Central Negev Properties Pty Ltd v QBE Insurance (Aus) Ltd
[2012] VCC 1856
•30 November, 2012
| Revised | |
| IN THE COUNTY COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
EXPEDITED CASES DIVISION
Case No. CI-11-04369
| CENTRAL NEGEV PROPERTIES PTY LTD (ACN 004 379 588) | Plaintiff |
| v | |
| QBE INSURANCE (AUSTRALIA) LIMITED (ABN 78 003 191 035) | Defendant |
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JUDGE: | HER HONOUR JUDGE KENNEDY | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 12, 13, 14 and 15 November 2012 | |
DATE OF JUDGMENT: | 30 November, 2012 | |
CASE MAY BE CITED AS: | Central Negev Properties Pty Ltd v QBE Insurance (Aus) Ltd | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 1856. | |
REASONS FOR JUDGMENT
Catchwords: Insurance – damage to apartments by reason of cracking – whether damage occasioned by or happening through “earth movement” pursuant to exclusion clause in the policy – quantum of loss
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M. Gronow | Williams Winter |
| For the Defendant | Mr A. Klotz | Norris Coates |
HER HONOUR:
1 In this matter the plaintiff seeks an amount of $207,452.98 from its insurer in respect of cracking to the external wall of the south west end of a group of serviced apartments located at 160 Simpson Street, East Melbourne (“the property”).
2 The formal matters of proof were generally admitted. However, the defendant insurer has denied liability based on a perils exclusion clause 7(c) of the policy.[1] Thus, it alleges that the physical loss, destruction or damage has been occasioned by, or happened through “earth movement”.
[1]The defendant initially relied on peril exclusions contained in paragraphs 4(b) and (d) as well but abandoned such reliance shortly prior to trial
3 The plaintiff, in turn, relies on a proviso to Clause 7 of the policy in the event that the exclusion clause applies.
4 The defendant has generally accepted quantum save for three particular aspects of the quantum claimed as follows:
(a) GST on the sum of $174,562.98 paid in relation to expenses for rectifying the building which the defendant says should be reduced by 1/11th to allow for the fact that the plaintiff is registered for GST and is entitled to claim an input tax credit;
(b) the appropriateness of the payment of $25,850 to a project manager, Mr Sweet; and
(c) costs of a rent rebatement given by the plaintiff in an amount of $32,890.
5 The issues in the case are therefore:
(a) whether Clause 7(c) applies;
(b) if, yes, whether the proviso applies; and
(c) whether the items of damage in dispute are recoverable.
6 The defendant accepts that it has the onus in relation to the exclusion clause and therefore called evidence first.
7 A significant issue was the identification of what had caused the physical loss, destruction or damage in order to consider the application of the exclusion clause. In particular, an issue arose as to the extent, if any, to which a leaking fire hydrant and its repair contributed to the damage.
8 To this end, a number of expert witnesses were called and will be considered below. However, a short background chronology is appropriate prior to the analysis of the expert material.
Brief background
9 The 24 serviced apartments located at the property were known as the Birches Serviced Apartments. The material before me indicates that the apartments were built in the 1960s.
10 An aerial photograph of the apartments also details that the apartments were surrounded by trees, including in the south west corner which trees averaged 25 years old according to an arborist, Mr Lewis.
11 The plaintiff offered the apartments on the property for lease as serviced apartments. More particularly, on 29 October 2004, the plaintiff entered into a lease of the apartments with Kerr and Scheffler Enterprises Pty Ltd, which lease was further renewed in June 2010.
12 During 2007-2011 the defendant insured the plaintiff’s property pursuant to the terms of an insurance policy (which the parties agreed was according to the terms contained in exhibit 1).
13 During July 2008 a leaking hydrant pipe was discovered by the plaintiff’s tenant’s maintenance manager, Mr Currie.
14 In September 2008 the first minor cracking was noticed in apartment 2. Cracking then continued in January/February 2009 such that both apartments 2 and 10 were becoming noticeably worse in the interior and exterior.
15 In May 2009 CE Lawrance, engineers, were called in to view the cracking and temporary interior plastering was applied.
16 However, by January/February 2010 significant cracking had occurred opening up the interior and exterior of the apartments.
17 On 17 March 2010 the plaintiff made a formal claim on the defendant in respect of the property damage.
18 By June 2010 the cracking had progressed such that a 3 storey wall on the western walls of units 2, 10 and 18 was in an unsafe condition.
19 Demolition of the three storey wall therefore commenced on 2 June 2010 with FMG engineering recommending that it was necessary for units 2,10 and 18 to be vacated.
20 During June 2010 – mid 2011 the plaintiff repaired and replaced damaged structures at the building.
21 On 13 October 2010 the defendant refused to provide indemnity on the basis that peril exclusion clause 4(d) applied.
22 Then on 9 September, 2011 the present proceeding commenced.
Witnesses
23 The defendant called one expert, Mr Gregory as to the cause of the damage.
24 The plaintiff called 3 experts: Mr Genitsaris; Mr Lawrance; and Mr Lewis.
25 It also called Mr Bernard Sweet, director of the plaintiff, in relation to the question of rent rebatement; and Mr Michael Sweet in relation to the question of his project management fees.
26 Ms Kerr, manager of the tenant, was also called to confirm the chronology of events, and also give evidence as to the rent rebate. Mr Currie, maintenance manager at the apartments, also gave evidence as to chronology.
27 No substantive issues of credit arose.
What caused the damage/role of fire hydrant ?
Defendant’s expert, Mr Gregory
28 The defendant called a Mr Gregory of FMG Engineering, who was a forensic structural engineer.
29 He completed a large number of reports over the course of 2010 – 2012.
30 In his more recent report of 28 May 2012, he opined that the principal cause of movement was “deep drying of the clay soils, causing shrinkage and relative settlement of the SW corner of the building.”[2]
[2]Report of Mr Gregory dated 28 May 2012 at page 4.
31 A fuller explanation was also set out in an earlier report of 25 June 2010 wherein he included spot level surveys which showed that there was a relative fall of 54mm from the north east corner of the bedroom to the south west corner of unit 2 and a 28mm fall in respect of unit 10.[3]
[3]Report of Mr Gregory dated 25 June 2010 at page 61.
32 He opined that the distress had been caused by “deep drying of the silty CLAY soils due to the trees.” Further, that the major contributing factors were both the trees (which had been amplified by the drought) and the cessation of regular watering in April 2007.[4]
[4]Report of Mr Gregory dated 25 June 2010 at page 65.
33 In terms of the operative mechanism, in his report of 18 January 2011, Mr Gregory opined that the soils dried out and shrink away from the underside of the strip footing which results in a reduction in the contact pressure between the underside of the footing and the foundation soil.[5]
[5]Report of Mr Gregory dated 18 January 2011 at page 1.
34 Mr Gregory rejected the fire hydrant as a causal factor given he did not consider it likely that the water reached the south west corner.[6]
[6]Report of Mr Gregory dated 28 May 2012 at page 8.
35 In an email of 10 January 2011, Mr Gregory described how he used the terms “settlement” and “subsidence” in his reports.
36 Thus he says “settlement” is a term used to describe the downwards movement of the footings and building with differential settlements typically resulting in building damage. Settlement can occur due to the shrinkage of the reactive clay foundations soils due to drying.
37 By way of contrast, he would use the term “subsidence” in relation to the failure of the soil (downwards movement) due to the presence of a mine or other underground excavation.
38 He considered it appropriate to use the term “settlement” rather than “subsidence” in relation to 160 Simpson Street.
39 In oral evidence he also said that “subsidence” was a “sudden type of failure” which might be a landslide or something like that, as compared with moisture changes in soils which occur quite gradually.
40 Under cross examination he conceded that it was possible the water could flow diagonally under the building to the south west corner. He was also “perplexed” that there was no damage to other areas of the building that had trees close to them. He suggested it “may be” because there was a higher concentration of roots at that corner but said “I can’t really answer that” and did not know why the tree roots had dried the soil out so much more in the south west corner.
41 Ultimately he could not discount the possibility that the fire hydrant was a contributing cause, but thought it was “unlikely.”
The plaintiff’s experts
42 The plaintiff called Mr Bill Genitsaris, structural engineer; Mr Lawrance, engineer; and Mr Graham Lewis, arborist;
Mr Genitsaris
43 Mr Bill Genitsaris, Structural Engineer of BSS Design Group completed 3 reports of 5 September, 2010; 27 September, 2010 and 29 October, 2010.
44 In his report of 5 September, 2010 he opines as follows:[7]
[7]Report of Mr Genitsaris dated 5 September 2010 at pages 3 – 4.
· We do not believe that the trees are having any significant effects on the building, but it is possible that they may have had a minor influence as noted below.
· A leaking fire hydrant or mains water supply pipe can contribute to the movement of the footings and hence the building. A water source can saturate the soil, which causes the soil to swell… Once the leaking pipe is repaired, the soil will dehydrate/dry, which resulting clay shrinkage and hence building movements.
· After the leak was repaired, the soil began to dry out, and hence the building settled at the corner. This explanation fits in well with the tenant’s observations, that cracks appeared shortly after the leaking fire hydrant had been repaired…
· We believe that a leaking pipe has contributed greatly and is the main cause of the movements of the south west corner of this building.
· We believe that the movement damage to the south west corner of the building, was caused by a combination of the leaking pipe and the tree root drying effects. We do not believe that the trees are the main or only cause of the movements, due to the fact that we did not observe any damage to any other parts of the building, yet similar sized trees were present in the fact that floor levels revealed that in other areas of the building that the floor did not slope down towards the trees. For this reason we believe that the past leaking pipe has contributed greatly, and is the main cause of the building movements of the south west corner.
45 In his report of 29 October, 2010 he states, inter alia:[8]
[8]Report of Mr Genitsaris dated 29 October 2010 at pages 2 – 3.
· We do not agree that the movements in the building and the fact that the fire hydrants leak was repaired prior to the observations of damage, was coincidental. The chronology is indicative of cause and effect;
· …pressure can easily be developed and water can and often does spread around the leak and eventually travel uphill, in combination with capillary action;
· Once the leak was repaired, and the water source was eliminated, the trees continued to absorb moisture in this area more aggressively than in other areas, which resulted in the sought-west corner building movements;
· We do not agree that the cause of the building movements at the south west is due to the fact that there are more trees beside the corner than at the other parts of the building;
· We do not agree that the irrigation system has contributed to the building movements, due to the fact that the irrigation system is present along the full length of the building, however we did not observe any signs of damage to any other parts of the building.
46 In oral evidence Mr Genitsaris explained that the building moved as a result of changes in moisture content. That a leaking pipe had increased soil moisture content and, once it was repaired, the soil moisture content then dropped which resulted in the corner of the building “settling.” When he referred to “settling” the term often used was “differential settlement” so it had moved differentially to other parts of the building.
47 He said that it was a “combination” of the trees and the leaking pipe and he emphasised that it was a combination. However, he noted that the remainder of the building had performed well although there were trees along both sides of the building with only damage in the south west corner. He further explained the mechanism of the effect of trees such that they absorb moisture which meant the soil shrinks and the building goes down in the region.
48 In terms of the ability of the water to travel, he also gave evidence that the site was virtually flat and, further, that there were old service pipes running towards the south west corner with associated channels which could enable water to travel through.
49 Under cross examination he agreed that trees removed water from foundation soils, causing lowering of soil and shrinkage such that the footing of the building resting on the soils moves. He maintained that the trees became reliant on water from the fire hydrant and once that moisture source was eliminated, the trees kept on trying to obtain that same moisture from that same area which resulted in a change of moisture in that area.
50 He stated that it did not make sense to expect that one small section of the building would move because of the turning off of the micro-irrigation system given it was for both the western and southern sides as well. He disagreed with the suggestion that you would not expect cracking to develop within one month of the repair and suggested that it would depend on factors such as the aggressiveness of the tree.
51 Under re-examination, Mr Genitsaris did not consider that a micro-watering system would have any effect on soil moisture at a depth of a metre or more.
Mr Lawrance
52 Mr CE Lawrance, engineer provided 3 reports of 11 May 2009; 15 February 2010; and 23 August 2010.
53 In his primary report of 11 May, 2009 he opines as follows:[9]
[9]Report of Mr Lawrance dated 11 May 2009 at page 2.
· Although a line of trees has existed along the south and west boundary for many years past history of good performance tends to indicate that, by themselves, are not the main cause of the problem.
· If the leak has been occurring over the last five years it is possible the water has been flowing (under gravity) to the front garden areas. If this is the case the trees would have become accustomed to this regular source of water following cessation of the regular watering regime.
· It is interesting that the distress appears to have developed after repair of the water service. It is therefore possible that the distress is associated with tree drying settlements following a reduction in the amount of water being supplied in the very hot dry summer period.
54 In oral evidence Mr Lawrance emphasised the extremely good performance of the building with trees growing vigorously in the first 5 – 10 years of life and no distress and now there was distress. His experience with leaky pipes was that water from the leaking pipe had been maintaining the moisture content in the clay in the drought and, once it was fixed, there was a change in moisture with cracking developing. Further that you only get distress with a moisture change.
55 He further described the hydrant as a contributing cause, and said that “if we hadn’t fixed the leak and it hadn’t burst we probably would wouldn’t be here because I don’t think there would be a problem.”
56 He also did not see an issue given the damage was first noticed within one month of fixing the pipe. He said that a month or two was within the time frame that he would expect to see small issues happening with moisture change causing a problem.
57 Under cross examination, he suggested that water could have travelled along the footing trenches to the south west corner.
58 In terms of the turning off of the micro watering system in April 2007 his evidence was that it was not a huge amount of water and it did not make sense that the building had then gone through the summer of 2007 – 8 without any signs of distress.
Mr Graeme Lewis
59 Mr Graeme Lewis, arborist of Stem Arboriculture, provided one report of 10 May, 2010 and a further formal witness statement of 14 June, 2012. In his May 2010 report he says:[10]
[10]Report of Mr Lewis dated 10 May 2010 at pages 3 – 4.
· It is certainly possible that a seepage of moisture, from the leak, beneath the building attracted tree roots into the area of the foundation beneath the footing and that as the irrigation was turned off and the leak sealed approximately two years ago, these roots then caused drying of the foundation.
· Given the dimensions of the Silver Birch and their close proximity to the building it is also possible that the tree roots were active in the area of the footing prior to the leak.
· He concludes that “it is possible that the trees are contributing to the building damage caused at the subject site. The notion of the tree roots having been attracted underneath the foundation by the leaking water service is possible. The current drought is also a contributing factor.”
· “It is probable that the cause of building distress is attributable to a combination of a soil moisture deficit; caused by the drought, water restrictions and the drying actions of the Silver Birch.”
60 In his witness statement his summary of opinion includes that:
· Trees are known to cause building damage when the soil foundation shrinks, due to the drying action of the tree roots. As the soil shrinks, due to drying, building settlement and distress may occur.
· The notion that a leaking fire hydrant caused the roots to proliferate in the area of the footings is possible. In general a constant source of moisture will cause tree roots to proliferate. It is beyond my knowledge if the fire hydrant leak caused this to occur.
· It is my experience that the impermeable nature of the silty clay could result in moisture pooling at the interface of the fill and the silty clay, which would result in a mass of tree roots proliferating in the area adjacent the footings. It is possible that once the source of moisture was removed, the roots then continued to draw any available moisture from the silty clay profile until drying, foundation shrinkage and building settlement occurred.
61 He concluded that the cause of building distress was attributable to a combination of a soil moisture deficit; caused by the drought, water restrictions and the drying actions of the trees.
Finding
62 Consistent with all the experts, the damage is attributable to drying and shrinking of the soil caused by drought, and also by the trees.
63 All of the experts also use the term “settlement” or “differential settlement” as operating in relation to 160 Simpson street (eg, see paras 30, 38, 46, 53 and 60, above). Thus, as explained by both Mr Gregory and Mr Genitsaris, it is differential settlement which typically results in building damage.
64 It is unclear as to why it is really necessary to resolve the role of the fire hydrant. However, both parties made submissions on the matter such that it is appropriate to resolve the issue.
65 Thus, the defendant submitted that I should prefer the opinion of Mr Gregory which was based on the improbability of water reaching the south west corner; that his opinion (that there was a proliferation of trees in the south west corner) was supported by the arborist; and that Mr Genitsaris was “evasive” under cross examination.[11]
[11]Defendant’s Outline of Submissions at paras 35 – 39.
66 However, I did not find Mr Genitsaris to be an “evasive” witness. The example cited was that Mr Genitsaris “retracted” his view about “heave”. However, Mr Genitsaris’ initial evidence was that the increased moisture of the fire hydrant caused only a “slight” amount of heave which he describes as “insignificant” in this building. I do not regard his subsequent qualification that there was a possibility of “minor heave” in this very heavy building as a “retraction.” Rather, I found him to be a straightforward and clear witness.
67 In terms of the movement of the water to the south west, Mr Genitsaris pointed out that underground water can move uphill if it is present in sufficient quantities and prevented from leaking away by an impervious layer in combination with capillary action. Mr Lawrance also had no difficulty with such a suggestion.
68 The suggestion that the damage could be explained by the proliferation of trees was really only speculative even on Mr Gregory’s own evidence given he expressed that he was “perplexed” and could not really answer. Mr Lewis also did not necessarily agree that there was a greater concentration near the south west corner, although he accepted there were more near “borehole 1” (which was located in the south west corner).
69 If damage was due to trees alone, as was the effect of Mr Gregory’s opinion, it is inconsistent with the trees not having caused damage to other parts of the building which they also surround, as pointed out by Mr Genitsaris. Such a theory also did not explain the past good history of the building as pointed out by Mr Lawrance.
70 I accept that the fire hydrant was a contributing factor. I say this since:
(a) it is consistent with the opinions of both Lawrance and Genitsaris, who were impressive witnesses;
(b) although the arborist did not so find, it was because he was not qualified to do so;
(c) even Mr Gregory allows for the possibility;
(d) the chronology itself supported the significance of the fire hydrant with no other catalyst identified as likely, particularly since there had been no problems with the building notwithstanding the trees had been there for some 25 years;
(e) the only other possible explanation was the turning off of the micro-watering system in April 2007. However, Mr Genitsaris did not consider that a micro-watering system would have any effect on soil moisture at a depth of a metre or more. The evidence of Mr Lawrance was also that it did not make sense that the building had then gone through the summer of 2007-8 without any signs of distress.
71 I therefore consider that the fire hydrant was a contributing factor to the damage, though, consistent with the evidence of the experts, not the sole factor.
72 In the light of these factual findings, it then remains to consider the proper construction of Clause 7(c).
Construction of Clause 7(c)
73 Clause 7(c) relevantly provides that the company shall not be liable under sections 1 and/or 2 in respect of physical loss, destruction or damage occasioned by or happening through:
c. erosion, subsidence, earth movement or collapse resulting therefrom provided that this Perils Exclusion 7.c. shall not apply if loss, destruction or damage is caused by or arises out of any earthquake or seismological disturbance
…
Provided that Perils Exclusion 7.a. to 7.d. shall not apply to subsequent loss, destruction or damage to the Property Insured occasioned by a peril (not otherwise excluded) resulting from any event or peril referred to in this Exclusion.
74 The plaintiff submitted that the clause was concerned with some violent or sudden translation or removal of the ground or earth.[12]
[12]Plaintiff’s Outline of Submissions at para 26.
75 In closing, it was made clear that this was not just a “violent” incident but that a “radical” change was contemplated, with the significant matter being that there was a translation such that the earth goes “from place A and is no longer there and is now in place B.” This would be the case, for example with a landslide or earthquake.
76 This was also to be compared with the present case where the building was only 54mm lower with no change in the land formation and mere “settling”.
77 The defendant submitted, by way of contrast, that each of the experts was of the opinion that the cause of the distress in this case was a drying of the soils leading to shrinkage and, therefore, downward movement of the foundation soils.
78 In particular, the defendant submitted:
(a) that a natural and ordinary meaning of the word “earth movement” should be utilised, with the only qualification being that it must not be an earthquake or seismological disturbance;
(b) that there is judicial support for such a construction, in particular, in the case of Brightwell Home Units Pty Ltd v United Insurance Company Ltd.[13]
[13]Unreported decision of the Supreme Court of New South Wales, Yeldham J, 22 May 1980
79 As a species of commercial contract, the words of the policy should be given a “business like interpretation” with attention to the language used; the commercial circumstances which the document addresses; and the objects which it is intended to secure.[14]
[14]McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, [22] (Gleeson CJ).
80 The commercial purpose of the transaction in this case is to enable the plaintiff to recover losses in the event of damage and to pass the risk for such damage to the defendant in return for premiums paid.
81 The insurance contract is also to be interpreted so as to require the defendant to indemnify the plaintiff unless the defendant can show that it comes within one of the exceptions.
82 Moreover, although the natural and ordinary meaning is important, it is also necessary to have regard to context in order to consider the appropriate meaning of the phrase in this particular case. Thus, in Darlington Futures Ltd v Delco Australia Pty Ltd,[15] Mason, Wilson, Brennan, Deane and Dawson JJ said:
… the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity.
[15](1986)161 CLR 500, 510.
83 The importance of context is also highlighted by Yeldham J in the Brightwell case.[16] Thus, as his honour notes, in cases which consider the meaning of exclusion clauses referring to “earthquakes or other earth movements”, courts have had little difficulty in construing the expression “earth movements” as something akin to earthquakes or landslides.
[16]Unreported decision of the Supreme court of New South Wales, Yeldham J, 22 May 1980, 24.
84 In terms of context, it is significant that the concept of “earth movement” is included alongside the concepts of “subsidence” and “erosion” and in circumstances where the concept is clearly intended to include an “earthquake” (since it would otherwise be unnecessary to exclude such a phenomenon).
85 According to the Oxford English Dictionary, a “subsidence” is relevantly defined as meaning “[t]he sinking of ... ground [or] a structure … to a low, lower or normal level.”[17]
[17]The New Shorter Oxford English Dictionary (Clarendon Press Oxford, 5th ed, 1993), 3122.
86 The defendant’s own expert also described a “subsidence” as a term used in relation to the “failure” of the soil due to the presence of a mine or other underground excavation.
87 The concept of an “earthquake” is also clearly concerned with a dramatic or violent event.
88 Even the concept of “erosion” (which might be more gradual) involves the notion of the earth not being there any more rather than being in the same place (as here). Thus, the concept of “erode” involves something “wearing away” or being “destroyed”.[18]
[18]The New Shorter Oxford English Dictionary (Clarendon Press Oxford, 5th ed, 1993), 846.
89 In context then, and having regard to ejusdem generis principles, the concept of “earth movement” appears intended to involve some more radical movement than the “shrinking” that occurred in this case.
90 Thus, according to the defendant’s own expert, Mr Gregory, the current facts are not concerned with “subsidence” or “failure” of the soil, but, rather, with a “settling” due to shrinkage from drying.
91 As highlighted already, the other experts also speak of the concept of “settlement” as the appropriate term to describe this case.
92 It is true that in Brighwell, Yeldham J construed “earth movement” as equivalent to its ordinary meaning involving, simply, a movement in the earth. However, His Honour was concerned with a very different clause which excluded “any earth movement.” There is no reference to “any” earth movement in the present case.
93 The defendant suggested that the reference to “collapse resulting therefrom” supported its construction. However, I do not regard this as significant. Rather, I accept the plaintiff’s submission that a “collapse” might occur where something else such as a building, structure or tower collapses as a result of the relevant erosion, subsidence or earth movement.
94 I also consider that the inclusion of clause 4(d) supports the plaintiff’s construction.
95 Thus it excludes damage occasioned or happening through “normal settling, seepage, shrinkage or expansion in buildings or foundations, walls, pavements, roads and other structural improvements, creeping, heaving and vibration.”
96 The parties to the contract have therefore made specific reference to the concepts of “settling” or “shrinkage” where they chose to. If the concept of “earth movement” was intended to cover differential “settling” due to “shrinkage” of the soils (as is the case here), the parties would be expected to have used those words.
97 Moreover, the parties have defined the circumstances in which any “settling” is to be excluded, namely only when it is “normal.” It would render such a limitation ineffective if a settling case could be excluded under clause 7(c) by using an extended meaning of “earth movement.”
98 The presence of clause 4(d) thereby lends further support for the proposition that the concept of “earth movement” should be concerned with a more radical translation of earth, consistent with the other terms found in clause 7(c).
99 I therefore consider that the meaning of clause 7(c), when read in the light of the contract as a whole, is not engaged.
100 If I am wrong about these views, then the meaning of “earth movement” in clause 7(c) is, at least, ambiguous. In such circumstances, the exclusion clause should be construed against the insurer such that I consider that its onus would not be discharged.[19]
[19]Chalmers Leaks Underwriting Agencies v Mayne Nickless Ltd (1983) 155 CLR 279, 282, 285-286; Youell v Bland Welch & Co Ltd [1992] 2 Lloyds Rep 127, 134 (Staughton LJ); Maye v Colonial Mutual (1924) 35 CLR 14, 22; Halford v Price (1960) 105 CLR 23, 30, 34.
101 The defendant has therefore not satisfied me that exclusion clause 7(c) is engaged with the result that the plaintiff is entitled to judgment.
102 In these circumstances it is unnecessary for me to consider the plaintiff’s submissions based on the operation of the proviso.
Damage
GST
103 Mr Sweet conceded that the plaintiff was registered for GST purposes. In such circumstances the plaintiff is entitled to a tax input credit for GST paid to third parties.
104 The plaintiff suggested that the GST was part of the “cost of reinstatement replacement or repair” pursuant to section 1 of the policy. However, the GST would not be part of the actual costs incurred in circumstances where the plaintiff is entitled to a credit for such amounts.
105 The amount claimed by the plaintiff should therefore be reduced by $15,869.36 ( being 1/11th of the expenses).
Project Manager
106 Pursuant to section 1 of the policy, an indemnity was given in respect of the damage in accordance with the “applicable Basis of Settlement.” In relation to property, this includes “the cost of reinstatement, replacement or repair” in accordance with the provisions of a (Reinstatement or Replacement and Extra Cost of Reinstatement) Memoranda.
107 That Memoranda then sets out the basis upon which the amount payable is to be calculated which shall be “the cost of Reinstatement of the Damaged Property Insured.” Where property was damaged, this was further defined as “the repair of the damage and the restoration of the damaged portion of the property to a condition substantially the same as, but not better or more extensive than, its condition when new.”
108 The Plaintiff claims $25,850 to be paid to Michael Sweet with respect to “Project Management Fees” which was part of the cost of reinstatement, replacement or repair within the above provisions.
109 Mr Sweet was called and gave evidence. He presented as a somewhat exuberant character, and was a family member. However, he produced evidence of his project management experience. He also gave evidence that he reached an agreement with his brother to charge the amounts set out in invoices of 23 June, 2010; 17 February 2011; and 25 July 2011 on the basis of the amount of work involved (which invoices were paid).
110 He also described the work in remedying the building which was complicated and substantial and involved the organising of permits and co-ordination of a large number of contractors and specialists.
111 There were further a substantial number of emails (some 2800 pages) which support that work was done.
112 The defendant objected to the amount claimed as excessive. However, it did not really formulate why the amount claimed was not properly classified as a properly incurred “cost” within the meaning of the policy.
113 Moreover, as the proponent of this issue, it did not suggest what, if, any, different amount was appropriate. Thus, there was nothing shown by the defendant to suggest that the plaintiff could have got the project management work done more cheaply elsewhere. Nor did the defendant adduce evidence which suggested that the work done was unreasonable, excessive, or disproportionate to the total expenses incurred of some $175,000.
114 The plaintiff is entitled to the costs incurred in relation to Mr Sweet.
Rental abatement
115 The plaintiff justified this claim (10 months loss of rent at $3289 a month) on the basis that it was a consequential loss pursuant to section 2 of the policy. The general “Basis of Settlement” in this case was said to be loss of Gross Profit due to a reduction in Turnover in item 1.
116 More specifically, the plaintiff relied on the memoranda to section 2 which provided that, “except to the extent this Policy is hereby modified under the following Memoranda, the terms, Conditions and limitations of this Policy shall apply.”
117 Included in that memoranda was a specific clause dealing with “rent receivable” which provided as follows:
The insurance under this Memorandum is limited to loss of rent including expenses paid by and/or expenses recoverable from tenants and lessees in respect of rental of the Premises and the amount payable as indemnity shall be the actual shortfall of such amount(s) receivable, during the Indemnity Period in consequence of the Damage, together with the additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing such loss; less any sum saved during the Indemnity Period in respect of such of the charges and expenses of the Business, payable out of rent and other expenses receivable, as may cease or be reduced in consequence of the Damage (emphasis added)
118 The evidence of Mr Bernard Sweet was that he made an agreement with Ms Kerr on 22 June 2010 to reduce rent for a period of 10 months because of the damage to the rooms. That Ms Kerr asked for a reduction and he agreed to it because it seemed fair and equitable.
119 The evidence of Ms Kerr was also that they discussed a rent reduction because of the damage at the building and that they derived a formula based on how much it was affecting her occupancy rates.
120 This was in the context where:
· Ms Kerr was a long standing and good tenant (of some 10 years) that the plaintiff was keen to keep;
· The plaintiff’s own engineer said the units were unfit for occupation in June 2010;
· That there was agreement by reference to the fact 3 units were unavailable. Given that there was a potential downgrade of the tenant’s rating (because of the disruption and distress of the building works generally), they also added in a fourth room and therefore adjusted proportionally on the basis of 4 units.
121 The plaintiff submitted that it could have suffered a much larger loss if Ms Kerr had chosen not to renew the lease. Alternatively, if she had taken the matter further by relying on clause 10 of the lease.
122 The defendant suggested:
· that Ms Kerr’s evidence was that there had been no actual effect on ratings;
· that clause 10 of the lease would not apply;
· that the evidence suggested that the abatement agreement was unnecessary (since the evidence of Ms Kerr was that the rebate agreement did not have an effect on her decision to execute the renewal of the lease)
123 The evidence of Ms Kerr was that her rating could be affected in the long term because people see a cracked building and want to know why, and don’t want to come back when they seek such things as scaffolding.
124 However, I am not convinced that clause 10 of the rental agreement would be invoked given it only applied where there was fire lightning storm tempest flood riots strikes malicious damage aircraft and aerial devices or articles dropped therefrom explosion or earthquake.
125 I am also unable to be satisfied that the plaintiff is entitled to lost rental pursuant to the indemnity provided in section 2, item 1 as the plaintiff suggested. Thus, I do not have sufficient evidence from which to calculate the relevant matters set out therein. For example, I am unable to determine the “rate of gross profit” which involves consideration of “uninsured working expenses.”
126 However, the memoranda to section 2 modifies the policy. Moreover, given the “rent receivable” clause makes provision for the “amount payable as indemnity” (as the difference between the rent shortfall and any sum saved) it appears to make exhaustive provision for the circumstances in which a loss of rental might be claimed.
127 The significant part of the clause is that the shortfall be “in consequence of the Damage.”
128 Although there may be issues as to whether the abatement was really necessary, I am satisfied that it was given “in consequence of” the damage within the meaning of this clause. Put another way, it was clear on the evidence that, but for the damage, no such abatement would have been given.
129 The claim for lost rental is thereby sustained and the plaintiff is entitled to the amount sought.
Conclusion
130 There will be judgment for the plaintiff in an amount of $191,583.62 ($207,452.98 - $15,869.36).
131 I will hear from the parties as to the costs.
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