Diamond World Jewellers Pty Ltd v Catlin Australia Pty Ltd (No 2)

1. [1]

   On 5 November 2021, judgment was entered for Diamond World in Diamond World Jewellers Pty Ltd v Catlin Australia Pty Ltd [2021] NSWSC 1431, it having established its case in relation to the jewellery stolen in the robbery which led to its disputed insurance claim, as well as in relation to damaged fittings. The parties were directed to confer and produce final orders which reflected the conclusions there reached.

2. [2]

   The parties were unable to agree on final orders, either as to damages, interest or costs, about which they filed written submissions, although some agreement did emerge in relation to how interest was to be calculated.

Damages

1. [3]

   Diamond World sought an order for damages of $1,431,759 which reflected $1,307,597.02 claimed for the stolen stock, $9,600 for damaged fittings less $1,000 excess and $2,892.55 for the value of the jewellery police recovered.

2. [4]

   There was no issue about the fittings, excess or that some stolen jewellery valued at $2,892.55 had been recovered: principal judgment at [45]. It was the rest of the stolen stock and its claimed cost, which was in issue at trial, as well as the stock which Diamond World claimed had been damaged in the robbery and its cost.

3. [5]

   The insurer’s case was that once the Court found that its conduct had been unreasonable, it had to make the decision which should have been made, by determining the amount which the insurer, acting reasonably, should have been satisfied had been substantiated by Diamond World.

4. [6]

   The insurer had to act on material available to it when it made its final decision, communicated to Diamond World on 3 October 2019. As explained in the principal judgment, Mr Crofton had been engaged to assess the claim, but his assessment, if he made one, was not in evidence. Despite this, his evidence was that the information Diamond World had provided was sufficient for him to have assessed the claim.

5. [7]

   What the insurer had to consider when it made its final decision included Diamond World‘s records; the analysis Mr Chohaili had undertaken at the insurer’s request in the SS1 documents; the investigations it had undertaken; the information Diamond World had provided about errors made by the insurer’s expert Mr Ehlers and the insurer, in its various communications; and Mr Crofton’s assessment, if he made one.

6. [8]

   As explained in the principal judgment, on the material the insurer had to consider when it made its final decision, it should have concluded that Diamond World had sustained the loss it claimed for the stolen jewellery, given that what was insured was its cost price, whether purchased by or consigned to Diamond World. That was established by the records which Diamond World maintained and the SS1 analysis undertaken by Mr Chohaili, at Mr Crofton’s direction by reference to the police photographs and its records.

7. [9]

   In the result, the order must be for damages of $1,313,304.45.

Interest

1. [10]

   There was initially a dispute about the calculation of interest.

2. [11]

   The insurer’s case was that interest had to be calculated under s 57 of the Insurance Contracts Act 1984 (Cth), which provides in subs (2) that the period for which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on the earlier of the day on which the payment is made, or on which the payment is sent by post to the person to whom it is payable. That calculation was complicated by the provisions of cl 38 of the Act.

3. [12]

   Diamond World accepted this and thus finally calculated interest on the proposed damages from 4 October 2019, the day after the insurer’s solicitor communicated its final decision to reject the claim made and to make its offer of settlement of $500,000.

4. [13]

   In the alternative, it argued for interest calculated on the basis that it should run:

5. [14]

   On the insurer’s case, however, it was not unreasonable for it to have refused to make any payment until the critical factual issues lying between the parties were resolved by the Court’s judgment.

6. [15]

   I am satisfied that this cannot be accepted.

7. [16]

   The evidence established that when it made its October 2019 decision, it was not unreasonable for the insurer to have refused the claim made for damaged jewellery, given what the police photographs depicted, which left open the possibility that not all of the jewellery left behind in the smashed cabinets had been damaged.

8. [17]

   But it was unreasonable for the insurer to have refused to make any payment at all under the policy. That conclusion flows inevitably from what it had already communicated in its 31 May 2019 letter, including the accepted cost of the damaged fittings and its acceptance that Diamond World had suffered a loss in the robbery; that Diamond World had notified it that some of the jewellery had been recovered by police; that there was finally no issue about the cost of that jewellery; what the evidence established Diamond World had also substantiated in relation to the cost of the rest of the stolen stock, by the information it had provided; and that in its defence the insurer admitted that some of Diamond World’s claim had been substantiated.

9. [18]

   That other information later became available which shed further light on how unreasonably the insurer had acted in refusing the entire claim in October 2019, despite its earlier acknowledgment of liability, because its offer of settlement was not accepted, does not establish that it acted reasonably in refusing to make any payment under the policy in relation to either the damaged fittings or the stolen stock, pending the Court’s determination of what the insurer put in issue at trial, despite its earlier admissions.

10. [19]

    To the contrary, it should have accepted that the cost of the damaged fittings and all the stolen jewellery had been substantiated. Instead it put the reliability of all the records in issue. That was established, despite the evidence which it led at trial.

11. [20]

    In the result, I am satisfied that interest must be calculated from 4 October 2019.

Costs

1. [21]

   Diamond World sought an indemnity costs order in its favour, that being a departure from the usual costs order under the Rules. It first relied on its 10 October 2019 offer of settlement of $1.3million, made before the proceedings were brought, relying on the Calderbank principles: Calderbank v Calderbank [1975] 3 WLR 586. In the alternative it relied on its 18 August 2021 $1.2million offer of compromise made under r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW).

2. [22]

   The insurer’s case was that there would be no departure from the usual order despite these offers, it not having acted unreasonably in not accepting either offer.

3. [23]

   I am satisfied that while the evidence established that the insurer did have reasonable grounds for defending the claim in relation to damaged stock, it did not have reasonable grounds to defend the claim in relation to the claim for either damaged fittings or the stolen stock. On the evidence discussed in the principal judgment, understandably, both the offers which it received reflected Diamond World’s acceptance that it might not establish its claim in relation to the damaged stock.

4. [24]

   The Calderbank offer was made before the proceedings were commenced, not long after the final decision was communicated. That is not fatal but requires consideration of the circumstances in which it was made.

5. [25]

   When it made its decision to refuse the claim the insurer did not accept the reliability of the records. Diamond World later established their reliability, but at that time Mr Beames’ report had not yet been served and the insurer had not yet made the admissions it later made in its defence or reached agreement on relevant facts. As explained in the principal judgment, at trial his report, supported by what was later agreed in the joint report and the other evidence discussed in the principal judgment, established the disputed reliability of the records. That was also reflected in the insurer’s final acceptance of the cost of the stolen jewellery recovered by police, despite which it still contested the cost of the rest of that jewellery.

6. [26]

   In the result, I have been persuaded that it may be accepted that it was not unreasonable for the insurer to have refused the Calderbank offer made before the proceedings were commenced.

7. [27]

   By the time the offer of compromise was made in 2020, however, the position was quite different. The insurer had made its admissions and evidence had been served. What it did not then know was Mr Chohaili’s concession in cross-examination that he had melted stock which had not been damaged in the robbery and that Diamond World had pursued a claim under the policy in respect of that stock, had not yet occurred.

8. [28]

   Despite this, when it received this offer the insurer had to take into account that it was for less than Diamond World would recover by way of damages, if it established its claim in relation to the stolen jewellery. In refusing the offer the insurer thus risked the consequences flowing under the Rules from its refusal, if Diamond World established its case in respect of the stolen jewellery. It did establish that claim at trial, the evidence establishing the reliability of the records on which its claim rested and the SS1 analysis Mr Chohaili had undertaken, at Mr Crofton’s direction, by reference to the police photos and its records.

9. [29]

   In Walker v Harwood [2017] NSWCA 228, the costs provisions in UCPR r 42.14, which deal with offers of compromise were dealt with. Sub-rule (2) relevantly provides:

10. [30]

    The August 2021 offer specified that it was open for acceptance for 28 days. That was well before the trial commenced on 11 October 2021.

11. [31]

    The purpose of the provisions of the Rules in relation to such offers of compromise were discussed in Walker at [14]-[19]. Once such an offer is refused, if the offeror obtains a better result, the Rules contemplate that from the time of the rejection of the offer, notionally, the litigation concerns the attitude of the defendant which has rejected the compromise. In those circumstances it will be the defendant which will ordinarily bear the costs of the litigation.

12. [32]

    That the unsuccessful defendant had reasonable grounds on which to defend the proceedings, will not be sufficient to resist either the usual order, or to avoid the usual indemnity costs order under r 42.14: at [20].

13. [33]

    That the insurer had reasonable grounds to refuse this offer, as it contended, was in any event not established. Nor is there any basis for making a costs order otherwise than provided in r 42.14.

14. [34]

    There was no issue that some of the stock was damaged in the robbery. It was because of the way in which Diamond World’s claim was made and pursued even in these proceedings in respect of both stock which was damaged and stock which was left behind undamaged and the concession which Mr Chohaili properly made in cross examination, that at trial Diamond World did not establish its case in respect of damaged stock. But it did establish its case on the stolen stock on the evidence which the parties led and the matters over which they joined issue.

15. [35]

    That the offer Diamond World made in 2021 involved a real compromise was apparent on what the insurer then had to consider. Not only the liability it had accepted in May 2019, but its later admissions and what the evidence which had been led established, especially in relation to the reliability of the records on which the claim in relation to the stolen stock was advanced. The offer was for considerably less than Diamond World has recovered in respect of the stolen stock.

16. [36]

    In the result, an indemnity costs order must follow, from the day after it was made.

Orders

1. [37]

   For these reasons I make the following orders:

   1. (1)

      Judgment for the plaintiff against the defendant in the sum of $1,431,759.

   2. (2)

      The defendant to pay the plaintiff’s costs of and incidental to the proceedings, as agreed or assessed up to and including 18 August 2021 and thereafter, on an indemnity basis.