Commercial Union Assurance Co of Australia Ltd v Beard

[1999] NSWCA 422

Reported Decision: 47 NSWLR 735
(2000) 11 ANZ Insurance Cases 61-458

New South Wales

Court of Appeal

CITATION:	Commercial Union v Beard & Ors [1999] NSWCA 422
FILE NUMBER(S):	CA CA 40764/98; CA 40765/98; CA 40766/98; CA 40767/98
HEARING DATE(S):	23-24 September 1999
JUDGMENT DATE:	25 November 1999
PARTIES :	Commercial Union Assurance Company of Australia Limited (apellent) Alexander Frank Beard, Jenny Stensson, Robert Kevin Pearce, Martin Edward Sanders (First Respondents) Baroku Pty Limited (In Liquidation) (Second Respondent)
JUDGMENT OF:	Meagher JA at 1; Davies AJA at 2; Foster AJA at 69

LOWER COURT JURISDICTION:	Supreme Court
LOWER COURT FILE NUMBER(S) :	16884/91 16885/91 16883/91 16137/92
LOWER COURT JUDICIAL OFFICER:	Hulme J

COUNSEL:	A: Mr B W Rayment QC, Mr L G Foster SC Mr T J Morahan R1: Mr C G Gee, Mr P Morris
SOLICITORS:	A: A R Conolly & Company R1: CE Cranney & Company
CATCHWORDS:	Insurance-Public Liability insurance; whether non-disclosure; whether relevant matters known to the insured or its broker - in public liability insurance, is the identity of the owner of the building a relevant matter; whether relevant matter known to insurer; whether extract from newspaper was knowledge or a means of knowledge; what is the significance of a survey undertaken by insurer; who has onus of proof of non-disclosure, the insurer or the injured plaintiff suing under s6 of the Law Reform (Miscellaneous Provisions) Act 1946; whether there should be a retrial when judge's interlocutory ruling on onus held to be wrong.
ACTS CITED:	Law Reform (Miscellaneous Provisions) Act 1946,s6
CASES CITED:	Joel v Law Union & Crown Ins CO [1908] 2 KB 863 Butcher v Dowlen (1981) 1 Lloyd's rep 310 Roumeli Food Stores (NSW) v New India Assurance Co Ltd (1972) 1 NSWLR 227 Massoud v NRMA Ins Ltd (1995) 8 ANZ Ins Cases 61-257 JN Taylor Holdings Ltd (In Liq) v Bond (1993) 59 SASR 432 Oswald v Bailey (1987) 11 NSWLR 715 Plastic Recoveris & Manufacturing v Wright Machinery (1991) 6 ANZ Ins Cases 61-051 Advance (nsw) Ins Agencies v Matthews (1989) 166 CLR 606 Ayoub v Lombard Ins CO (Aust) (1989) 97 FLR 284 Maquarie Bank v Natonal Mutual Life Association of Aust (1996) 40 NSWLR 543 Meridian Global Funds Manangement Asia v Securities commission [1995] 2 AC 500 Bates v Hewitt LR 2 QB 595
DECISION:	1. The appeal is dismissed.; 2. The cross-appeal is allowed.; 3. The appellent to pay the costs of the appeal and the cross-appeal.

IN THE SUPREME COURT
OF NEW SOUTH WALES
SYDNEY REGISTRY
COURT OF APPEAL

CA. Numbers: 40764 of 1998
40765 of 1998
40766 of 1998
40767 of 1998
DC Numbers: 16884 of 1991
16885 of 1991
16883 of 1991
16137 of 1992
MEAGHER JA
DAVIES AJA
FOSTER AJA

` 25 NOVEMBER 1999

COMMERCIAL UNION ASSURANCE COMPANY OF AUSTRALIA LTD V Alexander Frank BEARD, Jenny STENSSON, Robert Kevin PEARCE, Martin Edward SANDERS & ANOR

PUBLIC LIABILITY INSURANCE-ONUS OF PROOF IN NON-DISCLOSURE-KNOWLEDGE-LAW REFORM (MISCELLANEOUS PROVISIONS) ACT 1946- INSURANCE CONTRACTS ACT 1984 (Cth)

Baroku Pty Limited (in liquidation, “Baroku”) was a tenant of premises at 39-43 Darlinghurst Road, Kings Cross where it operated a backpackers hostel. Baroku took out public liability insurance with the Commercial Union Assurance Company of Australia Limited (“Commercial Union”). A survey of the premises was conducted on 2 March 1989, the insurers then requesting certain alterations which were complied with. The policy was issued on 17 January 1989.
On 17 September 1989 the hostel caught fire and many persons were injured. Four plaintiffs sought damages and joined Baroku, Vendomatic Limited (owners of the premises, “Vendomatic”), Commercial Union (the insurers), the Council of the City of Sydney and South Sydney City Council as defendants.
In determining the extent of Commercial Union’s liability the defence of non-disclosure was raised. Commercial Union argued Baroku knew that Mr Abe Saffron and his wife Doreen were primary shareholders in Vendomatic and had failed to disclose this interest, therefore Commercial Union’s liability was nil, or a substantial reduction of the indemnity, pursuant to S28(3) of the Insurance Contracts Act 1984 (Cth). This was rejected by the trial judge.
Baroku was found guilty of negligence and sought to rely on the insurance policy. Commercial Union appeals against this decision.
In the course of the trial both parties requested a declaration as to the onus of proof pursuant to S6 of the Law Reform (Miscellaneous Provisions) Act 1946. The trial judge ruled the onus lay with the plaintiffs to prove the existence of a charge of moneys payable under an insurance policy and also the amount payable. This became the subject of the cross appeal.
Commercial Union submits in the alternative that if the trial judge had ruled the onus of proof did lie with them they would have submitted different evidence at trial, therefore a retrial should be ordered.
Commercial Union also argues the survey conducted was a “full survey” rather than an “acceptability survey”. As such it was rebuttable as there was no mention of the “moral risk” insuring a building in Kings Cross posed.

Held: per Davies AJA (Meagher JA and Foster AJA agreeing):
(1) The onus of proof for non-disclosure lies with the insurer. The learned trial judge erred in relying on S6 of the Law Reform (Miscellaneous Provisions) Act 1946. This section specifies the charge for insurance and circumstances when the charge arises. It does not offer declaratory relief as to the extent of an insurer’s liability.
(2) The court accepted Commercial Union’s argument that had they known of Mr Saffron’s connection with the premises they would not have entered into a contract with Baroku. However the court held Commercial Union did not establish that Baroku had actual knowledge of Mr Saffron’s interest in Vendomatic; or that if Baroku did have knowledge, did not appreciate such knowledge would be considered a relevant matter by the defendants for the purposes of insurance. Thus the defence of non-disclosure failed.
Policy reasons to shift the onus of proof were rejected.
(3) The application for a retrial was rejected, the court holding the parties had ample opportunity to put all necessary evidence before the trial judge.
(4)Although the risk rating described in the survey was “high” the court noted the survey assessed the risk as acceptable, subject to certain alterations being performed. Therefore it was held that Commercial Union were bound by what was in, or should have been in the survey. Had they been dissatisfied they could have cancelled the policy under S60 of the Insurance Contracts Act1984.
It was also noted the quote given to Baroku’s insurance broker was more than double that for normal motels. In consideration of the price of the policy, it was found Commercial Union had accepted the risk.

ORDERS

1. The appeal is dismissed;
2. The cross-appeal is allowed;
3. The appellant to pay the costs of the appeal and the cross-appeal.

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40764/98
CA 40765/98
CA 40766/98
CA 40767/98
CLD 16884/91
CLD 16885/91
CLD 16883/91
CLD 16137/92

MEAGHER JA
DAVIES AJA
FOSTER AJA

25 NOVEMBER 1999

COMMERCIAL UNION ASSURANCE COMPANY OF AUSTRALIA LTD
v
Alexander Frank BEARD, Jenny STENSSON, Robert Kevin PEARCE,
Martin Edward SANDERS & ANOR


JUDGMENT

1    MEAGHER JA: I agree with Davies AJA.

2    DAVIES AJA: Baroku Pty Limited (In Liquidation) (“Baroku”) was the lessee of several floors at 39-43 Darlinghurst Road, Kings Cross. In those premises, Baroku operated a backpackers hostel. Baroku took out a public liability policy with Commercial Union Assurance Company of Australia Limited (“Commercial Union”) for the period of twelve months from 13 December 1988 to 13 December 1989. On 8 September 1989, the limit of the indemnity was raised from $2million to $5million when other premises were added to the policy. On 17 September 1989, a fire engulfed the premises at 39-43 Darlinghurst Road and many persons were injured. In the subject proceedings, four plaintiffs sought damages for the injuries and loss which they suffered. The owner of the premises, Vendomatic Pty Limited (“Vendomatic”), Baroku, The Council of the City of Sydney and The Council of the City of South Sydney were joined as defendants.

3 Commercial Union was also joined as a defendant, reliance being placed upon section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (the LRMP Act) which provides, inter alia:

6. (1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which he is indemnified against liability to pay any damages or compensation, the amount of his liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability.

…

(4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured:

Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken.

4    By way of defence, Commercial Union raised the issue of non-disclosure by the insured, Baroku, alleging that it had not been informed of matters relevant to the decision to accept the risk, including the fact that a well-known Sydney identity, Mr Abraham Saffron, had an interest in the premises by virtue of the holding, by himself and his wife, of the shares in the owner, Vendomatic.

5    The following provisions of the Insurance Contracts Act 1984 (Cth) (the Act), were relied upon:

21 (1) Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that:


(a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or

(b) a reasonable person in the circumstances could be expected to know to be a matter so relevant.

(2) The duty of disclosure does not require the disclosure of a matter:


(a) that diminishes the risk;

(b) that is of common knowledge;

(c) that the insurer knows or in the ordinary course of the insurer’s business as an insurer ought to know; or

(d) as to which compliance with the duty of disclosure is waived by the insurer.
28 (1) This section applies where the person who became the insured under a contract of general insurance upon the contract being entered into:


(a) failed to comply with the duty of disclosure; or

(b) made a misrepresentation to the insurer before the contract was entered into;
but does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into.


(2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract.

(3) If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made.

In its Defence in the proceedings, Commercial Union asserted that, pursuant to s 28(3) of the Act, its obligation to indemnify Baroku against the liability to the plaintiffs was reduced to nil.

6    The issue of the liability of Baroku to the plaintiffs and the issue of the liability of Commercial Union to indemnify Baroku were, by order of Hunter J made on 29 October 1994, set aside for determination separate and apart from the other issues arising in the proceedings. On 28 August 1998, the trial Judge, Hulme J, gave judgment for each plaintiff against Baroku for damages to be assessed. His Honour found Baroku guilty of negligence. He accepted evidence that the tragedies could have been avoided had Baroku removed combustibles from the fire stair and ensured that the fire doors remained closed. His Honour accepted that, had the fire doors been closed, the heat and smoke could have been contained for a sufficient period to allow the Fire Brigade to extinguish the fire before death or injury occurred.

7 The trial Judge rejected the defence raised by Commercial Union. His Honour declared that Baroku was insured with respect to its liability to each plaintiff pursuant to its policy with Commercial Union, the total sum insured being $5million. His Honour declared that the moneys payable under the policy were, pursuant to s 6 of the LRMP Act, charged with the amount of the liability of Baroku to each plaintiff.

8    In each appeal, a Notice of Appeal, a Notice of Cross-Appeal and a Notice of Contention have been filed. I shall deal with the issues raised under headings and in the order which seems to me to be most convenient, rather than follow the order of the Notices.

ONUS OF PROOF

9    It is not in dispute that, had the issue as to non-disclosure arisen in proceedings as between Baroku and Commercial Union, the onus would have been on Commercial Union to establish its defence. Ivamy’s General Principles of Insurance Law, 5th Ed at p 122, when dealing with non-disclosure, states, “The burden of proving that there has been a breach of duty on the part of the assured rests on the insurers.” See also MacGillivray on Insurance Law, 9th Ed at para 17-24; Joel v Law Union and Crown Insurance Company [1908] 2 KB 863; Butcher v Dowlen (1981) 1 Lloyd’s Rep. 310; Roumeli Food Stores (NSW) Pty Ltd v The New India Assurance Co. Ltd (1972) 1 NSWLR 227 at 231.

10 However, during the course of the proceedings before the trial Judge, it became apparent that counsel for Commercial Union proposed to submit that, as the plaintiffs were relying upon s 6 of the LRMP Act, the burden lay on them to establish both the existence of a charge on moneys payable under the policy and also the amount so payable, that is to say, the amount provided by the terms of the policy or the reduced amount stipulated by s 28(3) of the Act. Before the plaintiff’s case had closed, counsel for the parties jointly requested the trial Judge to rule upon this issue. His Honoured ruled that the onus lay upon the plaintiffs. His Honour said:

“I think the answer is to be found in the terms of subsection 4 [of the LRMP Act] . Insofar as it provides that every charge is to be enforceable by way of an action against the insurer, and in respect of such action the parties shall, to the extent of the charge, have the same rights as if the action were against the insured, it seems to me to impose on a plaintiff the obligation of demonstrating the extent of the charge. That obligation seems to me to encompass the quantification, whether it arise directly under the terms of the policy, whether it arise by a combination of the terms of the policy and events contemplated by the policy, or whether it arise by reason of what I might call the general provisions of insurance law.”

Notwithstanding this ruling, counsel for the plaintiffs continued to make it clear that it was the plaintiffs’ contention that the onus lay on Commercial Union to establish its defence.

11 In this appeal, Senior Counsel for Commercial Union has submitted that proceedings under s 6 of the LRMP Act necessarily involve the making of a declaration and that they are proceedings analogous to proceedings for a declaration. Counsel pointed to the two declarations that were made by the trial Judge. Counsel went on to rely upon the decision of McLelland CJ in Eq, in Massoud v NRMA Insurance Ltd (1995) 8 ANZ Insurance Cases ¶61-257. In that case, an insured had brought proceedings against an insurer claiming declaratory relief. McLelland J held that the onus lay upon the insured to prove its case. McLelland J examined a number of authorities dealing with declaratory relief and, at pp 75,876-7, said:

“These decisions illustrate what I consider to be the principles by which the incidence of the onus of proof is to be determined, namely:

(1) a party who seeks relief has the burden of satisfying the Court of facts which (in the absence of proof of other facts) would justify the grant of that relief;

(2) what those facts are depends principally upon:


(a) the nature of the relief sought; and

(b) the operation of any relevant presumptions;

(3) in the case of relief by way of declaratory order, the precise terms of the declaration assume particular significance in that (subject to any relevant presumption) the party seeking the declaration has the burden of proof of any matter which is a necessary element of the declaration sought (even if in proceedings by that party for relief of another kind, or in proceedings by the other party, that matter would not arise unless raised (and the burden of proof consequently assumed) by the other party).”

12    Counsel also referred to the decision of the Supreme Court of South Australia in J N Taylor Holdings Limited (In Liq) v Alan Bond (1993) 59 SASR 432. In that case, it was held that, in proceedings in which it was claimed that an insurance company was bound by its policy to indemnify defendants in respect of the claims made against them, the insurer could be joined in the proceedings and that declaratory relief as the insurer’s liability could be granted. The question of onus was not discussed in that decision.

13 The reliance placed upon authorities concerned with declaratory relief seem to me to be misplaced. Section 6(1) of the LRMP Act provides for the charge and specifies the circumstances in which it arises. Undoubtedly, a plaintiff has the onus of proving the matters upon which that subsection operates, namely, that the insured has entered into a contract of insurance by which it is indemnified against liability to pay damages or compensation and that the event giving rise to the claim for damages or compensation has occurred. On these facts, the subsection provides that, “the amount of his [the insured’s] liability shall … be a charge on all insurance moneys that are or may become payable in respect of that liability.”

14 Section 6(4) provides that this charge, “shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured”. The intent of this provision is that the action for enforcement of the charge will proceed as an ordinary action at law. The plaintiff must prove the matters required to be proved for the purposes of s 6(1) but, otherwise, the action proceeds in the ordinary manner as if the action were proceedings for the recovery of damages from the insured: see Oswald v Bailey (1987) 11 NSWLR 715 at 717.

15 It is clear from these provisions that the legislature intends that any matter which is relied upon by the insurer to extinguish or reduce the insured’s liability shall be raised by the insurer and that the onus will be on the insurer to establish it. The second paragraph of s 6(4) emphasises the point. It follows that the ordinary rule applies, namely, that the onus is on the insurer to establish a defence of non-disclosure. That was the conclusion reached by Towle J in the High Court of New Zealand, Plastic Recoveries & Manufacturing Ltd v Wright Machinery Ltd (1991) 6 ANZ Insurance Cases ¶61-051.

16 This conclusion is reinforced by the fact that s 28(3) raises an issue which would be within the knowledge of the insurer but not within the knowledge of an injured plaintiff. Section 28(3) reduces the liability of the insurer in the event of non-disclosure “to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred”. This fact was within the knowledge of Commercial Union, not the plaintiffs.

17    Counsel for Commercial Union submitted that there were policy reasons to hold that the onus was on the plaintiffs. He submitted that, in proceedings brought by an insured against an insurer, there were procedural steps such as particulars, discovery of documents and interrogatories which could be used by the insurer to obtain information as to the insured’s state of knowledge. He submitted that these procedures were not applicable in a case such as the present where proceedings were brought by injured plaintiffs against the insurer. However, insofar as the point has merit, it applies equally to the injured plaintiffs. Each side is at a disadvantage.

18 In my opinion, the general burden of proof of non-disclosure and of the reduction for which s 28(3) provides lay on the insurer. That is not to say, of course, that the evidentiary burden may not shift from one party to another, having regard to the state of the evidence already called or the nature of a particular issue.

19 Baroku has taken no part in the proceedings and neither party saw it fit to call any officer of Baroku or Mr Paul Aghion, the broker who was instrumental in arranging the insurance. Presumably, the plaintiffs and Commercial Union found these persons to be uncooperative or deemed their evidence to be unsafe. The problems of proof which faced the plaintiffs and Commercial Union do not seem to me to provide a policy reason for imposing the onus of proof on the plaintiffs to establish that there was no non-disclosure. The general burden which the plaintiffs carried was, in my opinion, satisfied when they established their entitlement to damages against the insured and established the matters specified in s 6(1) of the LRMP Act for the creation of the charge.

20    It follows that the cross-appeal should be allowed.

SHOULD THERE BE A NEW TRIAL?

21    A difficult question now arises as to whether there should be a new trial having regard to the fact that the ruling on onus of proof given by the trial Judge, and which counsel for the parties took into account when deciding what course the trial would take, was wrong. Counsel for Commercial Union has submitted that it would be unjust to hold Commercial Union to the existing evidence when Commercial Union had received the ruling that the onus was on the plaintiffs. There has, however, been no evidence adduced that, had the ruling of the trial Judge been to the contrary, other evidence would have been adduced by Commercial Union.

22    A weakness in the submission put on behalf of Commercial Union is that all counsel were aware throughout the trial that onus might be important in the approach taken by the trial Judge and that his Honour’s ruling could be challenged on appeal. The hearing on the issue of onus proceeded on the footing that no challenge would be made to the ruling until after judgment had been delivered. But counsel were aware that the issue of onus might be important, that there was no agreement about the issue and that the matter would be likely to be raised at appellate level after judgment was given.

23    In these circumstances, it seems to me that the parties are bound by their conduct of the trial and by the evidence adduced. No party was precluded from calling whatever evidence the party wished to call. No party was misled. The parties were given a fair opportunity to put before the Court whatever evidence they wished to be taken into account. No party is now entitled to a retrial so that the case may be run differently.

24    Because of the approach taken by the trial Judge with respect to onus, it is necessary for this Court to review the whole of the evidence and make findings on some matters concerning which the trial Judge made no finding. However, the findings of fact made by the trial Judge and his Honour’s observations on matters of credit must be taken into account.

MR SAFFRON

25    Mr Saffron and his wife were the holders of the shares in Vendomatic, the owner of the premises at 39-43 Darlinghurst Road. No officer of Commercial Union was aware of this fact when the policy was issued.

26    The trial Judge found that Mr Saffron had a reputation carrying with it a higher than usual “moral risk” or “moral hazard”, such that a number of insurers would not grant insurance in respect of premises if he had an association with them. His Honour held that Mr Saffron’s ownership of the premises in which Baroku conducted its business was a matter relevant to the decision of Commercial Union whether to accept the risk involved in the contract of insurance. There was adequate evidence to support his Honour’s finding in that respect, principally, the evidence of the officers of Commercial Union, Mr Gilet and Mr Seckold. Mr Gilet gave evidence that, some years earlier, he had seen memoranda from the Melbourne office that Mr Saffron and his companies represented a risk with which Commercial Union should not be associated.

27    Nevertheless, it was not said that Mr Saffron was a person who was unable to obtain insurance. Mr Enshaw’s evidence showed the contrary.

THE SURVEY OF THE PREMISES

28    The transaction commenced with a telephone call from Baroku’s insurance broker, Mr Paul Aghion, on 12 December 1988. In that conversation, Mr Gilet, the Liability Underwriter in the Broker Branch of Commercial Union, indicated that a survey by Commercial Union would be required. On 14 December 1988, a cover note expiring 14 January 1989 was issued. On the same day, Mr Gilet asked his assistant, Mr David Seckold, to obtain a survey. Mr Seckold signed a survey request and sent it to the Survey Branch. A proposal, duly completed, was received on or about 21 December 1988. The policy was issued on 17 January 1989 with effect from 13 December 1988.

29    The survey was made on 2 March 1989. The survey report was not finalised until 14 March 1989. It reported, inter alia, that Baroku conducted a backpackers hostel under the name of the Downunder Hotel in premises that had previously been known as the Kingsdore Private Hotel, that the Pink Panther operated in the basement and that the Persian Room operated on the ground floor. Of the premises, the report said, “AGED CONSTRUCTION - GENERALLY IN GOOD CONDITION, ROOMS, FLOORS, CARPET & STAIRS GOOD”. Of the housekeeping, the report said, “GOOD”. The report recommended that five matters with respect to the premises be attended to. The conclusion of the report was “ACCEPTABLE - PROVIDING ALL 5 RECOMMENDATIONS ARE GIVEN IMMEDIATE ATTENTION”. The report noted the risk rating as “HIGH”.

30    On or about 6 April 1989, Mr Seckold wrote to Mr Aghion detailing the five matters to be attended to. On 3 May 1989, Baroku wrote to Mr Aghion setting out the steps taken to remedy the five matters of which there had been complaint. That letter stated, inter alia, “I have requested that the owners of the building, namely, VENDOMATIC make good the quarry tile step at entrance to laundry”. That letter was sent on to Mr Seckold on 15 May 1989. There were no further dealings with respect to the insurance until early in September 1989, when a request was made to increase the limit of the indemnity to $5million to cover both 39-43 Darlinghurst Road and other premises also occupied by Baroku. That amendment was made with effect from 8 September 1989.

31    There were passages in the evidence of the surveyor, Mr Taylor, which suggested that the survey he carried out, which was a “FULL SURVEY”, was not as wide a survey as if it would have been if he had been requested to report on “Acceptability”. I would reject that evidence having regard both to the terms of the survey request and to the terms of the report made by Mr Taylor. The words “FULL SURVEY” mean what they say. Mr Taylor’s report was a full survey. It commented not merely upon the physical aspects of the premises but also upon issues of “moral risk”. It specifically noted the businesses of the Pink Panther and the Persian Room which operated on the lower levels, both of which gave rise to aspects of “moral risk”. The Pink Panther has been described as a strip club. The Persian Room was described in the evidence of Mr Hoffmann, an insurance broker, as a “fairly low class pick-up joint”. Mr Taylor did not bother to note in his report that also operating in the premises was a shop selling Australian goods which did not provide any “moral risk”. Mr Taylor’s report specifically noted that the risk was “ACCEPTABLE”. My conclusion that the survey was intended to cover all relevant aspects of the physical risk and of “moral risk” was supported by the evidence of Mr Gilet who said that he expected his surveyor to report on both physical risk and “moral risk”.

32 Mr Seckold suggested in his evidence that the risk had already been accepted before the survey was undertaken. However, it was part of the arrangement between Mr Gilet and Mr Aghion that a survey would be undertaken. In my opinion, Commercial Union is now bound by whatever information was or should have been disclosed in that survey. I am satisfied that whatever was set out in Mr Taylor’s report of 14 March 1989 and in Baroku’s letter of 3 May 1989 was within the relevant knowledge of Commercial Union. Had Commercial Union not been satisfied with the survey report or with the response to its requirements, Commercial Union could have cancelled the insurance, in accordance with s 60 of the Act. In his evidence, Mr Gilet agreed with that point. As the insurance was not cancelled, Commercial Union is bound by whatever was disclosed by the survey report, and, presumably, by whatever ought to have been disclosed by the report. See s 21(2)(c) of the Act.

33    Mr Gilet gave evidence that, had he known that the Pink Panther, the strip club, operated in the basement of the building, he would never have agreed to covering the premises for public liability. However, the presence in the building of the Pink Panther and of the Persian Room were noted in the survey report and they were noted in the survey report because they gave rise to an element of “moral risk”. Commercial Union had this knowledge and yet allowed the insurance to continue.

34    Commercial Union was aware that the premises were situated in the heart of Kings Cross, an area which is associated with a great deal of “moral risk”. Mr Hoffmann described “moral risk” in these terms:

“What is it? Moral risk. There is a very obvious actual risk in crowded nightclubs with hangings, decorations, drunks, cigarettes, all those things put together, which make its insurance not exactly the best for an underwriter to take, and there was, obviously, also, the whole concept of moral risk, which could be fire bombings. It could be any other thoughts that we, in the industry, perceived could cause claims.”

Mr Hoffmann said that “moral risk” had particular significance for fire insurance. Mrs Maxine McDowell, an insurance broker who gave evidence for Commercial Union, said that she, herself, would inquire of the ownership of like buildings in the Kings Cross area:
“Because certain buildings are known to be not very savoury in the nature of their occupancy and often just by knowing the name of the person who owns the building we would get a bit of an insight.”

Commercial Union was aware of these and like problems. An internal memorandum of 21 May 1980 warned its underwriters of problems being encountered in the Kings Cross area.

35    It is also worth noting that Mr Gilet was aware that Mr Aghion and his firm, R G Chegwyn Pty Limited, specialised in hard-to-place insurances. Mr Gilet, at the time, was trying to build up the association with Mr Aghion. The premium of $2,400 quoted by Mr Gilet was more than double the premium that would have been quoted for a modern motel of equivalent size. Accordingly, Commercial Union accepted the risk on the footing that it was a hard-to-place insurance.

36    The crux of this discussion is that the non-disclosure, the subject of the appeal, is limited to the non-disclosure of Mr Saffron’s association with the building. It is not put forward on behalf of Commercial Union that there was some element of the physical condition of the premises which was not disclosed to Commercial Union or that Commercial Union was not aware that there was an element of “moral risk” associated with the building in which the premises were situated. The point of the alleged non-disclosure is that Commercial Union was not informed that Mr Saffron had an interest in the building through his company Vendomatic. The fact that Vendomatic was the owner of the building had been disclosed to Commercial Union in the letter of 3 May 1989, but Commercial Union was not aware that Mr Saffron was associated with it.

KNOWLEDGE OF THE INSURED

37    As was pointed out in Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166 CLR 606 at 615, Pt IV of the Act is a statutory code which replaces the common law. Nevertheless, the terms “known” and “knows” are used in their common law sense. Their primary denotation refers to that which is actually known; but it would be wrong to import the word “actually” into a provision such as s 21. The section does not use it. The terms “known” and “knows” are used in their ordinary sense. Whether a matter is known is a question of fact for the judge or jury. The knowledge of relevant employees and agents, such as insurance brokers, must be taken into account, for most business transactions are effected through them. In Ayoub v Lombard Insurance Co (Aust) Pty Ltd (1989) 97 FLR 284 and in Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 40 NSWLR 543 at 610-612, the knowledge of insurance brokers was taken into account, reference being made to the common law principle that the knowledge of the broker is imputed to the insured and vice versa: see Ivamy’s General Principles of Insurance Law, 5th Ed, p 541.

38    Section 21(1)(a) of the Act looks to two aspects of the knowledge of the insured: first, knowledge of a matter and, secondly, knowledge that the matter is relevant to the decision of the insurer whether to accept the risk. The term “relevant” is used, not the term “material”; and the term “the insurer” replaces the concept of “a prudent insurer”. Cf. MacGillivray and Parkington on Insurance Law, 8th Ed para 658.

39    If the insured did not know that the matter was relevant to the decision of the insurer whether to accept the risk, then para (b) comes into operation. It applies when there was a matter known to the insured and a reasonable person in the circumstances could have been expected to know that the matter was so relevant.

(a) Knowledge of Baroku

40    No evidence was called showing that Mr Saffron’s interest in Vendomatic was known by any officer of Baroku. However, evidence was given that Mr Parsons, the Managing Director of Baroku, had had, at one time, a business relationship with Mr Saffron. Moreover, Baroku’s lease was signed on behalf of the owner by “D Saffron”, presumably Mr Saffron’s wife Doreen. In my view, an inference is available that Mr Saffron’s association with the premises would have been known to Baroku. The general tenor of the reasons for judgment of the trial Judge also seems to proceed on that basis.

41    Moreover, both Mr Hoffmann and Mr Enshaw, insurance brokers who were called to give evidence on behalf of the plaintiffs, said that their instructions included the information that the principals of Baroku had been aware that the lessor, Vendomatic, was a company owned and controlled by Mr Saffron and his wife. This circumstance was sufficient to place a burden upon the plaintiffs to call evidence to the contrary, if they wished to do so.

42    The next question is whether Baroku knew that Mr Saffron’s association with the premises was relevant to the decision of Commercial Union to accept the risk. On this issue, the burden of proof is important.

43    The trial Judge made these findings:

“No evidence was called from any officer or employee of the Second Defendant or from Mr Aghion although statements from Mr Parsons, a director of the second Defendant and from Mr Aghion had been served. Although it is not necessary for me to rely on it, there was evidence that in 1982 Mr Parsons and Mr Saffron had been directors of a company Barrell Inn Restaurant Pty Ltd. In light of the nature of the issues, I do not think I would be justified in inferring that the insured did not know, and a reasonable person in the circumstances, could not have been expected to know, that Mr Saffron’s ownership was relevant.”

44    The onus is on Commercial Union to establish this aspect of the non-disclosure, namely that the insured knew the matter was relevant to the decision of the insurer. In my opinion, there is no evidence from which that conclusion ought to be drawn. The insurance was in respect of Baroku’s public liability. All relevant aspects of Baroku’s business were disclosed. The surveyor for Commercial Union inspected the premises and reported on them. It is not suggested that Mr Saffron was involved in Baroku or its business. It would not ordinarily occur to an insured that details of a person not involved in its business should be provided to its insurer.

45    The trial Judge found that, in general, the ownership of premises was not a material consideration in the acceptance of a public liability risk. There was adequate evidence before the trial Judge to support that conclusion. The proposal form issued by Commercial Union made no such request. Mr Gilet did not ask Mr Aghion for the name of the owner. Mr Taylor made no inquiry. Mr Gilet said that, in relation to approximately 300 public liability policies that he wrote in 1988, he could not recall seeking the identity of the owner of a building. It was to be inferred from the fact that Baroku occupied only part of the building and was seeking public liability insurance only that it was a lessee of the premises. No officer from Commercial Union sought to inspect the lease, which would have disclosed Mrs Saffron’s signature.

46    Mr Owen, a broker called on behalf of Commercial Union, at first said that he would always make inquiry of his client with respect to the ownership of the building. As his evidence proceeded, however, it became clear that his practice was to ask for the lease, which would reveal the obligations of the tenant, and that the lease would reveal the name of the owner. Mr Owen’s answers with respect to the position of a sub-lessee were not clear. Mr Graves, a broker who gave evidence for Commercial Union, agreed that, in 1988, there was no proposal form in use by any general insurance company for public liability business which enquired of the name of the owner of the premises.

47    As it was not customary to ask for the name of the owner of the building in which a business was conducted and, as Commercial Union did not do so and showed no interest in the lease, there is no basis for a finding that Baroku knew that Mr Saffron’s interests in the building was a matter relevant to the decision of the insurer to accept the risk.

48    The evidence does not show that Mr Saffron had such a reputation that he was known to the public as a bad risk for insurance purposes. Mr Hoffmann considered that this was a matter “more known to the fire underwriters”. There was some evidence of newspaper reports of Mr Saffron’s association with a number of fires. However, no specific evidence concerning such information was given. Mr Saffron’s reputation for being associated with undesirable elements of the community was no doubt a matter of public knowledge. Nevertheless, one cannot reason from that to a conclusion that the officers of Baroku ought to have known that Mr Saffron’s association with the building of 39-43 Darlinghurst Road was a matter relevant to the decision of Commercial Union to accept the public liability risk.

49    In my opinion, the evidence does not establish that the insured, Baroku, knew that Mr Saffron’s interest in the building was relevant to the decision of Commercial Union to accept the risk.

(b) The Broker

50    Mr Aghion was not called as a witness. Although a statement had been served by the plaintiffs, that statement was not tendered. The trial Judge rejected a statement of Mr C G Price which was tendered to show, either by hearsay evidence or by an admission on the part of Mr Parsons of Baroku, that Mr Aghion had known that Vendomatic was the owner of the property and that Vendomatic was under the control of Mr Saffron. It was conceded by counsel for Commercial Union that this statement could be relied on only if there was a rehearing. I need not discuss it, other than to say that, in my opinion, the material was neither an admission nor admissible hearsay evidence. Its rejection does not provide any support for a rehearing.

51    It does not seem to me that one can draw the conclusion that Mr Aghion had knowledge of a fact which he knew to be relevant to the acceptance of the risk by Commercial Union and that he failed to disclose that fact. Mr Aghion’s firm was a well-established firm of insurance brokers. Mr Aghion was trusted by Mr Gilet, who was seeking to increase the business which Commercial Union did with Mr Aghion. It appears, therefore, that Mr Aghion was a trusted and well-known broker. One would not have expected Mr Aghion to prejudice that reputation by his handling of this one transaction.

52    There is nothing in the circumstances of this case from which it could be proper to infer underhand dealing on the part of Mr Aghion. Baroku’s letter of 3 May 1989, which referred to Vendomatic as the owner of the premises, was forwarded to Commercial Union by Mr Aghion. Mr Aghion did not retype the letter so as to remove the reference to Vendomatic. Moreover, it is not alleged that there was anything said in the proposal which was sent to Commercial Union that was incorrect or that Mr Taylor was not given a full opportunity to make whatever enquiries he wished to make about the premises he was surveying.

53    It is noteworthy, moreover, that, after the fire had occurred and a newspaper article appeared disclosing Mr Saffron’s connection with the building, Mr Gilet did not immediately come to the view that Mr Aghion had failed to disclose something that he ought to have disclosed. It was not until five days after the fire, when Mr Gilet saw the solicitors for Commercial Union, that he formed the view that there had been non-disclosure by Mr Aghion. Even then, no allegation to that effect was made to Mr Aghion. On 15 November 1989, Mr Seckold wrote to Mr Aghion to say that the policy was to fall due on 13 December 1989 and that it would not be renewed. Mr Aghion rang Mr Gilet to ask why this was so. Mr Gilet advised Mr Aghion that it was a management decision made because of risks associated with crowd accumulation and hostel accommodation. No mention was made by Mr Gilet to Mr Aghion of any allegation that Mr Aghion had failed to do his duty as a broker.

54    The evidence does not show that Mr Aghion was aware that Mr Saffron was connected with the building. Mrs Maxine McDowell, who gave evidence on behalf of Commercial Union and who specialised in hard-to-place business, gave evidence that she kept a list of all companies associated with premises in Kings Cross and that she was aware that Mr Saffron had an interest in Vendomatic. However, Mrs McDowell had not, herself, been aware that the premises at 39-43 Darlinghurst Road were owned by Vendomatic. It cannot be concluded that Mr Aghion, who was in business at Chatswood, would have known.

55    It is equally difficult to draw the conclusion that Mr Aghion would have known that Mr Saffron’s association with the building was a relevant matter for Commercial Union to take into account. On the evidence, it is clear that Commercial Union would have regarded Mr Saffron’s involvement in the building as a relevant factor. Yet, that was not a matter which Mr Gilet ever mentioned to Mr Aghion. While there were insurance brokers, such as Mrs McDowell, who, when dealing with a property in that position, would have ascertained the name of the owner, and others, such as Mr Owen, who would at least have required production of the lease which would have disclosed the name of the owner, there were brokers of repute, such as Mr Hoffmann and Mr Enshaw, who considered that the identity of the property owner was irrelevant to occupier’s liability. The trial Judge accepted the evidence of Mr Hoffmann and Mr Enshaw to the effect that, generally, ownership of the premises was not relevant. The trial Judge said, “Both were impressive and their evidence derives support from what seems to be the universal practice of underwriters as apparent from their proposal forms”. The acceptance of that evidence did not of course affect his Honour’s conclusion that, having regard to the evidence of Mr Gilet and Mr Seckold, the association of Mr Saffron represented a moral risk that Commercial Union would not have written had it been aware of Mr Saffron’s association.

56    I am satisfied that the evidence given by the insurance brokers does not establish, as a matter of probability, that Mr Aghion had a duty to enquire as to the name of the owner of the building or that, had he known of Mr Saffron’s involvement, he would have known that that matter was relevant to the acceptance of the risk. On this particular matter, the evidence of Mr Enshaw, who gave evidence for the plaintiffs, and of Mr Owen and Mr Graves, who gave evidence for Commercial Union, was not of great assistance, for none of them wrote business in Kings Cross. Mr Hoffmann, who had been a leading officer in insurance associations and an active underwriter of hard-to-place liability, expressed the view that he would not have considered Mr Saffron’s involvement as owner to be relevant to Commercial Union’s acceptance of the risk. In Mr Hoffmann’s view, the association was “totally immaterial”. Mrs McDowell considered that Mr Saffron’s association with the building was relevant and it was her practice to ascertain the name of the owner in writing public liability risks for premises such as 39-43 Darlinghurst Road. But what view Mr Aghion took is not known.

57    No officer of Commercial Union informed Mr Aghion that he or she wished to be advised of the name of the owner of the premises in respect of which Commercial Union was asked to write a public liability insurance. No officer of Commercial Union informed Mr Aghion that he or she wished to be informed of any association that Mr Saffron may have with an insurance. Mr Graves, in his evidence, conceded that, if an underwriter has a personal position as to something that is material to a risk, then it was incumbent upon the underwriter to communicate to the broker that he regarded that matter as material. That did not occur. There was no discussion about Mr Saffron and no information as to the owner of the premises was sought, either in the particular case or on any other occasion.

58    Accordingly, I do not think it proper to form the conclusion that Mr Aghion was aware of the fact of Mr Saffron’s interest in the owner of the premises or that he knew that to be a matter relevant to the risk.

(c) The Reasonable Person

59    Counsel for Commercial Union submitted that a reasonable person, in the circumstances of Baroku and its broker, could have been expected to know that Mr Saffron’s interest in the building was a matter relevant to the decision of the insurer whether to accept the risk. In my view, this submission is answered by his Honour’s finding that the ownership of a building is not, in general, a matter relevant to the public liability of a person operating a business therein and also by the evidence of Mr Hoffmann and Mr Enshaw that, in their opinions, the names of the persons interested in the company which owned the freehold was irrelevant to the public liability insurance. In my opinion, a reasonable person would agree with that view. The relevant circumstances would not have included knowledge that Commercial Union would not write an insurance related to a building with which Mr Saffron was associated, for that information had not been communicated to Baroku or to Mr Aghion. The relevant circumstances did include the fact that Commercial Union made no enquiry as to the ownership of the premises and showed no interest in the lease. A reasonable person would have been likely to consider that the ownership of the premises was a matter outside the ambit of the matters that Commercial Union took into account.

THE KNOWLEDGE OF THE INSURER

60    The duty of disclosure does not require the disclosure of a matter that the insurer knows or in the ordinary course of the insurer’s business as an insurer ought to know. The trial Judge held that Commercial Union knew of Mr Saffron’s interest in the building at 39-43 Darlinghurst Road. He did not make this finding on the basis that any officer of Commercial Union actually had this knowledge. The officers of Commercial Union who handled the matter, Mr Gilet and Mr Seckold, and Mr Taylor, the employee of Commercial Union who undertook the survey, each gave evidence that they were not aware of the ownership of the building. His Honour accepted that evidence.

61    The finding on knowledge was made because the files of Commercial Union contained an extract from the Sydney Morning Herald of 18 February 1982. This extract contained both a short article on the ownership of properties in and about Darlinghurst Road, and also a list of every property and the owner thereof. The article set out the following information:

“Mr Abraham Saffron, of Vaucluse, is a Director of Cougar Acceptance Corp Pty Ltd, which owns the properties 39-43 (Darlinghurst Road): The Kings Door Massage, The Pink Panther and the Persian Room Restaurant.”

This information was out of date as the property had subsequently been sold to Vendomatic. However, Commercial Union held that information in a file contained in its survey department. The file was numbered 1371. In association with that file was file 1371A. Both files contained survey requests, reports and associated documents concerning properties in and about Kings Cross.

62    Mr Taylor, the surveyor, said that it was not his practice when surveying premises in Kings Cross to go to the Kings Cross files, unless the fact of a prior survey of the particular premises had been noted on the request for a survey. No such note was made in the present case. Mr Taylor accordingly did not see the extract from the Sydney Morning Herald. The trial Judge held that, “what was within those files at the relevant times should be regarded as then current knowledge” of Commercial Union and, therefore, that Commercial Union “knew of Mr Saffron’s ownership of the building”. In my opinion, that conclusion was wrong. When speaking of that which the insurer knows, s 21(2)(c) is speaking of actual knowledge. The relevant matter must be known to an appropriate officer or agent of the insurer or contained in current official records. Ordinarily, the appropriate officers will be those who are handling the particular insurance on behalf of the insurer: see Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500.

63    An extract from a newspaper does not amount to knowledge, it is merely a source from which knowledge can be gained. Access to a means of knowledge is not sufficient: Bates v Hewitt LR 2 QB 595. I do not suggest that information set out in the current formal records of a company may not, in appropriate circumstances, constitute knowledge. Of course it may, for records are an appropriate means of storing knowledge. However, the extract from the Sydney Morning Herald was not a record of Commercial Union and it was not contained in any file to which officers of Commercial Union were expected to have recourse for the purposes of the subject insurance.

64    I am satisfied that Commercial Union did not have relevant knowledge of Mr Saffron’s interest in the building.

65    The next issue is whether Mr Saffron’s interest in the ownership of the building was a matter of which, in the ordinary course of its business, Commercial Union ought to have known. Some insurers dealing with premises in Kings Cross may have known who the relevant owner was. Mrs McDowell, who for many years has specialised in hard-to-place risks, said that she would not have covered premises in Darlinghurst Road without knowing what the surrounding occupancies were and that, if she had been asked to consider a liability proposal for a hostel business in Darlinghurst Road, she would have wanted to know who the owner of the premises was and would, if necessary, have asked. However, Commercial Union was not a specialist in hard-to-place liability in Kings Cross. Having regard to the evidence that, in general, insurers did not concern themselves with the ownership of premises in respect of which public liability was sought by the tenant, the inference should not be drawn that Commercial Union ought to have known of Mr Saffron’s interest.

EFFECT OF NON-DISCLOSURE

66    The trial Judge accepted Mr Gilet’s evidence that, because he had seen a memoranda in the early 1970’s which came from Melbourne, and which stated that insurance to Mr Saffron was not to be issued, he would not have accepted the risk had he known of Mr Saffron’s interest in the building. The trial Judge accepted this evidence despite his reservations concerning Mr Gilet’s evidence on other matters, thus accepting that Commercial Union would not have entered into the insurance had Mr Saffron’s connection with the premises been disclosed. There is no challenge to that finding.

CONCLUSION

67    It follows from the above that, on grounds different from those adopted by the trial Judge, the defence of non-disclosure fails.

68    The cross-appeal should be allowed. The appeal should be dismissed. The appellant should pay the costs of the appeal and the cross-appeal.

69    FOSTER AJA: I agree with the orders proposed by Davies AJA. Except in one respect, I agree with his Honour’s reasons. My disagreement relates to his Honour’s findings in respect of “the knowledge of the insurer”.

70    The Insurance Contracts Act 1984 (Cth), s 21(2)(c), avoids the insured’s duty of disclosure of a matter “that the insurer knows or in the ordinary course of the insurer’s business as an insurer ought to know”. The evidence established that no one in the employ of Commercial Union was actually aware of Mr Saffron’s control of Vendomatic Pty Limited, the owner of the building 39-43 Darlinghurst Road, Kings Cross. In particular, the learned primary Judge accepted the evidence of Mr Gilet and Mr Seckold that neither of them had this knowledge. They were the two officers of Commercial Union who handled the public liability insurance of the building and made decisions in respect of it. I am satisfied that, in accordance with principle, it was their state of knowledge which was relevant to the enquiry whether Commercial Union knew of the undisclosed matter (Meridian Global Funds Management Asia v Securities Commission (1995) 2 AC 500).

71 Despite the absence of knowledge on the part of these two officers, the primary Judge made a finding of knowledge within the meaning of s 21(2)(c) on the basis that Commercial Union, in a file contained in its survey department, held an article from the Sydney Morning Herald of 18 February 1982 which contained the following:-

“Mr Abraham Saffron, of Vaucluse, is a Director of Cougar Acceptance Corp Pty Ltd, which owns the properties 39-43 (Darlinghurst Road): The Kings Door Massage, The Pink Panther and the Persian Room Restaurant.”

72    The file bore a number provided by the filing system. It was numbered 1371; it was associated with another file numbered 1371A. The material in the files related to properties in the Kings Cross area and included survey reports and associated documents. The Judge made the finding that “what was within those files at the relevant times should be regarded as then current knowledge of Commercial Union” with the result that he found that Commercial Union had knowledge of Mr Saffron’s interest in the building. It may be noted that the information was clearly out of date, in that no reference was made to the building being owned by Vendomatic Pty Limited, although the effective ownership and control of Mr Saffron continued through that company structure. Also, his Honour accepted that Mr Taylor, the surveyor who performed the survey and furnished the report to Messrs Gilet and Seckold, did not refer to the file before conducting the survey and, indeed, that it was his practice not to refer to the files, unless notified of the fact of a prior survey of the particular premises.

73    We were not referred to any authority for the proposition that, in the absence of actual knowledge on the part of relevant officers of a company, the company may, nevertheless, “know” a matter, where the relevant information is contained in a company file. I find the proposition an attractive one. In circumstances, which are undoubtedly common today, where important information relating to the conduct of a company’s business is stored in the company’s computer system, from which it may be readily obtained, the suggestion that such material is part of the company’s knowledge is certainly appealing. However, I have come to the view that the present state of authority does not permit a finding that the information so stored becomes “known” to the company until it is transferred into the mind of an officer, who is relevantly engaged in the transaction in question.

74    For this reason, I do not find myself able, with respect, to agree with the statement in the judgment of Davies AJA to the effect that a matter may be “known” within the meaning of s 21(2)(c), if it is “contained in current official records”. If that were the present law, I should be inclined to agree with the primary Judge, on the basis that the files in question were part of the “official records” of the company and constituted part of its stored knowledge. This course, however, is not, in my view, presently available.

75 I am, however, satisfied that the evidence establishes that, within the meaning of s 21(2)(c), Mr Saffron’s interest in the building was a matter that Commercial Union, in the ordinary course of its business, ought to have known. Irrespective of any question of Mr Saffron’s ownership, Mr Gilet regarded the property as situated in a high risk area, a fact reflected in the size of the premium he required. The existence within the building of the “Pink Panther” and the “Persian Room”, in his view, increased the “moral risk” to the point of unacceptability. A reference to the file would have associated the building and these two unacceptable operations being carried on within it to a company controlled by Mr Saffron. Mr Gilet was aware of an earlier Commercial Union memorandum to the effect that Commercial Union should not be associated with any insurance involving interests of Mr Saffron. The letter of Baroku of 3 May 1989 indicated ownership in Vendomatic Pty Limited. A search of that company, as part of the survey, or otherwise as a matter of ordinary prudence, would have revealed Mr Saffron’s ownership and control. These circumstances combine to satisfy me that Commercial Union ought to have known, in the ordinary course of its business, of Mr Saffron’s interest in the property.

76    These considerations, of course, do not affect the outcome of the appeal and cross-appeal, in respect of which I am in agreement with my brethren.

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