Napa v Fine Foods Ltd [1993] CKHC 3; 020.1993 (17 June 1993)

IN THE HIGH COURT OF THE COOK ISLANDS
HELD AT RAROTONGA
(CIVIL DIVISION)
PLAINT NO. 20/93

BETWEEN

HARRY TAUEI NAPA
of Rarotonga, Planter, and
ANTHONY MOORE ANDREW IVANSON
of Auckland, New Zealand, Solicitor,
as executors and administrators of the estate of Napa Tauei Napa
PLAINTIFF

FINE FOODS LIMITED
DEFENDANT

MILLER & HOWARD,
a partnership practicing as Barristers and Solicitors
Rarotonga
THIRD PARTY

Counsel: Mr BJ Gibson for Plaintiff
Mr DM O'Neill for Defendant
Mr MC Mitchell for Third Party

Hearing: 5 May 1993
Judgment: 17 June 1993

INTERIM JUDGMENT OF QUILLIAM J

The Plaintiffs are the sublessors of land pursuant to a Deed of Sublease dated 8 August 1975. The Defendant became the Sublessee of that land as the result of a succession of assignments, the most recent being on 3 April 1992. The Defendant carried on on that land an already established restaurant business known as the Outrigger Restaurant. The term of the Sublease expires on 6 September 1994 at which time the land and restaurant premises revert to the Plaintiffs.

Under the Deed of Assignment by which the Defendant acquired the Sublease it covenanted to comply with all the terms of the Deed of Sublease. 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 Defendant failed to effect insurance on the restaurant building, and on 13 December 1992 the building was destroyed by fire. The Plaintiffs accordingly claimed to recover from the Defendant the amount of their loss which they put at $70,000.

The Defendant obtained the issue of a Third Party Notice to Miller & Howard, the firm of Solicitors which acted for it on obtaining the assignment, upon 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 was required.

When the action came on for trial the situation had to some extent been resolved.

The Defendant admitted default as to the insurance and acknowledged liability to the Plaintiffs. The Third Party, in turn, acknowledged liability to indemnify the Defendant.

There remained in issue, however, three matters:

1. What was the extent of the Third Party's liability to indemnify the Defendant?

2. What was meant by the expression "full insurable value" in the Subleasee?

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

I deal with these matters in turn.

1. The Indemnity

The right to join a person as a third party is governed by R.120 of the Code of Civil Procedure, para. (1) of which provides:

"120. Third-party Notice - (1) Where a defendant claims as against any person not already a party to the action (in this Part called the third party)-

(a) That he is entitled to contribution or indemnity; or

(b) That he is entitled to any relief or remedy relating to or connected with the original subject-matter of the action and substantially the same as some relief or remedy claimed by the plaintiff; or

(c) That any question or issue in the action should properly be determined not only as between the plaintiff and the defendant, but also as between the plaintiff, the defendant, and the third party, or as between any or either of them; or

(d) That any question or issue relating to or connected with the said subject-matter is substantially the same as some question or issue arising between the plaintiff and the defendant and should properly be determined as aforesaid,-

the defendant may apply to the Court on notice for leave to issue and serve a third-party notice, and shall attach a copy of the proposed third-party notice to the application."

In this case the Defendant applied for the joinder of the Third Party on the sole ground that it was entitled to be indemnified by Miller and Howard against "all liability in respect of your failure to insure the business premises."

It became apparent that the Defendant would be unable, certainly at the present time, to meet the full amount of the judgment likely to be given against it in favour of the Plaintiff. This raised the question of whether the liability of the Third Party was to indemnify the Defendant in respect of the full amount of a judgment given against it, or only in respect of such amount as the Defendant was able to pay under that judgment.

In the course of the hearing I ruled that the former was the correct position. I have no doubt that the indemnity which the Defendant was entitled to seek was in respect of whatever its liability was found to be in the action. That liability arose out of the breach of covenant to insure, and that breach has been admitted to have occurred because of the failure of the Third Party to comply with its duty as solicitor. There is, therefore, no reason why the whole of the liability to the Plaintiff ought not to be the subject of the indemnity.

2. Full Insurable Value

On behalf of the Plaintiff it was contended that the expression "full insurable value" in the Sublease meant the replacement value so as to restore to the property a building which suitably replaced that which was destroyed and which was of a similar type and construction.

For the Third Party it was argued that the correct interpretation was the value of the building in its condition immediately prior to the fire.

Notwithstanding considerable research I have been unable to find any reported case or any textbook reference as to the way in which the expression "full insurable value" is to be construed. This is not, perhaps, surprising as the expression is not necessarily to be regarded as a term of art. I consider the proper approach is to apply one of the basic canons of construction, namely that words should wherever possible be given their natural and ordinary meaning.

The Shorter Oxford Dictionary gives the meaning of "insurable" as "capable of being insured". I consider, therefore, that "full insurable value" means the greatest amount for which the premises are capable of being insured. 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 based on the existing condition of the building.

I think this conclusion is consistent with the nature of the transaction between the parties. The building in question had for some time been used for a restaurant, and it was for that purpose that the Defendant took an assignment. At the expiry of the Sublease the Plaintiff was entitled to expect that it would receive back a building which still had the character of a restaurant and could continue to be used for that purpose.

I am fortified in the view I have formed by the only evidence produced at the hearing which was in the form of a letter introduced by consent. It is a letter from Mr MR Sargent, a principal of the New Zealand insurance firm of Willis Corroon McNicoll Ltd. Mr Sargent stated that "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..."

I accordingly conclude that the amount for which the Defendant is liable to the Plaintiff is the replacement value, and it follows that the Third Party is liable to indemnify the Defendant for the same amount.

3. Damages

No evidence has yet been given as to the value of the premises. If the parties are unable to agree upon the amount for which judgment should be entered then it will be necessary for the hearing to be resumed. This could, if counsel agreed, be by way of written submissions based on valuation reports, or by the hearing being resumed in New Zealand, or by the matter awaiting my next visit to the Cook Islands. I should appreciate it if counsel will in due course let me know through the Registrar what course they propose.

This judgment is accordingly an interim judgment only, and the costs are reserved but can in due course be expected to follow the event.

QUILLIAM J