The approach to construction
37 In McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, Gleeson CJ said at 589 [22] that "[a] policy of insurance ... is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure". (I have omitted citations.) Kirby J expressed a similar view at 600-601 [74].
38 Mr Donaldson submitted that the approach to be taken was that described by their Honours. Mr Cotman did not demur.
Decision
39 The starting point must be the language of the extending paragraph. The introductory words to that paragraph ("Condition 1 of the policy is extended to include the following paragraph") make it plain that the paragraph is to be read as part of (an enlarged) condition 1.
40 Likewise, the introductory words of the paragraph ("Notwithstanding the provisions of conditions 1 and 2") make it plain that the paragraph is intended to qualify the operation of at least condition 1. They also, although perhaps somewhat anomalously, make it plain that the paragraph is intended to qualify the operation of condition 2.
41 The subject matter of condition 1 is, as its heading indicates, misrepresentation and non-disclosure. Unqualified by the extending paragraph, condition 1 gave certain rights to Vero on the occurrence of those events if their effect was as described.
42 The subject matter of (the unamended) condition 2 is "alteration" - that is, as I understand it, material alteration in any insured risk. It too gave rights to Vero on the occurrence of the described events; but it provided the council with an opportunity to avert the consequences of those events by disclosure and payment of any additional premium.
43 The effect of the replacement of condition 2 is to restrict Vero's rights but to impose a duty of disclosure open the council as the price of that restriction. It is unclear how the extending paragraph in fact could ameliorate, in favour of the council, the operation of the amended condition 2. The extending paragraph would only bear on the amended condition 2 if the council had complied with the duty of disclosure that the amended condition imposed. Thus, the condition of amelioration that the extending paragraph prescribes for condition 2 is already a part of the amended condition. Whatever the answer to this anomaly may be (if there is one) nothing in the wording of the extending paragraphs suggests that, in relation to condition 2 its intent or effect is otherwise than to protect the council, and qualify Vero's rights, in the circumstances to which the extending paragraph applies.
44 The last point applies equally to the impact of the extending paragraph on condition 1. In terms, the extending paragraph, so far as it deals with condition 1, operates to protect the council, and to qualify Vero's rights, in the circumstances to which it applies. Those circumstances are to be understood by reference back to condition 1. They are non-disclosure and misrepresentation - the subject of subparagraphs (i) and (ii) respectively in condition 1. Where there are such matters, and where they are unintended or inadvertent, Vero may not exercise the rights given to it by condition 1, provided that the council makes disclosure of the relevant matter as soon as it becomes aware of it.
45 It is implicit in what I have said, but I should make it explicit, that I regard the words "unintended and/or inadvertent" as qualifying each of the matters that follow them, including misdescription of the risk and incorrect declaration of value. The parties intended to protect the council against mistakes, not against the consequences of deliberate (even if "wrong") decisions.
46 So construed, the extending paragraph works as a qualification of the rights given to Vero by condition 1 (and, perhaps, by condition 2 as amended). As a matter of drafting, that appears to be the full extent of its ambition. Why then should it be construed to operate in a wider context? Specifically, why should it be construed to operate as a generally dispensing provision for all mistakes, even those that do not engender any right in Vero (as do those specified in the unamended conditions 1 and 2)? Mr Cotman's submissions did not furnish any satisfactory answer to these questions.
47 The basis of settlement introduced by the partial loss - total loss clause is itself an amendment, effected by endorsement, to the policy. It is an amendment that, in the circumstances to which it applies, specifies the basis of settlement not as the cost of reinstatement, replacement or repair, but as the value specified in a relevant record. The parties must have been aware of the process undertaken by the council each year to have up-to-date valuations prepared by Mr Fullarton, provided to the council and, through council's brokers, provided to Vero. Presumably, the parties were prepared to accept that valuations of property derived through this process, updated from year to year, could be taken as the basis of settlement for the total loss of property so valued and recorded. The effect of Mr Cotman's submissions is to take a provision that in terms is limited to dealing with conditions 1 and 2 only, and to use it to rewrite entirely this aspect of the parties' bargain.
48 By contrast, the construction for which Vero contends fits neatly into the contractual scheme. It recognises the basis of settlement, and protects Vero in the event of any misrepresentation of value. It would apply as much to over-valuation as to under-valuation. Indeed, it would apply to an innocent but totally wrong valuation: for example, one proceeding from a transposition error.
49 It may be, as Mr Cotman submitted, that some anomalies might follow from the operation of the policy for which Vero contended. But the possibility of an anomaly does not seem to me to justify the rewriting of the bargain in the way for which, in effect, the council contends.
50 In circumstances where the ordinary meaning of the language of the extending paragraph gives it work to do, and fits logically in the overall scheme of the policy, I do not think that the paragraph should be construed to operate beyond the apparent limits of its words.
51 I add two things. The first is that I do not agree with the proposition that the alleged incorrect declaration of value has prejudiced the council in any relevant way. The prejudice with which the extending paragraph is concerned is prejudice that would flow from the exercise of rights under condition 1 or condition 2. It is not the impact, on the quantum of indemnity, of the alleged mistake.
52 The second point is that I do not accept the proposition that the council may be exposed to an obligation to pay a higher premium. As between the parties, and in the events that have occurred, the value of the NES Hall is settled at $322,000. Vero contends for that as the value for the purposes of indemnity. It could not, consistent with the stance it has taken in these proceedings, contend for another, higher, value for the purposes of recalculation of premium.
53 The second question should be answered "no".
Third question: error or misdescription?
54 Neither party submitted that this question should be answered in any different way to the second question. Indeed, their submissions addressed both questions alike and without differentiation. For the reasons that I have given in relation to the second question, the third question should be answered "no".