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Queensland Judgments

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GBRH Holdings Pty Ltd v Helicopter Services Cairns Pty Ltd

 

[2012] QCA 198

 

 

SUPREME COURT OF QUEENSLAND

  

PARTIES:

FILE NO:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

District Court at Cairns

DELIVERED ON:

27 July 2012

DELIVERED AT:

Brisbane

HEARING DATE:

20 April 2012

JUDGES:

Muir JA, Margaret Wilson and Mullins JJ

Separate reasons for judgment of each member of the Court, each concurring as to the orders made

ORDERS:

1.Appeal dismissed.

2.The appellant must pay the respondent’s costs of the appeal to be assessed.

CATCHWORDS:

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where the appellant and respondent made an agreement for the appellant to hire the respondent’s helicopter – where the agreement included put and call options in respect of the sale and purchase of the helicopter – where the helicopter was destroyed by accident – where neither option had been exercised at the time the helicopter was destroyed – where the express terms of the agreement excluded the accrual to the appellant of any interest in the helicopter pending the exercise of either option – where pursuant to the agreement the appellant had insured the helicopter to cover the risks arising from the operation of the helicopter for the benefit of both the appellant and the respondent – where the respondent claimed the net residue of the insurance payout to the exclusion of the appellant – whether the appellant is entitled to any part of the insurance payout

Insurance Contracts Act 1984 (Cth), s 17

AMEV Finance Limited v Mercantile Mutual Insurance (Workers’ Compensation) Limited (No 2) [1988] 2 Qd R 351, considered

COUNSEL:

P A Freeburn SC for the appellant

D B Fraser QC for the respondent

SOLICITORS:

Miller Harris Lawyers for the appellant

Broadley Rees Hogan (Brisbane) as Town Agents for Williams Graham Carman (Cairns) for the respondent

[1] MUIR JA: I agree that the appeal should be dismissed with costs for the reasons given by Mullins J.

[2] MARGARET WILSON J: I agree with the orders proposed by Justice Mullins and with her Honour’s reasons for judgment.

[3] MULLINS J:  The respondent Helicopter Services Cairns Pty Ltd was the owner of a helicopter that was destroyed by accident on 1 June 2011.  At the time of its destruction it was operated by the appellant GBRH Holdings Pty Ltd under a hire agreement that was one part of an agreement made on 16 August 2010 between the respondent and the appellant (the agreement) that covered the granting of put and call options in respect of the sale and purchase of the helicopter, in addition to the hire of the helicopter.

[4] In accordance with clause 13(4) of the agreement, the appellant had taken out insurance to cover the risks arising from the operation of the aircraft for the benefit of both the appellant and the respondent.  The agreed value of the helicopter for the purpose of the insurance was $650,000.  The insurer paid out the full insured value of the helicopter to those lawfully entitled to the proceeds of the policy.  A payment of $386,043.28 was paid to the Commonwealth Bank of Australia which held a registered mortgage over the helicopter granted by the respondent and that mortgage was discharged as a result of that payment.  Of the balance, the insurer deducted the insurance deductible of $16,250 and the balance of the funds of $247,706.72 was released into the trust account of the appellant’s solicitors, pending determination of the parties’ competing claims to those proceeds. 

[5] The respondent filed an originating application in the District Court seeking a declaration that the respondent was entitled to indemnity under the policy in respect of the destruction of the helicopter and an order in its favour for payment of the net proceeds under the policy.  The parties relied on a statement of agreed facts and circumstances.  The primary judge made a declaration in the terms sought by the respondent and ordered that $247,706.72 together with interest earned on that amount be paid from the trust account of the appellant’s solicitors to the respondent:  Helicopter Services Cairns Pty Ltd v GBRH Holdings Pty Ltd [2011] QDC 269 (the reasons).

[6] The appellant has appealed the orders made by the primary judge and seeks orders in lieu which recognise the appellant’s entitlement to part of the net proceeds under the policy on the basis that the appellant suffered pecuniary or economic loss by reason of the destruction of the helicopter.

The agreement

[7] Under the agreement the respondent is specified as the grantor and the appellant is specified as the grantee.  The purchase price is defined in the agreement as $525,000 plus GST, unless otherwise agreed in writing between the parties.  (The purchase price was therefore less than the agreed value of the helicopter for the purpose of the insurance policy.)  The call option under the agreement allowed the appellant to purchase the helicopter by exercising the call option at any time before its expiry on 1 August 2013.  Under the put option the respondent could sell the helicopter to the appellant for the purchase price by exercising the put option on or before 1 August 2013. 

[8] The agreement also provided for the circumstance that the respondent may sell the helicopter to a third party for an amount not less than the purchase price and not materially less than the reasonable market value of the helicopter at that time.  Prior to entering into such a third party contract of sale, the respondent was required under clause 6 of the agreement to give the appellant a right of first refusal on the same terms and, in the event of such a third party sale proceeding, the appellant was entitled to retain all sale proceeds in excess of $525,000 plus GST after payment of costs and expenses of the sale.

[9] If either option were exercised, the contract that would apply to the sale of the helicopter by the respondent to the appellant was set out in schedule A to the agreement.  Under clause 8.1 of that contract, title to the helicopter did not pass to the appellant until completion of the sale and purchase of the helicopter under the contract.  Under clause 8.2 of the contract, risk in the helicopter did not pass to the appellant until completion.

[10] Clause 7 of the agreement provided for the hire of the helicopter by the respondent to the appellant, pending any sale of the helicopter as contemplated in the agreement and subject to the terms and conditions set out in the agreement.

[11] At the time the helicopter was destroyed, neither the call option nor the put option had been exercised, nor had there been a sale to a third party. 

[12] The appellant had entered into a separate contract with the respondent to buy its business known as “GBR Helicopters” and the hiring of the helicopter under the agreement commenced on the settlement of the sale of that business (which appears to have been 16 August 2010).  Under clause 8(2) of the agreement the hire of the helicopter was to terminate upon settlement of the sale of the helicopter by the respondent to the appellant, its nominee or a third party.  The hiring fee under clause 10(1) of the agreement was $8,057 plus GST per month being an amount equal to the loan repayments (comprising principal and interest) payable by the respondent under its mortgage to the Commonwealth Bank.  The hiring fees of $8,862.70 per month for nine months and a pro-rata hiring fee of $4,860.19 for the period from 16 May to 1 June 2011 have been paid by the appellant.  Those hiring fees to 1 June 2011 total $84,624.49 (inclusive of GST) and resulted in the respondent’s debt under the mortgage to the Commonwealth Bank being reduced by $56,820.72 (from $442,864 to $380,043.28).

[13] The debt owed by the respondent to the Commonwealth Bank at the commencement of the agreement was $442,864 which was defined in the agreement as the initial debt.  Under clause 10(3) of the agreement, the parties agreed that upon the sale of the helicopter to any party, the respondent would repay to the appellant the difference between the initial debt and the debt that was required to discharge the encumbrance to the Commonwealth Bank at the time of the sale.

[14] Clause 1(6) of the agreement provided:

 

“Subject to the terms of this Agreement, no interest in the Aircraft shall be vested in or transferred to the Grantee until either the call option or the put option has been exercised. Each option granted pursuant to this Agreement is to be construed and interpreted as an irrevocable offer made by one party to the other.”

[15] Under clause 12 of the agreement the appellant was given the exclusive use of the helicopter for its own commercial purposes, charter and air work throughout the period of hiring and acknowledged that it was responsible for all operating costs associated with the use of the helicopter throughout the period of hiring.  Under clause 13(1) of the agreement the appellant was liable at its own expense to keep the helicopter in good order and repair.

[16] Clause 13(4) of the agreement provided:

 

“The Grantee shall be responsible for all risks of or in connection with the operation of the Aircraft by the Grantee, including risks of third party damage to persons or property and risks of liability towards persons who or whose property may be carried on the Aircraft during the hiring and the Grantee undertakes to indemnify, release and hold harmless the Grantor against all actions, claims, demands and liability howsoever arising (whether direct or indirect and irrespective of jurisdiction) from such risks and to cover the same adequately by an insurance or insurances with industry approved insurers with the Grantor's interest noted, and will maintain such insurance or insurances throughout the period of hiring. Upon request, the Grantee shall provide to the Grantor evidence of the currency of any such insurance or insurances.”

The insurance policy

[17] The policy was a composite policy described as aviation hull, spares and liability insurance in respect of seven aircraft, including the subject helicopter, and insuring the various insured persons (including the appellant, the respondent and the Commonwealth Bank) for their respective rights and interests, covering various risks including:

 

(a)loss of or damage to the aircraft;

(b)legal liability to third parties (other than passengers);

(c)legal liability to passengers;

(d)additional cover for unauthorised use of the aircraft.

[18] The obligation of the insurer under the policy was expressed in the following terms:

 

“We agree, in consideration of the payment of premium to us and upon the basis of your declarations incorporated herein to indemnify you against loss, damage, liability or expense arising out of an Accident occurring during the Policy Period, subject to the Policy terms, conditions, limitations, exclusions and endorsements.”

[19] In the definition section of the policy, the terms “insurers, we, us or our” were defined to refer to the named insurer and the terms “Insured, you or your” were defined to refer to the persons named in the schedule as the insured.

[20] As the accident involved the destruction of the helicopter, the claim under the policy was made for the loss of the aircraft.  Section 1 of the policy is entitled “Loss of or Damage To Your Aircraft.”  Clause 1 in this section of the policy dealing with coverage stated:

 

“We will at our option pay for or pay for the repair of loss of or damage to your Aircraft described in the Schedule arising from the risks covered, including disappearance if your Aircraft is unreported for fifteen days after the commencement of Flight, but not exceeding the agreed value and subject to any amounts to be deducted.

In addition, we agree that in the event of an insured Aircraft making a forced landing in any place where subsequent safe take-off is impossible we will pay all reasonable costs, expenses or expenditure for the removal of the Aircraft to the nearest suitable take-off area provided always that our liability for such costs, expenses or expenditure shall not exceed ten percent of the agreed value of the Aircraft as declared in the Policy.”

[21] Clauses 3 to 6 of section 1 of the policy provided for additional limited coverage applicable to section 1 of the policy for matters such as damage to flying clothing, maps, navigational equipment and the like, reasonable expenses incurred for the purpose of search and rescue operations for the aircraft, and reasonable expenses for food, travel and lodging of pilots and passengers incurred from the place where the aircraft suffered the accident to its final destination or back to the place of departure.  This additional coverage was for incidental expenses directly and immediately arising from the loss or damage of the helicopter.

The primary judge’s reasons

[22] The nub of the primary judge’s reasoning is found at paragraph [14] of the reasons:

 

“Whilst it is clear that prior to exercising its right to purchase the helicopter, the [appellant] could look to the insurance policy for indemnity in respect of such things as injury to third parties and damage to their property in the course of using the helicopter for its own commercial purposes, the [appellant] is not entitled to indemnity in respect of the loss of the helicopter itself where it was not the owner of it at the relevant time.  Any adjustments as to the purchase price, should the [appellant] exercise its option under the terms of the agreement, were contingent and did not confer upon the [appellant] an interest in the helicopter which corresponded to an entitlement to be indemnified under the terms of the insurance policy in the event the helicopter was destroyed while the agreement was in force.”

[23] The primary judge concluded (at paragraph [20] of the reasons) that the appellant did not suffer an indemnifiable loss pursuant to the terms of the policy upon the destruction of the helicopter and the respondent as the owner of the helicopter was entitled to the net proceeds of the policy. 

The appellant’s arguments on the appeal

[24] The appellant argues that the primary judge treated the policy as insuring only the property of the owner of the helicopter, whereas the policy also insured the interest of the operator of the helicopter.  The appellant relies on s 17 of the Insurance Contracts Act 1984 (Cth) (the Act) and submits that the primary judge’s reasoning was flawed in that there was no reference to or effect given to s 17 of the Act in the reasons. 

[25] The appellant submits that had there been a purchase before 1 June 2011 (either by the appellant or a third party), the respondent would have received only the difference between $525,000 and $442,864 which is $82,136 (disregarding the effect of GST).  If the helicopter had not been destroyed and there was no purchase during the term of the agreement, the respondent’s rights were limited to receiving the return of the helicopter at the end of the hire period under the agreement.  The submission is therefore made on behalf of the appellant that if the respondent receives the entire amount of the net insurance proceeds with no liability to account for GST, it has received a windfall, as the parties had agreed on the value of the helicopter for the purpose of the agreement at $525,000.

[26] By way of contrast, the appellant submits that it lost both the use of the helicopter and the benefit of its right under the agreement to acquire the helicopter for a price less than its insured value, so that the appellant’s loss on the destruction of the helicopter can be calculated at $181,820.72 (which is the amount of $56,820.72 by which the hiring fees reduced the respondent’s debt under its mortgage plus the difference of $125,000 between the insured value and the purchase price under the agreement).  The appellant therefore argues that it is accurate to describe the appellant as having suffered loss or damage arising out of the accident during the policy period by comparing the position of the appellant before and after the destruction of the helicopter.  (The appellant concedes that the amount of the excess of $16,250 should be deducted from its share of the net proceeds on the basis that it was the appellant’s obligation under the agreement to insure the helicopter.)

[27] The appellant submits that there were two different obligations undertaken by the insurer to indemnify for the loss of the helicopter that required the respective losses to both the appellant and the respondent to be measured (subject to the agreed value of the helicopter for the purpose of the policy).  The appellant relies on the nature of a composite policy, as explained in AMEV Finance Limited v Mercantile Mutual Insurance (Workers’ Compensation) Limited (No 2) [1988] 2 Qd R 351, 354.

Was the primary judge’s conclusion correct?

[28] The insurer paid out the full insured value of the helicopter, as a result of the accident, but rather than determine itself the respective entitlements of the appellant and the respondent to the net proceeds of the insurance after the payout of the mortgage, has left it to the parties to resolve or take action to resolve their dispute.  That was an appropriate course as the respective claims of the appellant and the respondent to those proceeds are affected by the terms of the agreement.

[29] The appellant was obliged under clause 13(4) of the agreement to effect the insurance for the risk of the loss of or damage to the helicopter during the operation of the helicopter by the appellant for the benefit of the respondent (in addition to insuring against that risk for the benefit of the appellant).  If the appellant had failed to obtain the insurance under the policy to cover the destruction of the helicopter for the respondent’s benefit for the insured value, the appellant would have been liable to the respondent for the loss of the helicopter.

[30] The figure of $525,000 that is used in the agreement was defined as the purchase price for the purpose of the rights and obligations set out in the agreement.  The appellant and the respondent did not attempt in the agreement to address any apportionment of the insurance proceeds for the loss of the helicopter while the helicopter was hired and being used by the appellant.  The express terms of the agreement excluded the accrual to the appellant of any interest in the helicopter pending the exercise of either option.  Although in practical terms the appellant lost the financial advantage it would have gained had it or a third party completed the purchase of the helicopter by 1 June 2011, there was no right under the agreement that gave the appellant the benefit of that practical financial advantage from the proceeds under the policy in preference to the respondent’s claim to the net proceeds payable on the loss of the helicopter as representing the value of the helicopter.  The appellant’s argument for apportionment of the net proceeds as a result of measurement of the respective losses suffered by the appellant and the respondent is based on notions of fairness rather than the terms of the agreement.

[31] Although the primary judge expressed his conclusion by reference to the issue of entitlement to indemnity under the terms of the insurance policy based on ownership of the helicopter, the same conclusion is reached by recourse to the terms of the agreement.

[32] It was not necessary for the primary judge to deal with s 17 of the Act, as there is no relevant controversy about whether or not the appellant held an insurable interest under the policy at the time of the loss.  The appellant did have an insurable interest, but had contracted under the agreement in favour of the respondent for the disposition of the net proceeds under the policy for the loss of the helicopter.

[33] The respondent had filed a notice of contention seeking to uphold the primary judge’s decision on an alternative ground that the appellant’s claim for loss of the use of the helicopter and the benefit of the agreement was for consequential or economic loss that was excluded from indemnity under clause 7(d) of the policy.  It is unnecessary to consider this alternative ground in view of the fact that the primary judge’s conclusion otherwise reflects the application of the agreement to determine the rights of the parties. 

Orders

[34] The following orders should be made:

 

1. Appeal dismissed.

2. The appellant must pay the respondent’s costs of the appeal to be assessed.

 

Close

Editorial Notes

  • Published Case Name:

    GBRH Holdings Pty Ltd v Helicopter Services Cairns Pty Ltd

  • Shortened Case Name:

    GBRH Holdings Pty Ltd v Helicopter Services Cairns Pty Ltd

  • MNC:

    [2012] QCA 198

  • Court:

    QCA

  • Judge(s):

    Muir JA, M Wilson J, Mullins J

  • Date:

    27 Jul 2012

  • White Star Case:

    Yes

Litigation History

Event Citation or File Date Notes
Primary Judgment - - QDC
Appeal Determined (QCA) [2012] QCA 198 27 Jul 2012 -
Special Leave Refused [2013] HCATrans 19 15 Feb 2013 -

Appeal Status

{solid} Appeal Determined - {hollow-slash} Special Leave Refused (HCA)