BETWEEN : MERCANTILE MUTUAL INSURANCE (AUSTRALIA) LTD

Insurance - Marine insurance - Insurance against third party liability only - Whether a policy of marine insurance - Meaning of "sea" - Whether estuary affected by tidal movements of the ocean part of the "sea" - Paraflying behind power boat - Accident due to negligent driving of boat - Marine adventure

Insurance Contracts Act 1984 (Cth), s 60

Marine Insurance Act 1909 (Cth), s 7, s 8, s 9, s 11, s 80

Inman Steamship Co Ltd v Bischoff (1882) 7 App Cas 670

New South Wales v The Commonwealth [1975] HCA 58; (1975) 135 CLR 337

Smith v Scott [1811] EngR 540; (1811) 4 Taunt 126; 128 ER 276

1 KENNEDY J: Mrs H W Morrell, the plaintiff in the proceedings in the District Court, was seriously injured in a parasailing accident on Heirisson Island in the Swan River. The power boat used for Mrs Morrell's flight was being driven by Mr I W Gibbs at the time of the accident. Mrs Morrell's injuries were found by her Honour to have been caused by the negligence of Mr Gibbs, for which Paraglide Pty Ltd, a company in which Mr Gibbs held one of the two issued shares, and of which he was a director, was also held liable. There has been no appeal against the decision in favour of Mrs Morrell. The damages remain to be assessed.

2 The proceedings instituted by Mrs Morrell were heard together with the third party claim made by Mr Gibbs and Paraglide Pty Ltd, the respondents in these proceedings, against the appellant, which is an insurance company. The claims of the two respondents were in similar terms. Each claimed to have been, at all material times, the owner and operator of a power boat, "The Lone Ranger", which was described as a runabout ski boat. And each claimed to have entered into a policy of insurance with the appellant by its agent, Anchorage Marine Underwriting Agency Pty Ltd. They contended that it was a term of the policy that the appellant would indemnify the respondents against third party liabilities arising out of the activity of commercial paraflying being conducted by them and, accordingly, they sought to be indemnified by the appellant against Mrs Morrell's claim and costs. The appellant denied liability on a number of grounds. However, the learned trial Judge upheld the respondents' claim for an indemnity, holding that the Insurance Contracts Act 1984 (Cth), and not the Marine Insurance Act 1906 (Cth), applied to the policy.

3 The Insurance Contracts Act does not apply to contracts to or in relation to which the Marine Insurance Act applies (s 9(1)(d)). If the policy in this case is not a marine policy, the Insurance Contracts Act does apply. It is a question of fact in each case whether a policy is marine or non-marine, based on the balance of risks covered - see Moore v Evans [1918] AC 185; British and Foreign Marine v Gaunt [1921] 2 AC 41. An insurer's right to cancel a policy under the Insurance Contracts Act is significantly limited by the provisions of s 60, and an insurer's automatic right to avoid a contract in cases of non-disclosure or misrepresentation, irrespective of actual loss, was removed unless the non-disclosure was fraudulent. No such limitations apply to a marine policy. The Act also requires certain statutory notices to be given before, or at the time of, first entering into a contract of insurance to which the Act applies, or the first renewal, reinstatement or extension of the contract on or after 1 January 1986, whichever is the sooner. As the Australian Law Reform Commission, in its Review of the Marine Insurance Act observed, marine and non-marine insurance contracts are subject to different legal regimes, not simply because of historical accident, but because the issues, players and markets are different. This is said to be reflected in the commercial focus of the Marine Insurance Act and the consumer orientation of the Insurance Contracts Act (3.12).

4 The name of the agent appears in the earlier documents as "Anchorage Marine Underwriting Pty Ltd", without the word "Agency". No significance attaches to this discrepancy, if it be such. In these reasons, the name "Anchorage Marine Underwriting" is used throughout as the name of the agent.

5 At the trial, Mr Gibbs gave evidence that he had become interested in parasailing in or about 1985, following his being made redundant in his former employment. He acquired "The Lone Ranger" on 10 January 1986. It was duly registered in his name, and it continued to be so registered at all material times. With Mr Rod Soderberg, Mr Gibbs investigated the possibility of their conducting parasailing on the Swan River on a commercial basis. At this time, the sport of parasailing was in its infancy in this State, and was then, and for a significant period subsequently, quite inadequately regulated. Mr Soderberg and Mr Gibbs had in mind the then forthcoming America's Cup contest, and the opportunities it might present for generating public interest in the sport. They concluded that the beach adjacent to the Narrows Bridge in South Perth would be suitable for this purpose and, early in 1986, they applied to the City of South Perth for a licence to operate a parasailing business from that site, which was a Class "A" Reserve vested in the City of South Perth. They were successful in obtaining such a licence for a period of 12 months from 1 July 1986. At the meeting at which Mr Gibbs and Mr Soderberg had their licence approved, the Council also agreed to grant a parasailing licence, for the same period, and at the same site, to Mr R J Thompson. Mr Thompson had already been the holder of such a licence for some time. The power to grant the licences appears to have been based upon a By-law of the City of South Perth which prohibited a person in a public reserve, inter alia, from hiring or offering to hire any boat or any other item of equipment for sports, entertainment or amusement unless he holds a current licence issued by the Council in the form in the First Schedule to the By-law. The boundary of the reserve along the Swan River extended only to the high water mark. The City had no authority with respect to any activities on the river itself.

6 The area which Mr Soderberg and Mr Gibbs were permitted to use for their venture was described as being downstream from the Narrows Bridge. The licence was granted to them subject to a number of conditions. These included conditions that they were restricted to the use of one boat, and that the licence was not to be transferable. There was a further condition that they should observe all safety requirements "applied" by the Western Australian Department of Marine and Harbours. A question might have arisen as to the power of the City of South Perth to enforce some of the conditions which it purported to impose; but this was not canvassed before us.

7 Although it appears not to have been made a condition of either of the licences granted for the year commencing 1 July 1986, it was pointed out by the City Council to the licence holders that they should have adequate public risk insurance cover "as Council would consider them responsible for the safety of their customers and [of] the public who are free at all times to use the area", that is to say, to use the Reserve.

8 The Department of Marine and Harbours required that all those persons conducting parasailing on a commercial basis should hold a current certificate of survey for all vessels being used for this purpose. This was, in reality, a broad requirement imposed by s 26 of the Western Australian Marine Act 1982, power boats being so used coming within the definition of "commercial vessels" in s 3(1) of the Act - see s 6 and s 23 of the Act. A breach of s 26 of the Act carried a penalty of $2,000. Those conducting parasailing were, in addition, required to hold the Department's certificate of competency as a coxswain-instructor of commercial ski boats, for which a prerequisite was the holding of a commercial ski operator's rating as a ski instructor granted by the Western Australian Water Ski Association, and the holding of a first aid certificate issued by the St John Ambulance Association. They were also required to pass a further examination which was conducted by the Department. No issue has been raised as to the power of the Department to impose a requirement that persons operating power boats for parasailing purposes should hold certificates of competency as a coxswain-instructor of commercial ski boats. The Department appears to have been treating parasailing, which, at the material time, was nowhere referred to as such in the relevant regulations, as being equivalent to "trick water skiing", notwithstanding that trick water skiing was defined in such a manner as not to extend to parasailing. The Navigable Waters Regulations, at the relevant time, empowered the Department to define and set aside areas of navigable waters for the purpose of water skiing and to set aside areas of navigable rivers for the purpose of racing speed boats. It was not until August 1992, however, that it was expressly empowered to set aside areas for parasailing.

9 Mr J R Brooker was the Chief Inspector of Boating in the Department of Transport at all material times. His evidence was that there were not then in existence any regulations which "specifically identified parasailing", and the Department only adopted the regulations relating to trick water skiing until it had arrived at some reasonable regulatory regime. Water skiing areas were to be used as a venue for commercial paraflying, but the Department was not really concerned with which water ski area was used for this purpose. The crux of the matter was said to be the approval of the person or authority that controlled the foreshore to set up the business, be that a local government authority, or, in the case of Mr P D Harford, to whom reference is made later in these reasons, the Australian Power Boat Association, at the Burswood site, which had a lease of the section of beach from which Mr Harford operated his parasailing business. The area set aside for power boats adjoined a water ski area. The speed boat area was not a water skiing area, although there was an agreement between the Water Ski Association and the Power Boat Assocation that their respective activities could extend across the border into the adjoining area.

10 Mr Gibbs and Mr Soderberg acquired a "shelf" company from a firm of solicitors. They intended to conduct their proposed business through this company. Their object, according to Mr Gibbs, was "basically ... just in case of any accidents, the proprietary limited would be liable". Mr Gibbs and Mr Soderberg each acquired one of the two issued shares in the shelf company on 14 August 1986 and they changed the name of the company to "Paraglide Pty Ltd" on 19 November 1986. Each of them became a director of the company, and Mr Soderberg was appointed its secretary.

11 It is all too apparent, on the evidence, that Mr Gibbs and Mr Soderberg were quite unfamiliar with the legal requirements and practical demands involved in running a business. Although it is sufficiently clear that their intention was to operate the parasailing venture through the company, no attempt appears to have been made to transfer the boat from the name of Mr Gibbs into that of the company, and the licence from the City of South Perth remained in the names of Mr Gibbs and Mr Soderberg. The company had no bank account, and Mr Gibbs and Mr Soderberg continued to use their individual personal accounts for the business.

12 In accordance with the requirements of the Western Australian Marine Act, "The Lone Ranger" was submitted to a survey by the Department of Marine and Harbours and it was certified that the provisions of the Act with respect to the survey of the boat had been complied with. The certificate which was issued was valid until 3 October 1987. The geographical limits imposed upon the operations of the boat under the Act were specified as "smooth water only" and the hours of operation were limited to between sunrise and sunset.

13 The regulations under the Western Australian Marine Act 1982 prescribed the geographical limits of "smooth waters" and "partially smooth waters". Within the former category are Western Australian Inland Waters, defined as all rivers and inland waterways with the exception of Lake Argyle. Seven ports, some of them within certain limits, were prescribed as smooth waters. The whole of the Fremantle Inner Harbour and the Fremantle Fishing Boat Harbour both come within the description of "smooth waters".

14 Having successfully satisfied the requirements of the WA Marine (Certificates of Competency and Safety Manning) Regulations 1983, on 13 October 1986, Mr Gibbs obtained a certificate of competency as a coxswain-instructor of commercial ski boats. However, it was not until 7 December 1987, after having twice failed the test for such a certificate, when Mr Soderberg was ultimately granted his certificate of competency.

15 Some difficulties were experienced in securing public liability insurance for the venture into parasailing. Eventually, however, Mr Soderberg was successful in doing so when he telephoned Mr G F Fullerton, a principal of Anchorage Marine Underwriting in Sydney, which is an agent for the appellant. The original request from Mr Soderberg was that the insurance should be in the name of Paraglide Pty Ltd as the assured, and Mr Fullerton made a note accordingly in what was described as his "quote book". Only a few minutes after his initial telephone call, however, Mr Soderberg telephoned Mr Fullerton again, and requested that his name and that of Mr Gibbs should also be included in the policy as being the assured. Mr Fullerton, in response to this request, wrote "R J Sodaberg (sic) & I Gibbs T/as" before "Paraglide Pty Ltd" as the assured in his quote book. On 9 October 1986, Anchorage Marine Underwriting issued a cover note holding "R J Sodaberg (sic) and I Gibbs T/as Paraglide Pty Ltd" insured in respect of the hull and motor of "The Lone Ranger", with an extension of the policy to "P&I cover" to a limit of $1,000,000 to include commercial paraflying "as per permit".

16 Without objection, Mr Fullerton was asked in the course of his evidence whether the addition of the two names meant that he was also issuing the policy for the benefit of each of them, and he agreed that it did. He then agreed that the policy was issued to protect each of Mr Soderberg, Mr Gibbs and Paraglide Pty Ltd in their respective capacities. In the course of his evidence, Mr Fullerton had referred to Mr Soderberg and Mr Gibbs, somewhat indiscriminately, as being in "partnership". There was little consistency in his use of this term as, indeed, was the case with other witnesses. Moreover, it was inappropriate to describe Mr Soderberg and Mr Gibbs as "trading" as a company. However, Mr Fullerton conceded that he was not concerned with the particular structure of the business.

17 A proposal for "Pleasurecraft Insurance" was partially completed by Mr Fullerton. In the proposal, he described the waters in which the boat was to operate as being "protected waters of WA as per permit" and, in relation to third party liability, he wrote in the requested limit of $1,000,000, to include commercial parasailing. Two of the questions asked in the proposal enquired as to any "previous marine insurance". Mr Fullerton's letter to Mr Soderberg, dated 15 October 1986, enclosing the partially completed proposal form, set out the premium details and, in relation to cover, stated "Third party P&I cover increased to $1,000,000 and extended to include Commercial Paraflying Operations as per Permit and operated in accordance and under the manufacturers limitations". In the letter, Mr Fullerton also requested Mr Soderberg to provide "a detailed description of [his] experience with the operation of Paraflights and that of any other person proposed to be in command of the vessel whilst towing Paraflights".

18 Mr Fullerton claimed that he had discussed with Mr Soderberg, at some length, the latter's experience and the general gist of the way in which the business was to operate, as well as discussing with him "the fact that the operation had to comply with all the appropriate permits, licences and certifications necessary from the relevant authorities". Although Mr Fullerton claimed that he made notations regarding these requirements in his quote book, the extract from the book which he produced contained no notes on this aspect of the matter. He also explained in his evidence that the legal structure of the business was not as important to him as were the operating staff.

19 Following these discussions, in an undated letter headed "R Soderberg and I Gibbs", and, beneath those names, "Paraglide Pty Ltd", Mr Soderberg wrote:

"Both operators will be fully licensed as required by Marine and Harbours [Department]. Both have had in excess of a years experience towing skiers almost every weekend during the summer months. Both possess current St John's Ambulance First Aid Certificates and are tested for competency by both the West Australian Ski Association and Marine and Harbours testers prior to being issued with a [coxswain's] ticket and thereby being able to run a commercial operation. Also we have both been involved in what would be estimated to be at least two hundred parachute rides thereby gaining considerable competency.

We are hoping to operate this business for quite a number of years to come, during summer.

As we are one of only 2 companies to be granted Shire approval to use the region. (sic) We intend building our business to a well known, reliable and professional operation.

Thank you for your assistance."

A cheque in payment of the agreed premium was enclosed with the letter. The letter and the cheque appear to have been received by Anchorage Marine Underwriting on 11 November 1986.

20 As has been indicated, Mr Fullerton's expressed concern was with the experience of those proposed to be in command of the vessel whilst towing paraflights. It is to be noted that Mr Soderberg's letter in reply records that both operators "will be" fully licensed by the Department of Marine and Harbours. There has been no suggestion that at any time any "operator" of "The Lone Ranger" did not then hold a certificate of competency. The letter does not identify the "Shire" which was referred to, although it could only have been the City of South Perth. Nor does it specify the precise place where the business was proposed to be conducted.

21 The policy schedule which eventually issued is dated 5 December 1986. It was signed for and on behalf of Anchorage Marine Underwriting as agent for the appellant. It provided for hull and motor insurance. It also insured a trailer and certain specified equipment, and it included third party liability cover to a limit of $1,000,000. The period of insurance was 10 October 1986 to 10 October 1987. The policy was expressly extended to include commercial paraflying, it being stated: "It is hereby agreed Warranty 1 of the within Policy is amended to permit Commercial Paraflying in accordance with Survey". It also extended the cover with respect to third party liability to commercial paraflying. This removed the exclusion in the printed policy of liability for any claims made against the assured in respect of bodily injury to any person arising out of paraflying. The extended cover was itself excluded if there was not on board the boat a competent observer in addition to the person driving the boat. The policy schedule also warranted that the policy should be "NULL & VOID in the event of the manufacturer's operating instructions being breached".

22 Against the sub-heading "Navigation Warranties" appeared "Protected Waters of WA as per permit". No "permit" was identified in these proceedings which referred to "Protected Waters of WA as per permit". Nor has the source of the expression "Protected Waters of WA" been identified. There appears, however, to be no doubt that the "permit" was in fact a reference to the certificate of survey for "The Lone Ranger", which recorded the geographical limits of operation of the vessel as "smooth water only", the hours of operation being limited to between sunrise and sunset. This is made clear by the reference in the amendment to Warranty 1 to permit paraflying "in accordance with Survey".

23 Under the general heading "Please Note" in the document which set out the general conditions of the policy, it was stated that the policy was issued on the basis of the answers and information given by the assured in the Proposal and Declaration so that they should be the basis of the policy and be deemed to be incorporated in the policy. The Declaration referred to appears to have been that included in the proposal, being a declaration that the answers contained in the proposal were true, and that no information likely to affect the decision of the insurer in considering the risk had been withheld. Another of the statements under the same heading provides that, even though the policy may insure property wholly within the limits of one State of Australia, the provisions of the Marine Insurance Act 1909 (Cth) shall be deemed to apply to the insurance. It has not been suggested, and could not successfully be maintained, that, if the policy were found not to be one of marine insurance, this condition overrides the application of the Insurance Contracts Act 1984 (Cth).

24 Section 1 of the policy dealt with physical loss or damage to the vessel, while Section 2 dealt with salvage charges and other expenses. Under Section 3 of the policy, dealing with the assured's legal liability to third parties, it is provided:

"If by reason of your interest in the Vessel you become LEGALLY LIABLE to pay any sum or sums in respect of any liability, claim, demand, damages and/or expenses for liabilities to third parties, we will pay to you or on your behalf all such sums up to the limit specified in the Schedule in respect of any one accident or series of accidents arising out of the same event."

It is expressly provided that the indemnity granted by Section 3 shall extend to "any person navigating or in charge of the Vessel who is legally competent to do so and who has ... [the permission of the assured]".

25 Condition 2 of the general conditions applying to the policy provides that, should the vessel be sold, transferred to new ownership or consigned to any person for sale, then, unless the insurer agrees in writing to continue the insurance, the policy shall become cancelled from the time of sale or transfer or consignment for sale. Condition 5 requires the assured to give immediate notice in writing to the insurer of any material change to the information supplied in the proposal form or of the facts or circumstances which existed at the commencement of the insurance.

26 The first of the conditions relating to accidents and claims requires the assured, in the event of any occurrence which may give rise to a claim under the policy, immediately to notify the insurer and to confirm to it in writing, within 14 days thereafter, the circumstances surrounding such occurrence.

27 The insurance policy with the appellant was not renewed by its expiry date of 10 October 1987. A new policy was, however, subsequently agreed to. The cover commenced on 9 February 1988 for a period expiring on 9 February 1989, following the receipt of a letter from Mr Gibbs to Mr R Fullerton of Anchorage Marine Underwriting, in which the former indicated that he did not require boat insurance and that he was only seeking third party liability insurance. Mr R Fullerton is a brother of Mr G Fullerton and is also a principal of Anchorage Marine Underwriting. A "renewal" certificate dated 7 March 1988 in respect of the policy was issued. In this certificate, which covered the period in which Mrs Morrell's accident occurred, it was provided that cover was extended to commercial paraflying and Warranty 1 of the policy was amended to permit commercial paraflying operations "as per relevant authority approvals". In accordance with Mr Gibbs' instructions, Sections 1 and 2 of the policy were deleted in full. The Navigation Warranty was repeated as before: "Protected Waters of WA as per permit".

28 The renewal of a policy is impliedly made on the basis that the statements in the original proposal are still accurate - In re Wilson and Scottish Insurance Corporation Ltd [1920] 2 Ch 28, at 31 - 32. It constitutes the creation of a fresh contract so a duty of disclosure arises on each successive renewal - see Lambert v Co-operative Insurance Society Ltd [1976] 2 Lloyds Rep 485, at 487.

29 No indication had been given to Anchorage Marine Underwriting that Mr Soderberg and Mr Gibbs had been involved in an accident on 21 February 1988, to which reference is made later. As in the initial policy schedule, the assured continued to be named as "R Sodaberg (sic) and I Gibbs T/as Paraglide Pty Ltd", although from the time of the suspension of his certificate of competency Mr Soderberg ceased to participate actively in the business.

30 In the meantime, in May 1987, the Town Clerk of the City of South Perth presented a report on parasailing to the City's Parks and Health Committee. The recommendation of that Committee was that Mr Soderberg and Mr Gibbs be granted a further licence for a period of 12 months from 1 July 1987 to 30 June 1988. That recommendation was adopted by the Council on 22 May 1987. The conditions attaching to the licence, following upon discussions with representatives of the Department of Marine and Harbours, the Western Australian Water Ski Association, the Commonwealth Department of Civil Aviation and others, were now considerably strengthened. One of the conditions was that the licensees should comply not only with the requirements of the Department of Marine and Harbours, but also with those of the Department of Civil Aviation. Another survey of "The Lone Ranger" was undertaken and a certificate was granted on 21 October 1987. It was valid until 21 October 1988. It was in the same terms as the previous certificate, which had expired on 3 October 1987.

31 In April 1988, the Town Clerk of the City of South Perth prepared a further report on parasailing, in which he drew attention to problems of congestion which had been experienced at the Narrows site due to the significantly increased level in the activities of water skiers and parasailors. An accident involving Mr Soderberg and Mr Gibbs, which occurred on 21 February 1988, and resulting in an injury to a parasailor, had exacerbated the position. An inquiry by the Department of Marine and Harbours into the accident resulted in the suspension for 12 months of Mr Soderberg's certificate of competency issued by the Department, which he had secured only 2-1/2 months previously, while Mr Gibbs was officially cautioned in respect of his role in the matter. In the circumstances, the City of South Perth's Parks and Health Committee recommended that the existing parasailing licence held by Messrs Soderberg and Gibbs should be cancelled, and that the licence be granted to Mr Gibbs, in his own right, for the period from 18 March 1988 to 30 June 1988. This recommendation was adopted by the Council on 27 April 1988.

32 Following the expiration of the previous licence, Mr Gibbs tendered for another "commercial parasailing licence" from the City of South Perth for the year ending 30 June 1988. The tender, he said, was successful in July or August 1988. It was the only licence then granted for that period.

33 It was at about this time that the significance of subs 4.1 of s 95.14 of the Air Navigation Orders, which had been promulgated by the Department of Civil Aviation on 22 April 1985, came to be generally appreciated. Under that subsection, except with the permission in writing of specified officers of the Department, parasails were not to be flown, inter alia, "within a horizontal distance of 100 metres from persons other than persons directly associated with the operation of the ... parasail ... or during the launching phase, persons situated behind the launching point relative to the intended direction of flight". Little attempt appears previously to have been made by the Department or its successor, the Civil Aviation Authority, to enforce this provision. Mr Gibbs and Mr Thompson each now applied for an exemption from subs 4.1 of s 95.14 of the Orders. On 1 November 1988, however, Mr J A Wilson, who was a strong supporter of Mr Thompson, and who had been highly critical of the parasailing activities of Mr Soderberg and Mr Gibbs, purporting to act on behalf of the Western Australian Water Ski Association, wrote to the Civil Aviation Authority recommending that Mr Thompson be granted an exemption under the subsection but maintaining that no such exemption should be granted to Mr Soderberg and Mr Gibbs. The Authority accepted these recommendations and, as a result, wrote a letter to Mr Gibbs which was highly critical of his past record, and claiming that he could not always be relied upon to adhere to standards. The Authority further claimed that Mr Gibbs had not demonstrated a sound record in the parasailing industry. Nor, it was said, did he demonstrate an adequate appreciation of the safety factors which would permit equivalent safety to that specified in the relevant Civil Aviation Orders. Mr Thompson was subsequently granted a further licence by the City of South Perth for a period of three years.

34 A proof of the evidence of Mr G L Masters, who was the Recreation Manager of the City of South Perth at the relevant time, was admitted into evidence. He said that he had seen Mr Soderberg and Mr Gibbs on several occasions operating within 100 metres of other people. He added that, at the Narrows site, it was virtually impossible to carry out a parasailing operation without someone not connected with the operation being within 100 metres of a parasailing boat. Mr Gibbs' tender, according to Mr Masters, was "revoked" on the ground that he had not been granted an exemption by the Civil Aviation Authority.

35 After the revocation of his tender by the City of South Perth, Mr Gibbs was no longer able to operate from his favoured site. The fact that the Civil Aviation Authority was not prepared to grant him an exemption did not, of course, mean that he could no longer carry on the business of the company, although it did restrict the areas from which he could conduct the business and, no doubt, it would still have been necessary for him to secure approval from a local authority to conduct the business from any foreshore reserve. He did not, however, consider at this time that other parts of the Swan River were suitable for parasailing. It is apparent from the evidence that parasailing requires a relatively broad expanse of water. It would not be feasible on a narrow river. Having for the time being no authority to carry on the business of parasailing elsewhere, he apparently ceased actively to seek customers. He did, however, give consideration to the possibility of his joining Mr P D Harford in the latter's paraflying business, which he was conducting from Burswood. In June 1987, Mr Harford had received approval from the Department of Marine and Harbours to his use of the waters of the speed boat course adjacent to Burswood Island for the purposes of his proposed commercial para-flying operations. That use was conditional on the continuing agreement of the Australian Power Boat Association to his use of its "land lease area", which was given, and upon his adherence to the operational and safety requirements attached to the Department's letter of approval. The source of the Department's authority to lay down these requirements was not identified.

36 Mr Harford, who had considerable experience in paraflying, was at this time looking for someone to join him in his business because one of his associates was seeking to withdraw from it. The evidence of Mr Gibbs, which was accepted by her Honour, was that he had been to the Burswood site on a number of occasions during December 1988 and January 1989 to work with Mr Harford in his business and, in particular, to assist him as a member of his ground crew, with the ultimate view to acquiring an interest in the business.

37 In the meantime, in September 1988, Mr R L Morrell, the husband of the plaintiff, looking through the "Yellow Pages", had found an advertisement, headed "Paraglide Pty Ltd", which advertised parasail rides at "the Narrows, South Perth". Mr Morrell made a telephone call to the number printed in the advertisement and spoke to Mr Gibbs to make arrangements for himself and his wife to go parasailing. He subsequently called at Mr Gibbs' home, where he purchased from Mr Gibbs two tickets for parasailing at a cost of $20 each. These tickets were intended as a birthday present for Mrs Morrell. No time was fixed for her parasailing, no doubt because the seasonal conditions were not then appropriate. Parasailing can be undertaken during the period from November to May, but the optimal period is apparently from December to February. The tickets purchased by Mr Morrell contained no date, and were headed "At the Narrows Bridge Paraglide", under which was printed "Lone Ranger (Boat)", followed by "Every Day of the Week (Weather Permitting)". Then came Mr Gibbs' telephone number and, underneath that appeared the names of both Mr Soderberg and Mr Gibbs. Unlike the wording in the advertisement in the "Yellow Pages", the tickets did not themselves contain the full name of the company "Paraglide Pty Ltd", but simply referred to "Paraglide". When he sold Mr Morrell the tickets, Mr Gibbs was still licensed to use the Narrows Bridge site, and the boat was still in survey.

38 Mr and Mrs Morrell subsequently decided that they would use the tickets on 30 January 1989, which was the Australia Day holiday. Mr Morrell telephoned Mr Gibbs' number, although it appears that he did not speak to Mr Gibbs himself. It was likely that the person to whom he spoke was Mr Soderberg, who was then residing in Mr Gibbs' house but who, it was accepted, was no longer participating in the business, although it would seem that he had not been paid out for his interest in the venture. Mr Gibbs was not expecting to hear from Mr Morrell at that time. Indeed, under cross-examination, Mr Gibbs acknowledged that he had forgotten all about the sale of these tickets. He had arranged on that morning to speak to a prospective buyer of "The Lone Ranger" at the Burswood site, to which he had taken the boat, which had now been out of survey for some three months. Mr Morrell was advised where Mr Gibbs could be found and he and his wife went down to the Burswood site, where they met Mr Gibbs and Mr Harford.

39 At the time Mr and Mrs Morrell arrived at the Burswood site, Mr Harford already had two customers who desired to parasail on that day. After a discussion between Mr Gibbs and Mr Harford, it was arranged that Mr Gibbs would launch his own boat and convey the Morrells, Mr Harford, Mr Harford's wife, his two customers and a ground crew member to the northern tip of Heirisson Island from where the flights were to commence. The island is an A Class Reserve which was at the time vested in the City of Perth for a public park. It was agreed that Mrs Morrell should be the first to parasail, with Mr Gibbs being the coxswain of his boat. Mr Gibbs made two trips to convey all the party, including Mr Harford's two customers, to the Island. On their arrival, Mrs Harford remained with Mr Gibbs in the boat as the required observer, while Mr Harford gave Mrs Morrell instructions on how to operate the parachute and strapped her into the harness. The harness, the parachute and the tow rope were all the property of Mr Harford. Mr Harford also provided the required ground crew. However, he was not in control of Mrs Morrell's flight and he did not expect any payment for his participation in the exercise.

40 After, it would seem, two failed attempts at getting Mrs Morrell into the air, the party moved to another part of the Island so that she could take off into the wind. The third attempt succeeded. Unfortunately, however, near the completion of the flight, in endeavouring to land on the island, Mrs Morrell dropped into a grove of trees and, as a result, she sustained severe injuries. The learned trial Judge held that these injuries were entirely due to the fault of Mr Gibbs. The tragedy occurred, she found, because Mr Gibbs had steered the boat too close to the shore and had therefore brought Mrs Morrell too close to the trees. It was an error in the navigation of the boat. Although she was obviously heading for the trees, Mr Gibbs had failed to "power on" the boat, which could have resulted in her being pulled clear of the trees.

41 On 2 February 1989, Mr Gibbs wrote to the Department of Marine and Harbours in relation to the accident and concluded by indicating that he wished to resign his commercial water skiing coxswain's licence. Eight days later, the term of the insurance policy expired. It was not renewed.

42 This was not the first accident in which Mr Gibbs and Mr Soderberg had been involved. On 7 November 1986, there had been an accident at the Narrows site when a problem developed with a customer's parachute harness, with the result that the parachute twisted just prior to take-off. The customer had landed on hard sand at the water's edge and sustained a fracture of a bone in one of his heels. The twisting of the parachute was attributed by Mr Gibbs to a fault in the harness, although the Civil Aviation Authority apparently considered that the parasail equipment was being operated in wind speeds which exceeded the maximum specified by the manufacturer. This incident had been reported to Anchorage Marine Underwriting, which, it appears from a fax dated 27 October 1988 from Anchorage Marine Underwriting to the Civil Aviation Authority, had accepted that the accident had been the result of an equipment failure. Mr Fullerton's evidence was that he had believed the cause to have been equipment failure until long after the policy had "expired and lapsed".

43 On 21 February 1988, as already mentioned, while Mr Soderberg was driving "The Lone Ranger", there had been another accident. The accident occurred subsequent to the renewal of the policy by Mr Gibbs. In an inquiry by the Department of Marine and Harbours, Mr Soderberg was found to have been negligent, in that the parasail had been only partially deployed when the boat "powered away" to effect a launch. The parasail rotated to the left on take off and propelled the passenger into the transom and outboard motor of a vessel parked on the beach. The passenger sustained bruising to his side, arm and legs. The specific findings of the inquiry were as follows:

(a) the accident was a direct cause of failure fully to deploy the parasail prior to launch;

(b) one member of the ground crew at least was inexperienced and the crew failed adequately to communicate between each other or with the tow vessel;

(c) the coxswain of the tow vessel, Mr Soderberg, should have ensured that the parasail was flying correctly before putting on power in the tow vessel to commence the launch; and

(d) the launch procedure used in this case, and by inference in other cases which have not resulted in accident, was amateurish and not consistent with the degree of expertise expected of a commercial operator.

44 As a result of this inquiry, Mr Soderberg's certificate of competency was suspended for a period of 12 months, while Mr Gibbs received an official caution from the Department, having regard to his own role in relation to the inexperience of at least one member of the ground crew and the failure of the crew adequately to communicate with each other or with the tow vessel and, further, having regard to the fact that the launch procedure used in the case was not consistent with the degree of expertise expected of him as a commercial operator. It was accepted that, in consequence of the suspension of his certificate of competency, Mr Soderberg took no further part in the operations of the business, although he remained a shareholder in the company. According to the records of the Corporate Affairs Department, he also continued to be a director of the company, and its secretary. Mr Gibbs denied having purchased Mr Soderberg's share in the company. He also denied having purchased the parasailing equipment which, on his case, was owned by the company. His evidence was that Mr Soderberg was only paid out when "The Lone Ranger" was sold. Neither Mr Gibbs nor Mr Soderberg was at all concerned with the niceties of the law of corporations.

45 Mr Gibbs claimed that he had spoken to Mr G Fullerton on the telephone on the day following the accident on 30 January 1989. Her Honour, however, did not accept his evidence on this point. It was clearly inconsistent with the letter to Anchorage Marine Underwriting dated 8 March 1993, written by Mr Gibbs' solicitors, in which they indicated that Mr Gibbs was confident that he had insurance policies with that company subsequent to the policy which expired in October 1987 "either in his own name or that of Mr R Soderberg or both of them together trading as Paraglide Pty Ltd" and requesting details of subsequent policies. It would seem that this letter was written as a result of Mrs Morrell's having made a claim for damages arising out of the accident. Her Honour's finding that no notice of the accident was given to Anchorage Marine Underwriting, as Mr Gibbs had claimed, immediately after it occurred was based ultimately upon the failure of Mr Gibbs to satisfy the burden of proof which rested on him.

46 The registration of Paraglide Pty Ltd was subsequently cancelled by the Corporate Affairs Department, and the company was dissolved as from 9 January 1990. It was, however, restored to the register as from 4 November 1992 to enable it to be joined as a party to the proceedings instituted by Mrs Morrell.

47 The learned trial Judge held that, in order to succeed in a claim under a marine insurance policy, the assured "must prove a [loss by] peril of the sea". For that proposition, her Honour referred to a passage in M Davies and A Dickey, Shipping Law, 2nd edn (1995) at 495, in which the authors, citing De Vaux v Salvador [1836] EngR 304; (1836) 4 Ad & El 420; 111 ER 845, wrote: "The peril of being held liable to a third party is not a 'peril of the sea'." Her Honour held that the policy was not a contract of marine insurance and, it followed, it was a contract of insurance to which the Insurance Contracts Act 1984 (Cth) applied. Then, having referred to s 21 and s 22 of the latter Act, which relate to the insured's duty of disclosure, she held that, before the contract had been entered into, the appellant had failed to comply with s 22 in that it had not clearly informed the assured in writing of the general nature and effect of the duty of disclosure. There being no suggestion that the respondents' failure to disclose had been fraudulent, the appellant was unable to exercise any rights in respect of any failure on the part of the respondents to comply with their duty of disclosure. She went on to reject, in any event, the appellant's claim that there had been a failure to disclose alleged changes of facts or circumstances. As already indicated, she found against the respondents, however, that there had been a failure on their part to give notice of Mrs Morrell's accident to the appellant as soon as possible. Accordingly, she accepted that if she were to be wrong in holding that this was not a marine insurance policy, this failure would be fatal to the respondents' case. However, on the basis that the policy was covered, not by the Marine Insurance Act, but by the Insurance Contracts Act, it was necessary for the appellant to establish that it had been prejudiced thereby, and this it had failed to do.

48 Her Honour also had found that the policy of insurance which was issued protected Mr Soderberg, Mr Gibbs and Paraglide Pty Ltd in their respective capacities, noting in particular that nowhere was it recorded that the continued collaboration between Mr Soderberg and Mr Gibbs was important to the insurance cover. However, her Honour pointed out, on the basis that the policy was governed, not by the Marine Insurance Act, but by the Insurance Contracts Act, once again it was necessary for the appellant to establish that it had been prejudiced and it had failed to do so. In particular, it was notified by Mr Gibbs as soon as he had been advised of a claim, which was, her Honour held, not made until 1993. This appears to be somewhat inconsistent with the restoration of Paraglide Pty Ltd to the register on 4 November 1992.

49 Her Honour went on to consider the appellants' pleading that, pursuant to s 47 of the Marine Insurance Act, there was an implied warranty under the policy that the venture insured was a lawful venture, carried out in a lawful manner. If that Act applied, it was contended, it would require the assured to have all relevant approvals and also require that the vessel be used in protected waters only. The argument was that the respondents did not have the relevant approvals, and that the vessel was out of survey.

50 Her Honour noted that it was a term of the renewed policy that the respondents should have the approval of all the relevant authorities. She acknowledged that Mr Gibbs "did not have relevant approvals for the Narrows" site; but she went on to hold that Mr Harford did have all the necessary approvals for Heirisson Island and the surrounding areas. Her Honour was of the view that when Mr Gibbs came to flying Mrs Morrell, Mr Harford had allowed Mr Gibbs to "use his umbrella", noting that only "The Lone Ranger" was being used on that morning. As already noted, Mr Gibbs had taken Mr Harford and his team, together with his two customers, to the island, and the equipment being used was that of Mr Harford.

51 Her Honour also gave consideration to the provisions of s 26(1) of the Western Australian Marine Act, which prohibits a ship from plying unless a valid certificate of survey appropriate to the circumstances has been issued and is in force under the regulations in respect of the ship. "The Lone Ranger" fell within the definition of a ship in s 3(1) of the Western Australian Marine Act, being, in terms of s 23, a "commercial vessel", it not being used solely for pleasure or recreation. Her Honour acknowledged that, at the time of the incident, the boat was out of survey, but she observed that it was put into survey a few days later without any further work having to be done on it. She regarded it as important that the boat did not take passengers and was restricted to protected waters. Furthermore, there was nothing in the renewal schedule which was in operation at the time of the accident or in the standard form policy document that mentions the word "survey" or "required to be in survey". The initial schedule, however, as previously noted, did refer to permitting "Commercial Paraflying in accordance with Survey".

52 The appellant has appealed against her Honour's order that the appellant do indemnify the respondents in the actions in respect of all and any sums that the respondents may be ordered to pay to Mrs Morrell by way of damages, interest or otherwise, and the taxed costs that the respondents are called upon to pay to Mrs Morrell and Mr Harford and his company, Blue Lagoon Water Sports Pty Ltd, in the actions. The respondents have not filed any notice of contention.

53 The first ground of appeal denies that, at the time when Mrs Morrell sustained her injuries, the respondents were insured under the policy which had issued in the names of "R Sodaberg and I Gibbs trading as Paraglide Pty Ltd".

54 Her Honour referred to the evidence of Mr G Fullerton in which he indicated that he believed he was insuring a partnership. This was, he said: "Because the whole basis of my initial discussion with Soderberg was that the operation would be a partnership in circumstances where both partners would be appropriately licensed and the operation would be handled professionally and properly". He said he understood that to be the case absolutely. But he nevertheless made out the policy in the name of the company. He said the particular issues that were important to him were that Paraglide's operation was always to be legal and to comply with all regulations, permits and licences as may have been required by the relevant authorities. The fact that he was going to insure a partnership of two principals, he said, was important to him because his experience with this type of business was that the partners tended to understand each other and to run a more proficient operation. The learned trial Judge found it impossible to accept that Mr Fullerton had in mind prior to the issuing of the policy the highly professional operation, which he described, of two people committed to a business and working together. That finding cannot now successfully be challenged.

55 The foregoing issues, Mr Fullerton said, were discussed by him with Mr Soderberg and they were important. In cross-examination, he conceded that it was presented to him as a proprietary limited company consisting of two principals. He then acknowledged that they were the directors of the company and that he understood the difference between a partnership and a proprietary company. He also agreed that, on the face of the information that was given to him, there was not a partnership.

56 Her Honour summarised Mr Fullerton's evidence as being that, originally, it was contemplated that the policy should simply benefit the company, that is to say, that it should be in the name of Paraglide Pty Ltd; but shortly afterwards there was further thought given to it, and it was particularly desired that Mr Soderberg and Mr Gibbs individually should be protected by the policy. Mr Fullerton chose to express that in the way in which it was set out in the original cover note as well as in the proposal and in the two subsequent policy schedules. In the proposal, but not in the other documents, the occupation of Mr Soderberg and Mr Gibbs was given as "proprietors" of Paraglide Pty Ltd. Mr Fullerton agreed that what the parties had in mind and what he intended to signify was that the policy was for the benefit of Paraglide Pty Ltd, Mr Soderberg and Mr Gibbs in their respective capacities. Counsel for the appellant suggested that the foregoing was not the evidence of Mr Fullerton, but his evidence appearing on page 678 of the Appeal Books confirms that her Honour's summary was accurate.

57 Counsel further sought to rely upon the passage in the judgment of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, at 352, where his Honour said:

"The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.

It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But insofar as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification."

There was, in this case, no claim on the part of the respondents for rectification of the contract.

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".

59 It was nevertheless contended by counsel for the appellant that the venture insured was "a partnership" between Mr Soderberg and Mr Gibbs at the South Perth foreshore near the Narrows Bridge from late 1986, whereas the respondents' liability arose from a different and uninsured venture carried on at Heirisson Island. But the only reference to location in either the proposal or the policy is to be found in the proposal in answering "protected waters of WA as per permit" to a question regarding the waters in which the vessel would operate. This answer had clearly been filled in by Mr Fullerton. The term also appears in the two policy schedules. The position in this case is therefore quite different from that in each of the two authorities upon which the appellant relied, Wesfarmers Insurance Ltd v Cotter and Velint Pty Ltd (1990) 1 WAR 493 and Hanley v Hanley Pty Ltd (1992) 111 FLR 16. In the first of these cases, the business identified in the insurance policy under consideration was that of painters, whereas the claim related to an accident in the business of demolition. In the second case, the business was described in the proposal and policy as "retailing and servicing swimming pools", whereas the claim related to an employee of the insured being injured whilst laying a tramline.

60 It was then submitted on behalf of the appellant that an individual being insured as a member of a partnership will not be insured in relation to loss or liability arising outside the relevant partnership. The authority relied upon for this proposition was Germano v Gresham Fire & Accident Insurance Society Ltd [1924] VicLawRp 92; [1924] VLR 592. That was a case in which one of four partners signed a proposal for an employer's indemnity policy in the firm name, "The Divide Timber Company", without any identification of the partners. The partnership was subsequently dissolved, with one of the partners taking over the business and continuing it on his own account under the former firm name. Cussen ACJ and Weigall AJ, in a majority judgment, held that, on the language of the policy, and in the circumstances stated in the special case, there was no contract by the insurer to indemnify as "the insured" any person or persons who might, during the currency of the policy, be carrying on business under the firm name other than the firm as existing at the date of the policy. They were of the view that the policy could not be construed as a contract by the insurer, not merely with the members of the firm collectively or jointly, but also with each of them individually and severally. The dissentient, McArthur J, was of the opinion that the contract in the policy had reference to a "fluctuating body" rather than to specific individuals, and that it should be read as including, not only those persons who at the date of the contract constituted the firm, but also such one or more of them as from time to time constituted the firm.

61 Cussen ACJ and Weigall AJ pointed out that the employee in respect of whose claim an indemnity was being sought had never been employed by the firm but had been employed, after its dissolution, by the surviving partner solely on his own behalf, and subsequent to the firm being dissolved. The employee was never "in the direct service of the insured" which the policy required as a precondition. They went on to point out, at 599, that "[t]he question is one of intention, to be ascertained from the language of the contract construed in the light of attendant circumstances".

62 In the present case, Paraglide Pty Ltd was specified as the assured in the course of the initial telephone conversation between Mr Soderberg and Mr G J Fullerton. Almost immediately afterwards, a request was made to include Mr Soderberg and Mr Gibbs in addition to the company as being the assured. Having regard to the objective background facts as known to all the parties, their intention clearly was to cover the two individuals against any insured liability which they might incur to third parties. But there is no basis for believing that this signified an intention to exclude Paraglide Pty Ltd as one of the assured. See also Jenkins v Deane (1933) 103 LJ KB 250. This case is far removed from Germano's case. It does not follow from the fact that Mr Soderberg had ceased to be actively involved in the business that the respondents were no longer covered by the policy. In any event, as already indicated, at the time of the accident, Mr Soderberg was still the secretary of the company as well as one of its two directors and shareholders.

63 The first ground of appeal also challenged her Honour's finding that when Mr Gibbs came to flying the Morrells, Mr Harford allowed Mr Gibbs to use his "umbrella". Her Honour noted that it was not even as though there were two boats being operated at the same time. It was simply, she said, that as long as Mr Gibbs was using Mr Harford's approvals, Mr Harford did not take his boat out at all.

64 No evidence was called from the Australian Power Boat Association regarding the terms under which Mr Harford was allowed to use the leased area or the river adjoining that area. Nor was Mr Harford cross-examined on this point. Furthermore, in this case, it should not be overlooked that Mr Gibbs conveyed Mr Harford and his ground crew, as well as his two customers, to Heirisson Island from where they were to parasail. There is no suggestion that there was any parasailing undertaken by Mr Gibbs in the Association's area. It was left up in the air as to whether Mr Harford should return to Burswood after the Morrells had parasailed in order to pick up his own boat, or whether it was intended that he should use "The Lone Ranger" to tow his customers. There is nothing to indicate that Mr Gibbs' actions did not come under the "umbrella" of Mr Harford's arrangement, whatever that arrangement was, with the Association. Mr Gibbs sought Mr Harford's approval to use the Association's area to the extent which he did. Mr Harford's approval was given. On what basis it was given was not explored. The onus of proof resting upon the appellant, I am not persuaded that Mr Gibbs did not have permission to use the Burswood launching site as he did.

65 Under the Navigable Waters Regulations, published in the Government Gazette on 30 October 1987, certain navigable waters are defined and set aside for the purpose of water skiing and bathing is prohibited therein. Under those regulations, an area from the south-western extremity of Heirisson Island to a point on the South Perth foreshore 600 metres west of the prolongation of Ellam Street, South Perth, and a line drawn from a point on Heirisson Island 375 metres upstream from the northern end of the southern causeway span to a point on the Victoria Park foreshore 580 metres upstream from the south end of the southern causeway span, was set aside for the teaching and training of competition skiing by members of the Western Australian Water Ski Association.

66 It is quite unclear to me from the plans put into evidence whether Mr Gibbs would, on the balance of probabilities, have intruded into the Water Ski Association's designated area during Mrs Morrell's flight. Certainly, no oral evidence was given to this effect. Furthermore, the evidence of Mr Harford was that on the day of the accident, and prior to it, he had discussed with members of the Association whether they had completed their activities for that day. He said he always paid them a courtesy call. He was not asked whether he had secured permission for parasailing to be conducted in the water ski area by himself or Mr Gibbs.

67 It should be added that neither the Australian Power Boat Association, nor the Water Ski Association, is an "authority" within the normal understanding of that expression. Moreover, I am not persuaded that there was any breach of the Parks and Public Reserves By-law of the City of Perth, in that there was no suggestion that Mr Gibbs had hired or exposed his boat for sale without the prior written consent of the Council, that being the only part of the By-law which could conceivably have had application to Mr Gibbs' actions on the day of the accident.

68 What is clear, however, is that Mr Gibbs' boat had been out of survey since 21 October 1988, although, when a survey was conducted only a few days after Mrs Morrell's accident, no work on the boat was required to be undertaken. Mr Gibbs was aware that a current certificate of survey was required for a boat which was being used for commercial purposes. The apparent purpose in his having the survey made at this time was with a view to the sale of the boat. Furthermore, he still had no exemption from the Civil Aviation Authority pursuant to subsection 4.1 of s 95.14 of the Air Navigation Orders, although there was no evidence that Mr Gibbs had infringed the Orders on the day of Mrs Morrell's accident. Mr Harford's evidence was that in the area in which he operated, no one came within the restricted distance of 100 metres. After his application for exemption had been rejected, on the evidence, Mr Gibbs had not taken any person parasailing until he took Mrs Morrell parasailing from Heirisson Island on 30 January 1989.

69 Counsel for the appellant again pressed the argument that the respondents' liability arose from a different and uninsured venture carried on at the Burswood foreshore in January 1989. However, as previously indicated, the evidence indicates that Mr Morrell entered into a contract with Paraglide Pty Ltd in September 1988, having found the company's advertisement and contacted Mr Gibbs, whose name appeared in the advertisement, and then calling at his house in order to purchase two tickets for parasailing while leaving the fixing of a time until later. Neither the proposal, nor the policy, made any reference to the place of business, whilst against the words "Navigation Warranties" appeared, as previously noted, "Protected Waters of WA, as per permit". There is no indication of any intention or undertaking as to there being any particular location from which the business was to be conducted.

71 The second ground of appeal contends that the learned trial Judge was in error in concluding that the policy in this case was not a contract of marine insurance. This is central to the appeal, her Honour having taken the view, as already indicated, that, if the policy were in fact a contract of marine insurance, then the claim for indemnity must fail by reason of the failure of Mr Gibbs to give notice of Mrs Morrell's accident under condition 5 of the general conditions of the policy. There has been no challenge to her Honour's finding in this regard.

72 Marine underwriting has a long history in the United Kingdom, going back to the Middle Ages. For centuries it was the only form of insurance available. As to the origin of the contract of marine insurance, see Sir William Holdsworth, A History of English Law, vol 8, 2nd ed (1937), at 273 - 293. At 283, the learned author wrote:

"As we might expect, the earliest mention of a policy of insurance in England is to be found among the records of the court of Admiralty. Insurance, as was pointed out in a sixteenth-century petition to the Council, 'is not grounded upon the lawes of the realme, but [is] rater a civill and maritime cause, to be determined and discided by civilians, or els in the highe courte of the Admiraltye'."

And see also Plucknett, A Concise History of the Common Law, 5th ed (1956), at 660 - 662, and Moore v Evans [1918] AC 185, at 193 - 194.

73 What has been described as the parlous condition of many marine underwriters during the late 17th and early 18th century led the United Kingdom Parliament to enact the Statute 6 Geo I c 18, which conferred a monopoly upon the Royal Exchange and London Insurance. The preamble read in part:

"and it hath been time out of mind, a custom or usage amongst merchants as well of this realm as of foreign nations, when they make adventures at sea (especially into remote or dangerous parts) to give a premium or consideration to particular persons, to have from such assurance of or upon ships, goods or merchandizes adventured, or some of them, at such rates or prices as the parties assurers and the parties assured can agree, which kind of contract or dealing is commonly called a policy of assurance, and several laws and statutes now in force have been made concerning the same assurances."

In 1824, the legislation creating the monopoly was repealed as a result of increasing criticism of the workings of the Lloyd's market. Shipowners were then being confronted with an increasing range of potential liabilities. The introduction of Lord Campbell's Act in 1846 was said to be of particular concern to shipowners in an age of mass emigration, with the Lloyd's market showing itself to be unable or unwilling to meet the new demands with the result that shipowners were being left to their own resources to fill in the gap.

74 In the meantime, in De Vaux v Salvador (supra), Lord Denman CJ, Littledale, Williams and Coleridge JJ were called upon to consider the insurance of a ship, "La Valeur", for loss by perils of the sea. The insurance contained the usual warranty as to average. The ship having been involved in an accidental collision with another ship, and proceedings having been instituted for the damage done to the other ship, the matter was referred to arbitrators, who awarded that each ship should bear half of the aggregate loss. "La Valeur", on the settlement, had to pay a balance to the other ship. It was held that this was not a loss to which the underwriters were liable. At 431 - 432; 849 - 850, Lord Denman CJ, delivering the judgment of the court, said:

"The second point appears to be entirely new, which circumstance is not so strong an argument against it as against the former claim, because the event is likely to have been of much less frequent occurrence. But, if we look for the principle on which Fletcher v Poole (1 Park, Ins. ch. (ii). p89, 7th ed) was decided, it must obviously be that well-known maxim of our law, in jur non remota causa sed proxima spectatur. 'It were infinite' (says Bacon ...) 'for the law to judge the causes of causes and their impulsions one of another; therefore it contenteth itself with the immediate cause, and judgeth of acts by that, without looking to any farther degree'. Such must be understood to be the mutual intention of the parties to such contracts. Then how stands the fact? The ship insured is driven against another by stress of weather; the injury she thus sustains is admitted to be direct, and the insurers are liable for it. But the collision causes the ship insured to do some damage to the other vessel; and, whenever this effect is produced, both vessels being in fault, a positive rule of the Court of Admiralty requires the damage done to both ships to be added together, and the combined amount to be equally divided between the owners of the two. It turns out that the ship insured has done more damage than she has received, and is obliged to pay the owners of the other ship to some amount, under the rule of the Court of Admiralty. But this is neither a necessary nor a proximate effect of the perils of the sea; it grows out of an arbitrary provision in the law of nations from views of general expediency, not as dictated by natural justice, nor (possibly) quite consistent with it; and can no more be charged on the underwriters than a penalty incurred by contravention of the Revenue laws of any particular State, which was rendered inevitable by perils insured against."

75 A different view had previously been expressed in the United States in the decision of Story J in Peters v Warren Insurance Co, [1840] USSC 18; 39 US 99 (1840). However, De Vaux v Salvador was followed a short time later by the Supreme Court of the United States in The General Mutual Insurance Co v Sherwood, 55 US 352 (1852), in which the underwriter, although held liable to the owner of the insured vessel for damage to the vessel's hull, was held not liable for collision and cargo damages sustained by the other vessel.

76 It has been suggested that the decision in De Vaux v Salvador led to the introduction of what was termed the Running Down Clause, whereby the underwriter agreed to insure the risk of liability of the owner of the insured vessel for damage done by the vessel owing to collision with another vessel. See generally, Parks, The Law and Practice of Marine Insurance and Average, Vol 2 (1988) at 689 - 697, 832 - 845, and O'May and Hill, Marine Insurance Law and Policy (1993) at 212 - 215.

77 By way of contrast to the decision in De Vaux v Salvador, in The Excelsior Company v Smith (1860) 36 LT 90, the owners of the steamer Excelsior were held liable for the deaths of five passengers, and for injuries to another five. It was held by the Court of Session that the collision clause in that case clearly imported a claim against the underwriters for any sums which the owners might become liable to pay in consequence of a collision, whether it arose from personal injury, damage to the ship run down, or loss of cargo or freight. The clause was said to have introduced an anomaly in marine insurances and to be a new form of obligation creating new liabilities. There is a note by the reporter at the end of the brief report:

"We think it is generally understood among underwriters that the collision clause here referred to is not meant to include liability for loss of life or personal injury." The above decision points out the necessity for making the clause either include or except the liability in express terms."

This decision was rapidly followed by an addition to the Lloyd's Running Down Clause excluding such liability in express terms.

78 It has frequently been claimed that the decision in De Vaux v Salvador, and the need for shipowners to obtain cover for one-fourth of the collision liability provided in the Lloyd's policies, was the reason for the formation of the P&I clubs, although O'May and Hill op cit, at 213n, have suggested that the reason was rather the demand for cover for loss of life and personal injury as well as cover for excess collision liability over and above the sum insured. In any event, with the increase in the 19th century in the size and value of cargoes, and the consequent increase in the potential liabilities of shipowners, it became the practice of shipowners to insure themselves against some of their liabilities under a system of mutual insurance through P&I clubs. As it has been expressed, under that system, everyone insured becomes, in effect, both an assurer and an assured.

79 In Firma C-Trade SA v Newcastle Protection & Indemnity Association [1991] 2 AC 1, at 23, Lord Brandon of Oakbrook explained the role of P&I Clubs as follows:

"It is the long-established practice of shipowners to enter their ships in Protection and Indemnity Associations ("P&I Clubs") for the purpose of insuring themselves against a wide range of risks not covered by an ordinary policy of marine insurance. By so entering one or more of their ships in a P&I Club shipowners become members of that Club. P&I Clubs operate on a system of mutual insurance under which the successful claim of one member is paid out of the contributions of, and the calls made on, all the members including himself. Each member is accordingly both an insurer and an insured. Among the wide range of risks covered by P&I Clubs is liability incurred by members to cargo owners for loss of or damage to cargo carried in an entered ship.

P&I Clubs have bodies of rules governing the relationships between the club and its members and between one member and all the other members. When shipowners enter one of their ships in a P&I Club there comes into being a policy of marine insurance relating to that ship on the terms of the club's rules."

80 The main purpose of the protection and indemnity clause is to protect and indemnify the owners of, or other persons interested in or responsible for, a vessel with respect to their liability for the remainder of the damages which they may have to pay in consequence of the negligent navigation or management of the vessel and which are not recoverable under the ordinary forms of collision clause.

81 Up to the first half of the 19th century, the general view had been that it was contrary to public policy to allow anyone to insure against the results of his own negligence, or that of his servants. Carelessness was to be punished, rather than compensated or rewarded - see O'May and Hill, op cit at 212. That position subsequently changed and it became clearly established that there was no reason in public policy why a person who had been insured against third party claims arising out of accidents should not be indemnified by the insurer against such claims, even when the accidents out of which the claims had arisen had been caused by the assured's own gross negligence, provided that his negligence was not wilful, and policies began to cover negligence in navigation. See Trinder Anderson & Co v Thames & Mersey Marine Insurance Co Ltd [1898] 2 QB 144, at 128, Tinline v White Cross Insurance Association Ltd [1921] 3 KB 327, and also the Marine Insurance Act 1909 (Cth), s 61(2).

82 The wording of marine insurance policies has been harshly criticised over a long period of time. In Brough v Whitmore (1791) 4 Term Rep 206, at 210; [1791] EngR 1296; 100 ER 976, at 978, Buller J said of such a policy:

"Without commenting on the words of the policy, it is sufficient to say that a policy of assurance has at all times been considered in Courts of Law as an absurd and incoherent instrument: but it is founded on usage and must be governed and construed by usage."

83 In Forestal Land, Timber and Railways Company Ltd v Rickards [1941] 1 KB 225, MacKinnon LJ, at 246 - 247, said:

"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 ...."

84 Lord Atkin, in Trade Indemnity Co Ltd v Workington Harbour & Dock Board [1937] AC 1, at 17, described the traditional form of marine policy as "perhaps past praying for". And see also Shell International Petroleum Co Ltd v Gibbs ("The Salem") [1982] 1 QB 946, per Kerr LJ at 990, and per May LJ at 998 - 999. The terms of the present policy are not beyond reproach.

85 In the end, it is clear that, as Mustill J indicated in Continental Illinois National Bank and Trading Company of Chicago v Bathurst (The Captain Panagos DP) [1985] 1 Lloyd's Rep 625, at 628, the general approach to the construction of policies came to be to construe the words as they stood, against the background of the transaction of which they formed part, and with due regard to the need to arrive at a conclusion which made business common sense. See also Turner v Manx Line Ltd [1990] 1 Lloyd's Rep 137, per Neill LJ at 142, 143, and per Ralph Gibson LJ at 145.

86 The Marine Insurance Act 1906 (UK), of which the draughtsman was Sir Mackenzie Chalmers and who wrote the Digest now published under the name of Chalmers' Marine Insurance Act 1906, 8th edn (1976), indicated that the object of the Bill, which was introduced unsuccessfully into the House of Lords in 1895, 1896, 1899, 1901 and 1906, was to reproduce as exactly as possible the existing law without making any attempt to amend it, although he acknowledged that in some instances the Bill had to deal with questions where the law was unsettled and the framers of the legislation had to decide what they believed the law to be - cf Brennan v The King [1936] HCA 24; (1936) 55 CLR 253, per Dixon and Evatt JJ at 263: "It is not the proper course to begin by finding how the law stood before the Code, and then to see if the Code will bear an interpretation which will leave the law unaltered". See also Bank of England v Vagliano Bros [1891] AC 107, at 144, 145.

87 The Marine Insurance Act 1909 (Cth), which came into effect on 1 July 1910, was virtually identical with the United Kingdom Act of 1906, save for ss 1, 5, 6 and the numbering of the sections. The material sections for the present purposes are the following:

"4. The rules of the common law, including the law merchant, save insofar as they are inconsistent with the express provisions of this Act, shall apply to contracts of marine insurance."

"7. A contract of marine insurance is a contract whereby the insurer undertakes to indemnify the assured, in manner and to the extent thereby agreed, against marine losses, that is to say, the losses incident to marine adventure."

"8. (1) A contract of marine insurance may, by its express terms or by usage of trade, be extended so as to protect the assured against losses on inland waters or on any land risk which may be incidental to any sea voyage.

(2) Where a ship in course of building, or the launch of a ship, or any adventure analogous to a marine adventure, is covered by a policy in the form of a marine policy, the provisions of this Act, insofar as applicable, shall apply thereto; but, except as by this section provided, nothing in this Act shall alter or affect any rule of law applicable to any contract of insurance other than a contract of marine insurance as by this Act defined."

"9. (1) Subject to the provisions of this Act, every lawful marine adventure may be the subject of a contract of marine insurance.

(2) In particular there is a marine adventure where:

(a) any ship, goods, or other moveables are exposed to maritime perils, such property is in this Act referred to as "insurable property";

(b) the earning or acquisition of any freight, passage money, commission, profit, or other pecuniary benefit, or the security for any advances, loans, or disbursements, is endangered by the exposure of insurance property to maritime perils;

(c) any liability to a third party may be incurred by the owner of, or other person interested in or responsible for, insurable property, by reason of maritime perils.

"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."

88 In 1779, the members of Lloyds issued a printed form known as the Lloyd's SG (Ship and Goods Policy) which was the only standard form of marine policy in common use up to 1982 - see Davies and Dickey, op cit, at 485. The Lloyd's SG policy is set out in the second schedule to both the United Kingdom and Commonwealth Acts. This schedule also contains a number of rules for the construction of a policy in the form of a Lloyd's SG policy "or other like form". In particular, in cl 7, it provides that 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. Scrutton LJ, in his judgment in P Samuel & Co v Dumas (1922) 13 Ll L Rep 503, at 505, said of this description:

"The expression is not happy: it is not clear what kind of accident or casualty is not fortuitous, or what is an intentional accident. I imagine the draughtsman took 'fortuitous' from the judgment of Lord Halsbury in [Hamilton Fraser & Co v Pandorf & Co (1887) 12 App Cas 518 at 524] and 'accident or casualty' from the judgment of Lord Herschell in [The Xantho (1887) 12 App Cas 503 at 509] and combined the two, without any very intelligent idea of why he did so. But it is clear that there must be a peril, an unforeseen and evitable accident, not a contemplated and inevitable result; and it must be of the seas, not merely on the seas. The ordinary action of the winds and waves is 'of the seas', but not a 'peril'."

89 The Australian Law Reform Commission, in its recent Review of the Marine Insurance Act 1909, aptly described ss 7 to 10 of the Act as seeking to define marine insurance in a series of cascading definitions.

90 In Chalmers' Marine Insurance Act 1906, 8th ed (1976), in relation to the definitions of marine adventure and maritime perils, definitions which Sir Mackenzie Chalmers described as being "deliberately flexible to enable parties to cover all manner of risks they need to insure against, so long as the adventure is lawful", it was noted at 6:

"Strictly speaking, it is the risk or adventure of the assured and not the property exposed to peril, which is the subject of insurance. Ex hypothesi, the ship or goods may be lost. What is really insured is the pecuniary interest of the assured in or in respect of the property exposed to peril, in other words, the risk or adventure."

91 Section 9(1) provides that, subject to the provisions of the Act, every lawful marine adventure may be the subject of a contract of marine insurance and by s 9(2)(c) there is a marine adventure where any liability to a third party may be incurred by the owner of, or other person interested in or responsible for, insurable property, by reason of maritime perils, an expression defined in broad terms to mean the perils consequent on, or incidental to, the navigation of the sea. By s 11(1), subject to the provisions of the Act, every person has an insurable interest who is interested in a marine adventure. 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 or she may incur liability in respect thereof. As is stated in Colinvaux's Law of Insurance, 7th edn (1997), at 480, technically, it is the assured's participation in the "adventure" which is the insured subject matter.

92 As already indicated, P&I Clubs filled the gap which existed in relation to third party liabilities. In agreeing to insure members, they entered into mutual insurance within the terms of s 91(1) of the Act and, subject to the exceptions mentioned in the section, the provisions of the Act apply to a mutual insurance.

93 The question of whether a policy of insurance is a contract of marine insurance for the purposes of the Marine Insurance Act 1906 (UK) was considered by Mustill J in Continental Illinois National Bank and Trading Company of Chicago v Bathurst (The Captain Paganos DP). Section 3(2) of that Act is in identical terms to s 9(2) of the Commonwealth Act. At 631, Mustill J expressed the view that the collection of perils in the concluding part of s 3(2) was curious. It omitted a number of the risks which are set out in the old Lloyd's SG form incorporated in the First Schedule to the Act but included two which were not, namely, "captures, seizures". He expressed confidence that the draughtsman could not have intended by subs (2) to create an exclusive definition of maritime perils. The words "that is to say", in his view, had to be given the rather special meaning of "which may include, by way of example".

94 In his judgment, recourse to s 2(2) (s 8(2) of the Commonwealth Act) containing the words "or which may be designated by the policy" was a dead end and it was preferable to concentrate on the first part of the definition of "maritime perils" in s 3 (s 9 of the Commonwealth Act) which identifies the perils as those which are "consequent on, or incidental to, the navigation of the sea". It is, he said, only the exposure to perils of this nature, which gives the adventure the characteristic of a marine adventure within s 3(2) (s 9(2) of the Commonwealth Act). He said at 631:

"The question is not whether the risks covered are what may be called 'SG risks', dominated as these are by the very restricted interpretation given by the Courts to 'perils of the sea', but whether they are 'consequent on or incidental to the navigation of the sea'."

"Thus, one turns to ask in the present case, not whether the insurance created by the MI policy looks like a traditional marine insurance (which it does not); nor whether the cover resembles the list at the end of section 3 (which again it does not); but rather, whether the perils insured under that policy are, at least in the main, 'consequent on or incidental to the navigation of the sea'. It seems to me that they are; that the MI policy in its unorthodox way therefore serves to insure a marine adventure; and that, accordingly, it is a contract of marine insurance within the meaning of s 1. In principle, therefore, the MI policy is subject to all the relevant provisions of the 1906 Act."

96 Originally, marine insurance covered only "maritime" perils. In order to satisfy the requirements of modern commercial trade, policies were extended to cover additional risks arising on inland waters, and on lands which were "incidental" to sea voyages. This was confirmed in the Marine Insurance Act 1909 (Cth), s 8(1) (s 2(1) (UK)).

97 In Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226, the Court, comprising Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ, said at 242:

"A further argument advanced by the appellant was that, whatever view is taken in contracts of general insurance, one of the policies to which this action relates is a policy of marine insurance and therefore governed by s 59(1) of the Marine Insurance Act 1909 (Cth) [which in the absence of agreement makes the broker directly responsible to the insurer for the premium] .....

The policy in question, No 82B70875J, is one for the insurance of Con-Stan's stock in trade from a variety of risks from 1 December 1977 until 1 December 1978. These risks are described in the proposal completed by Bedford as including 'transit risk - road rail sea air parcel post'. Section 2 of the contract of insurance states that the property is insured in transit 'from place and/or places in Australia to place and/or places in Australia per any means of conveyance including loading and unloading'. The appellant submits that because this contract contemplates or at least includes the insurance of goods during their transit by sea, it is a marine policy within the meaning of s 59(1). It says there is no evidence that the marine risks are so trifling that they can be ignored on the de minimis principle and it is further said that a policy which includes the insurance of marine risks is a 'marine policy' and does not cease to have that character merely because it may also be characterised as a non marine policy.

The term 'marine policy' is not expressly defined by [the Marine Insurance Act 1909 (Cth)], but it is apparent from s 28 that it is a reference to a contract of marine insurance that complies with the requirements of Pt II Div 5."

The court held that the policy did in fact comply with those provisions and the question was whether the policy was a "contract of marine insurance". Then, having referred to s 7 and s 9, the court continued at 242 - 243:

"A contract which indemnifies the assured against losses incident to a marine adventure does not cease to be a contract of marine insurance because it also protects the assured against land risks which are incidental to a sea voyage (s 8(1)). But a contract indemnifying the assured against losses which are not substantially incident to marine adventure is not a contract of marine insurance: Leon v Casey [1932] 2 KB 576 at 590. No evidence has been led to illustrate the importance of such part of the transit risk as involved the carriage of goods by sea in the context of the whole policy. An examination of the terms of the policy indicates that it is but one small part of one section of the cover afforded. It cannot be said, therefore, that the policy, viewed in its entirety, is one which indemnifies the assured against losses that are substantially incident to marine adventure. Accordingly, the policy does not fall within the ambit of s 59 of the Act."

98 In Hansen Development Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd [1999] NSWCA 186, the Court of Appeal in New South Wales was concerned with a case not dissimilar to the present case, in which, coincidentally, the same agent and the same insurer were involved. The plaintiff had instituted proceedings against the appellant which conducted the Cabarita Gardens Lake Resort by Cugden Lake in New South Wales. One of the attractions offered by the resort was the availability of "wave sled" rides on the lake, which involved being towed behind a power boat. The appellant had an insurance policy with the respondent insurer, which appears to have been in very similar terms to the policy in issue in this case. The plaintiff claimed damages for injuries received as a consequence of the appellant's negligence or breach of contract in operating her "wave sled ride". The Court of Appeal in a previous decision had held that wave sledding was akin to aquaplaning and not akin to water skiing.

99 As in the present case, the formal parts of the appellant's insurance policy set out such information as "vessel name", "hull details", "motor details" and "navigation warranties". It also imposed a maximum speed limit of 40 knots on the power boat. There then followed a warranty:

"Warranted: That Sections 1 + 2 of the Policy are deleted, the Policy being restricted to Third Party only. Further Warranty 1 is amended to permit Commercial Water Skiing and hire of the vessels as per approvals notwithstanding all other terms and conditions."

100 Section 1 of the printed policy related to physical loss or damage to the vessel, and theft. Section 2 dealt with salvage charges and other similar expenses. Section 3 of the policy contained the third party cover. It was extended to include commercial water skiing and commercial paraflying in relation to two identified vessels, with a third identified vessel being capable of being substituted for one of the first two vessels in the event of its being removed from service. Section 3 of the policy was extended to include commercial skiing only in respect of a fourth vessel. Section 3 was further extended to cover 30 unpowered hire craft, used as hire craft "as per permit". The relevant portions of s 3 of the policy before the Court of Appeal in New South Wales and before this Court are identical.

101 The appellant denied liability and it also issued a third party notice against its insurer, claiming breach of contract of insurance and alleging that it had been given negligent advice by the insurer, through its agent. It later issued a third party notice against the agent directly, alleging negligent advice and a failure on its part to effect adequate insurance cover.

102 Meagher JA, with whose judgment Priestley JA and Stein JA agreed, regarded the policy before the Court of Appeal as a public liability policy, but he then had to consider whether it was also a contract of marine insurance "or, more appropriately, a contract to which the Marine Insurance Act 1909 applied". His Honour acknowledged that this was a question which was difficult to answer. He said:

"[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."

103 In the circumstances, the Court dismissed the appellant's claim against the insurer (the first respondent) but allowed it against the agent (the second respondent).

104 An application was made by the agent and the insurer to the High Court for special leave to appeal against the decision of the Court of Appeal, seeking to argue that a public liability risk could be treated as a marine insurance risk. The application was heard by Gummow and Callinan JJ, who refused leave, having regard to the particular circumstances of the litigation which were identified in pars 14 and 15 of the reasons for judgment of Meagher JA, it being said that various questions of construction of the Marine Insurance Act would not necessarily arise for the resolution of an appeal.

105 Paragraphs 14 and 15 of the reasons of Meagher JA upheld the trial Judge's finding that the agent was liable in negligence to the appellant on the basis that, if it had done as it was asked, the appellant would have been covered.

106 Unlike the position in Hansen Development Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd, the act of negligence in the present case took place not on an inland lake but on an estuary, being the Swan River estuary. An estuary is described as the interface between the ocean and a river, in which salinity changes are found. The waters of the Swan River around South Perth, Heirisson Island and Burswood, being affected by tidal movements of the ocean, are properly described as estuarine. The river has a permanent opening to the ocean and is tidal as far upstream as Woodbridge, near Guildford. At some times of the year the estuary is salty and at other times it is fresh, the saltiness coming from the connection with the Indian Ocean.

107 The Marine Insurance Act does not define the expression "the sea", for the purposes of that Act, and I have been unable to find in the reported authorities any definition of that expression as used in the Act. There are numerous definitions of "sea" to be found in legislation; but they vary substantially, having regard to the purpose and subject matter of the legislation. The following definitions appear to be the most useful.

108 The Admiralty Act 1988 (Cth), by s 3(1), defines "sea" in the chapter on oil pollution to include all waters within the ebb and flow of the tide. The Merchant Shipping Act 1995 (UK), by s 131(4), defines "sea" in the chapter on oil pollution to include any estuary or arm of the sea. The Navigation Act 1912 (Cth), by s 6, defines "sea" to include any waters within the ebb and flow of the tide.

109 As previously noted, the High Court of Admiralty had jurisdiction with respect to marine insurance. That Court had jurisdiction in rivers within the ebb and flow of the tide. R v Carr [1882] 10 QBD 76 was a Crown Case Reserved, dealing with a charge of larceny of valuable securities from a British ship in a foreign port. The place where the ship lay at the time of the theft was in the open river, 16 or 18 miles from the sea but within the ebb and flow of the tide. It was held that the larceny took place within the jurisdiction of the Adminalty Court in England. Lord Coleridge CJ based the jurisdiction of the court on the fact that the place of the larceny was within the ebb and flow of the tide "where the great ships are accustomed to go" and that the ship was accustomed to go there in the course of its trading. Pollock B and Lopes J based the jurisdiction of the court on the fact that the ship was on the high seas "where great ships do go". As part of the case stated, it was noted that there was no bridge between the ship and the sea. But this has not been a factor, so far as I have been able to ascertain, in any other case, and while such a factor might have been acceptable in 1882, in the face of modern technology it can no longer be accepted.

110 In The Tolten [1946] P 135, the Court of Appeal was concerned with the jurisdiction of the High Court. At 158, Scott LJ said:

"But the importance of the decision of this court in the Mecca [[1895] P 95] is the unequivocal ruling that wherever the tide does ebb and flow, ie, wherever ships go, is included within the jurisdiction of our admiralty court. The place where the plaintiffs allege that the Tolten was guilty of negligent navigation was in tidal waters, as she was proceeding out to sea. It is therefore clear that so far as locality is concerned, our admiralty court had jurisdiction."

"Where claims were made by individuals for personal injuries, similarly caused (though not Lord Campbell's Act until the Maritime Conventions Act, 1911 conferred the right to sue in rem_;_ and so brought our admiralty law into line on that point with Continental law)."

See also R v Liverpool Justices; Ex parte Molyneux [1972] 2 QB 384.

111 American authorities are to the same effect. In Waring v Clarke[1847] USSC 24; , 46 US 441 (1847), Wayne J, delivering the opinion of the Supreme Court of the United States, indicated at 462 that the admiralty jurisdiction extended into "not only high sea, but arms of the sea, waters flowing from it into ports and havens, and as high upon rivers as the tide ebbs and flows". This decision was concerned with the jurisdiction of both admiralty and maritime courts.

112 In Baker v Hoag, NY Cas 555 (1853), it was held that admiralty jurisdiction extended to places within the ebb and flow of the tide, whilst in United States v Rodgers[1893] USSC 238; , 150 US 249 (1893), the United States Supreme Court held that the open waters of the Great Lakes were "high seas" for the purpose of exercising criminal jurisdiction. In Mannheim Insurance Co v Charles Clarke & Co, 157 SW 291 (1913)), the Court of Civil Appeals of Texas was concerned with whether a vessel, which had been lost in a river in which the tide from the Mexican Gulf ebbed and flowed, had been lost "in the Gulf waters of the United States between Key West and the mouth of the Rio Grande River" in the terms of a policy of marine insurance. It was held that the vessel had been lost in Gulf waters within the purview of the policy, the expression "gulf waters", like the word "sea", including not only the high seas, but the bays, inlets and rivers as high up as the tide ebbs and flows. Cf the facts of Republic of Bolivia v Indemnity Mutual Assurance Co Ltd [1909] 1 KB 785.

113 In Joyce v Kennard (1871) LR 7 QB 78, which predated the Marine Insurance Act 1906 (UK), the plaintiffs were lightermen, and they effected an insurance in the form of an ordinary Lloyd's policy, "at and from all wharves on the Thames, from Wandsworth to the Victoria Docks," which contained the following clause: "To cover and include all losses, damages, and accidents amounting to [sterling]20 or upwards in each craft, to goods carried by [the plaintiffs] as lightermen, or delivered to them to be waterborne, either in their own or other craft, and for which losses, damages and accidents [the plaintiffs] may be liable or responsible to the owners thereof, or others interested." At 82, Mellor J said:

"I am of opinion that our judgment should be for the plaintiffs. This is not strictly a marine insurance; it is a contract by which the defendant indemnifies the plaintiffs against any liability which they may incur as carriers to the owners of the goods entrusted to them, and we must construe the words which have been used according to their ordinary meaning, and their meaning as that for which the plaintiffs contend."

114 Lush J was of the same opinion, saying at 82: "This is an exceptional policy, and we have only to construe the language used". At 83, he added: "It is not an ordinary marine policy, but a policy of a mixed nature, the object of which was to secure to the plaintiffs an indemnity to the extent of the sum subscribed for, for any loss during the year which they might sustain by reason of their being responsible as carriers for the loss of the goods". Hannen J concurred.

115 Sankey J, in Holman & Sons Ltd v Merchants' Marine Insurance Co Ltd [1919] 1 KB 383, indicated that Joyce v Kennard, together with Cunard Steamship Co v Marten [1902] 2 KB 624; [1903] 2 KB 511, were concerned with policies which were exceptional instances of insurance against liability, the ordinary rule in marine policies being that the assured is entitled to prove that part only of the subject matter of the policy is covered and to limit his payment proportionately. In the result, Sankey J said, at 387: "I think the policy is one of the usual marine policies upon a res with the ordinary ancillary clauses, and not one of the unusual policies against a liability".

116 In Mountain v Whittle [1921] 1 AC 615, the House of Lords was concerned with a time policy of marine insurance on the plaintiff's houseboat "whilst anchored in a creek off Netley, however employed, with liberty to shift," against the usual perils. The policy contained a clause: "Including all risk of docking, undocking, changing docks and going on gridiron or gravity docks as may be required during the currency of this policy". The vessel was at the time anchored in the river Hamble, Southampton Water, which, it was agreed, came within the words "in a creek off Netley". While being towed from the Hamble up Southampton Water to a yard on the river Itchen above Southampton Docks, a distance of about seven miles, the bow wave made by the tug raised the water to the level of defective side seams above the water level. Water entered and caused the houseboat to sink. The House of Lords confirmed the decision of the Court of Appeal that the vessel was lost through a fortuitous peril of the sea by reason of the incidence and dimensions of the wave. No issue was raised in this case as to the tidal area not forming part of the sea for the purposes of the policy.

117 In the present case, the insurance cover was initially taken out to satisfy the requirements of the City of South Perth. With the exception of the occasion on which Mrs Morrell sustained her injuries at Heirisson Island, "The Lone Ranger" was used for commercial parasailing at the Narrows site only. Both sites were estuarine, being waters within the ebb and flow of the tide and, in my opinion, they are to be regarded as the "sea".

118 In these circumstances, I am of the opinion that the policy was a contract of marine insurance, being a contract by which the appellant undertook to indemnify the assured against losses incident to a marine adventure within the meaning of s 9(2)(c) of the Marine Insurance Act 1909. The fact that the renewed policy covered only liability to a third party did not result in its ceasing to be a contract of marine insurance.

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.

120 There is another obstacle which the respondents face, that being a breach of condition 1 of the conditions relating to accidents and claims, in that, as her Honour found, the respondents failed immediately to notify the appellant of the accident. Only when a claim was made by Mrs Morrell, some four years after the accident, did Mr Gibbs give notice of the accident. Her Honour correctly indicated that, if the policy were a policy of marine insurance, this finding would be fatal to the respondents.

121 Furthermore, there was also a breach of condition 5 of the general conditions applying to the policy in that the respondents failed to give immediate notice in writing of material changes of the facts or circumstances which existed at the commencement of the insurance. In particular, there was a failure to give notice of the suspension in 1988 of Mr Soderberg's certificate of competency, of the caution given to Mr Gibbs and of the reasons given for the Department of Marine and Harbours taking that action.

122 In the circumstances, in my opinion, the respondents' claim against the appellant fails, and I would allow the appeal accordingly.

123 If I should be in error with respect to the contract being a contract of marine insurance, then it appears to me to be probable that, pursuant to s 54 of the Insurance Contracts Act, the prejudice to the appellant's interests resulting from the respondents' breach of condition 5 of the general conditions of the policy, in their failing to give notice of the inquiry into the parasailing accident in February 1988, which resulted in Mr Soderberg's suspension and Mr Gibbs being cautioned, was that the appellant lost the opportunity of cancelling the policy and that the liability imposed by s 54(1) should therefore be reduced to nil - see Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Ltd [1993] HCA 5; (1993) 176 CLR 332. The difficulty with this, however, is that the learned trial Judge

made insufficient findings of fact, findings which depended to some degree upon the credibility of Mr Fullerton.

124 MURRAY J: I respectfully agree with Kennedy J that this appeal must be allowed. I have nothing to add to these reasons published by his Honour.

125 OWEN J: I have read the reasons of the Hon Justice Kennedy. I am in agreement with those reasons and have nothing further to add.