Mainstream Aquaculture Pty Ltd v Calliden Insurance Ltd
[2011] VSC 286
•24 June 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST C
No. 2545 of 2010
| MAINSTREAM AQUACULTURE PTY LTD (ACN 097 378 044) | Plaintiff |
| v | |
| CALLIDEN INSURANCE LTD (ACN 004 125 268) | Defendant |
---
JUDGE: | CROFT J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 30-31 March 2011 | |
DATE OF JUDGMENT: | 24 June 2011 | |
CASE MAY BE CITED AS: | Mainstream Aquaculture Pty Ltd v Calliden Insurance Ltd | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 286 | |
---
INSURANCE – Business interruption insurance – construction of commercial insurance contract – whether damage to insured property caused loss – whether fuse property for purposes of insurance – meaning of word “damage” – whether applicable exclusion to insurance policy – McCann v Switzerland InsuranceAustralia Ltd (2000) 203 CLR 579 – Ranicar v Frigmobile Pty Ltd [1983] Tas R 113.
EVIDENCE & PROCEDURE – admissibility of expert evidence and reports – whether relevant – whether excluded as opinion evidence or based on specialised knowledge – s 55, s 76, s 79, s80 Evidence Act 2008 (Vic).
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Cawthorn SC with Mr Harris | Settle Legal |
| For the Defendant | Mr C Blanden SC with Mr H Redd | GTR Lawyers |
HIS HONOUR:
Background
The plaintiff, Mainstream Aquaculture Pty Ltd (“Mainstream”), conducted a commercial fish breeding business involving the growing and sale of fish intended for domestic and export markets (“the Business”). The Business operated out of a property that Mainstream leased at 73-75 Lock Avenue, Werribee (“the Property”). At all relevant times, Mainstream was the beneficiary of two insurance policies: the first, a contract insuring against property damage with CGU Insurance Ltd (“CGU”), and the second, a contract for business interruption insurance with Calliden Insurance (whose insurance business, including the insurance contract in dispute, was transferred to the defendant, Calliden Insurance Ltd, “Calliden”).
The present dispute concerns the terms of the second contract, which obliged the defendant, Calliden, to insure the plaintiff, Mainstream, against interruption or interference to its Business. This insurance contract carried policy number CLN301374W3 (“the Policy”). The Policy, as distinct from the CGU insurance contract, was directed at the loss or damage sustained to the Business (and not directly to the property itself). Thus, for the Policy to enliven, the insured must suffer loss or damage to relevant property, which consequently results in interruption or interference with the Business. The Policy also required the plaintiff to ensure that the loss or damage sustained to the property was also covered by material damage insurance (which, in this case, was the CGU insurance contract).
Both the plaintiff and the defendant agree as to the contractual documents forming part of the Policy, and as to the material facts, which are as follows:[1]
[1] See “Statement of Agreed Facts”, dated 1 March 2011, submitted by the parties jointly.
“…
4. The Policy was constituted by the 2008/2009 Policy Schedule/Tax Invoice issued by Interruption Underwriting Agencies [“IUA”] on behalf of Calliden Limited to the plaintiff and the Simplified Business Interruption Insurance Policy Wording, [which] was issued to the plaintiff …
5. On 26 October 2008, the Property experienced a loss of electrical power supply to it (“the Event”).
6. On 26 October 2008, the plaintiff’s stock of fish died. For the avoidance of doubt, causation remains an issue in dispute.
7. At the time of the Event, the plaintiff had in place a business insurance policy with CGU (“the CGU Policy”).
8. The plaintiff’s insurance broker notified IUA on 27 October 2008 of the Event and IUA (on behalf of the Calliden Limited) wrote a letter of denial under the Policy dated 10 December 2008. As a result, the defendant denied indemnity to the plaintiff under the Policy.
9. In or about May 2008, the plaintiff purchased a generator from Macfarlane Generators in order to provide a supplementary power supply to the Property and the Business in the event of the loss of or interruption to the mains electricity supply.
10. At the time of the Event, the power outage caused the automatic transfer switch to trip switching power for the Property and Business from the mains to the generator. The generator failed to provide alternative power to the premises.
11. A fuse, being the blue phase on the LV side of Powercor’s pole mounted assets (“the Fuse”), which was located on the Property and was owned by Powercor, tripped.”
At all relevant times, Powercor was the electricity provider for the Premises,[2] which Mainstream used to power the equipment used for the purposes of the Business. These included, particularly, the oxygen pumps used for the oxygenation of the water for the maintenance of the plaintiff’s fish stock. Powercor provides electricity via an electricity installation or substation, which is comprised of, among other things, power poles and wiring, the Fuse, and its connectors and housing. This substation, and the equipment which forms part of it, is located on the plaintiff’s property, but is owned by Powercor. Powercor does not permit anyone to access the substation, except for its own staff. The Event in question, being the interruption to the power supply which occurred on 26 October 2008, involved damage to Powercor’s installation or sub-station located on the plaintiff’s Premises. In addition to the initial agreed statement of facts, the parties agreed two further facts in relation to the Fuse:[3]
“1. The blue phase fuse the subject of the incident on 26 October 2008 (“the October Fuse”) is not in the possession of Powercor.
2. Powercor disposed of the October fuse after the incident on 26 October 2008. It was disposed of before the Plaintiff inspected it.”
[2]Although not material for present purposes, no reference beyond “Powercor” was made to the corporate entity charged with providing electricity to the Business. Presumably, however, the references to “Powercor” are references to Powercor Australia Ltd, which is a subsidiary company of CHEDHA Holdings Pty Ltd.
[3] “Further Statement of Agreed Facts”, prepared by the parties jointly, dated 28 March 2011.
In the interests of efficiency and reducing costs, the present hearing concerns only the determination of the preliminary question: “Does the Policy respond to the event [being the failure of mains power, leading to death of the plaintiff’s stock of fish] as pleaded?”. If the answer is “no”, the plaintiff’s case must necessarily fail. If the answer is “yes”, proceedings may continue, and other issues remain to be determined, including those of causation in the calculation of damages.
The relevant provisions of the Policy are expressed as follows:
“Introduction
…
Provided you have paid the Premium and provided you continue with the Business we will pay an amount in respect of weekly loss of Turnover suffered by you subject to the Limit(s) of Liability if the Business is interrupted or interfered with due to the building(s) or other property used by you at the Premises specified in the Schedule having sustained during the Period of Insurance loss or damage in respect of which you or some other person has material damage insurance, subject to the terms Conditions and Exclusions of this Policy.
The Cover
Subject to the terms Conditions Special Provisions and Exclusions of this Policy:
For Items 1, 2 and 3 of the Schedule for each week we will pay an amount based upon Weekly Calculations not exceeding the Weekly Sum Insured each week in respect of loss of Turnover suffered by you during the Indemnity Period if the Business is interrupted or interfered with due to the building(s) or other property used by you at the Premises specified in the Schedule having sustained during the Period of Insurance loss or damage by a peril in respect of which you or some other person has material damage insurance.
…
Additional Benefits
Subject otherwise to the terms Conditions Special Provisions and Exclusions of this Policy: (please refer to all Wording).
….
Failure of Supply from Public Utilities or Telecom Service 3. We will treat loss or damage to the property of telecoms provider, or to the property at any installation or Electricity Station or Sub-Station, Gas Works, Water Works or Sewage from which you obtain Public Supply as being loss or damage to building(s) or other contents at your premises provided that such loss or damage results in the interruption or interference with your Business.
Exclusions
We will not pay for:
1. Interruptions or interference to your Business arising from loss or damage caused by (unless otherwise stated):
a. …
b. Mechanical, Electrical or Electronic Breakdowns or Breakages.
…”
Although there is said to be only one preliminary question – that is, whether the Policy responds to the Event – the wording of the Policy itself gives rise to a number of preliminary issues which must be established in the plaintiff’s favour if it is to succeed. First, does the Fuse constitute “property” within the terms of the Policy? Secondly, was the Fuse “damaged”? Thirdly, was the damage to the Fuse a proximate cause of the interruption to the Business? If the plaintiff can establish affirmative answers to these, and the defendant cannot show that a particular Exclusion under the Policy applies, the Policy will respond to the Event.
I first consider the issues alleged to arise on the pleadings. I then consider the evidentiary and procedural question of the admissibility of expert evidence sought to be led by the plaintiff, and subsequently the legal principles applicable to the Policy, the proper construction of its operative terms, and the consequent response to the multi-faceted preliminary question of whether the Policy responds to the Event.
Issues arising on the pleadings
The defendant criticised the plaintiff’s statement of claim, in that it did not include particulars relating to the property damage (being the damage to the Fuse), nor did it canvass the Additional Benefits provisions of the Policy. The defendant submitted that such a claim ordinarily belongs within or as an amendment to the statement of claim, enabling the defendant to respond.[4]
[4] See paragraph 14 of the “Defendant’s Outline of Submissions”, dated 25 March 2011.
Nonetheless, and despite the statement of claim not being amended, the plaintiff provided these particulars in its reply to Calliden’s defence on 4 November 2010.[5] At no point did the defendant complain that it did not know the case it had to meet, nor criticise the specificity of the particulars provided; merely the document in which they appear. On this basis, I am satisfied that the defendant is in no way prejudiced by the deficiency of the statement of claim, and thus do not require a formal amendment to be made to it.
[5] See the Plaintiff’s “Reply”, dated 4 November 2010.
Admissibility of expert evidence
A complicating factor in the present dispute is whether the evidence of Mainstream’s expert, Mr Mansourian, is admissible. Although this judgment concerns only a preliminary question, being whether the Policy responds to the Event, the wording of the Policy necessitates consideration of the evidence as to the nature of the property damage and whether it gave rise to any loss or damage as a result of interruption or interference with the Business.[6] The evidence objected to is that of Mr Mansourian, a consulting engineer engaged by the plaintiff, Mainstream, which is contained in two reports dated 10 March 2010 and 30 January 2011 (collectively, “the Reports”), and in his oral evidence given at trial of this preliminary issue. In summary, the defendant objects to the method by which Mr Mansourian reaches conclusions in the Reports, on the grounds of relevance, as well as the use of opinion evidence generally, said to be used to prove facts falling outside Mr Mansourian’s specialised expert knowledge, and without explicitly identifying assumptions made.[7] The substance of the objection appears to be that the views reached by Mr Mansourian, in the Reports and in his oral evidence, derive from an inspection of a fuse involved in a failure of electricity supply to the Property that occurred on 14 May 2009 (the “May Fuse”); a different Fuse to that involved in the failure of electricity supply on the date in question in these proceedings, 26 October 2008 (the “Fuse” or the “October Fuse”).
[6] See relevant provision entitled “The Cover”, extracted in paragraph 6, above.
[7] Paragraph 32 of the Defendant’s Outline of Submissions, dated 25 March 2011, provides:
“There are three reasons why the Mansourian reports are inadmissible. First, the reports are not relevant evidence. Secondly, the reports constitute evidence of an opinion to prove the existence of a fact about the existence of which the opinion was expressed, in circumstances where that opinion is not based wholly or substantially on the witness’s specialised knowledge. Thirdly, there has been no attempt to state explicitly the assumptions of fact on which the opinion is based, or to prove by admissible means the facts on which the opinion is based.”
It is not disputed that the October Fuse, for the reasons outlined above,[8] was not available for inspection. In cross-examination, and as the Plaintiff acknowledged in its responsive submissions,[9] Mr Mansourian never saw the October Fuse, nor did he examine the power pole or connections to or within the Fuse, on or about 26 October 2008, the date of the Event. On this basis, the defendant submitted that treating the May Fuse as relevant evidence informing the nature of any damage likely to have been suffered by the October Fuse is based on “flawed deductive reasoning”.[10] The defendant continued:
“With respect, it is speculation. Mr Mansourian does not know, and nor is there any evidence, of what the fuse the subject of the Event looks like, what the electricity demand was at that moment, and therefore whether the fuse operated normally, or whether the fuse was damaged”[11]
It was also said that Mr Mansourian’s evidence does not, and cannot, rationally, affect the assessment of the probability of whether the October Fuse was damaged, and whether this was caused by the loss of power supply on the date of the Event, 26 October 2008.
[8] See paragraph 4, above.
[9] Plaintiff’s Submissions on the Admissibility of the Expert Reports of Peter Mansourian, paragraph 16.
[10] Ibid paragraph 39.
[11] Ibid.
The plaintiff’s response, in summary, was that any conclusions drawn as a result of Mr Mansourian’s inspection of the May Fuse should be considered relevant circumstantial evidence in determining the source of damage to the October Fuse. It was said that, although the October Fuse was not available for inspection, Mr Mansourian’s evidence and the Reports demonstrate how, in Mr Mansourian’s expert opinion, damage evident in or to the surrounds or housing of the May Fuse was likely consistent with what had most probably occurred to the October Fuse as a result of the respective power failure events. In support of this claim, the plaintiff made reference to what it considered the relevant surrounding facts (most of which it said were not disputed) relevant to the determination of the issue of admissibility, in absence of the October Fuse being available for inspection:[12]
[12] Ibid paragraph 13.
“(a) The fuse was the property of Powercor.
(b)The fuse that blew in October 2008 (the October fuse) was the blue phase fuse and the fuse that blew in May 2009 (the May fuse) was also the blue phase fuse.
(c)The October blue phase fuse was 315 Amp and was replaced with a new 315 Amp fuse.
(d)Powercor refused to hand possession of the October fuse to the Plaintiff’s representatives (Matt Managan) when requested.
(e)Powercor disposed of the October fuse before it could be inspected by the Plaintiff.
(f)Mansourian subsequently asked for the October fuse but was told it was not available.
(g)The fuse box or housing and the six cables attached to the fuse box were not replaced after the October incident or after the May incident.
(h)A Powercor representative [was] observed in May 2009 by Paul Harrison of the Plaintiff tightening the six cables to the fuse box.
(i)The May fuse was handed to the Plaintiff’s representative
(j)The blue phase fuse has not needed to be replaced since May 2009.
(k)Mansourian has examined the May fuse and the same has been available for inspection by the Defendant. The Plaintiff produces the May fuse as evidence.
(l) Testing of the electricity load of the Plaintiff’s premises (by David Spiteri [who gave evidence in the proceeding]) reveal that the maximum demand for electricity was below the ratings for all three fuses.”
The plaintiff also made reference to the “striking similarity” of the power failure events, in May 2009 and October 2008, respectively, [13] and said further that:
[13] Ibid paragraph 14.
“(a)The May fuse is produced and has always been available to the Defendant for examination if they so chosen.
(b) Apart from the October fuse the remainder of the fuse box and cabling was not replaced or repaired after the October incident.
(c)Mansourian’s opinion as to how the October and May fuses blew is based on the poor connection of one end of the cable connecting to the blue phase fuse.
(d)Mansourian’s opinion is based on observed data by witnesses to this case, namely that Powercor representatives tightened one end of the cable to the blue phase fuse considerably more than the other 5 connections.
(e)The opinion of Mansourian as to why the May fuse blew is based on his experience and study. He offers an explanation as to why the May fuse has the appearance it does and what is the likely cause of that appearance. In doing so he has discounted other factors such as the electricity load being greater than the fuses were capable of handling.”
In relation to the question of relevance, it is uncontroversial that I have a broad discretion to admit evidence that is relevant. This is confirmed by the relevant provisions of the Evidence Act 2008 (Vic) (“Evidence Act”), which provide:
“s 55 Relevant Evidence
(1)The evidence that is relevant in a proceeding is evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding.
(2)In particular, evidence is not taken to be irrelevant only because it relates only to-
(a) …
(b) the admissibility of other evidence; or
(c) a failure to adduce evidence.”
In addition, s 56 of the Evidence Act provides that evidence that is not considered relevant in the proceeding is not admissible.
In relation to the adducing of opinion evidence of Mr Mansourian, and the reliance of the plaintiff on similar fact evidence, the following provisions of the Evidence Act are also of relevance:
“s 76 The opinion rule
Evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed.
…
S 79 Exception- opinions based on specialised knowledge
(1)If a person has specialised knowledge based on the person’s training, study or experience, the opinion rule does not apply to evidence or an opinion of that person that is wholly or substantially based on that knowledge.
…
s 80 Ultimate issue and common knowledge rules abolished
Evidence of an opinion is not inadmissible only because it is about-
(a) a fact in issue or an ultimate issue; or
(b) a matter of common knowledge.”
Whilst these statutory provisions state the principles to be applied, case law predating the Evidence Act provides more particular guidance in relation to the exercise of the discretion whether or not to admit the evidence, taking into account the likelihood of any prejudice that may be suffered (whichever way the discretion is exercised), and also having regard to the particular facts and circumstances of each case. On this basis, apart from submitting that Mr Mansourian’s expert evidence was not relevant, the defendant also submitted that the Court cannot, and should not in present circumstances, speculate with respect to the facts in issue. Reference was made to a passage in the judgment of Dixon CJ in Jones v Dunkel,[14] where his Honour relevantly said:[15]
“the law … does not authorise a court to choose between guesses, where the possibilities are not unlimited, on the ground that one guess seems more likely than another or the others. The facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied.”
The defendant also made reference to a passage in the judgment of Heydon JA in Makita (Australia) Pty Ltd v Sprowles,[16] where his Honour reiterated the well-accepted requirement for “specialised knowledge” evidence to be tendered as expert opinion evidence. His Honour referred to Gleeson CJ’s characterisation of the evidence in HG v R,[17] which Gleeson CJ described as a “combination of speculation, inference, personal and second-hand views … and a process of reasoning which went well beyond the field of expertise”. The plaintiff submitted in response that, in a situation where direct proof is not available, circumstantial evidence giving rise to a “reasonable and definite inference” should be accepted. Reference was made to the decision of the High Court in Luxton v Vines,[18] where Dixon, Fullagar and Kitto JJ observed in this respect:[19]
“…where direct evidence proof is not available, it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture”
[14] (1959) 101 CLR 298.
[15] Ibid 305.
[16] (2001) 52 NSWLR 705.
[17] (1999) 197 CLR 414.
[18] (1952) 85 CLR 352.
[19] Ibid 358.
The plaintiff submitted that an appropriately experienced expert is able to provide relevant opinion evidence, if soundly based on proven facts and reasonable hypotheses and presumptions. Reference was made to Paric v John Holland Constructions Pty Ltd,[20] where Samuels JA (Hutley and Priestly JJA in agreement) said:[21]
“I do not doubt that if the factual premises upon which the expert opinion is laid are not proved or are proved to be incorrect, the opinion is robbed of its validity. That I would think is a proposition of commonsense. But there are, and remain, two obstacles in the way of counsel's making good that proposition in the present case. The first is whether, in fact, the fatal defects are to be perceived in the hypothetical matter put to the doctors; and secondly it is necessary to overcome the fact that it is for the tribunal of fact, in this case the judge himself, to come to some conclusion as to the weight and nature of the hypothetical facts, so as to determine whether they recommend themselves to him as an adequate foundation for the expert view.”
The plaintiff referred to the judgment of McColl JA and Bryson JA in Collaroy Services Beach Club Ltd v Haywood,[22] where it was held that the experts’ had not exceeded the scope of their area of expertise, even though the expert evidence sought to reconstruct the circumstances of an accident, based on certain assumptions and hypothetical situations.
[20] [1984] 2 NSWLR 505.
[21] Ibid 509.
[22] [2007] NSWCA 21, [55]-[68].
The plaintiff also attempted to characterise the evidence of Mr Mansourian as similar fact evidence, based on the two power failure events.[23] In this respect, the plaintiff made reference to Matheson J’s judgment in Grivas v Brooks,[24] which adopted a paragraph in Cross on Evidence,[25] which makes clear that similar fact evidence “is merely circumstantial evidence from which the tribunal of fact is asked to infer the existence of the fact in issue”. Such evidence is generally excluded, due to its prejudicial nature, except where “it bears on the probability or increased probability judged rationally on common experience that the fact in issue existed”.[26]
[23] Plaintiff’s Submissions on the Admissibility of the Expert Reports, paragraph 11-12.
[24] (1997) 69 SASR 523, 546.
[25](3rd Aust ed, 1986) 557 [11.55]. There have been significant developments in the area since, as reflected in Cross on Evidence (8th Aust ed, 2010), but this proposition remains true (see, generally, Chapter 8 of Cross on Evidence, 8th Aust ed).
[26] Ibid.
To the extent that the Mr Mansourian’s opinion in the Reports derives from facts and assumptions outside of Mr Mansourian’s direct knowledge and control, it is useful to consider precisely how Mr Mansourian was engaged in the present matter, which also sheds some light on the nature of assumptions made. Mr Mansourian was engaged on or about 12 November 2008, soon after the 26 October 2008 power failure Event. Mr Harrison, the managing director of the plaintiff, gave evidence that Mr Mansourian was instructed to investigate the incident, and to explain what had happened. Given how critical electricity supply was to the Business,[27] this was largely to ensure there was no possibility of the same problems occurring again.
[27] See paragraph 31, below.
In February 2009, Mr Mansourian and Mr Spiteri[28] carried out demand testing on the plaintiff’s behalf, in an attempt to assess the electrical peak demand pull of the Business at the Property. Mr Harrison, the managing director of the plaintiff, gave evidence that halfway through the test, he was instructed to turn on any additional equipment that was not running at the time, for the purpose of testing the ‘full’ electrical load. A third party company was also engaged to provide the testing equipment.
[28]Mr Spiteri, a qualified electrician, gave evidence that he was engaged by the plaintiff to attend the premises on 26 October 2008, following the power failure Event. He determined that the blue phase was down. However, by the time Mr Spiteri arrived at the premises, a Powercor technician had already replaced the Fuse and had since left the premises.
In May 2009, Mr Spiteri attended the premises on the date of the second power failure event. He gave evidence that on this date a Powercor technician, under instructions of Mr Mansourian, who was also present, tightened the Fuse housings, giving the bolts “a squeeze with his ratchet”[29]. Mr Spiteri said that all housings were tightened, but that the technician from Powercor specifically mentioned that the blue phase was “loose”, and tightened it more than the others. This was consistent with the evidence of Mr Harrison, the managing director of the plaintiff, who gave evidence largely in the same terms. The May Fuse was replaced by the Powercor technician, who confirmed that the fuse was ruptured. However, unlike with the October Fuse, Mr Harrison asked, on Mr Mansourian’s instructions, for permission to keep this fuse. This permission was granted, and the fuse from that date, the May Fuse, was produced at the hearing of this preliminary question.
[29] Transcript of Proceedings (“Transcript”), 51.
In the Reports, Mr Mansourian draws together his views arising from those events to which reference has been made. Mr Mansourian’s ultimate conclusion is, on this basis, that the connections in the fuse housing were probably “loose for years”. This, it was submitted, is to be viewed as “damage” evident to the May Fuse. This damage was said by Mr Mansourian to be consistent with a, so-called, “slow cooking” theory; whereby loose adjoining electrical cable connections would be likely to have caused the gradual build-up of heat which damaged the Fuse and caused it to fail as a fuse at a point below its rated (that is, its designed and specified) capacity as a fuse. Such a heat-deformed fuse “has unpredictable performance and results in failure at loads less than its designed/manufactured characteristics”.[30] The evidence supporting this was said to be the “discolouration to one side of fuse tags … due to the poor connection between the cable and fuse base holder”, evident in the May Fuse.[31] In oral evidence, Mr Mansourian suggested that his inspection of the May Fuse indicated to him that the May Fuse may not have been ruptured by a very high current, which would be expected as a result of a short circuit. Instead, he said, the rupture of the fuse was caused by, or had its failure materially contributed to, by a “long duration cooking type of activity” which would have deformed the fuse.[32]
[30] Second expert report of Mr Mansourian, dated 30 January 2011, 5.
[31] First expert report of Mr Mansourian, dated 10 March 2010, 3.
[32] Transcript, 74.
The further ‘implication’ that the plaintiff must establish is that the likely cause and source of damage of and to the May Fuse is consistent with the damage likely to have occurred to the October Fuse. The drawing of such an implication, it was submitted, is supported by the nature of the damage evident in and around the May Fuse, said by Mr Mansourian to be consistent with an ongoing situation with the blue phase whereby the loose connections led to heat damage deformities in any attached fuse. The plaintiff submitted that it was likely that the October Fuse had suffered the same fate, given that: the two fuses had failed within a period of seven months, were both of the same phase (blue), and that the bolts had “probably never been properly tightened”.[33] Reference was also made to the fact that subsequent tightening of the bolts at the fuse base has “remedied the situation”, in that none of the fuses has operated to open any of the phases subsequently.[34]
[33] Transcript, 84.
[34] Second expert report of Mr Mansourian, dated 30 January 2011, 5.
As indicated previously,[35] the plaintiff also led evidence of the maximum power demand load, drawn for the purposes of the Business, which at all times fell below the 315 Amp rated capacity of the blue phase fuses. The plaintiff relies on this fact to support its alternative argument as to damage – that the October Fuse, like the May Fuse, must have already been damaged prior to any short circuit, due to the loose connections having caused heat damage. The defendant submitted, with reference to the calculation of electricity demand, that Mr Mansourian had engaged in “false reasoning” by employing data recorded in the week beginning 17 February 2009 to show the level of demand on 26 October 2008, when the Fuse ‘tripped’, was also less than the fuse rating. Although the defendant is correct that such evidence does not provide direct proof of the level of electricity demand at the time of the Event, it still has significant value as circumstantial evidence – particularly as the date of the Event, 26 October 2008, fell on a non-business day, Sunday. As a result, the overall electrical demand would have been lessened compared to both average and peak demand seen in the test period over February and May 2009, which included business days where employees were present and carrying out business functions. This would, at a minimum, necessitate the extra electrical demand load of electrical appliances such as lights, computers, etcetera.[36] This is consistent with the evidence of Mr Harrison, that on the relevant power failure date, the date of the Event, during October 2008, there was likely less than full electrical load employed by the activities of the Business.[37]
[35] See above, paragraph 20.
[36] See Transcript, 101.
[37]See Transcript, 56-7, where Mr Harrison noted that all of the activity which operational staff would normally be doing, including high pressure hosing of the floors and moving the fish around through pumps, which both use a lot of power, did not occur over weekends.
The same argument – that the plaintiff has not provided direct proof of the source of damage to the October Fuse – was also raised generally with respect to the state of Mr Mansourian’s expert evidence, and the conclusions which he drew. Whilst the defendant acknowledged that “Mr Mansourian may have used his specialised knowledge in observing the fuse involved in the incident on 14 May 2009, and then forming his opinions as to what caused the power failure on that day”, it submitted that “he is no longer using such specialised knowledge when he then deduces or infers that a like event with a like cause occurred on a separate day over six months earlier”.[38]
[38] See paragraph 46 of the Defendant’s Outline of Submissions, dated 25 March 2011.
For the reasons submitted by the plaintiff, and on the basis of the reasoning that follows, I am satisfied that the evidence of Mr Mansourian is, at the very least, relevant and admissible for present purposes and that he does possesses relevant specialised knowledge. In that respect, I accept Mr Mansourian’s evidence as to the nature and extent of the damage suffered by the May Fuse and its likely cause. With respect to the October Fuse, the nature of any damage it had suffered before the Event cannot be directly proven. Nonetheless, I am satisfied on the basis of Mr Mansourian’s evidence, and the totality of the evidence generally, that the damage to the May Fuse arising from loose connections, as described previously, is relevant to establishing the likely nature, extent and cause of the damage to the October Fuse which had occurred prior to the Event. Although the defendant submitted that Mr Mansourian, as an expert witness, could not validly draw an inference of fact as to what happened on 26 October 2008 based on the power failure event of 14 May 2009, whether or not this is the case is, in my opinion, immaterial to my decision. My decision depends upon whether I find that a particular course of action, that contended for by the plaintiff, is more likely than not to have occurred, based on the evidence in its totality.
In this respect, to the extent that Mr Mansourian’s expert evidence builds and relies upon a number of assumptions, implications and inferences, which it necessarily must to the extent it relates to the October Fuse (which is not available for inspection), I find that Mr Mansourian has adequately set out the nature and source of the assumptions he has made, and the implications and inferences drawn. Contrary to the submissions of the defendant with reference to Jones v Dunkel,[39] my acceptance of Mr Mansourian’s evidence as relevant opinion evidence is not a choice between guesses; rather it is reasonably, and in my view for the reasons that follow, strongly, supported by the evidence. Whilst the question of the weight to be attached to Mr Mansourian’s evidence is a different issue from admissibility, as discussed further below,[40] it is noted in this respect that the Reports are comprehensive documents, setting out the reasons for Mr Mansourian’s reliance on the state of the May Fuse and its connections as informing the likely nature and extent of any damage to the October Fuse prior to the Event. In addition, Mr Mansourian gave comprehensive oral evidence, consistent with both the evidence of Mr Spiteri, an electrician engaged by the plaintiff, and Mr Harrison, the managing director of the plaintiff. Significantly, in the present context, this evidence was not controverted by the defendant, and no issues of credit were raised.
[39] (1959) 101 CLR 298.
[40] See paragraphs 36 and following.
In my opinion, the evidence led with respect to the May Fuse, itself, is relevant to establishing the likely nature and extent of any damage to the October Fuse; it is not simply a case of attempting to prove that because a fuse had blown once (in May 2009) it had done so in the past (on 26 October 2008, the date of the Event). Consequently, it is not necessary to consider its characterisation as similar fact evidence or otherwise and what, if anything, might flow from its characterisation.[41] Thus, the only relevant question to be determined is whether the evidence presented is logically probative of a fact in issue. On the basis of the reasons expressed above, I am satisfied that the plaintiff’s evidence, including Mr Mansourian’s evidence, does go to the likely nature, extent and cause of the damage to the October Fuse, and is, consequently, admissible. With that in mind, I now turn to consider the terms of the Policy itself, and the preliminary question of whether the Policy responds to the Event.
[41] Which seems to have been acknowledged by the plaintiff in closing submissions: Transcript, 177.
Construing the Policy
The parties were in broad agreement that a commercial insurance contract is an ordinary species of contract. In this respect Gleeson CJ observed in McCann v Switzerland Insurance:[42]
“A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstance which the document addresses, and the objects which it is intended to secure”
[42] (2000) 203 CLR 579, 589.
Consequently, the construction of the Policy is to be determined by what a reasonable commercial person in the position of the parties would have understood at the time of contracting.[43] This requires consideration of both the text of the Policy, the words used, and also the “surrounding circumstances known to the parties, and the purpose and object of the transaction”.[44] Where possible, such interpretation must also be undertaken in a common sense, non-technical way, to provide a commercially sensible construction.[45] To this end, and again, where possible, particular terms should be construed in the light of the whole of the contract so as to render a harmonious interpretation of the provisions.[46] None of these principles were controversial, and are well-established.
[43]The defendant referred the Court to Pacific Carriers Ltd v BNP Paribas (2004) CLR 451, 462, which was cited with approval in CGU Insurance Ltd v Porthouse (2008) 235 CLR 103, 116.
[44]Defendant’s Outline of submissions, dated 26 March 2011, paragraph 16, referring to Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179.
[45]Defendant’s Outline of Submissions, dated 26 March 2011, paragraph 17, referring to Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, 437; MLW Technology Pty Ltd v May [2005] VSCA 29, [76].
[46]Defendant’s Outline of Submissions, dated 26 March 2011, paragraph 17, Australia Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99, 109 (per Gibbs J, who was in dissent, but no disagreement was expressed on this point), as applied by Hargrave J in EverestProject Developments Pty Ltd v Mendoza [2008] VSC 366, [65].
Putting to one side, for the moment, the technical constructions of the words of the Policy, it is clear that the Policy overall was intended, amongst other things, to respond to certain situations where there was an interruption to electricity supply. This was clearly indicated in the Policy, which was structured to include “Additional Benefits” for the plaintiff, one of which was expressed to be protection from “Failure of Supply from Public Utilities”. As discussed below,[47] this includes damage at “any installation or Electricity Station or Sub-station”. In addition to the wording of the Policy itself, the nature of the plaintiff’s business must also have been apparent to the defendant insurer, particularly as the Business is expressed to be one of “Aquaculture & Fish Farming”, on the first page of the Policy.[48] Such a business relies on uninterrupted electricity supply for running pumping systems that deliver oxygen to the fish stock; if supply is interrupted, the fish will be deprived of oxygen and will die if the interruption is sufficiently prolonged.[49] This occurred on 26 October 2008, on the occurrence of the Event, where the interruption continued for at least the morning of 26 October 2008, where it was noted that “all of the fish were on the bottom of the tanks” indicating that they had died.[50] Consequently, as submitted by the plaintiff, it was no doubt clear to both parties at the time of contracting that uninterrupted electricity supply was “extremely critical” as, without it, there “simply is no business”.[51]
[47] See paragraph 35.
[48] Court Book, 18.
[49]Evidence was given by Mr Mangan, the operations manager and director of Mainstream, that when the supply of oxygen supply is disrupted the fish will “begin to stress at about the 20 minute mark, and from there they'll start to come to the surface to look for oxygen. And from there - about 30 minutes on from there some fish will begin to die and certainly by 45 minutes we start to see mass mortalities” (Transcript, 34).
[50] Mr Mangan, Transcript, 36.
[51] Mr Mangan, Transcript, 34.
In the present circumstances, it is the plaintiff’s case that the Event was the result of the Fuse rupturing and causing a power outage which caused the death of its fish stock, due to deprivation of oxygen; meaning that the business was interrupted. The insuring clause of the Policy covers business interruption where the business is interrupted by loss or damage in respect of a peril in respect of which there is material damage insurance. In terms of construction of the Policy, the term “peril” is not defined, nor is the phrase “material damage insurance”. It was, however, agreed, for present purposes, that the relevant “peril” was a power outage; of a type which occurred on 26 October 2008. The plaintiff submitted that the damage stemming from the power outage was damage in respect of a peril in respect of which Mainstream had material damage insurance. It was not disputed that this damage insurance was the coverage of the CGU Policy, and that the requirement in the Policy was met by the fact that CGU paid the claim sought by the plaintiff for damage due to the power outage on 26 October 2008. It was also not in dispute that the Business suffered loss and damage due to a failure of electricity supply.
Looking to the Policy in its commercial context, as well as considering its particular terms, however, it is somewhat curious that although the Policy is expressed to be for the provision of “simplified business interruption insurance”, its operative provisions only apply to situations where the insured suffers loss or damage to property, which results in consequent business interruption. Thus, any interruption to business not originating from property loss or damage would seem to fall outside of the Policy according to its terms. It seems somewhat anomalous, and at odds with a general commercial purpose to protect against business interruption, to suggest that had a fuse not been employed, and a power overload been allowed to traverse the circuit and damage the connected electrical appliances, that this situation would be insured against; thus placing the plaintiff in a better position than if a fuse was used to break the circuit before such damage could occur. Nonetheless, as the defendant submitted, it seems that the intention of the parties to protect against business interruption, as reflected in the Policy, was more limited, in that:[52]
“If the parties had intended that interruption to business caused by an interruption to electricity supply was to be covered, a simple clause would have been drafted to that effect. But it was not. What is contemplated by the additional benefit clause is damage to the sub-station in the nature of it being struck by lightning, or being hit by a truck etcetera”
[52] Defendant’s Submissions in Reply, dated 31 March 2011, paragraph 6.
I accept the defendant’s submissions as to the nature of the clause, particularly with respect to the principles of construction outlined above,[53] whereby the objective construction of the intention of sophisticated commercial parties to a commercial insurance contract must be taken to flow primarily from clear words and phrases employed in contractual documents. Thus, for present purposes, the question may be determined by resolution of the following question, namely: whether the failure of electricity supply caused damage to the property of the electricity company or the plaintiff, which resulted in the consequent interruption, loss or damage to the Business.
Is the Fuse property for the purposes of the Policy?
[53] See paragraphs 29-30, above.
It appears to be common ground that although “property” is not defined, the Fuse is capable of constituting “property” within the terms of the Policy.[54] When the main insuring clause in the Policy, entitled ‘The Cover’, is read with the provisions headed “Additional Benefits”, it is apparent that, provided that in cases of “Failure of Supply from Public Utilities”, loss is occasioned by loss or damage to “any installation or Electricity Station or Sub-station” (relevantly, Powercor’s power assets at and for the premises), the loss or damage is treated as loss or damage to “buildings” at the premises of Mainstream. Thus, for present purposes, the assets of Powercor are treated as the plaintiff’s buildings. It was common ground that the Policy thus extends to insure against damage to the plaintiff’s property resulting in an interruption or interference with the business.
Was the Fuse damaged?
[54]See paragraph 15 of the Plaintiff’s “Outline of Submissions of the Plaintiff” (undated), where reference was made to a layer of paint being treated as property for the purposes of property insurance: Graham Evans Co (QLD) Pty Ltd v Vanguard Insurance Co Ltd (1986) 4 ANZ Ins Cas 60-689. Reference was also made to Ruapheu Alpine Lifts Pty Ltd v State Insurance Ltd (1998) 10 ANZ Ins Case 61-440, where snow was also held to be property in similar circumstances.
For the Policy to be enlivened, the property, being the Fuse, must have been damaged. The defendant argued that the Fuse could not be said to be damaged by being ‘tripped’, as it had thereby simply fulfilled its fundamental purpose; that is, rupturing to close off the circuit in response to a higher than acceptable or normal level of current. Consequently, it was said, any interruption, loss or damage suffered by the Business did not stem, as the Policy requires, from property damage. In response, the plaintiff raised two alternative arguments. First, the plaintiff disagreed with the defendant’s characterisation of damage, and submitted that the fuse ‘tripping’ due to a surge in electrical current, in the ordinary course, in and of itself constitutes damage.[55] Secondly, the plaintiff submitted that the connections to or within the fuse housing were loose, causing overheating, which resulted in damage to the fuse.[56] The plaintiff submitted that such damage pre-dated the failure of electricity supply on 26 October 2008.
[55] See, paragraphs 13-27 of the Plaintiff’s “Outline of Submissions of the Plaintiff” (undated).
[56] Ibid 37.
If the proposition argued by the defendant, that the normal ‘tripping’ of a fuse to close off a circuit can not constitute damage pursuant to the Policy, is correct, then the Policy can not be said to respond to losses stemming from the 26 October 2008 failure of electricity supply. The same would seem to be the case, for example, if an automatically resetting circuit breaker had been installed instead of a fuse, in that no damage could be said to have occurred to the circuit breaker itself (which, unlike a fuse, is reusable and is not ‘consumed’ or ‘spent’ in fulfilling its purpose). It would then follow that the interruption, loss or damage suffered by the Business, such as the loss of fish breeding stocks, a critical part of the plaintiff’s Business, was not caused by property damage, and thus the Policy would not respond to the Event. For the reasons that follow, however, I am of the view that the Fuse was most likely damaged prior to 26 October 2008, the power failure Event, and in any case, was damaged or further damaged on the occurrence of the Event.
The first proposition, that a ‘tripped’ fuse is damaged, requires consideration of the meaning of the word “damage” as it appears in the Policy. In my view, there are no considerations peculiar to the Policy or the relationship between Mainstream and the insurer such that the ordinary meaning of the word “damage” should be departed from. The Policy is simply a species of ordinary commercial insurance contracts, which is to be construed as a commercial document applying the usual principles of construction.[57] The authorities indicate that a common starting point in the process of considering the ordinary meaning of the word “damage”, is a dictionary definition; the defining characteristic of which seems to be some form of impairment, harm, hurt, or injury.[58]
However, as Green CJ noted, whilst definitions which rely on the word ‘injury’ are useful, they cannot be adopted without qualification: “the use of the word ‘injury’ largely begs the question” which is to be determined; namely, the definition of “damage”.[59]
[57] See paragraphs 29-30, above.
[58]“Injury, harm; esp. physical injury to a thing, such as impairs it value or usefulness”, in the Oxford English Dictionary, cited by Green CJ in Ranicar v Frigmobile Pty Ltd [1983] Tas R 113 (“Ranicar”), 116; “Injury or harm that impairs value of usefulness”, in the Macquarie Dictionary, cited by Simpson J in Director of Public Prosecutions v Fraser & O'Donnell [2008] NSWSC 244 (“DPP v Fraser”), [35]. Her Honour also referred to the Concise Oxford English Dictionary, which includes the definition given by Green J in Ranicar, immediately above, which is marked as “archaic” as well as the Modern English definition of “Injury, harm” (at [35]).
[59] [1983] Tas R 113, 116.
In this respect, the plaintiff submitted that a number of authorities in which the word “damage” (or similar words) were construed, in varied contexts, relevantly shed light on the meaning of the word “damage” as used in the Policy:[60]
[60] Plaintiff’s “Outline of Submissions of the Plaintiff” (undated).
“20. In Switzerland Insurance Australia Ltd v Dundean Distributors Pty Ltd [1998] 4 VR 692 (“Dundean”) Phillips JA said (p714):
‘In my view these cases plainly establish, at least for the purposes of the present appeal, the proposition for which counsel was contending, namely, that “damage”, within the meaning of section 5 of the policy, occurs if the subject matter (which, I have said, included the software) is interfered with in such a way as to render it less useful or valuable and in consequence time and money are required to restore that use or value…’
21. His Honour adopted the reasoning of Green CJ in Ranicarv Frigmobile Pty Ltd [1983] Tas R 113 at 116 (“Ranicar”). The relevant passage from Ranicar was also relied on by Ormiston JA in Dundean. His Honour concluded (p703) that damage to property is:
‘…a physical alteration or change, not necessarily permanent or irreparable which impairs the value or usefulness of the thing said to be damaged.’
22. In Ranicar itself Green CJ referred to a number of authorities and said the following:
‘It is apparent that a fundamental issue which is common to both actions is the proper meaning of the words “damage to”. In the contract with Frigmobile the words are used in the phrase “any damage whatsoever to any goods” and in the contract with Royal Insurance they appear in the phrase “damage to the subject-matter insured”.
I turn to some authorities in which the meaning of the same or similar words has been discussed.
In R v Fisher (1865) 1 LRCCR 7 Pollock CB, speaking for the Court for Crown Cases Reserved, held that a person who plugged up the feed pipe of a steam engine thus rendering it temporarily useless was guilty of damaging the engine notwithstanding that no actual damage was done to the engine and that the plug could have been removed without damage being done to the machine.
In R v Tacey (1821 Russ & Ry 452; 168 ER 893, it was held that the taking away of a part of a knitting frame was damaging the frame “although the part taken out was not injured, and the replacing it would again make the frame perfect” on the ground that “it made the frame imperfect and inoperative”.
In King v Lees (1948) 65 TLR 21, it was held that a passenger who urinated in a taxi cab “injured” it, notwithstanding that the taxi could have been readily restored to its original condition with no residual effect. The essence of the Court’s decision was that the taxi was injured because it was temporarily rendered unusable.
In Samuels v Stubbs (1972) 4 SASR 200, it was held that a police officer’s cap was “damaged” when it was crushed as a result of it being jumped on, notwithstanding that it might have been restored to its original state without physical damage being caused to it. At p204 Walters J said:
“I have come to the conclusion that the constable’s cap was damaged, in that it was injured or harmed in such a way to cause temporary derangement of its function and of the purpose which it was normally to serve.”
In R v Zischke QLR 19 February 2083, the Court of Criminal Appeal of Queensland held that property is “damaged” when it is rendered “imperfect or inoperative.”’
As Green CJ noted in Ranicar, the decisions summarised above, which are mostly decisions as to the meaning of words in the context of criminal matters, provide “only limited assistance in the determination of the meaning of words which are found in a contract”. Nonetheless, I share Green CJ’s view that these authorities with respect to criminal matters are “useful in that it appears to me that they were based upon the ordinary meaning of the words being considered rather than upon the statutory contexts in which they appeared”.[61] More recently, Simpson J in DPP v Fraser,[62] referring to the decision of Green CJ in Ranicar, noted that what could be termed a more liberal construction of the meaning of the word “damaged”, was “readily understandable” in a civil context. [63] However, her Honour found a higher standard applicable in construing the term “damage” in a criminal law statutory context, namely that “damage” required some physical interference or alteration to the property in question.
[61] [1983] Tas R 113, 78,000.
[62] [2008] NSWSC 244.
[63] [2008] NSWSC 244, [34]-[37].
On the basis of the preceding authorities, in my view, a ruptured (or ‘tripped’) fuse is still “damaged”, despite the fact that it is designed to operate in this manner (that is, to rupture or be ‘tripped’) to stop a potentially damaging overload of current. This finding is consistent with attempts to construe the meaning of the word “damage” in the authorities extracted in the preceding paragraph; both in the more liberal civil context, but also, in any event, in the criminal law context, as highlighted in DPP v Fraser.[64] That is to say, a fuse that has ruptured is physically altered; once ‘tripped’, it can longer fulfil its protective function, and time (and resources) must be expended to repair or replace it. On this view of the meaning of “damaged” in the present context, I find that the Fuse was damaged, within the meaning of the Policy, on occurrence of the Event, on 26 October 2008.
[64] [2008] NSWSC 244, [36]-[44].
Further, it is, in my opinion, more than likely that the Fuse was also damaged prior to the failure of electricity supply on 26 October 2008, the Event. Given that the October Fuse was not available for inspection, such a conclusion is necessarily premised upon the totality of circumstantial evidence presented. In coming to this finding, I rely particularly on the nature of the damage occasioned to the May Fuse, being the heat damage arising from loose connections, on the basis of the evidence of Mr Mansourian, which I have already discussed. More particularly, I note that Mr Mansourian’s Second Report also contains the following passage:
“The discolouration of the link within the fuse, the discolouration of the internal plate of the fuse casing and also the external plate on one side cannot be explained through engineering principles for an otherwise normal fuse undergoing a normal overload condition”
This strongly suggests that the nature of the damage inspected in the May Fuse came about not as a result of a short circuit or overload, but instead, appears to be consistent with the heat damage deforming the May Fuse. This resulted in it ‘tripping’ at less than its rated capacity; [65] in the circumstances, unnecessarily and inappropriately having regard to its purpose. As discussed more fully above,[66] the plaintiff submitted that damage to the May Fuse should inform the likely nature of damage to the October Fuse as the loose connections and heat damage in the May Fuse were particularly relevant given the lack of change in circumstance in the seven month period in question between the two power failure events.
[65] See paragraph 22, above.
[66] See paragraphs 23 to26.
On the balance of probabilities, I am satisfied that it is likely that the May 2009 Fuse suffered damage similar to, and stemming from the same cause as, the October 2008 Fuse, and that this led to the respective power failure events. Although not necessarily decisive, I am also strengthened in my views by the plaintiff’s testing of the maximum power demand of the Business at the premises. As the defendant submitted, such testing was not being undertaken at the time of the Event or otherwise during the October 2008 period. However, the testing was conducted for a substantial period (approximately a month), with all possible electricity-drawing devices utilised in the conduct of the Business on the Property activated – such that the total possible maximum electrical load faced by the blue phase fuse could not be said to have increased compared to the load faced by the Fuse on 26 October 2008, the date of the power failure event. In addition, as highlighted above,[67] the evidence presented by Mr Mansourian was comprehensive and detailed, no issues of credit were raised, and he gave evidence in a forthright and responsive manner, demonstrating his substantial expert knowledge of relevant electrical matters and the likely nature and source of any damage to the Fuse.
[67] See paragraph 27, above.
As a result, the Policy does, in my view, respond to the Event, given the loss of power supply to the Property occasioned by the damaged fuse, which led to the business interruption. However, the defendant also submitted that a relevant exclusion or exclusion in the Policy applies, so as to obviate a need for the insurer to make payment.
Does a relevant exclusion apply?
The “Exclusions” provision of the Policy relevantly reads:
“We [the defendant insurer] will not pay for:
1. Interruptions or interference to your Business arising from loss or damage caused by (unless otherwise stated):
a. …
b. Mechanical, Electrical or Electronic Breakdowns or Breakages.
…”
Somewhat circularly, the Additional Benefits provisions, which, amongst other things, insure against failure of electricity supply, are expressed to be “subject otherwise to the terms Conditions Special Provisions and Exclusions of this Policy”; whilst the “Exclusions” apply “unless otherwise stated”. Presumably, the “unless otherwise stated” term of the Exclusions provision is more general, and intended to make the Additional Benefits provisions “subject to the … Exclusions”. As a result, it would seem that it is still possible to exclude liability for events arising under the Additional Benefits provisions, namely, in the present circumstances, failure of electricity supply. On this basis, the defendant submitted that an Exclusions provision was activated, on two alternate grounds:[68] first, that the failure of the generator to provide alternative power to the premises constitutes an electrical breakdown; second, and in the alternative, that the damage to the Fuse constitutes an electronic breakdown or breakage within the meaning of the exclusion clause. The plaintiff submitted, and it was not contested, that the onus to prove that the Policy is excluded rests on Calliden, the defendant insurer.
[68] See paragraphs 55-6 of the “Defendant’s Outline of Submissions”, dated 25 March 2011.
As to the defendant’s first ground for enlivening the Exclusions provisions, that the generator failed to provide alternate power, I do not consider the existence or operation (or non-operation) of this generator to be a relevant issue. The Policy provides for the defendant to exclude its obligation to insure where the loss or damage is “caused by” the relevant breakdown or breakage. The plaintiff, Mainstream, was not obliged to maintain a generator or alternate power supply on the property. It cannot be said to be a logical outcome, commercial or otherwise, that Mainstream, by virtue of having a generator which did not activate (irrespective of whether the generator’s failure to commence operation could be described as a breakdown or breakage[69]), should be placed in a worse position than if it had not employed a generator at all. I am strengthened in my views by a passage in the decision of Sheller J in HIH,[70] which relevantly provides:[71] “… where there are competing proximate causes and one is insured against, and none of the others is expressly excluded, the insured is entitled to recover”. This seems to be contemplated in the Policy itself, which contains no covenant requiring a backup generator, and requires the interference to be “caused by” the breakdown or breakage. The generator’s failure may have been a contributing factor in failing to avert damage stemming from the power failure, on 26 October 2008, but, in the present circumstances, the damage to the property and the consequent loss to the Business, cannot be said to be “caused by” the failure of the generator to activate.
[69]A proposition that the plaintiff disagreed with: Plaintiff’s “Outline of Submissions of the Plaintiff” (undated), paragraph 28-35.
[70] HIH Casualty & General Insurance Ltd v Waterwell Shipping Inc (1998) 43 NSWLR 601.
[71] Ibid 612.
The defendant’s second ground, that the damage to the Fuse enlivens the Exclusions provisions, also cannot be sustained, albeit for different reasons. The interference or interruption that the Business suffered arose from damage caused by the power failure event, which, on the balance of probabilities, I have found was caused, or materially contributed to, by the damaged Fuse. This “damage”, pursuant to the insuring provisions of the Policy, cannot be said to fall within the category of “Mechanical, Electrical or Electronic Breakdowns or Breakages”, envisaged in the Policy. To hold otherwise, that “damage” to property can also be characterised as a “Breakdown” or “Breakage”, would mean that the Exclusions Policy would operate to prevent all claims for insurance pursuant to a “Failure of Supply”, which requires relevant property damage as a precondition to an insurance payment. Any electrical failure, giving rise to “damaged” property for the purposes of the Policy, will necessarily be “Mechanical, Electrical or Electronic” in nature. Consequently, the Failure of Supply provisions would be devoid of meaning; a result clearly out of line with the commercial purpose of the parties.
Conclusion
For the preceding reasons, I find that the Policy does respond to the power failure event, the Event, on 26 October 2008, and that the interruption to the Business was “due to” the damage suffered by way of the loss of electrical power, which was caused by the damaged Fuse.
Given that this determination relates only to the preliminary question of whether the Policy responds to the Event, I will hear the parties in relation to further orders they may seek to progress the matter, and in relation to costs thus far.
10
0