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QBE Insurance (Australia) Ltd v Cape York Airlines Pty Ltd


[2010] QCA 275







Appeal No 10224 of 2010

SC No 1762 of 2005












DATE 14/10/2010









MUIR JA:  After a trial, a judge of the trial division of this Court on 27 August 2010 gave judgment in favour of the respondent in the sum of $3,171,886.88 made up of $1,192,367.88, being moneys to which the respondent was entitled under a policy of insurance and $1,229,519 interest on the foregoing sum at the rate of 10 per cent per annum for six years and four months.  The applicant applies for a stay of the judgment until after the hearing and determination of the applicant's appeal against the judgment.


The proceedings at first instance concerned a claim by the respondent insured on the applicant insurer in relation to damages to the respondent's Cessna 208 aircraft when it ditched in the sea off Green Island on 8 February 2004.  The aircraft was recovered approximately 42 hours after ditching.  The aircraft had an insured value of $1.8 million and the applicant had the right to elect to repair the aircraft in the event of a claim by the respondent on account of damage to it.  The principal issue between the parties at first instance and on appeal was, and is, whether the applicant had elected to repair the aircraft.  The primary judge held that the applicant had made no such election and that, in consequence, was obliged to pay the respondent the insured sum.


Counsel for the applicant submitted that:


a) There is a justified concern on the part of the applicant that if the judgment sum is paid to the respondent it will be unable to be recovered should the appeal succeed;

b) That the applicant has an arguable case, the merits of which are able to be assessed as the critical issue largely turns on the construction of three letters sent by the applicant to the respondent.


It was submitted by counsel for the respondent that:


a) The appeal has poor prospects of success at best; 

b) There is no cogent evidence to demonstrate that the applicant would be unable to recover the judgment sum if it is paid by the respondent.  In that regard, it is pointed out that the respondent has no debts other than related party loans.  Although it had to sell some of its assets in 2006 to pay debts in legal fees it incurred as a result of the ditching of the aircraft and this litigation, it has continued to trade, albeit in a modest way.  Although it has made losses in recent years it has substantial accumulated profits and assets;

c) To grant a stay would be to significantly disadvantage the respondent by depriving it of the fruits of its judgment and the ability to recoup substantial legal and other expenses incurred during the last five years of the litigation;

d) The sole director of the respondent has offered undertakings until the appeal is determined, as have the respondent and its parent company, in terms of those which will be mentioned later.


Counsel points out that the sole director of both companies and sole shareholder has undertaken to stand behind the judgment. The principles to be applied on an application for a stay pending appeal are clear.  Judgments at first instance should not be regarded as provisional and prima facie the victor is not to be deprived of the fruits of its judgment.  But under r 761 of the Uniform Civil Procedure Rules 1999 (Qld), the Court has the discretion to grant a stay pending determination of an appeal. 


A consideration relevant to the exercise of the discretion is the applicant's prospects of success on appeal.  As I have said, counsel for the respondent submits that the applicant's prospects are very poor at best.  In my view the applicant has an arguable case.  The critical issue seems to be whether the attempted imposition of an impermissible limit on the applicant's liability under the policy and communications with the respondent, which otherwise would have constituted an election by the applicant to repair the aircraft, resulted in there being no election.


I should make it plain that this is not the only issue; there are others which surround this point.  But in as much as I am able to form a view of the prospects for the moment it appears to me that the applicant's case cannot be said to be without prospects.


I have some difficulty with the applicant's contention that if an election was made there was a repudiation of a new contract which came into existence on the election and that the applicant was thus released from any obligation under the policy.  It is not practical to address that contention in any detail on the hearing of this application.  I merely note that a repudiation of a contract is not to be likely inferred, particularly if the consequence will be to strip the alleged wrongful party of manageable accrued rights to the enrichment of the other party.


The other critical considerations here are the balance of convenience - weighing the prejudice to the respondent should the stay be granted against the prejudice to the applicant if it is not.  The latter entails consideration of the prospect that the appeal may be rendered negatory by the respondent's inability to repay judgment moneys. 


Searches conducted by the applicant's solicitors reveal that it owns no real property in Queensland or New South Wales.  The effect of the evidence given at first instance by Mr Williams was that, at best, the respondent's business operated with very slim profit margins and, at worst, incurred substantial losses. 


The financial statements for the year ended 30 June 2009 show the respondent and its parent as having net assets of $1,760,888 and $108,260 respectively.  That is a matter which obviously I must take into account, and I do so, but I have no means of assessing the accuracy and correctness of those valuations and I note that the respondent's non-current assets of $1,817,757 consists of loans to its parent company.


The evidence supports the view that in the sector of the aviation industry in which the respondent is involved there is a material risk that an aircraft operator may sustain grave losses through aircraft mishaps or licensing difficulties to a substantial degree at least, the undertakings which often reduce or minimise these risks.


The applicant has also stated a concern that it can have no assurance as to the true state of the liabilities and exposure to claims of the respondent, having regard to the primary judge's findings in paragraph 150 of the reasons concerning the reliability of Mr Williams' evidence.


Viewed as a whole, the evidence satisfies me that despite the undertakings offered by, or on behalf of, the respondent there would be an appreciable risk that the respondent may be unable to pay all of the judgment moneys unless a stay is granted. 


In my view, any prejudice to the respondent can be substantially redressed by the obligation of the respondent to pay interest imposed by s 48 of the Supreme Court Act 1995 (Qld).  The prescribed interest rate of 10 per cent would appear to be higher than the interest which the respondent would be likely to earn under the undertakings.


The grant of a complete stay, however, would not entirely redress the harm to which the respondent points and I think would not sufficiently take into account the other matters which I have referred to earlier.


Another matter of relevance is that if the respondent succeeds on the appeal the respondent would be better off, subject to the other matters I have just mentioned, if a stay were to be granted than it would be if no stay were to be granted as a result of the undertakings offered.


Having regard to these matters and upon the undertaking of the respondent, its parent company, Paragon Pacific Pty Ltd, and Arthur Kenneth Williams by their counsel:


a) not to use any of the judgment moneys to purchase another aircraft;

b)   not to alter the ownership of the respondent or Paragon;

c) not to remove any of the judgment moneys out of the jurisdiction;

d)   not to dispose of any of the respondent's assets, except in payment of legal fees and costs incurred or to be incurred in the proceedings at first instance and on appeal; and

e) to repay the judgment sum in the event that the appeal is successful.


I order that the judgment at first instance, pronounced on 27 August 2010, except to the extent of $700,000, be stayed until the hearing and determination of the appeal from the judgment to this Court or until earlier order.


I order that the costs of this application be the parties' costs in the cause in the appeal.


Editorial Notes

  • Published Case Name:

    QBE Insurance (Australia) Ltd v Cape York Airlines Pty Ltd

  • Shortened Case Name:

    QBE Insurance (Australia) Ltd v Cape York Airlines Pty Ltd

  • MNC:

    [2010] QCA 275

  • Court:


  • Judge(s):

    Muir JA

  • Date:

    14 Oct 2010

Litigation History

Event Citation or File Date Notes
QCA Interlocutory Judgment [2010] QCA 275 14 Oct 2010 -

Appeal Status

No Status