Stealth Enterprises Australia Pty Ltd v. Calliden Insurance Limited [2013] NSWSC 825

Stealth Enterprises Australia Pty Ltd v. Calliden Insurance Limited [2013] NSWSC 825 | Case summary | Zoe

Ex TEMPORE Judgment 1CAMPBELL J: By an amended statement of claim the plaintiff sues the defendant on a policy of insurance. There are two motions before the court today, one filed by each of the plaintiff and the defendant. 2The defendant's motion, which was argued first, seeks summary judgment on a cross-claim filed in the proceedings. The plaintiff's motion seeks summary dismissal of the cross-claim, the striking out of some paragraphs of the defence and the setting aside of two subpoenas. 3The main issue between the parties concerns the meaning and effect of a condition in the policy of insurance. The policy is described on its coversheet as a "Calliden Business Pack Adult Industry Insurance Policy". Part B of the policy is entitled "Policy Wording". The operative words of the policy include the following: You, or any other person insured under the policy, must comply with all provisions of the policy, otherwise we may be entitled to refuse to pay a claim, or reduce the amount you are entitled to receive. There is a heading "General Conditions" under which appears the following stipulation: The general conditions set out below apply to all sections of the policy. The following is included amongst the conditions set out below that stipulation: "CLAIMS PROCEDURES If something happens which gives rise or may give rise to a claim under the policy: A. You must: ... (vi) provide all reasonable information and assistance as we may require; (vii) use your best endeavours to preserve any damaged or defective property, or other property which might provide evidence in connection with any claim." 4The plaintiff operated a brothel in the Australian Capital Territory. A business of that type may be lawfully carried on there subject to compliance with a scheme of regulation. 5As the relief sought by each of the parties relates to summary judgment or dismissal it is appropriate that I proceed on the basis of the facts set out in the pleadings. However, I record that each party has read an affidavit of its solicitor. The plaintiff reads the affidavit of Buse Komuksu sworn on 21 May 2013 and the defendant the affidavit of Paul John Angus sworn on 11 June 2013. Essentially the affidavits of the solicitors attached relevant correspondence which identifies the controversy between the parties about the meaning and effect of condition (vi), as I will call it for present purposes. 6I turn to a narrative of fact derived from the pleadings. As I have said, the plaintiff's business was operating a brothel. In or about September 2011 the plaintiff and the defendant entered into a contract of insurance in relation to the plaintiff's business. The period of cover was from 3 September 2011 to 3 September 2012. 7On 1 January 2012 a fire occurred at the plaintiff's business premises. Such an occurrence was covered by the policy. The fire caused damage to the plaintiff's business as well as "fixtures, fittings, contents and stock in trade on the premises". 8Some time in January 2012 the plaintiff lodged a claim with the defendant under the policy. The plaintiff avers that as a result of the fire the plaintiff's business ceased trading and it has not returned to trade. That averment is relevant because the policy extends to cover business interruption. 9By its defence the defendant denies its liability to indemnify the plaintiff. Specifically, the defendant relies upon material nondisclosure within s 21 of the Insurance Contracts Act 1984 (Cth). It says that because of the nondisclosure it is entitled to have its liability reduced to nil because had the plaintiff disclosed relevant matters it would not have agreed to insure the premises at all. It relies on s 28(3) of the Act. 10The matter specifically complained of as material nondisclosure is the failure of the plaintiff to disclose to it, at the time this insurance was proposed (and I use this expression generally), that its licence and relevant registration under the legislation in force in the Territory had lapsed since 30 September 2010. 11The defendant relies upon the same matter as being in breach of certain conditions in the policy and in respect of those various breaches which I will not set out, it claims to be entitled to reduce its liability to nil under the provisions of s 54 of the Act. 12In what is described as the "third breach of the policy", the defendant avers that the plaintiff has refused and continues to refuse to provide all reasonable information and assistance required by the defendant in breach of what I have referred to as condition (vi). 13The particulars provided of that breach are that the defendant requested the plaintiff to provide information as to any relationship or association Mr Baris Tukel has with any motorcycle group, and that he had not provided it, disputing the defendant's entitlement to it. Mr Baris Tukel was at the material time the sole director of the plaintiff company. What that particular means is expanded on in the affidavit evidence to which I have referred. 14During the course of investigating the claim the defendant came across newspaper and other media reports alleging that Mr Baris Tukel and his brother, Mr Fidel Tukel, a shareholder in the company, were associated with certain outlaw motorcycle clubs, as they are often called. 15During the course of investigating the matters the investigator who interviewed Mr Baris Tukel asked questions about those matters and was informed by Mr Tukel's solicitor that the questions would be taken "on notice". Mr Fidel Tukel refused to answer the questions. 16It is significant I think to state that particular reliance is placed upon the refusal of those individuals to provide the information in the defendant's cross-claim to which I have made reference. By paragraph 9 of the cross-claim the following averment is made: Alternatively, Calliden says that by reason of the breach it is entitled pursuant to s 54 of the Insurance Contracts Act 1984 (Cth) to reduce the amount of any liability it may have in respect of the claim by reason of prejudice to its interests as a result of the breach.

[3]

Particulars of prejudice The prejudice is Calliden's incapacity to determine "whether it is entitled to avoid the policy pursuant to s 28(2) of the Insurance Contracts Act 1984 (Cth)." (Emphasis added.) 17In the correspondence to which I have referred, and in pressing its entitlement to be provided with that information under condition (vi) by letter dated 31 January 2013, Calliden's solicitors asked a series of 26 questions, which might be regarded as being in the nature of interrogatories, seeking very specific information about whether and how each of the individuals I have named had a connection with various named outlaw motorcycle gangs, and, if so, the nature of it. In explaining that what it asserted was an entitlement to this information under condition (vi) of the policy, Calliden's solicitor wrote: Our client contends that the answers to the questions in the light of the published material is necessary in order to determine whether our client is entitled to avoid the policy the subject of your client's claim pursuant to s 28 of the Insurance Contracts Act 1984 (Cth). And also: Further our client would contend that a relationship or association with a motorcycle group such as the "Comancheros" or the "Rebels" by either Mr Baris or Mr Fidel Tukel is and was a matter that must have been known to the plaintiff and that the plaintiff would have known that such a relationship or association of the kind referred to would have been a matter that the plaintiff knew or a reasonable person in the circumstances of the plaintiff could be expected to know was a matter relevant to whether our client would have entered into the policy with your client within the meaning of s 21(1) of the Insurance Contracts Act (Cth) (sic). 18The "published material" referred to in the first quote is the press and other media reports I referred to earlier. 19What is clear about this topic is that the defendant does not rely upon any connection between those individuals and any outlaw motorcycle gang in its defence, either relating to nondisclosure, on the one hand, or relating to a breach of a condition entitling it to reduce its liability under s 54, on the other. As I have said, the failure to answer the questions is relied on in the latter respect. 20It is common ground between the parties that the connection of an insured with undesirable or criminal elements is a matter capable of being relevant in the sense of being material to the question of whether the insurer would underwrite the risk. The expression used often in this context is "moral hazard" (see Commercial Union Assurance v Beard [1999] NSWCA 422; 47 NSWLR 735 at 742[26].) 21However, the plaintiff's position is that as there is no averment of an actual connection of that kind, and no pleading which raises either s 21 or s 54 because of it, the defendant is not entitled to the information sought. Underpinning this submission is an argument that the effect of condition (vi) is restricted. 22The defendant on the other hand argues that condition (vi) is not restricted in the manner asserted by the plaintiff. Rather, on its argument, on its ordinary language, and in its place in the policy, it is an entitlement of the insurer to ask the insured to provide any information reasonably relevant to any question touching upon the contract of insurance, including its formation, and the rights of the parties under the Insurance Contracts Act. 23The defendant also argues that the obligations imposed upon the insured by condition (vi) are such as may be specifically enforced by a decree of specific performance. In seeking summary judgment on its cross-claim it argues that its right in that regard is clear to the point of virtual certainty entitling it to an order now without the plaintiff having the benefit of a trial. 24The defendant argues in the alternative, if its primary argument is rejected for want of the requisite degree of certainty, there should be the determination of a separate question under Rule 28.2 Uniform Civil Procedure Rules 2005 (NSW) about that matter. Otherwise, the defendant argues, its right to have the condition specifically observed would be of no utility if the question abides a full trial at which all issues are decided. By then, it will be too late. 25In order to decide the motions, at this stage it is necessary for me, if I can, to construe condition (vi) in its place in the policy. If I am satisfied as to its meaning to the requisite degree of certainty then either the plaintiff or the defendant is likely to succeed on its application, but obviously not both. 26I am conscious that in an application for summary judgment or dismissal, the relevant legal test has been expressed by a plurality in the High Court of Australia in Agar v Hyde [2000] HCA 41 201 CLR 552 at 557 [57] in the following terms: Ordinarily, a party is not to be denied the opportunity to place his or her case before the Court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways (citations omitted), but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceedings if it were allowed to go to trial in the ordinary way. 27In cases where the entitlement of a party to judgment depends upon contestable questions of fact, that onerous standard will not be discharged. The question, however, is somewhat different where, as in this case, the central issue depends upon a question of law, i.e., what is the meaning of a condition in a commercial contract. Extrinsic evidence will be but rarely admissible. Given the centrality of that question to the case each party argued today, I think it appropriate that I attempt to answer the legal question. 28In McCann v Switzerland Insurance [2000] HCA 65; 203 CLR 579 at 589 [22], Gleeson CJ said: A policy of insurance, even one required by statute, is a commercial contract and should be given a business-like interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure. 29In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at 179, a unanimous Court said: The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction. 30In the case of ambiguity, it may be appropriate to construe a commercial contract against the party proffering the terms of it. 31In my judgment, one cannot understand condition (vi) unless one looks at its immediate context in the policy. I have referred to the heading "Claims Procedure", and to the chapeau to that part of the policy in which the condition appears which refers to something happening giving rise to a claim. The obligations imposed upon the insured by the succeeding paragraphs are imposed in that context. 32It seems to me what condition (vi) requires is the insured to provide all reasonable information and assistance that the insurer may require in regard to a claim. This meaning appears clear when one considers condition (vii) which I have quoted above which refers to the preservation of property for the purpose of evidence in connection with any claim. 33The other paragraphs are also apt to apply only to claims. For instance, condition (ii) obliges the insured to "take all reasonable precautions to prevent or minimise further loss, damage or liability". Condition (v) requires the insured to supply the insurer with details of other insurances which insure or may insure the event (giving rise to the claim). 34Although the policy must be construed having regard to its own terms, it is I think relevant to observe that the interpretation I favour as being correct is consistent with the interpretation normally given to what is referred to as a "claims co-operation clause". Such clauses are standard in a wide range of policies of insurance: See Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2) [2001] 2 All ER (Comm) 299 at [21]. 35Reading the condition in the way I consider correct, the obligation of the insured is restricted to providing reasonable information and assistance with regard to a claim under the policy. This would typically extend to information about the occurrence giving rise to the claim and information which may assist the insurer in properly investigating the occurrence, as well as information and assistance relating to the quantification of the claim. I do not attempt to be exhaustive. 36In my judgment, the condition does not extend to a contractual entitlement of the insurer to compel the insured to provide additional information about the circumstances surrounding the insured's entry into, or renewal of, the policy. 37Moreover, it seems to me by reference to the words quoted above, which appear under the heading "Policy Wording", that compliance with condition (vi) properly construed will be a condition precedent to the liability of the insurer under the policy, subject of course to the provisions of the Act: Gan Insurance at [26]-[27], per Mance LJ. 38It follows from what I have said that the insurer is not entitled to require the insured to answer the questions set out in this letter of 31 January 2013 for the purpose of providing information and assistance which goes only to the question whether the insurer is entitled to avoid the policy for material nondisclosure. 39That, as I have said, as I conceive it, is a pure question of law and cannot depend upon any facts that may be contestable at any trial. 40It also means that it is unnecessary for me to decide whether the obligations expressed in the condition are of the nature of obligations susceptible to an order for specific performance, and I do not propose to do so, meaning no disrespect to the careful argument of learned counsel in that regard. 41It goes without saying that there is no utility in ordering questions relating to relief of that type, on the defendant's cross-claim, to be determined in advance of the trial under r 28.2. 42All this leads to the conclusion that the summary relief sought in the defendant's notice of motion filed on 11 June 2013 should be refused. 43I turn then to the plaintiff's notice of motion filed on 21 May 2013. As I have said, it seeks orders of three kinds: one is summary dismissal of the cross-claim; the second is striking out certain averments in the defence; and, the third, setting aside two subpoenas. 44From the decision I have made about the legal meaning of the condition, it is clear to the requisite degree that the relief sought in prayers 1 and 2 of the cross-claim cannot be granted: Agar v Hyde. I am satisfied to the degree of certainty required by the principle restated in that case that, as the only purpose of seeking the information it sought under condition (vi) is for the insurer to obtain information which will enable it to decide whether or not it can rely upon the provisions of s 28 of the Act because of the plaintiff's breach of s 21; or s 54 also because of the plaintiff's failure to observe s 21, that relief will be refused. 45Prayer 3 seeks a declaration that the failure to provide all reasonable information and assistance is a matter entitling the insurer to reduce its liability to nil under s 54. Again, considering the averments in the cross-claim, the defendant's entitlement to that relief depends upon its ability to extract information from the insured about matters going beyond the proper scope and purpose of condition (vi). There is no other entitlement suggested. In those circumstances, the plaintiff has established an entitlement to summary dismissal of the whole of the cross-claim and I will make that order in due course. 46I turn then to the defence to the amended statement of claim. 47By prayer 2 in its motion, the plaintiff seeks that paras 41, 42, 44 and 45 of the defence be struck out pursuant to r 14.28 of the Uniform Civil Procedure Rules. In oral argument, the plaintiff resiled from seeking such orders in respect of paras 41 and 42. Given the withdrawal by senior counsel, I will not take any step in relation to paras 41 and 42, but given the meaning I have found in condition (vi), I am of the view that paras 44 and 45 should be struck out. 48Before dealing with the question relating to the subpoenas, I wish to record in my judgment that during the argument this morning, there was discussion between me and Mr M J Heath of counsel who appears for the defendant and Mr R C Cavanagh SC who appears with Mr S J Maybury for the plaintiff about whether, as an alternative to the orders I have foreshadowed, or in supplement of them, it would be appropriate to make orders permitting the defendant to replead if it wished to rely upon the circumstances I have described as relevant to moral hazard by way of amendment to its defence or cross-claim. 49Given the observations of Macfarlan JA in O'Brien v The Bank of Western Australia [2013] NSWCA 71 at [3] about the question being whether a party has an entitlement that could be pleaded, had any such application been made I would have been inclined favourably towards it, subject, of course, to hearing further from the plaintiff. 50As I understand the position of the defendant, no such application is made and I assume from what Mr Heath argued, that this is for proper ethical and professional reasons. 51I turn then to the question of whether the subpoenas should be set aside. 52The defendant has issued a subpoena to each of the Australian Federal Police and the New South Wales Police, couched, it must be said, in very general terms, seeking production of all documents relating to each of the individuals I have referred to "showing any membership or association with any motorcycle club or gang" between specified dates covering a period of two years. 53From what I have said about the contents of the pleadings, there is no issue between the parties on the pleadings, which must be understood as forming the basis of the dispute between them, relating to any actual membership of, or connection with, an outlaw motorcycle club of either of those persons. Leaving aside the breadth of the description of the required documents, I am satisfied that the plaintiff's application in this regard should be acceded to. 54The relevant principles have recently been discussed by Button J in Solarus Projects Pty Ltd v Vero Insurance Ltd [2013] NSWSC 328 at [42] to [65]. I will not repeat his Honour's analysis, but I gratefully adopt it. Essentially, the question boils down to whether the party requesting the issue of the subpoena had a legitimate forensic purpose in the context of the proceedings to invoke these compulsory procedures of the Court. Absence of such a relevant forensic purpose is styled an abuse of process requiring the subpoena to be set aside. The absence of a forensic purpose is often referred to as a "fishing expedition". 55In deciding whether a legitimate forensic purpose motivated the request for the subpoena one considers the predominant purpose. Given the complete absence of any reliance by the defendant upon any averment that at the time the plaintiff entered into the contract of insurance the individuals who were its officers and shareholders failed to disclose an association or connection with undesirable or criminal elements, I am satisfied that the subpoenas aptly fit the description of "a fishing expedition" and should be accordingly set aside. 56I was informed that the New South Wales Police have produced documents in answer to the subpoena and that the defendant has had access to, and made copies of, those documents, presumably pursuant to an order made by the registrar. It is appropriate that further access be denied to all parties and that the copies made be returned to the court together with an order that no further copies will be made or retained. 57I make the following orders: (1)The defendant's notice of motion filed on 11 June 2013 is dismissed. (2)The defendant's cross-claim filed on 27 February 2013 is summarily dismissed under Rule 13.4 Uniform Civil Procedure Rules 2005. (3)Paragraphs 44 and 45 of the defence filed on 27 February 2013 are struck out pursuant to rule 14.28 Uniform Civil Procedure Rules 2005. (4)The subpoena for the production of documents directed to the Commissioner of New South Wales Police filed on 4 April 2013 is set aside. (5)The order for access made by the registrar is revoked. (6)All copies of the subpoenaed documents in the possession of the defendant, its solicitor or counsel and any agent retained on its behalf are to be returned to the registry with all due despatch. Any electronic copy of the documents are to be deleted with all due dispatch. (7)I direct the registrar to place those copies in the envelope containing the documents produced by the Commissioner for Police, to seal the envelope and to mark it with the endorsement "not to be opened except by order of a judge of the Court." (8)The subpoena to produce documents filed on 4 April 2013 and served on the Australian Federal Police is set aside. (9)I direct the solicitor for the defendant to write to the Australian Federal Police legal branch informing the proper officer of this order with all due despatch. (10)The defendant and its legal representatives are not to use, rely upon or act upon information or knowledge obtained as a result of access to the documents produced by the New South Wales Police. (11)The defendant is to file any application to amend its defence or replead a cross-claim in the light of my reasons within 28 days of the date hereof. (12)The defendant is to pay the plaintiff's costs of each application and of the cross-claim after they have been agreed or assessed.

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