Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788
[2021] FCAFC 121
•9 July 2021
FEDERAL COURT OF AUSTRALIA
Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 [2021] FCAFC 121
Appeal from: Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2) [2020] FCA 588; and
Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 3) [2020] FCA 1281
File number: NSD 924 of 2020 Judgment of: MCKERRACHER, DERRINGTON AND COLVIN JJ Date of judgment: 9 July 2021 Catchwords: INSURANCE - appeal from decision determining separate questions - where primary judge found insurer not entitled to rely upon s 28(3) of Insurance Contracts Act 1984 (Cth) to reduce liability to nil - where insured notified claim under insurance policy following cyclone damage - where insurer agreed to indemnify despite non-disclosure of prior defects - where insurer took steps consistent with providing indemnity - where insurer subsequently sought to disclaim liability on basis of non-disclosure - whether primary judge erred in finding that insurer estopped from resiling from representation made to insured to indemnify - whether detrimental reliance - whether primary judge erred in finding insurer waived entitlement to assert right under s 28(3) - whether primary judge erred in finding insurer breached duty of utmost good faith - whether decision of primary judge should be upheld on further basis that doctrine of election applies - consideration of circumstances in which doctrine of election applies - whether relief granted by primary judge proper and appropriate - appeal dismissed
PRACTICE AND PROCEDURE - whether decision of primary judge rested on estoppel case not advanced before primary judge - consideration of nature and purpose of concise statement - consideration of distinction between concise statements and pleadings
Legislation: Federal Court of Australia Act 1976 (Cth) ss 37M, 37N, Part VB
Insurance Contracts Act 1984 (Cth) ss 13, 21, 27AA, 28, 33, 57
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Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 605 Date of hearing: 8-9 February 2021 Counsel for the Appellant: Mr D McLure SC with Ms K Petch Solicitor for the Appellant: Holman Webb Lawyers Counsel for the Respondent: Mr MR Elliott SC with Mr P Mann Solicitor for the Respondent: LMI Legal ORDERS
NSD 924 of 2020 BETWEEN: ALLIANZ AUSTRALIA INSURANCE LIMITED (ABN 15 000 122 850)
Appellant
AND: DELOR VUE APARTMENTS CTS 39788
Respondent
ORDER MADE BY:
MCKERRACHER, DERRINGTON AND COLVIN JJ
DATE OF ORDER:
9 JULY 2021
THE COURT ORDERS THAT:
1.The appeal be dismissed.
2.The appellant do pay the respondent's costs of the appeal to be assessed if not agreed.
3.There be liberty to the appellant to apply within 14 days for further declaratory relief to reflect the terms of these reasons.
4.Any application for further declaratory relief shall be made by filing a minute of proposed orders.
5.If a minute of proposed orders for further declaratory relief is filed, then the parties shall confer as to the terms of orders and, if they are unable to agree, then, within 14 days of the filing of the minute of proposed orders, each party shall file written submissions of no more than five pages as to the proposed relief and the question whether there should be any further declaratory relief and, if so, the terms of relief shall be determined on the papers.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
MCKERRACHER AND COLVIN JJ:
Delor Vue Apartments CTS 39788 (Delor) is the body corporate for a complex of apartment buildings in Cannonvale in far north Queensland. The buildings were constructed in 2008 and early 2009.
By late 2014, issues had arisen in relation to the soffit sheeting on the eaves of the apartment buildings. Some sheeting had fallen away from the frame. A risk of further sheets dislodging during high winds had been identified. By August 2016, a quotation had been obtained to remove the soffit sheeting, install battens and fix new sheeting. In December 2016, Delor received a report from a consulting engineer which concluded that the construction of the roof framing along the eaves did not meet Australian standards and the spacing supports for the soffit lining did not comply with the manufacturer's recommendations for installation.
By January 2017, the committee of owners had issued a warning to residents to avoid walking or parking in the vicinity of the areas of the defective eaves during storm winds because they were likely to dislodge the soffit sheeting.
Before any works were undertaken to repair the defects concerning the soffit sheeting, there was substantial roof damage to the buildings on 28 March 2017 during Tropical Cyclone Debbie with consequential damage to individual apartments some of which were not habitable as a result.
Shortly before the Cyclone, Delor had taken out a policy of insurance for public liability and property damage to the buildings with Allianz Australia Insurance Ltd (Allianz). The arrangements for the insurance were made through Strata Community Insurance (SCI), a specialist strata insurance business owned and controlled by Allianz that acted as the underwriting agency for Allianz. For present purposes, a reference to SCI may be taken to be a reference to Allianz in respect of the matters in issue.
Almost immediately after the Cyclone, Delor notified a claim under the policy of insurance. In response to requests from SCI, it then provided fulsome information concerning its investigations of the defective soffits and eaves.
On 9 May 2017, SCI sent an email to Delor's strata manager (May 2017 Email). It stated that prior to the policy being effected the insurer was not advised of any defects to the property despite these being clearly known to Delor. The email then stated:
Despite the non-disclosure which is present, [SCI] is pleased to confirm that we will honour the claim and provide indemnity to the Body Corporate, in line with other relevant policy terms, conditions and exclusions.
The email then referred to two categories of damage expressed as follows:
1.Defective materials and construction of the roof, including but not limited to tie downs, rafters and timbers and soffit
2.Resultant damage including but not limited to internal water damage, fascia, guttering and roof sheeting (for those buildings which lost roof sheeting only)
It is to be noted that there was no mention of defective roof trusses in point 1.
Having identified the above two categories, the email stated that costs associated with resultant damage as described in point 2 would be covered despite policy exclusions for loss or damage caused by inherent vice or latent defect or caused by non-rectification of a defect in the insured property and stated that Delor would be responsible for costs associated with that portion of the claim.
The email then outlined the steps that were being taken by SCI as insurer in relation to recovery against the builder and developer of the property and that SCI was awaiting an engineer's report to assist in outlining the deficiencies with the roof and who was responsible for the shortcomings in its construction. The email then recorded a request by SCI for Delor to cooperate with SCI as and when required so as 'to ensure we have the best chance possible of successful recovery from the responsible party/ies'. Plainly, SCI contemplated exercising subrogation rights against the builder and developer.
The email went on to describe the current position of the claim, stating that SCI was awaiting a quotation including a scope of works for the internal resultant water damage, an engineer's report outlining the deficiencies with the roof and a scope of works from the engineer for the repairs to the roof. It said that the engineer's scope of works would be broken down into two parts described in the following terms:
•Part 1 - defective repairs (to be paid for by the Body Corporate)
•Part 2 - resultant damage repairs (to be paid for by Strata Community Insurance)
The email then stated:
In terms of the repairs, for those buildings which have not sustained damage to the roof or water is not entering the building through the roof, once the quotation has been received and approved, the internal repairs will be able to commence.
However, for those buildings which have sustained damage to the roof or water is not [sic] entering the building through the roof, the roof repairs will need to be carried out first, before the internal resultant damage repairs can proceed.
Somewhat ambitiously, Allianz maintained that the above words operated as a condition upon the earlier unqualified confirmation of indemnity in line with policy terms. The condition was said to be to the effect that Delor was first required to carry out the repairs. However, the email was describing actions that SCI was taking (and would be taking) in relation to the claim in circumstances where liability to indemnify had been confirmed as to the extent of the loss as described. Further, the email did not indicate any responsibility on the part of Delor to undertake any works. Its responsibility, as described, was to cooperate with SCI to ensure that SCI had the best possibility of recovery from those responsible for the defective materials and construction of the roof and also to pay for those repairs that related to remedying those defects. Also, as has been noted, the email contemplated SCI proceeding to exercise subrogated rights as against the builder and developer.
There was no joint endeavour outlined in the May 2017 Email concerning the arrangements for the repair. Rather, the email described a confirmation of indemnity and actions that SCI was itself taking (as insurer). In that context, it is clear that the language of the email concerning the need for roof repairs to be undertaken first where there was roof damage and water was entering the building through the roof was simply a statement as to the sequencing of the work. No doubt it made plain the practical reason for deferring work in individual apartments and managed expectations on the part of Delor (and the owners of individual apartments) as to when that work might be undertaken. However, it was not a statement of any conditionality to the confirmation of indemnity nor any expression of an obligation on the part of Delor to arrange any or all of the roof works. It was evident from the rest of the May 2017 Email that it was SCI that was making the necessary arrangements for the work (some of which would be paid for by Delor) and it was SCI as subrogated insurer who would be seeking to make recovery from the builder and developer.
For over a year thereafter, the parties proceeded on the basis that SCI had agreed to indemnify. Much was done by SCI by way of adjustment of the loss. It was given unfettered access to the property. It engaged engineers. It arranged for a scope of works and it obtained quotations for repairs. Its lawyers advanced the possibility of a claim against the builder for defective work. It sought to quantify the extent of its liability under the indemnity that it had confirmed in the May 2017 Email.
In the course of those steps, it emerged that there were more defects with the construction of the roof, in particular there were defects with the roof trusses and the extent of the deficiencies in the manner in which they were tied down to the building was greater than was initially thought to be the case. An assessment was made that the defects with the trusses required them to be replaced or reconstructed. This complicated the inquiries being made and resulted eventually in Delor itself taking steps to investigate what was required to be done. It also meant that there was a third category of work that was required, namely remedial work to the roof in respect of defects that had not yet manifested in any damage.
The third category of work was outside the matters the subject of the May 2017 Email. It was not the subject of any insurance claim against SCI. However, practicalities of undertaking all of the work on the roof areas that had been damaged led, understandably, to engagement with a task of assessing the overall scope of what was required to be done and the most cost effective way of undertaking that work and how the costs should be shared as between SCI and Delor. Obviously enough it did not make sense for the repairs consequent upon damage that occurred at the time of the Cyclone to be undertaken and completed only to be followed by further works to repair other defects (not yet manifesting in any damage) that may require the repaired areas to be pulled down or altered.
Eventually, dealings between Delor and SCI as to the extent of the costs to be borne by each of them became strained. This could be seen at least by the time of dealings between the parties in March 2018 concerning the renewal of insurance. At that time, SCI proposed renewal on the basis of a premium that represented an increase of about 50% on the previous year and conditional upon works relating to the roof defects being completed within six months of the renewal date. By this time the latent problem with the roof trusses and related issues with the construction had been exposed by the investigations that had been undertaken in dealing with the adjustment of the claim. In response to questions from Delor as to the reasons for the position adopted by SCI on the renewal, SCI said (amongst other things) that the unrepaired building posed significant physical risk to the insurer and the remaining building was at significantly higher risk of damage by any future event.
It appears that the insurance was renewed with SCI on the basis of the condition as proposed thereby requiring works relating to roof defects (that is, all then known defects) to be completed within six months of the renewal date being 23 September 2018. How the satisfaction of this condition was to be achieved given the terms of the May 2017 Email is unclear. However, it seems, at least, to be founded on a recognition that the third categories of works were the responsibility of Delor. By then, the parties were pursuing quotations to undertake the works as covered by the May 2017 Email as well as the third category of works.
By May 2018, Delor complained formally that SCI had not made plain the extent of the indemnity available to Delor. It alleged that SCI had breached its duty of good faith by delaying the assessment of the extent of the indemnity. It called upon SCI to articulate its position on indemnity and to release certain documents that had been provided to SCI in the course of its adjustment of the loss that concerned the scope of works and quotations that had been provided to undertake works.
A few weeks later, on 28 May 2018, SCI responded by letter in some detail (May 2018 Letter). The letter set out the May 2017 Email almost in full. It enclosed a number of documents including reports from an engineer, a scope of works document and building works quotations that had been obtained by SCI. It stated that SCI had needed the additional information contained in the enclosed reports before it could set out its indemnity position. It said that the final scope of works had only recently been received and that SCI was 'therefore now in a position to provide the detail of its position on indemnity'. The letter referred to a quantification by external loss adjusters of the cost of repairing cyclone damage as $918,709.90 and the cost of repairing pre-existing defects/faulty workmanship and materials as $3,579,432.72. SCI stated that it would pay the first amount, but not the second.
The May 2018 Letter then set out the following under the heading 'Settlement of Claim':
3.1Pursuant to the basis of settling claims as set out on page 29 of the Residential Strata PDS & Policy Wording, SCI may choose to either:
(a)Rebuild, replace or repair the damage that is covered by the policy; or
(b)Pay the amount it would cost to rebuilt, replace or repair the damage.
3.2SCI will work with the Body Corporate to rebuild, replace and/or repair the damage that is covered by the Policy as detailed in the Morse Scope of Works dated 22 May 2018 relating to cyclone damage. However, SCI will only do that provided: -
(a)The Body Corporate rebuilds, replaces and repairs those items that are pre-existing defects / faulty or defective workmanship or materials as set out in the Morse Scope of Works relating to pre-existing defects;
(b)The building contract entered into by the Body Corporate is approved by SCI;
(c)The Body Corporate completes those works relating to the repair of pre-existing defects as set out in the relevant Morse Scopes of Works by 23 September 2018 as per the conditions of renewal of the current Policy of Insurance between SCI and the Body Corporate;
(d)If the Body Corporate fails to undertake the works by that time, then SCI will no longer insure the Body Corporate in respect of the Premises. However, SCI will still undertake the rectification works it is required to do within a reasonable time provided conditions (a) and (b) above are met.
It can be seen that the settlement proposal by SCI brought together the issue of the completion of the repairs consequent upon the Cyclone (the subject of the claim for which indemnity was confirmed by the May 2017 Email) as well as the performance of the condition of the insurance renewal that required all works to remedy the defects in the roof to be completed within six months of the insurance renewal, namely by 23 September 2018.
The May 2018 Letter then went on to deliver an ultimatum that was expressed in the following terms under the heading 'Reservation of Rights':
If the Body Corporate does not agree to proceed as set out above within 21 days SCI's offer in relation to indemnity will lapse and SCI will pay $nil pursuant to section 28 of the Insurance Contracts Act 1984 on the basis of the Body Corporate's non-disclosure as referred to in Ms Lander's email dated 9 May 2017 and misrepresentation regarding the defective soffit panels as discussed below. It also reserves its rights to rely on relevant exclusion clauses in the policy as set out below.
The assertion of a misrepresentation by Delor had not previously been made by SCI. It was a claim that was advanced in this Court before the primary judge, but is no longer maintained. To the extent that it provided a foundation for the position adopted by SCI at the time of the May 2018 Letter it was not a justified foundation. Otherwise, the misrepresentation claim may be put to one side for present purposes. It is only the claim of non-disclosure that has ongoing significance.
As to the non-disclosure claim, there is no suggestion that the relevant material was not provided to SCI before the May 2017 Email. Therefore, from before the time of the adoption by SCI of the position outlined in the May 2017 Email, SCI was aware of the matters that had not been disclosed prior to the issue of the policy of insurance by SCI in March 2017. By May 2018 it had known of those matters for over a year.
The May 2018 Letter concluded by stating the following under the heading 'Internal Dispute Resolution':
Should you disagree with our decision or you are otherwise dissatisfied, please refer to the attached information in relation to our complaints handling and dispute resolution procedures. Further information in this respect is also available in your policy wording. Alternatively, you may contact the undersigned for further information or if you have any questions.
It should be noted that although the body of the letter refers to an offer, it is evident that the letter did not invite a discussion, negotiation or counter-proposal. It was framed in language that manifested the adoption of a take it or leave it position on the part of Allianz. It stated in no uncertain terms that the consequence of not agreeing to proceed in the manner outlined by SCI within 21 days would be that SCI would rely upon s 28 of the Insurance Contracts Act 1984 (Cth) (Act) and would pay $nil on the basis of alleged non-disclosure.
Section 28 is in the following terms:
(1)This section applies if a relevant failure occurs in relation to a contract of general insurance, but does not apply if the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the failure had not occurred.
(2)If the relevant failure was fraudulent, the insurer may avoid the contract.
(3)If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the relevant failure had not occurred.
After the May 2018 Letter was received, lawyers acting for Delor asked for an extension of time for any acceptance of the offer. Allianz agreed to an extension. Delor's lawyers then provided a response to the matters stated in the May 2018 Letter and rejected the offer. On 22 August 2018, lawyers acting for SCI indicated that Allianz had reduced its liability to $nil on the basis of alleged non‑disclosure not only of the problems with the eaves and the soffits, but also the trusses (as well as on the basis of the alleged misrepresentation).
It appears that during the course of the above events a temporary roof was put in place on each of the apartment buildings where damage had occurred. The dispute concerns the works to be carried out to address the roof damage on a permanent basis.
Commencement of proceedings by Delor
Delor commenced proceedings in the Insurance List of this Court in November 2018. After some preliminary steps, the Chief Justice made orders for two issues to be determined before the other issues raised by the proceedings, namely:
(1)whether Allianz was entitled to reduce its liability to nil under the Act; and
(2)whether by some operative rule or principle, Allianz was not able to rely upon s 28.
Following a hearing before the Chief Justice, his Honour determined the first issue favourably to Allianz. As to the second issue, his Honour found that:
(1)Allianz was estopped from resiling from the representation made in the May 2017 Email that the claim by Delor would be honoured and indemnity provided, such that the rights of the parties were to be determined by application of the terms of the policy of insurance and not by reference to an assertion of right under s 28(3) of the Act;
(2)Allianz had waived any entitlement to adopt a position based on an assertion of right under s 28(3) of the Act contrary to the position taken by Allianz that the claim by Delor would be honoured and indemnity provided in accordance with the terms of the policy; and
(3)in seeking to resile from the representations made by the May 2017 Email and in seeking to rely on the non-disclosure of Delor, Allianz failed to act towards Delor in relation to the resolution of the claim with the utmost good faith contrary to s 13 of the Act.
His Honour did not accept Delor's claim that the second issue should be decided favourably to Delor based upon the common law doctrine of election. As to election, his Honour found that the doctrine only applied where there was a 'clear position of competing, inconsistent and mutually exclusive rights' and held that such 'a simple choice of inconsistent rights is not present here': at [317].
Appeal by Allianz
Allianz now brings an appeal against each of those three findings. Delor supports the reasoning of the primary judge and also contends that the decision by the primary judge should be upheld on the further basis that Allianz made a binding election by the May 2017 Email that prevented it thereafter from relying on s 28(3) of the Act in respect of the non-disclosure by Delor.
Therefore, for Allianz to succeed in its appeal concerning the second question it must demonstrate that none of election, estoppel, waiver or breach of the duty of good faith provides a basis for answering the second question in favour of Delor.
Delor does not seek to dispute the determination by the primary judge of the first question.
In addition to the issues already identified, a considerable part of the complaint made by Allianz on appeal was to the effect that the decision of the primary judge rested on an understanding of the estoppel case that was not advanced below. It was contended that, in a number of respects, the primary judge upheld a case that was not pleaded or run by Delor before the primary judge. Therefore, in determining the appeal, it will be necessary to consider closely the nature of the estoppel case that was put by Delor before the primary judge.
As to election, issues were raised as to whether s 28(3) conferred a right of a kind that could give rise to the application of the doctrine of election or whether it operated independently of any choice to be made by Allianz such that no issue of election arose.
As to the finding of breach by Allianz of its duty of utmost good faith, issues were raised as to the nature of the remedy that may be afforded if the finding of breach of that duty was upheld and whether any such remedy could extend to an injunction, in effect, restraining Allianz from acting contrary to the May 2017 Email. There was also an issue as to whether any such breach of duty was a matter to be taken into account in framing the appropriate remedy in the event that the primary judge's finding that there was an estoppel was not disturbed.
Election was the primary basis for the claim by Delor before the primary judge
Election was the primary basis upon which the case was advanced by Delor before the Chief Justice. It was the basis upon which the case was first put when proceedings were commenced against Allianz. Reliance upon election reflects the main character of the complaint made by Delor, namely that SCI wants to go back and remake a choice it made when it responded to the claim by granting indemnity (albeit to a limited extent) in circumstances where, for over a year, it had been exercising all the rights that it enjoyed as an indemnifying insurer including pursuing subrogated claims against the builder and obtaining free access to the property for the purposes of adjusting the loss.
Therefore, although the issue of election arises only by way of Delor's notice of contention, it is appropriate that it be considered first as it was the main way that Delor put its case to the primary judge (and was the first aspect dealt by the primary judge in his Honour's reasons concerning the second question).
Issues on the appeal
Therefore, on the appeal, the following issues arise for determination:
(1)As a matter of principle, when does the doctrine of election apply?
(2)On its proper construction, in what manner does s 28(3) operate?
(3)Should the decision of the primary judge be upheld on the basis that the common law doctrine of election applies?
(4)What was the nature of the estoppel case advanced by Delor before the primary judge?
(5)On what basis did the primary judge uphold the estoppel case?
(6)Did the primary judge err in upholding the estoppel case?
(7)Did the primary judge err in upholding the waiver case?
(8)Did the primary judge err in finding that Allianz breached its duty of utmost good faith?
(9)Having regard to the conclusions as to each of the other issues, was the relief granted by the primary judge proper and appropriate?
Summary of outcome
Delor is entitled to relief based upon election and the decision of the primary judge should be upheld on that basis. In addition, the primary judge has not been shown to be in error in upholding the claims of Delor insofar as they were based on estoppel, waiver and utmost good faith. No error has been demonstrated in the declaratory relief granted by the primary judge. No real issue arises concerning the observations by the primary judge as to whether injunctive relief may be appropriate given the finding that Allianz breached its duty of utmost good faith because no such relief was ordered. Therefore, we express no view as to that aspect. It follows that the appeal should be dismissed with costs. We will grant liberty to Delor to apply within 14 days for further declaratory relief to reflect the terms of these reasons should it consider it appropriate to do so.
Issue (1): As a matter of principle, when does the doctrine of election apply?
Coherence of principle in a field 'beset with difficulties'
In Sargent v ASL Developments Limited (1974) 131 CLR 634 at 655, Mason J sounded a note of warning for those who would venture into the thicket of principles that must be traversed in order to determine the merits of the contentions raised by Allianz in the present appeal. As his Honour there stated:
Any discussion of the principles governing the circumstances in which a party's words or conduct may preclude [that party] from exercising a legal right which [it] possesses is beset with difficulties. They have their origin in the differences to be found in the various doctrines (election, waiver and estoppel) which may come into operation and in the differing concepts which each doctrine has at times been thought to embrace.
There have been many attempts at taxonomy, dividing the cases into one category or another. In the course of such attempts, many warnings have been sounded about the use of the same terminology to describe different principles. There remain issues about the nature of those differences. Nevertheless, the nettle must be grasped.
It is important to begin by recognising that there are different doctrines being given effect in the cases in this area. Therefore, conceptual precision is important. Nevertheless, in identifying the principles that are to be applied, due allowance must be made for the use in the cases of the same labels to describe conceptually distinct principles. Care must also be taken in seeking to extract general principles that are not evident from the decided cases.
Indeed, the early decision of the High Court in Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 is a case in point. It uses the terminology 'waiver' to refer to principles now generally described as election. Issues arise as to the extent to which it states principles of more general application. Nevertheless, it is a convenient starting point not only because it is the foundation for later cases but also because it gave rise to similar issues to those which arise in relation to the claim of election in the present case.
The decision in Craine v Colonial Mutual Fire Insurance Co Ltd
The judgment of the Court in Craine concerned a claim under an insurance policy for loss suffered as a result of a fire. Under the policy a claim was required to be made by a specified time. It was made three hours late. It was accepted by the insured that under the terms of the policy this was 'fatal' to the claim. The claim made was summarised by Isaacs J in the following terms (at 315):
the [insurer], by its conduct in investigating the claim and particularly in acting on the contract adversely to him, with full knowledge of the defect now relied on, waived the objection, or alternatively is estopped from relying on it …
The nature of the case as advanced is similar to the present case. In the Court below it had been summarised in the following way (at 317):
There is no question whatever that in this case they [the insurer] go on subjecting the other side to a great deal of inconvenience, delay, business trouble and loss, which one would have thought they ought to avoid if they intended to rely on the condition.
When the late claim was received by the insurer, the insured was informed that it was received 'without prejudice and without setting up any waiver of any of the provisions or requirements of the policy conditions': at 319. Nevertheless, the insurer went on to exercise rights under the policy of insurance in its dealings with the insured.
In those circumstances, in the trial before the then Chief Justice of the Supreme Court of Victoria (who presided with a jury), the insured claimed that the insurer had 'waived the objection [to the late lodgement of the claim], or alternatively is estopped from relying on it'. The following question was put to the jury: 'Did the [insurer] represent to the [insured] that they did not intend to rely upon the claims having been put in too late?'. The jury replied: 'Yes, they did waive their claim'. The answer was treated as being simply 'Yes'. Nevertheless, the Chief Justice directed judgment to be entered for the insurer: at 315.
On appeal, it was claimed that upon the answers given by the jury, the insured's claim should have been upheld on the basis of waiver or estoppel. Amongst other things, the insurer claimed that there could be no waiver or estoppel because the policy of insurance required any waiver of rights to be made formally in writing and that had not occurred.
In delivering the judgment of the High Court, Isaacs J placed the attempted reservation of rights by the insurer in the following context (at 319):
No doubt the [insurer] was quite within its legal rights in doing this, and thereby insisting on complete absolution after twelve o'clock from all liability under the contract. But to have done that simply and baldly would have been not merely harsh and morally hard to defend, but would have been a bad advertisement. Such an attitude might have been thought, as other arbitrary acts have been said to be, not merely a crime but a blunder. So the same letter, though distinctly intimating that so far no prejudice and no waiver must result, proceeds to open up communication with the [insured] on the subject of the damage [it] has sustained.
The reasons of Isaacs J went on to explain that the insurer, after seeking to reserve its rights, then proceeded to call on the insured to answer 'questions and requisitions already made': at 319. As to that course, Isaacs J noted that the insurer could have maintained that the breach of the clause had put to an end all obligation of the insurer to any money 'in other words, that the contract according to its own terms had, by reason of the breach …, terminated the contractual obligations of the parties': at 319. It is to be observed that his Honour did not describe the insurer as being presented with any right to elect to avoid the contract of insurance. Rather, the position was that the breach had brought to an end (terminated) any liability to pay any amount to the insured.
Next, Isaacs J noted that the insurer could have intimated that even though it was reserving its rights, it was prepared to receive 'whatever proofs and testimony [the insured] might voluntarily submit' and reconsider its position as to indemnity. In the view of his Honour, had the insurer proceeded in that way its position 'would still be unassailable': at 320.
However, that is not what had occurred and his Honour went on to reason as follows (at 320):
But insurers are not at liberty to mislead. They are not at liberty, at least apart from special provision in their contract, to do what is forcibly termed in Scotch law 'approbate and reprobate.' They are not at liberty to deny to the insured rights given to him under the contract and at the same time insist on and exercise as against him in adversum correlative rights given to them by the contract, as a qualification or a safeguard, on the basis that the rights of the insured are in full operation.
The [insurer] did not content itself with inviting or permitting voluntary action by the [insured] outside the contract. It was equally at liberty to act in a manner consistent with acknowledging a subsisting obligation.
(original emphasis)
Again, it is clear that the case is not being dealt with as one in which the insurer was presented with a decision whether to avoid the contract or insist upon performance. The consequence of the late claim is that there is no liability to pay. That outcome arises from the terms of the policy without any conduct by the insurer. The insurer is not contemplating whether to terminate the contract of insurance. Rather, the insurer is contemplating whether to indemnify even though it has a basis upon which it can deny any liability under the policy of insurance.
In those circumstances, it was found that there had been an election. By reference to English authority Isaacs J said (at 320), repeating the final words already quoted above:
The [insurer] did not content itself with inviting or permitting voluntary action by the [insured] outside the contract. It was equally at liberty to act in a manner consistent with acknowledging a subsisting obligation. As Kekewich J. said, in Hemmings v. Sceptre Life Association Ltd., of two alternative courses:- 'It was a pure matter of business for the directors to say which of these two courses they would adopt. They elected to adopt the latter.' Here the [insurer] followed a course of action which, having regard to the circumstances, it appears to us it was at least quite open to the jury to say bound the [insurer] to disregard the original breach …
(footnote omitted, original emphasis)
His Honour then recounted the extent of the evidence as to the steps that had been taken by the insurer which included taking possession of the fire damaged property and seeking proofs and information from the insured with respect to the claim. As to the taking of possession this was said to be a step that went beyond 'adjustment and appraisement': at 322.
Then, his Honour said (at 322):
Without introducing any evidence beyond what we have referred to, it appears to us ample to enable a jury as men of the world to say the plaintiff as a reasonable man was not only likely, but extremely likely, to infer and did in fact infer from the attitude and acts of the [insurer] that, whatever its original intention to deny liability was, it ultimately made up its mind - and gave him to understand that it had made up its mind - that its acts and dealings with him were on the basis of an existing liability, unimpaired by the want of strict compliance with [the relevant clause as to the time for making a claim].
Thereafter, Isaacs J relied upon the following passage from Matthews v Smallwood [1910] 1 Ch 777 at 786:
It is also, I think, reasonably clear upon the cases that whether the act, coupled with the knowledge, constitutes a waiver is a question which the law decides, and therefore it is not open to a lessor who has knowledge of the breach to say 'I will treat the tenancy as existing, and I will receive the rent, or I will take advantage of my power as landlord to distrain; but I tell you that all I shall do will be without prejudice to my right to re-enter, which I intend to reserve.' That is a position which he is not entitled to take up. If, knowing of the breach, he does distrain, or does receive the rent, then by law he waives the breach, and nothing which he can say by way of protest against the law will avail him anything.
(original emphasis)
The above reasoning has since been applied by the High Court as an example of election between two available but inconsistent rights: see, for example, Sargent; Commonwealth v Verwayen (1990) 170 CLR 394 at 407 (Mason CJ), 424 (Brennan J), 451 (Dawson J), 466-467 (Toohey J); and Agricultural & Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570 at [56] (Gummow, Hayne and Kiefel JJ). Plainly, the analysis being undertaken by the High Court in Craine is on the basis that the facts give rise to an instance of what would now be described as election.
Isaacs J then concluded (at 325):
Similarly here - since the [insurer], with full knowledge of the breach of condition, retained possession of the premises containing the goods for about three months after knowledge, and exerted rights which they could only exercise on the assumption that their obligation still existed - supposing [the clause requiring formal waiver] were not in the contract, it follows that the first ground of the Chief Justice's judgment cannot be sustained.
His Honour then dealt with the insurer's claim that there had been no waiver that conformed with the requirements of the contract which required a formal waiver in writing and that all that had occurred had been subject to the reservation of rights at the outset when the insurer stated that the claim had been received 'without prejudice' to its rights under the contract. As has been noted, his Honour then found that 'since the [insurer], with full knowledge of the breach of condition, retained possession of the premises containing the goods for about three months after knowledge, and exerted rights which they could only exercise on the assumption that their obligation still existed', the decision below could not be upheld on the basis that there had been no waiver, unless the express provision in the contract requiring a formal waiver led to a different result.
However, it is apparent that but for the existence of that provision, the High Court would have upheld the claim by the insured on the basis of the application of what would now be described as the doctrine of election. It was not the unilateral conduct of the insurer that was the basis for the reasoning; it was the inconsistency between the two positions. Irrespective of whether the insurer meant and intended to act without prejudice to a position that sought to preserve the rights under the contract, the inconsistency between claiming that there was no liability under the policy (on the one hand) and exercising the contractual rights under the policy (on the other hand) meant that could not be done.
Importantly, the principle as expounded in Craine did not depend upon a voluntary choice being made by the insurer or even the exercise of a right to choose conferred by law (such as a right to choose whether to terminate). Rather, the outcome by which the breach could no longer be relied upon was said to arise 'by law'. The law did not allow the two future possibilities to be preserved. In Matthews v Smallwood, confronted with a breach that could bring the tenancy to an end, by law the landlord had to make a choice and protesting against the making of that choice was of no effect. The same reasoning was applied to the insurer in Craine.
Of significance to the present case is the fact that this conclusion was reached in circumstances where the choice to be made was whether to rely upon a provision of the contract that meant there was no liability to pay any amount or whether to proceed to exercise rights under the contract and adjust the loss. Craine was not a case where the insurer was confronted with a basis upon which the contract of insurance may be avoided but nevertheless proceeded as if the contract was on foot. As will become evident that distinction is of considerable importance given the way in which s 28(3) is expressed.
In the result, as to waiver (that is, election), Isaacs J reasoned that the clause that required a formal waiver was confined to a case of waiver and did not apply to a claim based upon estoppel and it was on that basis that the appeal was allowed.
The High Court cases since Craine
In Tropical Traders Ltd v Goonan (1964) 111 CLR 41, Kitto J (Taylor and Menzies JJ agreeing), observed as follows (at 55):
Not that election is a matter of intention. It is an effect which the law annexes to conduct which would be justifiable only if an election had been made one way or the other.
Next, in Sargent the Court was concerned with election where a party had alternative rights to terminate an estate or contract or insist upon continuation of the estate or performance of the contract. In that context, Stephen J said at 641:
The doctrine only applies if the rights are inconsistent the one with the other and it is this concurrent existence of inconsistent sets of rights which explains the doctrine; because they are inconsistent neither one may be enjoyed without the extinction of the other and that extinction confers upon the elector the benefit of enjoying the other, a benefit denied to him so long as both remained in existence.
Necessarily implicit in that description is the imposition by the law of an obligation to elect in circumstances where there are two rights and neither one can be enjoyed without the extinction of the other.
Mason J at 656 described election as a rule that was adopted in the interests of certainty and 'because it has been thought to be fair as between the parties that the person affected is entitled to know where he stands and that the person electing should not have the opportunity of changing his election and subjecting his adversary to different obligations'.
However, the issue in Sargent was not whether there were inconsistent rights of a kind to which the doctrine applied. Rather, the case was concerned with the circumstances in which a party will be taken to have made the required election, particularly the extent of knowledge of the inconsistent rights that must exist before conduct will amount to an election at common law.
After Sargent there followed some instances in which the decision in Craine was treated as being concerned with waiver properly so-called, that is unilateral conduct by a party to the effect that it would not rely upon a right: see, for example, Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455.
However, in Khoury v Government Insurance Office (NSW) (1984) 165 CLR 622, the decision in Sargent, together with other authorities, was cited for the proposition: 'A person confronted by two truly alternative rights or sets of rights, such as the right to avoid or terminate a contract and the right to affirm it and insist on performance, may lose one of them by acting "in a manner which is consistent only with his having chosen to rely on (the other) of them"' (emphasis added): at 633. It is to be noted that the right to avoid or terminate a contract was given as an example of such truly alternative rights.
In their reasons, Mason, Brennan, Deane and Dawson JJ, then went on to state: 'Where an insurer is confronted with such alternative rights and elects to affirm the contract of insurance, he is commonly said to have "waived" the right to avoid or terminate it', citing the decision in Craine: at 633. This is a further example of the High Court identifying the language of waiver as used in Craine as referring to what is now described as election.
The decision in Craine was also referred to in the context of waiver of legal professional privilege in Attorney-General (NT) v Maurice (1986) 161 CLR 475. In that context, waiver seems to be used to refer to conduct that is inconsistent with maintaining the confidentiality in the privileged communication rather than any confrontation of a person with inconsistent alternative rights.
Then came the expression of divergent views in Verwayen. In that case, the Commonwealth failed to plead the expiration of a limitation period or absence of a duty of care. The case was mainly concerned with estoppel and waiver, but most members of the Court also dealt with the principles of election in elucidating what was meant by waiver and the circumstances in which it may be relied upon to hold a party to a particular choice.
Mason CJ said that election required the making of 'an irrevocable choice between two alternative positions': at 408. For his Honour, there needed to be inconsistency such that one 'right' could not be enjoyed without the extinction of the other. The terminology used did not confine the principle to the election between inconsistent rights.
Brennan J described election, estoppel and waiver as 'cognate concepts: each relates to the sterilization of a legal right otherwise than by contract': at 421. His Honour made clear that a 'right' may include 'a liberty or an immunity, according to the circumstances'. Subsequent references by Brennan J in Verwayen to 'right' should be read accordingly. His Honour described the doctrine of election as serving the purpose of ensuring 'that there is no inconsistency in the enforcement of a person's rights': at 423. However, his Honour earlier described election as consisting of 'a choice between rights which the person making the election knows he possesses and which are alternative and inconsistent rights'. Expressed in those terms it suggests that the doctrine operates on a choice voluntarily made, but his Honour cited the passage from Tropical Traders (quoted above) to the effect that election is not a matter of intention but is 'an effect which the law annexes to conduct which would be justifiable only if an election had been made one way or the other'. His Honour also stated that an election 'is binding whether or not others affected by the election have acted in reliance on it': at 421.
Dawson J identified instances where election was used 'in the sense of election between mutually exclusive alternatives', citing Craine as an example: at 451. His Honour cited with apparent approval passages from Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 at 883 in a manner that emphasised the need for 'alternative rights inconsistent with one another' and actions consistent only with a choice to rely on one of those two inconsistent rights: at 452. The term election was used to differentiate other cases which were instances of estoppel or waiver.
Toohey J said that it was important to distinguish between the characteristics of election and waiver, noting that most of the time waiver is used in the sense of election. His Honour found that: 'Election implies that a choice must be made between two rights which are mutually exclusive': at 472. The use of language indicative of legal obligation is significant. His Honour is identifying instances where the law requires a party to choose by reason of inconsistency. His Honour differentiates those instances where there can be no such election by quoting from Spencer Bower and Turner: 'Obviously there can be no election, choosing one course to the exclusion of another, when in fact there is only one course to take, or where the two courses are such that the adoption of one of them does not necessarily indicate a final intention to abandon the other': at 472.
Gaudron J at 481 referred to Craine and distinguished between inconsistent positions and inconsistent rights in the following way:
In Craine, Isaacs J … referred to waiver as 'a doctrine of some arbitrariness introduced by the law to prevent a (person) in certain circumstances from taking up two inconsistent positions'. The expression 'taking up two inconsistent positions' is wider than the expression 'asserting two inconsistent rights'. It is the assertion of inconsistent rights that is generally understood to be at the heart of what is called 'election'. See Sargent v. A.S.L. Developments Ltd. [1974] HCA 40; (1974) 131 CLR 634, per Stephen J. at p 641; Lissenden v. C.A.V. Bosch Ltd. (1940) AC 412, per Lord Wright at pp 435-436. For present purposes the question whether there is a doctrine, be it called 'waiver' or anything else, which operates by reference to the taking of inconsistent positions rather than the assertion of inconsistent rights can be confined to the situation where, in the course of litigation, a person asserts a right to take a position which is inconsistent with one earlier taken in the same litigation.
Given the facts in Verwayen, her Honour appears to be distinguishing between an instance where a choice is required to be made between inconsistent rights (because the party cannot assert inconsistent rights) and an instance where a party decides not to assert a right. The reasoning is not concerned with precisely what may amount to inconsistent rights for the purposes of the first instance.
Finally, McHugh J began by describing Matthews v Smallwood (being the decision applied in Craine) as a case of election. His Honour reviewed the cases in which it appeared that it had been held that there could be waiver by unilateral action of a statutory right even where there was no need to choose between inconsistent positions. His Honour concluded that those cases were 'to a certain extent, anomalous' and that they should be strictly confined 'so as not to conflict with the more established doctrines of election, contract and estoppel': at 497.
Care must be taken as to the conclusions that can be reached from the various views expressed in Verwayen. In addition to the issues that arise in discerning whether there is a majority view, as has since been observed, the views expressed in Verwayen as to waiver reflect the particular setting in which the issue arose, namely the existence of the litigation between the parties and there is danger in divorcing what was said in that case from its context: Agricultural & Rural Finance v Gardiner at [62].
Nevertheless, as to election (as distinct from waiver), two things may be said about the reasoning in Verwayen. First, Mason CJ, Brennan, Toohey and Gaudron JJ each expressed the doctrine in terms that recognise that the law requires a choice to be made. The law does not allow the party to maintain two inconsistent rights (or positions) and requires a choice to be made by the party. The choice may be made by the party or be inferred as a matter of law from the conduct of the party who is required to make the election. Second, Mason CJ, Brennan and Dawson JJ did not confine the doctrine to election between inconsistent rights. Toohey J did use the language of rights without considering expressly whether the doctrine was confined to rights strictly so-called. Gaudron J did distinguish between inconsistent rights and inconsistent positions but only to make clear the unilateral character of waiver compared to election. McHugh J reasoned by applying Matthews v Smallwood a decision in which the question whether election only applied as between inconsistent rights was not addressed.
Thereafter, in Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26, the language used by Deane, Toohey, Gaudron and McHugh JJ to describe the circumstances in which the doctrine of election may arise echoed the language of fairness used by Mason J in Sargent to describe the ambit of the principle. At 41, their Honours described the 'true nature' of election as being brought out in the following passage from Spencer Bower and Turner, The Law Relating to Estoppel by Representation:
It is of the essence of election that the party electing shall be 'confronted' with two mutually exclusive courses of action between which he must, in fairness to the other party, make his choice.
(emphasis added)
Later at 42, their Honours referred back to the above passage and stated 'at the heart of election is the idea of confrontation which in turn produces the necessity of making a choice'. The notion of there being a necessity that the choice be made reflects the fact that election concerns those circumstances where the law requires a party to choose.
The issue in Immer arose because there was an ongoing right to rescind and the question was whether a choice had been made to abandon that right. Consequently, the focus was upon what was required in order to make the election rather than the circumstances in which an election may arise. That is understandable given that the case concerned an instance where it was well established that an obligation to elect would arise. Nevertheless, it is significant that the Court chose to use language that focussed upon instances where fairness between the parties required a party to choose between 'two mutually exclusive courses of action'. The principle was not expressed in terms that confined the doctrine of election to cases where a party had two different rights that could be exercised.
The language used in Immer was deployed in State of Victoria v Sutton (1998) 195 CLR 291 at [40] (Gaudron, Gummow and Hayne JJ) in describing the true nature of election as 'the confrontation of the person electing with two mutually exclusive courses of action between which a choice must be made, for example, to terminate or keep a contract on foot'. The language of 'mutually exclusive courses of action' appears to be significant and consistent with the views of many of the members of the Court in Verwayen.
In Mann v Carnell (1999) 201 CLR 1, the Court was again concerned with a claim of waiver of legal professional privilege. In that context, emphasis was placed upon the manner in which waiver may arise by operation of law. Gleeson CJ, Gaudron, Gummow and Callinan JJ put the matter in the following was at [29]:
Waiver may be express or implied. Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. When an affirmative answer is given to such a question, it is sometimes said that waiver is 'imputed by operation of law' [citing Goldberg v Ng [1995] HCA 39; (1995) 185 CLR 83 at 95]. This means that the law recognises the inconsistency and determines its consequences, even though such consequences may not reflect the subjective intention of the party who has lost the privilege … What brings about the waiver is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large.
To similar effect is Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46; (2013) 250 CLR 303 at [30]‑[31] (French CJ, Kiefel, Bell, Gageler and Keane JJ), but citing Craine.
Finally, in Agricultural & Rural Finance Pty Ltd v Gardiner at [63], Gummow, Hayne and Kiefel JJ (Heydon J agreeing) dealt with an instance where a lender had a right to accelerate the payment of the balance outstanding under a loan agreement in the event of a failure by the borrower to make payment punctually. The lender accepted the subsequent tender of unaccelerated performance the lender. It was claimed that there was 'an election between inconsistent rights': at [49]. The lender was held to have elected not to exercise the option to accelerate payment of the balance. This was described as 'an orthodox application of the doctrine of election between competing rights': at [63]. However, other aspects of the claim were not upheld because the borrower's lateness in main payment gave rise 'to no choice between competing rights': at [64]. It is to be noted that the language reflects the terms in which the claim was put, namely election between inconsistent rights. The Court was not invited to consider whether the doctrine was confined to inconsistencies between rights properly so-called. However, as has been noted, in Verwayen a majority of the Court expressed the doctrine in broader terms and since then the Court has explained that the doctrine applies where the law regards it as unfair for a party to be allowed to maintain two inconsistent positions.
A significant attribute of the contractual right to elect
Where the common law doctrine of election is applied in a contractual context, care must be taken to distinguish between two related senses in which the term 'election' is used. First, as a matter of contract law, a party presented with certain types of breach has a right as a matter of contract law the character of which is to make a choice. As a matter of contract law, the choice is conferred on the innocent party. The right conferred is a right to elect to terminate. It is not for the law to choose whether the contract is avoided. The choice is a matter for the innocent party.
The second sense in which election is used is to refer to the requirement that arises once the innocent party reaches the point where the contract must either be performed or brought to an end. At that point the law requires the innocent party to elect. The inconsistency that arises is recognised as one that gives rise to the application of the common law doctrine of election. The contractual right to choose whether to terminate can be preserved for a time, but eventually as a matter of law the contracting party is required to make a choice because it is unfair to keep open the two options. So, even if the contractual right to make that choice is not exercised by the innocent party, a point will be reached where, as a matter of law, the party will be taken by that party's conduct to have elected one course over another. It is the second 'election' that is an application of the doctrine of election. It is not to be confused with or merged into the first.
The doctrine of election is not confined in its application to instances where a party has a right which, of its character, is a right to choose. So much is demonstrated by Craine. In that instance, there was not a breach that gave rise to a right on the part of the insurer to elect to terminate. Rather, there was a failure to lodge a claim within time which, by operation of the contract, meant that there was no liability to pay. The insurer did not have a right to choose about how the provision would operate. The liability under the contract in respect of the particular claim came to an end because the claim was not made in time. If the insurer did nothing the contract would operate in that way. Nevertheless, the insurer was confronted with two possible futures. One in which the rights conferred by the contract in the event that a valid claim was made could be exercised and one in which those rights did not arise because the claim was out of time. In those circumstances, it was unfair for the insurer to try and keep both options open. Confronted with knowledge of the facts that gave rise to the two alternatives, the common law doctrine of election required a choice to be made as a matter of law.
Therefore, care must be taken in not confining the doctrine of election to instances where a party has a right to make a choice, such as the right to choose whether to terminate a contract. It extends to instances where the party has no such right but nevertheless the law requires a choice to be made between inconsistent alternatives.
The decision in Freshmark
On the issue of election, Allianz placed reliance upon the decision in Freshmark Ltd v Mercantile Mutual Insurance (Australia) Ltd [1994] 2 Qd R 390. It was a simple case. A trailer was damaged while being towed by a prime mover driven by a person aged 22 years. By the terms of the policy, the insurer was not liable if the trailer was in the charge of a person under the age of 25 years. A claim was made under the policy. The claim made clear the age of the driver. Nevertheless, the insurer approved repairs which commenced the following day. A few days later, part way through the repairs, the insurer notified the insured that indemnity was declined because of the age of the driver. The insured brought a successful claim against the insurer for payment of all of the repair costs. The insurer appealed.
The President held that the doctrine of election applied and the insurer was confronted with two mutually exclusive courses of action and was required to make a choice, which it did. Having made that choice with knowledge of the material facts it was bound by that choice. However, the other members of the Court of Appeal disagreed.
McPherson JA agreed with the reasons of Dowsett J (which are considered below) and, relevantly for present purposes, added the following (at 395):
Here there was no liability under the terms of the policy except in certain specified circumstances that were not present in this case. The defendant was therefore not in the position of a person who, having the option of choosing between alternative and inconsistent rights, elects to adopt one of them and so places it beyond his power to revert to the other. Under section 1 of the policy the defendant as the insurer had the right to elect between repairing a vehicle and paying the amount of the loss or damage to it. The defendant elected to repair. Had the policy been applicable according to its terms, the election to repair might well have precluded the defendant from later asserting its alternative right under section 1 of simply paying the amount of the loss or damage.
But that is not this case. The defendant was not confronted with the option of choosing between two alternative and inconsistent rights, nor did it elect to pursue one of those rights to the exclusion of the other. There was no choice between a right to accept liability under the policy, and a right to reject liability. That is so because there never was any liability under the policy, and consequently no right or even power under the policy to reject that liability.
This reasoning rests upon the absence of any inconsistency between a right to accept liability under the policy and a right to reject liability. As will emerge, that is not the present case. The statutory right upon which Allianz places reliance is said to lead to the consequence that there is no liability under the policy. In addition, the reasoning appears to confine the doctrine of election to those cases where there were inconsistent rights as to future performance that were available to one party. It rests upon a view that the doctrine of election is limited in its application to those instances where a party has a right to choose. It is a view that fails to properly frame the question in terms of whether the circumstances are such that the law requires a choice to be made. In that respect, it is contrary to the decision in Craine which has been consistently approved by the High Court and therefore cannot be correct.
After reviewing the separate reasons of the members of the High Court in Verwayen, Dowsett J concluded at 403 as follows:
The better view is that a mere indication of an intention not to rely upon contractual rights will not generally constitute a waiver sufficient to bar a future action to enforce such rights. Waiver should not be seen as an alternative weapon to estoppel in the war against the doctrine of consideration. However, where a party elects between alternative rights available under a contract, such election will usually be final.
… Obviously, a contracting party always has the right to insist or not insist upon his rights and conversely, to accept or not accept alleged liability. Such a choice is not accurately described as an election in the sense intended in Verwayen.
This approach must also be compared to the approach in Craine. In both cases, the insurer had the right under the policy to deny liability. In both cases, the insurer proceeded, with knowledge of the relevant position, to take steps consistent only with there being liability under the policy. In both cases, after taking those steps, the insurer sought to disclaim any liability.
However, there is an important point of distinction. In Craine, but not in Freshmark, the insurer denied liability, but then proceeded to exercise rights under the policy of insurance. In Freshmark it was the insured who arranged the repairs and there was no inconsistent action by the insurer in the meantime. Therefore, the reasoning of Dowsett J should be understood on that basis. The reason there was no election in Freshmark was because the point was never reached where there would be inconsistency between the positions asserted as to the rights that the insurer enjoyed. Unlike the insurer in Craine, the insurer in Freshmark did not reach a point where it was contemplating both the exercise of rights under the policy and maintaining that there was no liability under the policy. It was at that point that the doctrine of election applied to require a choice to be made, not before.
The decision in Nigel Watts
In Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd [1994] NSWCA 365, an employee of Nigel Watts was injured when entering a lift at the office premises of Nigel Watts. He received workers compensation and also sued the landlord at common law for negligence. The landlord joined the employer as a third party to the proceedings. The third party claim was based on alternatives, one of which was covered by the workers compensation policy and the other of which was not (being a claim under the lease). Relying on the policy, the workers compensation insurer took over the conduct of the defence of the third party proceedings. The third party claim succeeded, but only on the basis not covered by the policy. It was claimed that by taking over the conduct of the third party proceedings the insurer had elected to cover the whole of the claim the subject of the third party proceedings irrespective of the basis on which it was upheld.
In the appeal, the only member of the Court to consider the election claim was Handley JA. His Honour began by stating a general description of the doctrine of election in its application to contracts of insurance in the following terms at 1:
The doctrine, in its application to contracts of insurance, prevents an insurer from adopting inconsistent positions under the same policy. An insurer receiving a claim who is entitled to avoid the policy or reject the claim for breach of condition must make an election. In the first case the insurer must either affirm or avoid the policy and in the second it must waive the breach and accept the claim or rely on the breach and reject it. If, having the requisite knowledge of the facts, it asserts rights which would only exist if the policy was in force and covered the claim it will be taken to have elected to treat the policy as valid and applicable to the claim
The authorities cited for that proposition included Khoury v Government Insurance Office (NSW) to which reference has already been made in these reasons. The relevant passage in Khoury relied upon both Craine and Sargent.
Having stated the general proposition, Handley JA concluded that there had not been an election to accept liability by the insurer taking over the conduct of the defence of the third party proceedings because it did so in reliance upon the policy in circumstances, in effect, where it could continue to maintain a denial of liability if the claim was upheld on the basis that was not covered. Important to that process of reasoning was the absence of any procedural mechanism by which the insurer could only take over the conduct of that part of the third party proceedings for which liability would arise under the workers compensation policy if the claim was upheld. In effect, the conduct of the insurer throughout was consistent only with covering the claim to which the policy would respond.
Given the High Court decisions to which reference has already been made, the general statement of principle by Handley JA was correctly expressed. It reflected the legal position as developed in those cases which required an insurer in particular (being a party who must act in good faith) not to adopt inconsistent positions under the same policy of insurance in circumstances where one of those positions was consistent only with accepting liability under the policy and the other position was consistent only with denying liability. This was not a matter of choice for the insurer. Where a point was reached where future steps were to be taken by an insurer and those steps could be consistent only with the acceptance of liability then as a matter of fairness to the insured, the law required the insurer to make an election.
Issues may arise as to the extent to which such a principle extends, as a matter of fairness, outside the insurance context. But, insurers, at least, stand in that position when dealing with an insured in respect of a claim made under a policy of insurance. It is a position that arises from the nature of an insurance contract. As was described by Isaacs J in Craine, insurers 'are not at liberty to deny to the insured rights given to him under the contract and at the same time insist on and exercise as against him in adversum correlative rights given to them by the contract, as a qualification or a safeguard, on the basis that the rights of the insured are in full operation' (emphasis added): at 320. Such has been the state of the law since Craine as was properly recognised by Handley JA in Nigel Watts.
Conclusions as to circumstances in which the doctrine of election may apply
When used as a word devoid of special meaning imposed by legal principle, election is the act of choosing (by action or inaction) between two alternatives. However, for the purposes of seeking to elucidate the nature and scope of the common law doctrine to which the descriptor 'election' is most often applied, it is helpful to distinguish between three different cases.
First, those where the law requires a party to make a binding choice between two alternatives.
Second, those where a party, having made a choice, will be bound to adhere to that choice.
Third, those where a party, having made a choice, will be allowed by the law to change position.
For reasons that have been expressed, the common law doctrine of election is concerned with the first type of case, namely the circumstances in which a party is required by law (not by an enforceable bargain) to make a binding choice. In the case of an insurance contract it applies at least where the insurer has a right to disclaim liability but proceeds to exercise rights conferred by the contract of insurance. In such a case, the insurer cannot reserve its position. It can disclaim liability and request the insured to take steps of the kind that would be taken if there was liability under the policy as part of a process of considering whether the insured may reverse its decision to disclaim. But the insurer, knowing the relevant facts, cannot seek to exercise rights under the contract of insurance whilst at the same time denying liability under the policy. In such a case, having regard to the nature of an insurance contract, as a matter of fairness, the law requires the insurer to elect between disclaiming any liability and seeking to rely upon the rights conferred by the policy.
Of course, the position is different in those instances where the insurer is investigating the claim and is yet to uncover the relevant facts or is seeking clarity as to position. It is well established that there is no obligation to elect unless and until the relevant party is aware of the relevant facts. In the present case, that aspect is not in issue. The insurer in the May 2017 Email refers to the non-disclosure that Allianz now seeks to rely upon.
Delor Vue’s submissions suffer from a lack of precision as to the conduct in respect of which it is claimed that Allianz failed to perform its obligation of utmost good faith. In substance, it seemed to submit that the lack of good faith arises in Allianz’s attempt to settle the claim at its figure while threatening to pay nothing in reliance on its rights under s 28(3) when the parties had relied upon Allianz’s earlier promise that it would not rely on Delor Vue’s non-disclosure. In other words, the complaint concerned Allianz’s attempt in negotiations with Delor Vue to utilise its superior bargaining position.
Further, Delor Vue asserted that the mere fact that it did not capitulate in the face of Allianz’s conduct does not render the conduct lacking in good faith. It also submitted that the assertions which it made to Allianz as to the extent of insurer’s liability, which may not have been correct, were not relevant to characterising Allianz’s conduct in the circumstances.
Finally, it submitted that, if Allianz is successful in relation to the other grounds of appeal and that it is unsuccessful in relation to the election issue, it should succeed on this issue and an injunction ought to be granted to prevent Allianz from further breaching its duty.
Consideration of utmost good faith
It is, with the greatest respect, somewhat difficult to identify the gravamen of Allianz’s conduct which was characterised as offending the duty of utmost good faith. As was submitted by Mr McLure SC, neither Delor Vue nor the primary judge expressly considered it to be the mere reliance on the operation of s 28(3) of the ICA. It seems to have encompassed the original intimation that it would not rely upon that section in dealing with the claim, the benefit which the insurer obtained from Delor Vue’s acquiescence in it investigating the damage to the buildings at the complex, the hardship which unit holders will suffer if cover is not provided, and Allianz’s alleged high-handed approach in its letter of 28 May 2018. However, as Mr McLure SC further submitted, by its letter of 28 May 2018, Allianz was offering to pay the amount which it considered that it would pay if it had adhered to its earlier intimation not to rely upon Delor Vue’s non-disclosure.
The content of the duty of utmost good faith
Both parties were content to accept the general identification of the content of the duty of utmost good faith articulated by the learned primary judge (at [342] – [345]). His Honour observed that the statutory obligation of utmost good faith is not breached only where there is an evident lack of honesty: CGU v AMP [15]: and the obligation may require the insurer to act with due regard to the legitimate interests of the insured as well as to its own interests. This was explicitly stated by Gleeson CJ and Crennan J in CGU v AMP [15], where their Honours held that the insurer may be required to act consistently with commercial standards of decency and fairness, with due regard to the interests of the insured. In that case, Callinan and Heydon JJ (at 77 – 78 [257]) agreed that a breach of the duty is not to be equated with dishonesty only and that conduct falling short of actual impropriety might constitute an absence of utmost good faith within the meaning of the ICA. Kirby J endorsed the proposition that dishonesty is not an essential hallmark of a lack of utmost good faith and indicated that it involved notions of capriciousness and unreasonableness.
The various statements in the reasons of the members of the High Court in CGU v AMP referenced the observations of Emmett J in AMP Financial Planning Pty Ltd v CGU Insurance Ltd [2005] FCAFC 185; (2005) 146 FCR 447, the decision of the Full Court from which the appeal was taken. There, his Honour (with whose reasons Moore J agreed) said (at 475 [87] and [89]):
87.While a want of honesty will constitute a failure to act with the utmost good faith, want of honesty is not necessary in order to establish a failure to act with the utmost good faith in the context of a contract of insurance. The notion of acting in good faith entails acting with honesty and propriety. Lack of propriety does not necessarily entail lack of honesty. Further, the concept of utmost good faith involves something more than mere good faith.
…
89.The precise content of the concept of utmost good faith depends on the legal context in which it is used. In the context of insurance, the phrase encompasses notions of fairness, reasonableness and community standards of decency and fair dealing. While dishonest conduct will constitute a breach of the duty of utmost good faith, so will capricious or unreasonable conduct. While an essential element of honesty may be at the head of the concept of utmost good faith, dishonesty is not a prerequisite for a breach of the duty (see, eg, Kelly v New Zealand Insurance Co Ltd (1996) 130 FLR 97 at 111-12).
(Original emphasis).
Allianz submitted that, in the context of post-contractual conduct, the duty of utmost good faith was substantially the same as an implied duty of good faith and reasonableness in commercial contracts, assuming that any such implication is appropriate (as to which no comment is needed here). In particular, where a power or right in a contract exists for the benefit of only one of the parties, any duty of good faith does not extend to acting with altruism or without regard to the interests of the acting party: Australian Co-operative Foods Ltd v Norco Co-operative Ltd [1999] NSWSC 274; (1999) 46 NSWLR 267 at 282 – 283 [62] per Bryson J. It further submitted that it cannot be thought that the party with a right to promote its legitimate interests can be restrained by the duty of good faith: Beerens v Bluescope Distribution Pty Ltd [2012] VSCA 209; (2012) 39 VR 1 at 13 [55]; as it is not a fiduciary duty to act in the interests of another party: CGU Workers Compensation (NSW) Ltd v Garcia [2007] NSWCA 193; (2007) 69 NSWLR 680 at 693 [60]; although there may be some similarities on occasion: Maksimovic v Royal and Sun Alliance Life Assurance Australia Ltd [2003] WASC 46; (2003) 12 ANZ Ins Cas 90-115 [18]. These latter submissions should be accepted. Neither party to an insurance contract is obliged to sacrifice their interests under a policy for the benefit of the other.
Nevertheless, it is apparent from the identification of the principle and the authorities that whether or not a duty is breached in a particular case requires an evaluation of all of the circumstances relevant to the conduct in question.
The conduct said to be in breach of the duty and the circumstances in which it arose
The essence of the conduct which the primary judge found to be in breach of the duty of good faith must necessarily be Allianz’s statement in the letter of 28 May 2018 that its actual liability under the policy was nil and later asserting the same. In other words, its abandonment of its earlier intimation to partially honour the claim. Merely offering to pay a large gratuitous amount in respect of a liability which did not exist, even if the offer was open for a limited duration, does not amount to a breach of the duty. Whether the resiling from the earlier promise will amount to a breach of the duty will depend upon the circumstances existing between the parties at the time.
Legal rights of the parties
From the above discussions of Grounds 1 and 2 and the Notice of Contention, the legal position between the parties was that Allianz’s liability under the policy in respect of Delor Vue’s claim was nil. The latter’s non-disclosure had the result that, by its promise in the 9 May 2017 email, Allianz offered to cover a risk in circumstances where it was not otherwise obliged to. Although Allianz had nevertheless said it would pay part of the claim (specifically excluding the defective construction of the roofs), the circumstances were such that its voluntary assumption of that liability, unsupported by consideration as it was, did not give rise to any estoppel, waiver or election which prevented it from withdrawing the promise.
Therefore, apart from any obligation of good faith, as at 28 May 2018, Allianz did not have, and did not believe it had, any obligation to provide a partial indemnity in relation to Delor Vue’s claim.
The legal rights of the parties in relation to the remainder of Delor Vue’s claim seem to have remained unsettled at least as far as Delor Vue was concerned. Allianz’s intention to provide an indemnity was expressly limited by reference to Exclusion 1(c)(i) and (d) and Exclusion 2 of the policy. It expressly rejected any liability relating to the defective construction of the roofs. However, as appears by the letter from its solicitors of 30 July 2018, it is apparent that Delor Vue did not accept that there were any relevant limitations on Allianz’s obligation to indemnify, that there were any relevant operative exclusions in the policy, or that Allianz might exclude liability to pay for the defective construction of the roofs. It should be noted that, in the course of this litigation, Delor Vue accepted that Allianz had not waived its entitlement to rely upon the exclusions, although it continued to assert that the exclusions are not operative in the circumstances with the result that Allianz must indemnify in respect of all of the damage.
The effect of this is that Delor Vue is forced to adopt the position that the duty of utmost good faith in the circumstances of this case required Allianz to accept liability for a significant claim of between $4 million and $6 million where it is not otherwise obliged to indemnify. Such cases, if they exist, must necessarily be extremely rare as they require an insurer to sacrifice its actual legal rights for the benefit of the insured. In effect, to act solely in the insured’s interests. That imposes a substantially greater obligation on an insurer than one which requires only that it act in the interests of both the insured and itself when exercising its rights under the policy as identified by Gleeson CJ and Crennan J in CGU v AMP.
Delor Vue’s position in respect of the claim.
It is relevant in the characterisation of Allianz’s conduct towards Delor Vue to ascertain the latter’s expressed view of the relationship between them. For present purposes, that is most relevantly ascertained from the letter from Delor Vue’s solicitors of 3 May 2018 which is set out above. That unequivocally and repeatedly asserted that Allianz, amongst other things, had not stated its position on indemnity with any clarity, had failed to make clear any decision on the policy coverage and the extent to the indemnity available, and had failed to state its position as to indemnity. Indeed, it went further and asserted that the delay by Allianz in making a decision on indemnity was so great that it may well be in breach of the policy. As has been mentioned above, there is significant tension between the assertions in this letter and Delor Vue’s claim that it had relied upon some clear and unequivocal representation by Allianz in its email of 9 May 2017 that it would indemnify part of the claim. At paragraph [322] of the primary judge’s reasons, he said of Delor Vue’s solicitor’s letter, which I repeat for convenience:
The applicant’s solicitors’ position by May 2018 that Allianz was not stating its “position on indemnity” either at all or clearly (see [182] above) can be seen as a product of the evident frustration to this point in obtaining the translation of the clear statement of acceptance of cover into the practical division of responsibility and what could be seen as some temporising in the correspondence by this time.
With respect, it is difficult to see how the repeated assertions that Allianz had failed to make a decision on indemnity can be seen as some form of posturing. The context, known to both parties, in which Allianz’s concession was made included that the amount required to repair the damage was unknown and it would have been obvious to any reasonable person in the circumstances that Allianz’s concession would have been qualified at least to that extent. This is consistent with the content of 9 May 2017 email which was ambiguous, especially as to the extent of indemnity which might be provided. That ambiguity increased over time as the nature and extent of the structural defects in the roofs became more evident. In any event, absent some disavowing of the statements made in the letter, there is no reason why Allianz ought not to have taken Delor Vue at its word and treated it as an insured which believed that no final determination had been made as to whether its claim would be indemnified and which was demanding that a decision be made. With respect, it is difficult to see how, in the face of Delor Vue’s demand that Allianz make a decision on indemnity, it amounted to breach of the duty of good faith for Allianz to do as requested. By its letter of 3 May 2018, Delor Vue wanted to know whether it had to litigate its claim and Allianz’s response provided it with a choice to do so or to accept a sizeable sum in settlement of the claim.
Delor Vue’s position with respect to its responsibility for repairs
Mr McLure SC submitted that Allianz was entitled to press Delor Vue to take a position as to its responsibility for the repairs which Allianz had maintained were not within the scope of the policy in any event. It is to be recalled that the 9 May 2017 email identified that Delor Vue was responsible for a substantial portion of the cost of repair and it was evident that Delor Vue would need to financially commit to effecting those repairs before they could be commenced. The import of that was emphasised in the email of 22 June 2017 to Delor Vue which advised that its costs would be “in the millions” and it would need to arrange sufficient funding. The material before the Court reveals that, despite the passing of approximately 11 months, Delor Vue had not taken any substantial step towards arranging that funding. Instead, it had made repeated, albeit failed, attempts to minimise the cost of the work for which it would be responsible and would not commit to any particular position. That is, perhaps, not surprising in the light of the letter of 30 July 2018 where it alleged that Allianz was responsible for the total costs of remediation. Despite that, Allianz was not required to wait for any extended period of time for Delor Vue to meaningfully engage in the remediation process.
The benefits obtained by Delor Vue
In the 12 months following Allianz’s statement of intention to partially indemnify, a considerable amount of work was undertaken by it to advance the work needed to repair the damaged buildings. That has been referred to above with the conclusion reached that Delor Vue would not be in any worse position if Allianz were entitled to withdraw from its prior representation. In fact, it is likely that Delor Vue benefited from the not insignificant amount of money spent by Allianz in undertaking the necessary preparatory steps and providing direct payments to unit owners, the total cost of which was around $192,000.
The benefits obtained by Allianz
As the primary judge determined, Allianz obtained the benefit of Delor Vue’s cooperation in relation to the assessment of the damage, including the conducting of inspections by engineers and experts and that put it into a position whereby it was able to obtain an accurate assessment of the damage and understanding of the cost of repairs. Whilst it is true that the same level of cooperation from the insured may not have been forthcoming had Allianz not indicated that it would partially indemnify, as has been discussed previously one way or another the insurer would have been entitled to access to the premises for the purposes of undertaking inspections.
The position if Allianz is required to indemnify
In ascertaining whether Allianz breached its duty of good faith, some consideration needs to be given to the consequences of it being held to its statement that it would partially indemnify. On the assumption that Allianz was entitled to rely upon Delor Vue’s non-disclosure, its liability would be nil. On the other hand, if Allianz were held to the original intimation in the 9 May 2017 email, it would, on Delor Vue’s submission, be liable for the whole of the claim in the amount of approximately $6 million. Whilst that might not ultimately be the correct sum, much will depend on ascertaining the manner in which the several exclusion clauses operate. On the figures calculated by Allianz, its liability would be somewhere between $2 million to $3 million.
Given the above, Delor Vue’s case is that, in order to perform its obligation to act with utmost good faith, Allianz was required to assume a liability of between $2 million to $6 million in circumstances where it was not otherwise liable on the claim and where Delor Vue has suffered no ascertainable damage or detriment from relying on the prior representation.
The primary judge took into account that the persons who stand behind Delor Vue were “ordinary people” and that the damage to the apartment complex was significant. Whilst that is no doubt true, it does not affect the legitimacy of Allianz’s conduct. In the circumstances of the present matter where an insurer is called upon to pay a claim for which it has no liability, the perceived financial standing of the insured (or the insurer) can have no relevance. It is difficult to envisage a case where the duty of utmost good faith will impose upon an insurer an obligation to make a gratuitous payment depending upon the apprehended wealth of the insured. Were it so, it would necessarily follow that the insurer’s current financial position would also affect the content of the duty. It would mean that where an insurer is called upon to act in a manner which is said to be in accordance with its duty and detrimental to it, it may be entitled to rely upon its extant financial position in deciding whether it will act or not. Although it can be accepted that the financial position of the insured may be relevant where the insurer’s decision or proposed conduct affects the insured’s ability to have their claim properly adjudicated, that is not the present case.
Even if it be true that, as a result of Allianz resiling from its stated preparedness or intention to partially indemnify, the “ordinary persons” who stand behind Delor Vue will be required to fund the substantial remediation expenses on their own, their obligation in that respect was the consequence of Delor Vue’s non-disclosure and not the withdrawal of Allianz’s indication that it would indemnify part of the claim. In that regard, it can be mentioned that it is rather astonishing that Delor Vue, which had the professional assistance of a body corporate manager and an insurance broker, might find itself in a position where it had so blatantly breached its duty of disclosure to its insurer.
Allianz did not breach its duty of utmost good faith
When considered in the light of the surrounding circumstances, Allianz’s conduct does not bespeak of a failure on its part to comply with its duty of good faith. One must start with its willingness to overlook the insured’s breach of duty of disclosure and to gratuitously agree to partially indemnify in respect of a claim. It would be naïve to think that Allianz’s conduct in this respect was solely altruistic. No doubt it believed that to partially honour the claim made good business sense, although that ought not to diminish the propriety of its conduct. Common sense also dictates the conclusion that, when it offered to pay a portion of the claim, it did so in the belief that the amount in question would be modest. It is not suggested that, as at 9 May 2017, either of the parties were aware of the magnitude of the remediation work which would actually be required to restore the premises. In that respect, it was not reasonable to assume that the insurer who agreed to indemnify part of a modest claim when not obliged to do so should be required to indemnify in respect of the claim when it transpires that the amount which it would be required to pay is much greater.
Additionally, it is not possible to conclude that, by offering to pay Delor Vue the sum of $918,709 so long as the offer was accepted within 21 days when its actual liability was nil, Allianz contravened community standards of honesty, fairness or reasonableness and thereby breached its duty of good faith. Nor did Allianz breach any duty by resiling from its previously stated intention.
It was in those circumstances of the crystallisation of a substantive claim that Delor Vue asserted that Allianz had not made a decision on indemnity and its delay in doing so was a breach of its duty of utmost good faith. Allianz was entitled to respond to Delor Vue’s demand that it make a decision on indemnity and, in doing so, it was also entitled to assume that Delor Vue believed that it had not previously made any final decision. Indeed, given the vagueness of the 9 May 2017 email, that may well have been the case. The correspondence shows that the position in relation to indemnity was far from settled and Delor Vue’s solicitors’ assertion in their letter of 30 July 2018 that Allianz was liable to indemnify in respect of the whole loss, and not just that part which had been accepted in the 9 May 2017 email, shows this to be so. That stance, indicated in earlier correspondence sent on behalf of Delor Vue, also revealed that insured did not accept the totality of the content of the 9 May 2017 email, which included Allianz’s apportionment of part of the responsibility for the repairs remained with the insured.
Even if Delor Vue’s solicitors were engaging some form of temporising in their letter of 3 May 2018, Allianz was nevertheless of the opinion that it had no liability in respect of Delor Vue’s claim and it was correct to believe that to be the case. Pursuant to s 28(3) of the ICA, its liability was nil and its statement of intention in the 9 May 2017 email that it would partially indemnify did not give rise to any liability by way of estoppel, waiver or election. That earlier intimation to provide some indemnity could only reasonably have been seen by Delor Vue as being a gratuitous or voluntary promise which, just as easily, might be withdrawn at any stage: Waltons Stores v Maher at 403; Amalgamated Property Co v Texas Bank at 107 per Robert Goff J.
If the duty of good faith prevents Allianz from withdrawing its earlier intimation, it follows that the insurer must assume an obligation to pay up to $6 million in respect of a claim for which it had no liability, in circumstances where the insured will not suffer harm or detriment by reason of Allianz’s change of attitude (as opposed to the operation of s 28(3)). Even if the prospective liability would be only $2 million to $3 million, that too is a significant amount when weighed against the absence of any detriment to which Delor Vue might be exposed.
The mere fact that the parties had worked over the previous 12 months to advance the project to remediate the damage caused by the cyclone did not have the consequence that Allianz was required to sacrifice its own interests for the benefit of Delor Vue. The contrary is true. That 12 months of work and the expenditure of nearly $200,000 by Allianz almost certainly enured for Delor Vue’s benefit.
It also cannot be said that the benefit to Allianz of having obtained of access to the buildings at the Delor Vue complex consequent upon its intimation that it would indemnify were such that it ought to assume a liability of up to $6 million. This has been dealt with above in the discussion on detriment. It suffices to say that, in the face of the claim for indemnity, Allianz would have been entitled to access the property for the purposes of ascertaining the scope of its alleged liability. As an advantage to Allianz arising from its intimation that it would provide a partial indemnity, it is more chimerical than real. It might also be odd, in the context of considering the mutual and reciprocal obligations of utmost good faith, for Delor Vue to assert that Allianz gained an advantage, being a more precise understanding of the actual quantum of its assumed liability. That suggests Delor Vue was entitled to prevent or hinder Allianz in ascertaining the true nature and extent of the damage, so that it might secure payment of a greater sum under the policy than it was entitled.
Moreover, Allianz did not immediately and without warning resile from its previously stated intention. Rather, it offered to pay the quantified sum of $918,709 towards the cost of remediation, subject to certain conditions and the acceptance of the offer within 21 days. It was only if that was not accepted that Allianz would rely upon its lack of liability which arose as a result of s 28(3). The primary judge relied on this as Allianz indicating to Delor Vue that the offer was in the nature of a “take it or leave it” offer and, in that respect, it applied undue pressure on the insured. However, at that time, Delor Vue had placed the insurance claim in the hand of professional insurance advisers and solicitors who were able to advise them and act in the protection of their rights. It is unlikely that any relevant pressure was applied to Delor Vue by the letter of 28 May 2018 and that is particularly apparent by its rejection of the offer and the commencement of proceedings. It is, with respect, one thing to identify the effective application of undue pressure which has forced a weaker party to enter an agreement, but it is difficult to identify it when the attempted exertion of pressure has had no effect at all.
The conditioning of the offer of payment of $918,709 on acceptance within a period of three weeks in circumstances where Allianz’s actual liability was nil (and believed to be nil), hardly appears to be conduct which lacks commercial standards of decency and fairness. In circumstances where it was not obliged to indemnify at all, the offer to pay that amount, being in addition to the approximately $192,000 already paid, was an appropriate display of commerciality rather than being parsimonious, unfair or unethical. Additionally, Allianz was prepared to extend the time in which Delor Vue might accept the offer.
It can be accepted that Allianz’s withdrawal of its voluntary intimation that it would partially indemnify under the policy would be disappointing for the unit owners in the Delor Vue complex and leave them in a financially unfortunate position. However, those consequences do not justify imposing upon an insurer an obligation to provide an indemnity which does not otherwise exist. Whilst Allianz’s indication that it would partially indemnify for the losses suffered may have provided some comfort for a period of time, the insurer disabusing the insured of any belief it had engendered and thereby returning the insured to the position which it would have been in had the intimation not been made will cause it no real detriment. Moreover, in making its decision to resile, Allianz is entitled to act in the protection of its interests. It did not breach its duty of utmost good faith in doing so and it is entitled to succeed on this ground as well.
Nature of the remedy assuming a breach of the duty of good faith
The learned primary judge indicated that he would have granted an injunction to restrain Allianz from resiling from its indication that it would grant an indemnity in respect of a portion of the damage suffered by Delor Vue but that, in the circumstances of the case, it was unnecessary to do so.
Mr McLure SC submitted that the granting of an injunction would have been inappropriate in circumstances where it was not relief sought in the originating application, mentioned by Delor Vue in its submissions, or raised in the course of the hearing. Those matters taken together provide a substantial, if not insurmountable, reason for refusing the grant of an injunction in the circumstances of this case. It might also be said that the granting of a mandatory injunction to require a party to perform a positive stipulation in a contract is somewhat unusual, and relief in the nature of specific performance, if it is available, is the orthodox remedy. This may provide an additional reason for rejecting relief in the nature of an injunction as would the fact that a Court would be required to engage in continual supervision of the performance of the injunction if it were granted.
Although Delor Vue had claimed damages for breach of the duty of utmost good faith, there may be doubt as to whether such relief is available to an insured: but see Lomsargis v National Mutual Life Association of Australasia Limited [2005] QSC 199; [2005] 2 Qd R 295 at 314 [56] per McMurdo J. Before this Court, Delor Vue submitted damages for breach of the implied obligation would, effectively, have the same result as an injunction because Allianz would be required to put it into the same position as if it did not breach the duty; namely, the position it would be in if Allianz did not resile from its earlier intimation and paid the claim according to the terms of the policy.
It would seem that, because the primary judge did not reach any final conclusion in relation to the question of whether an injunction should issue or whether damages was an appropriate remedy, the parties on appeal paid them little attention. In relation to the duty of utmost good faith, the only actual relief granted was the making of a declaration and, that being so, the only orders which ought to be made on this appeal is that the primary judge’s declaration be set aside.
ORDERS ON APPEAL
As a result of the foregoing, the orders which should be made are:
(1)The appeal be allowed.
(2)The declarations made by the learned primary judge on 24 July 2020 numbered 1 to 6 be set aside and in lieu thereof:
(a)it be declared that, pursuant to s 28(3) of the Insurance Contracts Act 1984 (Cth), the respondent, Allianz Australia Insurance Ltd, is entitled to reduce its liability to nil for the claim made consequent on damage caused to the property of the applicant, Delor Vue Apartments CTS 39788, by Tropical Cyclone Debbie in March 2017; and
(b)it be ordered that:
(i)the proceedings NSD 2094 of 2018 are otherwise dismissed; and
(ii)the respondent to the appeal is to pay the appellant’s costs of the proceedings before the primary judge.
(3)The respondent is to pay the appellant’s costs of the appeal.
I certify that the preceding three hundred and forty-five (345) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington. Associate:
Dated: 9 July 2021
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