McConnell Dowell Middle East LLC v Royal & Sun Alliance Insurance plc
[2008] VSC 501
•25 November 2008
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
| AT MELBOURNE COMMERCIAL AND EQUITY DIVISION |
No. 5641 of 2003
| McCONNELL DOWELL MIDDLE EAST LLC | Plaintiff |
| v | |
| ROYAL & SUN ALLIANCE INSURANCE PLC | Defendant |
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| JUDGE: | HANSEN J |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 19-21 and 26-28 May 2008 |
| DATE OF JUDGMENT: | 25 November 2008 |
| CASE MAY BE CITED AS: | McConnell Dowell Middle East LLC v Royal & Sun Alliance Insurance Plc |
| MEDIUM NEUTRAL CITATION: | [2008] VSC 501 |
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Insurance – Construction Risks Material Damage policies covering “Occurrence” – Plaintiff operated diamond mine in Central African Republic – Some of plaintiff’s property disappeared from mine in October 2000 (“the first loss”) – Plaintiff left Central African Republic in December 2000, abandoning other property which it never recovered (“the second loss”) – Whether losses an Occurrence - Exclusion not applicable as both losses attributable to theft – Preservation of life extension applicable if necessary – Basis of settlement – Whether insured property “Contract and/or Works” or “Construction Plant and Equipment” – Reinstatement value payable – Meaning of “market value” – Whether relocation costs should be deducted – Associated costs and expenses.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J J Gleeson SC and | Deacons |
| Mr J J Whelen | ||
| For the Defendant | Mr C M Caleo SC and | DLA Phillips Fox |
| Mr A P Young | ||
| HIS HONOUR: |
Introduction
McConnell Dowell Middle East LLC[1], a contracting and engineering company incorporated in the United Arab Emirates (who I will call “the plaintiff” or “the insured”), claims an indemnity, alternatively damages, from Royal & Sun Alliance Insurance Plc, an insurance company incorporated in the United Kingdom (who I will call “the defendant” or “the insurer”), under two policies of insurance entered into in October 1999 and July 2000 respectively, in respect of the loss of 132[2] items of plant and equipment which the plaintiff alleges were stolen from a diamond mine it had operated near Carnot in the Central African Republic (“the CAR”). The plaintiff’s claim is divided into two parts, being items 1 to 20 (“the first loss”) and items 21 to 134 (“the second loss”) in the schedule to the plaintiff’s pleading. The plaintiff says that the theft of items 1 to 20 occurred in October 2000, while the theft of items 21 to 134 occurred at some time between December 2000 and September 2002. The plaintiff says that it is entitled to be paid the “Reinstatement Value” of the plant and equipment (US$4,187,432[3]) plus other associated costs and interest.
[1] The plaintiff company is now known as Dutco McConnell Dowell (ME) LLC. At relevant times, the shareholders in the plaintiff were McConnell Dowell Corporation Limited as to 49 per cent, and Dubai Transport Company (“Dutco”) as to 51 per cent.
[2] The Third Further Amended Statement of Claim filed 12 July 2007 (“the plaintiff’s pleading”) lists 134 items, however two of the items are listed twice (items 35 and 86 are one and the same, as are items 37 and 87), hence the total number of items is 132. The items include 46 modified shipping containers, used to accommodate workers and supplies at the mine, 18 light vehicles such as utility trucks and Landcruisers, 12 trucks, 7 generators, 5 pumps, 3 excavators, 4 welders, 4 compressors, 2 bulldozers, 2 chainsaws, 2 water tanks, and other miscellaneous items.
[3] To be converted to Australian dollars.
The defendant denies that the plant and equipment was stolen, and generally denies liability under the policies. I note that if the defendant is liable, the amount recoverable by the plaintiff depends on whether it is entitled to “Reinstatement Value” (as contended by the plaintiff) or “Indemnity Value” (as contended by the defendant), those terms being defined by the policies. The parties agreed that the Reinstatement Value of the plant and equipment is US$4,187,432[4]. As to Indemnity Value, there were significant differences between the parties. The plaintiff submitted that Indemnity Value meant the depreciated replacement cost of the plant and equipment, as to which the plaintiff’s expert Timothy Charles O’Mara was the only witness to provide an estimate of value. The defendant submitted that Indemnity Value meant the “market value” of the equipment. The parties’ experts agreed in their joint report that, assuming a sale of the plant and equipment in the UAE as at May 2006 (for the items comprehended by the first loss) and September 2002 (for the items comprehended by the second loss), the market value of the items was US$1,909,000 (assuming “good condition”), US$1,537,300 (assuming “reasonable condition”), and US$959,100 (assuming “very poor condition”). Nevertheless, the defendant submitted that, on a proper construction of the policies, because there was no relevant market for the plant and equipment in the CAR, the market value figure should be discounted to reflect the cost of relocating the plant and equipment from the CAR to the UAE in order to effect a sale. The defendant submitted, in essence, that the relocation cost was greater than the market value of the plant and equipment, hence the plaintiff was not entitled to recover anything in respect thereof. That is a sufficient overview of the numerous differences between the parties as to the correct approach to be adopted on quantum. I refer to these matters in detail after dealing with the question of liability.
[4] The parties’ experts agreed in their joint report, dated 26 May 2008 (exhibit J), that the Reinstatement Value of items 1 to 20 was US$1,436,812 and the Reinstatement Value of items 21 to 134 was US$2,750,620.
It is convenient to begin by setting out the relevant terms of the two insurance policies, which are essentially identical. Any relevant difference is explained below.
The policies
Each policy is entitled “Construction Risks Material Damage Insurance Policy”. The Schedule to each policy:
(a) states that the Named Insured is McConnell Dowell Corporation Limited and other insured parties as specified herein;
(b) defines “Business” as “All business undertakings and activities of the Insured [a long list of activities is then set out] and any other related or any other activity in which the Insured may become involved”;
(c) defines “The Insured Operations” as “All contracts and/or works of any kind or description commenced during the Period of Insurance or commenced prior to and not completed at the inception of this Policy undertaken by or on behalf of the Insured in connection with the Business”;
(d) defines “Territorial Limits” as “Anywhere in the World, including world-wide in respect of Insured Property whilst in transit or storage incidental to transit”;
(e) defines “Policy Duration” as 4pm on 30 June 1999 to 4pm on 30 June 2002 (the first policy); and
(f) defines “Policy Duration” as 4pm on 30 June 2000 to 4pm on 31 December 2002 (the second policy).
After stating limits of liability, the Schedule refers to the amount of the Deductible. The first policy provides that the insured is to bear the amount of AUD$250,000 for each Occurrence under the policy. The second policy provides that the insured is to bear the amount of US$150,000 for each Occurrence, however by reason of the “Drop-down Deductible” provision and the evidence of Alister Craig Burley, a Divisional Manager of Corporate Insurance Services at Aon Risk Services Australia Pty Ltd (the plaintiff’s insurance broker), the parties agreed that the applicable Deductible is US$6000 for each Occurrence under the second policy. Apart from the amount of the Deductible, the only relevant difference between the policies is the currency, the first policy being in Australian dollars, and the second policy being in United States dollars.
In Part 1 of each policy (entitled “Insuring Clauses – Material Damage”), cl 1 (Section A – Construction) provides that:
“This Section, subject to the limitations, exclusions[5] and conditions hereinafter mentioned is to indemnify the Insured against physical loss of or damage to the Insured Property (as defined herein) in respect of any Occurrences happening during the period of insurance defined herein.”
[5] The second policy also contains the word “endorsements” here, and there are several endorsements at the end of the second policy, however nothing turns on this fact.
“Insured Property” is defined in Part 5, cl 2 as:
“2.1 ‘Contracts and/or Works’ all property of every description within the Territorial Limits having any connection whatsoever with the Insured Operations including the whole of the works. It shall include but not be limited to: permanent and temporary works or structures including existing structures, temporary buildings, camp buildings and all other project buildings and their contents, materials and supplies including principal supplied materials, formwork, falsework, project consumables, drawings and other documents, owned by the Insured … but excluding Construction Plant and Equipment referred to in item 2 below. (emphasis added) 2.2 ‘Construction Plant and Equipment’ Shall include but not be limited to constructional plant, tools and equipment of every description within the Territorial Limits, which also includes spare parts and tools, temporary works, structures or site buildings, hutments and their contents, falsework, formwork, scaffolding, access platforms, hoardings, mouldings, and the like whether the foregoing be usable or reusable the property of the Insured or for which they are responsible … . Cover shall also include employees’ tools and equipment.”
“Occurrence” is defined in Part 5, cl 4 as:
“an event or continuous or repeated exposure to conditions, which, during the Period of Insurance, causes or contributes to physical loss of or damage to the Insured Property.”
In Part 2 (entitled “Extensions”), cl 6[6] (entitled “Preservation of Life or Property”) provides that:
“Notwithstanding the definition of Occurrence herein, this Policy shall extend to cover the Insured in respect of loss, damage or liability caused by or arising out of the deliberate or intentional acts by the Insured which the Insured considers reasonably necessary to protect life or to preserve property or by way of mitigation of loss, damage or liability indemnifiable under this Policy.” (emphasis added)
[6] Clause 7 in the first policy.
In Part 4 (entitled “Exclusions Applicable to Sections A & B”), cl 5 provides that:
“This Policy does not cover loss due to disappearance or revealed by inventory shortage alone, unless such loss can be attributed to burglary and/or theft and/or any attempt thereat”.
Issues on liability
Counsel agreed that in determining the question of liability, the following issues arise:
(a) in respect of both losses, whether there was an “Occurrence” as defined in the insurance policies;
(b) assuming there was an “Occurrence”, whether the “disappearance” exclusion in cl 5 applies.
As to the second loss, two further issues arise, namely:
(c) whether the defendant’s “Intentional Act” defence applies; and
(d) whether the “preservation of life” extension applies.
Facts and evidence
On 12 June 1999 the plaintiff and Societe Miniere Aoudou Pacco (“SMAP”), a company incorporated in the CAR the shareholders and directors of which were a CAR national named Ibrahim Aoudou Pacco and a New Zealand national named Jeffrey Reid, entered into three agreements (“the first SMAP agreements”), by which the plaintiff hired to SMAP certain plant and equipment to be used for open cast mining operations in the CAR, and the plaintiff provided personnel to SMAP who would work in the mining operation and maintain the plant and equipment. The first SMAP agreements acknowledged that the plaintiff owned the plant and equipment, and could dispose of the same after completion of the project.
By around November 1999 the plaintiff had transported to the mine all of the 132 items of plant and equipment the subject of the proceeding. The plant and equipment had earlier been shipped from Dubai to the port city of Douala in Cameroon, from where it was transported overland to the CAR, which involved the plaintiff and SMAP using the plaintiff’s grader, two bulldozers and all three excavators to build roads and bridges to enable access for the plant and equipment through the jungle and other difficult terrain and into the area where mining operations were to take place. Suffice it to say that the mine was in a remote location. Upon arrival at this location, employees of the plaintiff and SMAP built an accommodation compound (“the camp-site”) where the mine workers lived. The camp-site was located about 60 kilometres north-west of Carnot (which is itself a small provincial town located several hundred kilometres from the national capital, Bangui) and the mine-site itself was located a further 15 kilometres to the west of the camp-site. The camp-site was approximately 200 metres long by 75 metres wide, and was surrounded by a three metre high steel mesh fence with barbed wire at the top. There was only one entrance to the camp-site, and approximately six guards patrolled the camp-site perimeter.
The plaintiff’s plant supervisor, Elavathur Narayanam Suresh, who was responsible for ensuring that the plant and equipment was in good working order, said in his witness statement, and I accept, that between January and March 2000, all of the equipment which had been transported to the CAR was used by the plaintiff either at the mine-site, the camp-site or both places. In broad terms, the mining operation involved the following steps :
a) Vegetation consisting mainly of scrub and small trees, and sometimes larger trees, was cleared from land which was near river swamp land located at the mine site;
b) the “overburden” was then removed. Overburden are layers of soil, sand and other material above the layers of soil where diamonds are often found;
c) the soil was scooped up with care and taken by excavator to a stockpile which was then processed through a large sieve which was commonly referred to as “the power screen” or “the jig”. The raw diamonds were retained on the final screen of the jig;
d) the soil that went through the jig was again stockpiled to allow local CAR “artisans” to rework the material by hand to locate any diamonds missed by the jig; and
e) the reworked material was then taken and spread over the mined areas as was the stockpiled overburden. Re-contouring of the worked areas was then carried out.
Generally, the equipment was used at the mine-site and, when not being used there, was kept at the camp-site. It is to be noted that there were 46 shipping containers used for accommodating the mine workers, and storing food and equipment, as to which I would infer that these containers were located at the camp-site and were not moved back and forth as was the case with some of the more mobile items.
In March 2000, amidst allegations that employees of the plaintiff had stolen diamonds, all of the plaintiff’s employees in the CAR were placed under house arrest by the CAR police. The employees were released about 14 days later. At the end of March 2000, Suresh left the CAR and returned to Dubai.
On or about 4 August 2000 Suresh returned to the CAR accompanied by Mike Simpson (the plaintiff’s project manager), Ross Demby (the plaintiff’s plant manager) and Ian William Gordon. I interpolate that Gordon (who has been a director of the plaintiff since May 2002) had assumed direct management responsibility for the mining operation from March 2000 and was, at relevant times, the general manager of McConnell Dowell Corporation Limited. As to this visit, Suresh gave evidence, which I accept, that he spent one day at the camp-site, and took some photographs of some of the equipment, but did not have the opportunity to conduct a stock-take to see whether all of the equipment was still at the camp-site and mine-site. He returned to Dubai on 7 August 2000.
In the meantime, by about January 2000 the plaintiff had become concerned about the mining operation. In May 2000 Gordon advised the plaintiff’s board that SMAP was significantly behind in its rental payments under the first SMAP agreements. Gordon outlined several options to the board, including, amongst others, removing the plant and equipment from the CAR, or selling the plant and equipment to SMAP on deferred payment terms. The board considered that the primary focus should be on getting as much value for the plant and equipment as possible, and that if terms could be agreed with SMAP, the plaintiff should continue to operate the mine for two months to reveal whether diamonds were being found and at what quantity and size.
Negotiations then followed between Gordon (based at the Melbourne head office of McConnell Dowell Corporation Limited) and Reid (based in New Zealand), with the result that on 11 October 2000, the plaintiff and SMAP entered into an agreement (“the second SMAP agreement”) expressed to be in substitution for the first SMAP agreements. The “background” section of the second SMAP agreement stated that since 1999 the plaintiff and SMAP had been operating a diamond mine in the Carnot area using plant and equipment provided by the plaintiff, that SMAP “shall purchase the plant[7] sent to the CAR pursuant to the 1999 Agreements plus the jigs at an agreed price of US$1,300,000[8]”, and that the plaintiff would continue to supply services in relation to the diamond mine for a period as defined by the agreement. The agreement also provided, relevantly, that:
[7] This plant included all items the subject of the plaintiff’s claim.
[8] This comprised 12 monthly payments of US$108,333.33, the first of which was to be made on 31 March 2001.
a) SMAP has accepted the Plant and is not entitled to reject it for any reason (cl 1.2);
b) the Plant shall be deemed to have been purchased by SMAP on 1 November 1999 and the risk in it shall be SMAP’s from that date (cl 1.4);
c) title to and ownership of the Plant shall remain in the plaintiff until SMAP has paid the total cost and operating payments referred to in the agreement (cl 1.5);
d) until title in the Plant passes in terms of cl 1.5 above, SMAP shall be bailee of the Plant for the plaintiff and must not dispose of, charge or encumber the Plant … must retain possession of the Plant in good order and condition … must store the Plant separately or mark the Plant so that it may be readily identified as the plaintiff’s property and must inform the plaintiff of the whereabouts of the Plant on request (cl 1.6); (emphasis added)
e) if, before paying for the Plant, SMAP on-sells any of the Plant, SMAP must account to the plaintiff for the proceeds of on-sale to the extent that the plaintiff has not received payment of the price (cl 1.7);
f) the plaintiff would operate the diamond mine for a period of 12 months, at the end of which the parties may agree to extend operations (cl 3.15);
g) the date of commencement of operations pursuant to the agreement was deemed to be October 2000 (cl 3.17);
h) the plaintiff reserved the right to cease operations and withdraw personnel from the CAR if, at the end of a two month period from commencement of operations and at any time thereafter, the mine was not producing adequate value of diamonds to sustain mine operating costs or sustain the monthly payments SMAP was obliged to make in respect of the Plant (cl 3.21(a));
i) the plaintiff also reserved the right to cease operations and withdraw personnel from the CAR if SMAP failed to make any payment required under the agreement (cl 3.21(b));
j) if the plaintiff exercises its rights under cl 3.21, it shall also have the right to remove the Plant from the CAR and re-assume absolute legal and beneficial ownership of the Plant upon taking possession of it … (cl 3.22);
k) if the plaintiff exercises its rights under cl 3.21, SMAP shall take all necessary steps to enable the plaintiff to remove the Plant and the personnel from the CAR (cl 3.23).
On 13 October 2000 Suresh returned to the CAR. By the end of October, or early November, the mining operations had recommenced and he had checked the equipment. He said that, with a few exceptions unnecessary to refer to here, the equipment remained in good, very good or excellent condition. However, some items of equipment (items 1 to 20) which had been at the mine-site or the camp-site before he left in March 2000 were no longer located at those places when he checked for them shortly after 13 October. The items were not removed with Suresh’s knowledge or authority. Suresh then asked each of the employees of SMAP and the plaintiff whether they had any knowledge of the location of the missing items of equipment, but nobody was able to assist him in that regard. After making his enquiries, in about mid-October Suresh provided to Simpson and Demby a list of the missing items.
Simpson prepared a report dated 4 November 2000, which he sent by facsimile to Gordon on about that date, stating the apparent whereabouts of some of the items Suresh had reported missing. Specifically, an 85 ton low-loader[9] (item 1) and a Komatsu bulldozer (item 4) were stated to be “now parked in the SMAP plant yard in Carnot”, a Mack RD688SX (item 6) was “believed to be somewhere in the Carnot area, condition unknown” while a 55 ton semi-tailer (item 3) was also believed to be somewhere in the Carnot area, “probably attached” to item 6 above. A Komatsu bulldozer (item 5) was “now working at the CDC operation[10]. According to I.P.[11] this is with the knowledge and agreement of Jeffery Reid and Ian Gordon”. The report also referred to a Ural truck (item 63) “reported by I.P. to be in the SMAP yard at Carnot”.
[9] This is a trailer used to transport bulldozers.
[10] The CDC operation was another mine in the CAR operated by SMAP.
[11] Ibrahim Pacco.
Gordon said that as a consequence of reading the report, he requested Suresh, Simpson and Demby to do their best to recover the missing equipment, and keep the remaining equipment in good condition.
On 27 November 2000 there was a meeting in the CAR of the mining operation’s “management committee”, attended by Pacco, Reid, Gordon, Simpson and Geoff Rogers (the plaintiff’s general manager). Gordon took the minutes of the meeting. The minutes record that the issue of missing plant and equipment was raised and that Pacco provided some explanations as to why certain items of equipment were missing. I refer to this matter in more detail below.
In December 2000 the plaintiff decided to cease mining operations in the CAR, in essence because mine profits were considerably less than operating costs. The plaintiff’s employees continued working until they left the CAR for their Christmas break, after which the plaintiff and its employees did not subsequently return to the CAR. Suresh did not see or ascertain the whereabouts of the missing equipment (items 1 to 20) in the time before he left the CAR.
On 5 or 6 January 2001 Gordon met with Reid, told him of the plaintiff’s position and explained that a formal letter would be sent in the next few days. Among other things, they discussed SMAP’s obligations to make payments for the equipment sold under the second SMAP agreement, as well as SMAP’s obligation to make operating payments. Gordon said in cross-examination that Reid was optimistic about making good SMAP’s part of the contract, which I understood to mean paying for the equipment and making the operating payments.
On 8 January 2001 Rogers sent a letter to SMAP, marked to the attention of Pacco, advising that the plaintiff was terminating the second SMAP agreement pursuant to cl 3.21, in short because profits were considerably less than operating costs. The letter requested that “you take all necessary steps to enable [the plaintiff] to remove the Plant from the CAR accordingly and advise the precise location of each piece of Plant and where and when it can be collected.” The letter also attached a summary of outstanding amounts to be paid by SMAP for personnel and other operations services provided by the plaintiff.
On 15 February 2001 Rogers sent a further letter to Pacco stating that, despite the previous notice that the plaintiff was ceasing mining operations, SMAP had “failed to take all necessary steps to enable us to remove our Plant from CAR”, and reminding SMAP of its contractual obligation to advise the plaintiff of the plant’s whereabouts and to take all necessary steps to enable the plaintiff to remove the plant. The letter also sought confirmation that SMAP would, within 14 days, pay certain outstanding invoices in respect of operating payments and take all necessary steps to enable removal of the plant from the CAR. The letter did not refer to SMAP making payments for the equipment. Pacco did not respond to these letters. However, there was a series of communications between Gordon and Reid from about February to November 2001 as to the plaintiff’s request for the return of the plant and equipment and the payment of outstanding invoices. I refer to these communications below.
Meanwhile, in about March 2001, the plaintiff informed its insurance broker of the possibility of a claim being made under the insurance policies in respect of the equipment in the CAR. Andrew Frederick Nicholl, the employee of McConnell Dowell Corporation Limited responsible for the insurance claim, suggested to the broker that Mr Steven Hodge of Crawford & Company (Australia) Pty Ltd be appointed as loss adjuster. Hodge was appointed and in early April 2001 Nicholl told Hodge that the plaintiff’s priority was to retrieve the plant and equipment, however it did not wish to jeopardise future insurance claims. It is not necessary to set out all the correspondence which followed, though I note the following. In a letter dated 31 August 2001, Nicholl requested that the insurer comment on legal advice the plaintiff had received from Clayton Utz as to the prospect of recovering the equipment, and if the insurer had any knowledge as to the prospects of recovery and the different options available. Nicholl invited the insurer to comment and/or provide direction to the plaintiff as to what it should do. There was no response from the insurer, however Hodge provided three reports to Nicholl, the final one dated 30 October 2001 stating that “we await input from insurers concerning the preferred course of action which, from the foregoing, we anticipate will be legal in nature”.
Returning to the communications between Reid and Gordon, Gordon gave evidence, which I accept, that on 27 March 2001 he told Reid that he (Reid) and Pacco “must do something about the equipment … either purchase the equipment … or start assisting [the plaintiff] to retrieve it from the CAR”. Gordon mentioned in cross- examination that SMAP’s first instalment for the equipment was due on 31 March 2001 and that at about this time the plaintiff still wished to sell the equipment to SMAP under the terms of the second SMAP agreement. I interpolate that this depended, of course, on SMAP being able to make the required payments, but the advantage was that it would obviate the need to recover the equipment. Recovering the equipment from the CAR remained as an alternative. Matters appear to have come to a head with a facsimile from Gordon to Reid dated 28 August 2001, in which Gordon advised that SMAP (a) had failed to make personnel and operating payments, (b) had failed to take necessary steps to allow removal of the plant and (c) was in breach of the second SMAP agreement, and further that the plaintiff had that day notified its lawyers regarding commencement of legal proceedings if SMAP did not make the outstanding personnel and operating payments. The facsimile also stated:
“More seriously we have instructed that if SMAP do not advise the whereabouts of our Plant and take all necessary steps to enable us to remove this Plant from the CAR, we shall consider our Plant has been stolen.”
Gordon sought a response from Reid by 4 September, which would be considered prior to commencing further proceedings.
Reid sent a response to Gordon by facsimile dated 4 September relevantly stating that:
“The mine is still not operating but the equipment, I was advised, is still secure at the mine site. Ibrahim advised me on 21/8 that attempts by the locals to take the mining equipment had been foiled but in doing so Ibrahim’s brothers and two other security men were hospitalised.”
The facsimile also stated that Reid had not been able to contact Pacco since 21 August but that he would be in contact with Gordon once he had further news from Pacco.
On about 6 September 2001, the plaintiff’s solicitors sent a letter to Pacco at SMAP, giving “final notice” to pay “the full sum due to our clients” of US$343,004.70, and stating further that “you have failed to take all necessary steps to enable our clients to remove its construction plant (the ‘Plant’) from the CAR”. The letter reiterated that the plaintiff required SMAP to take all necessary steps to enable the removal of the Plant from the CAR. The letter does not explain how the above sum was arrived at, however given that there is no reference to SMAP purchasing the equipment, I would infer that the sum represented outstanding personnel and operating expenses, rather than payments for the purchase of the equipment. For reasons I explain below, nothing turns on this. In any event, no response was received to that letter, although, as I have mentioned, there were further communications between Reid and Gordon.
On 25 October 2001 Reid sent a facsimile to Gordon stating, among other things, that Pacco was demanding US$150,000 for wages and fuel. Reid also stated in the facsimile that he was shocked by this. He also referred to difficulties he had in keeping in contact with Pacco.
On 2 November 2001 Gordon telephoned Reid, who told Gordon that he had resigned from SMAP and was depressed as to how events turned out. Gordon said in his witness statement, and I accept, that in November 2001 he decided not to pursue Reid any further as he believed, based on what Reid had told him, that Reid had lost contact with Pacco and no longer had any influence concerning the return of the equipment.
Meanwhile, and notwithstanding Gordon’s obvious desire that SMAP pay for the equipment and thus avoid the inconvenience and expense of the plaintiff having to physically recover the equipment from the CAR, from about August or September 2001 the plaintiff began to investigate the feasibility of removing the plant and equipment from the CAR, and to that end the Couper Group was consulted and subsequently prepared a report as to the various options for recovering the plant and equipment. On about 15 October 2001 the report was provided to the plaintiff’s board members, Gordon and the insurance broker. The Couper report referred to numerous matters including, amongst other things, recent coup attempts in the CAR, the withdrawal of non-essential personnel by the United Nations in July 2001, the generally precarious civil and political situation in the nation, and the numerous difficulties involved in removing the equipment. Several conversations then ensued between Gordon and David George Robinson (who was Chief Executive Officer of McConnell Dowell Corporation Limited and a director of the plaintiff), as to recovery of the plant. Gordon said in his witness statement, and I accept, that he told Robinson that he was prepared to return to the CAR to recover the plant and equipment, provided that he was accompanied by armed escorts, that Robinson asked him whether it was possible that someone could get shot or killed, as to which Gordon said that there was a “distinct possibility of that happening”, at which point Robinson said words to the effect that “no one is going back to the CAR”.
Robinson’s evidence as to these matters was as follows. He said in his witness statement, and I accept, that Gordon “confirmed the substance of the statements in the Couper Group Report about the unstable and potentially dangerous situation in the CAR and the difficulties and risks likely to be associated with attempting to recover [the plaintiff’s] plant and equipment”, and Gordon said that “a forced attempt to recover [the plaintiff’s] plant and equipment was likely to lead to an escalation of violence”. After these discussions, and having considered the Couper report and other matters, including that the estimated cost of removal (assuming that removal was possible) was likely to exceed the market value of the plant and equipment, Robinson decided not to send any recovery agents to the CAR. He believed it would be too risky for the individuals involved. In early November 2001 he instructed Gordon that no forced attempt should be made to recover the plant and equipment. In cross-examination, counsel for the defendant put to Robinson that he formed the view that seeking to go back to the CAR to retrieve the equipment was of nil or negligible financial value to the plaintiff because the cost of retrieval exceeded the book value of the equipment, as to which Robinson replied “No, I didn’t. I formed the view we should not go back because I was not going to let anybody go in there and risk their lives over it, regardless”. He added that “the financial did not come into my decision”. Later, when counsel suggested to him that “quite apart from the danger, you formed the view that the costs of retrieval, however it was undertaken, was likely to exceed the then market value of the plant and equipment”, Robinson said “I guess so”, but later reiterated that the danger “was my principal thing, we were not doing it [recovering the equipment] because of the danger”. In my view Robinson was a frank witness and I accept his evidence. While he was no doubt aware that removal costs might exceed the value of the equipment, and this was a matter which he took into account, I find that his decision to call off any plans to physically recover the equipment from the CAR was made primarily, if not entirely, because he was not prepared to run the risk of injury or death to the plaintiff’s personnel, or to others who the plaintiff may have hired to assist in recovering the equipment. The effect of Robinson’s evidence was that, even if the physical removal of the equipment was likely to have been highly profitable to the plaintiff, it was a risk he was not prepared to take.
On 27 November 2001, Nicholl met with the insurer’s UK lawyers, Berrymans Lace Mawer in Manchester. Nicholl told those present at the meeting that the plaintiff had provided all information requested by the insurer but had received no substantive feedback from the insurer. Nicholl said that a representative of the insurer and one of the lawyers indicated that they were “very sympathetic” to the position of the plaintiff and would consider everything put to them by Nicholl and would respond to him via the broker. Nicholl said that he left the meeting with a genuine belief that the matter would soon be resolved. By letter dated 10 January 2002, the insurer requested further information and documentation about the project. It did not mention what the plaintiff should do in relation to recovering the equipment. Nicholl responded by letter dated 10 January 2002, enclosing the information sought and stating that, at a point ten months after advising the insurer, it was “high time” that the insurer provide a definitive response on policy liability. He requested a response by 31 January 2002. Up to March 2003 when he ceased working for the plaintiff, Nicholl received no substantive response from the insurer as to how they would like the recovery of the equipment to be dealt with.
Finally, I note that following discussion between Nicholl and Gordon, the plaintiff decided in about April 2002 to have satellite images taken of various locations in the CAR to determine if significant objects, including the plaintiff’s plant and equipment, were present at those locations. Steven McMullan was hired by the plaintiff to perform this task. He provided a statement of expert evidence, which was admitted without the need to call him, and I accept his evidence, which is to the following effect. He arranged for an image of Carnot to be taken on 24 July 2002, and an image of the camp-site on 4 September 2002. He analysed the images. As to the Carnot image, it was not possible to locate SMAP’s equipment yard without being provided with precise coordinates or landmarks. As to the camp-site image, it revealed a building approximately four square metres in size, and another object approximately two square metres in size (possibly a small building or motor vehicle), but did not reveal any other vehicles, buildings, or large man-made objects.
Liability as to the first loss
The issue is whether there was an “Occurrence” as defined in the insurance policies, that is, an event which, during the period of insurance, caused or contributed to physical loss of or damage to items 1 to 20. And if there was an Occurrence, does the exclusion clause apply?
Submissions
The plaintiff submitted that there was an Occurrence, namely the theft of items 1 to 20 in mid-October 2000. The theft was constituted by the absence of those items from the place at which they were last located, in circumstances where SMAP:
(a) failed to return the plant and equipment to the site once the plaintiff discovered its absence in mid-October 2000;
(b) failed, since 8 January 2001, to respond to the plaintiff’s communications in respect of the plant and equipment; and
(c) failed to take all necessary steps to enable the plaintiff to remove the plant and equipment from the CAR.
In his written submission, counsel submitted in the alternative that the theft occurred some time before mid-October 2000, and was constituted by the absence of the plant and equipment from the place at which it was last located, which absence was discovered by the plaintiff when it returned in mid-October 2000. In his closing address, however, counsel effectively abandoned this alternative submission, by conceding that as to the period between March and 13 October 2000, the evidence did not establish that SMAP was dealing with items 1 to 20 in a way that demonstrated that it was stealing them. In my view, this concession was appropriate and nothing further need be said about the alternative submission, save to note that as the plaintiff’s amended statement of claim pleaded that the theft occurred between 1 January and 30 October 2000, the effect of the concession was that the plaintiff’s case in final address became that the theft of items 1 to 20 occurred in the period from 13 to 30 October 2000.
Finally, counsel submitted that even if the above circumstances did not constitute theft, each of SMAP’s failures referred to above was still an “event” for the purposes of the insurance policies.
The defendant submitted as follows.
First, items 1 to 20 could not have been stolen because, by October 2000, those items had already passed into SMAP’s possession pursuant to the terms of the second SMAP agreement.
Secondly, in November 2000 the plaintiff knew of the whereabouts of at least some of items 1 to 20, that inference being drawn from the following evidence:
(a) the admissions in Simpson’s report of 4 November 2000, to the effect that the plaintiff knew the location of items 1, 3, 4, 5 and 6;
(b) Gordon’s evidence that, by 30 November, he had received from Simpson, and then sent on to Rogers, an equipment list which stated, in effect, that item 2 (a generator) was back on site, albeit damaged; and
(c) Suresh’s evidence that items 7 and 8 (described as Mitsubishi pick-up diesels) were in SMAP’s possession as they were used by SMAP representatives for transport to and from the mine-site.
Thirdly, as to items 1 to 20 generally, it was not open to conclude that any of the items had been stolen, because the plaintiff led no evidence of the laws of theft of the CAR, and in any event the evidence could not satisfy any definition of the offence of theft in Australian law, even on a civil standard of proof.
Fourthly, in contrast with an insurance policy providing an indemnity in respect of a loss caused in any way whatsoever, the present policies required an “Occurrence” which meant an event causing loss. Counsel referred to AXA Reinsurance (UK) Plc v Field[12] where Lord Mustill observed that “an event is something which happens at a particular time, at a particular place, in a particular way”. Counsel submitted that here, the plaintiff had failed to identify, let alone prove, the happening of an event which, during the period of insurance, caused or contributed to physical loss of the items.
[12] [1996] 1 WLR 1026, 1035.
Decision on liability as to the first loss
In determining liability as to the first loss, the starting point is cl 1 of the policy, the effect of which is that, subject to relevant exclusions which I deal with below, the insured is indemnified against physical loss of or damage to the insured property in respect of any “Occurrence” happening during the period of insurance. The term “Occurrence” is defined in cl 4 as “an event … which, during the Period of Insurance, causes or contributes to physical loss of or damage to the Insured Property.” The term “physical loss” is not defined in the policies, however in Harris Paper Pty Ltd v FAI General Insurance Co Limited[13] Ashley J described “physical loss” as follows:
“Distinct from ‘destruction’ or ‘damage’ to property, it refers to a physical loss of possession of property; that is, to circumstances where it cannot be said that the property has been destroyed or damaged, but only that physical possession once had of the property has been lost.”
I respectfully agree with and adopt his Honour’s statement as a working definition of physical loss in the present case.
[13] (1995) 8 ANZ Insurance Cases ¶61-276 at 76,063.
The question then is whether there was an event causing the plaintiff to suffer a physical loss of items 1 to 20.
Initially, the equipment was imported into the CAR and passed into SMAP’s possession under the first SMAP agreements. Although there was no explicit obligation on SMAP to keep the equipment in a particular location, the preamble to the plant hire agreement stated that SMAP wished to hire equipment for operation in its open cast mining operations in the CAR, and the preamble to the “joint venture agreement” (one of the first SMAP agreements) referred to the importing of machinery and equipment “so as to use them in implementing the project”.
The second SMAP agreement was executed on 11 October 2000, that is before the plaintiff had returned to the CAR and before Suresh had realised that items 1 to 20 were missing. I infer that, at the time the second SMAP agreement was executed, each of items 1 to 20 were in SMAP’s possession. The agreement relevantly provided that SMAP had “accepted the plant” (cl 1.2), the plaintiff retained title until payments were made (cl 1.5), SMAP was bailee of the plant and equipment for the plaintiff, and was required to inform the plaintiff of the whereabouts of the plant and equipment on request (cl 1.6), and there was provision for SMAP to on-sell the plant and equipment provided that it accounted to the plaintiff for the proceeds of sale (cl 1.7). As counsel for the plaintiff conceded, there was no explicit obligation on SMAP to keep the equipment in a particular location. Indeed, it is to be noted that the right to on-sell in cl 1.7 necessarily contemplated that the equipment might be moved from one location to another. Nevertheless, the plaintiff remained the owner of the equipment and there was an unambiguously stated obligation on SMAP to inform the plaintiff of the whereabouts of the equipment on request.
As to this, I accept Suresh’s evidence that he made such a request in mid-October 2000, shortly after having discovered that items 1 to 20 were missing, and that nobody from SMAP informed him of the whereabouts of the items. After his unsuccessful attempts to locate the items, it is apparent that Suresh referred the matter to Simpson, who made further enquiries of SMAP. I have referred to (at [20] above), and do not repeat in full here, the comments in Simpson’s report as to the location of particular items. In considering the defendant’s submission that Simpson’s comments are admissions that the plaintiff knew the location of items 1, 3, 4, 5 and 6, I note the following. Simpson referred to items 3 and 6 as “believed to be somewhere in the Carnot area” and to item 63 (a Ural truck) as “reported by Pacco” to be in the SMAP yard at Carnot. This language suggests that the comments about item 63 are hearsay and the comments about items 3 and 6 are matters of belief only, presumably based on information provided by Pacco or others. Further, the location given for items 3 and 6 is so imprecise that it could not meaningfully be said that the plaintiff knew the location of those items. Simpson is more precise in relation to other items, for example items 1 and 4 are stated to be “parked in the SMAP yard in Carnot” in a damaged state, with no reference qualifying these statements as being hearsay derived from Pacco. Nevertheless, Simpson refers to RD (who I infer is Demby) having spent most of 4 November inspecting and dismantling the damaged parts. There is no mention of Simpson himself having visited the SMAP yard and seen any of the items. Similarly, as to item 5, the reference to the bulldozer working at the CDC operation appears to be based on advice by Pacco or others to that effect, there being no indication in the report that Simpson himself visited the CDC operation. Further, it is to be noted that as Simpson did not give evidence, the comments in his report could not be tested. Nor did Demby give evidence, meaning that the extent of his knowledge of the location and condition of the equipment could not be tested. In these circumstances, Simpson’s report carries little, if any, weight in terms of establishing admissions against the plaintiff as to its knowledge of the location of the equipment.
Counsel for the plaintiff relied on evidence of Suresh and Gordon which, he submitted, contradicted some of the statements in Simpson’s report. Suresh’s evidence was to the following effect. As to item 3 (the trailer reported by Simpson as “believed to be somewhere in the Carnot area”), Suresh said that he recalled telling Simpson that the trailer was missing, as to which Simpson said that it might be at the SMAP yard in Carnot, and after this discussion Suresh travelled to the SMAP yard and looked for the trailer but it was not at the yard. He made enquiries of employees of the plaintiff and SMAP and none were able to assist in locating it. In cross- examination, Suresh was asked if, on his return to the CAR in October when he looked for the equipment, he looked at the SMAP yard, to which he replied “no”. At first glance, this reply appears to contradict the evidence in his witness statement, yet in my view the answer was ambiguous, as a result of counsel’s question being focused on the initial stage of ascertaining what equipment was absent, for which purpose Suresh said he had looked at both the camp-site and the mine-site. Seen in that light, Suresh’s answer did not necessarily contradict the evidence in his witness statement, to the effect that he visited the SMAP yard at some later time to follow up on the missing equipment. It is also to be noted that counsel did not directly challenge Suresh as to the evidence in his witness statement that he had visited the SMAP yard to look for the trailer. In the circumstances, I accept Suresh’s evidence that he did visit the SMAP yard to look for the trailer, and, to the extent that he looked for any other items at the yard, he did not find any of the missing items there.
As to Gordon’s evidence, he referred to Simpson’s comments about item 5 (the Komatsu bulldozer being used on the CDC operation) and stated that it was not taken with his knowledge or agreement. I accept his evidence (which was not challenged) and, insofar as Pacco had led Simpson to believe that item 5 was taken with Gordon’s agreement, I consider that Pacco misled Simpson. In cross- examination, Gordon also gave evidence about the meeting of 27 November 2000, at which he took the minutes, and where the issue of missing plant and equipment was raised. He agreed with counsel’s suggestion that at that meeting Pacco “endeavoured to provide an explanation for Mr Simpson’s comments about the missing and damaged equipment”. However, it is necessary to consider in some detail the quality of the explanation offered by Pacco. The minutes state that the bulldozer (item 5) was required at the CDC mine until another excavator there was fixed, the timing of which would be ascertained during a visit to the CDC site the following day. Spare parts were to be purchased to fix the 85 ton low-loader (item 1) parked in the SMAP plant yard. The Komatsu bulldozer (item 4) had been moved to Carnot “due to artisan[14] unrest in the site area”. Pacco indicated that a complete list of all items and spare parts had been compiled by Customs during their inspection when the containers first arrived on site, and Pacco was to make a copy of this list available to Simpson, following which Simpson was to do a complete check to establish what was missing and to report back to Pacco on this. The minutes also state that “indications are that two Mitsubishi twin cab pick-ups are being used by SMAP – one at CDC site and one by Mde. Monthe”. The item in the minutes concluded by saying “This was confirmed during visit to Carnot a CDC site on 28th November”. It is not clear from the minutes whether all aspects (or only the last mentioned aspect) of the missing equipment was confirmed during the site visit, and nor is it clear whether Gordon himself confirmed matters, or whether Pacco or someone else did a site visit and later reported to Gordon that the matters (whatever they were) had been confirmed. In short, it is unclear what was confirmed, and by whom. And notwithstanding this ambiguity, counsel for the defendant did not press Gordon as to whether he (or any other employee of the plaintiff) had direct personal knowledge of the location of the missing equipment. Then, in re- examination, Gordon said that he “could definitely say that” apart from the list of 20 missing items, and a list of 12 items that had been damaged, the balance of the equipment was neither missing nor damaged. It is to be noted that in his cross- examination of Gordon, counsel for the defendant had not put to Gordon that he had in fact seen any of the 20 missing items in operation, such as a bulldozer or a pick-up truck being used at the CDC mine. In my view, the minutes of the meeting are not an admission that the plaintiff knew the location of the missing equipment.
[14] The artisans were local people, not employed by the mine, who worked near the mine searching for diamonds.
As to items 7 and 8, I reject the defendant’s submission that the plaintiff knew the location of these vehicles. Suresh’s written comments, in the table of equipment attached to his witness statement, to the effect that the vehicles “were used by SMAP”, was a general observation as to the purpose of the vehicles in the mining operation. It was not an observation that those vehicles were in fact being used by SMAP in October 2000. I do not overlook the reference in the minutes to those vehicles, but I prefer Suresh’s direct unchallenged evidence that items 7 and 8 were missing in October and that he could not subsequently locate them.
As to item 2 (the generator), I find that the plaintiff did know its whereabouts, as it had been returned to the plaintiff in a damaged state of repair. This was confirmed by Gordon’s evidence.
In conclusion, I find that as at 13 October 2000, the plaintiff did not know the location of items 1 and 3 to 20. In effect, those items were missing. The plaintiff did not subsequently locate those items. In effect, the plaintiff suffered a physical loss of those items. I do not overlook the fact that SMAP already had physical possession of the items before 13 October 2000, and in that sense it might be more accurate to say that SMAP retained physical possession of those items rather than that the plaintiff lost physical possession, however that cannot alter the fundamental fact that the plaintiff remained the owner of the items, and SMAP was obliged to keep those items readily identifiable as the plaintiff’s property, and inform the plaintiff of their whereabouts on request. In effect, SMAP’s failure to accurately respond to the plaintiff’s request as to the whereabouts of the items, and SMAP’s retention of those items after the plaintiff had enquired of their whereabouts on or shortly after 13 October 2000, were events causing or contributing to the plaintiff’s physical loss of possession of the items. In short, there was an Occurrence under one or both of the policies.
Does the exclusion clause apply?
That leaves the question of whether the exclusion clause (cl 5) applies. In both policies, the exclusion clause provides that the policy “does not cover loss due to disappearance or revealed by inventory shortage alone, unless such loss can be attributed to burglary and/or theft and/or any attempt thereat” (emphasis added). On its face, the loss of items 1 and 3 to 20 was a “loss due to disappearance”, hence it is not covered unless the loss can be attributed to theft.
What, then, is meant by the word “theft” in this context? Counsel referred to numerous authorities considering the issue whether a word in a contract with a technical meaning should be given that technical meaning, or some other, non- technical, meaning. It is not necessary to refer to all these authorities, though I note that in Harris Paper Pty Ltd, Ashley J referred[15] to differences of opinion in the English authorities as to whether the word “theft” should be given its technical criminal law meaning or the meaning which, in the words of Lord Denning, the “ordinary commercial man”[16] would give it. Counsel for the plaintiff referred to this dilemma, and relied on a statement in Kelly and Ball Principles of Insurance Law[17] to the effect that although the current English approach might be to give the word its strict technical meaning under the Theft Act 1968 (UK), “it is doubtful if Australian or New Zealand courts would follow that approach”. He submitted that the Court’s task was to determine what the parties intended, and that in this case their intention was that the term have its ordinary (non-technical) meaning. In my view, as a matter of principle, the preferable approach is to resolve the question of the meaning of the word “theft” by reference to the intention of the parties, viewed objectively and having regard to the terms and underlying commercial purpose of the policies, read as a whole.
[15] At 76,062.
[16] Nishina Trading Co Ltd v Chiyoda Fire and Marine Insurance Co Ltd [1969] 2 QB 449 at 462.
[17] Loose-leaf service at para [5.0290.5].
I should note from the outset that speaking generally there is relatively little difference between the “technical” and “ordinary” meanings of the word “theft”. The Concise Oxford Dictionary defines “theft” as “the action or crime of stealing”, the verb “steal” in turn being defined as “take (something) without permission or legal right and without intending to return it”. Meanwhile, s 72 of the Crimes Act 1958 (Vic) provides that “a person is guilty of theft if he dishonestly appropriates property belonging to another with the intention of permanently depriving the other of it”, while s 73(4) states that for the purpose of s 72, “Any assumption by a person of the rights of an owner amounts to an appropriation, and this includes, where he has come by the property (innocently or not) without stealing it, any later assumption of a right to it by keeping or dealing with it as owner”. The plaintiff has essentially pleaded its case in relation to theft by reference to s 72, in the sense that the particulars of theft (for both the first and second losses) are that the plant and equipment was dishonestly appropriated by being removed from the site without the plaintiff’s consent and with the intention of permanently depriving the plaintiff of it.
I should also clarify that both counsel agreed that, on any view of the matter, the civil standard of proof applied. However, counsel for the defendant maintained that the plaintiff was required to prove theft by reference to the definition of that offence under the criminal law of the CAR. I do not accept that submission. Both insurance policies are expressed to provide an indemnity in respect of “occurrences” in any country in the world where the plaintiff happens to do business. There is nothing in either policy requiring any matter to be established by reference to the laws of the CAR.
The governing law of both policies is stated to be Australian law. However, there is no indication in the policies that the word “theft” is to be regarded as having a particular technical meaning, or that the insured must prove the elements of a criminal offence, even on a civil standard. In my view, the parties could not have intended the exclusion clause to require identification of the thief, and proof of a criminal offence in all its constituent elements. Such a requirement would be inconsistent with the commercial reality of which the parties to the policy must have been aware, namely that theft often goes undetected, particularly in some of the places where the plaintiff was engaged in business, and that one of the very purposes of insurance policies like the present would be to cover losses arising from theft.
In Nishina Trading Co Ltd v Chiyoda Fire and Marine Insurance Co Ltd[18], a case concerning a clause which provided that “it is hereby agreed that this policy covers the risk of theft”, Lord Denning MR said the following:
“The word ‘theft’ is not used here in the strict sense of the criminal law. It does not bring in all the eccentricities of the law of larceny. It means only what an ordinary commercial man would consider to be theft: and before finding theft, the court should be satisfied that it is an appropriate description of what took place. The court need not be satisfied beyond reasonable doubt (as in the criminal law) but it should find on balance that there is sufficient to warrant the serious imputation of ‘theft’.”
His Lordship went on to conclude that, on the facts, he could not describe the act of the ship master as theft. The ship owners had not been paid two months of charter hire due to them, so the master took the cargo. The cargo did not belong to the defaulting charterer, however, but rather to an innocent third party. His Lordship noted that the ship owners did not sell the cargo but raised money on it by way of mortgage. His Lordship considered that they may have had an honest but mistaken belief that they had some sort of lien on the cargo for their charter hire. If they honestly thought that they had a right to do what they did, no ordinary person would call it ‘theft’.
[18] [1969] 2 QB 449.
I respectfully adopt the passage quoted above as to the approach to be taken to interpreting the word “theft”. Further, the word “theft” cannot be viewed in isolation, but rather must be understood in the context in which it appears, which is as part of a compound expression (or concept), namely whether a “loss due to disappearance” can be “attributed to theft”.
As to that, I agree with the plaintiff’s submission that the purpose of the exclusion clause is to exclude insurance cover in situations where there is an unexplained absence or disappearance of property. That is, cover does not extend to cases where there has been a disappearance of property without any further explanation by the insured. In effect, where there is a loss of property due to disappearance, the insured must establish that the loss “can be attributed” to theft (or burglary or any attempt thereat). The word “attribute”, as a verb, is defined by the Concise Oxford Dictionary as “regard something as belonging to or being caused by”. Although this definition ultimately rests on the language of causation, there is nevertheless a difference between saying that a loss “can be attributed” to theft, as opposed to saying that a loss “was caused” by theft. The latter is more direct and implies a definite conclusion that theft has occurred. The former is less direct, and permits an inference (rather than a definite conclusion) that theft occurred. The plaintiff submitted that “all that is required is that the circumstances are consistent with theft sufficient to negative the proposition of unexplained absence”. There is much to be said for this submission, although I would not put the matter precisely in those terms. Rather, it seems to me that the question is whether, regarding all the available evidence, and applying the civil standard of proof having regard to the seriousness of the allegation of wrongdoing, it can reasonably be inferred that there has been a dishonest appropriation of the relevant property with no intention of returning it to its true owner. If such an inference is open, that is both a necessary and sufficient condition for finding that the loss of the property can be attributed to theft.
Proceeding on that basis, can the loss of items 1 and 3 to 20 be attributed to theft? In my view, it can be. When Suresh asked where items 1 to 20 were, SMAP did not assist him to locate the items. It is to be inferred that SMAP knew of the whereabouts of the items (or at least knew who could answer Suresh’s query), and was aware of its obligations to the plaintiff under cl 1.6 of the second SMAP agreement, yet acted in disregard of those obligations. That does not by itself establish theft, however when combined with the whole sequence of events referred to above, that is the plaintiff’s requests for information as to location of the items, the plaintiff’s statement that if it did not receive such advice it would regard the items as having been stolen, and the failure of SMAP to provide such information, the circumstances lead to an inference that SMAP, or somebody else acting with SMAP’s knowledge and consent, dishonestly appropriated items 1 and 3 to 20. In so concluding, I do not overlook Reid’s advice to Gordon in September 2001 to the effect that SMAP was safeguarding the equipment at the mine-site. I deal with that evidence below when considering the second loss. At this point, it is sufficient to indicate that Reid’s response was inherently vague, was based on hearsay from Pacco, and the truth of the assertion was not confirmed by subsequent events. On the contrary, specific information as to the location of the equipment was never provided.
As to the date of the dishonest appropriation, and whether that appropriation was accompanied by an intention (at the time thereof) to permanently deprive the plaintiff of the items, I find the following. Although the act of taking possession of the items occurred before 13 October 2000, I agree with the plaintiff’s submission that it was Suresh’s enquiry (and the response thereto, namely the retaining of possession and the refusal to state where the items were) which turned what might have been an “innocent hiring situation” into a dishonest appropriation. It might be said that although SMAP retained possession of the items in the face of Suresh’s enquiry, there was no intention (at least at that point) to permanently deprive the plaintiff of the items. However, in my view, it would be no more than speculation to suggest that, in spite of the response to Suresh, SMAP may have intended to return the items to the plaintiff, and that it was only later when the plaintiff withdrew from the CAR that SMAP decided that it would keep the items. Rather, regarding the evidence overall, and particularly SMAP’s failure to enable the items to be returned to the plaintiff at any later time, I infer that shortly after 13 October 2000 (and before 30 October) SMAP (or somebody acting with its consent) dishonestly appropriated items 1 and 3 to 20 to itself, with no intention of returning those items to the plaintiff. It follows that the plaintiff’s loss of those items can be attributed to theft, hence the exclusion does not apply.
Having reached this conclusion, it is not strictly necessary to determine the plaintiff’s alternative submission (relied on in respect of both the first and second losses) to the effect that if theft was not established, there was still an “event” as defined by the policy. Nevertheless, in the circumstances of the case it is desirable that I express my conclusion on this point. In my opinion, SMAP’s failure to assist Suresh to locate items 1 to 20 in October 2000 was, if not a cause of the physical loss of those items, at least an event contributing to the items “remaining lost”, remembering of course that the items had already disappeared when Suresh returned to the CAR in October. In those circumstances, I accept that SMAP’s failure to assist Suresh was an “Occurrence”, that is an event which, during the period of insurance, caused or contributed to the physical loss of items 1 and 3 to 20. However, under the exclusion clause, the loss of items 1 and 3 to 20, being a loss due to disappearance, is not covered unless it can be attributed to theft. There being no theft established on the plaintiff’s alternative submission, the loss cannot be attributed to theft and is thus not covered by the policy.
Finally, as the Occurrence took place in October 2000, it follows that in respect of the first loss, the plaintiff is entitled to be indemnified under the second policy.
Liability as to the second loss
On the plaintiff’s pleading, the second loss covers 112 items, being items 21 to 134[19]. However, given that I have found that item 2 was not part of the first loss (having been returned to the plaintiff in a damaged state before it left the CAR), yet it is apparent that item 2 was among the items left behind by the plaintiff when it departed the CAR in December 2000, and there is no relevant prejudice to the defendant, I consider it appropriate to regard item 2 as part of the second loss.
Submissions
[19] Noting that items 35 and 86 are one and the same, as are items 37 and 87.
The plaintiff submitted that the items were stolen by persons unknown some time between December 2000 and September 2002. The theft was constituted by the absence of the items from the place at which they were last located, in circumstances where SMAP:
(a) failed, since 8 January 2001, to respond to the plaintiff’s communications in respect of the plant and equipment; and
(b) failed to take all necessary steps to enable the plaintiff to remove the plant and equipment from the CAR.
Alternatively, even if theft was not established, SMAP’s failures were nevertheless an “event” under the policy. As I concluded in relation to this alternative submission when dealing with the first loss, the failures may have been an event, however the effect of the exclusion clause would be that the loss was not covered, because the loss could not be attributed to theft. My conclusion is the same in relation to the second loss. It is unnecessary to say anything further about this alternative submission.
In the further alternative, if theft could not be established, counsel relied on cl 6 of the second policy which extended the indemnity to “loss, damage or liability caused by or arising out of the deliberate or intentional acts by the Insured which the Insured considers reasonably necessary to protect life”. The relevant intentional act causing loss was the plaintiff’s decision, made in about November 2001, not to attempt to retrieve the plant and equipment from the CAR. Counsel submitted that the decision was, on the unchallenged evidence of Gordon and Robinson, made in the belief that returning to the CAR to retrieve the equipment presented an unacceptable risk to life. And, counsel submitted, the loss was caused by the decision, in the sense that the evidence indicated that the plaintiff was going to retrieve the equipment but for the fact that it was too dangerous.
The defendant’s primary submission was that no relevant loss had occurred. Under the second SMAP agreement, in October 2000 items 21 to 134 passed into (and never subsequently left) SMAP’s possession. Reid’s facsimile of 4 September 2001 informed Gordon that SMAP’s personnel were being exposed to danger in order to retain possession of the equipment, which was secure at the mine-site. It followed that, throughout the period from December 2000 to September 2001, the plaintiff knew that SMAP had custody of each of items 21 to 134, and no evidence subsequent to September 2001 tended to a contrary conclusion. Counsel also reiterated his submission (made in respect of the first loss) that the plaintiff had failed to prove theft by reference to the relevant laws of the CAR, and had failed to prove any relevant event causing the second loss.
Counsel for the defendant submitted, in the alternative, that if there was a loss, it was caused by an intentional act of the plaintiff, namely ceasing operations at the site in December 2000, withdrawing all personnel from the site, and leaving all equipment then in its possession unattended. Such an intentional act was not an Occurrence under the policy, and the preservation of life extension (cl 6) did not apply, because the plaintiff’s decision to cease operations was not a decision taken to preserve life, but rather was a commercial decision. As to the plaintiff’s decision to not return to the CAR to retrieve the equipment, that decision was not causative of any loss at all, because the decision to cease operations in December 2000 was the cause of the loss, hence cl 6 had no application. In any event, counsel submitted, the decision not to retrieve the equipment was not properly to be characterised as an act, but rather was no more than a case where the 49% shareholder in the plaintiff dropped an option which had previously been on the table.
Decision on liability as to the second loss
I accept Suresh’s evidence to the effect that, when the plaintiff returned to the CAR in October 2000, all but four of items 21 to 134 were at the mine-site or the camp-site. The four items were: a Mack prime-mover (item 41), found by Suresh damaged on a roadside (and reported by Suresh to either Simpson or Demby) where it remained; a Toyota 4x4 (item 50), found by Suresh damaged and which was not fixed due to a lack of parts; a Ural truck (item 60), found by Suresh damaged; another Ural truck (item 62), initially missing on Suresh’s return in October but subsequently returned from the SMAP yard to the camp-site in mid-November 2000. Further, I accept Suresh’s evidence that when the plaintiff left the CAR for the last time in December 2000, all of items 21 to 134 (with the exception of item 41, which apparently remained by the roadside) were at the camp-site or the mine-site, under SMAP’s control. I would also infer that item 2 was left under SMAP’s control.
As to Reid’s facsimile to Gordon on 4 September 2001, the defendant sought to draw several inferences therefrom; (a) that as at 4 September 2001 SMAP had, despite any earlier failures to do so, advised the plaintiff of the location of its equipment (namely, the mine-site); (b) that the facsimile effectively overtook the letter sent by the plaintiff’s solicitors to SMAP at about that time; (c) that all the plaintiff’s equipment (the subject of both the first and second losses) had remained at the mine- site at all relevant times; and (d) that these matters negatived the inference that the equipment was stolen.
I do not accept the inferences contended for by the defendant. Reid’s facsimile was not an admission against any party to the proceeding, but rather was untested hearsay. It went into evidence (having been referred to by Gordon in his witness statement as one of the communications he had with Reid) not to establish the truth of its contents but merely to demonstrate the nature of the communications between SMAP and the plaintiff. Far from assisting the defendant, the inference I draw from the facsimile is that Pacco, the SMAP director who presumably had personal knowledge of relevant matters, did not advise the plaintiff as to where the equipment was for the purpose of enabling the plaintiff to collect it or to allow further negotiation as to payment terms which would enable SMAP to keep the equipment. Rather, the approach adopted by Pacco, evident in Reid’s facsimile, was to have Reid relay information to Gordon, in circumstances where Reid had last spoken to Pacco some two weeks earlier and was unable to contact Pacco. Further, Reid’s facsimile stated that further information was to be provided when known. Yet, despite the further communications between Reid and Gordon in October and November 2001, Reid resigned from SMAP and Pacco ultimately never responded to the plaintiff. Far from clarifying the situation, Reid’s facsimile and subsequent communications (or lack thereof) with SMAP, left the plaintiff in the dark as to the location of its equipment.
I also reject the defendant’s submission that it can be inferred from Reid’s facsimile that the equipment remained at the mine-site. In the first place, the facsimile was not admitted in evidence to establish the truth of its contents. But even if it was, the relevant items included numerous shipping containers, used for accommodation at the camp-site, as to which it is inherently unlikely that those items were moved to the mine-site. When Reid passed on Pacco’s advice that the equipment was at “the mine-site”, I would infer that this was a general reference that may have encompassed both the mine-site and the camp-site. Further, and again assuming the accuracy of Pacco’s advice that SMAP had used physical force to prevent the equipment from being seized by local people, and that the equipment was “secure” (whether at the mine-site, camp-site or both), it does not follow that SMAP was keeping the equipment secure for the plaintiff’s benefit. It might just as well have been keeping the equipment secure for its own benefit, and use by itself or others at the mine or elsewhere. Having regard to the fact that the director of SMAP with personal knowledge of relevant matters has, both before 4 September 2001 and ever since, ignored the plaintiff’s requests for information as to the location of the equipment, it is reasonable to infer, and I do infer, that SMAP did not, and does not, intend to advise the plaintiff as to the location of the equipment of which, it should be reiterated, the plaintiff remains the owner.
In so concluding, I reject the defendant’s submission to the effect that the letter sent by the plaintiff’s solicitors (at about the same time as Reid’s facsimile) provided no indication as to what the plaintiff wanted SMAP to do with the equipment, and that the letter was overtaken by Reid’s statements in the facsimile. In my view, while it is true that the solicitors’ letter did not make any specific request as to what SMAP should do with the equipment, the letter clearly required a response, in terms of a proposal from SMAP as to what it intended to do about the equipment. This is especially so when viewed in the context of the earlier requests that SMAP enable the plaintiff to collect its equipment. There is nothing in Reid’s facsimile to suggest that SMAP was henceforth absolved from its obligation to respond meaningfully to the plaintiff’s solicitors’ letter. On the contrary, and as I have indicated, Reid’s facsimile stated that he would provide further information about the equipment when he could. Yet the man who could presumably provide such information, Pacco, never responded.
I also note that I do not overlook that the plaintiff (or at least Gordon) remained hopeful in 2001 that it could complete the sale of the equipment to SMAP and thus not have to pursue the option of removing the equipment from the CAR, but nothing turns on this matter. Counsel for the defendant seemed to suggest that it was inconsistent for the plaintiff to seek to have SMAP purchase the equipment on the one hand, while at the same time instructing SMAP to take all necessary steps to allow removal of the equipment from SMAP’s possession. In my view, there is no such inconsistency. It was commercial reality that the plaintiff would pursue a number of options simultaneously. If SMAP had paid the purchase price for the equipment, the equipment would no doubt have stayed in the CAR. But as long as SMAP did not pay the purchase price, there was no reason why the plaintiff should not insist on SMAP taking all steps to allow removal of the equipment, even while hoping that SMAP would pay the purchase price and thus spare the plaintiff the inconvenience of pursuing the recovery option. With the benefit of hindsight, Gordon may have been unduly optimistic in regarding completion of the sale to SMAP as still being possible, but it simply does not follow that SMAP could ignore its obligation to inform the plaintiff of the location of the equipment on request. If SMAP had been acting in good faith as to completing the sale, it could have responded by giving specific advice as to where the equipment was located, but adding that there was no need for the plaintiff to retrieve it, because SMAP still wished to purchase it.
As I have noted, even if it be assumed that Reid’s advice in the facsimile was correct, it cannot be inferred that the equipment remains at the mine-site today. The location of the equipment is a matter as to which I cannot and do not speculate. I merely note that McMullan’s evidence does no more than confirm that, at the time the satellite images were taken in 2002, there was no plant and equipment at the camp-site. That does not negative the possibility that the plant and equipment is at the mine-site, or at the SMAP yard in Carnot[20] or at some other place. It may even have been returned to the camp-site since. But these are no more than possibilities based on speculation. The practical reality of the situation is that the plaintiff has requested location information from the party in the best position to shed light on the matter, SMAP, which despite its contractual obligations has remained silent. SMAP has failed to respond to the plaintiff, and has failed to take all necessary steps to enable the plaintiff to remove the plant and equipment from the CAR. In my view, these failures are events causing or contributing to the plaintiff’s physical loss of items 2 and 21 to 134. It follows that the second loss was an Occurrence under the second policy.
[20] I accept Suresh’s evidence that the SMAP yard is big enough to accommodate all the plant and equipment the subject of the proceeding.
In reaching that conclusion, I do not overlook the authorities relied on by counsel for the defendant, as to which I note the following. Counsel placed much reliance on the decision of the House of Lords in Moore v Evans[21]. The subject matter in that case was jewellery (insured against loss of and/or damage or misfortune to the goods arising from any cause whatsoever) sent in 1914 by a seller in London “on sale or return” to trade customers in Frankfurt and Brussels. War subsequently broke out, and the jewellery could not be lawfully returned. The Court of Appeal, reversing the decision of the primary judge, held that the insured’s claim should fail because there was no evidence that the jewellery had been lost or seized by occupying German authorities, nor was there any reason to suppose that the jewellery was not still in the safe custody of consignees in Frankfurt and a bank in Brussels respectively. On appeal to the House of Lords, in affirming the decision of the Court of Appeal, Lord Atkinson (the other members of the House of Lords agreeing) observed[22] that there was no evidence to suggest that the jewellery had been lost or destroyed, and no evidence to suggest that the bank and consignees had not retained possession of the jewellery “somewhat in the character of bailees for the appellants, and would not be ready and willing to return them to the appellant were it in their power lawfully to do so”. Lord Atkinson further observed that “theft or dishonesty on the part of the appellant’s customers cannot of course be presumed”[23]. Counsel submitted that, in the present case, the items remain safe and undamaged in the custody of SMAP which is effectively in the position of bailee for the plaintiff.
[21] [1918] AC 185.
[22] At 190.
[23] At 191.
Counsel for the defendant also referred to Re Mining Technologies Australia Pty Ltd[24] where McPherson JA said that[25]:
“It may be a legitimate interpretation of the decision in Moore v Evans that where … the goods insured are the subject of a commercial transaction, detention for an indefinite period does not amount to a ‘loss’ in terms of the policy.”
[24] [1999] 1 Qd R 60.
[25] At 75-76.
Counsel for the defendant also relied on Webster v General Accident Fire and Life Assurance Corporation Ltd[26] and Eisinger v General Accident Fire and Life Assurance Corporation Ltd[27] for the proposition that, in circumstances where the plaintiff had voluntarily handed over the items to SMAP, and where SMAP had failed to pay for those items under the second SMAP agreement, it could not be said that the plaintiff had lost the items. Rather, the plaintiff had lost the proceeds of sale.
[26] [1953] 1 QB 520.
[27] [1955] 2 All ER 897.
In their joint report, the experts agreed that “the market for earthmoving equipment is international”, and in cross-examination O’Mara said that although not all the items were earthmoving equipment, there was an international market for most of the items. The joint report contained tables which listed US dollar figures agreed between the experts as representing the “market value” of the stated items assuming a sale in the UAE as at May 2006 (for items 1 to 12) and as at September 2002 (for items 21 to 134). Each item was given three values, corresponding to assumptions of “very poor”, “reasonable” and “good” condition respectively. I note that the experts assessed the value of the items solely by reference to the three assumed “states of repair” referred to above. That is to say, they disregarded any evidence, photographic or otherwise, or any previous assessments they had made, as to the actual condition or value of any of the items. The joint report stated that items Hyman had previously assessed as having “no commercial value” were given a value in the joint report based on a “very poor condition” assessment in Dubai “because those assets are now being assessed in a formal market place”. Further, Hyman stated that the market value of the items in Dubai, even in very poor condition, did not take account of the fact that some items may be damaged, have their headlights smashed or other damage that rendered them beyond repair. O’Mara opined that a large number of assets had been valued without any consideration of the accessories and additional fittings that are clearly apparent on the items when in the CAR and that this could have a material effect on their values. Finally, I note that the joint report stated that the experts did not address DRC.
The experts gave the following relevant evidence in cross-examination. O’Mara agreed with counsel’s suggestion that, at the time of writing his first report, he considered that it might be possible to use a Sales comparison approach (establishing sales comparisons with the UAE and South Africa), however he had not sought to establish such sales comparisons at that time. In those circumstances he had used the DRC method. As a result of conferring with Hyman, which involved sharing information and making other enquiries, they were able to derive market value for the items. He disagreed with counsel’s suggestion that DRC was not appropriate, saying that it was “a matter of time”, and that the experts had insufficient time to properly address DRC. To properly address that matter required one to take into account physical deterioration and functional and economic obsolescence, which were very subjective issues, as to which “we could sit down for a week and still be arguing about minor percentages that could have a major effect”. He conceded that in his first report he had difficulty sourcing necessary material to calculate DRC and “the procedure that was undertaken by one of the valuers assisting me was to use some market evidence in those, and whilst that may achieve the same result as a depreciated replacement cost, it didn’t exactly quantify the physical function or economic factors on an individual basis, so therefore I considered it to be less appropriate to use it”. He agreed with counsel’s suggestion that since the time that his colleague had undertaken that work, he (O’Mara) had not been able to undertake the task in what he considered to be the correct method.
Counsel then referred O’Mara to the following passage found in the International Valuation Guidance Note 3 – Valuation of Plant and Equipment published by the International Valuation Standards Committee:
“However, Market Value simply stipulates that an exchange is assumed to take place on an arm’s-length basis between knowledgeable and willing parties; it is silent as to how the particular asset is to be presented for sale or any of the other specific circumstances that could have a fundamental effect on the valuation. When undertaking a valuation of plant and equipment, the Valuer must therefore establish and state the additional assumptions that are appropriate, having regard to the nature of the asset and the purpose of the valuation.”
O’Mara said that he agreed with the quoted passage. He agreed that relevant circumstances that could affect the valuation included the time and terms and conditions of a notional sale. As to a situation where plant and equipment was to be valued on the basis of a sale to a place removed from its current location, O’Mara said that the basis of valuation would be “market value removed” not “market value”. Valuation of an asset as part of an ongoing business would be “market value in continuing use”. Valuation of an asset at its current location would be “market value in situ”. And if a business was being broken up and items sold off, the valuation may be done on some basis other than market value, such as “orderly liquidation” or possibly “forced sale or auction”, although it would also be normal practice for the business’s assets to be valued on a “market value in continuing use” basis in case the business was sold as a whole. As to “market value” (as distinct from “market value removal” or “market value in situ”), removal costs or installation costs are neutral. He accepted that there may be circumstances where a vendor of plant and equipment in a remote location might need to incur costs to transport the equipment to a market where he might most advantageously find a purchaser. Counsel then suggested that where there were no credible sales data in the remote location, market value should be assessed by deducting from the price (which might be achieved in the market to which the item were notionally to be removed to be sold) the vendor’s costs in transporting the item to that market. O’Mara said that this was not necessarily so, and that it depended on who was to bear the costs of the relocation.
Hyman was cross-examined as to the basis of his opinion that there was no “formal market” in the CAR. He said that he had no personal experience of buying and selling equipment in the CAR, but had informed himself as best he could using research tools including the internet. Counsel referred Hyman to two mining projects in the CAR, producing materials[46] obtained from the internet which described the relevant activities, which Hyman conceded he had not considered in reaching his opinion that there was no formal market in the CAR, although he was aware that there were mining projects in the CAR. He agreed with counsel’s suggestion that, as a general proposition, international organisations interested in exploiting the mineral resources of Africa have a need to use earthmoving equipment, and that they might purchase that equipment in Africa, although he emphasised the word “might”. As to whether, in September 2002, the plant and equipment might have been able to be sold in the CAR, Hyman explained that the difficulty was distinguishing between a market on the one hand, and on the other hand the fact that there might have been a local purchaser. The latter would be an “opportunistic sale”, effectively a “buyer with a special interest”, which international standards said should be excluded from a market value assessment. Hyman frankly conceded that he had struggled with the concept of what a market was in the context of the case. He said:
“At what point do you say one or two or three people who are running a similar operation who may want to buy some equipment, do they form a market or do you need an active market that is actually trading pretty well daily?”
[46] Exhibits N and O.
As to whether a market existed in the CAR, Hyman agreed with counsel’s suggestion that he could not say with any certainty whether there was one, two or 10 international mining companies operating in the CAR or nearby in September 2002, nor did he have any knowledge of whether there were any United Nations sanitation projects in the CAR which might require earthmoving equipment. He knew, however, from a United Nations report to which he did refer, that there was a significant refugee problem in neighbouring Cameroon, and that it was possible that containers might be used for temporary accommodation and earthmoving equipment might be used to build roads in the context of humanitarian projects.
Hyman agreed that there was a distinction between there being no reliable market data on the one hand, and no market on the other hand. He agreed that valuers are sometimes required to determine a market value in circumstances where no sufficient market data exists, and for that purpose they might use a cost based methodology, or alternatively go to the closest market with reliable data and use that data. He also agreed with counsel’s suggestion that there is a distinction between a valuer saying (a) “I don’t know either way whether there’s a market value where that bulldozer is located but I can’t get any data about it therefore I will go to the nearest available market and get my price”; and (b) “That bulldozer is in a place where there is no market, therefore I must notionally move it to the nearest available market”. Hyman agreed that his approach was the latter, and he had factored in a cost of removing to the nearest market. He said that the removal costs were included because that was an assumption he was instructed to make. Counsel then suggested that if he were not so instructed, and was simply requested to determine the market value based on data from the UAE and do no more than that, he would not have “entered the fray” on the issue of recovery costs. Hyman said that this was an issue he had “agonised over for a very long time before I started this report and to now make a split second decision as to how I would respond to that question I think is a little hard. My first reaction is to say that … if you want to establish the value of a similar asset to purchase you would have to do so by reference to UAE plus freight. It’s two sides, in a sense, of the same equation, I guess. How you define market value I also think is probably in this case a legal argument, not a valuer’s argument”. Hyman reiterated the importance of a valuer’s instructions. He accepted that sometimes valuers are asked to provide “market value” without more, “but we don’t do it. We always qualify back to the client as to what is meant by market value”.
I make the following findings as to the expert evidence. Both experts were honest witnesses who sought to assist the court by giving to the best of their ability expert opinions, based on facts and assumptions clearly stated. Counsel did not suggest otherwise. O’Mara’s first report considered that the Sales comparison approach was the most appropriate method of valuation, but in the absence of sales data from the CAR, and having not sought to establish sales comparisons with the UAE, he considered that DRC was an appropriate methodology. However, given O’Mara’s frank concessions in his reports and in cross-examination as to the difficulties with the DRC methodology, the fact that the experts did not have time to consider it, and the incorrect figures to which I have referred, I cannot rely on O’Mara’s DRC figures as a reliable indication of market value. Ultimately, both experts considered that the Sales comparison approach was appropriate for the valuation, and they estimated market value on that basis.
It follows, in my view, that it was possible to readily ascertain the market value of the items for the purposes of cl 2.3(c). The Concise Oxford Dictionary defines the adverb “readily” as “1. willingly. 2. without difficulty”. I do not overlook the complexity and intricacies of the competing valuation methodologies, and the fact that the task of agreeing on market value was not achieved without some difficulty, indeed agreement did not come about until after I ordered the experts to confer, but ultimately, once the experts focused their minds on the issue, taking a practical and problem-solving approach which inevitably involved making some concessions as to the adequacy of the comparative sales data and reaching a middle-ground rather than adhering to strict theoretical positions that might have been adopted in their individual reports, they were readily able to ascertain market value. I therefore reject the plaintiff’s submission that it was not possible to readily ascertain a market value, and that cl 2.3(c) requires the defendant to pay the plaintiff the depreciated replacement cost of the items. I do not accept the plaintiff’s submission as to the sensible commercial operation of the clause. On the contrary, “market value” was more readily ascertainable than was DRC.
Proceeding then on the basis of “market value”, this raises issue (d), namely the condition of the plant and equipment, as the experts’ figures for market value depended on the condition of the equipment. Further, issue (e) is raised, namely the treatment of relocation costs.
I deal with (d) first. Counsel for the defendant submitted that, on the evidence, some items were in a condition worse than “very poor”, and that the proper conclusion was that they were either “of no value whatsoever” or of a value significantly less than the lowest notional figure agreed by the experts.
It is necessary to consider particular items referred to by counsel. First, as to item 1 (Low Loader Trailer) and item 4 (a bulldozer), in assessing the Indemnity Value of these items as at 11 May 2006, Hyman’s report stated that they had “no commercial value … because the discovered documents show them as having been written off or being so badly damaged that they were unrecoverable”. Counsel did not refer to any specific discovered documents as justifying Hyman’s opinions, however counsel relied on statements in Simpson’s report to the effect that both items were seriously damaged as at 5 November 2000, the relevant comments in the report being that item 1 had suffered major damage in that two wheels had been ripped off their hubs and parts of the hubs had been torn off, and item 4 had suffered considerable engine damage requiring major repair in the near future, the track gear was worn to a degree where it required immediate replacement for the machine to operate effectively, and there were other “relatively minor defects” requiring immediate attention. Simpson’s report also referred to some vehicles being cannibalized for parts to repair other vehicles.
Counsel submitted that there was no evidence of subsequent repair of items 1 and 4, and no evidence that after December 2000 any of the items were maintained or repaired in any way. Further, counsel relied on Suresh’s evidence in cross- examination that if items were not maintained, or were left outside, they would be damaged, in terms of exposure to the elements affecting their paint and causing rust. Counsel also referred to other specific items Suresh mentioned in evidence as having been damaged, namely item 41 (the truck which remained damaged at the roadside); item 42 (a Mitsubishi 4x4 which he had described in his witness statement as being in good condition, but as to which he conceded in cross-examination that he had forgotten it had been involved in an accident in December 2000 and was damaged beyond repair); items 45 and 46 (Mitsubishi 4x4 vehicles which would not operate due to a number of engine parts having been removed); item 47 (the Power Screen as to which Simpson’s report described the lower screen as worn and having a very limited remaining life, as to which Suresh had no recollection whether the lower screen was worn); item 50 (a Toyota 4x4 which was inoperable, having been in an accident resulting in dented front panels, damaged radiator, headlights and windscreen, and which was not fixed because parts were unavailable); item 52 (a Toyota 4x4 which was not drivable, having been in an accident resulting in a badly damaged passenger door and under-body, and which Suresh was not able to repair before he left the CAR); item 53 (a Toyota 4x4 which had headlights, fuel pump cooling fan and steering pump missing. Suresh was not able to repair the vehicle because he did not have those parts, but if he had had those parts, repair would have been a simple matter); item 55 (a Toyota Landcruiser station wagon which was not drivable, having rolled in an accident, crushing the roof and damaging all panels); item 56 (a Toyota Landcruiser station wagon which had a seized engine, which Suresh was unable to repair before he left the CAR); item 60 (a Ural water truck which was badly damaged, having rolled in an accident which smashed the windscreen and damaged nearly all the panels. It was not drivable as the driver’s panel was partially crushed. Simpson had stated in an accident report that it was damaged beyond repair. The water tanker[47] was also partially crushed although still operational. The engine did not appear to be damaged); item 65 (a Yamaha motor bike, damaged, Suresh could not recall the exact problem with the engine, but he was not able to fix it). Counsel submitted that, in the absence of evidence of repair, the notion that these items could be worth anything more than “negligible salvage value” was untenable.
[47] I infer that Suresh meant the water tank mounted on the truck.
Counsel for the plaintiff submitted that the plant and equipment was, with some limited exceptions, in good, very good, or excellent condition at the time of the relevant events. He relied on Suresh’s evidence that, at the time he last saw them, each of items 1 to 20 was in very good condition, and when Suresh checked and arranged for the service of the equipment upon his return to the CAR in October 2000, apart from the damaged items referred to above and items 1 to 20 which he could not locate, the equipment remained in good, very good or excellent condition. Also, Suresh followed a regular maintenance procedure to ensure that each item of equipment remained in good condition. He described most of the items as being in very good condition when he left the CAR in December. Counsel also relied on Gordon’s evidence that in August 2000, there was no damage to the equipment although some of it needed maintenance and repair[48], and Gordon’s evidence in re- examination that, apart from the list of items 1 to 20 and the list of 12 damaged items, the rest of the equipment was neither missing nor damaged. Finally, counsel relied on Hyman’s evidence in cross-examination where, by reference to photographs of many of the items, he accepted that they were in good condition.
[48] I do not overlook the apparent contradiction between there being no damage and a need for repairs, however I think it is a question of degree, and ultimately I would take Gordon as meaning that there was no major damage, but merely the need for some ongoing repairs and maintenance.
It is difficult to assess the condition of the items. Nevertheless, doing the best I can on the evidence available, I have reached the following conclusions. As a general observation, I accept the evidence of Suresh and Gordon to the effect that, at the time the plaintiff left the CAR in December 2000, the equipment had been properly maintained and was in good condition. I find that all the items were in good condition, with the exception of the following items. On the basis of the evidence stated above as to the damage to these items, I conclude that items 41, 50, 52, 55, 56 and 65 were in “very poor condition”. I reach the same conclusion as to item 2 (the damaged generator returned to the plaintiff). I find that items 45, 46 and 53 were in “reasonable condition”, as the damage to those items seemed relatively minor. I conclude that items 42 and 60 were in a state of repair worse than “very poor condition”, given Suresh’s acceptance in cross-examination of Simpson’s accident reports which stated that both vehicles were “damaged beyond repair”. As to items 1 and 4, notwithstanding my observations as to Simpson’s report referred to at [50] above, I accept that his comments, combined with the photographs in the Court Book, provide a basis for inferring that items 1 and 4 were damaged. As to the extent of that damage, however, I consider that items 1 and 4 were, at worst, in “very poor condition”. In reaching these conclusions, I reject the defendant’s submission that the category “very poor condition” requires, at minimum, that an item is operational. First, the joint report said no such thing, and O’Mara disagreed with the proposition in cross-examination. Secondly, there is no logical basis for the proposition. The expression “very poor condition” means what it says. It may connote a range of conditions, including “operational” and “non-operational” states of repair, and it does not follow that every item in “very poor condition” must be operational. And just as an operational machine may be in very poor condition, a non-operational machine may be in reasonable or good condition. An example would be a vehicle which cannot be driven because a critical part from its engine has been removed. The mere fact that it cannot be driven does not mean that it is not in good condition. It may be lacking no more than a $20 part and 15 minutes of labour to make it operational again.
I now consider issue (e), which was the main matter of difference between the experts. In short, Hyman considered that relocation costs must be deducted from market value, while O’Mara contended that such costs were neutral or, if at all relevant, to be added to market value. The difference between the experts derived largely from their different understandings of the term “market value” and the question as to whether a market for the equipment existed in the CAR. O’Mara considered that although there was a lack of reliable sales data and no “established fluid market” in the CAR, that did not mean that there was no market for the equipment in the CAR, nor did it mean that the equipment had no market value in the CAR. On the contrary, he said, there was an international market for such equipment, and there were mining projects in the CAR which might require the equipment. Further, as counsel for the plaintiff submitted, there were United Nations humanitarian projects in nearby places which created potential demand for the equipment. Hyman accepted the possibility that there might have been willing purchasers for the equipment in the CAR at relevant times, but sought to maintain a distinction between what he characterised as a fortuitous sale to a nearby purchaser as opposed to a sale in a “formal market”. In my view, and as Hyman recognised, it is a question of degree as to the point at which a collection of potential purchasers becomes a market. In my view, the evidence does not establish that there was no market for the items in the CAR. At its highest, the evidence establishes that the experts could not find any reliable data for sales in the CAR which would enable them to calculate the market value. This led to the experts applying a Sales comparison approach to reach the agreed market value figures in the joint report, assuming sales in the UAE.
Assuming a sale in the UAE was not without difficulties. It must be noted that the exercise in the joint report was undertaken on the assumption that there was no relevant market in the CAR. Further, Hyman recognised the difference between (a) the situation where there was no reason to suppose that there was no market, but due to a lack of sufficient market data a valuer might obtain valuation data from the closest market having reliable data; and (b) the situation where there is simply no market, in which case a valuer must notionally obtain the asset from the closest market and then add on the cost of transporting it back to the place with no market. In effect, he recognised that he had done the latter, according to his instructions. When pressed on this point in cross-examination, he said that “… if you want to establish the value of a similar asset to purchase you would have to do so by reference to UAE plus freight” (emphasis added). In my view, this answer indicates that in taking into account the relocation cost, Hyman’s underlying assumption is that the relevant item cannot be purchased in the CAR (or sold in the CAR as the case may be) and hence must be purchased or sold in the UAE and then “transferred” back to the CAR. In effect, Hyman’s approach involves the hypothetical obtaining of a physical asset from the UAE, as opposed to the obtaining of sales data from the UAE to inform the market value of the item in the CAR.
It was clear from the evidence that both experts were familiar with the concept of “market value – removal” as distinct from “market value”. I accept O’Mara’s evidence that Hyman’s approach of adding the relocation cost to market value was, in effect, to calculate “market value – removal”. As counsel for the plaintiff submitted, the insurance policies refer simply to “market value”. I do not overlook Hyman’s point that he would not, as a matter of practice, assess “market value” in a vacuum, that is, he would always seek instructions from the client as to the purpose of the valuation. That is understandable, but it cannot affect the construction of the policies in the face of the clear language that the insurer is to pay market value, without more.
The critical issue then is the meaning of “market value”. In my view, there is no reason to read the expression “market value” as requiring that relocation costs be deducted. If the parties had intended such a meaning, they could have said so explicitly. Further, such an interpretation would defeat the underlying commercial purpose of the policy. The policies cover property located in some remote places, where reliable sales data may well not exist, and to use counsel’s example, what would happen if a bulldozer was destroyed in a remote location and the cost of relocating it to the nearest market exceeded its value? On the defendant’s interpretation of market value, the insured would be unlikely to ever recover any meaningful benefit under the policies where equipment was destroyed in places with no reliable valuation data. The parties could not have intended that result. Further, the defendant’s interpretation is inconsistent with other clauses in the policy, for example that the insured bears the costs of freight under cl 2.5.
Nor do I overlook Franke v CIC General Insurance Ltd (The Coral)[49] which the defendant relied on in support of the proposition that relocation costs were to be taken into account in determining market value. In Franke, the insured property was a dredge which had reached the end of its working life in Brisbane and was being towed to India to be sold and then scrapped. It disappeared during the voyage, and the insured sought an indemnity. The New South Wales Court of Appeal (Gleeson CJ and Sheller JA, Kirby P dissenting on different grounds) held that the correct approach to determining the dredge’s value in Brisbane was by taking the sale price in India and deducting from it the cost of towage from Brisbane. Gleeson CJ observed that transportation costs may be an important element in determining market value[50]. However, the facts in Franke involved an actual sale of the insured property which required physical removal of the insured property to the place where the sale would occur. In such circumstances, it was entirely understandable that the relocation costs should be taken into account, as they effected the value of the dredge in Brisbane. The present case, however, does not require actual removal of the items to the UAE to effect a sale, or the purchase of items in the UAE, to be transported back to the CAR. Rather, the purpose of “going to the UAE” was for the purpose of applying a Sales comparison approach to market value. In these circumstances, I consider that relocation costs are to be treated as neutral in the calculation of market value.
[49] (1994) 33 NSWLR 373 at 376-377 per Gleeson CJ.
[50] At 377.
Finally, I note that even if the defendant was correct that relocation costs should be deducted, there was no satisfactory evidence as to the extent of those costs. It follows that the defendant is required to pay the plaintiff the market value of items 5, 12, 33, 34, 35, 37, 38, 39, 85, 86 and 125, as found in the joint report, without making any adjustment for relocation costs.
As to (f), the plaintiff claims AUD$27,296.03 for “associated costs and expenses” in connection with or incidental to the second loss. That amount comprises AUD$7,649.67 (the cost of retaining the Couper Group), and AUD$19,646.36 (the cost of the satellite photographs). Counsel submitted that these costs were claimable under the extensions covering Claims Preparation Costs[51], or alternatively under the Professional fees[52], or Mitigation Expenses[53] extensions. The extensions in the second policy relevantly provide that:
[51] Part 2, cl 2.8 of the first policy; Part 2, cl 1.8 of the second policy.
[52] Part 2, cl 2.1 of the first policy; Part 2, cl 1.1 of the second policy.
[53] Part 2, cl 2.7 of the first policy; Part 2, cl 1.7 of the second policy.
“In the event of an Occurrence giving rise to an insured loss, the Insurers shall, in addition to the maximum Limits of Liability, pay for the following extra costs and expenses incurred by or on behalf of the insured (over and above those already included in the contract value) subject to any applicable Sub-limits of Liability stated in the Schedule (if any) in respect of each Occurrence.
1.1 Professionals’ Fees Architects and/or surveyors and/or engineers and/or other
fees.1.7 Mitigation Expenses reasonable costs and expenses incurred by or on behalf of any of the insured in connection with or incidental to mitigating, containing, eliminating or suppressing actual or potential loss, destruction, damage or defect by any insured peril or eventuality occurring at or adjacent to or immediately threatening any site of the Insured Operations.
1.8 Claims Preparation Costs reasonable costs and expenses incurred by or on behalf of the Insured in connection with or incidental to preparing, collating, auditing or qualifying actual or potential loss being claimed or attempted under this Policy.” (emphasis added)
The schedule relevantly stated sub-limits of liability of US$12,000,000 in respect of Professionals’ Fees and Mitigation Expenses, and “nil” in respect of Claims Preparation Costs.
Counsel for the defendant did not dispute the amount of the costs sought, but submitted that the plaintiff could not rely on these extensions for three reasons. First, they only applied in the event of an Occurrence, which the plaintiff had not established. Secondly, the expenses were invoiced to and paid by McConnell Dowell Corporation Limited rather than the plaintiff. Thirdly, there was no entitlement to recover any expenses under the Claims Preparation Costs extension because the relevant sub-limit of liability stated in the schedule was “nil”.
In my view, the first submission can be rejected immediately because, for the reasons already stated, the plaintiff has established an Occurrence. As to the second submission, as counsel for the plaintiff pointed out in closing address, McConnell Dowell Corporation Limited is itself defined as an insured, and there was a relevant on-cost to the plaintiff. As to the third submission, I agree that the effect of the sub- limit of liability in respect of the Claims Preparation Costs extension is that the plaintiff is not entitled to recover any amount under that extension. In so concluding, I reject the plaintiff’s submission that the reference to “nil” meant that there was no limit to the amount recoverable under that extension. In my view, if the parties had intended that result, they would have used an expression such as “no limit” rather than “nil”.
That then leaves for consideration the plaintiff’s reliance on the Professional fees and Mitigation Expenses extensions. In my view, the claimed expenses are properly to be characterised as professionals’ fees, incurred in respect of the Occurrences which I have held to have occurred. It follows that the plaintiff is entitled to recover AUD$27,296.03 under the Professionals’ Fees extension of the second policy. Having so concluded, it is not necessary to deal with the Mitigation Expenses extension.
As to (g), counsel for the defendant agreed that, in the event of an Occurrence under the second policy, the amount of the deductible was US$6,000. Given my conclusion that the first loss and the second loss were each an Occurrence under the second policy, the plaintiff is required to bear the amount of US$12,000 in respect of the deductible.
As to (h), being the question of currency, the second policy provides that “All monetary amounts expressed in this Policy are in United States dollars and all premiums and losses shall be paid in United States dollars or as otherwise agreed between the Insurers and the Insured”[54]. Counsel for the plaintiff submitted that the Court should give judgment in US dollars, but that the Court can convert the judgment amount to Australian dollars if the plaintiff so elects, as to which he referred in his written submission to several authorities which considered the question of the appropriate conversion date. Counsel did not develop this submission in closing address, but rather indicated that the question of currency was a matter which might need to be revisited.
[54] Part 6, cl 16.
Similarly, as to issue (i), being the question of interest, the plaintiff claimed interest pursuant to the Supreme Court Act 1958, alternatively pursuant to s 57 of the Insurance Contracts Act 1984 (Cth). Counsel did not develop this matter in closing addresses, effectively reserving their positions on this matter should it become necessary following judgment.
Finally, I note for completeness that the plaintiff led no evidence of the purchase price or value of items 13 to 20, 104, 117, 118, 119, 120, 122, 123, 125, 126, 127, 129, 130 and 133, and is therefore not entitled to recover any amount in respect of these items. The agreed figures for market value in the experts’ joint report did not include these items, and I assume also that the agreed Replacement Value figures in the joint report did not take account of these items.
Summary
Items 5, 12, 33, 34, 35, 37, 38, 39, 85, 86 and 125 are Construction Plant and Equipment. Accordingly, the defendant is required to pay the plaintiff the agreed market value of those items (with the exception of item 125 as to which the plaintiff led no evidence of value), stated in the joint report on the assumption that the items were in “good condition”. All remaining items are Contract and/or Works, thus the defendant is required to pay the plaintiff the agreed Reinstatement Value of those items (with the exception of items 13 to 20, 104, 117, 118, 119, 120, 122, 123, 126, 127, 129, 130 and 133, as to which the plaintiff led no evidence of value), stated in the joint report.
There will be judgment for the plaintiff with costs. I will hear counsel on the terms of the orders including as to currency conversion, interest, and costs.
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