CIGNA INSURANCE AUSTRALIA LTD vy GENERAL NEWSPAPERS PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KIRBY P, CLARKE and MEAGHER JJA 17 June 1992, 18 June 1992 [1992] NSWCA 41 INSURANCE — meaning of policy — fire claim — indemnity admitted — basis of indemnity disputed — destruction of photographic transparencies used by publishers — whether fell within "other property" in insurance policy — whether fell within "other records of every description" — held: (allowing cross-appeal and reversing Palmer A-J on the answer to the separated question) (per Clarke JA; Kirby P and Meagher JA concurring): (1) The loss did not fall within the "other records" provision of the policy in the context; (2) Accordingly, it fell within the "other property" provision; (3) Therefore, proceedings returned to Commercial Division to conclude the hearing upon the basis so determined. Codelfa Constructions Pty Ltd v State Rail of New South Wales (1981) 149 CLR 337 applied. WORDS and PHRASES — "records". Kirby P I agree with Clarke JA. Clarke JA The first three respondents (whom I shall call "the respondents") carried on a publishing business in partnership. One of their activities was the publication under the name 'Federal Publishing Company' of 'special interest' periodical magazines. On 26 June 1988 the northern wing of the building in which Federal Publishing Company carried on its business was destroyed by fire and the contents of the premises were either totally destroyed or badly damaged by smoke and water. On 18 August 1989 the respondents submitted a claim to their insurers, the appellants, in which they sought compensation for, inter alia, 'the loss of a film transparency library comprising a total of 237,927 film transparencies which had been used for the purpose of producing magazines published by Federal Publishing Company.' Although the appellants did not dispute their liability to indemnify the Federal Publishing Company they did contest the basis upon which the claims had been valued. Consequently the respondents instituted proceedings in the Commercial Division of this Court seeking declarations and an order that the appellants pay to them the amount properly due under the policy in respect of the transparencies. The case duly came before Palmer AJ who isolated a number of issues which arose for determination and ordered that they be heard as separate questions under Pt31 R2 of the Supreme Court Rules. The first question which his Honour ordered to be tried separately was: (1) As a matter of construction of the policy, do the transparencies fall within the description of "all other property and contents" within the meaning of Basis of Settlement (a) of s1 of the policy or within the description of "other records of every description" within the meaning of Basis of Settlement (e) in that section of the policy? 2 UNREPORTED JUDGMENTS The other questions which were formulated depended upon whether the relevant loss fell to be indemnified pursuant to para (a) or para (e) of the Basis of Settlement and in view of the conclusion which I have reached it is unnecessary to set those questions out. Palmer AJ decided that the loss fell within para (e) of the relevant part of the policy and accordingly answered only those consequential questions which arose from that finding. The appellants were content with his Honour's conclusion that the loss fell to be determined under para (e) but challenged his consequential determinations. For their part the first three respondents have cross-appealed asserting that his Honour was in error in his initial determination that the loss did not fall to be valued under CL(a). Logically the first question which falls to be determined is whether the loss does indeed fall within para (e) or whether the respondents are correct in asserting that it fell within para (a). For this reason the court initially heard full argument on this question. At the end of that argument the court concluded that his Honour had erred in his determination that the loss fell to be valued under CL(e) and for this reason did not entertain submissions from the respondents on the answers to the consequential questions. Unfortunately, this decision will not resolve all the separate questions which were raised under Pt31 R2 of the Supreme Court Rules for the reason that his Honour understandably found it unnecessary to answer question (2) which only arose for consideration in the event that the answer to question (1) was as I believe it should have been. It will, therefore, be necessary to remit the proceedings to the Commercial Division to decide the outstanding issue. In setting out my reasons for concluding that the loss should be indemnified under CL(a) of the relevant part of the policy it is necessary to refer only to that part of s1 of the policy which appears under the heading Basis of Settlement. The relevant portions of the Basis of Settlement provisions are as follows: "(a) On buildings, machinery, plant and all other property and contents (other than those specified below); the cost of reinstatement, replacement or repair in accordance with the provisions of the Reinstatement Memoranda as set out herein. Provided that if the Insured elects to claim the indemnity value of any damaged property, the Insurer(s) will pay to the Insured the value of such property at the time of the happening of the damage or at its/their option reinstate, replace or repair such property or any part thereof. In any event the Insurer(s) will pay costs incurred by the Insured in accordance with the provisions of the Extra Cost of Reinstatement Memorandum. (b) On raw materials, supplies and other merchandise not manufactured by the Insured; the replacement cost at the time and the place of replacement or, if such property is not replaced, the value thereof at the time and place of the damage. (c) On material in process of manufacture; the replacement value of the raw materials and the value of labour and other overhead charges expended thereon at the time and the place of the damage. (d) On finished goods; the replacement value of the raw materials and the value of labour and other overhead charges expended thereon before any allowance for profit or the cost of re-stocking such goods, whichever is the lesser. (e) On computer systems records, documents manuscripts, securities, deeds, specifications, plans, drawings, designs, business books and other records of every description; the cost of reinstating, replacing reproducing or restoring same, including information contained therein or thereon but excluding the value UWRGNA INSURANCE AUSTRALIA LTD v GENERAL NEWSPAPERS PTY LTD (Clarke JAB to the Insured of the said information; or, if such is not required, the replacement cost of materials as blank stationery at the time and place of the damage. (f) On patterns, models, moulds, dies or lasts; the cost of repair or replacement (if actually replaced) otherwise the indemnity value to the Insured of such property. (g) On glass; the cost of repairing or replacing the broken glass including: temporary shuttering and/or hiring of security service pending replacement of broken glass replacement of broken glass signwriting or ornamentation on glass replacement burglar alarm tapes on glass removing and re-fixing of window and show case frames and fittings heat reflecting material or process on glass. (h) On directors' and employees' personal property; the replacement cost at the time of replacement. (i) On empty premises awaiting demolition; the salvage value of the building materials and/or landlords fixtures and fittings." It will be apparent that all of the contents of the damaged building fell to be indemnified upon para (a) except to the extent that a particular item fell within another paragraph of the Basis of Settlement section of the policy. What the appellants submitted, and his Honour accepted, was that the transparencies came within the phrase "other records of every description" in para (e) with the consequence that the measure of indemnity was determined by that paragraph. If his Honour was wrong in that conclusion then, obviously enough, para (a) applied as the respondents suggested. Accordingly, the particular question which confronts this Court is whether the transparencies were "other records" within the meaning of para (e). Before considering this question it is necessary to say something more about the transparencies although, in view of the comprehensive and careful description of the important role played by the transparencies in the respondent's business by Palmer AJ, I will provide only a concise summary in this judgment. For the sake of convenience Palmer AJ used the magazine "Overlander" as an example of the use to which the transparencies were put. That magazine was devoted to articles about four-wheel drive vehicles (4WD vehicles), their maintenance, accessories and equipment. There were also featured stories about 4WD vehicle destinations in the outback of Australia as well as adventure travel stories prominently featuring 4WD vehicles. In the course of the production of the magazine a great many photographs were taken both of locations, some remote, within Australia and of various 4WD vehicles. In the case of a photograph used in the magazine, and in, perhaps, other cases, the photographic transparencies were retained by the respondents and placed in a transparency library. At the time of the fire the Overlander library comprised about 76,000 colour and monochrome transparencies. These were used from time to time by the respondents in a number of different ways. For example, an editor who was lacking in ideas for a story might find inspiration in the library for an article based on an historical perspective. Or, one or more transparencies might be used to illustrate a story written by a contributor. There were, of course, a number of other uses to which the transparencies were put and the library performed an important function in the respondents' business. During the hearing of the appeal counsel for the appellants placed emphasis upon the fact that only a very small 4 UNREPORTED JUDGMENTS percentage of the transparencies were used in any particular year but that fact does not seem to me to bear on the question whether the transparencies were records within the meaning of para (e). Although 'records' is a word of wide meaning which may include something which is retained as a memorial its meaning in para (e) is governed by the context in which it appears. The primary context is one relating to what might be described as the business records of Federal Publishing Company although the reference to 'specifications, plans, drawings and designs' would indicate that, in the context of a publishing company, business records should not be understood too narrowly. Although plans and specifications would not normally be understood to form a part of the business records of a publishing company there may well be occasions in which such a company would have and retain such documents for its business purposes. On the other hand the computer systems records, documents, manuscripts, and business books would clearly form part of its business records as would securities and deeds which it kept at the premises. While, therefore, the paragraph refers to "records of every description" it would seem clear to me that it refers only to those documents or items which were made or gathered together for the purpose of recording information which it was desired to keep for use in the business. It is clear that records may be kept in a photographic form. If, for instance, a business wished to keep a record of a particular event it might do so wholly or partly in photographic form and it may keep that record for reference in its business. For this reason it seems to me to be necessary to look beyond the immediate context of the word 'records' and to consider the purpose of the paragraph and other terms appearing in it which may bear on the meaning of records. Counsel for the appellants submitted that para (e) provided only two methods of valuing losses which fell within that paragraph. The prima facie measure of loss was "the cost of reinstating, replacing, reproducing or restoring the damaged or destroyed item". However, if the insured did not require that the damaged item be reinstated, replaced, reproduced or restored then the measure of loss equated the replacement cost of the materials as blank stationery. In other words if the insured did not require that the damaged item be, for instance, restored then it was entitled only to the cost of the provision of an equivalent amount of blank stationery. Further, the phrase 'if such is not required' meant that if replacement etc was not required by the insured and this might occur either if the insured did not desire to have the damages items replaced or if replacement, reinstatement, reproduction or restoration was ann impossibility such that it could not be required. According to this view where reinstatement etc was possible the insured had two options. One was to seek the cost of reinstatement, the cost of replacement blank stationary. In the event that reinstatement etc was impossible then the first option was irrelevant and the insured would be entitled to the replacement cost of equivalent blank stationary. Because of the course which the appeal took counsel for the respondents did not answer this contention but it would seem to me that there is much force in it. If it is correct then, while one can see the sense in indemnifying the insured only to the extent of the cost of, for instance, paper, in the case of business records which have been destroyed and which the insured does not wish to, or cannot, UWRGNA INSURANCE AUSTRALIA LTD v GENERAL NEWSPAPERS PTY LTD (Meaghes JA) reproduce the same cannot be said in respect of transparencies which were brought into existence for use, in photographic form, in magazines and retained for possible use in future magazines. Although one is concerned to ascertain the presumed intention of the parties (see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales 149 CLR 337, at 352) it is difficult to accept that an insured in the position of the respondents would have entertained the notion, or agreed to a contractual term, that they were entitled only to the cost of blank stationary in the event that the transparencies were destroyed. For my part the alternative method of indemnity provided in CL(e) is a strong indication that the records of which the clause speaks were those which the respondents brought into existence, or obtained, for the primary purpose of storing information. Support for this view is also to be found in the reference to blank stationery. Photographic transparencies would not normally be understood to be 'stationery' (in the Macquarie Dictionary "stationery" is defined as "writing paper, writing materials, as pens, pencils, paper etc') and the use of the expression 'blank stationery' in the alternative measure of loss strongly suggests that the paragraph is dealing with records contained on stationery or, because of the express inclusion, computer systems. In my opinion a transparency library would not be understood as a matter of ordinary language to constitute business records or records of the insured and I would conclude that the loss is to be valued in accordance with para (a). His Honour awarded the respondents half the costs of the proceedings to the date of his judgment. He did so because, although he considered that there were a number of factors in favour of awarding costs to the respondents, their main submissions as to the basis of indemnity and as to the correct assessment of indemnity failed. I have decided, contrary to his Honour, that the respondents should have succeeded at first instance on their main submissions and it would seem to me to follow that his Honour ought to have awarded them their costs of the proceedings at first instance. In these circumstances I would propose the following orders: (1) Appeal dismissed. (2) Cross-appeal allowed and the orders of Palmer AJ be set aside. (3) That the first question submitted for trial, namely, "As a matter of construction of the policy, do the transparencies fall within the description of 'all other property and contents' within the meaning of Basis of Settlement (a) of s1 of the policy or within the description of 'other records of every description' within the meaning of Basis of Settlement (e) in that section of the policy?" be answered as follows: Basis of Settlement (a). (4) The proceedings be remitted to the Commercial Division to deal with the outstanding questions. (5) The appellants should pay the respondents' costs of the proceedings before Palmer AJ, the appeal and cross-appeal and to have, if otherwise qualified, a Suitors Fund Certificate in respect of the costs of the cross-appeal. Meagher JA I agree with Clarke JA. (1) Appeal dismissed. (2) Cross-appeal allowed and the orders of Palmer AJ be set aside. JOBNAME: No Job Name PAGE: 6 SESS: 1 OUTPUT: Fri Oct 19 13:55:47 2007 /reports/caseml]/case/urj/9201803 UNREPORTED JUDGMENTS (3) (4) (5) That the first question submitted for trial, namely, "As a matter of construction of the policy, do the transparencies fall within the description of 'all other property and contents' within the meaning of Basis of Settlement (a) of s1 of the policy or within the description of 'other records of every description' within the meaning of Basis of Settlement (e) in that section of the policy?" be answered as follows: Basis of Settlement (a). The proceedings be remitted to the Commercial Division to deal with the outstanding questions. The appellants should pay the respondents' costs of the proceedings before Palmer AJ, the appeal and cross-appeal and to have, if otherwise qualified, a Suitors Fund Certificate in respect of the costs of the cross-appeal. 45 Counsel for the Appellant (Cross-Respondent): RA Conti QC / JJ Graves Counsel for the Respondent (Cross-Appellant): RV Gyles QC / R McColl Solicitors for the Appellant (Cross-Respondent): Dunhill Madden Butler 20 Solicitors for the Respondent: Phillips Fox