Tushita Technologies Ltd v MJ Protective Services Group Pty Ltd

Background and procedural history

1. As pleaded, TTL brought three alternative claims for relief against MJ. First, TTL claimed damages for breach of contract. Second, TTL claimed damages for "breach of bailment". Counsel for TTL confirmed that this expression was intended to cover claims for conversion or detinue of the allegedly missing currency. Third, TTL claimed "equitable compensation". This was somewhat of a misnomer. Counsel confirmed that it actually referred to relief in the nature of an account.
2. TTL's notice of motion first came before me on 17 February this year. At that time all that was sought was leave to join the Lloyds Underwriters as the fifth defendant. The form of the proposed pleading against the Underwriters was not specified.
3. At the hearing I raised some questions with counsel for TTL about its proposed claim against the Lloyds Underwriters. Counsel sought an opportunity to bring in a proposed amended statement of claim which would propound the claim against the Underwriters and could be made the subject of the grant of leave. The hearing was adjourned until 30 March to allow that to happen.
4. TTL has now amended its notice of motion so as to annex a proposed amended statement of claim, and to seek leave to make the amendments. The proposed amended statement of claim sets out to plead the claim against the Underwriters for which leave is sought in the present application. I did not understand the existing defendants to resist the amendments, to the extent that they affect TTL's existing claims.

Application to sue Lloyds Underwriters

1. The key provision of the Act is s 4, which relevantly provides: Claimant may recover from insurer in certain circumstances (1) If an insured person has an insured liability to a person (the claimant), the claimant may, subject to this Act, recover the amount of the insured liability from the insurer in proceedings before a court. (2) The amount of the insured liability is the amount of indemnity (if any) payable pursuant to the terms of the contract of insurance in respect of the insured person's liability to the claimant. (3) In proceedings brought by a claimant against an insurer under this section, the insurer stands in the place of the insured person as if the proceedings were proceedings to recover damages, compensation or costs from the insured person. Accordingly (but subject to this Act), the parties have the same rights and liabilities, and the court has the same powers, as if the proceedings were proceedings brought against the insured person.
2. The term "insured person": means a person who is, in respect of a liability to a third party, entitled to indemnity pursuant to the terms of a contract of insurance, and includes a person who is not a party to the contract of insurance but is specified or referred to in the contract, whether by name or otherwise, as a person to whom the benefit of the insurance cover provided by the contract extends.
3. The term "insured liability": means a liability [defined as a "liability to pay damages, compensation or costs"] in respect of which an insured person is entitled to be indemnified by the insurer.
4. The policy described itself as a policy of "All risk of Physical Loss or damage Insurance". The "insured property" was relevantly defined as: money, currency, coin, bullion, precious metals of all kinds and in whatsoever form and articles made therefrom, gems, precious and semi-precious stones, certificates of stock, bonds, coupons, and all other forms of securities, bills of lading, warehouse receipts, cheques, drafts, money orders, stamps, food stamps, insurance policies, and all other negotiable and non-negotiable instruments or contracts representing money, in which the Insured is interested or for which the Insured is legally liable.
5. The policy covered loss at "premises" and loss in specified types of transit, such as during transport by armoured car, or while unloading or reloading ATMs. For present purposes, the proposed claim relies upon premises risk only. The relevant insuring clause was: This policy insured [sic] against physical loss f [sic; "of"] or physical damage to the insured property up to the amount(s) insured whilst in or upon the premises occurring during the period of insurance and subject to the policy exclusions, basis of settlement and conditions.
6. The relevant limit of liability was defined as: Section A: Premises Location 1 AUD $40,000 each and every loss
7. Critically, the insuring clause referred to loss or damage to the insured property "whilst in or upon the premises". The term "premises" was not defined in the policy schedule or elsewhere in the policy (nor was "Location 1" further identified).
8. Immediately before the insuring clause the policy schedule specified "situations" as an address in Military Road, Guildford. Guildford is a suburb of western Sydney, south of Parramatta. The schedule also contained an address for the insured. This was a post office box at Parramatta. Lower down in the schedule there appeared a further specification of the "situation" (not "situations"). The "situation" was stated as: At the insured location detailed above and anywhere within Australia and New Zealand.
9. For the purpose of the argument before me, the Lloyds Underwriters foreshadowed reliance on two exclusions in the policy. One was stated in the schedule in the following terms: Excluding losses arising whilst insured interest is in the care, custody or control of third party subcontractors.
10. The other exclusion is "mysterious disappearance or any unexplained loss".
11. TTL pleads the alleged shortfalls from the Melbourne ATMs separately from the shortfalls from the Sydney ATMs. For the Melbourne claim, the statement of claim alleges that certain deposits were made to the ATMs (the "Total Melbourne Deposits") and certain remittances received out of those funds. The pleading continues: 43. MJ has failed or refused to pay a portion of the Total Melbourne Deposits in the sum of $755,580.00 (Melbourne Remittance Shortfall) to or on behalf of Tushita. 43A. Cobra delivered some or all of the money it collected, including funds comprising the Melbourne Remittance Shortfall, to MJ by depositing the money into a bank account in the name of MJ, and, from that time, MJ had exclusive access to, control of and possession of those funds. … 43F. MJ failed to remit to Tushita the whole of the amount collected by Cobra and deposited into a bank account in the name of MJ, including but not limited to [three shortfalls from takings on specified dates from specified ATMs].
12. So far as the proposed claim against the Lloyds Underwriters is concerned, the proposed amended statement of claim pleads: 43J. MJ has not paid any portion of the Melbourne Remittance Shortfall to Tushita or a third party at Tushita's direction, despite its demands. 43K. That is a loss for which MJ would be liable to Tushita, but for it entering liquidation. 43L. As at the date of its liquidation, MJ did not have possession of the Melbourne Remittance Shortfall, or any part of it, and had a net asset deficiency.
13. The proposed pleading continues: 43M. The Melbourne Remittance Shortfall: (a) is a physical loss of or physical damage to money or currency; (b) is a loss of insured property; (c) is a loss of within or upon the Premises, within the meaning of the Policy. 43N. The Melbourne Remittance Shortfall occurred in circumstances where Lloyd's would be, but for MJ's having entered liquidation, liable to indemnify MJ under the Policy and Lloyd's is so liable.
14. The claim for the Sydney ATMs follows the same pattern, but contains a specific allegation of delivery of cash totalling $233,405 to MJ's Guildford office. The Sydney Remittance Shortfall is $1,531,550 and that is the amount claimed from the Lloyds Underwriters.
15. Counsel for the Lloyds Underwriters, in written submissions, advanced five main arguments in support of the contention that the proposed claims could not succeed: 1. The claim was inadequately pleaded. It did not specify when, where, or how the loss had occurred. The Lloyds Underwriters simply would not know the case which they would have to meet. 2. The "premises" referred to in the insuring clause must, in the context, have been a reference to the "situation", namely to MJ's Sydney office. Consequently, the claim with respect to the Melbourne shortfall must fail at the outset because TTL cannot allege that the loss from the Melbourne ATMs took place whilst the currency was "in or upon" premises there. Furthermore, the Sydney claim must be confined to the sum of $233,000 allegedly delivered to MJ's Guildford office. 3. Furthermore, the only pleading about the Melbourne loss suggested that the money had been lost after it had been paid into MJ's bank account. A loss of a bank deposit did not fall within the definition of "insured property" which was confined to physical assets. Similarly, this was another reason why the Sydney claim could only be pursued for the monies allegedly delivered to MJ's office. 4. On TTL's own allegations, the collection of the money both in Sydney and Melbourne had been subcontracted out. TTL is claiming recovery of virtually the whole of the shortfall amounts from Cobra and Vixon. Those amounts would fall within the subcontractor exclusion. 5. Given that the pleading did not identify any specific events resulting in the losses alleged, even if the existence of a shortfall were established, the reason for that shortfall would not be. This would bring the "mysterious disappearance" exclusion into play.
16. Counsel acknowledged the difficulty faced by TTL on the "premises" point. Counsel submitted, however, that it was open to contend that, as a matter of construction, the term "premises" should be interpreted as any premises, so long as they were in Australia or New Zealand (this was the formulation pressed by counsel in argument, which differs slightly from the way in which it had been pleaded in the proposed amended statement of claim), and that a bank deposit could fall within the insured property because it was encompassed by the word "currency" in the definition.
17. Counsel submitted that the proposed pleading was adequate. The complaints on the part of the Lloyds Underwriters went to TTL's evidentiary case. This was a matter to be addressed at trial. Counsel also acknowledged the difficulties created for TTL created by the exclusions, but pointed out that, in accordance with settled principle, the onus lay on the Underwriters to show that the claim fell within the exclusions by way of affirmative defence. This too was a matter which had to be left to trial.

Insured property

1. It is convenient to begin with the scope of the insured property under the policy. The definition (quoted at [16] above) contains a list of items, nearly all of which are incontestably physical objects ("bullion", "precious metals", etc) or instruments ("certificates of stock", "bills of lading, cheques" etc). The language of some of the items was more general ("money", "securities") but in no case necessarily incorporates intangibles. Furthermore, the policy applies to "physical" loss of or damage to the insured property, and the loss must occur whilst the property is "in or upon" a particular location.
2. In this context I think the policy only covers physical items of property. The reference to "currency" is a reference to currency in its physical form. A bank deposit, as a chose in action, is not included.

Application of the Act

1. On TTL's pleaded case, there is an argument that MJ is liable to TTL for the shortfalls. But that is not enough to establish liability under the Act. What is required is that the liability be one "in respect of which" TTL was entitled to indemnity from the Lloyds Underwriters.
2. The policy which is the subject of this motion was not a liability policy at all. It was a property loss and damage policy. It responded to physical loss of, or damage to, MJ's property.
3. Counsel for TTL submitted however that the policy did apply to certain liabilities. Counsel referred to the wording at the end of the definition of "insured property" (quoted at [16] above), referring to property "for which the Insured is legally liable". Counsel also referred to the "basis of settlement" provision called up by the insuring clause (see [17] above). The policy conditions stated the basis of settlement as follows: H. Basis of Settlement of Losses The basis of settlement will be: (i) for items belonging to the Insured the market value of those items at the date of loss. (ii) for items belonging to third parties the lnsured's legal liability to those third parties. In no event will the underwriters be liable for more than the limit of liability set out in the schedule
4. Counsel also submitted that authority had recognised that a property damage policy could be the subject of a claim under the Act. Counsel referred to the decisions of Harrison AsJ in Moore v McKiernan [2017] NSWSC 1520 and of Hammerschlag J (as his Honour then was) in Murphy McCarthy & Associates Pty Ltd v Zurich Australian Insurance Ltd [2018] NSWSC 627.
5. I do not think these authorities assist TTL in the present case. The policy in Moore was one of "rural insurance" which covered the policyholder's land, buildings and contents. But the policy expressly covered third party liability in some circumstances, and it was this cover which resulted in the successful application under the Act. The policy in Murphy was a conventional liability policy.
6. Clearly, however, the present policy was designed to apply to property held by MJ as bailee. An insured loss of such property would, to the extent of MJ's liability to the bailor, be recoverable under the policy. MJ's liability to the bailor might in such circumstances be an "insured liability" for the purposes of the Act. But that would only be the case if the liability necessarily arose from a loss covered by the policy. A liability arising independently would not be a liability "in respect of which" MJ was covered under the policy.

Pleading of loss

1. This brings me to TTL's pleaded case. I have set out the critical elements of the proposed statement of claim above. As a claim against MJ, it is straightforward. Effectively the allegation is that MJ, or its subcontractors on its behalf, received currency, and MJ failed to account for that currency (the "Melbourne Remittance Shortfall" and the "Sydney Remittance Shortfall").
2. A claim formulated in that way does not require TTL to plead what happened to the missing currency. MJ would be liable to TTL whether MJ had appropriated the missing currency for itself, or MJ's subcontractors had appropriated it for themselves, or it had been stolen by a third party.
3. For present purposes, however, it also is necessary for TTL to plead, on MJ's behalf, its claim against the Lloyds Underwriters under the policy. That claim must be pleaded in such a way as to show that MJ's liability for the Remittance Shortfalls is an "insured liability" under the Act. I think there are three difficulties with TTL's statement of claim on this score.
4. The first is that the proposed statement of claim merely asserts (at [43M(a)] and [43M(b)], quoted at [25] above) that each of the Shortfalls "is" a loss of property within the meaning of the policy. It does not say how that is so.
5. If MJ had retained the missing currency for itself, or had given the missing currency away, that would make it liable to TTL but would not amount to a "loss" under the policy. There must have been some event, unintended by the insured, which took the property away from the insured, or otherwise deprived the insured of the property: see David St L Kelly and Justice Michael Ball, LexisNexis Butterworths, Principles of Insurance Law, vol 1 (at Service 63) at [12.0050]. The proposed statement of claim does not allege any such event. It does not, for instance, allege that the missing currency was destroyed in an accident, or stolen.
6. Furthermore, the insuring clause required that MJ's loss have been suffered "in or upon" the "premises". Even if any location in Australia or New Zealand would do, the loss must have been suffered at some location covered by the policy. But again, the proposed statement of claim merely asserts (at [43M(c)]) that the loss fell within the terms of the policy. It does not allege where the property was when the loss happened.
7. The third point is that the policy relevantly contains a limit of liability of $40,000 for "each and every loss". The proposed statement of claim, however, simply pleads the two Remittance Shortfalls as englobo losses. It does not plead facts which would show whether there was a single loss, or a series of losses.
8. Counsel for TTL submitted that this was a matter for the Underwriters to raise by way of defence, and accordingly would be worked out at the hearing. But I cannot agree.
9. It is of course well established that the onus of making out that a claim falls within an exclusion under the policy lies on the insurer. But the onus of demonstrating that the terms of the insuring clause are satisfied lies on the insured: see Kelly and Ball at [8.0190].
10. In the present case, it is part of the insuring clause that the insurer's liability is for loss only up to the limit of cover. In my view, TTL is obliged to plead separately each of the losses which it claims occurred. This has an important practical significance in the present case: if there are only two losses the claim is worth no more than $80,000 and should be heard in the District Court or the Local Court.
11. For these reasons, I think the proposed pleading is defective. It is not merely a matter of providing evidence, or particular, in due course. The material facts have not been pleaded.

Other matters

1. I see the force of the Lloyds Underwriters' contention on the "premises" point. On the face of the policy the "situations" entry in the schedule appears to have been intended to be picked up by the term "premises". But I think that where the point arises out of what appears to have been a mistake in the policy, the matrix of fact may have a greater role to play than it otherwise might. Further evidence might emerge about the circumstances in which the policy was entered into which supports the wider construction contended for by TTL.
2. In light of the conclusions which I have earlier reached, it is not necessary to reach a final view. Nor is it necessary to address the exclusions upon which the Lloyds Underwriters relied.

Conclusion

1. Counsel for TTL submitted that on an application such as the present, the Court should only determine whether the claim as propounded is arguable. Counsel relied in particular on the observations of Campbell J in Zaki v Better Buildings Constructions Pty Ltd [2017] NSWSC 1522 at [27] and [28]: 27. As paragraph [2.46] of Report 143 [New South Wales Law Reform Commission, Third party claims on insurance money - Review of s 6 of the Law Reform (Miscellaneous Provisions) Act 1946, Report No 143 (2016)] indicates, a grant of leave will be determined by reference to what the authors of the report refer to as "well settled criteria": that there is an arguable case of liability against the defendant; that there is an arguable case that the insurer's policy responds to that liability; and there is a real possibility that, if the plaintiff obtains judgment against the defendant, the defendant will not be able to meet it (my emphasis). Given the interlocutory nature of the leave application, it is appropriate that contestable issues as to the liability of the insured person, and the availability of cover under an insurer's policy, should be determined at the ultimate hearing. 28. Obviously in clear cases, as s 5(4) indicates, where the entitlement to deny or to disclaim liability under the contract of insurance is beyond argument, leave must be refused. Likewise, where it is clear beyond argument that a claim against an insured person is out of time, leave would be refused, but that it is because there would be no arguable case of liability against the insured person. In these cases, the General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125, [1964] HCA 69 standard would apply.
2. I accept that the Court would not grant leave to make a claim which was manifestly untenable or to which there was an unanswerable defence. To that extent, there is some analogy with the summary dismissal of a plaintiff's claim. But if I refuse this application, then the proceedings will go on against the second, third and fourth defendants. It may perhaps be open to TTL, if it later finds itself able to plead a viable claim against the Underwriters, to make a fresh application.
3. In the present case I think the closer analogy is with an application to strike out a pleading. Such an application does not necessarily bring the relevant proceedings to an end or dispose of the plaintiff's claim. In my view the test is clearly satisfied. TTL's proposed statement of claim does not plead the material facts required to sustain a claim under the policy.
4. It might be suspected that TTL's failure to plead the loss-constituting events is because it simply lacks the information necessary to do so. All TTL appears to know is that there is a disparity between the amounts apparently collected from the ATMs and the amounts of the remittances. Why the shortfall occurred is unknown. If that is the case, then TTL cannot succeed against the Lloyds Underwriters. But it is not necessary to go that far in this application. It is sufficient to say that the present application to amend should be refused.
5. There is no apparent reason why costs should not follow the event. The Underwriters are not party to the proceedings and there is no reason why the payment of those costs should wait until the end of the proceedings. To avoid any doubt, I will order that the Underwriters' costs be assessed and paid forthwith.

Orders

1. The orders of the Court are: On the plaintiff's notice of motion filed 27 August 2021 (as amended): 1. Order that the motion be dismissed. 2. Order that the plaintiff/applicant pay the respondents' costs of the motion, such costs to be assessed and paid forthwith.

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