N1129

PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]

AGMARK PACIFIC PTY LIMITED
Plaintiff

-V-

QUEENSLAND INSURANCE (PNG) LIMITED
Defendant

Waigani: Brown J.
1992: 18, 19, 20 & 21 May, 17 December

Insurance - Fire insurance - Action on policy of insurance - Condition precedent - Proof of exceptions - onus of proof.

Practice and Procedure - Action on insurance policy - Insurer raising defence of exceptions in policy - whether insured entitled to call evidence in rebuttal or split case - Applicable principles.

The owner of premises in Kieta, Bougainville, lost the premises and cocoa in a fire. The plaintiff says it was covered for that risk by a policy of insurance issued by the defendant. During the course of the plaintiffs case it became necessary to rule on the defendants assertions that the plaintiff's conduct, in re-examination amounted to it "splitting its case". Correlative was the question of the party having the onus of proof of the exceptions in the policy pleaded by the defendant in its defence.

The facts appear from the judgment.

Held:

The plaintiff may call evidence in rebuttal once the defendant has closed its case but cannot split its case. It should not open on matters in relation to an issue unless it is prepared to call all its evidence on that issue.

The burden of proof of breaches of "conditions precedent" described in a policy of insurance was on the party relying on the breach so that the onus of proving an exception to a policy of insurance, which would relieve the insurer from liability, was on the insurer.

Cases Cited:
Paroa Tumboro v. M.V. Insurance Trust [1984] PNGLR 272.
Protean (Holdings) v. American Home Assurance [1985] V.R. 187.
Bond Air Services v. Hill (1959) 2. All.E.R. 576.
Kodak (Australasia) Pty Ltd v. Retail Traders Mutual Indemnity Assurances Association (1942) S.R. (N.S.W.) 231.
Fraser v. B.M. Furman (Productions) Ltd (1967) 1W.L.R. 898.
Legal General Assurance Society Ltd v. The Commonwealth of Australia and Precision Cranes and Hoists Pty Ltd (1985) 3 A.N.Z. Insurance Cases 6062 @ 78795
Bedford v. Junes anor (1986) 4 A.N.Z. Insurance Cases 60-698 @ 74,165.
Mr Justice D.K. Derrington - "Conditions in Policies of Insurance - Onus of Proof" (1985) 59 A.L.J. 554.

Cur. adv. vult.

Trial of action

Rulings

Mr P. Voss with Mr B. Curran, for the Plaintiff
Mr D. Ryan with Ms R. Thompson, for the Defendant

BROWN J.: The plaintiff had premises in Kieta, Bougainville Province on which it carried on the business of cocoa buying and exporting, hence storing large quantities from time to time. As well it was an agricultural equipment dealer. The plaintiff says that it insured the premises and the cocoa with the defendant from the 16 November 1989 to the 16 February 1990 against nominated risks which included fire. There was in fact a fire and the premises, cocoa and other materials were apparently destroyed or damaged. 

A particular policy of general insurance in evidence and pleaded in the statement of claim on the plaintiff's part has general exclusions and a special endorsement excluding recovery for losses resulting from contingencies including "military or militant activities".

On or about the 26 of January, fire destroyed this store and the plaintiff claims that such loss suffered was insured against by the defendant.

The plaintiff case was opened by Mr Voss when he intimated that the Court would most likely be asked to rule on which party carried the burden of proof in this sense of establishing a case, for he says that the plaintiff need show a prima facie case on its pleadings, but that it would be entitled to bring evidence in rebuttal of the defendant's case. He referred me to McDermott, J's reasoning in Paroa Tumboro -v- M. V. Ins. Trust [1984] PNGLR 272 where McDermott, J cites Phipson on evidence and instances of the exercise of discretion in favour of a plaintiff bringing such evidence, to include the "right to answer a defendant's evidence in support of an issue, the proof of which lay upon the defendant".

As the plaintiff's evidence in chief unfolded it became increasingly difficult for Mr Voss in the absence of such a ruling concerning the party on whom the onus of proof lies for Mr Ryan was at pains to ensure that the plaintiff brought its entire case at the beginning. Mr Ryan says that the plaintiff bears the onus of disproving the "exclusions" in the policy of insurance (for the defendant has sought to rely and puts them in issue in its defence) and in any event Mr Ryan says that the plaintiff cannot be permitted to split its case.

During the course of the plaintiff's evidence (directed to loss caused by fire) Mr Voss took particular care not to lead evidence which could be construed as going to matters of exclusions. Mr Voss has asserted so far as the exclusions were concerned that was for the defendant to prove. He has asserted he would not open on matters which in the plaintiff's view properly were matters for the defendant. 

The defendant in cross-examination of the plaintiff's witnesses put matters pertinent to its case and Mr Ryan consequently criticised the plaintiff for opening (in re-examination) on facts which the defendant says really relate to the exclusion clauses and thus because the plaintiff has embarked on material pertinent to the question of exclusions both general and specific in the body of the policy, the plaintiff should be obliged to call all his evidence on the questions and not split his case.

The collorary of course is that the plaintiff who does is burdened, in fact, with the onus of negativing the exclusions pleaded by the defendant. 

Mr Voss consequently sought a ruling at this juncture while the plaintiff's case had not closed.

I should rule on the incidents of the burden of proof which I used in the sense of the legal burden. It seems to me to be important at this time to determine this preliminary point otherwise the argument about evidential issues will only worsen, risking the proper conduct of this trial. Once it is clear which party carries the burden of proving the issues raised in the pleadings, the evidential argument still remains to an extent, for should the plaintiff in re-examination, deal with the defendants case, as best he then can relying on the matters raised by the defendant in cross examination? Does he split his case? The answer is no.

Marks J. in Protean (Holding) v. American Home Assurance [1985] V.R. 187 @ 189 had reason to consider the order in which evidence may be presented in a case such as this involving insurance. He reviewed authorities which I consider persuasive. For instance he quoted from Stawell CJ's judgment of the Victorian Full Supreme Court in Wharton v. Tuoky (1862) 1 W & W. (L) 217, @ 219 –

"No rule of practice is better known than that prohibiting a plaintiff from dividing his case; on the other hand, a plaintiff is clearly entitled to reserve, for the purpose of rebutting new matter, evidence which, if he, the plaintiff, were disposed, he might give in the first instance by way of ancitipation. The correctness of rejecting or receiving the evidence in question depends, therefore, upon whether that evidence, if received, would or would not, have formed a rebutting case, properly speaking."

The rule was stated in Shaw v. Beck (1853) 8 Exch. 392 @ 398; 155 E.R. 1401, @ 1403 as follows:-

"Where there are several issues, some of which are upon the plaintiff and some upon the defendant, the plaintiff may begin by proving those only which are upon him leaving it to the defendant to give evidence in support of those issues upon which he intends to rely; and the plaintiff may then rebut the facts which the defendant has adduced in support of his defence."

Mark J. goes on to say that the rule admits a discretion in the trial Judge, but when exercising it considered the comments by Cave J., a member of a bench of three Judges in the Queen's Bench Division, in McLaren & Sons v. Davis (1980) 6 T.L.R. 372 @ 373 where he said -

"It was never convenient to prove a negative. When the defendant had set up something affirmative then was the time to dispose of it. The learned Baron [a reference to Huddleston B. who sat with the jury at first instance] had exercised an erroneous discretion in refusing to allow the rebutting evidence".

Mark J. went on to say, at 191 (30) -

"Here it would be not only incovenient but quite unfair and contrary to the interests of justice if the plaintiff are called upon to adduce all their evidence in disproof of a case with respect to which they have heard no evidence".

I deal with the public policy aspects later, but I adopt Marks J's ruling and say that "the plaintiff may choose not to call evidence in relation to any issue on which the defendant has the burden of proof until after the defendant has closed its case on it".

Mr Ryan attempts to raise an additional difficulty by pointing to the amended defence which pleads a policy of insurance apparently different to that in evidence already on the plaintiff's part. Put simply Mr Ryan says, a 1984 version was in use at about the 23 November, 1989 (the relevant date) and that the 1985 version, the commercial combined policy already tendered in evidence by the plaintiff was not in use. The amended defence refers to a commercial combined in use by the Queensland Insurance identified by code "PNG 229" (10/84) and a document was marked for identification when put in cross-examination, by Mr Ryan. The trial has not reached a stage where I am in a position to determine the particular terms of any policy of insurance in effect, but from the details from the policy which is already in evidence the defendant argues that the exemptions in that policy were a condition precedent to the insurers liability to indemnify the plaintiff under the policy. 

I propose now to deal with the burden of proof, for once that question is resolved the nature or purpose of the plaintiff's questions in re-examination will be seen in the light of the ruling above, about splitting ones case. It follows that if the defendant has some burden then the plaintiff may call his evidence in rebuttal after the defendant has closed. He need not continued to be embarrassed by his wish to re-examine on material touched on by the defendant in cross-examination, yet his reluctance to appear to be opening on matters properly the subject of rebuttal evidence after the defendants case.

The plaintiff says that the defendant has the onus of proving the existence of the exemptions, facts on which the Court could find military or militant activities for instance, or exemptions subsequently shown and found to be terms of a contract of insurance between the party. On the other hand the defendant argues that having put in issue the existence of a state of affairs or an event falling within the exclusion clauses, the plaintiff must negative the state of affairs or event for the provisions are conditions precedent to the defendants accrual of liability.

The plaintiff relies on the principles in Bond Air Services Ltd -v- Hill (1959) 2 All. E.R. 476; there the Court held, where the respondent insurer alleged a breach of the condition requiring the insured to observe statutory regulations and directions, pleading that the condition was a condition precedent to recovery, for the burden of proof lay with the insured, that in fact the burden of proof of breaches of conditions was on the respondent insurer in accordance with the ordinary rules. The effect of the condition providing that due observance and performance of the conditions of the policy by the insured were conditions precedent, was to give to the claimants obligations under the conditions of policy, the quality of warranties, but not to alter the incidents of the burden of proof. At 480 Lord Chief Justice Goddard giving judgment in the Queens Bench Division said -

"But in my opinion, much clearer words than are used here would be necessary to change what I think, certainly for a century and probably for much longer, has always been regarded as a fundamental principle of insurance law, namely, that it is for the insurers who wish to rely on a breach of condition to prove it".

The reference to "much clearer words than are used here" related to condition 8 of the particular policy which said -

"The observance and performance by the insured of the conditions of this policy so far as they contain anything to be observed or performed by the insured are of the essence of the contract and are conditions precedent to the insured's right to recover her under".

Condition 7 enjoined the insured to observe the statutory orders regulations and directions relating to air navigation for the time being in force.

The effect, then of the Chief Justice's order was that the insurer, having alleged that the insured was put to proof of the observance and performance by them of the conditions precedent of the policy ie. the due observance of the statutory orders, regulations and directions relating to air navigation, was in fact obliged to show that the insured had failed to comply with such directions and that the burden of proof lay on the insurer.

The defendant on the other hand relies on the authority of Kodak (Australasia) Pty Ltd -v- Retail Traders Mutual Indemnity Assurances Association (1942) S. R. (NSW) 231 and cases subsequent.

In the Kodak case, a workers compensation insurance policy contained a provision to the effect that due and proper observance and fulfilment of a condition precedent was necessary before the right to indemnity arose. The policy provided that the employer shall take all reasonable precautions to prevent injury. It was held that the condition was in fact a condition precedent and since pleaded by the insurer in its defence, that it was for the employer to prove compliance with it. The Kodak case is clearly at odds with the decision in Bond Air Services. Jordan CJ's decision in Kodaks case was not cited in Bond Air Services nor Fraser v. B.N. Furman (Productions) Ltd (1967) 1 W.L.R. 898 which followed the Bond Air Services case on the onus of proof. 

Judicial opinion in other jurisdictions is split between these two authorities. The Kodak decision has been followed in New South Wales and in Victoria (see B.C.S.P. No.4303 -v- Albion Insurance [1982] V.R. 699).

The English decision has however been followed in New Zealand and in Queensland (see for instance Legal & General Assurance Society Ltd v. The Commonwealth of Australia and Precision Cranes and Hoists Pty Ltd (1985) 3 A.N.Z. Insurance Cases 6062 @ 78795, a judgment of the Full Court of the Supreme Court of Queensland) (Bedford v. James Anor (1986) 4 A.N.Z. Insurance Cases 60-698 @ 74, 165, a decision of the Supreme Court of Queensland where at 74, 170 Derrington J says -

"The onus of proof of breach of the condition lies upon the insurer - vide conditions in Policies of Insurance - Onus of Proof, 59 A.L.J. 554".

In September of that year Justice Derrington published an interesting article entitled "Conditions in Policies of Insurance - Onus of Proof" in (1985) 59 ALJ 554.

He considers many of the leading cases which illustrate the conflicting judicial opinion on the question, and finds flaws in the reasoning in Kodak's case and those that follow it. He expresses it thus, when commenting on a passage from Jordan CJ's judgment in Kodak's case -

"Perhaps not surprisingly, this is in strict conformity with the interpretation of the position by Lord Goddard in Bond Air Services that, if the condition goes to the total promise of the insurer under the contract to keep the insured indemnified against all losses of the kind covered during the duration of the cover, that is, the whole contract as such, then the onus of proving compliance is upon the insured; but if it goes only to a particular claim, "leaving some part of the general scope of the promise unqualified", then the onus is upon the insurer. This approach does not appear to have been considered in Kodak, which however did discriminate between the liability of the insurer under the total policy and that under the particular claim".

He goes on to say -

"Theoretically, it is reasonable that this distinction be drawn and applied; it is reasonable and consonant with general principle that a party relying upon a contract should at least establish that the contract is operative as such, and if this includes showing the fulfilment of any relevant condition precedent which is put in issue by the other party, then there is no reason why the onus should not fall upon him. Logically it might superficially seem to follow that the same considerations should apply to a condition precedent to the liability of the insurer in respect of a particular claim, though the existence of the contract may not be in issue. However, the situation then is no longer the same, for the contract has already been established".

Once the plaintiff has established the existence of the contract, then a condition precedent has the effect of giving the claimant insured's obligations the quality of warranties, provided the exception in the insurance cover leaves one part of the general scope of the promise of cover, unqualified (see Bond Air Services case).

It seems to me that such reasoning is apposite here. The promise to indemnify against fire remains good, unless the fire is due to or arises out of the general or particular exclusions (relating to military or militant action for instance) So, then, the promise of cover against fire leaves part of that general scope unqualified.

The insurer does not say, for instance that there shall be no cover against fire in the event of military or militant acts (in which case presumably the general scope of the promise is qualified) but rather relates the general exclusions to claims directly or indirectly caused by particular states of affair and in the particular exclusion, losses resulting from water damage, military or militant activity whatsoever. Unless there is a casual connection the promise of cover against fire remains unaffected. "Again, a plaintiff seeking to enforce an obligation qualified by a general exception which is applicable to all cases must negative the exception; but if the obligation is general and qualified only by particular exceptions, a person seeking to rely on an exception must prove himself within it" (per Jordan CJ @ 237 Kodaks case)

As Justice Derrington says, this is in conformity with the interpretation of the position by Lord Goddard in Bond Air Services. Those cases then that strictly follow Kodak's case in New South Wales and Victoria perhaps do not make that necessary distinction between an exception which qualifies the whole of the promise and one which leaves some part of the general scope of the promise unqualified. In the event I am drawn to the principles of Bond Air Services.

Schedule 2.2 of the Constitution provides:

"Adoption of a common law -

(1) 	Subject to this part the principles and rules that formed immediately before Independence day, the principles and rules of common law and equity in England are adopted, and shall be applied and enforced, as part of the underlying law, except if and to the extent that - 

(a) 	they are inconsistent with the Constitutional law or a statute; or

(b) 	they are inapplicable or inappropriate to the circumstances of the Country from time to time; and

(c) 	in their application to any particular matter they are inconsistent with customs adopted by part 1."

I am not satisfied that any of the exceptions apply and consequently I am satisfied that the law expressed by Bond Air Services should be applied to the circumstances of this case. 

I consider that the defendant here, may well put matters to the plaintiff's witnesses having regard to the rule in Brown -v- Dunn. But the plaintiff has no real opportunity to identify the nature or extent of the defendant's case, for it relates to matters altogether divorced from the parties themselves. The existence or otherwise of the general exclusions or specific exclusions call into play public policy considerations and it would be wrong not to allow the plaintiff to call evidence in rebuttal when he in effect could not have anticipated the nature or extent of the defendants evidence when it can be so far ranging and disassociated from the plaintiff or its course of business. The defendant's case may go to the existence or otherwise of riot or civil commotion, military or militant acts; matters which are equally within the cognisance and facility of the defendant to prove as they are in that of the plaintiff.

Accordingly, the onus rests with the defendant to prove the exceptions.

-----------------------------------------------------------------------------------------------------------------

Lawyer for the Plaintiff: Blake Dawson Waldron
Lawyer for the Defendant: Young & Williams