Court of Appeal (WA)|2005-06-10|Before: Ms J, Steytler P, McLure JA, Pullin JA

Wiltrading (WA) Pty Ltd v Lumley General Insurance Ltd & Ors [2005] WASCA 106 (10 June 2005)

WILTRADING (WA) PTY LTD -v- LUMLEY GENERAL INSURANCE LTD & ORS [2005] WASCA 106 (10 June 2005)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : WILTRADING (WA) PTY LTD -v- LUMLEY GENERAL INSURANCE LTD & ORS [2005] WASCA 106

BETWEEN : WILTRADING (WA) PTY LTD (ACN 009 140 783)

PALMCOVE ENTERPRISES PTY LTD trading as JOHN DAWSON INSURANCE CONSULTANTS (ACN 084 997 384)

Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Practice and procedure - Appeal against exercise of discretion by trial Judge in interlocutory proceedings

Practice and procedure - Late amendment to pleadings raising new defence - Whether respondent estopped from relying on new defence - Whether new defence waived - Whether election not to raise new defence - Degree of "knowledge" required in waiver or election - Whether new defence amounted to a breach of insurer's duty of utmost good faith - Extent of disclosure in litigation required by duty of good faith - Whether trial Judge failed to take into account prejudice suffered by other party in allowing amendments to pleadings

District Court Rules 1996 (WA), O 1 r 3(b)

ACN 007 838 584 Pty Ltd v Zurich Australian Insurance Ltd [1997] SASC 6338; (1997) 69 SASR 374

AFG Insurances Ltd v Mayor Councillors and Citizens of the City of Brighton [1972] HCA 70; (1972) 126 CLR 655

Australian Coal and Shale Employees' Federation v The Commonwealth [1953] HCA 25; (1953) 94 CLR 621

Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd ("The Good Luck") [1992] 1 AC 233

CE Heath Casualty & General Insurance Ltd v Grey (1993) 32 NSWLR 25

Champtaloup v Thomas (1976) 2 NSWLR 264

Coastal Estates Pty Ltd v Melevende [1965] VicRp 60; [1965] VR 433

Craine v Colonial Mutual Fire Insurance Co Ltd [1920] HCA 64; (1920) 28 CLR 305

Ellison v Lutre Pty Ltd [1999] FCA 399; (1999) 88 FCR 116

Freshmark Ltd v Mercantile Mutual Insurance (Australia) Ltd [1994] 2 Qd R 390

Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101

Graham v Ingleby & Glover [1848] EngR 92; (1848) 154 ER 277

Groom v Crocker [1939] 1 KB 194

Hutton v Meston [2004] WASCA 178

Immer (No 145) Pty Ltd v The Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26

Jackamarra v Krakouer [1998] HCA 27; (1998) 195 CLR 516

John Connell Holdings Pty Ltd v Mercantile Mutual Holdings Ltd (1998) 10 ANZ Ins Cas 61-407

John Connell Holdings Pty Ltd v Mercantile Mutual Holdings Ltd [1999] QCA 429

Kadner v Brune Holdings Pty Ltd [1973] 1 NSWLR 498

Kelly v New Zealand Insurance Co Ltd (1996) 130 FLR 97

Khoury v Government Insurance Office of New South Wales [1984] HCA 55; (1984) 165 CLR 622

Leon v Casey [1932] 2 KB 576

Manifest Shipping & Co Ltd v Uni-Polaris Insurance Co Ltd (The "Star Sea") [2003] 1 AC 469

Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The "Kanchenjunga") [1990] 1 Lloyd's Rep 391

Mowie Fisheries Pty Ltd v Switzerland Insurance Australia Ltd (1996) 140 ALR 57

National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] VicRp 31; [1991] 1 VR 386

Newbon v City Mutual Life Assurance Society Ltd [1935] HCA 33; (1935) 52 CLR 723

Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd (1995) 8 ANZ Ins Cas 61-235

O'Connor v S P Bray Ltd (1936) 36 SR (NSW) 248

Official Receiver v Feldman (1972) 4 SASR 246

Parker v Registrar-General (1976) 1 NSWLR 342

Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537

Re Zurich Australian Insurance Ltd [1999] 2 Qd R 203

Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634

State Trading Corporation of India Ltd v M Golodetz Ltd [1989] 2 Lloyd's Rep 277

Switzerland Insurance Australia Ltd v Mowie Fisheries Pty Ltd (1997) 74 FCR 205

Szep v Blanken [1969] SASR 65

The Commonwealth of Australia v Verwayen (1990) 170 CLR 394

The Distillers Company Bio-Chemicals (Australia) Pty Ltd v Ajax Insurance Company Ltd [1974] HCA 3; (1974) 130 CLR 1

The State of Queensland v J L Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146

Tony Sadler Pty Ltd v McLeod Nominees Pty Ltd (1994) 13 WAR 323

Transfield v Rawstron [2005] WASCA 78

Vermeulen v SIMU Mutual Insurance Association (1987) 4 ANZ Ins Cas 60-812

Wardley Australia Ltd v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514

Wright v Vanderplank [1856] EngR 331; (1856) 44 ER 340

Banque Financiere de la Cite SA v Skandia (UK) Insurance Co Ltd [1991] 2 AC 249

Barrett v State of South Australia (1994) 63 SASR 208

Baume v The Commonwealth [1906] HCA 92; (1906) 4 CLR 97

Byron Shire Council v Vaughan [2002] NSWCA 158

CIC Insurance Ltd v Barwon Region Water Authority [1998] VSCA 77; [1999] 1 VR 683

Drake Insurance plc v Provident Insurance plc [2003] EWHC 1094; [2004] QB 601

Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641

John Pfeiffer Pty Ltd v Rogerson [2000] HCA 36; (2000) 203 CLR 503

Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850

Kim v Cole (2002) QCA 176

Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [1995] 1 Lloyd's Rep 651

Matthews v Smallwood [1910] 1 Ch 777

North-Western Salt Company Ltd v Electrolytic Alkali Company Ltd [1914] AC 461

Ocean Trawling Co Pty Ltd v Fire and All Risks Insurance Co Ltd [1965] WAR 65

Pennant's Case [1596] All ER Rep 634

Reid v Campbell Wallis Moule & Co Pty Ltd [1990] VicRp 76; [1990] VR 859

Yorkshire Insurance Co Ltd v Craine (1922) 31 CLR 27

1 STEYTLER P: This is an appeal, by leave, against a discretionary interlocutory decision of a Judge of the District Court.

2 The appellant ("Wiltrading") is a defendant in proceedings brought by Mr Andrew Flavel ("Flavel") arising out of personal injuries suffered by him in a boating accident.

3 Wiltrading had contracted with another company, Austal Ships Pty Ltd ("Austal"), the fourth defendant in the proceedings, to design, manufacture and supply 16 tender vessels to Austal for on-supply to the Australian Customs Service. The contract provided that each vessel had to successfully undergo an on-sea technical trial to demonstrate that it met the contract specifications before delivery to Austal. Sea trials of two of the vessels, vessels 60 and 61, were conducted on 30 June 1999. Flavel was on board vessel 60. He was employed by Austal and was there as its "sea trials' captain". Mr Patrick Dunphy ("Dunphy"), the first defendant in the proceedings, was the helmsman on vessel 60. Mr Matthew Szydlowski ("Szydlowski"), the second defendant in the proceedings, was the helmsman on vessel 61. During the sea trial of the two vessels, they passed the wake of a third vessel, the MV Guardian. Szydlowski was unable to negotiate the wake and was tossed overboard vessel 61, which travelled in circles while Szydlowski was brought on board vessel 60. Vessel 61 then struck the wake of another boat, the San Margo, which caused the unpiloted vessel to change course and collide with vessel 60, causing Flavel to suffer significant injuries.

4 Flavel commenced his action against the four defendants on 22 March 2001. All four were said to have been negligent. Flavel alleged that Wiltrading was vicariously liable for what was said to have been the negligence of its employee Dunphy. He also alleged that Wiltrading had itself been negligent in a number of respects, including its failure to ensure that on-board radio communication was available to contact other vessels and/or emergency services and its failure "to ensure that the 'deadman' switch functioned correctly on both vessels prior to the commencement of sea trials". The latter allegation ultimately led to the joinder of Yamaha Motor Australia Pty Ltd and Yamaha Motor Co Ltd as third parties and also as the fifth and sixth defendants respectively, and to the joinder of Yamaha Motor Japan Ltd as a third party. Those companies, between them, manufactured (in Japan), exported and distributed so-called "deadman" switches, being devices which are intended automatically to stop a vessel if its operator should fall overboard. Wiltrading had fitted vessels 60 and 61 with these "deadman" switches.

5 Wiltrading had obtained from the second third party ("Lumley") a Marine Hull Insurance Policy ("policy") which, by Section 1, indemnified it against damage to Wiltrading's vessels and, by Section 2, indemnified Wiltrading against liability for accidental bodily injury to any person arising from any event caused by negligence arising out of the authorised use of the vessel.

6 The policy contained a number of exclusions to Section 2. One of these, exclusion (b), read as follows:

(a) ...

(b) Claims arising directly or indirectly under any Workers Compensation Act or Employers Liability Act or any other statutory or Common law Liability in respect of accidents to or illness of workmen or persons employed in any capacity whatsoever by the insured or other persons in, on or about the insured vessel(s) by contract or in any way whatsoever."

7 The policy also contained a number of warranties applicable to Sections 1 and 2. One of these, warranty (b), read as follows:

"The insured shall comply with all statutory obligations and By-Laws or Regulations imposed by any Public Authority for the safety of persons or property and shall take reasonable precautions for the prevention of accidents."

Events Leading to the Third Party Proceedings Concerning Lumley

8 Lumley was notified of the accident by Wiltrading shortly after it had occurred. On 12 July 1999 Lumley's solicitors, Phillips Fox, met with Dunphy and Szydlowski at Wiltrading's offices in Fremantle so that statements might be taken from them. This was thought to be necessary by Lumley in order to consider whether or not the policy responded to the claim. After the meeting, Phillips Fox drafted the statements of the two men and sent them to Wiltrading so that they could be checked by Dunphy and Szydlowski. Signed statements were thereafter returned to Phillips Fox.

9 On 27 August 1999 Flavel's solicitors, Talbot and Olivier, wrote to Wiltrading informing it that Flavel held it liable for his injuries on the basis, inter alia, that it had failed to provide safe equipment. Wiltrading's solicitors, a firm describing itself as "Equilaw", forwarded a copy of that letter on to Phillips Fox by letter dated 26 May 2000.

10 Some months later, on 3 September 1999, Equilaw wrote to Phillips Fox inquiring whether Lumley accepted "liability to indemnify ... [Wiltrading] for the claim". Phillips Fox responded by letter dated 6 September 1999, saying that instructions were being sought from Lumley and that, in the meantime, "Underwriters fully reserve their rights under the Policy and generally in this matter". The letter advised Wiltrading, pending a decision on the issue of indemnity, to "act as a prudent uninsured party" and to "do nothing to prejudice its defence or ... [Lumley's] rights in ... [the] matter". Then, by letter dated 16 September 1999 from Australis Underwriting Agency ("Australis") as agent for Lumley addressed to Wiltrading's insurance broker, Palmcove Enterprises Pty Ltd ("Palmcove") trading as John Dawson Insurance Consultants, Australis informed Palmcove that indemnity under the policy was denied. Australis referred, in its letter, to the fact that Austal had contracted with Wiltrading for the manufacture of the vessels involved in the collision and also to the fact that, at the time of the collision, Flavel was an employee of Austal and was taking part in a demonstration of the vessels in the course of his employment. It said that in these circumstances exclusion (b), quoted above, applied.

11 On 15 June 2000 Wiltrading and Lumley entered into a Deed of Release ("Deed") in respect of Wiltrading's claim under the policy insofar as it related to the damage to vessels 60 and 61. The recitals to that document mention that "Wiltrading holds a marine hull policy of insurance with Lumley, Number 7H 1609769, applicable for the period 17 February 1999 to 1 July 1999 ('the Policy')" (Recital 3); that the two vessels were involved in a collision on 30 June 1999, causing both to be damaged ("the Damage") (Recital 4); that Wiltrading claimed indemnity from Lumley "in respect of the Damage only ('the Claim')" and that "the Claim does not include any claim for personal injuries" (Recital 5); and that the parties have "agreed to settle all of their disputes in respect of the Claim and the Damage on the terms set out in this deed" (Recital 6). The body of the Deed records the terms of the settlement in respect of the hull damage to the two vessels. Clause 11 of the Deed made it plain that the Deed did not relate to Flavel's personal injury claim against Wiltrading. It provides that:

"The parties agree that this deed does not release Lumley from any liability including but not limited to liability for personal injury, Lumley may have to Wiltrading arising out of the same facts that resulted in the Damage and the Claim, other than the liability for the Damage."

12 Under cover of a letter dated 11 December 2000, Talbot and Olivier provided Equilaw with extracts from a draft statement of claim prepared on behalf of Flavel. In the letter, they suggested that there could be no doubt about Wiltrading's negligence in specified respects. One of the heads of negligence so specified (indeed, the first of them) was "Failing to ensure that radio communication was available to contact other vessels and/or emergency services". On the following day, Equilaw forwarded a copy of Talbot and Olivier's letter on to Phillips Fox.

13 I have mentioned that Flavel commenced his action on 22 March 2001 and that the alleged failure to provide on-board radio communication was one of the heads of negligence pleaded against Wiltrading. Wiltrading filed its defence on 17 July 2001. Because Lumley then still denied liability under the policy in respect of the personal injuries claim, Wiltrading commenced third party proceedings against Lumley on the same day. It claimed a declaration, inter alia, that Lumley was liable to indemnify it against any liability it might have to Flavel in respect of his claim against Wiltrading.

The Third Party Proceedings Against Palmcove and SRS

14 Wiltrading had also taken out insurance under a policy issued by HIH Winterthur ("HIH"). Sacrificing some accuracy for the sake of brevity, that policy, when issued, was in terms which excluded liability in the case of a claim of the kind made by Flavel against Wiltrading. Wiltrading contended that this was a result of the negligence of each of Palmcove and Stirling Risk Services Pty Ltd ("SRS"). I have mentioned that Palmcove was, at the material time, Wiltrading's insurance broker. SRS had acted as Palmcove's agent in procuring insurance for Wiltrading. On 5 April 2000 HIH informed Palmcove that, in reliance upon the terms of the policy, it declined to indemnify Wiltrading in respect of Flavel's claim against it. Wiltrading consequently joined each of Palmcove and SRS as third parties in the proceedings, once they had been commenced by Flavel.

15 The action was entered for trial in the District Court on 11 December 2002. The parties attended pre-trial conferences on 7 February 2003 and 25 March 2003 and listing conferences on 9 June 2003 and 5 July 2004. The trial was listed for a period of 15 days commencing on 31 January 2005.

16 In December 2004, Flavel sought to amend his statement of claim by, inter alia, the addition of pars 12A and 12B, as follows:

"12A. Further and/or in the alternative the collision was caused by breach of statutory duty by the First Defendant [Dunphy], the Second Defendant [Szydlowski] and the Third Defendant [Wiltrading] or one or more of them.

Particulars of Breach of Statutory Duty

The First Defendant, the Second Defendant and the Third Defendant or one or more of them are in breach of duties imposed on them by the Western Australian Marine Act 1982 ('the Marine Act') and the W.A. Marine (Radiotelephony) Regulations 1981 ('the Marine Regulations') in that:

(i) The Marine Act provides:

(A) In section 43 that the regulations to the Marine Act will prescribe, inter alia, the types and standards of radiotelephony installations required to be installed in ships.

(B) In section 44 that it is an offence for an owner of a ship and every person having charge or command of a ship to begin a voyage unless the ship is equipped with radio equipment of the type and standard prescribed by the Marine Regulations.

(ii) Section 43 and 44 of the Marine Act apply to vessels #60 and #61 by reason that vessels #60 and #61 are vessels used or capable of being used in navigation by water and are therefore 'ships' for the purposes of sections 43 and 44 of the Marine Act.

(iii) The Marine Regulations apply to commercial vessels of Classes 1, 2 and 3, otherwise referred to in the Marine Regulations as seagoing ships, with the exception of vessels of classes 1E, 2E and 3E and hire and drive vessels. Vessels #60 and #61 are Class 2C commercial vessels as defined in the Uniform Shipping Laws Code and are therefore seagoing ships and commercial vessels of the type to which the Marine Regulations apply.

(iv) Regulation 5 of the Marine Regulations provides that a radiotelephony installation installed in a ship must:

(A) consist of a transmitter together with a separate or combined receiver;

(B) consist of a radiation system and a main source;

(C) consist of a reserve source of electrical energy;

(D) in the case of a seagoing ship which goes to sea within 20 nautical miles of a coast station or limited coast station, as those terms are defined in the Marine Regulations, and which keeps a continuous radio watch on frequency 156.80 MHz (Channel 16), consist of a VHF frequency modulated installation which complies with the requirements of Schedule II to the Marine Regulations.

(v) Regulation 6 of the Marine Regulations provides that any person having the control of a seagoing ship shall ensure that the radiotelephony installation fitted in that seagoing ship is so maintained that, whilst the seagoing ship is at sea, that installation complies with the Marine Regulations.

(vi) At all material times vessels #60 and #61 were seagoing ships which went to sea within 20 nautical miles of a coast station or limited coast station and which kept a continuous radio watch on frequency 156.80 MHz (Channel 16).

(vii) In breach of section 44 of the Marine Act and regulation 5 of the Marine Regulations the First Defendant, the Second Defendant and the Third Defendant or one or more of them caused or permitted vessels #60 and #61 to begin the voyages which resulted in the collision when both vessels #60 and #61 were not equipped with radiotelephony installations which complied with the requirements of regulation 5 of the Marine Regulations as set out in sub-paragraph 12A(d) [sic] hereof.

(ix)[sic] Further and/or in the alternative, in breach of regulation 6 of the Marine Regulations the First Defendant and the Second Defendant or one or both of them caused or permitted vessels #60 and #61 to begin the voyages which resulted in the collision when the radiotelephony equipment fitted to or available on vessels #60 and #61 was not so maintained as to comply with any of the requirements of regulation 5 of the Marine Regulations as set out in sub-paragraph 12A(d) [sic] hereof.

12B The breach of statutory duty by the First Defendant, the Second Defendant or one or more of them [sic] as pleaded in paragraph 12A above caused or materially contributed to the collision in which the Plaintiff was injured."

17 The amendment was consented to and an order was made accordingly on 11 January 2005.

18 On 18 January 2005, less than two weeks before the start of the trial, Lumley gave notice by email that it intended to amend its defence in the third party proceedings against it in order to plead the warranty to which I have earlier referred ("warranty (b)"). It filed an application on the following day. In par 4.5 of its proposed amendment, Lumley pleaded the terms of the warranty. Then, in par 7A, it pleaded that:

"Further and/or in the alternative ... in answer to Wiltrading's claim, Lumley says:

7A.1 it refers to, adopts and relies upon paragraphs 12A and 12B inclusive of the plaintiff's re-amended statement of claim as ordered to stand 11 January 2005;

7A.2 that should the plaintiff's claim of breach of statutory duty by the First Defendant, the Second Defendant and the Third Defendant or one or more of them be made out, then the warranty pleaded in paragraph 4.5 above has not been complied with, and Lumley is discharged from liability from the date of the breach.

Particulars

A Section 39 of the Marine Insurance Act (CTH) [sic] 1909.

7A.3 in the premises pleaded in this paragraph, Wiltrading has no right of indemnity under the Policy in respect of the plaintiff's alleged injury and the plaintiff's subsequent claim against it in respect of that injury."

19 Lumley made a similar plea in par 8.4 of its defence.

20 In January 2005 SRS also applied to amend its defence in the third party proceedings commenced against it by Wiltrading. It produced a minute dated 24 January 2005 in which it pleaded, in par 21A(b), the following:

(i) the indemnity provided under the HIH Policy was subject to a condition to the effect that Wiltrading would take all reasonable precautions to prevent injury and damage and would comply with all statutory obligations, by-laws and regulations imposed by any public authority for the safety of persons or property;

Particulars

Paragraph 11.8.2 of the HIH Policy.

(ii) Wiltrading, by its agents the First and/or Second Defendants, was grossly negligent in failing to comply with the condition referred to in (i) above;

Particulars

SRS repeats against Wiltrading the particulars subjoined to paragraph 12A of the Plaintiff's Re-Amended Statement of Claim filed on 11 January 2005

(iii) Wiltrading's conduct pleaded in paragraph (ii) above caused, or materially contributed to, the collision in which the Plaintiff was injured;

(iv) HIH:

(A) was entitled to decline indemnity by reason of the matters pleaded in paragraphs (i) and (ii) above; and

(B) would accordingly have declined to indemnify Wiltrading in respect of the Plaintiff's damages in any event."

21 Palmcove, too, applied to amend its defence. It did so by way of a minute lodged on 25 January 2005. Paragraph 27 of the minute was to the effect that, if Palmcove was found to be liable to Wiltrading and the plaintiff was successful in its claim that Wiltrading or Dunphy or Szydlowski, or one or more of them, was in breach of statutory duty, Wiltrading had suffered no loss because it could not have procured an insurance policy that provided indemnity for its liability arising out of a breach of its statutory duty.

22 Lumley's application to amend was supported by an affidavit sworn on 19 January 2005 by one of its solicitors, Michelle Frosh, who said, in par 5 of that affidavit, that Flavel's amendments had necessitated the amendments sought by Lumley. No other explanation was offered.

23 On 28 January 2005 the trial Judge gave leave to each of Lumley, SRS and Palmcove to amend its defence.

24 In his reasons for allowing the amendments, the trial Judge acknowledged that the applications had been brought "very late in the day" and that Lumley's delay, in particular, had "perhaps not been well explained". However, he said that the "overriding consideration must be the interests of justice" and that those interests dictated that the proposed amendments should be allowed. He went on to say:

"It is I think important to note that the evidence concerning what I have described as the primary facts will be before the court in any event. The third defendant made no objection to and indeed consented to the amendment to the plaintiff's statement of claim and that consent was forthcoming only a couple of weeks ago. Against that background I think that it would be wrong now to allow matters to be raised in the principal action but not in the third party proceedings.

The question which then arises is whether the matter should proceed to trial on Monday as scheduled or whether the trial should be adjourned in part or in full. In my view it should certainly be that the third party proceedings, the insurance proceedings should be adjourned so as to allow the parties and the third defendant in particular an adequate opportunity to raise by way of reply the matters touched upon by Mr Pynt [counsel for Wiltrading] which the third party would seek to raise so as to meet the amended defences.

Matters dealing with alleged breaches of duty of utmost good faith and waiver and estoppel [sic] . As to whether the main action should be adjourned the starting point I think is to observe that it is no fault of the plaintiff that these matters have been raised so late in the day and he is entitled to his day in court if it can fairly be done. The third defendant argues that it would be unfair to expose it to the possibility of a large judgment against it without a contemporaneous determination of its right to be indemnified but I have seen no evidence of any particular hardship that it would suffer and of course ... if it does have a right of indemnity then that right will cover any costs incurred by it for being out of its money, as the saying goes, for a period of time.

In addition, I think it appropriate to note that whereas the balance of convenience might well have favoured joint trials of the principal claim and the third party claims in times gone past the amendments in the third party action will now raise potentially many and complex issues which have nothing to do with the plaintiff. It would be unfair to burden the plaintiff with the cost of being involved in proceedings designed to resolve those issues. I do note Mr Pynt's submission that there are possible claims which the third defendant might want to bring in the contribution proceedings against Austal.

I also note that Mr Pynt has said in his submissions that the third defendant wishes to reserve its rights in respect of any claims which it might have against the other defendants as well but it should be possible, I think, for the third defendant to proceed now in the main action. If there are particular matters in relation to the contribution proceedings which emerge as matters which can't conveniently and properly be tried in the main action, they are matters which I think can be attended to in the course of the running of the main action and appropriate orders or directions could perhaps be made.

In the end then, the conclusion to which I have come is that there should be leave to amend the defences of the third parties; the trial of the third party action should be adjourned; the principal action should proceed. There will inevitably, as I have said, be other and consequential orders and directions to be made."

25 On 31 January 2005 the trial commenced on the question of the defendants' liability to Flavel ("liability issues"). By 18 February 2005, the last of the days set aside for the trial of the liability issues, the first three defendants, Dunphy, Szydlowski and Wiltrading, had closed their respective cases on those issues. The fourth defendant, Austal, had opened its case and called one witness. The fifth defendant, Yamaha Motor Australia Pty Ltd, had yet to open its case. Consequently, the balance of the liability issues and the hearing of the various third party and other proceedings (there were fourth party and contribution proceedings as between the various parties) had to be adjourned. They have been adjourned to be heard over a period of 15 days commencing on 1 August 2005.

26 On 15 March 2005 Wiltrading, having been given leave to do so, appealed against the decision of the trial Judge giving leave to Lumley, SRS and Palmcove to amend their respective defences in the respects set out above. The appeal in respect of Palmcove has since been discontinued, an accommodation having been arrived at between Wiltrading and Palmcove in respect of the matters to be relied upon by Palmcove by way of defence of the third party proceedings instituted against it. The grounds of appeal in respect of Lumley and SRS are as follows:

"1. The learned Judge erred in law in allowing Lumley's application to re-amend its substituted defence in that His Honour should have found that, as a matter of law, Lumley was precluded from amending or applying to the Court for leave to amend its defence in terms of its Minute of Re-amended substituted defence dated 18 January 2005, in that Lumley:

1.1 had waived its right, alternatively elected not, to defend;

1.2 was estopped from defending;

1.3 was prevented, by the duty of utmost good faith it owed to Wiltrading, from defending,

Wiltrading's claim for indemnity in respect of the plaintiff's claim against Wiltrading in the action ('Liability claim') on the basis that Wiltrading was in non-compliance with the Warranty pleaded in proposed sub-paragraphs 4.5 and 4.6, proposed paragraph 7A and proposed sub-paragraph 8.4 of Lumley's Minute of re-amended substituted defence dated 18 January 2005 ('Warranty') at the time of the Collision or at any material time.

2. Further or alternatively to paragraph 1 herein, the learned Judge erred in law in exercising his discretion to allow the applications by Lumley ... and SRS to amend their respective defences in that His Honour failed to take into account a relevant consideration, namely that allowing Lumley ... and SRS to amend their respective defences would cause prejudice to Wiltrading as described in the following paragraph, that could not be cured by an award of costs or an adjournment of the third party and contribution proceedings by Wiltrading against Lumley ... and SRS.

3. By Lumley ... and SRS amending their respective defences, Wiltrading has been deprived of the opportunity to:

3.1 litigate with one or more of Lumley, Palmcove and SRS or one or more of the other parties to the Action in a manner that would or might have saved it costs;

3.2 settle the plaintiff's claim against it;

3.3 settle its claim against Palmcove, SRS or Lumley; or

3.4 settle the claims made by it against the fourth defendant ('Austal'), the fifth defendant ('Yamaha Australia') or the sixth defendant ('Yamaha Japan') or by Austal, Yamaha Australia or Yamaha Japan against it,

in circumstances where there was a risk that if, which is denied, Wiltrading was in non-compliance with the Warranty at the time of the Collision or any other material time, it might not have any recourse to Lumley, Palmcove or SRS in respect of any judgment or costs awarded against it."

27 Before dealing with these grounds it needs to be firmly restated that, subject to the District Court Rules 1966 (WA) (including O 1 r 3(b) which provides that, unless the justice of the case otherwise requires, the Court will refuse an application made subsequent to the pre-trial conference for leave to amend pleadings which, if granted, would necessitate an adjournment of the trial), a trial Judge has a wide discretion on such questions as that of whether or not to grant an amendment (see The State of Queensland v J L Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146 at 167, per Kirby J) and it is "appropriate that appellate courts should pay more than lip service to the primacy of the trial judge" in respect of them: J L Holdings at 164, per Kirby J. It is not for an appellate court to interfere merely because it would have decided the matter differently. It may not interfere except upon grounds of the kind stated in such well-known cases as Lovell v Lovell [1950] HCA 52; (1950) 81 CLR 513 at 532 - 534; Australian Coal and Shale Employees' Federation v The Commonwealth [1953] HCA 25; (1953) 94 CLR 621 at 627; Gronow v Gronow [1979] HCA 63; (1979) 144 CLR 513 at 519 and 537 and, of course, House v The King [1936] HCA 40; (1936) 55 CLR 499 at 505. Moreover, special restraint must be exercised when the interlocutory order challenged is one concerned with practice and procedure: J L Holdings at 173, per Kirby J.

28 That brings me to ground 1. As will be apparent, Lumley contends that the trial Judge should have found that, as a matter of law, Lumley was precluded from amending in the manner sought by it. However, the issues of waiver, election, estoppel and good faith involved mixed questions of fact and law. Moreover, those issues are quite complex. To take just one difficulty, the law as regards the extent of the knowledge required in order to give rise to an election or waiver (if waiver has an independent existence in this context) remains to some extent uncertain, as I shall explain below.

29 It seems plain enough that, if Lumley was entitled to rely upon warranty (b), and if the evidence at trial established that the warranty was breached as a consequence of the breaches of statutory duty pleaded in par 12A of Flavel's statement of claim, then, as a result of the operation of s 39 of the Marine Insurance Act 1909 (Cth) (the Act) (Wiltrading accepted, for the purposes of the appeal, that the policy was a marine insurance policy and, hence, subject to that Act), Lumley was entitled to regard itself as having been discharged from liability as from the date of the breach, if it had not waived that breach. Section 39 reads as follows:

(1) A warranty, in the following sections relating to warranties, means a promissory warranty, that is to say a warranty by which the assured undertakes that some particular thing shall or shall not be done, or that some conditions shall be fulfilled, or whereby he affirms or negatives the existence of a particular state of facts.

(2) A warranty may be express or implied.

(3) A warranty, as above defined, 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."

30 The effect of this section is that breach of a warranty of the kind described results in the insurer's discharge from liability from the date of the breach even if it was trivial or not causally related to the loss: Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd ("The Good Luck") [1992] 1 AC 233. However, s 40(3) of the Act provides that a breach of warranty may be waived by the insurer.

31 The latter provision is curious, given that the effect of s 39(3) is that, on breach of a warranty, the insurer is automatically discharged from liability without the need for an election, subject to any express provision in the policy. Nevertheless, the obvious intention of s 40(3) is that, if the insurer waives the breach, it cannot rely upon it as having discharged it from liability. M A Clarke, The Law of Insurance Contracts, 2nd ed, 1994, at 516, in a passage cited by Beaumont J (in the course of his dissenting judgment) in Switzerland Insurance Australia Ltd v Mowie Fisheries Pty Ltd (1997) 74 FCR 205 at 242, writes that "Cover has died, subject only to the insurer's power to revive the corpse before it is cold". (See also State Trading Corporation of India Ltd v M Golodetz Ltd [1989] 2 Lloyd's Rep 277 at 287, per Kerr LJ, and The Good Luck at 263, per Goff LJ.)

32 Wiltrading contends that, if it was in breach of its statutory duty, and hence in breach of warranty (b), in the respects pleaded in par 12A of Flavel's statement of claim, Lumley is estopped from relying upon that breach or, knowing of the facts which gave rise to Wiltrading's breach, has waived the breach and/or elected to affirm the contract of insurance.

33 In alleging that Lumley knew of the facts giving rise to the breach, Wiltrading relies essentially upon three things, each of which was made known to the trial Judge. The first is that in July 1999 Lumley's solicitors took statements from Dunphy and Szydlowski. The second is that Lumley knew, in May 2000, that Flavel alleged that Wiltrading had failed to provide safe equipment. The third is that Lumley knew, in December 2000, that Flavel alleged that Wiltrading had failed to ensure that radio communication was available on its two vessels so as to enable them to contact other vessels and/or emergency services.

34 As to the conduct said to give rise to a waiver or election by Lumley, or an estoppel against it, Wiltrading relies upon the entry by Lumley into the Deed on 15 June 2000, which, it says, amounted to an unequivocal affirmation of the contract of insurance, and upon the fact that Lumley at no time raised the issue of breach of warranty (b) until after it was served with a copy of Flavel's amended pleading in December 2004.

35 I propose, first, to consider the doctrine of election. That doctrine has been said to apply where a party makes a choice between two inconsistent legal rights, choosing to enjoy one and to surrender the other: Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 at 641, per Stephen J. It is "of the essence of election that the party electing shall be 'confronted' with two mutually exclusive courses of action between which he must, in fairness to the other party, make his choice": Spencer, Bower and Turner, The Law Relating to Estoppel by Representation, 3rd ed, 1977, at 313, quoted in Immer (No 145) Pty Ltd v The Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26 at 41. A common illustration of the operation of the doctrine is where a party, having the right of avoiding a contract for breach, chooses instead to keep it on foot and sue for damages: see, for example, O'Connor v S P Bray Ltd (1936) 36 SR (NSW) 248 at 258 - 261, per Jordan CJ, cited in Sargent at 642.

36 The operation of the doctrine requires both knowledge on the part of the elector and words or conduct sufficient to amount to the making of the election: Sargent at 642; Craine v Colonial Mutual Fire Insurance Co Ltd [1920] HCA 64; (1920) 28 CLR 305 at 326. While prejudice to the other party may be relevant, particularly in determining whether or not an election should be imputed to a person who has not been shown to have made a conscious decision to elect, it is not necessary that prejudice be demonstrated in order to establish a completed election between the right to affirm and the right to avoid a contract. "An election, unlike estoppel, is concerned with what a party does and not what he causes the other party to do": Khoury v Government Insurance Office of New South Wales [1984] HCA 55; (1984) 165 CLR 622 at 633, per Mason, Brennan, Deane and Dawson JJ. A party can only be held to have elected "if he has so communicated his election to the other party in clear and unequivocal terms": Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The "Kanchenjunga") [1990] 1 Lloyd's Rep 391 at 398, per Goff LJ, and Immer at 39. The election is "complete" or "final", at the latest, when made and communicated to the other party: Khoury at 633; Newbon v City Mutual Life Assurance Society Ltd [1935] HCA 33; (1935) 52 CLR 723 at 733.

37 As to the requirement of knowledge, there is no doubt that, at least, "full knowledge of the material facts" is required: Sargent at 642. It may also be accepted that a party to a contract will be taken to know of the rights which it confers: Sargent at 645, per Stephen J (with whom McTiernan J was in agreement) and 658, per Mason J; Khoury at 633 - 634; and Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd (1995) 8 ANZ Ins Cas 61-235 at 75,649 to 75,650, per Handley JA. However, the position is less clear as regards the question whether knowledge of the inconsistent rights is required or will be imputed in other circumstances: see Sargent at 656 - 658, per Mason J, Coastal Estates Pty Ltd v Melevende [1965] VicRp 60; [1965] VR 433; Official Receiver v Feldman (1972) 4 SASR 246; Szep v Blanken [1969] SASR 65; Kadner v Brune Holdings Pty Ltd [1973] 1 NSWLR 498; Parker v Registrar-General (1976) 1 NSWLR 342; and Champtaloup v Thomas (1976) 2 NSWLR 264; and see also the discussion in Cheshire and Fifoot's Law of Contract, 8th Aust ed, 2002, at [11.50].

38 More recently, in Ellison v Lutre Pty Ltd [1999] FCA 399; (1999) 88 FCR 116 the question arose whether or not the appellant was entitled to rescind a contract pursuant to s 1073(2) of the Corporations Law in circumstances in which the contract involved the sale of a "prescribed interest" in circumstances contravening the relevant provisions of the Corporations Law. The Court (von Doussa, Mansfield and Goldberg JJ) said, at 128, after considering what had been said in Sargent, that the appellant's option to avoid the contract could be lost by his affirmation of the contract after he became aware of facts which gave rise to that option and that they did not "think it is necessary that he should know of the legal right itself which s 1073(2) creates before he might elect by conduct to affirm the contract".

39 As to the words or conduct necessary to give rise to an election, the cases establish that, where an election is not shown to have been consciously made, the words or conduct relied upon to impute it must be unequivocal: Sargent at 646, per Stephen J, and Khoury at 633, per Mason, Brennan, Deane and Dawson JJ.

40 That brings me to waiver, in respect of which the law remains largely unclear (one commentator, Kris Arjunan, "Waiver and Estoppel - A Distinction Without a Difference?" (1993) 21 Aust Bus Law Rev 86 at 109, has described the law in this respect as being "in hopeless disarray"). The position seems still to be regulated by what was said by the judges of the High Court in The Commonwealth of Australia v Verwayen (1990) 170 CLR 394. In that case the question arose whether or not the Commonwealth had waived particular defences or was estopped from relying upon them. Deane and Dawson JJ held that the Commonwealth was estopped, Toohey and Gaudron JJ held that it had waived its rights. Mason CJ and Brennan and McHugh JJ were in dissent. However, each of the judges discussed the notion of waiver.

41 Mason CJ considered, at 407, that the authorities dealing with waiver of statutory rights did not call for special consideration and said that they spoke "with different voices, sometimes in the language of election, at times in that of estoppel and at other times in terms of unconscionability". He also said, at 406 - 407, that the better view was that "apart from estoppel and new agreement, abandonment of a right occurs only where the person waiving the right is entitled to alternative rights inconsistent with one another such as the right to insist on performance of a contract and the right to rescind for essential breach" and that this category of waiver was an example of the doctrine of election.

42 Brennan J, while considering (at 422) that waiver was a term of "shifting meaning", believed that it was different from estoppel and (at 423) that it "recognizes the unilateral divestiture of certain rights". He also considered that waiver is distinct from election, saying (at 424) that the "sterilising of a right might, in some circumstances, be attributable to either a waiver or an election, but the doctrines are distinct, for a right may be waived though there is no alternative right inconsistent with it".

43 Deane J, at 449 - 450, thought it "preferable to confine the rubric of 'waiver' within the area of the law in which, notwithstanding the absence of consideration, the act of the alleged waivor is of itself directly operative to 'waive' a right or entitlement without there being any need to establish that the other party has acted upon the basis that the right or entitlement in question was no longer asserted".

44 Dawson J favoured the view (at 451) that waiver was an imprecise term "used to describe what is done in a variety of circumstances rather than to assert any particular legal process". He said (ibid) that, when not used in the sense of election, if it had any identifiable legal consequence, it was generally indistinguishable from estoppel. However, he added that, where the term was not used to describe an election or estoppel, it might be used, loosely, to refer to non-insistence upon a right by choice or default.

45 Toohey J considered (at 468) that "waiver as a notion applicable both to the loss of a right and the loss of a defence" had "a reputable lineage" and (at 471) that it "has a role to play". He went on to say (at 473):

"Waiver, in the sense used for the purposes of this appeal, may be found in the deliberate act of a defendant not to rely upon a defence available to him. That is not to say that there must be an intention to bring about the consequences of waiver; rather, the conduct from which waiver may be inferred, must be deliberate. Detriment is not an essential attribute of waiver, though it will often be found as a consequence."

46 Gaudron J said (at 485) that she would continue to use the word "wavier" "in the present context to signify deliberate action or inaction which has resulted in a changed relationship to which the parties will be held whether or not detriment is actually established".

47 McHugh J considered that most cases purportedly applying the doctrine of waiver are cases of contract, estoppel or election, but said that there are some cases which cannot fairly be characterised as falling within those categories and (at 497) that a person "will be held to have waived compliance with the condition if he or she knowingly takes or acquiesces in the taking of a subsequent step". However, he added that these cases were to an extent anomalous and "should be strictly confined so as not to conflict with the more established doctrines of election, contract and estoppel".

48 There has been a good deal of debate as regards the fate of "waiver", as an independent doctrine, since Verwayen: see, for example, Freshmark Ltd v Mercantile Mutual Insurance (Australia) Ltd [1994] 2 Qd R 390 at 404, per Dowsett J, with whom McPherson JA was in agreement, Mowie Fisheries at 241 - 242, per Beaumont J (and at first instance, Mowie Fisheries Pty Ltd v Switzerland Insurance Australia Ltd (1996) 140 ALR 57 at 80, per Tamberlin J). However, the use of that term in order to describe the situation in which a party has chosen not to insist on the performance of a provision inserted in a contract for its benefit (see, for example, Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537 at 543, per Gibbs CJ, and 549, per Brennan J (with whom Stephen J agreed) does seem to have survived Verwayen (see at 423 - 424, per Brennan J, 449, per Deane J, 451, per Dawson J, 468, per Toohey J, 485, per Gaudron J, and 497, per McHugh J) and, in that sense, waiver is still a principle recognised by the law: see John Connell Holdings Pty Ltd v Mercantile Mutual Holdings Ltd (1998) 10 ANZ Ins Cas 61-407 at 74,474, per Chesterman J (affirmed John Connell Holdings Pty Ltd v Mercantile Mutual Holdings Ltd [1999] QCA 429 esp at [30] and [32]).

49 When the word "waiver" is read in its context in s 40(3) of the Marine Insurance Act, it necessarily imports the notion of the insurer choosing not to take the benefit of the (automatic) statutory discharge of the contract provided for by s 39(3), perhaps amounting to a form of "resurrection by reinstatement", a form of words offered by M A Clarke, above, at 516, although the author there prefers a somewhat different analysis, as follows:

"However, in terms of the law of today and, indeed, of Lord Goff's own judgment in The 'Kanchenjunga', it is submitted that (what was once) waiver of breach of warranty should now be regarded as a case of estoppel, whereby the insurer is estopped from pleading that the insurance has terminated by reason of the breach of warranty. Accordingly, in the following pages, what has commonly been referred to in the past as waiver will be referred to as estoppel."

50 Whatever may be the position as regards the current operation of the doctrine of waiver, and whether the issue is looked at as one of election or waiver (although, because the discharge from liability is automatic, there seems to be no election to make, only a decision whether or not to treat the policy as having revived: see Clarke, at 516), it follows from the authorities to which I have referred that there must, at least, have been an unequivocal act with knowledge of the relevant facts. It seems to be strongly arguable that, in a case such as this where the right in question arises under the contract of insurance read in conjunction with the provisions of s 39(3) of the Act, knowledge of the existence of the terms of the contract and of the relevant provisions of the Act will be imputed to the insured (see Ellison at 128). It is also arguable that knowledge of the "statutory obligations and By-Laws or Regulations ... for the safety of persons or property" referred to in warranty (b) will similarly be imputed as these are the very subject matter of that warranty.

51 If the issue is looked at as one of estoppel, there must, in essence, have been a statement, representation or promise by Lumley, or the fostering of an assumption by it; reliance by Wiltrading, to its detriment, on that statement, representation, promise or assumption; and a wish, by Wiltrading, to act contrary to the statement, representation, promise or assumption in circumstances in which this would be unconscionable: see Verwayen, above, Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 at 123 - 125 and Cheshire and Fifoot, above, at [2.2]). The conduct which is said to have induced Wiltrading's assumption or expectation must necessarily have been unequivocal. Also, although knowledge is not a requirement, it would be difficult for Wiltrading to make good its plea of reliance upon Lumley not taking a defence which was open to it if it cannot show, at least, that Lumley appeared to know, or must be taken for that purpose to have known, the facts upon which the defence depended.

52 Before considering the nature of Lumley's conduct, I should deal with an additional point raised by counsel for Lumley. He contended that there could be no waiver of Wiltrading's breach because the breach amounted to illegal conduct and, he said, there cannot be a waiver of that kind of breach. I am unable to accept this contention. There is nothing in the Marine Insurance Act which, as I read it, has this consequence. Counsel for Lumley relied, in this respect, upon s 47 of the Act. That section provides that there is an implied warranty that the adventure is a lawful one, and that, so far as the assured can control the matter, that the adventure shall be carried out in a lawful matter. However, there is nothing in the Act which expressly precludes the waiver of a breach of warranty of that kind and, to the contrary, s 40(3) is, on its face, so broadly expressed as to permit the waiver, by the insurer, of a breach of warranty of any kind, even one imposed by s 47 of the Act.

53 It is true that, under the common law, there is a general principle that "an individual cannot waive a matter in which the public have an interest": Graham v Ingleby & Glover [1848] EngR 92; (1848) 154 ER 277 at 279, per Alderson B, referring to R v Bloxham [1844] EngR 973; (1844) 6 QB 528; 115 ER 197; and Verwayen at 486, per Gaudron J, and 497, per McHugh J. However, that principle is necessarily subject to the legislation concerned and, in any event, I do not consider that there is, even at common law, any public interest sufficient to preclude the waiver, by an insurer, of a past breach of a warranty contained in a policy of insurance in respect of a failure to adhere to regulatory requirements, whether in respect of safety issues or otherwise.

54 That brings me to a consideration of Lumley's conduct and of its knowledge at the relevant times.

55 There can, in my opinion, be no doubt on the evidence as it stands that, by entering into the Deed on 15 June 2000, Lumley unequivocally affirmed the contract of insurance. As I have mentioned, Recital 3 of the Deed specifically records that Wiltrading then held a Marine Hull policy of insurance with Lumley, applicable for the period 17 February 1999 to 1 July 1999. Moreover, as I have also said, Lumley paid out an agreed sum in respect of the claim for hull damage. However, it has not been demonstrated that, as at the date of the Deed, Lumley knew any more than that Flavel alleged that Wiltrading had failed to provide "safe equipment" (the allegation which had been made by Talbot and Olivier in their letter dated 27 August 1999 addressed to Wiltrading and subsequently copied to Lumley's solicitors). While Lumley's solicitors had, by then, taken statements from each of Dunphy and Szydlowski, there is nothing in the materials before us to say whether or not those statements dealt with the question of what radio communication equipment had been supplied to the vessels.

56 I have said that, by December 2000, Lumley knew that Flavel alleged that Wiltrading had failed to ensure that radio communication, sufficient to contact other vessels and/or emergency services, was available on the two vessels. As has been pleaded by Flavel, by virtue of s 44 of the Western Australian Marine Act 1982 (WA), the master or owner of a vessel "shall not cause or permit the ship to begin a voyage unless ... the ship is equipped with radio equipment in accordance with the regulations". The regulations there referred to are the WA Marine (Radiotelephony) Regulations 1981 (WA) (the "Marine Regulations"). If, as alleged by Flavel in his statement of claim, vessels 60 and 61 are class 2C commercial vessels as defined in the Uniform Shipping Laws Code, then, by virtue of reg 3 of the Marine Regulations, those regulations, including regs 5 and 6 (the two regulations said to have been breached by Wiltrading) applied. Those regulations read as follows:

"5. Prescribed types and standards of installations

An installation is of the prescribed type and standard required to be installed in a ship for the purposes of complying with section 44 of the Act if it consists of a transmitter together with a separate or combined receiver, a radiation system and a main source, and a reserve source, of electrical energy and -

(a) in the case of an installation fitted in a seagoing ship of any kind, it is a single sideband installation which complies with the requirements of Schedule 1; or

(b) in the case of an installation fitted in a seagoing ship which -

(i) goes to sea, plies or is navigated, as the case requires, exclusively within 20 nautical miles of a coast station or limited coast station; and

(ii) keeps a continuous radio watch on the frequency 156.80 MHz (Channel 16);

it is a VHF frequency modulated installation which complies with the requirements of Schedule II.

6. Maintenance of installations

The master of a seagoing ship shall ensure that the installation fitted in the seagoing ship is so maintained that, whilst the seagoing ship is at sea, that installation complies with these regulations."

57 It seems to be strongly arguable, given that Lumley knew, on 12 December 2000, that Flavel alleged that no radio communication sufficient to contact other vessels and/or emergency services was available on vessels 60 and 61 (and if Lumley is taken to know of the content of the Marine Regulations), that Lumley knew that Flavel's allegation amounted to one to the effect that the equipment fell short of what was required by the Marine Regulations.

58 As to the question whether there was any conduct, on or after 12 December 2000, on the part of Lumley which unequivocally affirmed the contract or otherwise gave rise to a waiver of, or an estoppel in respect of, its right to regard the contract as discharged, Wiltrading relies essentially only upon Lumley's failure, until January 2005, to take the point, looked at in the light of its conduct throughout the course of events giving rise to, and encompassing, the litigation.

59 While delay, or standing by, might be an element of waiver (see Brunyate: Limitation of Actions in Equity, 1932, Stevens & Sons, London, at pp 188 - 189, and Parkinson (ed), The Principles of Equity, 2nd ed, 2003 Lawbook Co at [2916]), this will ordinarily only be so where the delay is evidence of a deliberate choice (at least in the context of waiver in the form of an election): see, for example, Wright v Vanderplank [1856] EngR 331; (1856) 44 ER 340 and see, generally, Transfield v Rawstron [2005] WASCA 78 at [52]. In Verwayen, the two Judges who decided that case upon the basis of waiver, Toohey and Gaudron JJ, both considered that a failure to raise a defence available to a defendant did not, of itself, amount to a waiver. Toohey J said, in this respect, at 473:

"A defence available to a defendant, whether it be on the facts or on the law, is not waived merely because the defendant does not initially plead that defence. It is commonplace for pleadings to change as an action progresses, whether by way of expansion or contraction (though usually the former)."

"Ordinarily the failure to raise a particular defence will not effect a change in the relationship of parties to litigation. If, for example, liability is in contest, the relationship is not altered by expanding the grounds of that contest. Thus, ordinarily and subject to those considerations relevant to the grant of leave, the pleadings may be amended to enable all matters relevant to that issue to be raised."

61 Of course, there is, in this case, more than simply a failure to plead the defence. There was a failure to plead it over a sustained period of time after Lumley had knowledge of the facts giving rise to the breach of warranty (being, as I have said, from at least December 2000, on the available evidence). Moreover, there was a failure to retract or depart in any way from what, on the evidence as it stands, was the unequivocal affirmation of the contract of insurance constituted by the making of the Deed. Whether that amounts to conduct sufficient to give rise to a waiver or estoppel is undoubtedly a question of some substance.

62 However, it seems to me that that question and, indeed, the questions of law touching upon the issue of knowledge are best left to be answered at the end of the trial, after all of the evidence has been led, and full submissions made, rather than in advance of the trial and in the course of urgent interlocutory proceedings of the kind with which the trial Judge was faced. It remains to be seen, even now, what additional facts might emerge which touch upon the issue of knowledge and which might assist in characterising Lumley's conduct for the purposes of the arguments of waiver and election. It also remains to be seen what facts will emerge which bear upon the characterisation of Lumley's conduct said to give rise to an estoppel, and upon issues of reliance, detriment and, indeed, the appropriate remedy if an estoppel should be found. That alone makes it undesirable for questions of this kind to be decided in interlocutory proceedings in advance of the hearing of the action: Wardley Australia Ltd v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 533.

63 I am consequently unable to accept that the trial Judge erred in failing to find, "as a matter of law", that there was an election or waiver or estoppel of the kind contended for.

64 That brings me to the last of the issues raised by Wiltrading in ground 1, being that of lack of good faith.

65 Wiltrading's argument rests primarily upon the provisions of s 23 of the Marine Insurance Act, which reads as follows:

"23. Insurance is uberrimae fidei

A contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party."

66 Two points are at once apparent from the terms of the section. The first is that the duty is mutual. The second is that the remedy afforded by the section is that of avoiding the policy (although it might be possible to restrain a breach of the duty by injunction: see National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] VicRp 31; [1991] 1 VR 386 at 545). In addition, it has been held, as regards both the common law duty and the statutory duty, that the duty extends at least up to and including the making of a claim: Leon v Casey [1932] 2 KB 576; AFG Insurances Ltd v Mayor Councillors and Citizens of the City of Brighton [1972] HCA 70; (1972) 126 CLR 655, 661; CE Heath Casualty & General Insurance Ltd v Grey (1993) 32 NSWLR 25 at 38 - 39; and Manifest Shipping & Co Ltd v Uni-Polaris Insurance Co Ltd (The "Star Sea") [2003] 1 AC 469 at 482, 493 and 511. Derrington and Ashton: The Law of Liability Insurance, 2nd ed, 2005, suggest at 236 [4-3] and again at 242 [4-14] that, while there is a view that the courts have shown no anxiety to apply the doctrine beyond the stage where a claim is made, the suggested limitation may be doubtful in liability insurance where the need for good faith may continue in dealings with the insured's claim for indemnity.

67 The duty has as an essential (but not necessarily sufficient) element the notion of honesty (Vermeulen v SIMU Mutual Insurance Association (1987) 4 ANZ Ins Cas 60-812 and Kelly v New Zealand Insurance Co Ltd (1996) 130 FLR 97). Derrington and Ashton suggest, at 236 [4-5], that "good faith" has "generally come to mean fair dealing in which the one party puts the interest of the other at least at the same level of protection as his or her own" (see also Groom v Crocker [1939] 1 KB 194; Re Zurich Australian Insurance Ltd [1999] 2 Qd R 203 at 219 [82] to [84] and The Distillers Company Bio-Chemicals (Australia) Pty Ltd v Ajax Insurance Company Ltd [1974] HCA 3; (1974) 130 CLR 1 at 31, where Stephen J referred to the "duty of good faith and fair dealing"). The authors also suggest, at 237 [4-5], that negligent and unwarranted delay by an insurer in deciding whether or not to accept liability to indemnify may constitute a breach of utmost good faith. They refer, at 248, fn 121, to a number of instances of breach by the insurer of the duty, including failure to inform the insured of rejection of the claim (see ACN 007 838 584 Pty Ltd v Zurich Australian Insurance Ltd [1997] SASC 6338; (1997) 69 SASR 374). Of course, nothing in the duty can prevent an insurer from acting reasonably in its own interests or to its own advantage in a respect or respects contemplated by the policy itself.

68 In this case Wiltrading contends that Lumley has breached the duty (and also a duty of good faith imposed by the common law) by failing to give any notice, until January 2005, of its intention to rely upon Wiltrading's breach of warranty (b) as a basis for denying liability under the policy. It relies upon the same facts as are relied upon by it in respect of its assertions of election, waiver and estoppel and upon the prejudice identified in ground 3 of its grounds of appeal in contending that Lumley is acting unfairly, and in breach of duty, in now relying upon that defence.

69 The operation of a provision identical to s 23 of the Marine Insurance Act (s 17 of the Marine Insurance Act 1906 (UK)) was discussed in the House of Lords in The "Star Sea". There the defendants argued for a requirement of fair dealing and disclosure by the insured to the insurer (the policy was one of marine insurance) even after litigation between them had commenced.

70 Lord Clyde, at 481 [4], found the "idea of a requirement for full disclosure superseding the procedural controls for discovery in litigation" to be "curious and unattractive, and one which would require to be soundly based in authority or principle". Whilst seemingly attracted to the notion that the breadth of s 17 might be curtailed by reading it so as to apply only in pre-contract negotiations, his Lordship said that that solution "now appears to be past praying for". Instead, he said (at 482 [6]) that a "flexible construction" of the concept of utmost good faith should be adopted. He considered (at 482 [7]) that the "substance of the obligation which is entailed can vary according to the context in which the matter comes to be judged".

71 Lord Hobhouse, after considering the history of the concept of good faith, likewise considered that the content of the obligation to observe good faith varies, and has a different application, in different situations (at 494 [48]). He went on (at 503 - 505 [73] - [77]) to consider whether the obligation of good faith and disclosure continues to apply unqualified once the parties are engaged in hostile litigation before the courts. He said, in that regard:

"75 When a writ is issued the rights of the parties are crystallised. The function of the litigation is to ascertain what those rights are and grant the appropriate remedy. The submission of the defendants in this case is that, notwithstanding this, one party's conduct of the litigation can not only change that party's substantive rights but do so retrospectively avoiding the contract ab initio. It cannot be disputed that there are important changes in the parties' relationship that come about when the litigation starts. There is no longer a community of interest. The parties are in dispute and their interests are opposed. Their relationship and rights are now governed by the rules of procedure and the orders which the court makes on the application of one or other party. The battle lines have been drawn and new remedies are available to the parties. The disclosure of documents and facts are provided for with appropriate sanctions; the orders are discretionary within the parameters laid down by the procedural rules. Certain immunities from disclosure are conferred under the rules of privilege. If a party is not happy with his opponent's response to his requests he can seek an order from the court. If a judgment has been obtained by perjured evidence remedies are available to the aggrieved party. The situation therefore changes significantly. There is no longer the need for the remedy of avoidance under section 17; other more appropriate remedies are available. The same points have been persuasively made by Callahan AJ sitting in the Supreme Court of Connecticut in Rego v Connecticut Insurance Placement Facility (1991) 593 A 2d 491, 497.

76 I recognise that it is possible for something to be done in the litigation which may amount to a contractual act; the delivery of pleadings and similar documents are a form of communication. Such communication can have a contractual significance which can and will still be given effect to. Thus it is possible by a pleading to repudiate a contract or accept a repudiation as terminating the contract. Similarly, a claim or defence may affect the substantive rights of a landlord and tenant inter se. But the acts and omissions of the assured relied upon by the defendants in the present case are not of that character. They are solely relevant as alleged failures to observe good faith under section 17. The section 17 principle is a principle of law and if its rationale no longer applies and if its operation, the conferment of a right of avoidance, ceases to make commercia1 or legal sense then it should be treated as having been exhausted or at the least superseded by the rules of litigation. It will also very often be the case that by the time the litigation has started the cover has expired or its subject matter has ceased to exist so as to make the continuing relationship of insurer and insured no longer current and the observation of good faith only significant to the litigation.

77 I am therefore strongly of the view that once the parties are in litigation it is the procedural rules which govern the extent of the disclosure which should be given in the litigation, not section 17 as such, though section 17 may influence the court in the exercise of its discretion."

72 Lord Scott also considered (at 511 [95]) that the content of the duty of utmost good faith was not the same after the contract as before (see also [96] and [102]). He went on to say, at 515:

"110 ... I can see a great deal of force in the argument that the section 17 duty does not apply to conduct in the prosecution of litigation, as to which the Rules of Court that govern litigation constitute the regulatory code. A decision as to that, too, is best left for a case where the point is critical to the result.

111 I would, however, limit the duty owed by an insured in relation to a claim to a duty of honesty. ..."

73 Lords Steyn and Hoffmann agreed with the speeches of both Lord Hobhouse and Lord Scott. Lord Steyn also agreed with the speech of Lord Clyde.

74 Since then, in Agapitos v Agnew [2002] EWCA Civ 1327; [2003] QB 556 Mance LJ (with whom Park J and Brooke LJ agreed), after mentioning (at 577 [51]) that The "Star Sea" contains "most powerful dicta to the effect that the duty of good faith under section 17 is superseded or exhausted by the rules of litigation, once litigation is begun", said that he would "unhesitatingly" apply the dicta in a case where breach of the duty in s 17 was in point, both because of their weight and because he agreed with them. He also said (at 578 [52]) that the policy considerations which led Lord Hobhouse to restrict the statutory duty to the pre-litigation period militated strongly in favour of a similar restriction of the duration of the common law duty.

75 There is, in the light of these authorities, a very powerful argument that, in the case of s 23 of the Marine Insurance Act also, the duty of good faith is superseded or exhausted by the rules of litigation, once litigation has commenced. That being so, and given that the content of the obligation might vary, or have a different application, in different situations, Wiltrading's argument under this head might be thought to depend upon the individual circumstances of the case, including the issues of knowledge and conduct to which I have earlier referred, and also upon the proper application of the rules of litigation. Hence, it might be thought not to add anything of significance to the arguments already dealt with.

76 Counsel for Wiltrading advanced the proposition in this respect that, because (as he put it) the dicta in The "Star Sea" and in Agapitos apply only to procedural matters and not to matters of substantive law, those dicta have no application in this case, as Wiltrading's contentions involve matters of substantive law. This proposition seems to me to be unsustainable. The issue which faced the trial Judge was the procedural issue of whether Lumley and SRS should be permitted to amend their pleadings at a very late stage of the proceedings, taking into account the nature and prima facie merit of the amendments and their probable consequences. That, in the logic of what was said in each of the two cases referred to, seems to me to be a matter falling squarely within the province of the rules of litigation and outside that of s 23, save for the possibility that the existence of s 23 might (in circumstances not identified by Lord Hobhouse) influence the Court in the exercise of its discretion.

77 It can consequently not be said that the trial Judge was required, as a matter of law, to find, in the course of urgent interlocutory proceedings in advance of the trial, that Lumley was precluded by this duty from amending in the respect complained of. That question seems to me, once again, to have been one which was more appropriately answered at the end of the trial, after a proper opportunity for reflection, once all of the evidence had been led and full submissions had been made in respect of it.

79 It is convenient to deal with grounds 2 and 3 together.

80 These grounds contend, in effect, that the trial Judge's discretion miscarried when he allowed Lumley and SRS to amend because he failed to take account of the prejudice which this would bring about to Wiltrading, being prejudice of a kind which, it says, could not be cured by either or both of an award of costs or the grant of an adjournment of the third party and contribution proceedings.

81 The prejudice relied upon is that identified in ground 3, being the loss of an opportunity for Wiltrading to litigate with one or more of Lumley, Palmcove and SRS in such a way as to save costs, or to settle with Flavel or to settle with one or more of Palmcove, SRS, Lumley, Austal and the two Yamaha companies, in circumstances in which it faced a risk that, if found to have breached warranty (b), it might have no recourse against any of Lumley, Palmcove or SRS in respect of any judgment or costs awarded against it (cf, in this respect, Nigel Watts Fashion Agencies, referred to earlier in these reasons, at 75,646 and 75, 654).

82 Wiltrading points to the fact that, until the week before trial, Lumley denied the claim against it under the policy solely upon the basis of exclusion (b) and that Palmcove and SRS, until then, alleged that the policy responded to the claim. Furthermore, Wiltrading contends that the case was, until that time, being fought upon the basis that, if the policy did not respond by virtue of exclusion (b), or if Wiltrading was not otherwise insured in respect of the claim, this was because one or other of Palmcove and SRS had failed, in breach of a duty owed by it, to ensure that the policy, or that issued by HIH, responded to a claim of that kind. Wiltrading contends that it was consequently then in a position to litigate with other parties in the proceedings (Flavel, Austal, Lumley, Palmcove, SRS and the two Yamaha companies) upon the basis that, if it was found to be liable to Flavel, the Court would find either that the policy responded to the claim or that Wiltrading was entitled to be compensated by either or both of Palmcove and SRS for not obtaining insurance for it that did respond to a claim of that kind. However, once Lumley and SRS were given leave to amend, Wiltrading was at risk that, if it was found to have been in breach of, or non-compliance with, warranty (b) at the material time, the Court might dismiss its claims against Lumley, Palmcove and SRS.

83 It is true that the trial Judge made no real analysis of the prejudice now asserted by Wiltrading (although he did say that he had seen no evidence of any "particular hardship" that Wiltrading would suffer). More importantly, he made no evaluation of that prejudice as against the potential merit of the amendments sought to be made by Lumley and SRS, given Wiltrading's answers to those amendments. In my respectful opinion (and while I am cognisant of the difficulties with which the trial Judge was faced, having regard for the urgency brought about by the imminence of the trial of the proceedings), he should have engaged in that process, given the materiality of those matters to his exercise of discretion. Grounds 2 and 3 have consequently been made out.

84 That leaves the question of what should now be done. Counsel for Wiltrading has urged us, when answering that question, to take into account evidence of events which have occurred since the granting of leave to make the amendments by the trial Judge. In particular, he has pointed to the fact that Lumley, in par 17 of its surrejoinder, has admitted Wiltrading's plea (in par 28 of its reply) that, by about August 2001 at the latest, one or both of Lumley and Phillips Fox knew that Wiltrading did not have, or might not have had, a VHF marine channels radio available to vessels 60 and 61 at the time of the collision. He contends that this substantially strengthens Wiltrading's arguments of waiver or election. This may be so, but in my opinion it does not change the fact that it is inappropriate for the Court to reach any final conclusion as regards the merit of those defences, or the defences of estoppel and lack of good faith (all of which involve questions of mixed fact and law) until after the whole of the evidence has been led.

Wiltrading (WA) Pty Ltd v Lumley General Insurance Ltd & Ors [2005] WASCA 106

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Judgment (226 paragraphs)

Wiltrading (WA) Pty Ltd v Lumley General Insurance Ltd & Ors [2005] WASCA 106 (10 June 2005)