Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2)
[2020] FCA 588
•6 May 2020
FEDERAL COURT OF AUSTRALIA
Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2) [2020] FCA 588
File number: NSD 2094 of 2018 Judge: ALLSOP CJ Date of judgment: 6 May 2020 Catchwords: INSURANCE – where claim made under Residential Strata Insurance Policy following tropical cyclone – whether insured made innocent non-disclosure – whether insured made misrepresentation – whether insurer entitled to reduce its liability to nil where insured failed to comply with duty of disclosure – whether insurer would have issued policy if non-disclosure had not occurred – confirmation of cover by insurer despite non-disclosure – subsequent denial of liability by insurer – whether election, waiver or breach of the duty of the utmost good faith – whether insurer estopped from relying on s 28(3) – Insurance Contracts Act 1984 (Cth) ss 13, 21, 28 Legislation: Insurance Contracts Act 1984 (Cth) ss 13, 21, 28
Body Corporate and Community Management (Accommodation Module) Regulation 2008 (Qld) s 112
Body Corporate and Community Management Act 1997 (Qld) s 15
Cases cited: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570
Amalgamated Investment and Property Co Ltd (In Liq) v Texas Commerce International Bank Ltd [1982] 1 QB 84
AMP Financial Planning Pty Ltd v CGU Insurance Ltd [2005] FCAFC 185; 146 FCR 447
Barclay Holdings (Australia) Pty Ltd v British National Insurance Co Ltd (1987) 8 NSWLR 514
CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36; 235 CLR 1
CGU Insurance Ltd v Porthouse [2008] HCA 30; 235 CLR 103
Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394
Craine v Colonial Mutual Fire Insurance Co Limited [1920] HCA 64; 28 CLR 605
De Bussche v Alt (1878) 8 Ch D 286
Delaforce v Simpson-Cook [2010] NSWCA 84; 78 NSWLR 483
Freshmark Ltd v Mercantile Mutual Insurance (Australia) Ltd [1994] Qd R 390
GIO General Ltd v Wallace [2001] NSWCA 299; 11 ANZ Insurance Cases 61-506
Giumelli v Giumelli [1999] HCA 10; 196 CLR 101
Grundt v Great Boulder Proprietary Gold Mines Limited [1937] HCA 58; 59 CLR 641
Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; 182 CLR 26
Johnson v Gore Wood & Co [2002] 2 AC 1
Kammins Ballroom Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850
Khoury v Government Insurance Office (NSW) [1984] HCA 55; 165 CLR 622
Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406
Marketform Managing Agency Ltd v Amashaw Pty Ltd [2018] NSWCA 70; 97 NSWLR 306
Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd [1994] NSWCA 365; 8 ANZ Insurance Cases 61-235
Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (In Liq) [2003] HCA 25; 214 CLR 514
Powell & Thomas v Evan Jones & Co [1905] 1 KB 11
Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2014] NSWCA 440; (2015) 18 ANZ Insurance Cases 62-047
Purkess v Crittenden [1965] HCA 34; 114 CLR 164 at 168,
Sargent v ASL Developments Ltd [1974] HCA 40; 131 CLR 634
Schaffer v Royal & Sun Alliance Life Assurance Australia Ltd [2003] QCA 182; 12 ANZ Insurance Cases 90-116
Stealth Enterprises Pty Ltd (t/a The Gentlemen’s Club) v Calliden Insurance Ltd [2017] NSWCA 71; 19 ANZ Insurance Cases 62-131
Strong v Woolworths Ltd [2012] HCA 5; 246 CLR 182
Thompson v Palmer [1933] HCA 61; 49 CLR 507
Watts v Rake [1960] HCA 58; 108 CLR 158
Yorkshire Insurance Co v Craine [1922] 2 AC 541
Date of hearing: 16–18 October 2019 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance: Insurance List Category: Catchwords Number of paragraphs: 353 Counsel for the Applicant: Mr M R Elliott SC with Mr P Mann Solicitor for the Applicant: LMI Legal Counsel for the Respondent: Mr D A McLure SC with Ms K Petch Solicitor for the Respondent: Holman Webb Lawyers ORDERS
NSD 2094 of 2018 BETWEEN: DELOR VUE APARTMENTS CTS 39788
Applicant
AND: ALLIANZ AUSTRALIA INSURANCE LTD ABN 12 000 122 850
Respondent
JUDGE:
ALLSOP CJ
DATE OF ORDER:
6 MAY 2020
THE COURT ORDERS THAT:
1.The matter be stood over to a date to be fixed for the making of orders and for case management to settle orders for the reference referred to in proposed Order 2(a) in [352] of the reasons herein.
2.Within 14 days the parties file orders that are agreed to reflect the reasons herein, or if there be no agreement each party file and serve draft orders and submissions of no more than three pages as to the orders to be made directed, in particular, as to why the proposed orders in [352] should or should not be varied. Subject to any application of the parties, the making of orders and the resolution of any differences in the submissions of the parties (other than any differences as to orders for the said reference) is to be dealt with on the papers.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
ALLSOP CJ:
Introduction
On 10 May 2019, in an interlocutory judgment Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd [2019] FCA 639, I made orders for the hearing of the first stage of the proceeding to deal with two issues in respect of the claim by the applicant (Delor Vue) for indemnity against its property insurer, the respondent (Allianz). For the reasons that follow it is appropriate to vary these orders as to relief in order to deal with the substance of the issues litigated.
The applicant is a body corporate of apartments in Cannonvale, some 500km north of Yeppoon in Queensland, north of the 23rd parallel. The apartments were built in 2008 and 2009 by a developer, Delorain Pty Ltd and a builder, Beachside Constructions (National) Pty Ltd.
The claim of the insured is for property damage caused to the insured property by Tropical Cyclone Debbie on 28 March 2017. The insurance had only just been put in place. There were defects in the eaves, soffits and roof trusses of the buildings on the property. Delor Vue knew about the former (the eaves and soffits), but not the latter (the roof trusses). A question of non-disclosure arose as soon as the loss began to be adjusted. After the insurer had had an opportunity to ascertain the history of the defects, in addition to examining the damaged property, it communicated a decision to the insured on 9 May 2017 that it confirmed cover and would pay the claim subject to the terms of the policy. A year later, after further adjustment of the claim, commencing or threatening to commence subrogated proceedings against the builder, and renewing the policy for a premium of $62,281, Allianz wrote to Delor Vue with an offer to resolve the claim. The offer stated that it was in accordance with the terms of the communication 12 months before. The offer stated that it was open only for 21 days, after which time Allianz would deny monetary responsibility for the claim based on the non-disclosure and misrepresentation in connection with the taking out of the policy, claiming a legal entitlement to reduce its liability to nil under s 28(3) of the Insurance Contracts Act 1984 (Cth) (the Act).
The two issues the subject of the orders of 10 May 2019 were as follows:
(a)the rights, if any, of the respondent to reduce its liability to nil under s 28 of the Insurance Contracts Act 1984 (Cth); and
(b)whether by some operative rule or principle the respondent is now unable to rely upon s 28.
When the matter was called on for hearing on 16 October 2019, the parties handed up elaborations of the two primary issues by reference to more specific issues, differently expressed by reference to the respective positions of the parties. Those issues have been helpful in formulating these reasons.
The structure of the case
The proceedings were documented by an amended originating application, an amended concise statement, a concise statement in reply by the respondent, and a concise statement in reply by the applicant.
The essence of the case made by the applicant was the holding of Allianz to the email of 9 May 2017. In the amended concise statement it was asserted that various policy exclusions had also been waived. This second aspect of the case was never pressed.
The applicant relied on election, waiver, estoppel and the duty of the utmost good faith to hold Allianz to cover under the policy terms. Allianz asserted that it was entitled to reduce its liability to nil under the policy, relying on an asserted breach of the duty of disclosure in s 21 of the Act, an asserted misrepresentation and remedial rights under s 28(3) of the Act.
As part of its case on election, waiver, estoppel and a lack of good faith, the applicant pointed to a number of steps taken by Allianz consistent with the email as set out in [11] of the amended concise statement:
Allianz has taken a number of steps consistent with the Waiver Email and agreement to indemnify the Applicant, including:
a.Proceeding to obtain a quotation and scope of works to repair the Premises;
b.Engaging Morse Building Consultants to inspect the Premises, and determine the scope of works for payable damage and the rectification of defects;
c.Making payments to lot owners for lost rent;
d.Engaging legal representation to assist a potential recovery against the original Developer and Building of the Premises;
e.Taking steps to preserve the right of recovery against the original Developer and Builder of the Premises, by writing to the Australian Securities and Investment Commission requesting deferral of deregistration.
The applicant also pointed to steps that it took consistent with and in reliance upon the email and the representation in it, as set out in [12] of the amended concise statement:
The Applicant has taken steps (or otherwise abstained from taking steps) consistent with, and in reliance on, the Waiver Email and the election and representations made by Allianz, including:
a.Providing access to the premises, and individual lots, to enable Morse Building Consultancy to inspect the roofs in order to determine the scopes for claimable damage and rectification of defects.
b.Providing a report to Allianz outlining an alternate method of defect repair to that proposed by Morse Building Consultancy;
c.Procuring a report from GHD to establish the extent of damage to the roofs, the cause of particular damage, and the relationship between the Truss Defects and Soffit Defects and the damage;
d.Abstaining from engaging or seeking scopes of works or quotations relating to damage caused by Cyclone Debbie (including resultant damage); and
e.Cooperating with Allianz with respect to the potential recovery action against the original builder and developer and placing recovery in the hands of Allianz.
The applicant also identified further matters to found an estoppel, as set out in [20] of the amended concise statement as follows:
Further and in the alternative, the Applicant says that Allianz is estopped from acting contrary to the Waiver Email, in that:
a.The Applicant adopted the Waiver Email and the grant of indemnity;
b.Both parties, following the Waiver Email and until the Offer, conducted themselves in a manner consistent with the Waiver Email;
c.Allianz induced or acquiesced in the Applicant’s adoption of the Waiver Email;
d.The Applicant acted in a manner consistent with and in reliance of the Waiver Email;
e.Allianz knew or intended that the Applicant would act or abstain from acting in reliance with the Waiver Email; and
f.The Applicant will suffer detriment if the Waiver Email is not fulfilled.
There was a dispute at the hearing as to the extent to which the applicant had properly pleaded or identified the detriment from reliance on the email. I will deal with that in due course.
The non-disclosure alleged by Allianz was expressed in the concise statement in reply to be based on knowledge of the damage to the complex in March 2010 caused by a previous cyclone, the 2014 direction by the Queensland Building and Construction Commission to the builder to rectify defects in the complex, Mr Ingledew’s report of 2015, the Goddard Report of December 2016 and the McNeill Report of March 2017.
At the hearing, and in particular based on the underwriting evidence, the matters relevant to the assertion of non-disclosure were the contents of the Goddard Report and the McNeill Report in late 2016 and early 2017.
The misrepresentation case was first adverted to in May 2018. It rested on a document provided by a broker to Allianz in February 2017 to the effect that the building had no defects.
The amended originating application, amended concise statement and the applicant’s concise statement in reply asserted a waiver of some of the policy exclusions (exclusions 1(c)(i) and 1(d)). The separate questions posed and all submissions in the case were limited to the inability of Allianz to rely upon the asserted non-disclosure and misrepresentation. The case as presented was an effective abandonment of the case that the applicant had an entitlement to be paid under the policy by varied terms without reliance on the above exclusions. The recognition of this position will be included in the orders that I make.
Disposition of the first stage of the proceeding and a summary of the facts and reasoning
The resolution of the issues in the first stage of the proceeding requires a close examination of the facts as they occurred over a number of years. To that end, I have approached the factual analysis by beginning with a narrative of the background facts that led up to the critical points in the insurance relationship between Delor Vue and Allianz: the taking out of the insurance; the considered position taken by Allianz on 9 May 2017 that it confirmed cover under the policy notwithstanding what it referred to as “non-disclosure issues”, which position was taken after the insured buildings and their cyclone damage had been examined by the loss adjuster, and with full knowledge of all information and documentation provided by Delor Vue; the year-long adjusting of the claim; and the resiling from late May 2018 from the position taken as to coverage under the policy by the replacement of the confirmation of cover made in May 2017 with a choice given to Delor Vue between acceptance of an offer of settlement or receiving nothing under the policy by the claimed operation of the remedies under the Act for non-disclosure and misrepresentation.
I have not found the resolution of the issues under the Act to be easy. Delor Vue had, for some years, recognised the defective construction of parts of the buildings, in particular, relevantly, the roofs. Reports had been obtained on the subject since 2014. The previous body corporate agent had been less than satisfactory in its efforts to remedy the problems and was replaced, in 2016, about nine months before the Allianz policy was taken out and Tropical Cyclone Debbie wreaked her havoc, by Mr Key’s company. Mr Key was an efficient, precise, business-like and honest person, who, by March 2017, was attending with care and efficiency to the assessment and repair of the apparently important problem of the defectively affixed and constructed soffits and eaves. Importantly, none of these problems had been identified as structural in the sense of relating structurally to the trusses or tie-downs of the steel roof structure of the buildings. (This problem was revealed upon examination of the damaged buildings, some with roofs blown off.) Especially with hindsight, it could perhaps be thought that if the soffits and eaves were inadequately constructed and affixed in a number of places, there could be, as-yet-unseen, structural deficiencies in the roof structures. But this was not appreciated by Mr Key or the body corporate.
Mr Key and the body corporate did, however, appreciate that there was a clear danger to persons or property of soffits falling to the ground. Whilst perhaps not probable or whilst unlikely, the risk, if it did materialise, could see catastrophic personal injury to, or death of, someone, or some damage to property, such as to a motor vehicle.
I am clear in my view that Messrs Key and Nobilia (the chair of the body corporate committee), who both gave evidence, did not “know” the matters required for s 21(1)(a) of the Act. There was an assertion of fraudulent non-disclosure which was never pressed. There was no behaviour either by Mr Key or Mr Nobilia or the body corporate which could found any question about his or their honesty.
I have come to the view that a reasonable person in the circumstances could be expected to know that the defective soffits and eaves, reflected in the two most recent reports obtained by Delor Vue (of an engineer, Mr Goddard, and of a builder, Mr McNeill), were matters relevant to the decision of the insurer whether to accept the risk, and most particularly on what terms, in connection with writing the public liability risk, insofar as the reasonable person would know that the cover included public liability cover and did not include any exclusion or exemption for personal injury or property damage caused by existing building defects, which did present a real danger to persons and property of others. I do not consider that a reasonable person, knowing what Mr Key and the body corporate knew, could be expected to know that the defective soffits and eaves reflected in the two most recent reports were matters relevant to the decision of the underwriter whether to accept the risk and on what terms in connection with property damage risk covered by the policy.
Finding innocent non-disclosure under s 21 of the Act, it is necessary, in order to assess whether Allianz lost any rights under the Act by the operation of the principles of election, waiver, estoppel or by the asserted breach of the duty of the utmost good faith in s 13 of the Act, to consider whether it would have been entitled to reduce its liability to nil under s 28(3) of the Act, the question being whether it would have accepted the risk if it had known of the soffits and eaves problem.
I have come to the view that Allianz would have been so entitled. One of the senior underwriters of the underwriting agency for Allianz (Strata Community Insurance, to which I will refer as SCI), its Queensland State Manager, Mr Iconomidis, gave evidence. (SCI was at all times a specialist strata insurer owned and controlled by Allianz. A reference to SCI is a reference to Allianz.) He did not participate in the immediate decision contemporaneously to grant cover to Delor Vue. I consider, however, he would have been involved in that decision if there had been the disclosure of the soffits and eaves problem. His evidence was uncompromising that he would not have accepted the risk – not because of its relationship with public liability risk, but because of a concern with property risk. There were some problems, logically, with some aspects of his evidence. Certainly, I would accept that a prudent underwriter could have reasonably written the risk, especially in the light of the existing exclusions for existing defects. I am, however, of the view that Mr Iconomidis’ view was reasonably open to an underwriter in his position and so to him (if that be a relevant consideration) and that he would not have accepted the risk. Important to this conclusion is the contemporaneous view he had in May 2017 when consideration was being given to the “non-disclosure issue”. He was of the view, at that time, that the claim should be rejected for non-disclosure. A contrary decision was taken by Allianz, which decision was never explained.
Notwithstanding these conclusions, Allianz is bound to deal with the claim by reference to the terms of the policy, and not by reference to s 28(3) of the Act. It must do this because that is what it clearly told Delor Vue that it would do: it represented, in effect promised, as much. The email of 9 May 2017 was relevantly clear in this respect, reflecting a decision taken with full knowledge of all the facts known to the insured as passed on to the insurer and of all facts known to the insurer in the underwriting process leading up to the underwriting decision.
The operative principles of election, waiver and estoppel have some degree of taxonomical confusion and overlap. This is partly linguistic. I have concluded that Allianz did not elect between inconsistent and mutually exclusive rights. It did, however, choose between inconsistent positions with full knowledge of all the facts, a course of action which provided it with an advantage, being the entitlements of an insurer to full access to the insured property and to the co-operation of its insured, which it received. That choice and that action invoked the doctrine of waiver as illuminated by Craine v Colonial Mutual Fire Insurance Co Limited [1920] HCA 64; 28 CLR 605. I also consider Allianz to be estopped from resiling from the choice that it made as communicated by the 9 May 2017 email taking into account and considering the detriment to Delor Vue such resiling would produce, non-specific though that detriment was.
Finally, I have also found that Allianz acted towards Delor Vue in 2018 exhibiting less than the utmost good faith. I appreciate the importance of such a finding to an insurer, especially since Act No. 17 of 2019 incorporated penal consequences to a breach of s 13 of the Act. These events relevantly took place prior to that change in the law. The position taken in May 2017 by SCI on behalf of Allianz was carefully considered (involving lawyers), quite likely perceived to be in Allianz’s interests, and also honourable. Ordinary people had suffered a serious loss to their properties. There was obviously an “issue” about what the insured had known and what it had disclosed up to the point of the insurance incepting. The insured had co-operated fully in giving all of its reports and knowledge of the problem to the adjuster and the claims handler from the first request after the loss. A representation was made that cover was confirmed on policy terms. This was a representation, in effect a promise, to adjust the claim on policy terms. This was resiled from a little over a year later on a take-it-or-leave-it offer basis. That approach did Allianz no credit. It put the insured in a critical position: take the offer or take nothing. That is not how an insurer should behave in these circumstances. If there was a difference of view about the claim or if a position was being taken under the policy and it was not agreed, some dispute resolution means of resolving the issue conformable with the matter being resolved pursuant to policy terms should have been taken. Here, having represented, in effect promised, to pay the claim on policy terms, Allianz gave an offer on a take-it-or-leave-it basis and in the alternative denied policy terms and invoked s 28(3) of the Act, a course which it had represented, in effect promised, it would not do. This was conduct that was not commercially decent and fair.
It is now necessary, at this point, to become immersed in the facts of the buildings’ defects as to the roofs.
A narrative of the background facts
This narrative of the background facts is taken principally, but not solely, from the documents. References in the form of 1/100 are to the volume of the court book and page number. This narrative is supplemented with a discussion of the evidence of the witnesses, and later with more precisely focused findings in resolving the issues in dispute between the parties.
The evidence from which the facts are taken was: an agreed statement of facts and accompanying court book of four volumes; an affidavit of Mr Stewart Key, the body corporate manager of Delor Vue; an affidavit of Mr Anthony Nobilia, a member of the body corporate committee; a statement of Mr Constantinos Iconomidis, an underwriter from Allianz; and the oral evidence of Messrs Key, Nobilia and Iconomidis. There was also a small number of documentary exhibits outside the court book. There was agreement between the parties as to the status of the contents of the court book, which was reduced to writing as Exhibit A1. It was in the following terms:
The court book contains a substantial number of reports prepared by building inspectors, engineers and other professionals. Each report is identified in the index to the court book, with each being defined by the use of a bold name which appears in brackets. None of the authors of these reports have been engaged as an independent expert witness to prepare an expert report for use in these proceedings, and none are being called as witnesses.
These reports are admissible as evidence of the fact such a report was created and issued. It is also accepted that where a report describes how an object or part of the building actually appeared to the author, it is admissible to prove the fact of how that object or part appeared at the time of the author’s inspection.
The opinions expressed in those reports are not admissible to prove that the position was as opined by the author. Such opinions include the description of items as being defective or non-compliant, their characterisation as “major” defects or otherwise, and opinions about the degree of risk of there being other damage not reported in the report.
The factual survey that is required is determined by the two fundamental issues: (a) the asserted non-disclosure and misrepresentation in the taking out of the insurance and (b) the behaviour of the parties after Allianz said that it would confirm cover on policy terms and would not rely upon non-disclosure.
Originally, Allianz’s concise statement in reply relied upon the non-disclosure of matters from an earlier cyclone in 2010. At the hearing the focus of the evidence was from, at the earliest, late 2014. The evidence of Mr Iconomidis only relied on reports in late 2016 and early 2017. I take the case to be so confined.
The insured property comprises 11 multistorey buildings used for residential dwellings. The buildings, identified as A to K, have lower level carparks and two or three storeys of apartments. There are some 62 lots, being the apartments, as well as common property.
The community titles scheme, of which Delor Vue is the body corporate, was created pursuant to the Body Corporate and Community Management Act1997 (Qld) (BCCM Act). Delor Vue had a committee under the BCCM Act. Delor Vue, as body corporate, employed a body corporate manager. From 25 May 2015 to 31 May 2016, the manager was Archers BCM (Whitsundays) Pty Ltd (Archers) under an administration agreement. Archers had related companies attending to various duties. It is unnecessary to identify them separately. It was replaced on 30 May 2016 when the committee appointed Aspire Body Corporate Management (Aspire) as manager. Mr Key was a director of Aspire and it is convenient to refer to him as the body corporate manager.
From at least late 2014 a number of reports concerned with building issues had been prepared and provided to various parties. Some, at least, of the reports concerned dissatisfaction with the building work and the attempts to hold the builder to account.
In November 2014 Mr Loft of Archers prepared a Workplace Health and Safety Inspection Report (Loft Report 1). The objective of the report was stated to assist the body corporate in meeting its statutory obligations as to safety and to maintain the property in a safe condition. The report was some 35 pages in length and dealt with 11 categories: housekeeping and common areas; electrical; plant and equipment; lighting; contractor control; fire control; hazardous material control; the pool area; general building structure; asbestos; and other issues. Relevant for these proceedings were some of the comments dealing with general building structure. The report identified “sections of eaves lining ‘missing’ on two blocks”. The recommendation made to the body corporate was as follows (1/192):
It is recommended that the body corporate engage a contractor to repair the ‘missing’ section of eaves lining and secure the adjoining sheets
It is also recommended that an inspection of the eaves is undertaken to ensure that other areas are secure and not likely to become a ‘falling’ hazard
It would appear that this report was given to the building manager, Mr Paul Wellard. Mr Wellard lived at the property and was a director of the developer and the builder. An email of 20 November 2014, from him to Ms Tovey of Archers (1/216) contained quotations for repairs which included: “replace blown out eaves sheets … $2,800.”
In April 2015, a licensed builder, Mr Paul Ingledew, prepared a report (1/219) which was commissioned by the body corporate to provide advice to Delor Vue concerning the condition of the building. The scope of the inspection was stated to be dealing only with any evidence of: “Structural Damage; Conditions Conducive to Structural Damage; and Major Defect in the condition of Secondary Elements and Finishing Elements; collective (but not individual) Minor Defects; and any Serious Safety Hazard”. The report identified a range of items that Mr Ingledew advised defective, including cracking to slabs, beams, piers, bars and block work, loose items, rusting, soil erosion and subsidence, as well as sagging of soffit sheeting. Care is to be taken in placing weight on the range and nature of the defects given what was ultimately the narrowness of the non-disclosure and misrepresentation case – to do with eaves, soffits and trusses. The only concerns dealt with by Mr Ingledew dealing with soffits and eaves were in item 3.3. The summary of findings included the following (1/221):
This Summary is not the Report. The following Report MUST be read in full in conjunction with this Summary. If there is a discrepancy between the information provided in this Summary and that contained within the body of the Report, the information in the body of the Report shall override this Summary.
The building was built approximately 6 years ago. The property appears to have been constructed to a reasonable standard for the period using workmanship and materials of an acceptable quality and has since been reasonably maintained.
In respect of significant items:
Evidence of structural damage was observed – see Item 3.1.
Evidence of conditions conducive to structural damage was observed – see Item 3.2.
Evidence of major defects in the non-structural elements of construction was observed – see Item 3.3.
Evidence of minor defects was observed – see Item 3.4.
Evidence of serious safety hazards was observed – see Item 3.5.
Following the inspection of surface work in the readily accessible areas of the property, the overall condition of the building relative to the average condition of similar buildings of approximately the same age that have been reasonably well maintained was considered: Below Average Condition. See also Item 4 “Conclusion”.
However, due to the level of accessibility for inspection including the presence of obstructions, the overall degree of risk of undetected structural damage and conditions conducive to structural damage was considered: High. See Item 2 for details.
A further inspection is strongly recommended of those areas that were not readily accessible and of inaccessible or obstructed areas once access has been provided or the obstruction removed. This will involve a separate visit to the site, permission from the owner of the property and additional cost.
In respect of any defect or significant item identified in this Report, a further detailed investigation by a competent person is strongly recommended to determine the cause, method and extent of any remedial work required, and associated costs.
Unless stated otherwise, any recommendation or advice given in this Report should be implemented as a matter of urgency.
For further information including advice on the implementation of a preventative maintenance program see Clause A.3 “Important Note”.
In the body of the report it was clear that roof space had not been inspected. In relation to undetected structural damage risk assessment the following appeared (1/223):
2.3Undetected Structural Damage Risk Assessment Due to the level of accessibility for inspection including the presence of obstructions, the overall degree of risk of undetected Structural Damage and Conditions Conducive to Structural Damage was considered:
High. See Recommendation below.
RECOMMENDATION: Where the risk is considered “Moderate” or “Moderate-High” or “High”, a further inspection is strongly recommended of areas that were not readily accessible, and of inaccessible or obstructed areas once access has been provided or the obstruction removed. This may require the moving, lifting or removal of obstructions such as floor coverings, furniture, stored items foliage and insulation. In some instances, it may also require the removal of ceiling and wall linings, and the cutting of traps and access holes. For further advice consult the person who carried out this report.
Additional Comments: No
Under major defects in secondary elements and finishing elements in item 3.3 the report identified sagging to soffit sheeting, as follows (1/233):
Sagging to soffit sheeting, the frame has not been fixed out to adequately support the soffit sheeting, some sheeting fallen away from frame.
Whilst this was advice about defects concerned with the buildings’ roofs, it should be noted that there was nothing concerning the roofs in the sections on “Structural Damage” or “Conditions Conducive to Structural Damage”. Further in conclusion the inspector made the following remarks about the various categories of his report (1/234–235):
4 CONCLUSION
In the opinion of this Inspector:
The incidence of Structural Damage in this property in comparison to the average condition of similar buildings of approximately the same age that have been reasonably well maintained was considered: Above Average.
The incidence of Conditions Conducive to Structural Damage in this property in comparison to the average condition of similar buildings of approximately the same age that have been reasonably well maintained was considered: Above Average.
The incidence of Major Defects in Secondary Elements and Finishing Elements in this property in comparison to the average condition of similar buildings of approximately the same age that have been reasonably well maintained was considered: Above Average.
The incidence of Minor Defects in this property in comparison to the average condition of similar buildings of approximately the same age that have been reasonably well maintained was considered: Average.
In conclusion, following the inspection of surface work in the readily accessible areas of the property, the overall condition of the building relative to the average condition of similar buildings of approximately the same age that have been reasonably well maintained was considered: Below Average Condition.
Allianz in its concise statement in reply and submissions draws from this report that it revealed “defects in the construction of the buildings’ roofs”. That expression of the matter should be qualified by a recognition of what Mr Ingledew actually said, to which I have referred.
The committee met on 25 May 2015. The report of Mr Ingledew was before the committee. In the minutes of the meeting under General Business, Archers noted that the report of Mr Ingledew had been received and could be used to submit a claim with the Queensland Building and Construction Commission (QBCC) prior to the expiry of the claim period after construction. It was resolved to do that. The minutes also noted under General Business that there was discussion about the eaves as follows (1/246):
Eaves
It was discussed by those in attendance that there are a number of boards that are missing from the building eaves and general advice obtained appears that, at the time of construction, a beam needed to be installed to allow for the sheets to be attached on a more permanent basis. It was agreed to include this issue in the upcoming QBCC claim in order to actively pursue having them repaired, however, in the meantime, any fallen debris is to be cleared by Mr John Carter as soon as possible.
On 25 May 2015, a body corporate management agreement was executed by Archers and Delor Vue. The authorised powers of Archers as manager included the following provisions (1/249):
5.1The Body Corporate authorises the Manager to exercise the Authorised Powers.
5.2The Manager shall only exercise the Authorised Powers to facilitate the performance of the Agreed Services or any Additional Services.
…
5.6 The Body Corporate specifically authorises the Manager to:
(1)obtain quotations for insurances required to be effected by the Body Corporate under the Act or the Module;
(2)effect, on behalf of the Body Corporate such insurances as the Body Corporate directs the Manager to obtain;
(3)pay insurance premiums from the Body Corporate’s funds; and
(4)submit insurance claims to the Body Corporate’s insurers which the Body Corporate acknowledges forms part of the Additional Services.
On 16 June 2015, Archers, on behalf of Delor Vue, sent Mr Ingledew’s report to the builder, Beachside, requiring a proposal for rectifying the defects. The letter included the following (1/256):
The Committee request that you peruse the attached report and provide a viable solution to have the following summary of defects attended to in addition to any others mentioned in the report:
Evidence of structural damage was observed – see Item 3.1.
Evidence of conditions conducive to structural damage was observed – see Item 3.2.
Evidence of major defects in the non-structural elements of construction was observed – see Item 3.3.
Evidence of serious safety hazards was observed – see Item 3.5.
It has been requested that you provide a viable solution with agreed timeframes to the Body Corporate Committee, for their consideration, to rectify this issue within 14 days of this letter. If we have not received a response within the 14 day time frame, the Body Corporate Committee will be forwarding the report to the Queensland Building and Construction Commission (QBCC) for further attention.
The issue of the eaves came up again at the body corporate committee meeting of 21 July 2015. The minutes of the meeting record the following (1/260–261):
Eaves
It was noted in the minutes of the previous Committee Meeting held on 25th May 2015 that there are a number of boards that are missing from the building eaves and general advice obtained appears that, at the time of construction, a beam needed to be installed to allow for the sheets to be attached on a more permanent basis. It was agreed to include this issue in the upcoming QBCC claim in order to actively pursue having them repaired, however, in the meantime, any fallen debris is to be cleared by Mr John Carter as soon as possible. It was noted by Mr Paul Wellard that the reason for the boards dislodging from the eaves is due to people opening their doors during high winds, eg cyclones, which forces pressure up into the eaves. It was noted by Mr Ron Jamieson that there are currently 4 boards missing and it was agreed by those in attendance that Mr John Carter obtain a quotation from Mr Jason Kibbis to complete these repairs for the consideration of the Committee.
In November 2015, Mr Loft of Archers prepared another Workplace Health and Safety Inspection Report (Loft Report 2). The report was in a similar form to that dated November 2014. It contained an identically worded section on the eaves.
On 24 November 2015, the body corporate committee met again. The minutes record that there had been an onsite meeting prior to 21 July 2015 with Mr Wellard to discuss Mr Ingledew’s April report, which resulted in various “action items”. As to the eaves, the following was recorded in the minutes (1/301):
Eaves
It was noted in the minutes of the previous Committee Meeting held on 21st July 2015 that there are a number of boards that are missing from the building eaves. Mr Paul Wellard advised that the reason for the boards dislodging from the eaves is due to people opening their doors during high winds, eg cyclones, which forces pressure up into the eaves. It was noted by Mr Ron Jamieson that there are currently 4 boards missing and it was agreed by those in attendance that Mr John Carter obtain a quotation from Mr Jason Kibbis to complete these repairs for the consideration of the Committee. It was noted by Mr Carter that Mr Kibbis has declined to quote on the repairs along with a number of other contractors that have attended site. It was agreed by those in attendance that although it is aesthetically displeasing to have these boards missing, there is no urgency to have them replaced, especially due to the upcoming cyclone season. It was further agreed that the missing boards can be replaced at the same time as painting the external surfaces of the building as access to the eaves will be easier. It was suggested by Mr Paul Wellard that the Committee consider cutting grills into the eaves at the same time, as this will provide more airflow through the roof cavity and hopefully reduce the likelihood of the boards being dislodged in the future.
In January 2016, Archers purported to appoint Marsh Advantage Insurance Pty Ltd as insurance broker for the body corporate. It is an issue in the proceedings whether the appointment (as binding Delor Vue) was valid. The relevance of the issue is that about a year later, after Archers had had its retainer as body corporate manager terminated, and shortly prior to the issue of the Allianz policy, Marsh as (the soon to be replaced) holding broker sought an insurance quotation from Allianz which contained a communication upon which Allianz now relies as a relevant misrepresentation. If Marsh was not properly appointed, this may make the misrepresentation (if it be such) one that was made without Delor Vue’s authority. Archers’ letter of 27 January 2016 signed by Mr Staehr, a director of Archers, stated as follows (1/305):
Letter of Appointment
This letter serves to confirm that with effect from 27 January 2016 we have appointed Marsh Advantage Insurance Pty Ltd as the exclusive Insurance Broker and Risk Adviser on behalf of Delor Vue Apartments CTS 39788.
This letter rescinds all previous appointments and the authority herein shall remain in force until cancelled in writing.
Marsh Advantage Insurance Pty Ltd are authorised to negotiate directly with all Insurance Companies on behalf of Delor Vue Apartments CTS 39788.
This letter also constitutes authority for insurers to furnish Marsh’s representatives with all information they may request as it relates to on behalf Delor Vue Apartments CTS 39788.
The emails from Ms House of Marsh and relevant documentation (including the letter of appointment from Archers) refer to Marsh. There is also reference in some of the emails to MAI Strata Pty Ltd as an authorised representative of Marsh.
Mr Key in his affidavit said that Delor Vue itself did not request, or resolve, to appoint Marsh (or MAI) as its insurance broker. No record produced contradicted this statement.
On 18 March 2016, Ms House of Marsh sent an email to committee members containing a letter from Marsh to the body corporate committee together with an insurance renewal offer from two insurers, one of which was AIG. The letter had a notice as to the duty of disclosure in standard and unremarkable terms, as follows (1/311):
Your Duty of Disclosure – contracts of general insurance subject to the Insurance Contracts Act
Before you enter into an insurance contract, you have a duty to tell the insurer anything you know, or could reasonably be expected to know, may affect the insurer’s decision to insure you and on what terms.
You have this duty until the insurer agrees to insure you.
You have the same duty before you renew, extend, vary or reinstate an insurance contract.
You do not need to tell the insurer anything that:
-reduces the risk they insure you for; or
-is common knowledge; or
-they know or should know as an insurer; or
-they waive your duty to tell them about.
If you do not tell the insurer something
If you do not tell the insurer anything you are required to, they may cancel your contract or reduce the amount they pay you if you make a claim, or both.
If your failure to tell the insurer is fraudulent, they may refuse to pay a claim and treat the contract as if it never existed.
At this time, no one on the committee or at Marsh or at Archers appeared to feel any need to disclose anything about the condition of the building, or the eaves or soffits.
Shortly prior to 23 March 2016, the body corporate entered into a contract of insurance with AIG for the period 23 March 2016 to 23 March 2017.
On 1 June 2016, Aspire and Delor Vue executed an Administration Agreement appointing the former as body corporate manager. This change of management was brought about for a reason. Mr Nobilia recalled that the committee was dissatisfied with Archers’ performance in connexion with what he originally called (Tp 131 l 37) the “aesthetics of the building”. He said: “we were paying a maintenance manager this money and nothing was ever being looked after” (Tp 131 ll 40–41). Later, (Tp 136 ll 1–5) he said that the dissatisfaction (I infer in committee members) concerned the attendance by Archers to the question of soffits and eaves as reflected in the May, July and November 2015 minutes.
Thus, an early point of focus for Mr Key (whose first committee meeting as body corporate manger was that of 20 June 2016) and for Mr Nobilia (who became chairman of the body corporate committee in May 2016) was attending to the problem of the soffits and eaves.
On 20 June 2016, the committee of the body corporate met. Once again the eaves were the subject of discussion. The minutes record the following (1/337):
Eaves Cladding: This is a serious building defect that was requested to be repaired under the original building defects time period. It needs investigation to determine the cause and remedy. It is also a serious Work Place Health and Safety issue due to potential injury to persons if a sheet falls. The committee resolved to have the problem examined by a qualified building inspector and to obtain quotes to remedy the situation.
This last resolution led to the retention by Aspire of Mr Ross McNeill, a builder, to advise as to “maintenance works” at the buildings. In late July 2016, McNeill Building inspected the property at the request of Aspire and provided a report on defective soffits, in the following form (1/339):
Thank you for asking us to look at Delor Vue Apartment maintenance works.
Following our inspection yesterday please find my notes below.
Soffit sheeting dislodging:
· Please find attached Eaves & Soffits Technical Specifications from James Hardie.
· Without closer inspection, (due to the heights) at first glance it appears the installation of the soffit sheeting may not been installed as per manufacturers recommendations in regards to support and fixing spacing’s and this is why in my opinion the sheeting is dislodging from the soffits, In viewing the missing soffit sheets from the ground the timber fixing purlins appear to be spaced around 800mm to 900mm. I would require the use of a knuckle boom or scaffold to measure and inspect at the soffit height to verify along with which material was used to verify.
· I noticed there are multiple areas of soffit which are hanging out of the barge boards along with soffit sheeting bowing and possibly ready to dislodge as well.
· The cost of rectification could vary depending on the current installation method and what is required to make good (if not installed correctly). It [would] also depend on how far or how much you would like done. Eg: if found to be inadequately installed it may be typical throughout.
Within days of receipt of this report, on 29 July 2016, the committee met and resolved to have Aspire engage a structural engineer to prepare a report and to obtain quotes to fix the problem. The minutes of the meeting record the following (1/342):
Eaves Cladding: The soffits on the eaves are falling off the building in several places. This was commented on by the building inspector in his report on 1 April 2015 who stated – the frame has not been fixed out to adequately support the Soffit sheeting. This inspection report was provided to McNeills who attended site on Thursday 28 July. They provided a copy of the technical specifications for soffits and indicated in their opinion the soffits were not installed to specification.
The committee resolved to have Aspire engage a structural engineer to prepare a report on the fitment of the soffit sheeting and to obtain quotes to fix the problem.
Also, Mr McNeill was asked to supply a quote to supply and fix the soffit sheeting. By letter of 30 August 2016, Mr McNeill provided a quotation, and in it he stated (1/349):
Please find our price to undertake the works for the above project as listed in our Tender by Trades document and Prices Estimate documents.
Our price covers the following:
1.Supply and fixing of Hardiflex soffit sheeting.
2.Supply and painting to the affected areas
3.Supply hire of scaffolding
Scope of works:
To remove soffit sheeting, install battens and fix new sheeting, refasten barge flashings where required along with painting.
Due to the nature of the works and the access difficulties I have listed our rates where we would charge for the works undertaken.
We identified at least 8 barge soffits either dislodged or ready to dislodge, I would assume all soffit sheeting was installed the same way so there may be more affected area’s with a closer inspection (due to the height it is difficult to tell until we gain access)
The quotation identified a range of expense from $50,000 to $70,000 with an estimate of duration of four to six weeks. Mr McNeill supplied a “mud-map” of the site identifying the eight locations where soffit panels were missing or bowed. The eight locations were spread across the site and not limited to one building.
Mr Key had also asked another builder, Mr Scott Pawsey, to provide a quotation. Mr Pawsey responded by email on 9 September 2016. He did not provide a detailed quotation for the reasons set out in the email which was in the following terms (1/353.11):
Regarding the Soffit sheeting to the units, looking from the ground up there is no where near enough battens to fix the sheets to, especially being in a cyclone region, so we would need to firstly install the required battens where needed then re-sheet and then paint,
Again with this job it is the unknown and therefore not able to put a fixed price on the job, (unless it was way over the top to allow for the unknown).
The repairs would need to be done on an hourly rate of $80/hr plus gst for tradesman and $45/hr plus gst for labor plus materials and hire equipment at cost. I would envisage no longer than 2 weeks work to replace the plans marked sheeting and to refix barge flashings.
I would also suggest to put extra fixings in the other soffits (not included in the 2 weeks) while the hire equipment is on site as its just a matter of time before they start to come down as well.
Handwritten annotations to the email (which I infer to be of Mr Key), priced his quotation at $42,000 for a four week job.
Meanwhile, the day before on 8 September 2016, Mr Key emailed the members of the committee about Mr Wellard. It included the following (1/353.10):
Because of the magnitude of the problem I have sourced two providers to quote on the replacement of the soffits and put the time into that matter myself as suggested by the committee.
The eaves repair quotes were placed on the agenda for the next meeting of the committee on 12 October 2016. The quotation of Mr McNeill and the email of Mr Pawsey of 9 September 2016 were placed with the papers for the meeting. In late September 2016, Mr Key sought a fee proposal from a firm of engineers, GW Goddard & Associates, in relation to a review of soffit installation.
The committee met again on 12 October 2016. The notes of the meeting record the following discussion and resolutions (1/355):
Eaves Cladding Structural Engineer: Aspire has obtained a quote as instructed in the last committee minutes for a structural engineer to prepare a report as to the standard of fixing of the Soffits. Paul Wellard questioned the minutes and indicated there was no such motion to engage an engineer – this was to obtain quotes from builders. On [sic] member of the committee read the relevant section of the minutes to the committee. The quote from GW Goddard & Associates for $880 incl GST was tabled.
Discussion then focused on the quotes to repair the soffits.
Aspire has secured two providers who have provided prices to repair the soffits. McNeills Building have provided a price that is ranged from $50,000 to $70,000 utilising two trades people full time and a supervisor part time. This price includes equipment hire, removal of rubbish from site, painting and fixing to 8 identified areas of the buildings where soffits have fallen or are seen from the ground to be dislodged. They can not provide a fixed price until they can inspect the work up close.
Pawsey Building and Maintenance has also provided an estimate for the work. This is also not a fixed price but indicates two trades people over 2-4 weeks work and excluded equipment hire. This price is also of the order of $40,000 once calculated.
The committee then resolved that with an engineering report the two builders could then provide a more defined quote. The committee then resolved to accept G W Goddards quote for the engineering report of the method of fixing of the soffits to a value of $880.00 incl GST.
CARRIED For 4 Against 0 Abstain 0
The committee then resolved that Aspire should use the engineers report to enable both builders to provide a fixed quote to repair the soffits.
CARRIED For 4 Against 0 Abstain 0
Paul Wellard to obtain a fixed price quote from At Home Improvements
The minutes of the meeting of 12 October 2016 also reveal that certain correspondence was discussed including (as well as the quotes on soffits from McNeill, Pawsey and GW Goddard) “Insurance issues (Legal Defence)”. There was also adjacent to this note of correspondence the following concerning insurance (1/357):
Insurance Claim: Past insurance claims for the roof repair were discussed. The insurance claims history was not received from Archers. The current broker has not been able to trace a claim. It was indicated that a claim was made in 2010. Aspire will again approach the insurers at that time to determine the details of the claim. Paul Wellard was not sure if this was an insurance claim event.
In August 2016, Mr Key requested Ms House of Marsh to obtain “some additional information on a claim that was submitted in 2010 for claim # CL5488”. (The terms of this request as here quoted were contained in Ms House’s email to a Ms Ainslie of Zurich. It turned out that Zurich had no records.) This request shows, at least, that Mr Key (and so Delor Vue) was treating Marsh as the current broker.
On 21 October 2016, Mr Key informed Goddard & Associates of the acceptance of their proposal.
On 31 October 2016, Aspire asked McNeill Building to provide a fixed price quote for the job.
Before Mr Goddard produced his report he carried out a site inspection with a representative of McNeill Building using an elevated work platform. Mr Key gave evidence (Tp 206 ll 13–28) that he spoke with Mr Goddard after the inspection who told him that he had “observed a lack of fixings, a lack of screwing and … problems to the eaves, framing, and problems to the soffit attachment”.
On 1 December 2016, Goddard prepared a report. It was reviewed by Mr Key on 7 December. Given its importance in the proceeding, as one of the two reports about which Mr Iconomidis said that had he read them he would not have agreed to the writing of the policy, I set out the text in full (1/364–365):
INTRODUCTION
G W Goddard & Associates Consulting Engineers were engaged by Aspire Body Corporate to carry out a site inspection, view available documentation and make comment on the apartments, with regards to the framing and fixing of the soffit sheeting on the eaves of the apartments of which areas of concern has been raised.
The investigation was carried out on 1 December 2016 by Gary Goddard from this office. No Architectural or Structural Documentation was available to be viewed by this office.
OBSERVATIONS
Delor Vue Apartments consists of multiple blocks of four (4) storey buildings constructed up the side of a hill in Cannonvale.
The buildings are slab on ground for car parking and three (3) levels of units using reinforced block work and suspended concrete floors. The roof is a skillion roof sloping down to the rear of each unit block and has approximately 750mm eaves on each side of each of the buildings.
Areas to the soffit sheeting had fallen to the ground exposing the framing. A cherry picker was used to access the exposed soffit area on one of the apartment blocks, refer photos Appendix ‘A’.
The framing on the eave consisted of roughly measured a 50mm top hat section at approximately 900cts cantilevering 750mm supporting the roof sheeting. Some screw fixings from the sheeting to the top hat missed for the entire length of the eave or did not extend to the outside edge of the eave.
Pine noggins (120 x 35) at approximately 900cts had been nailed to blocking along the external wall frame and extended out to the outside edge of the eave. Some of the noggins had brackets fixed to the ends to support the outside metal fascia. The soffit sheeting was pushed into the rebate of the fascia with one nail fixing the soffit to the noggin back towards the external wall line.
The one nail fixing only occur on every noggin. Flashing over the fascia and the roof sheeting along the eave was seen to be screw fixed to the roof sheeting and not into the top hat. The top hat did not extend all the way to the fascia, refer photos.
CONCLUSIONS
The roof framing along the eave is not constructed in accordance to Section 7.2.24 Eaves Construction of AS 1684.3, Residential Timber-Framed Construction Australian Standard, where outriggers should be used extending back twice the cantilever fixing to the main roof framing. The 35 x 120 MGP pine noggin provides insufficient strength and support to the eaves and are not positioned to support the tophat roof battens which are not designed to cantilever.
The soffit lining appears to be a Hardieflex or similar product. The spacing of supports and sheeting fixing of the soffit inspected does not comply with the recommended support and sheeting fixings specified by James Hardie for the sheeting nominated above.
The support of the metal fascia is insufficient for cyclonic regions and the fixing of the flashing appears only to be fixed to the roof sheeting and not to the roof battens. The screw fixing location for the flashing appears to indicate that the flashing does not overlap the roof sheeting by the recommended amount.
This report has been based on a visual inspection of the building where access was able to be gained on the day of the inspection. No drawings or specifications were available at the time of the inspection.
Areas which were concealed at the time of this inspection could not be inspected. There appears other issue onsite [sic] which we were not engaged to inspect and report on, but would need attending too.
Mr Key in his affidavit said that he understood Mr Goddard’s reference in the last paragraph quoted above to “other issues onsite” to concern an (otherwise unrelated) issue with the driveway. He was not challenged about this. In the crucial email of 9 May 2017, Ms Lander of SCI inferentially sought to say that these “other issues” may have related to the trusses. That was not the case.
Six photographs were attached to the Goddard Report. The captions for the six photographs were (1/367–369):
Screw fixing of flashing to sheeting, overlap of flashing appears insufficient if fixing at edge of flashing
…
Shows no roof sheeting screws into roof batten
…
Shows noggins instead of outriggers used to frame eave
…
Shows unsupported roof batten and roof sheeting fixing insufficient at eave
…..
Typical soffit framing and fascia cleat fixing
….
Typically one nail fixing of soffit sheeting to noggin at wall line
On 12 January 2017, Mr Key provided the Goddard report to Mr McNeill under an email entitled: “Report form [sic] Goddards – for your eyes only”. The email sought a quote for repair work for one building as follows (1/374):
Please find the report from Gary Goddard attached
We welcome the quote you can provide to undertake a replacement exercise of one building and in particular the two ends left and right of one six unit block
As you will see this will require reframing the eaves and recladding, we would like an all in price please. I believe we all talked about this being a maximum price with a lower fee applying if there is less to do
On 16 January 2017, Mr Key provided a colleague of Mr McNeill with a typical roof plan of a 3 Unit Block.
Shortly thereafter, Mr McNeill provided a quote for building A of $9,330.
On 27 January 2017, a minute was circulated among the committee to accept the quote from McNeill Building to remove soffit panels and repair the eaves framing and then reinstate soffit panels. Importantly, the work was only for building A. An explanatory note in the minute contained the following (1/380):
McNeill’s builders have inspected the site, and provided a fixed price quote to undertake the work on the two ends of Building A, where several soffit panels have dislodged and fallen down. That is the right and left ends when facing the building from Deloraine Close. The work can commence immediately the approval is provide [sic] and a worksite plan will be provided to Neil on site to help coordinate logistics for Building A and the site. McNeill’s will confer with G W Goddards & Associates to ensure the repairs are completed to the standard required by our engineers. McNeills have also given an undertaking that if the work is completed for a lesser consumption of labour and resources, this saving will be passed back to the Body Corporate.
The working will not only repair Building A, it will permit the committee to understand more about the scope of works required to undertake the complete repair of all buildings and also more about the status of the soffits and eaves framing on the long front and rear sides of each building.
On 25 January 2017, the committee sent to all occupiers of apartments a notice which gave the following information and warning:
As some residents will have noticed, the panels under the eaves at Delor Vue appear to be defective and requiring repair.
This situation has been reviewed and examined by the committee of the Body Corporate and action is underway to repair the building and replace the eaves panels.
This repair programme will take some time and will not be conducted before the storm season commences in Airlie Beach. The committee wishes to remind all residents to be mindful of the current situation with the eaves panels. Storm winds are likely to cause damage to the eaves panels which may dislodge such panels. Lot owners ought to avoid walking or parking in the vicinity of the areas of the defective eaves.
The notice then identified, in relation to each of the eight affected buildings, the area of dislodgment by reference to which end or ends of the building was or were affected. Warning advice was given in relation to “action required in time of winds” referable to each building. Examples of the advice were, in relation to building A (1/379):
Do not walk under these ends of the building and remove cars parked on the right end of the building in the visitors’ bay.
in relation to building C:
Do not walk near the left end of the building including the walkway to the pool.
and in relation to buildings F, G, H and K:
Do not walk near the left end of the building.
Do not walk near the right end of the building.
Do not walk near the right rear end of the building.
On 30 January 2017, Aspire wrote to Mr Wellard and Beachside about the defects to the building. The letter was not limited to the soffits. The letter invited Beachside “as the original builder of the defective works” to “inspect the site, and defects, and propose a satisfactory repair”. The letter included the following (1/382):
We note that Beachside Constructions (National) Pty Ltd are aware of the shedding of soffit panels at the site and we attach to this letter a report from G W Goddard and Associates referring to the defective eaves framing and soffit fitment.
The Body Corporate requests Beachside Constructions (National) Pty Ltd inspect the site and propose a repair plan that is acceptable to the Body Corporate. We expect that this repair plan will be undertaken and completed at no cost to the Body Corporate and will be certified by our engineers G W Goddard and Associates. We wish this plan to be prepared for discussion at the forthcoming Body Corporate Committee meeting
…
The Body Corporate has reserved all rights in regard to undertaking works to repair the building and in parallel to this request to Beachside Construction (National) Pty Ltd may commence prudent repair works.
On 3 February 2017, Ms House sent an email to SCI seeking a quotation for insurance. The email was sent by MAI as Marsh’s “authorised representative”. Mr Key said, and the documents support the conclusion, that no instructions were given or sought for this step (though Marsh’s appointment had not yet been terminated and, as has been referred to, Mr Key had been in contact with Ms House in August 2016 about the earlier claim in 2010). The email contained an “Occupiers Statement” concerning fire safety installations, AIG’s claim history sheet for the three policy years from March 2014, showing no claims, and a 7 page report from Archers dated 22 February 2011 entitled “Estimate of Replacement Cost For Insurance”, which identified a replacement cost of $26,790,500. The email also attached a quotation slip which was in the form of printed questions to which answers were given. It was filled out by MAI (or Marsh) without instructions from, or the knowledge of, Aspire or the body corporate. The quotation slip had 14 questions under a heading “Duty of Disclosure Details”. One question and its answer by MAI was as follows (1/396):
Are there any hazards/defects associated with the property? No
Mr Key said in his affidavit that if he had been asked whether the premises contained “hazards/defects” he would have referred the question to the broker for assistance. He said he was uncertain as to what it meant. I accept that evidence.
Five days later, a quotation was sent by Mr Mark McGuire of SCI to Ms House. It was addressed to Delor Vue “c/- MAI Strata Pty Ltd”. The covering email was to Ms House by name, which means, I infer from other emails sent by her, that it was sent to an email address at Marsh. I will refer to this as the Marsh/SCI quote. The quotation request had been referred to Mr Iconomidis. The quoted premium was $82,244.09. The quotation request had been considered by Mr McGuire. I will deal with this quotation in more detail when I deal with the non-disclosure and misrepresentation case of Allianz, in due course.
Meanwhile, two days before SCI sent its quote, Mr Key sent an email to Ms House asking once again about the 2010 claim. The email was in the following terms (1/399):
Apologies for revisiting this issue, but my committee at Delor Vue are somewhat insistent
They are still requesting details of a claim made back in 2010 and 2011 on the roof of the building
There is a record of a claim paid on 25/08/2011 on a CGU Policy 06S0478258 (NSW Branch) for $225,048.42 which is the same amount as shown on the Zurich record for 21/03/2010 under a Zurich Policy 43 2003183 GST
At this time, Mr Key was discussing the arrangement of insurance with another broker, Ms McGorlick of BCB Strata Insurance Brokers (BCB). In his affidavit Mr Key said that he spoke with Ms McGorlick on 10 February. Ms McGorlick agreed to arrange insurance. In the conversation Ms McGorlick asked: “Can you tell me what the condition of the property is like?” Mr Key responded:
It’s reasonably good. The Body Corporate has had some problems with soffits falling out of the eaves which is a maintenance issue and the Committee is working through a maintenance program to get them fixed. There is also an issue with the driveway which the Body Corporate are having fixed.
Mr Key gave substantially the same account of the conversation in cross-examination. Ms McGorlick also asked for an up to date certificate from AIG and a claims history for the body corporate.
On 10 February 2017, Ms McGorlick sent Mr Key a draft letter of appointment for all relevant insurance policies. Each letter stated (1/412):
This letter is to confirm that with immediate effect The Body Corporate hereby appoint Body Corporate Brokers to act as their Registered General Insurance Broker in all matters pertaining to their insurance program and this letter rescinds all previous appointments.
Body Corporate Brokers is hereby authorised to negotiate with insurers and any other interested companies in respect to changes to our existing insurance policies. This includes the authority to negotiate prompt settlement of any outstanding insurance claims, negotiate renewal terms, obtain claims information, underwriting information and property surveys in relation to the insurance program, and also discuss general insurance matters relative to the Body Corporate.
On 13 February 2017, the committee agreed by minute to appoint BCB as brokers for renewal.
On 14 February 2017, Mr Key signed the letters of appointment in the form that had been provided in draft by BCB, adjacent to the corporate seal, sending them to Ms McGorlick on that date under an email that asked her to arrange cover.
The Marsh/SCI quote was not communicated to Aspire or the body corporate in the light of the appointment of BCB and Marsh’s loss of the position as broker.
Meanwhile, on 10 February Mr Key sent Ms McGorlick details of earlier claims of Delor Vue in 2010, 2011 and 2012 that could previously not be found.
On 27 February 2017, Ms McGorlick sent an email to SCI seeking a quotation. The email made clear to SCI that BCB had been appointed as brokers for the insurance program. The cover sought was similar but not identical to that sought by Ms House of Marsh. The quotation slip supplied by BCB, unlike that supplied by Marsh, did not have questions and answers under a heading of a duty of disclosure.
The following day, Ms Tak of SCI provided a quotation, without reference to Mr Iconomidis. I will refer to this as the BCB/SCI quotation. I will deal with the underwriting and decision-making process in relation to the BCB/SCI quotation when I deal with Allianz’s non-disclosure and misrepresentation case.
On Sunday 5 March 2017, Ms McGorlick sent an email to Mr Key enclosing quotations from CGU and SCI. CGU’s premium was $105,444.75, SCI’s was $84,600.81. Ms McGorlick recommended SCI.
The BCB quotation which included the comparative Allianz (via SCI) and CGU (via “Strata Unit Underwriters”) premiums had on its first page adjacent to the summary of the recommended premium a statement of “Your Duty of Disclosure” in unremarkable terms, as follows (1/484):
YOUR DUTY OF DISCLOSURE
Before you enter into a Contract of general insurance with an Insurer, you have a duty under the Insurance Contracts Act 1984 to disclose to the Insurer every matter that you know, or could reasonably expect to know, is relevant to the Insurer’s decision whether to accept the risk of Insurance and if so, on what terms. You have the same duty to disclose those matters to the Insurer before you renew, extend, vary or reinstate a Contract of general insurance. Your duty however does not require disclosure of matter.
· that diminishes the risk to be undertaken by the Insurer
· that is common knowledge
· that your Insurer knows or, in the ordinary course of business, ought to know
· as to which the compliance with your duty is waived by the Insurer.
NON-DISCLOSURE
If you fail to comply with your duty of disclosure, the Insurer may be entitled to reduce the liability under the Contract in respect of a claim or may cancel the Contract. If your non-disclosure is fraudulent, the Insurer may also have the option of avoiding the Contract from its beginning.
On the following day, 6 March 2017, Mr Key sent the BCB recommendation and quotation to the committee members. The decision to accept this quotation was made at the committee meeting on 13 March 2017.
Meanwhile, McNeill Building had been undertaking work on the eaves and soffits. On 1 March 2017, Mr Gartrell of McNeill Building sent Mr Key an email concerning the works and enclosing a tax invoice for $9,330. He explained that additional work was required in the following terms (1/439):
Per our discussions, during the works we encountered various extras/variations that weren’t in the scope of works at the time of quoting in particular but not limited to rafters that appeared not to be fixed to anything and the framing that was present was in need of more attention than what could have been assessed while sheeting was on (even partially). However, as an act of good will towards you and your client we will absorb those costs in this instance.
Please find attached the claim for the works in line with the works order number. Per discussion I will put together a report of works undertaken, what rectification was required and the recommendations to remedy the other defects observed onsite.
Mr Gartrell sent a report dated 3 March 2017 (the McNeill Report) under cover of email of that date to Mr Key. The evidence is not clear whether the report was sent to Mr Key on 1 or 3 March. The precise date does not matter. Certainly he had it by 3 March; and on or about that date had a meeting with Mr Gartrell and discussed it. The report stated the following (1/442–443):
Scope of works completed:
· Removed damaged and incorrectly fixed sheets
· Frame out the soffits in accordance with BCA and manufactures requirements to fix soffit sheets.
· Some of the rafters already present in the structure were not fixed to anything, or only partially fixed. They were not suitable to fix soffit sheets to. We fixed these off from within the ceilings space of the top floor units and continued framing per the above.
· Fixed the fascia (it was only partially screwed off)
· Replaced Soffit sheets and fixed off in accordance with BCA and manufactures requirements
· Painted Soffit Sheets
Additional information
· While it is was difficult to inspect the other locations (front and rear of the building and adjoining buildings) it is our assessment from the inspections that we could make that the above scope of works will be required for at least the front and back of the subject building but likely the other buildings as well.
· We also note that some of the roof sheets were not screwed down at all while others were screwed down incorrectly.
· There is damage on the roof that appears to have been caused during construction (likely trades walking on the roof below the top floor units.)
· While we were working we noticed significant water leakage in the middle of the building on the lower level
Recommendation:
· The majority of the cost involved in this rectification process was the transporting of the machine large enough to cope with the hard to reach location of the soffits. The machine was transported from Rockhampton.
· A smaller machine (located in the Whitsundays) could be used to reach some of the easier to reach locations.
· It is our recommendation that rather than fix one building at a time the decision be made to hire a machine and complete all the rectification over a few weeks. This will reduce the machine hire (float) component and allow for some economies of scale in relation to materials and labour.
· The rectification will be required on any soffits that were installed in manner that we encountered on the subject building – it is simply a matter of time and these soffit sheets are heavy and dangerous to be falling from any height, let alone 15 odd meters. It is our understanding that most (or all) of the complex is affected.
· It would also be advised to allow in the budget and timing for rectification of damaged or incorrectly fitted roofing and roofing components (gutters/fascia/barges/capping)
The report was provided to Mr Key in word version on 8 March 2017. He asked for it in word version so that he could send relevant extracts (being the scope of works) to Delor Vue’s lawyers.
The committee met on 13 March 2017. The minutes recorded that the Goddard report had been circulated and that the eaves repair had been completed on building A. The minutes do not record the tabling of the McNeill Report. The committee resolved to approve the sending of a letter of demand drafted by the body corporate’s solicitors to the builder, Beachside, and the developer, Delorain, in relation to the repair of the eaves and soffits.
The meeting of 13 March 2017 is important. There was considerable attention to it in cross-examination of Mr Key and Mr Nobilia. As this narrative of the facts makes clear, a number of issues were coming together at about the same time and their relationship to each other will be important to consider. Mr Key and the committee were attending in a methodical way to the examination of the repair of the soffit problem. In the course of that they were ascertaining, in particular through McNeill Building, the extent of the problem. They had taken steps to warn residents of precautions to take against falling soffits. The damage in the soffits falling was, perhaps, self-evident, but was emphasised by Mr Gartrell’s remarks in the McNeill Report in the fourth dot point under “Recommendation”. Mr Key was seeking to have the builder pay for the defective construction. And the insurance renewal was in full swing, the insurance covering property damage and public liability, that is, in this latter respect, including personal injury.
The correspondence tabled at the meeting on 13 March 2017 noted in the minutes included: the insurance renewal from BCB Brokers, the letter to Beachside dated 30 January 2017 (see [76] above), a briefing note to OMB Solicitors, a fee proposal and costs agreement for OMB Solicitors and the Goddard Report. As earlier noted, the McNeill Report was not separately listed as being tabled. It would appear, however, that it was before the committee. One of the documents listed under “correspondence” was “Briefing Note to OMB Solicitors”. A notice to produce during the hearing calling for that document saw the production of an email from Mr Key to Mr Robinson of OMB Solicitors dated 8 March 2017. The email attached the McNeill Report (though it had an error as to the date) together with a site layout.
The meeting resolved to approve the sending of a letter of demand to be drafted by OMB Solicitors to the builder, Beachside, and the developer, Delorain “in relation to the repair of the Eaves and Soffits”.
Mr Key said that Mr Gartrell (who had prepared the McNeill Report) and he sat down in March and discussed the job. The discussion was described by Mr Key in the transcript (Tpp 214-217). I will refer to it in some more detail when I deal with the evidence of Mr Key. It suffices to say at this point that Mr Key said that he did not read parts of the McNeill Report until 20 March 2017. He said his focus was on the necessary scope of works and to pass on what was necessary for a solicitor’s letter of demand. This focus was about obtaining a sensible and measured maintenance program by using the scope of works that had been undertaken in relation to building A for work on the other buildings across the site. The conversation between Mr Gartrell and Mr Key and Mr Key’s approach did not exhibit alarm, urgency or tension as to the soffit issue or its remediation. I accept Mr Key as an intelligent, careful and honest witness and I accept that he had this focus and lack of concern.
The equitable estoppel and relief arising from equitable principles are not limited to removing or reversing, by the minimum equity necessary, the precisely-weighted prejudice or detriment suffered: Giumelli 196 CLR at 120–125; Delaforce 78 NSWLR at 485–486 and 493–494. The correct way to approach the matter does not involve measuring out equitable relief by the teaspoonful to reach some asserted equality with the measured detriment: Giumelli 196 CLR at 123–125 [40]–[48]. Apart from anything else, such an approach wrongly assumes that concepts such as detriment, prejudice and injustice that arise out of resiling from a living business relationship are restricted to what can be identified in hindsight. Such an approach also pays insufficient regard (especially in a relationship demanded by statute to evince the utmost good faith) to the concern of equity of keeping parties to their representations or promises: see the citations in Delaforce 78 NSWLR at 485 [3] referred to below. I would approach the matter as I expressed the question in Delaforce 78 NSWLR at 485–486 [3]–[5] (with the express agreement of Giles JA at 486 [6]):
I agree in particular with Handley AJA that the reasons of Gleeson CJ, McHugh J, Gummow J and Callinan J in Giumelli v Giumelli (1999) 196 CLR 101 appear to remove as a governing principle in the relief to be granted in equitable or proprietary estoppel cases the notion of enforcement or vindication only of the “minimum equity”: see Giumelli (at [40]-[48]). That, of course, does not make irrelevant matters that can assuage the detriment brought about by the resiling from the representation or encouragement by the party concerned. It does mean, however, that relief in such cases is not to be measured by weighing detriment too minutely in order that it be converted into some equivalent of cash or kind, as if one were measuring the consideration for a commercial bargain. Equity will look at all the relevant circumstances that touch upon the conscionability (or not) of resiling from the encouragement or representation previously made, including the nature and character of the detriment, how it can be cured, its proportionality to the terms and character of the encouragement or representation and the conformity with good conscience of keeping a party to any relevant representation or promise made, even if not contractual in character. Equity has also had a place in keeping parties to representations or promises: see for example, Burrowes v Lock (1805) 10 Ves Jr 470; 32 ER 927; Horn v Cole 51 NH 287; 12 Am Rep 111 (1868); S W Symons (ed), J N Pomeroy, A Treatise on Equity Jurisprudence 5th ed, Vol 3 (1941) San Francisco, Bancrof-Whitney at 179-188 [802]-[803]; R Meagher, J Heydon and M Leeming, Meagher, Gummow and Lehane’s Equity: Doctrine and Remedies 4th ed (2002) Sydney Butterworth LexisNexis at 556-560 [17-065]-[17-070] and 567-568 [17-110].
Proportionality of the claimed interest or remedy to the prejudice or detriment is undeniably a relevant consideration, and sometimes of considerable importance. It should not, however, be transformed into a necessary constitutive element of a cause of action to be pleaded or proved by the party seeking relief. To do so would elevate one consideration above others, and in particular above the importance of making good an expectation by encouragement or representation: Plimmer v The Mayor, Councillors and Citizens of the City of Wellington (1884) LR 9 App Cas 699 at 713-714; Riches v Hogben [1985] 2 Qd R 292; Giumelli (at [10] and [35]). It would tend to equate the analysis to one requiring that the party encouraged receive no more than it can prove that it suffered in detriment. This would see the equity become one of compensation for proved equivalent detriment. The equity is a broader one based on the just and conscionable satisfaction in appropriate fashion of the equity arising from the expectation created in another by encouragement or representation. As Handley AJA says, the role of proportionality is better understood, in a doctrine dealing with the legitimacy or otherwise of resiling from an encouragement or representation that has created an expectation, as assisting in an assessment whether what is claimed or contemplated to be granted is disproportionate or unjust in all the circumstances.
The importance of keeping a party to a representation or encouragement previously made is all the stronger where, as here, the encouragement or representation has been relied upon by a party to abandon a course of conduct that could possibly have led to a different outcome. This can be described in the language of loss of a chance that is not fanciful or unrealistic, or in the language of proceeding thereafter on the basis of a new or changed convention or conventional basis. Such expression of the matter is not different to how Dixon J put the matter in Grundt v Great Boulder Proprietary Gold Mines Ltd (1937) 59 CLR 641 at 674-675. For instance, if, as here, in reliance upon a representation or encouragement, a court case is abandoned and the representation or encouragement is later sought to be resiled from, the party to whom the representation or encouragement was made and in whom the expectation was raised is left in the position not only of the loss of the entitlement to pursue his or her rights in the case in the past, but also is likely to be in the position of being unable to demonstrate what would, or even may, have happened in the case, it being an alternative, complex and now hypothetical body of human conduct. That the party encouraged cannot show that he or she would have been better off in the posited alternative reality is not fatal to the making out of the estoppel. Indeed, the inability to prove such things reveals a central aspect of the detriment: being left, now, in that position. Of course, if it is self-evident or can be clearly demonstrated that the case was fanciful or otherwise doomed to fail, there may be no real detriment; but that was not the case here. The respondent gave up her right to propound her case in the Family Court on the faith of the deceased’s representation. It was not self-evident, or otherwise clearly demonstrated, that she could not have been successful in securing her rights to the subject property after the death of the deceased.
This approach accords with the approach of the majority judgments in Verwayen, cited, discussed and implicitly approved in Giumelli 196 CLR at 123 [42], 124 [43] and [44] by Gleeson CJ, McHugh, Gummow and Callinan JJ, and in particular with the expression of the matter by Deane J in Verwayen 170 CLR at 443 and 445, cited in Giumelli 196 CLR at 123 [42]:
Prima facie, the operation of an estoppel by conduct is to preclude departure from the assumed state of affairs. It is only where relief framed on the basis of that assumed state of affairs would be inequitably harsh, that some lesser form of relief should be awarded.
…
[T]he question whether departure from the assumption would be unconscionable must be resolved not by reference to some preconceived formula framed to serve as a universal yardstick but by reference to all the circumstances of the case, including the reasonableness of the conduct of the other party in acting upon the assumption and the nature and extent of detriment which he would sustain by acting upon the assumption if departure from the assumed state of affairs was permitted.
It would, in my view, be unjust, inequitable and unconscionable to permit Allianz to resile from its stated position in the email of 9 May 2017 by its stated course on 28 May 2018 and as slightly modified thereafter. It should be held to the representation or promise (for that, as between honest commercial parties, especially bound by the duty of the utmost good faith, was what it was – a form of promise) that it made. It is a circumstance and outcome that is proportionate and reasonable.
The letter of 9 May 2017 did not refer to misrepresentation, only non-disclosure. The absence of any such reference is a testament to the absence of any realisation of any misrepresentation. The records of SCI of the events of February 2017 were known to those parties on 9 May 2017. The senior underwriter (Mr Iconomidis) was a recipient of the 9 May 2017 email. By 9 May 2017, Delor Vue had supplied the adjuster and so SCI with all information that was relevant. There could be no doubt that SCI and so Allianz was fully cognisant of all relevant facts as at May 2017 about the underwriting of this risk. It is to be inferred that it was only during the trawling through of records by Holman Webb and Mr Tsoukatos or Mr Iconomidis in 2018 that the misrepresentation point was thought up. In my view, no distinction should be made between the non-disclosure and misrepresentation cases at least for the estoppel case. The insurer had all the knowledge about the underwriting, the claim and the history of the soffits and eaves, and it represented, in effect promised, that cover was confirmed, and that it would adjust the claim in accordance with the policy terms. It should be held to that representation or promise.
Waiver
I turn to the waiver case to which I adverted earlier. In this case, the deliberate and knowing taking and expression of a position confirming cover notwithstanding the existence of rights or an available position as to rights under or in connection with an insurance policy to deny liability for this claim and thereby to obtain the benefit as insurer of rights of full access to the insured property and of the full co-operation of its insured illuminates a stark similarity with the position in Craine v Colonial Mutual. The discussion by Isaacs J, in delivering the reasons of the Court (Knox CJ, Isaacs and Starke JJ), emphasised at 326 the intentionality of the distinct act, done with full knowledge, the intention being to treat the relationship as if the condition had not occurred, to prevent two inconsistent positions being taken: approbating to get some advantage to which he would not otherwise be entitled, and later reprobating by the inconsistent position. The drawing closely together of such circumstances exhibiting waiver to the operation of estoppel can be seen in Thompson v Palmer [1933] HCA 61; 49 CLR 507 at 547 (per Dixon J) and Yorkshire Insurance Co v Craine [1922] 2 AC 541 at 546–547. All the elements of the circumstances that led to a conclusion of waiver in Craine v Colonial Mutual were present here: full knowledge, the deliberate act and intention to take a position inconsistent with any assertion of a right under s 28(3), that is the deliberate act to confirm cover, the intention being to treat the relationship as if there had been no non-disclosure, whereby Allianz was thereafter entitled to the advantage (that it thereafter had) of adjusting the claim and thereby assessing its own position by free and full access to the property and the co-operation of Delor Vue, an advantage which it would not have had had it asserted its entitlement under s 28(3) to act on the basis that its liability was nil because it would never have issued the policy. If it had done that the assessment of the damage, its repair and the control of the premises could have all been in the hands of Delor Vue.
Thus, notwithstanding the circumstances of the applicability of the doctrine of estoppel, and bearing in mind the caution to be observed in any assertion of taxonomical clarity in this field, to be derived from consideration of Agricultural and Rural Finance 238 CLR at 583–601 [40]–[93], I would also conclude that by May 2018 Allianz had waived any entitlement to assert a position inconsistent with that taken by it in the email of 9 May 2017.
The choice of position was expressed to be confirmation of cover notwithstanding the non-disclosure “issue”. From that clear choice and clear act a benefit was obtained. The insurer should not be permitted to reprobate after approbating. It knew of all the facts in May 2017, including all the circumstances of the underwriting of the risk. Apparently no one had lighted upon the misrepresentation argument or any apparent merit in it. I have concluded that the insurer is estopped from resiling from the clear position that the claim would be honoured and indemnity provided subject to the terms of the policy. That conclusion is premised on the injustice of resiling from that position in all the circumstances, including the relevant detriment. Here the waiver brought about by taking a position inconsistent with relying on the non-disclosure issue is rooted in the act of choice of position and the advantage obtained therefrom, not detriment. Does it extend to prevent the misrepresentation case? In my view, yes. The choice was made. Fairness (see Immer 182 CLR at 41) requires that the insurer be held to the choice. The insurer knew of the circumstances of the underwriting. It focused only on the cognate issue of non-disclosure which, in effect, was the other side of the coin of the asserted misrepresentation. Thus, I would hold the insurer to the choice it made to confirm cover in accordance with the terms of the policy by the principle of waiver, whereby the insurer is taken to have waived any right to assert relief from the operation of s 28(3) of the Act.
Good faith
The above conclusion is reinforced by the separate consideration of the conduct of Allianz in 2018 in resiling from its earlier stated position, as a breach of the obligation of good faith as contained in s 13 of the Act. The obligation of good faith is as the statute says the “utmost good faith”. A lack of honesty is not a prerequisite. In CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36; 235 CLR 1 three judgments of the Court dealt with the matter. Chief Justice Gleeson and Crennan J said the following at 235 CLR 12 [15]:
We accept the wider view of the requirement of utmost good faith adopted by the majority in the Full Court, in preference to the view that absence of good faith is limited to dishonesty. In particular, we accept that utmost good faith may require an insurer to act with due regard to the legitimate interests of an insured, as well as to its own interests. The classic example of an insured's obligation of utmost good faith is a requirement of full disclosure to an insurer, that is to say, a requirement to pay regard to the legitimate interests of the insurer. Conversely, an insurer's statutory obligation to act with utmost good faith may require an insurer to act, consistently with commercial standards of decency and fairness, with due regard to the interests of the insured. Such an obligation may well affect the conduct of an insurer in making a timely response to a claim for indemnity.
(Emphasis added and footnotes omitted.)
Justices Callinan and Heydon said at 235 CLR 77–78 [257]:
At the outset we should say that we agree with the Chief Justice and Crennan J that a lack of utmost good faith is not to be equated with dishonesty only. The analogy may not be taken too far, but the sort of conduct that might constitute an absence of utmost good faith may have elements in common with an absence of clean hands according to equitable doctrine which requires that a plaintiff seeking relief not himself be guilty of tainted relevant conduct. We have referred to the doctrine of clean hands because, as with another equitable doctrine, that he who seeks equity must do equity, it invokes notions of reciprocity which are of relevance here. That is not to say that conduct falling short of actual impropriety might not constitute an absence of utmost good faith of the kind which the Insurance Act demands. Something less than that might well do so. Utmost good faith will usually require something more than passivity: it will usually require affirmative or positive action on the part of a person owing a duty of it. It is not necessary, however for the purposes of this case, to attempt any comprehensive definition of the duty, or to canvass the ranges of conduct which might fall within, or outside s 13 of the Insurance Act.
(Emphasis added.)
Justice Kirby (in dissent) said the following about good faith at 235 CLR 42 [130], 43 [131] and 45 [139]:
No one doubts that the absence of honesty on the part of an insurer (or insured) will, if proved, attract the provisions of s 13 of the Act. However, this does not mean that a want of honesty is a universal feature of a want of the utmost good faith in this context.
…
In my view, the criteria of dishonesty, caprice and unreasonableness more accurately express the ambit of what constitutes a breach of s 13 of the Act.
…
In particular, the broad view which the Full Court majority took concerning the operation of s 13 of the Act is one that this Court should endorse. It sets the correct, desirable and lawful standard for the efficient, reasonably prompt, candid and business-like processing of claims for insurance indemnity in this country.
(Emphasis added and footnotes omitted.)
The views of the Full Court as to the breadth of the obligation, with which Gleeson CJ and Crennan J, and Kirby J agreed, were set out by Emmett J (with whose reasons Moore J agreed) in AMP Financial Planning Pty Ltd v CGU Insurance Ltd [2005] FCAFC 185; 146 FCR 447 at 475–476 [87] and [89]–[91]:
While a want of honesty will constitute a failure to act with the utmost good faith, want of honesty is not necessary in order to establish a failure to act with the utmost good faith in the context of a contract of insurance. The notion of acting in good faith entails acting with honesty and propriety. Lack of propriety does not necessarily entail lack of honesty. Further, the concept of utmost good faith involves something more than mere good faith.
…
The precise content of the concept of utmost good faith depends on the legal context in which it is used. In the context of insurance, the phrase encompasses notions of fairness, reasonableness and community standards of decency and fair dealing. While dishonest conduct will constitute a breach of the duty of utmost good faith, so will capricious or unreasonable conduct. While an essential element of honesty may be at the head of the concept of utmost good faith, dishonesty is not a prerequisite for a breach of the duty (see, for example, Kelly v New Zealand Insurance Ltd (1996) 130 FLR 97 at 111-112).
A failure to make a prompt admission of liability to meet a sound claim for indemnity and to make payment promptly may be a failure to act with the utmost good faith on the part of an insurer. Of course, where the insurer is awaiting details that are necessary for the making of a decision whether to accept liability to indemnify or to determine the quantum of its liability, the position would be different (see Moss v Sun Alliance Australia Ltd (1990) 55 SASR 145 at 154). A failure by an insurer to make and communicate within a reasonable time a decision of acceptance or rejection of a claim for indemnity, by reason of negligence or unjustified and unwarrantable suspicion as to the bona fides of the claim by the insured, may constitute a failure on the part of the insurer to act towards the insured with the utmost good faith in dealing with the claim.
Putting it another way, acting with utmost good faith involves more than merely acting honestly: Otherwise, the word utmost would have no effect. Failure to make a timely decision to accept or reject a claim by an insured for indemnity under a policy can amount to a failure to act towards the insured with the utmost good faith, even if the failure results not from an attempt to achieve an ulterior purpose but results merely from a failure to proceed reasonably promptly when all relevant material is at hand, sufficient to enable a decision on the claim to be made and communicated to the insured (see, eg, Gutteridge v Commonwealth, unreported, Supreme Court of Queensland, Ambrose J, 25 June 1993).
(Emphasis added.)
Here there was no dishonesty, but, in my view, the resiling from the clear representation, in effect a promise, in the 9 May 2017 email was unjust, unreasonable, unfair and did Allianz no credit as a commercial insurer by reference to expected standards of decent commercial behaviour. It was, to use the words of Gleeson CJ and Crennan J, conduct which fell below a commercial standard of decency and fairness. Whatever the apparent civility of the references to internal dispute resolution (see [186]), this was a clear renunciation of a representation, in effect a promise, to confirm cover in accordance with policy terms: take the money that we say is due under the policy, or take nothing because we will assert the statutory rights that we said we would not assert.
The conduct of Allianz was a resiling from a considered position (taken with legal assistance and against the opinion of a senior underwriter of SCI) of a claim of significant financial dimension to an insured who had since March 2017 been open, co-operative and responsive in the provision of information. A degree of terseness had developed by May 2018 in the communications between insurer and insured. But that in no way justified Allianz going back on its representation or promise of a year earlier, a representation or promise that gave it the benefit of full possession of the site and co-operation of the insured in which to assess its own position. It is not appropriate to seek to define the standard within s 13. It is a normative standard involving the considerations referred to in CGU v AMP in the High Court and in the Full Court. Description of elements and circumstances better illuminate the standard involved. The expression of Gleeson CJ and Crennan J of a “commercial standard of decency and fairness” is, for these circumstances, most apt. The persons who made and make up the interests behind Delor Vue were, as SCI and Allianz must have known, ordinary people. The damage to their properties will be (as was always evident) expensive to remedy. The policy terms will see a division of responsibility for that. The position taken in the 9 May 2017 email was clear and (if I may say) honourable and also, probably, in the perceived commercial interests of Allianz. That is probably why it was taken – for all those reasons. A year was spent adjusting the claim, taking advantage of the rights of access to the property, and obtaining the co-operation of the insured. Then, for reasons that have never been explained, a take-it-or-leave-it offer was made, resiling from the 9 May 2017 email. Even if it be that the division of financial responsibility in the 28 May 2018 letter turns out to be the correct division, there was still a lack of decency and fairness in the position that was taken. If that was Allianz’s view, a view reached after all the advantages of access to the property, adjusting the claim, and expecting and being given the co-operation of the insured, decency and fairness required an offer to arbitrate or litigate the loss in some acceptable dispute resolution forum on the basis that the 9 May 2017 email represented or promised: the policy terms. Decency and fairness were not displayed by threatening an approach previously clearly disavowed which involved further significant personal strain and financial risk to these people, unless a take-it-or-leave-it offer was accepted.
The insurer sought to say that the applicant had also shown a lack of good faith by its reliance on the argument that the exclusions had been waived. That this was a mistaken or ambitious claim can be accepted. It was in no way dishonest; nor was it lacking in commercial decency or fairness. It certainly did not entitle the insurer to resile from its representation, in effect a promise, of May 2017.
The conclusion of a lack of utmost good faith is not a punishment. There is no need to restrict a party to damages. An injunction would be available to hold the insurer to its stated position, if the breach of the duty is the resiling from that position. Given my views about estoppel and waiver, it is unnecessary to make an order for injunctive relief.
This view is not affected by the misrepresentation claim not being referred to in the 9 May 2017 email. That circumstance has never been put as the determining factor in the change of position. When one appreciates the facts surrounding that part of the claim, one is not surprised by that fact.
Relief
The questions in the orders of 10 May 2019, set out at [4] above, strictly lead to the answers:
(a)the respondent had prior to 9 May 2017 a right to reduce its liability for the claim to nil under s 28(3) of the Act; and
(b)yes, by reason of estoppel, waiver and if necessary, an injunction to restrain conduct to put into effect a breach of the duty of the utmost good faith in s 13 of the Act, the respondent is now unable to rely upon s 28(3) of the Act.
The appropriate substantive relief may be by way of declaratory relief. Subject to the parties being given an opportunity to address the terms of the orders, the orders that I would propose making would be as follows:
1.In the circumstances that have happened the Court declares that:
(a)In failing before the entry into the contract of insurance with the respondent to disclose to SCI or the respondent the known defects concerning soffits and eaves, the applicant breached its duty of disclosure under s 21(1)(b) of the Insurance Contracts Act 1984 (Cth) (the Act).
(b)Subject to the declarations in 1(c), 1(d) and 1(e) below, as at 8 May 2017, the respondent was entitled to a remedy under s 28(3) of the Act, in particular the remedy of reducing its liability to nil for the claim made consequent on damage caused to the applicant’s property by Tropical Cyclone Debbie in March 2017.
(c)The respondent is estopped from resiling from the representation made by email on 9 May 2017 that the claim would be honoured and indemnity provided, such that the mutual rights of the parties and the claim made by the applicant referred to in declaration (1)(b) were to be assessed and resolved by application of the terms of the policy of insurance, and not by reference to an assertion of right under s 28(3) of the Act.
(d)By 28 May 2018, the respondent waived any entitlement to adopt a position based on an assertion of right under s 28(3) of the Act contrary to the position taken by the respondent that the claim would be honoured and indemnity provided in accordance with the terms of the policy.
(e)In seeking to resile from the representation made by email on 9 May 2017 and in seeking to rely upon the non-disclosure of the applicant, the respondent, contrary to s 13 of the Act, failed to act towards Delor Vue in relation to the resolution of the claim with the utmost good faith.
(f)The mutual rights and obligations of the applicant and respondent in connection with the claim under the policy made by the applicant concerning the damage to the applicant’s property caused by Cyclone Debbie in March 2017 fall to be adjusted and determined by reference to the terms of the said policy, and not by reference to any asserted non-disclosure or misrepresentation.
2.The Court orders that:
(a)The matters the subject of declaration 1(f) be referred to a referee for delivery of a report by 31 December 2020, subject to further directions by the Court.
(b)The respondent pay the costs of the applicant.
Given the way the case was run by the applicant, it is to be taken to have abandoned any case as to waiver or estoppel concerning reliance on policy exclusions. The declarations set out above should be understood to incorporate that abandonment.
I certify that the preceding three hundred and fifty-three (353) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop. Associate:
Dated: 6 May 2020
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