Sphere Healthcare Pty Ltd v Allianz Australia Insurance Ltd [2026] NSWSC 579 | Case summary

Sphere Healthcare Pty Ltd v Allianz Australia Insurance Ltd [2026] NSWSC 579 | Case summary | Zoe

At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2026-05-28

Before

Rees J

Catchwords

INSURANCE — insured manufactures health care products and infant formula — COVID-19 pandemic — insured decides to make hand sanitiser — insured also seeks industrial special risks (ISR) policy with $26.8 million limit of indemnity — insured imports bulk ethanol, exceeding capacity of dangerous good area — ethanol placed next to factory — fire — total loss — whether insured entitled to indemnity. BROKERS — broker arranges ISR policy — insured changes broker — former broker cancels policy — whether authority to cancel policy — principles at [202]-[205] — policy remained on foot. DUTY OF DISCLOSURE — agreement to vary the contract — s 11(9), Insurance Contracts Act 1984 (Cth) — policy schedule and wording completely replaced — scope of duty of disclosure — principles at [214]-[221] — duty applied to matters material to whole contract — whether duty of disclosure complied with — s 21(1)(b), Insurance Contracts Act — principles at [301]-[305] — duty not complied with. WAIVER — s 21(2)(d), Insurance Contracts Act — principles at [277]-[283] — no fair presentation of the risk — insurer not put on enquiry. ENDORSEMENT — unintended or inadvertent non-disclosure — proper construction at [236]-[239]. ENDORSEMENT — alteration in risk — whether alteration “neither known to nor made by an officer of the Insured who is responsible for Insurance” — proper construction at [249]-[257]. INSURANCE — remedies — whether insurer entitled to reduce liability to nil under s 28(3), Insurance Contracts Act — whether insurer entitled to refuse to pay insured’s claim under s 54(2), Insurance Contracts Act — principles at [326]-[328] —insurer entitled to relief sought. ADMISSIONS — ss 81, 87, Evidence Act 1995 (NSW) — principles at [25]-[32] — deponent not a party to proceedings nor employee of a party — plaintiffs part of corporate group which employed deponent — deponent did not thrust himself on the court to give evidence in the plaintiffs’ case but was chosen by them — “reasonably open to find” that he had authority to make admissions. JONES v DUNKEL — inference where onus of proof is not on you — principles at [14]-[18] — inference may still be drawn.

Source

Original judgment source is linked above.

Catchwords

INSURANCE — insured manufactures health care products and infant formula — COVID-19 pandemic — insured decides to make hand sanitiser — insured also seeks industrial special risks (ISR) policy with $26.8 million limit of indemnity — insured imports bulk ethanol, exceeding capacity of dangerous good area — ethanol placed next to factory — fire — total loss — whether insured entitled to indemnity. BROKERS — broker arranges ISR policy — insured changes broker — former broker cancels policy — whether authority to cancel policy — principles at [202]-[205] — policy remained on foot. DUTY OF DISCLOSURE — agreement to vary the contract — s 11(9), Insurance Contracts Act 1984 (Cth) — policy schedule and wording completely replaced — scope of duty of disclosure — principles at [214]-[221] — duty applied to matters material to whole contract — whether duty of disclosure complied with — s 21(1)(b), Insurance Contracts Act — principles at [301]-[305] — duty not complied with. WAIVER — s 21(2)(d), Insurance Contracts Act — principles at [277]-[283] — no fair presentation of the risk — insurer not put on enquiry. ENDORSEMENT — unintended or inadvertent non-disclosure — proper construction at [236]-[239]. ENDORSEMENT — alteration in risk — whether alteration “neither known to nor made by an officer of the Insured who is responsible for Insurance” — proper construction at [249]-[257]. INSURANCE — remedies — whether insurer entitled to reduce liability to nil under s 28(3), Insurance Contracts Act — whether insurer entitled to refuse to pay insured’s claim under s 54(2), Insurance Contracts Act — principles at [326]-[328] —insurer entitled to relief sought. ADMISSIONS — ss 81, 87, Evidence Act 1995 (NSW) — principles at [25]-[32] — deponent not a party to proceedings nor employee of a party — plaintiffs part of corporate group which employed deponent — deponent did not thrust himself on the court to give evidence in the plaintiffs’ case but was chosen by them — “reasonably open to find” that he had authority to make admissions. JONES v DUNKEL — inference where onus of proof is not on you — principles at [14]-[18] — inference may still be drawn.

Judgment

Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.

Medium Neutral Citation: Sphere Healthcare Pty Ltd v Allianz Australia Insurance Ltd [2026] NSWSC 579

Hearing dates: 8 – 9 September 2025, 15 – 18 December 2025

Date of orders: 28 May 2026

Decision date: 28 May 2026

Jurisdiction: Equity - Commercial List

Before: Rees J

Decision: Summons dismissed.

Catchwords: INSURANCE — insured manufactures health care products and infant formula — COVID-19 pandemic — insured decides to make hand sanitiser — insured also seeks industrial special risks (ISR) policy with $26.8 million limit of indemnity — insured imports bulk ethanol, exceeding capacity of dangerous good area — ethanol placed next to factory — fire — total loss — whether insured entitled to indemnity.
BROKERS — broker arranges ISR policy — insured changes broker — former broker cancels policy — whether authority to cancel policy — principles at [202]-[205] — policy remained on foot.
DUTY OF DISCLOSURE — agreement to vary the contract — s 11(9), Insurance Contracts Act 1984 (Cth) — policy schedule and wording completely replaced — scope of duty of disclosure — principles at [214]-[221] — duty applied to matters material to whole contract — whether duty of disclosure complied with — s 21(1)(b), Insurance Contracts Act — principles at [301]-[305] — duty not complied with.
WAIVER — s 21(2)(d), Insurance Contracts Act — principles at [277]-[283] — no fair presentation of the risk — insurer not put on enquiry.
ENDORSEMENT — unintended or inadvertent non-disclosure — proper construction at [236]-[239].
ENDORSEMENT — alteration in risk — whether alteration “neither known to nor made by an officer of the Insured who is responsible for Insurance” — proper construction at [249]-[257].
INSURANCE — remedies — whether insurer entitled to reduce liability to nil under s 28(3), Insurance Contracts Act — whether insurer entitled to refuse to pay insured’s claim under s 54(2), Insurance Contracts Act — principles at [326]-[328] —insurer entitled to relief sought.
ADMISSIONS — ss 81, 87, Evidence Act 1995 (NSW) — principles at [25]-[32] — deponent not a party to proceedings nor employee of a party — plaintiffs part of corporate group which employed deponent — deponent did not thrust himself on the court to give evidence in the plaintiffs’ case but was chosen by them — “reasonably open to find” that he had authority to make admissions. JONES v DUNKEL — inference where onus of proof is not on you — principles at [14]-[18] — inference may still be drawn.

Parties

Applicant/Plaintiff:

Sphere Healthcare Pty Ltd

Respondent/Defendant:

Allianz Australia Insurance Ltd

Legislation Cited (6)

Insurance Contracts Act 1984(Cth)

Evidence Act 1995(NSW)

Cited:** Biosecurity Act 2015(Cth)

Public Health Act 2010(NSW)

Health Act 2010

Contracts Act 1984

Cases Cited (67)

(2008) 235 CLR 103

(1982) 149 CLR 337

[2014] FCAFC 65

Cases Cited: ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1; [2014] FCAFC 65
Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166 CLR 606; [1989] HCA 22
Allianz Australia Insurance Ltd v Haddad [2015] NSWCA 186
Arterial Caravans Ltd v Yorkshire insurance Co Ltd [1973] 1 Lloyd’s Rep 169
Asfar & Co v Blundell [1896] 1 QB 123
Australian Competition and Consumer Commission v BlueScope Steel Ltd (No 3) [2021] FCA 1147
Australian Competition and Consumer Commission v World Netsafe Pty Ltd (No 2) (2002) 119 FCR 307; [2002] FCA 517
Booth v Bosworth (2001) 114 FCR 39; [2001] FCA 1453
Carter v Boehm (1766) 3 Burr 1905
CGU Insurance Ltd v Porthouse (2008) 235 CLR 103; [2008] HCA 30
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24
Commercial Union Assurance Co of Australia Ltd v Beard (1999) 47 NSWLR 735; [1999] NSWCA 422
Commonwealth v Helicopter Resources Pty Ltd (2020) 270 CLR 523; [2020] HCA 16
Cook’s Construction Pty Ltd v Brown [2004] NSWCA 105
Cory v Patton (1872) LR 7 QB 304
Council of the City of Wollongong v Vero Insurance Limited [2009] NSWSC 475
Deaves v CML Fire & General Insurance Co Ltd (1979) 143 CLR 24; [1979] HCA 12
Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158
Esined No.9 v Moyland Retirement Solutions (No 2) [2020] NSWSC 359
Federation Insurance Ltd v Wasson (1987) 163 CLR 303; [1987] HCA 34
Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Ltd (1993) 176 CLR 332; [1993] HCA 5
GIO General Ltd v Wallace [2001] NSWCA 299
GLJ v Trustees of Roman Catholic Church for Diocese of Lismore (2023) 280 CLR 442; [2023] HCA 32
Hayes v 5G Developments Pty Ltd [2019] FCA 1541
Hitchens v Zurich Australia Ltd [2015] NSWSC 825
Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 4) [2006] NSWSC 90
J&J Richards Super Pty Ltd v Nielsen [2024] FCA 1472
Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8
Kausar v Eagle Star Insurance Co Ltd [2000] Lloyd’s Rep IR 154
Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231
Lishman v Northern Maritime Insurance Co (1875) LR 10 CP 179
Lindsay v CIC Insurance Ltd (1989) 16 NSWLR 673
Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] UKHL 1
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 589; [2000] HCA 65
Moltoni Corporation Pty Ltd v QBE Insurance Ltd (2001) 205 CLR 149; [2001] HCA 73
Onley v Catlin Syndicate Ltd [2018] FCAFC 119
Pacific & General Insurance Co Ltd v Hazell [1997] LRLR 65
Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd (in liq) (2003) 213 CLR 514; [2003] HCA 25
Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2014] NSWCA 440
Prime Forme Cutting Pty Ltd v Baltica General Insurance Company Ltd (1991) 6 ANZ Insurance Cases 61-028
Qantas Airways Ltd v Transport Workers’ Union of Australia [2011] FCA 470
QBE Insurance (International) Ltd v Jaggar [2007] 2 NZLR 336
QBE Underwriting Ltd as managing agent for Lloyds Syndicate 386 v Southern Colliery Maintenance Pty Ltd (2018) 97 NSWLR 459; [2018] NSWCA 55
Re Palmdale Insurance Ltd (in liq) [1982] VR 921
Refina Pty Ltd v Binnie [2009] NSWSC 311
Ronchi v Portland Smelter Services Ltd [2005] VSCA 83
Roumeli Food Stores (NSW) Pty Ltd v The New India Assurance Co Ltd [1972] 1 NSWLR 227
Seven Cable Television Pty Ltd v Telstra Corporation Ltd [2000] FCA 350
Stealth Enterprises Pty Ltd t/as The Gentleman’s Club v Calliden Insurance Ltd [2017] NSWCA 71
Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2008] NSWSC 1247
Wallaby Grip Ltd v QBE Insurance (Australia) Ltd (2010) 240 CLR 444; [2010] HCA 9
Waverley Council v Tovir Investments Pty Ltd (No 2) [2013] NSWLEC 21
WISE Underwriting Agency Ltd v Grupo Nacional Provincial SA [2004] EWCA Civ 962
Wright v Optus Administration (No 5) [2013] NSWSC 1717
Xenos v Wickham (1867) LR 2 HL 296
XL Insurance Co SE v BNY Trust Company of Australia Ltd [2019] NSWCA 215
Zurich Australian Insurance Ltd v Cimic Group Ltd (2024) 115 NSWLR 297; [2024] NSWCA 229
Zurich Australian Insurance Ltd v Metals and Minerals Insurance Pte Ltd (2009) 240 CLR 391; [2009] HCA 50

HER HONOUR: Hand sanitiser was highly prized in the early days of the COVID-19 pandemic. The Aunew group of companies wanted to start making it. The group had recently acquired the first plaintiff, Sphere Healthcare Pty Ltd, under a deed of company arrangement (DOCA). Sphere had been manufacturing therapeutic goods for years at a factory in Moorebank. Sphere leased the premises from the second plaintiff, Yes Family Pty Ltd, which, as it happened, was part of the Aunew group too.
An Aunew company, GMP Pharmaceuticals Pty Ltd, was now running Sphere’s business and was keen to start manufacturing hand sanitiser at Moorebank. A customer had placed an order. The problem was sourcing enough ethanol. Local suppliers were “on allocation” and were unable to supply large quantities. GMP and Sphere’s procurement officers worked hard – with some success – to source the ingredient. But GMP decided to import a large quantity of ethanol from China.
In parallel, Aunew Group Holdings Pty Ltd (Aunew) was working with three insurance brokers to source insurance for the Aunew group. For several years, Sphere had been insured by the defendant, Allianz Australia Insurance Ltd, under an Industrial Special Risks (ISR) policy. But the policy was cancelled when Sphere was in administration. Aunew’s broker, Ansin Insurance Brokers Pty Ltd (the WA broker), approached Allianz for cover once more. On 20 March 2020, Allianz’s WA branch bound cover on an ISR policy for Sphere, having been assured by the WA broker that there was “no change in business activity” even though Sphere was now being operated by GMP / Aunew.
But Aunew changed brokers to Australasia Insurance Brokers Pty Ltd (the NSW broker). Aunew wanted to keep the ISR policy which the WA broker had arranged. The NSW broker asked Allianz to transfer the ISR policy, while the WA broker asked Allianz to cancel it. After some confusion caused by the fact that the NSW broker’s letter of appointment was back-dated, Allianz’s NSW branch issued a new policy schedule and wording but for the same premium. The limit of indemnity was $26.8 million. Sphere and its landlord, Yes Family, were the insureds.
Within days, Sphere ordered 60,000 L of ethanol from Shanghai. When delivered, the 304 drums of ethanol were not stored in Sphere’s dangerous goods storage area but double-stacked in an “old dispatch area” adjacent to the Moorebank factory, along with pallets of cardboard. On 9 July 2020, a fire started near the cardboard. The nearby drums of ethanol limited the fire brigade’s ability to douse that fire. Instead, the fire brigade turned their hoses “onto exploding ethanol drums to attempt to slow a running ethanol fire in the drains”. Attempts to cut off the fire heading towards the factory proved unsuccessful and the building was lost.
After the fire, Allianz learned that Sphere had been manufacturing hand sanitiser and poorly storing large quantities of ethanol on site. The insurer refused to pay the claim. The insureds now seek a declaration that they are entitled to indemnity. The issues are:

Three witnesses closely involved with relevant events were going to give evidence for the insureds but did not. Gang (Gerry) Yin and Liangyu (Sam) Zeng dealt with insurance matters for the Aunew group. On the operational side, the insureds had planned to call Zhen (Vincent) Cai.
The insurer submitted that the Court should infer that Mr Cai’s evidence would not have assisted Sphere’s case on the issue of actual knowledge of the decision to make hand sanitiser. GMP’s Group Deputy General Manager, Lakvinder (Lucky) Singh was also “front and centre” and there was no explanation for why he was not called. Further, to the extent that the insureds sought to rely on Condition 1, which depended on proving that any error, omission or misdescription of the risk was “unintended and/or inadvertent”, the insureds chose not to call the officer responsible for insurance, being Mr Zeng. Inferences could more confidently be drawn in the insurer’s favour in these circumstances: Doppstadt Australia Pty Ltd v Lovic**k & Son Developments Pty Ltd [2014] NSWCA 158 at [14] (Emmett JA), [81] (Gleeson JA, Ward P agreeing).
The insureds submitted that the onus of proof was on the insurer to establish its defences: Wallaby Grip Ltd v QBE Insurance *(*Australia) Ltd (2010) 240 CLR 444; [2010] HCA 9 at 459. The insureds bore no onus and their election not to call witnesses was said to be no more than a reflection of the insurer's pleaded case and the evidence led in support of that case.
I accept that it was not necessary for the insureds to call Mr Zeng in respect of particular parts of the case, where the insurer had pleaded a contention and the insureds had admitted that contention. But beyond this, the fact that the onus of proof is on the insurer is not a complete answer. Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 was itself a case where an adverse inference was drawn against a party who did not bear the onus of proof. As Hodgson JA (Beazley JA and Davies AJA agreeing) explained in Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168 at [16]:

But even the first pathway is not narrow. As McDougall J observed in Ingot, “the legislation is looking at the general authority of the person whose previous representation is sought to be tendered to make statements of the kind embodied in the particular representation, and not at the authority to make the particular representation …”: at [20].
To illustrate both pathways, and while most of the case law concerns employees, s 87 was applied to admissions made by a union delegate in Qantas Airways Ltd v Transport Workers’ Union of Australia [2011] FCA 470 at [34] (Moore J) and to admissions by an independent contractor in Refina Pty Ltd v Binnie [2009] NSWSC 311 at [6] (Brereton J, as his Honour then was). In Waverley Council v Tovir Investments Pty Ltd (No 2) [2013] NSWLEC 21, promotional material on two websites was admitted under s 87, where a Council was prosecuting property owners for using their properties for backpacker accommodation in Bondi. Biscoe J found that the websites were associated with the owners, and the websites promoted the properties with the owners’ permission or acquiescence: at [29].
Turning to the case at hand, my focus is on Mr Cai’s authority to make admissions at the time of his affidavits, being 3 March 2023, 9 June 2023 and 12 April 2024. I am not concerned with Mr Cai’s authority when insurance was placed, or the decision was made to manufacture hand sanitiser, or the decision was made to order ethanol from China. Two things are relevant here: Mr Cai’s employment within the Aunew group, and how the insureds fit within that group.
As to the first matter, Mr Cai was employed by GMP in 2017 before being employed by Aunew as Group Planning Resources Manager in 2019. After Sphere was acquired by the Aunew group, Mr Cai relocated to Moorebank to manage production processes. In June 2020, shortly before the fire, Mr Cai was promoted to Deputy General Manager with Aunew and took on more of a leadership position in the business. Since August 2020, Mr Cai has held his current role as Deputy Site Manager with GMP, focussing on production planning and warehousing. He has continued to be involved with the insurance claim the subject of these proceedings.
Turning to the second matter, company searches and communications between Aunew and its brokers indicate that Sphere, Yes Family, GMP and Aunew are related companies owned by Qing (Karl) Ye and his family. Mr Cai said there were synergies between the businesses and operations of Sphere and GMP, given the similarities in their product offering and customer base. GMP had sites near Moorebank. There was often business collaboration between these entities. That is, although the insureds, GMP and Aunew are distinct corporate entities, they worked together and for the benefit of the common owners, being Mr Ye and his family.
It is true that Mr Cai was not an employee of Sphere or Yes Family at the time that he made his three affidavits. He was employed by Aunew but worked for GMP. But the very fact that he was chosen by Sphere and Yes Family to make affidavits in support of their case indicates that they conferred authority on Mr Cai to make the statements in his affidavits on their behalf when the affidavits were made: s 87(1)(a), Evidence Act. Mr Cai has not thrust himself upon the Court. He was selected by the insureds to give evidence in their case.
Further, Mr Cai has been involved with the insurance claim the subject of these proceedings since the fire. This suggests that making affidavits in support of the insureds’ claim is within the scope of his employment or authority, whether his employer is Aunew or GMP: s 87(1)(b), Evidence Act. I admit the portions of Mr Cai’s affidavits tendered by the insureds, as I consider that it is “reasonably open to find” that he had authority to make the admissions.

To assist in what follows, Sphere’s manufacturing facility in Moorebank covered some 15,000 m2 of building space and 31,000 m2 of land. Up to 250 employees worked there.
Sphere used ethanol in its manufacturing facility. Ethanol is a flammable liquid for the purposes of Australian Standard 1940:2017 The Storage and Handling of Flammable and Combustible Liquids (AS 1940:2017). Sphere had a permit from the Australia Taxation Office to receive concessional spirits, including 260,000 L of alcohol per year for manufacture of pharmaceuticals. Sphere had a designated external bunded storage area which was used for the storage of dangerous goods, including alcohol. Mr Sutarov explained that a bunded area has a barrier around the perimeter, which prevents liquid escaping.
Sphere ordered its ethanol from Wilmar BioEthanol (Australia) Pty Ltd. Ethanol was delivered in intermediate bulk containers (IBCs), which are big stainless steel tanks that contain 808 kg (or 1,000 L) of ethanol. Mr Urbina said the IBCs were placed in cages in the dangerous goods area and empty IBCs were removed from the cages. That is, ethanol was pumped directly from the IBCs into the factory rather than moving the IBCs.
Mr Urbina said that ethanol was ordered when required for production rather than, say, a scheduled delivery. He said, “they probably won’t order it up until it was necessary”, and “… sometimes we received two IBCs, sometimes we received three, and they pick up the [IBCs] that was empty.” In evidence is a bundle of invoices from Wilmar BioEthanol from 2016 on. A review of these invoices to the end of 2019 (when Sphere was acquired by the Aunew group) indicates that Sphere took delivery of ethanol, on average, every 11.65 days and the deliveries were, on average, 1,170.53 kg (or 1,449 L). Put another way, on average, Sphere used one IBC of ethanol a week. These deliveries continued in 2020, in addition to the bulk deliveries which are the subject of this judgment.
Alongside the bunded area and adjacent to the factory was an old dispatch area, which was used for overflow storage. This area was covered by a canopy. Access from the old dispatch area to the factory was via a roller door. According to expert forensic scientist, Mr Munday, the old dispatch area was not a compliant structure in which to store flammable liquids. Nor did the old dispatch area comply with AS 1940:2017 in respect of the containment of leaks and spills; there was no bund and there was unrestricted drainage to the stormwater drain alongside the driveway. Further, AS 1940:2017 required any opening between the storage area and the factory to have a sliding or outward opening automatic-closing fire door which complied with AS/NZS 1905.1:1997 Components for the Protection of Fire-resistant Walls, Part 1: Fire-resistant Doorsets and fitted with a thermal release device. There was no such door here. Mr Munday concluded that the old dispatch area did not conform with the requirements of AS 1940:2017 as a flammable liquid package store. The insureds did not suggest otherwise.

Mr Leehy proceeded to describe the fire protection on site, noting that the insured should consider installing a complete automatic fire detection system. He noted that there were no sprinklers or other automatic fire protection systems at the facility. Overall, Mr Leehy considered, “This is a well managed risk. Management displayed a positive approach to loss control procedures and practices.”
Mr Leehy also prepared Risk Improvement Recommendations (RIR**s). RIRs were shared with the insureds, advising on steps which could be taken to improve a risk rating and remove hazards. If the insured made the changes recommended in the RIRs, then some of the negative loadings in ARCA’s assessment may be removed in a later ARCA assessment. The adjustment to loadings would then be taken into account by the underwriter when pricing the risk. Much of Mr Leehy’s RIRs for the Sphere site related to fire protection measures. Mr Leehy strongly recommended installation of an automatic fire detection system throughout the premises.
Allianz renewed Sphere’s ISR policy in 2013, 2014 and 2015. In October 2015, Mr Iordanou was tasked with inspecting the Moorebank site again and preparing another ARCA – Multi-Line Report. He prepared for the inspection by reviewing ARCA’s records for the risk, including Vero’s 2008 survey, the ARCA desktop review of 2010 and Mr Leehy’s ARCA – Multi-Line Report of 2013. Mr Iordanou took a copy of Mr Leehy’s report, to which he added handwritten notes during his inspection.
On 7 December 2015, Mr Iordanou inspected Sphere’s premises. Mr Iordanou reviewed the operations and processes in use in the premises. He noted that Sphere was manufacturing soft gel capsules, baby milk powder and similar items for the local market and to ship overseas. He considered fire protection at the premises. His risk field notes record that storage included “Ethanol IBCs + D[illegible], flammable and corrosive cabinets.” Management controls in respect of hazardous materials included “Ethanol – bund container”. Mr Iordanou went through Mr Leehy’s RIRs and made handwritten notes of his observations in respect of each recommendation.
On 31 December 2015, Mr Iordanou issued an ARCA – Multi-Line Report. He noted “The risk remains essentially unchanged, other than for minor improvements”. Mr Iordanou reproduced the risk description from Mr Leehy’s 2013 report, including in respect of “Dangerous Goods”: see [49]. Mr Iordanou prepared RIRs. Recommendations were made in respect of fire doors, fire protection equipment servicing, fire protection equipment obstruction, hydrant water supply flow testing, fire protection system impairment procedures and the like.
Mr Iordanou also produced a Property Risk Acceptance and Rating Guide, which assessed the Fire Hazard Index at 6 and assessed the risk as 10% worse than the Allianz Quality Standard (AQS). Mr Iordanou explained that this rating was primarily due to the issues he had raised in the RIRs. The rating was automatically generated by ARCA’s database, based on his answers to questions in a standard format report. The higher the risk, the higher the loading applied by underwriters, assuming that the risk was acceptable and not declined. If the rating was 40% to 69% worse than the AQS, the risk was “Special referral”, that is, the underwriting authority was elevated. When a risk was assessed at 70% more than the AQS, the risk loading levels recommended decline.
On 30 May 2016, Allianz underwriters considered renewal of the policy. According to Teamworks notes, the underwriter noted that a survey was completed in December 2015. The broker had advised that RIRs had been completed, “awaiting written response”. The ARCA survey noted a 10% loading. The underwriter noted, “Held for 5 years, without loss”. The underwriter noted that the client’s products were mainly veterinary products, “… mainly lotions and creams, soft gel capsules and some tablets.” Fire protection measures were noted as was the separate external hazardous goods storage for gases. The underwriter escalated the matter to, ultimately, Mr Pocknee. Allianz renewed the ISR policy.
In May 2017, Sphere’s policy was approaching renewal. On 25 May 2017, Sphere completed the RIRs prepared by Mr Iordanou in December 2015, noting the measures taken to implement each recommendation. On 25 May 2017, Mr Iordanou completed a Property Risk Assessment and Rating Guide following Sphere’s response to the RIRs, noting that the risk was now considered to be the same as the AQS. He noted, however, that some of his recommendations had not been completed. Mr Iordanou called this an RIR Review, updating ARCA – Multi-Line Reports and Property Risk Acceptance and Rating Guides based on responses received from insureds.
On 31 May 2017, an Allianz underwriter reviewed the policy for renewal. The note was detailed, “noting the broker has declared multiple customers and suppliers…”. The underwriter concluded, “NIL claims with [Allianz] since inception in 2012. Over all a well managed and quality risk”. The underwriter considered fire risk, noting that the products made were “[m]ostly non-combustible construction (<10%) EPS” and referring to the fire protection measures. According to Teamworks, the matter was referred up to three more senior underwriters, given the level of underwriting authority required. On 15 June 2017, the policy was renewed.
In May 2018, the ISR policy was due for renewal. Allianz underwriters adopted the notes made by the underwriter the previous year, noting that there remained nil claims. In June 2018, Allianz renewed the policy. In June 2019, renewal came around again. On 11 June 2019, Sphere’s senior engineer, Andrew Hall, completed Mr Iordanou’s RIRs of December 2015, setting out with measures taken by Sphere in response to those recommendations.
By now, Sphere had changed its insurance broker to the WA broker, which was an authorised representative of Austral Insurance Brokers Pty Ltd trading as Austral Risk Services. As the location of the broker affected the branch of Allianz that dealt with the policy, Allianz’ WA branch now dealt with renewal. On 6 August 2019, an underwriter followed up the WA broker in respect of the outstanding RIRs, asking that the document be completed in full as soon as possible. On 3 September 2019, the underwriter followed up the WA broker again.
But Sphere had gone into administration. On 3 October 2019, the WA broker informed Allianz that the administrators wished to cancel the policy. Allianz obliged. The administrators obtained insurance for Sphere though their broker, Gallagher, including an ISR policy with QBE Insurance.

On 4 December 2019, Sphere and deed administrators, KPMG, executed a DOCA under which GMP would acquire all of the issued shares in Sphere. An Interim Management Deed was also executed by GMP (as the Manager) and Sphere. In short, while the DOCA was on foot, Sphere would continue to own the Business Assets but GMP “will have the right to benefit from the economic rewards, and will bear the economic risks, accruing from the Business…”: cl 4.1. Business meant the business carried on by Sphere “…of manufacturing complementary health care products and infant formula”: cl 1.
On 9 December 2019, a Shared Services Agreement was entered into between Aunew and GMP. Another Shared Services Agreement was executed by Aunew and Sphere on 14 April 2021 (that is, after the fire) but with an effective date of 9 December 2019. The Shared Services Agreements were in, essentially, the same terms. GMP and Sphere appointed Aunew to provide services for a fee. The significance of the latterly prepared document is that Sphere was to receive more limited services; while Aunew was to provide purchasing and procurement services to GMP, such services were not to be provided to Sphere.
One of the Management Services to be provided by GMP under the Interim Management Deed was effecting and maintaining all necessary and appropriate insurances: cl 5.1(f). On 2 January 2020, Aunew’s Asset Management Coordinator, Mr Zeng, embarked upon this task, liaising with GMP’s Group Deputy General Manager, Lakvinder (Lucky) Singh, to arrange machinery breakdown insurance for Sphere. Mr Singh ran the Moorebank site.
Aunew also began to look for insurance for the corporate group including Sphere. Aunew dealt with three brokers, being Aon, the WA broker and the NSW broker. WeChat messages passed between Aunew’s Deputy General Manager, Mr Yin, and Mr Zeng on 30 January 2020, circulating a spreadsheet with claims data for Aon. According to their WeChat messages, Mr Zeng was working on a probation period and learning about insurance from Mr Yin.

Ms Wong then emailed Sphere staff, copied to Mr Singh and GMP’s R&D Manager – ANZ**,** Mallikarjun Chitneni, “We are looking to buy Ethanol into Sphere, can you please advise if you have a permit … from the ATO … for this material and for what annual quantities are we allowed to buy? Please let me know ASAP”.
On 3 February 2020, Wilmar BioEthanol emailed Ms Wong, “Is this still something you’re looking at?”. Ms Wong did not immediately reply. Rather, emails passed between New Product Development (NPD) Chemist at Sphere, Surendra Alla, GMP’s R&D Manager ANZ**,** Mr Chitneni, and Head of Procurement – ANZ, Ms Wong, entitled “**Priority** Hand Sanitiser Project # 9234”. The NPD Chemist sought technical documentation and samples for various ingredients, noting “This is top priority for Daniel”. (Presumably, this was GMP’s Daniel Xu.) Sphere NPD procurement officer, Raiz Galeon, advised, “I called supplier and sent an email, taking action as urgent”. On 4 February 2020, Mr Galeon reported that samples were on the way.
On 4 and 5 February 2020, Mr Zeng communicated with the NSW broker and the WA broker in relation to insurance. On 6 February 2020, Mr Yin asked the NSW broker whether insurance premiums would be cheaper if Sphere’s business and property was split from other GMP businesses and properties. The NSW broker said they would look into it. On 7 February 2020, the NSW broker provided an indicative quote.
On 10 February 2020, Mr Zeng sought further details of the proposal from the NSW broker, including sub-limits, excess and broker fees “for us to make an overall comparison across all brokers.” Mr Yin also emailed all managers in the business, “At present, we are conducting all insurance review for renewals at the moment aiming to improve our terms and conditions to achieve better values for all our group of companies.” Managers were asked to direct insurance inquiries to Mr Zeng. Noteworthy, Mr Cai and Mr Singh were amongst the addressees.
On 12 February 2020, Ms Wong finally replied to Wilmar BioEthanol’s enquiry as to whether the delivery of a large quantity of ethanol was “still something you’re looking at?”, advising “Yes, we are still looking at this. Our R&D team are finalising the formula for customer approval, will let you know shortly.”
Mr Zeng continued to liaison with Aon and the NSW broker in respect of insurance. Aon wanted a lot of information and there was some reluctance to provide it, with Aunew suggesting on 24 February 2020 that “these policies will go to other brokers”.
On 27 February 2020, the NSW Government issued a media release from the Minister for Health, urging the community to help prevent Coronavirus.
On 28 February 2020, Mr Zeng provided Mr Yin with a summary of renewal proposals from the three brokers. Later that day, Mr Zeng provided the WA broker with a letter of appointment. The letter was signed by Mr Yin as Deputy General Manager of Aunew. It is relevant to the broker’s later authority to cancel policies to set out some of this letter:

On 3 March 2020, the WA broker emailed Wendel Titus, a senior account manager in Allianz’s WA branch, attaching an ISR Quote Slip for GMP and the completed RIRs, “All other files should be in your system. Please let me know if you need anything else.” The attached quote slip noted that the insured would comprise ten entities “including auxiliary organisations”, including Sphere. Cover was to commence in March 2020. The business of the insured was described as “Principally products & health foods contracted manufacturer & wholesaler”. Claims history was noted as nil. The activity at Moorebank was described as “Manufacture of health care and milk powder products.”
An underwriter in Allianz’s WA branch, Mr Keuneman, was asked to “… have a look at this one. We held this account back in June last year. All survey rec[ommendations] have been completed as per the attached. No ch[an]ge in occupation”. Mr Keuneman had only worked for Allianz for two months and had a limited underwriting licence at the time. If a risk was outside the scope of his licence, then Mr Keuneman made an assessment and provided a summary and recommendations to Ms Lobo, who was the most senior property underwriter in Allianz’s WA branch.
Mr Keuneman commenced the qualification and underwriting process, which involved reviewing the information provided, submitting a request for an ARCA RIR Review and completing an underwriting escalation to Ms Lobo. The Vero survey and ARCA – Multi-Line Reports on the Teamworks file indicated to Mr Keuneman that up to 4,000 L of flammable liquids could be stored on the premises. As this was part of the risk identified by the ARCA risk engineers and commented on in the surveys, he was comfortable that this risk was acceptable.
As the insureds pointed out, that was not precisely what the reports said. More accurately, the reports indicated that that was how much Sphere had been storing historically, not the maximum amount that it could store. Either way, it appears that Mr Keuneman proceeded on the basis that that was the amount of flammable liquids that would be stored during the period of insurance.
Mr Keuneman made a note on Teamworks, “We held this business previously prior to the business going into liquidation, the old business – Sphere Healthcare Pty [Ltd] has been purchased by GMP Pharmaceuticals and requires cover as a new entity.” Mr Keuneman asked Mr Titus to work with the WA broker to amend the quote and advise on certain matters including:

An email in the same terms was also sent to Wilmar BioEthanol. So far as the evidence reveals, Thermo Fisher did not reply. Wilmar BioEthanol replied that Sphere’s enquiry had been sent to the account manager for advice. Mr Mufaddal promptly emailed again, asking for the account manager’s contact details, “Our GM wants to speak to him urgently.” The account manager’s mobile phone number was provided.
The amount of ethanol sought from suppliers was needed to fill an order from GMP’s first customer, JBX Pty Ltd, which was interested in acquiring hand sanitiser with a view to marketing and on-selling the product. In parallel, emails passed between GMP marketing officer, Kelly Zhang, and JBX in respect of “Hand Sanitizer Label Content”. Emails canvassed the precise ingredients that GMP would be using and its implications for the label. Ms Zhang advised that GMP used triethylamine, which was “absolutely safe to use in hand sanitiser”. JBX disagreed and requested another ingredient. By the end of the business day, Ms Zhang advised JBX, “I have confirmed with R&D team that we can change” to the ingredient suggested by JBX.
Labtek enquired whether Sphere needed denatured or un-denatured alcohol. Mr Mufaddal replied, “We need alcohol for production of hand sanitiser.” Labtek enquired what type of ethanol Sphere was using at the moment. On the procurement officer’s reply, Labtek advised, “Largest size we can do is 20L. Any chance you could take a smaller quantity than 35,000L”.
On Thursday, 12 March 2020, JBX and Ms Zhang continued to communicate on the product label for hand sanitiser, arguing about the implications of the TGA’s regulations. Ms Zhang then emailed her GMP colleagues, Mr Singh, Mr Cai, GMP procurement officer Mr Yu, Mr Xu and R&D Manager ANZ, Mr Chitneni, in respect of “JBX Hand Sanitiser Process”, setting out the formulation, label, packaging size, bottle, pump, order quantity and quotation for JBX Hand Sanitiser “so that we can be on the same page …” Ms Zhang noted “R&D has confirmed” that the change in formulation requested by JBX was okay. The label content had been updated accordingly and sent to JBX. The packaging size was 500 ml and the bottle size was confirmed, “waiting for supplier reply”. The pump supplier was in China “and lead time will be bottleneck”. The first order of 50,000 bottles was confirmed, “Also JBX requests 40 bottle samples. No label required and we can use any bottles we have on hand.”
Mr Singh asked Mr Cai to “… prepare a small trial run to test all equipment to handle sanitizer. We also need to plan deliver of Alcohol and bottles from supplier.” Procurement officer, Mr Yu, advised that a sample white bottle was ready for collection. Mr Singh’s assistant arranged collection.
On Friday, 13 March 2020, Sphere’s senior accountant, Robert Sori, emailed Mr Cai and Mr Singh, attaching Quote No. 9234 to make hand sanitiser for GMP. The quote was for 5,000 units of 500 ml. The batch run required 1,842.23 kg (or 2,280 L) of Alcohol 95SG. Mr Cai replied that the brief for Quote No. 9234 had now been finalised for raw materials and a few minor changes had been made, “Please send us the costing based on our discussion about the estimated price for bottles, pumps, label and shipper.” Mr Sori provided an updated costing.
Meanwhile, Chem-Supply advised Sphere’s procurement officer, Mr Mufaddal, that it was unable to assist with the bulk supply of ethanol. Mr Mufaddal emailed Wilmar BioEthanol again, regarding “Urgent Enquiry: Alcohol” with high importance, repeating that 35,000 L of alcohol was needed in April 2020. Wilmar BioEthanol promptly replied, “We are on allocation on ethanol now. We are looking at import options to cover supply.” Mr Mufaddal pressed (on a Friday) for 5,000 L by Monday or Tuesday, advising that he was placing orders now for Alcohol 95SG, “Please advise when we can have the balance stock. We need 35000ltrs in total.” The supplier asked to speak about “pack type”.
Ms Zhang then advised her GMP colleagues, Mr Singh, Mr Cai, Mr Yu, Mr Xu and Mr Chitneni, that the JBX quotation had been confirmed “and order quantity has been increased to 100k bottles”. Ms Zhang added that she would send an account application form “asap”, presumably to JBX. Likely at this time, GMP provided an (undated) quotation for JBX for “Hand Sanitiser 500ml”, to be manufactured on Sphere’s site. Where ethanol comprised some 75% of hand sanitiser (according to a later email from Ms Dong), JBX’s order required 37,500 L of ethanol.
Shortly afterwards, Sphere’s procurement officer, Mr Mufaddal, emailed Wilmar BioEthanol, apparently having spoken about “pack type”, advising “Plastic IBC is fine too. Please secure 35000ltrs for us and I will let you know the split deliver dates. Please advise the price too. We need to communicate this to our customer today.” Mr Mufaddal appears to have had in mind to take delivery of the 35,000 L by split deliveries, that is, in instalments. Presumably, this was because he appreciated that Sphere’s dangerous goods area did not have capacity to store 35,000 L of ethanol all at once: see also [140].
The supplier replied that they were getting confirmation but, “I think it should be OK. 35000L in April. Please ensure that everyone internally is aware that ethanol is on allocation for any other orders.” The price for 95SG 1000 L HDPE IBC’s was $1.82 a litre. That evening, GMP’s procurement officer, Mr Yu, circulated a quote for the pump to his colleagues, Ms Zhang, Mr Singh, Mr Cai, Mr Xu and Mr Chitneni, advising that the earliest completed date was about 20 April 2020, “I’m still working with supplier to check if they deliver us 100K first”.
On Sunday, 15 March 2020, the NSW Government issued a media release, announcing that special state powers had been triggered to combat COVID-19.
Problems were being experienced by the WA broker in securing insurance for the Aunew group. Given the limited time remaining to secure insurance cover, the WA broker proposed that the Moorebank site be insured separately with Allianz, given the relatively low risk of the location and its nil claims history.
On Monday, 16 March 2020, Sphere’s procurement officer Mr Mufaddal informed Mr Cai, Mr Singh and Sphere’s Procurement Manager, Monica Halligan, that he had been able to secure 35,000 L from Wilmar BioEthanol in April 2020. But according to a later email from the supplier, Sphere did not place this order as “Sphere didn’t know at that stage how they were going to manage the ethanol onsite”: see [140].
Meanwhile, Mr Iordanou was asked to prepare an RIR Review, commenting on the measures taken by Sphere in response to his recommendations made in December 2015. On 16 March 2020, Mr Iordanou produced an ARCA – Multi-Line Report. The ANZSIC Code remained 25430, with a Hazard Index for Property of 6. Mr Iordanou also completed a Property Risk Acceptance and Rating Guide for the Moorebank site. There had been nil claims in the last three years. The RIRs had been completed except for one: there were no hydrant flow test results for review. The steps taken by Sphere had improved the risk to 20% better than the AQS.
The WA broker’s difficulties prompted Mr Zeng and Mr Yin to re-consider other brokers. Later on 16 March 2020, Mr Zeng emailed Mr Yin, attaching an updated comparison of the quotes obtained by the three brokers for ISR policies. Mr Zeng emailed the NSW broker, copied to Mr Yin, enquiring whether they could change their broker 20-days past renewal, where most of the certificates of currency and policy schedules had been issued. The NSW broker assured them that they could.
On Tuesday, 17 March 2020, Mr Singh’s assistant emailed Sphere’s Regulatory Affairs Officer, Lena Matti, Mr Mufaddal and Mr Cai, attaching specifications of 500 ml bottles and a spreadsheet in respect of the GMP hand sanitiser project. Ms Matti was asked to create a code for hand sanitiser bottles. Mr Mufaddal was asked to contact the supplier of the bottles and issue a purchase order, being “100,000 quantity for first order”.
On Wednesday, 18 March 2020, the Governor General declared a “human biosecurity emergency” under s 475 of the Biosecurity Act in respect of human coronavirus with pandemic potential, noting that the virus was posing a severe and immediate threat to human health on a nationally significant scale: Biosecurity (Human Biosecurity Emergency) (Human Coronavirus with Pandemic Potential) Declaration 2020. The NSW Health Minister made an order under the emergency powers of the Public Health Act 2010 (NSW), banning non-essential indoor gatherings of 100 or more people, as part of national measures to curb the spread COVID-19. The minister issued a press release, encouraging the community to practice social distancing “and vigilantly practice safe hand hygiene measures moving forward.” The Prime Minister announced similar measures, including social distancing of 1.5 m.
Mr Keuneman also emailed the WA broker as follows:

Three minutes later in Sydney, Sphere’s procurement officer, Mr Mufaddal, emailed Wilmar BioEthanol again, “Can we please secure 40,000ltrs.”
Later that evening, Mr Cai emailed Mr Yin, copied to Mr Singh, in respect of “Coverage for pandemic”. Mr Cai asked, “I’m not sure if other site managers have contacted you about our insurance coverage for this pandemic.” Mr Cai set out some scenarios, including a confirmed case of Covid in the factory or a government ordered lockdown, “…what coverage (if any) we can expect and how we should be prepare (if relevant) to be eligible for this coverage.” Mr Yin advised that Mr Zeng was the person in charge of group insurance and any emails should be sent to him.
On the morning of Thursday, 19 March 2020, Wilmar BioEthanol advised Mr Mufaddal that the supplier was still not in a position to commit to the requested ethanol, “Only historical volumes.” Ms Zhang circulated artwork for JBX hand sanitiser to her colleagues for review. GMP procurement officer, Mr Yu, advised that he had received samples of the lotion pump from the supplier; the tube length needed to be tested with the bottle and, once confirmed, five samples of the bottle and pump would be sent back to the supplier for reference.
The WA broker sought the information requested by Mr Keuneman from the Aon broker in London. The WA broker passed this information to Mr Keuneman; essentially, the Aon broker did not know. The WA broker advised “I think this is as good as we could get. Client confirmed there is no claims / incidents from 13.12.19 to 19.3.20.” The WA broker also provided a letter of appointment, being the letter of 28 February 2020 referred to at [76].
That evening in Sydney, Sphere procurement officer, Mr Mufaddal, emailed Wilmar BioEthanol seeking clarification, “We are OK for 35000 ltrs for April but you cannot commit for an extra 50000ltr?” Two minutes later, Mr Mufaddal emailed Redox, requesting quotes for 5,000 L and 10,000 L of Alcohol 95SG for April delivery. Later that evening, Wilmar BioEthanol replied to Mr Mufaddal, “It is changing daily. On 13th it was potential. We have been talking about it for over a month.”
Later still in Perth, Mr Keuneman emailed Allianz’s head office, advising that he was close to formalising terms on Sphere, but sought feedback on survey requirements. The survey on file was completed in December 2015 and was current until December 2020, at which point the insurer would need to resurvey, “Can you please advise what ATS/ARCA’s position would be on this given the Corona virus impact.” (ATS was a specialist team of underwriters with a high level underwriting authority, then categorised as level 5.) Mr Keuneman provided a summary of the proposed policy for the Moorebank site and details of the current survey and RIR Review. In particular:

Ms Lobo agreed that she instructed Mr Keuneman to proceed in this way as she knew that there had been no survey of the premises for over four years and no survey since the company had been through administration. Ms Lobo and Mr Keuneman rejected the suggestion that commercial considerations were a factor in the underwriting decision, such as the fact that Allianz had insured this risk for many years or that the placing broker provided a large amount of business with Allianz. Ms Lobo said “it’s more to do with underwriting the risk itself”, and, while commercial considerations may affect pricing, it would not affect “the actual acceptance of the risk”. I accept their evidence.
Mr Keuneman updated the Teamworks notes. Mr Keuneman then emailed the WA broker, attaching new business terms for Sphere / GMP and corresponding wording, “Looking forward to receiving bind instruction at your earliest.” Attached was an ISR quotation and Austbrokers ISR policy wording Mark IV Modified. (Ms Lobo was not aware that Mr Keuneman did not implement the condition she had noted on Teamworks when the quote was sent out.) The named insureds were Aunew, GMP, Sphere, Sphere Holding Company Pty Ltd and Tabco Pty Ltd.
Two minutes later, Mr Yin and Mr Zeng received an email from the NSW broker, updating them on progress, “We are still waiting for insurers to re-quote. When [the NSW broker] is appointed the broker, we shall be able to negotiate with the insurers for better coverage. … I look forward to receiving the Broker Letter of Appointment.” The insurance package put forward by the NSW broker included the Moorebank site.
Back in Perth, and presumably unaware that Aunew was continuing to shop around, the WA broker emailed Mr Keuneman at 7.22 pm, “Please bind as quoted. Closing to follow shortly.” Mr Keuneman replied, “confirming cover in place eff[ective] 20/3/20.” There is no dispute that a contract of insurance came into existence on 20 March 2020.
Later that evening, the WA broker emailed Mr Yin and Mr Zeng, attaching “complete document package for your attention”. Attached was a 7.95MB zip file entitled “GMP - Complete doc pack.zip”. The WA broker advised that they would “provide full insurance manual shortly.” Likely, this material included the policy schedule and policy wording for the ISR policy.

On Saturday, 21 March 2020, Mr Yin and Mr Zeng continued to exchange WeChat messages discussing the WA and NSW’s brokers competing offerings. They proposed to “fully follow” some policies arranged by the WA broker, including for the Moorebank site, and then use the NSW broker to arrange other policies, “This way, the total cost is still much lower than the current [WA broker] pricing.” But the policies arranged by the NSW broker “cannot be backdated”. Nor did they want to pay “broker fees twice”. It was decided to appoint the NSW broker on receiving confirmation that the policies arranged by the WA broker “will remain unchanged after [the NSW broker] takes over, and we won’t be double charged.”
On Monday, 23 March 2020, the NSW Premier advised that, from midday, essential activities and businesses would be temporarily shut down. Parents were encouraged to keep their children at home from school.
Also on 23 March 2020, the NSW broker emailed Mr Zeng and Mr Yin, “In order … to take over some of the policies”, the NSW broker recommended that its appointment be backdated to 29 February 2020. Mr Zeng was asked to photocopy a letter onto Aunew’s letterhead and to sign and return the document that day. In respect of the policy for the Moorebank site, the NSW broker noted “to take over, premium amended”. The broker offered to “assist with the paperwork on the few policies we are taking over.”
Some of the premiums in the NSW broker’s email were in blue font. WeChat messages passed between Mr Yin and Mr Zeng, noting that the items marked in blue were “the policies copied from [the WA broker]”, that is, four of the policies arranged by the WA broker “are takeovers … Technically they can all be cancelled, but since some of [WA broker’s] policies are done well, we can continue with them. There is no need to cancel”. Mr Zeng signed the letter of appointment for the NSW broker. He back-dated the letter but to 28 February 2020, not 29 February 2020.
WeChat messages continued between Mr Yin and Mr Zeng as to when and how to tell the WA broker. They discussed whether they should offer to pay part of the broker fee, having been advised by the NSW broker that they could refuse to pay because the WA broker had “broke[n] their word”. Mr Yin suggested, “Tell them they’ve left us no choice but to try someone else because their price has increased several times and neither of us can justify it to our boss. Tell them Gerry is not in the mood to talk to them anymore. He can’t face the boss … [As for broker’s fees] just say we won’t pay for now”.
Soon afterwards, Sphere’s Procurement Manager, Ms Halligan, emailed Wilmar BioEthanol, asking the person with whom they had dealt to this point to “provide your boss’s name and number”. The account manager obliged and also advised that Sphere currently had no allocation due to its account being closed in 2019 and all volume being taken out of the budget for 2020. The account manager acknowledged that it was “awkward timing” and he had been trying to help but, as time had moved on, his ability to do so decreased significantly. Further, with the sheer amount of work currently, there was not enough time to get back to customers on what their plans were.
Soon after this, Mr Yin and Mr Zeng spoke to the WA broker, afterwards communicating on WeChat, “The way we teamed up in talking with [the WA broker] today was great, leaving them nothing to say”. Apparently Mr Zeng was less convinced, “For now they look okay saying they’ll give up AUD 30,000 commission”.
Moments later, at 6pm on 23 March 2020, Mr Cai emailed Sphere Head of Quality, Mark Peiris, and Ms Halligan, copied to Mr Singh, Mr Mufaddal and Mr Chitneni regarding “Alcohol import”:

Wilmar BioEthanol also noted that Sphere’s volume requirement continued to change, “…these talks originally started earlier, and had dragged on for 4 weeks, with nothing conclusive from Sphere.” The account manager had made time to meet with the Sphere’s procurement officer to discuss requirements, but the meeting was cancelled. Ms Halligan rejoined that the meeting had been cancelled due to the COVID-19 outbreak and an internal directive not to have suppliers on site. Ms Halligan pressed, “please let me know if there is any material … so as a business we can move forward.”
Mr Cai provided GMP’s R&D Manager ANZ, Mr Chitneni, with specifications for alternative ingredients which could be used to make JBX’s sanitiser, noting that the customer “has stopped printing out more labels”. The email was copied to Mr Singh, Ms Zhang and Sphere’s NPD Chemist, Mr Alla. Mr Chitneni was asked to advise the impact of the alternative ingredient on the label “… and adjust formulation as soon as possible so that [the] customer can print new labels.” Mr Alla was asked to update the brief once the formulation was updated, “we need to recost it”.
Further emails passed between Redox, Ms Halligan and Mr Singh, with specifications for another ethanol product, Ethanol 94. Ms Halligan clarified to Mr Singh, “Specification for Alcohol for Hand Sanitizer ONLY”. Mr Singh sought confirmation “… if we can use for hand sanitizer.” Mr Chitneni confirmed, “It’s all good to be used in a hand sanitiser … ask Redox to remove the Methanol from the report, just to avoid panic”. Mr Singh forwarded this confirmation to Ms Halligan and Mr Mufaddal.
By now, Allianz’s Melbourne distribution manager was concerned about the letter of appointment received from the NSW broker. Mr Vonow emailed the account manager, Mr Udayakumar, copied to Mr Keuneman and Mr Titus in Perth, “There are some concerns over this [letter of appointment] as it looks as though we received another [letter of appointment] for a WA broker signed by a different party (same insured) and on the same day.” Mr Udayakumar was asked to seek more details from the NSW broker without disclosing the name of the WA broker.
News of this reached Mr Zeng and Mr Yin, with WeChat messages immediately passing on this subject, together with a copy of the letter of appointment, “The date is 28th Feb, same as the one we gave [the WA broker] before, which means we appointed two brokers on the same day. Could this be a problem later?” Mr Yin replied, “Hold on, let me change it to the 29th”.
At 3.25 pm, the WA broker emailed Mr Yin and Mr Zeng as follows:

Mr Pan said that the account was transferred to Allianz’s NSW branch, as the NSW broker was based in that state. Meanwhile, the NSW broker asked Allianz’s Melbourne account manager for a premium breakdown on the policy, “Paperwork can follow when you have done the transfer.” Allianz’s Melbourne account manager replied that there was some delay in getting this information, “Rest assured cover is held whilst we investigate this.” Mr Millener then advised Mr Vonow that he had reviewed the letter of appointment, “All good to proceed”. Mr Pan was asked to “look after this one for us. Can you please clone the old rater, generate terms and send out to the broker.”
Mr Pan agreed that the instruction to “clone the old rater” was an instruction to copy across the rater tool created by Allianz’s WA branch when quoting and binding the cover. He was also told to use the Steadfast terms when generating terms to be sent to the NSW broker. Steadfast terms were standardised ISR terms used by brokers in the Steadfast Group when transacting business with Allianz. Mr Pan understood from this instruction that the NSW broker was affiliated with the Steadfast Group.
Mr Pan understood that he was to issue a policy on the standard Steadfast terms for the same premium on which the cover had already been bound. He was not being asked to determine if the risk ought to be accepted, as it was plain that Allianz had already bound this insurance. Mr Pan understood that he was being asked to perform the steps that were necessary to have the bound cover set up in Allianz’s NSW branch, with a new broker on record and the standard wording for that broker’s affiliated group.
Notwithstanding the limited task given to him by Allianz’s Underwriting Operations Manager, Mr Pan reviewed the underwriting to confirm the risk was acceptable. Mr Pan actually recalled looking at the documents and confirmed in cross-examination that he did read them. He became aware from his review of the Teamworks file that Allianz had provided ISR cover to Sphere from 2012, originally underwritten by Allianz’s NSW team when the broker was Gallagher. ARCA – Multi-Line Reports had been produced in 2013 (by Mr Leehy) and in 2015, 2017 and March 2020 (by Mr Iordanou). According to these reports, Mr Iordanou’s RIRs had been implemented by the insured.
Mr Pan became aware that Sphere had entered voluntary administration in 2019 and the ISR policy was then cancelled. Mr Pan noted that Mr Keuneman had sought confirmation that there had been no change in business activity, and this had been confirmed by the WA broker on 18 March 2020. Confirmation had been obtained from Gallagher and London underwriters that there had been no claims during the period of administration or since. The policy was bound on 20 March 2020 by the WA Branch under reference number BAW-001-229-869.
Mr Pan explained that some of the data in the new rater which he prepared was auto-generated and some was manually populated by himself as the underwriter. The rater he prepared resulted in a premium that was slightly higher than had been recorded by Allianz’s WA branch. In order to achieve the same premium as quoted by Allianz’s WA branch, he inserted that premium and the discount loading percentage automatically changed to accommodate the difference. But the premium was not the product of an independent underwriting process that he undertook.
Mr Pan made an entry in Teamworks that this was new business which was written by WA, “…Bound and WON. [New business] not processed on Polisy.” A letter of appointment had been received by the NSW broker. Mr Pan finalised transfer of the policy to the NSW Branch. By this, he meant there was a changeover in broker after binding and before closing.
Melbourne account manager, Mr Udayakumar, then emailed the NSW broker, “Please find attached terms.” Attached was an Allianz ISR quotation (the policy number was now BAW0001-231-488) and policy wording, being Steadfast Industrial Special Risks (Mark IV) Modified 01.13. The named insured was now just Sphere. The broker was asked to “forward your closing at your earliest convenience”. The NSW broker replied, “Appreciate your efforts in sending the documents through so promptly despite this challenging time.”
On Monday morning, 30 March 2020, Sphere’s Engineer Supervisor, Mr Edwards, emailed Sphere’s Operations Manager, Ms Dong, reporting on modifications being made to the mixing room, apparently in answer to the email of 20 March 2020 in respect of “Hand sanitiser manufacturing and filling”: see [120]. Ms Dong forwarded Mr Edwards’ estimate of the costs involved to Mr Cai and Mr Singh’s assistant, asking whether the expenditure of at least $7,000 was “fine with you”, further:

On 9 April 2020, Sphere placed a further purchase order with Redox for denatured ethanol 94% for 8,800 kg (10,891 L) at $7.98 per kg. I note that local prices for ethanol had significantly increased from the $1.82 per L quoted by Wilmar BioEthanol on 13 March 2020. It was also now far more expensive than the ethanol being imported from China for USD $1.95 per kg.
On 22 April 2020, as delivery of the Chinese ethanol approached, Sphere’s warehouse team leader, Mr Urbina, emailed Mr Singh, Mr Cai and others, raising a number of concerns about the bulk delivery of ethanol. The ethanol was to be received by a tanker and stored in IBCs supplied by Redox. But the cages where flammable materials were stored were old and rusted and had not been used for a long time. Nor were there proper control measures in the case of spillage. Personnel needed to be trained to receive ethanol “as we never done it before”.
What action was taken, if any, is unknown. Mr Urbina said he was concerned about the storage facilities at the site. He considered that the premises were not equipped to store such a large volume of ethanol according to the normal safety standard of operation procedures, which required the ethanol to be contained. Nor was he consulted about the capabilities for storage of such a large volume of ethanol at the premises.
On 24 April 2020, Sphere took delivery of 8,080 kg of ethanol 94% from Redox, being 10 IBCs or 10,000 L. Mr Urbina said the IBCs were stored in steel cages within the bunded area. This probably marks the commencement of the manufacture of hand sanitiser. Mr Urbina recalled that the first few batches of hand sanitiser were produced using ethanol which was sourced locally. Sphere started producing an average of eight pallets of hand sanitiser each week. Each pallet had 40 cartons, each containing twelve 500 ml bottles of hand sanitiser.
On 5 May 2020, Sphere’s customs agent advised GMP’s procurement officer Mr Yu, Mr Cai and Mr Singh’s assistant that the ethanol arriving from China was classed as Dangerous Goods Class 3. The Dangerous Goods declaration paperwork was sought. On 6 May 2020, Sphere prepared product specifications for JBX hand sanitiser gel.
On 13 May 2020, Sphere’s customs agent advised that the ethanol from China would soon be delivered, “… over 4 semi loads [with] each delivery … at 19 pallets approx. per load”. Mr Urbina emailed Sphere’s Operations Manager, Ms Dong, “We are going to receive 80 IBCs of ethanol. W[h]ere are we going to put it”. Mr Urbina pressed that this was not only a concern for the warehouse but needed to be decided at a higher level, “I cannot take upon myself such responsibility.” Mr Urbina also mentioned his concerns at the daily site meeting.
Ms Dong emailed her team, “Can we receive 80 IBCs of ethanol?” Sphere’s Head of Quality, Mr Peiris, advised that he had had a meeting with the General Manager about this and the IBCs could be received, “The material will be used very quickly to manufacture hand sanitiser where it gets diluted. Hence the risk involved is bare minimum according to [the general manager].” Presumably, the general manager was Mr Singh. The next day, 14 May 2020, Sphere issued an order confirmation to JBX ($824,900), with delivery of hand sanitiser to begin on 10 July 2020.
On 22 May 2020, Sphere received 304 drums of denatured ethanol 95% from the Chinese supplier. The ethanol was delivered in 80 pallets, each containing four 200 L drums of ethanol. Ms Dong instructed staff to store the ethanol in the old dispatch area. Mr Urbina said management resolved that the ethanol was to be stored in this area, as it was the only area available. The plastic barrels were double-stacked. The same day, Sphere issued an invoice to JBX for the first delivery of hand sanitiser.
In June 2020, Mr Cai was promoted to Deputy General Manager with Aunew. He took over from Mr Singh. On 6 July 2020, KPMG advised that the DOCA had been wholly effectuated and the deed was terminated.

Shortly after 6 pm on 9 July 2020, a fire started at the Moorebank site. The next morning, the NSW broker notified the insurer, advising that 100 firefighters had been called; the fire had made the news. Fire and Rescue NSW’s report identified the fire origin as in the old dispatch area. Mr Munday, who specialises in the investigation of fires and explosions, concluded that the origin of the fire was in the old dispatch area near the pallets of cardboard.
Having reviewed Fire and Rescue NSW’s records, Mr Munday noted that, when the firefighters arrived, the fire remained confined to the cardboard. If the brigade could have applied water or foam at that time, it is likely that the fire would have been contained, suppressed and extinguished. The problem was that the presence of stored ethanol in the old dispatch area affected the risk assessment of the situation. It was unlikely that any firefighters would have been committed into the area, once the storage of plastic drums containing ethanol was confirmed. For this reason, it was not possible to extinguish the burning cardboard before the developing fire spread to the ethanol.
Fire and Rescue NSW’s report noted that factors contributing to unusual fire behaviour were “hazardous contents”. The fire crew turned their hoses “onto exploding ethanol drums to attempt to slow a running ethanol fire in the drains”. An attempt to cut off the fire heading towards the factory “ultimately proved unsuccessful and the building was lost.”
Absent the ethanol, and with normal firefighting tactics applied, Mr Munday was of the opinion that it was very likely that the fire would not have spread from the old dispatch area into the factory. Ignition of the stored ethanol in the old dispatch area produced a rapid, intense high-level fire which spread into the main building, causing running liquid fires in the drainage system and led directly to the fire development within the premises. Storage of ethanol and ethanol-based products within the premises was the major contributor to the overall fuel loading and the spread and intensity of the fire beyond the old dispatch area. It prevented any significant internal fire suppression attacking tactics.
The insurer engaged Mr Sutarov to investigate the fire. On 14 July 2020, he inspected the Moorebank site with Mr Iordanou. Mr Sutarov took photographs over several days. He noted three storage containers in the dangerous goods area, with no evidence of fire damage. One storage container included eight empty IBCs labelled “ethanol”. The other storage containers were labelled “corrosive class 8” and “flammable liquid class 3” respectively and stored different types of dangerous goods. Empty ethanol drums and IBCs were also photographed on the diagonally opposite side of the site, unimpacted by the fire. Mr Sutarov counted 23 pallets containing 92 empty blue plastic drums, with the labels on the drums indicating that each drum had contained 160 kg (or 200 L) of ethanol.
As to how much ethanol was on the Moorebank site at the time of the fire, Sphere’s stock records indicate that there was 25,266 kg (that is, 31,270 L or 31 IBCs) on 6 July 2020. As to how much of that ethanol was in the old dispatch area, as opposed to the dangerous goods area, it looks like it was all in the old dispatch area. Mr Sutarov found eight empty IBCs labelled “ethanol” in the dangerous goods area. Mr Urbina said there was also about 100 pallets of cardboard in the old dispatch area, as there was nowhere to store this material inside.
It is not clear how much ethanol could have been stored in the dangerous goods area. What is known is that Mr Mufaddal had asked for a “split deliver” of 35,000 L from Wilmar BioEthanol, presumably as he apprehended that the dangerous goods area would not be able to store this amount of ethanol all at once. According to the supplier’s later email, Sphere did not place the order for the 35,000 L as they did not know “how they were going to manage the ethanol onsite.” What is also known is that, according to Mr Urbina, the ten IBCs delivered by Redox on 24 April 2020 were stored in steel cages within the bunded area.
It does appear from Mr Sutarov’s inspection that ethanol was stored in one of the three storage containers in the dangerous goods area. As such, the insureds submitted that the capacity of the dangerous goods area was three times the amount of ethanol delivered by Redox on 24 April 2020, that is, some 30,000 L. But Sphere used the other two storage containers for other dangerous goods used by its manufacturing processes, as observed by Mr Sutarov and, indeed, by Mr Iordanou in December 2015: see [54]. It may well be that, if the dangerous goods area had been re-arranged, then more ethanol could have been safely stored there, but I cannot speculate on that prospect. On the limited available evidence, I conclude that the dangerous goods area could store 10,000 L of ethanol in addition to its usual supply for manufacturing processes.

There is no dispute that a contract of insurance came into existence on 20 March 2020. The terms of that policy were LMIG ISR Mark IV Modified (V10-130925) AB wording as amended by ISR Schedule Reference Number BAW001-229-869. In dispute is whether this policy was cancelled and a new contract of insurance formed a week or two later. The significance of this issue is that the duty of disclosure, if any, continued until the contract was entered into: s 21(1), Insurance Contracts Act. As Sphere’s plans to make hand sanitiser evolved hour-by-hour, the date on which the contract of insurance was formed may be highly significant to whether any duty to disclose was observed.
The insureds submitted that, when they appointed the NSW broker, the WA broker had no actual or ostensible authority to represent the insureds. The WA broker’s request to Allianz to cancel the ISR policy was not a request for or on behalf of the insureds. The cancellation had no legal effect. The suggestion that the policy was cancelled relied on an email from the WA broker, who Allianz knew had no authority. Nor did the insurer take any steps consistent with cancellation.
Allianz accepted that, at 7.22 pm on 20 March 2020, the WA broker confirmed its client’s instructions to bind cover, such that Allianz and Sphere entered into an ISR contract of insurance on terms that had been issued by Allianz at 5.34pm that day. But the attempt to appoint a new broker had the consequence that this policy was never issued. The change of broker occurred at a time when cover had been extended, but the contract had not yet been formally closed, that is, premium invoices had not been issued or paid. The emails between the WA brokers and Aunew indicated that, prior to cancellation, Aunew knew that its agent, the WA broker, would cancel the cover on confirmation that it had been replaced as broker. Aunew authorised the WA broker, as its final act as its agent, to cancel the policy.
Allianz accepted that the NSW broker did request Allianz to transfer the policy, but submitted that it had already been cancelled. The change of brokers prior to closing the policy meant that, while it was clear that Aunew wished to be covered, the broking of the policy and its terms remained outstanding. The insurer’s solution was to revise the terms to be offered and send them to the NSW broker so that it could close with full authority. Cover was held while this process was underway. Contractually, this had to be under the old terms as no new terms had been offered or agreed. This is probably best characterised as formal cancellation being delayed.

In fact, the insureds did not wish to cancel the ISR policy for the Moorebank site. The insureds wanted to transfer the policy to the NSW broker. Whether Mr Yin and Mr Zeng informed the WA broker of their intention to transfer the policy is not known. But the WA broker must have appreciated that possibility, where its own letter of appointment envisaged that policies may be transferred on a change of broker: see [76].
What is also known is that the WA broker was displeased, no doubt because they had lost some $30,000 in commissions: see [133]. As the managing director of Austral Risk Services later put it, the WA broker was of the view that if the client was “going to seek terms elsewhere after the work they had done then it was best they go elsewhere.” Perhaps for this reason, the WA broker appears to have been keen to cancel the policy, rather than have the insureds benefit from the broker’s unpaid work in arranging it.
But when the emails, telephone calls and WeChat messages passing in and between Melbourne, Sydney and Perth are put in the correct sequence, it is clear that the WA broker instructed Allianz to “please cancel the policy” before the broker had obtained instructions from Aunew to do so: see [147]. The WA broker then pressed Mr Yin for instructions to cancel. Mr Zeng obtained confirmation from the NSW broker that changing brokers would not have the result that the policy was cancelled: see [152]. Mr Zeng then simply confirmed that Aunew had “decided to go with another broker”, that is, he gave no clear instruction to cancel the policy: see [151]–[152]. The WA broker’s prompt confirmation, “Confirm cancellation”, simply repeated instructions already given to Allianz but without authority. As such, the contract of insurance made on 20 March 2020 remained on foot.
Whilst Allianz did not have the benefit of a complete set of contemporaneous communications at the time, the insurer does not appear to have regarded the WA broker has having authority to cancel the policy either. Rather, over the course of the day, Allianz satisfied itself that the NSW broker was validly appointed. Allianz sought an explanation from the managing director of Austral Risk Services to explain the conduct of its authorised representative. Whilst it was not necessary for the insurer to confirm cancellation in order for it to have effect, if the instruction to cancel was valid, the fact that Allianz did not take any steps consistent with cancellation indicates that it did not regard the policy as having been cancelled at the time.

While the insureds contended that the contract for insurance was made on 20 March 2020, they sought a declaration that Allianz was liable to indemnify them under the policy schedule and policy wording later issued by Allianz’s NSW branch. For its part, the insurer contended that Sphere and Alliance entered into the policy on 2 April 2020, when Mr Pan confirmed that policy wording.
That is, it was common ground that the policy wording was that issued by Mr Pan, but the contractual route by which the parties arrived at that result was different. The significance of this debate is twofold. First, did the duty of disclosure continue beyond 20 March 2020 and, if so, to what date and to what extent? Second, when one considers what the insurer would have done in the counter factual, would underwriters have been considering the matter from the point of view of deciding whether to issue the policy at all, or through the ‘alteration of risk’ provisions?
The insureds contended, between 24 and 27 March 2020, the NSW broker and Allianz corresponded as to the administrative processes associated with transferring the policy from being linked in Allianz’s system to the WA broker, to being linked to the NSW broker. Any changes to the policy schedule and wording after 20 March 2020 were initiated by Allianz and referable to the change of broker, rather than any request by the insured. The differences in policy wording were said to be minor and did not amount to a ‘variation’ for the purposes of s 11(9)(b) of the Insurance Contracts Act. The premium and limit of liability were unchanged. The fundamentals remained the same. The changes in wording did not satisfy s 11(10A)(a)(i) or (ii) of the Insurance Contracts Act.
Allianz submitted that there were significant differences between the 20 March 2020 policy quotation and that issued by Mr Pan on 27 March 2020, including a change in the business description and the named insured. The policy wordings were both Mark IV ISR wordings but with materially different clauses. Relevantly, Endorsement UNDISYB4 was not in the 20 March 2020 policy. Cover was formally bound and closed on 2 April 2020.

Here, there was an agreement by the parties to vary the contract of insurance. The insureds had a duty to disclose matters to the insurer after 20 March 2020 until the contract was varied “with respect to all matters material to the alteration of the terms” (Lishman at 181 (Bramwell B)) or facts “material to the additional risk being accepted by the variation” (Manifest at [54] (Lord Hophouse) (Emphasis in original)).
As to the nature and extent of the variations in this case, the insureds submitted that the differences were minor. But there is an inconsistency in that submission. On the one hand, the insureds maintain that the contract of insurance was formed on 20 March 2020 and the duty of disclosure ceased at that point, as the swap of policy wording made no material change. On the other hand, the insureds embrace the later policy wording as it contains an endorsement that materially improves their position. Endorsement UNDISYB4 is only in the new policy wording. The insureds rely on this endorsement as the “complete answer” to the non-disclosure case. Allianz is said to have thereby contractually waived any entitlement to relief under s 28(3) of the Insurance Contracts Act. I do not think the insureds can have it both ways.
That is, if nothing else, Endorsement UNDISYB4 is a material change. If Sphere was only obliged to give disclosure in respect of that variation – which limits the insurer’s right to avoid the contract if the insured fails to comply with the duty of disclosure – then Sphere was obliged to inform the insurer of matters which may tell upon whether the insurer was giving up little or a very great deal. What facts were “material to the additional risk being accepted by the variation”: Manifest at [54]. As such, Sphere’s duty of disclosure would effectively continue until that variation was entered into.
As to the differences between the contract of insurance formed on 20 March 2020 and the policy schedule and wording later issued, the parties have carefully compared the documents. The insureds likely had the documents at the time and could have undertaken this exercise if they wished: see [125]. There is no suggestion in the contemporaneous records that they did so. Nor, as a practical matter, would one expect them to compare the (by my count) 119 pages of material, line by line, to identify differences between the two wordings, and then consider whether those differences were immaterial or material.
On my passing review:
The first policy document issued by Allianz’s WA branch is a “quotation” whilst the later document issued by Allianz’s NSW branch is a “policy schedule”. The “Important information” in the opening paragraphs of each document is different.
Whilst the insurer and period of insurance is the same, the broker is different, the policy reference number is different and the policy document is different. The premium is the same.
The insured is different, being Sphere in the later document and five entities in the earlier document. The definition of Business is different, with additional wording added to the later document.
The declared values and limit of liability are the same but the sub-limits are different. Eight heads of material damage which are “not insured” under the earlier document are insured under the later document, with sub-limits up to $250,000. A ninth item with a sub-limit of $25,000 under the earlier document has a sub-limit of $100,000 under the later document. The same can be said for sub-limits on items related to consequential loss of profits. Whilst declarations of acquired property are not insured under the earlier policy, they have a sub-limit of $2 million under the later policy. The deductibles are different.
There are multiple differences in the endorsements. According to the tables prepared by the parties, an endorsement appears in one policy wording, but not the other, on 57 occasions.
I have not found a case which considered the situation where the whole policy wording was replaced after the contract of insurance was formed. But I think the position is akin to Seven Cable Television Pty Ltd v Telstra Corporation Ltd [2000] FCA 350, where the nature and extent of the variations to an agreement were so extensive as to make it clear that a new independent contract was intended; the later agreement was so different that it replaced the earlier arrangement: at [134] (Tamberlin J).
Here, the later policy schedule and wording did not even refer to the earlier documents. It was as if they had never existed. I think the insurer’s summary of the position is accurate: “While the premiums, limits and sub-limits of cover were relevantly the same, each wording offered distinctly different cover … the two policies were distinctively separate.” The insurer replaced the earlier agreement but for the same price. I think it follows that, as the variation has the effect of replacing the original contract, the duty of disclosure applies in respect of matters that are material to the whole contract: Kelly & Ball, Principles of Insurance Law at [2.0080].
As to when the agreement to vary the contract of insurance was entered into, the contract of variation must itself satisfy the rules of contract formation: NC Seddon and RA Bigwood, Cheshire & Fifoot Law of Contract (11th Australian ed, 2017, LexisNexis Butterworths) at 212 [4.32]. When is there a clear indication by one person of a willingness to be bound on certain terms, met with an unqualified assent to that offer: JW Carter, Contract Law in Australia (8th ed, 2023, J W Carter Publishing) at 44 [3-02]?
As I read the email exchange between Allianz’s Mr Udayakumar and the NSW broker on 27 March 2020, Allianz provided the new policy schedule and wording and the broker acknowledged receipt. Allianz had certainly made an offer but the broker’s reply was not an acceptance.
The placing slip and closing issued by the NSW broker on 31 March 2020 is a likely contender for acceptance, save that the documents referred to the wrong policy number, being the earlier policy obtained by the WA broker. But Mr Pan’s action on 1 April 2020, sending the policy schedule through to the NSW broker for their records, is consistent with the closing and placing slip amounting to acceptance. The NSW broker sought clarification that the Steadfast wordings applied, as those wordings were not attached to Mr Pan’s email. Mr Pan confirmed the same on 2 April 2020 but, in truth, was simply re-stating what had earlier been advised when Allianz made the offer on 27 March 2020.
In sum, notwithstanding the (obvious) error in the closing and placing slip, I consider that Allianz’s offer was accepted on 31 March 2020 and the contract of insurance was varied on that date. The duty of disclosure continued to that date, subject to whether the insurer waived the insureds’ obligations in that regard by operation of Endorsement UNDISYB4 on Condition 1 of the policy or s 21(2)(d) of the Insurance Contracts Act.

As to whether Condition 1 applied in this case, the insurer’s primary contention was that Endorsement UNDISYB4 did not apply to Sphere’s non-disclosure of its decision to make hand sanitiser, because the failure to disclose that decision was not an error, omission or misdescription of the risk or any other failure within the meaning of the endorsement. As the endorsement operated as an exception to Condition 1, the onus of proof to establish that the insureds fell within the exception to an exclusion rested on them. Where Mr Zeng was the officer responsible for insurance within the meaning of Endorsement UNDISYB4, and he did not give evidence, Sphere had not proved that the error, omission or misdescription of the risk was “unintended and/or inadvertent”.
The insureds agreed that Mr Zeng was the officer responsible for insurance within the meaning of this endorsement but argued that there was no issue as to Mr Zeng’s state of mind given the insurer’s pleading of alternative arguments as to why the endorsement did not apply.
If the insurer did not establish its primary contention, then it pleaded, in the alternative, that (relevantly) Mr Zeng was not aware of any error, omission or misdescription of the risk or any other failure within the meaning of that endorsement. The insureds admitted this alternative contention.
But this does not establish the insureds’ entitlement to rely on Endorsement UNDISYB4. The insureds must prove that the non-disclosure was “unintended and/or inadvertent”. That is not proved by the insureds admitting that, if the non-disclosure was “unintended and/or inadvertent”, then Mr Zeng was not aware of it.
The insureds could have established that the non-disclosure was “unintended and/or inadvertent” by reference to contemporaneous documents, but there were none. The insureds could have provided this by calling a witness. Mr Zeng and Mr Yin both made affidavits but did not give evidence. Where the insureds have not established that the non-disclosure was “unintended and/or inadvertent”, then Condition 1 as amended by Endorsement UNDISYB4 does not apply.

The policy schedule and policy document contain no relevant definitions. Condition 2 refers to “the Insured's officer responsible for insurance” in the first proviso, as does Endorsement UNDISYB4 and Endorsement SPRAYPC4 “Sprinkler Installations”. Endorsement BREAKXB4 – Breach Of Conditions –refers to “the Insurance Officer of the Insured”. Endorsement ALTERVS4, which creates the second proviso, refers to “an officer of the Insured who is responsible for Insurance”. Presumably, the choice of language was intentional.
Putting Endorsement ALTERVS4 to one side for the moment, Condition 2 provides that Allianz is not liable for loss caused by an alteration in risk after commencement of the policy unless, on becoming aware of the alteration in risk, “the Insured’s officer responsible for insurance” takes certain steps. The first proviso creates a mechanism by which the parties can address any alteration in risk during the period of cover. If the mechanism is activated, then the insurer can either agree to bear the additional risk (with or without an additional premium) or decline to do so, in which case it will not be liable for loss caused by the alteration in risk.
Obviously enough, if the Insured’s officer responsible for insurance does not know about the alteration in risk, then they cannot avail themselves of this mechanism and the insurer will not be liable for loss caused by the alteration in risk. Condition 2 and the mechanism in the first proviso creates an incentive on the Insured’s officer responsible for insurance to stay abreast of alterations in risk.
What does the second proviso add to this contractual arrangement? And what is it about paras (a) and (b) of Condition 2 that warrants special treatment in Endorsement ALTERVS4, as opposed to paras (c) and (d)? Paragraphs (a) and (b) of Condition 2 describe actions of the Insured which immediately alter the risk: removing insured property from the Premises or changing the Insured’s trade or processes of manufacture. These acts might be thought more likely to immediately increase risk, either because removing property insured from the Premises might be thought to generally have that effect, or because para (b) expressly refers to changes in trade or manufacturing processes “in such a way as to increase the risk”. Paragraphs (c) and (d) of Condition 2 describe more gradual events which alter risk: premises containing insured property become unoccupied for more than 30 days or the Insured’s interest in the insured property comes to an end. Whilst premises becoming unoccupied for a prolonged period might be thought to increase risk, the fact that the Insured ceases to have an interest in the insured property might be thought likely to reduce risk.
And it is these differences between the actions taken by the Insured in paras (a) and (b) of Condition 2 and the events described in paras (c) and (d) which explains the need for the second proviso. The events described in paras (a) and (b) may bring about an immediate alteration in risk which may not come to the attention of the Insured’s officer responsible for insurance before something goes wrong. The events described in paras (c) and (d) are events which the Insured’s officer responsible for insurance has time to plan for, or be alive to, and to activate the mechanism in the first proviso.
Endorsement ALTERVS4 gives additional protection to the insured in circumstances where there is likely to be an immediate increase in risk as a result of the Insured’s actions. But that will only be the case if additional requirements are satisfied. The alteration in risk must be “neither known to nor made by an officer of the Insured who is responsible for Insurance.” If these requirements are satisfied, then the events in paras (a) and (b) are removed entirely from Condition 2. The Insured’s officer responsible for insurance does not need to activate the mechanism in the first proviso. The insurer will not have the opportunity to refuse to cover the altered risk, nor the opportunity to receive an additional premium for their troubles. The quid pro quo is, basically, that this change was not known to or brought about by someone who should have known better than to take this step without notifying the insurer of the alteration in risk.
It seems unlikely that, in an industrial setting, “the Insured’s officer responsible for insurance” referred to in the first proviso will be the same person making the decision to remove insured property from the Premises or to change the Insured’s trade or manufacturing processes. If they were the same person, then the second proviso confers a substantial benefit on the insured but with no corresponding burden. It would have been simpler to just delete paras (a) and (b) of Condition 2 and be done with it. Presumably the second proviso was intended to have some meaningful operation to balance the interests of the contracting parties.
Further, reading the second provision in the manner contended for by the insureds will undermine the incentive created by Condition 2, for the Insured’s officer responsible for insurance to keep abreast of changes in risk and to communicate with the Insurer in a timely manner. In the events described in paras (a) and (b), which describe events which, by their nature or express description, are likely to immediately increase the risk of loss, all that the Insured’s officer responsible for insurance need do to protect the Insured’s interests is to make sure that they do not know about it and take no part in it. That would defeat the purpose of the clause. As observed in Onley v Catlin Syndicate Ltd [2018] FCAFC 119, “It goes without saying that a construction that avoids capricious, unreasonable, inconvenient or unjust consequences, is to be preferred where the words of the agreement permit”: at [33] (Allsop CJ, Lee and Derrington JJ).
For these reasons, I conclude that the contracting parties intended that the description of the officer in the second provide be given an expansive reading. The officer was not necessarily the same person as “the Insured’s officer responsible for insurance” referred to in the first proviso.

As to the application of the condition, the insurer contended that Mr Zeng was the Insured’s officer responsible for insurance for the purposes of the first proviso in Condition 2. But the first proviso did not apply because Mr Zeng did not have subjective knowledge of the alteration in risk. The insurer submitted that Sphere bore the onus of proof to establish that the exceptions to Condition 2(b) were established. The first proviso only applied where the relevant alteration came to the knowledge of “the Insured’s officer responsible for insurance”. There was no evidence that the alteration came to Mr Zeng’s knowledge. Nor was there reason to draw an inference favourable to Sphere in the absence of calling Mr Zeng.
As for the second proviso, Allianz contended that Mr Singh and Mr Cai were both “an officer of the Insured who is responsible for Insurance” within the meaning of that proviso. But both gentlemen knew of the alteration in risk and thus the second proviso did not apply either. The insurer submitted that Mr Singh and later Mr Cai fitted the description of being an officer of the Insured responsible for insurance. Both Mr Singh and Mr Cai were aware of the alteration in the risk. The insurer pointed to communications concerning insurance which involved Mr Cai, both before and after the fire, from which an inference could be drawn that Mr Cai had responsibility for insurance given his position at Sphere. On 28 July 2020, Mr Yin advised the loss adjuster of his progress in arranging a demolition company and copied Mr Cai. On 23 September 2020, Mr Cai wrote to Allianz, complaining about the delay in confirming indemnity. Where Mr Cai did not give evidence, the Court would draw that inference with greater confidence. For that reason, the second proviso was not engaged.
The insureds contended that Mr Zeng was the officer responsible for insurance within the meaning of Condition 2 as a whole. They agreed that Mr Zeng did not have knowledge of the alteration in risk. They denied that Mr Singh and Mr Cai were officers of Sphere with responsibility for insurance within the meaning of the second proviso, and also denied that these gentlemen knew of an alteration in risk. The insureds submitted that Allianz bore the onus of proving that the alteration was known to the officer responsible for insurance: Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231 at 237 (Jordan CJ). That person was Mr Zeng. Due to Mr Zeng’s admitted lack of knowledge, Condition 2 did not apply by virtue of Endorsement ALTERVS4.
The mechanism in the first proviso was not activated in this case. The parties agree that Mr Zeng was the Insured’s officer responsible for insurance. Where the insurer pleaded as a positive fact that the first proviso did not apply “because Mr Zeng did not have subjective knowledge of the Alteration in Risk”, and the insureds admitted that assertion, then the insurer is bound by that admission. The insureds did not need to call Mr Zeng to prove that he did not know. But nor does it advance matters for the insureds; having not activated the mechanism in the first proviso, the insurer is not liable for any loss caused or contributed to by the alteration in risk unless the second proviso applies.
The applicability of the second proviso involves two questions. First, were Mr Singh or Mr Cai “an officer of the insured who was responsible for Insurance”? Second, did either Mr Singh or Mr Cai know about, or make, any alteration in the trade or processes of manufacture carried on at the Moorebank site in such a way as to increase the risk of loss, destruction or damage?
As to the first question, the insureds placed much weight on the arrangements reached under the DOCA, including the Interim Management Deed and the two Shared Services Agreements between Aunew, on the one hand, and GMP and Sphere respectively, on the other hand. That may well have been the arrangements that were reached within the Aunew corporate group. But none of these documents were provided to Allianz, either to Mr Keuneman in Perth or subsequently. The Shared Service Agreement between Aunew and Sphere did not then exist but was executed in 2021 and given retrospective effect. Nor, for that matter, was arranging insurance a Service mentioned in the Shared Services Agreement.
The insureds argued that Mr Singh was not an officer of the insured who was responsible for insurance, given the terms of the DOCA. This suggestion was not mentioned in the insureds’ extensive pleading or their 95 pages of closing written submissions. The argument was made orally and at length. The insurer submitted in reply that this should have been pleaded as then the insurer would have pleaded a good faith point if the insureds contended that an endorsement had no meaningful operation because of a want of authority. I accept that submission and will not delve into the interstices of the DOCA.
But in any event, the question here is a proper construction of the contract of insurance. In construing the policy, the internal arrangement of the Aunew group of companies are not surrounding circumstances known to both parties or receivable as an aid to construction: Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24 at 352.
The Insured was Sphere, not Aunew (where Mr Zeng worked). As I understand the arrangements from the contemporaneous documents, Mr Singh was the most senior employee at the Moorebank site and in charge of operations. Mr Cai became his deputy and, in June 2020, Mr Singh’s successor. As managers, Mr Singh and Mr Cai were both asked to direct insurance inquiries to Mr Zeng: see [72]. Implicit in that instruction is that the managers’ role included identifying insurance issues as they arose on site.
Mr Singh did liaise with Mr Zeng in relation to particular insurance needed for the Moorebank site, even before the instruction to managers was issued: see [65]. Mr Cai did raise an issue as to whether Sphere’s insurance responded to a particular problem then being experienced, and asked how he could best prepare to make any claim: see [110]. I have put post-fire communications with Mr Cai on insurance matters to one side.
As the most senior employees on the Moorebank site, I consider that both Mr Singh and Mr Cai were “an officer of the Insured who is responsible for Insurance” within the meaning of the second proviso. Their role necessarily required them to have an eye to the implications of what was going on at the Moorebank site for the company’s insurance.
The final question is whether either Mr Singh or Mr Cai knew about, or made, any alteration in the trade or processes of manufacture carried on at the Moorebank site in such a way as to increase the risk of loss, destruction or damage. It is plain from the contemporaneous documents that both gentlemen were well aware of the changes that were going on and made the decisions to implement those changes. Specifically, when Mr Cai suggested to Mr Singh and others on 23 March 2020 that Sphere should import alcohol from China, GMP’s R&D Manager – ANZ, Mr Chitneni replied to both gentlemen, “Take into consideration this to be a dangerous good (highly flammable).” Both gentlemen had been copied on an email from Ms Dong on 30 March 2020, advising that the liquid manufacturing section had to be modified “to explosion proof level” to manufacture ethanol-based hand sanitiser. On 3 April 2020, Mr Singh authorised Mr Cai to place a purchase order for 60,000 L of ethanol to be imported from China.
On 22 April 2020, both gentlemen received an email from Mr Urbina, raising concerns about the bulk delivery of ethanol, including that the dangerous goods area was inadequate, there were no proper control measures in the case of spillage and personnel were untrained. On 5 May 2020, Mr Cai and Mr Singh’s assistant received an email from the customs officer, advising that the ethanol arriving from China was classed as Dangerous Goods Class 3. On 13 May 2020, Mr Singh had a meeting with Sphere’s Head of Quality as to how the 80 IBCs of ethanol could be received, reportedly concluding that the risk was “bare minimum”. In June 2020, Mr Cai took over from Mr Singh, being at a time when the manufacture of hand sanitiser was underway.
I conclude that the alterations in risk brought about by the events described in Condition 2(b) were “known to [and] made by an officer of the Insured who is responsible for Insurance”. The requirements of the second proviso are not satisfied. Allianz is not liable for loss caused or contributed to by any alteration after the commencement of the policy. The insureds accepted that the storage of bulk ethanol on the site was an alteration of risk that caused or contributed to the loss.

Returning to the duty of disclosure, the insureds contended that Allianz waived any requirement for disclosure: s 21(2)(d), Insurance Contracts Act. The insureds relied on the years of coverage conferred by the insurer, together with the insurer’s practices. Allianz had provided ISR cover to Sphere since 2012. Allianz’s practice in underwriting these policies was not to use proposal forms but to gather information for the purpose of assessing risk itself. Allianz conducted its own physical inspections and surveys of the site, issued RIRs, communicated with Sphere as to any steps taken in response to the RIRs, posed specific questions and otherwise used existing information which it held about the insureds. Changes or alterations to the insured risk on account of changes or alterations in Sphere’s business during the policy period were said to be habitually addressed by the parties’ use of an alteration of risk clause.
Further, the insureds contended that Allianz underwriters were told that the business of Sphere was “Principally products & health foods contracted manufacturer”. The insurer knew from its historical relationship with Sphere that the Moorebank premises stored hazardous chemicals for use in its manufacturing processes. Allianz determined what further information it needed from the WA broker for the purposes of assessing the risk and posed questions to the broker to obtain that information. The insurer decided to provide cover without a current physical survey and without imposing conditions. It sought no additional information as to the specifics of Sphere’s manufacturing business, including any information as to what products Sphere might manufacture during the term of the policy. Allianz did not request a product listing or ask about raw materials, manufacturing processes, contracts for manufacture or future plans. While Allianz knew that Sphere stored ethanol, it asked nothing about this. Allianz offered cover in circumstances where the last survey was in 2015 and everything since was a ‘desktop’ review.
The insureds submitted that the case law in this area generally proceeded on the basis that the relevant information flow was wholly from the insured to the insurer. But that was not this case. Here, the insurer knew enough to enquire but did not seek out the rest of the information: QBE Underwriting Ltd as managing agent for Lloyds Syndicate 386 v Southern Colliery Maintenance Pty Ltd (2018) 97 NSWLR 459; [2018] NSWCA 55 at [103]-[106] (Leeming JA, Macfarlan and Payne JJA agreeing); Asfar & Co v Blundell [1896] 1 QB 123 at 129-30 (Lord Esher MR), 131 (Lopes LJ), 133-4 (Kay LJ); Roumeli Food Stores *(*NSW) Pty Ltd v The New India Assurance Co Ltd [1972] 1 NSWLR 227 at 233-4 (Macfarlan J); QBE Insurance *(*International) Ltd v Jaggar [2007] 2 NZLR 336 at [35] (William Young P). Allianz knew that the information it had on the Moorebank premises was dated. There was potential for the premises to change in the meantime. Where the ARCA reports made clear that Sphere stored ethanol on site, the insurer was put on enquiry as to capacity of storage but did not enquire, waiving any right to the duty to disclose that further information. While Mr Keuneman asked whether the general descriptions of business activity in the quote slip remained accurate, he could have asked for product listings, contracts with clients and future intentions. Where he did not, it was said that Allianz waived any requirement to disclosure in these areas.
The insureds submitted that Allianz continued to waive any duty of disclosure which may have applied from 20 March 2020 until the new policy wording was in place. During this period, Allianz made it clear that it had completed its underwriting process and was bound. The insurer did not ask any underwriting question of the NSW broker nor request continuing disclosure to accommodate the transfer.
The insurer submitted that waiver only arises when the insurer is “put on enquiry about some particular matter [such that] it can be said that they have waived the obligation…”: Arterial Caravans Ltd v Yorkshire insurance Co Ltd [1973] 1 Lloyd’s Rep 169 at 180-1. The question is whether there has been a fair presentation of the risk by the insured and the insurer has communicated that further details are not required: WISE Underwriting Agency Ltd v Grupo Nacional Provincial SA [2004] EWCA Civ 962; Hitchens v Zurich Australia Ltd [2015] NSWSC 825 at [129]-[140] (White J); J&J Richards Super Pty Ltd v Nielsen [2024] FCA 1472 at [290] (Halley J). Where there was no proposal form that asked questions of insured, the principle was of narrow application and directed to whether the insureds provided a fair presentation of the risk. There was no fair presentation of the risk here, but a simple “Confirm no change in business activity”.

Section 21(2)(d) of the Insurance Contracts Act 1984 (Cth) provides that the insured’s duty of disclosure “does not require the disclosure of a matter … as to which compliance with the duty of disclosure is waived by the insurer.” “Waiver” in s 21(2)(d) takes its meaning from how that concept has been applied in insurance law: Hitchens v Zurich Australia at [134] (White J). The concept stems from marine insurance.
The seminal case is Carter v Boehm (1766) 3 Burr 1905, where the governor of Port Marlborough in Sumatra insured a fort against being taken by the French. The question was whether letters from the governor and to the East India Company – indicating that there was every chance that the French would take the fort – should have been disclosed. In illustrating the principle of waiver, Lord Mansfield said, “If an underwriter insures private ships of war … he needs not be told, the secret enterprizes they are destined upon; because he knows some expedition must be in view; and, from the nature of his contract, without being told, he waives the information”: at 1165. Waiver of disclosure in such circumstances is founded on notions of fairness. As Lord Mansfield further explained, “The question … must always be “whether there was, under all the circumstances at the time the policy was under-written, a fair representation; or a concealment … though not designed … changing the risque understood to be run”: at 1165.
Not much has changed, albeit the principle has been expressed in various ways. The duty to disclosure is satisfied if the insured “discloses sufficient to call the attention of the underwriters in such a manner that they can see that if they require further information they ought to ask for it”: Asfar & Co v Blundell at 129 (Lord Esher MR); cited with approval in QBE Underwriting v Southern Colliery at [103] (Leeming JA, Payne and Macfarlan JJA agreeing).
More recently, it has been said that whether there has been waiver by an insurer involves two questions. As Longmore LJ (Peter Gibson LJ agreeing) summarised the position in WISE Underwriting Agency v Grupo Nacional Provincial at [111]:

A simple example of waiver of the duty of disclosure under s 21(2)(d) is ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1; [2014] FCAFC 65, where the insurer made clear to the broker that it did not require a proposal form to be completed but required only financial statements: at [1711] (Jacobson, Gilmour and Gordon JJ).
As the insureds’ submission conceded, their argument is not readily supported by the case law. And their argument was, in short, that the more an insurer investigates a risk for themselves, the less an insured has to disclose a matter pertaining to that risk unless squarely asked. That is, the duty of disclosure is waived by the insurer’s efforts. The submission does not sit well with the statutory language or the common law on which the statute is based. An insurer may not be prepared to take the insured’s word for it, when describing the state of affairs on an industrial site. An insurer may invest time and money in examining the site for themselves. But an insurer presumably undertakes these activities against the statutory backdrop that the insured has a duty of disclosure. If, by investing in risk surveys and the like, the insurer’s expenditure abrogates the insured’s duty, then no insurer would do it and ISR policies may be hard to come by.
Looking at whether the insurer did not require the disclosure of a matter under s 21(2)(d) of the Insurance Contracts Act when agreeing to provide cover on 20 March 2020, and when agreeing to do so again on different terms on 31 March 2020, it is true that Allianz had insured Sphere in the past. But that ISR policy had been cancelled.
When Allianz was asked to insure the risk again in March 2020, Allianz’s WA branch had never dealt with this risk and the WA broker was new to the risk too. The suggestion that the WA broker’s email to Allianz’s WA branch on 3 March 2020 – “All other files should be in your system. Please let me know if you need anything else” – was entirely in line with the way in which Allianz had historically insured Sphere, puts the matter too highly. There is no evidence that the WA broker had any particular insight into Allianz’s practices or procedures or was aware of the extent of historical information available to the underwriter. Further, Aunew was now seeking insurance on behalf of Sphere, and there is no suggestion that Aunew had any particular insights into what Allianz knew or had beyond Mr Iordanou’s RIRs.
What the insurer did know was that things had changed since it had last insured this risk. Specifically, Sphere had been in external administration and had been purchased by a third party. The business was now being run by new owners. Mr Keuneman’s questions to the WA broker clearly asked: what has changed? He was particularly interested in what had happened when the company was in external administration: whether the company had been insured during that period and what claims, if any, had been made. Further, Mr Keuneman asked “Please confirm there has been no change in business activity as per your slip.” It will be recalled that the WA broker’s slip had described activity at Moorebank as “Manufacture of health care and milk powder products.” On 18 March 2020, the WA broker confirmed that there had been nil claims during external administration and, further, “Confirm there is no change in business activity.” That is, Sphere was still making health care and milk powder products.
Turning to the first question posted in WISE Underwriting Agency v Grupo Nacional Provincial, was this a fair presentation of the risk? No. As at 18 March 2020, a fair presentation of the risk would, I think, have included advising that, in addition to manufacturing health care and milk powder products, the company’s new owners had decided to make hand sanitiser gel on the Moorebank site. The main ingredient in that product was ethanol. While the company had always used ethanol in its production processes, it now needed much more to make this new product. The company did not know how it was going to manage the storage of the larger quantities of ethanol on site, but the company was resolved to proceed with the new product.
Even if the answer to the first question is ‘yes’, what it is about the WA broker’s communication – “Confirm there is no change in business activity.” – that put the insurer on enquiry by raising “at least a suspicion that there other circumstances which would or might vitiate the presentation?”: WISE Underwriting Agency v Grupo Nacional Provincial at [111] (Longmore LJ). There was nothing. The abiding message was that, notwithstanding that it looked like a lot may have changed, in reality, it was the same risk. The new owners had been Sphere’s “landlord for all these years” such that the fact that the new owner was “now operating instead of [being the] property owner” was not as significant as it might otherwise have been thought.
Mr Keuneman obviously understood that it was ‘business as usual’, describing Sphere’s activities on 19 March 2020 as “Manufacture and Distribution of natural and nutritional pharmaceutical products including coating of tablets, extraction of liquids from vegetation, liquid herbal extracts …”. When Mr Pan later reviewed the underwriting to confirm that the risk was acceptable, he relied on Mr Keuneman’s enquiry and the broker’s confirmation that there had been no change in business activity.
I am not satisfied that the insurer waived the duty of disclosure under s 21(2)(d) of the Insurance Contracts Act as there was no fair presentation of the risk. Rather, in response to the insurer’s direct questions as to whether there had been any change, the insured represented that there had been no change in business operations. Nor was there anything in the presentation of the risk that would have put the insurer on enquiry that more questions should be asked. This brings as to whether the duty of disclosure was complied with.

The insurer contended that the failure to inform it of the decision to manufacture hand sanitiser was a material non-disclosure and breach of the policy: s 21(1)(b), Insurance Contracts Act; Condition 1. At some time before entry into the contract of insurance, Mr Cai, Mr Singh, procurement officer Mr Mufaddal and procurement manager Ms Halligan knew that Sphere had decided to manufacture hand sanitiser at the Moorebank premises and was intending to commence the manufacture within the proposed period of insurance. Sphere was aware of this decision via the knowledge of Mr Cai, Mr Singh, Mr Mufaddal and / or Ms Halligan. Sphere had a duty to disclose this before entry into the contract.
The insurer submitted that, where the risk being transferred to Allianz under the policy was for $26.8 million, a reasonable person in Sphere’s position at the date of entry into the contract of insurance would appreciate the materiality of a decision to start manufacturing hand sanitiser in the short term by proposing to bring large quantities of a highly flammable raw product onto the premises. Once made, the hand sanitiser was largely alcohol and would also be on the premises for some time. Under the policy, Sphere was insured not only for the ethanol as raw material but the hand sanitiser as product. This was without even considering the obvious concern that something that dangerous and flammable might set the whole place on fire. It was said to be a slightly unreal proposition that someone that knew that they were entering into this policy with this level of cover for the buildings, contents and stock would not have appreciated the materiality of that proposed activity.
The insurer further submitted that Allianz had a longstanding interest in fire protection of the Moorebank site, as demonstrated by its surveys and RIRs. Sphere would have known that the insurer had an intense interest in fire safety at the premises. It would have been obvious to a reasonable person in the position of the insured that they were planning to move into production of a highly flammable product. The description of Sphere’s business in the placing slip did not come close to fairly disclosing the nature of this activity.
The insureds accepted that, in late January 2020, Sphere was exploring the possibility of manufacturing hand sanitiser at the premises. But without a reliable, committed supplier of ethanol, this was nothing more than a concept. Concerted efforts to secure a locally available, committed supply of enough ethanol were largely unsuccessful. It was meaningless to suggest that Sphere had decided to make hand sanitiser in the absence of securing the primary and essential agreement. The insureds did not know that Sphere would be manufacturing hand sanitiser at any point during the period of insurance.
The insureds submitted that, for practical purposes, the relevant date for disclosure was the date on which Allianz was bound to provide cover for the relevant period of insurance, being 20 March 2020. The policy endorsements offered by Allianz to Sphere over the years included an alteration of risk clause by which the matter could be addressed as and when a supply of ethanol was found. After this date, Allianz had already accepted the risk. Allianz did not make any request of the insureds or the broker for continuing disclosure, or further information beyond confirmation that the NSW broker was authorised. A reasonable person in the circumstances of the insureds would not have understood that matters that first came to their knowledge after 20 March 2020 were matters that could affect Allianz’s decision to accept the risk, or the terms of that acceptance, where Allianz had already confirmed that the risk was accepted and had identified and issued terms.
The only thing which had changed was that Sphere had begun to make some enquiries overseas for a possible supply of ethanol, but no supplier had been found. On 3 April 2020, Sphere issued a purchase order to an overseas supplier. But significant uncertainties remained, including when and whether the ethanol would arrive. Sphere adopted a step-by-step approach; it did not contract with JBX until after it received confirmation that the ethanol had arrived in Australia. Questions of how and where that ethanol would be stored were not addressed until well into the period of insurance.
The insureds further contended that, as at 20 March 2020, they knew how Allianz gathered information for the purposes of underwriting, in particular, via Sphere’s responses to RIRs. Allianz had made some specific inquiries of the WA broker, which the broker answered. Allianz had asked no questions about any products manufactured, including current product listings or ingredients used, contracts past, future or proposed, past present or future manufacturing processes, raw materials or finished stored at the premises or raw or finished products that may have been held in storage at the premises during the term of cover. Where Allianz was said to have historically insured Sphere on the basis of an alteration of risk clause, which provided for Sphere to notify it in the event of changes occurring during the term of the policy, a reasonable person in the circumstances would not be expected to know that the decision to make hand sanitiser was relevant to the insurer’s decision whether to accept the risk and, if so, on what terms.
The insureds contended that, when the insurer posed questions, those questions were directed to past and present matters, but not to future matters. When the contract for insurance was formed, Sphere had not undertaken any business of manufacturing hand sanitiser, as it was yet to determine whether it could do so. Sphere had yet to identify any supplier of ethanol that would, or could, commit to supply in quantities sufficient for Sphere to further progress any dealing with the one client who was seeking to contract with Sphere for the manufacture of hand sanitiser. Nor did the insurer have any particular interest in fire safety. Rather, the insurer offered cover when it knew that the Moorebank premises did not have sprinkler protection, the hydrant water supply flow testing had not been completed and the insurer did not know whether the premises complied with fire and council regulations.
Further, Sphere had not taken any decision to acquire ethanol in quantities that, even if all orders were received at the Moorebank premises, would not be capable of being stored within the ordinary storage facilities at the premises for the storage of hazardous chemicals. The insured had not taken any decision concerning the future storage of quantities of ethanol at the premises or elsewhere, in the event that ethanol was sourced, acquired and delivered in volumes that were greater than that which could be accommodated in the designated storage areas at the premises. Nor had Sphere taken any decision as to the production and delivery schedules and associated storage requirements for hand sanitiser as a finished product.

While s 21(1)(a) looks only to what the insured knows, subs (1)(b) looks to what a reasonable person could be expected to know, taking into account the circumstances affecting the actual insured but without taking into account their subjective state of mind: GIO General Ltd v Wallace [2001] NSWCA 299 at [23] (Heydon JA, Priestley and Hodgson JJA agreeing); CGU Insurance Ltd v Porthouse (2008) 235 CLR 103; [2008] HCA 30 at [52] (Gummow, Kirby, Heydon, Crennan and Kiefel JJ).
“Know” means considerably more than “believe” or “suspect” or even “strongly suspect”: Permanent Trustee v FAI at [30] (McHugh, Kirby and Callinan JJ). The insured must not only know a matter, but must know it to be “a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms”: at [29]. As to the risk, the focus of attention is on the particular insurance hazard: at [32].
Whether a matter is known is a question of fact: Commercial Union Assurance Co of Australia Ltd v Beard (1999) 47 NSWLR 735; [1999] NSWCA 422 at [37] (Davies AJA, Meagher JA agreeing). Where the operation of s 21 extends to persons (including corporations) who can “know” only through agents, the knowledge of relevant employees and agents may be taken into account: Permanent Trustee v FAI at [86] (Gummow and Hayne JJ).
Three examples of matters which a reasonable insured could be expected to know to be relevant to the insurer’s decision whether to accept the risk and, if so, on what terms, may assist. A substantial expansion of the insured’s business could be relevant to the risk of damage to the premises or the risk of fire: GIO v Wallace at [26]. The fact that the premises are being used as a brothel may qualify, as “such use of premises could put the safety of the premises in danger” including by reason of arson, standover tactics, fights and dissatisfied customers: Lindsay v CIC Insurance Ltd (1989) 16 NSWLR 673 at 684 (Rogers CJ in Comm D). The fact that the insured in sharing industrial premises with another and that other has brought “a substantial body – probably upwards of a thousand litres at least – of highly flammable chemical” onto the insured premises may also qualify: Prime Forme Cutting Pty Ltd v Baltica General Insurance Company Ltd (1991) 6 ANZ Insurance Cases 61-028 at 76,879 (Tadgell J).
Given my earlier findings, the insureds’ duty of disclosure continued up to and including 31 March 2020. Given the complete replacement of the terms of the policy, the duty of disclosure up to that date applied in respect of matters that were material to the whole contract, not just to those matters that were material to the variation: Kelly & Ball, Principles of Insurance Law at [2.0080].
It is relevant at this point to consider what Sphere knew as at 31 March 2020 in respect of – not only its plans to make hand sanitiser – but its plans to bring bulk ethanol on site for that purpose. And this brings me back to Mr Cai’s email of 23 March 2020 and the gap in documentation until a purchase order was placed on 3 April 2020.
As to Mr Cai’s email of 23 March 2020 (see [134]), I draw no inferences in favour of the insureds in respect of the absence of documents evidencing Mr Cai’s negotiation with the Chinese supplier referred to in his email. What I do know is that Mr Cai said that he became involved in Sphere’s manufacture of hand sanitiser in his capacity as Group Planning and Resources Manager to assist with, among other things, procuring ethanol. His involvement had begun a fortnight earlier, on 10 March 2020: see [85].
I have already described Mr Mufaddal’s travails in sourcing bulk ethanol from Wilmar BioEthanol. Mr Mufaddal’s entreaties had produced a firm “no” from the supplier on 18 and 19 March 2020. (Mr Cai said he was not copied on Mr Mufaddal’s emails with Wilmar BioEthanol on 18 and 19 March 2020 and so was unaware of the status of their dealings.) On being told that the supplier could not assist, Mr Mufaddal contacted Redox again on 19 March 2020. Redox advised at 3.26 pm on Friday, 20 March 2020 that it could not assist either: see [117]. (There is no evidence that Mr Cai was unaware of this communication). In Hong Kong, where the merchant of the ethanol that was ultimately purchased was based, it was then 12.26 pm.
By 6pm on Monday, 23 March 2020, Mr Cai reported to his colleagues, “I managed to negotiate with some Chinese supplier”. Where Mr Cai noted in his email that Sphere “urgently need alcohol” and it would be “a disaster” if he could not procure it, it is likely that Mr Cai decided to look at importing ethanol from overseas when it became apparent that Mr Mufaddal had been unsuccessful, which was on 20 March 2020. (Indeed, where Mr Mufaddal was told the bad news by Redox four hours before Mr Keuneman bound cover on the contract of insurance, Mr Cai might have begun these negotiations before the contract of insurance was formed, though I do not think it matters: see [125].) But in terms of the sheer availability of business hours to undertake negotiations, it is more likely that he “managed to negotiate with some Chinese supplier” on Monday, 23 March 2020.
I draw no inferences in favour of the insureds in respect of the absence of documents evidencing Mr Cai’s negotiation with the Chinese supplier from 23 March 2020 until a purchase order was placed with the supplier on 3 April 2020. There must have been multiple communications over this period. Mr Cai was advised on 24 March 2020 by Mr Peiris that there was no problem using imported alcohol from a QA point of view. It is likely that Mr Cai pursued negotiations with the Chinese supplier in earnest from 24 March 2020 in parallel with Sphere’s efforts to secure ethanol from local suppliers Wilmar BioEthanol and Redox, as well as Fonterra in Auckland. The price of local ethanol was rapidly increasing: see [181]. Sphere was trying to source Ethanol 94 instead but was still having no luck, as advised by suppliers on 24 and 26 March 2020.
Where Mr Mufuddal had been trying to source between 40,000 L and 50,000 L of ethanol, presumably Mr Cai was negotiating the supply of at least that amount. This was about ten times the amount of ethanol that Sphere usually held on site. Obviously enough, an importation of bulk ethanol was not going to be a “split deliver”. But Sphere’s previous concerns as to “how they were going to manage the ethanol on site” had been put to one side.
As at 31 March 2020, a reasonable person in the circumstances of Sphere could be expected to know that the company had decided to make a new product, the main ingredient of which was a flammable liquid, ethanol. The company had completed the research and development phase. The manufacturing equipment had been tested with a trial run. Modifications had been made to its liquid manufacturing section to “explosion proof level” given that the ethanol concentration for the product was 75%. All other ingredients had been sourced, including bottles, pumps and fragrance. The first customer was printing labels.
Given current shortages in ethanol supplies locally, Sphere had decided to import a bulk shipment of ethanol from overseas. The company was in advanced negotiations with the supplier. This ingredient was usually stored in Sphere’s dangerous goods area. The dangerous goods area had insufficient capacity to store the amount of ethanol that was expected to be sourced from this supplier, which was about ten times the amount usually held on site. Sphere did not know how they were going to manage the ethanol on site.
This case is distinguishable from Prime Forme Cutting v Baltica General Insurance in that Sphere did use ethanol and was not bringing this flammable substance onto the site for the first time. But the insured was planning to bring a bulk quantity of the substance onto the site in circumstances where it would significantly exceed the capacity of the dangerous goods storage area. As to whether a reasonable person could be expected to know that this was a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms, I consider that a reasonable insured would have known this.
From the RIRs provided by Allianz in the past, which the company had completed from time to time, the insurer had made a series of recommendations in respect of fire protection systems and thus was apparently interested in that subject. Where the insurer was being asked to provide cover of $26.8 million, the insurer’s interest in such a subject was unremarkable.
Being in possession of the RIRs, a reasonable insured would have known that the insurer had inspected the site in December 2015 and was aware that the insured stored flammable liquids in the dangerous goods storage area. A reasonable person in the circumstances could be expected to know that the fact that the insured was arranging to bring bulk ethanol onto the site which significantly exceeded the capacity of that area would be relevant to the decision of the insurer whether to accept the risk and, if so, on what terms. Sphere did not comply with its duty of disclosure.

The insurer contended that it would not have entered into the policy at all, or for the same premium, or on the same terms and conditions, if the decision to manufacture hand sanitiser had been disclosed. The insurer was entitled to reduce its liability to nil under s 28(3) of the Insurance Contracts Act. Further, where the acquisition and storage of the imported ethanol could reasonably be regarded as being capable of causing or contributing to the fire and its subsequent damage to the premises, the insurer was entitled to rely on s 54(2) of the Insurance Contracts Act. The insurer contended that it was entitled to reduce its risk to nil pursuant to Condition 2 of the policy: s 54(1), Insurance Contracts Act.
For their part, the insureds contended that Endorsement UNDISYB4 applied such that Allianz was entitled to request any reasonable extra premium to be paid by the insureds in respect of any non-disclosure. But where the insurer had not called any evidence as to what that additional premium was, the Court could not award this either. The insureds accepted that there was an alteration in risk but contended that the insurer remained liable to indemnify the insureds without deduction. (I have concluded that Endorsements UNDISYB4 and ALTERVS4 did not apply.)
The insurer submitted that it was entitled to reduce its liability to nil applying the approach in Zurich Australian Insurance Ltd v Cimic Group Ltd (2024) 115 NSWLR 297; [2024] NSWCA 229 at [189]-[191], [224]-[226] (White, Stern JJA and Griffiths AJA). That is, one starts with the matter not disclosed but is not confined to that fact on the counterfactual. Rather, one looks at the likely sequence of events had that disclosure been made. The underwriters did not simply say that, if they had known of the matter which ought to have been disclosed, then they would have immediately declined cover in any circumstances. Rather, the underwriters identified what would have happened if the disclosure had been made, that is, the counterfactual started with the disclosure but did not end with it.
But for the non-disclosure of the decision to make hand sanitiser during the policy period, the matter would have been referred by Mr Keuneman to Ms Lobo. Neither would have accepted the risk without an investigation by ARCA and advice or more information. Mr Iordanou set out further information which he would have recommended be obtained from the insured. Mr Iordanou would have recommended to the underwriters that his questions needed to be answered before cover could even be considered. It was unlikely that the answers to Mr Iordanou’s questions would have been provided by 20 March 2020, but even if it was, Mr Iordanou would then have inspected the premises and prepared an ARCA – Multi-Line Report. The counterfactual would involve days and weeks of enquiry, not hours. Ms Lobo and Mr Pocknee would not have accepted the risk without this information.
The insurer submitted that the time taken to complete these steps would have encompassed Sphere’s decision to order 60,000 L of ethanol from China. Either way, Mr Iordanou would have advised against accepting the risk following an inspection. Each of the underwriters said that, if there was an ARCA recommendation not to accept cover, then that would have been very influential.
The insureds submitted that Allianz’s evidence as to what it would have done had the decision to make hand sanitiser been disclosed relied on the incorrect proposition that the premises only had safe storage for 4000 L, when the capacity was said to well exceed this. (There was little evidence to support this proposition.) It also rested on the proposition that Sphere would be receiving a bulk delivery. This was said to be incorrect too, where Mr Mufaddal clearly had in mind a ‘split delivery’ when conversing with Wilmar BioEthanol about the delivery of 35,000 L. Sphere did not turn its mind to accepting delivery of the bulk shipment from China until much later.
The insureds submitted that the Court should not accept the proposition that notification of the decision to make hand sanitiser would have resulted in a change in Allianz’s classification of the risk under ANZSIC 1993 from Code 2543 to 2549, and a corresponding change in the fire rating, resulting in a decline. The ANZSIC Code that had always been applied to Sphere was a code within the class of ‘Other Chemical Product Manufacturing’. There was said to be no prospect of this business unit falling within the class of ‘Basic Chemical Manufacturing’. The performance of a single contract for the supply of hand sanitiser in May 2020 could not alter the applicable ANZSIC business classification, as the manufacture of hand sanitiser was antibacterial manufacturing, being an activity identified with ANZSIC Code 2543. Where the underwriters said that they relied on ARCA to designate the ANZSIC code, that was Mr Iordanou. He accepted that hand sanitiser was an antibacterial product, and antibacterial manufacture was accommodated within ANZSIC Code 2543. He agreed that he would need to know a lot more about the business activities of the insured to re-classify. Given that Sphere had not even commenced the manufacture of hand sanitiser, there was no realism in a change in the code.
The insureds submitted that the other way for Allianz to decline the policy would be if the fire rating was designated at 9, by analysing the risk against the AQS. This was also a job for Mr Iordanou. The Court could not reasonably conclude that, had the decision to make hand sanitiser been disclosed, ARCA would have issued a Property Risk Acceptance and Rating Guide with a loading sufficient to trigger any special referral or recommended decline. There was no proper basis to conclude that, on the balance of probabilities, this risk would have carried a fire risk rating of 9. Allianz had adduced no evidence from Mr Keuneman or Ms Lobo of what their response would have been if the risk did not reach the necessary higher rating to refer, and it was left to them to decide on the basis of a more modest loading. This lack of evidence was said to be the product of the forensic choices that Allianz has made in this case to adopt an extreme position that was not rationally supported by the evidence.

The task when considering an insurer’s claim to reduce their liability under s 54 of the Insurance Contracts Act is essentially the same. The Court examines the counterfactual situation to determine what the insurer would have done had the act or omission of the insured occurring after the contract was entered into not occurred: Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Ltd (1993) 176 CLR 332; [1993] HCA 5 at 340 (Brennan, Deane, Dawson, Gaudron and McHugh JJ); Moltoni Corporation Pty Ltd v QBE Insurance Ltd (2001) 205 CLR 149; [2001] HCA 73 at [24] (Gleeson CJ, Gaudron, McHugh, Kirby and Hayne JJ).
The challenge presented by an insurer’s evidence dealing with a number of permutations and combinations is pertinent here. The insurer’s witnesses made two ‘rounds’ of affidavits. The first ‘round’ was made when the parties were proceeding on the basis that the contract of insurance was formed on 20 March 2020. When the matter was first listed for hearing September 2025, the hearing was vacated when it became apparent that, given the WA broker’s instructions to cancel that policy and the issue of a new policy by Mr Pan, the contract of insurance may have been formed later.
The first ‘round’ of affidavits also proceeded on the basis that the insureds were manufacturing hand sanitiser, while the second ‘round’ proceeded on the basis that the insureds had decided to make hand sanitiser but had yet to commence production. Other permutations included the different volumes of ethanol which the insureds had ordered or which was on site at particular points in time.
The witnesses also proceeded on the assumption that the ARCA – Multi-Line Reports indicated that up to 4,000 L of flammable liquids could be stored on the site. As earlier noted, that is not precisely what the reports said. More accurately, the reports indicated that that was how much Sphere had been storing historically, not the maximum amount that it could store. On the limited available evidence, I have concluded that the dangerous goods area could have stored 10,000 L of ethanol in addition to the regular supply of ethanol for the company’s manufacturing processes.

In that event, cancellation took effect on the earlier of 13 business days after notice was given or the insured obtaining a new policy: Condition 5(c).
Where Condition 5(b)(ii) adopts the same language as s 21(1) of the Insurance Contracts Act, I take it that the parties intended that the time when the policy was entered into included an agreement to vary the contract: s 11(9), Insurance Contracts Act. For reasons earlier given, I have concluded that the insured failed to comply with the duty of disclosure at the relevant time, being 31 March 2020. The insurer was entitled to cancel the existing policy on this basis.
While Mr Pan had only been an underwriter at Allianz for four months at the time, he had already been an underwriter elsewhere for six years. Mr Pan was aware at the time that ethanol was used in the production of hand sanitiser. He understood that Allianz had written the risk on the basis that, according to the ARCA – Multi-Line Reports, up to 4,000 L of ethanol (or other flammable liquids) could be safely stored on site. The safe storage of 4,000 L of flammable liquids in IBCs within metal cages in a bunded area was part of the risk identified by the ARCA Risk Engineers. He understood that the risk had been written on that basis. In cross-examination, Mr Pan accepted that the ARCA – Multi-Line Reports did not indicate that 4,000 L of ethanol was the maximum safe storage limit. But Mr Pan was correct in his understanding that the risk had been written on the basis that 4,000 L was then stored on site.
Mr Pan said that if he had been informed that Sphere had made a decision to manufacture hand sanitiser from the premises, then he would have asked for further information regarding the amount of hand sanitiser Sphere intended to manufacture and the manner in which it intended to store the ethanol required for the manufacturing process. He would also have informed the NSW Branch Underwriting Manager, Andrew Weston, and requested urgent input from ATS and ARCA. The decision to proceed with underwriting the increased risk posed by the manufacture of hand sanitiser would have been outside the level of Mr Pan’s underwriting authority. He would have needed approval from Mr Weston and possibly ATS, subject to Sphere’s responses to his enquiries and an ARCA assessment of the risk.
If Mr Pan had been informed that Sphere had ordered, or was about to order, some 60,000 L of ethanol in bulk from overseas, to be stored at the premises, he said that he would have taken urgent action. Mr Pan would have considered the storage of such a large quantity of flammable material to be a significant increase in the risk. Mr Pan would have asked questions (through the broker) in relation to the manufacture of hand sanitiser, including how much ethanol or hand sanitiser (finished product) was to be stored at the premises, where at the premises they were to be stored and how. Mr Pan would have informed the NSW Branch Underwriting Manager, Mr Weston, as the decision regarding whether to underwrite the risk would have been above Mr Pan’s underwriting authority. It is likely that input from ATS and ARCA would have been required if the underwriting was to proceed.
As to alteration of risk, Mr Pan understood that the manufacture of hand sanitiser and the storage of ethanol and hand sanitiser was a material change in the risk and would fall within a different risk category for Allianz’ underwriting, being chemical manufacturing. Mr Pan believed that he would also have requested that ARCA inspect the premises and review the alteration of risk. Based on Mr Pan’s understanding of the manner in which the premises were being managed before the fire, and if he had been informed about the manufacture of hand sanitiser, he would have recommended that the policy be cancelled.
As to what input ATS would have given if asked by Mr Pan, where Sphere had disclosed an intention to move into the production of hand sanitiser but no manufacture had taken place, Mr Pocknee said, “I’ve assumed that this was going to happen within the policy period, therefore, [it] would be a material fact that we would have had to consider at that stage.” He disagreed that this did not alter the insurer’s risk. Mr Pocknee said he would have reviewed any ARCA assessment of the risk, as he would expect such a risk to be assessed by ARCA. He would have considered the adequacy of the risk management controls at the premises including the adequacy of the safe storage facilities (such as IBCs and bunding) for the storage of ethanol, the adequacy of the fire protection to store highly flammable raw materials or end product, and that the storage of both flammable raw materials and finished products was physically separated from core manufacturing operations.
If Mr Pocknee had been advised that Sphere did not have a plan in place about where and how to store the ethanol or the finished product, he would not have supported the acceptance of the risk as the production of hand sanitiser would probably be categorised as chemical production / storage by ARCA as it involves large quantities of ethanol, a highly flammable raw material, together with the absence of safe storage facilities (such as IBCs and bunding) and fire protection at the premises.
If Mr Pocknee had been advised that Sphere was looking to acquire around 60,000 L of ethanol from China, which was likely to arrive at the premises in one delivery, this would have made it more likely that he would not have supported the acceptance of the risk. He was not aware of any risk of this kind being accepted by Allianz for an ISR policy, namely manufacturing involving large quantities of alcohol without any plan for the safe storage of the raw material or finished product.
Mr Pocknee said Allianz’s appetite for underwriting high risk chemical manufacturing depended on the fire hazard rating and whether Allianz considered that the risk could be adequately managed. Allianz’s underwriting appetite fell away the higher the fire risk rating. From his experience as manager of ATS, this risk was a high fire risk rating and Allianz would not have underwritten the risk. The insurer would have cancelled the policy. If underwriters had referred the matter to him, then Mr Pocknee said that he would not have supported the continuation of cover. He would have supported a recommendation by the underwriter that the policy be cancelled and would have given Sphere 14 days to find alternative cover.
As to what ATS would have done if asked about an alteration in risk after policy inception, Mr Pocknee said that if Sphere was manufacturing hand sanitiser from the premises and some 60,000 L of ethanol had been delivered to the premises from overseas and stored at the premises in plastic barrels until use, this altered the risk category from ANZSIC Code 25430 “Pharmaceutical and Medicinal Product Manufacturing” to “Chemical Manufacturing”. He disagreed that this assumption was not enough information to conclude that there was a change in risk category. Mr Pocknee said that if Allianz had been notified of this, ARCA would have been asked to inspect the premises and advise on the increased hazard. Due to the bulk storage of flammables, he would expect that this risk would have been assessed by ARCA at fire hazard 9, being the highest level. Such a risk would have to be referred to ATS.
As to whether Allianz would have agreed to take on the additional risk under the alteration of risk provisions, Mr Pocknee’s experience in property underwriting over the years was that, if there was a change in the nature of the risk, the risk would be re-underwritten “and we had certainly looked at cancellation of other policies in the past where the fundamental risk had changed.” If Allianz had been informed of a decision to manufacture, “we would have had to have a discussion about re-underwriting that risk and potentially issued a notice of cancellation.” Mr Pocknee said that an underwriter, if informed about a substantive change to a risk which changed the risk category, would have had “a sensible conversation with a broker on behalf of the end client and they would come to an agreement. If the risk was to change fundamentally, these things tend to work themselves out without having to get to a pure legal definition or challenge” in respect of the rights of cancellation.
Mr Pocknee rejected the proposition that the insurer would not have cancelled the policy absent a change to the physical circumstances of the premises, “The introduction of flammable liquids into … inappropriate storage facilities would have … put it into a risk hazard 9 which nobody had the authority in Australia to underwrite on their own. So that would have required escalation and we never would have done it given the information that subsequently came to light regarding storage.”
Mr Pan and Mr Pocknee’s views accorded with those of Ms Lobo, who would have considered the matter in the counterfactual if the date of disclosure was 20 March 2020. If she had been told at the time that Sphere intended to move into the production of hand sanitiser, Ms Lobo would have reviewed the ANZSIC code and believed that she would have formed the view that the production of hand sanitiser was likely to be characterised as chemical production / storage due to the use of ethanol, which involves a high-risk rating of level 9. Ms Lobo did not think that there was any relevance to whether Sphere had contract orders in place to produce hand sanitiser. Ms Lobo regarded going from non-flammable pharmaceutical production to chemical product production as a major change, “it change[s] the risk totally. … hand sanitiser includes … large quantities of ethanol which is different from non-flammable pharmaceutical production”.
Ms Lobo would have asked Mr Keuneman to seek more information from Sphere through its broker including details of what the proposed production of hand sanitiser involved, the likely quantity of ethanol involved, any safety measures including a fire sprinkler system at the premise, and proposed measures for the safe storage of ethanol and finished product including any necessary modifications to the premises. If the answers received from Sphere as to its intentions indicated that the production of hand sanitiser could be considered by Allianz as incidental, by which Ms Lobo meant less than 10% of Sphere’s overall production, then it was possible that the insurer could have considered the risk. In that event, Ms Lobo would have referred the risk to ATS for review depending on the outcome of ATS’ review, a decision would have been made either to decline the risk or to request an ARCA survey to confirm the information provided by the insured before a decision was made.
If Ms Lobo had been advised that Sphere was looking to acquire around 60,000 L of ethanol from China which was likely to arrive at the premises in one delivery , did not have in place a plan about where or how to store the ethanol or the finished product, then Ms Lobo would have declined cover without the need to refer the risk to ATS. In this situation, the risk was clearly one which she would have declined.
As to what input ARCA would have given if asked by Mr Pan, Mr Iordanou said that if he had been asked by underwriters to inspect the Moorebank site at a time before the production of hand sanitiser and the storage of large amounts of ethanol had begun, he would not have attended as there was nothing that such an inspection would reveal. He would have provided an analysis of risk without an inspection. To do this, he would need to know what the relevant intention of the business was.
Mr Iordanou knew at the time that hand sanitiser was made up of flammable liquid, being some type of alcohol. As such, he would have needed to know the details of the processes to be undertaken to take the raw ethanol to a finished product, including whether heat was to be applied. He would need to know the detail around any proposed emergency facilities, including to account for a possible burst pipeline or hose. He would need to know the proposed size of the anticipated production including the volume of raw materials to be stored and used. He would need to know where the raw materials were to be stored and how they were to be protected from fire, spill and collision risks, including whether they were to be contained in a bunded area and / or protected by fire protection systems. Mr Iordanou would have needed to know working progress storage and capacity, finished product storage and capacity, whether there were any applicable manufacturing or storage standards with which to comply, and whether any other processes would add to the fire load of the premises.
If Sphere was unable to answer his questions, Mr Iordanou would have recommended to underwriters that they require the proposed insured to answer the questions before cover could be considered. Depending on how his questions were answered, Mr Iordanou said that if he was providing advice about risk prior to policy inception, he would have considered the need to re-classify the risk as chemical manufacturing and to apply a premium loading. Mr Iordanou would not then have been able to produce an ARCA – Multi-Line Report, as he would not have had cause to inspect the premises until the changes had been implemented to enable the manufacture of hand sanitiser on site.
Mr Iordanou said that if the answers from Sphere had revealed that it had been attempting to source some 60,000 L of ethanol from China, to be delivered at one time, did not have a place for the safe storage of that ethanol, could not provide details for emergency stock facilities to account for a burst pipeline or hose and did not have in place a plan for the safe storage of the finished product, he would have advised the underwriters against accepting the risk.
Mr Iordanou said that if he had been asked by underwriters to inspect the premises and assess any alteration in risk due to the production of hand sanitiser and the storage of large quantities of ethanol on site, he would have inspected the premises to review the heightened risk in the production of the hand sanitiser, storage of the finished product and the storage of ethanol. He would have reviewed the processes used by Sphere in the production process, the quantities of ethanol being stored, how the ethanol was being stored and whether the means of storage was safe. He would have reviewed how much and where the finished product was being stored. He would have considered whether most of the ethanol could be stored off site in a secure storage facility, as the premises had safe storage facilities for only 4,000 L of ethanol.
Mr Iordanou said he would have considered whether Sphere needed storage licences or a dangerous goods licence for the storage of large quantities of ethanol. But his recommendations would have primarily concerned the storage facilities. Mr Iordanou would have queried why Sphere needed to have such large quantities of ethanol on site at one time. He would at least have recommended that the ethanol be moved offsite to a secured dangerous goods logistics storage facility until required for production.
Mr Iordanou said that the assessed risk in the Property Risk Acceptance and Rating Guide prepared after inspecting the premises would have increased to a higher risk occupancy, likely to be a Fire Hazard Index of 9. This would be due to a reclassification of the risk as chemical manufacturing. Alternatively, he would have applied a loading via the insurer’s relativity system. In that case, the Fire Hazard Index would remain at 6 but the risk rating AQS would be loaded to generate a premium for Fire Hazard Index 9. In these circumstances, the risk would have been referred to ATS. His assessment of the risk posed by the bulk storage of ethanol alone would likely have increased the level of the fire risk to an automatic decline / cancellation category.
Mr Iordanou agreed that he would need to know a lot about the business activities of the insured before he decided to change the ANZSIC Code. Mr Iordanou agreed that the appropriate industry category was the one that best fitted the predominant activities of the business unit. Before changing the ANZSIC Code, he needed to know whether the manufacture of hand sanitiser was of such a scale that the predominant business activity of Sphere had changed because of that manufacture. He needed sufficient information to consider the relative significance of each of the activities of Sphere. Although antibacterial manufacture was listed as a primary activity within ANZSIC Code 2543, Medicinal and Pharmaceutical Product Manufacturing, Mr Iordanou did not agree that there was no need to change the ANZSIC Code. Somewhat confusingly, Mr Iordanou also agreed in cross-examination that ANZSIC 25430 was the correct code and that he did not have enough information at the time to change the ANZSIC Code.

Although the assumptions made by the insurer’s witnesses have not aligned perfectly with my findings, it is tolerably clear how they would have acted, that is, their evidence continues to have probative value.
Fairly obviously, if Sphere had disclosed its plans to acquire bulk ethanol to make hand sanitiser, then Allianz would not have entered into the contract of insurance for the same premium and on the same terms. Whether the insurer would have accepted the risk but on payment of an additional premium depends on the evidence of the insurer’s witnesses.
Mr Pan would have sought urgent advice from ATS and ARCA. ATS would have sounded a note of extreme caution and supported a recommendation by Mr Pan to cancel the policy.
ARCA would have provided a list of questions to be answered by Sphere before proceeding any further. Mr Pan would not have underwritten the risk or agreed to an alteration in risk without ARCA’s input. Where Sphere’s plans to import bulk ethanol and to store that material on site were progressing day-by-day, it is likely that the full extent of Sphere’s plans would have become known by the time that Sphere answered Mr Iordanou’s questions and before ARCA provided any advice to Mr Pan.
As to whether the proper classification of Sphere’s activities under ANZSIC was Code 2543 or “chemical manufacturing”, I do note that Mr Iordanou appeared to become confused on occasion, particularly when asked about ANZSIC Code 25430. I approached some of his answers with caution for this reason. Ms Lobo was a thoughtful and impressive witness. Mr Pocknee was also clear and forthright. Where three senior underwriters considered that Sphere’s activities would have re-classified as chemical manufacturing, I defer to their collective expertise.
But whether the proper classification of Sphere’s activities under ANZSIC was Code 2543 or chemical manufacturing is not really what caught the underwriter’s eye. It was the fact that, whatever code Sphere’s activities fell under, the insured was planning to have a quantity of a flammable liquid on the insured premises which significantly exceeded the existing arrangements on those premises for the safe storage of that liquid. That was the matter which made the risk unacceptable, and it is easy to see why. A flammable liquid, by its nature, posed a risk of ignition. If that risk was realised, then it was important to contain the damaging effects of that ignition so that the insured property was not imperilled at large.
I accept the consistent evidence of the insurer’s witnesses that this risk was not one which the insurer would have accepted in the counterfactual, whether presented in discharge of Sphere’s duty of disclosure on 31 March 2020 or under the ‘alteration of risk’ provision. Where the bulk ethanol significantly exceeded the insured’s ability to safely store the flammable material, I am satisfied on the balance of probabilities that the insurer would not have agreed to accept that risk. The insurer is not liable to indemnify the insureds in respect of their claim under the policy.

Sphere Healthcare Pty Ltd v Allianz Australia Insurance Ltd

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment

Parties

Legislation Cited (6)

Cases Cited (67)

JUDGMENT

Onus and inferences

Admissions

Storing ethanol

Earlier policies

Change of management

Hand sanitiser

Requesting a quote from Allianz

Progressing hand sanitiser project

Changing brokers

New policy wording

Importing ethanol

The fire

Was the contract of insurance cancelled?

Consideration

What about the new wording?

Consideration

Exception: inadvertent non-disclosure

Construction

Application

Exception: alteration in risk

Construction

Application

Was the duty of disclosure waived under s 21(2)(d)?

Consideration

Was any duty of disclosure complied with?

Consideration

The counter factual

The task

The evidence

Consideration

Orders

Amendments

10 June 2026