Gurney v Mt Gambier Greyhound Racing & Coursing Club Inc and Sgic No. DCCIV-99-1087

[2002] SADC 43

Melville John Gurney
v  Mount Gambier Greyhound Racing Club Inc.
and SGIC General Insurance Ltd
[2002] SADC 43

Civil
Judge David Smith

Introduction

1. In this action Melville John Gurney (“the plaintiff”) claimed damages from the defendant, the Mount Gambier Greyhound Racing Club Inc (“the Club”) for personal injuries suffered by him on the 10^th August 1996, when he fell into an unguarded stairwell at the Club’s premises at Lake Terrace East, Mount Gambier.  The plaintiff was a member of the Club and was working as a volunteer on the construction of the new premises.  At the time of the fall, the Club had a Commercial Business Insurance Policy with the third party, the State Government Insurance Commission (“SGIC”).  The Club notified the claim to SGIC, who, by letter dated the 14^th August 1998, denied indemnity.

2. The trial of both the main action and the Third Party action, commenced urgently in Millicent on the 20^th November 2000 primarily to take the plaintiff’s evidence.  The plaintiff was then a frail 78 year old man and at that time there were concerns for his health.

3. The trial thereafter resumed in Mount Gambier on the 27^th February 2001 and by then the main action had settled and I made the following orders with the consent of all parties:

   ·There will be judgment for the plaintiff against the defendant in the sum of $65,000, which sum includes interest;

   ·Defendant is to pay the plaintiff’s costs, to be agreed or taxed;

   ·Execution upon the judgment is stayed until the determination of the third party action on the basis of the defendant and third party undertaking diligently to prosecute the third party proceedings and any appeal in relation thereto.

4. I emphasise that all parties consented to the terms of settlement of the main action.  Counsel for the third party, Mr Soulio, indicated that the “third party will take no point ... in relation to the defendant reaching that agreement with the plaintiff”.  I accept that to mean that there is no issue as to the reasonableness of the settlement and therefore that the third party is bound by it in the event that the defendant succeeds in the Third Party action; (see Saccardo Constructions Pty Ltd v Gammon (1991) 56 SASR 552).

   Material Terms of the said Commercial Business Policy

5. On the 18^th August 1993 the Club’s insurance cover for its premises and its racing operation at Glenburnie was gathered into what is called a Commercial Business Policy (“the Policy).  As its name implies, it provided a broad range of insurance coverage for commercial and business entities.  The Policy insured the Club for fire and certain other perils ie burglary, public liability, products liability, and personal accident and illness; (see Exhibit TP9 document 10).  The public liability covered legal liability for bodily injury or property damage.  The SGIC employee involved in arranging this cover for the Club was Mr Anthony Polkinghorne; (see Exhibit TP8 pp1-10).  The period of insurance was initially from 29^th July 1993 to 29^th July 1994.

6. I now turn to the Policy document.

7. Whilst the focus of attention is the “Broadform Liability” in Section 6 which provides insurance cover for personal injuries (p22 of Policy document), it is necessary to visit some of the earlier provisions which have application generally to the whole policy and which were the subject of argument.

8. Clauses 1 and 2 under the heading Policy Introduction provides:

   “Policy Introduction

   1As you have paid or agreed to pay us the Premium, we will provide cover, as described under the Sections of this policy which are specified in the Certificate of Insurance as being required, subject to the terms, Exclusions, and Conditions (both General and Specific) contained in, or endorsed on, this policy.

   Amendments

   2Where the cover under any Section of this policy is changed by any clause, Additional Benefit, or by any Endorsement, the insurance provided will be subject to the terms, Exclusions, and Conditions (both General and Specific) contained in, or endorsed on, this policy.”

   (see p2)

9. Under the heading General Definitions is

   “3“Insured Premises” or “Premises” mean the business premises specified in the Certificate of Insurance, unless otherwise specified in a Section.”

   “15“Business” means your business trade, or profession, as specified in the Certificate of Insurance”

   (see p3)

10. Clause 1 under the heading General Conditions provides:

    “Alteration of Risk

    1You must immediately notify us in writing of any changes you know of, which materially alter any of the facts or circumstances, which existed at the commencement of this policy.”

    (see p5)

11. I now turn to Section 6 of the Policy which is Broadform Liability under which the defendant seeks to compel the third party to indemnify it for the judgment obtained by the plaintiff.  At the beginning of this section there are unsurprising definitions of “personal injury”, “occurrence”, “you” and “your”; (see p22).

12. Clause 1 details the extent of cover in the following terms:

    “We will pay you or on your behalf all sums for which you become legally liable to pay for compensation (excluding fines, penalties, aggravated, punitive, exemplary, or liquidated damages) by reason of liability imposed on you by law, in respect of

    a       Personal Injury,

    b      Property Damage,

    occurring within the Territorial Limit and during the Period of Insurance as a result of an occurrence (including an Occurrence arising from the Products Hazard) and happening in connection with your Business.”

    (see p24)

13. At page 25 is the beginning of a list of Specific Exclusions which includes Alterations and Additions as defined at page 27.  In a connected form, the exclusion reads as follows:

    “Specific Exclusions

    We will not pay for claims in respect of Personal Injury or Property Damage

    Alterations and Additions

    22Arising out of constructions, erection, demolition, alteration, or installation work by you or on your behalf,

    Note-    we will pay for claims when the total contract price to you at the time of commencement of all work does not exceed $100,000”

    (see pp 25, 27)

14. With those provisions in mind, I turn to the issues in the Third Party action.

    Issues in Third Party Action

15. The basis upon which SGIC denies indemnity is set out in its letter to the Club dated the 14^th August 1996 which I set out hereunder:

    “Dear Sir/Madam,

    Re:     Public Liability Claim

    Date of Incident:                  10 August 1996

    Claimant:  Mr M Gurney

    We refer to previous correspondence in regard to subject and advise that we have now complete our lengthy investigations into this matter.

    We have determined that no separate construction insurance policy was provided by SGIC with regard to the building works undertaken by the South East Greyhound Racing Club and note further that it appears no cover was undertaken by any other insurer on your behalf.

    The insurance policy current at the time of Mr Gurney’s unfortunate accident include a specific exclusion within the Broadform Liability section of the policy.  It reads, inter alia, the following terms:

    “Specific Exclusions

    We will not pay for claims in respect of Personal Injury and/or Property Damage

    22    Alterations and Additions

    arising out of construction, erection, demolition, alteration, or installation work undertaken by you on or on your behalf,

    Note-we will pay for claims when the total contract price to you at the time of commencement of all work does not exceed $100,000”.

    Our understanding of the construction works undertaken by the club is that the total cost was far in excess of the abovementioned $100,000.

    If we are correct in our understanding, our policy will not respond to the circumstances of the claim made against the South East Greyhound Racing Club, and that in respect to the future conduct of this matter the Club should seek its own legal advice as a prudent uninsured.

    ............................

    ............................”

16. Effectively, the third party contends that the works carried out in establishing the racing complex at Lake Terrace East were “Alterations and Additions” the total contract price for which exceeded $100,000 and that as the plaintiff’s injuries arose out of those works, the claim was excluded from the policy by Clause 22. 

17. By paragraph 7 of the Amended Third Party Statement of Claim, the defendant contends as follows:

    ·that the Third Party is obliged to indemnify it pursuant to the provisions of Section 6 of the Policy (ie Broadform Liability);

    ·that the exclusion Clause 22 has no application to entitle the Third Party to decline to indemnify; and

    ·that alternatively if Clause 22 does apply then the exception to the exclusion clause applies in that there was no total contract price to the defendant at the time of the commencement of all work in excess of $100,000.

18. Further, by paragraphs 8, 9 and 10 the defendant raises three related pleas which in summary are:

    ·that following upon a meeting between Mr Noel Miller of the Club and Mr Anthony Polkinghorne of SGIC in early April 1994, the insurance contract was varied to provide cover for the construction of new club facilities at Lake Terrace East and, in particular, to provide insurance cover for the Club to dismantle, remove and re-erect a large shed purchased from the Woods and Forests Department as part of that development;

    ·that alternatively, if what occurred following upon the said meeting was not a variation, then SGIC was estopped from denying indemnity by reason of its representations upon which the Club has relied to its detriment; and

    ·further, that pursuant to s14 of the Insurance Contracts Act, 1984 (Cwth) SGIC should be precluded from relying on the exclusion in the contract of insurance because of its breach of the duty to act “with the utmost good faith” in accordance with the requirements of s13 of the said Act.

19. Counsel for the defendant, Mr McRae, accepted that the fate of both the estoppel argument and the utmost good faith argument under the Insurance Contracts Act were inextricably linked.

20. Accordingly, the evidence addressed in some detail the establishment of the new racing facilities at Lake Terrace East where the injury to the plaintiff was sustained and the dealings with SGIC in respect of the prevailing insurance cover.

    Historical circumstances

21. As at 1993, the three racing codes in South Australia, namely thoroughbred racing, harness racing and greyhound racing, were subjected to a three-tiered system of control; at the top being the Racecourses Development Board (“RDB”).  Membership of the RDB was made up of two members from the Boards of the each of three codes, namely the Greyhound Racing Board, the Thoroughbred Racing Board and the Trotting Board.  These Boards constituted the second tier.  At the base, were the various clubs, including the defendant in this matter, the Mount Gambier Greyhound Racing Club Incorporated.  This structure was created in 1972 and was dismantled by 30^th June 1996.  The function of the RDB was, inter alia, to provide funding to the various constituent clubs for various projects.  The source of funds was, inter alia, the proceeds of betting generated by each of the codes.

22. As at 1993, the Club had been in existence for well in excess of a decade.  From 1993, it conducted its Mount Gambier meetings within the Glenburnie horse racing track pursuant to a lease agreement with the Mount Gambier Racing Club.  The Club resolved to establish its own facilities.  To that end, in 1993, the RDB purchased land from the Woods and Forests Department at Lake Terrace East in Mount Gambier.  The property was too large for the Club and accordingly it was subdivided.  Eleven acres was allocated to the Club and the balance was sold to the Mount Gambier Council.  The portion allocated to the Club was of course vacant land and so the Club was faced with developing facilities suitable for the conduct of greyhound racing.  The RDB not only assisted with the actual purchase of the land, but with funding for the establishment of racing facilities.

23. The initial purchase was subject to planning approval from the Council for the development of the greyhound racing complex.  The application to the City of Mount Gambier was made some time prior to the 19^th November 1993.  On that day, the Council approved the application subject to the usual battery of conditions.  The cost of the land, which was borne by the RDB, was approximately $36,000.  Further, the RDB, as I indicated, agreed to fund the development of the racing facilities; (137).

24. The project which the Club then embarked upon is best described as follows in the undated development application (see Exhibit TP9):

    “1.Development of a racing track within an area previously used as a recreation area.  This is a flat area within a natural depression and ideally suited for the purpose including spectator viewing and merging the development in with the surrounding landscape.

    2.The erection of a club house overlooking the track and winning post with room for a dog parading area and covered betting facilities.  A floor plan of the building is enclosed.  It is to be constructed with Mount Gambier stone walls and a colorbond gable roof.

    3.A steel framed colorbond kennel and inspection building is to be located to minimise any potential nuisance to residences.  A plan of the structure is also enclosed.

    4.The complex is to be screened from adjoining land with a row of trees and shrubs.  The fence along the Lake Terrace East frontage will be set back 3 metres from the boundary and the appearance enhanced with trees & shrubs.

    5.Provision has been made for two access points to Lake Terrace East, one as a public entrance and the second for officials, owners and trainers.  A third access has been shown, however this will not be opened unless required at some future time.

    6.Provision has been made for sealed carparks for patrons and dog owners and trainers.  Other parking around the track and in the vicinity of the kennels will be available with dust suppression measures undertaken.”

    Early April 1994 – meeting between Miller and Polkinghorne

25. As at April 1994, the Vice President of the Club was Mr Noel Miller (“Miller”).  He was also an employee of the Woods and Forests Department, which became Forward Products Pty Ltd.  It so happened that in April 1994, a large steel and timber roofed drying shed, which was the property of the Woods and Forests Department or Forward Products, was available for purchase.  The Club tendered for the purchase and the tender price of $1,000 was accepted.  It was a condition of the sale that the shed be dismantled and removed as soon as possible.

26. It was at this time, namely in April 1994, that Miller spoke with Mr Anthony Polkinghorne (“Polkinghorne”) about the extent of the insurance cover.  The effect of what passed between Miller and Polkinghorne is a central issue in this action.  I turn to that now.

27. Mr Miller said that, having won the tender for the shed on behalf of the Club, he went to SGIC to “update the insurance or anything that was needed to do this sort of thing ...”; (100).  Miller said that he spoke to Polkinghorne and that he asked for advice and “... I said what I was doing after pulling the shed down ... and to transform it into a building such as, like kennel house or clubhouse ...”; (101).  He added “... I told him I was in negotiations of - we’d bought this block of land off the Woods and Forests and we wanted to erect a kennel house because we was already insured with SGIC out at another place but this was a different ...”; (103).  Miller said that he told Polkinghorne that there was to be voluntary labour.  He said that he explained how the shed was to be dismantled and put back up again; (104).  He said that having told Polkinghorne of all this, Polkinghorne’s response was “that he’d fix up the application for that insurance for that cover”; (103).  When asked by the Club’s counsel if he gave Polkinghorne any timeframe for the dismantling and re-erection, Miller said “No, I had no timeframe.  It could have been from – it was to be erected as soon as possible when everything was okayed”; (104).  In answer to the suggestion that he told Polkinghorne that he was dismantling and re-erecting a shed, (by implication as opposed also to constructing a clubrooms), Miller replied:

    “For a greyhound complex, yes.  I told him what I wanted the extra cover for, yes.  Told him what I was doing, him being a sportsman toon, so I said what I was doing, working for a greyhound complex, and that’s why I officially put in the tender for it, yes, true, I did.”

    (111, 112)

28. As to the topic of whether it was the Woods and Forests Department who required insurance for the removal of the shed, Miller said, in evidence-in-chief “... I had to deal with the manager of the Woods and Forests Department at Mount Gambier and because I was going to have people there that was mentioned to me to do this, for that reason because you had to cover the people that would have been helping me – voluntary work ...”; (103).  In cross-examination, Miller accepted that the manager mentioned “it” (ie insurance cover).  He took issue with the specific suggestion that the Department required a cover of $5 million; (110, 111).  Finally, it was put to Miller that he told Polkinghorne that it would take two months to dismantle and re-erect the shed.  He denied that, but en route to doing so the following exchange took place:

    “Q.And did you tell him that that whole process would take about two months.

    A.     Two months?
    Q.     Yes.

    A.Must be Jesus Christ – two months would be a big – no, I wouldn’t have said two months.  When you said the two months, is that to put the shed up as well?

    Q.I’m asking you whether you told him that dismantling and re-erecting the shed would take about two months.

    A.No, that wouldn’t have been –

    Q.You deny that do you.

    A.Yes I do.”

    (The italics are mine, p112)

29. I consider that it is a prospect that Miller could have mentioned two months as being the time frame imposed by Forward Products for dismantling and removing the shed. 

30. The evidence of Polkinghorne was that he remembered nothing of the meeting with Miller; (181, 192).  Rather, his evidence was confined to a commentary on the SGIC file documents in Exhibit TP8 assisted by business practice. 

31. By reference to pages 1-15 of the bundle of insurance documents Exhibit TP8, Polkinghorne explained that the Club had “Individual Personal Accident Policy and an Individual Public Liability Policy” dating back to the early 1970’s.  He said these were replaced in July 1993 by a Combined Business Policy; (171).  In particular, Polkinghorne referred to the document headed Commercial Business Survey Report, (see Exhibit TP8 at p4), which particularises various features of the Club’s premises at the Glenburnie Racecourse and which plainly enabled an evaluation of risk of, inter alia, burglary and fire; (173). 

32. Clearly the meeting between Miller and Polkinghorne was on or before the 5^th April 1994 because on that day Polkinghorne created the document entitled SGIC Policy Amendment; (see Exhibit TP8 p17).  This document is a handwritten extension of the Club’s policy and includes the calculation of the additional premium.  The handwriting is Polkinghorne’s; (177).  Notably the extension or amendment records an increase in Public and Products Liability to $5 million and then sets out the following:

    “NOTE including in cover dismantling & re-erection of 37 x 32 m² shed.  Approx 2 months.

    PR & PA affected.”

33. Polkinghorne explained that ‘PR’ was Public Risk and ‘PA’ was Personal Accident; (182).  He said that “approx 2 months” meant that the dismantling and re‑erection of the shed was to take approximately two months.  He explained that it was the sort of information underwriters require to enable a calculation of the premium; (181).

1. The Club paid that additional premium of $162.00 on or about the 5^th April 1994.  Polkinghorne identified the account which was signed by him; (see Exhibit TP8 p16).  The detail of the account records as follows:

   “INCREASE PUBLIC & PRODUCTS LIABILITY
   FROM $1 MILLION TO $5 MILLION

   INCLUDING THE DISMANTLING & REASSEMBLING
   OF A 37 X 32 M² SHED

   PERSONAL ACCOUNT VOLUNTARY WORKERS

   INCLUDES THIS ACTIVITY  $162.00”

2. Mr Polkinghorne said that he had some memory, (no doubt refreshed by the document entitled Commercial Certificate of Currency, (see Exhibit TP8 p18)), that Forward Products required, as part of the tender process, that the tenderer have $5 million public liability cover for the removal of the shed.  Forward Products’ interest in the cover is noted on that Certificate. 

3. In relation to the SGIC policy amendment document, Polkinghorne said that he was not told that the Forward Products shed was to be re-erected elsewhere than the Club’s Glenburnie Racecourse premises, as noted as the situation of the risk on the Certificates of insurance (see Exhibit TP8 pp8,11), because if he had been so told he said that he would have noted it; (180).  He then changed that response and said rather that if he had been told that the shed was going to be used to reconstruct a clubhouse and kennels he “would have needed to do a Contractors All Risk Policy”; (180, 181).

4. Mr Polkinghorne’s attention was directed to the Renewal Notice for the period 29/7/94 to 29/7/95; (see Exhibit TP8 p19).  It can be seen that the Notice records the increased levels of Public and Product Liability and records the situation of the risk as Glenburnie Racecourse.  However, there is a handwritten and signed notation made by Polkinghorne to the following effect:

   ““Included under liability new developing site part section 1235 Lake Tce (East) Hundred of Gambier 5290”

   (signed)

   21/7/94”

5. In examination in chief, Polkinghorne acknowledged his signature (183), and the following exchange took place:

   “Q.There is a date on there.

   A.     ‘21/7/1994’.
   Q.     What does that date indicate.

   A.It indicates the date that I was notified to include that new address on the policy.

   Q.Are you able to tell, in any way, from the note whether that was telephoned to you, or made known to you on that day by someone visiting you, or anything else.

   A.No, I can’t tell which way, no.

   Q.Having looked through the file, did you conduct a commercial business survey report at the new location of risk you were told about on 21 July, namely Lake Terrace East.

   A.No.

   Q.Why was that.

   A.Because there were – that was only just for liability cover.  There was no fire or – so there was no structures that were to be insured there.

   Q.If you’re able to say from looking at the note, what did you understand that premises to be, or that land to be.

   A.That they had a new parcel of land at that address.

   ......................

   A.So they have got this extra property of land that needs to have liability cover at.”

   (183, 184)

6. Finally, counsel for SGIC drew Polkinghorne’s attention to the subsequent Renewal Notices extending the insurance cover to 29^th July 1997; (see Exhibit TP8 pp20-23).  Notably, the situation of the risk is recorded in the two subsequent Renewal Notices as being at both Glenburnie Racecourse and Lake Terrace East.  Polkinghorne acknowledged that the Notices showed that there was, what he called “liability cover” at Lake Terrace East at the time the plaintiff fell, though no cover for buildings or structures such as for fire and burglary and so no survey was required.

7. One of the questions which arises from Polkinghorne’s evidence was whether his note of the 21^st July 1994 referring to the “new developing site” at Lake Terrace East, was an indication that he knew that the shed was to be re-erected at Lake Terrace East.  He agreed with the question from me that the note was an indication that he must have known that the shed was part of that development and that the Court could safely infer that; (199).  Mr Soulio courteously and fairly objected to the leading nature of my question given its judicial weight and so the topic was reopened.  I think in any event, such inferences are for me as the tribunal of fact to draw.  However, I indicate that I accept that Polkinghorne’s position, on this topic of the extent of his knowledge, was that he could not say one way or the other, but that if he had known he would have behaved differently and, in particular, he would have made enquiries as to insuring any new structure and/or recommended a construction policy; (202, 203, 180).

   Resolution of the conflict between Miller and Polkinghorne as to the conversation of 5.4.94

8. In my view, both Miller and Polkinghorne were honest and credible witnesses who did their best to tell the truth.  Because of the passage of time since this meeting, which I accept did take place in early April 1994, there were understandable difficulties of recall for both witnesses.  However, Miller recalled and recounted the gist of the conversation with Polkinghorne.  On the other hand, Polkinghorne recalled nothing of the meeting and conversation and relied upon business practice to fill in the gaps and explain the documents.  Mr Soulio contended that Miller’s evidence, as distilled from the transcript, had an illusion of coherence which belied the actuality, which was of a witness struggling with memory and, in particular, struggling to separate fact from reconstruction.  Certainly Miller had difficulty with the notion of recounting the conversation in “direct speech” and he did indeed “struggle” to recount fluidly the meeting with Polkinghorne. 

9. However, Polkinghorne’s evidence was not free of problems.  In crucial areas his answers were a speculative response to a hypothetical question.  For example, he said that if Miller had told him that the Club was re-erecting the shed at Lake Terrace East as clubrooms and kennels using voluntary labour, he would have advised a construction policy and, moreover, he would have discussed the need for some building insurance at the new site.  The conclusion or inference which the tribunal of fact is asked to draw is that, because neither of these consequences came to pass then Miller must not have so informed him.  In assessing the weight of this evidence there is in play the mischief of hindsight.  I acknowledge that the problems of giving full weight to such evidence are to some extent addressed by the invoking of “usual business practice”.  I say to some extent, because in the end, the evidence remains hypothetical.  This problem of the weight to be given to such evidence is often debated in the medical negligence arena (eg weight to be given to the answer “I would not have undergone the surgery if I had been told of the complications”); (see Battersby v Tottman (1984) 35 SASR 577; Gover v The State of South Australia (1985) 39 SASR 543 at 564-566). The situation here is not precisely analogous to the medical negligence cases because in this case Polkinghorne was able to draw on his “usual business practice”, but the essential difficulty is the same.

10. I prefer the evidence of Miller.  In particular, I am not prepared to draw inferences from evidence of business practice in preference to direct evidence from an honest witness, which is not palpably unacceptable and which is not inconsistent with objective documentary evidence.  Miller’s evidence is intrinsically more likely.  The Club had the land at Lake Terrace East, had planning approval and had just successfully tendered for a large shed, which was to form the structural framework of both the clubhouse and the kennels.  Given that the purpose of his visit was to ensure that appropriate insurance was in place, and I accept that such was the purpose, why would Miller not tell the Club’s insurer of the planned complex at Lake Terrace East and the re-erection of the shed there?  He says he did and it would be strange if he would not have done so.  His account is not only intrinsically likely, but it fits in with the all important documentary evidence, which arose at and after the meeting namely:

    ·the SGIC account at page 16 of Exhibit TP8 supports not only the fact of a meeting, but also some of the subjects which Mr Miller contends were raised at the meeting, namely the dismantling and reassembling of the shed and the use of voluntary labour;

    ·the Policy Amendment document at page 17 of TP8 is again a confirmation of the fact of the meeting and the topics of discussion as contended for by Miller and the notation “approx 2 months” could refer to the dismantling and removal of the shed only as opposed to its re-erection;

    ·the Renewal Notice at page 19 for the year 29/7/94 to 29/7/95 has a handwritten note referring to the “developing site” at Lake Terrace East and so is supportive of Miller’s evidence that he told Polkinghorne of the proposed development at Lake Terrace East that is something more than the mere re-erection of the shed, namely the building of clubrooms; and

    ·the Renewal Notices at pp20, 21 and 22 applicable to the years 29.7.95 to 29.7.96 and 29.7.96 to 29.7.97 cite the situation of the risk at both, Glenburnie and Lake Terrace East.  Again this is supportive of Miller’s evidence of having told Polkinghorne of the proposed new location for the Club and the duration of the extended or amended cover is supportive of Miller’s position that the cover was not merely for the dismantling, removing and re-erection of the shed.

11. I will deal with the legal effect of my findings as to this meeting in due course.  I turn now to the balance of the narrative.

    The building works

12. The following narrative constitutes my findings.  There was in the end no contest about these matters.  Rather, the contest is about the legal effect of what had happened. 

13. The shed was a huge edifice measuring 37 x 32 metres and consisting of six bays.  It was constructed of steel frame with timber and iron roof.  The purchase was completed in April 1994 and it was moved immediately to the Club’s land at Lake Terrace East.  The development application had been approved in principle in November 1993.

14. Accordingly, the Club after April 1994 began the long task of constructing the racing complex.  The formal opening of the Lake Terrace East rack did not take place until February 1997.  Until that time, the Club continued to use the facilities at Glenburnie.  So the works were spread over more than three years.

15. The Club was effectively an owner/builder.  The project was divided into the following:

    ·track rail and lure construction;

    ·maintenance equipment;

    ·water conservation and distribution; and

    ·building of clubrooms and kennels.

16. Funding for the project came from the following sources:

    ·$36,000 from RDB for land purchase;

    ·$250,000 from RDB for building works;

    ·$40,000 from Club’s own resources; and

    ·$20,000 from the Mount Gambier Council.

17. As the project proceeded, accounts, invoices and the like were submitted, inter alia, to the RDB for approval and payment.

18. There was no principle contractor.  Mr William Ward, who was the President of the Club between 1992 and 1999, undertook the task of coordinating the development.  He arranged contracts, purchases of materials, and engagement of tradesmen and volunteer labour.  Expert and skilled tasks such as earthmoving and rail and track development were wholly contracted out.  For some portions of the construction, the Club purchased material and engaged appropriate tradesmen who were paid for their labour.

19. It is unnecessary to chronicle every step in the establishment of the complex.  Rather, I will summarise the progress of the works.

    ·In April 1994, following the moving of the dismantled shed onto the land, the Club fenced the 11 acres by volunteer labour.  The materials cost in the region of $12,000.

    ·A consulting engineer designed the track and a local builder designed the buildings.  In January 1995, the Club paid $9,000 for these designs.

    ·The firm of RO & MA Mibus carried out some earthworks for the track and stockpiled earth in preparation for the construction of the kennels and the clubrooms.  That firm was paid $1,300 in about February 1995.

    ·A firm named Barringtons from New South Wales designed and constructed the rail and lures at a cost of $7,275.  That work had been completed by March 1995.  At about this time the centre track was sown with grass.

    ·During April 1995 Peter Jennings Pumps laid trenches for piping, plumbing and electric cables.

    ·By May 1995, the site had been levelled and WFC Earthmoving were paid $15,000.

    ·By then, that is May of 1995, the electrical cabling had been laid and $2,000 was paid for this work.  In the 1994/1995 work continued on the track rail and lure system and substantial sums were paid to WFC (ie $10,000), and Barringtons (ie $43,650).  A tractor was purchased at about this time.

    ·During 1995 there was more trenching work and plumbing work done and the starting boxes were purchased together with equipment such as a ride-on mower and a spray unit.

    ·By August 1995 the Club started the re-erection of the shed which became the framework of both the clubhouse and the kennels.

    ·By the time of the plaintiff’s fall, namely 10^th August 1996, the clubrooms were all but completed.  The foundations had been laid, the steel framework had been sandblasted and re-erected into place and provided the structure for both the kennels and the clubrooms.  Brickwork and framing was underway.  At the time of his injury, the plaintiff was working in the upstairs judges box rolling out insulation which was being tacked onto the timber framed walls.  He backed into and fell down the stairwell.

    ·By the beginning of the 1996/1997 financial year, the track and rail was substantially finished and work was concentrated upon the buildings.  It was in this period that there was much volunteer labour and engaging of tradesmen.

    ·By February 1997, the buildings, that is the clubrooms and the kennels, were practically completed so much so that the Club was able to hold its first meeting.

    ·Work continued and the books of accounts show that in the 1997/1998 years approximately $15,000 or $16,000 was expended on ceilings, a bullnose verandah, concrete paving and steps. 

20. Counsel for the defendant, Mr Mcrae, in his final address submitted a schedule which broadly pictures the works as particularised above.  The schematic schedule, slightly altered by me, shows in a digestible way the progress of the building works, together with the costings.  It can be seen that in an approximate way the costs particularised in the schedule equate with the quantum of funding as set out by me above.

Tax Year	Land purchased, development, fencing, track, rail, council fees, equipment, miscellaneous	Buildings	Sources relied on
1993/94	Land purchase $36,000.00	Best (137)
1994/95	Fencing, earthmoving, trenching, council fees, track and trail, tractor, miscellaneous $108,500.00	Shed, cladding, plans, crane, electrical and miscellaneous $13,568.34	Ward
1995/96	Starting boxes, water tank, mowers, earthworks, cement, shed, lure, and miscellaneous $63,436.00	Ongoing building – materials purchased and subcontractors paid $53,830.00	Ward
1996/97	Miscellaneous materials $1,797.00	Ongoing building – materials purchased and subcontractors paid $28,025.09	Ward
1997/98	Ceilings $15,500.00	Mrs Miller
1998/99	-	$20,000.00
1999/2000	Verandahs and concrete surrounds and steps $20,000.00	Mrs Miller
Total  $203,783.00	Total  $150,922.43

Resolution of Arguments – Conclusions

Did the unamended or unvaried Broadform Liability provisions cover the risk?

1. I am uncertain whether counsel for the defendant, Mr T McRae, in the end argued that, putting aside the consequences of the meeting of, on, or about the 5^th April 1994, the Broadform Liability provisions of the policy, obliged SGIC to indemnify the Club in respect of the plaintiff’s judgment.  Certainly paragraph 7 of the Third Party’s Statement of Claim pleads that, and there is a faint suggestion of it in Mr McRae’s Opening. 

2. Whatever the contentions, it is clear that the Policy, as it stood at the day before the meeting between Miller and Polkinghorne, could not cover the risk of injury sustained to a person such as the plaintiff working on the Club’s premises at Lake Terrace East.  The situation of the risk as the policy then stood was only at Glenburnie Racecourse, Princess Highway, Glenburnie; (see Certificate of Insurance Exhibit TP8 at p8).  The contract of insurance related only to those premises at Glenburnie and to an occurrence happening in connection with the business of greyhound racing at that location. 

3. This finding needs no further elaboration.  In my view it is self evident.

   Was Policy amended and if so, what was the extent of the amendment?

4. I now turn to whether the Policy was amended or varied as a result of the meeting on or about the 5^th April 1994 and whether the amendment or variation covered the occurrence or risk here, namely, the injury to the plaintiff on the 10^th August 1996.

5. Whether a change in the Policy be characterised as an amendment, extension or variation, does not matter.  It is a new bargain or contract.  However, unless the Policy is to be wholly abandoned and replaced, the change does not have a life of its own.  It is part of the original contract albeit that a new risk is being covered; (see Bolton v New Zealand Insurance Co Ltd (1995) 1 NZLR 224; see also Insurance Law in Australia, 3^rd Ed. Sutton 369 at para 3.213).  The Policy in this case anticipates amendments; (see Exhibit TP9 p2). 

6. It is common ground that there was in fact an amendment, extension or variation of the contract of insurance on about the 5^th April 1994.  The third party accepts that there was an increase in cover and that the cover extended to the dismantling, removal and re-erection of the shed using voluntary labour.  The defendant contends that the insurance was varied to cover also the construction of clubrooms.

7. So, the dispute is as to the subject matter or the extent of the amendment or variation.  In arriving at the terms of a contract, the object of course is to give effect to the intention of the parties; (see River Wear Commissioners v Adamson (1877) 2 App Cas 743 at 763). Nonetheless, in construing the contract the approach is objective and this objective assessment, where the agreement is not wholly to be found in a document, takes into account the words and actions of the parties and any documents which may throw light on the intent of the parties; (see Goldsborough Mort & Co Ltd v Quinn (1910) 10 CLR 674; Taylor v Johnson (1983) 151 CLR 422 at 429).

8. Identifying the terms of the variation agreement in the circumstances of this case involves construing or weighing up:

   ·what is found by me to have passed between Miller and Polkinghorne at the meeting of, on, or about the 5^th April 1994; and

   ·the insurance documents which arose from the meeting and which followed thereafter.

9. I turn first of all to my conclusion as to the legal effect of the meeting, bearing in mind that I have accepted Miller in preference to Polkinghorne.  I find that Miller conferred with Polkinghorne, of SGIC, to ensure that the Club had adequate insurance cover for the dismantling, removal and re-erection of the shed and for the construction of clubrooms and kennels.  It may be that he was provoked to do so by some requirement of Forward Products that there be some insurance cover for the removal bearing in mind the use of voluntary labour.  I find in particular, that Miller told Polkinghorne of the proposed development at Lake Terrace East, that the shed was part of that development and that, in particular, the shed was to be used in the construction of a clubhouse and kennels.  Also, I find that Miller informed Polkinghorne that voluntary labour was to be used in the project.  I accept Miller’s evidence that he was not told by Polkinghorne to take out a Contractors All Risk Policy.  In all, I find that Miller asked Polkinghorne for insurance cover for the development at Lake Terrace East.  Polkinghorne indicated that he would “fix” it up.  That it was “fixed up” was apparently confirmed by the amendment to the insurance documents and the levying and paying of additional premiums; (see Exhibit TP8 pp16, 17, 18).  So there was an offer, an acceptance and consideration. The amendment to the insurance cover thereafter, as recorded in the insurance documents in the bundle Exhibit TP8, resulted from the meeting between Miller and Polkinghorne.  In particular, I note that the increased cover from $1 million to $5 million for each of Legal Public Liability to Third Party’s, and Product Public Liability to Third Party’s, prevailed at Lake Terrace East and not for two months, but for the time it took to re-establish the racing complex at Lake Terrace East.

1. I turn to the evidence which I find arises from the documents, either directly or by way of inference.

2. First of all, the SGIC Policy Amendment (Exhibit TP8 p17) notes, inter alia, the “re-erection” of the shed.  Accordingly, the request for increased cover was not limited to satisfying the wishes of Forward Products to insure the dismantling and removal only.

3. The notation “approx 2 months” could be an indication by Miller of the time it would take to either dismantle, remove and re-erect on the one hand, or merely dismantle and remove on the other.  It could also be referring to the time limit imposed by Forward Products on the successful tenderer to remove the shed.  To what it refers is equivocal.  However, the subsequent actions of the parties were not equivocal.  In particular, cover continued from April 1994 until at least the 29^th July 1997, and so parties to the contract of insurance unequivocally treated the cover as continuing for that period. 

4. This document also records that Public Risk and Personal Accident are affected; (see PR & PA affected).

5. The account for additional premium (Exhibit TP8 p16) also records the fact that the shed is to be reassembled and records also “Personal Accident Voluntary Workers includes this activity”.

6. It can be seen that the items of evidence emerging from the SGIC Policy Amendment and the account are neutral.  They are consistent with both the opposing contentions.

7. However, the evidence arising from the Renewal Notice dated 27.6.94 with its handwritten endorsement and the subsequent two Renewal Notices positively supports the defendant’s contention that cover was extended to construction of the clubrooms.

8. I turn to the Renewal Notice dated 27.6.94 (Exhibit TP8 p19).

9. First of all, it is to be noted that the Notice, in its unendorsed form, recorded the situation of the risk as the Club’s premises at Glenburnie Race Course.  As it stood that was in conflict with the arrangement Miller says he struck with Polkinghorne.  Polkinghorne’s handwritten note records that “included under liability” is a “new developing site” at Lake Terrace East.  Polkinghorne explained that on the 21^st July 1994 “I was notified to include that new address on the policy”; (183).  I take the word “liability” in the handwritten endorsement to refer to Public & Product Liability on the face of the notice.

10. The words “new developing site” are supportive of Miller’s evidence that he told Polkinghorne that the Club was building a new racing complex at Lake Terrace East.  The words “new developing site” indicate building or construction works which are presently or currently underway.  They reach beyond “re-assembly of the shed”.  It seems likely given the date of issue of the notice (ie 27.6.94) and the date of the endorsement (ie 21.7.94) that the endorsement was provoked by some contact from the Club.  The question arises whether this endorsement was to ensure that the Notice recorded the arrangement struck on about the 5^th April 1994 or some brand new cover arranged perhaps on the telephone on 21.7.94?  Polkinghorne speculated that it was the latter.  Accepting, as I do, Miller’s version of the conversation on or about the 5^th April 1994, I conclude that the Notice simply did not reflect what was agreed to in April 1994 and so was corrected by Polkinghorne’s endorsement probably at the instigation of the Club when they saw the Notice.

11. Polkinghorne confirmed in evidence that the words “Included under liability new developing site …” indicated that SGIC was providing “liability cover” at the new site, as opposed to cover for an existing building such as fire, burglary etc which would have required a survey.  That much is clear, but further I find that the liability cover was the insurance, Polkinghorne agreed with Miller he would “fix”.  It extended to, not only the re‑erection of the shed, but also to building of the clubhouse and kennels.

12. Further, it is significant that the two Renewal Notices for the years 29.7.95 to 29.7.96 and for 29.7.96 to 29.7.97 (Exhibit TP8 pp20-23) not only maintained the level of extended cover negotiated in April 1994, that is from $1 million to $5 million for each of Public and Product Liability, but also recorded the situation of the risk as both at the Glenburnie Racecourse and Lake Terrace East.  This level of cover for that period of time at that second site is again supportive of the fact that more than the mere re-erection of the shed was contemplated by the parties and is inconsistent with the contention by SGIC that the increase in cover was only for the removal, dismantling and re-erection of the shed all of which was to take “approx 2 months”.

13. For those reasons, I conclude on all the evidence that the defendant has established, on the balance of probabilities, that the contract of insurance was varied in April 1994 to cover the risk which materialised in the injury to the plaintiff on the 10^th August 1996.

14. Having found that the policy has been varied to include cover for the risk of injury in building the clubrooms, it remains to deal with the contention that nonetheless Clause 22 excludes liability to indemnify the defendant for the plaintiff’s claim. 

    Construction of the policy of insurance - Does Clause 22 apply at all, and if so, does it exclude SGIC’s obligation to indemnify the defendant?

15. In Australian Casualty Co Ltd v Federico (1985-86) 160 CLR 513 Gibbs CJ at 520-521 said:

    “The ordinary rules of interpretation apply to a policy of insurance.  As in the case of any other commercial contract, a court may depart from the strictly literal meaning of a particular expression to place upon it an alternative construction which is more reasonable and more in accord with the probable intention of the parties if the words will bear that construction: McCowan v. Baine (1891) AC 401 at p403; see also McGillivray & Parkington on Insurance Law, 7^th ed. (1981) at pp 436, 437 (pars.1037, 1039) and Sutton, Insurance Law in Australia and New Zealand (1980), p.294, par.8.45.  Further “the trend is, if anything, to adopt a liberal interpretation in favour of the assured, so far as the ordinary and natural meaning of the words used by the insurers permits this to be done”: Halsbury’s Laws of England, 4th ed., vol.25, par.594, note 1, cited in Mount Albert City Council v. New Zealand Municipalities Co-operative Insurance Co. Ltd. (1983) NZLR 190, at p 193.”

16. The rules of construction of contracts of insurance are gathered in chapter 9 of Insurance Law in Australia, 3^rd Ed. Sutton.  In relation to language in the Policy, which is ambiguous, it seems to be still the case that it is to be construed against the person relying on it.  In the case of insurance policies, most often in the event of ambiguity, a construction is to be chosen which favours the insured; (see Sutton (supra) at paras 9.76 to 9.79; see also Johnson v American Home Assurance Co (1998) 191 CLR 266 per Kirby J at 274, 275).

17. With those precepts in mind, I now turn to the construction of Clause 22.  I refer to the full text of the exclusion clause set out at page 3 in this judgment.  It can be seen that there is an exclusion of personal injuries and property damage arising from alterations and additions, followed by an exception to that exclusion where the contract price for such work does not exceed $100,000. 

18. In my view, there is no ambiguity.  Clause 22 simply has no application in the circumstances of this case.  The clear intent of the Clause is to apply to situations where an existing building is altered or added to.  In this case, there was, as Mr Polkinghorne himself recorded, a “new developing site”.  What was ideally required was some sort of construction policy as indeed Polkinghorne contended for at the trial.  To apply the Clause in the circumstances of this case would be to ignore the heading “Alterations and Additions”.  The heading is part of the contractual document and is an aid to construction; (see Sutton (supra) at para 9.103).  The policy here is a plain English document and in my view the headings are intended to spell out the boundaries of the provision; (c.f. Statutory Interpretation in Australia 4^th Ed. by Pearce & Geddes at para 4.35).

19. Further, if contrary to my view the Clause has prima facie application to the works at Lake Terrace East, the amendment or variation had the effect of negating the exclusion clause.  SGIC agreed with the Club to cover the construction works at Lake Terrace East.  Such an agreement had the effect of wholly negating Clause 22 and in the result the exception has no work to do.

20. So for these reasons, I conclude that Clause 22 has no application at all and alternatively the amendment effectively negated its exclusionary effect.

21. Though my conclusions thus far are sufficient to dispose of the Third Party action in the defendant’s favour, I propose to deal briefly with two further alternative arguments.

    Estoppel

22. If, as a matter of law, I am wrong in holding that the insurance policy was varied so as to cover the injury to the plaintiff, I consider that, based on the same factual findings made by me in relation to whether or not, and if so, to what extent, the policy was varied, an estoppel arises which precludes the SGIC from denying cover; (see Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 per Mason CJ at 410-413, and Deane J at 444-445).

23. In particular, I confirm again my previous factual findings as to the conversation between Miller and Polkinghorne and as to the direct and circumstantial evidence emerging from the documents which arose on and after the 5^th April 1994.

24. In particular, I find that, in response to Miller’s request for cover for the building works, Polkinghorne said:

    “... that we updated it to 5 million from the million and that would cover the process I was up to so many units or whatever ...”

    (Miller 102)

    “... that he’d fix up the application for that insurance that cover.”

    (Miller 103)

25. I find that Polkinghorne’s response was a representation that the appropriate cover was or would be arranged.  Further, the insurance documents which emerged then and thereafter, namely the SGIC policy amendment, the account, and the ensuing Renewal Notices, reasonably convey that cover not only for the dismantling, removal and re-erection of the shed, but also the construction work was in place at Lake Terrace East. 

26. Given the findings as to the content of conversation and the effect of the documents, I find therefore, that SGIC ought to have known that the Club would be induced to believe that it was covered for the risk of injury at Lake Terrace East for the building works.

27. Clearly the representations and conduct operated to the detriment of the Club in the sense that the Club did not make appropriate arrangements to take out a more suitable insurance policy.  There is no categorical assertion in the evidence that Miller and the Club concluded that the Club was covered for the risk which crystallised in the injury to the plaintiff.  However, I infer from all the evidence as to the relationship between the Club and SGIC from the 5^th April onward that the Club made that assumption to its strict legal detriment.  This inference of reliance reasonably arises from the primary facts (see Gould v Vaggelas (1985) 157 CLR 215 per Wilson J at 236-239).

28. Accordingly, for those reasons, by way of alternative, SGIC is estopped from insisting on the strict letter of the varied insurance contract, (ie that the variation extended only to dismantling, removing and re-erecting the shed) and is therefore estopped from denying indemnity to the Club for the injury to the plaintiff.

29. There was in Mr McRae’s submissions a hint that an estoppel arises from even an acceptance of Polkinghorne’s evidence and the insurance documents.  My view is that, if there is insufficient evidence to establish that the building or construction works, as opposed to the mere re-erection of the shed, was discussed with Polkinghorne, and therefore the variation did not extend to that stage, then it follows that there is insufficient evidence to support an estoppel.  The documents alone could not support such an argument.  The extent of the representation by the insurer is determined by what was discussed by Miller and Polkinghorne together with the insurance documents and the inferences arising therefrom.  If the construction of the clubrooms and kennels was not discussed, then no variation to that extent could possibly arise and nor could an estoppel arise.

    Utmost good faith

30. The defendant contended in tandem with its estoppel argument that the denial of indemnity amounted to a breach by SGIC of its duty of utmost good faith as required by s13 of the Insurance Contracts Act 1984 (Cwth), and that pursuant to s14, SGIC should be prevented from declining indemnity. It is not necessary to embark upon an investigation of the application of these provisions in the light of the multiple grounds upon which I have already found in favour of the defendant..

    Broadform liability provisions provided cover for plaintiff’s injury in any event

31. I will however deal with one other contention which arose, perhaps obliquely, from Mr McRae’s written submission. It was that, even if it be accepted that SGIC agreed to extend cover for dismantling, removing and re-erecting the shed at Lake Terrace East, SGIC was compelled, by the Broadform Liability provisions, to indemnify the Club for the plaintiff’s claim, notwithstanding that he was working on other than those activities. Underpinning this contention was a detailed submission to the effect that the exclusion Clause 22 did not have application to the extended piecemeal and partially voluntary construction works undertaken at Lake Terrace East. The contention about Clause 22 not applying is compelling. However, it is not necessary to analyse either of these contentions because in any event I accept Mr Soulio’s response, namely that in such circumstances SGIC would be entitled to refuse indemnity because there would have been a failure by the Club to disclose material alteration to the risk in breach of Clause 1 of the General Conditions; (see p5 of Policy). The construction works in which the plaintiff was involved were circumstances which were, material to the risk within the meaning of Clause 1 and required disclosure; (see also ss21, 28 Insurance Contracts Act, 1984 (Cwth); Summerton & Ors v SGIC Life Limited [1999] SASC 121).

    Conclusion

32. Accordingly, there will be judgment for the defendant against the third party in the sum of $65,000.

33. I will hear the parties as to interest and costs.