IN THE COURT OF APPEAL OF THE COOK ISLANDS
HELD AT AUCKLAND
CA 6/93

BETWEEN

MILLER & HOWARD
a partnership practising as Barristers and Solicitors, Rarotonga
APPELLANT

AND

HARRY TAUEI NAPA
of Rarotonga, Planter and
ANTHONY MOORE ANDREW IVANSON
of Auckland New Zealand as executors
of the Will and administrators of the estate of
NAPA TAUEI NAPA
FIRST RESPONDENT

AND

FINE FOODS LIMITED
a duly incorporated limited liability company
having its registered office at Rarotonga
SECOND RESPONDENT

Coram: Hillyer J (Presiding)
Gilbert J
Dillon J

Counsel: Mr GS MacAskill for Appellant
Mr GJ Kohler for First Respondent
Mr D O'Neill for Second Respondent

Hearing: 28 November 1994
Judgment: 2 February 1995

JUDGMENT OF THE COURT DELIVERED BY HILLYER J

This is an appeal against a decision of Quilliam J given on 17 June 1993. His Honour held that the Second Respondent, Fine Foods Limited (the Defendant in the court below) was liable to pay the First Respondents (the Plaintiffs in the Court below) the value of a building which had been destroyed by fire, at its replacement value and that the Appellant (the Third Party in the Court below) was liable to indemnify the Second Respondent for the same contract.

The First Respondents are the sub-lessors of land pursuant to a deed of sublease dated 8 August 1975. the Second Respondent became sub-lessee of that land. It carried on a restaurant business known as the "Outrigger Restaurant" which had been operating for some years. The term of the sublease was to expire on 6 December 1994, but we were advised by counsel that the lease has been renewed for a further 20 years. Under the Deed of Assignment by which the second Respondent acquired the sublease it covenanted to comply with all terms of the deed of sub-lease. Clause 7 of the deed provided-

"7 THE sublessee shall insure the said buildings to their full insurable value and shall during the term of this sublease pay all insurance premiums payable with respect to any policy or policies so issued."

The Second Respondent failed to effect insurance on the restaurant building and on 13 December 1992 the building was destroyed by fire. The First Respondents accordingly claim to recover from the Second Respondent the amount of their loss. The Second Respondent issued a third part notice to the Appellant. The firm of solicitors which acted for it on obtaining the assignment, on the basis either that it was that firm which had the obligation to effect the insurance, or at least had the obligation to ensure that the Defendant was aware of what had happened.

When the matter came before His Honour, the Second Respondent admitted default as to the insurance and acknowledged liability to the First Respondents. The Appellants in turn acknowledged liability to indemnify the Second Respondent. His honour noted the questions that remained in issue before him as follows-

"1. what was the extent on the Third Party's liability to indemnify the Defendant

2 What was meant by the expression "full insurable value" in the sub-lease.

3. What was the amount for which judgment should be entered."

His Honour held, as we have said, that the Appellant was liable to indemnify the Second Respondent. No appeal has been brought from that finding and Mr O’ Neill who appeared for the Second Respondent took no part in the argument, although he did helpfully remain in Court since he was the only one of counsel appearing what had been present at the hearing before Quilliam J. in case some questions arose as to what had happened during that hearing. No evidence was given before His Honour as to the value of the premises and His Honour concluded his judgment by saying if the parties were unable to agree as to the amount for which judgment should be entered it would be necessary for the hearing to be resumed, either by way of written submissions or by the hearing being resumed in New Zealand or Cook Islands. His judgment was to the extent therefore only an interim judgment.

Before us, the grounds of appeal were substantially confined to the question what the phrase "full insurable value" meant: in particular whether it meant the value of the premises as they were at the time of the fire, or the cost of replacement or reinstatement of the premises. That question was to some extent enlarged upon by Mr MacAskill for the Appellant who submitted that there was no evidence to show that the building could be reinstated, nor was there any evidence to show that replacement insurance would be available. His Honour held that "insurable" meant capable of being insured and therefore that "full insurable value" meant the greatest amount for which the premises were capable of being insured. He said-

"There can be little doubt that if the Defendant had complied with the covenant in the sublease it would have been able to find insurance to the extent of the replacement value, although presumably the premium would have been greater than for a cover on the existing condition of the building".

He said that that conclusion was consistent with the nature of the transaction between the parties. The building had for some time been used as a restaurant and it was for the purpose that the Defendant took an assignment. At the expiry of the sublease the Plaintiff was entitled to receive back a building which still had the character of a restaurant and could continue for that purpose. That conclusion in our view is entirely consistent with the terms of the Deed of Lease, which in paragraph 8 of the deed provided-

"In the event the buildings on the said land shall be damaged by fire...to an extent where they are rendered untenantable...pending repair or reinstatement thereof a fair and just proportion of the rent hereby reserved...shall cease to be payable"

That demonstrates in our view that the parties contemplated the reinstatement of the building if it was damaged or destroyed by fire. Even more, however His Honour’s decision is justified in our view by a letter dated 29 April 1993 which was produced at the hearing before him by consent. Because of its importance we set out that letter which was addressed to the solicitors for the First Respondents from a Mr R Sargent, a principal of the New Zealand insurance firm of Willis Corroon McNicol in full.

"I acknowledge receipt of your faxed letter today in relation to the above.

It is readily accepted in the insurance market that the term "Full Insurable Value" means Replacement Value i.e. the cost to reinstate the premises to a condition substantially the same as the buildings condition when new including:

(i) The costs of demolition and removal of debris including contents whether damaged or undamaged.
(ii) Architects, Surveyors and Engineers costs.
(iii) The increased costs of reinstatement which would be incurred during the reconstruction.
(iv) Additional Costs of complying with statutory requirements.

I trust above clarifies your enquiry but should you wish to discuss further please advise."

That letter clearly states that the term "full insurable value" means the cost to reinstate the premises to a condition substantially the same as the buildings condition when new. The fact that it was put in by consent must mean that both parties accepted what was said in the letter and there was no evidence to the contrary. Mr MacAskill’s submissions that there was no evidence to show that the building could be reinstated, or that such insurance would be available cannot stand with the evidence contained in the letter and accepted by all parties.

Further, if it is accepted that the obligation imposed by Clause 7 of the Deed of Lease was for the Second Respondent to insure the building for the cost of reinstating them the obligation would be on the Second Respondent to establish that the building could not be reinstated or that no such insurance was available if that was the case.

Mr Kohler referred to us to Halsbury’s Laws of England, 4th Edition Vol 27 at page 270 where the learned authors say under the heading "Breach of Covenant to Insure"-

"Where the premises are destroyed or damaged the measure of damages for breach of the covenant to insure is the cost of their restoration."

Mr MacAskill referred to us a decision Burt and Others v British Transport Commission [1995] 166 EG 4, this was cited as an authority for the statement in Halsbury. It was a case in which a lease contained covenants that the premises should be insured by the lessee for full value and that if the building was damaged by fire the lessee should reinstate it. The lessee had omitted to increase insurance cover to keep the pace with rising building costs. The judge said that the measure of damages for the breach was equal to the amount payable for the restoration of the building.

The matter was referred to in further case sited to us by Mr MacAskill, Horowitz Holdings Pty. Limited v Plastic Reclaimers (Australia) Pty. Limited & Others (1981) ANZ Ins Rep. 77, 262. In that case there was an obligation to insure the premises for "their full insurable value". It was not possible to rebuild the demised premises in their previous form due to planning restrictions and the "capitalisation" method was used to determine the market value of the premises on the basis of the "net return of income derivable". Needham J said-

"It may be that the restoration method could produce a more realistic figure in circumstances where a similar building could be erected in place of that destroyed, but in the present case the theoretical new building would be substantially different from the old."

He therefore adopted the capitalisation method. It is clear, however, that had the building been restorable that would have been the proper measure of damages.

We are therefore of the view that the Learned Judge was correct in his finding that the amount for which the Second Respondent is liable to the First Respondent is the replacement value and that therefore the Appellant is liable to indemnify the Second Respondent for the same amount. The appeal is dismissed with costs to the First Respondent.

The course set out by His Honour as to the determination of the amount of damages will be followed.

HILLYER J

Solicitors for the Appellant: Tompkins Wake, DX 4030 (Hamilton)
Solicitors for the First Respondent Gellert Ivanson, DX 5413 (Auckland)