Four Seasons Jewellers Pty Ltd v Assetinsure Pty Ltd

C. The Proceedings 52Proceedings were commenced by Four Seasons for damages for breach of contract by the insurer in refusing the claim under the policy. The loss and damage claimed was $388,631. This sum equalled the cost price of the jewellery stated in the claim form, including the personal jewellery worn at the time but not including the cash amount of $18,000 and deducting an excess of $1,000. No particulars of the sum of damage are provided, other than it is "the value of the goods stolen". 53The insurer filed a very brief defence admitting the policy, not admitting the armed robbery or the damage, and denying that the insurer was in breach of the policy in denying the claims. No reference was made to non-disclosure or inadequate maintenance of records. It might be inferred that the insurer had decided to abandon these defences. 54In any event, shortly prior to trial the insurer sought leave to file an amended defence raising issues of non-disclosure and inadequate maintenance of records but this application was unsuccessful. The application was renewed at trial and rejected (see Four Seasons Jewellers Pty Ltd v Assetinsure Pty Ltd [2012] NSWDC 65).

Further issue 55Although the proceedings were commenced in the name of the company, Four Seasons Jewellers Pty Ltd, the insured on the policy was named as "Paul Hanna trading as Four Seasons Jewellers Pty Ltd". Further, one of the issues ventilated in the evidence concerned whether Paul Hanna owned some or all of the jewellery the subject of the claim. The proceedings as then constituted would not deal with any claim under the policy which may be maintained by Paul Hanna. 56In order to avoid a possible multiplicity of proceedings, to ensure appropriate parties were joined, and to ensure that the Court could determine all the genuine issues in the dispute, the matter was re-listed to enable the parties to address the Court on this issue. 57Initially, Four Seasons utilized this opportunity to seek to join Mr Hanna as a plaintiff to the proceedings. This may have removed any need for the Court to determine which of the jewellery was owned by Mr Hanna, and which was owned by Four Seasons. However, after certain matters were raised by the insurer, including the possibility of prejudice and a desire to apply to widen the scope of the defences, Mr Boyd of counsel appearing for Four Seasons and Mr Hanna, abandoned the application, acknowledging that Mr Hanna might face an Anshun estoppel argument in the event that Mr Hanna should in the future make a claim under the same policy. 58Accordingly, no claim for loss was maintained by Mr Hanna personally. 59The insurer did not contend that Four Seasons was not the insured under the policy. Nor did the insurer actively dispute the occurrence of the robbery. I find that the robbery occurred.

Issues 60The issues raised by the proceedings are: (a)What jewellery was taken in the robbery. (b)Who owned that jewellery the subject of the robbery. (c)What quantum of loss was Four Seasons entitled to be reimbursed under the policy. 61Although Mr Hanna gave evidence that jewellery was taken in the robbery, the primary evidence for the precise jewellery taken is that contained in the stocktake schedule described earlier in this judgment. 62The insurer challenged the probative value of the schedule. However, there was no evidence to counter the evidence of Mr Hanna and Mrs Bennett-Parizian, and the document itself, that the schedule was what it appeared to be, namely a record of the jewellery held as at September 2008. I accept the schedule for that purpose. 63Four Seasons submitted that as a result of the separation agreement, the jewellery specified on the schedule was transferred from Sparkling Jewellers to Four Seasons, and the cost price shown on the schedule was the "historical cost price" to Four Seasons for the purposes of section 1 of the policy. There are a number of difficulties with this submission. 64First, the separation agreement, to the extent that it transfers property or recognises ownership, vests that property in Mr Hanna, not in Four Seasons. In the absence of further evidence, the schedule neither proves the ownership of Four Seasons nor the cost to Four Seasons of the jewellery. 65Secondly, Ms Bennett-Parizian was confronted with tax returns during her cross-examination. These returns showed a relatively small amount of closing stock of Sparkling Jewellery for the 2008 financial year, the sum of $48,872. This amount can be contrasted with the large amount of jewellery (at a cost price of $284,777.25) shown in the schedule resulting from the stocktake in September 2008. Ms Bennett-Parizian gave evidence in re-examination to explain this difference. She testified that most of the jewellery on the stocktake belonged to Mr Hanna, and therefore the stock of Sparkling Jewellers was limited: Q. You've been asked a number of questions about tab A which is before you. You mentioned in answer to a question from my learned friend that something happened in relation to the stock numbers, could you tell the Court what happened, please? A. Yes, I do. This document was put together for the purpose of our splitting assets. The jewellery that Paul had when he came into the marriage did not all go into my business. He still kept the more expensive items aside, especially since when I first started there was an armed robbery so they were not included. (T264/45 - 265/5) ... Q. Before the break I was asking you some questions in relation to annexure A that you were shown and the stock numbers in your tax return. You said something happened. Would you explain to the Court, if you would, what happened? A. This printed document you see of stock was put together for the purpose of our settlement our personal financial settlement. It was not all stock I personally had in the shop. Part of it was what Paul had from whatever previous times what he made in preparation for his take over, and it was certainly not a tax document. It was merely for us to work out how to do the split evenly, and that's why that was there. So that it just basically showed our assets, not my business' assets. (T268/25-35) 66This was contrary to the evidence of Mr Hanna who testified that his jewellery was given to Sparkling Jewellers in 2003 (T215) and that the stocktake spreadsheet recorded all of Sparkling Jewellers' stock. In his affidavit, Mr Hanna deposed: "7. When I took over the Sparkling Jewellers business from 5 November 2008 the cost of the stock transferred from Sparkling Jewellers to me was the cost value as set out in the stock spreadsheet." 67Thus, Ms Bennett-Parizian's evidence explained her tax return, but it created other problems for Four Seasons. Her evidence and her tax returns suggested that the stocktake was not a record of the jewellery owned by Sparkling Jewellers nor did it record the property transferred to Four Seasons at the time of the separation. Rather, Mr Hanna had always owned a substantial amount of the jewellery recorded on the stocktake. 68Thirdly, the evidence of Mr Hanna quoted above in [66] is to the same effect as the separation agreement, namely that the stock was transferred to him, not to Four Seasons. 69Further, I was not comfortable relying upon the markings on the schedule as a record of the jewellery that was taken in the robbery. Although the items wholly ruled through may have been a proper record of the items that remained after the robbery, I was not satisfied that the items ticked (and subsequently partly ruled through) comprised a complete record of the items sold before the robbery. To do so would require me to conclude that the items were always ticked after a sale. Two matters indicated otherwise. 70First, the exhibited copy of the schedule did not invariably display these ticks. I was unable to conclude whether that omission may have been due to poor photocopying. 71More importantly, this method of ticking, or checking off, items in the schedule when they were sold was not replicated in respect of items purchased after September 2008 and sold before the robbery. There was no contemporaneous record made of those sales. No explanation was proffered for the differing treatment between items on the schedule and items purchased thereafter. 72Accordingly, there was an absence of appropriate record keeping. I am not satisfied that all the items sold prior to the robbery were ticked. I think it likely, given the poor record keeping, that as at the date of the robbery some of the items may have been sold but not ticked so as to indicate a sale. It follows that the schedule was not a reliable record of the items, or even part of the items, taken in the robbery. 73Moreover, as I indicated earlier, the evidence compels me to conclude that the schedule was a record of, or at least included, items which belonged not to Four Seasons but to Mr Hanna. The proposal form itself, it may be noted, indicated by the repeated deleted references to "his own personal jewellery $140,000" that a substantial amount of jewellery, perhaps to the value of $140,000, may have been owned by Mr Hanna personally. 74In these circumstances, I was left to conclude that in January 2010 Mr Hanna controlled a substantial amount of jewellery, but there was no evidence of its value (the schedule not being evidence of value), and I was not satisfied of the particular items held. There was also no evidence that the jewellery on the schedule became the property of Four Seasons, there being no evidence of any transaction which led to Four Seasons obtaining ownership of the jewellery. 75I have noted earlier that section 1 of the policy provided, under the "Basis of Settlement of Claims" clause, that settlement of a claim was to be "negotiated on...historical cost price as evidenced by the Insured's books kept in the normal course of business". 76It was common ground that this clause stated the entitlement of Four Seasons to compensation for loss under the policy. The insurance clause provided for "indemnity...as detailed in the coverage sections" and this clause was contained in the relevant coverage section. 77Accordingly, Four Seasons was entitled to "the historical cost price as evidenced in the Insured's books". 78The evidence included some taxation records of Four Seasons, including a business activity statement ("BAS") of Four Seasons covering the December 2008 quarter. This statement covered a period including the date of the separation agreement, 5 November 2008, which, as I have noted above, was said by Mr Hanna to be the time when transfer of the jewellery from Sparkling Jewellery occurred. 79On the occasion the matter was re-listed to consider the joinder of Mr Hanna, the parties were referred to these documents and made submissions in respect of them. The BAS lodged on 26 March 2009 and covering the October to December 2008 quarter (Ex 9, p 177) showed non-capital purchases of $111,494 of which (Ex 9, p 209) $104,242.83 was referable to stock purchases in that quarter. 80The insurer submits that these documents have no relevance as they relate to a different company namely, Four Season Sign and Painting Pty Ltd. I do not accept this submission. The incomplete statement prepared on 29 January 2009 (Ex 9, p 194) contained this name, but the completed statement lodged on 26 March 2009 (Ex 9 - see also p 209) had Four Seasons' name, or at least the name I take to be equivalent to Four Seasons, namely Four Season Jewellry Pty Ltd. More significantly, the Australian Business Number ("ABN") of 80 122 210 824 was unchanged. I would infer that the corporate vehicle 80 122 210 824 had a name change from "Four Season Sign and Painting Pty Ltd" to "Four Season Jewellry Pty Ltd" in the latter part of 2008 after the settlement agreement when Mr Hanna took over the operation of Sparkling Jewellers. 81The name of Four Seasons on the court documents is identical to the corporate vehicle referred to in the insurance policy. There is no evidence confirming whether this name is a mistake or is the correct name of "Four Season Jewellry Pty Ltd" as reflected in the 2009 financial documents, or whether the name of the corporate vehicle was changed again by the time of the proposal, policy and claim, each of which refer to "Four Seasons Jewellers Pty Ltd". In any event, no issue has been taken about the difference between "Four Season Jewellry Pty Ltd" and "Four Seasons Jewellers Pty Ltd", and I propose to proceed on the basis that Four Seasons, as named in the proceeding, is a name of the corporate vehicle with the ABN 80 122 210 824, which is the ABN reflected on all the documents to which I have been referred to in the evidence. 82The 2009 tax return of Four Seasons was also in evidence and referred to in submissions. It indicated a closing stock of $375,244 (Ex 9, p 214). Much of this closing stock appears to have been derived from purchases of $289,915 made in the July to September 2009 quarter, according to the relevant BAS. 83However, the reliability of these records was questioned because they were both created after the robbery. Nor was there any explanation for the significant purchases in the July to September 2009 quarter; no other records or invoices were tendered in support of this amount and it was inconsistent with the case presented by Four Seasons which relied predominantly on the purchase in September 2008 of the items or the stocktake schedule. I could not ignore that there was an incentive for Four Seasons to exaggerate purchases in two respects: it supported the claim against the insurer, and also purchases recorded on a BAS operated in favour of the taxpayer, entitling it to an input tax credit of one-eleventh of the purchases, and usually a substantial refund. 84The insurer submitted that "Four Seasons has not discharged its onus of proof in relation to establishing what stock was present at the business on 18 January 2008, and the historical cost price of it". However, I have found that a robbery did occur and jewellery of Four Seasons was taken. It follows that, subject to the words of the policy, I must do my best to assess the level of the loss on the evidence, even if there is no clear evidence of a particular value. 85In these circumstances, I propose to act upon the last record in evidence in the proceedings which was prepared prior to the robbery. That is, the BAS for the December 2008 quarter (Ex 9, p 177). As indicated above, it shows non-capital purchases of $111,494, and an accompanying summary table (Ex 9, p 209) indicates that this comprised $104,242.33 of stock. Sales for that quarter are shown as $41,478 inclusive of GST. The schedule indicates a mark-up of 100% (or gross profit on sales of 50%) thereby indicating that the cost of the goods which produced $41,478 in sales was 50% of this figure, or $20,739. On this analysis, $104,242.33 (cost of purchases) minus $20,739 (cost of sales) of stock remained from the December 2008 quarter, that is $83,503.33. The records do not indicate that closing stock remained from the September 2008 quarter (Ex 9, p 209). 86This December 2008 quarter included the date of 5 November 2008 when the stock listed in the Sparkling Jewellers schedule was transferred under the separation agreement. I am satisfied that the whole or part of the Sparkling Jewellers' stock (perhaps with other stock) was acquired by Four Seasons at a cost of $104,242.33. Accordingly, I find that $83,503.33 of stock was held at the end of the December 2008 quarter and that this included whatever stock in the schedule was transferred to Four Seasons (and remained unsold). 87There is no reliable evidence as to the extent of purchases and sales after this date, although there remained a further twelve months before the robbery. Doing the best I can do, I am prepared to infer that stock levels were at this same level on the date of the robbery. I have no evidence which persuades me of the contrary. 88The insurer also contended that there was no "historical cost price as evidenced by the Insured's books kept in the normal course of business". Whether or not this matter was a pre-condition to recovery, I am of the view that it was satisfied here. I accept that the December 2008 BAS and the accompanying table prepared prior to the robbery are part of the "Insured's books kept in the normal course of business", and those two documents do evidence the "historical cost price" of the stock acquired in that quarter. 89Mr Hanna testified that 95% of the stock on hand on 18 January was stolen (T205/28). I accept this evidence. 95% of the stock of $83,503.33 produces a cost value of the stolen stock of $79,328.16. 90Accordingly, I find that Four Seasons is entitled to an award of $79,328.16 for the cost of Four Seasons' stock lost in the robbery. The precise jewellery taken in the robbery, and the ownership of the particular stolen items, are matters of which I am unable to be satisfied on the balance of probabilities. However, given the view I have taken of the matter, that is not fatal to Four Seasons' case.

Other issues 91A number of other issues were raised by the parties. Four Seasons submitted that admissions were made in the pleadings by the insurer that Four Seasons is a beneficiary under the policy, and that indemnity is available. Neither of these admissions, even on the widest construction of them, concede the quantum of loss suffered by Four Seasons. Accordingly, I do not find a greater quantum of loss admitted by the insurer, and the pleadings do not operate to change my view of the amount of loss, determined previously in these reasons. 92Four Seasons also relied upon "The Property Insured" clause of the policy, which provided: The Property Insured: Stock and merchandise (including sample cases) used in the conduct of the Insured's business and cash and negotiable documents, whether the property of the Insured or entrusted to the Insured for any purpose whatsoever. 93Four Seasons submitted that "any stock found to be owned by Mr Hanna and used in the business was entrusted to Four Seasons by Mr Hanna" and that "this inference is irresistible from the evidence that the jewellery Mr Hanna owned was entrusted to Four Seasons for the purpose of sale from the business premises". 94The particular evidence that leads to the "irresistible inference" was not identified by Four Seasons. I am unable to identify it. It seems to me somewhat artificial to assume that jewellery owned by Mr Hanna was entrusted to Four Seasons for sale. It seems more likely that Mr Hanna, if he did seek to sell his personal jewellery did so without "entrusting it" to his company or anyone else. I do not have any evidence that Mr Hanna's personal jewellery was sold, let alone sold "by the company". 95Four Seasons also relies upon ss 16 and 17 of the Insurance Contracts Act 1984 (Cth). I do not see that those provisions entitle Four Seasons to recover for any loss suffered by Mr Hanna. Four Seasons submits that it suffered lost profit, being unable to sell Mr Hanna's stolen jewellery. Again, I am not persuaded of this principally because there was no evidence that persuaded me that Four Seasons at any stage sold Mr Hanna's personal jewellery, nor was there any evidence of an arrangement resulting in profits to the company if it did so. 96Four Seasons has claimed interest under s 57 of the Insurance Contracts Act 1984 on the unpaid amount of loss from the date of the robbery to judgment. The insurer submitted that Four Seasons at no stage produced documents evidencing the proper quantum of the claim, and so it never became entitled to indemnity from the insurer. 97Section 57 provides that interest is to be paid from the date "from which it was unreasonable for the insurer to have withheld payment of the amount". Interest runs until payment. 98There is a difficulty in assessing the date from which the insurer acted unreasonably in withholding payment. 99I have found that the December 2008 BAS and the accompanying summary table provide evidence of the quantum of loss. These documents were not provided to the insurer by Four Seasons but by Four Seasons' accountant after service of a subpoena in the proceedings. Neither party gave evidence of the date of production, but in any event, it must have been at some date after the commencement of the proceedings. 100In these circumstances, the insurer was entitled to withhold payment until it received or was able to obtain the December 2008 BAS. I would infer that the insurer could not obtain that statement at least until after the commencement of proceedings. 101Regulation 32 of the Insurance Contracts Regulations 1985 provides a formula for calculating interest under s 57 of the Act, by adding 3% to the 10-year Treasury Bond yield. Neither party has provided evidence of that rate. Nor can I determine the precise date when payment by the insurer will occur. 102I propose to infer that the average 10-year Treasury Bond yield was 4% over the period since the proceedings commenced. This would produce an interest rate of 7%. I also propose to allow this rate for twelve months, being for the period from about three months after proceedings commenced until an anticipated payment date in August 2012. 1037% of $79,328.16 is $5,552.97. Thus, the loss plus interest amounts to $84,881.13. 104In accordance with clause 16 of the policy, quoted earlier, the insurer is obliged to pay the Goods and Services Tax ("GST") inclusive cost of the claim, but may reduce that amount by the value of any input tax credit to which Four Seasons may be entitled. 105Neither party has addressed me on this matter. I have previously given a decision on the application of GST to damages awarded in a judgment (The Barrington Services Group Pty Ltd v Bossy [2012] NSWDC 82 at [108] - [115]). On the authority of the Court of Appeal decision in Gagner Pty Ltd (t/as Indochine Café) v Canturi Corporation Pty Ltd (2009) 262 ALR 691; [2009] NSWCA 413 at [147] - [159], an award of damages in a judgment is not, by itself, sufficient to attract GST. But as I indicated in the earlier decision (at [110]), if there is a sufficient nexus between a taxable supply and the payment of damages, the payment may be consideration for that supply and a GST liability would then arise (see the Australian Taxation Office Ruling GSTR 2001/4). 106Four Seasons was entitled to an input tax credit on the insurance premium (Ex 9, 209) and received an input tax credit on the goods that were stolen (Ex 9, p178). So also an insurance payment in respect of the stolen goods is a taxable supply and would give rise to a GST liability. 107It seems to me that there is a nexus between an insurance payment, which is subject to GST, and the damages awarded. The sum is identical, because the damages are calculated on the basis of the insurance entitlement. It follows that receipt by Four Seasons of the judgment amount would give rise to a liability to GST, and so the judgment sum should include an amount for GST. 108Further, as indicated the insurer did not contend that it would, or would be entitled in the circumstances, to reduce the insurance liability by the value of any input tax credit. 109As the loss calculated in [103] above is inclusive of GST (see [85] above) there is no need to adjust the amount. 110The parties also made submissions on the application of the co-insurance provision in clause 23. This provision seems to me to have no application, since the Sum Insured significantly exceeds the total value of the property owned by Four Seasons at the time of the robbery, on my findings. 111I turn to the question of costs. 112The usual rule is that Four Seasons having succeeded is entitled to its costs. Such an order would of course be subject to any adverse order made in respect of particular costs in the proceedings. Neither party has submitted that the usual rule should not apply. Accordingly, I propose to order the insurer to pay the plaintiff's costs. 113If either party wishes to make further submissions about costs, those submissions can be provided, in written form, maximum two pages, within seven days of this judgment. Any affidavit in respect of costs should be filed and served by the same date. Subject to that matter, I make the following orders.

D. Orders

1. Judgment for the plaintiff in the sum of $84,881.13.
2. Order the defendant to pay the plaintiff's costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 August 2012