Gunns Forest Products Pty Ltd v North Insurances Pty Ltd [2004] VSC 155

Supreme Court of Victoria|2004-05-07|Before: HARPER J

The application of these provisions to the circumstances of this case is itself a subject of controversy. The plaintiff submits that the award contains a manifest error on its face. The respondent contends that the arbitrator clearly got it right. Fortunately, the applicable principles have been considered in a number of leading cases, and are very helpfully set out in the judgment of Dodds-Streeton J in Anaconda Operations Pty Ltd & Anor v Fluor Australia Pty Ltd[5]. I adopt, with respect, what her Honour there said. I here refer specifically to two of the cases considered by her Honour because they succinctly summarise the presently relevant point. The first of these is Promenade Investments Pty Ltd v State of New South Wales[6]. There, Sheller JA said:

"In applying s.38, as amended, a construction that would promote the purpose or object underlying the Act must be preferred to a construction that would not promote that purpose or object ... The expression 'error of law on the face of the award' is one of a type well known to the courts. The award having been examined the question is whether there is apparent (and such is the denotation of the word 'manifest') an error of law. 'Manifest error' is an expression sometimes used in reference to reasons given by judges or the approach taken by juries ... It is used to indicate something evident or obvious rather than arguable ... The matters referred to by Lord Diplock in remain important factors in determining whether leave should be given. However I have difficulty in defining the significance of an error of law by reference to whether it is apparent to a judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument. I understand the views expressed that decisions on questions of law should be left to the arbitrator with minimal interference by the courts unless the arbitrator may be establishing an erroneous precedent on a matter of law which may affect other cases between other parties as for example where the question concerns the construction of a contract in standard terms. But the paragraph requires a determination as to whether or not there is a manifest error on the face of the award and I do not see why a judge should be required to do that without adversarial argument. If the judge concludes after argument that there is not such an error of law an application based on this ground fails ... There is nothing, in my opinion, in the language of the sub-section or in any other material, to which consideration can appropriately be given ... which would allow the judge to proceed to determine the application without hearing argument. However, as McHugh JA pointed out 'manifest' in the context of the sub-section, which contemplates the grant of leave before an appeal can be pursued, connotes an error of law which is more than arguable. There should, in my opinion, before leave is granted be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law."

The second case is Energy Brix Australia Corporation Pty Ltd v National Logistics Coordinators (Morwell) Pty Ltd[8]. Ormiston JA there said (at 368):

"In the circumstances it is unnecessary to examine the relevant test as to what is 'manifest error of law' other than to cite the frequently quoted passage from the judgment of Sheller JA in Promenade Investments Pty Ltd v New South Wales ... to the effect that a manifest error may be demonstrated if there 'be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law'."

It is accordingly for the plaintiff to put forward, if it can, those powerful reasons. It will not succeed merely by demonstrating that the correctness of the award is open to some doubt, or that (for example) the arbitrator's favoured construction of an insurance policy is only one of several, each of which is fairly arguable. If, however, the manifest error or the strong evidence exists, and if the determination of the question of law could have the effect to which s.s (5)(a) refers, then an appeal shall lie.

An insurance policy is at the centre of the dispute in this case. The plaintiff is a processor of woodchips. It is also the insured, and the first defendant is the captive insurer, under an "Industrial Special Risks" policy of insurance. The remaining defendants are the re-insurers.

Industrial special risks insurance is designed to cover the insured against loss of gross profit and increased costs of working or production flowing from physical damage to the insured property. In this case, that property included the plaintiff's woodchips; and, a quantity of those woodchips having been found to contain flakes and scallops of rubber (and therefore to be unmerchantable), the underwriters accordingly accepted liability - but with a qualification which brought the parties to the arbitrator, and now brings them to the Court. There is, the underwriters contend, a relevant exclusion clause. That clause, say the underwriters, relieves them of a liability which, as they accept, they would otherwise have. The plaintiff nevertheless pressed its claim, which was defined in the arbitration agreement as "in respect of loss and damage to woodchips". The parties thus became locked into a dispute. In the words of the arbitration agreement, the question to be determined by the arbitrator was "whether the exclusion clause applies to exclude the insured's claim". He held that it did.

The dispute went to the arbitrator upon the basis of an agreed statement of facts. This was incorporated into the arbitration agreement as Schedule 2. It is there recited that the plaintiff at the material time owned and operated a woodchip manufacturing mill in Tasmania, from which the product was exported to Japan. On 21 November 2000, flakes and scallops of rubber were found in a large quantity of the woodchips. The pieces of rubber were not entirely uniform in size, but all could properly be described as "small". Removing them was not a practicable proposition.

Investigations revealed that the scallops had been scraped out of the right flank of the top cover of a conveyor belt over its entire length, down to the first fabric ply. The flakes of rubber, in turn, originated from the left flank of the belt. Both the scallops and the flakes had been cut from the belt by a scraper which had been over-tensioned on a scraper frame. This itself had been mounted incorrectly. It seems clear, therefore, that faulty workmanship must bear at least some part of the responsibility for the severe damage which followed. In addition, however, an odd-sized woodchip had become jammed on the drive pulley. As a result, the belt protruded into the scraper's path. The scraper of course took its revenge.

The damage to the stockpile of woodchips was discovered on 27 November 2000. The plaintiff subsequently made a claim on the policy. The re-insurers responded by accepting the facts, while pointing to the exclusion clause.

The relevant clause is included in that part of the policy which is headed "Perils Exclusions". It is there designated as cl.3(a)(ii). It provides that, in circumstances such as those which apply in this case, the insurer shall not be liable "in respect of... physical loss, destruction or damage occasioned by...contamination...unless such...result[s] from a cause not specifically excluded which originates beyond the premises...[of] the insured". Physical loss, destruction or damage occasioned by a number of things including wear and tear and faulty materials or faulty workmanship are likewise excluded.

There is a proviso. It is that the exclusion clause "shall not apply to subsequent loss, destruction of or damage to the property insured occasioned by a peril (not otherwise excluded) resulting from any event or peril referred to in this exclusion."

The arbitrator found that the damage caused by the admixture of rubber flakes and scallops with the woodchips constituted contamination within the terms of the exclusion clause. It seems to me that this conclusion was open. The word "contaminate" is defined in the New Shorter Oxford English Dictionary as (among other things) to "[m]ake impure by...mixture"; and the word "contamination" is there defined as (again, among other things) "[t]he action of making impure...[s]omething which contaminates". Here, the introduction of pieces of rubber into the woodchips had the result that the two became mixed, to the extent that they could not conveniently be separated. The woodchips were thereafter unmerchantable. It was in these circumstances open to conclude that they were contaminated. It was, accordingly, likewise open to the arbitrator to reject the plaintiff's submission that, in the context of the policy, property only became contaminated upon a change in the physical quality of that property.

In any event, this was not the point upon which the plaintiff concentrated its attack upon the award. That attack began with the reference in the industrial special risks insurance policy to "physical loss, destruction or damage". One must at this point, therefore, concentrate on physical harm to property, and not on the financial or other consequences of that harm. Equally importantly, the submission continued, the policy did not exclude physical damage where the damage itself was contamination; it excluded physical damage occasioned by or happening through contamination. There is, so the plaintiff submitted, a fundamental difference between the two. When the policy excluded certain perils because they were the perils excluded, it said so. Likewise, when it excluded damage "caused by" or "happening through" or "occasioned by" a particular peril, again, it said so. The mere fact that the insured property was contaminated, and therefore damaged, was not enough. If it were otherwise, the opening phrase of cl.3(a)(ii) ("Physical loss, destruction or damage occasioned by or happening through") would be deprived of any meaning or effect. Thus the exclusion clause only became operative if the damage was "occasioned by" or "happened through" contamination. It did not operate to exclude liability where the contamination was of the insured property itself. In such a case the contamination is the damage; and it is logically impossible that contamination be occasioned by or happen through contamination. Accordingly (as I understand the argument) if something was contaminated and thereby occasioned damage to something else then, subject to the proviso, the exclusion would apply: on this hypothesis, the insurer could show physical damage occasioned by contamination. The exclusion clause had no part to play, however, if the circumstances were that the property in respect of which the claim of damage was made was the direct or immediate subject of the contamination - or, in other words, was contaminated property. The contamination itself would in the latter case be the unexcluded peril - a peril, therefore, against which the insured was covered.

Several possibilities remain unaddressed, or at least not directly addressed, by these submissions. Suppose one pile of woodchips was contaminated by the rubber from the conveyor belt. Another pile was not. Later, the two were co-mingled. The whole then became unmerchantable. Or suppose that one of the piles was accidentally contaminated by the addition of the incorrect chemical. Fumes from the contaminated pile escaped to another pile, contaminating it as well. The application to each situation of the principles articulated in [16] above would be problematic.

Fortunately, I do not have to solve these dilemmas. They do, however, indicate that, whatever the chosen solution, manifest error or strong evidence of error in its choosing may be hard to demonstrate. In my opinion, the plaintiff's submissions were not so clearly correct as they would have me accept.

The plaintiff relied upon a number of authorities. They support the trite proposition that the phrase "occasioned by or happening through" requires consideration of causal relationships. None of them, however, adopts - at least not explicitly - the reasoning described in [16] above. I resort to the first of them, the Queensland case of re CIC Insurance v Hygeia Dianthus Industries Pty Ltd[9], to make the point. In that case, an industrial special risks policy taken out by a grower of carnations required the insurer to indemnify the insured against "any physical loss, destruction or damage...not otherwise excluded"; but the exclusion removed liability for loss, destruction or damage to plants the damage to which was occasioned by (among other things) disease, except where the resultant damage was sudden and unforseen. The policy did not in terms exclude liability for damage constituted by disease (or, to use the plaintiff's language, in which the damage itself was the disease). A storm occurred. It damaged one or more of the insured's greenhouses, with the result that disease-carrying water and soil reached and infected the plants. Being diseased, they could not be used for propagation. Not only that, but their sale was prohibited by legislation. The entire stock, therefore, had to be destroyed. It was held that the exclusion clause had no operative effect.

The reason for that conclusion is important. Moynihan J did not contrast damage constituted by disease with damage occasioned thereby. He did not proceed upon the basis that the exclusion clause did not apply where the damage itself was the disease. He asked whether the storm was the proximate cause of the damage. He then said: "It seems to me that the proximate cause, in the insurance sense, of the damage suffered by the [insured] was the storm which tore away [part of the greenhouse], `exposing the plants...to the elements' as a result of which the infection gained entry."[10] His Honour went on to hold that the disease was subsequent to the insured peril.[11] He said nothing to indicate that the disease and the damage were one and the same.

I am therefore not persuaded that this case supports the particular argument to which I referred at [ 16] above.[12] If in the example of the woodchips the contamination was the damage, then in the example of the Queensland carnations that role was assumed by the disease. If that is correct, then the damage was not occasioned by the disease. The damage itself was the disease. It therefore did not fall within the exclusion. But if that is right, then there was no point in searching at length, as Moynihan J did, for the proximate or predominant cause of the damage. Indeed, if it were determined that the disease itself was the damage, there would be no need for more than a cursory look for whatever occasioned it. On the facts of that case, the proximate cause - whatever that was - clearly did not fall within any exclusion clause.

That is not true of the damage to the woodchips. If, as the respondents contend, the damage itself was contamination, and if it was for that reason incumbent on the arbitrator to identify whatever it was that occasioned that damage, then resort to the agreed statement of facts would be necessary for that purpose. The search would be for what is known to insurance law as the proximate cause of the damage. That cause might be faulty workmanship. If so, the plaintiff would face the problem that that falls within exclusion clause 3(e) of the policy of insurance. This is a matter to which I shall return.

One might test the arbitrator's decision in this case, and that of Moynihan J in the CIC Insurance case, by turning the facts around. Suppose an insured wished to take out insurance cover over its woodchips and its carnations. Suppose the perils against which each was to be covered included, respectively, damage occasioned by contamination and damage occasioned by disease. The policy was drawn accordingly. An exclusion clause, however, excluded liability for damage occasioned by faulty conveyer belts and damage occasioned by storm. During the period of insurance, flecks of rubber flew from a conveyer belt and were dispersed throughout the woodchips; and a storm washed disease-carrying soil over the carnations. The woodchips thus became contaminated and the carnations thus became diseased. Total destruction was the result. Could the insurer escape liability on the basis that in the circumstances postulated the damage was occasioned by neither contamination nor disease - but rather by, respectively, a faulty conveyer belt and a storm? Perhaps. But the decision would not be manifestly either right or wrong.

Be that as it may, the plaintiff argued that re CIC Insurance is an authority upon which it can rely. It is clear from the judgment of Moynihan J (as it is from other authorities) that an arbitrator in the position of the arbitrator in the case before me must identify the "proximate" cause of the damage - that is, the cause "to which may be ascribed the qualities of reality, predominance and efficiency".[13] One might indeed accept, for the purposes of the argument, that in this case the woodchips were contaminated, and thereby damaged. Even so, as the plaintiff submits, that damage was not necessarily occasioned by that contamination. If the policy here excluded, as it did, liability for physical damage occasioned by or happening through (among other things) contamination, then the question whether the damage the subject of a claim under the policy was indeed occasioned by or happened through that agency must be a primary object of attention in determining the liability of the insurer.[14]

The governing proposition may be put another way. If the damage was neither occasioned by nor happened through contamination (or any of the other specified exclusions) but was the consequence of a peril - such as , for example, a storm - covered by the policy, then of course (as in the CIC Insurance case) the exclusion clause would not apply. In other words, the contamination was not necessarily the relevant "cause" by which the damage was occasioned. Thus if, (a) for the purposes of the policy, the damage was occasioned not by the contamination but by the detachment, from the conveyor belt, of the flakes and scallops of rubber, and (b) the latter was a risk covered by the policy, then the exclusion clause would not apply.

It was submitted by the plaintiff that the arbitrator did not, or did not adequately, deal with this crucial issue. That being so, the award suffered from a manifest error on its face, even if the ultimate result was not itself manifestly wrong - which, the plaintiff submitted, it was. Suppose (the argument continued) the award revealed (as, according to the plaintiff, it did) that the arbitrator did fail to consider a relevant issue. Then translate that circumstance to an hypothetical case in which, despite that failure, the arbitrator came to an ultimate conclusion which was not manifestly erroneous. The award in the hypothetical case was based upon that not manifestly erroneous conclusion. One party to that arbitration was thereby pronounced the victor, the other the vanquished. On this hypothesis, the losing party could not, despite the manifest errors in reasoning, demonstrate that the end result was manifestly wrong. It is, however, entirely possible that, had the relevant but unconsidered issue been taken properly into account, the ultimate conclusion would have been different - with the vanquished being pronounced the victor. It necessarily follows, in these circumstances, that the rights of the parties to the arbitration agreement were substantially affected. This being so, the plaintiff submitted, the provisions of s.38(2) allow of no doubt. Leave to appeal must be granted.

The plaintiff's analysis of s.38 seems to me to have merit. I do not have to come to a final conclusion about that, however, unless and until I accept the plaintiff's criticisms of the award. Its attack relied heavily on a number of authorities. Some of these, like the Leyland Shipping case, were cited for their assistance in the approach to be taken when considering the question of causation. One such case was Wood v Associated National Insurance Co. Ltd[15] in which McPherson J remarked (at 306) that the authorities showed that the "proximate" cause was not necessarily the latest in time but was "the predominant in efficiency", which necessarily involved "a process of selection from among the co-operating causes to find out what is the proximate cause in the particular case".

National & General Insurance v Chick[16] is another relevant authority. The insured, on whose life his wife had effected a personal accident insurance policy, died after aiming a loaded revolver at his head and pulling the trigger. It was not suicide. He did not intend to die. He did not know the gun was loaded. The policy covered bodily injury caused solely and directly by violent accidental external and visible means. The NSW Court of Appeal held that the death fell within the risk. Hutley JA said, at 97-98:

"It is necessary ... to examine the facts to see what was the means by which the injury was caused or the cause of the injury. For present purposes either phrase will do, and the second serves to emphasise that what we have in hand is an inquiry into causation of a kind with which the law of insurance is familiar, and for which it has established the rule that only the proximate cause of a loss is to be regarded. By 'cause' is not meant the latest, but the direct ... real or commonsense ... dominant ... operative or efficient one ... 'A loss may be the combined effect of a whole number of causes, but for the purposes of insurance law, one direct or dominant cause must in each case be singled out': Colinvaux The Law of Insurance 4th ed., [1979] para.4-32 at 77 ... Commonsense is the final arbiter in determining what is the proximate cause of a loss. 'The choice of the real or efficient cause from out of the whole complex of the facts must be made by applying commonsense standards. Causation is to be understood as the man in the street, and not as either the scientist or the metaphysician would understand it': per Lord Wright in Yorkshire Dale Steamship Co Ltd v Minister of War Transport [1942] AC 691 at 706. In the same case (at 720) Lord Macmillan urged resort to 'commonplace tests' rather than to 'the refinements of the philoso phical doctrine of causation'."

It was accepted by the Court of Appeal (Ormiston, Phillips and Callaway JJA) in MMI (Aust) Ltd v Rowprint Services (Vic) Pty Ltd[17] that the "question of causation is, of necessity, raised by the use of the expression 'occasioned by or happening through'."[18] That case concerned an industrial special risks policy which by cl.16 provided that the policy did not cover physical loss, destruction of or damage to machinery occasioned by or happening through (among other things) any mechanical malfunction. When, on 7 December 1993, the plaintiff's printing press undoubtedly suffered exactly that difficulty, the defendant insurer rejected the claim in reliance on the clause. The Court of Appeal held that that reliance was misplaced. In general, the press was well maintained and was in "mint condition". The "narrow compass of the dispute at trial...focussed on the reference in [the relevant exclusion clause] to damage which was `occasioned by or happening through any mechanical...malfunction, etc'."[19] But the parties had agreed that the press was damaged, and the mechanical malfunction was occasioned, when a number of sheets of paper became jammed between the machine's printing cylinders: an excess of paper had accumulated in the wrong place at the wrong time. That excess was in turn caused by a fault in the timing mechanism of the press; and that was probably attributable to the failure of an employee of the plaintiff to sufficiently tighten bolts which were integral to the operation of the timing device. In any event, the trial judge found, and it was accepted in the Court of Appeal, that the damage to the machine was the result of employee negligence. It was accordingly held on appeal that the insurer had failed to establish that the malfunction was due to the innate condition of the machine; and so the exclusion did not apply. Phillips JA said, at [17]:

"It can be seen that much of the [insurer's argument] turned on concepts of causation; indeed they were said to be the central issue. Yet to my mind such considerations serve in the end to complicate the resolution of this appeal. Causation is not really the problem. It is plain enough what happened; according to the agreed statement of facts and the findings made, there was a sequential chain of events which led to the damage, commencing (so far as relevant) with the employee's error in failing to tighten sufficiently the critical bolts to preclude any unintended change in timing and ending with the paper jam that damaged the cylinders. That chain of events was unbroken, leading naturally from the one event to the next, and so much is common ground. The trial judge found that the employee's conduct was the dominant cause, and probably that was so, though I do not think it need be decided. For ultimately this case must depend upon the proper construction of the exclusion clause, and it is there, in my opinion, that the answer to the insurer's case is found. The [insured] submitted on appeal (if not so plainly below) that the exclusion clause applied to a malfunction only if that malfunction was 'due to the innate condition of the machine', which was not the case where the malfunction had been precipitated (as clearly it was) by the employee's failing to tighten the bolts as he should. In my view, that submission should be accepted and on that view the appeal fails on the point of construction."

The defendants maintain that, if MMI (Aust)Ltd v Rowprint Services (Vic) Pty Ltd is not a case in which causation is a problem, that is only so because the cause of the malfunction was obvious. I prefer to say that it was not a problem because on its proper construction the exclusion clause clearly did not extend to the particular damage that had there been occasioned. It is on the proper construction of the relevant provision that attention must be concentrated. That was so then; it remains so now.

As I understand their reasoning, the defendants would justify the decision in the CIC Insurance case by saying that the disease with which the carnations were infected could not have been the predominantly efficient cause of the damage because the disease is that damage, and the disease cannot be the cause, predominantly efficient or otherwise, of the disease. On the other hand, the damage must (by definition) be physical damage; and while diseases may occasion damage, even physical damage, it is unlikely that there could ever be a true equation between the expression "physical damage" and the expression "disease". On its facts, the CIC Insurance case does not lend itself to the plaintiff's analysis, which depends on it being possible to equate the damage itself with disease.

This is not to say that the result in CIC Insurance was wrong. Moynihan J also based his decision on his satisfaction that the damage was sudden and unforseen. Such damage did not fall within the exclusion.

Another case to which I was referred was Spika Trading Pty Ltd v Royal Insurance Australia Ltd[20]. Again, an industrial special risks insurance policy was involved. It excluded liability of the insurer for physical loss, destruction or damage directly or indirectly caused by or arising out of, among other things, flood or dampness of atmosphere. Paper was damaged when water entered the warehouse in which it was stored. Rogers J ruled out flood as the cause. He therefore turned to the alternative. But, although there is nothing in the report of the case to suggest that the water came into direct contact with the paper, his Honour held that the atmosphere did not provide the answer either. His Honour said:[21]

"It is true that the entry of the water into the warehouse and its presence there for some days before the paper could be moved brought about a dampness in the atmosphere which was detrimental to the condition of the paper. Nonetheless, dampness was not the efficient cause of damage to the paper. Had there been a fire and water sprayed on the warehouse, it would have undoubtedly had an impact on the quality of the paper but, as a matter of insurance law, the proximate cause of the damage would have been the fire. It is well accepted that, in determining what is the proximate cause of a loss, in the case of an insurance claim one applies common sense. The choice falls upon the cause 'to which may be ascribed the qualities of reality, predominance, efficiency'. Here, the cause that satisfies the call of that phrase was the entry of water."

One wonders whether the result would have been the same if the policy had covered the insured against damage directly or indirectly caused by or arising out of dampness of atmosphere. If indeed there was no direct contact between the paper and the invasive water, insureds who were denied relief on the basis of like reasoning to that adopted by Rogers J might have felt that they did not get what they bargained for. But this, of course, is not to say that his Honour's decision was therefore incorrect. The reaction of a litigant to a decision of a court is not necessarily an accurate indication of its correctness or otherwise. My point is that it is often difficult in this area of the law to say that a decision was either manifestly right or manifestly wrong.

This, it seems to me, is true of the arbitrator's award in this case. It is said that he committed a manifest error by not examining, as he was bound to do, the cause of the damage. I agree that he was so bound. I agree that the award is not as clear in stating that he had regard to this matter as it might have been. On the other hand, a fair reading of the award as a whole and in context leaves no doubt that the arbitrator took this issue squarely into account. The difficulties he had in giving clear expression to his reasoning processes are I think attributable to the awkward concepts with which, by the nature of the plaintiff's submissions, he had to grapple. But as is true of a judge's charge to a jury, so it is true of an arbitrator's reasons as expressed in an award: they are not to be dissected and examined and analysed on the basis that every word has to fit perfectly into place, or even as if any flaw will infect the whole.

In my opinion it is clear on a reading of the award in context that the arbitrator held that the damage to the woodchips was occasioned by their contamination. That, he determined, is where the cause of the damage lay. Once that cause was identified, there was no basis upon which the arbitrator could go further. It is clear that the arbitrator did not accept the proposition that the damage itself was contamination. Again, he was in my opinion justified, or at least not manifestly wrong, in coming to that conclusion. If insured property were damaged by flood, one would not say that the damage itself was flood. One might say, and make perfectly good sense in saying it, that the damage was occasioned by flood. In doing so, one could not sensibly be charged, as the plaintiff has charged the arbitrator, with conflating cause and effect. It is true that flood and contamination are different risks. In my opinion, it nevertheless makes perfectly good sense to say that property which has been damaged by a contaminant is property the damage to which has been occasioned by contamination.

For these reasons, the arbitrator was not manifestly wrong in concluding, as I find he did, that the damage in this case fell within clause 3(a)(ii) of the perils exclusions section of the relevant policy. Nor is there strong evidence that the arbitrator made an error of law. In my opinion, the evidence is very much the other way. Even if I am wrong about that, the determination of the question of the operation, in the particular circumstances of this case, of clause 3(a)(ii), is not likely to add substantially to the certainty of commercial law.

There remains the question of the proviso. It seems to me that it is intended to enable recovery under certain relatively clearly defined circumstances. Take the case of a drum containing inert chemicals. A contaminant is introduced. As a result, the contents of the drum become highly inflammable. They catch fire, which spreads to the woodchips. The woodchips are destroyed. Fire is a peril against which the woodchips are insured. The policy includes the same exclusion clause 3(a)(ii), with its proviso, as that with which we are here concerned. Given those circumstances, the insurer could not avoid liability by relying on the fact of contamination. That is so because the proviso has the effect that the exclusion does not apply to subsequent loss of the property insured (the woodchips) following the fire in the drum (fire being a peril not otherwise excluded) which fire resulted from a peril (contamination) referred to in the exclusion clause. But that is not this case.

The plaintiff postulates a different set of circumstances. The exclusion, it submits, does not apply where there is (a) subsequent loss, destruction or damage to the property insured - being the admixture of rubber and woodchips - the anterior damage being the damage to the conveyer belt; (b) which loss is occasioned by a peril not otherwise excluded - being machinery malfunction; (c) which unexcluded peril resulted from an excluded event or peril - being faulty workmanship.

I cannot read the proviso in this way. First, it assumes the very fact which the arbitrator has rejected: that the damage is itself contamination (i.e. the admixture of rubber and woodchips). Secondly, it produces the odd consequence that the combination of two excluded perils - contamination and faulty workmanship - results in the liability of the insurers. I can therefore find no manifest error on the face of the award, or any strong evidence of such an error, in relation to the proviso. In my opinion, the proviso has no application to the agreed facts of this case.

The defendants complain about what they describe as the paucity of the arbitrator's reasons in relation to the proviso. No matter how careful he was to articulate those reasons, however, he could not - given his earlier conclusion about the place of contamination in the circumstances of this case - have found that the proviso saved the claim.

If the arbitrator's award is not on its face affected by manifest error of law, and if there is no strong evidence that the arbitrator made a like error, then the Court is precluded from granting leave to appeal under the Act. In this case, the award was in my opinion one which was clearly open to the arbitrator. It follows that leave to appeal must be refused, with costs.

[12] Indeed, none of the authorities cited by the plaintiff provided such support; but it has to be said that none were cited, at least not explicitly, for that purpose.

[13] Leyland Shipping Co. Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350 at 369-370.

[14] See, for example, MMI (Aust) Ltd v Rowprint Services (Vic) Pty Ltd (1998) VSCA discussed at [[] below.

ARBITRATION - Commercial arbitration - Application for leave to appeal against arbitrator's award - Construction of terms of policy of insurance - Considerations applicable to a grant of leave - Anaconda Operations Pty Ltd v Fluor Australia Pty Ltd [2003] VSC 275 referred to - Commercial Arbitration Act 1984, s.38. INSURANCE - Industrial special risks policy - Woodchips damaged by admixture of small pieces of rubber cut a malfunctioning conveyor belt - Contamination excluded as a peril - Proviso - Construction of exclusion clause and proviso - Whether damage "occasioned by or happening through" contamination - MMI (Aust) Ltd v Rowprint Services (Vic) Pty Ltd [1998] VSCA 147 considered - Re CIC Insurance v Hygeia Dyanthus Industries Pty Ltd (1991) 6 ANZ Ins C 61-060 distinguished.

At a glance

Court

Decision date

Before

Source

Judgment (55 paragraphs)

Parties

Cases Cited (3)