Stealth Enterprises Pty Limited trading as The Gentleman's Club v Calliden Insurance Limited

Solicitors: MCK Lawyers (Plaintiff) Turks Legal (Defendant) File Number(s): 2012/324562 Publication restriction: None

Judgment

1. The plaintiff company, Stealth Enterprises Australia Pty Ltd, owned and operated a brothel in the ACT, which traded as The Gentlemen's Club. The brothel's premises were insured for fire and business interruption under a policy renewed by the defendant insurer, Calliden Insurance Ltd, in September 2011. There was a fire on 1 January 2012 which not only damaged the premises, but resulted in the brothel ceasing to trade. Calliden later denied its liability under the policy.
2. Calliden defends these proceedings on the basis that Stealth Enterprises failed to comply with disclosure obligations imposed upon it by the Insurance Contracts Act 1984 (Cth) and that this failure entitled it to reduce its liability under the policy to nil. Calliden claims that if there had been proper disclosure of relevant matters, the policy would not have been issued in 2010 or renewed in 2011. Accordingly, it claims that it is also entitled to avoid the policy.
3. The two matters on which Calliden's case rests are firstly, Stealth Enterprises' failure to disclose the association between Mr Baris Tukel, its sole director, a shareholder and its guiding mind and Mr Fidel Tukel, his brother and the brothel's manager, with the Comancheros bikie gang. Secondly, that while the brothel was registered under the Prostitution Act 1992 (ACT), when the policy was first issued in 2010, it was no longer registered when the policy was renewed in 2011.
4. Stealth Enterprises' case was that the Court would not accept this, the effect of the case Calliden advanced being, it submitted, that "if you belong to a bikie gang, you can't get any type of insurance" and that a reasonable member of the community would know that "if you're a member of a bikie gang, you just can't insure yourself". Nor would a reasonable person in the community know that membership of a bikie gang was relevant to an insurer such as Calliden, which was prepared to insure brothels. That was not a matter established by any document in evidence.
5. The proceedings have had a considerable procedural history since they were commenced in 2012, with judgments on various interlocutory matters being given by Campbell J in June 2013 (see Stealth Enterprises Australia Pty Ltd v Calliden Insurance Ltd [2013] NSWSC 825); by Barr AJ in November 2013 (see Stealth Enterprises Australia Pty Ltd t/as The Gentlemen's Club v Calliden Insurance Limited [2013] NSWSC 1757) and by Registrar Bradford in March 2014 (see Stealth Enterprises Australia Pty Ltd t/as The Gentlemen's Club v Calliden Insurance Limited (Supreme Court (NSW), 27 May 2014, unrep). In October 2014, Acting Registrar Kenna made orders as to the service of evidence and listed the matter for hearing in June 2015.
6. A notice to admit facts had been served in April 2013. They were disputed. Barr AJ granted Calliden leave to administer interrogatories in November 2013, including as to Mr Baris Tukel and Mr Fidel Tukel's involvement with the Comancheros. The answers provided in January 2014 disclosed Mr Baris Tukel's membership of the Comancheros from April 2010 and that he was its sergeant, but did not disclose that Stealth Enterprises was aware that Mr Fidel Tukel was also a member. Various matters were eventually agreed, including that Mr Fidel Tukel was, in fact, also a member of the Comancheros. Before and during the hearing the issues between the parties narrowed somewhat. Some issues were dealt with by rulings given at the hearing, reasons for which appear below.
7. Stealth Enterprises finally did not deny either the connection between Mr Baris Tukel, Mr Fidel Tukel and the Comancheros, or that at the relevant time the brothel was no longer registered under the Prostitution Act. Still, on its approach that did not provide a basis on which its policy could be avoided, or Calliden could reduce its liability under the policy to nil.

Issues

1. In Calliden's outline of issues (MFI 2) it was accepted that: "(i) The event giving rise to the Claim was a fire at the insured premises; (ii) But for the defences relied on by Calliden, the Policy would respond to the Claim; (iii) The quantum of the loss is $500,000; …"
2. Calliden also clarified that it was not pressing paragraphs 38, 42 and 43 of amended defence filed in December 2013. Certain matters specified in the issues document (MFI 2) were also not pressed.
3. What remained in issue was identified by Calliden to be whether Mr Baris Tukel and Mr Fidel Tukel's membership of the Comancheros was "a matter relevant to the decision of the insurer whether to accept the risk …" (s 21(1)(a)); whether a reasonable person in Stealth Enterprises' position would know this; if so, if that membership had been disclosed, whether Calliden would have issued and/or renewed the policy; and whether, if non-registration of the brothel had been disclosed, Calliden would have renewed the policy. It also submitted that what it had identified earlier in MFI 2, remained relevant.
4. In MFI 18, Stealth Enterprises had identified the issues differently: 1. Whether the Plaintiff failed to disclose any matter that it was required to disclose within the meaning of s21 of the Insurance Contracts Act 1984 (Cth) ("the IC Act"). If so - 2. Whether the Defendant is entitled pursuant to s28(3) of the IC Act to reduce to nil any liability in respect of the claim made by the Plaintiff pursuant to the contract of insurance ("the Policy") by reason of the Plaintiff's failure to disclose at the time of the renewal of the Policy that - it had not provided a registration notice within the meaning of s7 of the Prostitution Act 1992 ACT ("the P Act") in accordance with that Act and therefore did not appear on the Register of operators of brothels and escort agencies required to be maintained under the P Act. 3. Whether the Defendant is entitled pursuant to s28(3) of the IC Act to reduce to nil any liability in respect of the claim made by the Plaintiff pursuant to the Policy by reason of the Plaintiff's failure to disclose, prior to entering into the Policy and at the time of the renewal of the Policy that: a. The director of the Plaintiff, Mr. Baris Tukel was a member of a motor cycle club known as the 'Commancheros' [sic]; and/or b. Its then manager, Mr. Fidel Tukel, was a member or associate of a motorcycle club or like kind to the Commanchero's [sic]. 4. Whether the Defendant is entitled pursuant to s28(2) of the IC Act to avoid the Policy by reason of the Plaintiffs failure to disclose, prior to entering into the Policy and at the time of the renewal of the Policy that: a. The director of the Plaintiff, Mr. Baris Tukel was a member of a motor cycle club known as the 'Commancheros' [sic]; and/or b. Its then manager, Mr. Fidel Tukel, was a member or associate of a motorcycle club or like kind to the Commanchero's [sic]."
5. There were also issues as to whether the broker, OAMPs, was acting for Calliden when the policy was renewed in 2011 and as to the reliability and/or credibility of the evidence given by Mr Tuitavuki and Ms Shepherd, the underwriters who had dealt with Stealth Enterprises' applications in 2010 and 2011.

Relevant events

1. Relevant events finally not in dispute included: 11 February 2009 Mr Baris Tukel appointed Stealth Enterprise's sole director. 24 August 2009 Stealth Enterprises purchased the brothel then trading as Charlie's Angel's Escorts at the insured premises April 2010 Stealth Enterprises commenced operating the brothel after renovating those premises Mr Baris Tukel became a member of the Comancheros June 2010 Mr Fidel Tukel completed and submitted the insurance proposal form 3 September 2010 Calliden issued the insurance policy 30 September 2010 The brothel's registration under the Prostitution Act expired March 2011 Mr Baris Tukel became the Comancheros' "Sergeant". 3 September 2011 The policy was renewed by Calliden 1 January 2012 The brothel was damaged by fire and ceased to trade

Mr Fidel and Mr Baris Tukel's evidence

1. The parties agreed that Calliden's evidence should be led first, the onus falling upon it to establish the alleged failures to disclose under s 21 and the remedy it claims under s 28 of the Insurance Contracts Act.
2. Affidavits sworn by both Mr Fidel and Mr Baris Tukel had been filed and served. Stealth Enterprises did not finally call either Mr Fidel or Mr Baris Tukel. Calliden tendered parts of their affidavits, to some of which Stealth Enterprises objected and in respect of which admissibility was in issue. I received extracts from Mr Baris Tukel's affidavit provisionally, with the parties to provide further written submissions, having regard to White J's judgment in Buzzle Operations v Apple Computer Australia [2009] NSWSC 225; (2009) 74 NSWLR 469.
3. Calliden finally elected not press the tender of Mr Baris Tukel's affidavit initially marked exhibit 25 and so this issue fell away. Accordingly, the extracts from his affidavit were not in evidence and cannot be considered in resolving what lies between the parties.
4. Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 inferences do, however, arise from Stealth Enterprises' decision not to call Mr Fidel and Mr Baris Tukel, given that they could each have given evidence about relevant matters, including why their membership of the Comancheros was not disclosed to Calliden and the circumstances in which the brothel's registration came to lapse in 2010 and why that was not disclosed when the policy was renewed in 2011.
5. As I recently explained in Sanchez-Sidiropoulos v Canavan [2015] NSWSC 1139 as to the Jones v Dunkel principle, at [38] - [39]: "38 The principle is concerned with a party's unexplained failure to call a witness, where it would be natural for that party to call that witness, or where the party might reasonably be expected to call that witness. Its operation was recently considered again in RHG Mortgage Limited v Rosario Ianni [2015] NSWCA 56 at [75] - [96]. The three relevant considerations are: first, that the missing witness would be expected to be called by one party, rather than the other; second, that this evidence would elucidate a particular matter and thirdly, that the absence is unexplained. 39 If those conditions are satisfied, then as discussed at [79] of RHG Mortgage, the inference may be drawn that the witness' evidence would not have helped the party's case. That inference may then be used in two ways. Firstly, in deciding whether to accept any particular evidence given, either for or against that party, which relates to a matter about which the person not called as a witness could have spoken. Secondly, in deciding whether or not to draw inferences of fact, which are open in relation to matters about which that person could have spoken."
6. In this case, the unexplained failure to call evidence from Mr Baris and Fidel Tukel, who it would, given their respective positions, be natural for Stealth Enterprises to call in defending Calliden's claims, is relevant in determining whether inferences of fact which are open on the evidence should be drawn.

Mr Tuitavuki's evidence as to Calliden's policies and procedures

1. Objection was taken to questions asked in cross-examination of Calliden's former underwriter, Mr Tuitavuki, who dealt with Stealth Enterprises' original application for insurance, as to his understanding that he was bound to apply Calliden's policies and procedures and could not simply give effect to his personal views, when assessing insurance proposals. The question which provoked the objection was: "Q. You accept, don't you, that you had no discretion to adopt Calliden's policies and procedures because of some personal or private view that you held?"
2. The objection taken was explained: "There are two fundamental aspects to this case. The first is within the meaning of s 21 of the Insurance Contracts Act is the circumstance that principles of a business, are members of an outlaw bikie gang relevant to an insurer accepting the risk? That's the first question. The second question is, if so, what would the insurer have done in this case? Because Calliden has declined this claim it is implicit in that declinature that Calliden's corporate attitude is (1) being a member of an outlaw motorcycle gang is material to the risk and (2) that Calliden accepts that the decision made by the individual was within its policies, to use my learned friend's expression, in the context where this witness has said and it is incontrovertible that underwriters are not bound exclusively by guidelines as this witness has said. They have a discretion. That question was directed towards the witness accepting that he didn't have a discretion beyond what is explicitly in the guidelines. That's a matter, whether he says yes or no or "I don't know", that can have no bearing on this case because plainly Calliden's corporate position is that rejecting a hypothetical proposal for insurance because of the material risk of a principle of the business being a member of an outlaw bikie gang is both material and Calliden would, as a corporate entity, not accept that risk."
3. I allowed this line of questioning, accepting Stealth Enterprises' submission that the cross-examination was relevant to what lay in issue between the parties.
4. That was because Mr Tuitavuki had already given evidence about his understanding of the particular Calliden guidelines, to which he referred when assessing applications for insurance in the adult industry, with which he had to comply. Stealth Enterprises' application for insurance had been provided to Calliden by the broker OAMPS, with whom Calliden had an agreement and which dealt direct with those in the adult industry, like Stealth Enterprises, who were seeking insurance from Calliden. He explained that as well as considering the guidelines, he also had to apply his expertise as an underwriter, in assessing any material risk which arose for consideration, on the information provided to him.
5. This aspect of the cross-examination arose in a context where the proposal form which Calliden had devised for such applications, required applicants to answer specific questions, including questions as to any criminal record in the five years preceding the application, but asked nothing about membership of any bikie gang. Mr Tuitavuki's evidence was that applicants were also obliged to disclose other relevant information material to the risk which he was called on to assess, even though not the subject of any specific question in the form and that he had to consider such information, when provided, in deciding whether to insure.
6. Given the obligations imposed on applicants by s 21 and what Stealth Enterprises may have been informed about that obligation, I took the view that this line of questioning was relevant, going as it did to the nature of the task which Mr Tuitavuki had to undertake when assessing an application and the way in which he undertook that task, including by applying his expertise to information he received, given the discretion which he had to exercise as an underwriter.
7. Mr Tuitavuki agreed that he was not entitled to prefer his personal views over Calliden's policies and procedures, but nevertheless, drew a distinction between personal views on the one hand and matters which, in his judgment, raised material risks which he had to consider in deciding whether to insure. They, he said, included membership of the Comancheros, which he believed ought to have been disclosed by Stealth Enterprises.

Expert evidence

1. Expert evidence was called by Calliden from Mr Macken, an Intelligence Analyst employed by the NSW Police Force, in relation to outlaw motorcycle gangs, to which he also referred as "patch clubs", including the Comancheros. His evidence went to the history, hierarchy, involvement in the adult entertainment industry and known criminal activities of the Comancheros and other bikie gangs
2. Mr Macken's expertise was unchallenged, but the relevance of his evidence to what here lay in issue, as well as the admissibility of aspects of his report, were challenged. I concluded that Mr Macken's evidence was both relevant and admissible.
3. While initially in issue, by the time of the hearing, there was no issue that both Stealth Enterprises' sole director and the brothel's manager, were members of the Comancheros at relevant times.
4. What was in issue included whether a reasonable person in Stealth Enterprises' position could be expected to know that their involvement with the Comancheros was relevant to Calliden's decision to accept the risk of insuring the brothel. That depended not only on what Stealth Enterprises could be expected to know about the involvement of its director and manager with the Comancheros, but also what a reasonable person in its position could be expected to know. Given, particularly, that it was Mr Baris Tukel who was both the guiding mind of Stealth Enterprises and the Sergeant at Arms of the Comancheros, I was satisfied that his knowledge of relevant matters had to be attributed to Stealth Enterprises.
5. It followed that Mr Macken's evidence about the Comancheros was relevant to what lay in issue between the parties, concerning as that evidence did the activities of the Comancheros, including criminal activities.
6. The objections to parts of Mr Macken's affidavit were advanced on the footing that there had not been adequate disclosure of the basis upon which he had formed various opinions, such as, for example, at [52], that outlaw motor cycle gangs have been and continue to be involved in: Murder; Significant violence Firearms offences; Drug importation, manufacture, cultivation and distribution; Fraud, money laundering and tea evasion; Property crime and theft; Extortion, stand over and robbery.
7. In order to meet the objection, Mr Macken was called and asked to explain what his opinions rested on. Mr Macken was not cross-examined on that evidence.
8. His evidence was that his opinions were based on his professional knowledge and experience, which he had explained in the report. They included his employment as an intelligence analyst with the NSW Police since 2002, during which he had conducted tactical, operational and strategic analysis at local and state levels, in relation to a broad range of social and criminal issues; his academic qualifications; his work in the gangs squad since June 2006, collating and analyzing information relating to outlaw motorcycle gang activity; his assessment of reports submitted by police officers and State and Federal agencies; communications received from other intelligence officers and investigators in Australia and internationally; his review of Australian and international literature, including articles, books, international and domestic judgments, academic writings, and things published by former gang members. In his report, reference was also made to particular judgments.
9. In response to the objection to paragraph 48(c) of his report, Mr Macken gave oral evidence as to the basis of the opinion expressed in the last sentence. There Mr Macken described the role of the rank of Sergeant at Arms, to be: "… responsible for discipline during club meetings, functions and runs (organized rides). He answers directly to the President from whom he can obtain consent to use violence in dealing with another member who has disobeyed the rules of the gang. There is also evidence supporting the belief that the Sergeant at Arms formulates and coordinates attacks on rival groups during times of conflict."
10. Mr Macken's oral evidence was: "Q. Mr Macken, you've said there that there's evidence supporting a certain belief. What I'm asking you about is what the evidence is not what the belief is. A. Yep. One of the incidents I'm aware of is that Michael Gregg was the sergeant at arms of the Rebels Blacktown Chapter and in a conflict with the Bandidos, it went for quite some time, Michael Gregg had a number of prohibited firearms at his premises that we uncovered in a search warrant and he was convicted of that during that conflict and said that they were for protection during the conflict. I know that - I'm just trying to think of some other incidents. There are a number of attacks where sergeant at arms have been involved also on not just rival groups but their own members in meting out discipline in breach of the rules. Ian Clissold, who was a sergeant at arms and remains a sergeant at arms for the Comancheros, was convicted of manslaughter when he beat another Comancheros member to death for breach of the rules. I'm aware of an incident in 2006 where a Comancheros member was beaten after being removed from the club and a lot of property was taken from him. A number of members, including Daux Ngakuru who was the sergeant at arms at the time, were charged with that. Unfortunately it was withdrawn after the victim refused to give evidence who was also had been a Comancheros member."
11. On the basis of that evidence, the objection to paragraph 48(c) was not pressed further, the opinions thereby unarguably having been demonstrated to have a factual basis.
12. I concluded that the aspects of Mr Macken's report to which objection was taken, were admissible under s 79 of the Evidence Act 1995 (NSW). That was because the report established that the opinions he had expressed were wholly or substantially based on his specialised knowledge, based on the training, study and experience disclosed in his report. It also disclosed that, in part, the opinions he expressed were based on materials provided by others, but that was not a basis on which his opinions could be rejected. It is commonplace for an expert's opinions to rely on such materials (see R v Jung [2006] NSWSC 658).
13. The facts on which an expert's opinions are based must usually be capable of proof by admissible evidence and the reasoning process leading to the formation of an opinion, so as to demonstrate that it was based on particular specialised knowledge, must be identified. The opinions Mr Macken expressed related to the involvement of particular motorcycle gangs, including the Comancheros, in criminal activities which Mr Macken identified, activities which were clearly capable of proof by reference to relevant decisions, including those referred to by Mr Macken in his report.
14. I also concluded that there was no unfairness in Mr Macken's expert evidence being received, so as to warrant exclusion of his report under s 135 of the Evidence Act, as unfairly prejudicial to Stealth Enterprises, albeit undoubtedly Mr Macken's evidence rested in part on hearsay material, as I have explained. That section gives the Court a discretion to refuse to admit evidence, if its probative value is substantially outweighed by the danger of unfair prejudice.
15. Plainly, the unchallenged opinions expressed by Mr Macken, if accepted, would damage Stealth Enterprises' case, given the requirements of s 21 of the Insurance Contracts Act and the operation of s 28, but that the resulting prejudice would be unfair, was not established. Here there could be no suggestion, for example, that the tribunal of fact would misuse the evidence, if admitted, nor was that advanced.
16. Also relevant to consider was that Mr Macken was available for cross-examination. Even before the objection was pressed, it was Stealth Enterprise's position that he would not be required for cross-examination, if his report was admitted. Even after he was called and gave the evidence earlier outlined, to further reveal the basis of certain of the opinions he expressed in his report, his evidence was unchallenged by cross-examination.
17. That supported the conclusion which I reached, that Mr Macken's evidence could not be excluded under s 135, as unfairly prejudicial.

Application to call late evidence from Ms Shepherd

1. Before the hearing, Stealth Enterprises had subpoenaed the production of: "1. Copy of Calliden Claim Notes for the claim file the subject of these proceedings. 2. Calliden's instructions to Thomas King and Associates Pty Ltd in relation to the claim the subject of these proceedings 3. Copy of all correspondence and documents received and created by Calliden in relation to the claim the subject of these proceedings, excluding documents received from the plaintiff and or the plaintiff's legal representatives and legal advice received by Calliden. 4. Copy of all records of interview and investigation notes. 5. Copy of Calliden's policy acceptance criteria or underwriting guidelines for Calliden Adult Insurance Policy from 1 June 2010 to 30 January 2012."
2. Stealth Enterprises had not sought the production of Calliden's files, or other documents relating either to the policy issued to it in 2010, or its renewal in 2011, even though Mr Tuitavuki's affidavit did not annex relevant documents. Calliden had served other affidavits to which relevant business records were annexed, including, for example those sworn by employees of OAMPS, which related to the policy issued to Stealth Enterprises and its renewal.
3. When the hearing commenced, a call was made by Stealth Enterprise in the following terms: "… a call for the following documents in case there's some uncertainty about the terms of our earlier subpoena. All memos, correspondence, emails, file notes, reports, held or previously held by Calliden as the defendant in these proceedings relating to or in respect of the underwriting of the particular policy of insurance which is the subject of these proceedings."
4. That was a call for different documents to those the subject of the subpoena.
5. Documents were produced later that day, about which Mr Tuitavuki was then cross-examined. In his report, he had said that he was the underwriter who had considered both Stealth Enterprises' original application for insurance and the renewal in 2011. In cross-examination, Mr Tuitavuki said he could remember dealing with the original application, but not the renewal. When the documents were produced, it emerged that it was not he, but Ms Shepherd who had dealt with the renewal. Other documents were still being searched for, when his evidence concluded. Mr Tuitavuki was accordingly not excused, but as it transpired, he was not required for further cross-examination.
6. On the second day of the hearing, the question of the answer to the call was revisited by Stealth Enterprises.
7. Calliden produced the other documents it had found, which had revealed Ms Shepherd's involvement; and it also then sought leave to call evidence from Ms Shepherd, which was opposed. That application was stood over to the following day, so that an affidavit could be obtained from her and from Calliden, to explain what had happened.
8. It was by then apparent that Calliden's preparation of the matter for hearing had been inadequate. It had failed to identify the underwriter who had dealt with the renewal application, even though that information was always in its hands. The evidence finally led from Ms Shepherd confirmed that Calliden was responsible for that failure, its error having been revealed by the steps taken to respond to the call made for the first time by Stealth Enterprises, only when the hearing commenced.
9. Had Stealth Enterprises pursued those documents earlier, as undoubtedly it should have, Ms Shepherd would have been identified and evidence led from her, in accordance with directions which had earlier been given as to the preparation of the matter for hearing. Evidence would not have been led from Mr Tuitavuki on the incorrect premise that he had also dealt with the renewal, but he still would have been called.
10. As I said at the hearing, it is not only the Court which is obliged by s 56 of the Civil Procedure Act 2005 (NSW) to facilitate the just, quick and cheap resolution of the real issues in the proceedings. The parties, too, each have a duty to assist the Court to further that purpose. Had either of them pursued what they each raised only at the hearing, during the course of preparation for the hearing, this difficulty would have been earlier identified and dealt with.
11. On the third day of the hearing, Calliden led evidence to support the leave which it pressed in relation to calling evidence from Ms Shepherd. The application was still opposed. For its part Stealth Enterprises relied on the obligations imposed by s 56 and the forensic disadvantage which it submitted it would suffer, given that it had already cross-examined Mr Tuitavuki, so that its approach to his evidence would be known by Calliden and revealed to Ms Shepherd, before she was cross- examined. It also relied on the prejudice which would result, if the leave sought was granted. That was explained to include a need to issue a subpoena for the production of documents relating to other applications for insurance which Ms Shepherd had dealt with, during an identified period. It was also submitted that calling evidence from Ms Shepherd would be futile, given evidence already led as to the circumstances in which the policy came to be renewed.
12. I concluded that despite these submissions, justice required the leave sought to be granted. These are the reasons for that conclusion.
13. It is the claim made in 2012 under the renewed policy, after fire damaged the brothel in January of that year, which is the subject of these proceedings. There was no issue that Calliden refused that claim, firstly because Stealth Enterprises had not disclosed to it facts it considered to be material, in relation to the Tukel brothers' involvement with the Comancheros, both when the original policy was granted and when the policy was renewed. Secondly, because when the policy was renewed, Stealth Enterprises had not disclosed that the brothel's registration under the applicable statutory scheme had lapsed.
14. In its further amended defence, Calliden had pleaded amongst other things, that Stealth Enterprises had a statutory duty of disclosure under s 21 of the Insurance Contracts Act, in relation to those matters, which it had failed to comply with; that Stealth Enterprises knew that the failure to disclose those matters were relevant to its decisions as to whether the risk would be accepted and the policy renewed; that if they had been disclosed, it would not have agreed to insure the premises at all; and that in the result, under s 28 of the Act, it was entitled to reduce its liability under the policy to nil.
15. Mr Tuitavuki's evidence was unarguably relevant to this defence, his evidence having been that he considered the two matters which Calliden relied on to have been material and if he had been aware of them, would have led to refusal both of the application for the initial policy and the renewal. There was, however, no question that time was wasted in cross-examining him about the actual renewal of the policy in 2011, given that it finally emerged that he had not, in fact, been involved. It was Ms Shepherd who could give evidence about the renewal. It was apparent from her affidavit that she held similar opinions to those held by Mr Tuitavuki.
16. The result was that, if the leave sought was granted, the case which Stealth Enterprises had to meet would not have changed materially, but there would be additional time and costs involved in permitting Ms Shepherd's evidence to be led. The hearing would not be conducted as cheaply as it would have been, had there been no application to lead her evidence, or if it was not granted. Had her involvement been earlier identified by Calliden, however, as it ought to have been, Ms Shepherd would unquestionably have been called and the cost of leading evidence from her would have been incurred. She would also have been earlier identified and called, had the documents called for by Stealth Enterprises only at the hearing, been called for beforehand, as they plainly ought to have been.
17. There was accordingly some prejudice to Stealth Enterprises from the grant of the leave sought. The matter had been listed for four days. When the hearing commenced it was thought it would take only three and with the grant of the leave and accompanying adjournment, it seemed that it would take up to five. In the circumstances, I concluded that this prejudice was of such a kind, that it could properly be dealt with by a costs thrown away order.
18. It was also relevant that the parties were able to agree on a regime for the production of the limited range of documents sought by Stealth Enterprises, in relation to Ms Shepherd, which Calliden accepted justice required that it produce. There was no further disadvantage to Stealth Enterprises in that regard.
19. I took the view that the fact that Ms Shepherd's evidence would support Calliden's case would not result in prejudice to Stealth Enterprises sufficient to warrant the leave sought being refused. The nature of the case which Stealth Enterprises had to meet was not altered by that evidence being led. The underwriter who had, in fact, dealt with the renewal, shared, as it emerged, Mr Tuitavuki's views as to Stealth Enterprises' failure to disclose relevant matters, which would have caused the renewal application to be refused.
20. True it was that Mr Tuitavuki had already been cross-examined as to the basis on which he had come to hold that view, in his case, he explained from experiences which began when he was a child, from reading media reports and from experiences he had had as an underwriter with motorcycle gangs. There was nothing in that cross-examination which I considered would result in real forensic disadvantage of a kind sufficient to refuse the leave sought, particularly given that Mr Tuitavuki had not been cross-examined as to the nature of what he had experienced as an underwriter, which had had an impact on the views he had formed.
21. In that regard, the provisions of s 58 of the Civil Procedure Act, which requires the Court to act in accordance with the dictates of justice, could not be overlooked. The question was, a mistake having been made by Calliden in the identification of the underwriter who had dealt with the renewal in 2011, did justice require the leave which it sought to call evidence from the relevant underwriter to be refused? In that exercise the requirements of both s 56 and s 57 had to be borne in mind. Section 57 requires that for the purpose of furthering the overriding purpose, the just, quick and cheap resolution of the real issues in the proceedings, they must be managed having regard to: "(a) the just determination of the proceedings, (b) the efficient disposal of the business of the court, (c) the efficient use of available judicial and administrative resources, (d) the timely disposal of the proceedings, and all other proceedings in the court, at a cost affordable by the respective parties."
22. Section 58(2)(b) provides that the Court may also have regard to: "(i) the degree of difficulty or complexity to which the issues in the proceedings give rise, (ii) the degree of expedition with which the respective parties have approached the proceedings, including the degree to which they have been timely in their interlocutory activities, (iii) the degree to which any lack of expedition in approaching the proceedings has arisen from circumstances beyond the control of the respective parties, (iv) the degree to which the respective parties have fulfilled their duties under section 56 (3), (v) the use that any party has made, or could have made, of any opportunity that has been available to the party in the course of the proceedings, whether under rules of court, the practice of the court or any direction of a procedural nature given in the proceedings, (vi) the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction, (vii) such other matters as the court considers relevant in the circumstances of the case."
23. In this case, had the call which revealed Calliden's error been made before the hearing, evidence would have been earlier led from Ms Shepherd. Given the way in which both parties had conducted themselves, the error was only identified after the hearing commenced. In all of the circumstances, I was not satisfied that justice demanded that the leave sought ought to be refused. Its grant resulted in some additional time and expense, but no unfair surprise or ambush, such as when a late development results in a change in the nature of the case which a party seeks to advance in the proceedings.
24. Nor could I conclude on the evidence already led, that calling Ms Shepherd would be futile, as was argued. Stealth Enterprises had long been in possession of documents it had subpoenaed. That had not resulted in the subpoena of the documents called for only at the commencement of the hearing. It was their production which resulted in the application to call Ms Shepherd. Had that occurred earlier, as it should have, these matters would have been identified and dealt with then. That the evidence which she could give about the documents which had come to light was incapable of shedding light on what had transpired in a way which would support Calliden's case, was not apparent.
25. This was why I became satisfied that the dictates of justice required the grant of the leave sought, together with a costs thrown away order in favour of Stealth Enterprises and an adjournment to the following day, so that relevant documents could be produced by Calliden and considered by Stealth Enterprises.

Common knowledge

1. Calliden sought to tender documents appearing at pages 119 - 162 of Volume - 1 of the Court book (marked MFI 14), the relevance of which were in issue. It was explained that they were tendered in support of the submission that the existence and conduct of outlaw motorcycle gangs such as the Comancheros was a matter of common knowledge, within s 144 of the Evidence Act and the subject of an application for an order under s 70 of the Civil Procedure Act.
2. The documents in issue included the following:

• The second reading speech for the Crimes (Criminal Organisations Control) Bill 2009;
• Australian Government, Australian Institute of Criminology, Research in Practice, "The Status of laws on outlaw motorcycle gangs in Australia" (June 2009)
• Australian Government, Australian Institute of Criminology, Research in Practice Report, "The Status of laws on outlaw motorcycle gangs in Australia" (March 2010)
• Nick McKenzie, "Crime data leaked to bikie gangs", WA Today (28 August 2010)
• Nick McKenzie, "Bikie spy infiltrated police HQ", Sydney Morning Herald (28 August 2010) regarding charges laid against a police analyst who was alleged to have stolen police files:
• NSW Government, Office of Director General Trade and Investment, "Sydney Central - Kings Cross Precinct Liquor Accord", announcing the establishment of the Precinct Liquor Accord under s 136E of the Liquor Act 2007 (NSW) in relation to boundaries established at Kings Cross, in relation to persons wearing the colours of certain motorcycle Clubs;
• Cameron Houston, "Bikies probed over drive-by shooting link", Australian Biker News (3 April 2011)
• Judgment of R A Hulme J in R v Hawi [2012] NSWSC 332.

1. I concluded that all the documents should be admitted, apart from the March 2011 Biker News article regarding drive by shootings in Victoria. I came to this conclusion for the following reasons.
2. Section 144 of the Evidence Act provides: "144 Matters of common knowledge (1) Proof is not required about knowledge that is not reasonably open to question and is: (a) common knowledge in the locality in which the proceeding is being held or generally, or (b) capable of verification by reference to a document the authority of which cannot reasonably be questioned. (2) The judge may acquire knowledge of that kind in any way the judge thinks fit. (3) The court (including, if there is a jury, the jury) is to take knowledge of that kind into account. (4) The judge is to give a party such opportunity to make submissions, and to refer to relevant information, relating to the acquiring or taking into account of knowledge of that kind as is necessary to ensure that the party is not unfairly prejudiced."
3. Section 70 of the Civil Procedure Act permits the Court, by order, to dispense with the rules of evidence for proving any matter that is not bona fide in dispute.
4. Initially, Mr Fidel and Mr Baris Tukel's membership of the Comancheros had been in issue, as I have explained. Barr AJ accepted that their membership and whether Mr Baris Tukel held office were relevant to what had to be decided in this case. Mr Macken's report was directed to the Comancheros and its activities, as I have explained. By the time of the hearing there was no issue as to their membership of the Comancheros at the relevant times.
5. During the course of argument, it was submitted for Stealth Enterprises that: "It could hardly be suggested that there haven't been media reports suggesting individual members of bikie gangs have been involved in crime. If the defendant is going to tender a judgment against Mr Howie [sic], involved in the murder out at the Sydney Airport, we could - that would almost be common knowledge. The problem which arises in this case is that - if we can start with a proposition, that it's hardly going to be suggested that there's never been a media report about a bikie gang, or there's never been a media report about members of bikie gangs being involved in crimes. What the defendant seeks to do is to suggest that the knowledge which is held by specialist people such as Mr Macken or members of parliament specifically engaged in the task of looking at outlaw motorbike gangs - and I use that term because that's the term that I'm going to come to back in a minute - is knowledge which should be found to exist in the ordinary reasonable man in the street."
6. The matter of common knowledge pressed for Calliden was then formulated to be that: "(a) the Comancheros are an outlaw motorcycle gang; (b) outlaw motorcycle gangs are known to engage in activity which may result in property damage or personal injury"
7. To meet the submission that the term "outlaw motorcycle gang" was a term of art that had not become a matter of common knowledge, this was reformulated to be: "(a) the Comancheros are an outlaw motorcycle gang or a bikie gang; and (b) outlaw motorcycle gangs or bikie gangs are known to engage in activity which may result in property damage or personal injury"
8. It is apparent from these submissions that there was no issue that the Comancheros are a bikie gang. However, it was still disputed that it was common knowledge that bikie gangs "are known to engage in activity which may result in property damage or personal injury".
9. Stealth Enterprises' case was that Calliden could not rely on statements by experts such as Mr Macken or those of Ministers, to establish what it claimed was a matter of common knowledge. The term "outlaw motorcycle gangs" had been developed in the United States by law enforcement agencies which had been brought to Australia at a particular point in time, for the purpose of police investigations, but, it was submitted, it was still not a term generally used in the community. Nor could the documents tendered establish that it was a matter of common knowledge that outlaw motorcycle gangs were involved in crime involving damage to property and personal injury. That, it was argued, could not be proven by statements made by persons with considerable expertise in the area.
10. I was satisfied that these submissions could not be accepted.
11. The term "outlaw motorcycle gang" is not a term of art. That term had arisen to be considered in Moefili v Parole Authority of New South Wales [2009] NSWSC 1146; (2009) 76 NSWLR 555. There Hall J had to deal with parole conditions such as that "The offender must not associate with any member of any outlaw motorcycle gang". At [92] his Honour found that the expression "outlaw motorcycle gangs" was then in use in the community. This was a decision to which Mr Macken had referred in his report.
12. It was long the position at common law that judicial notice could be taken of facts which are notorious, whether or not the notoriety is established after inquiry (see Farkas v R [2014] NSWCCA 141 at [81]). Now s 144 does not leave room for the operation of that doctrine (see Gattellaro v Westpac Banking Corporation [2004] HCA 6; (2004) 204 ALR 258 at [17]). Rather, it provides that proof is not required of knowledge which is not reasonably open to question and by ss (1)(a), which is common knowledge.
13. It is obvious that knowledge which becomes, over time, not reasonably open to question and common knowledge, involves a process. As discussed in J D Heydon, Cross on Evidence, (10th ed 2015, Lexis Nexus) at 165 - 166 "[a] fact which was arcane a generation ago may be a commonplace today."
14. Scientific advances help illustrate the point. For example, it has long been known that human beings can suffer from stomach ulcers. Not so long ago what caused such ulcers, was not known. Ulcers were then treated in various ways by doctors, who like others in the community, were ignorant of their true cause. As the result of a scientific breakthrough, it became known that ulcers were caused by a bacteria and could be cured by treatment with a particular antibiotic. That breakthrough became public. Initially it was known only to experts in the field. Over time, it became widely known in the medical profession. Eventually it received widespread publicity to the point where now, I consider, the cause and treatment of stomach ulcers is not only not reasonably open to question, it has also become a matter of common knowledge.
15. The question which arose in this case in relation to the Comancheros bike gang, was rather different, of course. It was more akin to that considered in Crown Glass & Aluminium P/L v Ibrahim [2005] NSWCA 195, where McColl JA observed at [130] - [132]: "130 In Munro v Tooheys Ltd (1991) 29 FCR 74 at 91, Beaumont J (quoting E M Morgan, Some Problems of Proof under the Anglo-American System of Litigation, at p 61) said "the party seeking judicial notice 'has the burden of convincing the judge that (a) the matter is so notorious as not to be the subject of dispute among reasonable men or (b) the matter is capable of immediate accurate demonstration by resort to readily accessible sources of indisputable accuracy". Applying that test his Honour held that "the question of drinking habits in the community is not a matter of this kind. It is not something so notorious or so demonstrable that evidence of it is not necessary ...". 131 It might be accepted that tax evasion and avoidance takes place in the building industry. The 2003 Final Report of the Royal Commission into the Building and Construction Industry - Reform - National Issues Part 3 makes that plain: see http://www.royalcombci.gov.au/hearings/reports.asp. At the same time the Report also observed (Volume 9, ch 16, [3]) that "views vary about the extent of tax evasion and avoidance …". 132 It is questionable, in my view whether the bald assertion employed by his Honour (tax avoidance is endemic in the building industry) is a matter which "every ordinary person may be reasonably presumed to be aware of" or not be the subject of dispute or not be reasonably open to question. "
16. It was this type of testing, however, which had to be considered in this case, in the context of the requirements of s 144.
17. As discussed in R v Giam (No 2) [1999] NSWCCA 378; (1999) 109 A Crim R 348 at [21], the Court does not need to receive evidence of its own proceedings and the outcome of such proceedings are matters of record, which under s 144 do not require proof, being capable of verification by reading the published reasons for judgment. Reading such decisions, or reports published about them, is a part of the process by which information not only comes to the attention of experts like Mr Macken, but also the community. Over time, that may result in matters there dealt with, becoming common knowledge.
18. That process undoubtedly operates in the context of judgments which deal with criminal activities, including those of bikie gangs and their members. Such gangs, it must be remembered, like any other association in which people involve themselves, whether they be incorporated or unincorporated, can only act through their members, officers and employees. It is people, always, who perform the physical acts which may later be found to have involved a criminal offence.
19. Given that the matters which were said to be common knowledge existing in 2010 and 2011 concerned the activities of bikie gangs such as the Comancheros, in resolving what lay between the parties, the ready means of communication and access to information then widely available to members of the community, had to be taken into account. In that context it could not be overlooked that the question of criminal activities of bikie gangs, like criminal activities generally, is a matter of considerable ongoing interest and concern to members of the community. Indeed, the criminal activities of bikie gangs is likely to be of much greater notoriety and interest to the community, than tax avoidance in the building industry.
20. By 2010 community members not only had access, as part of normal daily life, to media reporting about the activities of bikie gangs through newspapers, radio and television, but also through their computers, to information published on the internet. The operation of this system is itself a matter now long accepted to be of common knowledge (see for example, Jones v Toben [2002] FCA 1150; (2002) 71 ALD 629 at [64] - [65]). Access to the internet was by 2010 very widespread, through computers and other electronic devices, many of them portable, routinely used at workplaces, homes and educational institutions, including schools, where even quite young children had access to them.
21. By 2010 people also had ready access to powerful search engines like "Google". Such tools provided simple, ready access to all sorts of reliable information about a range of matters of common interest, including criminal activities which affect the community. In addition to media reports about such offending, including by bikie gangs such as the Comancheros, members of the community by then had ready access to the subject matter of such reports, by simple use of search engines such as Google. That included, for example, access to judgments published on court websites; legislation, Parliamentary debates and other information published by Parliaments and Government bodies; as well as articles and other information published by experts, locally and internationally in various publications.
22. In the result, had the existence of the Comancheros bikie gang been in issue in these proceedings, it would have had to have been concluded that by 2010 its existence was not reasonably open to question and had become a matter of common knowledge. Its existence was, of course, not in dispute. Nor was the fact that members of such bikie gangs have been involved in crime. What was not conceded was that such bikie gangs are also known to engage in activity which may result in property damage or personal injury.
23. The first requirement of s 144 of the Evidence Act is that the knowledge in issue be not reasonably open to question, that is about which reasonable minds might not have different opinions (see McGregor v McGregor [2012] FamCAFC 69 at [74]). The second requirement is as to "common knowledge" a term not defined in the Evidence Act, which thus has its ordinary meaning. That is, something that is a "generally known fact" (see Farkas at [13]). Such facts have been found to include facts as complex and diverse as the nature of the internet and the world wide web; the historical and persisting disadvantage of women in the legal profession; and that asbestos is dangerous and can be deadly (see the commentary on s 144 in Stephen Odgers, Uniform Evidence Law, (11th ed 2014, Thomson Reuters) at 924 - 925).
24. I was satisfied that the controversy over these two requirements could not be resolved in the way contended for by Stealth Enterprises. That was because I was satisfied that by 2010, bikie gangs, including the Comancheros, were widely known to engage in activity which may result in property damage or personal injury; that was not something about which reasonable minds might then have had different opinions; and indeed, that it was a matter which had become generally known.
25. It is sufficient to refer to only some of the material which supported these conclusions.
26. In R v Hawi, R A Hulme J sentenced Mr Hawi, who in November 2011 had been found guilty of affray and murder, which he had committed during a violent altercation which had occurred in March 2009 at the Qantas domestic terminal at Sydney airport, during what R A Hulme J described to have been conflict between members of rival outlaw motorcycle gangs, the Comancheros and the Hells Angels (at [5]). That altercation was not only witnessed by those present at the airport, it received very widespread attention by the community, as the result of the media coverage which it garnered, as did the later trial and the sentencing proceedings and judgment.
27. R A Hulme J received evidence about the ongoing conflict between the two gangs, which he discussed in the judgment. It was an agreed fact that there was ongoing hostility between them. That conflict had led, amongst other things, to the firebombing of a business associated with one of the gangs, drive-by shootings and the bombing of a building.
28. His Honour found that the Comancheros had been the aggressors in the affray at the airport, which took place in the presence of a large number of witnesses. A submission was advanced to his Honour that Mr Hawi was of prior good character. That was in issue and the submission was finally abandoned. His Honour took the view that the concession was realistic, observing that: "Having been the national president of an outlaw motorcycle gang, the offender is a person I would want to know a lot more about than is disclosed in the evidence before such a finding could be made in his favour" (see at [79])
29. In 2010, the April 2009 Minister's Second Reading Speech was also then in the public domain. There reference was made to violent crimes involving outlaw motorcycle gangs which had spilled into public places and threatened the safety of innocent bystanders. The criminal activities pursued by bikie gangs aimed at profit making were also there described, as were shootings in public streets and the events at the airport dealt with in Hawi. That legislation also garnered widespread media attention.
30. Other relevant criminal activities in which the Comancheros were then known to have been involved were described in Mr Macken's report, as well as in his oral evidence. His evidence was not challenged. The events discussed by Mr Macken, which led to charges being laid, convictions being obtained, and sentences being imposed on members of the Comancheros and other bikie gangs, have often received widespread media coverage. By 2010, information about such activities was not confined to experts such as him. Much of that information had gone into the public domain, where it received widespread interest as the result not only of the publicity generated by the actual offending, but also by that generated when prosecutions were pursued and when reasons for judgment like those delivered by R A Hulme J were published.
31. In all of those circumstances, the conclusions for which Stealth Enterprises contended were simply not available. To the contrary, it had to be accepted that by 2010 it was not reasonably open to question and a matter of common knowledge that the Comancheros are an outlaw motorcycle gang or a bikie gang and that such gangs are known to engage in activity which may result in property damage or personal injury.
32. As to s 70 of the Civil Procedure Act, it relevantly provides: "70 Informal proof and admissions (1) At any stage of the proceedings, the court: (a) may, by order, dispense with the rules of evidence for proving any matter that is not bona fide in dispute, also with such rules of evidence as may give rise to expense or delay, and …"
33. This section grants the Court a wide discretion, but it is one to be exercised with caution in relation to matters central to the case. In Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2008] NSWSC 645 at [38], the matter in issue was proper proof of extracts from documents translated into English. There an order was refused, because the view was taken that while the defence was late in raising the accuracy of the translation, there was no reason to think that the dispute was not genuine, bearing in mind the nature of the documents there in question. This was not such a case.
34. A completely different type of controversy arose to be considered in this case, concerning as it did the question of whether there was a genuine dispute between the parties over whether it was common knowledge that the Comancheros, of which Mr Baris Tukel was not only a member, but also the Sergeant at Arms, and of which his brother, the manager of the brothel, was also a member, was known to engage in activity which may result in property damage or personal injury. That there was any bona fide dispute between the parties about this matter, simply could not be accepted.
35. In the result, had I not reached the conclusion which I did in relation to s 144 of the Evidence Act, I would have made an order under s 70 of the Civil Procedure Act. Given the conclusion which I did reach, such an order is unnecessary.

The reliability and credibility of the evidence given by Mr Tuitavuki and Ms Shepherd

1. It was the reliability of Mr Tuitavuki's evidence which was put in issue. Both reliability and credibility were raised in Ms Shepherd's case. Both were underwriters with considerable discretions to exercise, in accordance with various applicable guidelines.
2. As I have explained, Mr Tuitavuki's recollection that he had dealt with Stealth Enterprises' initial application was correct, but that he had dealt with the renewal was not. There were other details of his recollection of the initial application which were not correct. Nevertheless, his evidence was generally credible.
3. So, too, was that given by Ms Shepherd. In considering her evidence the circumstances in which she was called to give evidence could not be overlooked. She was notified of the need to give evidence only a day or so before she was called, in the circumstances I have described. She worked the day before to produce documents under the arrangement which the parties had agreed and also produced her affidavit. When she gave her evidence the next day, she had clearly had but limited time to reflect or prepare to give her evidence.
4. I consider that her evidence was honestly given, including in cross-examination, where at times she had difficulty in following the questions posed to her and on some occasions, was asked further questions before she had completed her answer.
5. Her evidence was variously criticised, but I am satisfied, if fairly considered, must be accepted as having been given consistently with the requirements of her oath.
6. Despite the submissions advanced as to their evidence, I accept both witnesses to have endeavored to give their evidence truthfully, making concessions appropriately, accepting that there were limits as to their recollections and seeking to more fully explain or clarify answers which they had given, when necessary.

The case advanced in fraud is not established

1. Calliden pleaded both fraudulent and innocent non-disclosure. It is convenient to deal with the allegation of fraud, dealt with in s 28(2) of the Insurance Contracts Act, at the outset.
2. Stealth Enterprises submitted that Calliden's case hinged on it being accepted that a corporate entity conducting a legal business was required to inform an insurer of the private activities and memberships of its officers, unconnected with any of its business activities, for the purpose of obtaining insurance on its business, without any question being asked in the proposal about such a matter.
3. That, it seems to me, is not an insuperable difficulty with the case which Calliden advanced under s 21, but in this case, did pose difficulties for what was advanced in relation to fraud.
4. The proposal form which Mr Fidel Tukel signed in 2010 included a declaration that "(ii) no information has been withheld that would affect Calliden's decision to accept this proposal".
5. For reasons which I will explain, I am satisfied on the evidence that it must be accepted that membership of the Comancheros was relevant to Calliden's decisions, as was in 2011 the lapse of the brothel's registration, even though it is no longer the position of a prudent insurer, but the particular insurer which has to be considered (see Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd [2003] HCA 25; (2003) 214 CLR 514 at [70]).
6. Both Mr Tuitavuki and Ms Shepherd gave evidence that in their views, membership of the Comancheros increased risks. No evidence to contrary effect was led. Their views have to be considered in light of those taken as to the risks which brothels themselves pose, discussed in Lindsay v CIC Insurance (1989) 16 NSWLR 673 as to the risks, where Rogers CJ Comm D observed at 684: "... such use of premises could put the safety of the premises in danger. Arson, stand over tactics, fights, dissatisfied customers, seem to be all dangers attendant on the conduct of a brother and, in turn, put the safety of the premises at risk."
7. Given the evidence of Mr Macken and what I have found was at the relevant times a matter of common knowledge about the activities of bikie gangs, to which I will return, Mr Tuitavuki and Ms Shepherd's evidence must be accepted.
8. Despite this, I am not, however satisfied that the evidence establishes any fraudulent non-disclosure by Stealth Enterprises.
9. It is settled that where fraud is alleged the evidence "should be clear and cogent such as to induce, on the balance of probabilities, an actual persuasion of the mind as to the existence of fraud" (see Rejfek v McElory [1965] HCA 46; (1965) 112 CLR 517 at 521). In Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 67 ALJR 170 it was observed at 171: "...authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary 'where so serious a matter as fraud is to be found'. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct." (citations omitted)
10. Further, s 140 of the Evidence Act requires that in determining whether a party has proven the case advanced on the balance of probabilities, regard must be paid to "the nature of the cause of action, the nature of the subject-matter of the proceeding" and "the gravity of the matters alleged."
11. As discussed in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 362, that requires account to be taken of matters such as the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding. "Reasonable satisfaction" of such matters, it was there explained "should not be produced by inexact proofs, indefinite testimony, or indirect inferences."
12. On the evidence, which I will discuss below, I am not satisfied that the high degree of satisfaction as to the case advanced in fraud, is available.
13. The non-disclosure as to the two matters on which Calliden's case depends could have been deliberate, or reckless. Recklessness can amount to fraud, but not necessarily so, that involving, as it does a deliberate decision to conceal or mislead, (see New Cap Reinsurance Corporation Limited (in liq) v Daya [2010] NSWSC 1226 at [44]).
14. In that part of his affidavit which became exhibit 26, Mr Fidel Tukel had deposed: "12. The Defendant never asked whether my brother or I, or anyone else, were involved with motorcycle clubs. At the time I completed the application referred to above, I was not a member of a motorcycle club, but I later became one. If the Defendant had asked me whether I was a member when I was, I would have told them. It is not something I consider secret or that I believe needs to be hidden."
15. That is no doubt a matter which would have been explored with Mr Fidel Tukel, if he had been called to give evidence. Neither he nor Mr Baris Tukel were however, called. In the result, given that membership of a bikie gang was not mentioned in the application form or any other information Stealth Enterprises might have been given and having regard to the circumstances in which the policy came to be removed in 2011, I have been unable, on the evidence, to conclude that Stealth Enterprises' failures to disclose were fraudulent, even though they must result in a finding for Calliden, for reasons which I will explain.

Non-disclosure of the association with the Comancheros

1. It was not in issue that the onus fell on Calliden to establish the non-disclosure it relied on, to establish its case under s 21 and s 28 of the Insurance Contracts Act. They provide: "21 The insured's duty of disclosure (1) Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that: (a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or (b) a reasonable person in the circumstances could be expected to know to be a matter so relevant. (2) The duty of disclosure does not require the disclosure of a matter: (a) that diminishes the risk; (b) that is of common knowledge; (c) that the insurer knows or in the ordinary course of the insurer's business as an insurer ought to know; or (d) as to which compliance with the duty of disclosure is waived by the insurer. (3) Where a person: (a) failed to answer; or (b) gave an obviously incomplete or irrelevant answer to; a question included in a proposal form about a matter, the insurer shall be deemed to have waived compliance with the duty of disclosure in relation to the matter. … 28 General insurance (1) This section applies where the person who became the insured under a contract of general insurance upon the contract being entered into: (a) failed to comply with the duty of disclosure; or (b) made a misrepresentation to the insurer before the contract was entered into; but does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into. (2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract. (3) If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made."
2. There is a statutory obligation to provide notice to an insured as to the duty of disclosure imposed by s 21. There is no issue that this notice was given to Stealth Enterprises in 2010 and on several occasions in 2011. It provided: "Your duty of disclosure Before you enter into a contract of general insurance with an insurer, you have a duty under the Insurance Contracts Act 1984, to disclose to the insurer every matter that you know, or could reasonably be expected to know, is relevant to the insurer's decision whether to accept the risk of the insurance and, if so, on what terms. You have the same duty to disclose those matters to the insurer before you renew, extend, vary or reinstate a contract of general insurance. Your duty however does not require disclosure of matters: • that diminishes the risk to be undertaken by the insurer • that is of common knowledge • that your insurer knows of, or in the ordinary course of his business, ought to know as to which compliance with your duty is waived by the insurer"
3. It was common ground that there was no obligation to give a further notice on renewal in 2011, but similar notices were attached to letters sent in August and September, when OAMPS wrote to Stealth Enterprises, reminding it of its duty of disclosure and invoicing it for the cover provided by Calliden.
4. Section 21(2) envisages that an insurer may waive the duty to disclose matters which might otherwise be relevant. There was no issue between the parties that the position at common law has been preserved by s 21. There the duty of disclosure was not confined to answering questions set out in an insurer's proposal form and the absence of a specific question about a particular matter, did not necessarily mean that the insurer considered the matter to be of no importance, or that the duty of disclosure was thereby diminished.
5. Section 21A makes express provisions as to disclosure, which are not here relevant.
6. In this case, in resolving what lies between the parties it is relevant that in the ACT, brothels may operate legally, in accordance with the regulatory scheme established by the Prostitution Act. There are no doubt persons involved in the operation of such businesses, who have backgrounds which would not oblige them to make any disclosures to an insurer under s 21, because they raised no relevant risks. Others will fall into a different category.
7. An example given by Calliden as to a matter about which no specific question was asked in its proposal form, but which would have to be disclosed by an applicant for insurance, was undetected arson. Its case was that similarly, while it asked no specific questions about membership of an outlaw bikie gang, s 21 obliged an applicant such as Stealth Enterprises to disclose that membership.
8. Calliden's case was that not asking questions about such membership involved no waiver of the obligation imposed on Stealth Enterprises by s 21, although it accepted that the question asked in the proposal form about criminal convictions may have. That need not be resolved, but, it must be accepted, is likely to have involved waiver, given that under Calliden's general guidelines criminal record in the preceding ten years was considered to be relevant to the decision to insure, but the proposal form it devised for insurance in the adult industry, required disclosure only of the preceding five years.
9. It was not Stealth Enterprises' case that Calliden not asking a question about membership of a bikie gang amounted to waiver of the disclosure obligation under s 21, but rather that the section imposed no obligation to make such a disclosure at all. Stealth Enterprises also submitted that the case was an unusual one, because it did not arise out of an answer given by an insured to a question asked by an insurer.
10. That may be so, but of itself provides no impediment to the defence which Calliden mounted in these proceedings, given the nature of the general duty of disclosure imposed by s 21 on an insured. Plainly, if it had asked a question about membership of a bikie gang, there could have been no question as to the need to disclose. That it did not ask such a question is relevant, but not determinative of the question of whether Stealth Enterprises was obliged to disclose that membership.
11. The duty imposed by s 21 fell on Stealth Enterprises, a corporate applicant who could only act through its officers and employees.
12. The need for disclosure by a corporate applicant for insurance, about the private activities of its officers, depends on the nature of the activities in question and the impact which they might have on the risk which an insurer is being asked to accept. That is because an insurance contract is a contract requiring the utmost good faith of both parties (see s 13 and CGU Insurance Ltd v Porthouse [2008] HCA 30; (2008) 235 CLR 103 at [49]).
13. It follows that, if, for example, Mr Baris Tukel, had received threats from another bikie gang that the brothel was going to be firebombed, that is a matter which Stealth Enterprises would undoubtedly be bound to disclose in its application, given the obligation imposed upon it by s 21. That is because, unquestionably, it would know that such a threat would have an impact on Calliden's decision as to whether to accept the risk of insuring its brothel.
14. It was argued, nevertheless, for Stealth Enterprises that a case under neither s 21(1)(a) nor (b) could be established, because even the objective test under s 21(1)(b) turned on a question of fact, to be determined in a context where the reasonable person would apprehend that the insurer had not asked a question about membership of a bikie gang, even though it was insurance of a brothel which was being sought and where information was required to be given about criminal convictions in the preceding five years, as well as information about employment of illegal immigrants, but no general question was posed about any other relevant matters.
15. The reasonable person would also have in mind, it was argued, that it was not seeking to insure the Comancheros' clubhouse, but a perfectly legitimate business, conducted under the laws of the ACT and not for the benefit of the Comancheros. Such a person would also take into account the absence of a relevant question.
16. On Stealth Enterprises' case, what s 21 required Calliden to prove was that: 1. The relevant matter was known to it. 2. It knew that the matter was relevant to Calliden's decision. 3. The matter was one which a reasonable person in the circumstances could be expected to know to be a matter so relevant.
17. For the following reasons, I am satisfied that Calliden proved each of these things.

The Tukels' membership of the Comancheros was known to Stealth Enterprises'

1. As discussed in Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd, "[t]he word 'knows' is a strong word. It means considerably more than 'believes' or 'suspects' or even 'strongly suspects'".
2. In this case, given Mr Baris Tukel's position not only as Stealth Enterprises' sole director and guiding mind, but at the relevant times the Comancheros Sergeant at Arms and Mr Fidel Tukel's position as manager of the brothel, there can be no question that their membership of the Comancheros was known to Stealth Enterprises. Indeed, it finally accepted that it should be taken to know everything known to its director and manager, even as to their private activities.
3. As Stealth Enterprises submitted, for the purposes of decision making, its mind might be exercised through either Mr Baris or Mr Fidel Tukel. Membership of the Comancheros was not a business activity in which it was involved, but not just the fact of, but also the nature of their involvement with the Comancheros was known to Stealth Enterprises. On the evidence, in exercising Stealth Enterprises' mind, such activities could plainly raise matters which they would need to consider, including when taking steps to pursue the insurance it sought with Calliden.

Membership of the Comancheros was relevant to the decision to insure

1. In CGU Insurance Limited v Porthouse it was observed at [53] that: "A test of disclosure, which operates by reference to both the insured's actual knowledge and the knowledge of a reasonable person in the same circumstances, is calculated to balance the insured's duty to disclose and the insurer's right to information. The insurer is protected against claims where the insured's disclosure is inadequate because the insured is unreasonable, idiosyncratic or obtuse and the insured is protected from exclusion from cover, provided he or she does not fall below the standard of a reasonable person in the same position."
2. Stealth Enterprises submitted that the evidence was not capable of establishing that it knew that membership of the Comancheros was relevant to Calliden's decisions to accept risk and the terms on which it would agree to insure. There had been no attempt to establish this by evidence. Nor could it be established through the absence of evidence.
3. Calliden's case depended not only on the evidence it led from Mr Tuitavuki, the underwriter who considered Stealth Enterprises' original insurance proposal and that belatedly led from Ms Shepherd, who dealt with the renewal application, but also on the evidence of Mr Macken and what was established to have been common knowledge, at the relevant times.
4. Stealth Enterprises argued that in order to succeed it was also necessary for Calliden to have called evidence from Mr Addison, to whom Mr Tuitavuki and Ms Shepherd reported. This was in issue. He, it was submitted by Stealth Enterprises, had the ultimate authority to make decisions about refusals to insure and would have had to have been consulted, if Stealth Enterprises' application was to be declined, given that neither the application form, the guidelines, nor any of Calliden's documents revealed that it had asked any questions about membership of bikie gangs.
5. Unquestionably, membership of bikie gangs was a matter which Calliden could have addressed specifically in its Guidelines and could have required information to be provided by applicants, even where that membership was by a director or manager, rather than of the company seeking insurance. That it did not, is relevant to take into account, but does not provide a complete answer to the question of whether the obligations imposed by s 21 on an insured, required such membership to be disclosed by Stealth Enterprises.
6. Its case was that it had no obligation to disclose the private activities of any of its officers, including that one or other of them was a member of an organisation known to police, in circumstances where Calliden had not asked a question about such matters, when neither individual had a criminal record and where the only disclosure required of it, was of any charges or convictions within the previous five years.
7. This broad submission may not be accepted, particularly given that the proposal form did require a declaration to be given that no information had been withheld, which could affect Calliden's decision. A simple example will suffice to explain why the obligation is not confined in the way for which Stealth Enterprises contended. Section 21 requires every matter known to the insured to be disclosed, if either known to be relevant to the decision to insure, or which a reasonable person in the circumstances could be expected to know to be relevant.
8. It follows that if Mr Fidel Tukel knew, for example, that businesses associated with Comancheros' members had been threatened with firebombing, that would be a matter which Stealth Enterprises would unarguably have to disclose when seeking insurance, given the obligations imposed by s 21, irrespective of the fact that the threat to its business came about because of his membership or that of his brother and that the threat had not been made directly against it. That is because there could, in those circumstances, be no question that the threat was relevant to any insurer's decision to insure its brothel. There was, of course, no suggestion on the evidence that there had been such a threat received.
9. Both the duty imposed by s 21 on Stealth Enterprises and the evidence given by Mr Tuitavuki and Ms Shepherd need to be considered, as it was submitted, in light of all of the circumstances revealed by the evidence. They include not only Calliden's policies and how they were implemented in practice, but also the evidence of the activities in which the Comancheros were known by 2010 to have been involved and the matters of common knowledge earlier discussed.
10. The evidence was that Calliden offered insurance to those in the adult industry, including those who operate brothels. There is no question that decision was made in circumstances where it was possible that members of bikie gangs might be involved in the conduct of such businesses, as both Mr Tuitavuki and Ms Shepherd acknowledged. Calliden's decision to offer such insurance was also made against a background where it has long been recognized that use of premises as a brothel can give rise to risks of the kind discussed in Lindsay v CIC Insurance.
11. The regulatory scheme established by the Prostitution Act, clearly cannot remove such risks. It is rather designed to address, at least, some of them.
12. OAMPS provided information to applicants about their duty to disclose and Calliden required a declaration to be given in the proposal form it designed, it appears in 2006, that no information had been withheld, which could affect its decision. It did not there seek information, as undoubtedly it could have done, about whether those involved in the operation of the businesses which sought insurance were involved with bikie gangs like the Comancheros. It also did not ask a question about other relevant information, or provide a space where information considered to be relevant might be provided. It did seek information about registration compliance, which under the Prostitution Act precluded certain persons, including those who had committed specified offences, from being involved in their operation.
13. No doubt the form could have been better drafted, but that drafting did not involve any waiver of the obligation to disclose relevant information required by s 21 to be provided, except in relation to criminal activities, as I have earlier discussed.
14. As I have noted, both Mr Tuitavuki and Ms Shepherd, nevertheless, considered that membership of the Comancheros gave rise to risks relevant to Calliden's decision to insure. Mr Macken's unchallenged evidence was that the Comancheros, who were involved in the ongoing conflict revealed by the evidence led in Hawi, had been involved in a wide range of serious crimes, albeit on the evidence, neither Mr Baris nor Mr Fidel Tukel have relevant criminal records themselves. By 2010, it was a matter of common knowledge that the Comancheros was a bikie gang, known to engage in activities which may result in property damage or personal injury.
15. That supported the views of both Mr Tuitavuki and Ms Shepherd, that Mr Fidel and Mr Baris Tukel's membership of the Comancheros was relevant to Calliden's decision to insure. Given what by 2010 was commonly known, not only about the criminal activities of members of the Comancheros, but also about the ongoing dispute it had with another bikie gang, which had involved things like the firebombing of a business associated with one of them, drive by shootings and the bombing of a building, the conclusion that the association with the Comancheros was relevant to Calliden's decision, is unavoidable.
16. On all of the evidence it also cannot be doubted that Stealth Enterprises knew that Mr Fidel and Baris Tukel's membership of the Comancheros was relevant to Calliden's decisions, first to insure its brothel in 2010 and second, to renew the policy in 2011.
17. If evidence had been called from Mr Fidel and Baris Tukel, they would have been cross-examined as to their knowledge of the Comancheros' activities, relevant to the risk of insuring the brothel. They were not called, but other evidence, including that given by Mr Macken, shed considerable light not only on matters of common knowledge, but also about matters which it can reasonably be inferred that Mr Fidel and Baris Tukel would have had even greater knowledge, than other members of the community unconnected with the Comancheros.
18. Mr Macken described such outlaw motorcycle gangs having been linked to serious crimes such as homicide; drug manufacture, cultivation and distribution; organised property theft and fraud; extortion; and firearm related offences. He also described how outlaw motorcycle gangs distinguished themselves from social motorcycle gangs, including by the use of cloth patches known as "Colours" worn on the rear of vests, which display the name of the gang and the country or state of origin. Photographs in evidence show Mr Fidel and Mr Baris Tukel wearing Comancheros patches.
19. Mr Macken described the office holders of such gangs to include the sergeant at arms, the position Mr Baris Tukel held, it will be remembered as: "… responsible for discipline during club meetings, functions and runs (organized rides). He answers directly to the President form whom he can obtain consent to use violence in dealing with another member who has disobeyed the rules of the gang. There is also evidence supporting the belief that the Sergeant at Arms formulates and coordinates attacks on rival groups during times of conflict."
20. Mr Macken also described how personal issues between members of rival outlaw motorcycle gangs could spark conflict and that such gangs had been known to make personal issues a "club issue" and engage in conflict to resolve it. He described consequences of such decisions to have included, members, clubhouses and associated businesses being targets for acts of violence. He also said that the historical pre-2000 position of such gangs that homes, businesses and places of work being off limits, having been abandoned by these gangs, with the result that they had become targets of gang conflict.
21. Mr Macken considered the Comancheros to be a significant outlaw motorcycle gang, whose history in Australia dated from its establishment in 1966 in Western Sydney. He believed it now to have 15 Chapters in Australia, 9 in NSW and over 400 members, half in NSW. I have earlier discussed his oral evidence as to particular offending in which Comancheros' members have been involved, as well as the ongoing conflict described by Hulme J in Hawi.
22. On all of that evidence, it must be inferred that information of this kind was not only known to Mr Fidel and M Baris Tukel, at relevant times, but also by Stealth Enterprises. In that light it has to be accepted, as Calliden argued, that Stealth Enterprises knew that Mr Fidel and Baris Tukel's membership of the Comancheros was relevant to Calliden's decisions, about both the original insurance and the renewal of the policy here in issue.
23. Even if that had not been known to Stealth Enterprises, that was unquestionably a matter which a reasonable person in the circumstances could be expected to know to be so relevant.
24. Contrary to the written submissions advanced for Stealth Enterprises, that did not depend on evidence being led as to what a reasonable person would know as to the relevance of such membership to an insurer. Whether such a reasonable person can be found to have such knowledge, depends on the evidence being assessed objectively, as it accepted.
25. True it is that it was a brothel owned by Stealth Enterprises which is the subject of the contest between the parties and not the Comancheros' Clubhouse. On the evidence the risks which membership of the Comancheros gives rise to are not, however, confined to the property of the bikie gang itself, but extend to that of its members.
26. It is also correct that no evidence was led about other insurance in connection with the Comancheros, or its members. Contrary, however, to the submissions advanced by Stealth Enterprises, Calliden's position was not that any reasonable member of the community would know that any member of a bikie gang could not get insurance. Rather, it was that a reasonable person in the circumstances would know that Mr Fidel and Baris Tukel's membership of the Comancheros was relevant to its decision of whether to accept the risk of insuring Stealth Enterprises' brothel and if so, on what terms.
27. I am satisfied that all of the evidence I have discussed establishes that such a reasonable person would be expected to know that their membership was so relevant. Such knowledge must have regard to what was asked in Calliden's written application form, as Stealth Enterprises argued. That included the declaration that all relevant information had been disclosed. That had to be understood in light of what it had been repeatedly told about the nature of the disclosure obligation.
28. If a relevant question about membership had been asked and answered the questions raised by s 21 could have easily been answered. If the answer given had been incorrect, the breach of the duty to disclose would have been clear. If the answer given had been incomplete or irrelevant and still a policy had been issued, s 21(3) would have resulted in Calliden having been deemed to have waived the disclosure duty.
29. Disclosure of relevant things which are not known to the insurer and about which questions are not asked in an application form, is where the duty imposed by s 21 on an insured bites.
30. In this case, I am satisfied that given not only what was known to Stealth Enterprises directly about Comancheros' membership of its director and manager, but also from what was, by 2010, a matter of common knowledge about the activities of the Comancheros and its members, that a reasonable person could be expected to know that membership of the Comancheros was relevant to Calliden's decision to accept the risk of insuring the brothel which Stealth Enterprises owned and operated.

Would Calliden have insured if membership of the Comancheros had been disclosed?

1. Mr Tuitavuki's evidence was that despite Calliden not having asked specific questions of applicants about involvement with bikie gangs, in 2010 and 2011 it would not have insured the brothel if Mr Fidel and Mr Baris Tukel's membership of the Comancheros had been disclosed, as it ought to have been. Nor would the policy have been renewed in 2011, if the lapse of registration had been disclosed. Ms Shepherd gave similar evidence.
2. Their evidence was challenged in cross-examination, but I am satisfied that it should be accepted.
3. The circumstances of the insurance and renewal were that OAMPS, with whom Calliden had an agreement, was the entity which usually dealt with applicants for insurance and renewals, including Stealth Enterprises.
4. Calliden's decision to offer insurance in the adult industry was a deliberate one. Thereby, with OAMPS' assistance under a written agreement which was not in evidence, it targeted those who operated in that industry. It was one of the few insurers who then operated in the industry, which was, no doubt, reflected in the premiums which it charged. As Mr Tuitavuki explained, those premiums were determined by reference to a rater, which had regard to various categories of risk there identified, such as fire and various other particular perils.
5. The "Calliden Business Pack Adult Industry Insurance Policy" was the scheme it tailored for the adult industry, by inclusion of specific exclusions, such as for communicable diseases. This policy provided a business package for various types of businesses in that industry, including brothels, which could operate legally in the ACT.
6. The package included fire and perils cover for buildings and contents, as well as business interruption. Mr Tuitavuki explained that the arrangement with OAMPS operated on an offer and acceptance basis, both for new business and renewals, with OAMPS dealing with those seeking insurance, using the rater to calculate premiums and the written OAMPs underwriting guidelines, to pre-vet applications. Ms Shepherd later gave similar evidence as to the way in which the agreement operated, although she accepted that Calliden had a binder agreement with OAMPS.
7. Stealth Enterprises could have challenged this evidence, if it wished, by tendering the OAMPS agreement, which it could have called for, as it had called for other documents. It did not do so.
8. OAMPS referred the insurance proposals completed by applicants to Calliden for approval. OAMPS did not itself enter into such contracts. There was very little evidence of any applications for insurance having been refused by Calliden. One occasion involved a business of a type not referred to in the OAMPS guidelines. There was no reference in those guidelines to bikie gangs and no evidence of any application having been refused by Calliden because of an association with such a gang. Nor was there evidence of any disclosure of such a connection.
9. Initially it was Mr Tuitavuki who dealt with this business and in his absence, his superior, Mr Addison. Applications were considered in light of the OAMPS guidelines, as well as Calliden's general guidelines. Approval, if granted, was then communicated by email to OAMPS. Neither Mr Tuitavuki nor Ms Shepherd dealt direct with applicants.
10. Mr Tuitavuki considered brothels to pose higher risks than other categories in the adult industry for which Calliden offered insurance. The OAMPS guidelines specified "referable risks", which OAMPS had to refer to Calliden to consider. They included prior criminal convictions defined in the proposal form, past declinature and special terms imposed. Membership of a bikie gang was not there identified.
11. Nor was it identified in the 'Decline risks' section of those guidelines, although there one item was "Risks expressly excluded or not specified in this underwriting guideline". That accorded with Mr Tuitavuki's evidence that he would have declined Stealth Enterprises' application, if membership of the Comancheros had been disclosed. So, too, did the general guidelines, which provided at cl 4.1.1 that risk acceptance was not based only on material facts proposed, but also on the moral risk of the proposing insured. Those guidelines also provided that anything that may affect moral risk was considered to be relevant to the decision to accept risk.
12. In the face of that evidence, Stealth Enterprises' submission that if Comancheros membership had been disclosed to OAMPS, it would not have necessarily been referred to Calliden as part of the approval process, may not be accepted.
13. Ms Shepherd's evidence was that the "decline risk" part of these guidelines were also used by OAMPS, to decline applications even before they were referred to Calliden.
14. Mr Tuitavuki's evidence was that as well as considering the two guidelines when assessing an application, he also had to apply his commonsense judgment as an underwriter, as part of his underwriting judgment review. His position was that the membership of a motorcycle club which was an outlaw bikie group, was a very relevant fact, to him, in this exercise.
15. In cross-examination, Mr Tuitavuki drew a distinction between motorcycle enthusiasts and members of such gangs, which he considered included the Rebels, Comancheros and Finks. He later explained them to be bikie gangs which he considered did bad, played outside the rules and the rule of law. He also explained that he had formed his adverse views about such gangs from experiences he had had while growing up, what he had read and seen on TV, as well as what he had seen after commencing work in the insurance industry. He was not asked to elaborate on those experiences, but agreed that he had not discussed them with anyone at Calliden.
16. Mr Tuitavuki also agreed that Calliden did not have policies to that effect and that he was not entitled to give effect to his personal views, over its policies, but he took the view that nevertheless, if it had come to his attention that Mr Baris and Mr Fidel Tukel were members of the Comancheros, he would have declined Stealth Enterprises' application for insurance. He also agreed that he had not received any instruction or direction to that effect from Calliden.
17. Mr Tuitavuki also considered that despite the question asked in the application form being limited to criminal convictions committed in the previous five years, older convictions ought also to have been disclosed. Given that the declaration required to be given was that no information had been withheld that would affect Calliden's decision to accept this proposal, some foundation for that view is apparent.
18. If, for example, a corporate applicant was aware that one of its officers had a criminal conviction for firebombing six years before the application, an applicant may reasonably consider that to be information which would affect the decision to insure, notwithstanding what was said in the form about criminal convictions limited to five years. This need not be considered further, however, given what I have earlier said about waiver.
19. On Mr Tuitavuki's evidence, I am satisfied that if Mr Fidel and Mr Baris Tukel's membership of the Comancheros had been disclosed when the application was made in 2010, Calliden would not have insured Stealth Enterprises. In that event, the policy would not have come up for renewal in 2011.
20. It was not put to Mr Tuitavuki that his decision would have required Mr Addison's prior approval. His evidence was that he was then dealing with the adult industry scheme and in his absence, it was Mr Addison who dealt with such applications. The guidelines did not provide that Mr Tuitavuki required anyone's approval, before an application was declined. While he had to follow the guidelines, he also had to apply his expertise as an underwriter to assess risks which came to his attention, in deciding whether or not to accept a proposal, as I have explained. On the evidence, his views as to the risk posed by membership of the Comancheros have a rational basis. That he would have acted on them, should be accepted.
21. Still Stealth Enterprises argued that s 28(3) could not be satisfied by Calliden calling evidence from its employees about their personal views. As I have explained, this was a case of non-disclosure, but I have not concluded that it was fraudulent. Mr Addison could no doubt have given relevant evidence about what lies in issue between the parties, but I do not accept that his evidence was crucial, as Stealth Enterprises argued, given the evidence which was led as to how Calliden's practices then operated.
22. Ms Shepherd gave evidence in cross-examination, that she had had discussions with Mr Addison, both about businesses that Calliden would not wish to insure, as well as bikie gangs. Stealth Enterprises did not explore the detail of what she discussed with Mr Addison, as it could have. Later it submitted that Jones v Dunkel inferences arose from the failure to call Mr Addison. That does not, in my view, follow.
23. I do not consider that the failure to call Mr Addison can properly lead either to Ms Shepherd's evidence being rejected, or to it being inferred that his evidence would have assisted the case which Stealth Enterprises advanced, rather than that which Calliden advanced.
24. If the policy had not been issued in 2010, it would not have come up for renewal in 2011. When it did, Stealth Enterprises was still under a duty to disclose the membership of the Comancheros, given the continuing requirements of s 21.
25. By that time, Ms Shepherd had also become involved in dealing with the adult industry scheme. On her evidence, by that time she, Mr Tuitavuki and Mr Addison all had access on their computers, to the relevant documents. She was also working on other business. Ms Shepherd agreed that she knew at the time that members of bikie gangs were involved in the adult industry in which Calliden offered insurance. She described OAMPS raising potential applications which might not meet the guidelines with her and she advising that they would not be accepted, in which event the applications were not pursued. Few of the applications which were presented, were declined. If they were, records were maintained.
26. Contrary to Mr Tuitavuki's initial recollection, it transpired, as I have explained, that it was Ms Shepherd who dealt with the renewal. The documents finally produced in response to the call revealed that application forms were not then always received from OAMPS and that instead, it sometimes sought coverage by email, based on information then provided.
27. The general guidelines specified various level of underwriters and their authorities. Ms Shepherd was a level 3 senior underwriter. Those guidelines envisaged referral to a more senior underwriter, if a proposal involved a risk which exceeded a person's underwriting authority. The guidelines specified at 4.1 circumstances in which risk would be declined, which included when threats to damage property had been received, for example. In cross-examination, Ms Shepherd said initially that in the event of a decline, the application would always be referred to a level 5 underwriter. This, she said was done informally, by her speaking to Mr Addison, who sat nearby. If he considered that it ought not to be knocked back, she would bow to his greater authority.
28. Later Ms Shepherd clarified that whether a matter was or was not within her authority, in the case of a decline she always consulted with Mr Addison. There were times when they disagreed. It was not always a matter of obtaining his permission, sometimes she consulted him just to get a second opinion. If it was within her authority level, she could deal with it. If it had to be referred to him, she would abide by his decision.
29. Ms Shepherd also said that if she had become aware of the Comancheros membership, she would have declined the risk without the need to obtain Mr Addison's permission, although she would have discussed it with him, to get a second opinion. Even if he had a contrary view, if within her underwriting authority, she would have declined the risk, unless he persuaded her by his reasons for accepting the risk.
30. While her evidence was attacked as not being credible and revealing that any declinature required Mr Addison's approval, I am satisfied those submissions cannot be accepted.
31. Ms Shepherd also said that she had discussed business activities and occupations with Mr Addison, that they would not want to look at in the past and that they had discussed motorcycle gangs, but that she had not received a specific direction about any bikie gang. She considered that membership of the Comancheros ought to have been disclosed.
32. Through her further cross-examination, it became apparent that Ms Shepherd considered membership of the Comancheros to be a relevant to risk in relation to a wide class of insurance, but not necessarily all. She also drew a distinction between her personal views about such gangs, which she said had no bearing on insurance. She also denied that her evidence had been affected by her knowledge that her employer was defending the case, or that she was being affected by hindsight.
33. The evidence also revealed that what occurred in 2011 with the renewal of the application, involved a significant departure from the arrangement between Calliden and OAMPS described by Mr Tuitavuki and Ms Shepherd. That involved, on their evidence, OAMPS undertaking a vetting process, before an application was provided to them for Calliden's consideration.
34. In 2011, OAMPS obtained ongoing coverage from Calliden, in terms which Mr Tuitavuki accepted bound Calliden, even before it had made any contact with Stealth Enterprises, to confirm that it wanted to renew the policy.
35. In those circumstances, it was Calliden's case that although usually under the terms of their agreement OAMPS was acting as its agent, on an "offer and acceptance" basis, what OAMPS did on this occasion was outside that agreement. Accordingly, OAMPS can have been acting only either on its own behalf, or on behalf of Stealth Enterprise.
36. As I have noted, the agreement between Calliden and OAMPS was not in evidence. Evidence as to its terms came from Mr Tuitavuki and Ms Shepherd. In submissions the case Stealth Enterprises advanced was that it was a binder agreement for the purposes of s 916E of the Corporations Act 2001 (Cth), relying on Ms Shepherd's acceptance of that description. The relevant evidence was however that: "Q. Did you have a binder agreement with OAMPS in respect of the adult industry scheme? A. We had a binder agreement, but each agreement was different, and theirs was obviously offering[sic] acceptance, so everything was a little bit - it made it a little bit different to the not for profit scheme. Q. When you say theirs was offering[sic] acceptance, what that meant was, was it, that the OAMPS, although it operated under a binder, would still need to refer each application for insurance to you? A. That's correct. Q. And you'd have the final say? A. Yes. Q. When I say "you" I mean Calliden, obviously. A. Yes. Q. And it either goes through to James Tuitavuki, yourself, or Sean Addison. Is that right? A. Yes. We would have one nominated person. Q. As an underwriter, you're familiar with - I'm asking you about the period during 2010 to 2012. Do you understand that? A. Yes."
37. That, of itself is not a sufficient basis for concluding that this agreement fell within s 916E, which relevantly provides: "(2) For all purposes connected with contracts that are risk insurance products, or with claims against the insurer, in respect of which the authorised licensee acts under the binder: (a) the authorised licensee is taken to act on behalf of the insurer and not the insured; and (b) if the insured in fact relied in good faith on the conduct of the authorised licensee, the authorised licensee is taken to act on behalf of the insurer regardless of the fact that the authorised licensee did not act within the scope of the binder."
38. Calliden's case was that its agreement with OAMPS was not a "binder" agreement for the purposes of s 916E, the agreement not falling within the definition of "binder" in s 761A, which provides: "binder means an authorisation given to a person by a financial services licensee who is an insurer to do either or both of the following: (a) enter into contracts that are risk insurance products on behalf of the insurer as insurer; or (b) deal with and settle, on behalf of the insurer, claims relating to risk insurance products against the insurer as insurer; but does not include an authorisation of a kind referred to in paragraph (a) that is limited to effecting contracts of insurance by way of interim cover unless there is also in existence an authority given by the insurer to the person to enter into, on behalf of the insurer and otherwise than by way of interim cover, contracts of insurance."
39. Stealth Enterprises argued that even though there was evidence of an offer and acceptance arrangement, the agreement was still a binder agreement. That may not be accepted. On the evidence, OAMPS did not itself enter into contracts on behalf of Calliden in the adult industry scheme, even for interim cover.
40. In the face of the evidence of Mr Tuitavuki and Ms Shepherd, if Stealth Enterprises had wished to establish that the agreement between OAMPS and Calliden was, nevertheless, a binder agreement falling within the statutory definition, it needed to tender the agreement. It did not do so. On their evidence the agreement did not fall within the definition, because it did not permit OAMPS to enter into agreements on Calliden's behalf. That accorded with the documents in evidence which revealed that even in 2011, OAMPS asked Calliden to renew the Stealth Enterprises' policy, it could not extend that cover itself. Calliden did, as the result of actions then taken by Ms Shepherd.
41. Ms Shepherd's evidence was that the practice operating in 2011 was that she did not look at the original application, when considering a renewal. Then she relied on information provided by OAMPS, assuming that it had dealt with the insured in terms of any matters which needed to be disclosed, in accordance with the applicable guidelines and that it would have passed on any relevant information.
42. Unbeknownst to her, however, OAMPS had not done what Ms Shepherd understood. It did not disclose that it had been unable to contact Stealth Enterprises and did not know whether it, in fact, wished to renew the policy. When contact was later made, Stealth Enterprises ratified what OAMPS had done, by paying the premium, after being reminded of its disclosure obligation.
43. As Calliden submitted, relying on Aon Risk Services Australia Ltd v Lumley General Insurance [2005] FCA 133 at [60]: "…a broker having a binder from an insurer may also, and in the events which might happen, act outside its binder by obtaining insurance simply as agent for the insured: Kelan Pty Limited v General Accident Insurance Co Australia Limited (1987) 8 ANZ Ins Cas 61-285 (affirmed on appeal (1997) 9 ANZ Ins Cas 61-369).
44. It was on 17 August 2011, that OAMPS raised the renewal with Ms Shepherd, in light of a proposed premium increase. On 29 August, her approval of the renewal was sought on terms proposed, with calculations again provided. She gave that approval, but no contract can then have come into existence between Stealth Enterprises and Calliden, OAMPS having no authority to act as Stealth Enterprises' agent.
45. This evidence establishes, accordingly, that what OAMPS did was not pursuant to its agreement with Calliden. Before contact was made with Stealth Enterprises, what OAMPS did was incapable of bringing an agreement between Calliden and Stealth Enterprises into existence.
46. After contact was made with Stealth Enterprises, it ratified what OAMPS had already done, by paying the premium, after having being reminded of its disclosure obligations. Stealth Enterprises ought then to have disclosed the Comancheros' membership. Until that ratification, there was no contract in existence between Stealth Enterprises and Calliden. Had it made the disclosure it should have made, the policy would not have been renewed.
47. Accordingly, Stealth Enterprises' case must fail, both because of its failure to disclose the membership in 2010 and because of the failure to disclose it on renewal in 2011.

Non-disclosure of the lapse of business registration

1. A similar conclusion must be reached in relation to the failure to disclose the lapse of registration in 2011.

Stealth Enterprises knew that the brothel had to be registered and that its registration had lapsed

1. Stealth Enterprises' case was that there was no evidence that it knew that the brothel's registration had lapsed, before the policy was renewed; or that its solicitors had advised it about the need to renew the registration; or that it had ever been notified about the lapse; or that the renewal notice which had been sent to an address at Bruce, had ever reached it; or that this address had any connection with either Mr Fidel Tukel or Mr Baris Tukel.
2. Accordingly, it argued, Calliden's case must fail, despite the evidence given by both Mr Tuitavuki and Ms Shepherd, that if the lapse of the brothel's registration had been disclosed, Calliden would not have renewed the policy.
3. There was no issue that Stealth Enterprises acquired the brothel in 2009, in a transaction in which it was legally represented. It then obtained the necessary registration. The certificate issued under the Prostitution Act evidenced that it was valid for one year, expiring 30 September 2010.
4. In March 2010, it sought public liability and product liability insurance, but did not pay the premium. It seems to have traded then without insurance until September 2010.
5. The policy proposal for building and contents insurance form signed by Mr Fidel Tukel in June 2010 confirmed that the premises were licensed by local government and all relevant regulatory bodies for the services/activities conducted there. It was not until August, however, that the policy was pursued. Then the brothel was still registered.
6. The registration was not renewed in 2010, nor was the insurance policy, until Stealth Enterprises was pursued by OAMPS in 2011.
7. On the documentary evidence, Mr Fidel Tukel had split up from his former partner, who had been involved in the original dealings with OAMPS. It was he, however, who had provided the proposal form in which the relevant information was provided and the declaration was given in 2010 and with whom OAMPS dealt again in 2011.
8. The proper inference is that at the relevant times Stealth Enterprises not only knew that the brothel had to be registered under the Prostitution Act, but also that Calliden required it to be registered, if it was to accept the risk of insuring the brothel. That no evidence was called from either Mr Fidel Tukel or Mr Baris Tukel, supports these inferences being drawn.
9. Given the requirements of the Prostitution Act and the fact that in 2009 Stealth Enterprises had obtained registration of the brothel for a one year term, evidenced on the face of the certificate it obtained, the proper inference is that it also knew both that the registration lapsed on 30 September 2010 and that it had not taken any steps to renew that registration.
10. It is relevant that Stealth Enterprises led no evidence as to the circumstances in which it allowed the brothel's registration to lapse, why it did not renew the insurance policy until pursued by OAMPS, or why it then failed to disclose the lapse of registration.
11. There was no evidence from which it could be inferred that if any difficulty caused by the lack of registration had then been drawn to its attention, that Stealth Enterprises would have dealt with it, before the fire in January 2012. To the contrary, it had earlier been prepared to trade uninsured in 2009 and 2010.

Registration of the Brothel was relevant to the decision to insure

1. Whether lapse of the registration was the result of oversight, a deliberate decision, or as the result of some other difficulty is not known. That, however, is irrelevant to the question of whether the evidence established that Stealth Enterprises knew that registration was relevant to Calliden's decision to insure.
2. Given the specific question asked in the proposal form and what Mr Fidel Tukel had declared in 2010, it must be inferred that Stealth Enterprises also knew when it was reminded of its disclosure obligations in 2011, that the brothel's registration was relevant to Calliden's decision to renew its insurance.
3. Again, no evidence being called from either Mr Fidel Tukel or Mr Baris Tukel supports those further inferences being drawn.
4. As discussed by Palmer J in Hammer Waste Pty Ltd v QBE Mercantile Mutual Ltd [2002] NSWSC 1006; (2002) ANZ Insurance Cases 61-553 at [56]: "...The obligation to disclose something "known" can attach only to something which, at the time for disclosure, a person actually has in his or her consciousness or else something which exists in some record or other source of information which the person actually knows about and to which the person has access. So, for example, I "know" my driving licence number for the purposes of s.21(1) ICA even though I cannot recite it offhand because I actually know that it is to be found in the plastic card in my wallet."
5. Even if that conclusion was not available, on the evidence the lapse of the brothel's registration was a matter which a reasonable person in the circumstances would have known was relevant to Calliden's decision to renew the policy, given what was asked in the proposal form.
6. That has to be considered against the background that the adult entertainment industry in the ACT operates on the basis that brothels may there be operated legally under the Prostitution Act. The objects of that Act are provided in s 4 to be: "(a) to safeguard public health; (b) to promote the welfare and occupational health and safety of prostitutes; (c) to protect the social and physical environment of the community by controlling the location of brothels; (d) to protect children from exploitation in relation to prostitution."
7. Historically, brothels could not be operated legally. The observations earlier referred to in Lindsay v CIC Insurance as to the obvious risks posed by brothels, help explain not only the adoption of this ACT regulatory scheme, but also what a reasonable person in the circumstances would appreciate about the relevance of maintaining registration under that scheme, to an insurer prepared to offer insurance to such brothels.
8. In all of the circumstances, that a reasonable person would have known that maintaining the brothel's registration was relevant to Calliden's decision to renew the policy, is unavoidable.

Would Calliden have insured Stealth Enterprises if relevant disclosure had been made?

1. Stealth Enterprises submitted that the case which Calliden advanced must be understood as being that the failure to disclose the lapse of the registration was deliberate. There was no evidence of this, nor any evidence that if the lapse of registration had been drawn to its attention, it could not have renewed that registration. It argued that if the matter had been raised by OAMPS, the likely course would have been that it would have taken the necessary steps to renew the registration and the policy would have been renewed.
2. These are all matters about which Stealth Enterprises could have called evidence. Having elected not to do so, it is not open now to draw inferences which favour its case, in the way in which these submissions invited.
3. The evidence of both Mr Tuitavuki and Ms Shepherd was that failure to abide by regulatory obligations was relevant to the assessment of the risks posed by the brothel. In his report, Mr Tuitavuki also referred to compliance with obligations as to health risk, hygiene, patron safety and local bylaws as to matters such as lighting and slip and fall hazards, all being relevant. He there said he considered compliance with statutory obligations in this industry, to be crucial to his decision as an underwriter as to whether to accept the risk.
4. Mr Tuitavuki also said that if the question posed in the proposal form about compliance with such obligations had not been answered, he would not have insured or invited renewal, because that would, in his mind, have gone to the fitness and/or character of the applicant in undertaking the business activities.
5. It was put to Mr Tuitavuki in cross-examination that rather than refuse the renewal application, he would have raised the problem with the applicant and provided an opportunity for it to be addressed, while extending cover. He disagreed. His approach, he said, would have been to refuse the application, but to entertain a further application, if one was made, when the registration had been renewed. He explained that this was because what was being insured was a brothel, not a shopping centre and that given the nature of the business, he considered renewal of registration to be a black and white matter. He was also concerned about people being hurt, if the bylaws and regulations were not being complied with.
6. Mr Tuitavuki also explained that he considered that the broker ought to have advised the applicant of the need to renew the registration, its obligation being to undertake the relevant compliance checks. He did not, however, normally see communications between OAMPS and an applicant. He agreed that the documentation in evidence, which he had not seen, suggested that OAMPS had extended coverage to Stealth Enterprises, even before having made contact with Stealth Enterprises.
7. In her affidavit, Ms Shepherd also said that if made aware at the time of the renewal that the brothel did not have current registration, the policy would not have been renewed.
8. In cross-examination, she agreed that if on renewal it had come to her attention that the brothel was not registered, she would have made enquiries. She insisted, however, that if she found that the brothel was unlicensed, the insurance could not be renewed and the application would have been declined. She would have kept a record of the reason, to which she would refer, if a further application was later made when the brothel was licensed and then, a new policy could be issued.
9. This evidence was tested by various other problems being raised with Ms Shepherd. Her position was that whether OAMPS would be asked to see if a problem could be rectified, before a renewal was refused, depended on the nature of the problem and the risk which it posed. The options she identified included declining the application, increasing the premium, investigating whether the problem could be rectified, imposing other conditions and raising the matter with Mr Addison. She maintained, however, that if she considered that the problem could not be fixed satisfactorily, the risk would be declined.
10. Clause 2.2.2 of Calliden's general guidelines specified circumstances where an underwriter had to decline a risk, by reference to a table, but provided that the matter could be raised with a more senior manager, if the decline was considered not to be appropriate. These were specified categories which fell outside the normal risk assessment process undertaken in accordance with the guidelines, not relevant here.
11. Declinatures not dealt with in the table were addressed in cl 4.1, but that did not require an underwriter to refer an application higher up, before it was declined. To make good the submission that such approval was nevertheless required, Stealth Enterprise relied finally on Ms Shepherd's evidence at [T139], which in context was: "Q. You say you were level 3. Okay. Now, if you turn over the next page, see the middle of the page it says, "Please refer to appendix B of this manual which contains a list of product specific underwriting limits, which operate in addition to underwriting authority limits, and which must be adhered to by underwriters." Do you see that? A. Yes, sorry, yes. Q. Each underwriter had different limits and different entitlements, depending on the level. Is that right? A. Yes, it did vary, yes. Q. In circumstances where there was anything controversial, or anything wasn't clear based on an application, or whether an individual underwriter might be uncertain as to whether the risk should be accepted or declined, was the practice to refer it to the product manager - and I'm referring you now to the middle of page 673. See there it says, "The file is to be referred to the product manager"? A. All right, yep, okay. Yes, okay. Q. Would you agree the question I put to you that if - do you want me to repeat it? A. Yes please. Q. If there was anything controversial about an application, or that an individual underwriter was uncertain as to whether or not it fell within the underwriting guidelines, or whether an individual might be uncertain as to whether the company would want to insure a particular risk based on information provided, was the practice to refer it to the product manager to get a final decision? A. Yes."
12. That, I am satisfied, did not establish the case which Stealth Enterprises advanced. The evidence of both Mr Tuitavuki and Ms Shepherd establishes that they had the authority to decline its original application and the renewal, given the risks posed by the undisclosed membership of the Comancheros. It also establishes in the case of the renewal, that they had the authority to refuse to renew, in the event that the brothel was not registered and would have done so, had that been disclosed as it ought to have been. Their evidence that they both had and would have exercised their authority, must be accepted.
13. Nor can it be inferred from the evidence that Stealth Enterprises would have attended to the registration of the brothel and the renewal of the policy, if it had revealed the lapse of its registration, before the fire which occurred in January 2012.
14. There was a question expressly asked in the initial application form about licences and approvals of all relevant regulatory bodies being held and still, in 2011 when it pursued renewal, Stealth Enterprises did not disclose that it had allowed its registration under the Prostitution Act to lapse in 2010, despite having been reminded of its disclosure obligations by OAMPS.
15. There can be no question, it seems to me, given the nature of the business being insured, the question asked in the proposal form and the obvious risks to which registration of the brothel was directed, that as both Mr Tuitavuki and Ms Shepherd said, Calliden would not have extended cover in 2011, while Stealth Enterprises pursued renewal of its registration. Rather, the application would then have been refused and it would have considered issuing a fresh policy, if and when registration had been renewed and another application had been made.

The result

1. There was no issue that under s 28(3), in an appropriate case, an insurer can reduce its liability under a policy to nil. I am satisfied, for the reasons given, that this is such a case. I am also satisfied that if the necessary disclosures had been made, the policy would not have been issued in 2010 or renewed in 2011.
2. Even if the case Stealth Enterprise advanced in relation to membership of the Comancheros had succeeded, the case advanced in relation to the failure to disclose the lapse of registration in 2011 could not, with the result that judgment would still have to be given for Calliden.
3. In the result, Stealth Enterprises' claim must fail.

Orders

1. For the reasons given, I am satisfied that there must be judgment for Calliden.
2. The usual order as to costs is that they follow the event. In this case, that would be an order that Stealth Enterprises pay Calliden's costs, as agreed or assessed. I will hear the parties if some other order is sought.
3. The parties should file short minutes of orders reflecting the conclusions reached in this judgment, within 14 days and to include the following order: All exhibits and subpoenaed material may be returned forthwith; any exhibits returned must be retained intact by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined.

Amendments 09 November 2015 - Paragraph [17] - typographical error Paragraph [20] - typographical error DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 November 2015