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

 

[2011] QCA 60

Reported at [2012] 1 Qd R 158

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO/S:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

DELIVERED ON:

1 April 2011

DELIVERED AT:

Brisbane

HEARING DATE:

18 March 2011

JUDGES:

Muir and Chesterman JJA and Margaret Wilson AJA
Separate reasons for judgment of each member of the Court, each concurring as to the orders made

ORDERS:

  1. The appeal is allowed.
  2. The judgment for the respondent in the sum of $3,171,886.88 be set aside.
  3. There be substituted judgment for the respondent for $1,807,367.88 together with interest thereon at the rate of ten per cent per annum for six years and four months.
  4. The appellant pay 95 per cent of the respondent’s costs of the appeal.

CATCHWORDS:

INSURANCE – THE POLICY – PRINCIPLES OF CONSTRUCTION – ELECTION – where the respondent had a policy of insurance in respect of an aircraft with the appellant insurer – where the policy allowed for the appellant to elect to “pay for, repair, or pay for the repair of, accidental loss of or damage to” the aircraft – where the respondent made a claim following the ditching of the aircraft – where the respondent was not convinced that a repair would return the aircraft to the condition it was prior to the ditching and sought that the appellant pay the insured value of $1.8m – where the appellant obtained a quote for repairing the aircraft – where the appellant wrote to the respondent requesting that they sign an ‘authority to repair’ the aircraft in accordance with the quote and, thereby, attempting to limit their liability to the amount specified in the quote – whether this amounted to a valid ‘election’ under the policy to repair

INSURANCE – THE POLICY – DAMAGES – GENERALLY – where the respondent claimed in cross-appeal interest at 10 per cent on the $1.8m from April 2004 for breach of contract – where the respondent claimed it would have used the $1.8m to purchase another aircraft which would have operated at a profit – whether the primary judge erred in dismissing the claim in respect of compensatory damages

INSURANCE – THE POLICY – DAMAGES – GENERALLY – where the respondent was awarded damages of $135,000 for loss of use of the aircraft by the primary judge – whether the respondent was duly entitled to the sum in addition to the $1.8m awarded by the primary judge

Appeal Costs Fund Act 1973 (Qld), s 15

Ballas v Theophilos [1958] VR 576, cited
Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26; [1993] HCA 27, cited
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749; [1997] UKHL 19, cited
Sargent v ASL Developments Ltd (1974) 131 CLR 634; [1974] HCA 40, cited
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596; [1979] HCA 51, cited

COUNSEL:

S S Couper QC for the appellant
D J S Jackson QC, with R M Treston, for the respondent

SOLICITORS:

Cooper Grace Ward Lawyers for the appellant
MacDonnells Law for the respondent

[1]  MUIR JA:  The proceeding at first instance concerned a claim by the respondent insured on the appellant insurer in relation to damage sustained by the respondent’s Cessna 208 aircraft when it ditched in the sea off Green Island on 8 February 2004 and was submerged.  The aircraft was recovered approximately 42 hours after ditching.  It had an insured value of $1.8m. 

[2] An issue between the parties at first instance was whether the appellant had elected under the policy to repair the aircraft.  That issue was determined by the primary judge against the appellant.  There were a number of other issues raised on the pleadings and ventilated in the course of the trial but, with one exception to which I will come later, they were left undecided.  Consequently, the only issue of substance on the appeal was the correctness of the primary judge’s determination on the election question. 

[3] The right to elect was conferred by clause 1(a) of the policy:

“The [appellant] will at its option pay for, repair, or pay for the repair of, accidental loss of or damage to the Aircraft described in the Schedule …”

[4] The appellant, at first instance and on appeal, relied on three letters as constituting its election under clause 1(a) of the policy to repair the aircraft.  The respondent accepted that if an election to repair by the appellant is to be found, it must be found in one or more of the three letters, but submitted that the letters must be construed in context as “part of the continuum of the prior correspondence” between the parties.  I did not understand counsel for the appellant to be submitting to the contrary.  However, in their respective oral and written arguments, neither counsel pointed to anything in the history of the parties’ relevant dealings which shed much, if any, light on the proper construction of the three letters. 

The letters relied on to constitute the election

[5] The letters, not surprisingly, were the subject of detailed analysis in the course of submissions, and it is necessary to set them out in full:

Letter dated 26 February 2004 from the appellant to Mr Williams, a director of the respondent (“the first letter”)

Re:  Claim 674 – Engine failure and ditching 8th February 2004 – VH-CYC

We refer to the above claim and your telephone conversation with Mr Daniel Nash our National Claims Manager on 19th February 2004.  We have also discussed this claim on numerous occasions with your broker – Toby Palham.

We are writing to confirm that we have obtained repair estimate from Aircraft Structures International Corporation (ASIC) in Oklahoma.  Please find attached a copy of that estimate totalling US$691,178.81 (equivalent of approx AU$895,000).

Under your policy, we have the option to “…pay for, repair, or pay for the repair of accidental loss of or damage to the Aircraft…” (refer Aircraft Insurance Policy Section 1, subsection 1(a)).  As the aircraft is insured for AU$1,800,000, and in it’s (sic) post damage condition would be valued at no more than AU$150,000, it is clear that it is repairable based on the above mentioned estimate.

We have made enquiries with several aviation industry contacts in the United States, and we are satisfied as to the integrity and capability of the repairer to complete the work required.  This work will be carried out in accordance with the Cessna Structural Repair Manual (SRM) and the FAA repair station standards, and be returned to service with CASA acceptable paperwork.

We have also made initial enquiries of CASA in Canberra, Brisbane and Townsville to ensure that they have no concerns with the repair and return to service of this aircraft.  We are assured that they have no concerns with this process, however we will formally notify CASA of our intentions to ensure that there is no misunderstandings (sic).  We will provide you with a copy of our formal notification.

We also refer you to your obligations under the policy to make every effort to strip all the interior trim and fittings out of the aircraft, all access and inspection panels have been removed, all interior areas of the aircraft and its structure has been washed thoroughly with fresh water and it further sprayed with kerosene.

Could you please instruct Aircraft Structures International Corporation to proceed with the repairs to the aircraft as per their estimate.

We enclose an Authority to Repair for your signature.  Could you please pass this on to Aircraft Structures International Corporation as soon as possible and send a signed copy to us for our files.

We take this opportunity to remind you that the work undertaken by the above company to repair and restore the aircraft to its former state being the subject of this claim is performed in accordance with the terms and conditions of the policy and our interest is limited to the cost of the accident repairs as quoted in accordance with your entitlement under the policy.

Cape York Air will be required to pay the excess of AU$18,000 and the repair or maintenance of any non accident related damage, the repair of any fair wear and tear items discovered in the course of these repairs, contribution towards lifed items and any other work to bring the aircraft to an airworthy condition to Aircraft Structures International Corporation on completion of the repairs.

At the completion of the repair you will be required to sign a release accepting the repairs as being complete and satisfactory. 

Should you have any enquiries on the repair of your aircraft please do not hesitate to contact me at this office at any time.”

[6] Accompanying the first letter were the following documents:

The Authority to Repair

“                            AUTHORITY TO REPAIR

I/We ……………………………………………

For and on behalf of Cape York Airlines hereby authorise Aircraft Structures International Corporation and their sub-contractors to proceed with repairs to the Cessna 208 Caravan aircraft Registration VH-CYC.

All other costs and non-accident related repairs will be borne by Cape York Airlines.

Signed: _________________________________________________

Address: ________________________________________________

Date: _____/ _____/2004

Witnessed: ______________________________________________

Address: ________________________________________________

Date: _____/ _____/2004”

The Repair Estimate

“Michael Ellis

GAB Robins

Australia                                                                   16 February 2004

          Repair Estimate for VH-CYC, Serial Number 20800108

Transport aircraft from Queensland, Australia to Enid, Oklahoma for repairs (includes labor (sic) to place aircraft into two shipping containers, airline tickets, meals, car rental, lodging, and two 40ft. containers).

25,000.00

Labor (sic) to remove aircraft from shipping containers; remove all avionics, instruments, and electrical components.  Flush interior of aircraft with fresh water and chase with diesel fuel.  Remove all control cables, pulleys, torque tubes, and bearings.  Remove all wiring.  Clean and flush all oil lines, fuel lines, fuel sumps, pneumatic lines, and brake lines.  Remove and replace all nut plates.  Remove firewall and clean structure, prime, and replace.  Remove trailing edge skins from flaps, elevators, ailerons, and rudder; flush and reinstall trailing edge skins.  Coat interior surfaces of entire aircraft with LPS-3.  Install replacement wiring harness, avionics and instruments.  Install new pulleys, bearings, and torque tubes, reinstall control cables after inspection.  Remove and replace all engine and prop control cables.  Disassemble pedestal, clean, lubricate and reassemble.  Remove circuit breaker panel and clean, replace all wiring, switches, and circuit breakers.  Install new engine mounts, install used serviceable engine with similar hours.  Overhaul prop.  And install.  Replace all damaged cowling and install all overhauled engine accessories.  Disassemble nose gear, clean, reassemble and install.  Disassemble main gear springs, flush internal walls, prime inside walls, and reassemble springs.  Disassemble and clean wheels and brakes.  Reinstall main gear and bleed brakes.  Assemble aircraft and rig all flight and engine controls.  Install new carpet and upholstery.  Perform new weight and balance. 2,486 hours @ $69.00 per hr.

171,534.00

Parts (see attached list)

298,844.81

Freight (parts only)

500.00

Shop supplies (MEK, paper towels, glue, etc.)

300.00

PT6A-114A engine (comparable time)

200,000.00

Paint (complete strip, etch, alodyne, poly-urethane)

20,000.00

Oklahoma sales tax (delivered out of state 0%)

0.00

Total repair

$691,178.81

All work is to be completed under a repair station authorization (sic).  Parts prices are good at time of quote; and increases by OEM will be passed on.  Hidden damage discovered after disassembly will be priced accordingly.

Please don’t hesitate to contact me if you have any questions.

Sincerely,

Mickey A. Stowers

President”

Letter from the appellant dated 26 February 2004 sent to Mr Williams of the respondent on 22 March 2004 (“the second letter”)

Re:  Claim 674 – Engine Failure and ditching 8th February 2004 – VH-CYC

Further to our letter of the 26th February with the attached Authority to Repair we thank you for the aircraft’s equipment and additional costing’s (sic) received from Cape York Airlines that may affect the cost of repairs.

We sent those aircraft details to Aircraft Structures International Corp. (ASIC) for their review and to adjust the repair quote accordingly.  Mr Stowers of ASIC has replied and the repair costing including freight both ways and the other installed equipment as notified has risen to USD 771,443.81 or AUD 1,056,772.34 @ .73 to the USD.

We reiterate that under your policy, we have the option to “…pay for, repair, or pay for the repair of accidental loss of or damage to the Aircraft…”, and it is clear that the aircraft is repairable based on the above-mentioned estimate.

Could you please instruct Aircraft Structures International Corporation to proceed with the repairs to the aircraft as per their estimate.  We have enclosed a copy of the Authority to Repair for your signature.  Could you please pass this on to Aircraft Structures International Corporation as soon as possible and send a signed copy to us for our files.

We take this opportunity to remind you that the work undertaken by the above company to repair and restore the aircraft to its former state being the subject of this claim is performed in accordance with the terms and conditions of the policy and our interest is limited to the cost of the accident repairs as quoted in accordance with your entitlement under the policy.

We are concerned that the assured may have to bear any additional cost due to further deterioration if the repair decision is delayed.

Should you have any enquiries on the repair of your aircraft please do not hesitate to contact me at this office at any time.”

Letter from the appellant to Mr Williams of the respondent dated 24 march 2004 (“the third letter”)

Re:  Claim 674 – Engine Failure and ditching 8th February 2004 – VH-CYC

Thank you for your letter of the 22nd March 04 received via Heath Lambert Group.  As noted in my letter posted/faxed to you Monday (my apologises (sic) for it being captioned under the date 26th February 2004), we received your additional equipment list and forwarded this on to Aircraft Structures International Corp. (ASIC).

Mr Stowers of ASIC has replied to us with regard to your listing and the repair quote including freight both ways and the other installed equipment as notified is now USD 771,443.81 or AUD 1,056,772.34 @ a conservative A0.73 to the US$.  This includes all ASETPA items and the ASETPA approval would remain valid.

We can assure you that we have gone into the acceptability of ASIC’s repair scheme thoroughly.  We have spoken to the principle (sic) of ASIC on a number of occasions about the method of repair, the amount of disassembly such as the removal and replacement of the engine propeller, firewall, all general hardware, nuts, bolts, anchor nuts, bearings, pulleys, wiring loom, instruments, avionics, circuit breakers, etc the list goes on and on.

The aircraft would be test flown in the USA and in Australia before it’s (sic) return to service.  The Australian Certificate of Airworthiness would be reissued under the watchful eye of CASA before returning the aircraft to service.  This has been taken into account in the repair budget.

CASA accepts the FAA’s approval of ASIC’s FAA Repair Station approval and any certification issued by that Repair Station and the repair process under existing reciprocal ICAO Airworthiness procedures and Certification as it is being carried out in accordance with the Cessna Structural Repair Manual (SRM).

To ensure the credibility of the repair process we have contacted the following entities,

  • ASIC themselves and quizzed them as to the repair process, past projects, how and where these projects became inundated and the airframe’s long-term corrosion control program.
  • Cessna Product Support in Wichita KA USA.  They said they will write to us about the acceptability of the ASIC repairs.
  • Other insurance companies who have used their services in the USA.
  • Assessors in America who have been involved in these ‘wet’ aircraft repairs.
  • We asked a number of USA based aircraft suppliers and companies we deal with to independently check ASIC out for us.
  • The Australian CASA airworthiness both on a state and federal level.
  • A number of Australian Cessna Caravan operators who have dealings with ASIC.

To date we have not received any negative response either with regards to the company’s capability to carry out the repair or the acceptability of these repairs to either the FAA USA, other Airworthiness Authorities in a number of foreign countries, or the Australian CASA Airworthiness both Head Office in Canberra or your local office in Townsville.

We might add that many other types of aircraft, from Cessna 180, 185 and 206 series to De Havilland Twin Otters have been returned to service after salt-water submersion and Airworthiness Authorities around the world accept these repairs when carried out in accordance with the manufacturers instructions and SRM.  This will be the case for VH-CYC.

Cessna Product Support have assured us they accept the repair process as carried out by ASIC in accordance with the Cessna 208 SRM.  There would be NO additional long-term inspections or operational penalties or airworthiness risk to the basic airframe of VH-CYC if the repair is carried out in accordance with the Maintenance & SRM.  CASA have also indicated the same.  We can assure you that it will be repair (sic) to the highest standard.

In accordance with the policy provisions we would, as is our obligation, return the aircraft to your organisation in the same or in this case a better condition as many of the parts (pullies, bearings circuit breakers and wiring loom etc) would be new rather than up to 18 years old.

The repair would not affect the aircraft’s high altitude photography or ASETPA capabilities with no issues affecting its basic airworthiness.

Should you have any further enquiries on the repair of your aircraft please do not hesitate to contact me at this office at any time.”

The appellant’s contentions

[7] The arguments advanced by senior counsel for the appellant may be summarised as follows.  The primary judge erred in construing the letters from the appellant to the respondent as demonstrating that the appellant was seeking to limit its liabilities to the price quoted in the repair estimate.  Given the circumstances in which the estimate was provided and the language of the estimate, such a construction was not reasonably open.  The estimate was, as its name suggested, merely an estimate and not a complete record of all the work which may have been required to repair the aircraft to a condition in which an airworthy certificate could be obtained.  The document expressly stated “hidden damage discovered after disassembly will be priced accordingly”. 

[8] A fair reading of the first letter leads to the conclusion that the appellant was advising the respondent that it intended to repair the aircraft.  The appellant thus elected to repair. 

[9] The primary judge construed the letter as a request by the appellant for the respondent to instruct ASIC to proceed with the repairs.  He found that, as this was not one of the options available to the appellant under the policy, it could not amount to an election.  However, it was not inconsistent with the appellant having elected to repair the aircraft for the appellant to ask its insured to cooperate by instructing the repairer.  The appellant was not asking the respondent to repair the aircraft and there is nothing in the letter to undermine the construction that there was an election to repair.  The primary judge’s construction ignores the plain language of the fourth last paragraph in the letter in which the appellant draws a distinction between the cost of repairing accident damage and the cost of repairing non-accident damage or fair wear and tear.  Moreover, the appellant was saying that it would act “in accordance with the terms and conditions of the policy”. 

[10]  The primary judge wrongly construed the second letter as an attempt by the appellant to limit its liability to the figure stated in the ASIC repair estimate.  A fair reading of this and the previous letter necessitates the conclusion that the appellant was pointing out, correctly, that whilst it had the liability to pay for accident related damage, the insured was liable for non-accident related damage or fair wear and tear.  This letter also refers to the insured’s entitlement in accordance with the policy. 

[11]  There is nothing in the third letter, or in the three letters read together, which justifies the conclusion that the appellant was offering only to repair in accordance with the ASIC estimate “and nothing else”.  This construction ignores these words in the third letter: 

“In accordance with the policy provisions we would, as is our obligation, return the aircraft to your organisation in the same or in this case a better condition as many of the parts (pullies, bearings circuit breakers and wiring loom etc) would be new rather than up to 18 years old.”

[12]  The statement by the appellant that it would return the aircraft in the same or better condition is entirely inconsistent with the notion that the appellant was seeking to limit its obligation to only those items of repair identified in the ASIC estimate.  The primary judge held as follows in paragraph 135 of his reasons:

“In my opinion, the correct position with respect to this matter is summarised in the following submission by counsel for the plaintiff (omitting references to authority):

‘Further, if QBE had made an election to repair then it did not need to go through the charade of providing to CYA the ASIC repair estimate at all – it merely had to effect the repairs.  QBE would have been entitled to take and reinstate the Aircraft and CYA could not legally prevent it from doing so.  There is no evidence of any unconditional demand upon CYA to deliver up the Aircraft, nor any refusal by CYA to do so.’ ”

[13]  The primary judge erred in making the above finding that the making of an unequivocal election to repair did not also require there to be a demand for delivery up of the aircraft.  Moreover, the insurer did not have the right under the policy to seize the aircraft. 

Consideration of the first letter

[14] Both parties accepted that the following statement of principle by Stephen J in Sargent v ASLDevelopments Ltd[1] applied:

“The words or conduct ordinarily required to constitute an election must be unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other; thus for a lessor to continue to receive rent under a lease will be consistent only with his rights as lessor and inconsistent with the exercise of a right to determine the lease … However, less unequivocal conduct, only providing some evidence of an election, may suffice if coupled with actual knowledge of the right of election … There need be no expressed intention to elect, nor will an express disclaimer of such an intention be of any avail in preserving one right if in fact there be an exercise of another inconsistent right … For an election there need be no actual, subjective intention to elect … an election is the effect which the law attributes to conduct justifiable only if such an election had been made ...”.

[15]  Counsel for the appellant also placed reliance on the following observations of Lord Clyde in Mannai Ltd v Eagle Star Assurance Co Ltd[2] concerning what is required for an unequivocal communication of an election:

“The standard of reference is that of the reasonable man exercising his common sense in the context and in the circumstances of the particular case.  It is not an absolute clarity or an absolute absence of any possible ambiguity which is desiderated.  To demand a perfect precision in matters which are not within the formal requirements of the relevant power would in my view impose an unduly high standard in the framing of notices such as those in issue here.”

[16]  The respondent’s central contention, which the primary judge accepted, was that the appellant failed to make an election between the three options available to it under the policy as the three letters, either separately or in combination, were incapable of being construed as a clear and unequivocal election to repair. 

[17]  The primary judge decided the question of whether the first letter and the authority to repair attempted to limit the repairs to the aircraft to the amount quoted or estimated by ASIC thereby placing an unacceptable reservation on the alleged election against the appellant.  His Honour erred in so doing. 

[18]  The estimate, as its name suggests, was not a quotation to repair for a fixed price or even a binding offer to repair capable of acceptance.  Nor was it apparent from the estimate that ASIC would, if a contract was entered into in terms of the estimate, assume an obligation to “repair the aircraft to its former state”.[3]  But, irrespective of its characterisation, the estimate expressly provided that “hidden damage discovered after disassembly will be priced accordingly.”  The appellant’s National Claims and Technical Officer, Mr Stacey, explained that the purpose of getting the estimate from ASIC was to assist the appellant in forming a view as to whether the repair option was viable.  It was implicit in the third last paragraph of the first letter that the respondent was being called upon to pay only for: the excess under the policy, “the repair and maintenance of any non accident related damage, the repair of any fair wear and tear, items and any other work to bring the aircraft to an airworthy condition”.  In short, the appellant was accepting an obligation to pay for the repairs to remedy the accidental damage to the aircraft but no liability for any other costs. 

[19]  The first letter requested the respondent to instruct ASIC to proceed with the repairs to the aircraft as per its estimate.  The appellant had no right to impose on the respondent a condition or requirement that the respondent enter into contractual relations with ASIC, if that is what the first letter attempted to do.  Counsel for the respondent argued that the first letter should be construed in this way as the word “instruct” necessarily connotes a formal communication which implies that there is to be a contractual relationship between ASIC and the respondent.  That point, in my view, has considerable force.  If it were thought necessary, for some reason, that ASIC was merely being authorised to proceed with the repairs, one would think that the letter would have requested “authorisation”, particularly as the letter was accompanied by the authority to repair.  If the respondent was not to be a contracting party, the use of the word “instruct” was obviously inappropriate.  If all the appellant was doing by the letter was notifying of its election to repair and justifying that course to the respondent, there was, of course, no need for the respondent to give instructions to ASIC or to provide an authority to repair.  Counsel for the appellant acknowledged that the appellant had no right to impose any such requirements. 

[20]  The authority to repair, of itself, does not point to the respondent’s assuming a contractual obligation in respect of accident related repairs.  However, if the authority had been submitted to ASIC, the respondent would have become liable to ASIC for “all other costs and non-accident related repairs”.  Precisely what was potentially encompassed by those two categories is unclear but it was implicit that there may have been costs for which the respondent was to be responsible which were not included in the estimate. 

[21]  It may well have been a sensible objective on the appellant’s part to attempt to have the respondent contractually bound to pay for repairs, which may have been necessary in order to obtain a flight certificate, but which were not the responsibility of the appellant.  However, if the purported election to repair was subject to or conditional on the respondent’s assuming a contractual obligation to ASIC, the consequence may be that there was no election pursuant to the policy.  The requirement that the authority be provided to ASIC was no mere formality.  The authority, on the face of it, would have entitled ASIC to exercise its discretion as to what work it would or would not perform and the respondent would have assumed liability for the cost of that work and also for “all other costs”. 

[22]  The penultimate paragraph of the first letter imposed an obligation on the respondent to “sign a release accepting the repairs as being complete and satisfactory” upon the “completion of the repair”.  The “repair” referred to was the “repairs to the aircraft as per [ASIC’s] estimate”.  Those repairs, as has just been discussed, encompassed more than the repair of “accidental damage”.  But even if the release related only to repairs for which the appellant was responsible, the appellant insurer could not impose on the respondent insured a requirement to provide such a release. 

[23]  In Immer (No. 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW)[4] it was said in the joint judgment:

“A party can only be held to have elected ‘if he has so communicated his election to the other party in clear or unequivocal terms’.”

[24] BrennanJ was of the opinion that an election must be unqualified as well as unequivocal.[5]  That an election to be effective must be unqualified, as I consider it must be, derives support from the following passage from the reasons of Smith J in Ballas v Theophilos:[6]

“It is clear, however, that, unless otherwise provided no particular form of words is necessary to constitute such an election:  see Nicholson v. Smith (1882), 22 Ch. D. 640, at p. 659.  A statement that the option holder wishes, or desires, or intends, or agrees, to purchase under the option, or to exercise the option, will ordinarily be sufficient, if it be unqualified:  compare the forms of expression employed in Nicholson v. Smith ... But this is only so because such a statement sufficiently conveys, by implication, the meaning that the option holder has made an unqualified election to be thenceforth entitled to the rights, and bound by the obligations, of a purchaser upon the terms set out in the option agreement.  Accordingly, if the statement includes anything which negatives such an implication it will not be effective to exercise the option.” [Citations omitted]. 

The election under consideration in Ballas was the exercise of an option by a continuing partner to acquire a deceased partner’s share in a partnership. 

[25]  Thefirst letter purported to elect to repair on condition that the respondent:  instruct ASIC as requested; deliver the authority to repair to ASIC; and agree to sign the stipulated release.  That was not an election contemplated by the policy.  It contemplated an unqualified election to repair, no more and no less.  Once the election contemplated by the policy was made it would have bound the appellant to effect the repair.  The appellant could not have imposed any obligations on the respondent in that regard beyond those arising under the policy. 

[26]  Although the letter does not expressly make the purported election subject to or conditional upon these matters, it was necessarily implicit that ASIC would not be requested to do the subject work unless the instructions and authority to repair were provided.  A reasonable person in the position of the respondent would not have understood that the appellant was electing to repair irrespective of whether the respondent provided the instruction and authority and accepted an obligation to provide the release.  The requests that these things be provided could not be regarded sensibly as mere surplusage or a polite request in respect of which compliance was optional. 

[27]  The respondent had an implied obligation to “do all that was reasonably necessary to secure performance of the contract”.[7]  But the obligations the appellant sought to impose on the respondent went well beyond any such implied obligation.  The primary judge did not err in concluding that the first letter did not communicate an election by the appellant in terms of the policy. 

Consideration of the second letter

[28]  The second letter also requested that the respondent instruct ASIC “to proceed with the repairs to the aircraft as per their estimate” and provide ASIC with a signed authority to repair.  There is nothing in the letter which alters or detracts from the requirements sought to be imposed by the first letter. 

Consideration of the third letter

[29]  The purpose of this letter appears to be to provide assurances that the work to be done by ASIC would result in the restoration of the aircraft to a condition in which an Australian Certificate of Airworthiness could be obtained and which would give rise to no additional future costs or risks resulting from sea water immersion.  There is nothing in this letter either which alters or detracts from the requirement sought to be imposed by the first letter. 

Conclusion

[30]  For the above reasons, there was no valid election under the policy to repair. 

The cross-appeal

[31]  The respondent, by paragraphs 5 and 6 of its notice of cross-appeal, appealed against the primary judge’s failure to make findings in the respondent’s favour in respect of its compensatory damages claim.  I will not repeat or summarise the respondent’s submissions in this regard.  Insuperable obstacles to the success of the cross-claim were raised in the written argument of counsel for the appellant.  They were not addressed, successfully or at all, by counsel for the respondent.  It is sufficient for present purposes to mention but two of these obstacles. 

[32]  The respondent claims as compensatory damages for breach of contract interest at 10 per cent on $1.8m for five years from April 2004.  The primary judge awarded interest at 10 per cent on $1.8m from April 2004.  The order now sought would result in double compensation. 

[33]  The respondent’s claim at first instance was that it would have used the $1.8m to purchase an aircraft which would have operated at a profit.  The primary judge dismissed the claim.  It has not been shown that he erred in so doing.  As the new basis of claim raises questions of fact which could have been addressed by evidence at first instance, the respondent should not be permitted to change course now. 

The damages award of $135,000

[34]  The respondent’s claim for $135,000 in respect of loss of use of the aircraft was an alternative to the claim for payment of the sum of $1.8m and the respondent did not submit to the primary judge that it was entitled to payment of that sum in addition to the $1.8m.  It is common ground that it was not so entitled and that the judgment must be reduced accordingly. 

[35]  Counsel for the respondent indicated that the respondent would apply for an indemnity under the Appeal Costs Fund Act 1973 (Qld) in respect of this ground of appeal.  The respondent is free to do so, but the fact that it did not concede that the primary judge had erred in this regard until its outline of argument was filed and served, provides a reason for exercising the discretion against it.  The amount involved, and in particular the amount which would have been involved had a timely concession been made, is also a relevant consideration.  These matters are also relevant to costs. 

The orders

[36] For the above reasons, I would order that the appeal be allowed, but to the extent only that:

(a) The judgment for the respondent in the sum of $3,171,886.88 be set aside; and

(b) There be substituted judgment for the respondent for $1,807,367.88 together with interest thereon at the rate of ten per cent per annum for six years and four months. 

I would order also that the appellant pay 95 per cent of the respondent’s costs of the appeal. 

[37]  CHESTERMAN JA:  I agree with the orders proposed by Muir JA and with his Honour’s reasons for making those orders. 

[38]  MARGARET WILSON AJA:  I respectfully agree with the orders proposed by Muir JA and his Honour’s reasons for judgment. 

Footnotes

[1] (1974) 131 CLR 634 at 646.

[2] [1997] AC 749 at 782.

[3] See first letter.

[4] (1993) 182 CLR 26 at 39.

[5] Immer (supra) at 30.

[6] [1958] VR 576 at 581.

[7] Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607.

Close

Editorial Notes

  • Published Case Name:

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

  • Shortened Case Name:

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

  • Reported Citation:

    [2012] 1 Qd R 158

  • MNC:

    [2011] QCA 60

  • Court:

    QCA

  • Judge(s):

    Muir JA, Chesterman JA, M Wilson AJA

  • Date:

    01 Apr 2011

Litigation History

Event Citation or File Date Notes
Primary Judgment [2010] QSC 313 27 Aug 2010 -
Appeal Determined (QCA) [2011] QCA 60 01 Apr 2011 -

Appeal Status

{solid} Appeal Determined (QCA)