Legge v Universal Hospitality Group Pty Limited

The Hearing

1. Neon commenced by calling evidence from two underwriters from Neon's Australian agent, ASR Underwriting Agencies Pty Ltd, David Lawson and Nathan Sommer. Mr Lawson and Mr Sommer gave evidence regarding underwriting practices and their dealing with this particular renewal for the relevant insurance period. Neither of those individuals had been to the Civic Hotel and both had no personal knowledge of the premises, layout or operation at the time of the binding of cover.
2. Mr Lawson said in his affidavit affirmed on 12 February 2020 that his job was "to assess proposals for new business and renewals for liability insurance submitted by brokers on behalf of businesses and decide whether to offer insurance in accordance with our binder agreements". [2]
3. Mr Lawson also said in his affidavit "If it was a renewal, I would also provide Nathan Sommer with the complete file…. Nathan would review the terms and sign off on them or ask questions. If he had any questions or queries, Nathan would direct me to follow them up with the broker. Once I received Nathan's sign off on the quote, I would send the terms to broker with a copy of the policy wording and information relating to our claims process". [3]
4. Mr Lawson further stated: "[68] If the renewal questionnaire was answered differently, say that it disclosed that: (a) dancing took place regularly, around 1 - 2 times a week; (b) live entertainment was offered regularly, around 1 - 2 times a week and included DJs, bands and cabaret; (c) cover charge was required to enter parts of the venue 1 - 2 times a week or fortnightly; (d) security was employed 1 - 2 times a week; (e) it hosted disco events; and (f) it hosted nightclub events, around 80 a year I would not have prepared renewal terms and would have recommended to Nathan that we decline to underwrite that risk". [4]
5. There was extensive cross-examination of Mr Lawson directed to the role of the Renewal Matrix in deciding whether to underwrite a business and the extent to which there was discretion to refer matters for cover in certain circumstances, rather than there being any real practice to always decline premises that had within them something that could be described as a "nightclub". There was also cross-examination directed at whether the "normal practice" Mr Lawson says he followed was in fact followed in his dealing with the proposal in issue.
6. Mr Sommer was the Underwriting Manager at ASR in 2011. In his affidavit sworn 12 February 2020 he set out the usual process for new business and the usual process for renewals. He explained that his understanding, through (unspecified) internal discussions, was that "Marketform did not want to insure nightclubs or nightclub activities and in my liability underwriting experience, nightclub risks were to be avoided".
7. He went on to explain the reasons why in [53] of his affidavit which included that the risks typically associated with nightclubs included, dim lighting (a trip and fall hazard), patrons moving with less restraint, assault claims where there is excessive drinking and drugs, and intoxicated patrons that made it "harder to successfully obtain contributory negligence as the venue may have breached its RSA". He said that for these reasons "as I understood it, ASR and Marketform chose not to write nightclubs in its binder" [5] .
8. Relevantly Mr Sommer explained that the same considerations applied to a "mixed venue" which he described as premises that "usually operate so that the street level is a pub and they have a rooftop or basement which is a nightclub". "[56] If you have that nightclub facility within a larger premise, we still decline. We cannot select an area of a hotel not to insure. We would decline that risk in its entirety. Any venue that has a nightclub or discos within its premises is outside the matrix. There are no exceptions to that".
9. Mr Sommer also deposed to the fact that the nightclub exclusion clause included in the policy was a "re-affirmation" of the decision not to underwrite nightclubs so that "in the event you as the underwriter, are not given the correct information, the exclusion will apply". He describes this as a "back stop", the primary objective being "to avoid writing the cover at all if the premises had a nightclub anywhere in it". [6]
10. Mr Sommer was cross-examined extensively about whether the asserted usual practice was followed and whether there had been compliance with proper underwriting practice in respect of unanswered questions on the proposal form asserted to be relevant to the question of whether to underwrite the business of insuring Universal 1919 for 2011. He was also cross-examined about the option to refer business to "London", in circumstances where the parameters in the matrix are not met, or where there is a "controversial application that might have features that some people might describe as a nightclub and others might not". [7]
11. The third witness Neon called was Mr Ashraf. He was employed by a security company - Global World Group Pty Ltd - contracted to supply security guards to the Civic Hotel in amongst other years, 2011. He deposes to a recollection that at the time another patron had a fall - 4 February 2011 - and for "the entire time" he worked at the Hotel, the downstairs area operated as "Civic Underground" and was a nightclub every Friday and Saturday night. He said that there was dancing every Friday and Saturday night, a cover charge required to enter at that level, and that he observed a custom made sound system and sound proofing and strobe and coloured lighting.
12. Mr Ashraf was cross-examined about his recollections and the timing of his asserted knowledge and observations of what occurred on the premises.

The issues relevant to the documents sought to be tendered by Neon

1. Very obviously, a key issue is whether, as a matter of fact, the Civic Hotel, or any part of it, operated as a nightclub as defined in the policy and (perhaps less significantly), the extent to which answers to other questions - (regularity of dancing, how often live entertainment occurred, whether there was a cover charge and how often security was employed)- if answered differently, would have caused the underwriters to recommend to decline to underwrite the premises.
2. "Nightclub" is defined in the policy that was in place in 2011 as follows: "14.2 Nightclub "Nightclub" shall mean the following:- For the purposes of this insurance policy a nightclub is defined as a nightclub where:- (1) Where a premises is licensed as such or (2) The premises is not licensed as a nightclub but where dancing is regularly undertaken and the venue is arranged in such a manner as to offer permanent dancing and musical entertainment. For the avoidance of doubt, in deciding whether any venue would be excluded under this policy, if the venue conducts three or more of the following activities it is excluded. (1) charges an entrance fee (2) employs bouncers or employs security personnel to manage the entrance to the dance premises (3) has special lighting (4) is marketed as a nightclub (5) has Insufficient natural light to be able to walk around the premises freely and without difficulty (6) has a permanent sound system (7) has soundproofing Regardless as to whether or not any venue operates under the licence of a hotel or motel or other licensed premises such operation is not covered under this policy."
3. The position is somewhat complicated by the fact that there is a further reference to "nightclubs" in respect of "Hotels" which appears to contemplate insurance cover being provided to the hotel or motel, but that such "activities" would be specifically excluded under the policy. "14.3 Hotel and or Motel "Hotel or motel" shall mean the following:- A licensed hotel or motel, licensed as such by the appropriate State Licensing laws, whose principal business is that of a hotel or motel and who abide by the State Licensing obligations. These ongoing obligations include but are not limited to: having a house policy for intoxicated persons, dealing with underage drinking, staff training and providing a safe environment. Any insured hotel or motel may from time to time provide live entertainment and or dancing, however if this activity is undertaken:- (1) away from the insured's premises or (2) via a separate entrance available to the general public outside of the internal boundaries of the insured's premises, or (3) as a nightclub, or (4) operates beyond the normal licensing hours operated by the hotel or motel, or (5) with a separate entrance fee charged to the general public for such activities and it is available without entering the insured's main premises, then such activities are specifically excluded under this policy. Underwriters may agree not to exclude such activities listed above provided full details are submitted to them and an additional premium (If any) is paid to cover these activities."
4. It should be noted that the ASR Insurance Renewal Questionnaire signed by Mr Kospetas in January 2011 is headed "Hotels/Motels/Resort/Restaurant".
5. Neon has an evidentiary onus to persuade the Court, on the subjective or alternatively on the objective test in s 21 of the Insurance Contracts Act, that at the time the proposal form was completed, the author knew or should have known that a nightclub was being operated on the premises, but that the person failed to disclose that by ticking the yes/no box next to "nightclub" on the relevant proposal form, "no".
6. At that point on the proposal form there is a note in significantly smaller print -"For definition see page 10 section 14.2 of the ASR hotel/motel/backpacker liability wording". There is no evidence that the wording of that "definition" was provided to the person completing the proposal form.
7. Mr James Kospetas was called by Universal 1919 as the person who completed the proposal form. He was extensively cross-examined by counsel for Neon, Mr Elliott SC. Mr Elliott south to tender various materials through Mr Kospetas to which objection was taken by Universal 1919 via its counsel Mr Williams SC.

1. Mr Pont's affidavit and investigation report and annexures

(a) The nature of the material

1. Mr Pont is a licensed private investigator who was contracted in 2011 to investigate a fall at the Civic Hotel said to have taken place on the evening of 5 February 2011. Mr Elliott SC sought to tender the affidavit annexing Mr Pont's investigation report prepared between July and November 2011. Mr Williams SC objected.
2. The affidavit of Mr Pont described his background qualifications as a licensed private investigator and that in his capacity as a factual investigator, he attended the Civic Hotel in July 2011. He also later interviewed two individuals and a security guard, Mr Ashraf.
3. Mr Ashraf has given evidence in these proceedings. His affidavit affirmed on 12 February 2020, includes the signed statement he made to Mr Pont in November 2011.
4. One of the others interviewed by Mr Pont was identified as Mr Fahey described by Mr Pont in the draft statement that Mr Pont prepared as "operations manager". Mr Pont appended to his investigation report statements that he attributes to Mr Fahey and a Mr Willoughby. Mr Willoughby is referred to as "duty manager" present on the night of 5 February 2011. Neither statement is signed and there is no evidence that either attributed statement was ever adopted by either person.
5. Mr Pont stated in his affidavit that he took contemporaneous notes of his interviews which formed the basis of the draft statements. He emailed the drafts to Mr Willoughby and Mr Fahey, requesting their review and signature, but he did not hear back from either of them. He stated that this is "not unusual".
6. Mr Pont also took photographs at the premises. Three pages of photographs with a commentary as to what they showed are included in his report together with a comment as to what he observed in relation to the size and location of a dance floor on the first floor of the Civic Hotel. At 6.7 of a page titled "Circumstances of accident/injury", Mr Pont stated that the "nightclub area has a polished floorboard floor extending about 3.5m out from the semicircular bar and then out to the dance floor area leading up to the stage."
7. It was common ground that the photographs and the statement at 6.7 are in a different category to the rest of Mr Pont's material because they comprise the observations by Mr Pont of the physical layout of parts of the interior of the Civic Hotel as at July 2011 and are therefore relevant, not hearsay and have a potential bearing on the issues for determination. Mr Williams did not argue against that proposition. Those parts were extracted and tendered. [8]

(b) Submissions

1. Mr Elliott argued that the physical composition of the establishment, including, in particular, the "Civic Underground" in the basement level is relevant and so what Mr Pont says about it in his report should be admitted. What representatives of the insured (Mr Fahey and Mr Willoughby) admitted as to activities undertaken at the establishment is also relevant. Explanation by relevant witnesses as to their role at the establishment and what they did there is admissible and should be received into evidence. In particular the accounts of Mr Fahey and Mr Willoughby are admissions and under s 81 of the Evidence Act should be received as such.
2. Mr Williams objected to the rest of the material comprising Mr Pont's affidavit and report on the basis that the contents are nothing more than observations and conclusions reached by Mr Pont based upon discussions he had with third parties. The so-called "admissions" by Mr Willoughby and Mr Fahey were not made by a person with authority to make them. In any event, the "statements" of Mr Willoughby and Mr Fahey are in draft form and have not been signed or adopted. Overall the material is hearsay, not relevant, opinion without proper bases being stated and includes argumentative (and potentially prejudicial) material along the lines of references to a "nightclub" being operated in the Civic Hotel, without reference to the bases for that description.

(c) Reasons for ruling

1. Only relevant evidence should be accepted. Section 55 of the Evidence Act defines relevant evidence as evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding. Section 55(2) further provides that evidence is not irrelevant only because it relates to credibility of a witness, the admissibility of other evidence or a failure to adduce evidence.
2. Hearsay evidence should be excluded, unless it falls within one of the exceptions stated in the Evidence Act. Section 59 provides: (1) Evidence of a previous representation made by a person is not admissible to prove the existence of a fact that it can reasonably be supposed that the person intended to assert by the representation. (2) Such a fact is in this Part referred to as an asserted fact. (2A) For the purposes of determining under subsection (1) whether it can reasonably be supposed that the person intended to assert a particular fact by the representation, the court may have regard to the circumstances in which the representation was made.
3. Section 81 of the Evidence Act provides that the hearsay rule does not apply to evidence of an admission. "Admission" is defined in the Act's dictionary to mean a previous representation that is (a) made by a person who is or becomes a party to a proceeding and (b) adverse to the person's interest in the outcome of the proceeding.
4. Section 87 of the Evidence Act provides for admissions made with authority. For the purpose of determining whether a precious representation made by a person is also taken to be an admission by a party, the court is to admit the representation if it is reasonably open to find that: 1. When the representation was made, the person had authority to make statement on behalf of the party in relation to the matter with respect to which the representation was made; or 2. When the representation was made, the person was an employee of the party or had authority to otherwise act for the party, and the representation related to a matter within the scope of the person's employment or authority; or 1. The representation was made by the person in furtherance of a common purpose (whether lawful or not) that the person had with the party or one of more persons including the party.
5. There is no evidence that Mr Fahey and Mr Willoughby had any authority to make admissions for Universal 1919. The material in the "draft statements" is hearsay and may well be inaccurate. The statements contain many identical paragraphs which leads me to a concern as to the quality of the purported "statement". In effect the material in issue amounts to an investigator's account of his interpretation of what others said of a general nature about the operation of the premises on one particular night and his own impressions and surmise as to what occurred at the premises.
6. At that level, Mr Pont's opinion and accounts are irrelevant and evidence of them should be excluded on that basis. Even if they were relevant, as defined by s 55 of the Evidence Act, I would exclude this material under s 135 of the Evidence Act because its probative value, which is very slight, is substantiality outweighed by the danger that the evidence might be unfairly prejudicial to Universal 1919.

(a) The nature of the material

1. This category of documents is a collection of printouts from the Internet which contain, in effect, advertising or marketing material that includes representations as to what is planned to occur at various times at the Civic Hotel. MFI 5 is marketing material covering 2010 and 2011. MFI 6 is marketing material covering 2002 to 2009.
2. It is common ground that none of this material includes representations made by the Civic Hotel management, but rather the representations are made by promoters and others who intended to promote and perhaps conduct events at the Civic Hotel.

(b) Submissions

1. First, Mr Williams argued, the material is irrelevant. The test under s 55 of the Evidence Act 1995 is that evidence should not be admitted that could not rationally affect, directly or indirectly, the assessment of the probability of the existence of a fact in issue in the proceedings. Neon is seeking here to use this material to prove the existence of a fact in issue in the proceeding - that is that the premises, in fact, operated as a nightclub. Given the word "nightclub" has not been utilised, the documents do not pass the test of relevance because it is not material recording that the venue is being promoted as a nightclub, even by these third party advertisers.
2. Second, all of the documents printed from the Internet are hearsay and are sought to be tendered for a hearsay purpose. The purpose for their admission has been stated by Mr Elliott SC to be to establish that activities at the Civic Hotel were marketed as a nightclub.
3. The material is hearsay because it contains evidence of previous representations made by third person(s), sought to be tendered for the purpose of proving the existence of a fact that it can be reasonably supposed that the person intended to assert by the representation; s 59(1) Evidence Act 1995.
4. Third, it is implicit in the definition contained in the insurance policy that any marketing, to be relevant to the issues this Court has to determine, needs to be marketing conducted by the venue. So much is clear in the wording of the definition of "Nightclub" in 14.2 of the policy, which states: "…for the avoidance of doubt, in deciding whether any venue would be excluded under this policy at 14.2 under the heading "Nightclubs", if the venue conducts three or more of the following activities, it is excluded". and item (iv) in the list is "marketed as a nightclub".
5. Fourth, even if the Court determined that the material was relevant and admissible for other than a hearsay purpose, the use should be confined pursuant to s 136 of the Evidence Act. There is a danger that a particular use of the evidence might be unfairly prejudicial to Universal 1919 so the use should be limited to the material being no more than evidence of marketing by third parties of nightclub activities on the premises.
6. Mr Elliott submitted that the material is not hearsay and the claim that it is misunderstands and misstates what the documents are. They are simply advertisements.
7. The advertisements are direct evidence of the fact that there was promotion by persons who were permitted to use the venue and promote events to occur at the venue. On that basis it is evidence that could rationally effect the assessment of the probability of a fact in issue (s 55). The fact in issue is whether there was conduct of a kind which Neon claims falls within the definition of a nightclub happening at the premises, and promotion by anyone that suggests there was, is relevant. The test for relevance is not high - it just has to be material that "could" rationally effect "directly or indirectly" the assessment of the probability of the existence of a fact in issue. (Mr Elliott's emphasis added).
8. The advertisements promote DJ events that are frequently described as dance, house music or disco events that are to occur at "Civic Underground", a name suggestive of a nightclub at which dance music will be played.

(c) Reasons for ruling

1. I am of the view that the material meets the test for relevance.
2. I do not accept Mr Williams's argument that I should reject the tender on the basis that the only relevant marketing or advertising has to be conducted by the venue. I agree with Mr Elliott's submission that to do so would be to carry out an incomplete preliminary determination of the construction of clause 14.2 of the Policy and I would not do that at this stage nor would I do that without the benefit of counsel's submissions.
3. The advertising material is however in my view hearsay because the person "advertising" is making a representation about what is planned to occur at that venue, and it can reasonably be supposed that is what the advertiser is intending to assert by the representation.
4. Its tender would thus need to come within an exception to the hearsay rule. No such exception has been identified so the tender is rejected.

3. Video evidence and stills - MFI 7 (and 27 video clips not yet seen by the Court)

(a) The nature of the material

1. This material comprises 27 videos of 20 plus seconds up to 4 minutes taken by persons unknown and placed on YouTube by persons unknown purporting to show things occurring at the "Civic Underground" on unspecified dates but possibly between 2007 and September 2010. There are also 27 screenshots of the videos.

(b) Submissions

1. Mr Williams argued that this material is inadmissible hearsay. The stills and YouTube videos are each previous representations, which are not admissible to prove the existence of a fact reasonably supposed that the person intended to assert by the representation.
2. The representation in effect made by the maker of the "statement" (i.e. the person who took and/or uploaded the video), is that the matters depicted in the video occurred on the time and date that the videos were taken. As the maker has not been called, there is no evidence about when the videos were in fact taken. They are no more than previous representations made by a person as to the facts "shown", in circumstances where that person was not been called to give evidence in the proceedings.
3. The screenshots are similarly hearsay. They are a previous representation made by either the person who posted the material on YouTube, or YouTube itself or alternatively, the person who took the footage. In any of those cases, it is hearsay because it is a previous representation as to what the subject matter looked like at a particular (unspecified) time and date. There is no bases to conclude that the material comes within any of the exceptions to the hearsay rule and so it should be excluded.
4. Mr Williams also complained that putting this material to Mr James Kospetas in cross-examination and asking him whether having seen it, he adheres to his evidence, is an impermissible way of placing otherwise inadmissible evidence before the Court. [9]
5. Mr Elliott submitted that the material is not hearsay evidence but is evidence of the fact that there was uploaded onto YouTube, a video which portrayed particular things. The only hearsay is possibly the title given to the video uploaded onto the website. Mr Elliott argued that the fact of the title is relevant where there is a correspondence between the date upon which a particular DJ event was advertised to occur- (The material in MFIs 5 and 6 which I have excluded) - and the title of the DJ, the date upon which the video was uploaded as recorded by YouTube on its website, and the title. Mr Elliott submitted that the combined body of evidence meant that the court could conclude more probably than not that the video is a record of the event in question and the title given to it does not itself constitute evidence of its truth.

(c) Reason for ruling

1. The material is hearsay and is clearly sought to be tendered to illustrate that the advertised "nightclub style" events took place. If it truly was material tendered on the basis that the only fact it is to be used to evidence is that on particular dates there was uploaded onto YouTube a video which showed certain things, such a tender would be limited to fact irrelevant to the proceedings
2. No submission was made as to how this material fits within any of the exceptions to the hearsay rule other than that the uploading of the material comprises business records of YouTube and thus falls within the business record exception to the hearsay rule. Mr Williams submitted , persuasively, that Neon does not obtain the benefit of the business record exception given there is an evidentiary deficiency about the way YouTube operates and how the videos were placed on YouTube that cannot be cured by inference. The material is rejected.

4. Blogs and "Wayback" Machine material
5. There is some uncertainty as to what the material is that Neon wishes to press under this heading. There was no material identified and marked to allow a determination to be made by me based on what the material included. There was no written submission addressing this in Mr Elliott's written outline submission document titled "Response to objections to Moroney exhibits".
6. The Universal 1919 written submissions from Mr Williams noted that as to the "blogs", it was his understanding that these are not pressed. That is consistent with my understanding.
7. The blog material was initially to be tendered as part of Mr Peter Moroney's investigation report and attached interrogation of the Internet. Mr Elliott did not press that material. In my view that is the right position to take as an individual's interpretation and description of what may or may not be happening at a venue on any given date does not pass the relevance test, let alone get over any of the other hurdles such as hearsay.
8. As to the material from the Wayback Machine, Mr Williams noted an understanding in his written submissions, that Neon's position is that by reason of the authorities to which Universal 1919 drew attention in its pre-trial objections, this material was not pressed because it would be considered to be inadmissible and none of those cases relied upon were plainly wrong.
9. Comments made in court by Mr Elliott appeared to me to confirm that position, provided that I accepted the correctness of the decisions relied upon by Mr Williams (all single judge Federal Court decisions).
10. Those decisions are in my view persuasive and correct; and certainly none of them plainly wrong Those authorities well articulate why such material is hearsay and why such material does not fall within any exception to the hearsay rule: see Voxson Pty Ltd v Telstra Corporation Limited (No.10) [2018] FCA 376 at [33]-[41]; E. & J. Gallo Winery v Lion Nathan Australia Pty Ltd [2008] FCA 934 at [124]-[129]; Shape Shopfitters Pty Ltd v Shape Australia Pty Ltd (No.2) [2017] FCA 474 at [21]-[24]; Rodney Jane Racing Pty Ltd v Monster Energy Company [2019] FCA 923 at [169] and [179]. For other material printed off a website from an online database: see Voxson Pty Ltd v Telstra Corporation Limited (No.10) [2018] FCA 376 at [42]-[44].
11. To the extent that a formal ruling is required, the Wayback Machine material is excluded on the basis that it is hearsay and there is no evidence before me as to the basis upon which the archival pages generated by Wayback Machine can be shown to be business records

Endnotes

1. Exhibit D: Renewal Questionnaire signed by James Kospetas dated 21 January 2011
2. Affidavit of Mr David Lawson affirmed 12 February 2020 at [14]
3. Affidavit of Mr David Lawson affirmed 12 February 2020 at [32]-[34]
4. Affidavit of Mr David Lawson affirmed 12 February 2020 at [68]
5. Affidavit of Mr Nathan Sommer affirmed 12 February 2020 at [54]
6. Affidavit of Mr Nathan Sommer affirmed 12 February 2020 at [57]
7. Transcript of Evidence, 8 July 2020. p 208
8. Exhibit B: 3 photos taken and described by Michael Pont on attendance at Civic Hotel in July 2011 plus a description extracted in his report at 6.7
9. Transcript of Evidence, 8 July 2020. p 302-309

Amendments 15 October 2020 - - amendment to coversheet - Decision - changed the wording from "is" to "are". DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 October 2020