CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; (1997) 187 CLR 384; (1997) 141 ALR 618; (1997) 71 ALJR 312 (4 February 1997)

HIGH COURT OF AUSTRALIA

BRENNAN CJ,

DAWSON, TOOHEY, GAUDRON AND GUMMOW JJ

CIC INSURANCE LIMITED APPELLANT

AND

BANKSTOWN FOOTBALL CLUB LIMITED RESPONDENT

ORDER

1. Appeal allowed.

2. Save for paragraph 2 of the orders of the Court of Appeal, set aside the orders of the Court of Appeal and in lieu thereof declare that the appellant is obliged to pay to the respondent a sum representing the indemnity value of the damaged property at the time of the happening of the damage sustained in the first fire.

3. Cross-appeal dismissed.

4. Order that the parties have leave within 21 days to bring in short minutes specifying the sum payable pursuant to the declaration referred to in paragraph 2 of this Order including interest under s 57 of the Insurance Contracts Act 1984 (Cth) from 30 October 1992.

5. In default of agreement as to the amounts to be specified in the short minutes, remit the proceedings to the Supreme Court of New South Wales, Commercial Division, for the determination of the sum for which judgment should be entered against the appellant and for consideration of any further costs order made appropriate by the further steps taken in the Supreme Court.

6. Order that the parties file within 21 days written submissions as to the orders which should now be made as to costs of the proceedings before Cole J and of the appeal to the Court of Appeal.

7. The respondent pay the appellant's costs of the appeal and cross- appeal.

4 February 1997

On appeal from the Supreme Court of New South Wales (Court of Appeal).

Representation

B W Rayment QC with J G Duncan for the appellant (instructed by

Abbott Tout)

P M Jacobson QC with J B Simpkins and B de Buse for the respondent (instructed by Thomas Tarmo & Co)

Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

CIC Insurance Limited v Bankstown Football Club Limited

Insurance - Industrial special risks insurance - General principles involving reinstatement policies - Construction of policy - Whether work carried out "with reasonable despatch" - Whether liability for subsequent damage prior to reinstatement rests with the insurer - Interpretation of Insurance Contracts Act 1984 (Cth) - Statutory policy - Whether statutory policy came into existence where insurer followed cancellation procedure laid down by Act - Interest on claim.

Insurance Contracts Act 1984 (Cth) ss 57, 58, 59, 60, Pt VII.

BRENNAN CJ, DAWSON, TOOHEY AND GUMMOW JJ. This is an appeal and cross-appeal from the New South Wales Court of Appeal (Kirby P, Priestley and Powell JJA). It concerns issues of insurance law. The Court of Appeal set aside orders made in the Commercial Division of the Supreme Court of New South Wales (Cole J) against the appellant, CIC Insurance Limited ("CIC"), but substituted other relief against CIC. There was a marked divergence in the reasoning of the members of the Court of Appeal.

The Court of Appeal delivered two sets of reasons for judgment. The first was delivered on 14 December 1994 and is reported[1]. The second was delivered 7 April 1995. This followed the relisting of the appeal, on the application of CIC, for the making of further submissions and determination of the form of orders to dispose of the appeal. Priestley JA withdrew such of his reasons delivered 14 December 1994 as conflicted with those of Kirby P which led to the declarations and orders proposed by the President. The appeal was disposed of accordingly.

The nature and history of the case

The primary judge had held that CIC was liable to Bankstown Football Club Limited ("the Club") in respect of losses suffered by the Club by reason of a succession of fires at its premises. Cole J quantified the recoverable loss as being in excess of $1.9 million and entered judgment in favour of the Club accordingly.

The Club had its premises at Gartmore Avenue, Bankstown, New South Wales. The activities conducted there included the operation of a licensed bar with gaming machines. Within the premises there was an independently operated restaurant.

With effect from 3 December 1991, CIC issued to the Club what was headed "INDUSTRIAL SPECIAL RISKS INSURANCE POLICY" ("the Policy") for a period to expire at 4.00 pm on 30 October 1992. The policy number was IS395070. In negotiation for the Policy, the Club employed its brokers, Garrison Insurance Brokers Pty Ltd ("Garrison").

The principal matters of general importance which were contested on appeal to this Court raise two issues of construction. The first concerns the construction of the terms of the Policy, it being in a standard form in widespread use. The second concerns s 58 of the Insurance Contracts Act 1984 (Cth) ("the Act"). This applies in respect of a "contract of general insurance" within the meaning given to that phrase by s 10 and s 11(6) of the Act. The Policy was such a contract. Section 58 provides that, in certain circumstances, by force of the section there exists between the parties to an original contract of insurance a further contract, which we will call a statutory policy. The cover under the statutory policy is in respect of the period that commences immediately after the expiry of the cover provided by the original policy.

The recital to the Policy referred to payment of the premium, shown in the Schedule as $4,473.37, and stated that CIC agreed to indemnify the Club "as specified herein" against loss occurring during the period of insurance stated in the Schedule to the Policy or any renewal thereof.

Section 1 was headed "MATERIAL LOSS OR DAMAGE" and under the further heading "THE INDEMNITY" the Policy stated:

"In the event of any physical loss, destruction or damage (hereinafter in Section 1 referred to as 'damage' with 'damaged' having a corresponding meaning) not otherwise excluded happening at the Situation to the Property Insured described in Section 1 [CIC] will, subject to the provisions of this Policy including the limitation on [CIC's] liability, indemnify [the Club] in accordance with the applicable Basis of Settlement."

It will be necessary later in these reasons to set out relevant terms of the Basis of Settlement and of the Memoranda referred to therein. The Schedule to the Policy stated a limit of liability, with reference to Section 1 as follows:

"MATERIAL DAMAGE $1,920,000".

The "CLASS OF BUSINESS" was there identified as "INDUSTRIAL SPECIAL RISKS" and the "SITUATION" as "8 JACOBS STREET BANKSTOWN". However, in the Court of Appeal, Powell JA said[2] that it did not seem ever to have been disputed that the subject of the Policy was the Club's premises, namely those at Gartmore Avenue, and the business it conducted there. The Schedule also carried the statement "COVER IS EFFECTIVE FROM THE DATE SHOWN TO THE EXPIRY DATE ABOVE", that is to say from 3 December 1991 to 30 October 1992.

Section 2 of the Policy was headed "CONSEQUENTIAL LOSS". Under the sub-heading "THE INDEMNITY" it provided that, if any building or any other property or part thereof used by the Club at the premises for the purposes of its business were physically lost, destroyed or damaged so that the business was interrupted or interfered with, CIC would pay the Club the amount of the loss resulting from that interruption or interference, in accordance with the applicable Basis of Settlement. The Schedule to the Policy stated a limit of liability in respect of consequential loss of $520,000.

The sum insured was shown as $2,440,000, this being the total of the limits of liability for material damage and consequential loss. The Schedule also noted the interest of Westpac Banking Corporation as mortgagee. It appears that at all material times the land upon which the club house was erected was subject to a mortgage in favour of that bank.

Condition 14 of the conditions which were stated to be applicable to all Sections of the Policy rendered observance of those conditions by the Club, and of the other terms of the Policy capable of being construed as such, conditions precedent to any liability of CIC to make any payment under the Policy.

The Policy was issued on or about 22 January 1992, although in the Court of Appeal Powell JA noted that the Policy did not appear to have been delivered to the Club for many months thereafter[3].

In the meantime, the premises of the Club were severely damaged by a fire ("the first fire"). It appears to have started shortly before midnight on 8 January 1992. It was deliberately lit. On the next day, a Declaration of Loss form was completed and signed on behalf of the Club and then delivered to CIC. This was a printed form provided by CIC. It contained no provision for particulars of loss.

At the time of the first fire, the Club had an indebtedness to its bank of $188,610 in respect of a fixed loan and about $30,000 on overdraft. The (comparatively small) trading losses of previous years were replaced for the year ending 30 June 1991 with a profit of approximately $7,000, and in the six months ending 31 December 1991 by one in the order of $32,000. Liquidity was tight, as it always was during the football off-season.

On 22 July 1992, the solicitors for CIC wrote to the Club, care of its solicitors, a letter stating that CIC had decided to refuse the claim in respect of the first fire and that four policies, including the Policy with which this case is concerned, were cancelled in accordance with the particular conditions thereof. Condition 5 of the Policy was headed "CANCELLATION" and CIC relied upon par (b)(v) thereof. This stated that CIC might cancel the Policy by giving the Club written notice to that effect where the Club "has made a fraudulent claim under this Policy or any other policy of insurance (whether with [CIC] or some other insurer) that provided insurance cover during any part of the period during which this Policy provides insurance cover". Condition 7, in addition, empowered CIC to refuse to pay any such fraudulent claim.

In the absence of an acceptance by CIC of liability under the Policy, the Club did not have the financial resources to repair the damage. The premises were boarded up and left unoccupied. On several occasions, vandals broke in and stole contents of the premises, particularly liquor stocks.

The assertion by CIC, that the Club's claim was fraudulent because the first fire had deliberately been lit by the President of the Club or by a casual employee or in performance of some conspiracy between them, was not well founded. It was rejected by the primary judge and, in that respect, Cole J's decision was not challenged on appeal. His Honour also held that the purported cancellation by the insurer of the Policy was ineffective so that it remained in force until it expired in accordance with its terms at 4.00 pm on 30 October 1992.

There was also a finding by the primary judge that the cost of reinstatement of the premises as a result of the first fire would have been $240,680.

The proceeding in the Supreme Court was instituted by the Club. It commenced with the issue of a summons out of the Commercial Division on 24 September 1992, that is to say before the Policy expired according to its terms. The Club sought a declaration that, upon the proper construction of the Policy and in the events that had happened, CIC "is liable to indemnify" the Club in respect of property damage and consequential loss occasioned by the fire in January 1992. The Club also claimed "damages".

On 18 December 1992, the Club premises were further damaged in a second fire. Only minor damage was occasioned by this fire and it was treated as irrelevant for the purpose of the litigation.

However, on 3 March 1993, there occurred a third fire. This caused a large amount of damage and destruction to the premises and their contents. The state of the premises after this fire was such that the local government authority required demolition of the structure of the building. This was done. On the findings of the primary judge, the cost of reinstatement after the fire of 3 March 1993 would have been approximately $1 million.

On 4 June 1993, Cole J gave a judgment in which he rejected the defence of arson presented by CIC to the claim by the Club in respect of the first fire. It then remained to assess what was described as "quantum". On the third day of that further hearing, 2 December 1993, the Club sought, and obtained, leave to file an amended summons alleging that there was deemed a renewal of the Policy, pursuant to s 58 of the Act, and that this statutory policy operated from 30 October 1992 for 12 months thereafter or until otherwise cancelled in accordance with the statute. The Club now claimed a declaration that, upon the proper construction of the statutory policy and in the events that had happened, CIC was liable to indemnify the Club in respect of property damage and consequential loss occasioned by fire damage to the premises on 3 March 1993.

No point appears to have been taken, with respect to what was said in this Court in Wigan v Edwards[4], that, at least as a matter of discretion, the amendments sought ought not to be made because they would raise a cause of action which had accrued after the institution of the proceedings. Later, in the Court of Appeal, Powell JA took the view that, on this ground, the amendments ought to have been refused[5]. One consequence of allowing the amendments has been a tendency to conflate the two causes of action in respect of distinct claims under the Policy and the statutory policy.

By judgment delivered on 16 December 1993, Cole J held that, in addition to moneys payable under the Policy in respect of damage sustained from the first fire (including a sum in respect of consequential loss, as to which there was no appeal), the Club was entitled to the benefit of the statutory policy. This led to judgment for the Club for a money sum representing the cost of reinstatement of damage to the building, fixtures and fittings caused by the third fire during the currency of the statutory policy. His Honour implemented his findings in declarations and directed that judgment be entered in favour of the Club in the sum of $1,913,963.23, comprising $1,851,114 damages and the balance as interest awarded pursuant to s 57 of the Act.

Section 57 states:

"(1) Where an insurer is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the insurer is also liable to pay interest on the amount to that person in accordance with this section.

(2) The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days:

(a) the day on which the payment is made;

(b) the day on which the payment is sent by post to the person to whom it is payable.

(3) The rate at which interest is payable in respect of a day included in the period referred to in subsection (2) is the rate that is the prescribed rate in respect of that day."

Cole J rejected the submission by CIC that an insurer is not acting unreasonably, within the meaning of the section, in withholding payment pending the resolution of a bona fide dispute as to the entitlement of the insured to indemnity. His Honour said:

"A reasonable period is to be given to the insurer to investigate and determine its position but if it adopts an incorrect position in relation to its obligation to pay under the policy, that, in my view, does not mean that simply because that incorrect position is adopted on a bona fide basis, it becomes reasonable for the insurer to decline to pay the sums otherwise due."

Cole J concluded that the reasonable period for CIC to investigate the first fire had expired three months thereafter, on 9 April 1992. These conclusions do not appear to have been challenged in the Court of Appeal. The appeal succeeded on other grounds.

The Court of Appeal set aside the orders of Cole J and replaced them with a fresh set of orders. It declared that, upon the proper construction of the Policy and in the events that had happened, CIC was liable to indemnify the Club in respect of property damage and consequential loss occasioned by the first fire. It also declared that CIC was liable to indemnify the Club "to the extent of the costs of reinstatement once actually incurred in respect of property damage and consequential loss" occasioned by the third fire. Further declarations were made, including the following:

"(iii) In the events which have occurred, [CIC] is liable to indemnify [the Club] in respect of consequential loss occasioned by fire damage to its premises from 8 January 1992 to 8 January 1993;

(iv) In the events which have occurred, [CIC] is liable to pay general damages to [the Club] in respect of its breach of contract".

The Court of Appeal ordered that there be referred to the Commercial Division the ascertainment of any damages to which the Club might be entitled in accordance with declaration (iv). It reserved to the Commercial Division the entry of judgment to which the Club was entitled including in respect of any entitlement "then established for the costs of reinstatement actually incurred by [the Club], should leave be given to [the Club] to claim such sum".

In the Court of Appeal, Kirby P and Powell JA held that Cole J had erred in concluding that, in the events that had happened, the statutory policy provided for in s 58 of the Act had come into operation. By its cross-appeal to this Court, the Club seeks the reinstatement of the finding in its favour by Cole J on the s 58 issue. Kirby P accepted the submission for the Club that, properly construed, the terms of the Policy extended to indemnify it in respect of property damage and consequential loss occasioned by the third fire and that this was so notwithstanding that the third fire occurred on 3 March 1993, after the expiry of the Policy, according to its terms, on 30 October 1992. Priestley JA ultimately supported that conclusion. It is challenged in this Court by CIC.

The claim under the Policy

Kirby P rested his conclusion upon two bases. The first was that, because an obligation to reinstate had been incurred by CIC pursuant to the terms of the Policy, nothing would meet the obligation of CIC short of reinstatement taking the property to its condition prior to the damage from the first fire, which did occur during the period of cover. In that regard, reliance was placed upon remarks by Barwick CJ in his dissenting judgment in Government Insurance Office of NSW v Atkinson-Leighton Joint Venture[6] and also upon the decision of the New South Wales Court of Appeal in Lumley General Insurance v Vintix Pty Ltd[7].

The second basis is one which, in this Court, was not supported by the Club. It involved what was said to be an application of principles of causation to insurance law, to the effect that CIC was obliged to pay for whatever damage was caused by an event occurring during the period of the Policy, even though all of that damage was not sustained during that period. It is unnecessary to say anything more on this second point.

The Club supports the first basis of the judgment of the President. It contends that, upon the proper construction of the Policy, CIC remains bound to pay the cost of reinstatement of the damage which occurred in the first fire, even if that cost has been increased by damage which occurred in the third fire. This is said to follow from the terms of the indemnity provided in Section 1 of the Policy and from par (a) of the Basis of Settlement also contained in Section 1. The contention is that the promise of indemnity was one to pay the full cost of reinstating the damaged property at the time of its reinstatement, even if by that stage the period of cover had expired.

Because of the reliance by the primary judge upon s 58 of the Act as the foundation for his judgment, there were no precise findings upon which there might be a computation of the increase in cost by reason of the third fire upon reinstatement of the property damaged in the first fire. Accordingly, the Club submitted that, if it were successful in its submissions on the construction of the Policy, rather than under s 58 of the Act, the appropriate relief in this Court would be by way of declaration and remission of the issue to the Supreme Court for ascertainment of the amount involved.

Before returning to the terms of the Policy, it is appropriate to refer briefly to certain of the general principles that are involved with reinstatement policies and to several of the authorities to which reference was made.

Reinstatement

These principles reflect the frequently stated proposition that a contract of insurance such as that contained in the Policy is one for the provision of an indemnity. That, in turn, and as was explained in British Traders' Insurance Co Ltd v Monson[8] has reflected the policy of the law not to allow gambling in the form of insurance. Nevertheless, as was pointed out in argument in the present case, the long acceptance of provisions for reinstatement has tended to diminish any requirement for precise indemnity.

In The Times Fire Assurance Company v Hawke[9], Bramwell B said that, as between the insurer and the insured, the contract of fire insurance was one of indemnity and that the insured "might have agreed to take a wall, or a load of barley, in satisfaction". However, although other modes of discharge of the liability may be stipulated by the particular contract or substituted with the consent of the insured, the liability of the insurer to make good the loss under the policy is one discharged by payment in money to the insured. Furthermore, without the consent of the insured or a contractual right to do so, the insurer cannot itself insist on making good the loss by "reinstatement", that is to say, by procuring the replacement of that which is destroyed or the repair of that which is damaged[10]. In addition, as Forbes J explained in Reynolds v Phoenix Assurance Co Ltd[11], if an insurer who has given fire cover is bound under the contract to pay the insurance moneys to the insured and does so, the insured "is quite entitled simply to put the money into his pocket without in any way reinstating the building". His Lordship added that this provided a temptation to an ill-minded owner to set fire to the building in order to pocket the insurance money.

Contractual rights to reinstate, in the sense above, rather than to pay an amount by way of indemnity may be conferred upon the insurer. These provisions have been said to discourage arson and fraud and to offer the insurer a course which may assist the economic interests of that party by escaping the full cost of indemnification where replacement or repair may be effected more cheaply[12].

The contract of insurance may confer an option or election for the discharge of the insurance liability by reinstatement. Smith v Colonial Mutual Fire Insurance Co[13] was such a case. During the currency of the policy of fire insurance, there had been a fire and the insurer had elected to reinstate the premises. It had expended moneys towards reinstatement when, still during the currency of the policy, a second fire destroyed the premises. The insured brought an action for payment of the damage occasioned in the second fire. The insurer unsuccessfully sought to deduct the moneys already expended by it towards reinstatement as a part payment of the amount required to indemnify the insured in respect of the second fire. The decision turned upon the circumstance that the insurer had elected to reinstate after the first fire. The result was, as Stephen J put it in Government Insurance Office of NSW v Atkinson-Leighton Joint Venture[14]:

"[The insurer] was accordingly entitled to no credit in its favour for the cost of its own work of reinstatement, which had been destroyed when the house was itself destroyed in a second fire, occurring during reinstatement."

The effect of Smith has been further described as follows[15]:

"In the case of a fire policy, where a fire breaks out during the reinstatement and again destroys the property, the insurers are not in any way excused, but must complete the work. During the progress of reinstatement they are their own insurers; and the happening of the subsequent fire does not concern the assured, who remains entitled to insist on the due performance by the insurers of their obligation without crediting them with what they have already expended."

The decided cases contain numerous examples of the situation where a contractual right to elect in favour of reinstatement as the mode of discharge of the obligation of the insurer has been conferred upon the insurer[16]. There will then be a term implied that the insurer will effect reinstatement within a reasonable time[17]. A right to opt for reinstatement also may be conferred upon the insured[18].

Further, in a suitable case the appropriate measure of indemnity to an insured may be the cost of reinstatement. This may be so where market value before and after the occurrence of the risk does not provide an accurate measure of the loss[19].

Moreover, the policy itself may contain an express provision for payment to the insured based on the cost of reinstatement. In the present case, the primary judge correctly emphasised that, in considering the obligations of CIC under the Policy, it was significant that the Policy did not impose upon CIC any obligation itself to reinstate; rather, its obligation was to pay a sum of money for the cost of reinstatement. The distinction was not always observed in the submissions for the Club to this Court. Counsel referred to the promise of CIC as one to reinstate, in addition to referring to it accurately as one to pay an amount.

In essence, the Club's submission was that the promise to pay had not been performed and, in the meantime, had become more expensive because of the occurrence of the third fire. This added expense of performing the promise was said to be one which had to be borne by CIC. Counsel eschewed any submission that there was involved in his contention an allegation of repudiation by CIC which had been accepted by the Club so that it founded its case as one in damages. This should be noted in reading what follows in the balance of these reasons.

It is suggested that in Australia it is becoming increasingly common for contracts of insurance, especially fire policies, to provide expressly for an indemnity based on the cost of reinstatement so that it is open to the parties to a policy which is not a valued one to agree in advance that, in the case of a loss, indemnification will be assessed on the basis of the current cost of replacement in a condition equal to new[20]. In New Zealand there is recent authority[21] which suggests that, under such a policy, where the property is damaged by fire and the insured wishes to leave it damaged and not reinstate it, recovery will be allowed on the basis of the cost of reinstatement. This is subject to the proviso that there is no further requirement in the policy that the cost of reinstatement must actually have been incurred before there arises the liability of the insurer to pay.

Government Insurance Office of NSW v Atkinson-Leighton Joint Venture[22] involved a policy under which, as Stephen J pointed out[23], the insurer was not given any general right to undertake reinstatement. The insurer undertook to "pay or make good" up to specified amounts all unforeseen loss or damage occasioned, during the period of cover, to an embankment being built by the insured at Botany Bay. However, despite this reference to "making good", Stephen J held that the policy was not to be read as entitling the insurer to elect itself to reinstate the embankment as an alternative to paying the cost incurred by the insured in repairing it[24].

The policy in that case excluded liability for an amount to be borne by the insured in respect of each and every occurrence arising out of storm or tempest. During the currency of the policy and the construction of the embankment, it was damaged by two storms. It was held by this Court (Barwick CJ dissenting) that, upon the proper construction of the policy, the damage arising from each storm was a separate occurrence giving rise to an entitlement to an indemnity and, in respect of each such entitlement, to an application of the clause concerning "deductibles". That decision itself does not bear upon the present dispute.

However, in the course of his reasons, Barwick CJ[25] said that, once the obligation to pay the cost of repair had attached, it was nothing to the point that the necessary cost of repair was increased by some subsequent event which was not an insured risk. This meant, for example, that when the promise to pay the cost of repair attached because of the occurrence of damage to the undamaged embankment by storm, that promise must be performed notwithstanding that the action of the sea might increase that cost. In that connection the Chief Justice referred to Smith v Colonial Mutual Fire Insurance Co[26] as illustrative of the particular principle with which his Honour was concerned, one directed to payment of the cost of reinstatement. In Smith, the insurer had become bound to reinstate and of that situation Barwick CJ said[27]:

"It would be no answer for him to say that the added cost was due to an uninsured risk. The true analysis is that the obligation to reinstate having attached during the currency of the policy, its performance is required whatever it costs and however the cost is increased by events which could not in themselves have given rise to a claim under the policy."

However, as we have indicated, Smith was concerned with a second fire which occurred during the currency of the policy.

In the Court of Appeal in the present case, reference was also made to its earlier decision in Lumley General Insurance v Vintix Pty Ltd[28]. The policy there in question obliged the insurer to pay to the insured the value of the property at the time of its destruction or the amount of the damage to it, or, at the option of the insurer, to reinstate or replace the property. It was common ground in the case[29] that the appropriate way of quantifying the amount owing in respect of damage to the property was the cost of reinstating the subject building. Upon that footing it was then decided that what was required was an actual, not a notional, reinstatement at the date when repair reasonably could be carried out. This was so notwithstanding that the cost might be increased by the need to comply with a new statutory building code which had been introduced after the occurrence of the insured damage. This decision is of no direct assistance in the present case.

The construction of the Policy

We turn now to consider further the relevant terms of the Policy and the issues of construction to which they give rise.

We have set out earlier in these reasons the relevant text of that portion of Section 1 of the Policy which specifies "THE INDEMNITY". The essential obligation specified therein is one to "indemnify" the Club "in accordance with the applicable Basis of Settlement" in the event of any physical loss, destruction or damage, not otherwise excluded, which happens to "the Property Insured". The expression "the Property Insured" is further described in Section 1 in terms which include the following:

"All real and personal property of every kind and description (except as hereinafter excluded) belonging to [the Club] or for which [the Club] is responsible, or has assumed responsibility to insure prior to the occurrence of any damage, including all such property in which [the Club] may acquire an insurable interest during the Period of Insurance."

The applicable "Basis of Settlement" is that in par (a). This states:

"On buildings, machinery, plant and all other property and contents (other than those specified below); the cost of reinstatement, replacement or repair in accordance with the provisions of the Reinstatement and Replacement and Extra Cost of Reinstatement Memoranda as set out herein.

Provided that if [the Club] elects to claim the indemnity value of any damaged property, [CIC] will pay to [the Club] the value of such property at the time of the happening of the damage or at its option reinstate, replace or repair such property or any part thereof. In any event [CIC] will pay costs incurred by [the Club] in accordance with the provisions of the Extra Cost of Reinstatement Memorandum."

The Reinstatement and Replacement Memorandum, as applicable to buildings, machinery, plant and all other property and contents specified in par (a) of the Basis of Settlement is, so far as relevant, in the following terms:

"REINSTATEMENT AND REPLACEMENT

...

The basis upon which the amount payable is to be calculated shall be the cost of reinstatement of the damaged property insured at the time of its reinstatement, subject to the following Provisions and subject also to the terms, Conditions and Limit(s) or Sub Limit(s) of Liability of this Policy.

For the purpose of the insurance under this memorandum 'reinstatement' shall mean:-

(a) Where property is lost or destroyed: in the case of a building, the rebuilding thereof or in the case of property other than a building, the replacement thereof by similar property, in either case in a condition equal to, but not better or more extensive than, its condition when new.

(b) Where property is damaged: the repair of the damage and the restoration of the damaged portion of the property to a condition substantially the same as, but not better or more extensive than, its condition when new.

Provisions

(i) The work of rebuilding, replacing, repairing or restoring as the case may be (which may be carried out upon any other site(s) and in any manner suitable to the requirements of [the Club], but subject to the liability of [CIC] not being thereby increased), must be commenced and carried out with reasonable despatch, failing which [CIC] shall not be liable to make any payment greater than the indemnity value of the damaged property at the time of the happening of the damage.

(ii) When any property insured to which this memorandum applies is damaged in part only, the liability of [CIC] shall not exceed the sum representing the cost which [CIC] could have been called upon to pay for reinstatement if such property had been wholly destroyed.

...

(iv) No payment beyond the amount which would have been payable under this Policy if this memorandum had not been incorporated herein shall be made until a sum equal to the cost of reinstatement shall have been actually incurred; provided that where [the Club] reinstates or replaces any lost or destroyed property at a cost which is less than the cost of reinstatement (as defined) but greater than the value of such property at the time of the happening of its loss or destruction, then the cost so incurred shall be deemed to be the cost of reinstatement.

..."

Paragraph (a) of the Basis of Settlement also referred to the provisions of the Extra Cost of Reinstatement Memorandum. That Memorandum extends the Policy to include the extra cost of reinstatement, including demolition or dismantling, of damaged property which is necessarily incurred to comply with the requirements of any statute or municipal or statutory authority.

The effect of these provisions (including those set out earlier in these reasons) is that the undertaking of CIC was to indemnify the Club against physical loss, destruction or damage occurring during the period of insurance. The fundamental obligations of CIC under the Policy after the occurrence of the first fire were, within a reasonable time of the receipt of the claim (which was made promptly), to acknowledge liability and then to pay the liquidated sum, for the computation of which the Policy provided.

As we have indicated, the Club did not pursue its claim against CIC as one to recover damages flowing from repudiation by CIC of the contract of insurance and the acceptance thereof by the Club. The term "damages", in a case such as the present of a claim under the Policy, thus is used loosely to identify the moneys payable to the insured upon a proper construction of the Policy[30].

The obligation of CIC was to be performed in accordance with the Basis of Settlement. Paragraph (a) thereof required payment to the Club of the cost of reinstatement, replacement or repair. However, the Club might elect to claim the "indemnity value" of any damaged property.

If the Club did so elect, this, in turn, would lead to one of two results. First, CIC would be obliged to pay to the Club the value of the property at the time of the happening of the damage. Alternatively, rather than make this payment to the Club, at its option CIC might reinstate, replace or repair the property or any part thereof. If CIC did so, Condition 8 would oblige the Club at its expense to supply CIC with all such plans, documents and information as CIC might reasonably require; and CIC would not be obliged to expend more than the limit of liability stated in the Schedule to the Policy. However, in either event, payment of indemnity value or reinstatement, CIC would be obliged to pay the costs incurred by the Club in accordance with the provisions of the Extra Cost of Reinstatement Memorandum.

In the present case it is not contended by either side that the Club has elected to claim the indemnity value of the damaged property. Therefore, no choice has presented itself to CIC under par (a) of the Basis of Settlement between payment of the insured value or reinstatement of the property. Rather, the obligation of CIC to indemnify the Club remains measured by "the cost of reinstatement" as understood in accordance with the provisions of the Reinstatement and Replacement Memorandum, together with the Extra Cost of Reinstatement Memorandum.

The first of those Memoranda stated, under the heading "REINSTATEMENT AND REPLACEMENT", the basis upon which the amount payable in respect of damaged property was to be calculated as the cost, at the time of its reinstatement, of reinstatement of the damaged property to a condition substantially the same as, but not better or more extensive than, its condition when new.

Where the property was a building which had been lost or destroyed, "reinstatement" required rebuilding thereof in a condition equal to, but not better or more extensive than, its condition when new. Here, the Club premises had been damaged, not destroyed, by the first fire.

Proviso (i) under the heading "REINSTATEMENT AND REPLACEMENT" indicated that the work of repair and restoration of the Club premises was to be undertaken by or on behalf of the Club. It did so by stating that the work might be undertaken in any manner suitable to the requirements of the Club, but then imposing an obligation to commence and carry out the work "with reasonable despatch". In the events that happened after the first fire, the Club lacked the financial resources to do so. The primary judge so held. Be that as it may, the Club had not commenced any such work when the Policy expired 10 months later, nor, if it matters, at the time of the third fire 14 months later. It is true that, in this period, CIC had denied liability, but the Club's case is not that there had been a repudiation which it had accepted. Rather, its case is, as counsel put it to this Court, that "the promise [to make payment] still attached when the third fire occurred".

However, by that stage, the period of "reasonable despatch" spoken of in proviso (i) had passed. The result is that, as the proviso then stipulates, CIC is not "liable to make any payment greater than the indemnity value of the damaged property at the time of the happening of the damage".

There is a passage in the transcript of argument in this Court in the address in reply of counsel for CIC which might suggest he conceded that CIC could not rely in this way upon proviso (i). The construction of the Policy is a matter of concern beyond the present parties. Moreover, a number of submissions were in play at the time of the exchange with the Bench in the course of which the passage in question appears. Counsel had sought to identify "the usual case" of a claim under the Policy and had proceeded to deal with par (a) of the Basis of Settlement when attention crossed to the provisos found under the later heading "REINSTATEMENT AND REPLACEMENT". There is no sufficiently clear concession to which counsel for CIC should be held, and proviso (i) thus is of determinative importance.

Upon that footing, which in our view is decisive of this branch of the case, proviso (iv) has no work to do. It would have come into play and limited the rights of the Club if the work of repair and restoration had been commenced and carried out with the reasonable despatch spoken of in proviso (i).

Proviso (iv) begins by directing attention to the amount which would have been payable under the Policy if the Memorandum had not been incorporated. If the Memorandum had not been incorporated, then there would have remained, without further explication, the obligation imposed upon CIC by the earlier provisions of the Policy to indemnify the Club against loss occurring during the period of the insurance. As mentioned earlier in these reasons, that indemnity value, prima facie, would require an assessment of the difference in market value before and after the event giving rise to the claim. The effect of proviso (iv) is that no payment beyond the amount which would have been payable under such a method of assessment is to be made until a sum equal to the cost of reinstatement has actually been incurred.

There is a further qualification in proviso (iv) that operates if the Club reinstates or replaces any lost or damaged property at a cost less than the cost of reinstatement but greater than the value of the property at the time of the loss or destruction. In that event, the cost so incurred is to be treated as the cost of reinstatement for the purposes of the Memorandum. That is to say, the cost so incurred by the Club is deemed to be the cost at the time of reinstatement, and therefore to be the amount payable by CIC under the Policy.

But it is proviso (i) that is of crucial importance. For the reasons we have indicated, and as a consequence of the footing on which the Club has sought to vindicate its rights, the relief to which it is entitled is a declaration that, upon the proper construction of the Policy and in the events that have happened, CIC is obliged to pay it a sum which represents the indemnity value of the damaged property at the time of the happening of the damage sustained in the first fire.

CIC never came under an obligation itself to reinstate the premises. That being so, the authorities which suggest that, if it had come under such an obligation, CIC would have had to bear the increased cost of reinstatement occasioned by the occurrence of the third fire, are not in point. The obligation to pay the cost of reinstatement had accrued or, to use the expression in some of the authorities, "attached" to CIC, in the manner and with the particular consequences we have indicated, before the expiry of the Policy. That being so, subsequent events, in particular the third fire, did not change the nature or increase the quantum of that obligation.

The statutory policy

It remains to consider the issues concerning the alleged statutory policy. These involve the construction of Pt VII of the Act (ss 58-64) and, in particular, s 58. Before turning to these provisions it should be noted that s 52 renders void any provision in a contract of insurance which excludes, restricts or modifies, to the prejudice of a person other than the insurer, the operation of the Act.

Sub-sections (1)-(3) of s 58 state:

"(1) In this section, 'renewable insurance cover' means insurance cover that:

(a) is provided for a particular period of time; and

(b) is of a kind that it is usual to renew or for the renewal of which it is usual to negotiate.

(2) Not later than 14 days before the day on which renewable insurance cover provided under a contract of general insurance (in this section called the 'original contract') expires, the insurer shall give to the insured or a person acting as agent for the insured a notice in writing informing him of the day on which and the time at which the cover will expire and whether the insurer is prepared to negotiate to renew or extend the cover[31].

(3) Where:

(a) an insurer has failed to comply with subsection (2); and

(b) before the original contract expired, the insured had not obtained from some other insurer insurance cover to replace that provided by the original contract;

then, by force of this section, there exists between the parties to the original contract a contract of insurance that provides insurance cover as provided by the original contract, except that the cover provided is in respect of the period that:

(c) commences immediately after the insurance cover provided by the original contract expires; and

(d) expires, unless the contract is sooner cancelled, at:

(i) the expiration of a period equal to the period during which insurance cover was provided by the original contract; or

(ii) the time when the insured obtains from some other insurer insurance cover to replace that provided by the original contract;

whichever is the earlier."

Section 58(4) provides that no premium is payable in respect of the statutory contract but that, if a claim is made thereunder, an amount is payable by the insured to the insurer as a premium, in an amount ascertained in accordance with the formula set out in the sub-section.

Section 63 states that, except as provided by the Act, an insurer "may not cancel a contract of general insurance and any purported cancellation in contravention of this section is of no effect". However, and this is significant for the present appeal, s 60(4) provides:

"Where a contract of insurance is:

(a) a contract that is in force by virtue of section 58; ...

the insurer may at any time cancel the contract."

Section 60(1) empowers the insurer to cancel a contract of general insurance where, inter alia, the insured has made a fraudulent claim under the contract. In this respect, the provisions of s 60(1)(e) were reproduced as the contractual right of cancellation given in par (b)(v) of Condition 5 of the Policy, referred to earlier in these reasons and relied upon in CIC's letter of 22 July 1992.

That letter had stated that the cancellation was in accordance with the conditions of the Policy. Condition 5 thereof stated that, if CIC cancelled the Policy, it would repay to the Club "a rateable proportion of the Premium for the unexpired Period of Insurance from the date of cancellation". On the same date as that of the letter from the solicitors for CIC, the solicitor for the Club responded to them in a letter later tellingly described by Priestley JA as hastily written and ambiguous[32]. The heading to the letter referred to the claim in respect to the first fire and the text then stated:

"We refer to the above matter and note that your client has cancelled those insurance policies referred to in your letter of today's date.

Could you accordingly arrange for a cheque for the balance of the premium to be forwarded to our office by return.

We note our instructions that in any event we intend to pursue your client pursuant to the policy."

On 28 July, CIC wrote to Garrison, the Club's brokers, stating that it had written recently to Garrison's client and advised that four policies, including the Policy, "were to be cancelled in accordance with the provisions of the Insurance Contracts Act". The letter continued:

"Our cancellation certificates are now attached and the funds have been credited to your account. Please remit to your client."

In respect of the Policy, the letter identified 2 September 1992 as the "Cancellation Date". This date was selected as the thirtieth business day after the date of this letter of 28 July, apparently on the footing that it was only on that date, rather than on 22 July, that notice of cancellation was given to the Club.

Thirty business days notice was required for compliance with par (c) of Condition 5 of the Policy. This provided that a notice of cancellation took effect at the earlier of the following times:

"(i) the time when another policy of insurance between [the Club] and [CIC] or some other insurer, being a policy that is intended by [the Club] to replace this Policy, is entered into; or

(ii) 4.00 pm on the thirtieth business day after the day on which notice was given to [the Club]".

As we have indicated, the Club instituted its proceeding in the Supreme Court on 24 September 1992, at a time when, on its case, the Policy was still on foot but when, as the Club would well have known, CIC contended that the Policy had been cancelled.

Section 59 lays down a procedure for "Cancellation" by the insurer. An insurer "who wishes to exercise a right to cancel a contract of insurance" is obliged to give "notice in writing of the proposed cancellation to the insured". That notice has effect "to cancel the contract" at the earlier of the times stipulated in sub-s (2), namely:

"(a) the time when another contract of insurance between the insured and the insurer or some other insurer, being a contract that is intended by the insured to replace the first-mentioned contract, is entered into;

(b) whichever is the latest of the following times:

(i) 4 o'clock in the afternoon of the third business day ... after the day on which the notice was given to the insured;

(ii) if a time is specified for the purpose in the contract - that time;

(iii) if a time is specified in the notice - that time."

In the present case, sub-pars (b)(ii) and (b)(iii) applied, the time of 30 business days specified in CIC's letter of 28 July also being that specified by par (c) of Condition 5 of the Policy.

CIC contends that, upon the proper construction of Pt VII of the Act and in the circumstances as they then existed, on 16 October 1992, 14 days before the day of expiry stipulated in the Policy, there was no obligation imposed by s 58 upon CIC to give to the Club, or to Garrison as its agent, a notice in writing informing the Club that the cover would expire at 4.00 pm on 30 October and stating whether CIC was prepared to negotiate to renew or extend that cover. Counsel submitted that s 58 must be read with s 59 and that the evident purpose of s 58 is such that, if a notice of proposed cancellation by the insurer has been given under s 59, the policy is not thereafter (and certainly not after expiry of the notice of proposed cancellation), a policy which is set to expire and thus attract s 58.

It would not, counsel submitted, answer the mischief to which s 58 was directed, and would be productive of confusion and incongruity if the insurer were obliged to inform the insured by notice in writing of the day on which and the time at which the policy "will expire", even though, according to the stance then taken by the insurer, the policy had already been cancelled so that there was no occasion for the giving of any such notice.

To this may be added the further incongruity, if not futility in a case such as the present, of requiring the insurer to give a notice lest there come into existence a statutory policy which would commence immediately after the expiry of the 14 day period for giving notice, but would forthwith be subject to cancellation by the insurer under s 60(4), upon notice in writing, effective at 4.00 pm on the third business day thereafter (s 59(2)(b)(i)).

Where, as in this case, litigation was on foot upon the very question of prior cancellation of the relevant policy, the literal application of s 58 contended for by the Club would require the insurer to approbate by its notice that which it sought to reprobate in the litigation. The notice would inform the insured of the day and time at which the cover would expire, contrary to the case put forward by the insurer that the policy had previously been brought to an end. Moreover, in some jurisdictions[33], the insurer's case would be propounded under a requirement of sworn pleadings as to factual allegations.

It is well settled that at common law, apart from any reliance upon s 15AB of the Acts Interpretation Act 1901 (Cth), the court may have regard to reports of law reform bodies to ascertain the mischief which a statute is intended to cure[34]. Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses "context" in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy[35]. Instances of general words in a statute being so constrained by their context are numerous. In particular, as McHugh JA pointed out in Isherwood v Butler Pollnow Pty Ltd[36], if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent[37].

Section 58 of the Act closely follows the terms of cl 58 of the draft legislation set out in Appendix A to the Law Reform Commission Report No 20, Insurance Contracts. This was delivered in 1982. Clause 58 was designed to implement the recommendations in par 264 of the Report. Reference there was made to the decision of Stout CJ in Barry v The Australian Mutual Provident Society[38] as indicating the position at general law. This is that, in the absence of prior arrangement, there is no duty upon the insurer to notify the insured that the premium on which renewal depends is due for payment. The Commission then identified the mischief which ought to be remedied, in the following terms[39]:

"The practice of general insurers is to send a renewal notice shortly before the expiry of a policy calling for it to be renewed by payment of the stated premium. In some cases, however, in order to save the insurer the embarrassment of telling an unwanted insured that it is not inviting renewal, the relevant renewal notice may simply be withheld. Conduct of that type is objectionable for two reasons. First, in the absence of a renewal notice, the insured may well overlook the expiry of the policy and suffer an uninsured loss. Secondly, if the reason for not renewing is relevant to the nature of the risk insured, a substitute insurer will be deprived of information which, had the insurer openly declined to renew, would have been accessible to it."

Neither of those objections exists where before the commencement of the 14 day period specified in s 58(2) the insurer has, in reliance upon one or more of the grounds specified in s 60(1), given notice of a proposed cancellation in accordance with the procedure laid down in s 59.

It may be that the insured has not accepted as effective the steps taken by the insurer under this procedure. The insured may institute litigation to vindicate its stance and may do so, as in this case, before what it maintains is still the expiry date for the cover under the policy. But that serves to strengthen rather than weaken the position of the insurer that the mischief against which s 58 is designed to operate has not arisen. There can be no real prospect in such a case of the insured overlooking what it still contends is the expiry date for renewal or extension of cover by the insurer with whom it is in litigation.

In our view, the insurance cover of which s 58(2) speaks will not be set to expire within 14 days and the obligation of the insurer to give notice informing the insured thereof will not arise if, before the commencement of that 14 day period, the insurer has given written notice of proposed cancellation. If the insured accepts that notice as effective to cancel the subsisting contract, then there is no question of subsequently extending or renewing a cover which the insured accepts has already come to an end, or will do so upon expiry of any balance of the term of the notice. If the insured disputes the effectiveness of that notice, then ss 58 and 59, taken together, do not oblige the insurer to give a second notice to gainsay the effect stated in the first notice.

That is to say, if the insurer has given notice in writing to the insured of proposed cancellation, in apparent compliance with the procedure laid down in s 59, thereafter the policy is not one which is set to expire within the meaning of s 58. That was this case. It follows, in our view, that no statutory policy came into existence, and the cross-appeal by the Club should be dismissed.

This makes it unnecessary to consider the further grounds relied upon by CIC to deny the applicability of s 58. These grounds included submissions that, after the letter of 22 July 1992 written by the solicitor for the Club, the contract had been "abandoned" or otherwise discharged. It was also said by CIC that the Club was estopped from denying that the contract had been terminated before 30 October 1992, with the consequence that there was no obligation upon CIC to give notice under s 58.

However, it should be observed that, on 28 July 1992, Garrison, the Club's broker, received on account of the Club the rateable proportion of the premium for the unexpired balance of the period of cover under the Policy. Resistance by the Club to the above submissions by CIC would appear to involve the unattractive stand of claiming continued subsistence, thereafter and until 30 October, of insurance cover payment for which had been refunded.

Conclusions

The appeal should be allowed and the cross-appeal dismissed. The Club should pay the costs of the appeal and the cross-appeal.

The orders of the Court of Appeal should be set aside, save for Order 2 thereof, which set aside the orders of Cole J. The parties should have 21 days to file written submissions as to the orders which now should be made as to costs of the proceedings before Cole J and of the appeal to the Court of Appeal.

There should be a declaration that, upon the proper construction of the Policy and in the events that have happened, CIC is obliged to pay to the Club a sum representing the indemnity value of the damaged property at the time of the happening of the damage sustained in the first fire.

As indicated earlier in these reasons when describing the holdings made by Cole J, s 57 of the Act provides for the payment of interest on an amount which an insurer is liable to pay in relation to a contract of insurance. The period in respect of which interest is payable is that commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the day on which payment is made or the day on which payment is sent by post to the person to whom it is payable.

There has been no challenge to the construction placed upon s 57 by Cole J that a reasonable period is to be given to the insurer to investigate and determine its position but the existence of a bona fide dispute as to the entitlement of the insured is not necessarily an answer to the complaint that the insurer has been acting unreasonably in withholding payment. However, in the present case, the obligation of CIC to honour the claim by paying the moneys, for the assessment of which the Policy provided, involved the making of an election by the Club or the passage of the period within which such an election might be made. The election, as indicated earlier in these reasons, involved the choice by the Club of the "indemnity value" rather than the cost of reinstatement, replacement or repair.

When the Policy expired on 30 October 1992, no such election had been made and the time for doing so would have passed. Further, the period for commencement and performance of work of restoration and repair by the Club "with reasonable despatch" also had passed. The result was that certainly by the time of expiry of the Policy CIC was liable to make payment in a sum no greater than the indemnity value of the damaged property at the time of the happening of the damage.

In all the circumstances, interest under s 57 should be payable for a period commencing on 30 October 1992.

There may be a further question as to whether "extra interest" at a commercial rate higher than that prescribed under s 57 should be allowable as damages by application of the principles in Hungerfords v Walker[40]. That raises the question of whether s 57 provides a code for the recovery of compensation for non-payment of insurance money, a question considered in various authorities but not yet resolved at appellate level[41]. We have not heard argument upon this point and express no view upon it.

CIC accepts that there should be an order for judgment in favour of the Club in the sum of $155,000 together with $34,739.33 interest. This does not touch upon the quantification of the amount which might be payable to give effect to the declaration described above. Rather, it relates to a liability, not in dispute in the Court of Appeal, in respect of moneys payable pursuant to Section 2 of the Policy, dealing with consequential loss, by reason of the first fire.

CIC requests the Court to note that, on 31 December 1993, it paid to the Club $500,000 on account of moneys to become due pursuant to the assessment by Cole J of "quantum" and any subsequent orders.

There was, as we have indicated, a finding by Cole J that the cost of reinstatement of the premises as a result of the first fire would have been $240,680. However, it does not appear whether that sum would be greater than the indemnity value of the damaged property.

The parties should have leave within 21 days to bring in short minutes. These should specify the sum payable pursuant to the declaration made by this Court and should allow for interest under s 57 from 30 October 1992. Failing the necessary agreement to achieve that result, the proceedings should be remitted to the Supreme Court of New South Wales, Commercial Division, for the determination of the sum for which judgment should be entered against CIC and for consideration of any further costs order made appropriate by the further steps taken in the Supreme Court.

GAUDRON J. Subject to one matter, which does not affect the outcome of this appeal, I agree with the joint judgment of Brennan CJ, Dawson, Toohey and Gummow JJ.

In my view, the outcome of this appeal turns on proviso (iv) to the Reinstatement and Replacement Memorandum, not proviso (i). By proviso (i) the insured's rights are limited to recovering the indemnity value of the damaged property unless "[t]he work of rebuilding, replacing, repairing or restoring ... [is] commenced and carried out with reasonable despatch". What is "reasonable" for the purposes of the proviso necessarily depends on all the circumstances of the case.

It is not reasonable, in my view, to require an insured person to commence and carry out rebuilding and repairs in circumstances where the insurer is wrongfully denying liability under a policy of insurance of the kind involved in this case. Accordingly, in my view, proviso (i) does not operate in this case. I should add that my conclusion in this regard does not depend on the concession to that effect by counsel for the appellant during the course of argument.

As proviso (i) does not operate in this case, it is necessary to turn to proviso (iv) which relevantly provides:

"No payment beyond the amount which would have been payable under this Policy if this memorandum had not been incorporated herein shall be made until a sum equal to the cost of reinstatement shall have been actually incurred".

It is common ground that the insured did not incur any sum for the cost of reinstatement prior to the bringing of these proceedings. Thus, in these proceedings it can only recover pursuant to par (a) of the Basis of Settlement set out in s 1 of the Industrial Special Risks Insurance Policy. That paragraph allows for the recovery or reinstatement costs or for the indemnity value. However, it only allows for replacement costs in accordance with the Reinstatement and Replacement Memorandum which, by the terms of proviso (iv), does not apply. It follows, from that process of elimination, that the insured is only entitled to recover the indemnity value of the damaged property.

I agree with the orders proposed in the joint judgment.

[1] (1994) 8 ANZ Insurance Cases 61-232.

[2] (1994) 8 ANZ Insurance Cases 61-232 at 75,576.

[3] (1994) 8 ANZ Insurance Cases 61-232 at 75,576.

[4] (1973) 47 ALJR 586 at 592-593, 596; 1 ALR 497 at 508-509, 515.

[5] (1994) 8 ANZ Insurance Cases 61-232 at 75,583.

[6] [1981] HCA 9; (1981) 146 CLR 206 at 219.

[7] (1991) 24 NSWLR 652.

[8] [1964] HCA 24; (1964) 111 CLR 86 at 94 per Kitto, Taylor and Owen JJ.

[9] (1859) 28 LJ Ex (NS) 317 at 318.

[10] Anderson v The Commercial Union Assurance Co (1885) 55 LJQB (NS) 146 at 148, 149.

[11] [1978] 2 Lloyd's Rep 440 at 462.

[12] Clarke, The Law of Insurance Contracts, 2nd ed (1994) at 749; Hardy Ivamy, General Principles of Insurance Law, 6th ed (1993) at 483-484; Carlyle v Elite Insurance Co (1984) 56 BCLR 331 at 335.

[13] (1880) 6 VLR 200.

[14] [1981] HCA 9; (1981) 146 CLR 206 at 232.

[15] Hardy Ivamy, General Principles of Insurance Law, 6th ed (1993) at 487. See also MacGillivray and Parkington on Insurance Law, 8th ed (1988), par 1680.

[16] Leppard v Excess Insurance [1979] 1 WLR 512; [1979] 2 All ER 668; City Realties (Holdings) Ltd v National Insurance Co of NZ Ltd (1985) 4 ANZ Insurance Cases 60-695.

[17] See Couch on Insurance, (2d) (1983), vol 15, SS54:21; Bourrie v US Fidelity and Guaranty Insurance Company (1985) 707 P 2d 60 at 63; Davidson v Guardian Royal Exchange Assurance [1979] 1 Lloyd's Rep 406 at 407, 408.

[18] This was the case with the policy considered in Carlyle v Elite Insurance Co (1984) 56 BCLR 331.

[19] Lucas v New Zealand Insurance Co Ltd [1983] 1 VR 698 at 701; GRE Insurance Ltd v QBE Insurance Ltd [1985] VR 83 at 105.

[20] Sutton, Insurance Law in Australia, 2nd ed (1991) at 853. An example of such a policy is that considered in D'Aloia v Colonial Mutual Insurance Co Ltd [1987] VR 807.

[21] City Realties (Holdings) Ltd v National Insurance Co of NZ Ltd (1985) 4 ANZ Insurance Cases 60-695.

[22] [1981] HCA 9; (1981) 146 CLR 206.

[23] [1981] HCA 9; (1981) 146 CLR 206 at 231-233.

[24] Mason J appears to have left the point open ((1981) [1981] HCA 9; 146 CLR 206 at 242). Murphy J agreed with Mason J and Wilson J agreed with both Stephen J and Mason J.

[25] [1981] HCA 9; (1981) 146 CLR 206 at 218-219.

[26] (1880) 6 VLR 200.

[27] [1981] HCA 9; (1981) 146 CLR 206 at 219.

[28] (1991) 24 NSWLR 652.

[29] (1991) 24 NSWLR 652 at 657.

[30] See Alexander v Ajax Insurance Co Ltd [1956] VLR 436 at 445-446, 449-450. Sholl J distinguished such a claim brought under or upon a policy from "a debt or liquidated demand" in respect of which under various rules of court default judgment might be recovered. Here, the distinction is between an unliquidated claim under the policy and a claim for damages in respect of repudiation of the contract of insurance.

[31] The words in italics were added by Sched 1 to the Statute Law (Miscellaneous Provisions) Act (No 2) 1986 (Cth).

[32] (1994) 8 ANZ Insurance Cases 61-232 at 75,570.

[33] For example, in New South Wales, Pt 15 r 23 of the Supreme Court Rules requires verification on affidavit in Form 20A of the truth of the allegations of fact and the statement of claim, and in Form 20B of the denial in a defence of allegations of fact.

[34] Black-Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg [1975] UKHL 2; [1975] AC 591 at 614, 629, 638; Wacando v The Commonwealth [1981] HCA 60; (1981) 148 CLR 1 at 25-26; Pepper v Hart [1992] UKHL 3; [1993] AC 593 at 630.

[35] Attorney-General v Prince Ernest Augustus of Hanover [1957] AC 436 at 461, cited in K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd [1985] HCA 48; (1985) 157 CLR 309 at 312, 315.

[36] (1986) 6 NSWLR 363 at 388.

[37] Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation [1981] HCA 26; (1981) 147 CLR 297 at 320-321.

[38] [1920] Gazette LR 447.

[39] Australia, Law Reform Commission, Insurance Contracts, Report No 20 (1982) at 160.

[40] [1989] HCA 8; (1989) 171 CLR 125.

[41] NRMA Insurance Ltd v Tatt (1989) 92 ALR 299 at 315; Moss v Sun Alliance (1990) 93 ALR 592 at 605-606; Hobartville Stud v Union Insurance Co (1991) 25 NSWLR 358 at 366.