Von Stanke v Northumberland Bay Pty Ltd (No 2) - [2008] SADC 84

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
VON STANKE & ANOR v NORTHUMBERLAND BAY PTY LTD (No 2)
[2008] SADC 84
Judgment of His Honour Judge Lovell
1 July 2008
INTEREST - RECOVERABILITY OF INTEREST
Indemnity policy of insurance – relevance of right of subrogation – right of subrogation includes right to interest.
District Court Act 1991 s 39, referred to.
H Cousins & Co Ltd v D & C Carriers Ltd [1971] 2 QB 230; Interest Awards in Australia James Edelman, p 212; Castellain v Preston (1883) 11 QBD 380; Haines v Bendall (1991) 172 CLR 60; Bennett v Jones [1977] 2 NSWLR 355, considered.

VON STANKE & ANOR v NORTHUMBERLAND BAY PTY LTD (No 2)
[2008] SADC 84

On 15 May 2008 I delivered reasons awarding the plaintiff damages in the sum of $121,426.91. I indicated I would hear from the parties in relation to the question of interest and costs.
Section 39 of the District Court Act 1991 relevantly states:
Unless good reason is shown to the contrary, the Court will, on the application of a party in whose favour a monetary judgment has been, or is to be, given include in the judgment an award of interest in accordance with this section.
Mr Swan for the plaintiff submitted that the plaintiff was entitled to an award of interest on the entire judgment sum from the date of the loss of the Bounty Hunter. He submitted that interest should be calculated at commercial rates and put forward 8% as an appropriate figure.
Mr Halliday, while conceding that an award of interest was appropriate, submitted that insurance payments made to the plaintiff should be taken into account in calculating interest. He further submitted in determining the rate of interest the Court should have regard to the average of the Australian Reserve Bank cash interest rates since December 2003 (6.375%).
The plaintiff is a member of the South East Fisherman’s Association Incorporated. As a member of this organisation he was eligible to join an insurance scheme known as the “JLT Discretionary Trust”, which he did. The scheme is governed by a Trust Deed and a document containing Scheme Rules. The effect of this scheme was that the first $50,000 of any insurance claim was to be paid for by the Trust, and any amount in excess of this was to be paid by an underwriter appointed under the Trust. The insurance underwriter was National Marine Insurance Agency Limited, which provided insurance through a policy entitled the “Commercial Hull Policy.”
After the loss of the Bounty Hunter on 12 December 2003 the plaintiff made a claim on his insurance. The plaintiff’s insurer valued the Bounty Hunter at $115,000. The plaintiff accepted that valuation. He paid $5,000 for the wreck and the insurer deducted $1,150 for the excess nominated in the policy of insurance. The plaintiff received the sum of $108,850 from the insurer on or about 2 January 2004.
Was there a right of subrogation?
Insurance benefits need to be analysed to identify their source. Where benefits are paid pursuant to an indemnity policy the insurer will be subrogated to the insured’s rights for both the benefits and the interest on them. Often the policy will provide expressly for the subrogation to cover interest as well as principal. If it does not they may be implied.[1]
[1] H Cousins & Co Ltd v D & C Carriers Ltd [1971] 2 QB 230; see also James Edelman, Interest Awards in Australia, p 212.
Did the plaintiff’s insurers have a right of subrogation, first in relation to the JLT Discretionary Trust scheme, and second in relation to the Commercial Hull policy? Clause 28 of the Scheme Rules relevantly states:
The member agrees that in the event of payment of any claim by the Scheme, the Scheme will be subrogated to the extent of such payment to all the rights of the member against any person or other entity legally responsible for the claim, and in such event, the member must render to the Scheme and any Loss adjuster, solicitor or other agent appointed by the Scheme all assistance, other than pecuniary, as is reasonably necessary to effect recovery.
It was conceded by the defendant that there was a right of subrogation in relation to the JLT Discretionary Trust scheme. This accounted for the first $50,000 of the payout received by the plaintiff.
The Commercial Hull policy is silent as to any right of subrogation. On this basis the defendant submits that there being no other evidence on the topic, that I should not infer such a right and therefore proceed on the basis that the insurer could not claim any interest awarded to the plaintiff on the balance of the amount of the insurance payment.
The plaintiff argued that the Commercial Hull policy contained a right of subrogation. First, it was submitted that the Trust and the underwriter together form a single insurance scheme and that the relevant documents should be read together. The Trust rules and Commercial Hull policy refer to one another and are clearly designed to create a comprehensive insurance scheme for the members of the South East Fisherman’s Association.
In my view the two policies are clearly meant to be read together. A right of subrogation therefore exists in relation to the entire amount paid.
Even if that were not to be the case the plaintiff relied upon the ground that as the Commercial Hull policy is a contract of insurance, the common law implies a right of subrogation on the grounds of business efficacy. To support this contention the plaintiff relies on the case of H Cousins & Co Ltd v D & C Carriers[2] to which I have already referred.
[2] (supra)
No distinction can validly be drawn between marine and non-marine insurance contracts. There is no doubt the Commercial Hull policy is a contract of insurance. The right of subrogation is a fundamental element of insurance. The courts have in the past implied such a right into insurance contracts where it is not explicit, on the grounds of business efficacy, unless some inconsistency with the written contract would result. There is no suggestion of that in the case at bar, and I accept the plaintiff’s submission that as a matter of common law there is a right of subrogation implied into the contract of insurance as a matter of business efficacy.
The plaintiff succeeds on either argument.
Does the right of subrogation include interest?
The right of subrogation is clearly a very broad one. Indeed it has been said that the doctrine of subrogation is such that as between the underwriter and the assured the underwriter is entitled to the advantage of every right of the assured and that includes any remedy in tort.[3] It is therefore clear that unless expressly excluded, if there is a right of subrogation it will include a right in respect of interest.
[3] Castellain v Preston (1883) 11 QBD 380
There is no express exclusion and therefore the plaintiff is entitled to interest on the whole amount of the award of damages.
As to the question of the period over which interest is to run, in the normal course interest is awarded from the date of the accrual of the cause of action to the date of judgment unless there is a particular reason for variation.[4] There is no reason to depart from that position in this case.
[4] Haines v Bendall (1991) 172 CLR 60 at 66, Bennett v Jones [1977] 2 NSWLR 355 at 363-4
As to the appropriate rate of interest, the plaintiff submits that interest should be awarded at a commercial rate and submits 8% as a conservative and appropriate figure.
The defendant accepted a commercial rate was appropriate, but submitted that an appropriate rate is an average of the Reserve Bank interest rates since December 2003, which they calculated at 6.375%.
Coming to an appropriate commercial interest rate is a difficult task; reasonable people will differ on what will be a commercial rate at any given time. I have considered the submissions made on this topic, and I consider that 7% is an appropriate rate of interest.
The final result then is that there will be an award of interest for the plaintiff on the full judgment sum of $121,426.91 commencing from the date of collision, 12 December 2003, to the date of final judgment, 2 July 2008 a period of approximately four years and seven months, at 7%. I award interest in the sum of $39,000.
There will be judgment for the plaintiff in the sum of $160,426.91 plus costs to be agreed or taxed.