Skandia Insurance Co Ltd v Skoljarev

[1979] HCA 45

HIGH COURT OF AUSTRALIA

Barwick C.J., Gibbs, Stephen, Mason and Aickin JJ.

SKANDIA INSURANCE CO. LTD. v. SKOLJAREV

(1979) 142 CLR 375

28 September 1979

Insurance

Insurance—Marine—Time policy—Loss by perils of the sea—Unseaworthiness—Burden of proof—Presumptions—Marine Insurance Act 1904 (Cth), s. 45 (1), 2nd Sched., r. 7.

Decisions

Sept. 28.
The following written judgments were delivered:-
BARWICK C.J. In considering this appeal I have had the advantage of reading the reasons for judgment prepared by my brother Mason. I agree with his account of the evidence given before the primary judge, with his analysis of the findings of the primary judge, with his discussion of the relevant case law and with his reasons for his conclusion that the appeal should be dismissed. (at p377)

2. I desire to add briefly on my own account that the appellant's argument as to the onus of proof of seaworthiness of the vessel at the commencement of the voyage was, in relation to the facts and circumstances of this case, misconceived. The onus of proof in truth played no part in the resolution of the case. The respondents, not being able to point to any contribution of the elements to account for the entry of water into the hull of the vessel, had perforce to rely on the inference that that entry into a seaworthy vessel was due to or itself amounted to a peril of the sea. That is to say, to attribute the loss of the vessel to a peril of the sea necessarily involved, in the circumstances of this case, a conclusion that the vessel was seaworthy. As in this case the actual cause of the entry of the sea water was not found, there was no room for the view that, if the vessel were unseaworthy, the loss was none the less not due to her unseaworthiness. Thus, as part of the proof of the cause of the loss, the respondents needed to establish that the vessel was seaworthy when put to sea. (at p378)

3. The respondents gave very strong evidence of seaworthiness. My brother Mason in his reasons gives the details. The appellant's sole attack on this evidence was as to the condition of the piping of and associated with the bait tank. The primary judge found positively that that piping was not defective: and that, in any case, its suggested defect could not have caused the entry of water which caused the loss. He did not merely reject the appellant's case of unseaworthiness; but, in rejecting it and having the positive evidence of seaworthiness, he was in a position to infer that the entry of the water into the hull, in the quantities in which it did enter, was itself a peril of the sea. At no point had he need to rely on any question of onus of proof. As required by law, he took into account all the facts proved before him and concluded as a matter of fact, though derived by inference, that the loss was due to a peril of the sea. (at p378)

4. I would dismiss the appeal. (at p378)

GIBBS J. I would dismiss this appeal for the reasons prepared by my brother Mason, with which I agree. (at p378)

STEPHEN J. I have had the considerable advantage, while myself engaged in the consideration of this appeal, of receiving from my brother Mason the reasons for judgment prepared by him. His Honour's account of the facts and of the history of this litigation to date makes unnecessary any reference to either of those matters. My reasons for judgment can also omit all reference to the decided cases in view of his Honour's full examination of the authorities. (at p378)

2. The marine policy here in question, although not in all respects in the form appearing in the Second Schedule to the Marine Insurance Act 1909 (Cth), conforms to it in its description of the perils insured against. The relevant peril is that "of the Seas". By r. 7 of the Rules for Construction contained in that Schedule, to which effect is given by s. 36 (2) of the Act, such a peril is to be taken as referring "only to fortuitous accidents or casualties of the seas. It does not include the ordinary action of the winds and waves." (at p378)

3. A few hours after leaving port Zadar sank in a calm sea, although with considerable swell. It sank because of the rapid entry of sea-water into the engine room. The particular point of entry is unknown, as is the particular cause of its entry. (at p379)

4. It was for the insured to prove that the loss for which they sought indemnity was within the terms of the perils insured against. The relevant peril being peril of the seas, the circumstances in which Zadar came to sink did not, of themselves, establish loss by such a peril. Zadar had encountered nothing in the way of extraordinary winds or waves, she sank in calm seas and for no apparent reason, no agency external to the vessel seeming to cause her to sink. (at p379)

5. Had the evidence rested in that state the insured must have failed for want of evidence of loss by peril of the seas. The sinking would, according to ordinary human experience, only be explicable as due to the inability of the vessel to keep afloat even in the most favourable circumstances and it is not against such a loss that marine policies insure. (at p379)

6. The insured did not, however, leave the evidence in that state. Evidence was tendered of the seaworthy character of the vessel. It led the learned trial judge to reject each of the respects in which it was suggested by the insurer that Zadar was in any respect unseaworthy. It must, I think, be concluded that Zadar was a thoroughly seaworthy vessel until the happening of whatever it was which caused her to founder. (at p379)

7. Such a conclusion changes the whole picture. The unexplained sinking of a thoroughly seaworthy ship in calm waters cannot support an inference that her fate was the simple result of her inability to withstand the ordinary action of the winds and the waves. On the contrary, her seaworthiness distinctly negates such an inference and, in the absence of any other evidence, must instead lead to the inference that, whatever was the unknown cause of the sudden entry of seawater, it should be regarded as some "fortuitous accident or casualty of the seas", that is to say, some peril of the seas. (at p379)

8. That being so, the insured made good their claim to indemnity. I would dismiss this appeal. (at p379)

MASON J. On 27th April 1977 the respondents' fishing vessel Zadar sank at sea off Port Lincoln, South Australia. The respondents held a policy of marine insurance relating to the vessel, issued by the appellant. It was a time policy which insured the vessel against "perils of the seas" amongst other risks. The respondents sued the appellant on the policy in the Supreme Court of South Australia. The action was heard by Bright J. who gave judgment for the respondents in the sum of $199,500 which represented the amount of the policy ($200,000) less the value of a dinghy which was recovered. An appeal by the appellant to the Full Court of the Supreme Court was dismissed. From that dismissal the appellant now appeals to this Court. (at p380)

2. In their statement of claim the respondents alleged that the ship sank due to perils of the sea. This allegation was denied by the appellant. The appellant also pleaded (1) that the ship was lost as a result of the negligence of the respondents, their servants or agents; and (2) that the vessel was with the privity of the respondents sent to sea in an unseaworthy state and that the loss was attributable to that unseaworthiness. By way of reply to the defence of negligence the respondents pleaded the "Inchmaree clause" which formed part of the policy. (at p380)

3. This led to confusion at the trial. The effect of the Inchmaree clause is to extend the insurer's liability by adding to the perils insured against, "Bursting of boilers breakage of shafts or any latent defect in the machinery or hull, Negligence of Master Officers Crew or Pilots . . . provided such loss or damage has not resulted from want of due diligence by the Assured, Owners or Managers . . ." (cl. 4 (a)). The Inchmaree clause was introduced into policies of marine insurance following the House of Lords decision in Thames and Mersey Marine Insurance Co. Ltd. v. Hamilton, Fraser &Co. (1887) 12 App Cas 484 , which held that damage done to a ship's donkey-engine used in pumping water into the boilers was not a peril of the sea or a peril ejusdem generis when the damage was due to the negligent or accidental closing of a valve which caused water to be forced into the air chamber of the pump. (at p380)

4. The foundation of the respondents' case as pleaded was, as I have said, that the loss was due to perils of the sea. The respondents did not plead that the loss was due to any of the events stated in the Inchmaree clause. Thus the pleading of the clause as an answer to a defence of negligence was misconceived because the clause provides separate and additional heads of liability. It does not extend the concept of "perils of the seas"; nor does it convert a loss due to negligence on the part of the master, officers or crew into a loss due to a peril of the sea. Consequently, the respondents' case had and has to be determined on the footing that the loss was alleged to be due to perils of the sea. This was accepted by the respondents' counsel in this Court. (at p380)

5. The circumstances in which the Zadar sank were detailed in evidence given by Tony Mislov, the captain, Branko Jarnjak, a deckhand, and Tony Maric, an engineer. The vessel left the wharf at Port Lincoln about midnight. Mislov took the first watch and handed over to Jarnjak between 2.30 a.m. and 3 a.m. At this time neither Mislov nor Jarnjak noticed anything unusual. Between 3.30 a.m. and 4 a.m. Jarnjak observed that a large volume of water had entered the engine-room. He awakened Mislov who in turn awakened Maric. Maric noticed that water was apparently entering the engine-room from the aft section. At this time the engine cut out and the lights went out. All power went off. Concluding that there was nothing that could be done to save the ship, the crew abandoned her. They were subsequently rescued. At all times the sea was calm, though there was a considerable swell, according to the primary judge's finding. (at p381)

6. The first-named respondent, who is a qualified captain of a fishing vessel, gave evidence as to the history of the Zadar. The vessel was of timber construction, built in Sydney in 1967. She was 58 ft long, 17 ft 3 ins in width, 7 ft in depth and had a gross tonnage of 39.8 tons. She was fitted with three bait tanks. These tanks, which contained bait in the form of live fish, were fitted to a system of galvanized steel pipes 4 inches in diameter whose operation ensured that fresh sea water brought from outside the vessel continuously circulated through the tanks. (at p381)

7. In 1973 the Zadar was extensively improved. The improvements included the installation of refrigeration plants, new bait circulation, refrigeration and bilge pipes and a new auxiliary engine. The vessel was inspected by surveyors of the Department of Marine and Harbors when she was slipped at Port Adelaide and subsequently at Port Lincoln in September and October 1976. The surveyors reported "Hull in good order and condition" and "Machinery installation inspected while vessel afloat. In satisfactory condition and fairly clean." At Port Adelaide the sea valves were examined and found to be in order and a new stern tube and intermediate shaft were fitted. At the same time all the pipes and the bait and bilge pumps were examined and pronounced to be in satisfactory repair by a firm known as Heithersays. The refit was completed on 2nd November 1976. A survey certificate issued on 5th November 1976. The survey included an examination and check of all piping. From mid-November to the date of its loss the vessel was engaged in tuna fishing almost continuously, using Port Lincoln as its home base. (at p381)

8. During that time the first-named respondent claimed that the ship was seaworthy. He spoke of three separate incidents in which small leaks were observed. The first was a small leak on a section of pipe between the sea valve and the T valve on the bilge pump. It was repaired by an engineering firm. The second leak was in the same section of pipe. It was then replaced with a new pipe. The other leak was from a "little tiny crack" in a section of pipe between the bait pump and the inlet. It was welded and then fibreglass was placed over it. There was also some moisture in an area where the propeller shaft enters the hull. It seems to have been common ground that this was of no consequence. After the last repair of the pipes the vessel made four or five trips without any indication of defect in the pipes. (at p382)

9. As the Zadar left the wharf on 26th April 1977 Mislov noticed air bubbles rising in the bait tank. He instructed the engineer to turn off the bait pump. The bubbles then diminished. The few that remained were, in Mislov's opinion, consistent with the presence of jellyfish or weed. (at p382)

10. The respondents' case was that the Zadar was seaworthy and that the sinking was therefore due to some unknown but fortuitous cause. The evidence given, it was submitted, was sufficient to raise a presumption or an inference that the cause of the sinking was a peril of the sea. (at p382)

11. The appellant called no evidence. Nevertheless it sought to show by cross-examination and by reference to established facts that the vessel was not lost by reason of a peril of the sea but by reason of its unseaworthy condition and that this condition was known to the respondents when she put to sea. The appellant relied on the evidence of Captain Taylor, a marine surveyor, who was called by the respondents. He gave this oral evidence:
"Q. As a result of your enquiries, did you form an opinion as to the most probable cause of the floods in the engine room? A. Couldn't find any definite cause. Q. But short of a definite cause, did you form any opinion at all? A. Well, water entered the engine room and one possibility was a broken pipe." (at p382)

12. However, in a report he said that "the most probable cause" was the rupture of a pipe leading to the bait tank pump through a latent defect due to electrolysis resulting from the action of the sea water on the metal in the pipe. In cross-examination he described this as "a probable cause". The only evidence to which he pointed in support of this suggestion was - (a) the previous leak in that pipe and (b) the presence of air bubbles in the bait tank as the Zadar left port. According to Captain Taylor air bubbles could indicate that the bait tank pump was drawing air through leaking glands in the pump or, if the pipe was cracked, through the pipe. Captain Taylor conceded electrolysis is a gradual process and that pipes can last up to ten years before they need to be renewed. (at p383)

13. The primary judge said (1978) 18 SASR 20, at pp 26-27 : ". . . I am unable to make a finding as to the cause of the entry of the water . . . I am unable to say . . . that the pipes were in such a bad state that one or other must have given way." His Honour went on to state that there were no facts to sustain the opinion that a pipe had burst and that the volume of water was inconsistent with "some hairline crack or pinhole corrosion" withthe result that "There must have been a substantial hole somewhere". (at p383)

14. He then proceeded to apply the presumption that if a ship which is seaworthy sinks in smooth water and there is no other evidence as to the cause of loss, the casualty is attributable to a peril of the seas, citing Canada Rice Mills Ltd. v. Union Marine and General Insurance Co. Ltd. (1941) AC 55 and Anderson v. Morice (1874) LR 10 CP 58 as authority for this approach. His Honour found that the vessel was seaworthy and found that there was no negligence on the part of the master and crew. (at p383)

15. The Full Court held that there were two questions for determination:

"1. Did the respondents prove that the loss was sustained by a peril of the sea? 2. If 'Yes'; did the appellant prove that the vessel was sent to sea in an unseaworthy condition with the privity of the respondents?"

The Full Court answered these questions "Yes" and "No" respectively. (at p383)

16. The appellant challenges the decision of the Full Court on the ground that it erred in failing to recognize that the onus lay upon the respondents of establishing that the Zadar was seaworthy. The Court proceeded on the footing that the onus rested with the appellant of establishing its defence that the Zadar was unseaworthy. Mr. Gleeson for the appellant suggests that because the Court was preoccupied with the defence of unseaworthiness, it failed to appreciate that the respondents, in order to prove that the loss was due to perils of the sea, bore the onus of showing that the loss was not attributable to unseaworthiness. (at p383)

17. Rule 7 of the Rules for Construction of Policy set out in the Second Schedule to the Marine Insurance Act 1909, as amended ("the Act") states, "The term 'perils of the seas' refers only to fortuitous accidents or casualties of the seas. It does not include the ordinary action of the winds and waves." The provision is identical with r. 7 of the First Schedule to the Marine Insurance Act, 1906 (U.K.) which was a codification of the antecedent common law. (at p384)

18. The rule draws a distinction between fortuitous accidents or casualties of the sea and the ordinary action of the wind and waves. Consequently, not every loss caused by the entry of the sea water into a vessel is a loss due to a peril of the sea. Losses caused by the natural and inevitable action of the wind and waves are not due to perils of the sea because they are foreseen and expected. (at p384)

19. Thus it has been uniformly held that losses occasioned by the incursion of water into a vessel's hull owing to the defective, deteriorated or decayed condition of the hull or ordinary wear and tear are not losses caused by "perils of the seas" (Thomas Wilson, Sons &Co. v. Owners of the Cargo per the "Xantho" (The "Xantho") (1887) 12 App Cas 503, at p 509 ; Grant, Smith and Co. and McDonnell Ltd. v. Seattle Construction and Dry Dock Co. (1920) AC 162, at p 171 ; E. D. Sassoon &Co. v. Western Assurance Co. (1912) AC 561 . These cases proceed upon the principle that the cause of loss is not fortuitous; to the extent to which the action is attributable to the sea, it is caused by the ordinary action of the wind and waves. The principle is reinforced by s. 61 (2) (c) of the Act which provides that, unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear. (at p384)

20. For a similar reason corrosion of the protective cover of a submarine cable due to the chemical action of sea water is not a peril of the sea. The damage is a natural and inevitable consequence of the action of sea water on the cable (Paterson v. Harris (1861) 1 B &S 336, at p 352 (121 ER 740, at p 746) ). (at p384)

21. On the other hand, losses due to fortuitous incursions of sea water are attributable to perils of the sea. Such losses comprehend loss or damage caused by foundering in violent weather or by collision with another vessel or with submerged rocks or other obstructions in calm weather. They also include damage done to cargo by the entrance of water through a hole in a pipe gnawed by rats (Hamilton, Fraser &Co. v. Pandorf &Co. (1887) 12 App Cas 518 ) or through a valve left open by mistake (Blackburn v. Liverpool, Brazil and River Plate Steam Navigation Co. (1902) 1 KB 290 ), and the sinking of a submarine as the result of the negligent cutting of pipes which caused leaks in the skin of the vessel (Cohen, Sons and Co. v. National Benefit Assurance Co. Ltd. (1924) 40 TLR 347 ). As these cases demonstrate, it is enough that an accidental or fortuitous event leads to the admission of sea water into the vessel, thereby causing its loss, or damage to it, even if at all relevant times the sea is calm and the weather is fair. The consequential loss or damage cannot then be attributed to the ordinary action of the wind and waves. (at p385)

22. The old view that some extraordinary action of the wind and waves is required to constitute a fortuitous accident or casualty is now quite discredited (The "Xantho" (1887) 12 App Cas, at p 509 ). It is true that in Mountain v. Whittle (1921) 1 AC 615, at p 626 Viscount Finlay spoke of the need for the insured to show "some special circumstance such as heavy waves causing the entrance of the sea water to make it a peril of the seas", but his Lordship's remark was directed to the facts of that case. There the houseboat Dorothy was found to be unseaworthy on the ground that her seams above the waterline were leaky and defective. She sank because her hold filled with water whilst she was lashed to the side of a powerful tug and towed to a quay. The tug had an unusually high breast wave which caused water to enter through the defective seams. This enabled the House of Lords to hold that the loss was due to a peril of the sea. Had it not been for the magnitude of the tug's breast wave, the loss would have been attributed to wear and tear or to the ordinary action of the wind and waves. (at p385)

23. By way of contrast, in Grant, Smith and Co. and McDonnell Ltd. v. Seattle Construction and Dry Dock Co. (1920) AC 162 (where a dry dock sank when used in harbour construction for which it was not fitted) and in E. D. Sassoon &Co. v. Western Assurance Co. (1912) AC 561 (where cargo was lost by reason of percolation of water through the decayed wooden hull of the vessel) the insured failed because they could not show that the admission of sea water was due to an accident or fortuitous event; the seas were calm with the result that the losses, being due to the defective and decayed condition of the vessels, were not fortuitous. (at p385)

24. Equally instructive is Dudgeon v. Pembroke (1877) 2 App Cas 284 . An iron steamer, the Frances, insured under a time policy ran aground on the Yorkshire coast on her return voyage to London from Gothenburg. She was found to be unseaworthy when she left London, but not to the knowledge of the insured. Having encountered very heavy weather which put out her fires, she ran for the coast and grounded. It was held that there was a loss by perils insured against, and that a loss caused by perils of the sea was within the policy though it might not have occurred but for the concurrent action of some other cause not within the policy. (at p386)

25. In the United States of America there is some support for the view that the cause of the loss must be a hazard external to the ship (Pacific Dredging Co. Inc. v. Hurley (1965) AMC 836, at pp 844-845 ). The English authorities reject this notion: see Hamilton, Fraser &Co. v. Pandorf &Co. (1887) 12 App Cas, at pp 524-525 , where Lord Halsbury L.C. said: "I cannot think it was less such a peril or accident because the hole through which the sea came was made by vermin from within the vessel, and not by a sword-fish from without - the sea water did get in." (at p386)

26. The modern conception of "perils of the sea", as it has been elucidated by the English decisions was expressed by Lord Wright in Canada Rice Mills Ltd. v. Union Marine and General Insurance Co. Ltd. (1941) AC 55 . There a cargo of rice was damaged by heat caused by the closing of the cowl ventilators and hatches. They had been closed to prevent the entrance of water through them in very heavy weather which had blown up during the voyage. It was held that the loss was caused by perils of the sea Lord Wright, speaking for the Privy Council, said (1941) AC, at pp 68-69 :
"Where there is an accidental incursion of seawater into a vessel at a part of the vessel, and in a manner, where seawater is not expected to enter in the ordinary course of things, and there is consequent damage to the thing insured, there is prima facie a loss by perils of the sea. The accident may consist in some negligent act, such as improper opening of a valve, or a hole made in a pipe by mischance, or it may be that seawater is admitted by stress of weather or some like cause bringing the sea over openings ordinarily not exposed to the sea or, even without stress of weather, by the vessel heeling over owing to some accident, or by the breaking of hatches or other coverings. These are merely a few amongst many possible instances in which there may be a fortuitous incursion of seawater. It is the fortuitous entry of the seawater which is the peril of the sea in such cases. Whether in any particular case there is such a loss is a question of fact for the jury." (at p386)

27. It is against this background that the onus of proof is to be considered. It has always been held that the insured carries the burden of proving that the loss was due to perils of the sea (Arnould on Marine Insurance and Average, 15th ed. (1961), pp. 1249-1251). He must therefore show on a balance of probabilities that the loss was attributable to a fortuitous accident or casualty of the seas (Chalmers' Marine Insurance Act 1906, 8th ed. (1976), p. 155; Palamisto General Enterprises S.A. v. Ocean Marine Insurance Co. Ltd. (1972) 2 QB 625, at p 640 ), rather than to some other cause such as the ordinary action of the wind and waves or wear and tear. Viscount Finlay in Mountain v. Whittle, after observing that there was no warranty of seaworthiness because the policy was a time policy, said (1921) 1 AC, at p 626 :
"It is, however, necessary for the assured to establish that the loss was due to a peril of the seas. If the water was in a normal condition and got into the houseboat simply owing to the defective character of the seams there would be no loss by peril of the seas - the loss would have been by the defective condition of the vessel." (at p387)

28. The insured is not required to establish that the vessel was seaworthy at the commencement of the voyage as an essential element in his cause of action. So it was that the plaintiffs succeeded in Dudgeon v. Pembroke (1877) 2 App Cas 284 and Mountain v. Whittle (1921) 1 AC 615 , despite the fact that their vessels were unseaworthy and therefore more likely to succumb to the perils of the sea which were found in the circumstances to have been the proximate cause of loss. (at p387)

29. It has been universally stated that the onus of proof of unseaworthiness is on the insurer (Arnould, p. 691; Chalmers, p. 59). The co-existence of this onus with the burden of proof which is cast upon the insured on the issue of causation creates some complexity, because unseaworthiness is not only an element in the defences under s. 45 (1) and (5) of the Act, but it is also a cause of loss which falls outside the concept of perils of the sea. (at p387)

30. The insurer carries the burden of establishing the defence under s. 45 (1) of breach of implied warranty of seaworthiness in a voyage policy. In a time policy he carries the onus of proving that, with the privity of the insured, the ship was sent to sea in an unseaworthy state, in which event he is not liable for any loss attributable to that unseaworthiness (s. 45 (5)). On the respondent's argument what is in contention is whether the insurer also bears the onus of proving unseaworthiness when it arises in relation to the issue of causation. The authorities do not support the argument. (at p387)

31. In Anderson v. Morice (1874) LR 10 CP 58 the ship sank at her anchors in port. The insured adduced evidence to show that the ship was seaworthy but gave no evidence to show the actual cause of loss, though possible explanations were offered by witnesses. The Queen's Bench Division (Lord Coleridge C.J., Brett and Denman JJ.) held that, in the absence of any evidence as to the condition of a ship, the fact of sinking in smooth water without any apparent cause would create a presumption of unseaworthiness, but that when there is other evidence of the condition of the ship or of the cause of loss, the fact of sinking in smooth water becomes one of several facts which must all be left to the jury, and if they conclude that there is evidence that the ship was seaworthy, they may find that she was lost by a peril of the sea, though they are unable to ascertain what that peril was. It appears from the judgment of the Court, which was delivered by Brett J., that the defendant pleaded that the vessel was not lost by perils of the sea and that she was unseaworthy when the policy attached. The trial judge left to the jury the question whether the ship foundered by reason of unseaworthiness or by a peril of the sea. The jury found in favour of a peril of the sea. The Court considered that the question was correctly left to the jury and that there was evidence to sustain the answer which the jury returned. (at p388)

32. In Pickup v. Thames and Mersey Marine Insurance Co. Ltd. (1878) 3 QBD 594 , where the insured denied loss by perils of the sea and pleaded breach of warranty of seaworthiness at the commencement of the voyage, neither the Queen's Bench Division nor the Court of Appeal took exception to the trial judge's instruction to the jury that there is an initial presumption in favour of seaworthiness and that the burden of proving unseaworthiness was in the first instance on the insurers. Their Lordships did state, however, that the trial judge was wrong, in the circumstances of the case, to say that the time which elapsed between departure from port and the sinking of the ship was so short as to shift the onus from the insurer and make it incumbent on the insured to prove that unseaworthiness arose from causes arising after departure from port. Although the judgments were directed principally to the issue of seaworthiness, the issue of causation received separate consideration. Brett L.J. said (1878) 3 QBD, at pp 601-602 :
"... when the jury were practically told that as a matter of law they were to take it that she was worm-eaten at Rangoon, unless the shipowner could shew that she was not, that this direction must have had a vital effect upon the finding of the jury upon the loss by perils of the sea, and that, therefore, even though as an abstract proposition this would not be a misdirection upon that plea, it was such a direction as to lead to a wrong inference of fact: It was such a wrong direction that it would almost inevitably lead to an erroneous consideration of the issue and cannot be satisfactory."
Thesiger L.J. said (1878) 3 QBD, at p 604 :

"It is perfectly true that upon that issue" (i.e. the question of the cause of loss, namely, loss by perils insured against) "the burden of proof lies upon the plaintiff, and it may be true that the presumption of unseaworthiness, or the question of the onus of proof upon the issue of unseaworthiness is one that relates, as has been argued, solely to that issue", (i.e. the issue arising out of the defence of unseaworthiness) "and does not in any way touch the issue of the cause of loss; but on the other hand this much is clear, that there is no presumption against seaworthiness, and that the plaintiff undertaking, as he is bound so to undertake, upon the issue to prove that the loss was occasioned by a peril insured against, would have fulfilled the burden thrown upon him if he proved that the policy had been effected upon his vessel, that the vessel had started upon her voyage, and that after the voyage the vessel met with such weather as would fully and fairly account for the loss which was sustained by him under the policy."

His Lordship went on to say (1878) 3 QBD, at pp 604-605 that the effect of the direction given by the judge was to place "a very much heavier burden" on the insured than the law prescribed, so that the insured "instead of undertaking the burden of proving a loss by peril insured against upon a ship which at all events is not presumed to be unseaworthy, although it may not be proved to be seaworthy, was undertaking a burden of proving that loss in respect of a ship, which according to the learned judge's directions was presumably unseaworthy when she started". (at p389)

33. Pickup's Case is therefore not authority for the proposition that there is in law a prima facie presumption of seaworthiness in favour of the insured on the issue of causation. It acknowledges that he carries the onus of proving loss by a peril insured against and that he may satisfy the onus by proving that the ship encountered weather which would account for her loss, there being no presumption that she was unseaworthy at the commencement of the voyage. (at p389)

34. In Ajum Goolam Hossen &Co. v. Union Marine Insurance Co. Ltd. (1901) AC 362 the issue for decision was whether a judgment for the insurer upholding its defence of unseaworthiness at the time of sailing should stand. The vessel sank within twenty-four hours of leaving port without having encountered any storm or known cause sufficient to explain the loss. Lord Lindley, speaking for the Judicial Committee, said (1901) AC, at p 366 that if nothing more had been known, "unseaworthiness at the time of sailing would be the natural inference to draw". His Lordship went on to say:

"But if, as in this case, other facts material to the inquiry as to the seaworthiness of the ship are proved, those facts must also be considered; and they must be weighed against the unaccountable loss of the ship so soon after sailing, and unless the balance of the evidence warrants the conclusion that the ship was unseaworthy when she sailed, such unseaworthiness cannot be properly treated as established, and the defence founded upon it must fail. The law on this point was finally settled in Pickup v. Thames and Mersey Marine Insurance Co. (1878) 3 QBD 594 , which followed Anderson v. Morice (1874) LR 10 CP 58 . In these cases the Court pointed out the danger and error of acting on the presumption in favour of unseaworthiness in case of an early loss of which the assured cannot prove the cause; and the Court pointed out the necessity of bearing in mind that the defence of unseaworthiness must be overruled unless supported by a sufficient weight of evidence in its favour."

Although the judgment contains no discussion of the insured's burden of proof on the issue of causation, there is no reason to suppose that the Judicial Committee disagreed with what had been said in Pickup's Case on that topic. (at p390)

35. The effect of these decisions is that it is for the insured to prove a loss by perils of the sea. He will discharge this burden of proof if he gives evidence of a sinking as a result of a fortuitous event. If, in addition to this, there is also evidence of unseaworthiness, the question of what caused the loss must be decided as a question of fact. In speaking of the cause of loss, I refer to the proximate cause of loss (see s. 61). It is for this reason that the loss of an unseaworthy ship may be attributed to the perils of the sea. (at p390)

36. Although there is nothing in all this to throw the burden of proof of seaworthiness onto the insured, there is one class of case in which the insured will find it necessary to establish seaworthiness in order to prove his case. This is where the insured, having no direct evidence of loss due to a fortuitous event, seeks to establish by inference a case of loss due to an unascertained peril of the sea. To justify this inference he will seek to exclude the possibility of loss caused by unseaworthiness by calling evidence as to the condition of the ship. In such a case, once evidence is given of seaworthiness, the issue of causation must be decided as a question of fact. Then the tribunal of fact, unless it is satisfied that the ship was seaworthy, cannot draw the inference upon which the insured depends in order to make out his case. (at p391)

37. What I have said so far seems to accord generally with the law of marine insurance as it has been applied in the United States, subject to some qualifications which are not significant for present purposes. This is an important consideration, if only because English decisions are acknowledged in the United States to have a special authority on the subject of marine insurance. There is some divergence of opinion in America upon the questions whether there is an implied warranty of seaworthiness in a time policy and whether there is a defence under the general law similar to that provided for by s. 45 (5), for in the legislation of many States there is no counterpart to that sub-section (Couch on Insurance, 2nd ed. (1959), s. 37: 1628; American Jurisprudence (2d), vol. 43, s. 1043). (at p391)

38. Couch on Insurance, s. 43: 114 suggests that an insurer is not liable for a peril of the sea unless the vessel is seaworthy. However, the decisions to which we have been referred do not bear this out. They recognize that it is for the insured to prove that the loss was caused by a peril insured against (Northwestern Mutual Life Insurance Co. v. Linard (The "Vainqueur") (1974) 2 Lloyd's Rep 398, at p 402 ; Sipowicz v. Wimble (The "Green Lion") (1974) 1 Lloyd's Rep 593, at pp 596, 598 ) and for the insurer to prove a defence arising from breach of warranty (Pacific Dredging Co. Inc. v. Hurley (1965) AMC, at p 842 ). See especially Zillah Transportation Co. v. Aetna Insurance Co. (1928) 221 NW 529 . (at p391)

39. Accordingly, the insured will fail in an action on a time policy as on a voyage policy if he does no more than adduce evidence of facts which are equally consistent with the hypothesis that the loss occurred from the defective, deteriorated or decayed condition of the vessel or the inevitable action of the sea, as with the supposition that the loss resulted from a peril of the sea. In my opinion the law on this question was correctly stated by Scrutton L.J. in La Compania Martiartu v. Royal Exchange Assurance Corporation (1923) 1 KB 650, at p 657 , where his Lordship said:
". . . if there are circumstances suggesting that another cause than a peril insured against was the dominant or effective cause of the entry of sea water into the ship . . . and an examination of all the evidence and probabilities leaves the Court doubtful what is the real cause of the loss, the assured has failed to prove his case. The presumption may well be, when nothing is known except that the ship has disappeared at sea, that her loss was by perils of the sea: Green v. Brown (1745) Stra 1199 . But when, though it is known she has sunk, there is evidence on each side as to the cause of the admission of sea water, which leaves the Court in doubt whether the effective cause is within or without the policy, the plaintiff, the assured, fails, for he has not proved a loss by perils insured against."
See also the observations of Bankes L.J. (1923) 1 KB, at p 655 . In that case their Lordships were considering a case which involved the question of scuttling. The onus of proof in such a case has its own difficulties and they have not yet been completely resolved (see Anghelatos v. Northern Assurance Co. (The "Olympia") (1924) 19 Ll LR 255, at pp 256, 262 ; P. Samuel and Co. Ltd. v. Dumas (1924) AC 431 ; Compania Naviera Martiartu v. Royal Exchange Assurance Corporation (1924) 19 Ll LR 95, at p 96 ; Compania Naviera Santi S.A. v. Indemnity Marine Assurance Co. Ltd. (The "Tropaioforos") (1960) 2 Lloyd's Rep 469, at p 473 and the Palamisto Case (1972) 2 QB 625 ). (at p392)

40. Where a ship sinks in smooth water very soon after the policy attaches or the ship leaves port, in the absence of other evidence as to the condition of the ship or as to the cause of loss, there is a presumption or an inference that the ship was lost because she was unseaworthy (Anderson v. Morice (1874) LR 10 CP 58 ; Boston Insurance Co. v. Dehydrating Process Co. (1953) 204 F (2d) 441 ; Reisman v. New Hampshire Fire Insurance Company (1963) 312 F (2d) 17 ; Federazione Italiana Dei Corsorzi Agrari v. Mandask Compania De Vapores S.A. (1968) AMC 315, at p 318 ). But there is no such presumption or inference if the evidence establishes that the ship was seaworthy at the commencement of the voyage (Anderson v. Morice; Zillah Transportation Co. v. Aetna Insurance Co. (1928) 221 NW 529 ). In the last-mentioned case the issue of causation and the defence of seaworthiness both arose for consideration. It was held that if seaworthiness at the inception of the risk and the beginning of the voyage is established and loss occurs, the inference may be drawn that the loss was caused by a peril of navigation or a latent defect, and hence is covered by the policy, unless the evidence shows otherwise. (at p392)

41. It has been said that the fact of seaworthiness raises a counter-presumption that the loss was due to a peril insured against, even if the effect of the evidence is to show that the entry of water into the vessel was due to an unexplained cause (Boston Insurance Co. v. Dehydrating Process Co. (1953) 204 F (2d), at p 443 ; see also Pacific Dredging Co. Inc. v. Hurley (1965) AMC, at pp 847-849 ). This presumption, or inference as I should prefer to call it, arises from the fact that the immediate cause of the loss is the foundering of the ship and, if that is not due to unseaworthiness at the inception of the voyage, it is difficult to perceive how the foundering could have been caused otherwise than by a fortuitous and unascertained accident of the seas, or perhaps a latent defect. The extensive concept of "perils of the sea" is an important element in the existence of the presumption. (at p393)

42. In the present case the appellant's principal contention at the trial was that the cause of loss was the corrosion of the pipes, in particular, the section of pipe leading to the bait tank pump. The appellant contends that the primary judge disposed of this issue incorrectly by placing the onus of proof on the appellant on the issue of causation as well as on the defence under s. 45 (5) and by then concluding that because the evidence did not enable him to make a finding as to the cause of the loss the defendant had failed to discharge the onus of proving unseaworthiness. The appellant relies in particular on two passages in his Honour's judgment. The first is in these terms (1978) 18 SASR, at p 26 :

"But I am unable to make a finding as to the cause of the entry of water in the present case. I shall deal with the unseaworthiness claim later but for the present I can say that I am unable to say, as a matter of fact, that the pipes were in such a bad state that one or other must have given way."

The second is as follows (1978) 18 SASR, at p 28 : "I cannot and do not find on the evidence that in fact one of these pipes failed and allowed the rapid entry of sea water into the vessel." (at p393)

43. The first passage appears in that part of the judgment where the primary judge was examining the issue of causation. It is followed by the comment that Captain Taylor's opinion was based on "mere general statistical probability, i.e. that usually, when water comes in, a pipe has burst". The judge then said, "Even if that be so, it is not a proper conclusion of fact from known facts relating to the present ship and the present voyage. Neither Captain Taylor nor the plaintiff, for that matter, has any facts on which to base his opinion, or, at least, none disclosed to me". After observing that the rate of entry of water into the engine-room was "totally unexpected and surprising", his Honour said, "Clearly also it was not caused by some hairline crack or pin hole corrosion". He then went on to make the point that "It was not a case of a malfunctioning engine which pumped in water by mistake, for the water kept coming in even after the engine had stopped". (at p394)

44. Having found on the balance of probabilities that the loss was not caused by the suggested defective condition of the Zadar's pipes and engine, the judge then held that it was due to a peril of the sea, invoking the Canada Rice Mills Case (1941) AC 55 and Anderson v. Morice in support of this conclusion. In citing these authorities his Honour made it clear that he considered the entry of sea water to be accidental and not to have been brought about by the defective condition of the ship, for on no other view were the authorities relevant. (at p394)

45. It is evident from all this that the judge positively rejected the suggestion that the Zadar sank because her pipes were defective or because her engine was malfunctioning. Obviously this rejection was not hinged on the onus of proof; it rested on his Honour's evaluation of the evidence relied upon to support the suggestion that perils of the sea were not the proximate cause of the loss. (at p394)

46. The second passage occurs in the course of the judge's examination of the evidence alleged to support the defence that the Zadar was unseaworthy by reason of the condition of her pipes. His Honour began by saying that unseaworthiness was a question of fact and by referring to the recent comprehensive survey, the satisfactory operation of the ship and the absence of evidence of recent malfunction except as to the leaks from pipes which had been remedied. He found that the pipes had been recently checked and passed by experts. In the light of these earlier comments the passage quoted by the appellant is seen to be a positive rejection of the case of unseaworthiness, not depending on the onus of proof which in this instance rested with the appellant. The same comment may be made about his Honour's rejection of the appellant's other particulars of unseaworthiness, namely, the inadequacy of bilge pumps, the existence of a defect in the bilge warning system and the lack of emergency lights. (at p394)

47. His Honour said that there is a presumption of seaworthiness, relying on the Ajum Goolam Hossen Case (1901) AC 362 and Pickup's Case (1878) 3 QBD 594 . By this statement his Honour signified that the onus of proving unseaworthiness lay on the appellant, as indeed it does. It is not completely clear whether the judge, when he said that there is a presumption of seaworthiness, was dealing with the defence of unseaworthness or whether he was dealing with the issue of causation as well. If the comment related to the defence, no exception can be taken to it. If the comment went to causation, it was immaterial because his Honour made it plain that he was merely noting this presumption, not relying upon it. As I have explained, his Honour reviewed the evidence and made the findings of fact which have already been discussed. (at p395)

48. In considering the question whether the respondents proved that the loss was caused by a peril of the sea the Full Court noted that the appellant's counsel made two submissions - (a) that the primary judge should have found on the probabilities that a defective section of pipe was the source of the entry of water into the vessel; and (b) that, even in the absence of such a finding, the respondents had not discharged the onus of proof that rested with them on the issue of causation. (at p395)

49. On the first submission the Full Court held that it was open to the primary judge to find, as he did, that the cause of the entry of water into the engine-room "had not been established on the balance of probabilities", and to affirm his conclusion that the case was to be approached on the basis that "the source of the entry of water into the engine-room is not known and cannot be discovered". (at p395)

50. As to the second submission the Full Court concluded that the loss was caused by a peril of the seas, distinguishing Compania Naviera Martiartu v. Royal Exchange Assurance Corporation (1924) 19 Ll LR 95 and Marion Logging Co. Ltd. v. Utah Home Fire Insurance Co. (1956) 5 DLR (2d) 700 . Their Honours then quoted that part of the judgment of the primary judge that invoked the Canada Rice Mills Case (1941) AC 55 and Anderson v. Morice (1874) LR 10 CP 58 and concluded that the application of these cases depended upon it being established that the Zadar was seaworthy. They then proceeded to consider the defence of unseaworthiness. They observed that the burden of proving unseaworthiness was on the appellant. Having reached the conclusion that the defence was not made out, they held that the loss was due to a peril of the sea. In the result, it was submitted by the appellant that the Full Court failed to distinguish between the onus which confronts the insured of proving loss attributable to a peril of the sea and the onus on the insurer of establishing his defence under s. 45 (5). (at p395)

51. If the Full Court erred in this respect, it was an immaterial error in the circumstances of this case. The reasons given by the Full Court for upholding the primary judge on the issue of unseaworthiness did not depend upon the onus of proof. They amounted to a positive rejection of the appellant's case and a finding that the Zadar was seaworthy when she left port. The Full Court's judgment affirmed the judgment of the primary judge which in my view arrived at a correct conclusion on the issue of causation. (at p396)

52. The case is therefore one in which unseaworthiness was excluded as the cause of loss and the Court, quite correctly, inferred that the loss was attributable to a peril of the sea, though it was unable to identify that peril. It was not a case in which the evidence as to competing causes of loss was evenly balanced, leaving the Court in doubt upon the issue whether the loss was attributable to a peril of the sea or to some other cause such as the unseaworthiness of the vessel. (at p396)

53. In conclusion I should say that it is somewhat surprising that the respondents did not plead an alternative case of loss due to a latent defect under cl. 4 (a) of the policy. In view of the way in which the case has been conducted this is not now material. The primary judge found no latent defect and, although the Full Court expressed doubts as to the correctness of the finding, it was not put forward as a possible cause of loss in the argument in this Court. (at p396)

54. I would dismiss the appeal. (at p396)

AICKIN J. I am in full agreement with the reasons for judgment prepared by my brother Mason and would therefore dismiss the appeal. (at p396)

Orders

Order dismissed with costs.