CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KIRBY P, PRIESTLEY and POWELL JJA 29-31 March 1994, 14 December 1994 [1994] NSWCA 359 INSURANCE — cancellation — validity of- solicitor accepts in letter — held: (by Maj) — Cancellation accepted — Binds insured — within ostensible authority — cancellation effective — no statutory policy under s58 Insurance Contracts Act 1984. LEGAL PRACTITIONERS — ostensible authority — cancellation of insurance policy — within authority in disputed claim — estoppel — representations unconscientious to deny — held: (by Maj) Estopped from denying. DAMAGES- insurance contract — non-payment of claim — general damages recoverable. INSURANCE — cancellation — validity of — letter by insurer to insured's solicitor following fire caused by arson — insurer purports to cancel policy — insured's solicitor requests payment of cheque for balance of premium which is duly repaid — whether solicitor's letter binds insured — whether constitutes abandonment of policy ab initio — whether insured estopped from asserting continuation of policy in face of letter — held: (allowing appeal and reversing Cole J on this point): (per Kirby P and Powell JA, Priestley JA dissenting on this point) (1) It was not necessary for the insurer to prove the insured's actual authority to its solicitor to write as he did. It was enough that the solicitor acted within the ostensible authority of his retainer. Geissler v Accro Motors Pty Ltd (1955) 73 WN (NSW) 31 (FC) applied; Freeman and Lockyer v Bathurst Park Properties (Mangal) Ltd [1964] 2 QB 480 (CA) and Crabtree-Vickers Pty Ltd v Australian Advertising and Addressing Co Pty Ltd (1975) 133 CLR 72 applied; (2) The solicitor's letter in its terms was within the ostensible authority of his retainer and bound his client, the insured; (3) Neither in the letter nor in other conduct was there abandonment ab initio of the policy of insurance; (4) The insured was estopped from asserting the continuation of the policy after the letter by its solicitor to the insurer. The Commonwealth v Verwayen (1990) 170 CLR 394; Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 (CA) applied; (5) Accordingly, because the policy was cancelled or its repudiation accepted, s58 of the Insurance Contracts Act 1984 (Cth) did not arise, there was no statutory policy under that Act and the insurer's liability to the insured was to be ascertained by reference only to the terms of the original policy as issued by it to the insured; (6) No appealable error arose in the decision of the primary judge to permit the insured belatedly to rely upon s58 of the Act. Bank of New Zealand v Spedley Securities Ltd (In Liq) (1992) 27 NSWLR 91 (CA) applied. Although (per Powell JA) leave ought not to have been granted for that purpose. INSURANCE - cancellation - statutory insurance - Insurance Contracts Act 1984 (Cth), s58 - whether statutory insurance policy came into effect - held: (allowing the appeal): (per Kirby P and Powell JA; Priestley JA contra) As the policy issued by the insurer to the insured was cancelled or repudiated by the insurer and the cancellation or repudiation was 2 UNREPORTED JUDGMENTS accepted by the insured's solicitor within the ostensible authority of the solicitor acting for the insured, it would be unconscionable for the insured to deny the cancellation or repudiation and it could not rely upon the suggested statutory policy under s58 of the Act but was limited to the obligations imposed upon the insurer by the contract which was cancelled or repudiated, but only prospectively. ESTOPPEL - representations made on the basis of which insurer deprived of opportunity more security to protect its position in respect of cancellation of insurance policy - whether in the light of the representations it would be unconscientious for the insured to depart from them and to assert the continuing validity of a policy of insurance - held: (Per Kirby P and Powell JA; Priestley JA contra) It would be. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; Silovi Pty Ltd v Barbero (1988) 13 NSWLR 466 (CA) applied. INSURANCE - industrial special risks policy - obligation to reinstate - requirements of obligation - fire causes substantial damage to property during period of insurance - primary judge upholds entitlement to indemnity in respect of such fire - no appeal against such finding - insurer cancels policy, disputes claim and denies obligation to reinstate property - continuing business and other losses occasioned by fire damage - further fires cause greater loss including, eventually, substantial destruction of premises - local authority requires demolition of premises - extent of insured's entitlement to reinstate - held: (by the Court) (allowing the appeal from Cole J on this point) The obligation to reinstate encompasses subsequent stock damage or destruction of the insured property during the period that the obligation to reinstate subsisted and had not been fulfilled. The insured was entitled to a declaration as to its right to reinstatement of its premises. Smith and Ors v The Colonial Mutual Fire Insurance Co Ltd (1880) 6 VLR 200 (FC) and Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture (1981) 146 CLR 201 considered. INSURANCE - reinstatement - duty of insurer - obligations under policy - policy provision imposes obligation but not "until a sum equal to the cost of reinstatement shall have been actually incurred [by the insured]" - upon insurer cancelling policy for fraud and declining liability to indemnify, insured unable to pay for reinstatement - insured subsequently sues insurer successfully - when cost of rebuilding destroyed premises "actually incurred" - held: (by the Court) (reversing Cole J on this point) (1) The sum equal to the cost of reinstatement was not "actually incurred" until the insured had incurred the obligation to, or agreed to, pay the moneys necessary to reinstate its property - insured entitled to declaration of entitlement to indemnity but not to judgment in a monetary sum until that sum was "actually incurred"; (2) Judgment for the reinstatement sum not yet actually incurred, set aside. DAMAGES - breach of contract - insurance policy - claim for indemnity denied by insurer - denial subsequently rejected by primary judge and not appealed - entitlement of insured to damages - entitlement under policy to business interruption for one year from loss - whether thereafter entitled to general damages for business interruption by reason of failure of insurer to pay as required under policy - held: (per Kirby P and Priestley JA; Powell JA contra) (1) The insured may recover general damages such as were reasonably to be supposed to have been in the contemplation of the insurer and the insured ad the time of the making of the insurance policy. Alexander and Ors v Cambridge Credit Corporation and Anor (1987) 9 NSWLR 310 (CA) applied; (2) The obligation to pay general damages may arise in cases of breach of contracts of insurance. Moss and Anor v Sun Alliance Australia Ltd (1990) 6 ANZ Ins Cas para60-967; (3) In the instant case general damages were payable from a reasonable time after the entitlement under the contract of insurance until the payment. LEGAL PRACTITIONERS - solicitor - retainer - ostensible authority of - held: (per Kirby P and Powell JA) It was within the ostensible authority of a solicitor retained by an URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD 3 insured in a controversial insurance claim to accept on behalf of the insured the cancellation of the policy by the insurer and the insured's solicitor had so accepted the cancellation by demanding the return of the balance of the premium for the unexpired term of the insurance. Pianta v National Finance and Trustees Ltd (1965) 38 ALJR 232 (HC) applied. INTEREST - statutory interest - insurance claim - failure to pay - refusal held to be unjustified - business interruption claim - claim for reinstatement or replacement - held: (1) Interest under s57 of the Insurance Contracts Act 1984 (Cth) was payable in respect of the business interruption claim; (2) Interest was not payable in respect of reinstatement or replacement of premises contents and stock as the obligation to pay such reinstatement or replacement only arose where the insured had "actually incurred" the costs thereof. Insurance Contracts Act 1984, s57, and s58. ORDERS 1. Appeal allowed, in part; 2. The orders of Cole J set aside; 3. In lieu thereof: (a) Declare that: (i) Upon the proper construction of policy number IS395070 issued by the appellant to the respondent in or about December 1991 ("the Policy") and in the events which have occurred, the appellant is liable to indemnify the respondent in respect of property damage and consequential loss occasioned by fire damage to its premises in Bankstown on or about 8 January 1992; and (ii) Upon the proper construction of the Policy and in the events which have occurred, the appellant is liable to indemnify the respondent to the extent of the costs of reinstatement once actually incurred in respect of property damage and consequential loss occasioned by a fire on or about 3 March 1993 at its premises in Bankstown; (iii) In the events which have occurred, the appellant is liable to indemnify the respondent in respect of consequential loss occasioned by fire damage to its premises from 8 January 1992 to 8 January 1993; (iv) In the events which have occurred, the appellant is liable to pay general damages to the respondent in respect of its breach of contract; (v) In the events which have occurred, the appellant is liable to pay interest to the respondent pursuant to s57 of the Insurance Contracts Act 1984 (Cth) in respect of the claim for consequential loss, from 9 March 1992 to the date on which the payment of that claim is made; (vi) In the events which have occurred, the appellant is liable to pay interest to the respondent upon the award of general damages referred to in (iv) above in accordance with the Supreme Court Rules from 9 January 1992 to the date of judgment; (b) Order that (i) There be referred to the Commercial Division the ascertainment of the damages to which the respondent is entitled (if any) in accordance with declaration (iv) above and the interest to which the respondent is entitled (if any) in accordance with the declarations (v) and (vi) above; (ii) There be reserved to the Commercial Division the entry of judgment to which the respondent is entitled, including in respect of any entitlement then established for the costs of reinstatement actually incurred by the respondent, should leave be given to the respondent to claim such sum; (iii) Any such judgment to take effect from the date ordered by that Division; and (iv) The respondent give credit to the appellant for sums already paid; 4. The appellant to pay the respondent's cost before Cole J; 5. The respondent to pay one third of the appellant's costs of the appeal; but to have in respect thereof, if otherwise so qualified, a certificate under the Suitors' Fund Act 1951; and 4 UNREPORTED JUDGMENTS 6. Liberty to either party to apply to relist the proceedings for variations of these orders or for further orders or directions, provided such liberty is exercised with 28 days of the publication of the judgment of the Court. Entry of, and execution upon, the final orders of the Court in the meantime to be stayed. Kirby P This is an appeal from a decision of Cole J in the Commercial Divisionof the Supreme Court. His Honour held that the appellant insurer was liable to indemnify the respondent club pursuant to a contract of insurance for losses suffered by ie respondent when its premises where destroyed by a succession of fires. Cole J quantified the recoverable loss as being in excess of $1.9 million. He ordered that judgment be entered in favour of the respondent in that sum. The appellant challenges the extent of its liability to indemnify the respondent and the relief granted by Cole J. AN INSURED'S PREMISES ARE DESTROYED BY FIRE CAUSED BY ARSON Bankstown Football Club Ltd (the club) had its premises in Jacobs Street, Bankstown. The activities of the club were various and unremarkable. They included the conduct of a licensed bar area with gaming machines and other like facilities. Within the club's premises was an independently operated restaurant, specialising in Chinese cuisine. Although, in the past the club's profitability had been questionable, with the benefit of new management, the club had begun to exhibit signs of improved and sustained profitability. To insure itself against certain losses the club had entered into a "industrial special risks" insurance policy with the appellant on 3 December 1991. That policy was expressed to expire on 30 October 1992. On the night of 8 January 1992, the premises of the club were severely damaged by a fire starting in the kitchen of the restaurant. There is no dispute that the fire was not accidental. It was not disputed that arson was involved. An accelerant (most probably between 4 and 20 litres of petrol or kerosene) was spread over the floor of the restaurant. The damage occasioned by the fire (the first fire) required that the premises be boarded up and that the club's trading activities cease. An appropriate claim form was lodged by the President of the club on the day following the fire, ie 9 January 1992. On 22 July 1992 the appellant, by its solicitor, wrote to the club's secretary indicating the appellant's refusal to pay the club's claim. By the same letter, the appellant purported to cancel the contract of insurance and other policies not relevant to these proceedings. The appellant's denial of liability at that time proceeded upon the basis that the claim made was fraudulent. The appellant alleged that the arson had been committed by the club President or a casual employee or by conspiracy between them. Later, the appellant would similarly seek to deny its obligations to pay the claim of the respondent upon the basis that the losses claimed by the club were fraudulent. On the same day (22 July 1992) the solicitor for the club wrote to the appellant's solicitor, presumably by facsimile, requesting a rateable refund of the premium paid by the club to the appellant and indicating that the club intended to pursue its claim against the appellant. On 24 September 1992, the club filed a summons seeking a declaration that the appellant was liable to indemnify the club in respect of property damage and consequential loss occasioned by the fire to the club's premises. The summons also sought damages, interest and costs. After the time at which the relevant policy was, by its terms, due to expire (30 October 1992) the club's premises were further damaged by a second fire. Minor damage only was occasioned by this fire on 18 December 1992. That damage was URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Kirby P) 5 treated as irrelevant for the purposes of these proceedings. On 3 March 1993, a third fire occurred causing a large amount of damage and destruction to the premises and their then contents. Such was the state of the club's premises after the third fire that the local government authority required that the building be demolished. That request was met. Between the boarding up of the premises after the first fire and its demolition as a result of the third fire, the premises had been broken into and vandalised on many occasions. Some contents, particularly the stock of alcohol, were stolen. THE INSURER'S ATTEMPT TO AVOID LIABILITY IS REJECTED BY THE PRIMARY JUDGE In a judgment delivered on 4 June 1993 Cole J rejected the appellant's claim that it was not liable to pay the club's claim upon the basis that the club's President and/or a casual employee had committed arson. In reaching that conclusion, his Honour expressed his opinion by reference to his observations of the key witnesses for the club in the witness box. He indicated that he was impressed with the credibility of the club's President and the casual employee accused by the appellant. Upon that basis, his Honour held that the appellant was liable under its contract of insurance to indemnify the club in respect of properly damage and consequential loss resulting in the first fire. The decision of Cole J rejecting the allegation of involvement of the Club officers and employees in the arson is not challenged in this appeal. The prima facie liability of the appellant having been determined, the quantification of that liability came to be assessed. The club made claims of four types: building damage; contents damaged or destroyed; stock damaged or destroyed; and a business interruption claim. The appellant again sought to deny its liability. It alleged that the quantification of the loss by the club was fraudulent such that it entitled the appellant (pursuant to CL7 of the contract of insurance and/or s56 of the Insurance Contracts Act 1984 (Cth) (the Act)) to avoid entirely its obligation to pay the club for the losses suffered by it. The club (on 2 December 1993) successfully filed an amended summons, seeking to rely upon, in addition to the grounds stated in the original summons, s58 of the Act. After a further hearing, Cole J delivered judgment on 16 December 1993. His Honour held that: (1) The allegation of fraud, which had been framed in various ways by the appellant completely failed. There is no challenge to this finding in this appeal; (2) The appellant's solicitor's letter on 22 July 1992 and the club's solicitor's response did not constitute a repudiation of the original contract, wrongful or otherwise, nor acceptance of that repudiation. There is no challenge to this finding in this appeal; (3) The appellant's purported cancellation of the policy by the letter of 22 July 1992 was ineffective to terminate prospectively the policy of insurance, the grounds (the allegation of arson by employees of the club) of that purported cancellation being unjustified and not in accordance with the relevant provision of the Act, in this case s60(1)(e); (4) As the policy was not in law cancelled on 22 July 1992, it remained in force until, by its terms, it expired, ie on 30 October 1992; (5) The policy being of the type to which s58 of the Act applied, there being no appropriate notice and compliance otherwise with that section, the Act deemed a "statutory policy" to operate on the same terms from 30 October 1992 for a period of twelve months, or until otherwise cancelled in accordance with the Act; 6 UNREPORTED JUDGMENTS (6) That being the case, the total destruction occasioned by the third fire to the club's premises and its contents was covered by the statutory policy and the insurer was liable for that loss; (7) The request for a refund of the premium by the club's solicitors neither constituted a waiver of any of the club's rights under the Act nor was it such conduct as to estop the club from relying on its rights under the Act; (8) The policy did not require that before the club be indemnified by the appellant in respect of any reinstatement and replacement of the building or its contents, the club had actually to incur the sum claimed; (9) The club's business interruption claim properly included the salary of Mr Potter, Cole J leaving it to the parties to agree to an appropriate figure within a prescribed range; and (10) The club was entitled in addition to declaratory relief, to general damages for the appellant's breach of contract for not paying, within a reasonable time, the monies properly payable to the club under the insurance policy. Cole J also expressed the view, obiter, that, as a matter of construction of the contract of insurance, the damage occasioned by the third fire would not have been covered by the terms of the policy. But it was recoverable under the Act. On 17 December 1993 Cole J in a third judgment determined an application in respect of interest upon the contents, building, business interruption and general damages claims. His Honour awarded interest in respect of the business interruption claim and in respect of the contents claim arising from the first fire. He made allowance in favour of the appellant for delay of a reasonable time for it to investigate the claim. THE INSURER'S APPEAL TO THE COURT OF APPEAL The appellant's amended notice of appeal listed some twenty-one grounds of appeal against Cole J's decision awarding $1,913,963.23 to the club. Having regard to the submissions made by the parties, orally and otherwise, the determination of this appeal can be confined to the following issues: (1) Whether s58 of the Insurance Contracts Act 1984 (Cth) applies and, if it does, its effect (the statutory policy point); (2) Whether, properly construed, the terms of the contract of insurance require that the cost of reinstatement be actually incurred by the club before the appellant becomes liable to pay that cost (the reinstatement point); and (3) Whether general damages for the appellant's breach of contract and interest were available to the club in the circumstances (the general damages and interest points). By way of notice of contention, the club asserted that, upon a proper construction of the contract of insurance, the appellant was liable to indemnify the club in respect of property damage and consequential loss occasioned by the third fire, notwithstanding that the third fire occurred outside the indemnity period specified by the policy. A CHALLENGE TO THE DISCRETIONARY AMENDMENT OF THE SUMMONS FAILS A preliminary point needs to be dealt with. It was suggested by the appellant that Cole J had erred in permitting the club to amend its summons to rely upon the provisions of s58 of the Act. The power of a trial judge to permit the amendment of a summons, or any other originating process, is an exercise of that trial judge's discretion. Absent circumstances which establish proper grounds for interference in the exercise of the discretionary power (see, for example, House v The King (1936) 55 CLR 499 at 504-505 per Dixon J), an appellate court will URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Kirby P) 7 not interfere. At least it will not do so without clear evidence of a serious miscarriage. This attitude of restraint is even more applicable where, as here, the challenge concerns an exercise of discretion affecting the practice and procedure of the trial judge's court. See, for example, Contender 1 Ltd v LEP International Pty Ltd (1988) 63 ALJR 25 (HC); Southern Cross Exploration NL v Fire and All Risks Insurance Co Ltd [No 2] (1990) 21 NSWLR 200 (CA); Bank of New Zealand v Spedley Securities Ltd (in Liq) (1992) 27 NSWLR 91 (CA). Whilst acknowledging the force of the point made in this regard by Powell JA, I would not disturb Cole J's decision to permit the club, although belatedly, to amend its summons at trial. I therefore turn to the first of the issues raised by the appeal. It concerns the application and meaning of s58 of the Act. S58 OF THE INSURANCE CONTRACTS ACT 1984 (CTH) DOES NOT APPLY Relevantly, s58 of the Act provides: "58.(1) In this section, "renewable insurance cover" means insurance cover that: (a) is provided for a particular period of time; and (b) is of a kind that it is usual ta renew or for the renewal of which it is usual to negotiate. (2) Not later than 14 days before the day on which renewable insurance cover provided under a contract of general insurance (in this section called the "original contract") expires, the insurer shall give to the insured or a person acting as agent for the insured a notice in writing informing him of the day on which and the time at which the cover will expire and whether the insurer is prepared to negotiate to renew or extend the cover. (3) Where: (a) an insurer has failed to comply with subs(2); and (b) before the original contract expired, the insured had not obtained from some other insurer insurance cover to replace that provided by the original contract; then, by force of this section, there exists between the parties to the original contract a contract of insurance that provides insurance cover as provided by the original contract, except that the cover provided is in respect of the period that: (c) commences immediately after the insurance cover provided by the original contract expires; and (d) expires, unless the contract is sooner cancelled, at: (i) the expiration of a period equal to the period during which insurance cover was provided by the original contract; or (ii) the time when the insured obtains from some other insurer insurance cover to replace that provided by the original contract; whichever is the earlier." At a threshold level, s58 of the Act can only apply if the relevant contract of insurance was "in effect" at the time of the alleged failure to comply with its provisions. By the express words of the section, the wrong which it aims to redress is the unnoticed expiration of a renewable insurance cover. See D St L Kelly and ML Ball, Principles of Insurance Law in Australia and New Zealand, Butterworths, 1991, at para9.33 where those authors say: "The purpose of s58 is to protect the insured from the risk of suffering an uninsured loss because of a failure by the insured to warn to the insured of the impending expiry of cover." 8 UNREPORTED JUDGMENTS Similarly, the context of s58 of the Act tends against the applicability of a statutory policy of insurance where the original contract of insurance has been effectively cancelled. Pt7 of the Act (consisting of s58-s64) deals with the expiration, renewal and cancellation of contracts of insurance. In particular, s59 and s60 of the Act deal the procedure by which an insurer may cancel a contract of insurance and the grounds upon which an insurer may cancel a contract of insurance. Given that context, one would suppose that, had s58 of the Act been intended to apply to renewable contracts of insurance which had been cancelled, the express words of the section would have so provided. It would, I think defy both logic and the ordinary meaning of the words in s58 of the Act to construe that section as applicable where a renewable insurance cover had been effectively cancelled by the insurer. The test of the application of s58 of the Act is the expiration of the contract of insurance. Within the context of Pt7 of the Act, the words "expires" and "expired" in s58(2) and s58(3) cannot properly be taken to include in their meaning the cancellation of the contract of insurance by the insurer. Though not conclusive, commentators have not suggested that s58 of the Act applies where the contract of insurance has been cancelled. See, for example, CCH, Australian and New Zealand Insurance Reporter, at paral4-310; D St L Kelly and ML Ball, Principles of Insurance Law in Australia and New Zealand, (above), at para9.32 and para9.33; F Marks and A Balla, Guidebook to Insurance Law in Australia (2nd ed), CCH, 1987, at paral003. It is therefore crucial to determine whether the contract of insurance, issued by the appellant to the club, remained in effect after the events of 22 July 1992. It is my view that it did not. The reasons for this conclusion are: (a) the club's solicitor's letter represented to the appellant acceptance of the appellant's cancellation (although, wrongful) of the policy of insurance; (b) the club's solicitor's representation was binding upon the club; and (c) the representation was such as to estop the club from asserting the continued operation of the contract of insurance or any rights which may derive from it. There was no contractual ground permitting the appellant effectively to cancel the contract of insurance. Cole J held (on 2 June 1993) that the club had not made a fraudulent claim under the policy of insurance and that the club's President and the casual employee accused by the appellant were not involved in the arson of the club's premises. His Honour held that the wrongful exercise of the power of cancellation by the appellant did not constitute a wrongful repudiation of the contract by the appellant. Cole J said such a "purported, although wrongful, exercise of contractual rights is the antithesis of wrongful repudiatory conduct by the insurer, and acceptance of wrongful repudiatory conduct by the insured." Referring to DTR Nominees Pty Ltd v Mona Homes Pty Ltd and Anor (1978) 138 CLR 423 at 432 and Braidotti v Queensland City Properties Ltd (1991) 65 ALJR 387 (HC) at 397 his Honour said: "The purported exercise of a contractual power does not normally constitute repudiatory conduct. That is so even if it be found that the factual basis for the purported exercise was not present. The reason why that is so is because the bona fide but wrongful exercise of a power conferred by the contract does not "evince an intention that the party will not perform the contract according to its terms "... " URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Kirby P) 9 Hence, the club's solicitor's letter did not constitute an acceptance of that wrongful repudiation. These findings are not challenged upon this appeal by either party. Similarly, the appellant submitted that the parties by their conduct had abandoned or abrogated the contract of insurance. For reasons elaborated below, it is my view that they did not. (a) THE SOLICITOR'S LETTER REPRESENTED ACCEPTANCE OF THE APPELLANT'S CANCELLATION On 22 July 1992 the appellant's solicitor wrote to the club at the address of its solicitor. That letter advised of the appellant's refusal to pay the claim in respect of the first fire. It also purported to cancel the contract of insurance. The appellant claimed to do so upon the basis of conditions 5(b)(v) and 5(c) of the contract of insurance. Those provisions provided: "5. Cancellation (b) The Company [ie, the appellant] may also cancel this policy giving the insured [ie, the club] written notice to that effect where... (v) the Insured has made a fraudulent claim under this policy or any other policy of insurance (whether with the Company or some other insurer) that provided insurance cover during any part of the period during which the Policy provides insurance cover; (c) The Company's notice of cancellation takes effect at the earlier of the following times: (i) The time when another policy of insurance between the Insured and the Company or some other insurer, being a policy that is intended by the Insured to replace this policy,is entered into; or (ii) 4.00pm on the 30th business day after the date on which notice was given to the Insured. In the event that the Company cancels this policy, the Company will repay to the Insured a rateable proportion of the Premium for the unexpired Period of Insurance from the date of cancellation." On the same day the club's solicitor replied by letter to the appellant's solicitors. That letter said: "We refer to the above matter and note that your client has cancelled those insurance policies referred to in your letter of today's date. Could you accordingly arrange for a cheque for the balance of the premium to be forwarded to our office by return. We note our instructions that in any event we intend to pursue your client pursuant to the policy." Looking at the letter by itself, I should have thought that, prima facie, it conveyed acceptance of the appellant's wrongful cancellation of the policy of insurance. The reasons for this prima facie conclusion are threefold. First, the letter notes the cancellation of the policies; it does not seek to dispute the validity or effect of the appellant's cancellation in respect of the appellant's future obligations. Secondly, it seeks a return of the balance of the premium: a contractual right clearly exercisable only upon the acceptance of the effectiveness (even if not the justifiability) of the cancellation of the policy in question. Thirdly, it indicates an intention to pursue the appellant pursuant to the policy. But that pursuit is not expressed as being relevant to the appellant's future obligations to the club under the policy. That policy was accepted to be at an end. Of course that prima facie meaning of that letter might be displaced by matters which indicate the contrary. Ordinarily, one would have thought that an insured faced with circumstances similar to those faced by the club, would, if the insured desired the continued operation of the policy, have asserted the continuance of 10 UNREPORTED JUDGMENTS the policy of insurance in more express and direct terms. In such a case, prudence would suggest that the insured should deny the effectiveness of the purported cancellation; inform the insurer that the insured continued to treat the insurer as on risk and to hold the insurer liable; decline to seek a rateable refund of the premium; and refuse to accept any rateable refund of the premium if offered by the insurer. However, in this case the letter was written by the club's solicitor. Whether that prima facie meaning is attached to, or otherwise binds, the club is a matter which must be considered. (b) THE REPRESENTATION OF THE CLUB'S SOLICITOR ARE BINDING UPON THE CLUB Whether or not the club could accept, or make representations concerning its acceptance of, the appellant's purported cancellation of the policy is a question different from whether the club's solicitor could so act or represent. Here, it is the conduct and representations made by the club's solicitor which the appellant seeks to attribute to the club. The club submitted, and Cole J accepted, that while an insured's solicitor may have authority to seek a rateable return of the premium where an insurer has purported to cancel the contract of insurance, it was not within the authority, ostensible or otherwise, of an insured's solicitor to cancel a policy of insurance by representation or otherwise. The club contended that such cancellation would require actual authority. There was no evidence of the club's solicitor having actual authority to accept or make representations concerning the cancellation of the club's contract of insurance. However, the solicitor's conduct will bind the club if the solicitor had ostensible authority in respect of that conduct. Whether an agent acts with ostensible authority is a question of fact to be determined in each particular case. See Geissler v Accro Motors Pty Ltd (1955) 73 WN(NSW) 31 (FC) at 32. That question of fact, in the case of ostensible authority, depends upon the inferences drawn by the tribunal of fact. An inference may be drawn having regard to the reasonable perceptions of the third party as to the principal's holding out of the authority of the agent. In Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 (CA) at 503-504 Diplock LJ said (at 503-504): "An "apparent" or "ostensible" authority... is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the "apparent" authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract. In ordinary business dealings the contractor at the time of entering into the contract can in the nature of things hardly ever rely on the "actual " authority of the agent. His information as to the authority must be derived either from the principal or from the agent or both, for they alone know what the agent's actual authority is. All that the contractor can know is what they tell him, which may or URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Kirby P) 11 may not be true. In the ultimate analysis he relies either upon the representation of the principal, that is, apparent authority, or upon the representation of the agent, that is warranty of authority. The representation which creates "apparent" authority may take a variety of forms of which the commonest is representation by conduct, that is, by permitting the agent to act in some way in the conduct of the principal's business with other persons. By doing so the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal's business has actually "actual" authority to enter into." The foregoing principles were applied by the High Court of Australia in Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising and Addressing Co Pty Ltd (1975) 133 CLR 72. They should be taken as stating the applicable rules of the common law. For present purposes, it is necessary to consider whether the club's general instruction to, and retainer of, its solicitor to act in respect of its claim upon the appellant constituted a sufficient representation to the appellant so as to give rise to the solicitor's ostensible authority to do what he did in writing his letter of 22 July 1992. Generally, whether or not a solicitor has actual or express authority to do a particular act or make particular representations will depend upon the nature and extent of the solicitor's retainer. See Cordery on Solicitors, (Sth ed), at 99-100; Chitty on Contracts (25th ed), Vol 2, para2209. However, absent express authority by retainer, a client may be estopped from denying the binding effect of his or her solicitor's conduct with the scope of purported action pursuant to the solicitor's ostensible or implied authority. See Cordery on Solicitors (above), at 113. See also Magripilis v Baird (1926) QSR 89 (HC); R v Towner (1896) 7 QLJ 139 (FC). If it turns out that the solicitor exercised a purported authority which the solicitor did not in fact have, it is not the third party dealing in good faith through the solicitor who should suffer if it acted upon the basis of the solicitor's purported authority. Then the client will have to pursue its remedies against the solicitor for going beyond the retainer which it provided. In this case, the appropriate inference to be drawn is that the club's solicitor had ostensible authority to act or to make representations in respect of the continued operation of the contract of insurance. It is not unreasonable for the appellant to view the conduct of the club, in apparently instructing its solicitor to pursue the subject insurance claim, as including all necessary authority to give effect to those instructions. Incidental to those instructions, it can be inferred, was the power to deal with the issue of the purported cancellation of the contract. Indeed, I should have thought that the instruction of a solicitor to pursue a matter such as a controversial insurance claim would leave a third party dealing with the solicitor with the impression that that solicitor, having been retained for his or her legal expertise, would have all necessary authority to deal with all issues which reasonably and forseeably arose in the pursuit of that claim. It is not a situation akin to the instruction of a solicitor to pursue non-litigious business where the nature and extent of the solicitor's authority is not so easily inferred to be so widely encompassing. See, for example, Marriot v Webb (1895) 11 WN(NSW) 131; Hogan v Hogan (1869) 8 SCR(NSW) Eq 96 (FC); Pianta v National Finance and Trustees Ltd (1965) 38 ALJR 232 (HC) at 234. 12 UNREPORTED JUDGMENTS In any event, the conduct of the club following its solicitor's letter of 22 July 1992 involved an adoption, by way of ratification or otherwise, of the solicitor's actions and representations. The evidence of the club's insurance broker shows that the club's Secretary had contacted the broker on 22 July 1992 or shortly thereafter. He informed him that the policy had been cancelled by the appellant. The broker had not been instructed to dispute the purported cancellation in any manner nor to refuse to accept any rateable return of the premium. In due course, the broker received the return of the premium. While the club did not immediately take possession of the returned premium, at this stage there is little doubt that the club knew of that return and had acknowledged its entitlement to it. The broker had asked the club whether it wanted the money paid to it at that time. The club instructed the broker to hold the money. Similarly, the club declined to obtain further insurance for its premises upon the basis that it could not afford it. The club did not decline upon the basis that it treated itself as remaining covered by the policy which the appellant had purported to cancel. In other words, the conduct of the club immediately following the solicitor's letter of 22 July 1992 did nothing to dispel the inference that it accepted the acts and representations of the solicitor and thus accepted the cancellation of the policy of insurance by the appellant. Upon this basis, the acts and representations of the club's solicitor, whatever their ultimate effect, were binding upon the club. (c) THE CLUB IS ESTOPPED FROM ASSERTING THE CONTINUED OPERATION OF THE CONTRACT The appellant submitted that the club, by its representations and conduct of 22 July 1992, or the representations and conduct of its solicitor binding upon the club, was estopped from asserting the continued operation of the contract of insurance and any rights, statutory or otherwise, which might flow from it. Similar submissions were made upon the basis of acquiescence and waiver. Such submissions are, in substance, identical to the submission based upon estoppel. I shall therefore deal only with the submission based upon estoppel for no relevant point of distinction arises in this case. The concept of estoppel is used in different senses in the law. There is, at present, no agreement as to the doctrinal significance of the varieties of estoppel or as to the relationship between the various concepts of estoppel. See Meagher, Gummow and Lehane, Equity - Doctrines and Remedies (3rd ed), Butterworths, 1992, paral701. Some of the well known species of estoppel are set out by Jordan CJ in Discount and Finance v Gehrig's New South Wales Wines Ltd (1940) 40 SR(NSW) 598 (FC) at 602-603. See also Legione v Hately (1983) 152 CLR 406 at 430. The appellant referred the Court to the Deane J's well known formulation of "estoppel by conduct" in The Commonwealth v Verwayen (1990) 170 CLR 394 at 444 445. From that passage a number of points relevant to the present case can be extracted: (1) The central principle of the doctrine of estoppel by conduct is that the law will not permit an unconscionable (or "unconscientious") departure from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption were not adhered to; (2) Whether or not the party so relying has suffered significant disadvantage necessitates the examination of the relevant belief, actions and position of that party; and URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Kirby P) 13 (3) Whether such a departure is unconscionable (or "unconscientious") depends upon the conduct of the advantaged party in all the circumstances. Those circumstances must show that any departure from the assumption, the adoption of which or persistence in which the advantaged party played a part, must be such that the advantaged party can properly be considered guilty of unjust and oppressive conduct. Circumstances where the advantaged party will be held to have been unconscionable or unconscientious will include: (i) where he or she has induced the assumption by express or implied representation; (ii) where he or she has entered in contractual or other material relations with the other party on the conventional basis of the assumption shared by each; (iii) where he or she has exercised against the other party rights which would exist only if the shared assumption were correct; (iv) where he or she knew that the other party laboured under the assumption and refrained from correcting him or her when it was a person's duty in conscience to do so. However, against all the circumstances relevant to the determination of whether the advantaged party was relevantly unconscionable or unconscientious must be weighed (i) the reasonableness of the conduct of the disadvantaged party in acting upon the assumption and (ii) the nature and extent of the detriment which the disadvantaged party would sustain if departure from the assumption were permitted. Priestley JA, in an extrajudicial work ("Estoppel: Liability and Remedy?" in D Waters (ed), Equity, Fiduciaries and Trusts - 1993, Carswell, 1993, at 273 at 287) says that Deane J "saw the central principle of the doctrine [of estoppel] as being that the law would not permit an unconscionable departure by one party from the subject matter of an assumption adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to the other party's detriment were the assumption not adhered to for the purposes of the litigation." As a matter of precedent, the formulation of estoppel which binds this Court in this case is that to be found in the High Court's decision in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387. See LJ Priestley, "Estoppel: Liability and Remedy" (above), at 289-290. The holding of the High Court in Waltons is conveniently summarised by Priestley JA in Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 (CA) at 472. See also LJ Priestley, "Estoppel: Liability and Remedy" (above), at 284. However, for the purposes of this case, the same result derives from the application of Deane J's formulation to which the appellant referred and the formulation to be ascertained from the decision in Waltons. In business dealings, at least between properly advised contestants, the courts will exhibit restraint in substituting the perceived dictates of judicial consciences for the legal rights and obligations of the parties. See Austotel Pty Ltd and Anor v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 (CA) at 585. In this case the application of the principles referred to in Waltons and Silovi results in the conclusion that the club is estopped from asserting the continued operation of the contract of insurance after 22 July 1992. The representations made by the club's solicitor, and the club's immediate conduct thereafter, far from disputing the solicitor's letter confirmed to the appellant the prima facie meaning that is to be attributed to the letter of 22 July 1992, ie, that the purported cancellation was accepted and the contract of insurance had ceased to be effective. The solicitor plainly had ostensible authority to make those 14 UNREPORTED JUDGMENTS representations. In any event, the conduct of the club after the letter was written was adoptive, by way of ratification or otherwise, of the solicitor's representations and conduct. The appellant then reasonably relied upon the representations by the club and its solicitor. As there had been reasonable reliance by the appellant upon the representations made by the club and its solicitors, the circumstances of the case are such that any departure from those representations by the club would be unconscionable. Had the club sought to dispel the prima facie meaning of the letter and subsequent conduct, the appellant would doubtless have sought to protect its own position. Thus, if it had been put on notice by the club that the club disputed the effective cancellation of the policy, the appellant could, and by the evidence would, have issued a notice pursuant to s58 of the Act. Such a notice would have avoided any issue as to the application of a statutory policy under s58(3) of the Act. In reliance upon the apparent acceptance both by the solicitor and the club of the cancellation of the insurance, the appellant did not do this. The club took no steps whatever to dispel this assumption on the part of the appellant. A similar conclusion is reached by the application of the principles expressed by Deane J in The Commonwealth v Verwayen. The assumption created in the appellant by the club's representations and conduct was that the club accepted the appellant's purported cancellation of the insurance policy. Departure from that assumption by the club would be unconscionable (or "unconscientious"). Upon notice of the club's dispute as to the effectiveness of the appellant's cancellation of the policy, the appellant could have moved more securely to protect its own position. Similarly, the club having made the representation it did, exercised against the appellant the right to demand a rateable return of the premium. That was a right only capable of exercise in the event that the contract of insurance was cancelled. Therefore, it was an exercise of a right by the club which would exist only if the shared assumption of the cancellation of the contract were correct. The appellant's reliance upon the assumption was, having regard to all the circumstances, reasonable. The nature of the detriment which the appellant may suffer if the departure from the assumption were permitted might be very great. The club submitted that estoppel could not lie against the provisions of the Act. S52 of the Act providing that there can be no contracting out of the Act, it was argued that there could not be any equitable equivalent of contracting out; in particular there could be no waiver. The Court was referred to Equitable Life Assurance of the United States v Bogie (1905) 3 CLR 878; Considine v Citicorp Australia Ltd [1981] 1 NSWLR 657; Spencer Bower and Turner, The Law Relating to Estoppel by Representation (3rd ed), Butterworths, 1977, at 139 et seq. I do not doubt that a party cannot, by the application of the doctrine of estoppel, be prevented from relying upon rights ordinarily granted to it by legislative enactment. At least it cannot do so where the activity, the subject of the claimed estoppel, is within the purpose of ie legislative enactment. Many cases make this point. They are collected in The Australian Digest (3rd Ed), Title 32 - Estoppel, para[35]. However, the question of the operation of an aspect of a particular transaction, where the operation of that aspect is protected by a relevant statute, is distinct from the question of the operation of the transaction itself. Here the estoppel with which the Court is concerned involves the operation of a contract of insurance. It does not deal with the manner of the operation of the contract of insurance. The manner of operation of the contract of insurance URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Kirby P) 15 is a matter against which estoppel would not lie. But estoppel will lie as against the operation of the contract itself. Thus in The Commonwealth v Verwayen (1990) 170 CLR 394 the High Court denied, by application of the doctrine of estoppel, that the Commonwealth could rely upon the operation of Limitations of Actions Act 1958 (Vic). The Act continued to apply. But the party could not invoke it as applicable to its cause for it would be unconscionable (or "unconscientious") for it to do so in the circumstances. So here. THE PARTIES DID NOT BY THEIR CONDUCT ABANDON OR ABROGATE THE CONTRACT But did the parties abandon or abrogate the contract of insurance ab initio? The applicable principle is stated in these terms: "Whatever the terms of a contract may be, it is possible for the parties so to conduct themselves as mutually to abandon or abrogate it": Summers v The Commonwealth (1918) 25 CLR 114 at 152 per Isaacs J. See also DIR Nominees Pty Ltd vy Mona Homes Pty Ltd and Anor (1978) 138 CLR 423 at 434. Whether there is abandonment or abrogation of a contract is a matter of fact to be inferred from the conduct of the parties. See, for example, Fitzgerald and Anor v Masters (1956) 95 CLR 420 at 432. That finding of fact may be inferred from the conduct of duly authorised agents of the parties. See Air Great Lakes Pty Ltd and Ors v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 (CA) at 325. Whether an abandonment of the contract ought to be inferred from the conduct of the parties requires consideration of whether the parties have, by their conduct, evinced an agreement to dispense with further performance of the contract. I take the principle to be accurately stated in DW Greig and JRL Davis, The Law of Contract, LBC, 1977, at 1188-1189: "When it is alleged that a contract has been terminated by abandonment, the task of the court is to consider all the circumstances, to see whether the fact of an agreement can be inferred from the conduct (or inaction) of both parties, viewed objectively." As a matter of legal doctrine, where a contract is held to have been "abandoned" it is ordinarily abandoned ab initio. To the contrary, where a contract has been performed in part and rights and obligations have accrued from it, any abandonment of future performance of the contract is ordinarily the concern of the doctrine of repudiation. If one accepts that abandonment of contract operates ab initio then, as a matter of law, the appellant's reliance upon the doctrine of abandonment to avoid the future operation of the contract of insurance, whilst acknowledging the accrued obligation in respect of the first fire, would be unsustainable. However, the exact operation of the doctrine of abandonment in this respect remains unclear; one can postulate that ordinarily abandonment operates ab initio but at the same time one cannot exclude the possibility of abandonment in futuro: see, for example, Australian Stratacore Holdings Ltd (in Liq) v Sanwa Australia Securities Ltd (Court of Appeal, unreported, 27 May 1994). Accepting that abandonment operates, at least normally, ab initio, the focus of the court being upon the mutual, as distinct from unilateral, intention of the parties objectively discovered, it could not be said that the club, or its solicitor, intended to its abandon accrued entitlements in respect of the first fire. So much is made plain by the terms of the solicitor's letter holding the appellant to its liability for that fire. This matter is also adverted to by Greig and Davis (above), at 1189-1190. They say: "In the above decisions of the High Court [Summers (above) and DTR Nominees (above)], the respective contracts were still executory at the time of abandonment... In such a situation, the lapse of time and 16 UNREPORTED JUDGMENTS inactivity were strong evidence of abandonment. Where, on the other hand, one party has partly performed his obligations, but that performance has not been reciprocated by anything done by the other, it will be very difficult to prove that the mere passage of time and inaction is sufficient to justify a finding of the necessary agreement to abandon the contract. " If abandonment does operate in futuro, then the conduct of the club in asserting the continued operation of the contact of insurance was a sufficient indication of contrary intention so as to prevent the inference being drawn that the parties mutually intended to abandon the contract ab initio. For these reasons the conduct of the parties was not such as to constitute an abandonment of the contract of insurance after 22 July 1992. CONCLUSION - S58 OF THE INSURANCE CONTRACTS ACT DOES NOT APPLY For the purposes of s58 of the Act, the contract of insurance issued by the appellant to the club ceased to operate on 22 July 1992 or shortly thereafter. Certainly, the contract ceased to be operative at a time 14 days prior to its otherwise expiry date, 30 October 1992. Notwithstanding the absence of a contractual right in the appellant to cancel the policy of insurance, the club's solicitor's letter represented to the appellant that the club had accepted the appellant's purported cancellation. That representation was binding upon the club. The conduct of the club at that time, and thereafter, was such as to prevent it from asserting the continued existence of the contract of insurance. Because the contract ceased to be operative, this meant that the issue of the application of s58 of the Act, and any derivative rights which may flow to the club, did not arise. Cole J erred in reaching the opposite conclusion. In this respect, the appellant's appeal must succeed. With every respect to Priestley JA's opinion, I cannot make the solicitor's letter mean what his Honour takes it to have meant to the recipient. The question is not, in my opinion, what the solicitor really meant to say. It is not even what he understood the meaning of his letter to be. Parties will be held to the consequences of such a letter. If the solicitor erred in writing as he did, the club may have a remedy against him. The first paragraph, as I read it, notes and accepts the cancellation. The second asks for the return of the balance of the premium. These sentences can only mean - and be taken in their context to convey the meaning - that the cancellation was acknowledged and accepted. In any case, what he wrote was thereafter confirmed. The appellant relied upon it to its detriment. In my respectful view, the contrary conclusion is unsustainable whatever sympathy one might have for the solicitor, or the club, or both. PROPERLY CONSTRUED THE CONTRACT OF INSURANCE EXTENDS TO COVER THE THIRD FIRE Having reached the conclusion stated above, it is necessary to consider the club's notice of contention. By that notice, the club asserted that, properly construed, the terms of the contract of insurance extended to indemnify the club in respect of property damage and consequential loss occasioned by the third fire, notwithstanding that the third fire occurred outside the period of indemnity specified in the contract of insurance. Such a submission was rejected by Cole J, in obiter remarks. The liability of an insurer is governed by the relevant terms of the contract of insurance. It therefore depends upon the construction and interpretation to be accorded to those contractual terms. See Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture (1981) 146 CLR 206 at 242. The URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Kirby P) 17 issue before the Court is whether the reinstatement promised by the original contract extended to include the repair of additional damage incurred outside the period of cover. Resolution of that issue can be approached upon at least two different bases. On the one hand, it can be said that the obligation to reinstate, having been incurred by the insurer, only actual reinstatement would fulfil that obligation. That is, an obligation to reinstate the insured property to a condition, for example, equal to but not better than new cannot be discharged by a notional reinstatement which takes the property to the position short of the reinstatement of the damage incurred outside the period of insurance. In such a situation, the insured simply has not received that which it had bargained for, viz, the actual reinstatement of the property to a conditional equal to but not better than new. Actual rather than notional reinstatement is, I think, at the heart of the following passage of Barwick CJ's dissenting judgment in Atkinson-Leighton at 219: "Suppose an insurer against damage by fire has become bound to reinstate the damaged property, a fire having damaged the property during the currency of the policy. Suppose the term of the policy expires whilst the promise to reinstate is still not fully performed. Then suppose some event to occur which renders the reinstatement more costly, ie to occur after the term of the policy has expired and before the reinstatement to the pre-damaged condition is complete. None the less, in my opinion, the insurer would be bound to reinstate. It would be no answer for him to say that the added cost was due to an uninsured risk. THE TRUE ANALYSIS IS THAT THE OBLIGATION TO REINSTATE HAVING ATTACHED DURING THE CURRENCY OF THE POLICY, ITS PERFORMANCE IS REQUIRED WHATEVER IT COSTS AND HOWEVER THE COST IS INCREASED BY EVENTS WHICH COULD NOT IN THEMSELVES HAVE GIVEN RISE TO A CLAIM UNDER THE POLICY. The decision of the Supreme Court of Victoria in SMITH v COLONIAL MUTUAL FIRE INSURANCE CO LTD [(1880) 6 VLR 200 (FC)] (which, in my opinion, was correctly decided) is illustrative of this principle " (emphasis added) Similarly, in Lumley General Insurance Ltd v Vintix Pty Ltd (1991) 24 NSWLR 652 (CA) the Court of Appeal had occasion to consider whether the reinstatement of a building damaged by an earthquake included the substantial additional cost required to make the building comply with an "earthquake code" introduced by the relevant local authority. Giving the leading judgment of the Court, Meagher JA said at 657: "Since the insurer's duty is to indemnify the insured, and since it is conceded that that duty is to pay the cost of reinstatement, THE AMOUNT PAYABLE TO SATISFY THE DUTY MUST BE THE AMOUNT WHICH IT COSTS TO EFFECT AN ACTUAL, NOT A NOTIONAL REINSTATEMENT. IF NO ACTUAL REINSTATEMENT CAN BE EFFECTED WITHOUT COMPLIANCE WITH A NEW STATUTORY CODE, THE AMOUNT PAYABLE INCLUDES WHATEVER AMOUNT IS NECESSITATED BY SUCH COMPLIANCE (subject always, of course, to the principle of betterment). " (emphasis added) See also at 654-655 per Mahoney JA. Acknowledging that the comments in Lumley concerned damage to property incurred within the period of insurance, it is my view that the general principle that an obligation undertaken to reinstate can only be discharged by actual, as opposed to notional, reinstatement is equally applicable to the issue at hand where the additional cost of reinstatement is incurred by an event outside the period of insurance. To hold otherwise would (subject, of course, to the operation 18 UNREPORTED JUDGMENTS of the precise words of the particular policy in question) deny the insured that which it bargained for, viz, the actual reinstatement of the property to a functional state. On the other hand, the issue of whether an obligation to reinstate extends to the reinstatement of damage incurred by events outside the period of insurance may be viewed as an issue of causation. In Lumley, heavy rainfall caused extensive additional damage to the remaining portions of a building which had been damaged in an earthquake. In determining whether the additional cost of the rainfall damage was properly within the obligation to reinstate, Meagher JA approached the issue as one of causation. His Honour said at 658: "This is a problem of a kind which frequently arises, particularly in insurance law which commonly, if not invariably, involves a promise of an insurer to indemnify his insured for loss or damage "caused by" the happening of a particular event. " Meagher JA referred to the applicable authorities. Applying the appropriate test of causation, he concluded that the ordinary person "would have little difficulty in the present case of concluding that the cause of the additional damage was the heavy rains and not the earthquake" (at 659). Upon such a causal analysis, the essential inquiry is whether the further damage is severable from the event giving rise to the initial damage. However, the analysis provided by Meagher JA was not the holding of the Court in Lumley relating to that issue. Ultimately, that issue fell to be determined upon the express provisions of the contract of insurance which provided for damage caused by rainfall and required that the damaged be "directly" caused by earthquake. Mahoney JA (at 655) suggested that there was an "arguable case for the conclusion that the earthquake was the cause of the latter as well as former loss", but preferred to decide the issue upon the express provision of the policy. Clarke JA expressed similar reservations (at 656). In Atkinson-Leighton the majority of the High Court (Stephen, Mason, Murphy and Wilson JJ) held that occurrences of additional storm damage to an embankment which had been originally damaged by two severe storms, but before repair work had been completed, were to be considered as separate instances of damage. That is, the obligation of the insurer to repair the embankment after the initial damage did not include the latter damage. The latter instances of damage were independent occurrence giving rise to independent liability. In this respect the majority of the High Court adopted an approach easily classified as one of causation. To this effect, Mason J said, at 243-244: "[Memo 2] measures the extent of the appellant's liability by reference to the cost of "repairs necessary to restore " the property and, in so doing, it assumes that there is a liability to pay or make good the damage which is physically caused by the particular occurrence arising from a non-excluded cause. The example given by Mahoney JA in his dissenting judgment of damage done to work of restoration by an excluded clause, namely fire, is a telling one. It can scarcely have been intended by the parties that the appellant would be liable for damage done by a totally excluded clause constituting a separate occurrence merely because the damage was done to restoration work undertaken by way of repair in respect of damage arising from a non-excluded cause." In that case the policy was one of indemnity only and not reinstatement. See Atkinson-Leighton at 232 and 242. URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Kirby P) 19 In the present case, the applicable principles are twofold. First, the obligation of the appellant is to determined primarily by the express terms of the contract of insurance and the proper construction to be given to those terms. Secondly, the obligation of the appellant, properly considered, being that of "reinstatement", as opposed to indemnity alone, the Court ought to give full effect to that obligation for that is what the insurer exceptionally promised. Failure by the Court to give effect to that obligation of "reinstatement" will leave the club with substantially less than that which the club bargained for. In my view, an approached based upon concepts of causation is inappropriate in this case where the insurer has undertaken to "reinstate" the property of the insured. Such an approach may not render the insurer liable to fulfil the obligation in the terms which it undertook it. Just as the additional costs of compliance with the intervening earthquake code in Lumley were held to be within the insurer's obligation of "reinstatement", a permissible analogy is that the additional costs of compliance with the intervening local authority's order of demolition, following the third fire, was within the insurer's obligation of "reinstatement" here. One final comment needs to be made. The club did not proceed to incur any amount for the reinstatement of the property after the first fire. As a matter of practicality, it could not do so. The insurer denied its liability to pay. Without the insurer's acknowledgment of its liability to pay, it was impracticable for the club, in its parlous financial position, with no effective income and large debts, to embark upon the process of reinstatement for itself. The club may have then found itself liable, contractually or otherwise, to those whom it had engaged to reinstate the premises. The insurer had refused indemnity to the club. Realising its predicament, the club sought a declaration from the Court. In my opinion, it would be unrealistic for the Court now to determine that the club, having not actually incurred any costs of reinstatement after the first fire, ought not be entitled to any indemnity in respect of the total destruction as a result of the third fire. However, this particular issue need not be decided in this case. Ultimately, the club's submissions on this point, bearing the above principles in mind, are to be answered by consideration of the relevant terms of the contract of insurance. It is to them that I now turn. The appellant's "industrial special risks insurance policy" recites that, upon payment or agreement to pay the premium, subject to the "terms, conditions, exclusions, memoranda, warranties, limitations, and other provisions" the appellant "agrees to indemnify the [club] as specified herein against loss occurring during the Period of Insurance stated in the Schedule or any renewal thereof." Prima facie the obligations of the appellant were therefore expressly limited to the period of insurance, ie from 3 December 1991 to 30 October 1992 or any renewal thereof. The question arises whether this prima facie meaning may be displaced by the other terms of the contract or otherwise. The appellant's liability to indemnify the club was governed by s1 of the policy. That section provides that "in the event of any physical loss, destruction or damage" not otherwise excluded, the appellant will, subject to the terms of the policy, "indemnify the [club] in accordance with the applicable Basis of Settlement." For the purposes of s1, "damage" is taken to refer to "any physical loss, destruction or damage" with "damaged" having a corresponding meaning. In respect of "buildings, machinery, plant and all other property and contents" (other than specified) the basis of settlement is "the cost of reinstatement, replacement or repair in accordance with the provisions of the Reinstatement and Replacement and Extra Cost of Reinstatement Memorandum". That same basis 20 UNREPORTED JUDGMENTS of settlement allows the club to elect to claim "the indemnity value of any damaged property", such value to be "the value... at the time of the happening of the damage". The appellant retains the option to "reinstate, replace or repair such property or any part thereof." Here, the club did not elect to claim the indemnity value of its losses. The reinstatement and replacement memoranda (applicable to "buildings, machinery, plant and all other property and contents" other than those specified in items (b) to (i) of the basis of settlement) provides that the amount payable by the appellant "shall be the cost of reinstatement of the damaged property insured at the time of its reinstatement". Where the property is "lost or destroyed" "reinstatement" means "in the case of a building, the rebuilding thereof or in the case of property other than a building, the replacement thereof by similar property, in either case in a condition equal to, but not better or more extensive than, its condition when new. Similarly, where the property is "damaged", "reinstatement" means "the repair of the damage and the restoration of the damaged portion of the property to a condition substantially the same as, but not better or more extensive that, its condition when new." With respect to those of the contrary view, the natural meaning of the terms of the policy is to require the appellant to indemnify the club in respect of the reinstatement of its premises and otherwise. That liability includes the further damage occasioned by the events leading up to and including the third fire arising out of the first fire and its consequences. The reinstatement and replacement memorandum requires "reinstatement" to bring, by various means, the property in question to a condition equal to, but not better than, "its condition when new". That being the case, the liability to reinstate having been incurred, it will involve the remedying of any subsequent damage. The appellant cannot properly be said to have met its obligations to "reinstate" the club's property by effecting a notional reinstatement and by reinstating only that damage it claims was incurred by the first fire. True it is (as I have found) that the third fire occurred at a time when the policy had been cancelled and was not in operation. However, the obligation to reinstate is, in my view, a continuing one. The appellant could have moved to protect itself against any risks associated with this continuing obligation. For example, it could have acknowledged its now established liability for the first fire. This would have allowed the club to proceed with the processes of reinstatement. It chose not to do so. It could have drafted its contract of insurance expressly to exclude any liability to reinstate beyond the period of cover. It did not do so. It could, for example, have limited its obligation to reinstate only to the damage incurred in the period of insurance cover only. This may have made its reinstatement cover notional and rather unattractive commercially. It is pointless to explore whether this would have been feasible. Put simply, it is not what the appellant's policy promised the club. The policy promised "reinstatement" of the insured premises to a condition equal to, but not better than, "its condition when new." Reinstatement of the damage incurred only by the first fire within the period of cover (when the appellant had the means to effect reinstatement by acknowledging its liability) would not give effect to that promise. Such a result would not give to the club premises equal to, but not in better condition than, ie condition of the premises when new. The continuing effect of the obligation to "reinstate" is reinforced by proviso (ii) to the reinstatement and replacement memoranda. That proviso provides that, where property is "damaged in part only" the appellant's liability is limited to that which the appellant "could have been called upon to pay for reinstatement URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Kirby P) 21 if such property had been wholly destroyed." Similarly, the need for prompt action in reinstating the damaged property is recognised by proviso (i) to the reinstatement and replacement memoranda. That proviso provides, in effect, that if the reinstatement process is unreasonably delayed by the club, the appellant is liable only to the indemnity value of the "damaged property at the time of the happening of the damage." Of course, the conduct of the appellant is such that it could not now seek to rely upon that proviso. However the logic underlying that proviso appears to accept that further damage may result from the property remaining unreinstated and in a state of disrepair. As is well known, that possibility is a significant risk in property insurance, given the contemporary vulnerability of damaged property to further damage, burglary, vandalism etc. That being so, proviso (i) tacitly acknowledges the existence of a continuing obligation in the appellant. It seeks to limit that continuing obligation by making an unreasonable delay on the part of the insured (ie the club) a form of disentitling conduct with respect to full and proper reinstatement. The club's claims were of four types: (a) building damage; (b) contents damaged or destroyed; (c) stock damaged or destroyed; and (d) a business interruption claim. The above reasoning in application to claims (a) and (b) needs no explanation. In respect of claim (c) the basis of settlement is "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'. That replacement obligation looks to the actual time of the replacement. As such, it is also a continuing obligation and necessarily encompasses any subsequent stock damage or destruction of the insured property up to and including that caused by the third fire. In respect of claim (d) the contract of insurance provides coverage for a period of twelve months from the "occurrence of the Damage", here from 8 January 1992 to 8 January 1993. Assuming I am wrong in the foregoing opinion concerning the meaning of the terms of the policy, would the application of the principles of causation to the appellant's established liability for the first fire produce the same result? I believe it would. As a general rule, an insurer will be liable only for damage or loss caused by the happening of an insured event. At least in this regard, what loss or damage is recoverable is determined by general notions of causation. Causation in law is a complex concept involving sometimes disputable line drawing. A useful example of the complexity is the Lumley case in which Mahoney JA (at 655) and Clarke JA (at 656) expressed some degree of difference with the conclusion of Meagher JA that the additional damage was "caused" by the later heavy rainfalls and not by the original earthquake. Meagher JA preferred an analysis suggesting that in the context of insurance law, "one direct or dominant cause" must be determined (at 658). Ultimately, the issue in Lumley was resolved upon the express provisions of the contract pertaining to "rainwater" damage. However, in Lumley the words of the contract directed at causality were: "damage directly caused by". Meagher JA found support in those words for the application of a test of direct or dominant cause (at 659). In this particular case, the contract of insurance does not use words of causality. The contract provides: "THE INDEMNITY In the event of any physical loss, destruction or damage... not otherwise excluded happening at the Situation to the Property Insured in s1 the Company will, subject to the provisions of this Policy including the limitation on the Company's liability, indemnify the Insured in accordance with the applicable basis of Settlement." 22 UNREPORTED JUDGMENTS Hence the liability to indemnify arises upon the event of physical loss, destruction or damage. There are no words in the foregoing provision, nor others, which narrow the test of causality applicable. That being ie case, applying the general concept of causality as a question of fact, it is to be answered in this case by reference to common sense and experience including considerations of policy and value judgments: March v E and MH Stramare Pty Ltd (1991) 171 CLR 506. Upon that footing the total destruction occasioned by demolition upon order by the local authority followed with sufficient directness and foreseeability the first fire. The third fire was causally related to the first fire. The unreinstated state of disrepair occasioned by the first fire was the direct cause of the vulnerability and opportunity which gave rise to the third fire. UNDER THE POLICY THE CLUB MUST FIRST ACTUALLY INCUR THE COSTS OF REINSTATEMENT The appellant submitted that upon the proper construction of its liability to pay the costs of reinstatement, before it became liable to pay any such cost those costs had to be actually incurred by the club. Cole J rejected this submission. He held that "not only is the [club] entitled to a declaration regarding the obligation of the insurer to indemnify, but is also entitled to a monetary judgment for the "cost of rebuilding the destroyed building" and in the case of contents, the cost of the "replacement thereof by similar property". There was some argument as to whether the appellant ought be entitled to put this submission. It was not pleaded specifically. However, it is appropriate, as Cole J in fact did, to consider the substance of the appellant's submission. The answer to the submission is to be found in the terms of the contract of insurance. By the terms of the contract of insurance, the appellant's obligation to reinstate or replace damaged property is substantially governed by the terms of the reinstatement and replacement memoranda. Proviso (iv) to the appellant's obligation to reinstate (as discussed above) is in the following terms: "No payment beyond the amount which would have been payable under this Policy if this memorandum had not been incorporated herein shall be made UNTIL A SUM EQUAL TO THE COST OF REINSTATEMENT SHALL HAVE BEEN ACTUALLY INCURRED; provided that where the Insured reinstates or replaces any lost or destroyed property at a cost which is less than the cost of reinstatement (as defined) but greater than the value of such property at the time of the happening of its loss or destruction, then the cost so incurred shall be deemed to be the cost of the reinstatement." (emphasis added) The effect of this proviso is as follows. The club having not elected to accept the indemnity value (pursuant to CL(a) of the basis of settlement) it was entitled to indemnity upon a reinstatement or replacement basis as provided for by the reinstatement and replacement memoranda. That memoranda provides indemnity upon the various bases which have been discussed above. However, proviso (iv) provides, as is the usual practice, that whatever the ultimate cost of that reinstatement, no payment will be made by the appellant until a sum equal to the cost of reinstatement has "actually been incurred" by the club. That is, upon a reinstatement, the insured is not entitled to recover a judgment for the sum most likely, or even in fact, to be incurred for the reinstatement of its property. The insured is entitled to payment from the insurer only in respect of costs already incurred for the reinstatement of its property. Of course, "actually" to incur money does not require that the club should have paid over the money to those reinstating its property. It would be sufficient if the club were to incur the obligation, or to agree, to pay the money to those bound to reinstate its property. URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Kirby P) 23 Upon this basis, the submission of the appellant is, in my view, correct on this point. The club sought a declaration that it was entitled to be indemnified by the appellant in respect of certain losses. Ordinarily, in cases such as the present, a declaration would not be accompanied by a monetary award in respect of reinstatement which has not yet been incurred. A monetary award may be possible where the insurer is shown to have repudiated the contract and the club has accepted that repudiation: see, by analogy, Larratt v Bankers and Traders Insurance Co Ltd (1941) 41 SR(NSW) 215 (FC) at 223. In such a situation, a condition precedent to pay such as proviso (iv) would not operate. The contract between the parties "ceas[es] to exist except for the purpose of founding a claim for unliquidated damages": ibid. But that was not the case here. It has been suggested that an insurer may not be entitled to rely upon a condition precedent to its liability to pay if the insurer by its "conduct, such as the declining of liability, indicates to an insured that compliance with a condition precedent, whether of liability or quantum, is dispensed with": Edwards and Anor v AA Mutual Insurance Co (1985) 3 ANZ Insurance Cases para60-688 (NZHC) at 79,172. See also City Realties (Holdings) Ltd v The National Insurance Company of New Zealand Ltd (1986) 4 ANZ Insurance Cases para60-695 at 74,139-140; TCN Channel Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 (CA). Even if that be so, it has long been accepted that a party, in breach of contract, is not disentitled from relying upon its subsequent contractual rights where the breach in question does not entitle the innocent party to terminate the contract. In such a case the contractual obligations of both parties continue to operate. The innocent party is entitled to damages for the breach, nominal or otherwise. See, for example, Freeth and Anor v Burr (1874) 9 LR CP 208. While every breach of contract is actionable (in that it founds an action for damages) it is not the case that all breaches of contract will disentitle the party in breach from asserting its other and subsequent rights. Only breaches justifying termination ought properly to be considered as completely disentitling. Other less serious breaches are capable of remedy by an award of damages. Here Cole J held that the appellant's conduct did not constitute a repudiation and did not, therefore, entitle the club to terminate the contract. Those findings were not challenged. In those circumstances the appellant was entitled to rely upon proviso (iv). Cole J proceeded to derive a monetary award from the evidence. In doing this he was clearly influenced by the way the parties conducted the proceedings before him. This involved the review and assessment of a considerable amount of evidence. As the above reasoning requires, the contract of insurance provides for "reinstatement" in a manner which is inconsistent with his Honour's approach. It is not insignificant that counsel for the appellant did not raise this issue before Cole J until final submissions. Indeed Cole J said: "\..1 should mention that it seems this point was an after thought. It was not pleaded, although several other bases upon which the insurer alleged it was not obliged to make payment were pleaded. In addition, the court spent a considerable time hearing evidence regarding cost of rectification and rebuilding, and the value of the contents allegedly destroyed. All of that evidence including that called by the insurer would have been irrelevant if one could not yet determine the cost of reinstatement. Until closing submissions by Senior Counsel for the insurer, it was my understanding that the case was being fought upon the basis that the court should determine the contest between the experts called by the parties regarding the cost of reinstatement. I propose to do so. " 24 UNREPORTED JUDGMENTS This notwithstanding, the remedy which is properly available to the club, under the terms of its policy, was a declaration of its right to be indemnified in a manner according to these reasons. Proviso (iv) required that the appellant's obligation to actually pay the reinstatement costs to the club arose only after the club had actually incurred those costs of reinstatement. That proviso was not waived. Nor was it otherwise abandoned by the appellant. Belated reliance upon the proviso in the litigation contradicts waiver or abandonment. The appellant is therefore now entitled to rely upon the term. It requires that Cole J's judgment in the money sum ordered be set aside. GENERAL DAMAGES ARE AVAILABLE FOR THE APPELLANT'S UNSUSTAINED DECLINATURE The appellant submitted that the club was not entitled to an award of general damages for the appellant's breach of contract. Cole J accepted the club's submission that general damages were available where an insurer breached the contract of insurance by not paying within a reasonable time the monies properly payable under the insurance policy. His Honour held that general damages were payable for the trading losses suffered by the appellant where such losses where not covered by the consequential loss provisions of the insurance contract. Whether or not general damages are recoverable for the breach of an insurance contract is to be ascertained by the application of general principles of contract law. See, for example, Stuart v Guardian Royal Exchange Assurance of New Zealand Ltd [No 2] (1988) 5 ANZ Insurance Cases para60-844 (NZHC). Normally, the recovery of damages for breach of contract is governed by the application of the rule in Hadley v Baxendale (1854) 9 Ex 341 at 355; 156 ER 145 at 151. That rule determines whether or not the damage claimed is sufficiently remote to be unrecoverable. See also Alexander and Ors v Cambridge Credit Corporation and Anor (1987) 9 NSWLR 310 (CA) at 363ff. In the present case, the loss of trading profits claimed as general damages is recoverable if, under the second limb of the rule in Hadley v Baxendale, such loss "may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it." The operation of that part of the rule does not require that the parties have actually subjectively contemplated such a loss. It is enough that a reasonable person in the position of the parties would have realised that the damage was not an unlikely consequence of the breach. See Koufos v Czarnikow Ltd [1969] 1 AC 350 (HL) at 388. This Court was referred to examples where, in the application of the principles stated above, general damages had been awarded, or at least the potential for their award recognised, for breach of an insurer's obligation under an insurance contract. In Stuart (above) Herron J said, in the context of a claim for general damages for "inconvenience and distress", at 75,281: "T think a better approach is simply to regard the defendant [insurer] as being in breach of contract... and then to consider whether, under the head of general damages, anything can be paid for the obvious distress and inconvenience which the plaintiff and his wife have suffered... I refer to the principles already discussed in these cases, because it is only if such inconvenience or distress is in the reasonable contemplation of the parties that it can ever be a head of damage. It must, at the same time, arise from a breach of contract by the defendant... An insurer of a residential dwelling must be regarded as knowing, that a failure to indemnify promptly in accordance with the policy, will inevitably cause distress and anguish to the homeless family concerned. " URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Kirby P) 25 See also Davidson v Guardian Royal Exchange Assurance [1979] 1 Lloyd's LR 406; Edwards and Anor v AA Mutual Insurance Co (1985) 3 ANZ Insurance Cases para60-668; Harris v The New Zealand Insurance Co Ltd (1987) 4 ANZ Insurance Cases para60-817; Kerr and Anor v The State Insurance General Manager (1987) 4 ANZ Insurance Cases para60-781; Dome v The State Insurance General Manager (1988) 5 ANZ Insurance Cases para60-835, Moss and Anor v Sun Alliance Australia Ltd (1990) 6 ANZ Insurance Cases para60-967. A claim for general damages for unreasonably tardy payment arising from or the belated recognition of an entitlement to insurance indemnity is by no means heterodox. In the present case it would appear not unreasonable to suppose that, at the time of entering into the contract between the appellant and the club the parties had, objectively, in their contemplation that if the appellant seriously, unreasonably and unjustifiably delayed the acknowledgment of its liability to indemnify the club in respect of its losses, the club would inevitably suffer loss of trading profits as a consequence. The premises of the club were, after all, its only means to produce income. Such an inference is reinforced by the fact that the contract of insurance itself contained provisions for consequential loss. The appellant was liable under its policy to pay, and accepted its liability to pay, business interruption losses up to and including 8 January 1993. The contract of insurance provided for that cover for a period of twelve months from the date of the damage being incurred, ie 8 January 1992. Upon that basis the club is entitled to general damages under the general law in respect of loss of trading profits from the period 9 January 1993 to payment following the disposal of this appeal, with credit for the sum paid as a price of the stay granted following the appeal. Care should be taken to avoid double compensation by the provision of damages and interest (see below) to cover the same losses. Cole J quantified the loss of trading profits at an average of $14,478 per month. His Honour did so upon the basis of expert evidence,""not seriously challenged" by the appellant. There being no error in that approach, it is appropriate to adopt that figure. The parties should therefore calculate the entitlement to such damages to the date of payment. In the event of a dispute the matter will need to be referred back to the Commercial Division to resolve the dispute conformably with this Court's judgment. INTEREST IS ALSO PAYABLE The foundations for Cole J's calculation of interest having been negated, it is appropriate that this Court should make its own orders in respect of interest. The club having sought reinstatement or replacement of its premises, contents and stock the issue of interest does not arise. The club is yet to "actually incur" the cost of reinstatement or replacement. Presumably, pursuant to its obligations as determined by this Court, the appellant will promptly indemnify the club for those costs once incurred. In respect of the business interruption claim, whether interest is payable is to be determined according to s57 of the Act. Relevantly, s57(2) provides: "The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days: (a) the day on which the payment is made; (b) the day on which the payment is sent by post to the person to whom it is payable." 26 UNREPORTED JUDGMENTS The time at which it became "unreasonable for the insurer to have withheld payment" is a question of fact to be determined according to the ordinary meaning of those words. That period must include reasonable allowance for the insurer to investigate the claim. See CCH, Australian and New Zealand Insurance Reporter, at para23-760. Presumably, the appellant's reasonable period of investigation had been completed by 22 July 1992. That was the date when the appellant notified the club of its refusal to pay the club's claim and its purported cancellation of the contract of insurance. That conduct has now been held to have been unjustified. Cole J found it to be so. Hence, it was, in my view, unreasonable that the insurer withheld payment, certainly after 22 July 1992. Such an assessment is consistent with the hypothesis of the CCH editors that "an examination of [the] cases suggests that the most that probably can be said is that interest is generally awarded either from when the insurer first emphatically denied liability or disputed quantum, or from when, in the normal course of events, the claim would have been paid if liability or quantum had not been disputed": CCH, Australian and New Zealand Insurance Reporter, at para23-400. Upon that basis, which I am prepared to follow, interest in respect of the claim for consequential loss under the policy of insurance would be payable in accordance with s57 of the Act from 22 July 1992. In respect of the award for general damages for breach of contract, interest should be awarded in accordance with the Supreme Court Rules, from 9 January 1993 to the date of this judgment. CONCLUSIONS AND ORDERS For the foregoing reasons the orders which I favour are: 1. Appeal allowed, in part; 2. The orders of Cole J set aside; 3. In lieu thereof: (a) Declare that: (i) Upon the proper construction of policy number IS395070 issued by the appellant to the respondent in or about December 1991 ("the Policy") and in the events which have occurred, the appellant is liable to indemnify the respondent in respect of property damage and consequential loss occasioned by fire damage to its premises in Bankstown on or about 8 January 1992; and (ii) Upon the proper construction of the Policy and in the events which have occurred, the appellant is liable to indemnify the respondent to the extent of the costs of reinstatement once actually incurred in respect of property damage and consequential loss occasioned by a fire on or about 3 March 1993 at its premises in Bankstown; (iii) In the events which have occurred, the appellant is liable to indemnify the respondent in respect of consequential loss occasioned by fire damage to its premises from 8 January 1992 to 8 January 1993; (iv) In the events which have occurred, the appellant is liable to pay general damages to the respondent in respect of its breach of contact; (v) In the events which have occurred, the appellant is liable to pay interest to the respondent pursuant to s57 of the Insurance Contracts Act 1984 (Cth) in respect of the claim for consequential loss, from 22 July 1992 to the date on which the payment of that claim is made; (vi) In the events which have occurred, the appellant is liable to pay interest to the respondent upon the award of general damages referred to in (iv) above in accordance with the Supreme Court Rules from 9 January 1993 to the date of judgment; URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Kirby P) 27 (b) ORDER that (i) There be referred to the Commercial Division the ascertainment of the damages to which the respondent is entitled (if any) in accordance with declaration (iv) above and the interest to which the respondent is entitled (if any) in accordance with the declarations (v) and (vi) above; (ii) There be reserved to the Commercial Division the entry of judgment to which the respondent is entitled, including in respect of any entitlement then established for the costs of reinstatement actually incurred by the respondent, should leave be given to the respondent to claim such sum; (iii) Any such judgment to take effect from the date ordered by that Division; and (iv) The respondent give credit to the appellant for sums already paid; 4. The appellant to pay the respondent's cost before Cole J; 5. The respondent to pay one third of the appellant's costs of the appeal; but to have in respect thereof, if otherwise so qualified, a certificate under the Suitors' Fund Act 1951; and 6. Liberty to either party to apply to relist the proceedings for variations of these orders or for further orders or directions, provided such liberty is exercised with 28 days of the publication of the judgment of the Court. Entry of, and execution upon, the final orders of the Court in the meantime to be stayed. RESOLVING THE DIFFERENCES WITHIN THE COURT OF APPEAL Since preparing the above reasons I have had the benefit of reading in draft the opinions of Priestley JA and of Powell JA. Unfortunately, the is no concurrence in the way in which the Judges have resolved the many difficult points raised by this appeal. The position is a follows: (1) STATUTORY POLICY POINT: Both Powell JA and I would uphold the appeal and decide that Cole J was in error in determining that the club was entitled to recover indemnity from the appellant under a "statutory policy" under s58 of the Insurance Contracts Act. There is a clear majority in the Court for the view that the policy issued to the club by the appellant was cancelled (or repudiated) and that such cancellation (or repudiation) was accepted by the club so that no statutory policy thereafter arose. Upon this point Priestley JA is in dissent. (2) REINSTATEMENT POINT: All members of this Court are of the view that Cole J was in error in holding that the club was entitled to indemnity for reinstatement to the club's premises which had not yet been actually "incurred" and hence to judgment for the sums not yet incurred. All members of the Court are of the opinion that the club was entitled to declaratory relief concerning the club's right to indemnity or reinstatement, once the costs for that purpose have been incurred. (3) GENERAL DAMAGES POINT: Priestley JA and I have concluded that the damages (if any) which can be proved to flow from the appellant's objection to pay the respondent's repair and reinstatement costs in respect of the first and third fires are recoverable, although we differ in the opinion which we express about the basis of the liability for the third fire. Priestley JA finds that basis in the statutory policy (which I would reject). I find the basis in the language and meaning of the original policy and the notion of causation (which Priestley JA does not address, in light of his primary opinion). (4) INTEREST POINTS: 28 UNREPORTED JUDGMENTS (i) Priestley JA and I are of the opinion that the club is entitled to interest upon any general damages which the club may recover for the appellant's declinature and late indemnity under its policy; and (ii) Priestley JA and I are of the view that the club is entitled to interest upon moneys (if any) which have been withheld by the appellant for longer than was reasonable. There is some difference in our approach to the entitlement to such interest and its timing. To resolve that difference, I would agree in the opinion expressed by Priestley JA. In the light of the foregoing I am authorised by Priestley JA, with whom there is the highest measure of concurrence in the orders favoured, to say that the orders of the Court, reflecting that concurrence, should be those proposed by me, with the deletion from the declaration in para(3)(a)(v) of my orders of the words and figures "22 July 1992" and the substitution of the words and figures 9 April 1992": that being 3 months after the first fire, as favoured by Priestley JA. Priestley JA In this appeal I have had the benefit of reading in draft the separate reasons of Kirby P and Powell JA, which contain all the facts and materials relevant to the decision of the appeal. In Powell JA's reasons he sets out (at 39-42) the grounds of appeal relied on by the appellant in this court. Those grounds as argued in both written and oral submissions raised considerably fewer issues for decision by this court than Cole J had to decide at first instance. Because my reasons are based on the facts and materials stated by Kirby P and Powell JA, any reader of my reasons will find them easier to follow after reading those of Kirby P and Powell JA. The arguments to which the appellant reduced its grounds of appeal in this court were put under four heads. I will deal with the first two and the fourth under the headings used by the appellant and in the same order, but will need to comment, after expressing my opinions on the first two, on the effect of those opinions on the way in which the third should be approached. THE STATUTORY POLICY POINT. The appellant's submissions on this point are founded on the respondent's solicitor's letter of 22 July 1992. That was a response to the appellant's solicitor's letter of the same date in which the appellant's decisions to refuse the respondent's claim and to cancel the relevant policies were made known to the respondent's solicitor. The terms of the appellant's solicitor's letter made it clear beyond question that the appellant's decisions were based on the view that the respondent's claims were fraudulent, and were put on that ground only. The respondent's solicitor, in the first sentence of his letter in reply noted that the appellant "has cancelled [the relevant] insurance policies". He then asked for a return of the balance of the premium. But in a third and final sentence he then said "our instructions [are] that in any event we intend to pursue your client pursuant to the policy". This could only convey the meaning, in the circumstances, that the respondent asserted its claim was not fraudulent and that, unless the appellant earlier came to terms with the respondent, the respondent would maintain its claim, upon the contract, in court. More than one interpretation seems to me to be possible of the three sentences of the respondent's solicitor's letter taken together. The first part of their meaning is I think relatively clear and not disputed between the parties. The dispute is whether there is a further meaning (which I will call the addition) in the sense contended for by the appellant. URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Priestley JA) 29 The undisputed part of the interpretation is, "The Club says its claim is not fraudulent, you are not entitled to refuse the claim and the Club will maintain its claim against you on the insurance contract, by litigation if necessary, and the Club wants the proportion of the premium attributable to the period from now to the end of the insurance period refunded", but to this the appellant would make the addition, "because we are not going to assert any further rights under the contract in regard to any otherwise relevant loss happening from this day on." (I should make it clear that I am not saying the appellant contended for an interpretation in the precise words I have used, but an interpretation substantially to that effect seems to me to have been a necessary part of the appellant's argument and was put in one form or another.) The respondent on the other hand would deny that any meaning to the effect of the appellant's addition was conveyed. Although the kind of addition proposed by the appellant is indeed a possible one, I do not accept it. It does not emerge from the three sentences read together anywhere nearly as clearly as the preceding part, and to my mind is not persuasive or likely. The fact that the three sentences are hard to read together has the result, in the context in which the recipient read the letter, of making it, in my view, an example of true ambiguity. There is no rule of construction that I know of which requires a court to try to give a full and clear meaning to such a document as the letter in question. It is not a statute, or a document agreed on by two or more parties. The court should look at such a letter to find the most likely meaning it would have conveyed to its intended recipient, in light of the dealings between the recipient and sender, without preconceptions derived elsewhere than from that context, of what the answer ought to be. I agree with Kirby P's observation on the approach to interpretation in this case that the question is not what the solicitor meant or thought he meant by his letter. As already indicated I think the correct approach is to try to understand what the letter would have conveyed to its recipient, even though that in some cases might be a difficult task, leading different minds to different results. In my view, the letter in fact was a hastily written ambiguous letter, and not one indicating with any clarity at all that the respondent was abandoning the future operation of the contract; or acquiescing in the appellant's purported cancellation; or conveying a representation, with the clarity required of a representation relied on as founding an estoppel, that the respondent would treat the contract as at an end. These three were the only bases relied on by the appellant. On this approach the appellant fails on the statutory policy point. Also, on this approach, any unfairness in Cole J's granting of the amendment at the trial which permitted the late raising of the point, disappears, and the criticism directed at the amendment loses any force. In the course of the oral argument, counsel for the appellant made it clear that the appellant's submissions of abandonment, acquiescence in cancellation, or representation acted upon, were all directed to the coming to an end of the contract from the time of such abandonment, acquiescence, or representation acted upon, and not to saying that the contract had come to an end at any earlier time. Counsel for the appellant was also at pains to disclaim any reliance on a submission that the respondent's letter was an election by which repudiatory conduct by the appellant was accepted as bringing the contract to an end. 30 UNREPORTED JUDGMENTS Against the possibility that the court might reach the conclusion I have done on the statutory point, it was argued for the appellant that in any event it had complied with s58(2) of the Insurance Contract Act 1984 by its solicitor's letter of 22 July 1992. I do not think however that against the clear words of s58(2) it can be maintained that the letter of 22 July 1992 complied with the statutory requirements. In my opinion the points taken by the appellant under the first head of its written submissions fail. THE REINSTATEMENT POINT. The appellant's promise of indemnity to the respondent required it to indemnify the respondent in accordance with the applicable Basis of Settlement: sl, "The Indemnity". Under the heading, "Basis of Settlement", that basis was (subject to a proviso) said to be the cost of reinstatement, replacement or repair in accordance with the provisions of identified Memoranda. The proviso was that if the respondent elected to claim the indemnity value of any damaged property one of two things would happen: (1) the appellant would pay the respondent the value of such property at the time of the happening of the damage, or (2) the appellant would reinstate the property. The respondent did not make the election which would have brought the proviso into operation. The appropriate memorandum in the event that the election was not made (headed "Reinstatement and Replacement") said that the amount payable was to be calculated as the cost of reinstatement of the damaged property insured at the time of its reinstatement, reinstatement being defined, in the case of property damage, as the repair of the damage and the restoration of the damaged portion of the property to a condition substantially the same as its condition when new. One of the "Provisions" to this memorandum said the repair must be commenced and carried out with reasonable dispatch. These various provisions, taken together, seem to me to mean that in the case that happened here, it was for the respondent to arrange for the repair of the damage caused by the first fire, have that repair commenced with reasonable dispatch, and for the appellant to pay the cost, once incurred. The same position would arise under the statutory policy, since s58(3) of the Insurance Contracts Act 1984 requires that it provide insurance cover as provided by the original contract except that it will be in respect of a different period. A provision making payment by the insurer dependent upon the actual incurring of the relevant cost by the insured may, where liability is acknowledged and the parties act sensibly, be workable quite readily. It can cause difficulties to a blameless insured when an insurer wrongly refuses to acknowledge the insured has a valid claim, particularly if the insured is not in a position to incur the cost of repair. THE GENERAL DAMAGES POINT. CONSIDERED IN LIGHT OF THE OPINIONS REACHED ON THE FIRST TWO POINTS. The appellant's arguments about the trial judge's approach to the general damages question were based on the proposition that his Honour was wrong on the statutory policy point. Since I do not think he was, it is not necessary for me to consider what he should have decided if he had held there was no statutory policy. URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Priestley JA) 311 No detailed argument was put to the court on the position which would arise if this court held (as in my opinion it should) that the trial judge was right on the statutory policy point, but not on the reinstatement point. Since both Kirby P and Powell JA are of the view that Cole JA was wrong on the statutory policy point, my opinion on the position as I see it will not be material to this court's decision. Nevertheless, something was said about the position in the argument in this court, and I feel I should briefly indicate my view on general damages on the basis of the conclusions I have arrived at on the statutory policy point and the reinstatement point. I approach this question bearing in mind the following finding by Cole J: "T should make clear that I accept the evidence of Mr Shakespeare that had the Club finances available to it it would have rebuilt the Club house. As it did not have those funds available and the insurer denied the obligation to indemnify, no consideration could sensibly be given to alternatives. The reality is the club can do nothing until this litigation is concluded." The continuing refusal of the appellant to accept liability, on the grounds of the respondent's alleged fraud, was, in light of Cole J's holding the appellant failed to establish fraud, wrongful. On the basis that the appellant's obligation. was to pay the respondent's repair/reinstatement costs when incurred, statements by the appellant that it would not pay such costs, when incurred, which had the practical effect of preventing the respondent getting the benefit of the appellant's promise and obligation, should, in my opinion be treated as breaches of contract, so that any damage that can be proved to flow from them would be payable by the appellant to the respondent. In my view, s94 of the Supreme Court Act would entitle the respondent to interest under that section on any such damages. I do not see that NRMA Insurance Ltd v Tatt (1989) 5 ANZ Insurance Cases, 60-902, at 75,750 stands in the way of this proposition. That case (in my respectful opinion) was dealing with the interest stipulated by s57 of the Insurance Contracts Act 1984, being "an amount under a contract of insurance" or, under the Act "in relation to a contract of insurance" which an insurer was "liable to pay". These words seem to me to confine the interest of which s57 is speaking to that on liquidated sums, as distinct from unliquidated damages. INTEREST. On the footing that the appellant was bound to pay the cost of repairs/reinstatement before the respondent incurred the cost, Cole J found that it was unreasonable, within the meaning of s57(2) of the Insurance Contracts Act 1984, for the appellant to have withheld payment of that cost for longer ian three months after the first fire, notwithstanding that the appellant's refusal to pay after that date was a position it adopted on a bona fide basis. The appellant contended that this approach involved a legally wrong understanding of the subsection. Although, if I were deciding this case alone, it would be, on my view of the case, unnecessary for me to deal with this point, the differing approaches of the members of the bench make it appropriate for me to state my opinion, which is that I do not see any error in Cole J's approach and for the reasons given by him, I agree with his conclusion. RESPONDENT'S NOTICE OF CONTENTION. By notice of contention the respondent raised a question which would only be relevant if I did not agree with Cole J on the statutory policy point. As I do agree with his conclusion on that point, it is not necessary for me to consider the respondent's contention. 32 UNREPORTED JUDGMENTS CONCLUSION. The position I have reached is very similar in result to that of the President, in practical effect, although by sometimes different reasoning. The differences between us are resolved in the way he has explained at the conclusion of his reasons. As the orders he proposes reflect my views on the matters argued in the appeal, I agree with them. Powell JA Although the evidence is not entirely clear such material as there is to be found in the appeal papers would suggest that the Respondent may well have been incorporated in about 1960 under the name and style of Bankstown District Soccer Club Ltd, for the purpose of conducting a sporting and social club licensed under the provisions of the Liquor Act 1912. It would seem that, either, at the time of its incorporation, or, at some later time, the Respondent acquired some land at Gartmore Avenue, Bankstown upon which there was thereafter built a club house for the use of the members, that club house containing a bar and lounge area, a restaurant area and associated kitchen, offices for the use of the administrative staff of the Respondent and the usual facilities associated with such a club house. The land at Gartmore Avenue upon which the club house is built appears to adjoin, at its rear boundary, an area of land - one assumes, under the control of the local council - which appears to be known as the Ruse Parklands Soccer Centre. The club house, so it would seem, is directly opposite the soccer field so that members of the Respondent using the club house not only had direct access to the soccer field, but also had the additional advantage of being able to use the car park facilities associated with the club house. The probability is that the land upon which the club house was erected was purchased, and the erection of the club house was financed, with the assistance of a loan made available by Westpac Banking Corporation as it is now known, as it would appear that at all material times the subject land has been subject to a mortgage in favour of Westpac Banking Corporation. The evidence would tend to suggest that, although, in its early years, the Respondent enjoyed a significant membership, by 1980, or thereabouts, the membership of the Respondent, and the patronage of the Respondent's facilities, had began to decline, so much so that the membership of the Respondent, which had been about 460 in number as at 30 June 1982, had declined to little more than half that number 2 years later. It seems not unlikely that the trend was not limited to the Respondent, but was being felt by other sporting, and social clubs, in the Bankstown area, for the Annual General Meeting of the Respondent appears to have passed resolutions for changing the name of the Respondent to "Bankstown Football Club Ltd"; for amending the Memorandum of Association by substituting for the original objects the objects of providing a club for members of football clubs and other sporting clubs and associations; and for amending the Articles of Association so as to authorise and permit the Directors of the Respondent to negotiate for "the assimilation into the club of the assets and membership of the Bankstown District Rugby League Football Club Ltd", a power which, as it would seem, was later successfully exercised by the Board of Directors. In the result, the Respondent appears, by 1991, not only to have absorbed the members of the Bankstown District Rugby League Football Club Ltd, but also to have promoted, or at least to have become associated with teams involved in a variety of sporting activities, they including, one or more rugby league teams, a golf club, or teams in pennant competition, and one or more teams in some form URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 33 of darts competition. Whether or not, in that period of 6 or 7 years, there had been any significant growth in the number of members of the Respondent - the evidence does not permit one to judge - at least in the latter period, the trading losses - albeit that they were comparatively small - which had previously been a common feature of each financial year's results seemed to have begun to be replaced by modest profits. The significance of the year 1991 lies in the fact that it was towards the latter part of that year when QBE Insurance Group Ltd ("QBE"), with which company the Respondent's insurance brokers, Garrison Insurance Brokers Pty Ltd ("Garrison"), had formerly placed all the Respondent's insurance, decided that it would no longer insure small clubs such as the Respondent. In the result, the Respondent instructed a Mr P Whitford, of Garrison, to obtain an alternative insurer following which, in late November 1991, a Mr RJ Cameron, an underwriter then employed by the Appellant, at Mr Whitford's request called at the Respondent's club house and carried out an inspection with a view to preparing a quotation for (inter alia) the insurance of the Respondent's club house. On 29th November 1991, Mr Cameron forwarded to Mr Whitford quotations (Appeal Book at 649) for each of the forms of insurance sought by the Respondent. Thereafter, on Sth December 1991, Mr Cameron, on behalf of the Appellant issued a Cover Note No 260612 (Appeal Book at 61) in respect of the Industrial Special Risks Policy for which (inter alia) the Respondent had, by then, accepted the Appellant's quotation, and in respect of which it proposed thereafter to (inter alia) lodge, a formal proposal for insurance. Thereafter, on 9th December 1991 Mr Whitford forwarded to the Appellant, by facsimile transmission, for the attention of a Mr Robert Cameron, a memorandum which was in the following terms: "Re: Bankstown Football Club Ltd Please note your records - cover required under ISL Cover Note No 260612. S1 - $2,050,00.00 S2 - $ 570,000.00 Limit A/One loss - $2,620,000.00 - Proposal following. Regards, Peter Whitford.' The form of Industrial Special Risks Insurance Policy does not appear to have issued until 22nd January 1992, or thereabouts, prior to which time the Respondent's club house had been substantially damaged by fire in the circumstances to which I will later refer. Insofar as is relevant to the issues in the present proceedings, the policy document contained the following (inter alia) provisions: "The Policy, Schedule, Definitions, Conditions, Exclusions, Endorsements, Memoranda and Warranties (if any), and any other terms herein contained which are to be read together and any word or expression to which a specific meaning has been given in any part of this Policy shall bear this meaning wherever it may appear unless such meaning is inapplicable to the context in which the word or expression appears. WHEREAS the Insured named in the Schedule has paid or agreed to pay to the Company nominated in the Schedule (hereinafter called the Company) the premium shown on the Schedule, how the Policy states that subject to the terms, conditions, exclusions, memoranda, warranties, limitations, and other provisions contained herein or endorsed hereon the Company agrees to indemnify the 34 UNREPORTED JUDGMENTS Insured as specified herein against loss occurring during the Period of Insurance stated in the Schedule or any renewal thereof. LIMITS OF LIABILITY The amount(s) detailed in the Schedule represent the Company's maximum Limit(s) of Liability any one loss or series of losses arising out of any one event at any one situation subject to any lesser Limit(s) of Liability specified elsewhere in the Policy. CONSEQUENTIAL LOSS - TIME LIMITS INDEMNITY PERIOD - as defined herein. The number of months stated in the Schedule. S1 - MATERIAL LOSS OR DAMAGE THE INDEMNITY In the event of any physical loss, destruction or damage (hereafter in sl referred to as 'damage' with 'damaged' having a corresponding meaning) not otherwise excluded happening at the Situation of the Property insured described in sl the Company will, subject to the provisions of this Policy including the limitation of the Company's liability, indemnify the insured in accordance with the applicable Basis of Settlement. THE PROPERTY INSURED All real and personal property of every kind and description (except as hereinafter excluded) belonging to the Insured or for which the Insured is responsible, or has assumed responsibility to insure prior to the occurrence of any damage, including all such property in which the Insured may acquire an insurable interest during the Period of Insurance. BASIS OF SETTLEMENT (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 and Replacement and Extra Cost of Reinstatement Memoranda as set out herein. Provided that if the Insured elects to claim the indemnity value of any damaged property, the Company will pay to the Insured the value of such property at the time of the happening of the damage or at its option reinstate, replace or repair the property or any part thereof. In any event the Company will pay costs incurred by the Insured in accordance with the provisions of the Extra Cost of Reinstatement Memorandum. REINSTATEMENT AND REPLACEMENT (Applicable to buildings, machinery, plant and all other property and contents; other than those specified in items (b) to (ijunder Basis of Settlement). The basis upon which the amount payable is to be calculated shall be the cost of reinstatement of the damaged property insured at the time of its reinstatement, subject to the following Provisions and subject also to the terms, Conditions and Limit(s) or Sub Limit(s) of Liability of this Policy. For the purpose of the insurance under this memorandum 'reinstatement' shall mean: URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 35 (a) Where property is lost or destroyed: in the case of a building, the rebuilding thereof or in the case of property other than a building, the replacement thereof by similar property, in either case in a condition equal to, but not better or more extensive than, its condition when new. (b) Where property is damaged: the repair of the damage and the restoration of the damaged portion of the property to a condition substantially the same as, but not better or more extensive than, its condition when new. PROVISIONS (i) The work of rebuilding, replacing, repairing or restoring as the case may be (which may be carried out upon any other site(s) and in any manner suitable to the requirements of the Insured, but subject to the liability of the Company not being thereby increased), must be commenced and carried out with reasonable despatch, failing which the Company shall not be liable to make any payment greater than the indemnity value of the damaged property at the time of the happening of the damage. (iv) No payment beyond the amount which would have been payable under this Policy if this memorandum had not been incorporated herein shall be made until a sum equal to the cost of reinstatement shall have been actually incurred; provided that where the Insured reinstates or replaces any lost or destroyed property at a cost which is less than the cost of reinstatement (as defined) but greater than the value of such property at the time of the happening of its loss or destruction, then the cost so incurred shall be deemed to be the cost of reinstatement. S2 - CONSEQUENTIAL LOSS THE INDEMNITY In the event of any building or any other property or any part thereof used by the Insured at the premises for the purpose of the Business being physically lost, destroyed or damaged by any cause or event not hereinafter excluded (loss, destruction or damage so caused being hereinafter termed 'Damage') and the Business carried on by the Insured being in consequence thereof interrupted or interfered with, the Company will, subject to the provisions of this Policy including the limitation on the Company's liability, pay to the Insured the amount of loss resulting from such interruption or interference in accordance with the applicable Basis of Settlement. PERILS EXCLUSIONS The Company shall not be liable under s1 and/or s2 in respect of: 7. physical loss, destruction or damage occasioned by or happening through: (a) (i) fraudulent or dishonest acts, fraudulent misappropriation, embezzlement, forgery, counterfeiting data corruption, unauthorised amendment of data and erasure by electronic or non-electronic means involving the Property insured by the Insured or any employee(s) of the Insured acting alone or in collusion with any other persons. 36 UNREPORTED JUDGMENTS Provided that this Exclusion 7(a)... shall not apply to subsequent loss, destruction or damage to the Property Insured occasioned by a peril (not otherwise excluded) resulting from any event or peril referred to in this exclusion. MEMORANDUM APPLICABLE TO ALL SECTIONS OF THIS POLICY Except to the extent that this Policy is hereby modified under the following memoranda the terms, Conditions and limitations of this Policy shall apply. we 10 CONDITIONS - APPLICABLE TO ALL SECTIONS OF THIS POLICY CANCELLATION (b) The Company may also cancel this Policy by giving the insured written notice to that effect where (v) the insured has made a fraudulent claim under this Policy or any other policy of insurance (whether with the Company or some other insurer) that provided insurance cover during any part of the period during which this Policy provides insurance cover; (c) The Company's notice of cancellation takes effect at the earlier of the following times: (ii) 4.00 pm on the thirtieth business day on which notice was given to the Insured. In the event that the Company cancels this Policy, the Company will repay to the Insured a rateable proportion of the Premium for the unexpired Period of Insurance from the date of cancellation. FRAUD If any claim be in any respect fraudulent or if any fraudulent means or devices be used by the Insured or anyone acting on the Insured's behalf to obtain any benefit under this Policy, or if any destruction or damage be occasioned by the wilful act or with the connivance of the Insured, the Company, without prejudice to any other right(s) the Company might have under this Policy, shall be entitled to refuse to pay such claim. The Schedule to the form of policy, so far as is relevant contained the following: "INSUREDS NAME: BANKSTOWN FOOTBALL CLUB LTD THIS 49 INDUSTRIAL SPECIAL RISKS POLICY,UNDERWRITTEN BY _ CIC INSURANCE Ltd ACN 004 078 880, INSURES YOU AS DETAILED BELOW. EACH SECTION/ITEM IS SUBJECT TO THE RELEVANT POLICY CONDITIONS. SITUATION: 8 JACOBS STREET BANKSTOWN 2200 (sic) CLASS OF BUSINESS: INDUSTRIAL SPECIAL RISKS EFFECTIVE DATE: 03/12/91 INDUSTRIAL SPECIAL RISKS SUM INSURED $2,440,000 50 | THIS ITEM IS SUBJECT TO AN EXCESS OF $500 URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 37 MALICIOUS DAMAGE - $250 ALL OTHER CLAIMS ADDITIONAL CLAUSES: DECLARED VALUE: s1 (ALL PROPERTY) $1,920,000 s2 (GROSS PROFIT) 520,000 CIC PROPORTION 100 percent OF $2,400,000 LIMIT OF LIABILITY s1 MATERIAL DAMAGE 1,920,00 LIMIT OF LIABILITY s2 CONSEQUENTIAL LOSS 520,000 INDEMNITY PERIOD 12 MONTHS AS DEFINED HEREIN." (Despite the description of the "Situation" as being "8 Jacobs Street, Bankstown" - the source of which description is not revealed by the appeal papers - it does not seem ever to have been disputed that the subject of the Policy was the Respondent's club house and the business which it conducted there.) As I have previously indicated, the Respondent's club house was severely damaged by fire prior to the issue of the policy document. The fire appears to have started shortly before midnight on 8th January 1992 and, although the appropriate authorities - including the Fire Brigade - were promptly notified, and, as promptly attended the site, continued into the morning of 9th January 1992, before it was extinguished. It seems at all times to have been accepted by the parties that the fire had been deliberately lit, and that the rapid spread of the fire and its intensity was due to the use of an accelerant - either petrol of kerosene - which had been spread over a significant area of the floor of the restaurant portion of the club house. Since these particular matters seem clearly to have been matters upon which the Appellant was later to base its refusal to recognise liability under the Policy, I record here, first, that, although the club house had been fitted with a number of alarm devices, the operation of which was monitored, via a land line, by an organisation known as "Roden Security", and although a number of the alarm devices were activated progressively from about 11.49 pm on 8th January 1992, two of those devices - those in the area of the restaurant - were not activated at all; and, second, that those who attended the club premises following the alarms being activated found no evidence that any of the doors or windows to the club house was open, and no evidence of any form of forced entry into the club premises. At some time during the course of 9th January 1992, the Respondent's Secretary Manager completed and signed a Declaration of Loss form, which form appears then to have been delivered to the Appellant. Thereafter, during the course of the same day, the premises were inspected by the President and other officers of the Respondent together with the Respondent's Secretary Manager as well as by loss adjusters retained on behalf of the Appellant. Either at the same time or shortly thereafter a Mr Blowers, who appears to have been employed by the Appellant as its Group Claims Investigation Manager, arranged for a building firm to attend the Respondent's premises and to board them up. In addition, Mr Blowers appears to have arranged with Wormald Security to provide some form of security guard for the premises. For reasons 38 UNREPORTED JUDGMENTS which are not revealed by the evidence, the services of the security guard appear to have been withdrawn in short order, following which, after some heated conversations between Mr Blowers and the Respondent's Secretary Manager, the latter arranged for Roden Security to provide a 24 hour guard on the premises. Although it is not clear that this was so, the fact that, after about 10 days, Roden Security withdrew its security guard would suggest that, by this time, the Appellant had indicated that, at least for the time being, it was not prepared to accept liability under the policy, and that, because of its financial position, the Appellant was not able to continue to pay Roden Security for the provision of 24 hour security to its premises. Whatever be the reason, however, the fact would seem to be that, thereafter, the Respondent's premises were left without continuous security, and that, although the premises had been boarded up, and although the Respondent's officers, including its Secretary Manager, were accustomed to make random inspections of the premises, they were unable to prevent recurrent entry into the premises by those who might have been so minded. As I have previously recorded, the formal Industrial Special Risks Insurance Policy appears to have been issued on or about 22nd January 1992 - however, it does not appear to have been delivered to the Respondent for many months thereafter. Whether or not it had occurred earlier, it seems to be clear enough that, by no later than early February 1992, the Appellant had informed one or more of the Respondent's officers that it proposed to refrain from making a decision as to whether or not it would accept liability under the policy until at the least the conclusion of a coronial inquiry into the fire, the holding of which coronial inquiry had by that time been proposed. That this was so is made clear by the fact that, on 6th February 1992, the Respondent's solicitor wrote to "The Manager, Claims Department' "of the Appellant, for the attention of Mr Blowers, a letter which, omitting formal parts, was as follows: "We refer to our recent telephone attendance upon Mr Blowers and confirm that we act on behalf of the abovementioned Club. We confirm that, as advised by Mr Blowers, we contacted Detective Dave Weston of Bankstown Detectives to discuss at length the status of the police enquiries regarding the fire. Detective Weston indicated that the enquiries were still continuing and may not be finalised for some significant period. He indicated that there was no guarantee that the Coronial Enquiry would even be allocated a dated in 1992, and that the relevant administrative procedures would have to take their normal course. He advised that he had received full co-operation from all employees of the club, and anticipated no difficulties with such co-operation continuing. We note also that a parallel investigation has been conducted by your organisation. We are instructed that our client's employees can offer no further relevant information concerning the cause of fire, other than that information already given to the Police and your own office. In these circumstances we feel that it is ill conceived and unfair for your company to consider delaying making a decision concerning the replacement/repair of the club house premises until after the inquest, as the inquiry may not eventuate for a lengthy period. You will appreciate that important considerations which are relevant to the re-opening of the club at the earliest opportunity include: a. the continuing obligations of the club in relation to loan and mortgage commitments. b. the status of the Club's Liquor licence. URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 39 c. the obligations of the Club in relation to permanent and casual staffing arrangements. d. the needs of the many rugby league and other sporting associations which utilise the premises for training, administrative and social purposes. e. the need to minimise the commercial disruption and loss of good will which necessarily accompanies the closure of the club premises and which increases with each weeks delay. We are instructed that the terms of the Business Combined insurance policy clearly contains provisions relative to the damage to the building and associated consequential damages, and that there is no evidence of any activity on the part of the insured which would avoid the policy. Accordingly we would appreciate it if you could contact our office, or the Secretary Manager, within 7 days to advise the timetable concerning repairs/replacement of the subject premises to enable our client to consider its position. " to which letter Mr Blowers replied on 14 February 1992 as follows: "We refer to your letter of 6 February 1992 received on 12 February 1992. We appreciate your client's concern to have an early decision from this company in relation to its claim. However, you must also appreciate our concern to be fully apprised of all relevant information prior to making a final decision on any claim. At this point, the results of certain of our enquiries, unavoidably, remain outstanding. We note you say in the fourth paragraph of your letter that our mutual client's employees can offer o further relevant information concerning the cause of the fire. We do not necessarily agree and advise that we may need to speak to those employees before we can complete our enquiries. Naturally, we assume that full co-operation will be given to us in this regard. As advised our conversation on 4 February 1992 (sic), we are working with determination so that the matter can be resolved. As soon as we are in a position to advise our mutual client further, we shall do so. " Further letters were to pass between the Respondent's solicitor and Mr Blowers in the course of the months which followed. Subject to the matters to which I will next refer, it is unnecessary to record the detail of those letters, it being sufficient to note that the Respondent's solicitor continued to press for an early determination by the Appellant as to its attitude to liability under the policy, while Mr Blowers, on behalf of the Appellant, sought - and was provided with - a considerable amount of information concerning the business and affairs of the Respondent. Two matters, however, should be noted in relation to this correspondence, they being: 1. in a letter of 27th February 1992 to Mr Blowers, the Respondent's solicitor wrote (inter alia): "We note that all staff of Bankstown Football Club have now been retrenched, and that accordingly it would be appreciated if all the future correspondence could be directed to our office. " 2. in a letter to Mr Blowers dated Ist June 1992, the Respondent's solicitor, after referring to advice from the Coroner's Court "that there may not be the necessity to proceed to a court inquiry in all the circumstances", continued: "We reinterate (sic) that approximately eighteen (18) employees including casuals have become unemployed as a consequence of the delays to date, and it is obvious that a considerable commercial damage is being occassioned (sic) to the club by way of consequential loss of good will (sic) etc. Counsel has advised that the delays which have been experienced to date may have consequences in 40 UNREPORTED JUDGMENTS any Supreme Court claim which may have to be instituted against the insurer, and which we have delayed instituting due to our specific instructions to co-operate at all times with your internal investigations. We note that the writer has personally attended with you and your investigator upon the premises and all requests for assistance have been complied with. We confirm our instructions that the insurance company for the Chinese Restaurant have made a pay-out, and invite you to draw the obvious conclusion." Meantime, on 6th May 1992, Mr Whitford had sent to the Appellant - one assumes, by facsimile transmission - a memorandum which was as follows: "Memo to: CIC Insurance Re: Policy No IS395078 due (?) 30/10/1992 - Bankstown Football Club Ltd As per our request dated 09-12-1991, could you please increase the limits under the above numbered policy as follows from 09-12-1991: sl - material loss and damage - $2,050,000 s2 - consequential loss - $570,000 Extra premium - $360.00 Fr SL - $122.40 SD - $ 55.48 $537.88 Peter Whitford 06-05-1992 Thereafter, and following a telephone conversation with Mr Blowers on 14th May 1992, Mr Whitford forwarded to the Appellant for the attention of Mr Blowers a memorandum which was in the following terms: "Re: Bankstown Football Club Ltd Dear Mr Blowers, Further to our telephone conversation of 14-05-1992, please find enclosed copy of fax transmission requesting increase in sums insured under their policy. Also enclosed is copy of endorsement request forwarded recently." the former of the enclosed documents being a copy of the document forwarded by Mr Whitford to the Appellant on 9th December 1991 (see at 4 (above)) and the latter of those documents being the memorandum to which I have just referred. Notwithstanding the suggestion made by the Respondent's solicitor, in his letter of 1st June 1992, that the Appellant "draw the obvious conclusion" from the fact that the insurer for "the Chinese Restaurant (had) made a pay-out', the Appellant was not to do so. On the contrary, on 22nd July 1992, the Appellant's solicitors forwarded, by courier, addressed to "The Secretary, Bankstown Football Club Ltd", in care of the Respondent's solicitors, a letter which, omitting formal parts, was as follows: "We act for CIC Insurance Ltd ("CIC") and have been instructed by our client to write to you concerning the abovementioned claim. Following investigation of the incident we are instructed to advise you that CIC has decided to refuse your claim. This decision has been taken because your claim falls within "Perils Exclusions" 7(a)(i) and Condition 7 of the Policy. We are also instructed to advise that in addition to the refusal of the claim, the following policies: (a) IS395070 (Industrial Special Risks) (b) PL398980 (Broadform Liability) (c) PA399218 (Personal Accident and Illness) (d) MB399647 (Machinery) which would otherwise have expired at 4.00 pm on 30 October 1992 are hereby cancelled in accordance with their following respective conditions: (a) Conditions 5(b)(v) and 5(c) - IS395070 URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 41 (b) General Condition 5(b) - PL398980 (c) Condition 7 - PA399218 (d) Condition 10(b) - MB399647." One pauses, here, to observe that, as the Appellant's case, at the trial, that the Respondent's claim was fraudulent - because, so it was alleged, the fire had been deliberately lit by Mr Shakespeare and another, or others, associated with him - was rejected, the Appellant's claim to be entitled to cancel the Policy was unjustified and, thus, constituted a repudiation of its obligations under the Policy. Notwithstanding what I have just recorded, the Respondent's solicitor, on 22nd July 1992, forwarded by facsimile transmission to the Appellant's solicitors a letter which, omitting formal parts, was as follows: "We refer to the above matter and note that your client has cancelled those insurance policies referred to in your letter of today's date. Could you accordingly arrange for a cheque for the balance of the premium to be forwarded to our office by return. We note our instructions that in any event we intend to pursue your client pursuant to the policy." Thereafter, on 28th July 1992, the Respondent forwarded to Garrison a letter which, omitting formal parts, was as follows: "We wrote to your above client recently and advised that the four policies you introduced were to be cancelled in accordance with the provisions o the Insurance Contracts Act. Our cancellation certificates are now attached and the funds have been credited to your account. Please remit to your client. Policy No Cancellation Date 1S395070 02.09.1992 PL398980 28.07.1992 PA399218 28.07.1992 MB399647 28.07.1992" By way of elaboration upon the assertion, contained in that letter, that "the funds have been credited to your account", I note that, in a Statement (Exhibit "10") made by him in these proceedings, the writer of that letter - Mr GR Nielsen, the Appellant's Commercial Underwriting Manager New South Wales - said: "2. In July 1992 CIC refunded to the broker acting on behalf of the Bankstown Football Club, Garrison Insurance Brokers ('Garrison'), the following part premiums in relation to the following policies: 1S395070: $1,113.94 PL398980: $575.83 PA399980: $100.77 MB399647: $128.18 3. This total sum of $1,918.72 was credited to the account Garrison held with CIC. Garrison took up these credits on 9 October 1992 when they paid CIC the balance of their account numbered 2731." The manner in which that credit was dealt with by Garrison and the circumstances in which that was done are revealed by the following passage in the evidence of Mr Whitford: "Q. Yes. You did receive this communication of 28 July 1992 from CIC, which the officer will show you. A. Yes. that's correct. Q. With it is a credit note for the Garrison account with CIC; is that correct? A. Yes, that's correct. 42 UNREPORTED JUDGMENTS Q. With it is a credit note for the Garrison account with CIC; is that correct? A. Well, yes; yes. Q. And that was dealt with. You had a running account with CIC; is that correct: A. Yes. Q. Have you seen Mr Neilson's statement, the statement of Mr Neilson from CIC in this case? A. No. Q. Would it be right to say that by October 1992 the credit that was referred to in that communication to you Of 28 July 1992 which you have before you, was utilised by Garrison with CIC in other business? A. I think - sorry, I wasn't aware that this line of questioning would be adopted, but from memory and I can only go on that, we would have probably deducted the credit from other premiums owed and we would have held that credit in our trust account; that's normally the case. Q. Are you talking now of the dealings between yourself and the Club? A. Insurance can do two things, they can - if they cancel something and send you a cheque separately, they can credit your account. Q. And this company appears to have credited - A. They credit the account. What we would do is take that credit off other - even other premiums owing or whatever or just take the credit up and ask for a cheque if there wasn't any debits owing. Q. There were regular dealings happening with CIC after July 1992, which in the usual course would have resulted in that credit being exhausted? A. No, we would have taken up the credit and invoiced - and completed invoices and put it - it would have been held as a credit to Bankstown Football Club's account. Q. Yes, As between yourself and your client you would have credited an amount to your client? A. That is right, yes. Q. As between yourself and CIC. The credit would have applied against local debits? A. Yes, which is normally the case. It just saves them issuing a cheque. Q. Yes. If there were a situation in which the right of the insurance company to cancel the policy was in issue, in other words, if your instructions were to assert that the policy was on foot, you would have responded in the usual course to the letter of 28 July, would you not, with an appropriate communication? A. I am sorry, I am not quite sure. Q. If you had instructions from your client that it wished to maintain the policy in force and wouldn't accept the cancellation of it, you would have taken the matter straight up with the insurance company, would you not? A. Well, I took the matter up with the insurance company on receipt of the first communication I had of cancellation, which was a 'phone call. HIS HONOUR: Q. What did you do? A. From the secretary manager. Q. Yes, but you took it up with your client do you mean or with the insurance company: A. I contacted the insurance company. Q. Who did you talk to there? A. I spoke to the - I wasn't getting very far. I spoke to the claims department and was referred to - and they informed me that they weren't prepared to comment on the matter and they subsequently spoke to the chap involved with the assessing, the investigator, Mr Ross Bowers (sic), who URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 43 wouldn't give me any reason for the cancellation, but told me that the cancellation would - was as ordered and the claim was going to be denied. RAYMENT: Q. Did you say that you didn't want the premium refunded? A. No, I didn't say that. Q. Were you aware that the solicitor had asked for the premium to be refunded. A. No, there was no need for me. It is a normal practice that the insurance company would in time refund the premium. Q. You expected the premium to be refunded? A. Yes. There was no need for me to follow it up. Q. You didn't send it back when you got back? A. I didn't credit - send the premium to the client. Q. You didn't dispute the credit the insurance was giving you? A. No. Q. You had no instructions from the client to do so? A. To dispute it? Q. Yes. A. No. Q. In due course did you pay the amount of the cheque to the client, did you? A. No. I asked the client did they wish the money to be paid at that time. They were in a fair bit of disarray and I was instructed to hold, hold the money. Q. When was that? A. When I received the credits, probably September, October, something like that. Q. Probably late July? A. No, they don't come through quite that quickly, but whenever the credits appeared on my accounts I contacted them. I'm not sure of the time. They all have - there were four policies in question and when the credits appeared I asked our client what did they wish, did they wish a cheque or did they wish a credit against some other insurance and at the time I was instructed to hold them. Q. And that was by Mr Potter? A. Yes." It would seem that, following 22nd July 1992, the Respondent's Secretary Manager and Mr Whitford discussed the need for, and the possibility of, obtaining alternative insurance for the Respondent's premises. However, no such insurance was taken out, first, since Mr Whitford was of the view that, even if - which he seriously doubted - it would be possible to find an underwriter who would accept the risk, the premiums would, in all probability, have been prohibitively high; and, second, since, as the Respondent was not trading, and was unable to obtain access to finance, it would, in any event, not have been in a position to pay any premium which might be called for. In the light of an argument which was later to loom large both on the hearing of the action and on the hearing of the Appeal, it is convenient to pause, here, to record that, in a further Statement made by him in these proceedings, Mr Nielsen said (inter alia): "2. Renewal of commercial policies in New South Wales, such as the Bankstown Football Club's ('the Club') Industrial Special Risks ('ISR') policy are individually considered by underwriters under my supervision and are not automatically processed by computer or otherwise. 3. Eight weeks prior to a policy falling due for renewal, it is the system employed by the underwriting department under my supervision that each potential renewal is considered individually by an underwriter. 44 UNREPORTED JUDGMENTS 4. On occasion, CIC does not wish to renew commercial policies and, in those circumstances CIC sends a notice to its insured advising that renewal will not be invited. 5. If, after rejection of the Club's claim of January 1992 ('the claim'), the file relevant to the Club's ISR policy no IS395070 had been brought to an underwriter and it was found that the policy had not been cancelled, it would not have been renewed. A notice would have been sent to the Club advising that the policy would not be renewed. 6. The system excludes from further consideration by underwriters those policies cancelled either by CIC or its insured. 7. If the policy cancellation by CIC in 1992 was disputed by the Club, the file would have been referred to me and I would have caused a notice to be sent to the insured advising that CIC would not be inviting renewal. I would have ensured that the Club's policy was not renewed." the significance of these matters lying in the fact that the Respondent was later - for reasons which will later become apparent - to assert that, by reason of the Appellant's failure, not later than 14 days prior to 30th October 1992, to notify the Respondent of the day on which the policy would have expired and of the fact that the Appellant was not prepared to negotiate with the Respondent for a renewal of that policy, the Appellant became bound to indemnify the Respondent, upon the same terms as those contained in the Policy, for a further period of 12 months expiring on 30th October 1993. Meantime, on 24th September 1992 - that is, a little over 5 weeks prior to the date on which, unless it had been validly cancelled, the Policy would have expired, and some 3 weeks prior to the date by which, in that event, a notice such as that to which I have just referred would need to have been given to the Respondent, there was filed in the Commercial Division of the Court, a Summons in which the Respondent sought the following relief: "1. A declaration that upon the proper construction of Policy No IS395070 ('the Policy') issued by the Defendant to the Plaintiff in or about December 1991 and in the events which have occurred the Defendant is liable to indemnify the Plaintiff in respect of property damage and consequential loss occasioned by fire damage to Gartmore Avenue Bankstown (sic) on or about the 9 January 1992. 2. Damages. 3. Interest. 4. Costs. " In the Amended Points of Defence which were filed on its behalf on 23rd November 1992, the Appellant raised a number of defences to the whole of the Respondent's claim, of which defences it is, for present purposes, not necessary to note any other than the Appellant's assertion - put in a variety of ways - that as, so it was alleged, the fire was deliberately lit by Mr Shakespeare and another, or others, acting with him, the Respondent's claim was fraudulent and that, in consequence, the Appellant was not liable under the Policy. Shortly after the Appellant's Amended Points of Defence had been filed, there was another fire at the Respondent's Clubhouse. On this occasion, the damage which was caused was not great, and, in any event, by reason of the fact to which I shall next refer, that damage was not regarded as of any relevance on the hearing of the proceedings. URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 45 That this was so is due to the fact that, in March 1993, there was yet a further fire at the Respondent's club house, the damage caused to the premises by that fire being so extensive that the local council required the demolition of the building, a requirement which was duly met by the Respondent. In the result, therefore, the Respondent had suffered not only the loss of its club house, but also, by reason of the fact that over the 14 months from the first, to the third, fires the club house premises were incapable of use, and had been the subject of break-ins and vandalism, had suffered a total loss of business income, damage to its plant and fixtures and the loss of much of its stock. It would seem that, at some time prior to May 1993, there had been made an Order, or Orders, directing that the question of the Appellant's liability under the Policy be heard separately from, and in advance of, the question of the extent of its liability in the event that it be held to be liable under the Policy. The trial of the issue of liability appears to have occurred at the end of May, and in early June,1993, following which, on 4th June 1993, Cole J. (as he then was) delivered a Judgment in which he held that the Appellant had failed to establish that either Mr Shakespeare or another, or others, associated with him were involved in starting the fire and, that that being so, the Respondent was entitled to a Declaration in accordance with prayer | in its Summons and an Order that the Appellant pay the Respondent's costs of the proceedings on the issue of liability. The hearing on the issue of the quantum of the Appellant's liability appears to have taken place on a number of days at the end of November, and in early December, 1993. It would appear that, on the third hearing day, 2nd December 1993, the Respondent sought, and was granted, leave to amend its Summons by adding the following additional prayers: "1A. A declaration that pursuant to s58(3) of the Insurance Contracts Act, 1984 by reason of the Defendant's failure not later than 14 days prior to 30 October, 1992 to notify the Plaintiff of the day on which the Policy would expire and whether the Defendant was prepared to negotiate the Defendant become bound to indemnity (sic) the Plaintiff upon the same terms as the Policy for a further period expiring on 30 October, 1993 ('the Statutory Policy'). 1B. A declaration that upon the proper construction of the Statutory Policy and in the events which have occurred the Defendant is liable to indemnity (sic) the Plaintiff in respect of property damage and consequential loss occasioned by fire damage to the premises on 3 March 1993 and earlier thefts therefrom. " When the Respondent made its application for leave to amend its Summons in this respect, the application was opposed upon the grounds, first, that it was too late to allow such an amendment - of which notice seems to have been given less than an hour before the resumption of the hearing on that day (see Appeal Book at 193) - second, upon the ground that, in the circumstances, the Respondent ought to be held estopped by its conduct from raising the point; and third, that, in any event, the claim was hopeless (Appeal Book at 194). Whatever may have been the respective merits of those various grounds of opposition, it seems to me that the amendment ought to have been refused upon the simple ground that, even if it be valid, the additional cause of action thus sought to be raised did not accrue 46 UNREPORTED JUDGMENTS until after the proceedings had been commenced (see Eshelby v Federated European Bank Ltd!; Wigan v Edwards?; Baldry v Jackson3 - however, as is apparent, this was not done. Although it is not entirely clear that this was so, it would appear that, thereafter, on 6th December 1993, there was filed on behalf of the Appellant what has been described as Second Further Amended Points of Defence, of which, for present purposes, it is necessary to note only the following paragraphs: "20. The defendant says that the said claim has been made fraudulently and that it is entitled to refuse to pay the same by virtue of s56 of the Insurance Contracts Act 1984. PARTICULARS OF FRAUD (a) In July 1993 the plaintiff caused to be forwarded to the defendant as part of the particulars of the plaintiff's claim documents entitled 'contents claim 1', 'stock-claim', 'contents inventory - claim 2' and 'stock-claim 2'. (b) Contents Claim 1 is made on the basis that the items referred to were lost or destroyed rather than damaged yet the following items were not lost or destroyed or were capable of repair to the extent to which they were damaged or existed at all: (c) Stock - Claim | is made on the basis that the items referred to were lost or destroyed rather than damaged. The unopened bottles containing the liquor were not damaged and the contents were unaffected. Those bottles were merely affected by smoke and could have been sold at a discount. (d) Stock - Claim 2. None of the items were damaged, lost or destroyed in the fire of March 1993. (e) Contents Inventory - Claim 2. None of these items were damaged, lost or destroyed in the fire of March 1993. 21. The said policy No IS395070 included a provision in the following terms: 'Fraud If any claim be in any respect fraudulent or if any fraudulent means or devices be used by the Insured or anyone acting on the insured's behalf to obtain any benefit under this Policy, or if any destruction or damage be occasioned by the wilful act or with the connivance of the Insured, the Company, without prejudice to any other right(s) the Company might have under this Policy, shall be entitled to refuse to pay such claim. ' 22. The defendant says that the plaintiff's claim is fraudulent in the respect mentioned in the particulars to para20 above whereby the defendant is entitled to refuse to pay the claim. 23. In further answer to the whole of the plaintiffs contentions the defendant says that on the proper construction of the policy and in the events which have happened the plaintiff is in any event limited to the indemnity value of the property damaged in the fire which occurred on or about 8 January 1992. No work of rebuilding, replacing, repairing or restoring the property damaged in the said fire is intended to be carried out by the insured or can be carried out by the insured. The defendant refers to Provisions (i) and (iv) to which the Reinstatement and Replacement Memoranda of the policy are subject. 1. [1932] 1 KB 254 2. (1973) 1 ALR 494, 508, 515 3. [1976] 2 NSWLR 415 URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 47 24. In further answer to the whole of the plaintiff's contentions the defendant says that items in "Contents - Claim 1" are also claimed, in the report of Hyndford Building Services Pty Ltd dated 8 July 1993, filed and served in these proceedings by the plaintiff. The defendant says that the plaintiff may not claim twice for the alleged destruction of or damage to any particular item. Particulars 25. The said Policy No. IS395070 included a provision in the following terms: '2. Alteration The Company shall not be liable for loss, destruction of or damage to any property insured hereunder caused or contributed to by any alteration after the commencement of this Policy (c) whereby any premises containing any property insured hereunder shall become unoccupied, and shall so remain for a period of more than 30 days...' 26. The defendant says that the loss allegedly suffered in March 1993 occurred during a period when the property insured was unoccupied and had been unoccupied for a period of more than 30 days whereby the defendant is also entitled to refuse to pay the claim to the extent it arises out of damage suffered in March 1993 as the plaintiffs failure to ensure that the property was relevantly occupied could reasonably be regarded as capable of having contributed to the fire alleged to have occurred in March 1993. 27. Further and in answer to para6A to para6D of the plaintiffs contentions in the Amended Summons the defendant: (a) admits para6A; (b) denies para6B and para6C; (c) denies the existence of any Statutory Policy on or about 3 March 1993; (d) says that in the circumstances of the correspondence contained in Exhibit 27 and conduct subsequent the plaintiff cancelled the existing policy; (e) alternatively to (d), says that by reason of the correspondence contained in Exhibit 27 and conduct subsequent the plaintiff is estopped from asserting any non compliance by the defendant with the requirements of s58 of the Insurance Contracts Act; (f) alternatively to (e), says that the circumstances of the defendant's correspondence within Exhibit 27 the defendant has provided to the plaintiff sufficient notice within the meaning of s58 of the Insurance Contracts Act." In summary form, the issues which were tendered for determination as the result of the amendment to the Summons and the filing of the Second Further Amended Points of Defence were as follows: 1. the fraud allegations (para20-para22 of the Second Further Amended Points of Defence): (a) were any of the particulars of fraud made out; and (b) if so, was the Appellant entitled to refuse to pay the Respondent's claim; 2. the extent of the Appellant's liability under the Policy: (a) whether the Appellant's liability was limited to the cost of reinstating the building, contents and stock as a consequence of the damage caused by the first fire; (b) whether the Appellant was liable for the costs of reinstating the building, contents and stock as a consequence of the damage caused by the first and third fires; (c) in either event, was the Respondent entitled to: (i) a declaration of liability; or (ii) judgment for a money sum representing the relevant cost of reinstatement; 48 UNREPORTED JUDGMENTS (d) what was the extent of the Appellant's liability to the Respondent in respect of the interruption to the Respondent's business: 3. the statutory policy: (a) had the policy been validly cancelled prior to 30th October 1992; (b) alternatively, had the policy been terminated prior to 30 October 1992: (i) by an agreement to be implied from the conduct of the parties; or (ii) by reason of the Appellant's repudiation of the policy and the Respondent's acceptance of that repudiation; (c) if the policy had not been validly cancelled, or terminated in either of the ways suggested, was the Respondent, in the circumstances, nonetheless estopped from asserting that the policy continued in existence up to 30th October 1992, (d) in any event, was the Respondent entitled to the benefit of the statutory policy; (e) if so, what was the nature and extent of the benefit to which the Respondent was entitled under that policy; (f) was the Respondent entitled to: (i) a declaration as to the Appellant's liability under the policy; or (ii) judgment for a money sum; 4. general damages: (a) was the Respondent entitled to judgment for general damages in addition to any other relief to which it might be entitled; (b) if so, what was the amount of such general damages. Although it may not be clear from what I have earlier written that this was so, it is the fact that, despite the amendment of the Respondent's Summons on 2nd December 1993, the hearing of the proceedings continued, apparently without interruption, until 7th December 1993 when submissions were concluded. During the course of that hearing substantial evidence was tendered on both sides as to (inter alia) the costs of reinstating the building, contents and stock as a result of the damage caused by both the first and the third fires. It should be noted that, during the course of his submissions on 7th December 1993, counsel for the Appellant submitted (inter alia) that, because of what he submitted was the "irretrievable (sic) prejudice" suffered by the Appellant by allowing the amendment to be made so late in the proceedings, the leave which had earlier been granted to the Respondent to amend its Summons ought to be rescinded, a submission which met with what can only be described as a singularly frosty reception. When he came to deliver his Judgment on 16th December 1993 Cole J dealt with the issues which I have outlined above in the following way: 1. THE FRAUD ALLEGATIONS Each of the particulars of fraud set out in the Second Further Amended Grounds of Defence was held not to have been established. 2. THE EXTENT OF LIABILITY UNDER THE POLICE (a) the Appellant was not liable to pay the cost of reinstatement occasioned by the third fire nor to pay the value of stock damaged or destroyed in the third fire (see AB at 915-924); (b) the Appellant - subject to the effect of its submissions as to the fraudulent nature of the claim - having accepted an obligation to pay the Respondent under the business interruption provisions of the policy, the relevant amount was, not $125,000.00, as the Appellant had contended, but $161,000.00, as the Respondent had contended, the difference representing the Respondent's liability to its Secretary/Manager in respect of his unterminated contract of employment; URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 49 (c) the Respondent's rights were not limited to a declaration as to the Appellant's liability under the policy, but extended to judgment for a money sum representing the cost of repair to the damaged portion of the building and to the furniture and fittings arising from the first fire; 3. THE STATUTORY POLICY (a) it having been found that the Respondent had not, prior to 22nd July 1992, made a fraudulent claim under the policy, it was not open to the Appellant to cancel the Policy in reliance upon the provisions of Condition 5(b)(v), it following that the Appellant's purported cancellation of the policy on 22nd July 1992 was ineffective; (b) nor could it be said that the policy had otherwise been terminated since: (i) the request by the Respondent's solicitor for the return of the balance of premium did not justify a finding that the Respondent agreed to the cancellation of the policy; (ii) since the Appellant, in purporting to cancel the policy, relied - albeit wrongly - upon the powers contained in the Policy, the purported cancellation could not be regarded as a repudiation of the policy, it following that the request by the Respondent's solicitor for the return of the balance of the premium could not constitute an acceptance of the repudiation; (c) quite apart from the fact that there cannot be an estoppel in the face of a statute, the conduct of the Respondent's solicitor in seeking a return of the balance of the premium was not such as to estop the Respondent from thereafter relying upon its rights under the Insurance Contracts Act 1984; (d) the Respondent was thus entitled to the benefit of the statutory policy; (e) the Respondent's rights under the statutory policy were not limited to a declaration of liability, but extended to judgment for a money sum representing the cost of reinstatement of damage to the building, fixtures and fittings caused by the third fire. 4. GENERAL DAMAGES Notwithstanding the provision in s57 of the Insurance Contracts Act 1989 providing for interest upon moneys payable pursuant to an insurance policy, the Respondent was entitled, in addition, to general damages consequent upon the failure of the Appellant to discharge its obligations under the policy within a reasonable time, those damages, in the present case, being quantified in the sum of $332,994.00, which sum was calculated by reference to the Respondent's estimated loss of profit from trading for a period of some 2 years, or thereabouts, from the date of the first fire. Having delivered his Judgment on matters of principle Cole J then adjourned the matter to the following day so that the parties might - if it be possible - agree upon the varying sums which needed to be calculated in order to give effect to his Judgment. On the following day, his Honour heard argument on draft Short Minutes which had been brought in by the Appellant and, as well, dealt with a claim by the Respondent for interest, following which his Honour made Declarations in the following form: "1. Upon the proper construction of policy number IS395070 ('the Policy') issued by the Defendant to the Plaintiff in or about December 1991 and in the events which have occurred the Defendant is liable to indemnify the Plaintiff in respect of property damage and consequential loss occasioned by fire damage at Gartmore Avenue, Bankstown on or about 9 January 1992. 50 UNREPORTED JUDGMENTS 2. Pursuant to s58(3) of the Insurance Contracts Act, 1984 by reason of the Defendant's failure not later than 14 days prior to 30 October 1992 to notify the Plaintiff of the day on which the Policy would expire and whether the Defendant was prepared to negotiate the Defendant became bound to indemnify the Plaintiff upon the same terms as the Policy for a further period expiring on 27 September 1993 ('the Statutory Policy'). 3. Upon the proper construction of the Statutory Policy and in the events which have occurred the Defendant is liable to indemnify the Plaintiff in respect of property damage and consequential loss occasioned by fire damage to the premises on 3 March 1993 and earlier thefts therefrom." and directed that Judgment be entered in favour of the Respondent in a total sum of $1,913,963.23, being made up as to $1,851,114.00 damages and $62,849.23 as interest awarded pursuant to the provisions of s57 of the Insurance Contracts Act. The Appellants, being minded to appeal, thereafter applied to Kirby P for a stay of execution on the Judgment, on which application, Kirby P, on 24th December 1993, ordered (inter alia) that execution on the Judgment be stayed until the hearing of the appeal, or further order, upon condition that within 14 days there was paid to the Appellant by its solicitor the sum of $500,000.00. In its Notice of Appeal which was filed on 6th January 1994, the Appellant raised a considerable number of grounds of appeal. However, on the hearing of the Appeal those grounds were, in substance, reduced to four, they being: 1. the Respondent was not entitled to the benefit of a statutory policy since: (a) prior to 30th October 1993: (i) the contract of insurance had been abandoned or abrogated by the conduct of the parties; or (ii) the contract of insurance had come to an end by mutual agreement in that the Respondent had acquiesced in the Appellant's purported cancellation of it; (b) in any event, the Respondent's letter of 22nd July 1993 constituted a sufficient compliance with the provisions of s58(2) of the Insurance Contracts Act 1984; (c) the Respondent ought to be regarded as estopped from asserting that the contract of insurance had not come to an end since its conduct in requesting and accepting a refund of the balance of the premium had led the Appellant to believe that the Respondent accepted that the contract of insurance had come to and end and since, had it not been for that belief on the part of the Appellant, it would have given a formal notice pursuant to the provisions of s58(2) of the Insurance Contracts Act 1984 2. Cole J was in error in holding that the Respondent was entitled to Judgment in a money sum representing the present day cost of reinstatement of the premises whether or not it had incurred such costs. Upon the true construction of the policy - and, upon the assumption that the Respondent was entitled to the benefit of a statutory policy in the same terms - there having, prior to the trial, not been any election on the part of the Respondent to receive the indemnity value, the Respondent was not entitled to be paid, and thus was not entitled to judgment for a money sum representing, the cost of reinstatement of the premises; its sole entitlement at the time of the trial in this respect was to declaratory relief only, its entitlement to be paid the reinstatement value depending upon events which had not then occurred and may never occur. The form of declaration to which the Respondent would be entitled is a declaration that the Respondent is entitled, at its election, to be paid: (a) the indemnity value of such portion of the damage occasioned to the Respondent's premises as resulted from the first fire; or URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 51 (b) the cost of reinstatement of that portion of the premises which was damaged as a result of the first fire; in each case after credit has been given for such portion of the sum of $500,000.00 already paid by the Appellant as is not applicable to moneys otherwise payable by the Appellant to the Respondent; 3. the Respondent was not entitled to an award of general damages. The only breach relied upon at the trial as justifying the Respondent's claim for award of general damages was the Appellant's failure to pay the Respondent's claim in respect of the first fire. That breach is a breach relating to the payment of money alone, the normal measure of damages for the failure to pay which will be the sum of money in question and - since the introduction of the power to award prejudgment interest - interest on the sum of money in question. Insofar as the sum of money in question is the amount payable pursuant to a policy of insurance s57, of the Insurance Act 1984 provides for the payment. That being so, no case for an award of damages beyond the amount of the statutory interest can exist. 4. S57 of the Insurance Contracts Act 1984 provides that interest is payable in respect of the period commencing on the day as from which it was unreasonable for the insurer to have withheld the payment. Where, as was the case here, the Appellant's refusal to pay in respect of the first fire was based on a bona fide belief that the claim was fraudulent, interest should not run until the correctness or otherwise of that belief had been determined by the Court. Insofar as the damage caused by the third fire was concerned, the Appellant's liability depended on there being found that the Respondent was entitled to the benefit of a statutory policy, the benefit of which statutory policy was not claimed until the trial was part heard, it following that, even if the Appellant were liable under a statutory policy, interest should not run before December 1993. In addition to seeking to maintain the arguments upon which it had succeeded before Cole J, the Respondent filed a Notice of Contention in which it asserted that the Judgment of Cole J should be affirmed upon the ground that, upon the proper construction of the policy, the Appellant was liable to indemnify the Respondent in respect of property damage and consequential loss caused by the third fire, notwithstanding that that fire occurred outside the indemnify period specified in the original policy. Before proceeding to deal with the various arguments which have been advanced on the hearing of this Appeal, it will be convenient to pause for the purpose of recording what are the relevant sections of the Insurance Contracts Act to be considered. They are as follows: "57(1) Where an insurer is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the insurer is also liable to pay interest on the amount to that person in accordance with this section. 58(1) In this section, 'renewable insurance cover means insurance cover that: (a) is provided for a particular period of time; and (b) is of a kind that it is usual to renew or for the renewal of which it is usual to negotiate. (2) Not later than 14 days before the day on which renewable insurance cover provided under a contract of general insurance (in this section called the 'original contract') expires, the insurer shall give to the insured or a person acting as agent 52 UNREPORTED JUDGMENTS for the insured a notice in writing informing him of the day on which and the time at which the cover will expire and whether the insurer is prepared to negotiate to renew or extend the cover. (3) Where: (a) an insurer has failed to comply with subs(2); and (b) before the original contract expired, the insured had not obtained from some other insurer insurance cover to replace that provided by the original contract; then, by force of this section, there exists between the parties to the original contract a contract of insurance that provides insurance cover as provided by the original contract, except that the cover provided is in respect of the period that: (c) commences immediately after the insurance cover provided by the original contract expires; and (d) expires, unless the contract is sooner cancelled, at: (i) the expiration of a period equal to the period during which insurance cover was provided by the original contract; or (ii) the time when the insured obtains from some other insurer insurance cover to replace that provided by the original contract; which is the earlier. 59 (1) An insurer who wishes to exercise a right to cancel a contract of insurance shall give notice in writing of the proposed cancellation to the insured. (2) The notice has effect to cancel the contract at whichever is the earlier of the following times: (a) the time when another contract of insurance between the insured and the insurer or some other insurer, being a contract that is intended by the insured to replace the first-mentioned contract, is entered into; (b) whichever is the latest of the following times: (i) 4 o'clock in the afternoon of the third business day, or in the case of a contract of life insurance, the twentieth business day, after the day on which the notice was given to the insured; (ii) if a time is specified for the purpose in the contract - that time; (iii) if a time is specified in the notice - that time. (e) the insured has made a fraudulent claim under the contract or under some other contract of insurance (whether with the insurer concerned or with some other insurer) that provides insurance cover during any part of the period during which the first-mentioned contract provides insurance cover; the insurer may cancel the contract. 63. Except as provided by this Act, an insurer may not cancel a contract of general insurance and any purported cancellation in contravention of this section is of no effect. Although so doing involves one in dealing with the submissions of the parties otherwise than in the order in which they were advanced, it seems to me that it is appropriate, first, to deal with the questions raised by the Respondent's Notice of Contention, that is, that, upon the proper construction of the policy, the Appellant was liable to indemnify the Respondent in respect of property damage and consequential loss caused by the third fire, notwithstanding that that fire occurred outside the indemnity period specified in the original policy, for, if that question be answered in favour of the Respondent, it would then be unnecessary URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 53 to determine the questions involved in determining whether, or not, the Respondent had become entitled to the benefit of a statutory policy. THE EXTENT OF THE INDEMNITY IN RESPECT OF THE COST OF REINSTATEMENT I confess to having found the submissions which were put on behalf of the Respondent in support of its Notice of Contention to be a little difficult to follow. However, as best as I can judge it, the Respondent's case, in this respect, was put in one, or other, of two ways, they being: 1. that the Appellant's obligation, after the fire in January 1992, was to reinstate the building and those of its contents which had been destroyed or damaged, the Appellant being liable to bear the risk that the cost of reinstatement might, as the result of subsequent events, be increased (to support which submission reference was made to the Judgment of Barwick CJ in Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture+: and to 59 and to Smith v Colonial Mutual Fire Insurance Co Ltd5); and 2. alternatively, even if the Appellant's obligation were merely to pay the cost of reinstatement, there was no reason in principle why the same result should not flow (reference was again made to the Judgment of Barwick CJ in Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture® that Judgment being distinguished from the Judgment of this Court in Lumley General Insurance Ltd v Vintix Pty Ltd', the policy under consideration in the latter case being described by counsel for the Respondent as being "merely one which provided for indemnity"). It seems to me that the validity, or otherwise, of the Respondent's submissions in this respect are to be determined by reference to interpretation of the policy, and not by reference to views which might have been expressed in other cases in relation to policies the language in which differs from those presently under consideration. It seems to me that the following are the essential ingredients in the policy to be borne in mind when seeking to determine what is the proper interpretation to be placed upon the policy: 1. the Appellant's promise was that "in the event of any physical loss, destruction or damage... (it would)... indemnify (the Respondent) in accordance with the applicable Basis of Settlement" (see at 5 (supra)); 2. the applicable "Basis of Settlement" was - unless the Respondent elected to claim the indemnity value of any damaged property - "the cost of reinstatement, replacement or repair in accordance with the provisions of the Reinstatement and Replacement and Extra Cost of Reinstatement Memoranda" (see at 6 (supra)); 3. the basis upon which the amount payable was to be calculated was to be "the cost of reinstatement of the damaged property insured at the time of its reinstatement... " (see at 6 (supra)); 4. for the purposes of the insurance "reinstatement" was to mean, in a case in which the property was not lost or destroyed but damaged, "the repair of the damage and the restoration of the damaged portion of the property to a condition substantially the same as, but not better or more extensive than, its condition when new" (see at 7 (supra)); 5. the "Provisions" to which the Appellant's obligation was subject included a . (1979-1981) 146 CLR 206, 219 . (1980) 6 VLR 200 . (Supra) . (1991) 24 NSWLR 652 NAW 54 UNREPORTED JUDGMENTS provision that" no payment... (should) be made until a sum equal to the cost of reinstatement (should) have been actually incurred" (see at 7 (supra)). These aspects of the policy, in my view, make it clear: 1. that, while, in the event that the Respondent had elected to claim the indemnity value of the damaged property, it was open to the Appellant, at its option, itself to reinstate, replace or repair the property, the primary obligation of the Appellant was, not one to reinstate, but, rather, to indemnify the Respondent by paying to it at the appropriate time - the cost of reinstatement, replacement or repair; 2. that, in cases in which the property insured had not been lost or destroyed, reinstatement - and, thus, the cost of reinstatement - was limited to the repair of the damage and the restoration OF THE DAMAGED PORTION OF THE PROPERTY to a condition substantially the same as its condition when new; 3. that, unless the Respondent had elected to claim the indemnity value of any damaged property, no payment was required under the policy until the cost of reinstatement had been actually incurred by the Respondent. That this is not a fanciful approach to take to the terms of the policy is, I suggest, indicated when one comes to consider the majority judgments - Barwick CJ being in the minority - in Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture' upon which the Respondent's counsel has sought to lay such stress. In that case, the Appellant's obligation under the relevant policy was that it would "pay or make good all... loss or damage", the "Basis of Loss Settlement" being in the following terms: "Memo 2. Basis of Loss Settlement: In the event of any loss or damage the basis of any settlement under this Policy shall be (a) in the case of any damage which can be repaired - the cost of repairs necessary to restore the property to its condition immediately before the occurrence of the damage less salvage, or (b) in the case of a total loss - the actual value of the property immediately before the occurrence of the loss less salvage, provided always that the provisions and conditions have been complied with." In the course of his Judgment, Stephen J (with whose reasons, on this aspect of the matter, as well as with those of Mason J, Wilson J concurred) said9: "... the general conditions of the policy, which can be seen to be specially adapted to suit a policy indemnifying contractors, contain provisions wholly inconsistent with any right of the insurer to undertake reinstatement of damaged construction work. For example, included in those general conditions is an express right of the insured itself to proceed with necessary repairs or replacement, qualified only by reference to the insurer having an opportunity to first inspect the extent of loss or damage. Again, Memo 2 of the policy itself goes a long way towards negating any right in the insurer to elect to reinstate rather than pay the cost of repairs: it contemplates only two bases of settlement, payment of the cost of repair in the case of partial loss and payment of the pre-damage value in the case of total loss, It follows that such reliance as the Joint Venture places upon reinstatement cases such as Smith v Colonial Mutual Fire Insurance Co Ltd and upon passages in modern texts on insurance law which cite this case as authority is misconceived. Smith's Case turned upon the fact that the fire insurer had elected to reinstate the insured's fire-damaged house. It was accordingly entitled to no credit in its favour 8. (supra) 9. (supra) URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 55 for the cost of its own work of reinstatement, which had been destroyed when the house was itself destroyed in a second fire, occurring during reinstatement - per Stawell CJ and Stephen J." This conclusion means that in the case of each storm it is necessary to determine the relevant damage which is subject to indemnity and to apply to it the provisions of the deductibles clause. This involves in each case no more than a determination of the pre-storm state of the embankment with its post-storm state so that, in the words of Memo 2, there may be made an assessment of 'the cost of repairs necessary to restore the property to its condition immediately before the occurrence of the damage less salvage." In the course of his Judgment, Mason J (as he then was) (with whose reasons Murphy J and, as I have earlier indicated, Wilson J, concurred) said: "As the operative words of the policy indicate, it is a policy of indemnity. The provisions in s1 do not give it a different character. The promise there expressed is a promise to 'pay or make good all such loss or damage', that is, 'any unforeseen loss or damage from any cause other than those specifically excluded, in a manner necessitating repair or replacement'. Meares J thought that the words "make good' conferred on the appellant an option to reinstate. Even so, this would not deny the policy's character as one of indemnity Smith v Colonial Mutual Fire Insurance Co Ltd) the liability of the appellant as insurer being governed by the terms of the policy. When the promise to pay or make good the damage is read with para(a) of the 'Exclusions' and the 'Deductibles' provision it is susceptible of a separate application to the damage caused by each single occurrence, each occurrence requiring separate treatment for the purpose of quantifying he amount of the indemnity. This interpretation is reinforced by Memo 2. It measures the extent of the appellant's liability by reference to the cost of 'repairs necessary to restore' the property and, in so doing, it assumes that there is a liability to pay or make good the damage which is physically caused by the particular occurrence arising from a non-excluded cause." If, as I believe to be the case, such an approach be the correct approach to be adopted to the interpretation of the subject policy then, as it seems to me, it follows that the liability of the Appellant does not extend to indemnifying the Respondent against the cost of rectification of, or paying to the Respondent the indemnity value of, that part, or those parts, of the property and the contents which were not lost or damaged in the first fire, but which were lost or damaged in the third fire. THE STATUTORY POLICY Cole J having held that the claim made in respect of the first fire was not a fraudulent claim, and his Honour's decision in that respect not having been the subject of appeal, it follows that the Appellant's letter of 22nd July 1992 addressed to the Respondent in care of its solicitors was ineffective validly to cancel the policy. This notwithstanding, it is still necessary to determine two questions, they being: 1. was the conduct of the Respondent and its agents after 22nd July 1992 such as to justify it being held that, prior to 30th October 1992, the contract of insurance had been terminated by reason of: (a) the Appellant's repudiation of it, which repudiation had been accepted by the Respondent; or 56 UNREPORTED JUDGMENTS (b) by mutual agreement, to be inferred from the apparent abandonment by both parties to it of any future rights they might have had, or the non-enforcement of any then future liabilities to which they might have been subject, under it, and 2. alternatively, was the conduct of the Respondent and its officers after 22nd July 1992, and the consequences for the Appellant which flowed from that conduct, such that the Respondent ought to be held estopped from asserting that the contract of insurance had not been terminated prior to 30th October 1992. When he came to deal with the question of repudiation (Appeal Book at 912-913) Cole J said: "There is force in Mr Simpkins' submission that the reason why there was no such pleading is because the Defendant insurer mistakenly purported to give effect to and exercise powers conferred by the policy permitting cancellation. It relied upon condition 5 in the policy purporting to do so. The Plaintiff's solicitor appears mistakenly to have regarded the purported Notice of Cancellation as being effective in the sense that it accorded with the policy provisions and thus he sought a premium refund. The only entitlement to such a refund flows from the provisions of CLS of the contract. Both parties, through their solicitors, were thus seeking to exercise contractual rights. The purported, although wrongful, exercise of contractual rights is the antithesis of wrongful repudiatory conduct by the insurer, and acceptance of wrongful repudiatory conduct by the insured. For that reason the conduct of the solicitors in their letters of 22 July 1992 cannot be regarded either as repudiation or acceptance of repudiation. The purported exercise of a contractual power does not normally constitute repudiatory conduct. That is so even if it be found that the factual basis for the purported exercise was not present. The reason why that is so is because the bona fide but wrongful exercise of a power inferred by the contract does not 'evince an intention that the party will not perform the contract according to its terms' (DTR Nominees Pty Ltd v Mona Homes Pty Ltd and Anor (1978) 138 CLR 442 at 432; Braidotti v Queensland City Properties Ltd (1991) 65 ALJR 387 at 397) as Gaudron J said in Braidotti: 'Repudiation is not lightly to be found or inferred.'" I must say that I have considerable difficulty in accepting Cole J's view that, for the reason assigned by him in the passage which I have just set out, the Appellant's conduct in purporting to cancel the policy could not constitute repudiation. A reference to the Judgments in the two cases to which Cole J referred does not, in my view, provide any support for the suggestion that a bona fide, but wrongful exercise of a power conferred by a contract can never constitute repudiatory conduct. Thus, in the passage in the joint Judgment of Stephen, Mason and Jacobs JJ in DTR Nominees Pty Ltd v Mona Homes Pty Ltd, there appears the following: "The relevant question therefore is whether the events which we have recounted evidence an intention on the part of the appellant to repudiate or renounce the contract or more precisely whether such an intention is ta he inferred from those events. For the respondents it was submitted that such an intention should be inferred from the appellant's continued adherence to an incorrect interpretation of the contract. It was urged that the appellant, because it was acting on an erroneous view, was not willing to perform the contract according to its terms. No doubt there are cases in which a party, by insisting on an incorrect interruption of a contract, evinces an intention that he will not perform the contract according to its terms. But there are other cases in which a party, though asserting a wrong view of a contract because he believes it to be correct, is willing to perform the contract according to its tenor. He may be URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 57 willing to recognise his heresy once the true doctrine is enunciated or he may be willing to accept an authoritative exposition of the correct interpretation. In either event an intention to repudiate the contract could not be attributed to him. It was not a case in which any attempt was made to persuade the appellant of the error of its ways or indeed to give it any opportunity to reconsider its position in the light of an assertion of the correct interpretation. There is therefore no basis on which one can infer that the appellant was persisting in its interpretation of willy nilly in the face of a clear enunciation of the true agreement. In Braidotti v Queensland City Properties Ltd!° no final expression of view on the question was called for. Thus, in the joint Judgment of Mason CJ, Brennan and Dawson JJ!!, the following appears: "Mr Davies seeks to argue that the purchaser was not entitled to treat the vendor's conduct as amounting to a repudiation which entitled the purchaser to rescind. As this argument was not raised in the Full Court, we do not consider that we should now embark upon a consideration of it now. We would rescind the grant of special leave to the extent that it relates to this point. The fact that the point was not dealt with in the Full Court was identified as a difficulty on the hearing of the special leave application. What is more, the argument depends upon the particular facts of this case and raises no question of general principle. Moreover, in our view, the argument has little to commend it. The vendors rescinded the contract and sought a declaration that it had been validly rescinded. By their actions they signalled their unqualified intention not to proceed with a contract. On the view which we take of s71 they were mistaken in their interpretation of the statutory definition. By reason of that mistake they appear to have refused unequivocally to perform the contract according to its terms. The case is to be distinguished from cases such as DTR Nominees Pty Ltd vy Mona Homes Pty Ltd (1978) 138 CLR 423 where a party acts on a mistaken but bona fide interpretation of a contract in circumstances in which it is proper to infer that the party, though maintaining that his or her interpretation of the contract is correct, will perform the contract according to its terms, if the interpretation is shown to be incorrect." In the Judgment of Deane J!2, the following appears: "Tt is unnecessary for the resolution of the present appeal that I consider that the further submission made on behalf of the vendors to the effect that even if it had been invalidated by s72(1) the vendor's Notice of Rescission would not have constituted a repudiation of the contract. I would, however, indicate that it is not at present obvious to me that a formal Notice of Rescission which is ineffective by reason of the provisions of s72 but which has plainly been given in ignorance of the potential applicability of that section necessarily, of itself, constitutes a repudiation of the contract which entitles the purchase forthwith to rescind the contract and sue for damages for breach." In the passage to which Cole J refers, Gaudron J said: "It is strictly unnecessary to deal with the alternative argument made on behalf of the vendors that a Notice of Rescission which is in effective only because of s72(1) of the Act cannot, of itself, constitute repudiation. However, in the light in the way in which the matter was approached at first instance, it is appropriate to observe that not 10. (supra) 11. (supra) at 391-392 12. (supra) at 395 58 UNREPORTED JUDGMENTS every ineffective rescission will ground and inference of repudiation: see DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423. Repudiation is not lightly to be found or inferred: see Ross T Smyth and Co Ltd v TD Bailey, Son and Co [1940] 3 All ER 60, per Lord Wright at 72. See also Laurinda per Deane and Dawson JJ at 657. A Notice of Rescission might be ineffective merely because of failure to comply with s72 of the Act. And that might occur because there is a real issue whether the contract is an instalment contract or whether s72(1) is applicable in the particular circumstances. In that situation and ineffective Notice of Rescission might reveal no more than an erroneous belief that, for one reason or another, s72(1) has no application. If that is all that is revealed, the Notice would not, of itself, support an inference of the kind identified by Dixon CJ in Rawson v Hobbs (1961) 107 CLR 466 at 481, namely, and inference of 'substantial incapacity or definitive resolve or decision against doing... what the contact requires'. Nor, if there be a difference, would it, of itself, support an inference of an intention of the kind described by Gibbs J in Shevill Builders Licensing Board (1982) 149 CLR 620 at 625-626, namely an intention 'to fulfil the contract only in a manner substantially inconsistent with [B] obligations.' Unless one or other of those inferences is reasonable to be drawn, an ineffective rescission will not support a finding of repudiation: see Laurinda, per Brennan J at 647. See also DTR Nominees at 430." For by own part I can think of no clearer way for an insurer to demonstrate a refusal to recognise an obligation to pay a claim properly made under a policy of insurance than to reject the claim and to purport to cancel the contract of insurance in respect of the unexpired period of the policy. In that event, the letter from the Respondent's solicitor - who seems clearly enough to have been authorised to deal with the Appellant in the matter - which letter, while indicating that the Respondent proposed "to pursue (the Appellant) pursuant to the policy", nonetheless sought a cheque for the balance of the premium ought, in my view, to be regarded as having the effect of acceptance of the Appellant's repudiation of its obligations under the policy (see, most recently, Vitol SA u Norelf Ltd; " The Santa Clara'"'!3). It may, however, be said that, although the Appellant, in its Notice of Appeal (Appeal Book at 951), raised as a ground of appeal: "That His Honour ought to have held that the policy was terminated by reason of the acceptance by the Plaintiff of the Defendant's repudiation on or about 22 July 1992." the fact that it did not - at least in express terms - in its written submissions seek to support that ground ought to lead the Court to treat that ground as having been abandoned. Against the possibility that others may be of that view, it is appropriate, then, to consider the submission that, by reason of what occurred in July 1992, the parties are to be held to have agreed that the contract of insurance was to be terminated in futuro. During the course of the argument on the hearing of the Appeal, much heat was generated by the use, by counsel on both sides, of the word abandonment". Despite the importance which counsel seemed to attach to the word "abandonment", I am not prepared to attach any magic to it; on the contrary, so it seems to me, in those cases in which it has been used it appears to have been no more than what was thought by the judge, or judges, concerned as a convenient description of what had occurred in the particular case. Thus, in a case 13. [1994] 4 All ER 109 URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 59 in which there had been no part performance on either side (as, for example, in DTR Nominees Pty Ltd v Mona Homes Pty Ltd) it was a convenient description for what in law was to be regarded as a rescission; whereas, in a case in which there had been part performance (as, for example, De Soysa v De Pless Pol!4 Pearl Mill Co Ltd v Ivy Tannery Co Ltd!5, the phrase was one apt to describe mutual releases from future performance. If, therefore, what occurred in July 1992 is not, in the circumstances to which I have earlier referred, to be regarded as a repudiation by the Appellant, and an acceptance by the Respondent, of the Appellant's obligation, under the contract of insurance, to indemnify the Respondent then, so it seems to me, what happened in July 1992 and thereafter and prior to 30 October 1992 ought, in my view, to be regarded as an abandonment of the contract of insurance in the sense that it involved a release by the Respondent of the obligations of the Appellant to indemnify the Respondent in respect of any further damage which might be incurred during what would otherwise have been the period of insurance under the policy, and a correlative release by the Appellant to the Respondent of the pro rata amount of premium to which it would otherwise have been entitled. As I accept that, on this question, as well, other minds may differ, I turn to consider the question of "estoppel". I use the word "estoppel", not with any enthusiasm but with reluctance, for as I have, on other occasions, and in other circumstances, felt obliged to point out, unless care is taken in the use of the word "estoppel" and the many variants - as, for example, estoppel in pais, equitable estoppel, promissory estoppel, proprietary estoppel - the nett result is likely to be confusion. For my own part, I prefer to approach what are said to be the various forms of estoppel which may, in a particular situation, be available, and the various principles which are said to govern their operation, as but particular examples of a broad general principle to the effect that, whenever a court - or, at the least, a court which is enabled to apply the principles of equity - is faced with conduct which is unconscionable, or which is held to constitute fraud in equity, then the court will provide a remedy - whether in a positive form - as, for example, by the imposition of a constructive trust - or in a negative or defensive form - as, for example, by way of a plea in bar, or a dilatory plea - which remedy will be commensurate with, and adequate to protect the subject person against, the detriment to which the person affected by that conduct would otherwise have been subjected by reason of the others unconscionable conduct (see, for example, Starr v Barbaro!6; Akins v National Australia Bank!7 - such a view, so it seems to me, is one for which some - albeit not complete - support may be found in the judgments of Brennan J and Deane J in The Commonwealth of Australia v Verwayen!8), If this be so, then, it is no answer to the Appellant's submission that, in the present case, the Respondent is "estopped" from denying that the contract of insurance had been terminated prior to 30th October 1992, merely to say - as the Respondent submitted - "There can be no estoppel in the face of the statute". It may well be that, in any particular case, the court would hold that it was not unconscionable for a party who had led another to act on a particular assumption 14. [1912] AC 194 15. [1919] 1 KB 78 16. 4th June 1986 (unreported): affd. sub nom Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 17. Court of Appeal Sth August 1994 (as yet unreported) 18. (1990) 170 CLR 394 60 UNREPORTED JUDGMENTS thereafter to deny the validity of that assumption (see, for example, Equitable Life Assurance of the United States v Bogie!9; Considine v Citicorp Australia Ltd2° to which our attention was drawn by counsel for the Respondent; see also the analysis by McHugh J in The Commonwealth of Australia v Verwayen2!). In the present case, so it seems to me, the Respondent's conduct, almost 18 months after the notice of cancellation had been received and acted on by it, and long after the Appellant could have so acted as to protect its position in the event that the Respondent wished to assert that the cancellation was ineffective in law, in seeking "at the tail of the hunt', and at a time when the final hearing was almost half completed, to raise a claim based on "the statutory policy" ought, in my view, to be regarded as unconscionable and thus ought not to be permitted. For these varying reasons, therefore, I conclude that, to the extent to which the Respondent's claim at the trial was based upon the existence of "the statutory policy", that claim ought to have been dismissed. THE EXTENT FO THE LIABILITY UNDER THE POLICY - THE REINSTATEMENT POINT Before one can come to consider this point, so it seems to me, one must determine what is the true analysis to be made of the events which occurred in July 1992, and, in particular: 1. was it - as the Appellant had submitted at the trial - a case of repudiation on its part, which repudiation had been accepted by the Respondent; 2. was it - as Cole J appears to have held - merely a case of breach of a contractual term, which breach - even if in respect of an essential term - had not been treated by the Respondent as enabling it lawfully to put an end to the contract. The importance of the difference between the two situations which I have suggested is to be found to lie in the fact that, if the true analysis of the position be that the Appellant's conduct amounted to a repudiation of the contract of insurance, which repudiation had been accepted by the Respondent, the contract of insurance was thereby brought to an end and the Respondent would have been entitled to damages for loss of the insurance contract, the entitlement to which damages would not depend upon the fulfilment of any condition precedent to payment of the sum insured which might have been contained in the contract of insurance (see, for example the discussion which occurred in the early stages of the hearing of the Appeal - transcript at 2 et seq). If, however, the true analysis be that what occurred constituted a breach of a term in the contract of insurance, which breach had not been relied upon to bring the contract of insurance to an end, it was open to the Respondent to seek to enforce what it claimed to be its rights under the contract of insurance, and it remained open to the Appellant - since on this hypothesis the contract remained on foot for the benefit of both parties - to insist on the performance by the Respondent of any conditions precedent to the accrual of a right on its part to receive a money sum. As I have earlier indicated, I am of the opinion that the preferable view of what occurred in July 1992 was that it represented a repudiation by the Appellant of the contract of insurance and an acceptance by the Respondent of that repudiation. However, as this is a question upon which - even if it be open for 19. (1906) 3 CLR 878 20. (1981) 1 NSWLR 657 21. (supra) at 500-501 URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 61 argument on the Appeal - other minds may differ, and as the Respondent has been singularly reluctant to embrace such a result, I suppose I should proceed upon the basis that the contract of insurance remained on foot after July 1992 and at the time of the commencement of these proceedings, and further, that the terms of that contract of insurance are capable of being availed of by the Appellant as well as by the Respondent. There no longer being any question as to the liability of the Appellant to meet what might be called "the stock and contents claim" (as to which see Appeal Book at 924 et seq) or what has been called the "business interruption claim" (as to which see Appeal Book at 935 et seq) or as to the money sums to be paid in respect of each such claim, the question to be decided in this part of this Judgment is, thus, limited to the nature and the extent of the relief which, at the time of the delivery of Judgment by Cole J was, and at the present time is, able to be granted to the Respondent in respect of "the cost of reinstatement". While it may be that the relevant provisions of the policy (see at 5-7 above) are less elegantly phrased than might be the case, I am, with respect to Cole J, unable to share his views (see Appeal Book at 927 et seq) that, whether in the original policy, or in the deemed statutory policy, those provisions did not, as a matter of construction, have the effect that, in a case where the insured had not elected the indemnity value, the insurer had no liability to pay "the cost of reinstatement" until that cost been had incurred; on the contrary, so it seems to me, the statement in the policy, under the title "Reinstatement and Replacement', that "the basis upon which the amount payable is to be calculated shall be the cost of reinstatement of the damaged property insured AT THE TIME OF ITS REINSTATEMENT" (my emphasis) makes it, in my view, tolerably plain, as a matter of construction, that the amount of the money sum to be paid cannot he calculated until after the property which has been lost or damaged has in fact been reinstated (see, for example, Cannell v Commercial Union General Insurance Co Ltd?2; see also City Realties (Holdings) Ltd v National Insurance Co of New Zealand?3). Nor am I able to share the tentative view expressed by Cole J (see Appeal Book at 928) - to support which view his Honour prayed in aid the decisions in Edwards and Anor v AA Mutual Insurance Co?4; City Realties (Holdings) Ltd v The National Insurance Co of New Zealand Ltd?5; to which might be added a reference to Athlone v General Accident Fire and Life Assurance Corporation and Challenor Insurances Pty Ltd26 - that "if proviso (iv) (sic) has the effect contended for by the insurer, it is doubtful having regard to the insurer's breach" - semble, failure to admit the claim - "whether it is entitled to relay (sic) upon that proviso". On the contrary, so it seems to me, the fact that, in a case such as this, the conduct of an insurer may have made it difficult for an insured to fulfil such a condition precedent does not disentitle the insurer to rely upon the non-fulfilment of that condition precedent unless his conduct has been such as to justify a finding that, by that conduct, the insurer waived or dispensed with, fulfilment of that condition precedent. 22. (1985) 3 ANZ Insurance Cases 60-666, at 79, 147 23. (1986) 4 ANZ Insurance Cases 60-695 at 74.139-74, 140 24. (1985) 3 ANZ Insurance Cases 60-668 at 79.171-3 25. (supra) 26. (1985) 3 ANZ Insurance Cases 60-648 at 78.993 62 UNREPORTED JUDGMENTS For these reasons, I conclude that, insofar as relates to the reinstatement and replacement claim, the relief able to be granted to the Respondent, at the time of the trial, was, and, at the present time, is, limited to a declaration of its entitlement to an indemnity in accordance with the terms of the policy. GENERAL DAMAGES I confess to having some considerable difficulty in determining the basis upon which Cole J held that the Appellant was liable to pay to the Respondent general damages, as also do I have difficulty in determining the basis upon which his Honour quantified those damages in the manner in which he did. In particular, it is by no means clear to me whether the basis upon which his Honour determined that the Appellant was liable to pay general damages was limited to the Appellant's breach of its obligations under the policy of insurance in respect of the loss and damage caused by the first fire, or extended to a similar breach of its obligations under the statutory policy in respect of the second fire. Further, I have difficulty in understanding how his Honour quantified general damages by reference to the estimated trading losses from 9th January 1993 - the Appellant having accepted, at least in general terms, a liability to pay consequential loss after the first fire up until that date - until the end of 1995. But whatever be the basis upon which Cole J held the Appellant liable to pay general damages to the Respondent, and the manner in which he quantified those general damages, it seems to me, with respect, that in proceeding to find the Appellant liable in this respect, his Honour proceeded upon a fundamental misconception. As will be apparent from what I have earlier written (see, for example, at 60 (supra), I have been at some pains to draw attention to the need, in a case such as this, properly to categorise the conduct of the relevant insurer and, as well, to determine what was the action taken by the relevant insured in respect of that conduct. In particular, I have been at pains to draw a distinction between those cases in which the insurer's conduct has constituted a repudiation of the contract of insurance which repudiation has been accepted by the insured, and those cases in which although the insurer's conduct amounted to a repudiation of the contract of insurance the insured has not elected to accept that repudiation and to terminate the contract of insurance. The reason why I have been at some pains to draw attention to the distinction is not difficult to discern - it has a direct relationship to the remedies available to the insured and the manner in which any moneys which he may be entitled to recover from his insurer are to be calculated. Thus, in Larratt v Bankers and Traders Insurance Co Ltd27, Jordan CJ said28 "If the Plaintiff is correct in his contentions that the Defendant company had refused to regard the policy as a binding document, and that it had no just cause for doing so, he was entitled, at his option, either to ignore the company's invalid refusal, and sue to recover a liquidated sum under the policy, or else to avail himself of the invalid repudiation as a ground for himself putting an end to the contract and suing for unliquidated damages for breach." The failure to appreciate that distinction seems as if it may be more widespread than one might otherwise have thought. Thus, in Russell Young Abalone Pty Ltd v Trader's Prudent Insurance Co Ltd?9 Green CJ said30: "I have read the reasons 27. (1941) 41 SR 215 28. (supra) at 223 29. (1993) 7 ANZ Insurance Cases 61-182 URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 63 for judgment prepared by Underwood J and Wright J. I agree that not only did the appellant not make it clear by its pleadings or by the way it conducted its case that it was claiming that it had elected to accept the respondent's repudiation of the contract but that on the materials before the trial judge the only finding of fact that would have been open would have been that the appellant had not done so. Accordingly I am of the opinion that the learned trial judge's approach to the assessment of damages was correct and that the appeal should be dismissed. " while Underwood J said3!: "It appears that from the outset the proceedings were permeated by failure to come to grips with the fundamental distinction between a claim of indemnity under a contract of insurance and a claim for damages at large consequential upon acceptance of wrongful repudiation. The particulars do not meet that distinction. It is not apparent on the pleadings and was obscured in the submissions put to the learned trial judge during the argument on the admissibility of the evidence of loss of rental and diminution of capital value. If one party acts in such a way as to lead the other to reasonably conclude that he/she does intend to fulfil his/her obligations under the contract that the former is said to repudiate the contract. Such acts alone have no effect. 'I have never been able to understand what effect the repudiation of one party has unless the other party accepts the repudiation.' per Scrutton LJ in Golding v London and Edinburgh Insurance Co Ltd (1932) 43 LI L Rep 487, 488 cited by Viscount Simon LC in Heyman v Darwins Ltd [1942] AC 356 at 361. The innocent party may elect to do nothing and the contract remains on foot even though breach of a term may have become the subject matter of proceedings for damages or other relief. Alternatively the innocent party may elect by clear notice to accept the repudiation and rescind the contract thereby immediately giving rise to a right to sue for damages for repudiation, see Federal Commerce and Navigation Co Ltd v Molena Alpha Inc [1979] AC 757; Photoproduction Ltd v Securicor Transport Ltd [1980] AC 827. If an insured elects to accept the insurer's wrongful repudiation the damages are measured in accordance with the principles laid down in Hadley v Baxendale (supra). If an insured does not accept the repudiation the contract remains on foot entitling him or her to recover only in accordance with its terms. See Steven Taylor v J Thomas and Son; VACC Insurance Co Ltd (Third Party) (supra); Shelbourne and Co v Law Investment and Insurance Corp Ltd [1898] 2 QB 626; Maurice v Goldsbrough Mort and Co Ltd [1939] AC 452. The nature of a claim against an insurer who fails to pay but does not repudiate the policy is discussed in F and K Jabbour v Custodian of Israeli Absentee Property [1954] I WLR 139 at 143 et seq. Pearson J examined a large number of authorities and concluded that such a claim is one for damages but that the expression has a different meaning in claims for a failure to indemnify under a policy of insurance for the only wrong has been a failure to pay a sum due under a contract. The method of calculating this sum is usually provided for in the contract itself. This decision is referred to by the Editor of McGregor on Damages (15 Edn) at 1, where it is said that actions (inter alia) to recover money under insurance policies are to be distinguished from claims for damages for breach of contract and are outside the scope of the book. However, as I understand it, this does not mean that an insured seeking to recover money under a contract of insurance is denied the right to 30. at 78.038 31. at 78.039-78.040 64 UNREPORTED JUDGMENTS cover interest for late payment. In Hungerfords v Walker (supra) Mason CJ and Wilson J (with whose reasons Brennan and Deane JJ expressed agreement) said (1989 Aust Torts Reports at 68,436; 84 ALR 119 at 130: 'It is pointless to insist on a distinction between the award of damages for loss of the use of money in the case of a liquidated claim and the award of such interest in an unliquidated claim.' This was the basis on which damages were assessed in the cases relied upon by counsel for the Appellant viz the The New Zealand Insurance Co Ltd v Harris (1990) 6 ANZ Insurance Cases 60,952; Anthony Judd and Denise Judd v Suncorp Insurance and Finance (1988) 5 ANZ Insurance Cases 60,832. " Upon the assumption that the proceedings were, and this appeal is, to be decided upon the basis that, even if the Appellant repudiated the contract of insurance, that repudiation was not accepted by the Respondent, the Respondent's claim - both under the original policy and in respect of the statutory policy - was - as Jordan CJ would have had it - a claim to recover moneys due under the policy, or - as Underwood J would have it - a claim for damages for breach of the contract of indemnity. In either case, so it seems to me, the damages which might be recovered in respect of a failure to pay timeously any sum payable under the policy would, in my view, be limited to interest - whether the statutory rate of interest provided for under s57 of the Insurance Contracts Act 1984 or some commercial rate of interest. Whether or not the appropriate rate of interest is the statutory rate (as to which see NRMA Insurance Ltd v Tatt32); or some higher rate (Moss v Sun Alliance Australia Ltd33; Hobartville Stud Pty Ltd v Union Insurance Co Ltd34) the two cases to which I have last referred - upon which cases Cole J relied to support the view that, in an appropriate case, an insured may recover additional damages for breach of contract - do not, in my view, support that view. I therefore conclude that to, the extent to which the verdict found Cole J includes general damages, whether under the original policy or in respect of the statutory policy, the Judgment must be set aside. INTEREST If the views which I have earlier set out be correct, then the only sum which may be found not to have been paid timeously was that sum representing the total of the stock and contents destroyed in the first fire and the consequential loss claim related to the first fire. Having regard to the manner in which those several sums were calculated, I am unable to determine from the material in the appeal papers what is the total of those two sums. COSTS In the light of the views which I have recorded above it will be seen that the Appellant has been substantially, if not totally, successful on the appeal, it following, in my view, that the Appellant should have its costs of the Appeal, the Respondent, if qualified, to have a Certificate under the Suitor's Fund Act 1951. This notwithstanding, it would appear that the Appellant failed in respect of most of the issues which it sought to raise at first instance, it following, in my view, that the Respondent should have an order for most, if not all, of its costs at first instance. As I have been unable to determine what proportion of the trial 32. (1989) 94 FLR 339; 92 ALR 299 33. (1990) 93 ALR 592 34. (1991) 25 NSWLR 358 URJ CIC INSURANCE LTD v BANKSTOWN FOOTBALL CLUB LTD (Powell JA) 65 was taken up by the issues in respect of which the Respondent succeeded, it may be that the determination of what order is appropriate to be made for costs in that respect should be remitted to Cole J. ORDERS I would propose that the Appeal be upheld and that the parties be directed to bring in Short Minutes to give effect to the views which I have recorded above. 1. Appeal allowed, in part; 2. The orders of Cole J set aside; 3. In lieu thereof: (a) Declare that: (i) Upon the proper construction of policy number IS395070 issued by the appellant to the respondent in or about December 1991 ("the Policy") and in the events which have occurred, the appellant is liable to indemnify the respondent in respect of property damage and consequential loss occasioned by fire damage to its premises in Bankstown on or about 8 January 1992; and (ii) Upon the proper construction of the Policy and in the events which have occurred, the appellant is liable to indemnify the respondent to the extent of the costs of reinstatement once actually incurred in respect of property damage and consequential loss occasioned by a fire on or about 3 March 1993 at its premises in Bankstown; (iii) In the events which have occurred, the appellant is liable to indemnify the respondent in respect of consequential loss occasioned by fire damage to its premises from 8 January 1992 to 8 January 1993; (iv) In the events which have occurred, the appellant is liable to pay general damages to the respondent in respect of its breach of contract; (v) In the events which have occurred, the appellant is liable to pay interest to the respondent pursuant to s57 of the Insurance Contracts Act 1984 (Cth) in respect of the claim for consequential loss, from 9 March 1992 to the date on which the payment of that claim is made; (vi) In the events which have occurred, the appellant is liable to pay interest to the respondent upon the award of general damages referred to in (iv) above in accordance with the Supreme Court Rules from 9 January 1992 to the date of judgment; (b) Order that (i) There be referred to the Commercial Division the ascertainment of the damages to which the respondent is entitled (if any) in accordance with declaration (iv) above and the interest to which the respondent is entitled (if any) in accordance with the declarations (v) and (vi) above; (ii) There be reserved to the Commercial Division the entry of judgment to which the respondent is entitled, including in respect of any entitlement then established for the costs of reinstatement actually incurred by the respondent, should leave be given to the respondent to claim such sum; (iii) Any such judgment to take effect from the date ordered by.that Division; and (iv) The respondent give credit to the appellant for sums already paid; 4. The appellant to pay the respondent's cost before Cole J; 5. The respondent to pay one third of the appellant's costs of the appeal; but to have in respect thereof, if otherwise so qualified, a certificate under the Suitors' Fund Act 1951; and 6. Liberty to either party to apply to relist the proceedings for variations of these orders or for further orders or directions, provided such liberty is exercised with 66 UNREPORTED JUDGMENTS 28 days of the publication of the judgment of the Court. Entry of, and execution upon, the final orders of the Court in the meantime to be stayed. Counsel for the Appellant: BW Rayment QC/J Duncan 5 Instructed by: Abbott Tout Counsel for the Respondent: JB Simpkins/B Debuse Instructed by: Thomas Tarmo and Co