Entyce Food Ingredients Pty Ltd v CGU Insurance Limited

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

COMMERCIAL LIST

S CI 2017 01901

PATTIES FOODS LTD (ACN 007 157 182)	Plaintiff
v
ENTYCE FOOD INGREDIENTS PTY LTD (ACN 120 104 083)	Defendant
v
CGU INSURANCE LIMITED (ACN 004 478 371)	Third Party

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JUDGE:	CONNOCK J
WHERE HELD:	Melbourne
DATE OF HEARING:	21 and 22 July 2020
DATE OF JUDGMENT:	17 November 2020
CASE MAY BE CITED AS:	Entyce Food Ingredients Pty Ltd v CGU Insurance Limited
MEDIUM NEUTRAL CITATION:	[2020] VSC 757

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INSURANCE – General and products liability policy – Principles of construction of insurance policies and commercial contracts – Liability to indemnify for amount paid under settlement deed – Exclusions – Recall, withdrawal, and loss of use of frozen berry products – Contaminated food products – Food products suspected or at risk of being contaminated – Hepatitis A contamination of food products – Property damage – Construction of exclusions – Defect and deficiency – Harmful nature and unsuitability – Onus of proof.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	No appearance	No appearance
For the Defendant	Mr Thompson QC and Mr Redd	William Abbott and Associates
For the Third Party	Mr Quinn QC and Mr Dowling	DLA Piper

TABLE OF CONTENTS:

Introduction and Summary............................................................................................................. 1

Background......................................................................................................................................... 1

The Evidence.................................................................................................................................... 10

The Issues.......................................................................................................................................... 11

Features of the CGU Policy............................................................................................................ 12

Principles of Construction and Some Related Observations................................................. 17

Is CGU's Obligation to Indemnify Entyce Excluded by Clause 6.14.3?................................ 21

........... Entyce's Submissions – Clause 6.14.3................................................................................ 21
........... CGU's Submissions – Clause 6.14.3................................................................................... 23
........... Disposition – Clause 6.14.3.................................................................................................. 25

Is CGU's Obligation to Indemnify Entyce Excluded by Clause 6.14.4?................................ 35

........... Entyce's Submissions – Clause 6.14.4................................................................................ 36
........... CGU's Submissions – Clause 6.14.4................................................................................... 36
........... Disposition – Clause 6.14.4.................................................................................................. 37

Is CGU's Obligation to Indemnify Entyce Excluded by Clause 6.11.2?................................ 41

Conclusion and Proposed Orders................................................................................................ 41

HIS HONOUR:

Introduction and Summary

The defendant (Entyce) claims indemnity or damages from the third party insurer (CGU) under a General and Products Liability Insurance Policy (CGU Policy). Entyce’s claim is in respect of monies paid to the plaintiff (Patties) pursuant to a deed of settlement (Settlement Deed) recording the terms upon which Patties’ claim against Entyce in this proceeding regarding the supply to Patties of contaminated and potentially contaminated frozen berries by Entyce was settled between them.

For the reasons that follow I have determined that Entyce’s claim against CGU fails.

The liability in respect of which Entyce sought indemnity[1] from CGU is excluded by clause 6.14.3 of the CGU Policy. That clause relevantly excludes liability to indemnify Entyce for the cost of or damages claimed in relation to the withdrawal, recall, inspection, repair, replacement or loss of use of the ‘Products’[2] or any property of which such Products form a part, if such Products or property are withdrawn from the market or from use because of any known or suspected defect or deficiency therein.
[1]Alternatively, damages for breach of the CGU Policy.
[2]As defined in the CGU Policy and set out below.

The liability to indemnify is also excluded by clause 6.14.4 of the CGU Policy because it is for ‘Property Damage’[3] to the Products where such damage is attributable to a defect in them or to their harmful nature or unsuitability.
[3]As defined in the CGU Policy and set out below.

Given these conclusions it is not necessary to decide whether the claimed right to indemnity is also excluded by clause 6.11.2 of the CGU Policy.

Background

Patties made a breach of contract claim in this proceeding against Entyce seeking damages in connection with the supply of frozen berries by Entyce to Patties that included berry products which were contaminated and potentially contaminated with the Hepatitis A virus (Virus). Patties claimed that this contamination and the related risk of other berries supplied being contaminated resulted in the need for Patties to recall and withdraw products sold into the Australian market, withdraw products from use, and to destroy or return for destruction these and other substantial quantities of frozen berries in stock.

It was common ground that the contamination occurred in China during the period of insurance,[4] but before they were shipped to Entyce pursuant to Entyce’s supply agreement with its Chinese vendor.
[4]Being 30 April 2014 to 30 April 2015.

Patties’ claim against Entyce was brought by its insurer, AIG Australia Limited (AIG), exercising its rights of subrogation in respect of indemnity provided by AIG to Patties pursuant to a contaminated products insurance policy between Patties and AIG.

There was no material dispute between the parties about the nature of Patties’ breach of contract claim, which was unsurprising given the straightforward manner in which its claim against Entyce was pleaded in the amended statement of claim (Patties’ Statement of Claim). Among other things it was alleged that:

(a) Patties and Entyce were parties to an agreement for the supply by Entyce to Patties of mixed frozen berry products (Mixed Berries Agreement).

(b) The terms of the Mixed Berries Agreement included, among others, terms and warranties relating to: fitness for human consumption; absence of contamination; the berries being fit for purpose; merchantable quality; and compliance with food health and consumer legislations, including the Food Standards Code.

(c) The frozen berry products supplied were intended for human consumption.

(d) The frozen berry products supplied by Entyce pursuant to the Mixed Berries Agreement included products that were contaminated with the Virus. In respect of other frozen berry products supplied by Entyce that had come from the same sources in China as the contaminated products and had been processed in the same facility, there was an unacceptable risk that they were contaminated with the Virus (Unsafe Frozen Berry Products).[5]
[5]Detailed in paragraph 9 of Patties’ Statement of Claim.

(e) In February 2015 Patties was notified by the Department of Health about the risk of the Virus contamination to Nanna’s Frozen Mixed Berry 1 kg, Nanna’s Frozen Raspberries 1 kg, and Creative Gourmet Mixed Berries 300 g and 500 g packs, and the Department of Health issued an alert to the public stating, among other things, that there was a risk of contamination and such products should not be consumed.

(f) Patties notified Entyce of the advice provided by the Department of Health.

(g) Entyce did not inform Patties of any basis upon which it could be reliably determined that the contamination was limited in scope to some identified batch or batches of the Unsafe Frozen Berry Products.

(h) From about 13 February 2015 Patties commenced a voluntary recall of the Unsafe Frozen Berry Products to avoid products it had distributed causing illness or death and to mitigate or avoid the risk of liability for damages if it failed to do so.

(i) Patties held in storage in excess of $3,800,000 worth of Unsafe Frozen Berry Products (Stored Products) and, following Entyce’s failure to remove all of them, disposed of those remaining.[6]
[6]The precise amount was $3,835,009, being the Entyce invoice price to Patties.

(j) Patties received demands from customers for compensation for loss in relation to personal injuries of a number of customers and entered into settlement agreements with those customers, resulting in loss of $61,990, including defence and investigation costs.

(k) By reason of the supply by Entyce to Patties of the Unsafe Frozen Berry Products that included products contaminated with the Virus, Entyce breached particular terms of the Mixed Berries Agreement, being the terms relating to the frozen berries being fit for human consumption, not being contaminated, being fit for purpose and complying with food health and consumer legislation.

(l) By reason of the breaches of the Mixed Berries Agreement Patties suffered loss and damage in excess of $7,500,000, but limited its claim against Entyce in respect of the particularised loss to $5 million plus interest.[7]

[7]As mentioned, the claim was being conducted by AIG on behalf of Patties in the exercise of its subrogation rights, and the limitation reflected the fact that Patties was not suing in respect of any uninsured loss. The relevant limit under the AIG contaminated products policy was $5 million.

Patties’ particulars of loss and damage were in the following terms:

(i)

Administration charge

$854,013

(ii)

Advertisements of the recall

$196,576

(iii)

Call centre costs for the recall

$198,591

(iv)

Communication consultant costs for the recall

$136,942

(v)

Disposal costs at store level

$597,788

(vi)

Dumping costs

$38,478

(vii)

Freight costs

$36,190

(viii)

Professional technical and scientific advice on the recall

$10,200

(ix)

Social media costs for the recall

$24,920

(x)

Product testing costs associated with the recall

$227,322

(xi)

Warehousing costs associated with the recall and withdrawal

$57,030

(xii)

Inventory disposed of

$825,432

(xiii)

Loss of earnings

$4,490,544

In its prayer for relief Patties sought damages plus interest, alternatively a declaration that Entyce was liable to indemnify Patties for its loss and damage, including legal costs.

By its amended defence Entyce denied liability as alleged and also alleged that Patties failed to mitigate its loss. In this context it was alleged that the products recalled included Nanna’s frozen raspberries 1 kg product and stored quantities of that product which, so it was alleged, ought not to have been recalled and should have been made available for sale.

As became apparent, and senior counsel for Entyce responsibly acknowledged, Entyce ultimately regarded its mitigation defence to be without merit.[8] This was consistent with written and oral advice received by Entyce from senior and junior counsel prior to Patties’ claim being resolved. A series of written advices from senior and junior counsel and from the solicitors acting for Entyce formed part of the evidence in the proceeding. Ultimately, however, CGU did not press any issue regarding the reasonableness of the settlement as between Entyce and Patties, and for present purposes the detail of that advice need not be further explored.
[8]During oral submissions senior counsel for Entyce frankly but properly described it as ’hopeless’.

The allegations admitted by Entyce in its amended defence to Patties’ Statement of Claim included admissions that: the consumption of food products that are contaminated with the Hepatitis A virus can cause illness, serious illness or death; the berry products supplied under the Mixed Berries Agreement were intended for human consumption, which was their common use; the berries in question had been supplied from the same sources in China as the contaminated berries; and that warnings had been made to the public by the Department of Health and the Deputy Chief Health Officer of Victoria regarding contamination risks.

By the Settlement Deed entered into between AIG, Patties and Entyce in May 2019 Patties’ claim against Entyce was settled on terms that provided for, among other things, the payment by Entyce to Patties of $4,000,000 (Settlement Sum) on the terms set out in the Settlement Deed. Of that amount, $3,850,000 was stated to be for damages and interest in respect of Patties’ ‘Loss of Earnings Claim’, and $150,000 was said to be for legal costs in respect of that claim.

The background was recorded in the recitals of the Settlement Deed in the following terms:

A.Patties is a company incorporated in Australia which supplied frozen berry products to wholesale customers in Australia.
B.Entyce is a company incorporated in Australia which imported into and supplied frozen berry products in Australia.
C.Following communications between Patties and the Department of Health and Human Services on 13 February 2015 concerning an alleged link between the consumptions of Nanna’s Frozen Mixed Berries 1 kg product supplied by Entyce to Patties under a Mixed Berries Agreement entered into between them (Mixed Berries Agreement) and a number of reported cases of Hepatitis A, Patties conducted the following frozen berry product recalls:
(a)a voluntary recall in or about February 2015 of the following consumer products supplied by Entyce to Patties:
(i)Nanna’s Mixed Berries 1kg – all batches with a BBD up to and including 22 November 2016;
(ii)Creative Gourmet Mixed Berries 300gm – all batches with a BBD up to and including 10 December 2016;
(iii)Creative Gourmet Mixed Berries 500gm – all batches with a BBD up to and including 6 October 2017;
(iv)Nanna’s Raspberries 1 kg – all batches with a BBD up to and including 15 September 2016.

(b)a voluntary withdrawal in or about February 2015 of the following out of home products supplied by Entyce to Patties:
(i)C1701 Chef’s Pride 1 kg Value Range Raspberries – all batches with a BBD up to and including 3 December 2016;
(ii)C1702 Chef’s Pride 1kg Value Range Mixed Berries (Raspberry / Strawberry / Blueberry) – all batches with a BBD up to and including 3 December 2016;
(iii)C1703 Chef’s Pride 1kg Value Range Three Mixed Berry (Strawberry / Blueberry / Blackberry) – all batches with a BBD up to and including 3 December 2016;
(iv)C1704 Chef’s Pride 1kg Value Range Blueberries – all batches with a BBD up to and including 3 December 2016;
(v)C 1705 Chef’s Pride 1 kg Value Range Strawberries – all batches with a BBD up to and including 3 November 2016

(together, the Recalls)

D.AIG indemnified Patties up to $5,000,000.00 under Contaminated Products Insurance Policy No 0000135816 in respect of certain losses incurred by Patties as a result of the Recalls and being those losses particularised in paragraph 20 of the Amended Statement of Claim (as defined in Recital F).
E.By an Asset Sale Agreement (ASA), Patties and Entyce agreed that Patties released and forever discharged Entyce, its directors and officers, employees and agents from all claims (other than in respect of any Insured Losses, as defined in the ASA) which Patties had or at any time after may have arising from, relating to or in any way connected with or incidental to the Recalls (as defined in the ASA), the Patties Contaminated Berries Claim (as defined in the ASA) and the circumstances or allegations giving rise to such Recalls and such Patties Contaminated Berries Claim.
F.AIG sought to recover the Insured Losses from Entyce by way of subrogation. On or about 22 May 2017 and in respect of the Insured Losses, AIG brought proceedings in the name of Patties by a Writ & Statement of Claim (and then subsequently an Amended Writ & Statement of Claim (Amended Statement of Claim) in the Supreme Court of Victoria, proceeding number SCI 2017 01901 (Proceeding).
G.In the Amended Statement of Claim, Patties alleges that as a result of the supply by Entyce of frozen berry products which were contaminated with Hepatitis A, and which necessitated the Recalls, Entyce breached the terms of the Mixed Berries Agreement.
H.Patties alleges that as a result of the Recalls it suffered loss and damage.
I.Patties also received demands from certain customers for compensation for loss and suffering resulting from their consumption of contaminated frozen berry products as set out in paragraph 18 of the Amended Statement of Claim (Settled Personal Injury Claims). Patties has been indemnified by AIG under General & Products Liability Policy No. 3000001223 in respect of the losses incurred by it resulting from the Settled Personal Injury Claims.
J.Patties alleges in the Amended Statement of Claim that as a result of the breach of the Mixed Berries Agreement by Entyce arising by reason of the supply of contaminated berries Patties has suffered loss and damage and claims $5,000,000.00 (plus interest and costs) in respect of the losses particularised in paragraph 20 of the Amended Statement of Claim.
K.Entyce has denied liability to Patties in respect of the Amended Statement of Claim, as set out in its Amended Defence to the Proceeding.
L.Entyce has also joined CGU Insurance Limited as a Third Party to the Proceeding, by a Third Party Notice and Statement of Claim, seeking an indemnity under an insurance policy in respect of any liability established in Entyce to pay damages to Patties (Third Party Claim).
M.Without prejudice to the denials referred to, and subject to the terms hereof including clause 4(b), the Parties have agreed to fully and finally resolve Patties’ claims against Entyce in the Proceeding, all of Entyce’s claims for legal costs or otherwise in the Proceeding.

Clause 2 and 3 of the Deed provided as follows:

2. Abandonment of loss and damage
(a)Patties abandons and agrees not to pursue all claims made against Entyce for damages or other relief arising in respect of the alleged losses:
(i)set out in items (i) to (xii) of its particulars to paragraph 20 of the Amended Statement of Claim; and
(ii)resulting from the Settled Personal Injury Claims.

(b)The Parties agree to settle the claim for damages in respect of loss and damage set out in item (xiii) – Loss of earnings – of Patties’ particulars to paragraph 20 of the Amended Statement of Claim (Loss of Earnings Claim).
3.Settlement
(a)Entyce is to pay Patties a total of $4,000,000.00 (Settlement Sum).
(b)Provided that the following payment timetable is strictly complied with, the payment of the Settlement Sum may be paid in instalments, in accordance with the following timetable:
(i)$3,000,000.00, payable within 30 days of the execution of this Deed by the Parties;
(ii)30 days after the $3,000,000.00 has been paid, 10 monthly instalments of $100,000.00 each. Each monthly instalment after the first instalment is payable on the date that the first instalment was paid;
(Instalments)

(c)Patties acknowledges that it has requested Entyce to make the above payments to AIG.

(d)The Settlement Sum represents $3,850,000.00 for damages in respect of the Loss of Earnings Claim and interest thereon and $150,000.00 for legal costs in respect of that claim.
(e)Payment of each of the Instalments is to be made by Entyce to Lander & Rogers Lawyers’ trust account:
…

(f)Each Party is to otherwise bear its own costs of the Proceeding.

The Settlement Deed also included terms regarding: definitions; interpretation; mutual releases; dismissal of Patties’ claim; covenants not to sue; payment and interest; judgment in default of payment; confidentiality; non-disparagement; and related matters.

Entyce was an insured party under the CGU Policy[9] that provided liability cover for certain personal injury, ‘Property Damage’ and ‘Advertising Injury’ liability on the terms set out in the CGU Policy.[10] Entyce had sought indemnity from CGU in respect of Patties’ claim and CGU had refused cover.[11] Consequently, CGU was joined by Entyce as a third party to the proceeding.
[9]CGU did not dispute that Entyce was an ‘Insured’ under the CGU Policy.
[10]There was no issue in relation to the period of cover.
[11]Ultimately there was no issue between the parties in relation to indemnity being provided in respect of personal injury claims. This had been addressed and agreed directly between the parties and was not an issue before the court.

Following the entry into the Settlement Deed, Entyce amended its third party claim against CGU to seek indemnity in respect of the Settlement Sum or damages for breach of the CGU Policy.

In its defence CGU maintained its denial of cover and denied that it had breached the CGU Policy. CGU denied that the insuring clause had been triggered, did not admit that the terms upon which Entyce had settled Patties’ claim under the Settlement Deed were reasonable, and alleged that the claimed liability to indemnify Entyce was excluded by a number of exclusions in the CGU Policy, including those set out in:[12]
[12]Discussed further below.

(a) clause 6.6, which related to certain contractual liabilities;

(b) clause 6.11.2, which related to the loss of use of tangible property that had not been physically injured, damaged or destroyed;

(c) clause 6.14.2, which related to refunds of the price paid for the Products;

(d) clause 6.14.3, which related to certain costs and damages claimed in relation to the withdrawal, recall, inspection, repair, replacement or loss of use of the Products where Products were withdrawn from the market or use because of any known or suspected defect or deficiency; and

(e) clause 6.14.4, which related to Property Damage to the Products if such damage was attributable to any defect in them or to their harmful nature or unsuitability.

The statement of agreed facts filed on 6 August 2019 and relied on by CGU and Entyce was in the following terms:

Terms in this statement of agreed facts have the same meaning as defined in the amended statement of claim dated 21 March 2018.
1.The frozen berry products the basis of the plaintiff’s statement of claim in this proceeding, being those supplied by Entyce to Patties pursuant to the Mixed Berries Agreement, included berry products that were contaminated with the Hepatitis A virus.
2.The contamination of the berries occurred within China during the Period of Insurance (being 30 April 2014 to 30 April 2015).
3.The contamination occurred before the berries were shipped for sea carriage from China to Entyce in Australia under an agreement for sale on CFR terms between Nanjing JSWP Sunshine Import and Export Co Ltd (as the Chinese vendor) and Entyce.
4.By agreement dated May 2019 Patties and Entyce settled the claim brought by Patties against Entyce in this proceeding. In this regard AIG Australia as insurer of Patties, Patties and Entyce became parties to a written agreement of that date, a copy of which is annexed hereto (“the agreement”).
5.Entyce subsequently requested CGU to agree that the settlement contained in the agreement was a reasonable one. CGU have not so agreed.

The Evidence

Although a witness statement of Entyce’s Managing Director, Mr Gino Vescio, was filed and served, ultimately it was not relied on by Entyce. This was said to be because the issue to which it was primarily directed was the reasonableness of the settlement with Patties, but at the commencement of the trial the court was informed that CGU no longer contested Entyce’s contention that the settlement was reasonable as between Patties and Entyce. Consequently, no witnesses were called at the trial.

The documentary evidence was also materially reduced as a result of the reasonableness issue and some other matters falling away, and the trial proceeded by reference to an agreed materially reduced court book. Putting the CGU Policy, the pleadings, and the Settlement Deed to one side, only limited reference was made by the parties to the other documents in evidence.[13]
[13]Which is not to ignore the submissions made by CGU regarding the nature of the claims made by Patties by reference to Patties’ Statement of Claim and some matters raised in the two Crawford Investigation Reports (Crawford Reports).

The Issues

Although many issues were raised on the pleadings and in the written submissions that were filed shortly in advance of the trial, they were materially narrowed at the commencement of the trial, and further refined during its course. For example: there was no longer an issue between the parties as to whether the insuring clause was triggered, or whether the settlement between Patties and Entyce was reasonable; Entyce did not pursue its costs claim under clause 1.2.1 of the CGU Policy as set out in its written submissions,[14] but put the costs issue as one that would stand or fall with the failure or success of the arguments regarding the exclusions; Entyce did not press reliance on any carve outs or provisos to the relevant exclusions; CGU did not press its contentions that the exclusions in clauses 6.6 or 6.14.2 were engaged; and CGU accepted that the success or otherwise of Entyce’s claim in respect of the $150,000 paid under the Settlement Deed for legal costs would be determined by the conclusion reached in relation to Entyce’s primary indemnity claim.
[14]Outline of the defendant’s opening submissions filed on 22 November 2019 [42]; Entyce’s supplementary outline of submissions dated 15 July 2020 [22].

The issues remaining were all exclusion related, namely, whether the obligation to indemnify Entyce under the CGU Policy was excluded by:

(a) the exclusion in clause 6.14.3, which excluded Entyce’s liability for the cost of or damages claimed in relation to the withdrawal, recall, inspection, repair, replacement or loss of use of the Products or any property of which such Products form a part, if such Products or property are withdrawn from the market or from use because of any known or suspected defect or deficiency therein;

(b) the exclusion in clause 6.14.4, which excluded Entyce’s liability for Property Damage to the Products if such damage is attributable to any defect in them or to their harmful nature or unsuitability, other than those Products repaired, serviced or treated by the Insured after such Products were originally sold, supplied or distributed;[15] or

(c) the exclusion in clause 6.11.2, which excluded Entyce’s liability for the loss of use of tangible property that has not been physically injured, damaged or destroyed which results from the failure of the Products to meet certain quality or fitness requirements expressly or impliedly warranted or represented by the insured.[16]

[15]This exclusion further provided that it shall be restricted to the defective or harmful or unsuitable part of the Product and shall not apply to property damage to the remainder of such Product or Products. Neither party relied upon this or any other carve out or proviso to the relevant exclusions.

[16]This was subject to a proviso that it does not apply to loss of use of other tangible property of the kind and in the circumstances referred to in the second sentence of clause 6.11.2. However, neither Entyce nor CGU sought to rely upon this proviso.

These issues are addressed below after first referring to some features of the CGU Policy and some principles and observations regarding the construction of insurance policies, and related matters.

Features of the CGU Policy

The relevant insuring clause provided in part as follows:

1 The Indemnity
Coverage: In consideration of the Named Insured having paid or agreed to pay the Premium and subject to the terms, Definitions, Exclusions, Conditions, provisions and Limits of Liability set out in this Policy, the Insurer will indemnify the Insured against the legal liability of the Insured to pay:
1.1 Compensation in respect of:
1.1.1injury to any person;
1.1.2Property Damage;
1.1.3Advertising Injury;

occurring within the Geographical Limits during the Period of Insurance as a result of an Occurrence happening in connection with the Insured’s Business or Products.
1.2Defence Costs and Supplementary Payments: With respect to the indemnity provided by this Policy, the Insurer will pay the following costs and expenses in addition to the Limit of Liability:
1.2.1all legal costs and other expenses incurred with the written consent of the Insurer;
…
1.2.5all post-judgement interest that accrues on the Insurer’s portion of any judgement after entry of judgement until the Insurer has paid, tendered or deposited in court such part of the judgement as does not exceed the Limit of Liability;
…

Even if the allegations of a suit are groundless, false or fraudulent, the Insurer will defend any suit against the Insured for compensation or damages to which indemnity under this Policy applies (or would apply if the claim was sustained) and the Insurer may make such investigations and settlement of any claim as the Insurer deems expedient.

The Schedule to the CGU Policy also addressed matters including: the named insureds; the ‘Business’; the period of insurance; the liability limits; the excess; the premiums; a cover summary; geographical limit details; and related matters.

The CGU Policy definitions included the following:

4. Definitions
For the purpose of this Policy, the following definitions apply:
…
4.4 The Business means:
4.4.1the Business specified in the Schedule;
…

4.5Compensation means any amount paid or payable at law (including but not limited to amounts owing or liability incurred in respect of or arising out of a claim for recovery or contributions made pursuant to any legislation) by the Insured in respect of any claim for:
4.5.1Injury;
4.5.2Property Damage;
4.5.3Advertising Injury.

Provided that Compensation is only payable in respect of an Occurrence to which this Policy applies.
…
4.9Geographical Limits means anywhere in the World except for the United States of America and Canada.
…
4.10Injury means:
4.10.1bodily injury, death, illness, disease, disability, shock, fright, mental anguish and mental injury including loss of consortium or services;

…
4.11Insured means:
4.11.1the Named Insured stated in the Schedule;
4.11.2any subsidiary company (including subsidiaries thereof) of the Named Insured and any other organisation under the control of the Named Insured and over which it is exercising active management;
…

4.12The Insurer means the company named in the Schedule.
4.13Limit of Liability means the amount(s) specified as such in the Schedule.
…
4.15Occurrence means an event including continuous or repeated exposure to substantially the same general conditions which results in Injury to any person, Property Damage or Advertising Injury where such Injury, Property Damage or Advertising Injury is neither expected nor intended from the standpoint of the Insured.
Occurrence extends to include any intentional act by or at the direction of the Insured which results in Injury if such Injury arises solely from the use of reasonable force for the purpose of protecting persons or property.
…
4.18Product means anything which was, or is deemed by law to have been, manufactured, grown, extracted, treated, produced, processed, sold, supplied, distributed, imported, exported, repaired, serviced, renovated, installed, assembled, erected or constructed in the course of the Business by or on behalf of the Insured, including labels, packaging or containers (other than a Vehicle), and directions, instructions, or advice given or omitted to be given in connection with such Product, after ceasing to be in the possession or under the control of the Insured.
4.19Property Damage means:
4.19.1physical injury or damage to or physical loss of or destruction of tangible property including loss of use at any time resulting therefrom;
4.19.2loss of use of tangible property which has not been physically injured, damaged or destroyed provided such loss of use is caused by an Occurrence.

…
5.3Persons: references to persons shall be deemed to include references to individuals, companies, corporation, firms, partnerships, joint ventures, associations, organisation, trusts, States or agencies of State Government departments and local and municipal authorities.
…

Clause 6 set out the ‘Exclusions’. The chapeau provided that ‘The liability of the Insurer to indemnify the Insured pursuant to Clause 1.1 and to pay other costs and expenses pursuant to Clause 1.2 shall not extend to any of the following: …’. Relevantly, ‘the following’ included the exclusions set out below:

6.6Contractual Liability
Liability assumed by the Insured under any contract or agreement in connection with the Products but this Exclusion 6.6 does not apply to:
6.6.1the extent that such liability would have been implied by law;
6.6.2liability assumed by the Insured under a warranty of fitness or quality.

…
6.11 Loss of Use
The loss of use of tangible property which has not been physically injured, damaged or destroyed which results from:
…
6.11.2the failure of the Products to meet the level of performance, quality, fitness or durability expressly or impliedly warranted or represented by the Insured. However this does not apply to loss of use of other tangible property resulting from the sudden, unexpected and unintended physical injury to or destruction of the Products after such products have been put to use by any person or organisation other than the Insured.

…
6.14 Products and Work Performed
Liability for:
…
6.14.2the cost of making any refund of the price paid for any Products;
6.14.3the cost of or damages claimed in relation to the withdrawal, recall, inspection, repair, replacement or loss of use of the Products or any property of which such Products form a part, if such Products or property are withdrawn from the market or from use because of any known or suspected defect or deficiency therein;
6.14.4Property Damage to the Products if such damage is attributable to any defect in them or to their harmful nature or unsuitability, other than those Products repaired, serviced or treated by the Insured after such Products were originally sold, supplied or distributed, however this Exclusion 6.14.4 shall be restricted to the defective or harmful or unsuitable part of the Product and shall not apply to Property Damage to the remainder of such Product or Products.

Clause 7 of the CGU Policy detailed some general conditions. Clause 7.3 was in the following terms:

7.3 Precautions by the Insured
The Insured shall:
7.3.1take reasonable precautions to prevent or minimise liability and take reasonable measures to maintain efficient ways, works, machinery, fencing and plant and shall make reasonable endeavours to comply with all statutory obligations and regulations imposed by any authority for the safety of persons or property;
7.3.2at its own expense, take reasonable action to trace recall or modify any of the Products containing any defect or deficiency of which the Insured has knowledge or has reason to suspect, including (but not limited to) any Products subject to Government or statutory ban.

‘Endorsements to the Policy’ were addressed in clause 8 and the Schedule, although given the limited issues for determination and the parties’ absence of reference to or reliance upon the endorsement terms, these need not be further elaborated upon.[17]
[17]Including the CGU Products Recall Expense Endorsement, which was not considered by the parties to be germane to the issues under consideration and was limited to $250,000 in any event. Further, endorsements 8.1 and 8.2 were recorded in the CGU Policy schedules as being ‘Not Applicable’.

Principles of Construction and Some Related Observations

There was common ground between the parties regarding the proper approach to questions of construction, the onus of proof,[18] and ascertaining the nature of a claim made against an insured in respect of which indemnity is sought.
[18]Subject to one matter relating to clause 6.11.2 regarding who bore the onus to address any issue of ‘disentanglement’ between products that were not contaminated and those that were. As stated later in these reasons, given the conclusions reached regarding the exclusions in clauses 6.14.3 and 6.14.4 it is not necessary to address this issue.

As to the principles of interpretation applicable to a policy of insurance, the parties referred to various statements from well-known authorities, with particular references including the observations of Gleeson CJ in McCann v Switzerland Insurance Australia Ltd,[19] and the observations regarding exclusion clauses in Darlington Futures Ltd v Delco Australia Pty Ltd.[20] As the parties observed, these matters were helpfully referred to by Hargrave J in Metricon Homes Pty Ltd v Great Lakes Insurance (Metricon Homes),[21] in a manner that is convenient to set out:
[19](2000) 203 CLR 579 (Gleeson CJ).
[20](1986) 161 CLR 500 (Mason, Wilson, Brennan, Deane and Dawson JJ).
[21][2017] VSC 749 (Hargrave J).

Applicable principles of interpretation
34.It is necessary to construe the relevant provisions of the policy in accordance with the general principles to be applied in giving commercial contracts a businesslike interpretation. The principles were summarised by French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd in the following terms:
Applicable legal principles in these appeals
The rights and liabilities of the parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.
Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption ‘that the parties … intended to produce a commercial result’. Put another way, a commercial contract should be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.

35.To this summary, I would add that the Court should have regard to all of the words used in the agreement ‘so as to render them all harmonious one with another’ and to ensure the ‘congruent operation of the various components as a whole.’
36.Further, the issues in this case include the interpretation of exclusion clauses. The principles stated in Darlington Futures Ltd v Delco Australia Pty Ltd apply to such the clauses. The High Court stated that:
The interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity.

37.The Court does not strain to find ambiguity in exclusion clauses. It is only appropriate to apply the contra proferentem principle when ambiguity remains after applying accepted principles of contractual interpretation.

I refer also to the observations of the Court of Appeal regarding the principles applicable to the construction of commercial contracts in Adaz Nominees Pty Ltd v Castleway Pty Ltd,[22] and the observations of the Full Court of the Federal Court of Australia in Swashplate Pty Ltd v Liberty Mutual Insurance Company trading as Liberty International Underwriters.[23] With respect to the question of ambiguity and when resort may be had to surrounding circumstances I also refer to the observations of Riordan J in Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd[24] and Jacobs Group (Australia) v Commonwealth of Australia.[25]
[22][2020] VSCA 201 [70] (Whelan JA and Riordan AJA) and [254] (McLeish JA). See also [71] and [106]–[119] (Whelan JA and Riordan AJA) and [263]–[283] (McLeish JA) regarding terms implied in fact and those implied at law.
[23][2020] FCAFC 15 (Besanko, McKerracher and Colvin JJ). See also Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522, (15)–(16).
[24][2020] VSC 126 (Riordan J).
[25][2020] VSC 127 at [29(f)] and footnote 17 (Riordan J).

Entyce and CGU each referred to the need to consider and identify the nature of the relevant claim/s made against an insured and submitted that the correct approach was that taken by Pagone J in Major Engineering v CGU Insurance Ltd (Major Engineering).[26] I respectfully agree that the approach described by Pagone J is generally appropriate, noting also that questions of fact and degree are involved and each case is necessarily fact dependent. In Major Engineering, Pagone J said, in the context of the circumstances of that case, as follows:
[26][2009] VSC 504 (Pagone J), [5]–[6], citations omitted, noting also that this was not criticised on appeal.

5. … Each party sought to obtain support from the way in which the claim was asserted in various places, including the pleadings …, observations by the trial judge and by the judges of the Court of Appeal, and submissions by counsel at various stages in the proceeding both orally and in writing. Determining a claim by recourse to such material may be instructive but may equally be distracting. In McCarthy v St Paul International Insurance Co Ltd Stone J said:
At an early stage of any complaint a claim may be inarticulately expressed as a general assertion of the insured’s responsibility for a disadvantageous position of the claimant. By the time of attempted vindication in court, the claim may be the subject of sophisticated alternative or cumulative foundation and expression in pleadings drafted by learned and skilled lawyers.

To this may be added such words of caution as that observations in judicial pronouncement in the proceeding will not have been made with an eye to whether a claim fell within the terms of an insurance policy which, in many instances, will not be relevant or in evidence during the dispute. Care should also be taken in relying too much upon the linguistic way in which a claim may be couched by an adversary for various reasons including the temptation for claims to be couched as widely as possible in the interests of a plaintiff. In extreme cases a claim could, conceivably, be couched in language intended to expose a defendant to the risk that the claim as expressed might not engage a legal costs clause thereby seeking (perhaps inappropriately) to expose a defendant to a particular forensic disadvantage for the purpose of promoting settlement.
6.Whether Timelink’s claim against Major fell within the legal costs clause of the insurance contract between Major and CGU depends upon the proper construction of the terms of the policy, an adequate identification of the claim and an evaluation of whether the claim falls within the terms of the policy as properly construed. In that regard it has been said that neither the actual facts nor the particular formulation of the claim are determinative. It is the true nature of the claim that must be considered and for that purpose it is necessary to make such inquiry as is necessary. In undertaking the task of construing and applying the terms of a contract, it is always essential to bear in mind that what is to be determined is whether the intention of the parties as revealed by the insurance contract was to cover the particular claim which the events gave rise to.

Both parties contended that, ordinarily, the onus is on the insured to prove the reasonableness of any settlement relied upon by an insured. In the present case this need not be further explored because CGU accepted at trial that the settlement between Entyce and Patties, as reflected in the Settlement Deed, was reasonable.

Each of Entyce and CGU submitted and agreed that the onus of proof or ‘risk of non-persuasion’ regarding the application of an exclusion clause relied on by an insurer rests with the insurer, although there was a point of difference in relation to what was described as the ‘disentanglement’ issue regarding the exclusion in clause 6.11.2, which is not necessary to address. It was also common ground between the parties that the onus in respect of reliance on a proviso or ‘carve out’ to an exclusion generally rests with an insured who seeks to rely on it, although Entyce did not ultimately press any of its defences based upon provisos to or carve outs from any of the exclusions and no more need be said or explored on this topic.

Is CGU’s Obligation to Indemnify Entyce Excluded by Clause 6.14.3?

Clause 6.14.3 relevantly excludes an obligation to indemnify Entyce in respect of its liability for

the cost of or damages claimed in relation to the withdrawal, recall, inspection, repair, replacement or loss of use of the Products or any property of which such Products form a part, if such Products or property are withdrawn from the market or from use because of any known or suspected defect or deficiency therein;

Entyce’s Submissions – Clause 6.14.3

Entyce contended that the exclusion in clause 6.14.3 did not engage and that it was entitled to be indemnified in full, submitting also that the indemnity amount was not in contention because the liability was established by the Settlement Deed and no point had been taken regarding the reasonableness of the settlement.

Entyce placed emphasis on the language of ‘recall’ and submitted that an exclusion of the kind in question ‘… classically pertains only to the direct costs of recall and not a loss in value of recalled product …’. In oral submissions it was contended that ‘recall’ was the operative word in circumstances where it was said to be common ground that there was a recall and withdrawal of the Products from the market.

Although Entyce acknowledged that the words ‘in relation to’ had a ‘bridging effect’ of wide import and were to be construed as such, it was submitted that the reference to damages ought to be construed as being confined to damages being claimed for the ‘cost’ or ‘expense’ of the recall, or withdrawal, and not any broader loss or damage.

It was submitted that the reference to ‘damages claimed’ in the exclusion should be closely related to the use of the ‘Products’ and would not be found to extend to claims for general losses incurred by Patties, such as for business interruption or loss.

Entyce acknowledged that the clause under consideration in Siegwerk Australia Pty Ltd v Nuplex Industries (Australia) Pty Ltd and QBE Insurance (Australia) Ltd v Nuplex Industries (Australia) Pty Ltd (Siegwerk)[27] was construed more broadly by the Full Federal Court to apply to losses flowing from the recall but submitted that there was no detailed criticism of the reasoning of Gray J at first instance where his Honour confined the clause in question to the direct costs of recall. It was contended that the analysis and reasoning of Robertson J in Siegwerk (with whom Perram and Dodds-Streeton JJ agreed) was not sufficiently thorough or strong and effectively recorded no more than unreasoned conclusions on the point in question. It was also said that the decision in Siegwerk had been the subject of critical observations by the authors of Sutton on Insurance Law.
[27][2013] FCAFC 130, 305 ALR 412 (Perram, Dodds-Streeton and Robertson JJ).

Notwithstanding the conclusion reached by the Full Federal Court in Siegwerk, it was submitted that the reasoning of Gray J ought to be preferred and that this court was not bound by the Full Federal Court decision in any event, noting that the language of the clause in question was different to that which was being considered in Siegwerk.

Reliance was also placed on the decision in Foodpro National Inc v General Accident Assurance Co of Canada, (Foodpro),[28] although it was properly recognised that the clause there in question was in different terms and being considered in a different context. Entyce confirmed that despite extensive research, such endeavours had not uncovered a case involving an exclusion clause in the same terms as are here under consideration.
[28](1986) 33 DLR (4^th) 427 (Ontario High Court of Justice). Upheld on appeal in Foodpro International Inc v General Accident & Assurance Co of Canada 1988 63 OR (2d) 288 (Foodpro 2).

At a broader level Entyce submitted that if the exclusion was engaged as alleged by CGU it would be uncommercial because if an insured discovered an issue warranting a recall after Products were in the market, the engagement of the exclusion would act as a disincentive to recalling dangerous or suspect goods from the market because that would result in the exclusion engaging. In this context it was submitted that any recall would effectively be a ‘fortuity’ for the insurer. It was also submitted that such a construction would render the policy inutile, or essentially so.

It was common ground between the parties that no temporal issue arose and that the knowledge or suspicion referred to in the exclusion clause could arise at any time before the recall or withdrawal from market or use.

Entyce submitted that if its submissions were upheld then the clause held no ambiguity, but if that were not to be the case, then the debate itself revealed that the clause was ambiguous and it submitted that contra proferentem principles should apply. Entyce also submitted that the circumstances were unusual because the damage to the berries had occurred in China prior to them being in the possession of Entyce.

Entyce also submitted that the exclusion could not engage because ‘CGU had not identified which losses fall under what head’.

CGU’s Submissions – Clause 6.14.3

CGU submitted that the language of the exclusion plainly addressed the very losses that were the subject of Patties’ claim. It submitted that the expression ‘in relation to’ was a wide or broad connective term and effect should be given to it in this way. It was contended that when regard is had to the nature of Patties’ claim and the loss claimed it is clear that the liability in respect of which indemnity was sought is excluded by the clear terms of clause 6.14.3.

Emphasis was placed upon the damages claimed by Patties relating to the withdrawal, recall and loss of use of the Products, and the Products being withdrawn from the market and from use because of known or suspected defects or deficiencies. This was said to be supported by, among other things, the true nature of the claim, and the described nature of the loss and damage claimed as referred to in the pleading and the second Crawford Report.

Although it was recognised that each case depends upon its own facts and that neither party had located a case involving an exclusion clause in exactly the same terms as that in question, CGU relied on the Full Federal Court’s decision in Siegwerk.[29] It was submitted that Siegwerk involved a materially narrower exclusion clause than clause 6.14.3 in circumstances where the Full Court overturned the finding of Gray J at first instance that this more narrowly expressed exclusion should be confined to recall and withdrawal related expenses only, and held that this narrower clause excluded broader loss and damage relating to the loss of use of the Products. CGU further submitted that Entyce’s criticisms of the reasoning in Siegwerk were harsh and without foundation.
[29][2013] FCAFC 130, 305 ALR 412 (Perram, Dodds-Streeton and Robertson JJ).

CGU further submitted that Entyce’s position had a heavy emphasis on only that part of the exclusion that addressed recall and cost, and effectively ignored much of the remaining language of the clause, including the references to damages, withdrawal, and loss of use of the Products. It was submitted that the Products were recalled and withdrawn, and their use was lost, because of a known or suspected defect or deficiency, being not only the Virus contamination of some berries, but the suspicion of other berries being contaminated, and also the risk of contamination and the associated risk of causing illness or death. These were, so it was contended, known and suspected defects which caused the recall and withdrawal from market and use, and the loss of use of the berries.

It was further submitted that it could be seen by reference to Patties’ Statement of Claim, the particulars of loss, and the second Crawford Report that all of the loss claimed was captured by the terms of the exclusion in clause 6.14.3.[30]
[30]One example referred to was the Administrative charges referred to in the loss particulars and the detail regarding the same in the second Crawford Report revealing that they were charges levied by Woolworths, Coles and Metcash for recall events.

Insofar as Entyce relied upon the decision of the Ontario Court of Appeal in Foodpro,[31] CGU emphasised the different terms of the clause in question and the limited assistance to be gained by other cases involving different clauses, facts and circumstances at different times. Reference was also again made to the broader approach taken by the Full Federal Court in Siegwerk to what was said to be a narrower clause than clause 6.14.3.
[31]1986 33 DLR (4^th) 427.

At a broader level, CGU submitted that its interpretation sat comfortably with the accepted principles of construction and that it could not at all be said that such a construction would be uncommercial or remove the insuring clause of utility. It contended that if the exclusion did not engage then that would bring about an unintended and uncommercial consequence, contending that the cover provided by the CGU Policy was not intended to amount to an underwritten quality warranty or guarantee of the Products themselves that would result in an insured being indemnified for its defective products that it supplies or manufactures. It further stated that the exclusion engaging in the present circumstances did not stop the indemnity clause operating in respect of Property Damage caused to other property by an Occurrence in connection with the Business or the Products, and that it was wrong to suggest that the exclusion ‘robbed’ the policy of utility. This position was also said to be consistent with the ‘no refund’ exclusion in clause 6.14.2.[32]
[32]Which was not an exclusion ultimately relied upon.

Disposition – Clause 6.14.3

There was no issue between the parties that Entyce had a legal liability to pay Patties in respect of ‘Property Damage’ (within the meaning of that expression in clauses 1.1 and 4.19 of the CGU Policy) occurring within the Geographical Limits of the CGU Policy during the Period of Insurance as a result of an Occurrence happening in connection with Entyce’s Business or Products. In this context the parties were rightly conscious of the wide definition of ‘Property Damage’ and that it also extended to the ‘loss of use’ of ‘tangible property’ in the ways described in each of clauses 4.19.1 and 4.19.2. The parties also agreed, correctly, that both the contaminated frozen berries and those that were suspected or at risk of being contaminated were ‘tangible property’.

Entyce’s legal liability to pay was established by the settlement the subject of the Settlement Deed, which by the time of trial CGU accepted was a reasonable settlement, meaning that ultimately the issue of reasonableness did not need to be agitated or determined. That was an appropriate position for CGU to take given the circumstances.

The issue therefore is whether CGU’s obligation to indemnify Entyce is excluded by clause 6.14.3, which requires consideration of whether Entyce’s liability was for

the cost of or damages claimed in relation to the withdrawal, recall, inspection, repair, replacement or loss of use of the Products or any property of which such Products form a part, if such Products or property are withdrawn from the market or from use because of any known or suspected defect or deficiency therein.

Mindful of the principles and observations earlier referred to, and taking into account the terms of the CGU Policy, the evidence, and the submissions of the parties, I have concluded that the exclusion in clause 6.14.3 applies and therefore CGU was not required to indemnify Entyce in respect of its liability to Patties under the Settlement Deed. It follows that CGU did not breach the terms of the CGU Policy by refusing to do so.

It is apparent from the terms of Patties’ Statement of Claim, Entyce’s amended defence to that claim, and the Settlement Deed that the true nature of the claim against Entyce was a damages claim in relation to the withdrawal, recall, and loss of use of the Products,[33] including damages for costs associated with the recall. I refer, for example, to: the accepted broad operation and bridging effect of the connective term ‘in relation to’;[34] paragraphs 8 to 17 of Patties’ Statement of Claim; the particulars of loss and damage referred to above; and recital J and clauses 2 and 3 of the Settlement Deed. Noting the wide definition of ‘Products’ in the CGU Policy, this remains the position if each berry or packet of berries is considered to be a Product, if all of the berries are considered to be ‘property’ of which individual berries form part, or each packet of berries is considered to be property of which individual berries in each packet form part.[35]
[33]Being the contaminated and non-contaminated berries, including the Stored Products.
[34]Which Entyce correctly acknowledged is of wide import and ought to be construed as such.
[35]Or any other variation or permutation, including by reference to consignments or invoices.

Before turning to consider the second part of clause 6.14.3, I should say that I do not accept Entyce’s submission that the language in the first part of the clause should be construed in a way that reads it down or narrows its operation so as to confine it to only what were described as direct costs or expenses of or associated with the recall. I also do not accept the submission that ‘recall’ is to be regarded as the operative or dominant word in the clause. To so construe this part of the language of the clause offends established principles of construction in various ways, but primarily because it ignores plain words of the clause and does not construe it in its natural and ordinary meaning read in the light of the contract as a whole.

The ‘recall’ of the Products[36] is only one of the specified events or circumstances that the costs of, or the damages claimed need to relate to, in order to engage the first part of the clause. There are other separate events and circumstances that will engage the first part of the exclusion in the clause where the insured’s liability is for costs of, or damages claimed in relation to, one or more of them. Those additional events or circumstances are:
[36]Or any property of which such Products form part. See clause 6.14.3.

(a) withdrawal of the Products; [37]
[37]Ibid — which is also the case in respect of the Products mentioned in the sub-paragraphs that follow.

(b) inspection of the Products;

(c) repair of the Products;

(d) replacement of the Products; or

(e) the loss of use of the Products.

There is in my view no legitimate basis for seeking to construe these separate events as being in some way being confined or narrowed only to ‘recall’ or even withdrawal or recall. So to do is to ignore the plain language and structure of the clause so as to construe it as saying something materially different to that which it says in plain terms. So much is clear from the natural and ordinary meaning of the words used, and no ambiguity of the kind sought to be raised exists.

Similarly, there is no legitimate basis for construing the words ‘Liability for the cost of or damages claimed in relation to …’ as operating only in respect of costs or expenses and not damages, or for construing such words as relating only to the claimed ‘operative word’ of ‘recall’ — or even recall or withdrawal. That is not what the clause says, which, as CGU submitted, is evident from its terms. The language used consciously distinguishes between claims for the ‘costs of’ the various specified events and circumstances, and claims for ‘damages in relation to’ the same specified events and circumstances. So much is further underscored by the use of ‘or’ in this part of the clause, and the varying events that will trigger its engagement. This conclusion also sits harmoniously with the terms of the CGU Policy as a whole, including, for example, the chapeau to clause 6 of the CGU Policy where ‘costs and expenses’ are also expressed as a separate and distinct concept.

Although Entyce spent some time addressing the Full Federal Court’s decision in Siegwerk and the first instance decision of Gray J,[38] this does not aid its position. First and foremost this is because it is necessary to look to the terms of the clause in question in this case, not that which has been decided elsewhere in different circumstances. It is sufficient to observe that Siegwerk involved a different clause, in different terms, in a different context, with a different structure, and which employed language that did not include the word ‘damages’ and was not framed by reference to ‘damages claimed in relation to’ specified events. The clause in Siegwerk was headed ‘Product Recall’, the language was different, and it was framed by reference to ‘Claims arising out of or resulting from any loss cost or expense incurred by You for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of Your Products …’.[39] The case also involved markedly different factual circumstances.
[38]Visy Packaging Pty Ltd v Siegwerk Australia Pty Ltd and others [2013] FCA 231 (Gray J).
[39]The clause in question in that case was clause 3.17 of the relevant policy and is set out in Siegwerk at [118]. The clause under consideration in this case (clause 6.14.3) was part of clause 6.14 which is headed ‘Products and Work Performed’. Clause 5.1 of the CGU Policy recorded that headings are for ease of reference only, not deemed to form any part of the context, or to affect the interpretation of the policy. For the avoidance of doubt they have not been taken into account when construing the CGU Policy in this case.

Further, although in Siegwerk the primary judge construed the words ‘loss cost or expense incurred by You’ in the relevant exclusion narrowly and concluded that the exclusion was directed only to the expenses of the process of withdrawal from the market or from use, and not the loss of value of the property itself, that finding was unanimously overturned on appeal.[40] Consequently, if the decision is to be regarded as assisting in the construction exercise, Siegwerk supports rather than detracts from the conclusion reached. I add that I do not share the view expressed by senior counsel for Entyce that the result reached in Siegwerk was not sufficiently or well-reasoned, observing further, with respect, that Robertson J’s commendable succinct expression of his reasoning on this point does not detract at all from its force.
[40]Robertson J (Perram and Dodds-Streeton JJ agreeing).

The brief observations of Professors Enright and Merkin in Sutton on Insurance Law[41] on Siegwerk also do not advance the position of Entyce. This is not only because of the matters just referred to, but because the focus of the brief observations is not relevantly directed at matters that can materially relate to (if at all) how a clause in the terms of clause 6.14.3 might be construed or operate. I add that this is not a criticism of the authors. The brief observations they made were directed towards a different matter.
[41]Fourth Edn, [23.1430].

As CGU submitted, it is also the case that the decision of the High Court of Ontario in Foodpro[42] does not assist the position of Entyce or aid the consideration of the construction and operation of clause 6.14.3 of the CGU Policy. Foodpro involved two different exclusion clauses, each in different terms, in a different context, with a different structure and language to clause 6.14.3 of the CGU Policy. Neither of the clauses used the word ‘damages’ or were framed by reference to ‘damages claimed in relation to’ specified events, and each used different language to that under consideration.[43] Further, in Foodpro it was concluded that the language of the exclusions was limited to the expenses and claims arising when the property was withdrawn from the market or use and not the damages for the destruction or loss of the property itself, which sits in some tension with the conclusion reached by the Full Federal Court in Siegwerk where arguably more narrow language was being considered. To the extent that tension exists I prefer, with respect, the reasoning and conclusion of the Full Federal Court.
[42]33 DLR (4^th) 427. Upheld on appeal in the short judgment in Foodpro 2.
[43]Foodpro at 6–7. The exclusion in the ‘General policy’ referred (in part) to ‘expenses incurred for the withdrawal, inspection, repair, replacement or amounts claimed for the loss of use of products …’. The exclusion in the ‘Guardian policy’ referred in part to ‘claims or expenses in connection with the withdrawal, inspection, repair, replacement or loss of use of [Foodpro’s] product or work completed by or for [Foodpro] …’.

In any event, given the different policy under consideration here, and the different language, context, facts and circumstances, I do not consider the reasoning in either case to be of material assistance to the task at hand, namely, the proper construction and operation of clause 6.14.3 of the CGU Policy in the circumstances of the present case. In so concluding I am also conscious that neither the parties nor the court’s research to date has unearthed a case with a clause in the same terms as clause 6.14.3.

To the extent that it was submitted that the ‘damages claimed’ in the clause need to be closely related to the use of the Products, that submission does not relevantly assist Entyce. For this first part of the clause to be engaged, the ‘damages claimed’ need to be ‘in relation to’ one or more of the events and circumstances earlier referred to, which includes but is not limited to recall. As I have explained, the terms of Patties’ Statement of Claim and the Settlement Deed make plain that the damages claimed were in relation to (at least) the withdrawal, recall and loss of use of the Products.[44] Further, even if upon the proper construction of the exclusion such a ‘use connection’ had been required, so much is established in any event.
[44]Or any property of which such Products form part.

For completeness I add that there does not exist any relevant ambiguity that would warrant employing contra proferentem principles. And even if relevant ambiguity was assumed to exist, it would not lead to a construction of the kind contended for by Entyce given the clear language and structure of clause 6.14.3.

I turn now to the second part of the exclusion in clause 6.14.3, namely, whether ‘… such Products or property [were] withdrawn from the market or from use because of any known or suspected defect or deficiency therein’.[45] In my view it has been established that they were, and subject to one matter to which I shall come regarding the meaning of ‘defect’, Entyce understandably did not focus its contentions on the inapplicability of this part of the exclusion, as was reflected in its written submissions, supplementary written submissions, and the substance of its oral submissions.
[45]See the full terms of clause 6.14.3 above. No temporal issue arose in relation to the timing of the knowledge required with the parties sharing common ground that the knowledge or suspicion could arise at any time before the recall, or the withdrawal from the market, or the withdrawal from use.

Patties’ claim was for damages claimed in relation to the withdrawal, recall and loss of use of the Products[46] where the Products[47] were withdrawn from the market and were withdrawn from use. So much is apparent in the circumstances and from Patties’ Statement of Claim, Entyce’s amended defence to that claim, the terms of the Settlement Deed, the agreed facts and the Crawford Reports, and it was not submitted otherwise. It was also apparent from the evidence that at the time the berries were withdrawn from the market and from use[48] this occurred because some berries were known to have been contaminated with the Virus and that the other berries from the same source were suspected or at risk of having been.
[46]Or any property of which the Products formed part if one were to characterise the berries as part of ‘property’ comprising packets, consignments or batches of berries.
[47]Or property — see clause 6.14.3 above.
[48]By return to Entyce in part and disposal of those that Entyce did not collect.

Consequently, a question for consideration is whether known contamination of berries by the Virus is a ‘defect or deficiency’ in the Products.[49] The answer to that question is yes. That is, known contamination of the berries by the Virus is both a ‘defect’ and ‘deficiency’ in them.[50]
[49]Or the property of which they formed part.
[50]Ibid.

For present purposes it is not necessary to seek to address what might or might not be the outer boundaries of these terms, noting also that there would be limited utility in seeking to do so given that in each case it is necessary to consider and construe the terms in the context of the relevant facts and circumstances. The berries were intended for human consumption and many were in the market with others waiting to be put into the market by Patties. Having regard to the natural and ordinary meaning of the terms ‘defect’ and ‘deficient’, it cannot be meritoriously contended that berries intended for human consumption that are contaminated by the Hepatitis A virus are not defective or deficient. One clear reason that such berries are defective or deficient is because they are not fit for human consumption by reason of their contamination by the Virus. Another is that they present a health risk to consumers. It will be recalled in this context that Patties alleged, and Entyce understandably admitted, that the consumption of food products that are contaminated with the Hepatitis A virus can cause illness, serious illness or death.

That being so, and because the berries were withdrawn from the market and withdrawn from use because some were known to have been contaminated by the Virus and it was suspected that others may have been, and were at risk of having been, it is evident that they were withdrawn from the market and from use because of a known or suspected defect and deficiency. To this I would add that in the circumstances of this case, and noting that the Products were intended to be sold and were being sold for human consumption, of itself the risk of the berries being contaminated constituted a known defect or deficiency in them in any event.

I do not consider there to be any relevant persuasive force in Entyce’s contention that it was an ‘odd situation’ because the berries had been contaminated at their source in China, even if (and whether or not) that occurred before any title or possession passed to Entyce. That does not in any way alter the construction or operation of the exclusion, or operate as a factual matter that would make it inapplicable.

To the extent it was submitted that for the exclusion to apply any defect or deficiency must have been ‘inherent’, and that any defect or deficiency was not inherent because it was passed on through a human source in China (or elsewhere) before receipt by Entyce, I do not accept those submissions. First, the clause refers to defect or deficiency and does not use the word ‘inherent’. Second, there is no warrant for injecting into the plain language of the clause an additional limiting and somewhat uncertain qualifying criterion. Third, to do so is to depart from the established principles of construction that require the clause to be given its natural and ordinary meaning. Fourth, it is far from clear on Entyce’s submissions as to what would be encompassed by an ‘inherent’ defect and what would not be. Fifth, to so qualify the words ‘defect’ and ‘deficiency’ is to introduce ambiguity.[51]
[51]I refer also to the observations below regarding ‘inherent’ defect in the context of the submissions made by Entyce regarding the exclusion in clause 6.14.4.

Further, even if the expression ‘defect or deficiency‘ was to be read as though it was qualified by the word ‘inherent’, I would have determined that no different result follows. That is because if berries intended for human consumption were infected with the Virus prior to being supplied to Entyce or to Patties,[52] such berries can be regarded as being inherently defective or deficient.
[52]Or suspected or at risk of being so contaminated.

It follows from the above that the exclusion in clause 6.14.3 applies, CGU was not obliged to indemnify Entyce under the CGU Policy, and CGU has not breached the terms of that policy by refusing or failing to do so.

It will be apparent from the above that I do not consider that the other submissions made by Entyce materially aid its contention that the exclusion in clause 6.14.3 does not apply. I elaborate briefly regarding these additional matters below.

I do not accept the submission that Entyce’s position ought to be preferred because it may discourage insureds from recalling products because conducting a recall would result in the exclusion applying and excluding cover. This contention was linked to Entyce’s submissions regarding narrowing the construction of the first part of the exclusion to confine it to costs and expenses associated with recall only. I have not accepted those submissions and there is no basis for construing the clause as though it relates only to recall or withdrawal. In any event, the CGU Policy and exclusions are to be construed having regard to the principles earlier referred to, which has occurred, and leads to the result reached. Further, it is not the position that this or any other exclusion terms of an insurance policy should be construed by reference to a broad unfounded assumption that insured persons will fail to act lawfully, appropriately or responsibly by recalling products when appropriate or required so as to avoid the effect of an exclusion. I add that if a valid basis for construing an exclusion was that an insured might organise its affairs to avoid it being engaged, similar reasoning could be applied to many exclusions. I also do not accept that this is a ‘fortuity’ for CGU. It is a consequence of the proper construction of the clause to the particular facts and circumstances of this case. Such a construction does not render the CGU Policy inutile, as the terms of the insuring clause reveal.[53]
[53]See clause 1 of the CGU Policy.

The contention that there was no logical connection between the recall and the damage is also of no assistance to Entyce. Having regard to the way the claim was framed and the loss and damage claimed, there was in my view a clear and logical connection between the damage claimed and the recall — as there was between the damage and the withdrawal from the market, the withdrawal from use, and the loss of use, of the Products. Further, and as I have said, for the exclusion to engage the damages claimed had to be in relation to one or more of the separate events and circumstances specified, and in this case they were — namely, recall, withdrawal, and loss of use.

Finally, I do not consider there to be persuasive force in Entyce’s submission that the exclusion does not apply because ‘CGU has not identified which losses fall under what head’ of the exclusion, or because it has not addressed each claimed loss separately.[54] As was submitted by CGU, it is apparent that the damages claimed were ‘in relation to’ one or more of the recall, withdrawal, or the loss of use of the Products,[55] and that there was extensive and at times complete overlapping. It is also to be recalled that the Settlement Sum was materially lower than the aggregate of the claimed amounts.[56] I refer in this context to my earlier discussion of Patties’ Statement of Claim and the Settlement Deed. I also refer to the content of the Crawford Reports raised by CGU.[57] That being so it is not in the circumstances of this case necessary to seek to atomise what loss relates to each head of the exclusion clause relied upon, or the precise extent of the overlap between them.
[54]Entyce written submissions [41], which was also elaborated upon in oral submissions.
[55]Or any property of which they formed part.
[56]See the particulars of loss and damage in paragraph 10 above.
[57]See, for example, the second Crawford Report at paragraphs 3.3 to 3.53.

And even if that had not been so, in this case the position is relevantly affected by the terms of the Settlement Deed. This is because Patties abandoned and agreed not to pursue damages claims in respect of the loss items in paragraphs (i) to (xii) of its particulars to paragraph 20 of Patties’ Statement of Claim, and that the damages component of the Settlement Sum ($3,850,000) was in respect of Patties’ loss of earnings claimed to have been suffered by Entyce’s breach of contract, and the balance of $150,000 was in respect of legal costs in respect of that claim.[58] It is in my view clear that these claimed damages for which Entyce was liable were damages claimed in relation to one or more of the recall, withdrawal, or loss of use of the Products,[59] and that there was extensive and at times complete overlapping between them. That is a further reason why it is not necessary in this case to seek to identify which losses fall under which ‘head’ of the exclusion in clause 6.14.3, or specifically address each head of loss referred to in the way suggested by Entyce. Again, it is also to be recalled that the Settlement Sum was less than the amounts claimed.[60]
[58]See clause 3 of the Settlement Deed above.
[59]Or any property of which they formed part.
[60]Including the amount claimed for loss of earnings. See paragraph 10 above.

The parties agreed that if the primary liability in respect of which indemnity was sought was excluded then so was Entyce’s liability under the Settlement Deed to pay $150,000 to Patties for costs. Consequently, this matter need not be further addressed.

Is CGU’s Obligation to Indemnify Entyce Excluded by Clause 6.14.4?

Clause 6.14.4 of the CGU Policy relevantly excludes an obligation to indemnify Entyce in respect of its liability for

Property Damage to the Products if such damage is attributable to any defect in them or to their harmful nature or unsuitability, other than those Products repaired, serviced or treated by the Insured after such Products were originally sold, supplied or distributed, however this Exclusion 6.14.4 shall be restricted to the defective or harmful or unsuitable part of the Product and shall not apply to Property Damage to the remainder of such Product or Products.

Entyce’s Submissions – Clause 6.14.4

Entyce denied that this exclusion was engaged and succinctly stated its position in written and oral submissions. It focussed on the language of ‘defect’ and contended that upon its proper construction the exclusion clause only engaged where there existed an ‘inherent defect’ in the Products and not damage to the Products by what was described as an ‘external force’. In this context Entyce again referred to what it contended were the ‘unusual’ circumstances of the case given that the contaminated berries were contaminated by the Virus in China ‘by an external force’ and not an ‘inherent defect’.

In addition, reference was made by Entyce to the decision in Ranicar v Frigmobile Pty Ltd (Ranicar)[61] in connection with the ordinary meaning of the phrase ‘damage to’ goods and the ‘notion of property damage’.[62] However, Entyce was properly conscious of the fact that ‘Property Damage’ was broadly defined in clauses 4.19.1 and 4.19.2 of the CGU Policy in the way earlier referred to and that ‘Property Damage’ in clause 6.14.4 includes ‘loss of use of tangible property which has not been physically injured, damaged or destroyed provided such loss of use is caused by an Occurrence.’
[61](1983) 2 ANZ Ins Cas 60-525 at 78000.
[62]Entyce’s supplementary outline of submissions dated 15 July 2020.

Entyce did not contend that there had not been a loss of use of berries (either those known to be contaminated or those suspected or at risk of being so), or that the loss of use of the berries was not caused by an Occurrence. It also accepted that the berries were tangible property.

CGU’s Submissions – Clause 6.14.4

CGU submitted that the exclusion in clause 6.14.4 was concerned with whether there was Property Damage to the Products attributable to any defect in them or to their harmful nature or unsuitability.[63] It referred to aspects of the definition of Property Damage, emphasising that Property Damage expressly included ‘loss of use’ pursuant to what was described as the second limb of the definition in clause 4.19.2.
[63]Putting to one side the provisos and carve outs, which Entyce did not seek to rely upon.

It was submitted that the Property Damage definition was applicable to the Products, (which so it was said necessarily included the berries known to have been contaminated and those suspected or at risk of being so), each having suffered ‘loss of use’ by reason of defects, their harmful nature, and their unsuitability. CGU further submitted that all of the frozen berry products were ‘defective or harmful or unsuitable’ because of the unacceptable health risks associated with them.

It was submitted that the word ‘defect’ was an unambiguous word and not qualified in the way suggested by Entyce, whether expressly or impliedly. CGU contended that Entyce’s submission that the Virus contamination was caused by an external force in China and that therefore there was nothing defective about the berries until this external effect occurred did not assist them, and that the attempt to materially qualify the clause was an unsustainable restriction on its plain language. CGU also contended that, even if the Products were assumed for the purpose of argument not to have been the subject of a defect (which was denied), they were plainly the subject of damage by reason of either their harmful nature or their unsuitability for consumption.

CGU further contended that, insofar as it was ‘argued unconvincingly’ by Entyce that the Property Damage was not attributable to a ‘defect’ or even to their ‘harmful nature’, it would be of no assistance to Entyce in any event because it would remain the case that Property Damage (by way of loss of use) was attributable to the Products’ unsuitability for human consumption.

Disposition – Clause 6.14.4

I refer first to the observations in paragraphs 59 and 60 above made in the context of clause 6.14.3, but which are equally relevant here.

Noting that Entyce understandably did not seek to rely upon the provisos or carve outs to the exclusion in clause 6.14.4,[64] the issue is whether CGU’s obligation to indemnify Entyce is excluded by its terms, which requires consideration of whether Entyce’s liability was for ‘Property Damage to the Products [where] such damage is attributable to any defect in them or to their harmful nature or unsuitability …’.
[64]Which were part of the clause (as set out earlier).

Mindful of the principles and observations referred to above, and having regard to the terms of the CGU Policy, the evidence, and the submissions of the parties, I have concluded that the exclusion in clause 6.14.4 also applies. Consequently, even if the exclusion in clause 6.14.3 had not applied, CGU was not required to indemnify Entyce in respect of its liability to Patties under the Settlement Deed. Again it follows that CGU did not breach the terms of the CGU Policy by failing or refusing to do so.

It was common ground that the contaminated berries and those that were suspected or at risk of being so were Products, that they were tangible property, and that ‘Property Damage’ was widely defined in clause 4.19 and means:

4.19.1physical injury or damage to or physical loss of or destruction of tangible property including loss of use at any time resulting therefrom;
4.19.2loss of use of tangible property which has not been physically injured, damaged or destroyed provided such loss of use is caused by an Occurrence.

It was also common ground that Patties had lost the use of all of the berries, and so much was established in any event. As earlier addressed, it was also established that Patties’ claim related to the loss of use of the contaminated berries and those that were suspected or at risk of being so. I again refer to Patties’ Statement of Claim, Entyce’s amended defence to that claim, the terms of the Settlement Deed, the agreed facts, and the Crawford Reports.

For the reasons earlier stated, I have concluded that known contamination of the berries is a known defect and deficiency in them.[65] For the same reasons, such contamination makes the berries ‘defective’, ‘harmful’ in nature, and ‘unsuitable’ within the meaning of those expressions as used in clause 6.14.4. They are not fit for human consumption by reason of contamination by the Virus and they present a health risk to consumers. It was common ground that consumption of food products contaminated with the Hepatitis A virus can cause ‘illness, serious illness or death’.[66]
[65]See paragraphs 77–82 above.
[66]See Pattie’s Statement of Claim at [8] and Entyce’s admission in its amended defence to that claim at [8].

With respect to the berries that were not positively known to be contaminated but were considered to be at risk of being so, I have earlier concluded in the context of clause 6.14.3 that this contamination risk of itself means that the berries were defective and deficient. In the context of clause 6.14.4, the existence of this risk also meant that there was a ‘defect’ in them and that they were ‘unsuitable’. Again, that is because they carried a risk that they were infected, which made them not fit for human consumption and presented a consequent health risk to consumers.

The question remains as to whether Entyce’s liability was for ‘Property Damage’ where such damage ‘… is attributable to any defect in them or their harmful nature or unsuitability …’.[67] Again the answer to that question is yes.
[67]See the opening part of clause 6.14.4 above.

With respect to the berries known to have been contaminated with the Virus, it is in my view plain that this constitutes damage to the berries, being tangible property. This sits comfortably with the observations in Ranicar relied on by Entyce that ‘damage to’ goods prima facie means ‘… a physical alteration or change, not necessarily permanent or irreparable, which impairs the value or usefulness of the thing said to have been damaged.’[68] In my opinion it cannot be sensibly contended that berries intended for human consumption that have been infected by the Hepatitis A virus have not suffered damage.[69]
[68]At 60-525 (Green CJ).
[69]I did not take it to be submitted otherwise by Entyce, but if I am mistaken I do not accept that position.

Because the contaminated berries are tangible property and have suffered damage, they have been the subject of Property Damage within the meaning of clause 4.19.1. They also have suffered Property Damage under that limb of clause 4.19 because their use was lost by reason of that damage.

Even if these conclusions were incorrect, it would remain the case that there was Property Damage to the contaminated berries and to the other berries considered to be at risk of contamination but which were not positively known to be. This is because of the second limb of the definition of Property Damage in clause 4.19.2, which covers loss of use of tangible property which has not been physically injured or damaged or destroyed provided that such loss of use was caused by an Occurrence. There was no issue between the parties regarding the question of an Occurrence and it was well established that Patties had suffered the loss of the use of the berries — both those known to be contaminated and those suspected or at risk of being so.

Given the above, it is also established that the liability of Entyce was for ‘Property Damage’ to the Products attributable to a defect in them and to their unsuitability, noting that the claim related to the loss of the use of the berries as earlier referred to.[70]
[70]I also refer to the observations made in paragraphs 87 and 88 above.

It will be apparent from the above that I have not addressed the exclusion in clause 16.4.4 on the basis that it is to be read as being qualified by a requirement that the defect or harmful nature be ‘inherent’. For the same reasons as those referred to in relation to clause 6.14.3, I do not accept Entyce’s submission that the word ‘defect’, or the words ‘harmful nature’[71] are to be construed as though they are qualified by the criterion of the condition being ‘inherent’. The clause does not say so and there is again no warrant for injecting into the plain language of the clause this additional limiting and somewhat uncertain qualifying criterion. To do so would also involve departing from the established principles of construction that require the clause to be given its ordinary and natural meaning. It would also involve the introduction of some ambiguity, noting again in this regard that it was not clear from Entyce’s submissions what would relevantly qualify as an inherent defect or as being inherently of a harmful nature.[72] Further, even if I was wrong about this aspect, no different result would follow in the circumstances of this case. This is because if berries intended for human consumption were infected with the Virus or at risk of being so, such berries can be regarded as inherently defective and inherently unsuitable.
[71]Or the word ‘unsuitability’, although the submission was not put with force in relation to this term.
[72]Or unsuitable.

The exclusion in clause 6.14.4 applies, CGU was not obliged to indemnify Entyce under the CGU Policy, and CGU has not breached the terms of that policy by refusing or failing to do so.

Is CGU’s Obligation to Indemnify Entyce Excluded by Clause 6.11.2?

The exclusion in clause 6.11.2 relevantly excludes an obligation to indemnify Entyce in respect of its liability for

‘The loss of use of tangible property which has not been physically injured, damaged or destroyed which results from:
…
6.11.2the failure of the Products to meet the level of performance, quality, fitness or durability expressly or impliedly warranted or represented by the Insured. However this does not apply to loss of use of other tangible property resulting from the sudden, unexpected and unintended physical injury to or destruction of the Products after such products have been put to use by any person or organisation other than the Insured.

Having regard to the conclusions reached in relation to the applicability of the exclusions in clauses 6.14.3 and 6.14.4, it is not necessary to determine this issue. Although it is tempting to do so in deference to aspects of the submissions made, given the issue raised regarding onus of proof[73] and that it was seen by the parties as, at least in part, a matter of principle, I have concluded that it is preferable to refrain from addressing it here.[74] This will allow for the issue to be considered in an appropriate case in future where it can be more fully explored and argued.
[73]In connection with what was described as ‘disentanglement’ in the context of clause 6.11.2.
[74]But noting, as did CGU, the persuasive force of the reasoning of Hargrave J in Metricon Homes at [186]–[196].

Conclusion and Proposed Orders

Entyce’s liability to Patties under the Settlement Agreement is excluded from cover under the CGU Policy by clauses 6.14.3 and 6.14.4 of that policy. CGU was not obliged to indemnify Entyce in respect of that liability and it did not breach the CGU Policy terms by failing or refusing to do so.

I propose to order that Entyce’s third party claim against CGU be dismissed.
I will hear from the parties in relation to costs.

(i)	Administration charge	$854,013
(ii)	Advertisements of the recall	$196,576
(iii)	Call centre costs for the recall	$198,591
(iv)	Communication consultant costs for the recall	$136,942
(v)	Disposal costs at store level	$597,788
(vi)	Dumping costs	$38,478
(vii)	Freight costs	$36,190
(viii)	Professional technical and scientific advice on the recall	$10,200
(ix)	Social media costs for the recall	$24,920
(x)	Product testing costs associated with the recall	$227,322
(xi)	Warehousing costs associated with the recall and withdrawal	$57,030
(xii)	Inventory disposed of	$825,432
(xiii)	Loss of earnings	$4,490,544

[2020] VSC 757

17 November 2020