Switzerland Insurance Australia Ltd v Mowie Fisheries Pty Ltd [1997] FCA 231

With all respect, I have difficulty accepting this construction. In my opinion, as a matter of syntax at least, there are good reasons for reading the words "provided for" as attached to their neighbour, the word "machinery". It is more natural to read the words in this way, that is, in the order in which they appear. To attach the earlier word "power" to "provided for" is, I think, a strained and artificial construction and unlikely to have been intended. A proper analogy may be seen in the syntactical presumption that where two or more subjects are qualified by two or more matters, the qualifications attach to the subjects in the order in which they appear (see Canadian Pacific Tobacco Co. Limited v. Stapleton (1952) 86 CLR 1 at 6; Chelfco Ninety-Four Pty Limited v. Road Traffic Authority [1985] VR 1 at 11; Pearce and Geddes, op. cit. at 111-2; Bennion, op. cit. at 871). The courts have always recognised that the significance of individual words is affected by other words and the syntax as a whole (see Collector of Customs v. Agfa-Gevaert Limited (1996) 141 ALR 59 per Brennan CJ., Dawson, Toohey, Gaudron and McHugh JJ. at 64). The extrinsic expert evidence as to the term "propulsion power" discussed by his Honour illustrates, I think, why para.21(g)(ii) should be read as having its ordinary and natural meaning and construed syntactically. His Honour's discussion of that evidence will be mentioned below, but it should be noted that, at the outset, the primary Judge said, and with this I do agree, that the question, ultimately, is one of the construction of para.21(g)(ii). His Honour also said that "it is appropriate to consider these terms (sc. "propulsion power") with respect to their common usage in the industry, in the light of the expert evidence". But it does not appear to have been suggested that the composite phrase in which para.21(g)(ii) is expressed is, taken as a whole, a term of art, even if some of the expressions used in this sub-paragraph may have a special meaning in the industry. In Agfa, above, the Full High Court made the following observations on the approach to be adopted to the construction of a composite legislative phrase without, as here, a trade meaning (at 68): "No doubt there are cases where a court or tribunal must interpret a composite phrase by reference to the ordinary meaning of the words taken as a whole without recourse to the trade meaning that one or more of its words may have. Much depends on the subject matter and context of the phrase. In the area of statutory interpretation and construction, courts must be wary of propounding rigid rules. Even the use of general rules carries dangers in this area because of the tendency for such rules to be given an inflexible application. Nevertheless, when construing a composite phrase which does not have a trade meaning, it will ordinarily make sense for a court or tribunal to take notice of the trade meaning of a word or words within that expression, provided such an interpretation does not lead to a result which is absurd in the sense that the result may be unworkable or impracticable, inconvenient, anomalous or illogical, futile or pointless, or artificial. Consideration of the trade meaning of individual words in such cases is more likely than not to lead to the interpretation that the makers of the instrument had in mind. Further, contrary to Agfa's submission, using the trade meaning of individual words in a composite phrase having no special meaning as a whole does not involve a failure to construe the phrase "as a whole". It simply does not follow, as a matter of logic or common sense, that the division of a composite expression into parts which are interpreted by reference to their trade meaning, ordinary meaning or a combination thereof necessarily means that a court or tribunal has failed to construe an expression by reference to its meaning as a whole." It follows, in my view, that it was open to the parties to lead evidence to show that some of the language in para.21(g)(ii) had a special meaning. However, his Honour seems to have approached this question on the footing that the phrase "propulsion power" appeared in that form in the language of the definition in para.21(g)(ii) itself. As has been noted, I would not construe the sub-paragraph in that way. On the contrary, I would not read those two words as linked in the language of the definition; rather, in my view, it is "the machinery provided for propulsion" which needs to be assessed in order to ascertain the "propulsion power". Nonetheless, since it may at least throw some light on the actual context of para.21(g)(ii), mention should be made of the expert evidence considered by Tamberlin J. (at 66-7) as follows: His Honour referred (at 66) to the evidence of Mr Shaw, the director of marine services with the Marine Board of Victoria, called by Mowie, who said that if the owner of a vessel could substantiate, to the Board's satisfaction, that the propulsion power was less than that indicated in the survey, then the Board would use the lower figure. Tamberlin J. (at 66-7) referred to the following evidence by Mr Shaw: "I would not see the propulsion power of the engine as being that power that's delivered at the propeller; I would have seen the propulsion power as that power that's developed as close as possible to the engine and the losses after that would not affect my definition of propulsion power. So you've got the propulsion power here at the engine, if you've got a gearbox, if you've got bearings, if you've got tail shaft, if you've got a loss through friction which would be very small, as it goes through the stern gland, whatever. I would say those are losses, but the propulsion power that I would have been using for the purposes of determining the certificate of competency would have been that propulsion power of the engine... It is the way we would do it and it is the way I believe we do it, but it's never been an issue to the extent it is at this point. ... I would look at the word - the total maximum continuous rated power in kilowatts of all the machinery provided for propulsion of the vessel. And I would sort of - in my own mind I would hold that the emphasis is on the machinery so you would work out the power of the machinery, so you have got the power of the machine that is going to provide the power for the propulsion and the losses therein are such are those... that power that's tucked off from the machine for other matters such as electrical generators, belt driven generators or belt driven bilge pump would reduce the propulsion power and things like bearings, stern gland, gearbox. That would not reduce the propulsion power but it reduces the power available to propel the vessel, in my opinion (emphasis added)." As has been seen, in terms of the proper construction of para.21(g)(ii), I agree with Mr Shaw's view, but as a matter of construction, that "the emphasis is on the machinery so you would work out the power of the machinery". His Honour added (at 67): "Mr Shaw went on to say that the owner and the surveyor would probably get their information from the published data for the particular engine from the manufacturer. He later said that what he meant by propulsion power was brake horsepower. Mr Shaw had never heard a marine engineer speak of the rated power of an engine as being the power that is delivered to the propeller. I do not, however, attach much weight to the evidence given by Mr Shaw as to the meaning of propulsion power. Throughout his evidence he reiterated that shaft horsepower may or may not be considered to be the same as brake horsepower, and he went on to say that in his own mind shaft horsepower is the horsepower provided at the end of the propeller shaft." Tamberlin J. then (at 67-8) described the evidence of Mr Roberts, an executive of the supplier of the engine, called by Mowie. Mr Roberts was of the opinion that, at 1,800 rpm, in terms of "continuous" (as distinct from "intermittent") performance, the engine developed 345 "shaft" horsepower (i.e. 258 kW), which is described by his Honour as follows (at 67): "This is the power available at the output flange of the transmission available to drive the propeller. It allows for deduction of power losses arising from the operation of parts such as the battery charging alternator, a seawater pump which cools the engine through a heat exchanger, and other frictional losses. The resulting power is described by the manufacturer as propeller shaft horsepower. It does not, however, take into account power losses arising from the operation of the steering pump." Tamberlin J. went on to say (at 67): "If a reasonable allowance is made for power used by a steering pump from the shaft horsepower, the result will be a power of less than 250 kW. Accordingly, an MED3 crew member would satisfy the requirement of the USL Code for [present] purposes." His Honour then noted (at 68) that Mr Roberts treated the term "rated power" as the power "available at the fly wheel, which is the back end of the crankshaft and the engine, before deducting anything for the gearbox and other off-takes". Tamberlin J. then discussed (at 68-9) the evidence of Mr Riley, a naval architect called by Mowie. In Mr Riley's opinion, in order "to ascertain the propulsion power of the vessel it was necessary to take the upper rating of 370 hp and make appropriate deductions... [that is,] for the gearbox, a seawater pump, a generator and a steering pump". On this approach the "net propeller shaft power" was "in the order of 330 hp or less than 250 kW". Mr Riley was familiar with the expression "maximum continuous rating" (which his Honour (at 68) took to be synonymous with "maximum continuous rated power") and understood the expression to mean the power available from the engine measured in (gross) brake horsepower, and to amount to "an indication of the 'useful power available' from the engine". It appears that it is normal practice for manufacturers to publish either "brake" hp or kW (measured at the crankshaft) or shaft hp (measured at the output coupling of the reduction box). Mr Riley agreed that a manufacturer would not publish a rating which would deduct a steering pump. However, he considered that, to determine what power is available at a propeller, "you would have to take into account whatever other machinery is run from the engine...". In his view, the "continuous" (as distinct from "intermittent") rating was the relevant measurement in practice because it "contains an allowance for the normal add-ons that one would have for a marine engine... If other equipment was driven by the main engine, e.g. steering pump..., [he] would deduct [it]... [to] determine the shaft horsepower available for propulsion". His Honour said (at 70) that he preferred the evidence of Mr Riley to that of Mr Newall, who was called by SIA. His Honour's reasoning (at 70-1) with respect to the construction of para.21(g)(ii) has already been set out. It will be remembered that Tamberlin J. held that the concept of "propulsion power" here meant "the actual power used to propel the vessel", after taking away "power [that] has been siphoned off or provided for other purposes". As appears from the foregoing summary of the expert evidence led at first instance, although it was not suggested by the experts that the whole of the definition expressed in para.21(g)(ii) consists of a term of art having a special meaning, it does not seem that there was any serious dispute about the evidence of Mr Newall (referred to by his Honour at 69) that the concept of "maximum continuous rating" (MCR) was well understood in the industry, and meant the statement by the manufacturer of the engine's power and speed capability under specified load conditions; and that these ratings are based on a test standard and standard ambient conditions. It appears that the real point of departure between the experts turned on the point of construction of para.21(g)(ii) previously mentioned, that is, did the word "power" qualify the word "machinery" on the one hand, or the words "provided for propulsion" on the other; put differently, did the words "provided for propulsion" qualify the word "machinery"? As has been said, Tamberlin J. preferred the former; whereas I prefer the latter construction, essentially on syntactical grounds. But the expert evidence shows that there are real difficulties, it appears, to the point of unworkability or impracticality, if the latter construction is not adopted. That is to say, unless it is clear beyond argument what deductions should be made from the "rated power", the former construction would be uncertain in its application, and thus unlikely to have been intended. The expert evidence shows, if it be needed, that the whole area of the deduction, if any, and the amounts to be allowed on that account, is bound to be controversial and contentious. In my opinion, the former construction is impractical and should not be accepted. Although not, of course, decisive on the construction of para.21(g)(ii), it should be noted that in connection with an application for a survey certificate, the Marine Board of Victoria, provided a printed form dealing with, inter alia, "Machinery Requirements". Under the heading "Engine details" the following printed item appeared: "Max. Continuous S.H.P.... at... R.P.M." This is clearly a reference to the maximum continuous shaft horsepower of the engine. In the completed application form for this vessel dated 23 March 1993, signed by the surveyor and on behalf of the owner, the figures "345" and "1800" were inserted in the form so that it read: "Max. Continuous Rated S.H.P....345 ...at... 1800... R.P.M."

By s.39(3) it is provided that a warranty, as defined in s.39(1), is a condition which must be exactly complied with, whether it be material to the risk or not. If it be not so complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date. Non-compliance with a warranty is excused when, by reason of a change of circumstances, the warranty ceases to be applicable to the circumstances of the contract, or when compliance with the warranty is rendered unlawful by any subsequent law (s.40(1)). A breach of warranty may be waived by the insurer (s.40(3)). The effect of the counterpart of these provisions in the U.K. Act was considered in Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Limited ("The Good Luck") [1992] 1 AC 233. The context was a question of construction of an undertaking given by a shipowners' mutual insurance association to its Bank "to advise [the Bank] promptly if the association ceases to insure..." It was, in effect, a term of the insurance cover that the insured warranted that the ship would not proceed into certain prohibited zones, in this case nominated areas directly affected by hostilities between Iran and Iraq. At the time of its loss, the vessel was in this zone. It was held that there had been a breach by the association of its undertaking because it had "cease[d] to insure" the vessel. Lord Goff, speaking for the House of Lords, said (at 261-2): "We are here concerned with the nature of warranties in contracts of marine insurance. We have to distinguish between two forms of warranty, viz; those warranties which simply denote the scope of the cover (as in the familiar f. c. and s. clause - 'warranted free of capture and seizure') and those which are promissory warranties, involving a promise by the assured that the warranty will be fulfilled. It is with the latter type of warranty, which is the subject of sections 33 to 41 of the Act of 1906, that we are concerned in the present case." (Division 7 of the Australian Marine Insurance Act contains provisions which, as has been noted, are in the terms of these provisions.) Lord Goff said (at 262-3): "So it is laid down in section 33(3) that, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty. Those words are clear. They show that discharge of the insurer from liability is automatic and is not dependent upon any decision by the insurer to treat the contract or the insurance as at an end; though, under section 34(3), the insurer may waive the breach of warranty. Section 33(3) of the Act reflects what has been described, in successive editions of Chalmers, The Marine Insurance Act 1906, as the inveterate practice in marine insurance of using the term 'warranty' as signifying a condition precedent. As Lord Blackburn said in Thomson v. Weems (1884) 9 App.Cas. 671, 684: 'In policies of marine insurance I think it is settled by authority that any statement of a fact bearing upon the risk introduced into the written policy is, by whatever words and in whatever place, to be construed as a warranty, and, prima facie, at least that the compliance with that warranty is a condition precedent to the attaching of the risk.' Once this is appreciated, it becomes readily understandable that, if a promissory warranty is not complied with, the insurer is discharged from liability as from the date of the breach of warranty, for the simple reason that fulfilment of the warranty is a condition precedent to the liability of the insurer. This moreover reflects the fact that the rationale of warranties in insurance law is that the insurer only accepts the risk provided that the warranty is fulfilled. This is entirely understandable; and it follows that the immediate effect of a breach of a promissory warranty is to discharge the insurer from liability as from the date of the breach. In the case of conditions precedent, the word 'condition' is being used in its classical sense in English law, under which the coming into existence of (for example) an obligation, or the duty or further duty to perform an obligation, is dependent upon the fulfilment of the specified condition. Here, where we are concerned with a promissory warranty, i.e. a promissory condition precedent, contained in an existing contract of insurance, non-fulfilment of the condition does not prevent the contract from coming into existence. What it does (as section 33(3) makes plain) is to discharge the insurer from liability as from the date of the breach. Certainly, it does not have the effect of avoiding the contract ab initio. Nor, strictly speaking, does it have the effect of bringing the contract to an end. It is possible that there may be obligations of the assured under the contract which will survive the discharge of the insurer from liability, as for example a continuing liability to pay a premium." His Lordship added (at 263): "Even if in the result no further obligations rest on either party, it is not correct to speak of the contract being avoided; and it is, strictly speaking, more accurate to keep to the carefully chosen words in section 33(3) of the Act, rather than to speak of the contract being brought to an end, though that may be the practical effect. When, as section 34(3) contemplates, the insurer waives a breach of a promissory warranty, the effect is that, to the extent of the waiver, the insurer cannot rely upon the breach as having discharged him from liability. This is a very different thing from saying that discharge of the insurer from liability is dependent upon a decision by the insurer." The decision in "The Good Luck" has been criticised (see Malcolm Clarke, "Breach of Warranty in the Law of Insurance" (1991) LMCLQ 437 at 438; Malcolm A Clarke, The Law of Insurance Contracts (1994) at 513-4). But, for our purposes, it should be accepted as authoritative (see also Palmdale Insurance Ltd. (in liq.) v R P & I Baxter Pty Ltd (1982) 2 ANZ Insurance Cases 60-479; cf. the observations of Sir Anthony Mason, "The Future of Marine Insurance Law", Ebsworth & Ebsworth Maritime Law Lecture, 8 November 1995 at 19-20). It is also settled that where the insured does not comply with the warranty and the insurer is automatically discharged from liability for a loss as from the date of the breach, this consequence will follow irrespective of whether the breach caused the loss (see Marine Insurance Act, s.39(3); Sir Michael Mustill "Fault and Marine Losses" (1988) LMCLQ 310; and see the criticism of the harshness of the rule by Sir Anthony Mason, op. cit. at 19). What then is the meaning and operation of the first warranty in the present circumstances? Under the terms of the warranty, Mowie in effect undertook that a particular condition should be fulfilled, that is, that during the whole of the term of the insurance there would be a valid Certificate of Survey in force in respect of the vessel. By virtue of the provisions of s.39(3), as interpreted in "The Good Luck", if and when the condition was not exactly complied with, SIA was thereupon discharged from liability, without any requirement of action or indication on the part of SIA that it treated itself as discharged from liability. In fact, as has been seen, a Certificate of Survey was issued which, initially at least, was valid. In all outward appearances, the Certificate remained on foot until the loss of the vessel, in the sense that no attempt was made by the Board to suspend, cancel or revoke it. Prima facie then, the condition, the fulfilment of which was the subject of the warranty, was complied with. However, a question arises as to the meaning and operation of the provision in the Certificate that "subject to the [safety manning] conditions listed below [the Certificate] shall be in force until 23/03/94..." (Emphasis added). It will be recalled that it was a "condition" that the vessel was to "carry a minimum safety manning" of, inter alia, a MED2; and that, at the time of the loss, a MED3 only was on board. It appears that it was within the power of the Board to issue the Certificate subject to such a condition (as to the general power to impose conditions, see e.g., Shrimpton v The Commonwealth (1945) 69 CLR 613 per Latham CJ. at 620; Lloyd v Robinson (1962) 107 CLR 142 per Kitto, Menzies and Owen JJ. at 154; Pyx Granite Co. Limited v Minister for Housing [1958] 1 QB 554 per Lord Denning at 572). It is true that the legislation and the USL Code treat the survey of a vessel and its safety manning requirements as separate topics. Yet, as Hale J. has pointed out, "[statutory] surveys... are directly related to seaworthiness in general..." (See Ocean Trawling Co. Pty Limited v Fire and All Risks Insurance Co. Limited (1965) WAR 65 at 69). In Sanko Steamship Co Ltd & Anor v Sumitomo Australia Limited (No.2) (1995) 63 FCR 227 Sheppard J. said (at 285): "The evidence of the circumstances in which the grounding occurred establish that, objectively speaking, the four deck officers were incompetent. That was not to be unexpected in the light of the way in which each of them came to be promoted or appointed to the positions which they held. Plainly enough, a vessel which is manned by an incompetent crew is unseaworthy... In summary my conclusions are that the vessel was unseaworthy because it was sailing on uncorrected charts and it was not properly manned." (Emphasis added). It appears then that a condition with respect to safety manning may be seen as fairly and reasonably related to seaworthiness in a general sense, and this in turn has a sufficient nexus with the matters the subject of a proper survey. I accept that the condition was validly imposed. But what were the consequences of its non-fulfilment for our purposes? It will be remembered that the Certificate provided that "...subject to compliance with the condition( ) [the Certificate] shall be in force until 23/03/94..." What is the meaning of "subject to" in this context? One of the dictionary meanings of "subject" according to the Macquarie (2nd ed.) is: "21. being dependent or conditional upon something (fol. by to)." In my opinion, this meaning of the phrase is indicated by the present context (see Palatine Insurance Company Limited v Gregory [1926] AC 90 at 92; Masters v Cameron (1954) 91 CLR 353 at 362-3; Hong Guan & Co. Limited v R Jumabhoy & Sons Limited [1960] AC 684 at 700; Meehan v Jones (1982) 149 CLR 571 at 578; 590). That is to say, the operation of the Certificate was dependent or conditional upon there being compliance with the condition that the vessel carry, inter alios, a MED2. Since that condition was not fulfilled here at the commencement of the subject voyage, it must follow, in my view, that the Certificate was not then operative, and that the vessel no longer remained "in survey". It further follows that Mowie was then in breach of the first warranty.

(1948) 76 CLR 1

(1984) 157 CLR 149

(1936) 55 CLR 608

(1989) 17 NSWLR 86

(1996) 140 ALR 57

(1997) 141 ALR 618

(1981) 147 CLR 297

(1957) 97 CLR 535

(1933) 48 CLR 171

(1963) 109 CLR 270

(1960) 103 CLR 353

(1910) 11 CLR 123

(1984) 154 CLR 627

(1990) 169 CLR 324

(1952) 86 CLR 1

(1996) 141 ALR 59

(1945) 69 CLR 613

(1962) 107 CLR 142

(1995) 63 FCR 227

(1954) 91 CLR 353

(1982) 149 CLR 571

(1986) 82 FLR 334

(1969) 117 CLR 651

(1994) 51 FCR 416

(1990) 170 CLR 394

(1920) 28 CLR 305

(1994) 2 Qd R 390

(1981) 150 CLR 225