CSBP Ltd ABN 81 008 668 371 v Gerling Australia Insurance Co Pty Ltd - [2005] WASC 69

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: CSBP LTD ABN 81 008 668 371 -v- GERLING AUSTRALIA INSURANCE CO PTY LTD [2005] WASC 69

CORAM: MASTER SANDERSON

HEARD: 14 FEBRUARY 2005

DELIVERED : 14 FEBRUARY 2005

PUBLISHED : 3 MAY 2005

FILE NO/S: CIV 1194 of 2002

BETWEEN: CSBP LTD ABN 81 008 668 371
Plaintiff
AND
GERLING AUSTRALIA INSURANCE CO PTY LTD
Defendant

Catchwords:

Practice and procedure - Application for further and better discovery - Turns on own facts

Legislation:

Nil

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff: Mr P D Evans
Defendant: Mr S M Davies

Solicitors:

Plaintiff: Freehills
Defendant: Jackson McDonald

Case(s) referred to in judgment(s):

GE Capital Corporate Finance Group v Bankers Trust and Co & Ors [1995] 2 All ER 993
Mulley v Manifold (1959) 103 CLR 341

Case(s) also cited:

Australia & New Zealand Savings Bank Ltd v Federal Commissioner of Taxation (1991) 21 ATR 1258
Australian Dairy Corp v Murray Goulburn CoOperative Co Ltd [1990] VR 355
British Association of Glass Bottle Manufacturers Ltd v Nettleford [1912] 1 KB 369
Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Company (1882) 11 QBD 55
CTC Resources NL v Australian Stock Exchange Ltd [2000] WASCA 19
Gray v Associated Book Publishers (Aust) Pty Ltd (In Liq) [2002] FCA 1045
Hudson Resources v Kaiser Engineers Pty Ltd, unreported; SCt of WA; Library No 970666; 2 December 1997
Lyons v Kern Konstructions (Townsville) Pty Ltd (1983) 47 ALR 114
Mackay Sugar Cooperative Association Ltd v CSR Ltd (1996) 63 FCR 408
Milankov v DCH Legal Group [2004] WASC 58
Mobil Oil Australia v Guina Developments (1995) 33 IPR 82
Pinsons v Lloyds & National Provincial Foreign Bank Ltd [1941] 2 KB 72
Science Research Council v Nasse [1980] AC 1028
Trade Practices Commission v CC (NSW) Pty Ltd (1995) 58 FCR 426

MASTER SANDERSON: This is the defendant's application for further and better discovery. Before detailing precisely what documents are sought by the application it is necessary to say something about the issues in the action as they arise from the pleadings.
The plaintiff runs a business which manufactures ammonia gas and chemicals derived from ammonia gas. The defendant is an insurer and in March 2000 it entered into a policy of insurance with the plaintiff. Pursuant to that policy of insurance the plaintiff has claimed against the defendant for its alleged losses consequent upon the shutdown of the plaintiff's ammonia plant following a failure of a dry gas seal contained within a synthesis gas compressor in or about September 2000. The plaintiff's claims for its losses under the policy are for $41,431 for the loss of production of carbon dioxide and $6,779,103 for its increased cost of working due to purchasing ammonia. The defendant has disputed the plaintiff's claims on a number of different grounds. Relevantly for the purpose of this application the defendant disputes the plaintiff's calculation of its losses under the policy.
Returning then to the application, appearing as annexure "A" is a list of documents which are the subject of the discovery application. It is worth setting out the complete list.
"1.Sales Records comprising:
1.1monthly ammonia sales budgets for the period 12 September 1999 to 12 September 2002;
1.2Financial statements containing monthly ammonia sales figures for the period 12 September 1999 to 12 September 2002; and
1.3Sales contracts and orders placed by customers for ammonia for the period 12 September 2000 to 13 September 2002.
2.Operating records for the ammonia plant including, but not limited to, plant maintenance schedules, maintenance and repair records, log books, production records and monthly performance review meetings for the period 30 September 2001 to 12 September 2002.
3.Unmasked copies of
3.1discovery document WES.007.0019, documents WES.007.0021 to WES.007.0029, documents WES>007.0032 [sic WES.007.0032] to WES.007.0033;
3.2discovery document WES.014.006; and
3.3discovery document WES.011.011.
4.All records in relation to Wesfarmers' purchases and/or imports of ammonia for the period January 2000 to January 2003 including purchase orders, suppliers invoices, correspondence, memo's [sic] and shipment records.
5.The complete two files of Mr Anees Siddiqui titled 'Synthesis Loop Boiler E5001' and 'Dry Gas Seals'."
Immediately prior to the hearing the plaintiff advised the defendant that it would provide discovery of the documents set out in category 1 up to 12 September 2001. That meant the issue between the parties was whether or not discovery for the further 12 months up to September 2002 ought be provided.
The issue raised by categories 3 and 5 can be dealt with quite simply on general principles without the need to refer to the facts of the case. Dealing first with the documents in category 3, it has long been accepted that it is proper to mask irrelevant portions of discovered documents: see GE Capital Corporate Finance Group v Bankers Trust and Co & Ors [1995] 2 All ER 993. Of course, if the masking of a document destroys the sense of that document such as the document is only comprehensible if the irrelevant material is not masked, then it may be appropriate for a party to inspect the whole of the document. But that is not this case. There is no suggestion that masking of parts of the document has rendered that document unintelligible.
That being so it is necessary for the defendant to establish by means other than a contentious affidavit that the parts of the document masked relate to a matter in issue between the parties and should be discovered: see Mulley v Manifold (1959) 103 CLR 341. In this case, no such evidence is available. There is nothing whatever to suggest that the masking has been improperly undertaken or that the sections masked are related in some way to a matter in issue between the parties. Accordingly discovery of the documents in item 3 should not be ordered.
Similar reasoning applies to item 5. The evidence establishes that Mr Siddiqui has two files described as set out in item 5 of the defendant's schedule. Some of the documents in these two files have been discovered. Others have not. The defendant says that it is entitled to see everything in both files. But it offers no basis upon which discovery should be ordered. Really what is said is that the defendant has a suspicion that there are further materials which should properly be discovered. That is not enough. In my view there is no basis whatever for ordering the plaintiff to give discovery.
That then leaves categories 1, 2 and 4. In relation to items 1 and 2 the plaintiff says, among other things, that there is no basis at all for the defendant seeking records after September 2001 because the policy of insurance terminated in September 2001 and losses after that date are not and cannot be claimed by the plaintiff from the defendant. While it is tempting to dispose of this application on that rather simple and straightforward basis, to do so would not, I think, adequately explain why in my view the documents sought are not discoverable. Moreover, the reasoning that leads to that conclusion may be of some consequence in the defendant's overall approach to this action. Consequently it is necessary to discuss the plaintiff's claim in some detail.
As I have mentioned above, there is a dispute between the parties as to how the plaintiff should calculate its losses pursuant to the policy of insurance. Section 2 of the policy provides indemnity in accordance with a "basis of settlement" clause in a policy. Under the heading "Policy Schedule" there appears the subheading "Interest". Section 2 of that subheading is in the following terms: (see annexure "RC2" to affidavit of Raymond John Cowan, sworn 14 October 2004).
"Consequential Loss as defined in section 2 of the policy including but not limited to:
(A)Interruption to production of nitric acid and ammonium nitrate as a result of material change in respect of the ammonium nitrate train.
(B)Interruption to production at CSBP's compounds plant, ammonium nitrate train and loss of ammonia sales to Australian Gold Reagents' sodium cyanide plant as a result of material damage in respect to ammonia distribution system."
Section 2 of the policy deals with consequential loss. Under the subheading "Basis of Settlement" there appears the following:
"Gross Profit - Item (1)
The insurance under this Item (1) is limited to loss of Gross Profit due to (a) REDUCTION IN TURNOVER and (b) INCREASE IN COST OF WORKING and the amount payable as indemnity thereunder shall be:
(a)IN RESPECT OF REDUCTION IN TURNOVER: the sum produced by applying the Rate of Gross Profit to the amount by which the Turnover during the Indemnity Period shall in consequences of the occurrence fall short of the Standard Turnover.
(b)IN RESPECT OF INCREASE IN COST OF WORKING: the additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the reduction in Turnover which but for that expenditure would have taken place during the Indemnity Period in consequence of the occurrence but not exceeding the sum produced by applying the Rate of Gross Profit to the amount of the reduction thereby avoided.
Less any sum saved during the Indemnity Period in respect of such of the charges and expenses of the business payable out of Gross Profit as may cease or be reduced in consequence of the occurrence.
Provided further that if the Sum Insured by this Item be less than the sum produced by applying the Rate of Gross Profit to the Annual Turnover the amount payable shall be proportionately reduced.
Professional Fees - Item (2)
The Insurance under this Item (2) is to cover such reasonable professional fees and expenses as may be payable by the Insured, and such other reasonable expenses necessarily incurred by the Insured and not otherwise recoverable, for the preparation of claims under Sections 1 and 2 of the Policy.
Additional Increased Cost of Working - Item (3)
The insurance under this Item (3) is limited to Additional Increase in Cost of Working (not otherwise recoverable under Item (1)(b)) necessarily and reasonably incurred during the Indemnity Period in consequence of the Material Damage Loss from the purpose of avoiding or diminishing reduction in Turnover and/or resuming and/or maintaining normal business operations and/or services."
It is clear then that the policy provides indemnity for four consequential losses - gross profit in respect of reduction in turnover (item (1)(a)), gross profit in respect of increase in cost of working (item 1(b)), professional fees (item 2) and additional increased costs of working (item 3).
A number of terms used in this subclause are defined. Relevant for the present purposes are the following definitions:
"Gross Profit
The amount by which:
(A)The sum of the Turnover and the amount of the Closing Stock shall exceed:
(B)The sum of the amount of the Opening Stock and the amount of Working Expenses.
Note:The amount of the Opening and Closing Stocks shall be arrived at in accordance with the Insured's normal accountancy methods due provision being made for depreciation.
Turnover
The money paid or payable to the Insured for goods sold and delivered and for services rendered in course of the business at the premises
…

Rate of Gross Profit

The rate of Gross Profit earned on the Turnover during the financial year immediately before the date of the damage.

Annual Turnover

The turnover during

the twelve months immediately before the date of the Damage.

…

}

to which such adjustments shall be made as may be necessary to provide for the trend of the Business and for variations in or other circumstances affecting the Business either before or after the Damage or which would have affected the business had the Damage not occurred so that the figures thus adjusted shall represent as nearly as may be reasonably practicable the results which but for the Damage would have been obtained during the relative period after the Damage."

(The way in which this clause is drafted has what is generally known as an "adjustments/trends clause" applying to both the definition of rate of gross profit and annual turnover.)

The defendant says that the dispute as to how the plaintiff calculates its loss relates to, first, whether the plaintiff's losses due to purchasing ammonia are calculated under item 1(b) or item 3 and, secondly, whether its loss is the entire cost of the purchased ammonia. The defendant says that if the plaintiff has suffered loss for the additional expenditure from purchasing ammonia, then it disputes that such loss is recoverable under item 3 and asserts that such loss is only recoverable under item 1(b): see par 23(f) of the defence. Further, the defendant contends that determination of whether the plaintiff's losses due to purchasing ammonia are calculated under item 1(b) or item 3 is a substantive matter for trial.
The defendant maintains that if the plaintiff has suffered loss due to purchasing ammonia, the loss may well be properly characterised as additional expenditure incurred for the purpose of "avoiding a reduction or diminution in reduction in turnover which but for that expenditure would have taken place … in consequence of the occurrence". That is, the loss due to purchasing ammonia was for the purpose of maintaining turnover - sales of ammonia, that would have otherwise been reduced or diminished but for the expenditure and should therefore be recoverable under item 1(b).
For its part the defendant submits that the plaintiff should not be entitled to recover the loss due to purchasing ammonia under item 3 for three reasons. First, item 3 specifically excludes expenditures "otherwise recoverable under item (1)(b)" and any loss due to purchasing ammonia should properly be first claimed under item 1(b). Secondly, it is said that allowing recovery under item 3 instead of item 1(b) would allow the plaintiff to avoid the limitations imposed under item 1(b) of "not exceeding the sum produced by applying the rate of gross profit to the amount of reduction thereby avoided". Thirdly, it is said that allowing recovery under item 3 instead of item 1(b) would allow CSBP to avoid the reduction applicable for items 1(a) and (b) for "any sum saved during the indemnity period in respect of such of the charges and expenses of the business payable out of gross profit as may cease or be reduced in consequence of the occurrence." That is, it would allow the plaintiff to recover the full cost of ammonia without accounting for saving for charges avoided by virtue of the ammonia plant shutdown.
Furthermore, the defendant says that the plaintiff's calculation under appendix 2 of its particulars of damage are consistent with its loss due to purchasing ammonia being claimed under item 1(b) as it deducts from the increase in costs of working its savings in production costs, a deduction which is provided for in item 1(b) but not provided for in item 3. The defendant contends that all documents relevant to determining the plaintiff's loss due to purchasing ammonia under item 1(b) are required to be discovered. Should these documents not be discovered and the Court determines that a loss due to purchasing ammonia is properly determined by item 1(b) the plaintiff will not be in a position to assess, investigate and/or defend the calculation of loss under item 1(b).
In calculating its losses under either item 1(b) or item 3 for the cost of the purchased ammonia, the plaintiff claims the total cost of purchasing 25,843 tonnes of ammonia amounting to $9,197,710: see appendix 2 of the particulars of damage. The defendant disputes that this amount is either "additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the reduction in turnover" as it is required it to be if it is recoverable under item 1(b) or that it is "additional increased cost of working … necessarily and reasonably incurred … in consequence of the material damage loss" as it is required to be if it is to be recovered under item 3. The defendant puts its case on two grounds. First it is said that the amount of the plaintiff's claim is entirely dependent upon the amount of ammonia it purchased without reference to the amount it needed to purchase to avoid its reduction in turnover. Second, it is said that the plaintiff's ammonia sales for the three months ending 31 December 2000 significantly exceed its ammonia sales for the three months ending 30 September 2000 and the three months ending 31 March 2001. This, it is said, indicates that much of the purchased ammonia did not avoid or dim 2001. This, it is said, indicates that much of the purchased ammonia did not avoid or diminish a reduction in turnover but rather allowed an increase in turnover.
That is the defendant's position and that is why it is said that the plaintiff's calculation of its loss is not consistent with the terms of the policy. For its part the plaintiff says that the defendant's pleaded case does not raise any of the matters which are put in the submissions. It is said that what is provided in the defence is in effect a bare denial of the defendant's liability to the plaintiff. Accordingly the plaintiff says that it is not open to the defendant to run a case as outlined above. In the face of a bare denial a plaintiff is required to prove each and every aspect of its claim. However, it is not open to a defendant to run a positive case. In other words, as the pleading in this matter stands at the moment, it is not open to the defendant to run the sort of case that they have outlined in their submissions.
In my view the plaintiff carries the day on this point. This is not of course a pleading summons. It might have been open to the plaintiff to seek to strike out the defence on the basis that the defence embodies a pregnant negative. Clearly the plaintiff decided that to adopt that approach was to read too much in to the defence as pleaded. They have accepted that the defendant's position amounts to a bare denial. In my view they are justified in that conclusion and they are justified in not having moved to strike out the defence. But it must follow that while they will have to prove their damages at trial, they will not have to meet any positive case. For that reason it seems to me that the documents sought by the defendant are not discoverable. There is simply no pleaded basis upon which they might be discoverable.
This reasoning applies to the documents in items 1, 2 and 4. Allowing for the concessions made by the plaintiff, it would seem to me that the defendant has no basis upon which they can seek the document in the schedule.
For these reasons I dismissed the defendant's application. The defendant ought pay the costs of the application including the reserved costs.