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In brief - Local and international news about shipping, aviation and road transport

In this issue we cover local and overseas transport and logistics news and summarise some interesting cases from Australia and around the world which have been handed down in the last eight months.

Colin Biggers & Paisley news

Colin Biggers & Paisley is delighted to welcome Stephen Thompson (partner) and Richard Arrage (special counsel) to our team in the Sydney office. They bring great experience and add considerable depth to the national transport and logistics team, enabling us to achieve our aim to be the best independent maritime legal practice in Australia and a "one-stop" shop for legal services in this area.

We have again been recognised in Best Lawyers in Australia. Stuart Hetherington is listed for alternative dispute resolution, insurance, litigation, shipping and maritime and transportation. Andrew Tulloch is listed for aviation (as well as being named Lawyer of the Year in this category), trade and transport. Stephen Thompson is listed for transport and Andrew Probert is listed for insurance. In addition, Doyle's Guide recognises Marcus Saw as a rising star in 2016.


International news

Verified gross mass (VGM) of packed containers

The International Maritime Organization (IMO) has addressed carriers' concerns about how transhipment cargo is to be treated when the International Convention for the Safety of Life at Sea (SOLAS) regulation V1/2 comes into effect in July 2016.

The problem concerns containers shipped prior to 1 July 2016, and therefore not subject to the new regime, which are transhipped at another port after 1 July 2016 without complying with the new regime.

The MSC.1/Circ 1548 provides that states should adopt a practical and pragmatic approach for three months after 1 July 2016 and permit such containers to be shipped to their final port of discharge without the VGM being specified.

Australian news

Federal politics

Australia goes to the polls in a double dissolution election on 2 July 2016.

Coastal shipping reform

The Bill to repeal the Coastal Trading (Revitalising Australian Shipping) Act 2012 has been defeated in the Senate.

Part X of the Australian Competition and Consumer Act (CCA)

Since publication of the final report of the Competition Policy Review Panel (which we reported on in our last issue of Transport & Logistics News on 30 September 2015), the government has published its response to the Liner Shipping recommendation, namely the repeal of Part X, as follows:
The Government remains open to this recommendation.

The Government supports measures to ensure that liner shipping arrangements are competitive and efficient.

A general class exemption power will be introduced into the CCA, which will allow the ACCC to authorise broad classes of conduct.

The Government will work with the ACCC and relevant stakeholders, including shipping lines and importers and exporters, to investigate options regarding how a class exemption could be applied to the liner shipping industry to ensure that shipping routes to and from Australia continue to be reliably and competitively serviced and that the costs to obtain a class exemption are not burdensome.

Any options considered would need to be consistent with Australia's international law obligations.

Port of Melbourne lease

The formal transaction process for the 50-year lease of the Port of Melbourne commenced on 20 March 2016. It is hoped to realise $6 billion.

Trans Pacific Partnership Trade Deal (TPP)

In October 2015, Australia was one of 12 Pacific Rim countries that have entered into a TPP. The text of the TPP agreement was tabled by Minister Robb in the Australian Parliament on 9 February 2016. The 12 countries are Australia, New Zealand, United States, Canada, Mexico, Japan, Singapore, Chile, Peru, Vietnam, Malaysia and Brunei.

Australia has also separately entered into recent trade agreements with China, Korea and Japan.

On 17 May 2016, the Ministers of all signatories met to review progress on their respective internal processes to approve the TPP agreement.

Read our latest TPP publication, The Trans-Pacific Partnership: a brief overview from a transport and trade perspective.

Union amalgamations

Members of the Maritime Union of Australia (MUA) voted to authorise the union to enter merger negotiations with the Construction, Forestry, Mining and Energy Union (CFMEU). The recently completed report of the Royal Commission into Trade Union Corruption was heavily critical of the activities of individuals involved with the CFMEU and also of activities of the MUA, in particular its Western Australia branch, where contributions from shipping and offshore companies were alleged to have been obtained by the use of threats. The sum of $3.2 million was identified as having been made through contributions from shipping companies to MUA political and union causes. While they were described as being "voluntary" and "legitimate", the Royal Commission described them as having been made to "secure industrial peace from, or to keep favour with, the MUA."

Cultural reforms on the waterfront

In the slow news period after Christmas, we were interested to read a report in the Australian Financial Review to the effect that DP World had banned its staff from swearing.

The future of Asciano

Qube and Canada's Brookfield joint bid to takeover Asciano appears to have stalled while ACCC considers the implications and litigation between Asciano and Australian Container Freight Services takes place.

On 26 May 2016, ACCC released a statement of issues on the proposed acquisition of Asciano by Qube, Brookfield and others, inviting industry stakeholders to provide further submissions and feedback by 10 June. It is expected that ACCC will announce its final determination on 21 July.

Australian decisions

Reiter Petroleum Inc v The Ship "Sam Hawk" [2015] FCA 1005

We reported on the first instance interlocutory decision in this case in our 30 September 2015 issue. It was argued on appeal before a Full Bench, consisting of five judges, in the Federal Court on 25 February when judgment was reserved. We will report on the decision as soon as it becomes available.

Pantaenius Australia Pty Ltd v Watkins Syndicate 0457 at Lloyds [2016] FCA 1

These proceedings arose out of the loss of the yacht Froia II which ran aground off Cape Talbot, Western Australia on 22 June 2013 while returning to Australia from Indonesia. The vessel was insured under two separate insurance policies. One was issued by Pantaenius PTS on behalf of Kiln Europe SA, Catlin Europe SE and Torus Insurance Marketing Limited. The agreed value of the vessel under that policy was $275,000. The second policy was underwritten by Nautilus Marine Agency Pty Ltd on behalf of a syndicate of underwriters at Lloyd's and the relevant sum under that policy was $250,000.

The underwriters under the Pantaenius policy claimed contribution from those under the Nautilus policy as being another insurer liable for the same loss. In denying liability, Nautilus relied upon a clause under its policy which required that in the event that the vessel intended to enter foreign waters, all cover under the policy would be suspended between when the vessel cleared Australian Customs for the purpose of leaving Australian waters and the time when it cleared Australian Customs on return. It was argued that as the vessel had not yet cleared Australian Customs on its return from Bali, cover under the policy was suspended at the time when it ran aground. Pantaenius argued that section 54(1) of the Insurance Contracts Act 1984 (Cth) was engaged in the present case.

Section 54(1) provides:
Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which sub-section (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act.
Foster J decided that the suspension of coverage provision in the Nautilus policy should be read as being amenable to the beneficial operation of section 54, because the suspension of coverage did not go to the nature of the risk covered by the policy but simply operated as if it were an exclusion. As his Honour said: "…when careful consideration is paid to the terms and structure of the Nautilus policy, it is, as was submitted by the applicants, an occurrence based policy which provided cover to Mr Phillips against loss or damage to the vessel caused by (inter alia) impact or sinking or any other event not specifically excluded by the policy occurring while the vessel was within Australian waters at any time between 4.00 pm on 1 December 2012 and 4.00 pm on 1 December 2013, being the period when the respondent was on risk under that policy." (At [75])

He then went on to find that the loss of the vessel occurred while the respondent was on risk and the vessel was within Australian waters, which, for the purposes of the policy, are those waters within the land mass of the Australian mainland and the island of Tasmania and those coastal waters which are within 250 nautical miles of the Australian mainland and the island of Tasmania. He went on to explain that "…the provisions suspending cover when the insured vessel cleared Australian Customs for the purpose of leaving Australian waters, was almost always going to come into effect well before the insured vessel actually left Australian waters. Usually, as was the case here, the suspension period would commence while the insured vessel is in its home port— here, Fremantle WA. The suspension provision was in the nature of an exclusion and did not operate as one of the contractually prescribed elements of the geographical limits on the scope to cover itself." (At [78])

International decisions

PST Energy 7 Shipping LLC Product Shipping and Trading S.A. and OW Bunker Malta Ltd and ING Bank NV

This was the decision of the English Court of Appeal which was handed down in October 2015 and was listed for hearing in the Supreme Court in London on 22 March 2016. It arises from the collapse of the OW Bunker group of companies. The litigation also involves ING Bank NV which had entered into a financing agreement with OW Bunker before its collapse (ING has commenced many actions around the world, including within Australia, against shipowners whose vessels have been arrested, sometimes in circumstances in which the time charterers of the vessels had entered into contracts with OW Bunker for the supply of bunkers).

The decision of the English Court of Appeal was that the sale of the bunkers was not a sale within the Sale of Goods Act, therefore the owners could not assert that because OW Bunker was in breach of its contract in not being able to provide title to the bunkers to the owners it had no liability to pay the owners for them.

What is of particular interest in this case was the comment made in the leading judgment by Moore-Bick LJ where his Lordship said:
The owners' case before the arbitrators was that they were not liable to pay OWBM because the contract was one for the sale of goods and property in the goods had not passed to them. They do not appear to have advanced the alternative argument that, if the nature of the contact was that for which OWBM contended, they were not liable to pay because they had not been authorised to consume the bunkers in a manner which bound RMUK and other suppliers in the chain. Whether they should be allowed to do so at this stage is probably a matter that ought to have been left to the arbitrators.
The matter had therefore proceeded at first instance on the basis that RMUK was bound by the licence to use the bunkers for the propulsion of the vessel given to the owners by OWBM in its standard terms. The owners did not seek to challenge that aspect of the judge's judgment on appeal which dealt solely with the construction of the contract between the owners and OWBM.

Fulton Shipping Inc of Panama v Globalio Business Travel SAU of Spain (the "New Flamenco") [2016] 1 Lloyd's Rep. 383

We reported on the first instance decision of Popplewell J in our 30 September 2015 issue. The time charterer, who had redelivered a vessel on 28 October 2007 when it was not due to do so until 2 November 2009, failed to persuade the first instance judge that it should be entitled to have the damages that it was liable to pay reduced to take account of the substantially increased sale price the owners obtained from the sale of the vessel than it would have achieved in late 2009. On appeal the charterer was successful.

STX Mumbai [2015] SGCA 35

This was a decision of the Singapore Court of Appeal in which the appeal was allowed. At first instance the claim had been struck out. The facts giving rise to the claim were that the claimant/appellant supplied bunkers to the "STX Mumbai" and after the bunkers had been supplied, but three days before the contractual payment date, it had demanded immediate payment because it formed the view that the group of companies to which the owner belonged, STX Panocean PTE Limited, was in financial difficulties. It commenced in rem proceedings and arrested the vessel on the next day, asserting that there had been an anticipatory breach of contract by the owners.

The Court of Appeal held that it was not completely unarguable that the insolvency could have made it impossible for a timely payment to be made to the contract and therefore it could not be said that the appellant's claim was legally unsustainable.

Glencore International AG v MSC Mediterranean Shipping Co [2015] 1 Lloyds Rep 508

The question in this case was whether a carrier was liable for breach of its contract of carriage of goods which had been shipped from Fremantle to Antwerp under a negotiable bill of lading. Glencore asserted that two of the containers which had been shipped had been misappropriated in Antwerp when the carrier, MSC, had caused computer generated electronic numbers (PIN codes) to be issued rather than issuing paper delivery orders or release notes against bills of lading.

Glencore argued that MSC should have delivered the cargo only on presentation of the bill of lading or a delivery order given in exchange for the bill of lading, in accordance with the express terms of the bill of lading.

It was held by Andrew Smith J that a PIN code did not constitute a delivery order within the meaning of the bill of lading. Arguments by MSC which relied on implied terms and estoppel against Glencore were rejected.

Sang Stone Hanoon Jonoub Co Ltd v Baoyue Shipping Co Ltd [2015] EWHC 2288 (Comm)

This case is a reminder to owners of cargo that they have a duty to take delivery of cargo at the discharge port. In this case, the carrier discharged the cargo into a warehouse pursuant to provisions in the bill of lading. Three and a half years later the cargo had still not been collected, storage charges exceeded the value of the cargo and the warehouse exercised a lien. The cargo owner sought damages for conversion against the shipowner, but failed.

Cavendish Square Holding BV v Talal El Makdessi; ParkingEye Limited v Beavis [2015] UKSC 67

This UK Supreme Court decision revisits the issue of penalty clauses, that is clauses in contracts which identify the financial consequences which the parties agree will follow if one commits a breach. Two cases were heard together. The Australian High Court has also dealt with this topic in recent years in the case of Andrews and Others v ANZ Bank [2012] HCA 30.

The leading judgment in the Supreme Court was delivered by Lords Neuberger and Sumption, with whom Lord Carnwath agreed. They did not accede to the suggestion made by Cavendish's senior counsel that it was time to abolish the penalty rule (that such provisions are unenforceable) as being antiquated, anomalous and unnecessary. The opposing senior counsel argued for an extension to the penalty rules, that being "the course taken by the High Court of Australia" in the Andrews case, which was a case dealing with contractual bank charges. The High Court's path was not followed by the Supreme Court.

It decided that in both of these cases the clauses in question were not penalties. In one case, the provisions in the commercial agreement were treated as a price adjustment and price formula clause not being penal, the object of the clauses not being to punish.

In the second case, the issue was whether a provision imposed by a car park operator of a fee if a car was parked for more than two hours was a penalty, and therefore unenforceable. The additional charge of £85 was categorised by the Supreme Court as "a charge for contravening the terms of the contractual licence." (At [94]) It was conceded that the charge was "not a pre-estimate of damages." (At [97])

Although it was also agreed that the charge was levied to deter overuse, it was held by the Supreme Court not to be a penalty: "…deterrence is not penal if there is a legitimate interest in influencing the conduct of the contracting party which is not satisfied by the mere right to recover damages for breach of contract." (At [99]) The trial judge had held "…that the £85 charge was neither extravagant nor unconscionable having regard to the level of charges imposed by local authorities for overstaying in car parks on public land." (At [100])

Marine insurance

Involnert Management Inc v Aprilgrange Ltd and Ors and AIS Insurance Services Limited & OAMPS Special Risks Limited [2015] 2 Lloyds Rep. 289

This claim was brought by the owner of the yacht Galatea which had caught fire at its mooring in the Athens Marina in December 2011. It was damaged beyond economic repair. The vessel was insured against all risks at an agreed value of €13 million. There was no dispute that there was a fortuity giving rise to a valid claim under the policy but insurers defended the claim in relation to its overvaluation which it asserted its value was no more than €7 million to €8 million. (At the time when the policy was concluded, the yacht was being advertised for sale for €8 million). None of the material relating to the owner's knowledge in the lead up to placing the insurance concerning the vessel's value had been disclosed to the insurer.

The insurer had accordingly avoided the policy on the grounds of non-disclosure and/or relied on misrepresentation in the proposal form concerning values.

The claimant joined the producing broker and the English broker who had placed the insurance in the London market. Both brokers denied that they had been negligent.

Leggatt J found that the divergence between the price at which the vessel had been put on the market for sale and the value for which it was insured came about by accident rather than design.

The decision on non-disclosure was made in the light of section 18 of the Marine Insurance Act 1906, that is the provision which is identical to section 24(1) of the Marine Insurance Act 1909 in Australia. Leggatt J found that the fact that the yacht was being marketed with an asking price of €8 million when the claimant was seeking to insure the yacht for €13 million was "obviously material" and a "prudent insurer would undoubtedly want to take this information into account in assessing the risk and to know on what basis, if any, the owner thought it justifiable that he should be paid €13 million under the insurance contract if the vessel was lost when he would apparently be happy to dispose of the vessel for a sale price of (at most) €8 million."

The insurers were successful on their non-disclosure defence but unsuccessful on their misrepresentation argument.

The producing broker was found to have owed a duty of care to the claimant in contract and tort and was in breach of those duties, having failed to take care to ensure that the proposal form for insurance of the yacht stated its opinion of the market value of the yacht. That breach of duty caused the claimant to enter into a voidable contract to insure the yacht for €13 million instead of a valid contract to insure the yacht for €8 million. The placing broker, OAMPS, was found not to have owed any duty of care directed to the claimant and did not commit any breach of duty of care which it owed to AIS. The damages which the claimant was entitled to recover against AIS was limited to €2 million, that being the amount which it might have recovered under Section B of the policy.

Our latest marine insurance publications

The marine insurance market establishes loss that is not actual total loss by defining it as constructive total loss. However, shipowners who wish to make this type of claim must give their insurers notice of unconditional abandonment and give up possession to the insurer or risk having it treated as a partial loss. (Published by Stuart Hetherington and Julian Peake on 22 March 2016.)
The rising number of piracy attacks near West Africa and South East Asia means that ship owners, charterers, carriers and importers need to consider this risk and possible consequences such as ransom payments and off-hire events in their insurance arrangements and charter agreements. (Published by Stuart Hetherington, Andrew Tulloch and Julian Peake on 23 May 2016.)


New regulations for drones

Regulations have recently come into force in Australia to update the safety regime applicable to remotely piloted aircraft (RPA), a term which replaces the previous term "unmanned aerial vehicle", for "drones" as they are more commonly known.

The Civil Aviation Legislation Amendment (Part 101) Regulations 2016 establishes a set of standard operating conditions for RPAs, the categorisation of RPAs according to their weight or, in the case of airships, envelope capacity and introduces the concept of an "excluded RPA" in relation to RPA operations which are considered to be of lower risk. There are reduced regulatory requirements for excluded RPAs, such as not needing an operator's certificate or a remote pilot licence (RePL).

The new regulations permit private land owners to carry out some operations on their own land under the "standard RPA operating conditions" notwithstanding these may be commercial like operations. Private land owners operating an RPA of less than 25kgs in weight need not hold an unmanned aircraft operator's certificate or an RePL provided that no one involved in the operation receives direct remuneration. For RPAs of greater than 25kgs but of less than 150kgs, the operator needs to hold a RePL for the category of aircraft being flown.

RPAs are categorised as either "micro RPA", "very small RPA", "small RPA", "medium RPA" and "large RPA" depending upon their weight, and different obligations and requirements arise for the different categories.

The regulations now require a person operating or conducting operations using a very small RPA for hire or reward to notify the CASA rather than being required to obtain an unmanned aircraft operator's certificate and RePL.
Autonomous flight (the operation of an unmanned aircraft without pilot intervention in the management of the flight) is prohibited until suitable regulations can be developed by CASA. In the meantime, autonomous flight can be approved by CASA on a case-by-case basis under regulation 101.097.

There are a series of new offences, including offences relating to the environment in which an RPA can be operated, the failure to hold an appropriate RePL or unmanned operator certificate, various record keeping obligations and compliance with agreed policy and procedures, and failing to notify CASA of changes in operation or circumstances.

There are 11 strict liability offences, including:
  • operating an unmanned aircraft in controlled airspace and failing to comply with the requirements in the Manual of Standards (regulation 101.072)
  • operating an unmanned aircraft beyond visual line of sight (regulation 101.073)
  • causing an autonomous aircraft to be launched or released (regulation 101.097)
  • operating an RPA in a prescribed area not in accordance with the requirements in the Manual of Standards (regulation 101.247)
  • operating an RPA without a RePL (regulation 101.252)
Clearly this is a developing area of activity which poses peculiar dangers for aviation safety. The operation of RPAs has also raised concerns in relation to public rights of privacy. It is inevitable that there will be further refinement of the regulatory framework over time.

In the meantime, those operating RPAs need to be fully aware of the current regulatory framework if they are not to fall foul of the requirements.

Australian decisions

Hollis v Rogers [2016] ACTSC 56

In its decision handed down on 8 April 2016, Justice Burns in the Supreme Court of the Australian Capital Territory upheld a magistrate's finding of guilt against David Hollis, a Virgin Australia pilot, who tested with an alcohol level of 0.059 grams of alcohol per 210 litres of breath.

Regulation 99.375 of the Civil Aviation Safety Regulations 1998 (Cth) prohibits a person from performing or being available to perform a safety-sensitive aviation activity (SSAA) where the person, after testing as set out in the regulations, has an alcohol level of 0.02 grams or more of alcohol per 210 litres of breath.

Section 33 of the Civil Aviation Act 1988 defines SSAAs as activities that impact directly or indirectly on the safety of civil aviation operations in Australian territory or the operation of Australian aircraft outside Australian territory. Part IV of the Civil Aviation Act is entitled "Drug and Alcohol Management Plans and Testing" and sets out the testing requirements.

At the hearing at first instance, Hollis gave evidence that on 10 August 2013 he had flown from the Gold Coast to Canberra. He said that following arrival he went to his hotel room and then met his First Officer at a bar in the hotel at about 5 pm where they shared a bottle of red wine and consumed some potato wedges. They then had dinner and another glass of red wine at a bar. After dinner, Hollis returned to the hotel where he consumed two vodka, lime and soda drinks before going to bed at about 10 pm. He awoke the following morning at 6.30 am and had a coffee before catching the bus to the airport where he arrived at around 7.35 am.

The alcohol test was conducted in the Virgin crew area as a random test by Rogers, an approved alcohol and drug tester employed by the Civil Aviation Safety Authority (CASA) soon after Hollis' arrival at the airport.

The magistrate was satisfied that the alcohol test was properly conducted and that the offence was proved. Although Hollis had lost his employment with Virgin Australia as a result of the offence, and had suffered embarrassment and humiliation, the magistrate noted the serious potential ramifications of flying an aircraft while under the influence of alcohol, imposed a conviction and fined Hollis $2,000.

The appeal against the sentence was based on assertions that the magistrate had erred in various findings in reaching her conclusions.

Burns J accepted that there must be a finding of what activity was being undertaken by the pilot in the course of his duties as a crew member to satisfy the requirement that he was "performing an SSAA". However, he was satisfied that the magistrate's failure to state the activity that Hollis was undertaking in the course of his duties as a crew member was ultimately of no significance, as the offence may be proved by establishing that an accused person is either performing or is available to perform an applicable SSAA.

The judge considered that there could be no doubt that Hollis was available to perform activities as a pilot and that was the reason he had travelled to the airport and entered the Virgin crew area. The judge also found that the testing requirements were satisfactorily complied with.

Finally, Burns J noted that Hollis had not demonstrated any error of fact or law by the magistrate in the sentencing process and there could be no possible argument that the sentence imposed was manifestly excessive. Accordingly, the appeal was dismissed.

While no doubt the effect on Hollis' career and reputation as an airline pilot has been significant, the relevant regulations are clearly aimed at ensuring the safety of the aviation industry in Australia and, in all the circumstances, notwithstanding that there was some dispute regarding the evidence, the findings both at first instance and on appeal seem unremarkable.

Australian Competition and Consumer Commission v P T Garuda Indonesia Ltd [2016] FCAFC 42

What is a market in Australia under the Trade Practices Act?

On 21 March 2016, the ACCC's appeal against Perram J's dismissal of the ACCC's proceedings against PT Garuda and Air New Zealand's alleged price fixing was upheld by the Full Court of the Federal Court. The ACCC was successful in its argument that the Australian price fixing law in force at the relevant time (i.e. pre-2009 when the price fixing was prohibited by sections 45 and 45A (now repealed) of the Trade Practices Act requiring that the conduct occurred in a market "in Australia") should apply not only to a cartel conduct which took place in Australia per se, but also to a cartel conduct which occurred outside Australia where cargo was shipped into Australia from overseas. The Court confirmed that all aspects of the market need to be considered (not just a geographical dimension) when deciding whether the alleged price fixing would substantially lessen competition in a market in Australia. Relevantly, the Court held:
Ultimately, the determination of whether a market is "in Australia" is an evaluative exercise, which should not exclude any aspect of the market from consideration. In this case, Air NZ and Garuda supplied a suite of air cargo services to each port in Australia, commencing the provision of those services outside Australia. But (i) the suite of services they provided included important components which were provided in Australia; (ii) the services were marketed and ultimately supplied to customers, including significant customers in Australia; and (iii) there were Australian barriers to entry into the market. Wherever else the market might also have been located, the market was "in Australia". This conclusion is based on the legislative text of s 4E of the Trade Practices Act when read with ss 45 and 45A. It is a conclusion which is consistent with the purpose of s 4E and the overarching purpose of the Trade Practices Act, being "to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection". It is also consistent with Australian authorities to which we refer later in these reasons. Those authorities emphasise matters other than the physical location of a supplier, or where any substitution is given effect, as relevant factors in the identification of the market. It is also consistent with the conclusions which have been reached upon similar fact patterns in New Zealand and in Europe. (At [7])

New cartel laws

Since July 2009, new cartel prohibitions were introduced into the Competition and Consumer Act replacing the prohibition on price fixing in section 45A of the Trade Practices Act. No longer do the parties need to be in competition in Australia for the new cartel prohibitions to apply. This reflects the broad approach to what is a market "in Australia" as defined in the above extract.

Cook v Modern Mustering Pty Ltd & Ors and Savage & Ors v Modern Mustering Pty Ltd & Ors [2015] NTSC 82

In this case, a passenger who sustained serious spinal injuries in a helicopter accident failed to prove that the pilot had breached his duty of care and did not show that flying below 500ft had been a breach in the pilot's duty which caused his injuries.

The passenger, Mr Cook, who had been engaged as a cattle "spotter" as part of a mustering operation, received a lump sum payment of $10.5 million in work health proceedings. However, he then brought a common law claim against the owner of the helicopter, the holder of the Air Operator's Certificate (AOC) and the pilot in the Supreme Court of the Northern Territory.

In a judgment of Justice Kelly delivered on 10 December 2015, consideration was given to issues of breach of duty of care and whether that breach of duty was causative of Mr Cook's injuries.

It was alleged that the pilot negligently flew below 500ft in breach of regulations, as at the time the helicopter was not engaged in aerial stock mustering operations, which was the basis upon which permission for low flying had been granted.

There was also an issue of the meaning of "aerial stock mustering operations" and whether Mr Cook, who was not employed by the owner of the helicopter or the holder of the AOC, was a "crew member". Low flying was only permitted if "persons other than crew members are not carried". (See Civil Aviation Regulations, regulation 157(4)).

On the day of the accident, Mr Cook had himself first flown a gyrocopter and done some mustering. He then returned to the camp to board the helicopter and to act as a cattle "spotter" for the pilot and to provide guidance to him regarding the mustering operation. After some further mustering, the helicopter was returning to the camp to enable Mr Cook to operate the gyrocopter once again when the loss of power occurred.
Despite an attempted autorotation, the helicopter tail rotor clipped a tree and the helicopter landed on its skids without its tail, slid forward for some distance and tipped forward until the rotor hit the ground and the helicopter tipped over landing on the passenger side. While Mr Cook was very seriously injured, the pilot was uninjured.

The relevant regulations define "crew member" to mean a person assigned by an air operator for duty on an aircraft. It was argued that as Mr Cook was employed by a different company to the pilot and holder of the AOC, he was not a crew member and accordingly it was not permissible for the helicopter to fly lower than 500ft.

This argument was rejected as, if correct, the judge considered the helicopter could never fly below 500ft with a spotter on board. While that may be overstating the consequence of this finding, it nevertheless seemed that the judge looked at the overall nature of the operation and how it was controlled by those aboard to determine that Mr Cook was a "crew member".

The plaintiff maintained that as the purpose of the return flight was to enable Mr Cook to disembark and board the gyrocopter, the helicopter was not engaged in aerial mustering operations at the time of the accident.

The judge did not consider that this made sense as, if correct, the pilot would be changing regulatory requirements mid-flight depending on the particular activities in which he was engaged. He also noted that only minutes before the accident mustering operations were being undertaken. He concluded accordingly that the helicopter was engaged in aerial stock mustering operations when the accident occurred and was not in breach in flying below 500ft.

As to the issue of the breach of duty of care, the judge considered the "Shirt calculus" as stated by Justice Mason in Wyong Shire Council v Shirt [1980] HCA 12 where he said:
In deciding whether there has been a breach of the duty of care, the tribunal of fact must first ask itself whether a reasonable man in the defendant's position would have foreseen that his conduct involved a risk of injury to the plaintiff or to a class of persons including the plaintiff. If the answer be in the affirmative, it is then for the tribunal of fact to determine what a reasonable man would do by way of response to the risk. The perception of the reasonable man's response calls for a consideration of the magnitude of the risk and the degree of the probability of its occurrence, along with the expense, difficulty and inconvenience of taking alleviating action and any other conflicting responsibilities which the defendant may have. It is only when these matters are balanced out that the tribunal of fact can confidently assert what is the standard of response to be ascribed to the reasonable man placed in the defendant's position (at [14]).
He also referred to other decisions including that of Gleeson CJ in New South Wales v Fahy [2007] HCA 20 and noted that the relevant risk was that of injury to Mr Cook if there was a sudden loss of power or mechanical failure. There was a lack of evidence as to the probability of the occurrence and only limited evidence as to whether the height of the helicopter increased or decreased the risk and its likely consequences.

In the circumstances, the court found that the plaintiff had not proved on the balance of probabilities that the defendant was in breach of a duty of care to the plaintiff. It was also noted that, even if in breach of the duty of care in flying below 500ft, the plaintiff had not shown that this was a cause of the injury. Accordingly, the plaintiff's claim failed.

The judgment seems a sensible one and it seems reasonable to avoid the imposition of somewhat artificial divisions in the purpose of flight to determine the applicable regulations for flight operations. Those engaged in the heli-mustering industry would recognise the common sense of that outcome.

While it may be regrettable that such a seriously injured person was not entitled to compensation at common law, he nevertheless had already received very substantial damages by way of workers' compensation.

The decision should be of particular interest to those involved in the use of aircraft including helicopters in the agricultural industry.

Land transport


 Australian decisions

Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd [2016] NSWCA 67

by Carolyn Wait and Aaron Potter

The NSW Court of Appeal recently determined that the onus of proof is on insurers to prove an insured's recklessness if they wish to rely upon an exclusion in a commercial motor vehicle insurance policy for damage caused by recklessness and breach of a condition to take reasonable care and comply with statutory obligations.

On 15 April 2003, two employees of Barrie Toepfer Earthmoving and Land Management Pty Ltd were transporting a 16 tonne excavator from North Arm Cove to Wyee in New South Wales by prime mover and low loader. The vehicle was driven by Mr Luck and in the passenger seat was Mr Wyborn, the operator of the excavator. As the vehicle was driven over Hexham Bridge near Newcastle, the arm of the excavator struck a number of the overhead sections of the bridge, causing more than $12.8 million worth of damage.

Shortly prior to the collision, Mr Luck had stopped at a Roads and Traffic Authority of New South Wales (RTA) weighing station and was advised by the RTA inspector that the weight distribution of the excavator on the low loader was in breach of RTA regulations. The excavator was repositioned to remedy this breach but the repositioning resulted in the maximum height of the excavator increasing by almost one metre.

The RTA brought proceedings against Earthmoving seeking the cost of repairing the bridge. By cross claim, Earthmoving sought an indemnity from CGU Insurance Ltd, Vero Insurance Limited and NTI Limited, which had denied cover under Earthmoving's commercial motor vehicle policy.

The insurers relied on Exclusion 7 and Condition 3 of the policy to deny indemnity. Exclusion 7 provided that:
We will not pay for:

(7) Loss or damage or liability caused by:
(i) Recklessness by You or any person acting on Your part or by reckless failure to comply with any statutory obligations and by-laws or regulations imposed by any public authority, for the safety of Motor Vehicle/s and, for the carriage of goods and merchandise.

Additionally, Condition 3 stated:

We may refuse to pay a claim, or may reduce the amount payable under a claim to the extent that Your breach of any condition of this policy causes or contributes to loss, damage or liability or prejudices Our interest or rights, in respect of that claim.

You and any person acting on Your behalf must exercise reasonable care and precautions to prevent loss or damage to the Motor Vehicle, and comply with all statutory obligations and by-laws or regulations imposed by any public authority, for the safety of the Motor Vehicle/s and, for the carriage of goods and merchandise.

The judge at first instance (Price J in the Supreme Court of New South Wales) entered judgment for RTA against Earthmoving and found in favour of the insurers on the issue of indemnity. His Honour held that the driver of the prime mover was "reckless", and Earthmoving had not proven that it had exercised "reasonable care" for the purposes of a condition contained in the policy wording.

Earthmoving appealed the decision at first instance on a number grounds, and raised a number of issues for consideration by the Court of Appeal, including:
  • whether Earthmoving bore the onus of proving it had complied with the obligation to exercise "reasonable care and precaution"
  • whether the driver, Mr Luck, was "reckless" (for the purposes of the exclusion clause) or in breach of the obligation to exercise "reasonable care and precaution" (for the purposes of the condition)
Justice Meagher gave the leading judgment on the appeal, with Ward and Sackville JJA concurring with his reasons.

The Court of Appeal first considered whether the insured bore the onus of proving compliance with the condition. After surveying the case law, the Court of Appeal held that it did not, and that the insurers had to allege and prove breach of the condition. The Court of Appeal relied upon the decision of Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231 in support of the proposition that the question of onus must depend primarily upon the nature of the condition and the provisions of the policy.

The policy wording provided that insurers could refuse to pay a claim, or reduce the amount payable under a claim to the extent that the insured's breach of any condition caused or contributed to loss, damage or liability. The Court of Appeal relied upon the decision of the High Court in Wallaby Grip Limited v QBE Insurance (Australia) Limited [2010] HCA 9 in finding that the insurer should bear the onus of proving breach of the condition.

The Court of Appeal noted that the obligation to exercise "reasonable care and precautions" required a person to take such precautions to prevent loss or damage to a motor vehicle as that person considered reasonable having regard to the dangers which were recognised (Fraser v B N Furman (Productions) Ltd [1967] 1 WLR 898 and Legal and General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390).

Lord Diplock in Fraser noted "…the insured, where he does recognise a danger should not deliberately court it by taking measures which he himself knows are inadequate to avert it. In other words, it is not enough that the employer's omission to take any particular precautions to avoid accidents should be negligent, it must be at least reckless, that is to say, made with actual recognition by the insured himself that a danger exists, and not caring whether or not it is averted."

Using the reasoning in Fraser and Eather, the Court undertook an analysis of the facts before it. In determining whether Earthmoving's employees had acted recklessly, the Court considered the following questions:
  • Did the driver recognise there was a risk?
  • If so, what was the extent of the risk recognised?
  • Were the measures taken an inadequate response to the recognised danger?
Justice Meagher disagreed with the primary judge's finding that the driver and his companion recognised there was a risk. Amongst other things, there was oral evidence from the driver's companion that he did not "for one minute" think the load was going to hit the bridge. It was noted that Mr Luck and Mr Wyborn had joked about the possibility of the vehicle exceeding the maximum clearance height shortly prior to crossing the bridge. However, given that the excavator had been moved under the direction of RTA shortly prior to the collision, the driver told his companion that he did not think there was a problem with the height of the load because it was as the RTA "wanted it" or "have told us to do it". Ultimately, the Court of Appeal held that Mr Luck believed it was safe to drive onto the bridge and he did so without slowing.

In Justice Meagher's view, "it seems highly unlikely that [the driver] would not have slowed on his approach to the bridge if he believed, as the primary judge found, there was a risk that the load would hit".

The Court of Appeal held that the insurers did not establish that the driver had not slowed or stopped the vehicle in circumstances where he believed the taking of such steps was reasonable to avoid the risk that the load might strike the bridge.

The Court's decision illustrates the high bar that insurers must overcome to rely on an exclusion for recklessness. In circumstances where a policy is intended to cover the insured for negligent actions of its employees, it is unlikely that insurers can rely on limitations for reckless conduct unless they can establish that the insured has recognised the relevant risk and subsequently acted in a manner which indicates a blatant disregard for that danger.

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This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2022.

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