Milspec Services Pty Ltd v Allianz Australia Insurance Ltd

[2010] QDC 186

DISTRICT COURT OF QUEENSLAND

CITATION:

Milspec Services Pty Ltd v Allianz Australia Insurance Ltd [2010] QDC 186

PARTIES:

MILSPEC SERVICES PTY LTD ACN 071999132
(plaintiff)

v

ALLIANZ AUSTRALIA INSURANCE LIMITED

ACN 000122850
(defendant)

FILE NO/S:

435 of 2006

PROCEEDING:

Claim

DELIVERED ON:

29 April 2010

DELIVERED AT:

Southport

JUDGE:

Rackemann DCJ

ORDER:

Judgment is given for the defendant.
That the plaintiff pay the defendant's costs, including reserve costs, on a standard basis.

CATCHWORDS:

INSURANCE – vessel damaged by striking underwater object – repairs carried out – subsequent engine failure – whether engine failure resulted from initial incident

COUNSEL:

Mr M.R. Bland (plaintiff)
Mr J.P. Kimmins (defendant)

SOLICITORS:

QBM Lawyers (plaintiff)
McCullough Robertson (defendant)

HIS HONOUR:  The plaintiff vessel owner, seeks to recover from the defendant insurer, the cost of replacing engines in its twin-engine 58 foot Riviera flybridge motor vessel, known as Sandpiper.

On 31 October 2004 the vessel was on a return voyage to Hamilton Island when it hit an underwater object near Black Island.  It was able to return to Hamilton Island under idle speed.  It was subsequently observed to have suffered damage from the incident.  That damage included damage to the starboard propeller, skeg and the hull area around the base of the skeg.

The owner made a claim on the insurer, which funded repairs to the vessel.  Those repairs did not include repairs to the engines or gear box.  A subsequent sea trial was uneventful, save that the starboard engine achieved a somewhat lower revs per minute, for a given amount of throttle, compared with the port engine.  This was a rather long-standing characteristic of the starboard engine which the owner had put down to an issue with the throttle, rather than the engine.

On 3 January 2005, the owner took back possession of the vessel and took it on a journey.  The vessel operated for about nine hours.  It was said that, during that time, it operated at a cruising speed of around 1600 revs per minute or thereabouts.  The oral evidence was that it was not taken to full speed during that time, although I note that a somewhat different version in that respect is recited in the report of Mr Davies. I also accept the evidence of Mr Bear to the effect that the engines had been taken to full RPMs in the sea trial.  I prefer that evidence to the contrary evidence of Mr Merton which appears to conflict with Mr Byrne's email of 5 June 2005, which refers to one engine achieving 2200 RPM "flat out" during the sea trial.

The evidence is that, on this journey, after some nine hours, the engines were moved towards full throttle and, at that time, the starboard engine suffered a catastrophic failure.  Subsequently, having received advice that the repair of that engine alone was uneconomic, the owner replaced both engines with new engines of a different series.  It is the cost of that repowering of the vessel, which is controversial.

The defendant says that the engine’s failure has not been shown to be due to anything for which it is responsible under the contract of insurance.  The policy insures against accidental loss of, or damage to, the boat.  The policy is not one which covers mechanical and/or electrical breakdown or failure.  The insurer claims that this is a case of mechanical and/or electrical breakdown or failure, and is excluded irrespective of what the cause of that is.

The plaintiff, on the other hand, contends that the ultimate failure of the engine was as a consequence of damage that was done in the earlier accident and that the policy should not be construed so as to exclude that from cover.  There are also other bases upon which the defendant claims that it should avoid liability, even if the plaintiff is otherwise successful in establishing that the catastrophic failure was a consequence of the accident.

By an email of the 10th of February 2005, the plaintiff was asked to provide an engine failure analysis.  On the 18th of February 2005, it provided a very short report from Mr Dremel of MTU Detroit Diesel Australia. He reported that:

"Upon inspection of the engine, it looks like the piston has picked up and failed, the conrod then bent destroying the block. 

This inspection has been done with the engine still together."

Subsequently, the plaintiff engaged an independent marine surveyor, Mr Davies, to provide a report on the engine failure.  Mr Davies inspected the engine with the head removed but did not disassemble the engine completely.  He formed the view that the damage had occurred because one of the pistons had been unable to complete its upward motion, causing the conrod to bend and to ultimately damage the engine block.  He thought that whilst that could occur by a piston seizure, the most likely cause was an over fuelling, such that the fuel did not combust.  He thought this, in turn, was most likely caused by incorrect repair work to the propellers, in particular to their pitch. It was on this basis that the claim was prosecuted against the insurer, namely that the catastrophic failure was as a result of incorrect repairs carried out following the first incident.

The defendant pointed to a number of emails from Mr Davies which indicate that Mr Davies may have come to, somewhat inappropriately, identify with his client's interest, rather than simply be concerned with an independent examination of what happened.  As an example, in an email of the 19th of April 2005 he said:

"My aim is to produce a report from material provided, and interview with your goodself, that will show (on the balance of probabilities) that the main engine failure was related to the grounding.

...

Nevertheless, if we can present a case for either repairer’s negligence or carrier’s liability, then Club Marine should respond favourably to your claim and then seek recovery against a liable Party, whoever that may be.". 

The evidence, however, does not satisfy me that Mr Davies knowingly put his name to a false opinion.

In response to the report of Mr Davies, the defendant's insurers went about gathering evidence in relation to the repair work.  On the day of trial, counsel for the plaintiff indicated that the witnesses for the defendant, in that regard, would not be cross-examined and that the plaintiff accepted that those repairs were done appropriately and were not cause of the engine failure.  It obtained leave to amend its pleading to delete paragraph 6A, which contained the allegation that the failure was caused as a result of the initial repairs.

The case pursued at trial was that the catastrophic failure was caused by damage which occurred in the initial incident.  The solicitors for the plaintiff had discussions with Mr Davies about this prospect in the weeks leading up to the trial.  As a consequence Mr Davies was prepared to sign a letter, initially drafted by the solicitors, which contained the following two paragraphs:

"Consequent to preparing that report, I have been advised that at the time of the initial impact in October 2004, the skegs of the boat were pushed up into the hull and that it was necessary to replace the P-brackets as well as repairs to the hull and shafts.

An impact of the sort necessary to push the skegs up into the hull and to damage the props on the shaft, could put a significant load on the propeller shaft couplings, gear boxes and engines.  Internal damage to the gear box and engine may not be immediately apparent on a visual inspection and could take some time to manifest during later operation."

Despite referring to that possibility, it was clear in the evidence of Mr Davies that he did not attribute the engine failure on this occasion to that cause.  He remained of the view as expressed in his initial report.  Accordingly, the plaintiff's case does not receive direct support from the expert witness retained by it.

In the course of re-examination, Mr Davies was pushed by Mr Bland, on two different occasions, to consider another possibility; that is, that the crank shaft having become immobilised by reason of the impact, a load was placed on the conrod which resulted in damage and ultimate failure at a later time.  He initially responded at page 1-77 of the transcript that he thought that it was "an unreasonable scenario.”  When asked to explain he said:

"It's difficult for me to think of a scenario where that would occur and result in the damage that we see in this particular case, so my opinion is I would find that a difficult scenario to support.".

When asked by Mr Bland again about the propeller striking a solid object causing the crank shaft to stop suddenly, he responded at page 1-78 of the transcript that:

"Yeah, if the propeller struck a solid object and didn't move from that object, then because the engine couldn’t translate its power down into anything, the engine would stop.
Yes?  If the propeller struck a solid object and lost two blades, for instance, and if that caused a deformation of the shaft and drive train through massive misalignment, it would still be possible for the engine to be spinning the shaft with the deformed and damaged propeller on the end of it until the helmsman shut the fuel off. While that was happening, of course, there's a very, very great possibility of further damage being done while the engine’s being operated in this damaged state.  So the third scenario is one that I'm - I couldn't put my hand up and say I would be happy with that scenario."

The plaintiff rather relies upon the evidence that the incident could result in a translating of force through the gear box and engine to support its circumstantial case but seeks to depart from the conclusions of its expert, Mr Davies.

The defendant, for its part, had the Sandpiper inspected by a Ross Willaton, who is a marine mechanic and has been so for well over 30 years.  Mr Willaton has substantial experience with Riviera craft, including craft such as the Sandpiper and the engines which were installed within it.  Mr Willaton gave evidence that the damage which he inspected was not of such a severity as to cause him to consider that there might be any problem with the gear box or engine.  His evidence was to the effect that he was aware that, if the impact was severe enough, such damage was possible and if the damaged observed had been more significant he might then have suggested investigations.  He may have done that if, for example, he had seen some damage to the gearbox or if he'd seen that the motors had moved on their engine mounts. However, his inspection did not reveal anything untoward of a nature which would have caused him to suspect that the impact was of such a severity as may have caused any consequential damage of that nature.

Mr Willaton also gave evidence that the particular series of engine, which was in the vessel, was one which had experienced a lot of problems.  His evidence was that:  "Commonly, the engine pistons fell apart causing the engines to blow up," and that "It is unknown what the cause was."

When asked in cross-examination whether he was merely repeating things that he had been told about or whether he had some direct knowledge or experience, he responded that he did have direct experience as well.  He gave evidence that he'd come across one where he was driving the boat himself and that when he was working at Riviera he had two 183 series engines brand new "let go," by which he meant that they had had "a major internal failure.”

The defendant also engaged a marine assessor, Mr Webster.  Mr Webster is a marine mechanic by trade and has been involved in the marine industry for over 30 years.  Over that time, he says he has looked at cases of grounding or impacts on boats at least once a week and that at least 50 per cent of those involved groundings with a hard object such as rocks, reefs or the like.

His evidence is that he has never experienced a crank shaft or piston failure due to grounding or impact. In his professional opinion it is unlikely the damage to the engine in this case resulted from the initial impact, although he does not support Mr Davies' theory either.

Mr Webster pointed out that there are a number of components between the propeller and the pistons in the engine.  This includes the gear box itself.  In his view, the parts between the propeller and the engine contain the weakest link in the drive line and where damage would be expected to occur.  In his evidence, he said that, whilst he has seen gear box housings fail, generally it is the clutch packs which would be more prone to failure first.

In this respect, his evidence ties in with the evidence given by Mr Davies who, at 1-73 of the transcript, said:

"One would expect the damage to the gearbox to occur first, because the gearbox is designed to absorb whatever load the engine can throw into it and so the damage - one would expect that if it had occurred, you would see damage to the gearbox, yes."

The gear box in this case was never inspected, nor were oil samples taken for analysis.  The case was conducted on the basis that there was no evidence of damage to the gear box. 

Mr Webster, again, returned to this subject in re-examination.  At page 2-29 of the transcript, he repeated that he could not recall ever seeing an engine failure as a result of a grounding and where he also confirmed that "what happens in my experience again, is that the intermediary part, which is the gearbox and its bits and pieces that bolt to it, are the weak link in the chain."

In further cross-examination, it was put to Mr Webster that:

"Mr Webster, you spoke there of the situation that happens when the propeller is obstructed and that causes the crankshaft to stop moving and the stress on the engine of the piston trying to move the crankshaft, and you pointed out that the pistons fire one at a time, so that the stress will be on one particular conrod at the moment of impact on the propeller.  Is it possible that that sort of stress might have weakened or bent the conrod in question and led subsequently to the failure in this case?" 

His response was that, "I don't believe so." 

Upon further questioning, he was asked whether it was at least possible.  He responded at page 2-32 that he didn't believe so and confirmed that in all of his experience he had never seen that type of failure.

Accordingly, whilst no clear explanation for the failure of the engine emerges from the evidence, none of the experts who were called thought that the failure was probably a result of the grounding incident.  Indeed, they thought it was probably due to something else.  Of the experts that gave evidence, I was particularly impressed by the evidence of Mr Webster which seemed to be given in a frank and convincing way.

The plaintiff seeks to build a circumstantial case.  It relies in particular on evidence of Mr Byrne that the engines had done about 1100 hours operating time prior to the initial impact, without giving trouble and that, given the closeness in time between the incident and the subsequent failure and given that, in the course of the incident, it was possible, particularly with the skeg intruding into the hull, for force to be translated through the gear box and engine, that the grounding incident was in some way a probable cause of the subsequent failure.

I accept the relevance of that evidence in building a circumstantial case.  However, in this case, we are dealing with a complex piece of machinery which can fail in a number of ways.  We are dealing with a circumstance in which no complete analysis was done of the engine, gear box and other parts in order to forensically determine exactly what happened.  But we are also dealing with a circumstance where, to the extent the damage was inspected and considered, the experts who were called in the case did not consider that the grounding incident was the probable cause, having regard to the circumstances and nature of the failure.  Indeed, the expert whose evidence I preferred, considers that to be improbable.

When that is added to evidence that the engines used in this case were of a type which have, in other circumstances, experienced unknown major internal failure, it seems to me that it is difficult to rely upon the circumstantial matters referred to by the plaintiff to reach a conclusion, on the balance of probabilities, that the engine failure resulted from damage from the initial incident. Indeed I am left unpersuaded that that was the probable cause.

Accordingly, the plaintiff's action must fail.  It is unnecessary for me to go on to deal with the other legal bases upon which the defendant says it could otherwise have avoided liability.

I give judgment for the defendant.

I order that the plaintiff pay the defendant's costs, including reserve costs, on a standard basis.