Gibbs & Anor v Mercantile Mutual Insurance

[2002] HCATrans 408

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P63 of 2002

B e t w e e n -

IAN WAYNE GIBBS and PARAGLIDE PTY LTD

Appellants

and

MERCANTILE MUTUAL INSURANCE (AUSTRALIA) LTD

Respondent

GLEESON CJ
McHUGH J
KIRBY J
HAYNE J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT PERTH ON MONDAY, 21 OCTOBER 2002, AT 3.53 PM

Copyright in the High Court of Australia

MR N.J. MULLANY:   If it please, your Honours, I appear with my learned friend, MR P.J. HANNAN, for the appellants.  (instructed by Unmack & Unmack)

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR G.R. HANCY, for the respondents.  (instructed by Srdarov Richards Burton)

GLEESON CJ:   Yes, Mr Mullany.

MR MULLANY:   Does the Marine Insurance Act 1909 apply to third party liability risk cover on navigable inland waters connected to the open sea? That is the central inquiry to which the facts of this case give rise. It arises consequent upon the answer provided to the primary question before the Full Court of the Supreme Court of Western Australia and that question was, is the policy in issue governed by the Marine Insurance Act by the Insurance Contracts Act?

GLEESON CJ:   Now, Mr Mullany, the Full Court had one huge advantage over us.  It knows where this place is, where this incident happened.  Could you just indicate that to us by pointing your finger?

MR MULLANY:   Yes, I can, your Honours.  It is just behind you.  The Swan River, of course, is to your Honour’s left.  There is an island known as Heirisson Island just beyond the Court, a part of which, if I can describe it this way, lies before the causeway and part of which lies after the causeway.  The accident occurred at the northern tip of Heirisson Island.  I cannot tell your Honours at the minute how long Heirisson Island is, but it is not that big.  I will find out ‑ ‑ ‑

GLEESON CJ:   If you walk along the edge of the water past the rowing club towards the Burswood Casino ‑ ‑ ‑

MR MULLANY:   You will find it.

GLEESON CJ:    ‑ ‑ ‑ it is in between the rowing club and the Burswood Casino, is it?

MR MULLANY:   That is right.

KIRBY J:   Not that we will be taking any new evidence in this case, or any other appeal.

GLEESON CJ:   And you will survive the walk if you do not get flattened by a bicycle.

MR MULLANY:   That is true, your Honour.  In overturning the learned trial judge in concluding that the former regime, that is the Marine Insurance Act, applied to the relevant policy, the Full Court made three critical findings which your Honours find at paragraphs 117 to 118 of the judgment at appeal book page 556, volume 3.  Can I take your Honours to that now?

Your Honours see at 117 on 556 that Justice Kennedy, with whom Justices Murray and Owen agreed, found that the relevant parts of the Swan River are parts of the sea for the purposes of the Marine Insurance Act.  At 118 his Honour found that the renewed policy:

was a contract of marine insurance, being a contract by which the –

respondent –

undertook to indemnify –

the appellant –

against losses incident to a marine adventure within the meaning of s 9(2)(c) of the Marine Insurance Act –

Thirdly, his Honour found that:

The fact that the renewed policy covered only liability to a third party did not –

prevent its characterisation as –

a contract of marine insurance.

It is our respectful submission that those three findings were erroneous.  We contend that the Full Court mischaracterised both the relevant body of water and the relevant contract of insurance.

Your Honours, our central argument comprises three parts.  First, it is our submission that the body of water in question cannot properly be characterised as the sea for the purposes of the Marine Insurance Act.  The application, we say, of a pragmatic test by reference to ordinary language and common usage of the term do not permit that classification.

Secondly, we submit that the contract is not one of marine insurance, the respondent not having undertaken to indemnify the appellant against losses incident to a marine adventure within the meaning of 9(2)(c) of the Act.  This, we submit, is apparent both on review of the policy terms and on application of the normal, natural meaning of the critical words of the statute.

The third limb of our argument in broad terms is this.  Even if we are found to be incorrect as to our characterisation of the Swan River and the nature of the loss insured against, the fact that the relevant policy was a third party liability contract only, without a single, traditional element of marine insurance deprives it, in the circumstances of this case, of its essential character necessary for characterisation as a marine policy.  It is our submission that contrary to the Full Court’s finding at 118, that fact alone does, in fact, prevent its classification in the circumstances of this case as a contract of marine insurance.

Acceptance of our first limb of our argument would be sufficient to conclude that the decision of the Full Court cannot stand.  If your Honours are persuaded that no sea is involved in the circumstances of this case, then the policy in question, we say, must fall outside the Marine Insurance Act.  We say that because the Australian Law Reform Commission notes at paragraph 8.74 of its April 2001 review of the Commonwealth Act, which your Honours find behind tab 14 in volume 2 of the materials provided to you:

It seems to follow from the definition of maritime perils –

in section 9(2) –

that to constitute a marine adventure the vessel must either be on a sea voyage or at least be waterborne on the sea.

HAYNE J:   Just a moment, Mr Mullany, just a moment.

MR MULLANY:   Tab 14, volume 2, paragraph 8.74.

HAYNE J:   Yes.

MR MULLANY:   What we say is that “The Lone Ranger” was doing neither on 30 January 1989 when, due to the negligence of the first‑appellant Gibbs, while operating the vessel on the Swan River near the Burswood Casino, Ms Morrell was seriously injured.

KIRBY J:   The Commission quotes Professor Sutton, and I have great respect for Professor Sutton, but would not this be a subject upon which there is a lot of authority, including judicial authority?

MR MULLANY:   There is not, your Honour, and I will be dealing with that point in due course if I may.  We have scoured almost every relevant jurisdiction and I can report that there is very little authority on this.  That is relevant to a number of issues that I will return to in a moment, if I may.  What we say is that as a craft restricted to operations in protected smooth waters of the State, it was never so engaged.

Before I examine the proposal and the critical features of the renewed policy, may I first say something about the antecedents of the Marine Insurance Act and take your Honours to the key provisions of the legislation, the construction of which is critical for this appeal.

The Marine Insurance Act came into force on 1 July 1910 and with only one difference in substance was a virtually identical replica of the UK parent legislation.  The first six sections of the Marine Insurance Act are either preliminary provisions or reflect provisions found at the end of the UK statute with the result that almost all of the substantive provisions of the Australian Act are numbered six greater than the United Kingdom equivalents.

In the nearly 100 years since the Act came into force it has only been amended twice.  The first was in 1966 to reflect the introduction of decimal currency, the second was the repeal of an index contained in section 2, apparently to reflect contemporary drafting techniques.

GLEESON CJ:   What is the reason and policy why the Insurance Contracts Act 1984 does not apply to contracts to or in relation to which the Marine Insurance Act applies?

KIRBY J:   That was the reference from the Attorney-General.  He expressly excluded it, as I recollect it.

MR MULLANY:   Yes.  The difference, in essence, your Honour, is this.  The Marine Insurance Act was designed to deal with commercial operations.  The Insurance Contracts Act which embodies a more liberal regime was designed to protect non‑commercial aspects.  That was dealt with by the Full Court at paragraph 3, page 514 of volume 3.

KIRBY J:   Is not this a point in your favour, that the Marine Insurance Act relates to an imperial‑type interest, a global‑type marine market, international activities, “sea”, all to be given colour from the times in which it was written whereas the Insurance Contracts Act was to do with Australian contracts of insurance.

MR MULLANY:   Yes it is, in our submission, your Honour.  That was the purpose and intent and the rationale behind the two regimes is perhaps reflected by an amendment which occurred in 1998 excluding “pleasure craft” from the ambit of the Marine Insurance Act.  That is footnoted in our submissions at footnote 5.

KIRBY J:   So there were three amendments to the Act, are there, or have there been more?

MR MULLANY:   That was an amendment, your Honour, to the Insurance Contracts Act which dealt with the ‑ ‑ ‑

KIRBY J:   That is to the Insurance Contracts Act.

MR MULLANY:   Yes.

KIRBY J:   There have only been two amendments to the Marine Insurance Act.

MR MULLANY:   That is so, your Honour.  The Marine Insurance Act was said to have codified the law of marine insurance when it was enacted, but that is true only in part.  Section 4 specifically preserves the rule of common law except to the extent that it is “inconsistent with express provisions of this Act.”  The developing common law, therefore, continues to play a role in stating the law of marine insurance both in interpreting the legislation and in resolving issues on which the legislation is silent.  This is one.  It, therefore, has a role to play in determining the operation of the legislative scheme, the Act containing no definition of the word “sea”.

Although it survived for nearly a century virtually without change, it is not done so without criticism.  The criticism has increased in the last 20 or so years.  Controversy has arisen as to the proper construction of the key provisions.  As his Honour Justice Gummow observed on an earlier occasion, there is not much about the Act which can be regarded as a completely open‑and‑shut case.  That fact is well illustrated, we say, by the differences in opinion expressed below in this case, and also between the differences of the New South Wales Court of Appeal in Hansen Development Pty Ltd v MMI(Aust) Ltd [1999] NSWCA 186, which I will not go to at the moment but will come back.

The question of the scope and the operation of the Act and specifically its application to inland waters and pure third party liability risk cover has presented particular difficulty.  They are questions of great import for a country like Australia where many of its citizens enjoy the pleasures that rivers and inland waters provide.  Both of those matters are raised squarely here.  It was that criticism and uncertainty surrounding the scope of operation which led to the reference for review by the Australian Law Reform Commission, which has recommended the introduction of certain changes to the overriding scheme, changes which, in our submission, support the constructions for which we contend.  I am able to tell your Honours that no legislative steps have yet been taken to act on those suggested changes.

Your Honours find the relevant provisions of the Act both in the schedule annexed to our submissions and in volume 2 in our book of materials at tab 1.  Shorter extracts are set out for your Honours’ convenience at paragraph 10 of our submissions.  Provisions 7 through 10 contain what the Australian Law Reform Commission has described as a series of cascading definitions. They have been described by some as elliptical, by others as circular.  The series of definitions there can be distilled to produce this summary:

A contract of marine insurance is a contract whereby the insurer undertakes to indemnify the assured . . . the losses incident to marine adventure ‑

which occurs whenever ship or cargo, freight or other profits are exposed to, “the perils consequent on, or incidental to, the navigation of the sea” or, relevantly to this case, when liability to a third party may be incurred thereby.

Can I take your Honours first to section 7.  Marine insurance is said in section 7 to be:

A contract . . .  whereby the insurer undertakes to indemnify the assured, in manner and to the extent thereby agreed, against marine losses, that is to say, the losses incident to marine adventure.

The expression incorporates a number of terms which are defined or described in the following sections.  A “marine adventure” is defined in section 9(2), to be where:

any ship, goods, or other movables are exposed to maritime perils ‑

referred to in the Act as “insurable property” ‑

the earning or acquisition of any freight, passage money, commission, profit, or other pecuniary benefit, or the security for any advances, loan, or disbursements, is endangered by the exposure of insurable property to maritime perils;

any liability to a third party may be incurred by the owner of, or other person interested in or responsible for, insurable property, by reason of maritime perils.

So it can be seen, your Honours, that a maritime adventure has a tripartite definition, and refers to the exposure to risk of the insured property itself, of money that may be earned from that property or the adventure, and to liability that may arise to a third party if that property is lost or damaged.  We are concerned in this case with the third of those.  That is so on review of the policy, to which I will take your Honours in just a moment.

An essential element of that part of the Act is “maritime perils”. That is defined in section 9(2)(c) to be:

perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints, and detainments of princes and peoples, jettisons, barratry; and any other perils, either of the like kind, or which may be designed by the policy.

GLEESON CJ:   Was this a case of negligent navigation?

MR MULLANY:   Yes it was.  That phrase, your Honours, is in turn defined by way of exclusion in rule 7 of Schedule 2 to the Act.  That is reproduced in paragraph 11 of our submissions:

Rule 7 provides, relevantly:  “The term ‘peril of the seas’ refers only to fortuitous accidents or casualties of the seas.  It does not include the ordinary action of the winds and waves.”

It is true, your Honours, that the definition of “maritime perils” in 9(2) is not exhausted.  It does allow other similar maritime perils to be included and it does allow the policy to define other perils.  But, importantly, we say, the perils must be consequent on or incidental to the navigation of the sea.  Everything in the definition of “maritime perils” in 9(2) is limited by those opening words, in our submission.  That is apparent, we say, from the use of the words “that is to say”.  Of critical significance is the fact that unlike other Australian ‑ ‑ ‑

HAYNE J:   Mr Mullany, I speak only for myself, but you are travelling at the rate of knots.  If you expect me to follow it ‑ I doubt my colleagues are not well ahead of me ‑ but if you want me to follow it you are going to have to slow down.

MR MULLANY:   Yes I will, your Honour.

KIRBY J:   I am in the same position.  You have lived with the case much longer than we have.

MR MULLANY:   I appreciate that, your Honour.

McHUGH J:   And there is the difficulty about reading submissions, Mr Mullany.  You do not engage the Court.

MR MULLANY:   I will endeavour to do both, your Honour.

KIRBY J:   You are laying the ground.

MR MULLANY:   I am, your Honour.  Of critical significance is the fact that unlike other Australian legislation dealing with this subject, the term “sea” is not defined in the Maritime Insurance Act.  Although “sea” is central to marine insurance, it is clear that a contract of marine insurance can deal with some land risks.  Your Honours see that from section 8(1) of the Act, which permits the contract either:

by its express terms, or by usage of trade, be extended to protect the assured against losses on inland waters or on any land risk which may be incidental to any sea voyage.

It is clear, we say, as noted by the Australian Law Reform Commission at paragraph 4.10, that the sea voyage must be the primary risk insured.  That is consistent with this Court’s judgment in Con‑Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 243, which I will not take your Honours to, but you will find at tab 5 of volume 2. The scope, therefore, of maritime perils and therefore of marine insurance is a critical threshold question regarding the application of the Marine Insurance Act to any given contract of insurance.  In summary, therefore, your Honours, the critical questions when determining whether or not a particular policy is governed by the Marine Insurance Act are determined by reference to the following inquiries and analyses.

Firstly, what is a “maritime peril”?  The answer is provided in section 9(2), defined by way of exclusion in rule 7 to Schedule 2.  We say that only exposure ‑ ‑ ‑

KIRBY J:   Just a moment.  This is where I think you have to just take us to the Act, and tell us about its structure and then tell us what section you are focusing on.

MR MULLANY:   Yes.

KIRBY J:   You see, I just do not know this Act.  It was excluded from terms of reference of the Law Reform Commission inquiry, so I really have not looked at it.

MR MULLANY:   Yes, your Honour.  If I could take you back then ‑ ‑ ‑

KIRBY J:   You say it follows the United Kingdom Act.

MR MULLANY:   I do, your Honour.

McHUGH J:   Just relax, Mr Mullany.  Just take your time and engage the Court.  Do not be firing at 100 miles an hour.

KIRBY J:   Just tell us the structure of the Act.

MR MULLANY:   The structure of the Act, your Honour, you will find ‑ ‑ ‑

KIRBY J:   I have only got from section 6 on, so I do not know what ‑ ‑ ‑

MR MULLANY:   You should have section 7 to 10, 11, 80, 91 ‑ ‑ ‑

KIRBY J:   What were in the earlier sections that are excluded.  Is there anything in those?

MR MULLANY:   I took your Honours to 7 ‑ ‑ ‑

KIRBY J:   No, before section 6.  We start with section 6 behind tab 1.

MR MULLANY:   Yes.

KIRBY J:   Is there anything in those earlier ‑ ‑ ‑

MR MULLANY:   Section 4 confirms that the common law continues to apply except where it is “inconsistent with the express provisions of this Act”.

CALLINAN J:   We really need the full Act, I think.

MR MULLANY:   We can provide that, your Honour.

CALLINAN J:   If you can get copies overnight.

MR MULLANY:   We can do that.  Section 1 deals with a “Short title and commencement”.  There is an application at certain imperial and State Acts in section 5.  Section 6 deals with its application, and under Part II beginning at paragraph 7, “marine insurance” is defined.

McHUGH J:   What does the long title say, Mr Mullany, on there, if anything?

MR MULLANY:   I just do not have that handy at the moment, your Honour.  If I could find out and get back to you.  “An Act relating to marine insurance.”

KIRBY J:   They were minimalists in those days.

MR MULLANY:   Your Honours, I can take you again through section 7 through 10 if that is convenient, or is that a convenient time, your Honour?  I am happy to do it again.  I can be brief.

GLEESON CJ:   We will adjourn now.  We will adjourn until 10.15 tomorrow morning.

AT 4.15 PM THE MATTER WAS ADJOURNED
UNTIL TUESDAY, 22 OCTOBER 2002