Kern Corporation Ltd v Walter Reid Trading Pty Ltd

On or about 2 August 1985, by reason of the appellant's exercise of an option, a contract for the sale and purchase of this property came into existence. On 17 August 1985, before the date fixed for completion by the option agreement which was 28 February 1986, the store and its contents were destroyed by fire. On 2 October 1985 the appellant gave notice to the respondent insurers of its demand that they cause the insurance moneys to be laid out and expended, so far as it would go, towards rebuilding, reinstating or repairing the building. The respondent insurers having rejected this demand, the appellant commenced proceedings on 25 November 1985 in the Supreme Court of Queensland for a declaration that the respondent insurers were bound to cause the insurance moneys to be laid out and expended in accordance with the appellant's demand and for consequential relief. The contract was completed on 28 February 1986.

Of six questions proposed by the parties Connolly J. reserved three preliminary questions of law for determination on the basis of the facts already stated, these facts having been agreed by the parties. The three questions of law were in these terms: (1) Is the purchaser a person "interested in" a building within the terms of s. 58 of the Act? (4) Does the fact of settlement defeat or reduce the purchaser's rights? (6) Are the purchaser's rights affected, and if so in what manner, if no moneys are payable under the policy of insurance?

Connolly J. answered question (1) in the affirmative and answered questions (4) and (6) as follows:

The fact of settlement in full on 28 February 1986 conclusively establishes that at no material time have the second to eighth defendants been under any obligation to lay out or expend any money towards rebuilding, reinstating or repairing the building. His Honour then gave judgment for the respondents in the action with costs. The appellant's appeal from this order was dismissed with costs by the Full Court of the Supreme Court (Matthews, Macrossan and Carter JJ.).

Section 58 has its origin in s. 83 of the Fires Prevention (Metropolis) Act 1774 U.K. ("the Act of 1774") and is in these terms:

Where a building is destroyed or damaged by fire a person who has granted a policy of insurance for insuring it against fire may, and shall, on the request of a person interested in or entitled to the building, cause the money for which the building is insured to be laid out and expended, so far as it will go, towards rebuilding, reinstating, or repairing the building, unless -

(a) the person claiming the insurance money within thirty days next after his claim is adjusted, gives sufficient security to the person who has granted that policy that the insurance money will be so laid out and expended; or

(b) the insurance money is in that time settled and disposed of to and amongst the contending parties to the satisfaction and approbation of the person who has granted the policy of insurance.

Connolly J. held that the purchaser under an unconditional contract for the purchase of land is a person interested in the land and the improvements erected thereon. His Honour pointed out that authorities support the proposition that s. 58 refers to persons interested not in the policy, but in the building, and that a purchaser of real estate under a contract for sale, particularly when he has paid part of the purchase price, is an owner in equity of the land and improvements. His Honour considered that Royal Insurance Co. Ltd. v. Mylius [1] required an affirmative answer to the first question. The correctness of that answer was not challenged in the Full Court or in this Court.

The answer to questions (4) and (6) turns very largely on the meaning of the words "the money for which the building is insured" in s. 58. These words are capable of meaning either the maximum amount the insurer has undertaken to pay or the amount which the insurer is under his contract obliged to pay independently of the existence of a contract of sale: see Kennedy v. Boolarra Butter Factory Pty. Ltd. [2] , per Gavan Duffy J. Connolly J. preferred the first of these two interpretations. The next step in the reasoning of both primary judge and the Full Court was that the vendor Walter Reid was entitled to payment of the whole of the purchase price from the appellant, despite the destruction of the improvements by fire and that it therefore suffered no loss recoverable against the respondent insurers.

The final step in the reasoning was the rejection of an argument, based on Collingridge v. Royal Exchange Assurance Corporation [3] , that the matter was to be looked at when the notice under s. 58 was given or when the litigation commenced. According to the argument, at those dates, that is before settlement, Walter Reid was still owner of the land and it was not known whether the contract would be completed, so that it could not be denied that moneys were payable under the policy of insurance. In rejecting this contention, the courts below pointed out that in the circumstances of the present case the subsequent completion of the contract established that the vendor, not having effected or sought any reinstatement of the building, suffered no relevant loss recoverable from the insurers.

The case for the appellant in this Court challenges the interpretation placed by the courts below on the words "the money for which the building is insured" in s. 58. According to the appellant, the words mean the moneys which, at the time notice is given under the section, the insurer would be liable to pay under the policy, independently of the existence of the contract for sale. The consequence is, so the argument runs, that an insured who has entered into a contract for sale is entitled to recover against his insurer the insurance moneys when the insured property is destroyed prior to completion of the contract provided that the purchase price has not been paid at the time of the loss.

However, it is convenient in the first instance to consider the appellant's argument based on the decision of the Divisional Court in Collingridge . The appellant submits that Collingridge is authority for the proposition that where the vendor of land on which a building is erected has insured the building under a fire insurance policy and the building is destroyed by fire before completion of the contract of sale, he is entitled to recover the insurance moneys from the insurer, notwithstanding the existence of a right to recover the purchase price from the purchaser under the contract of sale. There is force in this submission. The plaintiff was adjudged entitled to recover the value of the premises from his insurer in accordance with the policy despite the fact that when the premises were destroyed by fire the property was in the process of being compulsorily acquired by a statutory authority for full value. The Divisional Court (Mellor and Lush JJ.) treated the policy not as a contract of indemnity, but as a contract to pay the insured the value of the building in the event of its destruction by fire.

At the time Collingridge arose for decision, two important questions of principle had not been authoritatively determined. The first was whether the purchaser under a contract of sale had any claim to insurance moneys under a policy of fire insurance taken out by the vendor to cover his interest as owner in a building on the subject land, the building being destroyed by fire before completion of the contract. The second question concerned the nature of a policy of fire insurance: Was it a contract of indemnity and, if so, what effect did this have on the liability of the insurer in the situation just mentioned? The first question was decided inRayner v. Preston [4] where the Court of Appeal (Cotton and Brett L.JJ. with James L.J. dissenting) held that a purchaser who had completed the contract of sale was not entitled as against the vendor to the benefit of the insurance on the ground that the benefit of the insurance did not pass by virtue of the contract of sale or by virtue of the vendor's trusteeship of the land for the purchaser. See also Phoenix Assurance Co. v. Spooner [5] which was overruled on another ground in West Midland Baptist Association v. Birmingham Corporation [6] . The view which prevailed in Rayner v. Preston has been consistently followed down to and including the decision of this Court in Ziel Nominees Pty. Ltd. v. V.A.C.C. Insurance Co. Ltd. [7] , where Barwick C.J. pointed out that on the making of the contract the purchaser, by reason of his equitable interest, has an insurable interest which he may independently protect by taking out an insurance policy.

1. (1881) 18 Ch. D. 1. 2. [1905] 2 K.B. 753. 3. [1970] A.C. 874. 4. (1975) 50 A.L.J.R. 106, at p. 107; 7 A.L.R. 667, at p. 669.

The second of the two questions arose in Castellain v. Preston [8] , where the Court of Appeal (Brett, Cotton and Bowen L.JJ.) held that an ordinary fire insurance policy was a contract of indemnity and that, because it was a contract of indemnity, the insurer's liability was limited to the relevant loss or damage suffered by the insured vendor, the vendor suffering no such loss or damage when the building on the subject land was destroyed by the fire before completion of the contract of sale and was not reinstated, the purchaser being bound to complete by paying the balance of the purchase price. In that case the plaintiff insurer was held entitled to recover from the vendor an amount equal to the insurance moneys it had paid to them under a fire insurance policy in respect of premises destroyed by fire after the vendor had contracted to sell the property. The insurer paid the moneys in ignorance of the existence of the contract which was completed later by payment of the balance of the purchase price. The decision was explicitly based on the principle that the policy was a contract of indemnity, the liability of the insurer being limited to the loss or damage sustained by the insured [9] . In ascertaining whether the insured suffered loss or damage, the Court found that it was necessary to take into account any money or other benefit received which related to that loss or damage [10] .

1. (1883) 11 Q.B.D. 380. 2. (1883) 11 Q.B.D., at pp. 386, 394-397, 397-401. 3. (1883) 11 Q.B.D., at pp. 390, 394-395, 404.

Bowen L.J. pointed out [11] that this did not mean that an insured person could only recover the marketable value of the insured interest or that he was not entitled to reinstatement. After all much depends upon the terms of the particular policy, as we shall see when we turn to the provisions of the policy in the present case. Bowen L.J. went on to say [12] :

What is really the interest of the vendors, the assured? Their insurable interest is this - they had insured against fire, and they had then contracted with the purchasers for the sale of the house, and, after the contract, but before the completion, the fire occurred. Their interest therefore is that at law they are the legal owners, but their beneficial interest is that of vendors with a lien for the unpaid purchase-money; they would get ultimately all the purchase-money provided the matter did not go off owing to defective title. Such persons in the first instance can obviously recover from the insurance company the entire amount of the purchase-money. That was decided in the case of Collingridge v. Royal Exchange Assurance Corporation [13] but can they keep the whole, having lost only half? Surely it would be monstrous to say that they could keep the whole, having lost only half. 1. (1883) 11 Q.B.D., at pp. 400-401. 2. (1883) 11 Q.B.D., at p. 401. 3. (1877) 3 Q.B.D. 173.

The principle established by Castellain v. Preston that a policy of fire insurance is a contract of indemnity and that the liability of the insurer is ordinarily limited to the loss or damage suffered by the insured has been accepted and applied by this Court: British Traders' Insurance Co. Ltd. v. Monson [14] ; Ziel Nominees; and see Burnand v. Rodocanachi [15] , per Lord Blackburn. In Monson [16] , Kitto, Taylor and Owen JJ. noted that there are areas in which the amount payable in respect of the insured's interest exceeds the marketable value of that interest, but that occurs only where full indemnification would not be achieved by paying the insured the amount of that value as, e.g., when an insured lessee is bound by a covenant in his lease to make good damage by fire.

1. (1964) 111 C.L.R. 86, at pp. 93-94, 101-102. 2. (1882) 7 App. Cas. 333, at p. 339. 3. (1964) 111 C.L.R., at p. 93.

On the other hand, in Kennedy [17] Gavan Duffy J. followed Collingridge in holding that a purchaser was entitled to require the vendor's insurer to lay out and expend insurance moneys in rebuilding and reinstating a building factory destroyed by fire after the making of the contract of sale but before its completion. His Honour acknowledged [18] that any part of the purchase price already paid must be brought into account and that future payments of the purchase price must be accounted for to the insurer. In following Collingridge , his Honour considered [19] that there was a resemblance between the position of an unpaid vendor and that of a mortgagee, observing that just as the insurable interest of the mortgagees in Mylius [20] was to have their security restored to its condition prior to the fire, so the unpaid vendor, who must depend on the property sold as his security for payment, should have the burned building restored or be paid its value.

1. [1953] V.L.R. 548. 2. [1953] V.L.R., at p. 555. 3. [1953] V.L.R., at p. 554. 4. (1926) 38 C.L.R. 477.

From the perspective of the present case there are two difficulties in this analogy. First, it is not so much a matter of identifying a relevant insurable interest, as ascertaining whether the insured has sustained loss or damage. And if it emerges that the vendor is not, or will not be, out of pocket then he suffers no recoverable loss. Where no expense has been incurred on reinstatement, payment of the purchase price by the purchaser extinguishes the vendor's property loss and any claim he might otherwise have against the insurer in respect of such loss. Secondly, if his Honour had in mind the unpaid vendor's lien, we need to bear in mind that the vendor's lien was abolished by statute in Queensland: Real Property Act 1861 Q., s. 97.

The comments made in the preceding paragraph do not dispose of Mylius . It might be thought that if the principles established by Castellain v. Preston were fully accepted by the majority in Mylius their Honours would need to have been satisfied that the mortgagees were faced with the possibility of not recovering their mortgage debt before they could recover from the insurer. The answer to this objection, so it seems to me, is not that the majority disagreed with Castellain v. Preston, for they did not express any such disagreement, but that they were not satisfied that the loss of the mortgage was merely a nominal loss because the mortgage debt would be repaid in any event. However this may be, Mylius should not be taken as casting doubt on the correctness of Castellain v. Preston.

More recently in Hirst v. New Zealand Insurance Co. Ltd. [21] Jenkinson J. said:

The extinction of the insured vendor's entitlement to any payment under the policy which on the day following the making of the statutorily prescribed request was brought about by payment to the vendors by the plaintiffs of the balance of the price of the land sold would necessarily be given effect when the claim was adjusted. The money to which s. 67 refers is that which is payable under the policy: if none is payable there is nothing upon which the section can operate: see Auckland City Corporation v. Mercantile & General Insurance Co. Ltd. [22] ; Matthey v. Curling [23] ; Ziel Nominees [24] And in my opinion events which after the making of the request by a "person interested" would reduce or entirely extinguish the insured's claim upon adjustment may reduce or entirely extinguish the obligation imposed by s. 67 on the making of the request to lay out money in rebuilding, reinstating or repairing, at least if those events occur before action is brought to enforce the obligation and before any of the events have occurred which are specified after the first semi-colon in s. 67. (I need not express any opinion about events occurring thereafter, but before judgment in the action.) 1. [1981] V.R. 571, at p. 576. 2. [1930] N.Z.L.R. 809, at pp. 811-812. 3. [1922] 2 A.C. 180, at p. 219. 4. (1975) 50 A.L.J.R. 106; 7 A.L.R. 667.

By refraining from expressing an opinion on the question whether payment by the purchaser of the balance of the purchase price after commencement of his action against the insurer extinguished any claim against the insurer, his Honour stopped short of deciding the issue now under consideration. Nevertheless, as a matter of principle, the subsequent payment in such a situation demonstrates the absence of any recoverable loss. In effect, where reinstatement has not been sought and no expense has been incurred on it, the subsequent payment extinguishes the claim against the insurers.

Although the appellant did not complete its purchase by paying the balance of the purchase price until 28 February 1986, some three months after the commencement of the action, that payment establishes, in the circumstances of the present case, that the vendor suffered no relevant loss or damage. And even if it could be said that the vendor was provisionally entitled to payment of the insurance moneys before completion of the contract on the footing that it was under a liability to account for what it subsequently received, the question remains whether such an entitlement to payment of the moneys on a provisional basis could ground a right in the appellant under s. 58 of the Act.

Before departing from the appellant's first submission, I should mention that the case has been argued by both parties on the basis that the relevant policy was a contract of indemnity, though some doubt was cast on the correctness of this assumption during the course of argument. By Section 1 of the policy the insurers agreed subject to the general limits of liability elsewhere specified, that, in the event of physical loss, destruction or damage not otherwise excluded, happening to the property insured to "indemnify the Insured in accordance with the applicable Basis of Settlement". The insurers also agreed, again subject to the general limits of liability, to indemnify the insured for other costs and expenses, including costs or expenses incurred in reinstatement. Paragraph (a) of the Basis of Settlement conferred an option on the insurers in relation to buildings, machinery, plant and all other property and contents (except those specified) to reinstate, replace or repair, in accordance with the Reinstatement and Replacement and Extra Cost of Reinstatement Memoranda, any damaged items or to pay the cost of such reinstatement, replacement or repair. Paragraph (vi) of the Memoranda to Section 1 relating to Reinstatement and Replacement stated:

For the purpose of these provisions the amount that would have been payable under Section 1 of the Policy had this Memorandum not been incorporated therein shall be, notwithstanding anything contained in this Memorandum or in Basis of Settlement (a) to the contrary the value of the property insured at the time of the happening of the damage.

As the insured Walter Reid did not seek to reinstate and as the insurer did not seek to exercise its option under par. (a) of the Basis of Settlement par. (vi) of the Memoranda to Section 1 applied with the consequence that in the events that happened the policy operated as a contract of indemnity. Accordingly, the relevant provisions of the policy are such that the insured could not establish that it suffered recoverable loss or damage.

This brings me to the interpretation of s. 58. The object of s. 83 of the Act of 1774 was, as Parker J. said in Sinnott v. Bowden [25] , "to deter fraudulent people from arson, and not to provide a solution of difficulties arising out of rival claims to the policy moneys". As Higgins J. noted in Mylius [26] , this object appeared very clearly from the terms of the Act of 1774. True it is that James L.J. in his dissenting judgment in Rayner v. Preston [27] thought that the critical words in s. 83 extended to a purchaser having an equitable interest under a contract of sale, but this view has not been accepted. Although the statutory statement of object has not been included in the modern Australian counterparts, such as s. 58 of the Act, it has never been doubted that they have the same object and purpose as their eighteenth century ancestor: see Mylius v. Royal Insurance Co. Ltd. [28] . The appellant does not suggest otherwise except in so far as its argument may be taken to attribute inferentially another purpose to s. 58.

1. [1912] 2 Ch. 414. at p. 420. 2. (1926) 38 C.L.R., at p. 499. 3. (1881) 18 Ch. D., at p. 15. 4. [1926] V.L.R. 252, at p. 261.

This in a very real sense is the fundamental difficulty which lies at the heart of the appellant's argument. The courts in Australia, England and New Zealand, seizing on the historic object of s. 83 of the Act of 1774, have interpreted the words "the money for which the building is insured" as referring to the money which the insurer is actually liable to pay to the insured under the policy of insurance. They have rejected the notion that the statutory provisions are intended to expose the insurer to a pecuniary liability more extensive than his contractual liability.

The appellant contests the accuracy of the foregoing statement of the effect of the authorities, claiming that support for its view of s. 58 is to be found in Mylius [29] . I do not agree. In Mylius the Court by majority (Knox C.J., Isaacs and Starke JJ., with Higgins and Rich JJ. dissenting) held that a subsequent purchaser of property on which a building was erected was entitled to require an insurer of the building to apply the insurance moneys in rebuilding and reinstating the building which had been destroyed by fire before the purchaser became registered as proprietor of the land. The insurer had at an earlier time issued a policy of fire insurance in respect of the building to a former owner "as owner" and to her mortgagees "as mortgagees", in effect insuring the owner against damage by fire to their respective interests in the building. In the view of the majority this insurance, so far as it related to the mortgagees, indemnified them against loss or damage to their security in the building and the statute (s. 49 of the Imperial Acts Application Act 1922 Vict.) gave the purchaser, as a person interested in the building, a right to have the insurance moneys, which the insurer was bound to pay under the policy to the mortgagees in the event of loss on the realization of their security, applied in rebuilding and reinstatement. The minority considered that the statute conferred no such right; Higgins J. because he thought that the statute created no individual right of action in the purchaser [30] and Rich J. because he thought that the purchaser mortgagor had no interest in the mortgagees' insurance in the potential loss of their mortgage debt [31] .

1. (1926) 38 C.L.R. 477. 2. (1926) 38 C.L.R., at p. 503. 3. (1926) 38 C.L.R., at p. 506.

Rich J. [32] made a comment which is adverse to the appellant's argument. His Honour said that "the money for which such "building" has been insured" in s. 49 must be understood to describe:

a sum of money which the persons upon whom the section operates are liable to pay over in respect of the demolition or damage. The initial words of the section relating to governors and directors, &c., together with the final provisions of the section, show that the Legislature was speaking of a sum of money in the hands of the officers of the insurer awaiting disposition and was directing how it should be disposed of. The Legislature speaks of the claim being adjusted. This must mean a net sum which has been or must be unconditionally appropriated to answer the damage. There is nothing in the judgment of Isaacs J. (with whom Knox C.J. and Starke J. concurred) that is inconsistent with this comment. The point of departure between the majority and the minority related not to this aspect of the interpretation of the statute, but to the subject-matter of the mortgagees' insurance, the nature of the mortgagor's rights with respect to it and the existence of a private right of action to enforce the statute. 1. (1926) 38 C.L.R., at p. 504.

In Auckland City Corporation v. Mercantile & General Insurance Co. Ltd. [33] , Smith J. took the same view of s. 83 of the Act of 1774 as that expressed by Rich J. in the passage which I have quoted. In Kennedy [34] , Gavan Duffy J. adopted what Rich J. and Smith J. had said. In Hirst [35] , Jenkinson J. also stated that the money to which s. 67 of the Supreme Court Act 1958 Vict. referred "is that which is payable under the policy". And in Portavon Cinema Co. Ltd. v. Price and Century Insurance Co. Ltd. [36] , Branson J. held that s. 83 of the Act of 1774 did not have the effect of making a lessee or other person having an interest in premises an insured person, but gave to such a person, although he was not the insured, a statutory right to direct the insurers to apply the policy moneys in reinstatement of the property.

1. [1930] N.Z.L.R., at p. 812. 2. [1953] V.L.R., at pp. 551-552. 3. [1981] V.L.R., at p. 576. 4. [1939] 4 All E.R. 601.

The interpretation which the appellant seeks to place on the critical words in s. 58 is therefore at odds with an unbroken stream of authority. That stream correctly takes as its foundation the historic object of s. 83 of the Act of 1774 which was to protect insurers, not to expose them to greater liability. The statutory object gave no scope for an operation which would extend the liability of insurers beyond the measure of their contractual liability. And if it be correct to regard the insurer as liable on a provisional basis to pay the insurance moneys to the vendor before completion of the contract by the purchaser, it would be quite inconsistent with the object of the statute to read the statute as conferring on the purchaser any right with respect to the application of those moneys if it appears that the vendor has not suffered a relevant loss or damage.

Section 63 of the Act affords some support for this interpretation of s. 58. Sub-section (1) provides that where after the date of a contract for sale or exchange of any property, moneys become payable under a policy of insurance maintained by the vendor in respect of damage to or destruction of property included in the contract, the money, on completion of the contract, shall be held by the vendor on trust for the purchaser, subject to the rights of encumbrancers. Sub-section (2) provides that the money does not cease to be payable under a policy merely because the risk has passed to the purchaser. Although the section gives the purchaser an entitlement to the insurance moneys in the circumstances mentioned, as distinct from a right to direct that the moneys be applied in rebuilding or reinstatement, its presence is readily explained by reference to the traditional interpretation of s. 58.

Once it is accepted that s. 58 does not impose a pecuniary liability on the insurer extending beyond his contractual liability, the nature and incidents of a fire insurance policy which operates as a contract of indemnity require that the appellant's case must be rejected.

The appellant, Kern Corporation Ltd., became the purchaser of a property from the first respondent pursuant to the exercise of an option on 6 August 1985. The property consisted of land in Ipswich in Queensland upon which was erected a building known as Reid's Department Store. The property was insured by the first respondent ("the insured") with the other respondents ("the insurers") against loss, including loss by fire. On 17 August 1985 the building was destroyed by fire. At that time, completion of the sale of the property had not taken place and was not due until 28 February 1986.

On or about 2 October 1985 the appellant gave notice to the insurers pursuant to s. 58 of the Property Law Act 1974 Q. that it required the money for which the building was insured to be laid out and expended, so far as it would go, towards rebuilding, reinstating or repairing the building. Section 58, which is modelled upon s. 83 of the Fires Prevention (Metropolis) Act 1774 U.K., provides:

Where a building is destroyed or damaged by fire a person who has granted a policy of insurance for insuring it against fire may, and shall, on the request of a person interested in or entitled to the building, cause the money for which the building is insured to be laid out and expended, so far as it will go, towards rebuilding, reinstating, or repairing the building, unless -

(a) the person claiming the insurance money within thirty days next after his claim is adjusted, gives sufficient security to the person who has granted that policy that the insurance money will be so laid out and expended; or

(b) the insurance money is in that time settled and disposed of to and amongst the contending parties to the satisfaction and approbation of the person who has granted the policy of insurance.

It was made clear by the insurers that they did not intend to comply with the notice and on 25 November 1985 the appellant commenced these proceedings in the Supreme Court of Queensland seeking to compel compliance. Settlement took place on 28 February 1986, and in their amended defences the insurers pleaded that the contract constituted by the exercise of the option had been completed and that there were no moneys payable to the insured under the relevant insurance policies. When the matter came on for hearing, the learned trial judge (Connolly J.) determined certain preliminary questions of law by answering them in the following manner:

The fact of settlement in full on 28 February 1986 conclusively establishes that at no material time have the second to eighth defendants been under any obligation to lay out or expend any money towards rebuilding, reinstating or repairing the building. Accordingly judgment was entered for the respondents from which the appellant appealed unsuccessfully to the Full Court of the Supreme Court. It now appeals to this Court.

In Ziel Nominees Pty. Ltd. v. V.A.C.C. Insurance Co. Ltd. [37] this Court observed that it was settled law that a purchaser under an enforceable contract for the sale of land is bound to complete, irrespective of the destruction of the improvements on the land in the meantime and that from the time the contract is made the purchaser has an equitable estate in the land commensurate with the estate which the vendor has agreed by the contract to transfer or convey.

Where, as in this case, a vendor has insured himself against loss or destruction of a building by fire, the purchaser does not acquire any right to the benefit of that insurance. A policy of that kind is a contract of indemnity which entitles the insured to recover his actual loss up to the amount insured or, to use the words of s. 58, "the money for which the building is insured". Ultimately settlement by the purchaser, who is bound by contract to complete, means that the vendor suffers no loss. Nevertheless, putting to one side any question arising under s. 58 of the Property Law Act, when the fire occurs after the contract of sale has been entered into but before completion, the insured vendor is entitled to be paid, within the limits of the insurance policy, the amount of the damage, at all events if completion does not take place before the time for adjustment of the amount due under the policy. Upon such a payment being made, the insurer becomes entitled, by subrogation, to the vendor's rights against the purchaser. Thus, if the vendor does not enforce his rights against the purchaser, the insurer is entitled to do so. If, on the other hand, the purchaser pays the vendor, the insurer is entitled to recover the insurance moneys from the vendor providing the vendor has been fully indemnified. Whilst recovery in the latter way is somewhat of an extension of the ordinary doctrine of subrogation, it is a necessary remedy to prevent the insured receiving more than a full indemnity, that being something which subrogation is designed to avoid. So much is, we believe, established at common law and it is convenient to state the principles compendiously as we have endeavoured to do: see Collingridge v. Royal Exchange Assurance Corporation [38] ; Rayner v. Preston [39] ; Castellain v. Preston [40] ; Phoenix Assurance Co. v. Spooner [41] (which was overruled on another point in West Midland Baptist Association v. Birmingham Corporation [42] ; Kennedy v. Boolarra Butter Factory Pty. Ltd. [43] ; British Traders' Insurance Co. Ltd. v. Monson [44] .

1. (1877) 3 Q.B.D. 173. 2. (1881) 18 Ch. D. 1. 3. (1883) 11 Q.B.D. 380. 4. [1905] 2 K.B. 753. 5. [1970] A.C. 874. 6. [1953] V.L.R. 548. 7. (1964) 111 C.L.R. 86.

It is, perhaps, necessary to add that a purchaser under a contract for the sale of land may separately insure his interest in the land pending completion, but it appears that the need to do this was not widely appreciated. As a result, legislation was passed in England with the intention of extending the benefit of the vendor's insurance to the purchaser: s. 47, Law of Property Act 1925 U.K.. Similar legislation was introduced in Queensland and is contained in s. 63 of the Property Law Act. The legislation has, however, generally been regarded as having failed to mitigate the position of purchasers as the remedy which it provides is limited by the requirement that "any requisite consents of the insurers" be obtained: see MacGillivray & Parkington on Insurance Law, 7th ed. (1981), pars. 1628, 1629; Colinvaux, The Law of Insurance, 5th ed. (1984), p. 309; Sutton Insurance Law in Australia and New Zealand (1980), par. 6.80.

In the present case it was asserted and not denied that the appellant took the prudent course of insuring its interest in the property under the contract of sale. Nevertheless, it chose to pursue whatever remedy it had under s. 58 of the Property Law Act and it is to that claim that we now turn.

There is no question that the insured, as unpaid vendor, had an insurable interest in the property at the time of the fire. But ultimately it suffered no loss because of the completion of the sale and the only point at issue is whether under s. 58 "the money for which the building is insured" is to be calculated disregarding that fact or taking it into account. For "the money for which the building is insured" represents, under an indemnity policy, not the maximum amount payable under the policy, but the loss sustained by the insured in the events which occurred and that is the sum, if any, which the insurer was required to lay out and expend towards rebuilding, reinstating or repairing the building pursuant to the notice given by the appellant.

The policy in question was not a valued policy but an indemnity policy, i.e., a policy against loss during the period of insurance. Notwithstanding equivocal words used later in the policy, it so described itself and that is how, in the absence of special agreement, a fire insurance policy must be regarded. As Kitto, Taylor and Owen JJ. said in Monson [45] :

It is far too late to doubt that by the common understanding of business men and lawyers alike the nature of such a policy controls its obligation, implying conclusively that its statement of the amount which the insurer promises to pay merely fixes the maximum amount which in any event he may have to pay, and having as its sole purpose, and therefore imposing as its only obligation, the indemnification of the insured, up to the amount of the insurance, against loss from the accepted risk. 1. (1964) 111 C.L.R., at pp. 92-93.

The appellant did not contend to the contrary, but submitted that for the purposes of s. 58 the time at which the loss of the insured is to be calculated is the time of the fire, or perhaps the date of the notice or the date of the writ. Each of those dates occurred before completion and, so the appellant contended, it is the amount of the insured's loss disregarding the payment of the purchase money or the right to payment of the purchase money which is to be laid out and expended towards rebuilding, reinstating or repairing the building. The insurers, on the other hand, contended that at no time did the insured suffer any loss by reason of the fire because at the time of the fire and at all times thereafter there was a purchaser ready, willing and able to complete for the full amount of the purchase price. That was evidenced, so it was said, by the fact that the appellant did in fact complete the purchase.

The question which arises is very much one of the construction of s. 58 of the Property Law Act, because the rights and duties of the insurer of a property towards an unpaid vendor are otherwise as we have set them out above and are not really in doubt.

The reason which has been given why an unpaid vendor has an insurable interest is that the contract of sale might never be carried out and, should that occur, the vendor will have suffered loss if the property has been damaged in the meantime: Castellain v. Preston [46] , per Brett L.J. In a broad sense, the rights which the vendor retains in the property before completion constitute security against default on the part of the purchaser and in this way some analogy may be seen between an unpaid vendor and a mortgagee. In Queensland it is possible to speak in a broad sense only because under s. 97 of the Real Property Act 1861 Q. a vendor of land in that State does not have a lien on the land for any unpaid purchase money.

In Royal Insurance Co. Ltd. v. Mylius [47] . the mortgagees of a property were insured against loss by fire. The property, which included certain buildings, and the mortgage debt were each worth more than the limit of the insurance, which was £2,450. The buildings were destroyed by fire and a purchaser of the property, who had not then become the registered proprietor, gave notice to the company under s. 49 of the Imperial Acts Application Act 1922 Vict. which was the then Victorian equivalent of the Queensland section. It was held that the mortgagees had an interest by way of security in the property up to the full value of the mortgage debt. It was this interest which was insured. As Isaacs J., with whom Knox C.J. and Starke J. concurred, said [48] :

No doubt the interest of a mortgagee, and the amount he can recover in case of the security being destroyed by fire, cannot exceed the amount of the mortgage debt. But, having insured his security, he has a right, not exceeding the amount insured, to maintain it at its value, so long and so far as the debt remains. The amount of liability to the mortgagees may therefore be taken at £2,450 1. (1926) 38 C.L.R. 477. 2. (1926) 38 C.L.R., at p. 490.

The principles governing indemnity are bound up with the doctrine of subrogation and may, indeed, be seen as complementary. In the same way as an insurance company which indemnifies an unpaid vendor against loss obtains by way of subrogation the vendor's rights against the purchaser in respect of the unpaid purchase money, so an insurer who pays out a mortgagee for damage to the mortgaged property will stand in the shoes of the mortgagee to recover from the mortgagor the amount paid when the mortgage debt falls due. And if a vendor or a mortgagee receives payment under the contract of sale or the mortgage while still unpaid by the insurer there will then be no claim against the insurer for there will be no loss to be recovered: see Monson [49] . It was this point which had earlier led Rich J. to dissent in Mylius , for he thought that it made it impossible for there to be insurance money payable within the meaning of the relevant section which an interested person might require to be laid out in reinstatement. He pointed to the fact that the relevant section spoke (as does s. 58) of the adjustment of the claim and said [50] :

This must mean a net sum which has been or must be unconditionally appropriated to answer the damage. In the case of the insurance of a mortgagee, which the insurance in question has come to be, no such sum can arise. The true liability of the insurer, when finally worked out, is to indemnify the mortgagee against the loss of his mortgage debt by destruction of part of his security The insurer may be liable to appropriate a sum of money to answer the loss of part of the security for the mortgage debt. But the provision of this sum gives the insurer a corresponding equitable interest in the debt, and the amount of the mortgage debt is a limit on its liability so to do The mortgagee is entitled to receive a sum of money from the insurers equivalent to the value of the destroyed property, but not because this is what he has lost. He is entitled to receive such sum as representing his potential loss of his mortgage debt by reason of the destruction of the property, and only in exchange for a corresponding equitable interest in his rights in the mortgage (personal covenant and estate) which is thereby imparted to the insurers. 1. (1964) 111 C.L.R., at p. 95. 2. (1926) 38 C.L.R., at pp. 504-506.

Of course, even if one adopts a view such as that expressed by Rich J. above, provisions such as s. 58 may cut across the doctrine of subrogation. And if an insurer is required to lay out money in the reinstatement of a building which is damaged by fire in circumstances such as those under discussion, the expenditure is ultimately for the benefit of the purchaser who is, in any event, bound to pay the purchase price or the mortgagor who is bound to repay the mortgage debt. No right of subrogation can arise to recover the money laid out in these circumstances. The majority in Mylius , however, felt themselves bound to accept such a result and to apply the section "notwithstanding any contractual or other legal obligation to the contrary and notwithstanding any individual rights to the contrary" [51] . The consequence of that approach is that an insurer may be put to an expense which it would not otherwise incur in the long run and a person who has paid no premium and is not a party to the insurance policy may receive a benefit under it. The words of the section were held, however, to produce this result and it may be observed that it is at least consistent with the aim of the legislation which according to the actual words of its progenitor, s. 83 of the Fires Prevention (Metropolis) Act 1774 U.K., is "to deter and hinder ill-minded persons from wilfully setting their house or houses, or other buildings, on fire, with a view of gaining to themselves the insurance money".

In Kennedy v. Boolarra Butter Factory Pty. Ltd. [52] a factory, which was insured under a policy taken out by the vendor, Boolarra Butter Factory Pty. Ltd., burnt down before completion of a contract of sale of the property to the plaintiffs. The plaintiffs claimed to be entitled to require the insurance company to reinstate the factory under s. 67 of the Supreme Court Act 1928 Vict. - the then Victorian equivalent of s. 58 - to the extent of the money for which the building was insured. Gavan Duffy J. held that the plaintiffs were so entitled and said that "the money which the insurance company must expend is to be measured by the Boolarra Butter Factory Pty. Ltd.'s interest at the date of the fire" [53] . It is not entirely clear why Gavan Duffy J. selected this date, other than that the vendor had an insurable interest at that time. He said of the vendor [54] :

It is its insurable interest at the date of the fire that is important; it is that which the insurance company must be taken to have assured it, and it may well be said of this unpaid vendor, as was said of the mortgagee, that the insurer had undertaken in effect that the capacity of the security to pay the debt should not be diminished. 1. [1953] V.L.R. 548. 2. [1953] V.L.R., at p. 553. 3. [1953] V.L.R., at p. 554.

But of course it is not the extent of an insurable interest which governs the amount recoverable under an indemnity policy; it is the loss sustained by the insured. And in Hirst v. New Zealand Insurance Co. Ltd. [55] , it was recognized that the amount of the loss might vary, indeed might cease to exist, according to the time at which it was assessed. In that case the plaintiffs agreed to purchase a house property but before completion the house was damaged by fire. The house was covered by an insurance policy taken out by the vendors. On the day before completion took place the plaintiffs required the defendant insurance company, pursuant to s. 67 of the Supreme Court Act 1958 Vict., to cause the money for which the property was insured to be laid out and expended in rebuilding, reinstating or repairing the property. Jenkinson J. pointed out that had the insured vendors themselves commenced an action against the insurers to recover the amount of their loss, they must have failed by reason of the payment of the purchase price made on the day after the notice was given. He relied upon the words of the majority in Monson [56] that such a payment would constitute a bar to the claim, there being no loss to be recovered. Although, upon one construction, s. 67 regards the obligation of the insurer as arising "on the request of any person interested in or entitled to any house or other building", it also appears possible to postpone that obligation until after the time for adjustment of a claim by the insured on the policy and it was the latter construction which was preferred by Jenkinson J. It is implicit in his judgment that he was of the view that before the time had come for adjustment of any claim under that policy the whole of the purchase price had been paid. Accordingly the plaintiffs failed in their action.

1. [1981] V.R. 571. 2. (1964) 111 C.L.R., at p. 95.

Generally we think that the approach which Jenkinson J. adopted was correct, but there are difficulties in attempting to fix the time at which the loss, if any, of the insured is to be assessed by reference to the time for adjustment. Clearly in speaking of adjustment, s. 58 is speaking of adjustment of a claim by the insured, not a claim constituted by a request for reinstatement. As in this case, there may be no claim by the insured and in those circumstances it is artificial to speak of a time for adjustment. Moreover, even if there were a claim by the insured under the policy in this case, no time is fixed for its adjustment.

Nevertheless, the reference in the section to adjustment serves to indicate that the assessment of the amount of the insured's loss and, consequently, the amount to be laid out pursuant to the request of an interested person, is not required to be made in disregard of events which occur or will occur after a point of time such as the date of the fire or the request or the issue of the writ.

But we do not think that it is necessary or possible to fix by way of general rule some precise time at which, pursuant to a request, the obligation on the part of the insurer will arise to lay out the money for which the building is insured towards rebuilding, reinstatement or repair. That will depend on the relevant circumstances as would the time for adjustment under the policy. However, in our view it is the extent of the loss of the insured when that time arrives which must govern the amount, if any, to be laid out pursuant to the request. Nor do we think that in assessing that amount the value of rights possessed by the insured which would reduce or extinguish a loss otherwise sustained are to be disregarded.

True it is that the principles of indemnity insurance require an insurer in adjusting a claim by an insured to disregard those rights of the insured which, when realized, might result in the diminution or extinction of the loss, but this is because the insurer has by subrogation the benefit of those rights once the insured has been fully indemnified. As we have pointed out, s. 58 cuts across the doctrine of subrogation, but we see no reason why that section should not be construed as consistently as possible with basic principle which is directed against the recovery by an insured under an indemnity policy of more than his actual loss. In other words, "the money for which the building is insured" should be construed to mean the net moneys which would be payable under the policy not disregarding, but taking into account, any moneys which would, were a claim to be made under the policy, be recoverable by the insurer in the exercise of its right of subrogation.

In a real sense, as Rich J. pointed out in Mylius [57] , the amount initially payable under an indemnity policy may be provisional only, the final liability of the insurer being determined only after the exercise by it of its right of subrogation. Isaacs J. in Mylius did not express any view upon this aspect of the matter being of the opinion, as he was, that because the mortgage debt remained owing, the mortgagees were entitled under the policy to have the value of their security restored up to the full amount of the policy. He did not find it necessary to consider what the situation would have been had repayment of the mortgage debt been due or about to fall due in circumstances in which it could be established that the mortgagees were assured of their money.

If s. 58 requires the alteration of existing contractual rights and obligations, then it must be given that effect; but, as was observed in Searl v. South British Insurance Co. [58] , it was not passed for that purpose and it ought not be construed as doing so further than is necessary: see Auckland City Corporation v. Mercantile & General Insurance Co. Ltd. [59] . The view which we have expressed does, we think, give full effect to the purpose of the section while minimizing the incompatibility between the section and established principles of indemnity insurance.

1. [1916] N.Z.L.R. 137. 2. [1930] N.Z.L.R. 809, at p. 812.

Accordingly it is our opinion that at the time for the performance of any obligation on the part of the insurer resulting from the notice given by the appellant, no loss had been sustained by the insured.

When a building is destroyed or damaged by fire after the owner has entered into an unconditional contract to sell the land on which it stands, the vendor may or may not thereby suffer loss. The answer to the question whether he has suffered loss depends on the terms of the contract, whether the contract is specifically enforceable and whether the purchaser is ready willing and able to complete the sale. If the purchaser is not entitled under the contract to an abatement of the price on account of the destruction of or damage to the building by fire and if, despite the fire, the contract is specifically enforceable and the purchaser is ready willing and able to complete the sale, the vendor suffers no loss: he will receive all that he is entitled to, namely, the purchase price in full on completion or at the time stipulated. On the hypothesis that the purchaser is obliged to pay the full purchase price in exchange for the title agreed to be sold irrespective of the destruction of or damage to the building - an hypothesis which s. 64 of the Property Law Act 1974-1978 Q. makes inapplicable to the sale of a dwelling-house - the vendor suffers no loss of what he acquired under the contract, namely, the right to the payment of the price in due time (Ziel Nominees Pty. Ltd. v. V.A.C.C. Insurance Co. Ltd. [60] ) and, if the purchaser is ready willing and able to complete, the vendor's right will be satisfied.

1. (1975) 50 A.L.J.R. 106, at p. 107; 7 A.L.R. 667, at p. 669.

On the facts admitted for the purpose of obtaining a decision on preliminary issues of law in the present case, the vendor Walter Reid Trading Pty. Ltd. ("Walter Reid") suffered no loss when its department store was destroyed by fire on 17 August 1985. At that time, it had entered into an unconditional contract to sell the property to Kern Corporation Ltd. ("Kern"), the contract was specifically enforceable and Kern was ready willing and able to perform its obligation to pay the agreed purchase price without abatement on completion. And Kern did so pay the price on 28 February 1986. Kern does not suggest that at any material time it was not ready willing and able to pay the price on completion; indeed, it pleaded that it was ready willing and able to complete the contract on 28 February 1986 in accordance with its terms. It follows that although Walter Reid had an insurable interest in the building as unpaid vendor, it suffered no loss by fire.

Walter Reid's insurers under certain fire policies were the second to eighth respondents. Before completion of the sale, Kern gave notice to the insurers pursuant to s. 58 of the Property Law Act demanding that the insurers cause "the money for which the building is insured" to be laid out towards rebuilding the building. The insurers' liability being in dispute, Kern, before completion of the sale, commenced the present proceedings against Walter Reid and the insurers seeking, inter alia, a declaration that the insurers are under a duty to lay out money towards rebuilding.

Section 58 affects the rights of an insurer and an insured by conferring on a person who is "interested in" a building insured against fire but who is a stranger to the insurance contract the right to compel the insurer to lay out "the money for which the building is insured" towards rebuilding whether or not the insured wishes to be paid the insurance moneys: Portavon Cinema Co. Ltd. v. Price and Century Insurance Co. Ltd. [61] . But s. 58 does not increase the amount which the insurer is liable to pay under the policy. Whether that liability is to be discharged by the payment of money to the insured or to a person interested in the building or by laying out money in rebuilding, the amount so to be paid or laid out does not exceed the maximum amount which the insurer would, apart from s. 58, be liable to pay the insured under the policy: Royal Insurance Co. Ltd. v. Mylius [62] ; British Traders' Insurance Co. Ltd. v. Monson [63] ; Auckland City Corporation v. Mercantile & General Insurance Co. Ltd. [64] .

1. [1939] 4 All E.R. 601. 2. (1926) 38 C.L.R. 477, at pp. 488, 504. 3. (1964) 111 C.L.R. 86, at p. 102. 4. [1930] N.Z.L.R. 809, at p. 812.

A fire policy, whatever its terms, is a contract of indemnity only: Castellain v. Preston [65] ; Monson [66] ; Burnand v. Rodocanachi [67] . But it is an indemnity against loss, and loss may occur in a variety of ways. When an insured takes out a policy to protect no more than his own interest, the measure of the insurer's liability under the policy will ordinarily be the market value of the insured's interest in that property but there may be circumstances in which payment of the market value of an insured's interest does not fully indemnify him against the loss he has suffered: Castellain v. Preston [68] ; Monson [69] . Thus in Castellain v. Preston [68] , Bowen L.J. pointed out the loss which a tenant of a dwelling might suffer if the dwelling is burnt down:

It is true that in most cases the claim of the tenant from year to year, or for years, cannot be answered by handing over to him what may be the marketable value of his property; and the reason is that he insures more than the marketable value of his property, and he loses more than the marketable value of his property; he loses the house in which he is living and the beneficial enjoyment of the house as well as its pecuniary value. 1. (1883) 11 Q.B.D. 380, at pp. 386, 393, 397. 2. (1964) 111 C.L.R., at pp. 92-94, 101-102. 3. (1882) 7 App. Cas. 333, at p. 339. 4. (1883) 11 Q.B.D., at p. 400. 5. (1964) 111 C.L.R., at pp. 93, 96. 6. (1883) 11 Q.B.D., at p. 400.

In some circumstances an insured will not be fully indemnified unless the building which fire has destroyed is rebuilt. That was the principle invoked in Mylius . In Mylius , a submission that a mortgagee's interest in the mortgaged property was limited to any loss sustained in recovering the mortgage debt was rejected. The mortgagee's insurer under a fire policy could not escape liability to lay out the full amount for which the property was insured towards rebuilding it after a fire because the value of the property as a security for the debt was diminished by fire damage [70] . However, the upper limit of the insurer's liability to the mortgagee was the amount of the mortgage debt or the amount for which the property was insured, whichever was the less, for a mortgagee's loss from destruction of the mortgaged property cannot exceed the amount of the debt secured on it. In Mylius , the amount for which the property was insured was the effective limit. The interest of a mortgagee in the mortgaged property is not to be equated with the interest of a vendor in the property the subject of an unconditional contract of sale. Although an unpaid vendor is entitled to look to the property agreed to be sold as security for payment of the price (I pass over s. 97 of the Real Property Act 1861-1985 Q. which abolishes a vendor's equitable lien), fire damage is immaterial to the price which the vendor is contractually entitled to receive (unless the price is subject to abatement); but fire damage affects the capacity of mortgaged property readily to be sold to meet the mortgage debt.

In the present case, once it is established that Kern was, at all material times, ready willing and able to complete the contract in accordance with its terms, it is clear that Walter Reid suffered no loss. Indeed, any purchaser who, in seeking to establish an interest in property for the purpose of making a demand against the vendor's insurer under s. 58, relies on the facts that he is ready willing and able to pay the full purchase price on completion of the contract of sale and that completion of the contract is specifically enforceable destroys the foundation on which his s. 58 demand must rest, namely, that the insured has suffered an indemnifiable loss. There are some cases where it has been held, erroneously in my respectful opinion, that a vendor under an unconditional contract of sale suffers an indemnifiable loss though the price is not subject to abatement, the contract is specifically enforceable and the purchaser is ready willing and able to pay the full price on completion: see Collingridge v. Royal Exchange Assurance Corporation [71] and Kennedy v. Boolarra Butter Factory Pty. Ltd. [72] . Collingridge v. Royal Exchange Assurance Corporation was decided before Castellain v. Preston and its authority cannot be regarded as surviving that decision. And in Kennedy v. Boolarra Butter Factory Pty. Ltd. no distinction was drawn between the vendor's insurable interest in the property (which exists while the contract is executory since the vendor may possibly have the property back on his hands if the contract is not completed) and the vendor's loss (which is not suffered unless the purchaser ceases to be ready willing and able to pay the purchase price in full in accordance with the terms of the contract) [73] . When there is an unconditional and specifically enforceable contract for the sale of a property and the property is damaged by fire, a purchaser who is ready willing and able to complete the sale by payment of the full purchase price faces a dilemma in making a demand under s. 58: by establishing his own interest in the property, he establishes that the vendor has suffered and will suffer no loss by fire. The dilemma is fatal to his claim. Such a purchaser must protect his interest under another policy or under the provisions of s. 63 of the Property Law Act if he has obtained the cover available pursuant to its terms.

1. (1877) 3 Q.B.D. 173. 2. [1953] V.L.R. 548. 3. [1953] V.L.R., at p. 553.

Here, in order to establish its interest in the building as equitable owner, Kern established that Walter Reid had suffered no loss. As the insurers were under no liability, Kern's demand under s. 58 was without foundation. The appeal must be dismissed.

For limited purposes, the distinction between legal title and beneficial ownership may provide a useful reference point in describing the position of the ordinary unpaid vendor of land under an uncompleted contract of sale. However, and with due respect to some past statements of high authority to the contrary, it is wrong to characterize the position of such a vendor as that of a trustee. True it is that, pending payment of the purchase price, the purchaser has an equitable interest in the land which reflects the extent to which equitable remedies are available to protect his contractual rights and that the vendor is under obligations in equity which attach to the land. None the less, the vendor himself retains a continuing beneficial estate in the land which transcends any "lien" for unpaid purchase money to which he may be entitled in equity after completion. Pending completion, he is beneficially entitled to possession and use. Pending completion, he is beneficially entitled to the rents and profits. If the purchaser enters upon the land without the vendor's permission and without authority under the contract, the vendor can maintain, for his own benefit, an action for trespass against the purchaser. While the practical significance of those continuing beneficial rights of the vendor may vary according to particular circumstances (e.g. whether completion is already overdue or is not due for some lengthy period), it is both inaccurate and misleading to speak of the unpaid vendor under an uncompleted contract as a trustee for the purchaser: see, generally, per Brett L.J., Rayner v. Preston [74] and Waters, The Constructive Trust (1964), p. 74ff. There is authority for the view that, after completion has actually taken place, some of the equitable rights of the purchaser, which (in their entirety) then constitute beneficial ownership, relate back to the date of the contract. But there is no relation back of beneficial ownership in the sense that the vendor is retrospectively deprived of his beneficial right, pending payment of the full purchase price, to the possession, use, rents and profits of the land. Regardless of whether his rights be viewed in the perspective of foresight (i.e. before completion) or hindsight (i.e. after completion), the ordinary unpaid vendor of land is not a trustee of the land for the purchaser. Nor is it accurate to refer to such a vendor as a "trustee sub modo" unless the disarming mystique of the added Latin is treated as a warrant for essential misdescription.

The present case arises out of the destruction by fire, on 17 August 1985, of a building known as "Reid's Department Store" in Ipswich, Queensland. The legal owner of the land, at the time of the fire, was Walter Reid Trading Pty. Ltd. ("Reid") which had entered into a binding contract to sell the land to Kern Corporation Ltd. ("Kern"). The purchase price had not been paid and the contract was not due to be completed until 28 February 1986 which was more than six months away. Reid remained in possession of the premises on which it was conducting a retail department store. Assuming that it could be established at that stage that the purchaser would be ready willing and able to complete in six months' time, Kern, as such purchaser, had equitable rights against the land. But those equitable rights did not constitute beneficial ownership. Nor did they suffice to deprive Reid completely of its equitable estate in the land. Pending completion, Reid remained beneficially entitled to the possession, use, rents and profits of the land. Its beneficial estate in the land was diminished to the extent of Kern's defeasible equitable interest in it. Otherwise it persisted.

At material times, there existed current policies of insurance ("the policy") whereby a group of insurance companies ("the insurers") agreed to indemnify Reid against loss as specified therein including destruction of or damage to real and personal property belonging to Reid. The liability of the insurers was subject to certain limits in amount (both minimum and maximum) which it is unnecessary to explore and to exclusions which are not here relevant. It is common ground that, within the specified limits, the policy extended to indemnify Reid according to its terms in respect of the destruction by fire of the building. According to the terms of the policy, the insurers agreed, in the event of any "Destruction or Damage happening to" the insured building, to "indemnify [Reid] in accordance with the applicable Basis of Settlement". The "Basis of Settlement" in that event was defined by the policy as being that the insurers "may at [their] option reinstate, replace or repair or pay the cost of such reinstatement, replacement or repair". In other words, the effect of the terms of the policy was, within the limits of the indemnity, that Reid was entitled to insist upon the reinstatement of the building at the cost of the insurers and that, if Reid so insisted, it was a matter for the insurers whether they themselves reinstated or paid to Reid, as the insured, the cost of reinstatement. Putting to one side for the moment the effect of s. 58 of the Property Law Act 1974 Q., there is nothing in common law principle or statutory provision which precluded the policy from having that effect. If the building had been reinstated at the cost of the insurers, Reid would have derived no advantage from the occurrence of the fire notwithstanding the receipt of the full purchase price upon completion. The result of such reinstatement would have been, no more and no less, the restoration of the position which existed before the occurrence of the damage against which (among other things) the insurance had been taken out. If it be relevant, one could instance many examples of circumstances in which the owner of land might legitimately be concerned to have the protection of insurance to cover reinstatement of a building damaged during the period between the making and completion of a contract for the sale of the land upon which the building is erected. One such example is where the use of the building by the vendor up to the time of completion is necessary for business reasons. Another is where the vendor is not prepared to run the risk of intervening insolvency of the purchaser. Another is where, because of fear of litigation or for reasons of family affection or moral obligation, the vendor is not prepared to seek to enforce a contractual entitlement that the purchaser pay the full purchase price for premises which have been destroyed or substantially damaged by fire.

In fact, however, Reid did not seek or desire to have the building reinstated. It was content to rely on its contractual right that Kern accept the land with the building in its damaged condition. It is argued that, in the absence of any desire on the part of Reid to have the building reinstated and in the light of the subsequent completion of the sale, Reid did not ultimately sustain any loss against which the insurance policy provided indemnity. That argument seems to me, with respect, to represent a half-truth which conceals rather than elucidates the problem involved in the application of s. 58 to the circumstances of the present case. It may be that, with the benefit of hindsight, it is arguable that Reid was not ultimately, in so far as is presently relevant, financially worse off because of the fire. But the fact remains that Reid sustained loss or damage of the kind covered by the terms of the policy in that the insured building which it legally owned and beneficially occupied for the purposes of its business was destroyed by fire. Indeed, it seems to me that to enunciate the proposition that a person who is the legal and (subject only to the equitable interest of a purchaser under a contract which is not due for completion within the ensuing six months) beneficial owner of a building which he beneficially occupies for the purpose of carrying on his business does not sustain loss or damage for the purposes of a reinstatement policy when the building is destroyed or damaged by fire is to demonstrate its unacceptability as a statement of general principle. The most that can be said is that the circumstances that Reid did not seek to or desire to have the building reinstated and that it ultimately sustained no relevant financial loss have produced a situation where, subject to the effect of s. 58 of the Act, the liability of the insurers under the policy to bear the cost of reinstatement was eventually waived by Reid or, if not waived, deprived of content. The fact that events absolved the insurers of any continuing liability to Reid does not, however, provide an answer to the question whether the insurers are under any continuing liability as a consequence of a notice given by Kern under the provisions of s. 58 of the Act at a time when the insurers remained liable to Reid for any costs of reinstatement. The answer to that question is to be found in the terms of s. 58 and the decision of the Court in Royal Insurance Co. Ltd. v. Mylius [75] .

Section 58 of the Act requires that, where a building is destroyed or damaged by fire, an insurer of the building against fire "shall, on the request of a person interested in or entitled to the building, cause the money for which the building is insured to be laid out and expended, so far as it will go, towards rebuilding, reinstating, or repairing the building" unless certain other things, which have not here happened, occur. Plainly, Kern was, at the time of the fire and at the time it gave notice to the insurers under the section, "a person interested in" the building. It remains such a person. That being so, the effect of the giving of the notice was that the insurers came under a statutory duty to "cause the money for which the building is insured to be laid out and expended, so far as it will go, towards" rebuilding, reinstatement or repair.

The insured under the policy of insurance in Mylius were the vendor and the mortgagees of Torrens system land in the State of Victoria upon which a building had been destroyed by fire. At the time of the fire, the vendor had been paid the full purchase price and the instrument of transfer, which was subject to the mortgage, had been signed. The purchaser from the vendor had entered into a contract for the sale of the land to a subsequent purchaser who had in turn entered into a further contract of sale to the ultimate purchaser, Mr. Mylius. In those circumstances, the vendor was, in truth, a trustee of the land and sustained no loss or damage by reason of the destruction of the building. For their part, the mortgagees would ultimately sustain financial loss by reason of the fire only if it became necessary for them to resort to their security to obtain payment. The insurers were prepared to indemnify them against financial loss in that regard. The question in the case was whether the ultimate purchaser was entitled to require, pursuant to the local equivalent of s. 58 of the Act, that the building be reinstated at the cost of the insurers up to the limit of the insurance. The decision of the Court (Knox C.J., Isaacs and Starke JJ., Higgins and Rich JJ. dissenting) was that he was.

The first step in the chain of reasoning that led the majority of the Court to that answer in Mylius was the identification of the duty owed by the insurer to the mortgagees under the policy. Isaacs J., with whom Knox C.J. and Starke J. agreed, defined that duty [76] as "a duty to restore the building burnt substantially as it was before the fire, so far as the money owing by the insurer will allow that to be done". The fact that the mortgagees would not ultimately sustain financial loss by reason of the fire unless default was made in payment of the moneys owing under the mortgage did not, on the view of the majority, preclude the existence of that liability on the part of the insurer. The reason for that [77] was that the subject-matter of the insurance had been the building and the mortgagees were entitled to insist upon reinstatement notwithstanding that they would ultimately suffer no relevant financial loss if the building was left in its damaged state and the mortgagor paid the full amount under the mortgage when it became due. In relevant respects, the interest of the unpaid vendor (Reid) in the building at the time of the fire in the present case was more substantial than that of the mortgagees in Mylius in that, as has been said, Reid was beneficially entitled to the possession, use, rents and profits of the building. Reid's position would, for present purposes, have closely corresponded with that of the mortgagees in Mylius if the contract had already proceeded to the stage of completion but part of the purchase money had been allowed to remain outstanding on the security (whether written mortgage or, ignoring the effect of s. 97 of the Real Property Act 1861 Q., equitable charge) of the land. The reasoning accepted by the majority in Mylius directly supports the conclusion (reached above) that, in the present case, the insured (Reid) was, immediately after the fire, entitled to insist upon reinstatement of the building at the cost of the insurers notwithstanding that it would ultimately suffer no relevant financial loss if the building was left in its damaged state and the purchaser (Kern) paid the full amount under the contract when it became due.

1. (1926) 38 C.L.R., at p. 491. 2. (1926) 38 C.L.R., at pp. 489-490.

The question arises whether the liability of the insurers to Reid to bear the costs of reinstatement of the building can be seen, for the purposes of s. 58, as representing "money for which the building is insured". Obviously, in a case where an amount of money is directly payable to an insured under a policy, a s. 58 notice will ensure that the moneys payable will be applied to reinstatement unless one or other of the two exculpating conditions (s. 58(a) and (b)) is satisfied. It would be somewhat anomalous if the position of the person giving the notice was weaker in a case where the actual liability of the insurer under the policy was to bear the costs of reinstatement. The decision of the majority in Mylius rejected any such anomaly. It was held by the majority that the insurer's liability "to restore the building" up to the limit of liability [1] should, for the purposes of the section, "be taken at" the amount of that limit [2] .

1. (1926) 38 C.L.R., at p. 491. 2. (1926) 38 C.L.R., at p. 490.

The final step in the reasoning of the majority in Mylius is likewise applicable to the present case. There, as has been said, the insurer had, after the fire, undertaken to the mortgagees that it would indemnify them against any financial loss which they might ultimately sustain. None the less, the Court held that the insurer's liability to the mortgagees to bear the costs of reinstatement of the building (up to the limit of the insurance) constituted an adequate basis for the operation of the statutory provision to entitle the purchaser, as a "person interested in or entitled to" the building, to insist that an amount up to that limit be applied by the insurer to reinstatement. That entitlement of the person giving the s. 58 notice could not be overridden by agreement between the insured and the insurer or by waiver by the insured. As Isaacs J. said [3] :

And the company [i.e. the insurer] is not permitted to refuse its duty and substitute performance of some agreed course of conduct outside the enactment. So that, both on independent interpretation and on authority, the statutory duty is, not only explicit, but it is in law exigent, unless one or other of the two specifically named exculpating events come into existence. Apart, then, from displacement by one or other of those two events, the command of the Legislature must be followed, and cannot be commuted or bartered for damages. It follows that Kern's right, under s. 58, to insist on reinstatement persisted notwithstanding any waiver by Reid of its right under the policy to insist upon reinstatement of the building at the cost of the insurers. This position conforms with the general legislative policy to be discerned in the combined operation of ss. 58 and 63 of the Act, namely, that where property is damaged by fire in the period between contract of sale and completion, the benefit of any liability owed by an insurer under a policy over the property, be it a liability to reinstate or a liability to pay money, should be enjoyed by the purchaser if and when completion takes place unless some special condition or circumstance is satisfied or exists. 1. (1926) 38 C.L.R., at p. 495.

The decision in Mylius has now stood for more than sixty years. Notwithstanding the force of the reasoning in the dissenting judgment of Rich J., it should not now be disturbed. That decision is applicable to the circumstances of the present case to lead to the conclusion that the effect of the notice under s. 58 of the Act given by Kern to the insurers at a time when the insurers were liable to reinstate or bear the costs of reinstatement of the building was that Kern became entitled to insist that the insurers bear the liability for reinstatement of the building up to the limit of the insurance. That being so the appeal should be allowed and orders should be made vindicating that entitlement of Kern.