Khatchmanian v Mutual Community General Insurance Pty Ltd
[2012] VCC 26
•22 February 2012
| Not restricted | |
| IN THE COUNTY COURT OF VICTORIA | Revised |
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
GENERAL DIVISION
Case No. CI-11-01971
| SARGIS KHATCHMANIAN | Plaintiff |
| v | |
| MUTUAL COMMUNITY GENERAL INSURANCE PTY LTD (ACN 007 895 543) | Defendant |
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JUDGE: | HER HONOUR JUDGE KENNEDY | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 31 January, 1, 2, 3, 6, 7, 8 & 9 February 2012 | |
DATE OF RULING: | 22 February 2012 | |
CASE MAY BE CITED AS: | Khatchmanian v Mutual Community General Insurance Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 26 | |
REASONS FOR RULING
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Catchwords: Practice and procedure – Action on insurance policy – Defences of arson; failure to disclose termite infestation; and that termite damage should be excluded by reason of exclusion clause – Insured plaintiff permitted to split case – No case submission on defences – Applicable test – Whether plaintiff required to elect to call no evidence.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr John Searle | Belleli King & Associates |
| For the Defendant | Mr Andrew M. Donald | Mason Black Lawyers |
HER HONOUR:
1 The plaintiff claims to be entitled to indemnity, pursuant to a policy of insurance effected with the defendant, in respect of a fire which led to the destruction of his house at 9 Bittern Drive, Endeavour Hills, on 27 March 2010.
2 The defendant has refused to pay the plaintiff’s claim and has relied on three defences:
a) that the plaintiff lit the fire or connived at the lighting of the fire such that the defendant has a right to refuse the claim pursuant to the policy and/or s56 of the Insurance Contracts Act 1984 (the Act);
b) that there was a breach of the plaintiff’s obligations of disclosure under the policy and/or the Act in failing to advise that the house was subject to insect termite infestation. Given the defendant would not have issued the policy but for the said breach, the amount of the said liability is nil pursuant to s28(3) of the Act;
c) that it was a term of the policy that any cover provided would be subject to the exclusion that the defendant would not cover any loss or damage as a result of or caused by insects .
3 The defendant accepted that it bears the onus of proof in respect of each of these defences.
4 The parties were also able to agree as to the quantum of the plaintiff’s claim should he succeed, as $525,162.50.
5 Accordingly, in the absence of opposition from the defendant, a ruling was made that the plaintiff could elect not to call evidence in relation to any issue on which the defendant had the burden of proof until after the defendant had closed its case.
6 The plaintiff then adduced evidence of the formal matters relating to his claim (which were generally admitted), prior to the defendant calling its evidence.
7 The defendant subsequently closed its case at which time the defendant made a no case submission in relation to each of the three defences.
Principles
8 In Oakley and anor v Insurance Manufacturers of Australia Pty Ltd[1], his Honour Justice Kaye summarised the applicable principles as follows:
[1]Oakley and anor v Insurance Manufacturers of Australia Pty Ltd [2008] VSC 68 at [3]
1. Where a no case submission is made in a trial by jury, the role of the judge is to determine whether, on the view of the evidence most favourable to the party against whom such a submission has been made (“the respondent party”), the jury could (not would) find in favour of the respondent party.[2]
2. The test which is applicable, where a judge is sitting without a jury, is less stringent. In such a case the judge may uphold a no case submission, notwithstanding that the evidence, on the view most favourable to the respondent party, could support a judgment in favour of the respondent party. [3]
3. In such a case the judge may perform an assessment of the quality of the evidence which has been called on behalf of the respondent party. In some cases, such an assessment may involve the judge evaluating the credit of witnesses from whom such evidence has been called.[4]
4. In determining a no case submission, the judge is entitled to draw inferences from the evidence. [5]
5. On a no case submission, the judge cannot draw an inference against the party making the submission (“the moving party”) based upon the absence of evidence from that party.[6]
6. Although the judge, sitting alone, may assess the quality of the evidence in determining a no case submission, nonetheless the test which is to be applied by the judge, at that stage, is different to the test which the judge would apply in determining the ultimate outcome of the case, at the conclusion of a trial. Notwithstanding that the judge, in determining the no case submission, may assess the quality of the evidence, nonetheless the test remains whether, on the evidence so assessed, the judge “could” (not would) find for the respondent party on the evidence so far led. In such a case, the judge would only find against the respondent party if the evidence, so far adduced, is so unsatisfactory or inherently unreliable or equivocal that he were to conclude that he could not be reasonably satisfied of the case made by the respondent party on the evidence thus far adduced.[7]
[2]Naxakis v Western General Hospital & Anor (1999) 197 CLR 269
[3] Protean (Holdings) Limited (Receivers and Managers Appointed) and ors v American Home Assurance Co [1985] VR 187, 215 (Young CJ), 235-6 (Fullagar J), 238-9 (Tadgell J); Jones v Dunkel (1959) 101 CLR 298, 330-331 (Windeyer J); Clarey v Permanent Trustee Co Limited and anor [2005] VSCA 128at [72].
[4] Protean (Holdings) Limited v American Home Assurance Co , ibid, 239 (Tadgell J); Tru Floor Service Pty Ltd v Jenkins (No. 2) [2006] FCA 632, [37] – [40] (Sundberg J).
[5]Sarkis and ors v Deputy Commissioner of Taxation [2005] VSCA 67 at [13] (Nettle JA).
[6] Protean (Holdings) Limited v American Home Assurance Co [1985] VR 187, 215 (Young CJ); compare Sarkis and ors v Deputy Commissioner of Taxation , ibid, [17] (Nettle JA).
[7] Protean (Holdings) Limited v American Home Assurance Co, ibid, 215 (Young CJ), 239 – 240 (Tadgell J); Sarkis v Deputy Commissioner of Taxation , ibid, [14] (Nettle JA); Residues Treatment and Trading Co Limited and anor v Southern Resources Limited and ors (1989) 52 SASR 54, 68 (Perry J).
9 I will apply these principles to the issue before me.
10 In undertaking the task before me, it is important to refer to the standard of proof which operates. This is a civil proceeding, and the civil standard, namely the balance of probabilities, applies. The plaintiff submitted that I should also be guided by the principles in Briginshaw[8], which suggest that I would only be entitled to be satisfied, on the balance of probabilities, should I be satisfied that the proofs adduced in support of them are cogent.[9] In any event, pursuant to s140(2)(c) of the Evidence Act 2008, I am to take into account a number of matters, including the gravity of the matters alleged.
[8]Briginshaw v Briginshaw (1938) 60 CLR 336, 350 (Rich J), 362-3 (Dixon J).
[9] Oakley and anor v Insurance Manufacturers of Australia Pty Ltd [2008] VSC 68 at 12 (Kaye J) citing Briginshaw v Briginshaw (1938) 60 CLR 336, 350 (Rich J), 362-3 (Dixon J); Rejfek and anor v McElroy and anor (1965) 112 CLR 517, 521
11 The defendant’s case on the arson defence is basically circumstantial. However, inferences are not drawn by considering each individual fact in isolation. On the contrary, it is the united and combined force of several facts acting together, which may, in an appropriate case, give rise to an inference on the balance of probabilities.[10]
Election
[10] Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 25 at [128] and [141].
12 In determining the no case submission made by the plaintiff, I deferred ruling on whether I should put the plaintiff to his election to call no evidence, until the completion of the submissions of Mr Searle, Counsel for the plaintiff. I determined such a course to enable me to better determine whether it was in the interests of justice that the plaintiff be put to his election.[11]
[11] Union Bank of Australasia Limited v Puddy [1949] VLR 242, 244-6 (Fullagar J); Protean (Holdings) Limited v American Home Assurance Co [1985] VR 187, 215 (Young CJ), 236 (Fullagar J), 238-9 (Tadgell J); Rasomen Pty Ltd v Shell Company of Australia Limited (1997) 75 FCR 714, 224.
13 In the course of discussion with Mr Searle I ruled that I would not, in the circumstances of the case, put the plaintiff to his election.
14 Ultimately, the question as to whether a moving party should be put to an election, is a question for the exercise of the judge’s discretion. The answer to that question depends on the just and convenient disposition of the litigation in the interest of justice.[12]
[12]Oakley and anor v Insurance Manufacturers of Australia Pty Ltd [2008] VSC 68 at [14].
15 In my view, there were two competing considerations as to whether the plaintiff should be put to his election. Firstly, the allegations made against the plaintiff are particularly serious involving, as they do, an allegation that he deliberately lit, or connived in the lighting of, a fire. Against this, however, the submissions dealt in some detail with the evidence before me and took an entire day of argument.
16 Ultimately, however, I determined that, given the seriousness of the allegations, the plaintiff should not be put in a position which might disentitle him from giving evidence, save at the price of going without a ruling on the no case submission.
Defence 1: Arson Defence
17 The defendant relies on a number of matters in support of this defence as follows:
· that the fire occurred at a house owned by the plaintiff at 9 Bittern Drive Endeavour Hills;
· the house is a brick veneer house in a quiet residential street. Photographs disclose a house partly obscured by a privet hedge with secure fencing and double-gates;
· there were two points of access to the house: front and rear wooden doors each fitted with 1 key lock and an operational security screen;
· the fire occurred at approximately 11.00 pm on a Saturday night on 27 March 2010;
· there were no occupants in the house at the time of arrival of the CFA;
· the seat of the fire was in the lounge room.
18 The above matters were largely admitted or not disputed. At the very least, I could reasonably find these matters established on the balance of probabilities for the purposes of the no case submission.
19 However, Counsel for the defendant, Mr Donald, also relies on the following principal factors in support of its defence that the fire was deliberately lit by the plaintiff or someone he connived with:
· that the fire was deliberately lit;
· that the arsonist did not force entry into the house;
· that apart from the plaintiff or a person at his request, various other available hypotheses should be excluded which might be described as follows:
o that the fire was lit by a known fire bug/arsonist in the district;
o that the fire was lit by an enemy of, or a person with a grudge against, the plaintiff;
o that the fire was an arbitrary act of vandalism;
· that the plaintiff had a powerful financial motive to light the fire; and
· that the plaintiff also had a motive based on the infestation of termites in the home as at the date of the fire.
20 Given there was evidence which suggested that the plaintiff was in Gippsland on the day of the fire, the defendant placed more emphasis on the allegation that the plaintiff “connived” at the lighting of the fire, rather than that he actually lit it himself.
Fire deliberately lit
21 The main witness in relation to this issue was Mr Robert Barnes who attended the property on 3 November, 2010, and completed a report dated 9 November, 2010.
22 Mr Barnes is a forensic scientist and holds a range of qualifications, including a fellowship diploma in secondary metallurgy, as well as being a chartered engineer and chemist. For approximately 40 years he has had extensive experience in investigating all types of fires, including being the principal investigator for the Victorian police following the Russell Street and Turkish Consulate bombings in 1986, and also the principal investigator in the Coode Island fires. He has also investigated thousands of small house fires since becoming an independent consultant in 1995.
23 He opined as follows in his report on the Bittern Drive fire (at page 7):
The fire which severely damaged the residence situated at 9 Bittern Drive, Endeavour Hills, Victoria 3802 and largely destroyed all contents therein, on Saturday, 27 March 2010 was caused by the spread and ignition of a quantity of flammable liquid on the floor of the front entry and Lounge room. All other possible causes of the fire are excluded. (emphasis added)
24 Under examination-in-chief, he also opined that the burn patterns he found were “distinctive and absolutely consistent with the speed and ignition of a flammable liquid.”
25 This evidence was also consistent with the evidence of a Ms Noble, an arson chemist employed by the Victorian police, who gave evidence of what she found when she attended the property on 28 March, 2010.
26 Ms Noble took some toilet rolls from the laundry for sampling, which testing ultimately detected moderately evaporated petrol.
27 Although criticisms were made as to Mr Barnes’ evidence, no attack was directly made on his findings that the fire was deliberately lit with use of an accelerant. Rather, the plaintiff suggested this “was a matter for the Court.” [13]
[13] Plaintiff’s Outline of Submissions re No case to Answer dated 9 February 2012 at par [24].
28 I am satisfied that I could reasonably hold that someone deliberately burnt down this house with accelerant on the night of 27 March 2010.
No forced entry
29 A crucial witness in this regard was, again, Mr Barnes, who concluded in his report (at page 7) that at the time of the fire, “all doors and windows were closed and secured.” Further, that “no evidence of forced entry (prior to the fire)”, had been detected.
30 Mr Lia, a Senior Station Officer at the Hallam fire station, who had been employed by the CFA for over 28 years, also gave evidence that he thought the security door at the front of the house was closed, and that although it was standard procedure for him to receive a report if a door had been tampered with, he received no such report in this case.
31 This evidence was adduced in a context wherein the plaintiff had stated in an interview with an investigator of 13 September, 2010, that when he had left the property to go to Gippsland on the day of the fire the house was properly and fully secured.
32 A number of attacks were made by the plaintiff on the opinion of Mr Barnes, with the plaintiff emphasizing the time which had expired prior to his inspection. More particular criticisms included:
· that there was conflicting evidence about the laundry window;
· that the evidence of Mr Barnes about windows should be treated with care, particularly given there were some glass fragments in the lounge room and that the front windows were destroyed in the fire;
· that there was conflicting evidence about the front and back doors;
· that there was conflicting evidence about where the seat of the fire was located.
33 As a general matter, although Mr Barnes was extensively cross-examined, he did not at any stage withdraw his opinion as to forced entry. Moreover, the fact that there might be said to be differences in the evidence as to the forced entry issue, did not generally cause me to conclude that the evidence of Mr Barnes was so unsatisfactory or inherently unreliable or equivocal, that I could not reasonably be satisfied of this evidence.
Laundry window
34 In terms of the laundry window, the evidence of Ms Noble was that she observed the laundry window open when she attended on 28 March, 2010. She also suggested that the window “appeared to have been open at the time of the fire”, although she provided no justification for this view.
35 There was also evidence given by Detective Senior Constable Polson, who stated that when he inspected the property the morning after the fire, the laundry window was slightly ajar, and the chain broken, which he agreed would allow the window to be open as wide as anyone wished.
36 Neither Ms Noble nor Detective Polson were present at the time of the actual fire. Neither was Mr Barnes, but, as a result of what he described as his “detailed examinations”, he maintained that the window was closed, or not open to any significant degree, at the time of fire. This opinion was explained in a detailed fashion, Mr Barnes emphasizing that the window winder was in tact and not damaged. Further, that there would be significant sooting occurring around the window frame if the window was open, which he did not find in his external examinations. He further stated that Ms Noble could not say if the window was open at the time of the fire, since it was his experience that often after a fire the fire brigade will open windows for ventilation purposes in order to cope with working in the area.
37 In the long run it will be necessary to consider the evidence of Mr Barnes more extensively in the light of the observations of Ms Noble and Detective Polson. However, at this stage of the trial, it would be open to accept the views of Mr Barnes.
Windows
38 In terms of the windows, both Mr Lia and Ms Noble described that the front windows were extensively damaged given the intensity of the fire at the front of the house.
39 However, despite this damage, Mr Barnes’ report contained detailed reasons for his conclusions that the lounge windows were closed at the time of fire. These include an examination of the wind out windows, which were in the closed position, and also that an examination of the window glass (located external to the windows), revealed the presence of sooting.
40 Mr Barnes also agreed that there were small amounts of glass fragments found in the lounge, which could have come from the application of an external force. He cited force from the use of the firefighter’s hose and from the people who put up the security hoardings. He also agreed that some sort of a break in was a possible explanation, but that there are a number of others with degrees of “likelihood probability.”
41 Mr Barnes did not withdraw his opinion that a forcible entry at the time of the fire was to be excluded.
Doors
42 Mr Barnes opined that the front security door was in the locked position at the time of the fire, producing a photograph of part of the remaining frame. He also opined that there was no evidence that the locks to the back door had been interfered with, notwithstanding that the door had been forced by the fire brigade during their fire-fighting operation.
43 There was also evidence of Mr Lia that he thought the front security door was closed, and further that, given the fire was coming out of the front of the building, he would have directed someone to go around to the rear to make entry and they would have taken the hose line.
44 The plaintiff, however, highlighted the evidence of Detective Polson who thought the front door had been forced “from discussions” he had with the CFA.
45 The evidence of Mr Barnes is corroborated by the direct evidence of Mr Lia, a Senior officer at the CFA. It is certainly not appropriate to reject the evidence of Mr Barnes at this stage on the basis of some hearsay evidence from an unidentified CFA source.
Seat of fire
46 There was a divergence of opinion between Mr Barnes and Ms Noble as to the seat of fire; Barnes opining that it was only in the lounge and entry; Ms Noble opining that it was in the lounge and laundry.
47 However, in my view, such a divergence was not significant, at least on the question of whether there was forced entry.
Summary
48 The evidence of Mr Barnes was highly significant in suggesting that this house was secure at the time of the fire, and that there was no forced entry.
49 Ultimately, his evidence will be subject to extensive examination in light of all the evidence in this case. Certainly, criticisms were made which will need more scrutiny in due course. However, I do not consider his evidence so unsatisfactory or inherently unreliable or equivocal that it should be rejected at this stage.
50 I am therefore satisfied that I could find, on the balance of probabilities, that there was no forced entry.
Various other hypotheses
Known arsonist.
51 The defendant relied on the evidence of Mr Lia and Detective Polson in relation to this matter.
52 Mr Lia stated that in the period from September 2009 to September 2010 he was not aware of any firebug activity in the district, in relation to these sorts of house fires.
53 Detective Polson also gave evidence that from January 2009, there was no history of a firebug type arsonist operating in the district, so far as house fires were concerned where somebody had entered a house and spread accelerant and then set fire to the house.
54 The defendant also called Mr Cowley, an operations officer for the CFA, and who manages the Fire and Incident Reporting System (FIRS).
55 Mr Cowley gave evidence of a document generated which was a summary record of suspicious fire activity in postcodes 3177 (Doveton area), and 3802 (Endeavour Hills), for the period 3 September 2009 to 28 September, 2010. The document described only 3 fires where a structure was involved (as opposed to involving, for example, rubbish or vegetation only).
56 The defendant further adduced CFA primary reports in relation to these three incidents, in order to demonstrate that the circumstances in each case were distinguishable from the fire in Bittern Drive.
57 Thus, although one of the fires related to a fuel trail set through a house, the evidence of Detective Polson was that the instigator of this fire had made full admissions and had been dealt with by the Children’s Court. The boy was the son of a mother who was in a dispute with the neighbour victim.
58 In terms of the other fires, one related to a school and another to an outside porch.
59 Various attacks were made on the “suspicious fires list.” In particular, it was noted that the fire in Bittern Drive was not included in the list.
60 Mr Cowley explained that this was because this fire did not meet the criteria of the initial search, because the cause of the fire was undetermined, and with an investigation being called for. In such a case the local brigade do not complete the “ignition block”, or any of the other fields, but leave it to the fire investigation section. This was as compared with the others, which were specifically designated suspicious.
61 This does raise the possibility that there were other suspicious fires in the area that have not been recorded in the “suspicious fires list”, and appears to reduce the probative value of this list.
62 Nevertheless, at this stage of the trial, the evidence of Mr Lia and Detective Polson was that there was no known arsonist in the area. Mr Lia was the Senior Station Officer at the Hallam Fire Station, which covered Endeavour Hills, Hallam, Doveton and parts of Narre Warren. Detective Polson had been stationed at the Narre Warren police complex in the Casey Crime Investigation Unit since 2009, with responsibility to investigate all crime within the City of Casey. This City included Endeavour Hills, Doveton, Eumemmerring and was the largest municipality in Melbourne.
63 The evidence of these witnesses is reasonably capable of excluding the hypothesis that the type of fire set in Bittern Drive was deliberately lit by a known arsonist.
Enemy or someone with a known grudge
64 The plaintiff has admitted:
· that when interviewed by an agent of the defendant on 13 September, 2010, he did not nominate any persons who may have set fire to his home and/or had a motive to do so;
· in the same interview he also stated that he did not have any knowledge of who was involved in the fire;
· that no person known to the plaintiff or his family has given any indication either before or after the fire that that person either lit the fire or arranged for its lighting[14];
· that when the plaintiff’s wife was interviewed by an agent of the plaintiff on 24 September 2010 and asked whether she or her husband had any issue with any person that she thought might be responsible for the fire, she answered “No”.[15]
[14] Defendant’s Notice to Admit (DNA) dated 11 January 2012 at para 43-46. Not disputed by the Plaintiff in Plaintiff’s Notice of Dispute (PND) dated 24 January 2012.
[15]Record of interview between Ms Webb and Mrs Khatchmanian on 24 September 2010 (exhibit 22) at Q186.
65 There is, therefore, evidence adduced to date which is capable of excluding the hypothesis that the fire was lit by an enemy or a person with a grudge, at least insofar as they were known to the plaintiff.
Fire not an arbitrary act of vandalism
66 The defendant relies on various matters to suggest that the fire was not an arbitrary act of vandalism. The more significant were as follows:
· the fire occurred in a quiet suburban street in a quiet residential neighbourhood late in the evening;
· there are more than 8000 residences in the suburb of Endeavour Hills;
· there is apparently no report of a fire that night in Endeavour Hills save for at Bittern Drive; and
· the house was not vacant and was otherwise fully secured. A vandal would therefore have no means of knowing whether the plaintiff and his family were home.
67 To these might be added that there appears to be no suggestion of any other crime being effected at the house (such as a burglary); rather the sole act of any arbitrary criminal appears to have been the deliberate spreading of accelerant.
68 The first three matters were not apparently in dispute. Further, I have already found that it is open to find that the house was fully secured on the night with no forcible entry effected.
69 Counsel for the plaintiff highlighted evidence of Mr Cowley that there are a significant number of people who light fires on other people’s property each year, and also evidence of Detective Polson that it was “common” for accelerant to be poured on the floor of a house by persons other than the owners.
70 However, Mr Cowley was unable to say whether a significant number of those fires he mentioned were deliberately lit by persons other than the owners. The evidence of Detective Polson was also given in the context wherein a known culprit had been identified, rather than where an unknown culprit with an unknown motive was concerned.
71 The possibility certainly remains that the fire was lit by an arbitrary act. Much will ultimately depend on findings on other aspects in the case, including whether the house was secure at the time of the fire. However, on the no case submission, the above matters are capable of suggesting that it is more probable than not that an arbitrary vandal did not deliberately light this fire.
Motives of plaintiff
Financial
72 Mr Wallace Smith, accountant, was the main witness called on this alleged motive.
73 He prepared a report of 14 October 2011, and also a short supplementary report of 2 November, 2011 (which took into account that the position if the market value of Bittern Drive was reduced due to termites), and elaborated on these reports under examination in chief.
74 In terms of estimated income and expenditure, he found that the amount expended by the Insured for the period 1 March to 27 March (including living expenses), exceeded the amount received by an amount of $2,659.44. This totalled $31,913.28 for the year.
75 A number of calculations were produced by Counsel as to ways to measure the plaintiff’s financial position. However, even using figures adduced by the plaintiff, the plaintiff was in a position wherein he was left with available funds of only $7847.12 per year, leaving him with only $150.90 per week to support himself, his wife and his two children (exhibit F).
76 Mr Wallace Smith also noted that for the period ending 27 March, 2010, the credit and redraw funds available were limited to $2,076 for redraw facilities and $14,730 for credit cards.
77 In terms of estimated assets and liabilities as at 28 March, he opined that the Insured had a deficiency in assets over liabilities estimated to be approximately $87,395.32, based on an estimate of assets at $426,363.48 (including the Bittern Drive house valued at $365,000), and liabilities at $513,758.80.
78 The defendant emphasized that this was ultimately better than what the plaintiff would have understood, given that the plaintiff admitted that he valued the insured home at $280,000 at the date of the fire, being the value ascribed by the National Australia Bank in 2009.[16]
[16] DNA at par 19; PND not disputed.
79 Under examination in chief he gave evidence about the fact that the Bittern Drive property was purchased in about 2001 for the sum of $96,000 by way of a deposit of $9600, with the balance borrowed from the bank.[17] This was to be compared with the amount owing in respect of this property as at March, 2010, at approximately $370,000[18] (compared with a value of, at best, $365,000). Further, although the plaintiff owned another property in Gippsland (at Golden Beach), the plaintiff purchased this for $5000 in 2002/3[19], but had a debit balance of approximately $75,000 in respect of this property as at 19 March[20] (compared with a value of some $50,000).
[17] DNA at par 17; PND not disputed.
[18] DNA at par 27; PND not disputed.
[19] DNA at par 18; PND not disputed.
[20] DNA at par 28; PND not disputed.
80 He was also taken to a letter from the NAB dated 15 April, 2009, which detailed the amounts to be distributed upon a refinancing of the plaintiff’s loans. This detailed that approximately $60,000 was to be distributed to a loan account in respect of the Golden Beach land. Despite this, the loan was more or less fully drawn some 12 months later at approximately $75,000, as already indicated.
81 Mr Wallace Smith was also taken to a statement made by the plaintiff to Victoria Police on 16 April, 2010, wherein the plaintiff referred to his loan in respect of the Bittern Drive home and stated: “Over the years I have increased the loan a number of times. After a number of years I refinanced the loan with the Commonwealth Bank. I increased the amount borrowed to somewhere in the vicinity of $110,000 to $120,000. I did this because I needed to pay off some credit cards.”[21]
[21] Plaintiff’s statement to Victoria Police on 14 April 2010 (exhibit 24) at para 3.
82 Mr Wallace Smith opined that where there had been borrowings for 10 years and no asset created, there would appear to be a pattern of increased expenditure over income, with the plaintiff probably being under financial distress for some time.
83 He concluded that, as the declared total income of the Insured was insufficient to meet the Insured’s total expenditure requirements for the period 1 March 2010 to 27 March 2010, the Insured was insolvent during this period, and further that the Insured was insolvent post 27 March, 2010.
84 In considering motive, the defendant also prepared calculations to demonstrate that the plaintiff would be better off if he made an insurance claim, given that the amount he would receive would be some $745,000.[22] Even if the amount of his debts of some $510,000 was subtracted, he would be in a “net positive” position. This was to be compared with the deficiency in assets of some $87,395, pursuant to the evidence of Mr Wallace Smith.
[22] The Defendant’s Summary of Financial Position (exhibit 1 adduced in court on 1 February 2012) indicates that the Plaintiff’s asset position upon a successful insurance claim as at March, 2010, would be $745,000, which includes the land value of the insured home less costs of sale ($245,000); proceeds of insurance claim ($440,000); Golden beach land ($50,000); and the Nissan vehicle ($10,000).
85 Although the plaintiff did not appear to challenge this calculation, he emphasized that Mr Wallace Smith had very limited information in relation to the plaintiff, and that he was a specialist in the corporate field whereas individuals may have more flexibility in cutting expenses.
86 The plaintiff also emphasized a number of matters which suggested that the plaintiff’s position was not as bleak as Mr Wallace Smith suggested. In particular:
· that the insured was meeting credit card payments with no defaults;
· that he could not detect the use of one credit card being used to pay another;
· that he could not exclude payments coming from a third party or undisclosed source; and
· that there was no evidence of demands on the plaintiff or of any attempts to realise assets.
87 Although such matters might ultimately weaken any financial motive, they did not undermine the evidence of Mr Wallace Smith to such an extent that his conclusions might not be capable of establishing a financial motive. This is particularly so given that, although he conceded that his conclusions were based on a set of assumptions, he did not withdraw his conclusions. Rather, he fairly conceded that the more information he had the more he could consider. Whether his opinions would change would ultimately depend on the information provided.
88 In puttage, Counsel for the plaintiff intimated that the evidence, if called upon, would be that the plaintiff borrowed $200,000 to purchase his sister’s house, and that the sister’s property should be taken into account as an asset of the plaintiff. This is despite the evidence suggesting that the house is currently in the sister’s name.[23] Additionally, it was suggested that the plaintiff receives payments from his mother and sister for “his disposal”, in an amount of $20,647.12 per annum.
[23]Record of interview between Ms Webb and the Plaintiff on 13 September 2010 (exhibit 21) at Q658.
89 Although there are some references to financial arrangements with the sister (for example, there is a short reference to the plaintiff buying the sister’s house “for her” in his statement to the Victoria Police of 14 April 2010), no detail is provided and there is otherwise no direct evidence at this stage as to these matters put by the plaintiff’s Counsel.
90 In such circumstances, it remains reasonably open to find that the plaintiff had a financial motive to light a fire on the basis of Mr Wallace Smith’s’ evidence, albeit that the precise strength of that motive will ultimately depend on all the evidence led at trial.
Termites motive
91 In order to make out a motive on this basis the defendant would need to demonstrate that there was a degree of infestation of termites at the time of the fire, which was sufficient to give rise to a concern about the viability of the house, and further that the plaintiff was aware of such infestation.
Extent
92 In terms of the extent of infestation the defendant primarily relied on the evidence of a Dr Thornton and a Mr Wright.
93 Dr Thornton of John Thornton & Associates Timber Performance & Pest Consultants, specialises in the area of timber pest management issues and the assessment and prediction of timber performance, including moisture management issues. Dr Thornton has a First Class Honours B. Sc in Botany, a Ph. D. in Plant Pathology, a Certificate IV in Building and a Diploma in Building Surveying as well as considerable experience.
94 He inspected the property on 7 October, 2011 and prepared a report dated 21 October, 2011.
95 In that report, he found termites and opined that he did not know how long termites had been present in the building, but suggested not less than two years and probably not less than three years. He further described that a ceiling joist from the lounge and a wall stud had disappeared, leading him to conclude that these two affected timbers were completely infested by the time of the fire.
96 He further described the degree of infestation on time of inspection as moderate to extensive.
97 At paragraphs 14.4 and 14.5 of his report he set out the vertical and horizontal damage that he found on his inspection, as follows:
14.4 The widespread horizontal distribution of termite damaged timber is evidenced by visible attack to some timbers at:
o all four walls of the large lounge, various parts of the entry foyer, doorframe of the laundry entry, floorboards of the passage outside the bedrooms/bathroom, rear porch filled-in walling, some floorboards or bottom plates which are approximately two metres inside the perimeter wall opposite the subfloor opening.
14.5 The widespread vertical distribution of termite damaged timber is evidenced by visible attack to some timbers at:
o floor frame timber (bearers and joists) and floorboards, and wall frame timbers (bottom plates and wall studs and doorframes and top plate) and roof frame (ceiling joist).
98 At page 21 of his report he provided his opinion as to the extent of the infestation prior to and at the time of the fire on 27 March. He concluded at paragraph 16.1 that:
the nature of the infestation was an ongoing termite attack to timbers of the dwelling, with all floor frame and floorboards and wall frame and roof frame timbers being a potential food source for the Coptotermes termite species present in the dwelling.
99 At paragraph 16.2 he further said that:
the extent of infestation would include some floor frame and floorboards and wall frame and roof frame, in the vertical direction, and to some of those timbers in the entry and lounge and kitchen and laundry meals and toilet and porch and passage, in the horizontal direction. (emphasis added)
100 He also noted that he had inspected many dwellings which had far more damage than was seen on 7 October 2011, but where the vendor says they were unaware of any infestation. Further, in his view, most “reasonable person” owners do not know what termite workings or termite damage are, or what the insects themselves actually look like. However, he noted that if the owner had passed through his roof void, he “may” have discovered the shelled-out timber (at 17.11 of his report).
101 Under cross-examination, he agreed that he inspected the property some 18 months after the fire, this being after there had been moisture from the fire brigade, and also that the property was now “compromised” and “leaky.” In such circumstances where termites need moisture, the building was more conducive to termite activity than less in the 18 month period. He also could not rule out that significant damage may have occurred since 27 March, 2010.
102 Further when taken to a cost report prepared by Newton Kerr and Partners to repair the termite damage as at time of fire, he suggested it would be “almost impossible” to work out the extent of termite damage at the time of fire.
103 Under re-examination, the following exchange occurred after Dr Thronton was taken to his report at paragraph 16.1 (which was dealing with the extent of infestation prior to and at the time of the fire):
“MR DONALD: Did you say at 16.1, "The nature of the infestation was an ongoing termite attack to timbers of the dwelling with all floor, frame and floorboards and wall frame and roof frame timbers being a potential food source for the Coptotermes species present in the dwelling"?‑‑‑Yes, the potential is there.
Is that an opinion which you still stand by?‑‑‑Yes, I mean all the materials that have (indistinct) this dwelling, all the timbers in there are susceptible.
MR DONALD: And at 16.2, "The extent of infestation would include some floor frame and floorboards and wall frame and roof frames in a vertical direction and to some of those timbers in the entry and lounge and kitchen and laundry and meals and toilets and porch and passage in a horizontal direction"?‑‑‑I think there'd have been some ongoing termite activity and damage there over (indistinct)…
MR DONALD: And in paragraphs 14.4 and 14.5 which I took you to in evidence-in-chief where you talked about the widespread horizontal distribution of termite damaged timber and you talked about the evidence that you saw and again in the same - in the vertical distribution of termite damaged timber ‑ ‑ ‑?‑‑‑Mm.
MR DONALD: And again, I won't repeat that but that damage is the same damage to which you're referring to in 16.2, isn't it?‑‑‑Yes, it is, bearing in mind that they got to both ends of the ceiling joist that was about three by four, three by six or something, metres, and to the end of - up to the top of that wall stud, you'd have to say, well, they've found that and they've done something along the way, you would expect and ‑ ‑ ‑“[24](emphasis added)
[24] Transcript of proceedings, Katchmanian v Mutual Community General Insurance (County Court, 2 February 2012, page 312-13.
104 In these circumstances, although the thrust of Dr Thornton’s evidence was that there was “something”, it would be “almost impossible” to define the precise extent as at 27 March 2010.
105 The defendant also called a Mr Hendy, a pest technician, to give evidence about termites.
106 He inspected the property on 3 December 2010 and reported termite damage widespread throughout the house in a report dated 8 December 2010. However, the size of the colony was not known and “it is possible that the home owner did not identify the deterioration” caused by the termites.
107 In oral evidence, he described termites as “the most secretive insects in the world”. He explained that even experts miss them, and that it was pretty impossible for the average home owner who was not an expert to know they were there, unless one knew about termites.
108 He also gave evidence that he could not say how long the termites had been there.
109 However, the defendant also called Mr Wright, a building consultant, who had been assessing and undertaking building consultancy work for 18 years and claimed to be quite “well versed” with termites.
110 He attended the property on 13 July, 2010, to prepare a “scope to repair”, which distinguished between works necessary to undertake for fire damage and works necessary to repair for insect damage.
111 He opined that as a result of the fire the vast majority of the home was destroyed, although some components were capable of being salvaged being 60% of the floor framing; 40% of the wall framing; and 40% of the external brickwork including a concrete slab.
112 However, during the course of his inspection Mr Wright observed considerable damage by insects, including to the east and north walls of the lounge, the north wall of the entry, and the hardwood flooring in various rooms. He then considered that the home would have to be demolished in its entirety, given it was not worth salvaging the remaining components by reason of the insect damage.
113 Under cross examination, he agreed that some of the damage may have occurred after the fire, stating that he could not rule out that “possibility“.
114 However, under re-examination he was asked whether the termite damage would have been less as at March 2010, as opposed to July 2010, he said “I don’t think it would have been significant”, and went on to say that “I’d say the majority of the termite damage that I viewed was present prior to the fire.”
115 Although there may be reservations as to whether Mr Wright’s evidence should be accepted at the end of the trial in the light of the evidence of Dr Thornton and Mr Hendy, his evidence leaves it open to reasonably find that there was a significant termite infestation as at March 2010, which Mr Wright, at least, was able to estimate.
Knowledge
116 The defendant further submitted that the plaintiff had knowledge that the property was infested by termites at the time of the fire, so as to give rise to a motive to light the fire.
117 Firstly, the defendant relies on a conversation Dr Thornton gave evidence about, which occurred at the time of his inspection. His evidence was that the plaintiff said to him that he had been all the way through the roof void to the front of the lounge. However, Dr Thornton did not ask him “when or ask him for any further information.”
118 The evidence was unclear as to a date when the plaintiff allegedly was in the roof void. Even if the 3 year outer figure given by Dr Thornton was to be preferred, it is not open to say that there would have been damage at the unspecified time the plaintiff was in the void, particularly given the property was purchased in 2001.
119 In any event, on the evidence of both Dr Thornton and Mr Hendy, it was not clear that the damage would be obvious to a lay person even if that damage had been seen. The evidence of Dr Thornton was only that if the owner had passed through his roof void, he “may” have discovered the shelled-out timber.
120 The defendant next relied on the evidence of Dr Thornton that tape appearing on some damage to the external wall frame timber on the north east corner to the rear porch (which appeared in photograph 2B attached to the Report of Mr Hendy), “might” have been effected by a pest controller.
121 However, this is highly speculative evidence that was incapable of amounting to knowledge and was properly conceded by Mr Donald to be “not our best point.”
122 Next the defendant relied on two references from the evidence of Mr Wright that the damage was “blatantly obvious to the eyes just from looking at it.” The defendant said it was open for me to construe this evidence as being referable to a lay person.
123 The first reference was based on damage Mr Wright observed after he removed a rug at the far end of the hallway. In fact the photograph he was speaking of was described as “example of the considerable insect damage to the hardwood flooring in the Hallway becoming obvious after pulling back the floor rug.” (emphasis added)
124 In oral evidence he conceded that the “main part” of this damage was in fact under the rug. Further that the plaintiff “seemed a little surprised” when he pointed out this damage “as in, he didn’t have a prior knowledge of it.”
125 Such a reference cannot impute knowledge to the plaintiff.
126 In terms of the second reference, the reference takes place in a context wherein it was suggested that Mr Wright would not be able to state the extent of the additional damage after the fire. In answer to this Mr Wright suggests that “Some of it I could, yes, sir, from the way it’s been burned.” and then asks to refer to a photograph. It is then again suggested that he could not accurately divide between pre-fire and post-fire damage, to which he says that “Some I can. That example being blatantly obvious that that was pre-fire, where some of it I can’t.”.
127 In this context, I consider that this reference is clearly directed at what Mr Wright could see as an expert in looking at the way the area had been burnt, rather than what a non-expert person, such as the plaintiff, could see. This is particularly so, given that the uncontested evidence of the defendants’ own witnesses was that termite damage was extremely difficult to detect.
128 The defendant then relied upon photographs taken by Mr Hendy of external damage. However, having examined these photographs I do not consider that one could reasonably impute knowledge from them, particularly in the light of the evidence of Dr Thornton and Mr Hendy that some of the damage shown was consistent with some force being applied externally (such as by a knife).
129 Next the defendant relied on admissions made by the plaintiff in interviews to the effect that he had carried out painting works about 2 years prior to the fire and had removed the carpet in about 2006 to polish the boards. However, it is not clear that any infestation would have been obvious at that time even if it was present.
130 The defendant also pointed to the fact that the flooring was covered by rugs. When this was put with the evidence of Mr Wright that the evidence was “blatantly obvious” (in July and not significantly different in March), the defendant was asking the court to draw an inference that the rugs were covered deliberately, and that the plaintiff knew there was something wrong with his floor.
131 However, I am unable to draw such an inference. I have already determined the limits of the evidence of Mr Wright. Moreover, people cover floors with rugs regularly. As was also colourfully described by Mr Hendy, he had undertaken an inspection where damage was only found when the children fell though the floor and the carpet had been the only thing supporting the floor.
132 Finally the defendant relied on an early termite inspection report dated 11 April, 2006, that found no evidence of termites, and which recommended a further inspection take place in 12 months time given that Endeavour Hills had a high risk of termite infestation.
133 However, although this might impute a degree of inertia to the plaintiff, this could not in my view impute any degree of knowledge. To the contrary, it suggests both that there were no termites in 2006, and also that the plaintiff had no knowledge of termites at that time.
134 Overall, then, and even if all of the above matters were considered cumulatively, I do not consider that a judge could find that the plaintiff was aware that his house was infested by termites as at March 2010 on the evidence relied upon by the defendant. This is particularly so given the seriousness of the allegations being made by the defendant in this case.
135 It follows that the motivation on the basis of termite infestation cannot be reasonably found.
Summary
136 At this stage of the evidence, it is sufficient for me to conclude that, as well as the non-contentious matters cited in paragraph 17 above, the evidence thus far is reasonably capable of establishing:
(a) that the fire was deliberately lit late at night in a house located in a quiet suburban street;
(b) that the arsonist did not force entry into the house which was secured at the time of the fire;
(c) that the fire was not lit by a known fire bug/ and/or a known enemy and/or an arbitrary vandal; and
(d) that there was a financial motive for the plaintiff to light this fire.
137 For reasons given above, however, motivation on the basis of termite infestation cannot be reasonably found.
138 In terms of (c), the plaintiff submitted that, despite the fact that he cannot point the finger at someone who may have a grudge, this does not mean that such a person does not exist.
139 This is certainly true. However, based on my analysis of the united force of the evidence to date, I consider that it is reasonably open to find that someone deliberately lit this fire in a suburban house late at night through the spread and ignition of flammable liquid, without any forced entry. Given it is also reasonably open to find that the fire was not lit by a known fire bug/ and/or a known enemy and/or an arbitrary vandal, and also that the plaintiff had a financial motive, I consider that it would be reasonably open to conclude that the plaintiff lit or connived at the lighting of this fire on the balance of probabilities, even after considering the gravity of the matters alleged.
140 In so saying, I am not considering whether the findings above, including the conclusion, will ultimately be sustained. For example, it might ultimately be that there is evidence called so as to adequately explain the plaintiff’s financial state, which might remove any financial motive.
141 However, for the reasons I have enunciated, I am satisfied that, on the evidence to date, it would be reasonably open for myself, as judge of the facts, to conclude that the probable inference is that the plaintiff lit, or connived at, the lighting of the fire.
142 I accordingly reject the no case submission in relation to the defence of arson.
Defence 2 : Non-disclosure re Termites
143 The defendant alleged that there was a breach of the duty of disclosure obligations in the policy and subject to the requirements of s21 of the Act, in that the plaintiff knew, or a reasonable person in the circumstances would be expected to know, that the house was subject to an insect infestation which matter was not disclosed.
144 The defendant conceded that a reasonable person in the position of the plaintiff may not know that his house was subject to termite attack. This was an appropriate concession to make in the face of the evidence of Dr Thornton and Mr Hendy.
145 However, the defendant submitted that the plaintiff had knowledge of the infestation as at the time he renewed his policy in August, 2009, which he failed to disclose. Further, that it would not have renewed the policy at that time if not for the non-disclosure. In such circumstances, it was entitled to avoid the policy pursuant to s28(3).
146 Firstly, although the evidence of Mr Wright suggested that the level of infestation was not significantly less in March 2010 than in July 2010, there was simply no evidence from him to determine the extent of infestation as at August 2009.
147 The defendant invited me to draw an inference that the termites were there on the basis of evidence given by Dr Thornton, that the infestation could have occurred between 12 months and 3 years, and further that there was evidence that they do not consume things really rapidly.
148 However, this evidence was so unsatisfactory and equivocal as to not assist the defendant. This is particularly so given that, as outlined in some detail above, Dr Thornton was unable to define the extent of the damage, even at the time of the fire in March 2010, referring only to “something”.
149 In such circumstances, the defendant is unable make out a case as to the extent of the infestation as at August, 2009.
150 Secondly, even if there is likely to have been some undefined damage in August, 2009, I have already set out my reasons as to why it could not be determined that the plaintiff had the relevant knowledge as at March 2010. This is only strengthened in relation to August, 2009, given the termites were likely to be less, rather than more, visible with the further effluxion of time.
151 The plaintiff also submitted that the defendant could not demonstrate that it would not have entered the policy if the termite infestation had been disclosed. There appears to be some merit in this complaint, given that the evidence of a Ms Buuren, a Business Services Manager, appeared to be that it would depend on the level of infestation as to what the defendant would have done. Again, given the absence of evidence detailing what that infestation was likely to have been, the defendant would also be unable to establish this part of its defence. However, beyond this it is unnecessary to go further in the light of my other findings.
152 There is no case to answer in relation to the non-disclosure defence.
Defence 3: Clause reducing Quantum re Termites
153 The defendant relies on an exclusion clause in the policy which states that “we will not cover any loss or damage as a result of, or caused by…..insects.”
154 The defendant claims that the extent of the infestation at the time of fire was set out in the scope of works described by Mr Wright which was then costed by Mr Crawley.
155 Mr Crawley, a quantity surveyor of Newton Kerr and Partners, prepared a report dated 29 September, 2011. He had not inspected the premises, but based his estimate on the scope of works provided by Mr Wright, which were set out in a letter from the defendant’s solicitors. On the basis of Mr Wright’s observations, he opined that the costs for replacing insect damaged components should the fire not have occurred was $49,111.
156 He also prepared a supplementary report of 25 January, 2012, in which he increased the costs based on the evidence of termite damage disclosed in the report of Dr Thornton, specifically at paragraphs 14.4 and 14.5. On the basis of this increased termite damage he estimated costs of $77,530.
157 There is also an alternative way the defendant puts this defence, which is that the defendant claims that the value of the home had been diminished by approximately $80,000 in accordance with the valuation of a Mr Quinn (who was also called).
158 Whether this is an appropriate way to alternatively value the damage “as a result of, or caused by insects”, has not yet been the subject of submission.
159 In any event, the defendant conceded that, in order to have a case to answer, the defendant would need to have evidence as to the extent of the damage at the time of fire; the scope of works required to fix it; and that there was an amount of costs estimated to fix it.
160 There appeared to be many criticisms of the reports of both Mr Quinn and Mr Crawley, as well as the evidence of Mr Wright on which they both depend, particularly as to whether the amount of work specified was really required. Such criticisms may ultimately have force. The revised costs estimate, in particular, may be rejected on the basis of Dr Thornton’s oral evidence.
161 However, for reasons already given, I accept that the evidence of Mr Wright is reasonably capable of leading to some quantification of the extent of damage at the time of the fire, and the scope of works required to fix it.
162 There is also evidence before the court as to the quantification of costs to redress this damage.
163 Suffice to say, then, at this stage of the trial, there appears to be evidence on which the plaintiff’s claim might be reduced having regard to the exclusion clause in the policy.
164 Accordingly, the no case submission in relation to the third defence is rejected.
Conclusion
165 The conclusions I have reached are based only on the evidence adduced to date and whether I could reasonably find in favour of the defendant in respect of the three defences raised on the balance of probabilities.
166 Seen in this light, my conclusions may be summarised as follows:
· there is a case to answer in respect of the arson defence;
· there is no case to answer in respect of the non-disclosure defence;
· there is a case to answer in respect of the exclusion clause in the insurance policy, which excluded damage as a result of, or caused by, insects.
167 I will hear from the parties as to the precise form of order to give effect to these reasons.
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