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[2024] VSC 363
General information, not legal advice.
Supreme Court of Victoria
2024-06-25
M Osborne J
Original judgment source is linked above.
INSURANCE - Business interruption insurance - COVID-19 pandemic - Whether insured is entitled to indemnity under industrial special risks policy for losses sustained due to closure of businesses - Infectious disease extension - Hybrid clauses - Infectious disease clauses - Closure of premises by order of or upon advice from a statutory or government authority - Outbreak within 25 kilometres - Meaning of 'following' - Whether 'following' the outbreak there was an order - Swiss Re International SE v LCA Marrickville Pty Ltd [2021] FCA 1206; (2021) 394 ALR 461 - LCA Marrickville Pty Ltd v Swiss Re International SE [2022] FCAFC 17; (2022) 290 FCR 435 - Indemnity granted.
INSURANCE - Sublimits - Whether infectious disease extension subject to sublimit - Whether sublimit applies to each venue or across the whole policy - Whether theatre hire fees constitute 'rent' under policy such that 'rent receivable' sublimit applies - 'location of risk' sublimit.
CONTRACT - Insurance contract - Principles of construction - Context - Reading contract as a whole - Perspective of the objective reader of a contract - Contra proferentem rule.
EQUITY - Equitable remedies - Rectification - Mistake - Common intention - State of mind of broker, insurer and insured - Evidence as to intention - Mistaken apprehension of the legal position - No convincing proof provided to prove alleged common intention - Quarantine Act 1908 (Cth) - Biosecurity Act 2015 (Cth) - Declined relief.
LOSS -Appropriate methodology for calculating losses - When does the loss period end - Whether insured must account for JobKeeper payments and other governmental support during COVID-19 pandemic in calculating loss - application of underinsurance clause.
1 The first plaintiff, Princess Theatre Pty Ltd, is the operator of the business of the Princess Theatre located at 163 Spring Street, Melbourne, the Regent Theatre and the Plaza Ballroom located at 191-197 Collins Street, Melbourne, the Comedy Theatre located at 228-240 Exhibition Street, Melbourne and the Forum Theatre located at 150-162 Flinders Street, Melbourne. The second, fourth and fifth plaintiffs, Princess Theatre Holdings Pty Ltd, The Comedy Theatre Pty Ltd and Forum Theatre Investments Pty Ltd, are the owners of the Princess Theatre, the Comedy Theatre and the Forum Theatre, whilst the third plaintiff, Regent Theatre Holdings Pty Ltd, is the lessee of the Regent Theatre. Each of the plaintiffs are part of the Marriner Group. It is convenient to refer to the plaintiffs as the Marriner Group or the Group except where it is necessary to differentiate between the entities in the Group.
2 The Marriner Group is Australia's largest privately owned and operated theatre company and was established by David Marriner in 1986.
3 The Marriner Group is the insured under two industrial special risks policies held with the defendant, Ansvar Insurance Ltd (the 'Insurer').
4 The details of the two industrial special risks policies are as follows:
(a) The first policy which was issued for the period of insurance 31 March 2019 to 31 March 2020. It comprises the Ansvar Industrial Special Risks Mark IV Modified Insurance Policy Wording AUSPOLISR 201509 v3 and a certificate of insurance dated 2 April 2019 (the 'First Certificate') (together, the 'First Policy').
(b) The second policy which was issued for the period of insurance 31 March 2020 to 31 March 2021. It comprises the Ansvar Industrial Special Risks Mark IV Modified Insurance Policy Wording AUSPOLISR 201901 v4 and a certificate of insurance dated 31 March 2020 (the 'Second Certificate') (together, the 'Second Policy').
5 The First Policy and Second Policy are relevantly indistinguishable for present purposes. Unless it is necessary to distinguish between them it is convenient to refer to them without differentiation as the 'Policy' or the 'Policies'. The Policies provide an indemnity under 'Section 1 Material loss or damage' ('Section 1') for physical loss, destruction or damage of certain insured property. Relevant to this proceeding, they also provide an indemnity under 'Section 2 Consequential Loss' ('Section 2') for consequential loss which requires damage to property among other things causing interruption or interference to the insured's business.
6 Included amongst the memoranda to Section 2 of the Policies is a clause which deems loss resulting from the interruption of or interference with the insured's business arising from closure of the premises by order of a public authority consequent upon infectious disease manifested by a person whilst at the premises to be damage to property (the 'Infectious Disease Clause'). Cover under the Infectious Disease Clause is subject to a sublimit of $500,000 (the 'Infectious Disease Sublimit').
7 The First Certificate and Second Certificate also contain the following clause (the 'Extension'):
INFECTIOUS DISEASE, MURDER & CLOSURE OF INSURED PREMISES EXTN
Notwithstanding anything contained in this policy to the contrary, cover is extended under the Business Interruption/Consequential Loss Section, up to the sub-limit for this extension shown in the certificate of insurance, to include loss directly resulting from interruption or interference with the business carried on by the Insured at the premises in consequence of:
- Closure of the whole or part of the premises by order of or in consultation with or upon advice from a Statutory or Government Authority following:
an outbreak of a human infectious or contagious disease (that is notifiable) or bacterial infection at or occurring within 25 kilometres of the premises other than any disease outlined in Proviso iii) below;
discovery of vermin or pests and/or defects in the drains and/or other sanitary arrangements at the premises;
ii) Murder or suicide (or any attempt thereat) occurring at the premises;
Injury, illness or disease arising from or likely to arise from or traceable to foreign or injurious matter in food or drink provided at or from the premises;
Threat of violent damage to the premises and/or injury to persons therein, but not arising from any act of terrorism;
Provided that:
- The insurer will not be liable for any loss incurred by the insured during the first (48) hours of the interruption or interference;
- Perils exclusion 4.(a) and 7.(d) shall not apply for the purpose of this extension;
- The insurer will not be liable for any loss or damage arising as a result of any Highly Pathogenic Avian Influenza in Humans or any other diseases declared to be quarantinable diseases under the Quarantine Act (1908) and subsequent amendments. ('Proviso (iii)')[1]
In all other respects the Policy remains unaltered.
8 In this proceeding, the Marriner Group claims that the Insurer is obliged to indemnify it for $20,403,965 pursuant to the Extension as a result of losses sustained by the Group from the closure of the Princess Theatre, the Regent Theatre, the Comedy Theatre, the Forum Theatre and the Plaza Ballroom (the 'Venues') during the period of the COVID-19 lockdowns in Melbourne during 2020 and 2021. These closures followed a series of directions issued by the Victorian government and associated advice, arising out of the incidence of the COVID-19 pandemic, from 16 March 2020 and continuing throughout the calendar year 2021.
9 The theatre venues closed on 16 March 2020 whilst the Plaza Ballroom closed on 21 March 2020. The Venues remained closed until first reopening with reduced patron numbers between 9 January 2021 and 25 February 2021. The Venues were subject to further closure periods; 12 February 2021 until 17 February 2021; 27 May 2021 until between 26 June 2021 and early July 2021; and 15 July 2021 until between 11 November 2021 and 13 January 2022.
10 The Insurer denies that the Extension was engaged. If it were, the Insurer submits that the Policies should be rectified such that indemnity is excluded on the basis that the parties had a common intention, known to each other, that Proviso (iii) contained in the Extension should be rewritten such that the words 'declared to be quarantinable diseases under the Quarantine Act 1908' were replaced with the words 'listed as a human disease pursuant to the Biosecurity Act 2015 (Cth)'. The rectification plea arises in the context of the Quarantine Act 1908 (Cth) ('Quarantine Act') having been repealed with effect from 16 June 2016 which is the same day on which the Biosecurity Act 2015 (Cth) ('Biosecurity Act') came into operation.
11 Further, the Insurer contends that if the Extension is engaged and rectification is not ordered, the Infectious Disease Sublimit applies in aggregate for each of the two periods of insurance. If, however, the sublimit does not apply to the Extension, the Insurer submits that the Policies should be rectified to reflect the common intention between the parties, namely that any indemnity under the Extension be capped at $500,000.
12 The Insurer also argues that in any event the loss claimed by the Marriner Group is overstated and has not been calculated on a proper basis including because the loss has been calculated up until 31 March 2022, which is 12 months after the expiry of the Second Policy and because the Policies do not entitle the Marriner Group to recover theatre hire fees which represent a large component of the lost revenue which constitute 'rent receivable' and are not insured. Further, the Insurer argues that the Group must bring to account in reduction of any losses during the period of closure, any payments received during 2020 in the form of JobKeeper payments ('JobKeeper Payments') and any grants, subsidies, abatements and other benefits received (the 'Third Party Payments').
13 The principal issues which arise for determination therefore comprise the following:
(a) does the Extension apply to the claims made in the proceeding;
(b) should the Policies be rectified on the basis of common mistake such as to replace the reference to the Quarantine Act with the Biosecurity Act;
(c) are any of the losses suffered subject to the following sublimits:
(i) the Infectious Disease Sublimit;
(ii) the 'rent receivable' sublimit of $0;
(iii) 'location of risk' sublimits which limit the losses recoverable at each venue to the declared values for each venue;
(d) what is the appropriate methodology for calculating the losses and in the determination of that issue when does the loss period end and should the losses be reduced by the JobKeeper Payments and the Third Party Payments and/or by the underinsurance clauses contained in the Policies.
14 Under the subheading '[t]he contract between you and Ansvar Insurance' the Policy records that '[i]n consideration of payment of your premium, we will insure you under this policy, and as shown in your certificate of insurance'.
15 In the introductory section of the Policies, it is noted that the Policy incorporates the schedule, sections, definitions, conditions, exclusions, endorsements, memoranda and warranties, and further that:
...the total liability of the Insurer(s) at any one Situation shall not exceed the appropriate Limit or Sub-Limit(s) of Liability as stated in the Schedule or such amount(s) as may be substituted therefore by endorsement or memorandum hereon or attached hereto and that each Insurer specified shall only be liable to contribute to any loss covered by this Policy that proportion of the loss as is specified beside its name.
16 The indemnity in Section 2 is set out in the following terms:
In the event of any building or any other property or any part thereof used by the Insured at the Premises for the purpose of the Business being physically lost, destroyed or damaged during the period of insurance by any cause or event not hereinafter excluded (loss, destruction or damage so cause being hereinafter termed "Damage") and the Business carried on by the Insured being in consequence thereof interrupted or interfered with the Insurer(s) will, subject to the provisions of this Policy including the limitation on the Insurer(s) liability, pay to the Insured the amount of loss resulting from such interruption or interference in accordance with the applicable Basis of Settlement.
...
17 Under the subheading 'basis of settlement', the following appears:
Item No. 1 - Loss of gross profit
The insurance under this item is limited to actual loss of Gross Profit due to: (a) Reduction in Turnover, and (b) Increase in Cost of Working, and the amount payable as indemnity thereunder shall be:
(a) In respect of Reduction in Turnover:
The sum produced by applying the Rate of Gross Profit to the amount by which the Turnover during the Indemnity Period shall, in consequence of the Damage, fall short of the Standard Turnover.
(b) In respect of Increase in Cost of Working:
The additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the reduction in Turnover which, but for that expenditure, would have taken place during the Indemnity Period in consequence of the Damage, but not exceeding the sum produced by applying the Rate of Gross Profit to the amount of the reduction thereby avoided.
Less any sum saved during the Indemnity Period in respect of such of the charges and expenses of the Business payable out of Gross Profit as may cease or be reduced in consequence of the Damage.
Provided that if the Declared Value of Gross Profit at the commencement of each Period of Insurance be less than the sum produced by applying the Rate of Gross Profit to the Annual Turnover (or its proportionately increased multiple thereof, where the Indemnity Period exceeds 12 months), the amount payable hereunder shall be proportionately reduced.
18 Section 2 also includes a definitions section which relevantly includes the following:
Gross profit
The amount by which:
(a) the sum of the Turnover and the amount of the Closing Stock and Work in Progress shall exceed;
(b) the sum of the amount of the Opening Stock and Work in Progress and the amount of the Uninsured Working Expenses as set out in the Schedule.
...
Turnover
The money (less discounts, if any allowed) paid or payable to the insured for goods sold and delivered and for services rendered in the course of the Business at the Premises.
Indemnity period
The period beginning with the occurrence of the damage and ending not later than the number of months specified in the Schedule thereafter during which the results of the Business shall be affected in consequence of the Damage.
...
Shortage in turnover
The amount by which the Turnover during a period shall, in consequence of the Damage, fall short of the part of the Standard Turnover which relates to that period.
Rate of gross profit
The rate of Gross Profit earned on the Turnover during the financial year immediately before the date of the Damage.
Annual turnover
The Turnover during the 12 months immediately before the date of the Damage.
Standard turnover
The Turnover during that period in the 12 months immediately before the date of the Damage which corresponds with the Indemnity Period.
19 Incongruously placed in the definitions section for Section 2 is a clause commonly referred to as a trends clause or adjustments clause which reads as follows:
Adjustments shall be made to the Rate of Gross Profit, Annual Turnover, Standard Turnover and Rate of Pay-Roll as may be necessary to provide for the trend of the Business and for variations in or other circumstances affecting the Business either before or after the Damage or which would have affected the Business had the Damage not occurred, so that the figures thus adjusted shall represent as nearly as may be reasonably practicable the results which, but for the Damage, would have been obtained during a relative period after the Damage.
(the 'Adjustments Clause').
20 The Policy wording includes a list of exclusions applicable to all sections of the Policy, followed by a further subheading 'Memoranda applicable to all sections'. Relevantly, a part of the memoranda includes a further section headed 'Adjustment of premium', which in substance records that the premium shown is provisional and is calculated on the declared values of: (i) property insured; (ii) gross profit and insured payroll on the day of commencement of each period of insurance. The section also includes an entitlement to an adjustment of the provisional premium by reference to the declared values.
21 As noted earlier, included amongst the memoranda to Section 2 of the Policies is the Infectious Disease Clause which reads as follows:
Infectious or contagious diseases; vermin, pests or defective sanitary arrangements; food or drink poisoning; murder, suicide (b)
Loss as insured by the Policy resulting from interruption of or interference with the Business arising from closure or evacuation of the whole or part of the Premises by order of a competent public authority consequent upon:
(a) infectious or contagious disease manifested by any person whilst at the Premises;
(b) vermin or pests or defects in the drains or other sanitary arrangements at the premises;
(c) injury, illness or disease directly caused by the consumption of food or drink provided on the premises;
(d) murder or suicide occurring in or at the Premises,
shall be deemed to be loss resulting from Damage to Property used by the Insured at the Premises.
Provided that paragraph (a) will not indemnify loss resulting from interruption of or interference with the Business directly arising from or in connection with Highly Pathogenic Avian Influenza in Humans or any other diseases declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments.
Indemnity under this endorsement shall not exceed the Sub Limit of Liability per event and in the annual aggregate expressed in the Schedule.
22 Included in the endorsements under the subheading 'basis of settlement' is the following underinsurance clause:
Gross profit - average/ under-insurance amended (c)
The final paragraph of Item No 1 is amended to read:
Provided that if the estimated value of Gross Profit declared at the commencement of the Period of Insurance is less than eighty percent (80%) of the sum produced by applying the Rate of Gross Profit to the Annual Turnover (appropriately increased if the Indemnity Period exceeds twelve months) which would have been achieved if the Damage had occurred on the day of commencement of the Period of Insurance, the amount payable hereunder shall be proportionately reduced.
23 There is also a definition of 'rent receivable' which reads:
Rent receivable
The insurance under this item is limited to the loss of rent receivable (including amounts due for services rendered and recoverable expenses) and the amount payable as indemnity hereunder shall be the amount by which rent (including amounts for services rendered and recoverable expenses) received or receivable during the Indemnity Period shall fall short of the amount which it may be reasonably estimated would have been received during that period had the Damage not occurred including the additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the loss of rent (including amounts for services rendered and recoverable expenses) less any sum save during that period in respect of the charges or expenses payable out of rent as may cease or be reduced in consequence of the Damage. The cover hereby granted shall be subject to the sub-limit stated in the Schedule against 'Rent Receivable'.
24 The First Certificate[2] sets out, among other things, the following:
PRINCESS THEATRE PTY LTD
REGENT THEATRE HOLDINGS PTY LTD
COMEDY THEATRE PTY LTD
FORUM (OLD STATE) THEATRE HOLDINGS PTY LTD
FORUM THEATRE INVESTMENTS PTY LTD
Additional Comments:
Insured Name
Princess Theatre:
Princess Theatre Holdings Pty Ltd
Princess Theatre Pty Ltd
Princess Theatre Productions Pty Ltd
Investec Bank Australia Limited
Regent Theatre:
Regent Theatre Holdings Pty Ltd
Regent Management Company Pty Ltd ACN 062 841 043
City of Melbourne
State Government of Victoria
Princess Theatre Pty Ltd
Investec Bank Australia Limited
Comedy Theatre:
The Comedy Theatre Pty Ltd
Investec Bank Australia Limited
Forum (Old State) Theatre:
Princess Theatres Pty Ltd
Forum Theatre Investments Pty Ltd
Investec Bank Australia Limited
Section 2 - Business Interruption
POLICY WORDING
Policy wording: Ansvar Insurance Industrial Special Risks Mark IV Modified Insurance Policy Wording AUSPOLISR 201509 v3
Your operations are described as:
Heritage Buildings - Theatres
...
Limits of Liability - Combined Section 1 $280,000.00 $0.00
Building(s) $163,000.00 $0.00
Contents other than stock $5,220.00 $0.00
Stock $290.00 $0.00
Total $168,510.00 $0.00
SECTION 2: CONSEQUENTIAL LOSS
Gross Profit $18,903,965
Claims Preparation Costs $ 500,000
AICOW $ 1,000,000
Payroll Not Insured
Total $20,403,965
Sublimits: Section 1 - Property Damage
...
Unspecified Damage (as defined below) $500,000
UNSPECIFIED DAMAGE, for the purpose of any Limit or Sub-Limit of Liability or Deductible as shown in the Schedule, means Damage caused by any peril or circumstance not more specifically covered or excluded by this Policy other than: fire... storm and/or tempest and/or rainwater and/or wind and/or hail, and/or flood, and/or water or other liquids or substances discharged, overflowing or leaking from apparatus, appliances, pipes or any other system at the premises or elsewhere; or other peril mentioned under the heading in the Schedule, SUB-LIMITS OF LIABILITY.
Sublimits: Section 2 - Consequential Loss
Item 2 - Claims Preparation Fees $ 500,000
Item 4 - (Additional) Increased Cost of Working $1,000,000
...
Rent Receivable $ 0
Rent Payable (b) $ 0
...
Royalties Receivable (b) Not Insured
...
Indemnity Period 24 Months
Aggregate Limit any one Period of Insurance - Section 2
Infectious or Contagious Diseases; Vermin, Pests or
Defective Sanitary Arrangements; Food or Drink
Poisoning; Murder, Suicide (b) $ 500,000
Combined Section 1 & Section 2
Flood Included
Limit any one Situation (unless otherwise noted) $1,000,000
...
Deductibles - Section 1
The Insured shall bear the following amount(s) in respect of each claim or series of claims arising out of any one original source or cause:
...
Flood, each and every loss at each and every
situation $ 25,000
...
Deductibles - Section 2
The Insured shall bear the following amount(s) in respect of each claim or series of claims arising out of any one original source or cause:
...
Infectious or Contagious Diseases; Vermin, Pests or
Defective Sanitary Arrangements; Food or Drink
Poisoning; Murder, Suicide (b) 48 Hours
...
ISR MK IV - INFECTIOUS DISEASES EXTENSION (ANSVAR)
INFECTIOUS DISEASE, MURDER & CLOSURE OF INSURED PREMISES EXTEN[3]
...
Location of Risk: 163 SPRING STREET
MELBOURNE 3000
Type of Risk: 11 - ISR - &/or Crime
Excess
Declared Values: Material Damage $50,860,000 $50,000
Consequential Loss $5,705,630 $50,000
Type of Cover : Replacement (New for Old)
...
Location of Risk: 228-240 EXHIBITION ST
MELBOURNE
VIC 3000
Type of Risk: 11 - ISR - &/or Crime
Excess
Declared Values: Material Damage $18,250,000 $50,000
Consequential Loss $2,047,341 $50,000
Type of Cover : Replacement (New for Old)
...
Additional Comments:
Asset Schedule:
Comedy Theatre Building(s) $ 18,000,000
Comedy Theatre Contents $ 220,000
Comedy Theatre Stock $ 30,000
...
Location of Risk: 191-197 COLLINS ST
MELBOURNE
VIC 3000
Type of Risk: 11 - ISR - &/or Crime
Excess
Declared Values: Material Damage $67,650,000 $50,000
Consequential Loss $9,089,183 $50,000
Type of Cover : Replacement (New for Old)
...
Location of Risk: 150-162 FLINDERS ST
MELBOURNE
VIC 3000
Type of Risk: 11 - ISR - &/or Crime
Excess
Declared Values: Material Damage $26,550,000 $50,000
Consequential Loss $2,978,460 $50,000
Type of Cover : Replacement (New for Old)
...
TOTAL AMOUNT PAYABLE
Address: 163 SPRING STREET. MELBOURNE 3000
Address: 228-240 EXHIBITION ST. MELBOURNE. VIC 3000
Address: 191-197 COLLINS ST. MELBOURNE. VIC 3000
Address: 150-162 FLINDERS ST. MELBOURNE. VIC 3000
Address: 5-7 MARINE PDE. ABBOTSFORD. VIC 3067
Address: 19-25 RUSSELL ST. MELBOURNE. VIC 3000
25 Insurance policies are to be given a business-like interpretation in accordance with the principles for general commercial contracts.[4]
26 An insurance policy is to be construed as a whole by considering the entire text.[5] A policy should not be approached by isolating particular fragments or disregarding its overall character.[6] The words of every clause must, if possible, be construed so as to render them all harmonious with one another.[7] Preference is given to a construction supplying a congruent operation to the various components as a whole.[8]
27 Construction of a policy will be approached on the basis that the parties intended to produce a commercial result and constructions that make for commercial nonsense or would work commercial inconvenience should be avoided.[9]
28 The language used by the parties is to be interpreted objectively by considering what the language adopted by them would mean to a reasonable business person in the position of the parties. Here, the Policies are between an insurer and a business operator and ought be construed from the point of view of a reasonable businessperson appreciating that and the purpose and object of the agreements.[10]
29 The language used by the parties is to be construed in the context of the surrounding circumstances known to them at the time of the transaction and the purpose or object of the transaction evident from those matters.[11]
30 When construing a contract, the question for consideration is not what each party meant to say, but rather what is the objective meaning to be attributed to the words they have used to express what they have agreed.[12] Statements and actions of the parties which are reflective of their actual intentions and expectations are not admissible in aid of construction, though admissible in an action for rectification.[13] Accordingly, internal communications, unless deployed as part of a rectification claim, are irrelevant to the task of construction.
31 In construing insurance policies, the contra proferentem rule applies such that ambiguities are to be resolved in favour of the insured although the rule generally is a doctrine of last resort and has perhaps limited vitality.[14]
32 As noted above, the Marriner Group claims that it is entitled to recover consequential loss under the Extension which appears in identical terms in the First Certificate and Second Certificate. Ignoring Proviso (iii) for now, the Extension provides cover for:
...loss directly resulting from interruption or interference with the business carried on by the Insured at the premises in consequence of:
- Closure of the whole or part of the premises by order of or in consultation with or upon advice from a Statutory or Government Authority following:
- an outbreak of a human infectious or contagious disease (that is notifiable) or bacterial infection at or occurring within 25 kilometres of the premises...
33 The cover afforded by the Extension is to be contrasted with that provided by the Infectious Disease Clause. Unlike the Infectious Disease Clause, the Extension provides cover for loss resulting from interruption of or interference with the business, in consequence of the closure of the whole or part of the premises where the closure arises not merely by order of a Statutory or Government Authority (for convenience 'a relevant Authority'), but where the closure arises in consultation with or upon advice from a relevant Authority.
34 Further and importantly, under the Extension, the order for closure (or the consultation or advice), is one which must 'follow' an outbreak of disease at or occurring within 25 kilometres of the premises whereas in the case of the Infectious Disease Clause, the order for closure must be consequent upon the disease being manifested by any person whilst at the premises.
35 The Marriner Group relies upon the components of the Extension which provide for cover where the closure occurs by order and in addition the part which provides for cover where the closure occurs upon advice.
36 A list of each direction which applied during the closure periods throughout calendar years 2020 and 2021 was set out in an aide memoire handed up by the Marriner Group with each direction tendered in evidence. It is common ground that the directions are orders within the meaning of the Extension.
37 With respect to orders in the sense used in the Extension, the Marriner Group points to:
(a) The first direction issued on 16 March 2020 which banned non-essential mass gatherings over 500 people (the '16 March Direction'), which was by further direction on 18 March 2020 reduced to 100 people with the direction on 21 March 2020 imposing additional density limits.
(b) The direction which took effect from 23 March 2020, which required the closure of non-essential businesses which relevantly included the theatres and on the Marriner Group's case extended to the Plaza Ballroom.
(c) The directions in place from 23 March 2020 until October 2021, which variously banned any performances with patrons or significantly limited the patron numbers of such performances. Specifically, the directions on 21 June 2020, 4 August 2020, 12 February 2021, 27 May 2021 and 15 July 2021 provided for no access to the premises whilst the directions dated 25 March 2020, 7 April 2020, 19 July 2020 and 27 October 2020 allowed for broadcast or recorded performances only.
(collectively, the 'Directions').
38 In respect of advice from a relevant Authority, the Marriner Group points to advice which anticipated and reinforced the Directions and in particular:
(a) Advice foreshadowed at a meeting attended by Jason Marriner, the Group's Chief Executive Officer, with the Victorian government Minister Martin Foley on 13 March 2020 followed by an announcement by the Prime Minister of Australia and Victorian government advice against holding non-essential organised public gatherings of more than 500 people from 16 March 2020.
(b) Advice from Brendan McClements, the Chief Executive Officer of Visit Victoria provided to Mr Marriner directly that 'all non-essential organised public gatherings of 500 or more people should be cancelled' from 16 March 2020.
(c) On 15 March 2020, following a National Cabinet meeting, the Prime Minister clarified that the banning of mass gatherings was not advisory and would be backed by legislation. Statements were made by the Prime Minister which made clear that further 'intrusions' were coming in the following weeks and months which would be introduced 'progressively'.
(d) On 18 March 2020, the Premier of Victoria, Daniel Andrews, stated in a press release that gatherings of more than 100 people would be banned from 5pm that day and that venues that did not comply would face fines of up to $100,000.
(e) On 22 March 2020, the Prime Minister announced the agreement of the National Cabinet to restrict the opening of entertainment venues from midday on 23 March 2020 and that Australians should expect these measures to be in place for six months. The Victorian government thereafter issued directions the following day to implement that ban.
(collectively, the 'Advice').
39 As noted above, the Marriner Group closed the Venues to the public from 16 March 2020 save for the Plaza Ballroom which closed from 21 March 2020. In the period from 16 March 2020 to 22 March 2020, Marriner Group staff still came into work but ceased doing so from 23 March 2020 from which point the Venues were closed to both the public and employees.
40 It is common ground that there was a relevant outbreak of COVID-19 within 25 kilometres of each of the Venues prior to each of the Directions relied upon as there was at least one active (that is contagious) case of COVID-19 within the community in the area which was not in a controlled setting (such as a hospital, isolation or quarantine) prior to the closure of four of the Venues on 16 March 2020 and at all times during the periods of insurance thereafter.
41 Accordingly, the Marriner Group argues that the closure of the premises as and from 16 March 2020 was by order of or upon advice from a relevant Authority, and that the orders and advice followed an outbreak of a notifiable disease which occurred within 25 kilometres of the premises.
(a) The decision to close the theatres was made over the weekend of 14 and 15 March 2020 because the producers of the various shows decided to cancel those shows and as such the closure did not occur by the order made 16 March 2020.
(b) In any event, the Directions were not issued following an outbreak of COVID-19 at or occurring within 25 kilometres of each of the Venues but rather were issued for the protection of public health in the State of Victoria generally. The Insurer argues that whether each direction was issued 'following' an outbreak of COVID-19 'at or occurring within 25 kilometres' of each of the Venues requires consideration of the issuing officer's reason for issuing the direction and a determination that the reason for closure was specific to an area within a 25 kilometre radius of the Venues.
(c) The Insurer denies that any closure occurred on advice from a relevant Authority and submits that the Marriner Group's reliance the Advice was an afterthought introduced by way of an amendment into its pleadings well after the proceeding had commenced.
43 The Insurer's argument that in order for the Extension to apply, the Court must examine the Directions and determine that they were issued resulting from an outbreak within the specified radius of each of the Venues, draws heavily on the reasoning of her Honour Justice Jagot, then sitting in the Federal Court of Australia, in Swiss Re International SE v LCA Marrickville Pty Ltd ('LCA Marrickville').[15]
44 In LCA Marrickville, her Honour analysed insurance claims under business interruption clauses in 10 proceedings, following claims made in the context of business closures during the COVID-19 pandemic. The decision and reasoning in those test cases was either unchallenged or largely upheld on appeal in LCA Marrickville Pty Ltd v Swiss Re International SE ('LCA Marrickville Appeal').[16]
45 Each party sought to rely on aspects of the reasoning both at first instance and on appeal. As such it is important to analyse with some care the conclusions of her Honour in LCA Marrickville.
46 The LCA Marrickville case was a test case authorised to be taken by the Australian Financial Complaints Authority ('AFCA') in accordance with AFCA's complaint resolution scheme rules. The proceeding concerned the proper construction and application of clauses in 10 separate business interruption insurance policies with the relevant issue being whether the policies applied to losses claimed to have been suffered by various businesses as a result of the effects of the COVID-19 pandemic in 2020. In the United Kingdom, the Supreme Court similarly considered the effects of the COVID-19 pandemic to a series of business interruption policies in Financial Conduct Authority v Arch Insurance Ltd ('FCA v Arch').[17] The reasoning in FCA v Arch was considered at some length in LCA Marrickville.
47 The relevant clauses of the policies considered in LCA Marrickville fell into four classes:
(1) hybrid clauses: which provided cover for loss from orders/actions of a competent authority closing or restricting access to premises;
(2) infectious disease clauses: which provided cover for loss arising from either infectious diseases or the outbreak of an infectious disease at the premises or within a specified radius of the premises;
(3) prevention of access clauses: which provided cover for loss from orders/actions of a competent authority preventing or restricting access to insured premises because of damage or a threat of damage to property or persons often within a specified radius of the insured premises; and
(4) a catastrophe clause: which provided cover for loss resulting from the actions of a civil authority during a catastrophe for the purposes of retarding the catastrophe.
48 In her Honour's judgment at [101] she set out a table which examined the differences in wording in relation to the relevant clause of the various policies characterising them as hybrid clauses, prevention of access clauses, infectious disease clauses or in one case a catastrophe clause (which only applied in the case of the policy pertaining to Swiss Re International SE v LCA Marrickville).
49 It was common ground that the Extension is a clause in the nature of a hybrid clause.
50 The table set out below in large part replicates the table set out in the reasons in LCA Marrickville but importantly by way of comparison sets out the Extension and the Infectious Disease Clause in the first two rows.
Closure of the whole or part of the premises by order of or in consultation with or upon advice from a Statutory or Government Authority
following an outbreak of a human infectious or contagious disease or bacterial infection
at or occurring within 25 kilometres of the premises
closure or evacuation of the whole or part of the Premises by order of a competent public authority
infectious or contagious disease manifested by any person whilst at the Premises
closure or evacuation of the whole or part of the Situation by order of a competent public authority
as a result of an outbreak of a notifiable human infectious or contagious disease or bacterial infection or any discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease
at the Situation or within a 5 kilometer [sic] radius of the Situation
closure or evacuation of Your Business by order of a government, public or statutory authority
consequent upon the discovery of an organism likely to result in human infectious or contagious disease
any legal authority closing or evacuating all or part of the premises
as a result of the outbreak of an infectious or contagious human disease
occurring within a 20-kilometre radius of your premises
any legal authority closing or evacuating all or part of the Premises
as a result of the outbreak of an infectious or contagious human disease
occurring within a 20-kilometre radius of Your Premises
interruption or interference with Your Business due to closure or evacuation of the whole or part of the Premises during the Period of Insurance
as a result of the outbreak of a notifiable human infectious or contagious disease
occurring within a 20 kilometre radius of the Premises
interruption of or interference with the Insured Location
...and leading to restriction or denial of the use of the Insured Location on the order or advice of the local health authority or other competent authority
In direct consequence of the intervention of a public body authorised to restrict or deny access to the Insured Location directly arising from an occurrence or outbreak of a Notifiable Disease or the discovery of an organism likely to cause Notifiable Disease
interruption of or interference with the Insured Location
....leading to restriction or denial of the use of the Insured Location on the order or advice of the local health authority or other competent authority
In direct consequence of the intervention of a public body authorised to restrict or deny access to the Insured Location directly arising from an occurrence or outbreak of any of the following... of a Notifiable Disease or the discovery of an organism likely to cause Notifiable Disease
the closure or evacuation of the whole or part of the Business Premises by order of a competent government or statutory authority
arising directly or indirectly from human infectious or contagious diseases or the discovery of an organism likely to result in human infectious or contagious disease
the closure or evacuation of the whole or part of the Business Premises by order of a competent government or statutory authority
arising directly or indirectly from human infectious or contagious diseases or the discovery of an organism likely to result in human infectious or contagious disease
closure or evacuation of all or part of the premises by order of a competent government, public or statutory authority
which shall prevent or hinder the use of your building or access thereto, or results in a cessation or diminution of trade due to temporary falling away of potential customers
as a result of...a human infectious or contagious diseases
51 As the table shows, there is a difference in the wording of the hybrid clause contained in the Extension and that appearing not only in the Infectious Disease Clause but in each of the 10 policies considered in LCA Marrickville.
52 As her Honour noted in her reasons,[18] the policies use various words to describe the causal relationship which must exist between the various elements of the insured perils, such as in consequence of, consequent upon, as a result of, likely to result in, caused by, caused by or results from, resulting from, in direct consequence of, arising from, leading to, arising directly or indirectly from, as well as requiring relationships between elements of the insured perils which are not causal, such as temporal relationships, spatial relationships, physical relationships and substantive relationships. Her Honour gave examples of each of those relationships, viz., temporal (eg during), spatial (eg at a location, within a specified radius), physical (eg preventing or restricting), and substantive (eg by order).
53 Relevantly, in her description of the hybrid clauses her Honour noted that whilst the clauses provided cover for loss from orders/actions of a competent authority closing or restricting access to premises, the clauses did so 'only where those orders/actions are made or taken as a result of infectious disease or the outbreak of infectious disease within a specified radius of the insured premises'.[19]
54 The characterisation of the hybrid clauses in that way arose from the language used in the insuring clause which stipulated a causal relationship between the relevant elements of the insured peril such as 'as a result of' or 'consequent upon'. By way of example, in the case of the policy pertaining to Swiss Re International SE v LCA Marrickville, the relevant clause required the closure of the relevant premises by order of an authority which order was made as a result of an outbreak of a notifiable disease occurring at the situation or within 5 kilometres of the situation.[20]
55 In order to determine whether the insured was entitled to cover, her Honour considered the text of the orders to see whether the orders gave rise to the inference that the orders were made as a result of the existence of COVID-19 (as an outbreak or otherwise) within the relevant radius of the insured premises. A review of the text of the orders did not permit that inference; rather the text pointed to the orders being made as a result of the circumstances relating to COVID-19 in New South Wales generally.[21]
56 Otherwise, her Honour's reasons dealt with many of the issues which are of controversy in the present case. Thus, her Honour examined the question of closure of the premises, noting that where the required closure is 'by order' of an authority, the closure must be compelled or required by the order with 'by' ordinarily meaning 'required by' and 'caused by' and not just 'caused by'.[22]
57 Further, her Honour observed that whilst a restriction on the number of people who may enter and remain on a premises at any one time does not ordinarily involve closure of premises, a restriction on the manner of operating a business may, depending upon the nature of the restriction imposed by the order, the nature of the premises, and the nature of the business, amount to a requirement which constitutes a closure of the premises.[23]
58 Her Honour's reasons otherwise dealt with matters such as the proximate cause of the losses and as a related consideration, the proper interpretation of adjustments clauses (referred to by her Honour as a trends in business clause). Insofar as her reasoning concerned those issues, her Honour adopted a similar approach to the Supreme Court in the United Kingdom in FCA v Arch describing the Court's reasoning in those respects as 'compelling'.[24]
59 The Insurer placed significant reliance upon her Honour's conclusions with respect to the elements that needed to be established by the insured in respect of the causal relationship between the issue of the government order and the occurrence of an outbreak of the disease at the premises or within a specified radius of the premises.
60 Importantly, however, in her Honour's reasons she emphasised that where the relevant question is one of construction of a particular policy there is a danger of treating reasoning in other cases unless the language of the policy is substantially identical as authoritative, referring with approval to the following:[25]
In In re Coleman's Depositories Ltd v Life and Health Assurance Association [1907] 2 KB 798, 812, Buckley LJ said "[t]he question is one of construction, and upon such a question authorities are of little or no value. Authorities may determine principles of construction, but a decision upon one form of words is no authority upon the construction of another form of words". In In re an Arbitration between Calf and the Sun Insurance Office [1920] 2 KB 366 at 382 Atkin LJ made the same point, saying "...on a question of construction I protest against one case being treated as an authority in another unless the language and the circumstances are substantially identical". In Australian Casualty Co Ltd v Federico [1986] HCA 32; (1986) 160 CLR 513 the High Court expressed the same view, saying at 525 that the task of construction required:
... a consideration of what the words of the policy convey, as a matter of contemporary language read in the context of the whole policy, to a reasonable non-expert in this country. If that meaning is plain, it can be of but limited significance if, at other times and in other places, other courts, however eminent, have held that similar words in other policies were to be construed as having had some different meaning.
61 Against that background, it is convenient to return to the relevant words of the Extension before considering the parties respective arguments in more detail.
62 The Extension describes the insured peril relevantly as '...closure of the whole or part of the premises by order of or in consultation with or upon advice from a Statutory or Government Authority following...an outbreak of human infectious or contagious disease (that is notifiable) or bacterial infection at or occurring within 25 kilometres of the premises...'.
63 There is no dispute that prior to the closure of the Venues in March 2020, there was a relevant outbreak within 25 kilometres of the Venues, as there was at least one active (meaning contagious) case of COVID-19 within the community in that area which was not in a controlled setting (such as a hospital or isolation or quarantine).[26] That remained the case throughout the period of insurance for the Policies.
64 The Marriner Group submits that the meaning of the word 'following' is one which accords with its ordinary and natural meaning and simply means that the government orders, consultation or advice must have been 'following' the relevant outbreak in the sense that it must be 'after something' [the outbreak] or 'subsequent to' [the outbreak].
65 The Extension requires that the closure must be 'by order of or in consultation with or upon advice from a [relevant] Authority'. The Marriner Group relies on the 16 March Direction and the various subsequent Directions which it contends are relevant 'orders'.[27]
66 It also relies on the 'consultation' and 'advice' of the government which led to the first closure of the Venues with effect from 16 March 2020.
67 As briefly noted earlier, the Marriner Group submits that there was a closure of the whole or part of the premises. It argues that each of the Venues was such a premises. The words 'situation' and 'premises' are used synonymously or interchangeably in the Policies. The Venues are each a 'premises' and 'situation' under the Policies, including because (a) they are operated by an entity listed as an 'insured' in the First Certificate and Second Certificate; (b) they are each at a location which is listed as 'Location of Risk' under the First Certificate and Second Certificate and (c) they are listed as a situation in the 'Schedule of Insurance: Declared Values Schedule' for the 2019-2020 and 2020-2021 periods of insurance. Further, the Venues save for the Plaza Ballroom were each listed as 'insured' in the First Certificate and Second Certificate.
68 Notwithstanding that some of the directions in place during the relevant periods of closure did not in terms require closure of the premises, the Marriner Group argues that the Directions mandated patron caps or density limits which made it unviable to open such that, in the circumstances, they imposed sufficient 'restrictions on the manner of operating the [b]usiness', as to constitute a 'closure': arguing '[w]hether that is so or not will depend on the nature of the restriction imposed by the order, the nature of the premises, and the nature of the business being conducted on the premises'.[28]
69 The Marriner Group submits that the evidence shows that the theatres were first closed to the public from 16 March 2020, and that shortly after the Plaza Ballroom closed on 21 March 2020. Although the theatres were closed to the public from 16 March 2020, during the period from 16 March 2020 and 22 March 2020, Marriner Group staff still came to work. The theatre production Billy Elliot the Musical was being 'bumped out' with a reasonably large crew and company management for the theatre production of Harry Potter and the Cursed Child were coming to work as they normally would.
70 However from 23 March 2020, those activities ceased, and the Venues were closed not only to the public but also to staff as no access was allowed pursuant to the Directions. The Marriner Group otherwise relies on the Directions that followed throughout 2020 and 2021 which variously banned access to the Venues or provided for limitations on the numbers of patrons in the Venues.
71 In summary, the Group submits that closure of each of the Venues was by the Directions and upon Advice:
(a) The 16 March Direction and the advice imposing a 500 person cap on patron numbers at the theatres forced the closure of the Venues. In line with the decision in LCA Marrickville these were 'restrictions on the manner of operating the [b]usiness' which constituted a 'closure' for the purpose of the Extension.[29] The same is true of the directions over the course of 2020 and 2021 which imposed patron limits.
(b) The closure of the Venues was not a commercial decision of the Marriner Group due to the cancellation or suspension of performance contracts. The theatre contracts were cancelled or suspended because of the Advice (including as to the 16 March Direction which was being imposed) that gatherings of 500 or more people were banned from 16 March 2020. As such, even viewed through the prism of the performance contracts, the Group argues that it is clear that the proximate cause of the closure was the Advice and the Directions.
(c) In any case, on and from 23 March 2020, the Venues closed not only to the public but to Marriner Group staff and other workers because of the Directions and Advice which caused a closure of the Venues.
72 There was no closure of the Venues between 16 and 23 March 2020, and from 22 November 2020 onwards (save for a five day period between 12 and 17 February 2021). During these periods, density caps of 100 or more persons at each of the Venues applied.
73 In any event, the decision to close the Venues to the public was made between 13 and 15 March 2020, prior to any of the Directions or Advice. The producers of the shows scheduled for each of the four theatre venues had decided to cancel the productions, and as a result by the evening of 15 March 2020 the decision was made by the Marriner Group to close the theatre venues. Any case advanced on the basis of a closure after 16 March 2020 falls outside the pleaded case.
74 At the time the decision to close the Venues was made, the government action being proposed related to non-essential gatherings of more than 500 people. In any case, an application of a cap of 500 persons for each of the Venues does not constitute a 'closure' of premises. As such the 16 March Direction did not require 'closure' of any of the Venues.
75 The Insurer submits that the decision to close the theatre venues was made in response to changed trading conditions. The same approach was subsequently taken with the decision to close the Plaza Ballroom (although in any event the Directions pleaded by the Marriner Group did not require any 'closure' of the Plaza Ballroom as it is not and was not a theatre).
76 The Directions were not issued following an outbreak of COVID-19 at or occurring within 25 kilometres of each of the Venues. Rather, the Directions were issued for the protection of public health in the State of Victoria generally and as such did not fall within the scope of the Extension. Importantly, as was upheld in the LCA Marrickville Appeal it is not the existence of the thing (the disease) which is determinative, but a relevant Authority's reasons for acting as it did.
77 The determination of whether each of the Directions was issued 'following' an outbreak of COVID-19 'at or occurring within 25 kilometres of' each of the Venues requires the Court to consider whether the issuing officer's reason for issuing the direction for closure was specific to an outbreak in an area within a 25 kilometre radius of the Venues. Those reasons are assessed objectively by what the issuing officer said at the time and contemporaneous circumstances known by, or inferred to be known by, the person at the time[30] with the relevant starting point being the terms of the direction and any accompanying contemporaneous material.[31] The Insurer submits that where the Directions are not capable of being seen as resulting from anything happening within the specified radius of each of the Venues, it cannot be concluded that the Directions were the result of any outbreak within that radius.[32]
78 Any contention that the Marriner Group relied on consultation and advice is an afterthought as it did not appear in the earlier versions of the statement of claim and witness statements relied upon by the Marriner Group and should be rejected accordingly.
79 Further the Insurer does not accept that the issuers of the media/press releases/emails/text messages were authorities as contemplated by the Extension and submits that Jagot J's findings in LCA Marrickville in this regard are informative:[33]
...
a "public authority", "statutory authority", "government authority", "civil authority", "lawful authority" or the like, in the context of the insuring provisions, means an authority, body or person authorised or empowered to take the action by reason of an Act, regulation or instrument of any kind under an Act, regulation or instrument, the action having some essentially public as opposed to private character. It does not mean an authority, body or person authorised or empowered to take the action by reason of a private arrangement such as a contract or by-laws of a body corporate;
...
80 Further, the Insurer submits that publications attributing statements to the Prime Minister, can be readily put to one side as they do not constitute advice from a relevant Authority.[34]
81 The question of whether the claim falls within the scope of the Extension involves a question of the proper interpretation of the Extension followed by the application of the facts derived from the evidence.
82 As noted above, it is not in dispute that the Extension constitutes a form of hybrid clause. The insured peril therefore comprises a number of elements, each of which must be satisfied in order for the Extension to be engaged. Interruption of or interference with the business describes the nature of the loss and does not fall within the scope of the insured peril.[35]
83 In FCA v Arch the Supreme Court considered it useful to examine the elements of the hybrid clause in what the Court referred to as a causative sequence.[36]
84 The use of the term 'causative sequence' applied here points to an interpretation consistent with that favoured by the Insurer, although the Supreme Court used the phrase in a quite different context. As such, I shall use the more neutral descriptor 'sequence'.
85 The relevant sequence here then is, first, an outbreak of a human infectious or contagious disease or bacterial infection within 25 kilometres of each of the Venues; secondly, an order of a relevant Authority (or advice from a relevant Authority) which results in the closure of the whole or part of the premises; thirdly, interruption of or interference with the business with consequent loss.
86 There is no issue of interpretation or disputed question of fact arising in respect of the first element. There was an outbreak of a human infectious or contagious disease within 25 kilometres of each of the Venues, prior to the 16 March Direction and prior to each of the Directions relied upon subsequently.
87 The key focus of the Insurer's argument turns on the second element in the sequence, namely whether 'following' the outbreak there was an order (or if it to be necessary to consider, the receipt of advice) which led to the closure of the premises. This aspect of the Insurer's argument turned on questions both as to the proper interpretation of the Policies and the facts as they apply to the Policies.
88 The Extension requires that the order or advice from the relevant Authority 'follow' the outbreak. The Insurer contends that in order for the Marriner Group to succeed, it must establish that the relevant order was issued 'as a result of' the outbreak.
89 The orders most proximate to 16 March 2020, which is the first date on which the theatre venues are relevantly alleged to have closed, was the 16 March Direction which comprises the state of emergency declaration issued 16 March 2020 and the directions issued by Victoria's Chief Health Officer on 16 March 2020. The declaration as to the state of emergency was made by Victoria's Minister for Health, pursuant to s 198(1) of the Public Health and Wellbeing Act 2008 (Vic) ('Public Health Act'). By that declaration, the Minister declared a 'state of emergency throughout the State of Victoria arising out of the serious risk to public health in Victoria from Novel Coronavirus 2019 (2019 nCoV)'. The declaration took effect immediately and operated for a period of four weeks from the date of the declaration.
90 The declaration of the state of emergency resulted in the Chief Health Officer being empowered to give directions pursuant to sub-ss 200(1)(b) and (d) of the Public Health Act, where the Chief Health Officer considered the directions reasonably necessary to protect public health. The 16 March Direction provided that 'a person who owns, controls or operates premises in the State of Victoria must not allow a mass gathering to occur on the premises between noon on 16 March 2020 and midnight on 13 April 2020'.[37] For the purposes of the 16 March Direction a mass gathering was defined as 'any gathering of five hundred (500) or more persons in a single undivided space at the same time, whether in an indoor or outdoor space but does not include a gathering...' and proceeded to provide for certain specified exceptions in the definition which are not relevant for present purposes.
91 As noted above, the state of emergency declaration issued by the Minister was for a period of four weeks, but was thereafter extended on a number of occasions covering the whole of the period relevant to this dispute.
92 In the press release issued by the Premier which accompanied the announcement of the state of emergency and the 16 March Direction, reference was made to a statement by the Premier and the Minister to the effect that the state of emergency would be in force for the next four weeks so as to assist with measures designed to 'flatten the curve' of COVID-19 and give our health system the best chance of managing the virus. The press release further explained that any person who did not comply with a directive could receive a fine of up to $20,000 and a fine of up to $100,000 for a body corporate that did not comply.
93 The Insurer argues that it is apparent from the text of the declaration as to the state of emergency and the text of the various directions that were made by the Chief Health Officer on 16 March 2020 and thereafter, that the reason behind the issuing of the declaration and various directions was to protect public health in the State generally. It argues that because the Directions had a State-wide operation and were issued for public health purposes, it cannot be said that the Directions were made 'following' an outbreak within 25 kilometres of the premises.
94 The Insurer submits that such a conclusion is consistent with that reached by Jagot J in LCA Marrickville, where her Honour concluded that the various insureds with minor exception failed to establish an entitlement to indemnity under the policy. Her Honour concluded that in order to succeed 'the insured must prove that the order resulted from the specified circumstances' set out in each policy.[38]
95 Her Honour's characterisation of the elements that the insured was required to establish was substantially upheld by the Full Court in the LCA Marrickville Appeal which stated:
Returning to the essential issue of whether the orders causing the closure or evacuation resulted from the specified circumstances, her Honour held ... that the starting point in most cases must be the terms of the orders made and any accompanying contemporaneous explanatory material. After examining the several orders made pursuant to s 7 of the Public Health Act (NSW), none were capable of being seen as resulting from anything happening at or within a five kilometre radius of the insured Situation. Rather, they were all based on the Minister's concern as to the public health risk that COVID-19 presented to the State of New South Wales as a whole.... To have concluded otherwise would have rendered the required causal connection between the orders and the five kilometre radius around the Situation to be meaningless. On a textual approach, the orders were not the result of an outbreak of a disease at or within five kilometres of the Situation or the discovery of an organism likely to result in an occurrence of the disease within that area. The circumstances within the radius were not a proximate or any other kind of cause of any of the orders. Further, proof that there were cases of COVID-19 within the five kilometre radius did not prove that the orders resulted from an outbreak or occurrence of that disease in that area. Although a different approach had been adopted in FCA v Arch and Hyper Trust (No 1)..., the insured peril in cl 9.1.2.1 was an order made consequent upon the fact of an outbreak or discovery of an organism, rather than the risk or threat of COVID-19. Further, on the evidence, there was nothing to suggest that the orders were in response to anything which had occurred within the five kilometre radius.[39]
96 Relevantly, the policies considered by her Honour were not in the same terms as the Extension; her Honour's conclusion that the insured must establish that the order 'resulted from the specified circumstances' (generally the location or area specific) occurred in the context of a description of the insured peril which for the most part expressly recognised that the order (for closure) be issued 'as a result of' an outbreak falling within that locale. The causal nexus between the outbreak and the order was simply a function of the wording of the policies considered in that case.
97 Recognising that it is inapt to apply reasoning from one case to another without careful analysis of the similarities or otherwise of the policies in question, acceptance of the Insurer's argument equates the same meaning being given to the word 'following' as is to be given to the phrase 'as a result of'.
98 It is far from clear why that would be so; the insured peril in the Extension is the composite peril of 'closure of the whole or part of the premises by order of ... a [relevant] Authority following an outbreak of a human infectious or contagious disease (that is notifiable) or bacterial infection at or occurring within 25 kilometres of the premises ...'.
99 The composite perils considered by her Honour in LCA Marrickville were of a varying nature depending on the particular policy. The most apt comparison between the wording of the Extension and the words of the policies considered by her Honour is that contained in the policy issued by Swiss Re International SE to LCA Marrickville Pty Ltd (the 'Swisse Re Policy') which read 'closure...of the whole or part of the Situation by order of a competent public authority as a result of an outbreak of a notifiable human infectious or contagious disease or bacterial infection ... at the Situation...[or] occurring within a 5 kilometre radius of the Situation'.[40]
100 Putting aside the not irrelevant distinction between a 5 kilometre radius and the 25 kilometre radius which is referred to in the Extension, the Swiss Re Policy is a close proxy for the Extension, save in one important respect; in the Swiss Re Policy the closure order must have been made 'as a result' of the relevant outbreak, whereas in the case of the Extension, the closure order must simply be 'following' the relevant outbreak.
101 In her Honour's consideration of the wording in the Swiss Re Policy, her Honour adopted a textual approach, which understandably concentrated on the words 'as a result of' the outbreak.[41]
102 The proper construction of the clause required the insured to establish that the order resulted from COVID-19 at the situation or within the 5 kilometre radius. This followed an entirely orthodox meaning being given to the phrase 'as a result of' which points clearly to a causal connection of the most direct nature. Having first construed the clause in that fashion, her Honour then looked at the orders and the surrounding explanatory material in order to discern whether it could be inferred that the order resulted from the particular outbreak within the relevant radius of LCA Marrickville Pty Ltd. As the orders or surrounding materials did not enable that inference to be drawn, the Swiss Re Policy did not respond to the insured's claim.
103 If one applies a relevantly similar textual approach to the task of interpreting the Extension by seeking to determine the meaning that a reasonable person in the position of the parties would give to the word 'following', the same conclusion does not result.
104 The ordinary and natural meaning of the word 'following' is temporal; the Cambridge Dictionary defines its meaning as 'after something' or 'subsequent to'.[42] The Oxford English Dictionary defines the word in a variety of ways by reference to the different contexts in which the word may be used, but the most apt comparison here is 'as a sequel to or in succession to (an event)'.[43]
105 As noted earlier, in LCA Marrickville, her Honour recognised that when an insured peril contains a number of elements, the relationships between the various components may be causal. Her Honour also noted the existence of other relationships between elements of the peril which were not causal and which may be temporal.[44] Such is the case here. Such a construction is consistent with the natural and ordinary meaning of the word.
106 A reasonable person in the position of the parties would seek to construe the Policies as a whole and in a harmonious manner. In so doing, the parties would appreciate that the purpose and object of the Extension was different and more expansive than the purpose and object of the Infectious Disease Clause. The latter described the insured peril in narrower terms with the peril being premises specific as it is confined to 'closure...by order of a competent authority consequent upon infectious or contagious disease manifested by any person whilst at the Premises'.[45] In the context of the narrow, spatial and temporal elements identified in the Infectious Disease Clause it is unsurprising that the relationship between the closure order and the disease is a causal one; the order must be one made 'consequent upon' the disease being manifested by any person whilst at the premises. The scope of the risk insured against is one which requires the insured to establish a direct causative relationship of the same kind as in the case of the Swiss Re Policy and the analogous hybrid clauses considered in LCA Marrickville.
107 In the case of the Extension, however, the peril is described in different and wider terms; the required spatial relationship is very different, extending as far as 25 kilometres from the location of the insured premises, which are in the Melbourne CBD, and requiring the occurrence of an outbreak at any location within that 25 kilometre radius which extends to outer reaches of the metropolitan perimeter.
108 Nor is the particular composite peril one which requires that the disease be manifested by a particular person at a particular location within the relevant radius, but rather that there be an outbreak of a human infectious or contagious disease (that is notifiable) occurring within 25 kilometres of the subject premises. If outbreak requires only a case of an active, in the sense of infectious, disease occurring within the relevant radius of the premises, consistent with her Honour's reasoning, reasonable persons in the position of the parties would appreciate that the infectious or contagious disease may be one which is transmissible to and likely to be transmitted to persons outside the relevant radius.[46] Against that background, the parties must also have contemplated that q relevant Authority's actions may well be actions taken in response to outbreaks occurring both within the 25 kilometre radius and outside.
109 In that context, the drafting of the Extension in a way which uses the essentially and arguably determinative temporal connector 'following' is unsurprising. The combination of the infectious nature of the disease, the relatively broad radius constituting part of the insured peril, and the mobility of persons affected whilst infectious means that the task of establishing that the closure order resulted from the particular outbreak within the required radius of the insured's premises, as opposed to contemporaneously occurring outbreaks outside the radius, or some combination of the two, would be a very difficult one. Such a construction would be such as to render the scope of the expanded cover provided by the Extension somewhat illusory and in practical terms not much different to the Infectious Disease Clause.
110 Where parties to an insurance policy choose to use different words, like 'following' as opposed to 'consequent upon', ordinarily one would expect that the words so chosen would have different meanings. That is particularly the case where their ordinary and natural meanings are quite different and where the context in which they are deployed differs markedly.
111 I do not accept the Insurer's submission that a temporal interpretation of the word 'following' means that the Extension has the effect that it is the equivalent of a clause which reads 'following an outbreak of infectious disease occurring anywhere in Victoria'. The insured must first establish that there was an outbreak within the relevant 25 kilometre radius. Otherwise, the Extension is not engaged, even if an order for closure is made. There is nothing remarkable or unreasonable about such a result; it merely reflects the risk that the Insurer has agreed to cover.
112 Nothing in FCA v Arch precludes a temporal construction being given to 'following', or more pertinently requires the conclusion that 'following' must have the same causal connection as 'as a result of'.
113 The majority in FCA v Arch observed that it is unprofitable to search for shades of semantic difference between phrases such as 'as a result of' or 'in consequence of' or the word 'following'. But their Lordships did so in a very different context to that relevant here.[47] As the reasoning makes clear and the Insurer's submission acknowledges, this observation was made in the context of the Supreme Court's analysis of the proximate cause of the loss suffered, not as part of their analysis of the relationship between the elements of the peril. Thus, the observations as to the lack of utility arose in the context of their interpretation of the causal relationship required to be established by phrases such as 'loss resulting from [the insured peril]' or 'loss as a result of [the insured peril]' or in the case of the third policy issued by Royal & Sun Alliance Insurance Plc, '[w]e shall indemnify You in respect of interruption or interference with the Business ... following [the insured peril]'.[48]
114 Their Lordships' observations were made in the context of their consideration of the required causal connection between the loss or interruption or interference with the business on the one hand and the insured peril on the other. Because of the relevant factual circumstances in FCA v Arch, the establishment by the insured of the existence of the insured peril was for the most part readily established. The gist of the competing arguments in FCA v Arch turned on the question of causation and correlatively the approach to be taken to trends clauses. Their Lordships' reasoning acknowledged that the test of causation between the loss claimed and the peril insured against was one directed to the ascertainment of the proximate cause because the requirement of proximate causation reflects the presumed intention of the contracting parties. The majority then considered what was meant by 'proximate cause'. It was in the context of this consideration of the 'proximate cause' that the majority eschewed the significance of any distinction between phrases such as 'as a result of' or 'arising from' or 'in consequence of' or a word such as 'following'. Even in their disregard of the relevance of any difference in the context of that exercise, the majority observed that 'following', arguably like the phrase 'directly or indirectly caused by', indicates a looser form of causal connection than normally may be required.[49]
115 The other argument advanced in oral submissions by the Insurer is that if the word 'following' is given only a temporal construction, it would be open to an insured to claim indemnity if an outbreak occurred months or even longer before the making of the closure order. This would be so on a literal interpretation. As the Insurer rightly emphasises in a different context, an insurance policy is intended to produce a commercial result and should, accordingly, be given a businesslike interpretation which avoids capricious, unreasonable, inconvenient or unjust consequences.
116 A construction which entitles an insured to indemnity because there is a closure order made years after and entirely unrelated to an outbreak within the relevant radius produces an unreasonable and absurd result.
117 I accept that the parties could not therefore have intended that the word 'following' be interpreted literally so as to be limited to an entirely temporal construction. But the temporal element implicit in such a word remains important. An approach which requires that the temporal relationship be first established but which mitigates against its unreasonable outer reaches by requiring a connection or a relationship between the outbreak and the closure order provides a sufficiently business like interpretation to the word whilst still respecting its essentially temporal nature.
118 This looser connectivity, essentially temporal in nature, between the occurrence of the outbreak and the making of the closure order also derives support from the application of the contra proferentem rule. This rule recognises that any ambiguity in a policy of insurance should be resolved by adopting the construction favourable to the insured.[50] In this context, the 'following' element of the Extension requires the insured to be able to establish that an outbreak occurred within the relevant radius, that an order was subsequently made, and that there was a connection between the two. It does not require the insured to establish that the outbreak was the sole or even the dominant cause of the making of the order, only that the two were connected and that an outbreak occurred prior to any order relied upon. In most instances, as is the case here, temporal proximity, coupled with the wide radius and the infectious nature of the disease is such that the connection requirement will be able to be relatively easily satisfied.
119 In contrast, where significant time elapses between the outbreak and the order, the connection will be more difficult to establish and the more extreme consequences that would follow from a strictly literal interpretation are avoided. Here, there were 36 recorded cases of COVID-19 by 13 March 2020 which included an outbreak starting on 10 March 2020 in the City of Boroondara which is within a 25 kilometre radius of the Venues. On 11 March 2020, there was an outbreak in the City of Hume, which is outside the 25 kilometre radius. On 12 March 2020, Victoria had its first case of community transmission. On 13 March 2020, the Victorian government advised against mass gatherings of more than 500 people which advice was designed to reduce community transmission of COVID-19. On 16 March 2020, there was an outbreak in the City of Yarra also within the 25 kilometre radius. On the same day there was the 16 March Direction which banned non-essential gatherings over 500 people. The 16 March Direction came soon after these outbreaks two of which occurred within the relevant radius. By the time of the 18 March 2020 direction, which reduced non-essential gatherings to 100 people, there had been a further outbreak on 17 March 2020 in the City of Stonnington. At the time of the 18 March 2020 direction three of the five outbreaks in Victoria had occurred within the relevant radius. It is otherwise common ground that there were outbreaks within 25 kilometres of the Venues from all times thereafter to 31 March 2022. I accept therefore that there were outbreaks within the relevant radius which were followed by each of the Directions (and in the case of the 15 March 2020 advice; by that advice) within the meaning of the Extension. The Directions and the 15 March 2020 advice came after the outbreaks and the proximity of the Directions and the 15 March 2020 advice and their content and rationale is such that there is a clear connection between the outbreaks and the Directions and 15 March 2020 advice.
120 Against that background it is necessary to return to the alleged closure in order to examine when it occurred and whether it was required by or caused by the orders.
121 Like her Honour in LCA Marrickville, I consider that where the relevant clause requires that the closure be 'by order of an authority the closure must be compelled or required by the order', or stated in substantially the same terms, the closure must be 'required by' and 'caused by' the order.[51] I also agree with her Honour's conclusion, again endorsed on appeal, that whether an order required closure of the whole or part of the premises is to be understood in the context of the nature of the premises and the business being conducted on the premises.[52] As her Honour observed, in the ordinary course, a restriction on the number of persons who may enter and remain on premises at any one time does not involve a closure of premises.[53]
122 The Insurer submits that the directions or orders applicable during the relevant period which applied density quotients and/or caps on the number of patrons who could attend the Venues of 100 or more did not require closure of the Venues. The real burden of the Insurer's submission, concerns the effect of the 16 March Direction and the direction issued on 18 March 2020.
123 The Insurer argues that during the seven-day period (being 16 March to 23 March 2020), the directions did not require and cause the closure of the Venues. The Insurer relies upon her Honour's reasons in LCA Marrickville insofar as they relate to her Honour's consideration of the proceeding between Insurance Australia Limited v The Taphouse Townsville Pty Ltd. Taphouse operated a craft beer bar and restaurant in Townsville. Its liquor licence provided that Taphouse could have seating for not more than 60 patrons and that a total of 100 patrons only seated or standing could be on the premises. By 28 March 2020, Taphouse had obtained a licence enabling it to serve takeaway tap beer and adapted that so it could provide takeaway food. Taphouse opened on 28 March 2020 to provide takeaway tap beer and takeaway food, and in further compliance with subsequent directions permitted 10 seated dining patrons from 20 June 2020, 20 seated dining patrons from 1 June 2020, 50 seated dining patrons from 3 July 2020 and bar service allowing patrons to purchase alcohol whilst standing, before ceasing bar service on 24 July 2020, resuming bar service on 3 October 2020 and permitting 58 seated dining patrons from 17 November 2020. The relevant policy provided that the insurer would pay Taphouse for '... loss that results from an interruption of your business that is caused by any legal authority preventing or restricting access to your premises ...'.[54]
124 Her Honour rejected Taphouse's submissions that the relevant directions were such as to amount to an involvement on the part of an authority in preventing or restricting access to the premises as a result of the threat of damage to persons within a 50 kilometre radius of the premises. Her Honour was not persuaded that the directions required the closure of the premises in whole or in part. Her Honour accepted that whilst it is the case that it is the substantive effect of the directions not their form which is relevant to whether the directions resulted in a closure of the premises, in Taphouse's case, they involved a mere restriction on the number of people who could enter and remain on the premises.[55]
125 No real assistance is obtained from the Taphouse case. As her Honour's reasons made clear, whether the effect of an order or a direction required closure is to be understood in the context of the nature of the premises and of the business being conducted on the premises.[56] Her Honour's conclusion that the directions in Taphouse did not have that effect represent nothing more than a conclusion that on the facts present in Taphouse (which relevantly included that the business of the premises continued to operate during the relevant period albeit on a restricted basis), that in that case, and in the context of the business being conducted on the premises, the order did not require closure of the premises.
126 The critical question is whether, in the circumstances of the business conducted by the insured, a restriction on the operation of a theatre business such as to impose a maximum cap on audiences of 500 for the period 16 March to 18 March 2020, or of 100 for the period from 18 March to 23 March 2020, was such as to require the closure of the premises.
127 The 16 March Direction and advice imposing a 500 person cap on patron numbers at the theatres and the Plaza Ballroom had the effect of forcing the closure of the Venues. Both Kayely Marriner, Chief Financial Officer for the Group, and Mr Marriner gave evidence substantially to that effect. Ms Marriner's evidence was to the effect that 'cutting the capacity of our theatres to 500 people does not work for the business model we rely on' and 'running the theatres at below 500 people was simply going to mean haemorrhaging money; something the business could not risk'. Mr Marriner's evidence was in similar terms, including his evidence that, at least insofar as it related to the theatres, by the Sunday night (15 March 2020) it had become abundantly clear to him that it was not going to be possible to keep the theatres open because of the government advice which is evidently a reference to the announcement by the Prime Minister that afternoon that gatherings of more than 500 people will be banned from Monday 16 March 2020.
128 In any event, and insofar as there is any doubt as to whether the effect of the 16 March Direction was such as to require the closure of the theatres, in light of Ms Marriner's evidence to the effect that they would not be able to operate with a cap on attendances at 500 people for long, by the time of the issue of the direction on 18 March 2020, which limited the maximum number of patrons who could attend theatres to 100, the practical effect of the directions capping audience levels was such as to require the closure of the Venues.
129 However, the Marriner Group must also establish that the closure was not merely required by, but was caused by the order.
130 This is a factual inquiry. The difficulty for the Marriner Group is that Mr Marriner was informed on Saturday 14 March 2020 and Sunday 15 March 2020 by the producers of the theatre productions, Come from Away, which was being performed at the Comedy Theatre, and Billy Elliot the Musical, which was being performed at the Regent Theatre, that they would not be performing at the Comedy Theatre and the Regent Theatre, respectively, from 16 March 2020 onwards. To similar effect, by notice given 15 March 2020, HP West End Limited gave notice to Princess Theatre Pty Ltd of a force majeure event under the hiring agreement relating to the performance of the production of Harry Potter and the Cursed Child at the Princess Theatre, which had been running at the Princess Theatre since February 2019. On 13 March 2020, the Melbourne International Comedy Festival was cancelled. This festival was scheduled to take place between 23 March and 22 April 2020 at the Forum Theatre and the Comedy Theatre.
131 By 15 March 2020, all of the producers of the shows scheduled at the four theatre venues had either cancelled or suspended performances.
132 Mr Marriner, therefore, accepted in cross-examination that it had become clear to him by 15 March 2020 that the theatres would have to close.
133 Accordingly, I accept the Insurer's submission to the effect that the decision to close the theatres was made on 15 March 2020 prior to the making of any order, and accordingly it cannot be said that the order or direction caused the closure of the Venues from 16 March 2020.
134 It is, therefore, necessary to consider the alternative way in which the Marriner Group claims that it is entitled to indemnity from 16 March 2020 which is in reliance upon that of the Extension which provides for cover where the closure is 'upon advice from a [relevant] Authority ...'.
135 With respect to the 16 March 2020 closure, the Marriner Group points to three pieces of advice. The first was that provided by Martin Foley, the then Victorian State government Minister for Creative Industries at a meeting attended by Mr Marriner on 13 March 2020. According to Mr Marriner, at the meeting, Mr Foley advised that the creative arts venues should be thinking about the best ways in which they could mitigate the spread of COVID-19. There is nothing in Mr Marriner's account which suggests that Mr Foley was advising that the Venues should close. The second item of advice relied upon concerns that provided by the Prime Minister at a press conference following a meeting that the Prime Minister had held with the State Premiers and Chief Ministers on 13 March 2020.
136 According to a transcript of the press conference, the Prime Minister advised that a meeting had just concluded of the Council of Australian Governments, which comprised the Chief Ministers, the Premiers and himself. Following that meeting, the Prime Minister advised that he was making a series of announcements based on advice that had been received from the Australian Health Protection Principals Committee ('AHPPC'), which comprised the Chief Medical Officers of each of the States and Territories and of the Commonwealth. The Prime Minister referred to growing evidence overnight and over the course of the day of greater community transmission of the coronavirus throughout Australia. In response to that advice, the Prime Minister announced the formation of a National Cabinet. Further, the Prime Minister advised that based on the advice received that day about the increasing number of cases and the evidence of community transmission, it had been recommended to the Council of Australian Governments that '...we move to a position by Monday where we will be advising against organised, non-essential gatherings of persons of 500 people or greater from Monday'.
137 The Prime Minister continued by advising that '...there will be many issues to work through between now and Monday as we get the precise advice about the implementation of that advice to Australians around the country' and that the newly formed National Cabinet '...will be meeting again on Sunday to consider that further advice on the implementation of those arrangements, and [will] provide further advice at that point...'.
138 Thirdly, the Marriner Group relies upon the statement by the Prime Minister on 15 March 2020, as had been foreshadowed on 13 March 2020. At that press conference, the Prime Minister reported on the first meeting of the National Cabinet and referenced the advice from the AHPPC, previously flagged on 13 March 2020, that '... in general non-essential gatherings of more than 500 people should not occur'. The Prime Minister concluded by saying 'Australians should be careful. Australians should be listening to the advice that is provided, Australians should be exercising their common sense'.
139 Mr Marriner gave evidence substantially to the effect that the Marriner Group would follow the public advice that non-essential events had to have less than 500 attendees because to do so was socially responsible. According to Mr Marriner 'the question was not whether to follow the government advice or whether it was a government mandate or advice but how we would implement it'.
140 Mr Marriner otherwise gave evidence, as set out above, to the effect that it was uneconomic for the theatres to operate with an audience cap of 500 people.
141 Insofar as the Marriner Group sought to rely upon the statements made by the Prime Minister, the Insurer submitted that those statements can be put to one side, as they do not constitute advice from a '[relevant]Authority'. In support of that submission, the Insurer referred to LCA Marrickville, where her Honour stated the following:
In the Australian Constitutional system there is more difficulty in attempting to characterise announcements by the Prime Minister as orders of a competent government or statutory authority within the meaning of cl (c). This is because it is apparent that: (a) the Prime Minister held no legal power or authority to order that any premises be closed or evacuated for any reason identified in cl (c), (b) the Prime Minister's announcements, on their face, represented statements about agreements reached at the National Cabinet, (c) in the Australian Constitutional system, relevant legal power and authority to effect the closure or evacuation of premises as identified in cl (c) was accepted by National Cabinet to be vested in the States and Territories, and (d) the Prime Minister's announcements expressly said that the requirements would be implemented under State and Territory laws.
On this basis I would not characterise the Prime Minister's announcements as announcements of a competent government or statutory authority within the meaning of cl (c). These announcements, accordingly, do no more than provide context.[57]
142 Of course, her Honour's observations as set out above were made in the context of the policy being considered by her Honour which, relevantly, was one which provided cover in circumstances of '...the closure or evacuation of the whole or part of the Business Premises by order of a competent government or statutory authority ...'.[58]
143 Her Honour's observations were not directed to the question of whether advice from the Prime Minister could be considered as advice from a government authority. Her Honour's observations were made in the specific context of whether such advice could amount to an order of a competent government or statutory authority. Her Honour was only purporting to provide a definition of government authority on an inclusive basis. I do not read her reasons as determining as a matter of the proper interpretation of the policy the meaning that a reasonable person in the position of the insured and the insurer would consider amounted to such a body. This is an entirely different question to whether advice from the Prime Minister constitutes advice from a government authority. Reasonable persons in the position of the insured and the insurer would have considered that the Prime Minister was the head of the executive government of the Commonwealth of Australia.
144 In FCA v Arch, the Supreme Court had no difficulty in concluding that announcements by the Prime Minister, were given on behalf of the government of the United Kingdom. The Court reached that conclusion in the context of its consideration of the hybrid clause in the four Hiscox policies where the relevant element in the insured peril read '...due to restrictions imposed by a public authority...'.[59] In that context, the majority agreed with the Court below that 'restrictions imposed' by a public authority would be understood as ordinarily meaning mandatory measures 'imposed' by the authority pursuant to its statutory or other legal powers and that 'imposed' generally connoted compulsion with a public authority exercising compulsion through the use of such powers.[60] The majority, however, qualified that observation by stressing that they would not, however, accept that a restriction must always have the force of law before it can fall within that description.[61] The majority expressly referred to a circumstance where a public health officer who discovered vermin on inspection of a restaurant may issue an immediate instruction to close the restaurant although the legal order to do so may only follow later.[62] In that context, the Court noted that all concerned would expect such an instruction to be complied with forthwith, regardless of legalities, and would regard the restriction as being imposed there and then.[63]
145 As the Court continued, when the Prime Minister, in his statement of 20 March 2020 instructed named businesses to close 'tonight', that was a clear, mandatory instruction given on behalf of the UK government and that such an instruction was capable of being a restriction imposed regardless of whether it was legally capable of being enforced.[64]
146 That line of reasoning has force here; the Extension provided for cover in circumstances which went beyond the making of an order for closure which was the matter considered by her Honour in LCA Marrickville. The Extension provided cover in the event of advice.
147 As the Prime Minister's statements on 13 March 2020 and 15 March 2020 made clear, the Prime Minister, as head of the Commonwealth government, speaking on behalf of initially the Council of Australian Governments and then the newly formed National Cabinet, was providing advice to non-essential businesses not to open in circumstances where more than 500 persons may be present.
148 In my view, this constitutes advice given with government authority and thereby on behalf of the Commonwealth government to the effect that non-essential businesses could not operate with more than 500 persons present at their premises.
149 Having regard to the nature of the Marriner Group's businesses, therefore, this amounted to advice in substance to the effect that the Venues could not operate and therefore had to close.
150 The advice was provided after the outbreak in the City of Boroondara and after the first case of community transmission had occurred in Victoria. The content of the advice and its proximity in time to the outbreaks is sufficient to establish that the advice followed the outbreak within the meaning of the Extension.
151 Insofar as the Insurer submits that reliance upon the advice limb of the relevant clause constituted an 'afterthought', that is so if that characterisation means that the allegation was one subsequently made by the Marriner Group upon legal advice in the context of the claims that it sought to bring in this proceeding.
152 However, the fact that no claim was initially advanced on the basis of advice from a relevant Authority as opposed to following closure of the premises by order of a relevant Authority does not mean that the claim cannot succeed, as long as the Group establishes that there was advice that the Marriner Group was aware of and received and determined to act accordingly. The lateness of the allegation may call for scrutiny as to whether the advice was received and acted upon but has no other consequence.
153 Whilst it is true that Mr Marriner did not receive a copy of the transcript of the press conferences after they occurred, he maintained in his evidence that he was aware of the advice provided by the Prime Minister which, in the context of a person operating a business like the Marriner Group, is hardly surprising.
154 It was not directly put to Mr Marriner that he did not hear or listen or act in relation to or in response to the Prime Minister's statements, or that his considerations as to whether the Marriner Group would open its theatres from 16 March 2020 occurred without reference to the Prime Minister's advice.
155 Given its content, it is hardly surprising that on hearing such advice, Mr Marriner concluded that the theatres could not open on the following Monday 16 March 2020. The fact that the producers of the various productions formed that same view in the context of the impending closure orders following statements made by the Prime Minister to substantially the same effect is again hardly surprising.
156 I do not accept that the Group's entitlement to coverage from 16 March 2020, pursuant to the Extension, does not arise simply because the theatre producers and the Marriner Group heard the same advice with the same inevitable consequence and the theatre producers rang Mr Marriner and not the other way around advising that the productions would not be going ahead.
157 In conclusion, therefore, I accept that the closure on 16 March 2020 was required by the 16 March Direction but was not caused by it because the decision to close had preceded the 16 March Direction. I accept however that the closure on 16 March 2020 occurred based on advice from a relevant Authority in the form of the advice the Prime Minister provided on 13 March and 15 March 2020.
158 In that context, the fact that certain employees of the Marriner Group attended at the Venues in the week from 16 March to 23 March 2020 is of no moment; the Extension provides for cover where the whole or part of the premises is closed upon advice from a relevant Authority. Here, part of the premises, being areas of the premises attended by the public for the purpose of productions, were closed upon advice from a relevant Authority.
159 In any case, the position becomes definitive from 23 March 2020. On that day, the Deputy Chief Health Officer gave a direction pursuant to ss 190(1)(a) and 200(1)(d) of the Public Health Act that any person who owned, controlled or operated a non-essential business or undertaking in the State of Victoria must not operate that business or undertaking between noon on 23 March 2020 and midnight on 13 April 2020.
160 Directions in substantially similar terms were thereafter made on a regular basis for the periods in respect of which the Venues remained closed. Those directions amounted to directions which both required and caused the closure of the premises for those periods in respect of which the Venues remained closed up to and including the date of expiry of the Second Policy on 31 March 2021.
161 The Insurer did not dispute that such directions required closure. Rather, the Insurer argued that because of the State-wide or, in some cases, restricted-area location or effect of those directions, the orders were not issued as a result of the occurrence of an outbreak within the relevant radius of the Venues. Given my conclusions with respect to the proper interpretation of the word 'following', I reject that argument. The proximity in time between the on-going outbreaks within the 25 kilometre radius and the later directions which were made is sufficient to establish the weak connection required by the essentially temporal concept of 'following'.
162 Secondly, the Insurer submits that the Marriner Group's case was confined to a claim that the Venues had closed by 16 March 2020 and that any claim that closures occurred at any subsequent date fell outside the ambit of the pleaded case.
163 I reject this argument. The submission is based upon a misreading of the second further amended statement of claim dated 25 January 2024 ('2FASOC') which relevantly pleads from paragraphs 20 to 46J and following various directions issued by the Chief Health Officer and the Deputy Chief Health Officer in the period after 18 March 2020; further, in paragraphs 47 and 48, the plaintiffs plead cases of COVID-19 and exposure sites for COVID-19 during the period up to 28 September 2021.
164 The Marriner Group otherwise pleads in paragraph 51 of the 2FASOC that the Group was entitled to be indemnified under the Extension as, inter alia, the Venues were closed by the directions (or otherwise by order of or in consultation with or upon advice from a relevant Authority) with the directions inarguably being referrable to the entirety of the directions in the preceding parts of the pleading which included those which went beyond 16 March 2020. The only paragraph of the 2FASOC which is of any assistance to the Insurer, in relation to its characterisation of the claim, is paragraph 49, which reads '[f]rom 16 March 2020 the Venues were closed by the directions referred to in paragraphs 18-46J (Directions) (or otherwise by order of or in consultation with or upon advice from a Statutory or Government Authority) during certain periods of time as described in paragraphs 49-49C. The Comedy Theatre, Forum Theatre, Regent Theatre and Princess Theatre first closed on or about 16 March 2020. The Plaza Ballroom first closed on 21 March 2020 (after an event held that day). The Venues first re-opened with reduced capacity in terms of patron numbers between 9 January 2021 and 25 February 2021'. Even then I cannot see on any fair reading of that paragraph how it provides support for the Insurer's characterisation of the claim; the phrase '[f]rom 16 March 2020 the Venues were closed by the directions referred to in paragraphs 18-46J' plainly refers to 16 March 2020 as being the first date on which the theatre venues were closed, and insofar as they were closed on that day it must have been referrable as a matter of logic to the directions which preceded or were made on 16 March 2020 and not those made after that date. The reference to the directions made after that date plainly were referrable to that period of closure which occurred after 16 March 2020.
165 I otherwise note that there was no objection to the tender of the directions which post-dated 16 March 2020.
166 It follows, therefore, that from 16 March 2020 to 23 March 2020 the Venues were closed upon advice from a relevant Authority, and from 23 March 2020 onwards were closed by order of a relevant Authority.
167 The Marriner Group is, therefore, entitled to cover pursuant to the Extension unless Proviso (iii) applies.
168 Accordingly, I shall now turn to the rectification issue.
169 The ambit of the First Policy and the Second Policy is confined by Proviso (iii) of the Extension which states:
Provided that:
...
- The insurer will not be liable for any loss or damage arising as a result of any Highly Pathogenic Avian Influenza in Humans or any other diseases declared to be quarantinable diseases under the Quarantine Act (1908) and subsequent amendments.
170 The Quarantine Act was repealed on 16 June 2016. Its repeal was effected by the Biosecurity (Consequential Amendments and Transitional Provisions) Act 2015 (Cth) with the repeal effective at the same time as s 3 of the Biosecurity Act took effect, which was 16 June 2016.
171 COVID-19 was not declared to be a quarantinable disease under the Quarantine Act, before its repeal. It was however determined to be a listed human disease under s 42 of the Biosecurity Act on 21 January 2020.[65]
172 In HDI Global Specialty SE v Wonkana No 3 Pty Ltd,[66] the New South Wales Court of Appeal rejected an argument on the part of the insurers that a reference in insurance policies to diseases declared to be quarantinable diseases under the Quarantine Act and subsequent amendments extended or referred to diseases determined to be listed diseases under the Biosecurity Act.
173 In _LCA Marrickvill_e, three of the insurers who were parties to policies where the proper law of the contract was Victoria tried another approach. They relied on s 61A of the Property Law Act 1958 (Vic) (the 'PLA') in arguing that the Quarantine Act had been repealed and re-enacted by the Biosecurity Act such that by force of s 61A the reference in the insurance contract to the former shall be construed as a reference to the latter. The argument was rejected.[67]
174 The Insurer did not seek to challenge the correctness of those decisions. Instead it seeks to achieve the same substantive result but by a different route. It argues that the First Policy and the Second Policy should be rectified for common mistake submitting that both the Marriner Group and the Insurer had a common intention, known to each other, that the reference to 'Quarantine Act (1908)' in Proviso (iii) be a reference to the 'Biosecurity Act 2015 (Cth)'. It submits that at the time the First Policy and the Second Policy were entered into, the parties thought that the Policies excluded indemnity for infectious diseases such as COVID-19 as it was a listed disease under the Biosecurity Act. Although the plea is couched in this way, the relief sought is different in form with the order for rectification requiring the replacement of the words in the Policies 'declared to be quarantinable diseases under the Quarantine Act (1908)' with the words 'listed as a human disease pursuant to the Biosecurity Act 2015 (Cth)'.
175 To obtain rectification, the Insurer must demonstrate that, at the time of entry into the First Policy and Second Policy, the parties had a common intention and that the written instrument did not conform to that common intention.[68] In Simic v New South Wales Land and Housing Corporation,[69] Gageler, Nettle and Gordon JJ expressed the principles as follows:[70]
Rectification is an equitable remedy, the purpose of which is to make a written instrument "conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately".[71] For relief by rectification, it must be demonstrated that, at the time of the execution of the written instrument sought to be rectified, there was an "agreement" between the parties in the sense that the parties had a "common intention", and that the written instrument was to conform to that agreement.[72] Critically, it must also be demonstrated that the written instrument does not reflect the "agreement" because of a common mistake.[73] Unless those elements are established, the "hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties" cannot be displaced.[74]
176 The common intention need not have been by express statement, but it must have been the parties' actual intention, viewed objectively from their words or actions, and must be correspondingly held by each party.[75] An antecedent agreement is not necessary; it is sufficient that the written agreement does not reflect the parties' common intention.[76]
177 The written words of the policy are presumed to be the true agreement between the parties.[77] Only in very limited circumstances, and with 'convincing proof' of the common intention of the parties,[78] will the court divert from this position to rectify a contract to 'conform to the true agreement of the parties where writing by common mistake fails to express that agreement accurately'.[79] Rectification is not available simply because the bargain could be seen as producing an odd, unfair, or peculiar outcome.[80] The omitted ingredient must be capable of proof in clear and precise terms.[81] It is not sufficient to show that a written document does not represent the common intention of the parties; it must also be shown what their common intention was.[82]
178 The principles were neatly summarised by Buss JA (McLure P and Newnes JA agreeing) in Franknelly Nominees Pty Ltd v Abrugiato,[83] where the Western Australian Court of Appeal distinguished between mistake as to legal effect as opposed to mistake as to consequences (the former can be the subject of rectification but the latter cannot):
Rectification corrects a disconformity between the agreement or common continuing intention of the parties, on the one hand, and the instrument, on the other, so that the instrument contains the provisions which the parties actually intended it to contain. See Bacchus Marsh Concentrated Milk Co Ltd (in liq) v Joseph Nathan & Co Ltd [1919] HCA 18; (1919) 26 CLR 410, 427 (Isaacs J); Maralinga Pty Ltd v Major Enterprises Pty Ltd [1895] ArgusLawRp 147; (1973) 128 CLR 336, 350 (Mason J, Menzies J agreeing); Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 346 (Mason J, Stephen J relevantly agreeing).
The mistakes which may be corrected by rectification include a mistake as to the effect (and not merely the form) of an instrument. See Winks v WH Heck & Sons Pty Ltd [1986] 1 Qd R 226, 235 (Kneipp J), 237 (Thomas J), 243 (Shepherdson J); Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365, 387 ‑ 388 (Kennedy J); Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329, 343 ‑ 344 (Sheller JA, Mahoney A-P agreeing); Davis v Federal Commissioner of Taxation [2000] FCA 44; (2000) 44 ATR 140, [57] (Hill J).
It must be emphasised, however, that rectification will not be available where the parties are merely mistaken as to the consequences of, or the advantages to be gained by, a contract or transaction recorded in an instrument. That is, equity will not grant rectification where a mistake by the parties relates only to the expected consequences or advantages of a contract or transaction, and not to the expression in the instrument of what the parties actually agreed or intended. See Gibbon v Mitchell [1990] 1 WLR 1304, 1309 (Millett J); Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329, 341; Baird v BCE Holdings Pty Ltd [1996] NSWSC 376; (1996) 40 NSWLR 374, 384 ‑ 385 (Young J); Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd [2001] VSCA 2; (2001) 3 VR 526 [44] ‑ [45] (Chernov JA); Baxter v Federal Commissioner of Taxation [2002] FCA 1256; (2002) 51 ATR 209 [26] (Gyles J).[84]
179 In Re Butlin's Settlement Trusts[85] Brightman J held:
...[R]ectification is available not only in a case where particular words have been added, omitted or wrongly written as the result of careless copying or the like. It is also available where the words of the document were purposely used but it was mistakenly considered that they bore a different meaning from their correct meaning as a matter of true construction. In such a case, which is the present case, the Court will rectify the wording of the document so that it expresses the true intention: see Jervis v Howle and Talke Colliery Co Ltd [1937] Ch 67; Whiteside v Whiteside [1950] Ch 65, 74 and Joscelyne v Nissen [1970] 2 QB 86,98.[86]
182 In his book Rectification: The Modern Law and Practice Governing Claims for Rectification for Mistake, David Hodge QC also confirms that:
Whilst the common intention of the parties must be proved, the precise form of words in which a common intention is expressed is irrelevant if, in substance and in detail, the common intention can be ascertained. Provided the parties have turned their minds to a particular matter and were agreed upon it, it is no bar to an order for rectification that there was no specific agreement to the inclusion of the exact words by which the common intention is to be given effect.[92]
183 By early February 2020, the Insurer was responding to questions from insurance brokers as to whether business interruption policies would respond to claims made as a result of COVID-19.
184 On 7 February 2020, the Insurer's Short Tail Product Underwriter Gerald Sweeney emailed its Business Development Underwriting Manager Jake Cerilles, copied to the acting Chief Underwriter Mark Cleeve and another, stating that three triggers were required with regard to infectious disease cover under business interruption loss policies:[93]
1. There must be a an outbreak of the disease at the premises/situation
- As a consequence The Competent Authority orders closure of the premises/situation
- The disease must not be on the register of Communicable Humane Diseases per the Bio Security Act 2015 (Previously Quarantine Act 1908)
185 His email continued by noting that '[m]ost policy exclusions relate to "communicable diseases listed in the Quarantine Act 1908" This Act has been replaced by the Bio Security Act 2015 subsection 42(1) At law if an Act is superseded then the relevant "current legislation" will take precedence'.
186 Mr Cleeve (who had the highest level of underwriting authority at the Insurer) responded to the email on the same day:
...
Just to confirm that Novel Coronavirus is a Listed Human Disease under the BSA.
Accordingly, the BI extension to ISR cover for premises closures by public authorities due to the presence of disease does NOT provide cover for novel coronavirus.
...
187 On 27 February 2020, Mr Cleeve sent an email to the Insurer's General Manager Client Solutions, other members of the Insurer's Executive Leadership Team[94] and others with the email subject line 'RE: Policy coverage coronovirus'. The email read:
...
It's important to note that our property coverage,[95] consistent with local industry wordings, excludes business interruption as a consequence of COVID 19 (Coronavirus), as per the relevant extract from our ISR wording:
Infectious or contagious diseases; vermin, pests or defective sanitary arrangements; food or drink poisoning; murder, suicide (b)
Loss as insured by the Policy resulting from interruption of or interference with the Business arising from closure or evacuation of the whole or part of the Premises by order of a competent public authority consequent upon:
(a) infectious or contagious disease manifested by any person whilst at the Premises;
...
shall be deemed to be loss resulting from Damage to Property used by the Insured at the Premises.
Provided that paragraph (a) will not indemnify loss resulting from interruption of or interference with the Business directly arising from or in connection with Highly Pathogenic Avian Influenza in Humans or any other diseases declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments. [96]
Indemnity under this endorsement shall not exceed the Sub Limit of Liability per event and in the annual aggregate expressed in the Schedule
COVID 19 (Coronavirus) has been declared to be a listed human disease for the purposes of the Biosecurity Act 2015 (Commonwealth). The term 'listed human disease' replaced reference to notifiable or quarantinable disease under the Quarantine Act 1908. The Biosecurity Act 2015 succeeded the Quarantine Act 1908.
For the sake of good order, going forward, we will update our wordings to reflect current legislation.
188 In early March 2020, the Insurer prepared a Risk Alert titled 'RISK ALERT Considerations & Information Pandemic Risk' ('Risk Alert').[97] It included the following extract which was prepared by Mr Cleeve:
189 The Insurer sent the Risk Alert to all of its broking partners including the Marriner Group's broker, James Standfield of PSC Insurance Brokers ('PSC') on 4 March 2020, as a link embedded in an email titled 'Risk Alert - Preparation not Panic??'. The Risk Alert was also published on the Insurer's website on 5 March 2020.
190 Mr Standfield sent an email to Ms Marriner on 5 March 2020 attaching the Risk Alert and inviting her to come back to him with any queries. There is no evidence that she did.
191 In cross examination, Ms Marriner acknowledged that when she received Mr Standfield's email on 5 March 2020 attaching the Risk Alert, she was aware the coronavirus was spreading throughout countries far from its origin in China, that it was considered by experts to be at pandemic potential, and that a pandemic is a worldwide spread of disease. She also accepted that she was aware that business interruption insurance policies generally cover losses incurred as a result of closure of an organisation's business premises and that they excluded cover for any diseases that have been declared to be notifiable or quarantinable diseases under the relevant Commonwealth legislation. She also agreed that she had read that COVID-19 was a listed human disease under s 42 of the Biosecurity Act, that the policy exclusion applied and that as a result, business interruption losses were not covered by insurance.
192 On 15 March 2020, Ms Marriner emailed Mr Standfield copied to Mr Marriner asking that he call her so that she could speak with him about options for business interruption coverage. In her email she wrote '[o]ur interruption is caused by cancellation of contracts and not directly due to the virus. This may change with the government announcement tomorrow however we are still experiencing cancelation [sic] of events below the 500 threshold'.
193 On or about 16 March 2020, Audrey Ancayan of the Marriner Group spoke with Mr Standfield. During this discussion, he advised her that the First Policy did not cover the Marriner Group for COVID-19. Ms Ancayan conveyed that to Ms Marriner. Ms Marriner gave evidence that she asked for a copy of the policy wording so that she could look at the policy terms herself.
194 Following his discussion with Ms Ancayan, on 16 March 2020 Mr Standfield sent an email to Ms Ancayan attaching a document labelled 'Business Interruption caused by COVID-19 General' ('Explanatory Outline'), the First Certificate and the 'Ansvar Industrial Special Risks Mark IV Modified Insurance Policy Wording' comprising part of the Second Policy. Ms Ancayan forwarded these on to Ms Marriner.
195 Mr Standfield's covering email explained that he had attached the current schedule (the First Certificate) which was said to provide 'an outline of additional cover noted for Infectious Disease - see page 8', which additional cover 'does not include any declared diseases - Covid - 19'.
196 He also explained that the attached Explanatory Outline was a 'brief outline as to the position of all Business and ISR Wordings in the marketplace'. The Explanatory Outline read:
Good morning,
With COVID-19 (Coronavirus Disease) declared a Pandemic on March 11, many of our valued clients have been requesting coverage positions in relation to interruption to their business due to the disease.
...
Business interruption caused by COVID-19 - Insurance Response
Most property or business package policies incorporate a Business Interruption section which typically covers disruption to a business from physical damage to the assets or buildings. Many policies also respond to the closure of a business by a public authority for a number of risks, including infectious diseases.
The Business Interruption section is not automatically included, or put another way, is an optional cover for which a sum insured is normally calculated based on the business revenue less uninsured working expenses.
If you have Business Interruption cover, it is likely that it will contain an exclusion relating to losses caused by any disease notifiable under the Quarantine Act, or in some cases the Biosecurity Act which replaced the former in 2015. The Australian government listed Covid-19 under the Biosecurity Act in January 2020.
Whilst each policy is slightly different, it is most likely that you will not have any business interruption due to Coronavirus.
...[98]
197 The Marriner Group subsequently entered into the Second Policy with the renewal terms sent by the Insurer to Mr Standfield on 31 March 2020.
State of mind of Mr Cleeve, Mr Standfield and Ms Marriner
198 The Insurer submits that it is the state of mind of Mr Cleeve, its Chief Underwriting Officer, which constitutes the Insurer's state of mind. The Marriner Group made no submission to the contrary and I accept that this is so.
199 The Insurer submits that Mr Cleeve's state of mind was that the words 'Quarantine Act (1908) and subsequent amendments' in the Extension and the Infectious Disease Clause applied to exclude losses arising from COVID-19 because it was a listed human disease under the Biosecurity Act which had replaced the Quarantine Act.
200 I accept that this constitutes a broadly accurate but incomplete description of Mr Cleeve's state of mind at least in relation to the Infectious Disease Clause. Even if it applies to the Extension, it is incomplete because Mr Cleeve conceded in cross examination that there was an element of doubt as to the operation of Proviso (iii) because of the repeal of the Quarantine Act and that the Insurer's policies would therefore need to be tidied up to refer to the current legislation.
201 The Insurer submits that Mr Standfield's state of mind was that the Marriner Group was not covered under the First Policy and would not be covered under the Second Policy because the Biosecurity Act had replaced the Quarantine Act with the effect that the listing of COVID-19 under the Biosecurity Act meant that cover for losses arising from COVID-19 was excluded from the First Policy and the Second Policy. The Insurer submits that as the Marriner Group's broker, Mr Standfield is its agent and his state of mind is to be treated as that of the Group.
202 In any case, the Insurer submits that Ms Marriner's state of mind was that the First Policy and the Second Policy did not provide cover for losses arising from COVID-19.
203 Mr Cleeve's state of mind proceeds on the premise that the listing of COVID‑19 under the Biosecurity Act was the equivalent of the declaration of a quarantinable disease under the Quarantine Act.
204 The basis for the premise was not explored in detail in Mr Cleeve's evidence beyond inferences which can be drawn from correspondence to which he was party and his drafting of the Risk Alert. The Risk Alert does not explain why Mr Cleeve believed that a listing under the Biosecurity Act had the same effect on the entitlement to cover as a declaration of a quarantinable disease under the Quarantine Act, much less in circumstances where no declaration had been made under the Quarantine Act and Mr Cleeve believed that it had been replaced by the Biosecurity Act. There is in fact no mention of the Quarantine Act at all in the Risk Alert.
205 However, a fair reading of Mr Cleeve's email of 27 February 2020 gives rise to the inference that Mr Cleeve believed that a listing under the Biosecurity Act had the same effect as if a declaration had been made under the Quarantine Act because the later Act was the successor to the former. This is similar in effect but not the same thing as a belief that the Biosecurity Act was an amendment to the Quarantine Act or otherwise that it was a re-enactment of the Quarantine Act such that s 61A of the PLA was engaged. The fact that the Biosecurity Act was not an amendment or re-enactment of the Quarantine Act is the missing legal integer to any contractual claim.
206 One thing is, however, clear: there was no evidence revelatory of Mr Cleeve's state of mind (nor of the Marriner Group) beyond that set out in the First Policy at any time prior to late February 2020, which is nearly 12 months after the First Policy was entered into. There is nothing, therefore, to displace the intention that the Marriner Group and the Insurer were to be bound by the wording of the First Policy. Given that there was no declaration of COVID-19 as a quarantinable disease under the Quarantine Act, the Marriner Group is entitled to coverage under the Extension in respect of the period of insurance for the First Policy.
207 In the case of the Second Policy, there is no evidence that Mr Cleeve intended for the Insurer to be bound otherwise than by the wording in Proviso (iii) referring to the Quarantine Act, notwithstanding that Mr Cleeve believed that the Quarantine Act had been replaced by the Biosecurity Act by the time of entering into the Second Policy. Similarly, there is no evidence to suggest that either Mr Standfield nor Ms Marriner intended anything other than that the wording of Proviso (iii) would be as set out in the Second Policy.
208 However, of itself, this is no insuperable bar to an order for rectification. As stated earlier, a court may order rectification of a document which contains words used purposefully but mistakenly as to their effect, so as to give effect to the true intention of the parties.[99] Yet, the true intention of the parties must be sufficiently precise to distinguish the hypothesis arising from the execution of the document that the document expresses the true intention of the parties.
209 The requirement to give effect to the common intention of the parties means that there must nevertheless be an intention of both parties concerning the subject matter of the terms in which it is submitted that the contract should be rectified. If the matter was not addressed and/or was not shared between the parties, there is no subjective common intention concerning it.[100]
210 In considering whether to grant rectification of a written contract, equity focuses on what is unconscientious for a party to assert about the contract. The rationale is that it is unconscientious for a party to the contract to seek to apply the contract inconsistently with what he or she knows to be the common intention of the parties at the time that the written contract was entered. As Campbell JA stated in Franklins Pty Ltd v Metcash Trading Ltd,[101] the basis of a rectification order is one where:
... the plaintiff is found to have been justified in effect saying to the defendant "you and I both knew, when we entered this contract, what our intention was concerning it, and you cannot in conscience now try to enforce the contract in accordance with its terms in a way that is inconsistent with our common intention."[102]
211 Here, the Insurer seeks rectification for common mistake on the assertion the parties had a common intention that the reference to 'Quarantine Act (1908)' in Proviso (iii) be a reference to the 'Biosecurity Act 2015 (Cth)'. Contrary to the Insurer's plea in paragraph 56 of its counterclaim filed 20 September 2023, neither Mr Cleeve nor the Marriner Group intended that the reference to the 'Quarantine Act (1908)' in Proviso (iii) be a reference to the 'Biosecurity Act 2015 (Cth)'.
212 Mr Cleeve for one well knew that they were different Acts and he believed that the later Act had in essence replaced the earlier one and that this had no effect on the operation of Proviso (iii) because of the later enactment of the Biosecurity Act, for some rather imprecise and largely unstated reason.
213 But that which underlay the Insurer's state of mind was a mistaken apprehension of the legal position; there was no disconformity between the wording and the state of mind precisely because of that mistaken apprehension of the legal position.
214 The need for rectification arises because of this misapprehension.
215 There is no evidence that Mr Standfield or Ms Marriner knew that there was a difference between the two Acts, or that the Insurer's assertion in the Risk Alert that the policy exclusion applied due to the Biosecurity Act was based on a legal premise that a listing under the later Act was the same for the purposes of determining that the exclusion applied. The Risk Alert conveyed none of this.
216 I am not satisfied that there is any satisfactory evidence that the written agreement did not express the requisite intention of either the Insurer or the Marriner Group. The Insurer intended to be bound by the words because it believed that they were probably sufficient to exclude COVID-19 despite the change in the Acts. The intention of the Marriner Group regardless of the identity of the actor whose state of mind is to be attributed to the Group was the same but for different reasons because it was unaware of the difference between the two Acts.
217 The fact that both may have believed that the wording of Proviso (iii) excluded cover does not entitle the Insurer to rectification, unless it can point to a common intention that cover would be excluded even if Proviso (iii) did not have that effect. No one turned their mind to that circumstance; the matter which gave rise to the problem which resulted was simply not addressed by the parties.
218 I do not accept that Mr Standfield's state of mind, whatever it may have been, is the relevant state of mind for the purposes of determining the intention on the part of the Marriner Group with respect to the rectification claim. The relevant state of mind or intention is that of Ms Marriner.
219 Whilst the Marriner Group had retained Mr Standfield as its broker to act as their agent with respect to dealings with the Insurer, the engagement of the broker to act as agent does not extend expressly or by necessary inference to an engagement which authorises the agent to form the requisite state of mind insofar as it is necessary to determine the Group's state of mind for the purposes of this claim. It is one thing for a statement made by the Insurer to the broker to be the equivalent of a statement to the insured and a statement by the broker to the Insurer in relation to certain matters as being the equivalent of a statement made by the insured. It is an entirely different thing for the state of mind of the broker as to the extent of the cover afforded by the policy to be treated as the state of mind of the insured, much less where the insured may have a different view and where as is the case here, the state of mind of both of them is said to arise from matters not communicated to the Insurer.
220 For the purposes of deriving the state of mind of an entity, it is necessary to identify an individual who may be regarded as the directing mind and will of a company such that the state of knowledge of that individual may be imputed to the company. In an oft quoted passage, Lord Reid in Tesco Supermarkets Ltd v Nattrass[103] said as to the state of mind of a company:
I must start by considering the nature of the personality which by a fiction of the law attributes to a corporation. A living person has a mind which can have knowledge or intention or be negligent and he has hands to carry out his intentions. A corporation has none of these: it must act through living persons, though not always one or the same person. Then the person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. There is no question of the company being vicariously liable. He is not acting as a servant, representative, agent or delegate. He is an embodiment of the company or, one could say, he hears and speaks through the persona of the company, within his appropriate sphere, and his mind is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company. It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the company or merely as the company's servant or agent. In that case any liability of the company can only be a statutory or vicarious liability.[104]
221 In Beach Petroleum NL v Johnson,[105] von Doussa J said:
These authorities indicate that if a company is to be imputed with the conduct and knowledge of a director, the director must be acting within the scope of his or her authority, that is, within the scope of his or her actual or apparent authority. The scope of the authority of a director may vary widely from company to company and according to the circumstances of the case. In many instances, a director might not be formally appointed by resolution of the board to act on the company's behalf for a particular purpose, but may assume that role without dissent from those who customarily run the company, perhaps even assuming a role of managing director...[106]
222 Whilst it is unnecessary to determine the state of mind of either Mr Standfield or Ms Marriner given my conclusion with respect to the absence of the relevant state of mind on the part of Mr Cleeve and hence the Insurer, I do not accept that either had the necessary state of mind which, as stated above, extends to an intention that Proviso (iii) would operate to deny coverage notwithstanding the repeal of the Quarantine Act and the consequential absence of any declaration of COVID-19 as a quarantinable disease under the Quarantine Act.
223 Mr Standfield's state of mind can be inferred from his email of 16 March 2020 which is to the effect that coverage was unlikely because of the exclusion in relation to losses caused by any disease notifiable under the Quarantine Act or the Biosecurity Act which had replaced the Quarantine Act in 2015. Much as was the case with Mr Cleeve, the premise as to why that was so was unstated and perhaps unknown, and in any case, there is no evidence of any intention as to an entitlement to cover in the event that the listing under the Biosecurity Act did not as a matter of legal effect, have the same effect on the policy holder's entitlements as a declaration under the Quarantine Act. As for Ms Marriner, I accept that she understood the Insurer's position but there is otherwise no evidence of any state of mind on her part other than one in which the Group would be entitled to cover under the terms of the Policies as written.
224 Even if I had been satisfied that there was a relevant common intention on the part of the Insurer and the Marriner Group, I would have declined relief on equitable grounds.
225 Rectification is a discretionary equitable remedy. As with all equitable remedies, the court retains its discretion as to whether to withhold an order for rectification in accordance with general equitable principles.[107] Relief may be refused if the applicant for relief does not come to the court with clean hands or if the parties' true agreement or common continuing intention is tainted with illegality or if other circumstances would render it practically unjust to grant an order for rectification.[108]
226 Here, the Insurer's claim for rectification depends upon, among other things, the Marriner Group's alleged acquiescence in the position proffered by the Insurer in the Risk Alert sent by the Insurer to brokers and passed on by Mr Standfield to the Marriner Group.
227 The Risk Alert did not fully convey the complexities which attended to the Insurer's reliance upon Proviso (iii). It expressed in unequivocal and declaratory terms that because COVID-19 was a listed human disease under s 42 of the Biosecurity Act the policy exclusion applies and as a result business interruption losses are not covered by insurance. This was only the case if the relevant policy exclusion related to the Biosecurity Act.
228 Mr Cleeve and the Insurer knew that was not the case with respect to the Insurer's policies, which for reasons unexplained retained reference to the now repealed Quarantine Act. The position as expressed by Mr Cleeve in his email of 27 February 2020, whilst held honestly, was expressed with certainty, notwithstanding that Mr Cleeve knew that there was a doubt as to whether a listing under the Biosecurity Act was the equivalent to notification under the Quarantine Act. None of these matters were conveyed by the Insurer to the Marriner Group. Instead, the Insurer adopted a position which was in the Insurer's interests. In the result, the interpretation asserted by the Insurer was an incorrect one.
229 The Insurer now seeks to call in aid the equitable doctrine of rectification arguing that it is unconscionable for the Marriner Group to rely upon the strict wording of the Policies, in circumstances where the Group's alleged intention (had I been so satisfied) was based on its acceptance of the Insurer's flawed and undisclosed legal characterisation of the relationship between the Biosecurity Act and the Quarantine Act. The Insurer's assertion as to its legal rights was incomplete and as it happened, wrong. The incomplete nature of the Insurer's disclosure viz_,_ that the Act referred to in Proviso (iii) had in fact been repealed, that there had been no declaration of COVID- 19 as a quarantinable disease under the Quarantine Act and that the Insurer was aware that there was some doubt as to its assertion that Proviso (iii) applied, means that any concurrent intention of the Marriner Group was a product of the Insurer's mischaracterisation of the position. The fact that any mischaracterisation was an innocent one, which I accept, does not preclude denial of equitable relief in circumstances where it would be unjust, which would be the case here because it would be the product of incomplete disclosure by the Insurer.
230 The next issue is whether the cover provided under the Extension is subject to any or all of the Infectious Disease Sublimit of $500,000, the 'rent receivable' sublimit of $0 and any 'location of risk' sublimit.
231 If the Infectious Diseases Sublimit applies, it is also necessary to consider whether the sublimit applies as a cap across all losses arising at the Venues or whether the $500,000 limit applies to each of the Venues such that the effective ceiling on any recoverable loss is either $2 million or $2.5 million depending on whether there are five venues as the Marriner Group submits or four venues as the Insurer contends. The burden of the Insurer's argument was directed to the Infectious Disease Sublimit so it is convenient to deal with that first.
232 The sublimit appears in the First Certificate, which in relevant respects reads:
Sublimits: Section 2 - Consequential Loss
...
Aggregate Limit of any one Period of Insurance - Section 2
Infectious or Contagious Diseases; Vermin, Pests or Defective Sanitary Arrangements; Food or Drink Poisoning; Murder, Suicide (b) $500,000
233 As noted above, the First Policy and the Second Policy include the Infectious Disease Clause which is set out in the body of the Policies. The subheading of the Infectious Disease Clause is the same as the words used in the First Certificate and Second Certificate preceding the $500,000 except in the subheading each word is in bold and only the first word is capitalised.
234 In contrast to the Infectious Disease Clause, the Extension is set out in the First Certificate and Second Certificate, not in the printed body of the Policies. The subheading for the Extension has some similarities[109] but is different to the subheading preceding the Infectious Disease Clause.
235 The Marriner Group submits that the sublimit applies only to the cover afforded by the Infectious Disease Clause and not the Extension. The Group submits that reasonable persons in the position of the parties would look at the Policies and the First Certificate and Second Certificate and conclude that the sublimit references the cover afforded by the Infectious Disease Clause alone.
236 A difficulty with this contention is that the Extension contains the words 'up to the sub-limit for this extension shown in the certificate of insurance'. It therefore makes express reference to a sublimit set out in the First Certificate and Second Certificate. The only candidate is the sublimit identified. If this sublimit is not applicable, then there is no sublimit for the Extension despite the Extension itself referring to one.
237 The Insurer argues that a reasonable person in the position of the parties, in the circumstances known to them, would understand that the sublimit for the cover afforded by both the Extension and the Infectious Disease Clause is $500,000. In the alternative the Insurer seeks rectification of the First Certificate and Second Certificate so as to replace the words used (ie the subheading in the Infectious Disease Clause) with words which in addition refer to the cover afforded by the Extension.
238 The next plank of the Insurer's argument is that the $500,000 sublimit acts as an annual cap on the amount of the loss for which the Group is entitled to indemnity. The Marriner Group, whilst maintaining that there is no sublimit applicable at all, argues that if the sublimit applies, it applies to cap the amount of the loss for which the Group is entitled to indemnity to $500,000 per venue and that each of the Princess Theatre (163 Spring Street, Melbourne), the Regent Theatre and the Plaza Ballroom (191-197 Collins Street, Melbourne), the Comedy Theatre (228-240 Exhibition Street, Melbourne) and the Forum Theatre (150-162 Flinders Street, Melbourne) are separate venues and as such there are five or in the alternative four venues (depending on whether the Regent Theatre and the Plaza Ballroom are the one venue or two).
239 The parties are at odds as to whether it is permissible to look at the history of the dealings between the parties in the previous policy years as part of the surrounding circumstances. The Marriner Group contends that it is only permissible to do so where there is ambiguity and submits that there is none here.
240 Regardless of whether the First Certificate and Second Certificate are ambiguous, and relatedly whether an antecedent conclusion of ambiguity is a gateway to the receipt of evidence of surrounding circumstances, it is permissible to consider the mutually known facts and circumstances prior to the entering into the First Policy and the Second Policy for the purposes of the Insurer's alternative rectification argument and it is convenient to do so now. Contrary to the Insurer's approach, this does not permit reference to the Insurer's reinsurance arrangements or internal rating documents as there is no evidence that the Group were aware of the content of these.
241 The Marriner Group entered into annual industrial special risks policies issued by the Insurer from 2011 to 2022.
242 According to the Insurer's Senior Property Underwriter, Mervyn Govan, the process of policy renewal generally involves the Insurer sending renewal terms out to the broker generally in the form of a 'Certificate of Insurance - RENEWAL' about a month or two prior to expiry, followed by the broker returning the broker's closing advice (which includes a 'Schedule of Insurance') which the Insurer checks against the renewal terms before issuing the policy document which comprises a 'Certificate of Insurance - RENEWAL CONFIRMATION' (referred to as the certificate of insurance). The insurance certificate refers to the specific iteration of the policy wording applicable. The contract of insurance or terms of the policy for a particular period of insurance are those contained in the identified policy wording along with the certificate of insurance which are to be read and interpreted as one document and should be consistent with the broker's closing advice.
243 The entering into of the policies is evidenced by documents passing between the Insurer and Marriner Group's insurance brokers, initially McKenzie Ross Insurance Brokers ('McKenzie Ross') and later PSC.
244 The documentary record in evidence for the periods of insurance preceding the period of the First Policy and the Second Policy is incomplete. It is fair and perhaps generous to describe it as a mess although no doubt this is in part due to the time period involved. The documents often contain errors of one kind or another some of which are typographical. Other errors may have been problematic had it been necessary to determine the actual policy wording in particular years. In any case, these difficulties do not prevent the necessary analysis required for present purposes.
Period of insurance 18 March 2011 to 18 March 2012
245 For the period 18 March 2011 to 18 March 2012, Marriner Group sought insurance cover from the Insurer on the terms set out in McKenzie Ross' quotation slip provided to the Insurer on 7 March 2011. The quotation slip lists the period of insurance as 31 March 2010 to 31 March 2011 which is clearly an error and should read 2011 to 2012. The quotation slip identifies the sublimit as being for 'Communicable Disease' but this has been crossed out by someone who has written 'Infectious Disease' in hand. An internal email sent between employees of the Insurer on 11 March 2011 evidences a revised quotation slip which refers to one sublimit of $500,000 for the cover provided in section 1 (property damage) and section 2 (consequential loss) for 'Infectious disease, murder & closure of insured's premises'. The finalised terms of the policy however are not in evidence save that Mr Govan identifies the policy wording relevant to this period of insurance as the 'Ansvar Insurance Ltd Heritage Special Risks Insurance Policy Document AUSHERPDSV1.2 April 2010' (the '2010 Heritage Policy Wording').
Period of insurance 18 March 2012 to 18 March 2013
246 For the period 18 March 2012 to 18 March 2013, McKenzie Ross requested renewal terms from the Insurer via email on 22 February 2012. The final terms agreed to by the Marriner Group and Insurer for this period of insurance is largely unclear due to a lack of documentary evidence however Mr Govan's evidence identifies the policy wording relevant to this period of insurance as the 'Ansvar Insurance Ltd Heritage Special Risks Insurance Policy Document AUSHERPDSV1.4 JUL 2012' (the '2012 Heritage Policy Wording'). This is unlikely to be correct given that the wording suggests that it could not have been appliable prior to July 2012. In any event, nothing turns on this.
Period of insurance 18 March 2013 to 18 March 2014
247 For the period 18 March 2013 to 18 March 2014, McKenzie Ross issued a closing advice to the Insurer on 26 March 2013. The closing advice incorporates a 'Schedule of Insurance' which identifies the particular policy wording as being the 2010 Heritage Policy Wording and the period of insurance as being 18 March 2012 to 18 March 2013. This too seems to be an error with the dates one year out. The 'Schedule of Insurance' further specifies a sublimit for sections 1 and 2 of $500,000 for 'Infectious disease, murder & closure of insured's premises'.
248 On 27 March 2013, a certificate of insurance renewal was issued by the Insurer listing the period of insurance as 18 March 2013 to 18 March 2014. That same day a 'CERTIFICATE OF CURRENCY' was issued by the Insurer ('2013-2014 Certificate'). Both the 2013-2014 Certificate and the certificate of insurance renewal record the type of policy as 'Heritage Special Risks Insurance' and the policy wording as the 2012 Heritage Policy Wording.
249 Relevant parts of the definitions contained in the 2012 Heritage Policy Wording include the following:[110]
...
declared values means the sum total of all property insured (other than money) at each situation and gross revenue declared by the insured in accordance with the basis of settlement clauses, plus foreseeable expenses,...for the reinstatement of damaged property insured, claim preparation costs, additional increased costs of working except where otherwise stated in the certificate of insurance.
...
deductible means the first amount of each claim which is payable by the insured as stated in the certificate of insurance. This amount will be deducted from your loss before applying any limit or liability or sub-limit of liability. Should more than one deductible apply under this policy for any claim or series of claims arising from the one original source or cause, such deductibles shall not be aggregated and a higher single level of deductible only shall apply.
...
indemnity period means the period beginning with the occurrence of the damage and ending not later than the number of months or other times specified in the certificate of insurance, during which the results of the business shall be affected in consequence of the damage.
...
limit of liability means the amount shown in the certificate of insurance which is the maximum amount we will pay for any one claim under Section 1 Material loss or damage and Section 2 Consequential loss.
...
situation means any location anywhere in Australia where the insured has property or carries on business, has goods or other property stored or being processed or has work done, including the main place of business specified in the certificate of insurance and the other premises listed in the schedule of declarable assets.
...
sub-limits of liability means the amount shown in the certificate of insurance which apply to specific covers within the policy. The sub-limits of liability shall not increase the limit of liability.
...
250 In the insuring clause there is a subheading 'Limits of liability' under which the following appears:
Provided that the total liability of the insurer at any one "situation" shall not exceed the limit of liability for any one loss or series of losses arising out of any one event stated in the certificate of insurance, nor any lesser limit of liability specified elsewhere in the policy, or such amounts as may be substituted therefore by endorsement or memorandum hereon or attached hereto.[111]
...
251 Section 2 is headed 'Consequential loss' which contains the indemnity, which is in the following terms:
In the event of any building or any other property or any part thereof used by the insured at the premises for the purpose of the business being physically lost, destroyed or damaged during the period of insurance by any cause or event not hereinafter excluded (loss, destruction or damage so cause being hereinafter termed damage) and the business carried on by the insured being in consequence thereof interrupted or interfered with, the insurer will subject to the provisions of this policy including the limitation on the insurer liability, pay to the insured the amount of loss resulting from such interruption or interference in accordance with the applicable basis of settlement.[112]
252 Under the subheading 'Infectious Disease, Murder and Closure of Insured's Premises' (the 'Heritage Policy Infectious Disease Clause') the following appears:
Infectious Disease, Murder and Closed of Insured's Premises
Notwithstanding anything contained in this policy to the contrary, cover is extended under the Consequential Loss Section, up to the sub-limit for this extension shown in the certificate of insurance, to include loss directly resulting from interruption or interference with the business carried on by the insured at the premises in consequence of:
(a) Closure of the whole or part of the premises by order of or in consultation with or upon advice from a Statutory or Government Authority following:
(i) an outbreak of a human infectious or contagious disease (that is notifiable) or bacterial infection at or occurring within 25 kilometres of the premises other than any disease outlined in Proviso iii) below;
(ii) discovery of vermin or pests and/or defects in the drains and/or other sanitary arrangements at the premises;
(b) Murder or suicide (or any attempt thereat) occurring at the premises;
(c) Injury, illness or disease arising from or likely to arise from or traceable to foreign or injurious matter in food or drink provided at or from the premises;
(d) Threat of violent damage to the premises and/or injury to persons therein, but not arising from any act of terrorism;
(a) The Insurer will not be liable for any loss incurred by the insured during the first (48) hours of the interruption or interference;
(b) Perils exclusion 4.(a) and 7.(d) shall not apply for the purpose of this extension:[113]
253 Despite the Heritage Policy Infectious Disease Clause providing that disease as outlined in 'Proviso iii) below' is excluded, there is no 'Proviso iii)' set out.
254 Instead, the 2013-2014 Certificate sets out an infectious diseases extension with exactly the same subheading and in the same terms as the wording of the Heritage Policy Infectious Disease Clause save for a few minor differences including provisos (a) and (b) being re-designated as (i) and (ii) and there is a proviso (iii), which reads as follows:
255 The infectious disease extension for 2013-2014 period of insurance therefore is in the same terms as the Extension in the First Policy and the Second Policy.
256 Depending on the documents in evidence in respect of each period of insurance, this extension appeared in either the certificate of insurance renewal or certificate of insurance issued by the Insurer for each subsequent period of insurance in the same terms. Where it is necessary to refer to this extension it is convenient to refer to it as the (relevant period of insurance) extension.
257 For 18 March 2013 to 18 March 2014, there were therefore two provisions relating to infectious disease, the Heritage Policy Infectious Disease Clause and the 2013-2014 extension which were in the same terms except the latter includes a 'Proviso iii)'. It seems the incorporation of the 2013-2014 extension in the 2013-2014 Certificate was the solution to the proof reading oversight in the 2012 Heritage Policy Wording.
258 The 2013-2014 Certificate identifies the combined limit of liability for section 1 and section 2 as $80,000,000 and lists a $500,000 sublimit for 'Infectious Disease' in respect of the cover provided by section 2 of the policy. It also lists a deductible of 48 hours next to the words 'Infectious diseases, murder and closure of Insured's premises'.
Period of insurance 18 March 2014 to 18 March 2015
259 For the period 18 March 2014 to 18 March 2015, the certificate of insurance renewal is relevantly identical to the 2013-2014 Certificate. The applicable wording is also the 2012 Heritage Policy Wording.
Period of insurance 18 March 2015 to 18 March 2016
260 For the period 18 March 2015 to 18 March 2016, the certificate of insurance renewal and policy terms are also in relevant respects in the same form as the previous period of insurance. The renewal certificate is dated 14 January 2015 and is addressed to, McKenzie Ross and the policy terms are set out in the 2012 Heritage Policy Wording.
261 McKenzie Ross prepared a closing advice which it sent to the Insurer on 18 March 2015 which includes a 'Schedule of Insurance' which prefaces both the $500,000 sublimit and the 48 hour deductible with the words 'Infectious disease, murder, & closure of insured's premises'.
262 This contrasts with the approach of the Insurer in the certificate of insurance renewal which uses the shorter expression 'Infectious Disease' next to the sublimit but the longer expression next to the deductible.
Period of insurance 18 March 2016 to 18 March 2017
263 For the period 18 March 2016 to 18 March 2017, a certificate of insurance renewal was sent by the Insurer to McKenzie Ross on 27 January 2016. The certificate is relevantly in identical terms to those for the previous three periods of insurance.
264 After a request for a premium reduction was made, a new certificate of renewal was issued dated 17 February 2016 with a revised premium but this too is in relevantly identical form.
265 In the Insurer's certificate of insurance renewal with respect to the 2016-2017 period of insurance, the limit of liability for section 1 and section 2 is $80,000,000 with the sublimit and deductibles in the terms set out above. The renewal certificate deploys the shorter phrase 'Infectious Disease' in relation to the sublimit and the longer phrase in relation to the deductible as it had done in the previous years.
266 McKenzie Ross confirmed renewal and provided a closing advice to the Insurer dated 21 March 2016 which included the 'Schedule of Insurance'. The 'Schedule of Insurance' identifies the 'Limits of Liability' as $80,000,000 and describes it in the following way:
The amounts set out hereunder represent the Insurer's maximum Limits of Liability for any one loss or series of losses arising out of any one original source or cause at any one Situation, subject to any Sub-Limits of Liability specified elsewhere in the Policy and the Schedule. The Limit of Liability applies in excess of any applicable Deductible.
Flood in annual aggregate $1,000,000.[114]
267 The 'Schedule of Insurance' then sets out 'Sub Limits of Liability' for sections 1 and 2, which relevantly in the case of flood is $1,000,000 and in the case of 'Infectious disease, murder & closure of insured's premises' is $500,000 and again uses the phrase 'Infectious disease, murder, & closure of insured's premises' prefatory to both the $500,000 sublimit and the deductible.
268 On 4 April 2016, the Insurer sent a certificate of insurance - renewal confirmation to McKenzie Ross which was in the same terms as the renewal certificate sent in January 2016 save for it set out the reduced premium total of $208,523.80.
Period of insurance 18 March 2017 to 18 March 2018
269 For the period 18 March 2017 to 18 March 2018, the Insurer emailed McKenzie Ross on 16 February 2017 in advance of the upcoming renewal. The email advised that the Insurer had updated its standard industrial special risks policy wording and attached an overview of asserted advantages associated with the updated policy. The Insurer asked whether the Group wished to stay with the 2012 Heritage Policy Wording or move to the new industrial special risks policy wording.
270 An email was sent by the Insurer to McKenzie Ross on 20 February 2017 confirming the 2012 Heritage Policy Wording was to apply (reflecting McKenzie Ross' advice that the Group wished to remain with the existing wording) and enclosing a certificate of insurance renewal. In the renewal certificate, the Insurer once again used the shorter phrase for the section 2 sublimit and the longer phrase for the deductible.
271 McKenzie Ross' closing advice sent 24 April 2017, identifies the policy wording as the 2010 Heritage Policy Wording. This is an error; the 2012 Heritage Policy Wording had been in place and governed the insurance since the 2013-2014 period of insurance. The advice refers to the sublimit in section 1 as $500,000 for 'Infectious disease, murder & closure of insured's premises' however in section 2 refers to a sublimit of $500,000 by the shorter phrase 'Infectious Disease' but once again refers to the deductible by the longer phrase.
272 For reasons that are immaterial, a revised closing was sent by McKenzie Ross to the Insurer on 13 June 2017 materially in identical terms. Three days later the Insurer sent a certificate of insurance renewal confirmation dated 16 June 2017 which is generally in the same terms as the renewal certificate but identifies the policy wording as the rejected new industrial special risks policy wording entitled 'Ansvar Industrial Special Risks Mark IV Modified Insurance Policy Wording AUSPOLISR 201509 v3' (the 'ISR Mark IV Policy Wording'). The renewal certificate included reference to the extension in the same terms as had appeared since the 2013-2014 period of insurance.
Period of insurance 18 March 2018 to 31 March 2019
273 For the period 18 March 2018 to 31 March 2019, the Marriner Group engaged PSC as its new insurance broker. PSC wrote to the Insurer on 3 April 2018 enclosing a letter of appointment and requesting renewal terms.
274 The renewal terms were sent by the Insurer to PSC on 5 April 2018 and comprise a certificate of insurance renewal dated 10 January 2018 addressed to the previous broker McKenzie Ross. The certificate describes the policy as a 'Heritage Special Risks Insurance Policy'. However, in another section of the certificate the 'Policy Wording' is identified as the ISR Mark IV Policy Wording, which was the wording rejected by McKenzie Ross the previous year. The ISR Mark IV Policy Wording is quite different to the 2012 Heritage Policy Wording.
275 Relevantly, the ISR Mark IV Policy Wording contains the Infectious Disease Clause with the subheading 'Infectious or contagious diseases; vermin, pests or defective sanitary arrangements; food or drink poisoning; murder, suicide (b)'. The certificate however includes the extension underneath the same subheading used in previous years 'INFECTIOUS DISEASE, MURDER & CLOSURE OF INSURED PREMISES EXTN'. The certificate identifies a sublimit of $500,000 for 'Infectious Disease' which is listed in section 2. The 48 hour deductible is identified by the same descriptor used in previous years; 'Infectious disease, murder & closure of insured's premises'. A series of emails follow which confirm that cover is in place from 18 March 2018 and that the new expiry will be 31 March 2019.
276 PSC sent its closing advice on 10 April 2018. The closing advice identifies the policy wording as the 'Heritage Special Risks Insurance Policy' (not the ISR Mark IV Policy Wording) but notes a sublimit of $500,000 for 'Infectious or Contagious Diseases; Vermin, Pests or Defective Sanitary Arrangements, Food or Drink Poisoning, Murder, Suicide', which it will be recalled is the subheading for the Infectious Disease Clause which forms part of the ISR Mark IV Policy Wording but is not part of the 'Heritage Special Risks Insurance Policy', which PSC asserts in its closing advice are the governing terms. This is also arguably implicit in the renewal by the Insurer of the 2017-2018 period of insurance which most likely was on the terms of the 2012 Heritage Policy Wording.
277 The Insurer's certificate of insurance renewal for the period 18 March 2018 to 18 March 2019 (extended to 31 March 2019) identifies the limit of liability combined section 1 and 2 at $80,000,000, records the declared asset values for section 1 material damage at $168,510,000 and for section 2 consequential loss in respect of the gross profit component, $18,903,965.
278 Under the subheading 'SUB-LIMITS OF LIABILITY SECTION 1', the sublimit for flood is recorded as follows: 'Flood (Sections 1 & 2) $1,000,000'. The sublimit in section 2 for consequential loss in respect of 'Infectious Disease' is $500,000.
Period of insurance 31 March 2019 to 31 March 2020
279 Prior to the 2019-2020 period of insurance, the Marriner Group completed a '2019 Renewal Declaration' which set out values of items for revenue, variable expenses, fixed expenses and earnings in a tabular form which comprised items for each of the Regent Theatre, Princess Theatre, Comedy Theatre, Forum Theatre, and Plaza Ballroom and provided this to PSC.
280 On 12 February 2019, the Insurer sent PSC 'the invitation document for policy 03.500.0572850'. This is the same policy number of the policy in place for the previous years. The cover email sent to PSC read inter alia 'Policy Limits/Sub Limits Coverage and deductibles are as expiring'.
281 Although the invitation document is headed 'Renewal Terms' and the policy has the same policy number, the enclosed 'renewal quotation' identifies that the policy terms are those of the ISR Mark IV Policy Wording not the 2012 Heritage Policy Wording despite the communications between the Insurer and PSC in the previous year.
282 In the renewal terms, the Insurer describes the insured's business as 'Principally, Heritage Buildings - Theatre's. and any other activity incidental thereto'. Under the subheading 'THE SITUATION AND/OR PREMISES' the document reads 'Principally, Regent Theatre, 191-197 Collins Street, Melbourne, 3000, and all Situations listed in the Schedule of Declared Assets and any other situation/business in Australia owned or occupied by the Insured for the purposes of the Business or elsewhere in Australia where used by the Insured or where the Insured is undertaking work or has goods or property (including where goods or property are stored, or undergoing processing, repairs, maintenance, overhaul or improvements)'.
283 The 'Schedule of Declared Assets for the Period 31/03/2019 to 31/03/2020' appears on the last page in tabular form. The table lists the declared building values for the four principal locations; the Princess Theatre (163 Spring Street, Melbourne), the Comedy Theatre (228-240 Exhibition Street, Melbourne), the Regent Theatre (191-197 Collins Street, Melbourne), the Forum Theatre (150-162 Flinders Street, Melbourne), followed by two other addresses, 5-7 Marine Parade, Abbotsford and 19-25 Russell Street, Melbourne. These last two addresses are not relevant to this proceeding and can be put to one side. Building, contents and stock values and corresponding totals for each address are then listed.
284 In the section headed 'Limits of Liability' there is reference to a combined amount for sections 1 and 2 of $80,000,000. The renewal terms describe the limit of liability as '[t]he amounts set out hereunder represent the Insurer's maximum Limits of Liability for any one loss or series of losses arising out of any one original source or cause at any one Situation, subject to any Sub-Limits of Liability specified elsewhere in the Policy in the Schedule. The Limit of Liability applies in excess of any applicable Deductible.'
285 Under the subheading 'Sub-limits of Liability', the renewal terms record that 'the liability of the Insurer shall be further limited in respect of any one loss or series of losses arising out of any one original source or cause at any one Situation as set out hereunder. The Sub-limits of Liability apply in respect of any applicable Deductible.'
286 There are sublimits set out for 'Section 1: Material Damage' for various items including 'Unspecified Damage (as defined below)' of $500,000. 'Unspecified Damage' is further defined as meaning '...Damage caused by any peril or circumstance not more specifically covered or excluded by this Policy other than:...storm and/or tempest and/or rainwater and/or wind and/or hail, and/or flood,...'.
287 There are also sublimits set out in 'Section 2: Consequential Loss of Profits' which include 'Item 2 - Claims Preparation Fees' of $500,000; 'Rent Receivable' of $0; 'Rent Payable' of $0 and 'Royalties Receivable (b)' as not insured.
288 There is then a further heading 'Aggregate Limit any one Period of Insurance (Section 2 - Consequential Loss of Profits)' which refers to the item 'Infectious or Contagious Diseases; Vermin, Pests or Defective Sanitary Arrangements; Food or Drink Poisoning; Murder, Suicide (b)'of $500,000.
289 Finally, there is a subheading 'Combined Section 1 - Material Damage & Section 2 - Consequential Loss of Profits' which lists 'flood' after which follows 'Included Limit any one Situation (unless otherwise noted)' of $1,000,000.
290 PSC confirmed renewal on 28 March 2019 with '[n]o changes from the client'.
291 Later that day, PSC forwarded its closing advice to the Insurer. The closing advice records the policy wording as the 2012 Heritage Policy Wording not the ISR Mark IV Policy Wording and otherwise records cover under section 2 of the policy relating to business interruption with a sublimit of liability of $500,000 for 'Infectious or Contagious Diseases; Vermin, Pests, or Defective Sanitary Arrangements; Food or Drink Poisoning, Murder, Suicide'.
292 Relevantly, the closing advice further records, among other things, the following:
THE INSURED:
Princess Theatre, Princess Theatre Holdings Pty Ltd, Princess Theatre Pty Ltd, Princess Theatre Productions Pty Ltd, Investec Bank Australia Limited
Regent Theatre, Regent Theatre Holdings Pty Ltd, Regent Management Company Pty Ltd, City of Melbourne, State Government of Victoria, Princess Theatre Pty Ltd, Investec Bank Australia Limited
Comedy Theatre, The Comedy Theatre Pty Ltd, Investec Bank Australia Limited
Forum (Old State) Theatre, Princess Theatres Pty Ltd, Forum Theatre Investments Pty Ltd, Investec Bank Australia Limited
THE BUSINESS:
Owners, managers and operators of The Princess Theatre Melbourne and all associated activities including but not limited to, stage co-production, functions, catering, Kerb-side café, bar facilities and merchandising.
Owners, managers and operators of The Regent Theatre, Plaza Ballroom and leaseholders of the Box Restaurant Melbourne and all associated activities including but not limited to, stage co-production, functions, catering, Kerbside café, bar facilities and merchandising.
Owners, managers and operators of The Comedy Theatre Melbourne and all associated activities including but not limited to, stage co-production, functions, catering, bar facilities and merchandising.
Owners, managers and operators of The Forum Theatre (Old State Theatre) Melbourne and all associated activities including but not limited to, stage co-production, cabaret, functions, catering, bar facilities and merchandising.
...
INTEREST INSURED:
Section 1 - Material loss and damage
All real and personal property (including money) of every kind and description (except as specifically excluded) belonging to the Insured or for which the Insured is responsible or has assumed responsibility to insure prior to the occurrence of any loss or destruction or damage, including all such property in which the Insured acquires an insurable interest during the period of insurance.
Section 2 - Business interruption
Gross Profit, Payroll (or Gross Rentals or Gross Revenue if appropriate), Additional Increase in Cost of Working, Professional Fees & Claims Preparation Costs and/or as may be more fully defined in the policy wording.
SITUATION:
As per declared asset schedule
POLICY WORDING:
Heritage Special Risks Insurance Policy
COVERING:
...
Section 2 - Business Interruption
Loss resulting from interruption to the business consequent upon physical loss or destruction of or damage to property used by the Insured by peril not excluded.
LIMITS OF LIABILITY:
The amounts set out hereunder represent the Insurer(s) maximum Limit(s) of Liability any one loss or series of losses arising out of any one event at any one situation used by the Insured, subject to any lesser Limit(s) Liability specified elsewhere in the policy, but the Limit(s) (or any lesser Limit(s) of Liability) shall only be applied in excess of the relevant deductible
Combined Sections 1 & 2: $80,000,000
SUB LIMITS OF LIABILITY
...
Section 1 - Material Loss or Damage:
...
Flood $1,000,000
...
Section 2 - Consequential Loss:
Item 2 - Claims Preparations Costs $500,000
Item 3 - (Additional) Increased Cost of Working $1,000,000
...
Infectious or Contagious Diseases; Vermin, Pests or
Defective Sanitary Arrangements; Food or Drink
Poisoning; Murder, Suicide $500,000
293 On the last page of the closing advice there is a 'Declared Values Schedule' in the form set out below:
The Regent Theatre, Plaza Ballroom & Box Restaurant
294 On 2 April 2019, PSC sent an email to Ms Marriner attaching PSC's Renewal Summary and an Insurance Renewal Report. The Renewal Summary confirms that for Industrial Special Risks, there are '[n]o changes to the existing limits or sums insured'. The Insurance Renewal Report confirms that cover under Section 2 in relation to 'Infectious or Contagious Diseases; Vermin, Pests, or Defective Sanitary Arrangements; Food or Drink Poisoning, Murder, Suicide' is subject to a sublimit of $500,000.
295 On 3 April 2019, the Insurer sent an email to PSC attaching the First Certificate headed 'Certificate of Insurance RENEWAL CONFIRMATION' 'confirming cover'.
296 The First Certificate sets out a new policy number (although it also provides the old policy number in a different section) and describes the 'Type of Policy' as 'ISR' (not 'Heritage Special Risks Insurance'). The policy wording is identified as the ISR Mark IV Policy Wording.
Period of insurance 31 March 2020 to 31 March 2021
297 For the period 31 March 2020 to 31 March 2021, updated renewal terms were sent by the Insurer to PSC on 31 March 2020. The renewal terms continue to record the relevant sublimit the same way as in the First Policy.
298 On 31 March 2020, PSC forwarded the closing advice to the Insurer. The closing advice confirms renewal of the Second Policy and records that cover under Section 2 in relation to 'Infectious or Contagious Diseases; Vermin, Pests, or Defective Sanitary Arrangements; Food or Drink Poisoning, Murder, Suicide' is subject to a sublimit of $500,000.
299 The Insurer issued the Second Certificate[115] which is dated 31 March 2020 for the period of insurance 31 March 2020 to 31 March 2021. The Second Certificate includes the following in relation sublimits for Section 2:
Aggregate Limit any one Period of Insurance - Section 2
Infectious or Contagious Diseases; Vermin, Pests or
Defective Sanitary Arrangements; Food or Drink
Poisoning; Murder, Suicide (b) $500,000
...
Is the Extension subject to a $500,000 sublimit ?
300 The first question is whether the Extension under the First Policy and the Second Policy (for the period of insurance 31 March 2019 to 31 March 2020 and 31 March 2020 to 31 March 2021 respectively) is subject to a sublimit of $500,000.
301 This in turn is dependent upon whether the reference in the First Certificate and Second Certificate to an aggregate limit for any one period of insurance of $500,000 for the item 'Infectious or Contagious Diseases; Vermin, Pests or Defective Sanitary Range; Food or Drink Poisoning; Murder, Suicide (b)' is a reference to the sublimit recorded in the Extension by the words 'up to the sub-limit for this extension shown in the certificate of insurance'.
302 The Insurer submits that it is, including because the First Certificate and Second Certificate expressly refer to a sublimit for the Extension. In contrast the Marriner Group argues that the sublimit correlates to the cover afforded by the Infectious Disease Clause and relates only to that cover and not to that provided by the Extension which for the Extension is headed by the words 'Infectious Disease, Murder & Closure of Insured Premises Extn' in contrast to that of the Infectious Disease Clause which is for 'Infectious or Contagious Diseases; Vermin, Pests or Defective Sanitary Arrangements; Food or Drink Poisoning; Murder, Suicide (b)'. Plainly the sublimit applies to the Infectious Disease Clause. The critical question is whether it also applies to the Extension despite the differences in the subheadings and subject matter of the perils the subject of the Infectious Disease Clause and the Extension. The exercise of resolving whether the $500,000 is the applicable sublimit or whether there is no such sublimit which is implicit in the Group's submissions gives rise to a 'constructional choice'[116] such that it is permissible to have regard to the mutually known surrounding circumstances.
303 The wording of the Extension appeared for the first time in the 2013-2014 Certificate where it was included to remedy the fact that the printed version of the 2012 Heritage Policy Wording did not set out a 'Proviso iii)' despite the 2012 Heritage Policy Wording excluding from cover diseases as described in that proviso. Aside from the fact that a 'Proviso iii)' was included in the 2013-2014 Certificate, described as an extension, there is no difference between the Heritage Policy Infectious Disease Clause and the 2013-2014 extension. This remained the case from 2013-2014 to 2016-2017 and probably to 2017-2018. During that period, both the Insurer and the broker on behalf of the Group referred to a single sublimit of $500,000 for both the infectious disease clause and the extension with the Insurer referencing the sublimit as one for 'Infectious Disease' and the broker referring to it generally, but not always, by the longer phrase 'Infectious disease, murder, & closure of Insured's premises'. For whatever reason, the Insurer referenced the deductible by the longer phrase but it is clear enough that from 2013-2014 to 2017-2018 inclusive, both the Group and the Insurer used the phrase 'Infectious Disease' and 'Infectious disease, murder, & closure of Insured's premises' interchangeably referring to both the Heritage Policy Infectious Disease Clause and the extension and to both the applicable sublimit and the deductible.
304 The uncertainty is introduced in 2018-2019 and is a product of the co-incidence of a number of events. First, in 2018-2019, the Insurer's renewal terms were unclear and arguably contradictory as to whether the policy wording was the 2012 Heritage Policy Wording or the ISR Mark IV Policy Wording. The Insurer's offer of renewal purported to be a renewal of the existing policy which was probably the 2012 Heritage Policy Wording. The offer to move to the ISR Mark IV Policy Wording was rejected the previous year by McKenzie Ross on behalf of the Group. Although the certificate of insurance renewal referenced the existing policy number and described it as a 'Heritage Special Risks Insurance Policy' the policy terms were said to be ISR Mark IV Policy Wording. Second, the new broker, PSC, seems not to have picked up the difference in the policy wording. This follows from, among other things, its description of the policy wording as the 2012 Heritage Policy Wording. This is perhaps understandable as the Insurer did not draw this to PSC's attention and also used the same policy number as well as describing the policy as a renewal and on the 2012 Heritage Policy Wording terms. Third, despite PSC apparently appreciating that the wording of the policy was the 2012 Heritage Policy Wording, in its closing advice, PSC abandoned the subheading for the sublimit that had been previously used by McKenzie Ross (and the Insurer) and instead used the subheading of the Infectious Disease Clause (which was not contained in the 2012 Heritage Policy Wording) although the Insurer in the certificate of renewal confirmation continued to use the shorter descriptor 'Infectious Disease'.
305 It does not matter whether the policy wording for 2018-2019 is the 2012 Heritage Policy Wording or the ISR Mark IV Policy Wording as the claim is not brought pursuant to that policy and in any case the certificate of renewal confirmation referenced the sublimit of $500,000 by the descriptor 'Infectious Disease'.
306 However, these matters seeded the controversy for the 2019-2020 period of insurance which is the first year of the claim. Although the Insurer's invitation document was to renew the existing policy numbered 03.500.0572850, the renewal terms identified the policy terms as those of the ISR Mark IV Policy Wording. Despite this, the closing advice described the policy wording as the 2012 Heritage Policy Wording but referenced the sublimit by a subheading contained in the ISR Mark IV Policy Wording for the Infectious Disease Clause which was not part of the 2012 Heritage Policy Wording. Importantly, the subsequent First Certificate identified a new policy number, made clear that the policy terms were the ISR Mark IV Policy Wording, described the type of policy as 'ISR' (not 'Heritage Special Risks Insurance Policy' as had been the case in the previous period of insurance) and specified the cover in the 'location of risk' sections of the certificate as 'Replacement (New for Old)'. The ISR Mark IV Policy Wording contains the Infectious Disease Clause which is of narrower scope than the Heritage Policy Infectious Disease Clause. Further, the inclusion of the Infectious Disease Clause and the consequential removal of the Heritage Policy Infectious Disease Clause meant that there was no drafting error which necessitated the Extension. Despite this, and fortunately for the Marriner Group in the events that happened, the Extension continued to be included in the First Certificate and Second Certificate along with the phrase 'up to the sub-limit for this extension shown in the certificate of insurance'.
307 The question is whether by proceeding in this way, the parties intended that claims pursuant to the Infectious Disease Clause would be subject to a sublimit of $500,000 but claims pursuant to the Extension would not. I do not accept that the parties intended that the $500,000 sublimit would only apply to the Infectious Disease Clause and not the Extension. The reference in the Extension to there being a sublimit for the Extension in the certificate of insurance is a strong contrary indicator. Further, it is clear that the $500,000 sublimit had applied to the predecessor clause of the printed policy (the Heritage Policy Infectious Disease Clause) and each extension from 2013-2014 to 2018-2019. The disclosed mutual intention for 2019-2020 was to keep the sublimits as they were in the previous period of insurance, which in turn was at the same level since 2013-2014. There is every reason to believe that both the employees of the Insurer who were engaging with PSC and PSC overlooked the differentiation between the Heritage Policy Infectious Disease Clause and the extension for each year and then between the Infectious Disease Clause and the Extension. The inability to appreciate the differences between the two explains PSC's reference to a subheading for the Infectious Disease Clause as the identifier of the relevant sublimit whilst at the same time believing that the policy wording was the 2012 Heritage Policy Wording which did not contain the Infectious Disease Clause. The same absence of appreciation also explains the Insurer's offer of 'renewal' of the policy despite the change in policy wording and not bringing this to the attention of the Group (or its broker).
308 In the circumstances known to the parties a reasonable person in their position would not have understood that the Insurer was abandoning reliance on the sublimit that it had imposed with respect to the cover for the extension over the past six years, whilst at the same time imposing a sublimit in the same amount for a narrower subset of perils covered by the Infectious Disease Clause. The fact that the Extension referred to a sublimit as being set out in the certificate of insurance (as had been the case for the last six years) makes the point clearly. Reasonable persons in the position of the parties would have understood that the parties had identified the subject matter of the sublimit in a variety of ways using both short and longer form descriptions for the same subject matter.
309 I accept that the interpretation exercise must be undertaken contra proferentem. However, the maxim is one of last resort and only avails itself to the advantage of the insured in circumstances where the more beneficial construction is reasonably open to the insured. In my view that is not the case here. It is clear from the combination of the reference to there being a sublimit for the Extension set out in the First Certificate and Second Certificate, the historical application of a $500,000 sublimit with respect to the cover afforded by the Extension, and the disclosed mutual intention for the 2019-2020 period of insurance to maintain the sublimits and renew the policy as it existed in the previous years. There is no logic or reason why the insured would abandon the sublimit for the wider cover afforded by the Extension but maintain it for the narrower cover afforded by the Infectious Disease Clause.
310 The proper interpretation of the Policies is that the sublimit set out in the First Certificate and Second Certificate that applies to the Extension is the sublimit of $500,000 preceded by the words 'Infectious or Contagious Diseases; Vermin, Pests or Defective Sanitary Arrangements; Food or Drink Poisoning; Murder, Suicide (b)'. The fact that this sublimit also applies to the Infectious Disease Clause does not mean that it does not also apply to the Extension.
311 In those circumstances, it is not necessary to make any order for rectification of the Policies although, had I not reached that conclusion as a matter of interpretation, I would have been prepared to grant relief by way of rectification on the basis that it was the subjective intention of both the Marriner Group and the Insurer for the $500,000 sublimit for the Extension to remain as it had been for the previous six years of insurance.
Does the $500,000 sublimit apply to each venue?
312 As noted above, both the First Certificate and Second Certificate specify that there is an aggregate limit for any one period of insurance for 'Infectious or Contagious Diseases; Vermin, Pests or Defective Sanitary Arrangements; Food or Drink Poisoning; Murder, Suicide (b)' in the amount of $500,000. Having regard to the conclusion above that this sublimit applies to the claim made by the Marriner Group, the Insurer argues that the extent of its obligation to indemnify the Group for loss with respect to each of the two periods of insurance is subject therefore to an aggregate limit of $500,000 for each period such that the Insurer's liability to the Marriner Group is capped at $1 million. The Marriner Group argues that the $500,000 cap applies to each of the Venues for each period of insurance, such that the maximum amount of any claim is $2.5 million in each year.
313 It is common ground that the Princess Theatre, the Comedy Theatre and the Forum Theatre are each separate venues. However, there is a dispute about whether the location at which the Group operates both the Regent Theatre and the Plaza Ballroom (191-197 Collins Street, Melbourne) is one venue or two and as a consequence, whether there are five venues or four venues.
314 The insured under the Policy are the identified members of the Marriner Group. The Policies are of a composite nature in which the Insurer promises to indemnify a number of insured with respect to their several interests. Ordinarily, such an insuring clause is read as indemnifying each insured in respect of its interest. Indemnity will not necessarily be affected by circumstances specifically pertaining to another insured.[117]
315 In the case of the claim for consequential loss, the most relevant insured is the Princess Theatre Pty Ltd. This is the trading entity of the Group and the entity which carries on the business of the Group at each of the Venues.
316 The indemnity clause in Section 2 requires the Insurer to pay to the insured (here, Princess Theatre Pty Ltd), the amount of the 'loss resulting from such interruption or interference' of 'the business carried on by the Insured' where 'any building or any other property or any part thereof used by the Insured at the Premises for the purposes of the Business', is 'physically lost, destroyed or damaged during the period of insurance by any cause or event not hereinafter excluded'.
317 The Infectious Disease Clause deems loss resulting from interruption or interference due to closure orders to be loss resulting from damage to property. This is consistent with the development of policies providing for indemnity for consequential loss which saw such polices as extensions or property damage cover.
318 The Extension extends the indemnity in Section 2 to loss which directly results from 'interruption or interference with the business carried on by the Insured at the Premises in consequence of ... closure of the whole or part of the premises by order of or in consultation with or upon advice of a [relevant] Authority following ... an outbreak of a human infectious or contagious disease (that is notifiable) or bacterial infection at or occurring within 25 kilometres of the premises ...'.
319 Reading the Policy as a whole and given that the Infectious Disease Clause and the Extension provide similar cover, the Extension can be seen to operate similarly to the Infectious Disease Clause in that it equates loss resulting from interruption or interference from a closure order to be loss arising from damage to the property.
320 Although premises is capitalised in the indemnity clause in Section 2 and in the Infectious Disease Clause but not in the Extension, there is every reason to interpret 'Premises' and 'premises' as having the same meaning. No party submitted otherwise.
321 'Premises' is not defined in the ISR Mark IV Policy Wording (unlike in the 2012 Heritage Policy Wording), but each 'location of risk' identified in the First Certificate and Second Certificate constitute 'Premises' for the purposes of the indemnity clause in Section 2 of the ISR Mark IV Policy Wording, and necessarily for the 'premises' as that phrase appears in the Extension.
322 Indemnity is therefore afforded with respect to loss suffered by the insured, here Princess Theatre Pty Ltd, for loss directly resulting from interference or interruption with the business carried on by Princess Theatre Pty Ltd at each (or any one) of those risk locations up to the sublimit shown in the relevant certificate of insurance. Thus, Princess Theatre Pty Ltd is entitled to indemnity pursuant to the indemnity clause in Section 2 in the event that any building used at a 'location of risk' (for example, 163 Spring Street, Melbourne, which is the Princess Theatre) is closed (in whole or in part) by relevant order which is equated to that building being damaged. The indemnity arises with respect to the loss suffered due to resultant interruption or interference.
323 In this case, each relevant risk location was affected by the same closure order made at the same time, but this factor should not obscure the interpretation exercise which is to be carried out by reference to what a reasonable business person in the position of the parties would have understood the contract to mean upon entering into the Policies. Here, the parties would have understood that the Extension could apply if any one of the variety of circumstances set out in the Extension occurred, as long as Princess Theatre Pty Ltd (being the entity carrying on the business) suffered loss directly resulting from interruption or interference to its business carried on at any one of the premises identified as a 'location of risk'. The parties would have understood that an entitlement to cover would arise at one or other (or all) of the premises, from one or more of the circumstances addressed by the Extension and could arise on one or more occasion during the same period of insurance.
324 The entitlement on the part of the insured to be paid 'the amount of loss resulting from such interruption or interference in accordance with the applicable Basis of Settlement' is not unlimited. As the introductory section of the ISR Mark IV Policy Wording makes clear, the total liability of the Insurer at any one 'situation' (which is also not defined but must be taken to refer to any of the premises identified by reference to each 'location of risk'), cannot exceed the appropriate limit or sublimit of liability stated in the schedule. 'Schedule' is also not defined, but again it is tolerably clear that it is a reference to the First Certificate and Second Certificate.
325 In the case of an entitlement to indemnity therefore with respect to deemed damage to the property as contemplated by the Infectious Disease Clause (and the Extension), the Insurer's liability cannot exceed the sublimit of liability expressed in the schedule.
326 Thus, in the case of an entitlement to indemnity pursuant to Section 2 arising pursuant to the Infectious Disease Clause, or the Extension, because of the closure of 163 Spring Street, Melbourne (for example) by order of a relevant Authority which, the closure is the relevant event, which if it results in loss arising from interruption or interference, entitles the insured to indemnity which is capped at $500,000 regardless of whether there is one or more events.
327 In a single policy year, closure could occur by reason of an order made as a consequence of infectious or contagious disease manifested by any person whilst at the premises or again at a later time, by order of a relevant authority consequent upon murder or suicide occurring in or at the premises. The maximum level of cover cannot exceed the $500,000 regardless of the number of events.
328 Once it is recognised that each 'location of risk' is a separate premises and that each order for closure constitutes a separate event entitling the insured to indemnity, with respect to the loss which results from interruption of or interference with the business arising from closure, there is no basis to conclude that the sublimit refers to all of the premises, as opposed to representing the maximum amount that can be the subject of loss falling within the scope of the indemnity for each premises.
329 To conclude otherwise leaves no work for the words in the Extension 'carried on by the Insured at the premises' and amounts to a re-writing of the Extension so as to read '... to include loss directly resulting from interruption or interference with the business carried on by the Insured at the premises in consequence of: (a) closure of any one of the premises at which the insured carries on business'.
330 The Insurer's construction would also result in the cover afforded by the Extension being exhausted if loss was suffered by the Group arising from the closure or evacuation of one of its premises as a result of an event in the first half of the year if the loss exceeds the relevant sublimit, if a later event falling within the scope of the Extension arose at another premise. This is inconsistent with the introductory words of the ISR Mark IV Policy Wording which confirm that the liability of the Insurer for loss at each premises is capped by the sublimit set out in the certificate of insurance, (for infectious disease, $500,000). Acceptance of the Insurer's argument means that the insured's entitlement to indemnity for loss at that premises up to $500,000 is qualified such that it only exists, if not first exhausted by an earlier claim for loss sustained at another premises. Such an interpretation is at odds with the wording of the Policies, which as the Marriner Group emphasises is to be interpreted contra proferentem.
331 Contrary to the Insurer's submission, this does not mean that the words in the First Certificate and Second Certificate, 'Aggregate Limit any one Period of Insurance' have no work to do. The Extension (and for that matter the Infectious Disease Clause) has potential application in a variety of circumstances. Loss may be suffered by the insured as a consequence of interruption or interference with the business carried on at the premises by reason of separate orders for closure or evacuation of the premises consequent upon any of the four matters set out in the Infectious Disease Clause or any of the matters set out in the Extension. The reference to an 'Aggregate Limit for any one Period of Insurance' serves to clarify that the $500,000 cap per venue applies with respect to all claims made during the period of insurance resulting from the events the subject of the Infectious Disease Clause or the Extension. Thus, the insured is not entitled to a maximum of $500,000 for loss arising from an order consequent upon infectious or contagious diseases and then another $500,000 from another closure resulting from vermin or loss suffered as a consequence of murder occurring at the premises. If there is more than one event which entitles the insured to indemnity pursuant to the Extension during the one period of insurance, at the one premise, the Insurer's liability is capped at $500,000.
332 Although there is merit in the Insurer's submission that the purpose of the breakup of the premium and the separate excess in the declared values section of the First Certificate and Second Certificate is to address premium adjustment in the event of underinsurance, this does not mean that the breakup of premium by reference to each venue and the declaration of values with respect to the consequential loss suffered at each is irrelevant to the construction exercise. The identification of provision of declared values for each premises recognises that consequential loss may be suffered at each of the venues identified in the First Certificate and Second Certificate, and supports the characterisation of the sublimit as being one which applies to each of those venues.
333 The conclusion that the sublimit applies to each of the venues and not to the claims in the aggregate across each insurance year is fortified by the surrounding circumstances. Although it is not necessary to have regard to surrounding circumstances to resolve this aspect of the dispute, the surrounding circumstances (to which the Insurer invited consideration in the context of determining the related question of whether there was a $500,000 sublimit at all) are supportive of the Marriner Group's argument. The words 'Aggregate Limit any one Period of Insurance - Section 2', were first introduced into the First Certificate by the insurer in the 2019-2020 period of insurance which is the year the subject of the First Policy. Prior to this, those words were not used and instead the $500,000 sublimit was described by the Insurer in the certificates of insurance merely by the reference 'Infectious Disease $500,000'. In support of its submission that the $500,000 sublimit applied with respect to the First Policy, the Insurer emphasised that the parties' intention with respect to the 2019-2020 period of insurance was to maintain the same policy limits/sublimits, coverages and deductibles (as those that appeared in the previous period of insurance) and that the terms on offer were terms of renewal. In that context, the Insurer's submission that significance must attach to the different words used to describe the sublimit in 2019-2020, although rejected for the reasons given above, is at odds with the approach that it urged should be taken with respect to the First Policy as to the question of whether the sublimit applied.
334 The venue specific sublimit interpretation is also consistent with the earlier policies. The 2012 Heritage Policy Wording makes it clear that the total liability of the insurer at any one situation should not exceed the limit of liability for any loss or series of losses arising out of any one event, and provides that the sublimit of liability means the amount shown in the certificate of insurance which applied to specific covers within the policy. Further, in McKenzie Ross' closing advice for the period of insurance 18 March 2013 to 18 March 2014, it records the limit of liability for sections 1 and 2 combined as being applicable to any one event at any one situation, which again focuses on the linkage between the limit of liability and the particular situation. So too does McKenzie Ross' closing advice for the 2016-2017 and the 2017-2018 periods of insurance. Similarly, PCS's closing advice dated 28 March 2019, although cast in slightly different terms, confirms that the total liability limits apply with respect to any one event at any one situation.
335 The Insurer also relies on the fact that the sublimit with respect to the flood item of $1 million is prefaced by the wording 'Limit any one Situation (unless otherwise noted)' which it submits speaks to an intention that absent the deployment of similar wording for the Infectious Diseases Sublimit, the sublimit applies to all situations collectively.
336 I do not accept that drafting pertaining to a different risk (flood) carries with it the consequence urged by the Insurer in light of the wording of the Policies much less in light of the surrounding circumstances.
337 The sublimit for flood is a combined sublimit which applies both for Section 1 and Section 2. The flood peril is one which might bring about material damage to the property and consequential loss. Earlier versions of the certificates of insurance nominated sublimits of $500,000 with respect to each of those items but did so separately for Section 1 and Section 2.
338 In the case of the First Certificate and Second Certificate, the drafting recognises that the peril might cause both material loss and damage and consequential loss. The identification of a combined sublimit of $1,000,000 is a clumsily drafted attempt to limit the combined limit to $1 million for each situation regardless of whether the $1 million represents loss in respect of material damage or consequential loss. Given the balance of the wording for the Policies, I accept that the reference to any one situation is somewhat superfluous, but a characteristically clumsy drafting of a sublimit for a different peril does not count for much in light of the clear intention apparent from the balance of the Policies, that the Infectious Disease Sublimit is to be construed as referencing the aggregate limit per venue.
339 The question of whether there are four venues or five is easy to resolve. The First Certificate and Second Certificate spell out four relevant locations of risk. They do not differentiate between the different businesses carried on by the Group at 191-197 Collins Street, Melbourne. The businesses are conducted by the same entity from the same premises and are not in any event identified as separate risk locations.
340 Accordingly, the $500,000 sublimit applies in each relevant period of insurance with respect to each of the four venues. Thus, the maximum amount of the Insurer's liability in each period of insurance is $2 million, such that the maximum liability of the Insurer is $4 million.
Does the 'rent receivable' sublimit of $0 apply to the receipt of theatre hire fees?
341 As the Marriner Group's management accounts make clear, the revenue derived by Princess Theatre Pty Ltd comprises food and beverage, theatre hire, box office, merchandise and ticketing fees.
342 Between them the food and beverage and theatre hire revenue account for about 80% of the revenue with a little over 40% derived from food and beverage sales and a little less than 40% derived from theatre hire. The theatre hire component is the most profitable.[118]
343 The theatre hire fees are derived pursuant to theatre hiring agreements between Princess Theatre Pty Ltd as manager and various hirers which record, inter alia, that the manager controls the particular venue, has the right to sell tickets to the theatre and has agreed to hire the theatre to the hirer for the purposes of hire on the terms set out in the agreement. The agreement specifies a bump-in commencement period date, a performance period and a bump-out period. The hiring agreement specifies certain areas of the venue which are included as being the subject of hire and certain areas which are excluded. The hirer is required to pay a hiring charge at differential dates depending upon whether it is the bump-in period, the performance period or the bump-out period. Among other things, the hiring agreement confers upon the manager the exclusive right to provide food and beverage to persons within the venue and contains an acknowledgement by the hirer that the hiring agreement did not constitute a grant or conferral of a property interest in the venue or the theatre to the hirer including any interest in the nature of a leasehold interest.
344 The hiring agreements also provide that the manager reserves the right to occupy and/or use the venue or any part of it during the term of the hiring agreement provided that it would use best endeavours not to interfere with, disturb or otherwise have any detrimental effect on the presentation by the hirer.
345 The First Certificate and Second Certificate identify a sublimit for Section 2 for the item 'rent receivable' as $0 and as set out above, Section 2 of the Policies contains a 'rent receivable' clause.[119]
346 The Insurer submits that this means that the Marriner Group is not insured with respect to the receipt of rent and argues that the hiring fees paid by promoters to stage productions at the theatres operated by the Group constitute rent and, as such, do not fall within the scope of the consequential loss (business interruption) cover.
347 If this were so the Group would be uninsured with respect to about 40% of its revenue, and the most lucrative source of its profits.
348 The Insurer relies upon Commissioner of Stamp Duties v JV (Crows Nest) Pty Ltd[120] ('JV (Crows Nest)')where McHugh JA (with whom Samuels JA agreed) observed:
In modern times the word 'rent' can and often does mean a sum of money which a person has contracted to pay for the use of property for a term: United Scientific Holdings Ltd v Burnleigh Borough Council [1978] AC 904 at 935, 947 and 963. The distinction between a payment which is made for the use of property for a term and a payment made by a lessee to a lessor which does not relate to the use of the property is often difficult to draw in practice. In the decided cases the distinction seems more often than not to have turned on the form or manner of the payment than the answer to the question whether in substance that the payment was made for the use of the property. Payments made by the lessee for services and use of furniture were held to be rent in Property Holding Co v Clark [1948] 1 KB 630. Evershed LJ said (at 648-649) that:
"the question in each case is to determine what in substance is the subject-matter of the tenancy granted to the tenant by the contract: prima facie rent is the monetary compensation payable by the tenant in consideration for the grant, however it be described or allocated."
Although the case was decided under the Rent Restriction Act 1920 (UK), I think that the statement was intended to have general application. In Sidney Trading Co Ltd v Finsbury Borough Council [1952] 1 All ER 460; [1952] 1 TLR 512, money paid by the lessee to the lessor for rates was held to be rent....[121]
350 Rent for the purposes of the meaning of the term 'rent receivable' in the Policy is not to be determined by reference to what courts have determined constitutes rent in different contexts. The necessary task is one of the construction of the words in the Policy which is a question of reading the Policy as a whole having regard to the context in which it appears, the purpose of the contract, the presumed common intention of the parties and in light of the relevant circumstances in which the Policy came into being. When interpreting the wording of a phrase in a policy, the word has its ordinary meaning. The words are to be interpreted in the context of how they would be understood by the ordinary reasonable person in the position of the parties.[122]
351 The words used in the Policy are to be read in their popular, ordinary and natural sense, that is to say as understood by the ordinary reasonable person in the position of the parties.[123] Such a person is not a property lawyer, much less one with a keen appreciation of JV (Crows Nest).
352 Further, the process of construction is one which requires the phrase to be construed conformably with the terms of the whole policy.
353 In this regard, the term 'Rent payable (b)' in the Policies specifically uses the term rent in relation to amounts payable '... in accordance with the terms of any lease agreement' whilst the definition of 'Gross Rentals' refers to '[t]he money paid or payable to the Insured by tenants or to others as outgoings as required by the rental agreement ...'.
355 Exclusive possession and an interest in land will generally be essential ingredients for the creation of a lease.[126] A licence generally does not confer on the licensee a right of exclusive possession of the land, does not confer on the licensee any interest in the land and the grantor retains a right of entry to the land.[127] A licence is an agreement which the grantor confers on the licensee permission to enter the land for a specific purpose which would otherwise be unlawful or constitute a trespass.[128] The hiring agreements are not in fact leases and the payments made by the promoters to the manager are not rent. More pertinently from the position of the parties, they contain a specific disavowal to that effect. The hiring agreements grant the producer of a show a right to use the theatre on certain terms whilst the Group retains possession and reserves the right to access the venue.
356 Any interpretation of the phrase 'rent receivable' as one which extends to agreements to which the Group is party which state the exact contrary is quite incompatible with a common sense and commercial construction of the Policy entered into by the Group with the Insurer. The First Certificate and Second Certificate record the Group's operations as 'Heritage Buildings - Theatres', not as landlord of premises, much less as food and beverage providers or merchandise providers which would be consistent with the more restricted coverage which the Insurer now urges.
357 Mr Govan acknowledged the nature of the Group's operations and how it made earnings as relevant to issuing the Policy and appreciated that the Group operated theatres. Mr Govan understood that the Group itself did not conduct the shows playing at the theatres. He understood that industrial special risks insurance policies covered losses sustained from interruptions to the Group's business and that such insurance is differently regarded in policies which provide for landlord insurance.
358 Any interpretation of the Policy to the effect that the hire fees constituted rent is contrary to the ordinary meaning of that term, contrary to the meaning of that term as would have been understood by a reasonable person in the position of the parties and would destroy much of the commercial utility of the Policies as it would remove a substantial component of the Group's core business from the scope of the indemnity.
359 Little explored in the evidence was the operation of the Box Restaurant. However, as the expert evidence made clear, the third plaintiff, Regent Theatre Holdings Pty Ltd, leases out a portion of the property that is located at the same address as the Regent Theatre to a third party operator who operates a restaurant known as the Box Restaurant. Regent Theatre Holdings Pty Ltd receives the rent.
360 The receipt of that money constitutes 'rent receivable', not hire fees payable pursuant to hiring agreements which expressly avow that they do not constitute leases.
361 The coverage afforded by the Extension, insofar as it comprises losses derived from the loss of theatre hire fees, is not subject to the 'rent receivable' sublimit. The 'rent receivable' by Regent Theatre Holdings Pty Ltd from the Box Restaurant is, and accordingly that sum should be excluded from any loss.
362 Although the Insurer did not refer to the loss being subject to 'location of risk' sublimits in its oral opening or closing, in both the amended defence filed 25 January 2024 and the Insurer's written outline of closing submissions dated 6 March 2024, the Insurer submits that any loss suffered by the Group is subject to sublimits at each location such that the loss of profits is capped for each period of insurance at $5,705,630 for the Princess Theatre, $9,089,183 for the Regent Theatre, Plaza Ballroom and Box Restaurant, $2,047,341 for the Comedy Theatre and $2,978,460 for the Forum Theatre.
363 In the context of the applicability of the Infectious Disease Sublimit and to the question of whether it applied for each period of insurance so as to cap the liability of the Insurer to $500,000 in total or to $500,000 per venue, the Marriner Group pointed to the fact that the 'Declared Values' section of the First Certificate and Second Certificate identifies premium (and excess) by reference to each venue.[129] The Insurer submitted that this factor was not relevant arguing that the declaration of values was relevant only to premium calculation and questions of underinsurance.
364 The submission that its relevance extends to an identification of a locational sublimit is at odds with this approach.
365 I do not accept the Insurer's submission; the loss of profits for each of the venues set out above appears in the First Certificate and Second Certificate in the 'Declared Values' section which makes up part of the Policies. It does not appear in that part of the First Certificate and Second Certificate where the sublimits are identified. Its relevance is as to the calculation of premium in the event of underinsurance. It does not purport to be a sublimit, unlike the many other sublimits identified in the First Certificate and Second Certificate, and should not be interpreted as such.
366 Despite my conclusion that the Marriner Group's entitlement to indemnity with respect to loss is capped by reason of the Infectious Disease Sublimit at $500,000 per venue in each relevant period of insurance, it is still necessary to assess the Group's entitlement under the Policies.
367 Whilst the Infectious Diseases Sublimit represents the maximum amount of the loss for which the Insurer is liable, it is still necessary for the Group to establish that it has suffered loss of an amount equal to or in excess of the $500,000 cap. If it has suffered loss less than $500,000 per venue, the Insurer will be required to pay the lesser amount. This is relevant to the loss under the First Policy, where the relevant period of insurance is 31 March 2019 to 31 March 2020 and to the loss suffered during the period of insurance for the Second Policy, being 31 March 2020 to 31 March 2021, at the Comedy Theatre.
368 In addition, the differences between the parties as to the amount of loss for which the Insurer is liable raise questions of the duration of the loss period, methodology and whether JobKeeper Payments and Third Party Payments should be taken into account in diminution of any loss payable by the Insurer. In case I am wrong with respect to my conclusion as to the application of the Infectious Disease Sublimit, it is convenient to deal with these issues as well.
369 Mark Thompson of Charles Taylor Adjusting, a chartered accountant and experienced loss adjuster, gave evidence on behalf of the Marriner Group. Mr Thompson was instructed by letter dated 17 February 2022 to express his opinion as to the total loss of profits on a monthly basis suffered by the Marriner Group from 16 March 2020 to the date of his report by reason of the closure of the Venues and the subsequent reopening of the Venues with limited patron capacity.
370 Mr Thompson was instructed to adopt a set of assumptions which, inter alia, included the following:
(a) the declared gross profit in the schedule of insurance: declared value schedule of $18,903,965 was the declared value for 12 months. As the indemnity period under the Policies was 24 months, the declared gross profit should be proportionately increased to $37,807,930;
(b) budgeted attendances provided by the Marriner Group accurately reflected the attendances that would have occurred had the closure of the Venues (and subsequent reopening with limited patron capacity) following the outbreak of COVID-19 not occurred; and
(c) the JobKeeper Payments and Third Party Payments should not be taken into account in any loss analysis although Mr Thompson should for completeness set out the total amount of JobKeeper Payments received by the Group.
371 In light of his instructions, Mr Thompson calculated the loss of profits suffered by the Marriner Group purportedly pursuant to the Directions for the period from 16 March 2020 to 31 March 2022 ('Thompson loss period').
372 As instructed, Mr Thompson assumed that the budgeted attendances provided by the Marriner Group accurately reflected the attendances that would have occurred had the closure of the Venues following the outbreak of COVID-19 not occurred. Mr Thompson therefore relied upon monthly budgets that had been prepared by the Marriner Group for each of the operating divisions 12 months in advance of the corresponding loss period both for the purpose of calculating the level of income and the expenses that would have been incurred by the Group during the Thompson loss period but for the Directions.
373 Before utilising the monthly budgets provided for that purpose, Mr Thompson conducted a budget variance analysis of the monthly budgets that had been provided by the Marriner Group for the two year period immediately before the Directions. This process involved Mr Thompson comparing the monthly budgets for the period from March 2018 to February 2020 with the actual income generated and expenses incurred by the Group during that period. This analysis relevantly excluded intercompany services charges. Mr Thompson then applied that budget variance analysis to the monthly budgeted income for each department provided to him for the loss period for the purpose of determining the income that would have been expected to have been derived and the expenses that would have been expected to have been incurred during the loss period. In his loss assessment, Mr Thompson deducted the actual income during the Thompson loss period from the standard turnover in order to calculate a loss of turnover. He then calculated the rate of gross profit by reference to the budgeted turnover and budgeted expenses (as both adjusted by the budget variance analysis) and then applied that calculated rate of gross profit to the loss of turnover to calculate a loss of gross profit. Mr Thompson then deducted the actual expenses incurred during the Thompson loss period from the expected expenses, which he characterised as savings. The savings were then deducted from the loss of gross profit to determine the loss of profit.
374 In light of those instructions, Mr Thompson calculated the loss of profit suffered by the Marriner Group for the Thompson loss period due to the Directions in the total amount of $34,734,520.
375 The duration of the Thompson loss period is a matter in dispute and the period in which the loss is suffered is relevant to questions of underinsurance and the sublimits. As such it is useful to reframe Mr Thompson's analysis so as to allocate the loss to three distinct periods; 16 March 2020 to 31 March 2020 ($2,286,996); 1 April 2020 to 31 March 2021 ($23,128,776) and 1 April 2021 to 31 March 2022 ($9,318,752).
376 The allocation of that loss over those three time periods between the various operating divisions is shown in the table below:
377 As instructed, Mr Thompson identified the JobKeeper Payments that had been received by the Marriner Group in the period from April 2020 to March 2021 which are summarised in a table that is replicated below:
378 Mr Thompson confirmed that his instructions did not extend to providing an opinion regarding the Group's insurance coverage according to the Policy. As Mr Thompson made clear, the opinions provided in his report were limited to the quantum of the loss of profit suffered by the Group in accordance with his instructions. Mr Thompson did not assess the extent to which the Policy provides indemnity for the loss suffered by the Marriner Group due to the Directions, the adequacy of the insurance cover, the extent to which policy sublimits of liability apply and the application of any deductible.
379 Greg Meredith of KPMG, a chartered accountant and accredited forensic accounting specialist, gave evidence on behalf of the Insurer.
380 Mr Meredith was instructed to prepare a report setting out his opinion as to:
(a) what (if any) businesses did the Marriner Group carry on at each of the Venues;
(b) insofar as the Marriner Group carried on a business at any of the Venues, what loss did the Marriner Group suffer as a direct result from interruption or interference with the business carried on by the Marriner Group at the venue in consequence of closure of the whole or part of the venue by reason of the Directions. For the purposes of answering that question, Mr Meredith was instructed to:
(i) separately identify any loss suffered as a direct result of interruption or interference with any food or drink facility;
(ii) identify (and if possible quantify) any part of the loss claimed by the Marriner Group which falls within any of the sublimits identified in the First Certificate and Second Certificate;
(c) separately identify any Third Party Payments and JobKeeper Payments; and
(d) set out any matters of agreement or disagreement with Mr Thompson.
381 In accordance with his instructions, Mr Meredith's assessment was based on the loss period starting on 16 March 2020 (the date of the 16 March Direction being the first direction relied upon) and ending on 31 March 2021 (being the date of expiry of the Second Policy).
382 This assessment is set out in the table replicated below:[130]
383 As Mr Meredith noted, $13,865,496 of the $14,050,674 related to losses incurred by Princess Theatre Pty Ltd with the balance of $185,178 relating to losses incurred by Regent Theatre Holdings Pty Ltd which related to rent for the Box Restaurant.
384 As is the case with Mr Thompson's report it is useful to reframe Mr Meredith's report so as to differentiate the time period in which the loss was sustained. On Mr Meredith's analysis, the loss suffered was $430,327 for 16 March 2020 to 31 March 2020 and $13,620,347 for 1 April 2020 to 31 March 2021.
385 Importantly, Mr Meredith's assessment of the Group's losses deleted that part of the actual Group Head Office wages expenses which were funded by JobKeeper Payments, thus reducing the Group's actual expenses for the period covered by the Second Policy. Had this not occurred, Mr Meredith's assessment of the Head Office loss would have increased by the amount of the JobKeeper Payments ($9,106,400) thus increasing the Head Office loss from $50,472 to $9,156,872. This would have increased the overall loss in the period covered by the Second Policy to $22,726,747 and the total loss to 31 March 2021 to $23,157,074 which can be compared with the loss assessed by Mr Thompson to 31 March 2021 of $25,415,772.
386 In accordance with his instructions, Mr Meredith determined the loss suffered due to closure of the whole or part of the venue if certain sublimits applied.
387 Amongst the analyses that he was asked to perform was one which assumed that the loss claimed was subject to 'location of risk' consequential loss sublimits. For the purpose of this analysis, Mr Meredith re-allocated the Head Office losses to the relevant venues. The basis of allocation (as opposed to the total amount of the losses) was ultimately agreed by Mr Thompson.
388 The table by which Mr Meredith illustrated that approach is useful as it breaks up the loss period between that covered by the First Policy (16 March 2020 to 31 March 2020) and the Second Policy (1 April 2020 to 31 March 2021). This loss assessment is set out in the table replicated below:[131]
Lower of losses for 1 April 2020 to 31 March 2021 and location of risk sublimit
389 Mr Meredith was asked to undertake an assessment of the loss due to closure of the whole or part of the Venues by reason of the Directions if the 80% average/underinsurance clause of the Second Policy was applied.
390 As part of this exercise, Mr Meredith applied the formula set out in the Policies to the loss suffered only in the period of the Second Policy (1 April 2020 to 31 March 2021) by applying the 80% average/underinsurance clause in the Second Policy to the loss suffered during the period covered by the Second Policy. This clause provides in substance that if the estimated value of the loss of profits declared at the commencement of the period of insurance is less than 80% of the value of the loss during the loss period, then the amount payable by the Insurer is proportionately reduced.
391 On this basis, Mr Meredith's assessment of loss during the period of insurance for the Second Policy is reduced with the extent of the reduction shown in the table below:[132]
Losses for 1 April 2020 to 31 March 2021 not applying the underinsurance clause
Losses for 1 Apr 2020 to 31 March 2021 applying underinsurance clause
392 Mr Meredith's assessment of the loss suffered at each of the Venues was calculated by first, identifying a standard turnover for each venue. Guided by the definition contained in the Polices, this was 'the Turnover during that period in the 12 months immediately before the date of the Damage which corresponds with the Indemnity Period'.
393 Mr Meredith then adjusted this figure (the 'Meredith Adjustment') and calculated an adjusted standard turnover. The adjusted standard turnover was less than the actual turnover recorded in the Group's management accounts for the 12 months preceding the commencement of the loss period, and thus has the effect of reducing the Group's recoverable loss. Mr Meredith then deducted the actual turnover during the loss period from the adjusted standard turnover and then multiplied the difference by the rate of gross profit which is defined in the Policies as 'the Rate of Gross Profit earned on the Turnover during the financial year immediately before the date of the Damage'. Mr Meredith calculated this rate by reference to the management accounts for the previous 12 months.
394 Having determined the difference between the adjusted standard turnover and the actual turnover during the loss period and multiplying the difference by the rate of gross profit, Mr Meredith then deducted any 'sum saved' during the loss period. The sums saved comprised charges and expenses of the business payable out of gross profit as ceased or were reduced in consequence of the damage (i.e. savings). In his calculation of the sums saved, Mr Meredith identified the counterfactual expenses excluding costs of goods sold less actual expenses excluding costs of goods sold.
395 There were two critical aspects to Mr Meredith's approach. The first was his determination of the Meredith Adjustment; and the second was his approach to the calculation of sums saved.
396 The Meredith Adjustment had its origin in an instruction given 10 June 2022 to the effect that Mr Meredith take account of the extent to which any of the Group's businesses were impacted by international travel bans which prevented persons entering Australia such that losses attributable to such bans would not naturally be expected to occur concurrently with the existence or risk of COVID-19 in Victoria.
397 In order to accommodate this instruction, Mr Meredith considered that a relevant counterfactual scenario was one which included the following characteristics:
(a) no business closure directions or density requirements for businesses and no stay at home directions in Victoria (which did not occur during Mr Meredith's loss period);
(b) the international travel ban which was imposed from March 2020 and the closed borders and quarantine requirements on people entering Australia which were imposed from 28 March 2020 (which did occur during Mr Meredith's loss period); and
(c) a COVID-19 vaccine rollout in Victoria with 90% of the Victorian population over the age of 16 years, which was achieved in mid-November 2021.
398 Mr Meredith determined that he did not have sufficient information to calculate a scenario which conformed with those requirements.
399 Mr Meredith however identified a period from December 2021 to February 2022 (the 'proxy period') as a period which represented the counterfactual scenario, which he described as a hypothetical scenario in which the Group was not affected by the damage covered by the Policies.
(a) there were no stay at home orders, business closures or density requirements in Victoria;
(b) international arrivals were much lower than they had been prior to COVID-19 notwithstanding that international travel restrictions began to ease from 1 November 2021; and
(c) 90% of the Victorian population over the age of 16 years were vaccinated which was achieved by mid-November 2021.
401 Mr Meredith considered that the actual performance data for the Venues in the proxy period was the best available data to inform the performance that would have been achieved in a counterfactual or but for scenario, that is to say, one where the Venues had not been closed or required to operate at reduced capacity. This notwithstanding, Mr Meredith drew attention to a number of differences between the counterfactual scenario and the proxy period, in that the proxy period was characterised by:
(a) a higher level of vaccination against COVID-19 in Victoria compared to the period March 2020 to March 2021;
(b) higher COVID-19 case numbers compared to the period March 2020 to March 2021; and
(c) higher international arrivals in Australia compared to the period March 2020 to March 2021.
402 Mr Meredith took account of the financial performance of the four venues during the proxy period by:
(a) comparing the number of attendances and performances at each of the four venues (the Princess Theatre, the Plaza Ballroom, the Comedy Theatre and the Forum Theatre) for either the period:
(i) December 2019 to February 2020 (a pre-COVID period), compared to December 2021 to February 2022 (a post-COVID period); or
(ii) January 2020 to February 2020 (a pre-COVID period), compared to January 2022 to February 2022 (a post-COVID period);
(b) calculating a recovery percentage, which represented the percentage of attendances or performances that the four venues were able to achieve post-COVID, compared to the same calendar months pre-COVID. For example, the Princess Theatre was able to achieve 92% of the pre-COVID attendance figures post-COVID based on 102% of the pre-COVID performances;
(c) grossing up the recovery percentage where the number of performances post-COVID were less than the number of performances pre-COVID for a venue. Thus, in the case of the Comedy Theatre which had been able to achieve 39% of the pre-COVID attendance figures based on 73% of the pre-COVID performances, the 39% was grossed up to account for the lower level of performances post-COVID with the resultant determination of the recovery percentage as 53%.
403 Mr Meredith's pre and post-COVID attendance and performance analysis is set out in the table replicated below:
404 Based on the amounts set out in the above table, Mr Meredith assumed that in the counterfactual or but for scenario sales would have only reached the following percentages of pre-COVID sales:
(a) 92% for the Princess Theatre;
(b) 65% for the Plaza Ballroom;
(c) 53% for the Comedy Theatre; and
(d) 52% for the Forum Theatre.
405 The Meredith Adjustment therefore entailed taking the turnover for the venue that had been achieved for the 12 months prior to the commencement of the loss period but adjusting it by multiplying the turnover by the percentages listed in paragraph 404(a)-(d) above.
406 In the case of the Regent Theatre, Mr Meredith grossed up the standard turnover by multiplying it by 2.95. He adopted this approach because the Regent Theatre was temporarily shut for building works between August 2019 and January 2020 and as such the standard turnover for the Regent Theatre was understated and did not accurately reflect the expected performance of the venue in the counterfactual scenario.
407 The second critical aspect to Mr Meredith's report was his approach to JobKeeper Payments, which in turn effected Mr Meredith's calculation of sums saved. Mr Meredith deducted the JobKeeper Payments from the actual expenses incurred by the Group during the loss period. As the sums saved represented the difference between the counterfactual expenses and the actual expenses during the loss period, this had the effect of increasing the sums saved and hence reducing the Group's loss.
408 Finally, Mr Meredith set out the key items of his disagreement with Mr Thompson's report. Mr Meredith considered that the loss period end date of 31 March 2022 was inappropriate as there was no causal connection between the loss end date and 31 March 2022 (which was the latest date of the financial accounts provided by the Marriner Group to Mr Thompson). Mr Meredith noted that the last direction relied upon by the Group was 26 March 2021 and that during the period from 6 December 2020 to 25 March 2021, the majority of directions allowed for 1,000 people per venue. Only the Princess Theatre, Regent Theatre and Forum Theatre had higher capacity than 1,000 patrons and each of those venues in April 2021 either showed no losses or minimal losses such that the venues had generally recovered to the same levels as they were in when there were no lockdowns or density limits.
409 Otherwise, Mr Meredith did not agree with Mr Thompson's use of budgeted figures as the basis for the assessment of standard turnover nor the associated use of budgeted figures for the assessment of the rate of gross profit or expected expenses. Mr Meredith also took issue with Mr Thompson's approach to the calculation of the loss for the ticketing fee venue within Head Office.
410 The differences in instructions and the consequent differential presentation of their conclusions make the task of comparing their assessments more difficult than would otherwise be the case.
411 Prior to the preparation of their joint report, the Court made orders requiring the parties to consult and agree on a set of questions to be put to the experts for their consideration at an expert conclave and to provide a joint report.
412 The parties subsequently agreed on the following questions:
(1) What is the appropriate methodology for calculating the Marriner Group's alleged losses? Give reasons.
(2) What is your calculation of loss by applying the appropriate methodology? Calculate this loss on three alternate bases:
(a) assume that none of the limits referred to in subparagraphs (2)(c)(i)-(iv) below apply and the average/underinsurance clause does not apply;
(b) assume that none of the limits referred to in subparagraphs (2)(c)(i)-(iv) below apply and the average/underinsurance clause applies;
(c) assume that each of the following limits and the average/underinsurance clauses apply:
(i) the sublimit with the heading 'Infectious or Contagious Diseases: Vermin; Pests or Defective Sanitary Arrangements; Food or Drink Poisoning; Murder; Suicide' in the First Certificate and Second Certificate;
(ii) 'rent receivable' sublimit;
(iii) 'royalties receivable (b)' sublimit;
(iv) for each period of insurance, consequential loss relating to:
A. 163 Spring Street, Melbourne is limited to $5,705,630;
B. 228-240 Exhibition Street, Melbourne is limited to $2,047,341;
C. 191-197 Collins Street, Melbourne is limited to $9,089,183;
D. 150-162 Flinders Street, Melbourne is limited to $2,978,460;
E. 5-7 Marine Parade, Abbotsford is limited to $22,437; and
F. 19-25 Russell Street, Melbourne is limited to $560,915.
[Note: the answer to (2)(c) should clearly delineate the calculations in respect of each limit and the average/underinsurance clause].
(3) For the three alternate bases in question 2 above, please provide alternative loss calculations on the basis that the loss period ends on the following dates:
(4) For the three alternate bases in question 2 above, please provide alternative loss calculations on the basis that:
(a) your calculations are not reduced by JobKeeper Payments and other Third Party Payments and relief;
(b) your calculations are reduced by JobKeeper Payments and other Third Party Payments and relief.
413 Question (2)(c)(i) relating to the $500,000 sublimit for 'Infectious or Contagious Diseases: Vermin; Pests or Defective Sanitary Arrangements; Food or Drink Poisoning; Murder; Suicide' had buried within it a series of contestable propositions which have been addressed above. Thus, the application of the $500,000 sublimit also requires determination as to whether the $500,000 sublimit applies to each location (which now has reduced to four locations) and to each Policy or whether it applied to the total loss regardless of the relevant period of insurance.
414 The end result of the further instructions produced 52 possible outcomes depending upon the various scenarios, some of which were not pressed (such as the 'royalties receivable (b)') and others which were not pleaded much less pressed (such as a single sublimit applied over the entirety of the alleged loss period regardless of whether the loss occurred during the period of insurance covered by the First Policy or the Second Policy).
415 Further, although the report was entitled 'Joint Experts' Report' in its presentation it appeared to involve certain sections which appear to have been jointly drafted (the introduction and the concluding section, matters 3 and 4) but otherwise contained sections which appear to have been separately prepared by Mr Thompson and Mr Meredith. Each adopted a slightly different mode of presentation and approach. The number of scenarios and the different presentation style makes the joint report a challenge to read.
416 I obtained the most assistance from 'GM1 Appendix SF3' to the joint report. The table set out below, represents an abridged version of 'GM1 Appendix SF3':
Loss to 31 March 2021 (deducting JobKeeper Payments and Third Party Payments)
Loss to 31 March 2022 (deducting JobKeeper Payments and Third Party Payments)
417 Each expert maintained the appropriateness of their different approaches to the appropriateness of the calculation of standard turnover and the determination of the sums saved and as to the appropriate loss period.
418 Otherwise, the joint report set out four matters of agreement as follows:
(a) the consequential loss of Gross Profit suffered before applying the sub-limits can be calculated as:
(i) Reduction Turnover
less
(ii) any sum saved during the indemnity period in respect of such of the charges and expenses of the Business payable out of Gross Profit as may cease or be reduced in consequence of the damage (Savings)
where
(iii) Reduction in Turnover is equal to:
(2) the Shortfall in Standard Turnover, being the difference between;
(A) Standard Turnover, which may be adjusted to provide for the 'trends of the Business'
(b) in calculating the loss assuming the average/underinsurance clause applies:
(i) based on the calculation set out in paragraph 3.5.35 of GM1, the following percentages are appropriate to use to allocate the Head Office loss to the individual venues:
(1) 28% for the Princess Theatre
(2) 39% for the Regent Theatre
(3) 8% for the Comedy Theatre
(4) 25% for the Forum Theatre
(ii) the percentage 'adequacy of insurance' (being the gross profit declared divided by 80% of the value of gross profit at the commencement of the insurance period) for each of the locations is as follows:
(1) 39% for 163 Spring Street, Melbourne which relates to the Princess Theatre
(2) 98% for 191-197 Collins Street, Melbourne which relates to the Regent Theatre, Plaza Ballroom and Box Restaurant
(3) 41% for 228-240 Exhibition Street, Melbourne which relates to the Comedy Theatre
(4) 39% for 150-162 Flinders Street, Melbourne which relates to the Forum Theatre
(c) all losses associated with the Box Restaurant are losses of rent. To the extent that rent is not covered under the Policies, all loss for the Box Restaurant will not be covered
(d) statutory interest does not need to be addressed in the Joint Experts' Report as the questions for the Joint Experts' Report do not refer to statutory interest. All losses presented in the Joint Experts' Report do not include statutory interest.
419 Having regard to the above, any assessment of the loss recoverable under the Policies and payable by the Insurer requires determination of the following questions:
(a) Does the loss period end on 31 March 2021 or 31 March 2022?;
(b) Should the loss be reduced by the JobKeeper Payments or the Third Party Payments received by the Marriner Group during the loss period (whatever that may be)?;
(c) Should the calculation of standard turnover and savings proceed in the manner undertaken by Mr Thomspon or Mr Meredith?;
(d) Should any loss be reduced by reason of the application of the average/underinsurance clause?
The loss payable by the Insurer is also affected by the application of sublimits which has been considered above.
Determination of the disputed questions in respect of the calculation of loss
Does the loss period end on 31 March 2021 or 31 March 2022?
420 The consequential loss indemnity applies where property used by the insured at the premises for the purpose of the business is damaged during the period of insurance by any cause or event and the business carried on by the insured is interrupted or interfered with. The loss directly resulting from interruption of or interference with the business is the subject of the indemnity.
421 Loss which arises from closure or evacuation of the whole or part of the premises by reason of the matters identified in the Infectious Disease Clause is deemed to be loss resulting from damage to property used by the insured at the premises. The coverage afforded by the Extension must be interpreted in the same manner as the coverage afforded by the Infectious Disease Clause. Thus, loss arising from interruption or interference with the business caused by closure occurring within the period of insurance falls within the scope of the Extension. The relevant event which gives rise to coverage is interruption or interference with the business of the insured as a consequence of damage, which in substance includes closure due to government order arising during the period of insurance.
422 However, the loss which results from an insured event may continue beyond the period of insurance. This is recognised by the reference to 'indemnity period' in the Policies. The 'indemnity period' is defined as 'the period beginning with the occurrence of the Damage and ending not later than the number of months specified in the Schedule [24 months] thereafter during which the results of the business shall be affected in consequence of the Damage'.
423 In a simple case where a building in which the insured carries on business is damaged by fire, for example, the policy applicable in the year of the fire will respond to any claim made as a consequence of the insured event. However, loss may continue beyond the end of the policy period. Where loss continues to be suffered as a result of the insured event, the loss may be recoverable for up to 24 months from the date of the fire. In such a case, loss will be recoverable under the policy even if it continues to be suffered after policy expiry as long as the event which gives rise to the obligation to indemnify occurs within the period of insurance for the policy.
424 To recast the analogy to circumstances closer to those present here, the subject premises may be closed by order of a relevant Authority because of, variously, the discovery of vermin at the premises or, conceivably but more dramatically, because of a murder taking place at the subject premises. In such a circumstance the insured is likely to suffer loss during the period of closure. However, in such a case, the insured may be able to point to the results of the business being affected as a consequence of that event beyond the period of closure. In such a case, the insured will be entitled to indemnity for loss for the period which begins with the closure but ends notwithstanding re-opening, to a period not later than the number of months specified in the schedule as long as 'the results of the Business shall be affected in consequence of the Damage' (which for the purposes of the Infectious Disease Clause and the Extension is the closure by reason of the elements of the insured peril as referred to in the Infectious Disease Clause and/or the Extension).
425 In the present case, the Group is entitled to indemnity in effect as a consequence of events which occurred both during the period of the First Policy (which expired on 31 March 2020) and the Second Policy (which expired on 31 March 2021) insofar as those events constituted orders which either required or had the effect of requiring closure of the premises (or advice for part of the First Policy period).
426 On that basis, prima facie the loss suffered by the Group in effect correlates with the period in which the operation of the Venues was directly affected by the Directions which resulted in closure or operating at diminished capacity. Prima facie therefore the loss period does not last beyond the end of the period of insurance of the Second Policy, which means that the loss period ends no later than 31 March 2021.
427 The Group, however, submits that it is entitled to losses arising in the period up to and including 31 March 2022, which is 12 months after the expiry of the Second Policy. Its case in effect is that damage first occurred on 16 March 2020 and continued at least until 31 March 2020 and that the indemnity period ends 24 months after that date, which is 31 March 2022. This explains the loss calculations which extend up to 31 March 2022. However, in order to be able to establish that it is entitled to indemnity with respect to loss which ends on 31 March 2022, the Group must be able to establish that the results of the business during the period after the expiry of the period of insurance (31 March 2021) were 'affected in consequence of the Damage' or, in other words, were affected by the closure orders made during the period of insurance. So much follows from the definition of the indemnity period in the Policy.
428 The Marriner Group has not been able to do so. There was no evidence from either Mr Marriner, Ms Marriner, or indeed Mr Thompson to the effect that the business of the Group at the Venues was in some way impaired after the orders requiring closure or imposing patron limits ceased to have effect.
429 Whilst it is conceivable that an order for closure of a venue may cause loss which continues after the venue reopens, that is not necessarily so. In the present case for example, any losses sustained outside the period of the Second Policy may well have been caused by closure orders or mandated restrictions issued after the date of the Second Policy. Events which caused loss after the expiry of the Second Policy do not fall within the scope of cover provided by the Second Policy. In any event, this is not something that can be speculated upon in the absence of evidence.
430 Rather, the Group's case appeared to proceed on the basis that the Insurer was required to in effect underwrite 'losses' or more accurately the budgeted profits, for a two year period after damage first occurred.
431 That is not consistent with the wording of the Policy. If it were so it would entitle an insured to indemnity from its insurer with respect to any failure to adhere to forecast results for a two year period following a short term closure of the business by order of a relevant Authority.
432 Further, as Mr Meredith's analysis of the Group's management accounts showed, in the months of April 2021 and May 2021, most of the venues operated by the Group were profitable. In April 2021, the Marriner Group's management accounts showed a profit for April 2021 of $525,129 with the Regent Theatre, the Comedy Theatre, the Forum Theatre and Head Office all being profitable. In May 2021, the Plaza Ballroom was profitable, the Comedy Theatre was profitable and the Head Office was profitable. Further, Mr Meredith's calculations showed profits across the Group as high as $1,153,905 in November 2021, $1,296,261 in December 2021, $1,608,638 in January 2022, $755,955 in February 2022 and $881,811 in March 2022.
433 Whilst it is true that the months of June 2021 to October 2021 revealed substantial losses, the fact that the chain of losses which occurred in the period up to March 2021 was broken in April 2021 and in large part in May 2021, points to the fact that the cause of any losses during the period June 2021 to October 2021 was not because of insured events which had taken place prior to 31 March 2021. In any event, the Marriner Group has not been able to establish that the losses which occurred post 31 March 2021 and in the period up to 31 March 2022 were as a result of the events which occurred during the period of insurance the subject of the First Policy or the Second Policy.
434 Accordingly, the loss period ends on 31 March 2021.
435 The Insurer submits that by reason of general principles of contracts of indemnity, or alternatively, via the Adjustments Clause, the JobKeeper Payments and Third Party Payments must be taken into account in reduction of the Group's alleged losses.
436 It is accepted that the Marriner Group received $9,106,400 in JobKeeper Payments from April 2020 to March 2021. In addition, the Insurer submits that the Third Party Payments of $3,725,388 were also received as a result of COVID-19 and that these too must be brought to account in reduction of the Group's losses. In Mr Meredith's report, he lists the individual grants, subsidies, abatements and other benefits received by the Group which bear dates commencing 28 September 2021 and concluding on 25 January 2022. With arguable exceptions relating to rent concessions, the grants, subsidies and abatements and other benefits therefore fall outside the ambit of the loss period which ends on 31 March 2021. Those parts of the grants and subsidies which were made after 31 March 2021 can be put to one side without further consideration.
437 Nine benefits identified in Mr Meredith's table bear no date of issue but which appear to be referable to the periods April 2020 to December 2020. These are headed 'HO: rent adjustment [relevant month] 20 - COVID-19' and presumably relate to a portion of the rent payable in that particular month.[133]
438 In Mr Meredith's report, he explained his exclusion of the JobKeeper Payments stating that 'actual head office expenses have been reduced by the amount of JobKeeper Payments received as the cost of wages expenses were effectively covered by the JobKeeper Payments received'.
439 Mr Meredith provides further detail as to the rationale for his deduction of JobKeeper Payments in paragraphs 3.5.27 to 3.5.32 of his report where he states the following:
3.5.27 The actual expenses for Head Office are:
(a) based on the period 16 March 2020 to 31 March 2021 (for the reason set out in paragraph 3.3.8 to 3.3.9)
(b) calculated as:
(i) the total expenses in the Head Office management accounts (excluding those expenses listed in paragraph 3.5.25(b) above)
(ii) less Jobkeeper payments received.
3.5.28 In my view, it is appropriate to remove the Jobkeeper payments received from the expenses as wages expenses:
(a) were effectively covered by the Jobkeeper payments received
(b) do not represent a true 'out-of-pocket' cost to the Plaintiffs when considered in isolation.
3.5.29 The Head Office management accounts show:
(a) 'Other income' between April 2020 to March 2021 of $9,103,237. This mostly reconciles to the $9,106,400 in Jobkeeper payments the Plaintiffs received per the 'Jobkeeper receipts and payments summary' document provided
(b) Total wages and superannuation between April 2020 to March 2021 of $7,425,782 (i.e. less than the amount of Jobkeeper received).
3.5.30 In my view, possible reasons for the amount of Jobkeeper received exceeding the amount of wages and superannuation paid to employees include:
(a) Not all Jobkeeper payments were paid to employees and a portion of the payments were retained by the business
(b) Jobkeeper payments received by Head Office were used to cover the cost of wages at other Venues, however the management accounts for the other Venues do not show any 'Other income' line items.
3.5.31 If the latter is the case, in my view:
(a) in calculating the loss it would be more appropriate to adjust the wages that were covered by Jobkeeper for the other Venues, rather than entirely through Head Office. However, I was not provided with sufficient information to determine which Venues' wages were covered by Jobkeeper payments
(b) in the absence of this information it is appropriate to exclude the entire Jobkeeper payment amounts from the actual Head Office expenses.
3.5.32 If the Court finds Jobkeeper is not to be adjusted for in calculating loss:
(a) the Head Office loss would increase by the amount of Jobkeeper payments received of $9,106,400
(b) this would change my assessment of the Head Office loss from $50,472 to $9,156,872.
440 The Group's management accounts (for the Head Office division) show that the receipt of the JobKeeper Payments was treated as revenue received under the description 'other income.' Also accounted for in the Group's management accounts as expenses are wages. Mr Meredith's approach is to effectively strip the wages out of the actual expenses incurred (to the extent of the amount which corresponds to the JobKeeper Payments) despite the expenses being borne on the basis that they were funded by the 'other income'.
441 The effect of this approach is to increase the sums saved which in turn operates to reduce the Group's losses. As Mr Meredith's report confirms, the loss suffered by Head Office (which he in effect reallocated across the Venues) would increase from $50,472 to $9,156,872 in the event that it was determined that Mr Meredith's approach to the JobKeeper Payments was appropriate.
442 The parties accepted that Jagot J's findings about the JobKeeper program in LCA Marrickville could be accepted. Her Honour's findings were accepted in the _LCA Marrick_ville Appeal where they were summarised as follows:[134]
The Commonwealth payment known as JobKeeper was introduced as part of a package of four Acts: (a) the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth); (b) the Coronavirus Economic Response Package Omnibus (Measures No 2) Act 2020 (Cth); (c) the Appropriation Bill (No 5) 2019-20 (Cth); and (d) the Appropriation Bill (No 6) 2019-20 (Cth).
An entity was eligible to participate if, as at 1 March 2020: (a) the entity carried on business in Australia or was a non-profit body that pursued its objectives principally in Australia: and (b) the entity's turnover has reduced by a relevant percentage ((i) 15 per cent - where the entity is a registered charity (other than certain educational institutions), (ii) 30 per cent - where the employer's aggregated turnover is less than $1 billion, or (iii) 50 per cent - where the employer's aggregated turnover is at least $1 billion): Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) ss 7 to8.
To be eligible to receive the JobKeeper payment, an employer was required to pay an eligible employee a total of $1,500 (pre-tax) in each fortnight for which the employer was claiming the entitlement during the period March to September 2020. The $1,500 could include amounts that were salary sacrificed into superannuation as well as amounts dealt with in any other way on behalf of the employee as a substitute for their salary and wages (eg other salary packaging arrangements such as certain fringe benefits). Payments were then made to the employer monthly in arrears. During the extension phase of JobKeeper (28 September 2020 - 28 March 2021), the payment was tapered and targeted to those businesses that continued to be significantly affected by the economic downturn. Businesses were required to reassess their eligibility with reference to their actual turnover: Coronavirus Economic Response Package (Payments and Benefits) Rules ss 10, 15, 13, 7(c) and 8B.
The object of the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth) in s 3 "is to provide financial support ... to entities directly or indirectly affected by the Coronavirus known as COVID-19".
The Explanatory Memorandum that accompanied the Coronavirus Economic Response Package (Payments and Benefits) Bill 2020 (Cth) and Coronavirus Economic Response Package Omnibus (Measures No 2) Bill 2020 (Cth) stated (p 12):
The Government's consolidated package of $320 billion represents fiscal and balance sheet support across the forward estimates of 16.4 per cent of annual Gross Domestic Product. The support is designed to help businesses and households through the period ahead. This significant action has been taken in the national interest and has been updated in the light of the broader and more prolonged impact of the Coronavirus outbreak.
The package provides timely support to workers, households and businesses through a difficult time. Building on the previous measures, this package will support those most severely affected. It is also designed to position the Australian economy to recover strongly once the health challenge has been overcome.
2.8 Under the JobKeeper Payment, businesses significantly impacted by the Coronavirus outbreak will be able to access a subsidy from the Government to continue paying their employees. This assistance will help businesses to keep people in their jobs and re-start when the crisis is over. For employees, this means they can keep their job and earn an income - even if their hours have been cut.
2.9 The JobKeeper Payment is a temporary scheme open to businesses impacted by the Coronavirus. The JobKeeper Payment will also be available to the self-employed. The Government will provide $1,500 per fortnight per employee for up to six months. The JobKeeper Payment will support employers to maintain their connection to their employees. These connections will enable business to reactivate their operations quickly - without having to rehire staff - when the crisis is over.
443 The Insurer sought to support Mr Meredith's approach to the JobKeeper Payments (along with a like deduction with respect to the Third Party Payments) on three bases. First, the Insurer relied upon what it characterised as 'general indemnity principles' arguing that the JobKeeper Payments and Third Party Payments reduced the Group's losses and must be taken into account in determining the amount of loss actually suffered in accordance with general principles applicable to indemnity.
444 The Insurer relied upon the decision of the Victorian Court of Appeal in Insurance Australia Ltd v HIH Casualty & General Insurance Ltd (in liq) ('HIH').[135]
445 The Insurer submitted that HIH stands for the proposition that payments received by an insured under a government scheme as compensation for losses suffered by reason of the collapse of the HIH group were to be accounted for in calculating the amounts payable by another insurer under a separate insurance policy.[136] The Insurer referred to the principle of recoupment which was described in HIH by Ashley JA in the following terms:[137]
Again, if the insurer has indemnified its insured first, and then the insured recoups money from another source - for example, by recourse to a contractual indemnity - the insurer has a right of recoupment in turn from its insured. This was described in Castellain as the exercise of a right of subrogation. The use of that description in such circumstances was criticised in British Traders Insurance Co Ltd v Monson. But that is not to deny the soundness of the substance of the proposition, which was said in Transport Accident Commission v CMT Construction of Metropolitan Tunnels to have been long accepted.
446 The Insurer submitted that the recoupment principle pursuant to an indemnity requires that the insured receive funds characterised as reducing its loss and that recoupment is not available for funds received 'independently of a right of redress'.[138]
447 The Insurer submits that consistently with HIH, the JobKeeper Payments and Third Party Payments reduced the Group's loss and that the payments could not be said to arise independently of any right of redress. The Insurer relies upon Ashley JA's characterisation of the payments under consideration in that case, in the following terms:
In the present case, I consider that the circumstances, however they are considered, lead to a conclusion that what was paid was an indemnity which was not to be equated with a merciful subvention of the Commonwealth Government, or as something resembling social security payments, bushfire relief payments or the like....[139]
448 Secondly, the Insurer argues that the JobKeeper Payments represent a 'sum saved during the Indemnity Period in respect of such of the charges and expenses of the Business payable out of Gross Profit as may cease or be reduced in consequence of the Damage'.
449 Thirdly, the Insurer relies upon the Adjustments Clause arguing that such a clause permits adjustments 'to the plaintiffs loss for other circumstances affecting the business "... so that the figures thus adjusted shall represent as nearly as may be reasonably practicable the results which, but for the Damage, would have been obtained during a relative period after the Damage"'.
450 The Insurer's reliance upon general principles of indemnity and the 'sum saved' clause contain support from Jagot J's decision in LCA Marrickville. In the case of the 'sum saved' clause, the clause considered by her Honour is in substance indistinguishable from the 'sum saved' component in the Policies.[140]
451 In LCA Marrickville, her Honour accepted that the payments of JobKeeper would be a 'sum saved' within the meaning of the 'sum saved' clause and additionally accepted that the JobKeeper payments reduced the loss suffered by the insured by the application of general indemnity principles. Her Honour accepted that one of the purposes of JobKeeper payments was to enable eligible businesses to save on the cost of wages and thereby one of the purposes of the payment was a payment intended to compensate for loss.[141]
452 Although her Honour's determination in LCA Marrickville was substantially upheld on appeal, the Full Court took a different approach to her Honour to the receipt by the insured of the JobKeeper payments. Derrington and Colvin JJ, with whom Moshinsky J agreed, rejected both the submission based upon the general indemnity principle and similarly did not require reduction of the insured's losses having regard to the 'sum saved' provision. Their Honours considered that the indemnity under the relevant policy was not an indemnity against actual loss but provided an indemnity for loss '... in accordance with the settlement of claims clause'.[142] Accordingly, the relevant analysis was one which turned solely on the proper interpretation of the policy unaffected by any overlay that the policy should be interpreted by reference to general indemnity principles.
453 In respect of the argument that the JobKeeper payments should be taken into account by reference to the 'sum saved' provision, Colvin and Derrington JJ considered that in order for the 'sum saved' provision to have application, the relevant cessation or reduction of the charges or expenses must be in consequence of 'the' interruption or interference resulting from the insured peril. Their Honours therefore considered that the insurer would have to establish that the insured became entitled to JobKeeper payments in consequence of the interruption or interference resulting from the insured peril. This was not the case as the criteria of eligibility for JobKeeper payments were financial and did not depend upon whether or not there had been an outbreak within 20 kilometres of the premises of the business. The insured was entitled to JobKeeper payments regardless of whether or not there was an outbreak within 20 kilometres of its premises and as such the causal requirement of the 'sum saved' provision was not satisfied.[143]
454 Whilst each party relied upon aspects of the reasoning in LCA Marrickville and/or LCA Marrickville Appeal to suit their own purposes, it was common ground that I was not bound by those decisions.
455 Insofar as the Insurer relies upon the general indemnity principle, I prefer the Group's approach. My reasons for doing so are substantially consistent with those of the Full Court in LCA Marrickville Appeal. The essence of the Policy is not one where the Insurer promises to indemnify the insured for actual loss; rather, the Insurer promises to indemnify in accordance with the Policy which in terms provides for indemnity in accordance with the basis of settlement. The approach to the JobKeeper Payments and Third Party Payments then turns solely on whether application of the basis of settlement specified in the Policy requires them to be deducted in diminution of the Group's losses.
456 Like the Full Court in LCA Marrickville Appeal, I consider that HIH is of no assistance and is readily distinguishable. I also consider that the Insurer has substantially overstated the ratio which relevantly establishes no more than an insured is entitled to be indemnified only once, such that in the circumstances of that case, indemnity from the statutory scheme set up as a consequence of the financial collapse of the HIH group precluded the insured from seeking indemnity from another insurer whose policy also responded to the circumstances. In any event, as the Full Court in LCA Marrickville Appeal noted, HIH did not concern a 'basis of settlement' or 'settlement of claims' provision. The issues in HIH were far removed from those in the present case and that case and its reasoning can be put to one side.[144]
457 In Mobis Parts Australia Pty Ltd v XL Insurance Company SE,[145] Meagher JA, with whom Beazley P and Leeming JA relevantly agreed, rejected the applicability of an analysis based upon the operation of 'the indemnity principle' in the face of the language of the policy and the specific object of the provisions in that policy for the assessment of loss.[146] Under section 2 of the policy, if Mobis' '...business was "interrupted or interfered [with]" in consequence of loss of or damage to property insured under section 1, [the insurer] would indemnify [Mobis] "in respect of loss of" item 1, "Gross Profit" sustained during a period of twelve months from that event (the Indemnity Period) but not "in respect of loss of" item 2, "Additional Increase in Cost of Working", or item 3, "Book Debts/Accounts Receivable"'.[147] Clause 7.1.1. provided a formula for the assessment of that loss:[148]
The insurance under this chapter [viz/ item 1 in section 2] is limited to loss of Gross Profit due to a. Reduction in Turnover and b. Increase in Costs of Working, and the amount payable as indemnity under this Policy shall be:
a. In respect of reduction in Turnover: the sum produced by applying the Rate of Gross Profit to the amount by which the Turnover during the Indemnity Period (less the Turnover for the period of any salvage sale connected with the Damage, whether occurring during the Indemnity Period or subsequently) shall In consequence of the Damage fall short of the Standard Turnover, from which sum shall be deducted the Gross Profit actually earned from the salvage sale.
b. in respect of Increase in Cost of Working: the additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the reduction in Turnover, which, but for that expenditure, would have taken place during the Indemnity Period in consequence of the Damage, but not exceeding the sum produced by applying the Rate of Gross Profit to the amount of the reduction thereby avoided;
less any sum saved during the Indemnity Period in consequence of the Damage in respect of such of the charges and expenses of the Business payable out of Gross Profit.
458 His Honour noted that the indemnity in the policy was not an indemnity against 'actual loss' but rather obliged the insurer to indemnify the insured 'in respect of loss of item 1, gross profit' in respect of which a formula was provided for the assessment of that loss. Describing the policy as one which contained a formula for the assessment of the insured's loss of profit, his Honour considered that the relevant terms of the policy qualified the application of the principle of indemnity insofar as it might be said to depart from perfect indemnification, thus distinguishing the policy from the wording of business interruption policies generally used in the United States and relevantly that considered by the Court of Appeal in New South Wales in Coalex Pty Ltd v Commercial Union Assurance Co of Australia Ltd ('Coalex v Commercial Union').[149]
459 His Honour considered that a reasonable businessperson seeking to understand the meaning of the contract would be fixed on the language used in describing the method for ascertaining the loss.
460 The critical parts of his Honour's reasoning are found as follows:[150]
But the indemnity under section 2 is not simply against "actual loss", unlike that in business interruption wordings generally adopted in the United States, discussed in Riley at paras 1.10 and 12.14, and in the "hybrid" policy considered by this Court in Coalex Pty Ltd v Commercial Union Assurance Co of Australia Ltd (1988) 5 ANZ Ins Cas 60-858 at 75,381 (Coalex v Commercial Union) (col 2). Rather, the Local Policy contained a formula for the assessment of the insured loss of gross profit, which (as noted at [122] above) qualifies the application of the principle of indemnity insofar as it might be said to depart from perfect indemnification in some contingency: see also Coalex v Commercial Union at 75,380 (col 2). In Henry Booth & Sons v The Commercial Union Assurance Co Ltd (1923) 14 Lloyds LR 114 at 114 (col 2), Greer J explained the object of such a formula thus:
It is the common practice in policies of this sort, in order to prevent lengthy disputes, that there should be an agreed method of ascertaining the loss. Sometimes the assessment of the loss is in favour of the assurance company and sometimes the assured, but it is nevertheless good sense to have a method which can be readily applied without difficulty and without raising a great number of points for dispute.
It is by reference to these considerations that the reasoning of Flaux J in Synergy Health at [251]-[260] must be evaluated. Having found that the insured would "recover an indemnity for more than its actual loss in respect of business interruption" if depreciation was not deducted, his Lordship concluded "that, in principle, that saving should be off-set against any claim under the business interruption section of the policy, unless the wording of the policy requires some different conclusion"; indeed, he justified a construction that admittedly "stretche[d]" language in the policy solely by this "principle" - that a court should only conclude that "something in excess of a full indemnity" was intended if "no other conclusion is possible": Synergy Health at [258].
In my respectful opinion, that reasoning gives the indemnity principle unwarranted effect in the face of the language of the policy, and the specific object of the provisions for the assessment of loss. A reasonable businessperson seeking to understand these lengthy clauses would not begin by assuming that they mean nothing more than the expression "full indemnity for actual loss to gross profit", and then proceed to enquire whether anything in the language required otherwise. His or her attention would remain fixed on the sense of the language describing the method for ascertaining the loss as coloured by its immediate and commercial context: see Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[52] (French CJ, Nettle and Gordon JJ).
461 In Coalex v Commercial Union, which Meagher JA distinguished, the relevant clause read 'In the event of damage, Insurers shall be liable for the Actual Loss sustained by the Insured resulting directly from such interruption or interference of business but not exceeding the loss of Gross Profit due to: a REDUCTION IN TURNOVER - the sum produced by applying the Rate of Gross Profit to the amount by which the Turnover during the Indemnity period shall, in consequence of the damage, fall sort of the Standard Turnover'.[151] 'Rate of Gross Profit', 'Turnover' and 'Standard Turnover' were all defined.
462 The relevant parts of the Policy has elements which support both approaches. The indemnity in Section 2 requires the Insurer to pay '...the amount of the loss resulting from such interruption or interference in accordance with the applicable Basis of Settlement.[152] The 'Basis of Settlement' provides that in the case of 'Item 1 - Loss of gross profit' that 'The insurance under this item is limited to actual loss of Gross Profit due to: (a) Reduction in Turnover, and (b) [not relevant], and the amount payable as indemnity thereunder shall be (a) in respect of Reduction in Turnover: the sum produced by applying the Rate of Gross Profit to the amount by which the Turnover during the Indemnity Period shall, in consequence of the Damage, fall short of the Standard Turnover'.[153] The capitalised terms are defined.
463 The introductory words '... limited to actual loss of Gross Profit ...' provide some support for the Coalex v Commercial Union approach and therefore support the Insurer's submission. However, unlike Coalex v Commercial Union, where the Court considered that the words 'not exceeding' required in the first instance that the insured establish actual loss with the mechanism operating as a proviso which represented a ceiling, here the Policy requires the Insurer not to pay the 'actual loss' whatever that may be but to pay an indemnity calculated by reference to the mechanism set out in the Policy. The measure of the Marriner Group's entitlement and the Insurer's obligation is to pay that amount derived from the application of the loss assessment provisions set out in the Policy. There is no basis for construing the Policy in some way which seeks to give effect to some overriding principle of indemnity. The task is simply one of construing the contract, here the Policy, and determining whether the JobKeeper Payments are to be taken into account in any of the integers of the calculation of the loss of gross profit as set out in the Policy.
464 This takes one firstly to the 'sum saved' component. It has two elements; there must be charges and expenses of the business that cease or are reduced and, the cessation or reduction must be in consequence of the damage.
465 This latter element was instrumental to the reasoning of the Full Court in LCA Marrickville Appeal which considered that it was necessary that the cessation or reduction of charges and expenses must be as a result of the interruption or interference resulting from the insured peril, which it was not, because the criteria for eligibility for JobKeeper payments were financial.
466 Having the benefit of the management accounts and Mr Meredith's analysis, I prefer to determine the question on the basis of the first element. The wages were not reduced and did not cease. The premise of the making of JobKeeper Payments was to enable employers such as the Marriner Group to be able to pay wages and expenses of their employees. Because the wages and expenses were maintained (in fact, as Mr Meredith noted, increased), the 'sum saved' component has no application. The fact that the JobKeeper Payments constituted in effect a new revenue stream which could be utilised to pay these expenses is a different issue.
467 Accordingly, I reject the Insurer's argument based on the 'sum saved' component.
468 Reliance on the Adjustments Clause requires separate consideration. As the Insurer rightly observed in argument, reliance upon an adjustments clause did not form part of the issues considered in LCA Marrickville.
469 The purpose of such clauses is identified in Riley on Business Interruption Insurance in the following way:
Without this clause the policy cannot be regarded as fulfilling the basic principle of an insurance that is to indemnify, because the turnover, charges and profits which would have been realised during a period of interruption are hypothetical and never capable of absolute proof. This clause allows for adjustments to be made to produce as near as is reasonably possible a true indemnity for an insured's loss, albeit within a restricted period, i.e. the maximum indemnity period, subject to policy conditions, limits.[154]
470 The relevant adjustments contemplated by the clause are 'trends', 'variation' and 'other circumstances'. These adjustments have been described in Honour and Hickmott's Principles and Practice of Interruption Insurance in the following terms:
(a) "Trend" means the general tendency of the business in the expansion or contraction of trading or operating activity;
all developments, extensions, modifications, or alterations in the organisation, production or trading arrangements of the business, subject however to their being within the scope of the business and premises as insured by the policy ... so as to approximate the results that might have been reasonably expected to have accrued from such factors as the projected or actual installation of new plant or equipment, the opening up of new agencies, the close down of unprofitable sections or departments, the introduction of new methods and processes and the like.
(c) "Special circumstances" means circumstances of a somewhat exceptional nature not generally occurring within or without the business.[155]
471 The Insurer's reliance upon the Adjustments Clause did not condescend to identifying whether the JobKeeper Payments fell within the permissible adjustments to be made by the Adjustments Clause on the basis of 'trends', 'variation' or 'special circumstances' although presumably the Insurer relies on the 'special circumstances' limb.
472 Regardless of the limb and notwithstanding its wide scope, the adjustments do not permit deductions to be made at will. Thus, it is not permissible to calculate a loss of gross profit in accordance with the basis of settlement set out in the Policy but then to deduct at the end, the JobKeeper Payments of $9,106,400.
473 The Adjustments Clause only permits, by reason of 'special circumstances', adjustments to be made to the 'Rate of Gross Profit', 'Annual Turnover', 'Standard Turnover' and 'Rate of Payroll', each of which are defined terms (and, in any case for the 'Rate of Payroll', do not form part of the cover provided).
474 Unless therefore the JobKeeper Payments affected these items, they cannot be the subject of adjustment. Otherwise, the Adjustments Clause is used for the purpose of, in effect, amending the contract by changing its machinery provisions. Neither Mr Meredith nor the Insurer sought to identify how the JobKeeper Payments could be such as to result in an adjustment to the 'Rate of Gross Profit', or the 'Annual Turnover', or the 'Standard Turnover'.
475 Accordingly, the Adjustments Clause has no application and cannot be used to deduct the JobKeeper Payments from the losses otherwise calculated in accordance with the basis of settlement.
476 There is another problem; the purpose of the Adjustments Clause is to facilitate an adjustment such as to enable the identification of the results which but for the damage, would have been obtained during a relative period after the damage. There is no reason to assume that the wages but for the damage, would have been anything other than of the same magnitude as those in the previous year. In broad terms, the actual wages in the loss year were similar to those in the previous year. The change was in the revenue which in the loss year included the 'other income' revenue line. The Adjustments Clause does not permit adjustment to such a revenue item, limited as it is to an adjustment to 'Turnover' (or relevant derivations thereof) which is defined as '[t]he money (less discounts, if any allowed) paid or payable to the Insured for goods sold and delivered and for services rendered in the course of the Business at the Premises'. The Insurer did not advance any submission to the effect that the JobKeeper Payments were paid to the Marriner Group for goods sold and delivered or for services rendered in the course of the business at the premises.
477 Accordingly, I do not accept that the JobKeeper Payments are to be taken into account in reduction of the losses sustained by the Group during the loss period.
478 This necessarily carries with it the same conclusion with respect to the Third Party Payments. Insofar as the Insurer relies upon the 'rent relief' for periods during the loss year, that too cannot be utilised for the purposes of giving rise to a reduction in the loss unless it falls within the 'sum saved' component. It is also not possible to determine on the basis of the documentary evidence (which is the sole source of relevant evidence) as to 'rent relief', whether the 'rent relief' constituted a deferral of the obligation to pay as opposed to relief in the form of a permanent reduction of the amount due.
479 Accordingly, I do not accept the Insurer's submissions to the effect that the JobKeeper Payments or the Third Party Payments are to be taken into account in reduction of the loss otherwise recoverable by the Marriner Group.
480 It is convenient next to turn to the different approaches to the assessment of standard turnover and any 'sum saved'.
481 Both experts sought to determine a standard turnover for the loss period and then deducted the actual turnover before applying a gross profit percentage. Both then deducted any savings calculated by reference to the expected expenses (or the counterfactual expenses) less the actual expenses.
482 The critical difference lay with their assessment of the standard turnover. Mr Meredith started with the annual turnover for the 12 month period ending 31 March 2019. He then made an adjustment by applying the Meredith Adjustment. Mr Meredith's gross profit percentage was based upon the results derived from the Group's management accounts for the 12 months ending 31 March 2019 and his approach to expected expenses was also derived from the management accounts over the same period. In the joint report, Mr Meredith's loss assessment also incorporated a scenario where both the JobKeeper Payments and the Third Party Payments were deducted as well as a further scenario where neither was deducted.
483 In contrast, Mr Thompson's starting point (and end point for the purposes of calculating standard turnover) was based upon the budgets that had apparently been prepared by the Group in advance of the loss period and which were provided to Mr Thompson. His gross profit percentage metric and expected expenses were once again based upon the budgeted figures.
484 Contrary to the Insurer's submissions, I do not accept that Mr Thompson's approach is per se inconsistent with the basis of settlement. The Adjustments Clause permits adjustments to the standard turnover so as to allow for 'trends' of the business and for 'variations' in or other circumstances affecting the business. In Riley on Business Interruption Insurance the authors observe[156] that a business which can demonstrate a consistent track record of budgeting can base its trend on the budget for the indemnity period and that a budget produced prior to the loss period is a historical record on which reliance can be placed. By a similar process of reasoning, it is permissible for the counterfactual costs to be based on budgeted costs.[157]
485 However, neither Ms Marriner nor any other witness gave evidence as to the methodology deployed in the formulation of the budgets so that the reasonableness of the assessments which informed the budgets could be interrogated. No witness sought to explain the manner in which the assumptions which underpin the budget constituted a variation or other circumstance which would have affected the business during the loss period had the damage not occurred. Whilst there is no absolute impediment to the use of budgets for the purposes of establishing an adjusted standard turnover, the absence of any explanation as to the methodology deployed or the assumptions upon which the budgeted estimates had been formulated, substantially undermines the appropriateness of the use of budgets for the purposes of determining the standard turnover and hence the weight which can be attributed to Mr Thompson's evidence.
486 Whilst Mr Thompson sought to establish the reasonableness of the budgets by comparing the accuracy of the budgets which had been prepared for the previous two years against the actual results which had been achieved over those two years, I do not consider that such a check provides much comfort as to the appropriateness of the budget in the loss year (or years). A consistency in results between the prior year budgets and the actual results achieved in those years establishes that the budgets that were prepared for those two years are likely to have been prepared on the basis of reasonable assumptions. If the budgets during the loss years were prepared on the same assumptions and by the same methodology as those which occurred in the two previous years, then this would provide support for Mr Thompson's approach. But there was no evidence of this. Moreover, Mr Thompson identified material variances between the budgeted income expenses and the actual income and expenses during the two years immediately prior to the loss period. Even after excluding intercompany service charges and ticketing fee income, there were variances of 11% with respect to the income for the Comedy Theatre, 8% with respect to the income for the Princess Theatre, minus 58% for Head Office and a significant variation between the actual expenses and budgeted expenses for each of the relevant departments considered by Mr Thompson, for the two year period the subject of his analysis.
487 This was recognised by Mr Thompson who sought to address such variation by applying the historical budget variance (as a percentage) during the period for March 2018 to February 2020, to the monthly budgeted income and expenses for each department during the relevant loss period.
488 Whilst this shows that Mr Thompson did not uncritically accept the information provided to him, it remains problematic again because the historical budget variance as a percentage over the previous two years does not necessarily correlate to the expected variance between the budgets and the actual figures in each month of the loss period. Even on an initial assessment of the loss calculated by Mr Thompson, in the very first loss month, there are anomalous outcomes which give rise to concerns about the appropriateness of using the budgets as the key component of the loss assessment. For example, on Mr Thompson's assessment, the total loss of profits for the period from 16 March 2020 to 31 March 2020 is $2,286,996 whereas the total loss of profits for the following month of April 2020 is $2,689,431. Thus, the loss of profits for the initial 15 days in March 2020 in which the various Venues were closed amounts to 85% of the loss for the 30 days in the following month. Further, the total loss of profits in each month varies substantially notwithstanding that for the most part the extent of the restrictions during the period to December 2020 were not meaningfully different. The loss of profits calculated by Mr Thompson for the partial month of March 2020 to December 2020 on a monthly basis were as follows: $2,286,996 (March 2020), $2,689,431 (April 2020), $3,269,047 (May 2020), $2,205,297 (June 2020), $1,732,743 (July 2020), $2,199,953 (August 2020), $1,740,876 (September 2020), $1,777,385 (October 2020), $2,262,660 (November 2020), $1,514,084 (December 2020). In contrast, Mr Meredith's loss assessments for each the Venues is generally of a consistent magnitude each month where the extent of the restrictions might be regarded as relevantly similar. Additionally, the loss assessment for the partial month of March 2020 is substantially less than the loss calculated for subsequent months where the restrictions prevented use of the premises for the whole of those months. This again points to the greater reliability of Mr Meredith's assessment.
489 Subject to one important qualification, I prefer Mr Meredith's approach. Mr Meredith's approach is one which is consistent with the methodology set out in the Policies which commences with identification of the standard turnover, which is defined as 'the Turnover during that period in the 12 months immediately before the date of the Damage which corresponds with the Indemnity Period'. Thus Mr Meredith started with the most appropriate proxy, which is the actual results derived from the management accounts for the period which ended on 29 February 2020.
490 As noted above, the Meredith Adjustment made to the turnover for the period 1 March 2019 to 29 February 2020 was such as to result in (expected) standard turnover during the loss period of 92% of the pre-loss period turnover for the Princess Theatre, 65% for the Plaza Ballroom, 53% for the Comedy Theatre and 52% for the Forum Theatre. I do not consider these adjustments are appropriate. I am not persuaded that the performance of the Venues in the period December 2021 to February 2022 is the performance that would have occurred during the loss period but for the insured event. As a result, I do not accept that the turnover that would have been achieved during the loss period in the counterfactual scenario was one where the turnover would only have been at the rate of 92% of the pre-loss sales for the Princess Theatre, 65% for the Plaza Ballroom, 53% for the Comedy Theatre and 52% for the Forum Theatre.
491 The Meredith Adjustment is unpersuasive and in some respects flawed. It is unpersuasive because it is based on too short a period (namely three months), which, as Mr Meredith conceded, was less than ideal. It is also unpersuasive because, as Mr Meredith also conceded, the performance of the venue during the proxy period could have been affected by the perceived attractiveness of the productions on show at the theatres during the proxy period. This is the most logical explanation for the performance at the Princess Theatre during the proxy period being at a level of 92% of the pre-COVID turnover, whereas the percentage turnover at the Comedy Theatre and Forum Theatre were only 53% and 52% respectively. Moreover, there may well be various explanations such as seasonality which could have explained the fact that the performance of the Plaza Ballroom in the proxy period was only 65% of the performance in the pre-COVID period. Factors such as seasonality can be smoothed out when a proxy period of 12 months is utilised but become problematic when such a short proxy period of three months is chosen.
492 The Meredith Adjustment is misconceived insofar as it seeks to equate the proxy period of December 2019 to February 2022 which is a post-COVID period with the counterfactual period. As Mr Meredith acknowledged, the proxy period was also a period where COVID-19 was active in the community albeit that the vaccination rate was high at that time.
493 As Mr Meredith's instruction with respect to the identification of a counterfactual scenario rightly emphasised, an adjustments clause cannot be utilised for the purposes of requiring adjustment for causes of loss which would naturally be expected to occur concurrently with the existence of the risk of COVID-19 in Victoria.
494 There is a danger therefore in my view in using a proxy period where COVID-19 was occurring and present in the community as a basis for determining the counterfactual turnover as it runs the risk of taking account of a circumstance which would be expected to co-exist with the insured peril. Whilst it is true that the proxy period is one where there was a high vaccination rate, I do not accept that this fact alone means that the presence of COVID-19 can be disregarded.
495 Overall then, in my view the appropriate approach is to adopt Mr Meredith's methodology insofar as it is based on his identification of the standard turnover by reference to the historical turnover, but to put to one side the Meredith Adjustment.
496 For similar reasons, I prefer Mr Meredith's approach to the determination of the savings; his starting point is the actual expenses in the 12 month period prior to the loss period unlike Mr Thompson's which is based on budgeted expenses. Likewise, Mr Meredith's approach to the determination of the gross profit percentage was based on the previous year's results not budgeted figures and is therefore to be preferred.
497 Acceptance of Mr Meredith's approach but without the Meredith Adjustment requires a recalculation of Mr Meredith's assessment so as to remove his reduction of turnover that would have been achieved in the counterfactual scenario as a percentage of the pre-COVID sales to 92% for the Princess Theatre, 65% for the Plaza Ballroom, 53% for the Comedy Theatre and 52% for the Forum Theatre. The appropriate standard turnover is that which occurred in the 12 months prior to the damage which equates to 100% of the sales that were achieved in the year prior to the damage for the Princess Theatre, Plaza Ballroom, Comedy Theatre and Forum Theatre. I accept Mr Meredith's adjustment to the Regent Theatre sales and as such his calculation of loss with respect to that venue requires no adjustment. Mr Meredith agreed that this is a straightforward re-calculation. For reasons explained below and to the fairly limited extent necessary, I have done that re-calculation below.
498 There was substantial agreement between the parties as to the application of the underinsurance clause set out in the Policy. No party submitted that underinsurance had any application with respect to the cover provided by the First Policy. However, both accepted that it was appropriate to effect a reduction of the amount potentially payable under the Second Policy.
Gross profit - average/ under-insurance amended (c)
The final paragraph of Item No 1 is amended to read:
Provided that if the estimated value of Gross Profit declared at the commencement of the Period of Insurance is less than eighty percent (80%) of the sum produced by applying the Rate of Gross Profit to the Annual Turnover (appropriately increased if the Indemnity Period exceeds twelve months) which would have been achieved if the Damage had occurred on the day of commencement of the Period of Insurance, the amount payable hereunder shall be proportionately reduced.
500 An example as to how the clause works is provided in section 3.2.13(b) of Mr Meredith's report:
"Section 2 Consequential Loss (Gross Profit and Pay Roll) - 80% Average/Underinsurance clause
Loss of Gross Profit as a result of damage to your property
Value of your Gross Profit at the commencement of the Period of insurance
Therefore $31,250 will be self-insured by you under Section 2"
501 The rationale for an underinsurance clause of the kind present is that it prevents an insured from obtaining cover for an inappropriately low premium calculated by reference to an unrealistically low estimate of gross profit. The effect of the proportionate reduction imposed by the application of the underinsurance clause is to make the insured effectively a self-insurer of part of the gross loss suffered.
502 The experts agreed that the adequacy of insurance in relation to the venues was 39% as to the Princess Theatre, 97% as to the Regent Theatre, Plaza Ballroom and the Box Restaurant, 41% as to the Comedy Theatre and 39% as to the Forum Theatre. If this approach is followed, then effective cover for the Princess Theatre is for 39% of the loss; for the Regent Theatre 97% of the loss; for the Comedy Theatre 41% of the loss and for the Forum Theatre 39% of the loss.
503 For my part, I have some concerns about the appropriateness of that construction of the Second Policy. Such an interpretation of the Second Policy effectively proceeds on the basis that the Group has not taken out gross profit cover of $19,820,614 for the benefit of the Group generally, but rather has taken out $5,705,630 in gross profit cover for the Princess Theatre, $9,089,183 of cover for the Regent Theatre, Plaza Ballroom and Box Restaurant, $2,047,341 of cover for the Comedy Theatre and $2,978,460 of cover for the Forum Theatre.
504 Characterising the cover in that way is equivalent to in effect the imposition of a locational sublimit on four of the Venues which I have rejected.
505 If the locational figures set out in the declaration of values do not limit the extent of the cover for loss sustained by the Group arising from events that occur at a particular venue, then it is difficult to see why the question of underinsurance should proceed on the basis that it were.
506 In the circumstances here however nothing turns on the approach followed.
507 Having regard to the reasoning set out above, the assessment of the Marriner Group's recoverable loss should proceed by reference to Mr Meredith's methodology, after allowing for underinsurance, not allowing for the Meredith Adjustment and without the JobKeeper Payments or Third Party Payments being deducted from the loss.
508 The loss occurring during the period of the First Policy is not affected by the JobKeeper Payments nor underinsurance.
509 The only adjustment that needs to be made to Mr Meredith's calculation for the loss suffered during the period of the First Policy is to remove the effect of the Meredith Adjustment.
510 The starting point is Mr Meredith's loss assessment for the period 16 March 2020 to 31 March 2020:[158]
(a) Princess Theatre - $187,896;
(b) Comedy Theatre - ($37,599);
(c) Regent Theatre - $148,427;
(d) Plaza Ballroom - $38,565;
(e) Box Restaurant $4,559; and
(f) Forum Theatre $88,478.
511 The Box Restaurant can be put to one side; its losses are a product of loss of rental which is not insured.
512 The Regent Theatre losses require no adjustment as the Meredith Adjustment did not impact on Mr Meredith's calculation of loss at that venue.
513 The loss assessment for the Princess Theatre, the Comedy Theatre, the Plaza Ballroom and the Forum Theatre all require reassessment so as to remove the effect of the Meredith Adjustment. Removing the effect of the Meredith Adjustment results in an increase in the loss for each venue by the amount of the Meredith Adjustment multiplied by the relevant gross profit for that venue. The actual turnover and the savings identified by Mr Meredith do not alter.
514 For the Princess Theatre, the Meredith Adjustment was $19,525 (Food and Beverage 'F&B')) and $38,082 (Non F&B). The rate of gross profit percentage is 77% for F&B and 100% for Non F&B. The increase in loss is $15,034 for F&B and $38,082 for Non F&B. When these amounts are added to Mr Meredith's initial loss assessment, the total loss is $241,012.
515 For the Comedy Theatre, the Meredith Adjustment was $22,365 (F&B) and $92,605 (Non F&B). The rate of gross profit percentage is 72% for F&B and 100% for Non F&B. The increase in loss is $16,103 for F&B and $92,605 for Non F&B. When these amounts are added to Mr Meredith's initial loss assessment, the total loss is $71,109.
516 There is no adjustment required for the Regent Theatre. The loss is $148,427.
517 For the Plaza Ballroom the Meredith Adjustment was $89,022.[159] The rate of gross profit percentage is 85%. The increase in loss is $75,669. When this amount is added to Mr Meredith's initial loss assessment, the total loss is $114,234.
518 For the Forum Theatre, the Meredith Adjustment was $119,468 (F&B) and $60,755 (Non F&B). The rate of gross profit percentage is 77% for F&B and 100% for Non F&B. The increase in loss is $91,990 for F&B and $60,755 for Non F&B. When these amounts are added to Mr Meredith's initial loss settlement, the total loss is $241,223.
519 The total loss therefore for the period of the First Policy totals $816,005 and comprises the following:
(a) Princess Theatre - $241,012;
(b) Comedy Theatre - $71,109;
(c) Regent Theatre - $148,427;
(d) Plaza Ballroom - $114,234; and
(e) Forum Theatre - $241,223.
520 The loss for the period the subject of the Second Policy is affected by both the Meredith Adjustment, adjustments for underinsurance and Mr Meredith's deduction of the JobKeeper Payments from the actual expenses during the loss year, the effect of which was to reduce the losses.
521 Helpfully, in 'Table SF3.4' to the joint report, Mr Meredith has set out his assessment on bases which provide for the application of the underinsurance clause, extends it to a separate identification of the loss suffered during the period to 31 March 2021 and caters for the contingency where the loss is not reduced by the JobKeeper Payments or Third Party Payments.
522 On the basis of application of the underinsurance clause in the manner set out above agreed to by Mr Thompson, and without reducing the losses by the JobKeeper Payments, Mr Meredith's assessment of the loss per venue for the period to 31 March 2021 is as follows:
(a) Princess Theatre $2,982,371;
(b) Regent Theatre - $4,103,131;
(c) Plaza Ballroom - $1,526,584;
(d) Box Restaurant - $180,477;
(e) Comedy Theatre - $479,647; and
(f) Forum Theatre - $1,088,927.
523 These assessments of loss do not exclude loss in the period from 16 March 2020 to 31 March 2020 and are therefore overstated by Mr Meredith's assessment of the loss for that period which are set out above.[160]
524 These assessed losses incorporate the Meredith Adjustment and will increase if the Meredith Adjustment is removed.
525 Aside from the Box Restaurant, which is not subject to insurance and can be ignored, the losses at each of the Venues well exceeds the Infectious Disease Sublimit of $500,000 even before they are re-assessed to remove the effect of the Meredith Adjustment. The only one which does not is the Comedy Theatre. As noted above, the effect of the Meredith Adjustment was to adjust the turnover at the Comedy Theatre for the purposes of determining the loss by taking account of only 53% of the turnover in the 12 months prior to the loss period. The loss for the Comedy Theatre will substantially exceed the Infectious Diseases sublimit of $500,000, if the Meredith Adjustment is put to one side, as it must be.
526 It therefore follows that the recoverable loss for the period of the First Policy is $816,005, whilst the loss for the period of the Second Policy is the lower of the Infectious Disease Sublimit of $500,000 at each of the four venues or the recoverable loss at each of those four venues. As the lesser of those alternatives is the sublimit of $500,000, the recoverable loss for the period of the Second Policy is $500,000 per venue which totals $2 million.
(a) the Extension contained in the First Certificate and Second Certificate applies to the claims made in the proceeding;
(b) the First Policy and Second Policy should not be rectified such as to replace the reference to the Quarantine Act with the Biosecurity Act;
(c) the Infectious Disease Sublimit of $500,000 set out in the First Certificate and Second Certificate applies with the sublimit applying to each of the four venues with a new sublimit in each period of insurance;
(d) there is no 'location of risk' sublimit;
(e) whilst the insured losses do not include 'rent receivable', the 'rent receivable' sublimit has application only to the rent receivable with respect to the operation of the Box Restaurant and does not prevent the Group from recovering the theatre hire payments;
(f) the insurable loss should not be reduced by the JobKeeper Payments or the Third Party Payments;
(g) the appropriate methodology for the calculation of loss is otherwise to the effect set out by Mr Meredith save that that it should not take account of the Meredith Adjustment; and
(h) the indemnifiable loss is $816,005 for the period of insurance for the First Policy and $2,000,000 for the period of insurance for the Second Policy (subject to payment of any excess).
528 I shall hear the parties as to the appropriate amount in respect of which judgment should be entered including as to what interest if any should be ordered and on what basis, together with any submissions in relation to costs.
PRINCESS THEATRE HOLDINGS PTY LTD (ACN 004 246 235)
REGENT THEATRE HOLDINGS PTY LTD (ACN 075 992 979)
FORUM THEATRE INVESTMENTS PTY LTD (ACN 150 951 465)
[1] This defined term has been added by the writer for ease of reference throughout the judgment and does not appear in the First Certificate or Second Certificate.
[2] The First Certificate and the Second Certificate are relevantly indistinguishable and as such it is convenient to refer only to the First Certificate.
[4] Star Entertainment Ltd v Chubb Insurance Australia Ltd [2022] FCAFC 16; (2022) 400 ALR 25, 29 [13] (Moshinsky, Derrington and Colvin JJ) ('Star'); CGU Insurance Limited v Porthouse (2008) 235 CLR 103, 116 [43] (Gummow, Kirby, Heydon, Crennan and Kiefel JJ); McCann v Switzerland Insurance [2000] HCA 65; (2000) 203 CLR 579, 589 [22] (Gleeson CJ) ('McCann').
[5] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [46] (French CJ, Nettle and Gordon JJ) ('Mount Bruce').
[6] Star (n 4) 29 [14] (Moshinsky, Derrington and Colvin JJ).
[7] Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109 (Gibbs J).
[8] Wilke v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522, 529 [16] (Gleeson CJ, McHugh, Gummow and Kirby JJ) citing Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, 381-382 [69]-[71].
[9] Zhu v Treasurer of New South Wales [2004] HCA 56; (2004) 218 CLR 530, 559 [82] (Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ); Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640, 656 [35] (French CJ, Hayne, Crennan and Kiefel JJ) ('Electricity Generation Corporation'); Mount Bruce (n 5) 117 [51] (French CJ, Nettle and Gordon JJ); Ecosse Property Holdings Pty Ltd v GD Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544, 551 [17] (Kiefel, Bell and Gordon JJ); Liberty Mutual Insurance Company Australian Branch (t/as Liberty Special Markets) v Icon Co (NSW) Pty Ltd [2021] FCAFC 126; (2021) 396 ALR 193, 231 [152] (Allsop CJ, Besanko and Middleton JJ).
[10] LCA Marrickville Pty Ltd v Swiss Re International SE [2022] FCAFC 17; (2022) 290 FCR 435, 468 [77] ('LCA Marrickville Appeal').
[11] Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 461 [22] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Electricity Generation Corporation (n 9) 656 [35]; Mount Bruce (n 5) 116 [46]-[47]; Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13; (2019) 267 CLR 514, 534 [44] (Kiefel CJ, Gageler, Nettle and Gordon JJ).
[12] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ), Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253, 263 [17] (French CJ), 275 [59] (Gummow and Hayne JJ), 284 [98] (Heydon and Crennan JJ).
[13] Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 352 (Mason J) ('Codelfa'); Mount Bruce (n 5) 117 [50].
[14] HDI Global Specialty SE v Wonkana No 3 Pty Ltd [2020] NSWCA 296; (2020) 104 NSWLR 634, 641 [31] (Meagher JA and Ball J), 656 [118] (Hammerschlag J) ('Wonkana'); LCA Marrickville Appeal (n 10) 470 [85], 474 [100], 474-475 [102], 645 [758].
[15] [2021] FCA 1206; (2021) 394 ALR 461 ('LCA Marrickville').
[17] [2021] UKSC 1 ('FCA v Arch').
[18] LCA Marrickville (n 15) 477-478 [41].
[19] Ibid 492 [99(1)] (emphasis added).
[26] LCA Marrickville Appeal (n 10) 487 [143], 489-491 [149]-[154] (Derrington and Colvin JJ; Moshinsky J agreeing); LCA Marrickville (n 15) 492 [98(12)].
[27] See generally LCA Marrickville Appeal (n 10); LCA Marrickville (n 15).
[28] LCA Marrickville (n 15) 539 [318]; see also 491 [98(3)], [98(4)], [98(6)]. See also LCA Marrickville Appeal (n 10) 601-604 [583]-[592] (Derrington and Moshinsky JJ).
[30] LCA Marrickville Appeal (n 10) 491 [158]-[159], 494 [168].
[32] LCA Marrickville (n 15) 530 [270] quoted in LCA Marrickville Appeal (n 10) 523 [297]. The relevant clause there considered used the term 'resulting from'.
[33] LCA Marrickville (n 15) 491-492 [98(11)].
[38] LCA Marrickville (n 15) 530 [270].
[39] LCA Marrickville Appeal (n 10) 523 [297].
[40] LCA Marrickville (n 15) 514-515 [197].
[41] Ibid 530-534 [270]-[288], see especially [270], [275]-[276] and [288].
[42] Cambridge Dictionary (online at 21 June 2024) 'following'.
[43] Oxford English Dictionary (2nd ed, 1989) 'following'.
[44] LCA Marrickville (n 15) 477-478 [41]; see above [52].
[46] See especially FCA v Arch; LCA Marrickville (n 15) 482 [57].
[50] Halford v Price [1960] HCA 38; (1960) 105 CLR 23, 30; McCann (n 4).
[51] LCA Marrickville (n 15) 491 [98(5)]; upheld in LCA Marrickville Appeal (n 10) 644 [755]-[756], 645 [759].
[52] LCA Marrickville (n 15) 742 [1092]; LCA Marrickville Appeal (n 10) 582 [505].
[53] LCA Marrickville (n 15) 591 [98(7)].
[65] Direction of Human Biosecurity, Biosecurity (Listed Human Diseases) Amendment Determination 2020 (21 January 2020).
[67] LCA Marrickville (n 15) 507-511 [153]-[172].
[68] Simic v NSW Land and Housing Corporation [2016] HCA 47; (2016) 260 CLR 85, 117 [103] (Gageler, Nettle and Gordon JJ) ('Simic'); CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd [2017] VSCA 11; (2017) 55 VR 62, 74-75 [32]-[33] (Redlich, Tate and Ferguson JJA) ('CA Ballan').
[71] Maralinga Pty Ltd v Major Enterprises Pty Ltd [1895] ArgusLawRp 147; (1973) 128 CLR 336, 350 ('Maralinga'); see also Codelfa (n 13) 346.
[72] Slee v Warke [1949] HCA 57; (1949) 86 CLR 271, 281 ('Slee'); Maralinga (n 71) 350-351.
[75] Simic (n 68) 117 [104] (Gageler, Nettle and Gordon JJ).
[77] Perpetual Ltd v Myer Ltd [2019] VSCA 98, [103] (Whelan, Niall and Hargrave JJ) ('Perpetual'), citing Simic (n 68) 117 [103] (Gageler, Nettle and Gordon JJ).
[78] Perpetual (n 77) [103], [115].
[79] Simic (n 68) 17 [103] (Gageler, Nettle and Gordon JJ), citing Maralinga (n 71) 350.
[80] Perpetual (n 77) [20], [116].
[81] Pukallus v Cameron [1982] HCA 63; (1994) 180 CLR 447, 452 (Wilson J).
[82] Slee (n 72) 280-1 (Rich, Dixon and Williams JJ).
[87] CA Ballan (n 68) 74-75 [32]-[33], 76 [36], 92 [75(a)].
[88] (1995) 41 NSWLR 329, 336 (Sheller JA, Mahoney A-P and McLelland A-JA agreeing).
[89] [2007] NSWCA 65; (2007) 69 NSWLR 603, 631 [131] (Tobias JA, Mason P and Campbell JA agreeing).
[92] David Hodge_, Rectification: The Modern Law and Practice Governing Claims for Rectification for Mistake_ (Thomson Reuters, 2nd ed, 2016) [4-49].
[93] This description of the cover is less than accurate particularly insofar as it relates to the Extension.
[94] The Insurer's Executive Leadership Team comprised the Chief Executive Officer, Chief Operating Officer, Chief Underwriting Officer, Chief Commercial Officer, Chief Risk Officer, Chief Financial Officer, General Manager - Risk Solutions, General Manager, Strategy and Change, the Company Secretary and Legal Counsel.
[95] This description of coverage similarly excluded that provided by the Extension.
[100] Franklins Pty Ltd v Metcash Trading Pty Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603, 710 [445].
[107] See Grand Metropolitan Plc v The William Group Ltd [1997] 1 BCLC 390.
[115] The policy wording identified in the Second Certificate is 'Ansvar Industrial Special Risks Mark IV Modified Insurance Policy Wording AUSPOLISR 201901 v4' which is the updated version of the ISR Mark IV Policy Wording. Both versions of the policy wording are relevantly indistinguishable for present purposes.
[117] Federation Insurance Ltd v Wasson [1987] HCA 34; (1987) 163 CLR 303, 310-311, 314, 318-319.
[118] For example, in FY2020 the total food and beverage sales according to management accounts for the Princess Theatre Discretionary Trust were $14,630,493 whilst the total theatre hire sales were $14,538,227.
[120] (1986) 7 NSWLR 529 ('JV (Crows Nest)').
[122] See Australian America Assurance Co Ltd v Slavin (1988) 5 ANZ Insurance Cases 60-859; Coutts Cars Ltd v General Products Ltd (1995) 8 ANZ Insurance Cases 61-264, 75,947.
[123] Ian Enright and Robert Merkin, Sutton on Insurance Law (Thomas Reuters, 4th ed, 2015) vol 1 [10-150]).
[124] JV (Crows Nest) (n 120) 539; Yanchep Sun City v Commissioner of State Taxation (1984) 15 ATR 1165, 1171.
[125] LexisNexis, Halsbury's Laws of Australia (online at 12 June 2024) 245 Leases and Tenancies '4 Nature and Characteristics of Rent' [245-335], citing Hancock v Austin [1863] EngR 567; (1863) 14 CBNS 634; 143 ER 593.
[126] Radaich v Smith [1959] HCA 45; (1959) 101 CLR 209, 220.
[128] Ex parte Henry; Re Commissioner of Stamp Duties (1963) 63 SR (NSW) 298.
[130] Mr Meredith appears to have rounded the figures in this table to the nearest cent.
[131] Mr Meredith appears to have rounded the figures in this table to the nearest cent.
[132] Mr Meredith appears to have rounded up the total for losses not applying the underinsurance clause to the nearest cent.
[133] Noting that the amount of the rent adjustment is $30,793 per month for April 2020 to September 2020 and thereafter is for $32,025 per month from October 2020 to December 2020.
[134] LCA Marrickville Appeal (n 10) 568-569 [452]-[453].
[137] Ibid 554 [153] (citations omitted).
[140] As noted above, the sum saved clause in the policy reads 'Less any sum saved during the Indemnity Period in respect of such of the charges and expenses of the Business payable out of Gross Profit as may cease or be reduced in consequence of the Damage' whereas the 'sum saved' clause considered by her Honour read 'There shall be deducted from the amounts calculated in ... any sum saved during the Indemnity Period in respect of such of the charges and expenses of the Business payable out of Gross Profit as may cease or be reduced as a consequence of the Damage (excluding depreciation and amortisation)'.
[141] LCA Marrickville (n 15) 561 [395].
[142] LCA Marrickville Appeal (n 10) 569-571 [454]-[457].
[145] [2018] NSWCA 342; (2018) 363 ALR 730 ('Mobis').
[149] (1988) 5 ANZ Insurance Cases 60-858 ('Coalex v Commercial Union').
[150] Mobis (n 145) 772-773 [147]-[149].
[151] Coalex v Commercial Union (n 149) 75,381.
[153] See above [17] (emphasis in original).
[154] Damian Glynn and Toby Rogers, Riley on Business Interruption Insurance (Sweet & Maxwell, 11th ed, 2021) 2.63.
[155] Walter Basil Honour and Gordon James Russell Hickmott, Honour and Hickmott's Principles and Practice of Interruption Insurance (Butterworths, 4th ed, 1970) 293.
[159] The turnover does not differentiate between F&B and Non F&B.
Princess Theatre Pty Ltd & Ors
Ansvar Insurance Limited [2024] VSC 363
(2021) 394 ALR 461
(2022) 290 FCR 435
(1986) 160 CLR 513
(1919) 26 CLR 410
(1973) 128 CLR 336
(1982) 149 CLR 337
(1995) 41 NSWLR 329
(1996) 40 NSWLR 374
(2001) 3 VR 526
(2015) 256 CLR 104
(2022) 400 ALR 25
(2008) 235 CLR 103
(2000) 203 CLR 579
(1973) 129 CLR 99
(2005) 221 CLR 522
(1998) 194 CLR 355
(2004) 218 CLR 530
(2014) 251 CLR 640
(2017) 261 CLR 544
(2021) 396 ALR 193
(2004) 218 CLR 451
(2019) 267 CLR 514
(2004) 219 CLR 165
(2011) 243 CLR 253
(2020) 104 NSWLR 634
(1960) 105 CLR 23
(2016) 260 CLR 85
(2017) 55 VR 62
(1949) 86 CLR 271
(1994) 180 CLR 447
(2007) 69 NSWLR 603
(2009) 76 NSWLR 603
(1993) 43 FCR 1
(1987) 163 CLR 303
(1986) 7 NSWLR 529
(1959) 101 CLR 209
(2007) 18 VR 528
(2018) 363 ALR 730