Facts
The case concerned a customer of the insured towboat owner who, while para-sailing, was severely injured due to the negligence of the towboat driver. The negligence was not in question. The insured did not notify its insurer until four years later, when the customer made a claim against it. The delay, on its face, amounted to a breach of the insurance contract, which required the insured to give immediate notice to the insurer of any occurrence that might give rise to a claim. It was common ground that if the contract was governed by the Marine Insurance Act 1909 (Cth), the insured’s breach would have been fatal to its claim. If the Marine Insurance Act did not apply, the contract would have been governed by the Insurance Contracts Act 1984 (Cth), under which the insurer could not deny cover on account of the insured’s breach unless it could show a resulting prejudice. At first instance, in the District Court of Western Australia, the Court held that the contract was not one of marine insurance, that the Insurance Contracts Act governed, and that the insurer could not show that it had been prejudiced by the delay in notification of the accident, as notification had been given promptly when a claim was made.

The case went to the Full Court of the Supreme Court of Western Australia, which allowed the insurer’s appeal, holding that the contract was one of marine insurance. The Full Court said, inter alia, that the towboat operated in the "sea" for the purposes of the Act because the waters of the Swan River at that point were within the ebb and flow of the tide. The insured appealed to the High Court of Australia.

Judgment
Gleeson CJ held that subject to the argument about the "sea", the original policy, written in 1986, was plainly a contract of marine insurance. He also held that when, upon renewal in 1988, the cover was reduced to third party liability, the character of the policy was not thereby transformed. On the point of the "sea", Gleeson CJ saw no reason to disagree with the Full Court and dismissed the appeal.

Hayne and Callinan JJ agreed largely with Gleeson CJ. They set out the facts, including the fact that the injured party was injured whilst landing, when she was dragged through trees. They also noted the insurance policy the insured held was subject to a warranty of navigation in the "protected waters of WA". Their Honours did not, however, accept the insured’s argument that there was an "insufficient connection" with the sea, in that the incident neither happened at sea nor was an incident upon the sea. They held that one should ask not where the event happened, but rather what was the risk against which the insurer agreed to indemnify the insured. On that basis Hayne and Callinan JJ found, despite the involvement of the trees, that the careless operation of the craft causing injury to the person being towed was a peril properly described as a peril "consequent on, or incidental to, the navigation of the sea". They did not make findings upon the meaning of the "sea" per se but said if they had to draw a distinction, they would follow the Full Court, which had concluded that tidal flow was the determinative consideration.

McHugh J, in dissent, held that the Marine Insurance Act did not apply to the policy as it did not insure against the risks of marine adventure. He agreed with the statement of the trial judge who said the insured vessel was never going to encounter perils of the sea, as it was restricted to protected waters. McHugh J said:
"When insurers and insured spoke or wrote of "the perils of the sea" – a phrase at the heart of traditional marine insurance policies – they were not speaking of the risks that might be encountered by ships that never left the safety of inland waters – rivers, creeks and lakes. They were referring to the hazards that ships encountered on the open sea – shipwrecks, foundering, stranding, collisions, pirates, capture, seizure and the treachery of crews (barratry) and similar perils… Most of the enumerated perils in the definition of "maritime perils" are not perils that are likely to be encountered by boats that never leave the safety of the rivers of a country. Boats on rivers are not likely to be seized by pirates, captured by the vessels of other nations, detained by the rulers of other countries or sunk by enemy vessels."

In answer to Hayne and Callinan JJ above, McHugh J said for a risk to be a marine risk for the purpose of the Marine Insurance Act, it must be incidental to or consequent on a sea voyage. This, he said, was patently not the case here.

Kirby J also rejected the argument that the Marine Insurance Act applied in this case. He said:
"Had the Parliament in 1909 (or the United Kingdom Parliament in enacting the UK Act in 1906) intended to adopt an artificial, unusual and technical meaning of "the sea" (as by reference to the susceptibility of a river or other internal water to tides or salinity) it could have said so. Later Australian legislation has sometimes (but not uniformly) adopted such a definition to expand the ordinary meaning of the word "sea" and its analogue "seas" to include other "waters within the ebb and flow of the tide." However, without such an expanded definition, expressly included in the Act, this Court should give the word "sea" in the Marine Insurance Act] its ordinary meaning according to common usage. It should especially do so here in a context in which the legislation has expressly drawn the distinction between "the sea" or "the seas" and "inland waters".

Both McHugh and Kirby JJ held that the appeal should be allowed with costs, and the matter remitted to the Full Court.

Comments
Although this is a High Court case, the implications (at least in Australia) are limited, given the public outcry and legislative actions following the events leading to the appeal. Amending legislation provides, in effect, that the Marine Insurance Act does not apply to a contract of marine insurance made in respect of a pleasure craft, unless the contract is made in connection with the pleasure craft’s capacity as cargo (see Insurance Laws Amendment Act 1998 (Cth), s77; also, for a definition of "pleasure craft", s.9A(2)).

On the issue of the definition of the "sea" in contracts of maritime insurance, as this case did not turn on the matter, we shall have to wait. The Full Court of WA’s thoughts on the implications of the ebb and flow of the tide in estuarine conditions are, for the moment, authoritative. Anybody operating a business on an inland waterway which does not fit within the scope of the Insurance Laws Amendment Act mentioned above, should take note.