Rian Lane v Dive Two Pty Ltd

Introduction 1The plaintiff, Mr Lane, claims damages against the defendants, Dive Two Pty Ltd ( Dive Two ) and Mr Todd, in respect of injuries he sustained when a boat driven by Mr Todd collided with a boat from which the plaintiff was fishing. 2The defendants claim an entitlement to indemnity or damages from the second cross-defendant ( Liberty ), their insurer. In the event that Liberty is not obliged to indemnify them in respect of the plaintiff's claim, the defendants claim damages against the first cross-defendant ( Horsell ), the broker who arranged their insurance, for negligence and breach of contract.

Matters for determination 3By the second day of the hearing of this matter, the claim by the plaintiff against the defendants had resolved. Consequently, I ordered judgment on 7 February 2012 for a specified sum in favour of the plaintiff against the defendants and noted that both cross-defendants accepted that the judgment sum was reasonable. 4Accordingly the matters that remained to be determined related to the defendants' cross-claim against Horsell and Liberty. The sums claimed are: (1)the amount of the judgment given in favour of the plaintiff in these proceedings and the plaintiff's costs as agreed or assessed; (2)compensation paid in respect of damage to the boat with which the defendants' boat collided, which the evidence establishes amounts to $5,500; and (3)legal costs which Mr Todd paid for representation at the Raymond Terrace Local Court in respect of criminal charges arising from the collision, which the evidence establishes amounts to $11,275, including counsel's fees of $4,750. 5Liberty contends that it is not liable to indemnify the defendants under the insurance contract for two reasons: (1)the claim does not fall within the contract's insuring clause because it did not arise "in connection with the Insured's Business"; (2)the claim is excluded by reason of exclusion clause 7.24 because: (a)it involved a criminal act as evidenced by the defendant's plea of guilty to the charge of negligent navigation occasioning grievous bodily harm in breach of the Crimes Act 1900 s 52B(3)(b); and (b)Mr Todd is not covered for his legal costs in relation to the criminal proceedings as he was not acting in the course of his duties at the time. 6The defendants' claim against Horsell arises only if I find that the insuring clause does not cover the claim. If I make that finding, the question arises whether the failure of the cover to respond was as a result of any breach of retainer or negligence on the part of Horsell. Horsell denies that there was any relevant contract of retainer. It also denies breach and causation.

The collision and subsequent events 7The evidence in the proceedings comprised affidavits or statements of Mr Todd, Mr Duffy (on behalf of Horsell) and Mr Scales (on behalf of Liberty). Mr Todd and Mr Duffy were cross-examined. 8The events surrounding the claim can be stated briefly. 9At the time of the collision, the second defendant, Mr Todd, was the sole director of Dive Two. Dive Two carried on a scuba diving business trading as "Dive One", and owned a 7.45 metre aluminium dive vessel, which was also called Dive One. 10On 29 July 2006, at 7.30 am, Mr Todd put Dive One into the water at Soldier's Point. He picked up a group of divers at 7.45 am. The first dive took place at Looking Glass, off Broughton Island, from 9.12 am until 10.00 am. Mr Todd then took the divers to Yacaaba Head in his boat for a surface interval pending the next dive, which took place at Cabbage Tree Island. The second dive commenced at 11.30 am and finished at 12.20 pm. Mr Todd returned the divers to Soldier's Point at 1.20 pm and then unloaded the dive gear before picking up his passengers for the afternoon's boat trip. The passengers on that trip were Mr and Mrs Todd and two other couples. In the late afternoon, Dive One collided with another vessel. The plaintiff, who was fishing from the other vessel, suffered serious injuries, including head injuries, as a result of the collision. 11As a result, Mr Todd was charged with one count of dangerous navigation occasioning grievous bodily harm in breach of the Crimes Act 1900 s 52B(3)(b), details of which were recorded in the Court Attendance Notice as follows: "...between 4:00 pm and 5:50 pm on 29/07/2006 at Hawks Nest [Mr Todd] did dangerously navigate a vessel, to wit, 'Dive One' a 7.45 m aluminium dive vessel, when it was involved in an impact occasioning grievous bodily harm to Rian Lane, and at the time of impact the said William Andrew Todd was navigating the vessel at a speed dangerous to other persons." 12He was also charged with a lesser charge of negligent navigation in breach of Water Traffic Regulations s 3(1). 13On 6 November 2006, Mr Todd pleaded guilty to the dangerous navigation offence. It is common ground that this is the relevant offence for the purposes of determining whether exclusion clause 7.24 applies. He was sentenced on 24 September 2007 and required to enter a bond for two years.

Terms of the insurance contract 14There is an issue on the pleadings whether the insurance contract between Liberty and Dive Two is a contract of marine insurance (in which case the Marine Insurance Act 1909 (Cth) applies) or not (in which case the Insurance Contracts Act 1984 (Cth) applies). Counsel for the parties agree that nothing turns on the characterisation of the contract for the purposes of these proceedings and therefore it is not necessary for me to determine the issue. 15The Master Policy is nominally in three sections: A, B and C, although in substance it is in two: A & B and C. Sections A & B are a "Combined General & Products & Professional Liability Policy" whereas Section C governs indemnity for legal expenses. Where in these reasons I do not specifically refer to a section, it should be taken to be a reference to sections A & B. Where a clause is contained within Section C, specific reference will be made to Section C. 16The relevant clauses of the Master Policy and its schedule are set out below. 17Paragraph 2 of the Schedule provides: "INSURED: PADI Asia Pacific and individual members, dive centers and resorts and others as agreed" 18Paragraph 4 of the Schedule provides that the insured's business is as defined in the policy wording under "Scuba Diving". 19Clause 1 provides that: "Subject to the terms of this Policy, LIU [Liberty] will pay to or on behalf of the Insured all sums which the Insured shall become legally liable to pay by way of compensation as a result of a Claim(s) both first made against the Insured and notified to LIU during the period of Insurance for Injury and/or Damage in connection with the Insured's Business." 20Clause 2.11 defines "Scuba Diving" as: "...principally incorporating class and water based learning activities and modules including first aid training and certification, including the determination of standards by the accrediting agency and all activities relating to training, instructing, observing and control of recreational scuba diving. This includes all activities relating to snorkelling, skin diving, swimming, recreational surface supplied air to a maximum depth of 10 meters, servicing hiring and repairing of equipment and sales of related products, tours of reefs by Glass bottom boats (under 12 meters), transportations of people from one Island to another, bird watching, guided tours of Island when not diving, jungle &/or bush walking, fishing, underwater photography/video, what watching, scuba doos, beach games" 21Clause 3 provides that: "The indemnity granted by this Policy will extend to... Any director... of the Insured... but only while acting within the scope of their duties in such capacity..." 22Clause 7 provides, in part, that: "This Policy does not cover liability directly or indirectly caused by, arising out of or in any way connected with... 7.18 Ownership, maintenance, operation, possession or use by or on behalf of the Insured of... 7.18.2 Any watercraft which exceeds twelve metres in length... 7.24 Any alleged or actual fraudulent, dishonest, malicious, wilful or criminal act or omission of the Insured or any person covered by Clause 3 of this Policy..." 23Clause 1 of Section C provides: "In consideration of payments of the Premium, Liberty International Underwriters (LIU) will provide Indemnity in accordance with, and subject to, the terms and conditions of this Section C

1. Legal Expense Insurance Benefit Subject to the Limit of Indemnity, LIU will indemnify the Insured for Legal Costs and Expenses incurred by the Insured in the course of scuba diving and related activities at or in: ... 1.2 Pleas of mitigation for a criminal defence against the Insured; or..." 24Clause 2.6 of Section C replicates the definition of "Scuba Diving" in 2.11 of Sections A & B. 25Clause 3 of Section C provides: "LIU shall not be liable for claims in respect of: ... 3.9 Legal services arising out of any dishonest, fraudulent, malicious or deliberate act or omission of the Insured. Provided that this exclusion 3.9 shall only apply where a judgment establishes that the Insured were guilty of any such dishonest, fraudulent, malicious or deliberate act or omission. In which case, any Legal Costs and Expenses, which may have been advanced to or on behalf of the Insured, shall be refundable by the Insured to LIU." 26Clause 4.5 of Section C provides: "Section C and the relevant part of the Combined General & Products Liability Policy shall be read together as one contract and any word or expression to which a specific meaning has been given shall bear such specific meaning wherever it may appear unless such meaning is clearly inapplicable in the context in which the word or expression appears; ..."

Were the activities engaged in by the defendants covered by the insurance policy?

Construction of the insuring clause 27There was considerable argument about the meaning of the insuring clause, and in particular, the "Insured's Business" which incorporated the definition of "Scuba Diving" in clause 2.11 for Sections A & B of the policy and clause 2.6 of Section C of the policy. The defendants' submissions on the construction of the insuring clause 28Mr Birch, senior counsel for the defendants, submitted that the description of the insured's business by reference to the extended definition of scuba diving in clause 2.6 is a description of the business by reference to activities, rather than purposes. He submitted that there is no requirement that the listed activities be engaged in for the purposes of making a profit. Thus, he contended, if the insured had taken some children out for a snorkelling trip as a charitable act, it would fall within the insuring clause because the activity of snorkelling is referred to in the definition. 29He contended that no particular significance ought be attached to the word "Business", in the context of "Insured's Business" since it was a defined term which referred the reader of the contract to the definition of "Scuba Diving". However, he accepted that if I considered there to be an ambiguity in the definition of that term, I could be guided by the fact that the words in the schedule were "Insured's Business". 30Mr Birch submitted that the use of the words '"Scuba Diving" means principally' indicates that the list of activities ought not be regarded as exhaustive but that the activities listed provide an indication of the related activities. He emphasised the breadth of the activities in the list, which includes: (1)transportation of people from one island to another; (2)bird-watching; (3)guided tours of the island when not diving; (4)jungle/ and or bushwalking; (5)fishing; (6)underwater photography/ video; and (7)whale-watching. 31He also submitted that the specificity of the items suggests that they are examples only, since it could hardly have been contemplated that transportation of divers from one location on the coast to another, rather than to an island (even assuming that Australia can properly be regarded as an island) would not fall within the clause. 32Mr Birch described the wording of clause 2.11 as "clumsy", since, if read literally, it includes activities "relating" to scuba diving but not scuba diving itself. He urged that the policy ought be given a sensible, commercial meaning. 33He contended that the activity being conducted by Dive Two at the time of the accident was a sightseeing tour in the general vicinity of the area in which diving excursions were being undertaken by the company using the company's dive boat and usual boat skipper. This activity, he submitted, was an activity within the extended meaning of "Scuba Diving", as defined by clause 2.11. 34In the alternative, Mr Birch submitted that it was an activity "in connection with the Insured's Business". Mr Birch said that although ultimately the question of whether there was a connection between a particular activity and the business was a question of fact and degree, I could comfortably find a connection in the instant case. 35He listed the following factors as sufficient to establish such a connection: (1)the vessel used was the one used by the business for its usual dive boat operations; (2)the vessel was skippered by one of the business's usual dive boat operators; (3)the trip involved an activity of a sort in which the business usually engaged, namely sightseeing on the Myall River; and (4)the activity itself was likely to produce goodwill for the business among potential customers and this was a purpose for which Mr Todd embarked on the trip that rise rise to the claim. 36Mr Birch relied on Mr Todd's evidence that the business also involved taking people out on leisure cruises which did not involve scuba diving. Indeed outside peak season Mr Todd said that he was conducting more whale-watching and sightseeing trips, including along the Myall River. He contended that Mr Todd's evidence was relevantly unchallenged on these matters and that therefore I could accept the evidence, even if I rejected Mr Todd's evidence about his subjective purpose of the trip. Horsell's submissions on the construction of the insuring clause 37It is plain from the pleadings that Horsell had a similar, if not identical, interest to that of the defendants in establishing that the insuring clause covered the claim, since the defendants' claim against Horsell only arises if the insuring clause does not cover the claim. Mr Martin, senior counsel for Horsell, adopted Mr Birch's submissions set out above, but also made separate submissions on the question of construction. Because of the differences, some of them subtle, between the submissions of Mr Birch and those of Mr Martin, I propose to deal with them separately below. 38Mr Martin submitted that the defendants' claim was "in connection with the Insured's Business", as contemplated by clause 1 because: (1)the expression "Insured's Business" as defined in the policy wording under "Scuba Diving" includes "transportations of people from one Island to another"; (2)the trip was a boating activity which came within the scope of the "Insured's Business" as described in the Master Policy; (3)the trip was a boating activity which was "in connection with the Insured's Business" as described in the Master Policy; (4)the vessel "Dive One" was owned by Dive Two; (5)the vessel was being operated by Mr Todd, who was at the time the sole employee of Dive Two and its sole director and shareholder; and (6)one of the purposes of the trip was to promote the insured's business. 39The list set out above essentially mirrors Mr Birch's arguments that the insurance policy lists activities as the touchstones of insurance cover. 40Mr Martin submitted that the description of the insured's business in clause 2.11 of the Master Policy does not list all of the activities carried on by Professional Association of Diving Instructors ( PADI ) members in the course of their business. The purpose of the description was to identify the business and not to list its various activities. He submitted that the use of the word "principally" in the description confirms this. He contended that although "boating" is not, of itself, an activity contained in the list, recreational boating is naturally affiliated with recreational scuba diving and the other water-based activities included in the insuring clause to illustrate the scope of the insured's business. 41Mr Martin submitted that the words used in the first sentence of the definition of "Scuba Diving" are descriptive of coverage; that is, a business that principally incorporated class and water based learning activities and modules and all activities relating to training, instructing, observing and control of recreational scuba diving. By contrast the second sentence of the definition illustrates, clarifies and extends the scope of coverage, but there is no reason to construe the word "includes" as being used so as to exhaustively identify the ambit of coverage provided by the policy. 42Mr Martin eschewed the proposition that I should give any weight to the fact that the words "Insured's Business" appear in the Schedule or that the terms of the insuring clause contain the expression "in connection with the Insured's Business". He submitted that the effect of defining "Insured's Business" as "Scuba Diving" was to obliterate any significance being given to the words "Insured's Business". Mr Martin relied on the commentary and cases referred to at [5.11] of Lewison and Hughes, The Interpretation of Contracts in Australia (Law Book Co., 2012). As can be seen from my recitation of Mr Birch's argument set out above, Mr Martin went further than Mr Birch on this point, the latter having conceded that in the event of ambiguity I could have regard to the words "Insured's Business". 43Mr Martin also contended that the expression "Insured's Business" as defined in the policy wording under "Scuba Diving" includes the ownership, maintenance, operation, possession or use by or on behalf of the insured of watercraft up to 12 metres in length. He submitted that this argument was open to him notwithstanding that I had refused his application for leave to amend Horsell's defence to the cross-claim (see Rian Lane v Dive Two Pty Ltd [2012] NSWSC 49) because it is a "surrounding circumstance" to which resort can be had in the event of an ambiguity in the contract. 44He sought to establish that it was intended that what had formerly been an exception to the exclusion (boats up to 12 metres in length) amounted to an entirely separate, and additional, different ground of cover. 45In support of his submission that the policy covers claims in relation to the use, operation and maintenance of watercraft of up to 12 metres, Mr Martin pointed to the following chronology of communications between Horsell and Liberty which preceded the issue of the relevant Master Policy, 03.02: (1)The Master Policy for the preceding period of insurance (2004/2005) contained the following exclusion clause: "7.18 Ownership, maintenance, operation, possession or use by or on behalf of the Insured of any aircraft, aerial device, watercraft or hovercraft." (2)In 24 August 2005, Mr Paul Scales, the insurance underwriter for Liberty, sent an email to Mr Rob Veale at Horsell, attaching proposed renewal terms for the PADI Asia Pacific Watertight Insurance Programme ( the Quotation) which set out the proposed terms for the period of insurance from 30 September 2005 to 30 September 2006, including: "Wording: Liberty International Underwriters base form CLM03.02 plus Endorsements as expiring. Endorsements:

1. ...
2. Watercraft inclusion for craft up to 12 meters..." (3)In late August or early September 2005 PADI forwarded to its members a brochure entitled "2005/2006 PADI Asia Pacific Watertight Liability Insurance Programme", which stated that the coverage for public and products liability included: "Liability of watercraft up to 12 metres in length". (4)On 26 September 2005 PADI forwarded to its members a letter dated that day ( the Renewal Letter ) which stated that some of the benefits of the program included: "Cover for watercraft liability up to a maximum boat length of 12 metres". (5)In response to the Renewal Letter, Dive Two activated its 2005/2006 insurance cover and paid the premium to Horsell. (6)On 31 October 2005 Horsell issued a Certificate of Insurance for the period from 1 October 2005 to 30 September 2006. (7)Subsequently (on or about 6 March 2006) Mr Scales forwarded the Liberty 03.02 policy wording to Horsell "in accordance with the wording in the Quotation". (8)On or about 30 June 2006, Mr Scales signed, dated and placed Liberty's stamp on the Liberty 03.02 policy wording and hand delivered a copy of the policy to Horsell. 46Finally, Mr Martin submitted that if the insurer proffers a document which is ambiguous, it, and not the insured, should bear the consequences of the ambiguity because the insurer is usually in the superior position to add a word or clause clarifying the promise of insurance which it is offering; in other words, the document is to be construed contra proferentem : Johnson v American Home Insurance Co (1998) 192 CLR 266 at 275, per Kirby J. 47Mr Sexton, senior counsel for Liberty, submitted in response to Mr Martin, that there was no occasion for the contra proferentem rule of construction in this case. He pointed to the evidence that established that the wording for the definition of scuba diving was proffered by Horsell, as agent for the insured, not by Liberty. In the 2004/2005 policy, "Insured's Business" was defined in the Schedule as "principally activities relating to scuba diving instruction, tours and transport, bird watching, guided tours of diving, fishing, and underwater photography/video". On 25 July 2005, Horsell sent Liberty the Quotation Slip Prepared For PADI Asia Pacific which proposed "extended coverage" including "transport of people from one island to another" and "guided tours of island when not diving". Then on 30 June 2006 Mr Duffy, of Horsell, proffered the wording which became clause 2.11. 48Mr Sexton relied on certain matters of "background knowledge" which were germane to the interpretation of particular contracts, including policies of insurance (as to the relevance of such matters, see El Hayek v Vasic [2010] NSWSC 634 at [32] - [34], per Garling J, affirmed sub nom QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166). 49The matters of background knowledge on which Mr Sexton relied were: (1)the policy was for members of a commercial organisation, PADI. It was not a policy for members of the public generally or for a broad range of users of watercraft. The policy was only available to PADI members and the membership of PADI comprised only persons and entities with a business or commercial interest in scuba diving which principally involved instruction; (2)the terms of this policy were not contained in a compulsory standard form, such as are found in, for example, statutory policies (such as compulsory third-party motor vehicle, or barristers' professional indemnity, with the wording approved by the Government) or industry standard terms (such as Institute Yacht Clauses); (3)different underwriters take different attitudes to the risks they are prepared to cover; (4)liability policies for pleasure craft, (meaning recreational use of watercraft) were available and known to be different to "commercial" or "business" liability cover; (5)the cover arranged by Horsell for PADI members over a number of years was not limited to insureds who owned or used watercraft in relation to their business. That is, the policy was available to members of PADI whose business activities involved scuba diving, as defined in the policy, whether or not the instructor involved use of watercraft. Not only did the extended definition of scuba diving as defined in clause 2.11 of the policy include many activities for which watercraft are not required but the policy was also available to instructors, dive shop owners and dive masters; and (6)insurers have a legitimate commercial interest in distinguishing between business and private/recreational risks. As this incident demonstrates, recreational use may more readily involve distractions and inadvertence whereas business use is more likely to be subject to regulation and to be taken more seriously by an operator conscious of business reputation. 50Mr Sexton submitted that the insuring clause and clause 2.11 operate together in two ways: first, to identify the nature of the business insured, so that, for example, if the insured's business enterprises also included some business unrelated to the business identified, then that unrelated business is not covered; and, secondly, to require that the occurrence giving rise to the claim is sufficiently connected with that identified business. Accordingly, for example, it is not sufficient that there be merely the activity of "transportations of people from one island to another" or "bird watching" or "fishing" or "beach games". Two further requirements must be satisfied. The first is that the activity must be related to "recreational scuba diving". The second is that the activity must have a sufficient "connection with the Insured's Business". 51Mr Sexton said that it was a legitimate and understandable line that the insurer was entitled to draw in a policy between insuring business activities as distinct from private activities and that that was what had occurred in the instant case: the insurer had contracted to insure a risk that was "in connection with the Insured's Business" and it did not cover risks that did not have such a connection. 52Mr Sexton relied on the statements by the Full Federal Court in Health Insurance Commission v Freeman (1998) 158 ALR 267 at 273, per Merkel J: "The words 'in connection with' have been accepted as capable of describing a spectrum of relationships between things, one of which is bound up with or involved in another: see Collector of Customs v Pozzolanic Enterprises Pty Ltd [1993] FCA 456; (1993) 43 FCR 280 at 288. However, as was pointed out by Sackville J in Taciak v Commissioner of Australian Federal Police (1995) 59 FCR 285 at 295, the question that remains in a particular case is what kind of relationship will suffice to establish the connection contemplated by the statute. That requires a 'value judgment about the range of the statute': see Pozzolanic (at 289)" [Emphasis added] 53Although the statement set out above was made in the context of statutes, the principle has been held to be applicable to interpretation of commercial contracts: Thomas v State of New South Wales [2008] NSWCA 316 at [19] - [21], per Campbell JA, and Fraser v The Irish Restaurant & Bar Company P/L [2008] QCA 270 at [43], per Muir JA. 54Mr Sexton submitted that, if Mr Todd was playing beach cricket on a Sunday with his children and negligently hit one of them with the bat, this policy would not respond, notwithstanding that Mr Todd was engaged in a "beach game". The result would not be different if the bat was an asset of the business. Similarly, if, for example, Mr Todd travelled to some remote location and negligently blinded a friend with a hook whilst fishing, this policy would not respond, notwithstanding that the word "fishing" appears in clause 2.11. 55Mr Sexton submitted that if I did not accept Mr Todd's evidence as to the purpose of the trip, then the insuring clause is simply not engaged, notwithstanding the use of an asset owned by the insured and generally used in connection with the insured's business. In that case the claim by Mr Lane simply had no connection to the business. 56Mr Sexton made detailed written submissions as to why I ought not accept Mr Todd's evidence. These submissions largely followed the foundation laid in his cross-examination of Mr Todd. He also submitted that I could draw a Jones v Dunkel ((1959) 101 CLR 298) inference that neither the evidence of Mrs Todd, nor any of the two couples who were also present on the boat could have assisted the defendants case because none of these people was called and no reason was established for their non-attendance. He submitted that the onus of establishing unavailability lies on the party against whom Jones v Dunkel operates ( Cross on Evidence , 2012, online version, [1215] and fn 23). 57In the alternative, Mr Sexton submitted that even if I accepted Mr Todd's evidence, it involved, at its highest, a subjective, uncommunicated hope or expectation that a trip on the boat, for a picnic, without any scuba diving or swimming, might generate some business. He submitted that in that event the "connection" with the business is so ephemeral that, notwithstanding the many statements in the cases concerning the width of the expression "in connection with", the factual circumstance simply does not meet the discernible commercial purpose of the insuring clause, namely, to provide cover for the activities identified in the definition of "Scuba Diving" which also have a real or proximate or not insignificant connection with the insured's business in so far as it involves "recreational scuba diving". 58He submitted that sightseeing on the Myall River does not fall within the insuring clause because it is unconnected in any relevant sense with recreational scuba diving. 59Mr Sexton relied on Intrend Pty Ltd & Ors v O'Halloran & Ors [2006] SADC 95, a case in which Mr O'Halloran took his friend Ms Byrant into his office in the early morning and left a cigarette which started a fire and caused damage to the premises. One issue was whether an exclusion clause which operated to exclude claims "arising out of" or "in connection with" any business profession or occupation of the insured applied. 60The Court at first instance held that the fact that Mr O'Halloran was an employee of the business, had access to the premises and caused the fire on the premises did not constitute a sufficient connection to any business profession or occupation with the result that the exclusion clause was not engaged. The Court also considered whether Mr O'Halloran was entitled to indemnity under a QBE policy which had been issued to Mr O'Halloran's employer, but would respond if the damage was "caused by an occurrence in connection with such persons' business" (see [152] - [162]). While the fire occurred on the premises of the business, the Court concluded, at [160] - [161]: "...Mr O'Halloran was not acting in any way connected with Bocksoffice's business when he disposed of unextinguished cigarette remains after having smoked cigarettes with Ms Bryant whilst visiting the Bocksoffice premises for purposes which I find to be completely unrelated to its business and to his employment at its business. I consider that, when he entered and remained in Bocksoffice's premises that night and when he did what he did, Mr O'Halloran was on a frolic of his own . I conclude that none of what Mr O'Halloran did in the Bocksoffice premises that night (which could be events resulting in property damage) occurred whilst he was acting within the scope of his duties as an employee of Bocksoffice. I also conclude that none of what Mr O'Halloran did in the Bocksoffice premises that night were occurrences in connection with the business of an advertising agency conducted at those premises by Bocksoffice." 61On appeal to the Full Court of the Supreme Court of South Australia ( RAA-GIO Insurance Ltd v O'Halloran & Ors; Australian Kitchen Industries P/L v O'Halloran [2007] SASC 245), Duggan J, with whom Nyland and Kelly JJ agreed, referred to the following passage from Hadfield v Health Insurance Commission (1987) 15 FCR 487 at 491: "Expressions such as "relating to", "in relation to", "in connection with" and "in respect of" are commonly found in legislation but invariably raise problems of statutory interpretation. They are terms which fluctuate in operation from statute to statute... The terms may have a very wide operation but they do not usually carry the widest possible ambit, for they are subject to the context in which they are used, to the words with which they are associated and to the object or purpose of the statutory provision in which they appear ." [Emphasis added.] 62Duggan J applied Hadfield , and said, at [30]: "Mr O'Halloran was not engaged in the performance of any duty associated with his occupation at the time of the negligent act which caused the fire. The fact that he was in the building where his office was located for a purpose completely unrelated to his occupation cannot provide the necessary link between the claim and that occupation. In the circumstances of the case, the claims cannot be said to arise out of or in connection with Mr O'Halloran's occupation. It follows that exclusion (d) does not apply." 63On the application for special leave to appeal ( RAA-GIO Insurance Limited t/as RAA Insurance v O'Halloran & Ors [2007] HCATrans 688), the appellant again submitted that the "the liability occasioned by the negligent act of Mr O'Halloran had something to do with the employment because the negligent act occurred at the place of employment, access being obtained as a result of the employment." The application for special leave was dismissed. 64In reply, Mr Birch submitted that I should accept Mr Todd's evidence and that no weight ought be given to Mr Todd's classification of the trip as "private" since a promotional activity could accurately be described as being private notwithstanding that it is undertaken in connection with the business. 65He submitted that Jones v Dunkel had no real effect where the person not called was the witness's spouse, since spouses are notoriously partial and would be unlikely to be regarded as corroborative, even if called. He said that no inference would arise in relation to the other couples on the boat, who were, on the defendants' case, unaware that there was a business purpose to their trip in any event. Construction of the insuring clause 66In my view, Mr Sexton's analysis of the clause is correct: in other words, there are two requirements: the activity must be in some way related to recreational scuba diving and it must be "in connection with the Insured's Business". Although the term "Insured's Business" is a defined term, the words are not irrelevant to the construction. Lewison and Hughes summarise the principle in the following passage, at 198: "Where the construction of a defined term is at issue, the label itself will itself be a highly relevant contextual factor. So, in Chartbrook Limited v Persimmon Homes Limited [2009] 1 AC 1101 at [17], the parties agreed on a definition of 'Minimum Guaranteed Residential Unit Value', which was defined according to a formula. Lord Hoffman held that the label assigned to the formula was relevant to the interpretation of the formula. He said: '[T]he contract does not use algebraic symbols. It uses labels. The words used as labels are seldom arbitrary. They are usually chosen as a distillation of the meaning or purpose of a concept intended to be more precisely stated in the definition. In such cases the language of the defined expression may help to elucidate ambiguities in the definition or other parties of the agreement.' Lord Walker agreed that it was legitimate to 'give weight to the natural meaning of words in a definition' (at [94])." 67Once it is accepted, as in my view it must be, that the words "Insured's Business" are relevant to the construction of the insuring clause, I consider that a construction which disregards the requirement that there be a connection with the business, albeit as defined, is at odds with the policy. It follows that I do not think that a trip along the Myall River, which is conducted for private purposes which are unconnected with the business, falls within the insuring clause. 68In my view, the words "in connection with the Insured's Business" are apt to include the promotion of the business, whether by way of thanking persons for referring business or by entertaining people with a view to obtaining further business. It is well established that the words "in connection with" ought be read as extending the scope of the noun they precede and ought not be read narrowly. The words merely require a relationship between one thing and another: Selected Seeds Pty Ltd v QBEMM Pty Ltd [2009] QCA 286 at [22]; Drayton v Martin (1996) 67 FCR 1 at 32, per Sackville J; Our Town FM Pty Ltd v Australian Broadcasting Pty Ltd (1987) 16 FCR 465 at 479, per Wilcox J. Although the connection must be real and not merely tenuous, I consider that this threshold would be met in this case if I were satisfied that the purpose of the trip was the promotion of Dive Two's scuba diving business. 69Fairly obviously, if the purpose of the trip had been to promote the business, it could be expected that the guests would not have to pay. I do not think that the fact that the guests did not have to pay for the trip would have made it any less a trip in connection with the insured's business, if I had otherwise been satisfied that the purpose of the trip was to promote the business. 70I reject Mr Martin's submission that the endorsement in paragraph 2 of the Quotation can assist in resolving an ambiguity in the policy. I consider that the somewhat sparse wording of the endorsement is wholly inadequate to support the contention that it was designed to provided public liability cover for boats up to 12 metres without any of the qualifications in insuring clause 1. Although Mr Martin contended that this was implicit in the Quotation and the limited exclusion, it seems to me that he is requiring the words of the quotation to do more work than they were designed for. 71I do not accept that the purpose of the endorsement was to extend the ambit of the insuring clause to cover claims arising from the use, operation and maintenance of such vessels. Had it been intended to have such a meaning, then express words would have been required. In my view, the words "use, operation and maintenance" would have had to appear in the endorsement itself. 72I consider that the Quotation was of historical importance only. In my view, the purpose of the endorsement was to make it clear that boats less than 12 metres in length would not be covered by the exclusion clause which applied to boats of greater length.

Whether the evidence of Mr Todd (that he was promoting his business) establishes that he is covered by the policy 73There is a substantial issue about the purpose of the afternoon's boat trip which is relevant to whether the insuring clause applies. For the reasons given above, I consider that if this purpose could be established, the claim would be covered since it would be "in connection with the Insured's Business". 74None of the six people on the boat trip that ended in the collision went scuba diving or swimming that afternoon. There is no evidence about the appearance of Dive One and whether it displayed any insignia or other identification of the business of Dive Two. In establishing the purpose of the afternoon's boat trip, the defendants depend, at least in support of their primary case, on Mr Todd's evidence and my assessment of his credibility. 75Mr Todd deposed in his statement, which he verified on oath before me, that he had been hoping to attract some business from the local high school and, to that end, he had invited two people whom he believed to work there, together with their spouses, on a trip on Dive Two's boat. He gave oral evidence that he did not make his intentions known to his guests, but that he had discussed the proposal with his wife before the trip. Concerned that Dive Two's business was limited to tourists and that his competitor was attracting more local business, he wanted to expand to include more of the local market. Another purpose of the trip was to thank his guests for the business that they had already referred to Dive Two. 76For the reasons that follow, I do not accept Mr Todd's evidence on this matter. In the course of his cross-examination of Mr Todd, Mr Sexton exposed the changes in the versions Mr Todd had given as to the purpose of the trip, as a result of which I was persuaded that the version given by Mr Todd in a statement for the purpose of these proceedings, was designed to further his interests and cannot be relied upon. 77The first version given by Mr Todd about the purpose of the trip was the one he gave to police shortly after the collision. He was interviewed by police on the day of the collision and then interviewed two days later, on 31 July 2006. Liberty tendered his record of interview and relied on it as a prior inconsistent statement. He was asked by police about the purpose of the trip. He gave the following answers: "This was a private function, it was my wife onboard and four of her friends... My wife wanted to take a couple of her work friends and, yeah, husbands up to the other side of Tea Gardens to have some drinks and lunch." 78The second version was the one he gave in an attachment to his incident report. He said that his wife typed out some notes he had made shortly after the incident. It appears that at this time Mr Todd probably believed that he was covered by insurance whether the trip was in connection with his business or not because the length of his boat was less than 12 metres. In this version he described the trips he had taken earlier that day (which are referred to in more detail below) and then wrote: "STARTED FAMILY RUN AT 1.45." 79The third version is reflected in the Facts Sheet tendered by the police at the sentence hearing before the Local Court at Raymond Terrace. The Facts Sheet is dated 10 August 2006. The version tendered appears to have been printed on 14 October 2006. Mr Todd entered a plea on 6 November 2006 to the charge of navigating at a speed dangerous occasioning grievous bodily harm contrary to Crimes Act 1900 s 52B(3)(b). The sentence hearing at which the Facts Sheet was tendered took place on 24 September 2007. Mr Todd accepted that he read it carefully prior to the hearing on 6 November 2006. 80Relevantly the Facts Sheet records as follows: "There were six persons on board this vessel that was being used in a recreational capacity. The accused had spent the afternoon having a picnic lunch with friends at Tea Gardens." 81When it was put to Mr Todd in cross-examination that these were accurate statements, he answered: "It- it was a recreational as in non-fare paying capacity and that would be as far as it goes. Recreational diving. Diving is a recreational sport." 82His answer was non-responsive and demonstrated that he could not think of a way around the question. Whether or not diving is recreational for those participating in it is beside the point since for him it was a business. But this is beside the point, too, because the trip in which he was engaged did not involve diving at all and no scuba gear was on the boat. Although Mr Todd did not seem, in his oral evidence, to be highly attuned to the nuances of language, he showed himself as being capable of answering questions posed by police on 31 July 2006. Furthermore he was represented at the hearing before the Magistrate and would presumably have been afforded an opportunity to correct any error in the Facts Sheet. 83Liberty tendered correspondence with Horsell in the period between January and February 2007 to the following effect: (1)an email from Horsell to Liberty dated 29 January 2007 in which Horsell seeks written confirmation that the insurer was of opinion that the insured was not covered; (2)an email in response from Liberty to Horsell dated 1 February 2007 which refers to "Our recent telephone discussion in which you confirmed that the voyage being undertaken by Mr Todd was a private one and not relate to his business refers"; (3)a letter from Slater & Gordon (the defendants' solicitors) to Horsell dated 15 February 2007 in which they note the denial of indemnity and give notice that proceedings will be issued; and (4)an email from Horsell to Liberty dated 19 February 2007 which attaches the letter referred to above and which contains the following passage: ". . . we were all of like mind when last we spoke to send investigators to interview the other passengers on the boat to confirm the reason for the trip. You will recall Bill is saying he was providing passengers with a free trip in remuneration for assistance they had given him by promotion of [Dive Two]". 84I infer, notwithstanding Mr Todd's denials in cross-examination, that by 19 February 2007, he was aware that the insurer would deny indemnity unless he could establish that there was a business component to his trip. I also infer that, notwithstanding his denial in evidence before me that he had had a conversation with Horsell, he had spoken to Horsell, appreciated the case he needed to make to get insurance cover and come up with the story that he was providing passengers with a free trip to thank them for past referrals. This constitutes a fourth version. 85Had this version been true, then it could be expected that Mr Todd would be able to corroborate this in some way, either by providing details of the past referrals or by calling the passengers who are alleged to have provided the referrals. 86There was then a fifth version given in a letter dated 26 May 2010 in which the defendants' solicitors provided particulars in response to a request from Liberty's solicitors dated 23 February 2010. The defendants were asked to identify the specific purpose for which the vessel was being used at the time of the accident. They responded: "The business was being used for sightseeing and business marketing activities." 87The defendants were asked, in the request for particulars, to identify the passengers on board the vessel. They identified two couples, as well as Mr and Mrs Todd. In answer to the request, the defendants answered: "Both the couples had referred customers to 'the business' and the trip was organised to thank them and to [seek] continual referrals... The invitation was relayed to [the two other couples aboard Dive One at the time of the accident] through Mrs Todd that Mr Todd would like to thank them for referring business to his dive business by inviting them on a sightseeing tour up the Myall River..." 88The final version omitted all references to thanking the passengers for past referrals and was confined to promotion of the business. It is contained in the document entitled "First Amended Statement of Cross-Claim" filed on 25 February 2011. Paragraph 36 of that document reads: "The trip related to the business activities of Dive One. PARTICULARS The trip was for the purposes of promoting the Dive One business to associates of Mr Todd who worked at the local high school, being a market to which Mr Todd wanted to have access." 89Unsurprisingly, the version given by Mr Todd in his statement dated 17 May 2011 corresponds with the final version referred to above. He deposed in his statement that the purpose of the trip was "to generate business". He said that he had "a keen desire to break into the local high school market". There was nothing in his affidavit, as he admitted in cross-examination, about thanking the passengers for earlier referrals. Mr Sexton probed him about what referrals he had obtained from the passengers. Initially he said that one of the couples had referred a group of snorkelers to his business, but later he admitted that this had not occurred. He was unable to identify any business which had been referred by the other couples. 90At the conclusion of a detailed and careful cross-examination of Mr Todd conducted by Mr Sexton I was left with the impression that the first version that Mr Todd had given to police was correct: namely, that the trip was a recreational one which was not made in connection with his business. It was only when Mr Todd realised that indemnity was being declined because the trip was not connected with his business that he constructed a version that the trip was undertaken to thank the passengers for past referrals. However, when he became aware that the insurer's investigation was such that the other passengers were being questioned and did not support this version, he concocted another version, namely that he was also endeavouring to promote the business with a view to obtaining business from the local high school. Ultimately, he entirely dropped the suggestion that he was thanking passengers for past referrals and confined his evidence as to the purpose of the trip to promoting the business. 91I do not accept Mr Todd's evidence as to the trip, or the surrounding circumstances unless it is corroborated or it amounts to a statement against interest. 92I should add that, as to other matters, including what he did after the collision and the insurance that he took out, I accept Mr Todd's evidence since it is, in my view, unaffected by the motive that affected his credibility in relation to the purpose of the trip.

Whether incontrovertible facts establish that the insuring clause applies 93As referred to above, Mr Birch put a case in the alternative to the one he put which relied on Mr Todd's evidence as to the purpose of the trip: namely that I should find that the activity was in connection with the insured's business because it was conducted with an asset of the business; that it was an activity that occurred in the vicinity of the locations where Dive Two conducted its scuba diving business; and the boat was navigated by the same person as when it was engaged in the business activities of Dive Two. 94I accept Mr Sexton's submissions that this is insufficient to establish a connection. Although the dichotomy between "private" and "business" activities is not expressed in the policy, it arises, in my view, by implication from the use of the word "Business" in the insuring clause. The fact that an asset of the business is used by a director of the business who is also a dive master, does not, in my view, suffice. Indeed, if it did, it would mean that small proprietary companies with a sole director, could expand the extent of cover since it will commonly be the case that the assets of the business will also be employed for private use. 95Although the question of connection is one of fact and degree, I do not consider that Mr Todd's use of Dive One in a location proximate to Dive Two's usual business operations is sufficient to establish a connection for the purposes of the insuring clause.

Whether the unchallenged evidence establishes that the defendant was covered under the contract 96As set out above, Mr Birch put his case in a third way. The third basis involves my accepting Mr Todd's evidence that he was engaged in a sightseeing tour of the Myall River with his guests, that he discussed his business with them and that this discussion would tend to have the effect of promoting the business. Accordingly, so the argument ran, I ought conclude that the claim arose in connection with the insured's business. 97Although this submission was put notwithstanding Mr Sexton's objection, I propose to deal with it before considering whether it falls within the defendants' pleaded case. 98The first question that arises is whether I am entitled not to accept Mr Todd's evidence on a particular matter when it has not been the subject of express challenge in cross-examination. For the reasons given above, I am not inclined to accept Mr Todd unless corroborated or where he has made a statement against interest on matters concerning the subject trip. 99Nonetheless even if I accepted that Mr Todd mentioned his business to the couples on the boat in the course of the afternoon's trip (a matter which would be unsurprising), I do not consider that this amounts to a "connection" with the business. It is a matter of common experience that people in a social situation talk about their work. I do not consider that this is sufficient to convert such social situations to events which are "in connection with the business". 100Nor do I consider it to be sufficient that the trip involved "sightseeing". Having regard to its location and particular attractions, it would be difficult to travel along the Myall River at any time and in any circumstances without engaging in sightseeing in some way. That Mr Todd, as the skipper of Dive One, takes people along the Myall River in connection with its business does not mean that when he takes his wife and her friends along the same river in Dive One for reasons otherwise unconnected with the business, it is converted into a trip to which the insuring clause responds merely because the activity of sightseeing is almost inevitably involved. 101Accordingly, I find that the policy does not respond to the claim.

Pleadings relevant to the construction of the insuring clause 102At the conclusion of Mr Birch's submissions in chief, Mr Sexton submitted that it was not open to Mr Birch to make a case that involves one or other or a combination of: (1)the use of assets of the business (the boat and/or the skipper); (2)an activity of a sort in which the business usually engaged, namely sightseeing on the Myall River (or the mere fact alone of transporting people from one island (Australia) to another island (Witts Island); and (3)not a purpose per se but a result allegedly connected with the business - that is, that the mere fact that there was a trip using an asset of the business and/or during which there was discussion about the business might have the result that good will was produced. 103He submitted that such a case was outside the pleadings and that the second cross defendant had conducted its case on the basis of the pleading. He said that he had not cross-examined Mr Todd about whether sightseeing on the Myall River was "usual" business and that Liberty had not investigated, by discovery or otherwise, whether the activity engaged in was likely to produce good will. He also pointed out that this "new" case that the promotion of the business was a likely result of the trip made the absence from the witness box of the other two couples present on the boat relevant. Mr Sexton submitted that this introduced a different concept to the subjective hope or expectation of Mr Todd (which was particularised) and which depended on my assessment of Mr Todd. 104Mr Sexton, notwithstanding his objection to the submission, dealt with its substance after making the submissions set out below on the construction of the insuring clause. 105Mr Birch maintained that his submissions fell within the pleadings as they stood and that no amendment was required. He also said that if Mr Sexton had misapprehended the way the defendants put their cross-claim, he would be disposed to consider any application Mr Sexton might make to have Mr Todd recalled for further cross-examination. Mr Sexton confirmed that he was making no such application in light of Mr Birch's adherence to his pleading. It follows that it falls to me to determine whether Mr Birch's submissions fall within the cross-claim as pleaded. 106The question whether the defendants' submissions ought be constrained by the pleading does not arise since I have found against the defendants on the application of the insuring clause. However for completeness, my reasons for decision on the pleading point are set out below. 107There were essentially three bases on which Mr Birch argued that the claim was covered by the insuring clause, set out in more detail above. I will deal with them as follows: (1)The claim was covered because of Mr Todd's evidence that a purpose of the trip was to promote the business even though that purpose was not communicated to his guests; (2)The claim was covered because a vessel of the business was being used in a location not far from the usual operations of the business and it was skippered by one of the business's usual dive boat operators; and (3)The claim was covered because of the matters referred to in (2) above and also because it was involved in an activity or the sort with which the business was commonly engaged, namely sightseeing on the Myall River and it was an activity which was objectively likely to produce good will for the business among potential customers. 108In my view the pleading point does not arise in the determination of the first or second ways in which Mr Birch puts his case. The first way is expressly pleaded and particularised. The second depends on facts that ought be regarded as incontrovertible. It does, however, arise in the determination of the third way since the evidence relied upon was not specifically challenged, although a general challenge was made to Mr Todd's credibility. 109The First Amended Cross-Claim relevantly pleads: "36. The trip related to the business activities of Dive One. PARTICULARS The trip was for the purposes of promoting the Dive One business to associates of Mr Todd who worked at the local high school, being a market to which Mr Todd wanted to have access. ... 47. On 29 July 2006, when the Insurance Policy (or alternative Insurance Policy as set out above) was in force, a collision involving the vessel occurred which gave rise to circumstances covered by the Insurance Policy, namely: a. Rian Lane suffered injury giving rise to a claim by him against Dive Two and Mr Todd, being a claim to which the Insurance Policy applies. b. Dive Two and Mr Todd were sued by Mr Page, giving rise to a claim to which the Insurance Policy applies. c. Mr Todd was subject to a criminal prosecution and incurred costs defending same, giving rise to a claim to which the Insurance Policy applies." 110Mr Birch submitted that paragraph 36 of the pleadings was not a necessary part of the pleading. It pleaded material facts but did not purport to be, and did not, set out each and every one of the bases on which the defendants said that they were covered by the policy. He said that all submissions on the proper construction of the insuring clause, and the way in which the claim fell within it were open, having regard to the terms of paragraph 47. 111Mr Sexton submitted that the defendants ought to be confined to paragraph 36 in so far as they alleged that the claim arose in connection with the business of Dive Two. Accordingly, he submitted that the defendants could only succeed in obtaining cover if I accepted Mr Todd's evidence that the boat trip was for the purposes of promoting the business and I found that this fell within the insuring clause in the policy. 112The defendants also sought to establish that the claim for indemnity falls within insuring clause 1 on the basis of other factors. As referred to above, Mr Sexton contends that Mr Birch cannot put such submissions. I consider that it is open to Mr Birch to put matters in submission that arise from facts which are relevantly uncontroverted. 113I consider that the way in which the matter was pleaded has the effect that where evidence other than that which fell within the particulars to paragraph 36, or which was incontrovertible is relied on in support of the proposition that the trip was "in connection with the Insured's Business", the defendants ought be constrained. Although there is some force in Mr Birch's submission that the pleading in paragraph 36 that "the trip related to the business activities of Dive One" does not paraphrase the insuring clause, I consider that a reader of paragraph 36 would consider the particulars constituted the basis on which the pleader wanted to put the connection. 114Had I considered that the pleading point would make a difference to the outcome of the case, I would have taken steps to ensure that the parties were given an opportunity to adequately address it. It is wholly undesirable that cases be decided on the basis of such points. It would have been inconsistent with the interests of justice for the defendants' case against Liberty to be dismissed because of a pleading point, and the defendants' case against Horsell to be dismissed because the insuring clause in fact responded.

Was the activity engaged in by Mr Todd excluded under the insurance policy? 115This question must be determined since, if the exclusion clause applies, the defendants cannot succeed against Horsell.

Construction of the exclusion clause The defendants' submissions on the construction of the exclusion clause 116Mr Birch submitted that clause 7.24 must be read in light of the contract as a whole and with regard to its commercial purpose and effect ( Darlington Futures Limited v Delco Australia Pty Limited (1986) 161 CLR 500 and McCann v Switzerland Insurance (2000) 203 CLR 579). He argued that the purpose of the policy was to provide public liability insurance to a dive operator who, in the contemplation of the parties to the policy, would use a dive boat for the conduct of much of the business. Further, the very nature of the cover must have been intended to respond to circumstances where there had been conduct by the insured that could give rise to liability. Such conduct, he argued, would commonly be negligent conduct by the insured or one of its officers or employees. 117He submitted that negligent conduct, as in the instant case, often amounts to criminal conduct. The fact that the legislature has chosen to criminalise the conduct does not determine the question whether it falls within an exclusion clause in terms of exclusion clause 7.24. 118Mr Birch submitted that the word "criminal" ought be construed in the context of the whole phrase in which it appears: "any alleged or actual fraudulent, dishonest, malicious, wilful or criminal act or omission of the insured..." It ought take its flavour from the preceding words, each of which has an element of intent. He submitted that where the element of intention was lacking from the criminal act, for example because it was the product of inadvertence or negligence rather than intention, it was not intended to be covered by the policy. 119Mr Birch also relied on Section C of the Policy, which provides for legal expenses to be paid in certain circumstances, including "pleas of mitigation for a criminal defence against the insured". There is a special exclusion clause, clause 3.9, in Section C, which excludes "dishonest, fraudulent, malicious or deliberate acts or omissions". He submitted that it would be anomalous if the insured could be covered for legal expenses in relation to a plea in mitigation for dangerous navigation but not entitled to indemnity in respect of a claim for damages for negligence brought by the person injured as a result of the dangerous navigation. 120Guidance was to be obtained, in Mr Birch's submission, by the approach of the Court of Appeal in Australian Aviation Underwriting Pty Limited v Henry (1988) 12 NSWLR 121 ( Henry ), which demonstrated a preparedness of Courts to read down plain words where their plain meaning was discordant with the context in which they appeared, or the purpose of the insurance contract itself. 121In Henry , the relevant insurance policy contained an exclusion for claims arising from "an Insured Person's own criminal act". The words appeared in the following clause, at 122: "This Policy does not cover death or disablement - ... 3. resulting from suicide or attempted suicide or intentional self-injury, or from deliberate exposure to exceptional danger (except in an attempt to save human life), or from an Insured Person's own criminal act , or sustained whilst the Insured is in a state of insanity;" [Emphasis added.] 122The Court construed the word "criminal" as excluding acts of negligence, notwithstanding that they were also criminal. Part of the basis of the Court's reasoning was that the parties to the agreement must have contemplated that a substantial reason for the existence of the cover was an accident arising from the insured's negligence and it could not have been intended to exclude that liability by reference to criminal acts. In Henry , the trial judge found that "there was an inadvertent failure by the deceased to keep a proper lookout and to keep his motor vehicle on his correct side of the road so as not to drive it into the path of oncoming traffic" (at 123). Accordingly the exclusion clause did not apply once "criminal act" was read down. 123Mr Birch relied on the reasoning of the majority in Henry , as expressed in the following passage at 124 - 125, per Hope JA: "It is trite that in construing insurance policies as in construing any other contract, words should generally be given their ordinary meaning. There are however many well-known exceptions to this rule, and one overriding qualification is that it is necessary to have regard to the context in which the words appear. The first relevant context in the present case is that the policy is, as it is intituled, a 'Personal Accident Policy' and that the bodily injury insured is injury which is caused by an accident. It is obvious that one of the very common ways in which an insured under such a policy would be likely to be injured by an accident would be by his involvement in a motor vehicle accident. These accidents can no doubt occur without the driver of either vehicle (if two vehicles are involved) committing any criminal offence, but as Bailhache J pointed out in Tinline ([1921] 3 KB 327), probably in the great majority of cases motor car accidents are due to the breach by the driver (I would add, or one of the drivers) of some enactment. In these circumstances, looking not merely at the language of exclusion 3 but looking at the context of the whole policy, some limitation should be read into the ordinary meaning of the words "from an insured person's own criminal act". Indeed the question which arises for decision is rather what limitation should be read in rather than whether any limitation should be read into these words." 124Mr Birch said that although Mr Todd was guilty of a criminal act, it was, in substance, a negligent act and if all negligent acts which were also criminal were excluded from cover, then the insured would be substantially deprived of any benefit from a policy, the main purpose of which was to insure against liabilities occasioned by negligent acts. Therefore, he submitted, the word "criminal" in the exclusion clause, should be read "intentionally criminal". 125He also drew my attention to the following passage from the judgment of Priestley JA, at 127 - 128: "One factor which helps me reach this view is that problems of interpretation of the present kind have frequently arisen in the past, as the cases referred to by Hope JA show. Further, it seems to me likely that the insurer has been aware at least in a general and derivative way, of the various judicial decisions on policy clauses with a family resemblance to its own. On that basis it seems to me that the insurer having chosen not to express the policy in words that make the matter clear, has left the exclusion in a form which it knows may be read in the way in which it was in fact read by the trial judge in this case. The insurer having conducted its business on the basis of a policy so worded, it does not seem to me to be unfair that the policy should be understood as meaning, adversely to the insurer's arguments in this litigation, what the insurer knew it might well be thought to mean." 126Mr Birch said that Mr Todd's acts and omissions were negligent. Although he was driving the boat too fast in the circumstances, he was not travelling at an excessive speed per se . He was not intoxicated at the time of the accident. Although Mr Todd might invite criticism for not cleaning sea salt that had accumulated on the vessel's windscreen (discussed in more detail below), salt on the windscreen is the inevitable result of travel in this area. It was the combination of the sun at a particular angle and the salt-encrusted windscreen which affected Mr Todd's visibility. Mr Birch submitted that it would be wrong to characterise his conduct as "criminal", as this word is used in the policy when it ought be more accurately seen as negligent, notwithstanding that it amounted to a criminal offence. 127Mr Birch also drew my attention to the more recent decision of the Court of Appeal in Xerri v Kingmill Pty Limited (t/as Thrifty Car Rentals) (1998) 25 MVR 569 ( Xerri ) in which the Court of Appeal found that the claimant could not recover because the claim was excluded. In Xerri , the driver of the vehicle had commenced to do an illegal U-turn immediately prior to the collision which caused his death and which was the subject of the claim. 128In Xerri , the relevant exclusion clause was, in substance, that liability was excluded where there was a breach of clause 4(f), which provided: "Vehicle must not be used or driven in contravention of the provisions of the Motor Traffic Act of the State of New South Wales..." 129Mr Birch submitted that the policy wording in Xerri was distinguishable from the instant case, which was closer to that in Henry . Liberty's submissions on the construction of the exclusion clause 130Mr Sexton submitted, that even assuming the act of Mr Todd was a criminal act, the exclusion will only be engaged if he is a "person covered by clause 3". If Mr Todd is found to have been acting within the scope of his duties, then the policy will cover him, but he will be excluded from cover if his conduct falls within exclusion clause 7.24. 131Mr Sexton submitted that Henry turned on its own facts and the terms of the policy, and that Xerri was a better guide to interpretation of the policy in the instant case. 132Mr Sexton relied on what the Court of Appeal in Xerri said of Henry : "The court was referred to passages in Australian Aviation Underwriting Ltd v Henry (1988) 12 NSWLR 121 at 124, 126, 127. While these passages indicate the ubiquity of the principles of public policy, they provide no support for the proposition that the court can avoid the terms of the policy by finding that an unintentional crime was involved. Henry recognises that an exclusion clause inserted by an insurer will be read contra proferentem , and applies that principle by reading down an exclusion relating to death resulting from 'an insured person's own criminal act' so as not to apply where that criminal act was negligent or inadvertent. See also Australian Associated Motor Insurers Ltd v Wright (1997) 10 ANZ Ins Cas 61-390. But Henry does not go any further. While the mere fact that a person commits a crime does not preclude reliance upon insurance cover, at least where the crime is unintentional ( Gardner v Moore [1984] AC 548), it would be entirely fallacious to invert this into the proposition that commission of an unintentional crime brings an insured within the cover of a policy that clearly excludes conduct of the relevant type." 133Mr Sexton said that, in any event, it would be wrong to regard the Crimes Act 1900 s 52B(3)(b) as an offence of negligence since the section did not use the word "negligently". He noted that it was relevantly identical to s 52A, the offence of dangerous driving causing grievous bodily harm and referred to the following passage from Jiminez v R (1992) 173 CLR 572, in which the majority said, at 579: "For the driving to be dangerous for the purposes of s.52A there must be some feature which is identified not as a want of care but which subjects the public to some risk over and above that ordinarily associated with the driving of a motor vehicle, including driving by persons who may, on occasions, drive with less than due care and attention." 134He also referred me to R v Phirum Uch De Montero [2009] VSCA 255, in which the Victorian Court of Appeal, after undertaking a comprehensive review of the authorities, placed dangerous driving between negligent and culpable driving on a spectrum of wrongdoing. He submitted that the additional factors which made the navigation dangerous rather than simply negligent were consistent with the insurer's objective intention to exclude such conduct from cover. 135Mr Sexton also submitted that, although many acts associated with driving a boat may be both criminal acts even though they also amount to negligence, the activities covered by the policy concern many matters which might give rise to a claim for indemnity which would not amount to criminal offences. Therefore there was no need to read down the words "criminal act or omission", since the policy was not illusory even if the words are giving their plain meaning.

Whether the defendants' dangerous navigation triggered the exclusion clause 136There is some evidence about what occurred immediately prior to the collision, which sheds some light on how and why it occurred. 137Mr Todd is recorded as having told police on 31 July 2006 that he only slowed down just before the impact; he was "having trouble seeing" due to accumulation of salt on Dive One's windscreen resulting from "a fair bit of salt work" he had done in the morning. He told them that he "lost vision" through the screen and then tried to look through the gap between the glass and the canopy, which was only about 2 - 3 inches wide. Mr Todd estimated the speed of the boat to be about 18 knots before he slowed down just prior to the collision to about 12 - 15 knots. He described the collision to police in the following terms: "...there was a massive thud and in hindsight that's where I've gone over the person, over the boat..." 138Parts of the police interview were put to Mr Todd in cross-examination. His evidence to me was inconsistent. Notwithstanding his prior admissions to police, he maintained at one stage in the hearing, on oath: "I could quite easily see out the windscreen." 139Mr Sexton also put the Facts Sheet to him from the Local Court criminal proceedings. The Facts Sheet recorded: "The accused was travelling at a stated speed of 15 to 20 knots. When the accused rounded port marker 210 he realised his vision was restricted by the setting sun. The accused has reduced the speed of his vessel to about 12 to 15 knots. The accused's vessel is fitted with a Perspex windscreen that had heavy salt build up further impeding the masters vision. The accused realised that he could not see out of the salt covered windscreen. To counter this the accused has kept a lookout through a gap in the canopy that he estimated as being about four by six inches in size." 140In evidence before me, Mr Todd said that the windscreen was 1.2 metres wide and 400 - 500 millimetres high. When it was put to him that he was looking through a small gap of about 4 by 6 inches between the canopy and the top of the windscreen (as recorded in the Facts Sheet), he said: "Yes, but I had my head, the top of my head poked through the hole and I would be able to see quite literally over the top of it." 141I find that Mr Todd was barely aware of the presence of the other boat until immediately prior to impact. He had little chance to slow his boat or avoid the collision. Had he cleaned the salt from the windscreen, his visibility and range of vision would have been significantly greater. Having regard to his compromised vision, he was driving at an excessive speed. 142There is, however, no suggestion that Mr Todd intended the collision or intended the plaintiff any harm. Immediately following the collision he acted so as to safeguard the other passengers and save the plaintiff, who had been seriously injured. His conduct, although criminal and having serious consequences, was not intentional. Construction of the exclusion clause 143In my view, while the policy must be read as a whole, the most useful guides are the words used in the clause itself. I consider both of the syntactical presumptions, noscitur a sociis (the meaning of a word is to be derived from its context) and ejusdem generis (general matters are constrained by reference to specific matters), assist in the construction of the words in clause 7.24. 144Although the trial judge in Henry referred to the conduct of the deceased as mere inadvertence, he also regarded it as amounting to driving in a manner dangerous to the public. Notwithstanding its serious consequences, it was not intentional. The Court of Appeal read down the word "criminal act" to exclude non-intentional criminal acts because of the context in which it appeared. The process of construction is explained in the following passage from Hope JA's judgment, at 126: "The principle represented by the maxim [ noscitur a sociis ] is not some exceptional or strained principle of construction; it is an obviously sensible principle to be applied in understanding the meaning of words in their context. In the present case there is clearly enough a recognisable characteristic of the words used to describe circumstances (other than criminal acts) which, if they resulted in the relevant death or disablement, exclude the case from the cover provided by the policy. They are all intentional acts; they are all acts which will not be established if they are the result of negligence, however gross, or inadvertence. As I have indicated, this is a distinction which has been recognised otherwise for the purpose of insurance law, and recognised in relation to criminal acts. In those circumstances I have concluded that the limitation which is to be placed upon the expression "an insured person's own criminal acts" is one which excludes negligent or inadvertent acts." 145What each of the other words in clause 7.24 has in common is intention. Although an act may be criminal without any intent at all, criminal acts, like torts, can be classified as intentional or otherwise. The term "criminal acts" is broad and, in a sense, arbitrary since it depends on legislative choice and may cover acts of considerable seriousness or relatively trivial infringements without any requirement of intention. Because the words "criminal act" appear at the end of a list where the preceding words have in common an element of intention, I consider that they should be read down to include only those criminal acts that are intentional. 146I consider the ejusdem generis rule to provide some guidance too, notwithstanding that the words "other" or "etc" are not used at the end of the list and notwithstanding that "criminal acts" constitute a separate category in the exclusion clause. However, where, as here, there is a list of a number of items, the meaning of a term, particularly a general one as I find "criminal acts" to be, is more readily ascertained by reference to the list as a whole (see, in the context of statutes, Pearce, Statutory Interpretation in Australia (2011), at [4.24]). 147The effect of this construction is that it is immaterial that the degree of lack of care exhibited by Mr Todd was greater than mere negligence. The exclusion clause does not exclude cover in the instant case because the criminal act committed by Mr Todd was not intentional. This analysis is consistent with both Henry and Xerri . In the former case, the words "criminal act" were read down to exclude non-intentional criminal acts because of its context and because it was the insurer's wording and therefore the contra proferentem rule applied. In the latter case, the exclusion clause applied because its terms specifically covered the claim and there was no basis to read down the words of the exclusion. 148Although it does not matter for the purposes of my consideration, I was not persuaded by Mr Birch's argument that clause 3.9 assists his construction of exclusion clause 7.24. There may be good reason why an insurer would be prepared to cover criminal defence costs, except where they arise out of "any dishonest, fraudulent, malicious or deliberate act or omission of the Insured" but not be prepared to indemnify an insured for claims arising from criminal acts of the insured per se . Different words are used in clause 3.9 of Section C than are used in clause 7.24. I do not think that the comparison between them provides any particular warrant for importing the requirement that the criminal acts or omissions excluded by clause 7.24 be intentional. 149Accordingly, I find that clause 7.24 does not apply.

Was the insurance broker liable to the defendant? 150As I consider that the insuring clause, properly construed, does not respond to the claim and the claim is not otherwise excluded, the question of Horsell's liability arises.

The nature of any duty owed by Horsell to the defendant 151For reasons which will emerge, it is necessary to set out the defendants' pleading against Horsell: "50. At all material times PADI retained the services of Horsell to obtain insurance for PADI members. 51 At all times Horsell had a duty to effect adequate insurance cover for PADI members. 51.A At all material times PADI was the Cross-Claimants' agent. 52. On or about June 2002 Dive Two and/or Mr Todd retained Horsell to advise them as to the insurance cover they should obtain in regard to the business of dive Two and the use by it of its vessel. 53. It was an implied term of the agreement referred to in the preceding paragraph that Horsell would advise Dive Two and/or Mr Todd of the following matters: a. Whether the insurance cover effected by him for PADI members and offered by him to Dive Two and/or Mr Todd was adequate public liability insurance for Dive Two and the use of its vessel. b. Whether there was a need by Dive Two and/or Mr Todd to have any further separate public liability insurance through boat insurance. 54. The facts and circumstances giving rise to the implication of the term described in paragraph 53 in the retainer agreement are as follows: a. Horsell in fact gave advice on the adequacy of the policy. b. Horsell had special expertise in regard to the adequacy of insurance policy terms and reasonably expected Dive Two and/or Mr Todd not to possess such expertise. c. Horsell ought reasonably to have understood that Dive Two and/or Mr Todd would rely upon Horsell to advise it as to the adequacy of the policy obtained. 54.A The implication is necessary to give commercial efficacy to the agreement. 55. Horsell represented to Dive Two and/or Mr Todd that: a. the Watertight Policy provided adequate public liability insurance b. there was no need to have separate public liability insurance through the boat insurance. PARTICULARS Facsimile dated 3 March 2003 from Horsell to Mr Todd with quotation for Dive Boat insurance. 56. In consequence of the giving of the advice referred to in paragraph 55 above Horsell undertook a duty of care to Dive Two and/or Mr Todd to ensure that the advice given by him was accurate as to the adequacy of the insurance which he proposed. 57. Mr Todd relied on that representation and cancelled, or did not renew, public liability insurance attached to his boat insurance. 58. In the event that the Court should determine that the policy of insurance by Dive Two and/or Mr Todd procured by Horsell does not respond to the plaintiff's claim Horsell breached the implied term of the retainer described and/or the duty of care described above. PARTICULARS (i) Failed to advise Dive Two and/or Mr Todd that the insurance procured by him on their behalf was inadequate for their reasonable purposes. (ii) Failed to advise Dive Two and/or Mr Todd that they needed to have additional insurance for public liability in regard to any use of the vessel that was not within the terms of the insuring clause. 59. If a. Mr Lane successfully prosecutes his claim against Dive Two and/or Mr Todd; and b. Liberty successfully defends the claim by Mr Todd and Dive Two against it in respect of the claims made against them by Rian Lane, then Dive Two and Mr Todd will suffer loss as a consequence of Horsell's failure to provide adequate insurance to Dive Two and Mr Todd. 60. If Liberty successfully defends the claims by Dive Two and Mr Todd in respect of a. The Local Court Proceedings b. The Criminal Prosecution Then Dive Two and Mr Todd will suffer loss as a consequence of Horsell failure to provide adequate insurance to Dive Two and Mr Todd." 152Mr Martin's first submission was that it was not open to Mr Birch to submit that Horsell was guilty of negligent misstatement when the defendants' pleading and particulars merely alleged failure to advise. 153Mr Birch rejected the proposition that his submissions fell outside the pleadings. He submitted that an insured whose insurer has declined indemnity is almost invariably in a difficult position in endeavouring to sheet home responsibility to the broker, because the insured cannot know in advance whether, and if so on what basis, the insurer will be found to be entitled to refuse indemnity. He contended that in so far as his case was based on positive statements, these were pleaded, but that the substantial claim rested on a failure to advise that the cover was inadequate, as alleged in the pleading. 154I do not accept Mr Martin's objections to the defendants' pleading of the cross-claim. In so far as there is any ambiguity in the cross-claim, I consider that it could have been cured by a request for particulars. Essentially, the defendants' case against Horsell, as pleaded is that it made positive representations in the past which the defendants relied upon. When it came to the relevant year, the defendants allege that Horsell failed to advise them that the insurance cover they obtained was inadequate. 155Furthermore where the principal allegation of breach is "failure to advise", the failure can be proved by positive evidence of advice which is inconsistent with what Horsell is alleged to have failure to advise. In other words, a statement, whether express or implied, that cover is adequate tends to establish a failure to advise that the insurance cover was inadequate. 156Although Mr Martin contended that he would have run his case differently had the cross-claim against Horsell been in terms of negligent misstatement as distinct from representations relied upon followed by an alleged failure to advise, it is difficult to see how it could have been run differently. This is particularly so, in light of Horsell's detailed submissions in response to the defendants' submissions in support of the cross-claim against it. Far from demonstrating that Horsell could not deal with the case as put by the defendants, they show that Horsell had adequately apprehended the case it had to meet and had a substantive response to each of the defendants' submissions. 157Accordingly, I do not propose to "read down" or otherwise refuse to consider Mr Birch's submissions on the cross-claim against Horsell since I consider them to be open on a fair reading of the cross-claim. The defendants' submissions on Horsell's liability 158Mr Birch submitted that, through brochures and other communications, Horsell gave advice to the members of PADI in Australia, including the defendants, regarding the nature and extent of liability insurance that it could procure for them. He pointed to the circumstance that communications with PADI members, including brochures, bore the logo of Horsell. The evidence established that Horsell designed and paid for marketing materials including a brochure that described the insurance being provided as the "PADI IRRA Watertight Liability Policy" ( the Watertight Policy ). 159He relied on an agreement between Horsell and PADI by which Horsell was authorised to negotiate and effect certain insurance policies in the name of PADI and all members who elected to be covered and noted that Horsell was paid a broker's fee by the insured of $612.26. 160Mr Birch also relied on advice which Horsell gave to Dive Two directly as to the extent of coverage of the Watertight Policy. 161Mr Birch relied on the following evidence to establish that Horsell had represented to PADI members generally that they would be covered in respect of third party liability for vessels up to 12 metres in length: (1)letters dated 23 September 2003 and 17 September 2004 which described the policy as proving third party liability coverage for all owned vessels up to 12 metres in length whilst used in conjunction with diving, snorkelling, swimming, fishing, whale-watching and sightseeing activities; and (2)promotional brochures issued in respect of the 2004/2005 and 2005/2006 years which identify as a benefit of the policy: "liability of water craft up to 12 metres in length" and which answer the frequently asked question: Does the public liability policy cover the liability of the dive boats we own and operate? as follows: "Only if the vessel is under 12 metres in length..." 162Mr Birch also relied on communications between Horsell and Dive Two and in particular a facsimile dated 3 March 2003 in which Horsell wrote: "Please note that we have not quoted Liability for the vessel as the PADI watertight policy provides coverable for liability for vessels up to 12 metres in length for activities associated with Diving, Swimming, Sight Seeing, Whale Watching and Fishing." 163Mr Birch submitted that these circumstances gave rise to an implied contract of retainer with Horsell, which contained a term implied by law that the broker will exercise reasonable care and skill in respect of a contract for the provision of brokering services: Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd [1975] 1 Lloyd's LR 52. 164Further he argued that Horsell ought reasonably to have expected that the advice would be relied upon by PADI members including Dive Two in determining what liability insurance they reasonably required. 165Mr Birch submitted that the duty owed by a broker to the putative insured is threefold: first, to ascertain the client's requirements as to cover by instruction or otherwise; secondly, to use reasonable skill and care in advising the client as to completion of the proposal and in procuring the cover which the client has requested, either expressly or by necessary implication; and thirdly, if the broker is unable to obtain the cover required, to report to the client in what respect the broker has failed and seek the client's alternative instructions: Anthony John Sharp & Anor v Sphere Drake Insurance PLC & Ors [1992] 2 Lloyds LR 501 at 523. He said that if Horsell was aware of any legal doubt about the applicability of the Watertight Policy insurance to the circumstances of Dive Two, it had a duty to advise of those legal doubts: see FNCB Limited v Barnett Devanney (Harrow) Limited [1999] LRIR 459, where the Court held that a broker is to afford protection to a client such that if reasonably possible the client does not become involved in legal disputes at all. 166Mr Birch submitted that Horsell was in the position of knowing the insured's needs, and knowing the insurance that existed and which was the subject of further negotiation at the relevant time. It had the power to ensure, either that the Watertight Policy insurance was sufficient to the needs of the insured, or that the insured's needs were met elsewhere in the market. 167Mr Birch submitted that Horsell breached its duty of care by failing to advise Dive Two that the policy was inadequate to cover all activities undertaken in a boat less than 12 metres in length and in particular that it would not cover activities which were not "in connection with the Insured's Business" but that Protection & Indemnity cover as part of hull insurance would cover any potential deficiency in the Watertight Policy. 168Mr Birch submitted that Horsell's negligence and breach of contract has caused the insured the loss of indemnity against the damages obtained by the plaintiff and that I should infer that had Horsell given advice that identified the deficiencies in the policy Mr Todd would have maintained a further liability policy attached to his hull insurance and that insurance would have protected him from the claims in the present matter. 169Mr Birch relied on evidence that established that Mr Todd took out boat insurance to cover the transportation of Dive One from Melbourne to New South Wales. He maintained hull insurance, though Roderick Insurance Brokers, which had a Protection & Indemnity component, until he was advised by Horsell that the latter was not necessary, at which time he cancelled. Later he changed his hull insurance to the PADI Dive Boat Insurance Policy. He took out personal insurance to cover his activities as a Dive Master and, for a short period when he operated a dive shop, he took out insurance for that purpose. 170Mr Birch submitted that Mr Todd was risk averse and that if he had been advised that the Watertight Policy did not necessarily cover Dive Two for liability arising from the use of Dive One, then he would have taken out Protection & Indemnity Cover as part of his hull insurance. Horsell's submissions on their liability to the defendants 171Mr Martin submitted that there was no evidence that on or about June 2002, the defendants had retained Horsell to advise them as to the insurance cover they should obtain in regard to the business of Dive Two and that no such retainer could be implied. 172Further, Mr Martin submitted that the only duty owed by a broker was to do "what the broker is employed to do" and that Horsell was not in breach of such duty. He contended that the facsimile of 3 March 2003 does not represent that the Watertight Policy provided adequate public liability insurance or that there was no need to have separate public liability insurance through boat (or hull) insurance. He submitted that the only obligation of a broker is to act on instructions and contended: "So they have no expertise, no reason to help the insured get an insurance that fits. Mr Duffy seems to misapprehend his role, if that's the case." 173Mr Martin contended further that, in any event, the defendants had failed to establish that either the statement in the facsimile of 3 March 2003 or the similarly worded tax invoice dated 3 November 2003 were incorrect, since the 2003/2004 policy is not in evidence. 174Mr Martin accepted that Horsell was the author of the brochures that were disseminated to PADI members and that Horsell knew that when it submitted the brochure to PADI, it would distribute the brochure to members. However, he contended that what was stated in the brochure, even if it is later found by me to be incorrect, does not amount to a breach of duty, since it reflected Horsell's understanding of the cover provided, which it was entitled to arrive at. Mr Martin contended that the defendants had not established that Horsell were negligent in any regard. 175Mr Martin submitted that the defendants had failed to demonstrate that it was unreasonable for Horsell not to advise them that the policy did not, or would not, cover "sightseeing" or the use of watercraft for no reward. He relied on the following: (1)representations made by Liberty that the Master Policy had been prepared in accordance with a quotation that contained an endorsement "Watercraft inclusion for craft up to 12 meters"; and (2)that exclusion clause 7.18.2 applied only to watercraft that exceeded 12 metres. 176He submitted that there was no evidence that Horsell was aware that "sightseeing" or the use of watercraft for no reward was not covered and noted that Mr Duffy was not cross-examined on this. He contended that it was not something that was so obvious that a failure to recognize it ought be regarded as negligent: Heydon v NRMA Limited (2000) 51 NSWLR 1 at 53, 117, 236; Boland v Yates Property Corporation Pty Ltd (1999) 167 ALR 575 at 658 - 9. 177Mr Martin also relied on the Civil Liability Act 2002 s 5D(1) which provides: "(1) A determination that negligence caused a particular harm comprises the following elements: (a) that the negligence was a necessary condition of the occurrence of the harm (factual causation), and (b) that it is appropriate for the scope of the negligent person's liability to extend to the harm so caused (scope of liability)." 178He submitted that the defendants have not established that they would have acted any differently if they had been advised about those matters. He contended that if I were disinclined to accept Mr Todd's evidence as to the purpose of the trip, I should also reject the evidence of Mr Todd on which Mr Birch relied to establish causation.

Whether Horsell's failure to advise the defendants on certain matters amounted to a breach of duty 179I consider that the circumstances surrounding the relationship between PADI and its members on the one hand, and Horsell on the other was sufficient to create a contract of retainer and impose a duty of care on Horsell. In my view, it is tolerably clear that PADI had engaged Horsell to advise it, and its members, on appropriate insurance cover, and, by implication, to warn it and its members where cover was inadequate or doubtful. 180I reject Mr Martin's submission that there was no relevant representation made in the facsimile dated 3 March 2003. Where a broker refuses to quote on a liability policy for a vessel because the liability to third parties is said to be covered by another policy, the broker is effectively advising that the insured does not need the liability policy for the vessel. Although the facsimile did not state that the cover for watercraft up to 12 metres was unlimited, the only limitations on cover which were identified were that the activities be associated with diving, swimming, sightseeing, whale-watching and fishing. Mr Todd was not warned of the limitation that appeared in the insuring clause in Master Policies that were in evidence namely that it covered matters "in connection with the Insured's Business". 181The representations in the Watertight Policy brochure were even stronger since they intimated to readers that they would have public liability insurance for boats less than 12 metres in length through the Watertight Policy, and did not warn potential policy holders that not all activities undertaken in such boats would be covered by the policy. 182I consider that it was incumbent on a reasonably competent broker, in circumstances where the broker had earlier advised a client that it did not need public liability insurance for its boat, to advise the client that the Watertight Policy would not cover all activities undertaken in such boats, but only those related to scuba diving and associated activities and which were conducted in connection with its business. Such a broker ought to have advised the client that Protection & Indemnity insurance for boats was available and could be obtained to cover risks not covered by the Watertight Policy. It breached the duty it owed to Dive Two to point out the legal pitfalls that might arise for the insured: Fanhaven Pty Ltd v Bain Dawes Northern Pty Ltd [1982] 2 NSWLR 57 at 62, per Huntley JA. Horsell was negligent and in breach of its implied retainer by failing to warn Dive Two of a potential deficiency in the policy which could be rectified by obtaining the policy that Dive Two had previously had to provide public liability insurance in respect of Dive One. 183In making these findings I am conscious of the fact that it is usual in such cases that there be evidence from a broker deposing to the standards to be expected of reasonably competent brokers. Although it cannot be said that the construction of the insuring clause in the instant case is an obvious or easy matter, the words of the insuring clause "in connection with the Insured's Business" are such as, in my view, to put a reasonably competent broker on notice that there was at least a substantial risk that those private, non-business activities would not be covered by the policy. As was said in Geoffrey W Hill & Associates (Insurance Brokers) Pty Limited v Squash Centre (Allawah North) Pty Limited [1996] ANZ Ins Cases 61-012, expert evidence is not required where the matter is obvious, as I consider this matter to be. 184I do not consider that these were matters which Mr Birch was obliged to put to Mr Duffy, since it was clear from the pleadings that the defendants alleged breach of retainer and breach of duty of care. 185In order to ascertain to what damages, if any, the defendants are entitled, it is necessary to consider the position that they would have been in, either had the contract of retainer been performed or the negligence not been committed. 186I accept Mr Birch's submissions that Mr Todd had shown himself to be prudent and conservative when it came to obtaining insurance. His evidence, which I accept, as to the various policies of insurance that he took out on behalf of Dive Two and on his own account (including in respect of his role as Dive Master) from time to time shows that he was risk averse as far as his business was concerned. He arranged insurance for the boat when he transported it from Victoria to New South Wales. When the business started to operate, he obtained business insurance. He also appreciated that he would need public liability insurance in respect of the boat. 187I accept Mr Todd's evidence that he cancelled the Protection and Indemnity aspect of the hull insurance as a result of advice given by an employee of PADI. This advice was reiterated in the PADI Watertight brochures that were written and published by Horsell, extracts of which are set out above. 188I find that had Mr Todd been advised that there was a risk that the Watertight Policy would not cover him for public liability if he used the boat for purposes unrelated to scuba diving and associated activities, or unconnected with the business of Dive Two, he would have taken out public liability insurance for the relevant period to cover the activities of Dive One. 189The evidence of Mr Duffy establishes that such insurance was commercially available at the relevant time at a cost that was broadly commensurate with the premium of other policies that Mr Todd had taken out. Accordingly, there is no proper basis on which I could find that the cost of such insurance was so prohibitive that Mr Todd would have chosen to take the risk of a claim associated with the boat, rather than pay the premium.

Conclusion and orders 190In determining that Horsell's negligence caused the defendants' loss (through Liberty's denial of indemnity, which I have found to be justified), I am satisfied that Horsell's negligence was a necessary condition of the occurrence of harm, and that it is appropriate for Horsell's liability to extend to such harm. 191It was not submitted that I should distinguish between any element of the claim against Liberty for insurance in calculating the damages for which Horsell is liable to the defendants. Because I have found that the sole reason Liberty is not liable to pay the defendants is because the claim did not arise "in connection with the Insured's Business", I consider that a public liability policy associated with the boat that did not have that limitation would have responded to each of the three aspects to the claim made by the defendants. 192Accordingly, the judgment sum will be the sum of the three monetary elements already determined, namely: the amount of the judgment given in favour of the plaintiff, the $5,500 compensation paid to Mr Page and the $11,275 fee in respect of representation in the negligent naviation proceedings, to which amount needs to be added the plaintiff's costs of the proceedings when such amount is determined by agreement or assessment. 193I consider that it was reasonable for the defendants to bring cross-claims against both Liberty and Horsell. For the defendants to elect to sue one cross-defendant rather than the other would not only have put it in an invidious position had it eventuated that it had sued the wrong one, but it would also have been at odds with the principle that all issues in dispute between parties ought be determined in the one set of proceedings. Accordingly, I consider that it is appropriate that Horsell pay the costs of the defendants and of Liberty. I have already ordered that the defendants pay the plaintiff's costs of the proceedings, and note that these costs form part of the defendants' cross-claim. I have not heard full argument on the question of costs, although Mr Birch submitted that this would be an appropriate order. Accordingly, I propose to make provision for the parties to approach the court to have the matter listed for argument on costs, if any party wishes to contend that the costs order I have proposed ought not be made. 194Accordingly, the orders I make are: (1)Judgment for the second cross-defendant on the cross-claim. (2)The parties are to deliver to my chambers a minute of judgment reflecting the above reasons when the amount of the plaintiff's costs has been agreed or assessed so that that amount can be included in the judgment sum. (3)Direct that any application that the costs order should be other than an order that the first cross-defendant pay the cross-claimants' and the second cross-defendant's costs of the cross-claim be made within seven days of the date of this order. (4)If no such application is made within seven days, the order of the Court will be that the first cross-defendant pay the cross-claimants' and the second cross-defendant's costs of the cross-claim.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 February 2012