Framar Money Management Pty Ltd v Territory Insurance Office; John Villias Kelton, Baillieu Bowring Marsh and Mclennan PTY LTD [1986] NTSC 52; 87 FLR 251

became entitled to, and did, avoid the policy by letter to the plaintiff dated 24 August 1983. 5. No matters are raised by the plaintiff by way of reply to the defence, though having regard to the way in which the action was conducted and the evidence put before the court, I would have expected that there would be a reply raising waiver or estoppel, or both. I will refer to this matter later in these reasons. 6. I will deal first with the case by the plaintiff against the first defendant. 7. The first question to be considered is whether a contract of insurance was effected between the plaintiff and the first defendant, and, if so, for what period of time and what were its terms. It was admitted on the pleadings that the first defendant issued a policy of insurance (No. 1015834) to cover the interests of the plaintiff and/or its related and/or its subsidiary companies for their respective rights and interests in certain property situated at Ranger Uranium Site, Jabiru in the Northern Territory, but the first defendant claimed that the policy was only for the period commencing 7 September 1982 until 3 October 1982. In the end, however, it conceded that the policy in fact took effect (as it obviously did) from 9 July 1982, and was therefore in existence at the time of the loss, i.e., 31 August 1982. Furthermore, although this was not admitted on the pleadings, the first defendant conceded that a contract of insurance initially came into effect on 9 July 1982 as a result of an arrangement made between a Mr Swan on behalf of the first defendant, and Kelton as Broker for the plaintiff. 8. The next matter raised by the first defendant, in its defence, is that the plaintiff, Framar Money Management Pty. Ltd., had no insurable interest in the property insured. To answer this question, as well as other questions that must be considered later, it will be convenient if I now set out the background to the dispute, and make some review of the evidence. THE FACTS 9. Since about the year 1973 Francesco Antonio (Frank) Martino ("Martino") and his wife, Maria Rosaria Martino, have carried on a business of providing catering and associated services for construction camps in various remote parts of Australia. Initially, the business was conducted under the business name of the Australian Caterer, but on 24 June 1980 that firm was incorporated as the Australian Caterer Pty. Ltd. On 3 December of that same year another company, Framar Money Management Pty. Ltd. (the plaintiff), was also incorporated to carry on some part of Mr and Mrs Martino's business activities. Again, at some time after that, and before the end of the financial year ending 30 June 1981, as a result of advice given to them by a person calling himself "Dr. Peter Clyne, International Tax Attorney", Mr and Mrs Martino had a series of other companies incorporated, nine in all, and they transferred various parts of their business operations to those companies. The object of all those arrangements was, of course, to minimise their liability for tax. Mr and Mrs Martino were, and are, the sole directors and shareholders of all those companies. 10. At some time about 1978, the Australian Caterer (to use an expression which, I think, is generally descriptive of Mr and Mrs Martino's business activities) was awarded the contract to provide the catering and other services for Ranger Uranium Mines ("Ranger") near the township of Jabiru. It was a very extensive contract which included, in addition to catering services, the provision of a Wet Mess and Supermarket, Town Garbage Disposal, Laundry facilities, a Picture Theatre, a swimming pool, a Library, a Post Office and Banking facilities and a Takeaway Food Shop. At its peak, some 1500 people were engaged in the construction workforce and were being serviced by the Australian Caterer. The construction camp was about 6 or 7 kilometres from the actual Mine Site, and about 12 kilometres from East Jabiru township. The camp was in two parts, the Wages Camp and the Staff Camp. The Wages Camp was at Boonjinni, and the Staff Camp at Koonjimba. Martino employed some 92 or 93 workers at the camp. The buildings that made up the camps were owned by Ranger. 11. The Australian Caterer's contract with Ranger was due to expire on 30 June 1982, by which time construction work would be finished. For some time before that date, however, another uranium mining project had been in the course of planning. It was the Denison Mine Project at Koongarra, and work was planned to commence on it on 1 October 1982. Not unnaturally, Martino was keen to obtain the contract for the catering for that camp site. In fact, by March or April of that year, as a result of discussions he had had with representatives of Denison, he had been told that he had in fact secured the contract. At about that time also, he said, he learnt that Ranger wanted to sell the Kitchen/Mess complex at the Boonjinni camp, it not having been used since about September/October of the previous year. That complex consisted of 20 demountable units altogether, one section forming the kitchen complex with all the facilities, and the other forming the dining room/servery complex. At first the whole complex was put up for auction, but was handed in when there was no bid that reached the reserved price. Afterwards, it appears, Henry and Walker offered the Auctioneers, Loveridge Mining, $27,000 for it, but that offer was not accepted. In the end, Martino offered $30,000 for it, but only after having some discussions with a Mr Ron Spencer, the Project Manager for Denison's Koongarra project. The significance of those discussions will appear shortly. The offer was accepted, and the sale completed some time in May 1982. Although the deposit and the balance of purchase money for the complex were paid out of funds of the Australian Caterer Pty. Ltd., Martino said in his evidence that it was in fact purchased as an asset for Framar Money Management Pty. Ltd. which was the company owning all the movable assets of his business. It was, in fact, he said, transferred to Framar Money Management Pty. Ltd. "almost straightaway". 12. Martino said he was very pleased indeed with his purchase, and, as will appear, he had good reason to be. He referred to it in his evidence as "the sale of the century", and "like winning the lottery", and so it may well have been, for, before making his offer, he said he had in fact arranged with Denison that they would buy it from him for transportation and installation on the Koongarra camp site when that project was ready to start. He said it was agreed by him with Denison that the price they would pay for the complex would be a price within their budget, which they disclosed to him would be $400,000 plus installation of $50,000. Although seemingly a large sum, there was evidence before me that that was, in fact, very close to the replacement cost of the complex at that time. 13. Martino's experiences at the Ranger Uranium site were not, however, all as successful as that. On 10 July 1981, the year before, there had been a fire at Ranger's Boonjinni camp in which he had lost about $2,000 worth of stock, and equipment to the value of about $10,000. They had been stored in the premises at the time. That stock and equipment were not insured by Martino, and it did not come within the terms of the insurance policy held by Ranger. The loss, therefore, was borne by Martino's companies. 14. And then, later that same year, in November 1981, Martino's business suffered a further misfortune when a Ford Louisville Refrigerator Truck carrying some $29,000 worth of stock from Adelaide to some of his service outlets at Jabiru rolled over on the way and was destroyed by fire. There is no evidence as to who the haulier was, or who owned the truck, or what insurance, if any, there was on it. Martino, however, had not insured the stock himself, and again his business had to bear the loss, though it seems that he reached some agreement with the haulier for credits to be given to him. 15. And then, again, on 26 June 1982 Ranger had another fire, this time in the kitchen of its Koonjimba camp. Destroyed in the fire were also goods to the value of about $5,000, and equipment worth between $3,000 and $4,000 belonging to Martino's business. Once more, the goods and equipment were not insured by Martino, and were not covered by Ranger's insurance, with the result that Martino again had to bear the loss. 16. Having heard of the fire at the Koonjimba camp some few days after 26 June, Martino went to Jabiru on 2 July to inspect the damage. There he met a Mr Haywood, a Loss Assessor, and had some conversations with him about the fire and the losses sustained. Martino said in his evidence that he was very upset at the time over the further losses he had sustained, and Mr Haywood, agreed that that was so. In the end, at some time during that day, Martino had a discussion with Mr Haywood in which he said he told him about his problems with losses, and Mr Haywood gave him some advice about insurance. The advice he said he gave him was that he should take out a policy known as an Industrial Special Risks (I.S.R.) Policy, which was a multi-risk type of policy based on the reinstatement value of property lost or destroyed. Mr Haywood said he did not recall having given that advice to Martino, though he agreed he might have done so. I am quite satisfied on the whole of the evidence that Mr Haywood did in fact give some such advice to Martino, and that it was as a result of that advice that some days later, Martino went to see a Mr Jim Swan ("Swan") at the Territory Insurance Office to arrange that kind of insurance. At the time Swan was the Senior Underwriting Officer at the Darwin Branch of the Territory Insurance Office, and was Second-in-Charge of that Branch to the Manager, Mr Hobbs ("Hobbs"). Martino said that he went to see Swan because he had had previous dealings with him in relation to his insurance arrangements going back to about October/November 1978. 17. When Martino arrived at the T.I.O. he said Swan was not available to see him, and so he saw someone else. He told that other person that he wanted an I.S.R. Policy, but that person, he said, was not interested in his business, and accordingly Martino went to leave the office. As he was walking towards the door, however, he saw Swan at his desk, and went over and spoke to him. 18. What exactly was said in the course of that conversation between Swan and Martino was the subject of sharply conflicting accounts of it given by each of them. According to Martino, when he spoke to Swan, he told him of the bad luck he had had with fires and of the losses he had suffered. In particular, he said he mentioned the Ranger fire of July 1981, the refrigerator truck that had rolled over in the previous November, and the latest Ranger fire of 26 June. He further said he also told him that he had recently bought a Kitchen/Mess at Jabiru which he was going to use for the Koongarra project and that he would like to have it covered by insurance. He said he told Swan he had got it for $30,000, and was going to make a lot of money out of it. He said he also told him of other problems he had had with his insurance arrangements, and that he did not know what was insured and what was not. At that, he said, Swan told him that he would like to cover him for insurance, but that he should have the assistance of a Broker. Thereafter, upon some importuning by Martino, he said Swan gave him the name of a Mr Kelton to go and see at Baillieu Bowring Marsh and McLennan Pty. Ltd. 19. On the other hand, Swan said that, although he had in fact had previous dealings with the Australian Caterer, and knew of Martino's connection with it, he had not previously met Martino himself. He said his dealings had been exclusively with a Mr Lindsay Krinks, a former employee of Martino's. As part of those previous dealings, however, he said he himself had issued Marine Transit Policies, a Motor Vehicle Policy, a Fire Policy and a Public Liability Policy to Martino's companies. He said he was also aware of a Workers' Compensation Policy which had been issued by the Territory Insurance Office before he had joined it. He agreed, however, that Martino did come to see him at the T.I.O. early in July 1982, and asked him about insuring some of his properties under an I.S.R. Policy. An Assessor, Martino said, had told him that an I.S.R. Policy was the kind of insurance he should have. Swan said Martino wanted to know more about it. He said Martino also told him that he had just bought a large movable Mess near Jabiru which he was going to move to another site to conduct an operation similar to the one he had been conducting at Jabiru. He said Martino did not tell him how much he paid for it. Swan said he thought the new site was at Jabiluka. He agreed, however, that Martino wanted to insure that Mess, as well as some properties he had in Tennant Creek, which Swan understood to be Hotel or Motel type operations. These properties, Martino told him, were at that time insured with F.A.I. In the end, Swan said he told Mr Martino he should go and see a Broker, and he gave him the names of three Brokers, one of whom was Baillieu Bowring, the third defendant. He further told him that if he went to Baillieu Bowring, he should see John Kelton, the second defendant, with whom Swan had previously worked in an insurance business. 20. The significant area of dispute between the evidence of Martino and that of Swan is in relation to what (if anything) Martino told Swan as to his series of misfortunes from fires. Swan denied that Martino had complained to him of the bad luck he had had with fires at Jabiru, and from the Ford Louisville Truck rolling over and catching fire. He denied that Martino told him anything about those incidents. In fact, he denied that he had any knowledge at that time of any fire from which Martino had suffered loss except a fire in 1979 in some premises of his at 46 Paterson Street, Tennant Creek. He said he did not think a great deal of damage had been done in that fire, that it was a fire of "small substance". He said he believed he had been told about that fire either by Hobbs, the Manager of the Territory Insurance Office, or his own brother, Jerry, who is also in insurance, and who spent a lot of time in Tennant Creek. In fact, the fire in 1979 at 46 Paterson Street, Tennant Creek had been a substantial fire in which a Pizza Bar, Restaurant and Bakery at that address were completely destroyed. The building was insured for $60,000 with the New Zealand Insurance Company Limited, a claim in respect of that damage was made by Martino, and he was paid some $29,000 for it. Subsequently, the building was rebuilt by him at a cost of $350,000, with new equipment costing some $110,000 - $112,000. That fire had in fact been disclosed to the T.I.O. by Martino, on behalf of the Australian Caterer Pty. Ltd., when he completed a proposal for Fire Insurance with the T.I.O. on 17 July 1981. That was a proposal to cover equipment stored by Martino's company at Jabiru, and the amount of cover sought was $100,000. The proposal was accepted by the T.I.O. and a policy issued. 21. Reviewing this evidence as a whole, I must say that, on the whole, I found Martino's account of his conversation with Swan much more inherently credible than Swan's account, though I think he was guilty of a good deal of embellishment in what he said he told Swan. I have no doubt that Martino is an astute business man, but, observing him as he gave his evidence, he is also obviously a very excitable and talkative person. As Mr Haywood agreed, he was obviously very upset at the loss he had suffered when Mr Haywood saw him at Jabiru after the fire of 26 June, and, after all, it was the loss suffered in that fire and others, as well as the advice given to him by Mr Haywood, that led to his going to see Swan to get some insurance. I think then the probability is that he did tell Swan of his run of bad luck, as he said he did, and that he did tell him something, at least, of his succession of losses. In particular, I cannot think he did not tell him of the most recent fire of 26 June (as Swan claimed), and I think the likelihood is that he also told him of the other Ranger fire of 10 July of the previous year, as well as of the truck rolling over in November of that year. After all, those were fairly recent events, and must have been present to Martino's mind as incentives for seeking insurance. Besides, I do not see any reason Martino could have had at that time for concealing those happenings. He was well known amongst those in the Insurance Industry, and, in particular, to the T.I.O. Hobbs knew of him, as did Swan, and Swan's brother Jerry, who, he said, had spent a lot of time in Tennant Creek. It would have been pointless then for him to have set out to deceive the T.I.O., if indeed he had any mind to do so. 22. On the other hand, I think Swan did know a good deal about Martino's previous history of losses, certainly much more than he admitted to knowing. I think that is evident from what I have said above, but it was also confirmed by the impression I gained observing him as he gave his evidence. To me, he seemed quite ill at ease, he was evasive in many of his answers, and seemed reluctant to admit knowing anything more than he obviously had to admit knowing, i.e., what had been disclosed in the proposal for Fire Insurance of 17 July 1981, namely, the fire at 46 Paterson Street in 1979. Swan said he could not remember whether he had made a note of his conversation with Martino; he said none had been found. I feel, then, that little, if any, reliance can be placed on what he said, except to the extent that it is supported by other evidence. 23. Following his discussion with Swan, Martino then did go to see Kelton at the office of Baillieu Bowring. That was on 9 July 1982. Again there is a good deal of conflict between the account of that meeting given by Martino and that given by Kelton. I will consider the principal matters in conflict shortly, but, before I do that, I think there are some findings I can confidently make. First of all, I accept Kelton's evidence that, before the meeting with Martino, he received a phone call from Swan in which he said that he (Kelton) might be contacted by a Mr Frank Martino, that he was an existing client of the Territory Insurance Office, that he had a large catering business with assets and business interests in other States, and that he needed the services of a Broker to co-ordinate his insurances. Furthermore, I accept Kelton's evidence that Swan also said to him "something like 'he's got a bit of a claims history, but we're not worried about that'", and that he mentioned that he had had a substantial fire at Tennant Creek, but went on to say "we'd still be happy to take him as a client." And then, it is common ground, I think, that when Martino saw Kelton he told him generally about his business activities, and, in particular, of the rearrangement of his company structure following the advice given to him by Dr. Clyne. In fact, Martino gave Kelton the list of his companies, and the parts they were to play in his business activities as prepared by Dr. Clyne; Kelton made a photocopy of it for his file. I think it is also common ground that while Martino told Kelton that he wanted him to rearrange his insurances generally, and in fact gave him written instructions to do so, he told him that his immediate concern was a building and installation at Jabiru which he wanted insured there and then. He gave him details of the building. He told him he had recently bought it, that it was going to be shifted to a site at Koongarra, and that he had an amount of plant, stock and equipment in it that he also wanted insured. He told Kelton that the building was not occupied or in use any more, but that there was a Security Guard constantly patrolling the premises. He said someone had advised him that an I.S.R. Policy would be a suitable one for the building, and that its replacement cost was $400,000. Thereupon, having got sufficient information from Martino (including, apparently, the value of the plant, stock and equipment) to get a quote for the insurance, Kelton rang Swan, gave him the details, and Swan quoted him .3% for the insurance. Kelton then confirmed with Swan, doubtless after speaking to Martino, that Martino would accept the cover as quoted, and that the cover would be an I.S.R. cover for the replacement value of the assets insured, a total of $670,000. Kelton then calculated the premium at $2,010.00, and asked Martino to let him have a cheque for that amount within the next few days. At some time that same day, that is, 9 July 1982, Kelton sent a telegram to Swan at the T.I.O. in these terms: "We confirm request for I.S.R. cover Framar Money Management Pty. Ltd. S.I. $670,000 Range Uranium site burglary sub-limit $20,000 excess $250 agreed rate .3%. Closings to follow. Regards John Kelton" 24. Also on the same day Kelton wrote a letter to Martino confirming his instructions, and advising that he had "arranged cover with T.I.O. on your assets at the Ranger Uranium site", details of which were then set out. Further, on the same day Kelton issued a Broker's Slip in the name of Framar Money Management Pty. Ltd. also with details of the insurance on it. The letter seems to have been handed to Martino on 9 July when he was in Kelton's office, but the Broker's Slip appears to have been posted to Martino later upon receipt of the cheque for the premium. 25. All that, I think, is clearly established on the evidence. The main dispute between Martino and Kelton is as to what else was said or discussed between them at their meeting on 9 July. Thus, Martino said he told Kelton that he had bought the complex for $30,000, and was going to make a lot of money out of the deal by selling it to Denison. Kelton denied that he had told him that. He said it was of no interest to him what Martino paid for it; he was only interested in its replacement cost. In the end, I do not think anything turns on this, though I incline to think Martino probably did tell Kelton what he paid for it. He said he was very proud of what he had done. It is true that Kelton did not make any note of having been told that, but I think that is understandable since, as he said, it was of no interest to him. Of more importance, however, is the fact that whilst both Martino and Kelton agree that Kelton told Martino that he should disclose to him any fires he had had, whether or not insurance claims had been made in respect of them, there is a serious conflict between them as to what exactly was said about previous fires. According to Martino, he told Kelton, and gave him details, of all previous fires including some of a quite minor nature. Kelton, on the other hand, said he did discuss with Martino the fire at 46 Paterson Street, Tennant Creek, and asked him if that was the only fire he had ever had, and Martino said no. Kelton did not elaborate on that, but he denied that Martino told him of the fire at Boonjinni, that is the fire on 10 July 1981, or of the vehicle roll over and catching fire in November 1981, or of a fire at Ambrose Street, Tennant Creek. Kelton did not say whether or not Martino told him of the recent fire on 26 June 1982. I think, however, Martino probably did tell him about that, as he said he did. Kelton also said he asked Martino if he had completed a Fire proposal with the T.I.O., and had told them in it about any other fires he might have had. He added that he confirmed with Martino that the T.I.O was aware of his claims history and claims experience. 26. In saying that he told Kelton, and gave him full details, of all previous fires, I think Martino was again embellishing his case (consciously or unconsciously), as I think he tended to do in other aspects of it. On the other hand, I thought Kelton was a careful witness who did his best to recount what was said, and for that purpose he relied on some notes he made at the time. These notes did not have details of previous fires, but I do not think that is decisive of the matter, particularly in the light of the fact that Swan had told him that, although "he's got a bit of a claims history ...", "we're not worried about that ... we'd still be happy to take him as a client." In those circumstances, I think it would have been natural for Kelton to think that it was not necessary for him to make a note of the previous fires, as in fact he did not do, nor did he subsequently do in completing the proposal form. In the result, then, I think the probabilities are that Martino did tell Kelton something, but certainly not all, of his previous experience with fires, and, in particular, I think he probably did tell him something of his recent run of bad luck with the Ranger fires, the truck roll over and the losses they had occasioned him. I further think that, in denying that Martino told him of those experiences, Kelton was relying on the fact that he had not noted them, rather than on his own positive recollection of the interview, believing, in the light of what Swan had told him, they were not important, and accepting Swan's assurance that, in spite of his "bit of a claims history", the T.I.O. would "still be happy to take him as a client" as dispensing with any need to obtain details of his previous claims history. In my view, Kelton's subsequent actions confirm that that was his state of mind at the time. 27. One further matter must be dealt with in relation to the dealings between Martino and Kelton at about that time, that is, in July 1982. According to Martino, after seeing Kelton on 9 July, he went back on either 14 or 15 July to see him again, this time taking with him his friend Wally Grimshaw and also a cheque for the premium. On the occasion of that visit, he said, Kelton wanted him to sign a proposal form, but apparently there was not one in the office at the time, and Kelton said he would post him one to complete and return. Martino said he introduced Grimshaw to Kelton as the person who could attend to his affairs when he himself was away, as he frequently was. Martino also said he again went over the list of fires with Kelton in front of Grimshaw to make sure that he had them all. He said Kelton was making notes as he was speaking. In response to that evidence, Kelton denied that there was any such meeting at all on either 14 or 15 July. He said there was no truth at all in that evidence. For my part, I seriously doubt whether there was ever any such meeting on 14 or 15 July, as both Martino and Grimshaw said there was. I can only think they must be mistaken in what they deposed to. Perhaps they confused this meeting with another meeting later on. 28. Having dealt with that part of the evidence, I think the remaining facts and circumstances leading up to the commencement of these proceedings can be stated shortly. By letter dated 16 July, 1982, Kelton sent to Martino a proposal form to complete and sign. The form appears to be one used by Baillieu Bowring themselves in the course of their business as Brokers. It provided for details to be supplied of the property proposed for insurance, and some questions to be answered by the proponent. It contained no declaration by the proponent as to the truth of the answers given, nor any agreement by him that the proposal should be incorporated in the policy, or that it should be the basis of the policy. 29. When sent out to Martino, the proposal had already been partly completed by Kelton. In particular, he had headed it "Industrial Special Risks", and he had written that the policy was to be in the name of "Framar Money Management Pty. Ltd. and/or related and/or subsidiary companies for their respect rights and interests". He had also written in the sum assured as $670,000, and the rate as ".3% as quoted J. Swan 9/7/82". There were then certain questions asked to which I will refer later in these Reasons. 30. In due course Martino completed and signed the proposal and returned it to Kelton. He dated it 6 August 1982. The proposal, together with a Schedule of Goods to be included in the cover, were received by Baillieu Bowring on 11 August. Kelton said they were then sent to the T.I.O. together with Baillieu Bowring's wording for the policy (the T.I.O. did not have its own wording), and a copy of the invoice received for the premium, or, as he called it, the Broker's Slip. Martino had, in the meantime, also sent Kelton a cheque for the premium. Kelton then said that, after sending off the proposal to the T.I.O., he did not hear anything from them until after 31 August 1982, on which day the building and the plant, stock and equipment were destroyed by fire. 31. At the time of the fire, Swan was away on leave. As I have said, the Manager of the Darwin Office of the T.I.O. at that time was Hobbs. In his evidence, Hobbs said the first knowledge he had of the proposal (and of the risk) was on 1 September 1982 when, going through his mail that morning, he saw the proposal and the Broker's Placement Slip among it. There is no evidence as to when exactly Swan went on leave, or where the proposal had been between the time Kelton had sent it to the T.I.O. and 1 September, or how it came to be on Hobbs' desk that morning. At any rate, Hobbs said that when he first saw the proposal he was not aware of the fire which had happened the night before. He further said that when he saw it, he was not satisfied with it. The reasons he gave for not being satisfied with it were that there were certain questions and information on it that were not satisfactory from an underwriting point of view. Thus, he said, the proposal had cross-outs on it, and the sums insured had been changed, which was unsatisfactory. He said the items insured were described as Atco Units, and they were unoccupied. That also was unsatisfactory, he said, because unoccupied premises, particularly in an isolated situation as Jabiru is, would be an undesirable risk. Further, he said, the question relating to previous claims history showed "Known to office", which "assumes that the office was aware of previous claims", and, he said, "that wouldn't be so". The only other thing, he said, that made the proposal unsatisfactory was that the Placement Slip showed the insurer (sic) to be Mr F. Martino. He said he had known of Mr Martino for some time, and knew of some fires he had had at Tennant Creek. His immediate response to the proposal, he said, was that it was unacceptable. 32. Hobbs went on to say that later that morning he was told by the Claims Manager that there had been a fire the night before. Thereupon, he said, he contacted Westwood Gartonand Associates, Loss Assessors, and the T.I.O's legal advisers and gave them instructions. He said he did so because he had a suspicion that the fire may have been deliberately lit by Martino or by some one acting on his behalf. Indeed, he agreed that that was a suspicion which he entertained right through to the end of the Inquest into the fire which was completed in August of the following year, 1983. 33. On 3 September 1982, having meanwhile received some information from the Loss Assessors of other fires involving Martino, Hobbs sent a telex to Baillieu Bowring in these terms: "Re I.S.R. Policy Framar Money Management Pty. Ltd. In accordance with condition 5 of the above policy - please be advised that we hereby give 30 days notice of cancellation from todays date. John Hobbs 3/9/82" 34. On receipt of that telex, Kelton wrote immediately to Martino informing him of it. The result was that on 6 September Martino and Grimshaw went to see Kelton in his office, and a claim form was completed and signed by Martino. It was subsequently submitted to the T.I.O. 35. On the following day, 7 September 1982, Kelton then went to see Hobbs in his office, because, as he said, he had received nothing back from the T.I.O. following the submission of the proposal to it. Accordingly, when he saw Hobbs, Kelton asked him for a Policy Number, and told him he wanted the policy urgently as he did not have any confirmation at all that the T.I.O. had issued a policy, or had even received the proposal. At that, Hobbs told him that the proposal was being processed, that he would attend to it promptly, and have it ready in the next day or two. Kelton persisted, however, that he must have some evidence that his client was insured, whereupon Hobbs wrote out and gave him a Certificate of Currency. That certificate was addressed to the Manager, Baillieu Bowring Marsh and McLennan, Darwin N.T., and was in these terms: "Type of Policy I.S.R. Policy No. 1015834 Sum Insured $670,000 current to 3/10/1982 Subject matter As per schedule insured Situation Jabiru East N.T. Name(s) of Framar Money insured Management Pty. Ltd." 36. During the course of his conversation with him, Hobbs told Kelton that he had received some information that raised a suspicion that the fire had been deliberately lit, and he was not very happy about that. He also said that he had been told that Frank Martino had had other fires which were not disclosed on the proposal, but when asked by Kelton to tell him what other fires, he would not elaborate. These matters were noted by Kelton in his file shortly afterwards. 37. It would seem that at that time a proposal was in fact being processed in the T.I.O., as Hobbs had said. As it turned out, it was dated the following day, 8 September 1982. It was an I.S.R. Policy incorporating the policy wording supplied by Baillieu Bowring with the proposal. It bore the policy number 1015834, the same as that appearing in the Certificate of Currency. It showed the period of insurance as being from 9/7/82 to 9/7/83. It was signed by the General Manager. In spite of all that, however, Hobbs claimed in his evidence that the policy was never "issued", because, as he said, it was never sent out of the office. He also claimed that the document came into existence, not as a policy that the T.I.O issued on the proposal, but as a document prepared for the T.I.O's Legal Adviser, Mr Gordon Pelletier, who had asked for a policy to be prepared, "as if the situation were that a policy was going to be issued". And, in fact, Hobbs said that, when the policy had been prepared, he himself delivered it personally to Mr Pelletier. Thereafter, it seems to have remained in Mr Pelletier's possession, and its existence was not made known either to Baillieu Bowring or to Framar Money Management Pty. Ltd. Hobbs insisted in his evidence, then, that the proposal was never accepted. 38. I find that explanation as to how the document came into existence entirely unacceptable, and nothing more than a jejune, inept and not very creditable attempt to escape the fact that the proposal was accepted, and that a policy was issued on it by the T.I.O. Why the policy was so carefully entrusted to Mr Pelletier's keeping, I do not know. In the end, however, counsel for the T.I.O did not pursue that line of defence, and conceded that a policy was in fact issued. Even without any such concession, though, I think it is perfectly clear on the evidence that the proposal was accepted and, that, on 8 September, 1982, a policy of insurance was issued on it between the T.I.O. and Framar Money Management Pty. Ltd. and/or its related and/or its subsidiary companies. Furthermore, it is also clear on the evidence that subsequently a debit for the premium payable in respect of the policy was entered in the T.I.O's Debtors' Ledger against Baillieu Bowring's account with the T.I.O., and, in fact, the premium paid by Martino to Baillieu Bowring was in due course paid to, and accepted by, the T.I.O. What is more, although the T.I.O cancelled the policy as from 3 October 1982, it gave no credit at all either to Baillieu Bowring or to Martino for any part of the premium. 39. Meanwhile, there was no response by the T.I.O. to the claim made by the plaintiff under the policy, and, in fact, there was no communication at all by the T.I.O. with the plaintiff in relation to the claim until after the Inquest into the fire was completed in August of the following year, 1983. I am not aware what precise findings were made by the Coroner, but it was conceded that there was no finding adverse to Martino or anyone associated with him involving them in having lit the fire. And so, by letter of 24 August 1983 the T.I.O's solicitors, Mildren Silvesterand Partners, wrote to the plaintiff in these terms: "Re: Industrial Special Risks Policy No. 1015834 - Fire Boojinnie Mess 31.8.82 We act for the Territory Insurance Office, the insurers under the above policy. Following completion of the Inquest into the above fire, our client has obtained Counsel's opinion in this matter and has considered its position. Our instructions are that our client has decided to avoid the policy, and we hereby give you notice of that fact. The grounds of our client's decision to avoid the policy are as follows:- 1. You failed to disclose material facts, namely your full previous fire history, the length of time that the mess was unlikely to be unoccupied, and the purchase price of the mess. 2. The statement in the proposal that the insured's previous fire experience was known to our client was untrue. A copy of this letter has been forwarded to your solicitors, Messrs Loftus and Cameron. We have instructions to accept service of any proceedings you see fit to commence. Yours faithfully, Mildren Silvester and Partners" 40. I have already noted that Hobbs, in his evidence, said that when he first heard of the fire he had a suspicion that it may have been deliberately lit by Martino or someone acting on his behalf. Indeed, he agreed, that that suspicion continued with him right through to the end of the Inquest in August of the following year. I think, therefore, that the only construction I can put on the letter from the T.I.O. to the plaintiff following completion of the Inquest is that, having failed to gain any support from the evidence given at the Inquest for his suspicion that the fire had been lit by Martino or someone on his behalf, the T.I.O. then sought some other ground on which it could deny liability to pay under the policy. I must now, therefore, turn to consider the grounds on which it now says it is not liable to the plaintiff under the policy. 41. As I have already indicated, the first ground of defence is that the plaintiff, Framar Money Management Pty. Ltd., had no insurable interest in the property insured, that property being (so it is claimed) "the property of 'Frank Martino of The Australian Caterer', a business name the registered owners of which are Francesco Antonio Martino and Maria Rosaria Martino". 42. In my opinion, there is no substance in that ground of defence, and, indeed, I do not understand it to have been seriously pressed by counsel for the T.I.O. Ownership of property, is not, of course, necessary for an insurable interest. The plaintiff here was one of a number of related or associated companies concerned in the running of the business of providing catering and other services for constructions camps. As such, it was, I think, so situated in relation to the insured property that it had a pecuniary interest in its preservation, and would suffer loss from its destruction. Besides, however, the policy itself makes it perfectly clear that the common intention of insurer and insured was that the plaintiff was insuring not only its own interest in the property, but also the respective interests of its related and associated companies. It was, therefore, a "goods Policy" as that expression was used in Hepburn v A. Tomlinson (Hauliers) Ltd. (1966) AC 451. The plaintiff, then, has an insurable interest in the property insured, and, indeed, is not restricted to recovering only the value of its own limited interest in the goods insured, but may recover their full value up to the limit set out in the policy. It will, of course, be required to account to the related and associated companies for the respective losses suffered by them. 43. The next ground of defence relied on by the T.I.O. is that it was a term of the policy that, in short, the truth of the statements and answers in the proposal was a condition precedent to any liability of the T.I.O. to make any payment under the policy, that the answers to questions 4 and 5 in the proposal were not true, and therefore, it is said, the T.I.O. is not liable to make any payment under the policy. 44. The relevant provision in the policy is in these terms: "PROVIDED ALWAYS that ... the truth of the statements and answers in the ... Proposal together with all statements made in writing by the Insured or anyone acting on behalf of the Insured for the purposes of this Policy shall be conditions precedent to any liability of the Board (of the T.I.O.) to make any payment under this Policy." 45. Questions 4 and 5 of the proposal, and the answers given to them which, it is alleged, were not true were as follows: "4. Has the Proposer had any property damaged or destroyed by fire, or made a claim under Known to

any Insurance been declined or cancelled? No" 46. The answer to question 4 was written in by Kelton before he sent the policy to Martino to sign; the answer to question 5 was written in by Martino himself. 47. The first question to be considered is how is that proviso in the policy to be construed. Counsel for the T.I.O. submitted, in the first place, that it made the policy a "basis" policy. Counsel for the plaintiff submitted that it did not. In my opinion, it clearly does not make the policy a "basis" policy. The proviso does not, in its terms, purport to incorporate either the proposal, or the questions and answers in it, into the policy as part of it, nor does it, in its terms, make the proposal the basis of the contract. In other words, in referring to the proposal, it does not do so "in language which incorporates it in the policy as a document containing contractual provisions which are to form part of the agreement which the policy records": Australian Provincial Assurance Association Ltd. v Producers and Citizens Co-operative Assurance Co. of Australia Ltd. [1932] HCA 34; (1932) 48 CLR 341, per Dixon J. at 360-361. And, in fact, the proposal itself does not, as I have already noted, contain any promissory or contractual provision that it is to be incorporated into the policy and be the basis of it. It contains no declaration at all as to the truth of the answers. The reference to the proposal in the policy, then, is merely to "a paper appropriate for the representation and disclosure of facts" as Dixon J. expressed it: ibid, at 360, and the proviso in the policy does no more than make the truth of those representations a condition precedent to the insurer's liability to pay under the policy. 48. But the further question must then be asked: is the truth of those representations a condition precedent merely to the insurer's liability under the policy to pay the insured the agreed measure of its loss, or is it a condition precedent to the policy becoming operative at all as a contract, i.e. a condition going to the operation of the policy as a binding document: see generally, Maynard v Goode [1926] HCA 4; 37 CLR 529 at 540; Kodak (A'sia) Pty.Ltd. v Retail Traders Mutual Indemnity Insurance Association [1942] NSWStRp 19; 42 SR (N.S.W.) 231 at 234. If it is the first, a breach of the condition by the insured merely entitles the insurer, according to the terms of the policy, to refuse to make a payment under it, either because the breach prevented an accruer of liability, or because it operated to release the insurer from a liability which had accrued in the first instance. If it is the second, a breach of the condition entitles the insurer to treat the policy as a document which never became binding on it, or if it had become binding, to treat it as no longer binding on it. 49. How a particular condition in a contract is to be construed is a question to be determined on the language and in the context of the contract in question. In my opinion, the condition in the present case, although expressed as a condition precedent to liability, that is a condition to which the existence of an obligation to pay under the policy is made subject, must be construed as a condition going to the existence of the policy as a binding document. In other words, the policy itself is conditional upon the truth of the representations made by the insured in the proposal, or the truth of the representations in the proposal is a condition precedent to the inception of the contract of insurance: Thomson v Weemsand Ors. (1884) 9 App.Cas. 671 at 683; Yorkville Nominees Pty. Ltd. (In Liquidation) v Lissenden [1986] HCA 6; 63 ALR 611 at 614 and 617. That is the way the insurer in the present case in fact treated it, and no contrary construction of it was argued before me. The result, therefore, is that, if the representations by the insured in the proposal were not true, there arose in the insurer, on becoming aware of that fact, a right, at its option, to avoid the policy, that is, to treat itself as discharged from the contract. 50. The question that arises, therefore, is whether the answers given by Martino and Kelton, as agents for the proponent, to Questions 4 and 5 in the proposal were true, or, more accurately, whether either of those answers constituted a material misrepresentation. In this case, the materiality of each question and answer is not in dispute, and so, all that is to be considered is whether either answer was a misrepresentation. In a case such as the present, I think it is clear on the authorities that the onus of proof that there was a material misrepresentation is on the insurer, and that "it ought to be made very clearthat there has been such misrepresentation": Davies v National Fire and Marine Insurance Co. of New Zealand (1891) AC at 489; Guardian Assurance Co. Ltd. v Condogianis [1919] HCA 33; 26 CLR 231, at 238 and 242; Kodak (A'sia) Pty. Ltd. v Retail Traders Mutual Indemnity Insurance Association [1942] NSWStRp 19; 42 SR (N.S.W.) 231 at 237. 51. I will deal first with Question 4, and the answer given to it. That question was: "Has the proposer had any property damaged or destroyed by fire, or made a claim under an insurance policy in respect of any contingency now proposed for insurance?" The answer to that question, written in by Kelton, was: "Known to office". 52. Two things are to be noted at once about that question. The first is that it invites only an affirmative or a negative reply. The second is that, in the event of the answer being in the affirmative, it does not ask for any details to be furnished. What then of the answer given: "Known to office"? How are those words to be construed? What was conveyed by them to the T.I.O., and, in particular, to Swan to whom the proposal was originally submitted? Those questions are to be answered by considering the words as a whole, and by giving them a fair and reasonable construction, having regard to all the circumstances in which they were written. In my view, the words are quite inconsistent with a negative response to the question, and they could not have been understood by Swan as expressing a negative reply. They were not, in fact, so understood by Hobbs, when the proposal came to his attention. It will be recalled that he said in his evidence that, to him, "the answer assumed that the T.I.O. was aware of previous claims", and, somewhat curiously, he added "and that wouldn't be so". He clearly understood the answer as an affirmative reply. I think, therefore, the reply "Known to office" conveyed to the insurer, and was understood by the insurer as conveying, an affirmative answer, and so, it does not constitute a misrepresentation that the proponent had not had any property damaged or destroyed by fire, and had not made a claim under an insurance policy in respect of any contingency then proposed for insurance. In fact, the words seem to me to amount to no more than Kelton's repeating back to Swan what Swan had already said to him, namely, that Martino had "a bit of a claims history", but, notwithstanding that, "we'd still be happy to take him as a client". I think it is clear that, in writing in that answer to the question, Kelton was simply relying on what Swan had told him, and, in effect, saying to him, "Yes, you know he has, but you are not worried about it; you are still happy to have him as a client". That, I think, represented Kelton's honest belief at the time. 53. I think I should say here that, in the pleadings, as well as at the hearing, it was claimed by the T.I.O. that the answer to the question was untrue, because the T.I.O. did not know of a number of occasions when the proponent had had property damaged or destroyed by fire, and it was therefore, untrue for Martino, through Kelton, to say that those occasions were known to the T.I.O. Indeed, many hours of hearing time were taken up with evidence called to show that that was the case. In my opinion, that is not the question that arises for consideration in relation to the answer given to the question. The question for consideration is whether that answer is not true, in that it amounts to a misrepresentation to the insurer, on which it relied in issuing the policy. 54. The next answer in the proposal which it is said was not true was the answer to question 5. That question was: "Has any proposal for insurance of property now proposed or any part thereof been made to any office and not been completed by acceptance or has any insurance been declined or cancelled?". To that question Martino wrote in the answer: "No". In support of its assertion that that answer was not true, the first defendant sought to rely on the evidence of a Mr Alchin who, in June or July of 1982, was employed by F.A.I. Insurance as an Assessor Inspector at its Darwin Branch. Mr Alchin said that he remembered the fire at Jabiru on 31 August 1982, and that some time before it - he was not exactly sure when, but "it possibly would have been 2 or 3 weeks" - he received a phone call from a person with a "very heavy Italian accent" who asked him to insure a property in the Kakadu area, some demountables, for a considerably large amount of money, and that he declined that offer. He said he declined it because there was too big a difference between the purchase price of the property (which he had been told) and the amount for which it was sought to insure it, and, besides, his company would not insure anything in that area because of the risks involved. Mr Alchin said he did not recall if the person who phoned him said who he was in that telephone call. I am asked to infer from that evidence that it was Martino or someone on his behalf who made the call, and, as well, that it was made prior to the completion of the proposal, 6 August, 1982, so that the answer to question 5 was not true. Martino himself denied having made any such telephone call, and that anyone else had made it on his behalf. To me, the evidence of Mr Alchin was quite unsatisfactory, and I do not think I could draw any such inferences from it. But besides that, since at all times after the 9th of July of that year Martino and his companies had insurance cover with the T.I.O., and it was satisfactory cover, I cannot see any reason why he should seek to get cover from another company. I therefore accept what he says, that he did not make any such call, and that no one made such a call on his behalf. In the result, the answer to question 5 does not amount to any misrepresentation. 55. The final ground of defence relied on by the T.I.O. is that, in breach of its common law duty to do so, the plaintiff as the proponent for insurance failed to disclose, through its agents Martino and Kelton, all material facts relating to the insurance. In support of that defence, the T.I.O. particularised a number of facts which it alleged were material, and which it claimed were not disclosed. 56. In general terms, it is the duty of a proponent for insurance to disclose to the insurer all facts material to the insurer's appraisal of the risk which are known or deemed to be known to the insured, but not known or deemed to be known to the insurer, MacGillivray and Parkington on Insurance Law, 6th Ed., para.727. In Asfarand Co. v Blundell and Anor. (1896) 1 QB 123, Lord Esher M.R. (at 129) expressed the rule more fully by saying that what the insured is bound to disclose is "every material fact which is within his knowledge, and which is not to be taken as being within the knowledge of the Underwriters. If he fails to do so", he said, "he is guilty of what is called in insurance law concealment, which may in fact be either innocent or fraudulent. But it is not necessary to disclose minutely every material fact; assuming that there is a material fact which he is bound to disclose, the rule is satisfied if he discloses sufficient to call the attention of the Underwriters in such a manner that they can see that if they require further information they ought to ask for it". In Roumeli Food Stores (NSW) Pty. Ltd. v The New India Assurance Co. Ltd. (1972) 1 NSWLR 227, MacFarlane J. expressed it (at 234) in these words: "... a proponent may discharge his duty to disclose by giving the insurer information which amounts to less than the whole sum of the relevant facts of which the proponent knows. This opinion, though, is not to say that the proponent may discharge his duty by providing the insurer with no more than the means of knowledge. The principle is that less than the whole of the relevant information may amount to disclosure, provided that what is conveyed fairly indicates to the insurer that there is more information to be obtained if he chooses to ask for it, or to have it." 57. The facts in the present case which are said to have been material, and which the T.I.O. says the plaintiff ought to have disclosed and did not disclose are as follows: . The fire at Boonjinni Camp on 10/7/81 . The fire at Koonjimba on 26/6/82 . The fire involving Miss Glenda Everton, and a Datsun Utility on 12/7/82 . The fire involving a truck rollover near Pine Creek in October or November 1981 . The fire at Tennant Creek in May 1982 . The purchase price of the Mess being $30,000 whereas its replacement value was $400,000. . The speculative nature of the risk being insured in that the true value of the Mess if the Denison project did not go ahead was not $400,000, but only $30,000. 58. The burden of proving that non-disclosure, as alleged, is on the insurer. De Maurier (Jewels) Ltd. v Bastion Insurance Co. Ltd.and Anor. (1967) 2 Ll LR 550, per Donaldson J. at 559; Larratt v Bankers and Traders Insurance Co. Ltd., [1941] NSWStRp 34; 41 SR (N.S.W.) 215, per Jordan C.J. at 224. The first question to be considered, therefore, is whether the T.I.O. has proved, on the balance of probabilities, that the plaintiff, through its agents Martino and Kelton, has failed to make sufficient disclosure. 59. So far as Kelton is concerned, I think it is clear on the evidence that, although I think Martino probably did tell him a good deal about his previous fire losses, Kelton himself did not make any disclosure to Swan other than what is contained in the answer to question 4 on the proposal, "Known to office". The question therefore is whether I am satisfied on the balance of probabilities that, in the light of all the circumstances surrounding it, to which I have referred, that answer was not sufficient disclosure to put Swan on inquiry there and then, if he were not already on inquiry as a result of his own knowledge, and of what Martino had told him? I am by no means so satisfied. 60. As I have said, I think that Martino did tell Swan of some of the losses he had suffered through fires, and I think Swan's own knowledge of Martino's previous experiences was considerably more than he acknowledged. I think, therefore, that even before the proposal was completed Swan was on enquiry. But certainly if he were not then on enquiry, I think the answer given to question 4 in the proposal ("Known to insurer") was such "information as would put an ordinary careful insurer on enquiry": see Carter v Boehm 3 Burr. 1905, 1913; Greenhill v Federal Insurance Co.Ltd. (1927) 2 KB 65, 89. But Swan made no enquiries, and, indeed, far from making any enquiries either before or after the receipt of the proposal, he was at pains to tell Kelton that although Martino had "a bit of a claims history ...", "we're not worried about that ... we'd still be happy to take him as a client". And so, in my opinion, Swan's words and actions can only be construed as those, not only of a person who, having been put on enquiry, did not inquire, but of a person who expressly waived any obligation to disclose at all, and I think that Kelton, an experienced Broker, must have construed them in that light. And the reason for Swan's unconcern about Martino's previous fire history seems to me to be evident from his initial words to Kelton when he rang him, namely that he was an existing client of the T.I.O., that he had a large catering business with assets and business interests in other States and that he needed the services of a Broker to coordinate his insurances. From this, I think it is reasonable to conclude that Swan was anxious to obtain Martino's business. And so, in my view, Swan was prepared to, and did, waive the obligation of disclosure altogether. 61. The conclusion I have here reached is amply supported, I think, by what Kelton said in his evidence when asked by Mr Mildren whether he had contacted other insurers (for quotes) before contacting Swan. He said: "Not in this case, no. Was there any reason for that?---Yes. Why was that?---Well several reasons; firstly, that because of the first conversation with Mr Swan, he indicated that they were prepared to write the business, prepared to quote on the business when I got all the information. Mr Martino already had insurance with the TIO, and was happy with it. He had established some sort of relationship with Mr Swan already, and he was happy with that relationship. Mr Swan was aware of Mr Martino's claims history, and prepared to - wasn't - told me that he wasn't concerned about that. The rate that I got from - eventually got from Mr Swan was satisfactory, so with all those - all those facts, I advised Mr Martino to take that quote." 62. That, I think, is sufficient to conclude the matter in the plaintiff's favour against the first defendant. But subsequent events also, in my opinion, justify a resolution of the dispute favourable to the plaintiff, and I now turn to consider those events. 63. As I have said, the proposal eventually came to the attention of Hobbs, the Manager of the Darwin Branch of the T.I.O. That was on 1 September 1982. There is no evidence where it had been from the time it first arrived at the T.I.O. until then, but presumably it had been with Swan up until the time that he had gone on leave. As will be recalled, Hobbs said that when he first saw the proposal he thought it was unsatisfactory, and he explained in some detail in his evidence why he thought it was unsatisfactory, why he thought the risk was unacceptable. He said the proposal itself, and in particular the answer to question 4, (which Hobbs obviously considered put him on inquiry), was unsatisfactory, and, furthermore, it was unsatisfactory for the reason that it was Martino who was seeking insurance, and Hobbs knew of Martino. And then, on learning shortly afterwards of the fire, and suspecting arson, Hobbs sought legal advice, and engaged Loss Assessors to investigate the fire. And, within a very short time, he did receive some information from the Loss Assessors which, he said, led him to believe that there had been some fires which had not been disclosed in the proposal, or elsewhere, so far as he knew. 64. In those circumstances, I think it was open to Hobbs, there and then, (leaving aside any prior waiver or failure to enquire on the part of Swan, of which, in any event, he was unaware) to have avoided the policy on the ground of non-disclosure, had he elected to do so. But he did not. Nor did he purport to do so. In fact, he did quite otherwise. He immediately gave 30 days notice of the cancellation of the contract of insurance pursuant to clause 5 of the policy, and not because of any alleged non-disclosure or misrepresentation, but because he suspected arson. Such action on his part must, I think, be construed as "an act, referable to the contract, which could only be properly done by him by virtue of the Pty. Ltd. v Luna Park (NSW) Ltd. 38 SR (N.S.W.) 632 at 644, and so, in my opinion, amounted to an affirmation of the contract. But more than that, when Kelton came to see him a day or so later, seeking some evidence that his client was insured, Hobbs issued him with a Certificate of Currency, and told him the policy was in the course of being processed and would be issued in the next day or so. Thereafter, a policy was issued, and the premium accepted and retained. 65. In my opinion, Hobbs' actions in issuing a Certificate of Currency, his assurance to Kelton that the policy would issue in a day or so, the subsequent issue of the policy and the acceptance of the premium point irresistibly to the conclusion that the T.I.O. elected to affirm the policy. They constituted a clear and unequivocal representation to Kelton that the T.I.O. was affirming the contract of insurance, and did not intend to disaffirm it for any non-disclosure or misrepresentation. Kelton accepted that, and acted on it. In so doing, in my opinion, he acted to his detriment in that he took no further steps to pursue with Hobbs or Swan any supposed non-disclosure or misrepresentation on his or Martino's part, as I am sure he would have done if he had thought the T.I.O. intended to avoid the policy. In saying here that Kelton acted to his detriment, I do so bearing in mind that a person may act to his detriment in the sense here relevant by merely abstaining from some course of action which he otherwise would positively have taken: see Hutton v Royal Exchange Assurance (1971) NZLR 1045, at 1060, and cases there cited. 66. The T.I.O., therefore, cannot now be heard to contend that it did not affirm the policy. I think it clearly elected to affirm it, and that it effectively waived any right to avoid it: Franklin v Manufacturers MutualInsurance Ltd. [1935] NSWStRp 62; 36 SR (N.S.W.) 76, at 81-83; Khoury (M.and S.) v Government Insurance Office of New South Wales [1984] HCA 55; 54 ALR 639, at 646. 67. For all these reasons, then, I think the plaintiff's action against the first defendant succeeds, but before leaving this aspect of the case, I think I should make some reference to the attitude adopted by counsel for the T.I.O. in relation to the issues of waiver and estoppel, and their relevance in the present case. In answer to some questions I put to him early in the course of his address, Mr Mildren QC, counsel for the T.I.O. (he addressed first), told me he did not see either waiver or estoppel as an issue in the case. They were not pleaded, he said, and he was entitled to rely on the pleadings as establishing what the issues in the case were. In the end, though, he did address on those issues, though he seemed to think that the main question involved was whether the delay by the T.I.O. in purporting, eventually, to avoid the policy on 24 August 1983, that is some 12 months or so after the events I have referred to above, was such a delay as to amount to a waiver of the non-disclosure, or such that the T.I.O. was estopped from denying that it had waived it. He did not seem to perceive the actions of Swan and what he had said to Kelton, nor the subsequent actions of Hobbs in issuing the Certificate of Currency, nor the issue of the policy, nor the acceptance of the premium as pointing to a waiver, or as raising an estoppel. In this, however, he seems to have been alone amongst counsel in the case. 68. The fact is that the plaintiff did not file a Reply to the T.I.O.'s Defence, and so the issues of waiver and estoppel were not raised on the pleadings. Indeed, when I invited Mr Murray QC for the plaintiff, during the course of his address, to seek leave to put on a Reply, he declined to do so, arguing that, although, strictly speaking, he should perhaps have put on a Reply, in the circumstances it was unnecessary. He submitted that, there being evidence in the case that clearly raised those issues, and they having already been argued, by counsel, in particular by counsel for the second and third defendants, it was open to him to relay on those issues, and for me to decide them, even though they were not pleaded. 69. Order 23, r.15 of the Rules of Court provides, inter alia, that all grounds of defence or reply, as the case may be, must be pleaded which, if not raised would be likely to take the opposite party by surprise, or would raise issues of fact not arising out of the preceding pleadings. The Rule gives some examples of matters which should be specifically pleaded, such as fraud, Statute of Limitations, Statute of Frauds etc. Neither estoppel nor waiver is mentioned among those examples. However, there is clear authority that, in general, matters of fact grounding an estoppel ought to be pleaded under that Rule: Laws Holdings Pty. Ltd. v Short and Ors. (1972) 46 ALJR 563, per Gibbs J. at 571. In the circumstances of the present case, I think, therefore, the facts relied on as constituting an estoppel should have been pleaded by way of Reply. In the case of waiver, there is sometimes a difficulty in deciding whether it should be pleaded in the Statement of Claim or in the Reply, in that, to plead it by way of Reply may amount to a departure. I do not think, however, the present is such a case. In my opinion, the facts relied on as constituting a waiver in this case should also have been pleaded in the Reply. 70. What then is the effect of non-compliance with the Rule? The Rule itself is silent on the matter. However, in In Re Robinson' Settlement: Gant v Hobbs (1912) 1 Ch 717 Buckley L.J. explained the effect of the Rule in these words (at 728): "The effect of the Rule is, I think, for reasons of practice and justice and convenience to require the party to tell his opponent what he is coming to court to prove. If he does not do that the court will deal with it in one of two ways. It may say that it is not open to him, that he has not raised it and will not be allowed to rely on it; or it may give him leave to amend by raising it, and protect the other party if necessary by letting the case stand over. The Rule is not one that excludes from the consideration of the court the relevant subject matter for decision simply on the ground that it is not pleaded. It leaves the party in mercy and the court will deal with him as is just." (See also Pirie v Richardson (1927) 1 KB 448, at 452-453 and 457). 71. In the present case, on having the matters drawn to his attention, Mr Mildren said, inter alia, that had he known that those issues were going to be raised, the hearing would have been conducted differently, though he did not elaborate on what he meant by that. I might say here that the taking of the evidence in the case itself occupied in all some 7 1/2 days hearing time, during which every aspect of the dealings between the parties was explored in the most thorough and painstaking way; no detail seems to have been left untouched, though I should also say that no attempt seemed to have been made to isolate the real issues in the case, or to discriminate between the issues that might ultimately be relied on. For my own part, as the hearing proceeded it became increasingly clear to me that the rather unusual course of conduct of the insurer, the first defendant, must raise a serious question of waiver or estoppel or both, and I understood much of the evidence, including the cross-examination of the first defendant's witnesses, to be directed to those issues. I anticipated that an application would be made, at some time or other, to amend the pleadings so as to plead them. I find it difficult to understand, then, why that was not also evident to Mr Mildren. Perhaps he was relying entirely on defending the proceedings on the issues raised in the pleadings, but, in the circumstances, I do not think he was altogether entitled to do so, since he must have anticipated an application for leave to amend the pleadings. Had Mr Murray for the plaintiff sought, at any time, even as late as during the closing addresses, to amend the pleadings to put on a Reply raising those issues, I think I should have had to give him leave to do so, though it would have been on some terms if I had thought that anyone was really taken by surprise. In the result, I do not think anyone should have been taken by surprise that those issues would be raised and relied upon, and accordingly I have thought it proper for me to deal with them. I do not think the first defendant has been really prejudiced in the presentation of its case by my doing so, but, on the other hand, I think substantial injustice would flow to the plaintiff had I not done so. 72. I now turn to consider the plaintiff's claim against the second and third defendants. I think it can be disposed of shortly. The plaintiff's claim against those defendants is that they failed to exercise reasonable care and skill in carrying out the plaintiff's instructions, in that the plaintiff, through Martino, having furnished to Kelton as employee of Baillieu Bowring full particulars of its previous fires and claims history, Kelton failed to make sufficient disclosure of that information to the T.I.O. As a consequence of that failure, it is claimed that either the defendants procured for the plaintiff a contract of insurance which was voidable for non-disclosure, and which in fact was avoided by the first defendant, or the first defendant cancelled the policy, as a result of which the plaintiff suffered consequential losses by reason of being unable to obtain insurance on its business assets. 73. I think it is true, as I have said, that Martino probably did tell Kelton something of his previous fire losses, and that Kelton made no disclosure of those losses to the first defendant, other than to write "Known to office" in answer to question 4 on the proposal. However, for the reasons already given, I do not think there was any want of care on Kelton's part in following that course, and, in fact, I think he was quite justified in doing so, having regard to what Swan had told him when he first rang him. In the end, though, if the contract of insurance procured by Kelton for the plaintiff was ever voidable, the first defendant, as I have held, elected to affirm it, and it was very substantially through the efforts and persistence of Kelton that it did so. Furthermore, in cancelling the policy, I do not think, as I have said, the T.I.O. did so for any alleged non-disclosure, but because it suspected arson. For these reasons, then, I think the plaintiff's claim against the second and third defendants fails. DAMAGES 74. The plaintiff's claim for damages against the first defendant is for the sum of $554,206.84 being the amount alleged to be due under the policy. 75. There is no dispute that the value of the stock destroyed in the fire was $30,156.84, and that the value of the equipment destroyed was $124,050.00, making a total of $154,206.84. Besides those items, however, the plaintiff also claims for the following goods lost in the fire: A quantity of advertising brochures $ 18,000.00 35-40 cases of gift packed wine at $350.00 per case $ 12,250.00 - $14,000 Approximately 40 cases of wine, the personal

At a glance

Court

Decision date

Source

Judgment (9 paragraphs)

Framar Money Management Pty Ltd v Territory Insurance Office; John Villias Kelton, Baillieu Bowring Marsh and Mclennan PTY LTD [1986] NTSC 52; 87 FLR 251 (24 November 1986)

Parties

Cases Cited (4)