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Kumul Builders Pty Ltd (In Liquidation) v MBF Assurance Pty Ltd [1995] PGNC 16; N1319 (2 May 1995)

Unreported National Court Decisions

N1319

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

WS 223 OF 1993
KUMUL BUILDERS PTY LTD (In Liquidation) - Plaintiff
And:
MBF ASSURANCE PTY LTD - Defendant

Waigani

Salika J
April 1995
2 May 1995

INSURANCE CONTRACT - Insurer - Insured - Contract of good faith - duty to disclose material facts - what is material fact - Adoption of common law principles under Schedule 2:2 of the Constitution.

WHETHER WINDING UP PETITION IS A MATERIAL FACT - whether alteration in trade and manufacture - risks covered by the contract.

Counsel:

Mr G Sheppard for the Plaintiff

Mr J Baker for the Defendant

JUDGMENT

2 May 1995

SALIKA J: The Plaintiff filed a Writ of summons against the defendant claiming the following:

1. The plaintiff is a company incorporated under the Companies Act in Papua New Guinea which is subject of a winding up order dated 5th February 1991 and which sues by its official Liquidator, Anthony Lawrence Hamilton Birch.

2. The defendant is and was at all material times a Company incorporated in Papua New Guinea.

3. The plaintiff alleges that by a policy of insurance numbered H00131/93 and dated 10th December 1992 (hereinafter called the policy) made by the defendant in consideration of premiums paid by the plaintiff the defendant insured the plaintiff against loss or damages by fire and extraneous perils namely K240,000 on the office/workshop/warehouse situated at Lot 33 Section 32 Curtis Street Six Mile on the joinery machinery located therein (subject to deductibles set out in the Schedule to the policy).

4. The plaintiff was at the material times the registered owner of the premises and owner of the joinery machinery located therein and was interested in the premises and the said machinery to the extent of the amounts so insured respectively.

5. The plaintiff alleges that on or about 15 January 1993 and at various times during the two days thereafter the premises and the said joinery machinery contained therein were damaged and or physically removed whether by persons taking part in a riot or civil commotion or maliciously by persons unknown within the terms of item 5 (i) and (ii) respectively of appendix A of the policy, by reason whereof the plaintiff has suffered loss and damage.

6. The plaintiff notified the defendant of the loss and damage but the defendant has failed or neglected to pay to the plaintiff the total loss and damage suffered.

The defendant admits there was an insurance policy made between the parties that it agreed to provide cover in respect of property located at Lot 33 Section 32, Curtis Street, Six Mile Port Moresby.

The defendant admits that it has refused to pay the alleged or any sum at all.

The defendant relies on the terms of the policy in its refusal to pay any amounts. I will refer to the provisions of the policy later in the judgment.

I have heard evidence from both the plaintiffs and the defendant. There is not much contest in the evidence in relation to the fact that the buildings in the premises were damaged or destroyed. Some photographs tendered into evidence by consent clearly show that the building in the premises were damaged and destroyed and that some parts of the building were removed and are no longer there. The photographs show papers strewn all over the floor of the buildings and broken furniture and papers all over the premises.

The defence raises three defences to the claim. Those defences are:

a) The plaintiff failed to disclose a material fact namely, that a winding up petition had been presented against it.

b) There was an alteration made in the trade or manufacture carried on by the plaintiff so that the risk of destruction or damage was increased and no notice of that change was given to the defendant.

c) The alleged loss or damage was not covered by the risks insured against.

In answer to the defences raised the plaintiff submitted that the mere fact to a winding up petition to be disclosed is not a material fact. It submitted that the fact that the insurers were not told that the insured was in liquidation was not a vital fact.

There is no reported case law on this point in this Country and so I look to the common law for some guidance. The common law position is that a contract of insurance is a contract based on the utmost good faith of the parties and if the utmost good faith is not observed by either party the contract may be avoided by the other party (see Halsbury Volume 25 paragraph 365). The insured is under a duty to disclose all material facts relating to the insurance he wishes to effect. Furthermore he must make no misrepresentation regarding such facts. Good faith requires that the insured should not by his silence mislead the insurers into believing that the risk as proposed differs to their detriment from the risk which they will actually run. He must help the insurer by every means in his power to estimate the risk at its proper value. The insured in other words must disclose every material information that he knows or ought to in the ordinary course of business to have known. He however has no duty to disclose facts which he did not know and which he could not be reasonably expected to know at any material time.

As to what is a material fact the common law position is this:

A fact is material for the purpose of the duty to disclose it if it is one which would influence the judgement of a reasonable or prudent insurer in deciding whether or not to accept the risk (see Lambert v Co-Operative Insurance Society (1975) 2 Lloyds Reports 485).

In the proceedings no Papua New Guinea case was cited. This is because no cases have been reported on the issues raised here. I am of the view that the common law principles and rules relating to the issues specifically raised in this case be adopted pursuant to schedule 2:2 of the Constitution. I do not consider the common law principles and rules inconsistent with any constitutional law or any other law, nor are they inapplicable or inappropriate to the circumstances of the country from time to time, nor is their application inconsistent with customs. I am of the view that the common law principles and rules relating to the issues in this case are appropriate for application in the country because they potray good common sense in their application. I so adopt those principles and rules in this case.

The insurance cover was taken out for the period from 10/12/92 to cover 10/12/93. The incident giving rise to the claim arose between the 13 and 15 January 1993. The petition to wind up the plaintiff company was served at the plaintiff's registered office on the 18th December 1992. The petition was advertised in the Post Courier newspaper on 22 December, 1992 and in the National Gazette on the 24th December 1992. The winding up order was made against the plaintiff company on the 23rd February 1993 and a claim was made under the policy on the 1st March 1993. From those set of facts it is clear that the plaintiff knew or ought to have known that there was a winding up petition against it on the 18th December 1992 some 8 days after a contract of insurance had been entered. From the evidence it became clear that from the 18th December 1992 to the 1st March 1993 the plaintiff company did not disclose to the defendant the fact that there was a winding up petition against it. The question is was the failure to disclose the winding up petition against it a material omission by the plaintiff company. The fact that there was a winding up petition against the plaintiff is in my view not a material fact. Firstly because on the date of the contract there was no winding up petition against the plaintiff. Once the contract was executed there was no obligation a week later for the plaintiff to go back to the insurer and disclose to it that there was a winding up petition against it. Secondly because often winding up petitions are used as a threat to the debtor to pay up its debts. Thirdly, even if the plaintiff company was in the process of being wound up, it would still be operating under a new arrangement normally a liquidator, a process usually associated with a winding up process. The question of whether a prudent or a reasonable insurer might have been influenced had that fact been disclosed does not arise in this case because on the date of contract there was no winding up petition against the plaintiff.

And so I find that there was no material fact for the plaintiff to disclose at the time of the entering of the contract.

The next question is whether there was an alteration in trade or manufacture made by the plaintiff such that the risk of destruction or damage was increased. Evidence is that some workers were stood down until the start of a new contract. However there is no evidence that a new contract had been secured. The plaintiffs evidence was that the workers were laid off for two weeks initially but that in that two weeks period the plaintiff was given the notice of winding up. The plaintiffs evidence is that it still had workers employed by it. There is no evidence to the contrary and so I accept the evidence as the state of things at the material time. Furthermore I note from the photographs that some of the machinery for its trade manufacture were still in the building until damaged.

My view on the situation was that it was still too early in the winding up process to suggest that there was a change in trade. My view and finding from the evidence is that there was still some activity in the trade of the plaintiff and that there was no alteration in trade or manufacture. I would discard this argument.

The final argument is whether the alleged loss or damage was covered by the risks insured against. The plaintiff asserts that the loss was caused by persons taking part in a riot or a civil commotion or maliciously by unknown persons with in the terms of item 5 (1) and (ii) of appendix A of the Policy.

Item 5 (i) and (ii) are in the following terms:

“5 RIOTS, STRIKES, MALICIOUS DAMAGE

directly caused by the Acts of:

(i) persons taking part in Riots or Civil Commotions or strikers or locked out workers or persons taking part in labour or malicious persons acting on behalf of or in connection with any political organisation but excluding destruction or damage caused directly on indirectly by total or partial cessation of work or the retarding or interruption or cessation of any process or operation.

(ii) other malicious person s not being tenants provided that:

(a) the insurer shall bear the K2,000.00 of each and every claim and or series of claims arising out of one event and or 10% final adjusted value of RSMD; and

(b) the police are immediately informed of any malicious damage.”

The evidence is that there was no riot, and no strike. Some unknown persons came from all directions, laughing and shouting and began stripping it apart. They took away what they could lay their hands on and in a matter of 2 to 3 days the building was gone. The question then is discounting a riot and a strike could the actions of those people amount to malicious damage. The defendant submits that their actions amount to theft and as such is not covered under the risk. The plaintiff submits that their actions amount to malicious damage in that the resulting loss and damage to the premises was done intentionally without just cause or excuse. In law an Act is malicious if done intentionally without just cause or excuse. Stealing or theft are in my view malicious acts as they involve the intention to permanently deprive someone of his property without just cause or excuse.

In my view the acts of the unknown people amounted not only to a theft but also to malicious damage. I note that the terms of the insurance risk do not include theft. Normally a house is not easy to steal but can be easily damaged and this is probably why it is not normal to insure a building against theft.

In this case I am of the view that the insurance cover extends to include destruction or damage to the property where such damage or destruction is caused by rioting or striking including malicious damage caused by malicious persons. If the property was covered for malicious damage by malicious people then in my view the plaintiff should be entitled to make a claim under the insurance cover under item 5 (i) and (ii) of Appendix A of the Insurance Contract. I find that there was malicious damage to the property by malicious persons and as such is covered by item 5 (i) and (ii) of the policy.

As to what caused the unknown persons to remove parts of the buildings there is no evidence for the court to make any definite finding on that aspect. I can have a good guess though.

In the circumstances I find for the plaintiff for the amount that it was insured for with interest and costs.

Lawyers for the plaintiff: Maladina Lawyers

Lawyers for the defendant: Henao Lawyers