Cat Media Pty Ltd v Allianz Australia Insurance Ltd

[2006] NSWSC 423

Reported Decision: (2006) 14 ANZ Insurance Cases 61-700

New South Wales

Supreme Court

CITATION:	Cat Media Pty Ltd v Allianz Australia Insurance Ltd [2006] NSWSC 423
HEARING DATE(S):	27, 28, 29 March 2006, 3, 4 April 2006, 12, 24 May 2006
JUDGMENT DATE :	24 May 2006
JUDGMENT OF:	Bergin J
DECISION:	Second Further Amended Summons dismissed.
CATCHWORDS:	[INSURANCE] — Plaintiff insured with defendant for business interruption consequent upon “closure” of manufacturer’s premises — Manufacturer’s licence to manufacture plaintiff’s product suspended — Whether consequences of suspension of licence amounted to “closure” of manufacturer’s premises.
LEGISLATION CITED:	Food Standards Australia New Zealand Act 1991 (Cth) Law Enforcement (Powers and Responsibilities) Act 2002 (NSW) Public Health Act 1999 (NSW) Therapeutic Goods Act 1989 (Cth)
CASES CITED:	Re Anti-Cancer Council of Victoria; Ex Parte State Public Services Federation (1992) 175 CLR 442 Federal Commissioner of Taxation v Silverton Tramway Company Ltd (1953) 88 CLR 559 McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 R v Clarke [1969] 2 QB 91 Renmark Hotel Inc v Federal Commissioner of Taxation (1949) 79 CLR 10 Western Australian Turf Club v Federal Commissioner of Taxation (1978) 139 CLR 288 Wilkie v Gordian Runoff Ltd (2005) 79 ALJR 872
PARTIES:	Cat Media Pty Limited (ACN 077 817 522) (plaintiff) Allianz Australia Insurance Limited (ACN 000 122 850) (defendant)
FILE NUMBER(S):	SC 50064/04
COUNSEL:	JB Simpkins SC/JAC Potts (plaintiff) AS Martin SC/SA Wells (defendant)
SOLICITORS:	Clayton Utz (plaintiff) McMahons National Lawyers (defendant)

- 30 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BERGIN J

24 MAY 2006

50064/04 CAT MEDIA PTY LIMITED v ALLIANZ AUSTRALIA INSURANCE LIMITED

JUDGMENT

Background

1 On 28 April 2003 the licence of Pan Pharmaceuticals Limited (Pan) to manufacture non-sterile therapeutic goods for human use (the Licence) was suspended for a period of 6 months pursuant to s 41 of the Therapeutics Goods Act 1989 (Cth) (the Act) by notice signed by the Delegate of the Secretary of the Department of Health and Ageing (the Notice). The Notice advised that Pan (and/or a related entity) had breached conditions of the Licence and had failed to observe “Manufacturing Principles” (the Principles).

2 The Principles, determined from time to time by the Minister, are written principles to be observed in the manufacture of therapeutic goods for use in humans (s 36(1) of the Act). They relate, inter alia, to standards to be maintained and equipment to be used (s 36(2)(a)), procedures for quality assurance and control (s 36(2)(b)), manufacturing practices (s 36(2)(d)), and other matters relevant to the quality, safety and efficacy of therapeutic goods for use in humans that are manufactured in Australia (s 36(2)(e)). “Therapeutic goods” include goods that are, or are likely to be taken to be, for therapeutic use (s 3). “Therapeutic use” means “use in, or in connection with, (a) preventing, diagnosing, curing or alleviating a disease, ailment, defect or injury in persons or animals; or (b) influencing, inhibiting or modifying a physiological process in persons or animals; or (c) testing the susceptibility of persons or animals to a disease or ailment; or (d) influencing, controlling or preventing conception in persons; or (e) testing for pregnancy in persons; or (f) the replacement or modification of parts of the anatomy in persons or animals”.

3 Pan carried on its business as a manufacturer of therapeutic goods at premises at 10-12 Church Street, Moorebank. It manufactured over the counter tablets (OTC); soft gelatine capsules; effervescent and vitamin tablets; topical creams; and consumable liquid preparations. The area of the warehouse in Moorebank was 9,935 square metres with a significant container and semi-trailer dock area (the Premises). The layout of the Premises included a soft gel hall, a soft gel bulk handling area, a coating area, a packaging line, a n area for packaging raw materials, a tabletting hall, an area for effervescent products and various other areas for quarantine, tabletting raw materials and consumables, powders, liquids and creams and soft gel raw materials.

4 The Therapeutic Goods Administration of the Commonwealth Department of Health & Aging (TGA) carried out an audit of Pan’s premises pursuant to the provisions of the Act in February and April 2003 (the Audit). That Audit report included the following:

9.2 Re: Area cleaning
(a) In the compression room T11, there were visible powder residues on the top of the machine (Fette 2200), the (bulk transfer) control cabinet and around the (bulk) transfer line connection point.

· These residues were composed of two distinctly coloured powders ie beige and white.

· While acknowledging that the status card indicated that the room was to cleaned (sic), this did not satisfactorily explain the presence of the two powder types.

It was further noted:

· The previous products were (in preceding order)

· “Memo-plus” 84568←“Memo-plus” 84920

“Memo-plus” 84567←”Calcium Carbonate Plus” 84699.

· The specification describes Memo-plus as “… beigex4…” and Calcium gluconate as “… whitex4…”

§ The concern regarding this situation was compounded by:

· The company claimed that despite:

· The requirement to clean between batches, and

· The records of having “cleaned” between batches,

· it was actually cleaned on a campaign basis.

· While acknowledging campaign cleaning:

· This was not an option of the SOP; and

· This would not explain the presence of the white residue.

(b) Re: Compression suite:

· When the auditor wiped his fingertips over the walls of the corridor outside the compression suites, there was visible powder residue.

(c) Re: Sampling Booth.

· There was no requirement for cleaning between materials/sampling episodes;

· Cleaning was not effective, in that (related to item 15.3) the area was visibly dirty, noting:

· Dirt particles and powder residues at the side of the cabinet; and

· The ceiling supply grille;

· There was no record of the “weekly” cleaning” (sic);

· Cleaning equipment (to be used) was not detailed.

(d) Re: Dispensary:

· There was no documented requirement to clean between batches;

· There was no procedure for cleaning extraction ducts noting dead legs and corrugated hoses

· “Wheelie” bin and calendar stored in the room.

5 On 28 April 2003 Rita Maclachlan, as “Delegate of the Secretary”, signed the Notice directed to the then managing director of Pan, Mr J Selim, giving notice that under ss 40 and 41 of the Act the Licence had been suspended for 6 months. The Notice included the following:

Notices Under Sections 40 and 41 of the Therapeutic Goods Act 1989.
Immediate Suspension of Pan Pharmaceuticals Ltd’s Licence Number 117602 to Manufacture Therapeutic Goods – and Imposition of Additional Conditions Applicable to the Licence

…

As Delegate of the Secretary for the purposes of Section 41 of the Act, I am writing to inform you that I have suspended the licence to manufacture therapeutic goods (licence number 177602) issued to Pan Pharmaceuticals Limited for a period of six months. I have suspended the licence in reliance on paragraphs 4(1)(b) and (c) of the Act, as the above mentioned audit provides evidence that Pan Pharmaceuticals Limited has breached conditions of its licence and has failed to observe the Manufacturing Principles.

As provided for in subsection 41(2) of the Act, suspension will take effect from the time of notification of this decision, as I find that failure to take immediate action would create an imminent risk of death, serious illness or serious injury.

6 The Notice referred to the Audit (the report of which was attached to the Notice) and various meetings and “the opinion and advice of an Expert Advisory Group established to advise the TGA on the impact and risks associated with the manufacturing deficiencies on products supplied” by Pan for use by the public. The Notice included the following:

Reasons for this decision

The attached GMP audit report (24-25 February 2003, 7-11 & 14 April 2003) indicates that Pan Pharmaceutical Limited has:

i) breached conditions of its licence to manufacture therapeutic goods; and

ii) failed to observe the Therapeutic Goods (Manufacturing Principles) Determination No 2 of 2002 made under subsection 36(1) of the Act.

The GMP audit report provides details regarding the breaches of conditions of the company’s licence and a significant number of serious deficiencies with respect to manufacturing requirements. Specifically, 7 areas of critical deficiencies relating to the Manufacturing Principles were identified during the GMP audit:

i) manipulation of raw data relating to the testing of finished products so as to misrepresent out of specification results as complying with specifications;
ii) fabrication of finished product testing results obtained from a third party so as to misrepresent products as complying with specification;
iii) substitution of bovine chondroitin sulphate with shark chondroitin sulphate and vice versa.
iv) deficient raw material and finished product controls;
v) breaches of marketing authorisations – non compliance with conditions of registration and/or listing of products included in the Australian Register of Therapeutic Goods;
vi) unsatisfactory process control including:
- unsatisfactory process capabilities;
- inadequate control of manufacturing documentation;
- insufficiently detailed manufacturing requirements and/or inadequate records;
- no finished product assays;
- non-compliance with documented procedures;
- inadequate computer control(s)
- incomplete process validation;
- unsatisfactory change control;
- inadequate investigation(s) and remedial action(s) – following process and testing problems/failures;

vii) inadequate assurance regarding cross-contamination including sharing of equipment, inadequate and unvalidated cleaning of equipment.

The company is considered to be in breach of the conditions of its licence in that:

i) the persons nominated by the licence holder as having control of the production of the goods and of the quality control measures that are to be employed in the manufacture of the goods did not maintain that control as required by the Therapeutic Goods Regulations 1990 Part 4 – Regulation 20 (b) clause (iv).

ii) there was evidence that the company had manufactured at least one product requiring a content uniformity test in accordance with Therapeutic Goods Order No. 56. This was contrary to a condition of the manufacturing licence imposed on 5 February 2003.

As a result of the TGA findings, an Expert Advisory Group, drawn from two of the TGA’s statutory committees, the Medicines Evaluation Committee and the Complementary Medicines Evaluation Committee, was convened to review the findings of the TGA audit, to give advice and make recommendations to the TGA regarding the safety risks posed to consumers of products manufactured by Pan Pharmaceuticals Ltd. The members of the Expert Advisory Group have expertise in various medical and scientific disciplines.

The Expert Advisory Group was of the opinion that the multiple failures of GMP identified in the TGA auditors’ report create risks of death, serious illness, or serious injury and that the risks will increase over time. The risks could be realised at any time. I agree with and accept this view.

The Expert Advisory Group noted a number of products described in the auditors’ report for which there potentially could be safety concerns as a result of poor product quality. In conclusion, the Expert Advisory Group stated that it lacked confidence in the quality of any products manufactured by Pan Pharmaceuticals Ltd. The Expert Advisory Group advised that poor quality products have an increased risk of failure in both safety and efficacy.

The Expert Advisory Group recommended that the company should be subject to significant remediation. The Expert Advisory Group recommended that the company’s manufacturing licence should be suspended immediately for the protection of the community’s public health and safety. I agree with and accept this advice.

I have decided to suspend your company’s licence because the deficiencies identified during the audits were of particular concern to me. The audits indicate a serious breakdown in the company’s quality management system, resulting in numerous critical and major breaches of the Code of GMP for Medicinal Products and breaches of the conditions of your manufacturing licence. The persons nominated on the licence were not maintaining control of the production of the goods and of the quality control measures employed in the manufacture of the goods. There is evidence detailed in the auditors’ report of instances where senior management was over-riding decisions of these nominees and being actively engaged in conduct that undermines my confidence in the company’s ability and willingness to observe the Manufacturing Principles.

Imposition of Additional Conditions applicable to Licence No. 117602

Under subsection 40(2) of the Act I have decided to impose the following new conditions on your manufacturing licence. The new conditions are:

i) During the period of suspension, Pan Pharmaceuticals Ltd must take action to ensure compliance with the Manufacturing Principles before the end of the suspension period. The company must provide the TGA with a detailed analysis of the failures of the quality management system and a plan for corrective action that will ensure full compliance with the manufacturing principles and conditions applicable to the company’s licence. The plan for corrective action must set target dates for completion. You are required to provide written monthly updates, addressed to the Chief GMP Auditor, Manufacturer Assessment Section, TGA.

ii) During the period of suspension the company must provide full access to TGA officers or other such persons as nominated by the TGA, in order to establish the extent of the GMP issues that need to be addressed before suspension is removed.

A full GMP audit will be scheduled to take place before the end of the suspension period, to ensure that Pan Pharmaceuticals Ltd will comply with the Manufacturing Principles before manufacture recommences. Failure to fully comply with the Manufacturing Principles before manufacture recommences will result in this period being extended or the licence being revoked.

Should your company request an earlier audit, any such request must be supported by documented evidence that demonstrates that the company meets the GMP requirements and all deficiencies noted at all audits have been properly corrected.

It is important that all reported deficiencies be considered as failures of the company’s quality management system. Any action taken should correct the specific issues and also address the root cause(s) of the problem to prevent its recurrence. The company should give particular attention to:

· Urgently addressing senior management issues that appear to have been a significant factor in the company’s failure to comply with GMP requirements.

· Reviewing all aspects of the company’s quality management system, to ensure that it is effective and fully complies with the Code of GMP.

· Ensuring that the persons nominated on the licence as having control of production and quality control, actually maintain that control.

· Formally assessing the capacity of the quality control laboratory to perform the number of starting material and finished product tests required, including stability testing.

· Ensuring that computerised systems meet all Code of GMP requirements, including validation.

· Re-examining the basis for release of all starting materials in stock and, if necessary, re-releasing them according to Code of GMP requirements.

7 On 22 May 2003 the Pan Board of Directors appointed Anthony Gregory McGrath and Christopher John Honey as administrators of Pan. After the Notice was served on 28 April 2003 there was no manufacturing of any product at the Premises until July 2003. During the period May to July 2003 there was cleaning and painting of parts of the Premises, attending to the air-conditioning system and the installation of a soft gel capsule manufacturing machine. There were also other mechanical matters that needed attention prior to the commencement of the manufacturing process. In July 2003 manufacturing recommenced for analytical, testing and training purposes only. As Mr Henson, the then acting Chief Executive Officer of Pan, said in evidence, this manufacturing was “for analysis and testing purposes, in order to comply with the requirements of the eventual audit of the Therapeutic Goods Administration for the purpose of trying to get that licence back” (tr 56).

8 It was also necessary to train (or retrain) Pan’s staff. Mr Henson gave evidence that in the period after 28 April 2003 there was a requirement to produce standard operating procedures throughout the organisation and that in order to achieve those standard operating procedures it was necessary to “very carefully train each member of the production staff” (tr 1). That training required the staff to work on the production line as the product was being manufactured.

9 Gary William Busby, an accountant who was responsible for the day to day supervision of the administration, subject to the supervision of the administrators, gave the following evidence in cross-examination (tr 47):

Q. You agree with this, Mr Busby, that after 28 April 2003 people entered and exited Pan's premises at Moorebank without restriction?
A. Depends what you mean by “restriction”. Certainly there was security arrangements in place so people had to report to reception, unauthorised people won't have been allowed into the premises, but subject to that normal, you know, people attending for normal activities, employees, contractors, consultants, administrators' staff, administrators' lawyers staff, they attended premises on a regular basis.

Q. You agree with me that the notice suspending Pan's licence didn't have any effect on the ability of people to gain access to or leave those premises?
A. No, I don't believe that had any impact on that.

10 Pan went into liquidation on 23 September 2003 and the administrators were appointed liquidators. On about 4 November 2004 Pan’s Licence was reinstated in relation to soft gel products and on 21 November 2003 contracts were entered into for the sale of Pan’s Premises and its business. On 15 December 2003 those sales to Sphere Laboratories were completed.

The Plaintiff

11 The plaintiff, Cat Media Pty Limited, contracted with Pan for Pan to manufacture products including therapeutic goods, the subject of the Licence, that the plaintiff distributed for sale to the public. On 19 December 2002 the plaintiff entered into a contract of insurance with the defendant, Allianz Australia Insurance Limited, being an Industrial Special Risks policy number 80 000 1489 ISC (the Policy). The suspension of Pan’s Licence and the recall of products manufactured by Pan impacted upon the plaintiff’s ability to have its products manufactured and distributed for sale. On 10 June 2003 the plaintiff made a claim under the Policy including a claim for consequential loss under Section 2 of the Policy. That claim included the following:

We are also making a claim under section 2 Consequential Loss for our business interruption expenses:
(a) under the defective sanitary arrangements extension;
(b) as a consequence of the destruction of property referred to above.

Pan is a Specified Suppliers Premises under the policy.

In respect of the defective sanitary arrangements extension, you will be aware that the TGA withdrew Pan’s manufacturing license or 6 months on 28 April 2003 after documenting breaches of GMP (including breaches of sanitary arrangements) and as a result the factory closed.

12 On 4 July 2003 the defendant denied indemnity under the Policy.

The Policy

13 At the commencement of the Policy the following appears:

This Policy incorporates the Schedule, Sections, Definitions, Conditions, Exclusions, Endorsements, Memoranda and Warranties (if any) and any other terms herein contained which are to be read together and any word or expression to which a specific meaning has been given in any part of this Policy shall bear this meaning wherever it may appear unless such meaning is inapplicable to the context in which the word or expression appears.

14 The Policy provides relevantly in Section 2, Consequential Loss:

THE INDEMNITY

In the event of any building or any other property or any part thereof used by the Insured at the Premises for the purpose of the Business being physically lost, destroyed or damaged by any cause or event not hereinafter excluded (loss, destruction or damage so caused being hereinafter termed Damage) and the Business carried on by the Insured being in consequence thereof interrupted or interfered with, the Company will, subject to the provisions of this Policy including the limitation on the Company’s liability, pay to the Insured the amount of loss resulting from such interruption or interference in accordance with the applicable Basis of Settlement.
Provided that the Company will not be liable for any loss under this Section unless the Insured’s property lost, destroyed or damaged is insured against such loss, destruction or damage (loss arising out of destruction or damage occasioned by or arising out of explosion of any boiler, economiser or other pressure vessel, including pipes, valves and other apparatus thereof excepted) and the Company by which such property is insured shall have paid for or admitted liability in respect of such loss, destruction or damage unless no payment shall have been made, or liability admitted, solely owing to the operation of a provision in such insurance excluding liability for loss, destruction or damage below a specific amount.

15 The Memoranda to Section 2 provides relevantly:

Except to the extent that this Policy is hereby modified under the following Memoranda, the terms, Conditions and limitations of this Policy shall apply.

…

SUPPLIERS’/CUSTOMERS’ PREMISES

The cover granted under this Memorandum only applies if specifically noted under the Sub-Limits of Liability in the Schedule of this Policy.

Loss resulting from interruption of, or interference with, the Business in consequence of Damage to property at the situations specified in the Schedule shall be deemed to be loss resulting from Damage to property used by the Insured at the Premises.

It is understood and agreed that:

a. A supplier’s premises is any premises from which the Insured obtains supplies of commodities, materials, components, goods or services other than those services referred to under the Utilities Memorandum; the premises of processors and the premises of manufacturers of plant and equipment for the Insured.

b. A customer’s premises is any premises to which the Insured supplies or provides commodities, materials, components, goods or services.

Provided that all losses resulting from Damage by earthquake to property at any supplier’s or customer’s premises located in Japan, New Zealand or the United States of America are excluded from this Memorandum.

…

INFECTIOUS OR CONTAGIOUS DISEASES; DEFECTIVE SANITARY ARRANGEMENTS, FOOD OR DRINK POISONING, MURDER, SUICIDE AND INJURY TO PERSONS

Loss as insured by this Policy resulting from interruption of, or interference with, the Business directly or indirectly arising from:

a. closure or evacuation of the whole or part of the Premises by order of a competent public authority consequent upon:

i. human infectious or contagious disease occurring at the Premises;
ii. vermin or pests or defects in the drains or other sanitary arrangements at the Premises; or
iii. the outbreak of a notifiable human infectious or contagious disease occurring in the vicinity of the Premises;


b. poisoning directly or indirectly caused by the consumption of food or drink provided on the Premises;

c. murder or suicide occurring in or at the Premises; or

d. injury to persons in or at the Premises; or

shall be deemed to be loss resulting from Damage to property used by the Insured at the Premises.

16 The Placing Schedule included the following:

The Schedule and Policy wording are to be read together as one contract.
Business

Importers, exporters, distributors, manufacturers, telemarketers of health, beauty, cosmetic and skin cancer creams, anti-aging, property occupiers
Principally the above and any other occupation incidental thereto.
…

Situation/Premises

Principally at Unit 4/29-33 Bourke Street, Alexandria, NSW and any other premises in Australia:

(a) which are owned or occupied by the Insured from which the Insured carries on or conducts activities of the Business;

(b) where the Insured has goods or property, either the Insured’s own or for which the Insured is responsible;

(c) where the Insured has goods or other property stored, undergoing processing, repairs, maintenance, overhaul or improvement for the purpose of the Business.

…

Sub-Limits of Liability:

The liability of the Insurer shall be further limited in respect of any one loss or series of losses arising out of any one event at any one Situation as set out hereunder and it is understood and agreed that such Sub-Limits shall not increase the liability of the Insurer beyond the Limits of Liability expressed above.

…

Section 2 – Consequential Loss

…

Specified Suppliers Premises as follow:


Supplier Country Limit ($)

Pan Pharmaceutical Australia $2,500,000

17 Although there is no claim under Section 1 of the Policy, the plaintiff relied upon the following part of Section 1 of the Policy – “Material Loss or Damage” for the meaning of “Damage”:

THE INDEMNITY

In the event of any physical loss, destruction or damage (hereinafter in Section 1 referred to as Damage with Damaged having a corresponding meaning), not otherwise excluded, happening at the Situation to the Property Insured described in Section 1 the Company will, subject to the provisions of this Policy including the limitation on the Company’s liability, indemnify the Insured in accordance with the applicable Basis of Settlement.

These Proceedings

18 The plaintiff commenced these proceedings on 19 May 2004 by the filing of a Summons seeking judgment against the defendant in the amount of $2.5 million for interruption to its business by reason of the “closure” of Pan’s Premises. The plaintiff contends that the Notice suspending the Licence was “an order requiring closure of part of Pan’s premises by a competent public authority, consequent upon unsatisfactory sanitary arrangements at Pan’s premises” (C 35). The defendant denies these contentions (par 6). There were a number of other issues on the pleadings, including the defendant’s cross claim for rectification of the Schedule to the Policy in relation to the sub-limit of liability, that are not necessary to deal with for reasons that appear below.

19 The proceedings (initially on all issues) were heard on 27, 28 and 30 March 2006, and 3 and 4 April 2006. Mr JB Simpkins SC, leading Mr JAC Potts, of counsel, appeared for the plaintiff and Mr AS Martin SC, leading Mr SA Wells, of counsel, appeared for the defendant. On 3 April 2006 problems arose concerning late evidence the plaintiff wished to call in relation to the trend of the plaintiff’s business. To accommodate this difficulty I made an order on that day, by consent, that the question of liability be determined separately and in advance of all other issues. I reserved my judgment on 4 April 2006.

20 On 11 May 2006 the parties were notified that judgment would be delivered on 12 May 2006. On 12 May 2006 the plaintiff made application: (a) to amend its Further Amended Summons to claim that the term “the Premises” in the Infectious and Contagious Diseases modification or extension clause in the Policy (the extension clause) includes Pan’s Premises: and (b) to vary the order for the separate determination of liability made on 3 April 2006 to accommodate a hearing of the issues in the proposed amendment, in effect, to re-open its case. I deferred the delivery of judgment and heard the plaintiff’s application today. I allowed the amendment to the Further Amended Summons but refused the application to re-open for the reasons given in the separate judgment delivered today.

Construction of the Policy

21 The Policy is a commercial agreement between the parties and should be given a “businesslike interpretation” requiring “attention to the language used by the parties, the commercial circumstances which the document addresses, and the object which it is intended to secure”: McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 per Gleeson CJ at 589 [22]; Wilkie v Gordian Runoff Ltd (2005) 79 ALJR 872 per Gleeson CJ, McHugh, Gummow and Kirby JJ at 874 [15]. The commercial circumstances in which the Policy was entered into and the object it was intended to secure included the plaintiff obtaining indemnity for interruption to its business of distributing product manufactured by Pan.

22 The construction of the language used by the parties in the extension clause is pivotal to the determination of liability in this matter. The plaintiff contends that the Notice was an order of a competent public authority that closed the whole or part of Pan’s premises consequent upon “defects” in “other sanitary arrangements at the Premises”. The defendant contends that the extension clause is inapplicable to the circumstances that arose as a consequence of the suspension of Pan’s Licence. The defendant contends that the “Premises” referred to in the extension clause are the plaintiff’s premises rather than Pan’s Premises. The defendant also contends that the Notice was not an “order” within the meaning of that term in the extension clause and, even if it was an “order”, there was no “closure” of Pan’s Premises within the meaning of that term in the clause. The defendant further contends that the expression “other sanitary arrangements” is totally inapplicable to the matters referred to in paragraph 9.2 of the Audit report.

“ Premises ”

23 There is no definition in the Policy of the term “the Premises” as it appears in the extension clause. The Suppliers’/Customers’ Premises extension clause (the Suppliers’ Premises clause) provides that loss resulting from interruption of, or interference with, the plaintiff’s business in consequence of Damage to property “at the situations specified in the Schedule to the Policy” is deemed to be loss resulting from Damage to property “used by the Insured at the Premises”. “Damage” is defined in the Indemnity to Section 1 of the Policy as “any physical loss, destruction or damage”. That meaning is to be given to the term “Damage” throughout the Policy.

24 The Schedule refers to “Situations/Premises” as including “any other premises” where the plaintiff “has goods or other property stored” for which “it is responsible” and/or where the plaintiff has “goods or other property” that is “undergoing processing” for the purpose of the Business (page 1). “Pan Pharmaceutical” is identified under the heading, “Specified Suppliers Premises” in the Schedule (page 3). The plaintiff submitted that the meaning of “Premises” in the extension clause is extended by the Suppliers’ Premises clause with the consequence that “Damage to property at the situations specified in the Schedule” is “deemed to be loss resulting from Damage to property of the Insured at the Premises”. Pan’s Premises were specified in the Schedule. The other “route” by which the plaintiff claims that it is entitled to indemnity is that that the definition of “Situation/Premises” in the Schedule encompasses not only the Premises of the plaintiff but also Pan’s premises because the plaintiff had goods stored and/or undergoing processing at Pan’s premises. The amendment to the Further Amended Summons allowed today reflected that argument and issue.

25 The defendant submitted that Pan’s premises identified on page 3 of the Schedule, as the “Specified Suppliers Premises” are distinct from the “Situation/Premises” on page 1 of the Schedule. The only reference in the Policy (other than in the Schedule) to “Suppliers’ Premises” or “supplier’s premises” is in the Suppliers’ Premises clause. The defendant submitted that the plaintiff does not seek indemnity under that part of the Policy because there was no physical loss, destruction or damage to property at Pan’s Premises. It appears that all other references to “the Premises” in the Policy are references to the plaintiff’s premises rather than the Premises of its suppliers; [Turnover/Output Alternative (p 19); Prevention of Access (p 20); Registered Vehicles and/or Trailers (p 21); Rent Receivable (p21); Trade Exhibitions (p 22); and Property in Storage (p 22)]. The additional endorsements to the Policy also use the word “premises” in the same manner; [Pollution, Contamination and Debris (Ex A 305); Utilities (Ex A 307); and: Prevention of Access (Ex A 307)].

26 The defendant submitted that by seeking and obtaining indemnity in relation to the Suppliers’ Premises clause for Pan’s Premises the plaintiff acknowledged that such Premises did not fall within the meaning of the term “the Premises” as that term is used in the extension clause of the Policy. The Suppliers’ Premises clause refers to “situations” that are specified in the Schedule. The Sub-Limits of Liability section of the Schedule also refers to “Situations”. One of the “Situations” listed in the Schedule is the “Specified Suppliers Premises”. Then there is the definition of “Situation/Premises” that includes “any other premises in Australia” where the plaintiff has “goods or property” that it owns or for which it is responsible and “goods or other property” stored or undergoing processing for the purpose of its business.

27 There is a question as to whether the parties intended that “the other premises” in the definition of “Situation/Premises” in the Schedule were intended to be limited to premises owned or under the control of the plaintiff or whether they intended that Pan’s Premises be included. It seems to me that by the use of the word “Situation” in the term “Situation/Premises” as defined in the Schedule, the parties intended to include Pan’s Premises if the plaintiff had goods stored or undergoing processing at Pan’s premises.

28 For the purpose of construing the extension clause and without deciding whether the plaintiff had goods or property stored and/or undergoing processing at Pan’s Premises, I intend to assume that the expression “the Premises” as used in that clause includes Pan’s Premises.

“ Order ”

29 The plaintiff submitted that the suspension of the Licence amounted to an “order” or, in other words, that the Notice was equivalent to an “order” within the meaning of that term in the extension clause. Reliance was placed on the definition of “order” in the Oxford English Dictionary as: “an authoritative direction; an injunction, or mandate; an oral or written command; an instruction”.

30 The plaintiff also submitted that an “order” includes any executive act that has a statutory consequence. In this regard reliance was placed upon R v Clarke [1969] 2 QB 91 in which the Court of Appeal considered the meaning of the word “order” in the context of s 2 of the Documentary Evidence Acts 1868 and 1882. Their Lordships said at 97C:

The court is satisfied that the word “order” in the Act should be given a wide meaning covering at any rate any executive act of government performed by bringing into existence of a public document for the purpose of giving effect to an Act of Parliament.

31 That case was concerned with whether a proclamation by a Secretary of State that a certain type of breath-testing device had been approved by the Home Secretary, was an “order” under the Acts under consideration. It seems to me to be quite distinguishable from the facts of this case in which the parties decided what circumstances would entitle the plaintiff to indemnity for interruption or interference with its business operations by reason of closure of its Premises, within the extended meaning of that term. The term “order” must be considered in the context in which it appears, that is, not only with the expression “of a competent public authority”, but also in the context of the clause as a whole.

“ Competent public authority ”

32 The plaintiff submitted that the Secretary (and thus the Delegate) was a “competent public authority” within the meaning of that term in the extension clause. There is no doubt that the Secretary was authorised under the Act to issue the Notice suspending Pan’s Licence (s 41).

33 The defendant relied on a number of cases in which the term “public authority” has been construed. In Renmark Hotel Inc v Federal Commissioner of Taxation (1949) 79 CLR 10 the High Court considered the meaning of “public authority” in s 23(d) of the Income Tax Assessment Act 1936-1947. Latham CJ (with whom McTiernan and Webb JJ agreed) expressed the opinion that the performance of statutory duties and the exercise of public functions were indicative of “the nature of the attributes which a personal body must have in order to be a public authority” within the meaning of that term in the Act there under consideration (at 23). In Federal Commissioner of Taxation v Silverton Tramway Company Ltd (1953) 88 CLR 559 the High Court considered the meaning of “Public Transport Authority” in the context of a sales tax dispute. Dixon CJ said (at 565-566):

The word “authority” has long been used to describe a body or person exercising power or command. No doubt this has come about by a transfer of meaning from the abstract conception of power or command to the body or person possessing it. But in relation to such a public affair as public transport the use of the word “authority” as a description of a person or body implies he or it is an agency or instrument set up to exercise control or execute a function in the public interest whether as an emanation of the general government or as an adjunct of local government or as a specially constituted officer or body.

34 In Western Australian Turf Club v Federal Commissioner of Taxation (1978) 139 CLR 288 the High Court considered the meaning of the words “public authority” in the context of a taxation dispute. Stephen J (with whom Barwick CJ and Jacobs J concurred) observed (at 294):

The Club has ever since been involved in this exercise of powers and functions not possessed by the ordinary citizen and which have been conferred by statute and are essentially of a public nature. Were these powers and functions vested in some State authority created for that purpose and having no other function it would, I think, clearly enough be a public authority for the purposes of s. 23(d) of the Act.

35 His Honour also said (at 297):

In the case of s. 23(d), the possession of some statutory duties or powers is not, I think, enough to attract the income of a body the exemption from tax which the paragraph confers unless, upon examination of all its characteristics, the body can be seen in general of to conform to the common understanding of a public authority.

36 Aickin J, in a separate but concurring judgment, said (at 311):

… I regard the basic requirement as being that the relevant Act under which the relevant body is said to be “constituted” should confer powers of an exceptional nature not possessed by private individuals or by companies formed by private individuals under the provisions of the Companies Act .

37 Reliance was also placed upon Re Anti-Cancer Council of Victoria; Ex Parte State Public Services Federation (1992) 175 CLR 442 in which the High Court considered the meaning of “public authority” in the context of an industrial relations dispute. Mason CJ, Brennan and Gaudron JJ said at 450-451 (footnotes omitted):

The question whether a body is a public authority is one of fact and degree which often requires a balancing of the various features of the body concerned. In that process, it may be decisive that private individuals have a financial interest in its profits or assets, or that its public functions are merely incidental to its private pursuits. Or it may be important that its powers derive from a private or non-statutory source, although that consideration is not necessarily decisive.
In Renmark Hotel Inc v Federal Commissioner of Taxation , Rich J, at first instance, said that for a body to be a public authority “it should carry on some undertaking of a public nature for the benefit for the community or of some section or geographical division of the community and that it should have some governmental authority to do so”. His Honour’s decision was upheld on appeal, emphasis being given to the need for “public functions”, “duties to be exercised for public objects” or “power … to act on behalf of the public or the State”. However, this last feature would seem to indicate a body of the kind that is usually identified as a State or public instrumentality.

38 The plaintiff submitted that in each of the cases relied upon by the defendant the High Court considered the precise terms of the relevant legislation. It was submitted that in this case the relevant legislation is the Act. In s 3(1) of the Act “Commonwealth authority” is defined to include:

(a) a body corporate, or an unincorporated body, established for a public purpose by or under an Act; and
(b) a tribunal or authority established by or in an accordance with an Act.

39 “Commonwealth officer” is defined to include:

(a) a Minister; and
(b) a person holding:
(i) an office established by or under an Act; or
(ii) an appointment made under an Act; or
(iii) an appointment made by the Governor-General or a Minister but not under an Act; and
(c) a person who is a member or officer of a Commonwealth authority; and
(d) a person who is in the service or employment of the Commonwealth, or of a Commonwealth authority, or is employed or engaged under an Act or regulations made under an Act.

40 The plaintiff submitted that the Secretary and/or the Delegate were not “authorities” because they were neither “a body corporate”, “an unincorporated body” nor “a tribunal or authority” as specified in the definition of “Commonwealth authority” in the Act. It was submitted that the Secretary and/or the Delegate are clearly “officers”.

41 It seems to me that the intention of the parties to this Policy was that when the events or occurrences referred to in the extension clause took place, the public authority with jurisdiction to deal with the specific events or occurrences was the “competent” public authority that would consider making an order for closure or evacuation of the Premises. For instance in respect of the matters in paragraph “a” of the extension clause it would be expected that the Department of Health and/or the relevant instrumentality under its control would consider the circumstances of the occurrence and/or outbreak of an infectious or contagious disease, notifiable or otherwise, and decide whether to close or evacuate the Premises. By way of example, s 8 of the Public Health Act 1999 (NSW) provides for the closure of premises “to preserve the health of the public” by an “order” of the Governor published in the Gazette.

42 In respect of murder or injury to persons perpetrated by another person, the Police Service would be a “competent” public authority to consider the circumstances and decide whether the whole or part of the Premises should be closed or evacuated. By way of example, under s 91 of the Law Enforcement (Powers and Responsibilities) Act 2002 (NSW) a police officer may establish a “crime scene” on premises “in any way that is reasonably appropriate in the circumstances”. It may be that in the instance of suicide the “competent” public authority to decide whether to close the whole or part of the Premises would be the Police Service, the Department of Health and/or the Coroner. In instances of injury caused by machinery one would expect that the relevant industrial relations department dealing with industrial accidents, may be the “competent” public authority that would consider making an order for closure of part or whole of the Premises. In respect of the poisoning from food or drink provided on the Premises, a number of public authorities may be “competent” to consider the closure and/or evacuation of the Premises. If it were thought to be intentional this may involve the Police Service and/or the Department of Health. Alternatively it may involve the relevant authority in respect of food and drink standards.

43 It seems to me that the word “competent” is directed to the authority with jurisdiction over the specific events and with relevant powers to make orders for the closure or evacuation of the Premises. I am of the view that the power provided to the Secretary under s 41 of the Act to suspend Pan’s Licence is not a power to close or evacuate the whole or part of the Premises as that expression is to be understood in the extension clause.

44 I am of the view that it is not appropriate to characterise the suspension of the Licence as an order by a competent public authority closing Pan’s Premises within the meaning of that expression in the extension clause.

“ Defects” in “other sanitary arrangements ”

45 Paragraph 9.2 of the Audit report includes observations made in relation to “Area cleaning”. Residues of beige powder and white powder were observed on the top of the Fette 220 Machine, the control cabinet and around the transfer line connection point in the compression room T11. Visible powder residue was observed on the walls of the corridor outside the compression suites and an area in the sampling booth was visibly dirty with dirt particles and powder residues at the side of the cabinet and on the ceiling supply grille. There was also a “wheelie” bin stored in the dispensary. The plaintiff seeks to characterise these matters as “defects” in “other sanitary arrangements” within the meaning of that expression in the extension clause.

46 “Sanitary” is defined in the Oxford English Dictionary as: “of or pertaining to the conditions affecting health, esp. with reference to cleanliness and precautions against infection and other deleterious influences; pertaining to or concerned with sanitation. Also occas. of conditions or surroundings: Free from deleterious influences”. Similar definitions appear in the Macquarie Dictionary.

47 The plaintiff also relied upon s 10(5) of the Food Standards Australia New Zealand Act 1991 (Cth) which provides:

(5) For the purposes of this section, a “sanitary or phytosanitary measure” means any measure applied:

(a) to protect human or animal life or health from risks arising from additives, contaminants, toxins or disease – causing organisms in foods, beverages or feed stuffs; or


…

and includes:

(e) any relevant law, decree, regulation, requirement or procedure, including end product criteria; and
(f) processes and production methods; and
(g) testing, inspection, certification and approval procedures; and
(h) quarantine treatments including relevant requirements associated with the transport of animals or plants, or with the materials necessary for their survival during transport; and
(i) provisions on relevant statistical methods, sampling procedures and methods of risk assessment; and
(j) packaging and labelling requirements directly related to food safety.

48 The plaintiff submitted that if “sanitary arrangements” in the context of the extension were given a similar meaning to that used in s 10(5), the order made by the Delegate would be made consequent upon defective sanitary arrangements at the Premises.

49 The meaning that the plaintiff attributes to the expression “other sanitary arrangements” in this Policy seems to me to be both strained and unrealistic. The uncertainty that such a meaning could cause to the defendant and the plaintiff would include the prospect of having premises closed and/or evacuated by reason of dusty equipment. It does not seem to me to have been consistent with the commercial intention of the parties that the presence of particle dust on walls and/or machinery could be a basis upon which people should be ordered to evacuate the Premises or be prohibited from entering the Premises. To my mind that is not a “businesslike interpretation” of this clause.

50 The defendant submitted that the expression must be construed in the context in which it appears in the extension clause. The expression is immediately preceded by the words “drains”, which, it was submitted, has a necessary limiting effect on the general words in the expression. The word “drain” is defined as “that by which anything is drained, as a pipe or as a conduit”. To “drain” means “to draw off gradually, as a liquid: Macquarie Australia’s National Dictionary, Revised third ed. The defendant submitted that the word “drains” in this clause means pipes or conduits whereby liquid waste is removed from the Premises to preserve the health of those present at the Premises. It is the presence of animals (vermin or pests) or characteristics (defects) in the drains or other sanitary arrangements that are identified as the risks to the health of people at the Premises. The word “drains” is to be read with the words “or other sanitary arrangements” to define “drains” as a “sanitary arrangement”.

51 I am of the view that the defects in the drains in this clause must be faults that are likely to cause risk to the health or wellbeing of the people at the Premises as opposed to faults that are, for instance, merely cosmetic with no consequential danger to the health or wellbeing of the people at the Premises. This construction is supported by the location of these matters in subparagraph (ii) between the two events, the occurrence of infectious or contagious disease (subpar (i)) and the outbreak of a notifiable infectious or contagious disease (subpar (iii)). Similarly I am of the view that defects in sanitary arrangements other than in drains must be faults that are likely to cause risk to the health or wellbeing of the people at the Premises.

52 There was no evidence that the matters referred to in clause 9.2 of the Audit report would put the health or wellbeing of the people at the Premises at risk. It may be that the dirt particles and powder residues at the various identified locations could have a deleterious effect on the product manufactured at the Premises such that the product may be unsafe for humans to use, but that is not a basis for closing or evacuating the Premises under the extension clause. However it was a basis (or part of the basis) upon which Pan’s Licence to manufacture non-sterile pharmaceutical goods for human use was suspended.

53 The matters in clause 9.2 of the Audit report do not fall within the definition of “other sanitary arrangements”.

“ Closure ”

54 The plaintiff submitted that the Premises are “closed” if a suspension causes the whole or some part of the business operations carried out in the Premises to cease. The defendant submitted that the Premises were not closed because: (a) the Notice envisaged that there would be access to the Premises; (b) the effect of the suspension was to prevent the manufacture of therapeutic goods for supply; (c) during the period of suspension, people entered the Premises; (d) during the period of suspension there was work carried out at the Premises; and (e) during the suspension there was manufacture of product for analysis, testing and training.

55 The meaning of the word “closure” in the extension clause must be construed in the context in which it appears. Each of the events identified in the extension clause is a matter that is dangerous or threatening to the health or well being of people having access to the Premises. The locations of the events in consequence of which an order for closure or evacuation may be made are variously “at”, “in the vicinity of”, “on” and/or “in or at” the Premises.

56 Paragraph “a” of the extension clause deals with the occurrence and spread of infection and/or disease. Subparagraph (i) deals with the occurrence of human infectious or contagious disease “at the Premises”. That is to be compared with subparagraph (iii) which deals with the occurrence of an “outbreak” of a “notifiable” human infectious or contagious disease “in the vicinity of the Premises”. In consequence of either of those occurrences an order may be made by a competent public authority to close or evacuate the Premises. The evacuation or closure of the Premises in such circumstances is obviously intended to impede the spread of the disease.

57 Subparagraph (ii) deals with the presence of “vermin or pests or defects in the drains or other sanitary arrangements at the Premises” in consequence of which an order may be made by a competent authority for closure or evacuation of the Premises. Closure or evacuation in these circumstances also deals with what might be described as a public health issue. If vermin or pests or defects in the drains are such of that the health of the individuals attending the Premises is at risk, then the “competent public authority” may act to protect people against that risk by ordering that the Premises be closed or evacuated. It is the loss from the closure of the whole or part of the Premises and the consequent inability to conduct the business that is indemnified under this Policy.

58 Other events in consequence of which orders for closure or evacuation may be made include poisoning from food or drink provided on the Premises (par b) or murder or suicide (par c) or injury to persons (par d) in or at the Premises. Closure or evacuation in consequence of these events may be necessary to ensure that others on, in or at the Premises are not harmed by the consumption of food or drink that may contain the poison or to ensure that persons attending the Premises are not harmed by the perpetrator of the murder or injury to others in or at the Premises. Closure of part of the whole of the Premises may also be necessary to investigate these matters and/or an industrial accident or suicide in or at the Premises.

59 The nature of all of the occurrences or events referred to in the extension clause is such as to require prohibition on physical access to the whole or part of the Premises. The collocation of the word “closure” with the word “evacuation” in the clause supports this construction. Some of these events and occurrences, particularly those in paragraph “a” of the clause may be discovered whilst employees and others are already in the Premises and thus the need for the option of evacuation of the Premises. It is prohibition on access to the whole or part of the Premises that is intended by the word “closure” in the extension clause.

60 I am of the view that the term “closure” in the extension clause is the closure of the whole, or part of, the building or buildings comprising the Premises, that is, preventing physical access to the whole or part of the Premises. The word “closure” does not mean the cessation of manufacture pursuant to the suspension of Pan’s Licence.

61 The purpose of the extension clause is to provide indemnity to the plaintiff for loss occasioned by the interruption to, or interference with, its business by reason of the unavailability of product caused by the closure or evacuation of Pan’s Premises by reason of the events referred to in the extension clause. The Premises were not closed when the Licence was suspended. There was access to the Premises and product was manufactured for the purpose of training the staff and analysing and testing the product to meet the standards in the Manufacturing Principles. There was no “closure” of the Premises as that expression is to be understood within the extension clause of the Policy. This clause does not indemnify the plaintiff if there is an inability to manufacture product because the Licence permitting such manufacture has been suspended.

Orders

62 The Second Further Amended Summons is dismissed. In those circumstances there is no need to consider the claims made in the Cross Claim. If the parties are unable to agree on a costs order, I will hear argument on a date to be fixed by arrangement with my Associate by no later than 5 June 2006.

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