Morris v Betcke x 2

[2005] NSWCA 308

Reported Decision: (2005) 13 ANZ Insurance Cases 61-665

Court of Appeal

CITATION:	Morris v Betcke x 2 [2005] NSWCA 308
HEARING DATE(S):	24/08/2005
JUDGMENT DATE:	16 September 2005
JUDGMENT OF:	Beazley JA at 1; Giles JA at 2; Hoeben J at 3
DECISION:	In both proceedings (1) leave to appeal granted; (2) Claimant to file its Notice of Appeal within 14 days; (3) appeal dismissed; (4) Claimant to pay the Opponent's costs of the application for leave to appeal and of the appeal.

CATCHWORDS:	INSURANCE - Application to join insurer as additional defendant pursuant to s6 Law Reform (Miscellaneous Provisions) Act 1946 and s51 Insurance Contracts Act 1984 (Cth) - arguable case for indemnity under policy - meaning "entered into contract of insurance" in s6 Law Reform (Miscellaneous Provisions) Act - meaning "the insured" in s51 Insurance Contracts Act - arguably includes beneficiaries of contract of insurance.
LEGISLATION CITED:	Acts Interpretation Act 1901 (Cth) Air Navigation Act 1920 (Cth) Compensation to Relatives Act 1897 Corporations Act 2001 (Cth) Civil Aviation (Carriers Liability) Act 1959 (Cth) Civil Aviation Regulation 5.82 Insurance Contracts Act 1984 (Cth) Law Reform (Miscellaneous Provisions) Act 1946 (NSW)
CASES CITED:	Allianz Australia Insurance Ltd v GSF Australia Pty Limited [2005] 79 ALJR 1079 Aspioti v Leigh & Ors [2003] NSWSC 1224 Bayswater Car Rental Pty Limited v Honnell (1999) 10 ANZ Insurance Cases 61-437 Bradley v Eagle Star Insurance Co Limited (1989) AC 957 CE Health Casualty and General Insurance Limited v Gray & Ors (1993) 32 NSWLR 25 Lee v Lees Air Farming Limited (1961) AC 12 MacLean v MacLean; Australian Avaiation Underwriting Pool Pty Limited (1977) 15 SASR 306 Martin John Green in his capacity as Liquidator of Arimco Mining Pty Limited (in liquidation) v CGU Insurance Limited & Ors [2005] NSWSC 254 New Zealand Guardian Trust Co v Kenneth Brooks (1995) 1 WLR 96 Ripper & Ors v Gatenby [2002] 10 Tas R 435 Scott v Davis (2001) 204 CLR 333 Tatterson & Anor v Wirtanen (1998) VSC 88 Tzaidas v Child & Ors (2004) 208 ALR 651
PARTIES:	Peter Morris - Claimant Violet Ann Betcke - Opponent Peter Morris - Claimant Raylene Veronica Betcke - Opponent
FILE NUMBER(S):	CA 41101/04; 41100/04
COUNSEL:	G Miller QC/G Curtin - Claimants H Shore SC - Opponents
SOLICITORS:	Riley Gray-Spencer - Claimants Andrew Fegent & Company - Opponents

LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	1296/2000
LOWER COURT JUDICIAL OFFICER:	Bishop DCJ

41101/04
41100/04

BEAZLEY JA
GILES JA
HOEBEN J

Friday, 16 September, 2005

Peter MORRIS v Violet Ann BETCKE

Peter MORRIS v Raylene Veronica BETCKE

JUDGMENT

1 BEAZLEY JA: I agree with Hoeben J.

2 GILES JA: I agree with Hoeben J.

3 HOEBEN J: The two applications for leave to appeal arise from the crash of a light aircraft on 26 February 1998 in which the pilot and his two passengers were killed. Two actions under the Compensation to Relatives Act 1897 were brought in the District Court by the widows of the passengers against the owner of the aircraft (as first defendant) and the estate of the pilot (as second defendant). Those two plaintiffs are the opponents to the applications.

4 The opponents by way of notices of motion in the District Court sought to join Peter Morris to the proceedings. Peter Morris (the claimant in both applications) was the local representative of a syndicate of underwriters who had entered into a policy of insurance in respect of the aircraft involved in the accident.

5 The order sought in each motion was:

“Leave be granted to join the second cross-defendant Peter Morris and his employer insurance company Booker International Pty Limited to the proceedings as defendants pursuant to section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) and/or sections 48 and 51 of the Insurance Contracts Act 1984 (Cth).”

6 Both motions were heard concurrently by Bishop DCJ. On 12 November 2004 his Honour delivered judgment and in each matter the plaintiff was granted leave to join Peter Morris as an additional defendant. The order against Booker International Pty Limited was not pursued. The applications for leave to appeal seek leave to challenge those orders. They have been heard on full submissions so that if leave to appeal be granted, the appeals can be dealt with without a further hearing.

Factual background

7 The evidence before the Court comprised three affidavits, two on behalf of the opponents and one on behalf of the claimant. There was also exhibit 1 which comprised two documents from the file of the Bureau of Air Safety Investigation (BASI) relating to the crash. There was no cross-examination on the affidavits and no real dispute as to the facts.

8 The evidence before his Honour established the following:

(i) The first defendant (Pyojed Pty Limited) was the owner of the aircraft. It had four directors and four shareholders.

(ii) The pilot (Ronald Bamforth) was a shareholder and director of Pyojed. He had been flying that aircraft since 1992. He held a private pilot’s licence.

(iii) There were no survivors of the crash and no apparent eye witnesses.

(iv) The flight plan submitted by the pilot indicated a planned departure from Cobar at 1400 EST, a refuelling stop at Windorah and a planned arrival time at the Osborne Mine of 1830 EST. Last light in the Osborne Mine area was 1931 hours.

(v) The aircraft in fact left Cobar at about 1455 EST. It did not leave Windorah until about 1845. The flight time from Windorah to the Osborne Mine was 1 hour 30 minutes.

(vi) Shortly before the crash the aircraft was observed to the north of the mine runway but then contact with it was lost. The aircraft wreckage was located about 400 metres north of the air-strip.

(vii) An order for the winding-up of Pyojed was made by the Supreme Court of Queensland on 15 September 2003. The liquidator appointed by that order did not consent to proceedings against Pyojed continuing.

(viii) The estate of the pilot was fully administered and had no relevant assets.

9 An investigation was carried by the BASI. Under the heading of ‘pilot experience’ the following was stated:

“The pilot was the holder of a private pilot’s licence and a current medical certificate. He held a Night Visual Flight Rules rating and had accrued 30.4 hours of night-flying experience. To act as pilot in command of an air-craft under these rules it was necessary for the pilot to satisfy a number of recent experience requirements. These included one hour flight time at night in the previous twelve months; one take-off and landing at night in the previous six months; to fly without passengers; and three take-offs and three landings at night within the previous ninety days in order to carry passengers in the aircraft. According to the pilot’s log-book he had not met any of these criteria. His most recent night flying had been conducted in late July 1997.”

10 Included in the evidence was a report from an expert, Doctor MacLarn. He referred to and set out Civil Aviation Regulation (CAR) 5.82 which was in force at the time of the crash and which defined the recent experience requirements for a pilot such as Mr Bamforth:

“CAR 5.82 Private (Aeroplane) Pilot: recent experience requirements:

A private (aeroplane) pilot must not fly an aeroplane as pilot in command if the aeroplane is carrying any other person unless:

(a) if the flight is undertaken in daylight…;
(b) if the flight is undertaken at night – the pilot has, within the period of 90 days immediately before the day of the proposed flight carried out at least three take-offs and three landings at night while flying the aeroplane as pilot in command or as pilot acting in command under supervision, or in dual flying.”

11 It was the opinion of Dr MacLarn that the absence of a visual horizon after dark can lead to a spatial disorientation so that it was likely that this caused the crash.

12 It was common ground that at the time of the crash there was in force a policy of insurance in respect of this aircraft. The meaning to be given to some provisions of the policy was a matter in dispute and will be dealt with elsewhere. At this stage it is sufficient to say that the schedule to the policy identified the insured as Pyojed Pty Limited. The “uses” were identified as “Private, Business and Pleasure”. Four names were set out in the schedule as pilots. Included in those names was W Bamforth, the pilot on this occasion.

Proceedings in District Court

13 Although his Honour noted that the motions before him relied in the alternative on ss 48 and 51 of the Insurance Contracts Act 1984 (Cth) (ICA) (judgment paras 4, 8) and ss 48 and 51 ICA were set out in the judgment, he does not seem to have specifically turned his mind to the application of those sections. This is not surprising since it is apparent from the transcript of argument that no submissions were made to him by counsel on either side in relation to those sections. The contest appears to have been restricted to s6 of the Law Reform (Miscellaneous Provisions) Act 1946 (LRA). Nevertheless it is clear that those sections were before his Honour as an alternative basis for the joinder of the claimant.

14 The parts of s6 LRA with which his Honour was concerned were:

“6(1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person’s liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability.

…

(4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured:
Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken.”

15 It was common ground before his Honour that the claimant could not rely on the prohibition in the proviso in s6(4) and that what his Honour was concerned with was the general discretion whether or not to grant leave to join the insurer. What the opponents had to show was that they had an arguable case against the insured, an arguable case against the insurer and that there was reason to believe that the insured would be unable to meet any judgment from his or its own resources, ie there was no “perfectly good common law defendant available”.

16 It was not disputed before his Honour that the first and second defendants would be unable to meet any judgment from their own resources. It was the other two questions which were in issue.

17 In relation to the actions against Pyojed it was submitted by the claimant that the only liability alleged was of a vicarious kind. No personal liability was asserted. In those circumstances sufficient evidence had to be adduced to raise an arguable case that Pyojed was vicariously liable for the actions of the pilot. The claimant submitted that there was insufficient evidence and relied upon Scott v Davis (2001) 204 CLR 333.

18 His Honour rejected that submission on the basis that at the time of the crash the pilot was a director of Pyojed. His Honour referred to Lee v Lees Air FarmingLimited (1961) AC 12 for the proposition that a director may at the same time be an employee of a company. Even if there was not sufficient evidence to establish an employment relationship there was sufficient evidence to make it arguable that an agency relationship existed between the pilot and Pyojed.

19 His Honour found that it was arguable that there had been no failure to comply with air navigation orders as required by section VI(3) of the policy in that there was a distinction to be drawn between a regulation and an order. His Honour also noted that some of the particulars of negligence relied upon by the opponents did not relate to any failure to comply with air navigation orders so that a failure to comply with such orders could be cured or at least alleviated by reference to s54 ICA. In that regard his Honour relied upon the decision of this Court in Tzaidas v Child & Ors (2004) 208 ALR 651.

20 His Honour rejected the claimant’s submission that the policy did not apply because the aircraft was being used in a way not allowed by the policy. He did so on the basis that there was no evidence that the flight in question was a charter flight and thus came within the exclusion that the aircraft not be used for hire or reward.

21 In relation to the actions against the estate of the pilot his Honour found that it was arguable that the pilot was an insured under the policy bearing in mind the provisions of section IV(1)(ii) of the policy. He distinguished the decision of Aspioti v Leigh & Ors [2003] NSWSC 1224 because the Aspioti decision related to a cover note whereas in this case section IV(1)(ii) deemed the pilot to be an insured for the purposes of the policy. That being so, the pilot was an insured for the purposes of s6 LRA and the claimant could be joined as a defendant in the actions against the estate of the pilot.

Actions against Pyojed

22 It should be noted that the opponents abandoned any reliance upon the Civil Aviation (Carriers Liability) Act 1959 (Cth) as a basis for their claims against either Pyojed or the estate of the pilot. They claimed in negligence alone.

23 In relation to Pyojed the claimant submitted that his Honour erred in holding that the opponents had an arguable case in negligence against it and that Pyojed had an arguable case for indemnity under the policy.

24 The only matter pleaded against Pyojed was that it was vicariously liable for the actions of the pilot. The claimant submitted that it was necessary for the opponents to adduce some evidence which made it arguable that vicarious liability could be established on the basis of employment or agency. The only material relating to employment was that the pilot was a director and that the defences filed on behalf of the estate of the pilot admitted employment. This it was submitted was not evidence since the defences had not been verified. Moreover that assertion had been denied by Pyojed in its pleadings.

25 Reliance was placed on Scott v Davis and the finding by the High Court that there was no presumption of agency in circumstances where the owner of an aircraft gave permission for a pilot to fly it. The evidence was not capable of establishing vicarious liability on the basis of agency.

26 As was indicated by Santow JA in Tzaidas (para 140) all that was required of the opponents was an arguable case to support vicarious liability. That is a relatively modest hurdle. The undisputed facts were that the pilot was not only a shareholder of Pyojed but was also a director. Unlike the factual situation in Scott v Davis the director was not on the ground but was actually flying the aircraft. Some support for an agency relationship is provided by New Zealand Guardian Trust Co v Kenneth Brooks (1995) 1 WLR 96. In my opinion the relatively modest hurdle of an arguable case as to vicarious liability based on agency was overcome by the opponents and his Honour did not fall into error in so finding. That being so it is not necessary to deal with the weight to be given to the unverified admission of employment by the estate of the pilot in its defence.

27 The claimant submitted that Pyojed did not have an arguable case for indemnity under the policy because through the pilot, it was in breach of section VI clauses 1 and 3 of the policy. Those clauses were:

“Section VI: general conditions applicable to all sections:

1. If the insured fails to comply with any terms, conditions, limitations or exclusions of this insurance, underwriters may refuse to pay a claim but in any event underwriter’s rights will be subject to the provisions of section 54 of the Insurance Contracts Act 1984.

…

3. The insured shall comply with all air navigation and air worthiness orders and requirements issued by any competent authority affecting the safe operation of the aircraft and shall take reasonable care that:

(a) the aircraft is airworthy at the commencement of each flight;
(b) all Log Books and other records in connection with the Aircraft which are required by any official regulations in force from time to time shall be kept up to date and shall be produced to the Underwriters or their Agents on their request.
(c) The employees and agents of the insured comply with such orders and requirements.”

28 The claimant submitted that the pilot was clearly in breach of CAR 5.82 as was found by the BASI and consequently had failed to comply with all air navigation and air worthiness orders and requirements issued by any competent authority affecting the safe operation of the aircraft. This it was submitted was a condition precedent to cover under the policy.

29 This submission should be rejected. There is a clear distinction in the words of the policy between “orders” and “regulations” (clauses VI(3)(b) and (c)). A similar policy wording was considered by the South Australian Supreme Court in MacLean v MacLean; Australian Aviation Underwriting Pool Pty Limited (1977) 15 SASR 306. Hogarth J held that the Air Navigation Regulations did not fall within the description of “air navigation and air worthiness orders and requirements issued by the Department of Civil Aviation or other competent authority”. He said:

“The reference to air navigation and air worthiness orders and requirements relate to orders and requirements such as are contemplated by part IV of the Air Navigation Regulations, but it does not relate to the regulations themselves. These are not, in my opinion, orders and requirements issued by the Department of Civil Aviation or other competent authority. They are regulations made by the Governor-General pursuant to section 26 of the Air Navigation Act 1920 (Cth), as amended, and therefore are part of the law of the land.”

30 On the basis of that decision his Honour was correct in holding that it was arguable that there was no failure by the pilot and therefore by Pyojed, to comply with all air navigation and air worthiness orders and requirements issued by any competent authority.

31 Consequently it is not necessary to consider the application of s54 ICA in this context other than to note his Honour’s observation that not all of the particulars of negligence relied upon by the opponents related to conduct of the pilot which might appear to be in breach of CAR 5.82. To the extent that those particulars of negligence were established s54 ICA could be relied upon by the opponents to prevent a disclaimer of the policy by the claimant (Tzaidas v Child & Ors).

32 The policy schedule identified “uses” as “Private, Business and Pleasure”. Section VIII, the definition section of the policy defined the following words:

“’PRIVATE PLEASURE’ means use for private and pleasure purposes but NOT for use for any business or profession nor hire or reward.

‘BUSINESS’ means the uses stated in Private Pleasure and use for the purpose of the Insured’s business but NOT use for hire or reward.

‘COMMERCIAL’ means the uses stated in Private Pleasure and Business and use for the carriage by the Insured of passengers, baggage accompanying passengers and cargo for hire or reward.”

33 The claimant submitted that his Honour erred when he said that there was no evidence of the aircraft being used for hire or reward so as to activate the exclusion in the policy definitions of “business” and “private pleasure”. The Court was referred to two pieces of evidence in the air safety investigation documents annexed to the affidavit filed on behalf of the claimants. On page 8 of that affidavit the following was set out as an extract from the Osborne Mine log sheet:

“A copy of a fax sheet was also found. It was an Osborne Mine’s Aircraft Charter Advice from Betcke Mining Contracting, 068-363612, to Osborne Mines 077-692600 (077-692601 fax or 128.8). Flight date was 26 Feb 98, private flight in VH-SJP, arriving 6:30 pm and departing 7:30 am. Passengers Tony Betcke, Warrick Bamford (pilot), Clem Betcke. The fax was dated 26 Feb 98.”

34 The other evidence was at page 11 of the same affidavit and comprised extracts from the investigator’s note as follows:

“The aircraft was owned by a company made up of four shareholders, one of whom was the pilot. They regarded the aircraft cost as $95 per hour plus fuel.

The aircraft was flown to Osborne on 22 Feb 1997. An amount of $1450 was paid on 16 March 1997. Following another flight on 19 August 1997, an amount of $1350 was paid on 9 October. On 20 December 1997, $1360 was paid after a flight on 16 December. The average cost per hour was $153.

Based on this information there is no evidence that the pilot was sharing any costs involved in the flight.”

35 His Honour was incorrect when he said there was no evidence to support the proposition that the aircraft was being used for hire or reward at the time when it crashed. It was, however, conceded in the course of argument that this error alone was not sufficient to entitle the Court to intervene and exercise its own discretion in relation to his Honour’s findings.

36 The purpose of referring the Court to that evidence was to support the submission that there was evidence from which the Court could infer that the aircraft was being used for hire or reward at the time of the crash and that consequently such use was not covered by the policy. It was accepted by the claimant that on this issue the claimant carried the onus since it was seeking to establish an exception to the cover provided by the policy. It was also accepted on behalf of the claimant that the evidence to which the Court was referred in the context of an application for leave to join pursuant to s6 LRA was not sufficient to discharge that onus.

37 This was a concession properly made. The reference to monies paid between February 1997 and December 1997 was ambiguous at best and did not relate to this flight. The extract from the Osborne Mine log sheet did not in terms refer to money changing hands so as to indicate any hiring or use for reward. His Honour was correct in holding that in the context of the application before him this exception to the authorised use of the aircraft had not been made out by the claimant.

38 In summary Pyojed clearly came within the coverage provided by section III, ie “the underwriters will indemnify the insured in respect of all sums which the insured shall become legally liable to pay and shall pay, as compensatory damages (including costs ordered against the insured) in respect of (a) accidental bodily injury (fatal and otherwise) to passengers whilst entering, on board or alighting from the aircraft…”. It is arguable that there was no failure to comply with air navigation and air-worthiness orders and requirements issued by any competent authority. For the purposes of this application, the claimant has not discharged the onus of showing that the aircraft was being used for hire or reward at the time of the crash. Accordingly his Honour was correct in joining the claimant as additional defendant in the action by the claimants so far as brought against Pyojed pursuant to s6 LRA and no appellable error has been demonstrated in his Honour’s exercise of discretion in that regard.

39 Because of that conclusion it is not necessary to deal with the applicability of s601AG of the Corporations Act 2001 (Cth).

Actions against estate of pilot

40 It was conceded by the claimant that negligence could be established on the part of the pilot. The claimant submitted that s6 LRA could not apply to those actions because the precondition to the application of the section had not been established, ie that the pilot was “any person who has entered into a contract of insurance”.

41 The claimant relied upon Aspioti v Leigh & Ors where Hulme J said:

“Mr Drummond, appearing for AAUP, drew attention to the fact that the section confers rights on persons who have “entered into a contract of insurance”. He submitted that even if Mr Collins had been covered by the cover note issued to Mr Dass, and was by reason of the principle accepted in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 or pursuant to s 48 of the Insurance Contracts Act 1984 (Cth), entitled to recover his loss from AAUP he was nevertheless not someone who had “entered into a contract of insurance” within s6. The first part of that proposition is plainly right as the judgments in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd recognise. The second follows from the words of the section.” (para 32)

42 This submission raises for consideration the meaning of the words in s6(1) LRA “entered into a contract of insurance”. As was noted in Tzaidas v Child this is remedial legislation and so should be given a beneficial interpretation. Even giving the words a liberal meaning, they must at the very least refer to a person who was a party to the contract of insurance.

43 That was the approach followed by Bergin J in Martin John Green in his Capacity as Liquidator of Arimco Mining Pty Limited (In Liquidation) v CGU Insurance Limited & Ors [2005] NSWSC 254. The competing positions in that case were submissions by the insurer that the directors were not parties to the contract of insurance but were named beneficiaries and on behalf of the liquidator that the directors were parties to the contract of insurance so that proceedings could be brought pursuant to s6(4) LRA against CGU, the insurer of those directors.

44 Her Honour upheld the liquidator’s submission and in doing so relied upon C E Heath Casualty and General Insurance Limited v Gray and Ors (1993) 32 NSWLR 25. In relation thereto her Honour said:

“On appeal Mahoney JA … concluded that “the intention of the policy in this regard was that the insured persons should be directors and officers at the time when the policy was effected” (at 34).

Other matters of significance considered by Mahoney JA to support the finding that the directors were party to the contract of insurance included: (1) the extent of the director’s knowledge that insurance was being effected for their benefit; (2) the extent of the director’s involvement in carrying out the arrangements under the package proposal; (3) the commercial context of the insurance package; and (4) the obligations under the policies.

In the present case the evidence establishes that the directors had knowledge that insurance was being effected and that it was for their benefit. That is established by the evidence of payment of the proportion of the premium and the statement in the Declaration in the Proposal that “inquiry has been made of all directors”. Numerous personal obligations upon the directors are to be found in the policy including claims cooperation at clause 4.4, notification at clause at 4.11 and confidentiality at clause 4.12.” (paras 25-27)

Her Honour also had regard to the commercial context in which the policy was taken out as supporting a finding that the directors were parties to the contract of insurance.

45 There is no evidence such as was before Bergin J, to support the involvement of the pilot either as pilot or as director of Pyojed in the taking out of the policy of insurance. The proposal for the insurance was not in evidence. The terms of the policy did not impose personal obligations on the pilot as occurred in the Arimco Mining case.

46 Insofar as the intention of the policy is concerned there is no indication that the pilots nominated on the schedule should be regarded as parties to the contract of insurance. On the contrary the schedule draws a clear distinction between “name of insured” which is Pyojed Pty Limited and “pilots”.

47 The problem for the opponents on this issue is not solved by section IV of the policy. That section relevantly provides:

‘Section IV: Conditions Applicable to Sections II and III’.

“1. It is hereby noted and agreed that sections II and III of this Insurance shall extend to indemnify, as if they were the Insured, any Pilot participating as joint hirer and passenger in respect of injury or damage, as defined in the relative Sections, but not so as to increase the liability herein beyond the amount which would otherwise be payable under this Insurance in respect of such injury or damage had liability devolved upon the Insured.

PROVIDED ALWAYS THAT:

(i) at the time of any accident giving rise to a claim under this extension the said pilot:
(a) shall as though he were the Insured, observe, fulfil and be subject to the terms, conditions, exceptions and exclusions contained in this Insurance so far as they can apply.
(b) is not entitled to indemnity under any other Policy or Insurance.
(ii) for the purpose of this extension the word “Insured” wherever it appears in Sections II and III of this Insurance shall be understood to mean:
(a) the Insured named in this Insurance, and/or
(b) the Pilot described in the Schedule of this Insurance, and/or
(c) the Employer, if any, of such Pilot.
(iii) the indemnity under this extension shall only be in respect of the Aircraft described in the Schedule of this Insurance.
(iv) there shall be no indemnity under this extension in respect of claims by the Insured.”

48 What is clear from the wording of the extension is that a distinction is drawn between the Insured as identified in the policy and certain persons including pilots who are to be regarded or treated in certain circumstances as if they were the insured. The extension does not make them the insured. The extension does not make the pilots parties to the contract of insurance.

49 It follows that the submission by the claimant that s6 LRA has no operation in relation to the actions against the estate of the pilot must be upheld. His Honour was in error in finding that it was arguable that the pilot was an insured under the policy and was therefore a person who had entered into a contract of insurance for the purposes of s6 LRA.

Section 51 ICA

50 That does not end the matter. The applicability of s51 ICA was before his Honour. His Honour did not turn his mind to it because no submissions were made to him about it. A similar situation arose in the application in this Court. The written and oral submissions of the parties were initially restricted to the application of section 6 LRA. In those circumstances the Court thought it appropriate to consider the applicability of s51 ICA but to allow the parties to supplement their oral submissions on this question with further written submissions.

51 In order to understand the issue between the parties as to the operation of s51, it is necessary to set out as well the relevant parts of s48 ICA:

“48(1) where a person who is not a party to a contract of general insurance is specified or referred to in the contract, whether by name or otherwise, as a person to whom the insurance cover provided by the contract extends, that person has a right to recover the amount of the person’s loss from the insurer in accordance with the contract notwithstanding that the person is not a party to the contract.

(2) subject to the contract, a person who has such a right –

(a) has, in relation to the person’s claim, the same obligations to the insurer as he would have if he were the insured; and
(b) may discharge the insured’s obligations in relation to the loss.

(3) the insurer has the same defences to an action under this section as he would have under an action by an insured.

51(1) where –

(a) the insured under a contract of liability insurance is liable in damages to a person (in this section called the ‘third party’);
(b) the insured has died or cannot, after reasonable enquiries, be found; and
(c) the contract provides insurance cover in respect of the liability;

the third party may recover from the insurer an amount equal to the insurer’s liability under the contract in respect of the insured’s liability in damages…”.

52 The ICA does not define “insured”. Section 11 provides:

“’Insured’ and ‘insurer’ include a proposed insured and a proposed insurer respectively.”

53 The claimant submitted that the words “the insured” where appearing in s51 should be given the same or similar meaning to the words “a person who has entered a contract of insurance” in s6 LRA. In other words the words “the insured” mean a party to the policy of insurance. On that approach s51 ICA would be no more applicable to the actions against the estate of the pilot than was s6 LRA.

54 In support of that submission the claimant relied upon Ripper & Ors v Gatenby [2002] 10 Tas R 435 and Aspioti v Leigh & Ors [2003] NSWSC 1224 as follows:

Ripper & Ors v Gatenby:
“In my view, the plaintiffs' claim fell outside the scope of the Insurance Contracts Act , s51, because the pilot was not "the insured" within the meaning of that section. The policy was issued to the Tasmanian Aero Club. The pilot, although not a party to the contract of insurance (ie, the policy), may have had a right to recover any loss from the insurer in accordance with that contract pursuant to the Insurance Contracts Act , s48. However, s48(2)(a), s48(2)(b), and s48(3) each refer to the person with whom the insurer has contracted, as distinct from a person to whom the insurance cover extends who is not a party to the contract of insurance, as "the insured". The meaning of s51 is not affected by the non-exhaustive definition of the noun "insured" in s11 ("insured and insurer include a proposed insured and a proposed insurer, respectively"). The noun "insured" does not ordinarily refer to a person who is covered by someone else's insurance policy. There is nothing in the Insurance Contracts Act , nor in the report of the Australian Law Reform Commission that gave rise to it, to suggest that a wider meaning of the word was intended in s51. I therefore conclude that the noun "insured" in s51 refers only to a party to a contract of insurance, and does not include another person to whom the insurance cover provided by the contract extends. Thus, the plaintiffs had no right to proceed directly against the insurer under s51.” (para 22 Blow J)

Aspioti v Leigh:

“In light of the distinction made in section 48 between the “insured” and a third party entitled to cover under a policy, and against the background of the existing legislation in section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) and similar legislation in the Australian Capital Territory, it is not possible to regard the references to “insured” in s 51 as intended to encompass third parties to whom cover is expressed to extend. The authors of Australian Insurance Law by Tarr, Liew and Holligan, 2nd ed , at page 66 take a similar view.

In reaching this conclusion I acknowledge that it is liable to create or amount to an impediment to actual recovery by someone in the Plaintiffs’ position of any verdict against such third party beneficiaries of a policy. Should the third party not be in a position to meet the verdict, but not disposed himself to sue the insurer, and an insurer be recalcitrant, a plaintiff will presumably be obliged to bankrupt the third party’s estate and then induce the trustee of that estate to sue the insurer. Such a result is less than ideal but short of giving to s51 of the Insurance Contracts Act or s6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW), an operation which the language does not bear is, in my view, inevitable. Whether there are any other methods by which rights against the insurer may be pursued it is unnecessary for me to consider.” (paras 35-36 Hulme J)

55 On behalf of the opponents it was submitted:

(i) Section 51 is remedial legislation and accordingly should be given a liberal construction.
(ii) The ordinary meaning of the word “insured” includes a person who under the express terms of the policy is to be treated or deemed to be an insured.
(iii) A construction that would promote the purpose or object of the Act is to be preferred ( Acts Interpretation Act 1901 (Cth) s15AA).
(iv) A court may have regard to extrinsic material within the meaning of s151AB of the Acts Interpretation Act 1901 (Cth) in the event of ambiguity. The explanatory memorandum to the Insurance Contracts Bill is such material. Paras 169-170 of the explanatory memorandum emphasise the remedial nature of s51 and support a purposive interpetation of the word “insured”.
(v) The wording of s48 ICA supports such an interpretation in that it is a stand alone section dealing with a specific problem and that is why the meaning of the word “insured” was deliberately limited.

56 Reliance was placed by the opponents on the following passages from “The Law of Liability Insurance” 2nd ed, Derrington and Ashton:

“13-203 Whether it applies where the claim is primarily against a non-contracting party to whom the cover of the policy is extended and who might enforce it under s48 but who is not a party to the contract, is also controversial. Although in other places the Act makes a clear distinction between such a party and the contracting insured, and who alone is referred to there as “the insured”, plainly the former comes within such a description according to the ordinary meaning of the term as a person to whom the indemnity is granted, and there would seem to be no reason why the distinction should be made in respect of such a desirable remedy. For reasons such as this, words can be given different meanings in different parts of a statute; and in the other uses of the term where its meaning is confined, in each case that result seems to flow from its particular context. There is no inconsistency in giving it its ordinary meaning when its contextual influence and purpose would support that course since consistency of usage should yield to the force of the context.

13-204 It is also true that the reference to “the insured” where it first appears in the section is associated with the words, “under a contract of liability insurance”, but that adds nothing except to identify the type of insurance contract to which the section applies, and the extension of its cover to a non-contracting party makes that person an insured under the contract and one who can enforce that cover both at common law and under the same statute. On two occasions, the section refers to “the insurer’s liability under the contract”. The courts may see the practical purpose of the liberal construction as preferable to the unnecessary limitation of the alternative that has only the argument of consistency with other uses to support it and the ordinary meaning of the words against it. It is therefore suggested that such a construction may prevail.”

57 This aspect of s51 has been the subject of two first instance decisions in the Supreme Courts of New South Wales and Tasmania. It has not yet been the subject of appellate consideration. That a genuine controversy still exists was acknowledged by Bergin J in Arimco Mining when she said:

“I am satisfied that the defendant directors are parties to the contract of insurance within the meaning of that expression in s6 of the Act and are the “insured” within the meaning of that expression in s51 of the ICA.
There were submissions made by CGU in relation to whether s6 or s51 extend to beneficiaries of a contract of insurance, with reliance of Aspioti v Leigh & Ors [2003] NSWSC 1224 and Ripper v Gatenby [2002] 10 Tas R 435, to submit that they do not, however having regard to my findings above I do not need to consider these submissions further.” (paras 33-34)

The approach put forward by the opponents in their submissions and that advocated by Messrs Derrington and Ashton in their publication arguably accords with the guidance recently provided by the High Court for the interpretation of such statutes ( Allianz Australia Insurance Ltd v GSF Australia Pty Limited [2005] 79 ALJR 1079).

58 The nature of the opponent’s application is important. It is to amend the Statement of Claim to add an additional defendant in the actions so far as brought against the estate of the pilot. It is in an interlocutory application. The evidence is of necessity incomplete. Section 51 operates to create a new right of action in the third party. Unlike the reliance upon s6 LRA it cannot be said that the opponents’ claim under s51 to support such a joinder is unarguable. There is a triable issue as to whether or not the pilot was an “insured” within the meaning of s51.

59 Because of the nature of the application, ie to join an additional defendant, and because it is arguable that the opponents have a cause of action against the claimant pursuant to s51 ICA, I am of the opinion that leave should be granted to the opponents to join the claimant as an additional defendant in the action so far as brought against the estate of the pilot. I wish to make it clear, however, that this does not in any way preclude the claimant from arguing in the substantive proceedings that s51 does not give the opponents a cause of action against the claimant based on the negligence of the pilot.

60 If that issue is argued in the substantive proceedings, consideration will need to be given to the meaning of the phrase “liable in damages to a person” where used in s51. In Bradley v Eagle Star Insurance Co Limited (1989) AC 957 the House of Lords held that an insured could not claim indemnity under a liability policy unless and until the existence of an amount of the liability to the third party had been established by “judgment of the court or by an award in arbitration or by agreement”. The reasoning in Bradley v Eagle Star Insurance has been applied so as to restrict the operation of the section (Bayswater Car Rental Pty Limited v Honnell (1999) 10 ANZ Insurance Cases 61-437). The reasoning in that case is to be contrasted with that in Tatterson & Anor v Wirtanen (1998) VSC 88. Since no submissions were made to the Court by either party on this issue I do not propose to take it further.

Conclusion

61 It follows from the above analysis that leave to appeal should be granted to the claimant. The claimant has been successful in identifying error on the part of his Honour in the application of s6 LRA to the actions against the estate of the pilot. Nevertheless the appeal should be dismissed since the opponents have succeeded on the alternative basis raised in their Notice of Motion and have established an arguable case under s51 for the joinder of the claimant.

62 Although the claimant succeeded in identifying error in his Honour’s application of s6 LRA to the actions against the estate of the pilot, I am of the opinion that the claimant should pay the costs of the application for leave to appeal and the appeal. The claimant has failed. Much of the argument before the Court related to the effect of various provisions of the policy and whether or not it was arguable that the policy was operative in relation to this accident. The claimant failed on those matters. In those circumstances I am of the opinion that costs should follow the event and should be paid by the claimant.

63 The orders which I propose in each proceedings are as follows:

(1) Leave to appeal is granted.
(2) The claimant is to file its Notice of Appeal within fourteen days of the date of hereof.
(3) The appeal is dismissed.
(4) The claimant is to pay the opponents’ costs of the application for leave to appeal and of the appeal.

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