Norwest Refrigeration Services Pty Ltd v Bain Dawes - [1984] HCA 59 - HCA 1975 case summary — Zoe

CTHHCA

Norwest Refrigeration Services Pty Ltd v Bain Dawes

[1984] HCA 59

High Court of Australia|1975-04-14|Before: Dawson JJ, Olney JJ

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Source facts

Court

High Court of Australia

Decision date

1975-04-14

Before

Dawson JJ, Olney JJ

Source

Original judgment source is linked above.

Judgment (52 paragraphs)

[1]

High Court of Australia Gibbs C.J. Mason, Wilson, Brennan and Dawson JJ. Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd [1984] HCA 59

[2]

1984, Oct. 2 Gibbs C.J., Mason, Wilson and Dawson JJ.

[3]

At all material times the first respondent ("Norwest") was the owner of a fishing vessel (the Sonoma) licensed, pursuant to the Fisheries Act 1905 W.A., as amended, to fish in Western Australian waters. In April 1975 Norwest's banker insisted that the Sonoma, at that time uninsured, be insured. The vessel was then fishing in the area of Port Walcott in Western Australia and was in the charge of Mr. Matthews, a director of Norwest. In conversation with an employee of the appellant ("the Co-operative") at Port Walcott, Mr. Matthews learned that it was possible for members of the Co-operative to obtain insurance at reduced rates through that organization. Norwest had recently become a shareholder and member of the Co-operative. Mr. Matthews then telephoned the head office of the company in Geraldton and spoke to the office manager, Mr. Murray. He stated simply that he wished to insure the Sonoma. Mr. Murray told him that could be arranged and sent him a proposal form to be completed. Mr. Matthews completed the form promptly and returned it to Mr. Murray on 14 April 1975. At that time he did not know whether the Co-operative was itself the insurer or who the underwriter or broker was to be. Mr. Murray forwarded the completed proposal form to the second respondent, the broker ("Bain Dawes"), who arranged with the insurer to have the Sonoma added to a fleet policy maintained by the Co-operative. That policy contained a clause which excluded liability in the case of a vessel which did not have a current certificate of survey issued pursuant to the provisions of the Western Australian Marine Act 1948 W.A., as amended, ("the Marine Act"). The Co-operative and Bain Dawes both knew of the exclusion clause but unfortunately neither Norwest nor Mr. Matthews was ever informed of it. The proposal form did not mention it. The Sonoma's survey certificate had expired in March 1974 and although the annual fee had been paid promptly by Mr. Matthews at that time no survey was then undertaken and no certificate issued. In consultation with Mr. Fred Connell, the Manager and Secretary of the Co-operative, Mr. Matthews arranged for a hull survey to be undertaken while the Sonoma was slipped in Geraldton early in 1975 but other aspects of the survey remained to be completed before a certificate could issue. This was still the position in May 1975 when the Sonoma was destroyed by fire while moored at a wharf at Cossack in the Port Walcott area. The insurer, relying on the exclusion clause, declined liability.

[7]

We turn now to the appeal by the Co-operative. The existence of a contractual obligation is in issue but it is convenient first to examine the facts in the context of the negligence claim. The Co-operative concedes that it was under a common law duty of care, (a) to use reasonable endeavours to obtain similar cover for Sonoma to that enjoyed by other members subject to any specific instructions or requirements made known to it by Norwest, and (b) to use a reasonable degree of care and skill in such endeavours. It complains that in effect the Full Court treated it as if it were a professional broker, thereby imposing too high a duty of care. In brief, the view of the facts for which the Co-operative contends may be summarized as follows: (a) It is admitted on the pleadings that in January 1975 Mr. Matthews informed Mr. Connell that the Sonoma did not then have a current survey certificate. (b) Active steps were then being taken to have the survey carried out. (c) Thereafter the Sonoma sailed from Geraldton to Port Walcott. (d) Between arrival at Port Walcott and April when Mr. Matthews requested that insurance cover be arranged the Sonoma had delivered fish to the Co-operative's depot at Port Walcott. (e) Nothing was said by Mr. Matthews when seeking insurance to suggest that the Sonoma was or might be out of survey. (f) The proposal forms completed by Mr. Matthews did not raise any question respecting survey. To the question "Date of last hull survey" it contained the answer "1973", but such a survey was good for two years and there was no reason to suppose from reading the document that the two years had already expired by April 1975. (g) Although Mr. Matthews enclosed with the proposal form the certificate of survey which had expired in March 1974 that document was not directly relevant to the proposal. It is submitted for the Co-operative that the most significant fact in the whole course of events is that the Sonoma was going to sea and fishing in March and April 1975. If the Sonoma was not the subject of a current survey certificate then in so doing it was in breach of s. 43 of the Marine Act. It was not to be supposed that it was engaged in an unlawful adventure and there was no basis in those circumstances for imputing a duty to inquire or to warn.

[8]

On the other hand, a somewhat different picture emerges from Mr. Connell's own evidence. He explained that the Co-operative was there to protect and further the interests of its members. It had negotiated the fleet policy in about 1970 in order to secure a better deal for those members. The exclusion of liability in respect of a vessel out of survey was fundamental to the objective of securing the reduced premiums. The members were encouraged to take out insurance and the officers of the Co-operative generally kept them well advised of what was required under the terms of the policy, including the necessity of maintaining current survey certification at all times. In cross-examination, Mr. Connell said that he himself was "endlessly" telling fishermen they must have a current survey certificate. Unfortunately, the system broke down where Mr. Matthews was concerned. The trial judge found that he did not know of the exclusion clause and that the Co-operative did not tell him. It is common ground that the proposal form did not carry any warning in that regard. From Mr. Matthews' point of view nothing could be more simple. The Co-operative was willing to arrange insurance as a service to its members. It seems that he was willing to leave it to them to obtain the insurance cover subject only to the requirement that it be for comprehensive and total loss with no excess. There is an express stipulation to that effect in the proposal form, though this is not in Mr. Matthews' handwriting. But there can be no doubt that the stipulation had Mr. Matthews' acquiescence. He knew nothing about any fleet policy nor the name of any proposed insurer or broker. So far as the proposal form was concerned it was consistent with the Co-operative itself being the insurer. In these circumstances, we are unable to accept the submission of Mr. Malcolm for the Co-operative that its function was no more than an intermediary, acting in a voluntary capacity, for the transmission of a proposal for insurance to the insurer via the broker. With all respect, we agree with the conclusion expressed by Olney J.:

[9]

In my opinion the Co-operative held itself out as being prepared to arrange insurance for such of its members who requested this to be done. This being so the Co-operative was under a duty to exercise proper care to ensure either that it arranged insurance of the type requested by the members or that it warned a prospective insured of the limitations that would be contained in any insurance cover that it arranged for the member. As Olney J. observed, this conclusion determines the issue of breach of duty against the Co-operative without regard to the question whether it knew or ought to have known that the Sonoma, in fact, was out of survey. An affirmative inference to this effect was held by Wickham and Wallace JJ. to arise from a mere perusal of the information contained in the completed proposal form coupled with the expired survey certificate. In this regard, Mr. Malcolm argues that such an inference should not have been drawn, particularly when any knowledge which came to the Co-operative from those documents was overborne by the actual knowledge of the Sonoma going to sea and fishing at material times. However, leaving aside the conclusion of Olney J. based on the general relationship between the Co-operative and its members, it would in our opinion be sufficient to give rise to a duty to inquire of Mr. Matthews whether the vessel was in survey or to warn him of the exclusion clause if the information he provided, including the expired certificate, did no more than raise a question concerning the possible relevance of the exclusion cause. Evidence relevant to the issue of the inference which was or might have been drawn from the proposal form and the expired certificate might well have been given by Mr. Murray, the office manager for the Co-operative, who received the documents from Mr. Matthews and who detached the certificate and forwarded only the proposal form to Bain Dawes. In the course of cross-examination by counsel for the Co-operative of witnesses called for Norwest, questions were put which foreshadowed that Mr. Murray would be called to give evidence. However, he was not called and to that extent the Co-operative is less equipped to contest the drawing of an adverse inference from the documentation. It is also relevant to observe that the only communication with Mr. Matthews after making his request for insurance cover was a telephone call from an officer of Bain Dawes to his banker confirming that cover had been arranged. That call was made at the request of the Co-operative. On 5 May 1975 the insurer sent to the Co-operative through Bain Dawes an indorsement slip stating that the fleet policy had been extended to include the Sonoma and referring specifically to the warranty as to survey. But this was not communicated to Norwest.

[14]

The second possible course was to obtain temporary insurance cover against port risks only to cover the Sonoma whilst it remained at the wharf in Cossack. There was evidence from officers employed by Bain Dawes that such cover was available and for a premium which was, if anything, less than that payable under the Co-operative's fleet policy. Mr. Matthews in evidence said nothing to indicate that he would have resorted to a port risks policy in the hypothetical circumstances now under consideration. But there can be no doubt that the Co-operative would have pursued that avenue in consultation with Bain Dawes once the full circumstances were known to it. In so doing, the Co-operative would be protecting its own interests as well as those of its member Norwest because it had advanced moneys to Norwest to have repairs carried out to the Sonoma whilst it was slipped in Geraldton in January. Mr. Connell testified to the practice of the Co-operative in such circumstances to ensure that a vessel was insured in order to protect its investment. All the members of the Full Court concluded that the proper inference to be drawn from the evidence of Bain Dawes' officers was that satisfactory alternative cover would have been available to the Sonoma notwithstanding that it was out of survey. Mr. Malcolm attacks this finding as based on a misapprehension, namely, that the vessel would remain tied up at the wharf until the survey was completed. His case was that one could not find an insurer who would be prepared to cover a vessel which was going to sea without a certificate of seaworthiness, and hence in breach of the statute. It followed that Norwest's entitlement to damages rested on the valuation of its chance of obtaining alternative insurance: cf. Chaplin v. Hicks [1] . That chance was so slight as to be valueless. However, as we have already indicated, the difficulty with this approach is that it assumes that Mr. Matthews would have persisted in the unlawful adventure even if the Co-operative had handled his request for insurance cover with reasonable care.

[16]

By its appeal, Norwest seeks the inclusion in the sum of damages awarded to it a sum representing the loss it has suffered by being deprived of the insurance moneys since 1975. It argues that if the Sonoma had been covered effectively under the fleet policy then it would either have received the sum insured from the insurer in 1975 or if it became necessary to sue the insurer it would probably have received the sum insured plus interest on that sum pursuant to s. 33 of the Supreme Court Act 1935 W.A.. On this basis, Norwest claims that the interest is an integral part of the damages themselves. It is not merely a case of seeking interest on a sum assessed as the damages flowing from a tort. In our opinion, however it be put, the argument cannot succeed. At common law, no court could award interest in a case such as this, whether by way of interest on damages or as damages: London, Chatham and Dover Railway Co. v. South Eastern Railway Co. [2] ; Riches v. Westminster Bank, Ltd. [3] ; and cf. Halsbury's Laws of England, 4th ed., vol. 12, par. 1179. Authority to make such a provision must therefore be found in statute. The only provisions which are suggested as being of any possible relevance are ss. 32 and 33 of the Supreme Court Act. On its terms, s. 32 applies only to authorize a court or jury to allow interest to a creditor "upon all debts or sums certain". Section 33 authorizes a court or jury to give damages in the nature of interest in certain actions, none of which are applicable here. Sections 32 and 33 were repealed and a new s. 32 substituted by amending Act No. 47 of 1982. The new section enlarged the powers of the Court with respect to the payment of interest between the date when the cause of action arose and the date of judgment in terms similar to provisions now in force elsewhere in Australia: cf. s. 94, Supreme Court Act 1970 N.S.W.. However, this section came into force after the delivery by the Full Court of its decision on the appeals in this case and cannot assist Norwest to gain compensation for the ravages of inflation since 1975 which will have seriously denuded its damages of their real value: see Victorian Stevedoring and General Contracting Co. Pty. Ltd. and Meakes v. Dignan [4] .

[21]

The resolution of an issue of this kind will always depend upon the circumstances of the particular case. This case illustrates the importance of the manner in which the insurance is secured. If Mr. Matthews had consulted Bain Dawes directly, the submissions advanced by Mr. McCusker would exert great force. The decision of the Court of Appeal in McNealy v. Pennine Insurance Co. Ltd. [8] , upon which he relied, would be most persuasive: but see, also, Fanhaven Pty. Ltd. v. Bain Dawes Northern Pty. Ltd. [9] . However, Mr. Matthews did not have any personal contact with Bain Dawes. He did not even know of its role in the arrangement of the insurance for the Sonoma. He consulted the Co-operative of which Norwest was a member. The Co-operative then took steps to have the Sonoma covered under a fleet policy which already covered the fishing vessels of approximately 100 of its members. This policy had been negotiated with the insurer by the Co-operative in conjunction with Bain Dawes. There was a recognized system. A member would approach the Co-operative for insurance and would complete the proposal form. The form would then be forwarded by the Co-operative to Bain Dawes which would in turn send it on to the insurer. The exclusion clause was an important feature of the policy and the Co-operative regularly stressed its importance to the members. In these circumstances, we think it was reasonable for Bain Dawes to proceed on the basis that the Co-operative in the performance of its role of caring for its members would have made any specific inquiry that was considered necessary in a particular case and that it was sufficient for it simply to act as an intermediary between the Co-operative and the insurer consistently with any specific instructions received from the former. The fact that an officer of Bain Dawes telephoned Norwest's banker to inform him that the Sonoma was covered is immaterial to this question. That telephone call was made at the express request of the Co-operative at a time when Bain Dawes, without seeing the proposal form, had arranged temporary cover as instructed. In all the circumstances Bain Dawes was not in breach of its duty to Norwest.

[36]

It took no special skill or competence for the Co-operative to know that the fleet policy gave no effective cover to vessels which did not possess a current survey certificate. Indeed, Mr. Fred Connell was accustomed to reminding the members of the Co-operative of the need to maintain current survey certificates. It took no special competence for Mr. Murray to inquire whether the Sonoma possessed a current survey certificate. As Mr. Murray was not called to give evidence, it is unknown whether he appreciated the significance of the expired survey certificate which Mr. Matthews had sent to him. In the absence of any explanation from him, the proper inference to draw is that he was negligent in failing to appreciate that the Sonoma was not possessed of a current survey certificate. Had he appreciated that fact, it should have been clear to him that Mr. Matthews' commission to arrange insurance could not be carried out by seeking an extension of the fleet policy to include the Sonoma. Yet Mr. Murray persisted in that course, failing to advise Mr. Matthews that the Co-operative could not obtain effective insurance of the Sonoma by that means. Once Mr. Murray became aware or ought to have become aware that effective insurance could not be obtained by seeking an extension of the fleet policy, he (as the officer upon whom the performance of the Co-operative's duty had devolved) ought to have told Mr. Matthews of the Co-operative's inability to obtain the cover requested. There is no ground for exempting a gratuitous agent from such a duty once he enters upon the carrying out of the commission entrusted to him and knows or ought to know that he cannot fulfil it. If an agent does not promptly advise his principal of a failure to obtain the insurance sought "he deprives the other of any opportunity of applying elsewhere to procure the insurance" (per Ashhurst J. in Smith v. Lascelles [17] ). The duty of the agent to give his principal an opportunity of applying elsewhere for cover is implicit in the agent's undertaking of the commission to obtain insurance. In Callander v. Oelrichs [18] , Bosanquet J. said [19] :

[37]

The jury were warranted in concluding, that if the Defendants were to effect an insurance upon the terms in question, they undertook to give notice in case of failure: that undertaking arises out of the nature of the case, and the relation in which the parties stood to each other: and according to the principle laid down in Smith v. Lascelles if a merchant is led, from previous transactions, to expect that his correspondent will effect an insurance, he has a right to rely on his discharging that duty, unless he receives a letter to the contrary. Whether that expectation arises from previous dealings, or from an undertaking to insure in the particular instance, can make no difference; and Buller J. says, "Where the merchant abroad has no effects in the hands of his correspondent, yet, if the course of dealing between them be such, that the one has been used to send orders for insurance, and the other to comply with them, the former has a right to expect that his orders for insurance will be obeyed, unless the latter give him notice to discontinue that course of dealing." Although Callander v. Oelrichs was not a case of gratuitous agency, the scope of the undertaking which gave rise to the duty in that case is no different from the scope of the undertaking given by an agent who undertakes gratuitously a commission to arrange insurance. There can be no difference between the two cases once the person who has undertaken to arrange insurance knows or ought to know that he cannot fulfil the commission. No special skill or competence is then required either to advise the principal that the insurance requested cannot be obtained or to appreciate the consequences of a failure promptly to advise of that fact. The duty of the Co-operative to advise may therefore be stated as Scrutton L.J. stated the duty of a contractual agent in Hood v. West End Motor Car Packing Co. [20] : "If he is unable to procure the policy, he must at once inform his principal of his inability to do so." 1. (1788) 2 T.R. 187, at p. 188 [100 E.R. 101, at p. 102]. 2. (1838) 5 Bing. (N.C.) 58 [132 E.R. 1026]. 3. (1838) 5 Bing. (N.C.), at p. 65 [132 E.R., at p. 1029]. 4. [1917] 2 K.B. 38, at p. 47.

[43]

The finding in favour of Norwest against the Co-operative led the Full Court to an assessment of Norwest's damages. Their Honours assessed damages in the sum of $81,468.14 being the sum for which cover was sought and for which the extension of the fleet policy provided ($84,000) less the premium charged ($2,531.86). The Co-operative submits that that assessment exceeded the value of what Norwest lost in consequence of the Co-operative's negligence. The Co-operative's negligence was not the cause of Norwest losing cover under the fleet policy; that cover was lost by the Sonoma being out of survey and without a survey certificate. The Co-operative's negligent failure to inform Mr. Matthews that it had not obtained effective insurance for the Sonoma caused Norwest to lose an opportunity of applying elsewhere to obtain a policy which would have given it effective cover pending the obtaining of a survey certificate, or an opportunity of trying to have the machinery and equipment survey completed and a survey certificate issued so as to satisfy the conditions of the fleet policy. But the damage which Norwest suffered was the absence of effective insurance, at the time when the Sonoma was lost. The onus was on Norwest to prove that that damage was caused by the Co-operative's negligence. It had to prove that it would have had effective insurance at the time but for the loss of one of the opportunities mentioned. It is one thing to say that it lost the opportunity to apply elsewhere for a policy, it is another thing to say that Norwest would have applied and would have obtained effective insurance before the Sonoma was lost. Again, it is one thing to say it lost an opportunity to have the machinery and equipment survey completed, a survey certificate issued and the conditions of the fleet policy satisfied before the Sonoma was lost, and another thing to say that those steps could and would have been taken. Before Norwest's cause of action was established it had to prove that it could have and that it would have taken steps which would have resulted in effective insurance of the Sonoma at the time of her loss.

[49]

When Mr. Matthews was asked in evidence what he would have done if he had been told that the relevant policy contained a condition that Harbour and Light certification was required, he answered: "I would have automatically gone back to the Harbour and Light to rectify it or get some type of documentation from them, whatever the insurance company required". There was no direct evidence that a current survey certificate could have been obtained before the Sonoma was lost but it seems that the chief delaying factor would have been the rectification of some defect in the hydraulic system, which might well have been rectified in the five or six weeks available before the loss occurred. In my opinion, though the material is extremely slender, the evidence in the printed record and the concession made warrant a finding on the balance of probabilities that Norwest would have been indemnified for the loss of the Sonoma under some policy of insurance if it had been promptly informed by the Co-operative that it had not obtained effective insurance as requested by Mr. Matthews. That finding, in conjunction with evidence of Mr. Matthews' desire - under pressure from Mr. Thomas - to obtain cover to the extent of $84,000, warrants a finding that a policy for that amount would have been obtained. That sum is the starting point for the assessment of Norwest's damages. The Co-operative did not argue that the value of the Sonoma when she was lost was less than $84,000. From this sum, the premium that an insurer would have charged for the notional policy had to be deducted. The amount of such a premium was not clearly proved. It is reasonable to assume that Norwest would have sought a port policy giving temporary cover while the Sonoma was tied up at the wharf awaiting the issue of a survey certificate. Though an insurer would not have fixed a premium at less than the premium charged under the fleet policy merely because the Sonoma, tied up at a wharf, would not have been exposed to the perils of the sea, I agree with the Full Court that, in the light of all the evidence, it is reasonable to assume that the premium would not have been more than the premium charged under the fleet policy. That hypothetical premium had to be deducted from the $84,000. The Co-operative did not seek to bring into the calculation of the damages other possible deductions: the profit from the fishing done by the Sonoma in May 1975 - which she would not have undertaken if she had been tied up at a wharf - or the notional cost of having the survey completed and a survey certificate issued before the Sonoma was lost. It follows that, in my opinion, findings which support the Full Court's assessment of damages should be made and the assessment affirmed.