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Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 [2022] HCATrans 126 (10 August 2022)

Last Updated: 11 August 2022

[2022] HCATrans 126

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S42 of 2022

B e t w e e n -

ALLIANZ AUSTRALIA INSURANCE LIMITED

Appellant

and

DELOR VUE APARTMENTS CTS 39788

Respondent

KIEFEL CJ
GAGELER J
EDELMAN J
STEWARD J
GLEESON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA BY VIDEO CONNECTION

ON WEDNESDAY, 10 AUGUST 2022, AT 10.08 AM

Copyright in the High Court of Australia
MR D.A. McLURE, SC: May it please the Court, I appear with MR T.O. PRINCE, for the appellant. (instructed by Holman Webb Lawyers Brisbane)

MR I.M. JACKMAN, SC: May it please the Court, I appear with my learned friends, MR M.R. ELLIOTT, SC and MR P. MANN, for the respondent. (instructed by LMI Legal)

KIEFEL CJ: The record will show that Justice Gageler is sitting remotely. Yes, Mr McLure.

MR McLURE: Your Honours, I will address grounds 1 and 3. Mr Prince will address ground 4. I will start with the election issue. There are two issues for determination. The first is whether, as the majority of the Full Court held, the doctrine of election can prevent an insurer from changing positions in relation to the application of section 28(3) of the Insurance Contracts Act to a claim, as distinct from the orthodox view that the doctrine of election applies to a choice between mutually inconsistent rights.

The second issue is whether section 28(3) of the Act gives rise to a choice between mutually inconsistent rights, the choice of one resulting in the extinction of the other. The primary judge and all members of the Full Court held that section 28(3) does not give rise to a choice between a mutually inconsistent right. Delor Vue challenges that conclusion in the notice of contention, which we will deal with in‑chief.

As to the principle, if your Honours have our written submissions, at page 5, paragraph 21, we reproduce there the key passage from the judgment of Justice Stephen in Sargent v ASL Developments regarding the common law of election. That passage, we submit, represents the clearest statement of principle from this Court that has been repeatedly approved by this Court. As that passage reveals, the critical elements of the doctrine are, firstly, that there is a choice and, secondly, the choice is between inconsistent rights – inconsistent in the sense that they are mutually exclusive.

We submit that the expression “inconclusive rights” has its conventional legal meaning – that is to say, a power, as distinct from a set of circumstances or a contention, which might be described as a position. We say that for two reasons. Firstly, the doctrine is explained by controlling an elector’s use of power to contract to promote certainty and fair dealing. Secondly, that is the sense in which this Court has actually applied the doctrine. This Court has never approved the use of the doctrine of election to a choice between inconsistent positions in the way I have described it where the so‑called position is something other than a legal right that is mutually exclusive of another. I include within that submission the Court’s decision in Craine, to which I will come in detail.

EDELMAN J: It may be that the basal motivating reason for the doctrine is similar to that which underlies waiver as it is commonly called – which is that an election between inconsistent rights is something that establishes an irrevocable change of position or a new set of circumstances that in law cannot change.

MR McLURE: Quite. I hope nothing I have said was intended to suggest to the contrary of your Honour’s statement. It is for this reason that we submit the alternative formulation of inconsistent positions as adopted by the majority of the Full Court, and as referred to in Immer, and other formulations such as inconsistent courses of action do not describe a different principle. Immer demonstrates this – if for no other reason – because the choice that was presented to the purchaser in that case was a choice between rescission of the contract or proceeding to leave it on foot. Could your Honours please ‑ ‑ ‑

KIEFEL CJ: What was the language used in Immer?

MR McLURE: Inconsistent courses of action.

KIEFEL CJ: That was taken from Spencer Bower and Turner?

MR McLURE: Yes. Could your Honours please take section 28 of the Insurance Contracts Act, which is in the bundle of authorities, tab 3, page 10. Section 28 is the sole source of remedies available to an insurer in the event of a precontractual nondisclosure or misrepresentation. Section 33 of the Act has been excluded from the bundle. It provides that Division 3 – in which section 28 is contained – is exclusive of any right the insurer has with respect to nondisclosure and misrepresentation. It is useful to compare sections 28(2) and (3) for the purposes of making good our submission is that section 28(3) does not present a choice between inconsistent rights.

Section 28(2) confers on the insurer a statutory right or power to avoid the contract of insurance for fraud. In terms, the provision presents to the insurer the kind of choice to which the doctrine of election conventionally will apply. That is to say, the choice between avoiding the contract or keeping it on foot. They are mutually exclusive. In contrast, section 28(3) abolished the common law right of an insurer to avoid a contract for material non-disclosure or misrepresentation. It replaces it with a calculus for a result where a non-disclosure or misrepresentation occurs but, at all times, the contract remains on foot.

Section 28(3) does not in terms require a choice to be made. It does not prescribe how the right is to be exercised. Section 28(3) provides for a range of potential results. An insurer, relying on section 28(3) might claim to be entitled to reduce its liability to nil or it might claim that it would have proceeded with the contract on different terms, such as to risk or to premium. In either case, at all times, the contract remains on foot.

The provision, in its terms, does not give any legal significance to the insurer communicating its claim to be entitled to do anything under the provision. The result contemplated by section 28(3) takes effect irrespective of whether the insurer communicates its choice.

It follows from these observations, we submit, that there are two critical differences between the remedies provided by subsections (2) and (3) relevant to the doctrine of election. Firstly, under subsection 28(2) the avoidance can only come about by the insurer consciously choosing to avoid or by being taken to have made that choice. The choice is an essential legal ingredient for that choice to be effective, for without that choice the contract remains on foot.

In contrast, the result provided by section 28(3) does not depend on the insurer’s choice. To be entitled to a reduction in liability under subsection 28(3) it is not necessary to establish that the insurer chose, much less communicated, the result provided for by subsection 28(3) to the insured.

The second difference is that the choices available to an insurer under section 28(2) are mutually exclusive. In contrast, the result provided for by section 28(3) does not extinguish all the existing and future rights under the contract of insurance. Now, before coming to how ‑ ‑ ‑

GAGELER J: Mr McLure, may I just ask a question about section 28(3)? Is it correct to understand it as a right that is conferred on the insurer? The insurer does not automatically need to take the consequence of section 28(3), does it? It can rely upon it or it can choose not to rely upon it in a dispute with the insured.

MR McLURE: In a practical sense, the right – or defence, as we say it is more accurately described – conferred by section 28(3) will not arise unless the insurer does something about it, but I would reiterate the submission I have already made, which is whether or not the insurer chooses it and communicates that choice is not a legal ingredient of its operation.

Your Honours, before I come to how the primary judge and the members of the Full Court dealt with the election claim I wanted to show your Honours the way in which it was expressed in the concise statement. Could your Honours please take the appellant’s further material. The amended concise statement appears at page 288. At paragraph 2 your Honours will see the reference to the 9 May 2017 email described as the “waiver email”. Your Honours will see in the last four lines on page 288 the allegation that by the email Allianz “elected not to rely” on the non‑disclosure and “elected to indemnify” Delor Vue, and it goes on in the next sentence:

In electing . . . also elected to pay all resultant damage and waive reliance on –

certain:

exclusions –

On page 289 your Honours will see, above paragraph 4, the heading. At paragraph 7 your Honours will see reference to election to waive. Over the page, to 290, paragraph 9 is the allegation in relation to election, which I will let your Honours read. Your Honours will see it contains two components, the first is the election not to rely upon the non-disclosure or misrepresentation, and secondly, the election to indemnify. Paragraph 10 is the allegation in relation to estoppel. Later in the argument I will come back to this, so I will pass over it for now.

Paragraph 11 would seem to be relevant to the allegation of election, where it sets out instances of conduct that, according to Delor Vue, could constitute election. Paragraph 12 deals with reliance, of course relevant to estoppel but not election. Again, I will come back to this document later when I am dealing with the estoppel ground.

Can I move then to how the primary judge and the members of the Full Court dealt with the election issue? Could your Honours please take the Core Appeal Book and go to page 91? This is in the reasons of the primary judge, in paragraph 309 about seven lines down, the sentence beginning:

Section 28(3) does not in terms create a right to be exercised or activated in some way.

What follows in the remainder of the paragraph, we submit, is a correct statement by the primary judge of an orthodox understanding of the doctrine of election, that is to say, there must be a choice between mutually inconsistent rights, the prime example of which is an innocent party facing a repuditory breach when he is faced with the choice to either terminate the contract or keep it on foot.

Over the page at paragraph 311, the primary Judge – we submit correctly – analyses section 28(3) of the Act. His Honour correctly concludes that section 28(3) provides for a state of affairs. About halfway through the paragraph, can I invite your Honours to read from the sentence beginning –

Thus understood, if the insurer says, unequivocally –

The correct analysis, we submit, is as the primary Judge concludes, five lines from the bottom of that paragraph, that where an insurer communicates to an insured that it does not intend to rely on the remedy or defence provided by section 28(3), it:

is not to be seen as giving up a right, but as to be representing that it will not run an arguable defence to a claim and that it will deal with the claim on policy terms.

Now, representation of those terms may well give rise to an estoppel, but it is not a choice between a mutually inconsistent right.

KIEFEL CJ: In some cases, it may also be said to give rise to a waiver not in the sense of election or estoppel, but in the sense of abandonment of a right of defence in the context of litigation.

MR McLURE: In the Verwayen sense, where something happens in the course of litigation, that may be so, but that is not the form of election or waiver that is put against us here, we submit.

KIEFEL CJ: The question, though, might be the recognition by Verwayen that there is a waiver of that kind might not be limited to the context in which Verwayen was dealing with it. There might still be a question about whether or not there is a a different species of waiver which is in the sense of abandonment of a right.

MR McLURE: Perhaps, and can I deal with that in relation to the waiver ground?

KIEFEL CJ: Yes, of course.

MR McLURE: Could your Honours move to page 93, paragraph 315. Your Honours will see the reproduction of a passage from Justice Handley’s judgment in Nigel Watts. The significance of producing the passage, it would seem, is because your Honours will see in the second line of the extract the language that Justice Handley employed on that occasion was the language of “inconsistent positions”, but otherwise what his Honour said is an orthodox statement of the doctrine of election in accordance with this Court’s judgment in Sargent.

GLEESON J: Is the second case that his Honour was referring to there the Craine Case?

MR McLURE: Forgive me.

GLEESON J: The rejection of the claim for breach of condition.

MR McLURE: Yes, yes, it is.

Paragraph 316 goes on to assume some significance in the way the majority in the Full Court decided the election ground. But, for now, your Honours can see that the Chief Justice noted the different language used in this Court’s authorities – “inconsistent rights” – his Honour cites Khoury for that – which is, of course, correct. One would add to that, not the least of which is Sargent. Then, the use of the language of “inconsistent positions” from Nigel Watts and “inconsistent courses of action” in Immer.

To answer the question your Honour the Chief Justice asked me earlier, your Honour will see the extract there below 316 at the passage from Immer, using the language of “mutually exclusive courses of action”. Ultimately, the conclusion that the primary judge arrived at is in the last sentence of 317. So, his Honour rejected the elected plea put by Delor Vue. He otherwise upheld it on the waiver grounds to which I will come. Justice Derrington agreed with the primary. Justice Derrington’s reasons on this issue commence at page 274 of the core appeal book.

GLEESON J: There is a slight tension there in Chief Justice Allsop’s reasoning if it is the case that that second option – or that alternative identified by Justice Handley – was, indeed, the Craine Case, because Chief Justice Allsop identifies Craine as an illustration of waiver separate from election.

MR McLURE: Yes. That is incorrect, we submit. That, fundamentally, is what activated the majority of the Full Court to assume that in Craine there was not truly a choice between mutually inconsistent rights. That turns on the proper construction of the clause that gave that right in Craine. I am going to come to that and also take your Honours to what the majority of this Court said about it in Agricultural and Rural Finance which, we submit, supports our view of it.

Your Honours, at page 274, paragraph 544, Justice Derrington commences his analysis of the election plea. The relevant passages, we submit, are at paragraph 548. His Honour notes the submission put for Delor Vue that the primary judge had accepted the inconsistent positions proposition contained in Nigel Watts. Implicit, we think, in that submission is the idea that “inconsistent positions” means something different to “inconsistent rights” but, in any event, your Honours will see from the fourth line down Justice Derrington correctly concludes that that is not what the primary judge held and that his Honour proceeded on the basis that section 28(3) did not produce a choice between mutually inconsistent rights which was the correct statement of principle for the doctrine to be engaged.

The balance of Justice Derrington’s reasoning in relation to this plea otherwise proceed on the basis that, as I have said, the correct statement of principle is that the doctrine is engaged where there is a choice between mutually inconsistent rights. Your Honours can see that from, for example, paragraph 553. This paragraph, we submit, correctly states the principles and we would invite this Court to adopt his Honour’s reasoning.

We would emphasise, as Justice Derrington says, starting on the second line, that as to the qualitative choice that must be present in order for the doctrine of election to be engaged, what is necessary is that there must be a “legal consequence” arising from the exercise of the right, relevantly that by choosing one it establishes a “new legal relationship” between the parties.

To adopt what is said by Mr Handley in his book that is reproduced at paragraph 551, the second sentence, by reason of – I am interpolating here – by reason of the power:

An elector has the power to change the legal rights and duties of another vis-à-vis himself or a third person with a corresponding liability of the first to submit to the change.

Going back to paragraph 553, five lines from the bottom, as Justice Derrington correctly, we submit, concludes, where the choice one is dealing with is a choice between terminating the contract or keeping it on foot, the choice:

to terminate, of itself, establishes a separate set of rights between the parties –

different to those that prevailed before when the contract was on foot. At paragraph 555, consistent with our submission and consistent with the primary judge, Justice Derrington concludes that Allianz was not confronted with a choice whether to terminate or to keep the contract on foot because, of course, the remedy that it was proposing to employ was the remedy under section 28(3).

Over the page, 278, about five lines from the bottom of paragraph 555, again, his Honour correctly recognises that what section 28(3) does is create “a state of affairs” and that what Allianz did in its email of 9 May 2017:

was the equivalent of the making of a voluntary offer to partially indemnify –

in circumstances where, on the premise that section 28(3) applied, it was not otherwise liable to do so.

GLEESON J: There was no finding that the insurer had admitted the claim within the meaning of clause 8 of the policy, was there?

MR McLURE: No. No there was not. Paragraph 556 contains an implicit rejection of the inconsistent positions theory. At line 4, the sentence beginning at the end of the line:

A party to any contract whose obligations are limited –

I might just invite your Honours to read that and the next sentence.

EDELMAN J: Sorry, paragraph 558?

MR McLURE: 556 your Honour, line 4, end of the line:

A party to any contract –

Relevantly, after the reference to Mr Handley’s book, we submit Justice Derrington correctly states that the power of one party to inform the other of their position does not change the legal rights and duties between them and does not carry with it the consequence of requiring the other party to submit to that change.

Could I invite your Honours now, please, to turn to page 140 of the core appeal book in the reasons of the majority. At the bottom of the page, your Honours will see the majority commence their analysis of the doctrine of election. What their Honours do is traverse each of the decisions of this Court which have considered the doctrine of election – I am going to pass over the discussion of those decisions for now and take your Honours to the conclusion first. If your Honours could please turn to page 155, at paragraph 112, their Honours conclude that the doctrine of election requires the insurer to adopt one of two inconsistent positions, they being whether the insurer denies or accepts liability under the policy. In the last sentence of paragraph 118, at the top of page 157, their Honours hold that the obligation to adopt a position arises “as a matter of fairness.”

All of that is conventional if one interprets the use of the expression “inconsistent positions” to mean mutually exclusive rights. However, if it is intended to convey something different – which, as it happens, that is what the majority ultimately concludes – then we submit it is not consistent with the statements of principle from this Court. The final part of their Honours’ conclusion in relation to inconsistent positions is at page 158, where your Honours will see, at the top of the page, the majority consider the proper interpretation of section 28(3). At paragraph 128 their Honours correctly conclude that:

s 28(2) confers a statutory right to avoid –

and that:

the doctrine of election would apply to a choice.

Under that provision. At paragraph 129, their Honours correctly observe that:

s 28(3) operates in a different manner.

That is to say that a choice is not necessary for the right to be activated under section 28(3), and by that, I mean the choice is not an essential legal ingredient for the activation of the provision. Finally, at paragraph 130, their Honours correctly conclude that:

s 28(3) does not, in terms, give rise to a choice. It simply states the consequence –

Lastly, at paragraph 131, their Honours observe in the passage appearing at the top of page 159 that there is an inconsistency between denying:

liability under the policy by reason of –

non‑disclosure but:

seeking to enforce rights of subrogation and access to the insured property –

The effect of the balance of the paragraph is a proposition that the doctrine of election requires the insurer to choose one of those positions and once, having done so, the insurer cannot change except perhaps in the event new information is required, or acquired.

That conclusion, we submit, again, if one is understanding inconsistent positions as meaning something different, then inconsistent rights represents a departure from this Court’s decisions. Each of the decisions to which we have referred in our submissions, namely, Craine, Sargent, Khoury, Immer and Agricultural and Rural Finance all proceed on the basis that the common law doctrine of election is concerned with preventing a departure from mutually inconsistent rights.

The doctrine of election does not make the rights mutually exclusive. Rather, it is inherent in the rights themselves. Again, the prime example of this is the choice between the right to terminate or the right to keep a contract on foot.

GLEESON J: Mr McLure, do you accept that there were findings by the primary judge that the insurer sought to enforce rights of subrogation and access to the insured property?

MR McLURE: Not in a way that it is put against us. We submit that the premise of the ongoing discussion between the parties – ongoing interactions between the parties – was that the contract was on foot, but we do not submit – accept, rather, for example, that the insurer enforced a right such as to access the property, at least not in a way that is comparable to what occurred in Craine. What happened in relation to access to the property occurred by way of co‑operation and the insurer did not, contrary to what has been found, exercise a right of subrogation.

GLEESON J: What Justices McKerracher and Colvin here are saying is something less than enforcing the rights of subrogation and access. They are saying that the insurer sought to enforce the rights of subrogation and access. Did the primary judge make findings that supported that premise?

MR McLURE: Well, this may be a slightly discursive answer to your Honour’s question. There may be a distinction without a difference to say, as I mentioned a moment ago, that the premise of the ongoing interactions between insurer and insured following the 9 May 2017 email was that the contract was on foot, and the primary judge did make findings – in answer to your Honour’s question – that the insurer did send builders and other consultants to the property in order to investigate and plan the repairs. But it would not be correct to say that what the insurer did is sought to enforce that right against resistance from the insured, contrast what occurred in Craine, to which I will say a little more in a moment.

GLEESON J: Yes, because – just coming back to my earlier question, there is nothing so clear as a finding by the primary judge that the insurers exercised their right under clause 8, which was contingent on admitting the claim ‑ ‑ ‑

MR McLURE: Quite.

GLEESON J: ‑ ‑ ‑ and, of course, the claim was not admitted. At most, what happened was part of the claim was identified.

MR McLURE: Yes, I embrace what your Honour says about that.

STEWARD J: Could I ask you a question about that, Mr McLure. Do you submit that as a matter of law the right of subrogation could only arise when the insurer had paid out the loss and not before?

MR McLURE: Yes.

STEWARD J: That never happened here?

MR McLURE: That did not happen.

GLEESON J: But perhaps could I ask, there is a contractual right of subrogation as well, is there not?

MR McLURE: Yes, there is a right to commence proceedings or make claims in the name of the insured. That was not done, in the sense that proceedings were not commenced, but the primary judge found – we do not challenge, of course, that one or two letters were sent on behalf of, in the name of the insured.

GLEESON J: Are those findings consistent with the exercise of the contractual right of subrogation?

MR McLURE: At a minimum, what they involve was a degree of cooperation between the insurer and the insured. But, to answer your Honour’s question directly, yes. And could I just qualify in my answer to your Honour ‑ ‑ ‑

STEWARD J: Yes, of course.

MR McLURE: ‑ ‑ ‑ Justice Steward’s question, as we have observed in the submissions, approximately $200,000 was paid by Allianz to the insured. Theoretically, a right of subrogation would have arisen in relation to at least that amount expended but, of course, the right was not exercised.

STEWARD J: It is a question of characterising the basis upon which that those payments were made.

MR McLURE: Yes.

STEWARD J: Whether they were made pursuant to the contract or they were made outside the scope of the contract.

MR McLURE: Quite so. The main reason we submit that the majority in the Full Court reached the conclusion that they did, that the doctrine of election extended to a choice between mutually-inconsistent positions is because of a misunderstanding of what this Court decided in Craine. Furthermore, their Honours overlooked what the majority of this Court said in Agricultural and Rural Finance about how Craine should be understood. So, as to that, could I ask your Honours, please, to go to the joint book of authorities at tab 9, where Craine appears?

At CLR 306, the report reproduces the three critical clauses in that policy. Your Honours will see, about halfway down the page, the reference to Occurrence of a Fire, clause 11. The first three lines, a requirement to give notice on the part of the insured. Then, at the end of the clause, just above the reference to Salvage, clause 12, your Honours will see the final sentence:

No amount shall be payable under this policy unless the terms of this condition have been complied with.

GLEESON J: Mr McLure, is that the kind of clause that would be affected by section 54 of the Insurance Contracts Act these days?

MR McLURE: Yes. It is the operation of that final sentence of clause 11 which is critical to understanding how the doctrine of election was employed in this case. I am going to come back to that. Clause 12, Salvage, conferred on the insurer the right to – relevantly, your Honours will see at the top of CLR 307:

(a) enter and take and keep possession of the building –

And:

(d) sell or dispose of, for account of whom it may concern –

salvaged property. Clause 19, about two‑thirds of the way down that page, in summary, provides that the insurer would not be taken to have waived any right under the policy unless it did so in writing.

Now, as is well‑known, relevantly, the facts in Craine are that the insured failed to give notice within the 15‑day period and, for a period of months after that, the insurer took possession of the building, excluded the insured from his own building and from the chattels within it and, at one point, threatened to sell those chattels as salvage. At CLR 319, in the last eight or so lines of the page, Justice Isaacs describes clause 11 as having the effect of terminating all the “contractual obligations of the parties”.

EDELMAN J: I think, more precisely, that the action of the company in reliance upon clause 11 had terminated all the contractual obligations of the parties.

MR McLURE: That is the point which we are seeking to illuminate, which is whether or not clause 11 was one of automatic effect by reason of the actions of the insured or whether or not it required the insurer to exercise the right under clause 11 and terminate the ongoing obligations of the parties under the contract. We submit it is the latter, for reasons which I will now develop.

GLEESON J: The provision operates regardless of any prejudice to the insurer.

MR McLURE: That is right. At CLR 325 ‑ ‑ ‑

EDELMAN J: Just before you move on, part of the emphasis that Justice Isaacs is making is that it is a breach of clause 11. It is not just the performance of clause 11 but, if termination is to occur by reason of breach, it must be the action of a party that then terminates it.

MR McLURE: Yes, yes. I may be saying what your Honour has said in a different form of words, but the power to terminate the obligations under the contract does not arise unless there is a breach by the insured and then it is not activated unless the insurer exercises that right.

At CLR 325, at about a third of the way down the page in the first large paragraph, there is a statement – albeit not as crisply as this Court did so in Sargent – of the principles in relation to election. Then, what follows in the paragraph beginning, “Similarly here”, we submit represents a conclusion that there had been elective conduct on the part of the insurer by, rather than exercising its rights under clause 11, instead proceeding affirm the contract and exercise the rights it had in relation to salvage. All of this subject, of course, to the effect of clause 19, which prevented waiver other than in writing.

The reason that this is important is that for the conclusion about election to make any sense, clause 11 must be understood as conferring a right to terminate, rather than having that effect automatically. If clause 11 had automatically terminated a contract, it would have been impossible to elect to keep the contract on foot. The conduct may have given rise to an estoppel, of course, and that is what the Court ultimately concluded.

KIEFEL CJ: It was probably led part of the way there by the jury’s finding.

MR McLURE: Quite so.

KIEFEL CJ: Or the representation.

MR McLURE: Yes.

EDELMAN J: This is also the point that I was trying to make to you earlier. If one would not talk of breach of clause 11, if it were to terminate contract automatically, one would talk about it as a condition subsequent to the continuation of the contract.

MR McLURE: Yes. I embrace what your Honour says about that. That analysis of Craine is endorsed by the majority judgment in Agricultural and Rural Finance, could your Honours go to that, please, that is in volume 2 of the Joint Book, tab 4. The relevant passage in the judgment of Justices Gummow, Hayne, and your Honour the Chief Justice is at paragraph 58, CLR 589. In particular, of course, the passage at the end of that paragraph, referring to Craine.

This, we submit, can only be understood if our analysis of Craine as we have put it is that clause 11 entitled the insurer to terminate in the event of breach. If it was of automatic operation, then there was never a question about whether or not the insurer was presented with a choice to terminate the contract or affirm it and keep it on foot, in which case the doctrine of election would never have arisen. This is also the law in England, as is demonstrated in the England and Wales Court of Appeal’s decision in Kosmar, which your Honours will find in volume 4 of the joint book, tab 19, commencing at page 614 of the book. The key paragraphs we invite your Honours to consider are at pages 627 and 628 of the book, namely paragraphs 40 and 41.

Could we draw your Honours’ attention to, at point e on the page, where Lord Justice Briggs refers to Lord Goff’s judgment in The Good Luck. In the extract, your Honours will see the reference to section 33(3) of the Marine Insurance Act which provides:

that, subject to any express provision in the policy, the insurer is discharged from liability –

following upon a breach of a warranty. Section 34(3) provides that the insurer may waive that breach. There is the rather engaging observation of:

the inveterate practice in marine insurance of using the term “warranty” as –

a substitute for what we would say is a condition precedent. And then, just below point j on the page, your Honours will see:

Once this is appreciated it becomes readily understandable –

And then over the page, at point c on the page, could I invite your Honours to read the passage beginning:

When, as s 34(3) contemplates, the insurer waives –

GLEESON J: Mr McLure, as I read this, this reasoning would suggest that Craine was correct in finding an estoppel, but perhaps not in finding an election.

MR McLURE: Only if clause 11 should be interpreted as having automatic effect.

GLEESON J: Yes. If it discharged the insurer from liability.

MR McLURE: Yes. But the alternative, of course, is that if clause 11 did not have automatic effect, then the doctrine of election was capable of being engaged. Then, if your Honours would go to paragraph [41] please, the reference to:

waiver of breach of a promissory warranty, if it is to occur, must be waiver by estoppel rather than a waiver by election –

And then your Honours, will see in the extract of the judgment in Kirkaldy, in the second line of that extract, where one is dealing with the warranty or a condition precedent, it is

apparent that no question of election arises . . . Since the breach of warranty does not give rise to any election by the insurer eg to choose to keep the contract on foot –

Because of – I am interpolating here – its automatic effect. So, if your Honours will forgive the repetition, the doctrine of election will arise where there is no choice because the clause has automatic effect. That is to say, it is a condition precedent, then the doctrine of election cannot arise ‑ estoppel though, might. So, returning to the majority’s reasons in the Full Court, if your Honours could go back to the core appeal book please at page 142.

EDELMAN J: Just before we do, would a neater way of expressing it be rather than to talk about waiver by estoppel, waiver by election, waiver by detrimental reliance or waiver by abandonment be to say that all rights can be waived but the irrevocability of that waiver arises by election or detrimental reliance or estoppel or abandonment?

MR McLURE: Yes. If your Honours are at page 142, paragraph 56, what I want to do is show your Honours a few passages from here and following which demonstrate that the majority were proceeding under the misunderstanding that clause 11 of the policy in Craine had automatic effect and that the doctrine of election applied to its automatic effect. At paragraph 56 on the last line of page 142:

It is to be observed that his Honour –

Justice Isaacs:

did not describe –

I will let your Honours read the rest of that paragraph. The critical observation being that the insurer was not:

presented with any right to elect to avoid –

That is to say, there was no choice to avoid that contract but, rather, the contract terminated automatically by reason of the insured’s breach. Paragraph 59 is to the same effect, in the first sentence. On the fourth line, halfway through the line:

The insurer is not contemplating whether to terminate the contract of insurance.

Finally, paragraph 69, which is at the bottom of page 145, line 4:

Craine was not a case –

EDELMAN J: I suppose it depends what the word “avoided” means there. That sentence is correct, no doubt, if “avoided” means rescinded ab initio.

MR McLURE: That is so, that is so. But, in the sense in which their Honours are using it, particularly when your Honour sees the final sentence, the sense that the majority must mean is “avoid” in all of its potential senses: rescission, terminate and so on.

It is evident from that final sentence in paragraph 69 that, having erroneously decided that Craine supports an election when no right is chosen, their Honours considered that election could apply to section 28(3), which their Honours accepted did not involve a choice. That conclusion is not correct, for the reasons we have given.

If the doctrine of election is to be extended in the manner suggested by the majority, that makes the doctrines of estoppel and contractual consideration redundant. It would have the effect that a person who states a position, though even not required to do so, and even though the statement of change does not have any legal significance itself – even if it does not cause any detriment – would be held to that. To say, as the majority does, at paragraph 135 – which is at page 160 – in the last two sentences, that:

the law imposes an obligation to choose –

between inconsistent positions based on considerations of fairness is to enlarge the doctrine of election to, in a sense, an uncontrolled discretion – at least controlled by nothing other than idiosyncratic views about fairness. So, for those reasons, we submit that Allianz did not choose between inconsistent rights in the 9 May 2017 email, it adopted a position of offering to indemnify, in a limited sense, when it was not liable to do so. By communicating that position, Allianz did not choose between inconsistent rights, it did not affirm the contract in circumstances where it could otherwise have been terminated or avoided, because that choice was never open to it under section 28(3).

GLEESON J: In any event, even if you are wrong in your interpretation of Craine, the fairness or the unfairness that the Court was presented with in that case is really quite different from what might be characterised as the unfairness here, because what you had was a belated attempt to rely on a clause that provided – where there was no prejudice to the insurer.

MR McLURE: Quite. This picks up the kind of considerations I will bring up when I touch on in relation to the waiver ground, but what any discussion about that illustrates, I submit, is the proposition I have already made about this becoming an arbitrary discretion, because there is no guiding line to determine what is and is not fair and how much weight should be attributed to fairness on one side of the transaction or another. To take the facts of Craine – I know I am being repetitive here – there is an obvious qualitative difference in fairness between Craine and this case, because as I have observed in Craine, the insurer excluded the insured from its own property for months and threatened to sell its property, whereas nothing remotely like that happened in this case.

GLEESON J: What I am putting to you is that it is relevant to consider the fairness on the other side of the ledger, that is, that the clause 11 that was invoked by the insurer was one that was a particularly harsh provision, that did not protect the insurer from any particular prejudice, versus section 28(3), which is a recalibration of the rights of the insurer and the insured designed to strike a fair balance.

MR McLURE: Yes, quite so. Your Honours, can I move now to the estoppel ground – I note the time, was your Honour proposing to take a morning break?

KIEFEL CJ: 11.15.

MR McLURE: It is 11.10 ‑ ‑ ‑

GAGELER J: Mr McLure, as you do that, I have been looking at that passage in Kosmar you took us to, it is tab 19, and particularly at paragraph 41, I just want to understand the concept of waiver by estoppel that is being referred to in paragraph 41. From the quotation at the end of that paragraph, it appears that a representation is required. Is detrimental reliance required, according to the conception that is being used by the Court of Appeal?

MR McLURE: Yes, your Honour.

GAGELER J: Thank you.

MR McLURE: Can I move to the estoppel ground ‑ ‑ ‑

KIEFEL CJ: If you are moving onto a separate ground, we will take the break now.

MR McLURE: If the Court pleases.

KIEFEL CJ: Thank you, Mr McLure. The Court will adjourn for 15 minutes.

AT 11.09 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.25 AM:

KIEFEL CJ: Yes, Mr McLure.

MR McLURE: Your Honours, on the estoppel ground, the issue for decision is whether the detriment, as found by the primary judge and the majority of the Full Court, was open in the way that the case was conducted and, even if it was, whether there was any evidence to support it.

Can I ask your Honours, please, to go to the appellant’s book of material, at page 288, the amended concise statement? The relevant paragraph of the amended concise statement is at page 290, paragraph 10. Your Honours might read paragraph 10 as an allegation of the promise and reliance. Paragraph 12, your Honours might read as an allegation practical instances of reliance – save for paragraph d, which I will say something about in a moment.

Paragraph d might infer some suggestion of detriment in the sense of Delor Vue refraining from doing something which, if it had been done, may have produced a different result – but, I will come to that in a moment – in the way that the primary judge and the majority dealt with it. Then, could your Honours please turn to 292, paragraph 20. Subparagraphs a to e, we submit, in reality, say nothing about detriment. Subparagraph f is a bald claim of detriment.

To the extent that it is relevant, your Honours may have seen in the submissions a reference to a case management hearing where the primary judge urged Delor Vue to articulate its position on detriment in an amended concise statement. This, of course, is the product of that urging. Again, to the extent that it is relevant, what was inserted into this document that was not in the old one is paragraph 12 and 20.

KIEFEL CJ: Sorry, which paragraph was inserted as a result of the case management?

MR McLURE: Paragraphs 12 and 20.

KIEFEL CJ: Paragraphs 12 and 20.

MR McLURE: Can I ask your Honours, please, now to go to the core appeal book, page 168, paragraph 162? What the majority are describing there is Delor’s claim as it was articulated in the amended concise statement. Importantly, the second sentence:

There was not a claim that Delor pursued some other course beyond giving effect to the email –

Page 169, paragraph 166, in the third-last line, their Honours make what we submit is a critical and correct statement about what was and was not in issue:

There was no claim that there was some special consequence –

Pausing there, re detriment:

that flowed from those steps that was not inherent within them. That is to say it was not claimed that it was to be more difficult or more costly or more burdensome to undertake the repairs.

Once Allianz withdrew from its position. We emphasise the issue about difficulty and cost. Paragraph 167, rather:

It was a claim that –

looking in the second and third line:

Delor acted to its detriment by allowing Allianz to act as an indemnifying insurer –

which gave it:

a capacity in which it had carriage of the adjustment of the loss and could exercise any subrogated rights –

Paragraph 168:

it identified no consequence –

re detriment:

beyond the fact that it had left things to Allianz . . . There was no claim of any detriment beyond that which was the inherent consequence of giving effect to the May 2019 Email.

Page 173, paragraph 183 reproduces the relevant part of a list of issues which was provided to the primary judge on the morning of the first day of the hearing. Your Honours will see the second question posed:

Did the applicant rely . . . to its detriment, by –

(a) and (b). As to issue (a), the primary judge made no finding that that constituted detriment. The omission of the primary judge to make that finding was not challenged by Delor in the Full Court and it is not challenged here. So, your Honours can put that aside. Issue (b) was the subject of findings, and something else, to which I will come.

If your Honours look down to paragraph 186 – I apologise in advance for the tedium which this will require. Your Honours might find it helpful to annotate the reproduction of Delor’s submissions at paragraph 186 with their paragraph numbers so that your Honours can marry it up with what else is said. The first paragraph, “In this regard”, it was paragraph 122. That, your Honours will see, is issue A in the list of issues about renegotiating the insurance. Again, your Honours can disregard that point.

The next paragraph is 123, that is issue B. The next paragraph, the one beginning, “As the correspondence makes plain”, was paragraph 124. You will see that it refers to “extensive delays”. And over the page:

Had the position been otherwise, the applicant could have decided to undertake and pay for the repair work urgently –

Your Honours might think that that contention is a development of issue B, but the majority held – and this is not challenged – that the extent of that development went well beyond what was properly disclosed in Delor Vue’s amended concise statement and the list of issues. This issue about:

the applicant could have decided to undertake and pay for the repair work urgently –

emerged for the first time in Delor Vue’s closing submissions which were handed to the primary judge and Allianz immediately before the address started. So, to repeat, at paragraph 196 of the judgment, the majority conclude that that contention at paragraph 124 of the submissions went well beyond the case disclosed.

Paragraph 125 seems to be a further extrapolation of what was in paragraph 124 – sorry, to be clear, 125 is the next one, of course:

That loss of time is significant –

Again, given that that seems to be tied to paragraph 124, we submit that falls within the finding of the majority that that went well beyond the disclosed case.

KIEFEL CJ: What was the detriment said to be identified in 124 anyway?

MR McLURE: Well, it is elusive, but it is ‑ ‑ ‑

KIEFEL CJ: I mean, you would have to have some quantification, or some particularisation of damage, would you not?

MR McLURE: Quite so. The next paragraph – the one beginning, “Further, if SCI had equivocated” – that was paragraph 126 of the submissions. It seems to mix two ideas. The first part is a contention that SCI – I am sorry – that, “the body corporate” – that is Delor Vue:

would have had the opportunity to commence and pursue proceedings at a much earlier point –

That might be a reference to commencing proceedings against Allianz. It might be a reference to commencing proceedings against the builder. In the second sentence, there is a separate idea, which is that Delor Vue:

effectively lost over 12 months of time –

The majority correctly held at paragraph 196, that this, too, went well beyond the disclosed case. The next paragraph is the one beginning, “Further, if the applicant was left” – that was paragraph 127 of Delor Vue’s submissions:

it could have treated itself as wholly responsible for pursuing the builder –

Then, in the last two lines:

what the applicant might have been able to achieve in relation to claims against the builder –

The majority held at 196, that this, too, went well beyond the disclosed case.

The next paragraph, beginning, “Further, the evidence establishes” – that was paragraph 128 of Delor Vue’s submissions:

the applicant commissioned reports and dedicated a substantial amount of time and effort –

That seems to correspond with paragraph 12d of the amended concise statement, but it goes further. It seems to disclose some contention that there may have been waste, but not in a way that is articulated. The majority held at 196 that this went well beyond the disclosed case. None of those conclusions of the majority – which were all agreed in by Justice Derrington – are challenged by Delor Vue in this Court.

At paragraph 196 – which is at the foot of page 177 – that contains the findings of the majority that I just mentioned. Relevantly, your Honours will see at (3), well beyond (4), well beyond (5), well beyond (6), well outside. I will let your Honours read paragraph 197.

The key finding of the primary judge in relation to detriment is reproduced at paragraph 198 of the majority’s reasons. The observation was made, correctly, by the primary judge in line 4, that Delor Vue:

did not go into particularity of some counterfactual –

Then, a few lines further down:

Guesses in self‑serving evidence as to what would have been done would not have been very helpful.

I will come back to what significance attaches to that in a moment. Then a little further down – this is referring to the repair work:

How that would have taken shape in terms of funding and responsibility is impossible to tell.

Fundamentally, we submit, it is impossible to tell in this case because Delor Vue did not attempt to prove what the counterfactual would be, what the lost opportunity was. The parties simply did not engage in this on the evidence. At paragraph 201, the majority observed that:

the case as to detriment advanced by Delor was a confined one –

namely:

that Allianz was allowed for 12 months at its own pace to have carriage of the required repairs –

Then, over the page at paragraph 202, your Honours will see in the very last sentence the conclusion of the majority that the claim in relation to Allianz having carriage of the repairs for 12 months included:

a claim that as a matter of fact, because of the May 2017 Email, it [Delor] did not take matters into its own hands –

by undertaking the work and pursuing Allianz in proceedings. We submit that however much ambiguity a concise statement permits in comparison to a statement of claim, on no view was a case propounded either in the amended concise statement or the list of issues that a detriment that Delor claimed to have suffered was a failure to pursue proceedings against Allianz sooner than it did.

Paragraph 204 at subparagraph (8) ‑ ‑ ‑

KIEFEL CJ: Is that tantamount to a concession that if it had there might be a detriment?

MR McLURE: No, not at all. I will come to that. In paragraph 204(8), the majority reproduce paragraph 333 of the primary judge’s decision which contains his Honour’s findings of detriment. In the passage beginning at the top of page 181, your Honours will see the primary judge, in effect, made two findings of detriment, the first being that:

Delor Vue could have taken its own fate in its own hands and acted for itself in rectifying the property –

And, secondly, it could have sued the insurer.

The majority’s conclusions in relation to the second of those two matters, the asserted detriment by refraining from suing the insurer, commences at paragraph 206. For the reasons I have already observed, on no view was a case about failing to sue the – refraining, rather, from suing the insurer sooner disclosed in the amended concise statement or in the list of issues, and no witness gave any evidence about that at all.

STEWARD J: I think in Delaforce, Chief Justice Allsop referred to a loss of opportunity to sue but excluded cases that were doomed to fail. Would this not have been a case doomed to fail, given it is accepted by everyone that the 28(3) defence would have been engaged?

MR McLURE: Yes, I would embrace that in the sense that the perspective from which the Court is viewing it now – that is, by the time his Honour had determined the section 28(3) defence in Allianz’s favour, it would meet that description of doomed to fail. Of course, a different position would follow – as it did in Delaforce – where one does not know.

STEWARD J: Yes, of course.

MR McLURE: Now, to say, as the primary judge did, that for anyone to have given evidence about this would just be an exercise in self‑serving guesses might be correct, but it remains fundamental that there needed to be some evidence about this point, not to mention actually disclosed as an issue that the parties needed to engage on. Of course, it is to attach no significance at all to what Allianz could have achieved through the cross‑examination of Delor’s witnesses if anyone was prepared to assert that it had lost an opportunity to settle the case on more advantageous terms.

EDELMAN J: Is this point that evidence was needed to establish that there was a realistic chance of settlement, or is it a point that any realistic chance of settlement that might be inferred from the very nature of litigation and from the knowledge of routine settlements of commercial claims, was no different at the earlier point in time than at the later point in time?

MR McLURE: It is both, but I do not suggest in relation to the first point that there is a rigid principle that in all cases it is necessary for someone to say in oral evidence, my opportunity lost is X. It would be fact‑sensitive, but in this case we submit that was required.

EDELMAN J: Why?

MR McLURE: Because of the facts I have already alluded to, namely ‑ ‑ ‑

EDELMAN J: But the Court has got before it the fact that that there is a commercial dispute between parties who are commercially motivated, no evidence of personal animus, why could not an inference not be drawn that with judicial knowledge and judicial notice that many, many commercial cases settle, that there was a reasonable prospect of settlement?

MR McLURE: Because, what the Court knows beyond judicial notice are in the facts of this case – money was paid, offers were made, rejected out of hand without a counter‑offer. In order for the Court to reach a point of persuasion that an opportunity was lost, it was at a minimum necessary to say, why is it that it was on the cards, as it were, something more advantageous than what was offered, and rejected could have come about.

STEWARD J: Your point is perhaps naturally self‑serving evidence is not what is required, but you need to prove the facts or circumstances – the basal facts and circumstances – that would ground the counterfactual of detriment alleged. It cannot just be something that you allege from the bar table, it has to have some evidentiary grounding.

MR McLURE: Yes.

STEWARD J: I think there is a decision of the Court of Appeal in Victoria – Commonwealth v Clark, which says that.

MR McLURE: If your Honour pleases. In summary now, contentions in relation to that finding of detriment are firstly, the point was never raised for determination, and secondly, even if it was, contrary to our submission, no evidence was adduced to support it, and the evidence, such as it was, undermines it.

Delor called a member of its body corporate committee and it called its external body corporate manager. No evidence was adduced from either of them, or by any other means, such as a document, to suggest that Delor would have commenced proceedings against Allianz sooner than it did, which was in November 2018. Looking at paragraph 207, in the third line, where their Honours say, in effect, the submission put for Allianz was:

to pose the issue of detriment too narrowly –

It is not at all clear, we submit, why it is too narrow to ask whether the result of the litigation would have been different now that it is known. That, after all, is precisely what the inquiry as to detrimental reliance requires. Paragraph 207 goes on to raise an entirely new consideration, which was not only not raised by Delor at trial but was also not addressed by the primary judge. Your Honours will see towards the bottom at page 181:

By then, they had a different dispute. They had a dispute that encompassed issues between them as to responsibilities that arose –

from the 9 May email. Then, reading into paragraph 208:

unburdened by the subsequent dealings, the claim may have resolved in a particular way.

So, it would seem – although not expressed, with great respect, very clearly, what is being suggested is that Delor’s detriment may have been that the dispute between Allianz and Delor in relation to whether Allianz was entitled to rely on section 28(3) of the Insurance Contracts Act may have settled in a way beneficial to Delor having lost that opportunity, that was its detriment.

GLEESON J: Is it fair to say that paragraph 208 may be expressing a false premise, in the absence of evidence, that the insurer would have denied the claim from the outset, which I take to be May 2017?

MR McLURE: Yes, that is right, too. But, at the risk of repetition, simply no‑one gave evidence about this point. The parties did not engage on this issue at the trial. No‑one cross-examined Allianz’s underwriter about it, which is relevant to the question your Honour Justice Gleeson asked. No‑one, including their Honours in the majority in the Full Court, have sought to explain why a realistic chance of a settlement was lost. Bearing in mind, the evidence demonstrates that in May 2018, by that point in time, Allianz had paid already approximately $200,000 in answer to the claim, and it had offered to pay a further $900,000 to settle the claim, and that offer was rejected out of hand with no counter‑offer.

STEWARD J: Yes, of course.

EDELMAN J: Why?

MR McLURE: Because of the facts I have already alluded to, namely ‑ ‑ ‑

MR McLURE: Yes.

STEWARD J: I think there is a decision of the Court of Appeal in Victoria – Commonwealth v Clark, which says that.

Can I move then to the detriment by Delor not taking steps to carry out the repairs? The evaluation of that part of the case is assisted by considering what it did not include. There was no claim that the repair work could have been done firstly, better; secondly, quicker; or, thirdly, cheaper. Consequently, that reduces Delor’s claim in relation to detriment to this, that it lost the opportunity to do the work itself. And, of course, it did not. It was given that opportunity – if not before – when Allianz withdrew from its position in relation to non-disclosure.

Delor Vue’s case on this point is not improved by pointing to the fact that it was really a loss of opportunity detriment as distinct from proving a distinct counterfactual on the balance of probabilities, aside from the fact that this, too, was not identified in the amended concise statement or in the list of issues, no witness gave evidence of that chance lost either.

GLEESON J: Mr McLure, in the respondent’s outline of oral submissions, paragraph 5, there is a submission that:

An available option for Delor Vue . . . was to repair the cyclone damage initially, and defer rectifying . . . defects.

MR McLURE: Yes.

GLEESON J: Was there a finding to that effect?

MR McLURE: No, there was not. While we are on that point, your Honour – pardon me one moment – can I invite your Honours to take the respondent’s written submissions at paragraph 23? This is a reference to the point your Honour Justice Gleeson has just observed. The proposition that, based on Delor’s own advice, it might have been able to pursue a method of repair that substantially reduced the scope of works and be less expensive. That proposition is repeated at paragraphs 60 and 62. In paragraph 60, it appears in the last five lines:

On the counter-factual, subject to –

Especially the last line:

simpler and cheaper –

Then, paragraph 62, line 2:

The evidence did not clearly demonstrate what those actual costs would have been, including in particular if the respondent’s simpler and cheaper method –

Those submissions go further than anything put on behalf of Delor at any stage of this litigation. Again, the majority held that the prospect that the repairs could have been undertaken more cheaply was well outside the case disclosed. The paragraph in the majority’s reasons about that is paragraph 166, where their Honours said the case did not include a contention that it became:

more difficult or more costly or more burdensome –

for Delor to have carried out the repairs.

But, without in any way suggesting that does not matter, can I give your Honours an illustration of why evidence about that particular loss of opportunity – even if it was raised – was needed. Could your Honours take the respondent’s bundle of further material? The context in which this – sorry, on page 55 of the respondent’s bundles of material – the context in which this letter arose is that, in the course of investigating the repairs, the engineers and builders retained by Allianz determined that the roof trusses in the buildings were entirely defective and needed to be replaced. At page 55, your Honours will see a letter from the body corporate manager. This was one of the witnesses called by Delor. In the second paragraph, you will see the author refers to an “attached report” which:

seeks to offer an alternative method of repair to the defective works than determined by Morse –

Morse were builders and consultants retained by Allianz who had recommended that the entire roof trusses be replaced. At page 57, halfway down the page, under the heading “Roof Truss Repairs”, it is suggested that there had been a:

method proposed by GHD –

who were engineers retained by Delor:

to leave the current trusses in situ.

That is wrong, but I will show why in a moment. Over the page, at paragraph 58, Mr Key – the body corporate manager – sets out what he proposes would be a revised scope of works. At about point 2 on the page, the reader is directed to the Morse Consulting Reports and the one GHD report. The third of the three reports, against the bullet points, that is the GHD report which I will take your Honours to in a moment.

I do not invite your Honours to consider the detail of the alternate course, but what is being put, it seems, in the respondent’s submissions in this Court, is that the opportunity that was lost was the opportunity to pursue this alternate course of action. What that necessarily entails is a proposition that, even if this alternate method of construction had been adopted some time earlier then Delor ultimately had the full opportunity to do so once Allianz had withdrawn from its position, that that would have resulted in detriment. That is the point which was not touched on in the evidence.

If your Honours go to the appellant’s book of further materials at page 230. If you just turn back to 229, you will see this is a report from loss adjustors retained by Allianz. At page 230, near the foot of the page, discussions with Mr Key. Could I just invite your Honours to read to the foot of that page and the first paragraph of the next.

So, your Honours can see that the evidence, such as it was on this issue, was that Mr Key had raised an alternate proposal which he thought might be cheaper. That had been put to the building consultant, who concluded that it would not.

That, of itself, does not determine the issue because, as I said a moment ago, even if one proceeds on an assumption, unestablished by the evidence, that this would have been a cheaper method, there was no evidence whatsoever that the opportunity to pursue that cheaper method was lost to Delor once it became responsible entirely for the repairs.

I said that the assertion in Mr Key’s letter that this alternate recommendation was based on the engineer’s report was wrong. That appears from the GHD report, the relevant page of the GHD report is page 194 of the appellant’s bundle, that is the recommendation. Under the heading 5.1, you will see reference to Pryda analysis. They were consultants engaged by GHD. It is correct that Pryda did, commencing at page 209, raise the prospect – the relevant passage is page 212 in the final sentence of the letter – a recommendation of installing new trusses alongside existing ones, but that is not the recommendation that GHD made to Delor. GHD’s recommendation to Delor was that the roof trusses be redesigned and replaced.

Now, the upshot of all of that evidence is that there was a proposition raised by a body corporate manager, not supported by the consulting engineers, to do this work in a different way. Again, forgive the repetition. No evidence whatsoever that that opportunity, even if it was cheaper or better, was lost to Delor once Allianz withdrew from its position.

STEWARD J: Mr McLure, were there any findings made below about when it was expected that Delor Vue would commence its part of the building program? I seem to recall reading in one of the documents the building would take place hand in hand was the expression used.

MR McLURE: Well, there is no distinct finding to that effect, but could I tell your Honour what the debate was, as it were, which may illuminate the point. The 9 May email, starting at page 92 under the heading “Current Position of claim” – I am sorry, I have done that out of order. Forgive me. If your Honours could go back to page 91, please. Under the heading “Relevant Policy Exclusions”, it was said for the insurer that the insurer would cover:

resultant damage (point 2. above) –

And then, in the next paragraph, the insurer to be responsible for the:

defective . . . construction of the roof (point 1. above) –

And then, going over the page to page 92, about point 7 of the page in the two paragraphs beginning:

In terms of the repairs –

and:

However, for those buildings –

If your Honours could read those. I should say, I think it was common ground below that in the second paragraph beginning, “However, for those buildings” where the word “not” appears before “entering” is an error.

STEWARD J: Can I ask you whilst we are on this document on page 91, am I right in thinking that the nub of the difference between the parties concerns under the heading “Summary of Damages” paragraph 2 what those words in brackets qualified? I seem to recall reading that Allianz’s position was that those words in brackets qualified everything the preceded and therefore it was only liable to repair building G which had roof sheeting problems, and Delor took a different view of the interpretation of these words and, thus, the dispute began.

MR McLURE: Well, yes, I was going to say that is certainly where the dispute started, but it enlarged to cover other issues in relation to the construction of the exclusions, but your Honour is correct, and this is another way of saying the same thing. What the dispute encapsulated was whether where sheets – only roof sheets were removed, whether that represented any connection to the other defects in the roof construction, specifically the trusses.

STEWARD J: Thank you.

MR McLURE: Returning to your Honour’s earlier question to me in relation to the findings about timing, this was the position asserted by Allianz as at 9 May, of course. Then, what the primary judge did find was that, in the 12 months following, there were the reports obtained on both sides about what the appropriate way of doing this was, culminating in the contrary position asserted by Mr Key that is contrary to Morse’s advice, which was to remove all of the trusses. But there was not point – at least not found by the primary judge – where there was an expectation that Delor would have done something or Allianz would have done something because the parties had never reached agreement on how the cost was to be distributed.

STEWARD J: Thank you.

MR McLURE: I went down that pathway to answer your Honour Justice Gleeson’s question about what to make of the contention put on behalf of Delor that there was a simpler and cheaper method. Again, that is not an issue that was open and the evidence, such as it was, would not have enabled a finding to be made that detriment was occasioned in the manner contended for by Delor for the first time in this Court.

I propose now to move to the waiver ground. Could your Honours please go to page 100 of the core appeal book? This is in the reasons of the primary judge. In a sense, because the primary judge concluded that there had been no choice between mutually inconsistent rights, his Honour’s conclusion that there was, nevertheless, a waiver, might be a different way of saying what the majority held in relation to election; that is to say, his Honour concluded that the waiver arose because of the insurer adopting inconsistent positions. So, all of the submissions we have made about why at least the doctrine of election is not engaged apply with equal force to the primary judge’s conclusion on this point, but there is more.

At paragraph 339, in the last four lines on page 100, his Honour observes that:

All the elements of the circumstances that led to a conclusion . . . in Craine v Colonial Mutual were present here –

Except that they were not, for the reasons we have observed earlier. The clause that entitled the insurer to terminate the contract in Craine is not comparable to the right conferred by section 28(3). As submitted earlier, the critical difference between Craine and this case is that in that case the insurer made a choice to keep the contract on foot rather than to terminate it, and that was not a choice that was available to Allianz here. The second reason expressed by the primary judge appears at the top of page 101, where his Honour refers to advantages that he perceives were obtained by Allianz in adopting the position that it did in the 9 May email.

We submit, respectfully, that the advantages, such as they are described there by the primary judge, are illusory. By reason of the position that Allianz adopted in the 9 May email, it was given the opportunity to investigate a claim, which it was not liable to pay – and that is what it did. It paid out $200,000 and offered to pay $900,000 more. That is not an advantage that justifies a remedy for waiver, shorn of the requirements of the doctrines of election and estoppel. In any event, moreover, what is an error in the primary judge’s observation is that Craine did involve a doctrine of waiver in a way that was distinct from election. We have made that submission already in relation to the election point, we have collected ‑ ‑ ‑

EDELMAN J: It may be that part of the difficulty in this area is this looseness of the use of “waiver” in a number of decisions of English and Australian courts, and that one better way of putting it may be to say that in circumstances – including those of this case – there was a waiver. But the real question for the parties is whether the waiver was irrevocable. Until revocation of the waiver, the parties were entitled to proceed on a basis that the legal rights were potentially capable of being as they had been expressed, but that waiver only becomes irrevocable when circumstances arise, such as a change in the legal rights of the parties – which is sometimes called election or a detrimental reliance – or delay that amounts to an abandonment.

MR McLURE: Yes. In a sense, one of the difficulties is deciding whether some legal significance should be attached to the word “waiver” if that means a principle different to election and estoppel. So, to take up your Honour’s suggestion, if one is to say that what Allianz did was to have waived its opportunity to rely on section 28(3), in a sense which was not affected by election or estoppel, then that is to either give to it a legal significance which we submit does not exist or, alternatively, it is also to assume that whatever legal significance it does have it is capable of revocation. Either way the result, we submit, is the same.

GLEESON J: Mr McLure, I am not sure that your point about the illusory advantages is any different in the case of Craine.

MR McLURE: That might not be correct, your Honour, in this sense. One thing which is a little hard to discern from the report – both in the Commonwealth Law Reports and of the decision of the Privy Council – is whether or not the insurer in that case did, in fact, ascertain any advantage from salvage. There was at least a threat of that. It is not clear whether it was acted upon. If it was not, then your Honour is perfectly correct.

GLEESON J: I suppose the other thing that might be relevant is that that case proceeded on the basis that detriment was not an issue.

MR McLURE: Yes – well, in relation to the election point, of course. Detriment was relevant to the estoppel finding which, of course, is the basis on which Craine succeeded.

KIEFEL CJ: You said waiver cannot be understood to have legal significance outside election or estoppel, but as I raised with you earlier, there is that acknowledgment in Verwayen that it might arise in the conduct of litigation – well, Verwayen as explained by Rural Finance – and if that is the case, the question then is: what is the real foundation for it and can it go any more widely than the context of litigation?

MR McLURE: Quite. Could I, to answer your Honour’s question, ask your Honours to go to Agricultural and Rural? The report begins at tab 4 of the joint bundle. The key passages are at CLR 601, paragraphs 95 and 96. What we would draw to your Honours’ attention, starting in paragraph 95 about halfway through, the passage beginning, “But if, as is the case here, there was no election” – from there to the bottom of paragraph 96.

GAGELER J: Mr McLure, those passages are introduced by the first sentence of paragraph 94, which notes that election forbearance and abandonment have all been dealt with. Going back to the question asked of you by the Chief Justice, is there any room for seeing the species of waiver, acted upon by the majority in the Full Court and by his Honour the Chief Justice at first instance here, as capable of being characterised as abandonment or renunciation within the discussion that occurs from paragraphs 88 through to 93?

MR McLURE: Well, your Honour, what I was attempting to commence by drawing attention to these provisions is: if it is appropriate to put these ideas on a spectrum, at one end of the spectrum one has rights that arise or remedies that may arise in relation to dealings between parties to a contract and, at another end of that same spectrum, you may have rights and remedies that arise in the context of litigation in relation to those rights.

Now, the answer to where does waiver fit in relation to the first end of the spectrum is supplied by Craine and, ultimately, by the majority’s judgment in Agricultural and Rural. That is to say, the rights are election and estoppel – not waiver – are the formulations of waivers such as forbearance and abandonment really probably are only estoppels. But, certainly, they were not found to be separate doctrines in the way they were propounded in Agricultural and Rural.

As to the other end of the spectrum, as your Honours know, only two members of the court in Verwayen thought there was a waiver. All members of the court did not conclude there was an election in that case. Two members of the court held there was a waiver. If there is some other place on that spectrum for an independent doctrine of waiver, this case is not it, because that is not the way the case was propounded.

I took your Honours to the amended concise statement and the way in which Delor said there had been election or waver. What it was referring to was the conduct in the course of the contract which, as I have put, is the conduct in the first end of that spectrum I have identified. If there is some other place in between those two, it has not been put on behalf of Delor and it was not the subject of any evidence and, consequently, in a sense it ought not be dealt with but, in any event, we submit none arises here for the same reasons.

KIEFEL CJ: It is not really a matter of evidence though, is it? There is either a legal consequence or there is not.

MR McLURE: There might need to be some fact identified that gave rise to the consequence and what was put against us was something which was squarely within the territory of the parties exercising their rights under a contract. It was not put to us there was some separate point in the continuum where this issue might have arisen.

GLEESON J: Such as an abandonment?

MR McLURE: Quite. In which case, we would probably be in the territory of estoppel. But, in any event, our alternate answer to this is the same one we have given in relation to the election point. If it is not dealing with a choice between inconsistent rights and if it is not a promissory estoppel activated by detriment, then it becomes an unconfined discretion.

KIEFEL CJ: It is a matter which could have been raised by way of defence if matters had proceeded to litigation. That is the nature of – but, I suppose, the time had not arrived. The time had not come.

MR McLURE: Yes. That is the matter that is dealt with by Justice Brennan and I think, also, Justice McHugh in Verwayen – as your Honour is alluding to. The point at which that defence could have been raised is any point in the litigation up until when the defence merged in the judgment and, of course, no issue here about the defence having been raised properly in the litigation.

EDELMAN J: What is the principal basis for the treatment of a doctrine of waiver differently – if there be such a principal, that it should be treated differently in litigation rather than in the ordinary course of consideration of contractual rights?

MR McLURE: We do not advocate for that conclusion but, as your Honour knows, Justices Toohey and Gaudron said so in Verwayen. Again, as is known, in Agricultural and Rural it was observed that that is something to be confined to the litigation. If we were pressed to take a position on it, we submit that, really, that is dealt with in the Court’s power in relation to case management and amendment power.

GLEESON J: It is the orderly conduct of litigation.

MR McLURE: Yes.

STEWARD J: It is an issue of procedural fairness.

MR McLURE: Yes.

EDELMAN J: Could it be said – and picking‑up both of those remarks – that, particularly in light of the way it was expressed by Justice Toohey, that there is almost a presumption that, in the course of litigation, once a forensic step – such as abandonment of the defence – is taken, then there will be reliance upon that by the other party.

MR McLURE: In a sense, I am not proposing to disagree with your Honour’s observation. In an application for leave to amend or an application to withdraw an admission, what has transpired before, of course, will be relevant to the exercise of the discretion. It may not be necessary to describe that as giving rise to a presumption but, in any event, the fact that it had occurred will be relevant and, ordinarily, one would expect, on an application for leave to amend, the party opposing the amendment may well say, we did rely on this in some particular way which should deter the Court from exercising its discretion.

KIEFEL CJ: In Agricultural and Rural Finance, the joint judgment appears to have approved what Justice Gaudron said – this is at Agricultural and Rural Finance, paragraph 60, page 590 – that:

the roots of the doctrine –

in this context are:

“fair dealing in the conduct of litigation [and] promoting the finality of litigation”.

That is true, in the sense that the Court will usually hold a party to the position that they have taken in litigation.

MR McLURE: Yes. But, I would add to that, the interpretation of paragraph 60 – which best promotes coherence with other legal doctrines – is the roots of what is said by Justices Toohey and Gaudron in Verwayen lie in the Court’s exercise of discretion in relation to permitting amendments in the way that that affects procedural fairness, as distinct from it being some separate independent doctrine that a court would engage.

KIEFEL CJ: But it would not require prejudice, what is said there does not suggest there has to be – as there is in an exercise of discretion about amendment or not. There would not have to be the requirement of prejudice for the Court to hold a party to it. This is really saying that a waiver might be held without any further requirement.

MR McLURE: In a sense that is answering the question as if one assumes that the doctrine of waiver ‑ ‑ ‑

KIEFEL CJ: Does not require detrimental reliance.

MR McLURE: Quite, and is activated only by whatever advantage was secured by the party adopting the position, but that is not able to be reconciled with the way courts exercise discretions in relation to amendment applications, applications to withdraw admissions, and case management generally.

GLEESON J: I suppose you could say that insurance contracts might be in special case in relation to fair dealing. They are affected by a duty of utmost good faith, but is it suggested here that the principle that is underlying this separate waiver is something peculiar to an insurance contract?

MR McLURE: That has been put against us, but that is assuming the answer to the breach of duty of utmost good faith point. It is not necessary for there to be a doctrine of waiver independent of election and estoppel to give effect to that result if that is the consequence of the implied contractual obligation to act with utmost good faith. We, of course, submit that the contractual obligation does not require the taking of a position, and even if it does, it does not become a final binding choice, but here is no need for waiver to insert itself into this problem whenever it arises.

KIEFEL CJ: Good faith might feed into the question of election in the sense that an insurer – as a matter of good faith – would not be entitled to delay in making its position known in relation to indemnity or not. That could be part of the performance of the contract, and therefore the good faith in the performance of contract, and that might feed into whether or not it was put to its election. But I recognise what you say about perhaps having nothing to say about waiver in a distinctly different sense from election.

MR McLURE: Yes, the duty of utmost good faith may be relevant to determine whether an insurer should be taken to have elected.

KIEFEL CJ: To be put in a position where it has to choose between inconsistent rights.

MR McLURE: Yes, yes.

KIEFEL CJ: But, if it does not make the choice – I suppose we are getting into hypotheticals, and this area is complicated enough without doing that.

MR McLURE: Yes, if it does not make the choice, then ‑ ‑ ‑

KIEFEL CJ: It is a good faith question.

MR McLURE: It could be that, or if one is dealing with the doctrine of election, it may be taken to have made the choice by reason of the expectation pursuant to the duty of utmost good faith to decide.

EDELMAN J: I suppose, flowing from what the Chief Justice said, it might be said that a waiver in the context of litigation becomes irrevocable for the same reasons that an election is an irrevocable waiver, that it is a choice between inconsistent rights where those rights are, as in Verwayen, the pleading of a particular defence, or the assertion of a particular defence, and that establishes a new legal regime governing the parties.

MR McLURE: Your Honour, that might be right and, in a sense, I do not want to bite into more than I need to chew because as I have ‑ ‑ ‑

KIEFEL CJ: You have got enough on your plate.

MR McLURE: And as I have observed, that is not the way the waiver election point was put against us. It is not put against us that there was a decision made in litigation which in some way should have precluded the raising of the defence.

Your Honours, just to complete this waiver point, could your Honours please turn to page 188 of the core appeal book in the reasons of the majority, starting at paragraph 236. Here are the majority’s reasons endorsing the primary judge’s conclusion about the independent doctrine of waiver. The reasoning in paragraph 239 is, with utmost respect, somewhat difficult to follow. Your Honours will see in the third line:

However, if one starts –

Craine would have succeeded on an election were it not for clause 19 of that policy which precluded waiver other than in writing. Craine did succeed on estoppel. If Delor is not entitled to succeed on election or estoppel – and that is the premise in which this debate is being conducted – then that is not a sound basis to invent a principle.

At paragraph 242 the majority goes a little further than the primary judge in relation to the perceived advantages in adopting the position in the 9 May 2017 email. The effect of the finding appears to be – looking at around about lines 3 to 5 – that Allianz avoided a potential reputational issue. Nothing like that was set out in the amended concise statement or in
the list of issues, which explains why Delor’s counsel did not put anything like that to Allianz’s witness in cross‑examination.

Ultimately, what has not been explained by the respondent or, for that matter, the primary judge and the majority, is why there needs to be an independent doctrine of waiver shorn of the requirements of election and estoppel in order – to borrow from the language in Agricultural and Rural Finance:

an orderly functioning contract system.

It has not been explained how an independent doctrine of waiver would operate coherently with election and estoppel other than, as we have said to be an unrestrained discretion.

GLEESON J: Is it going to far to say that, if an independent doctrine of waiver could have been explained in the context of Craine, that was because of the draconian nature of clause 11?

MR McLURE: It would require that and the conclusion that clause 11 operated automatically as distinct by an insurer choosing. Your Honours, I will hand over now to Mr Prince unless your Honours have anything else for me.

KIEFEL CJ: Yes, thank you, Mr McLure. Yes, Mr Prince.

MR PRINCE: Thank you, your Honours. In relation to utmost good faith, the primary judge’s declaration – which your Honours can find at core appeal book 108 – was that, in seeking to resile from the representation contained in the 9 May email and seeking to rely on the non‑disclosure, Allianz had failed to act with utmost good faith. The majority in the Full Court, effectively, endorsed the primary judge’s reasoning. I will not go to the paragraphs, but I will just give your Honours the references. That is at paragraphs 252 and 255 – which your Honours will find at core appeal book 192.

It appears from the primary judge’s reasons, that Allianz is said to have breached the duty of utmost good faith when it sent the 28 May 2018 letter because it is the features of that letter which the primary judge identifies as being the particular aspects that breach the duty of utmost good faith. The relevant paragraph – which I will come to later, but it is in the primary judge’s reasons, the key reasoning which his Honour gives, is at core appeal book 104, at paragraph 347. It is quite a long paragraph but, that is the ultimate dispositive paragraph.

Before I deal with that, I just need to frame the argument. Both parties accept, in the written submissions, that this argument only has practical effect if your Honours find in our favour on the other matters. The reason is because if there is, contrary to our submissions, either a common law election or an estoppel or some independent doctrine of waiver, then Allianz cannot resile from the representation it made – it cannot rely on the non‑disclosure – and this aspect of the case will give Delor Vue no more relief that it would otherwise be entitled to.

There was a claim for damages for breach of section 13. No loss was quantified. The primary judge never made an award of damages. There was no cross‑appeal either from his decision or from the Full Court’s decision. So, the aspect of damages which was potentially in play has fallen away. The only relief that the primary judge contemplated giving – which his Honour did not need to give because he had upheld the estoppel – was an injunction.

So, the premises for this part of our argument, that whatever representation or promise is contained in the May email, it was not legally binding on Allianz, and Delor did not suffer any detriment in reliance on that promise or representation. So, they are the premises for the argument on the utmost good faith point. If the premises fail, then we have lost already and this issue does not add anything.

At the outset we should also make clear our position that, whether or not there was a breach of the term implied by section 13 is not a discretionary decision. There either was or was not a breach of the duty of good faith. The term was either breached or not breached. The reason I raise that is there are some observations in the Full Court’s reasoning referring to the fact that it is an evaluative‑type assessment. That is no doubt true. Many issues are evaluative. This Court has dealt with that in recent decisions. We just make it clear that is not a discretionary matter. Ultimately your Honours will decide one way or another whether the term was breached.

GLEESON J: Mr Prince, can I check that I understand? If you lose on one of grounds 1 to 3, are you saying that you do not dispute that an injunction was an appropriate remedy?

MR PRINCE: Yes, your Honour. We have taken that point in the written submissions, but it does not go anywhere, with respect, because if we lose on 1 to 3, then we are restrained either because we have made an election or because we are estopped or because of a doctrine of waiver. So, we cannot rely on it. It goes nowhere, is all I am saying.

GLEESON J: It goes nowhere for you.

MR PRINCE: Yes.

GLEESON J: But the question of what is an appropriate remedy for breach of section 13, whether it includes an injunction, might be an important one.

MR PRINCE: It might be but, in my submission, does not really arise in this context, is all I am putting – if we have lost already. We advance three broad propositions in support of our case that there was no breach of the duty. The first relates to the content of the obligation to act with utmost good faith and, as far as I am aware, and the decisions below, the Court has only previously considered that in one case, which is CGU Insurance v AMP (2007) 235 CLR 1. If your Honours could go to that case, it is found in volume 2 of the joint book of authorities commencing at page 141.

The key paragraph that we rely on is in the reasons of Chief Justice Gleeson and Justice Crennan, which is at page 12 of the CLR at paragraph 15, and that is at 152 of the joint book of authorities. Contrary to the way this passage was interpreted by the primary judge, in our submission, it does not endorse the view that the content of utmost good faith is whatever the Court considers to be commercially fair or decent. I note the time. I am going to develop the argument with reference to the paragraph, but it may be easier if I do that after the break.

EDELMAN J: Mr Prince, just before you conclude on this point, is another way of expressing what the Chief Justice and Justice Crennan say in paragraph 15 to say that a so‑called duty of utmost good faith is concerned with the manner of performance of existing duties but does not erect an independent duty upon a party?

MR PRINCE: That may be so. The difficulty is it is an extra term of the contract so, in one sense, it does impose an additional obligation but ‑ ‑ ‑

EDELMAN J: It is an obligation in relation to the performance of existing duties, because otherwise it would be very difficult to pin down what a legitimate interest is and one may then lead to an evaluative assessment of fairness that, in your submission, is the very thing a court should not be doing.

MR PRINCE: Yes, I do not make the submission I will develop that fairness is irrelevant. I am not suggesting that. But I am saying that there is a bit more of a framework to be put around the assessment rather than just asking is it commercially fair or decent. May it please the Court.

KIEFEL CJ: The Court will adjourn until 2.15.

AT 12.44 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

KIEFEL CJ: Yes, Mr Prince.

MR PRINCE: Your Honours, I was dealing with CGU v AMP at paragraph 15 in the reasons of the Chief Justice Gleeson and Justice Crennan. If your Honours can go to that paragraph. In the first sentence, their Honours there reject the view that utmost:

good faith is limited to dishonesty.

And, pausing there, all other members of the court accepted that proposition. But what their Honours then go on in the next sentence with the use of the words “in particular” is what aspect of the reasoning of the majority in the Full Court their Honours are accepting. Their Honours go on to say:

we accept that utmost good faith may require an insurer to act with due regard to the legitimate interests of an insured, as well as to its own interests.

Their Honours footnote the decision of Justice Stephen in Distillers where his Honour says similar things. In our submissions, the requirement to act in certain circumstances with due regards to the legitimate interests of the other party, that is the core of utmost good faith.

In the next sentence, their Honours then give what they describe as the “classic example” of utmost good faith being the precontractual duty of disclosure of the insurer. Then their Honours go on to explain that there are circumstances where the insurer will have to act with due regard to the interests of the insured. We submit that the references in the paragraph to “legitimate interests” are significant. There are a very large number of things that might be in the interests of one party. It is obviously in the interests of the insured for the insurer to pay out on any claim made irrespective of exclusions or fraud and the like. Clearly, the insurer does not have a fiduciary duty to act in the best interests of the insured, or a duty of a kind that many fiduciaries have.

In our submission, this paragraph is not an acceptance that good faith is simply to be assessed with regard to what is commercially decent or fair, but the fundamental inquiry is what the legitimate interests are of the other party because, in our submission, it is too idiosyncratic and too arbitrary to simply ask is this fair or decent, assuming the adjective “commercially” adds anything in this particular context. In a slightly different context, this Court in Maggbury v Hafele Australia [2001] HCA 70; (2001) 210 CLR 181 at paragraph 43 recognised that commercial sense – for example, in contract construction – is a matter on which minds will differ and consensus can be difficult. Likewise, commercial fairness in the abstract, in my submission, is not the criterion or the test.

I also freely accept that I cannot identify a list of relevant legitimate interests, but the enquiry is not one that is unfamiliar to the law. For example, the doctrine of restraint of trade, the doctrine of penalties, all turn on the identification of legitimate interests. In our submission, legitimate interests are pre‑existing legal rights and interests – which the law recognises already – or such other interests that the law by analogy – applying the standard common law method – recognises with analogy to previous cases and existing interests. I am not suggesting there is a confined list of legitimate interests, but that – in my respectful submission – is a more focused inquiry than the more generic and nebulous inquiry of simply asking, is this commercially fair?

KIEFEL CJ: The actions of the insurer are relevantly in the performance of the contract, I do not mean in the performance of the duties, as you have pointed out there.

MR PRINCE: Yes.

KIEFEL CJ: It is added, but it is in the performance of the contract as distinct from a precontractual position.

MR PRINCE: Correct. What I will thus now seek to develop is, or the analogy we seek to draw is – the classic good faith duty is precontractual disclosure, and duty to not make a misrepresentation. There was another question, I am sorry.

KIEFEL CJ: Justice Gageler, I think you were asking something?

GAGELER J: Yes. Mr Prince, do you have easily to hand the respondent’s written submissions?

MR PRINCE: I can get them, your Honour.

GAGELER J: I wanted to ask you a question relating to paragraph 27, which I do not think you specifically address in your reply. The submission in paragraph 27 is to the effect that the sending of the 9 May 2017 letter was itself in fulfilment of a contractual obligation, which:

was an incident of its duty to act in the utmost good faith –

and the particular contractual obligation, more specifically, is sought to be couched in the second‑last sentence of paragraph 27. Do you accept that to be an incident of the duty to act in the utmost good faith?

MR PRINCE: Does your Honour mean to positively make and communicate a decision as to whether the claim was accepted or rejected?

GAGELER J: Yes, that is what I mean.

MR PRINCE: Yes. So, your Honour, I accept – I think consistently with the reasoning in CGU – that it may be an incident of the duty of good faith to communicate a position, but my submission is that that does not mean it is irrevocable. That is the nub of the issue. There is a claim to make and notify policies, there is a requirement under the policy, obviously, for the insured to notify the claim to the insurer, and I accept that a timely response might be an aspect of the duty of utmost good faith. I do not accept that that response is a binding and irrevocable decision which can never be changed.

STEWARD J: Can I ask a question, Mr Prince? You said that the premise of this part of the argument is that everything that transpired in 2018 was not enforceable at law.

MR PRINCE: Yes.

STEWARD J: There would be no remedy available to Delor, so what we would have was a voluntary statement by the insurer to make a payment, which it then withdrew.

MR PRINCE: Correct.

STEWARD J: How does the obligation of good faith apply to something which is not legally binding in any particular way?

MR PRINCE: My submission is that in the absence of detriment, which I will seek to develop ‑ ‑ ‑

STEWARD J: Well, that is the assumption premise, that is part of your premise, is it not?

MR PRINCE: Yes, sorry, that is the factual premise. Yes, but if detriment were shown, then it could be a breach of the duty of good faith. But in the absence ‑ ‑ ‑

STEWARD J: Does that mean it does not add anything to the estoppel argument?

MR PRINCE: Well, it might in the sense of damages. Section 13 gives the right to damages and so it is a different remedy. But, putting that to one side, it may not give anything additional to estoppel, but I say there is no problem with that in this particular context of a post-contractual . . . . . or representation. The fact – unless there is detriment, my submission is there is no ‑ ‑ ‑

STEWARD J: Let me ask you a slightly different question which goes to something Justice Edelman raised before lunch, does the duty of good faith – is it confined to only those things which are legally enforceable, duties and obligations and so on?

MR PRINCE: Yes, I think I accepted that with the qualification that the law could develop by analogy with previous cases. There may not be a recognised interest yet but, by analogy with existing legal interests the Court might conclude that there is a legitimate interest. But that is standard common law method.

EDELMAN J: But one has to ask, good faith in relation to what? And if it is good faith in relation to the performance of a duty, then your starting point always has to be to identify what the duty is that is qualified by good faith.

MR PRINCE: Yes, I accept all of that, I am just saying I do not have to go so far in my submission as to say that you cannot extend by analogy with reference to previous cases which have accepted the legitimate interests that the good duty and good faith is established.

GLEESON J: If there is a duty to positively make and communicate a decision in relation to a claim, does that entail a duty not to change that decision capriciously?

MR PRINCE: I do not think capriciousness adds – no, with respect. If I identify the a legal right to change my mind, I can change my mind, but that is the position that – unless there is detriment on the other side, there is no justification for subjecting the insurer’s right at law to change its mind to the insured’s desire or hope or expectation that the promise be fulfilled.

GLEESON J: So, if the insurer was flip‑flopping with no apparent explanation you would say that does not raise a question about they are acting with utmost good faith?

MR PRINCE: Well, I do not think the flip‑flopping makes a difference, with respect.

EDELMAN J: Well, it might because if, as you have accepted, there is a duty to give a timely communication of a decision, it may not be a performance of a timely communication of, perhaps, a clear decision if one is constantly changing one’s mind on what the decision is.

MR PRINCE: Perhaps that is so. There is no – again, on the facts of this case there is not a flip‑flopping. It is true, a position was communicated, there is then a clear change of position. In circumstances where it is not relied on in any way, we submit, there is nothing ‑ ‑ ‑

GLEESON J: I thought there was a complaint that the change was made without an explanation, but perhaps that was not relied on as a separate breach of utmost good faith.

MR PRINCE: I think it is an aspect of the utmost good faith that there was no explanation, but the explanation, with respect, is that the insurer did not wish to pay more than it was making an offer to pay where it had no obligation to pay anything. Delor had already paid $200,000, it was offering to pay an extra $920,000‑odd, it did not wish to pay any more.

STEWARD J: Can I ask you a question in that regard? In order to decide this issue, do we need to adjudicate on the question of what was the true meaning of the May 2017 email? In other words, if Allianz, in its 2018 letter thought that it was acting fully and in accordance with its interpretation, which it thought was right, and that interpretation led to the $918,000 offer to make the payment, then they are perhaps less likely to be found to have acted in breach of this provision. But if, of course, their interpretation was wholly wrong, and Delor’s interpretation was right – and that was perhaps known that that might make a difference – do we need to decide that issue or ‑ ‑ ‑

MR PRINCE: I do not think your Honours do ‑ ‑ ‑

STEWARD J: Okay.

MR PRINCE: ‑ ‑ ‑ certainly not the first way I put the case, which I will seek to develop shortly. But, if it is the more commercially – if the analysis which you just asked is what was commercially fair in normal circumstances, then I do not think your Honours do have to adjudicate on that issue.

STEWARD J: Thank you.

GAGELER J: Mr Prince, is it implicit in your acceptance of the formulation of the obligation in paragraph 27 of your opponents’ submissions that the insured has a legitimate interest in knowing where they stand under the policy at the earliest available opportunity?

MR PRINCE: No. With respect, they do have an interest in knowing for all time. They make a claim and they have an interest in having a response to the claim as an aspect of the policy. In my submission, it goes no further – a timely response – goes not further than that requirement to respond. It does not give rise to the extra feature which is sought to be said here, which is the change in your position – you cannot change your position.

GAGELER J: So, it is not a bankable response. It is just a piece of paper.

MR PRINCE: It is more than a piece of paper. It shows the current intention of the insurer. It could give rise to an absence of good faith if it was a dishonest response – if the response was, in fact, I say X but I have no – and if it was asserted that you did not have any intention at the time you made the representation – that would be actual dishonesty. That would be a breach of the duty of utmost good faith because it includes dishonesty.

GLEESON J: If you succeeded on the appeal, would your client seek to recover the amounts that had been paid prior to the change of position?

MR PRINCE: No, your Honour.

Can I seek to develop the analogy that with the pre‑contractual duty of utmost good faith? As your Honours know, the notion that insurance contracts are ones requiring utmost good faith is old – it goes back to Lord Mansfield in Carter v Boehm. The two core aspects of the duty, as traditionally understood, was the duty to make disclosure and the duty not to make a misrepresentation. The common law not recognising innocent misrepresentation, and the equitable doctrine not yet having been developed. But, importantly for the argument we seek to make, both a pre‑contractual misrepresentation or a failure to disclose was required to induce the underwriter to change its position to its detriment – either by entering into the contract of insurance at all or by entering into the contract on particular terms.

In our submission, it was that inducement, or reliance, which converted a hope or expectation into a legitimate interest recognised by the law which the other party was required to have regard to. So, we say there is a fairly close analogy between the pre‑contractual misrepresentation case and the post‑contractual conduct here – which is a post‑contractual representation which is not relied upon and, in our submission, unless relied upon, no reason exists why the insurer’s legal right to withdraw it should be subordinated to the insured’s desire that the promise be fulfilled. So, that submission seeks, by analogy, to the classic case of good faith to say, these circumstances do not engage good faith by reason of that analogy.

Our third submission is that if contrary to that, those earlier submissions, the primary judge was right that the inquiry posed by section 13 is simply what is commercially fair in all the circumstances, that the facts of the case do not support the conclusion that Allianz breached the duty of utmost good faith, and on this point we respectfully adopt all of the reasons given by Justice Derrington at paragraphs 589 to 600. They are found at core appeal book 287 to 291 for why the primary judge’s conclusions were in error.

I am not going to go through each of those paragraphs but I will deal with the core aspects of the primary judge’s reasoning and say why we say that was in error. The two key aspects, in my submission, of the primary judge’s reasons, which as I identified before is paragraph 347 of the primary judge’s reasons at core appeal book 104. One of the key matters was that Allianz had received benefits from the insured in the form of co‑operation and access to the property.

Our response to that is to adopt what Justice Derrington says at paragraph 597, that it is rather difficult to see how Delor co‑operating with Allianz both in Delor’s own interests and consistently with its duty of utmost good faith was something that was relevant to whether Allianz resiling from an earlier promise was in good faith. It assumes that Delor was at liberty to obstruct Allianz trying to ascertain the true extent of the damage and that Delor was doing Allianz a favour by co‑operating.

Now, it is an implied duty in every contract, the implied duty to co‑operate. In my respectful submission, it is the wrong premise to say that Delor could have done anything other than co‑operate.

EDELMAN J: Well, it is a duty in contracts to co‑operate in the performance of obligations.

MR PRINCE: Absolutely, your Honour, and in assessing a claim which is made against you – and there are claims provisions in this contract – the duty to co‑operate is to give the benefit of the contract to the other party.

The second and, it would appear, central feature of the facts that the primary judge thought was unfair was that the offer made in the 20 May 2018 letter was made on what his Honour calls a take it or leave it basis. That is, that if the offer was not accepted then the insurer would resile from its earlier promise, and your Honours will see that if your Honours have the primary judge’s reasons, about five lines from the bottom:

Then, for reasons that have never been explained, a take‑it‑or‑leave‑it offer was made –

and his Honour then develops that aspect of it. In our submission, that is really saying no more than that it was commercially unfair for Allianz not to honour its earlier non‑binding promise.

STEWARD J: Just pause there for one moment, is it quite right to say that it was a resiling at that point? When the letter was sent offering to pay $918,000 – which Allianz thought was the extent of its obligation – it had not resolved that point.

MR PRINCE: No, I think his Honour – if your Honour has the May letter – I will take your Honours to it – the 2018 May letter is at page 247 of the appellant’s further materials. I think the paragraph his Honour has in mind is at page 257, under the heading “Reservation of Rights”, where it said that:

If the Body Corporate does not agree to proceed as set out above –

then the offer:

will lapse and SCI will pay $nil –

That is the aspect of resailing that his Honour is identifying, is saying that ‑ ‑ ‑

STEWARD J: It is putting a time limit on the acceptance of the offer to pay $918,000.

MR PRINCE: Absolutely, your Honour, but the ‑ ‑ ‑

STEWARD J: Which, on the premise of this argument, is a voluntary payment.

MR PRINCE: Absolutely. That is correct, your Honour. But the way the primary judge is analysing it is to say this is a take it or leave it resiling from the previous unconditional promise, effectively. Now, we say all that is really saying is that commercial fairness required Allianz to sacrifice its legal rights in order to avoid disappointment to the insured, because on this part of the argument, there is no detriment – there is disappointment, I accept there is disappointment. We say disappointment is an ordinary part of life, including commercial life, and it is not a breach of the duty of utmost good faith merely to disappoint another party’s expectations. Nor did this letter apply undue pressure to Delor. Delor was advised by solicitors who were very capable of advising Delor about its rights, and as your Honours will have seen, the insured had no issue in robustly rejecting the 2018 offer in the letter.

Why did Allianz change its mind? For the reasons I have already identified, because it did not wish to pay more than the $192,000‑odd that it had paid, and the $918,000‑odd it was offering now in circumstances where it was not obliged to pay anything.

Finally, we submit it is also relevant to the context. This is a point which is made in the reasons of Justices Callinan and Heydon, at paragraph 257 of CGU, that the reciprocity of the duty, one has to have regard to the context; and the context is one in which Delor had engaged in a blatant breach of the duty of utmost good faith by reason of its non‑disclosure. So, in our submission, if you are assessing the commercial fairness of Allianz’s conduct, it must be done against that background that the other party on the other side of the ledger has already engaged in what Justice Derrington described as a clear breach of the precontractual duty of disclosure.

So, for those reasons, we submit that on the more nebulous inquiry that Allianz did not breach the duty of utmost good faith – if we are wrong about that, then there is the question of relief. The primary judge referred to injunctive relief. No injunction for breach of section 13 was sought. But the possibility was, I accept, identified at 150 of the applicant’s closing submissions. I will just give your Honours that reference. It is appellant’s further materials, page 330, paragraph 150.

However, on ordinary principles, in our submission an injunction would only go if it was established that damages were an inadequate remedy, which has not been sought to be established or established here. We accept, as a matter of principle, there is no reason why an injunction could not go in accordance with ordinary equitable principles to restrain a breach of the contractual term which is implied by section 13. For those reasons, we submit that the ground 4 should be upheld.

By way of housekeeping, finally, can I just clarify ‑ ‑ ‑

EDELMAN J: Can I just understand your last submission about relief?

MR PRINCE: Yes, your Honour.

EDELMAN J: Is that a submission that is disputing any of the borders made by the Full Court?

MR PRINCE: No. I think the only orders made are declaratory orders. Sorry, the Full Court did not disturb the declarations which the primary judge had made. So, in a technical sense, your Honours are required to determine whether that declaration of the breach of duty of good faith should or should not have been granted. But if there is no practical utility in it, then your Honours would not grant the declaration. If your Honours conclude there is no relief, it does not have any utility, then it would not be utile for a declaration to be made about breach of duty of good faith.

EDELMAN J: Does that need to be in a separate round of appeal, then?

MR PRINCE: Our ground of appeal is to uphold the conclusion that there was no breach of duty of good faith. So, we succeed by establishing there is no duty of good faith. So, whether I need a separate ground of appeal – we seek the discharge of all the declaratory orders made by the primary judge, so if I do not need an additional ground of appeal, I seek leave to make an amendment. It has been dealt with in the submissions and, in my respectful submission, there is no prejudice about it.

EDELMAN J: Just so I understand it, the submission is that if your primary submission about the existence of a duty of good faith is wrong, so that there was a duty of good faith and that duty of utmost good faith had been breached, you say that your grounds of appeal extend to say, in any event, the appeal should be allowed because damages would have been an adequate remedy.

MR PRINCE: Yes. I think 4(b) of our notice of appeal identifies the error in the Full Court by failing to hold that, even if the appellant breached its duty of utmost good faith, the respondent had not established any loss justifying relief. So, in my submission, that covers that point.

EDELMAN J: Yes, thank you.

MR PRINCE: Sorry, your Honours, the last matter was a housekeeping matter. In the appellant’s further materials, your Honours have been given the policy and the schedule to the policy. Unfortunately, your Honours have been given the wrong schedule. It is an earlier schedule to the policy.
We have provided to the Court the correct schedule. I do not think anything turns on it, but we have provided that to your Honours. Unless your Honours have any questions, those are my submissions.

KIEFEL CJ: Thank you, Mr Prince. Yes, Mr Jackman.

MR JACKMAN: Can I begin with some matters of evidence and ask your Honours to go to the respondent’s book of further materials? Beginning at page 23, the precursor to the 9 May 2017 email, was an email from Ms Lander from SCI Insurance of 27 April to the brokers for my client, indicating that they were reviewing the claim for Delor Vue in order to make a determination on coverage. A quarter of the way down the page:

Following the documentation that you provided to our office on Monday, it has become clear that the Body Corporate was aware of defects in relation to the roof, specifically the soffit panels.

Halfway down the page:

Based on the above, there appears to be a “non‑disclosure” issue here and we need to investigate further, before making a determination.

Over the page, a quarter of the way down:

We will continue with our investigations and advise you, once we are in a position to comment on coverage.

So, that further communication was made on 9 May. If I can go to that in the appellant’s further material at page 90? So, as the learned primary judge found, this is an email that was written with the benefit of the full information – that is Chief Justice Allsop’s judgment, paragraph 122. Again, from Ms Lander of SCI to our broker, and others, the top of page 91:

Prior to the policy being effected, we were not advised of any defects with the property, despite these clearly being known to the Body Corporate.

Then there is reference to a building inspection report of 1 April 2015, and a more precise synopsis of the issue covered in G.W Goddard’s report of 1 December 2016. Then, reference to the December 2016 report, also concluding:

There appears other issue onsite which we were not engaged to inspect and report on, but would need attending too.

Then, under “Indemnity to the Body Corporate”:

Despite the non‑disclosure issue which is present, Strata Community Insurance (SCI) is pleased to confirm that we will honour the claim and provide indemnity to the Body Corporate, in line with all other relevant policy terms, conditions and exclusions.

Then, under “Summary of Damages”, they are broken into two categories:

Defective materials and construction of the roof –

including various things, and what is called:

Resultant damage including but not limited to internal water damage –

and so on. Then, under “Relevant Policy Exclusions”:

SCI will cover the costs associated with the resultant damage (point 2. above), despite the policy exclusion outlined below.

In respect to the repairs to the defective materials and construction of the roof (point 1. above), unfortunately the policy does not provide cover for this portion of the claim.

That is then explained by reference to the exclusions. Then, at the top of page 92:

The Body Corporate will be responsible for the costs associated with this portion of the claim.

Then, under “Recovery”:

SCI have engaged Holman Webb Lawyers, to assist our office with a potential recovery against the original Builder and Developer of the property.

Skipping over the next two sentences:

We ask that the Body Corporate cooperates with our office as and when required, to ensure we have the best chance possible of a successful recovery from the responsible party/ies.

Then, under “Current Position of Claim”:

SCI is currently awaiting the following:

Quotation, including Scope of Works from Ambrose Buildings, for the internal resultant water damage repairs –

They are the insured components. I will go over that in a moment, but that came through the following day, 10 May, and that is at page 95 and following. Staying with page 92, an:

Engineers report, outlining the deficiencies with the roof –

Then:

Scope of Works from the Engineer, for the repairs to the roof. This will be broken down into . . .

Part 1 – defective repairs (to be paid for –

Not to be done by, but:

(to be paid for by the Body Corporate) –

And:

Part 2 – resultant damage repairs (to be paid for by Strata Community Insurance) –

In other words, SCI were commissioning a scope of works from the engineer for the entirety of the repairs to the roof, both the insured and the uninsured portions. Then below the bullet points:

In terms of the repairs –

And my learned friend went to this and my learned friend pointed out the error in the sentence beginning with the word “However” where the word “not” should be deleted, and it points out:

the roof repairs will need to be carried out first, before the internal resultant damage repairs can proceed.

Then the letter concludes:

I trust the Body Corporate will be happy with our decision to grant indemnity –

Now, none of that letter required the body corporate to actually do any of the work. It does require the body corporate to pay for the work which was not admitted to be insured work, but Justices McKerracher and Colvin at core appeal book page 133, paragraph 14 say, in our respectful submission, correctly, that this letter:

was describing actions that SCI was taking (and would be taking) . . . in circumstances where –

indemnity:

had been confirmed –

It was not indicating “any responsibility” by Delor Vue “to undertake any works”, in contrast to paying for what were called the Part 1 works, and it was not a condition of indemnity for Delor Vue to do any such work. That is, all the work was going to be commissioned by SCI and some of that work would have to be paid for by Delor Vue.

Now, can I then go to ‑ ‑ ‑

STEWARD J: Just before you leave this document, can I ask you a question? At the book of further materials 91, under the heading “Indemnity of the Body Corporate” the statement is that:

we will . . . provide indemnity to the Body Corporate, in line with all other relevant policy terms, conditions and exclusions.

MR JACKMAN: Yes.

STEWARD J: If, for the moment, you just assume that Allianz’s interpretation of what then became paragraph 2 under “Summary of Damages” is correct – I will withdraw that. Just assume that that – you will recall what Allianz’s view of that paragraph was, is that a view that would then make Allianz’s offer one that was in line with relevant policy terms, conditions and exclusions?

MR JACKMAN: Other policy terms they refer to having ‑ ‑ ‑

STEWARD J: In other words, if you assume their interpretation is correct, are they making you – are they offering you an indemnity which is in accordance with the contract of insurance or ‑ ‑ ‑

MR JACKMAN: Can I take your Honour up on the first concept of offer? This is not an offer. This is a decision. It is a determination ‑ ‑ ‑

STEWARD J: Let us make a distinction, I will accept that. I am just trying to work out whether Allianz’s view of what it thought it had to do is something that you accept was still in accordance with the terms of the policy of contract of insurance or did it deviate from it?

MR JACKMAN: No. It deviated from it and a ‑ ‑ ‑

STEWARD J: You do not have to answer it now.

MR JACKMAN: Mr Elliott reminds me it remains an issue in the case as to exactly what the position was under the contract after this.

STEWARD J: So, if we assume your interpretation is correct, then it would conform with the policy, in your view.

MR JACKMAN: Yes.

STEWARD J: Yes. That one of the issues between you. Okay.

MR JACKMAN: And part of the reference, of course, to policy terms and conditions remaining applicable is that we are being held to all of those policy terms. And Delor Vue is indicating quite explicitly with a reference to subrogation that they want to take advantage of those policy terms.

STEWARD J: Thank you.

MR JACKMAN: Then, at page 95, your Honours will see the quote from Ambrose Building which was foreshadowed in the middle of page 92. This is the quote for the internal result of water damage repairs which SCI was accepting liability for. I go to that for two reasons. One is to show that already, within 24 hours of the 9 May 2017 email, Ambrose Building had been able to provide this quote and obviously they had access to the premises in order to do so.

Second, there is something of an attempt by my learned friend – at least in his written submissions – to draw a distinction between roof repairs, which were our responsibility, and internal repairs, which were SCI’s responsibility. That does not measure up with what Ambrose Building were actually doing by way of quoting for the components which SCI was accepting liability for. And your Honours will see, on page 95, a number of references to metal roofing, similarly on page 97 under “E Block External Elevations” and similarly on page 99 in relation to “G Block”.

Then, can I elaborate on that a little more by taking your Honours back to the respondent’s further material at page 39 where your Honours will see an email from the insurance brokers for my client. It is copied to Ms Lander of SCI and, in the middle of that page on 21 July 2017, it is said:

The Insurer has advised they will replace the cyclone damage which will include some roof sheeting.

That is, the insurer had accepted liability for some of the roof repairs. It is not a clear distinction between roof repairs and other repairs. To close out the point, towards the end of the piece, if your Honours go to the appellant’s further materials at page 252, this is part of the 28 May 2018 letter. At the foot of page 252, paragraph 2.5 of this letter from the insurers:

Despite the non-disclosure issue as discussed in Ms Lander’s email dated 9 May 2017, SCI agrees to pay for:

Then, dropping‑down on the next page to paragraph (b):

The cost of repairing resultant damage arising from the defective materials and construction of the roof for those buildings which lost roof sheeting only including –

various items:

internal water damage –

and so on. And:

there is only one building that lost roof sheeting, namely Building G. Consistent with Ms Lander’s email dated 9 May 2017, SCI agrees to pay these costs in respect of Building G –

Then, (c):

The cost of repairing damage to the roofs of the buildings at the Premises which did not lose roof sheeting –

They are going to pay for:

but only where –

And then proviso at (i) and (ii) are set out. Then, in 2.6:

SCI does not agree to:

(a) Replace the roof sheeting or repair any aspect of the roofs of the buildings besides Building G that:

(i) Were damaged as a consequence of –

various matters.

So, it is a somewhat nuanced picture as to whether roof repairs were included in what SCI were paying for or not. But, at any rate, SCI were going to conduct the works. They were going to commission a scope of works, obtain the quotes, conduct the works and then give us an invoice for what they claimed was our responsibility for payment, but we were never asked or expected to carry out any works ourselves for that 12-month period.

Now, can I go back to May 2017 and pick up the subrogated claim made by Holman Webb lawyers, if your Honours go in the respondent’s further material, to page 30.

GLEESON J: Mr Jackman, just before you go to that, the statement that the defective repairs were to be paid for by the body corporate, was that ever explicitly accepted?

MR JACKMAN: I am not sure that it was. Would your Honours give me – the answer is no, because there remains a live question about how the exclusions operate.

GLEESON J: Thank you.

MR JACKMAN: Then page 30 is Holman Webb’s letter of 24 May 2017 to the builder of Beachside Constructions. It is headed Body Corporate for Delor Vue v Beachside Constructions and about two-thirds of the way down, page 30, your Honours will see that Holman Webb:

are instructed to expressly put you on notice that should you deregister Beachside . . . prior to our client either finalising its claim against Beachside . . . or advising that it does not intend to commence proceedings against Beachside, our client will hold you personally liable for any liability of Beachside and commence any necessary proceedings to enforce that liability.

All of our client’s prior letters to Beachside constituted a “claim” and/or “circumstance” under any professional indemnity policy held by Beachside at that relevant time. Out of an abundance of caution, and to avoid any doubt, this letter also constitutes a “claim” and/or “circumstance” and we strongly recommend that you on-forward this letter to Beachside’s insurer(s), if the insurer(s) haven’t been notified already.

Now, plainly Holman Webb are contemplating that the PI cover for the builder will be written on a claims made and reported basis, so they are absolutely emphatic that this letter is a claim. One does not need to file a statement of claim or a summons in a court in order to make a claim. One makes a claim against somebody just as effectively by writing a letter of demand – or a letter along these lines – and Holman Webb did not want there to be any doubt that they were making a claim. This is an exercise of the contractual right of subrogation. Then, the correspondence continues, if your Honours go through to page 37, there is a further letter by Holman Webb of 22 June 2017, to Beachside. In the second paragraph:

As set out in our letter to ASIC dated 9 May 2017, while our client has not commenced its proceedings against Beachside Constructions (National) Pty Ltd (the Company), it intends to in the very near future. It is the position of a –

It should read “our”:

client that the company owes to it a contingent liability.

That is, there is presently owing a liability. That is, a claim. And on page 38:

Should the above not be acceptable, then our client will not consent to the deregistration of the Company prior to our client either finalising this claim against the Company . . . or advising that doesn’t intend to commence proceedings –

And, again:

our client will hold you personally liable for any liability of the Company and commence the necessary proceedings against you personally to enforce that liability.

Finally, at page 48, it is the final letter to Beachside by Holman Webb of 18 October, 2017. Your Honours will see that a little over halfway down the page that they have now learned that Beachside has been deregistered, and they are seeking reinstatement under section 601AH:

The Company should not have been deregistered due to –

What is then called:

the impending claim the Body Corporate intends to bring against the Company. The Body Corporate recently gave notice to you and the Company of that impending claim –

In fact, they gave notice of an actual claim and emphasised explicitly that it was an actual claim; the words “impending claim” appear to be a reference to bringing court proceedings, which would be the next iteration of the claim, which had actually already been made.

So, we have, by the end of May – going back to page 30 – an actual exercise of contractual rights of subrogation under the policy. We also have, immediately after the 9 May letter, access to the property being given to Ambrose Building for the purposes of the insurer getting a quotation. The documents are replete with references to the insurer’s loss adjuster, Exigo, its consulting engineers, Morse, and another builder, Advanced, all enjoying rights of access to the premises, pursuant to the policy terms.

I should go back to those policy terms, if I may. In the appellant’s further material, relevantly, at page 19. Clause 4, top of the left‑hand column:

Approval needed for repairs

You are not authorised to commence repairs without Our approval except for essential temporary repairs –

Clause 5:

Repairs or Replacement

We have the right to nominate the repairer or supplier to be used. If after We have assessed Your claim, You are required to enter into a contract –

Then:

You will enter into that agreement with the third party as Our agent unless We otherwise advise in writing.

Clause 6:

Before We will pay anything under this Policy, You must:

. . .

(b) give Us all information and assistance which We reasonably require in relation to the claim and any proceedings –

and your Honours saw that paraphrased, almost verbatim, in the 9 May email. Then, Clause 8:

When a claim is admitted under this Policy, We have the right at Our discretion to exercise all Your legal rights relating to the claim and to do so in Your name.

We will take full control of the administration, conduct or settlement of the claim including any recovery or defence that We may consider is necessary.

Your Honour Justice Gleeson, asked my learned friend whether there was any finding as to the claim having been admitted pursuant to clause 8. Now, there is no finding expressed explicitly in those terms – that is, by reference to clause 8 – but there are numerous findings by the primary judge which amount to findings of the claim having been admitted under the policy. Can I ask your Honours to go to the core appeal book at page 96, paragraph 328, towards the top of page 96. In the second line the learned Chief Justice said:

The 9 May 2017 email said the claim would be paid according to the policy –

On the same page, paragraph 330 at the end of the paragraph:

cover was granted according to the terms of the policy.

And paragraph 331:

The clearest representation of intention of the grant of cover and of future conduct was made in May 2017.

And that is a reference to the 9 May 2017 letter. That paragraph goes on to refer to the proposal:

to sue a third party in furtherance of its subrogated rights.

There cannot be any doubt, in our submission, that his Honour was finding in the language of clause 8 that the claim had been admitted under the policy and that triggers the contractual right of subrogation.

GLEESON J: I just have two questions in relation to that. One is that we do not have the claim, I do not think, the only information we have is – that I could find is set out at paragraph 103 of the Chief Justice’s judgment at core appeal book 38 where the loss is identified as:

“roof damage from cyclone” –

That raises two concerns in my mind. One is that it is clear on the face of the email that the claim, whatever it was, is not accepted in its entirety, it is accepted subject to some conditions. But is it not also accepted, subject to the condition, that the work that falls into category 1 will be done and paid for by your client first?

MR JACKMAN: No, there is no ‑ ‑ ‑

GLEESON J: I am referring to 92.

MR JACKMAN: Yes, if we go back to page 92, the two paragraphs that appear after the bullet points do not line up with Parts 1 and 2 as specified halfway down page 92.

GLEESON J: Well, I am specifically looking at the sentence which starts with the word:

However . . . the roof repairs will need to be carried out first, before the internal resultant damage repairs can proceed.

MR JACKMAN: Yes, but that does not line up with the description of Part 1 which is:

defective repairs (to be paid for by the Body Corporate) –

because some of the roof repairs were being paid for by SCI. That sentence is really just expressing the commonsense proposition that there is not much point fixing things which are internal until you have made sure the building is waterproof.

GLEESON J: Is it not putting an obligation on the body corporate to expend money before the resultant damage repairs will be undertaken?

MR JACKMAN: No, it says nothing about when we are going to be asked to pay. And, given that there is no clear delineation in the work being commissioned by SCI between roof repairs and other repairs, it is not at all clear at what point in time we would be asked to pay for what SCI regards as our financial responsibility.

STEWARD J: Mr Jackman, I may have a problem with your view of clause 8 given that everybody agrees that there was no liability under this contract, applying clause 8 objectively, it is hard to say that a claim has been admitted under this policy.

MR JACKMAN: No, the claim was submitted under the ‑ ‑ ‑

STEWARD J: It may have been subjectively thought that it was.

MR JACKMAN: No, I have checked. It was admitted. SCI say yes, we admit your claim, we know there is a non‑disclosure issue but forget about it. Forget about that. We are going to meet your claim at least in relation to the internal damage.

STEWARD J: But the operating cause of the requirement to meet the claim cannot be the policy given that the objective fact is that there was no liability under this policy by reason of section 28(3). There may have been a voluntary assumption of some kind of decision-making process to accept the claim, but not pursuant to and under the policy.

MR JACKMAN: Well, with respect ‑ ‑ ‑

STEWARD J: It might have been pursuant to Allianz’s goodwill at the time.

MR JACKMAN: An insurer that says ‑and we avoid words like “waiver” and “election” – an insurer who says, we are not going to rely upon section 28(3) and we are going to admit your claim under the policy, must be complying with those opening words of clause 8.

STEWARD J: Right.

MR JACKMAN: And it is a question of what the insurer is admitting, and the insurer is admitting the claim under the policy at the same time as saying, and by the way, we are not relying on section 28(3).

GLEESON J: Did your client seek a finding that the claim was admitted under the policy before the primary judge?

MR JACKMAN: At least implicitly because one of our arguments was the insurer was acting inconsistently with reliance on section 28(3) by, among other things, making subrogated claims. I mean, it was fundamental to our argument was the proposition that clause 8 applied and was being exercised by the insurer when it was making claims against the builder. So, whether we sought a finding in the precise terms of clause 8 or not, it was fundamental to our argument and the learned trial judge made findings to that effect.

While I am in the terms of the policy, can I point out – back on page 9 – that the role of SCI as an agent for Allianz is referred to on page 9, in the right‑hand column, halfway down the column:

Strata Community Insurance Agencies Pty Ltd . . . have been given a binding authority by Us –

That is Allianz – that is how they come into the picture. Now, moving on to later in 2017, if your Honours go back to the respondent’s further materials at page 45, your Honours will see an email from Mr Key – our body corporate manager – to SCI of 29 August 2017. Further away down the page:

The Body Corporate has received two reports that the Body Corporate’s insurers have commissioned through their consultants Morse Consulting.

The insurer, of course, exercising its rights of controlling the work:

Two (2) reports outlining the scopes of work for each building has been provided. One report relates to the works to be settled under the indemnity of the policy and paid for by the insurers The other report, referred to as Defective Works – Pre‑existing related issues relates to work that is denied indemnity under the policy. The expectation by the loss adjuster is for these works to be paid for by the Body Corporate.

Not to be done by us – simply to be paid for:

Our most recent update from our broker via you is that these two sets of scopes of work have been tendered and are being costed. We confirm we have not been provided with any costings regarding the two (2) scopes of work.

Then, dropping down the page, the email attaches a report by GHD structural engineers and:

This report clearly indicates that the roof trusses are undamaged (save for one local failure) and certified for the purpose. GHD’s opinion is that the roof trusses do not need replacement.

Then, over the page:

The Body Corporate is of the view, based on –

GHD’s advice:

that the truss replacement as suggested by the Morse reports is unsubstantiated.

But all we can do is try and persuade the insurers. We cannot carry out the work ourselves because SCI is – sorry, SCI . . . . . the insurer – has confirmed indemnity and is holding us to the policy terms which give the insurer control over the work. So, all we can do is try to persuade them. Then, a quarter of the way down the page:

Considering the above, the Body Corporate requests a meeting be convened to settle this claim and permit the works to commence to repair the damage to the building under the policy.

The start of some growing frustration about the failure of SCI to actually commission the work to be carried out. Then, going to page 57, your Honours will see the disagreement that my learned friend referred to, concerning the nature of roof truss repairs, with the insurer’s engineer – Morse – calling for:

all roof trusses to be removed and replaced.

And continuing efforts by the Body Corporate to persuade the insurer to adopt a simpler and less expensive approach to that particular problem. If your Honours then go back to the appellant’s further material at page 164 – this is part of a report that begins at page 160 by GHD of 21 August, 2017. At the foot of page 164 there is reference to the roof trusses and roof framing, and at the top of page 165, GHD have identified:

Units 36 and 26 have suffered significant damage to the trusses reducing their capacity.

And:

some minor damage to the truss –

of unit 31, and a quarter of the way down the page:

The damage to unit 36 and unit 26 is most likely caused by Cyclone Debbie.

So, in terms of roof damage and the order of repair work, which was logical – namely, fixing the roofs before one fixed the internal damage – the extent of roof truss damage caused by the cyclone was very limited, and that is the basis for the submission that we make – that there was an available option for Delor Vue, if Delor Vue was controlling the work itself, and SCI had not confirmed indemnity of first of all repairing the cyclone damage; so at least the building was put back into the condition which it was in before the cyclone, and then maybe sequentially or at a later point in time, rectifying the pre‑existing defects.

STEWARD J: Did any of your witnesses give evidence about this?

MR JACKMAN: No.

STEWARD J: You are asking us to make findings based upon our reading of these documents.

MR JACKMAN: Yes. There was not express evidence by a witness to that effect ‑ ‑ ‑

STEWARD J: Do we need to decide whether the roof trusses were or were not really defective?

MR JACKMAN: Well, the evidence is that the extent of roof truss damage caused by the cyclone was very limited. That is what your Honours see on page 165.

STEWARD J: But – based on this, or based upon an expert report before the court or a finding by the court?

MR JACKMAN: This was admitted into evidence.

STEWARD J: But is there a finding accepting this?

MR JACKMAN: No, but ‑ ‑ ‑

STEWARD J: I do not know who these builders are and whether they are qualified to make that kind of comment.

MR JACKMAN: Your Honours will see that they are structural engineers. Nobody complains in the evidence about their lack of qualification. But we put it at a level of possibility that it was an available approach. Now, we do not say that is the approach that would have been taken. We cannot go that far. But we say that it was among a range of possibilities at to how Delor Vue might have decided to go about ‑ ‑ ‑

STEWARD J: But if it was a real possibility, surely one of your witnesses would have said something about it, said, we, the body corp, are really keen to go with this report, because it was cheaper.

MR JACKMAN: Well, I cannot go so far as to say that it was the – that in the counterfactual world that is what Delor Vue would have done, but in terms of ‑ ‑ ‑

STEWARD J: They commissioned this report.

MR JACKMAN: Yes.

STEWARD J: They would have read it. They would have discussed it. They are all facts that could have been put before the court. They are not counterfactual facts. They are real things from which a counterfactual might have been inferred.

MR JACKMAN: Might have been, yes, but our estoppel case in terms of detriment was not of that kind. Our estoppel case was simply one based on a loss of opportunity which was not fanciful and, in our submission, the available evidence met that threshold and I am just trying here with this document to give some practical illustration of what that opportunity might have amounted to and, as your Honours are aware, Delor Vue had a considerable amount of cash and debt available to it in order to meet some repair costs, maybe not the full suite of rectification of defects which in due course would have been attended to, but we do know from the evidence that there was $1 million available to it immediately to conduct the work that it chose to do as a priority.

EDELMAN J: I think one aspect of what Justice Steward is putting to you is that at some stage you are going to have to face up to the fact that opportunities that are lost can be beneficial, they can be neutral, they can be detrimental.

MR JACKMAN: Yes.

EDELMAN J: At least on one view, it is only the beneficial opportunities that are lost that are relevant for the purposes of estoppel.

MR JACKMAN: Or opportunities that might be beneficial. I will return to this when I come in more detail to the estoppel argument. At the moment I am reviewing the evidence and if your Honours go back to the respondent’s further materials at page 51 – I am sorry, I should start at page 18 chronologically. On page 18 your Honours will see in the relevant minutes the body corporate – a third of the way down page 18 – that there was about $355,000 in cash held by the body corporate.

Then going through to page 51 ‑ ‑ ‑

STEWARD J: Is there any evidence of what liabilities the body corporate expected to meet during that financial year or the next?

MR JACKMAN: There is some evidence of liabilities but not in a comprehensive way.

STEWARD J: We do not have a balance sheet ‑ ‑ ‑

MR JACKMAN: No. At page 51 in the minutes of a meeting in January 2018, a third of the way down the page, it was resolved:

That the Body Corporate enter into . . . a loan agreement –

for a limit of $750,000:

for the purposes of defect repairs to the building essential to permit the insurance repairs to be undertaken to the building following Cyclone Debbie.

Then in the appellant’s material at page 229 your Honours will see a report by Exigo, the loss adjusters for the insurer, dated in the top right‑hand corner 23 March 2018, and at page 231 the loss adjusters asked Mr Stewart, manager for the body corporate:

if the BC had made any arrangements for funding.

And he was told of the:

decision to source funding up to $1,000,000.00 . . . The BC has $250,000.00 in the sinking fund and has secured finance for another $750,000.00.

So, there is $1 million available to attend to repairs. So, the body corporate was serious about paying for repairs and had it been the body corporate’s decision rather than the insurer’s decision about what repairs should be carried out and when then it is open to the Court to infer that there was an opportunity on the part of Delor Vue to engage in that work, given the $1 million that it had available for the defective repair work in question. Now, can I stay with that ‑ ‑ ‑

GAGELER J: Mr Jackman, could I just clarify that last submission – is that a submission that is made in support of our acceptance of certain findings of the primary judge, or are you asking us to make some new and additional finding?

MR JACKMAN: No, it is made in support of the primary judge’s finding that there were lost opportunities by reason of SCI having confirmed indemnity and holding us to the policy terms, which gave SCI the control over the work. The opportunity being, here, relevantly, for the Body Corporate itself to have undertaken work, which it had the wherewithal to do, to the extent of $1 million, which would have enabled it to have undertaken at least the work which was deserving of the highest priority; if not all of the work.

GAGELER J: Thank you.

KIEFEL CJ: Then what do you say was the loss or detriment that followed from that? It is just a loss of opportunity.

MR JACKMAN: Yes. The loss of opportunity. That is how we put it.

STEWARD J: Mr Jackman, apropos Justice Gageler’s question, did the Chief Justice make an express finding of fact that he accepted there was $1 million in the kitty available for building work?

MR JACKMAN: I do not think there was a finding to that extent ‑ ‑ ‑

STEWARD J: You say it was implicit?

MR JACKMAN: Implicit in his Honour’s finding of a loss of opportunity must be the proposition that the Body Corporate had some ability to do some work of its own, but I do not think I could say it was implicit in his Honour’s judgment that his Honour found there was $1 million available, but I do not think it was controversial. Rather, I think the proposition put against us by my learned friend is that $1 million was not going to be enough to do all of the work. I do not think he disputes the availability of the $1 million.

EDELMAN J: But is there any issue about whether the $1 million was still available on 28 May?

MR JACKMAN: No, no. That evidence I was going to, takes us up to the end of March. There was not any issue about the $1 million not still being available.

STEWARD J: Could I ask you this question? This is, potentially, evidence of a decision to seek funding of $750,000. Was such funding sought or approved?

MR JACKMAN: Yes. The evidence here, on page 231, is that the body corporate had secured finance. So, the decision was taken ‑ ‑ ‑

STEWARD J: Okay.

MR JACKMAN: ‑ ‑ ‑at page 51 of our material, on 18 January 2018. That resolution was:

That the Body Corporate enter into and execute a loan agreement with StrataCash Management –

So, there was, obviously, a documented agreement awaiting signature. By 23 February, Mr Stewart, on behalf of the body corporate, was able to indicate that the body corporate had secured finance for that $750,000.

STEWARD J: Thank you.

MR JACKMAN: Can I go, then, to the appellant’s material at page 240 – which was our letter of 3 May 2018 – and take up the – I am sorry – wrong folder. I am sorry, can I ask your Honours to go to the respondent’s material, at page 63? I am so sorry. This is our letter of 3 May 2018 to Ms Lander of SCI. Paragraph 2:

A claim was submitted . . . on 27 March 2017 –

So, here we are, over a year later from the submission of the claim. At paragraph 15, through to page 64:

the Insured is most concerned about the ongoing delays associated with commencing the repair work.

On page 65, there is a complaint about “Lack of Transparency”, at the top of the page. Then, under “Delays”, paragraph 19:

The Insured considers that SCI is failing to progress the claim expeditiously.

The claim was submitted in late March 2017. Despite more that a year having elapsed, SCI has not stated its position on indemnity with any clarity.

That is a reference to the ongoing debate about exclusions – not a complaint that the 9 May 2017 letter was not a clear statement on indemnity, as such. Then, in paragraph 21:

The Insured has satisfied its obligations pursuant to the policy to:

Provide details of the incident;

Allow SCI to inspect the property;

Take reasonable steps to reduce the damage and prevent further damage; and,

Not undertake any repairs without SCI’s approval.

There is a criticism of us in my learned friend’s written submissions which was not made orally today that it was the body corporate that had dragged the train on the repairs. But, of course, we were being held to the policy terms which required us not to undertake repairs without SCI’s approval. And SCI, at all stages, wanted to control the works and the methodology and order and so on that was being undertaken.

Then, can I go back to the appellant’s material for the 28 May 2018 letter beginning at page 247. So, this is the response to our complaint. Your Honours will see it refers to our letter of 3 May 2018 where we complained about delays in getting the work done. The response to that complaint is, going through to page 257, paragraph 4.1 That:

If the Body Corporate does not agree to proceed as set out above within 21 days, SCI’s offer in relation to indemnity will lapse and SCI will pay $nil pursuant to section 28 of the Insurance Contracts Act –

That is a resiling from the 9 May 2017 email in which it was made crystal clear that SCI would not be relying on section 28 of the Insurance Contracts Act.

EDELMAN J: Strictly, it is not resiling from it, it is placing a condition on it.

MR JACKMAN: With respect, not, it is saying if you do not meet our ultimatum here, then we are relying on section 28(3) but, we had been told for the previous 12 months that SCI was not relying on 28(3).

EDELMAN J: The condition is that there be agreement within the 21 days, but it is not an immediate resiling, it is resiling only if the condition is not met.

MR JACKMAN: Well, it is certainly doing that. But in our submission, it is resiling from what had been the unequivocal position for the previous 12 months that 28(3) would not be relied upon. And here they are saying: no, we have changed our minds, we are going to rely on 28(3) if you do not meet our ultimatum ‑ and that is resiling, here and now, but it also foreshadows the resiling which did occur at the end of May 2018.

EDELMAN J: I suppose another way of putting it might be to say an unconditional waiver of section 28 becomes a conditional waiver of section 28, it is only going to be waived if there is compliance within 21 days.

MR JACKMAN: And in our submission, if that is accepted as the characterisation, that is a resilement. It is imposing a condition where none was previously imposed. Then the offer in question has a number of components to it. Paragraph 2.10 on page 256 splits:

the cost of repairing the cyclone damage and repairing the pre‑existing defects/faulty workmanship and materials –

in the amounts that your Honours see. Then, again, SCI will pay for (a) but not (b), but SCI was going to undertake the work in (b) and then charge us for the work. They were not asking us to do the work. At 3.2:

SCI will work with the Body Corporate to rebuild . . . the damage that is covered by the Policy –

but will only do it if:

(a) The Body Corporate rebuilds . . . pre‑existing defects . . . as set out in the Morse Scope of Works –

that is, only if we do it the insurer’s way, not, for example GHD’s way or someone else’s way –

b) The building contract entered into by the Body Corporate –

had to be approved by SCI. So they are still controlling all the works. We had to complete those works by 23 September and if we failed:

to undertake the works by that time, then SCI will no longer insure the Body Corporate in respect of the Premises.

Then 4.1 is the ultimatum and no evidence was ever given of any reason for imposing that ultimatum or, as the primary judge expressed it, the take it or leave it offer, and the final step then came on 22 August.

STEWARD J: Just before you go there, would it make any difference if the figures in 2.10 were accurate; that is, if they married up to the two categories from the May 2017 email? So, if $918,000 was an accurate and correct expression in quantum terms of Allianz’s liability, would that make a difference here to your case?

MR JACKMAN: No. It is certainly a lot higher than the Ambrose initial quote of $553,000, and it is certainly undetermined yet whether that is the split, but it would not make a difference to our case if it turns out, eventually, that that is the cost of the cyclone damage covered by the insurance. Then, at page 273, your Honours see the 22 August, 2018 letter from Holman Webb, and at 274, paragraph 3.2, line 4:

Now that the offer has been rejected, SCI reduces payment of the claim to $nil. SCI reserves its rights to seek reimbursement of monies it has paid to date in respect of the following, which it is entitled to do pursuant to s 28(3) of the ICA:‑

(a) Make Safe Repairs/reinstatement works performed to date;

(b) The costs of arranging for the Morse Building Consultancy (Morse) Scope of Works to be prepared –

Although it sounds as though today my learned friend disavows any claim for reimbursement of monies that have been spent.

EDELMAN J: It is hard to see what legal basis would have entitled them to reimbursement if they paid knowing that they were not liable to pay?

MR JACKMAN: I have not turned my mind to that, it does not sound like that, the live issue any more in the case, but – it may be an interesting academic question. Now, can I turn then to the question of election and waiver, and go back to the law as it was before section 28 of the Insurance Contracts Act was enacted, and there is a succinct statement in the Nigel Watts Case by Justice Handley, which your Honours will find in the book of authorities volume 4, relevantly at page 665, bottom of the right‑hand column on 665, under the heading “Election” – so this is dealing with the common law position before section 28 – in the third line under “Election”:

The doctrine, in its application to contracts of insurance, prevents an insurer from adopting inconsistent positions under the same policy. An insurer receiving a claim who is entitled to avoid the policy or reject the claim for breach of condition must make an election.

So there are two rights that are effectively two sides of the same coin: avoid the policy – reject the claim for breach of condition on the one hand, or affirm the policy on the other. So, in the first case, the insurer must either affirm or avoid the policy, and in the second, it must waive the breach and accept the claim or rely on the breach and reject it. If, having the requisite knowledge of the facts, it asserts rights which would only exist if the policy was in force and covered the claim, it will be taken to have elected to treat the policy as valid and applicable to the claim.

Now, section 28 – and, in particular, section 28(3) – was plainly designed to improve the position of the insured because it takes away from the insurer the right to avoid the policy for non‑fraudulent nondisclosure or misrepresentation. If we go to the way in which the learned primary judge characterised section 28(3) – can I ask your Honours to go to the core appeal book at page 92, paragraph 311? His Honour said:

Here, the statue provides for a state of affairs: being that “the liability of the insured is reduced to the amount” referable to the hypothesis for which the subsection provides.

So, it is cast in the passive voice and we are not told who the actor is, so it simply describes the liability of the insured is reduced as a matter of form. That gave rise to the submission that there could not be an election waiver or estoppel – and I am dealing here with the submission about election. His Honour says:

That is too sweeping a proposition. Though framed as it is in terms of a state of affairs or a legal conclusion, the plain intention of s 28(3) is to place the insurer in a position different from a duty to comply, in an unqualified way, with the terms of the policy. It enables the insurer to approach the claim for an indemnity not by reference to the terms of the policy, but by reference to an hypothesis.

Most importantly, then:

The provision arms the insurer with a body of substantive rights which it can raise in defence or answer to the contractual claim for indemnity under the policy.

That, in our respectful submission, is the appropriate way in which to characterise section 28(3). It cannot, in the real world, operate automatically because fate is not going to impose the reduction to liability without some human being, namely, the insurer, actually making the decision to do so. That decision can be made, as his Honour said, in defence, and that might be in formal court proceedings but it might also be made out of court in pre‑litigious dealings in answer to the contractual claim for indemnity under the policy, as your Honours saw with the 9 May 2017 correspondence. Section 28(3) is certainly not confined to raising a defence in legal proceedings in court as distinct from the real world decisions of insurers being made every day without litigation.

GLEESON J: It is no different from a limitations point in that way, is it?

MR JACKMAN: Yes, that is right, a limitation point can be raised in correspondence between the parties and often accepted and the court hears nothing of the claim. But the important point in that sentence is his Honour’s recognition that:

The provision arms the insurer with a body of substantive rights –

And, indeed, the policy language itself reflects that. If your Honours go back to the appellant’s book of further materials at page 13, the duty of disclosure is referred to in the right‑hand column and halfway down the right‑hand column under “Non‑disclosure”:

If You fail to comply with Your duty of disclosure, We may be entitled to reduce Our liability under the contract in respect of a claim, cancel the contract, or both.

That reduction of liability is a reference to 28(3), and the most obvious and natural way to talk about that is as an entitlement. It corresponds, in our submission, to normal legal usage of the word “rights”, and we have referred in our written submissions to a passage from the Eaton Case, in volume 3 of the book of authorities at page 417 in which Justice Stephen dealt with usage of the word “right”, and about a quarter of the way down page 417 ‑ ‑ ‑

KIEFEL CJ: What page of the Commonwealth Law Reports ‑ ‑ ‑

MR JACKMAN: Page 293.

KIEFEL CJ: Thank you.

MR JACKMAN: 129 CLR at page 293, a quarter of the way down the page:

It may be a matter for debate whether the term “right” is used in cl. 65 (l) (b) in its wide sense as including any advantage or benefit which is in any manner conferred upon a person by a rule of law or in its narrower, stricter meaning as the correlative of a legal duty –

With a reference to Salmond on Jurisprudence, perhaps inspired by the work of Professor Hohfeld. Here, one can certainly envisage the right under 28(3) as being in the wider sense, because the section gives the insurer an advantage or benefit. No‑one else but the insurer gets that advantage or benefit. In the narrower sense, the right is correlative of a legal duty, namely, the duty to make and communicate a decision on the claim under the policy. Professor Hohfeld would have approved, in our respectful submission, of that very strict, narrow view of the right, but there is no reason, in our submission ‑ ‑ ‑

EDELMAN J: I do not think he liked the word “right” at all. I think his whole point was that the word “right” ought not to be used, even in the strict sense, to cover four or five different types of jural relations.

MR JACKMAN: But where it corresponds to something which is a claim upon another to perform a duty, then – Professor Hohfeld, I suppose, might have been inclined to think of this as an immunity, but lawyers do not think in the way that Professor Hohfeld wrote. It was quite narrowly‑confined reasoning. But, if we conceive of the narrow sense of right, then 28(3) is correlative of the duty to consider or make a decision on the claim.

Can I go to the next step in the reasoning? Which is that even on the most restrictive passages on the doctrine of election, one does not need to find two mutually exclusive rights. One can find inconsistent sets of rights. Those expressions are found in, first of all, Sargent, on which my learned friend places very considerable reliance. That is in volume 3 of the authorities – relevantly, page 465 – and [1974] HCA 40; 131 CLR 634, it is page 641 – where, at about point 8 on the page, Justice Stephen says:

The doctrine only applies if the rights are inconsistent the one with the other and it is this concurrent existence of inconsistent sets of rights which explains the doctrine –

GLEESON J: But this was a classic case of inconsistent rights – Sargent.

MR JACKMAN: This was, but Justice Stephen is expressing the doctrine slightly more widely by recognising that the inconsistent rights might be inconsistent sets of rights. The point is made, also, in Khoury – if your Honours go, in this third volume, to page 449 or, in volume 165 of the Commonwealth Law Reports, it is at page 633. Under the heading “Election”, their Honours said:

A person confronted by two truly alternative rights or sets of rights, such as the right to avoid or terminate a contract and the right to affirm it and insist on performance, may lose one of them by acting “in a manner which is consistent only with his having chosen to rely on [the other] of them” –

And at the foot of that page:

Where an election is not shown to have been consciously made, the words or conduct relied upon to impute it must unequivocally evidence “the exercise of one of the two sets of rights and [be] inconsistent with the exercise of the other” –

And in our case ‑ ‑ ‑

GLEESON J: But, again, this is a classic case of right to avoid or affirm the policy.

MR JACKMAN: Yes, it is. Both of those are cases of mutually exclusive inconsistent rights where the holder of those rights is confronted with a choice as to which of them to adopt. But that is not the only way in which the doctrine of election can apply and that is why, in a number of cases, alternative phraseology is used such as “inconsistent positions” or “inconsistent courses of action”. In this country, can I go, first, to the Immer Case – again, in volume 3, at page 434 of the volume. If your Honours are working from the Commonwealth Law Reports, volume 182, at page 41. On page 41, or 434, point 3 on the page:

The true nature of election is brought out in this sentence from the seminal work of Spencer Bower and Turner . . . “It is of the essence of election that the party electing shall be ‘confronted’ with two mutually exclusive courses of action between which he must, in fairness to the other party, make his choice.” –

Then, over the page, top of page 435:

As Spencer Bower and Turner point out in the passage quoted earlier, at the heart of election is the idea of confrontation which in turn produces the necessity of making a choice.

That is, that confrontation between two mutually exclusive courses of action. That is the very heart, the very essence of the doctrine. It is often expressed in terms of inconsistent or mutually exclusive rights, but that is explicable by reference to the fact scenarios of those cases. That is not the essence or the heart of the principle. The heart of the principle is the broader concept of mutually exclusive courses of action.

EDELMAN J: Immer itself is a case of a right of termination or rescission.

MR JACKMAN: It was, yes.

EDELMAN J: Is there any case apart from this one in which the right – in the loose sense of alternative positions – has been relied upon as sufficient for an election?

MR JACKMAN: If we treat Craine as a case of election, then Craine is that case. I was going to come to Craine, but let me deal with it now. That ‑ ‑ ‑

EDELMAN J: Just before you do, apart from Craine – I understand there is a dispute about how to interpret Craine – is there any other case in the last century which would support a view that it is an inconsistent position, not inconsistent rights, in the strict sense.

MR JACKMAN: In terms of the actual facts of the case, none that I can identify; in terms of the expression of reasons, then there are many, many cases that express the principle in that way, and it is the expression of reasons which has precedential value; it is not the practical outcome of the case, or the fact scenario of the case, it is the reasons which are expressed which ‑ ‑ ‑

GLEESON J: What was the ratio?

MR JACKMAN: That is the ratio, the reasons that are expressed, and if the reason ‑ ‑ ‑

GLEESON J: Identified by reason by relation to the facts in issue

MR JACKMAN: By relation of the facts in issue, but if the reasoning goes beyond the facts, then one can tell very readily that the principle will apply beyond that fact scenario, and very deliberate language has been used by this Court, by the Privy Council – which we will come to – to indicate that the doctrine of election is not confined simply to mutually exclusive, inconsistent rights – as such.

Let me deal with Craine now, if I may, if I can find my copy of it – because the debate between us over Craine really relates to whether clause 11 in that case was self‑executing or automatic – to use my learned friend’s word – rather than requiring a decision by the insurer, and it is clear in our submission that it was self‑executing or automatic. If your Honours go to volume 3 of the book of authorities, page 370, or volume 28 of the Commonwealth Law Reports, at page 306. Your Honours will see clause 11 set out, requiring:

notice in writing . . . within fifteen days after the loss or damage.

Now, that was in the event extended to move on a particular day and the insured missed out by some three hours. So, as your Honour Justice Gleeson pointed out, it was a harsh application of something which would now be met by section 54. But, be that as it may, the concluding sentence of clause 11 is:

No amount shall be payable under this policy unless the terms of this condition have been complied with.

And that, in terms, is self‑executing, and Justice Isaacs makes that point on page 383 of the bundle or page 319 of the Commonwealth Law Reports.

EDELMAN J: But are those two interpretations necessarily inconsistent? It may be that clause 11 is a condition of the contract which gives rise to a power upon breach terminate it, and it may also be that, independently of termination, clause 11 gives rise to no obligation to pay under this policy.

MR JACKMAN: Well, Justice Isaacs is firmly in the latter camp, and whether it is possible to construe clause 11 as something which requires an act of termination by the insurer is not something which Justice Isaacs’ reasoning supports and the language of the clause does not give any indication that that is its proper construction. But on 319, towards the foot of the page there is a passage after quoting the correspondence – this is about eight lines up from the bottom:

Now, so long as the Company distinctly and unequivocally retained the attitude of total non‑liability on its part, because such a breach of clause 11 by the plaintiff as occurred put an end to all obligation by the Company to pay a penny –

That is, it was the plaintiff’s failure to notify within the required period which itself put an end to all obligation to pay a penny. Then his Honour clarifies that by saying:

in other words, that the contract according to its own terms had, by reason of the breach of clause 11, terminated the contractual obligations of the parties – it was safe.

So, the insurer could just sit on its hands, do absolutely nothing, maintaining a position of non‑liability, and clause 11 would do all the work that the insurer needed to be done on its own terms. That is why we say Craine is not a case where the insurer had to choose between two rights, the insurer could do absolutely nothing, and, in Justice Isaacs’ language, it was safe. But what the insurer in fact did over a course of some three or four months was to exercise rights which arose only if it had admitted the claim, and that was the inconsistent course of action which gave rise to the election and/or waiver.

Now, Justice Isaacs uses the word “waiver” but, as my learned friend says, the High Court in Agricultural and Rural Finance v Gardiner tended to treat Craine as a case of election, but in a way that does no harm at all to our argument; in fact, assists our argument. If your Honours go to Gardiner, it is volume 2 of the bundle, page 34, or 238 CLR at page 589.

EDELMAN J: Mr Jackman, just before you do – and you may wish to take this on a notice – it would assist me if you could tell me at what point in time it became clear in the law that the breach of a fundamental term of contract led to a power to terminate upon the election of the innocent party, rather than the view that termination operation in the same way as frustration and automatically led to the contract coming to an end. I am not sure that view was necessarily crystal clear in 1920.

MR JACKMAN: Can I go back to that use of the word “terminated” in Craine? Because his Honour, in my submission, is not talking about termination of the contract, his Honour is talking about termination of the contractual obligations of the parties – we interpolate there – in relation to that claim. So, there is nothing in clause 11 that says the contract as a whole is terminated if you do not get your notice in within 15 days. What the clause says is:

No amount shall be payable under this policy unless the terms of this condition have been complied with –

So, what his Honour must mean by terminating the contractual obligations of the parties is a termination of the obligations of the parties in relation to that claim. There could conceivably be another claim during the policy period. Lightning sometimes does strike twice. And had there been another claim, then there is no reason the policy would not have still been on foot, and as long as the insured got its notice in within 15 days, that claim would have responded to a policy that was still extant. In our respectful submission, the question that your Honour Justice Edelman put does not arise because Justice Isaacs is not talking about termination for fundamental breach, his Honour is simply talking about terminating the obligations in relation to that claim.

EDELMAN J: Thank you.

MR JACKMAN: But, going to Gardiner, at paragraph 58, in the reasoning of Justices Gummow, Hayne and Kiefel, towards the end of paragraph – 58 begins:

The doctrine of election is long established at common law. As Jordan CJ pointed out . . . you cannot have the egg and the halfpenny too”. If, then, something happens which gives rise to the existence of two alternative rights, and one of those rights is satisfied, the other is no longer available.

Then, we have got the example of a breach of contract:

a right to recover damages for the breach. If serious, the breach will give the innocent party the right to treat the contract as at an end. But the innocent party need not accept the repudiatory breach and avoid the contract; . . . may choose to insist upon further performance.

That is a case of a choice between two alternative rights. But, then, their Honours say of Craine, that that case:

shows, the exercise, despite knowledge of a breach entitling one party to be discharged from its future performance, of rights available only if the contract subsists, will constitute an election to maintain the contract on foot.

Their Honours are using Craine as an instance where there is a course of conduct whereby rights have actually been exercised. So, it is not simply a choice to adopt one right over another. Craine is a case where the obligation of the insurer to pay had come to an end, but the insurer conducted itself over several months in a way where, by exercising rights available only under the contract, that can constitute an election to maintain the contract on foot – we would put it. That is an election to accept the claim, rather than relying upon the defeat of the claim under clause 11.

But the defeat of the claim, under clause 11 in Craine, did not require any choice to be made by the insurer – that just happened automatically. What the insurer did was to conduct itself – that is, adopting a certain position or conduct, whereby its conduct showed that it was acknowledging the contractual obligation to pay as still being on foot.

So, Craine is an important case because it demonstrates if one treats it as an election case, and the High Court seems to have been inclined to do so in Gardiner, then it must show that an election goes beyond the case of the insurer choosing between two mutually exclusive inconsistent rights to a case where the insurer, by its conduct, has elected not to rely upon a position which the law gave the insurer without the insurer having to do anything to attract that position. That is why we say there is a close analogy between clause 11 and section 28(3) in that both are expressed in terms of a state of affairs, or a legal conclusion.

In the real world, 28(3) does actually require the insurer to take advantage of the substantive rights which the insurer is armed with, and so our case, in our submission, is a good deal stronger than Craine. But if one looks purely at the formal language of 28(3), not its substantive operation, and one treats it as no more than a statement of a state of affairs which comes about without any conduct by the insurer – an artificial proposition, but let us accept it for argument – then our case is on all fours with Craine because clause 11 was undoubtedly a state of affairs which the insurer did not have to do anything to take the benefit of, the insurer could simply sit back, or sit on its hands, and then it was safe.

Can I just round this out, before the Court adjourns, by going to the other passages that I wanted to take the Court to for the reasoning expressed in terms of inconsistent positions or courses of conduct, going back to volume 3 in the authorities, at page 527, in Victoria v Sutton, which is 195 CLR at page 306, where Justices Gaudron, Gummow, and Hayne said in paragraph 40:

The true nature of “election” is the confrontation of the person electing with two mutually exclusive courses of action between which a choice must be made, for example, to terminate or keep a contract on foot.

With reference to Immer, at the pages that I went to. Then, we have the recent Privy Council decision in Delta, which is volume 4 of the authorities at page 585, [2021] 1 WLR 5741 at page 5748, and in paragraph 21 their Lordships say, in the last four or five lines:

What is fundamental to the principle of waiver by election and crucial for present purposes is that it is only capable of applying where a choice must be made between two alternative and inconsistent (in the sense of mutually exclusive) courses of action, such that adopting one of them necessarily entails forsaking the other.

That is very similar reasoning to Immer, where their Lordships used the word fundamental to the principle. In Immer we had the essence or the heart of the principle, and it is a broader concept than the insistence on strict rights.

GLEESON J: In this case, the Court accepted Kosmar, which is inconsistent with your reasoning. Is that not right?

MR JACKMAN: One cannot read too much into Kosmar. The UK Court of Appeal did not have to grapple with Craine.

GLEESON J: Although, it had Yorkshire.

MR JACKMAN: I beg your Honour’s pardon?

GLEESON J: It did have the Privy Council appeal from Craine – Yorkshire. It may be Yorkshire Insurance.

MR JACKMAN: Yes. But, in our submission, the reasoning of the Court of Appeal is far too dogmatic. By insisting on waiver by election or waiver by estoppel – it is far too narrow, in our submission, to be reconciled to the reasoning in cases like Immer, Victoria v Sutton, Delta and cannot be reconciled, in our submission, with the reasoning in Craine, to the extent that Craine deals with waiver or election. Craine does, of course, go on to deal with estoppel. But it is not a problem for the UK Court of Appeal, which does not have to grapple with Craine, but in Australia one could not support reasoning that narrow, in my submission, unless Craine were to be overruled.

There is no reason why Craine should be overruled because it has been followed for a century and it bespeaks a very obvious sense of justice, that someone cannot take advantage of a position that the law has given that party if they have conducted themselves for several months based on rights that only arise if they had not taken advantage of that position.

So, Kosmar, in our submission, could not be followed in Australia without overruling Craine and without overruling the expression of reasons in Immer, Victoria v Sutton, and also, along the way, saying that the Privy Council in Delta was wrong, and – for good measure – saying that Lord Blackburn was wrong in the last case that I wanted to go to ‑ if your Honours are prepared to sit on for a moment to finish the topic – Scarf v Jardine, which is in volume 4 of the book of authorities, relevantly at page 687. Lord Blackburn in Scarf v Jardine expressed the principle at about point 2 on the page, saying that:

there are a great many cases –

of election:

they are collected in the notes to Dumpor’s Case, and they are uniform in this respect, that where a man has an option to choose one or other of two inconsistent things, when once he has made his election it cannot be retracted, it is final and cannot be altered.

Lord Blackburn then relies upon Coke upon Littleton and:

many older authorities to the same effect; but that rule has been uniformly acted upon from that time at least down to the present. When once there has been an election to do one of the two things you cannot retract it and do the other thing; the election once made is finally made.

Now, the use of the colloquialism “things” is a very long way from insisting on some identification of rights in a narrow sense between which a party must choose and a party is confronted with that choice between two rights.

KIEFEL CJ: But it is also not inconsistent with the notion that the other thing has been destroyed and that is why you cannot retract it – which is how it was approached in Sargent v ASL.

MR JACKMAN: Yes, but it need not be the destruction of one of those things. It can simply be conduct which is inconsistent with reliance upon that thing. That is what happened in Craine and that is what ‑ ‑ ‑

KIEFEL CJ: You are getting much closer towards an estoppel then, are you not, if you are relying on the conduct.

MR JACKMAN: We are not relying upon detriment – and no one has ever suggested that detriment is an ingredient in election.

KIEFEL CJ: No, but conduct is the essential premise to an estoppel, whereas it is not, actually, in election.

MR JACKMAN: Conduct is essential for a conventional estoppel, but a promissory or representational estoppel would need ‑ ‑ ‑

KIEFEL CJ: It is still conduct.

MR JACKMAN: ‑ ‑ ‑a clear and unequivocal representation. But there has to be conduct, yes. But election is a genuine alternative to estoppel because the ingredient of detriment is not required – one simply needs inconsistent positions or courses of action to be taken such that the party cannot rely upon the course of action which was departed from in favour of the alternative. Is that a convenient time?

KIEFEL CJ: Yes, thank you, Mr Jackman. The Court will adjourn until 9.15 am tomorrow for pronouncement of orders and otherwise, to 9.45 am.

AT 4.20 PM THE MATTER WAS ADJOURNED UNTIL THURSDAY, 11 AUGUST 2022

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