Four Seasons Jewellers Pty Ltd v Assetinsure Pty Ltd
[2012] NSWDC 112
•03 August 2012
District Court
New South Wales
Medium Neutral Citation: Four Seasons Jewellers Pty Ltd v Assetinsure Pty Ltd [2012] NSWDC 112 Hearing dates: 23/4/12, 24/4/12, 26/4/12, 27/4/12, 30/4/12, 11/5/12, 1/6/12, 13/6/12 and 20/6/12 Decision date: 03 August 2012 Before: P Taylor SC DCJ Decision: 1. Judgment for the plaintiff in the sum of $84,881.13.
2. Order the defendant to pay the plaintiff's costs.
Catchwords: Insurance - indemnity denied - damages for breach of contract Legislation Cited: Insurance Contracts Act 1984
Insurance Contracts Regulations 1985Cases Cited: Four Seasons Jewellers Pty Ltd v Assetinsure Pty Ltd [2012] NSWDC 65
Gagner Pty Ltd (t/as Indochine Café) v Canturi Corporation Pty Ltd (2009) 262 ALR 691; [2009] NSWCA 413
The Barrington Services Group Pty Ltd v Bossy [2012] NSWDC 82Category: Principal judgment Parties: Four Seasons Jewellers Pty Ltd (plaintiff)
Assetinsure Pty Ltd (defendant)Representation: Mr T Boyd with Mr J Cairn (plaintiff)
Mr J Poulos QC (defendant)
Herbert Weller (plaintiff)
Hicksons Lawyers (defendant)
File Number(s): 2011/152514 Publication restriction: No
Judgment
A. Introduction
Paul Hanna is a jeweller. On 18 January 2010 two men masked by balaclavas followed him into his store, held a gun to his head and robbed him of much of his stock.
A few weeks earlier he had taken out an insurance policy. There was no dispute that it covered loss by armed robbery. But the records kept by Mr Hanna were poor and the insurer denied indemnity.
These proceedings concern whether, and how much, the insurer must pay Mr Hanna's company.
B. Background
Mr Hanna is the director and sole shareholder of Four Seasons Jewellers Pty Ltd ("Four Seasons"), the plaintiff in these proceedings. From 5 November 2008 Four Seasons conducted a jewellery business.
Some of the stock for Four Seasons' business came from a business conducted by Mona Bennett-Parizian, trading as Sparkling Jewellers. Mr Hanna, formerly known as Boghos Parizian, is married to Ms Bennett-Parizian and they have a child, although at various times they have had difficulties in their relationship, have separated and contemplated divorce. Mr Hanna referred to Ms Bennett-Parizian as his "former wife" which is not correct. The present state of the relationship is variable and somewhat uncertain, although it was used by both parties in the proceedings to buttress their respective cases.
Mr Hanna assisted Ms Bennett-Parizian in her jewellery business from 2003 to 2008. She had no prior experience as a jeweller and little experience in business, whereas Mr Hanna was an experienced jeweller and small businessman.
The insurer contended that Sparkling Jewellers was really the business of Mr Hanna, or at least a partnership, and that Mr Hanna understated his involvement because he had a financial interest in receiving no income. The insurer asserted that Mr Hanna had a compensation claim that was pending, and his level of compensation would be benefited by a lower income.
I do not think much turns on this issue. The tax returns of Ms Bennett-Parizian indicate that she was the owner of the business, and that Mr Hanna was not paid by the business. However, I find that Mr Hanna did assist Ms Bennett-Parizian in the business, sometimes substantially, using his jewellery and business experience, and perhaps also contributing stock to the business from jewellery stock that he previously possessed. Mr Hanna and Ms Bennett-Parizian were free to arrange their affairs as they chose, within the law, and if Mr Hanna provided a lot of unpaid work in Ms Bennett-Parizian's business, as I find to have occurred, perhaps coupled with some support, financial or otherwise provided by Ms Bennett-Parizian to Mr Hanna, then that was a choice open to them.
However, the matter became more complicated in about November 2008. Mr Hanna and Ms Bennett-Parizian were having marital difficulties. They entered into a signed agreement to separate their assets. The terms of that agreement were as follows:
AGREEMENT made between Paul Hanna and Mona Parizian made at Rouse Hill on Wednesday, 5th November 2008.
This is to certify that both parties agree to a split of assets as follows:
- Mona to keep the family home and it's contents.
- Paul to take over the business situated at 194 George Street Windsor along with fittings, tools and jewellery.
- Both parties to keep their own vehicles and personal belongings.
Neither party to have any further claim on the other.
[signature] 5th Nov 08
Mona Parizian Date
[signature] 5/11/08
Paul Hanna Date
[signature] 5th November 2008
Witness Date
[underlining indicates handwriting]
The insurer contended that this agreement was a sham, on the basis of its assertion that Ms Bennett-Parizian always owned the home, and Mr Hanna always owned the jewellery.
I do not accept this submission, for two reasons.
First, the tax returns establish that Ms Bennett-Parizian's business owned stock. Perhaps this stock was only part of the jewellery stock owned by Mr Hanna and Ms Bennett-Parizian, a matter that is of some significance and is dealt with below. But it is clear that Ms Bennett-Parizian was forgoing any ownership in, any claim of ownership in, the jewellery and the assets of the jewellery business.
Secondly, although prior to the agreement Ms Bennett-Parizian was the sole owner of the home (subject to a mortgage) that of course did not preclude Mr Hanna from making a claim in family law proceedings for some interest in the house. It is common knowledge that married couples, perhaps especially those with children, often have property interests in the family home altered at the conclusion of their relationship. By the agreement, Mr Hanna was foregoing any such claim.
No issue was raised in the proceedings about whether the agreement was effective in family law proceedings. I, therefore, make no findings about that issue. But I proceed on the basis, in accordance with the way these proceedings were conducted, that from the date of the agreement Mr Hanna owned all the jewellery and Ms Bennett-Parizian retained the family home.
As part of the process leading to the agreement between Mr Hanna and Ms Bennett-Parizian, a stocktake of Sparkling Jewellers was undertaken. The evidence included a detailed schedule dated September 2008, which purported to be the written record of that stocktake.
The schedule comprised 23 pages and contained various columns. It is headed "Sparkling Jewellers Stocktake" and dated "September 2008".
The headings for the various columns were respectively: "Item", "Carat Weight", "Code", "Details", "Weight (gms)", "No. stones", "Stone $", "9 Ct gold", "18 Ct gold", "Silver", "Total Cost", "Retail Price", "Necklace", "Bracelet", "Earrings", "Ring", "Pendant" and "Other".
Most of those headings are self-explanatory. There were Item numbers from 3 to 903. The Carat Weight was commonly 9 but sometimes 18. The "Code" identified the type of item, the "Details" column was often blank but sometimes described the item, the Weight indicated the number of grams, the columns for the Number of Stones and "Stone $", indicated the number and value of the stones in the item, and the remaining columns contained the value of the item in the appropriate columns, for example, a 9 carat gold necklace would have a value in the "9 ct gold", "Total Cost", "Retail Price" and "Necklace" column. The "Retail Price" was invariably twice the "Total Cost".
The schedule comprised three spreadsheets, each with totals at the foot of the columns containing values. The final three pages were three copies of a summary recording the totals of each of the three schedules.
One other feature of significance was that a number of items had been ruled through from one side of the page to the other. Other items were ruled through but only to the entry "Total Cost", not completely across the page. The latter items were often accompanied by a tick. Mr Hanna gave evidence (T57-58) that when he sold the item he marked it with a tick, but that the ruling through occurred after the robbery at the request of the insurer, to distinguish sold items (those partially ruled through) and items retained after the robbery (those ruled though completely) from those that were stolen (unmarked).
Mr Poulos QC, who appeared for the insurer, objected to the tender of the schedule. Mr Boyd, for Four Seasons, pressed the tender, but did not seek to rely upon it as evidence of the value of the items. I admitted the schedule as a record of the business, but not as evidence of the value of the items. Mr Boyd relied on the schedule as evidence of the cost to Four Seasons of the jewellery. This was a matter of some importance because of the "Basis of Settlement of Claims" term of the policy, which is quoted at [33] below.
Mr Hanna gave evidence that from November 2008 he conducted his jewellery business, placing a tick against items on the schedule after items were sold (T57-58, 197/25 but cf 197/6).
The process of dealing with items purchased after November 2008 was not so well recorded. Although Mr Hanna retained some invoices recording jewellery purchases no invoices were retained where all the items on the invoice had been sold. Mr Hanna gave evidence that those invoices were provided to his accountant to be used to prepare his tax returns, and were thereafter destroyed.
Mr Hanna claimed that he retained only those invoices which were said to refer to items unsold as at the date of the robbery. These invoices were unmarked as at the date of the robbery. Mr Hanna marked the invoices at some time after the robbery in an attempt to indicate which items on the invoice were sold and which were unsold.
Thus, the evidence of stock purchased after November 2008 and held at the time of the robbery is unsatisfactory.
On 9 December 2009, a little over a year after taking over the jewellery business, Mr Hanna completed a "Jewellers Block Insurance Proposal" with GENESIS Insurance Brokers Australia. The proposal noted that the business was a retail business and that Mr Hanna "also makes his own jewellery for retail". The proposal recorded that the business had been in operation for six years, and a similar business had operated for 15 years. The premises were noted to be occupied at night by Mr Hanna "sometimes".
The stock values on the proposal were written in and lined through a number of times. Ultimately, figures of $225,000 for stock, $10,000 for money and $50,000 for giftware and the like prevailed. The form also noted $140,000 personal jewellery of Mr Hanna, but this was lined through. The form noted that no changes were expected during the next twelve months.
The original of the proposal, presumably filled out by the broker, was forwarded to Mr Hanna on 11 December 2009. The proposal was signed by Mr Hanna on Wednesday, 13 January 2010, and a policy including the certificate was issued. The period of insurance was 9 December 2009 to 9 December 2010.
The policy wording in evidence contained two policy schedules attached, indicating two premiums. One of the schedules noted an excess of $1,000 for "burglary, theft, hold-up or robbery", whereas the other noted a number of sub-limits, and an excess for glass of $1,000 and "All other losses $500". In both schedules the sum issued for stock was $225,000. Neither party submitted that anything turned on the different schedules.
The policy wording noted the insured as "Paul Hanna T/As Four Seasons Jewellers P/L".
Under the policy "Indemnity" is defined as:
Indemnity means the cost of replacing, repairing Insured Property to a condition that is substantially the same as but not better than the condition of the Insured Property immediately prior to any Loss or Damage.
Under the policy section headed "The Cover" the following clause is written:
NOW THIS POLICY WITNESSES that, if at any time during the said Period, the Property Insured or any part thereof shall be lost, destroyed or damaged by any Insured Peril, the Insurers will, to the extent and in the manner hereinafter provided, indemnify the Insured in respect of such physical loss or damage not exceeding the respective Limits of Liability or applicable Sub Limits of Liability, all as detailed under the coverage Sections 1, 2 and 3 of this Policy.
Section 1 of the policy deals with insurance for stock, and contains the following clauses:
Basis of Settlement of Claims:
If any stock or merchandise is destroyed or damaged settlement will be negotiated on the Basis of Settlement shown on the Schedule or if no Basis of Settlement is shown then historical cost price as evidenced by the insured's books kept in the normal course of business.
...
3. Hold-up or Robbery Limit
The Insurer's Liability under Section 1 in respect of loss or damage to Property Insured by robbery when the Insured's Premises are open for business or when the Insured or any of the Insured's employees (other than security personnel) are present at, or in attendance at the Insured's Premises shall not exceed the Sub Limit of Liability for Hold Up/Robbery as stated in the Schedule.
...
No sub-limit for Hold-up/Robbery is stated in the schedule.
There is an exclusion, more properly a limit, under the section "Property being worn":
5. Property being worn:
Loss of or damage to Property Insured whilst that Property Insured is being worn (except watches worn solely for the purpose of testing) or used by the Insured, any principal, director or partner of the Insured, any family member or relative of the foregoing or friend of an employee of the Insured or whilst in their custody for this purpose except property not exceeding $5,000 in all at any one time whilst the same is being worn or used by any of the said persons.
There is also a terrorism exclusion, but the policy schedule refers to the premium being "inclusion of terrorism component", so I infer that the exclusion is inapplicable. In any event, the insurer did not rely upon this exclusion.
The policy wording also contained the following conditions:
1. Stock Records Clause:
It is a condition under this Insurance that in the event of a claim being made under this Policy, the Insured shall provide Insurers or their representatives with all available information including documentary evidence, whether these be official or unofficial, of all purchases, sales and other transactions of insured stock. This information will be utilised by Insurers or their representatives to assist in quantifying the amount of loss claimed.
In the event that the information provided does not satisfactorily substantiate the quantum claimed, insurers shall be liable only for the amount of claim accounted for. Any settlement beyond this figure shall be solely at the discretion of insurers. Unless otherwise endorsed herein.
...
5. Fraudulent Claims:
If any claim under this Policy is made fraudulently or if any further means or devices are used to obtain any benefit under this Policy or in the event that any loss, destruction, damage or liability is occasioned by the wilful act or connivance of the Insured or responsible employee(s), as regards amount or otherwise, the Policy shall become null and void and all claims hereunder shall be forfeited.
...
12. Maintenance of records:
It is a condition precedent to the liability of the Insurers under this Policy that the Insured, shall keep detailed records of all sales, purchases and other transactions, and that such records shall be available for inspection by the Insurers or their representative in case of a claim being made under the Policy.
....
16. Goods and Services Tax (GST)
The premium on this Policy includes an amount for GST.
When We pay a Claim, Your GST status may determine the amount paid on the Claim.
You must advise Us if You are or are required to be registered for GST purposes. Also, You must, when requested, tell Us what Your entitlement to input tax credits (ITCs) is for Your premium on this Policy.
When determining the amount to be paid for a Claim under this Policy, any payment or supply We make to You for the acquisition of goods, services or other supply (including any monetary compensation) or otherwise concerning Your Claim will be calculated on the GST inclusive cost of Your Claim. In calculating such payment, We may reduce it by any ITC which You are, or would be, entitled to:
a) for the acquisition of such goods, services or other supply; or
b) had the compensation been used to acquire such goods, services or other supply.
However, the total of all payments We make to You will not exceed the Sum lnsured, limit or sub limit of liability, or other monetary limitation.
The Sums Insured, limits and/or sub limits of liability, or any other monetary limitations are inclusive of any taxes, levies, duties or charges that they payment would be affected by or subject to.
If you make a Claim and We are obliged by law to withhold any amount from the payment in order to satisfy that law (for example, because You have not provided Your ABN where required to do so), the amount withheld will be treated as forming part of the Claim payment paid to You under this Policy (even though You have not received the withheld amount).
...
18. Misrepresentation
If You:
a) failed to disclose any matter which You were under a duty to disclose to Us; or
b) made a representation to Us before this Policy was entered into;
and if We would not have entered into this Policy for the same premium and on the same terms and conditions expressed in this Policy but for that failure to disclose or that misrepresentation, then Our liability for any Claim will be reduced to an amount that places Us in the same position We would have been in if the non-disclosure had not occurred or the misrepresentation had not been made.
But if the non-disclosure or misrepresentation was fraudulent, We may avoid this Policy.
19. Other Interests and Joint Insureds
You must give Us notice in writing of anyone who has an interest in the Policy or the Insured Property if You want their interests covered under the Policy. Those other parties are bound by the terms and conditions of the Policy and are included in the expression "You" as defined in this policy. You must also give Us notice in writing as soon as practicable of any other insurance or insurances which might provide insurance for the Insured Property. If you do not give Us notice in writing of any person's interest, then that person will not be covered by this Policy and that person cannot make a claim under this Policy.
...
23. Co Insurance
This condition applies to a Claim if:
a) There is Loss or Damage to Insured Property to which this Policy applies; and
b) The Sum Insured for the Insured Property in the Policy Schedule is less than 80% of the total value of all property of the same type as the particular Insured Property owned by You at the Situation, whether insured under this Policy or not (the total value).
The amount payable by Us for the Claim will be reduced so that We will be liable for no greater proportion of the Loss or Damage than that which the Sum Insured bears to the total value.
Total value is calculated by applying the relevant basis for settlement which would otherwise be applied to the lost or damaged Insured Property, to all property of the same type as the particular Insured Property owned by You at the Situation, whether insured under this Policy or not.
This condition shall not apply if the amount of the Loss or Damage does not exceed five per cent (5%) of the amount of the Sum Insured for the Insured Property in the Policy Schedule.
On Monday, 18 January 2010, five days after the proposal was signed, the robbery occurred.
Mr Hanna gave an account of the robbery. A police report was also in evidence. Except for the extent and value of the stolen stock, the insurer did not challenge this evidence.
The police report recorded the events as follows:
...
About 8.30-35am Monday the 18th of January, 2010 the victim HANNA arrived at the premises and proceeded to unlock the roller shutter and then the front door. He entered and immediately commenced to turn off the alarm via keypad from the customer area.
At this time he saw the two poi's within the store and POI 1, held a pistol to the right rear [illegible] neck and then held his head with left hand. POI 1 said, "Don't do any fucken stupid moves or I'll blow your fucken head". HANNA said, "Just calm down I'll do anything you want".
POI 1 said, "Just go straight to the safe" and directed HANNA at gun point through the store to the back room, touching his back with the pistol. Once they reached the safe, POI 1 said, "You've got three seconds to open the safe".
HANNA then unlocked the safe via keypad and POI 1 said, "Empty that fucken blue box into the bag" HANNA then picked up a blue plastic tub from within which contained around 140-150 gold/diamond rings and tipped it into the bag held by POI 1. POI 1 then pushed him out of the way and onto the floor and proceeded to point the [illegible] HANNA saying, "You better stay there". POI 1 then emptied the contents of the safe which contained assorted gold jewellery (the entire shops display stock valued at $350,000) into the bag. The jewellery was contained in 22 burgundy timber display trays with white leather inserts. POI 1 then took hold of HANNA's heavy gold necklace from around his neck valued at $30,000 and ripped it off. POI 1 then passed the bag over the counter to POI 2 and then they both left the shop. HANNA suspects they went right, towards the mall but can't confirm this.
HANNA the activated his panic alarm and shortly after got up and went outside and spoke with another shop owner. During this time Police received a phone call from an anonymous male [illegible] a phone box on George Street a short distance away alledging [sic] to have witnesses two males in blalclava's [sic] enter the store, followed by the alarm response from Security Monitoring. Shortly after Police arrived at the location and spoke with HANNA. He was distressed and a red mark was observed on the back of his neck from his necklace being ripped off.
A canvass was conducted, NO CCTV was identified in the vicinity or within the jewellery store.
NO witnesses were identified, at the time there were few shops open, but some general pedestrian and vehicular traffic. NO person came forward indicating that they had made the call from the public phone nearby.
Statement was obtained from HANNA at Windsor Police Station and his injuries photographed. HANNA could not identify the offenders and suggested that he may have been targeted as a result of recent incidents where he was contacted by phone and demands for money made to him. This matter is being investigated by Detectives at Windsor.
At this time, HANNA is to provide Police with documentation in relation to the jewellery stolen and confirm if he is insured. HANNA also indicated that he recently seperated from his wife .
Enguiries are continuing in order to corroborate the allegations made by HANNA.
During the afternoon of 18/01/10 a further canvass of the surrounding businesses was conducted in order to identify cctv footage relevant to the incident. No cctv depicting the jewellery shop or public phone box was identified. It was established that there were a small number of perdestrians in the vicinity at the time of the incident, but no actual witnesses. A witness identified from cctv footage from the nearby Riverveiw shopping centre was spoken to as he had walked passed the jewellery store around the time, but had not seen the incident. The tobacconist from across the road, nominated by HANNA as speaking to him as he opened the store, did not witness the incident either.
...
Mr Hanna signed a claim form on 8 February 2010. The summary of the robbery was generally consistent with the police report although the claim form indicates entry "front and back" by the robbers, which is not disclosed in the police report. The property listed in the claim form was $327,461 for jewellery, $18,000 cash, and $61,900 for personal jewellery worn at the time of the robbery. The latter two items were not claimed in these proceedings. Thus, the claim was for $327,461 jewellery, although it was common ground that the relevant limit on insurance was $225,000.
Some documents in respect of the lost jewellery were attached to the claim form. The $327,461 claimed comprises of $49,210.79 for items purchased since the schedule was prepared, together with $278,251.10 for items recorded on the Sparkling Jewellers stocktake schedule. Invoices for items purchased since the schedule was prepared (that were part of the claim) were attached to the claim form.
On 26 May the insurance investigator wrote to Four Seasons, attention Mr Paul Hanna, seeking to be provided with a number of documents. These were listed in categories. Mr Hanna provided a detailed handwritten schedule. The schedule largely replicated the September 2008 typed schedule, plus some further items attributable to the more recent purchases. The schedule recorded a "purchase price" and a higher "Amount Claimed". The purchase price was the same as the "Total Cost" referred to in the 2008 schedule, but the "Amount Claimed" was not double this figure, as was the Retail Price in the 2008 schedule. Rather the "Amount Claimed" was a sum which was 1.62 times the "purchase price". Mr Hanna gave evidence (T62) that this was the "wholesale price". No additional amount appeared in the "Amount Claimed" column in respect of the items purchased after the takeover of the Sparkling Jewellers business. The same bundle of invoices as accompanied the claim form was included with this handwritten schedule.
On 23 June 2010 Mr Hanna received correspondence from the insurer's claims officer as follows:
Dear Paul,
Re: Claim Number : CL1069
Date of Loss : 18/01/2010
Type of Loss : Armed Hold Up
I refer to the claim noted above.
I received an email from the insurer yesterday advising [sic., presumably "in" omitted] the event indemnity is available under the Policy (indemnity is yet to be determined pending information by Mr King), the co-insurance clause set out at section 23 of the Policy will apply to limit the amount of liability under the Policy. A copy of the policy wordings are attached easy reference (sic).
The Insurer was advised that you lost jewellery stock to the value of $389,631, however the Sum Insured for the Insured Property is $225,000. This equates to the Sum Insured of the Insured Property representing only 57% of the total value of all property of the same type. Accordingly, in the event that indemnity is available under the Policy, and the Insured can prove the loss, the Insured will only be entitled to a maximum of $130,020 (57% of $225,000) as a result of the application of the co-insurance provisions.
Once the Insurer receives the financial documentation and criminal history records from Mr King they will review and advise whether indemnity is granted.
Please call me if you have any questions or require assistance in the future.
Yours Faithfully,
Belinda Reid
Claims Officer
On 30 July 2010 the insurer's solicitor wrote to Mr Hanna in the following terms:
Dear Mr Hanna
Claim Notification by Four Seasons Jewellers - Armed Hold up 18 January 2010
We refer to the above matter and the claim notification received by CUA on 10 February 2010.
1 Claim
1.1 This is a claim for losses sustained following an alleged armed hold up at your business, Four Seasons Jewellery on 18 January 2010 (the incident).
1.2 You have made a claim under your Assetinsure Jewellers Block Multi Risk Policy (the Policy) in relation to the incident.
1.3 At this stage you have been unable to provide supporting documentation for the claim by way of invoices for jewellery purchased by you and records of your sales transactions. It is currently unclear what the total quantum of the claim is.
2 Factual circumstances
2.1 On Monday 18 January 2010 you estimate that you arrived at the front of your shop between approximately 8.30am and 8.35am. You state that you unlocked the small external security shutter to the pedestrian door and proceeded to unlock the front entry door. You left the front door open and proceeded to the alarm code pad. You state that you had disarmed the alarm when you felt a gun pointed at your head.
2.2 You advise that the offender told you to walk to the safe and open it. At this time you noted that there was another person standing at the front of the shop. You then proceeded to unlock the safe and empty its contents into a bag held by the offender. You state that a total of 15 trays full of stock were put in the offender's bag.
3. Indemnity
3.1 You have a Jewellers Block Multi Risk Policy numbered JB 201002-0108 CUA and JB 201002-0109 CUA with Assetinsure. It is the Jewellers Block Crime Policy numbered JB 201002-0109 CUA (the Policy) which is the policy relevant to this claim. The Policy is current from 9 December 2009 to 9 December 2010. The Insured listed on the policy schedule is Paul Hanna t/as Four Seasons Jewellers Pty Limited. The Occupation noted on the policy schedule is that of a retail jeweller and the situation of the risk is noted to be 194 Georges Street, Windsor, New South Wales. There are varying limits of liability under the Policy with the stock being limited at $225,000.
3.2 Section 1 of the Policy, which provides cover for stock, goods in trust, cash and negotiable documents, is the relevant coverage section. This section provides that Assetinsure will indemnify the Insured in relation to the physical loss, from any cause whatsoever, of stock and merchandise up to the applicable sub-limit of liability whilst such stock was at the Insured's premises.
3.3 We refer to condition 12 of the Policy which deals with the maintenance of records. This condition, which is a condition precedent to liability of Assetinsure, requires you to keep detailed records of all sales, purchases and other transactions in the event that a claim is made under the Policy. At this stage you have been unable to provide Assetinsure with these documents. Please note that on the basis that you have not complied with condition 12 of the Policy Assetinsure denies that it is liable to indemnify you in relation to the claim made as a result of the incident.
3.4 In addition to your failure to maintain proper records we also note that you reported to NSW Police on 20 November 2009 the use of two fraudulent credit cards to 'purchase' $24,150 worth of jewellery from your business on 17 November 2009 and extortion attempts in late 2009. We understand that you did not disclose these matters to you (sic.) when you were seeking cover for the business nor did you disclose it on the proposal form which you signed on 13 January 2010, some 5 days before the alleged armed hold up.
3.5 It is unclear to Assetinsure whether you made a claim in relation to the loss of the $24,150 worth of jewellery however, we note that on the proposal signed by you no disclosure was made of a claim or of the loss sustained by the business as a result of this event. Clearly, if a claim on any insurance policy was made in respect of this matter it should have been disclosed. Even where a claim was not made we note that the proposal form asks you to disclose any loss or damage sustained in the past 5 years. Accordingly it is our view that the loss of $24,150 worth of jewellery as a result of the use of fraudulent credit cards should have been disclosed whether a claim was made or not.
3.6 We are of the view that s 21 of the Insurance Contracts Act required you to disclose the use of the fraudulent credit cards, the subsequent loss suffered as a result of their use as well as the extortion attempts on the basis that it would have been relevant to CUA's decision regarding whether to accept the risk and if so, on what terms. Accordingly, please note that under s28 of the Insurance Contracts Act 1984 Assetinsure reduces its liability to nil for this claim on the basis that had you disclosed the extortion attempts it would not have written the risk. .
3.7 In the event that you disagree with Assetinsure's position, we invite you to make any submissions you may wish to make.
Yours faithfully,
Geoff Pike
Partner
Contact: Karen Kumar
Senior Associate
Thus, issues concerning maintenance of records in condition 12 and non-disclosure were raised, and liability was denied.
Mr Hanna, on behalf of Four Seasons, responded in writing on 2 August 2010. His detailed letter sought to answer matters in the 30 July 2010 correspondence, giving reasons why there was no non-disclosure or failure to provide documents.
On 6 August 2010 the insurer's solicitor responded. The letter adhered to the earlier decision of the insurer to deny indemnity on the basis of non-disclosure of the fraudulent use of credit cards, extortion attempts and the failure to maintain records. The letter also added a further ground, alleging a misrepresentation that insurance had not previously been declined.
The matter was reviewed by the insurer, which sent a further letter dated 16 September 2010. The insurer again refused to grant indemnity relying on a breach of condition 12 regarding failure to maintain records and the failure to disclose an extortion attempt, and offered an "ex gratia" payment of $30,000 conditional on the signing of a Deed of Release.
On 10 October 2010 a further lengthy letter was sent by Mr Hanna taking issue with the decision of the insurer.
The insurer responded on 14 October 2010, reiterating a reliance on condition 12 (maintenance of records) and the non-disclosure of the extortion attempt, and reiterated the same $30,000 settlement proposal. There was no acceptance by Four Seasons of this proposal.
C. The Proceedings
Proceedings were commenced by Four Seasons for damages for breach of contract by the insurer in refusing the claim under the policy. The loss and damage claimed was $388,631. This sum equalled the cost price of the jewellery stated in the claim form, including the personal jewellery worn at the time but not including the cash amount of $18,000 and deducting an excess of $1,000. No particulars of the sum of damage are provided, other than it is "the value of the goods stolen".
The insurer filed a very brief defence admitting the policy, not admitting the armed robbery or the damage, and denying that the insurer was in breach of the policy in denying the claims. No reference was made to non-disclosure or inadequate maintenance of records. It might be inferred that the insurer had decided to abandon these defences.
In any event, shortly prior to trial the insurer sought leave to file an amended defence raising issues of non-disclosure and inadequate maintenance of records but this application was unsuccessful. The application was renewed at trial and rejected (see Four Seasons Jewellers Pty Ltd v Assetinsure Pty Ltd [2012] NSWDC 65).
Further issue
Although the proceedings were commenced in the name of the company, Four Seasons Jewellers Pty Ltd, the insured on the policy was named as "Paul Hanna trading as Four Seasons Jewellers Pty Ltd". Further, one of the issues ventilated in the evidence concerned whether Paul Hanna owned some or all of the jewellery the subject of the claim. The proceedings as then constituted would not deal with any claim under the policy which may be maintained by Paul Hanna.
In order to avoid a possible multiplicity of proceedings, to ensure appropriate parties were joined, and to ensure that the Court could determine all the genuine issues in the dispute, the matter was re-listed to enable the parties to address the Court on this issue.
Initially, Four Seasons utilized this opportunity to seek to join Mr Hanna as a plaintiff to the proceedings. This may have removed any need for the Court to determine which of the jewellery was owned by Mr Hanna, and which was owned by Four Seasons. However, after certain matters were raised by the insurer, including the possibility of prejudice and a desire to apply to widen the scope of the defences, Mr Boyd of counsel appearing for Four Seasons and Mr Hanna, abandoned the application, acknowledging that Mr Hanna might face an Anshun estoppel argument in the event that Mr Hanna should in the future make a claim under the same policy.
Accordingly, no claim for loss was maintained by Mr Hanna personally.
The insurer did not contend that Four Seasons was not the insured under the policy. Nor did the insurer actively dispute the occurrence of the robbery. I find that the robbery occurred.
Issues
The issues raised by the proceedings are:
(a) What jewellery was taken in the robbery.
(b) Who owned that jewellery the subject of the robbery.
(c) What quantum of loss was Four Seasons entitled to be reimbursed under the policy.
Although Mr Hanna gave evidence that jewellery was taken in the robbery, the primary evidence for the precise jewellery taken is that contained in the stocktake schedule described earlier in this judgment.
The insurer challenged the probative value of the schedule. However, there was no evidence to counter the evidence of Mr Hanna and Mrs Bennett-Parizian, and the document itself, that the schedule was what it appeared to be, namely a record of the jewellery held as at September 2008. I accept the schedule for that purpose.
Four Seasons submitted that as a result of the separation agreement, the jewellery specified on the schedule was transferred from Sparkling Jewellers to Four Seasons, and the cost price shown on the schedule was the "historical cost price" to Four Seasons for the purposes of section 1 of the policy. There are a number of difficulties with this submission.
First, the separation agreement, to the extent that it transfers property or recognises ownership, vests that property in Mr Hanna, not in Four Seasons. In the absence of further evidence, the schedule neither proves the ownership of Four Seasons nor the cost to Four Seasons of the jewellery.
Secondly, Ms Bennett-Parizian was confronted with tax returns during her cross-examination. These returns showed a relatively small amount of closing stock of Sparkling Jewellery for the 2008 financial year, the sum of $48,872. This amount can be contrasted with the large amount of jewellery (at a cost price of $284,777.25) shown in the schedule resulting from the stocktake in September 2008. Ms Bennett-Parizian gave evidence in re-examination to explain this difference. She testified that most of the jewellery on the stocktake belonged to Mr Hanna, and therefore the stock of Sparkling Jewellers was limited:
Q. You've been asked a number of questions about tab A which is before you. You mentioned in answer to a question from my learned friend that something happened in relation to the stock numbers, could you tell the Court what happened, please?
A. Yes, I do. This document was put together for the purpose of our splitting assets. The jewellery that Paul had when he came into the marriage did not all go into my business. He still kept the more expensive items aside, especially since when I first started there was an armed robbery so they were not included. (T264/45 - 265/5)
...
Q. Before the break I was asking you some questions in relation to annexure A that you were shown and the stock numbers in your tax return. You said something happened. Would you explain to the Court, if you would, what happened?
A. This printed document you see of stock was put together for the purpose of our settlement our personal financial settlement. It was not all stock I personally had in the shop. Part of it was what Paul had from whatever previous times what he made in preparation for his take over, and it was certainly not a tax document. It was merely for us to work out how to do the split evenly, and that's why that was there. So that it just basically showed our assets, not my business' assets. (T268/25-35)
This was contrary to the evidence of Mr Hanna who testified that his jewellery was given to Sparkling Jewellers in 2003 (T215) and that the stocktake spreadsheet recorded all of Sparkling Jewellers' stock. In his affidavit, Mr Hanna deposed:
"7. When I took over the Sparkling Jewellers business from 5 November 2008 the cost of the stock transferred from Sparkling Jewellers to me was the cost value as set out in the stock spreadsheet."
Thus, Ms Bennett-Parizian's evidence explained her tax return, but it created other problems for Four Seasons. Her evidence and her tax returns suggested that the stocktake was not a record of the jewellery owned by Sparkling Jewellers nor did it record the property transferred to Four Seasons at the time of the separation. Rather, Mr Hanna had always owned a substantial amount of the jewellery recorded on the stocktake.
Thirdly, the evidence of Mr Hanna quoted above in [66] is to the same effect as the separation agreement, namely that the stock was transferred to him, not to Four Seasons.
Further, I was not comfortable relying upon the markings on the schedule as a record of the jewellery that was taken in the robbery. Although the items wholly ruled through may have been a proper record of the items that remained after the robbery, I was not satisfied that the items ticked (and subsequently partly ruled through) comprised a complete record of the items sold before the robbery. To do so would require me to conclude that the items were always ticked after a sale. Two matters indicated otherwise.
First, the exhibited copy of the schedule did not invariably display these ticks. I was unable to conclude whether that omission may have been due to poor photocopying.
More importantly, this method of ticking, or checking off, items in the schedule when they were sold was not replicated in respect of items purchased after September 2008 and sold before the robbery. There was no contemporaneous record made of those sales. No explanation was proffered for the differing treatment between items on the schedule and items purchased thereafter.
Accordingly, there was an absence of appropriate record keeping. I am not satisfied that all the items sold prior to the robbery were ticked. I think it likely, given the poor record keeping, that as at the date of the robbery some of the items may have been sold but not ticked so as to indicate a sale. It follows that the schedule was not a reliable record of the items, or even part of the items, taken in the robbery.
Moreover, as I indicated earlier, the evidence compels me to conclude that the schedule was a record of, or at least included, items which belonged not to Four Seasons but to Mr Hanna. The proposal form itself, it may be noted, indicated by the repeated deleted references to "his own personal jewellery $140,000" that a substantial amount of jewellery, perhaps to the value of $140,000, may have been owned by Mr Hanna personally.
In these circumstances, I was left to conclude that in January 2010 Mr Hanna controlled a substantial amount of jewellery, but there was no evidence of its value (the schedule not being evidence of value), and I was not satisfied of the particular items held. There was also no evidence that the jewellery on the schedule became the property of Four Seasons, there being no evidence of any transaction which led to Four Seasons obtaining ownership of the jewellery.
I have noted earlier that section 1 of the policy provided, under the "Basis of Settlement of Claims" clause, that settlement of a claim was to be "negotiated on...historical cost price as evidenced by the Insured's books kept in the normal course of business".
It was common ground that this clause stated the entitlement of Four Seasons to compensation for loss under the policy. The insurance clause provided for "indemnity...as detailed in the coverage sections" and this clause was contained in the relevant coverage section.
Accordingly, Four Seasons was entitled to "the historical cost price as evidenced in the Insured's books".
The evidence included some taxation records of Four Seasons, including a business activity statement ("BAS") of Four Seasons covering the December 2008 quarter. This statement covered a period including the date of the separation agreement, 5 November 2008, which, as I have noted above, was said by Mr Hanna to be the time when transfer of the jewellery from Sparkling Jewellery occurred.
On the occasion the matter was re-listed to consider the joinder of Mr Hanna, the parties were referred to these documents and made submissions in respect of them. The BAS lodged on 26 March 2009 and covering the October to December 2008 quarter (Ex 9, p 177) showed non-capital purchases of $111,494 of which (Ex 9, p 209) $104,242.83 was referable to stock purchases in that quarter.
The insurer submits that these documents have no relevance as they relate to a different company namely, Four Season Sign and Painting Pty Ltd. I do not accept this submission. The incomplete statement prepared on 29 January 2009 (Ex 9, p 194) contained this name, but the completed statement lodged on 26 March 2009 (Ex 9 - see also p 209) had Four Seasons' name, or at least the name I take to be equivalent to Four Seasons, namely Four Season Jewellry Pty Ltd. More significantly, the Australian Business Number ("ABN") of 80 122 210 824 was unchanged. I would infer that the corporate vehicle 80 122 210 824 had a name change from "Four Season Sign and Painting Pty Ltd" to "Four Season Jewellry Pty Ltd" in the latter part of 2008 after the settlement agreement when Mr Hanna took over the operation of Sparkling Jewellers.
The name of Four Seasons on the court documents is identical to the corporate vehicle referred to in the insurance policy. There is no evidence confirming whether this name is a mistake or is the correct name of "Four Season Jewellry Pty Ltd" as reflected in the 2009 financial documents, or whether the name of the corporate vehicle was changed again by the time of the proposal, policy and claim, each of which refer to "Four Seasons Jewellers Pty Ltd". In any event, no issue has been taken about the difference between "Four Season Jewellry Pty Ltd" and "Four Seasons Jewellers Pty Ltd", and I propose to proceed on the basis that Four Seasons, as named in the proceeding, is a name of the corporate vehicle with the ABN 80 122 210 824, which is the ABN reflected on all the documents to which I have been referred to in the evidence.
The 2009 tax return of Four Seasons was also in evidence and referred to in submissions. It indicated a closing stock of $375,244 (Ex 9, p 214). Much of this closing stock appears to have been derived from purchases of $289,915 made in the July to September 2009 quarter, according to the relevant BAS.
However, the reliability of these records was questioned because they were both created after the robbery. Nor was there any explanation for the significant purchases in the July to September 2009 quarter; no other records or invoices were tendered in support of this amount and it was inconsistent with the case presented by Four Seasons which relied predominantly on the purchase in September 2008 of the items or the stocktake schedule. I could not ignore that there was an incentive for Four Seasons to exaggerate purchases in two respects: it supported the claim against the insurer, and also purchases recorded on a BAS operated in favour of the taxpayer, entitling it to an input tax credit of one-eleventh of the purchases, and usually a substantial refund.
The insurer submitted that "Four Seasons has not discharged its onus of proof in relation to establishing what stock was present at the business on 18 January 2008, and the historical cost price of it". However, I have found that a robbery did occur and jewellery of Four Seasons was taken. It follows that, subject to the words of the policy, I must do my best to assess the level of the loss on the evidence, even if there is no clear evidence of a particular value.
In these circumstances, I propose to act upon the last record in evidence in the proceedings which was prepared prior to the robbery. That is, the BAS for the December 2008 quarter (Ex 9, p 177). As indicated above, it shows non-capital purchases of $111,494, and an accompanying summary table (Ex 9, p 209) indicates that this comprised $104,242.33 of stock. Sales for that quarter are shown as $41,478 inclusive of GST. The schedule indicates a mark-up of 100% (or gross profit on sales of 50%) thereby indicating that the cost of the goods which produced $41,478 in sales was 50% of this figure, or $20,739. On this analysis, $104,242.33 (cost of purchases) minus $20,739 (cost of sales) of stock remained from the December 2008 quarter, that is $83,503.33. The records do not indicate that closing stock remained from the September 2008 quarter (Ex 9, p 209).
This December 2008 quarter included the date of 5 November 2008 when the stock listed in the Sparkling Jewellers schedule was transferred under the separation agreement. I am satisfied that the whole or part of the Sparkling Jewellers' stock (perhaps with other stock) was acquired by Four Seasons at a cost of $104,242.33. Accordingly, I find that $83,503.33 of stock was held at the end of the December 2008 quarter and that this included whatever stock in the schedule was transferred to Four Seasons (and remained unsold).
There is no reliable evidence as to the extent of purchases and sales after this date, although there remained a further twelve months before the robbery. Doing the best I can do, I am prepared to infer that stock levels were at this same level on the date of the robbery. I have no evidence which persuades me of the contrary.
The insurer also contended that there was no "historical cost price as evidenced by the Insured's books kept in the normal course of business". Whether or not this matter was a pre-condition to recovery, I am of the view that it was satisfied here. I accept that the December 2008 BAS and the accompanying table prepared prior to the robbery are part of the "Insured's books kept in the normal course of business", and those two documents do evidence the "historical cost price" of the stock acquired in that quarter.
Mr Hanna testified that 95% of the stock on hand on 18 January was stolen (T205/28). I accept this evidence. 95% of the stock of $83,503.33 produces a cost value of the stolen stock of $79,328.16.
Accordingly, I find that Four Seasons is entitled to an award of $79,328.16 for the cost of Four Seasons' stock lost in the robbery. The precise jewellery taken in the robbery, and the ownership of the particular stolen items, are matters of which I am unable to be satisfied on the balance of probabilities. However, given the view I have taken of the matter, that is not fatal to Four Seasons' case.
Other issues
A number of other issues were raised by the parties. Four Seasons submitted that admissions were made in the pleadings by the insurer that Four Seasons is a beneficiary under the policy, and that indemnity is available. Neither of these admissions, even on the widest construction of them, concede the quantum of loss suffered by Four Seasons. Accordingly, I do not find a greater quantum of loss admitted by the insurer, and the pleadings do not operate to change my view of the amount of loss, determined previously in these reasons.
Four Seasons also relied upon "The Property Insured" clause of the policy, which provided:
The Property Insured:
Stock and merchandise (including sample cases) used in the conduct of the Insured's business and cash and negotiable documents, whether the property of the Insured or entrusted to the Insured for any purpose whatsoever.
Four Seasons submitted that "any stock found to be owned by Mr Hanna and used in the business was entrusted to Four Seasons by Mr Hanna" and that "this inference is irresistible from the evidence that the jewellery Mr Hanna owned was entrusted to Four Seasons for the purpose of sale from the business premises".
The particular evidence that leads to the "irresistible inference" was not identified by Four Seasons. I am unable to identify it. It seems to me somewhat artificial to assume that jewellery owned by Mr Hanna was entrusted to Four Seasons for sale. It seems more likely that Mr Hanna, if he did seek to sell his personal jewellery did so without "entrusting it" to his company or anyone else. I do not have any evidence that Mr Hanna's personal jewellery was sold, let alone sold "by the company".
Four Seasons also relies upon ss 16 and 17 of the Insurance Contracts Act 1984 (Cth). I do not see that those provisions entitle Four Seasons to recover for any loss suffered by Mr Hanna. Four Seasons submits that it suffered lost profit, being unable to sell Mr Hanna's stolen jewellery. Again, I am not persuaded of this principally because there was no evidence that persuaded me that Four Seasons at any stage sold Mr Hanna's personal jewellery, nor was there any evidence of an arrangement resulting in profits to the company if it did so.
Four Seasons has claimed interest under s 57 of the Insurance Contracts Act 1984 on the unpaid amount of loss from the date of the robbery to judgment. The insurer submitted that Four Seasons at no stage produced documents evidencing the proper quantum of the claim, and so it never became entitled to indemnity from the insurer.
Section 57 provides that interest is to be paid from the date "from which it was unreasonable for the insurer to have withheld payment of the amount". Interest runs until payment.
There is a difficulty in assessing the date from which the insurer acted unreasonably in withholding payment.
I have found that the December 2008 BAS and the accompanying summary table provide evidence of the quantum of loss. These documents were not provided to the insurer by Four Seasons but by Four Seasons' accountant after service of a subpoena in the proceedings. Neither party gave evidence of the date of production, but in any event, it must have been at some date after the commencement of the proceedings.
In these circumstances, the insurer was entitled to withhold payment until it received or was able to obtain the December 2008 BAS. I would infer that the insurer could not obtain that statement at least until after the commencement of proceedings.
Regulation 32 of the Insurance Contracts Regulations 1985 provides a formula for calculating interest under s 57 of the Act, by adding 3% to the 10-year Treasury Bond yield. Neither party has provided evidence of that rate. Nor can I determine the precise date when payment by the insurer will occur.
I propose to infer that the average 10-year Treasury Bond yield was 4% over the period since the proceedings commenced. This would produce an interest rate of 7%. I also propose to allow this rate for twelve months, being for the period from about three months after proceedings commenced until an anticipated payment date in August 2012.
7% of $79,328.16 is $5,552.97. Thus, the loss plus interest amounts to $84,881.13.
In accordance with clause 16 of the policy, quoted earlier, the insurer is obliged to pay the Goods and Services Tax ("GST") inclusive cost of the claim, but may reduce that amount by the value of any input tax credit to which Four Seasons may be entitled.
Neither party has addressed me on this matter. I have previously given a decision on the application of GST to damages awarded in a judgment (The Barrington Services Group Pty Ltd v Bossy [2012] NSWDC 82 at [108] - [115]). On the authority of the Court of Appeal decision in Gagner Pty Ltd (t/as Indochine Café) v Canturi Corporation Pty Ltd (2009) 262 ALR 691; [2009] NSWCA 413 at [147] - [159], an award of damages in a judgment is not, by itself, sufficient to attract GST. But as I indicated in the earlier decision (at [110]), if there is a sufficient nexus between a taxable supply and the payment of damages, the payment may be consideration for that supply and a GST liability would then arise (see the Australian Taxation Office Ruling GSTR 2001/4).
Four Seasons was entitled to an input tax credit on the insurance premium (Ex 9, 209) and received an input tax credit on the goods that were stolen (Ex 9, p178). So also an insurance payment in respect of the stolen goods is a taxable supply and would give rise to a GST liability.
It seems to me that there is a nexus between an insurance payment, which is subject to GST, and the damages awarded. The sum is identical, because the damages are calculated on the basis of the insurance entitlement. It follows that receipt by Four Seasons of the judgment amount would give rise to a liability to GST, and so the judgment sum should include an amount for GST.
Further, as indicated the insurer did not contend that it would, or would be entitled in the circumstances, to reduce the insurance liability by the value of any input tax credit.
As the loss calculated in [103] above is inclusive of GST (see [85] above) there is no need to adjust the amount.
The parties also made submissions on the application of the co-insurance provision in clause 23. This provision seems to me to have no application, since the Sum Insured significantly exceeds the total value of the property owned by Four Seasons at the time of the robbery, on my findings.
I turn to the question of costs.
The usual rule is that Four Seasons having succeeded is entitled to its costs. Such an order would of course be subject to any adverse order made in respect of particular costs in the proceedings. Neither party has submitted that the usual rule should not apply. Accordingly, I propose to order the insurer to pay the plaintiff's costs.
If either party wishes to make further submissions about costs, those submissions can be provided, in written form, maximum two pages, within seven days of this judgment. Any affidavit in respect of costs should be filed and served by the same date. Subject to that matter, I make the following orders.
D. Orders
1. Judgment for the plaintiff in the sum of $84,881.13.
2. Order the defendant to pay the plaintiff's costs.
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Decision last updated: 10 August 2012
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