Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 [2022] HCATrans 35 (17 March 2022)

Last Updated: 21 March 2022

[2022] HCATrans 035

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S114 of 2021

B e t w e e n -

ALLIANZ AUSTRALIA INSURANCE LIMITED

Applicant

and

DELOR VUE APARTMENTS CTS 39788

Respondent

Application for special leave to appeal

KIEFEL CJ
STEWARD J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA BY VIDEO CONNECTION

ON THURSDAY, 17 MARCH 2022, AT 12.00 PM

Copyright in the High Court of Australia
KIEFEL CJ: In accordance with the protocol for remote hearings, I will announce the appearances of the parties.

MR D.A. McLURE, SC appears with MS K.L. PETCH for the applicant. (instructed by Holman Webb Lawyers)

MR I.M. JACKMAN, SC appears with MR P.T. MANN for the respondent. (instructed by LMI Legal)

KIEFEL CJ: Yes, Mr McLure.

MR McLURE: May it please the Court. There are four key facts that are essential to each of the proposed grounds of appeal. Firstly, can I ask your Honours, please, to go to page 43 of the application book, at paragraph 124, where the primary judge introduces the best version of the 9 May 2017 email. Relevantly at paragraph 125, your Honours will see that the 9 May email asserted that the damage that was the subject of the claim could be divided into two groups – the defective materials group and the resultant damage group.

The proposition that was advanced in the 9 May email is that the insurer would be liable for the resultant damage but the insured Delor Vue would be liable for the cost of rectifying the defective materials – perhaps a better way of saying that was what were thought to be defects in the design and construction of the roof.

If your Honours look over to page 44, at about point 4 on the page, after the reproduction of the exclusions that justified that division of the damage, the assertion was made by the insurer that the insured, Delor Vue:

will be responsible for the costs associated with this portion –

That should be understood to be the defective design and construction component. Then, over the page, to page 45, what was proposed was that there would be a scope of works prepared which would have two parts – the first part identifying the defective design and construction repairs, and the second, the resultant damage.

Then finally, your Honours will see three paragraphs further down, the paragraph beginning “However, for those buildings”. Relevantly what that is conveying is that the roof – that is the defective design and construction problems associated with the roof needed to be repaired first – these are the things the insured was responsible for – following which the internal resultant damage would be conducted – repairs would be conducted – these are the things that the insurer was responsible for. That is the first matter.

The second matter – I do not need to your Honours to go to the books about this – is that in the 12 months between the May 2017 email and the May 2018 letter, both parties retained experts to diagnose the extent of the problems with the design and construction of the roof – and how to repair those problems.

The third matter is, in that same 12-month period, Allianz paid out approximately $200,000 in repair costs, compensation to unit holders for lost rental income and fees paid to the experts to diagnose the problems with the roof.

Fourthly, in the May 2018 letter, Allianz offered to settle the claim with Delor Vue by paying approximately $900,000 on a basis reflecting the division of responsibility in the May 2017 email – Delor Vue rejected that offer and asserted Allianz was responsible for all of the loss, including the design and construction repair costs – reflecting by that rejection a rejection of the proposition in the 9 May 2017 email.

They are the four factual matters I wanted to draw attention to. Can I then turn to the estoppel ground. Could your Honours please turn to the application book at page 178. In essence, your Honours will have appreciated from the written submissions from both parties that the central issue we raise in relation to the estoppel ground is that while Delor Vue attempted to make out a case in relation to reliance, it did not attempt to make out a case in relation to detriment. What both the primary judge and their Honours, the majority in the Full Court, did was conflated reliance with detriment.

KIEFEL CJ: Did the Full Court deal with detriment on the basis that refraining from litigating was sufficient?

MR McLURE: No, what the Full Court did was – concluded that the possibility was that the case may have been settled on different terms, and your Honour may have seen from our submissions we complain about that in the sense that that was raised for the first time in the Full Court’s judgment – that was not a matter that was raised at any point prior to then.

KIEFEL CJ: How was the matter – was detriment actually pleaded, the nature of the detriment pleaded?

MR McLURE: That indeed occupied much of the complaint. What Delor Vue did in its concise statement was allege that it had relied on various – it relied on the representation in the 9 May email by doing and not doing certain things, but what it did not purport to do is say that had it done any one of those things, it would have ended up in a different or better position. That was the central complaint we made in relation to Delor Vue’s case on reliance.

KIEFEL CJ: Would refraining from litigation be a form of detriment?

MR McLURE: It could, your Honour, if, for example, detriment flowed from that – such as by the expiry of a limitation period. Of course that is not the case here and, in the end, Delor Vue did not refrain from litigation permanently – it started the litigation at most delayed by 12 months – and no contention was made that the outcome of the litigation was changed in any way by that delay of a maximum of 12 months.

If your Honours have page 178, at paragraph 202 – in the second half of that paragraph, your Honours will see that the majority summarised what they held was Delor Vue’s case on detrimental reliance, as it was put in the concise statement, that is to say that what it did is it did nothing – that is it refrained from carrying out the repairs and one may also say refrained from commencing proceedings against Allianz in the 12‑month period. Then:

It is a claim that as a matter of fact, because of the May 2017 Email, it did not take matters into its own hands, undertake the work and pursue Allianz.

But, importantly, in the next paragraph, your Honours will see it is common ground Delor Vue did not seek to make out a counterfactual and, in the second half of that paragraph:

It certainly did not seek to advance a case as to any particular way in which things may have played out –

differently. Thus far, we submit, this is no more than assertions of reliance rather than detriment.

STEWARD J: Mr McLure, sorry to interrupt you. Just going back to 202, in that final line that said:

did not take matters into its own hands, undertake the work and pursue Allianz -

in relation to that possibility, do I take it that if it had pursued Allianz, that is if the email had not been sent and it had done the things in the last line, Allianz would have been free in those circumstances to have relied upon the defence in 28(3).

MR McLURE: Yes, your Honour. If, in the counterfactual, your Honour is putting to me, if the - - -

STEWARD J: This is what their Honours have said below as specified in the detriment. I am just trying to understand why pursuing Allianz in those circumstances would have been to their advantage if the defence would have been open in any event.

MR McLURE: That is exactly our point, your Honour. On the counterfactual, the 9 May email was not sent, Delor Vue sues Allianz sooner and the same result transpires. A dispute as to whether or not Allianz is entitled to reduce its liability under section 28(3) and the outcome not challenged is – it was.

STEWARD J: It is not suggested, I think, that the delaying in and of itself was a detriment. Is that right?

MR McLURE: No, that was not put.

STEWARD J: And with works that Allianz was responsible for, were they suggested in any way to be poorly done – or not well done?

MR McLURE: That case was not put.

STEWARD J: I see. Thank you.

MR McLURE: Would your Honours mind turning to page 180, paragraph 213 – this is just a reinforcement of the point just made – line 3, halfway along the line. The case:

disclosed by Delor was a claim that it abstained from taking steps for itself.

That is a claim of reliance, not a claim of detriment. Then, if your Honours go over the page, paragraph 214, their Honours adopt the finding of the primary judge, in the second line, that how things might have turned out is:

impossible to tell

Now, as to the delay in pursuing the repair work itself, without the involvement of Allianz – as your Honour Justice Steward has just identified – as we submit, there was no claim put by Delor Vue that, had it advanced the building works 12 months sooner, it would have turned out to have had the work done faster or better. It was not going to be done faster because the evidence as found by the primary judge was, in that 12‑month period, both sides had experts trying to diagnose the problem – there was no suggestion by Delor Vue that either experts could have arrived at that position quicker, were it not for the involvement of Allianz. As to the proceedings, I will not repeat what I have just said in answer to your Honour Justice Steward’s question.

Then, if your Honours look at paragraph 215, the answer to Allianz’s submission about how Delor Vue had not established that it had suffered any detriment was to find in the third line – endorsing the primary judge’s finding – that all that would have involved if Delor Vue was to actually attempt to prove that it would have been in a better position, was:

self-serving guesses -

Your Honours, we submit that the conclusion that both the primary judge and their Honours in the majority reached, that it was impossible to tell what would have happened if it had pursued an alternate course, is not the product of intrinsic impossibility. Rather, it was the product of the forensic decision made by Delor Vue about how to run this case. It chose not to say that had the repairs been done sooner, a better or different outcome would have been obtained.

KIEFEL CJ: Conscious of the time, Mr McLure, there are two other bases, of course, for the majority of the Full Court’s judgment - waiver and want of good faith.

MR McLURE: Yes, I will move to those, your Honour. I will deal with the election and waiver points together. We accept that a statutory right such as the right conferred by section 28(3) is capable of waiver, unless the statute says to the contrary – and this statute does not. We also accept that section 28(3) confers a private right on an insurer to raise a defence to a liability that would otherwise arise under a contract. The real issue is in what circumstances would an election or waiver arise to destroy the right to rely on the defence.

We submit that the dicta of the majority of the Justices in this Court’s decision in Verwayen stands for the proposition that a statutory defence to a claim such as a defence under section 28(3) of the Insurance Contracts Act may be waived by failing to raise it at any appropriate time before the claims and the defences merge in the judgment. Obviously that is not the nature of the election or waiver that Delor Vue raises in this case and the one that was found by the Full Court, because of course Allianz did plead section 28(3) in its defence and it was adjudicated in its favour by the primary judge.

So, the point of principle here, we submit, is that the circumstances of this case are not materially different from Verwayen. In this case, just as here, there were representations made by the proposed defendant that it would not rely on a statutory defence. In each case, conduct followed that representation which was consistent with it – it follows that for the opposite result to have been arrived at, in this case, there needs to be some other ingredient to justify the different outcome.

Their Honours in the majority held that the law imposes a requirement on an insurer to choose whether to rely on the defence in section 28(3) when it has sufficient knowledge to make that choice. As to that, could I invite your Honours’ attention please to application book page 156, paragraph 130. Their Honours held correctly, we submit, that:

s 28(3) does not, in terms, give rise to –

the nature of the choice their Honours held to arise. Then if your Honours go over the page to paragraph 134, their Honours accepted that section 28(3):

does not confer a right upon the insurer to make a choice –

either. So, the consequences of their Honours’ finding is that, notwithstanding the provision does not expressly require the choice – or, for that matter, confer the ability to choose – their Honours superimposed a general law requirement to make a choice. One immediate difficulty with that process of reasoning is that it involves importing into the statute something which is not there and up to this point in the proceeding no one has sought to justify by a way of implication.

It appears that their Honours considered that it is in the nature of insurance contracts to require the insurer to make a decision about whether to rely on section 28(3) as soon as it is in possession of all of the facts. Aside from the fact that section 28(3) does not in terms require it for the reasons just given, their Honours’ reasoning seems to be based on ideas of fairness.

Our submission is section 28 is a self‑contained calculus that produces a result based on what is deemed by the provision to be fair – that is to say the outcome – ranging from a reduction to zero to a reduction to the entire liability – depends on what the court considers to be fair in terms of the counterfactual underwriting process.

Your Honours, in view of the time, I will move to the utmost good faith point. It is important to appreciate that Delor Vue sued for damages for breach of the implied term requiring the parties to act with utmost good faith. It did not attempt to prove that it had suffered any damage by reason of that alleged breach - - -

KIEFEL CJ: Is damage essential to make out want of good faith?

MR McLURE: Damage is essential to get the remedy that Delor Vue sought – which is an indirect answer to your Honour’s question – they sought damages. They needed to prove some damage in order to get the relief they sought. We challenged whether or not there was a breach and in any event, if there was a breach, what loss should follow from this. It is the latter of those two propositions we submit a special leave question arises because - - -

KIEFEL CJ: Do you rely on Justice Derrington’s dissent in relation to this ground?

MR McLURE: Yes.

KIEFEL CJ: His Honour questioned whether in fact there was a breach of duty of good faith.

MR McLURE: Yes, we do challenge that. We say that there is a special leave question arising in relation to the damage point because of what Chief Justice Gleeson and Justice Crennan said in CGU v AMP about there needing to be some intermediate premise in relation to there being a breach of the duty and a remedy that requires the insurer to pay the claim in its entirety.

The primary judge did not assess damages. His Honour said he would have ordered an injunction – your Honours may have appreciated from the submissions that Delor Vue did not seek an injunction. Even if one ignores that matter, that kind of injunction in equity’s auxiliary jurisdiction would in any event require some determination about why damages was not an adequate remedy. The majority of the Full Court simply declined to engage with that contention. They left the primary judge’s tentative statement that he may have ordered an injunction in place.

Can I be of other assistance to your Honours?

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

MR JACKMAN: May it please the Court. Can I begin with the last point concerning the duty of utmost good faith. The remedy in question is neither damages nor an injunction. Your Honours will see the remedy which was granted by Justice Allsop at page 107 of the application book. It is no more than a declaration, which is perfectly sufficient for our purposes.

At the foot of 107, declaration 5 made by the learned friend Chief Justice is the declaration that there was a failure to act with the utmost good faith, contrary to section 13 and the declaration in 6 follows from that declaration – along with the earlier declarations that are made. So, the question of detriment simply does not come into the equation. It was not necessary for a declaration to be made and nor is it necessary to establish the breach of the duty of utmost good faith.

If I can ask your Honours to go back to application book page 102. Your Honours will see there the often-quoted passage from AMP v CGU explaining that the concept of utmost good faith - at about line 30:

encompasses notions of fairness, reasonableness and community standards of decency and fair dealing.

In paragraph 346, the learned primary judge made strong findings as to Allianz departing from:

expected standards of decent commercial behaviour.

Dropping down that page, at line 45:

The position taken in the 9 May 2017 email was clear and . . . honourable and also, probably, in the perceived commercial interests of Allianz . . . A year was spent adjusting the claim, taking advantage of the rights of access to the property, and obtaining the co‑operation of the insured. Then, for reasons that have never been explained, a take‑it‑or‑leave‑it offer was made, resiling from the 9 May 2017 email.

I should add no repair work was actually done by Allianz. There was just a lot of preparation and planning but no work was actually performed.

Then the Full Court deals with the issue at application book page 189, in the majority reasoning. Paragraph 247 identifies the challenge that was made and that was, at paragraph 247, a challenge based on the determination by the court that section 28(3) applied – and it was submitted it could not be a breach of the duty to rely upon the court’s determination under section 28 which favoured Allianz. As their Honours said in paragraph 248, that is to:

evaluate the conduct of Allianz with hindsight.

In 249, the relevant time is when Allianz sought to resile from its earlier position and to be judged according to the known circumstances then and 250 reiterates the point the primary judge emphasised that:

Allianz offered no explanation for its change of position.

Now, whether or not any argument - - -

KIEFEL CJ: That is dealing with it rather like an estoppel, Mr Jackman.

MR JACKMAN: No - well, there are of course common elements. Estoppel, fundamentally, is based on a species of unconscionability. But what both the primary judge and the Full Court did was to apply the broader value as its standard, which the High Court spoke of in AMP v CGU – in which detriment is not an essential element and frequently will not be present. To insist on detriment as a requirement is a gloss on both the statutory language and on the statement of principle of.....CGU v AMP. So, in our submission, there is no warrant for the grant of special leave concerning the question of utmost good faith.

Can I turn then to estoppel. The issue here is detriment. Can I begin with the reasoning of the primary judge at application book page 96. In paragraph 333, the learned Chief Justice said, in the second line, that:

the prejudice here was not specific, nevertheless it was real. It involved the passage of 12 months in which Delor Vue could have taken its own fate in its own hands and acted for itself in rectifying the property to the extent it was financially able to do so -

Then the last element of that is:

in suing the insurer.

That is of course not the only element, nor is it the primary element in the way the Chief Justice characterised the detriment. Then, his Honour says:

How that all would have played out is impossible to tell.

That is a theme which is then reiterated in paragraph 334. Then, at application book page 97, his Honour quoted from Delaforce v Simpson‑Cook. Most importantly at the top of page 98 – this is a passage relied upon by the Full Court as well – which is paragraph 5 of Delaforce – and the Chief Justice there spoke, in the third line, of a representation being:

relied upon by a party to abandon a course of conduct that could possibly have led to a different outcome. This can be described in the language of loss of a chance that is not fanciful or unrealistic -

Then, this reference to Grundt v Great Boulder – and, halfway down the passage, his Honour referred to the claimant as being:

likely to be in the position of being unable to demonstrate what would, or even may, have happened in the case, it being an alternative, complex and now hypothetical body of human conduct . . . the inability to prove such things reveals a central aspect of the detriment: being left, now, in that position.

That is a paragraph that was expressly approved by six of the seven Justices in Australian Financial Services and Leasing v Hills Industries and it is a passage which applies directly to the present case, as the Full Court majority itself recognised at paragraphs 216 and 217.

Now, the opposing argument, which one finds at the heart of Justice Derrington’s reasoning, beginning at application book page 222, is one which is very heavily based on questions of how the trial was conducted. Justice Derrington in a lengthy passage that goes from 222 through to 235 analyses what his Honour mistakenly, with respect, calls pleadings – in fact they were concise statements in the present case, not pleadings – and analyses the way in which issues were raised in argument, both oral and in written submissions.

That plays a prominent role in his Honour’s conclusions on this point. One sees it, for example, at paragraph 460 where the overall conclusion about detriment is found with his Honour’s views about pleadings – to use that misnomer again – and at 467, where the point is made that there was some failure to plead the point when pleadings were not actually being used in the case.

This forms a very.....part in my learned friend’s application to this Court. One sees it in the written application for special leave, application book page 301, in paragraphs 33, 34 and 36. The argument is based upon a particular characterisation – we say an erroneous characterisation – that the way in which the trial was conducted, and the way in which the appeal was conducted.

Ultimately, my learned friend’s argument on this point is going to involve what will be a lengthy and unavoidable analysis of those central questions about what was raised in the matter in which the trial and the appeal were conducted against the background that the question of principle, which is really the principle articulated in Delaforce v Simpson‑Cook is one which this Court approved of in AFSL v Hills as being a perfectly orthodox application of Sir Owen Dixon’s statement in Grundt v Great Boulder and - - -

STEWARD J: Mr Jackman, just to summarise – on the issue of estoppel and detriment, you say it is sufficient to demonstrate detriment by a simple assertion that something else might have happened?

MR JACKMAN: Well, no, we go a bit further than that. We say that there was a tangible opportunity – which was real and not fanciful – which was passed up by reliance on the representation - - -

STEWARD J: What was the opportunity?

MR JACKMAN: The opportunity was to take matters into our own hands and repair the building ourselves, and also to pursue Allianz.

STEWARD J: Was evidence led that would have shown you that you would have been quicker than Allianz ‑ ‑ ‑

MR JACKMAN: No, and ‑ ‑ ‑

STEWARD J: ‑ ‑ ‑ and thus you were shut out of the building. I am sorry, go ahead.

MR JACKMAN: No, we did not lead evidence to the effect that we would have been quicker. Allianz, in fact, as I have said, did not actually do any rectification work – but, on the basis of the reasoning in Delaforce – approved by this Court in Hills – we do not have to go that far. We do not have to demonstrate that, as a matter of probability, we would have been better off if we had taken that alternative course. What we have to demonstrate - - -

STEWARD J: If you agree that it is not enough just to simply say we might have done something else, what extra must you show in order to have detriment that will activate the intervention of equity? What is the extra ingredient?

MR JACKMAN: We have to show that this was a real opportunity which might have made us better off had we pursued it. We do not have to go further to say we probably would have been better off had we pursued it – that is the difference between us, and a difference which turns on that statement of principle in Delaforce, the correctness of which can no longer be regarded as being in doubt in the light of AFLS v Hills.

Then the final question is the one concerning waiver. My learned friend’s argument focuses on the time at which Allianz had to make a choice in fairness as to whether it would rely on section 28(3) – that is beside the point because, whether or not Allianz had to make a choice on 9 May 2017, the fact of the matter is that it did so – and it conveyed to us that it would not rely upon the non‑disclosures, despite having full knowledge of them. It is that actual choice which was made, irrespective of whether they had to or not, which founds the case based on waiver.

Going back to application book page 99, the learned primary judge, the Chief Justice, at paragraph 339, makes reference to Craine v Colonial Mutual – which of course is to over 100 years – and at line 40 on that page makes the rather obvious observation that the present case has:

a stark similarity with the position in Craine v Colonial Mutual.

In our submission, the reasoning of the Chief Justice as to the adoption of one inconsistent position over another is impeccable. There cannot, in our respectful submission, be any criticism of his Honour’s reference to fairness – which one finds at application book page 100, at line 45, by reference to Immer v Uniting Church – because the High Court in Immer spoke of fairness to the other party as dictating the time when the party waiving, or making an election, is confronted with its decision, and expressed the principle in terms of what fairness requires to the other party.

In our submission, there cannot be any serious challenge to the finding that the doctrine of waiver applied. The Full Court takes up his Honour’s reasoning – the Full Court was prepared to go one step further and to say that there was an election between two inconsistent positions – and whether or not election also applies is a somewhat academic case here, unless we are to lose on each and every one of utmost good faith, estoppel and also waiver.

In the context of section 28(3), it is very difficult to envisage a circumstance where election might apply but utmost good faith, estoppel and waiver could not have any application. So, that difference between the Full Court majority on the one hand, and the primary judge and Justice Derrington on the other, is one, in our submission, which is not only very narrow but one of academic significance.

KIEFEL CJ: Mr Jackman, what do you say about Justice Derrington’s dissent on this point?

MR JACKMAN: The dissent turns on how one characterises section 28(3) – and how one characterises the doctrine of election. Is section 28(3) simply concerned with positions rather than rights – even though those positions generate different sets of rights – and is the doctrine of election confined to rights in the strictest sense.

Dealing with that point, if your Honours go back to the primary judge’s reasoning at application book page 92. Paragraph 316, towards the foot of page 92, the Chief Justice quoted from Immer v Uniting Church, where Justices Deane, Toohey, Gaudron and McHugh themselves quoted from Spencer Bower and Turner as stating:

The true nature of election . . . “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.”

Now, the High Court did not say “mutually exclusive rights” and your Honours will see that just preceding that, in paragraph 316, the Chief Justice equated, at line 3 in that paragraph, “inconsistent positions” with “inconsistent courses of action”. So, in our submission, the statement of principle in Immer v Uniting Church Property Trust does not confine election to inconsistent rights – rather it says, broad as the notion of inconsistent courses of action – which would make it applicable to section 28(3) – irrespective of whether one regards that simply as a position or, on the other hand, one treats it a right, namely the right of the insurer to rely upon a non-disclosure.

Unless there is anything else on which I could assist the Court, those are our submissions.

KIEFEL CJ: Thank you, Mr Jackman. Is there anything in reply, Mr Mc Lure?

MR McLURE: Just one point, your Honours, in relation to the estoppel ground. Could I invite your Honours please to page 257 of the application book. What Justice Derrington was dealing with in this part of his Honour’s judgment was the estoppel case put by Delor Vue, leaving aside what his Honour had found was the narrow way it had been pleaded. So, he was treating it on the basis that it was as wide as Delor Vue said it was.

Between paragraphs 495 and 497, his Honour states what we submit is the correct analysis of the passage in Delor Vue that our learned friend referred your Honours to a moment ago. That is to say that what is required is more than just proving that there was an opportunity that was neither “fanciful nor unrealistic”. Rather what is required is an establishment that the other opportunity would have produced a better outcome and that better outcome was neither fanciful nor unrealistic. That is an important difference.

In this case, as we have said, Delor Vue did not attempt to prove that it would have been in a better position. It did not attempt to prove that the alternate course would have produced an outcome that was even past the threshold of fanciful or unrealistic. That is the reason why it never established that element of the estoppel. If the Court pleases.

KIEFEL CJ: Yes, thank you. The Court will adjourn briefly to consider the course that it will take.

AT 12.42 PM SHORT ADJOURNMENT

UPON RESUMING AT 12.44 PM:

KIEFEL CJ: There will be a grant of special leave in this matter. What is your time, Mr McLure?

MR McLURE: A day and a half, your Honour.

KIEFEL CJ: Would you agree with that, Mr Jackman?

MR JACKMAN: Yes, your Honour.

KIEFEL CJ: Thank you. The Court will now adjourn.

AT 12.44 PM THE MATTER WAS CONCLUDED