Birla Nifty Pty Ltd v International Mining Industry Underwriters Ltd
[2014] WASCA 180
•8 OCTOBER 2014
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: BIRLA NIFTY PTY LTD -v- INTERNATIONAL MINING INDUSTRY UNDERWRITERS LTD [2014] WASCA 180
CORAM: McLURE P
BUSS JA
NEWNES JA
HEARD: 5 AUGUST 2014
DELIVERED : 8 OCTOBER 2014
FILE NO/S: CACV 124 of 2013
BETWEEN: BIRLA NIFTY PTY LTD
Appellant
AND
INTERNATIONAL MINING INDUSTRY UNDERWRITERS LTD
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :HALL J
Citation :BIRLA NIFTY PTY LTD -v- INTERNATIONAL MINING INDUSTRY UNDERWRITERS LTD [2013] WASC 386
File No :CIV 3302 of 2011
Catchwords:
Contract - Claim for business interruption insurance - Construction of excess clause
Evidence - Admissibility of expert evidence - Expert acted for and on behalf of the respondent in entering into the relevant contracts
Estoppel - Estoppel by convention - Estoppel by representation - The requirement of detriment - Mere entry into a contract - Disconnect between representation or common assumption and the reliance and detriment - Estoppel concerned with avoidance of detriment not prevention of benefit
Legislation:
Nil
Result:
Appeal dismissed
Respondent's first contention upheld
Respondent's second and third contentions dismissed
Category: A
Representation:
Counsel:
Appellant: Mr S K Dharmananda SC & Mr T J Palmer
Respondent: Mr G G McArthur QC & Mr P D Herzfeld
Solicitors:
Appellant: DLA Piper Australia
Respondent: Wotton & Kearney
Case(s) referred to in judgment(s):
Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570
Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119
Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99
Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14
Australian Goldfields NL (in liq) v North Australian Diamonds NL [2009] WASCA 98; (2009) 40 WAR 191
Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337
Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd [2014] HCA 7
Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641
HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co [2001] 2 Lloyd's Rep 161
Jacobs v Platt Nominees Pty Ltd [1990] VR 146
Linter Group Ltd (in liq) v Goldberg (1992) 7 ACSR 580
Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705
Marchesano v The Queen [2000] WASCA 225; (2000) 116 A Crim R 237
Marinovich v The Queen (1990) 46 A Crim R 282
MK & JA Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39
Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370
Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434
The Bell Group Ltd (in liq) v Westpac Banking Corpororation [No 9] [2008] WASC 239; (2008) 39 WAR 1
The Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394
Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507
Westpac Banking Corporation v Bell Group Ltd (in liq) [No 3] [2012] WASCA 157; (2012) 44 WAR 1
Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530
McLURE P: The issue in this appeal is the proper construction of an excess clause in a property damage and business interruption insurance policy (the Policy).
The appellant (or, interchangeably, the Insured) operated the Nifty Copper Mine in Western Australia and the Mount Gordon Mine in Queensland. The appellant entered into an insurance contract with the respondent, on behalf of itself and other underwriters (the insurance contract) for the period 31 March 2008 to 31 March 2009 (the period of insurance). The respondent (or, interchangeably, the Insurer) was the lead insurer. The Insurer is a Lloyd's underwriter.
The insurance contract provided property damage cover (in Section 1 of the Policy) and business interruption cover (in Section 2 of the Policy) for the appellant's Nifty Copper and Mount Gordon operations.
Apache supplied gas to the appellant's Nifty Copper operations. During the period of insurance the appellant suffered a business interruption loss from an interruption in the supply of gas to its Nifty Copper operations caused by an explosion at Apache's gas facilities on Varanus Island on 3 June 2008. The business interruption cover in the Policy extends to loss resulting from damage to land based property engaged in the generation of, inter alia, gas from specified suppliers. Apache is specified.
The excess clause in the Policy is in the following terms:
EXCESS (100%):
The Insured shall bear the following amount(s) in respect of each loss or series of losses arising out of any one event:
Section 1 - Material Loss or Damage
AUD 1,000,000
Section 2 - Consequential Loss
Thirty (30) days each and every loss or series of losses arising out of one event calculated at thirty (30) times Average Daily Value, but increased to 90 days Average Daily Value in respect of loss or damage to Pinions, Gears, Rotors of SAG/Ball Mill where no serviceable spare retained on site and to Conveyor Gearboxes at Nifty Copper Mine where no serviceable spare exists on site.
Average Daily Value shall be the annual value of the site affected, divided by three hundred and sixty five (365).
The expressions 'Average Daily Value' and 'annual value' are not otherwise defined in the Policy. However, there is a reference in the Policy to 'Declared Values' as follows:
DECLARED VALUES (100%):
The following declared values are for the purpose of calculation of the premium only:
(in accordance with the Basis of Settlement)
Section 1 - AUD 420,000,000
Section 2 - AUD 424,000,000
The declared values in the Policy are the combined values of the Nifty Copper and Mount Gordon operations. At the commencement of the Policy, the Insured was, for the purpose of the business interruption cover in Section 2, obliged to provide to the Insurer a declaration of the estimated gross profit and payroll for the period of insurance. At the same time the Insured was also obliged to declare the replacement cost or indemnity value of the property covered by Section 1 of the Policy.
Prior to entry into the insurance contract the parties had agreed to the essential terms of the proposed cover in a document called a 'placing slip'. The placing slip for 2008/09 (the Placing Slip) stated the declared value for the business interruption cover for the Nifty Copper operations to be $AUD305 million.
In the proceedings below, the Insured sought a declaration that 'annual value' in Section 2 of the excess clause means the gross profit of the affected site in the 12‑month period following either the event giving rise to the claim or the inception of the Policy.
The Insurer contended that the 'annual value' in Section 2 of the excess clause was the declared value of the site affected, in this case the Nifty Copper Mine.
In the alternative, the Insurer claimed that the Insured was estopped, either by its conduct or by a common assumption, from disputing its interpretation of the excess clause. The essence of the conduct claim is that the Insured had, by representation, conveyed to the Insurer that it accepted the Insurer's construction of the excess clause, in reliance on which, the Insurer entered into an insurance contract for the 2009/10 year.
The Insurer relied on an affidavit sworn on 3 September 2012 by its managing director, Mr Patrick Plaisted, in support of its construction and estoppel claims. The primary judge ruled it inadmissible on the construction claim.
The primary judge rejected all of the constructions advanced by the parties and suggested that the 'annual value' may be the value calculated on the gross profit of the affected site in the 12‑month period immediately preceding the damage event [83]. As neither party embraced that alternative, the primary judge made no final determination as to the meaning of the excess clause.
The primary judge would not have allowed the estoppel claim if he had favoured either of the interpretations advanced by the Insured [93]. He concluded that there was no relevant representation, conduct, reliance or detriment.
Grounds of appeal and contention
The appellant claims the primary judge erred in law by:
(a)assessing each construction of the phrase 'annual value of the site affected' by reference to his views about commercial common sense and the commercial purpose of the Policy;
(b)not undertaking, by reference to the text, an assessment of each construction against the phrase and against the other provisions in the Policy, to consider whether those constructions were consistent with the text of the whole Policy.
The Insurer filed a notice of contention seeking to uphold the decision of the primary judge on the ground that the primary judge:
(1)ought to have concluded that 'annual value of the site affected' meant, for the Nifty Copper Mine, the estimated gross profit and payroll of that mine specified as the declared value in the Placing Slip (the declared value construction);
(2)ought to have concluded that Mr Plaisted's affidavit was admissible on the construction of the Policy as expert evidence of market practice, evidence of background circumstances known to both parties and evidence of the meaning of 'annual value of the site affected' agreed between the parties;
(3)in relation to the estoppel claim ought to have:
(a)found that, after the Insured made a preliminary claim on the Policy and the respondent rejected it on the basis of the declared value construction, the Insured represented that it accepted the correctness of that construction and/or it was the common assumption of the parties that that construction was correct;
(b)accepted the unchallenged evidence of Mr Plaisted that the Insurer would not have entered into the 2009/10 year's policy but for the Insured's acceptance of the declared value construction;
(c)accepted that entry into the 2009/10 policy by the respondent constituted a change of position exposing it to a detriment; and
(d)concluded that the Insured was estopped from asserting a construction different from the declared value construction.
Both parties accepted that the language of the insurance contract is ambiguous or susceptible of more than one meaning and thus evidence of surrounding circumstances known to both parties is admissible to assist in its interpretation. However, the parties disagreed below, and continue to disagree, as to what in Mr Plaisted's affidavit is admissible evidence of surrounding circumstances.
Another issue in the appeal is whether the insurance contract is confined to the Policy or includes the Placing Slip. I propose to begin with the text of the Policy.
The Policy
The Policy is not particularly user friendly. It includes the following parts: the Schedule; Section 1 ‑ Property Damage; Memoranda to Section 1; Section 2 ‑ Business Interruption; Memoranda to Section 2; Definitions applicable to all Sections; Memoranda applicable to all Sections; Conditions applicable to all Sections.
The conditions applicable to all Sections are numbered. However, the Sections and the memoranda contain unnumbered clauses identifiable only by headings. Section 2 contains three headings: 'Interest Insured', 'Basis of Settlement' and 'Definitions'.
The excess clause and the declared value information are in the Schedule. Other relevant matters in the Schedule include the following:
THE PREMIUM (100%):
As agreed.
BUSINESS INTERRUPTION INDEMNITY PERIOD:
Twelve (12) Months - Gross Profit.
Twelve (12) Months - Additional Increased Cost of Working.
The limit of liability for Sections 1 and 2 combined is $AUD50 million. The sub‑limit of liability in relation to specified suppliers is $AUD25 million and, in relation to additional increase in cost of working, is $AUD20 million.
In Section 2, under the heading 'Basis of Settlement' (the business interruption (BI) basis of settlement clause) there are five listed Items being Item 1 ‑ Gross Profit; Item 2 ‑ Additional Increase in Cost of Working; Item 3 ‑ Claims Preparation Costs; Item 4 ‑ Contractual Payments; and Item 5 ‑ Accounts Receivable.
The insurance contract incorporates the 'loss of turnover' basis used in the United Kingdom for calculating the loss of earnings the subject of business interruption cover. In broad terms it involves determining the loss of turnover by comparing the turnover in the months after the damage with the turnover in the corresponding period in the 12 months preceding it and compensating for additional expenditure incurred with the object of minimising the loss of turnover and restoring normal operating conditions: Roberts H, Riley on Business Interruption Insurance (9th ed, 2011) (Riley) [1.2] ‑ [1.7]. The Policy incorporates standard provisions of what is called the 'difference basis' of defining 'gross profit'. It treats gross profit as the difference between turnover and the total of variable charges, being charges that vary proportionately with rise or fall in turnover. These variable charges are also referred to as 'uninsured working expenses'. See the standard provisions in Appendix C, Riley, 457 ‑ 458.
It is necessary to refer to parts of the text of the first two Items of the BI basis of settlement clause:
Item 1 - Gross Profit
The insurance under this Item is limited to loss of Gross Profit due to (a) Reduction in Turnover and (b) Increase in Cost of Working. The amount payable as indemnity hereunder shall be:
(a)In respect of Reduction in Turnover:
The sum produced by applying the Rate of Gross Profit to the amount by which the Turnover during the Indemnity Period shall, in consequence of the Damage, fall short of the Standard Turnover.
(b)In respect of Increase in Cost of Working:
The additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the reduction in Turnover and/or resuming or maintaining Normal Operations which but for that expenditure would have taken place during the Indemnity Period in consequence of the Damage, but not exceeding the sum produced by applying the Rate of Gross Profit to the amount of the reduction thereby avoided.
less any sum saved during the Indemnity Period in respect of such of the charges and expenses of the business payable out of the Gross Profit as may cease or be reduced in consequence of the damage.
…
Item 2 - Additional Increase in Cost of Working
The insurance under this Item is for such expenses not otherwise recoverable under or beyond that recoverable under Item 1 (including but not limited to the cost of moving to and from, the rates, taxes and expenses incurred in equipping premises to make them suitable for the Insured's business, cost in respect of additional employees, overtime and allowances to staff) and any other costs as the Insured shall reasonably incur during the Indemnity Period for the purpose of avoiding or diminishing the reduction in Turnover or Gross Earnings and/or resuming or maintaining normal operations and/or services. This item shall also include payroll not recoverable under Item 1 as shall be incurred by the Insured in respect [of] employees whose services cannot, in consequence of the Damage, be utilised by the Insured at all and an equitable part of payroll paid to employees whose services cannot, in consequence of the Damage, be utilised by the Insured in full. This item is deemed to also include amounts paid by the Insured in lieu of notice and/or redundancy made by the Insured.
Item 2 is not included in the standard provisions in Appendix C in Riley. The term gross profit and others have specialised meanings as defined, not standard accounting meanings. The relevant definitions in Section 2 are as follows:
Gross Profit - The amount by which:
(a)the sum of the Turnover and the amount of the Closing Stock and Work‑in‑Progress shall exceed
(b)the sum of the amount of the Opening Stock and Work‑in‑Progress and the amount of the Uninsured Working Expenses.
Closing Stock and Work in Progress: The amount arrived at in accordance with the Insured's customary and accepted accountancy methods, due provision being made for depreciation.
Indemnity Period: The period beginning with the occurrence of the Damage and ending not later thereafter than the number of months specified in the Schedule, during which the results of the Business shall be affected in consequence of the damage, not to be limited by the day of expiration or cancellation or this policy.
Opening Stock and Work in Progress: The amount arrived at in accordance with the Insured's customary and accepted accountancy methods, due provision being made for depreciation.
Rate of Gross Profit: The rate of Gross Profit earned on the Turnover during the financial year immediately before the date of the damage.
Standard Turnover: The turnover during that period in the twelve months immediately before the date of the damage, which corresponds with the Indemnity Period.
Turnover: The money (less discounts, if any allowed) paid or payable to the Insured for goods sold and/or delivered or for services rendered in the course of the Business, not to be limited by the day of expiration or cancellation of this policy.
Uninsured Working Expenses
The amount produced by adding:
a)All purchases (less discounts received); and
b)Discounts allowed.
The words and expressions used in this Definition shall have the meaning usually attached to them in accordance with the Insured's customary and accepted accountancy methods[.]
The property damage basis of settlement clause in Section 1 provides for liability on a reinstatement, repair, or replacement cost or indemnity value basis.
Of particular significance in the construction exercise is a clause in the Memoranda applicable to all Sections under the heading 'Adjustment of Premium' (the premium declaration clause) which relevantly provides:
1.Material Damage Section
a)The Insured shall at the commencement of the Period Of Insurance and at each subsequent Period of Insurance provide as soon as practicable to the Insurer(s) a declaration which the Insured warrants is to the best of his knowledge and belief the Replacement Cost or Indemnity Value at the time of all Insured Property according to the basis on which the respective property is insured.
b)The value of property as declared will form the basis of the premium for Insurance under Section 1. The premium is provisional and shall be adjusted by payment to the Insurers(s) of an additional premium or by allowance to the Insured of a return premium as the case may be where during the Period of Insurance there has been an abnormal fluctuation in value of the Insured Property during the Period of Insurance.
…
2.Business Interruption Section
a)The Insured shall at the commencement of the Period of Insurance and at each subsequent Period of Insurance provide to the Insurer(s) a Declaration of the estimated Gross Profit and Payroll under the terms of the Policy for that period.
b)The estimated Annual Gross Profit and Payroll as declared will form the basis of the premium for Insurance under Section 2 and the premium produced shall be non adjustable for the period of Insurance.
Finally, condition 23 relating to 'Co‑Insurance' relevantly provides:
In the event of damage to Property Insured hereunder at any situation caused by any event hereby insured against the Insurer(s) shall be liable for no greater proportion of such damage than the amount of the Insured(s) declaration of value of such property on the day of the commencement of the Period of Insurance bears to the sum representing ninety per cent (90%) of the actual value of Property Insured at such situation on the day of commencement of the Period of Insurance but not exceeding the Limit of Liability expressed in the Schedule.
Provided that this Condition shall not apply if the amount of the damage does not exceed 5% of the amount of the Insured's declaration aforementioned.
The expression 'Property Insured' is a reference to the property insured under Section 1 of the Policy. The appellant says condition 23 relates to individual items of property insured. The respondent says it relates to the total value of the property insured at the particular site.
Primary judge's construction reasons
The primary judge held that the words 'annual value' in the excess clause referred to the value of the affected site for a period of one year and that the value must be determined by reference to the gross profits of the affected site. He said the difficulty was in determining which 12-month period is intended to be used for the calculation.
The primary judge identified what he described as insurmountable difficulties with the appellant's first proposition that 'annual' value refers to the 12 months following the damage event. They are first, that no claim for business interruption losses could be made until after 12 months had elapsed following the damage event, even if the business interruption losses were incurred for a lesser period. Second, an excess calculated by reference to the year following the damage event would mean that the greater the losses the smaller the excess. Loss of all gross profit would mean no excess, a counter‑intuitive result. Third, it must have been expected that the calculation of the excess could be done at the time a claim is made and that favoured an annual value by a reference to past performance.
The primary judge identified similar difficulties with the appellant's alternative construction which was that 'annual' value refers to the 12‑month period following inception of the policy. On that basis, the annual value could not be quantified at the commencement of the policy and could not be quantified until 12 months had elapsed from that date. Further, the annual value would necessarily be calculated in respect of a period which included at least some of the period in which the loss was incurred.
The primary judge concluded that neither of the appellant's interpretations could possibly reflect the common intention of the parties. He also identified a number of difficulties with the respondent's declared value construction of the excess clause.
They are first, the declared values in the Schedule are not expressly referred to as annual values or as values determined by calculation of gross profit for a 12‑month period. The primary judge said 'It is very likely that they do in fact represent annual gross profit, but that is merely an assumption that cannot be relied upon in interpreting the policy' [77]. Second, the excess clause does not use the term declared values. Third the declared values in the Schedule expressly state that they are to be used 'for the purpose of calculation of the premium only' and to conclude that the declared values are to be used in calculating the excess would be to ignore these words of limitation or render them meaningless. Fourth, if the declared values were to be used in calculating the excess it would have been open to the parties to simply calculate the amount of the excess at the commencement of the Policy. The inclusion of a formula instead of an amount suggested that the amount was not calculable at the time the policy was concluded. Fifth, the declared values in the Schedule are not in fact the value of any individual site. Sixth, the use of consolidated declared values is consistent with those values being used for the calculation of premium only.
The primary judge accepted that the co-insurance clause (condition 23) appeared to require that declared values be used in a context other than calculation of the premium but concluded that there was no inconsistency because the co‑insurance clause referred to values of individual items of property at each mine site not to the consolidated total value referred to in the Schedule. Accordingly, the declared values in the Policy cannot be those referred to in the co‑insurance clause.
The primary judge's reasoning pivots from his starting point that 'value' must be the gross profits of the business at the site affected, leaving the identification of the relevant 12-month period as the only issue. The primary judge does not explain why 'value' must mean gross profits. It is necessary to begin with the text and text informed purpose of the insurance contract.
The text and purpose (absent surrounding circumstances)
The premium declaration clause, the basis of settlement clauses in Sections 1 and 2 and the declared values in the Schedule are all closely linked. The starting point is the BI basis of settlement clause.
The BI basis of settlement clause specifies the types of loss for which the Insurer is liable under Section 2 of the Policy. Items 1 and 2 are central for present purposes. Under Item 1, the insurance cover is limited to loss of gross profit due to (a) reduction in turnover and (b) increase in cost of working. Gross profit is relevantly defined as the turnover less the 'Uninsured Working Expenses'. Payroll is not such an expense and thus is covered under Section 2 of the Policy.
The gross profit is calculated as follows:
1.deduct the turnover (the money paid or payable to the Insured for goods sold and/or delivered in the course of the business) in the indemnity period (the period beginning with the occurrence of the damage and ending not later than the 12 months specified in the Schedule during which the results of the business shall be affected in consequence of the property damage);
2.from the standard turnover (the turnover during that period in the 12 months immediately before the date of the damage which corresponds with the indemnity period);
3.multiply the balance (2 minus 1) by the rate of gross profit (the rate of gross profit earned on the turnover during the financial year immediately before the date of the damage);
4.add the increase in cost of working (as defined in Item 1(b)); and
5.from the result of steps 1 ‑ 4, deduct any sum saved during the indemnity period due to the reduction in turnover. This applies to insured expenses: Riley [3.18].
Item 2 relates to expenses not otherwise recoverable under Item 1, including relevantly, costs in respect of additional employees, overtime and allowances to staff. It also covers payroll not recoverable under Item 1 incurred by the Insured in respect of employees whose services cannot be utilised at all and an equitable part of payroll paid to employees whose services cannot be utilised in full, including payments in lieu of notice and redundancy.
The 'gross profit' and 'payroll' components of the recoverable loss under the BI basis of settlement clause are reflected in the premium declaration clause. The Insured is obliged, at the commencement of the period of insurance, to provide to the Insurer a declaration of the estimated gross profit and payroll under the terms of the Policy (that is, under Items 1 and 2 of the BI basis of settlement clause) for the 12‑month period of insurance. That estimate is of the total value of the loss insured under Items 1 and 2 and forms the basis of the premium for BI insurance under Section 2.
The declaration of estimated gross profit and payroll for the 12‑month period of insurance required by the premium declaration clause must be the declared value for Section 2 in the Schedule, which expressly refers to the calculation of the premium in accordance with the BI basis of settlement clause.
The purpose of the business interruption cover in the insurance contract is to compensate the Insured for insurable losses consequent upon property damage that occurs in the period of insurance, being the 12 months from Policy inception. Business interruption cover is concerned with the effect of that property damage on the trading results that might have materialised in the future had the damage not occurred. That is, the insurance is for future levels of turnover for a maximum period of up to 24 months from 31 March 2008 (the 'indemnity period' is not limited to the period of insurance). It follows that in order to calculate the premium, the Insurer relies on the Insured's estimate of its future gross profit and payroll (as those terms are understood in the Policy) for the 12‑month period of insurance.
In summary, the BI basis of settlement clause informs the components of the business insurance value specified in the premium declaration clause for the 12‑month period of insurance which in turn informs the insurance premium.
Prima facie, the expression 'annual value' in the excess clause is a reference to the gross profit and payroll of the affected site for the period of insurance. The total of the gross profit and payroll for both mine sites covered by the Policy is the subject of the declaration required by the business interruption Section in the premium declaration clause and is the declared value for Section 2 in the Schedule. The excess clause also impacts on the amount of the premium for insurance under Section 2.
The same scheme applies to property damage covered under Section 1. Under the premium declaration clause, the Insured is obliged, at the commencement of the period of insurance, to provide a declaration as to the replacement cost or indemnity value, at that time, of all insured property under Section 1 according to the basis on which that property is insured. The declaration is to identify the total value of all the property insured under Section 1, which links with the amount of the premium. That is the 'Declared Value' of the insured property under Section 1 in the Schedule.
Construction principles
When extrinsic evidence of surrounding circumstances is admissible as an aid to construction, a written contract means what a reasonable person having all the background knowledge of the surrounding circumstances available to the parties would understand the contractual language to mean: Byrnes v Kendle (2011) 243 CLR 253 [98]. That is, the test is objective.
The classic statement of what constitutes admissible 'surrounding circumstances' for the purpose of contractual construction is that of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337.
Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although … if the facts are notorious knowledge of them will be presumed.
It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable (352).
Further, it is not legitimate to use as an aid in the construction of a contract anything which the parties said or did after it was made (Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 [35]) unless it is relied on to establish that a relevant surrounding circumstance was known to both parties at the time of entry into the contract.
In choosing between two constructions that are open on the text and purpose of a contract, the court will prefer that which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99, 109; Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd [2014] HCA 7.
Uncontroversial surrounding circumstances
At all relevant times the Insured was represented by insurance brokers, Aon Ltd in London (Aon London) and Aon Risk Services Australia Ltd in Perth (Aon Perth). Where appropriate, I will refer to both interchangeably as 'Aon'.
In March 2007 Aon London prepared and presented to the Insurer in London a draft placing slip seeking insurance for material damage and business interruption cover for the Nifty Copper and Mount Gordon Mines. The draft placing slip contained details of the proposed conditions of insurance for the period 31 March 2007 to 31 March 2008. The excess clause in the draft placing slip was in different terms to that in the Policy. In the draft placing slip the excess applicable to business interruption cover was stated to be:
Thirty (30) days each and every loss or series of losses arising out of one event calculated at Thirty (30) times Actual Average Daily Indemnifiable Loss Suffered by the Insured.
Actual Average Daily Indemnifiable Loss Suffered by the Insured is calculated by taking the total Business Interruption loss and dividing it by the total number of days that production was affected solely due to the Damage. For the purposes of this definition, this total period of time commences from the date that production is first affected and stops once production reaches the position it was at prior to the loss. This period excludes any planned shutdown periods or any other periods of time when the business would not normally have been producing.
The draft placing slip included declared values said to be for premium purposes only. There is also a 'Schedule of Declared Values' which, inter alia, separately identifies for each mine its gross profit and wages/payroll amounts. The draft placing slip was not accepted by the Insurer. Aon London prepared and presented to the Insurer a further placing slip which was amended to include an excess clause in materially the same terms as the Policy. The Insurer accepted this amended placing slip. It signified its acceptance by stamping its name and signing each page of the placing slip.
Subsequently, the Insured and the Insurer entered into an insurance contract for the period 31 March 2007 to 31 March 2008. The declared values for Section 2 of the 2007/08 policy separately identify the amount for 'All Gross Profit' ($AUD556.03 million) and 'Insured Pay-Roll' ($AUD22.16 million). The 2007/08 policy contains materially the same clauses as the Policy.
Aon London also prepared and presented to the Insurer the Placing Slip. The Placing Slip was accepted (stamped and signed) by the Insurer. It identifies the premium ($AUD3 million plus $AUD66,000 in respect of a terrorism levy). It also separately identifies the declared values for each of the Nifty Copper and Mount Gordon Mines but, unlike the 2007/08 placing slips, does not separately identify the figures for gross profit and payroll.
The Placing Slip
Before going to Mr Plaisted's affidavit, I propose to refer to other sources of information concerning insurance market procedures in London. What follows is taken from Merkin R, Colinvaux's Law of Insurance (9th ed 2010) [1-032] ‑ [1-045]. The formation of insurance agreements at Lloyd's and in the London market typically takes the following course. A potential applicant may not approach Lloyd's underwriters directly but must act through the medium of a broker recognised by Lloyd's. The Lloyd's broker prepares a brief document containing all the particulars of the proposal necessary to allow underwriters to make a decision whether or not the risk is acceptable and at what premium. This document is known as the 'slip'. The broker's search will generally begin with an underwriter who is well regarded in the market and whose judgment is trusted as it is then a simpler task for the broker to obtain further subscriptions from other underwriters representing other syndicates. If the leading underwriter is willing to provide cover, he will stamp the name of his syndicate on the slip and sign the slip, a process known as 'scratching'. The slip will be presented to other underwriters by the broker until the requisite level of subscription has been obtained. On full subscription, the broker will prepare a policy which will be submitted to the insured and to the leading underwriter for approval on behalf of the other underwriters.
A slip, once scratched by an underwriter, constitutes a legally binding contract providing for insurance cover in its own right. The status of the policy once the slip has been issued is not completely free from doubt. However, it has long been established that, in the event of any conflict between the wording of the slip and the wording of the policy, the policy may be rectified to accord with the original agreement in the slip. There is uncertainty as to whether a slip can be used as an aid to the construction of the policy itself.
Rix LJ held in HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co [2001] 2 Lloyd's Rep 161 [83] that even if the policy does replace the slip, it is nevertheless permissible to look at the slip 'as part of the matrix or surrounding circumstances of the later contract'. That must be correct.
The Policy is governed by the law of Australia. I am satisfied, on the facts of this case, that the Policy was not intended to replace, in its entirety, the Placing Slip. In particular, the Placing Slip contains the agreed premium as well as the declared value of the individual mine sites. Moreover, the 2007 placing slips are admissible surrounding circumstances and confirm what is clear from the insurance contract itself, namely that the declared value for Section 2 of the Policy refers to both the gross profits and payroll.
Mr Plaisted's evidence
The respondent contends that Mr Plaisted gives admissible expert evidence of market practice and the risky nature of the insurance and non‑expert evidence as to the actual agreement of the parties leading up to the Policy.
There is no question as to Mr Plaisted's qualification to give evidence of market practice. He has been a lead underwriter for mining risks since the late 1970s and been involved in underwriting more than 1,000 policies that include business interruption risks for mining worldwide. On the subject of market practice, Mr Plaisted's evidence was that:
(a)the commonly used time‑based types of deductibles (excess) in the market are: (i) a 'waiting period', where the insured bears the loss occurring during an agreed number of days; (ii) a dollar figure calculated as a multiple of the actual loss divided by the number of days over which the loss occurred; and (iii) a dollar figure calculated as a multiple of the estimated annual business interruption value for a site declared by an insured at policy inception, divided by 365 (which produces the largest deductible);
(b)of the thousands of policies he has considered and underwritten, he has never been asked to consider or underwrite a business interruption policy with a deductible of the kind for which the appellant contends and that no insurer would agree to such a deductible because it could only be calculated at the end of the policy period or 12 months after the insured event and the greater the loss the smaller the deductible.
No distinction is drawn in this case between an 'excess' and a 'deductible'. The respondent contends that it must be presumed that the appellant's experienced broker knew what excess clauses were commonly available in the market, which knowledge had to be attributed to the appellant. The excess clause proposed by Aon in the draft 2007 placing slip was of the second type to which Mr Plaisted refers.
The respondent also relies on a post‑contractual document from Aon London as evidence that Aon, and therefore the appellant, knew that the excess clause in the Policy was a market standard at the time of policy inception.
As to the risky nature of the insurance, reports into the Nifty Copper and Mount Gordon Mines provided by Aon to Mr Plaisted prior to the 2007/08 policy revealed to him that they were a risky insurance prospect. Mr Plaisted told Aon that, for this reason, he sought to impose a high excess.
Finally, the respondent claims that the evidence of Mr Plaisted demonstrates an actual agreement by the parties during negotiations that 'annual value' was to have the meaning for which the respondent contends. In particular, the respondent relies on a note made by Mr Plaisted of his first meeting with Aon on 21 February 2007 in which he refers to a deductible '30 days true ADV' and 'ADV being 1/365th of annual BI value of site affected'.
The appellant objected to all of this evidence on the ground of inadmissibility and did not cross‑examine the witness. Dealing with Mr Plaisted's evidence in a global fashion, the primary judge concluded that it was inadmissible because it contained an account of his subjective beliefs and impressions, not objective facts known to both parties, and an account of the negotiations which preceded the Policy [33]. The respondent contends the primary judge erred in ruling the evidence inadmissible.
The appellant does not contend that evidence of market practice as to common types of excess provisions in business interruption insurance is inadmissible. It is clear from Riley that business interruption insurance is a highly specialised market in which, like the building industry, standardisation is a feature.
The appellant says Mr Plaisted's evidence of market practice is inadmissible because (1) it is not independent; (2) he identifies commonly, rather than exclusively, used types of excess clause in business interruption insurance; and (3) the evidence is mere assertion without the necessary substratum of facts to support it, including details as to the nature and extent of the business Mr Plaisted had underwritten, in which markets, during which period and the assumptions or material he had relied on.
The appellant relies on Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370 and Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705 for its third contention. Makita is authority for the well‑known proposition that the prime duty of experts in giving opinion evidence is to furnish the trier of fact with criteria enabling evaluation of the validity of the expert's conclusion [59]. However, I am not persuaded that the evidence relating to common types of exclusion clauses in the business interruption insurance market is opinion evidence. It is factual evidence of market practice. That is, it involves factual evidence of personal experience and observations over a very lengthy period in a highly specialised market. It is comparable with evidence given by police officers in criminal trials relating to factual matters associated with dealings in prohibited drugs: Marchesano v The Queen (2000) 116 A Crim R 237; Marinovich v The Queen (1990) 46 A Crim R 282, 301.
Further, the fact that, according to Mr Plaisted, the three types of excess clauses are commonly, rather than exclusively, used does not impact on the admissibility of the evidence. I doubt anyone would be qualified by experience to make a claim of exclusivity.
As to independence, ordinarily the degree to which an expert is independent will or may impact on the weight to be given to the evidence but not its admissibility. However, independence is not the relevant issue in relation to Mr Plaisted's evidence. Mr Plaisted acted for and on behalf of the respondent in negotiating and entering into all placing slips and policies between the appellant and the respondent. Mr Plaisted's subjective intention is that of the respondent and is inadmissible in the construction exercise. The purpose and effect of Mr Plaisted's evidence is to support the commercial reasonableness of the respondent's construction (from its common usage) and the commercial unreasonableness of the appellant's construction. That goes directly to his subjective intention as to the meaning, reasonableness and acceptability to the respondent of the excess clause in the Policy and is inadmissible.
As to Mr Plaisted's evidence concerning the risky nature of the insurance, I accept the appellant's contention that the evidence is of a subjective view and a negotiating position, not an objective fact known to both parties.
As to the claim that the parties had during negotiations agreed as to the meaning of 'annual value', the appellant accepts that such evidence would be admissible if relied on to establish an agreed special meaning. The appellant contends that there is no clear enunciation or agreement as to the meaning of 'annual value'.
Mr Plaisted's evidence was to the following effect. On 21 February 2007 he met with Aon London representatives acting on behalf of the appellant. He made a note of the meeting. The note records:
NCO PD 226,500,000
BI 443,320,000
Mt Gordon PD 75,300,000
BI 134,870,000.
Under those figures and adjacent to the word 'Deductible' is:
PD 1,000,000
BI 30 days true ADV -
(ADV being 1/365th of annual BI Value of site affected). But increased to 90 days … [for other specified loss and damage].
Mr Plaisted gave the original of the note to the Aon representatives. It is clear from the note that NCO is Nifty Copper Operations, PD is property damage and BI is business interruption. That that was understood by the Aon representatives is clear from the 2007/08 draft placing slip.
On 6 March 2007 Mr Plaisted had a further meeting with the Aon representatives at which they gave him the 2007/08 draft placing slip. The deductibles applicable to Section 1 (property damage) and Section 2 (business interruption) in that slip did not reflect what was in Mr Plaisted's note. However, the combined PD and BI values for the Nifty Copper and Mount Gordon Mines in Mr Plaisted's note correspond precisely with the declared values in the draft placing slip. Mr Plaisted amended the 2007/08 draft slip by, inter alia, deleting the proposed Section 2 excess clause and inserting the following:
Thirty (30) days each and every loss or series of losses arising out of any one event calculated at thirty (30) times Average Daily Value (ADV) but increased to Ninety (90) days ADV … [for other specified loss and damage].
Average Daily Value (ADV) shall be the annual value of the site affected, divided by 365.
Mr Plaisted gave the original slip, as amended by him, to the Aon representatives.
At a meeting on 20 March 2007, an Aon London representative provided him with a further placing slip containing an excess clause consistent with Mr Plaisted's amendments. After making some handwritten amendments to other clauses, Mr Plaisted signed and stamped the 2007/08 placing slip.
I would decline to find any agreement in circumstances where there was a shift between Mr Plaisted's terminology in the note and his handwritten amendment to the draft placement slip. I would dismiss the respondent's second contention.
Proper construction (including admissible surrounding circumstances)
Based on the text and text informed purpose of the Policy, I have concluded that prima facie the expression 'annual value' in the excess clause means the estimated value of the gross profits and payroll for the 12‑month period of insurance as declared by the Insured at the commencement of the Policy pursuant to its obligation under the premium declaration clause. That construction is also supported by the surrounding circumstances.
The starting point must be the meaning of the term 'value' in the excess clause. As with most things, the meaning derives from its context. Broadly, 'value' means the monetary worth of something, usually property. The only valuation clause in the Policy is the premium declaration clause. What is valued in that clause is the insurance value of the property covered by the Policy; that is, the valuation is by reference to the basis of the Insurer's liability to the Insured under the Policy.
The valuation exercise under the premium declaration clause for the business interruption cover must of necessity differentiate between the separate trading operations of Nifty Copper and Mount Gordon. The business interruption cover relates to the future trading conditions for the separate operations/sites.
By its choice of gross profit as the basis of value for the excess clause, the appellant seems to accept that the value in question is the insurance value of the 'thing' insured. Otherwise, there is no arguable basis to link 'value' and 'gross profit'. However, there is no textual basis in the Policy to confine the business interruption insurance value to gross profit alone. Although payroll is insured under the gross profit Item in the BI basis of settlement clause, additional payroll expenses are insured under Item 2.
The expression 'value' in the excess clause relating to Section 2 can only be a reference to the valuation that the Insured is required to undertake at the commencement of the Policy pursuant to the premium declaration clause as it relates to the business interruption cover. Thus, value means gross profit and payroll under the BI basis of settlement clause of the Policy.
The reasoning that leads to the (inevitable) conclusion that 'value' in the excess clause means the business interruption insurance value estimated under the premium declaration clause also identifies the relevant 12‑month period.
The 'annual value' in the excess clause in relation to business interruption insurance is the 'estimated Annual Gross Profit and Payroll' as declared under the premium declaration clause for the 12-month period of insurance. It is the 'Period of Insurance' not the 'Indemnity Period'. It is an estimate of the expected gross profit and payroll absent any claim under the Policy. The amount of the excess can be calculated from the commencement of the Policy.
The primary judge correctly identified the compelling reasons for rejecting the appellant's constructions of the excess clause. It is unnecessary to repeat them.
It only remains to deal with the primary judge's difficulties with the respondent's declared value construction of the excess clause.
His first difficulty was that the declared values in the Schedule are not expressly referred to as annual values or as values determined by calculation of gross profit for a 12‑month period (although he thought that was very likely). This reasoning reflects a failure to link the declared values in the Schedule with the content and purpose of the declaration under the premium declaration clause relating to business interruption cover. The Section 2 declared value in the Schedule is the total of the estimated gross profit and payroll under the Policy for both the Nifty Copper and Mount Gordon operations for the 12-month period of insurance.
The primary judge's second difficulty was that the excess clause does not use the term declared value. That is correct. The explanation for not doing so is that the excess is the declared value of the affected site. As previously noted, assessment of the site specific values is a necessary step in the process of calculating the estimate of the total insurance value required by the premium declaration clause relating to business interruption cover.
The third and most influential difficulty for the primary judge was that the declared values in the Schedule expressly state that they are to be used 'for the purpose of calculation of the premium only'. That is not an impediment to the respondent's declared value construction. First, the declared values in the Schedule are the total insurance value for each of Sections 1 and 2, not a subset thereof relating to the site affected. Second, whatever the scope of the co‑insurance condition, it is clear that the insurance value information obtained under the premium declaration clause is not solely for the purpose of calculating the premium. Third, Riley confirms our everyday experience that there is a close correlation between the quantum of the excess and the premium [4.7].
At this stage it is appropriate to refer to surrounding circumstances that featured in the primary judge's reasons. He noted that in an email of 4 May 2007 from the appellant to Aon, the possibility of a trade-off between premiums and excess was raised. Aon was asked to comment on the impact on the premium if the appellant sought to reduce the exclusion period. On 7 May 2007 Aon advised that reducing the deductible was not a question of premium because the underwriters would expect a company the size of the appellant to retain a certain level of risk. It was noted that there had been an effective tripling of asset values and the limit of liability had also increased accordingly. Aon advised that taking into account these limit increases and the potential for significant loss they were comfortable that the deductibles were as low as possible in the current market [41]. I leave to one side the question whether or not this is admissible evidence of surrounding circumstances, a matter not raised in the appeal. The advice from Aon is not a denial of any link between the size of the excess and the size of the premium. Rather it shows that there can be other factors justifying a floor below which an excess will not be reduced.
The primary judge's fourth difficulty is that, because the parties could have simply calculated the amount of the excess at the commencement of the Policy, the inclusion of a formula suggested that the amount was not calculable at the time the Policy was concluded. That is not a persuasive obstacle. The use of a formula is typical in standard form clauses which are a feature of business interruption insurance policies. Moreover, the formula provides an important conceptual link with the business insurance value of the Policy and context for the size of the excess.
None of the difficulties, individually or collectively, stand in the way of the respondent's declared value construction of the excess clause. Accordingly, the primary judge ought to have concluded that 'annual value of the site affected' meant, for the Nifty Copper Mine, the estimated gross profit and payroll of that mine specified as the declared value in the Placing Slip ($AUD305 million).
Thus, I would dismiss the appellant's appeal and uphold the respondent's first contention as to the proper construction of the excess clause. I would dismiss contention 2 relating to the admissibility of Mr Plaisted's affidavit.
Although it is not necessary to address the respondent's third contention relating to estoppel, I will do so for completeness.
Estoppel - facts
Following the making of a preliminary claim for business interruption cover, the loss adjuster, Crawford & Co (Australia) Pty Ltd (Crawford) prepared its first report dated 2 September 2008 which was forwarded to Mr Plaisted by Aon. It calculated the excess as 30 times the average daily loss over the period of business interruption.
In an email dated 25 September 2008 to Aon, Mr Plaisted said that the 'slip makes clear reference to a deductible of 30 days ADV where ADV is calculated at 1/365th of the annual BI value of the site affected'.
An internal email dated 9 October 2008 from Aon London to Aon Perth was copied to Mr Plaisted. The email relevantly stated that '[u]nfortunately the deductible for [the appellant] is the standard for this type of account in the market at the moment … [O]ur markets over the years have been hit repeatedly by these sorts of B/I losses, hence the move a couple of years ago to ADV'. Shortly afterwards, Aon emailed Crawford stating that Mr Plaisted's interpretation was correct.
In the second Crawford report, which was forwarded to Mr Plaisted by Aon, the calculation of the excess and recommendation of a nil reserve reflected this position. In an email to Aon dated 17 October 2008 Mr Plaisted noted 'the correct application of the BI deductible' in the second report.
Aon made an entry in 'CLASS', a London market claims and accounting processing system, showing a nil reserve in place of the reserve entered based on the first Crawford report. The CLASS system provides information to all underwriters as to the status of a claim.
By email dated 12 November 2008 Aon confirmed to Crawford that there would no claim. On 28 January 2009, Aon forwarded a third Crawford report to Mr Plaisted which confirmed that, as a result of the operation of the deductible, no claim was being prepared. A CLASS entry confirmed Aon's recommendation to close the file.
During negotiations for the 2009/10 policy, at a meeting on 13 March 2009, Aon told Mr Plaisted that the appellant was unhappy with the existing excess clause and alternative wordings were discussed. On 23 March 2009 Aon provided to Mr Plaisted a placing slip for 2009/10 which contained modified wording for the excess. That placing slip noted there was no loss reported other than an unrelated claim. On 22 April 2009 a subsequent placing slip prepared by Aon in relevantly identical form was agreed by Mr Plaisted.
Subsequently, Aon was replaced as the appellant's broker by Lockton Companies International Ltd (Lockton) and further negotiations took place for a differently worded excess which led to a further placing slip. Policy wording for the 2009/10 policy was agreed on 19 June 2009. During the course of the negotiations with Lockton, an internal Lockton email calculated the excess on the wording in the (2008/09) Policy in the manner for which the respondent contends.
The respondent claims that from close to the time Mr Plaisted took exception to the first Crawford report to the time that he agreed to the 2009/10 policy wording, the appellant and its agents, Aon and Lockton, both represented to Mr Plaisted and proceeded on an assumption in common with Mr Plaisted, that the interpretation he had given to the excess clause in the Policy was correct.
Mr Plaisted gave evidence of his belief in the appellant's acceptance of his interpretation and that, but for this belief, he would not have renewed for 2009/10 and would not have agreed to enter into the 2009/10 policy. That evidence was uncontradicted and unchallenged.
The primary judge rejected the respondent's estoppel claim on three grounds. First, that there was not a representation in clear terms that the appellant accepted the correctness of the respondent's interpretation [90]. Second, he did not accept Mr Plaisted's evidence that the respondent would not have entered into the 2009/10 policy but for his belief in the appellant's acceptance of the interpretation [91]. Third, that the entry into the 2009/10 policy did not constitute a change of position exposing the respondent to detriment because no claims had been made on that policy and the Insurer had been paid a premium of approximately $3.39 million [92].
The respondent relied on estoppel by representation and estoppel by convention, both of which are common law estoppels. Estoppel by representation and estoppel by convention (and other categories of estoppel) were discussed by Owen J in The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] (2008) 39 WAR 1 [3455] ‑ [3554]. That summary was approved in Australian Goldfields NL (in liq) v North Australian Diamonds NL (2009) 40 WAR 191 [194] and was not doubted by this court on appeal (Westpac Banking Corporation v Bell Group Ltd (in liq) [No 3] (2012) 44 WAR 1). As is frequently so, this dispute relates to the application of the principles to the facts of the case.
The representation and common assumption relied on by the respondent for each category of estoppel are the same, namely that the appellant accepted the respondent's interpretation of the excess clause for business interruption insurance. The primary judge focused his attention on whether a decision not to pursue a claim could, without more, be reasonably taken as a concession that the respondent's interpretation was correct. That, in my respectful opinion, misstates the scope and effect of the statements and conduct on which the respondent relies for the representation/common assumption. The evidence set out above establishes, clearly and unequivocally, that the appellant, by its brokers, accepted the respondent's interpretation of the excess clause until after its acceptance of the 2009/10 policy. The context also supports that conclusion. The conduct continued up to and throughout negotiations for a departure from the wording of the existing excess clause for the new 2009/10 policy in which claims history was a factor. It is also important to bear in mind that there is no element of futurity in the representation/assumption. It would be open to the appellant to resile from the representation/assumption in the future (provided the other elements of an estoppel claim had not been satisfied).
Further, I accept the respondent's contention that the primary judge erred in not accepting Mr Plaisted's evidence that the respondent would not have entered into the 2009/10 policy but for his belief in the appellant's acceptance of the interpretation. The evidence was uncontradicted and unchallenged. It is not obviously incredible nor is it undermined by the possibility of hindsight bias (as to which, see Rosenberg v Percival (2001) 205 CLR 434). That is particularly so when regard is had to the procedures in the London insurance market which underscore the importance given to dealing with knowledgeable and experienced participants in a specialised market. With good faith and parity of knowledge and understanding, there should be little scope for misunderstandings. It is also significant that the conduct of the lead insurer has an influential effect on other syndicates in the market. The primary judge erred in not accepting Mr Plaisted's evidence on the subject.
The last matter is the most difficult. Reliance has been established. That is, the respondent would not have entered into the 2009/10 policy but for the representation/common assumption as to the correctness of the respondent's construction of the excess clause. The question mark relates to the requirement of detriment.
The respondent contends that its entry into a contract which it would not otherwise have done is sufficient to establish detriment. It is not necessary, according to the respondent, to show that the liabilities which it assumed under the 2009/10 policy outweighed the benefits which it received, it being sufficient that, but for the representation/common assumption, it would not have entered into that policy.
The respondent claims, in the alternative, that the possibility of a claim under the 2009/10 policy is sufficient to establish detriment. Although the period of insurance ended on 30 April 2010 and no claim has been notified to the respondent, the respondent says it is not uncommon for property damage to take considerable time to manifest itself and the Insured can bring claims after the expiry of the policy (until the expiry of the limitation period). Accordingly, it is unknown whether the liability that the respondent may face under the 2009/10 policy will exceed the premium.
The appellant contends that the respondent must demonstrate detriment from the terms of or performance under the 2009/10 policy. It relies on the following. There was no evidence before the primary judge that the representation/common assumption affected the individual terms and conditions of the 2009/10 policy. There was no evidence that a higher premium might have been charged or the wording of the policy altered. In particular, there is no suggestion that the respondent would not have agreed to the more favourable (to the Insured) excess clause.
Further, there were no claims under the 2009/10 policy. As to the prospect of a claim under the 2009/10 policy at some time in the future, there was no evidence before the primary judge to suggest that such a claim was anything but speculative. The fact that no claims had been made after three years suggested a claim was unlikely.
The weight of binding authority is that for common law estoppel by both representation and convention: (1) reliance and detriment are separate but related material facts; (2) reliance means the claimant has to show that he acted or refrained from acting (that is, changed his position) on the basis of the representation or common assumption; (3) detriment must be shown to exist and be tested at the time when the defendant attempts to resile from the representation or common assumption. Thus, detriment must exist after, and as a consequence of, the reliance. See Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641; Thompson v Palmer (1933) 49 CLR 507; The Commonwealth v Verwayen (1990) 170 CLR 394; Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14 [84] ‑ [88]; Westpac Banking Corporation; Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119 [164]; MK & JA Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39 [72].
Detriment has to be real or material. A speculative possibility is insufficient: The Bell Group [3502]. Loss of an opportunity or chance, particularly of a nature that would attract a claim for damages for breach of contract, is a detriment: The Bell Group [3507] ‑ [3510].
A recent contribution on the subject of detriment is in the plurality judgment of the High Court in Australian Financial Services. They said:
Detriment has not been considered to be a narrow or technical concept in connection with estoppel. So long as it is substantial, it need not consist of expenditure of money or other quantifiable financial detriment … [T]he requirement of detriment must be approached as 'part of a broad inquiry as to whether repudiation of an assurance is or is not unconscionable in all the circumstances' [88].
Notwithstanding the incorporation of the language of equity, it is clear from the plurality's reliance on Grundt that their statement of principle extends to common law estoppels.
There is a difference of view as to whether mere entry into a contract can constitute detriment for the purpose of common law estoppel. The respondent relies on the statement in Handley K, Estoppel by Conduct and Election (2006) that:
The change of position that creates an estoppel by convention may be entry into the relationship which attracts the convention, or as in Texas Bank, action or inaction in reliance on the ad hoc convention. The estoppel prevents a return to the previous relationship and there is no need to consider the detriment this would cause [8-008].
Handley also states (at [5-016]):
An estoppel by convention protects against the detriment that would result if one party to the convention were permitted to resile from it and return the other party to their previous relationship. No other detriment need be shown, and the Court does not weigh the detriment by comparing the position of the party in the two relationships.
On the other hand, the Victorian Court of Appeal has indicated that mere entry into a contract does not itself constitute detriment for the purposes of estoppel: Jacobs v Platt Nominees Pty Ltd [1990] VR 146, 152 ‑ 154; Linter Group Ltd (in liq) v Goldberg (1992) 7 ACSR 580, 632.
Jacobs is concerned with priorities between the holders of an equitable interest in land and the impact of a failure to lodge a caveat. The Victorian Court of Appeal rejected the proposition that entry into a contract which generated a subsequent equitable interest in land in reliance on the absence of a caveat is all that is required to establish an estoppel.
It is difficult to reconcile the statements in Handley with established binding principles. However, it is unnecessary to resolve that matter.
There is an unusual disconnect in this case between the representation/common assumption, which is confined to the 2008/09 policy, and the reliance and detriment, which focuses on the separate and subsequent 2009/10 policy. That is, the content of the representations/common assumption is unrelated to the 2009/10 policy. If
it was, the relief would be moulded by reference to the content of that policy (if it was to the respondent's detriment). The only evidence before the primary judge was that the respondent would not have entered into the 2009/10 policy. No explanation for that position is given.
The respondent claims that the appellant is estopped from disputing the respondent's construction of the excess clause in the 2008/09 policy. The relief sought in the estoppel claim does not impact on the reliance caused outcome (the 2009/10 policy) but works backwards to impact on the earlier policy to which the representation/common assumption relates. The actual detriment from which the respondent seeks protection relates to the appellant's claim under the 2008/09 policy. Thus, the actual detriment which the respondent is seeking to avoid is unrelated to any reliance/detriment associated with the 2009/10 policy. The real thrust of the respondent's claim is that the result of the representation/common assumption is that the appellant got a benefit, being a renewal of its insurance, which would otherwise have been denied to it. Estoppel is not concerned with the prevention of benefits to the defendant but with the avoidance of detriment to the claimant. The estoppel claim must fail.
Conclusion
For these reasons, I would dismiss the appellant's appeal, uphold the respondent's first contention and dismiss the respondent's second and third contentions. I would hear from the parties on costs.
BUSS JA: This appeal from a judgment of Hall J should be dismissed. I agree with the orders proposed by McLure P. I agree generally with her Honour's reasons.
NEWNES JA: I agree with McLure P.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: BIRLA NIFTY PTY LTD -v- INTERNATIONAL MINING INDUSTRY UNDERWRITERS LTD [2014] WASCA 180 (S)
CORAM: McLURE P
BUSS JA
NEWNES JA
HEARD: 8 OCTOBER 2014 & ON THE PAPERS
DELIVERED : 30 OCTOBER 2014
FILE NO/S: CACV 124 of 2013
BETWEEN: BIRLA NIFTY PTY LTD
Appellant
AND
INTERNATIONAL MINING INDUSTRY UNDERWRITERS LTD
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :HALL J
Citation :BIRLA NIFTY PTY LTD -v- INTERNATIONAL MINING INDUSTRY UNDERWRITERS LTD [2013] WASC 386
File No :CIV 3302 of 2011
Catchwords:
Costs - Whether limits on costs should be removed - Originating summons - Costs in favour of non-party - Successful party increased costs by raising issues on which it failed - Calderbank offer
Legislation:
Legal Profession Act 2008 (WA), s 280(2)
Supreme Court Rules 1971 (WA), O 58 r 10
Result:
Costs orders made
Category: B
Representation:
Counsel:
Appellant: Mr S K Dharmananda SC & Mr T J Palmer
Respondent: Mr G G McArthur QC & Mr P D Herzfeld
Solicitors:
Appellant: DLA Piper Australia
Respondent: Wotton & Kearney
Case(s) referred to in judgment(s):
Amaca Pty Ltd (Formerly James Hardie & Co Pty Ltd) v Hannell [2007] WASCA 158(S)
Birla Nifty Pty Ltd v International Mining Industry Underwriters Ltd [2014] WASCA 180
Hughes v St Barbara Ltd [2011] WASCA 234(S)
Naidoo v Williamson [2008] WASCA 179
Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97
JUDGMENT OF THE COURT: These reasons concern the costs in connection with the judgment in Birla Nifty Pty Ltd v International Mining Industry Underwriters Ltd [2014] WASCA 180. Although the parties had been provided with an advance copy of the reasons, they had not put themselves in a position to make submissions on costs when judgment was delivered on 8 October 2014. On that date the court ordered that the appeal be dismissed. The respondent's first contention was upheld and its second and third contentions dismissed. The court also ordered the parties to make written submissions on costs. They have done so.
Primary proceedings
The primary judge ordered that the parties bear their own costs. The respondent, who was successful in the appeal, seeks orders in the following terms:
1.The order of the Honourable Justice Hall made on 20 December 2013 as to costs be and is hereby set aside, and the following orders be made in lieu thereof:
a.the appellant pay the respondent and the other insurers of the policy the subject of the appeal (who for the remainder of these orders are referred to collectively as the respondent) its costs of the first instance proceedings numbered CIV 3302 of 2011 (which for the remainder of these orders are referred to as the first instance proceedings), including any reserved costs.
b.the taxation of the costs referred to at paragraph 1(a) of these orders be performed on the basis that:
i.the limit on Item 11 of the Scale be removed;
ii.obtaining a running transcript was justified;
iii.the taxing officer be directed to make allowance for the fees of senior counsel and counsel at trial;
iv.allowance be made for conferences and consultations and other items not allowed for in the Scale; and
v.the taxing officer be directed to make additional allowances (additional to those otherwise available for the fees of senior counsel, counsel and the lawyers for the respondent) in preparing the matter for hearing on the basis that the matter did not follow the usual procedure for an originating summons;
c.the appellant pay the costs of the respondent's application in the first instance proceedings in respect of costs, including submissions, to be taxed as part of the overall bill in respect of the first instance proceedings; and
d.interest to run on costs taxed from 23 October 2013, being the date of judgment on the substantive issues in the action.
The appellant submits that the costs order made below should not be disturbed; if disturbed, the appellant should pay 50% of the respondent's costs below. The appellant also opposes the claim of costs for the non‑party insurers under the policy, the special costs orders in (b) and the order in (c).
The appellant commenced proceedings by way of originating summons pursuant to O 58 r 10 of the Supreme Court Rules 1971 (WA) seeking a declaration as to the proper construction of an excess clause in the policy (the primary proceedings). The respondent opposed the constructions contended for by the appellant and advanced a different construction. The respondent initially opposed the use of the originating summons procedure on the basis that it wished to ventilate an estoppel claim and made an interlocutory application for the originating summons to be dismissed. That application did not proceed as the parties agreed that the respondent's estoppel claim would be determined as part of the primary proceedings. As a result of the inclusion of the estoppel claim, the master ordered the filing of pleadings and discovery of documents.
Affidavit evidence was adduced in the primary proceedings, including an affidavit of Mr Patrick Plaisted, which was admissible in the estoppel claim but was ruled inadmissible in the construction claim.
The inadmissibility ruling was upheld on appeal. The respondent was also unsuccessful in its challenge to the primary judge's rejection of its estoppel claim. The only issue on which the respondent succeeded in the appeal was the construction claim. The outcomes on all issues should be reflected in the costs orders in the primary proceedings and the appeal.
We would make the orders in 1(b)(i) and (iii). The source of this court's power to do so is s 280(2) of the Legal Profession Act 2008 (WA). Notwithstanding the absence of evidence in support of its application for special costs orders, it is apparent from the record that the amount of costs allowable under the relevant item in the costs determination (Item 11) is inadequate because of the unusual difficulty, complexity or importance of the matter.
However, there should be no special costs orders to compensate the respondent because the primary proceedings did not follow the usual procedure for an originating summons. To the extent that occurred, it was only referable to the respondent's unsuccessful estoppel claim. We would decline to make the orders sought in 1(b)(ii), (iv) and (v).
The court has power to award legal costs in favour of a non‑party, although it will be exercised only in exceptional cases and with considerable caution: Naidoo v Williamson [2008] WASCA 179 [42]. We see no proper foundation for the order sought by the respondent. There is no evidence in support of the claim. We are unable to see any justification for separate legal representation of the non‑party insurers. Moreover, as the appellant points out, the non‑party insurers have not identified themselves to the court, are not on the court record, have not applied for costs, have not sought to be joined and have not participated in the proceedings.
We would decline to make order 1(c). The respondent's application to summarily dismiss the primary proceedings did not proceed. By agreement, that application was dismissed upon the parties agreeing that the primary proceedings would include the estoppel claim. Each party should bear their own costs of that application.
We would also decline to make order 1(d) for the backdating of interest on the costs to be taxed. The obligation to pay the costs arises once they have been taxed (or agreed). We see no justification for interest to run from the date of the judgment.
In this case the respondent increased costs in the primary proceedings (and the appeal) by raising issues on which it has failed. Rather than require the taxation of separate and discrete issues, the court may reduce the costs to which the successful party would otherwise be entitled: Amaca Pty Ltd (Formerly James Hardie & Co Pty Ltd) v Hannell [2007] WASCA 158(S) [7]. In all the circumstances, we would order that the appellant pay 60% of the respondent's taxed costs of the primary proceedings.
Accordingly, the orders will be:
1.The appellant pay to the respondent 60% of the respondent's taxed costs of the proceedings numbered CIV 3302 of 2011 including reserved costs if not agreed.
2.The limits on costs imposed by the relevant Legal Practitioners (Supreme Court) (Contentious Business) Determinations under the Legal Profession Act 2008 (WA) be removed in respect of Item 11 and allowance be made thereunder at senior counsel and junior counsel rates.
Appeal
The respondent seeks orders in the following terms:
2.The appellant pay the costs of the appeal of the respondent to be taxed if not agreed.
3.The taxation of the costs referred to at paragraph 2 of these orders be performed:
a.up to and including 27 March 2014, on a party‑party basis; and
b.from 28 March 2014 on the basis that:
i.the limit on Item 23 of the Scale be removed;
ii.the taxing officer be directed to make allowance for the fees of senior counsel and counsel for hearing of the appeal; and
iii.allowance be made for conferences and consultations and other Items not allowed for in the Scale.
4.Interest to run on costs taxed in the appeal from the date of judgment in the appeal.
Proposed order 3 is based on a Calderbank offer made in a letter dated 27 March 2014 from the respondent's solicitors to the appellant's solicitors. The respondent offered to pay the appellant the sum of $750,000 on the basis, inter alia, that the appeal be discontinued with no order as to costs. Thus the offer was in effect inclusive of costs.
A litigant making a Calderbank offer in an appeal which is not unreasonable for the other party to accept will usually get a costs order in its favour in relation to costs after the offer if the party who rejects it ends up worse off in the appeal judgment: Hughes v St Barbara Ltd [2011] WASCA 234(S) [14].
A Calderbank offer expressed to be inclusive of costs will often reduce the weight to be given to it if the offeree is placed in a position of not being able to determine the appropriate amount to attribute to the substantive claim and the costs respectively: Hughes v St Barbara [11]; Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97, 101.
In our view it was reasonable for the appellant to reject the offer, having regard to the amount in issue (the appellant had offered to settle for around $6.6 million) and the stalemate below. The primary judge had rejected the interpretations of the policy advanced by both parties and suggested a construction that neither party embraced. As a result, the primary judge made no determination as to the meaning of the excess clause. We would decline to make proposed order 3.
For the reasons discussed above, we would decline to make proposed order 4 relating to interest.
Having regard to the issues on which the respondent was unsuccessful in the appeal, we would order that the appellant pay 60% of the respondent's taxed costs of the appeal.
Conclusion
Accordingly, we would order that:
1.The appellant pay to the respondent 60% of the respondent's taxed costs of the proceedings numbered CIV 3302 of 2011 including reserved costs if not agreed.
2.The limits on costs imposed by the relevant Legal Practitioners (Supreme Court) (Contentious Business) Determinations under the Legal Profession Act 2008 (WA) be removed in respect of Item 11 and allowance be made thereunder at senior counsel and junior counsel rates.
3.The appellant pay to the respondent 60% of the respondent's taxed costs of the appeal if not agreed.
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