The Owners - Strata Plan No 55682 v W. R. Berkley Insurance (Europe), Plc

[2020] NSWDC 758

District Court

New South Wales

• Amendment notes

Medium Neutral Citation:

The Owners – Strata Plan No 55682 v W. R. Berkley Insurance (Europe), PLC & Ors [2020] NSWDC 758

Hearing dates:

30 November-4 December 2020; 7-10 December 2020

Date of orders:

17 December 2020

Decision date:

17 December 2020

Jurisdiction:

Civil

Before:

Abadee DCJ

Decision:

See paragraphs 448-449

Catchwords:

INSURANCE – strata insurance policy for damage to property – property damaged by fire – occupation of a unit within the strata by an “outlaw motorcycle gang” (‘OMCG’) for use as its clubhouse – proposal form for insurance referred to nature of occupation of the unit as an 'office' – whether fact of occupation by OCMG disclosed by Insured, by its insurance broker, to underwriting agent for Insurer prior to the policy being entered into – materiality of non-disclosure of occupation by OMCG – whether Insurer entitled to reduce liability to nil under Insurance Contracts Act 1984 (Cth), s 21(3)

TORTS – negligence – whether insurance broker negligently failed to disclose fact of OMCG's occupation to Insurer’s underwriting agent – whether negligent failure to advise Insured of the risk of an unenforceable policy of insurance if OMCG's occupation not disclosed – whether broker’s negligent failure to advise client of alternative options – causation – scope of liability where only part of the loss claimed premised upon Insurer’s breach of contract of indemnity – proportionate liability defence – whether author of earlier proposal form and earlier broker were 'concurrent wrongdoers'

TORTS – negligence – on contingent cross-claim whether insurance agent in breach of duty of care – whether negligence is said to be direct or vicarious

DAMAGES – assessment of value of indemnity if insurer liable for breach of policy

LIMITATION OF ACTIONS – Insurer's contingent cross-claim against underwriting agent – premise that OMCG's occupation was disclosed contrary to underwriter's representation to Insurer – concession that if OMCG's occupation was disclosed on the insured's behalf, there was breach by underwriter of strict contractual obligation – whether cause of action against underwriter in contract statute barred – whether cause of action fraudulently concealed – Limitation Act 1969 (NSW), s 55 – whether ordinary operation of s 14 may exclude period in which wrongful conduct prevents action being commenced

ESTOPPEL – conventional estoppel

EVIDENCE – common knowledge – whether occupation by OMCG of a tenancy was material fact requiring disclosure to Insurer

PRACTICE AND PROCEDURE – Brokers and Insured argue that duty of disclosure waived or modified by disclosure of information – no pleading of the contention – Insurer and Agent argue Owners Corporation had no standing to claim for financial loss asserted by lot owners – no pleading of absence of standing – whether arguments should be considered by the Court

Legislation Cited:

Civil Liability Act 2002 (NSW), ss 5B, 5C, 5D, 5E, 34

Civil Procedure Act2005 (NSW)

Corporations Act2001 (Cth), s 917F(2), Part 2D.1, Part 7.6

Crimes (Criminal Organisations Control) Act2012 (NSW)

Crimes (Criminal Organisations Control) Bill 2009 (NSW)

District Court Act 1973 (NSW), s 134

Evidence Act 1995 (NSW), ss 140, 144

Insurance Act1973 (Cth), s 17G

Insurance Contracts Act1984 (Cth), ss 21, 28, 52, 57

Limitation Act1969 (NSW), ss 14, 55

Privacy Act 1988 (Cth), s 66

Strata Schemes Management Act 1996 (NSW), ss 82, 83, 245

Uniform Civil Procedure Rules 2005 (NSW), r 14.14

Cases Cited:

Anthony v Morton [2018] NSWSC 1884

Apollo Shower Screens Pty Ltd v Building and Construction Industry Long Service Payments Corp (1985) 1 NSWLR 561

Argyropoulos v Layton & Anor [2002] NSWCA 183

ASIC v Cassimatis (No 8) (2016) 336 ALR 209

Breen v Williams (1996) 186 CLR 71

Brescia Furniture Pty Ltd v QBE Insurance (Australia) Ltd [2007] NSWSC 598

Cassimatis v ASIC (2020) 376 ALR 261

CGU Insurance Ltd v Porthouse (2008) 235 CLR 103

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

Commercial Union Assurance Co of Australia Ltd v Beard (1999) 47 NSWLR 735

Commonwealth Bank of Australia v Kojic (2016) 249 FCR 421; [2016] FCAFC 186

Commonwealth v Cornwell (2007) 229 CLR 519

Coote v Kelly; Northam v Kelly [2016] NSWSC 1447

Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2) [2020] FCA 588

Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317

Faraday v Rappaport [2007] NSWSC 34

GC NSW Pty Ltd v Galati [2020] NSWCA 326

Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm)

Globe Church Incorporated v Allianz Australia Insurance Ltd (2019) 99 NSWLR 470

Gold Ribbon (Accountants) Pty Ltd (in liq) v Sheers & Ors [2006] QCA 335

Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641

Hadley v Baxendale (1854) 156 ER 145

Hawkins v Clayton (1988) 164 CLR 539

Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613

Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets (2008) 73 NSWLR 653

Ketteman v Hansel Properties [1987] 1 AC 189

Leggo v Brown & Dureau Ltd (1923) 32 CLR 95

Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 40 NSWLR 543

March v Stramare (E & M.H.) Pty Ltd (1991) 171 CLR 506

Monaghan Surveyors Pty Ltd v Stratford Glen-Avon Pty Ltd [2012] NSWCA 94

Moratic Pty Ltd v Gordon [2007] NSWSC 5

Onassis Calogeropoulos v Vergottis [1968] 2 Lloyd's Rep 403

Pell v The Queen (2020) 94 ALJR 394; [2020] HCA 12

Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd (in liq) (2003) 214 CLR 514

Richtoll Pty Ltd v WW Lawyers Pty Ltd (in liq) [2016] NSWCA 308

Sanderson Motors Pty Ltd v Lindsay Bennelong Developments Pty Ltd [2014] NSWSC 846

Saul & Anor v Menon [1980] 2 NSWLR 314

Seymour v Seymour (1996) 40 NSWLR 358

State of New South Wales v Harlum [2007] NSWCA 120

Stealth Enterprises Pty Limited trading as The Gentleman's Club v Calliden Insurance Limited [2015] NSWSC 1270

Stealth Enterprises Pty Ltd t/as The Gentlemen’s Club v Calliden Insurance Ltd (2017) 19 ANZ Insurance Cases 62-131

Sybil Dawne Hintze v Ratna Tsering& Anor [2018] NSWSC 1190

Sydney Water Corporation v Turano (2009) 239 CLR 51

Tame v New South Wales (2002) 211 CLR 317

Textralian Enterprises Pty Ltd v Perpetual Trustees Victoria Ltd [2000] NSWCA 176

The Nominal Defendant v Cordin (2017) 79 MVR 210

The Owners – Strata Plan 85044 v Murrell; Murrell vThe Owners – Strata Plan 85044 [2020] NSWSC 20

Trajkovski v Simpson [2019] NSWCA 52

Walmsley v Cosentino [2001] NSWCA 403

Wardman v Hatfield [2003] NSWCA 283

Watson v Foxman (1995) 49 NSWLR 315

Williams v Natural Life Health Foods Ltd [1998] 2 All ER 577

Texts Cited:

J D Heydon, Cross on Evidence (electronic version, LexisNexis)

J D Heydon, M J Leeming and P G Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (5th ed, LexisNexis Butterworths)

Category:

Principal judgment

Parties:

The Owners – Strata Plan No 55682 (Plaintiff)
W. R. Berkley Insurance (Europe), PLC (First Defendant/First Cross-Claimant)
Berkley Insurance Company (Second Cross-Claimant)
HHIA Pty Ltd (Second Defendant)
Mr D Hynes (Third Defendant)
Ms L Honeychurch (Fourth Defendant)
Westcourt General Insurance Broker Pty Ltd trading as Westcourt General Insurance Broker Pty Ltd ACN 009401772 as trustee for the WGIB Trust (Fifth Defendant)
QUS PTY LTD (Cross-Defendant)

Representation:

Counsel:
Mr C Simpson for the plaintiff
Mr M Friedgut for the first defendant/first cross-claimant and the second cross-claimant
Mr J Sleight for the second to the fifth defendants
Mr M Newton for the cross-defendant

Solicitors:
Baker Mannering & Hart for the plaintiff
McInnes Wilson Lawyers for the first defendant/cross-claimant
HBA Legal for the second to fifth defendants
Gilchrist Connell for the cross-defendant

File Number(s):

2019/100722

Publication restriction:

Nil

INTRODUCTION

The claims against each of the defendants

The defences

The Insurer’s cross-claim against the Agent

Issues

THE INSURED’S CLAIM AGAINST THE INSURER

Basal Facts

Lay evidence

Plaintiff’s evidence of the individual lot owners

Ms Maree Warne

Mr Darrin Field

Mr Anthony (‘Tony’) Walter Triff

Mr Leon King

WAS THE NMC OCCUPANCY DISCLOSED BY MR HYNES TO MS HOLMES?

The Insurer’s affidavit evidence

Mr Hodgson’s evidence

Mr Cecil’s evidence

Mr Garling’s evidence

Ms Holmes’ evidence

The brokers’ affidavit evidence

Discovering the NMC Occupancy

Unsuccessful attempt to place cover with Axis

Conversations with Ms Holmes in April 2013

First affidavit

Second affidavit

Third affidavit

Mr Hynes’ conduct after the fire

Handwriting expert opinion

The Agent’s evidence

Correspondence before the fire

Coverage for 2011-12 year

Coverage for 2012-13 year

Coverage for 2013-14

Mr Hynes’ conversations with Ms Holmes on 9 April 2013

Correspondence after the fire

Parties’ submissions

The Insured’s submissions

The Brokers’ submissions

The Insurer’s submissions

The Agent’s submissions

Consideration

Onus of proof

Credit

Tania Holmes

David Hynes

Approach to fact-finding

Findings

Context

Contemporary documentary evidence after the call

Correspondence after the declinature letter

Mr Hynes’ multiple accounts

DID THE INSURED’S DUTY OF DISCLOSURE REQUIRE DISCLOSURE OF THE NMC OCCUPANCY AND USE OF THE UNIT AS ITS CLUBHOUSE?

Parties’ submissions

The Insured’s submissions

The Brokers’ submissions

The Insurer submissions

The Agent’s submissions

Consideration

WOULD THE INSURER HAVE BEEN ENTITLED TO AVOID THE POLICY

Consequences of findings

DAMAGES

Costs of rebuilding and repair of the building

Parties’ submissions

The Agent’s submissions

The Insured’s submissions

Consideration

Claim for loss of rent (and consequential loss) suffered by lot owners

The pleading

Terms of the policy

Evidence of lot owners

Submissions in relation to lot owners’ claims for lost rent

Plaintiff’s submissions

Insurer’s submissions

Consideration

Consequential loss for lot owners

Consideration

Interest

THE INSURED’S CLAIM AGAINST THE BROKERS

Evidence on liability of brokers in relation to non-disclosure

Duty of care and breach

Duty

Ms Honeychurch’s position

Preliminary issue – content of the duty of disclosure

Breach of duty

The alleged reasonable practice

Parties’ submissions

The Brokers’ submissions

The Insured’s submissions

Breach by the insured of a condition in the policy

Causation & Damages

Factual causation

Quantum

Parties’ submissions

Consideration

Limitation Period

Proportionate liability

The Broker’s pleading

Parties’ submissions

The Brokers’ submissions

The plaintiff’s submissions

Consideration

Mr Cooper

The former brokers

Responsibility of the AFS Licensee

THE INSURER’S CROSS-CLAIM AGAINST ITS AGENT

Evidence

Ms Stenning’s evidence

Legal basis for bringing the cross-claim

Liability issues

Breach of the Agency Agreement

Breach of duty of care

The Agent’s submissions

The Insurer’s submissions

The Agent’s submissions in reply

Consideration

Breach of fiduciary duty

Limitation defence

The Agent’s submissions

The Insurer’s submissions

Consideration

The Insurer’s reliance upon s 55 and conventional estoppel

The Insurer’s argument

The Agent’s submissions

Consideration

Deane J’s observations in Hawkins v Clayton

Parties’ submissions

Consideration

SUMMARY

ORDERS

Judgment

INTRODUCTION

1. On 3 February 2014, a fire broke out in a 4-unit apartment block in Byron Bay (the ‘Property’). The Property was the subject of a strata scheme managed by the plaintiff (the ‘Insured’). The Insured was insured under a policy of commercial strata insurance to cover the period 14 April 2013 to 14 April 2014 with the first defendant (the ‘Insurer’). After the fire, the Insured made a claim for indemnity on the policy. On 14 February 2014, the Insurer declined indemnity and justified doing so on the basis that the Insured did not comply with its statutory [1] duty of disclosure of informing the cross-defendant (QUS Pty Ltd), its underwriting agent (the ‘Agent’) that one of the units in the block was occupied by the Nomads Motorcycle Club (the ‘NMC’) and used by that club (or, more precisely, the North Coast Chapter of the club) as its clubhouse.

   1. Insurance Contracts Act 1984 (Cth) (the ‘IC Act’), s 21(1).

The claims against each of the defendants

2. By its Statement of Claim filed on 1 April 2019, the Insured sues the Insurer under the contract of insurance for its costs of rebuilding the property, and consequential costs of delay in rebuilding, such as rent paid on other premises. It contends that it had no obligation to disclose the circumstance that Unit 2 of the property was occupied by the NMC but even if it did, (a) the non-disclosure did not entitle the Insurer to deny indemnity and (b) on or about 9 April 2013, Mr David Hynes, the third defendant, had disclosed to Ms Tania Holmes, an employed underwriter of the Agent, the NMC’s occupancy.

3. By its alternative claim, in the event that its claim against the Insurer fails, the Insured sues HHIA Pty Ltd (‘HHIA’), the second defendant, and its directors, Mr Hynes and Ms Lindy Honeychurch (hereafter ‘the Brokers’), its brokers in professional negligence, in substance, for failing to effect an enforceable insurance policy and, in particular, for its failure to notify the Insured of the requirement for disclosure of the NMC occupancy and disclose other matters that might have meant that insurance cover might have been obtained on several alternative bases. The Insured claims the same loss as against the Brokers as it does against the Insurer, on the bases that it did not obtain a policy covering that loss, with the Insurer, or some other insurer. The Brokers were also ‘authorised representatives’ of the fifth defendant, a financial services licensee (the ‘AFS Licensee’). By operation of the provisions of Part 7.6 of Chapter 7 of the Corporations Act2001 (Cth), the AFS Licensee is jointly and severally liable for the remedies that the Insured might have personally had against the authorised representatives. There is no substantive difference in the position of the Brokers and the AFS Licensee so, hereafter, unless indicated otherwise, the reader should assume that the position of the AFS Licensee is no different to that of the Brokers.

The defences

4. The Insurer’s position is that the Insured breached its statutory duty of disclosure, by failing to disclose that Unit 2 was occupied by the NMC and used by it as its clubhouse and justified its avoidance of the policy on that basis. It denies that any such disclosure was made on or about 9 April 2013.

5. The Brokers were jointly represented. The Brokers admitted that they knew of the NMC’s occupancy as at 2 April 2012 but they deny any responsibility. The Brokers denied that they failed to disclose the NMC occupancy to the Insurer at any material time. They contended further that the Insurer already knew of the NMC occupancy by 11 April 2013. Further, they pleaded in their Defence that any breach of duty by any of them caused no loss to the Insured. This was because: (a) no insurer would have provided cover in the known circumstances of the NMC occupancy; (b) the Insured was in breach of other conditions in the policy with the Insurer so that the policy would not have responded to the claim in any event. For the latter, one of the owners in the units was conducting building works in his unit in breach of the Insured’s policy. The Brokers all claimed the benefit of proportionate liability under Part 4 of the Civil Liability Act 2002 (NSW) (the ‘CL Act’). They nominated the Insurer and the Agent as ‘concurrent wrongdoers’, as well as other individuals. Further, the Brokers pleaded that the claims against them are statute-barred. Separately, the Brokers contended that even if there was non-disclosure and they were in breach, their liability would not extend to damages for delay because of the Insurer’s failure to pay out.

The Insurer’s cross-claim against the Agent

6. To meet the contingency that the Court accepted that the Insured had, through the Brokers, disclosed to the Agent the NMC occupancy by 9 April 2013, the Insurer filed a cross-claim against the Agent on 27 August 2020. On that premise, the Insurer asserted that the Agent should have referred to it the risks associated with the NMC occupying the premises and not bind the Insurer if it was aware of that circumstance. It asserted that the Agent breached of their Agency Agreement, committed a breach of fiduciary duty, and that its conduct was negligent. It contended that if had received such disclosure, it would not have underwritten the policy.

7. The Agent denied that the Insured, through the conduct of the Brokers, disclosed the fact of the NMC occupancy by 9 April 2013. That being so, although it admitted that it bound the Insurer, it says it was ignorant of the NMC occupancy up to the time of the fire. That being so, it contended that it was not in breach of any of its obligations as the Insurer’s agent under the Agency Agreement, or of any fiduciary duty or breached its duty of care. It also contended that the Insurer’s claims against it were statute-barred.

Issues

8. The parties agree that the critical question is whether the NMC’s occupancy of Unit 2 was disclosed to the Agent, and therefore the Insurer. If it was, the Insured’s case against the Insurer should succeed on the question of breach. The Insurer would then have rights against the Agent for binding it to a policy with the Insured which went beyond the Insurer’s underwriting requirement that only tenants with acceptable occupations be permitted to occupy (motor cycle clubs not falling within the listed category).

9. If the NMC occupancy was not disclosed, it would have several consequences. First, for it to establish liability in the Insurer, the question would arise whether there was a statutory requirement for disclosure of the NMC’s occupancy and, if so, whether the Insurer was entitled to reduce its liability to zero (under s 28(3) of the IC Act). Secondly, if the claim against the Insurer failed, then the Insured’s claim against the Broker, the authorised representatives and the AFS Licensee would come into play.

10. The paramount factual issue turns on what was said on 9 April 2013 when Mr Hynes, the third defendant, spoke for a second time by telephone to Ms Tania Holmes, who, at the time, was a development underwriter of the Agent. Both the Insured and the Brokers say that the effect of that conversation was disclosure to the Agent, and therefore the Insurer, that the NMC was in occupation of Unit 2. The Insurer and the Agent replied that although the subject matter of the conversation was in relation to a reduction in the premium for insurance coverage that had been quoted, the conversation did not rise to the level of disclosure about the occupancy of Unit 2, and certainly not the disclosure of the NMC as the tenant of that unit.

11. On the question of damages, the Agent questioned whether that, at the level of principle, the Insured would be entitled to the costs of rebuilding: further, quantum is not agreed. I indicated, from the outset, that if there was a real contest on quantum, that I would be inclined to refer the quantum of the costs of rebuilding to a referee.

12. A principal issue on damages is whether the Insured is entitled to the rent that was lost by the individual lot owners that extended beyond the recovery of lost rent obtained as a result of a promise in the insurance policy. The Insured contends that this would fall within one or both of the limbs of the rule in Hadley v Baxendale (1854) 156 ER 145 in its claim against the Insurer for breach of contract. The Insurer (and the Agent) disputed the entitlement in principle, and say that to the extent that rent was recoverable at all, the Insured had no standing to seek it since it was limited in its coverage of rights to individual lot owners. They said that if it did arise, it could rise no higher than a capped sum of $75,000 under the policy.

THE INSURED’S CLAIM AGAINST THE INSURER

Basal Facts

13. A proposal for building insurance for the strata dated 11 March 2011 described Unit, or lot 2, as “an office”. This policy was underwritten by (Queensland) Calliden Insurance Ltd (‘Calliden’) through the brokering of King Insurance Agents. Mr Ian Cooper, the brother to Ms Warne and co-owner of lot 4, and former owner of lot 1, authorised the form.

13. On 2 April 2012, Mr Anthony O’Neill, who at that time was the strata manager for the Insured, contacted the third defendant, Mr Hynes, director and co-owner of HHIA about obtaining insurance cover. Mr O’Neill advised Mr Hynes of the identity of the tenants of the building, including the occupancy of the NMC. According to his affidavit, around about this time, Mr Hynes visited the premises and had a conversation with Mr Triff, one of the lot owners to the apartment block. There was a discussion of the NMC occupancy. Mr Hynes’ evidence about meeting Mr Triff on this occasion is disputed.

14. On 9 April 2012, the Insured signed a letter appointing HHIA for the purpose of obtaining insurance cover for the property. Ms Honeychurch emailed a copy of that letter of appointment to the Agent the next day.

15. On 10 April 2012, the Brokers arranged a policy of insurance, on the Insured’s behalf, through the Agent, with Calliden for the period 14 April 2012 to 14 April 2013. Calliden apparently provided insurance on the basis of information provided in the Insured’s 11 March 2011 proposal. It appears, though, that by 2013, Calliden was no longer accepting such insurance.

16. On 19 March 2013, Ms Stephanie Harvey, an employee of the Agent, sent an email to Ms Honeychurch, in which she noted the Insured’s policy was due to expire on 14 April 2013; advised of a change of underwriter (from Calliden to the Insurer); and offered to arrange a new policy underwritten by the Insurer and enclosed a quote.

17. On 9 April 2013, the third defendant, Mr David Hynes, the other director and co-owner of HHIA, rang Ms Tania Holmes of the Agent, and asked her for terms of renewal of the policy. Ms Holmes sent an email at 12:13pm, attaching a quote previously forwarded by Ms Harvey.

18. At about 12:20pm on the same day, Mr Hynes rang Ms Holmes again and queried the premium in the quote. He sought a reduction in the premium. This part of the conversation is agreed. The balance of what was said during the call is hotly in dispute.

19. On 10 April 2013, Mr Hynes rang Ms Holmes again, seeking a response to his request for a reduced premium.

20. On 11 April 2013, Ms Holmes, purportedly on behalf of the Insurer, sent revised renewal terms, including, relevantly, a reduced premium.

21. On 12 April 2013, the Brokers completed arranging a policy of insurance on the Insured’s behalf with the Agent.

22. On 19 April 2013, Ms Brook Trow, of the Agent, sent a certificate of currency to Mr Hynes.

23. On 3 February 2014, the fire broke out on the property. Not long thereafter, the Insured made a claim on the policy.

24. On 14 February 2014, the Insurer declined indemnity under the policy and declared its avoidance of the policy. Mr Mylton Burns, a Principal of McInnes Wilson Lawyers, solicitor for the Insurer, explained that the reasons for declinature were that Unit 2 was occupied by the NMC and used by it as its clubhouse. The Insurer had had an established history of declining policies for properties occupied by motorcycle clubs on the basis such occupants were considered ‘high hazard tenants’. The NMC’s occupancy and use of Unit 2 for its clubhouse was not a matter notified to the Insurer prior to the fire. The letter referred to the Insured’s statutory duty of disclosure (s 21 of the IC Act) and s 28 of the IC Act which, it was asserted, reduced the Insurer’s liability to nil, given that it would not have underwritten the policy but for the non-disclosure.

25. On 4 September 2014, the Coroner’s Court issued a notice dispensing with holding a fire inquiry and noting that the cause of the fire was not determined, but there were no suspicious circumstances.

Lay evidence

Plaintiff’s evidence of the individual lot owners

Ms Maree Warne

27. Ms Maree Warne is the sister of Mr Ian Cooper, the original owner of the land on which the Property sits. In 1995, she and her husband bought a half share interest in the land. She and her husband originally bought, and later sold, lots 2 and 3, but kept lot 4. Lot 3 was sold to Mr Tony O’Neill in 2001. Lot 2 was sold to Mr Darrin Field in 2008. She deposed in her affidavit that it became known to them that Mr Field was a member of the NMC, although she indicated that she and her husband had a workable relationship with him. Mr Field had collected funds for insurance and other common strata expenses.

28. She deposed that if she had been informed that the Insured could not obtain insurance because of the NMC’s occupancy, she would have spoken to Mr Field and asked him for the NMC not to use his unit. The Brokers’ Counsel took no objection to this evidence and it was not challenged.

29. Under cross-examination, Ms Warne accepted that from about June 2008, when Mr Field purchased lot 2, she was aware that the unit was being used by the NMC. This knowledge was based upon what Mr Cooper had told her. She might have visited the unit, but could not recall when.

30. It was suggested that she had informed Ms Honeychurch, in response to the latter’s request for information as to insurance provided prior to 2011, that her brother would not be assisting and that she had justified this on the basis of his brother indicating that if it was not for him, there would not have been any insurance in the first place. Ms Warne accepted that she had said this, in effect, to Ms Honeychurch. She also accepted that the reason was Mr Cooper’s response to a question in a proposal form (March 2011) describing Unit 2 as ‘an office’. She acknowledged that this was written.

31. Counsel for the Agent suggested to Ms Warne that Mr Cooper had also led her to understand that the NMC’s occupancy in Unit 2 meant that it was difficult for her (and the other lot owners) to arrange insurance. She did not accept that any difficulty in obtaining insurance would have had anything to do with Unit 2.

32. No suggestion was made otherwise than that Ms Warne was a credible and reliable witness. I would generally be inclined to accept her evidence.

Mr Darrin Field

33. Mr Field swore two affidavits. Mr Field is the owner of lot 2. At the time of the fire, he held the office of President of the North Coast Chapter of the NMC. He deposed that ever since he had purchased lot 2 in June 2008 (as an investment property), it had been used as an office and meeting rooms for the NMC.

34. He deposed that no one had ever raised with him any issue with obtaining insurance for the Insured and that the NMC’s occupancy might mean that such insurance coverage would not be obtained. If he had been informed, he deposed that he would have made sure that the NMC would not use Unit 2 and would have arranged another tenant to lease the space. The Brokers’ Counsel did not object to that evidence. He was not challenged on this evidence.

35. In cross-examination by the Insurer’s Counsel, he acknowledged that the NMC signage was outside the door and that it brandished a banner outside of it. He did not seek to conceal the NMC’s occupancy. He said that there were gatherings of the NMC in Unit 2 each Friday night which ran into the early hours of Saturdays. Certain significant improvements were made to accommodate those gatherings including the installation of an industrial fridge, along with shower and change facilities, and other entertainment facilities, such as pool table and pinball machine, with a bar.

36. In cross-examination by the Agent’s counsel, Mr Field indicated that the security which ANZ took for the loan finance for the lot came from his own personal residential property.

37. Mr Field was not shaken in cross-examination and no suggestion was made that his evidence was not credible or reliable. I accept his evidence.

Mr Anthony (‘Tony’) Walter Triff

38. Mr Tony Triff is the owner of lot 3. He purchased the unit in 2011. He uses the unit as his studio, he being an artist. He deposed in his affidavit to knowing that Mr Field was the local president of the NMC from the moment he became interested in buying lot 3. He came to observe the movement of people in and out of lot 2. He deposed that lot 2 was usually empty during the week, although was occasionally visited by men on bikes. He observed meetings on Fridays from about 4:00pm; at which time he would usually leave his lot. He never observed any problems with the group in using lot 2.

39. He deposed that on or about 12 April 2013, he was visited by Mr David Hynes, of the second defendant. Mr Triff said that during their conversation, he and Mr Hynes were standing outside lot 2, which carried the NMC sign displayed on the glass door. The main import of the conversation was Mr Triff asking for Mr Hynes to arrange to get the insurance as cheaply as possible. In response to this, Mr Triff deposed to Mr Hynes saying (whilst gesturing towards lot 2, with his head):

“Well I don’t think anybody else will touch this.”

40. In his affidavit, Mr Triff denied that the fire was caused by the presence of comic books in the ceiling of Unit 3, with certain light fittings, though he accepted that some comic books (and other books) were placed on the shelves.

41. He deposed that at no time did Mr Hynes, or anyone else for the Brokers, inform him that the presence of the NMC would mean that the Insured could not obtain insurance cover. If he had been so informed, he deposed that he would have discussed the issue with Mr Field and requested that they immediately vacate Unit 2. The Brokers did not object to or challenge this evidence.

42. Under cross-examination by the Insurer’s counsel, Mr Triff indicated that he had only initially become aware of the NMC’s occupation through his agent. He said that although he did not see the signage for the club at or about the date of his purchase, signs began to subsequently emerge. He was referred to a poster that was in evidence (at Exhibit 2, p 1204 [2] ), but he said he could not identify that as being the poster that he had deposed to in his affidavit. It was suggested that in this regard, his evidence was inconsistent with his affidavit evidence, where he deposed to the poster being prominently displayed on the sign; and he disputed that. At any rate, he accepted that the NMC never sought to conceal its signage.

    2. Page references are made to a 9 volume Court Book supplied to the Court.

43. He did not dispute speaking to Mr Hynes on 12 April 2013, although he did not recall the specific date. But if Mr Hynes was correct, he acknowledged that it was likely that he might have purchased lot 3 earlier than December 2012.

44. With reference to his conversation with Mr Hynes in April 2013, it was suggested that Mr Hynes had asked him if he knew who was the occupant of lot 2, and that he had indicated that it was the NMC. Mr Triff said that he could not recall conversation to that effect. It was also suggested that he went to speak to Mr Field and said that “we have a problem” in that the Insured could not get cheap insurance because of the NMC’s occupancy. Mr Triff rejected this.

45. Under cross-examination by the Agent’s counsel, Mr Triff was referred to the part of his affidavit (paragraphs 36-37) where he commented upon the content of a police statement he had given to Detective Senior Constable Parker. Mr Triff was silent on the part of the police statement where words were attributed to him as telling the officer that he could not get insurance because of the NMC being in the Property. Mr Triff denied that this was so. When it was suggested that this was in fact the position, Mr Triff distinguished between merely contemplating getting insurance and actually trying to get it. When it was suggested that Mr Hynes had told him it would be difficult to get insurance and that the NMC’s presence was relevant, Mr Triff indicated that he was not aware of this.

46. I am cautious about accepting Mr Triff as a reliable witness where his evidence affected his personal interests. There were multiple inconsistencies in his evidence, and I formed the impression that he was conscious of the effect of the evidence upon his position.

Mr Leon King

47. Leon King was the owner of lot 1. He purchased it in December 2011, as an investment property.

48. He gave some evidence about loss of rent, which will be referred to later in these reasons in the Damages section.

49. He also deposed that if he had been informed that the Insured could not obtain strata insurance because of the NMC’s occupation of lot 2, he would have asked Mr Field to remove the NMC from occupation. The Brokers’ did not object to or challenge that evidence. For himself, he had never had trouble with the NMC.

50. Under cross-examination by the Agent’s counsel, Mr King said he did not know that an electrician came around to investigate after the fire.

WAS THE NMC OCCUPANCY DISCLOSED BY MR HYNES TO MS HOLMES?

The Insurer’s affidavit evidence

51. The Insurer adduced evidence of understandings and systems in place as between itself and the underwriter, the Agent, to show that the underwriters were unlikely to accept risk for strata insurance where an occupant was the NMC. This was not only relevant to the materiality of non-disclosure (for s 21(1) of the IC Act), but also relevant to the question whether there was a non-disclosure of a matter.

Mr Hodgson’s evidence

52. Mr Craig Hodgson was the CEO of the Agent at the material time. He had full underwriting authority granted by the Agent’s underwriting guidelines, which he shared with Mr Ricky Cecil, the Underwriting Manager of the Agent.

53. He deposed that the Agent was the underwriting agent for Calliden, which had previously provided building insurance coverage in respect to the Property. He exhibited to his affidavit a proposal form, dated 6 April 2011, signed by Mr Ian Cooper, in which, relevantly, the occupancy of lot 2 was listed as ‘Office”.

54. Mr Hodgson explained that the Agent’s occupation tables were based upon ANZSIC occupation tables and noted that for commercial buildings, several criteria were taken into account when rating risk, including but not limited to the nature of the tenant. Through 2012, the description of a lot as an ‘office’ fell within the category of ‘Consultants Office (N.O.C)’ (‘N.O.C’ meaning office not otherwise specified in the guidelines) in the occupation table.

55. Mr Hodgson deposed that from about 10 April 2012, the Agent became aware that HHIA had replaced the Insured’s broker. Amongst other communications on that day, Ms Lindy Honeychurch, a director of HHIA, sent an email attaching a closing advice for a period of insurance from 14 April 2012 to 14 April 2013.

56. He deposed that on 1 March 2013 new underwriting guidelines were introduced. They were based upon or adopted from ANZSIC Guidelines. Mr Hodgson explained that if an occupation was not listed in the occupation table or was designated a ‘Referral’, the Agent was required to seek instructions from the Insurer before any such risk could be accepted. Mr Hodgson deposed that whilst the guidelines did not specify ‘outlaw motorcycle clubs’ and/or ‘motorcycle clubhouses’. Mr Hodgson regarded outlaw motorcycle clubs as being “high risk” tenants. The Agent, he deposed, had a history of insuring only low to medium hazard risks, something he indicated had been marketed, and known by insurance brokers.

57. Mr Hodgson exhibited redacted versions of a series of applications from ‘outlaw motor cycle club’ tenancies previously declined by the Agent and indicated that none of them had been referred to the Insurer.

58. Mr Hodgson also (annexed to his affidavit) correspondence sent to and received by the Agent representatives to the Insured’s broker. This included documents which addressed the Insured’s duty of disclosure. Mr Hodgson deposed that the only amendment requested by Mr Hynes, the broker, was a reduction in the premium. Since this did not affect the risk, he was able to make this request verbally.

59. After the fire occurred on 3 February 2014, and after the Agent was notified of the claim, Mr Hodgson deposed to a conversation, among others, with Ms Lorinda Brooking and Mr Ricky Cecil, on 1 March 2014. Ms Brooking was the NSW manager of the fifth defendant. Mr Hodgson’s evidence was admitted subject to a limitation that it was relevant to establishing only whether or not the Insurer (by its agent) was notified of disclosure that the NMC was a tenant in the building. It was not admissible for the truth of anything Ms Brooking intended to say. Ms Brooking was reported as saying that the broker did not disclose the NMC tenancy as it assumed that the Agent knew of it. When Mr Cecil indicated that the Agent had the tenancy disclosed as an office, Ms Brooking was reputed to have said that a ‘bikie clubhouse’ was ‘sort of like an office’. A file note of this conversation was in evidence (Exhibit 1D-1, p 2465).

60. He deposed to a conversation substantially to the same effect on the same day with Ms Leanne Holeszko, National Manager of the fifth defendant. The same limitation was imposed in relation to the admissibility of this evidence. A file note was also taken of that conversation.

61. Under cross-examination, Mr Hodgson:

• accepted that he was unaware whether the Agent ever asked questions of the Insured about the occupancy of the premises;

• accepted that it was information in the proposal form which had been completed in March 2011 which was relied upon to approve cover for the April 2013-April 2014 year (T 99);

• did not accept that it was unusual, or inappropriate that the person who completed that proposal form identified himself as a ‘previous secretary’; and

• said, with reference to the Agent’s categories of risk assessment that ‘office’ use was a class 1 (being the lowest number on the risk scale of 1-10). Most offices would fall within that risk category.

62. No challenge was made to the credibility or reliability of Mr Hodgson’s evidence. I accept he was credible and that his evidence was reliable.

Mr Cecil’s evidence

63. Mr Cecil was the underwriting manager of the Agent as at April 2013. In his affidavit, he deposed to Mr Hodgson telling him during an early interview that the Agent had a long history of only insuring low to medium risk properties. As underwriting manager, part of his job involved training staff and inculcating them with the content of the Agent’s underwriting guidelines.

64. Mr Cecil explained the process of considering applications for insurance from brokers, including the limits of authority for each underwriter. A similar process related to renewal of policies. In both categories of case, an underwriter would rate the risk when offering cover for commercial buildings. The nature of the tenants was one of several circumstances relevant to the risk rating.

65. In his affidavit, Mr Cecil deposed to very similar evidence to that deposed to by Mr Hodgson. Thus, he said that only the risks specifically listed in the occupation table were underwritten by the Agent unless it appeared to be a low to medium risk suitable for referral to the supporting insurer. He indicated that given that risks generally could be regarded as acceptable or not, it was rare to refer a risk to the Insurer for further directions.

66. The ANZSIC occupation and the Agent’s guidelines did not specifically proscribe ‘outlaw’ motorcycle clubs and/or motorcycle clubhouses from coverage, but Mr Cecil’s opinion was that the Agent’s personnel would not seek the Insurer’s opinion about a ‘high hazard’ risk. Mr Cecil exhibited to his affidavit a series of requests for quotes for cover from other brokers refused on the basis that occupants of the property to be insured included an outlaw motorcycle club.

67. Mr Cecil deposed to his own involvement in the acceptance of risk in March and April 2013. Amongst other things, he was conscious of the tenant for lot 2 being listed as ‘Consultants Office (N.O.C)’, which was a type of occupation specifically listed in the Guidelines. He was unaware that lot 2 as occupied by the NMC. Had he been aware that the NMC was a tenant, he deposed that he would have declined the risk.

68. He deposed to Ms Tania Holmes, a development underwriter with the Agent, informing him shortly after 3 April 2013 that the broker, David Hynes, had contacted her, asking for a reduction in the premium. She asked Mr Cecil to re-visit the risk. Mr Cecil did not depose to Ms Holmes supplying any context for such request, for example information she had received from Mr Holmes. Exercising what he deposed to was a ‘discretion’, Cecil reduced the premium, as he explained it, as a ‘gesture of goodwill’. This would not have occurred had he known of the NMC occupancy.

63. Mr Cecil deposed to a conversation with Ms Brooking on 1 March 2014 in relevantly the same terms as that referred to by Mr Hodgson in the latter’s affidavit, whose content I have already referred to.

64. In cross-examination, Mr Cecil:

• indicated that he worked in relatively close proximity to underwriting managers, including, but not limited to, Tania Holmes;

• did not accept that he was her supervisor (notwithstanding that he had completed a performance appraisal form for her, covering the period 1 July 2013 to 30 June 2014);

• indicated that though there might have been something like 30-40 telephone calls a day from brokers that were put through to the group of underwriting managers, there was no protocol at the time (March 2013) in dealing with them, including any notation of information supplied by the broker;

• said that although he may have rated risks personally, more often he would review what was referred to him;

• indicated that in his experience, brokers seeking to negotiate alteration of a premium would be aware that certain occupations had a higher risk than others;

• accepted that the Agent’s guidelines did not specifically exclude motorcycle clubs;

• said that although he signed Section B of a performance appraisal form concerning Tania Holmes, he did not recall whether he was her immediate supervisor or ‘manager’;

• indicated that as at March 2013, although Tania Holmes was capable of rating a risk, she did not have the authority to sign off on it; and

• accepted that without documentation, he had trouble recalling the events of March 2013.

71. I considered that Mr Cecil was a good witness, trying to do his best to give honest evidence; in a context where he acknowledged difficulty in recalling events which, at the time, did not have special significance for him.

Mr Garling’s evidence

72. Mr Christian Garling was, at the material time, the National Facilities Manager for the Insurer. He deposed that he would have been, in effect, the point of contact for persons within the Agent who might wish to approach the Insurer, relevantly, if they had a query about the application of underwriting guidelines. He deposed to having dealt with both Mr Craig Hodgson and Mr Ricky Cecil, the general manager and underwriting manager of the Agent, respectively. He deposed to his recollection that at the material time, the Agent was a ‘low to medium risk’ underwriter of insurance for bodies corporate of strata title developments.

73. He deposed that Mr Hodgson and/or Mr Cecil might occasionally refer queries about underwriting to him. He deposed that he would have been surprised had they raised with him any query in relation to whether the Agent should insure a building wholly or partly occupied by a motorcycle club. If that matter had been raised with him, he would have directed them to decline the business.

74. Mr Garling was not required for cross-examination and, accordingly, was not called as a witness. I accept his evidence.

Ms Holmes’ evidence

75. Ms Tania Holmes is an underwriter with the Agent, but from February 2013, she was a development underwriter. She deposed to understanding the need to perform her role in accordance with the Agent’s guidelines and she said she received some training from Mr Cecil.

76. She deposed that when the Agent’s new guidelines emerged in March 2013, she understood the ratings system for various occupations. She deposed that she would not write, renew or recommend risks in relation to ‘outlaw motor cycle clubs’. This, she deposed to understanding, was consistent with her prior experience that general insurers did not cover ‘high hazard’ risk tenants.

77. She deposed that when she started, she had no authority to offer renewal of terms: she had to go to Mr Cecil or Mr Hodgson.

78. Ms Holmes became personally involved in the renewal of the plaintiff’s strata insurance when, on 9 April 2013, she received two telephone calls from Mr David Hynes, director of the second defendant. The first call concerned discussion about re-sending renewal terms. She deposed to recalling that the second call concerned Mr Hynes ringing to request a reduction in the premium.

79. Ms Holmes deposed to receiving another call from Mr Hynes the next day, 10 April 2013. She could not recall the exact words used but said that it was on the subject of the request for a reduction in the premium. A record of that call appeared in the Agent’s telephone records.

80. Ms Holmes deposed that at no time in any of the calls on 9 or 10 April 2013 did Mr Hynes inform her of the occupancy of the NMC at the property. She also refuted evidence from Mr Hynes, to the extent that he suggested any mention of the nature of the tenant of Unit 2.

81. She deposed that had she been aware that the NMC was the tenant for one of the lots, she would have informed Mr Hynes that the risk was considered ‘high hazard’ and outside the Agent’s underwriting guidelines and therefore could not be covered. But because of her limited authority, she would have needed to seek confirmation from either Mr Cecil or Mr Hodgson in writing that the risk could not be renewed, but only after asking Mr Hynes to confirm the tenancy in writing. This was because it was the Agent’s standard practice to put any information relating to risk in writing (a reduction in premium was not required to be in writing as it did not affect the risk).

82. In the absence of disclosure of the NMC occupancy, she deposed to only approaching Mr Cecil to consider the request for a reduction in the premium. Mr Cecil authorised that request.

83. In a supplementary affidavit, prepared after the Brokers’ evidence was served, Ms Holmes refuted Mr Hynes’ evidence that the NMC occupancy was disclosed in the second call on 9 April 2013 and reiterated, in effect, that her dealings with him were limited only to fielding his request for a reduction in the premium. She denied every indication in Mr Hynes’ evidence indicating such discussion and affirmed that at no stage in the telephone conversations on 9 or 10 April 2013 was there any discussion about the NMC’s occupation. Specifically, she denied the reference in the file note to ‘discussing tenants’ with Mr Hynes and that (the Agent) was “already on risk”.

84. Under cross-examination, Ms Holmes’ accepted:

• that she had no recollection of what was said during her telephone conversations with Mr Hynes on 9 and 10 April 2013;

• that she could not dispute the correctness of Mr Hynes’ evidence that the second call on 9 April 2013 was of 3 minutes, 47 seconds duration;

• that it was “possible” that Mr Hynes’ accounts of what was said on those days was true, including (not least) that it was possible that he might have mentioned the occupancy by the NMC (T 167-169);

• that she was not in a position to positively refute what Mr Hynes had said on the subject of tenancies, in the sense of suggesting, as she had in one of her affidavits, that he had not made any mention of any tenant;

• that a broker calling her to negotiate a premium on a renewal might, in the course of that, raise with her various ‘risk’ factors, including the nature of the occupancy;

• that she liked to assist brokers to ‘get the deal done’;

• that when she referred to her ‘extensive experience’, as at March 2013, it was predominantly in motor vehicle underwriting;

• that as at April 2013, she could not sign off on underwriting, though she could rate risks;

• that, with reference to her understanding that motorcycle clubs were a ‘no go’ area of risk, and with reference to the Occupation Table ( p 2715), there was nothing in the document, and nothing in her training, which would have led her to understand that motorcycle clubs were excluded; and such understanding as she had about outlaw motorcycle gangs was not evident from the guidelines or the training she had received;

• ‘motorcycle clubs’ fell within her interpretation of ‘moral hazard’, even though moral hazard was not referred to in the guidelines;

• that she could not specifically pinpoint what was it about a ‘motorcycle club’ that made it a ‘no go’;

• the significance of note-taking of interactions with brokers and that, contrary to her own understatement of its significance, she was aware that note-taking was a matter of importance to the Agent: she had subsequently been counselled about the matter in July 2018; and

• the importance of note-taking may have been elevated in her case because of her own limited recollections – she could not even recall the circumstance of being counselled for her ‘deficiency’ in note-taking which occurred just over two years before.

The brokers’ affidavit evidence

85. The second to fifth defendants relied upon multiple affidavits of Mr David Hynes.

86. Mr David Hynes was a director of HHIA and jointly controlled it with Ms Honeychurch, his de facto partner. He swore affidavits dated 11 November 2019, 19 December 2019 and 14 October 2020.

Discovering the NMC Occupancy

87. In his first affidavit, Mr Hynes said he began his association with the Insured on 2 April 2012 when Mr Anthony O’Neill, then owner of lot 3 of the Property, informed him of his intention to sell and indicated that he was the body corporate manager. Mr O’Neill was an existing client of HHIA. Mr Hynes deposed that Mr O’Neill had told him that the NMC was a tenant of one of the units and had been for some years. Mr Hynes deposed to approaching Mr Triff, who at that time was a tenant of Unit 3, and Mr Triff confirmed for him that the NMC attended Unit 2 on Fridays. Eventually, Unit 3 was transferred from Mr O’Neill to Mr Triff.

88. Mr Hynes elaborated on the conversations he said he had with Mr O’Neill (and Ms Holmes) in his third affidavit. He deposed to Mr O’Neill saying to him that he was “looking to get insurance for my unit...”. Mr Hynes was challenged on the completeness of his statement of what was discussed and Mr Hynes accepted that there was more content in that conversation than that which was referred to in his third affidavit. He acknowledged that it was through Mr O’Neill that he learnt that the NMC was in occupation of unit 2.

89. In relation to Mr Triff, Mr Hynes deposed to not seeing any NMC signage on Unit 2 and asking Mr Triff who was in the unit and that, in response, Mr Triff told him “that’s the Nomads. Usually they are just there on Fridays for beers and to play music. They don’t do any other business there.”

90. Under cross-examination, Mr Hynes was challenged as to the date of this conversation. It was suggested that it was, as Mr Triff had deposed, a conversation that occurred in April 2013 as the latter had only become an owner later in 2012. Mr Hynes maintained that it was in April 2012 and that Mr Triff had earlier been a tenant of the lot. He also said that he did not mention to Mr Triff that he had recently spoken to Mr O’Neill.

91. Counsel for the Agent put to Mr Hynes that it was only Mr O’Neill, and not Mr Triff, who was the source of information about the strata position in April 2012, and that Mr Hynes’ conversation with Mr Triff had occurred only in April 2013. Mr Hynes was referred to the contentious handwritten note (see paragraph 0, below) which contained several entries, one being ‘10/4’ (Annexure ‘DVH1’ to his affidavit 19/12/19). It was put to Mr Hynes, but denied by him, that he was recording what Mr O’Neill had told him on a phone conversation on 2 April 2012.

Unsuccessful attempt to place cover with Axis

92. Mr Hynes was also challenged as to the adequacy of disclosure to the Insurer when trying to arrange cover with a different insurer, Axis Underwriting Services Pty Ltd (‘Axis’), in an email on 4 April 2012 (Exhibit 1D-8, p 3161). Unlike the other tenancies, whereby he had given a specific description, his only description of the tenancy for Unit 2 was “social club”. It was suggested that this was inadequate in terms of the duty of disclosure for an insurer. Mr Hynes disagreed and said that he followed up with further information subsequent to the email. His evidence (T 222-223, 226) was that he told Ms Wesselman that the social club was Nomads. Axis declined to provide the cover.

93. It was also suggested to, but denied by, Mr Hynes that having failed to secure cover from Axis in April 2012, HHIA sought to get it from the Agent. Mr Hynes explained that HHIA was dealing with renewal. In relation to coverage for the period from April 2012 to April 2013, he said he did not know what steps he had undertaken to comply with the duty of disclosure.

94. On 5 April 2012, Ms Wesselman, an underwriter with Axis Underwriting, sent an email to Mr Hynes indicating that the underwriter was not interested in providing a quote. This was due to the “Nomads Social Club” reference. Counsel for the Agent put to Mr Hynes that having received rejection from Axis, after he had mentioned the NMC occupancy, he understood it would be difficult to place the risk with a different insurer and that he was required to disclose to the Agent the rejection by Axis. Mr Hynes was referred to what he informed the Agent on 10 April 2012. It was suggested that he had informed it that there was no change in tenancies and that HHIA was just taking over a policy. Mr Hynes said that the conversation on that day was about the Letter of Appointment signed by Mr O’Neill on 9 April 2012 (the ‘LOA’). It was put to, but denied by, Mr Hynes that as at 10 April 2012 he did not specifically know which tenant occupied which unit. He accepted, however, that he assumed that the Agent was aware of the nature of the tenants, including the NMC, at this time.

95. The Agent relied upon an email which Mr Clarke, of the Agent, sent to Mr Hynes at 2:00pm on 10 April 2012 which initially declined the LOA.

96. Counsel for the Agent put to Mr Hynes that the reference to ‘10/4’ was actually a note of his conversation with Mr Clarke, of the Agent on 10 April 2012, the same day that cover had been finalised for the April 2012-April 2013 year. Mr Hynes denied this.

97. On 19 March 2013, Stephanie Harvey, an underwriter of the Agent, sent an email to Ms Honeychurch offering a quote cover from 14 April 2013 to 14 April 2014. In that covering email, amongst other things, Ms Harvey expressly invited the provision of information in accordance with the Insured’s duty of disclosure. Mr Hynes accepted that at the time he spoke to Ms Holmes on 9 April 2013, he had had no idea what disclosure had been made by the Insured to the Agent and, to that point, had made no inquiry of the Insured.

Conversations with Ms Holmes in April 2013   

98. On 9 April 2013, Mr Hynes had two telephone conversations with Tania Holmes. He said in his evidence that he might have spoken before, but accepted that he had no business relationship as such. This was contrary to what he had deposed to in his first affidavit (at para 50). He accepted that when he made his first call, he was not intent upon actually speaking to Ms Holmes.

First affidavit

99. In his first affidavit, Mr Hynes deposed that the first conversation with Ms Holmes, which was at 12:11pm and lasted for two minutes and 13 seconds, he requested terms. Holmes said terms had previously been forwarded but she would send a further email. Holmes sent an email at 12:13pm, which attached a quote (Exhibit 1D-1, p 2420). Mr Hynes deposed that after he had reviewed the quote, he rang Ms Holmes at 12:20pm and spoke to her for three minutes 47 seconds. (Among other documents, he exhibited phone records to prove the two phone calls on the day and the length of these calls).

100. During the second phone conversation on 9 April 2013, Mr Hynes deposed in his first affidavit to querying the premium contained in the quote and that Ms Holmes ‘sought further underwriting information including the occupancy of the units’. In response to this, Mr Hynes deposed to confirming the occupancies which were that Unit 1 was a bedroom furniture wholesaler, and Unit 2 was a ‘local motorcycle social club’, i.e. the NMC. He deposed that Ms Holmes said, in response, “we don’t normally do this kind of thing.” He deposed to replying with the words “but you are already on risk, and offering terms?” He explained that he said these words because of his belief that the NMC occupancy was always present during the time that the Agent was underwriting the situation. Mr Hynes deposed to explaining the content of his discussions with Mr O’Neill regarding the NMC’s occupation and that the NMC was a well-known organisation in the Byron Bay area, which was not known for causing ‘issues’ in that area. He deposed that Ms Holmes responded with words to the effect that she would “see what we could do.”

101. Mr Hynes was closely cross-examined by the Insurer’s Counsel in relation to this account of the conversation with Ms Holmes. Mr Hynes explained that he preferred to speak with Ms Holmes, rather than Ms Harvey, after the quote had been re-sent by Ms Holmes. He understood, upon receiving the quote, that the Insurer had ‘rated’ the risk and that the nature of the occupancy was important to that rating. Mr Hynes sought to make at least two corrections to the sequence and content of what he said about the second conversation in his first affidavit: it was inaccurate for him to have deposed that it was Ms Holmes who sought further underwriting information – it was he who had offered it – and what he offered related to the subject of the occupancies. Further still, when he was explaining in his affidavit the basis of the information that he was conveying to Ms Holmes about the ‘social’ nature of the NMC’s activities in lot 2, he was not only relying upon what Mr O’Neill had told him, but also Mr Triff.

102. Mr Hynes was challenged why he did not, subsequently, send a communication to the Agent confirming the matter of disclosure that deposed to making to Ms Holmes on 9 April 2013. It was not as if he had no further email correspondence with her. Mr Hynes accepted that he had not taken this opportunity to record the disclosure in writing to the Insurer and that he should have done so. Mr Hynes later indicated, when cross-examined by Counsel for the Agent, that he assumed on this date that the Agent was already aware of the Nomads’ occupancy.

Second affidavit

103. In his second affidavit, Mr Hynes deposed to retrieving a hand written file note. It contained three entries relating to three distinct communications. Only the last of them were identified by Mr Hynes as being referable to the second conversation he says he had with Ms Holmes on 9 April 2013; he deposed that the first two entries related to events over a year before, on 2 and 3 April 2012. Because of its significance to the case, I now reproduce it in full:

104. Mr Hynes was vigorously challenged on this note, on several levels. First, to the extent that it purported to record a conversation occurring on 9 April 2013, it did not list that date (it contained an incomplete date reference to ‘10/4’) or time; and did not record who the conversation was with or what was said. Mr Hynes accepted that the content was unclear on its face. He was challenged why he did not refer to the note in his first affidavit. Mr Hynes could not explain why it was not; although he did depose in his second affidavit to only “now” having located a file note, suggesting that this was at about the time he prepared his second affidavit. At any rate, it was suggested that it was strange that he would purport to make an entry of an April 2013 phone conversation on the same document that contained entries of conversations about a year earlier. Mr Hynes stated in reply “I had the same file – I didn’t start a new page; I wrote it on the bottom of the existing file note.” It was strange, in itself, that he would write an entry on 10 April when the conversation occurred on 9 April. Mr Hynes regretted that he did not insert the year, 2013, on the note.

Third affidavit

105. In his third affidavit, Mr Hynes elaborated on the content of the second conversation with Ms Holmes on 9 April 2013 at 12:20pm. His account was as follows:

The Insurer’s submissions

51. Globe Church Incorporated at [209]-[210].

52. Wardman v Hatfield [2003] NSWCA 283 at [22]-[23]; followed in Anthony v Morton [2018] NSWSC 1884 per Ward CJ in Eq at [681].

413. Counsel for the Insurer, as first cross-claimant, contended that it was only after December 2019, when a file note was the subject of affidavit evidence from Mr Hynes, relevantly identifying an entry apparently written on 10 April 2013 which, when combined with an assertion made by Mr Hynes before the proceeding commenced (that the NMC occupancy was disclosed to Ms Holmes on 10 April 2013) that the Insurer started to become concerned. Thereafter it required a reasonable period to investigate (such as obtaining phone records of the Agent and/or the Brokers) and phone records produced on subpoena revealed a long telephone conversation which the Insurer apprehended might have occurred on 10 April 2013. This explained why it brought the claim when it did only in August 2020.

Consideration

414. The Insurer’s arguments may explain why the cross-claim was brought when it was, and the reasonableness of any delay, but it did not substantially address the Agent’s points as to when the actions in contract or tort first accrued.

415. In my view, subject to a qualification, the action in contract became statute-barred on 12 April 2019 being 6 years after the cover was placed. The qualification is the Insurer’s invocation of observations made by Deane J in Hawkins v Clayton (1988) 164 CLR 539 at 590, which I will address a little later in these reasons.

416. If it was necessary, the action in tort ran from when damage was suffered by the Insurer. The damage was suffered by the Insurer when it became liable to indemnify and, consistent with what was determined in Globe Church, that was when property damage was suffered by the Insured. This was the date of the fire, on 3 February 2014. At any rate, damage was also suffered when the Insurer incurred expenses and costs on 11 March 2014. The limitation period for any action in tort was statute barred after 3 February 2020, or, alternatively, 11 March 2020.

417. Prima facie, the actions in contract and tort were both statute-barred when the cross-claim was commenced on 27 August 2020.

The Insurer’s reliance upon s 55 and conventional estoppel

The Insurer’s argument

418. Against the possibility that the limitation periods for the actions in contract and tort may run in the conventional way, against it, the Insurer made three further arguments. First, it relies upon s 55 of the Limitation Act. The Insurer argued that the combination of Mr Hodgson’s verbal representations on 7 and 10 February 2014, a written representation on 7 February 2014, and the Agent’s continued adherence to its position that the NMC occupancy had not been disclosed to it throughout the course of the proceeding, amounted, collectively, to a representation that the NMC occupancy had not been disclosed. This, it was said, induced the Insurer not to bring a cross-claim against the Agent shortly after the Insured made its claim. The Insurer says that the representation was crystal clear and unequivocal.

419. The Insurer argues that if the Court should find that the NMC occupancy was disclosed to the Agent, then it follows that the Agent fraudulently concealed the existence of the causes of action in the cross-claim, for the purposes of s 55 of the legislation, so that the time bar only commences to run from the time that the Insurer actually or constructively (i.e. with reasonable diligence) discovered the fraud or concealment. The Insurer defines this as the time when the Insurer ascertained that the representation made to it was false. That would only be at the time that this Court determined that the NMC occupancy was disclosed since it was that determination which would operate to falsify the representation continually made since February 2014 (after the fire).

420. In particular, the Insurer argues that if the NMC occupancy fact was disclosed by Mr Hynes to Ms Holmes on 9 Aril 2013, then not only did she know of it, but the Agent also knew of it and, further, she, and therefore the Agent, knew of the falsity of the representation (that the Agent had not been notified of the NMC occupancy) made to the Insurer.

421. The Insurer’s second argument was that conventional estoppel arose against the Agent, in that the Agent could not seek to take advantage of a judicial finding that the NMC occupancy had been disclosed to it when it had not represented that fact to the Insurer.

The Agent’s submissions

422. The Agent submits that s 55 cannot apply. The authorities posited a very high standard to establish the application of that provision, described variously as a “consciousness that what is being done is wrong or (taking) advantage of the situation (in a way that) involves wrongdoing” [53] , or “moral turpitude or dishonesty” [54] . Counsel for the Insurer did not put to Ms Holmes, or any other witness called by the Agent, that anything that was done, or not done, could be marked with the character of these descriptions.

     53. Seymour v Seymour (1996) 40 NSWLR 358 per Mahoney A-CJ (Meagher JA and Abadee A-JA agreeing) at 372E.

     54. Faraday v Rappaport [2007] NSWSC 34 per White J (as his Honour then was) at [127].

423. To the extent that the Insurer relied upon conventional estoppel, even if it may be accepted that the Agent had represented to the Insurer and that they shared the common assumption that there was no disclosure of the NMC occupancy in April 2013, the Insurer had not made out the element of the doctrine which posits that the representor seeks to resile from the assumption in the Insurer engendered by the Agent’s representation, to the Insurer’s detriment [55] . In no way has the Agent ever sought to resile from the assumption. If the true position is that the NMC occupancy was disclosed, that is the result of the exercise of judicial power of this Court.

Consideration

55. See, for example, Moratic Pty Ltd v Gordon [2007] NSWSC 5 per Brereton J (as his Honour then was) at [31].

424. I accept the submissions of the Agent on s 55. The result is that the provision is not engaged in a way that can extend the operation of the ordinary limitation period applicable to the causes of action in tort and contract.

425. I also accept the Agent’s argument in relation to conventional estoppel for the reason its Counsel advanced. There has never been any conduct of the Agent indicating a desertion of the assumption its ‘representation’ engendered [56] .

Deane J’s observations in Hawkins v Clayton

Parties’ submissions

56. Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 per Dixon J at 674.

426. As a third and final argument favouring the effective suspension of the ordinary limitation period, Counsel for the Insurer referred to the observations of Deane J in Hawkins v Clayton (1988) 164 CLR 539 at 590 to the effect that s 14 of the Limitations Act, to the extent it sets out the operation of time bar for an action for breach of contract (and in tort), is to be construed as excluding any period during which the wrongful act itself effectively precluded the institution of the proceeding, on the rationale that it may promote hardship and injustice, and yield no compensating benefit, if a claimant’s action could be precluded.

427. The Insurer’s Counsel argued that this case presented the situation of the kind that Deane J envisaged: because the Agent had, at all times, represented maintained that the NMC occupancy was not disclosed to it, axiomatically, the Insurer could not have known that (in accordance with the stated premise of the cross-claim) it was in fact disclosed and that thereby the Insurer was bound to indemnify the Insured. The Insurer’s Counsel referred the Court to a number of decisions in the Court of Appeal in which Deane J’s observations were considered [57] .

     57. These decisions were Cheney & Wilson v Duncan [2001] NSWCA 197, Walmsley v Cosentino [2001] NSWCA 403, Argyropoulos v Layton & Anor [2002] NSWCA 183, and State of New South Wales v Harlum [2007] NSWCA 120.

428. Counsel for the Agent argued that the observations of Deane J in Hawkins v Clayton were not endorsed by the other members of the majority in Hawkins (Brennan J and Gaudron J), or indeed, had authoritatively been subsequently endorsed by the High Court or at the level of an intermediate appellate court [58] and that I should not follow them.

Consideration

58. None of the decisions to which Counsel for the Insurer referred the Court indicated an application of the exception identified by Deane J to the facts of the particular case.

429. To reiterate, the cause of action against the Agent in contract, conventionally, became statute-barred on 12 April 2019. The action in negligence became statute barred on 3 February 2020 (or, alternatively, 11 March 2020).

430. It could not be said that this was a case, like Hawkins, where it was impossible for the claimant (in that case, the beneficiary under a will) to have discovered a potential claim against the provider of the professional services prior to the expiry of the limitation period. In this case, on 6 May 2014, the Insurer’s lawyers, McInnes Wilson Lawyers, received notice of an assertion on behalf of the plaintiff that the NMC occupancy had been disclosed to the Agent. That knowledge is to be imputed to the Insurer.

431. Contrary to the Insurer’s submissions, it is not to the point that the Insurer did not believe the Insured’s assertion made on 6 May 2014, or thought it prudent to make further investigations, including those of its Agent. Nor does it matter that the Insured asserted that the disclosure occurred on 10 April 2013 rather than 9 April 2013. The point is that if the substance of the assertion that was made on 6 May 2014 was later found to be correct, then the Insurer was taken to have been on notice of the possibility that the Agent had breached its contract by binding the Insurer to coverage contrary to its various obligations to the Insurer. Unlike the claimant beneficiary in Hawkins v Clayton, the Insurer was not denied the possibility of bringing a cross-claim to contend that, in the contingency that the NMC occupancy had been disclosed, the Agent had breached its contractual obligation.

432. In other words, the extreme factual circumstances of the kind alluded to by Deane J in Hawkins v Clayton would not have arisen here to prevent a claim against the Agent based upon tort.

433. This makes it unnecessary to determine the legal status of Deane J’s observations in relation to s 14 of the Limitation Act.

434. If it was necessary, I would have found that the Insurer’s claim against the Agent was statute-barred.

SUMMARY

435. To recapitulate, I have made the following findings in this proceeding.

436. First, although it is likely that Mr Hynes did mention to Ms Holmes that a ‘social club’ and ‘local bike club’ was in occupation in his second telephone conversation with her on 9 April 2013, he did not disclose to her that it was the NMC which was in occupation of Unit 2.

437. Secondly, the NMC’s occupation was a matter that was, for the purposes of s 21(1) of the IC Act, known by a reasonable person in the circumstances, to be relevant to the decision of the Insurer to accept the risk and therefore required disclosure.

438. Thirdly, the non-disclosure of the NMC’s occupancy entitled the Insurer to avoid the policy and reduce its liability to nil, pursuant to s 21(3) of the IC Act.

439. Fourthly, the cross-claim against the Agent fails.

440. Fifthly, if, contrary to what I have found, the Insurer had been in breach of the contract for insurance, it would have been liable to pay the Insured the sum of $748,571.41.

441. Sixthly, the second and third defendants (but not the fourth defendant) were negligent and in breach of the implied term of the retainer (to exercise reasonable care and skill.

442. Seventhly, the negligence, or breach of the implied term of care and skill, caused the Insured’s loss or damage.

443. Eighthly, I find that the second and third defendants are liable in damages only in respect of the consequences of the Insured not having an enforceable policy, so that the quantum of such claim is $538,347.41.

444. Ninthly, the proportionate liability defence does not succeed in limiting the second and third defendants’ liability.

445. Tenthly, the AFS Licensee is also responsible, jointly or severally, for the same monetary remedy obtained against the second and third defendants.

446. Eleventh, had I found that the NMC occupancy actually was disclosed to the Agent, I would have found that the Agent was liable to the Insurer only in contract, for breach of a strict contractual obligation, or obligations, and not in negligence for failing to disclose the same to the Insurer.

447. Twelthly, on the same premise, I would have found that the Insurer’s causes of action for breach of contract and in tort against the Agent were statute-barred, that s 55 of the Limitation Act was not engaged, there was no conventional estoppel which arose, and that there was no basis for extending the limitation period under s 14 on the basis that any conduct by the Agent precluded the Insurer from bringing a claim for breach of contract.

ORDERS

448. By 22 January 2021, and after consulting with all parties, the plaintiff should bring in short minutes of order to give effect to these reasons, which should deal with the interest recoverable on the basis of the findings that I have made, and the issue of costs. If the parties are agreed, orders can be made in chambers.

449. If, however, the parties are or remain in disagreement, I direct the following:

1. the plaintiff, the first and fourth defendants, and the cross-defendant are to file and serve any submissions as to appropriate dispositive orders, not exceeding 5 pages (excluding relevant attachments), by 22 January 2021;

2. the second and third defendants are to file and serve submissions in response, not exceeding 5 pages (excluding relevant attachments), by 29 January 2021;

3. the plaintiff, first and fourth defendants, and cross-defendant may serve any submissions in reply, not exceeding 3 pages, by 2 February 2021;

4. at the time of service, parties are to email electronic versions (in both PDF and Microsoft Word format) of their respective submissions to my Associate; and

5. dispositive orders will be made by me in chambers on the papers, absent any further notice to the parties.

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Endnotes

Amendments

17 December 2020 - Correction of minor typo.

Decision last updated: 17 December 2020