Kingdom of Tonga v Allianz Australia Insurance Ltd [2005] TOLawRp 7; [2005] Tonga LR 196 (25 February 2005)

IN THE SUPREME COURT OF TONGA

Kingdom of Tonga

v

Allianz Australia Insurance Ltd

Supreme Court, Nuku'alofa
Ford J
CV 723/2003

17-19 November 2004; 25 February 2005

Insurance law – maritime insurance – query whether ship was insured – not insured

Tropical Cyclone Ami struck Tongatapu on the night of the 14th and early morning hours of the 15th of January 2003. One of the casualties was the plaintiffs' inter-island ferry MV Olovaha which ran aground on an inner reef and sustained severe damage. The plaintiffs were respectively the owner of the Olovaha and the "Managing Agent" for the owner. The defendant company was a firm of insurance underwriters based in Sydney, Australia. The plaintiff alleged that at all material times the Olovaha was insured with the defendant for Hull and Machinery risk under Insurance Policy number 51--1254329--MCH. The "material time" in that context was defined as on or about the 15th day of January 2003. The defendant admitted that it was the lead underwriter under the policy for the period 31 December 2001 until 31 December 2002 in respect of two of the plaintiffs' vessels --the Fua Kavenga and the Olovaha but, it pleaded that cover for the MV Olovaha was suspended as from 29 July 2002 because, contrary to a warranty in the policy, the vessel was no longer "in class". "Class" referred to the Olovaha's classification by Germanischer Lloyd (one of the world's leading Classification Societies) as a RoRo ferry with restricted international service. A Classification Society would withdraw a ship's class unless the owners have the vessel periodically surveyed and maintained to a satisfactory condition within the Society's rules. The question before the Court was whether the vessel was insured at the time of the cyclone.

Held:

1. A policy of maritime insurance, like any other contract, could be varied by consent. Clause 4.1 of the Marine Policy specifically provided for changes and suspensions.

2. The Court was satisfied that both parties were contemplating that nothing out of the ordinary was going to happen and if, at any stage, insurance cover was going to be sought over the Olovaha then the usual procedures would be followed. The decision regarding the reinstatement of cover could only be made by underwriters after proper consideration of all the material facts.

3. The policy was silent on the question of renewal therefore cover could only be renewed by mutual consent. It was well-established that each renewal constituted a fresh contract. Any agreement that might have been reached between the parties in July 2002 in relation to the 2002 insurance year would have no relevance to the 2003 contract of insurance unless that had been expressly agreed to in the negotiations giving rise to the 2003 contract.

4. A binding contract could not arise until the person to whom a proposal was made did or said something to indicate his acceptance of it. Mr Gulliford's silence in respect of the Olovaha was consistent with his stand since the end of July 2002. The Court was satisfied that in his mind he took, and maintained, the view that underwriters no longer had cover over the Olovaha and that position would not change in any way without going through the usual processes which would be involved whenever an insurer takes on a new risk.

5. At the time of the cyclone the Olovaha was uninsured. The plaintiffs' claim failed and the defendant was entitled to costs.

Case considered:

General Reinsurance Corp v Fennia Patria [1982] 1QB 1022 (CA)

Statute considered:

Marine Insurance Act (Cap 144)

Counsel for plaintiff: Mr Stanton and Mr Afeaki
Counsel for defendant: Dr Harrison QC

Judgment

Tropical Cyclone Ami struck Tongatapu on the night of the 14th and early morning hours of the 15th of January 2003. One of the casualties of what was described in the plaintiffs' pleadings as the "tempestuous winds and the ferocious sea conditions" was the plaintiffs' inter-island ferry MV Olovaha which ran aground on an inner reef and sustained severe damage. The question before the Court is whether the vessel was insured at the time.

The named plaintiffs are respectively the owner of the Olovaha and the "Managing Agent" for the owner. The defendant company is a firm of insurance underwriters based in Sydney, Australia. The plaintiff alleges that at all material times the Olovaha was insured with the defendant for Hull and Machinery risk under Insurance Policy number 51--1254329--MCH. The "material time" in that context is defined as on or about the 15th day of January 2003.

In its statement of defence, the defendant admits that it was the lead underwriter under the said policy for the period 31 December 2001 until 31 December 2002 in respect of two of the plaintiffs vessels --the Fua Kavenga and the Olovaha but, significantly, it pleads that cover for the MV Olovaha was suspended as from 29 July 2002 because, contrary to a warranty in the policy, the vessel was no longer "in class". "Class" in this context refers to the Olovaha's classification by Germanischer Lloyd (one of the world's leading Classification Societies) as a RoRo ferry with restricted international service. A Classification Society will withdraw a ship's class unless the owners have the vessel periodically surveyed and maintained to a satisfactory condition within the Society's rules. In this case, the evidence was that the plaintiffs had voluntarily withdrawn the Olavaha from class.

As an alternative defence the defendant pleaded that when the policy in question was renewed for the 12 months period commencing 1 January 2003, the renewal did not include cover over the Olovaha. Further, the defendant pleaded that even if such cover had been included (which is again specifically denied) it would have been subject to the same warranty as to class and as at 15 January 2003 the Olovaha was still not in class.

In response to the filing of the statement of defence, the plaintiffs filed a document entitled, "Reply to the Statement of Defence". It is a rather lengthy document. The plaintiffs do not dispute that the vessel had been withdrawn from class and that cover had been suspended on 29 July 2002 but the gravamen of their allegations appears to be that the defendant had agreed to reinstate the suspended cover upon certification by its (the defendant's) "commissioned Agent and Expert, Mr Colin Wickham", that the vessel was up to the requisite standard for "Local Class" certification. The reference to "local class" is explained in the plaintiffs' reply as a local class survey by the Tonga Ministry of Marine and Ports.

The alleged agreement to reinstate or renew cover over the Olovaha immediately upon certification by Mr Wickham that he had approved the vessel's local class survey was said to have been made in various oral discussions and written communications between the plaintiffs' insurance brokers and the defendant's underwriting manager, Mr Martin Gulliford, during 2002. The thrust of the plaintiffs' case thereafter is that Mr Colin Wickham, a marine engineer from Auckland, New Zealand, allegedly in his capacity as the defendant's agent, gave his approval to the vessel's local class survey on 14 January 2003 --the day before the cyclone struck Tonga. In other words, the plaintiffs allege that insurance cover over the Olovaha was automatically reinstated the day before the tropical cyclone.

The defendant strongly denied all of these allegations. In particular it denied that Mr Wickham was its agent or that it had ever given any instructions to Mr Wickham in respect of the Olovaha. It also denied that Mr Gulliford had made any agreement or representations along the lines alleged. After filing its statement of defence, the defendant issued a formal request for particulars seeking further clarification of the plaintiffs' allegations. In reply to that request, the plaintiffs advised that the alleged agreement they rely upon would be evidenced in Court by the exchange of emails and other documentation relating to both the suspension of cover in July 2002 and the policy renewal negotiations in December 2002. Additionally, the plaintiffs indicated that they would also be relying upon a telephone discussion on or about the 18th of July 2002 between one of its brokers, Mr Simon Gosnell, on the one hand and Mr Gulliford, on behalf of underwriters, on the other.

No reliance is made on the Marine Insurance Act (Cap 144). Plaintiffs' counsel submitted that the Act has no relevance to the issues before the Court.

Before turning to consider the documentary and other evidence relied upon by the parties, it needs to be pointed out that the plaintiff operated through two insurance broking firms. Patrick McLaughlan of the Auckland based aviation and marine broking firm, Boston Marks Group Ltd, had for some 10 years arranged cover for all the Shipping Corporation of Polynesia's fleet and, from the outset, that business had been placed jointly with placing brokers in Sydney, Gault Armstrong Pty Ltd (Mr Simon Gosnell). It was Mr Gosnell who had all the direct dealings with the defendant's Martin Gulliford and it was Mr McLaughlan who dealt with the Shipping Corp of Polynesia.

The relevant factual narrative begins in December 2000 during the policy renewal negotiations for the 2001 year. On 19 December 2000 Mr Gulliford, on behalf of underwriters, endorsed the marine placing slip with the hand-written comment, "Subject to satisfactory survey." The policy, which at that time covered both the Fua Kavenga and the Olovaha was duly renewed for 12 months from 31 December 2000.

It does not appear that Mr Gulliford's request for a survey was ever incorporated into the official conditions of cover and no survey report was forthcoming during the 2001 year. Mr Gulliford, nonetheless, would no doubt have taken some comfort from the fact that the conditions of cover did include a warranty that both vessels were classed through Germanischer Lloyd and that the existing classes were to be maintained

On 11 December 2001, in the course of the renewal negotiations for the 2002 year, Mr Gulliford once again endorsed the marine placing slip with the comment:

"Subject to sight of valuation and condition report for vessels 1 & 2" (the Fua Kavenga and the Olovaha).

The policy was duly renewed for 12 months from 31 December 2001.

The policy for the 2002 year made reference to proposed cover over a third vessel that was still under construction – a barge named Otu Tonga.

After receiving Mr Gulliford's placing slip, Mr Gosnell of Boston Marks in Sydney, emailed Gulliford on 10 December 2001 querying an increase in the premium rates. He then went on to say:

"We are happy to have the vessels surveyed/valued, but who on earth are you going to suggest does the job? There are not many surveyors in that part of the world and if we fly someone from Australia it is going to be a very expensive exercise. Whoever does it, I hope you can give us say three months to have the job finished as I suspect it will not be an easy task negotiating a reasonable fee and finding someone to fly there at short notice."

Martin Gulliford replied by emailed on the same date. After agreeing to a suggestion Mr Gosnell had made in relation to the premium rate increase, he went on to say: " . . . however I will leave the surveys to you within 90 days."

The policy was then renewed accordingly in respect of the Fua Kavenga and the Olovaha for the 12 months period from 31 December 2001. Cover over the new Otu Tonga was to apply from a date to be advised. The Coverage Summary form issued by Boston Marks to the plaintiffs confirmed insurance cover over the Olovaha in the sum of A $3,000,000.

In his evidence, Mosese Fakatou, a director and general manager of the Shipping Corporation of Polynesia told the Court that in early 2002 the company decided to remove the Olovaha from GL (Germanischer Lloyd) Class because the vessel was getting too old and it was too expensive to keep ships in GL Class. Mr Fakatou said:

"The vessel was over 20 years old which is normally considered the commercial life expectancy of a vessel. The company was making plans with the Government to replace the Olovaha. In order not to incur further costs on GL survey fees, travel & accommodation, expenses special surveys and dry docking in New Zealand, we decided to place the vessel on Tonga Ministry of Marine & Ports Survey.

The issue of my request to remove the vessel from Class was communicated to Pat McLaughlan, the managing director of the New Zealand brokers, Boston Marks Group Ltd. Boston Marks retained Colin Wickham as the surveyor for the underwriter who I understood would carry out an initial Condition Survey on the vessel and report to the underwriter and Shipping Corporation of Polynesia."

Referring to the same development, Mr McLaughlan told the Court that he travelled to Tonga between Christmas and New Year in 2001 and learned from his discussion with Mosese Fakatou that serious consideration was being given to removing the Olovaha from GL Class because of the expense. On 8 January 2002 he emailed the Sydney brokers, Gault Armstrong (Mr Gosnell) and asked:

"Could you please also ask underwriters what difference it would make if Olovaha was taken out of class and operated under Tongan Ministry of Transport regulations."

Simon Gosnell replied by email the same day, i.e. 8 January 2002. After referring to another matter that had been raised in the correspondence, he went on to say:

"In meantime we may well be able to persuade Hull underwriters to maintain the current terms on Olovaha if class is lapsed provided her intended survey comes out OK. Suggest we wait for this and can then assess the situation. Any idea yet who can do the survey job --any one in Auckland want a trip to Tonga? Await your response."

It does not appear that Mr Gosnell's suggested proposal was taken up with underwriters and Mr McLaughlan, therefore, would seem to have read more into Mr Gosnell's reply than was warranted when he said in evidence:

"As a result of his reply (Gosnell's the email of 8 January 2002), I came to learn that an alternate to Class classification 210 could be accommodated by the provision of an independent satisfactory survey."

In cross-examination, Mr McLaughlan had to agree with defence counsel that all Mr Gosnell had said in his email of 8 January was that he "may well be able to persuade" underwriters to maintain cover. The Sydney broker's proposal could hardly be described as a foregone conclusion.

In relation to Mr Wickham's instructions, Mr McLaughlan told the Court:

"As best I recall I contacted Wickham soon after the exchange of correspondence with Gosnell in early January. It was verbal and probably by telephone. The purpose of the call was to ascertain his availability, to give him sufficient notice to get to Tonga or alternatively if he was going to Tonga, to give him more time to accommodate the survey."

In cross-examination, Mr McLaughlan agreed that the defendant had had no input into the selection of Mr Wickham for the task. Mr McLaughlan's evidence in this regard obviously assumes some significance given the plaintiffs' earlier description of Mr Wickham in their pleadings as "the defendant's Commission Agent and Expert". The evidence satisfies me that Mr Wickham was, in fact, selected and instructed by the plaintiffs' broker, Mr McLaughlan, and the defendant had no input whatsoever into his selection for the task.

On 6 February 2002 Mosese Fakatou sent a letter to the Classification Society, Germanischer Lloyd, requesting that the MV Olovaha be withdrawn from class effective from 1 February 2002. That information was duly conveyed to the company's broker, Mr McLaughlan, but it was not passed on to underwriters.

Commenting upon the failure to be informed of this development, Mr Gulliford said in evidence that he had never seen the letter from Mr Fakatou of 6 February 2002 but if the vessel had been withdrawn from class at the date nominated then there would have been a clear breach of the express warranty in the policy that required class to be maintained.

In early April 2002, Mr Wickham travelled to Tonga and carried out a survey of the plaintiffs' fleet of vessels, which at that time comprised the Fua Kavenga, Lomipeau and the Olovaha. There is letter in the agreed bundle of documents before the Court dated 16 April 2002 from Mr Wickham to Mr McLaughlan enclosing the report for each of the three vessels. (I will need to come back to this letter).

Mr Wickham's report covered both matters Mr Gulliford had sought confirmation on from Simon Gosnell regarding the Olovaha, i.e. the vessel's valuation and its general condition. As to the Olovaha's valuation, Mr Wickham concluded:

"The current intrinsic value for this vessel is estimated to be of the order of about US $70,000. However, given that it is still engaged in local trade, its value to the owner will be higher.

A replacement vessel (not new construction) could probably be located for US $500,000 to 600,000. We therefore believe that the current operational value could be as high as US $200,000 whilst a market value would be significantly less than US $70,000."

Mr Wickham summarised the vessel's condition as follows:

"The vessel was generally found to be in poor condition with evidence of heavy corrosion of structural members and deck plating. Most of the watertight side windows and port holes were found to be in a damaged condition and not fit for the purpose."

On 11 June 2002 Mr Wickham emailed Mr Fakatou:

"Mosese

I have had a meeting with Pat McLaughlan to see how we could improve the reporting situation with Olovaha and Lomipeau. He is going to talk to you about a proposal on how we can put together a set of recommendations to progress the necessary repairs and maintenance for the two vessels.

Having had time to consider my draft reports perhaps you have some ideas on how you wish to proceed. If you can give me an outline of what you propose I will be able to put together a proposal for recommendations that should satisfy insurers . . .

On 26 June 2002 Mr Wickham again wrote to Mosese Fakatou suggesting that he (Mr Wickham) could prepare an addendum to his April reports outlining the plaintiffs' proposals and schedules for repair work to the Olovaha and the Lomipeau. His proposal was that the addenda could be then sent to underwriters and, "we can show the insurer an acceptable level of progress without incurring large survey fees." At that stage, of course, underwriter's had no knowledge of the existence of Mr Wickham's April reports.

As it turns out, Mr Wickham's raising of the matter was timely. On 28 June 2002 Mr Gulliford emailed Mr Gosnell of Boston Marks as follows:

"Subject: Shipping Corp of Polynesia

Mr G. Can I remind you that two of the vessels under this policy were renewed subject to sight of a valuation --condition report within 90 days of inception. To date I have not sighted such survey and wonder why I am still insuring these vessels. Can you enlighten please? Regards, MG."

On 4 July 2002, Boston Marks responded that they understood the surveys had been completed by Mr Wickham and they were, "chasing Auckland for the survey."

At around this same period of time, Mr Wickham was preparing a brief addendum for each of his three April reports. The addendum in respect of the Olovaha was dated 9 July 2002. In the addendum, Mr Wickham outlined the maintenance and repair work that he understood the Shipping Corporation of Polynesia would be carrying out "the next two to three months." He concluded:

"Provided the foregoing improvements are made and the maintenance levels improved, this vessel should be capable of a safe service in the short to medium time frame."

On 10 July 2002 Mr Wickham sent a copy of his addenda to Mr Fakatou and he suggested that he (Mr Wickham) could paste them into his April reports and then forward copies to Mr McLaughlan. He commented to Mr Fakatou:

"Clearly, Olovaha is your first concern and you will be aware of the work that is necessary to enable the vessel to function safely."

Mr Fakatou responded on 15 July 2002 confirming to Mr Wickham that his addenda were acceptable and he asked him to forward the reports (containing the pasted in addenda) to underwriters. Mr Wickham did not do that. Instead, he forwarded the reports on to Mr Mclaughlan of Boston Marks. In his covering letter dated 16 July 2002, Mr Wickham said:

"Pat

Re: Shipping Corporation of Polynesia Enclosed are three copies of the report for each of the three vessels. Would you please forward one of them to Mosese. I have already discussed the addenda with Mosese and emailed copies to him. I had hoped that he would have provided more details so that I could be more positive in completing the reports but he says what I have written will do. I don't know what you will think; myself I think the end result is a bit weak and may not make insurers very comfortable.

Yours sincerely"

Earlier I referred to a letter from Mr Wickham to Mr McLaughlan dated 16 April 2002 and I said that I would need to come back to it. Although it did not appear to have been picked up during the hearing, apart from the date, the letter of 16 April 2002 is identical to the letter of 16 July 2002 set out above.

When Mr McLaughlan was cross-examined by Dr Harrison over his receipt of the Wickham report he agreed, after being referred to a copy of the 16th April letter, that the report had been forwarded to him on that date. The witness was then criticised by defence counsel for failing to forward the report onto underwriters.

Having considered the contents of the letter in question, however I do not accept that Mr McLaughlan did, in fact, receive the Wickham report in April. The first paragraph of the letter refers to the addenda and Mr Wickham records that he had forwarded copies of the addenda to Mosese Fakatou. The addenda, however, did not come into existence until early July. Faced with that evidence, in fairness to Mr McLaughlan, I have decided to disregard the mysterious letter of 16 April 2002 altogether and, despite his admission, I do not believe that he did, in fact, receive the Wickham report in April.

On 18 July 2002 Mr McLaughlan faxed the completed reports on the plaintiffs' vessels, including the addenda, to Simon Gosnell in Sydney. In a covering letter Mr McLaughlan stated:

"Dear Simon

Attached are the reports completed by Colin Wickham. Could you please have a look through these and let me know if you think they will "pass muster". I'd rather do some more footwork now than try and do it later. Thanks and regards."

On the same day, i.e. 18 July 2002, Mr McLaughlan sent copies of the Wickham reports to Mosese Fakatou of the Shipping Corporation. In a covering facsimile he commented:

"Obviously the Fua Kavenga now Capitaine Ferne II is no problem, however we are concerned about presenting the Olovaha report to underwriters."

Upon receipt of the Wickham reports, Simon Gosnell acted with commendable speed and on the same day he wrote to Martin Gulliford of underwriters:

"Martin, I have finally received the attached survey report on the Fua Kavenga, which looks pretty reasonable. The report on the Olovaha is apparently not so good and I am waiting to hear from Colin Wickham as to whether the client has done some work on her or we have some problems. Will be back to you shortly. In the meantime please could you confirm Fua survey is OK. Kind regards."

There then followed an exchange of emails between Gosnell and Gulliford which assumed some significance in the case and so I, therefore, set the relevant passages out in full. They are all dated 18 July 2002.

Gulliford to Gosnell:

"Is Fua Kavenga back in class and also were underwriters advised that Neptune Shipping now charter the vessel. Is Olovaha still in class? or should we suspend cover."

Gosnell to Gulliford:

" . . . Checking on Olovaha --understand she is no longer in class, which if correct would certainly prejudice the cover as there is a warranty to this effect. How do you want to handle this if my information is correct?

Gulliford to Gosnell:

"Accept Fua Kavenga as ok, but I think cover should be suspended on the Olovaha until such time as we are convinced that cover should continue.

Gosnell to Gulliford:

"Subject: Shipping Corp --Olovaha

Martin, apparently the vessel has been put under local register rather than GL and a great deal of work has been done on her to bring her up to scratch. She is going into dock this evening/tomorrow morning for more work at which time Colin Wickham will receive digital photos of her etc. He is then issuing a report, which should be with you by the end of the week. In the circumstances can you be very kind and continue cover until say 4 p.m. 29/7 --i.e. seven days by which time matters will be resolved. Appreciate your help."

Gulliford to Gosnell:

"Agree continue cover until 4 p.m. 29/7".

On Monday 22 July 2002 Simon Gosnell reported to his New Zealand counterpart, Pat McLaughlan:

"Pat, my conscience got the better of me on Friday and I sent Allianz the survey on Fua. All, as expected, is okay with her, but Martin Gulliford (the underwriter) rang me about this and Olovaha. I was naturally obliged to tell him that the vessel's class had lapsed and the client was working on the vessel to bring her up to scratch at which time a further survey would be issued. In any event he wants to suspend cover on Olovaha until either she is returned to class or Colin can issue a good report on her.

I am very sorry I had to say anything, but if there had been a problem with Olovaha you and I would have gone down in a screaming heap and our PI policy costs enough already!

In the circumstances please could you advise Shipping Corp that cover has been suspended as above. We will issue the necessary return premium and wait upon your advice re-repair refit work. Kind regards."

Mr Gosnell was cross-examined about these email exchanges. He conceded that on 18 July when he emailed Mr Gulliford and told him that he was checking to see if the Olovaha was still in class, he already knew from Mr Wickham's report that the vessel had been withdrawn from class. The witness was then asked by Dr Harrison why he had made out that he had not, at that stage, seen the Wickham report on the Olovaha and why he had forwarded the report on the Fua Kavenga to underwriters but not the report on the Olovaha:

"Q. Now you knew what the Olovaha report said and it was seriously grim wasn't it?

A. Yes, it was not good. That's why it was not worth sending it to the underwriter.

Q. Not worth sending it to underwriter, but the underwriter had made its grant of cover subject to satisfactory condition and valuation reports, correct?

A. Yes.

Q. You had received a condition and valuation report from Mr Wickham?

A. Yes.

Q. It was not satisfactory. Why did you not send it on?

A. Because more work was being done on the vessel and I was wanting to hear from Mr Wickham as to what had actually been completed."

Mr Gosnell was asked about the statement made in his email to Pat McLaughlan of 22 July that the underwriter wanted to suspend cover on the Olovaha until she was either returned to class or "Colin can issue a good report on her." In evidence in chief, Mr Gosnell had explained that the basis for his statement had been a telephone call he had had with Mr Gulliford shortly before the email was sent but he told the court that he had no written record or precise recollection of the conversation other than what was recorded.

When Mr Gulliford gave evidence he, likewise, could not recall the precise telephone conversation and he could not remember talking about cover being suspended until: "Colin can issue a good report on her." Mr Gulliford opined that it was more likely he would have simply confirmed that underwriters would require a satisfactory condition report.

In cross-examination by Mr Stanton, Mr Gulliford admitted that he could not deny the conversation as recorded by Mr Gosnell but he went on to say that if he had used words to that effect then Mr Gosnell would have known that underwriters would still need to see the report for themselves before there could be any question of deciding to reinstate cover.

I accept that statement. It is consistent with the witnesses email advice to Mr Gosnell of 18 July 2002 where he made the suggestion that cover on the Olovaha should be suspended until such time as "we are satisfied that cover should continue." (emphasis added) Mr Gosnell was also cross-examined about the telephone conversation in question. Dr Harrison put to him the following proposition:

"Q. But whatever the nature of the dispute about the conversation, there was never any doubt that the suspended cover would only be resumed when Allianz was satisfied that it should be?

A. Yes."

There was another important aspect to Mr Gosnell's evidence about his telephone conversation with Gulliford on or about 18 July that was clarified in cross-examination. The report which he (Mr Gosnell) had then been referring to was expected from Colin Wickham within the week. This point was highlighted during the following exchange in cross-examination:

"Q. You're saying Mr Gosnell undertook to accept (a) or (b) (the Olovaha returning to class or Colin issuing a good report on her)?

A. Yes.

Q. In a way that was binding on the underwriter?

A. No, not if he had not approved the survey.

Q. Would you also agree with this much --that what you were emailing about and talking about at this time was a report that was anticipated within the week?

A. Yes, I was led to believe that the report was coming in shortly, yes.

Q. So that any talk of suspending cover until either (a) or (b) related to an interim short-term way of dealing with it?

(Clarifications sought on the question)

Q. I'll come right out and put it to you directly. Whatever was said as between the two of you, the discussion and the emails at this time were dealing only with the current 2002 insurance year?

A. They were dealing with the current policy.

Q. And the current policy was due to expire at the end of December?

A. Exactly.

Q. You and he had not even begun to think about insurance cover for the following year at the time of your dealings in July had you?

A. No.

Q. You agree with that?

A. Yes."

That exchange speaks for itself and I accept what Mr Gosnell says.

The final email in the July exchange of correspondence was dated 29 July from Simon Gosnell to Martin Gulliford:

"Re: Shipping Corp --Olovaha

Martin, apparently the report is not ready as the vessel has been delayed, photos not taken etc, etc. I have told the client that cover will be suspended at 4 p.m. this afternoon and they have accepted this (I felt this was the correct thing to do!!). Hope to have something to you in the next 3/4 days. Typical islands --no one is ever in a hurry!!! Kind regards."

It is significant that Mr Gosnell did not ask Mr Gulliford for a further extension of time for receipt of the anticipated Wickham report. The report that Mr Gosnell had been expecting within the week had not come to hand. Nothing further was said about it at that stage. Both Mr Gosnell and the Shipping Corp accepted the appropriateness of suspending insurance cover over the Olovaha.

A policy of maritime insurance, like any other contract, can be varied by consent in this way. Clause 4.1 of the Marine Policy in the present case specifically provided for changes and suspensions.

The defendant immediately then set about arranging for a refund to the plaintiffs of the balance of the insurance premium in respect of the Olovaha covering the period from 4 p.m. on 29 July 2002 until 31 December 2002. Referring to this same time period, in answer to a question from the Court, the plaintiffs' broker, Mr McLaughlan, confirmed that his client the Shipping Corp of Polynesia was aware that the Olovaha was uninsured as from the end of July 2002.

When Mr Gulliford gave evidence he confirmed that at no stage prior to the cyclone had he seen any of Mr Wickham's reports relating to the Olovaha. Commenting on this aspect of the case, the witness said:

"I confirm that I had not previously seen that Condition Survey Report. Had it been brought to my attention at that time, or in the course of any renewal negotiations for the subsequent years' cover, I would have declined to renew the cover or go on risk until all the matters identified in that report had been attended to. On receipt of any confirmation that all the matters referred to had been fixed, the decision to renew cover or go on risk would not have been mine. It would have been necessary for me to refer the matter to Head Office to make that decision and discussions would need to have been entered into with reinsures to see whether reinsurance could have been placed on that vessel."

I turn now to the next significant development, namely, the insurance renewal negotiations in December 2002 for the 12 month period from 31 December 2002. They form an important part of the plaintiffs' case.

On 9 December 2002 Mr Gosnell forwarded to Mr Gulliford of Allianz the renewal slip on the Shipping Corporation's account for the following year. Cover was sought over the Fua Kavenga and the Otu Tonga. The Olovaha was not mentioned in the slip. In a covering letter, Mr Gosnell said:

"Martin, herewith the renewal slip on Shipping Corp. You may remember Olovaha did not pass muster and has thus been deleted from the slip until such time as they do the necessary repairs etc so Colin Whickham can give her a good report. The slip is again clean and I have increased both Hull and TV rates by 15%, which I hope will be OK with you. Please let me know asap. Many thanks."

In a letter of the same date to Associated Marine Insurers (the joint lead underwriter during 2002 with Allianz on the Shipping Corporation account) Mr Gosnell repeated the second sentence of his letter to Mr Gulliford and added: "We will then offer her to you for reattachment." That comment is, of course, significant and it is consistent with Mr Gosnell's evidence on the subject. I am satisfied that just as the initial Wickham report, that had been expected within a week back at the end of July, would need to have been approved by underwriters before any question of reinstatement of insurance cover could arise, a report from the same source coming some five or six months later would inevitably, because of the time lapse, have required even closer scrutiny and consideration by underwriters.

In other words, whenever Mr Wickham's report came to hand, Mr Gulliford anticipated that nothing other than the usual steps for a new risk would then be followed. Underwriters would need to make a determination as to whether they were prepared to cover the risk and that exercise in turn, as Mr Gulliford told the Court, would involve a referral to the defendant's Head Office and discussion with reinsurers before there could be any question of him having authority to sign the slip. Mr. Gulliford impressed me as a witness and, although he no longer is employed by Allianz, I have no doubt that he would have a conscientious and responsible underwriter.

Section 21 of the Marine Insurance Act provides that a contract of marine insurance, "is deemed to be concluded when the proposal of the insured is accepted by the insurer, whether the policy be then issued or not" and it specifically recognises that reference can be made to "the slip" for the purpose of determining when the proposal was accepted.

Sutton, Insurance Law in Australia, 2nd ed. (para 2.17) states:

"The slip is an offer by the broker on behalf of the assured which is accepted by the initialling of the slip by the underwriter, that is, the contract is complete at that point, and the insurer binds himself to sign a policy in accordance with the slip when tendered to him for signature."

In General Reinsurance Corp v Fennia Patria [1982] 1QB 1022, 1036, the Court of Appeal noted, in relation to the same provision in the (UK) Marine Insurance Act, that there could still be cases where it is plain that it is the insurer who is making the proposal and the assured accepting it. I am satisfied that in the present case both parties were contemplating that nothing out of the ordinary was going to happen and if, at any stage, insurance cover was going to be sought over the Olovaha then the usual procedures, as outlined by Mr Gulliford, would be followed.

Significantly, and in my view sensibly, at no stage in his evidence, as I understood it, did Mr Gosnell try to suggest otherwise. He did not claim that under the arrangement he had made with Mr Gulliford, the production of a report by Mr Wickham per se (no matter how favourable) would be sufficient to automatically bind underwriters into reinstating insurance cover over the Olovaha. The decision regarding the reinstatement of cover could only be made by underwriters after proper consideration of all the material facts.

On 16 December 2002, Mr Gulliford signed off the reinsurance slip for the Fua Kavenga and the Otu Tonga for the 2003 year meaning that, subject to the plaintiffs' final approval, the insurance policy would be renewed in respect of both those vessels for the 12 month period from 31 December 2002.

The policy is silent on the question of renewal, and thus, cover can only be renewed by mutual consent. It is well-established that in such circumstances each renewal constitutes a fresh contract. In other words, any agreement that might have been reached between the parties back in July 2002 in relation to the 2002 insurance year would have no relevance to the 2003 contract of insurance unless that had been expressly agreed to in the negotiations giving rise to the 2003 contract.

On 18 December 2002, Mr Gosnell emailed Mr Gulliford giving him the option of becoming the sole underwriter as Associated Marine Insurers no longer wished to participate. Mr Gulliford agreed to the proposal. It was a significant development in that under the 2002 contract Allianz had been a joint underwriter for both Hull and Increased Value insurance with an exposure on that risk of 26.5% only. Under the 2003 renewal, however, Allianz would become the sole insurer only with an exposure of 100%.

On 30 December 2002 there was a last-minute flurry of emails between Mr Gosnell and Mr Gulliford, which became the subject of close scrutiny by both counsel during the hearing. In the first email from Mr Gosnell no vessels were mentioned by name but a query was raised as to whether the defendant agreed to accept 100% of the risk. I pick up the exchange from the second email. I have corrected the spelling of the Otu Tonga, which is referred to in two of the emails as the "Out Tonga".

2. Gulliford to Gosnell:

"If I am to write the Otu Tonga as a singleton I will need more premium, probably an extra 25%."

3. Gosnell to Gulliford:

"Subject: Re: ShippingCorp

Martin --sorry you misunderstood me --this would be both vessels and Olovaha when her refit is complete and you a happy to put her on risk --i.e. you would be writing 100% of the lot."

4. Gulliford to Gosnell:

"I have lost many brain cells over the past five days, but as I see it, I agree to write 100% of both vessels Fua Kavenga and Otu Tonga Hull & Machinery and you will place IV in London. Regards."

The email exchange continued on 31 December 2002:

5. Gosnell to Gulliford

Many thanks Martin --please bind 100% cover accordingly. There is one error on our slip in that we stated the new vessel Otu Tonga was GL class. She never was! She is a small self-propelled barge, which is operated in accordance with the Ministry of Marine and Ports requirements --sorry for the confusion. Kind regards."

6. Gulliford to Gosnell:

"Cover bound. Regards."

In his closing submissions, Dr Harrison described the plaintiffs' case as "shifting, confused, internally inconsistent, and inconsistent with the facts --in particular the documentary evidence on which the outcome necessarily turns." I suspect that one of the points counsel then had in mind was the plaintiffs approach to the email exchange I have just referred to. Although it was not pleaded as such in the plaintiffs' statement of claim or in the reply to the statement of defence, it now appears that the plaintiffs' case relies heavily upon this correspondence. Towards the end of the plaintiffs' 72 pages of closing submissions it is submitted:

"5.42.5. When the contract expired, by reason of the effluxion of time, the suspension, in these circumstances, also came to an end, subject to a revival of the right to renew the contract, upon the basis that Mr Wickham gave a satisfactory survey, and then the suspension having come to an end, in terms of the agreement for the policy in 2002, was it capable of being read in conjunction of (sic) the offer for renewal as stipulated (in the emails of 30, 31 December)? We would submit it was, and that the contract, whilst expressly suspending the parties' performance until the occurrence of the stated event, i.e. the provision of the satisfactory survey, it was sufficient to enable the right to continue with the contract, albeit suspended, into a further agreement for renewal, subject to the provision of the survey. In short, it did not amount to a termination, which is quite different from suspension because of its finality, i.e. "termination".

Dr Harrison described this particular submission as "garbled reasoning" but I gather from the line of cross-examination on the issue that what is being emphasised by the plaintiffs is the failure of Mr Gulliford to make any reference to the Olavaha in his emails, Nos. 4 and 6, in response to Mr Gosnell's specific reference to the vessel in email No. 3. It is alleged, as I understand it, that because of Mr Gulliford's failure to specifically state that the Olovaha would not be covered, underwriters had, thereby, committed themselves to carry over the reinstatement agreement, alleged to have been made at the end of July 2002, into the new contract for the 2003 year. In other words, so the argument runs, Mr Gulliford release amounted to an agreed that cover over the Olovaha would automatically be reinstated under the renewed contract for the 2003 year upon production of a favourable report from Colin Wickham. Underwriters would not even have to sight the report. Provided it was "satisfactory" (whatever that means precisely), the cover would be reinstated immediately the report was signed off by Colin Wickham. It is a bold proposition.

Mr Gulliford was cross-examined extensively by Mr Stanton on this aspect of his evidence and it was put to him that he must have known that Mr Gosnell in email No. 3 was asking for cover over the Olovaha as well as the other two vessels. He was asked why he did not reply, therefore, stating that the Olovaha was not covered. In response, Mr Gulliford strongly denied that there could be any question of cover over the Olovaha until underwriters had first sighted a survey report.

Dr Harrison objected to this particular line of questioning and submitted that the words in the email exchange speak for themselves. Defence counsel is, of course, correct. As with any written contractual documentation, the meaning of the words used in the various emails is a matter of construction and that exercise in turn involves an objective assessment based on the language used in the context of all the surrounding circumstances. The construction does not depend upon what one or other of the parties may have intended and extrinsic evidence on such matters is generally inadmissible.

The meaning of the emails of 30 and 31 December 2002 is, in my view, obvious. Mr Gulliford agreed to accept cover over the Fua Kavenga and the Otu Tonga for the 2003 year. He agreed to nothing in respect of the Olovaha. His silence does not denote consent. A binding contract cannot arise until the person to whom a proposal is made does or says something to indicate his acceptance of it. Mr Gulliford's silence in respect of the Olovaha is consistent with his stand since the end of July 2002. I am satisfied that in his mind he took, and maintained, the view that underwriters no longer had cover over the Olovaha and that position would not change in any way without going through the usual processes, which would be involved whenever an insurer takes on a new risk.

I find it fanciful and commercially naive to contemplate an arrangement ever having been entered into by Mr Gulliford under which underwriters would have agreed to be "cover bound" on production of a report by Mr Wickham, which they (underwriters) would not first have had the opportunity of examining and analysing. That scenario, as Dr Harrison expressed it, is "something that no insurer in its right mind would do." Production of the survey report would only be the first step in the chain of events I have earlier outlined.

The Shipping Corp of Polynesia was well aware at the beginning of the 2003 year that the Olovaha was still uninsured. On 8 January 2003 Mr Fakatou faxed a letter to Mr McLaughlan in which he concluded:

"We have no intention of putting the vessel back in class as Colin seems to insist. I hope you will find the above to be of some assistance to putting the Olovaha back under insurance cover."

There was no communication whatsoever between the Shipping Corp and underwriters between that date and the day of the cyclone. On the morning of the cyclone, Mr Gosnell, the plaintiffs' placing broker in Sydney, emailed the plaintiffs' broker in New Zealand:

"Pat/Shirley

I have just heard from Colin Wickham that Olovaha is up on the rocks. I cannot believe it; obviously there is no insurance cover, which I suspect the guys at SCP are aware --what incredible bad luck. Presume you will talk to SCP, but not sure there is much good news to tell them. Kind regards."

Mr Gosnell, of course, was in a better position than anyone else at that point in time to know whether or not the Olovaha was insured.

This is a case where the facts very much speak for themselves and, on any view of those facts, the plaintiffs' case, as Dr Harrison put it, is "fundamentally flawed". The plain fact is that, at the time of the cyclone, the Olovaha was uninsured.

For completeness, there is one other matter I should refer to. The final report from Colin Wickham, signed off on the day before the cyclone, is very brief. It comprises of only 14 lines. The concluding paragraph reads:

"Clearly, the Ministry of Marine & Ports shares our view of the levels of maintenance and recording. If they continue to monitor this aspect then the vessel's condition should achieve a satisfactory level."

The report cannot be described as unqualified and whether it would have been acceptable to underwriters is, of course, both hypothetical and problematical. In all events, the evidence is that neither that report nor Mr Wickham's initial report dated 16 April 2002 or its addendum were forwarded to the defendant at any time prior to 28 May 2003.

The significance of the 28th of May date is that on the particular day a meeting was held in a coffee bar in Sydney between the plaintiffs' brokers (Messrs Gosnell and McLaughlan) with three representatives from the plaintiffs, on the one hand, and Mr Chris Kelsey, National Marine Underwriter for the defendant on the other. The meeting had been requested by Mr Gosnell to investigate if there was any possibility that the defendant could see its way clear to make an ex gratia payment to the plaintiffs to assist in repairing the Olovaha. Mr Kelsey had earlier advised the broker that the defendant was not prepared to settle but he had agreed to listen to any further representations the plaintiffs wished to make.

In evidence, two of the plaintiff's witnesses --Mr Fakatou and Mr McLaughlan, said that at that meeting in May Mr Kelsey made the comment that, "if they (underwriters) had intended to cover (reattach) the vessel without GL Class, then they would have been on risk." The plaintiffs referred to this evidence in their final submissions and sought to rely upon the alleged admission although it is not referred to in the plaintiffs' pleadings

For his part, Mr Kelsey denied in evidence using the words in question and he explained that, as he had not been personally involved in any of the negotiations, the discussions he had had at the meeting were, necessarily, in general terms only. No notes were taken at the meeting recording the comment and, although other representatives of the plaintiffs had been in attendance, they were not called to give evidence. Moreover, the plaintiffs' broker Mr Gosnell, who in general impressed me as a witness, did not say anything about the alleged remark. The onus of proof, of course, rests on the plaintiffs. For the record, I confirm my finding on this particular issue is that I simply have not been persuaded on the balance of probabilities that the remark attributed to Mr Kelsey was ever, in fact, made.

For the reasons stated, the plaintiffs' claim fails. The defendant is entitled to costs to be agreed or taxed.