Case: Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
Outcome: distinguished
The plaintiffs submit that these provisions result in Giant Marine being vicariously liable for the damage inflicted upon their vessels. I do not accept that proposition. The plaintiffs have not demonstrated any proper basis for their being permitted to enforce the terms of a contract to which they are not parties. Reference was made to the decision of the High Court in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107. In that case an insurer under a public liability insurance policy agreed to indemnify a company against liability for injury to persons at specified building sites. "The insured" was defined to include the company's contractors. A person was injured as the result of the negligence of a contractor which had not been a contractor when the policy was issued. That person recovered damages against the contractor. The majority of the High Court held that the contractor was entitled to relief against the insurer. However the reasons of the various members of the Court offer little assistance to the plaintiffs for present purposes. 26 Mason CJ and Wilson J said at 123-4: In the ultimate analysis the limited question we have to decide is whether the old rules [concerning privity of contract] apply to a policy of insurance. The injustice which would flow from such a result arises not only from its failure to give effect to the expressed intention of the person who takes out the insurance but also from the common intention of the parties and the circumstance that others, aware of the existence of the policy, will order their affairs accordingly. We doubt that the doctrine of estoppel provides an adequate protection of the legitimate expectations of such persons and, even if it does, the rights of persons under a policy of insurance should not be made to depend on the vagaries of such an intricate doctrine. In the nature of things the likelihood of some degree of reliance on the part of the third party in the case of a benefit to be provided for him under insurance policy is so tangible that the common law rule should be shaped with that likelihood in mind. This argument has even greater force when it is applied to an insurance against liabilities which is expressed to cover the insured and its subcontractors. It stands to reason that many subcontractors will assume that such an insurance is an effective indemnity in their favour and that they will refrain from making their own arrangements for insurance on that footing. That it seems is what happened in the present case. But why should the respondent's rights depend entirely on its ability to make out a case of estoppel? In the circumstances, notwithstanding the caution with which the Court ordinarily will review earlier authorities and the operation of long-established principle we conclude that the principled development of the law requires that it be recognized that McNiece was entitled to succeed in the action. 27 In other words, their Honours considered that there should, in the case of insurance policies, be an exception to the general rules relating to privity of contract, particularly where the policy contemplates the relevant claimant having the benefit of the cover, it knows of the policy and organizes its affairs accordingly. Speaking loosely, it might be said that pursuant to cl 4, Giant Marine "insured" Adsteam against certain loss, but it is fairly clear that Mason CJ and Wilson J were speaking only of insurance policies, properly so called. I see no justification for further extending the exception which their Honours were willing to make to a fundamental aspect of the law of contract. 28 Brennan and Dawson JJ both concluded that the contractor was not entitled to enforce the indemnity and ought fail in the action. Deane J considered that the contractor was not entitled to enforce the indemnity but might be able to demonstrate that the policy created a trust in its favour. The approach adopted by Toohey J (at 172) was similar to that adopted by Mason CJ and Wilson J. Gaudron J agreed generally with Mason CJ and Wilson J but differed from them in "two significant respects". Her Honour said at 173: In my view a promisor who has accepted an agreed consideration for a promise to benefit a third party comes under an obligation to the third party to fulfil that promise and the third party acquires a right to bring an action to secure the benefit of that promise. The right of third party is not a right to sue on the contract: rather, it is a right independent of, but ordinarily corresponding in content and duration with, the obligation owed under the contract by the promisor to the promisee. The doctrine of privity of contract and the related requirement that consideration should be provided by the person seeking to enforce a contractual obligation do not deny the binding nature of a contractual promise the performance of which will benefit a third party. Breach of the contractual obligation may sound in damages at the suit of the promisee. However, it is not clear on existing authority whether the promisee is restricted to recovering damages for his loss only or whether the damages can also be recovered by the promisee for the third party's loss ... If damages are an inadequate remedy, the promisee may obtain a degree of specific performance of the contract ... The third party, however, cannot institute an action for breach of contract or for specific performance unless he can bring himself within one of the recognized exceptions to or qualifications of the rules. 29 To my mind none of the reasons supports the plaintiffs' present claims. There was no insurance policy, and so the views expressed by Mason CJ, Wilson and Toohey JJ do not apply. No attempt has been made to establish the existence of a trust. It cannot be said that either Adsteam or Giant Marine intended to benefit third parties such as the plaintiffs when they entered into the contract. At a relatively late stage in proceedings the plaintiffs sought to rely upon provisions in the Property Law Act 1974 (Qld) relating to contracts for the benefit of third parties. However no attempt has been made to plead or prove that either Giant Marine or Adsteam made any promise for the benefit of third parties such as the plaintiffs. 30 Clause 3 offers some evidence that the relationship between Giant Marine and Adsteam's employees on the tug was that of master and servant, but that is unlikely to have been the case. It is unlikely, for example, that Giant Marine was under any contractual or other obligation to pay the employees' wages. It is also unlikely that the employees would have understood that they were to obey direct instructions received from Giant Marine or its agents, rather than instructions relayed to them through the tug master. Further, it is unlikely that Giant Marine or Adsteam intended such results. Whilst the tug and the tug master may have been subject to directions by the pilot and the master of "Global Peace", it is difficult to avoid the conclusion that the tug master was obliged to exercise his own judgment in the operation of the tug, having regard to his obligations to Adsteam and the crew. Crew members were obliged to follow the tug master's directions. Clause 3 should be construed as regulating the relationship between Giant Marine and Adsteam and not that between either of them and the master and crew of the tug. 31 It is also important to keep in mind that cl 3 applies only during towing or whilst other services are being provided. I have already set out the definition of "towing". At most Giant Marine would bear vicarious liability for conduct occurring during the towing operation. Whilst Giant Marine has admitted that the owner of the tug failed to take reasonable care in its management, both with respect to the discharge pipe and with respect to the fender, it is not clear to me that such failure occurred during the berthing operation. I have briefly considered the evidence of the expert witnesses McAuley, Boulton and Crawford. That evidence seems to be more consistent with a design and system failure prior to, and at the time of, start up of the engines than with negligent conduct by the master and/or the crew during towing. 32 For these reasons Giant Marine's admission that Adsteam was negligent does not establish crew negligence for which it might arguably be liable as a result of cl 3. To establish any such negligence it would be necessary to go to the evidence. Even if, contrary to my initial impressions, the evidence establishes crew negligence, there is still the question of the extent to which I should go in assessing the possible outcomes in these actions had they gone to trial. As I have said, the plaintiffs assert that Giant Marine ought to have responded to their evidence, and that its failure to do so demonstrates that such evidence ought be accepted for present purposes. That assertion assumes that the plaintiffs are, in effect, entitled to insist upon trials of these issues, notwithstanding the fact that they are now entirely academic. It also overlooks the possibility that Giant Marine may have discredited the expert evidence by cross-examination rather than by calling its own evidence. I am not satisfied that the plaintiffs would have succeeded on the question of vicarious liability or on that of crew negligence. I accept that they had arguable, although not strong, cases. 33 I am unpersuaded that the plaintiffs can enforce cl 4 of the Standard Conditions against Giant Marine. I see no basis for so doing. I should also draw attention to the fact that cl 4 excludes liability for damage caused in the event of unseaworthiness brought about by default of the tug owner. Giant Marine indicated in its pleading its intention to rely upon this exclusion. On the material such a defence cannot be discounted.