Mercantile Mutual Insurance (Australia) Ltd v Gibbs & Anor [2001] WASCA 271

Mercantile Mutual Insurance (Australia) Ltd v Gibbs & Anor [2001] WASCA 271 - WASCA 2001 case summary — Zoe

[78]

58 There was, in fact, some evidence to suggest that Mr Gibbs and Mr Soderberg could have been carrying on business in partnership. When Mr Gibbs sought assistance from an accountant regarding the preparation of the income tax returns for the business, they were prepared on the basis that it was being operated by a partnership of Mr Soderberg and Mr Gibbs in the name of "Paraglide", although Paraglide was not a registered business name. The accountant prepared two taxation returns. The return, which was said to be the first return for the "partnership", related to the year ended 30 June 1987, and the second related to the year ended 30 June 1988. It appears likely that the two returns were prepared at the same time. A schedule forming part of the first return indicated that there was no written partnership agreement and it referred to the termination of the partnership on 7 May 1988, "when the business ceased as an unsuccessful venture". That return showed a net income of $1,998, which was distributed equally between the two "partners", while the second return showed a net loss of $3,149. The largest expense item in the second return was a loss of $3,182 on the sale of plant and equipment. The boat is shown in the Depreciation Schedule in the second return as having been sold for $4,000, at a loss of $1,854, on 7 May 1988. Three parachutes were also shown as having been sold, each for $500. Putting on one side the two wind gauges, one of which was shown as having been scrapped and the other as having been sold with the boat, this gave rise to the claimed loss. The balance of the items in the Schedule were described in the second return as having been taken over by Mr Gibbs at their written down value. Mr Gibbs claimed in his evidence that he was not aware of the fact that these accounts were prepared on the basis that the business operated by Mr Soderberg and himself was a partnership. His evidence was that he did not ever trade under a name other than that of Paraglide Pty Ltd. That evidence must have been accepted by her Honour. Although the two returns were included in the Appeal Books, their contents were inconsistent with the evidence given at the trial, which was never challenged to any significant degree, and in particular in relation to the evidence regarding the eventual disposition of the assets of the "partners". One of the features of the trial was the indiscriminate use of the terms "partners" and "partnership".

[112]

"There are two massive volumes of Arnould which purport to deal with The Law of Marine Insurance. They now contain over 1800 pages, and the Marine Insurance Act, 1906, is entitled 'An Act to codify the Law relating to Marine Insurance'. The truth is that this law of marine insurance is nothing more than a collection of rules for the construction of the ancient form of policy and such additions as are from time to time annexed to it. The ancient form dates back at least to the sixteenth century, and it is a document which the late Sir Frederick Pollock characterized, with justifiable asperity, as 'clumsy, imperfect, and obscure'. Many of the imperfections and obscurities had to be resolved by Lord Mansfield, with the assistance of his famous special juryman. A striking example of his task in that respect is Lewis v Rucker [(1971) [1761] EngR 46; 2 Burr 1167]. The question arose of the proper method of assessing a particular average loss of goods. The obvious thing would be to see what the contract of the parties provided, but it provided nothing whatever. The assured put forward one method of assessment; the underwriters put forward another. Lord Mansfield decided for the latter, saying: 'The special jury, amongst whom there were many knowing and considerable merchants, found the defendant's rule of estimation to be right, and gave their verdict for him. They understood the position very well, and knew more of the subject of it than anybody else present.' The rule so settled is now embodied in s 71 of the Marine Insurance Act, 1906. But, in truth, it is an implied term in the old form of policy, added to its imperfect expression by the practice of assured and underwriters as found by the knowing and considerable merchants in 1761.

Innumerable clauses have from time to time been devised to supplement the ancient form. Unhappily tradition seems to have caused them also in very many cases to be 'clumsy, imperfect, and obscure', and the fact that Arnould's work now covers 1800 pages is largely the result of that tradition. Oddly enough, the tradition has even infected the Legislature with a microbe of inaccuracy. In 1746 an Act (19 Geo 2 c 37) was passed which made re-insurance illegal, except in the case where 'the assurer shall be insolvent, become a bankrupt, or die'. It is inconceivable that an insolvent underwriter should desire to re-insure, and obviously the evil aimed at was double insurance by the assured. 'Re-insurance', however, had then its present well known meaning, and the draughtsman of the Act used the wrong word in order to maintain the tradition of obscurity.

I hope this irrelevant exordium is venial ...."

[119]

"Maritime perils" means the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas, fire, all perils, pirates, rovers, thieves, captures, seizures, restraints and detainments of princes and peoples, jettisons, barretry, and any other perils, either of the like kind, or which may be designated by the policy."

"11.(1) Subject to the provisions of this Act, every person has an insurable interest who is interested in a marine adventure.

(2) In particular, a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure, or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention of, or may incur liability in respect thereof."

"28. Subject to the provisions of any Act, a contract of marine insurance is inadmissible in evidence in an action for the recovery of a loss under the contract unless it is embodied in a marine policy in accordance with this Act. The policy may be executed and issued either at the time when the contract is concluded or afterwards."

"80. Where the assured has effected an insurance in express terms against any liability to a third party, the measure of indemnity, subject to any express provision in the policy, is the amount paid or payable by him to such third party in respect of such liability."

"91.(1) Where two or more persons mutually agree to insure each other against marine losses there is said to be a mutual insurance.

(2) The provisions of this Act relating to the premium do not apply to mutual insurance, but a guarantee, or such other arrangement as may be agreed upon, may be substituted for the premium.

(3) The provisions of this Act, insofar as they may be modified by the agreement of the parties, may in the case of mutual insurance be modified by the terms of the policies issued by the association, or by the rules and regulations of the association.

(4) Subject to the exceptions mentioned in this section, the provisions of this Act apply to a mutual insurance."

[142]

"[11] It will be observed that, despite the heading of s 7 [of the Marine Insurance Act, which defines the term 'marine insurance'], that section hardly qualifies as a description. The whole Act appears to assume that the established English law of marine insurance still exists, and supplies the answer to the question. If so, the answer to the question whether the Maritime Insurance Act applies must be in the negative. English law seems to have proceeded on the basis that any policy in or to the effect of an 'SG' policy (or its later replacements) was a 'marine' policy: see, generally, Arnould on Marine Insurance, sixteenth ed, Chapter 1. A marine policy, so understood, covered all sorts of misadventures which might be sustained by a vessel: storm, tempest, fire, collision, average, damage to cargo etc, in fact almost everything except death or injury to third parties. Indeed, in some policies they were specifically excluded: see, for example, pages 101 and 172. In the whole of Arnould's work I have not located a single example of a public liability risk being treated as a marine insurance risk, let alone a policy dealing with nothing but public liability being treated as a marine policy. Particularly must this be so when no 'sea' is involved: Cugden Lake can hardly be said to be a 'sea'.

[12] The next question is whether the injury was covered by the policy. His Honour held that it was not. In this regard, so it seems to me, his Honour was clearly correct: "aquaplaning" would have to be endorsed on the policy in order to be covered, and it was not; and, for that matter, to make things worse, the use of the wave sled was not covered by the policy. His Honour therefore held that the First Third Party was entitled to a verdict in its favour. Moreover, if this be so, there can be no way the defendant could succeed against the First Third Party.

[13] There was much debate as to whether there was a breach of either (or both) Regulation 6 or Regulation 8 of the Water Traffic Regulations. The former, in effect prohibits the towing of more than three people when one is conducting an aquaplaning exercise. The latter requires a person who conducts such an exercise to have an aquatic license from the Maritime Services Board. The consequences of breach of either regulation would be of some importance if the defendant's insurance policy were governed by the Marine Insurance Act, as that Act might possibly have the effect of invalidating the policies if it applied. However, as in my view (a) the Act does not apply and (b) the insurance policy did not cover the risk, I see no point in considering the matter."

[163]

119 On the basis that the policy was a contract of marine insurance, the respondents were in breach of the warranty of legality. Section 47 of the Marine Insurance Act provides that there is an implied warranty that the adventure insured is a lawful one, and that, so far as the assured can control the matter, the adventure shall be carried out in a lawful manner. At the time of the accident, "The Lone Ranger" was out of survey, in breach of s 26 of the Western Australian Marine Act 1982 and the owner and person having charge of the boat were rendered liable to a penalty of $2,000. By virtue of s 39 of the Marine Insurance Act, the warranty of legality means a promissory warranty, that is to say, a warranty by which the assured undertake in the present case that some particular thing shall or shall not be done, or that some conditions shall be fulfilled, or whereby they affirm or negative the existence of a particular state of fact. By subs (3) of s 39, a warranty is a condition which must be exactly complied with, whether it be material to the risk or not. There need be no link, causative or otherwise, between the breach and any loss or claim under the policy. If it be not so complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty. The fact that the vessel was out of survey was not material to the risk; but, nevertheless, the insurer was discharged from liability as from the date of the breach. Reference in this regard may be made to Doak v Weekes (1986) 82 FLR 334, in which Ryan J held that there had been a failure to carry out the marine adventure in a lawful manner, the owner having knowingly sent a vessel to sea with a crew which did not hold the certificates of competency required by the Navigation (Manning of Fishing Vessels) Regulations 1974 (Qld). And see also James Yachts Ltd v Thames & Mersey Marine Insurance Co Ltd [1977] 1 Lloyd's Rep 206, a decision of the Supreme Court of British Columbia, in which local bylaws and regulations had been breached.

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Judgment (170 paragraphs)

Mercantile Mutual Insurance (Australia) Ltd v Gibbs & Anor [2001] WASCA 271 (30 August 2001)

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Legislation Cited (9)

Cases Cited (8)