Tanwar Institute of Professional Studies Pty Ltd as trustee for Tanwar Family Trust v Gordian Runoff Ltd

1. [1]

   PAYNE JA: I agree with Ball JA.

2. [2]

   KIRK JA: I agree with Ball JA.

3. [3]

   BALL JA: The appellant insured, Tanwar Institute of Professional Studies Pty Ltd as trustee for the Tanwar Family Trust (Tanwar), appeals against a decision of the primary judge (Weber SC DCJ) rejecting a claim by Tanwar against the respondent insurer, Gordian Runoff Ltd (Gordian), under a business insurance policy issued by Calliden Insurance Limited (Calliden) and initially underwritten by Great Lakes Insurance SE trading as Great Lakes Australia (GLA) (the Policy): see Tanwar Institute of Professional Studies v Gordian Runoff Ltd [2024] NSWDC 586. On 29 June 2020, Gordian acquired the runoff business of GLA pursuant to a scheme approved by the Federal Court under s 17F of the Insurance Act 1973 (Cth). It will be convenient in this judgment to refer to GLA and Gordian together as the Insurer.

4. [4]

   Tanwar’s claim was made in respect of damage done to underground pipes that formed part of a petrol station owned by Tanwar on New Canterbury Road, Lewisham. The petrol station was leased to and operated by Tanwar Enterprises Pty Ltd (Tanwar Enterprises). The sole director and shareholder of Tanwar and Tanwar Enterprises is Mr Ramesh Tanwar.

5. [5]

   The primary judge also rejected a claim by Tanwar under a business interruption extension contained in the Policy for lost rent during the period the pipes were repaired.

6. [6]

   For the reasons that follow, the appeal against the decision in respect of the damage to the pipes must succeed in part, but the appeal in respect of the claim for lost rent must fail.

Background

1. [7]

   In early July 2015, Tanwar received a notice dated 30 June 2015 from the New South Wales Environment Protection Authority (the EPA) stating that it needed to undertake certain upgrade works to the petrol station to comply with cl 69 of the Protection of the Environment Operations (Clean Air) Regulation 2010 (NSW), which required certain equipment to be fitted to petrol storage tanks in order to control vapour recovery.

2. [8]

   Following receipt of that notice, Mr Tanwar, who was a licensed builder, with the assistance of subcontractors, commenced the necessary work himself after Tanwar had been unable to engage a tank company to do the work. The work was commenced in about November 2015 and was completed in April 2016. As part of the work, it was necessary to remove a portion of the concrete apron of the petrol station and replace the pipes, which were about 300mm underground. The pipes connected the petrol storage tanks to the bowsers.

3. [9]

   On completion of the work, testing indicated that air was getting into the pipes and the bowsers were not working properly. Investigations revealed that the pipes had at least 24 small holes in them. There was some evidence in the form of part of a drill bit embedded in one of the pipes that indicated that the damage had been caused maliciously.

4. [10]

   Tanwar’s insurance broker first notified the Insurer under the Policy of a potential claim on 18 July 2016 by which time Tanwar had discovered the holes in the pipes after cutting through the newly laid concrete.

5. [11]

   The Insurer investigated the claim and, in the meantime, Mr Tanwar commenced remedial work to repair the damaged pipes. That work was completed in November 2016.

6. [12]

   On 13 June 2017, the Insurer denied liability on various grounds, some of which remain relevant and some of which do not. At that stage, Tanwar had not attempted to quantify its claim.

7. [13]

   Tanwar commenced proceedings against the Insurer on 11 July 2022 and by its further amended statement of claim filed on 24 January 2024, it claimed a total amount of $444,305 made up of the following amounts:

8. [14]

   The evidence given at trial in support of the quantification of the claim was limited. It was principally given by Mr Tanwar in two affidavits, one affirmed on 15 December 2023 and the other on 9 August 2024. In relation to the claims for the costs of the rectification work, the first affidavit affirmed by Mr Tanwar exhibited what were described as three scopes of work and three tax invoices. Two of the scopes of work and two of the invoices were addressed to “Calibre Insurance”, which presumably was intended to be a reference to Calliden. One of those invoices, dated 13 August 2016, was for $38,500 (including GST). The other dated 13 October 2016 was for $53,130 (including GST). Mr Tanwar explained in his second affidavit that the first invoice related to initial exploratory work undertaken by Tanwar. The second invoice related to additional exploratory work undertaken by it because “the [Insurer] did not accept [Tanwar’s] position concerning the findings from the Exploratory Works Part One”. The third scope of works was from Tanwar Enterprises and was addressed to Tanwar. It was dated 28 July 2016 and was for an amount of $261,500 (excluding GST). On 13 December 2016, Tanwar Enterprises issued an invoice to Tanwar for “Work completed as per Quotation accepted on dated [sic] 07.10.2016” in the amount of $287,650 (inclusive of GST). Tanwar also relied on cheque butts in respect of cheques drawn by Tanwar in favour of Tanwar Enterprises for $28,765 on 13 October 2016 and $258,885 on 9 February 2017 and a redacted account statement showing withdrawals of those amounts: J[87(g)].

9. [15]

   In response to that evidence, the Insurer served an expert report dated 9 April 2024 from a quantity surveyor, Mr Eugene Cloete. Mr Cloete expressed the opinion that the estimated cost of undertaking the upgrade work was $355,557.55 and the estimated cost of undertaking the remedial work was $163,923.70 (both figures included GST).

10. [16]

    No documents were tendered in support of the claim for lost rent other than the lease. However, in support of that claim, Mr Tanwar said at para 78 of his first affidavit that “During that time [that is, the time when the repair work was undertaken], the Plaintiff was not in receipt of the rent that they would have otherwise received from the tenant, with the rent being $12,500 a month. The Plaintiff has been deprived of approximately $45,000 to $47,000 in rent”.

11. [17]

    In support of the claim for claim preparation costs, Tanwar tendered two invoices. One was from Northcliff Claim Services dated 27 September 2016 for $5,619.84 (incl GST). The other was from Abhay Enterprises Pty Ltd dated 13 July 2017 for $14,712.50 (incl GST) for 53.5 hours at $250.00 per hour (plus GST): J[97].

The Policy

1. [18]

   The Policy consists of a schedule and a standard form document setting out the Policy wording (the Policy Document).

2. [19]

   The Policy Document is divided into a number of sections. The Property Damage section contains the following insuring clause:

3. [20]

   “Property Insured” is defined to mean “the property shown in the Policy Schedule as specifically covered with a Sum Insured in respect of each cover section”. “Premises” is defined to mean “the places listed in the Policy Schedule as the situation at which and from which You operate Your Business”, which was stated in the Schedule to be “281 New Canterbury Rd, Lewisham NSW 2049”.

4. [21]

   The Property Damage cover section of the schedule is in the following terms:

5. [22]

   The effect of these provisions is that Tanwar was insured in respect of physical loss or damage to “Buildings” at the Premises up to an amount of $500,000.

6. [23]

   The general definitions section of the Policy Document contains the following definition of “Buildings”:

7. [24]

   Under the heading “Reinstatement or replacement” in the Property Damage cover section, the Policy Document relevantly provides:

8. [25]

   The General Policy Conditions section contains the following clause:

9. [26]

   The General Policy Conditions also contain the following clause:

10. [27]

    The first paragraph of the Business Interruption cover section of the Policy wording states that there are five types of cover available under that section of the Policy including “Loss of Rent Receivable basis” and that “The Policy Schedule indicates which cover has been selected by You”.

11. [28]

    The Business Interruption cover section of the Policy Schedule is in the following terms:

12. [29]

    The insuring clause for Business Interruption insurance on a loss of rent receivable basis is in the following terms:

13. [30]

    The amount payable in respect of Item 1 is relevantly stated to be:

14. [31]

    “Rent Receivable” is defined to mean “the amount of the rent received or receivable (including base rental, Turnover rental and contributions to outgoings) from the letting of property at the Premises”. “Standard Rent Receivable” is relevantly defined to mean “the Rent Receivable during that period in the 12 months immediately before the date of the Damage which corresponds with the Indemnity Period …”. “Damage” is defined to mean “physical loss, destruction or Damage occurring during the Period of Insurance caused by an Event insured under the Property Damage cover section, …”.

15. [32]

    The following cover is provided in respect of claim preparation and proving expenses:

16. [33]

    In broad terms, the effect of these provisions is that if the Insurer has paid, or admitted liability to pay, an amount in respect of physical loss or damage to the insured property and that physical loss or damage has interrupted or interfered with Tanwar’s business, Tanwar is entitled to claim loss of rent “resulting from such interruption or interference” up to an amount of $150,000.

The primary judgment

1. [34]

   The primary judge rejected Tanwar’s claim on several bases.

2. [35]

   First, he held that the pipes “due to their location within the ground do not fall within the definition of ‘Building’ within the meaning of the Policy”: J[61]. That was because the ordinary meaning of the word “building” “does not extend to items located within the ground”. That conclusion was reinforced by the fact that “‘plumbing’ (item 6) is only brought within the definition to the extent ‘that are within the Buildings’”: J[59].

3. [36]

   Second, the primary judge held that the exclusion to the definition of “Buildings” applied. That was because the damage to the pipes occurred during the construction work and the contract value of that construction work was more than $100,000 (that is, more than 20% of the sum insured). In reaching that conclusion, his Honour rejected Tanwar’s argument that the construction work was complete at the time the damage occurred. He also rejected Tanwar’s argument that because the work was undertaken by Tanwar, the exclusion did not apply. In his Honour’s view, a distinction needed to be drawn between “contract price” and “contract value”. The exclusion was directed at the latter, which meant that what was relevant was the reasonable market price for the work, and not the price according to some contract. The unchallenged evidence of Mr Cloete was that the value of the work was $312,402.47: J[64]-[69].

4. [37]

   Third, his Honour concluded that the Insurer was entitled to refuse to pay the claim because Tanwar had failed to comply with the General Policy Condition relating to a change to the risk. For reasons that will become apparent, it is unnecessary to explain his Honour’s reasons for that conclusion.

5. [38]

   Fourth, the primary judge was not satisfied that Tanwar had discharged its onus of establishing its loss. On this issue, he said:

6. [39]

   Fifth, the primary judge rejected the claim for lost rent. That was because Mr Tanwar had failed to explain why Tanwar was not in receipt of rent that it otherwise would have received from the tenant as he alleged in his affidavit. According to the primary judge, “He [Mr Tanwar] did not, for example, establish that the service station operated by Tanwar Enterprises was closed during this period, or that rent was abated during this period”: J[95].

7. [40]

   Lastly, the primary judge rejected the claim for claim preparation costs. That was because the Insurer was entitled to deny liability: J[98]. In any event, Tanwar had failed to establish that the costs it claimed were necessarily and reasonably incurred. As an example, Abhay Enterprises was an entity owned by Mr Tanwar that operated an Indian restaurant and was not an insurance claim specialist: J[99].

The grounds of appeal

1. [41]

   Tanwar’s amended notice of appeal identifies nine grounds of appeal. Grounds 1 and 3 were not pressed. Ground 4 attacks the primary judge’s interpretation of the definition of “Buildings”. Grounds 5 and 6 attack the primary judge’s conclusions in relation to the application of the exclusion to the definition of “Building” and “contract value” respectively. Grounds 2 and 2A (numbered 3 in the amended notice of appeal) attack the primary judge’s conclusions in relation to the change of risk clause. Ground 8 attacks the primary judge’s conclusions in relation to the business interruption element of the claim because they failed “to give proper consideration and weight to the evidence of the Plaintiff with respect to the loss of rent component of their claim”.

2. [42]

   It is also relevant to add that one of the orders sought in the amended notice of appeal is:

3. [43]

   During the course of the hearing, the Insurer accepted that it was not entitled to rely on the change in risk clause. Accordingly, grounds 2 and 2A, which concern the application of s 54 of the Insurance Contracts Act 1984 (Cth) (the ICA) to the change of risk clause, do not arise, and the appeal should be allowed to the extent that the denial of the claim depended on that clause.

4. [44]

   No ground of appeal addressed the primary judge’s findings at J[88]-[89] that Tanwar had failed to prove its loss. That issue was raised directly by the Insurer for the first time on the morning of the hearing, although the Insurer’s written submissions did refer to the findings of the primary judge. Tanwar’s counsel, Mr Kaylinger, was asked whether in light of the Insurer’s position he wished to make an application (inferentially to amend the notice of appeal). He indicated that he did not. However, he pointed to order 5 of the orders sought in the amended notice of appeal and submitted that it would be open to the Court to conclude that judgment should be given in the sum of $149,021, which was consistent with the primary judge’s conclusion at J[90]-[91]. The position was left on the basis that each party was given an opportunity to provide the Court with short written submissions after the hearing addressing the issue. In those submissions, the Insurer maintained its position that the appeal must fail because there was no challenge to the primary judge’s finding on quantum. In its submission, the opinion of Mr Cloete on the reasonable costs of undertaking the work was irrelevant. That was because Tanwar had sought to establish its loss by reference to its legal liability to pay a related party for the costs of remediation, not the hypothetical reasonable cost that would have to be incurred to restore the property to its former usable condition. For its part, Tanwar submitted that if it succeeded on the question of liability, the matter should be remitted to the District Court for a further hearing on quantum. Alternatively, it maintained its position that it was at least entitled to recover the $149,021.

5. [45]

   For the sake of completeness, it might be added that there was no appeal against the primary judge’s conclusion in relation to claims preparation costs.

The definition of “Buildings” (ground 4)

1. [46]

   Several preliminary points should be made about the definition of “Buildings”.

2. [47]

   First, the definition adopts the structure of stating that the defined term “includes” a list of items which are plainly not intended to be exhaustive (none of the included items, for example, describe the central notion of a building as ordinarily understood). In those circumstances, it would be usual to treat the defined term as capturing buildings as ordinarily understood together with the other items listed (whether they would ordinarily be described as “buildings” or not): see Obeid v Australian Competition and Consumer Commission (2014) 226 FCR 471; [2014] FCAFC 155 at [52]-[53].

3. [48]

   Second, it is a well-accepted principle of interpretation that the words of a contract should be interpreted having regard to the surrounding circumstances known to the parties and the purpose and object of the transaction: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 at [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [40]. The definition of “Buildings” in this case is contained in standard policy terms that are intended to apply in a wide range of circumstances. There is a question whether in that case the relevant context is that of a policy that insures a petrol station or is that of a policy which on its face is intended to apply to a wide range of circumstances. Little, however, turns on the answer to that question. If the relevant context is a policy that insures a service station, then some of the words of the Policy are irrelevant, but other words, such as “tanks”, must be given a meaning that is apposite to a service station. On the other hand, if the relevant context is that the words appear in a standard term policy that applies in a wide range of circumstances, then the terms of the Policy must be interpreted in a way that accommodates all those circumstances, including insurance of a service station. In either case, the result is the same.

4. [49]

   Third, it is relevant to bear in mind that one of the functions of the definition is to draw a distinction between buildings in the sense of improvements on land and the contents of buildings, which are usually insured separately. That can be seen in the expansive definition of “Buildings” which includes various structures on land that would not usually be regarded as buildings (such as masts, antennae and aerials, fixed external signs, gates, fencing and pavement) and the exclusion of “Contents”, which itself is defined inclusively to cover a broad range of things. That is not to say that the words of the definition should be given a meaning that they do not bear. But they should be given a broad meaning consistent with the fact that one reason for the limitation on the scope of cover arising from the definition of “Buildings” is because it was expected that improvements or additions to the land not covered by the Policy would be insured separately if the insured wanted cover for them, not because they were thought to be an inappropriate subject-matter for insurance altogether.

5. [50]

   Fourth, it is plain that the numbered lists were not intended to be exclusive categories. The clearest example are categories 1) and 5), which both cover sheds. It follows that one category should not be used to read down another.

6. [51]

   Against that background, it is possible to turn to the question whether the pipes connecting the tanks to the bowsers fell within the definition of “Buildings”. In my opinion, they did. Contrary to the conclusions of the primary judge, there is nothing in the definition that suggests that it only covers improvements above ground. The definition covers “foundations” which almost invariably are underground. It also covers “swimming pools” and “storage tanks”, which are usually underground. The ordinary meaning of “building” would cover the basement of a building, which by its nature is underground.

7. [52]

   In my opinion, the pipes fall within the description “other structural improvements pertaining to the Buildings”. “Structural” in this sense should be understood as an adjectival form of “structure”. It means any improvement that is a structure. The pipes, or fuel lines as they are frequently referred to, fall within that description. They obviously “pertain” to the storage tanks for the petrol because they connect the storage tanks to the bowsers. The storage tanks fall within the defined term “Buildings” because they are expressly included by para 5).

8. [53]

   It follows that the appeal in relation to ground 4 must succeed.

The exclusion (grounds 5 and 6)

1. [54]

   In my opinion, the exclusion contained in para 4) has no application in this case.

2. [55]

   It was common ground between the parties that the Insurer bore the onus of proving the facts relevant to the application of the exclusion. Consequently, it bore the onus of proving that “the total contract value of all work” that was carried out by Tanwar to comply with the notice received from the EPA exceeded $100,000. “Contract work” must mean the value of work done under a contract, which must be the amount payable under the contract for the work. In the present case, the Insurer made no attempt to prove the existence of any contract under which work was done to comply with the EPA notice, let alone the amount payable under that contract or those contracts for that work. Instead, the Insurer sought to prove through the evidence of Mr Cloete the reasonable cost of doing that work. But they are not the same thing. Here, much of the work was undertaken by Tanwar (that is, Mr Tanwar). It appears that Mr Tanwar did engage some subcontractors (such as electricians). However, there is no evidence that the value of the work performed by the subcontractors exceeded $100,000.

3. [56]

   Adopting the reasoning of the primary judge, the Insurer submitted that “contract value” was not the same as the contract price and that what was critical was the value of the work, which plainly exceeded $100,000. That submission cannot be accepted. It involves ignoring the word “contract” in the expression. This is not a case where it could be said that the word is superfluous: cf Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd [1999] 1 AC 266 at 274 (Lord Hoffmann). The concepts of the value of work and the value of the work under a contract are quite distinct. There may have been good reason for choosing the latter concept in this case, since it is to be expected that any contractor undertaking significant work would have its own insurance covering the contract works. In any event, it is plain that the Policy Document refers to the latter concept not the former one.

4. [57]

   For those reasons, the appeal in relation to grounds 5 and 6 must succeed.

The absence of a ground dealing with quantum

1. [58]

   It is convenient to deal next with the primary judge’s finding in relation to proof of the claim for Property Damage. That finding has two components. First, his Honour found that Tanwar had not proved the loss that it claimed. Unsurprisingly given the evidence, there is no challenge to that finding. In its supplementary written submissions, Tanwar submits that the matter should be referred back to the District Court for a rehearing in relation to damages if this Court upholds the grounds of appeal in relation to liability. There is no proper basis for such an order. The hearing before the District Court related to both liability and damages. Tanwar should not be given an opportunity to re-litigate an issue on which it lost and has not appealed merely because it has succeeded on other grounds.

2. [59]

   The second component of the primary judge’s finding contained in J[91] is that if Tanwar had succeeded on liability, his Honour would have reduced the claim under s 54 of the ICA by “the difference between the sum which Tanwar agreed to pay to Tanwar Enterprises [and] the amount asserted by Mr Cloete”, with the result that Tanwar would have recovered the amount of $149,021.

3. [60]

   That conclusion was not challenged by a notice of contention. However, it was addressed in the supplementary submissions filed by the Insurer and briefly by Tanwar in oral submissions when it submitted that it was open to this Court on a rehearing to find that the amount of its damage was $149,021.

4. [61]

   It is unclear why the primary judge thought that s 54 of the ICA was relevant. That section is concerned with terms of an insurance policy that have the effect of permitting an insurer to refuse to pay a claim by reason of some act or omission of the insured. It has no application to the failure by a plaintiff to prove its loss. The question is whether the reasonable value of the work necessary to undertake the rectification work is a proper measure of the amount that Tanwar is entitled to recover for physical loss or damage to the pipes.

5. [62]

   In my opinion, it is. Tanwar was insured under the Policy on a “Reinstatement or replacement” basis. Consequently, the Insurer was obliged either to rebuild the Buildings (which, in the context must mean carry out the rectification work itself) or pay the costs of “rebuilding, repairing or replacing” the pipes. By denying liability, it failed to do that. Consequently, Tanwar was entitled to recover as damages the reasonable cost of undertaking that work, which on the evidence of Mr Cloete was $149,021.

6. [63]

   It follows that Tanwar was entitled to judgment for at least that amount.

The claim for lost rent (ground 8)

1. [64]

   The primary judge was correct to conclude that Tanwar had failed to prove its claim for lost rent.

2. [65]

   Clause 10 of the lease between Tanwar and Tanwar Enterprises relevantly provides:

3. [66]

   The lease does not permit abatement of rent in other circumstances and no other basis was suggested by Tanwar. There was no evidence before the primary judge that the requirements of cl 10 had been satisfied. Consequently, there was no evidence that Tanwar Enterprises was entitled to an abatement of rent.

4. [67]

   It follows that ground 8 must fail.

Conclusions, costs and orders

1. [68]

   Tanwar is entitled to recover $149,021 in respect of its claim. Under s 57 of the ICA, Tanwar is entitled to interest on that amount commencing “on the day as from which it was unreasonable for the insurer to have withheld payment of the amount”. However, no claim for interest was made, and it is difficult to see why Tanwar would be entitled to interest when it never properly proved its claim and the amount of the Insurer’s liability was not quantified until now.

2. [69]

   The Insurer accepted that Tanwar would be entitled to the costs of the appeal if it succeeded in establishing its claim to the $149,021, as it has done. For the same reason, it should be entitled to the costs at first instance.

3. [70]

   Accordingly, the orders I propose are:

   1. (1)

      Appeal allowed;

   2. (2)

      Set aside the orders of Weber SC DCJ made on 13 December 2024 and in their place order:

   3. (3)

      The respondent pay the appellant’s costs of the appeal.