Insurer Must Provide Indemnity if Fraud Exclusion Does Not Apply

The claimant appealed against the insurer's denial of indemnity due to alleged fraudulent acts. The Court of Appeal found that the insurer must provide indemnity if the insured can prove that the exclusion clause for fraudulent acts does not apply, granting the claimant compensation for physical and business interruption losses.

Court of Appeal Supreme Court New South Wales Medium Neutral Citation: [COMPANY] v [COMPANY] (No 2) [2023] NSWCA 19 Hearing dates: On the papers Date of orders: 20 February 2023 Decision date: 20 February 2023 Before: Bell CJ; Ward P; Macfarlan JA Decision: In proceedings 2018/343393 in the Common Law Division and 2021/341356 in the Court of Appeal, (1) Judgment for the appellant in the amount of $709,570.16 representing: (i) $223,412.16 with respect to the appellant's physical loss, destruction or damage under section 1 of the ISR Policy and claims preparation costs; and (ii) $486,158 for the appellant's business interruption losses from 16 April 2017 under section 2 of the ISR Policy. (2) The respondent to pay interest on $709,570.16 from 8 November 2018 calculated in accordance with s 57 of the Insurance Contracts Act 1984 (Cth). (3) The respondent to pay the appellant's costs of the appeal and in the Court below. (4) Pursuant to r 55.11 of the Uniform Civil Procedure Rules 2005 (NSW) that the monies paid into Court in this proceeding by the appellant as security for the respondent [NAME]'s costs in the sum of $75,000, plus any interest accrued on that sum, are to be paid out to the appellant. In proceedings 2019/191443 in the Common Law Division and 2021/341373 in the Court of Appeal, (1) Judgment for the appellant on the first cross-claim against the first respondent. (2) The first respondent to indemnify the appellant under the Liability Policy (policy no. 10M 7679161) with respect to: (i) Order 1 of the orders made by the primary judge on 8 November 2021 and varied on 15 December 2021, being judgment for the [NAME] respondent against the appellant in the sum of $3,583,986.90; (ii) Any order made by the primary judge as to costs payable by the appellant to the [NAME] respondent in the proceedings, including order 2 made on 8 November 2021; (iii) The appellant's liability to pay interest to the [NAME] respondent pursuant to order 2 made on 15 December 2021; and (iv) The entirety of the appellant's costs of defending the [NAME] respondent's claim against the appellant. (3) The first respondent to pay the appellant's costs of the appeal and the first cross-claim in the Court below. Catchwords: COSTS — insurance claim — insurer failed on defence alleging claim arose out of insured's fraudulent or dishonest acts — insurer nevertheless proved at significant expense certain disputed facts relevant to that defence — whether costs orders to be considered on issue basis COSTS — successful insurance claim — whether insured's failure to recover significant part of claim disentitled it to costs Legislation Cited: Insurance Contracts Act 1984 (Cth), ss 13, 48, 57 Uniform Civil Procedures Rules 2005 (NSW), rr 42.1, 42.8(2), 42.19 Cases Cited: [NAME] v [NAME] (No 2) [2022] NSWCA 89 Australian Conservation Foundation v Forestry Commission (1998) 81 ALR 166 [COMPANY] v [COMPANY] (Supreme Court (NSW), Cole J, 17 December 1993, unrep) Bartier Perry Pty Ltd v Paltos [2021] NSWCA 158 [COMPANY] v [NAME] (No 2) [2009] NSWCA 304 Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 [NAME] v [NAME] (No 2) [2011] NSWCA 145 Hendriks v McGeoch [2008] NSWCA 53 [NAME] v [COMPANY] (No 2) [2005] NSWCA 296 LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17 [COMPANY] v [NAME] (No 2) [2011] NSWCA 171 Northern Territory v Sangare (2019) 265 CLR 164; [2019] HCA 25 Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 Real Estate Property Management Pty Ltd v WaterCorp Investments Pty Ltd [2018] NSWCA 194 [COMPANY] v [COMPANY]; Carelli v FS Architects Pty Ltd [2008] NSWCA 39 [NAME] v [COMPANY] (No 2) [2007] NSWCA 306 State of New South Wales v Stanley [2007] NSWCA 330 Sydney City Council v [NAME] (No 2) [2006] NSWCA 374 Waters v [COMPANY] (Court of Appeal, 6 July 1994, unrep) Category: Costs Parties: In proceedings 2021/341356:

[COMPANY] (Appellant) [COMPANY] (Respondent)

In proceedings 2021/341373:

[COMPANY] (Appellant) [COMPANY] t/as [NAME] (Respondent) Representation: Counsel:

[redacted] D A Lloyd SC / [NAME] (Respondent)

Solicitors:

[redacted] [NAME] (Respondent) File Number(s): 2021/341356; 2021/341373 Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Common Law Citation: [2021] NSWSC 1440 Date of Decision: 8 November 2021 Before: Fagan J File Number(s): 2018/343393; 2019/191443

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Judgment 1. THE COURT: [ADDRESS] delivered its principal judgment in this matter on 20 December 2022 (Admiral International Pty Ltd v Insurance Australia Ltd [2022] NSWCA 277). It did not make any costs orders on that day but instead directed the parties to lodge written submissions on that topic. They have now lodged submissions concerning costs, interest and appropriate further orders. This judgment addresses those submissions. The description in the principal judgment of the nature of the proceedings at first instance and on appeal will not be repeated except to the extent necessary. We adopt the same abbreviations and terminology as used in the principal judgment.

The outcome at first instance 1. The primary judge dismissed [NAME]'s claim against its insurer, [NAME], because he found that the "fraudulent or dishonest acts" exclusion clause in the relevant insurance policy was applicable. His Honour found that Mr [NAME], who worked part-time in [NAME]'s business, was the architect of the theft of a valuable quantity of goods from [NAME]'s warehouse and of the subsequent arson of the premises. His Honour however rejected [NAME]'s argument that [NAME] was [NAME]'s controlling mind such that his actions were attributable to it. His Honour nevertheless found that [NAME]'s son, [NAME], who was [NAME]'s managing director, both knew and approved of the theft and arson and that, as its directing mind and will, his actions and knowledge were attributable to [NAME].

2. As a consequence his Honour found that [NAME] was not entitled to indemnity either in respect of damage to its own property or in respect of its liability (found in the separate proceedings referred to in the next paragraph below) to [COMPANY] whose goods in storage at the warehouse were destroyed in the fire.

3. In the separate proceedings brought by [NAME], heard at the same time as [NAME]'s proceedings against [NAME], the primary judge found that [NAME] was entitled to judgment against [NAME] in the sum of $3,337,854 and to indemnity from [NAME] for the same sum under the insurance policy issued to [NAME] but extending in its terms to cover [NAME] (see s 48 of the Insurance Contracts Act 1984 (Cth)). [NAME] also obtained judgment against [NAME] for $246,132.90 for damages for breach of the bailment pursuant to which [NAME] was in possession of [NAME]'s goods. These judgments were not challenged on appeal. By reason of the finding of its involvement in the theft and arson, [NAME] failed in its claim for indemnity from [NAME] in relation to the judgments against it.

4. As to quantum in the proceedings brought by [NAME], the primary judge found that [NAME] would have been entitled to indemnity under a business interruption provision of the subject policy (entitled "Consequential Loss") if it had been successful on liability, but in a significantly smaller amount than that for which [NAME] contended. The principal issue in respect of this claim was whether [NAME]'s revenue prior to the theft and fire showed a positive growth trend. The primary judge held that it did not. 5. [NAME] also made claims against [NAME] for damages for breaches of the terms of the insurance policy as to payment of claims and of [NAME]'s duty of utmost good faith implied by s 13 of the Insurance Contracts Act. These claims were principally based on [NAME]'s failure to afford [NAME] indemnity in a timely fashion. They failed because [NAME] did not establish that it was entitled to indemnity at all.

The outcome on appeal 1. The principal matter argued and determined on appeal was whether [NAME] was involved in the theft and arson through [NAME]. [NAME] succeeded in obtaining a finding that it was not. [NAME] initially challenged the primary judge's finding that [NAME] was involved in the theft and arson but withdrew that challenge at the commencement of the [NAME] day of the hearing.

2. In consequence, [NAME] was found to be entitled to indemnity (in respect of both the damage to its own property and its liabilities to [NAME]) because [NAME] did not prove that anyone whose actions could be attributed to [NAME] was involved in the theft or arson. On appeal [NAME] did not challenge the primary judge's conclusion that [NAME]'s actions were not so attributable. 3. [ADDRESS] also found that [NAME]'s defence that [NAME] had failed to take "reasonable precautions" in relation to its and [NAME]'s property had not been established.

4. As well, the Court rejected [NAME]'s challenge to the primary judge's conclusion on the quantum of the business interruption claim. It also rejected [NAME]'s claim for damages for breach of the insurance policy, on the basis that the claim was precluded by the principle preventing the award of damages for non-payment of damages. It also rejected [NAME]'s alternative claim for damages for breach of [NAME]'s duty of good faith, on the basis that a breach of that duty requires more than a simple failure to grant indemnity.

The prima facie position as to costs 1. As stated in r 42.1 of the Uniform Civil Procedures Rules 2005 (NSW) ("UCPR"), the general rule is that costs follow the event: "Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs." 1. [NAME] failed at first instance, it succeeded on appeal, albeit that it did not obtain the full damages that it sought. It follows that prima facie "the event" should be regarded as having been determined in [NAME]'s favour and, unless the general rule is displaced or "the event" is to be identified on an issue by issue basis, [NAME] is entitled to its costs at first instance and on appeal. 2. [NAME] submits that the Court should conclude that the general rule is inapplicable because "[NAME] has failed on a number of important and separable issues, has achieved a fraction of the damages which it claimed and has unreasonably put significant and costly factual matters into issue" and that consideration of costs should be approached on an issue by issue basis. The particular factual matters upon which it relies are addressed below in [15] and following.

3. As to the relevant principles, [NAME] relies on the following summary, stated in [COMPANY] v [NAME] (No 2) [2009] NSWCA 304 at [38] and applied by this Court in many subsequent decisions (see for example Bartier Perry Pty Ltd v Paltos [2021] NSWCA 158 at [256]): "… • Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v [COMPANY] (Court of Appeal, 6 July 1994, unreported). • In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: [NAME] v [COMPANY] (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal. • If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v [NAME] (No 2) [2006] NSWCA 374 at [27]. • Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: State of New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed). • A separable issue can relate to "any disputed question of fact or law" before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: [NAME] v [COMPANY] (No 2) [2005] NSWCA 296 at [34]. • Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: [NAME] v [COMPANY] (No 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272. …"

"[NAME]'s contention that there was no arson and theft"

1. To say, as [NAME] does, that [NAME] contended that there was no arson and theft impliedly reverses the onus of proof. [NAME] bore the onus of establishing that the "fraudulent or dishonest acts" exclusion clause was applicable. Its case that it was, involved allegations of serious misconduct with grave consequences of which "clear or cogent or strict proof" was required (see the principal judgment at [86]–[94]).

2. In the circumstances of this case an integral step towards establishing [NAME]'s defence was for it to prove who was responsible for the theft and arson. A [NAME] step was to show that that person's actions, or those of someone who knew of and consented to them, were attributable to [NAME]. As [NAME] put it in its submissions in this Court, these were the "building blocks" of [NAME]'s defence. It is not realistic to contemplate that [NAME] could have proved [NAME]' knowing involvement without proving who was (as it transpired, [NAME]) responsible for the theft and arson. The nature of [NAME]'s role was thus not a separate issue in the sense referred to in [COMPANY] v [NAME] (No 2) but an issue on which it was in practical terms essential for [NAME] to succeed to achieve ultimate success.

3. The effect of this Court's decision on appeal is that the directing mind of [NAME], should be treated as not knowing of or consenting to the theft or arson. As a result, in conducting the proceedings [NAME] is to be taken to have been unaware of the truth or otherwise of [NAME]'s contention that Mr [NAME] was responsible for the theft and arson. Bearing in mind the adverse consequences to [NAME] of [NAME] establishing its defence and the seriousness of the allegations made, as they were, against a person who was both an employee of [NAME] and [NAME]' father, it was not unreasonable for [NAME] to put [NAME] to proof of the relevant allegation.

4. The allegation in relation to [NAME] should in our view accordingly be regarded as "part and parcel" of [NAME]'s fraudulent or dishonest acts defence and not as a separate issue, notwithstanding, as [NAME] demonstrated in its submissions to this Court, its litigation consumed much time and effort. [NAME]'s withdrawal on appeal of its challenge to the primary judge's finding does not work to [NAME]'s disadvantage where [NAME] has not shown that it was unreasonable for [NAME] to put the allegation in issue at first instance and, at least initially, on appeal. On the contrary, the allegation having been addressed comprehensively by the primary judge, it was a proper and appropriate exercise of [NAME]'s senior counsel's duty to the Court to withdraw the challenge if on due consideration he considered that the point ought no longer be pursued. It did not constitute an admission that it had been unreasonable for [NAME] to have thus far contested the allegation.

5. The above approach is reflected in the colourfully expressed observation of Burchett J in Australian Conservation Foundation v Forestry Commission (1998) 81 ALR 166 at 169 that a defendant is "entitled to raise his earthworks at every reasonable point along the path of assault". [NAME] was in a position analogous to that of a defendant as [NAME] bore the onus of proof of its exclusion clause defence. [ADDRESS] recently endorsed the approach as follows in [NAME] v [NAME] (No 2) [2022] NSWCA 89 at [9] (per Macfarlan JA; Gleeson and Payne JJA agreeing): "These discretionary considerations weigh strongly against the respondents' application [for a special costs order]. Also favouring rejection of this application is that it is by no means clear that, even if sought at the appropriate time, the special costs order would have been made. It is of significance in that respect that the respondents are unsuccessful plaintiffs rather than successful defendants. As Burchett J said in Australian Conservation Foundation v Forestry Commission (1988) 81 ALR 166 at 169 a defendant is 'entitled to raise his earthworks at every reasonable point along the path of assault' (cited with approval in Hendriks v McGeoch [2008] NSWCA 53 at [104] (Basten JA); see also [NAME] v [NAME] (No 2) [2011] NSWCA 145 at [19]–[20] and [38]–[39] and Real Estate Property Management Pty Ltd v WaterCorp Investments Pty Ltd [2018] NSWCA 194 at [6]). To similar effect, Hodgson JA (with Allsop P and my agreement) said in [COMPANY] v [NAME] (No 2) [2011] NSWCA 171 at [10]: 'Where a plaintiff's case fails, it may sometimes be appropriate to order the plaintiff to pay the costs of issues unsuccessfully raised by the defendant, even if those issues are severable, so long as the defendant acted reasonably in raising those issues. It is I think less often the case that a defendant would be ordered to pay the costs of severable issues unsuccessfully raised by an otherwise successful plaintiff.'"

1. As we see it, this approach is an aspect of the principle stated by the High Court in Northern Territory v Sangare (2019) 265 CLR 164; [2019] HCA 25 at [27]: "… In point of principle, it is basic justice that a successful party should be compensated for expenses it has incurred because it has been obliged to litigate by the unsuccessful party. …"

1.

For these reasons, we do consider that [NAME]'s conduct in putting [NAME]'s involvement in the theft and arson in issue justifies departure from the general rule stated in UCPR r 42.1, either as to first instance or appeal costs.

"[NAME]'s case that [NAME] acted in breach of its duty of good faith" 1. [NAME] argues that it should inure to [NAME]'s disadvantage on costs that it made "the grave allegation that [NAME] did not have a 'proper basis' to allege arson fraud". As [NAME] however points out in response, whether or not [NAME] did have that proper basis was not determined at first instance because the primary judge found that [NAME]'s claim to indemnity failed because [NAME], through [NAME], knew of and consented to the theft and arson without determining whether [NAME] breached its obligation of good faith. On appeal, this Court found that there had been no breach of that obligation but did so on the basis that [NAME]'s wrongful refusal to indemnify did not of itself involve such a breach, again without considering the merits or otherwise of what [NAME] describes as "[NAME]'s grave allegation".

2. The premise on which [NAME]'s costs submission is based has accordingly not been established, with the result that the point it makes does not assist it in relation to costs.

"[NAME]'s case that it was entitled to consequential loss"

1. This is a reference to the business interruption claim that [NAME] made under the subject insurance policy. The claim failed at first instance because of the primary judge's finding that [NAME] was involved in the theft and arson. His Honour however went on to find that if [NAME] had succeeded on liability, it would have recovered $486,158 as a business interruption loss, rather than the much greater sum claimed by [NAME]. In the course of the hearing [NAME] had asserted that its loss was "in a range of figures with a middle or 'realistic' figure of $9,209,860". [ADDRESS] rejected [NAME]'s appeal against his Honour's finding on the quantum of the claim.

2. A successful plaintiff's failure to recover all or a substantial part of what it claimed does not ordinarily disentitle it to recovery of its costs from the party that was unsuccessful on liability. That is, the outcome of the contest on liability ordinarily remains "the event" notwithstanding a lack of success on quantum. A plaintiff may however be deprived of costs where it has obtained only nominal damages (Oshlack v Richmond River Council (1998) 193 CLR 72 at 98; [1998] HCA 11 at [70]; [COMPANY] v [NAME] (No 2) [2011] NSWCA 171 at [14]; [COMPANY] v [COMPANY]; Carelli v FS Architects Pty Ltd [2008] NSWCA 39 at [100]); compare if the plaintiff has vindicated some right apart from a right to damages).

3. The questions to be addressed now are whether the plaintiff ([NAME]) failed on quantum to such an extent that the "event" for the purposes of r 42.1 was in reality determined in favour of [NAME] or whether the quantum issue was a "dominant or separable" as referred to in [COMPANY] v [NAME] (No 2). In our opinion the answers to both questions are "no". [NAME] recovered a substantial amount on its business interruption claim, albeit it that it was far less than the amount it sought. Its recovery was well in excess of nominal damages and the recovery could not be regarded as derisory. Moreover, the business interruption claim was only one of the bases upon which [NAME] sought indemnity under the insurance policy and even a complete failure on that claim would not, without more, have justified approaching the consideration of appropriate costs orders on an issue by issue basis as distinct from having regard to [NAME]'s overall success in obtaining indemnity under the policy for a substantial sum.

"[NAME]'s refusal to admit facts" 1. [NAME] seeks an order that [NAME] pay, on an indemnity basis, [NAME]'s costs of proving certain facts. [NAME] asserts that a year prior to the hearing at first instance it served on [NAME] a notice to admit facts which [NAME] did not admit but which [NAME] subsequently proved. The admissions sought were said to be to the effect that [NAME] cigarettes seized by police had been stolen from [NAME]'s warehouse prior to it being destroyed by fire. 2. [NAME]'s submissions in response contend that the application for indemnity costs that [NAME] now makes should have been made to the primary judge but was not. Consequently, the primary judge made no specific order concerning the costs and [NAME] did not seek by cross appeal to contend that his Honour should have done so.

3. We accept [NAME]'s submission and therefore reject the application for indemnity costs. The application should have been made before the primary judge, who was fully apprised of the circumstances of the litigation. It is unnecessary in these circumstances to consider [NAME]'s further argument that not all of the facts referred to in the notice were found by the primary judge and that there were aspects of the evidence which might have led the primary judge to make an "order otherwise" under r 42.8(2), if an appropriate application had been made to him.

"[NAME]'s claim for interest" 1. [NAME] contends that it should not have to pay interest on the amount for which it is required to indemnify [NAME] because it has not "unreasonably" withheld payment, as required by s 57 of the Insurance Contracts Act in order for interest to be awarded.

2. In light of this Court's decision that [NAME] was entitled to indemnity, it was unreasonable for [NAME] to withhold payment beyond a reasonable period for investigation of the loss. [NAME] does not suggest that period had not expired by the date of 8 November 2018, more than 6 months after the theft and arson, embodied in [NAME]'s proposed order.

3. As stated by Cole J in [COMPANY] v [COMPANY] (Supreme Court (NSW), Cole J, 17 December 1993, unrep) at 3–4: "… A reasonable period is to be given to the insurer to investigate and determine its position but if it adopts an incorrect position in relation to its obligation to pay under the policy, that, in my view, does not mean that simply because that incorrect position is adopted on a bona fide basis, it becomes reasonable for the insurer to decline to pay the sums otherwise due. That seems to me to be the correct interpretation of s 57(2), particularly in circumstances of s 57(1) of the Act, where an insurer is liable to pay to a person an amount under a contract of insurance."

1. That decision has been followed in a number of subsequent first instance decisions and by the Full Federal Court in LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17 at [1] and [242]–[248]. [NAME] did not submit that it should not be followed in the present case. As a result, [NAME] should pay interest from 8 November 2018.

The form of the indemnity order 1. A final issue is whether, as [NAME] proposes, the order for [NAME] to indemnify [NAME] should be expressed to be "subject to any limit or sub-limit". It should not because, although the issue was raised at first instance, the absence of a decision of the primary judge on it was not the subject of any Notice of Contention or Cross-Appeal by [NAME]. The issue was accordingly not considered by this [NAME] must be taken to have abandoned it.

Conclusion on orders in [NAME] proceedings 1. In light of the conclusions expressed above, the orders that should be made in the [NAME] proceedings in addition to those made when the principal judgment was delivered on 20 December 2022 should be those set out at the conclusion of this judgment, their effect being that [NAME] should have judgment against [NAME] for the amount of its loss, orders for interest and payment of the costs of the proceedings below and on appeal and an order for the return of the amount that it paid into Court by way of security for costs.

The [NAME] proceedings 1. The first issue between the parties concerns the order, agreed in concept, that [NAME] indemnify [NAME] in respect of its liability to [NAME]. [NAME] says that it has made payment direct to [NAME] to discharge the insurance obligation it was found to have to [NAME]. As such a payment would have had the effect of reducing or eliminating [NAME]'s liability to [NAME] and correspondingly reducing the indemnity to which [NAME] is entitled from [NAME], we do not consider that there is any reason not to make the general form of order for indemnity proposed by [NAME].

2. We likewise do not agree with [NAME]'s submission that the order, again agreed in concept, that [NAME] indemnify [NAME] in respect of costs payable by [NAME] to [NAME] should refer simply to the costs order that was made by the primary judge on 8 November 2021. If, as [NAME] asserts, there is no other relevant order, the indemnity will not extend beyond that order. Further, we agree with [NAME] that the costs ought not to be specified as "reasonable costs" as that limitation is implicit and the adjective "reasonable" is not ordinarily inserted in orders relating to costs, albeit that the presently proposed order is strictly an order for the payment of damages, rather than a costs order in the usual sense.

3. A further point made by [NAME] in relation to that order is that it should not extend to any costs liability of [NAME] to [NAME] in relation to the appeal because there has not been any order for costs in favour of [NAME] on the appeal. [NAME] discontinued its appeal against [NAME] with, according to [NAME], the appeal having been dismissed and "no order [being] made as to costs". We assume from this that [NAME] has no entitlement to be paid costs by [NAME] arising automatically under the rules (see UCPR r 42.19) but in the absence of certainty as to the position, the order should be in the form proposed by [NAME] which is that [NAME] pay "the entirety of [[NAME]'s] costs of defending [[NAME]'s] claim against [[NAME]]".

4. The final issue is as to whether [NAME] should be ordered to pay interest under s 57 of the Insurance Contracts Act 1984 (Cth) on the amount of [NAME]'s costs of defending [NAME]'s claim. [NAME]'s proposed order is that it be awarded interest calculated in accordance with s 57 of the Insurance Contracts Act from 26 September 2019, "being the date on which the primary judge found the first respondent [[NAME]] had unreasonably withheld payment of indemnity to the [NAME] respondent [[NAME]] under the ISR Policy".

5. We do not consider that such an order should be made in light of the absence of any application for it at first instance. The primary judge's identification of 26 September 2019 was directed to [NAME]'s unreasonable withholding of indemnity to [NAME] with respect to [NAME]'s principal loss, not to when [NAME] ought reasonably have indemnified [NAME] in respect of its costs incurred in defending [NAME]'s claim. That is a different question, not least because those costs would likely have been incurred both before and after 26 September 2019. The absence of an application to the primary judge deprived the parties and this Court of his Honour's view on the question.

ORDERS 1. For the reasons given above, the Court makes the following orders in addition to the orders that it made on 20 December 2022.

In proceedings 2018/343393 in the Common Law Division and 2021/341356 in the Court of Appeal, 1. Judgment for the appellant in the amount of $709,570.16 representing: 1. $223,412.16 with respect to the appellant's physical loss, destruction or damage under section 1 of the ISR Policy and claims preparation costs; and 2. $486,158 for the appellant's business interruption losses from 16 April 2017 under section 2 of the ISR Policy.

1. The respondent to pay interest on $709,570.16 from 8 November 2018 calculated in accordance with s 57 of the Insurance Contracts Act 1984 (Cth).

2. The respondent to pay the appellant's costs of the appeal and in the Court below.

3. Pursuant to r 55.11 of the Uniform Civil Procedure Rules 2005 (NSW) that the monies paid into Court in this proceeding by the appellant as security for the respondent [NAME]'s costs in the sum of $75,000, plus any interest accrued on that sum, are to be paid out to the appellant.

In proceedings 2019/191443 in the Common Law Division and 2021/341373 in the Court of Appeal, 1. Judgment for the appellant on the first cross-claim against the first respondent.

2. The first respondent to indemnify the appellant under the Liability Policy (policy no. 10M 7679161) with respect to:

1. Order 1 of the orders made by the primary judge on 8 November 2021 and varied on 15 December 2021, being judgment for the [NAME] respondent against the appellant in the sum of $3,583,986.90;

2. Any order made by the primary judge as to costs payable by the appellant to the [NAME] respondent in the proceedings, including order 2 made on 8 November 2021;

3. The appellant's liability to pay interest to the [NAME] respondent pursuant to order 2 made on 15 December 2021; and 4. The entirety of the appellant's costs of defending the [NAME] respondent's claim against the appellant.

1. The first respondent to pay the appellant's costs of the appeal and the first cross-claim in the Court below.

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