d. That the purpose of the statutory demand was to progress the interests of Odyssey in commutation discussions, and thus as the procedure was used for an improper use the demand should be set aside.
12 The first argument of counsel for the appellant, Odyssey, was based on Article 16 of the proffered contract. Counsel argued that the Master had found that by 16 April 2000 reasonable evidence of the amount paid pursuant to loss settlements in respect of the earthquake had been given to REAC and the share of those payments was known and therefore was immediately payable pursuant to that Article. Counsel argued, I think quite correctly, that Article 18 rights were entirely separate from the obligations under Article 16 and it was clear from the second paragraph of Article 18 that any adjustments required as a result of the inspection would be brought to account in determining the ultimate net loss under Article 5 in respect of which indemnity was granted under Article 1. He said that the final sentence of Article 5 made it perfectly clear that there was a liability to make payment and a right to receive payment under Article 16 without the ultimate net loss having been ascertained and that is clearly correct. His argument then was that upon that basis the sum claimed in the demand was a sum certain payable pursuant to Article 16 and was thus a debt which could be made the subject of a demand under s459E of the Corporations Law.
13 I do not consider that Article 16 can be considered in total isolation. It is part of a contract of reinsurance which is one type of insurance contract. It is what is usually described as a "follow the settlements" clause. The reinsurer cannot dispute settlements which are within the terms of the original policies and within the terms or confines of the reinsurance policy. Subject to those matters being ascertained the reinsurer is bound to pay upon receipt of reasonable evidence of the amount paid by the insured. This was clearly explained in the judgment of Lord Mustill in Hill v Mercantile and General Reinsurance Company plc [1996] 1 WLR 1239 at 1252-4, where a question arose as to whether a reinsured, claiming under a "follow the settlements" clause, was entitled to enter summary judgment upon proof of settlements made.
14 The question is whether a claim under Article 16 is a claim for a debt. While the respondent does not accept that claims for debt and claims for liquidated damages are one and the same thing, its principal argument was that actions under policies of insurance, including policies of reinsurance, are claims for unliquidated damages for breach of contract through failure to pay.
15 Apart from one decision to which I will come, every case to which counsel referred on this subject held that a claim under an insurance policy was a claim under a contract of indemnity where the consideration moving from the insured was paid as the price for the indemnity given such a claim was one for unliquidated damages. The only possible exception to this is a claim made for a total loss under a valued policy. The first case that I have found in this State is Livingston v Scottish Union and National Insurance Co (1901) 18 WN NSW 275. Many of the relevant cases were referred to by Giles J in Penrith City Council v GIO (1991) 24 NSWLR 566, in the following passage, which appears at page 568 and which is quoted in paragraph 16 of the judgment of the learned Master:
There is a fundamental flaw in these submissions. It is not in question that the plaintiff was entitled to indemnity when the Mitora claim was made against it, or when it gave notice of the claim to the defendant, in the sense that it was then entitled to the benefit of the defendant's promise to indemnify it against the claim. But the plaintiff's cause of action was for unliquidated damages for breach of contract: see Luckie v Bushby (1853) 13 CB 864; 138 ER 1443; E Pellas & Co v Neptune Marine Insurance Co (1879) 5 CPD 34; William Pickersgill & Sons Ltd v London and Provincial Marine and General Assurance Co Ltd [1912] 3 KB 614 at 622; Chandris v Argo Insurance Co Ltd [1963] 2 Lloyd's Rep 65 at 74 and Reynolds v Phoenix Assurance Co Ltd [1978] 2 Lloyd's Rep 440 at 462. It had to establish a contract (the policy) by which the defendant promised to do something (indemnify it against Mitora's claim), and breach of that contract (failure to indemnify it against Mitora's claim). It could then recover the loss suffered as a consequence of that breach. The plaintiff's cause of action accrued upon breach. Thus it must be asked what the defendant was required to do in performance of its promise, and when it failed to do what was required of it. Only when the defendant failed to do what was required of it could a cause of action for damages for breach of contract accrue to the plaintiff. There was no cause of action simply because Mitora made its claim or the claim was notified to the defendant - the defendant could have thereafter fully performed its promise.
16 Some of the cases referred to by Giles J, and many others, were considered by Sholl J in Alexander v Ajax Insurance Co Ltd (1956) 56 VLR 436 at 445-450 in a judgment dealing with the question of whether an action for indemnity for total loss under a fire insurance policy was a claim for liquidated damages. After a careful review of all the authorities, many of which dealt with the availability of set off for unpaid premiums, His Honour found that it was clear upon the authorities to which he had referred, and he thought clear upon principle, that a default judgment entered upon the basis a claim under a policy was for liquidated damages must be set aside. Mr Parker, in his careful argument for the appellant, pointed out that in at least one of those cases, namely E Pellas & Co v Neptune Marine Insurance Co (1879) 5 CPD 34, it was conceded the claim was for unliquidated damages. Nevertheless the position is that in all of them it was held or conceded that a claim under a policy of insurance granting certain indemnity in consideration of payment of premiums was a claim of unliquidated damages for breach of contract in the event of non-payment. The one exception is a claim for total loss under a valued policy: Alexander v Ajax Insurance Co Ltd at p445-446; Irving v Manning (1848) 6 CB 391.
17 Mr Parker pointed out that the cases relied upon by Giles J and Sholl J were claims under policies of marine or fire or accident insurance. That is, I think, correct but more recently the question was visited by the Court of Appeal in England in Edmunds v Lloyd Italico e L'Ancora Cia di Assicurazioni e Riassicurazioni SpA [1986] 2 All ER 249. This was a claim under a policy for reinsurance. There was no dispute about the amount of the claim, the only disputed claim being one for interest because the principal sum under the policy had been paid but not accepted in full settlement. It is not necessary to go into the somewhat complicated facts which depended upon relevant legislation. However, at page 250 the Master of the Rolls Sir John Donaldson said:
One might well think that a sum due under an insurance policy constituted a debt. On this assumption, the plaintiff's solicitors were entitled to appropriate the drafts to the principal sums due, since otherwise they would have been deemed to have been appropriated to the payment of interest, the balance only being appropriated to payment of the principal amounts (see Chitty on Contracts (25th ed, 1983) paragraph 1424). However, as a matter of law, a claim under a contract of insurance is a claim for damages for breach of contract (see Luckie v Bushby (1853) 13 CB 864, 138 ER 1443 and Chandris v Argo Insurance Co Ltd [1963] 2 Lloyd's Rep 65). The purported appropriation accordingly was unnecessary as such. However, it did make it clear that the drafts were not being accepted in full settlement.