Tropical Reef Shipyard Pty Ltd v QBE Insurance

REASONS FOR JUDGMENT 1 This application, by notice of motion filed on 14 February 2011, is an application for leave to appeal from a judgment found in orders made by Gordon J on 8 February 2011. The applicant seeks leave to appeal only from paras 2, 3, 4 and 5 of that order because para 1 undoubtedly reflects a position to which the applicant consented and involves the disposition of an aspect of the applicant's claim against the respondent that had been settled. 2 The circumstances surrounding the case have become very complex. In many respects, their complexity is an object lesson in the difficulties that can be created by attempts to take shortcuts in the resolution of legal disputes. There have been no less than three sets of reasons for judgment given by single judges of the Court and one set of reasons for judgment given by a Full Court in relation to an application by the respondent for leave to appeal from orders made at an early stage of the proceeding. The proceeding was originally commenced in the fast-track list of the Court. Accordingly, there is some irony in the fact that it is now well over a year and a half since the proceeding was commenced. 3 The applicant carries on business repairing and maintaining ships. It has a slipway that it uses for slipping vessels, in order that access may be obtained to their hulls. The respondent is the insurer of the applicant by means of a business loss policy. A minor complication of the case is that there is business loss claimed in respect of two overlapping periods, because of the date of renewal of the policy. The claims are in respect of losses alleged to have been suffered by the applicant due to two episodes of damage to its slipway. One episode of damage occurred when a vessel struck the lower end of the slipway and caused it some damage, which was not discovered for some time. The other episode occurred as a result of the mechanism by which ships are hauled up the slipway breaking down so that bogies were left hanging from the slipway. The end result is that there have been reductions by means of each of these incidents of the size of the vessels that the applicant is able to slip. Because it is not able to slip large vessels, the applicant claims that it has suffered loss for which it is entitled to indemnity under the policy. 4 The relevant clause of the policy provides: For interruption of or interference with the Business caused by material damage but subject to the terms Conditions Special Provisions and Exclusions of this Policy we will pay: for Items 1, 2 and 3 of the Schedule for each week the Rating Classification Percentage of the loss of Average Weekly Turnover based upon Weekly Calculations adjusted and agreed but not exceeding the Weekly Sum Insured 5 The proceeding came initially before Finkelstein J. The parties collaborated with his Honour in the formulation of separate questions to be determined before the trial pursuant to O 29 of the Federal Court Rules. Question 4 of those questions was as follows: 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 [sic] 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? 6 Following argument on these questions, on 25 September 2009 his Honour published reasons for judgment. See Tropical Reef Shipyard Pty Ltd v QBE Insurance (Australia) Limited [2009] FCA 1088. The respondent had advanced a method of calculation that involved what it called a notional running account and required calculation over the entire period of loss, with a calculation then to allocate amounts to each week of that period. At [14] of his reasons for judgment, his Honour rejected that construction. His Honour held that, because the requirement of the policy was to pay for each week, the necessary calculation was to be done on a weekly basis and not on the basis of a running account. At [15], his Honour said that there were issues that remained to be resolved at the trial, namely, whether there is a causal connection between the incidents and the loss claimed and whether turnover, and therefore actual average weekly turnover, ought to be calculated by reference to total invoiced sales or cash receipts or a combination of both plus work in progress. 7 His Honour ordered the parties to bring in minutes of proposed orders to give effect to the reasons that he had given. Following the bringing in of minutes of the orders, his Honour made orders, including answering question 4 in the following terms: 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. 8 The respondent was dissatisfied with the fact that it had been unsuccessful in the interpretation of the clause that it had advanced. It sought leave to appeal to the Full Court. The motion for leave to appeal was heard by the Full Court, which rejected it on 12 November 2009. See QBE Insurance (Australia) Limited v Tropical Reef Shipyard Pty Limited [2009] FCAFC 161. At [28] of the Court's reasons for judgment, the Court said: Proof of the loss of the turnover and of the required causal connection is central to the ultimate resolution of TRS's claim and, indeed, central to QBE's argument on the leave application that the primary judge's approach would give TRS an unintended "windfall". The primary judge (unlike the parties) is not bound by his answers to the separate questions. His Honour can again consider the questions of construction at the final hearing cognisant of the facts as found or admitted. In so doing, his Honour can determine the significance or otherwise of numerous factors which may impinge upon the construction issues and point to another construction being correct or preferable. The Court then listed six factors that it said were included in the category of numerous factors to which it had referred. At [29], the Court said: These conclusions do not indicate that leave should be granted. As to the past, both parties agreed to the course taken by the primary judge. Neither party sought leave to appeal for that purpose. As to the future, both parties are free to adduce all evidence they consider relevant to the final hearing before the primary judge. QBE, as noted, accepts that the answer to separate Question 4 will not affect the evidence it will call. Both parties will have a capacity to appeal against any final decision. In any appeal both parties will be free to challenge any conclusion about construction including the construction matters underlying the primary judge's answer to Question 4. The primary judge has not entered upon the consideration of the fundamental issues of proof of loss and causation, which may impinge on final resolution of this construction question. If they do impinge, the primary judge is not bound by his answer to Question 4. At [30], the Court concluded that it was not satisfied that question 4 could be answered without all relevant facts having been found or admitted and said: Any doubt we may have about the primary judge's answer to Question 4 is incapable of being resolved without all relevant facts having been found or admitted For those and for other reasons, the Court was not persuaded that the respondent would suffer any injustice, let alone substantial injustice if leave to appeal were not granted. 9 The preparation for trial of the case then proceeded. On 20 May 2010, Finkelstein J granted the applicant leave to file and serve an amended statement of claim in the form of the proposed amended claim dated 17 May 2010 by 26 May 2010. His Honour also ordered that any application by the respondent for summary judgment under s 31A(2) of the Federal Court of Australia Act 1976 (Cth) ("the Federal Court Act") be brought by notice of motion filed by 28 May 2010. 10 The amended claim in respect of which the applicant was given leave travelled beyond the earlier answer to question 4. It involved alternative methods of calculating the amount of loss in respect of which the applicant was entitled to indemnity. It is unnecessary to go to the details of those alternative methods, which are, in any event, very complex. It is sufficient to say that they departed from the manner in which the applicant had put its initial case that led to the formulation of the separate questions. The crucial issue involved in what has been called the alternative method is whether it is necessary simply to determine the amounts paid or payable on a weekly basis by reference to invoices and credit notes dated in the particular week, or whether it is legitimate to attempt to allocate to each week a sum with respect to work that could have been described as being in progress during that week. 11 The respondent did file a notice of motion on 28 May 2010, seeking summary judgment under s 31A(2) of the Federal Court Act. That application was the subject of reasons for judgment given by Finkelstein J on 7 October 2010. See Tropical Reef Shipyard Pty Ltd v QBE Insurance (Australia) Ltd (No 2) [2010] FCA 1093. At [26], his Honour adopted the respondent's criticism of the alternative methodology proposed by the applicant. His Honour said: As will be apparent from my reasons for answering Question 4, Turnover and loss of weekly Turnover are to be determined by reference to what is paid or payable in the relevant period; averaging is not contemplated. For purposes of calculation the Actual Average Weekly Turnover the relevant period is the 12 months preceding the interruption. The Actual Average Weekly Turnover is the sum of what has been paid or is payable in that period divided by 52. The period for the loss of weekly Turnover is, obviously enough, a week. What is relevant are the amounts paid or payable in each week for which a claim is made. An amount is "paid" when it is received. An amount is "payable" when it becomes owing, which is, generally speaking, not until an invoice has been issued. The expression "paid or payable" does not usually include forward sales until the services are performed and it does not include orders or contracts until an invoice is issued. This tallies with normal accountancy practice: see Riley, [39]. The reference is to Cloughton D, Riley on Business Interruption Insurance (8th ed, Sweet & Maxwell, 1999). The applicant says that his Honour's conclusion at [26] of his reasons for judgment does not in fact accord with what is said in Riley. Indeed, there is a passage in [39] of Riley, under the heading, (c) Turnover, payments in advance, stage or progress payments, which includes the sentence: The exact nature of the contract must dictate the manner in which the situation is dealt with, but the loss of turnover is again based on the extent to which turnover has been earned whether actual money has changed hands or not. [italics in original] 12 At [27] of his reasons for judgment, Finkelstein J concluded that the applicant is not able to sustain its claim for lost income as presently formulated. His Honour did not accept that the applicant could not establish a claim for compensation. He set out six steps that he said the applicant would have to plead in order to set out an acceptable methodology of calculating its losses. At [28], his Honour concluded that the applicant should be given the opportunity to seek leave again to reformulate its statement of claim. His Honour said: If [the applicant] does seek and is granted leave to deliver a further amended statement of claim (a matter which must be of some doubt at this stage of the litigation game), it may be able to show a claim that should be allowed to go to trial. His Honour did not determine the respondent's application for summary dismissal of the proceeding pursuant to s 31A of the Federal Court Act. Instead, by order made on 7 October 2010, his Honour stood over that motion. 13 By a notice of motion filed on 22 November 2010, the applicant sought leave to amend its claim by filing and serving a further amended claim in the form of the proposed further amended claim exhibited to an affidavit at the time. This further amended claim included the alternative methodology which Finkelstein J had rejected. It also included an attempt to amend what was described as the primary methodology. In written submissions filed in relation to this application for leave to amend, the respondent made something of the fact that the applicant was persisting with the alternative methodology. In written submissions in reply the applicant's counsel said: 20. The submissions hereafter proceed on the footing that the Court permits the amendment to allow Tropical Reef Shipyard to proceed on the "Primary Methodology". 21. If that is so, the s.31A application of QBE, stood over by Finkelstein J will be refused. 22. The question then is whether, in the interests of justice, Tropical Reef Shipyard should be permitted to maintain the "Alternative Methodology" claim at trial. 23. If the Court is of the view that it ought not, by reason of the conclusions reached by Finkelstein J in his judgment of 7 October 2010, two consequences may follow: (a) Tropical Reef Shipyard may now need to fragment the proceeding, and seek leave to appeal from that order, so that if the Reasons for Decision of Justice Finkelstein are erroneous, the trial can proceed in due course with Tropical Reef Shipyard contending for either the "Primary Methodology" or the "Alternative Methodology"; (b) differently, Tropical Reef Shipyard can, or at least arguably may be able to, treat the order refusing it the ability to pursue at trial the "Alternative Methodology" as an interlocutory order able to be the subject of appeal after final judgment is delivered in the matter. It is not satisfactory or efficient for the proceeding to be pursued in this way. 14 In the course of the hearing of the motion for leave to amend Gordon J pressed counsel for the applicant as to why the applicant was seeking to persist with its alternative methodology. Her Honour put to counsel that nothing had changed between the time the earlier application was made and the present that would warrant or justify that claim remaining there. The transcript records counsel's reply: We, as your Honour would have seen from our reply submissions, we put it this way: we agree that your Honour would need to grant us leave to amend, at least in relation to those aspects of the amended statement of claim that follow, or pursue, the template, if one likes to call it, derived from Finkelstein J's judgement [sic]. Her Honour interpolated, "Well, that's a separate set of issues." Counsel continued: Separate set of matters. But then, if your Honour did grant leave, as we respectfully submit your Honour should, then in those circumstances there would be no harm by the alternative methodology being left there for consideration by the court at trial. And if that were so, then that would obviate the obvious problem that would occur if there would have to be an appeal, after a judgment which had rejected the methodology which is now described as the "primary methodology", by then going back to, and seeking leave to appeal in relation to, the interlocutory order which had precluded us from advancing that form of argument. Counsel referred to the alternative methodology as being a back-up. 15 Gordon J's reasons for judgment were delivered on 21 December 2010. See Tropical Reef Shipyard Pty Ltd v QBE Insurance Australia Limited (No 3) [2010] FCA 1439. At [13]-[22], her Honour discussed the newly-reformulated primary methodology. For the reasons that her Honour there gave, she declined to grant leave to amend in the form of that primary methodology. Her Honour accepted that it was common ground that the loss of turnover is calculated and paid weekly. On that basis, her Honour regarded the proposed claim as formulated as being inadequately pleaded. At [23], her Honour said: Given the views I have formed about TRS' [sic] Primary Methodology, it is unnecessary to reconsider TRS' [sic] Alternative Methodology. 16 Her Honour's only order on 21 December 2010 was to require the parties to bring in orders to give effect to the reasons and for the future management of the proceeding. At that stage, her Honour had made it clear that there was a separate aspect of the claim which in any event was to be preserved, which was described as the "lumped extension claim". It is unnecessary to go into any detail of the nature of that claim. 17 There were no orders made reflecting her Honour's reasons for judgment of 21 December 2010 until 8 February 2011. To some extent, it is necessary to go to what occurred in the intervening period. By letter dated 24 January 2011, the applicant's solicitors submitted draft proposed orders, together with short written submissions in relation to those orders. The orders proposed at that stage had the effect of preserving the lumped extension claim and allowing for judgment otherwise to be entered for the respondent against the applicant. They also reflected her Honour's conclusion that she would refuse leave to file and serve a further amended statement of claim, and dealt with costs. Those were not the orders made, however. In the course of its written submissions accompanying them, the applicant referred to the order that Finkelstein J had made on 7 October 2010, which was an order simply standing over the motion for summary judgment. The submissions suggested that orthodox orders should be made to the effect that the application for further amendment was refused with costs. They stated an express reservation of the applicant of its rights in respect of the disposition of its application and, on the basis that it was necessary for the avoidance of doubt, took issue with the correctness of the analysis of Finkelstein J contained in the reasons for judgment delivered on 7 October 2010. The applicant also stated that, if Finkelstein J had acceded to the respondent's application at that time, the applicant would have made an application for leave to appeal, but repeated that Finkelstein J instead stood the matter over. The submission then said, at para 16: TRS recognises that it would be cumbersome for the matter to be remitted to Finkelstein J merely for a dispositive order to be made. TRS also recognises that this step is not necessary. Accordingly, TRS would not resist Justice Gordon making an order to effect the disposition of the s.31A application. It is, in any event, convenient that the order on the s.31A application and the order refusing leave to amend be made at the same time. 18 There were further communications between the parties that resulted in the resolution between them of the lumped extension claim. As a consequence of these negotiations, orders were submitted to Gordon J's chambers. Those orders were submitted by email to her Honour's executive assistant, dated 7 February 2011. It appears that Gordon J had set down the lumped extension claim for hearing on 11 February 2011, but that hearing became unnecessary because of the resolution of the lumped extension claim. The email from the solicitor for the applicant of 7 February 2011 said: In order to avoid the expense and inconvenience of this additional hearing the parties now propose the following orders to give effect to the Reasons for Decision [sic] of Justice Finkelstein dated 7 October 2010 and of Justice Gordon dated 21 December 2010. Her Honour's executive assistant emailed the solicitors for both parties, requesting that the solicitor for the respondent please confirm his consent to the orders by return email. The solicitor for the respondent confirmed the respondent's consent to the proposed orders by email on the same day. On the following day, 8 February 2011, her Honour's executive assistant advised the parties that the proposed orders had been made in chambers that day. 19 In form, the orders were made as orders by consent. Paragraph 1 of them involved the granting of leave to the applicant to discontinue the lumped extension claim with no order as to the costs of that claim. Paragraphs 2, 3, 4, and 5 were as follows: 2. The application by the Applicant made by Notice of Motion filed 8 November 2010 for leave to file and serve a Further Amended Claim is refused, and the Applicant is ordered to pay the Respondent's costs of that application. 3. Pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth), summary judgment is given for the Respondent against the Applicant in respect of all of the claims made in the proceeding (save for the Lumped Extension claim referred to in paragraph 1 above). 4. The proceeding is dismissed. 5. The Applicant is ordered to pay the Respondent's costs of the proceeding (save for the costs of the claim referred to in paragraph 1 above), including reserved costs. 20 It is clear that the applicant cannot appeal from the dismissal of its claims, other than by leave. Section 24(1A) of the Federal Court Act provides: An appeal shall not be brought from a judgment referred to in subsection (1) that is an interlocutory judgment unless the Court or a Judge gives leave to appeal. Subsection (1D) provides: The following are taken to be interlocutory judgments for the purposes of subsections (1A) and (1C): (a) a judgment by consent; (b) a decision granting or refusing summary judgment under section 31A. 21 Counsel for both parties were apparently unaware of the amendment to s 24 of the Federal Court Act, which has been in existence since 1 January 2010. They directed substantial parts of their written submissions to seeking to resolve questions, said to be unresolved by various judgments of the Court, as to whether a judgment under s 31A of the Federal Court Act is a summary judgment. The question of the consent nature of the judgment was only dealt with by additional material filed by the applicant at a late stage. 22 The well-known test for the determination of applications for leave to appeal from interlocutory judgments has two limbs. The first concerns whether the judgment from which leave to appeal is sought is open to sufficient doubt to warrant the attention of the appeal court. The second is whether, if leave to appeal were to be refused, the party seeking it would suffer substantial injustice. In my view, both of these criteria are met in the present case. 23 As I have said, Gordon J in her reasons for judgment of 21 December 2010 did not revisit the question whether the applicant ought to have been granted leave to amend to add its alternative methodology. Her Honour relied on the reasons for judgment of Finkelstein J as having settled that question. In my view, it is open to the applicant to challenge on appeal her Honour's reasons for judgment in that respect. The applicant was placed in a difficult position as a result of the orders made by Finkelstein J on 7 October 2010. The application for summary judgment under s 31A of the Federal Court Act had not been determined finally by his Honour, but had been stood over. It may have been possible in theory for the applicant to seek leave to appeal from the order standing over that application, but there was little point in the applicant doing so when it had been given leave to make a further attempt to amend its claim. 24 In my view, it was arguable that the applicant was entitled to retain in its further amended statement of claim its attempt to rely on the alternative methodology. If it did not do so, it would be taken to have abandoned that claim and would have had difficulty in seeking yet another amendment, or in attempting to argue at the trial that that claim was maintainable. 25 In my view, the reasoning of Finkelstein J in relation to that claimed methodology is open to doubt. As I understand his Honour's reasoning, only the rendering of an invoice would make money payable in terms of the clause in the insurance policy. The result of such an interpretation would be commercially unattractive. It would mean, for instance, that a business that had a practice of invoicing only at the end of the month would automatically be taken to have suffered loss of turnover during the three weeks of the month when no invoices were rendered, but would far exceed the sum insured in the fourth week, when it rendered all its invoices for the month. In some circumstances, such an interpretation might well turn out to be disadvantageous to the insurer. In my view, the terms of the insurance policy do not, in any sense, preclude the adoption of some mechanism to allocate turnover expressed in an invoice rendered at the end of the job to the weeks during which that job was carried out. Such an approach may well give rise to a fairer, as well as more commercially desirable, result. The outcome of the argument is, of course, a matter for the Full Court and I do not seek to provide a definitive answer to it. It is sufficient to say that there is sufficient doubt about the approach adopted by Finkelstein J to warrant the attention of the Full Court. 26 With respect to the earlier conclusion, the answer to question 4, the Full Court that considered the respondent's application for leave to appeal made it perfectly clear that it regarded his Honour's conclusion in relation to that question as open to doubt. The result is that, because the various issues of the correct calculation and its formulation in the applicant's statement of claim have been dealt with by interlocutory judgments, the applicant has now suffered the entire loss of its claim without any determination of facts based on full evidence after a trial and without any consequent automatic right of appeal. For that reason, it will suffer substantial injustice if it should not be granted leave to appeal. 27 As to the consent nature of the judgment, it is clearly arguable that Gordon J made an error in assuming that the judgment was to be made by consent. In Harvey v Phillips (1956) 95 CLR 235 at 243-244, the High Court dealt with the circumstances in which a consent judgment can be set aside. Their Honours took the view that a consent judgment is the result of a contract between the parties and could only be set aside if there were available some ground that would involve the undoing of that contract. The court said: The question whether the compromise is to be set aside depends upon the existence of a ground which would suffice to render a simple contract void or voidable or to entitle the party to equitable relief against it, grounds, for example, such as illegality, misrepresentation, non-disclosure of a material fact where disclosure is required, duress, mistake, undue influence, abuse of confidence or the like. 28 In the present case, it is perhaps unnecessary to go so far. The affidavit material placed before me indicates that it is arguable that there was no simple contract made that the judgment should be by consent. The submissions on behalf of the applicant dated 24 January 2011 make it clear that the applicant was adopting a convenient course for the disposition of the proceeding that involved Gordon J making orders disposing of the aspects of the proceeding that had been the subject of Finkelstein J's determination under s 31A. It was not that the applicant was consenting to the making of those orders. Indeed, it was making very clear its position that it took issue with the reasoning of Finkelstein J and would have already considered seeking leave to appeal if it had had a more apt vehicle for doing so. The fact that the respondent's solicitor expressed the respondent's consent to the orders did not have the effect of bringing into existence a contract between the parties to submit to judgment in the terms advanced. Nothing in the email of 7 February 2011 by the applicant's solicitor contained a retraction of what had been said in the earlier written submissions, or gave rise to the proposition that the applicant was now consenting to the dismissal of its claim, pursuant to s 31A. 29 For these reasons, the expression of the judgment in the form of orders by consent is attended by sufficient doubt to warrant the intervention of the Full Court and ought not to stand in the way of the determination of the other issues between the parties. Once again, if the applicant were to be refused leave to appeal because the judgment is in form a judgment by consent, it would suffer substantial injustice in the absence of real consent. 30 The tragedy of this proceeding is that, pursuant to leave to appeal which I propose to grant, the Full Court will be called upon to determine issues which in some respects may not yet be formulated sufficiently to facilitate such a determination. There has not yet been a trial of the proceeding. Questions such as whether evidence is available, and accepted, that will establish the applicant's case on the issue of a causal link between each of the incidents of damage to its slipway and its claimed loss of turnover will not have been determined. For the sorts of reasons that the earlier Full Court gave, the Full Court will now be hampered in such a determination. If the appeal should be resolved on the basis that it succeeds and the applicant's claim ought not to have been dismissed summarily under s 31A of the Federal Court Act, the proceeding will return to the Court at first instance to be determined, no doubt well after two years since its inception. It will then have to go to trial, for which, in all probability, further preparation will be needed. The estimate of counsel for the respondent of the likely length of the trial was six to eight weeks, although I have difficulty understanding how two commercially oriented parties seeking to have a quick determination of the real issues between them in the context of the fast-track list could contemplate a trial of such length. 31 In any event, if there is to be a trial, it will be followed by a judgment from which the losing party will have the opportunity to appeal as of right. The effect of the leave that I am about to grant will be to raise the real possibility that there will be two further occasions on which the Full Court has to deal with issues arising out of this dispute. It seems to me that the warnings that the High Court has issued on previous occasions against attempts to split cases by the determination of separate questions are well justified by a case such as this. The amount of time and money expended in the resolution of this dispute has already exceeded that which ought reasonably to have been expended. There is more to come. 32 The orders I make are: