Re Mining Technologies Australia Pty Ltd
[1997] QCA 466
•19/12/1997
| IN THE COURT OF APPEAL | [1997] QCA 466 |
| SUPREME COURT OF QUEENSLAND |
Appeal No. 10707 of 1996
Brisbane
[E.J. Hampson & Ors. Syndicate 1204 v. Mining Technologies Aust. P/L.]
BETWEEN:
E.J. HAMPSON & OTHERS SYNDICATE 1204
(Respondent) Appellant
AND:
MINING TECHNOLOGIES AUSTRALIA PTY. LTD.
(ACN 065 307 333)
(Applicant) Respondent Pincus J.A. Davies J.A. McPherson J.A.
Judgment delivered 19 December 1997
Separate reasons for judgment of each member of the Court; Pincus J.A. dissenting.
APPEAL DISMISSED WITH COSTS.
CATCHWORDS: | CIVIL - INSURANCE - Whether reimbursement for insured’s costs of mitigating the loss is an implied term of the contract of insurance - Moore v. Evans [1917] 1 K.B. 458; Emperor Goldmining Co. Ltd. v. Switzerland General Insurance Co. Ltd. (1963) 81 W.N. (Pt. 1) (N.S.W.) 85; Guardian Assurance Co. Ltd. v. Underwood Constructions Pty. Ltd. (1974) 48 A.L.J.R. 307. |
| Counsel: | Mr D.B. Fraser Q.C. for the appellant Mr P.A. Keane Q.C., with him Mr R.M. Derrington, for the respondent |
| Solicitors: | McCullough Robertson for the appellant Corrs Chambers Westgarth for the respondent |
| Hearing Date: | 19 August 1997 |
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 10707 of 1996.
Brisbane
Before Pincus J.A. Davies J.A. McPherson J.A.
[E J Hampson & Ors. Syndicate 1204 v. Mining Technologies Aust. P/L]
BETWEEN:
E J HAMPSON & OTHERS SYNDICATE 1204
(Respondent) Appellant
AND:
MINING TECHNOLOGIES AUSTRALIA
PTY LTD (ACN 065 307 333)
(Applicant) Respondent
REASONS FOR JUDGMENT - PINCUS J.A.
Judgment delivered 19 December 1997
I have had the advantage of reading the reasons of McPherson JA. As will be seen from those reasons the dispute relates to the recoverability, by a mining company, of an amount said to be due from an insurer for the cost of recovering some buried mining equipment; the equipment had been covered by rock and earth when the roof of a tunnel fell in.
The matter came before the Supreme Court on a construction summons and the outcome below favoured the mining company, now respondent, on the basis that it was obliged under the policy to mitigate its loss, and the expense in question was incurred by it in performing that obligation. Before this Court the respondent argued for dismissal of the appeal on the basis on which it had succeeded below or alternatively because the expense related to loss or damage within the express words of the policy. I shall first discuss the latter contention, which was rejected below.
Express Term
If one examines the policy looking for reference to a claim of this kind - one for expense incurred in recovering insured equipment which has been accidently buried - no language will be found which appears at all clearly to cover such a claim. The express language of the contract is not at first sight of assistance to the respondent. But the policy is a commercial document and one which is in some respects poorly drawn; one should, no doubt, try to read it so as to reach a practically sensible outcome and that was the spirit of some of what was said to us on the respondent’s side.
On the other hand, " . . . the policy must be understood, sympathetically no doubt, as meaning what it says" (Smit Tak Offshore Services v. Youell and General Accident Fire & Life Assurance Corporation PLC [1992] 1 Lloyd's L.Rep. 154 at 159. If the policy, fairly read, does not appear to cover a particular loss, then the fact that the omission to cover that loss may seem surprising or improvident is no ground for extending the risk the insurer has agreed to accept. It may seem odd that the insurance covers the value of equipment which has been "lost" by burial, but not the cost of attempts to uncover such equipment; the parties however may make such bargain as they choose.
It is enough to set out here those parts of the policy which appear to be principally relevant to the question whether the appellant agreed to pay in the circumstances presently in issue; there are other passages which have required consideration. The second sentence of the policy contains an agreement by the appellant "to provide insurance against loss damage or liability as hereinafter mentioned . . . ". Section 1 reads as follows:
"SECTION 1: Loss or Damage to your Machinery/Equipment
The company will indemnify the insured against:
(1)
Loss, damage or liability to the items described in the schedule, accessories and spare parts (limited to $1,000.00) unless otherwise specified in the Schedule.
The company may at its option, as far as circumstances permit:
(a)
Repair, reinstate or replace the parts thereof or its accessories, spare parts (limited to $1,000.00) in a reasonably sufficient manner; or
(b)
Replace the item(s) or pay the amount of the loss or damage not exceeding the market value of the item(s) at the time of the loss or damage, or the sum insured whichever is the lesser amount.
The company’s total liability for all claims whatsoever arising out of any one such event shall always be limited to the amount of the sum insured as stated in the current schedule of the policy, or if the policy shall have been continued the amount stated on the current schedule issued by the company in respect of this policy.
(2)
The Reasonable Cost of protection and removal of the Machinery/Equipment to the nearest repairer or place of safety in consequence of loss or damage covered under the policy, but no greater than $3,000 for any protection and removal cost. "
Under the heading "Claims Procedures" one finds -
"PARTIAL LOSS
In the event of partial loss or damage under this insurance the Underwriters shall be liable only for the actual cost of (and shall have the option of) repairing, re-building or, if necessary replacing the parts damaged or destroyed to restore the machinery to a condition equal to that immediately prior to the loss. The Underwriters shall only be liable for the cost of spare parts at the nearest vehicle manufacturers Agents and shall not be liable for any increased cost incurred in order to obtain such parts other than through that Agent.
TOTAL LOSS
In the event of total loss the insurance shall be declared as totally expended and shall cancel forthwith without refund of premium. Further, if as the result of a claim made by the Insured, the Underwriters settle on the basis of a total loss or constructive total loss of the insured vehicle, the Insured shall if so required by the Underwriters, transfer its title and interest in such vehicle to the Underwriters who shall be entitled to dispose of the vehicle and to retain the proceeds of any salvaged thereof. "
The expression "loss, damage or liability to . . . " in Section 1 creates an initial problem; "loss to" the items makes only limited sense and "liability to" the items none at all. It was suggested before us that one should read the expression as if the words "in respect of" followed "loss", a reading which favours the respondent. "Loss in respect of" an insured item appears to be very broad; it could cover, for example, instances in which the item is not in itself either lost or even damaged, but some event has occurred in relation to the item which causes the owner loss, the present facts being an example. In my view one should read "loss . . . to the items" as if it were "loss . . . of the items", and the second sentence of the text in para. (1) of Section 1 provides some support for that. It says that the company may at its option "repair, reinstate or replace the parts thereof" or replace the item, or pay the amount of the loss or damage not exceeding the market value of the item or the sum insured, whichever is the lesser. None of these possible courses of action on the part of the insurer appears apt to cover the case in which a claim is made, although the item the subject of the claim is neither lost nor damaged; in particular, the option to pay the amount of the loss or damage not exceeding the market value, sensibly read, must surely contemplate the case in which the item is either lost, or damaged so badly as not to be economically repairable.
Consideration of the text under "Claims Procedures" reinforces this line of reasoning. The assumption on which this text is based is that ordinarily the claim will relate to a total or constructive loss of an insured item, or to a claim for the cost of repairing, rebuilding or replacing parts damaged or destroyed. If this interpretation is correct then, again, the language does not support the notion that the indemnification of the insured against "loss, damage . . . to the items" covers instances in which there is a pecuniary loss or expense which relates to an item, but no item has itself been lost or damaged.
Counsel for the respondent said that its primary position is that the equipment in question was lost and the answer to that contention, as is pointed out in the reasons of McPherson JA, is that the equipment in question was ultimately recovered. Counsel said that the entrapment of the equipment was a physical alteration or change affecting it which, although not permanent or irreparable, impaired its value or usefulness. It would seem clear that such an event could not be thought to be a "total loss" within the meaning of the policy, nor a "constructive total loss", the latter no doubt having a meaning based on the analogy of marine insurance. The general part of the definition of "constructive total loss" in the Marine Insurance Act 1909 (C'th) is in s. 66(1):
"Subject to any express permission in the policy, there is a constructive total loss where the subject matter insured is reasonably abandoned on account of its actual total loss appearing to be unavoidable, or because it could not be preserved from actual total loss without an expenditure which would exceed its value when the expenditure had been incurred."
That provision is not directly applicable here, but its terms may legitimately be referred to in determining what the parties presumably had in mind when speaking of "constructive total loss". Whatever the precise intended meaning, it could not in my view be held that there was a constructive total loss here, as the events which happened demonstrated that the buried equipment was recoverable, at a cost which made the expenditure well worthwhile.
So one turns to the notion of "partial loss" and that must cover, so far as relevant for present purposes, all the insured losses except total losses. Counsel for the respondent contended that the facts showed a partial loss within the meaning of the policy. The difficulty for the respondent is to fit the recovery process within one of the descriptions in the text under "Partial Loss", namely "repairing, re-building or . . . replacing". Of these the only promising possibility is "repairing"; that is dealt within the reasons of McPherson JA. I am in respectful disagreement with his Honour’s conclusion on that aspect of the matter; it is not my view that the word "repairing" ordinarily describes the process of recovering buried equipment. To reach a conclusion on this aspect it is not necessary to account for all the reported instances in which comparable fact situations have been judicially dealt with; but some comment on authorities relied on by the respondent is necessary. In Austral Plywoods Pty Ltd v. FAI General Insurance Company Limited (1992) 7 A.N.Z.Ins.Cas. 61-110, the question was whether there was “property damage” defined as "physical injury to . . . tangible property" caused by the affixation of defective plywood to a hull. It was held that the hull was damaged by this affixation, because it was not only physically injured by the screw holes and glue, but was rendered unsuitable or less suitable for the purpose for which it was constructed (77,524). To say that an object can be said to be "damaged" by having affixed to it material which is intended permanently to alter it is one thing; it is another to say that an object is "damaged" if it is covered by or buried in a substance such as earth or water which is not affixed to it and on removal of which the object is left in its original condition. And of course the question directly in issue here is not whether to bury an object is to damage it, but rather whether to extract a buried object is to repair it. In Canadian Equipment Sales and Service Co. Ltd. v. Continental Insurance Co. (1975) 59 D.L.R. (3d) 333, it was held that expenses incurred in removing from a pipe a piece of material which had fallen into it were within an insurer’s agreement to pay sums which the insurer was liable to pay if there was injury to property. It was held that there was an injury to the pipeline because the material in the pipeline made it an "imperfect or impaired pipeline". I can see the force of that, but on the other hand it would make sense to say, in answer to an inquiry whether a pipeline obstructed by some loose material was damaged: "No, there is no actual damage, but until this material is removed the pipeline will not function properly." I would not accept that machinery is, in the ordinary sense, damaged by every circumstance which makes it, for the time being, unusable; an object dropped into deep water is an example, and an object hidden away is another.
Perhaps the most important decision relied on in support of the argument that the express terms of the policy, properly construed, favour the respondent, is that of the High Court in Guardian Assurance Co. Ltd v. Underwood Constructions Pty Ltd (1974) 48 A.L.J.R. 307. The essential question, so far as the case is relevant to the point under discussion, was whether damaged sewerage lines and other objects outside the insured excavation were within a promise to indemnify the insured against damage to the property insured, limited to "the reasonable cost of replacing or repairing the property lost or damaged". In holding in favour of the insured, Mason J as his Honour then was, remarked:
"What is to my mind decisive is that the evidence establishes that the damage to the installations and office block disturbed the physical integrity and the enduring quality of the excavation itself. Unless and until the damage to the building and the installations was remedied the excavation was as susceptible to further collapse as it would have been had its walls not been secured. Had the work under consideration not been undertaken the excavation could not have been restored to its former condition. The costs in question therefore in my view reflect loss or damage sustained by the insured to the property insured."
Minds may differ as to what principle is established by the Guardian Assurance case. It appears to me to show, or at least illustrate, that insurance in respect of damage to item A. may cover the cost of repairing uninsured item B. if, in the absence of the latter repair, the former repair cannot be said to have been properly completed. The critical part of the reasoning appears to be the second last sentence I have quoted, and now repeat: "Had the work under consideration not been undertaken the excavation could not have been restored to its former condition"; the excavation was the insured item.
The Guardian Assurance case was not one in which there was an issue as to whether the excavation had been damaged; it plainly had and the question dealt with in the passage I have quoted was whether the cost of repair of the excavation properly included work done outside the excavation, but necessary to do the job properly. It does not appear to me that the case is of assistance on the question whether to retrieve an object buried in rocks and dirt is to repair that object. There the problem was the extent of the insurer’s obligation in relation to the repair of an admittedly damaged object, the excavation; here the question is whether the process gone through was a repair at all.
I have not found any definition of "repair", in dictionaries or elsewhere, which appears to me decisive; but the point, and the essential point, is that the word is not used in a technical sense but in its ordinary meaning. The question simply is whether one would properly say that extracting a buried object from the material in which it is buried constitutes a repair of that object, according to the ordinary sense of the word "repair"; in my opinion the answer to that question is no. It is therefore unnecessary to consider, under this heading, any difficulties associated with the fact that the insurer is, by the policy, given an option to repair or to take other courses.
Implied Term
I pass to consider the question of an implication. It will be recalled that the learned primary judge implied in the policy a term that allowed recovery of the sum in question; her Honour did so on the basis of reasoning the essence of which is as follows:
"If the peril insured against is sufficiently imminent or has eventuated it would, in my view, be unjust in the absence of a term to the contrary in the policy of insurance if an insured expended money to avert or reduce the risk of the insurer becoming liable under the policy without a correlative obligation on the part of the insurer to pay for that expenditure . . . ". (emphasis added)
Her Honour regarded the implication of such a term as necessary to give business efficacy to the contract.
It seems to me, with respect, that such a broad implication cannot be made. The insurance with which we are concerned relates to loss of or damage to physical objects. If such an implication as her Honour enunciated were made, then the result would be that any sort of expenditure of money to avert or reduce the insurer’s liability would be recoverable - for example, providing a shed in which to lock the equipment, or examining the cause of some apparent deficiency in the operation of an insured item, in case serious damage might be about to occur.
If, to prevent damage to an insured engine or to correct it when it has occurred, expenditure is made, then according to the implication it is recoverable. So far as damage which has eventuated is concerned, the implication is inconsistent with the terms of the policy, which gives to the insurer the option of deciding whether the damaged part is to be repaired, rebuilt or replaced. It was held in Alexander Sutherland v. The Society of the Sun Fire Office (1852) 14 Dunl 775 at 777, that until the insurer receives a claim and particulars of the loss it is unreasonable to expect a settlement: "It is only after this is done that the company can determine how they are to exercise their option.". In the United States it has however been said that the insured may himself repair the insured object where there is a failure to exercise the election within a reasonable time, or where immediate repair is necessary: Vol. 46 Corpus Juris Secundum p. 130.
So far as imminent damage is concerned, there may be room for an implication where, unless expense is immediately incurred, for example by repairing another part of the unit, the engine will be irreparably damaged. In such a case one could imagine a reasonable insurer saying, "Yes, of course", if the inclusion of a term covering such an event were suggested by the proposer. (I note, however, that the policy expressly excludes liability for temporary repairs carried out without consent: I refer to the text under "Temporary Repairs".) But that is not this case; here, the work of retrieval took weeks and there is nothing in the material to suggest that its primary or substantial purpose was to avert some imminent danger.
As to loss of a unit, for example by theft or fire, one can concede the possibility that a term might be implied covering emergency expenditure to prevent it; but there is no need to consider in what circumstances such an implication could reasonably be made, for no question of emergency expenditure applies here.
I do not accept that this insurer has impliedly undertaken to reimburse the insured for any expenditure reasonably incurred to prevent the occurrence of loss or damage the subject of the insurance; that would be too wide, as including many steps in the course of ordinary protection and maintenance, in the interests of the insured, of the property insured. If there is to be a term implied to cover the expenditure the respondent made, it must be based on the notion that the expenditure was of an extraordinary kind and that it was one which the respondent was obliged to make to avoid a greater loss, which would otherwise have fallen on the appellant.
But how extraordinary an expenditure of the present kind may be is not established by the material and I do not see any ground for taking judicial notice that a cave-in affecting the use of the insured equipment, under the method of mining being used, could be thought a remarkable event. Further, I see no basis for postulating that the respondent had an obligation to the appellant to retrieve the equipment. If it was lost, actually or constructively, then the insurer had to pay for it; if not, then (subject of course to the possibility that a term might be implied obliging the appellant to pay for the recovery work) the respondent would have no interest in whether the work was done or not. It does not appear to me, nor was it argued, that the insured must pay for the cost of work to find out whether or not there was a total loss.
It is necessary to discuss two of the authorities which were relied on for the respondent in the implied term argument. A preliminary observation is that there is room for doubt as to the extent to which observations made in cases dealing with marine insurance are likely to help in construing this policy. As McPherson JA points out, the wording uses some of the concepts of marine insurance; but that is not to say that the (considerable bulk of) law, statutory and judge-made, dealing with the circumstances in which a marine insurer must reimburse the insured for expenses the latter incurs in, for example, taking a disabled ship out of reach of threatening enemy mines, throws light on the proper interpretation of this non-marine policy. This point is I think illustrated by the reasoning of Manning J in Emperor Gold Mining Co. Limited v. Switzerland General Insurance Co. Limited (1963) 81 W.N.(NSW) 85, a marine insurance case. The relevant question there was whether the insurer of cargo had to pay for the cost of unloading, storing and reloading undamaged cargo from a ship which had to go into dry dock for examination and repair. The reason why the goods had to be dealt with in this way is not stated in the report, but I infer that the ship could not have gone into dry dock in a loaded condition. The primary judge undertook an examination of relevant provisions of the Marine Insurance Act 1909 (C'th) and authorities upon it and concluded:
"Section 84(4) plainly imposes on the assured a duty to take such measures as are reasonable for the purpose of averting or minimizing a loss. I am unable to read this provision as a duty to be carried out by the assured at his own expense, in the absence of a suing and labouring clause in the policy."
Section 84(4) of the Act reads:
"It is the duty of the assured and his agents, in all cases, to take such measures as
may be reasonable for the purpose of averting or minimizing a loss."
It is not clear to me what was thought to flow, in the Emperor case, from a view that the insurer had implicitly promised to pay for any expense undertaken to avert or minimise a loss; so far as one can tell from the report, the expense in question was undertaken to enable the ship to be repaired and one would have expected it to be recoverable, if at all, as part of the cost of repair. Leaving that aside, it would in my view be going a long way to read into policies of non-marine property insurance an implied promise by the insurer to pay for any costs the insured expends to avert or minimise a loss. So far as the latter point - minimising the loss - is concerned, such a term would be difficult to reconcile with the rather strict regime the present policy lays down for instances of partial loss; it was the respondent’s contention that the present case is of that character. In the event of partial loss, says the policy, the insurer is liable "only for the actual cost of (and shall have the option of) repairing, rebuilding or, if necessary replacing the parts damaged or destroyed . . . ". To imply a term that in the event of partial loss there shall also be an obligation on the insurer to reimburse the insured for expenses it decides to make in order to reduce the loss would be to read this clause as if the word "only" were deleted.
I note the reservations expressed in E R Hardy Ivamy "Marine Insurance", 4th Ed., Butterworths, p. 451 and of Arnould "Law of Marine Insurance Average", 6th Ed., Stevens & Sons Limited para. 914A, with respect to Emperor Gold Mining.
The respondent also relied on the decision of the Privy Council in The Netherlands Insurance Co. Est 1845 Ltd. v. Karl Ljungberg & Co. A.B. [1986] 2 Lloyd's L.Rep. 19. The question in that case was the effect of the "bailee" clause set out at 21; it obliged the insured to take measures for two purposes. It was conceded (23) that the insurer had to indemnify the insured in respect of measures taken for the first purpose and the question was whether the same applied to measures taken for the second purpose; the issue was recoverability of the cost of bringing a suit in Japan to preserve the rights of cargo owners. The Board rejected the general proposition that:
" . . . the mere fact that an obligation is imposed upon one party to a contract for the benefit of the other carried with it an implied term that the latter shall reimburse the former for his costs incurred in performance of the obligation". (23)
Nevertheless, a term was implied in favour of the insured, taking into account various factors, with respect to the second purpose I have mentioned; there was no explicit suggestion that any broader principle underlay the decision, other than those which govern the implication of terms in contracts.
It is not enough to justify the imposition of an implied term to conclude that, if the question of burial of equipment had been raised in negotiations, some clause covering the instant circumstances could have been agreed to. In order for the judgment below to be upheld, on the ground that there was a relevant implied term, it is necessary to postulate a term covering the circumstances which, one could be fairly confident, would have been accepted by the insurer; see Breen v. Williams (1996) 186 C.L.R. 71 at 102, per Gaudron and McHugh JJ:
"A term implied in fact purports to give effect to the presumed intention of the parties to the contract in respect of a matter that they have not mentioned but on which presumably they would have agreed should be part of the contract." (emphasis added)
At p. 80, in the same report, Brennan C.J. emphasised that a term would not be implied where, without it, the contract would be "effective".
Here, as the material shows, the insured was not consulted as to the desirability of this considerable expenditure (about 15 times the premium paid), nor asked whether it would reimburse the insured; the term implied would have to be one giving the insured an absolute right to be repaid expenditure reasonably incurred with a view to recover equipment accidently buried, irrespective of the insurer’s preference, and I think irrespective of the success or failure of the attempted recovery. I suppose that it is possible that an insurer anxious for the business would have agreed to the expression of such a term, but it seems likely that its inclusion would have come at the cost of an extra premium or that there would have been some sort of restriction included in it to protect the insurer. The appellant relied, as an answer to the claim, upon the second part of Section 1 of the policy, quoted above, which imposes a limit of $3,000 on the appellant’s liability for protection and removal of equipment in certain circumstances. I respectfully agree with McPherson JA that the clause does not apply to a claim of the present kind and that therefore the limit of $3,000 does not apply. It is, however, characteristic of the drafting of this policy that the relevant claim tends rather narrowly to define the insurer’s obligation; it seems unlikely, as a practical business matter, that the insurer would have agreed to pay for one sort of removal of equipment with its liability being, potentially, the whole sum insured (over M$7) when it has chosen to put an absolute limit of $3,000 on its liability for the expressly accepted removal costs.
I will make three further observations. One is that I am respectfully unable to derive from the American authorities any consistently applied principle which is helpful to the respondent here; nor do I think that the Tasmanian decision in Fenton v. The Queensland Insurance Co. Ltd (1915) 11 L.Tas.L.R. 125, to be of any substantial assistance in determining whether or not a suitable term can plausibly be implied in the present case. Secondly, I have not dealt with, nor did the parties come before the Supreme Court to litigate, a claim dependent upon principles governing causes of action under the general law such as unjust enrichment or the like (which principles may underlie some of the American decisions); the only question raised by the summons is what the policy means. Thirdly, there is in my opinion ground for thinking that it may well be, in a broad sense, fair that the insurer should pay the expenses in issue; that does not appear to be enough to impose liability upon it.
I would allow the appeal with costs, set aside the judgment entered below and order in lieu that the summons be dismissed with costs.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 10707 of 1996
Brisbane
| Before | Pincus J.A. Davies J.A. McPherson J.A. |
[E.J. Hampson & Ors. Syndicate 1024 v. Mining Technologies Aust. P/L]
BETWEEN:
E. J. HAMPSON & OTHERS SYNDICATE 1204
(Respondent) Appellant
AND:
MINING TECHNOLOGIES AUSTRALIA PTY. LTD.
ACN 065 307 333
(Applicant) Respondent
REASONS FOR JUDGMENT - DAVIES J.A.
Judgment delivered 19 December 1997
I have had the advantage of reading the reasons for judgment of McPherson and Pincus JJ.A.
The relevant facts and contractual provisions are stated in the reasons of their Honours and I shall not
repeat them. I agree with both of their Honours that there has been no total loss of the Addcars
retrieved and with Pincus J.A. for the reasons which he gives that the retrieval of these Addcars did not
constitute their repair. However I disagree with him that no term should be implied which would require
the appellant to indemnify the respondent for the expenditure of $725,000 incurred in retrieving the
Addcars or that any term implied would have to be one which would indemnify the respondent for expenditure incurred irrespective of the success or failure of the attempted recovery. I would, like the
learned primary Judge, imply a term which required indemnity in this case. However, contrary to the
reasons of Pincus J.A., it would be one which provides for indemnity only in respect of expenditure
incurred which avoided (that is prevented) the occurrence of loss or damage.
As appears from the reasons of McPherson J.A. it was common ground that the continuous
miner, lead car and three Addcars could not be retrieved and, subject to a "deductible", the appellant
indemnified the respondent in respect of them. It was also undisputed that 16 buried Addcars, valued
at $1.82M, were retrieved by the respondent at a cost of $725,000 and that that cost was reasonable.
Had the respondent not attempted to retrieve any of the buried Addcars then, subject to cl.7(d)
under the heading "EXCLUSIONS", it may have been entitled to recover under the policy the full value
of those cars,[1] that is, to be indemnified by a further $1.82M. However cl.7(d) is in the following terms:
[1] Subject also to the possible application to this contract of a principle analogous to the
"This policy does not cover:
...7. Loss, damage, liability and/or compensation for damage caused while the Plant or Machinery is or by the Plant or Machinery:
...
(d)
incurring any loss, damage or liability the occurrence of which could have been avoided by the exercise of reasonable care on the part of the insured or any person(s) acting on the Insured's behalf whether or not such occurrence was actually foreseen by the Insured or the person(s) acting on the Insured's behalf."
In keeping with a number of other clauses of the policy, cl.7(d) is hardly a model of contractual
drafting. Nor is it entirely clear how it would operate in the hypothetical situation I have envisaged. It
may be assumed, I think, from the events which in fact occurred, that in that hypothetical situation it
could be shown that, by the exercise of reasonable care on the part of the insured and the expenditure
by it of $725,000, the occurrence of the loss of Addcars to a value of $1.82M could have been
avoided. One aspect of the clause which does seem reasonably clear is that it will relevantly operate
only in the event that the occurrence of loss or damage could have been, that is would have been
avoided by the exercise of reasonable care.
It is not entirely clear whether, in that hypothetical situation, the clause would have any and if
so what operation. There appear to be three possibilities. It might be construed so as to have no effect
because it did not envisage that, in order to avoid the occurrence of any loss, the insured would be
required to expend any money or perform any work. Secondly it might be construed so as to have the
effect that the exercise of reasonable care to avoid loss would require the expenditure of money or the
performance of work by the insured up to but not exceeding the value of the loss, with the consequence
that the insurer is relieved from liability if that is not done, assuming, of course, that if it had been, the
loss could have been avoided. Or, thirdly, it might be construed so as to relieve the insurer from liability
only to the extent that the loss could have been avoided by a reasonable expenditure of money or
performance of work to a reasonable value, having regard to, amongst other things, the value of the
plant and equipment, the emergency of the situation, the likelihood of its being retrieved and its likely
state on retrieval. The third possible basis, in other words, includes in the requirement of the exercise
of reasonable care on the part of the insured a reasonable decision as to whether any and if so how
much money should be expended or work performed to avoid the loss.
I can find no linguistic indications, either in cl.7(d) or in the contract as a whole, to indicate
which of these is its correct construction. It is unlikely that the parties intended the first construction for
that would mean, it seems, that it would also have no effect where a small expenditure of money or
performance of work would avoid a very great loss. It is also unlikely that they intended the second
because it would relieve the insurer from liability unless money was expended or work performed to an
uneconomic level having regard to the value of the plant and equipment. It seems to me that the third
of the above constructions is the most sensible one and one which best accords with the apparent
intention of the clause.
A second question then arises as to how, in that situation, the liability of the insurer is to be
calculated. Is it entitled, because the insured failed to expend $725,000, the expenditure of which
would have been reasonable and would have avoided the loss, to refuse to pay any part of the $1.82M;
or is it obliged to accept that, in effect, the loss which could have been avoided was not $1.82M but
$1.095M (the difference between $1.82M and $725,000)? Again there are no linguistic considerations
in the clause or its context which assist but it seems to me that the second of these views is the more
sensible and the more likely to accord with what the parties intended.[2] The occurrence of the loss could
[2] It would also accord with a "commonplace" in mercantile law that sums paid to avert a peril
have been avoided by the exercise of reasonable care only to the extent of $1.095M. Therefore, in that
situation, the insurer would remain liable for $725,000.
If that is the correct construction of cl.7(d) and the way in which it would apply in that hypothetical situation, it could not possibly have been within the contemplation of the parties that where, as occurred here, the insured, by the exercise of reasonable care and the expenditure of $725,000,
avoided loss, the insurer should not be liable to indemnify it to the same extent. Had they been asked,
the parties would have immediately agreed that, in that event, loss was in fact avoided to the extent of
$1.095M; and that the insurer was liable to the extent to which loss was not avoided, the cost of that
avoidance, $725,000. In order to give business efficacy to the contract a term which complements
cl.7(d) should be implied. The implication of such a term would also, in my view, be reasonable for that
reason.[3]
[3] Further support for its reasonableness in this contract may be gained from the fact that it
This could take the form of the addition of a further cl.(3) in section 1 of the policy in the
following terms:
"Where loss, damage or liability, which would otherwise have occurred, is avoided by the exercise of reasonable care, including the reasonable expenditure of money or performance of work, on the part of the insured or any person acting on the insured's behalf, that expenditure or the value of that work."
Or possibly a clause in slightly modified terms, but having the same effect, could operate as a proviso
to cl.7(d).
A clause in those terms would not be inconsistent with any express terms of the contract. It
would not be inconsistent with cll.(1) or (2) in section 1 because those clauses are concerned with
indemnity in respect of loss, damage or liability which has occurred. Nor is it, or the construction which
I have reached of cl.7(d), inconsistent with the clause dealing with partial loss under the heading
"CLAIMS PROCEDURES" in the contract, which also appears to be concerned with loss of or
damage to parts of machinery, which loss or damage has already occurred. Nor do I think that it is
inconsistent with the exclusion, under the same heading, from liability for the cost of temporary repairs
even where, as may occur in some cases, expenditure which avoids loss or damage may also be for
temporary repairs, provided that the principal purpose and effect of the expenditure is to avoid loss or
damage. And it would, as I have indicated, complement the exclusion in cl.7(d) referred to earlier.
Once a term such as this is implied in the contract it is plain that the respondent was entitled to
be indemnified in respect of $725,000 as the learned primary Judge held.
I would therefore dismiss the appeal with costs.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 10707 of 1996
Brisbane
| Before | Pincus J.A. Davies J.A. McPherson J.A. |
[E.J. Hampson & Ors. Syndicate 1204 v. Mining Technologies Aust. P/L.]
BETWEEN:
E.J. HAMPSON & OTHERS SYNDICATE 1204
(Respondent) Appellant
AND:
MINING TECHNOLOGIES AUSTRALIA PTY. LTD.
(ACN 065 307 333)
(Applicant) Respondent
REASONS FOR JUDGMENT - McPHERSON J.A.
Judgment delivered 19 December 1997
This is a difficult case, which raises fundamental questions of insurance law. It is an appeal from
a decision of White J. in Supreme Court Chambers declaring that the respondent Mining Technologies
Australia Pty. Ltd. (“MTA”) was entitled, under a policy of insurance issued by or on behalf of the
appellant E.J. Hampson & Others Syndicate 1204, to reimbursement of its costs incurred in carrying
out recovery work in relation to certain mining equipment insured by that policy.
The facts are these. The respondent MTA carries on a business of providing mining services to owners of open cut coal mines and, in doing so, engages in what is called highwall mining. Such mining involves the use of specialised equipment to tunnel into the face of an existing open cut mine. In
effect, the equipment burrows into and beyond the coal face for distances of up to 350 metres,
recovering quantities of coal which are automatically conveyed back to the launch vehicle, which is
located at right angles to the coal face. It is a vehicle that launches a continuous miner into the coal,
towing a lead car and a series of other “addcars” attached to the lead car, to form a progressively
increasing train of cars following the miner into the tunnel being excavated in the coal.
On 27 December 1995 MTA was carrying out highwall mining operations for BHPAC at its
Moura mine. MTA’s continuous miner was working in a tunnel or shaft in the coal seam at a distance
of 250m from the face, when there was a collapse or cave-in of the roof of the tunnel, which resulted
in the equipment being trapped. At the time, the equipment being used consisted of the continuous
miner, the lead car, and 19 addcars. Various measures were adopted in an attempt to recover the
equipment. Those efforts were successful to the extent of retrieving 16 addcars, leaving the continuous
miner, lead car, and three other addcars still trapped under the fall. Eventually on 1 March 1996 further
attempts at rescue were abandoned because of the danger and expense involved and the limited
prospects of further success.
Agreement has been reached by the parties on a basis for settlement of MTA’s claim. The
equipment remaining in the tunnel is valued at $1.7 million, less a “deductible” of $100,000. The value
of the equipment recovered was $1.82 million. The expenses of rescuing it from the tunnel amounted
to $725,000, which the appellant insurer has refused to pay on the footing that, except as to $3,000,
it is not within the scope of the policy. The decision of the learned judge below, against which the
appeal is brought, was, shortly stated, that, although not in express terms covered by the policy, MTA was entitled to recover on the basis of a term implied in the policy that expenses incurred in performing
its duty to mitigate were recoverable from the appellant insurer.
The policy. While supporting the judgment on that ground, MTA on appeal also maintained
its original submission that the expenses in question fell within the scope of the cover provided by the
insurance. The Mobile Plant & Machinery Policy, as it is called, comprises a written agreement to
provide insurance; a section (Section 1) which defines the risks; a set of Exclusions; General Conditions;
Claims Procedures; Excess Conditions; and a Policy Schedule. It begins by reciting that the respondent
insured having submitted a proposal form, the appellant insurer (which at times is referred to as the
Company and elsewhere as the Underwriters) agrees, subject to the terms, exclusions, limitations and
conditions contained in the policy:
“... to provide insurance against loss damage or liability as hereinafter mentioned arising
out of accident damage or theft ...”.
Section 1 of the policy headed Loss or Damage to your Machinery/Equipment provides:
“The company will indemnify the insured against:
(1) Loss, damage or liability to the Items described in the Schedule accessories and
spare parts ...(2)
The Reasonable Cost of protection and removal of the Machinery/Equipment to the nearest repairer or place of safety in consequence of loss or damage covered under the policy, but no greater than $3000 for any protection and removal cost.”
It is upon section 1(2) that the appellant’s offer to pay $3,000 was based.
MTA’s primary submission is that the circumstances disclose either a loss or damage in terms
of Section 1(1), for which it is entitled to be indemnified under the policy to the extent of the costs
incurred by it in carrying out the recovery work in relation to the equipment. Approached in this way, the appeal raises two questions. First, whether there has been “loss” or “damage”; secondly, whether
the expense of retrieving the 16 addcars is recoverable under the policy.
The critical provisions of policy are not altogether aptly worded. In the body of the written
document the appellant agrees to “provide insurance against loss damage or liability as hereinafter
mentioned arising out of accident damage or theft ...”. There is no dispute that what happened to the
equipment on 27 December 1995 was or arose out of an accident. The events or risks against which
the indemnity is provided are specified in Section 1(1) as “loss, damage or liability to” the items in the
schedule. The schedule refers to a continuous miner, launch vehicle, and some 29 addcars, opposite
each of which an amount is specified as the sum insured. It is accepted that they included the items
affected by the collapse of the tunnel roof on the date in question. The use of the preposition “to” in the
indemnity under Section 1(1) does not seem especially appropriate to the verbal collocation involved.
To speak of “damage to” a chattel makes sense; but “liability to” items of property ordinarily would not.
However, that particular expression is expanded in Section 2, headed Legal Liability, of the policy,
which provides an indemnity “against liability at law by way of damage in respect of” damage to
property in specified cases.
In the case of “liability”, Mr D. Fraser Q.C. for the appellant was prepared to accept the
substitution of “in respect of” for “to” in Section 1(1). In the light of that concession and the context
itself, it is apparent that what, in this particular, is meant in Sections 1(1) and 2(1) is liability for or in
respect of damage done or caused by the equipment to property of someone else. That is not a matter
in issue here. However, once the step is taken of substituting “in respect of” for “to” in relation to
liability in Section 1(1), there is no compelling reason why some such reading of the expression “loss
to” should not also be undertaken. If Section 1(1) were to be read as meaning “loss in respect of” the items of equipment in the schedule, the respondent would advance a long way towards its goal. The
expenses it incurred in retrieving the items of equipment can fairly be described as a loss ... in respect
of the items described in the schedule ... arising out of accident. It is, after all, the insured person, rather
than the insured chattel, who sustains the loss.
“Loss”. The respondent did not, however, put its case precisely in that form, preferring instead
to read into the collocation in Section 1(1) the preposition “of”, so that it comprehended “loss of,
damage to, or liability in respect of” those items. It may in passing be noticed that, in discussing the
imminence of an insured peril, Mr J. Birds, in Modern Insurance Law (2nd ed.), at 183, also speaks
of “loss to the property” caused by measures necessarily taken to avert the risk happening, so that it
may not be as unexpected a usage as was earlier supposed. Perhaps, in the end, the least controversial
version of the insuring part of the policy is to read it as providing indemnity to MTA against loss,
damage or liability sustained by it as insured arising out of accidental loss of, damage to, or liability in
respect of the items described in the schedule. Approached in that way the policy here would not in
substance be very different from that considered in Moore v. Evans [1917] 1 K.B. 458, where
the underwriters promised to make good to the insured plaintiffs “all such losses damage
or misfortune ... as they may from time to time sustain by or from any of the causes or
misfortunes hereinafter mentioned ...”. Those perils were then described as “the loss of
damage or misfortune to the ... property or any part thereof” arising from any cause
whatsoever.
In Moore v. Evans [1917] 1 K.B. 458, 465, Swinfen Eady L.J., with whom Lawrence
J. agreed, said that under such a policy “there must either be loss of the property, or part of
it, or damage or misfortune to it”. The subject matter in that case was jewellery forwarded in June and July 1914 from London on sale or return to trade customers in Frankfurt and
Brussels. War broke out on 4 August, and by 14 August 1914, Brussels had been occupied
by German military forces. In the Court of Appeal, reversing the decision of Rowlatt J.
which is reported at [1916] 1 K.B. 479, the plaintiffs’ claim under the policy failed
essentially for the reason that there was no evidence that the jewellery had at that time been
lost, by seizure or otherwise, by the German authorities in either Frankfurt or Brussels.
There was no reason to suppose that it was not still in the safe custody of the consignees
or in banks in those cities. The policy, said Swinfen Eady L.J., was “a policy on goods and
not on an adventure”. The consignees might have been prevented by the war from selling
the goods or performing the alternative of returning them; but, he said, “this alone is not a
loss covered by the policy” ([1917] 1 K.B. 458, 465). To similar effect, Bankes L.J. said
that it was quite inadmissible to conjecture whether, since the policy had expired, the
jewellery might have been improperly dealt with. He considered that the most that could
be said was that a state of things had ensued in consequence of war “which rendered it
impossible for the plaintiffs either to obtain access to their goods, or for the persons in
whose hands they were to return them” ([1917] 1 K.B. 458, 472).
There was then an appeal to the House of Lords, where the decision of the Court of
Appeal was affirmed. See Moore v. Evans [1918] A.C. 185, where Lord Atkinson said (at
191) that the expression “damage to the property” in the policy “must mean, I think,
‘physical injury’ to the property”. In his Lordship’s opinion ([1918] A.C. 185, 197), the
agreed time for purchasing the jewellery having expired, the consignees or the banks held
the goods as bailees under an obligation to return them, which being forbidden by the laws in those two countries, they remained bound to keep the goods safely for the plaintiffs until
termination of the war. The insurance was not one under which the plaintiffs could recover
“for the loss or adventure on which the goods were embarked” ([1918] A.C. 185, 191). A
similar interpretation was recently applied to a comparable policy in Euro-Diam Ltd. v.
Bathurst [1990] 1 Q.B 1, 13.
It may be a legitimate interpretation of the decision in Moore v. Evans that where,
under such a policy, the goods insured are the subject of a commercial transaction,
detention for an indeterminate period does not amount to a “loss” in terms of the policy.
Only Bankes L.J. considered that question at any length. In doing so, he said that the “loss”
of the goods meant “being deprived of them”; but that it was not every kind of deprivation
that was within the contemplation of the parties. Mere temporary deprivation would not
ordinarily constitute a loss. On the other hand, it was not necessary that there be complete
deprivation amounting to a certainty that the goods could never be recovered. It was
between those two extremes that the difficult cases lay, of which the learned Lord Justice
offered the following hypothetical example ([1917] 1 K.B. 458, 471-472):
“Assume that from fear of a bombardment a man places his safe containing his jewels which are insured against loss in his cellar. His house is bombarded and reduced to ruins, and many tons of debris are piled upon the cellar, which is itself uninjured. Has the owner of the jewels sustained a loss of them merely because he cannot get at them until the debris is removed? I think not. Assuming that the time when he will be able to get at them is quite indefinite owing to the mass of material to be moved and the lack of labour, has he under those circumstances sustained a loss of the jewels? I think not. Assume that the military authorities for sufficient reasons connected with the defence of the realm take possession of the ruins and refuse the owner access to them until the termination of hostilities, or for an indefinite time, does that constitute a loss of the jewels within the meaning of the policy? I think not. In the cases I am putting the jewels are known to be in the cellar and unharmed. They must remain where they are till the debris can be cleared, but they will be ultimately recoverable. When that can be done is quite uncertain. It may not be for a very considerable time.”
He concluded by saying that, if the facts existing at the time action was brought, were that
the plaintiffs’ chance of recovering the goods was “a mere chance”, then they might be
entitled to recover on the ground of a loss of the jewels; but, in the circumstances disclosed
by the evidence, there was no reason to suppose they would not ultimately recover their
goods, although they might have to wait a long time. What they had lost was therefore not
their property, “but the commercial adventure of sending their goods out on approval and
getting them back in due course” [1917] 1 K.B. 458, 473).
It is, as Bankes L.J. recognised, not essential in order to constitute a “loss” of the
subject matter insured that there should be no prospect at all of the goods ever being
recovered. Under a comprehensive motor vehicle policy covering loss of the vehicle,
Parker J. in Webster v. General Accident Fire & Life Assurance Corporation Ltd. [1953]
1 Q.B. 520, 532, considered that in the case of a stolen vehicle the test was “whether, after
all reasonable steps to recover a chattel have been taken by the assured, recovery is
uncertain”. In the present case, it is clear that the continuous miner, lead car, and the other
three addcars, which could not be retrieved, were “lost”, if not on 27 December 1995, then
at least by 1 March 1996, when efforts to recover them were abandoned. As to the other
16 addcars rescued from the collapsed tunnel, it is equally plain that they have not been lost.
Admittedly, it required time, effort, and expenditure to recover them; but, by 1 March 1996
or earlier, they were back in the possession of the MTA. In Kuwait Airways Corporation
v. Kuwait Insurance Co. [1996] 1 Ll.R. 664, 686, there was held to be an insurance loss on
2 August 1990 when aircraft were seized by invading Iraqi forces, and even before they were flown away, because “on that day KAC lost possession and control of their aircraft and it
was both uncertain and, if it be relevant ... unlikely, that possession would be recovered
within a reasonable time”. Rix J. added that, “the relevant test outside the field of marine
insurance would appear to be uncertainty and not unlikelihood of recovery”. Here it may
well have been uncertain whether, on 27 December 1995, any of the addcars would be
recovered; but with hindsight we know now that 16 of them were retrieved. There is no
evidence before us to show what the prospects of recovery were reasonably believed to be
on that date; but, as regards those 16 items, there is no longer any doubt. They have been
recovered, even if at considerable expense to the insured in doing so.
Marine policies. If this were a claim under a policy of marine insurance, the
conclusion would be that there was no “total loss” of the subject matter. See Lohre v.
Aitchison (1878) 3 Q.B.D. 558, 563. The position at common law, as it was before the
Marine Insurance Act 1906 (U.K.), was lucidly explained by Maule J. in Moss v. Smith
(1850) 9 C.B. 94, 102-103; 137 E.R. 827, 831:
“If the ship is actually lost by a peril of the sea, or any other peril covered by the policy, the assured may call it a total loss. If she sustains damage to such an extent that she cannot be repaired at all that also is a total loss. It may be that the injury sustained by the ship is irreparable with reference to the place where she is; for instance, the ship may have met with the disaster at a place where no workmen of requisite powers are to be met with, or where the necessary materials are not to be found, so that to repair her there is altogether impracticable: and in such a case the loss would also be a total loss. But, short of that, it may be that it may be physically possible to repair the ship, but at an enormous cost: and there also the loss would be total for, in matters of business, a thing is said to be impossible when it is not practicable; and a thing is impracticable when it can only be done at an excessive or unreasonable cost. A man may be said to have lost a shilling, when he has dropped it into deep water; though it might be possible, by some very expensive contrivance, to recover it. So, if a ship sustains such extensive damage, that it would not be reasonably practicable to repair her, - seeing that the expense of repairs would be such that no man of common sense would incur the outlay, - the ship is said to be totally lost. It is in that way alone that the question as to what a prudent owner would do, arises.
However damaged the ship may be, if it be practicable to repair her, so as to enable her to complete the adventure, she is not totally lost. The ordinary measure of prudence which the courts have adopted, is this, - if the ship, when repaired, will not be worth the sum which it would be necessary to expend upon her, the repairs are, practically speaking, impossible, and it is a case of total loss.
See also what was said by Cresswell J. in the same case, at 9 C.B. 94, 105-106; 137 E.R.
827, 832. Under a marine policy, a ship which survives in specie but is unlikely to be
recovered or only after expenditure exceeding its value, is a constructive total loss: see 25
Halsbury (4th ed.) §292, at 175. Otherwise the loss is only partial: 25 Halsbury (4th ed.)
§282; Lohre v. Aitchison (1878) 3 Q.B.D. 558, 563. By a peculiarity of English law, the
question whether the loss is total falls to be determined at the date at which proceedings on
the policy are commenced; so that if the vessel is in fact unexpectedly recovered before
then, the loss is considered not to be total : see Roura & Forgas v. Townend [1919] 1 K.B.
189, 195; Robertson v. Petros M. Nomikos Ltd. [1939] A.C. 371, 383. The dilemma that
sometimes then arises may be resolved by the shipowner giving notice of abandonment to
the insurers, which, at least if it is accepted, confers the right to recover as for a
constructive total loss: Western Assurance Co. of Toronto v. Poole [1903] 1 K.B. 376,
383-384; and see Roura & Forgas v. Townend [1919] 1 K.B. 189, 195.
No question of that kind arose in the present case. The value of the equipment
recovered was $1.82 million; the cost of recovering it was only $725,000. Retrieving
equipment of such value in return for an outlay of that amount was plainly the prudent
course to adopt. Of course, when the tunnel collapse occurred it may not have been so obvious to anyone then, as it is to us now, that the equipment, or perhaps any of it, could be
recovered either at all or by insuring a cost less than its value; but there is, as I have said, no
evidence that anyone then considered it a constructive total loss, or sought to treat it as
such. In the case of the 16 addcars successfully retrieved, the loss was, in marine terms,
partial only, and was neither an actual or a constructive total loss.
In Moore v. Evans, both Bankes L.J. [1917] 1 K.B. 458, 469, and Lord Atkinson
[1918] A.C. 185, 195, stressed that principles of marine insurance did not apply to a policy
of the character considered in that case; or, Lord Atkinson said, to the ascertainment of the
true meaning of the word “loss” that was used in it. Referring to another decision in which
such a comparison had been made, his Lordship said ([1918] A.C. 185, 196):
“If that means that principles of the law as to constructive total loss are to be applied in effect, though not in name, but under an alias as it were, to a loss under a non-marine policy, I respectfully dissent from the learned judge’s opinion”
Co. v. Admiralty Commissioners [1919] 1 K.B. 49, as authority for saying that a sum paid
to avert a peril insured against may be recovered as a loss by that peril “if the peril is
sufficiently imminent”. See also J. Birds, Modern Insurance Law (2nd ed.), at 183-184;
K. Sutton, Insurance Law in Australia (2nd ed.) §15.8. However, as will be seen, the
editors of Arnould on Marine Insurance (16th ed.) §914 may now to some extent have
resiled from the view adopted in earlier editions on which Bunyan relied.
Sue and labour clauses. The question has been partly obscured by the practice
dating back well over a century of including in marine policies the common “sue and labour
clause”, which is now the subject of s.84 of the Marine Insurance Act 1909 (Cth.). An
early form of that clause is set out in Emperor Goldmining Co. Ltd. v. Switzerland
General Insurance Co. Ltd. (1963) 81 W.N. (Pt.1) (N.S.W.) 85,90. Such a clause formed part of the policy considered in Fenton v. Queensland Insurance Co.; but in that instance
(which was not a marine adventure to which the Act, including s.84, would have applied),
Crisp J. appears to have decided in favour of the plaintiff on the ground that s.84(4) simply
“reiterates the law as it stood before, viz., that the assured is bound to do all in his power to
save the property” (11 Tas. L.R. 125, 128-129). Whether if bound to save the property the
insured would, in the absence of such a clause, be entitled to recover costs necessarily
incurred in doing so, may be a different question. It was decided in favour of the insured
in Emperor Goldmining Co. Ltd. v. Switzerland General Insurance Co. Ltd. (1964) 81
W.N. (Pt. 1) (N.S.W.) 85, where, having referred to s.84(4) of the Act, Manning J. said (81
W.N. (Pt. 1) 85, 92):
“Section 84(4) plainly imposes on the assured a duty to take such measures as are reasonable for the purpose of averting or minimising a loss. I am unable to read this provision as a duty to be carried out by the assured at his own expense, in the absence of a suing and labouring clause in the policy.”
In the result, his Honour held that, although in that instance the marine policy contained no
suing and labouring clause, “expenses necessarily incurred in consequence of and to avert
a peril insured against” (see 81 W.N. (Pt. 1) 85, 90) were recoverable by the insured.
The decision has attracted comment by the editors of the current edition of Arnould
on Marine Insurance (16th ed.) §914, at 795, who consider that “a narrower view is to be
preferred” to that suggested by the decision of Manning J. They nevertheless acknowledge
that, in the absence of the relevant clause, the assured can recover expenses in the nature
of suing and labouring expenses “in those cases where it can plausibly be said that the need
for the expenditure is the direct and natural result of the casualty”. Footnote 14 to §914 of
the text refers to pre-15th editions of Arnould, in which, as the current editors remark, such charges were said to be recoverable “when they are necessarily incurred in consequence of
such a peril, as for example when a peril insured against has occasioned the necessity for
such expenditure”; to which they also add that in those earlier editions a distinction seems
to have been drawn between such cases “and those where expenses are incurred to prevent
a peril from causing loss”.
If, as the text of the current Arnould acknowledges, the insured can, even in the
absence of a suing and labouring clause, recover such expenses where the need for the
expenditure is “the direct and natural result of the casualty”, or “where they have necessarily
been incurred in consequence of such a peril”, then the expenditure incurred by MTA in the
present case falls fairly within that description. This was not a case where the loss was
merely apprehended or the peril had not yet begun to operate. The equipment was already
trapped or stranded in the tunnel by the collapse of the roof before the expense was
incurred. The expenditure by MTA was necessary in order to retrieve the 16 addcars from
an event or loss which had already happened. The mobile equipment policy here contains
no suing and labouring clause. In that respect, it resembles Emperor Goldmining Co. v.
Switzerland General Insurance Co. (1963) 81 W.N. (Pt. 1) (N.S.W.) 85. Clause 1(b) of
the General Conditions does, however, contain a requirement that the insured:
“(b)
take precautions to prevent further damage to the Machinery and note that the Company shall not be liable for any further damage resulting from the continued use of the Machinery until the machinery has been repaired to the satisfaction of the Company.”
It is true that the General Conditions are expressed to operate as conditions precedent to
liability; but cl.1(b) nevertheless indirectly requires the insured, in circumstances to which it applies, to undertake action which may involve it in incurring expenditure. In addition, the
policy in cl.7(d) of the Exclusions contains a specific provision excluding liability for:
“(d) ... any loss, damage or liability the occurrence of which could have been
avoided by exercise of reasonable care on the part of the insured ...”.
In that respect, it resembles the exclusionary provision (d), set out earlier in these reasons,
in the cargo policy in Harper v. Pelican Trucking Co. (1965) 176, So. 2d. 767, 773, which
it was said would have relieved the insurer of all liability if the insured had not undertaken
the salvage operation; in other words, the Louisiana Court of Appeal said:
“... if the cargo had not been preserved and rescued from substantial or complete destruction, the defence of lack of coverage by reason of the insured’s failure to comply with this requirement obviously would have been sufficient to exonerate the insurer from any liability. Under the circumstances, we are convinced that denial of the obligation of the insurer to bear the expense of salvage operations, without the performance of which liability is expressly excluded, would be contrary to the principles of general law, to every rule of reason and public policy, and would impose an unjust and inequitable burden upon the insured without a reciprocal obligation upon the insurer.”
One tends to shy away from propositions of “justice and equity” in relation to
insurance policies, which remain at least to some extent, and perhaps rightly so, the last
fortress of literalism. But it would nevertheless be surprising if an insurer could have it
both ways, insisting that the insured incur expenditure to satisfy a condition precedent under
the policy, only to be told that his doing so has effectively disentitled him from claiming
there is an insured loss. The decision in Harper v. Pelican Trucking Co. Inc., which did not
turn on any peculiarity of the civil law of Louisiana, is therefore clear authority in favour
of MTA in the present case. In that case, as in this, there was at the time the expense of rescue was incurred, no physical loss of or damage to the article insured but only a threat
of its imminent loss or destruction.
I would therefore not hesitate to adopt and apply to the insurance claim of MTA in
the present proceedings the principle that, even in the absence of a suing and labouring
clause of the kind commonly found in marine policies, expenditure necessarily and
reasonably incurred by the insured in averting an imminent loss is ordinarily recoverable
under a policy of insurance providing indemnity against such loss. It might perhaps be a
different matter if the rescue efforts proved unsuccessful. Sue and labour clauses were, as
Lord Blackburn has said, originally included in marine policies as an incentive to those
insured to exert themselves in preserving the subject matter of the insurance: Aitchison v.
Lohre (1879) 4 A.C. 755, 765; and may be designed to facilitate recovery of costs
reasonably but, as it turns out, unsuccessfully expended. It is not, however, necessary to
pursue that question here. The efforts of MTA in attempting to rescue the addcars on this
occasion were attended by signal success.
Australian authority. In Australia the question whether, in the circumstances
disclosed here, the loss is recoverable is to my mind covered not only by the decisions in
Fenton v. Queensland Insurance Co. and Emperor Goldmining Co. v. Switzerland
General Insurance Co., but by authority which binds this Court. In A.F.G. Insurances Ltd.
v. City of Brighton (1972) 126 C.L.R. 655, 661-662, Mason J. considered, but in the end
left open, the question whether an insured owes a general duty to avert or minimise loss.
It arose directly for decision not long afterwards. In Guardian Assurance Co. Ltd. v.
Underwood Constructions Pty. Ltd. (1974) 48 A.L.J.R. 307, a contractor, in excavating a site, removed an existing concrete wall or slab, with the consequence that earth and rock
from the embankment threatened to slide into the excavation, imperilling sewer lines,
stormwater drains, and an office building located near the edge of the site. To prevent
further slippage and damage, the contractor brought in material to refill the excavation, laid
temporary sewer lines to replace those damaged, and took steps to underpin the building.
The issue was whether the expenses so incurred were within the cover of the contractor’s
“all risks” insurance in respect of accidental loss of or damage to the property insured.
The High Court, affirming a decision of the Supreme Court of Queensland (E.S.
Williams J.) held that they were. The expression “property insured” was defined in the
policy to mean “the permanent and temporary works erected in performance of the contract
...”, which, said Mason J. (48 A.L.J.R. 307, 309), meant the “improvement which is
constituted by the work executed in the performance of the contract”; or, in other words,
the excavation or hole dug by the contractor, which was regarded as having been damaged
by the fall of the earth and rock. The cost of remedying or repairing it was held to come
within the terms of the first proviso to the indemnity in respect of “material damage” in
section I of that policy, which included “the reasonable cost of replacing or repairing the
property lost or damaged” limited to the sum insured (48 A.L.J.R. 307, 309 col. 1, C-E).
The other items damaged or threatened (the sewer lines, drains and office building)
were all situated outside the excavation. As to them, Mason J. held that what was decisive
in favour of the insured was that:
“... the evidence establishes that the damage to the installations and office block disturbed the physical integrity and enduring quality of the excavation itself. Unless and until the damage to the building and installations was remedied the excavation was as susceptible to further collapse as it would have been had its walls not been secured. Had the work under consideration not been undertaken the excavation could not have been restored to its former condition. The costs in question therefore in my view reflect loss or damage sustained by the insured to the property insured.”
The other learned Justices of the High Court (Barwick C.J., Menzies, Stephen, and
Jacobs JJ.) agreed with the reasons of Mason J.
In my respectful opinion, those circumstances present a close factual analogy with
those of the present case. The threat posed by the building and other installations slipping
into the excavation was considered by Mason J. to constitute “loss or damage” to the
“enduring quality” of the excavation itself, even though they had not fallen and (because of
the remedial measures adopted) in fact never did fall into the hole. Likewise, in the present
case, the equipment was, at least partly, “lost” once the tunnel roof fell about it, making
remedial measures necessary to retrieve it. Those measures amounted as much to “repair”
or “restoration” of the subject insured as the remedial measures in Guardian Assurance
constituted repair or reinstatement of the threatened excavation. In this instance, as in that,
the costs incurred reflect, as Mason J. said, “loss or damage sustained by the insured to the
property insured” (my italics) . It is true that the policy contained an express clause (cl.3)
requiring the insured “to take all reasonable precautions to prevent loss, damage or
liability”; but Mason J. considered it “open to debate whether this [cl.3] would warrant the
conclusion” that the costs in question fell within the terms of the cover against “material
damage”; and, in so far as cl.3 played any part in the decision in that case, a similar
requirement that MTA exercise reasonable care to avoid loss, damage and liability appears
in the exemption in cl.7(d) of the mobile plant policy in question here.
If this is not enough to sheet home liability to the respondent insurer in the present
case, it appears clear that the second basis of the decision in Guardian Assurance Co. v.
Underwood Constructions Pty. Ltd. would certainly do so. Section II of the policy in that
case contained an indemnity against sums for which the insured would become “legally
liable to pay as damages consequent upon ... (b) accidental loss of or damage to property”
occurring in connection with the performance of the Contract and happening on the
Contract Site ...”. As to this, Mason J. said (48 A.L.J.R. 307, 309 col. 2):
“The appellant seeks to escape this conclusion by contending that the work in question was undertaken, not to avoid further damage to the excavation, but to avoid a liability on the part of the respondent to the brewery for the collapse of the building and other damage. The appellant conceded that had the office block fallen into the excavation the respondent would have been liable in damages to the brewery and that the liability would have come within s.II of the policy, subject to the limit therein contained. The submission in all its unattractive simplicity is that, although the respondent would be indemnified if it stood by and allowed the office block to collapse, it is not indemnified when it incurs expense in preventing or minimizing damage or liability.
A compelling answer to this submission is that on the evidence it is proper to infer that the work in question was undertaken to protect and restore the excavation. No doubt it was also undertaken to prevent or minimize a liability to the brewery in the event of a collapse of the building, but this is not to deny that it was also undertaken to protect and restore the excavation. This accords with the finding of the primary judge.”
The decision is authority that expenses incurred in averting or warding off the imminent
happening of an insured risk or peril are capable of being considered within the indemnity
of the cover afforded against the loss itself. The fact that, in incurring the expense of
rescuing the equipment, the insured MTA may have had its own interests in view as well as
those of the respondent insurer is, as the decision in Guardian Assurance shows, no bar
to recovery under the policy. In that and other respects the case may be compared to Leebov v. United States Fidelity & Guaranty Co. (1960) 165 A. 2d 82, which it resembles
both as regards the facts and the decision arrived at.
In my opinion, therefore, MTA is entitled to recover, as for a partial loss under the mobile plant
policy, the costs incurred by it in carrying out recovery work in relation to the equipment referred to in
the originating summons. In reaching this conclusion, I have not found it necessary to determine
whether, as the learned primary judge held, any term should be implied in order to give business efficacy
to the contract. In my opinion, the expenses claimed represented a “loss” within the terms of the policy
itself.
The appeal should be dismissed with costs.
common law rules relating to mitigation of damage: see British Westinghouse Electric and Manufacturing Co.
Ltd. v. Underground Electric Railway Co. of London Ltd. [1912] A.C. 673 at 689.
may be recovered as upon a loss of that peril: Pyman Steamship Co. v. Admiralty Commissioners [1919] 1
K.B. 49 at 54, 55.
is a "commonplace" in mercantile law (see fn.2) and from the recoverability of such expenditure in the somewhat analogous situation of mitigation of damage: Whitehouse Hotels Pty. Ltd. v. Lido Savoy Pty. Ltd. (1975) 49 A.L.J.R. 93 at 99.
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