FEDERAL COURT OF AUSTRALIA Elilade Pty Ltd v Nonpareil Pty Ltd [2002] FCA 909 INSURANCE – insurance policy had "flood" exemption – loss caused by water damage being an insured event – loss subsequently caused by flood being an exempted event – extent to which damage caused by insured event recoverable – proximate cause of damage. INSURANCE – insurance broker – whether insurance broker owed insured duty to advise insured of availability of insurance including flood cover – whether insurance broker owed insured duty to inform insured of flood exemption in policy – whether duty discharged by correspondence requesting insured to check schedule of insurances which clearly identified flood exemption. Insurance Contracts Act 1984 (Cth), s 57,s 57(2), s 57(3) Consumer Affairs and Fair Trading Act (NT), s 42, s 44(e) Trade Practices Act 1974 (Cth), s 52(1) Insurance (Agents and Brokers) Act 1984 (Cth), s 13(1)(b) Insurance Contract Regulations 1985 (Cth), reg 32 Financial Laws Amendment Act 1997 (Cth) Federal Court of Australia Act 1976 Pye v Metropolitan Coal Co. Ltd (1934) 50 CLR 614 Wayne Tank & Pump Co. Ltd v Employers Liability Assurance Corp. Ltd [1974] Q.B. 57 Gold Coast Bakeries (Qld) Pty Ltd v Heat & Control Pty Ltd [1992] 1 Qd R 162 City Centre Cold Store Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) NSWLR 739 Leyland Shipping Co. Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350 National & General Insurance Co. Ltd v Chick [1984] 2 NSWLR 86 Moore v Evans [1918] AC 185 Countrywide Finance Ltd v State Insurance Ltd [1993] NZLR 745 Cory v Burr (1883) 8 App Cas 393 Thompson v Mastertouch TV Service Pty Ltd (No.1) (1997) 29 FLR 270 James v ANZ Banking Group Ltd (1986) 64 ALR 347 SWF Hoists and Industrial Equipment Pty Ltd v State Government Insurance Commission (1990) 12 ATPR 41-45 Caparo Industries plc v Dickman [1990] 2 AC 605 Lewis v Tressider Andrews Associates Pty Ltd [1987] 2 Qd R 533 Mitor Investments Pty Ltd v General Accident Fire and Life Insurance Corp. Ltd [1984] WAR 365 Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25 NSWLR 541 Dickson v Devitt [1917] 86 LJKB 315 Astley v Austrust Ltd (1999) 197 CLR 1 Fine's Flowers Ltd v General Accident Assurance Co. of Canada (1977) 81 DLR 3d 139 Rocco Pezzano Pty Ltd v Unity Insurance Brokers Pty Ltd (1995) 8 ANZ Ins Cas 61-288 Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 Fire & All Risks Insurance v Caratti (Bulfinch) Pty Ltd [1969] WAR 49 Craine v Colonial Mutual Insurance Ltd (1920) 28 CLR 305 Lake v Harford Fire Insurance Co. Ltd [1996] WAR 161 Re Mining Technologies Australia Pty Ltd [1999] 1 Qd R 60 Settlement Wine Co. Pty Ltd v National & General Insurance Co. Ltd (1994) 62 SASR 40 ELILADE PTY LTD (ACN 073 980 800) v NONPAREIL PTY LTD (ACN 009 611 358) AND CIC INSURANCE LIMITED (ACN 004 078 880) D.4 of 2000 MANSFIELD J 31 JULY 2002 ADELAIDE (HEARD IN DARWIN) IN THE FEDERAL COURT OF AUSTRALIA NORTHERN TERRITORY DISTRICT REGISTRY D.4 OF 2000 BETWEEN: ELILADE PTY LTD (ACN 073 980 800) APPLICANT AND: NONPAREIL PTY LTD (ACN 009 611 358) FIRST RESPONDENT CIC INSURANCE LIMITED (ACN 004 078 880) SECOND RESPONDENT JUDGE: MANSFIELD J DATE OF ORDER: 31 JULY 2002 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. Judgment be entered in favour of the applicant against the second respondent in the sum of $238,605. 2. The second respondent pay to the applicant interest on the judgment sum of $238,605 under s 57 of the Insurance Contracts Act 1984 (Cth) from 1 January 1999. 3. The applicant's claim against the first respondent be dismissed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NORTHERN TERRITORY DISTRICT REGISTRY D.4 OF 2000 BETWEEN: ELILADE PTY LTD (ACN 073 980 800) APPLICANT AND: NONPAREIL PTY LTD (ACN 009 611 358) FIRST RESPONDENT CIC INSURANCE LIMITED (ACN 004 078 880) SECOND RESPONDENT JUDGE: MANSFIELD J DATE: 31 JULY 2002 PLACE: ADELAIDE REASONS FOR JUDGMENT introduction 1 The applicant Elilade Pty Ltd (Elilade) was registered on 14 May 1996. It was formed as a vehicle for the acquisition of the businesses called Terrace Tapes Music World and Terrace Tapes Video World (the business) carried on at premises at Lot 1871 Katherine Terrace, Katherine (the premises) by Spicecard Pty Ltd (Spicecard). By contract dated 25 June 1996 Spicecard sold the business to Elilade. Settlement took place on 30 June 1996. Elilade then from 1 July 1996 ran the business under the name Terrace Tapes Music and Video World. 2 Elilade has four directors: Roberto Severino Buzzo (Mr Buzzo), who was on the evidence generally called Robert, Sharon Lyn Buzzo (Mrs Buzzo), Michael Aloisi (Mr Aloisi), who was on the evidence sometimes called Ali, and Debra Kaye Aloisi (Mrs Aloisi). 3 The intention of Elilade through its directors was that Mr Aloisi would give up the work he was previously doing as a bricklayer and would work full-time in the business. He was responsible for the day to day management of the business. 4 Neither Mrs Aloisi nor Mrs Buzzo intended to work in the business. Each had full-time employment in 1996 which continues to the present. Mrs Aloisi is the financial manager of the Binjari Community Government Council. That office carries with it significant financial responsibility. She had previously worked as the financial administrator for Kalano Community, an Aboriginal community in Katherine, between about 1988 and 1992 and before that as a bookkeeper in an accounting firm for some four years. It was intended that she would play a role in the business by reviewing and authorising the payment of accounts and associated bookkeeping and accounting responsibilities. Mrs Buzzo is a registered nurse, and is now the Nursing Co-ordinator at the Katherine Hospital. She had no direct role in the running of the business, although she maintained a general understanding of its operations and visited the premises from time to time. 5 Since 1993 Mr Buzzo has had experience running small businesses, including a delivery service called Nighthawk Couriers operating between Katherine and Darwin. He continued to run that business until April 1998, when he commenced to work full-time in the business. Prior to that time, he intended to, and did, spend a significant part of his time in relation to the day to day operations of the business, being present there most days for up to a few hours. In the light of his prior experience, he appears to have assumed the role of the financial or business manager of the business, in conjunction with the bookkeeping and accounting functions performed by Mrs Aloisi. 6 The claims in this proceeding arise out of damage to the stock and plant of the business as a result of the flow of water into the premises on 26 and 27 January 1998 following severe tropical rainstorms in the Katherine area. They commenced on 25 January 1998. It is clear that water entered the premises to some depth during 26 January 1998. The precise cause of the inundation of water is contentious. There is also a dispute as to its initial extent. The inundation of water caused some damage to the stock and plant in the premises. It is convenient to adopt the parties' description of that as the "initial inundation". It is also clear that at about 6 am on 27 January 1998 the Katherine River broke its banks due to the excessive water intake into the river system. Water from the river then directly flowed into the premises. That was called the "second inundation". I shall adopt that description. Ultimately the second inundation in the premises rose to a depth of some 1.8 metres. The waters did not abate fully for some days. 7 Before Elilade commenced operating the business, it arranged for certain insurance cover to be procured through the first respondent Nonpareil Pty Ltd (Nonpareil). Nonpareil is an insurance broker and agent. There was initially a cover note and then, following the completion of an insurance proposal on 8 July 1996, the formal policy was issued by the second respondent CIC Insurance Ltd (CIC). The policy was called an Australian Business Cover Policy (the policy). The policy first issued was effective from 1 July 1996 to 30 April 1997. The policy with CIC was renewed, with some alterations to the levels of cover, for a further period to 30 April 1998. It will be necessary to refer in some detail to the circumstances in which the policy was procured, and then renewed, later in these reasons. 8 Elilade's primary position is that both the initial inundation and the second inundation are defined events under the policy so as to entitle it to indemnity under the policy. Not surprisingly, Nonpareil supports it in that contention. Its loss is said to be made up as follows: Plant and equipment $ 66,278.50 Stock $330,845.38 Removal of debris $ 3,760.00 $400,883.88 Elilade accepts that the insured sums for stock and removal of debris under the policy were $270,000 and $2000 respectively. Consequently, it accepts that its claim against CIC should be limited to: Plant and equipment $ 66,278.50 Stock $270,000.00 Removal of debris $ 2,000.00 $338.278.50 It also claims interest under s 57 of the Insurance Contracts Act 1984 (Cth) from 15 April 1998, being the date from which it contends that it was unreasonable for CIC to have withheld payment under the policy, at least in respect of portion of its loss. 9 CIC contends that it is not liable to indemnify Elilade under the policy in respect of damage to stock and plant of the business in January 1998 caused either by the initial inundation or by the second inundation. It accepts that the initial inundation is a defined event under the policy. Its contention is that any damage to the stock or plant of the business was also caused by the second inundation. The second inundation, it contends, was a "flood" as defined in the policy so as to fall within an exclusion to the cover granted under the policy. Consequently, the argument runs, there were two proximate causes of damage to stock and plant of the business, and as one of them fell within the "flood" exemption in the policy Elilade is not entitled to indemnity at all under the policy. 10 CIC contends, if its principal contention is rejected, that the loss suffered by Elilade by reason of damage to its stock and plant from the initial inundation is not satisfactorily proved. The first point is simply that the evidence does not provide any adequate foundation for establishing with any confidence the extent of the stock directly affected by the initial inundation. Then it is submitted that the applicant has not established that such stock was damaged beyond recovery, or the recovery costs. Further, CIC contends, any damage to such stock, or to other stock in the premises, beyond the direct damage caused by the initial inundation, that is caused by the inability of Elilade to get access to the premises from the early hours of 27 January 1998, is also not recoverable because such loss was caused by the Katherine River breaking its banks. That event prevented access to the premises for some days following the initial inundation. Consequently, it is contended, such loss falls within the "flood" exemption in the policy. Finally, and as a further alternative, CIC contends that in significant respects Elilade failed to mitigate its losses. 11 Elilade has sought to establish that the damage to the stock by reason of the initial inundation extended well beyond the stock which was directly under water. It claims that, by reason of the high temperature, the very high humidity, and the lack of any air movement in the premises for the period from when the initial inundation occurred until the time when the second inundation occurred, most of the stock was damaged beyond economic repair in any event. That issue was the subject of expert evidence, as was CIC's riposte that that Elilade could in any event have greatly reduced any such loss by taking steps to remove and dry the stock and store it in a dry atmosphere, or at least could have done so but for the second inundation. 12 Nonpareil participated in the hearing in support of Elilade's claims in that regard. It was clearly in its interests to do so, as the claim against it is for failing to advise Elilade about the availability and desirability of procuring flood insurance, and for failing to procure that insurance for Elilade. If it is liable to Elilade, its liability will only be to the extent that the loss to Elilade by damage to the stock of the business exceeds the amount in respect of which Elilade is entitled to indemnity from CIC under the policy. 13 The claim of Elilade against Nonpareil is thus contingent upon its claim against CIC failing either entirely or in part. Elilade claims that Nonpareil, as its insurance broker, failed to exercise reasonable care towards Elilade in contract and in tort. In broad terms, the contention is that Nonpareil did not advise Elilade of the desirability or the availability of insurance cover in respect of the risk of flood, and did not procure for Elilade a policy of insurance which covered that risk. Elilade further contends that it was a term of its contract with Nonpareil that Nonpareil would procure on its behalf "the best policy to suit the needs" of Elilade, and that by procuring the policy with the "flood" exclusion Nonpareil was in breach of that term of its contract. It asserts that it was not informed of the "flood" exclusion and believed that it had flood cover. 14 Elilade further contends, on a similar basis, that it has a claim against Nonpareil for a contravention of s 44(e) of the Consumer Affairs and Fair Trading Act (NT) which provides: "A person shall not, in trade or commerce, in connection with the supply or possible supply of goods or services or the promotion by any means of the supply of goods or services – (e) represent that the goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits they do not have." The representation said to have been made by Nonpareil, and said not to have been accurate, is that Nonpareil could arrange for an insurance product to be procured on behalf of Elilade which would protect Elilade's interest in the business and in the premises "as requested by" Elilade, namely "comprehensive cover", and that Nonpareil would procure "the best policy suitable to" Elilade and would secure on its behalf insurance cover against "all appropriate insurable risks". Similar claims are made for contraventions of s 52(1) of the Trade Practices Act 1974 (Cth) and its analogue in s 42 of the Consumer Affairs and Fair Trading Act (NT) and s 13(1)(b) of the Insurance (Agents and Brokers) Act 1984 (Cth). 15 The quantum of Elilade's claim against Nonpareil, if Elilade does not fully succeed in its claim against CIC, is simply the difference between its formulated claim against CIC of $338,278.50 and the amount for which it recovers judgment against CIC plus interest. 16 Nonpareil accepts it owed to Elilade a duty in contract and in tort to take reasonable care in the performance of its insurance broking function in relation to Elilade. It contends that it fulfilled that duty. In particular, it contends that its duty of care did not require it to procure insurance against damage by flood irrespective of Elilade's wishes. Nor in the circumstances, it contends, was it required to positively advise Elilade to procure flood cover. It further contends that its duty of care did not require it to inform Elilade that the insurance cover it had under the policy excluded cover for damage caused by flood, and alternatively that it did inform Elilade of that state of affairs. There is a significant issue of fact between Elilade and Nonpareil on that matter. 17 Nonpareil further contends that Elilade has not proved that, even if Nonpareil had not informed Elilade about the flood exclusion in the policy, appropriate advice would have resulted in Elilade giving it instructions to procure insurance cover for damage by flood, or that even then Elilade would have been able to secure such insurance cover. Finally, in this brief summary of the issues, I note that Nonpareil denied any liability based upon any of the alleged statutory contraventions. 18 On 16 August 2001 Alexander Robert Mackay Macintosh and Anthony Gregory McGrath, Chartered Accountants, were appointed as joint provisional liquidators of HIH Insurances Ltd and seventeen subsidiary companies (the HIH Group), including CIC. Consequently, Elilade could not continue to maintain the proceeding against CIC without the leave of the Court. On 16 August 2001, von Doussa J gave leave to Elilade to proceed against CIC in this action, but restricted its prosecution to the entry of judgment only. No steps to enforce any judgment against CIC may be taken without further leave of the Court. CIC was represented at the hearing by counsel, and called evidence. the flow of water into the premises 19 Katherine Terrace runs roughly north west-south east in the relevant vicinity. It extends to the north west to the Katherine River, which flows from the north east and runs roughly at right angles to Katherine Terrace. On the south eastern side of the river, there are two low points where a sink hole was filled in, one on Katherine Terrace at about the front of the premises and one on Railway Terrace (which runs parallel with Katherine Terrace on its south western side) at about the rear of the premises. To the south east of those low points, Katherine Terrace rises about 340 mm over 70 metres and then falls into a further depression. To the north west of those low points, Katherine Terrace also rises over the distance of about 280 metres to the banks of the Katherine River. The natural bank of the Katherine River is about 1.6 m higher than the low point referred to. 20 Consequently, water ponding at the low point in Katherine Terrace should accumulate only to a depth of about 340 mm before it runs off into the further depression to the south east, at least until that depression also fills, assuming that the drainage system does not function to remove that water. 21 The unchallenged expert survey evidence is that the business of Katherine Newsagency, in premises at Lot 1870 Katherine Terrace adjacent to the premises, has a floor level 104.69 metres above sea level, and is at the same level as the 18.32 metre level on the flood gauge adjacent to the Katherine Railway Bridge over the Katherine River. Both the Katherine Newsagency and the business at the rear open on to Railway Terrace. 22 Local drainage in Katherine is provided by a system of piped and open drainage channels. If the capacity of the local drainage system during or following heavy rainfall is exceeded, water will pond in the streets. Also, if the river level is above the drainage outlets into the Katherine River, the drainage system will not function properly. 23 There was very considerable rainfall in the Katherine area and in the catchment area of the Katherine River on 26 and 27 January 1998 and in the preceding few days. The rainfall was very heavy from about 6 pm on 25 January 1998 to midnight on 26 January 1998, peaking for periods at about 12 pm on 25 January 1998 and at about 4-8 am and 3-8 pm on 26 January 1998. 24 The following represents my findings about the water level in and about the premises between 26 and 27 January 1998. It is taken from largely unchallenged eyewitness evidence, including that of the directors of Elilade, and from photographs taken at the time. 25 By about 10 am on 26 January 1998, the level of the Katherine River had risen to the point where the drainage system in Katherine Terrace could not function properly, and ponding of water in Katherine Terrace at the low point was likely to worsen. By 4 pm that day the river level was above the level of ponded water in Katherine Terrace, so reverse flow could occur if the flood gates did not work properly. 26 By the morning of 26 January 1998, some streets in Katherine were impassable due to accumulated rain water. Mr Aloisi and Mr Buzzo realised that there was a significant risk of water flowing into the premises. They went to get some sandbags to place in the path of any water. At 3 pm that day, they closed the business. Sandbagging of the front and rear doors of the premises and of adjoining businesses was carried out. There was by then substantial water ponding on Katherine Terrace in front of the premises, and vehicle movement by then was causing water to lap up to the top step of the front entrance of the premises. Mr Aloisi and Mr Buzzo assisted in sandbagging the interior and exterior of the rear doors and the interior of the front door. Emergency service volunteers from the armed services were sandbagging along the front of business premises in Katherine Terrace. Mr Aloisi and Mr Buzzo also kept informed about the water levels in the Katherine area generally to ensure their children and their elderly parents were safe. Mrs Aloisi also observed the increasing level of the ponded water. She was not at work that day as it was a public holiday. She feared the flooding of the Katherine River. She managed to notify the Binjari Community of the peril, and to get them to take steps to move from their Lower Camp adjacent to the Katherine River. 27 By about 3.00 pm when the front and rear of the premises had been sandbagged, there was no longer any access to the premises. Up to that time, Mr Buzzo, and Mr and Mrs Aloisi had put as much stock as they could on the front counter of the premises. 28 The premises facing Katherine Terrace has a glass frontage, with double glass door entry. There are two steps from footpath level to the entry level, and the glass frontage sits on a low brick wall about 200 mm higher than the base of the doors. The sandbagging around the doorway extended well above the level of the brick wall. The concrete slab floor of the premises is about 200 mm above the level of the footpath and the footpath is also measurably above the low point on Katherine Terrace adjacent to the premises. 29 Progressively during the afternoon and evening of 26 January 1998, water settled on Katherine Terrace in front of the premises and nearby premises, and then deepened so as to reach out over the footpath in front of the premises. By 7.00 pm the water level had built up on Katherine Terrace so that it covered the footpath. It was, by then, somewhere between knee keep and waist deep on parts of Katherine Terrace. It had already deepened to a height above the level of the two entry steps to the premises and, despite the sandbagging had entered the premises. By about 8.30 pm the water level was nearing the height of the brick wall supporting the front windows of the premises, and so was about 150 mm deep inside the premises. 30 CIC, through its parent company, in June 1999 engaged an engineer to provide an hydrology report. An undated report was provided. It was based upon an inspection on 16 June 1999, inspections of (unspecified) neighbouring properties "soon after" the January 1998 flood, data from a previous hydrology report on the premises (the conclusions of which it did not accept), results from a detailed hydraulic model set up to assess flooding behaviour in Katherine during the January 1998 flood, and Department of Lands Planning and Environment orthophoto maps dated 27 April 1998. It concluded: "· Flooding at the subject property was primarily caused by floodwaters from the Katherine River overflowing its banks, ie mainstream flooding. · The highest likely depth of local runoff ponded on Katerine [sic] Terrace would have been 0.05 m below the estimated floor level of the subject property. However, bow waves generated by cars driving through the local ponded water on Katherine Terrace could have flowed in the front door of the subject property to wet the carpets." I was not asked to accept that opinion by any party. It is plainly wrong. The eyewitness evidence of Mr Buzzo and others contradicts it. The photographs taken of the front of the premises in the evening of 26 January 1998 and well before the Katherine River broke its banks contradict it. CIC submitted the Court should find include the initial inundation, before the Katherine River broke its banks at about 6.00 am on 27 January 1998, was about 150 mm – 200 mm above the floor level of the premises at about 4.00 am on 27 January 1997. 31 Given the further depression to the south-east of the premises along Katherine Terrace, after the low point in front of the premises gradually rises by about 340 mm, theory indicates ponding of water in Katherine Terrace should not be deeper than 340 mm. Water should then run off to the further depression to the south east. Water depth of 340 mm in Katherine Terrace in front of the premises should not have flowed into the premises because of the floor height above the low point in Katherine Terrace, except for water flow from the bow waves of passing vehicles. Nevertheless, it is clear that the initial inundation was to some depth in the premises. 32 One possibility as to the source of the water which comprised, or partly comprised the initial inundation was from reverse flow of water from the Katherine River up the drainage system because the valve controlling the reverse flow of water as the water level rose in the Katherine River was not working. Upon the whole of the evidence, I do not think that any such reverse flow of water comprised any part of the initial inundation, at least not before about 8.30 pm on 26 January 1998. The colour of the water seen in and about the premises to that time did not match the colour of the river water. In any event, CIC has not contended that damage caused by water from the Katherine River which flowed in reverse up the drain to the low points adjacent to the premises either in Railway Terrace or in Katherine Terrace was "flood" water so as to fall within that exemption under the policy. 33 Expert engineering evidence was presented by Elilade and by CIC about the source and extent of the initial inundation from Dr William Weeks, who provided an hydrology report dated 19 June 2000. His opinion was adopted and further commented upon by Ms Tina O'Connell (as Dr Weeks was overseas at the time of the hearing). Further evidence was given by Mr Greg Roads in a report dated 24 June 1999, and in a further report of Dr Sharmil Markar dated 26 January 2001 which Mr Roads assisted to prepare and which he adopted. The qualifications of those persons were unchallenged. 34 Those witnesses conferred prior to the hearing and, very helpfully, agreed in general terms upon a number of matters. Their evidence in that regard was reflected in an agreed summary document. Nonpareil called one witness dealing with similar matters, namely Mr Peter Saunders. The following represents my findings in the light of all that expert evidence. In large measure, I have accepted the common evidence of Dr Weeks, Ms O'Connell and Mr Roads. It is also generally consistent with the opinions of Mr Saunders. 35 It is common ground between the experts that local water ponding in the vicinity of the premises could not be so great as to lead by itself to the initial inundation. The ground depression in the area would fill and then overflow to the depression to the south east, provided the overflow was not impeded. When full, its level would not be high enough to cause the initial inundation. Nevertheless, the initial inundation occurred. The experts are agreed that this may have resulted from the groundwater table water surface generally increasing in the area. Witnesses' observations of water flowing out of drainage pits, and of the groundwater table rising above ground level in several other places within the Katherine catchment area tend to support that conclusion. As noted, another possible explanation, from a scientific viewpoint, is that the additional water was from reverse flow from the Katherine River up the stormwater drainage pipes because the flood gates to prevent such reverse flow did not operate properly. By about 7 pm on 26 January 1998, the water level in the Katherine River was above the floor level of the premises but it had not broken its banks. Such lay evidence as was given pointed against that possibility for the reasons referred to in [32] above. The appearance of the water constituting the initial inundation was not the same as the appearance of the water which ultimately came from the Katherine River. Moreover, there is no evidence to indicate that the flood gates to prevent such reverse flow were not operating effectively. Mr Saunders offered the explanation for ponding in Katherine Terrace to a depth greater than 340 mm (as I find occurred on the evidence) as being somehow due to blocking of water flow to the south east, perhaps due to sandbagging or sand stockpiling, in addition to the possibilities referred to by Mr Roads and Ms O'Connell. Each explanation assumes also that the depression to the south east was not also full. 36 John Yates in January 1998 lived in a flat above Terrace Tapes. He generally confirms the initial inundation. He remained in his flat from about 4.00 pm on 26 January 1998, and went to bed at about 9.00 pm. By that time he saw the water in the premises had reached the bottom step of the stairs (under which Elilade had a storage area). His evidence is consistent with other evidence, including that of Brian Rock and Katherine Barry. 37 I accordingly find that the initial inundation commenced in the late afternoon of 26 January 1998 and by around 8.30 – 9 pm it was about 150 – 200 mm deep in the premises. That water was not caused by bow waves from passing vehicles. Inflow of water from bow waves from passing vehicles may have occurred earlier that day, but by 8.30 pm no vehicular movement close to the front of the premises along Katherine Terrace was occurring. The witnesses also described the water in the area as still. 38 It does not really matter to the outcome of the case what the precise mechanism for the initial inundation was. It was not argued by either respondent that, if the initial inundation was caused or partly caused by the reverse flow of water from the Katherine River before it broke its banks, water from this source was a "flood" within the meaning of that exemption in the policy. Whatever the mechanism for ponding of water in Katherine Terrace sufficient to cause the initial inundation, it was a defined event under the policy. 39 Ms Barry was the operator of another business on Katherine Terrace. She confirms that water was back flowing from the drainage system from late in the afternoon of 26 January 1998. Her evidence indicates that between about sunset and 1.30 am on 27 January 1998, the water on the side of Katherine Terrace adjacent to the premises increased in depth. At about sunset, it was shin deep and by 1.30 am on 27 January 1998 it was well above knee height. In her shop, which is a little lower than the premises, she says the water was waist height at the rear and above knee height at the front. It was continuing to rise. 40 Because of varying levels along Katherine Terrace, it is not appropriate to extrapolate directly from her evidence to determine water levels in the premises between about 8.30 pm on 26 January 1998 when Mr Buzzo and Mr Aloisi last left there that evening and 6 am on 27 January 1998 when the second inundation occurred. However, her evidence shows that the water level in the area increased significantly from its level in the evening of 26 January 1998 to the early hours of 27 January 1998. I think that must have occurred also in the premises. 41 It is impossible to be precise. I find that the water level in the premises increased during the night of 26/27 January 1998 to a depth somewhat in excess of 300 mm. All witnesses described the water in Katherine Terrace that night as "still", that is not flowing as if in some form of current. The initial inundation, in my judgment, therefore progressively increased in depth in the premises from its commencement late in the afternoon of 26 January 1998 to a depth in excess of 300 mm sometime in the early hours of 27 January 1998. 42 Ms Barry also described the Katherine River breaking its banks about 6 am on 27 January 1998. It then flowed "in a torrent" into the Katherine shopping area causing the second inundation. The second inundation rose to a depth of about 1.8 metres in the premises. I accept her evidence. I find that the second inundation occurred at about 6 am on 27 January 1998 when the Katherine River broke its banks and approximately 1.8 metres of water flowed into Katherine, including into the premises 43 The second inundation took some days to subside. During that time, Elilade did not have access to the premises. Because the second inundation comprised river water with organic constituents, the stock and plant in the premises largely required to be jettisoned. the claim against CIC 44 The policy covered a range of risks. It was divided into five sections or categories of risk to be covered. Elilade did not take up all of the potential categories of cover. For example, Section 2 of the policy relates to business interruption insurance cover. Elilade did not procure business interruption insurance cover. 45 Section 1 of the policy relating to "Fire and Associated Perils" is the section directly relevant to the present proceedings. It contained an agreement to indemnify in the following terms: "We shall indemnify you if any of the Property insured under this Section is Damaged by any Defined Event. The Basis of Settlement will be either Indemnity or Reinstatement and Replacement as indicated in the Schedule." The initial sum insured, according to the policy schedule, for "stock and work in progress" was $190,000 and for "contents machinery and plant" was $60,000 plus for "demolition and removal of debris" the sum of $2000. The total sum insured under section 1 of the policy was initially $252,000. There was an excess of $100. The schedule provided that the item under Section 1 was "subject to replacement conditions". 46 The defined events applicable to Section 1 of the policy included "Wind and/or Water". However, the policy then provided: "We will not pay for Damage caused: (a) by flood, however caused; …" "Flood" was defined as follows: "'flood' means the inundation of normally dry land by water overflowing from the normal confines of any natural watercourse or lake whether or not altered or modified or of any reservoir, canal or dam." 47 No other provisions of the policy have been identified as directly relevant to the claims in this proceeding. 48 CIC accepts that, under Section 1 of the policy, it is obliged to indemnify Elilade in respect of damage caused by the initial inundation. For its part, Elilade with one reservation accepts that the second inundation was a "flood" as defined in the policy so that CIC is not obliged to indemnify it for damage caused by the second inundation. 49 The reservation of Elilade is that, at the time of the second inundation, because the premises and much of the surrounding premises and Katherine Terrace were under water, the second inundation was not over "normally dry land". The definition of "flood" in the policy includes the inundation of normally dry land by water overflowing from the normal confines of a natural watercourse. Consequently, Elilade contends that the second inundation was not a "flood" under the terms of the policy. 50 I reject that submission. In my view the Katherine area, including the premises, was "normally dry land". That was its normal state. The fact that, on 26 and 27 January 1998, the heavy rainfall in the area somehow caused the initial inundation does not change the character of the area. It may be accepted that the onus is upon CIC to prove that the second inundation was a "flood" so as to fall within the exception to the indemnity granted under the policy: Pye v Metropolitan Coal Co. Ltd (1934) 50 CLR 614 at 625. However, that onus in my view is readily satisfied. The expression "normally dry land" must be construed in its context. The context is in the definition of "flood" for the purposes of the exemption and in the context of the policy as a whole. "Flood" is defined by a particular event or process – the inundation of land of a certain character by water overflowing from a particular source – and by reference to the character of the land inundated. The character of the land inundated is intended, in my view, to have a more or less constant character. That is indicated by the use of the word "normally". It suggests the character of the land is measured not by reference to its particular (and, on the evidence, very occasional) character following very abnormal rainfall but by its usual or normal character. 51 CIC contends that although it was obliged to indemnify Elilade for any damage caused by the initial inundation, the second inundation occurred almost contemporaneously with the initial inundation. Consequently, it contends, the damage caused to Elilade's stock and plant was caused by both the initial inundation and the second inundation. Thus, it is contended, there were two contemporaneous causes of Elilade's loss of which one was an exempted event under the policy. If that were the case, there is authority which would support the conclusion that there is no obligation to indemnify under the policy: see e.g. Wayne Tank & Pump Co. Ltd v Employers Liability Assurance Corp. Ltd [1974] Q.B. 57 (Wayne Tank & Pump Co); Gold Coast Bakeries (Qld) Pty Ltd v Heat & Control Pty Ltd [1992] 1 Qd R 162; City Centre Cold Store Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) NSWLR 739. 52 However, I do not consider that is the present situation. I have found that the initial inundation – an insured event – occurred many hours before the second inundation – an exempt event. CIC is of course only liable to indemnify for losses proximately caused by an insured event, relevantly the initial inundation. The test of whether the initial inundation is a predominant or effective or proximate cause of loss is one of fact to be determined by applying commonsense principles: Leyland Shipping Co. Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350; National & General Insurance Co. Ltd v Chick [1984] 2 NSWLR 86. 53 In this matter, I find that the initial inundation caused damage to certain of the stock and plant and equipment of Elilade. It did so by direct contact with water, up to a depth in excess of 300 mm, for periods of some 12 or so hours, although the water level did not fully rise to the level of in excess of 300 mm in the premises until the early hours of 27 January 1998 and only a few hours before the second inundation. It also caused damage by the humidity in the premises, then closed and sandbagged in an area of high humidity and without any ventilation, again for many hours. I find that although the closure of the premises was in part, if not entirely, dictated by the fear that the Katherine River might break its banks and cause catastrophic flooding, the real and proximate cause of damage to the stock and plant and equipment in the premises of Elilade up to 6 am on 27 January 1998 was the initial inundation. Although that conclusion is a finding of fact, I think my approach is consistent with the approach in Moore v Evans [1918] AC 185. By the time of the second inundation, I find that there was significant damage to the stock and plant and equipment in the premises of Elilade. I address the nature and extent of that damage later in these reasons. 54 The second inundation had devastating consequences. To the extent to which the stock and plant and equipment of Elilade was not already damaged, the second inundation effectively damaged that stock and plant and equipment almost beyond recovery. At and from the time of the second inundation, I think that any potential (as distinct from actual) damage caused by the initial inundation must be looked at in a different light. The potential damage to which I refer is the prospect for further deterioration of stock or plant and equipment of Elilade from the initial inundation by the passage of time and in the particular weather conditions. That potential damage could have been, for example, by compact discs being directly exposed to water for a period beyond 6 am on 27 January 1998 so as to cause them greater damage. It could have been, as another example, electronic equipment not directly in contact with water from the initial inundation either becoming damaged from the humidity in the premises only after 6 am on 27 January 1998, or becoming more damaged from humidity after that time. 55 From that point, that is from the time of the second inundation, I do not consider that Elilade is entitled to be indemnified under the policy for any damage to its stock or plant and equipment. There are two means of reaching that conclusion. The first is to treat the initial inundation and the second inundation from that point as each operating as effective or proximate causes of Elilade's losses sustained thereafter. In that event, as one of the proximate causes was an exempted event under the policy, Elilade would not be entitled to indemnity: Wayne Tank and Pump Co.; Countrywide Finance Ltd v State Insurance Ltd [1993] 3 NZLR 745. The second is to conclude, as I do, that in a real and practical sense, the proximate or effective cause of any damage caused after that time was the second inundation. It effectively rendered the initial inundation of no ongoing significance to the losses sustained after that time. The quality of the water from the Katherine River, with its high organic content, was different from that of the initial inundation. It had different and more adverse consequences, including health considerations, leading to virtually all the stock and plant and equipment being irrecoverable and being disposed of. Its height of 1.8 metres was greatly higher than the initial inundation. The process by which, after 6 am on 27 January 1998, damage would have continued to be caused to the stock and plant and equipment of Elilade from the initial inundation effectively ceased because it was overtaken and overwhelmed by the nature and extent of the second inundation: cf Cory v Burr (1883) 8 App Cas 393. 56 It is therefore neither necessary, nor appropriate, in my judgment to undertake any hypothesis as to what damage might have been caused to the stock and plant and equipment of Elilade from the initial inundation had the second inundation not occurred. The fact is that the second inundation did occur, and from the time of its occurrence I consider, for the reasons given, that any damage to the stock and plant and equipment of Elilade was not damage in respect of which Elilade is entitled to indemnity under the policy. 57 In my judgment, Elilade is entitled to indemnity under the policy in respect of the damage to its stock and plant and equipment which had in fact occurred up to 6 am on 27 January 1998, that is up to the time of the second inundation. I will address the quantification of that loss later in these reasons. 58 In light of that conclusion, it is necessary to consider Elilade's claim against Nonpareil. PROCURING THE INSURANCE 59 Mr Buzzo had used the services of Nonpareil as his insurance broker for private insurance purposes for some years, and from about 1994 in arranging insurance for his Nighthawk Couriers business. He dealt with Glenda Campbell (Ms Campbell). 60 Mr and Mrs Aloisi had also procured their private insurance with Nonpareil for some years prior to 1996. They had dealt with Andrew Cielens (Mr Cielens). Mr Cielens is a qualified and experienced insurance broker. Although Nonpareil had been the insurance broker for Spicecard for some years prior to the sale of the business to Elilade, he had not personally been responsible for that account. Mrs Aloisi also used Nonpareil as the insurance broker for both the Binjari Community Government Council and the Kalana Community. 61 When Elilade decided to buy the business, its directors realised the need to obtain insurance cover. In June 1996, Mr Buzzo sought a quotation from Territory Insurance Office (TIO) to secure insurance for the business. At about the same time, Mr Aloisi contacted Mr Cielens of Nonpareil for the same purpose. The two men then decided to engage Nonpareil as the insurance broker for the business. Mr Cielens had a brief conversation with Mr Aloisi as to the insurance required by Elilade. 62 There is some dispute as to what was said on that occasion. Mr Aloisi said that he asked for "whatever is in place at the moment". I accept that both of those witnesses were endeavouring to give a truthful account of the conversation. I do not accept entirely the evidence of either of them. I think it reflects what each had in mind in a general way, rather than what was said. In my view, Mr Cielens did ask Mr Aloisi what type of insurance cover was required and the levels of the cover. I do not think Mr Aloisi's past experience fully equipped him to give a definitive answer. He probably gave a general ambit response, to convey that he was unsure but that Elilade wanted to be properly covered rather than leave significant areas of risk uninsured. As Mr Cielens knew that Spicecard, the previous operators of the business, also insured through Nonpareil, in my view Mr Cielens then suggested the existing insurance cover of Spicecard as an appropriate starting point. Mr Aloisi agreed. I do not consider that Mr Aloisi had sufficient knowledge or experience to then determine that Spicecard's insurance cover would be exactly that required by Elilade. His general evidence and demeanour did not convey that he assumed such a level of responsibility on behalf of Elilade. As I have said, I also do not accept that he simply asked for "comprehensive cover". Mr Cielens would have recalled, and responded to, such a request in a different manner than his actual response. 63 On 21 June 1996, Mr Cielens sent by facsimile to Elilade at the home address of Mr Aloisi the schedule of insurance then held by Spicecard. The facsimile printout was on thermal or "wet" paper, so Mrs Aloisi photocopied it to preserve it. She disposed of the original. 64 There is a dispute as to the contents of that facsimile. Mrs Aloisi produced her copy of the facsimile. It has three pages. The facsimile printout records the date and time of the facsimile, its origin and its destination, and the page number. The front page, as produced by Mrs Aloisi, has the date and time "21 Jun '96 16:52". Unfortunately, in the copying at the time, the page number at the top right hand corner has been cut off. The second and third pages in the document as produced bear the numbers at the top right hand corner 002 and 003. Each bears the date and time "21 Jun '96 16:51". It appears that the front page of those three pages was sent after the second and third pages. 65 I find that, accidentally, at the time of photocopying the facsimile, page one of the facsimile was not copied. The original facsimile as sent was produced through Mr Cielens. It comprised four pages. The front page of that copy contained details of the insurance over the existing business, then proposed to be purchased. The remaining three pages of the document produced by Mr Cielens accord in all respects with the three pages of the document held by Mrs Aloisi. The front page includes under the heading "Material Damage (Fire and Extraneous Risks)" the following: "Fire Policy – Covers loss or damage by Fire, Lightning, Explosion, Storm and Tempest and other extraneous risks. Excludes amoung [sic] FLOOD. PLEASE REFER TO POLICY FOR FULL DETAILS." The expiry date shown is 31 July 1996. The front page also has the handwritten entry on its top left corner: "Ali, herewith current detail – let us know what you want changed. Andy." 66 I have no doubt that Mrs Aloisi failed to copy the front page of the facsimile, and retain it, purely through error. She impressed me as an able and intelligent person who tried to give her evidence honestly. I also accept that she did not then read on the "wet" paper copy of that document the exclusion of flood cover, as it applied to the previous owner of the business. I accept also that Mr Aloisi did not then pay any detailed attention to that document. 67 I find then that Mr Aloisi and Mr Cielens had a further telephone conversation on 24 June 1996. I think that reflects the inherent probabilities of the sequence of events, although Mr Cielens recalled only one telephone conversation with Mr Aloisi. I am unable to make a finding about who initiated that contact. On that occasion, Mr Cielens noted on his copy of the documents faxed to Mr Aloisi the amounts for which insurance was required by Elilade. He probably explained to Mr Aloisi the need to have specific instructions to secure quotes from insurers, and that the instructions then given could be varied when a formal proposal was filled out. Mr Aloisi was, I find, briefly taken through the types of insurance cover on the schedule of insurances of Spicecard, and nominated after some brief discussion with Mr Cielens the levels of cover required. I accept that Mr Aloisi probably did not have the front page of the facsimile sent on 21 June 1996 as the photocopied version prepared by Mrs Aloisi omitted that page. Hence he did not see the exclusion of flood cover on that document. The topic of flood cover, or the exclusion of flood cover, was not discussed at the time. 68 Following his telephone conversation with Mr Aloisi, Mr Cielens procured insurance quotations from several insurers on 24 June 1996, including CIC. He received a response from CIC on 26 June 1996, and undertook a telephone negotiation to secure a revised and lower quotation. He made similar inquiries of some other insurers. As the CIC quotation was the cheapest, and in his view there were no other considerations to warrant advising another insurer to be adopted. Mr Cielens then telephoned Mr Aloisi on 28 June 1996 and recommended Elilade take up the CIC quotation. He was instructed to do so. On the same day, he arranged an interim cover note from CIC. Mrs Aloisi wanted something in writing. She sought confirmation in writing of the insurance being in place. She contacted Mr Cielens, who was then in Darwin for a few days. He sent her a confirmatory note also dated 28 June 1996. 69 The next contact was on 8 July 1996. Mr Cielens met with Mr Aloisi and Mr Buzzo to formally complete the proposal to submit to CIC. That meeting took place at the premises. In the office at the rear of the premises, the three persons discussed the insurance needs of the business. I accept it was a relatively brief discussion. Mr Cielens had a proposal for completion, and said that a "business pack" was the best type of insurance to obtain. He asked Mr Aloisi and Mr Buzzo questions and wrote their answers on the proposal form. The discussion did not centre on the types of insurance cover required, but upon the levels and amounts of the cover. Mr Buzzo did say that Elilade required workers compensation cover, and cover for fusion, theft and computer loss. There was discussion about who was required to be covered as employees, and it was decided that Mr Buzzo did not need to be so covered as he was not working many hours in the business and was insured as an employee in the Nighthawk Courier business. There was also discussion about the level of cover for money held on the premises, and whether business interruption cover was available. 70 I accept Mr Cielens' evidence that, in going through the proposal, he pointed out that there were some areas of insurance cover not taken up, including theft by employees, machinery breakdown, and business interruption. He agreed that Mr Buzzo and Mr Aloisi expressed an interest in business interruption cover. I find he told them they would need to provide figures of the previous business for the previous year or projected figures. I think they misunderstood his words in thinking that such cover was not available unless Elilade had been trading for 12 months. He also says he pointed out that there were exclusions in the policy, such as damage by war. He did not refer to the flood exclusion. 71 I reject Elilade's evidence that, on 8 July 1996, Mr Buzzo or Mr Aloisi asked for "comprehensive cover", or "total cover". No such business insurance is available. By the time of that meeting, the insurance cover with CIC was already in place. Mr Aloisi had told him the levels of cover required. The discussion did review those figures, and the types of cover. The discussion about types of cover is not really consistent with such a request. Nor is Elilade's decision not to take up certain types of insurance cover. 72 Mr Cielens did not raise with Mr Buzzo and Mr Aloisi the issue of flood insurance. He had over the years spoken to a lot of clients about that, and generally they did not take out flood insurance as they did not wish to pay the extra premium. He did not talk about the risk of flood with them, or the exclusion in the CIC policy. That omission was, I find, not due to any oversight on his part but simply a judgment he made at the time that it was not necessary to do so. 73 There is no doubt Nonpareil was aware of the possibility of flooding in Katherine. The Northern Territory Emergency Services issued a brochure entitled "Flooding in Katherine" in May 1990. Nonpareil kept a supply of those brochures displayed on its front counter in Katherine for its clients. If a client expressed an interest, Nonpareil would discuss with the client the desirability of such cover having regard to the risk as revealed by the brochure. The brochure had a flood map showing the flood contour for predicted inundations on a 20, 50 and 100 year cycle. The 1:20 year flood is said to occur at the gauge height at the Katherine Railway Bridge on the Katherine River of 18.15 m and the 1:50 year flood at the gauge height of 19.1 m. It would then extensively flood the central business district and lower parts of the town. The brochure indicates there was a 20 year flood in 1984 and a 100 year flood in 1957. 74 Mr Cielens agreed that the proximity of the premises to the Katherine River exposed it to the risk of flood, and that the risk was not an insignificant one. He said it was up to clients of Nonpareil whether they wanted flood insurance. He said its clients made that judgment on the data in the brochure, available to all clients by its display at Nonpareil's office. However, it was not brought to the attention of Mr Buzzo or Mr Aloisi. Mr Cielens said the issue was brought to their attention, he believed, by Nonpareil having sent them Spicecard's schedule of insurances. However, Mr Cielens agreed that the meeting on 8 July 1996 was the occasion to give Mr Buzzo and Mr Aloisi advice about what cover they could or should get. He had already arranged the CIC cover to meet their expressed requirements. The proposal completion process was a kind of "needs analysis" process. In re-examination, he said he did not think there was a "real risk of flood" at the premises as it was a "worst case scenario" which would not affect the business to any extent because any flooding was unlikely to be of any significant proportion. 75 The proposal as completed records the sums nominated for insurance for stock, and for plant and equipment, debris removal and other matters. The sections for business interruption, fidelity guarantee and machinery breakdown were deleted as not required. It was signed at the meeting on 8 July 1996. It sought insurance to 30 April 1997, as Mr Cielens advised Mr Aloisi and Mr Buzzo to fix a renewal date which did not correspond with the end of the financial year. Neither Mrs Aloisi nor Mrs Buzzo were involved in the discussions with Mr Cielens when the policy was procured, nor with Ms Campbell or Ms Richards when it was renewed in April 1997. 76 On 10 July 1996, Nonpareil wrote to Elilade enclosing a "Schedule of Insurances". The letter concluded: "As discussed with Robert and Ali the sums insured have been amended to hopefully suit your business requirements. Please give serious consideration to the new limits and let me know if you think changes are required. I ask that you peruse all the information contained herein carefully and let me know of any errors or omissions which we can rectify." The Schedule of Insurances included details of seven categories of risk, of which "MATERIAL DAMAGE (FIRE AND EXTRANEOUS RISKS)" stated: "FIRE POLICY – Covers loss or damage by Fire, Lightning, Explosion, Storm & Tempest and other extraneous risks. Excludes among others FLOOD. PLEASE REFER TO POLICY FOR FULL DETAILS. On Contents of every description $ 50,000 Stock-intrade &/or Merchandise $190,000 Removal of Debris $ 2,000 TOTAL SUM INSURED : $252,000 Excess $ 100" Mr Buzzo said that, despite the request contained in the letter of 10 July 1996, he did not read the Schedule of Insurances "cover to cover" as he assumed that Elilade was covered "for everything we needed". Nor did Mr Aloisi pay any real attention to that document. 77 I also accept that Mrs Aloisi also did not read the schedule of insurances dated 10 July 1996, or that received upon renewal dated 19 March 1997. She did not routinely see such documents as they were not within her area of responsibility. She accepted that she would have seen the insurance invoice and the renewal invoice dated 9 May 1997. Those invoices had an identical entry concerning the exclusion of flood cover. Mrs Aloisi was routinely given all invoices to arrange payment. She did not then carefully go through such documents to check the level of insurance cover. She left that to Mr Buzzo and Mr Aloisi. 78 The next contact between Elilade and Nonpareil concerned the renewal of the insurance, due to expire on 30 April 1997. It was initiated by Ms Campbell. Ms Campbell worked almost continuously for Nonpareil between 1982 and 1997. She is Senior Associate of the Australian Insurance Institute. On 19 March 1997, Nonpareil through Ms Campbell wrote to Elilade in the following terms: "We are enclosing a schedule of your insurances which are due shortly. It is imperative that you advise us of any changes required. To enable us to obtain the best possible rates, it is essential that this schedule is returned to us as soon as possible. If any Declarations are attached please return these completed, together with your amended schedule." The enclosed schedule of insurances had not been returned to Nonpareil prior to the meeting. It was prepared on 19 March 1997. Its second page lists the two policies then current in respect of the business, namely the CIC Business Insurance policy and the TIO Workers Compensation Policy. 79 The schedule then has two pages summarising the business insurance policy, and one page summarising the workers compensation policy. The pages summarising the business insurance policy contain seven subheadings for different types of risk covered, the first of which is headed "MATERIAL DAMAGE (FIRE & EXTRANEOUS RISKS)". It reads: "FIRE POLICY – Covers loss or damage by Fire, Lightning, Explosion, Storm & Tempest and other extraneous risks. Excludes among others FLOOD. PLEASE REFER TO POLICY FOR FULL DETAILS. On Contents of every description $ 60,000 Stock-in-trade &/or Merchandise $190,000 Removal of Debris $ 2,000 TOTAL SUM INSURED : $252,000 Excess $ 100" 80 Against each of the types of risk covered, it sets out the level of cover provided. The workers compensation policy schedule specifically asks for details of actual wages paid during the period from 1 July 1996 and estimated wages for 1996/1997. 81 On 16 April 1997, Mr Buzzo and Mr Aloisi met again with Nonpareil. The purpose was to discuss the renewal of the insurance. Ms Campbell attended that meeting on behalf of Nonpareil, with Suzanne Richards (Ms Richards) another employee of Nonpareil. 82 I accept the evidence of Ms Campbell and Ms Richards about the events at the meeting on 16 April 1997. There is one qualification on that, concerning a discussion with Mr Aloisi as she was leaving the premises to which Ms Campbell referred. I shall deal with that separately. The evidence of Mr Buzzo and Mr Aloisi about the meeting is not inconsistent with that of Ms Campbell or of Ms Richards. 83 Ms Campbell arranged prior to the meeting to obtain two quotations for the existing insurance from other insurers, and a comparison schedule of those quotations with CIC's quotation before the meeting. She confirms that at the meeting she worked sequentially through a "Renewal Check Slip" (which Ms Richards called the "Day File"). It was of the same general structure as the schedule of insurances enclosed with the letter of 19 March 1997 to which Mr Buzzo had access during the meeting but had less detail. The "Material Damage" section did not have the annotation referring to the exclusion of flood cover. Ms Campbell noted on her Renewal Check Slip the instructions given by Mr Buzzo at the meeting concerning changes in the required levels of insurance. Consequently, although Mr Buzzo had that note in front of him, Ms Campbell had no such prompt. 84 By April 1997 Mr Buzzo was working more in the business. The general picture is that he, on behalf of Elilade, was the person who principally participated in the discussion. Mr Aloisi said, and I accept, that he felt a little let down that Mr Cielens had not himself attended the meeting and he therefore remained somewhat remote from the discussion. I find that he did not play any real part in the discussion on that occasion. Mr Buzzo, Ms Campbell and Ms Richards sat at the table in the rear office of the premises and Mr Aloisi stood at the rear doorway of the premises. It was apparent to Ms Campbell that her discussions were primarily with Mr Buzzo. In that context, therefore, there is no reason why she should have thought it appropriate to take up any matter which she regarded as significant with Mr Aloisi as she was leaving the premises. Mr Buzzo's recollection of the discussion about business interruption insurance and about the basis of insuring the video tapes is a little different, but not in any material respect. I think it simply reflects the different levels of expertise and understanding of Ms Campbell on the one hand and Mr Buzzo on the other. 85 At the meeting Mr Buzzo had the schedule of insurances on the table in front of him. Ms Campbell led the discussion by working through the schedule. Ms Richards does not recall the detail of the discussion. She confirms Mr Buzzo worked through his copy of the schedule of insurances with Ms Campbell. There was discussion about the material damage cover, including a lengthy discussion about whether the video tapes should be insured on an indemnity value or a replacement value basis. Ms Campbell explained the difference between those two bases of cover. One matter agreed upon was that Mr Buzzo was to check the precise value and levels of the existing stock of the business. There was also a lengthy discussion about business interruption insurance. Ms Campbell explained the sort of cover it provided and the information needed to obtain it. Mr Buzzo agreed to procure the necessary financial figures, so Elilade could then further consider whether to obtain business interruption insurance. It was also agreed that the workers compensation cover would be extended to cover Mr Buzzo. The issue of flood cover was not raised during the meeting. 86 The contentious evidence relates to an incident at the end of the meeting. 87 Ms Campbell says that, as she walked back through the shop to leave, she saw the extent of the video tape stocks. She thought it would be difficult to move them in the case of a flood. She was thus prompted to ask Mr Aloisi if he had considered taking flood insurance. He said that they were not interested in flood insurance as the videos were easily removable, and could be packed away if necessary. Ms Richards, she said, was ahead of Mr Aloisi and she was unaware of the whereabouts of Mr Buzzo. Mr Buzzo heard no such conversation. 88 Mr Buzzo says that, at the meeting on 16 April 1997, he left the office at the rear of the premises just behind Ms Campbell. By inference, he was close enough to hear any comment she may have made to Mr Aloisi. He did not hear her ask Mr Aloisi at the time whether Elilade required flood insurance, nor did he hear Mr Aloisi tell her that Elilade was not interested in flood insurance. 89 Ms Richards had no recollection of the occasion of leaving the premises on that day, or whether Ms Campbell was talking to anybody at the time. She was not asked whether there was any discussion about flood insurance at any time. She did not suggest that there was. Mr Aloisi denied any such conversation. 90 I am satisfied that Ms Campbell made some comment to Mr Aloisi along the lines she said. However, I do not place much significance on it. The comment was made in passing, effectively after the formal meeting had concluded. It was not made to Mr Buzzo, who in a real sense was the officer of Elilade to whom Ms Campbell had spoken on that day. As noted earlier, Mr Aloisi was perceived by Ms Campbell as having been somewhat remote and a little churlish, for whatever reason. It is quite likely that he would have responded to any comment she made to him as she was leaving the premises in a desultory or negative way without paying much attention to what she had said. I am unable to find that he heard Ms Campbell's comment and recognised it as a matter which he was then expected to address, or even that he then recognised from what she said that Elilade was not covered for flood insurance. I do not therefore place any real weight on the conversation, such as it was, in determining whether Nonpareil discharged its contractual and tortious duties to Elilade. 91 Nonpareil then sent by facsimile of 30 April 1997 a note referring to the major issues discussed on 16 April 1997, together with the proposed premium rates from CIC. Ms Campbell then spoke to one of Mr Buzzo or Mr Aloisi and was instructed to renew the insurance with the variations proposed with CIC. The renewal was confirmed by letter from Nonpareil to Elilade dated 9 May 1997, dealing also with the proposed business interruption cover. 92 By letter dated 9 May 1997, Nonpareil confirmed to Elilade the renewal of the insurance policies (the general insurance and the workers' compensation insurance) with the changes as discussed. The latter also enclosed a proposal for Business Interruption insurance for completion by Elilade, as the discussion on 16 April 1997 had requested that insurance be pursued. In the event, Elilade did not complete the proposal and Business Interruption insurance was never obtained. 93 Ms Campbell says, and I accept, the letter dated 9 May 1997 also had enclosed with it a renewal invoice, even though such a document was not referred to in the letter. The renewal invoice dated 9 May 1997 also included a "Retail Insurance Schedule" in the same general format as that in the schedule of insurances, including the wording under the "Material Damage (Fire and Extraneous Risks) heading. It had an asterisk against the items where the amount of insurance cover had been increased. I have found earlier in these reasons that Mrs Aloisi then paid that invoice without paying attention to the detailed terms of the insurance cover it recorded. That was not her area of responsibility. 94 I accordingly find that Elilade, by reading with any degree of care any of Spicecard's schedule of insurances sent to Elilade on 21 June 1996, the schedule of insurance sent on 10 July 1996, the invoice sent in July 1996, the schedule of insurance sent on 19 March 1997 for consideration of renewal of the insurance and before Mr Buzzo on 16 April 1997, and the schedule of insurance and renewal invoices sent on 9 May 1997, Elilade had the opportunity to learn that flood cover was not included in its insurance. Mr Buzzo nor Mr Aloisi read any of those documents sufficiently carefully to recognise that was a matter which positively required their attention. 95 Nonpareil, at trial, through its counsel acknowledged that in 1996 and 1997 it was aware of the availability of insurance cover in respect of flood damage, such as it says occurred on 26 and 27 January 1997, subject to the particular insurer declining to accept a particular insured risk against flooding. That acknowledgement was appropriate. I find also that there were insurers prepared to underwrite the risk of flooding of a business such as that of Elilade in Katherine in 1997 and 1998. 96 The general availability of flood insurance to businesses in Katherine Terrace, and the awareness of Nonpareil about its availability, is confirmed by the business known as Katherine Auto Parts at 22 Katherine Terrace having had such insurance for many years prior to 1998, and having procured it through Nonpareil. It is also confirmed by the business known as Nikki's Lingerie Boutique at 2/48 Katherine Terrace also having had such insurance for many years. Different insurers provided that insurance to those two businesses. Elilade on 3 March 1998 procured an insurance quotation from the TIO to provide insurance cover for the premises, including cover for flood, and for business interruption. The quotation indicates that flood cover was then available to a business such as that of Elilade in Katherine at that time, and so tends to indicate that such cover would have been available in 1996 and 1997. The flood cover loading in the premium was offered at $1657 or, as later indicated on 8 May 1998, $1741. 97 I note also that the discussion on 16 April 1997 also included some interest on the part of Mr Aloisi and Mr Buzzo about the cost of the insurance. Nonpareil's letter to Elilade of 30 April 1997 included the following: "As discussed we could have change [sic] insurers and saved you about $100 on your business insurance but CIC have revised their rates with the increases so the difference is not that great, also it is good to build up a little repore [sic rapport] with the one underwriter. I would appreciate your instructions today on these matters, or if you have any questions please do not hesitate to call me." Instructions were duly given to Nonpareil to renew the insurance with CIC. THE CLAIM AGAINST NONPAREIL 98 Elilade's claim against Nonpareil has several bases. In the light of my findings about the dealings between Mrs Buzzo and Mr Aloisi for Elilade and Mr Cielens, Ms Campbell and Ms Richards for Nonpareil, I do not consider that the different legal bases for advancing its claim will result in any different outcome. In particular, I have not accepted Elilade's claim that Nonpareil contracted with, or represented to, Elilade that it would secure for Elilade "comprehensive cover", or insurance against all risks but war, or insurance in respect of any insurable risk that Elilade might be exposed to. 99 Elilade's claims based upon alleged contraventions of s 42 or s 44(e) of the Consumer Affairs and Fair Trading Act, s 52(1) of the Trade Practices Act, and s 13(1)(b) of the Insurance (Agents and Brokers) Act do not, in the light of my findings, advance its position beyond the contractual and tortious claims. I have rejected the claims that Nonpareil represented to Elilade that it had secured "comprehensive insurance" or any like representation. Elilade made choices at the meetings on 10 July 1996 and 16 April 1997 about what types and levels of insurance cover it required. Such representation as may have been made extended no further than Nonpareil using all reasonable care and skill in the performance of its role as the insurance broker for Elilade. Because any such representation would equate with the contractual and tortious duties of care, in any event, it is not necessary to address the question whether any such representation was as to Nonpareil's state of mind about its future intentions: cf Thompson v Mastertouch TV Service Pty Ltd (No.1) (1997) 29 FLR 270; James v ANZ Banking Group Ltd (1986) 64 ALR 347, although giving incorrect advice may in some circumstances activate s 52 of the Trade Practices Act: see e.g. SWF Hoists and Industrial Equipment Pty Ltd v State Government Insurance Commission (1990) 12 ATPR 41-045. 100 On the other hand, my findings do not amount to the conclusion that Elilade simply sought from Nonpareil insurance of the same type and to the same extent as that previously obtained by Spicecard. Indeed, I did not perceive Mr Cielens to have asserted that Nonpareil had no advisory responsibility in respect of Elilade. In my view, given my findings as to the relationship between Elilade and Nonpareil. Nonpareil in contract and in tort was obliged to take reasonable care to inform Elilade as to the availability of certain types of insurance cover, so as to ensure that Elilade considered and then gave considered instructions to Nonpareil about what types and levels of insurance cover it wished to secure. It may be, as I observed earlier in these reasons, that Elilade started from the base of the types and levels of cover previously taken out by Spicecard, but the circumstances do not leave room for any conclusion that Nonpareil was expected only to secure more or less parallel insurance, at least once the cover note was procured. The measure of whether Nonpareil satisfied that obligation is the standard of care which would be expected of a competent and experienced insurance broker in the circumstances of Nonpareil. In principle, the position of the professional insurance broker is similar to that of any other professional person: Caparo Industries plc v Dickman [1990] 2 AC 605. 101 The foundation of that duty is the engagement of Nonpareil by Elilade to act as its insurance broker. That engagement obliged Nonpareil to provide Elilade with advice and assistance to enable it to make an informed decision about its insurance requirements, and to instruct Nonpareil about what insurance cover to procure on its behalf: see generally Sutton, Insurance Law in Australia (3rd ed) (Sydney: LBC, 1999), at 430. In this matter, I find that Nonpareil did carry out Elilade's instructions to secure promptly the insurance that Elilade stipulated. I have rejected the contention that Elilade's instructions were to secure whatever insurance was necessary to protect it from all risks except war, or to secure comprehensive insurance. Nonpareil's obligation extended to ensuring that Elilade addressed the ongoing need for insurance at the time of renewal, and it met that obligation: see e.g. Lewis v Tressider Andrews Associates Pty Ltd [1987] 2 Qd R 533. 102 I think the question for consideration is whether Nonpareil's duty required it to expressly raise at the meetings on 10 July 1996 or 16 April 1997 or otherwise whether Elilade wished to take out flood insurance, or alternatively required it expressly to explain the "flood" exclusion from the cover under the policy. I have found that neither Mr Cielens in his oral communications in June and July 1996 nor Ms Campbell in her oral communications in April 1997 expressly raised with Elilade the fact that it did not have flood insurance. My findings about Ms Campbell's brief conversation with Mr Aloisi as she was leaving the premises on 16 April 1997 indicate that I do not regard that conversation as having any particular significance in determining whether Nonpareil discharged its contractual and tortious duty to Elilade. In fact, in written communications which Nonpareil sent to Elilade, it clearly indicated to a reader that flood insurance had not been secured for Elilade (or previously for Spicecard) If Nonpareil should have done those things, or either of them, I consider it will then be necessary to decide whether Elilade would in fact have instructed Nonpareil to secure flood cover over its business and assets had it been properly informed or advised by Nonpareil. Those questions can only be answered as a matter of judgment in the particular circumstances of the case. 103 In my view, Nonpareil in the proper performance of its duty to Elilade was required to raise expressly with Elilade whether it required flood insurance, and to make it aware that flood was exempted from the defined events under the policy. Elilade was undertaking a new business enterprise. Nonpareil, through its previous dealings with Mr Buzzo and with Mr and Mrs Aloisi, was aware that they were not well-experienced in addressing the insurance requirements of the business. It knew that there was a not insignificant risk of flooding in Katherine. Indeed, it sought to inform its clients of that risk by displaying in its office the brochure "Flooding in Katherine" referred to above: cf Mitor Investments Pty Ltd v General Accident Fire and Life Insurance Corp. Ltd [1984] WAR 365; Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25 NSWLR 541 (Provincial Insurance). 104 Without giving any oral notification to Elilade of the risk of flooding in Katherine, or raising at the meeting on 10 July 1996 that the insurance cover proposed to be obtained exempted flood from the risks covered, Mr Cielens as I have found proceeded to secure insurance including the flood exemption. He did not point out the exemption. In Provincial Insurance, Kirby P (with whom Mahoney and Priestley JJA agreed) said at 556: "It is especially important that an insurance broker should go through with the insured the list of exceptions in the policy secured. This should be done in order to afford the insured, who may fall within an exception, the opportunity to request deletion of the exception upon payment of a higher premium or cover with another insurer ..." Kirby P's comments must be seen in the context of the facts of that case, rather than as laying down an absolute rule to apply whatever the circumstances. His Honour did not purport to do so. Nevertheless, those remarks do confirm the desirability of an insurance broker upon whom an insured is relying to make a decision as to appropriate insurance cover to properly inform the insured of relevant exceptions in the policy. 105 I do not think that Nonpareil discharged its duty to Elilade by Mr Cielens himself forming the business judgment on behalf of Elilade, as I find that he did, not to secure insurance against the risk of flood. It may be that very few of Nonpareil's clients over the years, having considered whether to take flood cover and the cost of doing so, have elected to secure such cover. But Nonpareil's duty was not to make such a judgment for Elilade. It was to take reasonable care to ensure Elilade understood the types of insurance cover available to it, and the cost of such insurance, so it could give informed instructions to Elilade about what insurance cover it wanted. One way of Nonpareil presenting that information would have been by Mr Cielens specifically raising those matters. Another would have been by Mr Cielens on 10 July 1996 pointing out the exclusions in the policy in a little detail. 106 As I have found, however, in addition to Mr Cielens making that commercial decision on behalf of Elilade, Nonpareil did notify Elilade in writing of the terms of the policy. In particular the schedules of insurance sent to Elilade: * on 21 June 1996 (Spicecard's schedule of insurance) with the request of Mr Aloisi to let Nonpareil know what Elilade wanted changed from those insurances; * on 10 July 1996, with the letter of that date requesting Elilade to "give serious consideration" to its contents to ensure changes were not required, and to read the contents carefully to notify of "any errors or omissions"; and * on 19 March 1997, with the letter of that date requesting Elilade to advise Nonpareil of any changes it required; each clearly indicated that flood was exempted from the insurance cover. Moreover, on 16 April 1997, Mr Buzzo worked through the schedule of insurance sent on 19 March 1997 at the meeting on that day. I do not place any particular significance on the invoices sent on 10 July 1996 and 9 May 1997, although they contained notification in similar terms, as the evidence does not indicate that Elilade was exhorted to look carefully at that aspect of those documents. 107 Counsel for Elilade submitted that such communications do not discharge Nonpareil's duty because an insured has no legal responsibility to read documents submitted by an insurance broker once insurance has been effected. Reliance was placed upon Dickson v Devitt [1917] 86 LJKB 315, a decision where the insurance broker through a clerical mistake secured only part of the insurance instructed to be procured by the insured. The error would have been apparent to the insured, had he looked carefully at the policy which was sent to him. I do not consider that case is of particular assistance to Elilade. The insured succeeded because the insurance broker, in breach of contract, procured insurance cover different from that he had been instructed to procure. The loss then was a natural and probable consequence of the insurance broker's breach of contract. The loss was not caused by the insured's negligence in not reading the policy. Of course, in the light of Astley v Austrust Ltd (1999) 197 CLR 1, contributory negligence is no answer to a claim for breach of contract in any event. See also Fine's Flowers Ltd v General Accident Assurance Co. of Canada (1977) 81 DLR (3d) 139. 108 Here, by way of contrast, Nonpareil procured the insurance cover it had been instructed to procure. I have rejected the claim that Elilade's instruction was to obtain all possible insurance, or some like formulation. The issue is whether the contractual and tortious duty to advise Elilade of the types of insurance cover available, or of the exemptions to the insurance cover which it instructed Nonpareil to secure, was satisfied by the communications to which I have referred in all the circumstances. In Rocco Pezzano Pty Ltd v Unity Insurance Brokers Pty Ltd (1995) 8 ANZ Ins Cas 61-288 Steytler J at 76201 said: "The broker's duty (whether in contract or in tort) to exercise proper care and skill in carrying out the insured's instructions ordinarily extends to pointing out pitfalls of this kind which might arise in the course of effecting a valid insurance cover, insofar as they are not otherwise known or made known to the insured, and in securing cover necessary to the insured's disclosed or ascertained needs." The circumstances of that case are quite different from the present, but I respectfully agree with his Honour's formulation, providing the concluding part of those remarks regarding the obligation to secure cover necessary to the insured's needs is understood as arising in the circumstances of that case. That decision went on appeal to the High Court on other issues: Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603. 109 I do not consider that Mr Cielens in June or July 1996 was contractually obliged to recommend that Elilade should instruct him to take out flood insurance. His own view, which was I think a reasonable one (although not directly relevant to whether he discharged Nonpareil's duty to Elilade), was that it did not need such insurance. He was aware that only few of Nonpareil's clients procured such insurance, having regard to the premium and the nature of the damage they might incur if a flood eventuated. On the other hand, I note that Ms Campbell considered the potential damage from flooding to Elilade's stock was of sufficient magnitude to warrant it considering that risk. That difference of opinion highlights both the desirability of Nonpareil properly performing its duty to Elilade as an insurance broker, and the inappropriateness of the insurance broker through Mr Cielens substituting his business judgment for the proper performance of that duty. 110 However, in my judgment Nonpareil failed to satisfy the standard of care imposed by the law when, on 8 July 1996, Mr Cielens did not ask Mr Buzzo and Mr Aloisi whether Elilade required flood insurance. He was aware of the risk of flooding of the Katherine area. It was not insignificant. It occurred to Ms Campbell on 16 April 1997 when leaving the premises, after discussing renewal of the insurance. He was aware of the availability of insurance to cover that risk. The topic had been discussed with many of Nonpareil's clients over the years. The meeting was, as he agreed, the occasion for him to undertake a "needs-analysis" for Elilade. Neither Mr Buzzo nor Mr Aloisi was suggested to have seen the brochure concerning flood risk in Katherine, displayed at Nonpareil's office. Mr Cielens was aware that Elilade had not previously conducted a business of the kind they had acquired. He had no reason to think that Mr Buzzo and Mr Aloisi had such commercial expertise as to make the raising of such an issue redundant. The terms of the discussion at the meeting were not such as to convey to him that Mr Buzzo and Mr Aloisi were "on top of" the insurance needs of the business; he discussed with them both the appropriate levels of cover and whether particular types of cover were desirable. In those circumstances, in my view, he did not discharge the duty cast upon Nonpareil by forming the view that it was unnecessary to raise that question for consideration. 111 I do not consider that the sending of the Spicecard schedule of insurances to Elilade on 21 June 1996 satisfied the obligation of raising for consideration whether Elilade required flood insurance. As it happened, the relevant page of that schedule of insurances was not read by either Mr or Mrs Aloisi although received by them, because it was accidentally destroyed. Mr Cielens is, of course, not responsible for that. But that facsimile was in the nature of a starting point for Elilade's consideration of its insurance requirements. It was not sent with any particular exhortation to check its contents thoroughly. The subsequent telephone conversation, when Mr Aloisi nominated the levels of insurance cover on an interim basis was not an occasion when Elilade's insurance needs were discussed in detail. 112 The consequence of his failure to raise with Mr Buzzo and Mr Aloisi on 8 July 1996 the possibility of obtaining flood insurance meant that Elilade did not then specifically address the question whether it wished to obtain insurance to cover the risk of flood in respect of the premises. They were not informed, nor did they seek, information about the premium level which might apply, or the premium levels with different levels of excess. They did not then address the physical consequences of water flooding in the premises to any particular depth. 113 Nonpareil's letter to Elilade of 10 July 1996 requested Elilade to check the schedule of insurance so as to ensure there were no errors or omissions. A reading of the schedule of insurances would clearly expose the "flood" exemption in the policy. It is capitalised to draw attention to it. I have accepted the evidence of Mr Buzzo and Mr Aloisi that they did not read that document with sufficient attention to discern that fact. In my view, neither this communication nor the subsequent similar communication of 19 March 1997 are such as to satisfy in another way the obligation of Nonpareil as I have found it to have been on 8 July 1996. The meeting of 8 July 1996 was, in essence, the occasion when Elilade should have been told about the availability of flood insurance, and to have had the opportunity of discussing the pros and cons of obtaining such insurance cover. Nonpareil's obligation in that regard extended beyond merely ensuring that Elilade was aware of the significant exemptions under the policy. Had that been its only substantive obligation, the subsequent correspondence may have been sufficient to discharge that obligation. But, in my judgment, its obligation was more extensive. For the reasons given, I do not consider it was satisfied. 114 Counsel for Elilade did not contend that Ms Campbell's failure specifically to raise the possibility of securing flood cover at the renewal meeting on 16 April 1997 (except when leaving the premises) itself constituted a breach of the contractual and tortious duty of care imposed on Nonpareil. I think it was appropriate not to do so. Ms Campbell proceeded on the basis that Elilade had previously determined what types and levels of insurance cover it required. She drew to its attention, and specifically for its reconsideration, those matters by her letter of 19 March 1997 and its enclosed schedule of insurance. It made plain that flood was an exempt event. Mr Buzzo had that document in front of him, and worked through it, at the meeting on 16 April 1997. 115 Nonpareil contends that, in the event I reached such a conclusion, Elilade's claim should fail because it has not proved that it would have obtained insurance cover without a flood exemption if it had been properly advised. It relies upon the conclusion of Kirby P in Provincial Insurance at 556: "The assured must prove that it was a breach by the broker of the duty of care to the assured which caused the loss complained of. Usually this involves proof that the insurance policy obtained by the broker did not cover the risks that had occurred and that proper care and skill would have ensured that a policy was obtained which did cover those risks." 116 Upon the whole of the evidence, I am not satisfied that, had Elilade raised for its consideration the procuring of insurance which included flood cover, it would have instructed Nonpareil to obtain that insurance cover on its behalf. Necessarily, the evidence of persons as to what they would have done in hypothetical circumstances is reconstructive. It is coloured with the wisdom of hindsight and experience. In this matter, I have reached that view for a combination of factors. Both Mr Buzzo and Mr Aloisi were relatively inexperienced in procuring insurance for a business such as that of Elilade. Mr Aloisi in particular was a person who had considerable trust in Mr Cielens' judgment. Each knew the previous operators of the premises. From my assessment of them with the benefit of having seen them give evidence, each was inclined to proceed in the way others had gone before. Consequently, in my judgment, had Mr Cielens raised the topic of flood insurance on 8 July 1996, the starting point would have been what insurance Spicecard itself had obtained. Its insurance excluded cover for the risk of flood. There would have been discussion then about the degree of the risk, the applicable premium, and what other businesses in Katherine were doing. Mr Cielens' knowledge, about which he was not challenged, was that relatively few of Nonpareil's clients obtained flood cover because the additional premium was not worthwhile paying having regard to the risk. He also believed, rightly or wrongly, that any flood water intruding into the premises would not be to much of a depth and would cause little damage. The discussion would have elicited that information. He did not have at his fingertips any insurance quotation for the business for flood cover, but I think he would have correctly indicated that it would have been significant. He may have been asked to obtain quotes. On the basis of the evidence to which I have referred, the cost of such insurance would have been up to the same amount as the existing premium again. Mr Aloisi, given his regard for Mr Cielens, may have asked for Mr Cielens' particular advice. Mr Cielens would have said that he did not think the risk of flood warranted the premium that would be payable. I have already found that he could reasonably hold that view, and in my view he could have given that advice without negligence on his part. Mr Aloisi is likely to have acted on such advice. 117 I also do not consider that either Mr Aloisi or Mr Buzzo was particularly concerned about securing flood cover for the business. Mr Buzzo said he was aware generally of the risk of flood. Despite that, he did not respond to either the letter of 10 July 1997 or the letter of 19 March 1997 by looking with any care at the enclosures. I also think he must at least have glanced at the schedule of insurance presented with the letter of 19 March 1997, and which he worked through with Ms Campbell at the meeting on 16 April 1997 to see the flood exemption. It is quite obvious. Whilst I have accepted that neither Mr Buzzo nor Mr Aloisi specifically turned their attention to the question of flood cover, despite receiving those documents, in my view at least Mr Buzzo must albeit fleetingly have noticed the expression of the exemption of flood cover in the schedule of insurance which he discussed with Ms Campbell. It did not register with him as a matter requiring attention. In addition, the fact that neither Mr Buzzo nor Mr Aloisi took the time to carefully address the schedules of insurance sent with the letters of 10 July 1996 and 19 March 1997, despite the explicit requests to do so, and their failure to complete the material required to seek business interruption insurance after May 1997, also lies conformably with the impression I obtained from their evidence that obtaining insurance cover against all risks (except war) or "comprehensive insurance" was not their main insurance objective. I find it was to take out such insurance as they considered, in the light of advice from Nonpareil, was commercially warranted. 118 I also have had regard to the budgeted allowance for insurance prepared for Elilade for the commencement of its operations. It was $2500. The insurance procured absorbed a substantial part of that sum. I have found that any quotation for insurance extending to cover the risk of flooding of the premises would have pushed the insurance cost well over the budget figure. In my view, Mr Buzzo and Mr Aloisi would have been conscious of those matters. That would have been a further factor weighing in the scales against Elilade, properly advised and informed, deciding to procure that additional insurance cover. 119 I accept the evidence of Mrs Aloisi that she was conscious of the risk of flood, and if confronted with the issue of whether or not to secure flood insurance she would have obtained it for Elilade. But her role in Elilade did not involve decisions on such matters. As she acknowledged, she did not herself review the letters of 10 July 1996 or 19 March 1997 or the enclosed schedules of insurance. That role was left to Mr Buzzo and to Mr Aloisi. 120 Elilade has contended that the representations of Nonpareil giving rise to the contraventions of the statutory provisions referred to earlier in these reasons included representations that it would "obtain the best policy to suit the needs of" Elilade. I have rejected that claim. I refer to it in this context because, as the evidence shows, both on 8 July 1996 and on 16 April 1997 there were discussions between Elilade and Nonpareil about what types of insurance cover Elilade wanted and the levels of insurance for those types of cover. Those decisions were made by Mr Buzzo and Mr Aloisi, and in the case of the second meeting by Mr Buzzo with Mr Aloisi's acquiescence. Their approach to those meetings reflects, in my view, the respective roles of Elilade and Nonpareil as I have found them to be. The fact that Nonpareil failed to give certain information and advice which it was required to have given at the meeting on 8 July 1996 does not alter those respective roles. It directs attention to the consequences of Nonpareil's failure, having regard to their respective roles. For the reasons I have given, I conclude that Elilade has not established that a consequence of Nonpareil's breach of its duty was that it would have instructed Nonpareil to secure insurance cover which protected it from the risk of flood. 121 Subject to one matter, therefore, I consider that Elilade's claim against Nonpareil must fail. 122 The remaining matter is the contention of Elilade that, having established that Nonpareil was in breach of its contractual and tortious duty towards Elilade, Elilade need not then establish on the balance of probabilities that it would have taken out flood insurance as Nonpareil has admitted in its defence that its retainer required it to obtain the best policy to suit the needs of Elilade. It is then contended that Nonpareil was in breach of that term of its retainer by not obtaining a policy of insurance which covered the risk of flooding in the premises, however caused. 123 In my view, the admission in the defence of Elilade does not carry that consequence. The case was not conducted on the basis that it was uncontentious that Nonpareil was retained to procure a policy of insurance for Elilade which covered it against all risks to which it might be exposed. I think the parties understood the admission in the defence as meaning Nonpareil's retainer required it to take all reasonable care to give proper advice to Elilade about the types of insurance cover and levels of insurance cover it could, or should appropriately, obtain and then to obtain such insurance cover as it was instructed to obtain. The issue of whether Nonpareil was retained to procure "comprehensive cover" or some similar expression was fully ventilated in evidence, and has been the subject of findings in these reasons. The evidence of all parties was that ultimately Elilade, through Mr Buzzo and Mr Aloisi, decided on the types and levels of insurance cover it required in the light of the information and advice it received from Nonpareil. The decision as to what was "the best policy to suit the needs" of Elilade was one made by Elilade, and Nonpareil then procured the insurance as directed. I accordingly reject that contention. 124 In my judgment, therefore, Elilade's claim against Nonpareil should be dismissed. DAMAGES: THE ENTITLEMENT TO INDEMNITY 125 To determine the extent of damage to the stock and plant and equipment at the premises by 6 am on 27 January 1998, it is necessary to make certain findings about the layout of the premises, the extent of the stock, and the way stock was disposed within the premises at the time. 126 The premises included an enclosed square counter area at the front. Looking from the front, along the left-hand wall was a series of shelves 2 m high, containing eight shelves of video tapes, and there was a small separate section of similar shelving at the rear of the display area for R-rated videos. Behind the counter area were two freestanding shelves 1.5 m high, each containing six shelves of video tapes on each side running the depth of the premises, that is in all presenting four faces of shelving, with a passageway between and around them. At the right side of the premises, there was again a small section of 2 m high shelves for video tapes and towards the front, a doorway permitting access to upstairs areas (not formally part of Elilade's premises) with a ground floor storage area under the stairwell, and then on the right hand wall a "Lift System Display" area for compact disc display and storage. There was a passageway between that area and the freestanding shelves. At the rear of the public area was a sliding door providing access to a small private office area, which also provided rear access to the premises. 127 Mr Buzzo gave evidence of the stock levels immediately before 26 January 1998. His evidence in that regard was not seriously challenged. Nor did CIC challenge the adequacy or reliability of the accounting records maintained by Elilade under the control of Mrs Aloisi. Some of those records were damaged in the second inundation, when the safe in which back-up computer tapes were held was flooded. Mrs Aloisi has produced the general ledgers of Elilade for 1996/1997 and 1997/1998, as well as the taxation returns and financial statements for those years. The trading stock of Elilade comprised rental and sale video tapes, televisions, video recorders, stereos, compact discs, music cassettes and lollies and soft drinks. Its business included the rental of video machines, compact discs, and computer games. 128 I accept the evidence of Mr Buzzo and Mrs Aloisi as to the levels of stock and plant and equipment of Elilade on hand at 26 and 27 January 1998, and as to the cost of that stock and plant and equipment. I am satisfied that they presented a reliable and somewhat conservative picture. I find the stock and plant and equipment on hand included each of the items described by Rodney Steley in his evidence (referred to below), and that it had the value ascribed to it by Mr Buzzo and Mrs Aloisi and Mr Steley. Some items were valued only by Mr Steley. The estimate of customer laybys of $29,500 is based on Mr Buzzo's recollection. At 30 June 1999, customer laybys totalled $23,541. He said that the January laybys are higher than the mid-year laybys due to seasonal spending practices. 129 I also accept that during 1997 Elilade had substantially refitted and refurnished the premises and had installed new computer units. That work included replacing the carpet, replacing the computers, replacing the computer systems, replacing the signage, replacing the shelving and adding new shelving, replacing the front counter, replacing some of the furniture, new electrical work to the front counter, new Lift Storage Units, new slat walls, and new doors to the "R-rated" area. I accept that the cost of those improvements and additions exceeded the claim of $65,000. 130 Mr Steley assessed the quantum of Elilade's claim for damage caused by the initial inundation, having regard to the inability to access to the premises for several days to undertake any loss minimisation, but reflecting actual costs incurred by Elilade to replace or repair items, as follows: 1. Video Tapes $60,720 New release 506 @ $120 102,750 Rental (near new) 6850 @ $15 25,750 Back catalogue 5150 @ $5 2,994 Sell thru videos 120 @ $24.95 2,393 Sell thru videos 150 @ $15.95 165 Blank videos 30 @ $5.50 2. Computer Hard Drives 13,661 4 with CD ROMS @ $1,200 3. Computer Software 6,447 4. UPS surge protectors (4) 2,389 5. Display fridge (2 door) 3,000 Inundation to 200 mm extended to the electrics, compressor unit and wall insulation in the entire unit. The compressor and electronic components were repairable, but it was not possible to economically dry and restore the insulation and corrosion inside the cabinet, so the unit was a total loss. 5A Safe 2,000 6. Front counter Replacement counter 14,960 Less reused benchtops 1,960 13,000 7. Slat wall to rear of shelving unit 1,319 8. Carpet 5,740 9. One poster rack (90 posters @ $9.75) 877 10. Office desks (2) and work station (1) 2,600 11. Timber shelves in store room 800 12. Timber shelves in office area 2,421 13. Timber video shelves in "R" area 1,200 14. Guillotine and cash register 585 15. Timber Dump boxes (2 @ $250) 500 16. Metro alarm system 7,140 17. Fridge 570 18. Vacuum cleaner 479 19 Fax machine 1,550 21. Compact discs 87,588 3,600 @ $2,433 9,500 950 @ $10 719 12 @ $59.95 22. CDs and cassettes (cardboard stand) (4 @ $400) 1,600 23. Music cassettes 5,827 450 @ $12.95 179 55 @ $3.25 (blank) 23A. Games for Nintendo & Sony (80 @ $80) 1,600 24. Quantity of soft drives and sundry consumables in storeroom 1,621 26. Stereo System JVC DX-710 735 27. Stereo System JVC DX-410 445 28. Televisions (2 x UVC AV21) 1,018 29. Televisions (2 x UVC AV14) 678 30. Video recorders (2 x JVC) 560 31. Video recorders (2 @ $649) 1,098 32. Compact disc carry cases (4 @ $59.95) 240 33. Customer laybys 21,633 34. Nintendo 64 consoles (2) 455 35. Sony Playstation console (1) 422 Carry cases for consoles (4) 156 36. Labour to clean up (6 persons x 8 hours x 3 days @ $20 per hour) 2,880 Contractors to water blast and sterilise surfaces 880 $400,834 As I have said, I accept his evidence about the values or costs of the stock and plant and equipment. It largely accords with the evidence of Mr Buzzo, and to the extent she dealt with it of Mrs Aloisi. I also accept that the levels of stock and plant and equipment are as described by Mr Steley. 131 I note that, in reaching his views Mr Steley did some checks to confirm the information provided by Mr Buzzo and Mrs Aloisi. Mr Steley compared the present layout and display in the premises with that which existed in January 1998. His understanding of the January 1998 layout is in accordance with the evidence of Mr Buzzo. It is also in accordance with photographs taken of the premises once access was allowed to them in February 1998. His analysis of the available space, having regard to display methods for video tapes, and allowing for vacant spaces, confirms the claims of Elilade as to the numbers of new releases and other videos held by Elilade at January 1998 upon which he has placed values. He also confirms that the values ascribed to the various classes of videos are reasonable. His reference to records suggests the numbers of videos said to be in stock at January 1998 has been conservatively calculated. His evidence also confirms that the storage and display facilities available for compact discs at the premises was well able to accommodate the numbers claimed by Elilade to have been in stock in January 1998. 132 Mr Steley also reviewed the claim for "laybys". Layby records were destroyed in the inundations. He adjusted the "value" of the laybys (the layby sale price) of $29,500. That sum of $29,500 represents the evidence of Elilade as to the layby sale price total, based on memory. The required adjustments are to reflect the cost price, and amounts paid by customers. The adjustment is as follows: Retail sale price $29,500 Less gross profit 27.5% $ 6,367 Less customer payments $23,133 Claim $ 1,500 $21,633 I think his figure for the value of laybys is likely to be accurate, rather than the higher figure suggested by Mr Buzzo. Mr Buzzo in cross-examination agreed that some downward adjustment of his figure was appropriate. The sum of $21,633 is the figure set out against item 33. Mr Steley acknowledged that his allowance for soft drinks and sundry consumables (part of item 24) was based only on information provided. 133 The overall claim was apportioned as follows: Plant & equipment (Items 2-20) $ 66,279 Stock (Items 1, 21-35) $330,845 Removal of debris (Item 36) $ 3,760 $400,884 134 Although it is not directly relevant to the quantum of the claim against CIC, photographs taken inside the premises after the inundations, and before removal of materials by emergency services, demonstrate extensive devastation. Many video tapes are spread across the flooring, or are displaced from the shelving. There is debris strewn around the shop area and in the rear office area, including over the desk in that area. There are apparently computer and television sets and other electronic equipment strewn around the floor of the premises and pushed or partially pushed off the front counter by the water. Racks of compact discs can be seen to be heavily soiled, including those stored at some height. Overall, it is not hard to understand that the emergency services provided by the armed forces simply cleared out the premises of its stock and fittings. 135 For reasons given earlier, I have found that the initial inundation exceeded a depth of 300 mm in the premises before the second inundation, although it is not possible to say with any precise degree of accuracy the highest depth of initial inundation. In particular, I think that the evidence of Mrs Barry and of Mr Yates is the most significant. Mr Yates' last observation was at about 9.00 pm on 26 January 1998. By then the initial inundation in the premises was to the level of the bottom step of the stairwell. Mrs Barry's evidence indicates that, in the vicinity of her shop, the water level rose significantly after that time and in the early hours of 27 January 1998. 136 CIC does not dispute that damage to the extent of $105,224 was caused to the stock and plant and equipment of Elilade as a result of the initial inundation. The figure of $105,224 is the sum of the amounts claimed in respect of items 2-18, 22-27 and 30-36 referred to above. Its dispute concerns the amounts claimed in respect of damage to video tapes (item 1), compact discs (item 21), televisions (items 28 and 29) and the fax machine (item 19). It also disputed the amount to be allowed for laybys (item 33). Its contentions are that the amounts to be allowed for damage to the contested items should be $80,620. It contends that the damage caused by the initial inundation should be quantified as follows: Undisputed items $105,224 Actual loss of disputed items 80,620 Less laybys reduced by 20% (20% of $29,500) 5,900 Allowance for cost of recovery $ 10,000 $189,994 137 In view of that acknowledgment, it is not necessary to address Elilade's contention that its loss should not be assessed at less than $155,545 because CIC through an insurance adjustor offered that amount as the damage caused by the initial inundation, if it was to a depth of 200 mm. That is because the acknowledgment produces a higher figure. On 12 April 1998, Elilade submitted to Territory Assessing Services Pty Ltd (TAS), the assessor for CIC, a claim for damage caused by the entry of water into the premises. Correspondence ensued. On 27 November 1998, TAS on behalf of CIC offered $155,545.30 in settlement, based upon there having been 200 mm of water in the premises from the initial inundation. The offer indicated the claim for damage to compact discs had been allowed only for discs in the bottom of the three drawers (and not the bottom two of the three drawers as claimed) as only the bottom drawer would have been inundated by the initial inundation. There was a further exchange of correspondence between CIC and the solicitors for Elilade about the quantum of the claim. In June 1999, following the hydrology report which (as noted above) no party now seeks to rely upon, CIC withdrew its earlier settlement offer and offered $5740 for damage to the carpets. That offer was not accepted. Counsel for Elilade referred to Fire & All Risks Insurance v Caratti (Bulfinch) Pty Ltd [1969] WAR 49 and Craine v Colonial Mutual Insurance Ltd (1920) 28 CLR 305 in support of the contention that the offer referred to was made as agent for CIC. 138 Mr Saunders referred to published data which establishes a relationship between flood depth and average flood damage. He reports, from the literature, a typical relationship between depth and damage as indicating the damage at a depth of 1.8 m will be 2.7 times the damage at a depth of 0.4 m. Thus, he says, as an indicative estimate, the monetary value of damage that occurred on the afternoon of 26 January 1998 to a depth of up to 0.4 m in the initial inundation was 36% of the value of the flood damage that would have resulted from the second inundation to a depth of 1.8 m. As a matter of arithmetic, that produces a figure of $144,318. Although his method may produce a useful rule of thumb, it is only a typical outcome and could give no more than an indicative guide to the loss. The extent of the loss will generally, as in this matter, have to be determined by consideration of the evidence. 139 Clause 6 of the policy provided for the amount payable in respect of insured loss to be reinstatement value, or if the insured property could be restored substantially to its pre-damaged condition the costs of repair and restoration. It is common ground that the onus of proof of the extent of the damage falls upon Elilade: see e.g. Lake v Harford Fire Insurance Co. Ltd [1966] WAR 161. The loss includes expenses necessarily and reasonably incurred in recovery and salvage of the stock and plant and equipment exposed to water or humidity: Re Mining Technologies Australia Pty Ltd [1999] 1 Qd R 60. 140 It is necessary to deal with each of the disputed items or categories of items separately. However, the general evidence about the effects of direct prolonged exposure to water and of prolonged exposure to excessive humidity should first be addressed, as my findings about those matters will inform consideration of the disputed claims or categories of claims. 141 I do not accept that, in respect of the contested items, I should simply accept Mr Steley's assessment that they were effectively irrecoverable. Principally, that is because I think he approached the question on the theoretical basis of what would have happened to the stock and plant and equipment as a result of the initial inundation had Elilade been unable to get access to the premises for some days thereafter. My findings above result in Elilade being entitled to indemnity under the policy only to the extent that damage had actually occurred by about 6 am on 27 January 1998. His expertise about the effects of exposure to water and humidity upon electronic equipment over a period of several hours only was not as great as that of the other experts called by Elilade and CIC, respectively Tony Williams of Moisture Control Services (Aust) Pty Ltd and Enrique Macchiavelli. There was no challenge to their qualifications. 142 Mr Williams said that secondary damage from exposure to moisture and humidity could arise in the conditions which pertained in Katherine in late January 1998 very quickly, within an hour or so, depending upon the precise conditions. With a temperature of 35oC and 95% humidity there would be 245 grams of water vapour in the air, and if the temperature was 25oC about half that. The relative humidity in the general Katherine area on 26 and 27 January 1998 was very high, ranging from 98% each morning down to 89% in the afternoon of the second day. Consequently, as Mr Williams explained, the "restorability" of magnetic media such as video cassettes, compact discs and audio cassettes depends among other things upon access to those items following the flooding. Timing is critical. So too is the nature of the water which comprised the inundation. "Dirty water", that is water with a high organic load (such as that which would have come from the Katherine River), provides much greater opportunity for bacteria and fungi to thrive. Mould will develop on material that is directly exposed to water, but also on material above the water level, leading to decomposition and degeneration of electronic performance. 143 Mr Williams said that if access to the premises had been available immediately after the initial inundation, there was a high likelihood of salvageability of the material not actually directly contacted with water. If access were delayed for seven days, as occurred, the likelihood of salvageability was nil or low. The consequence of the second inundation, because it comprised dirty water, was that the likelihood of salvageability was nil due to health risk considerations. 144 He assessed the conditions in the premises by the afternoon of 26 January 1998, due to the temperature and the rainfall, as very humid. The premises had been locked and sandbagged by about 3.30 pm. With standing water inside, he thought that if access had been available then within 12 hours there was a "high probability" of most of the stock above the water level of the initial inundation being saved. With the passage of time, that prospect diminished. He said that within 24 hours, the prospects of any of the stock being saved would be slender. The preservation and restoration process would require access to 200 amp single phase electricity (the power to Katherine was cut off by about 6 am on 27 January 1998) or a climate controlled van. As the power cut off was a consequence of the Katherine River breaking its banks, I do not assume an absence of electric power for the purposes of assessing the extent of the damage. 145 In the case of compact discs, Mr Williams described a further problem from exposure to water or high humidity. The problem is "cockling", where the jacket rumples and deteriorates because it is comprised of paper-based material. New covers or jackets, called "slicks" are not procurable. He expressed the view that deterioration on the covers of the compact discs in the premises would have commenced, in the conditions, within an hour of the initial inundation and would then have progressed. Mould would be present, although not necessarily visible to the naked eye, and would advance. Within 48 hours, he thought mould and cockling would be quite evident. 146 The process of recovering stock of a business such as that of Elilade would, in any event, require expertise after 12 hours or so following the initial inundation. The process of drying, cleaning and disinfecting involves skills beyond those of the layperson. 147 CIC called Mr Macchiavelli. His evidence concerned the consequences of exposure and the procedures available to recover water damaged electronic equipment or humidity damaged electronic equipment. He asserted in cross-examination that his conclusions were not much affected if, contrary to his understanding (but in accordance with my findings) there was a period of up to 12 hours following the initial inundation when the premises were closed in conditions of very high humidity. 148 His view accorded with that of Mr Williams that vulnerability to damage of video tapes and compact discs is dependent upon the dew point or condensation point, the level of humidity, the temperature, the period of exposure to adverse conditions, and the air circulation. 149 Mr Macchiavelli's evidence was that Elilade, following the initial inundation (and assuming it then had access to the premises), should have removed the electronic equipment to an air conditioned area. He assumed one was available. The alternative would be a truck with a chiller or freezer. Good circulation of air in the air conditioned area would be very desirable. 150 Upon the basis of a particular study, he considered the compact discs above the water level would not be damaged, but after 6-12 hours of exposure to high humidity some 50% of the paper sleeves of the compact discs would be crimpled. Up to 95% of the compact discs below the water line would be recoverable by cleaning: rinsing, washing in detergent with disinfectant, rinsing, rinsing in de-mineralised water and then drying. He said the cleaning process would take about one minute per compact disc. In his view the video tapes below the water line would not be recoverable. Cleaning of those exposed to humidity would recover up to 80% of them. After 24 hours of exposure to those conditions, expert help would be required to achieve recoverability. It would then result in the recovery of up to 70% of the video tapes above the water line and up to 90% of the compact discs. He said television sets exposed to humidity only could be dried under air conditioning and almost all recovered. 151 Because of the lateness of his report, Mr Macchiavelli's views were not put in terms to other witnesses and the "study" to which he referred was not put to other experts for their comment. The study to which he referred was a promotional brochure of a manufacturer of compact discs. 152 Where the evidence of Mr Williams and Mr Macchiavelli conflicts, I prefer the evidence of Mr Williams. I thought his views were more considered. Mr Macchiavelli's responses seemed to me not to indicate a full appreciation of the conditions in the premises at the time, or to reflect a detailed consideration of the progressive consequences of exposure to moisture and humidity over a period of up to 12 hours. The study to which he referred, and upon which he relied, apart from being a manufacturer's promotional brochure rather than an independent study, did not disclose the physical conditions in which it was carried out, in particular whether the conditions equated those obtaining in the premises on 26 and 27 January 1998 or whether the outcome of the study was independent of such variables. 153 Upon the basis of the evidence which I have preferred, my findings are that by about 6 am on 27 January 1998 the following damage had occurred: · Video tapes below the level of the initial inundation would not have been recoverable. · Video tapes above that level would largely have been recoverable, but with a complex process of drying, cleaning and disinfecting. The process would have required the removal of the video tapes to a clean air-conditioned environment. The prospects of recovery (putting aside any difficulties associated with the second inundation) would have been adversely affected by the absence of readily available resources for that purpose. The evidence points to about 80% of those video tapes then being recoverable. Upon the evidence, I should take a conservative approach as the onus of proof is upon Elilade. Consequently, I find that 25% of the video tapes above the level of the initial inundation would not be recoverable. I should also allow an amount for the recovery costs. · Compact discs both below and above the level of the initial inundation would in large measure have been recoverable. Their recoverability would have required expert cleaning assistance, and again the availability of resources would have impeded the recovery processes. Moreover, by the exposure to water and to a lesser degree the exposure to humidity, cockling would have affected the value of the recovered stock. Mrs Aloisi described having sold some compact discs for $5 following the inundations, although obviously the second inundation would have worsened that problem. CIC's contention allows for effective full recovery of 85% of the compact discs. I think that is too high, having regard to the matters to which I have referred. I am of the view that a conservative estimate of effective full recovery of compact discs would be 75%, allowing for damage from exposure to water or humidity, cockling, and some recovery from sale of damaged compact discs. · Television sets were stored on the counter above the water level of the initial inundation. I am not satisfied that the exposure to humidity was such as to render them irrecoverable. · Facsimile machine was stored on the desk above the water level of the initial inundation. I am not satisfied that the exposure to humidity was such as to render it irrecoverable. 154 Given my findings about the water level of the initial inundation, I find that the bottom two shelves of video tapes were exposed to water directly and should be treated as irrecoverable. I also accept the evidence as to the numbers of video tapes on each shelf, for reasons I have given above. I do not propose to reduce the numbers per shelf as contended by CIC. 155 I therefore assess the damage to the contentious items as follows: Video Tapes: $60,720 New release: value Loss from water exposure of bottom 2 shelves (2/8) $15,180 Loss from humidity etc. (25% of remainder) $11,385 Rental (near new) value $102,750 Loss from water exposure of bottom 2 shelves (2/8) $25,687 Loss from humidity etc. (25% of remainder) $19,266 Back catalogue $25,750 Loss from water exposure at bottom 2 shelves (2/8) $6,437 Loss from humidity etc. (25% of remainder) $4,828 Sell thru $5,386 Loss from humidity etc. (25%) $1,346 Compact discs Total value $97,807 Loss from water exposure and humidity (30%) $29,342 Television Sets Fax Machine No allowance. (I note that the schedule of CIC putting its acknowledged loss of disputed items at $80,620 seems to include rather than exclude the claims for television sets and the facsimile machine.) Total of Disputed Items Allowed $113,381 156 The cost of recovery allowance of $10,000 proposed by CIC is, in my view, very low. The loss I have assessed assumes an extensive recovery process involving considerable expertise, and relating to in excess of 12,000 video tapes and in excess of 4,500 compact discs, as well as other equipment. Although the evidence is scant, so I must adopt a conservative approach as the onus of proof lies on Elilade, in my view an appropriate allowance is $20,000. 157 Accordingly, I assess the amount of damage to the store and plant and equipment of Elilade as a result of the initial inundation, and as suffered by about 6 am on 27 January 1998, as follows: Items not disputed $105,224 Disputed items 113,381 Allowance for cost of recovery $ 20,000 $238,605 158 Elilade is entitled to interest on that sum under s 57 of the Insurance Contracts Act 1984 (Cth). The entitlement to interest commences from the day from which it was unreasonable for CIC to have withheld payment of the amount to which Elilade was entitled to indemnity. The selection of that date is a matter of fact, depending on all the circumstances of the case: Settlement Wine Co. Pty Ltd v National & General Insurance Co. Ltd (1994) 62 SASR 40. 159 In my view, given the second inundation, it was reasonable for CIC to investigate the question whether the initial inundation had occurred, and to address the extent to which the initial inundation caused loss for which Elilade was entitled to indemnity under the policy. CIC was able to instruct a loss adjuster to assess that loss on 15 April 1998, and to make a substantial settlement offer of $155,645 on 27 November 1998. The complexity of the issues does not suggest it was unreasonable to have taken those periods of time to reach those stages. I then think a further short time should be allowed to negotiate the quantum of the claim. In my judgment, the reasonable time allowed to CIC to satisfy the claim elapsed by 31 December 1998. I consider that Elilade is entitled to interest under s 57 of the Insurance Contracts Act (1984) (Cth) from 1 January 1999, that being the date which I determine for the purposes of s 57(2). Under s 57(3) of that Act, the rate of interest is that determined as prescribed by the Insurance Contract Regulations 1985 (Cth), relevantly reg 32 as amended by the Financial Laws Amendment Act 1997 (Cth), namely the 10 years Treasury Bond yield from time to time plus 3%. Accordingly the interest rate applicable (subject to adjustment for variations to the 10 Year Treasury Bond yield during 1992) is: 1 January 1998 – 30 June 1998 8.99% 1 July 1998 – 31 December 1998 8.59% 1 January 1999 – 30 June 1999 8.03% 1 July 1999 – 31 December 1999 9.25% 1 January 2000 – 30 June 2000 9.96% 1 July 2000 – 31 December 2000 9.24% 1 January 2001 – 30 June 2001 8.50% 1 July 2001 – 31 December 2001 8.75% 160 For the foregoing reasons, I order that: 1. Judgment be entered for Elilade against CIC for $238,605 plus interest thereon under s 57 of the Insurance Contracts Act from 1 January 1999. 2. Elilade's claim against Nonpareil be dismissed. 161 Subject to any submissions of counsel for the parties, I consider costs should follow the event. I would therefore be disposed to order that CIC pay Elilade its costs of the action, and that Elilade pay Nonpareil its costs of the action. 162 Elilade, in its written submission, has sought an order that its costs against CIC should be awarded on a solicitor/client basis under s 43 of the Federal Court of Australia Act 1976 (Cth). It contends that CIC should be found to have resisted its claim in wilful disregard of the facts, particularly having regard to the offer of settlement made on 27 November 1998. The only possible justification for its attitude, submits Elilade, is the hydrology report referred to in [30] above, and upon which CIC did not rely at the hearing. As I noted, that report simply did not accord with eyewitness observations at the time. Consequently, it is contended, CIC, properly advised, knew that it had no chance of successfully resisting the claim. In my view, those submissions do not take proper account of the fact that CIC has succeeded in some measure on this proceeding. Elilade's claim against it was for indemnity under the policy for a sum slightly in excess of $400,000. It has succeeded only to the extent of $238,605. In that circumstance, I am not presently persuaded that this is an appropriate case for costs to be awarded against CIC on a solicitor/client basis. 163 I will, however, give the parties the opportunity to make submissions as to costs. I certify that the preceding one hundred and sixty-three (163) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield. Associate: Dated: 26 July 2002 Counsel for the Applicant: Dr JP de Koning Solicitor for the Applicant: Michael Whelan & Associates Counsel for the First Respondent: Mr S Walsh QC with Ms J Kelly Solicitor for the First Respondent: Cridlands Lawyers Counsel for the Second Respondent: Mr B O'Loughlin Solicitor for the Second Respondent: Lawson Downs Date of Hearing: 15, 16, 17, 18, 19, 30, 31 October 2001 Close of Written Submissions: 14 December 2001 Date of Judgment: 31 July 2002