be provided". He provided Johnson with a cover note number. His evidence was that he was not intending to issue a cover note and that the number was simply one for record-keeping purposes, but there is no evidence that he communicated this to Johnson. He asked her a number of questions about the vessel, including its speed, the vents for fumes, the amount of liability covered and who was the builder of the vessel. She said that she thought the speed was 22 knots, but she would confirm speed.
On the following day Mackie again telephoned Johnson and told her that the plaintiff wished for hull cover in the sum of $1M. Johnson asked her the questions raised by Hamilton, and Mackie said words to the effect that she would not know the answers until "the trials" had been carried out. Johnson then faxed Hamilton a request to increase the hull cover to $1M. In that facsimile, she sought his confirmation of the variation by return facsimile. Although I am satisfied it was sent, Hamilton does not recall it. There is no record of his having received it. No confirmation was ever sent by him or received by her. She was then away from the office for a few days.
On 30 January 1990, Hamilton faxed to AIB a note confirming that liability (not hull) cover was confirmed at $1M. At some time during this period the plaintiff spoke to another person working for AIB. That person then told Johnson that the plaintiff wanted three months full cover and that the maximum speed of the vessel was 22 knots. He said that the plaintiff requested hull cover of $1M and a liability limit of $1M. Johnson did not advise Heaths of the speed of the vessel because she assumed that the speed would be referred to in the forthcoming survey report. On 5 February, Hamilton advised Johnson by telephone of the amount of the premium. Neither mentioned the amount of hull cover on that occasion. He had in fact calculated it on $250,000 hull cover.
On 13 March 1990 Johnson wrote to the plaintiff advising that cover had been arranged for the period commencing 21 (probably a typographical error for 23) January 1990 to 23 April 1990. She also enclosed with the letter a "certificate of insurance" dated 7 February 1990 which was expressed to be "all risks" cover and to include "sea trials". The sum insured was $1M in respect of the hull. The letter to the plaintiff also requested that he complete what was said to be an attached proposal form and that he return it in order "to maintain your protection". On 16 March, the plaintiff wrote back advising that no proposal form had been enclosed. The letter was sent to the address of AWFL, not AIB, and what happened to it is not clear.
In the meantime, it appears that the placing slip, which mirrored the certificate of insurance dated 7 February, had been received at Heaths on 13 March. Hamilton checked that it showed the premium he had calculated, but failed to notice that it showed $1M hull cover rather than $250,000. Hamilton also failed to note that the placing slip included the expression "includes Sea Trials". He initialled it and marked it "okay to process". It was then used by a Ms Smith in Heaths' Perth office to prepare a further document which was sent to Sydney in order to prepare a monthly statement showing the amount of premium due from AIB to Heaths. An invoice was prepared by Heaths on 26 March, showing $1M hull cover, although this was apparently not received by AIB until after the loss of the vessel by fire.
On 19 March, Heaths wrote to AIB referring to "the abovementioned policy" and seeking a completed proposal form "so we may issue a policy". A further letter of 2 April 1990 also sought a proposal. Johnson said she does not recall seeing that letter and there is no record of it being received. Hamilton, however, noted on his copy that "Fiona" (ie Johnson) had telephoned and said that a proposal was on the way together with a renewal for three months more. Johnson does not specifically recall a conversation of about 5 April in which she told him that a proposal was on the way. However, it would have been her understanding at the time that a proposal would be completed, since she had asked the plaintiff to do so in order to maintain his insurance, and she accepts that it is likely that she would have telephoned Hamilton seeking another three months cover and may well have mentioned something about the proposal at that time. I should note that although there are no further references in correspondence to a survey, it appears to be common ground that the form of proposal in use by Heaths at that time required the completion of a survey to accompany it where the vessel was valued at more than $50,000.
On 6 April, a further placing slip was forwarded by AIB to Heaths and approved for processing by Hamilton on 10 April, and a further certificate of insurance sent to the plaintiff, in each case purporting to extend insurance until 27 July. Each referred to hull cover of $1M and to "sea trials". On 8 June, Heaths wrote to AIB indicating that "above policy" expired on 23 July 1990 and that "we should be pleased to receive your instructions for continuation". Renewal was invited "on expiring clauses and conditions" and it was also noted that there was no proposal form yet received and AIB were requested to "please forward in due course". That letter showed a calculation of renewal premium showing that it was calculated on a hull value of $250,000. Johnson agreed that she noted this but thought that it was simply a mistake on the part of Heaths.
At some time during the course of conversations between Johnson and Hamilton, Johnson thought that one of them might have used the expression "sea trials" in connection with the type of cover sought. However, in her understanding at that time it appears that a "sea trial" was no more than the "Marine and Harbours check" which Mackie had originally mentioned to her. She had no reason to consider that any other form of trials would take place, as no one had advised her of them, and as the information on her file suggested that the vessel had been completed since March 1989 when Mackie had first telephoned to advise that it was complete and was being put into the water.
Bamberger was the underwriter at Heaths who originally provided cover for the vessel when it was subject to shipbuilders' insurance. He said that he had seen the 1987 survey, which referred to the anticipated Halon fire protection system and said that it would have been material to his decision as to whether or not to cover the vessel in 1990 to know whether the Halon system had been installed. He explained:
"Being a petrol inboard, and obviously the risk of fire, the fact that a Halon system would have been in the vessel would have put the risk possibly to a level that one would have considered it from its ability to prevent or fight fires. It would have been important, very important."
Further, in relation to this issue, there was evidence that at the relevant time it was not unusual for underwriters to use the "Institute Yacht Clauses" and to incorporate them wholly or partly into pleasure-craft insurance. The evidence was that Heaths generally simply adopted the Institute Yacht Clauses. The Institute Yacht Clauses are model clauses published by the Institute of London Underwriters and available world wide for adoption by those who wish to write them into their policies. I have set out the "Speedboat Clause", which deals with firefighting equipment, under an earlier heading.
It is further to be noted in relation to this particular insurer that the standard pleasure-craft proposal form used by Heaths in relation to all pleasure craft had a space for information to be provided about the number, type and location of "fire extinguishers". Finally, the evidence of Johnson was that when she telephoned Hamilton in January 1990 to seek insurance for this vessel, her notes record that one of his questions was to do with "vents for fumes" which in the light of the evidence as to the importance of preventing a build-up of petrol vapour in order to avoid the risk of explosion or fire, I infer to be an inquiry directed to an aspect of the fire/explosion prevention system of this particular vessel. Hamilton's evidence was that "Because the vessel was petrol powered I asked about the safety precautions on board", which I take to be a reference to the same conversation.
It is submitted on behalf of the plaintiff that the presence or absence of a "Halon" type system cannot have been material, because such a system would not have worked efficiently as a means of preventing or extinguishing fires in the engine room of this vessel. That was because the Halon system works by smothering the fire, depriving it of oxygen. However, the vents which had been installed in the vessel for the purpose of assisting in purging the engine room of petrol vapours would provide a continual flow of oxygen which could not be cut off by a Halon system. The evidence was that in some commercial vessels with vents of this type, flaps were provided in order to close off the vents so that a Halon type system could operate efficiently, but such a feature does not seem to have been provided in this vessel.
In my view, this submission is misconceived. In the light of the evidence which I have outlined above, it is my view that a prudent insurer would have required to know whether a fixed or automatic fire fighting system (of which the Halon system is one example) had been provided for the vessel. If the configuration of the vessel was such that no automatic or fixed fire fighting system would be capable of extinguishing a fire in the engine room, then that in my view is merely an additional matter which it would have been necessary to disclose to an insurer, rather than being a factor which rendered any disclosure in relation to fire fighting systems unnecessary.
Performance Trials/Vessel not Operational
Much of the evidence as to difficulties with the vessel is not precise as to time. However, it is common ground that the vessel was involved in a radio promotion from about mid-January through to March 1990. There is a body of evidence which deals with problems in the period immediately preceding and during that radio promotion, which allows the time to be established with sufficient accuracy for present purposes.
The plaintiff conceded that in December 1989 the vessel was "being prepared to be operational" but was not operational at that time. It is therefore necessary only to deal with the period after December 1989. Slako, a qualified motor mechanic, did extensive work on the vessel in the time leading up to and during the radio promotion. He worked on the engines in the period of six weeks leading up to the radio promotion. During the radio promotion he said the engines often broke down and auxiliary equipment, such as gearboxes, failed. He said some of these problems were duplicated in each of the engines so that just as one was fixed the same problem would appear in another one. There were difficulties with starter motors and a variety of lesser problems which caused difficulties with the running of the vessel. He and his staff did supplementary work on the vessel during the radio promotion in the evenings, making modifications and adjustments. One of these was a "revamp" of the fuel supply as fuel was not circulating properly; he also revised the throttle system; replaced the supercharger belts whenever they came off; and carried out frequent work on the starter motors. It was his view that the vessel required better auxiliary equipment and that it would have been - very roughly - necessary to commit a further $100,000 to its development and refinement for it to be completed properly. His last outing on the vessel was in April 1990 on a purely social occasion when it appeared to him that the vessel was still not "functioning to specification".
A lay witness, Mr Kay ("Kay"), was involved in the promotion on behalf of the radio station. He was on the vessel on many occasions during the course of the promotion and it was his impression that there were power losses and breakdowns of one kind or another on almost all trips. There was evidence from a number of witnesses regarding a trip to Rottnest during the early part of the promotion during which it is common ground that the vessel returned from Rottnest on one engine only. The cause of the problem with two of the engines is the subject of varying evidence and there is also varying evidence as to whether the remaining engine was functioning adequately or was also near to failure. It is, however, common ground that on that occasion the vessel was not able to be operated (or at least was not able prudently to be operated) on more than one engine.
It appears that at some stage the difficulties with the vessel led to the view that the superchargers should be removed. The state of the vessel leading up to June 1990 was explained by the plaintiff in his cross‑examination as follows:
"We hadn't gotten to the point of doing speed trials before the accident. …
… the superchargers were only fitted three days before the accident.
It [the vessel] never performed to its full potential because we hadn't reached that point. We were working through running everything in. We first tried when the boat went in the water to do everything at once. Then when we damaged an engine and damaged a gear box, it was decided by the engineers to disconnect the superchargers until everything else was correct and running and performing the way they were intended to, so gradually we worked through all that and we were at the point or very close to the point at the day of the accident when the superchargers had been connected."
The plaintiff indicated without being specific as to time that there were perhaps "five or six" occasions on which one or more of the engines did not operate but that it was not the case that all three had failed at once "apart from one occasion". Generally in relation to the vessel and its difficulties, the plaintiff said:
"I think it would be fair to say we were working our way through the problems but what I found in the marine industry was that the quality assurance compared to other industries was absolutely terrible. Every component that was bought to do a certain function didn't without modifications, improvements or something else.
We worked our way through [the problems]. It was part of the sea trials and week by week by week the boat got better and better and better, but certainly it wasn't to my satisfaction any of the componentry or the engineering even though I ordered and paid for the best."
In the light of the evidence in relation to the problems experienced with the operation of the vessel and the extensive work carried out on it from the radio promotion of mid-January through to March 1990, and particularly in the light of the fact that it was only a few days before the fire that the vessel was considered to be ready for the re‑instatement of the superchargers, it appears to me to be correct to say that the vessel was still undergoing performance trials and was not fully operational at either 23 January 1990 when insurance was first obtained or in April 1990 when it was renewed.
So far as materiality is concerned, the evidence was as follows. There was some discussion of the meaning of the expression "sea trials". It is not a term of art. It is an expression which may be descriptive of anything from a simple check of equipment such as a compass, through to extensive testing and refinement. There is an alternative meaning, in that it may sometimes be understood as meaning a "trial" undertaken by a potential purchaser, who takes a vessel out for a short period in order to determine whether or not to purchase it. However, as explained to and used by underwriting witnesses, it was generally used as a term apt to refer to the refinement and modification of a vessel which had been completed to the stage of being put into the water but which required further work to bring it to a stage of satisfactory operation.
The evidence of Waltham, the first defendant's expert underwriter and that of McKay, the underwriter called by the plaintiff, was the same in relation to the distinction between shipbuilders' risk and pleasure-craft risk so far as sea trials were concerned. Each asserted that normally sea trials, in the sense in which I have used the term, is appropriately covered as part of a shipbuilders' risk contract rather than under a pleasure-craft policy. Each agreed that it was not an attractive proposition for an underwriter to take over a builders' risk prior to full completion of the vessel. This is because, Waltham and McKay agreed, an underwriter would be "taking on the bad end of the risk but you would not be able to charge the full premium and there are too many unknown factors". As I understand it, sea trials are the "bad end" of the risk since there is obviously a greater potential for a significant loss once the vessel is in the water and an attempt is made to operate it. Further, it is not appropriate to insure a vessel which is not fully completed under an ordinary pleasure-craft policy, since it may be expected that at that stage of the construction there will be problems which may arise and the risk is therefore increased compared to the normal operation of a fully completed and trialed pleasure-craft.
The evidence of Hamilton, was that it would not have been commercially acceptable for him to pick up the risks associated with sea trials without having had the benefit of a full premium for risks covered during the entire period of shipbuilders' risk cover. His evidence was that had builders' risk insurance of this type been sought from him in January 1990, he might well have refused to insure the vessel at all. As I have noted previously, for part of its construction the vessel was covered by Heaths under a builders' risk policy, but that cover lapsed for a very significant period of time.
It is my view that the fact that the vessel was not fully operational in the sense that I have described would have been a fact which would have affected the decision of a prudent underwriter; it may well have led a prudent underwriter to refuse to insure the vessel at all but, had insurance been extended to the vessel, that fact certainly would have affected the premium.
It is suggested by the plaintiff that the placing slips of 7 February 1990 and 6 April 1990, which include the expression "includes sea trials" amounted to disclosure to the first defendant of the fact that the vessel was still undergoing performance trials. Hamilton's evidence was that he did not read the placing slips; or, rather, somewhat more accurately, that he read the information relating to premium but did not notice that the hull cover was for $1M and did not notice that there was any reference to sea trials. It is my view that a prudent insurer would have read the placing slip. It was a document which purported to record the cover which had been agreed upon between AIB and Heaths and was the document relied upon for Heaths purposes in order to ascertain what was the appropriate premium to be requested from AIB. Both Bamberger and Hamilton agreed that, had they noticed any inaccuracy in a placing slip, the appropriate course would have been to contact AIB in order to clarify the matter. Hamilton admitted in effect that it would have been desirable for him to have read the slip more closely. In my view, the relevant question is not whether Hamilton read the slip but what he would have understood by it had he read it.
What Hamilton would have understood from the slip can be ascertained by reference to his evidence in chief in relation to the proposal form which was eventually completed by the plaintiff after the fire. In relation to that, his evidence was:
"Sea trials were specified as falling within required cruising limits on page 2 of the proposal. This information would have caused me to make enquiries to determine whether the wrong type of cover was in place. Cover in relation to sea trials is part of shipbuilders' cover. The risk that was broked to me was pleasure-craft cover. If I had known that the vessel was carrying out sea trials, I would have thought that the vessel should have been under shipbuilders' cover, which would have included sea trials."
It is clear then that the information which was disclosed to Hamilton on the placing slip was information which, had he read it, would have alerted him to the fact that an inappropriate type of cover may have been sought or granted.
The result, although it is an odd one, is that, although it appears that Johnson did not appreciate what was meant by the expression "sea trials", and thought that she was merely referring to some sort of check to be carried out by the Department of Marine and Harbours, the terminology which she in fact used was the appropriate terminology to alert the insurer to the material facts which it has alleged were not disclosed. There does not appear to me to be any requirement in the Marine Insurance Act or in the law of insurance generally, that disclosure of material facts to an insurer must be intentional and knowing them to be material. There has therefore, it seems to me, been disclosure in relation to the sea trials issue.
Waiver
The issue of a policy after receipt of an obviously defective proposal form may, depending upon the circumstances, establish waiver by the insurer of a right to disclosure of all material facts; compare McLeod v S.I.M.U. Mutual Association (1987) 4 ANZ Ins Cas 60-784, C R Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd [1973] 2 NSWLR 7. There was here no proposal completed prior to the fire, but for present purposes I assume that the principle applies to the rather different circumstances of this case. This issue is live only in relation to the Halon system, in respect of which I have found material non‑disclosure.
The letters upon which the plaintiff relies for waiver are two from Heaths to AIB in identical terms dated 19 March 1990 and 2 April 1990; each reads: "Please refer to the abovementioned policy and note that we are still awaiting receipt of a completed proposal form. Please forward as soon as possible so we may issue a policy". A third letter of 8 June 1990 again refers to the "above policy", states that it expires on 23 July 1990 and invites instructions for continuation; that letter also notes "also we do not appear to have received a proposal form from our mutual client - could you please forward in due course".
As I understand the argument, these are said to constitute a waiver on the basis that at that time Heaths were aware that they were not in possession of a current survey, which would have provided detailed information about the condition of the vessel. Heaths were also aware that they were not in receipt of a completed proposal form. In that knowledge, Heaths then by referring to the "abovementioned policy" are said, as I understand it, to be representing that Heaths had provided insurance cover for the vessel in the knowledge of the fact that they had limited information and without insisting on further information being provided. Further, as I understand it, the reference to the "abovementioned policy" is said to be a representation that Heaths had accepted the risk and that a policy existed notwithstanding the absence of information that would have been contained in a survey.
Johnson's evidence was to the effect that she did not recall receiving either the letter of 19 March, or that of 2 April, but it is my view that each would have been received in the ordinary course of business at AIB and, as I have already found, it is further the fact that on 5 April, Hamilton discussed with Johnson the question of a proposal and was advised that it was "on the way" or would be on the way with the renewal request.
I do not consider that the agreement to effect insurance in the knowledge that no survey had at that time been received amounts to a waiver on the part of the insurer of its right to be informed of material facts concerning the condition of the vessel. In some circumstances it may do so; such a case is Johnson v Guardian Assurance Co Ltd (1931) 31 SR(NSW) 386 in which the insurer accepted the risk without asking any question and without bringing under the plaintiff's notice the form of proposal or the policy, and then extended the cover still without asking any questions. In this case, the insurer had been advised at the outset that a survey was being prepared (in January 1990). Hamilton had asked certain questions about the condition of the vessel and had agreed to provide cover for it on the basis that a survey was being prepared and that those questions would be answered.
Far from being content to remain in ignorance of the condition of the vessel, the three letters referred to suggest that the insurer was actively seeking the information which it was the duty of the insured to provide. It may well be the case that if a sufficiently lengthy period had elapsed during which it became plain that no survey would be forthcoming, and that Heaths nevertheless maintained and renewed insurance when a reasonable insurer would have realised that it would not be provided with further information, then questions of waiver may well be answered differently. However, in light of the fact that answers had been obtained to some of Hamilton's questions and in the light of the representations made to him about the survey and the proposal, I am unable to find any waiver in this case.
Insurance Status of the Vessel
For the reasons which I have given, I am of the view that there was no valid contract of insurance on foot between the plaintiff and the first defendant at the time of the loss of the vessel for two reasons. First, the contract which had been entered into was conditional upon the provision of a satisfactory survey, and no satisfactory survey had been or could have been provided. Second, there was material non-disclosure by the plaintiff in relation to the absence of any fixed or automatic fire fighting system. It remains only to consider the question of whether the second defendant has been guilty of a breach of its duty of reasonable care, skill and diligence in procuring insurance for the vessel.
Duty of the Broker
I do not think it is necessary to cite authority in respect of the proposition that the broker is the person who has, or should have, expertise in the area of insurance in respect of which it undertakes to act, and that its duty is to act with reasonable skill and diligence in procuring insurance which answers the needs of its client. That duty includes a duty to advise the client of the circumstances which may place the insurance at risk and to advise the client as to the duty of disclosure and the sorts of things which may be encompassed within it: eg Akedian Co Ltd v Royal Insurance Australia Ltd (1998) 10 ANZ Insurance Cases 61-398.
So far as the survey is concerned, I am not able to make a finding as to the precise words used by Johnson in her conversation with Mackie. However, she did advise Mackie that a survey would be required for the type of cover which Mackie was seeking. She may have suggested that cover would be available while in dock and whilst the vessel was not being navigated, without a survey, but Mackie was plainly seeking cover which was broader than simply cover in dock. That matter was left on the basis that Mackie would arrange a survey. Whatever the precise content of the conversation, it is clear that Mackie appreciated the importance of a survey, and she advised the plaintiff that a survey was required.
It seems reasonably clear that Johnson did not advise Mackie either generally concerning the duty of disclosure or specifically in relation to the fire fighting system. However, Johnson must have appreciated, from Mackie's inability to answer most of the questions which she had passed on from Hamilton, that Mackie was not a person particularly familiar with the vessel. There would be little point in explaining the duty of disclosure in detail to her. In any event, as Johnson understood it, Mackie had agreed to ensure that a survey was provided, and a survey would provide detailed information about the vessel. It was premature, at least, to discuss that aspect of the duty of disclosure with the plaintiff or the plaintiff's employee prior to the provision of a survey. The failure to disclose the non-existence of any fixed or automatic fire fighting system did not, in my view, stem from any failure of duty on the part of the second defendant.
Further, Johnson had that conversation with Mackie against the background of past dealings in which on one occasion an increase in the amount of cover had been refused until a survey was provided, and on another occasion Mackie had been advised that the insurer had gone off risk because of Mackie's failure to respond to a letter requiring a survey for continued cover.
When no survey was forthcoming, it is true that the second defendant did not specifically remind Mackie or the plaintiff directly of the need for a survey. However, the letter of 13 March, advising that cover had been arranged, which was sent to the plaintiff, also requested that he complete a proposal form "to maintain your protection". The only reasonable way of understanding this letter is that if certain steps were not carried out, then the protection of the insurance would be lost. Although the plaintiff appears to have written back advising that no proposal form had been enclosed, he took no further steps and Mackie, on his behalf, was not instructed to take any further steps, to obtain the proposal form (which would have reminded him of the survey requirement). It is my view that, in relation to the survey, the second defendant took reasonable steps to ensure that the survey condition would be complied with. Because the survey would have disclosed the condition and features of the vessel, it was not necessary to advise the plaintiff separately of his duty of disclosure in respect of those matters (including in respect of the Halon system).
Conclusion
For the reasons given, I would dismiss the plaintiff's claim both as against the first defendant and as against the second defendant. The papers for the Judge, however, do not appear to contain claims in all of the actions brought by the plaintiff. In particular, I was advised at trial that there was a claim for specific performance which did not feature in the papers for the Judge but which does not seem to have been abandoned. It is therefore desirable for the parties to have the opportunity to consider these reasons against the entirety of the plaintiff's claims, and to provide me with a minute or minutes of proposed orders finally disposing of all of the actions brought by the plaintiff.
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