Catlin Australia Pty Ltd v Diamond World Jewellers Pty Ltd

1. [1]

   LEEMING JA: I agree with White JA that the appeal should be dismissed with costs for the reasons his Honour gives. I also agree with White JA that on the proper construction of the policy, the insurer’s obligation to pay its insured for lost, destroyed or damaged stock was not limited by an opinion, notwithstanding that both sides fought the case, at first instance and in this Court, on the basis that it was. The policy provided that claims for lost, destroyed or damaged stock would be settled on the basis of the cost price of the stock. The “Stock Record Clause” obliged the insured to provide all available evidence of purchases and sales, and reduced the insurer’s liability “[i]n the event that information provided does not satisfactorily substantiate the quantum claimed”. But that did not convert the policy into one turning on the insurer’s opinion, such as the policies considered in Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61-113 and the ensuing line of decisions to which White JA has referred. Had the litigation been conducted in accordance with the terms of the policy, the result would have been the same, for the only question would be whether error had been shown in the finding at first instance as to the cost price. As White JA has shown, even on the way (more favourable to the insurer) in which the case has been fought, the appeal should nonetheless be dismissed.

2. [2]

   WHITE JA: The respondent, Diamond World Jewellers Pty Ltd (“Diamond World”) carried on the business of a jewellery shop. On 4 December 2017 it was the victim of an armed robbery in which thieves smashed glass cabinets located on the shop floor, removed jewellery from those cabinets and, so it was alleged, damaged other jewellery.

3. [3]

   The appellant, Catlin Australia Pty Ltd (“Catlin”) is an agent of a syndicate of Lloyd’s underwriters. In that capacity it issued an insurance policy to Diamond World for the period 11 December 2016 to 11 December 2017, called a “Jewellers Stock and Multi-Perils Insurance Policy”. It provided cover in respect of all risks of Physical Loss and/or Damage. The policy covered loss and damage to stock whether owned by Diamond World or held by it on consignment. Stolen or damaged jewellery was to be valued at cost price.

4. [4]

   Police attended the scene of the robbery and took photos. The thieves were later apprehended and convicted, but only a small amount of jewellery to a value of $2,892.55 was recovered (J [45]).

5. [5]

   There was no issue that the policy responded to a claim for stolen or damaged jewellery, and damaged showcases. The question was as to the quantum of the claim.

6. [6]

   Catlin appeals from the judgment entered against it for $1,431,759 (Diamond World Jewellers Pty Ltd v Catlin Australia Pty Ltd [2021] NSWSC 1431; [2021] NSWSC 1540).

7. [7]

   Catlin does not appeal from the primary judge’s assessment of the quantum of Diamond World’s claim. It contends that the primary judge erred in finding that Catlin had acted unreasonably in making its decision on the claim.

8. [8]

   For the reasons which follow I would dismiss the appeal.

Background

1. [9]

   On the day after the robbery, Diamond World’s general manager and “controlling mind” (J [112]), Mr Khosrow Chohaili, cleaned up the store. The thieves had used heavy hammers to smash six glass-topped showcases inside the store and removed some but not all of the jewellery in those showcases. The jewellery on display in the front windows of the shop was not stolen, nor was jewellery stolen from other undamaged showcases.

2. [10]

   On 6 December 2017 Catlin’s loss adjustor, Mr Stuart Crofton, attended the shop with a Mr Michael Leigh who was retained by Mr Chohaili as a consultant to assist Diamond World with the preparation and pursuit of its claim under the policy.

3. [11]

   On 20 December 2017 Mr Leigh submitted a preliminary claim to Mr Crofton containing a schedule that contained what Mr Leigh stated he believed would be the maximum that would be claimed. The amount of the claim was $1,691,435.70 not including GST. This was shown to be calculated on the basis that the cost price for all of the stock in the shop was $2,314,395.10 which included $792,544.12 of stock held on consignment. From this was deducted the cost price of what was described as “Stock Found” of $632,559.40. This figure included a sum of $35,965 described as “Melting price”. Deducting those figures from the stated cost price of the goods said to be in the shop and adding $9,600 for the cost of replacing damaged glass gave rise to the total claim of $1,691,435.70. The estimate of the cost price of the stock on hand (excluding stock on consignment) was $1,521,850.98. It was supported by a letter from Diamond World’s accountant and was derived from Diamond World’s financial statements for the year ended 30 June 2017 plus a Business Activity Statement for the period 1 July 2017 to 30 September 2017 and a profit and loss statement that had been prepared for the period from 1 July 2017 to 5 December 2017.

4. [12]

   On or about 19 February 2018, Mr Crofton telephoned the police to ascertain whether any of the jewellery recovered after the arrest of the thieves was linked to Diamond World. He deposed that the police officer advised that crime scene photos clearly showed that many items remained in the showcases and were not stolen and he was invited to view the photographs at the police station.

5. [13]

   On 23 February 2018 Mr Crofton and Mr Leigh attended the police station to examine police photographs of the shop after the robbery. The photographs showed that a substantial quantity of the jewellery in the six showcases that had been smashed still remained.

6. [14]

   On 1 March 2018 Mr Crofton asked Mr Leigh whether, having viewed the crime scene photographs of the six smashed showcases, he could confirm whether the earlier submission that he had made on Diamond World’s behalf was accurate. Mr Leigh replied on 2 March 2018 as follows:

7. [15]

   On 16 March 2018 Mr Leigh advised Mr Crofton that he had been advised by Mr Chohaili that the jewellery shown in the photographs had been melted down.

8. [16]

   On 30 April 2018 Diamond World submitted a revised claim for $1,679,619. This included a claim of $355,718 for “damaged stock”. That claim was submitted by Diamond World’s solicitors, Pikes and Verekers, under cover of letter of 30 April 2018. They advised that it was not part of Diamond World’s business practice, nor its record keeping prior to the robbery, to maintain a computerised record of all stock on hand in the shop. They advised it was therefore not possible for Diamond World to produce a precise listing of the stolen items by way of a reconciliation from such a system of stock on hand before the robbery and stock on hand after the robbery. They stated that from the police photographs Mr Chohaili had made the best list and valuation estimate that he could of the stock that had remained in showcases 1 to 6 before they were melted to recover the metal value and the quality stone value. They proposed a method of valuing the stolen and damaged stock by taking the stocktake and valuation prepared for the purpose of preparing the 30 June 2017 financial statements ($1,406,623 (excluding GST)), adding the value of consignment stock as at 4 December 2017, deducting sales at cost and the value of stock that had not been stolen, and deducting a value attributed to the damaged stock remaining in showcases 1 to 6 after the robbery using Mr Chohaili’s purchase cost estimate, giving a claim for the value of stolen stock of $1,302,801 and $355,718 for melted stock; the latter being the difference between its asserted pre-robbery value of $415,000 less credit for the value of the gold and loose stones recovered from the melting process of $43,890 (for gold) and $15,392 (for loose stones). There were other aspects of the claim to which it is not necessary to refer.

9. [17]

   On 4 July 2019 Mr Chris Ehlers of Matson, Driscoll and Damico Pty Ltd, forensic accountants, provided a report to Lander and Rogers, the solicitors for Catlin. Mr Ehlers stated that on 15 February 2019 Diamond World provided a one-page document which was provided to Diamond World’s accountant on 7 July 2017 setting out the values of stock held as at 30 June 2017, which included $1,406,623 of stock on hand and $771,031 of stock held on consignment. In relation to the latter figure, this consisted of stock held for a business called FineStar totalling $310,149 and stock to the value of $460,882 held for a business known as Empire SER. Mr Chohaili was the general manager of the business that traded as FineStar Diamonds. His wife was the sole shareholder of the company that conducted that business. Empire SER Pty Ltd was a company owned and controlled by a Mr Samer Rad. Mr Chohaili had done business with Mr Rad and his father in purchasing jewellery, gold and diamonds. Through different companies, the families had engaged in some small property developments. Mr Ehlers stated in respect of the asserted consigned stock figures:

10. [18]

    He stated (at [37]) that he had been able to reconcile the amounts held on consignment on behalf of Empire SER at the time of the incident but this may have been a typographical error for “unable”. He stated that “we have been able/unable [sic] to reconcile the amounts held on consignment on behalf of FineStar…”. He expressed scepticism about the stated figures stating that on the stated figures it would take the insured at least six years, with no additional purchases, to sell the claimed stock on hand at the time of the incident. His conclusion was:

11. [19]

    His estimated maximum figure for the cost price of stolen and damaged stock of $710,324 excluded any allowance for stock held on consignment.

12. [20]

    On 18 July 2019 Lander and Rogers, on behalf of Catlin, provided Pikes and Verekers with a copy of Mr Ehlers’ report of 4 July 2019 stating that that report concluded that the maximum amount of stock stolen or damaged as a result of the incident was estimated to be $710,342, that this figure included $392,022 of melted stock, and that he noted that no supporting information had been provided for the majority of the claim for melted stock. Lander and Rogers advised that the underwriters did not consider that Diamond World was entitled to recover any amount for melted stock. They made the following offer:

13. [21]

    On 8 August 2019 Pikes and Verekers responded to Lander and Rogers’ letter of 18 July 2019. Further information was provided, including in respect of stock held on consignment. Catlin’s offer conveyed by Lander and Rogers’ letter of 18 July 2019 was rejected.

14. [22]

    On 3 October 2019 Lander and Rogers wrote again to Pikes and Verekers. Their letter was headed “Without prejudice save as to costs”. Lander and Rogers responded to Pikes and Verekers’ letter of 8 August 2019 and stated “We write to respond to your letter and make a further settlement offer on behalf of Underwriters”. They then dealt with the topic of “damaged stock and salvage value”. They stated that underwriters remained of the view that Diamond World had not substantiated the value of the damaged or melted stock it was seeking to recover and that the only documents provided in support of that claim were undated, unoriginal photographs. They stated that underwriters did not consider that the photographs provided of the melting down of stock matched the damaged stock as shown in police photographs and stated that the metadata of the PDF photographs provided showed that the files were created on 20 April 2019. They reiterated that the underwriters had not consented to Diamond World melting stock, that no itemised list, description of the jewellery or original photographs had been provided or reconciled with any invoice, and stated that once stones are removed and stock is melted, jewellery can be remade and resold and does not lose its value. They concluded that Diamond World had failed to substantiate its claim for damage to melted goods.

15. [23]

    Lander and Rogers dealt separately with the claim for purchased and consignment stock. Significantly, in relation to FineStar stock, Lander and Rogers stated that whilst Pikes and Verekers had provided new information, namely, that “FineStar’s consignment stock held by DWJ as at June 2017 was returned to FineStar in July 2017 and new consignment stock taken on from FineStar from July 2017”, the underwriters had not been provided with documentation to confirm such a refreshment of stock, such as correspondence, delivery notices, insurances for the movement of jewellery or reconciliations between the consignment notices in 2016 or the amount of returned jewellery. They stated that Diamond World’s stock management record keeping was poor and made an offer in the following terms:

16. [24]

    The offer was not accepted. On 10 October 2019 Pikes and Verekers made a counter offer of $1,300,000 in full satisfaction of its claims inclusive of interest and costs. They advised that the offer was open for acceptance for 14 days. The letter was also expressed to be without prejudice except as to costs, and reference was made to the principles in Calderbank v Calderbank [1975] 3 WLR 586.

17. [25]

    Diamond World commenced proceedings in the Supreme Court on 28 November 2019.

18. [26]

    After the proceedings were commenced Mr Ehlers provided a further report. Evidence was adduced from an expert retained by Diamond World. The details of this evidence are not relevant to the issues raised on appeal.

The policy

1. [27]

   The policy provided cover in the following terms:

2. [28]

   There was no dispute that loss or damage to stock occasioned by robbery fell within the scope of the cover against Perils Insured.

3. [29]

   The “basis of valuation shown on the Schedule” was stated to be:

4. [30]

   The cover was expressed to be subject to the conditions of the insurance. The conditions of insurance are to be read congruently with, and by reference to, the insuring clauses (Wilkie v Gordian Runoff Limited (2005) 221 CLR 522; [2005] HCA 17 at [16]; Allianz Australia Insurance Limited v Rawson Homes Pty Ltd [2021] NSWCA 224 at [10] (Leeming JA)).

5. [31]

   The conditions included the following term:

6. [32]

   The primary judge held that Diamond World was not in breach of cl 4 and there is no appeal from that finding.

7. [33]

   Although not raised by the pleadings (as to which see below at [40]-[47]) Catlin contended at trial, and counsel appearing for Diamond World accepted, that the principal issue was whether the underwriters (acting fairly, reasonably and in good faith) were entitled not to be satisfied with Diamond World’s attempted substantiation of the quantum claimed and to decline to pay any sum otherwise than on the basis of Lander and Rogers’ letter of 3 October 2019 quoted at [23] above. They contended that the first stage for decision making by the Court was to determine whether, on the materials available to the underwriters when it made its alleged “decision” of 3 October 2019, the underwriters acted reasonably, fairly and in good faith. Only if that question were answered in the negative, so it was submitted, was the judge entitled to make her own assessment of how much of the claim had been satisfactorily substantiated.

8. [34]

   As explained below, the primary judge rejected Diamond World’s claim for damaged goods and allowed the claim for stolen goods by awarding damages in the sum of $1,313,304.45. This resulted in judgment in the sum of $1,431,759, being $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. It also included a figure for interest from 4 October 2019 (Diamond World Jewellers Pty Ltd v Catlin Australia Pty Ltd (No 2) [2021] NSWSC 1540 at [3], [9] and [37]).

9. [35]

   There is no appeal from the primary judge’s assessment of the quantum of the claim. Rather, Catlin contends that the primary judge erred in finding that it had acted unreasonably and in bad faith in its assessment of the claim.

10. [36]

    It is unfortunate that the trial proceeded in the way it did. It was only on the second day of the hearing that the parties agreed on a statement of agreed issues for determination and that description of issues was itself ambiguous. I deal with this below at [63].

11. [37]

    Returning to the policy, I do not accept that the second paragraph of the Stock Records Clause, which is one of the conditions applicable to the cover provided for in section 1, has the effect for which Catlin contends. Catlin reads that paragraph as if it provided:

12. [38]

    The insuring clause provides that settlement of a claim for lost or damaged stock will be negotiated on the basis of the cost price of the stock. That is an objective matter. If the negotiations do not result in an agreement, the policy does not provide (unless it be by the second paragraph of the Stock Records Clause) that the quantum of cover depends upon the opinion of the underwriters. Rather, if negotiations do not result in agreement being reached, the determination of the quantum of cover is a matter for the court, or an arbitrator if the parties agreed to arbitration. The determination of the quantum of the claim would be determined on the objective basis of what the insured established to be the cost price of stock stolen or damaged. If one asks in relation to the second paragraph of the Stock Records Clause “satisfactorily to whom?”, I would say “to the satisfaction of the judge or arbitrator called upon to determine the question if negotiations do not result in agreement”.

13. [39]

    In context “satisfactorily substantiate” refers to the quality of the information provided and is synonymous with “adequately”. “Satisfactorily” is an ambiguous word. It can mean “adequate, fulfilling the demands or requirements of the case”, or it can mean “fully gratifies or contents, that justifies a feeling of satisfaction” (Online Etymology Dictionary). If used in the latter sense, one might refer to a meal as being “satisfying” whereas to say that it is “satisfactory” might mean that it barely passes muster. If a judge says that counsel’s submissions are satisfactory, that does not mean that the judge is persuaded that they are correct. Read congruently with the insuring clause, “satisfactorily substantiate” does not mean substantiate to the satisfaction of the underwriters but means adequately, such that the underwriters are then only liable for the amount that has been adequately accounted for.

The pleadings

1. [40]

   By its amended statement of claim, Diamond World sought an order that Catlin indemnify it in respect of the loss and damage that it pleaded, and also sought damages. It pleaded that it was a term of the policy that if stock or merchandise were lost, destroyed or damaged, including by robbery and theft, settlement was to be negotiated on the Basis of Valuation as shown in the Schedule, and pleaded that the Schedule provided that the Basis of Valuation for stock was Cost Price including tax where applicable. It pleaded the circumstances of the robbery and the insurer’s request for information. It pleaded that it responded to those requests to the best of its ability and that the insurer refused to provide cover for the Stolen Stock and the Damaged Stock on the basis of Cost Price including tax where applicable, or at all (Amended Statement of Claim paras 6, 7, 11-13, 17, 18 and 20).

2. [41]

   It pleaded that in those circumstances Catlin had breached the policy by reason of which it had suffered loss and damage. It also pleaded that Catlin had sought to negotiate a payment of the claim and in doing so had sought to rely on the absence of information as a basis on which to reduce the amount payable. It pleaded that, to the extent Catlin relied upon the absence of information on the basis on which to reduce the amount payable by it, Catlin was in breach of the policy in that it was not entitled to the information requested and Catlin knew, or ought to have known, that Diamond World did not keep such information at the time the parties entered into the policy.

3. [42]

   Thus, Diamond World pleaded that it was entitled to the cost price of the goods stolen or damaged, either as a debt due under the policy (the claim for indemnity in para 1 of the relief claimed) or as damages for the underwriters’ failure to provide cover. In relation to the claim for damages the damages were particularised as the difference between the cost price of the Stolen Stock and the Damaged Stock including tax where applicable, and such amount as the defendant was otherwise willing to pay (para 26).

4. [43]

   Diamond World did not plead that its entitlement to cover depended upon the opinion of the underwriters. It did not seek to identify any decision that the underwriters may have made in respect of its claim. It did not seek to impugn any such decision on the ground that it was unreasonable, unfair or not made in good faith on the basis of the materials available to the underwriters when they made any decision.

5. [44]

   Nor was any such case identified in Catlin’s Amended Defence. It pleaded that it had offered to pay to Diamond World an amount “in excess of the value of loss that [it] has assessed the plaintiff is entitled to under the Policy” and gave as particulars Lander and Rogers’ letters to Pikes and Verekers dated 18 July and 3 October 2019. It pleaded (at para 17) that it was a term of the policy that Diamond World provide it with all available information to enable it to quantify the amount of the loss claimed and such information as to the property lost or damaged as it might reasonably require and as might be in the plaintiff’s power. It admitted (at para 18(a)) that Diamond World was entitled to the value of loss that it had assessed Diamond World was entitled to under the policy being $367,990.78.

6. [45]

   Notwithstanding this admission, and a request for payment of the admitted sum, the underwriters have not paid anything in response to the claim.

7. [46]

   Catlin’s answer to the claim is pleaded in para 19 as follows:

8. [47]

   Catlin did not plead the stock in trade clause. It did not plead that the effect of that clause was that the cover provided by the policy depended upon the formation of an opinion or the making of a decision by the underwriters that they were satisfied with the quantum of the claim. Catlin did not plead that the claim was fraudulent.

9. [48]

   Notwithstanding the pleadings the written opening submissions of counsel for Diamond World included the following:

10. [49]

    This statement of issues does not identify as an issue whether, if the insurer had made a decision (as to what is not identified), any such decision was made unreasonably, unfairly or otherwise than in good faith.

11. [50]

    In his written outline of opening submissions, counsel for Diamond World said that there was no evidence that the insurer had made a decision and its failure to do so was a breach of its obligations. In their outline of opening submissions counsel for Catlin submitted that there was “…no pleaded complaint regarding the processes adopted by Catlin, but for the sake of completeness it will be proved that Catlin responded appropriately and reasonably to the claim, and in accordance with the terms of the policy”. They also submitted that, after proceedings had been commenced, Diamond World had provided more evidence in an attempt to substantiate the claim. They submitted that that evidence was irrelevant because it was not provided to Catlin at the time it was asked to determine the claim.

12. [51]

    In the course of the oral opening submissions of counsel for Diamond World the primary judge asked whether the issue to be determined was the construction of clauses 1 and 4. In response, counsel said:

13. [52]

    This was not how the case was pleaded but it must be accepted that it was how the case was fought at trial. But it left open a number of questions. First, what did the underwriters decide? The only identification of a decision by the underwriters was the correspondence from Lander and Rogers to Pikes and Verekers of 18 July and 3 October 2019. The only decision evidenced by that correspondence was a decision by the underwriters to offer to settle Diamond World’s claims on terms that the underwriters would pay $500,000 (as at 3 October 2019), Diamond World would grant a full release to the underwriters, but the underwriters would be free to seek a declaration that they had no liability to Diamond World and if successful, the payment would be refundable. It might be arguable that the underwriters’ conduct evidenced a further decision taken by someone that, if the offer of compromise were not accepted by Diamond World, the claim would be rejected notwithstanding the underwriters’ admission that they had assessed the plaintiff as being entitled under the policy to $367,990.78. A refusal to pay that claim would clearly be unreasonable unless the underwriters could establish that their liability to pay that sum was discharged because Diamond World had not complied with its duty of good faith by presenting a claim which was not a true reflection of its entitlements under the policy (para 19 of the defence).

14. [53]

    On appeal Catlin did not seek to demonstrate why Diamond World’s presentation of a claim for a greater amount than that to which it was entitled, even assuming that the claim for the greater amount was not made in good faith, would discharge the underwriters from their liability to pay the sum which they assessed it was entitled to receive.

15. [54]

    The primary judge found that the insurer did not act fairly, reasonably and in good faith, for reasons that included that they were still not paying what they had concluded Diamond World had established it was owed under the contract (at [261]).

16. [55]

    Catlin submitted that her Honour erred in making that finding because “it wasn’t the way that the case was put against us below”.

17. [56]

    But this part of the case presented for decision below was not pleaded by either side. It is not clear why Diamond World agreed that its cover depended upon its showing that a decision by the underwriters to decline cover was unreasonable, unfair or in bad faith, but once that issue was embarked upon, neither party was bound by its pleadings.

18. [57]

    The basis upon which the parties proceeded at trial appears to have been based upon principles settled by the decision of this Court in TAL Life Ltd v Shuetrim; MetLife Insurance Ltd v Shuetrim (2016) 91 NSWLR 439; [2016] NSWCA 68 concerning the construction of insurance policies where cover depends upon the formation of an opinion by the insurer. In TAL Life Ltd v Shuetrim, the relevant clause of the policy was that an insured would be entitled to cover for Total and Permanent Disability defined as follows:

19. [58]

    In Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61-113 the policy provided cover for Total and Permanent Disablement defined as follows:

20. [59]

    In Hannover Life Re of Australasia Ltd v Jones [2017] NSWCA 233 the relevant definition of total and permanent disablement provided:

21. [60]

    In MetLife Insurance Limited v MX [2019] NSWCA 228 the insurer’s liability turned partially on its being satisfied that the member of a superannuation scheme had become incapacitated to such an extent as to render him unlikely ever to engage in any gainful profession, trade or occupation for which he was reasonably qualified by reason of education, training or experience (at [2]).

22. [61]

    In this case the policy does not provide that Diamond World substantiate its claim to the underwriters’ satisfaction, but that they do so satisfactorily. Those are not equivalent expressions.

23. [62]

    The primary judge observed that, as a result of the service of written outlines of opening submissions and the insurers’ oral submissions in opening, both the previously identified issues in the pleadings were revisited (at [47]). On the second day of the hearing the parties agreed on a reformulation of the issues as follows:

24. [63]

    Issue 3(1) raised the issue that arises in cases of which TAL Life Ltd v Shuetrim is an example. Issue 3(2) was ambiguous. It could mean:

Reasons of the primary judge

1. [64]

   The primary judge commenced by summarising her conclusions. In summarising her conclusions, her Honour said:

2. [65]

   Consistently with the way the parties had presented issues for determination, her Honour said:

3. [66]

   The primary judge found that the insurer failed to reveal to Diamond World material that was before it when it made its decision (at [234]) and found that Diamond World had established that the insurer breached its duty of utmost good faith given how it handled the claim and what it failed to disclose (at [234]). The primary judge found:

4. [67]

   The primary judge found that Diamond World had not acted in good faith. In cross-examination Mr Chohaili accepted that some of the jewellery that was the subject of the claim for damaged stock and that had been melted, was not damaged. Her Honour found that Diamond World’s pursuit of the claim in respect of undamaged stock that was claimed to have been damaged was unreasonable and irrational (at [226]). Her Honour found that as Catlin had not pleaded that the claim was fraudulent, the insured’s failure to pursue the claim with utmost good faith did not justify the insurer in a refusal to pay the claim (at [264]). There is no appeal against that finding.

5. [68]

   The primary judge then found that the records relied upon by Diamond World were reliable and that it had substantiated its claim for loss of stolen goods. There is no appeal from that finding.

Grounds of appeal

1. [69]

   The grounds of appeal were as follows:

2. [70]

   Rule 51.18(e) of the Uniform Civil Procedure Rules requires that a notice of appeal state “briefly, but specifically, the grounds relied on in support of the appeal”. Rule 51.36(2) requires that submissions raising any challenges to findings of fact must include a statement in narrative form at the end of the submission setting out (a) the findings challenged and supporting references to the judgment, and (b) the findings contended for and supporting references to the transcript and other evidence in the court below.

3. [71]

   The appellant made no submission challenging findings of fact in a form required by r 51.36(2).

4. [72]

   Ground 4 of the notice of appeal failed to comply with the requirements of the rules. It did not specify what findings of fact were challenged or what were the irrelevant matters to which the primary judge was said to have had regard.

5. [73]

   Catlin made no submissions in relation to the primary judge’s finding at [259] that the underwriters should have disclosed what they took into account in arriving at their decision, including Ms Bramble’s report. The primary judge found (at [13]) that Catlin engaged Ms Bramble as an investigator and Mr Ehlers’ report of 3 July 2019 stated that there had been no 2017 stocktake undertaken which was simply wrong as Mr Crofton and the insurer were aware (at [81]). Her Honour found that because Diamond World was not provided with the report the insurer obtained from its investigator, Ms Bramble, it had no opportunity to advise the insurer of errors it contained, some of which would have also been apparent, particularly to Mr Crofton.

6. [74]

   Catlin did not submit that the primary judge formulated a wrong test. The test her Honour formulated (at [229] and [230]) quoted at [65] above was in accordance with Catlin’s submissions, and correctly states the law where cover depends on the satisfaction of the insurer as to the existence of a fact (Shuetrim at [61]-[62]; Edwards at 77, 536; MetLife at [76]-[80]).

7. [75]

   But Catlin submitted that the judge did not apply that test. Catlin submitted that in finding that the underwriters acted unreasonably, the primary judge relied on evidence that was not available to the underwriters when they made their “decision”. The matters upon which it was said that the judge relied in making that finding included her Honour’s findings in relation to the credibility and reliability of witnesses, the consequences of failing to call witnesses, the report of a Mr Ross Beames, forensic accountant, whose report was provided for the purpose of the trial but was not before the underwriters when they made their “decision” of 3 October 2019, the evidence given at trial including the joint experts’ report, other matters emerging at trial, the judge’s assessment of Mr Chohaili’s credibility, matters that emerged from the cross-examination of Mr Crofton, the judge’s assessment of the credibility and motives of Mr Leigh, the evidence of Mr Samer Rad, the judge’s favourable assessment of his credibility, and Jones v Dunkel inferences that the judge drew.

8. [76]

   It may be accepted that all of these matters would be irrelevant to the assessment of the reasonableness of the underwriters’ so-called “decision” conveyed by the letter of 3 October 2019 but although the judge referred to all of the above matters, her Honour did not do so simply for the purpose of deciding whether or not the underwriters’ decision was made fairly and reasonably. That was not the only issue.

9. [77]

   After describing the issues as presented to her Honour and the pleadings, her Honour first addressed the issue of whether Diamond World adhered to its obligations under cll 1 and 4 of the policy. Clause 4 stated that it was a condition precedent to a right of indemnity that Diamond World give the underwriters such information and evidence as to the property lost or damaged as might reasonably be required by the underwriters and was in the insured’s power. Her Honour found that that obligation was not breached and there is no appeal from that finding. It was in the context of that issue that the primary judge referred to evidence given by Mr Crofton in cross-examination that information provided to him was sufficient for him to have assessed its claim. This was an example of a matter which Catlin submitted was evidence relied on by the primary judge in respect of her Honour’s finding as to the unreasonableness of the so-called decision of 3 October 2019 because it was not material that was available to the underwriters. But the judge did not so find and the finding was made for a different purpose.

10. [78]

    The primary judge then went on to consider various issues of evidence under the heading “Credibility, reliability and the failure to call witnesses and tender documents”.

11. [79]

    Much of that evidence was not relevant to the issue of the reasonableness of the underwriters’ so-called decision of 3 October 2019 but was relevant to other issues in the case. That is true of each of the other matters relied upon by Catlin as establishing error in assessing the fairness and reasonableness of the underwriters’ so-called decision of 3 October 2019.

12. [80]

    The primary judge was critical of some of the underwriters’ responses to the claim for damaged stock, but this was not material. As Catlin pointed out the judge herself rejected the claim for damaged stock, albeit by reason of admissions Mr Chohaili made in the witness box.

13. [81]

    Catlin did not address the primary judge’s finding that the underwriters’ decision was unreasonable for not disclosing to Diamond World material that it had and took into account in arriving at its decision (for example a report of its investigator, Ms Bramble) and in not taking into account all of the information provided by Diamond World in support of its claim.

14. [82]

    Irrespective of the detail of those matters, which were not specifically addressed on the appeal, the primary judge was clearly right in finding that it was unreasonable for the underwriters not to pay the amount of the claim for which they admitted liability.

15. [83]

    Ground 3 of the notice of appeal states that the judge was in error in taking this matter into account because that was a claim that was not pleaded nor advanced by the insured.

16. [84]

    It is true that the claim was not pleaded, but as explained earlier in these reasons, that is because the trial went off on issues that had not been pleaded. Nonetheless the statement of claim did seek indemnity in respect of the loss and damage that was pleaded, and pleaded that the insurer had refused to provide cover for the Stolen Stock on the basis of cost price.

17. [85]

    Paragraph [253] of the primary judge’s reasons did not identify what was the second part of the insurer’s decision. That was the result of the failure of Catlin to identify clearly what was the decision it said it had made. In submissions before the primary judge, counsel for Catlin accepted that the letter of 3 October 2019 was not an “assessment” but an “offer”. That is clearly right. The only decision of the underwriters conveyed by the letter of 3 October 2019 was a decision to make the offer of compromise. A decision not to pay the claim unless the underwriters’ offer were accepted can be inferred from subsequent conduct.

18. [86]

    None of this was pleaded. Understandably, none of it was specifically addressed in the primary judge’s reasons. The primary judge was right to say that the way the insurer conducted its case made it difficult to identify what material was taken into account and how it reached its adverse conclusions.

19. [87]

    Contrary to ground 3, it was an issue at trial whether the insurer acted unreasonably in not paying the sum for which it admitted liability in its defence.

20. [88]

    In para 37 of the opening submissions of counsel for Diamond World, counsel stated that:

21. [89]

    Correspondence from Pikes and Verekers to Lander and Rogers demanding payment of the admitted sum was referred to by the primary judge in her Honour’s reasons at [17].

22. [90]

    The issues before the primary judge and on appeal were more complicated than they should have been. The issue raised by Diamond World’s statement of claim was what the cost price value of the Stolen and Damaged Stock was. Given the rejection by the primary judge of the defence that the underwriters were excused from liability because the claim had not been made in good faith (against which finding there is no appeal) and given the primary judge’s rejection of the claim for Damaged Stock, the only remaining question should have been what the cost price of the Stolen Stock was. The primary judge’s finding on that question was not challenged on appeal.

23. [91]

    Wider issues were raised at trial, in particular whether the underwriters made a decision to reject the claim, or not to pay the claim unless Diamond World accepted the offer of compromise of 3 October 2019. The primary judge’s finding that any such decision was not made fairly, reasonably and in good faith, should not be disturbed.

24. [92]

    For these reasons I propose that the appeal be dismissed with costs.

25. [93]

    MITCHELMORE JA: I agree with White JA.