Howard, S. v Australian Jet Charter Pty Ltd
[1991] FCA 246
•10 MAY 1991
Re: SEAN HOWARD
And: AUSTRALIAN JET CHARTER PTY LIMITED; HAMPSHIRE DELL PTY LIMITED; EXECUTAIR
JET PTY LIMITED; WARWICK BROWN; ANTHONY STEPHEN KING and C.E. HEATH CASUALTY
AND GENERAL INSURANCE LIMITED
No. G510 of 1990
FED No. 246
Practice and Procedure - Insurance
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Hill J.(1)
CATCHWORDS
Practice and Procedure - strike out application - principles applicable.
Insurance - Contract of Insurance - endorsement inter alia in name of applicant as operator of insured aircraft - owner of insured aircraft, also insured, compromises claim with insurance company - whether release effective against operator - whether operator bailee of the aircraft - whether arguable that insurer liable to indemnify operator under terms of the policy.
Insurance Contracts Act 1984 (Cth): ss.16, 17
HEARING
SYDNEY
#DATE 10:5:1991
Solicitors for the fourth M.W. Mackrell of Lane and Lane
Cross Respondent:
Counsel and Solicitors G.L. Turner instructed by
for the First Respondent: Webeck Farland Pender
ORDER
Paragraphs 2, 4, 8, 9, 10, 11 and 12 of the further amended fourth cross-claim be struck out.
There be no order as to costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
C.E. Heath Casualty and General Insurance Limited ("Heath"), the fourth cross-respondent, moves the court to strike out the amended fourth cross-claim in these proceedings filed by Australian Jet Charter Pty Limited ("AJC"), the first respondent. The motion was by leave made returnable before me on 24 April but on that day was adjourned as the notice of motion had not been filed and served in time in accordance with the rules, and the solicitors for AJC had, I was told, inadequate time to brief counsel to argue the motion. Accordingly the motion was adjourned to 1 May 1991 for hearing.
At the commencement of the hearing counsel for AJC sought leave to file a further amended fourth cross-claim, which was intended to add to its cross-claim a further count. The application for leave was opposed by counsel for Heath on the grounds that to permit the filing of the further amended cross-claim would be futile as it too would be struck out. A minor amendment was made during the course of the day to this further amended fourth cross-claim, but that amendment does not materially affect the nature of the claim alleged by AJC against Heath.
I proposed to counsel that the hearing of the motion proceed upon the basis that in substance it was a motion to strike out the further amended fourth cross-claim and that the matter should be argued accordingly, for that was the substance of the application.
The cross-claim had its origin in proceedings brought by Mr Sean Howard (the applicant) against AJC and others, arising from an aircraft accident that occurred on Lord Howe Island on 22 April 1990. The pleadings alleged that Mr Howard purchased a Cessna aircraft VH-LCL on 21 February 1990. It is alleged that in March 1990 Mr Howard entered into an agreement with AJC that AJC would maintain and crew the aircraft. That agreement was not in evidence before me. It was while the Cessna was piloted by servants and agents of AJC that the accident occurred which caused extensive damage to the aircraft.
In his statement of claim, Mr Howard claims that AJC is liable to him for the loss and damage resulting from the accident. There are claims based on the Trade Practices Act 1974 (Cth), claims alleging breach of contract and claims sounding in negligence. Mr Howard claims that he is entitled as against AJC to the difference between the pre-accident value of the aircraft said to be $1.7M and the sale price of the aircraft in damaged condition (US$406,000). There are further claims for $9,450 for the cost of alternative aircraft hire, and an unquantified amount for damages arising out of alternative aircraft travel and or hire, and loss of income from charter operations.
By its cross-claim, AJC alleges that Heath insured it against loss or damage arising from an accident to the plane, that accordingly Heath is liable to indemnify it in respect of the claim for damage brought by Mr Howard. Alternatively, AJC alleges that it was a party to an insurance contract that obliged Heath to elect either to pay $1.7M for the plane or to repair accidental loss or damage to the plane. It is said that Heath in breach of this contract has done neither, and in the result AJC has suffered damage being essentially the amount of the claim brought by Mr Howard for the difference in value in the plane before and after the accident.
In support of the present motion there was put in evidence, without objection, the cover note for the insurance, a copy of the policy with endorsements as well as copies of correspondence passing between the legal representatives of the parties to the litigation.
The original cover note dated 19 February 1990 names as the insured, under the policy, Mr Howard and "ANZ Bank" (sic) (a mortgagee of the plane) "for their respective rights and interests". The proposal form, not in evidence before me, was dated 28 February 1990, and showed as the proposers, it was said, Mr Howard and the ANZ Banking Group Limited. Pursuant to the proposal a policy was issued, presumably in the names of Mr Howard and ANZ Banking Group Limited. Subject to the issue of the policy a request was made to add AJC to the policy as "operator". An endorsement to the policy dated 20 February 1990 noted that the policy:
"now vests in the name of:- Sean Howard (Mortgagor)
ANZ BANKING GROUP LIMITED (Mortgagee) AUSTRALIAN JET CHARTER PTY LIMITED (Operator)."
The policy before me, being a document apparently issued after the endorsement, showed the persons insured in the same way and was for a period of 12 months from 20 February 1990.
The opening words of the policy document are in the following terms:
"In CONSIDERATION of the Insured named in the Schedule hereto having paid to C.E. HEATH CASUALTY and GENERAL INSURANCE LIMITED (hereinafter called the Company) the agreed Premium, this policy insures against loss, damage or liability arising from an accident occurring during the period of insurance to the extent and in the manner hereinafter provided:..."
There then follow three sections of cover. Section 1 relevant to the matter in dispute between the parties is in the following terms:
"Coverage
1. (a) The Company will at their option pay for or repair, accidental loss of or damage to the Aircraft described in the Schedule arising from the risks covered including disappearance if the aircraft is unreported for sixty days after the commencement of flight, but not exceeding the amount insured as shown therein and subject to the amounts to be deducted shown below.
(b) If the Aircraft is insured hereby for the risks of Flight, the Company will, in addition, pay reasonable emergency expenses necessarily incurred by the Insured for the immediate safety of the Aircraft consequent upon damage or forced landing up to 10 per cent of the amount insured as specified in the schedule. Exclusions applicable to this Section only
2. The Company shall not be liable for
(a) wear and tear, deterioration, breakdown, defect or failure howsoever caused in any Unit (hereinafter defined) of the Aircraft and the consequences thereof within such Unit.
(b) damage to any Unit by anything which has a progressive or cumulative effect but damage attributable to a single recorded incident is covered under paragraph 1(a) above. HOWEVER accidental loss of or damage to the Aircraft consequent upon 2(a) or (b) above is covered under paragraph 1(a) hereof. Conditions applicable to this Section only
3. (i) If the Aircraft is damaged
(a) no dismantling or repairs shall be commenced without the consent of the Company except whatever is necessary in the interests of safety, or to prevent further damage, or to comply with orders issued by the appropriate authority.
(b) The Company will pay only for repairs and transport of labour and materials by the most economical method unless the Company agrees otherwise with the Insured.
(ii) If the Company exercises its option to pay for the Aircraft
(a) The Company may take the Aircraft (together with all documents of record, registration and title thereto) as salvage
(b) The cover afforded by this Section is terminated in respect of the Aircraft even if the Aircraft is retained by the Insured for valuable consideration or otherwise.
(iii) Except where the Company exercises its option to pay for the aircraft, there shall be deduction from the claim under paragraph 1(a) of this Section:-
(a) the amount specified in the Schedule as excess to be borne by the Insured
(b) such proportion of the Overhaul Cost (hereinafter defined) of any Unit repaired or replaced as the used time bears to the Overhaul Life (hereinafter defined) of the Unit
(iv) Unless the Company elects to take the Aircraft as salvage the Aircraft shall at all times remain the property of the Insured who shall have no right of abandonment to the Company.
(v) No claim shall be payable under this Section if other Insurance which is payable in consequence of loss or damage covered under this Section has been or shall be effected by or on behalf of the Insured without the knowledge or consent of the Company."
Section 2 of the policy is concerned to provide an indemnity to the insured for sums which the insured is liable to pay in respect of damages to persons or to property other than the aircraft itself. It is not suggested that section 2 of the policy is relevant. Section 3 concerns an indemnity to the insured for damages payable to passengers. Endorsements to the policy make it clear that in the event of total loss or constructive total loss of the aircraft, the basis of settlement will be the agreed value of the aircraft, namely $1.7M. A final endorsement reads as follows:
"It is understood and agreed that the inclusion hereunder of more than one corporation, person, organisation, firm or entity as Insured under this Policy shall not in any way effect the rights of any such corporation, person, organisation, firm or entity either in regard to any claim, demand, suit or judgement made or brought by or in favour of any other Insured, or by or in favour of any employee of such other Insured. Nothing herein contained shall operate to increase the Company's limits of liability as set forth in this Policy."
After the accident, Mr Howard claimed, under section 1 of the policy, in respect of his loss. It was his view that the plane should be written off. He estimated the cost of repairs as between $850,000 and $950,000, that the resale value was $250,000 to $350,000 and that the current salvage value of the aircraft was $400,000. In reply to this claim, Heath expressed the view that repairs would cost $749,000 and that the salvage value was $550,000 inclusive of the cost of recovery. The letter stated:
"Settlement can be achieved either by repair and restoration as above at a cost of AUD 749,000, less the applicable policy excess of AUD 25,000, or by a cash settlement of AUD 749,000 less AUD 25,000 and the damaged aircraft reverts to your client to do with as he wishes. On this bases he would achieve the following:- Cash Settlement AUD 749,000 Less Excess: AUD 25,000 NETT: AUD 724,000 724,000 Sale of Salvage (sav) AUD 450,000 Less Recovery Costs AUD 50,000 AUD 400,000AUD 400,000 NETT REALIZABLE: 1,124,000 The aircraft was insured for AUD 1,700,000 and the differential to a `write off' as you suggest, is AUD 576,000.
Accordingly, we do not feel any prudent businessman would accept such a loss. We appreciate the points you have raised re interest earned/lost, lease payment extending over the down time and possible loss of value of the aircraft. These are consequential losses not covered by policy conditions and while your client has our understanding and sympathy, we cannot entertain a half million dollar loss. The options of cash settlement as above, or repair, are still open to your client, and we would appreciate his early response so that repair or settlement procedures can commence immediately."
In reply, Mr Howard expressed a willingness to accept a sum of $770,000 in satisfaction of his claim. In the end, the claim was compromised in the sum of $750,000 which was accepted subject to releases, subsequently given, by Mr Howard and ANZ Banking Group Limited. It will be noted that AJC was neither a party to the negotiations nor a party to the release under the policy.
For Heath it was submitted that the policy was one under which the three persons insured were insured for their several rights and interests. It was submitted that, accordingly, each section of the policy must be construed as an undertaking to indemnify each insured only in respect of the loss he has suffered. Hence it was said that if the claim be one that arises, as here, only under section 1 of the policy, it operated to indemnify AJC in respect of any loss otherwise falling within the terms of the policy which he alone suffered. It was said that he suffered no such loss and therefore had no claim under the policy.
In Federation Insurance Limited v Wasson (1987) 163 CLR 303, the High Court held that a policy of insurance by which the insurer indemnified a number of co-insured parties for their respective rights and interests in one item of property, was a composite contract, that is to say one by which the insurer undertook separate and distinct obligations to the various parties insured. The actual issue in the case was the effect of a unilateral termination of the policy by one of the persons insured upon the rights of another. It was held that a co-insured could not, unilaterally, terminate a policy in relation to a separate insurance otherwise than for breach, unless the policy conferred a unilateral right of termination. The joint judgment of Mason C.J., Wilson, Dawson and Toohey JJ., referred (at 310), with apparent approval, to what had been said by Sir Wilfrid Greene M.R. in General Accident Fire and Life Assurance Corporation Limited v Midland Bank Limited (1940) 2 KB 388 at 404-5 and at 408. In those passages, the Master of the Rolls distinguished between a joint insurance of persons having a joint interest (the example used was joint owners of property) and cases where the persons insured had different interests. In the latter case the interest of each insured was different, and the covenants in the policy will be construed as a covenant to indemnify in respect of each individual different loss, which the various persons named may suffer.
In the passage at 408 the Master of the Rolls said:
"... wherever the phrase `the insured' appeared in the printed part of this document, it would be wrong to treat that as meaning, as a matter of construction, all the three persons named in the endorsement. The printed words `the insured' must be construed and qualified by the words `for their respective rights and interests', and those printed words must be given a construction which will fit in with the essential nature of the contract which is being undertaken."
In Wasson the policy did not use the words "for their respective rights and interests" but the court had no difficulty in treating the policy as if those words had appeared in it: cf Deaves v CML Fire and General Insurance Co Limited (1979) 143 CLR 24. There seems no reason to doubt, in the case before the court, that the present policy is other than a composite one in the sense in which those words are used in the cases whereby the respective rights and interests of each co-insured are covered. It is not a joint insurance.
It was submitted for Heath that the rights and interests of AJC left it with no interest in section 1 in the policy. It was said that its rights and interests fell solely under sections 2 and 3, not presently material. In the past, this submission might perhaps have been supported by the need for an insured person to have an insurable interest in the property insured. It is no longer a requirement for the validity of a contract of general insurance that there be an insurable interest, nor is it necessary that, as at the time of loss, an insured person have an interest at law and equity in the property. So much follows from ss.16 and 17 of the Insurance Contracts Act 1984 (Cth) in respect of a contract of insurance to which that Act applies. Whether the present is such a contract depends upon the question whether the aircraft here was engaged in commercial operations. This is an issue of fact on which neither side adduced evidence and which, in any event, could not appropriately be resolved in strike out proceedings.
The precise legal relationship between AJC and Mr Howard depends upon the terms of the agreement between them. That agreement is not in evidence and strike out proceedings are hardly an appropriate forum for endeavouring to resolve the interests of Mr Howard and AJC, particularly as Mr Howard is not a party to those proceedings. On one view of the matter, AJC may well be a bailee of the plane. If it were, it would have an insurable insurance entitling it to insure the plane for the full value set out in the policy: Hepburn v A Tomlinson (Hauliers) Limited (1966) AC 451. That case held that a bailee could not only insure to cover his own loss or personal liability to the owner of the goods, either at common law or under contract (when his recovery under the policy is limited to that which is sufficient to make good his own personal loss or liability) or insure up to the full value of the goods. If he adopted the latter course he could recover the value of the goods although he personally suffered no loss but must then account to the owner of the goods who has suffered the loss. Which course is adopted will depend upon the true construction of the policy. The circumstances in which the policy is effected may perhaps also have some relevance. In this event, factual matters would again be required to be determined.
In the course of argument, reference was made to Petrofina (UK) Limited v Magnaload Limited (1984) 1 QB 127. In that case, a contractor engaged in the construction of an oil refinery took out a contractors all risk policy under which the insurer agreed to indemnify it against loss or damage to property. The parties insured under the property included subcontractors and the owner. As a result of an accident, damage was sustained to the work then in progress. The owner claimed under the policy and his claim was settled. The insurer then sought to exercise its right of subrogation by suing the subcontractor whose negligence, it was alleged, caused the loss. Lloyd J found that, as a matter of construction, the policy was an insurance on property and not an insurance against liability. His Lordship held that the subcontractor was entitled to insure the property in question, covering the entire contract works and that under such an insurance he could, just as a bailee could, recover the whole of the loss insured. It followed that the insurer was not entitled to subrogation against the subcontractor.
It was submitted that this judgement should be held to have been wrongly decided and that I should not follow it. This is despite the fact that full argument on the question was not possible in the time available. In any event, the correctness of the decision does not squarely arise before me because depending on the facts AJC may have been in any event a bailee and the case falls squarely within Hepburn v A Tomlinson (Hauliers) Limited (ante).
It follows that it is clearly arguable that the applicant does have an interest to be insured under section 1 of the policy, limited no doubt to the amount of its loss, assuming that the policy otherwise extends to indemnify it against such a loss. When one turns to the policy itself it can be seen that the insurance, under section 1, is clearly an insurance of goods, rather than a liability insurance. Clause 1 makes it clear that the insurer has an option to pay for, or repair, accidental loss of or damage to the aircraft. The wording of the cover admits of some ambiguity. It is inappropriate here for me to endeavour to clarify it finally. However, if the aircraft is so extensively damaged that no repair is economically possible, the obligation of the insurer is clearly to pay $1.7M as the agreed value of the plane. If not, the insurer may repair the damage suffered to the aircraft and satisfy its obligation, not merely by effecting the repairs itself, but by indemnifying the insured against the cost of those repairs. Such indemnification may be covered by the words "pay for damage to the aircraft" if the words "pay for" govern the word "damage", as they probably do.
It is said that Heath have elected to repair the aircraft and have paid Mr Howard for those repairs. Whilst it is clear that Mr Howard has been paid by Heath a sum of money in full satisfaction of any claim he may have had under the policy, the evidence before me does not suggest that Heath have either effected repairs or paid for repairs effected by someone else. Presumably if repairs had been effected either directly by Heath or by Mr Howard and with an indemnity from Heath, the amount of claim by Mr Howard against AJC being the difference between the pre-accident value and the sale price of the damaged aircraft, would not have been a sustainable claim. What in fact Heath did, was to compromise a claim under the policy but it did not, on the face of the evidence before me, make either of the elections referred to in the policy. The most that could be said was that it satisfied its obligations to Mr Howard and ANZ Banking Group Limited under the policy.
Prima facie, therefore, it is arguable that Heath was in breach of its contract with the applicant in failing to make the election required by the terms of the policy. Counsel for Heath, in written submissions delivered after oral argument had been completed, submitted that for this purpose the insurance contract was a joint contract so that the release of the benefit of the promise by Howard and the Bank operated as a release of the benefit of the promise in favour of AJC. Counsel cited, in support of this proposition; Steeds v Steeds (1889) 22 QBD 537; Bell v Rowe (1901) 26 VLR 511 and Powell v Brodhurst (1901) 2 Ch 161. Counsel for AJC, also in written submissions, submitted that the principle raised by counsel for Heath was inapplicable to the release by joint promisees not being joint creditors. It was said that none of the cases cited in fact dealt with joint promisees and that each case dealt only with joint creditors. While it is true that Jessel M.R. in Ex parte Goode, Re Armytage (1877) 5 Ch D 46 at 57 in a somewhat analogous context counsels against the course of endeavouring to find modern reasons for old rules, as presently advised I can find no reason in principle why, if in truth, the promise released is a joint promise such that there is but one obligation, a release of such promise would not stand in the same position as a release by a joint creditor of the debtor. The reason for the rule would seem to be that where there is a joint debt it must be demanded jointly, and if one of the creditors puts an end to his right then there can no longer be a joint demand, cf Steeds v Steeds (supra at 541), a case which, however, held that the debt in question was in equity a joint debt so that the principle was inapplicable.
It is not necessary, in my opinion, to pursue this question because my present view is that the promise by Heath is not, in the relevant sense, joint, but rather several. This being the case it would be clear that one of the several promisees could not release the obligation in such a way as to operate as a release of the obligations of the promisor to the other promisee. The above discussion does, however, serve to indicate the complexity of the issues between the parties and the need for full argument thereon. To determine it on the strike out application is, to the use the words of Wills J in Steeds v Steeds (supra at 532):
"... to do what is to the last degree unsatisfactory, give judgment for a defect of pleading and in ignorance of all the facts which ought to be known before the rights of the parties are definitely adjudicated upon."
There was no dispute that the test to be applied in determining a strike out application is that expressed by the High Court in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129-130 viz that before a statement of claim will be struck out it must be clearly demonstrated that the applicant's case is so obviously untenable that it cannot possibly succeed.
As I pointed out in Northern Rivers Television Limited v Minister for Transport and Communications (unreported, 30 May 1990) the comments made by Sir Garfield Barwick in General Steel (at 130) should not be taken as countenancing a course whereby an application to strike out becomes without the consent of the parties a trial of a preliminary question of law. What his Honour had said was that if a real question was to be determined, whether of fact or law, the statement of claim should not be struck out.
It is obvious from what I have already said that issues of fact may be relevant to the determination of the questions between the parties. Certainly there are real questions of law which fall to be argued, and which in my view are not appropriate to be determined in a strike out application. This is particularly so where it is necessary that a full argument on the question of law be heard and where it is clear that one party, at least, is not prepared to embark upon such a course.
I explored, in the course of argument, the possibility that a preliminary question might be stated to resolve, at least potentially, the issues between the parties. The advantage of such a course would be that, if decided in favour of Heath, that company would not be required to participate in the hearing which would range over much wider issues than might concern it. On the other hand, where issues such as the relationship between AJC and Mr Howard may be involved, it is obvious that it would be necessary to have the participation of Mr Howard in these proceedings. In any event, counsel has already foreshadowed the possibility of a further amendment to the cross-claim against Heath to raise squarely the issue whether Heath were entitled, without consultation with AJC, to settle the claim made against it by Mr Howard. I think unless the parties are in agreement that a preliminary question be heard, it is undesirable for me to order such a hearing. The possibility of splitting issues is a potentially undesirable course. Accordingly, I do not think that this is an appropriate case for that course to be adopted.
The alternative count raised by AJC was based upon the opening words of the policy which stated that the premium insured the various persons covered by the policy "against loss, damage or liability arising from an accident". Those words were, of course, limited by the words which followed, namely "in the manner hereinafter provided". I do not think a separate claim could be made on these opening words. The reference to loss, damage or liability refer, of course, to all three sections of the policy. Loss and damage are both matters dealt with by section 1 of the policy. Liability, on the other hand, is dealt with in sections 2 and 3 of the policy. I do not think liability, in the opening words of the policy, should be construed in a way which would cover a right under section 1 of the policy. In my view, to the extent to which the allegations in the cross-claim are based upon those opening words, they cannot succeed and should be struck out. This involves striking out paragraphs 8 to 12. It involves also, as the parties agree, the striking out of paragraphs 2 to 4 of the claims made in the further amended fourth cross-claim. I would accordingly strike out these paragraphs and claims. As the parties have been each partially unsuccessful, it seems to me that the proper order to make is that there be no order as to costs of the motion.
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