Mobis Parts Australia Pty Ltd v XL Insurance Company SE

[2018] NSWCA 342

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Mobis Parts Australia Pty Ltd v XL Insurance Company SE [2018] NSWCA 342

Hearing dates:

20, 21, 22, 23 and 27 August 2018

Date of orders:

24 December 2018

Decision date:

24 December 2018

Before:

Beazley P at [1];
Meagher JA at [2];
Leeming JA at [169]

Decision:

1. Direct the parties to file, by 5 pm on 25 January 2019, agreed short minutes of order providing for the disposal of the appeal and cross appeal in accordance with these reasons, including as to the costs of the proceedings below as between Mobis Australia and XL and the costs of the appeal and cross appeal.
2. If the parties are unable to agree on such short minutes, direct them to lodge with the President’s Associate, by 5 pm on 25 January 2019, the draft short minutes of order for which each contends and written submissions (not exceeding 5 pages) supporting their position on each of the matters in relation to which they have been unable to reach agreement, with a view to the Court then resolving those matters on the papers.

Catchwords:

EQUITY – rectification – common intention and mistake – antecedent informal agreement – whether € 10 million hail limit contained in master policy for international programme of insurance was intended to be included in but mistakenly omitted from Australian local policy

 

INSURANCE – measure of indemnity – reinstatement – whether cost of replacement refers to costs actually incurred in replacement

 

INSURANCE – business interruption insurance – formula for assessment of insured loss of gross profit – whether accounting provisions that would have been made for depreciation of plant and equipment in fact destroyed are sums saved during indemnity period in consequence of insured damage in respect of charges and expenses payable out of such gross profit

 

INSURANCE – property insurance – industrial special risks – physical loss – whether proof that recovery of property is uncertain suffices to establish loss by deprivation of possession – meaning of uncertainty for constructive total loss under policies of marine insurance

  COSTS – party/party – orders when proceedings involve multiple parties – Bullock and Sanderson orders – whether unsuccessful insurer under primary policy should pay costs of successful insurers under difference-in-limits/difference-in-conditions policy

Legislation Cited:

Civil Procedure Act 2005 (NSW), s 98
Corporations Act 2001 (Cth), s 334
Evidence Act 1995 (NSW), s 140
Insurance Contracts Act 1984 (Cth), ss 54, 57
Marine Insurance Act 1906 (UK), ss 1, 60
Marine Insurance Act 1909 (Cth), ss 7, 66

Cases Cited:

ACQ v Cook (No 2) [2008] NSWCA 306
Australian Gypsym Ltd & Australian Plaster Co Ltd v Hume Steel Ltd (1930) 45 CLR 54
Australian Provincial Assurance Association Ltd v Producers and Citizens Co-operative Assurance Company of Australia Ltd (1933) 48 CLR 341
Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622
British Traders’ Insurance Co Ltd v Monson (1964) 111 CLR 86
Bush v National Australia Bank Ltd (1992) 35 NSWLR 390
Campbell & Phillips Ld v Denman (1915) 21 Com Cas 357
Castellain v Preston (1883) 11 QBD 380
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384
Coalex Pty Ltd v Commercial Union Assurance Co of Australia Ltd (1988) 5 ANZ Ins Cas 60-858
Collett v Morrison (1851) 9 Hare 162; 68 ER 458
Equitas Ltd v R&Q Reinsurance Co (UK) Ltd [2009] EWHC 2787 (Comm); [2010] Lloyds Rep IR 600
Euro-Diam Ltd v Bathurst [1990] 1 QB 1
FAI General Insurance Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641
Fowler v Fowler (1859) 4 De G & J 250; 45 ER 97
Gibbs v Mercantile Mutual Insurance (Australia) Ltd (2003) 214 CLR 604; [2003] HCA 39
Great China Metal Industries Co Ltd v Malaysian International Shipping Corporation Berhad (1998) 196 CLR 161; [1998] HCA 65
Harper v Zurich Australian Insurance Ltd (1967) 4 ANZ Ins Cas 60-779
Henry Booth & Sons v The Commercial Union Assurance Co Ltd (1923) 14 Lloyds LR 114
Holmes v Payne [1930] 2 KB 301
Irving v Manning (1847) 1 HLC 287; 9 ER 766
Kuwait Airways Corporation and the Minister of Finance for the State of Kuwait v Kuwait Insurance Co [1996] 1 Lloyds Rep 664
Lackersteen v Jones (No 2) (1988) 93 FLR 442
Leyland Shipping Company Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350
Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336
Massey Motor Inc v United States 364 US 92
Masters v Cameron (1954) 91 CLR 353
Maxwell v Highway Hauliers Pty Ltd (2014) 252 CLR 590
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65
Mitsui v Mumford [1915] 2 KB 27
Moore v Evans [1917] 1 KB 458
Moore v Evans [1918] AC 185
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37
Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28
PMT Partners Pty Ltd (in liq) v Australian National Parks & Wildlife Service (1995) 184 CLR 301
Polurrian Steamship Co Ltd v Young [1915] 1 KB 922
R v Biber [2018] NSWCCA 271
Re Mining Technologies Australia Pty Ltd [1999] 1 Qd R 60
Rickards v Forestal Land, Timber and Railways Co [1942] AC 50
Roura & Fourgas v Townsend [1919] 1 KB 189
Sanderson v Blyth Theatre Co [1903] 2 KB 533
Scott v Copenhagen Reinsurance Co (UK) Ltd [2003] 2 All ER 190
Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47
Slee v Warke (1949) 86 CLR 271
Southern Cross Assurance Co Ltd v Australian Provincial Assurance Ltd (1939) 39 SR (NSW) 174
Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179
Synergy Health (UK) Ltd v CGU Insurance Plc (t/as Norwich Union) [2010] EWHC 2583 (Comm); [2011] Lloyds Rep IR 500
The Club Schanck Resort Co Ltd v Cape Country Club Pty Ltd [2001] 3 VR 526; [2001] VSCA 2
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
Watkins Syndicate 0456 at Lloyds v Pantaenius Australia Pty Ltd (2016) 244 FCR 5; [2016] FCAFC 150

Texts Cited:

ALRC, Review of the Marine Insurance Act 1909 (Cth), Rep No 91, para 3.2
Enright and Merkin, Sutton on Insurance Law (4th ed 2015, Law Book Co)
Harry Roberts, Riley on Business Interruption Insurance, (10th ed 2016, Sweet & Maxwell)
JD Heydon, Cross on Evidence, (11th ed 2017, LexisNexis Butterworths)
JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies, (5th ed 2015, LexisNexis)
Kenneth Sutton, Insurance Law in Australia, (2nd ed 1991, Law Book Co)
M Clarke, The Law of Insurance Contracts (6th ed, informa, London, 2009)

Category:

Principal judgment

Parties:

Mobis Parts Australia Pty Ltd (Appellant/First Cross Respondent)
XL Insurance Company SE (Respondent/Cross Appellant)
AIG Europe Limited (Second Cross Respondent)
UNIQA Versicherungs AG (Third Cross Respondent)

Representation:

Counsel:
N Young SC, T Mehigan (Appellant/Cross Respondent)
JT Gleeson SC, DS Weinberger, K Lindeman (Respondent/Cross Appellants)

  Solicitors:
Ashurst Australia (Appellant/Cross Respondent)
McCabe Curwood (Respondent/Cross Appellant)

File Number(s):

2018/77733

Publication restriction:

N/A

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity – Commercial List

Citation:

[2017] NSWSC 1321; [2017] NSWSC 1507; [2018] NSWSC 37

Date of Decision:

29 September 2017

Before:

Stevenson J

File Number(s):

2015/281297

Headnote

[This headnote is not to be read as part of the decision]

A warehouse owned by the appellant (the insured) collapsed during a severe storm and, in the course of the ensuing demolition, its remaining contents were destroyed by fire. The insured claimed indemnity for losses arising from the collapse, but not fire, under two property damage and business interruption policies issued as part of an international programme: a local policy for Australia issued by the respondent (the lead insurer); and a master policy, providing difference-in-limits/difference-in-conditions cover, issued by the lead insurer and second and third cross-respondents (the other insurers) to another subsidiary of the insured’s parent company, for the benefit of various subsidiaries, including the insured.

The primary judge (Stevenson J) held the insured entitled to an indemnity under the local policy, rejected a claim for rectification by the insurer and determined several other issues as to quantum. Had the claim under the master policy arisen, his Honour would have dismissed it. He also made orders as to costs and interest.

The insured appealed, and the lead insurer cross appealed, against various conclusions as to quantum, costs and interest. The following significant issues arose on the appeal and cross appeal:

(1)   Whether the local policy should be rectified by inserting a € 10 million hail limit, as appears in the master policy;

(2)   Whether all stock damaged after the collapse was physically lost because of uncertainty as to its recovery;

(3)   Whether the insured was entitled to an indemnity in respect of stock not actually replaced;

(4)   Whether accounting provisions that would have been made for depreciation of plant and equipment in fact destroyed by the collapse were to be deducted from the insured’s indemnity for business interruption; and

(5)   Whether the primary judge’s exercise of discretion miscarried in the lead insurer being ordered to pay the other insurers’ costs of the proceedings.

Held (Meagher JA, Beazley P and Leeming JA agreeing; Leeming JA giving additional reasons on issue (2), Beazley P agreeing), allowing the appeal in part and dismissing the cross appeal:

As to (1):

i.   Although an informal contract of insurance came into existence when the insured agreed to participate in the international programme, that contract was not objectively shown to have included — or required the lead insurer to issue a local policy including — the hail limit: at [38], [41], [47].

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 applied. Australian Provincial Assurance Association Ltd v Producers and Citizens Co-operative Assurance Company of Australia Ltd (1933) 48 CLR 341; Southern Cross Assurance Co Ltd v Australian Provincial Assurance Ltd (1939) 39 SR (NSW) 174; Masters v Cameron (1954) 91 CLR 353 Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 referred to.

ii.   The local policy should not be rectified by inserting the hail limit, the evidence not having established in the clearest and most satisfactory manner either (a) that the parties had a common intention, at the time of any local policy or renewal, that the policy would contain the limits in the master policy, including the hail limit, or (b) that the omission of such limits was the result of an operative mistake on the part of the lead insurer: at [5], [10], [11], [66], [87].

Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 applied.

As to (2):

iii.   As the common-law test of uncertainty for constructive total loss does not extend to non-marine policies, a claim for physical loss under such a policy depends on proof by the insured not only that a deprivation has occurred, but also that the deprivation will, more probably than not, be of sufficient permanence to constitute a loss: at [99], [103] (Meagher JA), [173]–[192] (Leeming JA separately).

Moore v Evans [1917] 1 KB 458; Evidence Act 1995 (NSW), s 140 applied. Dicta in Kuwait Airways Corporation and the Minister of Finance for the State of Kuwait v Kuwait Insurance Co [1996] 1 Lloyds Rep 664; Holmes v Payne [1930] 2 KB 301 disapproved.

iv. To describe the recovery of insured property as “uncertain” in this context is to attribute an equal probability to recovery and non-recovery, and not merely to assert that recovery is not absolutely certain: at [105].

Rickards v Forestal Land, Timber and Railways Co [1942] AC 50 applied.

v.   In any event, the fact that the insured would recover some stock was certain, and this conclusion was supported by the application of the so-called “wait-and-see” approach in cases of loss by deprivation, which merely describes the use of evidence of subsequent events to support an inference as to the likely permanence of any deprivation — by nature or human actors — at that earlier time: at [106]–[109].

Re Mining Technologies Australia Pty Ltd [1999] 1 Qd R 60; Kuwait Airways Corporation and the Minister of Finance for the State of Kuwait v Kuwait Insurance Co; Scott v Copenhagen Reinsurance Co (UK) Ltd [2003] 2 All ER 190 considered.

As to (3):

vi.   The insurer never relied on the clause conditioning payment of reinstatement costs on the insured’s having incurred those costs, and whether Insurance Contracts Act 1984 (Cth), s 54 would relieve the insured from compliance with that condition need not be decided:

FAI General Insurance Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641; Maxwell v Highway Hauliers Pty Ltd (2014) 252 CLR 590; Watkins Syndicate 0456 at Lloyds v Pantaenius Australia Pty Ltd (2016) 244 FCR 5; [2016] FCAFC 150 referred to.

vii. As the terms of that condition assumed, the clause providing that the basis for reinstatement was “the cost of replacement” described a measure of loss or value, payable notwithstanding that the insured did not propose to replace or reinstate: at [121].

CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 referred to.

viii. The agreed formula for indemnification (on the basis of the current cost of replacement in a condition equal to new) foreclosed any argument that such stock had no value to the insured, that replacement by the insured would have been unreasonable, or that the cost of replacement would exceed the insured’s actual loss: at [122].

CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; Irving v Manning (1847) 1 HLC 287; 9 ER 766 applied.

As to (4):

ix.   Depreciation was not a charge or expense of the business “payable” out of gross profit within the formula for assessing the insured loss to gross profit, which qualified the principle of indemnity: at [147], [151].

McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 applied. Henry Booth & Sons v The Commercial Union Assurance Co Ltd (1923) 14 Lloyds LR 114 considered. Synergy Health (UK) Ltd v CGU Insurance Plc (t/as Norwich Union) [2010] EWHC 2583 (Comm); [2011] Lloyds Rep IR 500 disapproved.

As to (5):

x.   As the lead insurer’s representation that no privity issues would arise in a claim under the master policy prompted the insured reasonably to bring such a claim against the other insurers, the challenge to the Sanderson order was not made out: at [160], [161].

Judgment

1. BEAZLEY P:  I have had the advantage of reading in draft the reasons of Meagher JA.  I agree with his Honour’s reasons and proposed orders.  I also agree with the additional reasons of Leeming JA.

MEAGHER JA:

Overview

2. On 25 April 2015, a warehouse in Eastern Creek owned by the appellant (Mobis Australia) collapsed during a severe storm. In the course of the ensuing demolition works, on 30 July 2015, the warehouse and remaining contents were destroyed by a fire. Mobis Australia claimed indemnity for losses arising from the collapse, but not fire, under property damage and business interruption policies issued as part of an international programme. Its primary claim was under the local policy issued by the respondent (XL) to it for the period 23 June 2014 to 23 June 2015 (the 2014/15 Local Policy). Its alternative claim was under the master policy issued by XL, the second cross-respondent (AIG) and the third cross-respondent (UNIQA) in the name of Mobis Slovakia s.r.o. (Mobis Slovakia) for the benefit of various subsidiaries of Hyundai Mobis Co Ltd (Mobis Korea) for the same period (the 2014/15 Master Policy).

3. The primary judge (Stevenson J) held Mobis Australia entitled to an indemnity under the 2014/15 Local Policy and determined several consequential issues as to quantum: Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 7) [2017] NSWSC 1321; Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 8) [2017] NSWSC 1507; Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 10) [2018] NSWSC 37. The claim under the 2014/15 Master Policy thus did not arise. His Honour would nevertheless have dismissed it, and it is not agitated before this Court.

4. Mobis Australia appeals from several of the primary judge’s conclusions as to the quantum of its stock, business interruption, and building and contents claims. XL cross appeals, principally against the refusal to rectify the 2014/15 Local Policy by inserting a € 10 million hail limit, but also as to the quantum of an aspect of the stock claim, and costs. The issues arising on the appeal and cross appeal may be summarised (in the order in which they are dealt with below) as follows:

1. Whether the 2014/2015 Local Policy is to be rectified by inserting a € 10 million sublimit for hail and similar perils, as appears in the 2014/2015 Master Policy (XL amended cross appeal grounds 1 to 13);

2. Whether all stock undamaged after the collapse was physically lost because of uncertainty as to its recovery (Mobis Australia appeal grounds 2.1 to 2.3);

3. What was the value of the stock likely to have been salvaged but for fire (Mobis Australia appeal grounds 3.3 and 3.4);

4. Whether Mobis Australia was entitled to an indemnity valued at the historic cost of stock not replaced (Mobis Australia appeal grounds 1.1 and 1.2; XL notice of contention)

5. Whether Mobis Australia was entitled to treat stock in wet or damaged packaging as unsalvageable (Mobis Australia appeal grounds 3.1 and 3.2; XL amended cross appeal ground 14);

6. Whether particular items in Mobis Australia’s “Building” claim were designated as “Contents” by an asset register used by Mobis Australia (Mobis Australia appeal grounds 4.1 to 4.4);

7. Whether the provisions that Mobis Australia would have made for the depreciation of plant and equipment destroyed by the collapse are to be deducted from its indemnity for business interruption (Mobis Australia appeal grounds 5.1 and 5.2);

8. Whether the primary judge’s exercise of the costs discretion miscarried in XL only being ordered to pay 80% of Mobis Australia’s costs of the proceedings on the ordinary basis (Mobis Australia appeal ground 7.1) or in XL being ordered to pay AIG and UNIQA’s costs of the proceedings (XL amended cross appeal ground 15); and

9. When was the day from which it was unreasonable for the insurer to have withheld payment, and thus the day from which interest was payable under Insurance Contracts Act 1984 (Cth), s 57 (Mobis Australia appeal grounds 6.1 and 6.2).

Rectification (XL amended cross appeal grounds 1 to 13)

Introduction

5. Like other instruments apparently intended to record contracts exhaustively, policies of insurance may be rectified for common mistake: Collett v Morrison (1851) 9 Hare 162 at 173; 68 ER 458 at 463 (Turner V-C); Australian Provincial Assurance Association Ltd v Producers and Citizens Co-operative Assurance Company of Australia Ltd (1933) 48 CLR 341 at 361 (Dixon J); Southern Cross Assurance Co Ltd v Australian Provincial Assurance Ltd (1939) 39 SR (NSW) 174 at 186–187 (Jordan CJ and Nicholas J). The granting of this equitable remedy depends on proof that, by reason of a common mistake, the form of the instrument has failed to express the parties’ common intention up to the time of its execution or issue — whether or not that antecedent intention constituted an enforceable agreement: The Club Schanck Resort Co Ltd v Cape Country Club Pty Ltd [2001] 3 VR 526; [2001] VSCA 2 at [39] (Phillips JA); Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [41] (Kiefel J), [103] (Gageler, Nettle and Gordon JJ).

5. The instrument that XL seeks to have rectified is the local policy issued to Mobis Australia (Local Policy) for the period 23 June 2014 to 23 June 2015 and executed on 8 August 2014. The material change sought is the inclusion in cl 1.10 of an AUD 14,421,000 (€ 10 million) limit on XL’s liability (per occurrence and in the aggregate during the period of insurance) for damage resulting from “Natural peril events, hail, avalanche, weight of snow and ice, rockslide, falling stones, landslide” (the Hail Limit). An equivalent limit appears in cl 2.1 of the master policy earlier issued to Mobis Slovakia (Master Policy), for the benefit of several Hyundai Mobis subsidiaries, for the period 23 June 2014 to 23 June 2016.

6. The combination of that Master Policy and various “local policies” for participating subsidiaries outside the European Union (EU) constituted “an international property and business interruption insurance programme” (cl 5). Under this programme, XL issued annual (and, in one case, biennial) Master Policies, containing in Attachment No 1 the declared values and premium rates for each of the “Insured Companies”. Local policies would then be issued to the non-EU subsidiaries by either the “local office” of XL or a “fronting partner”, meaning a locally recognised insurer in turn reinsured by XL. Where the cover provided under the Master Policy exceeded that under any local policy, the former would operate as excess insurance to the non-EU subsidiary — subject to the aggregate limits and sub-limits in the Master Policy (cl 5.2).

7. This programme had been arranged in June 2010, initially for six EU and three other subsidiaries of Hyundai Mobis. The first Master Policy was issued to Mobis Slovakia on about 27 July 2010. Its period of insurance was from 23 June 2010 to 23 June 2011, but the proposed inception date was 1 July 2010 for the subsidiary in the United Arab Emirates (UAE), and 1 January 2011 for the subsidiaries in Australia, Russia and three EU countries. As provided, local policies were issued by “fronting partners” to Mobis UAE from 1 July 2010 and to Mobis Russia from 1 January 2011. The 2011 Local Policy was issued by XL in Australia on 22 February 2011 for the period 1 January 2011 to 23 June 2011. The Master Policy and Local Policy were both renewed for 2011/2012, 2012/2013, 2013/2014. The Master Policy was then renewed for two years, and the Local Policy for one year, from 23 June 2014. In the 2014–2016 Master Policy, AIG Europe Ltd and UNIQA Versicherungs AG joined XL as co-insurers (as to 30% and 20%, respectively). XL remained the insurer under the 2014/2015 Local Policy but was reinsured in that year as to 30% by AIG.

8. In each policy period, the Master Policy contained the € 10 million Hail Limit, and neither party suggests that this was not in accordance with the true agreement between XL and Mobis Slovakia as to the terms of that insurance. Rather, XL’s case was that an equivalent provision was intended to be included in, but mistakenly omitted from, the Local Policy in each insurance period. That case was summarised as follows in its written submissions to this Court:

… it was the common intention of XL and [Mobis Australia] that the Local Policies, including the 2014/15 Local Policy, would reflect the coverage granted by XL in the Master Policy for the equivalent policy period, subject to any amendments necessary to satisfy applicable local legal and regulatory requirements. As such, it was by common mistake of the parties that the Hail Limit was omitted from the terms of the Local Policy as originally written with effect from 1 January 2011. This mistake was repeated each year until, and including, the relevant policy period, such that the 2014/15 Local Policy did not include the Hail Limit. This omission created a radical disconformity between each Local Policy and corresponding Master Policy. It significantly expanded the coverage XL granted to Mobis, as compared to that granted in the Master Policy to other Mobis Korea subsidiaries, without any negotiation, and without any quid pro quo. In omitting the Hail Limit, the 2014/15 Local Policy did not express the parties’ true agreement.

10. As a matter of principle, then, XL’s entitlement to rectification turns on proof that as at 8 August 2014: (1) the 2014/2015 Local Policy did not conform to the “true agreement” that it was intended to record, by its omission of the Hail Limit; and (2) this omission was attributable to a common mistake, rather than any deliberate choice. Each of those elements must be established to “displace the hypothesis arising from the execution of [that] written instrument, namely that it is the true agreement of the parties”: Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 351 (Mason J, Menzies J agreeing). However, as each previous Local Policy also omitted the Hail Limit, XL must also displace the hypothesis arising upon each policy renewal, by establishing both of the elements above (and in effect an entitlement to rectification) in relation to each earlier Local Policy.

11. In doing so, XL must prove the continued existence of a common intention to include the Hail Limit by admissible evidence “in the clearest and most satisfactory manner”: Simic at [41], quoting Fowler v Fowler (1859) 4 De G & J 250 at 265; 45 ER 97 at 103 (Lord Chelmsford). That standard of proof (or application of the civil standard to this subject matter) makes it necessary, at least in general, to identify some outward manifestation of each party’s actual intention in its words or conduct: Simic at [42], [43] (Kiefel J), [104] (Gageler, Nettle and Gordon JJ), citing Hodgson J’s statement in Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 at 405–406. The extent to which rectification otherwise depends on “objective” considerations need not be explored here. In particular, this appeal does not turn on whether commonality of intention requires, not only that the intentions of all parties coincide, but also that each was (or perhaps should have been) aware of that coincidence: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies, (5th ed 2015, LexisNexis) at [27-050].

12. As to the relevant common intention up to the issue of the 2011 Local Policy, XL maintains that Mobis Australia was insured from 1 January 2011 by an informal contract of insurance, under which XL was to issue a “local policy” that relevantly included the Hail Limit. Before this Court, it submits that the terms of this contract were to be inferred from three sources: (1) the 2011/2012 Master Policy; (2) a “Summary of Global Property and Business Interruption Insurance” prepared by the Hyundai Mobis subsidiaries’ broker, Marsh Europe; and (3) emails between the XL programme underwriter (Ms Ladislava Hurtajová) and the broker acting for the Hyundai Mobis subsidiaries (Mr Roman Kaločai of Marsh Europe), and between Mr Kaločai and the Mobis Australia officer responsible for arranging its insurance (Mr Sam Papa) and notifying the final declared values, and accordingly sums insured, for property and business interruption in Australia.

13. Those terms have been variously formulated by XL. Before the primary judge, the informal contract was said to be “on the terms of the Master Policy with the hail limit of EUR 10m”. Before this Court, it was said to require that the proposed local policy “reflect” the coverage in the Master Policy for the equivalent policy period but adopt “good local standard wording”, which would accommodate: (1) amendments necessary to satisfy local legal and regulatory requirements; (2) lower limits to take account of the Australian sums insured; and (3) the use of “language, format and structure” familiar in the Australian insurance market. Whatever differences might have been contemplated (whether in conditions, limits or otherwise), XL submits (as it must) that the local policy to be issued could not confer better cover than the Master Policy, including by the omission of the Hail Limit. To do so would, according to XL, “undermine the integrity of [its] entire risk analysis” and indeed the “entire bargain”, as the premiums payable by each Mobis subsidiary were calculated by reference to the “promises struck in the Master Policy”, and the declared locations, asset values and claims history. Insofar as any local policy issued to Mobis Australia (and, for that matter, subsidiaries in the UAE and Russia) recorded greater coverage than the Master Policy, for example by omitting the Hail Limit, a “common mistake” was said to be the “most obvious explanation”.

14. XL maintains that this informal agreement so to limit cover under each local policy was not given effect because of mistakes originally made in the process leading to the issue of the 2011 Local Policy. In that respect, this was a case in which “the mutual mistake [was] sought to be established by reference to the terms of a previous contract”: Slee v Warke (1949) 86 CLR 271 at 280 (Rich, Dixon and Williams JJ), referring to Australian Gypsym Ltd & Australian Plaster Co Ltd v Hume Steel Ltd (1930) 45 CLR 54. According to XL, its own mistake was in issuing a policy that omitted the agreed limit, whereas Mobis Australia’s mistake was in accepting the policy as issued without appreciating that it failed by reason of that omission to comply with the informal agreement.

15. More specifically, Ms Hurtajová was said to have mistakenly treated two perils — “Windstorm” and “Hail” — as having the same limit in the Master Policy as “Storm”, in communicating information to the XL underwriting assistant or “deal administrator” (Mr Patrick Hofmann) responsible for preparing the “Local Policy Instruction” (LPI) — an Excel workbook containing “relevant information to allow a local policy to be prepared” for each non-EU subsidiary. An LPI incorporating that omission in the worksheet for Australia was then sent to the Australian policy administrator (Ms Denise Stanley), who was responsible for arranging the completion, review and issue of the Local Policy. Once created, the Local Policy was signed by a local underwriter (Timothy Jones), who relied on others to have prepared and checked the wording.

16. The Hail Limit continued to be omitted from the worksheet for Australia before each renewal and, on XL’s case, that was on each occasion mistaken, rather than deliberate and led to its omission from the Local Policy. As before, the LPIs including the relevant worksheets were finalised by the property underwriter (Ms Hurtajová, then Mr Stefan Roßa from May 2014) and a deal administrator in Europe (Mr Tim Cruypelans from June 2012); arrangements for the creation of the Local Policy by a policy administrator (relevantly, Ms Liz Charlton in Australia between July 2011 and August 2012, Mr Anurag Pandey in India between August 2012 and August 2014, and Mr Abdul Younes in Australia from July 2014); and execution by or on behalf of the Australian property underwriter, Mr Jones.

17. In rejecting this case, the primary judge focused on the circumstances in which the 2011 Local Policy was issued: Judgment (7) [361]–[370]. His Honour was not satisfied that the omission of a € 10 million Hail Limit from both Ms Hurtajová’s email to Mr Hofmann and the resulting LPI, separately approved by her, was mistaken. His Honour emphasised that Ms Hurtajová did not in terms claim to have made any mistakes on those occasions and that her “contemporaneous, internal business communications” were not consistent with her having done so: Judgment (7) [372]–[380]. As to whether Mobis Australia intended that the 2011 Local Policy contain the Hail Limit, his Honour concluded that neither Mr Papa nor Mr Kaločai had been shown to have that intention: Judgment (7) [387]–[399]. For these reasons, he rejected the rectification case, treating it as unnecessary to consider the effect of the later renewals on the claimed continuing common intention and mistake.

18. Grounds 1 to 13 of XL’s amended notice of cross appeal challenge the rejection of its rectification case. The arguments in support of them commence with the inclusion of the Hail Limit in the 2011/2012 Master Policy and “step through events in the four years leading up to, and immediately following, the parties’ omission” of that limit from the 2014/2015 Local Policy. The significant events during that period concern the preparation and approval of the LPI for the 2010/2011 local policies (by Ms Hurtajová and Mr Hofmann) and of the LPI for the 2013–2015 local policies (by Ms Hurtajová, then Mr Roßa, and Mr Cruypelans throughout). What follows addresses the evidence relevant to XL’s arguments by reference to the following chronological subjects:

1. The negotiations for the 2010/2011 insurance programme;

2. The 2010/2011 Master Policy;

3. The 2010/2011 UAE worksheet and local policy;

4. Mobis Australia’s agreement to participate in the Master Policy from 1 January 2011;

5. Ms Hurtajová’s email to Mr Hofmann on 22 December 2010

6. The Australian 2011 worksheet and Local Policy;

7. The 2011/2012, 2012/2013 and 2013/2014 renewals;

8. The 2014/2015 Local Policy.

The initial negotiations

19. Negotiations for the insurance programme commenced in earnest in March 2010, when Marsh Europe invited quotations for all-risks insurance of a number of Hyundai Mobis subsidiaries to commence for some insureds on 23 June 2010. Ms Hurtajová responded on 13 April 2010 with a quotation from XL Europe including two options for property damage (PD) and business interruption (BI) insurance. These differed in the proposed PD deductible (being € 25,000 or € 100,000) and premium rate (0.0512% or 0.0455%, respectively). Both provided for a limit of € 50 million for “risks such as floods, deluge, [and] earthquake” (for each and every occurrence and in the annual aggregate), and a specific machinery breakdown (MB) deductible of € 100,000.

20. On 10 May 2010, Mr Kaločai sent Ms Hurtajová a summary of the quotation that he wished to present to Hyundai Mobis. That summary stated lower premium rates for Sweden and the Czech Republic, explained in the covering email as “due to competition”; it included a € 50 million limit in respect of “Flood, Windstorm, Hail, [and] Earthquake”; and it omitted reference to the MB deductible. In communicating her agreement to that course, Ms Hurtajová also indicated that XL was “able to adjust” the premium rates as proposed, and repeated parts of her earlier email, including the € 100,000 MB deductible, without pointing out its omission from Marsh’s summary.

21. The first draft wording for the Master Policy, provided by Ms Hurtajová on 17 June 2010, contained this € 100,000 MB deductible, but also a (highlighted) € 10 million limit in respect of six “Natural peril events” — “Hail, avalanche, weight of snow and ice, rockslide, falling stones, [and] landslide”. According to Ms Hurtajová, Mr Kaločai suggested at a meeting the following day that XL could have the “lower limits for the other perils” discussed — understood by her as being the six “Natural peril events” — in exchange for a reduction in the MB deductible to the general PD deductible level of € 25,000. On 23 June 2010, she confirmed by email her agreement to the reduction of the € 100,000 MB deductible. However, before that consensus was reached, XL on 22 June 2010 issued its Coverage Letter, confirming the terms on which it was bound to provide cover from 23 June 2010 until a formal master policy was issued. Those terms included limits and deductibles relevantly in accordance with XL’s offer of 13 April 2010 (and thus not including any € 10 million limit for hail), and premium rates reflecting the negotiations to date.

22. Closely analysed, the course of these negotiations does not support XL’s arguments as to the significance of the Hail Limit in the setting of the premium for the programme. First, the adjustment in premium to accommodate market conditions in Sweden and the Czech Republic undermines XL’s submission that the coverage agreed in the Master Policy (and accordingly including the Hail Limit) determined a premium rate that was then merely apportioned between the various insureds. Secondly, the terms of the initial offer and Coverage Letter tend against any inference that XL would have (and been reasonably expected to have) demanded a higher premium if the hail cover had exceeded € 10 million in the Master Policy, let alone in one of the local policies. Ms Hurtajová sought to introduce the Hail Limit by the first draft wording, which also included the € 100,000 MB deductible, without any corresponding concession, in terms of premium or otherwise, to the insured. It was the broker who eventually gave up hail cover in excess of € 10 million, in return for a € 75,000 reduction in the MB deductible.

The 2010/2011 Master Policy

23. A number of draft wordings were exchanged between Ms Hurtajová and Mr Kaločai before the final version of the Master Policy was produced in late July 2010. By its insuring clauses, this policy provided indemnities against destruction, damage or loss of or to insured property during the policy period “as a result of a sudden and unforeseen event” (cl 6.1) and against business interruption losses due to loss or damage to property occurring as a result of an insured peril at the insured location (cl 8.1). It contained exclusions with respect to loss or damage from particular perils or risks (cll 6.2, 6.3) and to particular property (cll 7.2, 7.3). Except as to nominated items insured on a “first loss” basis, the indemnity for property damage was to be on a replacement value basis and in the same ratio as the sum insured (i.e. declared value) bore to the replacement value of the relevant property (cl 10.3).

24. The scope of the insurance was further defined by cl 1, which outlined the declared values (in Euro) for the subject matter insured against property damage (buildings, equipment and stock) and business interruption (gross profit) for each Insured Company. That information also appeared in Attachment No. 1 to the Master Policy, alongside the inception date, “PD” and “BI” premium rates and share of the total annual premium (in Euro) for each insured. The total insured value (€ 39,783,615) and premium rate (0.0512%) for Australia were as in the equivalent schedule to the Coverage Letter; although the total insured value later increased (see [37] below), the same premium rate first quoted in April 2010 applied in each subsequent Master Policy and Local Policy.

25. Clauses 2.1 and 2.2 set out the limits of liability and deductibles, respectively. The former provided:

2.1   Insured Perils / Limits of Liability               

Limit each loss (e.e.l.) PD/BI combined	Limit in annual aggregate (a.a.g.)
Policy Limit	115.250.000	230.500.000
Peril
Fire, Lightning, Explosion, Aircraft impact (Flexa)	115.250.000	230.500.000
Storm, Windstorm	50.000.000	50.000.000
Windstorm US - Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Texas, Puerto Rico (USA), Hawaii (USA), Caribean Islands, Japan, Taiwan	Not insured	--
Flood	50.000.000	50.000.000
Flood in the US - Floodzone A	Not insured	--
Earthquake	50.000.000	50.000.000
- Earthquake (SAIC Greece only)	Not insured	--
- Earthquake in California (USA) and Japan)	Not insured	--
- Earthquake Italy Mexico, Chile, Alaska, Hawaii, Puerto Rico	Not insured	--
Natural peril events, hail, avalanche, weight of snow and ice, rockslide, falling stones, landslide	10.000.000	10.000.000
Contract Works and/or Property under construction	5.000.000	5.000.000
Machinery Breakdown	5.000.000	10.000.000
Computer Equipment, including Electronic Data Processing Equipment associated herewith	1.000.000	1.000.000
Theft following forcible or violent entry and damages to the insured property	5.000.000	5.000.000

26. The “each loss” limits describe the maximum indemnity recoverable for property damage and business interruption as a result of a single loss event that begins during the policy period. Where, as in this case, two or more named “Perils” operate to produce a loss event, the applicable limit would depend on the proximate cause of the relevant damage or interruption. Such intersections between the named perils further defined the cover, as of course did the numerical limits specified for each peril. In particular, as the word “Storm” ordinarily encompasses a hailstorm (Harper v Zurich Australian Insurance Ltd (1967) 4 ANZ Ins Cas 60-779 at 74,744 (Clarke J)), the imposition of a “hail” limit effectively operated as a sub-limit within the “Storm” cover.

27. The distinction between “Storm, Windstorm” and “Natural peril events”, including “hail”, may also be contrasted with the following comprehensive definition of the latter in cl 13.2:

13.2   Natural Peril Events (natural peril cover)

a.   High water / inundation (including tsunami);

Inundation is deemed to have occurred when a water body overflows its natural or manmade boundaries, e.g. river banks, embankments or dykes, causing the surrounding land to be submerged in water.

b.   Windstorm (= winds with a minimum velocity of 75 km/h that uproot trees or take the roofs off buildings in the vicinity of the insured property);

c.    Hail;

d.    Avalanche;

e.    Weight of snow or ice;

f.    Rockslide;

g    Falling stones;

h.    Landslide.

28. The Master Policy also provided for the issue of “Local Policies” as the primary source of insurance for the Mobis subsidiaries in Australia, Russia and the UAE (cl 4.2). The cover under those local policies would terminate with the expiry of the Master Policy (cl 3.1.4). Unpaid “premiums of local policies” could be requested via the Master Policy (3.1.6). The annual aggregate limits of liability under the Master Policy would “apply combined for all Companies Insured under [the] Master Policy and any local policies” (cl 3.1.7). At Judgment (7) [154]–[158], the primary judge construed this provision as only affecting claims made under the Master Policy, and XL does not challenge that conclusion. (An alternative construction may have made rectification unnecessary.)

29. Most significantly, cll 5.1 and 5.2 relevantly provided:

5   Function of this Insurance Programme            

5.1   Cover Principle  

This Master Policy is issued as part of an international property and business interruption insurance programme. The local policies form an integral part of the programme.

…

5.2   Difference in Limits (DlL) / Difference in Conditions (DIC)   

If the insurance cover granted by this Master Policy exceeds that provided by the local policies, and this is permissible by law, this Master Policy shall provide additional cover over and above the indemnities due under the local policies. The indemnifiable amount for the applicable local policies and the Master Policy together shall not exceed the aggregate limits or sublimits set out in this Master Policy.

Notwithstanding any agreement to the contrary, such differences in indemnity shall be paid to the Policyholder in the country of the Master Policy.

…

30. By reason of cl 5.2, the Master Policy provided “additional” insurance — payable to Mobis Slovakia — insofar as the cover provided to another Insured Company under a local policy was less comprehensive. The parties accept that the limitation on the “indemnifiable amount” only applies the aggregate limits and sublimits in the Master Policy to claims that include a claim to such “additional cover”. (Had this clause operated more broadly, it may also have obviated the need for rectification.)

31. Finally, cl 10.4 provided that the “programme deductibles” specified in cl 2.2 would not apply to losses covered by “the local policies unless the local deductible [was] lower than the programme deductible”.

32. As acknowledged by XL, these provisions contemplate various possible disconformities between the Master Policy and local policies. Clause 5.2 presupposes that the limits or conditions defining the cover under the local policy could differ from those under the Master Policy. In terms, it operates where they are less favourable to the insured. But any local practices, market conditions or risk factors capable of resulting in such differences could equally favour the insured, and the clause does not in terms exclude that outcome. Furthermore, cl 10.4 requires no speculation: it accepts that the local policy might include lower deductibles, favouring the insured. In this respect, the common intention recorded in the Master Policy is not coextensive with Ms Hurtajová’s asserted intention that the policies had to contain the same limits except where the local declared asset values were lower.

The 2010/2011 UAE worksheet and local policy

33. The first local policy was issued to Mobis UAE. Its significance in the present proceedings arises in connection with that asserted intention of Ms Hurtajová. She gave no evidence about the creation of the LPI for the first Local Policy. But the earliest version of it indicates that the UAE worksheet was completed by 24 August 2010 and names Ms Hurtajová as programme underwriter. Given her later functions in that capacity, she might be expected to have participated in the preparation of that worksheet (set 1 in “Section no 6 – program scope of cover” of the LPI), which included:

9	General Scope of Coverage		General Limit per Occurrence
10	Currency of Report: EUR …		PD or Combined Limit	Aggregate Limit PD or combined
11	01 Policy Limit / Fronting Limit		60,000,000	60,000,000
12	02 Accidental Damage / All-Risk		60,000,000	60,000,000
13	03 Avalanche		10,000,000	10,000,000
14	04 Civil Commotion / Riot / Lock-out / Strike		60,000,000	60,000,000
15	05 FLExA		60,000,000	60,000,000
16	06 Landslide / Subsidence		10,000,000	10,000,000
17	07 Malicious Mischief / Vandalism		60,000,000	60,000,000
18	08 Snow Pressure / Weight of Snow and Ice		10,000,000	10,000,000
19	09 Sprinkler Leakage		60,000,000	60,000,000
20	10 Theft / Burglary / Robbery		5,000,000	5,000,000
21	11 Vehicle Impact		60,000,000	60,000,000
22	12 Volcanic Eruption		60,000,000	60,000,000
23	13 Water Damage / Escape of Water / Burst Pipe		60,000,000	60,000,000
…
32	Natural Perils Scope of Coverage		Natural Perils Limit per Occurrence
33	Type	Territory	PD or Combined Limit	Aggregate Limit PD or combined
34	Earthquake/ Earthmovement	United Arab Emirates	50,000,000	50,000,000
35	Earthquake/ Earthmovement	United Arab Emirates	0	0
36	Flood	United Arab Emirates	50,000,000	50,000,000
37	Flood	United Arab Emirates	0	0
38	Windstorm/Hail	United Arab Emirates	50,000,000	50,000,000
39	Windstorm/Hail	United Arab Emirates	0	0

34. The fronting policy subsequently issued by AXA Insurance (Gulf) BSC was not in evidence. However, the schedule to the renewal of that policy was, and it described the following perils insured, policy limit and sub-limits (the Euro equivalents at the specified conversion rate being added):

Perils Insured   

All Risks as subject to LM 7 wording attached

Policy limit AED 286.805.397 [approx. € 62 million]

Sub-limits:

- Avalanche AED 46.119.000 [€ 10 million]

- Civil Commotion / Riot / Lock-out / Strike AED 23.059.500 [€ 5 million]

- Landslide / Subsidence AED 46.119.000 [€ 10 million]

- Snow Pressure / Weight of Snow and Ice AED 46.119.000 [€ 10 million]

- Theft / Burglary / Robbery AED 23.059.500 [€ 5 million]

- Volcanic Eruption PD Only AED 230.595.000 [€ 50 million]

35. Plainly, the worksheet contains peril limits that do not appear in cl 2.1, omits limits that are in cl 2.1, and groups perils that have different limits in cl 2.1 (namely, “Hail” with “Windstorm”). In turn, the local policy (at least according to the renewal schedule) omits most of the limits in the worksheet. The obvious differences at each stage are not consistent with those involved acting in accordance with Ms Hurtajová’s asserted intention or with any process directed to implementing such an intention.

Mobis Australia’s agreement to participate in the Master Policy from 1 January 2011

36. The circumstances in which Mobis Australia joined the insurance programme appear at Judgment (7) [205]–[263]. In early and late November, Mr Kaločai sent Mr Papa copies of Marsh’s summary of the Master Policy, which set out the overall policy limit, deductibles and main sublimits, including the Hail Limit. That summary described the coverage provided by that Policy as including “Excess and Difference in Conditions/Difference in Limits for Worldwide”. In an email sent around 21 December 2010, Mr Kaločai advised Mr Papa, in response to his query concerning the difference in conditions clause, “you will receive a local policy issued by XL Australia, following your legislative and ‘best local standard wording’. If there is any risk not covered within your local policy (because of the wording or legislation) and it is covered within [the] Master program wording by XL Austria, you are covered for such a risk”. On receipt of that response, Mr Papa instructed Mr Kaločai to proceed to include Mobis Australia in the global programme, and Mr Kaločai in turn confirmed to Ms Hurtajová that Mobis Australia was to be covered from 1 January 2011.

37. On 29 December, Mr Kaločai sent Ms Hurtajová an amended version of Attachment No 1 containing revised declared values and sums insured for Mobis Australia. The Australian dollar equivalents of those values were PD $41.5 million and BI $23.1 million. Endorsement no 1 to the Master Policy, which included the revised form of Attachment No 1, was issued and provided by XL to Marsh Europe on 31 December 2010 and then by Mr Kaločai to Mr Papa advising that the local insurer had been “instructed to issue local policy”. In early January, Mr Papa pressed Marsh Australia and Mr Kaločai for a copy of the local policy. In response, on 14 January 2011, XL in Australia produced a “Certificate of Currency” identifying Mobis Australia as the relevant insured, describing the type of policy as industrial special risks, specifying a policy number (which was different from that of the Master Policy) and concluding that for “full details regarding coverage refer to the policy”. The 2011 Local Policy when issued on 22 February had that same policy number.

38. At Judgment (7) [266], the primary judge concluded, correctly in my view, that by reason of these communications Mobis Australia was insured from 1 January 2011, not only on an excess basis under the Master Policy, but also by an informal contract with XL in Australia. That informal contract was made when Marsh Europe, acting on Mobis Australia’s behalf, accepted XL’s standing offer of insurance made by the terms of the 2010/2011 Master Policy. That offer included primary insurance cover under a local policy issued by XL in Australia. The sums insured and declared values were then clarified and agreed and the fact of insurance cover with effect from 1 January confirmed, first by the issue of the endorsement to the Master Policy and secondly by the issue in Australia of the Certificate of Currency.

39. There remains a question as to the terms of that informal contract. The primary judge held that there was “no reason to assume those terms would have differed” from those in the Local Policy as issued, which did not include the Hail Limit. Taking issue with that conclusion, XL submits that the informal contract was on the terms of the Master Policy, except that it included local declared values and contemplated the issue of a formal “local policy”, which would adopt “good local standard wording” taking account of local regulations, local sums insured, and local language, format and structure (see [13] above).

40. This informal contract was described as being in the “fourth class” identified by McLelland J in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628 as additional to the three mentioned in Masters v Cameron (1954) 91 CLR 353 at 360–362. That description suggests that the remaining terms of the “local policy” would be determined by some negotiation between XL and Mobis Australia. However, XL’s case is equally compatible with it having undertaken to issue, and Mobis Australia having undertaken to accept, a “local policy” in accordance with the terms of the existing informal contract of insurance: see Australian Provincial Assurance Association Ltd at 361; Southern Cross Assurance Co at 186. In either case, XL must contend that the “local policy” when issued would include the Hail Limit as one of its terms. Accordingly, its case depends on one of two propositions: (1) that the informal agreement necessarily included the Hail Limit and the parties did not resolve to vary this consensus before the issue of the 2011 Local Policy; or (2) that the informal agreement required XL to issue, and Mobis Australia to accept, a “local policy” that included that Hail Limit.

41. These propositions are to be tested objectively, XL having not submitted that the parties’ actual common intention differed at this time from that which a reasonable person would infer from their words and conduct: cf Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ). Relevant to that exercise are the terms of the Master Policy, which were summarised by Marsh, and the correspondence between XL, Marsh and Mobis Australia. Thus, the actual intentions of Ms Hurtajová, Mr Kaločai, Mr Papa, Ms Stanley and Mr Jones are not significant on the question of common intention, although they remain relevant to whether XL has proven that the omission of the Hail Limit (and other limits) from the Local Policy was due to a mistake on its part, shared by Mobis Australia.

42. Although the Master Policy provides for the issue of a “local policy”, it does not in terms define that expression. Moreover, XL did not suggest that the expression as used in this context has any special meaning: cf the Law of Liability Insurance, 3rd edn, LexisNexis 2013, Derrington and Ashton, para 11-477, emphasising the variety amongst international insurance programmes which makes it difficult to attribute any specific characteristics to a “local policy” as compared with a “master policy”. The parties’ correspondence likewise refers to the issue of a policy following Australian regulation and “best local standard wording”. But, again, there is no evidence of that description having any special or technical meaning, which might inform as to what is permitted or required by way of conformity with, or departure from, the terms of the Master Policy.

43. More significantly, as outlined at [32] above, cll 5.2 and 10.4 of the Master Policy anticipate that the limits, conditions or deductibles defining cover under a “local policy” could differ from those in the Master Policy, including in the insured’s favour. Those and other differences might be explained by legislative or regulatory requirements. Or they might result from the fact, acknowledged by XL, that the local policy was to be “drawn up” in the “language, format and structure … familiar to brokers, insurers and customers in the relevant local market”. As XL conceded, the evidence did not explore what that “language, format and structure” might include or how local practices, market conditions or risk factors might inform its content in an international programme of all-risks or industrial special risks insurance, covering property at replacement value, and loss of gross profit, at the locations and in the sums insured declared and specified in the amended form of Attachment No 1 to the Master Policy.

44. In order to confine this qualification, XL contends that, “once fundamental policy limits or conditions were struck in the Master Policy, the local policy was not to be a vehicle for the insured to obtain higher or better limits or conditions”. It is said that, in circumstances where a single premium was set for the cover described in the Master Policy and then apportioned to the various group entities, for a local policy to include “higher or better” limits, or otherwise “greater coverage”, would “undermine the entire bargain”.

45. What is meant by “fundamental” in this context is not obvious. The Hail Limit was not the policy limit or sum insured, or otherwise an amount to which the premium rate was applied in calculating the premium. It is simply a limit applying to a group of natural perils, one of which (“hail”) is effectively within another named peril (“Storm”) and the remainder of which on their face would not present as a risk in all locations. For the reasons at [22] above, its inclusion in the Master Policy or any local policy was not taken into account in calculating the premium rate; rather, it was introduced after that rate had been struck, and maintained in return for a different concession.

46. In addition, XL’s contention that the cover in a local policy could not in any respects be “greater” than that in the Master Policy is inconsistent with the differences in conditions/limits and deductibles provisions for the reasons at [32] above. Given XL’s de facto control over the form and terms of that policy, any such limitation on the content of the local policy would not be implied as “necessary to give business efficacy” to the parties’ informal contract. The most that could be inferred about the local insurance agreed by 1 January 2011 was that it would take as its starting point the general cover defined in the Master Policy, which then had to be considered from a local underwriting perspective, taking account of the sums insured, the type of insurance, local conditions affecting risk, the agreed premium rate, and local market conditions, practices and standards with a view to issuing a policy which answered the description of a “good local standard wording”.

47. For these reasons, XL’s case that the informal agreement in place from 1 January 2011 included the Hail Limit and required its inclusion in the local policy to be issued, is not made out.

Ms Hurtajová’s email to Mr Hofmann of 22 December 2010

48. The first stage in the issue of the 2011 Local Policy involved the preparation and approval of the LPI, which was then made available to XL in Australia. The communications between Ms Hurtajová and Mr Hofmann as to that first part of the process are summarised at Judgment (7) [270]–[281]. The initial communication was Ms Hurtajová’s email of 22 December 2010 conveying information for Mr Hofmann to prepare the Australian worksheet. She gave no evidence as to the drafting of that email and, in particular, did not assert that the information she had provided was wrong or misleading or that she had omitted to convey information which she intended to convey.

49. That email was as follows:

Subject: Mobis Slovakia, Extension Australia 01.01.2011

Hallo Patrick;

regarding Mobis Slovakia expansion per 01.01.2011 Australia please find attached following summary of data you will need:

1)   Insured: Mobis Parts Australia Pty Limited

2)   Adress of the insured: 77 Peter Brock Drive, Eastern Creek NSW 2766

3)   Risk location: 77 Peter Brock Drive Eastern Creek NSW 2766

4)   Sublimits:

a.   Section No 7 - Coverage Extension & Exclusions (as per existing LPI)

b.   Section no 6 – Program scope of Cover:

i.   Policy limit: EUR 40 mil;

ii.   Accidental Damage/All Risk: EUR 40Mil

iii.   SCCR: EUR 40Mil

iv.    Avalanche: EUR 10Mil

v.    Flexa/Flexa BI: EUR 40 Mil

vi.    Landslide/Subsidence: EUR 10Mil

vii.    Malicious acts / Vandalism: EUR 40Mil.

viii.    Snow pressure: EUR 10Mil

ix.    Sprinkler [Leakage]: EUR 40 Mil

x.    Theft: EUR 5 Mil

xi.    Vehicle impact: EUR 40 Mil

xii.    Volcanic Eruption: EUR 40Mil

xiii.    Water damage: EUR 40 Mil

xiv.    Flood: EUR 40 Mil

xv.    Earthquake: EUR 40Mil

xvi.    Storm: 40 Mil

5)   Deductibles: as per existing LPI (please note that we have in Australia BI cover too)

6)   Broker contact:

…

In case of questions please do not hesitate to contact me.

Thank you very much for your support.

Best regards

Ladja

Ladislava Hurtajová

Senior Property Underwriter Middle Market AT/CEE

50. The email twice refers to an “existing LPI”, which must be the version of the LPI completed as at 24 August 2010, including the UAE worksheet (extracted in [33] above). While the LPI was being revised to include an Australian worksheet, Ms Hurtajová was also communicating with Mr Hofmann about the local policy for Mobis Russia, which was to be issued by Ingosstrakh Insurance Company as fronting insurer for XL.

51. XL suggests that, while composing this email, Ms Hurtajová had access to three sources of information: (1) cl 2.1 of the 2011/2012 Master Policy (see [25] above); (2) the original (and by then out-dated) version of Attachment No 1 to the Master Policy, which proposed a total sum insured for Australia of € 39,783,615; and (3) the UAE worksheet (see [33] above). Seeking to reconstruct her mental process, it submits that the total sum insured was rounded to € 40 million and included as the “Policy limit” in item 4.b.i., and that the perils in items 4.b.i.–4.b.xvi. were based on the perils under the headings “General Scope of Coverage” and “Natural Perils Scope of Coverage” in the UAE worksheet.

52. According to XL, Ms Hurtajová’s immediate intention in preparing this email was to communicate information so as to give effect to her “predominant intention” that the local policies contain the limits in cl 2.1 of the Master Policy except where the total sum insured for Australia was lower: cf Bush v National Australia Bank at 407. However, in using the UAE worksheet, she is said to have overlooked that the entry for “Windstorm/Hail” described two perils having different limits in the Master Policy, with the result that she failed to include a separate and lower limit for “hail” (and also for “rockslide” and “falling stones”). The only alternative was said to be an entirely implausible “unilateral decision by Ms Hurtajová, after agreement had been reached with the insured, with no negotiation, no quid pro quo, and no direction from a superior, to radically expand XL’s coverage for Mobis, creating a € 30 million divergence with the 2010/11 Master Policy”.

53. Ms Hurtajová is also said to have omitted from the email, again by accident, three further perils that were subject to limits in the Master Policy: “Contract Works”, “Machinery Breakdown” and “Electronic Equipment Breakdown”. None of those perils corresponds with any peril described in the UAE worksheet, and the absence of one (“MB”) was noticed by Ms Hurtajová in a later email concerning the Russian local policy (see [59] below)

54. . Each of these omissions is said to have involved a “mistake” that was not discovered until after the issue of the 2014/2015 Local Policy, and following the occurrence of the insured event of 25 April 2015.

55. The sending of such an email would seem a very roundabout way of providing the limit information in cl 2.1 of the Master Policy for inclusion in the Local Policy. That would suggest that its purpose was not merely to ensure that the Australian worksheet replicated that information. In response, XL posits that the LPI worksheets were “not well suited to the form of policy and type of policy that XL was issuing at this time” and, in particular, that the grouping of “Windstorm” and “Hail” together in the UAE worksheet was a “system error”. In turn, XL says, this system error “wrongly suggested” to Ms Hurtajová in composing the email “that windstorm and hail would have a common limit”. As to why that error would persist, XL suggests that its correction would require the software to be “amended or overridden” in some respect.

56. There is no evidence to support these three speculations. First, the form of the UAE worksheet is not shown to have been determined by a “system”, rather than by Ms Hurtajová or someone with whom she interacted (see [33] above). Secondly, Ms Hurtajová did not claim to have relied on the UAE worksheet, and the similarities between her email and that worksheet could equally be explained by their having been produced by a similar process. In any event, the evidence gives no indication why she would have relied on the UAE worksheet, rather than cl 2.1 of the Master Policy itself, to which she had access at all times. Thirdly, material appearing in later LPIs undermines any suggestion that the system was inflexibly maladapted. In June 2013, Mr Cruypelans included a separate peril limit in the Australian worksheet for earthquake at a Perth location and, after the insured event, “Hail” was separated from “Windstorm” and included with the other natural perils having a lower limit. And “overriding” instructions as to omitted details could be included in the “Client Specifics” section of the LPI, as was done in relation to the BI deductible by Ms Hurtajová on 8 February 2011.

The Australian 2011 worksheet and Local Policy

57. On 28 December 2010, Mr Hofmann sent Ms Hurtajová an “updated LPI”, which included a worksheet for Mobis Australia in addition to those already prepared for the UAE and Russia. That worksheet included the following:

9	General Scope of Coverage		General Limit per Occurrence
10	Currency of Report: EUR …		PD or Combined Limit	Aggregate Limit PD or combined
11	01 Policy Limit / Fronting Limit		40,000,000	0
12	02 Accidental Damage / All-Risk		40,000,000	0
13	03 Avalanche		10,000,000	0
14	04 Civil Commotion / Riot / Lock-out / Strike		40,000,000	0
15	05 FLExA		40,000,000	0
16	06 Landslide / Subsidence		10,000,000	0
17	07 Malicious Mischief / Vandalism		40,000,000	0
18	08 Snow Pressure / Weight of Snow and Ice		10,000,000	0
19	09 Sprinkler Leakage		40,000,000	0
20	10 Theft / Burglary / Robbery		5,000,000	0
21	11 Vehicle Impact		40,000,000	0
22	12 Volcanic Eruption		40,000,000	0
23	13 Water Damage / Escape of Water / Burst Pipe		40,000,000	0
…
32	Natural Perils Scope of Coverage		Natural Perils Limit per Occurrence
33	Type	Territory	PD or Combined Limit	Aggregate Limit PD or combined
34	Earthquake/ Earthmovement	Australia	40,000,000	40,000,000
35	Earthquake/ Earthmovement	Australia	0	0
Earthquake/ Earthmovement	Australia	0
36	Flood	Australia	40,000,000	40,000,000
37	Flood	Australia	0	0
38	Windstorm/Hail	Australia	40,000,000	40,000,000
39	Windstorm/Hail	Australia	0	0

58. On 28 December 2010, the final forms of the worksheets for Australia and Russia were made available for access by persons responsible for the preparation of the respective local policies. By this time, the total insured value for Mobis Australia had increased to € 48.5 million. An extract of that final worksheet, sent by Mr Hofmann to Ms Stanley in Sydney on 29 December 2010, appears below. The accompanying email, also copied to Ms Hurtajová, concluded: “you should be able to issue the policy accordingly.”

9	General Scope of Coverage		General Limit per Occurrence
10	Currency of Report: EUR …		PD or Combined Limit	Aggregate Limit PD or combined
11	01 Policy Limit / Fronting Limit		48,500,000	48,500,000
12	02 Accidental Damage / All-Risk		48,500,000	48,500,000
13	03 Avalanche		10,000,000	10,000,000
14	04 Civil Commotion / Riot / Lock-out / Strike		48,500,000	48,500,000
15	05 FLExA		48,500,000	48,500,000
16	06 Landslide / Subsidence		10,000,000	10,000,000
17	07 Malicious Mischief / Vandalism		48,500,000	48,500,000
18	08 Snow Pressure / Weight of Snow and Ice		10,000,000	10,000,000
19	09 Sprinkler Leakage		48,500,000	48,500,000
20	10 Theft / Burglary / Robbery		5,000,000	5,000,000
21	11 Vehicle Impact		48,500,000	48,500,000
22	12 Volcanic Eruption		48,500,000	48,500,000
23	13 Water Damage / Escape of Water / Burst Pipe		48,500,000	48,500,000
…
32	Natural Perils Scope of Coverage		Natural Perils Limit per Occurrence
33	Type	Territory	PD or Combined Limit	Aggregate Limit PD or combined
34	Earthquake/ Earthmovement	Australia	48,500,000	48,500,000
35	Earthquake/ Earthmovement	Australia	0	0
Earthquake/ Earthmovement	Australia	0
36	Flood	Australia	48,500,000	48,500,000
37	Flood	Australia	0	0
38	Windstorm/Hail	Australia	48,500,000	48,500,000
39	Windstorm/Hail	Australia	0	0

59. As mentioned earlier, on 27 December 2010, Ms Hurtajová noticed that the Master Policy MB sublimit of € 5/€ 10 million was not included in the worksheet for the Russian policy. (The position was the same in relation to the Australian worksheet.) Ms Hurtajová addressed that by requiring that the MB sublimit in the Russian local policy be € 2.4 million (each and every loss and in the annual aggregate) because the sum insured under that policy was “significantly lower”. That is evidence both of her preparedness and apparent authority to authorise a departure in the local policy (albeit favourable to XL) from the Master Policy limits. The evidence gives no explanation as to why she did not address the corresponding omission in the other worksheets.

60. On 8 February 2011, Ms Hurtajová, as programme underwriter, and Ms Elke Schützhofer, as deal administrator, signed the “Client Specifics” section of the LPI (which by this stage included worksheets and instructions for Australia and Russia), indicating that it had been “checked and approved”. In relation to the Russian policy, those “specifics” included a note that the policy limit should be reduced to € 56,478,100 but that:

all other limits e.g. CAT/NAT € 50 mio, theft € 5 mio and snow pressure/landslide/avalanche € 10 mio remain the same.

61. XL accepted in argument that the expression “CAT/NAT” refers to catastrophe and natural perils, which as defined in cl 13.2 of the Master Policy would include flood, windstorm and hail (avalanche, snow pressure and landslide being otherwise specifically addressed). The extracted narrative summary of the limits in the Russian worksheet is wholly consistent with a correct appreciation of what the worksheets recorded in relation to the limit for “hail”.

62. The Local Policy was issued on 22 February 2011. Clause 1.9 provided:

This Policy, while an independent contract. forms an integral part of the International Property Damage and Business Interruption Programme for Mobis Slovakia s.r.o. (904073). The Insured agrees that. where permissible under applicable law:

…

b.   programme aggregate limits of indemnity may operate to reduce the limit of indemnity available under this Policy in respect of any covered loss, irrespective of whether any limit of indemnity of this policy has not been or would not be exceeded by such loss.

63. The primary judge held that cl 1.9.b would only operate to reduce the indemnity available under the Local Policy where the Master Policy aggregate limit for the same peril had been “eroded”: Judgment (7) [38], [156], [157]. (If cl 1.9.b, properly construed, had the effect of making claims under the Local Policy subject to the paramount aggregate limits in the Master Policy, rectification would also have been unnecessary.)

64. Clauses 1.10 and 1.11 contained limits and sub-limits, the latter not being directly relevant to these proceedings. The former provided as follows (AUD 64,975,450 being € 48.5 million, and AUD 6,698,500 being € 5 million):

1.10   Limits of Liability

The aggregate liability of the Company in respect of any one Occurrence insured by this Policy irrespective of the number of claims and of the number of Insureds making the claim shall not exceed the amounts shown in the Asset Schedule specified against the individual amounts set out against each item therein. Provided that the amount(s) set out hereunder represent the Company’s maximum Limit(s) of Liability in respect of any one Occurrence subject to any lesser Limit(s) of Liability specified elsewhere in this Policy.

Limit in respect of any one Occurrence	Limit in the Aggregate during any one Period of Insurance
Damage resulting from:
Earthquake	AUD 64,975,450	AUD 64,975,450
Flood	AUD 64,975,450	AUD 64,975,450
Storm	AUD 64,975,450	AUD 64,975,450
Accidental damage	AUD 64,975,450	Not applicable
Theft	AUD 6,698,500	Not applicable
Any other damage	AUD 64,975,450	Not applicable

NB – All items shown under the Columns 1, 2 and 3 of the Asset Schedule are declared to be similarly and separately subject to the Average (Under-Insurance) Clause as defined in Section 1 of the Policy.

65. There is no evidence which explains how Ms Stanley went about preparing and finalising the 2011 Local Policy. That policy did not include the Hail Limit and XL submits that its omission to do so was the result of the mistaken grouping of “Hail” with “Windstorm” with a limit of € 48.5 million. As a possible explanation for what happened in the finalisation of this policy, this submission encounters two fundamental difficulties. First, Mr Jones’ evidence, which XL emphasised before the primary judge, was that the Australian policy administrator had electronic access to the Master Policy, as well as to the LPI worksheets. That being so, the omission of the Hail Limit from the Local Policy is not necessarily explained by the grouping of Windstorm and Hail in the worksheet. Secondly, the local policy did not include the Master Policy limits for landslide, avalanche, snow pressure or fire, each of which was included in the worksheet (the last being part of “FLExA”). Such omissions are not consistent with Ms Stanley either mechanically reproducing the limits in the worksheet or independently attempting to give effect to limits in the Master Policy, to which she apparently had access.

66. By way of summary of the analysis to this point, the evidence does not establish to the requisite standard: (1) that the parties had a common intention when the 2011 Local Policy was issued that it contain the limits in cl 2.1 of the Master Policy, including the Hail Limit; (2) that Ms Hurtajová’s omission of the limit for “hail”, and other perils, from her email of 22 December was due to reliance on the form of the existing UAE worksheet, including her having overlooked that the entry for “Windstorm/Hail” described two perils with different limits; (3) that her conduct in the preparation of the LPI manifested any “predominant intention” that the local policies contain all of the limits in cl 2.1 which were less than the total sum insured; (4) that Ms Stanley was instructed to, or did, produce the limits in cl 1.10 of the Local Policy by reference only to the Australian worksheet prepared according to Ms Hurtajová’s instructions; or, accordingly, (5) that the omission of such limits from the Local Policy as issued was the result of an operative mistake on XL’s part.

67. These deficiencies in the evidence could not be overcome by a submission that any alternative hypothesis involving the deliberate omission of the Hail Limit was “entirely implausible” because to do so would have “radically expanded XL’s coverage”. First, that submission depends on assertions as to the “fundamental” nature of the Hail Limit in the scope of coverage and striking of the premium, which are not supported by the evidence. Secondly, it tends to reverse the onus because, absent proof of mistake as a separate element, the execution of the Local Policy itself raises a presumption that any departure from the antecedent common intention was deliberate (see [10] above). Thirdly, XL’s own hypothesis — involving mistakes obvious upon any comparison of cl 2.1 of the Master Policy (at [25] above) and cl 1.10 of the 2011 Local Policy (at [64] above), which were repeated, despite the various other corrections outlined below, through four successive renewals — was itself implausible in several respects.

68. In addition, the evidence did not exclude other plausible hypotheses inconsistent with XL’s case. One is that Ms Hurtajová and Ms Stanley were together engaged in an underwriting exercise directed to providing all risks or industrial special risks insurance of the relevant property at replacement value in the sums insured, declared and specified, adopting an accepted local wording and structure, which took account of local practices, market conditions and risk factors. Such an exercise might begin with the limits in cl 2.1 of the Master Policy but justify the following changes: (1) the policy limit being reduced to the Mobis Australia total sum insured (€ 48.5 million); (2) the peril limits that exceed that amount being either: (a) omitted as otherwise included in the “Accidental damage” or “Any other damage” limits (as occurred with “Fire” or “FLExA”); or (b) reduced to the Australian-dollar equivalent of that sum insured (as occurred for “Earthquake”, “Flood” and “Storm”); (3) any limit for “hail”, or other risks within the peril “Storm”, being omitted in accordance with some local practice or market condition; (4) any limits for the remaining “Natural peril events” being omitted as unnecessary given the insured interest was situated on the coastal plain of Western Sydney; and (5) the remaining peril limits (“Contract Works”, “Machinery Breakdown” and “Computer Equipment”) being omitted to take account of other limitations in the scope of cover under the Local Policy (see cll 3.1.1.e, 3.2.1.a.ix, 3.2.1.d, 3.2.2.a) and the declared values for machinery and equipment. Another hypothesis, consistent with arguments advanced by XL before the primary judge, is that other provisions of the Master Policy and Local Policy were thought to have the effect that the cover under the latter was automatically subject to the aggregate limits in the former, so that cl 1.10 need not repeat those intended limits (cf [28], [30] and [63] above).

69. Finally, XL did not press what was described in oral argument as a “more modern rectification case where there’s not quite a contract but a continuing common objectively shared intention”. Nor on the evidence could it have succeeded on such a case having regard to the evidence referred to above and, more fundamentally, to the fact that the existing agreement for the issue of the Local Policy is not established to have included such a continuing objectively established intention.

The renewals of the Local Policy

70. It remains necessary to deal with the subsequent renewals to explain why XL’s claim for rectification of the 2014/2015 Local Policy must fail. XL maintains that the earlier errors which resulted in the issue of the 2011 Local Policy were not discovered and continued to operate through each of the subsequent renewals, with the result that the omission of the Hail Limit from each Local Policy was mistaken, rather than deliberate. In relation to the issue of each, XL contends for an antecedent informal agreement or continuing common intention that its terms include the Hail Limit.

2011/2012 renewal

71. On 6 June 2011, Mr Kaločai advised Ms Hurtajová that his client would like to “renew PD/BI program of Mobis with same conditions as the current insurance” except for the addition of a Civil Commotion limit of € 5 million. Mr Kaločai separately requested that renewal be confirmed “by the fronting partner in Russia, UAE and Australia”. XL agreed to renew on “unchanged premium rates”. Between 23 June and 5 July 2011, the LPI was updated to include the revised limit for Civil Commotion. The worksheets for UAE, Australia and Russia, with one exception, remained the same. The change was to the Euro equivalent of the sum insured for Mobis Australia, which was reduced from € 48.5 million to € 48 million. The information in that LPI was checked, approved and signed by Ms Hurtajová and Ms Schützhofer on 6 July 2011. The Local Policy was issued on 11 July 2011 and before the Master Policy. The limits in the Local Policy (in each case equivalent to € 47,272,988 converted at the Master Policy exchange rate) were:

142. Depreciation is the systematic allocation of a tangible asset’s cost (less its anticipated scrap value) as a series of expenses over its expected useful life. Those expenses may be variously calculated, including on a straight-line basis and by diminishing charges over the useful life, although the method applied should reflect the expected pattern of consumption or loss of the economic benefits flowing from the asset (such as through wear-and-tear). Each depreciation expense appears in the income statement as an expense deducted from gross profit for the purpose of calculating net profit; the accumulated depreciation, which appears in the balance sheet, reduces the carrying amount of the depreciated assets; but the process of depreciation has no direct impact on cash flows. Finally, if no net proceeds are generated upon disposal of plant or equipment (e.g. because of its total destruction), the income statement would include a loss on disposal expense equal to the asset’s carrying value (i.e. the projected depreciation charges over the rest of its useful life and any scrap value).

143. Turning to the provisions extracted above, which form part of a commercial contract of insurance, the Court must give a businesslike interpretation to “the language used by the parties” in light of “the commercial circumstances which the document addresses and the objects which it is intended to secure”: McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65 at [22] (Gleeson CJ). As the general object of section 2 of the policy is to indemnify Mobis Australia against loss of its gross profit, the prospect of under- or over-indemnification may colour the meaning of the language used: see Castellain v Preston (1883) 11 QBD 380 at 386 (Brett LJ).

144. But the indemnity under section 2 is not simply against “actual loss”, unlike that in business interruption wordings generally adopted in the United States, discussed in Riley at paras 1.10 and 12.14, and in the “hybrid” policy considered by this Court in Coalex Pty Ltd v Commercial Union Assurance Co of Australia Ltd (1988) 5 ANZ Ins Cas 60-858 at 75,381 (col 2). Rather, the Local Policy contained a formula for the assessment of the insured loss of gross profit, which (as noted at [122] above) qualifies the application of the principle of indemnity insofar as it might be said to depart from perfect indemnification in some contingency: see also Coalex v Commercial Union at 75,380 (col 2). In Henry Booth & Sons v The Commercial Union Assurance Co Ltd (1923) 14 Lloyds LR 114 at 114 (col 2), Greer J explained the object of such a formula thus:

It is the common practice in policies of this sort, in order to prevent lengthy disputes, that there should be an agreed method of ascertaining the loss. Sometimes the assessment of the loss is in favour of the assurance company and sometimes the assured, but it is nevertheless good sense to have a method which can be readily applied without difficulty and without raising a great number of points for dispute.

148. It is by reference to these considerations that the reasoning of Flaux J in Synergy Health at [251]–[260] must be evaluated. Having found that the insured would “recover an indemnity for more than its actual loss in respect of business interruption” if depreciation was not deducted, his Lordship concluded “that, in principle, that saving should be off-set against any claim under the business interruption section of the policy, unless the wording of the policy requires some different conclusion”; indeed, he justified a construction that admittedly “stretche[d]” language in the policy solely by this “principle” — that a court should only conclude that “something in excess of a full indemnity” was intended if “no other conclusion is possible”: Synergy Health at [258].

149. In my respectful opinion, that reasoning gives the indemnity principle unwarranted effect in the face of the language of the policy, and the specific object of the provisions for the assessment of loss. A reasonable businessperson seeking to understand these lengthy clauses would not begin by assuming that they mean nothing more than the expression “full indemnity for actual loss to gross profit”, and then proceed to enquire whether anything in the language required otherwise. His or her attention would remain fixed on the sense of the language describing the method for ascertaining the loss as coloured by its immediate and commercial context: see Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]–[52] (French CJ, Nettle and Gordon JJ).

150. By cl 7.1.1, the indemnity for loss of gross profit depends on three integers: the “sum produced” by a further formula to represent “reduction in Turnover”; an amount for the recoverable “Increase in Cost of Working”, being “expenditure” of a particular description up to an limit defined by another formula; and “any sum saved during the Indemnity Period in consequence of the Damage in respect of such of the charges and expenses of the Business payable out of Gross Profit”. The last integer identifies a set of amounts — those “charges and expenses of the Business” that are “payable out of Gross Profit” — and directs attention to the “sum saved” — that is, not incurred — if any, in respect of each of those amounts, “during the Indemnity Period in consequence of the Damage”.

151. The limiting expression “payable out of Gross Profit” at least excludes charges and expenses used in calculating “Gross Profit” under cl 8.1, which are direct costs attributable to the production and sale of stock. But the use of the word “payable”, rather than “deducted”, also suggests the exclusion of charges and expenses that are not liable to be paid away, such as depreciation. This textual consideration was acknowledged by Flaux J in Synergy Health at [258]–[260]. In my view, however, nothing in the context and purpose of cl 7.1.1 requires any departure from it.

152. Both Flaux J in Synergy Health at [255] and the primary judge at Judgment (7) [1135] relied on the reference to depreciation in a note to the definition of Gross Profit under cl 8.1. That note required “due provision” for depreciation in ascertaining the opening and closing amounts of stock and work in progress, which are used in turn to calculate the Gross Profit, the Rate of Gross Profit under cl 8.7 and then the indemnity for “reduction in Turnover” under cl 7.1.1a. That an adjustment for depreciation of some assets is applied for one purpose does not suggest any intention that the depreciation of other assets be subtracted for a different purpose. If anything, it reinforces that the omission of any express reference to depreciation of plant and equipment was deliberate: see PMT Partners Pty Ltd (in liq) v Australian National Parks & Wildlife Service (1995) 184 CLR 301 at 311–312 (Brennan CJ, Gaudron and McHugh JJ) at 320 (Toohey and Gummow JJ).

153. As already noted, Flaux J accepted in Synergy Health at [252]–[253] that an insured would be over-indemnified if the counterfactual provisions for depreciation of plant and equipment were not deducted:

This is for the simple reason that, had the [insured event] note occurred, [the insured] could not have earned its gross profit (by reference to which any indemnity under the business interruption section of the policy is calculated) without having the use of the machines, in respect of which a sum for depreciation would be deducted from the gross profit in each accounting period.

154. This analysis depends on various unstated assumptions. One is that accounting provisions for depreciation faithfully depict the real consumption and loss of fixed assets: cf Riley at para 15.44, noting the tendency for depreciation charges to be overstated in the early years of an asset’s life. Another is that the insured has property cover that indemnifies against the destruction of all plant and equipment on at least a “like-with-like” basis and within the indemnified period of business interruption: otherwise, any saving in depreciation because of damage to insured property would be at least fully offset by a loss on disposal expense, which would also be deducted from gross profit in the income statement.

155. Under such conditions, the insured may receive an incidental benefit, because the replacement property is in a better condition at the end of the period of business interruption than the original property would have been, had it remained in use contributing to gross profits. But that benefit might readily be offset by incidental costs arising from the change to the insured’s anticipated depreciation charges into the future. Whether in the result the insured would be over- or under-indemnified is an enquiry of the kind that the formula in cl 7.1.1 would be expected to foreclose. Accordingly, grounds 5.1 and 5.2 are made out. The amount of $1,449,509 should not be deducted from Mobis Australia’s business interruption claim.

Costs

Apportionment (Mobis Australia appeal ground 7.1)

156. As recorded at Judgment (10) [14], XL accepted before the primary judge that it was to pay the costs of the Faulty Design Exclusion issue on an indemnity basis. Having regard to Mobis Australia’s failure on a “number of issues” and the difference between its total claim ($62,190,665) and entitlement to indemnity ($17,731,180), his Honour concluded at Judgment (10) [20] “that Mobis Australia’s overall success against XL would be reflected by an order that XL pay 80 per cent of its costs of the proceedings, assessed on the ordinary basis”. An order in those terms — without any specific provision giving effect to XL’s concession as to costs on the “Faulty Design Exclusion” issue — was made on 13 February 2018, apparently in accordance with short minutes submitted by the parties.

157. Mobis Australia’s success on grounds 1.1, 3.1, 3.2, 4 and 5, and consequent entitlement to a further indemnity in an amount exceeding $7 million, requires that the discretion as to its costs of the trial be re-exercised and, if necessary, that a different order be made. That much was accepted by XL in its summary of the issues in the appeal. Accordingly, there is little utility in considering whether the primary judge’s exercise of that discretion independently miscarried. If the parties cannot agree on the orders which should be made as to those costs given the above conclusions, this Court will decide that question, after receiving further written submissions from the parties but without further oral argument.

Sanderson order (XL amended cross appeal ground 15)

158. XL’s application to rely on the Faulty Design Exclusion by way of defence to Mobis Australia’s claim under the Local Policy prompted Mobis Australia’s amended claim made under the Master Policy, against XL, AIG and UNIQA, in July 2016. That claim raised two issues specific to the Master Policy: whether the Faulty Construction Exclusion (Art 6.3) was enlivened; and whether the Overlap Clause (Art 3.1.8) entitled Mobis Australia to an indemnity up to the storm limit of € 50 million even if the Hail Limit in the Master Policy was engaged: Judgment (7) [28], [29], [38]. Having decided that Mobis Australia was entitled to an indemnity under the Local Policy up to the limit of € 50 million, the primary judge was not strictly required to decide those issues. Had they arisen, he would have decided the first in favour of Mobis Australia and the second against it: Judgment (7) [38]. He thus dismissed Mobis Australia’s claim under the Master Policy against XL, AIG and UNIQA and, in doing so, acceded to Mobis Australia’s application for a Sanderson order (named after Sanderson v Blyth Theatre Co [1903] 2 KB 533) that XL pay directly the costs of AIG and UNIQA of defending Mobis Australia’s claim under the Master Policy.

159. That order was made in exercise of the power under Civil Procedure Act 2005 (NSW), s 98 to determine “by whom, to whom and to what extent costs are to be paid”. XL accepts that the principles relevant to such an exercise were sufficiently summarised in Lackersteen v Jones (No 2) (1988) 93 FLR 442 at 449 (Asche CJ) and adopted by this Court in Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179 and ACQ v Cook (No 2) [2008] NSWCA 306: Judgment (10) [24]. Having regard to those principles, neither of the bases on which it challenges the making of that order is sustained.

160. First, the primary judge did justify the exercise of the discretion by reference to XL’s conduct, and he was correct to do so. That conduct is summarised in Mobis Parts Australia Pty Ltd v XL Insurance Company SE [2016] NSWSC 912 at [15]–[18] (Bergin CJ in Eq) and Judgment (10) [27]–[29]. In response to XL’s proposed amendment to its defence, Mobis Australia raised the prospect of a claim under the Master Policy, which did not include an identical exclusion, but expressed concern about “a privity of contract problem”. XL not only indicated that it would consent to an amendment permitting such a claim, but also represented that it had authority as lead underwriter of the Master Policy to bind the co-insurers, AIG and UNIQA, and that their common position was that “Mobis Australia is a party to the Master Policy and so no privity issue arises and there is no need for Mobis Australia to rely on section 48 of the Insurance Contracts Act”. As found at Judgment (10) [35], that conduct, “assuring the Court and Mobis that no ‘privity issues’ would arise should Mobis make a claim under the Master Policy, provide[d] a sufficient and proper basis” for a Sanderson order.

161. Secondly, no error is shown in the primary judge’s finding that Mobis Australia acted reasonably in bringing the claim under the Master Policy. Contrary to XL’s submission to this Court, his Honour held that Mobis Australia was an Insured Company under the Master Policy, as admitted by XL: Judgment (7) [677], [688]). He did conclude that Mobis Australia was not a party to, and thus had no standing to bring proceedings under, that contract of insurance: Judgment (7) [721]. But that conclusion did not imply that commencement or maintenance of the proceedings was unreasonable. As already noted, Mobis Australia had been assured by XL that this privity issue would not arise. And the conclusion on the issue — which appears to depend on the unmitigated application of the common-law doctrine of privity (cf Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107) under Slovakian law, as the proper law of the contract (Judgment (7) [718](c)) — was not obvious: cf Judgment (7) [704], [714]. Finally, although UNIQA was held not liable to provide difference-in-conditions cover for risks in Australia, that issue was properly raised and determined in the proceedings against the co-insurers for an indemnity, rather than in separate proceedings.

Interest (Mobis appeal grounds 6.1 and 6.2)

162. Section 57 of the Insurance Contracts Act provides that the insurer is liable to pay interest on any amount payable under the insurance for a period commencing “on the day as from which it was unreasonable for the insurer to have withheld payment of the amount”. That provision applies “to the exclusion of any other law that would otherwise apply”. In CIC Insurance v Bankstown Football Club at 410, the plurality accepted, for the purpose of making an order under s 57, Cole J’s construction of that section as providing that “a reasonable period is to be given to the insurer to investigate and determine its position but the existence of a bona fide dispute as to the entitlement of the insured is not necessarily an answer to the complaint that the insurer has been acting unreasonably in withholding payment”: Bankstown Football Club v CIC Insurance Ltd (Supreme Court (NSW), Cole J, 17 December 1993, unrep), p 3.

163. Here, the relevant events following the storm and collapse (25 April 2015) and fire (30 July 2015) were Mobis Australia’s commencement of proceedings for a declaration (25 September 2015), the listing of the proceedings for hearing on 19 September 2016 (16 December 2015), the vacating of that hearing date following the grant of leave to XL to plead the Faulty Design Exclusion (9 August 2016) and the commencement of the relisted hearing (29 May 2017).

164. Accepting that Mobis Australia made claims for damage to the warehouse, its contents and stock and for business interruption, the primary judge considered that determination of the date beyond which it was unreasonable for XL to withhold payment of those claims required separate consideration of the circumstances in which XL sought and Mobis Australia provided information in relation to each of them: Judgment (10) [45]. It is not suggested that his Honour erred in adopting that position, although those claims involved common, as well as separate, considerations.

165. Mobis Australia’s submission before the primary judge was that XL’s denial of liability under the Local Policy in reliance on the Hail Limit and Faulty Design Exclusion resulted in a more adversarial approach between the parties, which delayed opportunities for earlier investigation and determination of the insurer’s position. This counterfactual interaction between Mobis Australia and a reasonable insurer in XL’s position was never outlined in detail. His Honour described it as involving “a high degree of speculation”: Judgment (10) [48]. Whilst accepting that “information may have been sought and provided more quickly than in fact occurred”, he could not be satisfied that this would have occurred, let alone in the six month period asserted to be “reasonable” for the insurer to determine its position: Judgment (10) [48], [49]. Concluding that the “most reliable guide” as to the timeframe in which information was reasonably sought and provided was that generated by the conduct of the litigation, he determined the dates from which interest was to run for each of the different heads of claim by reference to the times at which Mobis Australia provided XL with the material essential to the assessment of those claims.

166. Mobis Australia contends that there was “no basis for his Honour’s inference that an ordinary loss adjustment process in the absence of adversarial litigation would have followed the same course as that which occurred in the proceedings below”. Without attempting to describe the likely course of the supposed “ordinary loss adjustment process”, Mobis Australia maintains that a period of six months from the storm and collapse — the midpoint in the twelve-month indemnity period covering business interruption loss — was “a reasonable time for XL to investigate and determine the claim”.

167. Neither assertion identifies any error in the primary judge’s conclusion as to the dates from which it was unreasonable for the insurer to have withheld payment. The first reverses the onus and invites speculation that the timetable in the proceedings — commenced by Mobis Australia within two months of the fire — proceeded with less than reasonable dispatch. The second gives no reason for believing that the unexplained hypothetical adjustment process could have been undertaken and completed within six months, rather than in any other period. Though accepting the need for “more helpful material” to support its arguments, Mobis Australia ultimately provided none. Grounds 7.1 and 7.2 should be dismissed.

Conclusion

168. It follows, in my view, that the appeal should be allowed in part and the cross appeal dismissed. The parties should have an opportunity to consider these reasons and agree upon the orders to be made giving effect to them, including as to the costs of the proceedings at first instance as between Mobis Australia and XL, and the costs of the appeal and cross appeal. In the absence of full agreement, the matters remaining in issue should be decided by this Court on the papers. I therefore propose the following orders:

1. Direct the parties to file, by 5 pm on 25 January 2019, agreed short minutes of order providing for the disposal of the appeal and cross appeal in accordance with these reasons, including as to the costs of the proceedings below as between Mobis Australia and XL and the costs of the appeal and cross appeal.

1. If the parties are unable to agree on such short minutes, direct them to lodge with the President’s Associate, by 5 pm on 25 January 2019, the draft short minutes of order for which each contends and written submissions (not exceeding 5 pages) supporting their position on each of the matters in relation to which they have been unable to reach agreement, with a view to the Court then resolving those matters on the papers.

169. LEEMING JA: I agree with Meagher JA. In deference to the quality of the parties’ submissions and because grounds 2.1-2.3 give rise to an issue of principle, I add the following, none of which is by way of qualification to my agreement with Meagher JA’s reasons and proposed orders.

170. The fact that the fire occurred after Mobis Australia’s policy had expired led to submissions directed to a finding that the stock trapped in the warehouse following the collapse was, then and there, physically lost. Mobis Australia’s submissions in support of grounds 2.1-2.3 invoked Bankes LJ’s statements in Moore v Evans [1917] 1 KB 458 at 471 that while “mere temporary deprivation” does not constitute a loss, “complete deprivation amounting to a certainty that the goods could never be recovered is not necessary to constitute a loss”. Mobis Australia’s written submissions continued:

“Deprivation constitutes physical loss when there is ‘uncertainty but not unlikelihood of recovery’ (Kuwait Airways Corporation v Kuwait Insurance Co [1996] 1 Lloyd’s Rep 664 at 686.7 (second column); Holmes v Payne [1930] 2 KB 301 at 310; Webster v General Accident Fire & Life Assurance Corporation Ltd [1953] 1 QB 520 at 532; Re Mining Technologies Australia Pty Ltd (1999) 1 Qd R 60 at 76-77 (McPherson JA); McConnell Dowell Middle East LLC v Royal & Sun Alliance Insurance PLC [2008] VSC 501).”

171. After addressing most of the decisions cited above, Mobis Australia put its position orally thus:

“In our submission, when one applies the relevant insurance concepts in the context of this policy, there was uncertainty. Mobis Australia had been deprived of the stock by virtue of the collapse. There was a chance, an outside chance of some recovery, running great risks. The risks came to pass and those facts demonstrate there was a loss at the time of the collapse.”

172. I put to one side the large difficulty that it could not be said, after the collapse of the warehouse but before the fire, that any particular spare part was uncertain or unlikely to be recovered (although only a small fraction of the whole was ultimately recovered undamaged, it nonetheless represented numerous individual parts, and there seems to be no reason to doubt the inference from the contemporaneous documents that much more would have been recovered but for the fire). The most important difficulty with these submissions, written and oral, insofar as Mobis Australia sought to establish the proposition that mere uncertainty of recovery of its spare parts amounted to their physical loss, is that they seek to assimilate principles derived from marine insurance into property insurance.

173. Marine insurance at general law, and under the codifying statutes enacted in the first decade of the 20th century, is insurance against losses incident to marine adventure. See the Marine Insurance Act 1906 (UK), s 1 and Marine Insurance Act 1909 (Cth), s 7, and see Gibbs v Mercantile Mutual Insurance (Australia) Ltd (2003) 214 CLR 604; [2003] HCA 39 at [6]-[8], [21]-[22], [43], [169]-[172]. In contrast, as Staughton J said in Euro-Diam Ltd v Bathurst [1990] 1 QB 1 at 13, “non-marine insurance does not in general constitute an insurance upon an adventure but upon property”, a point repeated by Kerr LJ at 40 when dismissing the appeal: “This is not a marine policy. It is a policy on goods and does not insure any adventure”. This basic distinction flows through this area. In particular, it underlies the approach taken to establishing loss. Lord Atkinson’s leading speech in Moore v Evans [1918] AC 185 explained why:

“One can readily understand that those willing to adventure, who had possessed themselves of expensive but money-making chattels like ships for the purpose of their adventures, should, if they insured, be protected as far as possible from having their capital locked up unprofitably in ships whose fate they were unable actually to ascertain and prove” (at 193-194).

174. Thus, in marine insurance, subject to any express policy provision, there will be a constructive total loss “where the assured is deprived of the possession of his or her ship or goods by a peril insured against, and (i) it is unlikely that he or she can recover the ship or goods”: Marine Insurance Act 1906 (UK), s 60(2)(i)(a); Marine Insurance Act 1909 (Cth), s 66(2)(a)(i)).

175. The distinction is fundamental to the decisions upon which Mobis Australia relied. They are best addressed chronologically.

176. Moore v Evans rejected a line of decisions of lower courts which, following the disruptions caused by the First World War, had sought to expand the concept of loss in policies of property insurance by drawing upon the principles of marine insurance. The insured jewellers had sent pearls on consignment to Belgium and Germany in June and July 1914, and in February 1915 sued their insurer to recover a claimed loss following the outbreak of war and the impossibility of their lawful return without the consent of the Crowns of both countries. It was not suggested that the pearls were other than being kept securely by the consignees. The distinction between insurance upon an adventure and upon property was emphasised by Lord Atkinson at 191:

“It is not pretended in this case that the policy is a marine policy on goods. It was not argued, it could not be argued rationally, that this being a non-marine policy the Appellants could recover for the loss or defeat of the adventure on which the goods were embarked.”

177. Senior counsel for the plaintiffs (Leslie Scott KC), successful at trial but unsuccessful in the Court of Appeal and in the House of Lords, maintained the submission that the principles of marine insurance should be extended. In the Court of Appeal, the submission is recorded at 462 (“It is not contended that the doctrine of constructive total loss, applicable to marine policies, is applicable to such a policy as this, but where the facts are such as that in a marine policy they would justify abandonment, the assured in other cases may claim as for a total loss”). To similar effect was his submission in the House of Lords recorded at 187 (“[C]ertain broad principles of insurance which are illustrated by the law of marine insurance are applicable. There is a definite analogy between cases of insurance on a ship and this class of insurance”). Those submissions invoked Campbell & Phillips Ld v Denman (1915) 21 Com Cas 357 and paraphrased part of Bailhache J’s judgment in Mitsui v Mumford [1915] 2 KB 27 at 32. The latter reflected an acceptance of the same counsel’s submission (recorded at 28 of the latter report: “Under the law of marine insurance a deprivation for an indefinite period of the goods is treated as a constructive total loss. The same principle must apply to a policy on goods on land, where the goods insured are commercial goods which are for sale.”)

178. This submission, and the first instance decisions in which it had been upheld, were firmly rejected in the House of Lords. Lord Atkinson summarised the law of constructive total loss, referring to the influence of Lord Mansfield and the basis of the doctrine in cases of capture, saying that two of Lord Mansfield’s decisions:

“were apparently based upon the principle that the assured should not be obliged to wait till he had definitely ascertained whether his ship had been recaptured or not, but might upon capture proceed at once and, after notice of abandonment, recover his capital, the value of his ship, from the underwriters, provided he was not aware of her recapture when he commenced his action” (at 194).

179. Lord Atkinson then said:

“I am quite unable to follow the line of reasoning by which the principles of a body of laws having such an origin and directed to such an end can be made applicable to the insurance of a jeweller’s stock-in-trade, or that the language used to describe what amounts to the loss of a ship or her cargo under a marine policy is necessarily adequate to describe a loss of this stick-in-trade under a non-marine policy” (at 194).

180. His Lordship rejected the assimilation in substance (albeit not in name) made in Mitsui v Mumford:

“If that means that principles of the law of constructive total loss are to be applied in effect, though not in name, but under an alias as it were, to a loss under a non-marine policy, I respectfully dissent form the learned judge’s opinion” (at 196).

181. His Lordship regarded it as a “strange thing” that, in Campbell & Phillips Ld v Denman (1915) 21 Com Cas 357, dealing with an insurance claim on goods stored in a warehouse in Antwerp from October 1914 which were requisitioned by the occupying German government:

the judge “seems to have treated the Marine Insurance Act of 1906 as applicable to the case, and used the definitions given in it of actual and constructive total loss to help him to decided whether there was a loss under the policy or not, although that statute is expressly confined to marine insurance” (at 197).

182. All other members of the House of Lords agreed. Lord Parker added a brief concurrence:

“It is only by introducing, in the construction of a non-marine policy, considerations which by the custom of merchants are no doubt material in construing a marine policy that the case for the appellants becomes in any way arguable.”

183. In Holmes v Payne [1930] 2 KB 301 at 310, Roche J (who as Roche KC had appeared in the Court of Appeal and the House of Lords in Moore v Evans) had said, in an expressly obiter passage, that “uncertainty as to recovery of the thing insured is in my opinion, in non-marine matters the main consideration on the question of loss”. Roche J contrasted what had been said in Polurrian Steamship Company, Ltd v Young [1915] 1 KB 922 at 937 (the reference in footnote 2 on p 310 is erroneous) as to the change effected by the Marine Insurance Act to constructive loss, from the uncertainty formulated in the marine insurance decisions referred to at 935-936, to the unlikelihood required by s 60(2)(i)(a). But, with respect, irrespective of whether or not s 60 of the Marine Insurance Act changed the law of constructive total loss, it had no bearing on loss in property insurance, in which there was no concept of constructive total loss. (His Lordship’s error is all the more inexplicable, having been, as Roche KC, unsuccessful counsel in Polurrian Steamship Company, Ltd v Young.) Further, Roche J when dealing with a mislaid necklace went on to deal with the “somewhat analogous case of capture”, Polurrian Steamship Co v Young and another marine insurance case, Roura & Fourgas v Townsend [1919] 1 KB 189. The soundness of the analogy is, with respect, open to doubt, as well as being difficult to reconcile with the reasoning in Moore v Evans.

184. The third decision relied upon is Webster v General Accident Fire and Life Assurance Corporations Ltd [1953] 1 QB 520. Mobis Australia relied on an expressly obiter statement, unsupported by any authority, in that ex tempore decision:

“Each case turns on its own facts. An assured is not entitled to sit by and do nothing. Equally, he is not bound to launch into legal proceedings or if necessary carry them to the House of Lords. The test, as it seems to me, is whether, after all reasonable steps to recover a chattel have been taken by the assured, recovery is uncertain.”

185. In fact that test does not assist Mobis Australia, because (although the rolled-up form as reported in the authorised reports may conceal it) the test is not satisfied until all reasonable steps have been taken. In the form reported in the All England Reports ([1953] 1 All ER 663 at 667), the point sought to be made is clearer:

“The test is whether he has taken all reasonable steps, and, he having taken all reasonable steps, whether recovery is uncertain.”

186. The fourth decision on which Mobis Australia relies is Kuwait Airways Corporation v Kuwait Insurance Co SAK [1996] 1 Lloyd’s LR 664. The passage is:

“On that day [of the invasion] KAC lost possession and control of their aircraft and it was both uncertain and, if it be relevant (as Mr. Webb submits it is, on the ground that although the risk was not a marine risk, it was written in the marine market by marine underwriters), unlikely that possession would be recovered within a reasonable time. As it is, the relevant test outside the field of marine insurance would appear to be uncertainty and not unlikelihood of recovery ... Moreover, although capture is not itself a named peril in the policy, possibly because strictly speaking it is a maritime peril, it is in my judgment clear from the facts stated above that the aircraft had indeed been captured, or, if that is an exclusively maritime peril, taken in a way that is wholly analogous to maritime capture, that is to say taken by an enemy, in time of way, with intent to deprive the owner of all dominion or right of property” (at 686).

187. The Court of Appeal dismissed an appeal, although deciding some issues differently (see [1997] 2 Lloyd’s Rep 687) while the House of Lords allowed a further appeal in part: [1999] UKHL 12. It was not suggested that either appellate decision bore on the issue. It will be noted that Rix J expressed the proposition tentatively, and did so in a case in which the factual and legal connection to marine insurance and capture was clear.

188. Fifthly, the distinction between marine and non-marine insurance is also fundamental to understanding the force of Re Mining Technologies Australia Pty Ltd [1999] 1 Qd R 60, a decision which Mobis Australia described as “really the only Australian case directly on point”. The key to that decision is a passage at 78-79, where the leading judgment of McPherson JA noted that it would “doubtless” be right to follow what had been said in Moore v Evans were it not for the fact that the policy in that case “itself adopts some of the language of marine insurance”. McPherson JA reproduced the clauses dealing with partial and total loss, the latter including reference to settlement on the basis of “a total loss or a constructive total loss of the insured vehicle”. McPherson JA then proceeded, with respect correctly, on the basis that while the policy was not a marine policy providing an indemnity against losses “incident to marine adventure” within the meaning of the Marine Insurance Act 1909 (Cth), nonetheless it was to be construed by reference to the terminology and concepts of marine insurance.

189. McPherson JA also noted at 78 that both speeches in the House of Lords in Moore v Evans stressed the error made by the trial judge in introducing notions of the principles applicable to constructive total loss in marine insurance into that claim. I respectfully agree. I also respectfully agree with Meagher JA that the uncertainty which is inherent in the marine insurance concept of constructive total loss has no application in non-marine insurance. I would also agree with Professor Clarke (M Clarke, The Law of Insurance Contracts (6th ed, informa, London, 2009), p 471):

“The meaning of deprivation loss depends on the context, not only the immediate context of the policy but also that of the practices and purposes of the kind of insurance. For example, marine insurance on cargo is concerned with loss of an adventure, it has been said, while non-marine insurance is concerned with loss of goods; the courts will be slow to apply the special rules about loss in marine insurance to non-marine insurance.”

190. Of course, insured and insurer are free to introduce marine insurance principles by express provision, as occurred in Re Mining Technologies Australia Pty Ltd. There is nothing to suggest in the language of the policy in this appeal that concepts or principles in marine insurance were being rendered applicable. Indeed, as XL submitted, cl 12.5 in the local policy, which provided that “There shall be no abandonment to the Company of any property” was inconsistent with any such assimilation.

191. Putting the authority of Moore v Evans to one side, there is no reason to introduce special principles from marine insurance to other areas of the law. The purpose and background of the different principles mean, at the least, that discrimination and care should be taken if the decision is made to apply the principles developed in one area in another; cf the caution noted by the High Court, in a related area, in Great China Metal Industries Co Ltd v Malaysian International Shipping Corporation Berhad (1998) 196 CLR 161; [1998] HCA 65 at [18]. It is far from clear that the first instance decisions relied on by Mobis Australia reflect that.

192. Finally, it is not only the fact that the history and purpose of the principle in marine insurance are different. Statute has intervened. And it is not only that statute has made special provision for marine insurance, in the Marine Insurance Act 1909 (Cth). Statute has also made special provision for insurance which is not marine insurance. The Insurance Contracts Act 1984 (Cth) does not apply to marine insurance: s 9(1)(d). The Australian Law Reform Commission recommended against subsuming marine insurance within the law applying to non-marine general insurance, stating that this would be a “fundamental change” (ALRC, Review of the Marine Insurance Act 1909 (Cth), Rep No 91, para 3.2). To my mind, the distinctly separate statutory regimes which apply to these two areas of the law is a further reason telling against the assimilation of doctrine.

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Amendments

13 February 2019 - [90] "eastern" to "southern"; [149] "objects" to "object"; [162] "3" to "p 3"

14 February 2019 - [192] "marie" to "marine"

Decision last updated: 14 February 2019