AIG Insurance Australia Ltd v McMurray - [2023] WASCA 148

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT :   THE COURT OF APPEAL (WA)
CITATION:   AIG INSURANCE AUSTRALIA LTD -v- MCMURRAY [2023] WASCA 148
CORAM:   BUSS P
MITCHELL JA
VAUGHAN JA

HEARD:   20 - 22 DECEMBER 2022
DELIVERED          :   20 OCTOBER 2023
FILE NO/S:   CACV 93 of 2021
BETWEEN:   AIG INSURANCE AUSTRALIA LTD
Appellant
AND
FREDERICK WILLIAM MCMURRAY
First Respondent
JENNIFER GRACE MCMURRAY
Second Respondent
RUSSELL BRESLAND
Third Respondent
BRESLAND CONSULTANTS PTY LTD
Fourth Respondent
HANS BO KRISTIAN HOLGERSSON trading as HOLGERSSONS COMPLETE HOME SERVICE
Fifth Respondent
MOSMAN BAY CONSTRUCTION PTY LTD (in liq)
Sixth Respondent

ON APPEAL FROM:
Jurisdiction              :   SUPREME COURT OF WESTERN AUSTRALIA
Coram:   SMITH J
Citation: McMURRAY v AIG INSURANCE AUSTRALIA LTD [No 5] [2021] WASC 300
File Number            :   CIV 2962 of 2016

Catchwords:

Contract - Construction of contracts - Contract of insurance - Insured property destroyed by fire - Insurer sought to rely on contract works exclusion clause to deny liability - Whether renovations to insured property constituted a 'structure' or 'structures' for the purposes of the contract works exclusion clause - Principles applicable to construction of insurance contracts - Consideration of purpose or object of insurance contract - Whether primary judge failed to take a background fact into account - Whether primary judge erred in applying contra proferentem principle - Construction of 'structure' by primary judge upheld

Evidence - Where insurer pleaded that the fire was caused by the self‑combustion of oily rags in a bin - Insurer claimed no conflicting or competing inference could be drawn from the evidence - Where 'intruder theory' was not pleaded by any party - Whether primary judge erred in allowing intruder theory to be advanced - Whether primary judge erred in finding that intruder theory rose above mere speculation - Whether primary judge erred in finding that both theories were equally possible so that the choice between them was mere conjecture - Whether statement made day after fire should have been admitted as evidence under business records exception in s 79C(2a) of Evidence Act 1906 (WA) - Whether statement should have been admitted as part of the res gestae - Whether primary judge erred in failing to draw Jones v Dunkel inferences against plaintiffs for failure by fourth-party to call witnesses - Turns on own facts

Interest - Challenge to interest award made pursuant to s 57 of Insurance Contracts Act 1984 (Cth) - Determination of date from which it was unreasonable for insurer to withhold payment - Finding by primary judge that overlapping insurance policies complicated assessment in error - Error established in primary judge's interest determination - Consideration of time required for investigation and determination of claim - Redetermination of date from which withholding payment became unreasonable - Turns on own facts

Legislation:

Evidence Act 1906 (WA), s 79C(2a), s 79C(6)
Insurance Contracts Act 1984 (Cth), s 57

Result:

Appeal dismissed
Cross-appeal allowed in part

Category: B

Representation:

Counsel:

Appellant	:	M T McCulloch SC & C P K Russell
First Respondent	:	G R Hancy
Second Respondent	:	G R Hancy
Third Respondent	:	J R B Ley SC & G J Pynt
Fourth Respondent	:	J R B Ley SC & G J Pynt
Fifth Respondent	:	D J Pratt & B A Winburn-Clarke
Sixth Respondent	:	No appearance

Solicitors:

Appellant	:	Wotton + Kearney
First Respondent	:	Solomon Brothers
Second Respondent	:	Solomon Brothers
Third Respondent	:	Sparke Helmore Lawyers
Fourth Respondent	:	Sparke Helmore Lawyers
Fifth Respondent	:	McCabe Curwood
Sixth Respondent	:	Edwards Mac Scovell Legal

Case(s) referred to in decision(s):

Armstrong v The State of Western Australia [2012] WASCA 42; (2012) 220 A Crim R 274
Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99
Australian Communication Exchange Ltd v Deputy Federal Commissioner of Taxation [2003] HCA 55; (2003) 77 ALJR 1806
Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345
Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219
Blatch v Archer (1774) 1 Cowp 63, 65; (1774) 98 ER 969
Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1
Chong v CC Containers Pty Ltd [2015] VSCA 137; (2015) 49 VR 402
City of Noarlunga v Fraser (1986) 61 LGRA 324
Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500
Darwin Fibreglass Pty Ltd v Kruhse Enterprises Pty Ltd (1998) 146 FLR 37
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
House v The King [1936] HCA 40; (1936) 55 CLR 499
JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd [No 2] [2020] WASCA 112
Johnson v American Home Assurance Co [1998] HCA 14; (1998) 192 CLR 266
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2010) 243 CLR 361
Life Insurance Co of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60
Lithgow City Council v Jackson [2011] HCA 36; (2011) 244 CLR 352
Luxton v Vines [1952] HCA 19; (1952) 85 CLR 352
Maxwell v Highway Hauliers Pty Ltd [2013] WASCA 115; (2013) 45 WAR 297
McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579
McMurray v AIG Insurance Australia Ltd [No 5] [2021] WASC 300
Mineralogy Pty Ltd v The State of Western Australia [2005] WASCA 69
Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 247 FLR 140
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104
Olympic Holdings Pty Ltd v Windslow Corporation Pty Ltd (in liq) [2008] WASCA 80; (2008) 36 WAR 342
Papakosmas v The Queen [1999] HCA 37; (1999) 196 CLR 297
Payne v Parker (1976) 1 NSWLR 191
Pilbara Iron Ore Pty Ltd v Ammon [2020] WASCA 92
Poland v The State of Western Australia [2015] WASCA 136
Police (SA) v Kyriacou [2009] SASC 66; (2009) 193 A Crim R 490
Proudlove v Burridge [2017] WASCA 6; (2017) 79 MVR 257
R v Rose [1965] QWN 35
Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603
Settlement Wine Co Pty Ltd v National General Insurance Co Ltd (1994) 62 SASR 40
Sino Iron Pty Ltd v Mineralogy Pty Ltd [2019] WASCA 80; (2019) 55 WAR 89
Symeou v NRMA Insurance Ltd (1988) 5 ANZ Insurance Cases 60‑851
The Trustees of the Property of Cummins v Cummins [2006] HCA 6; (2006) 227 CLR 278
Tokio Marine & Nichido Fire Insurance Co Ltd v Hans Bo Kristian Holgersson trading as Holgerssons Complete Home Service [2019] WASCA 114
Transfield Services (Australia) Pty Ltd v Hall [2008] NSWCA 294
V L Credits Pty Ltd v Switzerland General Insurance Co Ltd (No 2) [1991] 2 VR 311
Vocisano v Vocisano [1974] HCA 14; (1974) 130 CLR 267
Walker v The State of Western Australia [2020] WASCA 85
Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531
WFI Insurance Ltd v Verini [2016] WASCA 143
Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522

Table of Contents

Overview

The broad factual context

The AIG home insurance policy

The renovations to the home

A diversion: the 12 January 2016 fire in the skip bin

The state of the site on the day of the fire

The fire

The litigation

The primary judge's reasons

Primary judge's findings relevant to the cause of the fire

Primary judge's findings as to the construction of the contract works exclusion clause

Primary judge's interest determination

The grounds of appeal

Disposition of AIG's appeal: the construction appeal grounds

Principles of construction

The parties' contentions in relation to the construction of the contract works exclusion clause

General observations

AIG's case as in substance advanced on the appeal

The construction contended for by the plaintiffs and the Bresland parties

The proper construction of the contract works exclusion clause

The text of the contract works exclusion clause

Context - the terms of the home insurance policy

Consideration and determination

Disposition of AIG's appeal: the cause of the fire appeal grounds

Grounds 7 & 8: the availability of the intruder theory and whether it did not rise above 'mere speculation'

Grounds 12, 10 & 11: the admissibility of the statement attributed to Mr Simpson in Mr Bell's file notes and report

Ground 13: the failure to draw a Jones v Dunkel inference in relation to Mr Milton and Mr Roach

Grounds 9, 14, 15 & 16: the failure of AIG's case on the cause of the fire

The cross‑appeal and the notices of contention

The remaining issue for determination

The parties' contentions

Consideration and determination

Conclusion and orders

Annexure 'A': grounds of appeal

JUDGMENT OF THE COURT:

Overview

This appeal concerns litigation after a substantial residential home undergoing renovation works (said by the primary judge to be more properly described as 'refurbishment of the original house')[1] was destroyed by a fire and had to be demolished. The fire started in a green rubbish bin in the dining room. The plaintiffs[2] (the property owners) sued AIG[3] (the insurer under a home insurance policy) and the Bresland parties[4] (the plaintiffs' insurance broker and the principal of the insurance broker). Among others, AIG joined MBC[5] as a third‑party. MBC was the builder performing the renovation works. In turn, MBC joined Holgerssons[6] in fourth-party proceedings. Holgerssons was a subcontractor engaged by MBC; it performed interior painting works on the home.
[1] McMurray v AIG Insurance Australia Ltd [No 5] [2021] WASC 300 (primary reasons) [93], [508]. See also [136], [501].
[2] Frederick and Jennifer McMurray. The McMurrays are the first and second respondents in the appeal and the cross-appellants in the cross-appeal. It is convenient to refer to them as 'the plaintiffs'.
[3] Referring to AIG Insurance Australia Ltd. AIG is the appellant in the appeal and a respondent to the cross‑appeal.
[4] Referring to Russell Bresland and Bresland Consultants Pty Ltd. Mr Bresland is the third respondent in the appeal. Bresland Consultants Pty Ltd is the fourth respondent in the appeal. Each is a respondent to the cross-appeal.
[5] Referring to Mosman Bay Construction Pty Ltd (in liq). MBC is the sixth respondent to the appeal. MBC did not take part in the appeal. MBC gave notice that it would accept any order made by this court other than as to costs: WAB 6.
[6] Referring to Holgerssons Complete Home Service (the trading name of Hans Holgersson). Mr Holgersson is the fifth respondent to the appeal and a respondent to the cross-appeal.
The AIG home insurance policy contained a 'contract works exclusion' clause (see [27] below). Among other things, AIG relied on the exclusion clause to deny indemnity under the insurance policy and to defend the plaintiffs' claim. The Bresland parties admitted that they were negligent if the exclusion clause was engaged.
At trial there were two theories as to the possible cause of the fire. We will refer to the first as the 'oily rags theory'.[7] This, in substance, posited that the cause of the fire was the self‑heating and spontaneous combustion of rags infused with a product described as 'Loba Oil'[8] put in the green rubbish bin in the dining room by the painters.[9] The Loba Oil was a product being used by the painters to stain various timber surfaces in the house.
[7] The primary judge described it as the 'oily rags in the bin theory'.
[8] The primary judge used this name to describe the product known as Lobasol HS 2K ImpactOil and ImpactOil Colour: primary reasons [10].
[9] See also primary reasons [100] - [101], [216](10).
The second theory - referred to as the 'intruder theory' - was that an intruder entered into the house and lit a fire in or near the green rubbish bin.[10] AIG contended that the intruder theory was not open on the pleaded case. The primary judge held that the pleading point was misconceived.[11] In any event, given the way in which the trial was conducted, the primary judge would have allowed an amendment to deal with the pleading point.[12]
[10] See also primary reasons [100] - [101].
[11] Primary reasons [394]. See also [395] - [415].
[12] Primary reasons [416] - [418].
Broadly summarised, the primary judge found that: (1) the point of origin of the fire was the green rubbish bin in the dining room;[13] (2) AIG did not prove that there were any Loba Oil soaked rags in the green rubbish bin at the time the fire started;[14] (3) the intruder theory could not be dismissed as merely speculative;[15] (4) the cause of the fire could not be determined;[16] (5) properly construed, the contract works exclusion clause did not apply to the renovation works carried out by MBC, this failing on various levels.[17] It followed that the plaintiffs succeeded against AIG but failed as against the Bresland parties.
[13] Primary reasons [426].
[14] Primary reasons [434].
[15] Primary reasons [444] - [446].
[16] Primary reasons [447]. See also [10], [676] and, more generally, primary reasons section 4.5.3.
[17] Primary reasons [482] - [504].
The primary judge also found that interest ran from 16 June 2017 - that being the day from which it was unreasonable for AIG to withhold payment indemnifying the plaintiffs for the damage suffered.[18]
[18] Primary reasons [621] - [622], [625], [631] - [634].
The primary judge ordered that:[19]
1.AIG pay the plaintiffs an amount of $4,698,764 (par 1) and their costs of the action to be assessed (par 5).
2.The plaintiffs' claim against the Bresland parties be dismissed (par 2).
3.AIG's claim against MBC be dismissed (par 3).
4.MBC's claim against Holgerssons be dismissed (par 4).
[19] BAB 1 - 2.
AIG now appeals challenging the order that it pay the plaintiffs the $4,698,764 with costs. Indeed, the appeal notice says that AIG appeals against all substantive orders other than the order that AIG's claim against MBC be dismissed.[20] As to this, prima facie AIG had no standing to challenge the order that MBC's claim against Holgerssons be dismissed. It is, however, unnecessary to consider this point any further. The orders wanted in AIG's appellant's case restrict AIG's appeal to setting aside the orders that AIG pay the plaintiffs the $4,698,764 with costs.[21]
[20] WAB 1.
[21] WAB 36.
The appeal grounds fall into two categories:[22]
1.Appeal grounds concerning the proper construction of the contract works exclusion clause (grounds 1 - 6). AIG asserts error in the primary judge's construction of the contract works exclusion clause. According to AIG, these grounds do not require the cause of the fire to be established. For this reason AIG says that it is convenient to deal first with these grounds.[23]
2.Appeal grounds concerning the cause of the fire (grounds 7 ‑ 16). These concern whether, contrary to the primary judge's conclusion, AIG established on the balance of probabilities that the fire was caused by rags soaked in Loba Oil which were put in the green rubbish bin in the dining room.
[22] AIG's submissions par 1 WAB 14.
[23] AIG's submissions par 22 WAB 19 - 20.
The plaintiffs oppose the appeal, supported by the Bresland parties. As will be seen, the Bresland parties face potential liability if AIG succeeds in the appeal. Holgerssons does not seek to be heard on the construction issues as to the contract works exclusion clause. However, Holgerssons asserts standing and seeks to be heard on matters related to the cause of the fire.
The plaintiffs cross‑appeal challenging: (1) the order that the plaintiffs' claim against the Bresland parties be dismissed; and (2) the time from which interest on the judgment amount should be recoverable - the plaintiffs seek interest from 7 June 2016 rather than the 16 June 2017 as allowed by the primary judge.
As to the challenge to the order that the plaintiffs' claims against the Bresland parties be dismissed, the plaintiffs' relevant ground in the cross‑appeal is premised on the judgment in favour of the plaintiffs being set aside on appeal.[24] Accordingly, this aspect of the cross‑appeal does not arise if AIG's appeal fails. The challenge to the interest determination is advanced irrespective of the outcome on the appeal. The plaintiffs claim that, if the appeal is allowed, the Bresland parties should pay interest from 7 June 2016 (presumably on the basis that the first aspect of the cross‑appeal succeeds).[25]
[24] Grounds of appeal in cross-appeal par 1 WAB 143.
[25] Grounds of appeal in cross-appeal par 2.3 WAB 144.
AIG makes no submissions on the first aspect of the cross‑appeal. However, AIG opposes the cross‑appeal as to interest. AIG also advances a notice of contention in the cross‑appeal providing a further suggested reason to uphold the primary judge's determination as to when interest ought to commence to run.
The Bresland parties oppose this court making substitutive findings as to liability on their part, raising a number of defences and other matters. They also advance a notice of contention in support of their position. It is not necessary to consider these matters unless the first aspect of the cross‑appeal falls for determination because the appeal is to be allowed. Otherwise the Bresland parties adopt AIG's position as to interest, including relying on AIG's notice of contention.
Holgerssons oppose the Bresland parties' contentions so far as those contentions relate to Holgerssons and the cause of the fire.
For the reasons that follow, AIG's appeal fails. In substance, the primary judge's construction of the contract works exclusion clause was correct. Moreover, AIG has not established material error in terms of the appeal grounds concerning the cause of the fire. However, the plaintiffs' cross‑appeal should be allowed in part. The plaintiffs should be allowed interest on the judgment debt from an earlier time than was provided for by the award made by the primary judge. The issues as between the plaintiffs and the Bresland parties do not arise for determination given the failure of AIG's appeal.

The broad factual context

What follows in this section of these reasons is taken from the primary reasons. Where necessary, what was found by the primary judge is amplified by references from the contemporaneous documents. Except where stated to the contrary, we have not included anything that is controversial in the appeal.
In summary, the plaintiffs purchased a property at 179 Wellington Street, Mosman Park in August 2014 for $8.95 million. The plaintiffs intended to live in the home on the property. Before moving into the property the plaintiffs engaged MBC to carry out renovations to the house. The renovations began in mid-2015 and were almost complete by 15 January 2016. By that time the plaintiffs had spent more than $1 million on the renovations. On 16 January 2016 the house was destroyed by a fire. The damage was so extensive that the house had to be demolished.

The AIG home insurance policy

The plaintiffs had an existing relationship with the Bresland parties at the time the plaintiffs purchased the property. On purchasing the property Mr McMurray contacted Mr Bresland to arrange insurance cover. Mr McMurray told Mr Bresland that the plaintiffs were about to buy a new house worth $4.5 million but would not be moving in immediately as the plaintiffs were going to carry out renovations to the value of $500,000 - $600,000. Mr McMurray told Mr Bresland that the plaintiffs wanted the house to be insured, wanted the insurance to cover the renovations, and the house needed to be 'fully covered for every eventuality'. Mr Bresland told Mr McMurray that he would arrange the appropriate cover.
Initially insurance cover was arranged with Chubb Insurance Company of Australia Ltd. However, Mr Bresland formed the view that the Chubb deductible was too high. On 21 September 2014 Mr Bresland sought a quotation to insure the property from AIG. In requesting the quotation, Mr Bresland stated that renovations to the property were planned within the next 12 months and that the type of renovations were: 'Internal - bring up to new standard $600,000'. The disclosure was made in a pro forma AIG 'quotation request' form in answer to questions posed under the heading 'Residence Information'.[26]
[26] GAB 3.

AIG relies on this aspect of the factual context in appeal ground 1.
AIG provided a quotation to Mr Bresland on 24 September 2014. Based on the quotation Mr Bresland recommended to Mr McMurray that the plaintiffs take out an insurance policy with AIG for the duration of the renovations. Mr McMurray accepted Mr Bresland's advice. When Mr Bresland and Mr McMurray had this conversation, Mr McMurray was not made aware (as was in fact the case) that in submitting its quotation AIG included a proposed endorsement in the form of the contract works exclusion clause. Nor was Mr McMurray provided with a copy of the quotation.
Mr Bresland accepted the AIG quotation, on behalf of the plaintiffs, and cancelled the Chubb home insurance policy.
The AIG home insurance policy between AIG and the plaintiffs is comprised of: (1) a Product Disclosure Statement; (2) Policy Wording (this sets out the general terms applying to the home insurance policy); (3) Home & Contents Insurance Schedule; and (4) Endorsements.[27] The contract works exclusion clause is the sole subject of the Endorsements. The PDS, Policy Wording, Schedule and the Endorsements are to be read as one document.[28]
[27] See generally GAB 31 - 80.
[28] Policy Wording section I: GAB 46.
The Bresland parties failed to bring the contract works exclusion clause to Mr McMurray's attention prior to 23 October 2015.
The material terms of the AIG home insurance policy were that, subject to any applicable exclusion, in the event of physical loss or damage to the house that occurred by accident, AIG would make payments to the plaintiffs that included:
1.the amount required to restore or repair, replace or rebuild, a structure with materials and workmanship of like kind and quality as the house up to the sum insured of $4.725 million; and
2.the reasonable costs necessary to demolish damaged buildings and remove the debris.
The contract works exclusion clause of the AIG home insurance policy provided:[29]
[29] GAB 80.
Contract Works Exclusion
Notwithstanding any terms or conditions to the contrary no cover shall be provided under the Your Policy for:
1.Damage:
- in connection with the Contract Work, Temporary Work, Free Issue Materials or Works;
- in connection with any Maintenance or Defects Liability Period; or
- which manifests, incurs or arises after any Maintenance or Defects Liability Period as a result of any activities or works undertaken during such Maintenance or Defects Liability Period:
2.Property Damage to the Contract Work, Temporary Work or Free Issue Materials
In the event of the operation of this exclusion no coverage shall be provided under Your Policy for Construction Materials, Rebuilding for Compliance, Precautionary Repairs, Rebuilding or Reconstruction Costs as more fully specified and defined in Your Policy.
For the purposes of this exclusion the following definitions apply:
Damage means any loss, fine, penalty, cost, charge, liability, physical loss or Property Damage including any Earth Movement
Contract Work means any and all structures constructed or in the course of construction wheresoever located or whilst in transit and which are incorporated or are to be incorporated into a permanent structure at the Location
Free Issue Materials means any and all building and construction materials (including debris) wheresoever located, or in transit and which are supplied or are to be supplied in connection with the Contract Work, Temporary Work or Works and shall include but not be limited to:
- any and all plant, tools and equipment; or
- temporary buildings and structures and their contents
Location means 179 Wellington Street, Mosman Park WA 6012
Maintenance or Defects Liability Period means a set period of time as agreed to in writing by You which commences after completion of the Contract Work and attendant Works and during which any defects in the Contract Works is remedied by any third party or any maintenance obligations in respect of the Contract Work are undertaken by any third party.
Temporary Work means any and all structures constructed or in the course of construction wheresoever located or whilst in transit that are necessary for access or support to the Contract Work and which will be dismantled and removed at the date of completion of the Contract Works or Works.
Works means any and all operations or activities undertaken in connection with the Contract Work and/or Temporary Work
All other terms utilised in this exclusion shall be defined in accordance with the applicable definition of such terms as found in Your Policy. (emphasis added)
The term 'Property Damage' is defined in the Policy Wording (section II). It means 'physical damage to, destruction of or loss of use of tangible property'.[30]
[30] GAB 48.
The proper construction of the contract works exclusion clause is at the heart of appeal grounds 1 - 6. Also, as will be seen, AIG accepted that it must succeed in relation to its preferred construction of the contract works exclusion clause if it was to succeed on the appeal.
The contract works exclusion clause uses a number of defined terms. For the purpose of the appeal four critical defined terms are 'Damage', 'Contract Work', 'Free Issue Materials' and 'Works'. These are all defined within the contract works exclusion clause itself. Also, as can be seen, 'Free Issue Materials' and 'Works' are defined, in a material respect, by reference to the term 'Contract Work' (including through the definition of 'Temporary Work' which in turn relies on the defined term 'Contract Work'). A key concept in the defined term 'Contract Work' is whether there is a 'structure' constructed or in the course of construction which is incorporated or is to be incorporated into a 'permanent structure'.
What is meant by the term 'structure', and whether in fact the renovations or aspects of the renovations constituted a 'structure' or 'structures' for the purpose of the definition of 'Contract Work', was a critical issue at trial and is a critical issue on appeal.

The renovations to the home

The plaintiffs engaged MBC to renovate the house in late 2014 or early 2015. MBC's director was a David Walling. The site supervisor employed by MBC for the renovations on the property was a Ralph Thomas. Both Mr Walling and Mr Thomas were called to give evidence at the trial. AIG called Mr Walling and Holgerssons called Mr Thomas. The primary judge did not make any general findings as to the credibility, accuracy and reliability of their evidence. However, in one significant respect - the location of the green rubbish bin in the dining room when Mr Thomas left the house in the afternoon of 15 January 2016 - the primary judge found that Mr Thomas' evidence was cogent and consistent with the whole of his evidence.[31]
[31] Primary reasons [445](6).
MBC arranged for a separate insurer (Tokio)[32] to insure the renovation works.
[32] Referring to Tokio Marine & Nichido Fire Insurance Co Ltd. Tokio was the third defendant and the second third party in the primary proceedings. However, for reasons which will become apparent, Tokio is not a party to the appeal.
At least some of the renovation works were subcontracted. In particular, MBC entered into an interior paint subcontract in relation to the renovation works. There was a dispute in the proceedings about the precise identity of MBC's counterparty to the interior paint subcontract. It was not necessary for the primary judge to resolve that dispute. Nor is it necessary to go into the dispute for the purposes of the appeal. It suffices to state that, at various times, the interior painting work was carried out by one or both of Holgerssons and another contract painter. The second contract painter was a Mark Simpson or a company associated with Mr Simpson. The primary judge found that Mr Holgersson and Mr Simpson each had a separate contract painting business; but, from time to time for bigger jobs, Mr Holgersson and Mr Simpson worked together as joint contractors. In relation to the property, as between Mr Holgersson and Mr Simpson it was agreed that Mr Simpson would run the internal painting works on the house.
Holgerssons and Mr Simpson also engaged other painters to assist them with the interior painting for the renovation works. Two other painters were at the property on the afternoon of 15 January 2016 - Radford Milton and Jason Roach.
MBC commenced the renovation works in May 2015. The primary judge made detailed findings as to the nature and extent of the renovation works (which her Honour characterised as a 'refurbishment' of the original home).[33] In substance:
1.The layout and size of the original house remained substantially unchanged.[34] Except for the repurposing of some rooms, and the installation of a section of wall to close off an entry near a lift and the removal of a wall to create a new entry from the lift and laundry area, none of the ground floor internal walls were moved or changed.[35]
2.The interior works were effectively to:
strip out and demolish the existing fixtures and fittings, including tapware, cabinets, appliances, flooring, and windows, some, if not all, doors, including door and window frames, to create new openings, replace some ceilings and replace part of two walls in the entry.[36]
3.New timber flooring was installed to most, if not all, of the ground floor interior.[37]
4.New decking (at the rear) and a fishpond (under a bridge to the front entry) were built to the exterior of the house.[38] Also, the rear terrace area of the ground floor had been enclosed and its use designated as a loggia.[39]
[33] Primary reasons [93], [508].
[34] Primary reasons [94].
[35] Primary reasons [98]. See also [99](d).
[36] Primary reasons [94].
[37] Primary reasons [98].
[38] Primary reasons [97]. See also [99](b) - (c).
[39] Primary reasons [99](b).
By the end of the workday on 15 January 2016 (the day before the night of the fire):
part of the entry walls (to the dining room and the sitting room) were replaced with new timber frames with recesses for timber sliding doors or what are sometimes referred to as pocket doors;
a gyprock lined and flat oak lined column (described by AIG as a faux column) was constructed in the dining room in the corner between the entry wall and the wall between the dining room and bathroom, which corner was near the stairs leading down to the spiral staircase;
the walls of the entry were covered by linear oak battens on timber panels, and the timber sliding doors to the dining room and the sitting room were covered with a mirror face with linear oak battens affixed to the mirrored surface.[40]
[40] Primary reasons [99](e) - (h). See also [106] - [108].
The plaintiffs' interior designer had specified that Loba Oil was to be used on the wood wall panels and battens (to match the new floorboards installed in the house). The work to stain the timber surfaces with Loba Oil commenced before Christmas 2015. As at 15 January 2016 the oak timber lining in the dining room had been, or was in the process of being, stained by the painters using Loba Oil to match the new timber flooring. However, a final finish of Loba Oil to some of the woodwork on the walls had not been completed.
In terms of its application, the Loba Oil was mixed with a hardening agent and then applied to the timber by a brush. The painters used a scraper to remove excess oil. After that white rags were used to 'feather in' the Loba Oil to render its application consistent across the wood surfaces. The rags were pre-cut to approximately one foot and had been purchased in bulk. The white rags could not be reused once they became saturated with Loba Oil as they could not be cleaned.
Mr Simpson knew that oily rags had a tendency to self‑heat and self‑ignite if not disposed of properly. Accordingly, a process was in place for the disposal of the used white rags.
As described by Mr Simpson, the Loba Oil rags were disposed of as follows:
1.The rags were dried out by hanging them on the side of a skip bin outside the house on the street verge.
2.Once the rags were dry, either later that day or the next morning, the rags were disposed of by putting them inside the skip bin.
Mr Simpson told Mr Milton and Mr Roach not to screw the rags up and put them in a confined space. Mr Simpson also told Mr Milton and Mr Roach not to put the oily rags in the inside rubbish bins (as will be seen there were various rubbish bins located in the house). Mr Simpson's instructions were that the oily rags were to be put in the outside skip bin or, if they were not too far gone and might be used further, to be laid out flat to dry across planks and ladders near a store area at the rear of the property.
The painters ran out of supplies of Loba Oil in the week before the fire. Consequently, the timber staining was interrupted. The staining work recommenced a day or so before the night of the fire when a new supply of Loba Oil arrived at the house. This is relevant to the evidence that there was a suspicious fire in the skip bin outside the property on 12 January 2016 (see [44] - [47] below).

A diversion: the 12 January 2016 fire in the skip bin

Mention has already been made of the skip bin outside the house on the street verge. The skip bin was to the front of the plaintiffs' house. A fire occurred in the skip bin early on the morning of Tuesday, 12 January 2016. CCTV footage from a neighbouring property, to the west of the plaintiffs' property, shows the fire.[41] However, as the primary judge noted, the CCTV footage only shows a very small image of, at best, part of the western edge of the skip bin; it does not show the eastern or northern sides of the bin.[42] The CCTV footage does not exclude the possibility of a person approaching the skip bin and starting the fire either intentionally or unintentionally.[43]
[41] Exhibit A.146; exhibit A.147.
[42] Primary reasons [353].
[43] Primary reasons [356].
A firefighting crew attended the fire. It was recorded as 'suspicious'.
The primary judge noted the possibility that the skip bin fire was caused by the self‑combustion of Loba Oil soaked rags disposed of in the skip bin. Her Honour found that this was speculative. As the painters had run out of Loba Oil, if there were any oily rags in the skip bin in the early hours of 12 January 2016, those rags would have been in the skip bin since about Thursday the preceding week.[44]
[44] Primary reasons [354].
The primary judge found that the cause of the fire in the outside skip bin could not be determined. Nor could it be established on the evidence that there was any link between the fire in the skip bin on 12 January 2016 and the fire that destroyed the plaintiffs' house in the early hours of 16 January 2016. These findings are not challenged in the appeal.

The state of the site on the day of the fire

The primary judge identified a number of contested factual issues about the state of the site on the day of the fire.
It was common ground that there was a green rubbish bin in the dining room on the day before the night of the fire. This was the only rubbish bin on the ground floor (there were other like rubbish bins elsewhere on site). There was, however, a contested factual issue as to whether the green rubbish bin was moved after Mr Thomas locked up and left the house at about 3.30 pm on 15 January 2016.
The primary judge held, in substance, that the green rubbish bin in the dining room was moved from a position in the dining room away from the entry area where the sliding doors opened (where Mr Thomas said it was when he locked up and left the house) to another location in the entry to the dining room close to where the sliding doors opened into the entry (where the remains of the bottom of a rubbish bin were found after the fire on the following morning).[45]
[45] Primary reasons [445](6). See also [124] - [125], [148] - [150], [278].
This finding is not challenged on appeal. Indeed, AIG said that disagreement as to the precise location of the bin within the dining room was immaterial to the appeal.[46]
[46] AIG's submissions par 16 WAB 16.
The primary judge identified two other 'highly contested' factual issues. The two issues are closely related:
1.Whether, on 15 January 2016, the painters had placed into the green rubbish bin in the dining room any oily rags which had been used to apply the Loba Oil.
2.Whether, when Mr Thomas locked up the house after everyone had finished work in the afternoon on 15 January 2016, any oily rags which had been used to apply the Loba Oil were in the green rubbish bin in the dining room.
In addition, if it was found that there were oily rags in the green rubbish bin, there was a third highly contested issue - whether the oily rags self‑heated and subsequently self‑ignited causing the fire that destroyed the house.
Mr Holgersson had not been working at the house for two to three weeks before the fire.
On the last working day before the fire (ie on 15 January 2016), Mr Simpson was carrying out interior painting works inside the house with the two other painters, Mr Milton and Mr Roach. Holgerssons called Mr Simpson to give evidence. Neither Mr Milton nor Mr Roach were called to give evidence. At trial AIG sought to rely on a Jones v Dunkel[47] inference by reason of the omission to call Mr Milton and Mr Roach. The primary judge concluded that it was not open to draw a Jones v Dunkel inference and that, in any case, the inference sought to be drawn by AIG went beyond a Jones v Dunkel inference. These conclusions are challenged by appeal ground 13.
[47] Referring to Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298.
On 15 January 2016 the painters applied Loba Oil to a small section of the linear oak battens affixed to the sitting room entry wall near the stairs. There was no application of Loba Oil to any timber inside the dining room. Nevertheless, as the primary judge observed, it was the case that the painters were using rags to apply Loba Oil to wooden surfaces on the afternoon before the night of the fire.[48]
[48] Primary reasons [400].
Mr Simpson left the property at about 2.30 pm on 15 January 2016. Mr Milton and Mr Roach continued with their painting work. Accordingly, Mr Simpson was not at the house to supervise or check whether Mr Milton and Mr Roach disposed of the oily rags correctly.
There was a good deal of evidence about what was put in the green rubbish bin generally and on the day of the fire. Relevantly:
1.Mr Thomas said that the inside green rubbish bins were for lunch and trade waste whereas the outside skip bin was for building waste.[49] Mr Thomas also said that:[50]
(a)small pieces of wood might have been disposed of in the green rubbish bins; and, while sawdust should not have been disposed of in those bins and he never saw any sawdust in the green rubbish bin in the dining room, this may have occurred;
(b)he never saw rags hanging over the side of the green rubbish bins;
(c)he did not see any rags near the green rubbish bin in the dining room on 15 January 2016 and could not recollect putting any rags in the bin that day;
(d)before leaving for the day (after the tradespeople had left) he picked up a half-empty water bottle and drill bit and threw them into the green rubbish bin. Mr Thomas was one to two metres away but could see into the top section of the bin. It appeared to Mr Thomas that the green rubbish bin in the dining room was reasonably empty.
2.Mr Simpson said that he did not hang rags over the side of the green rubbish bin in the dining room or put rags inside the bin. Nor did he ever see Mr Milton or Mr Roach do so.[51] Mr Simpson gave evidence that was consistent with Mr Thomas' evidence as to what was to be disposed of in the green rubbish bin.
3.Niall Woods, a carpenter, was at the property on 15 January 2016. He did not put anything in the green rubbish bin in the dining room and did not see anyone else put anything in the bin. Nor did Mr Woods see the bin completely full.[52]
[49] Primary reasons [146].
[50] Primary reasons [146] - [147], [150].
[51] Primary reasons [153].
[52] Primary reasons [159].

Mrs McMurray visited the house every day. She never saw rags in any green rubbish bin or rags hanging over the side of any green rubbish bin. Nor did Mrs McMurray see the green rubbish bin full.[53] It appeared to Mrs McMurray that the rubbish bins were emptied regularly.[54]
[53] Primary reasons [160] - [162], [428].
[54] Primary reasons [161].
The primary judge found that it was not known, exactly, what was in the dining room green rubbish bin on the night of the fire. However, her Honour was satisfied that 'there was some sawdust, a water bottle and a drill bit'.[55]
[55] Primary reasons [400]. See also [277], [467], [487].
More generally, the primary judge was satisfied, on the evidence, that Mr Thomas kept a clean and tidy work site.
The primary judge found that there was no admissible direct evidence given by any witness that rags used by the painters to apply Loba Oil were placed in the green rubbish bin.[56] The reference to 'admissible' and 'direct' evidence was deliberate. As will be seen, AIG sought to rely on a statement to the contrary - ultimately attributed to Mr Simpson - and invoked s 79C(2a) of the Evidence Act 1906 (WA) in this respect. The primary judge rejected the admissibility of that material (see [90] below). This determination is challenged by appeal grounds 11 and 12. At the appeal hearing, senior counsel for AIG accepted that, but for that matter, there was no direct evidence that used rags from the application of Loba Oil were left in the green rubbish bin in the dining room on the day before the night of the fire.[57]

The fire

[56] Primary reasons [427].

[57] Appeal ts 89 - 90.

The house was locked when the fire occurred. Mr Thomas locked the house when he left at about 3.30 pm on 15 January 2016. On some occasions Mr Thomas left a key outside so that contractors could enter. Mr Thomas did not do so on the afternoon of 15 January 2016.
The primary judge referred to and apparently accepted evidence that the plaintiffs visited the property at about 10.30 pm on 15 January 2016. The plaintiffs attended the property to check the water in the pool. The plaintiffs did not enter the house. However, as the plaintiffs left, at about 10.45 pm, Mr McMurray saw a man walking diagonally across a vacant block two blocks to the east of the plaintiffs' property.
The primary judge also referred to CCTV footage of the house on the night of 15 January 2016 and the early morning of 16 January 2016. AIG alleges, by appeal ground 8.D, that the primary judge erred in relation to the use of the CCTV footage. Accordingly, there will need to be further reference to the CCTV footage when evaluating the grounds of appeal.
However, it was not in issue that a person could enter the plaintiffs' house from its eastern side, or a laundry door to the western side of the house, without being seen on the available CCTV footage.[58]
[58] Primary reasons [170] - [171].
A fire in the house was first detected, and a 'triple zero' call was registered, at 1.21 am on 16 January 2016. The primary judge also said, somewhat inconsistently, that the fire was first seen by neighbours at 1.02 am.[59] There was, however, no evidence from a neighbour. We suspect that her Honour was referring to what is revealed by viewing the CCTV footage on the neighbouring property to the west of the plaintiffs' property. That CCTV footage shows a bright light, consistent with the fire on the property, first becoming visible just after 1.02 am on 16 January 2016.[60]
[59] Primary reasons [445](5).
[60] Exhibit A.153.
Firefighters who attended had to use force to enter the property.
At trial four witnesses gave forensic fire investigation evidence. They were James Bell, James Manser, Mark Pollard and Maurice Tong. Mr Bell was a fire investigation officer employed in the Fire Investigation and Analysis Unit of the Department of Fire and Emergency Services. He attended the property at 3.10 am on 16 January 2016, as firefighters were putting out the fire, and remained at the house until 10.22 am. Mr Bell was called by AIG. Mr Pollard was called by the plaintiffs. Mr Manser and Mr Tong were called by AIG. The primary judge found that Mr Pollard, Mr Manser and Mr Tong were amply qualified to give expert evidence in the areas of fire origin, the point of origin, fire language, fire paths and the cause of a fire. Mr Bell was also qualified as an expert fire investigator.
The primary judge provided a detailed account of the substance of the forensic fire investigation evidence.[61] Most of that may be passed over for the purpose of the appeal. Relevantly, based on the forensic fire investigation evidence the primary judge made findings that:
1.The area of origin of the fire was the dining room and the point of origin of the fire was the green rubbish bin.[62]
2.The failure or malfunction of electrical equipment or lighting was discarded as a potential cause of the fire. So too was smoking or the discarding of a cigarette.[63]
3.When hosed down, the floor in the dining room did not show any residual ignitable liquids.[64]
[61] Primary reasons [204] - [351].
[62] Primary reasons [426]. This was consistent with the opinion of Mr Bell (primary reasons [216](10), [217]), Mr Manser (primary reasons [274] - [275), Mr Tong (primary reasons [325], [329], [335] - [336], [340]) and, in part, Mr Pollard (primary reasons [349] - Mr Pollard opined that the fire started in the immediate area of the bin but could not say that the fire started in the bin). See also [419] - [425].
[63] Primary reasons [216](9).
[64] Primary reasons [213].
The primary judge also found that Loba Oil (being an organic oil) had the propensity or capacity to self‑heat.[65] (However, as will be seen at [101] - [102] below, the primary judge made further findings that are adverse to the acceptance of AIG's self‑combustion case as underpins the oily rags theory.)
[65] Primary reasons [400], [435].
These various findings are not challenged in the appeal. There is, however, a significant issue in the appeal as to the admissibility of certain statements recorded in Mr Bell's fire investigation report[66] and field notes[67] (see appeal grounds 10 - 11). That is best left for more detailed discussion in that context. In summary, however, Mr Bell's report and notes recorded what Mr Bell was informed of by Mr Walling as to a telephone conversation between Mr Walling and Mr Simpson. Mr Simpson (referred to generically as 'the painters') was recorded as confirming that 'they gathered the rags they used to clean up the wood/timber staining & placed them in the bin'.[68] The primary judge found that Mr Bell's record of this conversation should not be admitted into evidence.[69]
[66] GAB 88 ('Mr [redacted] confirmed by a phone call to the painters; post fire that they had cleaned up all their rags and placed them in the rubbish bin …').
[67] GAB 898 ('[Mr Walling] contacted the painters in my presence; they confirmed they gathered the rags they used to clean up the wood/timber staining & placed them in the bin in the front western room at approx. 3 pm on Friday 15/1/16').
[68] Primary reasons [225]. See GAB 898.
[69] Primary reasons [218].
After the fire, a forensic locksmith, Brian Tisdale, was engaged to inspect the property to examine the locks at each point of entry to determine whether there was any evidence of unauthorised entry. Mr Tisdale found no evidence that any of the locks on the doors or gates had been picked or manipulated with one exception. The exception was the external laundry door on the western side of the house. Mr Tisdale found a piece of wire outside the laundry door that resembled a lock manipulation tool.
Mr Tisdale was able to pick the deadlock on the external laundry door to the west of the home using the tool. However, the use of the tool by Mr Tisdale left no evidence that the lock had been picked. So far as, by subsequent examination, Mr Tisdale identified marks on the locking bolt, there was nothing that suggested one way or the other that the tool had been used on an earlier occasion to open the external laundry door.

The litigation

Immediately after the fire, the plaintiffs made a claim on the home insurance policy with AIG. AIG denied liability. The plaintiffs eventually sued AIG for damages. In the alternative the plaintiffs sued the Bresland parties. The plaintiffs also sued Tokio. The plaintiffs' claim against Tokio was settled prior to trial. The settlement amount was taken into account in determining the damages claimed by the plaintiffs.[70]
[70] Primary reasons [618] - [619].
AIG denied liability on the ground that the contract works exclusion clause applied. The primary judge explained the basis for AIG's claim that the contract works exclusion clause applied in the following terms, namely, that AIG claimed that:
(a)the fire was caused by the self‑ignition (spontaneous combustion) of oil soaked rags, being used by painters, placed in a plastic rubbish bin in the front western room on the ground floor of the house; and
(b)this painting work was an excluded activity as it was an activity undertaken in connection with the Contract Work, Temporary Work, Works or Free Issue Materials and/or Property Damage to the Contract Work, Temporary Work, Works or Free Issue Materials as defined in the Contract Works.[71]
[71] Primary reasons [9].
This was, broadly speaking, consistent with AIG's pleaded defence.
AIG pleaded that the house was undergoing extensive renovations. The renovations were said to constitute 'Contract Work' or 'Works' or 'Temporary Work' as defined in the contract works exclusion clause. AIG said that a plastic rubbish bin was put in the front dining room and used in connection with the Contract Work, Temporary Work, Free Issue Materials or Works. This was because the green rubbish bin was used by tradespeople working on the renovations to dispose of rubbish generated by the work carried out on site. AIG pleaded that the rubbish included timber shavings, sawdust, sandpaper, cleaning cloths and rags. Those contents of the green rubbish bin were said to constitute 'Free Issue Materials' as defined in the contract works exclusion clause. According to AIG, the point of origin of the fire was inside the green rubbish bin. Thus the damage the subject of the plaintiffs' claim was either 'Damage' in connection with the Contract Work or Temporary Work or Works or Free Issue Materials (ie within par 1 of the contract works exclusion clause). Alternatively, the damage was 'Property Damage' to the Contract Work or Temporary Work or Free Issue Materials (ie within par 2 of the contract works exclusion clause).[72]
[72] AIG's further amended defence dated 5 June 2019 (AIG's defence) par 6 BAB 246 - 247.
AIG both elaborated on and articulated alternative bases for the plea invoking the contract works exclusion clause in further paragraphs of its defence.
AIG pleaded that the fire was caused by the self‑ignition of rags infused with Loba Oil placed in the green rubbish bin by painters conducting renovation activities.[73] Moreover, the use of the rags infused with Loba Oil was in connection with the staining of timber panelling and doors. These were pleaded to be 'structures' that had been (or were being) constructed at the property. Alternatively, the timber panelling and doors were being stained to match new wood floors that had been (or were being) constructed at the property. In both cases, according to AIG, the use and disposal of the Loba Oil infused rags constituted an activity in connection with Contract Work.[74]
[73] AIG's defence par 7 BAB 247.
[74] AIG's defence par 8 BAB 247 - 248.
Accordingly, on AIG's pleaded case:[75]
1.There were relevant 'structures' (ie structures within the meaning and for the purpose of the 'Contract Work' definition in the contract works exclusion clause) in the form of timber panelling, doors and new wood floors.
2.The contents of the green rubbish bin in the dining room constituted 'Free Issue Materials' within the meaning and for the purpose of the definition in the contract works exclusion clause.
[75] See also primary reasons [466] (where the primary judge identified the 'structures' relied on by AIG so far as activities needed to be in connection with a structure).
AIG did not plead that the green rubbish bin itself was Free Issue Materials. However, AIG seemingly advanced a case to this effect at trial.[76]
[76] ts 610, 1372, 1409, 1502. See also ts 1410 - 1411.
When AIG's defence is stripped of unnecessary verbiage, it is apparent that AIG invoked the contract works exclusion clause in two distinct ways:
1.First, AIG said that the damage claimed by the plaintiffs constituted 'Damage' in connection with 'Contract Work', 'Free Issue Materials' or 'Works' because the fire started in the green rubbish bin and the bin was put in the dining room and used in connection with the renovation works (the renovation works constituting 'Contract Work' or 'Works'). See AIG's defence par 6.
2.Second, to the extent something more was required, the fire was caused by the self‑ignition of rags infused with Loba Oil placed in the bin by painters undertaking activities as part of the renovations (the rags being used to stain timber panelling and doors to match new wood floors). AIG initially advanced this on the basis that it sufficed if the activities were undertaken in connection with the renovations. In the alternative, AIG said that the activities were undertaken in connection with the staining of relevant 'structures' (ie the timber panelling, doors and wood floors). See AIG's defence pars 7 & 8.
AIG brought third-party proceedings against MBC and Tokio. The third-party proceedings against Tokio were discontinued prior to trial. Among other things, the third-party proceedings against MBC alleged that the fire was caused by the negligence of MBC's painting subcontractor (said to be a company associated with Mr Simpson). The third-party proceedings against MBC failed for reasons that are irrelevant on appeal.[77] MBC commenced fourth-party proceedings against Holgerssons. MBC alleged that it entered into an interior painting subcontract for the renovation works with Holgerssons. Holgerssons pleaded that the interior painting subcontract was formed jointly with himself and Mr Simpson (or a company associated with Mr Simpson).
[77] Primary reasons [12], [643] - [666].
The plaintiffs contended there was no evidence establishing that the painters placed Loba Oil rags in the green rubbish bin. They argued that AIG's allegation in this respect was speculative. According to the plaintiffs, the cause of the fire could not be ascertained. In those circumstances the plaintiffs did not seek to join MBC, Holgerssons or any other subcontractors engaged by MBC.
MBC ceased to be an active party in the litigation before trial because it could no longer fund its defence. However, Holgerssons wanted the fourth-party proceedings to remain on foot and be decided because of allegations made against Holgerssons by AIG and the Bresland parties. In the circumstances MBC remained a party to the action but took no further part in the proceedings. Orders were made that evidence in the main action be evidence in the third-party proceedings and the fourth-party proceedings; and that evidence in the third-party proceedings and the fourth-party proceedings be evidence in the main action.

The primary judge's reasons

It is not necessary to repeat the substance of the primary judge's findings which are uncontroversial on appeal and have been summarised earlier in these reasons (see generally [17] - [74] above).
The primary judge identified three main issues for determination in the proceedings. These were: (1) whether the court was able to determine how the fire started; and, if so, what was the cause of the fire; (2) the proper construction of the contract works exclusion clause; and (3) the quantum of the loss suffered by the plaintiffs. Apart from interest, the primary judge's quantum determinations are not challenged in the appeal. Nothing needs to be said as to this aspect of the primary judge's reasoning.
After dealing with the evidence, doing so comprehensively, the primary judge dealt with the three matters for determination. Relevantly for the purposes of the appeal, the primary judge addressed the cause of the fire in section 4.5 of the primary reasons[78] and the construction of the contract works exclusion clause in section 5.4 of the primary reasons.[79] Accordingly, the primary judge dealt first with the evidence going to the cause of the fire.

Primary judge's findings relevant to the cause of the fire

[78] Primary reasons [358] - [447].

[79] Primary reasons [476] - [506].

The primary judge concluded that Mr Bell's records of the telephone conversation between Mr Walling and Mr Simpson (see [72] above) should not be admitted into evidence.[80] In this respect the primary judge also held that AIG failed to cross-examine Mr Simpson about precisely what he had said to Mr Walling in the telephone conversation that occurred the morning after the fire.[81] These findings are challenged by appeal grounds 10 - 12. In the alternative, even if admitted, the primary judge was not satisfied that the evidence was sufficiently cogent or reliable to justify a finding that one of the painters put Loba Oil soaked rags in the dining room green rubbish bin on 15 January 2016. In addition to the absence of cross-examination, the primary judge referred to the fact that Mr Simpson left site at 2.30 pm on 15 January 2016 at which time the other painters (Mr Milton and Mr Roach) were still working.[82]
[80] Primary reasons [218]. See generally [219] - [254].
[81] Primary reasons [234], [251], [253] - [254].
[82] Primary reasons [252] - [253].
The primary judge made a number of findings about the experts called to give forensic fire investigation evidence:
1.Mr Bell's opinion as to the cause of the fire was given lesser weight as his investigation effectively ceased on the morning after the fire. The primary judge also found Mr Bell's evidence about the cause of the skip bin fire to be unreliable.[83]
2.Mr Manser was not an entirely reliable witness.[84] In particular, her Honour was not satisfied that experiments conducted by Mr Manser had 'probative usefulness' other than to show a propensity of Loba Oil soaked rags to self‑heat.[85] However, Mr Manser did concede that the oily rags theory fell away if there was no admissible evidence that there were oily rags in the green rubbish bin in the dining room on the night in question.[86]
3.Mr Tong was the most impressive of the forensic fire investigators who gave evidence.[87] His findings were 'generally' credible and reliable.[88] Mr Tong's opinion was that the probable source of ignition and what caused the fire to start in the green rubbish bin could not be determined.[89] This was because Mr Tong was unable to obtain any evidence whatsoever about what was in the bin immediately prior to the fire.[90]
4.Mr Pollard's investigation was limited because the fire scene had been disturbed by others.[91] He opined that it was not possible to determine the cause of the fire due to the disturbance of the fire scene and the extent of the damage.[92] Mr Pollard was unable to eliminate the intruder theory.[93]
[83] Primary reasons [245]. See also [202] - [203].
[84] Primary reasons [258]. See also [259] - [262].
[85] Primary reasons [261].
[86] Primary reasons [311].
[87] Primary reasons [318].
[88] Primary reasons [425].
[89] Primary reasons [325], [340].
[90] Primary reasons [325].
[91] Primary reasons [348].
[92] Primary reasons [350].
[93] Primary reasons [350].
AIG was critical of Holgerssons' omission to call Mr Milton or Mr Roach to give evidence - they being said to be the persons best placed to shed light on whether oily rags were disposed of in the dining room green rubbish bin. AIG contended that their absence had not been explained in the way discussed in Jones v Dunkel. The primary judge was not satisfied that Mr Milton was in Holgerssons' camp or could give evidence to assist Holgerssons' case. In any event, adequate explanation had been given for the failure to call Mr Milton.[94] So too Mr Roach could not be regarded as being in Holgerssons' camp.[95] Accordingly, the primary judge was not satisfied that a Jones v Dunkel inference should be drawn in respect of the omission to call Mr Milton or Mr Roach.[96]
[94] Primary reasons [369].
[95] Primary reasons [386].
[96] Primary reasons [370], [387].

The primary judge also said that, if a Jones v Dunkel inference should be drawn, it was not open to draw an inference of the nature sought to be drawn by AIG. The primary judge explained:
AIG seeks to draw an inference from their [ie Mr Milton's and Mr Roach's] absence, which, if drawn, would offend the rule in Jones v Dunkel. This is because AIG seeks that the court draw an inference, from their absence and from other circumstantial evidence, that the fire started in the green plastic rubbish bin in the dining room through self‑heating and the auto ignition of Loba Oil soaked rags that had either been placed in the bin, or found their way into the bin through inadvertence, inattention, or in circumstances that no witnesses could be expected readily to recall. Insofar as AIG seeks that this inference be drawn by the application of the rule in Jones v Dunkel, it is not an inference open to be drawn as to do so would be to correct a deficiency in the evidence, which inference cannot be drawn.[97]
[97] Primary reasons [390].
These findings are challenged by appeal ground 13.
The primary judge concluded that the intruder theory was open to be considered on the pleadings.[98] It was for AIG to establish that there was no conflicting or competing inference that was equally possible to the oily rags theory.[99] AIG had contended to the contrary. This is challenged by appeal ground 7. In the alternative the primary judge would have allowed Holgerssons leave to amend to plead the intruder theory.[100]
[98] Primary reasons [394], [415]. See also [399] - [401].
[99] Primary reasons [415].
[100] Primary reasons [418].
In summarising what AIG had to prove to make out its defence, the primary judge said that AIG had to prove as discrete steps (ie links in a chain rather than strands in a cable) that:[101]
1.The green rubbish bin contained rags used by the painters on the day before the night of the fire to apply or remove Loba Oil.
2.The rags self‑heated leading to spontaneous combustion resulting in a fire that spread and destroyed the house.
[101] Primary reasons [401], [406] - [407].
The primary judge referred to some of the difficulties in drawing inferences from circumstantial evidence.[102] Among other things, her Honour stated, with respect correctly, that it was not enough if the circumstances give rise to conflicting inferences of equal degrees of probability so that the choice between them was a mere matter of conjecture.[103] Thus, while the onus was on AIG to prove the oily rags theory as a non-speculative possibility, there must also be no conflicting or competing inference that was equally possible.[104]
[102] Primary reasons [402] - [412].
[103] Primary reasons [404].
[104] Primary reasons [413], [415].
The primary judge then turned to whether the cause of the fire could be determined. Her Honour made findings that:
1.The point of origin of the fire was the green rubbish bin in the dining room.[105]
2.There was no admissible direct evidence given by any witness that rags used by the painters to apply Loba Oil were placed in the green rubbish bin in the dining room.[106]
[105] Primary reasons [426].
[106] Primary reasons [427].
After reviewing the salient evidence, the primary judge then found that AIG had not proved that there were Loba Oil soaked rags in the green rubbish bin in the dining room at the time that the fire started.[107] This factual finding is challenged by appeal ground 9.
[107] Primary reasons [434].
The primary judge accepted that it was open to infer that it was possible that Loba Oil soaked rags were in the bin. An inference to this effect was open by reason that: (1) the painters were using rags to apply Loba Oil to a section of wood panelling on the afternoon before the night of the fire; (2) it was established that Loba Oil soaked rags have the capacity to self‑heat; and (3) a fire occurred in the green rubbish bin on the night in question.[108] However, the primary judge rejected the contention that this possibility was sufficient to establish that AIG was entitled to rely on the contract works exclusion clause.[109] The primary judge gave two reasons for this conclusion.
[108] Primary reasons [435].
[109] Primary reasons [435] - [436].
First, the primary judge was not satisfied that AIG had proved its case as to self‑combustion. Her Honour stated:
[T]he theory that the fire was caused by oil soaked painters' rags in the bin, as Mr Tong pointed out, depends upon a number of variables. Merely a propensity for Loba Oil to self‑heat when infused into combustible materials, such as painters' cotton rags, on its own is only the first link in the chain to spontaneous combustion of the rags or other surrounding combustible material. Prior to spontaneous combustion thermal runaway must occur. In this matter, the experiments conducted by Mr Manser and Mr Tong establish that one of the variables affecting the likelihood of the fire being caused by spontaneous combustion of Loba Oil soaked painters' cotton rags would depend upon whether it is established on the facts that scrunched up (and not folded) Loba Oil soaked painters' cotton rags were inside the green rubbish bin in the dining room on the night of the fire.
Organic vegetable oils can undergo a process of self‑heating through exothermic reaction. However, this process does not always occur. Mr Tong made this clear. Also the experiments conducted by Mr Manser and Mr Tong made this clear. Mr Tong's evidence is that although fires are known to be caused by the self‑heating of organic oils, it rarely occurs.
Further, and importantly, beyond self‑heating, it has not been proved in this matter that, even if Loba Oil soaked rags were in the green rubbish bin on the night of the fire and they self‑heated, they would have reached the point of achieving thermal runaway, then smouldering until finally producing open flame. In any event, it appears that the conditions necessary for such a process to occur are not only variable but it appears that science has not yet got to the point where it can be conclusively proved that an organic vegetable oil is the cause of the ignition.[110] (emphasis added)
[110] Primary reasons [437] - [439].
Accordingly, despite finding that Loba Oil soaked rags had the capacity to self‑heat, her Honour was not satisfied that AIG had proved that - if such rags were in the green rubbish bin and they self‑heated - the Loba Oil soaked rags would have reached the point of achieving thermal runaway and self‑combusting.
This intermediate factual finding is one notionally within a raft of findings challenged by appeal ground 15 (the ground mentions the relevant paragraphs of the primary reasons). However, AIG's written submissions did not directly challenge this intermediate finding.[111] Nor is the finding specifically addressed in AIG's PD 7.4 schedule.[112] Conformably with these aspects of the written appellant's case, the finding was not the subject of oral submissions on the part of AIG. The furthest that AIG took matters was to point out that there was no notice of contention challenging the primary judge's finding that Loba Oil was capable of self‑heating.[113] That is not to the point. There is a large difference between self‑heating and self‑combustion. The passage reproduced at [101] above accepts the possibility of the former but finds that the latter was not proven.
[111] Compare AIG's submissions pars 103 - 105 WAB 32 - 33. These are AIG's contentions in support of grounds 14 and 15. There is no mention of the finding at primary reasons [439]. Nor, to the extent that AIG refers to other aspects of its written submissions, do those paragraphs of AIG's written submissions challenge the finding at primary reasons [439]. See AIG's submissions pars 18 - 21, 56 - 62 WAB 17 - 19, 25.
[112] AIG's PD 7.4 schedule item 4 WAB 47 - 51.
[113] Appeal ts 192. Senior counsel also referred to the findings that Loba Oil can self-heat: appeal ts 89.
In the absence of any relevant submissions - and all the more so in the absence of any challenge to the specific factual finding in the appellant's PD 7.4 schedule - there is no proper basis for this court to interfere with the primary judge's factual finding that it had not been proved that Loba Oil soaked rags in the green rubbish bin would have reached the point of achieving thermal runaway (assuming that such rags were in the dining room green rubbish bin). While, notionally, that factual finding is contained within what is said to be challenged by appeal ground 15, AIG did not present a case directed to this finding. Consequently, while referring to the evidence that the expert's experiments were unable to bring about self‑ignition,[114] the respondents did not seek to answer such a case on appeal. The respondents were entitled to do so given the way in which AIG confined its case on the appeal. Having regard to the way in which the appeal was argued we would not countenance any gainsaying of this aspect of the primary judge's fact-finding.
[114] Appeal ts 149, 154, 169, 174 - 175.
Second, AIG had to establish that there was no conflicting possibility that was equally possible. The only other possibility was the intruder theory. It was for AIG to establish that the oily rags theory had a greater degree of probability than the intruder theory.[115] In this respect the primary judge concluded:
[115] Primary reasons [442] - [443].
Having considered all of the evidence, direct and circumstantial, and the inferences that can be drawn from the circumstantial evidence, I am not satisfied that the oily rags in the bin theory has a greater degree of probability than the intruder theory. When all of the relevant evidence is considered, both theories are simply possibilities, in respect of which to choose between them would be a matter of mere conjecture and thus, on this basis, the cause of the fire that destroyed the McMurrays' house on the morning of 16 January 2016 cannot be found.
The reasons I have made this finding that the intruder theory cannot be dismissed as merely speculative, are as follows.
(1)The evidence of Mr Tisdale is that the lock picking tool found on the ground outside the laundry door could be used not only to open the laundry door in about 30 seconds, but also easily be used to open the east gate.
(2)The evidence of Mr McMurray and the CCTV footage establishes that a person could enter the eastern side of the property through the eastern gate and walk around to the laundry door without being seen by the camera located across from the tennis court of the house next door. Mr McMurray estimated the journey from the east gate to the laundry door to be 30 to 40 seconds.
(3)The temporary security fencing at the front did not cross the whole of the front of the McMurrays' property, so that a person could enter the eastern gate without having to negotiate the security fence.
(4)The tennis court footage taken from the arrival of the McMurrays on the night of 15 January 2016 at about 10.37 pm identifies a person who may have entered the house. The tennis court footage shows Mr McMurray enter the property through the eastern gate at 10.37 pm and disappear from view, even though he was using his iPhone as a torch. A few seconds later the same thing happens with Mrs McMurray. On each occasion, they pause before entering the property. At 11.45 pm a male person is seen to walk in an easterly direction along the verge past the entry on the McMurrays' house side of Wellington Street and very close to the entry to the eastern gate of their property before going out of sight at about the same point that Mr and Mrs McMurray did when they walked along the path to the eastern gate. From the CCTV footage taken from the front of the McMurrays' house and the tennis court video, it can be inferred that this person had an opportunity to enter the McMurrays' house through the eastern gate and through the laundry door if that person had a lock picking device.
(5)The fire was first seen by neighbours at 1.02 am. As Mr Holgersson points out, there were many reasons why a person might enter a house of this kind, and in the course of entry either accidentally or intentionally light a fire. Such circumstances are not unknown to this court who until very recently had exclusive jurisdiction to deal with criminal proceedings for the offence of arson. It might be thought that nobody would be in the house since it was being renovated and it might be thought that something of value might have been placed in the house that could be stolen. As Mr Manser conceded, in his experience as a police officer and a forensic fire investigator, on rare occasions a fire is found to have been caused by someone who breaks into a house to steal something valuable.
(6)There is one piece of evidence that is consistent with someone having entered the house after Mr Thomas left and locked the house up at the end of the day, that is not consistent with the oily rags in the bin theory and is consistent with the intruder theory, and that is Mr Thomas' evidence that the green plastic rubbish bin was inside the dining room and one to one and a half metres away from the sliding doors. Mr Thomas not only marked the location of this bin on a plan when he was interviewed on 3 February 2016, but his evidence is that he threw a drill bit and an empty water bottle into this bin when he left for the day, and that he was in the entryway about one and half metres away from the bin. The uncontradicted evidence of Mr Bell, Mr Tong, Mr Manser and Mr Pollard is that during the fire this bin was located almost in the middle of the entry to the dining room, close to and between the sliding doors. Mr Thomas' evidence on this point is cogent and consistent with the whole of his evidence. Importantly, it is particularly cogent because he marked the location of the bin on the plan 14 days after the fire.
Even if Mr Thomas' recollection is wrong, the intruder theory still remains a possibility for the cause of the fire, which possibility is no less than the possibility that the fire was caused by the self‑heating of oily rags in the bin.[116]
[116] Primary reasons [444] - [446].
For these reasons the primary judge found that the cause of the fire could not be determined.[117] These findings are challenged by appeal grounds 8, 14 and 15.

Primary judge's findings as to the construction of the contract works exclusion clause

[117] Primary reasons [10], [447].

After dealing with the cause of the fire, the primary judge turned to the contract works exclusion clause. The primary judge first addressed relevant principles of construction of insurance contracts.[118] Her Honour then considered the effect of the contract works exclusion clause by inserting the relevant definitions into the defined terms.[119] The primary judge referred to the denial of liability under the home insurance policy - AIG's contention being that the fire in the green rubbish bin, irrespective of its cause, was damage connected with the Works or the Contract Work or Free Issue Materials.[120]
[118] Primary reasons [448] - [455].
[119] Primary reasons [457].
[120] Primary reasons [460].
AIG claimed that the objective intent of the contract works exclusion clause was to exclude coverage that came about from activities occurring in connection with the renovations to the house. AIG argued that the clause was engaged by both:
1.damage in connection with structures constructed or in the course of construction - identifying as relevant 'structures' the timber panelling, doors (including the frames for the sliding doors) and wood floors; and
2.damage in connection with any and all operations or activities undertaken in connection with any and all structures constructed or in the course of construction - identifying the Loba Oil staining as an activity in connection with the various structures.
By contrast, the plaintiffs (supported by the Bresland parties) argued that the contract works exclusion clause did not apply to the renovation works carried out by MBC on the ground that the clause only applies to the construction of a structure that is not part of the house.[121]
[121] Primary reasons [462].
The primary judge identified, as a threshold issue, whether the renovation work could be characterised as the construction of any and all structures which are incorporated into a permanent structure at the property within the meaning of the definition of 'Contract Work' in the contract works exclusion clause.[122] Reference was made to authorities which discussed the meaning of the term 'structure' in other contexts.[123] The primary judge considered these authorities did not provide a great deal of assistance. The authorities did, however, illustrate that the limits of the word 'structure' are to be found within its context, and where the context is used in the construction of a particular structure, such as a house and other structures, that unless the context requires otherwise, the term must mean something more than the component parts of a structure.[124]
[122] Primary reasons [476].
[123] Primary reasons [477] - [480].
[124] Primary reasons [481].
Ultimately, the primary judge adopted constructions of relevant terms in the contract works exclusion clause as follows:
[T]the term 'structure' is construed in the clause as a building or a substantial built form that has a particular purpose, which can contain either built form of contents or is designed to contain contents once constructed, such as furniture in a granny flat, and not merely items installed or constructed in the course of, alteration, renovation or refurbishment work to the house …[125] (emphasis added)
[T]he Free Issue Materials are the building and construction materials supplied by [the plaintiffs], pursuant to the terms of the building contract with [MBC].[126] (emphasis added)
[125] Primary reasons [489] - [490].
[126] Primary reasons [485].
The primary judge reached that construction of 'structure' after considering the home insurance policy terms and conditions. Alternatively, although accepting it is a principle of last resort, the primary judge applied the contra proferentem principle and construed the clause against AIG. In that respect the primary judge found that the terms of the home insurance policy as a whole, including the contract works exclusion clause, are ambiguous.[127]
[127] Primary reasons [490], [502]. See also [498] - [499].
By appeal ground 2 AIG challenges the conclusion that the terms of the policy are ambiguous so that the principle of contra proferentem applies. There is, however, no ground of appeal that refers to the relevant passages of the primary reasons in which her Honour adopts the primary constructions as reproduced at [111] above so as to directly challenge the construction of the terms 'structure' and 'Free Issue Materials' as adopted by the primary judge.
There are associated constructional findings that are challenged. In particular:
1.Having referred to the terms and capitalised definitions of the 'Policy Wording' applying to the home insurance policy, and noting that cl 2.I of section III expressly contemplates the restoration, repair, replacement or rebuilding of a 'structure', the primary judge opined that:
these provisions do not contemplate that the timber panelling and doors pleaded as structures in [8(b)] of AIG's further amended defence are structures.[128]
2.Similarly, the primary judge stated that the provisions of the Policy Wording do not contemplate that doors or doorframes are 'structures'. In this respect, under the general terms of the home insurance policy (ie the 'Policy Wording') there were only two types of structures: the 'House' and 'Other Structures' (and the Other Structures had to be outside the House).[129]
3.The primary judge concluded that a 'structure', in the present context, must necessarily mean more than the component parts of a structure (ie more than floors, walls and doors, tiles or paint).[130] In this respect, the primary judge stated:
what cannot be ignored in this particular matter is that the works that [MBC] carried out for [the plaintiffs] were refurbishment work. Put another way, it was[,] as contemplated by the general terms of the AIG policy[,] renovation work. It was not work to create a separate structure, such as a granny flat that did not form part of the House. The structure of the house itself substantially remained unchanged. What did change were the finishes on the walls, floors, fixtures and fittings. Yet, the Contract Works Exclusion clause makes no mention of renovation work to an existing structure.[131]
[128] Primary reasons [495].
[129] Primary reasons [499].
[130] Primary reasons [500].
[131] Primary reasons [501].

AIG also repeats the evidentiary references that it relied on in support of the factual challenges made by appeal grounds 8, 12 and 13. It is not necessary to refer to this material. We have, in dismissing appeal ground 8, concluded that there was no material error in the primary judge's conclusion that the intruder theory cannot be dismissed as merely speculative. The evidentiary references AIG relied on in support of appeal grounds 12 and 13 are irrelevant to the factual challenge made by appeal ground 14.
Accordingly, properly considered, the evidence AIG points to as being against the primary judge's finding that the oily rags theory and the intruder theory were equally possible does not sustain the challenge to the finding.
There is, in addition, considerable evidence - not referred to by AIG - that supports the finding challenged by appeal ground 14. Chief among this evidence are the matters referred to in rejecting appeal ground 8. In this respect, as has been seen, there is the key finding of the primary judge as to the apparent movement of the green rubbish bin in the dining room. This provided considerable support for the intruder theory. Also significant was that two of the forensic fire investigators gave evidence that they considered the cause of the fire to be undetermined. Mr Tong, who was engaged and called by AIG, was considered to be the most impressive of the experts.[295] In substance Mr Tong said that he was unable to determine the probable ignition source or cause of the fire.[296] Mr Pollard also considered that the cause of the fire was undetermined.[297]
[295] Primary reasons [318].
[296] Primary reasons [325]; ts 1211, 1232.
[297] Primary reasons [350]; ts 1185.
Senior counsel for AIG emphasised that this aspect of the appeal attracted the principles applicable to appellate review of a factual finding as discussed in authorities like Warren v Coombes.[298] We accept this submission. Appeal ground 14 turns on the proper inference to be drawn from facts otherwise established in the context of the evidence as a whole. In deciding what is the proper inference to be drawn this court should give weight and respect to the conclusion of the primary judge. That is all the more so in a long and complex trial such as the present case. The primary judge had a distinct advantage over this court insofar as her Honour saw and heard the evidence emerge, thereby gaining a better understanding of all of the evidence as it was adduced. That said, the duty of an appellate court in an appeal by way of rehearing is to decide the case for itself (both on the facts and the law). This court 'once having reached its own conclusion, will not shrink from giving effect to it'.[299]
[298] Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531, 551 - 553.
[299] Warren v Coombes (551).
It remains necessary for an appellant to demonstrate error even where the appeal concerns inferences to be drawn from established facts.[300]
[300] Proudlove v Burridge [2017] WASCA 6; (2017) 79 MVR 257 [127].
We are not satisfied that the primary judge's conclusion as challenged by appeal ground 14 is erroneous. This is not, strictly speaking, a situation in which the primary judge has made a choice between competing inferences. Rather, her Honour concluded, in substance and effect, that the oily rags theory and the intruder theory were equally possible causes of the fire - and, as such, the cause of the fire could not be determined. If appeal ground 14 is to be upheld it is necessary to conclude that the primary judge was wrong on this point because her Honour should have drawn the inference that the fire was caused by the self‑combustion of Loba Oil soaked rags left by the painters in the bin in the dining room. It is necessary to exclude, as an equally probable inference, the possibility of an intruder lighting the fire. We are not satisfied that this can be done where (1) it has not been established that the painters left Loba Oil soaked rags in the bin or that such rags would have reached the point of achieving thermal runaway and self‑combusting; and (2) the intruder theory is supported by the apparent movement of the bin in the dining room and Mr Tisdale's evidence as to the lock manipulation tool. In reaching the conclusion that error has not been demonstrated we also take into account the expert evidence of Mr Tong and Mr Pollard that they were unable to determine the cause of the fire.
Appeal ground 14 must be dismissed.
Appeal ground 15 fails conformably with appeal ground 14. It cannot be found that the primary judge erred in fact in failing to find that the fire was caused by the self‑ignition of Loba Oil soaked rags in circumstances where AIG has been unable to displace the primary judge's finding that the oily rags theory and the intruder theory were both simply possibilities and choosing between them would be a matter of mere conjecture. AIG has not satisfied its onus as explained at [226] - [227] above.
Appeal ground 16 was included as a catch-all. By appeal ground 16 AIG asserted that once it was determined that Loba Oil soaked rags were the cause of the fire it could readily be seen that the contract works exclusion clause was objectively intended to exclude the event. Appeal ground 16 fails for two reasons. First, it depends on AIG succeeding in its constructional grounds. AIG has not done so. Second, it depends on AIG establishing on appeal that the fire was caused by Loba Oil soaked rags that self‑ignited in the green rubbish bin in the dining room. Again, AIG has not done so. Appeal ground 16 must also be dismissed.

The cross‑appeal and the notices of contention

The remaining issue for determination

AIG's appeal must be dismissed. Consequently, the first aspect of the plaintiffs' cross‑appeal falls away. So too does the Bresland parties' notice of contention. The only issue remaining for determination is the second aspect of the plaintiffs' cross‑appeal. This concerns the plaintiffs' challenge to the primary judge's interest award pursuant to s 57 of the Insurance Contracts Act.
It will be recalled that the primary judge provided for AIG to pay interest from 16 June 2017. The plaintiffs seek interest from 7 June 2016, ie some 12 months earlier - or from approximately five months after the fire. The primary judge's reasoning for holding that interest should run from 16 June 2017 is reproduced at [121] above. The primary judge found that by 7 June 2016 AIG had been afforded a reasonable time to investigate the fire. However, in the primary judge's view, the circumstance that there were two insurance policies that applied to the plaintiffs' claim complicated the basis on which the plaintiffs' loss and damage should be assessed. The primary judge allowed additional time for AIG and Tokio to assess 'how much they should each pay' following provision of an expert report by a quantity surveyor.
The plaintiffs' ground of cross‑appeal relevantly provides:
Her Honour erred in fact in failing to hold that:
2.1the period from the date of the fire [ie from 16 January 2016] to 7 June 2016 was more than sufficient to allow AIG to investigate and make a decision on liability to pay any quantum of the McMurrays' claim under the insurance contract;
2.2it was unreasonable for AIG to have withheld payment, and interest should be payable from that date;
AIG's notice of contention, seeking to uphold the primary judge's decision on another basis, provides:
If the trial judge erred in placing weight on the fact of the McMurrays' house being insured by two insurers complicated the basis upon which AIG and Tokio Marine needed to calculate their individual liability, then the trial judge's decision should be upheld on the ground that the McMurray's [sic] with the assistance of their legal advisers only properly calculated the McMurray's [sic] loss and therefore the proper amount claimed by them against AIG and Tokio Marine when Mr Cugley's final report was finalised on 2 June 2017 and provided to AIG and Tokio Marine on that date.
It will be recalled that Mr Cugley was a quantity surveyor who gave expert evidence in the proceedings.

The parties' contentions

The plaintiffs submitted that:[301]
1.The decided cases suggest that two months at the most is a reasonable period for an insurer to make a decision on a fire claim.[302]
2.The primary judge held that pre-judgment interest only began to accrue from 16 June 2017 - a date some one and a half years after the fire. On the facts this was well beyond a reasonable period for investigation and consideration of the claim.
3.AIG knew of the fire by no later than 17 January 2016 (ie the day after the fire) and denied liability in less than 5 months (ie on 7 June 2016).
4.The period to 7 June 2016 was more than a reasonable period of time for AIG to make payment of the plaintiffs' claim.
[301] Plaintiffs' submissions pars 41 - 45 WAB 156 - 157.
[302] The plaintiffs referred to: Symeou v NRMA Insurance Ltd (1988) 5 ANZ Insurance Cases 60‑851; V L Credits Pty Ltd v Switzerland General Insurance Co Ltd (No 2) [1991] 2 VR 311; Settlement Wine Co Pty Ltd v National General Insurance Co Ltd (1994) 62 SASR 40.
In its answer to the cross‑appeal, AIG argued that the determination of the date from which it was 'unreasonable' for it to have withheld payment involved a discretionary determination. That was not pressed at the appeal hearing.[303] AIG was correct, with respect, not to insist that the determination under s 57 of the Insurance Contracts Act was discretionary. Rather, while evaluative, the question of unreasonableness involves a factual determination to which the correctness standard of appellate review is applicable.
[303] Appeal ts 227.
AIG said that the enquiry under s 57 was not limited to the point at which the insurer should have made a decision as to liability. It also encompassed a reasonable time to make a decision as to the quantum the insurer was required to pay. Both issues were fact specific. Accordingly, the earlier decisions relied on by the plaintiffs were said to be of no assistance - fire claims could not be adjudicated in a standard way.[304]
[304] AIG's submissions pars 9 - 10 WAB 169; appeal ts 227.
AIG said that the plaintiffs' case on appeal did not engage with the relevant constructional issues, including the potential overlap between AIG's home insurance policy and the Tokio policy.[305] AIG otherwise developed the chronology as to the provision of the quantity surveyor expert reports in the proceedings.[306] In support of the notice of contention AIG submitted that it only became unreasonable for AIG to withhold payment after 16 June 2017 because, until that time, the plaintiffs had not provided AIG with the information AIG needed to calculate the proper amount AIG would be liable for under the AIG home insurance policy.[307]
[305] AIG's submissions par 10 WAB 169.
[306] AIG's submissions pars 11 - 14 WAB 169 - 170.
[307] AIG's submissions par 17 WAB 170.
In response to AIG's submissions, the plaintiffs disputed that AIG was permitted to delay its decision on indemnity or withhold indemnity on the ground that there might be the same or overlapping cover with Tokio. The plaintiffs said that AIG was bound by the terms of its contract with them.[308] As to quantum, the plaintiffs submitted that AIG did not need five months to make inquiries and come to a decision as to the value of the claim. AIG did not require or rely on Mr Cugley's report. In any event AIG was capable of making its own enquiries and obtaining its own report from a quantity surveyor without regard to Mr Cugley's report.[309]

Consideration and determination

[308] Plaintiffs' reply submissions par 8 WAB 201.

[309] Plaintiffs' reply submissions pars 10, 12 WAB 201.

An obligation to pay interest arises under s 57(1) of the Insurance Contracts Act where an insurer unreasonably fails to make payment under a contract of insurance. The obligation to pay interest on the amount to be paid runs from the date that it became unreasonable for the insurer to have withheld payment.
Section 57(2) of the Act requires the court to make an evaluative factual determination. Relevantly, the court must determine the point 'from which it was unreasonable for the insurer to have withheld payment' of an amount it was liable to pay to a person under a contract of insurance. The provision is premised on the insurer being allowed a reasonable time to investigate and determine a claim that the insurer is liable to pay an insured an amount under an insurance contract. Where, however, it becomes unreasonable for the insurer to withhold payment - because a reasonable time to investigate and determine the claim has passed - the insurer becomes liable to pay interest to compensate the insured for having been kept out of the money that the insurer is liable to pay.
The key inquiry is one of objective fact - the court must determine the day from which it was unreasonable for the insurer to have withheld payment.
So understood, each case will turn on its particular facts and circumstances. Accordingly, no assistance is derived from considering the outcome in other cases. It is not to the point that the plaintiffs identified a number of cases in which two to three months were considered to be a reasonable period for an insurer to make a decision on a fire claim. The court's conclusion as to the day from which it was unreasonable for the insurer to have withheld payment is informed by the objective facts of the claim that the insurer had to investigate and determine.
In the present case, as counsel for AIG confirmed, there were only two issues which required time for investigation and determination: whether the contract works exclusion clause operated; and, if not, the amount payable pursuant to the AIG home insurance policy.[310]
[310] Appeal ts 227 - 229, 233 - 234.
In determining that the applicable date for the purpose of s 57 of the Insurance Contracts Act was 16 June 2017 the primary judge took into account what was a reasonable period of time for AIG and Tokio to assess how much they should each pay for the claim.[311] That, in terms, contemplated the two insurers conferring and working out what each of them should individually pay in respect of the plaintiffs' loss. In this respect the primary judge held that the overlapping insurance policies was a factor which complicated the basis on which the loss and damage should be assessed.[312] This, in our respectful opinion, was an error in approach. Section 57 is directed to liability to pay under a contract of insurance as between insurer and insured rather than possible rights of contribution as between insurers where there is overlapping insurance. The material consideration was AIG's liability to pay an amount under the home insurance policy. The so-called complicating factor of the overlapping insurance was not a relevant consideration.[313]
[311] Primary reasons [632].
[312] Primary reasons [632].
[313] Counsel for AIG accepted as much: appeal ts 228 - 229, 234.
This error in approach led to her Honour accepting that the point of unreasonableness did not arise until AIG and Tokio had been afforded the opportunity to consider Mr Cugley's final report dated 2 June 2017.
The primary judge accepted that by 7 June 2016 AIG had been afforded a reasonable time to investigate the fire.[314] By that time Mr Tong had delivered his third report.[315] It is also when AIG formally denied that it was liable to indemnify the plaintiffs under the home insurance policy.[316] This, in our view, establishes what was a reasonable time to investigate and determine whether the contract works exclusion clause operated. The additional issue is whether further time ought reasonably be provided for investigating and determining the quantum AIG was required to pay.
[314] Primary reasons [631].
[315] Primary reasons [627].
[316] Primary reasons [458].
AIG contended that there should be an allowance to investigate and determine quantum. Plainly, insofar as s 57 is concerned with the point from which it was unreasonable for the insurer to withhold payment, one material consideration is the period reasonably required to investigate and determine quantum. The real question is whether that enquiry ought to proceed in tandem with the investigation and determination of liability; or whether, acting reasonably in the circumstances, AIG as insurer might have deferred its investigation and determination of quantum until it reached a determination on the operation of the contract works exclusion clause. If the former is the position, there is real force in the plaintiffs' position that interest should be payable from 7 June 2016. If, however, further time ought reasonably be provided for investigating and determining quantum, interest will be payable from a date subsequent to 7 June 2016.
This court was not directed to any evidence about the sequencing steps that would be undertaken by a reasonable insurer in the position of AIG. Nor was the court directed to any evidence as to the likely (or actual) costs involved in investigating and determining quantum. Such evidence might have assisted in determining the question of unreasonableness.
The plaintiffs bore the relevant onus to establish the date that it became unreasonable for the insurer to have withheld payment. In the absence of evidence on the point we are not satisfied to the requisite standard that AIG, acting reasonably, should have completed its investigation and determination as to quantum while investigating the fire and resolving the questions concerning the operation of the contract works exclusion clause. In the circumstances, some further time ought reasonably be provided for investigating and determining the quantum AIG was required to pay. We are, however, unable to accept that this required another 12 months - the primary judge having determined that as and from 16 June 2017 it became unreasonable for the insurer to have withheld payment.
Indeed, AIG itself did not advance the proposition that the quantum exercise required a further 12 months.[317]
[317] Appeal ts 231.
AIG did contend, by its notice of contention, that the primary judge's determination should be upheld on the basis that the plaintiffs only properly calculated their loss when Mr Cugley's final report was finalised on 2 June 2017. There are two difficulties with that contention. First, it was not suggested that AIG sought information from the plaintiffs and the plaintiffs did not provide that information in a timely way.[318] Accordingly, the timing of Mr Cugley's final report is simply not to the point. Second, as the plaintiffs submitted, AIG was capable of conducting its own investigation and making its own determination as to quantum. AIG, acting reasonably in the circumstances, should have done so. So understood, AIG's focus on the timing of Mr Cugley's final report was no more than a distraction. That is all the more so when the timing of the report was a function of the programming steps taken in the litigation.
[318] Appeal ts 233.
AIG's notice of contention should be dismissed.
In their PD 7.4 schedule the plaintiffs submitted that AIG could have obtained a quantity surveyor report in a month. Quantity surveyor reports were obtained in the context of the primary proceedings. AIG, by its solicitors, engaged a Stephen Warne of RBB Construction Cost Consultants. Mr Warne was engaged on 13 December 2017.[319] His report is dated 5 February 2018.[320] Accordingly, in the context of the litigation, AIG was able to obtain the necessary report in a little under two months (in fact in 54 days). This, in our view, establishes the outer limits of the further time that is reasonably to be allowed for AIG's investigation and determination of quantum - all the more so since Mr Warne's report was compiled over the Christmas period.
[319] GAB 874.
[320] GAB 866.

We would, in the circumstances, assess the day as from which it was unreasonable for AIG to have withheld payment under the home insurance policy to be 8 August 2016 (that being the first working day after two months after 7 June 2016).
We appreciate that this only allows a limited time to prepare the brief to the quantity surveyor and for AIG to consider the quantity surveyor's report before notionally making payment. However, in addition to the unchallenged finding as to the time for investigation of the fire and the operation of the contract work exclusion clause, we have allowed two additional months to investigate and determine quantum. The additional two months is based on the time in fact taken by AIG's expert to prepare a quantity surveyor's report on the cost to reconstruct the house. Part of that two months occurred over the Christmas break. Also, it is to be expected that the preparation of a report for the purpose of litigation is more onerous than the usual report that might be required for the purpose of claim determination. In the circumstances we are satisfied that the two months contains a sufficient buffer to provide adequately for seeking and considering the report as to quantum.
The plaintiffs have established error in the primary judge's interest determination. Her Honour was, in our respectful view, in error in concluding that 16 June 2017 was the day as from which it was unreasonable for AIG to have withheld payment of the amount it was liable to pay to the plaintiffs under the home insurance policy. For the reasons we have given the requisite unreasonableness for the purpose of s 57 of the Insurance Contracts Act existed as and from 8 August 2016. The primary judge should have held accordingly. It follows that the cross‑appeal must be allowed in part.
The interest payable pursuant to s 57 of the Insurance Contracts Act should be recalculated by the parties conformably with these reasons, and agreed, so that on publication of these reasons the court may make substituted orders fixing the amount for which judgment ought to have been entered by the primary judge.

Conclusion and orders

For these reasons AIG's appeal should be dismissed. The plaintiffs' cross‑appeal should be allowed in part. Subject to hearing from the parties on the precise terms, we would make orders to the following effect:
1.The appeal is dismissed.
2.The cross‑appeal is allowed in part.
3.Paragraph 1 of the order of the court made 10 September 2021 in action CIV/2962/2016 is set aside and in lieu thereof it is ordered that:
'1. The first defendant pay the plaintiffs the sum of [amount to be calculated in accordance with these reasons].'
The parties should be heard on the costs of the appeal and the cross‑appeal.

Annexure 'A': grounds of appeal

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EM
Associate to the Honourable Justice Vaughan
20 OCTOBER 2023