Icepak Group Limited v QBE Insurance (International) Limited
[2014] NZHC 1832
•5 August 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-004-2704 [2014] NZHC 1832
BETWEEN ICEPAK GROUP LIMITED
First Plaintiff
WAIKATO COLDSTORAGE LIMITED Second Plaintiff
AND
QBE INSURANCE (INTERNATIONAL) LIMITED
Defendant
Hearing: 24 and 28 March Appearances:
M D Branch and K F Shaw for Plaintiffs
M G Ring QC and M O Robertson for DefendantJudgment:
5 August 2014
JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 5 August 2014 at 5 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date: ...................................
Solicitors: Harkness Henry, Hamilton
Robertsons, Auckland
Counsel: M G Ring QC, Auckland
ICEPAK GROUP LTD v QBE INSURANCE (INTERNATIONAL) LTD [2014] NZHC 1832 [5 August 2014]
Introduction
[1] The Defendant (“QBE”) applies to strike out the Plaintiffs’ amended statement of claim dated 19 September 2012 (“statement of claim”).
[2] The Plaintiffs seek payment of $187,229.26. This sum is equivalent to premiums that the Plaintiffs paid to QBE under insurance policies in respect of the years ended 30 September 2005 to 2008 inclusive. The Plaintiffs’ case is that QBE avoided the policies, they accepted the avoidance and the effect of the avoidance was to give rise to a total failure of consideration, thus entitling Icepak to recover.
[3] QBE seeks to strike out the statement of claim on the grounds that: (a) it discloses no reasonably arguable cause of action;
(b) it is frivolous, vexatious or otherwise an abuse of the process of the
Court.
[4] For the reasons given below, I decline QBE’s application.
Background
[5] The relevant background, as it appears from the documents before me, is as follows.
[6] At all material times, the Second Plaintiff (“Waikato”) was a wholly owned subsidiary of the First Plaintiff (“Icepak”). Nothing turns on the different entities and I refer to the Plaintiffs as “Icepak”.
[7] On 5 April 2008, a coolstore owned by Icepak, and situated at 30 Divine Road, Tamahere, Hamilton, was destroyed by fire (“fire”). One fire fighter lost his life and several others received severe burns and/or injuries. The Department of Labour prosecuted Icepak and a director or directors of the company on various
charges, on which those parties were sentenced in the District Court at Hamilton on
15 December 2009.1
[8] Icepak held, or believed it held, insurance with QBE pursuant to policy no. 80-0030388, that policy being renewed annually as of 30 September (“policies”). Between 30 September 2004 and 30 September 2007 the cover was in respect of Bailees’, General, Statutory and Employers’ Liability. The scope of cover was widened thereafter to include, amongst other things, Directors’ and Officers’ Liability.
[9] In April 2008 Icepak notified QBE of claims in respect of the fire and sought indemnity under the policies.
[10] QBE declined to indemnify Icepak. By solicitors’ letter dated 21 August
2009, QBE advised that it considered Icepak had breached its duty of disclosure at each renewal since 2004, as Icepak had conveyed that the refrigerant used in the coolstore was not flammable when indeed it was and, further, had failed to comply with required safety standards. QBE said that the true circumstances were material
and that:2
9. As a result of these breaches, QBE is entitled to and does avoid the
PURPL Combined Liability Solutions Policy, policy number
80-0030388 – PIL/PUL; and the Bailees Liability Policy, policy number 80-0030388 – PUL. It follows that Icepak is not entitled to any indemnity from QBE in respect of any liabilities arising out of the fire at the Tamahere site on 5 April 2008.
10.Because the position in relation to proper disclosure is so clear, we have not gone on to look at any other indemnity issues. QBE reserves the right to rely on further or other grounds for avoidance of these policies, and/or declinature of this claim, including all relevant exclusions and conditions, should this prove necessary.
[11] By letter dated 23 December 2009,3 Icepak advised that it would issue proceedings in respect of various costs that it had incurred, then totalling
$441,716.33, and reserving the right to recover further costs as they arose.
1 Department of Labour v Icepak Coolstores Ltd DC Hamilton CRI-2009-019-11343,
15 December 2009.
2 Letter from Shieff Angland to Harkness Henry dated 21 August 2009.
3 Letter from Harkness Henry to Shieff Angland dated 23 December 2009.
[12] In or about June 2010, QBE, Icepak (that is, both Plaintiffs), and each of the Plaintiffs’ three directors (“Directors”), entered into a deed, referred to as a Deed of Settlement (“deed”). QBE relies on the deed in its application to strike out. On the hearing of the application to strike out, Icepak’s counsel provided a bundle of documents evidencing negotiations leading to the deed. Issues may arise as to relevance and/or admissibility of those documents and I have not considered them.
Pleadings
[13] Icepak commenced this proceeding in December 2011. It filed its (amended) statement of claim in September 2012 pleading one cause of action, namely money had and received. The critical part of Icepak’s statement of claim is as follows:4
9.In or about April 2008, the Plaintiffs notified the Defendant of claims under the Policies in respect of a fire at its Tamahere premises.
10.On 21 August 2009, the Defendant avoided all of the Polices for non-disclosure.
11. As the Policies were avoided, the Defendant is liable to repay all premiums paid by the Plaintiffs on the ground that the consideration for which the Defendant was paid has failed.
[14] QBE filed its defence in October 2012, pleading that it was not required to repay because:
(a) Icepak had, fraudulently, misrepresented and/or failed to disclose material matters relating to the refrigerant; or
(b)it would be contrary to public policy to require QBE to repay, given submissions that Icepak is said to have made to the District Court and on appeal; or
(c) the proceeding was an abuse; or
(d)notwithstanding the avoidance, it was an implied term of the deed that QBE would be entitled to retain the premiums and Icepak would not demand a refund; and
(e) by way of defence or counterclaim, that QBE was entitled to relief under the Contractual Mistakes Act 1977.
[15] The case was to go to trial for five days, commencing 24 March 2014. At the conclusion of Icepak’s opening submissions, QBE made an oral application to strike out Icepak’s pleading. I heard the application, adjourned the case and then heard further submissions on 28 March 2014. I gave leave to QBE to amend its statement of defence and to Icepak to amend its reply. Those amended pleadings have been filed. The changes to QBE’s defence are, first, that it has ceased to allege that Icepak was fraudulent. Secondly, QBE no longer admits avoidance of the policies. Rather it pleads that it purported to avoid the policies.
QBE’s application
[16] The application is made pursuant to High Court Rules, r 15.1 which provides:
15.1 Dismissing or staying all or part of proceeding
(1) The court may strike out all or part of a pleading if it—
(a) discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b) ...
(c) is frivolous or vexatious; or
(d) is otherwise an abuse of the process of the court.
...
[17] Jurisdiction to strike out is to be exercised sparingly and only in clear cases.5
[18] QBE submits that, to succeed in its claim, Icepak must prove that:
(a) QBE was entitled to avoid the policies, that is that Icepak did breach its duty of disclosure; and
(b) a total failure of consideration.
[19] QBE submits that Icepak has made it clear that it does not intend to prove (a) and that it cannot prove (b), given the terms of the deed. The effect of this, QBE says, is that Icepak’s cause of action is not reasonably arguable or that its proceeding is frivolous, vexatious or an abuse of process.
[20] Icepak opposes the application. Quite aside from the substance of the application, Icepak submitted that I should decline to strike out given the lateness of QBE’s application, admissions in QBE’s pleading (at least as it was on 24 March
2014), and the terms of statements of issues agreed or submitted by the parties. Given the conclusion I have reached, it is unnecessary for me to address this submission.
Avoidance
[21] By minute dated 24 March 2014, I advised the parties that I would not strike out on the basis of QBE’s contention that it was for Icepak to satisfy the Court that QBE was entitled to avoid. I am satisfied that it is arguable that QBE avoided the policies and that Icepak accepted the same. Amongst other things the recitals to the
deed include the following statements:6
D On 21 August 2009 QBE avoided the Policies…(the Avoidance).
EAs a result of the Avoidance QBE has declined to indemnify Icepak and/or the Directors in respect of the claims, and advised Icepak and the Directors that this will also apply to any other claims in respect of the Fire.
FTo the extent legally possible, the Parties wish to achieve certainty and finality in respect of the indemnity position between them relating to any liability incurred by Icepak and/or the Directors arising out of the Fire.
Total failure of consideration
[22] That leaves the question of whether the terms of the deed are such that it is not reasonably arguable that there has been a total failure of consideration, or that it is frivolous, vexatious or an abuse to argue the same.
[23] At a broad level there is no dispute between the parties as to the legal principles which apply. An insurance policy which is avoided is void ab initio. To cite one of the several specialist insurance texts to which I was referred by counsel for QBE:7
[4-470] Situations where recovery possible
Where an insured effects a policy of insurance, whether or not through an agent or broker, and that policy is subsequently terminated, a question may arise as to whether the insured is entitled to a refund of the premiums paid. How this question will be answered in a particular case depends upon a number of factors, which are considered below. ...
“No risk no premium”
If, for whatever reason, the risk against which insurance has been effected has not been run by the insurer, there has been a total failure of consideration and, in accordance with general principles, the insured is entitled to a refund of all premiums paid (ie “no risk no premium”). The converse of that principle is that once the risk commences, there can be no return of premiums paid (unless the contract provides otherwise) ...
[24] The following passage of Lord Mansfield in Tyrie v Fletcher is referred to in many of the texts and authorities as the leading statement of principle:8
And I take it, there are two general rules established, applicable to this question: the first is, that where the risk has not been run, whether its not having been run was owing to the fault, pleasure, or will of the insured, or to any other cause, the premium shall be returned: because a policy of insurance is a contract of indemnity. The under-writer receives a premium for running the risk of indemnifying the insured, and whatever cause it be owing to, if he does not run the risk, the consideration, for which the premium or money was put into his hands, fails, and therefore he ought to return it. 2. Another rule is, that if that risk of the contract of indemnity has once commenced, there shall be no apportionment or return of premium afterwards. For though the premium is estimated, and the risk depends upon the nature and length of the voyage, yet, if it has commenced, though it be only for twenty-four hours or less, the risk is run; the contract is for the whole entire risk, and no part of the consideration shall be returned: and yet,
7 Australian and New Zealand Insurance Reporter (looseleaf ed, CCH) at [4-470].
8 Tyrie v Fletcher (1777) 2 Cowp 666 at 668 – 669, 98 ER 1297 at 1298.
it is as easy to apportion for the length of the voyage, as it is for the time. If a ship had been insured to the East Indies agreeably to the terms of the policy in this case, and had been taken twenty-four hours after the risk was begun, by an American captor, there is not a colour to say, that there should have been a return of premium.
[25] Icepak’s case is that it is axiomatic that an insured (or whoever has paid the premium) may recover the amount of the premium if its insurer avoids, subject to some disentitling conduct or other reason which it falls to the insurer to establish. Icepak paid the premiums in return for indemnity under the policies. The effect of avoidance is that the insurer is not, and never has been or will be, required to indemnify under the policies, that is there has been a total failure of consideration.
[26] In support of its submission, Icepak referred me to Rover International Ltd v
Cannon Film Ltd, in which the Court said:9
… The question whether there has been a total failure of consideration is not answered by considering whether there was any consideration sufficient to support a contract or purported contract. The test is whether or not the party claiming total failure of consideration has in fact received any part of the benefit bargained for under the contract or purported contract. …
[27] Icepak also referred me to David Securities Pty Ltd v Commonwealth Bank of
Australia.10 In that case the Court said:
… The law has traditionally not allowed recovery of money if the person who made the payment has received any part of the “benefit” provided for in the contract. However … the notion of total failure of consideration now looks to the benefit bargained for by the plaintiff rather than any benefit which might have been received in fact.
[28] In Warman v Southern Counties Car Finance Corporation Ltd the plaintiff entered into a hire-purchase agreement in respect of a motor vehicle.11 The plaintiff paid instalments under the agreement and enjoyed the use of the vehicle for several months. It was a term of the agreement that the plaintiff would have an option to purchase the vehicle at the end of the term. The plaintiff was then served with
proceedings requiring him to return the vehicle to its true owner.
9 Rover International Ltd v Cannon Film Ltd [1989] 1 WLR 912 (CA) at 923.
10 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353.
11 Warman v Southern Counties Car Finance Corporation Ltd [1949] 2 KB 576 (KB).
[29] The plaintiff sought recovery of the amount of the instalments he had paid, on the ground that there had been a total failure of consideration. The Court held that there had been such a failure, despite the fact that the plaintiff had the benefit of the use of the vehicle for several months.12 It is apparent from this that the receipt of some benefit by a plaintiff does not preclude a determination that there has been a total failure of consideration.
[30] I refer also to Roxborough v Rothmans of Pall Mall Australia Ltd.13 In that case the question of whether there had been a failure of consideration was considered to be whether there had been a failure in the state of affairs contemplated as the basis for the payments sought to be recovered.
[31] As I have said, QBE’s submission is that the terms of the deed are an answer
to Icepak’s case.
[32] In summary the relevant terms of the deed provide that:
QBE is to advance $450,000 (GST inclusive) (“advance”) to Icepak (that
is, both Plaintiffs) and the Directors, jointly and severally.
The advance is repayable on demand but QBE agrees that it will not make demand unless, and to the extent, judgment is entered against QBE on, or QBE settles, a claim against it pursuant to s 9 Law Reform Act
1936 (“s 9”).
Icepak and the Directors withdraw claims they have made under the policies relating to the fire and agree not to resubmit those claims or any
other such claims.
The parties agree they will not issue proceedings against each other or anyone else in respect of the fire, such that QBE might be exposed to
claims for indemnity relating to the fire.
12 A similar conclusion was reached in Rowland v Divall [1923] 2 KB 500 (CA).
13 Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68, (2001) 208 CLR 516 at
[104].
[33] The covenants referred to in last two bullet points above were to become void if the advance were repaid.
[34] QBE paid the advance as required by the deed and no circumstances have
(yet) arisen that would entitle it to demand repayment, in whole or in part.
[35] QBE submits that there can have been no total failure of consideration as it has paid $450,000 to Icepak, being more than the amount of the premiums, and that Icepak would not have received the $450,000 had it not paid those premiums.14
With respect to QBE, that is not a correct summary of the deed. QBE advanced the funds on terms which allowed it to demand repayment of the full amount in particular circumstances.
[36] QBE also submits that before there can be a total failure of consideration it must be shown that QBE is not, never has been and never will be at risk under the policies and that is not the position in the present case. QBE submits that it is still exposed to the risk that it will have to indemnify Icepak, indirectly through a claim by a third party pursuant to s 9 or directly if the advance were to be repaid.
[37] I express no view on the submission that the effect of s 9 is to preclude a total failure of consideration. The effect of s 9 is to create a charge on any insurance money payable under a policy of insurance on the happening of an insured event. That charge arises as a matter of law and its effect, if any, on the issues which arise are best explored at trial, if the need should arise.
[38] Likewise the consequence of the possibility of a direct claim by Icepak in respect of the fire, if the advance were ever repaid. I accept that the possibility of such a claim might count against a total failure of consideration but I am not satisfied that Icepak’s claim should be struck out on that ground alone.
[39] In my view, the more fundamental point is Icepak’s submission that such benefits as it may be found to have received pursuant to the deed do not preclude a
finding of a total failure of consideration. As I have said, it submits that it paid the
14 Memorandum by Defendant of Intention to Make Oral Strike Out Application dated 14 March
2014 at [7.9].
premiums in return for indemnity under the policies, and not for an advance made on the terms of the deed. I am not persuaded that submission is not reasonably arguable.
[40] For the reasons given above, I decline QBE’s application to strike out. A new trial date must be allocated and such directions given or agreed as may be necessary.
[41] In the absence of agreement the parties may make submissions as to costs on this application.
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M Peters J
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