Solicitors:
Herbert Smith Freehills (Plaintiffs/Respondents)
Carter Newell Lawyers (Defendant/Applicant)
File Number(s): 2022/269876
[2]
JUDGMENT
The second plaintiff, Yes Family Pty Ltd, was the owner of commercial premises in Moorebank (the "Property"). I will call it the "Owner".
At the relevant time, the Owner leased the Property to the first plaintiff, Sphere Healthcare Pty Ltd (the "Lessee"). The Lessee operated a pharmaceutical manufacturing business from the Property.
On 9 July 2020, a fire occurred at the Property.
There was then in place an Industrial Special Risks Policy (the "Policy") issued by the defendant, Allianz Australia Insurance Limited. Both the Owner and the Lessee were an "Insured" under the Policy.
On 9 October 2020, Allianz notified the Owner and the Lessee of its determination that the Policy did not cover claims arising from the fire, purportedly on the basis of alleged breaches of "condition 2" under the Policy which concerned alteration of risk by reason of a change of use of the Property.
In these proceedings, the Owner and the Lessee seek a declaration that Allianz is liable to indemnify them under the Policy in respect of the damage resulting from the fire.
Evidence in relation to those issues has closed, or is close to closing. Subject to what follows, the next step in the proceedings is disclosure.
By Notice of Motion filed on 17 October 2023, Allianz seeks to amend its Commercial List Response to bring forward a non-disclosure case (this is not opposed) and also to add pars C14(b) to C14G as follows:
"14. As to paragraph 24 of Part C of the List Statement [in which the Owner and the Lessee assert an entitlement to the declaratory relief to which I have referred] Allianz:
(a) denies that [the Lessee] and [the Owner] are entitled to the relief set out in the Summons;
(b) in the alternative to subparagraph 14(a), denies that [the Lessee] and [the Owner] are entitled to a declaration for indemnity in the manner sought.
14A. Further, on 26 October 2011, being prior to the Fire, [the Owner] purchased the Premises for $12,050,000.
14B. Immediately prior to the Fire the indemnity value of the property damaged by the Fire was a negligible component of the market value of the Premises.
14C. After the Fire, [the Owner] elected not to reinstate, replace or repair fire damaged buildings or plant such that pursuant to the Policy Allianz would not be liable to make any payment greater than the indemnity value of the damaged property at the time of the happening of damage.
14D. On 25 October 2021 being after the Fire and the removal of damaged buildings and plant, [the Owner] sold the Premises for $45,430,000.
14E. The market value of the Premises after the Fire (and after removal of debris) was significantly higher than the value of the Premises immediately prior to the Fire.
14F. In the premises, Allianz is not liable to make any payment in respect of damaged property, there being no indemnifiable property value loss.
14G. In the premises, any declaration for indemnity ought not include indemnity for the value of damaged property."
The Owner and the Lessee oppose leave being granted to Allianz to make these allegations.
During submissions on 24 November 2023, Mr O'Neill, who appeared for Allianz, stated that the proposed amendments were directed only to the claim made under the Policy by the Owner. That is not entirely clear from the wording of the proposed amendments but argument proceeded, and these reasons proceed, on that basis.
The proposed contentions do not go to the question of whether Allianz had an obligation to indemnify, relevantly, the Owner. Rather, they go to the amount of payment that may be required to discharge the indemnity.
Mr O'Neill did not dispute the submission of Mr Jones SC, who appeared for the Owners and the Lessee, that in relation to an insured building, generally speaking, there are two approaches to indemnity, which reflect the fact that indemnity is directed at the loss of the particular insured:
1. one is to award the costs of replacement or repair of the property;
2. the other is to award the market value of the property in its condition immediately before the occurrence of the destruction or damage, less any residual value. [1]
This will require consideration of the use to which the building was put at the time of the occurrence, [2] which reflects the value of the subject property to the insured. [3]
Under the Policy, the Owner was indemnified in relation to damage and destruction to the buildings at the Property, including identified fixtures and, in addition, costs and expenses necessarily incurred in respect of the removal and disposal of debris and firefighting pollutants at the Property.
Against that background, I turn to allegations Allianz proposes to make in the proposed additional paragraphs to its List Response.
Proposed par C14A recites what I understand to be the agreed fact that the Owner purchased the Property on 26 October 2011 for $12,050,000.
Proposed par C14B alleges that, immediately prior to the fire, the "indemnity value" of the "property damaged by the Fire" was a "negligible component" of the market value of the "Premises", that is, the Property. This presumably includes the land which is not subject to any indemnity under the Policy.
The paragraph thus posits a comparison between the value of the Owner's property that was subject to indemnity under the Policy (the buildings and fixtures), and the market value of the "Premises" as a whole.
The allegation is that the first was a "negligible component" of the second.
As Mr Jones submitted, this is a peculiar comparator. Seemingly, what is alleged is that the value of the Owner's insured buildings and fixtures as damaged by the fire was de minimis in comparison to the overall value of the Property.
Proposed par C14C then alleges that the Owner elected not to exercise an entitlement under the Policy to reinstate, replace or repair damaged buildings and fixtures, with the consequence that Allianz's obligations of indemnity under the Policy did not extend beyond the indemnity value of that damaged property at the time of the fire. Mr Jones accepted that the Owner did make this election, and that this had the consequence stated.
Proposed par C14D then alleges that, as a matter of fact, on 25 October 2021, some 15 months after the fire, and after damaged buildings and fixtures had been removed, the Owner sold the Property for $45,430,000; that is, for a sum almost four times the October 2011 purchase price of the Property.
There is no dispute, for present purposes, that this is what happened. It appears from what is next alleged at par C14E that it is implicit in the allegation made at par C14D that the market value of the Property on 25 October 2021 was $45,430,000.
Proposed par C14E then alleges that the market value of the Property after the fire, and after removal of "debris", was significantly higher than "the value" (which Mr O'Neill stated was intended to mean "the market value") of the Property immediately before the fire.
Mr O'Neill submitted that what was intended to be alleged here was that the value of the Property, to the Owner, had increased because of the fire.
But that is not what is alleged at par C14E. Nor is it a matter that would follow, without more, from the fact that the Owners sold the Property in October 2021 for $45,430,000, in circumstances where it bought the Property 10 years earlier, in October 2011, for $12,050,000. The allegation rises no higher than that the Owner sold the Property for (a lot) more than it purchased the Property.
There could be a number of reasons, not associated with the fire, that could account for that eventuality. For example, a rise in the market value of properties in the Moorebank area might account for this, as might a negotiation by the Owner of a very good deal with an overwilling and anxious purchaser that had some particular reason to secure the Property.
Mr Jones submitted, and I accept, that were Allianz permitted to make these allegations, it would be necessary for the Owner to adduce evidence, which Mr Jones submitted would be of a substantial nature, concerning the circumstances surrounding the October 2021 sale by the Owner of the Property.
In proposed par C14F, it is alleged that, "in the premises", which must mean by reason of the matters alleged in pars C14B and C14E, the Owner has suffered "no indemnifiable property value loss".
But this does not, and cannot, follow, without more, from the matters earlier alleged. It may be that, whether or not there had been a fire, the Owner would have been able to sell the Property for $45,430,000. That is, it may be that the Owner may well have enjoyed an increase in market value, or found a peculiarly anxious purchaser, in any event. These are all matters which would have to be investigated, at a factual level, were these amendments to be allowed.
Finally, proposed par C14G alleges, in effect, that there should be a carve-out from any declaratory relief obtained by the Owner for "indemnity for the value of the damaged property". That takes matters no further.
In these circumstances, I see a number of reasons to refuse Allianz the leave it seeks.
First, I cannot see how the allegations in par C14F could possibly follow from the earlier allegations.
Second, as Mr Jones submitted, the Owner's entitlement to declaratory relief would not be defeated even if Allianz could establish that the Owner has not suffered loss by reason of the effect of the fire on its buildings and fixtures. That is because it would still be entitled to indemnity for costs and expenses.
Third, to add these allegations at this stage in the proceedings would widen, very substantially, the ambit of the dispute between the parties.
And finally, refusing leave would not shut Allianz out from agitating such matters as it considers appropriate when consideration is given to the amount of payment that may be required to discharge any indemnity the subject of the Policy.
I refuse to grant Allianz leave to amend its List Response to add the proposed paragraphs.
Allianz's Notice of Motion should be dismissed with costs, to this extent.
The parties should bring in short minutes to give effect to these reasons.
I note the matter is listed for further directions on 8 December 2023.
[3]
Endnotes
Endurance Corporate Capital Limited v Sartex Quilts & Textiles Limited [2020] EWCA Civ 308 at [36] (Leggatt LJ, Dingemans and McCombe JJA agreeing); General Accident Insurance Asia Ltd v Sakr [2001] NSWCA 402 at [62]-[63] (Giles JA, Hodgson JA and Sperling J agreeing); Lucas v The New Zealand Insurance Co Ltd [1983] VR 698 at 700, 701-702 (Crockett J).
Endurance Corporate Capital Limited v Sartex Quilts & Textiles Limited (supra) at [36] (Leggatt LJ, Dingemans and McCombe JJA agreeing).
Lucas v The New Zealand Insurance Co Ltd (supra) at 700 (Crockett J).
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Decision last updated: 29 November 2023