Tropical Reef Shipyard Pty Ltd v QBE Insurance

REASONS FOR JUDGMENT 1 The applicant (TRS) seeks leave to file the "Applicant's Proposed Further Amended Claim" (the FAC). It is their fourth attempt to formulate a claim for loss of turnover. For the reasons that follow, I would refuse leave to TRS to file the FAC. It was common ground that if TRS was not granted leave to file the FAC, then judgment should be entered in favour of QBE Insurance (Australia) Limited (QBE) on this part of TRS' claim. 2 The issues in this proceeding have been the subject of previous consideration by Finkelstein J and by the Full Court of the Federal Court: see Tropical Reef Shipyard Pty Ltd v QBE Insurance (Australia) Limited [2009] FCA 1088, QBE Insurance (Australia) Limited v Tropical Reef Shipyard Pty Ltd [2009] FCAFC 161 and Tropical Reef Shipyard Pty Ltd v QBE Insurance (Australia) Limited (No 2) [2010] FCA 1093. 3 In the last of those decisions (dealing with the third attempt by TRS to formulate a claim for loss of turnover), Finkelstein J described the issues in the proceedings as follows: 1. This case involves several claims by the insured, Tropical Reef Shipyard Pty Ltd (TRS), under two policies of insurance issued by QBE Insurance (Australia) Ltd (QBE). The policies, entitled "Instant Profits Insurance - Cash Flow Insurance - Simplified Business Interruption Insurance", are intended to protect the assured against "weekly loss of Turnover suffered ... if the Business is interrupted or interfered with due to ... property ... having sustained ... loss or damage". QBE seeks to bring the claims to an end through a summary judgment application under s 31A of the Federal Court of Australia Act 1976 (Cth). The application is brought on the basis that "TRS have not pleaded, and it should be inferred that it cannot advance, an arguable claim of a loss of Turnover established consistently with the operation of the Policies". Background … 3. The principal issue in dispute concerned the meaning of the insuring clause. That clause provides that "for each week we [QBE] will pay an amount based upon Weekly Calculations not exceeding the Weekly Sum Insured each week in respect of loss of Turnover suffered by you [TRS] during the Indemnity Period", such payment to "be made every seven days whenever practicable". "Weekly Sum Insured" is defined to mean "the sum insured for each week which you have selected and which appears in the Schedule. All calculations shall be on a weekly basis". The sum insured in the Schedule for the first policy is $201,000 and for the second it is $183,900. "Turnover" is defined to mean "money paid or payable to you for goods sold and for services rendered". It is agreed on both sides that loss of Turnover is calculated by subtracting actual weekly Turnover from Actual Average Weekly Turnover for each week. Actual Average Weekly Turnover is defined as "the Actual Average of the Turnover for the twelve (12) months preceding the commencement date of the interruption". 4. Three incidents are alleged to have caused damage to a slipway used by TRS to slip vessels to enable it to provide repair and maintenance services. The damage to the slipway is said to have interrupted the business operations of TRS resulting in it suffering a loss of weekly Turnover for which it makes claim under the policies. 5. As it turns out, there was not a loss of Turnover in each week during the indemnity period covered by each policy. In some weeks TRS's actual Turnover exceeded its Actual Average Weekly Turnover. … … 4 There was and remains a dispute about the approach to TRS' calculation of its loss. Some aspects of the issue have been considered by Finkelstein J. First, one of the questions (Question 4) his Honour reserved for determination was to test QBE's approach to the calculation of loss. The question and answer was as follows: Question 4: Upon the assumption that: (a) the Actual Weekly Turnover and Average Weekly Turnover figures pleaded in Annexures D, G and H to the Applicant's Claim are correct (as corrected by paragraphs 21-23 of the Supplementary Report of Stephen Munro Gibson dated 10 June 2009); (b) the allegations pleaded in paragraphs 1, 2, 4 to 15, 22 to 26, and 32 to 36 of the Applicant's Claim are established; (c) the Respondent has paid a total sum of $2,000,000 to the Applicant in respect to the claims made in the proceedings; and (d) the Applicant's claims pursuant to the 2005 renewal (as defined in paragraph 5 of the Applicant's Claim) and the 2006 renewal (as defined in paragraph 8 of the Applicant's Claim) are as pleaded in Annexures D, G, H and I to the Applicant's Claim (as corrected by paragraphs 21-23 of the Supplementary Munro dated 10 June 2009); upon the proper construction of the 2005 renewal and the 2006 renewal, is the Applicant entitled to any and if so what amount under the 2005 renewal and/or the 2006 Renewal in respect to loss of Turnover under the said policies? Answer: The Applicant is entitled to loss of Turnover under: (a) the 2005 Renewal for the weeks ending 12 April 2007 to 25 October 2007 in respect to the September 2006 Incident; (b) the 2006 Renewal for the weeks ending 22 February 2007 to 5 April 2007 and 1 November 2007 to 14 February 2008 in respect to the November 2006 Incident; calculated in accordance with the methodology identified in the reasons for judgment, subject to proof of the loss of Turnover and the causal connection required by the terms of each of the policies. (Emphasis added.) 5 After Finkelstein J explained his answer to Question 4 (in Tropical Reef Shipyard Pty Ltd [2009] FCA 1088 at [14]), he identified the issues that remained to be resolved (at [15]) to be "(a) whether there is a causal connection between the incidents and the loss claimed and (b) whether Turnover, and therefore Actual Average Weekly Turnover, ought be calculated by reference to total invoiced sales or cash receipts, or a combination of both, plus work in progress". 6 On TRS' third attempt to plead these issues, Finkelstein J agreed with QBE that the approach then adopted by TRS was not what the policy called for and held that TRS was not able to sustain its claim for lost income as it was then formulated. This aspect of the judgment is important because TRS maintains that claim as its "alternative methodology" in the FAC despite Finkelstein J refusing TRS leave to file that claim. Notwithstanding that leave was refused, Finkelstein J did not accept that TRS could not establish a claim for compensation. His Honour went on to say (at [27]) that: To do so [TRS] will have to replead its case in accordance with the following methodology. First step - identify the date of commencement of interruption. Second step - calculate the Actual Average Weekly Turnover for the 12 months preceding the date of commencement of interruption. Third step - calculate the weekly Turnover for each relevant week: that is for each week in respect of which loss is claimed. I have described how Turnover is to be calculated for purposes of both step two and step three. Fourth step - calculate the loss of weekly Turnover by deducting weekly Turnover from the Actual Average Weekly Turnover for each week. Fifth step - establish that any reduction in income is caused by the interruption. One way of proving causation is to: (1) identify the vessels TRS was unable to slip and repair in the relevant period; (2) estimate the vessels it lost the opportunity to slip and repair in the relevant period; and (3) determine the value of the work that could have been performed on those vessels and the date or dates upon which invoices for that work would have been issued. There may be other ways to prove causation. Sixth step - reduce the loss of weekly Turnover by the Rating Classification percentage and (where applicable) reduce the figure to the maximum Weekly Sum Insured. (Emphasis added.) 7 Finkelstein J gave TRS 28 days to make any further amendment application. It filed such an application on 8 November 2010 and it is that application which is before the Court. 8 What then did the FAC contain? The FAC, as with the earlier drafts, pleaded the general nature of TRS' claim, the Business Interruption Policy and the renewals of that policy in 2005 and 2006 (collectively, the Policy) and a statement of TRS' case. Each incident was then pleaded separately - the September 2006 Incident Claim and the November 2006 Incident Claim. 9 Each of the claims was pleaded in substantially identical terms. So far as is presently relevant to the issues currently before the Court, I will deal with the September 2006 Incident Claim. After pleading that on or about 4 September 2006, the vessel Castel Braz collided with the bottom end of the slipway (para 16), TRS pleads that the slipway sustained damage in that its bottom 15 metres were structurally damaged rendering it unsuitable for use and requiring reconstruction (para 17). At paragraph 20, TRS pleads that QBE accepted the claim under the Policy and made identified payments to TRS totalling in excess of $1.445 million. 10 TRS pleads that it first became aware of the damage to the bottom end of the slipway on 3 April 2007 (para 23). The claim then pleads that after that date (3 April 2007), TRS investigated and assessed the damage (para 24), took advice and then undertook repairs from July until 22 October 2007 (paras 25 - 28). The next few paragraphs are critical. It is necessary to set them out in full: [29]. In the premises of paragraphs 23-28, above, throughout the period 3 April 2007 - 22 October 2007, [TRS]: (a) was unable to, and did not, slip any vessels which required the use of the bottom 15 metres of the slipway; (b) sustained interference to the work schedule of vessels in fact on the slipway, as a result of an inability to utilize the bottom 15 metres of the slipway; (c) lost opportunities to undertake double slipping of vessels, as a result of an inability to utilize the bottom 15 metres of the slipway; (d) lost opportunities to seek smaller vessels (which did not need to use chainage 174 - 189) by reason of the need to investigate and undertake repairs of the type described above; (e) further to the above, lost opportunities to slip and repair vessels by reason of the closure in April 2007, the investigations in April and May 2007, the repairs in July and August 2007, the closure for further repairs in each of September 2007 and October 2007 and the stranding of HMAS Leeuwin on the slipway in October 2007. Loss [30]. Accordingly, in these premises, in the period 3 April 2007 - 22 October 2007, the ship repair and engineering business of [TRS] was interrupted or interfered with. [31]. By virtue of the interruption and/or interference set out above, [TRS] sustained loss and damage, constituted both by direct losses and, further, by reason of lost opportunities to slip and repair vessels. Particulars (a) By virtue of the business undertaken by [TRS] in the periods April - October 2005, April - October 2006 and April - October 2008, in which the bottom 15 metres of the slipway were utilized, [TRS] would have expected to slip four vessels requiring the use of the bottom 15 metres of the slipway in the period April - October 2007, and derive revenue from that work. In the premises above, that did not occur; (b) [TRS] suffered both direct loss and lost opportunities loss as a result of interference to the work schedule which, but for the damage to the slipway, would have occurred as follows: (i) because the DPI Pontoon was stranded on the slipway while investigations of the slipway damage were conducted and the slipway bogies were recovered; (ii) in respect of the vessel "HMAS Leeuwin", because the tides were not sufficiently high to allow the vessel to be slipped without the use of the bottom 15 metres of the slipway; (iii) in respect of the vessel "HMAS Leeuwin", because the tides were not sufficiently high to allow the vessel to be unslipped without the use of the bottom 15 metres of the slipway leaving it stranded on the slipway until repairs to that part of the slipway were completed; (iv) in or about October 2007, in respect of the vessel "Melville", a sister ship to HMAS Leeuwin, by reason of the fact that the slipway was closed for three weeks and HMAS Leeuwin was stranded on the slipway for a further two weeks resulting in the slipping occurring later than planned and previously requested work being reduced in scope. (c) further to (b) above, [TRS] lost the opportunity to double slip vessels as follows: (i) in or about April 2007, the vessels "GHT22" and "Wilunga"; (ii) in or about April 2007, the vessels "Mermaid" and "Peluma"; (d) further to (b) and (c) above, by reason of its inability to slip vessels that would or might require the bottom 15 metres of the slipway in order to be slipped, and/or by reason of the fact that it was required to turn away vessels during the slipway closures in April and September 2007 while repairs to the bottom end of the slipway were undertaken, [TRS] lost opportunities to undertake work on vessels as follows: (i) in or about April/May 2007, several large purse seine vessels; (ii) in or about April/May 2007, the vessel "ACPB Bundaberg"; (iii) in or about May 2007, the vessel "Western Triumph"; (iv) in or about May/June 2007, the vessel "Solomon Chiefton"; (v) in or about September 2007, the vessel "Caroline Voyager"; (vi) in or about September 2007, the vessel "Cruise Whitsundays". (e) further to (a) - (d) above, throughout the period April - October 2007, the necessity to repair the bottom 15 metres of the slipway caused management to focus not on attracting new business, but rather, and to the contrary, on the necessary investigations and repairs of the bottom 15 metres of the slipway. 11 TRS then turned to quantification of its claim. The FAC outlined the steps (at [33]) as follows: (a) First Step - identify date of commencement of interruption. (b) Second Step - calculate "Actual Average Weekly Turnover" for the 12 months preceding the said date of commencement of interruption; (c) Third Step - calculate "Loss of Weekly Turnover" from the said date of commencement of interruption, until 22 October 2007, on a "week by week" basis; (d) Fourth Step - apply to each week's "Loss of Weekly Turnover" figure: (i) the "Rating Classification" percentage; and (ii) (where applicable) reduce the figure to the maximum "Weekly Sum Insured". 12 TRS submitted that its formulated claim for loss of turnover had adopted the template set out in the reasons for decision of Finkelstein J at [6] above. QBE opposed TRS being granted leave to further amend its statement of claim to formulate its claim for loss of turnover on the basis that in relation to the second, third and fourth steps, each of the methodologies pleaded by TRS were defective: 1. in relation to what TRS describes as its Primary Methodology, QBE submitted that TRS had not amended its pleading to plead a case which framed the case suggested by Finkelstein J (see [6] above) and, in any event, it was evident from TRS' own materials that it could not properly do so; and 2. as noted earlier (see [6] above) TRS had retained, as its Alternative Methodology, a pleaded case which Finkelstein J decided in Tropical Reef Shipyard Pty Ltd [2009] FCA 1088 could not be sustained. I will deal with each methodology in turn.