BETWEEN : ALLISON PTY LTD (ACN 056 940 437) t/a PILBARA MARINE PORT SERVICES

Practice and procedure - Amendment to statement of claim - Whether amendment within indorsement on writ - Whether amendment permissible where cause of action arose after issue of writ - Whether breach of duty of utmost good faith sounds in damages - Turns on own facts

Insurance Contracts Act 1984 (Cth), s 9(1)(d), s 13

Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd [1992] 1 AC 233

Banque Financiere de la cite SA v Westgate Insurance Co Ltd [1991] 2 AC 249

Bruce v Odhams Press Ltd [1936] 1 KB 697

Kelly v New Zealand Insurance Co Ltd (1996) 9 ANZ Ins Cas 61­197

Komorowski v Australian Associated Motor Insurers (1996) 9 ANZ Ins Cas 61­303

Morgan v Banning (1999) 20 WAR 474

Phillips v Phillips [1878] 4 QBD 127

Renowden v McMullin [1970] HCA 24; (1970) 123 CLR 584

Vermeulen v SIMU Mutual Insurance Association (1987) 4 ANZ Ins Cas 60­812

Zurich Australian Insurance Ltd [1999] 2 Qd R 203

1 MASTER NEWNES: This is an application by the plaintiff for leave to amend its statement of claim in terms of a minute of amended further reamended statement of claim.

2 The proceedings were commenced by the plaintiff by writ of summons issued on 28 November 1995. In the writ, the plaintiff, among other things, claims damages for breach by the plaintiff of a contract of marine insurance and a declaration that the contract of marine insurance remained in full force and effect.

3 The statement of claim has been amended a number of times. As it currently stands, the plaintiff pleads that, at all material times, it was the owner of the vessel known as the "Pilbara Pilot". It says it entered into a contract of marine insurance with the defendant on about 9 December 1994 by which the defendant agreed to insurance the plaintiff against loss or damage to the "Pilbara Pilot" caused by, among other things, perils of the sea. The plaintiff pleads that, on about 23 February 1995, the "Pilbara Pilot" was totally lost as a result of severe wind and sea conditions generated by Cyclone Bobby. The vessel sank in an area that was the responsibility of the Dampier Port Authority, which ordered the plaintiff to raise and remove the wreck from the seabed. The plaintiff says that it incurred expenses in carrying out that work and it claimed those expenses and the insured sum of $200,000 under the policy of insurance.

4 It is alleged that, by letter from the defendant's solicitors dated 10 May 1995, the defendant wrongfully rejected the claim on the ground that the plaintiff was in breach of provisions of the policy which required that the vessel be moored on a cyclone-proof mooring and that the vessel be surveyed, manned, crewed and operated strictly in accordance with local statutory authority requirements.

5 The plaintiff pleads that subsequently, by letter dated 7 December 1995 from the defendant's solicitors, the defendant further wrongfully rejected the claim and purported to avoid the contract on the ground, first, that the plaintiff had failed to make the allegedly material disclosure that the "Pilbara Pilot" was not usually moored on a cyclone-proof mooring and, secondly, that the plaintiff had made a false disclosure to the defendant that the mooring on which the "Pilbara Pilot" was usually moored was a cyclone-proof mooring.

6 The plaintiff pleads that the "Pilbara Pilot" was, in fact, moored on a cyclone-proof mooring at all material times and denies that it was in breach of any relevant local statutory requirements. It also denies that it failed to make a material disclosure or that it made any false disclosure.

7 It is alleged by the plaintiff that, by reason of the defendant's rejection of the claim and purported avoidance of the insurance policy, the defendant repudiated the contract, and that the plaintiff has accepted that repudiation.

8 The plaintiff now seeks to add a further claim. That claim is as follows:

"16. Further and or in the alternative, both parties to the Insurance Contract were under a duty to the other to act, alternatively it was an implied term of the Insurance Contract that the parties would act with the utmost good faith. The duty arises or the term is implied as a matter of law.

17. The duty or implied term referred to at paragraph 16 required the Defendant not to act in a manner which offended notions of fairness or reasonableness or offended community standards, alternatively not to act in a manner which was capricious or unreasonable, when assessing the Plaintiff's claim under the Insurance Contract.

18. In breach of the duty or term referred to at paragraph 16, the Defendant acted unfairly, capriciously, unreasonably and/or in a manner which offended notions of fairness or reasonableness or community standards when:-

18.1 assessing the Plaintiff's claim under the Insurance Contract and/or

18.2 refusing the Plaintiff's claim under the Insurance Contract on 10th May 1995 on [sic] and maintaining the refusal to pay the claim thereafter;

18.3 defending this action, on the basis that the Plaintiff had breached the warranties referred to at paragraphs 3.3 and 3.4 of the Defence and,

18.4 when claiming to avoid the Insurance Contract by letter dated 7th December 1995 and defending this action, on the basis the Plaintiff had failed to make disclosure in the manner referred to at paragraphs 21, 22 and 23 of the Defence.

19. In support of the averment at paragraph 16 [sic, 18?] the Plaintiff relies on the following facts:

19.1 the Defendant refused the Plaintiff's claim under the Insurance Contract, maintained the refusal to pay the claim thereafter and defended this action on the basis that:

(a) the Plaintiff had not applied to the Harbour Master of the Port of Dampier for approval of the Pilbara Pilot's usual mooring, and/or had not made that application on an approved form (Defence para 6.1.A.1.1), when the Defendant knew:-

(ii) the Dampier Port Authority did not have an approved form;

(b) the Harbour Master had not received an application for approval of the use of the mooring of the Pilbara Pilot, had not satisfied himself that the location of the proposed or any mooring was appropriate, had not satisfied himself that the mooring was generally suitable for the 'Pilbara Pilot', and had not granted approval flor the use of a mooring by the 'Pilbara Pilot' by a notice in writing to the Plaintiff (Defence para 6.1A.1.2), when the Defendant knew:-

(i) the Port Authority did not have an approved form;

(ii) the Harbour Master usually approved moorings in the Dampier Port informally, and did not usually give approval by notice in writing;

(iii) the Harbour Master had given his approval to the mooring of the Pilbara Pilot on its usual mooring, from which it could reasonably be inferred:-

(i) the mooring was appropriate;

(ii) the mooring was suitable for the Pilbara Pilot, and

(2) that if requested to do so by either Plaintiff or Defendant he would have confirmed his consent in writing;

(c) the Harbour Master had not approved the Pilbara Pilot's mooring (to the 'Pilbara Jarrah') at the time she was lost (Defence paras 6.1A.2, 6.1A.3 and 6.1A.4), when the Defendant knew:-

(i) the facts referred to at paragraph 9 of the Reply;

(ii) that the Harbour Master regarded the removal of the Pilbara Pilot from its usual mooring as Cyclone 'Bobby' approached was made in the interests of safely and was good seamanship;

(d) the 'Pilbara Pilot's' usual mooring was not a 'cyclone proof mooring' (Defence para 6.2), when it knew that any mooring in the Port of Dampier for which the Harbour Master had given approval, was in the Harbour Master's opinion (formed after analysis of the application and supporting information and in particular the underkeel clearance) a secure mooring for the vessel to be placed on during cyclone conditions, and was an approved mooring which was a cyclone proof mooring. Dampier Port Authority Regulations 1989 Reg 44;

The Defendant's knowledge of the facts referred to at paragraph 19.1(a) to (d) arose (at least) from a facsimile addressed by the Dampier Port Authority to its investigator and agent Manu Marine Pty Ltd (Manu Marine) dated 1st November 1995;

(e) it wished to substitute its own opinion as to whether the Pilbara Pilot's usual mooring was a cyclone proof mooring, for the Harbour Master's opinion (Defence para 6.2);

(a) did not give discovery of the facsimile referred to at paragraph 19.1 (d);

(b) served and relied upon a report from. Manu Marine dated 21 September 1995 ('the fourth report') which:-

(i) inferred that the Harbour Master had not approved the usual mooring as a cyclone proof mooring;

(ii) attached correspondence from the Dampier Port Authority stating that an application for approval of the usual mooring as a cyclone proof mooring, and an approval of that mooring, had not been located;

(c) did not disclose the contents of a further report from Manu Marine dated 2 November 1995 ('the fifth report'); the fifth report:-

(i) stated that the Dampier Port Authority had approved the Pilbara Pilot's usual mooring as a cyclone proof mooring;

(ii) annexed the facsimile referred to at paragraph 19.1(d);

(d) in the premises referred to at paragraphs 19.2(a) to (c) withheld documents which disclosed that the cases made in those paragraphs of the Defence referred to at paragraphs 19.1(a), (b) and (d) were not fairly or reasonably advanced;

(e) in the premises referred to at paragraph 19.1(a)-(d) and 19.2[?] [sic] has raised and persisted in a case or cases which have unreasonably increased the Plaintiff's costs of this action and of its claim under the Insurance Contract;

19.3 the Defendant made allegations of non disclosure in terms of paragraphs 21, 22 and 23 of the Defence when it knew believed or could readily have ascertained that:-

(a) the Plaintiff knew or believed that it had the Harbour Master's approval for the Pilbara Pilot's usual mooring;

(b) the Plaintiff knew or believed that. because the Harbour Master had approved the Pilbara Pilot's usual mooring as a cyclone proof mooring, it was a cyclone proof mooring;

(c) the Plaintiff knew or believed that it had complied with the terms of the Dampier Port Authority Regulations;

(d) the Defendant knew on or about the lst of November 1995 that the Pilbara Pilot's usual mooring was approved by Dampier Port Authority as a cyclone proof mooring.

20. In the premises, if, which is denied, the Plaintiff breached the warranties referred to at paragraphs 3.3 and 3.4 of the Defence, (in the manner referred to at paragraphs 6.1, 6.1A and 6.2 of the Defence) or made the non disclosure referred to at paragraphs 21, 22 and 23 of the Defence, the Defendant's actions referred to at paragraphs 19.1, 19.2 and 19.3 were unfair, capricious or unreasonable, and/or offended community standards, with the consequences that:-

20.1 the Defendant is not entitled to refuse and continue to refuse to pay the Plaintiff's claim;

20.2 the Defendant is not entitled to avoid the Insurance Contract;

20.3 the Defendant has caused the Plaintiff loss and damage in costs incurred with these proceedings. Particulars will be provided prior to trial.

21. In consequence of the Defendant's breaches repudiation of the Insurance Contract pleaded in paragraph 15 hereof, the Plaintiff has suffered loss and damage in the amount of $200,000.00, the salvage expenses and, in addition thereto, the further loss pleaded in paragraphs 22 to 24 inclusive hereof.

...

25. In the alternative to paragraphs 15 to 19 [sic] inclusive hereof, in the event it is found the Defendant was not entitled to reject the claim or to avoid the Insurance Contract either on the grounds pleaded in paragraphs 10 and 11 hereof or any grounds but it is further found that the Defendant did not repudiate the Insurance Contract as pleaded in paragraph 15 hereof, the Plaintiff is entitled to and claims damages as pleaded in paragraphs 16 to 19 inclusive hereof in respect of the Defendant's breach of the Insurance Contract pleaded in paragraphs 10 and 11 hereof.

26. The Plaintiff is and remains ready, willing and able to perform the Insurance Contract in accordance with its terms and conditions.

27. By reason of the matters contained in paragraphs 20 and 21 [sic] hereof, the Defendant is obliged pursuant to the terms and conditions of the Insurance Contract to pay the Plaintiff the insured sum, the salvage expenses and damages.

AND THE PLAINTIFF CLAIMS against the Defendant:

(a) Damages;

(b) In this [sic] alternative, a declaration that the Insurance Contract is in full force and effect and damages thereof;

(c) Interest thereon at such rates and from such time as this Honourable Court shall deem meet until payment or judgment; and

(d) Costs."

9 I should mention that the plaintiff has filed a reply in the same terms as pars 16 to 20 of the proposed amendment to the statement of claim, except that par 20.3 is omitted.

10 The proposed amendment to the statement of claim is opposed by the defendant on five grounds, namely, first, that the amendments are not within the ambit of the indorsement on the writ of summons; secondly, they raise allegations of matters which occurred after the writ was issued; thirdly, they purport to plead conduct amounting to an alleged breach of contract that occurred after the writ was issued but more than six years ago, so the cause of action would now be statute-barred; fourthly, are embarrassing by assuming, but not pleading, approval of a mooring; and, fifthly, are not material facts supporting a cause of action.

11 The first ground relied upon by the defendant is that the amendment does not fall within the terms of the indorsement on the writ of summons. The indorsement on the writ is as follows:

"The plaintiff's claim against the defendant is one for damages for breach by the defendant of a contract of marine insurance made between the plaintiff and the defendant in December 1994 with respect to the plaintiff's vessel, the 'Pilbara Pilot', which breach occurred in consequence of the loss of the 'Pilbara Pilot' on or about the 23rd February 1995."

12 It is clear that an indorsement on a writ is not a pleading and should not be read narrowly: Stone James (A Firm) v Pioneer Concrete (WA) Pty Ltd (1985) WAR 233 per Burt CJ (with whom Brinsden J agreed) at 239. To the extent that the proposed amendment pleads the breach of an implied term of the contract of insurance giving rise to a cause of action that accrued before the writ was issued, that is, before 28 November 1995, I consider the proposed amendment falls within the terms of the indorsement.

13 It does not appear, however, that the proposed amendment is limited either to breach of an implied term or to a cause of action which had accrued as at 28 November 1995.

14 In par 16 of the minute, the plaintiff pleads both a duty of the defendant to act in the utmost good faith and an implied term of the contract of insurance to the same effect. The duty and term are each said to arise as a matter of law.

15 I did not have the benefit of full submissions from the plaintiff on the nature or basis of the plea of the duty of good faith but, as I understood the plaintiff's case, the plea is based on the principle discussed in Khoury v Government Insurance Office of New South Wales [1984] HCA 55; (1984) 165 CLR 622 where the insured's duty to disclose material facts was described, not as an implied term of the contract of insurance, but rather as "an incident of the relationship of insurance", at 637. In C E Heath Casualty & General Insurance Ltd v Grey & Ors (1993) 32 NSWLR 25, at 38, Mahoney JA described the duty of good faith as "a broad principle applicable to the making of insurance contracts and the performance of them." His Honour said, at 39 - 40, that the duty of good faith operates not merely in relation to the making of a contract of insurance but also to aspects of the performance of it, for example, in respect of some aspects at least of the disclosure of facts during the course of the policy and to claims made under it. The insurer owes the same duty of good faith to the insured and this continues after contract: Nigel Watts Fashion Agencies Pty Limited v GIO General Limited (1995) 8 ANZ Ins Cas 61-235 per Handley JA, at 75,652.

16 The duty of good faith in relation to a contract of insurance was discussed by the House of Lords in Banque Financiere de la Cite v Westgate Insurance Co Ltd [1991] 2 AC 249 and Manifest Shipping & Co v Uni-Polaris Insurance Co [2001] UKHL 1; [2001] 2 WLR 170. The history of the concept of good faith in the law of insurance is described in the speech of Lord Mustill in Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501 and in the speech of Lord Hobhouse in Manifest Shipping & Co v Uni-Polaris Insurance Co (supra).

17 In Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665, and again in Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd [1989] 3 All ER 628, the Court of Appeal rejected the proposition that the duty of good faith was based on an implied term of the contract.

18 The question then is whether this claim falls within the indorsement of claim on the writ. In my view it does not. The indorsement is confined to claims for breach of contract. There is nothing, in my view, in the indorsement of claim, however widely it might reasonably be read, which encompasses the breach of a duty which arises under the general law, albeit as an incident of the relationship of insurance created by the contract, as opposed to a breach of an express or implied term of the contract.

19 The defendant also argued that the causes of action for breach of the implied term and the alleged breach of the duty of good faith arose after the writ was issued and that that, too, precluded such claims being brought in this action.

20 The principle that a cause of action must be complete in all respects at the time at which the writ is issued is well established and of long standing: see Re Keystone Knitting Mills Trademark [1929] 1 Ch 92 per Lord Hanworth MR, at 103; Eshelby v Federated European Bank Ltd [1932] 1 KB 254; Cabassi v Vila [1940] HCA 41; (1940) 64 CLR 130 per Williams J (with whom Rich ACJ agreed), at 148; Coutts & Co v Duntroon Investment Corporation Ltd & Anor [1958] 1 All ER 51 per Harman J, at 53; Wigan v Edwards (1973) 47 ALJR 586; Baldry v Jackson (1976) 2 NSWLR 415. In Wigan v Edwards (supra) Gibbs J pointed out, however, that the rule was purely one of procedure and can be varied or abolished by statute.

21 In Water Authority of Western Australia v AIL Holdings Pty Ltd (No 2) (1993) 10 WAR 233 it was held that the rule remains unaffected by the provisions of the Rules of the Supreme Court. It was held that O 20 r 10, which provides that "subject to rules 8(1) and 11, a party may in any pleading plead any matter which has arisen at any time, whether before or since the issue of the writ", does not permit the pleading of a cause of action which arose after the writ was issued, but only matter relevant to an extant cause of action. A similar conclusion has been reached in respect of the equivalent provisions in New South Wales: Baldry v Jackson (supra), and in South Australia: 21st Century Promotions Australia Pty Ltd v Telstar Corporation Ltd [2000] SASC 353.

22 That conclusion is consistent with O 20 r 2(2), which provides that a statement of claim must not include any claim in respect of a cause of action unless that cause of action is mentioned in the writ or arises from facts which are the same as, or include or form part of, facts giving rise to a cause of action so mentioned. That rule does not permit an amendment that would require proof of any facts additional to those required to be proved to establish the causes of action mentioned in the writ: Brickfield Properties Ltd v Newton [1971] 3 All ER 328 per Sachs LJ (with whom Edmund Davies LJ agreed), at 333, and Cross LJ, at 342.

23 It follows, in my view, that to the extent the proposed cause of action in respect of the alleged breach of the duty of good faith was not complete until after the issue of the writ, it could not be brought in this action. Similarly, while a breach of an implied term of the contract of insurance is within the terms of the current indorsement of claim, once again, to the extent the alleged cause of action was not complete until after the writ was issued, a claim in respect of it could not be brought in this action.

24 It is not apparent whether the plaintiff contends that the cause of action for breach of the duty of good faith accrues when the alleged breach occurs or when loss or damage is suffered by the plaintiff. In the way in which the claim is pleaded I do not think it matters.

25 The acts which are alleged in par 18 of the minute to constitute a breach of the duty of good faith are, or include, acts which, with possibly two exceptions, occurred after the date of the issue of the writ. There is a possible exception in par 18.1 where the assessment of the claim is relied upon as a breach. No date is specified, although it is probably to be inferred that it occurred before the defendant's letter of 10 May 1995 refusing to pay the plaintiff's claim. It is, however, as it stands embarrassingly vague in that respect.

26 The alleged breach by refusal of the claim by letter of 10 May 1995 plainly occurred before the writ was issued, but the plaintiff also relies upon the defendant's continuing refusal to pay the claim thereafter.

27 In par 18.3, the conduct of the defendant in defending the action is relied upon as constituting a breach of the duty.

28 In par 18.4, the plaintiff relies upon a letter dated 7 December 1995, which is some nine days after the writ was issued. In any event, it also relies on the continuing conduct of the defendant in defending the actions as constituting a breach of the duty.

29 It follows that to the extent the plaintiff relies for its cause of action on the breaches pleaded in pars 18.3 and 18.4, and the breaches constituted by a continuing refusal to pay the claim after 28 November 1995 as pleaded in par 18.2, the claim cannot be brought in this action.

30 Turning then to the alleged breach of the implied term, it is clear that a cause of action for breach of contract arises at the time of the breach. The plaintiff relies upon the same acts as constituting the breach of the implied term as are alleged to constitute the breach of duty. In other words, it appears that the alleged breaches of the implied term, apart from (apparently) the assessment of the claim and the refusal of the claim on 10 May 1995, occurred, at least in part, after the issue of the writ.

31 It follows that at least some of the matters relied upon as giving rise to the causes of action for breach of an implied term and for breach of the obligation of good faith respectively occurred after the writ was issued. The plea of causes of action arising from matters which occurred after the writ was issued would be liable to be struck out. It is well established that leave will not be granted to amend a pleading into a form which is liable to be struck out: Atkinson v Fitzwater [1987] 1 All ER 483, Sinclair v James [1894] 3 Ch 554.

32 In my view, the nature of the minute is such that it is not appropriate for the purposes of this application to attempt to break down the minute into those parts which do, and those parts which do not, plead arguable causes of action. It is for the plaintiff to reformulate the proposed amendment if it wishes to do so. I consider the appropriate course is simply to refuse leave to amend the statement of claim in terms of the minute.

33 The plaintiff sought, by chamber summons dated 15 March 2004, leave to amend the indorsement on the writ in the following terms:

"The plaintiff's claim against the defendant is one for damages for breach by the defendant of a contract of marine insurance made between the plaintiff and the defendant in December 1994 with respect to the plaintiff's vessel, the 'Pilbara Pilot', alternatively for breach of duty of good faith arising as a matter of law, which breach occurred in consequence of the loss of the 'Pilbara Pilot' on or about the 23rd February 1995.

AND THE PLAINTIFF CLAIMS against the Defendant:

(a) damages for breach of contract and/or breach of duty;

(b) interest thereon at such rates and from such time as this Honourable Court shall deem meet until payment or judgment;

(c) a declaration that the said contract of marine insurance is in full force and effect and an order that the Defendant specifically performs the same; and

(d) Costs." [the proposed amendments are underlined]

34 I should say that the claim for specific performance has been abandoned in the statement of claim by amendment.

35 The defendant submitted that no claim under the doctrine of utmost good faith was open to the plaintiff because, first, the insurer's duty under that doctrine came to an end under a contract of marine insurance once the insurer had rejected the insured's claim, and secondly, a breach of that obligation (if proved) does not sound in damages. The only remedy of the insured is to rescind the policy and recover the premium. It was also submitted that, in any event, a limitation period of six years would apply to such a claim and the proposed claim is outside that period.

36 The plaintiff rejected the defendant's contentions that the insurer's duty ended once the claim was rejected and that the cause of action did not sound in damages. On the limitation question, the plaintiff argued that an insurer's duty of good faith was a continuing duty. A breach of that duty first occurred when the claim under the policy was considered and refused by the defendant, but the breach continued by reason of the defendant's continuing refusal to pay the claim and its defence of the action. The plaintiff said that the authorities did not refer to any relevant limitation period, but even if it were six years, the defendant's continuing refusal to pay the claim, and its defence of the action, had occurred within the last six years and accordingly no limitation issue arose.

37 It was not in issue on this application that a duty of utmost good faith applied in respect of the contract of insurance. The defendant submitted that the Marine Insurance Act, 1909 (Cth) (the "Act") applied to the contract. I did not understand the plaintiff to take issue with the application of the Act. As the Act applied, by virtue of s 9(1)(d) of the Insurance Contracts Act 1984 (Cth), the latter does not. The significance of that is that s 13 of the Insurance Contracts Act, which implies into a contract of insurance covered by that Act a provision requiring each party to act towards the other party in respect of any matter arising under or in relation to the contract with the utmost good faith, does not assist the plaintiff. That is no doubt why the plaintiff seeks to rely on an implied term, and a breach of a duty of good faith, under the general law.

38 Section 23 of the Act provides:

"A contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party".

39 In Manifest Shipping & Co v Uni-Polaris Insurance Co (The "Star Sea") [1995] Lloyds Rep 651, it was claimed that the insured had breached its duty of utmost good faith in relation to a contract of insurance to which s 17 of the Marine Insurance Act (UK), which is in identical terms to s 23 of the Act, applied. In his judgment Tuckey J noted that the duty of the utmost good faith was not limited to the pre-contractual stage and accepted that it continued throughout the contractual relationship, at a level appropriate to the moment. His Honour, however, went on:

"I think, as a matter of principle, that the English Courts should hold that once insurers have rejected a claim, the duty of utmost good faith in relation to that claim comes to an end ...

When the claim is presented there is obviously a duty, at least not to act fraudulently, and it may be that the duty is rather wider than this, so as at least to require the insured to be honest and open by disclosing the facts relevant to his claim which are unknown to underwriters. In practice, this is what happens because underwriters will not decide whether to pay or to decline a claim until they believe they have been given all the relevant facts.

Once the claim has been declined, however, it must be assumed that underwriters have good reasons for doing so and the parties then become adversaries. There is no reason why adversaries should be under a duty to provide ammunition to one another. This is not to say, of course, that underwriters' defences are set in stone at this stage. Because the matter has become adversarial they may and often will look for other reasons for declining a claim, but I see no reason why the insured should be under a duty to supply them with the information to do so."

40 On appeal to the House of Lords, reported in [2001] UKHL 1; [2001] 2 WLR 170, it was held that once the parties were engaged in litigation the rationale for the duty of good faith no longer applied because the parties were governed by the Rules of Court and, consequently, the duty was superseded by the rules of litigation.

41 The defendant accordingly submitted that conduct after the writ was issued on 28 November 1995 was irrelevant and could not give rise to a breach of a duty of good faith. The only relevant conduct was therefore the original assessment of the claim and the refusal of the plaintiff's claim in May 1995. It was argued that a limitation period of six years applied to the claim and as the relevant events occurred no later than May 1995, it was now statute-barred.

42 The argument for a six-year limitation period was, as I understood it, based on the proposition that the duty of good faith has its origins in equity and that a court of equity applies statutes of limitation by analogy where it is conscionable to do so. In this case it would be conscionable to apply a six-year limitation period by analogy to that applied to claims in contract.

43 I do not think that these are issues properly to be decided on an interlocutory application of this sort.

44 In my view, however, the plaintiff's proposed claim founders on the other ground relied on by the defendant, namely, that a breach of the duty of utmost good faith does not give a remedy in damages. As I have mentioned, the duty does not arise as a contractual duty but rather as an incident of the relationship of insurance: Khoury v Government Insurance Office of New South Wales (supra), at 637. See also Bell v Lever Bros Ltd [1931] UKHL 2; [1932] AC 161 per Lord Atkin, at 227.

45 The question of whether there was a remedy in damages for a failure to observe good faith was considered by the Court of Appeal in Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd (supra). The case concerned insurance policies under which a syndicate of banks was entitled to be indemnified in respect of defaults by a borrower in repayment of loans made by the syndicate. It was held that there had been a breach of the obligation of utmost good faith on the part of the insurers in failing to tell the banks of an act of dishonesty on the part of the bank's brokers. The breach of the obligation by the insurers was pre-contractual. It was clear that rescission of the policy and return of the premium would be an inadequate remedy. At first instance it was held that the banks were entitled to damages. That finding was reversed by the Court of Appeal which held that a breach of the duty did not give rise to a remedy in damages. The Court rejected the argument that the pre-contractual duty of disclosure in a contract of utmost good faith was based on an implied term of the contract. It also held that the duty did not create a tort.

There were four reasons why the Court considered that a tort in that form should not be created. First, the powers of the court to grant relief when there has been non-disclosure of material fact stemmed from the jurisdiction originally exercised by the courts of equity to prevent imposition. Since duress and undue influence as such gave rise to no claim for damages, the court saw no reason in principle why non-disclosure as such should do so. Second, the decision in Container Transport International Inc v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1984] Lloyd's Rep 476 established that, where an underwriter seeks the remedy of avoidance of the policy, the actual effect of the non-disclosure on his mind is irrelevant and what matters is the effect of the non-disclosure on the mind of a notional prudent underwriter. This principle illustrated one of the conceptual difficulties involved in upholding the remedy by way of damages. Third, the clear inference from the Marine Insurance Act 1906 is that Parliament did not contemplate that a breach of the obligation of utmost good faith would give rise to a claim to damages in the course of such contracts. Fourth, since in the case of a contract uberrimae fidei the obligation to disclose a known material fact is an absolute one, and it is immaterial whether the failure is attributable to fraud, carelessness, inadvertence, indifference, mistake, error of judgment or even to the failure to appreciate its materiality, a decision that the breach of such an obligation by itself constituted a tort, if it caused damage, could give rise to great potential hardship to insurers and even more, perhaps, to insured persons.

46 In Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (supra), the Court of Appeal, following Banque Keyser, held that as the obligation of utmost good faith which continued after the making of a contract of insurance arose as an incident of the contract, not from any implied contractual term, and as it was not a tort, it did not give rise to a claim for damages. Having referred to the reasons given by the Court in Banque Keyser for rejecting the proposition that the duty of good faith was either an implied term or a tort giving rise to a claim for damages, May LJ said, at 660:

"Those reasons seem to us to be equally persuasive against regarding the breach of the obligation of utmost good faith, in a contract of insurance, so far as concerns a breach of the obligation occurring after the contract has been made and in the course of the contract, as constituting a breach of an implied term of the contract and as therefore capable of supporting a claim to damages. ... Assuming that the obligation can continue, we see no reason why the source of law of the obligation, or the remedy for its breach, should be different after the contract is made from what it was at the pre-contractual stage."

47 The decision of the Court of Appeal in Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd was subsequently affirmed by the House of Lords, reported as Banque Financiere de la Cite v Westgate Insurance Co Ltd (supra).

48 The plaintiff submitted that in Manifest Shipping & Co v Uni-Polaris Insurance Co (supra) the House of Lords had rejected the argument that the only remedy for breach of the duty of good faith after the contract of insurance had been entered into was avoidance of the contract and argued that damages were available for a post contract breach of the duty. Counsel relied in particular on the speech of Lord Hobhouse at pars 50 - 52 and 57.

49 It does not seem to me that anything said in Manifest Shipping supports that submission. In that case it was not in issue that the conclusion of the Court of Appeal in Banque Keyser (supra), that the duty of good faith did not give a remedy in damages, was a correct statement of the law. But the House of Lords did not accept that the obligations arising under the duty of good faith were the same both before and after the contract of insurance was entered into. Their Lordships, including Lord Hobhouse at the passages referred to, considered that as the only remedy was avoidance, it would be anomalous and disproportionate for the insured to be under the same obligations of disclosure throughout the contract of insurance as it was before the contract was entered into. If it were, the insurer would be able to avoid the policy ab initio by reason of any failure by the insured during the currency of the policy to reveal all facts which the insurer might have an interest in knowing and which might bear upon the conduct of the insurer. Accordingly, it was held that when a claim was made under the policy the obligation of the insured was limited to one of honesty and required that the claim was not made fraudulently.

50 In my view, a cause of action for breach of the duty of good faith does not give a remedy in damages and, accordingly, the proposed amendment of the writ to add such a claim for damages discloses no reasonable cause of action. I would therefore refuse leave to make the amendment.