Ocean Marine Mutual Insurance Association (Europe) OV v Jetopay Pty Ltd

Federal Court of Australia|2000-11-27|Before: Tamberlin J, Black CJ, Emmett JJ

REASONS FOR JUDGMENT THE COURT: 1 The respondent, Jetopay Pty Limited ("Jetopay") is the owner of a 29 metre fishing vessel known as "Santa Rocco Di Bagnara" ("the Vessel"). By a policy of marine insurance ("the Policy") the appellant, Ocean Marine Mutual Insurance Association (Europe) OV ("Ocean Marine"), insured Jetopay against the risk of certain loss or damage in respect of the Vessel for the period from 4 p.m. Eastern Australian time on 21 August 1996 to 4 p.m. Eastern Australian time on 21 August 1997 ("the Period of Insurance"). Jetopay made a claim under the Policy for indemnity in respect of damage to the Vessel. Ocean Marine refused to indemnify Jetopay in respect of the damage. On 9 March 2000 a judge of the Court ordered that there be judgment for Jetopay against Ocean Marine in the sum of $350,051.38 plus interest at the rate of $73.25 per day from 18 February 2000 to date. 2 In the proceeding, Jetopay made alternative claims against Sealand Insurance Brokers Pty Limited ("Sealand"), which was retained by it as a broker to arrange insurance of the Vessel, and against Harbour Pacific Underwriting Management Pty Limited ("Harbour Pacific"), the underwriting agent for Ocean Marine in respect of the Policy. Having regard to the judgment against Ocean Marine, the primary judge ordered judgment in favour of Sealand and Harbour Pacific. His Honour ordered Jetopay to pay the costs of Sealand and Harbour Pacific. His Honour also ordered Ocean Marine to pay Jetopay's costs of the proceedings, such costs to include all costs paid by Jetopay to Sealand and Harbour Pacific pursuant to the orders that he made. 3 Ocean Marine has now appealed to the Full Court from the order for judgment against it and the order for costs. There is no appeal by Jetopay in respect of the orders for judgment in favour of Sealand and Harbour Pacific.

6 The damage that was alleged to have been caused by negligence of repairers was described in the statement of claim in the following terms: "The nos. 1 and 4 pistons seized. The no. 4 liner dislodged. The cam shaft lobes were found to be unserviceable. The crankshaft journals were marked. The big end bearings were scored. The liners and rocker gear were damaged. The oil gallery to the rocker gear was blocked." 7 Mr Crosby described that damage as follows: "(ii) All piston crowns have valve impact damage except No. 4 … (iii) No. 1 unit inlet and exhaust valves found without lubrication and spindle ends bruised and deformed. (iv) No. 5 inlet and exhaust valves, No. 6 inlet and exhaust valves, No.2 exhaust valve and No.3 inlet and exhaust valves all found with no lubrication. (v) No. 4 exhaust cam lobe heavily galled and damaged. (vi) No.1 cam injector lobe worn and lightly galled; No. 4 cam injector lobe and No. 5 cam injector lobe worn. (vii) All other camshaft lobes have surface defects but these are not serious. (viii) Two (2) lower half main bearing shells are marked and scored by particulate debris. (ix) Bottom end bearing upper halves (where firing load is applied) are marked and scored by particulate debris. (x) No.4 exhaust cam follower - roller seized and its surface galled and has a flat spot caused by lack of rolling. (xi) Balance of cam follower rollers are lightly marked. (xii) No.1 inlet cam follower plunger bruised on its upper land and barrel has markings consistent with partial seizure. (xiii) Nos. 1 and 4 injector cam follower rollers damaged and have flat spots. (xiv) Rocker tips on No.5 exhaust badly worn, No.2 exhaust - slightly worn, No.3 inlet - badly worn, No. 1 - badly worn, No.1 exhaust - slightly worn and bearing tight. (xv) Lub. oil sprayer to No. 1 inlet blocked." 8 The report by Mr Hughes also contains a detailed description of the damage. Mr Hughes' description is not inconsistent with that provided by Mr Crosby although it varies in detail. 9 Jetopay alleged that the damage was caused by the negligence of Marine and General Engineering (Nelson) Ltd, who carried out repairs to the engine of the Vessel in New Zealand in 1994. In the statement of claim it was alleged that: "the damage was caused by debris generated at the time of previous engine failures which had not been properly cleaned up during repairs to the engine undertaken by Marine & General Engineering (Nelson) Limited in 1994." 10 The evidence concerning the involvement of Marine and General Engineering (Nelson) Ltd was not extensive. It consisted of assertions made by Mr Rocco Musumeci, the principal of Jetopay, who is a fisherman. Mr Musumeci arranged for the Vessel to be built in 1984. Since then the Vessel has been owned and operated by Jetopay. The Vessel is of steel construction and has a gross registered tonnage of 156 tonnes. In July 1994, the Vessel suffered a "total engine failure" while at sea and it was taken to Nelson in New Zealand where it was repaired. There was no evidence of the precise nature of the work that was carried out in Nelson in 1994. However, there was evidence that on 12 July 1994 a sum of $120,340 was paid under an insurance claim relating to the Vessel in respect of damage "to main engine".

OPINION EVIDENCE 11 In the course of opening at the hearing before the primary judge in Sydney on Monday, 13 September 1999, counsel for Jetopay indicated that Jetopay sought "to rely upon a number of survey reports" being the reports identified above. Counsel for Jetopay indicated that it was proposed to tender the reports and that the other parties had been asked whether "the deponents" were required for cross-examination. None of the authors of the reports was strictly a "deponent" since none of the reports was verified. 12 On the morning of 13 September, Ocean Marine provided Jetopay with written objections to parts of the reports of Messrs Crosby, Parker and Hughes. A direction had been given during the course of the previous week that objections were to be notified by 4 p.m. on Friday, 10 September 1999. Thus, the notification of objections to the reports was received late. Counsel for Jetopay informed the primary judge that a difficulty was that none of the authors of the reports was available in Sydney on the morning of 13 September 1999. One was in Queensland and the other three were in Tasmania. 13 Counsel for Jetopay indicated to the primary judge that at no stage had Jetopay's legal advisers been informed that any of the authors would be required for cross-examination on the matters dealt with in their reports. Counsel for Ocean Marine then indicated that, subject to what might happen with the objections, Ocean Marine did not require any of the authors to attend for cross-examination. He indicated however that, in so far as the reports contained opinions, the opinions would be objected to as inadmissible. 14 Much of the reports do no more than record observations made by their authors on examining the engine of the Vessel. However, certain of the reports contain opinions. Jetopay sought to prove, by those opinions, that the damage to the Vessel's engine was caused by the negligence of the repairers who performed work in Nelson in 1994. 15 The principal ground of appeal by Ocean Marine is that the primary judge erred in admitting each of the reports into evidence. On the hearing of the appeal, counsel for Ocean Marine asserted that Ocean Marine had objected to the whole of the reports, but the transcript of argument in relation to the reports does not support the contention that the whole of the reports was the subject of objection. Rather, argument before the primary judge was limited to those parts of the reports that were the subject of the written objections. There is no basis for treating the objection to the reports as going beyond the written objections. 16 His Honour admitted the whole of the reports, subject to some exceptions that are not presently relevant. It will be necessary to deal separately with each objection that was overruled. However, before doing so, it is desirable to say something about the relevant principles of admissibility. 17 The basis of the objection to the opinion evidence is section 76 of the Evidence Act 1995 (Cth). Section 76(1) provides: "Evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed." Section 79 provides an exception to that rule, which is defined, for the purposes of the Evidence Act, as "the opinion rule". Section 79 provides: "If a person has specialised knowledge based on the person's training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge." 18 Thus, in order to satisfy the requirements of section 79 in respect of the opinion of a person, it is necessary to establish the following: · the opinion is wholly or substantially based on specialised knowledge that the person has; and · that specialised knowledge is based on the person's training, study or experience.

Each of those requirements must be satisfied before the exception afforded by section 79 will allow opinion evidence to be admissible to prove the existence of a fact about the existence of which an opinion is expressed. 19 There was no explicit evidence as to any training, study or experience of any of the authors of the reports. However, Jetopay sought to have inferences drawn from the contents of the reports that the authors had specialised knowledge based on unspecified training, study or experience. Reliance was placed in that regard on section 183 of the Evidence Act which provides: "If a question arises about the application of a provision of this Act in relation to a document or thing, the court may:

(b) draw any reasonable inferences from it as well as from other matters from which inferences may properly be drawn." 20 Section 183 does not, however, dispense with proof of matters that needs to be provided before opinion evidence becomes admissible. Consistently with its terms, it merely enables the document to be examined and reasonable inferences to be drawn from such parts of it as are admissible or to which no objection has been taken. This in no way modifies the general rule that before opinion evidence is admissible, it must be demonstrated by admissible evidence on the voir dire that the requirements of section 79 have been satisfied. 21 The primary judge considered that it was permissible to examine the reports and draw inferences from the form and contents of them. His Honour considered that it was permissible to take into account: · the factual context in which a report was produced; · the description and designation of the person making the report; · the contents and language of the report and the nature of the assertions made in it; · the form of the report; · the expressed qualifications of the person making it as set out in the report. 22 However, it is not permissible to conclude from those matters alone that an author of a report has any specialised knowledge, except to the extent that the report states (or it otherwise appears from admissible evidence) what that knowledge is. Nor is it permissible, by reason of those matters alone, to conclude that any specialised knowledge that the author of a report has is based on any training, study or experience of the author. Thus, it is not permissible to conclude, simply because a person expresses an opinion on a particular subject, referring to particular technology, that that person has any specialised knowledge in relation to that subject. There must be specific evidence as to specialised knowledge of the person in relation to that subject and as to the training, study or experience upon which that specialised knowledge is based. 23 The further requirement that an opinion be based on specialised knowledge would normally be satisfied by the person who expresses the opinion demonstrating the reasoning process by which the opinion was reached. Thus, a report in which an opinion is recorded should expose the reasoning of its author in a way that would demonstrate that the opinion is based on particular specialised knowledge. Similarly, opinion evidence given orally should be shown, by exposure of the reasoning process, to be based on relevant specialised knowledge.

Mr Crosby's Opinion 24 Mr Crosby's report is typed on writing paper with the following heading: " CROSBY & CO CONSULTING MARINE SURVEYORS and ENGINEERS" The report is entitled "Survey Report" and Mr Crosby is described at the top of the report as: "D.W. CROSBY J.P. C.Eng., F.I.Mar.E. F.C.M.S." 25 There was no evidence as to the signification of the letters appearing after Mr Crosby's name. Nevertheless, Jetopay sought to draw inferences that they signified that Mr Crosby had some relevant training, study or experience. Similar inferences were sought to be drawn from the description of Mr Crosby at the end of the report as "Surveyor" and the description of his firm as "Consulting Marine Surveyors and Engineers". However, those matters are all equivocal and inconclusive. They do not, of themselves, establish that Mr Crosby had any particular specialised knowledge relating to the repair of marine engines, nor do they establish any particular training, study or experience, upon which such knowledge might be based. 26 The part of Mr Crosby's report to which objection was taken was as follows: "8. Opinion: In the opinion of the writer the damage, as noted in para.2 aboveare a direct consequence of the negligence of the New Zealand repairers in July 1994, in not cleaning out the lub. oil system properly after completion of repairs. (There is still particulate debris left in the engine sump)." 27 The report does not demonstrate how Mr Crosby's opinion concerning the negligence of the New Zealand repairers was based on any particular specialised knowledge that he has. Nor does it demonstrate that any relevant specialised knowledge that Mr Crosby has was based on his training, study or experience. The opinion was therefore inadmissible and we consider that that part of the report should have been rejected.

Mr Parker's Opinion 28 Neither of Mr Parker's reports contains any indication of his qualifications or of his training, study or experience. The report contains at its head a reference to "Rockliff Marine & Engineering P/L". However, there is no indication as to the nature of the business of that company other than might be inferred from its name. Nor was there any evidence of Mr Parker's involvement or responsibilities with that company. 29 There was, however, other evidence upon which reliance was placed to support a conclusion that Mr Parker had appropriate qualifications. On 14 August 1997 Sealand sent a facsimile communication to Harbour Pacific. The document contained, inter alia, the following: "a) Lee Parker Diesel Engineer - Petunia Fisheries: Lee originally pulled the motor down and has been involved with this vessel over a number of years - his opinion is that the motor when rebuilt in NZ in 1994 was of a very dubious nature. b) The engine has suffered an oil failure either by three causes - contamination and the oil sump not being cleaned properly or heavy weather damage or a faulty part has malfunctioned. He also comments that the engine would be expected to run for 50,000 hours not 5,000 hours - Lee Parker is a very well repected [sic] Diesel Engineer on these type of engines." That document was admitted into evidence without objection. However, at the time of its tender, his Honour had already admitted Mr Parker's reports over the objection of Ocean Marine. It is clear that the document was not relied upon at the trial in support of the admissibility of Mr Parker's report. It could not have been relied on for that purpose over the objection of Ocean Marine. 30 It would have been admissible as against Ocean Marine as evidence of the fact that a communication in the terms of the document had occurred, if that fact be relevant. It was not admissible against Ocean Marine, if objected to, as evidence of the truth of statements made in the document, unless its admission could be supported as a business record, to prove a specific fact. But for the presence of Sealand and Harbour Pacific as respondents, it is clear that the document would not have been tendered at all. It cannot be relied upon to fill any deficiency in the evidence as to the qualifications of Mr Parker. 31 Mr Parker's report of 14 August 1997 contained the following material: "It is my belief that poor performance of previous overhauls caused contamination of lubrication system, which in turn caused a gradual yet premature failure of components outside their normal wear schedule. I can make this claim with some authority as I was involved with repairing the engine after its repair and return from New Zealand." The part shown in bold in the above extract was the subject of objection. 32 The report does not demonstrate how Mr Parker's opinion is based on any specialised knowledge that he has. Nor does it demonstrate that any knowledge that Mr Parker had was based on any training, study or experience. The opinion of Mr Parker to which objection was taken was inadmissible and that part of his report should have been rejected.

Mr Hughes' Opinion 33 Mr Hughes' report contained the following paragraph to which objection was taken: "In my opinion it would appear that the abnormal abrasive wear and adhesion damage that has been destructive to many of the engine components was the result of debris generated at the time of previous engine failures and had not been properly cleaned up during the process of repairing the engine. This debris had entered the lubrication system where even more debris had been generated by the oil pump itself then transported in the oil to other parts of the engine." Mr Hughes report is headed "Component Condition and Failure Analysis Report". It contains no reference at all to any specialised knowledge that Mr Hughes had at the time. Nor does it refer to any training, study or experience of Mr Hughes. For the reasons indicated above, the opinion to which objection was taken was inadmissible and that part of Mr Hughes' report should have been rejected.

CONNECTION BETWEEN THE DAMAGE AND THE 1994 REPAIRS 34 Jetopay contends that, even if the opinion evidence to which objection was taken is excluded, the remaining evidence was sufficient to support a conclusion that "the cause of the failure of the engine in July 1997" was: · the presence of debris from within the engine from the time of the 1994 engine failure and its repair; and · the negligence of those who carried out the repairs which took place in 1994 in not taking proper steps to clean out that debris from within the engine. 35 The conclusion of the primary judge (paragraph 55) was that, on the basis of the opinion evidence contained in the reports, the proximate cause of the July 1997 engine failure was, more likely than not, repairer's negligence, specifically, the negligence of those who carried out the repairs that took place in 1994, in not taking proper steps to clean up debris. His Honour considered that no intermediate or other plausible cause was indicated on the evidence, "as a matter of common sense and practicality". His Honour found, therefore, that the effective and proximate cause "of the 1997 failure" was repairer's negligence. 36 In the course of dealing with each of the reports that contained opinions that were the subject of objection, his Honour stated those opinions. Thus, it is clear that his Honour relied on the opinion evidence in reaching the conclusion stated above. In so far as the conclusion is based on evidence that we consider should have been rejected, we must agree that the conclusion cannot be supported. 37 Because his Honour relied on the inadmissible opinion evidence, it was not necessary for his Honour to consider whether there was other evidence that would support his Honour's conclusion that repairer's negligence was "the effective and proximate cause of the 1997 failure". If the Full Court were satisfied that other evidence is capable of supporting the conclusion, it would be appropriate for the Full Court to deal with that question. No issue of credibility arises since there was no cross-examination of any of the authors of the reports. 38 Those parts of the reports that were admitted without objection and that do not constitute opinion evidence established two kinds of damage. The first kind of damage was a crack in the cylinder block. It was described by Mr Crosby as follows: "The engine block was seriously fractured in way of No. 6 unit where there is a 100 mm long crack at the stbd. side in 20 mm thick material: this crack then propagated to the centre of the block by 150 mm." Mr Hughes described that damage as follows: "A large crack was found in the cylinder block, this crack was located at the rear right hand side immediately below the rear cam shaft support bearing block. This crack which was about 150 mm long is in a critical area of the block and would require a major repair carried out before this engine could have been put back in service. Should this crack have been left unrepaired it would most likely continue to progress until catascropic [sic] engine failure occurred." There was no suggestion that the crack was caused by the negligence of the repairers in 1994. Rather, the inference to be drawn is that the crack was connected with the breakdown that occurred in 1994. Whether the failure to detect and repair the crack might amount to negligence on the part of the repairers is another question entirely, and one that was not addressed by the parties. 39 As indicated above, Messrs Crosby and Hughes described damage to a number of parts of the Vessel's engine, apart from the engine block. They described damage to the following parts of the engine: · crankshaft; · main bearings; · connecting rod bearings; · pistons; · cylinder liners; · cam shaft; · cam shaft followers; · fuel pump roller followers; · valve roller followers; · valve stems and valve faces; · lubrication oil pump; · oil filters. The damage to some of those parts is described as "not serious". Other parts are described as "heavily galled and damaged". Most of the damage, however, is described as damage caused by "particulate debris". 40 In his report, Mr Crosby said that "…it cannot be stressed too highly" that, after completion of damage repairs, a "thorough flushing of the crank case and lubricating oil system" be carried out. He also said that thorough flushing was necessary again, after engine trials on the completion of repairs. 41 Mr Hughes expressed the opinion, in relation to the crankshaft, that either debris from a previous failure had lodged in some part of the engine and went undetected during a clean-up or debris generated within the engine from a failing part had circulated in the lubrication system and had been carried in the oil to the crankshaft bearings and caused "this very destructive damage". Damage resulting from the latter cause would not necessarily be within the Policy; that might depend on the cause of the failure of the part in question. 42 In any event, although it may be possible to conclude from that evidence that the damage described in detail by Messrs Crosby and Hughes was the result of inadequate flushing following repairs that were carried out in July 1994, the critical question is whether any inadequate flushing constituted negligence on the part of the repairers at that time. There is no evidence as to the nature of the repair work that was carried out in New Zealand beyond the cursory references described above. In the absence of the inadmissible opinion evidence, the remaining evidence does not establish, on the balance of probabilities, that the damage in question was caused by repairer's negligence.

TIME OF DAMAGE 43 There is a further difficulty. The reasons of the primary judge refer to the damage that is the subject of the claim as the "July 1997 engine failure". His Honour's conclusion was that damage "occurred at the time when the engine failed as a matter of common sense and practicality". However, the manifestation of engine failure was the occurrence of "backfiring" in or around July 1997. After the backfiring the engine was examined and the damage in question was then discovered. Thus, the "engine failure" in July 1997 seems to have been no more than a symptom or manifestation of the damage in question. 44 The nature of the damage in question, as described by Mr Crosby and Mr Hughes, is as follows: · bruising; · deformation; · galling; · scoring; · surface defects; · marking; · wearing; · flat spots; · valve impact damage.

It is not self-evident that that is damage that occurred at the time of "the failure of the engine in July 1997". Rather, that damage may well have occurred gradually, as a result of the presence of particulate debris in the lubrication system. Another possibility is that minor damage may have led to a major failure with a further consequence of more severe damage. 45 There was no evidence as to an appropriate apportionment of the cost of the repairs between damage that occurred during the Period of Insurance and damage that occurred prior to commencement of the Period of Insurance. It may be that a linear apportionment would be appropriate, but that is not self-evident. 46 It is not beyond the possibilities that the whole of that damage, or at least a substantial part of it, occurred prior to the Period of Insurance. The admissible evidence does not support a conclusion, on the balance of probabilities, that all or any particular part of the damage in question occurred during the Period of Insurance.

CONCLUSION 47 Had the inadmissible opinions been rejected at the hearing, it would have been open to Jetopay to seek an adjournment to enable it to adduce additional evidence that may have qualified the authors of the reports to give the relevant opinions. In the light of the circumstances described briefly above, it is clear that his Honour would have granted that adjournment, probably at the cost of Ocean Marine, having regard to the late notification of any objection to the opinion evidence. 48 Whether any additional evidence would have rendered the opinions of the authors of the reports admissible is, of course, a matter for speculation at this stage. However, subject to a further question that arises on the appeal, the appropriate order would be to set aside the order for judgment against Ocean Marine and remit the matter for further hearing by the primary judge. On the further hearing, Jetopay should be afforded the opportunity of adducing admissible opinion evidence on the question of whether the damage was caused by negligence of repairers. 49 However, the inadmissible opinion evidence was not relevant to whether the damage occurred during the Period of Insurance. Nevertheless, had the opinion evidence been rejected and further evidence been adduced from the authors of the reports, that is a question that may have been addressed. In the circumstances, the appropriate order is to set aside the judgment against Ocean Marine in favour of Jetopay. The matter should be remitted to the primary judge for further hearing of the following questions: · whether any, and if so what part, of the damage in question was suffered by Jetopay during the Period of Insurance; and · whether that damage was caused by the negligence of repairers. 50 The order for costs against Ocean Marine in favour of Jetopay made by the primary judge should also be set aside. While Ocean Marine has been successful on the appeal, the outcome of a further trial is by no means certain. It is at least arguable that the present circumstances resulted from late notification by Ocean Marine of its objections to the evidence intended to be relied on by Jetopay. In the circumstances, we consider that the appropriate order is that the costs of the appeal follow the result of the further hearing. I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Court.

Solicitor for the Respondent: Middletons Moore and Bevins

Evidence Act 1995(Cth)ss 76, 79

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