Cic Insurance Ltd v Bankstown Football Club Ltd

[1995] HCATrans 327

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S111 of 1995

B e t w e e n -

CIC INSURANCE LIMITED

Appellant

and

BANKSTOWN FOOTBALL CLUB LIMITED

Respondent

BRENNAN CJ
DAWSON J
TOOHEY J
GAUDRON J
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 16 NOVEMBER 1995, AT 10.19 AM

Copyright in the High Court of Australia

MR B.W. RAYMENT, QC:   May it please your Honours, I appear with my learned friend, MR. J.G. DUNCAN, for the appellant.  (instructed by Abbott Tout)

MR P.M. JACOBSON, QC:   If the Court pleases, I appear with my learned friends, MR J.B. SIMPKINS and MR B. DE BUSE, for the respondent.  (instructed by Thomas Tarmo & Co)

MR RAYMENT:   Your Honours, we have handed up through the Court officer a chronology and an outline of argument. 

BRENNAN CJ:   Perhaps you should give us a little time to read it since we have not had the advantage of seeing it beforehand.

MR RAYMENT:   Thank you, your Honour.

BRENNAN CJ:   Yes, Mr Rayment.

MR RAYMENT:   Your Honours, could I just highlight just a few aspects of the chronology before I start.  Your Honours, the damage to the club premises which occurred during the period of insurance was damage to about a quarter of those premises as appears from the finding made, but the rectification cost of the damage to the first fire would have been about a quarter of a million dollars by comparison with the replacement cost of the entire building estimated at about $1 million following the March 1993 fire.

Your Honours will have noticed that when my clients purported to cancel this policy they refunded the premium by crediting the broker’s account with the amount of the premium and the evidence indicated from the broker that it was asked by the Club to hold those moneys in its account until further instructions were given to the broker indicating awareness that the money had been refunded.  So, there was both a demand for the premium by the solicitor and an actual receipt of the moneys through the agent of the Club.

When the summons was issued in this case on 24 September 1992, the cancellation of the insurance for the unexpired portion of the term was not put in issue in the summons. There was evidence given, your Honours, which is referred to in the judgments of the President and Mr Justice Powell that if the cancellation had been contested by the Club, CIC would have sent out a section 58 notice, and that evidence is referred to in Mr Justice Powell’s judgment at page 526 of the appeal book. That was a statement tendered before his Honour upon which there was no cross‑examination.

Your Honours, could I go straight to the policy which is to be found at 242.1 in volume 1 of the appeal book.  For the purposes of disposing of the main grounds of appeal, it is only necessary to notice several portions of the policy.  Your Honours, at page 242.1, line 9, the principal indemnity agreed upon between the insured and the insurer is set out in the printed terms:

the Company agrees to indemnify the insured as specified herein against loss occurring during the Period of Insurance stated in the Schedule or any renewal thereof.

That was the principal covenant of the policy.  The indemnity was more fully set out at the top of 243, about line 3:

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.

And that is:

In the event of any physical loss, destruction or damage.....not otherwise excluded happening at the Situation of the Property Insured described in Section 1.

The applicable basis of settlement appears lower on the same page and it is paragraph (a) of the basis of settlement:

On buildings, machinery, plant and all other property and contents.....the cost of reinstatement, replacement or repair in accordance with the provisions of the Reinstatement and Replacement and Extra Cost of Reinstatement Memoranda as set out herein.

With a proviso:

that if the Insured elects to claim the indemnity value of any damaged property, the Company will pay to the Insured the value of such property at the time of the happening of the damage or at its option reinstate, replace or repair such property or any part thereof.

So if the insured elected to claim the indemnity value the insurer might decide, itself, to reinstate the premises, but the primary provision of the policy was that the insured would be entitled to the cost of reinstatement in accordance with the memoranda referred to.

DAWSON J:   What is the indemnity value?

MR RAYMENT:   The indemnity value is, as it says on line 20, the value of the property at the time of the happening of the damage.  The difference would be, in our submission, that one would examine the value of the property damaged and not its cost of repair.  So that one would not, as it were, get new for old; one would get the diminution in value created by the relevant event.  One would have, as it were, money rather than performance of a promise to reinstate, or to pay the cost of reinstatement.  There was evidence given at the trial of what the indemnity value would have been in relation to the first fire, and for that matter, the third fire.

DAWSON J:   But the answer is it is the diminution in value of the property as a result of the damage, which may be different from the cost of repair.

MR RAYMENT:   Yes.  Now, your Honours, that then takes one by the terms of paragraph (a) of the basis of settlement to the reinstatement and replacement memorandum on page 244 and between lines 10 and 15 one finds:

REINSTATEMENT AND REPLACEMENT
(Applicable to buildings, machinery, plant and all other property and contents; other than those specified in -

the irrelevant sections -

The basis upon which the amount payable is to be calculated shall be the cost of reinstatement of the damaged property insured at the time of its reinstatement -

and then the word “reinstatement” is defined opposite margin note 15:

For the purpose of the insurance under this memorandum ‘reinstatement’ shall mean:

.....

(b)  Where property is damaged:  the repair of the damage and the restoration of the damaged portion of the property -

that language again -

to a condition substantially the same as, but not better or more extensive than, its condition when new.

And, your Honours, I think it is right to say that nothing turns on the extra cost of reinstatement memorandum which is on page 245 which refers to additional costs of reinstatement by reason of certain matters but always with respect to the damaged property.

GUMMOW J:   Sorry, whereabouts on 245?

MR RAYMENT:   At the top of 245.

GUMMOW J:   Extra cost?

MR RAYMENT:   Yes, your Honour:

This Policy extends to include the extra cost of reinstatement (including demolition or dismantling) of damaged property necessarily incurred to comply with the requirements of any Act of Parliament -

et cetera.

DAWSON J:   Do you say that places an obligation on the insured to reinstate the building and then claim the cost?

MR RAYMENT:   The combined effect of all of those provisions, in our submission, is to give the insured an option.  It can claim the indemnity value, in which case it will be entitled to that unless the company elects itself to reinstate the premises, or it can reinstate the damaged portion of the property and claim the cost when incurred of the reinstatement of the premises.

TOOHEY J:   What is it that limits the insured in those circumstances to reinstating first and then claiming the cost of reinstatement?

MR RAYMENT:   What is it that causes that result?

TOOHEY J:   Yes, as opposed to assessing the cost of reinstatement and claiming for that amount.

MR RAYMENT:   It is the choice.  Page 243 gives an option to the insured to either claim the value of the property at the time of the happening of the damage - that is called the indemnity value - or the cost of reinstatement, replacement or repair.  Your Honours, there is an express provision about it on page 244 as a provision to the reinstatement and replacement memorandum, provision (iv):

No payment beyond the amount which would have been payable under this Policy if this memorandum had not been incorporated herein shall be made until a sum equal to the cost of reinstatement shall have been actually incurred -

That is the provision which would face the insured with a choice.  He either claims money as the indemnity value or he reinstates and, as and when he does so, obtains the cost of it from the insurer.

TOOHEY J:   I am not clear about that.  I mean, it says:

No payment beyond the amount which would have been payable under this Policy if this memorandum had not been incorporated -

If the memorandum had not been incorporated, presumably you are back to the basis of settlement under paragraph (a), are you?

MR RAYMENT:   Yes, I think that is right, your Honour.

TOOHEY J:   If you are, what is it then that confines the insured, absent an election to claim the indemnity value, to incurring the cost first - that is, the cost of reinstatement - before claiming under the policy?

DAWSON J:   It seems to be suggested by clause (i) under “Provisions”.

TOOHEY J:   Yes, but my question is really postulated on the basis of what is the position if the memorandum had not been incorporated?

MR RAYMENT:   If the memorandum had not been incorporated, then it would be necessary, I suppose, to construe the cost of reinstatement mentioned about point 20 on page 243 and the question would be does it mean the estimated cost or the actual cost?

TOOHEY J:   Yes, well that was what was behind the question.

MR RAYMENT:   Yes.

TOOHEY J:   And is it your proposition that the cost of reinstatement requires reinstatement in order to assess the cost?

MR RAYMENT:   Yes, if you compare it with the indemnity value, we would submit that is the notion.

TOOHEY J:   Not the cost of reinstatement.  I do not know whether anything would turn on that distinction.

MR RAYMENT:   Yes, maybe, your Honour.  Maybe there is that distinction there.

TOOHEY J:   But any rate, that is the submission, Mr Rayment, is it, that ‑ ‑ ‑

MR RAYMENT:   Yes, your Honour, on that point.

TOOHEY J:    ‑ ‑ ‑ absent an election to claim indemnity value, no money is recoverable until reinstatement has actually taken place.

MR RAYMENT:   That is the submission, yes, your Honour.  But, what I am seeking to draw attention to ‑ ‑ ‑

BRENNAN CJ:   Mr Rayment, could I just interrupt you for a moment longer to ask:  is it submitted, or is it accepted, that the extent of the liability of the insurer under section 1 and the memoranda to section 1 does not exceed the liability to indemnify in the opening clauses of the contract?

MR RAYMENT:   We so submit.  We would submit that the primary provision in this policy is to be found on page 242.1 in the opening words.

BRENNAN CJ:   Do you mean that that limits the construction of what follows?

MR RAYMENT:   Yes, your Honour.  It states the indemnity:

the Company agrees to indemnify the Insured as specified herein ‑

So it is going to be extricated or, perhaps, made more specific.  But, it is against:

loss occurring during the Period of Insurance.

That is the primary provision, in our submission, of this policy and it tends to be confirmed, we would submit, when one looks at the words ‑ ‑ ‑

BRENNAN CJ:   I do not want to take you out of your course of argument because I imagine that if that is your argument, it will be developed in the course of dealing with the difference between indemnity value and other value later on.  So, develop it in whatever way you think fit.

MR RAYMENT:   I did wish to draw attention, your Honours, to that aspect of the policy in its opening words and then to draw attention to the words which I highlighted in reading what is on page 244 about reinstatement and replacement.  It is the damaged property insured and it is the damaged portion of the property which must be reinstated so as to impose a liability upon the insurer to make a payment under the reinstatement memorandum.

DAWSON J:   I am puzzled as to how you can contemplate that the memorandum does not apply because if you look at basis of settlement on page 243, it is a basis of settlement in accordance with the provisions of the reinstatement and replacement memoranda and that is contained in the memoranda which contemplates, apparently, that it might not apply.  I do not follow it.

MR RAYMENT:   No.  The words within (iv):

If this memorandum had not been incorporated herein -

feferred to a possibility that is hard to understand.

TOOHEY J:   Well, is it?  I mean, is it hard to understand?  I rather read it as simply qualifying the circumstances in which the cost of reinstatement had been actually incurred and that, absent that, then no payment beyond the amount which would have been payable under the policy if the memorandum had not been incorporated, can be claimed.  In other words, if you go back to the basis of settlement, paragraph (a), and you can find some basis of indemnity as you can, then if moneys have not actually been expended the insured is limited in its claim to what appears under basis of settlement.

MR RAYMENT:   Your Honour, it may be that the draftsman had the following in mind - - -

DAWSON J:   Basis of settlement refers to the memoranda, will do not worry about it.

MR RAYMENT:   It may be that the draftsman had the following procedure in mind, that if the replacement and reinstatement and extra costs of reinstatement memorandum had not been included at all, then the only part of the basis of settlement which would be left is the proviso.  In other words, there would be only an entitlement on the part of the insured to what is the called the indemnity value of the damaged property.  That may lie behind the way in which this has been drafted.

BRENNAN CJ:   Mr Rayment, we can each of us read this for ourselves and, no doubt, derive our own problems from it.  Perhaps it is best if you were to take us in the order which you desire through each of the turning points of this rather complex argument.

MR RAYMENT:   Yes, your Honour.  We start with the proposition that what is insured under this policy is one thing only, that is loss occurring during the period of the insurance, and that what can be reinstated, in our respectful submission, and for which the insurer will be liable to pay the cost is the damaged portion of the property, that is the portion of the property damaged during the period of insurance, and on the mere face of those words, in our respectful submission, loss occurring as a result of damage which occurs after the period of insurance would not be the subject of any indemnity under the terms of this policy.

Your Honours, Mr Justice Kirby in the Court of Appeal, with whom Mr Justice Priestley ultimately agreed, put two propositions to the contrary of that view.  The first depended upon the meaning given by his Honour to the expression “reinstatement” in the policy.  His Honour read the word “reinstatement” as requiring in all circumstances the insurer to meet the cost of the restoring of the property to whatever condition it had been in before the first damage during the period of the insurance occurred.  So that if you have a circumstance such as the following, a block of flats is insured and one flat is damaged during the period of insurance and before the building is repaired the rest of the building is destroyed by fire, the proper construction of a policy such as that would be to require not only the restoration of the damaged flat, but the restoration of the whole building because the word “reinstatement” has been used in the policy.

He founded it on two authorities, the first being the dissenting judgment of Sir Garfield Barwick in the Atkinson‑Leighton Case which is Government Insurance Office of New South Wales v Atkinson‑Leighton Joint Venture 146 CLR 206 and, your Honours, he took portion of the Chief Justice’s dissenting judgment at page 219 as his starting point in relation to what “reinstatement” was. Your Honours, it would perhaps be convenient to look at what Sir Garfield Barwick said on page 218 which is, more or less, to the same effect as what he says on 219. Half-way down 218 ‑ ‑ ‑

BRENNAN CJ:   What is the comparison between the policy in this case and the present policy?

MR RAYMENT:   We would submit minimal.  There is a minimal degree of comparison.  The terms of the policy, your Honours, are set out fairly extensively in the Chief Justice’s judgment at pages 209 to 212 and the case actually turned upon the deductibles provision in the policy, and the question whether each occurrence gave rise to a separate deductible or whether, when there was a storm which caused further damage to property that had not already been repaired because of an earlier storm, the cost of reinstating that damage was subject to the one deductible only which applied to the original storm.

TOOHEY J:   Just at a quick glance, this policy does not seem to use the word “indemnify” but I may have missed something.

MR RAYMENT:   It does not use the word.  It was construed as a policy of indemnity by Justice Mason, and it was characterised, I suppose, as a policy of indemnity but it does not use the word.  Your Honours, at page 218, the Chief Justice says:

In the case of an insurer’s promise to indemnify for damage to property, once the circumstances call for its performance by the payment of money, the insurer will be bound to perform and cannot, in my opinion, excuse himself because the costs of his indemnity are greater as the result of some intervening event against which the insured was not insured but which in fact increased the cost of reparation of the property to the pre-damaged condition.

That was a dissenting view of his Honour’s.  At 219, his Honour gives an example, about a third of the way down the page, and it is this passage that the President in the Court of Appeal had in mind:

Suppose an insurer against damage by fire has become bound to reinstate the damaged property, a fire having damaged the property during the currency of the policy.  Suppose the term of the policy expires whilst the promise to reinstate is still not fully performed.  Then suppose some event to occur which renders the reinstatement more costly, i.e. to occur after the term of the policy has expired and before the reinstatement to the pre-damaged condition is complete.  None the less, in my opinion, the insurer would be bound to reinstate.  It would be no answer for him to say that the added cost was due to an uninsured risk.  The true analysis is that the obligation to reinstate having attached during the currency of the policy, its performance is required whatever it costs and however the cost is increased by events which could not in themselves have given rise to a claim under the policy.

And he refers to the decision of the Supreme Court of Victoria in Smith v Colonial Mutual and says that it is correctly decided and “is illustrative of this principle”.

Now, your Honours, in the first place we draw attention to the facts which gave rise to those remarks on the part of his Honour.  One can find these things apparent from page 212 of the report.  First that from the statement of facts the damage which occurred there were, from 20 February 1974 until mid‑May, several storms; then there was another major storm in May 1974.  His Honour says at page 212 - and I am reading the last sentence of the paragraph beginning with the word “commencing”:

during this period of repair damage was done to the embankment under repair and within the area of damage of the February storm

So that what was damaged was property which had already been damaged in the February storm.  It was not, in other words, damage to property which had not been previously damaged.  In the next paragraph, he says:

On 25th May 1974, a very severe storm (the May storm) did considerable damage to the repaired embankment.

So again, the May storm seems to have been something which caused further damage to the area originally damaged.

At page 220 of the report his Honour distinguishes specifically the case of new events which damage property undamaged before the reinstatement commenced.  In the last paragraph on page 220 he refers to “cl. 2 of the ‘Endorsements’” and says this:

It was claimed that the clause indicated the importance of treating each episode as itself a source of claim and therefore each attractive of the deductible provision of the policy.  It may be granted that each occasion of damage to an undamaged portion of the embankment would give rise to a separate claim and would attract the provisions as to deductibles.  But that does not lead, in my opinion, to the conclusion that any damage to the already damaged embankment making the work of repairing the damage which had already occurred more costly ought to be treated as disparate from the costs of repair of that damage and as a separate claim under the policy.  In my opinion, this is not so.  The respondent would have the benefit of the clause in respect of an incident damaging an undamaged portion of the embankment.

That is the deductible clause:

But the clause has no bearing on an incident which in causing damage to a part of the embankment under repair increases the cost of reparation.

So, his Honour is making the very distinction which, we would submit, this policy makes, and accepts that if new damage is caused to a portion not previously damaged it would not be part of the operation of the doctrine of any notion of reinstatement; that an obligation to reinstate the previously undamaged portion would arise on the part of the insurer.  His Honour uses that for the purposes of saying that as he would see the matter that is where the insurer would be entitled to the benefit of the deductibles provision.

The difference between his Honour and the majority in the case was on the very question whether each storm gave rise to a separate deductible, but the other judges in the case held that each time there was a storm there was a new deductible applicable in respect of the matter.

TOOHEY J:   You gave the illustration a moment ago of a unit or flat which was damaged where subsequently there was damage to other units or flats, but on any view could that damage, which by definition is not damage to the insured property, result in an additional claim?

MR RAYMENT:   If the original policy was in respect of the block of flats - I did not have in mind a strata title situation, but a block of flats, a company title block or something of that nature ‑ if the original insurance was in respect of the whole block and the reasoning of the President is correct, then the obligation to reinstate in his view extends to restoring the whole property to its condition immediately before whatever happened during the policy.

TOOHEY J:   Are you saying that because that was an illustration given by the President ‑ ‑ ‑

MR RAYMENT:   No, we put it as a consequence.

TOOHEY J:   ‑ ‑ ‑ or you say it is a consequence of the President’s reasoning?

MR RAYMENT:   Yes, your Honour.

TOOHEY J:   But if we are talking about a policy that applied only to unit 1 in a block of flats ‑ ‑ ‑

MR RAYMENT:   That would be different.

TOOHEY J:   ‑ ‑ ‑ on the view taken by the President, it would not follow that damage to other units would increase the cost of reinstatement of the insured premises.

MR RAYMENT:   No, your Honour, certainly not.

TOOHEY J:   Yes, I understand.

MR RAYMENT:   Your Honours, the other foundation for the view of the word “reinstatement” to be found in the President’s judgment is said to be the case of Lumley General Insurance v Vintix (1991) ‑ ‑ ‑

BRENNAN CJ:   Just before you leave GIO, we do not have any deductibles provision here referring to occurrences, do we?

MR RAYMENT:   No.

BRENNAN CJ:   So we are concerned only with so much of the GIO Case as relates to what might be regarded as the chief liability from which the deductibles otherwise would have been taken.

MR RAYMENT:   Yes.  It is really almost by analogy that the President uses Atkinson‑Leighton. He takes the language at 218 to 219 and says what that shows is that actual rather than notional reinstatement is always required, but, in our respectful submission, when you look at what the Chief Justice was saying, he was not intending to assert anything more ‑ and this was a minority view, as it happened, on the policy there under consideration ‑ that if you need to spend more money reinstating that which was damaged during the period of insurance then that will be recoverable if the insurer elects to reinstate.

BRENNAN CJ:   And that is referable, as the Chief Justice says, only to the portion of the embankment that was first damaged.

MR RAYMENT:   Yes, your Honour, that is what we would submit about this case.

BRENNAN CJ:   But of course, if that portion is further damaged, then there is an obligation to reinstate the whole, including the further damage.

MR RAYMENT:   Yes.

BRENNAN CJ:   Why is that not against you?

MR RAYMENT:   There is at any rate if the insurer elects to reinstate.

BRENNAN CJ:   Be it so, that might be a different point, might it not?

MR RAYMENT:   It was important to Mr Justice Stephen in the case, your Honour.

BRENNAN CJ:   That may be so but, if we are endeavouring to derive whatever can be derived from the Chief Justice’s judgment, it is against you.

MR RAYMENT:   It is against us if what was in issue here was in effect an additional cost of reinstatement of what had been damaged in the first place, but we would submit not otherwise.

BRENNAN CJ:   Let us assume that the bar was damaged in the first place and in the second place what was left of the bar and the foyer were damaged.  To reinstate the bar, it is necessary, let us assume, to reinstate both.

MR RAYMENT:   Yes.

BRENNAN CJ:   Why does that not fall precisely within what the Chief Justice says at pages 220 to 221?

MR RAYMENT:   Because his Honour has in mind, as a starting point for his discussion at page 219, that anything which was undamaged on the first occasion if damaged would be outside the obligation to reinstate.

BRENNAN CJ:   But that was where physically the undamaged portion could be distinguished from or was severable from the damaged portion.  Here, I do not know.  It may be that what was ultimately damaged was some distance away from the originally damaged portion but, if it was not, then it seems to me that you derive little assistance from this.

MR RAYMENT:   Your Honours, it is a question of identification of what was damaged, in our respectful submission.

BRENNAN CJ:   Yes, quite.  What is the finding on that, if it be relevant to your argument?

MR RAYMENT:   Your Honours, there was only a portion - speaking very generally.  I will need to look up the page references for this.  Effectively there was a portion only of these premises which was destroyed in the first fire.  The balance of the premises was effectively destroyed, such that the whole building had to be demolished.  There were large portions of the premises, undamaged in the first fire, damaged in the third fire in this case.  It is for that reason that, in our respectful submission, the Court of Appeal was wrong.  I will need to turn up the passages in the judgments below which deal with that.

BRENNAN CJ:   Is there a plan of the premises at all?

GUMMOW J:   I was wondering about this.  It struck me as a bit mysterious what was actually happening in terms of actually seeing some plans.

MR RAYMENT:   I will ask those beside me, if I may, to assist me to answer that question.  There is, at page 384, a proportional sketch of the premises.  But it is not just a question of the same sections of the premises being damaged again, as it were, later.  I will need to come back to the references.

Your Honours, the second authority referred to by the President on
this question of the extent of the obligation to reinstate is the Court of Appeal’s decision in Lumley General Insurance v Vintix Pty Ltd (1991) 24 NSWLR 652. Your Honours, there the premises were damaged as a result of the Newcastle earthquake and the question was the extent of the entitlement of the insured to recover the cost of reinstatement. There were two relevant matters in the case: the first was that there was a second incident during the policy period which consisted of a lot of water damage, the earthquake having occurred some two or three months later. While the premises were open to the elements, heavy rains occurred, water damage occurred and the cost of reinstatement of the premises was increased by that fact.

The second was that some requirements of the Newcastle Council changed with respect to what had to be spent to reinstate the premises because of what they called the earthquake code which they introduced in 1990.  The questions in the case were:  could the additional cost of complying with the earthquake code be brought within the policy and second, could the costs of repair of the water damage be brought within the policy?

TOOHEY J:   But in Lumley, Mr Rayment, I do not think there is any question of any additional damage arising outside the period of the policy.

MR RAYMENT:   That is so.

GUMMOW J:   There seems to have been some concession about reinstatement too, 657B.

MR RAYMENT:   Yes, and what was found about the water damage was that it was specifically covered by the - this case really is used twice by the President.  It is first used in relation to his view of the word “reinstatement” and he takes the words which one finds in the headnote, an actual not a notional reinstatement, as the measure of the indemnity and, secondly, he uses it for a suggestion that when there is a cause of damage which is covered by the policy the insurer will always be liable for whatever consequences flow from that same cause. 

Now, one question which arose about the water damage was was it caused by the earthquake so that it was within that part of this policy which covered the effects of such an event and the Court of Appeal said that the common sense view of the matter was that the cause of the water damage was the rain not the earthquake.  That is at 659, but nevertheless they said it is covered because the policy also covers storm and tempest and it occurred during the policy period so that there must be an indemnity for it, the only question being whether that point was available to be taken in the Court of Appeal as is discussed by Mr Justice Meagher at 659.    Now, in our submission, that case similarly would not establish any principle which would make the word “reinstatement” do the work suggested by the learned President. 

Your Honours, the second way in which the President put it was on the basis of this so-called causal principle.  If I could go to 656 in the Vintix case, his Honour took a remark of Mr Justice Meagher’s and, in effect, suggested that there was referred to some general principle of insurance law in this case about causation, but we would submit that it is not. His Honour sets out what the policy said at 656 below letter D:

The policy was a fire policy which was first issued on 7 October 1987 and was renewed from time to time, the last relevant renewal being effected on 7 September 1989.  Under it the insured’s building was insured against “destruction or damage directly caused by” (inter alia) “earthquake”.  The insurer under the policy promised in the happening of the event insured against to:

“...PAY to the Insured the value of the Property at the time of the happening of its destruction or the amount of such damage or at its option reinstate or replace such Property or any part thereof.”

Your Honours, his Honour the President also referred, if I may go back to Atkinson-Leighton, to something said by Justice Mason in that case.  At page 243, his Honour there is dealing with an argument, described about line 8:

The contrary argument of the appellant is that the policy should be read as a whole and that, so read, it requires that damage caused to the embankment is to be attributed to the particular occurrence which actually, that is physically, brought it about and that the damage so brought about is to be separately assessed so that the “Deductibles” provision applies to each such assessment of damage in respect of each occurrence.

Now, in discussing that he refers to memorandum 2 at the foot of page 243, and then the President picks up the judgment in the last sentence on 243 about memo 2:

It measures the extent of the appellant’s liability by reference to the cost of “repairs necessary to restore” the property and, in so doing, it assumes that there is a liability to pay or make good the damage which is physically caused by the particular occurrence arising from a non‑excluded cause.

The example given by Mahoney JA in his dissenting judgment of damage done to work of restoration by an excluded cause, namely fire, is a telling one.  It can scarcely have been intended by the parties that the appellant would be liable for damage done by a totally excluded cause constituting a separate occurrence merely because the damage was done to restoration work undertaken by way of repair in respect of damage arising from a non‑excluded cause.

Now, in our respectful submission, nothing follows of a general nature from those remarks.  They are remarks about the particular policy and they are not illustrative, in our submission, of any general principle of insurance law.  The beginning and end, in our submission, of the promise to indemnify contained in this policy relates to the words “loss occurring during the period of insurance”.  It does not refer to the consequences of any cause arising during the period of the insurance whenever those consequences may occur.  So, in our respectful submission, neither of the bases nominated by the President for the alternative views would support the existence of the principles to which he refers.

In our respectful submission, your Honours, the starting point is different in our understanding of policies such as the present one.  May I go, if your Honours please, to Castellain v Preston (1883) 11 QBD 380, which is a case often resorted to to explain the nature of a policy of insurance. At 386, in the judgment of Lord Justice Brett, some general principles were referred to about half-way down 386:

In order to give my opinion upon this case, I feel obliged to revert to the very foundation of every rule which has been promulgated and acted on by the Courts with regard to insurance law.  The very foundation, in my opinion, of every rule which has been applied to insurance law is this, namely, that the contract of insurance contained in a marine or fire policy is a contract of indemnity, and of indemnity only, and that this contract means that the assured, in case of a loss against which the policy has been made, shall be fully indemnified, but shall never be more than fully indemnified.

We would respectfully stress the words “in the case of a loss against which the policy has been made”:

That is the fundamental principle of insurance, and if ever a proposition is brought forward which is at variance with it, that is to say, which either will prevent the assured from obtaining a full indemnity, or which will give to the assured more than a full indemnity, that proposition must certainly be wrong.

BRENNAN CJ:   Is this a general attack upon the validity of reinstatement clauses?

MR RAYMENT:   No, your Honour, no.  There is no difficulty about an insurer promising to pay the cost when incurred of reinstatement.

BRENNAN CJ:   To the condition as new.

MR RAYMENT:   To the condition as new.

BRENNAN CJ:   Even though the condition was old.

MR RAYMENT:   Yes, your Honour, no difficulty about that.

BRENNAN CJ:   Why not in the light of Castellain v Preston, in the way in which you are citing it?

MR RAYMENT:   But his Honour was not, in our respectful submission, seeking to say that an insurer could not agree to give new for old.  It is, in our respectful submission, open to an insurer to make the promise which was made in this case notwithstanding what is said in Castellain.

BRENNAN CJ:   And therefore open to the insurer to promise to reinstate that which is damaged even though later and uninsured events occasioned increased cost in the fulfilment of that promise.

MR RAYMENT:   Your Honour, I am not seeking by these submissions to make the latter concession.

BRENNAN CJ:   No, I appreciate that.  I just wonder how you avoid it if you once accept that a promise to reinstate is or is capable of being a promise of indemnity, because the nature of the promise is different, is it not?  It is to do something as distinct from to pay something?

MR RAYMENT:   It is to do something.  Well, it depends.  If the insurer is exercising his election to reinstate, then the Colonial Mutual Case referred to in Atkinson‑Leighton as understood, for example, in Justice Stephen’s judgment would establish that, if the cost became greater as a result of some unforeseen event during the restoration period, then it will be for the insurer to pick up that cost; that is, if he is reinstating.  It does not follow from that - and Justice Stephen makes it clear - that that principle is limited to a case where the insurer takes possession of the property and reinstates it.  He then takes the risk that while it is in his care events might occur which render the work he is doing more expensive to him.  That is his problem because he has elected to reinstate.

It would not follow, in our respectful submission, necessarily that where the insured chooses, if he does choose, to reinstate the premises and the expense of doing so becomes much greater by reason of uninsured events, that that expense would be recoverable under all policies referring to reinstatement.

BRENNAN CJ:   How do you distinguish the two cases?

MR RAYMENT:   In the one case the insurer has taken over the property
and set about a task for himself of reinstatement.  In the other case the insured has merely the benefit of a promise to pay the cost of reinstatement here of the damaged property.

BRENNAN CJ:   Or the cost of doing what the insurer might have done itself.

MR RAYMENT:   If the two be the same, so be it.  We would respectfully submit it does not affect the outcome of this case.

BRENNAN CJ:   It may not affect the outcome of the case but it seems to me to touch upon the basic principle that you are seeking to derive from Castellain v Preston.

MR RAYMENT:   What we seek to derive from it is that if there is a loss within the policy period which is covered by the policy, what you are entitled to is full indemnity in respect of that loss but nothing more.

TOOHEY J:   But you are entitled to something more, are you not?  I mean, you are entitled to reinstatement which, in a sense, is not indemnity for the loss that has occurred, but it makes the notion the indemnity policy a rather amorphous one.

MR RAYMENT:   It is a means, in our respectful submission, of giving indemnity.  There are two ways one can do it; you can pay the insured the diminution in value of his property, or you can allow him to repair it and pay the cost when incurred of doing that.  In our respectful submission, the two are sufficiently similar, both to amount to a contract of indemnity.  Indeed, that was how the Atkinson‑Leighton policy was viewed in this Court, as a policy of indemnity.

TOOHEY J:   I understand it when you are speaking of repair but once you get the total destruction and followed by reinstatement you really are talking about something that goes beyond indemnity in the Castellain v Preston sense, are you not?

GUMMOW J:   Castellain v Preston is really about recovery of benefits, as it were, is it not?

MR RAYMENT:   Yes, it is about subrogation and the like.

GUMMOW J:   It has been criticised in that way in Monson’s Case in this Court, has it not?

MR RAYMENT:   In Monson, 111 CLR 86, that is British Traders Insurance Co Ltd v Monson, we had in mind to refer your Honours to what was said ‑ ‑ ‑

GUMMOW J:   At 94 is the crucial passage ‑ ‑ ‑

MR RAYMENT:   I was going to go to 93 first, if I could, your Honour.

GUMMOW J:   Yes.  This really has some bearing, perhaps, on what the Chief Justice was asking you - these considerations.

MR RAYMENT:   Yes, that is so.  Justices Kitto, Taylor and Owen say at 93:

There are undoubtedly cases in which the amount payable in respect of the insured’s interest in the property may exceed the marketable value of that interest, but that occurs only where full indemnification to the insured would not be achieved by paying him the amount of that value:  Castellain v Preston -

Earlier on that page they set out what Lord Justice Brett said as the indemnity being:

in a case of a loss against which the policy has been made, shall be fully indemnified, but shall never be more than fully indemnified.

GUMMOW J:   Yes, but at the top of 94 they get to the basic principle is that the idea of indemnity was an idea to get around what would otherwise have been public policy consideration about gambling.

MR RAYMENT:   Gambling, yes, your Honour.

GUMMOW J:   That was the basal point to it all.  The question is, how do ideas of reinstatement fit in with all of that.  Reinstatement as new for something that was already old.

MR RAYMENT:   We would submit it is a well‑known way today of obtaining indemnity to obtain the actual cost of reinstatement.

BRENNAN CJ:   Is not the real answer to it, as perhaps Justice Gummow has suggested, that it is a contract for reinstatement in the event of loss does not offend public policy?

MR RAYMENT:   No, we would submit not because there is no gambling problem with it.

BRENNAN CJ:   If it does not, we are not going to derive much from the limitation in Castellain v Preston.

MR RAYMENT:   No.  Your Honours, I still want to come back, if I may, to giving reference to a description of the damage in each fire, but could I move for the moment to the general damages point in this case.  Your Honours, can I go back to policy and refer to the exclusions called the “Perils Exclusions” on 249.  Section 1 of this policy might be described as the provision relevant to physical loss.  Section 2 was the loss of profit section called “Consequential Loss”, so business interruption was paid for pursuant to section 2 of the policy according to a special formula.  Then “Perils Exclusions”, page 249:

The Company shall not be liable under Sections 1 and/or 2 in respect of :-

.....

9.  consequential loss of any kind including consequential loss due to delay, lack of performance, loss of contract or depreciation in the value of land or stock, except as herein provided in Section 2.

So it made as to consequential loss the business interruption part of the policy the sole provision of the policy which provided that measure of indemnity.  Now, your Honours, we would submit it is open to the parties so to stipulate in a policy of insurance.  Indeed, that is the norm, in our submission, in a fire policy. 

We have handed up, your Honours, a copy of paragraph 1562 of MacGillivray & Parkington on Insurance Law, Eighth Edition, and there are statements in other texts to the same effect.  Under the heading “Consequential loss” the authors say:

An insurance policy will prima facie cover only loss of or damage to the property insured and not consequential damage.  Thus a simple insurance on property does not cover loss of rent, occupancy, business profits, wages or servants or workmen rendered idle or other consequential damages.  Any such loss can, however, be expressly insured and loss of rent and non‑occupancy during repairs are very common subjects of insurance.  Business profits may also be specially insured -

et cetera, but unless you cover them the presumption is that your indemnity will be in respect of the physical loss only.

Your Honours, there is a similar statement in the 4th edition of Halsbury in relation to fire insurance, in paragraph 604, volume 25. In our submission, once the parties so agree, a statutory provision for interest such as section 57 of the Insurance Contracts Act will prevail over the stated intention of the parties, but there is no room left, in our submission, for the kind of order for consequential damages, for general damages, which was made in this case. 

BRENNAN CJ:   Why do you say this has anything to do with general damages?

MR RAYMENT: The general damages which were claimed in this case were quite specific. What was said was, “We are entitled” ‑ and it was said pursuant to section 58 under a deemed statutory renewal of the policy ‑ “to recover all of the damage caused in the third fire and we are entitled, pursuant to section 2 of the first policy, to a year’s loss of profits. But, we are entitled”, so the argument ran, “to additional loss of profits until such time as the clubhouse is restored by way of general damages for breach by the insurance company of the promise to indemnify contained in the policy”. In our submission, the effect of this policy is not to make such damages recoverable pursuant to the policy.

BRENNAN CJ:   The question of consequential loss is the measure of the contractual obligation assumed.  Damages are what are suffered as the result of the failure to perform a contractual obligation.

MR RAYMENT:   But if the parties specify, as they have, that no consequential losses other than those calculated in accordance with the formula in section 2 of this policy will be payable pursuant to the policy, then an action under the policy cannot rise higher than that, in our respectful submission.

BRENNAN CJ:   I see, yes.  In other words, you say if the contract had been fully performed, this would not have been recoverable?

MR RAYMENT:   That is right.  Your Honours, there are a series of cases, New Zealand and other cases referred to by the learned President in his judgment about this question of general damages, at ‑ ‑ ‑

TOOHEY J:   The general damage is confined to the loss said to have been suffered by reason of the delay in acknowledging liability under the policy and that alone, Mr Rayment?  Or did it go beyond that?

MR RAYMENT:   Well, certainly the only quantum sought to be recovered related to the closure of the premises and the inability to trade and therefore the loss of trading profits.

TOOHEY J:   That is the footing upon which general damages were assessed, is it not?

MR RAYMENT:   Yes, your Honour.

TOOHEY J:   But the source of the liability was said to lie in the failure to acknowledge?

MR RAYMENT:   Was the failure to acknowledge the claim.  His Honour Mr Justice Cole says at 435 that:

The issue is whether the general damages being sought for loss of trading profits after January 1993 were of such a nature as may reasonably be supposed to have been in the contemplation of both parties at the time of contract as a probable result of breach of it.  Such damages, in my view, would include loss of profits from inability to trade if the insurer wrongly failed to acknowledge its obligation to reinstate, and to pay the costs thereof.

TOOHEY J:   That is on the footing that there is simply a breach of contract.

MR RAYMENT:   Yes, your Honour.

TOOHEY J:   Not by reason of anything in the policy itself?  I am sorry, that is a question.

MR RAYMENT:   That seems to be the basis.  His Honour notes that it was argued before him that the only consequential loss recoverable under this policy is that specified in section 2 and nevertheless awards general damages as if this policy was silent about the measure of damages.  In our respectful submission, it is not silent.  You would not expect such damages to be covered and in any event exclusion 9. deals with the matter expressly.

BRENNAN CJ:   What is the breach that was found?  Where do we find the precise finding of the breach?

MR RAYMENT:   It is at 429:

damages arising from the failure to pay those monies being reinstatement costs and business interruption costs.  The allegation is that the insurer breached the contract of insurance by not paying within a reasonable time monies properly payable under the insurance policy.

GUMMOW J:   That assumes an election, does it not?

MR RAYMENT:   It does.

GUMMOW J:   Do we know - was there any mechanism in the policy for making the election?

MR RAYMENT:   There was none provided expressly.

GUMMOW J:   Is there a finding by the primary judge as to the making of the election?

MR RAYMENT:   No, there was no finding that any election had been made.  The basis upon which his Honour dealt with the matter was to say, “Well, they are entitled to the costs of reinstatement.  I will fix those costs at X dollars”, but there was no evidence before the judge ‑ ‑ ‑

GUMMOW J:   You would have to plead all this to get to the breach, would you not, I suppose?  Was that done?

MR RAYMENT:   No, there was a claim for damages.  The summons - I think it remained unamended in this respect - pleads merely that there was a claim, at page 6, for indemnity:

the Defendant wrongfully and in breach of the terms of the Policy refused to provide any indemnity to the Plaintiff in consequence whereof the Plaintiff has suffered loss and damage.

But there is no reference to any election having been infected.

TOOHEY J:   But this is not a claim under the policy, is it?

MR RAYMENT:   Yes, your Honour, we would submit it is.

TOOHEY J:    As formulated and as dealt with by the President, it is a claim for breach of the contract of insurance, but is not that the way in which it is put?  Otherwise, if it is not put that way, then the policy would presumably, by reason of section 2 and the exclusion, preclude an award or preclude the recovery of the amount in question.

MR RAYMENT:   An action for damages against an insurance company under a policy is called an action for damages but, in our respectful submission, the measure of relief, unless there be some case of repudiation made, is by reference to the contractual measure.  If there be ‑ ‑ ‑

TOOHEY J:   I was not putting this against you.  I was just trying to identify how a claim for general damages of this sort arises in conjunction with the claim under the policy, and I was suggesting to you that it presumably is put on the basis that it arises by reason of a breach of the contract of insurance.

MR RAYMENT:   I think that is probably so, your Honour.

TOOHEY J:   An implied term, as it were, that the insurer would meet its obligations within a reasonable time.

MR RAYMENT:   Yes.

BRENNAN CJ:   But assuming against yourself that the obligation was to reinstate, including whatever cost was involved arising from the third fire, do you accept that there was any breach, that there has been any breach?

MR RAYMENT:   No, we would say not.

BRENNAN CJ:   Then that is your first proposition?

MR RAYMENT:   Well, it is.

BRENNAN CJ:   And you cannot really address the question of damages until you identify, or somebody identifies, what the breach is?

MR RAYMENT:   Yes, that is so exactly, your Honour. 

BRENNAN CJ:   The breach could be one of two things, could it not?  One is that there is some contractual obligation on the part of an insurer within a reasonable time of an eventuality to acknowledge liability under the policy.  The second is to pay the amount that is due.  Now, do we need to address either of those propositions?

MR RAYMENT:   Certainly if your Honours are with us on what might be called the principal point in this case, the whole question of general damages falls down as a matter of fact because, if the extent of the obligation of the insurer was in the event that the insured reinstated the premises to pay the cost of rectification of those parts damaged in the fire which occurred during the policy period, or, alternatively, at its own option, an election to take the indemnity value since the option of the insured has not yet been exercised in fact, we do not know whether the respondent would, in that event, propose to reinstate these premises in their entirety.

If he would not, but instead would content himself with the indemnity value of the property, then no question of general damages in the case would arise, in our respectful submission.  At any rate, it would be premature to look at it until the election of the respondent has been effected.  So that, in our respectful submission, at the very most, if general damages were in principle available in this matter, the awarding of them would depend upon events which have not yet occurred and, therefore, it must be the subject of liberty to apply.  But certainly, in our respectful submission, the award which has been made would be discharged, we would submit.

GUMMOW J:   If the declaratory relief that was sought at pages 7 and 8 seems rather to be setting up a case that the policy is still on foot, there should be a declaration as to obligations under it rather than it has been repudiated in some way.

MR RAYMENT:   That is so.  There was never a case made at trial or below in the Court of Appeal based upon an alleged repudiation by the appellant, nor was there a case based upon any acceptance of any such repudiation.  The issue did not arise at all on the way in which the case was put by the respondent before the judge; that is, it did not arise at all as a foundation for relief.  The claim was always one under the policy.  As your Honours can see, the original summons at pages 1 to 6, the amended summons at pages 7 to 14.

I should add that the trial judge rejected a submission made by my client that there had been an accepted repudiation relevant to the section 58 point. In the Court of Appeal neither party asked the court to disturb those findings.

BRENNAN CJ:   But is it not your case that there was a repudiation that was accepted?

MR RAYMENT:   No, your Honour, we did not in the Court of Appeal seek to reagitate that matter which had been put to the trial judge.

BRENNAN CJ:   How did the contract come to an end?

MR RAYMENT:   In our respectful submission, it came to an end in any of a variety of ways.  What happened when my client notified cancellation and indicated that it would return the premium was that the Club wrote back saying, “We note that you’ve cancelled.  Please send the balance of premium forthwith”, and then the premium was paid.  It was, in our respectful submission, clear as between these parties, whatever may be the legal basis of it, that this contract was at an end, that their right to indemnity for the balance of the term of the policy no longer existed and, correspondingly, the premium which would have been applicable to that period had been received back by them.

That, in our respectful submission, really could be characterised in a variety of ways as between the parties.  One thing that was clear between them in that circumstance was that the liability of the insurer to indemnify for the unexpired portion of the policy was gone.  We would submit either it was abandoned as between the parties - in DTR Nominees v Mona Homes 138 CLR 423 ‑ ‑ ‑

BRENNAN CJ:   This hypothesis has been held against you in the Court of Appeal, has it not?

MR RAYMENT:   It has been held in our favour by Mr Justice Powell and against us by the learned President, with whom Mr Justice Priestley agreed.

BRENNAN CJ:   Then it has been held against you.

MR RAYMENT:   It has been held against us by majority.

BRENNAN CJ:   Yes.  Now, absent that, how else could it have come to an end except by repudiation and acceptance?

MR RAYMENT:   We would submit the various ways in which it came to an end were as follows:  agreement, implied agreement between the parties; acquiescence by the insured, it being, in our submission, open to the insurer to do so in a cancellation effected by the insurer; and, finally ‑ ‑ ‑

BRENNAN CJ:   What do you mean acquiescence within cancellation?  You mean it was a lawful cancellation?

MR RAYMENT:   There is a purported but invalid cancellation effected by the insurer.  We would submit that because it is open to the insured itself to cancel this policy and the contract gives it a right to do so, nothing about that right is affected by the Insurance Contracts Act.  It must follow, in our respectful submission, that it is open to the insured to acquiesce in a cancellation by the insurer so as to achieve the same result.  In other words, the provisions of the Insurance Contracts Act making a cancellation void are, in our respectful submission, provisions which in those circumstances it must be open to the insured to, in the old language, waive the benefit of.  They are for the benefit of the insured alone.  Since he retains his right of cancellation he may acquiesce in an invalid cancellation.  He may validly acquiesce in and render valid the insurer’s cancellation.

BRENNAN CJ:   These are interesting words but I must say I do not understand it otherwise than that the insurer intends to disown future obligations under the contract and the insured accepts that that will govern their relationship from that point onwards.  Now, either the insurer’s indication of attitude was one that the insurer was entitled to take or was not.  If it was not entitled to take it, it was a repudiation.  If it was entitled to take it, then there was a consensual abandonment.  The latter has been held against you.  Now, what is the fallacy in the logic of that proposition?

MR RAYMENT:   Can I finish off answering your Honour’s earlier question?

BRENNAN CJ:   Of course.

MR RAYMENT:   We were going to say, your Honour, that, in our respectful submission, the result of what occurred between these parties, at any rate after the premium had been received back, is that the Club was estopped from asserting that the insurance contract continued in force and there was evidence, as I think I mentioned earlier, that if the cancellation had been contested by the insured, which would have been included in sending back the premium, then a section 58 notice would have been given by the insurer in this case to the insured and when you look at the summons that was issued in September 1992 before the policy would have expired according to its terms it says nothing about the cancellation and claims merely a relief about the event which was said to have given rise to the right to indemnity.

Your Honours, we would respectfully submit that because of the conduct of the parties and the failure in the Court of Appeal to agitate an appeal from what Mr Justice Cole said about repudiation and acceptance, both parties really, having lived with that finding in the Court of Appeal, I am similarly bound by it here.  But, your Honours, we would respectfully submit that Mr Justice Powell was right and the majority in the Court of Appeal was wrong on the issue of abandonment.  Could I go by way of illustration of that submission to D.T.R. Nominees at page 434 in the joint judgment of Justices Stephen, Mason and Jacobs.  Their Honours there said about half-way down the page:

Thus the contract in the present case was still on foot on and after 25th July 1974.  Neither party had effectively rescinded.  But there can be no doubt that by 5th December 1974, when these proceedings were commenced, neither party, whatever may have been their reasons, regarded the contract as being still on foot.  Neither party intended that the contract should be further performed.  In these circumstances the parties must be regarded as having so conducted themselves as to abandon or abrogate the contract.  The position is similar to that with which Isaacs J dealt in Summers v The Commonwealth.  The plaintiff did not succeed in his action for damages for breach of contract, but on the other hand the defendant had not rescinded.  Time passed during which neither party took any steps to perform the contract.  It was held that the parties had so conducted themselves as mutually to abandon or abrogate the contract.

DAWSON J:   Does that mean that abandonment, if there is such a doctrine, is anything more than an agreement that the contract should be at an end?  I mean, if it is mutually to abandon, that suggests it.

MR RAYMENT:   If it is necessary for abandonment that parties is at least impliedly so agree, that is, in effect, to release each other from further performance in the case of a contract which is at least partly executory, then we would submit that is good enough for this case.  Some of the text writers have wondered whether the true effect of what is there said and said in Fitzgerald v Masters depends upon an implied agreement between the parties or not.  It may very well be that it does, but if it does not, this case would be no different.

The discussion that I have in mind is, for example, found in Professor Davis’s book about this case.  The English cases have distinctly said, for example, in the “Hannah Blumenthal”, that the matter is all one of implied agreement.  And Professor Davis, I think, then wonders about some Court of Appeal decisions in England which have gone, not to the question of whether implied agreement exists, but whether subjectively one or other of the parties had a particular intention, which is a foreign question on the basis adopted by the House of Lords.

Your Honours, that really is the way Mr Justice Powell put it here.  He said the question really is one of agreement and if I understood your Honour’s question, it rather assumed the same notion.  You have a case where insurance for a term was bought, where it was bought for an annual premium and then one of the parties indicated that it wished to stop the contract continuing and repaid the unexpired portion of the premium.  The other party noted the cancellation had been effected and asked for the consequence of repaying the premium to occur and then actually took the money. 

Between those two parties, there could be no doubt, in our respectful submission, that neither party intended that the contract should be further performed, that is, the Club would not have dreamt that it still had insurance for the unexpired portion of the policy. The insurer did not imagine that it was still on risk and the evidence which it gave from Mr Nielsen was that it treated this policy as one which was finished, not one which needed to be put before an underwriter to consider renewal or to consider the sending out of a section 58 notice. Whereas, if there had been some dispute about the matter, it would have sent a section 58 notice out. In our respectful submission, the language which their Honours use is apt to describe what happened here.

Your Honours, in several English cases the doctrine of abandonment of contract has been specifically held to apply to contracts which are at least partly executory.  It is distinctly stated by Lord Diplock in the “Hannah Blumenthal”, the proper name of which is Paal Wilson & Co v Partenreederet (1983) AC 854 at 915, and this is in the course of His Lordship’s discussion of bipartite synallagmatic contracts. Just below letter B His Lordship says this:

Abandonment of a contract (“the former contract”) which is still executory, i.e., one in which at least one primary obligation of one or other of the parties remains unperformed, is effected by the parties entering into a new contract (“the contract of abandonment”) by which each party promises the other to release that other party from further performance of any primary obligations on his part under the former contract then remaining unperformed, but without such non-performance giving rise to any substituted secondary obligation under the former contract to pay damages.

So that His Lordship is saying abandonment may be purely in futuro in such a case.  If there were past obligations they would remain and whatever may have followed from them would follow but the balance of the contractual obligations on both sides can be mutually released.  Your Honours, there are two cases which we submit are in that category of executory contracts where the doctrine of abandonment has been applied.  The first is Pearl Mill Co. Ltd v Ivy Tannery Co. Ltd (1919) 1 KB 78.

GUMMOW J:   That is the one discussed in Fitzgerald v Masters, is it not?

MR RAYMENT:   Yes.  There, your Honours, there was a contract for 50 dozen roller skins at so much per dozen, delivery as required.  And there was performance as to 20 dozen of the items of commerce and payment, and then certain acts took place between the parties which were held by the court to amount to an abandonment of the balance of the contract, and the court held that the parties were rightly held to have abandoned the contract and that, in our respectful submission, follows from it, entails that the doctrine of abandonment can be applicable to not only a rescission ab initio, but a rescission in futuro only.

DAWSON J:   It seems to have been based on estoppel.

MR RAYMENT:   Yes, that is so, and it may be that, again, this doctrine depends also on estoppel.  But your Honours will find the language of abandonment, as well, in the judgments.  And the second is the case of Lady de Soysa v Stanislaus de Pless Pol (1912) AC 194, where the circumstances were that there was a lease entered into by a tenant, a condition precedent to which was that the landlord would complete some building work in respect of the premises before the need for occupation would arise, but would do so by a certain date, and then some steps were taken by the prospective landlord to do the building work. The work was not completed and it was held that the effect of the actions of the parties including the bringing of litigation between then was that the contract was mutually abandoned but it had operated in part with some work being done on the house.

The President in the Court of Appeal rejected the application of abandonment to this case because, it would seem, the only abandonment that there might have been operated in futuro and the passages in the President’s judgment about this matter of abandonment are immediately preceding his Honour’s acceptance of the application of estoppel to the case.  At 470 his Honour commences with the proposition that:

As a matter of legal doctrine, where a contract is held to have been “abandoned” it is ordinarily abandoned ab initio.

Now, in our respectful submission, there is no such rule:

To the contrary, where a contract has been performed in part and rights and obligations have accrued from it, any abandonment of future performance of the contract is ordinarily the concern of the doctrine of repudiation.  If one accepts that abandonment of contract operates ab initio then, as a matter of law, the appellant’s reliance upon the doctrine of abandonment to avoid the future operation of the contract of insurance, whilst acknowledging the accrued obligation in respect of the first fire, would be unsustainable.

Of course, that is right.  There could be no abandonment implied in this case of the right to make a claim under the policy or to have the claim dealt with by the insurer:

However, the exact operation of the doctrine of abandonment in this respect remains unclear; one can postulate that ordinarily abandonment operates ab initio but at the same time one cannot exclude the possibility of abandonment in futuro -

and then he refers to that as a theoretical possibility, line 10.

When he comes to apply - he seems to therefore accept that abandonment may be in futuro.  But, when he comes to apply it over the page, the reason he rejects the doctrine again assumes that abandonment, in effect, has to be ab initio:

If abandonment does operate in futuro -

says his Honour -

then the conduct of the club in asserting the continued operation of the contract of insurance was a sufficient indication of contrary intention so as to prevent the inference being drawn that the parties mutually intended to abandon the contract ab initio.

In our respectful submission, that reasoning seems to be circular.

BRENNAN CJ:   There is no repudiation, and on your argument there was no abandonment.

MR RAYMENT:   No, in our submission there was abandonment.

BRENNAN CJ:   There was abandonment, yes.  On the findings there was no abandonment, I am sorry.

MR RAYMENT:   Yes, your Honour.

BRENNAN CJ:   On that finding the contract continued.

MR RAYMENT:   If there was no abandonment the contract continued and we would be - unless, of course - what the majority did say in our favour in this case was that there was an estoppel.

GUMMOW J:   Forgetting that place of last resort, if the contract was not abandoned but was still on foot, what would be the legal framework of this action against you?

MR RAYMENT:   It would be an action under the contract.

GUMMOW J:   Yes.  To recover what, though?

MR RAYMENT:   To cover the subsisting obligations and unperformed, so it would be said, of the insurer, seeking a declaration primarily that his duties had not been yet performed.

GUMMOW J:   Which is the way it was framed, looking at the relief that was initially sought.

MR RAYMENT:   Yes, your Honour.

BRENNAN CJ:   That would lead to an acceptance of Justice Priestley’s approach.

MR RAYMENT: Yes, Justice Priestley in his first judgment took the view that nothing that was done by the parties in this case amounted to a putting to an end of the contract. There was no agreement, there was no abandonment, there was no estoppel and that, on its proper construction, section 58 gave rise to a deemed statutory contract which was in force at the time of the third fire. If that were right, then presumably it would have followed that there was also a new entitlement to consequential loss under section 2 of the statutory policy. The respective rights of the parties would have been different as to premium and deductible from that which commended itself to the majority.

Your Honours, when one comes in this case to section 58, the first question, in our respectful submission, is whether it applies at all in these circumstances, that is, of a purported but assumed invalid cancellation where the insured - whether or not perhaps - as here has received back the balance of premium. In our submission, section 58 of the Insurance Contracts Act ‑ ‑ ‑

TOOHEY J:   Why do you say “assumed invalid”?

MR RAYMENT: Well, found invalid. The same part contains the provisions as to cancellation and the provisions as to deemed renewal. The purpose, in our submission, of section 58, the evident purpose of it, which is confirmed by the explanatory memorandum and by the Law Reform Commission Report which led to it, was to cater for a case where the insured neglects to renew cover, having in effect forgotten that his policy was about to expire, and to make sure that in that case the insurer will tell him that his policy is about to expire and, if he is not prepared to renew, that fact as well, otherwise it will give rise to a deemed renewal which will avoid gaps in insurance.

That mischief has nothing to do with the case where an insurer has purported to cancel and the cancellation, if contested, has not been resolved at the date of expiration of the policy. It would be a very curious thing, in our submission, if an insurer in those circumstances would understand himself to be obliged to serve a notice under a section such as section 58, the evident purpose of which is to avoid gaps in cover. In other words, the insured in this case knew he was not in the position which section 58 was designed to cater for. The literal language of section 58 would, we accept, extend to a case ‑ ‑ ‑

DAWSON J:   Unless you say that this particular insurance cover was not of a kind which it is usual to renew or for the renewal of which it is usual to negotiate because it would be the notice of cancellation.

MR RAYMENT:   Yes, unless you say that.

DAWSON J:   Do you say that?

MR RAYMENT:   I do, with gratitude, your Honour.  There is no doubt that if you forget the question of cancellation in this case, it is of a kind that would ordinarily be the subject of negotiation for renewal being fire insurance, ISR Insurance as it now is.

TOOHEY J:   I am sorry, I am not sure what point is being made. This is in the context of saying that section 58 has no operation in the present case.

MR RAYMENT:   Yes, your Honour.

TOOHEY J:   And in addition to the arguments that have already been presented, are you saying that, in any event, this policy does not fall within the definition of renewable insurance cover?

MR RAYMENT:   By reason of the circumstance that it was purportedly cancelled, it is not of a kind that it is usual to renew or for the renewal of which it is usual to negotiate.

TOOHEY J:   But “of a kind” suggests that you are looking at some type of policy, does it not, rather than the circumstances that might arise in a particular case by reason of purported cancellation.  It would be a curious result if the insurer could give a notice purporting to cancel a policy, it would be held that the cancellation was ineffective, and then the insurer could say, “Well, in any event, because I purported to cancel the policy and was not entitled to do so, nevertheless, this is a policy of a kind that’s not usually to renew”.

MR RAYMENT:   We would submit that would not be a curious result when you have in mind the purpose of the section and the mischief of the section.

TOOHEY J:   If you have in mind the language of the section ‑ ‑ ‑

MR RAYMENT:   If you have in mind the language, I agree.  If you have in mind the purpose though, in our submission, it is not a curious result.  If you just read the words, subject to the one matter just mentioned, it caters for this case, but that is why, in our respectful submission, there is room for the operation of the rule which has regard to the purpose of a section such as this, because it defies common sense that an insurer who has told an insured as clearly as he may that he no longer wishes to be on risk in this matter by cancelling, purporting to cancel, who has told the insured that, paid the premium back to him and had it received and accepted, should be, subject to a rule, designed to cater for a case where renewal is entirely overlooked by the insured.  In other words, this insured must certainly have known and did know by reason of all of the circumstances of the case, that he needed to obtain other insurance cover if he wished to have the premises insured.

It just so happens that the provisions of this section as to cancellation make the validity of the cancellation something that will depend upon facts in the world as found later on by a court and the parties are not in a position where they can know what that adjudication will be at the relevant date. The insurer, if he did have an obligation under section 58, would be obliged to give a notice of the date of expiry of the policy being a date which, according to his own cancellation, was an incorrect date. If the policy expired, as here, on some later date, he would have to specify to comply with section 58 the date upon which, according to the policy, it expired, even though, according to his own stance taken up at the time of cancellation, it terminated at an earlier date and there was no occasion for the giving of any such notice.

Now, your Honours, I will just need, if I may, to seek your Honours’ leave to answer that question that I was asked a long time ago this morning about parts of the appeal book to which reference is made on the question of the nature of the damage at the time of the first and third fire, if I may by way of interruption to my learned friend, because I have otherwise finished in‑chief.

GUMMOW J:   The orders you seek at 585, several of them specify particular sums of money.

MR RAYMENT:   Yes, your Honour.

GUMMOW J:   Can one take it there, on the relevant hypotheses, that the accuracy of those sums is not in issue?

MR RAYMENT:   Yes, those are the orders which we would respectfully submit would follow if your Honours were with us on the reinstatement point and causal point referred to by Mr Justice Kirby.  The declaration (b) would involve that there is still an election available to the other side and their entitlement to money will depend upon which of the two they choose.  Order (c) relates to a sum of money that was never in issue in the Court of Appeal payable pursuant to section 2 of the insurance by reason of the first fire.

GUMMOW J:   And that sum for interest, what ‑ ‑ ‑

MR RAYMENT:   That is interest up to the date of actual payment.  There were some payments made prior to the matter coming on in the Court of Appeal.  That calculates interest up to the date of the payment which was made at the time of the granting of a stay in the Court of Appeal and that is why note (d) is made.

GUMMOW J:   Thank you.

TOOHEY J:   Is this by way of variation of the order of the Court of Appeal, Mr Rayment, or does it involve setting aside that order in its entirety?

MR RAYMENT:   It does involve setting aside the entire order in the Court of Appeal.  These are what we would have submitted to Mr Justice Powell followed from his reasons for judgment in the case if his Honour had been in the majority.

BRENNAN CJ: Mr Rayment, could I just ask you whether I am right in understanding your argument along these lines. There are four possibilities that explain the relationship between the insured and the insurer after the insurer’s receipt of the letter from the solicitor for the Club and the payment of the balance of the premium to the broker, namely, abandonment or consensual termination in some way of the contract, accepted repudiation, estoppel or renewal under section 58. Are there any other hypotheses?

MR RAYMENT:   I do not believe so.  The first we put in a number of ways.  We say really, whether it is abandonment or not, the Court would imply an agreement between the parties.

BRENNAN CJ:   Yes, that is what I say, or a consensual termination of some kind.

MR RAYMENT:   Yes, your Honour.

BRENNAN CJ:   If it is the second, that is accepted repudiation, the question of damages arises.

MR RAYMENT:   Not as this trial has been conducted.  We were never made the subject of such a claim and nor were the findings made that would be necessary to be made.

BRENNAN CJ: Let me come back to it then. On the fourth hypothesis, that it is the section 58, there will be a question of liability for the consequences of the third fire.

MR RAYMENT:   Yes.

BRENNAN CJ: Now, if it appears to this Court that neither abandonment nor estoppel nor section 58 renewal is the correct construction to place on the relationship of the parties, leaving only accepted repudiation, and that is not something which has been directed to the attention of the Court of Appeal, what should we do?

MR RAYMENT: In our respectful submission, if your Honours came to a view like that, your Honours would give effect to it in the same way that Mr Justice Powell did, that is, by treating it as an answer to the section 58 point.

BRENNAN CJ: Very well, it is an answer to the section 58 point. What else?

MR RAYMENT:   We would submit, nothing else.  The case has always been a claim under the policy in respect of the first and third fires, put two ways:  put as a matter of construction of the first policy by reference to this notion of reinstatement said to be assisted by the dissenting judgment of the Chief Justice in Atkinson‑Leighton or on the construction of a policy made under section 58 by operation of the statute upon the termination of the first policy according to its terms. There has never been a case ‑ ‑ ‑

BRENNAN CJ: Yes. I mean if accepted repudiation were the hypothesis, the second of those would not arise; there would not be a section 58 problem. But, if there is an accepted repudiation, then the question of damages seems to me to be a live question as a matter of law. But, as I understand your argument, no claim for damages on the basis of an anticipatory breach which was accepted, has ever been made.

MR RAYMENT:   Yes.

BRENNAN CJ:   What do we do?

MR RAYMENT:   We would submit your Honours would allow the appeal and deal with the matter in the same way as Mr Justice Powell would have.  In the Court of Appeal note that neither party sought to make such a case before it, it is apparent from Justice Cole’s judgment that no such case was made by the Club there.  The references to it ‑ could I go 458 ‑ ‑ ‑

DAWSON J:   When you say “no such case”, there was not even a case of an acceptance of repudiation.

MR RAYMENT:   No, it was denied as an answer to the 58 case.  It was never in the alternative a basis for a claim for damages.  At 458, line 12, the President notes that the findings of the trial judge about repudiation:

are not challenged upon this appeal by either party.

At 497, Mr Justice Priestley says, just before line 15 that:

the appellant was also at pains to disclaim any reliance on a submission that the respondent’s letter was an election by which repudiatory conduct by the appellant was accepted as bringing the contract to an end.

Then at page 563, line 8, Mr Justice Powell notes that:

the Respondent has been singularly reluctant to embrace such a result -

that is, one of repudiation and acceptance, and therefore that he:

should proceed upon the basis that the contract of insurance remained on foot ‑ ‑ ‑

BRENNAN CJ: If accepted repudiation is not open as a hypothesis to this Court and this Court finds that there was no abandonment nor any estoppel, then what is it that precludes this Court from being required to find a section 58 renewal?

MR RAYMENT:   I think I am right in saying no additional matter beyond those I have already put.

BRENNAN CJ:   It seems, if I might say so with respect, that both parties seem to have abjured a hypothesis that might be necessary to be adopted to explain the true relationship between them.

MR RAYMENT:   Your Honour, if it be adopted, in our respectful submission, one consequence that would not flow from it would be another go by the Club at claiming damages, because we have had now a trial where that opportunity was available and we have had a proceeding in the Court of Appeal where the matter was discussed, as your Honour has discussed it, with the parties and no amendment or claim to seek damages on the basis of an alleged repudiation was made by the Club.  In our respectful submission, the consequence would not be that any claim for damages on that basis should go forward.

Your Honours, if I might have liberty to respond at 2.15 to those earlier questions, those are our submissions.

BRENNAN CJ:   Thank you, Mr Rayment.  Mr Jacobson.

MR JACOBSON:   If the Court pleases.  Can we hand up our outline of submissions.  I have some copies for my learned friend.

BRENNAN CJ:   Yes, Mr Jacobson.

MR JACOBSON:   Your Honours, as to the first ground of appeal, as we have said in our written submissions, we do not contend that the whole of the damage which occurred in the third fire could be recoverable under the policy under the original policy of insurance.  It is our contention, however, that to the extent that the damage which occurred in the first fire was increased as a result of the third fire, it is covered by the terms of the policy.  We put that as a matter of construction of the policy and, of course, we rely upon what fell from Sir Garfield Barwick in the Atkinson‑Leighton decision.

DAWSON J:   In a practical sense, does that mean really though that the whole of the damage by the third fire or the cost of repairing that damage is recoverable?

MR JACOBSON:   That would be a question of fact which would have to be determined at first instance.  The matter would have to go back to the Commercial Division to determine as a question of fact the extent to which the initial damage was exacerbated in the third fire.  There was no finding made by the trial judge, Mr Justice Cole, and, of course, it was not a matter which was dealt with on appeal, so that if that was the only ground of the decision, it would have to go back to the trial judge. 

I should say at the outset that our primary contention in the courts below was not the reinstatement argument which was accepted by the President but, rather, the statutory policy under section 58. So if our learned friends fail on the section 58 point then the question which is raised by ground 1 simply does not arise and the question of fact will not have to be determined at the trial. It would only be if we succeeded on this point and our learned friends succeed on the section 58 point that the matter would have to go back to the trial judge on this question.

TOOHEY J:   Is that, Mr Jacobson, on the footing that reinstatement is claimed or whether or not reinstatement is claimed?

MR JACOBSON:   It is put on the footing that reinstatement is claimed, but what we put, your Honour, is that when one looks at the policy there is a promise to indemnify us for loss - and I am looking at page 242 point 1.  Your Honours have been taken to the policy and I do not want to take up time unnecessarily, but it is our submission that the indemnity which is given at about line 9 is an indemnity:

against loss occurring during the Period of Insurance stated in the Schedule -

and the indemnity is, of course, the indemnity which appears between lines 2 and 5 and it is an indemnity:

In the event of any physical loss, destruction or damage.....not otherwise excluded, happening at the Situation -

the insurer:

will, subject to the provisions of this Policy.....indemnify the Insured in accordance with the applicable Basis of Settlement.

The applicable basis of settlement is, of course, (a) at about line 20 and it is the cost of reinstatement calculated in accordance with the reinstatement memorandum.

Our learned friends have said this is a contract of indemnity and one cannot get more than the diminution in the value of the property, but upon the plain construction of this policy, it is a contract to pay the reinstatement cost unless the insured makes the election contained in the proviso in (a).  It is well established that an insurance contract, whilst it is a contract of indemnity, it is not a perfect contract of indemnity, it turns upon the terms of the policy, and if the insurer promises to pay the replacement cost, that may involve the insurer in paying an amount which is greater than the diminution in value of the building.

Of course, the insurer’s promise must be subject to the limits set out in the policy, but upon the plain construction of this policy, its cost of reinstatement, there was no election by the insured to take the indemnity value, and the only question then is whether the reinstatement and replacement memorandum applies.  In the circumstances of this case where the insured was not - the promise which was made to the insured for indemnity was not honoured and the insured did not enter into a contract to repair or reinstate the building, proviso (iv), to which the Court has already been taken, on page 244, has the effect that one reads the policy as if the memorandum is not incorporated.

So it is still the cost of reinstatement.  It would have been the cost of reinstatement at the time when the reinstatement took place as set out in the reinstatement memorandum but, in the circumstances of the present case, it is the replacement cost at a time at which it is reasonable for the reinstatement to take place.  The insurer having promised to make that payment, the promise can only be discharged either by a release or by performance.  It was not performed, but performance in the meantime became more expensive because of the event of the third fire.

Now, in those circumstances the insurer’s promise to reinstate not having been honoured, the cost of the promise was the cost of reinstating that damage which occurred in the first fire, even if it has become more expensive as a result of the third fire.

TOOHEY J:   Does that involve this Court in considering whether cost is recoverable only if it is incurred?

MR JACOBSON:   We would submit that it does because one has to construe the policy as a whole and the effect of proviso (iv), if it is to be given the construction that we contend for, has the result that your Honours would have to decide that it is the cost of reinstatement whether incurred or not, whether actually incurred or whether the insured has carried out the work itself.

TOOHEY J:   Is that something you propose to say something about later?

MR JACOBSON:   I do because it goes to the question of relief.  Of course, in the Court of Appeal the court was unanimous in deciding that we were entitled only to a declaration and not to judgment for a money sum.  It is our submission that upon a proper construction of the policy we were entitled to a judgment for the money sum.

TOOHEY J:   I did not want to take you away from the order of your argument but just simply to ask you whether that is a matter that will arise for consideration by the Court.

MR JACOBSON:   Yes, it will, your Honour.

TOOHEY J:   Yes, thank you.

BRENNAN CJ:   Mr Jacobson, could I ask you one question in relation to the basis of settlement in the proviso.  Why is it that the proviso which confers an election upon the insured does not imply a duty on the insured to elect within a reasonable time of the eventuality causing the loss so as to crystallise as at that time the extent of the liability of the insurer?

MR JACOBSON:   Your Honour, I think the answer to that is that it is the insured’s election.  The primary basis of indemnity is the cost of reinstatement.  It is a matter for the insured if it wishes to take the election to claim the indemnity value, to do so within a reasonable time.  But, in this case, we did not, and, of course, there was a wrongful attempt to cancel the policy by the insurer.  In those circumstances, one ‑ ‑ ‑

BRENNAN CJ:   Leaving that aside for the moment, because that seems to me to perhaps go to the question of whether or not there is a breach, in terms of the contractual obligation, would it be right to say that the extent of the obligation to reinstate is to be ascertained by reference to what is necessary to reinstate at a time limited by what is reasonable for the exercise of the election under the proviso?

MR JACOBSON:   With respect, we would agree with that.

BRENNAN CJ:   Would you?

GAUDRON J:   Why is not the election made at any event when you make the claim?

MR JACOBSON:   When we seek the reinstatement value, we are not making an election, we are simply seeking the indemnity which is basis of settlement (a).  Could I perhaps rethink the ‑ ‑ ‑

BRENNAN CJ:   I think it is getting close to quarter to one, Mr Jacobson; perhaps you might like to rethink that proposition.  We will adjourn until 2.15.

AT 12.44 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.16 PM:

BRENNAN CJ:   Yes, Mr Rayment.

MR RAYMENT:   Your Honours, it does not appear that within the appeal book that your Honours have there is any detailed material on the relationship between the extent of the damage as a result of the first fire and the extent of the damage as a result of the third fire.  There is some matter going to it which was within the appeal book to the Court of Appeal but not to this Court, and I do not want to suggest that in any way that was all there was before the primary judge about the issue because he heard two trials.  He heard what might be called the arson trial and then the quantum trial.  A quantity of evidence was given bearing upon the precise question that your Honours asked.

In our submission, if the Court came to the view that, for example, the kind of circumstances which Sir Garfield Barwick referred in the Atkinson v Leighton Case would require the insurer to pay any increase cost by reason of the third fire when paying the cost of reinstatement of the property damaged in the first fire, and if the Court so declares, then its computation could be effected by remission at first instance.

It was a question which did not arise precisely before Mr Justice Cole because of the view he took about section 58 and, therefore, he made no precise findings about that question. As a matter of fact, your Honours, it could be that the actual cost of reinstatement after the third fire was less than might have been the case as a result of the first fire alone. If you imagine the case, for example, of a wall partly destroyed which, in order to be repaired, needs to be wholly replaced; for example, if the other part needs to be replaced anyway because of the third fire, then it may be actually a lesser sum, but none of that is explored in the material before the court nor was the subject of a finding in first instance and we would respectfully submit that if the Court came to such a view it would be best dealt with by way of declaration and remission of the issue, the quantification.

BRENNAN CJ:   Thank you.

MR JACOBSON:   We would agree with that, your Honours, if that was the only basis upon which we succeed.  If, of course, we succeed on the statutory policy then it would be quite unnecessary to remit the matter to the trial judge or to have it dealt with at first instance.  Can I come back to the concession that I made before lunch.  The concession that we make is this:  in the normal circumstances where the insurer is prepared to concede or admit liability under the policy the insured, if it wishes to elect to take the indemnity value, must do so within a reasonable time and it cannot elect to take the indemnity value after it has commenced the work of reinstatement, if it, in fact, commences the work, but, of course, in this case there was no election to take the indemnity value and the proviso is nothing more than what it appears to be on the face of page 243, a proviso to the ordinary way in which the indemnity is to be measured, that is, by the cost of replacement.

TOOHEY J:   Is that so?  I rather read the proviso as being, as in these terms, that once an election is made then that is the catalyst for the insurer to decide whether to pay on that basis or itself to reinstate.  If the insured wishes to reinstate then you go over to the next page and you look at the question of cost.

MR JACOBSON:   Certainly, if the insurer ‑ ‑ ‑

TOOHEY J:   I am sorry, I should have said cost of reinstatement.

MR JACOBSON:   Yes.  Certainly if the insurer wishes to reinstate and if the insured makes the election in accordance with the proviso, the insurer can itself elect to reinstate in accordance with the proviso.

TOOHEY J:   Yes, but what if the insured does not make the election referred to in the proviso, can the insurer nevertheless decide to reinstate?

MR JACOBSON:   No.  If the insured ‑ ‑ ‑

GUMMOW J:   So what then happens?

MR JACOBSON:   What then happens is if the insured claims the replacement cost, of course, in the event that the insured actually incurs the cost of replacement, enters into a contract, then the measure of the indemnity would be the replacement cost in accordance with the contract.  However, if the insured does not incur the cost of replacement, then it must be the estimated cost and this Court, of course, we submit, would proceed upon the basis that the estimate of the cost of reinstatement was determined at the trial by his Honour Mr Justice Cole.

TOOHEY J:   Is that right, Mr Jacobson?  If you look at page 244, at paragraph (iv):

No payment beyond the amount which would have been payable.....shall be made until a sum equal to the cost of reinstatement shall have been actually incurred.

MR JACOBSON:   Your Honour, the words:

If this memorandum had not been incorporated herein shall be made until a sum equal to the cost of reinstatement shall have been actually incurred.

TOOHEY J:   If the memorandum had not been incorporated do not you then go - perhaps we are going to the same ground we went over earlier with Mr Rayment but do not you then go back to basis of settlement in paragraph (a)?

MR JACOBSON:   You do.

TOOHEY J:   Where the two options are that the insured elects to claim the indemnity value in which event the company can decide to reinstate itself, or if the insured makes no such election, I am not sure what happens.

MR JACOBSON:   If the insured, as in this case, makes no election then it is the cost of reinstatement or replacement.  That may be less than - - -

TOOHEY J:   .....

MR JACOBSON:   You get that, your Honour, from paragraph (a) at line 20 because one must proceed upon the basis that the reinstatement and replacement memorandum is not part of the policy so it is the cost of reinstatement, replacement or repair, and then one reads out the words:

In accordance with -

et cetera.  So, in those circumstances it would be the estimated cost of reinstatement and the insured would not be able to recover the extra cost of reinstatement which is set out on page 245 because that is part of the memorandum.  Your Honours will see that the memorandum, after setting out the provisos on page 245 continues with the words:

Extra cost of reinstatement‑

At about line 2, and then:

This Policy extends to include the extra cost of reinstatement.....of damaged property necessarily incurred -

et cetera.  And there are various provisions set out.  So the insured would not be able, unless it actually incurs the cost of reinstatement to recover those extra items, but it would get the estimated cost and that is what his Honour Mr Justice Cole ordered.

I was dealing with the construction of the policy in the context of the first issue and I had mentioned that we, of course, rely upon what Sir Garfield Barwick said in the Atkinson‑Leighton Case ‑ ‑ ‑

BRENNAN CJ:   Before you leave the proviso to paragraph (a), if the insured elects, or does not elect to claim the indemnity value, nor does the company elect to reinstate itself, the contractual obligation of the company is then, if I understand you correctly, to pay the cost of reinstatement.

MR JACOBSON:   Yes, your Honour.

BRENNAN CJ:   Whether incurred or not?

MR JACOBSON:   Yes, your Honour.

BRENNAN CJ:   Assessed as at what time?

MR JACOBSON:   In the normal circumstances it would be assessed at a time at which it was reasonable for the reinstatement work to be carried out.

BRENNAN CJ:   Let us assume within a reasonable time of the expiry of a reasonable time for the elections in the proviso.

MR JACOBSON:   In our submission, they really proceed upon a different basis.  The question of the reasonable time within which to elect to take the indemnity value is subject to the limits of reasonableness which I outlined when I made my concession.  The question of what is a reasonable time within which the reinstatement work would be carried out is a question of fact.

BRENNAN CJ:   Of course.

GUMMOW J:   Is there any finding on them because that is what this case is really all about on one view of it.

MR JACOBSON:   On one view of it, yes, but there is, of course, no finding in the court below and one must bear in mind, of course, that in this case the insurer purported to cancel.  So that, the insurer, having failed to honour the promise, which we say was a promise to pay the reinstatement cost, the promise attached.  It was not discharged; it was not released, and it could only be honoured by performance.  The fact that the third fire may have increased the cost of the reinstatement work which was required to vet that part of the property which was damaged in the first fire is beside the point.

BRENNAN CJ:   That is all on the assumption that the promise still attached but if there was a repudiation that was accepted, the promise did not attach at the time when the ‑ perhaps that is not quite accurate.  It might be better to put it on the basis that the promise attached to make a payment quantified by a reference to some measure and why is it that the measure is not to be ascertained by reference to, let us say, the month of October 1992?

MR JACOBSON:   Your Honour, the case may have been different if there was a repudiation and an acceptance of a repudiation.  We did not run that case at first instance; it was not pleaded and Mr Rayment has read to the Court the passages from the judgment of the Court of Appeal in which it is perfectly plain that that matter was not argued on appeal. It was not contended on appeal by the appellant that there had been an acceptance or a repudiation.  In those circumstances, it is quite inappropriate for the appellant to raise it.  It does not raise it; it is not a ground of appeal and we would submit that the Court should not itself look at the factual matrix to see whether or not there has been repudiation and an acceptance of a repudiation. 

After all, what is the act which is said to constitute the acceptance of the repudiation?  Was it acceptance by the letter of 22 July written by the solicitor?  Was it acceptance by conduct?  One just does not know.  Since it was not pleaded, it really is, with respect, not open to the Court to treat the case as a case of acceptance of a repudiation.  In those circumstances, the promise still attached at the time when the third fire occurred.

BRENNAN CJ:   I think my question to you perhaps had two parts which ought not to have been conflated.  One was in relation to repudiation.  The second was in relation to the quantum of the liability that arises under the promise.  In relation to the second of those, if the quantum of the liability is to be determined by reference to an unincurred cost of replacement, then as of what time is that cost to be determined as a matter of principle, if not a matter of date?

MR JACOBSON:   As a matter of principle, it would be at a time at which it was reasonable for the cost to be incurred.  That is also a matter which was not run at the trial.  His Honour Mr Justice Cole has found that the estimated cost of reinstatement was the figure of well in excess of $1 million.

BRENNAN CJ:   So we do not know whether that time was before or after the third fire because that question was never addressed?

MR JACOBSON:   I think it must have been after the third fire, because the evidence - I did not conduct the trial but, so far as one can tell - I may be assisted on this - I would imagine that the evidence was evidence of the cost of reinstatement as at the time when the trial was conducted, which was December - I am told this is correct.  It was December after the third fire.

BRENNAN CJ:   I appreciate it was the way in which it was assessed, but was the question of time and the mode of assessment ever addressed?

MR JACOBSON:   There was never any dispute about it.  So it was not addressed.  It was never suggested that the appropriate time or some other time.

GUMMOW J:   Other time than what?

MR JACOBSON:   Some other time than the time at which the estimates spoke to.

GUMMOW J:   Which was?

MR JACOBSON:   Shortly prior to the hearing which was December 1993.  The third fire occurred in March 1993, so approximately October/November 1993.

GUMMOW J:   After the third fire?

MR JACOBSON:   Yes.

BRENNAN CJ:   Could I just revert to the question of repudiation?  Assuming that the issue of repudiation was not raised for consideration in either of the courts below, was the question of the acceptance of cancellation raised in the courts below?

MR JACOBSON:   In the Court of Appeal, his Honour the President found that there was an acceptance of cancellation.  At the trial, the case was put upon the basis of estoppel.  Repudiation was in fact argued at the trial, but it was not pleaded, and Mr Justice Cole found that there was no acceptance of a repudiation.

BRENNAN CJ:   And in the Court of Appeal?

MR JACOBSON:   The Court of Appeal, as I have said, his Honour Mr Justice Kirby, the President, in fact found - and I can give your Honour a reference.  He found that there was no acceptance of a cancellation.  That was at page 459 in volume 2, about line 20:

Looking at the letter by myself, I should have thought that, prima facie, it conveyed acceptance of the appellant’s wrongful cancellation of the policy of insurance.

I might just pause to say that that finding cannot be correct because, when we come to the provisions of the Insurance Contracts Act, the insurer can only cancel for proper cause under section 60, and I will take the Court to the Act.  You cannot have acceptance of a cancellation which, itself, does not comply with the statute, but that I think was the limit of the matter in the President’s judgment.

TOOHEY J:   There is a very helpful headnote to the report in those insurance cases.  I cannot speak as to its complete accuracy, but it does set out in great detail the findings at first instance and the views of the various judges.  I am not sure how it comes into our possession.

GUMMOW J:   It is volume 8 in the ANZ Insurance Cases.

TOOHEY J:   I had assumed it had come from counsel, but perhaps it came from our library.

MR JACOBSON:   It certainly did not come from me, your Honour.  I have not looked at it.

TOOHEY J:   It is from the library.

MR JACOBSON:   Justice Priestley did not find acceptance of the cancellation.  The argument on appeal was it was abandonment and Justice Priestley found that there was no abandonment and no estoppel.  Justice Powell really would have taken the view, if it was open, that there was an acceptance of a repudiation but he proceeded upon the basis that the case was not conducted on that footing.  So, the matter was really left upon the basis that the President, as I have said, thought it was an acceptance of cancellation.  The others really dealt with it upon the footing of abandonment or estoppel and I will come to those matters when I have finished the first point.

BRENNAN CJ:   If one looks at sections 59 and 60, these are sections dealing with the existence of a right to cancel.

MR JACOBSON:   Yes, your Honour.

BRENNAN CJ:   Then we come to the fact of a purported cancellation in this case.  We have got the President’s view that this was an acceptance of a wrongful cancellation.  Why is that not the end of the policy?

MR JACOBSON:   You cannot have an acceptance of a wrongful cancellation.

BRENNAN CJ:   Why not?

MR JACOBSON:   Because, your Honour, section 63 of the Act, and I was going to take the Court to the scheme of the legislation, but can I take your Honour firstly to section 63:

Except as provided by this Act, an insurer may not cancel a contract of general insurance and any purported cancellation in contravention of this section is of no effect.

BRENNAN CJ:   Of course not.  Well, neither is a wrongful cancellation of any effect.  The acceptance is what is relevant.

MR JACOBSON: In our submission, and I am really now dealing with the second part of the case, the section 58 statutory policy point, section 58 is really part of a scheme which is contained in Part VII. Part VII, of course, prevents an insurer from cancelling other than for the causes laid down in section 60. There is a procedure referred to in section 59:

An insurer who wishes to exercise a right to cancel a contract of insurance shall give notice in writing of the proposed cancellation -

And the notice is effective at the times mention in subsection (2) and then section 60:

Where, in relation to a contract of general insurance -

any one of those causes exists such as a failure to:

comply with the duty of the utmost good faith;

or, as was asserted in this case, in paragraph (e) the insured was alleged to have:

made a fraudulent claim -

in those circumstances the insurer can cancel; so too in the circumstances laid down in subsection (2).

The insurer cannot cancel except for those courses and the insured is not similarly limited.  There is a provision which deals with “free look” insurance, “free look” life insurance, in section 64 and an insured could itself cancel a policy prior to the expiration of the policy, but it would have to be a cancellation by the insured which was, in effect, a free and voluntary act.  What happened in this case was that there was a wrongful attempt to cancel and one could not in those circumstances find that there was an acceptance of that cancellation nor could one find that the provisions of the statute permit an insured to do anything other than to exercise the voluntary right of cancelling if the insured wishes to do so.

GUMMOW J:   Is this word “cancelled” defined anywhere?  It is a very loose term actually.  I do not think it is.

MR JACOBSON: It does not seem to be defined. In our submission, the clear wording of section 58 is that if the policy has not been cancelled prior to its due date then the insurer is required to give a notice - a policy of general insurance - no later than 14 days prior to the date on which the contract expires the insurer shall give a notice informing the insured:

of the day on which and the time at which the cover will expire and whether the insurer is prepared to negotiate to renew or extend the cover.

Unless the policy has been validly cancelled in the meantime, the policy expires on its due date and in the absence of notice from the insurer, it continued. There is a provision in section 52 of the Insurance Contracts Act which prevents a contracting out of the provisions of the Act so it would not be open, by the provisions of section 52, to an insurer to enter into an agreement which purports to exclude or restrict or modify the operation of the Act.

BRENNAN CJ:   Why not?

MR JACOBSON: Under a provision of a contract of insurance, it would not be open to the insurer to include a clause which entitled the insurer to cancel other than for the grounds set forth in section 60. That, we submit, is really an indication of the policy of Part VII of the Act which was to prevent an insured from losing the valuable protection of section 58, except in circumstances where there is a cancellation which is initiated by the insured person.

TOOHEY J: But do you suggest, Mr Jacobson, that section 52 would preclude the parties simply reaching an agreement, that as from a certain date, the policy will be at an end.

MR JACOBSON:   No, I do not.  It would be open to the parties to agree but in this case one does not find such an agreement.  The solicitor’s letter, which is in the appeal books at page 362, does not constitute an acceptance.  The solicitor refers to the matter and notes:

that your client has cancelled.....Could you accordingly arrange for a cheque.....We note our instructions that in any event we intend to pursue your client pursuant to the policy.

Any reasonable reader of this letter would really be left in a state of some confusion as to what the author of the letter had in mind in particular from the third paragraph.  The overall effect of the letter is really quite unclear.  It is certainly not a cancellation by the solicitor.  The solicitor, one would have thought, did not have authority himself to simply cancel the policy, but the letter on its face is ambiguous.  When one looks at the subsequent conduct, there is nothing in the subsequent conduct which amounts to an acceptance of a cancellation or to an estoppel.  The subsequent conduct, conduct following the letter of 22 July, is set out in full in Mr Justice Powell’s usual thorough way in the appeal books at pages 521 to 526.  At page 521 between lines 10 and 15:

Thereafter -

that is after the letter of 22 July -

on 28th July 1992, the Respondent -

as his Honour says.  That should be the appellant -

forwarded to Garrison a letter which, omitting formal parts, was as follows -

The letter is included in the appeal books.  It appears, I think, on page 363.  I think it is set out fully on page 521:

We wrote to your above client recently and advised that the four policies you introduced were to be cancelled in accordance with the provisions of the Insurance Contracts Act.

Our cancellation certificates are now attached.....Please remit to your client.

There is not one word in that letter which refers back to the letter from the solicitor of 22 July.  One would have thought that the officer of the insurance company who wrote that letter and forwarded it to Garrison - Garrison of course were the brokers - simply was unaware of the letter from the solicitor.  It does not act on the faith of that letter.

There was evidence given by the appellant’s commercial underwriting manager, Mr Nielsen.  His Honour deals with that at page 522.  In July 1992 CIC refunded to the broker part premiums in relation to the policies.  The sum was credited to the - it was a running account which the broker held with CIC.  The broker took up the credits on 9 October.

The broker, Mr Whitford, was cross‑examined.  Mr Justice Powell sets out the relevant parts of the cross‑examination at 522 and following.  What he says is, at the top of page 523, he was not expecting questioning about the subject but:

we would have probably deducted the credit from other premiums owed and we would have held that credit in our trust account.

Further down, between lines 10 and 15:

There were regular dealings happening with CIC after July 1992, which in the usual course would have resulted in that credit being exhausted?  A.  No, we would have taken up the credit and invoiced - and completed invoices and put it - it would have been held as a credit to Bankstown Football Club’s account.

Q.  Yes.  As between yourself and your client you would have credited an amount to your client?  A.  That is right, yes.

Further down, between lines 20 and 25, Mr Rayment asked:

If you had instructions from your client that it wished to maintain the policy in force and wouldn’t accept the cancellation of it, you would have taken the matter straight up with the insurance company, would you not?  A.  Well, I took the matter up with the insurance company on receipt of the first communication I had of cancellation, which was a ‘phone call.

His Honour then asked some questions, and between lines 5 and 10 Mr Whitford said he contacted the insurance company.  He spoke to the claims department; they were not prepared to comment on the matter.  He spoke to the investigator who would not give any reason for the cancellation.  Mr Rayment asked:

Q.  Did you say that you didn’t want the premium refunded?  A.  No, I didn’t say that.

Q.  Were you aware that the solicitor had asked for the premium to be refunded.  A.  No, there was no need for me.  It is a normal practice that the insurance company would in time refund the premium.

Q.  You didn’t send it back when you got back?  A.  I didn’t credit - send the premium to the client.

Q.  You didn’t dispute the credit the insurance was giving you?  A.  No.

Q.  You had no instructions from the client to do so?  A.  To dispute it?

Q.  Yes.  A.  No.

Q.  In due course did you pay the amount of the cheque to the client, did you?  A.  No.  I asked the client did they wish the money to be paid at that time.  They were in a fair bit of disarray and I was instructed to hold, hold the money.

Q.  When was that?  A.  When I received the credits, probably September, October, something like that.....I asked our client what did they wish, did they wish a cheque or did they wish a credit against some other insurance and at the time I was instructed to hold them.

And that was by Mr Potter.  Mr Potter was the secretary‑manager.

That evidence, we submit, indicates that the insured itself was not accepting a cancellation.  It was, as the evidence makes clear, “in a bit of a state of disarray”.  That is the language which was used, and the evidence is really quite equivocal.

TOOHEY J:   Do these submissions go to answer the appellant’s submissions, or do they go to the cross‑appeal?

MR JACOBSON:   They probably go to answering the appellant’s submissions in so far as is necessary for them to be relevant to the cross‑appeal.  We put them on the cross‑appeal as well, but the matter seems to have been well and truly put in issue by the appellant and we would have thought it was unnecessary for us to seek leave or to rely upon the matters that we have raised in the cross‑appeal.  It is simply a response to what the appellant said about the various ways in which the policy was said to have come to an end or been cancelled.

BRENNAN CJ:   There were four policies cancelled, were there not?

MR JACOBSON:   Purportedly, yes.

BRENNAN CJ:   And four refunds given?

MR JACOBSON:   Yes, your Honour.

BRENNAN CJ:   The letter referring to the pursuit of the insurer was a reference, I take it, to the claim under one of those policies?

MR JACOBSON:   Yes.  There was no unequivocal acceptance of a cancellation and, indeed, we submit that is made clear by the proceedings themselves, because the summons which appears on page 1 in paragraph 1 seeks:

A declaration that upon the proper construction of policy.....the Defendant is liable to indemnify -

So there is no declaration sought that the policy has been cancelled.  It is not raised on the pleadings.  There is simply nothing from which one can infer a consensual act on the part of the respondent.  It was acting in consequence of, or following upon, a purported but invalid cancellation by the insurer.

BRENNAN CJ:   On what footing was the insurer entitled to a refund of premiums paid on those four policies?

MR JACOBSON:   If the insurer said it and cancelled, which it did, in the normal course, it would make a refund of a rateable proportion of the premium.

BRENNAN CJ:   I was not asking that:  I was asking on what footing was the insurer entitled to receive and retain the premium in respect of the unexpired period of each of the four policies?

MR JACOBSON:   Your Honour means “the insured”?

BRENNAN CJ:   Insured, yes, I am sorry.

MR JACOBSON:   Upon the basis that the insurer was asserting a cancellation but that the insured was putting in issue that right by virtue of the third paragraph of the letter of 22 July and also bearing in mind what was set out in paragraph 1 of the summons, all that the insured demanded was consistent conduct.  The insured did not ‑ ‑ ‑

BRENNAN CJ:   Consistent with what?

MR JACOBSON:   Consistent conduct on the part of the appellant, the insurer.  The insured did not itself assert any right and in those circumstances, the insured was merely asking the insurer to act consistently.  It was not accepting any cancellation of the policy.  All it was saying was, “You say you’ve cancelled.  If you’ve cancelled, you are required to refund the premium”.

MR JACOBSON:   The letter at page 362 in the second paragraph, I am reminded, says this at line 15:

Could you accordingly arrange for a cheque for the balance of the premium to be forwarded to our office by return.

That, we submit, demonstrates the point I was seeking to make that the solicitor was merely asking the insurer to act consistently.

BRENNAN CJ:   Consistently with what though?

MR JACOBSON:   Consistently with an assertion of cancellation but not with an acceptance of it.

BRENNAN CJ:   There was an assertion of cancellation.  Was there an acceptance of that assertion by the receipt of the money and its retention?  What other step was necessary to accept what was asked for in this letter than the receipt and retention of the money?

MR JACOBSON:   The insured did not, itself, receive the refund, the broker received it.  In our learned friends’ chronology they say that the money was held for the insured but the evidence which I took the Court to was that the insured was in disarray, asked the broker to hold the refund.  The insured did not receive it.  Of course, the broker was the insured’s agent, but the insured did not unequivocally accept the refund.  It simply left it with the broker.

DAWSON J:   But it could not expect to have insurance cover from which it had not paid which was the effect - - -

MR JACOBSON: The effect of the statute, section 58 ‑ ‑ ‑

DAWSON J:   No, I am talking effect of the actions of the insured by receiving back the money, thereby ceased to pay for insurance cover for the rest of the term of the policy, indicating that it could not be expecting something for nothing, could it?

MR JACOBSON:   If the insured had accepted the money ‑ ‑ ‑

DAWSON J:   It did through its agents.

MR JACOBSON:   We submit that the acceptance is not ‑ ‑ ‑

DAWSON J:   The insurance company no longer had the money which was in payment for insurance cover for the rest of the term and the insured knew perfectly well that that was the situation, all I am putting to you is surely the insured could not have expected to be covered when it did not pay for the cover.

MR JACOBSON:   We submit that in the unusual circumstances of this case it could because it was asserting a claim and ‑ ‑ ‑

DAWSON J:   That was in the past.  Looking to the future.

MR JACOBSON:   Indeed, but it was really treating the refund of the premium which went to the brokers as part of the action required by the insurer in circumstances where the insurer had wrongfully purported to cancel.

DAWSON J:   So it was expecting to have insurance cover without paying for it.

MR JACOBSON:   That is the effect of what we put, yes.

BRENNAN CJ:   Right, we understand that is what you are putting.

MR JACOBSON: Of course section 58 itself provides that there is a statutory policy in force even though the insured is not required to pay the premium. The insured under section 58 is only required to pay the premium in the event that there is a ‑ ‑ ‑

BRENNAN CJ:   That is in relation to the next period.  His Honour’s question was in relation to the current period.

MR JACOBSON:   Yes, your Honour.  I have really jumped ahead of myself in my submissions.  There was one other matter that I wanted to deal with in the Atkinson‑Leighton judgment, but I think I will leave that until the end because we are really dealing with the effect of the operation of section 58. Our submission really is this, that in the light of the finding of the majority of the Court of Appeal that there was no abandonment there cannot be a finding that there was a consensual termination. There cannot be a finding that there was an acceptance of the cancellation, notwithstanding what the President said at the passage which I have read to your Honours.

The primary way in which the appellant ran this point at the trial was to contend that there was an estoppel.  Justice Kirby and Justice Powell found that there was an estoppel.  We submit that their reasoning is flawed and it is not supported in Justice Kirby’s case by the evidence.  Justice Kirby at page 457 found that there was an estoppel by representation.  Page 457 about line 15:

It is therefore crucial to determine whether the contract.....remained in effect.....it did not.  The reasons for this conclusion are:

(a)  the club’s solicitor’s letter represented to the appellant acceptance of the appellant’s cancellation.....

(b)  the representation was binding.....

(c)  the representation was such as to estop the club from asserting the continued operation of the contract of insurance -

and he goes on to say that that was an estoppel by representation.  At page 467, at about line 10, between lines 5 and 10:

The representations made by the club’s solicitor, and the club’s immediate conduct thereafter, far from disputing the solicitor’s letter confirmed.....the prima facie meaning.....the solicitor plainly had ostensible authority.....in any event, the conduct of the club after the letter was written was adoptive, by way of ratification.....the appellant then reasonably relied upon the representations -

and at page 472:

The appellant relied upon it to its detriment. 

Now, we submit that his Honour’s reasoning in that respect is quite wrong because when one looks at the evidence which Mr Justice Powell sets out there was simply no evidence of reliance upon that representation.  The evidence was at page 525 and 526, at about line 20.  Mr Nielsen, who was the commercial underwriting manager, said:

Renewal of commercial policies.....individually considered by underwriters under supervision are not automatically processed by computer or otherwise.

Eight weeks prior to a policy falling due for renewal, it is the system employed by the underwriting department -

to consider individually each renewal, an underwriter considers it.  Paragraph 5:

If, after rejection of the Club’s claim of January 1992 , the file relevant to the Club’s policy had been brought to an underwriter and it was found that the policy had not been cancelled, it would not have been renewed.....

The system excludes from further consideration by underwriters those policies cancelled either by CIC or its insured.

If the policy was disputed.....the file would have been referred to me and I would have caused a notice to be sent.

Your Honours, that evidence really does not meet the point.  Evidence was not given by the insurer that it read the letter from the solicitor, and it formed any belief upon the basis of the letter, that it relied upon that letter in deciding not to send the file to the underwriter in accordance with the system which Mr Nielsen’s sets out in his statement.  Now, it is our submission that the President’s reasoning is flawed because there was no evidence of any reliance, there was no detriment suffered as a consequence of relying upon the terms of that letter nor, indeed, reliance upon the conduct of the insured in permitting its broker to retain the premium. 

Mr Justice Powell at page 561, his Honour starts at 599, turns to the question of estoppel at the bottom of the page.  On page 560, he refers to some principles and says that estoppel is really:

a broad general principle -

between lines 5 and 10 -

to the effect that, whenever a court - or, at the least, a court which is enabled to apply the principles of equity - is faced with conduct which is unconscionable, or which is held to constitute fraud -

et cetera, will provide a remedy which is:

commensurate with, and adequate to protect the subject person against, the detriment -

and there is reference to Verwaven, “no estoppel in the face of the statute”, but he said:

It may well be that, in any particular case, the court would hold that it was not unconscionable for a party who had led another to act on a particular assumption thereafter to deny the validity of that assumption -

and then between lines 5 and 15, his Honour merely says that it was unconscionable for the insured to raise the issue of cancellation “at the tail of the hunt”.  He refers to the respondent’s conduct, does not say what it is, does not say and, indeed, there was no evidence which would have enabled his Honour to say, that the insurer had formed any particular belief or assumption upon the basis of the insured’s conduct.  In those circumstances, it is our submission that Mr Justice Powell’s judgment is also wrong on that point.

We would also put it that having regard to the statutory scheme, the insured cannot be estopped against the language of the statute. There is simply no room for the application of the doctrine of estoppel because section 58 is a protective provision. It is part of a social policy which is not merely for the benefit of insured persons; it is for the benefit of insureds and for the benefit of insurers as well because, under section 58, the insurer is obliged not only to give a notice which informs the insured person of the day on which and the time at which the cover will expire and whether the insurer is prepared to negotiate to renew or extend the cover. So the insurer is obliged to do two things: inform the insured person of the time at which the cover will expire ‑ ‑ ‑

BRENNAN CJ: There is no question but that subsection (2) is not complied with and, if that is so, then if the case is one which falls within section 58, there has been a statutory renewal. That is not in dispute, is it?

MR JACOBSON:   No, it is not.

BRENNAN CJ: The question is whether or not section 58 applies.

MR JACOBSON: Yes, but I was simply putting this submission in support of the proposition that it is not open to the insurer to raise an estoppel against the insured because we say that section 58 is part of a statutory scheme which is not merely a scheme which confers private benefits; it also confers benefits for insurers because the insured must be informed of whether the insurer is prepared to negotiate. The insured can ask for reasons under section 75. Those are matters which the insured would need to bring to the notice of any replacement insurer in conformity with the insured’s obligation of full disclosure. So that the section is, we say, one which precludes the insurer from asserting the estoppel against the insured.

Can I turn then to the question of general damages.  The claim for general damages is really a claim for breach of contract.

GUMMOW J:   It is an unliquidated claim.

MR JACOBSON:   Yes.  Whilst the contract of insurance contained a provision which dealt with consequential loss, to which the Court has been taken, the exclusion ‑ ‑ ‑

GUMMOW J:   But if it had been a valued policy, it would have been a claim for a liquidated sum.

MR JACOBSON:   Yes.  The provisions of the consequential loss indemnity is set out on page 245.  At page 249, “Perils Exclusions”, between lines 5 and 10:

The Company shall not be liable under Sections 1 and/or 2 in respect of ‑

and then if one goes to paragraph numbered 9. between 5 and 10:

consequential loss of any kind including consequential loss due to delay, lack of performance, loss of contract or depreciation in the value of land or stock, except as herein provided in Section 2.

That simply prevents the insured from claiming consequential loss otherwise than in accordance with section 2 but it does not preclude the insured from making a claim for general damages for breach of contract on the part of the insurer.  And there was a breach of contract because the insurer failed to pay within a reasonable time and, indeed, failed to honour the policy within a reasonable time.

BRENNAN CJ:   What is the breach that was found?

MR JACOBSON:   The breach that was found, I think, is a failure to pay within a reasonable time or, indeed, at all.

BRENNAN CJ:   Where is the finding of that?

MR JACOBSON:   It is in Mr Justice Cole’s judgment.

BRENNAN CJ:   Is it at 429?

GUMMOW J:   Line 15.

MR JACOBSON:   I think it is page 432 between lines 5 and 10:

An insurer may breach the contract by failing to pay monies which it is obliged to pay under the contract; it may also breach the policy by failing to pay those monies within a time contemplated by the contract, be it a reasonable time or a specified time;

Page 433 follows at line 20.  I think this is the finding of fact between lines 20 and 25:

It follows, in my view, that where the insurer has failed in breach of contract to accept an obligation to pay monies to repair and reinstate property, and to pay such monies as are properly payable under the policy, the insured is entitled to recover general damages -

Page 436 between lines 5 and 10, about line 7:

Had the insurer acknowledged its obligation to reinstate the premises after the third fire, say by May 1993, the building could have been reconstructed by approximately May 1994.  However it failed to do so.  In those circumstances in my view the club is entitled to recover the past and prospective loss of profits by way of general damages ‑ ‑ ‑

BRENNAN CJ:   When did that period - I see, yes.  If we take those damages from the period that his Honour is referring to there - that is 9 January 1993 - that is before the third fire?

MR JACOBSON:   Yes, your Honour.

BRENNAN CJ:   So his Honour is saying that there was a failure to pay that which was due before the third fire?

MR JACOBSON:   Yes, he is.  Of course, his Honour says that the Club is entitled to recover loss of profits for that period, that loss of profits is not too remote.  We submit that it is quite clear a claim under a contract of insurance is a claim for damages; it is not a claim for damages perhaps in the ordinary sense, but there is no reason why special rules should apply to contracts of insurance.  Normally the contract specifies the way in which the loss is to be calculated, the measure of the indemnity, but consistent with what this Court has said in Hungerfords v Walker, there is simply no reason why, if the loss can be reasonably supposed to be within the contemplation of the parties within the second limb of Hadley v Baxendale, that the insured has a claim for general damages.  It is not too remote.  Each case must turn upon its own facts, but this was a case in which there was a consequential loss provision in the policy.  It must have been reasonably supposed to be within the party’s contemplation that if the insurer failed to pay within a reasonable time that the Club would not be able to operate and that there would be lost trading profits over and beyond the period specified in the consequential loss clause which was a period of 12 months.  We would have thought it was a relatively uncontroversial matter.

There is really nothing, as I have said, to differentiate insurance contracts from any other species of contract and the ordinary rules should apply.  The measure of damages for breach would include additional interest which an insured may have to bear if the insured has borrowed funds, as this insured had from a bank.  The principles in Hungerfords v Walker - the statements of principle make it perfectly clear that the loss can include opportunity cost; and opportunity cost must include loss of profits in an appropriate case.

The principles have been applied by judges at first instance in Tasmania and in New Zealand and, in our submission, there is simply no reason why general damages are not recoverable for breach by the insurer of the terms of the policy. 

The last matter which I wish to come to is the question of whether there ought to be judgment for a money sum or simply a declaration.  That really takes us back to the question of construction of a policy.  We submit, and I do not want to repeat myself, that it is clear that upon the proper construction of the clauses, in particular the basis of settlement to which I have taken the Court, where the insured does not itself incur the cost of reinstatement, that the insured gets an estimate of the cost of reinstatement and can, therefore, obtain judgment for a money sum and should not be confined to a declaration.

Alternatively, in our submission, the insured was excused from performance of proviso (iv) consistent with what this Court has said in Foran v Wight, that is to say the insurer, by denying the indemnity, effectively made it impossible for the insured to incur the cost of reinstatement.  There was really an intimation to the insured by the insurer that performance of proviso (iv) was futile.  There was no point in incurring the cost of reinstatement because the insurer was not going to pay.  It must then follow that the insured is relieved from compliance with the provisions of proviso (iv) and we put that as an alternative basis upon which the Court would give a judgment for a money sum rather than merely confine as to a declaration.  The only other thing that I wanted ‑ ‑ ‑

GUMMOW J:   You seek some orders at 589 in your cross‑appeal.  Is the whole of 3.2 on 590 an alternative to the whole of 3.1?

MR JACOBSON:   I think it is.

GUMMOW J:   Is there any agreement as to that sum of $1.9 million at line 21 of page 589?

MR JACOBSON:   I would not think so, your Honour.  That is simply the effect of reinstating the judgment given by Mr Justice Cole.

GUMMOW J:   I see.

MR JACOBSON:   Could I just deal with two more things.  Can I answer the point that Justice Dawson put to me earlier that, if we are right in our submission, we received insurance from 22 July 1992 until 30 October - that is the expiry date of the original policy - for nothing because the insurer did not have the premium, the insurer had paid the premium to the broker; clearly enough, we would be required to refund that premium.  No request has been made for a refund of the premium but, whilst at present the premium either remains with the broker or, at the very least, the insurer does not have the benefit of it, clearly enough it would be incumbent upon the insured to refund that premium.  So it is perhaps not entirely accurate to say we get it for nothing.  We must be bound to ‑ ‑ ‑

BRENNAN CJ:   Those premiums or that premium?

MR JACOBSON:   I think it would have to be the premium for the period to 30 October 1992 and the premium payable under the statutory policy, because section 58 provides ‑ ‑ ‑

BRENNAN CJ:   No, there were four policies, refunds of four.  Are you saying that you would have to pay back the premiums on all four?

MR JACOBSON:   Yes.

BRENNAN CJ:   Why?

MR JACOBSON:   The properties were really dealt with together, and what we assert is that the policies remained on foot, not just the industrial special risks policy that we have been looking at but the three other policies.  So we would have to refund the three other premiums.  There would, in effect, be a mistake of fact which would enable recovery of the premium in any event.

BRENNAN CJ:   What is the fact that was mistaken?

MR JACOBSON:   That there had been a cancellation.

BRENNAN CJ:   What led the payer to labour under that mistake?

MR JACOBSON:   Presumably receipt by the broker of the premium and non‑refund of the premium to the insurance company.  The mistake of fact is really the insurer’s mistake of fact.  It gave a notice upon the basis that there was a wrongful cancellation.

BRENNAN CJ:   Yes, it was its own mistake of fact; it engendered it itself.

MR JACOBSON:   Yes.

BRENNAN CJ:   Why does that expose the payee to an obligation to repay?

MR JACOBSON:   I suppose because we got the benefit of it; we continued to be insured.

BRENNAN CJ:   Under one of those policies.

MR JACOBSON:   The only one that matters for present purposes.

TOOHEY J:   I thought you would say the mistake was engendered by the conduct of the insured.  It was your own conduct, was it not?

MR JACOBSON:   No, your Honour, we do not say that.  We say it was a mistake which was engendered by the insurer itself.

TOOHEY J:   Yes, I see.  In misunderstanding your conduct?

MR JACOBSON:   No, your Honour.  It got it wrong.  When it sent the letter of 22 July, it believed that the property had been deliberately burnt down by the insured.  It was found quite clearly by his Honour Justice Cole that that was not so.  The insured, therefore, sent the notice of 22 July upon the wrongful footing that it had a cause for termination of the policy.

TOOHEY J:   Yes, it was a misunderstanding of your conduct.  I do not mean to suggest that the insured in any way contributed to that, but it was a mistake as to the circumstances surrounding the fire.

MR JACOBSON:   Yes, which the insurer itself made, but limited to its mistake about our actions in connection with the first fire, nothing else.  The only other matter I was going to take the Court to ‑ and it is probably unnecessary for me to read passages to you ‑ in the Atkinson‑Leighton judgment, it is our submission that the difference between the dissenting judgment of Chief Justice Barwick and the other Justices of the Court, was really a difference of construction of the policy.  The Chief Justice took the view that a memorandum, memorandum 2, was part of the indemnity whereas the other Judges said it was merely a subsidiary part of the policy. 

We submit that really that explains the difference and that the matters of principle which we rely upon on the first ground of appeal, which are found in the Chief Justice’s judgment, correctly state the law.  I do not want to take up time unnecessarily reading passages to the Court.

Those are our submissions.

BRENNAN CJ:   Thank you, Mr Jacobson.  Mr Rayment?

MR RAYMENT:   If it please your Honours.  On the point, as it were, that arises principally in-chief in this case, the only remaining matter of difference, since the respondent has not supported the majority in the Court of Appeal on the meaning of the expression “reinstatement”, appears to be the incidence of any increase in costs in rectification of the property damaged in the first fire by reason of the third fire, and that really arises from my failure to concede the answer to a question which your Honour the Chief Justice asked of me during the address in-chief this morning, that is to say, whether, in effect, all that Sir Garfield said would be right with respect to, at any rate, the rectification of property which was damaged in the first fire.

In our respectful submission, it is a very unlikely question ever to arise if one tries to think of it in the concrete.  If something was so badly destroyed in the first fire that the only way to reinstate it was, for example, to replace the object - let us assume it is three-quarters of a wall which has been burnt down, you only reinstate that by putting the wall back - it is very hard to imagine how there is any real difference as a matter of fact that might stem from the only matter remaining possibly in issue between these parties, but it is certainly not, in our respectful submission, anything like the judgment which found favour below; the position in which the parties find themselves, as a matter of concession, before this Court.

Neither does the other side seek to support the notion that all reinstatement will bring you back to the condition of the property as it stood before the first damage so that damage occurring to property outside the insurance period will, according to the President, be covered but not according to the concession of my learned friend.  Nor does my learned friend seek to support the causal proposition which we contended in-chief was erroneous as a matter of construction of the policy.  We put, in short, that the policy spoke about loss occurring during the period of the insurance, not about damage caused as a result of causes arising during the period of the insurance and that is not contested as we would understand the first section of my learned friend’s written submissions.

So on the points other than the section 58 point we would respectfully submit that the respondent concedes, with one proviso that I have already referred to, the thrust of the appellant’s case in this Court and that matter of difference, in our respectful submission, either may not matter or, indeed, may produce less money conceivably in the hands of the insured than a position which would relate the rectification cost to the first fire. Your Honours, so far as section 58 of the Insurance Contracts Act is concerned ‑ ‑ ‑

GUMMOW J:   Mr Rayment, just so I can get this into my head, are you saying, looking at paragraph 3 of your outline, that both those two bases are conceded?

MR RAYMENT:   Are conceded, yes. We would respectfully understand the other side to have come here and agreed that if the matter does not turn on section 58 of the Insurance Contracts Act then the appeal should be allowed. Moving to section 58 of the Insurance Contracts Act, it was certainly put to the Court of Appeal that, as your Honour the Chief Justice asked whether it had been, there was acquiescence by the insured in the purported but invalid cancellation of the insurance policy by the insurer and the written submissions to the Court of Appeal submitted that - I read them:

The appellant submits that the contract of insurance -

this is 1.4(b) -

came to an end by mutual agreement in that the insured acquiesced in the insurer’s purported cancellation.

And those circumstances were investigated in the Court of Appeal and resulted in the findings of the President which are there. He gave effect to them finally by finding an estoppel which, in our respectful submission, is correct, but he may equally have given effect to them by a finding of an implied agreement between the parties stemming from the acceptance of the purported but invalid cancellation and, in our respectful submission, the cross‑appeal and the extent to which it really be relevant in the appeal be appealed should be dealt with on the basis that section 58 conferred no relevant remedy on the insured.

Your Honours, so far as general damages are concerned the parties, I think, are at issue upon the meaning of general exclusion 9 in so far as it deals with the matter generally.  There is a purported exclusion of:

9.  consequential loss.....due to delay, lack of performance -

which, in our respectful submission, catches the very thing which was complained about in the general damages.  But, more importantly, if the right result of this case is that the ‑ ‑ ‑

GUMMOW J:   Where was that first exclusion, Mr Rayment?

MR RAYMENT:   That is exclusion 9 on page 250.

GUMMOW J:   Yes.

BRENNAN CJ:   You interpret lack of performance there as meaning lack of performance of the obligations of this contract?

MR RAYMENT:   We would submit so.  It means delay or lack of performance.  What else, we rhetorically ask, can it be:

Loss of contract or depreciation in the value of land.....except as provided in Section 2.

The only consequential loss this insurer understands himself to be subjecting himself to is the business loss.

BRENNAN CJ:   Well, then, what does section 2 provide in relation to consequential loss for delay or lack of performance?

MR RAYMENT:   It gives the insured the benefit of a period calculated by reference to a formula for the - - -

BRENNAN CJ:   Where is that?

MR RAYMENT:   The formula is at 245, and in particular at 246.  Effectively, you get a year’s cover of an amount calculated in accordance with a formula described as basis of settlement at 246. 

Your Honours, more generally, as we secondly submitted on the question of general damages in-chief, if the main point sought to be made by the appellant here is correct, then no question of general damages arises in this case because no election of the relevant kind has yet been made.  We do not know whether the clubhouse will ever be rebuilt if all they are entitled to is the cost of reinstatement of the parts of the clubhouse which were damaged in the first fire.

GUMMOW J:   By relevant election?  You are referring to basis of settlement, are you?

MR RAYMENT:   No, I am referring to the absence of any indication by the respondent right to this day as to whether it claims for an indemnity amount, which would be the value of the diminution of the property.  By the way, your Honours, I should have given a reference, if I may, to a case in the English Court of Appeal about this, which discusses Monson and also Castellain v Preson.  It is Leppard v Excess Insurance Co Limited (1979) 1 WLR 51. The court there construed what we would submit is an ordinary indemnity policy as entitling the recovery of an amount equal to the diminution in value even if that was less than the cost of rectification. It does not lead to any consequence in the case, but I should give a reference to it for completeness.

Your Honours, we have not heard from the respondent who, one has to confess, is not knowing what it is entitled to, or until this Court’s judgment is given, that is to say, whether they wish to have the diminution in value or whether they wish to have a partial contribution to the reinstatement of the club premises upon the assumption that the appellants here succeed.  It must follow that no occasion to consider whether there were any general damages nor as to their extent has yet arisen, and the greatest entitlement they could have would preserve their right to apply in respect of it, we would submit.

BRENNAN CJ:   Why does one not interpret proviso (iv) on page 244 as relating to any excess of the cost of reinstatement over and above the value of the property, the indemnity value of the property?

MR RAYMENT:   We submit that is how one does construe it.

BRENNAN CJ:   Then there is nothing which need delay the obligation to pay the indemnity value.  There does not have to be an election for it.  We are only talking about quantum in that proviso.

MR RAYMENT:   Perhaps I should step back a pace if I may, your Honour.  In the usual case, what I rather clearly conceded just a moment ago would be correct, in our submission.  That is to say, usually the result that I just indicated would be the case, but strictly, in our respectful submission, let us assume that there is no doubt about the indemnity being made available to the insured and consider that usual case, your Honour.  My learned friend put that within a reasonable time of the claim arising, there would be a right to claim the indemnity value of the property instead of seeking to replace it and claim the cost of its replacement or reinstatement when incurred from the insurer.  We would not be disposed to dispute that view.

In the usual case you would find out within a relatively short time after the event of the loss what the insured was going to do.  Was he going to reinstate, in which case his entitlement would be to claim the cost of it when incurred or, if he is not going to reinstate, for example, just sell the premises in some sort of damaged condition, then he gets the diminution in their value from the insurer as at the date of the event, and that is the end of the matter.

We submitted in‑chief in response to questions, I think I am right in saying, from your Honour Justice Toohey that what basis of settlement (a) means in the first paragraph is that there must be reinstatement.  That is, the insured must incur the cost before he has the benefit of the proviso of the first paragraph of paragraph (a) in any event.  In other words, what we seek to do is to support the view which commended itself to each of the three members of the Court of Appeal about the need for the insured who wishes to claim on a reinstatement basis to incur the cost, send the bill to the insurance company.  Proviso (iv) on that view ‑ ‑ ‑

GAUDRON J:   Do you go so far as to say by virtue of provision (i) on page 244 that they cannot, in the circumstances that have happened, get more than the indemnity value?

MR RAYMENT:   No, none of it, certainly not, because there is a breach by the insurer on the assumption with which I approached the matter which would disentitle it from relying on proviso (i).  I accept that.

GAUDRON J:   At all?

MR RAYMENT:   And (iv), in our respectful submission.

GAUDRON J:   So the memoranda really have no application at all in this case.

MR RAYMENT:   No, not (iv), in our respectful submission; (iv) precisely applies still to this case.

TOOHEY J:   But only on the footing that the cost has been incurred?

MR RAYMENT:   At such time as the cost is incurred the insurer’s obligation remains an obligation to pay that cost, in our respectful submission.

TOOHEY J:   If the insured makes the election to claim on an indemnity basis, the Company then has two options that is under paragraph (a) basis of settlement.  It will either pay that or it can opt to carry out reinstatement itself.

MR RAYMENT:   I think your Honour the Chief Justice’s question may have been this - would your Honour please correct me if I am wrong - was your Honour suggesting that because of the words “beyond the amount which would have been payable” - - -

BRENNAN CJ:   That is right.

MR RAYMENT:   Yes.  But, there may be an obligation to pay the indemnity value.

BRENNAN CJ:   In other words, absent the replacement covenant entirely ‑ ‑ ‑

MR RAYMENT:   Yes, then you have the indemnity value.

BRENNAN CJ:   Then you have the indemnity obligation remaining, and (iv) is designed to ensure that if the insured seeks reinstatement over and above the indemnity value then there must be expenditure beforehand.

MR RAYMENT:   Yes.  The only answer I would have for that - I do follow the force of it, with respect - is to suggest that reinstatement refers to something that actually happens; but I do follow the force of that, your Honour.

BRENNAN CJ:   Yes.

MR RAYMENT:   But, of course, in the facts of this case we would say, although it certainly has not been found yet at first instance that they are in the position that proviso (iv) applies to them because they have been paid a sum before the hearing in the Court of Appeal which would have encompassed the indemnity value of the property damaged in the fire of 1992.

So that on that view the insurer would be not required to make any payment unless and until total cost of rebuilding the relevant work reaches that amount.

BRENNAN CJ:   That depends upon the significance of a payment made after action brought.

MR RAYMENT:   Yes, as a condition of stay.  May it please your Honours, those are our submissions.

BRENNAN CJ:   Thank you Mr Rayment.

MR JACOBSON:   Before the Court rises, can I just put this:  in relation to paragraph 3 of my learned friend Mr Rayment’s outline, as to the first way in which he put the submission, we adopted a modified form of the matter there put.  We certainly did not argue the whole of his Honour the President’s decision but we put it in a modified way and we accept that.

GUMMOW J:   But what about the second half of 3?

MR JACOBSON:   No, we did not put that.

BRENNAN CJ:   Thank you, Mr Jacobson.  The Court will consider its decision in this matter and will adjourn until 10.15am on Tuesday next.

AT 4.00 PM THE MATTER WAS ADJOURNED