Princess Theatre Pty Ltd v Ansvar Insurance Limited

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

INSURANCE LIST

S ECI 2021 03192

BETWEEN:

PRINCESS THEATRE PTY LTD (ACN 007 307 851) (ATF PRINCESS THEATRE DISCRETIONARY TRUST) & ORS (according to the Schedule attached)	Plaintiffs
and
ANSVAR INSURANCE LIMITED (ACN 007 216 506)	Defendant

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JUDGE:	M Osborne J
WHERE HELD:	Melbourne
DATE OF HEARING:	27 February 2024 – 29 February 2024; 1 March 2024; 7 March 2024
DATE OF JUDGMENT:	25 June 2024
CASE MAY BE CITED AS:	Princess Theatre Pty Ltd & Ors v Ansvar Insurance Limited
MEDIUM NEUTRAL CITATION:	[2024] VSC 363

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INSURANCE – Business interruption insurance – COVID-19 pandemic – Whether insured is entitled to indemnity under industrial special risks policy for losses sustained due to closure of businesses – Infectious disease extension - Hybrid clauses – Infectious disease clauses – Closure of premises by order of or upon advice from a statutory or government authority – Outbreak within 25 kilometres - Meaning of ‘following’ – Whether ‘following’ the outbreak there was an order - Swiss Re International SE v LCA Marrickville Pty Ltd (2021) 394 ALR 461 - LCA Marrickville Pty Ltd v Swiss Re International SE (2022) 290 FCR 435 – Indemnity granted.

INSURANCE – Sublimits – Whether infectious disease extension subject to sublimit – Whether sublimit applies to each venue or across the whole policy - Whether theatre hire fees constitute ‘rent’ under policy such that ‘rent receivable’ sublimit applies – ‘location of risk’ sublimit.

CONTRACT – Insurance contract – Principles of construction – Context – Reading contract as a whole – Perspective of the objective reader of a contract – Contra proferentem rule.

EQUITY – Equitable remedies – Rectification – Mistake - Common intention – State of mind of broker, insurer and insured – Evidence as to intention – Mistaken apprehension of the legal position - No convincing proof provided to prove alleged common intention – Quarantine Act 1908 (Cth) – Biosecurity Act 2015 (Cth) - Declined relief.

LOSS –Appropriate methodology for calculating losses – When does the loss period end - Whether insured must account for JobKeeper payments and other governmental support during COVID-19 pandemic in calculating loss – application of underinsurance clause.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	C M Archibald KC with Dr N M Petrie	Elit Lawyers
For the Defendant	Dr A Hanak KC with X Teo and J B Waters	MinterEllison

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

Policy Terms.................................................................................................................................. 5

Principles of Construction.............................................................................................................. 14

Coverage under the Extension....................................................................................................... 15

The LCA Marrickville Cases........................................................................................................ 19
The Extension.............................................................................................................................. 25
The Marriner Group Submission.............................................................................................. 25
Outbreak within 25 kilometres........................................................................................ 25
‘Following’.......................................................................................................................... 26
Order, consultation or advice.......................................................................................... 26
Closure................................................................................................................................ 26

The Insurer’s Submission........................................................................................................... 28
Closure................................................................................................................................ 28
‘Following’.......................................................................................................................... 29
Consultation or advice...................................................................................................... 29

Analysis........................................................................................................................................ 30

Rectification...................................................................................................................................... 53

Introduction................................................................................................................................. 53
Principles of rectification........................................................................................................... 54
The evidence as to intention...................................................................................................... 57
State of mind of Mr Cleeve, Mr Standfield and Ms Marriner.............................................. 62
Analysis........................................................................................................................................ 62

Sublimits............................................................................................................................................ 69

Infectious Disease Sublimit........................................................................................................ 70
Policy year coverage................................................................................................................... 72
Period of insurance 18 March 2011 to 18 March 2012.................................................. 72
Period of insurance 18 March 2012 to 18 March 2013.................................................. 73
Period of insurance 18 March 2013 to 18 March 2014.................................................. 73
Period of insurance 18 March 2014 to 18 March 2015.................................................. 77
Period of insurance 18 March 2015 to 18 March 2016.................................................. 77
Period of insurance 18 March 2016 to 18 March 2017.................................................. 78
Period of insurance 18 March 2017 to 18 March 2018.................................................. 79
Period of insurance 18 March 2018 to 31 March 2019.................................................. 80
Period of insurance 31 March 2019 to 31 March 2020.................................................. 81
Period of insurance 31 March 2020 to 31 March 2021.................................................. 86

Is the Extension subject to a $500,000 sublimit ?.................................................................... 87
Does the $500,000 sublimit apply to each venue?.................................................................. 92
Does the ‘rent receivable’ sublimit of $0 apply to the receipt of theatre hire fees?........... 99
‘Location of risk’ sublimits...................................................................................................... 104

Quantification of the Marriner Group’s loss............................................................................ 105

Mark Thompson’s evidence.................................................................................................... 106
Greg Meredith’s evidence........................................................................................................ 109
Joint report................................................................................................................................. 117
Determination of the disputed questions in respect of the calculation of loss................ 122
Does the loss period end on 31 March 2021 or 31 March 2022?............................... 122
JobKeeper and Third Party Payments.......................................................................... 125
Approaches to Turnover and Savings.......................................................................... 140
Underinsurance............................................................................................................... 146

What is the recoverable loss ?.................................................................................................. 148

Conclusion....................................................................................................................................... 151

HIS HONOUR:

Introduction

The first plaintiff, Princess Theatre Pty Ltd, is the operator of the business of the Princess Theatre located at 163 Spring Street, Melbourne, the Regent Theatre and the Plaza Ballroom located at 191-197 Collins Street, Melbourne, the Comedy Theatre located at 228-240 Exhibition Street, Melbourne and the Forum Theatre located at 150-162 Flinders Street, Melbourne. The second, fourth and fifth plaintiffs, Princess Theatre Holdings Pty Ltd, The Comedy Theatre Pty Ltd and Forum Theatre Investments Pty Ltd, are the owners of the Princess Theatre, the Comedy Theatre and the Forum Theatre, whilst the third plaintiff, Regent Theatre Holdings Pty Ltd, is the lessee of the Regent Theatre. Each of the plaintiffs are part of the Marriner Group. It is convenient to refer to the plaintiffs as the Marriner Group or the Group except where it is necessary to differentiate between the entities in the Group.

The Marriner Group is Australia’s largest privately owned and operated theatre company and was established by David Marriner in 1986.

The Marriner Group is the insured under two industrial special risks policies held with the defendant, Ansvar Insurance Ltd (the ‘Insurer’).

The details of the two industrial special risks policies are as follows:

(a) The first policy which was issued for the period of insurance 31 March 2019 to 31 March 2020. It comprises the Ansvar Industrial Special Risks Mark IV Modified Insurance Policy Wording AUSPOLISR 201509 v3 and a certificate of insurance dated 2 April 2019 (the ‘First Certificate’) (together, the ‘First Policy’).

(b) The second policy which was issued for the period of insurance 31 March 2020 to 31 March 2021. It comprises the Ansvar Industrial Special Risks Mark IV Modified Insurance Policy Wording AUSPOLISR 201901 v4 and a certificate of insurance dated 31 March 2020 (the ‘Second Certificate’) (together, the ‘Second Policy’).

The First Policy and Second Policy are relevantly indistinguishable for present purposes. Unless it is necessary to distinguish between them it is convenient to refer to them without differentiation as the ‘Policy’ or the ‘Policies’. The Policies provide an indemnity under ‘Section 1 Material loss or damage’ (‘Section 1’) for physical loss, destruction or damage of certain insured property. Relevant to this proceeding, they also provide an indemnity under ‘Section 2 Consequential Loss’ (‘Section 2’) for consequential loss which requires damage to property among other things causing interruption or interference to the insured’s business.

Included amongst the memoranda to Section 2 of the Policies is a clause which deems loss resulting from the interruption of or interference with the insured’s business arising from closure of the premises by order of a public authority consequent upon infectious disease manifested by a person whilst at the premises to be damage to property (the ‘Infectious Disease Clause’). Cover under the Infectious Disease Clause is subject to a sublimit of $500,000 (the ‘Infectious Disease Sublimit’).

The First Certificate and Second Certificate also contain the following clause (the ‘Extension’):

INFECTIOUS DISEASE, MURDER & CLOSURE OF INSURED PREMISES EXTN
Notwithstanding anything contained in this policy to the contrary, cover is extended under the Business Interruption/Consequential Loss Section, up to the sub-limit for this extension shown in the certificate of insurance, to include loss directly resulting from interruption or interference with the business carried on by the Insured at the premises in consequence of:
i)Closure of the whole or part of the premises by order of or in consultation with or upon advice from a Statutory or Government Authority following:
a. an outbreak of a human infectious or contagious disease (that is notifiable) or bacterial infection at or occurring within 25 kilometres of the premises other than any disease outlined in Proviso iii) below;
b. discovery of vermin or pests and/or defects in the drains and/or other sanitary arrangements at the premises;

ii) Murder or suicide (or any attempt thereat) occurring at the premises;
iii) Injury, illness or disease arising from or likely to arise from or traceable to foreign or injurious matter in food or drink provided at or from the premises;
iv) Threat of violent damage to the premises and/or injury to persons therein, but not arising from any act of terrorism;

Provided that:
i)The insurer will not be liable for any loss incurred by the insured during the first (48) hours of the interruption or interference;
ii) Perils exclusion 4.(a) and 7.(d) shall not apply for the purpose of this extension;
iii) The insurer will not be liable for any loss or damage arising as a result of any Highly Pathogenic Avian Influenza in Humans or any other diseases declared to be quarantinable diseases under the Quarantine Act (1908) and subsequent amendments. (‘Proviso (iii)’)[1]

In all other respects the Policy remains unaltered.

[1]This defined term has been added by the writer for ease of reference throughout the judgment and does not appear in the First Certificate or Second Certificate.

In this proceeding, the Marriner Group claims that the Insurer is obliged to indemnify it for $20,403,965 pursuant to the Extension as a result of losses sustained by the Group from the closure of the Princess Theatre, the Regent Theatre, the Comedy Theatre, the Forum Theatre and the Plaza Ballroom (the ‘Venues’) during the period of the COVID-19 lockdowns in Melbourne during 2020 and 2021. These closures followed a series of directions issued by the Victorian government and associated advice, arising out of the incidence of the COVID-19 pandemic, from 16 March 2020 and continuing throughout the calendar year 2021.

The theatre venues closed on 16 March 2020 whilst the Plaza Ballroom closed on 21 March 2020. The Venues remained closed until first reopening with reduced patron numbers between 9 January 2021 and 25 February 2021. The Venues were subject to further closure periods; 12 February 2021 until 17 February 2021; 27 May 2021 until between 26 June 2021 and early July 2021; and 15 July 2021 until between 11 November 2021 and 13 January 2022.

The Insurer denies that the Extension was engaged. If it were, the Insurer submits that the Policies should be rectified such that indemnity is excluded on the basis that the parties had a common intention, known to each other, that Proviso (iii) contained in the Extension should be rewritten such that the words ‘declared to be quarantinable diseases under the Quarantine Act 1908’ were replaced with the words ‘listed as a human disease pursuant to the Biosecurity Act 2015 (Cth)’. The rectification plea arises in the context of the Quarantine Act 1908 (Cth) (‘Quarantine Act’) having been repealed with effect from 16 June 2016 which is the same day on which the Biosecurity Act 2015 (Cth) (‘Biosecurity Act’) came into operation.

Further, the Insurer contends that if the Extension is engaged and rectification is not ordered, the Infectious Disease Sublimit applies in aggregate for each of the two periods of insurance. If, however, the sublimit does not apply to the Extension, the Insurer submits that the Policies should be rectified to reflect the common intention between the parties, namely that any indemnity under the Extension be capped at $500,000.

The Insurer also argues that in any event the loss claimed by the Marriner Group is overstated and has not been calculated on a proper basis including because the loss has been calculated up until 31 March 2022, which is 12 months after the expiry of the Second Policy and because the Policies do not entitle the Marriner Group to recover theatre hire fees which represent a large component of the lost revenue which constitute ‘rent receivable’ and are not insured. Further, the Insurer argues that the Group must bring to account in reduction of any losses during the period of closure, any payments received during 2020 in the form of JobKeeper payments (’JobKeeper Payments’) and any grants, subsidies, abatements and other benefits received (the ‘Third Party Payments’).

The principal issues which arise for determination therefore comprise the following:

(a) does the Extension apply to the claims made in the proceeding;

(b) should the Policies be rectified on the basis of common mistake such as to replace the reference to the Quarantine Act with the Biosecurity Act;

(c) are any of the losses suffered subject to the following sublimits:

(i) the Infectious Disease Sublimit;

(ii) the ‘rent receivable’ sublimit of $0;

(iii) ‘location of risk’ sublimits which limit the losses recoverable at each venue to the declared values for each venue;

(d) what is the appropriate methodology for calculating the losses and in the determination of that issue when does the loss period end and should the losses be reduced by the JobKeeper Payments and the Third Party Payments and/or by the underinsurance clauses contained in the Policies.

Policy Terms

Under the subheading ‘[t]he contract between you and Ansvar Insurance’ the Policy records that ‘[i]n consideration of payment of your premium, we will insure you under this policy, and as shown in your certificate of insurance’.

In the introductory section of the Policies, it is noted that the Policy incorporates the schedule, sections, definitions, conditions, exclusions, endorsements, memoranda and warranties, and further that:

…the total liability of the Insurer(s) at any one Situation shall not exceed the appropriate Limit or Sub-Limit(s) of Liability as stated in the Schedule or such amount(s) as may be substituted therefore by endorsement or memorandum hereon or attached hereto and that each Insurer specified shall only be liable to contribute to any loss covered by this Policy that proportion of the loss as is specified beside its name.

The indemnity in Section 2 is set out in the following terms:

In the event of any building or any other property or any part thereof used by the Insured at the Premises for the purpose of the Business being physically lost, destroyed or damaged during the period of insurance by any cause or event not hereinafter excluded (loss, destruction or damage so cause being hereinafter termed ”Damage”) and the Business carried on by the Insured being in consequence thereof interrupted or interfered with the Insurer(s) will, subject to the provisions of this Policy including the limitation on the Insurer(s) liability, pay to the Insured the amount of loss resulting from such interruption or interference in accordance with the applicable Basis of Settlement.
…

Under the subheading ‘basis of settlement’, the following appears:

Item No. 1 – Loss of gross profit
The insurance under this item is limited to actual loss of Gross Profit due to: (a) Reduction in Turnover, and (b) Increase in Cost of Working, and the amount payable as indemnity thereunder shall be:
(a) In respect of Reduction in Turnover:

The sum produced by applying the Rate of Gross Profit to the amount by which the Turnover during the Indemnity Period shall, in consequence of the Damage, fall short of the Standard Turnover.

(b) In respect of Increase in Cost of Working:
The additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the reduction in Turnover which, but for that expenditure, would have taken place during the Indemnity Period in consequence of the Damage, but not exceeding the sum produced by applying the Rate of Gross Profit to the amount of the reduction thereby avoided.

Less any sum saved during the Indemnity Period in respect of such of the charges and expenses of the Business payable out of Gross Profit as may cease or be reduced in consequence of the Damage.
Provided that if the Declared Value of Gross Profit at the commencement of each Period of Insurance be less than the sum produced by applying the Rate of Gross Profit to the Annual Turnover (or its proportionately increased multiple thereof, where the Indemnity Period exceeds 12 months), the amount payable hereunder shall be proportionately reduced.

Section 2 also includes a definitions section which relevantly includes the following:

Gross profit
The amount by which:
(a)the sum of the Turnover and the amount of the Closing Stock and Work in Progress shall exceed;
(b)the sum of the amount of the Opening Stock and Work in Progress and the amount of the Uninsured Working Expenses as set out in the Schedule.
…

Turnover
The money (less discounts, if any allowed) paid or payable to the insured for goods sold and delivered and for services rendered in the course of the Business at the Premises.
Indemnity period
The period beginning with the occurrence of the damage and ending not later than the number of months specified in the Schedule thereafter during which the results of the Business shall be affected in consequence of the Damage.
…
Shortage in turnover
The amount by which the Turnover during a period shall, in consequence of the Damage, fall short of the part of the Standard Turnover which relates to that period.
Rate of gross profit
The rate of Gross Profit earned on the Turnover during the financial year immediately before the date of the Damage.
Annual turnover
The Turnover during the 12 months immediately before the date of the Damage.
Standard turnover

The Turnover during that period in the 12 months immediately before the date of the Damage which corresponds with the Indemnity Period.

…

Incongruously placed in the definitions section for Section 2 is a clause commonly referred to as a trends clause or adjustments clause which reads as follows:

Adjustments shall be made to the Rate of Gross Profit, Annual Turnover, Standard Turnover and Rate of Pay-Roll as may be necessary to provide for the trend of the Business and for variations in or other circumstances affecting the Business either before or after the Damage or which would have affected the Business had the Damage not occurred, so that the figures thus adjusted shall represent as nearly as may be reasonably practicable the results which, but for the Damage, would have been obtained during a relative period after the Damage.

(the ‘Adjustments Clause’).

The Policy wording includes a list of exclusions applicable to all sections of the Policy, followed by a further subheading ‘Memoranda applicable to all sections’. Relevantly, a part of the memoranda includes a further section headed ‘Adjustment of premium’, which in substance records that the premium shown is provisional and is calculated on the declared values of: (i) property insured; (ii) gross profit and insured payroll on the day of commencement of each period of insurance. The section also includes an entitlement to an adjustment of the provisional premium by reference to the declared values.

As noted earlier, included amongst the memoranda to Section 2 of the Policies is the Infectious Disease Clause which reads as follows:

Infectious or contagious diseases; vermin, pests or defective sanitary arrangements; food or drink poisoning; murder, suicide (b)

Loss as insured by the Policy resulting from interruption of or interference with the Business arising from closure or evacuation of the whole or part of the Premises by order of a competent public authority consequent upon:

(a) infectious or contagious disease manifested by any person whilst at the Premises;

(b) vermin or pests or defects in the drains or other sanitary arrangements at the premises;

(c) injury, illness or disease directly caused by the consumption of food or drink provided on the premises;

(d) murder or suicide occurring in or at the Premises,

shall be deemed to be loss resulting from Damage to Property used by the Insured at the Premises.

Provided that paragraph (a) will not indemnify loss resulting from interruption of or interference with the Business directly arising from or in connection with Highly Pathogenic Avian Influenza in Humans or any other diseases declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments.

Indemnity under this endorsement shall not exceed the Sub Limit of Liability per event and in the annual aggregate expressed in the Schedule.

Included in the endorsements under the subheading ‘basis of settlement’ is the following underinsurance clause:

Gross profit – average/ under-insurance amended (c)

The final paragraph of Item No 1 is amended to read:

Provided that if the estimated value of Gross Profit declared at the commencement of the Period of Insurance is less than eighty percent (80%) of the sum produced by applying the Rate of Gross Profit to the Annual Turnover (appropriately increased if the Indemnity Period exceeds twelve months) which would have been achieved if the Damage had occurred on the day of commencement of the Period of Insurance, the amount payable hereunder shall be proportionately reduced.

There is also a definition of ‘rent receivable’ which reads:

Rent receivable
The insurance under this item is limited to the loss of rent receivable (including amounts due for services rendered and recoverable expenses) and the amount payable as indemnity hereunder shall be the amount by which rent (including amounts for services rendered and recoverable expenses) received or receivable during the Indemnity Period shall fall short of the amount which it may be reasonably estimated would have been received during that period had the Damage not occurred including the additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the loss of rent (including amounts for services rendered and recoverable expenses) less any sum save during that period in respect of the charges or expenses payable out of rent as may cease or be reduced in consequence of the Damage. The cover hereby granted shall be subject to the sub-limit stated in the Schedule against ‘Rent Receivable’.

The First Certificate[2] sets out, among other things, the following:
[2]The First Certificate and the Second Certificate are relevantly indistinguishable and as such it is convenient to refer only to the First Certificate.

Additional Insured:
PRINCESS THEATRE PTY LTD
REGENT THEATRE HOLDINGS PTY LTD
COMEDY THEATRE PTY LTD
FORUM (OLD STATE) THEATRE HOLDINGS PTY LTD
FORUM THEATRE INVESTMENTS PTY LTD

Additional Comments:
Insured Name
Princess Theatre:
Princess Theatre Holdings Pty Ltd
Princess Theatre Pty Ltd
Princess Theatre Productions Pty Ltd
Investec Bank Australia Limited
Regent Theatre:
Regent Theatre Holdings Pty Ltd
Regent Management Company Pty Ltd ACN 062 841 043
City of Melbourne
State Government of Victoria
Princess Theatre Pty Ltd
Investec Bank Australia Limited
Comedy Theatre:
The Comedy Theatre Pty Ltd
Investec Bank Australia Limited
Forum (Old State) Theatre:
Princess Theatres Pty Ltd
Forum Theatre Investments Pty Ltd
Investec Bank Australia Limited
Section 2 – Business Interruption
POLICY WORDING
Policy wording: Ansvar Insurance Industrial Special Risks Mark IV Modified Insurance Policy Wording AUSPOLISR 201509 v3
Your operations are described as:
Heritage Buildings – Theatres
…
Limits of Liability – Combined Section 1      $280,000.00     $0.00
Building(s)  $163,000.00     $0.00
Contents other than stock   $5,220.00     $0.00
Stock  $290.00     $0.00
Total  $168,510.00     $0.00
SECTION 2: CONSEQUENTIAL LOSS
Gross Profit  $18,903,965
Claims Preparation Costs  $     500,000
AICOW  $ 1,000,000
Payroll  Not Insured
Total  $20,403,965
Sublimits: Section 1 – Property Damage
…
Unspecified Damage (as defined below)  $500,000
UNSPECIFIED DAMAGE, for the purpose of any Limit or Sub-Limit of Liability or Deductible as shown in the Schedule, means Damage caused by any peril or circumstance not more specifically covered or excluded by this Policy other than: fire… storm and/or tempest and/or rainwater and/or wind and/or hail, and/or flood, and/or water or other liquids or substances discharged, overflowing or leaking from apparatus, appliances, pipes or any other system at the premises or elsewhere; or other peril mentioned under the heading in the Schedule, SUB-LIMITS OF LIABILITY.
Sublimits: Section 2 – Consequential Loss
Item 2 – Claims Preparation Fees  $   500,000
Item 4 – (Additional) Increased Cost of Working                $1,000,000
…
Rent Receivable  $            0
Rent Payable (b)  $            0
…
Royalties Receivable (b)  Not Insured
…
Indemnity Period  24 Months
Aggregate Limit any one Period of Insurance – Section 2
Infectious or Contagious Diseases; Vermin, Pests or
Defective Sanitary Arrangements; Food or Drink
Poisoning; Murder, Suicide (b)  $ 500,000
Combined Section 1 & Section 2
Flood  Included
Limit any one Situation (unless otherwise noted)               $1,000,000
…
Deductibles – Section 1
The Insured shall bear the following amount(s) in respect of each claim or series of claims arising out of any one original source or cause:
…
Flood, each and every loss at each and every
situation  $   25,000
…
Deductibles – Section 2
The Insured shall bear the following amount(s) in respect of each claim or series of claims arising out of any one original source or cause:
…
Infectious or Contagious Diseases; Vermin, Pests or
Defective Sanitary Arrangements; Food or Drink
Poisoning; Murder, Suicide (b)  48 Hours
…
ISR MK IV – INFECTIOUS DISEASES EXTENSION (ANSVAR)
INFECTIOUS DISEASE, MURDER & CLOSURE OF INSURED PREMISES EXTEN[3]
[3]See above [7].
…

Location of Risk: 163 SPRING STREET
MELBOURNE 3000

Type of Risk: 11 – ISR - &/or Crime
Excess

Declared Values: Material Damage $50,860,000 $50,000
Consequential Loss $5,705,630 $50,000

Type of Cover :         Replacement (New for Old)

Premium F/ES Levy GST S/Duty TOTALS

ISR (Material Damage) $41,306.45 $0.00 $4,130.64 $4,543.70 $49,980.79

ISR (Consequential Loss) $4,633.88 $0.00    $463.37    $509.73 $5,606.98

TOTALS $45,940.33 $0.00 $4,594.01 $5,053.43 $55,587.77
…
Location of Risk:      228-240 EXHIBITION ST
MELBOURNE
VIC 3000

Type of Risk: 11 – ISR - &/or Crime
Excess

Declared Values: Material Damage $18,250,000 $50,000
Consequential Loss $2,047,341 $50,000

Type of Cover :         Replacement (New for Old)

Premium F/ES Levy GST S/Duty TOTALS

ISR (Material Damage) $14,821.91 $0.00 $1,482.18 $1,630.42 $17,934.51

ISR (Consequential Loss) $1,662.77 $0.00    $166.27    $182.91 $2,011.95

TOTALS $16,484.68 $0.00 $1,648.45 $1,813.33 $19,946.46
…
Additional Comments:
Asset Schedule:
Comedy Theatre Building(s)  $ 18,000,000
Comedy Theatre Contents  $     220,000
Comedy Theatre Stock  $       30,000
…
Location of Risk:      191-197 COLLINS ST
MELBOURNE
VIC 3000

Type of Risk: 11 – ISR - &/or Crime
Excess

Declared Values: Material Damage $67,650,000 $50,000
Consequential Loss $9,089,183 $50,000

Type of Cover :         Replacement (New for Old)

Premium F/ES Levy GST S/Duty TOTALS

ISR (Material Damage) $54,942.62 $0.00 $5,494.25 $6,043.69 $66,480.56

ISR (Consequential Loss) $7,381.87 $0.00    $738.18    $812.00 $8,932.05

TOTALS $62,324.49 $0.00 $6,232.43 $6,855.69 $75,412.61
…
Location of Risk:      150-162 FLINDERS ST
MELBOURNE
VIC 3000

Type of Risk: 11 – ISR - &/or Crime
Excess

Declared Values: Material Damage $26,550,000 $50,000
Consequential Loss $2,978,460 $50,000

Type of Cover :         Replacement (New for Old)

Premium F/ES Levy GST S/Duty TOTALS

ISR (Material Damage) $21,562.84 $0.00 $2,156.27 $2,371.92 $26,091.03

ISR (Consequential Loss) $2,418.98 $0.00    $241.89    $266.08 $2,926.95

TOTALS $23,981.82 $0.00 $2,398.16 $2,638.00 $29,017.98
…
TOTAL AMOUNT PAYABLE

Premium F/ES Levy GST S/Duty TOTALS
Address:        163 SPRING STREET. MELBOURNE 3000

ISR - &/or Crime $45,940.33 $0.00 $4,594.01 $5,053.43 $55,587.77
Address:        228-240 EXHIBITION ST. MELBOURNE. VIC 3000

ISR - &/or Crime $16,484.68 $0.00 $1,648.45 $1,813.33 $19,946.46
Address:        191-197 COLLINS ST. MELBOURNE. VIC 3000

ISR - &/or Crime $62,324.49 $0.00 $6,232.43 $6,855.69 $75,412.61
Address:        150-162 FLINDERS ST. MELBOURNE. VIC 3000

ISR - &/or Crime $23,981.82 $0.00 $2,398.16 $2,638.00 $29,017.98
Address:        5-7 MARINE PDE. ABBOTSFORD. VIC 3067

ISR - &/or Crime      $180.63 $0.00      $18.04      $19.87      $218.54
Address:        19-25 RUSSELL ST. MELBOURNE. VIC 3000

ISR - &/or Crime $4,516.33 $0.00    $451.61     $496.80    $5,464.74

TOTALS $153,428.28 $0.00 $15,342.70 $16,877.12 $185,648.10

Principles of Construction

Insurance policies are to be given a business-like interpretation in accordance with the principles for general commercial contracts.[4]
[4]Star Entertainment Ltd v Chubb Insurance Australia Ltd (2022) 400 ALR 25, 29 [13] (Moshinsky, Derrington and Colvin JJ) (‘Star’); CGU Insurance Limited v Porthouse (2008) 235 CLR 103, 116 [43] (Gummow, Kirby, Heydon, Crennan and Kiefel JJ); McCann v Switzerland Insurance (2000) 203 CLR 579, 589 [22] (Gleeson CJ) (‘McCann’).

An insurance policy is to be construed as a whole by considering the entire text.[5] A policy should not be approached by isolating particular fragments or disregarding its overall character.[6] The words of every clause must, if possible, be construed so as to render them all harmonious with one another.[7] Preference is given to a construction supplying a congruent operation to the various components as a whole.[8]
[5]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [46] (French CJ, Nettle and Gordon JJ) (‘Mount Bruce’).
[6]Star (n 4) 29 [14] (Moshinsky, Derrington and Colvin JJ).
[7]Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99, 109 (Gibbs J).
[8]Wilke v Gordian Runoff Ltd (2005) 221 CLR 522, 529 [16] (Gleeson CJ, McHugh, Gummow and Kirby JJ) citing Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, 381-382 [69]-[71].

Construction of a policy will be approached on the basis that the parties intended to produce a commercial result and constructions that make for commercial nonsense or would work commercial inconvenience should be avoided.[9]
[9]Zhu v Treasurer of New South Wales (2004) 218 CLR 530, 559 [82] (Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ); Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd (2014) 251 CLR 640, 656 [35] (French CJ, Hayne, Crennan and Kiefel JJ) (‘Electricity Generation Corporation’); Mount Bruce (n 5) 117 [51] (French CJ, Nettle and Gordon JJ); Ecosse Property Holdings Pty Ltd v GD Nominees Pty Ltd (2017) 261 CLR 544, 551 [17] (Kiefel, Bell and Gordon JJ); Liberty Mutual Insurance Company Australian Branch (t/as Liberty Special Markets) v Icon Co (NSW) Pty Ltd (2021) 396 ALR 193, 231 [152] (Allsop CJ, Besanko and Middleton JJ).

The language used by the parties is to be interpreted objectively by considering what the language adopted by them would mean to a reasonable business person in the position of the parties. Here, the Policies are between an insurer and a business operator and ought be construed from the point of view of a reasonable businessperson appreciating that and the purpose and object of the agreements.[10]
[10]LCA Marrickville Pty Ltd v Swiss Re International SE (2022) 290 FCR 435, 468 [77] (‘LCA Marrickville Appeal’).

The language used by the parties is to be construed in the context of the surrounding circumstances known to them at the time of the transaction and the purpose or object of the transaction evident from those matters.[11]
[11]Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 461 [22] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Electricity Generation Corporation (n 9) 656 [35]; Mount Bruce (n 5) 116 [46]-[47]; Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514, 534 [44] (Kiefel CJ, Gageler, Nettle and Gordon JJ).

When construing a contract, the question for consideration is not what each party meant to say, but rather what is the objective meaning to be attributed to the words they have used to express what they have agreed.[12] Statements and actions of the parties which are reflective of their actual intentions and expectations are not admissible in aid of construction, though admissible in an action for rectification.[13] Accordingly, internal communications, unless deployed as part of a rectification claim, are irrelevant to the task of construction.
[12]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ), Byrnes v Kendle (2011) 243 CLR 253, 263 [17] (French CJ), 275 [59] (Gummow and Hayne JJ), 284 [98] (Heydon and Crennan JJ).
[13]Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 352 (Mason J) (‘Codelfa’); Mount Bruce (n 5) 117 [50].

In construing insurance policies, the contra proferentem rule applies such that ambiguities are to be resolved in favour of the insured although the rule generally is a doctrine of last resort and has perhaps limited vitality.[14]
[14]HDI Global Specialty SE v Wonkana No 3 Pty Ltd (2020) 104 NSWLR 634, 641 [31] (Meagher JA and Ball J), 656 [118] (Hammerschlag J) (‘Wonkana’); LCAMarrickville Appeal (n 10) 470 [85], 474 [100], 474-475 [102], 645 [758].

Coverage under the Extension

As noted above, the Marriner Group claims that it is entitled to recover consequential loss under the Extension which appears in identical terms in the First Certificate and Second Certificate. Ignoring Proviso (iii) for now, the Extension provides cover for:

…loss directly resulting from interruption or interference with the business carried on by the Insured at the premises in consequence of:
i) Closure of the whole or part of the premises by order of or in consultation with or upon advice from a Statutory or Government Authority following:
a. an outbreak of a human infectious or contagious disease (that is notifiable) or bacterial infection at or occurring within 25 kilometres of the premises…

The cover afforded by the Extension is to be contrasted with that provided by the Infectious Disease Clause. Unlike the Infectious Disease Clause, the Extension provides cover for loss resulting from interruption of or interference with the business, in consequence of the closure of the whole or part of the premises where the closure arises not merely by order of a Statutory or Government Authority (for convenience ‘a relevant Authority’), but where the closure arises in consultation with or upon advice from a relevant Authority.

Further and importantly, under the Extension, the order for closure (or the consultation or advice), is one which must ‘follow’ an outbreak of disease at or occurring within 25 kilometres of the premises whereas in the case of the Infectious Disease Clause, the order for closure must be consequent upon the disease being manifested by any person whilst at the premises.

The Marriner Group relies upon the components of the Extension which provide for cover where the closure occurs by order and in addition the part which provides for cover where the closure occurs upon advice.

A list of each direction which applied during the closure periods throughout calendar years 2020 and 2021 was set out in an aide memoire handed up by the Marriner Group with each direction tendered in evidence. It is common ground that the directions are orders within the meaning of the Extension.

With respect to orders in the sense used in the Extension, the Marriner Group points to:

(a) The first direction issued on 16 March 2020 which banned non-essential mass gatherings over 500 people (the ’16 March Direction’), which was by further direction on 18 March 2020 reduced to 100 people with the direction on 21 March 2020 imposing additional density limits.

(b) The direction which took effect from 23 March 2020, which required the closure of non-essential businesses which relevantly included the theatres and on the Marriner Group’s case extended to the Plaza Ballroom.

(c) The directions in place from 23 March 2020 until October 2021, which variously banned any performances with patrons or significantly limited the patron numbers of such performances. Specifically, the directions on 21 June 2020, 4 August 2020, 12 February 2021, 27 May 2021 and 15 July 2021 provided for no access to the premises whilst the directions dated 25 March 2020, 7 April 2020, 19 July 2020 and 27 October 2020 allowed for broadcast or recorded performances only.

(collectively, the ‘Directions’).

In respect of advice from a relevant Authority, the Marriner Group points to advice which anticipated and reinforced the Directions and in particular:

(a) Advice foreshadowed at a meeting attended by Jason Marriner, the Group’s Chief Executive Officer, with the Victorian government Minister Martin Foley on 13 March 2020 followed by an announcement by the Prime Minister of Australia and Victorian government advice against holding non-essential organised public gatherings of more than 500 people from 16 March 2020.

(b) Advice from Brendan McClements, the Chief Executive Officer of Visit Victoria provided to Mr Marriner directly that ‘all non-essential organised public gatherings of 500 or more people should be cancelled’ from 16 March 2020.

(c) On 15 March 2020, following a National Cabinet meeting, the Prime Minister clarified that the banning of mass gatherings was not advisory and would be backed by legislation. Statements were made by the Prime Minister which made clear that further ‘intrusions’ were coming in the following weeks and months which would be introduced ‘progressively’.

(d) On 18 March 2020, the Premier of Victoria, Daniel Andrews, stated in a press release that gatherings of more than 100 people would be banned from 5pm that day and that venues that did not comply would face fines of up to $100,000.

(e) On 22 March 2020, the Prime Minister announced the agreement of the National Cabinet to restrict the opening of entertainment venues from midday on 23 March 2020 and that Australians should expect these measures to be in place for six months. The Victorian government thereafter issued directions the following day to implement that ban.

(collectively, the ‘Advice’).

As noted above, the Marriner Group closed the Venues to the public from 16 March 2020 save for the Plaza Ballroom which closed from 21 March 2020. In the period from 16 March 2020 to 22 March 2020, Marriner Group staff still came into work but ceased doing so from 23 March 2020 from which point the Venues were closed to both the public and employees.

It is common ground that there was a relevant outbreak of COVID-19 within 25 kilometres of each of the Venues prior to each of the Directions relied upon as there was at least one active (that is contagious) case of COVID-19 within the community in the area which was not in a controlled setting (such as a hospital, isolation or quarantine) prior to the closure of four of the Venues on 16 March 2020 and at all times during the periods of insurance thereafter.

Accordingly, the Marriner Group argues that the closure of the premises as and from 16 March 2020 was by order of or upon advice from a relevant Authority, and that the orders and advice followed an outbreak of a notifiable disease which occurred within 25 kilometres of the premises.

By way of answer, the Insurer submits that:

(a) The decision to close the theatres was made over the weekend of 14 and 15 March 2020 because the producers of the various shows decided to cancel those shows and as such the closure did not occur by the order made 16 March 2020.

(b) In any event, the Directions were not issued following an outbreak of COVID-19 at or occurring within 25 kilometres of each of the Venues but rather were issued for the protection of public health in the State of Victoria generally. The Insurer argues that whether each direction was issued ‘following’ an outbreak of COVID-19 ‘at or occurring within 25 kilometres’ of each of the Venues requires consideration of the issuing officer’s reason for issuing the direction and a determination that the reason for closure was specific to an area within a 25 kilometre radius of the Venues.

(c) The Insurer denies that any closure occurred on advice from a relevant Authority and submits that the Marriner Group’s reliance the Advice was an afterthought introduced by way of an amendment into its pleadings well after the proceeding had commenced.

The Insurer’s argument that in order for the Extension to apply, the Court must examine the Directions and determine that they were issued resulting from an outbreak within the specified radius of each of the Venues, draws heavily on the reasoning of her Honour Justice Jagot, then sitting in the Federal Court of Australia, in Swiss ReInternational SE v LCA Marrickville Pty Ltd (‘LCA Marrickville’).[15]
[15](2021) 394 ALR 461 (‘LCA Marrickville’).

In LCA Marrickville, her Honour analysed insurance claims under business interruption clauses in 10 proceedings, following claims made in the context of business closures during the COVID-19 pandemic. The decision and reasoning in those test cases was either unchallenged or largely upheld on appeal in LCA Marrickville Pty Ltd v Swiss Re International SE (‘LCA Marrickville Appeal’).[16]
[16]LCA Marrickville Appeal (n 10).

Each party sought to rely on aspects of the reasoning both at first instance and on appeal. As such it is important to analyse with some care the conclusions of her Honour in LCA Marrickville.

The LCA Marrickville Cases

The LCA Marrickville case was a test case authorised to be taken by the Australian Financial Complaints Authority (‘AFCA’) in accordance with AFCA’s complaint resolution scheme rules. The proceeding concerned the proper construction and application of clauses in 10 separate business interruption insurance policies with the relevant issue being whether the policies applied to losses claimed to have been suffered by various businesses as a result of the effects of the COVID-19 pandemic in 2020. In the United Kingdom, the Supreme Court similarly considered the effects of the COVID-19 pandemic to a series of business interruption policies in Financial Conduct Authority v Arch Insurance Ltd (‘FCA v Arch’).[17] The reasoning in FCA v Arch was considered at some length in LCA Marrickville.
[17][2021] UKSC 1 (‘FCA v Arch’).

The relevant clauses of the policies considered in LCA Marrickville fell into four classes:

(1) hybrid clauses: which provided cover for loss from orders/actions of a competent authority closing or restricting access to premises;

(2) infectious disease clauses: which provided cover for loss arising from either infectious diseases or the outbreak of an infectious disease at the premises or within a specified radius of the premises;

(3) prevention of access clauses: which provided cover for loss from orders/actions of a competent authority preventing or restricting access to insured premises because of damage or a threat of damage to property or persons often within a specified radius of the insured premises; and

(4) a catastrophe clause: which provided cover for loss resulting from the actions of a civil authority during a catastrophe for the purposes of retarding the catastrophe.

In her Honour’s judgment at [101] she set out a table which examined the differences in wording in relation to the relevant clause of the various policies characterising them as hybrid clauses, prevention of access clauses, infectious disease clauses or in one case a catastrophe clause (which only applied in the case of the policy pertaining to Swiss Re International SE v LCA Marrickville).

It was common ground that the Extension is a clause in the nature of a hybrid clause.

The table set out below in large part replicates the table set out in the reasons in LCA Marrickville but importantly by way of comparison sets out the Extension and the Infectious Disease Clause in the first two rows.

HYBRID CLAUSES	Required Action	Required Cause	Required Location
Extension	Closure of the whole or part of the premises by order of or in consultation with or upon advice from a Statutory or Government Authority	*following* an outbreak of a human infectious or contagious disease or bacterial infection	at or occurring within 25 kilometres of the premises
Infectious Disease Clause	closure or evacuation of the whole or part of the Premises by order of a competent public authority	*consequent upon*	infectious or contagious disease manifested by any person whilst at the Premises
Swiss Re and LCA Marrickville	closure or evacuation of the whole or part of the Situation by order of a competent public authority	*as a result of* an outbreak of a notifiable human infectious or contagious disease or bacterial infection or any discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease	at the Situation or within a 5 kilometer [sic] radius of the Situation
Insurance Australia and Meridian Travel	closure or evacuation of Your Business by order of a government, public or statutory authority	*consequent upon* the discovery of an organism likely to result in human infectious or contagious disease	at the Situation
Insurance Australia and The Taphouse	any legal authority closing or evacuating all or part of the premises	*as a result* of the outbreak of an infectious or contagious human disease	occurring within a 20-kilometre radius of your premises
Allianz and Mayberg	any legal authority closing or evacuating all or part of the Premises	*as a result of* the outbreak of an infectious or contagious human disease	occurring within a 20-kilometre radius of Your Premises
Allianz and The Stage Shop (Visintin)	interruption or interference with Your Business due to closure or evacuation of the whole or part of the Premises during the Period of Insurance	*as a result of* the outbreak of a notifiable human infectious or contagious disease	occurring within a 20 kilometre radius of the Premises
Chubb and Waldeck	interruption of or interference with the Insured Location …and leading to restriction or denial of the use of the Insured Location on the order or advice of the local health authority or other competent authority	In direct consequence of the intervention of a public body authorised to restrict or deny access to the Insured Location *directly arising from an occurrence or outbreak of a Notifiable Disease or the discovery* of an organism likely to cause Notifiable Disease	at the premises
Chubb and Market Foods	interruption of or interference with the Insured Location ….leading to restriction or denial of the use of the Insured Location on the order or advice of the local health authority or other competent authority	In direct consequence of the intervention of a public body authorised to restrict or deny access to the Insured Location *directly arising from an occurrence or outbreak of any of the following… of a Notifiable Disease or the discovery* of an organism likely to cause Notifiable Disease	at the premises
Guild and Gym Franchises	the closure or evacuation of the whole or part of the Business Premises by order of a competent government or statutory authority	*arising directly or indirectly from human infectious or contagious diseases or the discovery* of an organism likely to result in human infectious or contagious disease	at the Business Premises
Guild and Dr Michael	the closure or evacuation of the whole or part of the Business Premises by order of a competent government or statutory authority	*arising directly or indirectly from* *human infectious or contagious diseases or the discovery* of an organism likely to result in human infectious or contagious disease	at the Business Premises
QBE and Coyne (EWT)	closure or evacuation of all or part of the premises by order of a competent government, public or statutory authority ….. which shall prevent or hinder the use of your building or access thereto, or results in a cessation or diminution of trade due to temporary falling away of potential customers	*as a result of…*a human infectious or contagious diseases	N/A

As the table shows, there is a difference in the wording of the hybrid clause contained in the Extension and that appearing not only in the Infectious Disease Clause but in each of the 10 policies considered in LCA Marrickville.

As her Honour noted in her reasons,[18] the policies use various words to describe the causal relationship which must exist between the various elements of the insured perils, such as in consequence of, consequent upon, as a result of, likely to result in, caused by, caused by or results from, resulting from, in direct consequence of, arising from, leading to, arising directly or indirectly from, as well as requiring relationships between elements of the insured perils which are not causal, such as temporal relationships, spatial relationships, physical relationships and substantive relationships. Her Honour gave examples of each of those relationships, viz., temporal (eg during), spatial (eg at a location, within a specified radius), physical (eg preventing or restricting), and substantive (eg by order).
[18]LCA Marrickville (n 15) 477-478 [41].

Relevantly, in her description of the hybrid clauses her Honour noted that whilst the clauses provided cover for loss from orders/actions of a competent authority closing or restricting access to premises, the clauses did so ‘only where those orders/actions are made or taken as a result of infectious disease or the outbreak of infectious disease within a specified radius of the insured premises’.[19]
[19]Ibid 492 [99(1)] (emphasis added).

The characterisation of the hybrid clauses in that way arose from the language used in the insuring clause which stipulated a causal relationship between the relevant elements of the insured peril such as ‘as a result of’ or ‘consequent upon’. By way of example, in the case of the policy pertaining to Swiss Re International SE v LCA Marrickville, the relevant clause required the closure of the relevant premises by order of an authority which order was made as a result of an outbreak of a notifiable disease occurring at the situation or within 5 kilometres of the situation.[20]
[20]Ibid 514-515 [197].

In order to determine whether the insured was entitled to cover, her Honour considered the text of the orders to see whether the orders gave rise to the inference that the orders were made as a result of the existence of COVID-19 (as an outbreak or otherwise) within the relevant radius of the insured premises. A review of the text of the orders did not permit that inference; rather the text pointed to the orders being made as a result of the circumstances relating to COVID-19 in New South Wales generally.[21]
[21]Ibid 531 [275], [277].

Otherwise, her Honour’s reasons dealt with many of the issues which are of controversy in the present case. Thus, her Honour examined the question of closure of the premises, noting that where the required closure is ‘by order’ of an authority, the closure must be compelled or required by the order with ‘by’ ordinarily meaning ‘required by’ and ‘caused by’ and not just ‘caused by’.[22]
[22]Ibid 491 [98(5)].

Further, her Honour observed that whilst a restriction on the number of people who may enter and remain on a premises at any one time does not ordinarily involve closure of premises, a restriction on the manner of operating a business may, depending upon the nature of the restriction imposed by the order, the nature of the premises, and the nature of the business, amount to a requirement which constitutes a closure of the premises.[23]
[23]Ibid 539 [318].

Her Honour’s reasons otherwise dealt with matters such as the proximate cause of the losses and as a related consideration, the proper interpretation of adjustments clauses (referred to by her Honour as a trends in business clause). Insofar as her reasoning concerned those issues, her Honour adopted a similar approach to the Supreme Court in the United Kingdom in FCA v Arch describing the Court’s reasoning in those respects as ‘compelling’.[24]
[24]Ibid 486 [73].

The Insurer placed significant reliance upon her Honour’s conclusions with respect to the elements that needed to be established by the insured in respect of the causal relationship between the issue of the government order and the occurrence of an outbreak of the disease at the premises or within a specified radius of the premises.

Importantly, however, in her Honour’s reasons she emphasised that where the relevant question is one of construction of a particular policy there is a danger of treating reasoning in other cases unless the language of the policy is substantially identical as authoritative, referring with approval to the following:[25]

In In reColeman’s Depositories Ltd v Life and Health Assurance Association [1907] 2 KB 798, 812, Buckley LJ said “[t]he question is one of construction, and upon such a question authorities are of little or no value. Authorities may determine principles of construction, but a decision upon one form of words is no authority upon the construction of another form of words”. In In re an Arbitration between Calf and the Sun Insurance Office [1920] 2 KB 366 at 382 Atkin LJ made the same point, saying “…on a question of construction I protest against one case being treated as an authority in another unless the language and the circumstances are substantially identical”. In Australian Casualty Co Ltd v Federico [1986] HCA 32; (1986) 160 CLR 513 the High Court expressed the same view, saying at 525 that the task of construction required:
… a consideration of what the words of the policy convey, as a matter of contemporary language read in the context of the whole policy, to a reasonable non-expert in this country. If that meaning is plain, it can be of but limited significance if, at other times and in other places, other courts, however eminent, have held that similar words in other policies were to be construed as having had some different meaning.

[25]Ibid 476-477 [38].

Against that background, it is convenient to return to the relevant words of the Extension before considering the parties respective arguments in more detail.

The Extension

The Extension describes the insured peril relevantly as ‘…closure of the whole or part of the premises by order of or in consultation with or upon advice from a Statutory or Government Authority following…an outbreak of human infectious or contagious disease (that is notifiable) or bacterial infection at or occurring within 25 kilometres of the premises…’.

The Marriner Group Submission
Outbreak within 25 kilometres

There is no dispute that prior to the closure of the Venues in March 2020, there was a relevant outbreak within 25 kilometres of the Venues, as there was at least one active (meaning contagious) case of COVID-19 within the community in that area which was not in a controlled setting (such as a hospital or isolation or quarantine).[26] That remained the case throughout the period of insurance for the Policies.
[26]LCA Marrickville Appeal (n 10) 487 [143], 489-491 [149]-[154] (Derrington and Colvin JJ; Moshinsky J agreeing); LCA Marrickville (n 15) 492 [98(12)].

‘Following’

The Marriner Group submits that the meaning of the word ‘following’ is one which accords with its ordinary and natural meaning and simply means that the government orders, consultation or advice must have been ‘following’ the relevant outbreak in the sense that it must be ‘after something’ [the outbreak] or ‘subsequent to’ [the outbreak].

Order, consultation or advice

The Extension requires that the closure must be ‘by order of or in consultation with or upon advice from a [relevant] Authority’. The Marriner Group relies on the 16 March Direction and the various subsequent Directions which it contends are relevant ‘orders’.[27]
[27]See generally LCA Marrickville Appeal (n 10); LCA Marrickville (n 15).

It also relies on the ‘consultation’ and ‘advice’ of the government which led to the first closure of the Venues with effect from 16 March 2020.

Closure

As briefly noted earlier, the Marriner Group submits that there was a closure of the whole or part of the premises. It argues that each of the Venues was such a premises. The words ‘situation’ and ‘premises’ are used synonymously or interchangeably in the Policies. The Venues are each a ‘premises’ and ‘situation’ under the Policies, including because (a) they are operated by an entity listed as an ‘insured’ in the First Certificate and Second Certificate; (b) they are each at a location which is listed as ‘Location of Risk’ under the First Certificate and Second Certificate and (c) they are listed as a situation in the ‘Schedule of Insurance: Declared Values Schedule’ for the 2019-2020 and 2020-2021 periods of insurance. Further, the Venues save for the Plaza Ballroom were each listed as ‘insured’ in the First Certificate and Second Certificate.

Notwithstanding that some of the directions in place during the relevant periods of closure did not in terms require closure of the premises, the Marriner Group argues that the Directions mandated patron caps or density limits which made it unviable to open such that, in the circumstances, they imposed sufficient ‘restrictions on the manner of operating the [b]usiness’, as to constitute a ‘closure’: arguing ‘[w]hether that is so or not will depend on the nature of the restriction imposed by the order, the nature of the premises, and the nature of the business being conducted on the premises’.[28]
[28]LCA Marrickville (n 15) 539 [318]; see also 491 [98(3)], [98(4)], [98(6)]. See also LCA Marrickville Appeal (n 10) 601-604 [583]-[592] (Derrington and Moshinsky JJ).

The Marriner Group submits that the evidence shows that the theatres were first closed to the public from 16 March 2020, and that shortly after the Plaza Ballroom closed on 21 March 2020. Although the theatres were closed to the public from 16 March 2020, during the period from 16 March 2020 and 22 March 2020, Marriner Group staff still came to work. The theatre production Billy Elliot the Musical was being ‘bumped out’ with a reasonably large crew and company management for the theatre production of Harry Potter and the Cursed Child were coming to work as they normally would.

However from 23 March 2020, those activities ceased, and the Venues were closed not only to the public but also to staff as no access was allowed pursuant to the Directions. The Marriner Group otherwise relies on the Directions that followed throughout 2020 and 2021 which variously banned access to the Venues or provided for limitations on the numbers of patrons in the Venues.

In summary, the Group submits that closure of each of the Venues was by the Directions and upon Advice:

(a) The 16 March Direction and the advice imposing a 500 person cap on patron numbers at the theatres forced the closure of the Venues. In line with the decision in LCA Marrickville these were ‘restrictions on the manner of operating the [b]usiness’ which constituted a ‘closure’ for the purpose of the Extension.[29] The same is true of the directions over the course of 2020 and 2021 which imposed patron limits.

(b) The closure of the Venues was not a commercial decision of the Marriner Group due to the cancellation or suspension of performance contracts. The theatre contracts were cancelled or suspended because of the Advice (including as to the 16 March Direction which was being imposed) that gatherings of 500 or more people were banned from 16 March 2020. As such, even viewed through the prism of the performance contracts, the Group argues that it is clear that the proximate cause of the closure was the Advice and the Directions.

(c) In any case, on and from 23 March 2020, the Venues closed not only to the public but to Marriner Group staff and other workers because of the Directions and Advice which caused a closure of the Venues.

[29]Ibid.

The Insurer’s Submission
Closure

There was no closure of the Venues between 16 and 23 March 2020, and from 22 November 2020 onwards (save for a five day period between 12 and 17 February 2021). During these periods, density caps of 100 or more persons at each of the Venues applied.

In any event, the decision to close the Venues to the public was made between 13 and 15 March 2020, prior to any of the Directions or Advice. The producers of the shows scheduled for each of the four theatre venues had decided to cancel the productions, and as a result by the evening of 15 March 2020 the decision was made by the Marriner Group to close the theatre venues. Any case advanced on the basis of a closure after 16 March 2020 falls outside the pleaded case.

At the time the decision to close the Venues was made, the government action being proposed related to non-essential gatherings of more than 500 people. In any case, an application of a cap of 500 persons for each of the Venues does not constitute a ‘closure’ of premises. As such the 16 March Direction did not require ‘closure’ of any of the Venues.

The Insurer submits that the decision to close the theatre venues was made in response to changed trading conditions. The same approach was subsequently taken with the decision to close the Plaza Ballroom (although in any event the Directions pleaded by the Marriner Group did not require any ‘closure’ of the Plaza Ballroom as it is not and was not a theatre).

‘Following’

The Directions were not issued following an outbreak of COVID-19 at or occurring within 25 kilometres of each of the Venues. Rather, the Directions were issued for the protection of public health in the State of Victoria generally and as such did not fall within the scope of the Extension. Importantly, as was upheld in the LCA Marrickville Appeal it is not the existence of the thing (the disease) which is determinative, but a relevant Authority’s reasons for acting as it did.

The determination of whether each of the Directions was issued ‘following’ an outbreak of COVID-19 ‘at or occurring within 25 kilometres of’ each of the Venues requires the Court to consider whether the issuing officer’s reason for issuing the direction for closure was specific to an outbreak in an area within a 25 kilometre radius of the Venues. Those reasons are assessed objectively by what the issuing officer said at the time and contemporaneous circumstances known by, or inferred to be known by, the person at the time[30] with the relevant starting point being the terms of the direction and any accompanying contemporaneous material.[31] The Insurer submits that where the Directions are not capable of being seen as resulting from anything happening within the specified radius of each of the Venues, it cannot be concluded that the Directions were the result of any outbreak within that radius.[32]
[30]LCA Marrickville Appeal (n 10) 491 [158]-[159], 494 [168].
[31]Ibid 587-588 [526].
[32]LCA Marrickville (n 15) 530 [270] quoted in LCA Marrickville Appeal (n 10) 523 [297]. The relevant clause there considered used the term ‘resulting from’.

Consultation or advice

Any contention that the Marriner Group relied on consultation and advice is an afterthought as it did not appear in the earlier versions of the statement of claim and witness statements relied upon by the Marriner Group and should be rejected accordingly.

Further the Insurer does not accept that the issuers of the media/press releases/emails/text messages were authorities as contemplated by the Extension and submits that Jagot J’s findings in LCA Marrickville in this regard are informative:[33]

…
a “public authority”, “statutory authority”, “government authority”, “civil authority”, “lawful authority” or the like, in the context of the insuring provisions, means an authority, body or person authorised or empowered to take the action by reason of an Act, regulation or instrument of any kind under an Act, regulation or instrument, the action having some essentially public as opposed to private character. It does not mean an authority, body or person authorised or empowered to take the action by reason of a private arrangement such as a contract or by-laws of a body corporate;
…

[33]LCA Marrickville (n 15) 491-492 [98(11)].

Further, the Insurer submits that publications attributing statements to the Prime Minister, can be readily put to one side as they do not constitute advice from a relevant Authority.[34]
[34]Ibid 714 [1047]-[1048].

Analysis

The question of whether the claim falls within the scope of the Extension involves a question of the proper interpretation of the Extension followed by the application of the facts derived from the evidence.

As noted above, it is not in dispute that the Extension constitutes a form of hybrid clause. The insured peril therefore comprises a number of elements, each of which must be satisfied in order for the Extension to be engaged. Interruption of or interference with the business describes the nature of the loss and does not fall within the scope of the insured peril.[35]
[35]FCA v Arch (n 17) [215].

In FCA v Arch the Supreme Court considered it useful to examine the elements of the hybrid clause in what the Court referred to as a causative sequence.[36]
[36]Ibid [214], [216], [267].

The use of the term ‘causative sequence’ applied here points to an interpretation consistent with that favoured by the Insurer, although the Supreme Court used the phrase in a quite different context. As such, I shall use the more neutral descriptor ‘sequence’.

The relevant sequence here then is, first, an outbreak of a human infectious or contagious disease or bacterial infection within 25 kilometres of each of the Venues; secondly, an order of a relevant Authority (or advice from a relevant Authority) which results in the closure of the whole or part of the premises; thirdly, interruption of or interference with the business with consequent loss.

There is no issue of interpretation or disputed question of fact arising in respect of the first element. There was an outbreak of a human infectious or contagious disease within 25 kilometres of each of the Venues, prior to the 16 March Direction and prior to each of the Directions relied upon subsequently.

The key focus of the Insurer’s argument turns on the second element in the sequence, namely whether ‘following’ the outbreak there was an order (or if it to be necessary to consider, the receipt of advice) which led to the closure of the premises. This aspect of the Insurer’s argument turned on questions both as to the proper interpretation of the Policies and the facts as they apply to the Policies.

The Extension requires that the order or advice from the relevant Authority ‘follow’ the outbreak. The Insurer contends that in order for the Marriner Group to succeed, it must establish that the relevant order was issued ‘as a result of’ the outbreak.

The orders most proximate to 16 March 2020, which is the first date on which the theatre venues are relevantly alleged to have closed, was the 16 March Direction which comprises the state of emergency declaration issued 16 March 2020 and the directions issued by Victoria’s Chief Health Officer on 16 March 2020. The declaration as to the state of emergency was made by Victoria’s Minister for Health, pursuant to s 198(1) of the Public Health and Wellbeing Act 2008 (Vic) (‘Public Health Act’). By that declaration, the Minister declared a ‘state of emergency throughout the State of Victoria arising out of the serious risk to public health in Victoria from Novel Coronavirus 2019 (2019 nCoV)’. The declaration took effect immediately and operated for a period of four weeks from the date of the declaration.

The declaration of the state of emergency resulted in the Chief Health Officer being empowered to give directions pursuant to sub-ss 200(1)(b) and (d) of the Public Health Act, where the Chief Health Officer considered the directions reasonably necessary to protect public health. The 16 March Direction provided that ‘a person who owns, controls or operates premises in the State of Victoria must not allow a mass gathering to occur on the premises between noon on 16 March 2020 and midnight on 13 April 2020’.[37] For the purposes of the 16 March Direction a mass gathering was defined as ‘any gathering of five hundred (500) or more persons in a single undivided space at the same time, whether in an indoor or outdoor space but does not include a gathering…’ and proceeded to provide for certain specified exceptions in the definition which are not relevant for present purposes.
[37](Emphasis added).

As noted above, the state of emergency declaration issued by the Minister was for a period of four weeks, but was thereafter extended on a number of occasions covering the whole of the period relevant to this dispute.

In the press release issued by the Premier which accompanied the announcement of the state of emergency and the 16 March Direction, reference was made to a statement by the Premier and the Minister to the effect that the state of emergency would be in force for the next four weeks so as to assist with measures designed to ‘flatten the curve’ of COVID-19 and give our health system the best chance of managing the virus. The press release further explained that any person who did not comply with a directive could receive a fine of up to $20,000 and a fine of up to $100,000 for a body corporate that did not comply.

The Insurer argues that it is apparent from the text of the declaration as to the state of emergency and the text of the various directions that were made by the Chief Health Officer on 16 March 2020 and thereafter, that the reason behind the issuing of the declaration and various directions was to protect public health in the State generally. It argues that because the Directions had a State-wide operation and were issued for public health purposes, it cannot be said that the Directions were made ‘following’ an outbreak within 25 kilometres of the premises.

The Insurer submits that such a conclusion is consistent with that reached by Jagot J in LCA Marrickville, where her Honour concluded that the various insureds with minor exception failed to establish an entitlement to indemnity under the policy. Her Honour concluded that in order to succeed ‘the insured must prove that the order resulted from the specified circumstances’ set out in each policy.[38]
[38]LCA Marrickville (n 15) 530 [270].

Her Honour’s characterisation of the elements that the insured was required to establish was substantially upheld by the Full Court in the LCA Marrickville Appeal which stated:

Returning to the essential issue of whether the orders causing the closure or evacuation resulted from the specified circumstances, her Honour held … that the starting point in most cases must be the terms of the orders made and any accompanying contemporaneous explanatory material. After examining the several orders made pursuant to s 7 of the Public Health Act (NSW), none were capable of being seen as resulting from anything happening at or within a five kilometre radius of the insured Situation. Rather, they were all based on the Minister’s concern as to the public health risk that COVID-19 presented to the State of New South Wales as a whole…. To have concluded otherwise would have rendered the required causal connection between the orders and the five kilometre radius around the Situation to be meaningless. On a textual approach, the orders were not the result of an outbreak of a disease at or within five kilometres of the Situation or the discovery of an organism likely to result in an occurrence of the disease within that area. The circumstances within the radius were not a proximate or any other kind of cause of any of the orders. Further, proof that there were cases of COVID-19 within the five kilometre radius did not prove that the orders resulted from an outbreak or occurrence of that disease in that area. Although a different approach had been adopted in FCA v Arch and Hyper Trust (No 1)…, the insured peril in cl 9.1.2.1 was an order made consequent upon the fact of an outbreak or discovery of an organism, rather than the risk or threat of COVID-19. Further, on the evidence, there was nothing to suggest that the orders were in response to anything which had occurred within the five kilometre radius.[39]

[39]LCA Marrickville Appeal (n 10) 523 [297].

Relevantly, the policies considered by her Honour were not in the same terms as the Extension; her Honour’s conclusion that the insured must establish that the order ‘resulted from the specified circumstances’ (generally the location or area specific) occurred in the context of a description of the insured peril which for the most part expressly recognised that the order (for closure) be issued ‘as a result of’ an outbreak falling within that locale. The causal nexus between the outbreak and the order was simply a function of the wording of the policies considered in that case.

Recognising that it is inapt to apply reasoning from one case to another without careful analysis of the similarities or otherwise of the policies in question, acceptance of the Insurer’s argument equates the same meaning being given to the word ‘following’ as is to be given to the phrase ‘as a result of’.

It is far from clear why that would be so; the insured peril in the Extension is the composite peril of ‘closure of the whole or part of the premises by order of … a [relevant] Authority following an outbreak of a human infectious or contagious disease (that is notifiable) or bacterial infection at or occurring within 25 kilometres of the premises …’.

The composite perils considered by her Honour in LCA Marrickville were of a varying nature depending on the particular policy. The most apt comparison between the wording of the Extension and the words of the policies considered by her Honour is that contained in the policy issued by Swiss Re International SE to LCA Marrickville Pty Ltd (the ‘Swisse Re Policy’) which read ‘closure…of the whole or part of the Situation by order of a competent public authority as a result of an outbreak of a notifiable human infectious or contagious disease or bacterial infection … at the Situation…[or] occurring within a 5 kilometre radius of the Situation’.[40]
[40]LCA Marrickville (n 15) 514-515 [197].

This latter element was instrumental to the reasoning of the Full Court in LCA Marrickville Appeal which considered that it was necessary that the cessation or reduction of charges and expenses must be as a result of the interruption or interference resulting from the insured peril, which it was not, because the criteria for eligibility for JobKeeper payments were financial.

Having the benefit of the management accounts and Mr Meredith’s analysis, I prefer to determine the question on the basis of the first element. The wages were not reduced and did not cease. The premise of the making of JobKeeper Payments was to enable employers such as the Marriner Group to be able to pay wages and expenses of their employees. Because the wages and expenses were maintained (in fact, as Mr Meredith noted, increased), the ‘sum saved’ component has no application. The fact that the JobKeeper Payments constituted in effect a new revenue stream which could be utilised to pay these expenses is a different issue.

Accordingly, I reject the Insurer’s argument based on the ‘sum saved’ component.

Reliance on the Adjustments Clause requires separate consideration. As the Insurer rightly observed in argument, reliance upon an adjustments clause did not form part of the issues considered in LCA Marrickville.

The purpose of such clauses is identified in Riley on Business Interruption Insurance in the following way:

Without this clause the policy cannot be regarded as fulfilling the basic principle of an insurance that is to indemnify, because the turnover, charges and profits which would have been realised during a period of interruption are hypothetical and never capable of absolute proof. This clause allows for adjustments to be made to produce as near as is reasonably possible a true indemnity for an insured’s loss, albeit within a restricted period, i.e. the maximum indemnity period, subject to policy conditions, limits.[154]

[154]Damian Glynn and Toby Rogers, Riley on Business Interruption Insurance (Sweet & Maxwell, 11^th ed, 2021) 2.63.

The relevant adjustments contemplated by the clause are ‘trends’, ‘variation’ and ‘other circumstances’. These adjustments have been described in Honour and Hickmott’s Principles and Practice of Interruption Insurance in the following terms:

(a)”Trend” means the general tendency of the business in the expansion or contraction of trading or operating activity;

(b) ”Variations” embraces:
all developments, extensions, modifications, or alterations in the organisation, production or trading arrangements of the business, subject however to their being within the scope of the business and premises as insured by the policy … so as to approximate the results that might have been reasonably expected to have accrued from such factors as the projected or actual installation of new plant or equipment, the opening up of new agencies, the close down of unprofitable sections or departments, the introduction of new methods and processes and the like.

(c)”Special circumstances” means circumstances of a somewhat exceptional nature not generally occurring within or without the business.[155]

[155]Walter Basil Honour and Gordon James Russell Hickmott, Honour and Hickmott’s Principles and Practice of Interruption Insurance (Butterworths, 4^th ed, 1970) 293.

The Insurer’s reliance upon the Adjustments Clause did not condescend to identifying whether the JobKeeper Payments fell within the permissible adjustments to be made by the Adjustments Clause on the basis of ‘trends’, ‘variation’ or ‘special circumstances’ although presumably the Insurer relies on the ‘special circumstances’ limb.

Regardless of the limb and notwithstanding its wide scope, the adjustments do not permit deductions to be made at will. Thus, it is not permissible to calculate a loss of gross profit in accordance with the basis of settlement set out in the Policy but then to deduct at the end, the JobKeeper Payments of $9,106,400.

The Adjustments Clause only permits, by reason of ‘special circumstances’, adjustments to be made to the ‘Rate of Gross Profit’, ‘Annual Turnover’, ‘Standard Turnover’ and ‘Rate of Payroll’, each of which are defined terms (and, in any case for the ‘Rate of Payroll’, do not form part of the cover provided).

Unless therefore the JobKeeper Payments affected these items, they cannot be the subject of adjustment. Otherwise, the Adjustments Clause is used for the purpose of, in effect, amending the contract by changing its machinery provisions. Neither Mr Meredith nor the Insurer sought to identify how the JobKeeper Payments could be such as to result in an adjustment to the ‘Rate of Gross Profit’, or the ‘Annual Turnover’, or the ‘Standard Turnover’.

Accordingly, the Adjustments Clause has no application and cannot be used to deduct the JobKeeper Payments from the losses otherwise calculated in accordance with the basis of settlement.

There is another problem; the purpose of the Adjustments Clause is to facilitate an adjustment such as to enable the identification of the results which but for the damage, would have been obtained during a relative period after the damage. There is no reason to assume that the wages but for the damage, would have been anything other than of the same magnitude as those in the previous year. In broad terms, the actual wages in the loss year were similar to those in the previous year. The change was in the revenue which in the loss year included the ‘other income’ revenue line. The Adjustments Clause does not permit adjustment to such a revenue item, limited as it is to an adjustment to ‘Turnover’ (or relevant derivations thereof) which is defined as ‘[t]he money (less discounts, if any allowed) paid or payable to the Insured for goods sold and delivered and for services rendered in the course of the Business at the Premises’. The Insurer did not advance any submission to the effect that the JobKeeper Payments were paid to the Marriner Group for goods sold and delivered or for services rendered in the course of the business at the premises.

Accordingly, I do not accept that the JobKeeper Payments are to be taken into account in reduction of the losses sustained by the Group during the loss period.

This necessarily carries with it the same conclusion with respect to the Third Party Payments. Insofar as the Insurer relies upon the ‘rent relief’ for periods during the loss year, that too cannot be utilised for the purposes of giving rise to a reduction in the loss unless it falls within the ‘sum saved’ component. It is also not possible to determine on the basis of the documentary evidence (which is the sole source of relevant evidence) as to ‘rent relief’, whether the ‘rent relief’ constituted a deferral of the obligation to pay as opposed to relief in the form of a permanent reduction of the amount due.

Accordingly, I do not accept the Insurer’s submissions to the effect that the JobKeeper Payments or the Third Party Payments are to be taken into account in reduction of the loss otherwise recoverable by the Marriner Group.

It is convenient next to turn to the different approaches to the assessment of standard turnover and any ‘sum saved’.

Approaches to Turnover and Savings

Both experts sought to determine a standard turnover for the loss period and then deducted the actual turnover before applying a gross profit percentage. Both then deducted any savings calculated by reference to the expected expenses (or the counterfactual expenses) less the actual expenses.

The critical difference lay with their assessment of the standard turnover. Mr Meredith started with the annual turnover for the 12 month period ending 31 March 2019. He then made an adjustment by applying the Meredith Adjustment. Mr Meredith’s gross profit percentage was based upon the results derived from the Group’s management accounts for the 12 months ending 31 March 2019 and his approach to expected expenses was also derived from the management accounts over the same period. In the joint report, Mr Meredith’s loss assessment also incorporated a scenario where both the JobKeeper Payments and the Third Party Payments were deducted as well as a further scenario where neither was deducted.

In contrast, Mr Thompson’s starting point (and end point for the purposes of calculating standard turnover) was based upon the budgets that had apparently been prepared by the Group in advance of the loss period and which were provided to Mr Thompson. His gross profit percentage metric and expected expenses were once again based upon the budgeted figures.

Contrary to the Insurer’s submissions, I do not accept that Mr Thompson’s approach is per se inconsistent with the basis of settlement. The Adjustments Clause permits adjustments to the standard turnover so as to allow for ‘trends’ of the business and for ‘variations’ in or other circumstances affecting the business. In Riley on Business Interruption Insurance the authors observe[156] that a business which can demonstrate a consistent track record of budgeting can base its trend on the budget for the indemnity period and that a budget produced prior to the loss period is a historical record on which reliance can be placed. By a similar process of reasoning, it is permissible for the counterfactual costs to be based on budgeted costs.[157]
[156]Glynn and Rogers (n 154) 12.1.
[157]Ibid 12.11.

However, neither Ms Marriner nor any other witness gave evidence as to the methodology deployed in the formulation of the budgets so that the reasonableness of the assessments which informed the budgets could be interrogated. No witness sought to explain the manner in which the assumptions which underpin the budget constituted a variation or other circumstance which would have affected the business during the loss period had the damage not occurred. Whilst there is no absolute impediment to the use of budgets for the purposes of establishing an adjusted standard turnover, the absence of any explanation as to the methodology deployed or the assumptions upon which the budgeted estimates had been formulated, substantially undermines the appropriateness of the use of budgets for the purposes of determining the standard turnover and hence the weight which can be attributed to Mr Thompson’s evidence.

Whilst Mr Thompson sought to establish the reasonableness of the budgets by comparing the accuracy of the budgets which had been prepared for the previous two years against the actual results which had been achieved over those two years, I do not consider that such a check provides much comfort as to the appropriateness of the budget in the loss year (or years). A consistency in results between the prior year budgets and the actual results achieved in those years establishes that the budgets that were prepared for those two years are likely to have been prepared on the basis of reasonable assumptions. If the budgets during the loss years were prepared on the same assumptions and by the same methodology as those which occurred in the two previous years, then this would provide support for Mr Thompson’s approach. But there was no evidence of this. Moreover, Mr Thompson identified material variances between the budgeted income expenses and the actual income and expenses during the two years immediately prior to the loss period. Even after excluding intercompany service charges and ticketing fee income, there were variances of 11% with respect to the income for the Comedy Theatre, 8% with respect to the income for the Princess Theatre, minus 58% for Head Office and a significant variation between the actual expenses and budgeted expenses for each of the relevant departments considered by Mr Thompson, for the two year period the subject of his analysis.

This was recognised by Mr Thompson who sought to address such variation by applying the historical budget variance (as a percentage) during the period for March 2018 to February 2020, to the monthly budgeted income and expenses for each department during the relevant loss period.

Whilst this shows that Mr Thompson did not uncritically accept the information provided to him, it remains problematic again because the historical budget variance as a percentage over the previous two years does not necessarily correlate to the expected variance between the budgets and the actual figures in each month of the loss period. Even on an initial assessment of the loss calculated by Mr Thompson, in the very first loss month, there are anomalous outcomes which give rise to concerns about the appropriateness of using the budgets as the key component of the loss assessment. For example, on Mr Thompson’s assessment, the total loss of profits for the period from 16 March 2020 to 31 March 2020 is $2,286,996 whereas the total loss of profits for the following month of April 2020 is $2,689,431. Thus, the loss of profits for the initial 15 days in March 2020 in which the various Venues were closed amounts to 85% of the loss for the 30 days in the following month. Further, the total loss of profits in each month varies substantially notwithstanding that for the most part the extent of the restrictions during the period to December 2020 were not meaningfully different. The loss of profits calculated by Mr Thompson for the partial month of March 2020 to December 2020 on a monthly basis were as follows: $2,286,996 (March 2020), $2,689,431 (April 2020), $3,269,047 (May 2020), $2,205,297 (June 2020), $1,732,743 (July 2020), $2,199,953 (August 2020), $1,740,876 (September 2020), $1,777,385 (October 2020), $2,262,660 (November 2020), $1,514,084 (December 2020). In contrast, Mr Meredith’s loss assessments for each the Venues is generally of a consistent magnitude each month where the extent of the restrictions might be regarded as relevantly similar. Additionally, the loss assessment for the partial month of March 2020 is substantially less than the loss calculated for subsequent months where the restrictions prevented use of the premises for the whole of those months. This again points to the greater reliability of Mr Meredith’s assessment.

Subject to one important qualification, I prefer Mr Meredith’s approach. Mr Meredith’s approach is one which is consistent with the methodology set out in the Policies which commences with identification of the standard turnover, which is defined as ‘the Turnover during that period in the 12 months immediately before the date of the Damage which corresponds with the Indemnity Period’. Thus Mr Meredith started with the most appropriate proxy, which is the actual results derived from the management accounts for the period which ended on 29 February 2020.

As noted above, the Meredith Adjustment made to the turnover for the period 1 March 2019 to 29 February 2020 was such as to result in (expected) standard turnover during the loss period of 92% of the pre-loss period turnover for the Princess Theatre, 65% for the Plaza Ballroom, 53% for the Comedy Theatre and 52% for the Forum Theatre. I do not consider these adjustments are appropriate. I am not persuaded that the performance of the Venues in the period December 2021 to February 2022 is the performance that would have occurred during the loss period but for the insured event. As a result, I do not accept that the turnover that would have been achieved during the loss period in the counterfactual scenario was one where the turnover would only have been at the rate of 92% of the pre-loss sales for the Princess Theatre, 65% for the Plaza Ballroom, 53% for the Comedy Theatre and 52% for the Forum Theatre.

The Meredith Adjustment is unpersuasive and in some respects flawed. It is unpersuasive because it is based on too short a period (namely three months), which, as Mr Meredith conceded, was less than ideal. It is also unpersuasive because, as Mr Meredith also conceded, the performance of the venue during the proxy period could have been affected by the perceived attractiveness of the productions on show at the theatres during the proxy period. This is the most logical explanation for the performance at the Princess Theatre during the proxy period being at a level of 92% of the pre-COVID turnover, whereas the percentage turnover at the Comedy Theatre and Forum Theatre were only 53% and 52% respectively. Moreover, there may well be various explanations such as seasonality which could have explained the fact that the performance of the Plaza Ballroom in the proxy period was only 65% of the performance in the pre-COVID period. Factors such as seasonality can be smoothed out when a proxy period of 12 months is utilised but become problematic when such a short proxy period of three months is chosen.

The Meredith Adjustment is misconceived insofar as it seeks to equate the proxy period of December 2019 to February 2022 which is a post-COVID period with the counterfactual period. As Mr Meredith acknowledged, the proxy period was also a period where COVID-19 was active in the community albeit that the vaccination rate was high at that time.

As Mr Meredith’s instruction with respect to the identification of a counterfactual scenario rightly emphasised, an adjustments clause cannot be utilised for the purposes of requiring adjustment for causes of loss which would naturally be expected to occur concurrently with the existence of the risk of COVID-19 in Victoria.

There is a danger therefore in my view in using a proxy period where COVID-19 was occurring and present in the community as a basis for determining the counterfactual turnover as it runs the risk of taking account of a circumstance which would be expected to co-exist with the insured peril. Whilst it is true that the proxy period is one where there was a high vaccination rate, I do not accept that this fact alone means that the presence of COVID-19 can be disregarded.

Overall then, in my view the appropriate approach is to adopt Mr Meredith’s methodology insofar as it is based on his identification of the standard turnover by reference to the historical turnover, but to put to one side the Meredith Adjustment.

For similar reasons, I prefer Mr Meredith’s approach to the determination of the savings; his starting point is the actual expenses in the 12 month period prior to the loss period unlike Mr Thompson’s which is based on budgeted expenses. Likewise, Mr Meredith’s approach to the determination of the gross profit percentage was based on the previous year’s results not budgeted figures and is therefore to be preferred.

Acceptance of Mr Meredith’s approach but without the Meredith Adjustment requires a recalculation of Mr Meredith’s assessment so as to remove his reduction of turnover that would have been achieved in the counterfactual scenario as a percentage of the pre-COVID sales to 92% for the Princess Theatre, 65% for the Plaza Ballroom, 53% for the Comedy Theatre and 52% for the Forum Theatre. The appropriate standard turnover is that which occurred in the 12 months prior to the damage which equates to 100% of the sales that were achieved in the year prior to the damage for the Princess Theatre, Plaza Ballroom, Comedy Theatre and Forum Theatre. I accept Mr Meredith’s adjustment to the Regent Theatre sales and as such his calculation of loss with respect to that venue requires no adjustment. Mr Meredith agreed that this is a straightforward re-calculation. For reasons explained below and to the fairly limited extent necessary, I have done that re-calculation below.

Underinsurance

There was substantial agreement between the parties as to the application of the underinsurance clause set out in the Policy. No party submitted that underinsurance had any application with respect to the cover provided by the First Policy. However, both accepted that it was appropriate to effect a reduction of the amount potentially payable under the Second Policy.

The underinsurance clause provides:

Gross profit – average/ under-insurance amended (c)

The final paragraph of Item No 1 is amended to read:

Provided that if the estimated value of Gross Profit declared at the commencement of the Period of Insurance is less than eighty percent (80%) of the sum produced by applying the Rate of Gross Profit to the Annual Turnover (appropriately increased if the Indemnity Period exceeds twelve months) which would have been achieved if the Damage had occurred on the day of commencement of the Period of Insurance, the amount payable hereunder shall be proportionately reduced.

An example as to how the clause works is provided in section 3.2.13(b) of Mr Meredith’s report:

“Section 2 Consequential Loss (Gross Profit and Pay Roll) – 80% Average/Underinsurance clause

Gross Profit and Payroll Declared

$3,000,000

Loss of Gross Profit as a result of damage to your property

$500,000

Value of your Gross Profit at the commencement of the Period of insurance

$4,000,000

The Formula

Gross Profit/Payroll Declared x Claim Amount

80% Value of Gross Profit

= The amount payable by the Insurer

Claim Payment Calculation

$3,000,000 x $500,000

$3,200,000

= $468,750

Therefore $31,250 will be self-insured by you under Section 2”

The rationale for an underinsurance clause of the kind present is that it prevents an insured from obtaining cover for an inappropriately low premium calculated by reference to an unrealistically low estimate of gross profit. The effect of the proportionate reduction imposed by the application of the underinsurance clause is to make the insured effectively a self-insurer of part of the gross loss suffered.

The experts agreed that the adequacy of insurance in relation to the venues was 39% as to the Princess Theatre, 97% as to the Regent Theatre, Plaza Ballroom and the Box Restaurant, 41% as to the Comedy Theatre and 39% as to the Forum Theatre. If this approach is followed, then effective cover for the Princess Theatre is for 39% of the loss; for the Regent Theatre 97% of the loss; for the Comedy Theatre 41% of the loss and for the Forum Theatre 39% of the loss.

For my part, I have some concerns about the appropriateness of that construction of the Second Policy. Such an interpretation of the Second Policy effectively proceeds on the basis that the Group has not taken out gross profit cover of $19,820,614 for the benefit of the Group generally, but rather has taken out $5,705,630 in gross profit cover for the Princess Theatre, $9,089,183 of cover for the Regent Theatre, Plaza Ballroom and Box Restaurant, $2,047,341 of cover for the Comedy Theatre and $2,978,460 of cover for the Forum Theatre.

Characterising the cover in that way is equivalent to in effect the imposition of a locational sublimit on four of the Venues which I have rejected.

If the locational figures set out in the declaration of values do not limit the extent of the cover for loss sustained by the Group arising from events that occur at a particular venue, then it is difficult to see why the question of underinsurance should proceed on the basis that it were.

In the circumstances here however nothing turns on the approach followed.

What is the recoverable loss ?

Having regard to the reasoning set out above, the assessment of the Marriner Group’s recoverable loss should proceed by reference to Mr Meredith’s methodology, after allowing for underinsurance, not allowing for the Meredith Adjustment and without the JobKeeper Payments or Third Party Payments being deducted from the loss.

The loss occurring during the period of the First Policy is not affected by the JobKeeper Payments nor underinsurance.

The only adjustment that needs to be made to Mr Meredith’s calculation for the loss suffered during the period of the First Policy is to remove the effect of the Meredith Adjustment.

The starting point is Mr Meredith’s loss assessment for the period 16 March 2020 to 31 March 2020:[158]
[158]See above [388].

(a) Princess Theatre - $187,896;

(b) Comedy Theatre - ($37,599);

(c) Regent Theatre - $148,427;

(d) Plaza Ballroom - $38,565;

(e) Box Restaurant $4,559; and

(f) Forum Theatre $88,478.

The Box Restaurant can be put to one side; its losses are a product of loss of rental which is not insured.

The Regent Theatre losses require no adjustment as the Meredith Adjustment did not impact on Mr Meredith’s calculation of loss at that venue.

The loss assessment for the Princess Theatre, the Comedy Theatre, the Plaza Ballroom and the Forum Theatre all require reassessment so as to remove the effect of the Meredith Adjustment. Removing the effect of the Meredith Adjustment results in an increase in the loss for each venue by the amount of the Meredith Adjustment multiplied by the relevant gross profit for that venue. The actual turnover and the savings identified by Mr Meredith do not alter.

For the Princess Theatre, the Meredith Adjustment was $19,525 (Food and Beverage ‘F&B’)) and $38,082 (Non F&B). The rate of gross profit percentage is 77% for F&B and 100% for Non F&B. The increase in loss is $15,034 for F&B and $38,082 for Non F&B. When these amounts are added to Mr Meredith’s initial loss assessment, the total loss is $241,012.

For the Comedy Theatre, the Meredith Adjustment was $22,365 (F&B) and $92,605 (Non F&B). The rate of gross profit percentage is 72% for F&B and 100% for Non F&B. The increase in loss is $16,103 for F&B and $92,605 for Non F&B. When these amounts are added to Mr Meredith’s initial loss assessment, the total loss is $71,109.

There is no adjustment required for the Regent Theatre. The loss is $148,427.

For the Plaza Ballroom the Meredith Adjustment was $89,022.[159] The rate of gross profit percentage is 85%. The increase in loss is $75,669. When this amount is added to Mr Meredith’s initial loss assessment, the total loss is $114,234.
[159]The turnover does not differentiate between F&B and Non F&B.

For the Forum Theatre, the Meredith Adjustment was $119,468 (F&B) and $60,755 (Non F&B). The rate of gross profit percentage is 77% for F&B and 100% for Non F&B. The increase in loss is $91,990 for F&B and $60,755 for Non F&B. When these amounts are added to Mr Meredith’s initial loss settlement, the total loss is $241,223.

The total loss therefore for the period of the First Policy totals $816,005 and comprises the following:

(a) Princess Theatre - $241,012;

(b) Comedy Theatre - $71,109;

(c) Regent Theatre - $148,427;

(d) Plaza Ballroom - $114,234; and

(e) Forum Theatre - $241,223.

The loss for the period the subject of the Second Policy is affected by both the Meredith Adjustment, adjustments for underinsurance and Mr Meredith’s deduction of the JobKeeper Payments from the actual expenses during the loss year, the effect of which was to reduce the losses.

Helpfully, in ‘Table SF3.4’ to the joint report, Mr Meredith has set out his assessment on bases which provide for the application of the underinsurance clause, extends it to a separate identification of the loss suffered during the period to 31 March 2021 and caters for the contingency where the loss is not reduced by the JobKeeper Payments or Third Party Payments.

On the basis of application of the underinsurance clause in the manner set out above agreed to by Mr Thompson, and without reducing the losses by the JobKeeper Payments, Mr Meredith’s assessment of the loss per venue for the period to 31 March 2021 is as follows:

(a) Princess Theatre $2,982,371;

(b) Regent Theatre - $4,103,131;

(c) Plaza Ballroom - $1,526,584;

(d) Box Restaurant - $180,477;

(e) Comedy Theatre - $479,647; and

(f) Forum Theatre - $1,088,927.

These assessments of loss do not exclude loss in the period from 16 March 2020 to 31 March 2020 and are therefore overstated by Mr Meredith’s assessment of the loss for that period which are set out above.[160]
[160]See above [510].

These assessed losses incorporate the Meredith Adjustment and will increase if the Meredith Adjustment is removed.

Aside from the Box Restaurant, which is not subject to insurance and can be ignored, the losses at each of the Venues well exceeds the Infectious Disease Sublimit of $500,000 even before they are re-assessed to remove the effect of the Meredith Adjustment. The only one which does not is the Comedy Theatre. As noted above, the effect of the Meredith Adjustment was to adjust the turnover at the Comedy Theatre for the purposes of determining the loss by taking account of only 53% of the turnover in the 12 months prior to the loss period. The loss for the Comedy Theatre will substantially exceed the Infectious Diseases sublimit of $500,000, if the Meredith Adjustment is put to one side, as it must be.

It therefore follows that the recoverable loss for the period of the First Policy is $816,005, whilst the loss for the period of the Second Policy is the lower of the Infectious Disease Sublimit of $500,000 at each of the four venues or the recoverable loss at each of those four venues. As the lesser of those alternatives is the sublimit of $500,000, the recoverable loss for the period of the Second Policy is $500,000 per venue which totals $2 million.

Conclusion

In conclusion:

(a) the Extension contained in the First Certificate and Second Certificate applies to the claims made in the proceeding;

(b) the First Policy and Second Policy should not be rectified such as to replace the reference to the Quarantine Act with the Biosecurity Act;

(c) the Infectious Disease Sublimit of $500,000 set out in the First Certificate and Second Certificate applies with the sublimit applying to each of the four venues with a new sublimit in each period of insurance;

(d) there is no ‘location of risk’ sublimit;

(e) whilst the insured losses do not include ‘rent receivable’, the ‘rent receivable’ sublimit has application only to the rent receivable with respect to the operation of the Box Restaurant and does not prevent the Group from recovering the theatre hire payments;

(f) the insurable loss should not be reduced by the JobKeeper Payments or the Third Party Payments;

(g) the appropriate methodology for the calculation of loss is otherwise to the effect set out by Mr Meredith save that that it should not take account of the Meredith Adjustment; and

(h) the indemnifiable loss is $816,005 for the period of insurance for the First Policy and $2,000,000 for the period of insurance for the Second Policy (subject to payment of any excess).

I shall hear the parties as to the appropriate amount in respect of which judgment should be entered including as to what interest if any should be ordered and on what basis, together with any submissions in relation to costs.

SCHEDULE OF PARTIES

PRINCESS THEATRE PTY LTD (ACN 007 307 851)

(ATF PRINCESS THEATRE DISCRETIONARY TRUST)

First plaintiff/

First defendant by counterclaim

PRINCESS THEATRE HOLDINGS PTY LTD (ACN 004 246 235)

Second plaintiff/

Second defendant by counterclaim

REGENT THEATRE HOLDINGS PTY LTD (ACN 075 992 979)

(ATF MARRINER (REGENT THEATRE) TRUST)

Third plaintiff/

Third defendant by counterclaim

THE COMEDY THEATRE PTY LTD (ACN 072 587 878)

(AFT THE COMEDY THEATRE TRUST)

Fourth plaintiff/

Fourth defendant by counterclaim

FORUM THEATRE INVESTMENTS PTY LTD (ACN 150 951 465)

(ATF FORUM THEATRE INVESTMENTS)

Fifth plaintiff/

Fifth defendant by counterclaim

ANSVAR INSURANCE LIMITED (ACN 007 216 506)

Defendant/Plaintiff by counterclaim

Premium	F/ES Levy	GST	S/Duty	TOTALS
ISR (Material Damage)	$41,306.45	$0.00	$4,130.64	$4,543.70	$49,980.79
ISR (Consequential Loss)	$4,633.88	$0.00	$463.37	$509.73	$5,606.98
TOTALS	$45,940.33	$0.00	$4,594.01	$5,053.43	$55,587.77

Gross Profit and Payroll Declared	$3,000,000
Loss of Gross Profit as a result of damage to your property	$500,000
Value of your Gross Profit at the commencement of the Period of insurance	$4,000,000

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25 June 2024