McMurray v AIG Insurance Australia Ltd [No 5]
[2021] WASC 300
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: MCMURRAY -v- AIG INSURANCE AUSTRALIA LTD [No 5] [2021] WASC 300
CORAM: SMITH J
HEARD: 15 DAYS BETWEEN 10 AUGUST & 1 SEPTEMBER 2020
DELIVERED : 2 SEPTEMBER 2021
PUBLISHED : 2 SEPTEMBER 2021
FILE NO/S: CIV 2962 of 2016
BETWEEN: FREDERICK WILLIAM MCMURRAY and JENNIFER GRACE MCMURRAY
Plaintiffs
AND
AIG INSURANCE AUSTRALIA LTD
First Defendant
RUSSELL BRESLAND
BRESLAND CONSULTANTS PTY LTD
Second Defendants
TOKIO MARINE & NICHIDO FIRE INSURANCE CO LTD
Third Defendant
MOSMAN BAY CONSTRUCTION PTY LTD
First Third Party
TOKIO MARINE & NICHIDO FIRE INSURANCE CO LTD
Second Third Party
HANS BO KRISTIAN HOLGERSSON trading as HOLGERSSONS COMPLETE HOME SERVICE
First Fourth Party
Catchwords:
Contract - Construction - Contract of home insurance - Exclusion clause - Principles considered - Contract work - Whether renovation works excluded - Whether exclusion enlivened in circumstances where fire destroyed house as renovated
Contract - Insurance - Whether cause of the fire could be found - Circumstantial evidence - Conflicting inferences considered
Contract - Insurance - Meaning of 'structure' and 'free issue materials' considered
Evidence - Whether fire investigators qualified to give expert evidence as to origin, path and cause of fire
Evidence - Use of photographs and CCTV video footage - Principles considered
Evidence - Section 79C (2a) and (3a) Evidence Act1906 (WA) - Whether field investigation notes of a record of a telephone conversation between third parties admissible as a business record - Alternatively admissible as part of res gestae
Evidence - Rule in Jones v Dunkel considered - Absence of witnesses - Whether inferences open to be drawn
Insurance - Doctrine of subrogation - Whether the policy of insurance created a right of subrogation of the first defendant could exercise against the first third party when first defendant denies liability to the plaintiffs and have not indemnified the plaintiffs
Insurance - Doctrine of subrogation - Insurer cannot institute a subrogated claim in its own name
Interest - Section 57 Insurance Contracts Act 1984 (Cth) - Reasonable period to investigate claim considered
Legislation:
Evidence Act 1906 (WA), s 79C
Fire and Emergency Services Act 1998 (WA)
Result:
Judgment against first defendant
Plaintiff's claim against second defendants dismissed
Third party proceedings by first defendant against first third party dismissed
Fourth party proceedings by first third party against first fourth party dismissed
Category: B
Representation:
Counsel:
| Plaintiffs | : | Mr G R Hancy |
| First Defendant | : | Mr M T McCulloch SC & Mr C P K Russell |
| Second Defendants | : | Mr G J Pynt |
| Third Defendant | : | No appearance |
| First Third Party | : | No appearance |
| Second Third Party | : | No appearance |
| First Fourth Party | : | Mr M Zilko SC & Mr B A Winburn-Clarke |
Solicitors:
| Plaintiffs | : | Solomon Brothers |
| First Defendant | : | Wotton + Kearney Lawyers (Perth) |
| Second Defendants | : | Sparke Helmore Lawyers |
| Third Defendant | : | Clyde & Co (Perth Office) |
| First Third Party | : | Clyde & Co (Perth Office) |
| Second Third Party | : | Clyde & Co (Perth Office) |
| First Fourth Party | : | McCabe Curwood |
Cases referred to in decision:
ABB Engineering Construction Pty Ltd v Abigroup Contractors Pty Ltd [2003] NSWSC 665
Allianz Australia Insurance Ltd v Inglis [2016] WASCA 25
Australian Blue Metal Ltd v Hughes (1962) 79 WN (NSW) 498
Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345
Automasters Australia Pty Ltd v Bruness Pty Ltd [2004] WASCA 229
Bankstown Football Club Ltd v CIC Insurance Ltd (Unreported, NSWSC, 16 December 1993)
Beamish v The Queen [2005] WASCA 62
Birla Nifty Pty Ltd v International Mining Industry Underwriters Ltd [2013] WASC 386
Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219
Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1
Brechin v Shire of Brookton [2002] WASC 228
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253
Cavill v The State of Western Australia [2008] WASCA 108
Chong v CC Containers Pty Ltd [2015] VSCA 137; (2015) 49 VR 402
Chubb Insurance Company of Australia Ltd v Robinson [2016] FCAFC 17; (2016) 239 FCR 300
City of Noarlunga v Fraser (1986) 61 LGRA 324, 326
Clambake Pty Ltd v Tipperary Projects Pty Ltd [No 2] [2007] WASC 244; (2007) 35 WAR 394
Clough Engineering Ltd v Oil & Natural Gas Corp Ltd [2008] FCAFC 136; (2008) 249 ALR 458
Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500, 510
Darwin Fibreglass Pty Ltd v Kruhse Enterprises Pty Ltd (1998) 146 FLR 37
Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588
Donohoe v The Director of Public Prosecutions (WA) [2011] WASCA 239
East Metropolitan Health Service v Ellis (by his next friend Christopher Graham Ellis) [2020] WASCA 147
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544
Evans v Halliday [2021] WASC 85
Fabre v Arenales (1992) 27 NSWLR 437
Fitzgerald v CBL Insurance Ltd [2014] VSC 493
Gagner Pty Ltd v Canturi Corporation Pty Ltd [2009] NSWCA 413; (2009) 262 ALR 691
Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336
HML v The Queen [2008] HCA 13; (2008) 235 CLR 334
Ho v Powell (2001) 51 NSWLR 572
Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA 368
Insurance Commission (WA) v Kightly [2005] WASCA 154; (2005) 30 WAR 380
Johnson v American Home Assurance Co [1998] HCA 14; 192 CLR 266, 272 - 276
Jones v Dunkel (1959) 101 CLR 298
King v Victoria Insurance Co Ltd [1896] AC 250
Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361
Legal & General Insurance Ltd v Eather (1986) 6 NSWLR 390, 394
Lithgow City Council v Jackson [2011] HCA 36; (2011) 244 CLR 352,
Liyanage v The State of Western Australia [2017] WASCA 112; (2017) 51 WAR 359
Lumley General Insurance Ltd v Port Phillip City Council [2013] VSCA 367
Luxton v Vines (1952) 85 CLR 352
Makita (Aust) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705
March v E & M H Stramere Pty Ltd [1991] HCA 12; (1991) 171 CLR 506
Maxwell v Highway Hauliers Pty Ltd [2013] WASCA 115; (2013) 45 WAR 297
McConnell Dowell Middle East LLC v Royal & Sun Alliance Insurance Plc (No 3) [2009] VSC 94; (2009) 226 FLR 84
McMurray v AIG Insurance Australia Ltd [2018] WASC 144
McMurray v AIG Insurance Australia Ltd [No 2] [2018] WASC 391
McMurray v AIG Insurance Australia Ltd [No 3] [2019] WASC 452
McMurray v AIG Insurance Australia Ltd [No 4] [2018] WASC 210
Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 5] [2015] FCA 571
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104, 116 - 117
Orakpo v Manson Investments Ltd [1978] AC 95
Ottoway Engineering Pty Ltd v Westpac Banking Corp [No 3] [2017] FCA 1500; (2017) 123 ACSR 549
Panegyres v Medical Board of Australia [2020] WASCA 58
Poland v The State of Western Australia [2015] WASCA 136
Pollock v Wellington (1996) 15 WAR 1
R v Rose [1965] QWN 35
Reid v Kerr (1974) 9 SASR 367
Rhoden v Wingate [2002] NSWCA 165
Saraceni v Mentha [No 2] [2012] WASC 336
Sayseng v Kellogg Superannuation Pty Ltd [2007] NSWSC 857; 213 FLR 174
Seltsam Pty Ltd v McGuiness [2000] NSWCA 29; 49 NSWLR 262
Servcorp WA Pty Ltd v Perron Investments Pty Ltd [2016] WASCA 79
Settlement Wine Co Pty Ltd v National & General Insurance Co Ltd (1994) 62 SASR 40; (1994) 8 ANZ Insurance Cases 61-209
Shell Refining (Australia) Pty Ltd v AJ Mayr Engineering Pty Ltd [2006] NSWSC 94
Shire of Brookton v Water Corporation [2003] WASCA 240
Simpson & Co v Thomson (1877) 3 App Cas 279
Sino Iron Pty Ltd v Mineralogy Pty Ltd [2019] WASCA 80; (2019) 55 WAR 89
Smith v Samuels (1976) 12 SASR 573
State Government Insurance Office (Qld) v Brisbane Stevedoring Pty Ltd (1969) 123 CLR 228
Subramanian v Public Prosecutor [1956] 1 WLR 965
Symeou v NRMA Insurance Ltd (1988) 5 ANZ Insurance Cases 60-851
Technology Swiss Pty Ltd v AAI Ltd [2021] FCA 95
The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239
The State of Western Australia v Johnston [2020] WASC 445
Todd v Altera at Lloyds [2016] FCAFC 15
Tokio Marine & Nichido Fire Insurance Co Ltd v Holgersson [2019] WASCA 114
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Transfield Services (Australia) v Hall [2008] NSWCA 294; 75 NSWLR 12
Tubemakers of Australia Ltd v Fernandez (1976) 50 ALJR 720
V L Credits Pty Ltd v Switzerland General Insurance Co Ltd (No 2) [1991] 2 VR 311
Wallaby Grip Ltd v QBE Insurance (Australia) Ltd [2010] HCA 9; (2010) 240 CLR 444
Wellington Insurance Co Ltd v Armac Diving Services Ltd (1987) 37 DLR(4th) 462
Woodside Petroleum Development Pty Ltd v H & R-E & W Pty Ltd (1999) 20 WAR 380, 387 - 388
WorkCover (Qld) v Seltsam Pty Ltd [2001] NSWCA 457; (2001) 53 NSWLR 518
X and Y (by her Tutor X) v Pal (1991) 23 NSWLR 26
Young Investment Group Pty Ltd v QBE Insurance (Australia) Ltd [2019] WASC 74
Table of Contents
1.0 The action and the third and fourth party proceedings ‑ the parties and the result
2.0 The witnesses
2.1 The lay witnesses
2.1.1 The lay witnesses evidence adduced by the McMurrays in the main proceedings
2.1.2 The lay witness evidence adduced by the other parties in the main action, the third party proceedings, and the fourth party proceedings
2.2 The forensic fire investigators and the forensic locksmith
2.3 The quantity surveyor expert evidence
2.4 The insurance broking expert evidence
3.0 The three main issues for determination in the proceedings
4.0 The evidence
4.1 The purchase of the Wellington Street property, the renovation works contract with Mosman Bay and the background to entering into the AIG and Tokio Marine policies
4.1.1 The purchase of the property and entering into the AIG policy of insurance
4.2 The McMurrays engage Mosman Bay to renovate the Wellington Street house
4.2.1 The terms of the contract between the McMurrays and Mosman Bay, and the Tokyo Marine policy of insurance
4.2.2 The renovations - a refurbishment of the original house
4.3 The fire - the lay evidence and Mr Bell's evidence
4.3.1 What renovation work had been completed and what painting work was in the process of being completed the day before the night of the fire
4.3.2 The disposal of the rags used by the painters to apply Loba Oil to the wood finishes
4.3.3 The evidence of persons working on‑site about what was put in the green rubbish bin on the day of the fire and where the green rubbish bin was located in the dining room
4.3.4 The McMurrays' visit to the house to monitor the water hose being used to fill the swimming pool in the backyard at 10.45 pm on 15 January 2016
4.3.5 The CCTV footage of the house on the night of 15 January 2016 and the early morning of 16 January 2016
4.3.6 Mr Tisdale's evidence - what was found by the forensic locksmith
4.4 The forensic fire investigation evidence; and are the forensic fire investigators experts and, if so, what is their field of expertise?
4.4.1 Relevant principles - expert opinion evidence
4.4.2 Should the forensic fire investigators' evidence be accepted as expert evidence?
4.4.3 The investigation by Mr Bell, a fire investigation officer, from the Department of Fire and Emergency Services
4.4.4 Are Mr Bell's field notes a 'business record' and is a note in the field notes recording a conversation that he had with Mr Walling the morning after the fire about what Mr Simpson had said to Mr Walling about placing oily rags in the bin admissible, pursuant to s 79C of the Evidence Act 1906 (WA)?
4.4.5 Is the statement recorded in Mr Bell's field notes about what Mr Simpson said to Mr Walling admissible as part of the res gestae?
4.4.6 Mr Manser's evidence
4.4.7 Mr Tong's evidence
4.4.8 Mr Pollard's evidence
4.4.9 The fire in the skip bin on Tuesday 12 January 2016
4.5 Cause of the fire
4.5.1 What inferences, if any, should be drawn by the fact that Mr Milton and Mr Roach have not been called to give evidence by Mr Holgersson
4.5.2 Causation and the onus of proof that the cause of the fire was the self-heating of Loba Oil soaked rags in the green rubbish bin in the dining room; and is the intruder theory open to be considered on the pleadings?
4.5.3 Can the cause of fire be determined?
5.0 AIG denies it is liable to indemnify the McMurrays for the damage caused by the fire
5.1 Relevant principles of construction of insurance contracts
5.2 The Contract Works Exclusion clause
5.3 The evidence relevant to the determination of whether the Contract Works Exclusion clause operates so as to enable AIG to deny liability
5.4 Construction of the Contract Works Exclusion clause
6.0 Quantum of the McMurrays' loss and damage
6.1 The quantity surveyor's evidence
6.1.1 Methodology
6.1.2 Rates
6.1.3 Allowances for professional fees
6.1.4 Allowance for preliminaries
6.1.5 Builder's margin
6.2 Amounts claimed and assessed by Mr Cugley that are agreed
6.3 Goods and services tax (GST)
6.4 Architect, structural engineer, and quantity surveyor fees incurred post the fire
6.5 Tokio Marine settlement - an agreed deduction
6.6 Interest
6.7 Is any damage or loss claimable by the McMurrays against the Bresland parties?
7.0 Consequences that flow to the determination of the third and fourth party proceedings from the findings that the cause of the fire cannot be found, and AIG is required to pay damages to the McMurrays for their loss and damage to the house and other structures as renovated as at the date of the fire
7.1 AIG's third party proceedings against Mosman Bay
7.1.1 General principles – subrogation
7.1.2 Is AIG's claim against Mosman Bay in the third party proceedings justiciable?
7.2 The fourth party proceedings - Mosman Bay's action against Holgersson
ANNEXURE A
Mosman Bay Constructions Pty Ltd progress claims and list of works comprising the renovation works
ANNEXURE B
Floor plan of the original ground floor of the McMurrays' house as built dated 19 March 2003 and showing revisions on 1 July 2003
ANNEXURE C
Floor plan prepared by the McMurrays' architects and interior designer showing renovations to the ground floor of the McMurrays' house, including timber finishes, dated 11 August 2015
ANNEXURE D
Mr Thomas' markings in red on a floor plan of the ground floor of the house, showing location of bin and painting work in the entry
ANNEXURE E
A photograph of the type of green rubbish bins that were located on each level of the house, including the dining room
ANNEXURE F
A photograph of the dining room which shows a round flat circle (said by forensic fire investigators to indicate where the green rubbish bin had stood during the fire) in the middle of the entry of the dining room
ANNEXURE G
A Nearmap view showing the location of the tennis court, in between the McMurrays' house and the house to the western side where the CCTV camera was located, and also showing the McMurrays' house after it had been damaged by the fire and the house on the eastern side of the McMurrays' house and the vacant block
ANNEXURE H
Copies of a series of photographs that show views of the front and rear of the house after the fire
ANNEXURE I
A photograph of the dining room entry and sitting room of the McMurrays' house taken after the fire, with the base of the remains of the green rubbish bin placed on top of the round flat circle in the entry
ANNEXURE J
A copy of the plaintiffs' further amended schedule of loss and damage, subtitled 'house with renovations'
ANNEXURE K
A copy of the list of owner supplied goods and services for the renovation work
SMITH J:
1.0 The action and the third and fourth party proceedings ‑ the parties and the result
In August 2014, Frederick William McMurray and Jennifer Grace McMurray purchased a house and land at 179 Wellington Street, Mosman Park, for $8,950,000.[1] The McMurrays intended to reside in the house with their children but before doing so they engaged a builder, Mosman Bay Construction Pty Ltd (Mosman Bay), to carry out renovations.
[1] Exhibit A, 3579 - 3580.
The renovations began in mid 2015 and were almost complete by 15 January 2016. By that time, the McMurrays had spent more than $1 million on the renovation works.
On 16 January 2016, and just before the renovation works were finally completed, the house was destroyed by a fire and had to be demolished.
These proceedings are substantially about one relatively straightforward issue of fact, and that is what was the cause of the fire, but these proceedings also raised a tangled web of issues going to liability that relate to the law of insurance because the McMurrays, through the second defendants, Russell Bresland and Bresland Consultants Pty Ltd (the Bresland parties), arranged to insure the house by AIG Insurance Australia Limited (AIG), and the builder, Mosman Bay, arranged for a separate insurer, Tokio Marine & Nichido Fire Insurance (Tokio Marine), to insure the renovation works. This led to the McMurrays suing their broker, the Bresland parties, and the builder's insurer, Tokio Marine. It also led to AIG bringing third party proceedings against the builder of the renovations, Mosman Bay, and the builder's insurer, Tokio Marine, and Tokio Marine bringing third party proceedings against Mosman Bay and requiring Mosman Bay to bring fourth party proceedings against one of the subcontractors of Mosman Bay, Hans Bo Kristian Holgersson.
The trial of the McMurrays' claims and the third and fourth party proceedings occupied almost four weeks of hearing days, and was preceded by four interlocutory judgments,[2] the first of which resulted in an appeal to the Court of Appeal on a preliminary point involving interpretation of the Tokio Marine policy.[3]
[2] McMurray v AIG Insurance Australia Ltd [2018] WASC 144; McMurray v AIG Insurance Australia Ltd [No 2] [2020] WASC 391; McMurray v AIG Insurance Australia Ltd [No 3] [2019] WASC 452; and McMurray v AIG Insurance Australia Ltd [No 4] [2018] WASC 210.
[3] Tokio Marine & Nichido Fire Insurance Co Ltd v Holgersson [2019] WASCA 114.
Immediately after the fire, the McMurrays made a claim on the house insurance they had with AIG, and AIG denied liability. The McMurrays sue AIG for damages for breach of a contract of insurance to restore or repair, or replace or rebuild, the house up to the sum insured of $4,725,000, together with the reasonable costs necessary to demolish the damaged buildings and remove the debris.
In the main proceedings, the McMurrays' claim against:
(a)AIG is in contract. The McMurrays seek a declaration against AIG to the effect that in accordance with the terms of a contract of insurance against property damage, AIG is liable to indemnify them in connection with loss and damage caused to the house by the fire, and an award of damages;
(b)the Bresland parties is for breach of contract, tort or misleading conduct. The McMurrays sue the Bresland parties for damages, on the basis that if, as AIG contends, AIG is not liable because the contract of insurance contains an exclusion clause, the Bresland parties are in breach of contract of a retainer, breach of duty of care in negligence, and engaging in misleading and deceptive conduct in arranging insurance containing an exclusion clause. Even if the McMurrays are entirely successful against AIG, the McMurrays' claim against the Bresland parties is for the full amount of their proven loss on grounds that the AIG policy of insurance did not 'cover everything' (less the amount recovered from AIG and Tokio Marine); and
(c)Tokio Marine for breach of contract, claiming that the Tokio Marine insurance policy contained an extension clause by which Tokio Marine provided property insurance for the principals of Mosman Bay for the contract works carried out by Mosman Bay. Prior to trial, the McMurrays entered into an agreement with Tokio Marine to settle their claim.
AIG denies liability in the main proceedings under the contract of insurance on grounds that a contract works exclusion clause (Contract Works Exclusion clause) applies to exclude cover of the McMurrays' claim.
The basis upon which AIG claim that the Contract Works Exclusion clause applies is 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.
The oil soaked rags, said by AIG to be the cause of the fire are claimed to be rags used by painters to apply a product known as Lobasol 'HS 2K ImpactOil and ImpactOil Colour' (Loba Oil) to stain various timber surfaces in the house. I have found in 4.5.3 below that the cause of the fire cannot be determined.
AIG brought third party proceedings against Mosman Bay and Tokio Marine. Prior to trial, AIG and Tokio Marine also entered into an agreement, which resulted in AIG's third party proceedings being discontinued against Tokio Marine.
AIG instituted third party proceedings against Mosman Bay on grounds that if the court determines that the Contract Works Exclusion clause does not apply to exclude the McMurrays' claim under the AIG policy, such that AIG is required to indemnify them in respect of the fire damage under its policy, then AIG will be subrogated to the McMurrays' rights against Mosman Bay under the terms of the McMurrays' construction contract that they entered into with Mosman Bay. AIG claims that the terms of this contract required Mosman Bay, among other obligations, during the renovations to bear the risk of loss of or damage to the works, and any structure on the site before Mosman Bay had possession of the Wellington Street property, and to take out and maintain insurance for the works and existing structures. I have found in 7.1 below that AIG has no right to institute a subrogated claim against Mosman Bay in its own name, and no right of subrogation can arise under its policy of insurance until it makes a payment to the McMurrays under the policy.
As part of the renovation works, Mosman Bay engaged subcontractors to carry out the painting works. There is an issue in the proceedings as to the identity of the subcontractors who entered into a contract with Mosman Bay to carry out the painting works. I do not find it necessary to determine this issue because I have found in 4.5.3 below that the cause of the fire cannot be determined.
In its third party proceedings against Mosman Bay, AIG alleges that the fire was caused by the negligence of Mosman Bay's painting subcontractor, Simmos Improvements. AIG alleges that the interior painting subcontractor was Simmos Improvements Pty Ltd.
Prior to the McMurrays' claims against Tokio Marine and AIG's claims against Tokio Marine being settled, Tokio Marine required Mosman Bay to institute fourth party proceedings against the first fourth party, a painter, Hans Bo Kristian Holgersson.
Mosman Bay alleged in the fourth party proceedings that the interior painting subcontract for the renovation works was entered into with Mr Holgersson who trades as Holgersson's Complete Home Service. Mr Holgersson pleads in the fourth party proceedings that the interior painting subcontract was formed jointly with himself and another painting subcontractor, being either a company operated by Mark Simpson, known as Simmos Improvements Pty Ltd, or by Mark Simpson personally. AIG, however, has not instituted third party proceedings against Simmos Improvements Pty Ltd or Mark Simpson.
The McMurrays have not sought to join Mr Holgersson, Mosman Bay or any contractors or subcontractors engaged by Mosman Bay as defendants. The McMurrays are of the opinion that there is no admissible expert or lay evidence establishing that the fire was caused by oil soaked rags or that painters placed oil soaked rags in a plastic rubbish bin inside their house. Consequently, the McMurrays argue that the allegation by AIG that the fire was caused by oil soaked rags has no foundation in evidence is speculative, and the cause of the fire cannot be ascertained.
On 17 December 2019, the McMurrays and Tokio Marine entered into a settlement of the McMurrays' claim for $1,476,000, being a $1,264,050 contribution to loss and interest, and $211,950 for contribution to costs. Following the settlement, the McMurrays' claim against Tokio Marine was dismissed by consent,[4] and AIG discontinued its third party proceedings against Tokio Marine on 18 February 2020.[5]
[4] Consent order made 22 January 2020.
[5] Consent order made 18 February 2020.
The settlement amount paid to the McMurrays by Tokio Marine was less than the full value of the McMurrays' claim against Tokio Marine, which was $1,963,819.00, being $1,378,788 for their loss, $303,031 for interest and $282,000 for legal costs.
As a result of the settlement agreement, Tokio Marine ceased to be a party to the proceedings, and Tokio Marine's third party proceedings against Mosman Bay were dismissed on 23 January 2020.[6]
[6] Consent order made 23 January 2020.
In March 2020, Taylor Smart, lawyers for Mosman Bay, gave notice pursuant to O 8, r 7 of the Rules of the Supreme Court 1971 (WA) that they ceased to act for Mosman Bay, because Mosman Bay could no longer afford to fund its defence in the third party proceedings, and prosecute the fourth party proceedings against Mr Holgersson.
In these circumstances, the usual course would have been that the fourth party proceedings would have been discontinued or dismissed. However, Mr Holgersson wanted the fourth party proceedings to remain on foot because collateral attacks had been made by AIG and the Bresland parties in their defences to the McMurrays' claims against Mr Holgersson, and Mr Holgersson wanted to defend these attacks.
In AIG's and the Bresland parties' defences, allegations are made about who and what caused the fire that caused the total destruction of the Wellington Street house, and how that fire was caused, including the renovations and its other structures, which allegations relate to the acts of Mr Holgersson and others engaged by him to carry out the painting works.
On 18 March 2020, upon Mosman Bay having filed an undertaking on 18 March 2020 that it would not seek to remove itself from the proceedings if an order was granted giving its lawyers leave to cease to act, the court made an order enabling Taylor Smart to cease to be the solicitors acting for Mosman Bay. The effect of the undertaking given by Mosman Bay is that it was to remain a party but not take any further part in the proceedings. On this basis, Mr Holgersson in turn gave an undertaking to Mosman Bay, prior to Taylor Smart ceasing to act, that he would not seek any orders for costs against Mosman Bay, on and from 17 March 2020.[7]
[7] ts, 17 March 2020.
Subsequently, an order was made on 4 August 2020 that evidence in the fourth party proceedings and the third party proceedings be evidence in the main action, and evidence in the main action be evidence in the first third party proceedings and first fourth party proceedings.
Consequently, at the trial, the parties before the court who appeared and were heard were the McMurrays, AIG, the Bresland parties and Mr Holgersson.
The McMurrays' claim against the Bresland parties depends almost entirely upon whether the McMurrays' claim against AIG succeeds in whole or in part. In turn, the McMurrays' claim against AIG depends upon whether AIG is entitled to rely upon the Contract Works Exclusion clause and, if the exclusion clause applies, whether AIG is liable for the damage to the house including the renovation works, or only damage to the house. I have found in 5.0 below that AIG is not entitled to rely upon the exclusion clause and it is liable to the McMurrays for the damage to the house including the renovation works.
It is the McMurrays' view that insurance contracts were in place for the house and renovation works, and their loss should be recovered from AIG, or the Bresland parties, less the amount that Tokio Marine has paid.
In the event that:
(a)the McMurrays' claim against AIG fails entirely, then the McMurrays' claim against the Bresland parties is for breach of contract, breach of duty of care in tort, and misleading conduct under the Australian Consumer Law essentially because the Bresland parties did not obtain the insurance against property damage to, or connected with, the renovation works. Consequently, the McMurrays claim that their claim for loss and damage against the Bresland parties is to be assessed on the basis of no insurance recovery for the loss and damage to their house as renovated, less the settlement amount paid to the McMurrays from Tokio Marine;
(b)AIG is liable to the McMurrays for the damage to the house including the renovation works, then the McMurrays' claim against the Bresland parties falls away;
(c)AIG is only liable to the McMurrays for the damage to the house but not the renovation works, the McMurrays claim against the Bresland parties their loss and damage to the house including the renovation works less what was paid by Tokio Marine and is payable by AIG.
The Bresland parties contend that if McMurrays succeed only against AIG in respect of damage to the house without the renovations works, the McMurrays have no claim against them for the shortfall between the amount paid to the McMurrays by Tokio Marine and what they are entitled to recover from AIG. This is said to be because the McMurrays as principals and Mr Holgersson as the subcontractor were insured under Tokio Marine's policy for the contract works performed by Mosman Bay, and the Tokio Marine policy is the exact type of policy the McMurrays' expert witness, Mr Atkin, testified was the most appropriate insurance cover for the McMurrays to have for the renovation works. I do not find it necessary to consider this issue because, for the reasons I give in 5.0 and 6.0 below, I have found:
(a)AIG is liable to the McMurrays for their loss and damage to the house including the renovation works; and
(b)the Bresland parties are not liable for any loss or damage to the McMurrays arising out of the fire that destroyed their house on 16 January 2016.
2.0 The witnesses
2.1 The lay witnesses
Each of the lay witnesses, with the exception of the director of Mosman Bay, Mr David William Walling, and the site supervisor employed by Mosman Bay, Mr Ralph Edgar Thomas, gave their evidence-in-chief in writing in witness statements.
2.1.1 The lay witnesses evidence adduced by the McMurrays in the main proceedings
Mr and Mrs McMurray both gave evidence. Mr McMurray's evidence was not substantially challenged in cross-examination by any party and Mrs McMurray was not cross-examined at all.
An accountant and Chief Financial Controller for the Sanwell group of companies controlled by Mr McMurray, Mr Bradley David Holt, whose duties included ensuring that insurance contracts were in place for the Sanwell companies, was called to give evidence on behalf of the McMurrays. His witness statement was tendered into evidence by counsel for the McMurrays, without any subsequent cross-examination.
By consent of the parties, a witness statement of a carpenter, Niall William Woods, employed by a contractor, Airport Cabinets and Carpentry, carrying out cabinet‑making work at the house on the day before the fire, was tendered into evidence.
2.1.2 The lay witness evidence adduced by the other parties in the main action, the third party proceedings, and the fourth party proceedings
The Bresland parties did not call any witnesses in defence of the McMurrays' action in the main proceedings.
AIG called Mr Walling to give evidence, and Mr Holgersson called Mr Thomas. Both Mr Walling and Mr Thomas gave their evidence-in-chief orally, and were cross-examined by counsel by all the other parties.
Mr Holgersson had not been working at the house for two to three weeks before the fire. Mr Holgersson gave evidence about the painting works and the contractual arrangements he had entered into with Mosman Bay and with another contract painter, Mr Mark Lawrence Simpson.
Mr Holgersson called Mr Simpson to give evidence. Mr Simpson was carrying out the interior painting works inside the house on the day before the fire and for several weeks leading up to the fire with two other painters, Mr Radford Milton and Mr Jason Roach.
No party made any serious challenge to the credibility or reliability of the evidence given by any of the lay witnesses.
Neither Mr Milton nor Mr Roach were called to give evidence by any party to the proceedings. The fact that they were not called and the inferences that can be drawn from their absence are considered in 4.5.1 below.
2.2 The forensic fire investigators and the forensic locksmith
There is an issue in the proceedings as to whether the forensic fire investigators are expert witnesses or lay witnesses who have an area of expertise in the investigation of fires.
The forensic fire investigators who gave evidence in these proceedings and produced written reports are as follows:
(1)Mark Stephen Pollard (called by the McMurrays);
(2)James David Manser (called by AIG); and
(3)Maurice Ernest Tong (called by AIG).
AIG also called Mr James Boyd Bell, who was, at the time of the fire, employed by the Department of Fire and Emergency Services as a fire investigator, and who took control of the property as the firefighters were putting out the fire.
I have found Mr Pollard, Mr Manser, Mr Tong and Mr Bell to be experts qualified to give evidence as to the area of origin, path of the fire and cause of the fire. My findings on this point are set out in 4.4.2.
I have found that the report, notes and oral evidence of Mr Bell are to be accepted into evidence (except as to some matters in his notes and report, which findings are made in 4.4.3 to 4.4.5 of these reasons) as evidence of an expert fire investigator who is required to exercise statutory powers to investigate, and to make a report as to the fire origin and cause of a fire to the Department of Fire and Emergency Services and others such as the Arson Squad of the Western Australian Police,[8] but whose opinion and findings were not intended to be conclusive, nor constitute a full investigation of all relevant factual circumstances of the fire.
[8] Exhibit B, 18; Exhibit A, 822.
The admissibility and reliability of the evidence of Mr Tong, Mr Manser and Mr Pollard, and the weight to be given to their evidence and the opinions stated in their written reports, is set out below in 4.4. For the reasons in 4.4.2, I have found that the reports and oral evidence of the forensic fire investigators is expert evidence as to the area of fire origin, the point of fire origin, and the cause of the fire. However, for the reasons that I have given in 4.4.6, 4.4.7, 4.4.8 and 4.5.3, I do not accept the evidence of Mr Manser as to the cause of the fire that occurred at the house in the early hours of 16 January 2016, and for the reasons set out in 4.5.3, I find that the cause of the fire cannot be determined on the balance of probabilities.
There is also an issue as to whether the evidence of the forensic locksmith, Mr Brian Peter Tisdale, is admissible. AIG objected to the admission of Mr Tisdale's report on grounds that his evidence goes to an issue not pleaded by the McMurrays in the main proceedings or by Mr Holgersson in the fourth party proceedings.
For the reasons that I give in 4.5.2, I have found that Mr Tisdale's report goes to issues relevant to the matters pleaded by: the McMurrays and AIG, the McMurrays and the Bresland parties in the main proceedings, and by Mr Holgersson in the fourth party proceedings.
2.3 The quantity surveyor expert evidence
The quantity surveyor expert evidence is relevant to the determination of the quantum of the McMurrays' claims of loss and damage.
Two expert quantity surveyors gave evidence. The McMurrays called Mr Shaun Walter Cugley and AIG called Mr Stephen Warne. These experts produced a joint memorandum and gave concurrent evidence.
Both experts gave evidence about the retrospective assessments they each made of the cost of the reconstruction of the original house excluding renovations and the reconstruction of the house as fully renovated.
The matters agreed by the quantity surveyors and the differences in their costs reconstructions are set out in 6.0 below.
2.4 The insurance broking expert evidence
The McMurrays called an insurance broker, Brian John Atkin, who produced an expert report in respect of the availability and price of insurance for an unoccupied domestic dwelling undergoing renovations in September 2015, and the appropriate insurance coverage for such a property undergoing renovations of a significant value.
Because I have found the McMurrays' claim for loss and damage against the Bresland parties falls away, I have not found it necessary to consider Mr Atkin's evidence.
3.0 The three main issues for determination in the proceedings
The matters in dispute in the proceedings essentially turn upon the answers to three questions.
These are:
(1)Is the court able to determine how the fire started, and what was the cause of the fire? In particular:
(a) did the fire start in the green rubbish bin in the entry to the dining room;
(b) is there sufficient admissible evidence for the court to determine on the balance of probabilities that the cause of the fire was the self-ignition of oily rags in the bin in the entry to the dining room of the house;
(c) is there another possible cause of the fire if the court accepts there is some evidence from which an inference could be drawn that an intruder may have entered the house on the night in question and started a fire in, or in the vicinity of, the bin in the entry to the dining room; or
(d) is there insufficient admissible evidence before the court to determine the probable cause of the fire other than to find the origin of the fire was in the green rubbish bin?
(2)What is the proper construction of the Contracts Works Exclusion clause in the AIG policy?
(3)What is the quantum of the loss and damage suffered by the McMurrays?
4.0 The evidence
4.1 The purchase of the Wellington Street property, the renovation works contract with Mosman Bay and the background to entering into the AIG and Tokio Marine policies
4.1.1 The purchase of the property and entering into the AIG policy of insurance
After the McMurrays' case had closed, it was conceded in opening on behalf of the Bresland parties that if AIG successfully defends this action in reliance on the exclusion clause of the AIG policy:
(a) in the absence of Mr Bresland giving oral evidence at the trial of the action and any contemporaneous note, written record, or correspondence between the Bresland parties and the McMurrays supporting the claims made by the Bresland parties in their defence; and
(b) having heard from Mr McMurray, the weight of the evidence supports the McMurrays' claim that the Bresland parties failed to take reasonable care to ensure the McMurrays were insured for damage to the existing house in connection with the renovations.[9]
[9] ts, 12 August 2020, 1262 ‑ 1263.
In light of this concession, is not necessary to set out all of the evidence that led to Mr Bresland (as agent for the McMurrays) entering into a contract of insurance with AIG to insure the Wellington Street property.
The Bresland parties acted as the McMurrays' insurance broker from about 2012. The Bresland parties had also acted as Mr McMurray's insurance broker for Mr McMurray's various businesses that form part of the group of companies known as the Sanwell Group.
In August 2014, Mr and Mrs McMurray made an offer to purchase the house and land at 179 Wellington Street in Mosman Park. At that time, the McMurrays owned a house and land at 21 Colonial Gardens, Mosman Park, and the house on that land was insured by Chubb Insurance Company of Australia Ltd (Chubb).
Mr and Mrs McMurray completed the purchase of the house and land in Wellington Street, Mosman Park, for an amount of $8,950,000.[10]
[10] Exhibit A, 3579 - 3580.
In about August 2014, Mr McMurray telephoned Russell Bresland and told him they were about to buy a new house worth about $4.5 million, but would not be moving into the house immediately because they were going to carry out renovations to the value of $500,000 to $600,000. Mr McMurray also told Mr Bresland that they wanted the house to be insured, wanted the insurance to include cover for the renovations, and the house needed to be fully covered for every eventuality.
In response, Mr Bresland told Mr McMurray that he would arrange the appropriate cover. He also told Mr McMurray that there was only a month to run on their Chubb policy, so they would place the insurance with Chubb for the time being until renewals became due.
Prior to the settlement of the purchase of the house and land at Wellington Street, Ms Lim, on behalf of the Bresland parties, sent to Mr McMurray a renovations questionnaire from Chubb. Mr McMurray partially completed the form and returned it to Ms Lim on 28 August 2014. At that time, settlement had not occurred and Mr McMurray had not appointed a builder to carry out the renovation work.[11] On the questionnaire under the heading, 'Full description of works to be carried out', Mr McMurray wrote, 'alter internal doors, add walls, refit kitchen and bathrooms, add decks, modify windows'. He also wrote '$500,000' as the estimated cost for the 'internal refurbishment', '$75,000' for the estimated cost of the 'additional outside structure' and '$25,000' for the 'landscaping'.[12]
[11] Exhibit A, 54.
[12] Exhibit A, 55.
On 28 August 2014, Chubb issued a certificate of currency of building insurance for a sum of $4,500,000 for the Wellington Street house.[13]
[13] Exhibit A, 3581.
Following negotiations between Chubb and Mr Bresland, on 1 September 2014 Chubb informed Mr Bresland on confirmation that the renovations were not structural in any way, and the construction was to be completed by an architect with a builder, it was willing to provide insurance for the Wellington Street property with a $1,000 deductible (excess) for each and every loss, except for a renovation deductible (excess) of $20,000 for all renovation related claims until all renovation work was completed.[14]
[14] Exhibit A, 70, 74 -76, 102 - 108.
It appears that Mr Bresland was of the opinion that the Chubb terms for deductibles were too high.
On 16 September 2014, Mr Bresland sent an email to a representative for Chubb stating that the premium was 'absolutely ridiculous' for the Wellington Street property and that they would be putting this to market (that is, seeking other quotes to cover the house during the renovations).[15]
[15] Exhibit A, 111.
On 21 September 2014, Mr Bresland sought a quote from Chartis (at that time, part of AIG's business was also known as Chartis). The request for a quote proposed that the house be insured for $4,500,000, with an optional excess of $500, $1,000, $2,000 or $5,000.[16] In the Private Client Group request for a quote, under the heading, 'Residence Information', it was stated that renovations were planned within the next 12 months and that the type of renovations were, 'Internal - bring up to new standard $600,000'.[17]
[16] Exhibit A, 128 - 130.
[17] Exhibit A, 128.
On 24 September 2014, the AIG Private Client Group provided an insurance quote to Mr Bresland.[18] The quote was for house and contents cover for the Colonial Gardens property and for house insurance for the Wellington Street property, together with private collections cover for a painting. One of the proposed endorsements on the policy was the Contract Works Exclusion clause.
[18] Exhibit A, 138 - 145.
Mr Bresland telephoned Mr McMurray and recommended that on expiration of the Chubb policy that they take out a policy with AIG for the house for the duration of the renovations, as AIG insured high-end properties. Mr McMurray informed Mr Bresland that he accepted his advice to change insurers to AIG. He also told Mr Bresland again that he wanted cover for everything, every eventuality.[19]
[19] Exhibit 1, [33] - [35].
When Mr McMurray spoke to Mr Bresland and accepted the change of insurance policies to AIG, he was not aware that the policy proposed by AIG contained a Contract Works Exclusion clause. It is clear that a copy of the AIG Private Client Group quote (which contained a copy of the Contract Works Exclusion clause) was not sent to Mr McMurray prior to this conversation, nor was the Contract Works Exclusion clause discussed with Mr McMurray during the conversation.
After he spoke to Mr McMurray, Mr Bresland accepted the AIG quote and cancelled the Chubb policy.
The material terms of the AIG policy[20] were that, subject to any applicable exclusion, in the event of physical loss or damage to the house that occurred by accident during the period of the currency of the policy, AIG would make payments to the McMurrays that included:[21]
(a)the amount required to restore or repair, replace or rebuild, a structure with materials and workmanship of like kind and quality as the house and including fees from architects, surveyors and consulting engineers; up to the sum insured of $4,725,000; and
(b)the reasonable costs necessary to demolish damaged buildings and remove the debris.
[20] Exhibit A, 730 - 780.
[21] Exhibit A, 468, 730 - 780, especially 747 - 748, 752 and 778.
The Contract Works Exclusion clause of the AIG policy provided:[22]
[22] Exhibit A, 144 - 145 (as contained in the quote dated 24 September 2014), 542 and 778 - 779 (the policy).
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
On 23 October 2015, Mr McMurray was sent copies of invoices for the renewal of a number of insurance policies by Mr Shu Wen Yeo, a senior associate employed by Bresland Consultants Pty Ltd (which invoices Mr McMurray had requested be sent to him so he could pay the amounts to renew the policies).[23] Attached to the invoices was a copy of the Contract Works Exclusion clause.[24]
[23] Exhibit A, 523.
[24] Exhibit A, 542.
Prior to the receipt of that email, Mr McMurray had not been provided with any document that revealed that the AIG policy contained the Contract Works Exclusion clause. On receipt of the email from Mr Yeo, Mr McMurray read the invoices but not the exclusion clause and did not become aware that the AIG policy contained the Contract Works Exclusion clause until after the fire destroyed the almost renovated house.[25] Mr McMurray's evidence is that Mr Bresland did not at any time before the fire tell him about the Contract Works Exclusion clause in the AIG policy or to check Mosman Bay's insurance.[26] Nor did he give any advice to Mr McMurray about the exclusion clause.
[25] Exhibit 1, [120] ‑ [124].
[26] Exhibit 2, [38], [41]; ts, 12 August 2020, 657 ‑ 658 and 669.
The following uncontradicted evidence of Mr McMurray, and the contemporaneous documents, establish that the Bresland parties failed to bring the Contract Works Exclusion clause to Mr McMurray's attention prior to 23 October 2015, despite the fact that:
(a)on or about 24 October 2014, Mr Bresland met with Mr McMurray at Mr McMurray's office.[27] At that meeting, Mr McMurray had with him a bundle of documents provided to him by the Bresland parties that did not include the Contract Works Exclusion clause in the AIG policy, and Mr Bresland did not tell Mr McMurray about the exclusion clause;[28]
(b)at a meeting at Mr McMurray's office on 2 September 2015, Mr McMurray had a bundle of insurance documents prepared by Bresland Consultants, titled 'Frederick & Jennifer McMurray schedule of insurances 2014/2015', that had been provided to him by Mr Bresland before, or at, that meeting, however:
(i)the bundle included a schedule for the AIG policy but did not include any document containing a statement about a contract works exclusion; [29]
(ii)Mr Bresland did not say anything about a contract works exclusion or any exclusion from cover in the AIG policy;[30]
(iii)Mr Bresland did not tell Mr McMurray to check the builder's insurance;[31] and
(c)on or about 12 October 2015, Mr Bresland met with Mr McMurray at Mr McMurray's office. Mr McMurray had with him a bundle of insurance documents provided by Bresland Consultants (that did not contain or include a statement about the Contract Works Exclusion clause in the AIG policy) and Mr Bresland did not give any advice to Mr McMurray about any relevant term of any insurance contract identified in the folder of insurance documents and did not tell Mr McMurray about the Contract Works Exclusion clause in the AIG policy.[32]
4.2 The McMurrays engage Mosman Bay to renovate the Wellington Street house
4.2.1 The terms of the contract between the McMurrays and Mosman Bay, and the Tokyo Marine policy of insurance
[27] Exhibit 1, [43] ‑ [51].
[28] Exhibit A, 231 ‑ 274; Exhibit 1, [44] - [51].
[29] Exhibit 1, [80] ‑ [89]; Exhibit A, 457 - 463.
[30] Exhibit 1, [80] - [89]; Exhibit A, 457 - 463.
[31] Exhibit 2, [41].
[32] Exhibit 1, [90] ‑ [111]; Exhibit A, 560 ‑ 625.
Mr McMurray came to engage Mr Walling's company, Mosman Bay, to renovate the house in late 2014 or early 2015 after receiving a recommendation from a friend who had previously engaged Mosman Bay to carry out renovation works to a similar property.
The McMurrays' architects wanted Mr McMurray to speak to two other builders but ultimately the decision was made to engage Mosman Bay to carry out the works to the house.[33]
[33] ts, 11 August 2020, 606.
It is common ground that the terms of the contract were cost (of works) plus a contractor's fee of 13% (margin).[34] Initially, the terms of the contract were not reduced to writing.
[34] ts, 12 August 2020, 958; Exhibit A, 794.
Mr McMurray does not recall having a discussion with Mr Walling about Mosman Bay taking out insurance for the renovation works, but it was Mr McMurray's expectation that Mr Walling would ensure that such insurance was arranged. Mr McMurray has some familiarity with building contracts and insurance for commercial works projects because he is a director of Sanwell Pty Ltd, which is part of the Sanwell group of companies that trades as Sanwell Plumbing and Civil and is engaged in the commercial construction industry providing hydraulic services for major construction projects.[35]
[35] ts, 12 August 2020, 649.
Mosman Bay commenced the renovation works in May 2015.
After the renovation works commenced, Mosman Bay provided invoices to Mr McMurray for payment for residential builders' warranty insurance and other insurances, such as workers' compensation insurance and construction costs insurance, for the Wellington Street property, which invoices were paid by Mr McMurray without question.[36]
[36] ts, 12 August 2020, 664 ‑ 665; Exhibit A, 390 - 397.
One of the insurance policy invoices forwarded to Mr McMurray by Mosman Bay for payment was the Tokio Marine policy, which was an annual projects construction and legal liability insurance for alterations and additions to the current house at Wellington Street, and for construction costs, including principal supplied items, of $800,000 (to cover the Wellington Street renovation works).[37]
[37] Exhibit A, 394 - 395.
In October 2015, the McMurrays received a land tax assessment bill for the Wellington Street property and sought an exemption on grounds that the property was intended to be their primary place of residence. The Office of State Revenue informed the McMurrays that the exemption from land tax on the property would be granted if they provided, among other things, evidence of the building contract with the builder (Mosman Bay).[38]
[38] ts, 12 August 2020, 661 ‑ 662.
As a result, the McMurrays and Mosman Bay entered into a contract in writing for the renovation works dated 16 February 2015.[39] The document executed by the McMurrays and Mr Walling (on behalf of Mosman Bay) is titled 'Commercial Cost Plus Contract' and 'Australian Building Industry Contract, ABIC CP - 2014 C'. The material contract terms are pre-printed and comprise standard commercial terms. The contract bears two logos on the document that indicate that the terms are authorised by the Australian Institute of Architects and Master Builders Australia. Particulars of the parties' details were completed by Mr McMurray in handwriting, and the document was executed by Mr McMurray, Mrs McMurray and Mr Walling.
[39] Exhibit A, 276 - 346, see in particular 280.
When Mr McMurray gave evidence, it was his recollection that Mr Walling had provided the pre-printed form to him, but he could not say for certain whether Mr Walling gave the document to him or whether he provided to Mr Walling.[40] Mr McMurray did not review the pre-printed terms in the document carefully. His focus was to go through the form, fill out the relevant details, ensure that it was signed by all parties, and to send a copy to the Office of State Revenue.[41]
[40] ts, 12 August 2020, 662.
[41] ts, 12 August 2020, 668.
It is Mr Walling's recollection that Mr McMurray provided the pre‑printed form to him and that this was the first occasion he had executed a commercial cost plus contract in this form. However, the terms of this contract were not entirely unfamiliar to him. He said that Mosman Bay uses a pre‑printed non‑commercial (cost plus contract) form which provides for similar terms as the document he executed (on behalf of Mosman Bay) with the McMurrays.[42]
[42] ts, 17 August 2020, 965.
In these proceedings, who provided the pre-printed terms to whom is not material. The only substantial issue that arises out of the execution of this document is, if the court finds that AIG is liable to the McMurrays in their claim of breach of contract, whether AIG is entitled to be subrogated to the rights of the McMurrays against Mosman Bay pursuant to the terms of this contract.
If AIG is entitled to exercise the rights the McMurrays have under this contract with Mosman Bay, AIG claims it is entitled to recover, any amount that it is required to indemnify the McMurrays, from Mosman Bay, pursuant to the indemnity clause in cl D1.4 and D2.1 of the contract, or alternatively under cl E2.1 of the contract.
The terms of the contract executed between the McMurrays and Mosman Bay, and AIG's claim for subrogation to the McMurrays' rights under this contract, are considered in 7.1 below.
4.2.2 The renovations - a refurbishment of the original house
As counsel for the McMurrays stated in opening, the renovation works can more properly be described as a refurbishment of the original house.
In essence, the layout and size of the original house remained substantially unchanged by the renovations. The interior renovation works were largely 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.[43]
[43] Annexed to these reasons and marked with the letter 'A' is a list of progress claims (issued by Mosman Bay) including a list of works that comprised the renovation works; Exhibit A, 1370 - 1371.
It appears that a full set of working drawings for the renovation works were not prepared by the McMurrays' architects. Mr Walling gave evidence that they did not know the full extent of the renovations at any stage. Instead, the architects came to site once a week, and provided instructions as to what work was required to be done.[44] Mr Walling's evidence on this point was not in contest and, in any event, this evidence is consistent with the drawings tendered into evidence. From those drawings, it appears clear that some of the renovation works that was planned to be carried out when council approval was given for the renovation works changed as the work progressed.[45]
[44] ts, 17 August 2020, 964.
[45] Compare the site & ground level plan approved by the Town of Mosman Park on 6 March 2015 (Exhibit A, 3350) with the site & ground level plan cabinet work and finishes plan bearing a date of 11 August 2015 (Exhibit A, 3427).
From the drawings, and the description of work contained in a list of works comprising the renovation works, the works to the ground floor of the house and its surrounds were as follows.
To the exterior of the ground floor, new decking was added to the rear of the house and a fishpond was built under the bridge to the front entry of the house.
To the interior of the ground floor, new timber flooring was installed to most, if not all, of the ground floor. None of the locations of any of the internal walls of the house appear to have been moved or changed on the ground floor, except for the repurposing of some of the rooms, and the closing of an entry near the lift by installing a section of wall and removing part of a wall near the lift to create a new entry from the lift and laundry area.[46]
[46] Exhibit A, 3247 and 3286; Exhibit 3 and Exhibit B, 54 - 57; ts, 18 August 2020, 1013 - 1014; see also plans shown as Annexure B attached to these reasons (original ground floor as built - post tender dated 19 March 2003 and showing revisions on 1 July 2003) and Annexure C attached to these reasons (plan showing renovations to the ground floor, including timber finishes, dated 11 August 2015).
It appears from the layout of the existing house as built, and the drawings depicting the renovation works that were built or were in an advanced stage of completion, that by the end of the work day before the night of the fire:
(a)the kitchen, pantry, downstairs ensuite and powder room, dining/meals room, living room, laundry, lift and staircase on the ground floor remained in the same locations as they were prior to the renovations (although new fixtures and fittings had been, or were in the process of being, installed);
(b)the rear terrace area of the ground floor had been enclosed, and its use designated as a loggia (a gallery that can open to the elements with doors that open wide on both sides), and an enclosed bar had been, or was in the process of being, constructed to the eastern side of the loggia in what had been the rear terrace area. It does appear that a wall on the eastern side of the bar had been built to extend the area of the bar that was previously part of the rear terrace area;
(c)new decking had been built to wrap around the ground floor rear of the house, from the eastern side of the property from the bar area to the western side of the house around the existing pool;
(d)although it is not entirely clear, the only interior walls that appear to be have been removed, in part, or in whole, and replaced on the ground floor was a small area of wall near the lift, and an area of wall in the ground floor entry between the rooms proposed to be the dining room and the sitting room;
(e)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;
(f)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;
(h)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;[47]
(i)Loba Oil had been specified by the McMurrays' interior designer, Mr Lyon, to use on the wood wall panels and battens to match the new floorboards; and
(j)all of 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, as set out below, there is no evidence that the painters were working inside the dining room on the day before the night of the fire.
4.3 The fire - the lay evidence and Mr Bell's evidence
[47] Exhibit 3.
Two hypotheses were considered by the fire forensic investigators (other than Mr Bell) as possible causes of the fire. The first, as already outlined, is that the origin of the fire was in the green rubbish bin in the entry to the dining room and the cause of the fire was the self-heating of rags infused with Loba Oil placed in the bin by the painters. The second hypothesis is that an intruder entered the house sometime on the night of 15 or early morning of 16 January 2016 and lit a fire in or near the green bin in the entry to the dining room.
I will leave aside the issue as to whether it is open to deal with the intruder theory on the pleaded cases of the McMurrays and Mr Holgersson, before any finding can be made of how likely the possibility of an intruder lighting a fire was, when compared to the possibility that oil soaked rags were placed in the green plastic bin by the painters or someone else working at the house, and thereafter self‑heated and then ignited the contents of the bin.[48] Before that issue is considered, it is relevant to consider first the evidence about what renovation works were being carried out in the days leading up to the fire, and what the witnesses say about what was disposed of in the green bin and the skip bin on the verge. Second, it is relevant to consider whether an intruder could have accessed the house on the night of the fire without being seen by a CCTV camera that was located under the eaves of a house on the western side of the McMurrays' house and other CCTV cameras at the front of the McMurrays' property. It is also relevant to consider, in this context, Mr Tisdale's evidence that he found a lock picking device after the fire on the ground outside the laundry door of the McMurrays' house.
4.3.1 What renovation work had been completed and what painting work was in the process of being completed the day before the night of the fire
[48] This issue is considered in 4.5.2 below.
For several months before the fire, Mr Thomas was Mosman Bay's site supervisor, and foreman of the Wellington Street renovations. At the time he gave evidence he had ceased to be employed in the building industry.
Mr Thomas had keys to the house. He was on-site at the Wellington Street property all day, every day for some months prior to the fire. The only time Mr Thomas left the Wellington Street property (during working hours) was to visit the office of Mosman Bay.[49] It was his practice to be the last to leave work at the house each day, and to lock the house every day after all the workmen had left. Prior to the fire, he had on occasions left a key outside (for contractors to use to enter the house). However, at the end of the work day on the afternoon of the night of the fire, he did not do so because new kitchen appliances had been delivered for installation in the house.[50] In any event, it is common ground that the house was locked when the fire occurred.
[49] ts, 18 August 2020, 1012.
[50] ts, 18 August 2020, 1004.
Mr Thomas used a large table as a desk in the area designated as 'living' in the large back room adjacent to the loggia, where he kept copies of working drawings and plans.[51]
[51] ts, 18 August 2020, 1005 - 1006, 1011.
Although Mr Thomas had been engaged full-time coordinating the works by the contractors at the site on behalf of Mosman Bay and to keep the site clean and tidy for some months before the fire, he was not the on-site supervisor for Mosman Bay when the entry walls to the dining and sitting rooms were partly demolished and reconstructed. This work had been commenced and completed before he worked as the site supervisor for the Wellington Street renovation works.[52]
[52] ts, 18 August 2020, 1021.
Despite the fact that Mr Thomas had not been present at the site when the entry walls had been demolished and reconstructed, when cross‑examined by senior counsel for AIG, Mr Thomas was asked to describe how the timber framework containing the sliding doors, the panelling battens and the faux column had been constructed. In response, he said:
(a)the timber framework for the doors was affixed by nails to the cavity brick walls;[53]
(b)the faux column inside the dining room was constructed of gyrock on the face of the column;[54]
(c)the panelling on the entry walls to the dining room and the sitting room (which overlaid the wall that comprised the frame for the sliding doors and brickwork) was painted black, and overlaid with 40mm x 40mm linear battens. Loba Oil was applied to the battens;[55]
(d)inside the dining room the walls were gyprock lined and were in the process of being prepared for wallpaper;[56] and
(e)the face of the sliding doors that faced the entry hallway was mirrored with linear battens.[57]
[53] ts, 18 August 2020, 1026 ‑ 1027.
[54] ts, 18 August 2020, 1027.
[55] ts, 18 August 2020, 1027 ‑ 1029.
[56] ts, 18 August 2020, 1028; see also the evidence of Mr McMurray; ts, 12 August 2020, 640, his recollection was that the walls of the dining room were to be lined with wallpaper.
[57] ts, 18 August 2020, 1035.
When a cabinet work and finishes drawing for the ground level, dated 11 August 2015,[58] was put to Mr Thomas, Mr Thomas agreed that the drawing showed that the faux column inside the dining room (which appears to have been built to match part of a brickwork column on the opposite side of the room near the front door) was panelled with flat timber.[59]
[58] Exhibit 3.
[59] ts, 18 August 2020, 1034.
By the beginning of the work day on Friday 15 January 2016, it appears that the entry walls, all of the wood finishes, including the wood and the battens on the sliding doors to the entries to the dining and sitting rooms and the faux lined column in the dining room had been constructed. What had not been completed was the application of the final finish of Loba Oil by the painters to some of the woodwork on the walls of the house.
Mr Holgersson and Mr Simpson both have their own contract painting businesses. However, from time to time for big jobs they often work together as joint contractors.
Mr Holgersson and Mr Simpson agreed that in late October or early November 2015 that Mr Simpson would 'run' the internal painting works of the Wellington Street property job.[60] From this evidence, it can be inferred that it had been agreed by Mr Holgersson and Mr Simpson that Mr Simpson would carry out the interior painting work and supervise the work of the other painters that they engaged to assist them (relevantly Mr Roach and Mr Milton). This inference is consistent with the evidence of Mr Simpson who, when cross‑examined by counsel for the Bresland parties, said he had supervised the work of Mr Roach and Mr Milton to ensure that the work was of the high standard required for the painting of a luxury home, and that the worksite was kept tidy.[61]
[60] Exhibit 25, [31].
[61] ts, 18 August 2020, 1330 - 1331.
The painters had been applying Loba Oil to the wood surfaces on the walls throughout the house prior to the fire. Both Mr Simpson and Mr Holgersson gave evidence that they had not used Loba Oil before using it at the Wellington Street property as it is designed mainly for wood floor finishes.[62]
[62] Exhibit 23, [24] - [25]; Exhibit 25, [33].
It appears that the staining work of the timber surfaces with Loba Oil in the house commenced sometime before Christmas 2015. Mr Holgersson carried out some of the work until he injured his knee prior to Christmas 2015,[63] which prevented him from doing any painting or supervising any painting work for a number of weeks. As a result of his injury, he did not attend the house during the period of at least two or three weeks prior to the night of fire.[64]
[63] Exhibit 25.
[64] Exhibit 25, [41].
It is common ground that the painters ran out of supplies of Loba Oil three to four days, or up to a week, in the week before the fire. As a consequence, the staining of the timber was interrupted until a new supply of Loba Oil was ordered and became available at the site. It appears that the new supply arrived at the house and the staining of the timber work recommenced a day or so before the night of the fire.
It is Mr Thomas' evidence that the painters ran out of Loba Oil earlier than 10 January 2016 and it took about a week to replenish their supplies.[65] When Mr Simpson was asked in cross‑examination by counsel for the Bresland parties whether he could recall how long they had to wait for the new supply of Loba Oil, he said he could not recall. Nor could he recall whether the supply of Loba Oil arrived a few days before the fire. When he was asked whether it took a week or so to obtain a new supply of Loba Oil he said, 'yes', but he then said it might have been three to four days.[66] The significance of this evidence is that a fire occurred in the early hours of Tuesday 12 January 2016 in the skip bin located on the verge outside the front of the house. I return to this issue below in 4.3.2 and 4.4.9.
[65] ts, 18 August 2020, 992.
[66] ts, 24 August 2020, 1332.
It appears that on that Friday 15 January 2016, the painters, Mr Simpson, Mr Roach and Mr Milton, did not apply Loba Oil to any timber inside the dining room, but applied Loba Oil to a small section of the linear oak battens affixed to the sitting room entry wall near the stairs (that is, a small section of the entry wall, opposite to the dining room entry wall).
It is Mr Thomas' evidence that on Friday 15 January 2016, the painters were spraying a ceiling black in the kitchen, dining room and lounge room, and late in the afternoon he saw the painters applying Loba Oil to one panel (of battens affixed to ply sheets) on the wall of the sitting room near the stairs in the entry to the house.[67]
[67] ts, 18 August 2020, 999 - 1000.
Mr Thomas was interviewed by one of the insurance investigators shortly after the fire had occurred. When he was interviewed he marked up a plan of the ground floor showing the location of the wood panel where he saw the painters applying the Loba Oil in the afternoon on 15 January 2016 by making a note on the plan in the entry hall that read 'unfinished panel'.[68] When Mr Thomas was cross-examined by counsel for the McMurrays, he re-marked the plan in the same place where he had written the note 'unfinished panel' with an X in red. Mr Simpson gave evidence consistent with Mr Thomas' evidence on this point. Mr Simpson said that on the day before the night of the fire they were staining wood in the entrance way heading down towards the stairs towards the powder room (which is the entry wall of the outside of the sitting room).[69]
[68] Exhibit 15 and ts, 18 August 2020, 999 - 1000. Attached to these reasons as Annexure D is a copy of the plan.
[69] ts, 24 August 2020, 1314.
When being cross‑examined by senior counsel for AIG, Mr Simpson was asked to describe how they (he and the other painters) applied the Loba Oil to the wood panelling. He said that they applied Loba Oil that had been mixed with a hardening agent to the wood by using a brush. They then used a scraper to remove the excess oil, and a rag to feather in the oil to render the application of the oil consistent across the surface of the wood.[70] The rags they used for the staining work were white.
[70] ts, 24 August 2020, 1317 - 1318.
The rags used by Mr Holgersson, Mr Simpson and the other painters to apply Loba Oil were white rags pre-cut to approximately one foot² that had been purchased in bulk.[71] After the fire, a bag of unused white rags used for this purpose were found together with unopened tins of Loba Oil, and other painting supplies in the large living room in the middle of the back of the house near the kitchen bench.
[71] ts, 19 August 2020, 1119; ts, 21 August 2020, 1293.
Mr Holgersson described a similar process in his witness statement. He stated:[72]
(a)although he had never used the Loba Oil product, this did not present any difficulty as it was not unusual for an owner to specify a particular product;
(b)the initial application of the product was applied with a brush. Although a rag could be used to wipe up any excess or drips, he did not recall if he did so; and
(c)after the initial application, rags were used to take the product off the surface, so as to end up with the right colour stain. Too much product and the colour would not be correct.
[72] Exhibit 25, [33], [35] and [36].
There is evidence before the court that it may have been the case that it was not only the painters who applied Loba Oil to wood and finishes the day before the night of the fire. Mr Simpson in his witness statement states that on 15 January 2016, he heard Mr Thomas ask Mr Roach if he could borrow some of the Loba Oil product, as he had a small job that he needed to do on some beading.[73] However, this evidence is of no assistance in determining whether there were oily rags in the green bin in the front of the house on the night of the fire because this evidence was not raised or put to Mr Thomas by any party when he gave his evidence.
4.3.2 The disposal of the rags used by the painters to apply Loba Oil to the wood finishes
[73] Exhibit 23, [40].
Outside the front of the house, close to the verge, was a large builders' skip bin. Inside each level of the house were medium-sized green 60 L rubbish bins approximately 600 to 700 mm tall,[74] without black lids.[75]
[74] ts, 18 August 2020, 998.
[75] Attached to these reasons and marked as Annexure E is a photograph of the type of green rubbish bins that were located on each level of the house, including the dining room. The rubbish bin in the dining room is referred to in these reasons as the green rubbish bin.
On the ground floor, on the day before the night of fire, there was one green rubbish bin, and it was in the dining room.
One of the contested factual issues is whether the green rubbish bin in the dining room had been moved from a position in the dining room, away from the entry area where the sliding doors opened, to another location in the entry to the dining room, close to where the sliding doors opened into the entry.
In particular, an issue arises on the evidence about whether the green rubbish bin in the dining room had been moved from the position that Mr Thomas said it was located when he locked up and left the house at 3.30 pm on 15 January 2016 to where the remains of the bottom of a green rubbish bin were found after the fire on the following morning (in the entry to the dining room, in the area of the opening to the sliding doors).
The most highly contested factual issue in the proceedings is whether, on 15 January 2016, the painters had placed any oily rags, which had been used to apply a consistent finish of Loba Oil to the wooden surfaces, in the green rubbish bin in the dining room. The second highly contested factual issue is related to the first and that is whether, when Mr Thomas locked up the house after everyone had finished work in the afternoon on 15 January 2016, oily rags used to apply Loba Oil were in the green rubbish bin. The third highly contested factual issue arises if it can be found that there were oily rags in the green rubbish bin and that is whether the oily rags self-heated and subsequently self‑ignited, causing the fire that destroyed the house and its surrounding structures.
Turning to the evidence about the use of the white rags and the contents of the green rubbish bin in the dining room at the end of the work day on 15 January 2016, it is not in contest that the white rags used to apply Loba Oil could not be reused once they became saturated with 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.[76]
[76] ts, 24 August 2020, 1316.
Prior to the fire, Mr Simpson had worked with Mr Milton before for a few years and Mr Roach for a few months, and, until Mr Simpson left early on the day of the fire, they worked together at the Wellington Street site as a team carrying out the painting works.[77] Before they first started applying the Loba Oil product, Mr Simpson discussed with Mr Roach and Mr Milton about how the rags for the Loba Oil should be disposed of. He told them not to screw the rags up and put them in a confined space.[78] Mr Simpson regarded Mr Roach and Mr Milton as very experienced painters and relied upon each of them to dispose of the oily rags in this way.[79]
[77] ts, 24 August 2020, 1329, 1331; Exhibit 23, [35].
[78] ts, 24 August 2020, 1320.
[79] ts, 24 August 2020, 1319.
On the afternoon of the day before the fire, Mr Simpson left the site at about 2.30 pm to go to another job, and left Mr Roach and Mr Milton to continue the painting work at the Wellington Street property.
When Mr Simpson gave oral evidence, he said that the Loba Oil rags were disposed of first by drying the rags out by hanging them on the side of the skip bin outside the house on the verge, and then, once the rags were dry (either later that day or the next morning), disposing of them by placing them inside the skip bin.[80] However, in his witness statement, he stated that he provided some instructions to Mr Roach and Mr Milton before he left the site on the afternoon of 15 January 2016. His instructions were:
(a) he requested that they make sure before they left the site that they either put the (oily) rags in the skip bin outside, or lay them out flat near the store area across planks and ladders to dry out in the kitchen at the rear of the property; and
(b) he told them they were not to put (the oily rags) in the inside bins on each level of the house.[81]
[80] ts, 24 August 2020, 1319.
[81] Exhibit 23, [37].
Having regard to the evidence of the McMurrays' solicitor, Mr Blundell,[517] and my experience as the case manager of this matter for the past three years, and as the trial judge, I am of the opinion that there is an arguable case that a taxing officer may find the costs allowable under the relevant determinations for some of the items claimed by the McMurrays to be inadequate and that it was necessary for significantly more resources to complete the tasks allowed for under those items. This is because the intertwining factual and legal issues raised in these proceedings and the number of parties in the proceedings resulted in more time to complete the work claimed in respect of the items.
[517] Affidavit of Mark Alan Richard Blundell sworn 14 October 2021.
A total of 42 subpoenas were issued by the parties, a number of which were for the production of documents prior to trial. In turn, this led to a large number of documents being included in the trial bundle, which were only a proportion of the documents discovered, such that the amount of hours allowed by the scale for discovery (item 7), inspection (item 8) and preparation of case (item 19) is inadequate, and should be lifted.
With the exception of the interlocutory hearing on 3 June 2020 (which was a hearing of the application by AIG to adduce expert evidence from Mr Visotin, following which an order was made that the McMurrays have liberty to apply for a special costs order in respect of that application), it is unclear on the materials relied upon by the McMurrays (other than for the work performed by Mr Hancy) how an impression could be formed that, for any other chamber summons in the proceedings, it was necessary to incur costs in excess of the scale.
It is noted, however, that Mr Hancy appeared on behalf of the McMurrays on 3 June 2020 and that AIG agree that, in respect of any work performed by him in the proceedings, that work performed by him should be assessed, at the rate that he charged for that work. I agree that the time limits for proceedings in chambers in item 10(a) for the hearing of this application (being the application determined on 3 June 2020) should be lifted. This is because, as Mr Blundell points out in his affidavit, Mr Visotin's proposed evidence sought to address a new line of enquiry which was an issue not previously addressed by Mr Visotin.[518] I accept that additional work would have been necessary and more preparation time was required than the determinations for this item allow, given that a consideration of the report by Mr Visotin required a consideration of all of the expert reports by the forensic fire investigators for preparation for this hearing.
[518] McMurray v AIG Insurance Australia Ltd [No 4] [2020] WASC 210 [47].
In addition, I note that although there have been four interlocutory judgments delivered prior to the trial, two of those judgments were the subject of the delivery of reasons for decision in respect of costs, and costs orders were made in respect of those two interlocutory decisions.
The first interlocutory judgment, which was the judgment on a preliminary issue delivered by Chaney J, the McMurrays' costs were reserved by an order made by consent on 9 May 2018. AIG did not participate in the hearing of the preliminary issue, nor in the appeal against the decision. The only parties that appeared in the hearing of the preliminary issue were the McMurrays, Tokio Marine and Mr Holgersson. For the reasons I give in 4.2, I am not satisfied that an order should be made that AIG pay the McMurrays' costs of their action against Tokio Marine.
In addition, there is no basis in respect of which it is open to the McMurrays to claim that the costs payable by AIG are to be taxed without regard to the scale limits for appeals – preparing appeal for hearing, appeals – counsel fee on hearing, including preparation.
There has only been one appeal heard and determined in the proceedings, and final orders as to costs were made by the Court of Appeal. The appeal was instituted by Tokio Marine,[519] against a decision made by Chaney J on a preliminary question involving the proper construction of the policy of insurance taken out by Mosman Bay, in respect of whether the Tokio Marine policy provided legal liability insurance cover to Mr Holgersson.[520] AIG did not participate in the appeal. On 13 August 2019, the Court of Appeal ordered, among other orders, that the appeal be dismissed and that Tokio Marine pay the McMurrays' costs of the appeal, to be assessed if not agreed. In light of this order, the basis of assessment of the costs of the appeal is not open to be considered by this court. First, the Court of Appeal was seized of the issue of costs of the appeal. Second, and in any event, the order made by the Court of Appeal was a final order. There was no order made by the Court of Appeal that the costs of the appeal be costs in the main proceedings.
[519] Tokio Marine & Nichido Fire Insurance Co Ltd v Holgersson [2019] WASCA 114.
[520] McMurray v AIG Insurance Australia Ltd [2018] WASC 144.
As AIG points out in its written submissions, the mere fact that a party's counsel or instructing solicitor has charged at a rate higher, or even significantly higher rate than prescribed in the applicable costs determination, does not of itself justify lifting the scale.[521]
[521] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76 (S) [22]; citing Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S); (2003) 28 WAR 95 [22].
As set out above, however, AIG accept that the hourly rates for all work performed by Mr Hancy should be lifted to the hourly rate he charged. However, I am not satisfied that there is evidence before the court to justify an order to lift the hourly rates for any of the items for the work performed by any of the McMurrays' senior and junior practitioners.
An order should be made that AIG pay the McMurrays' costs of the action against it, including any reserved costs, to be assessed if not agreed, in respect of the following items without regard to the scale limits as follows:
(a)the hourly rates of limits be lifted for all work performed by Mr Hancy in respect of the hourly rate he charged, including, but not limited to, any of the items referred to in subpar (b) of this paragraph;[522]
(b)the total hours and total amounts of the limits of the scale items of the following items be lifted:
(i)giving discovery;
(ii)proceedings in chambers (for the application heard on 3 June 2021 – item 10 (a)); and
(iii)preparation of case; trial – fee on brief.
4.0 Should AIG pay the McMurrays' costs of their action against the Bresland parties, the costs of the Bresland parties in defending the action and the McMurrays' costs of their action against Tokio Marine?
4.1 Sanderson and Bullock orders
[522] This would cover but should not be limited to his work drafting writ of summons and statements of claim, scale items of trial, attending on reserved judgments, pre‑trial mediation, conferrals and other conferences.
In Coastal Hire Pty Ltd v Ewers, Newnes JA outlined the following principles:
(a)The court has a very wide discretion in relation to costs. It is a discretion to be exercised judicially. In the exercise of the discretion, the fundamental question must always be what is just in the particular circumstances of the case.[523]
(b)The court's discretion as to costs exists to enable the court to do justice between the parties in the particular circumstances of the case. Therefore, where a Bullock or Sanderson order is sought ultimately the question must always be whether it is just that, as between the plaintiff and the unsuccessful defendant, the unsuccessful defendant should bear the burden of the successful defendant's costs.[524]
(c)The exercise of the relevant discretion is not amenable to hard and fast rules, but normally a Bullock or Sanderson order will be made only where:
1.the plaintiff's claims against two or more defendants are substantially connected or interdependent;
2.the plaintiff acted reasonably in suing the successful defendant; and
3.there is something in the conduct of the unsuccessful defendant which makes to just to move the burden of the successful defendant's costs from the plaintiff to the unsuccessful defendant.[525]
[523] Coastal Hire Pty Ltd v Ewers [2009] WASCA 36 (S) [22].
[524] Coastal Hire Pty Ltd v Ewers [2009] WASCA 36 (S) [35].
[525] Coastal Hire Pty Ltd v Ewers [2009] WASCA 36 (S) [35].
Furthermore, Newnes JA explained there are no practical differences between a Sanderson and Bullock order:[526]
It has long been accepted that where a plaintiff succeeds against one defendant but fails against another defendant in an action against them for substantially the same relief, the court may order that the costs of the successful defendant be paid, directly or indirectly, by the unsuccessful defendant. Where the court makes a Sanderson order, the unsuccessful defendant is ordered to pay the successful defendant's costs of the action direct to the successful defendant: Sanderson v Blyth Theatre Co [1903] 2 KB 533. Where the court makes a Bullock order, the unsuccessful defendant is ordered to pay to the plaintiff the costs for which the plaintiff is liable to the successful defendant: Bullock v London General Omnibus Co [1907] 1 KB 264; Johnsons Tyne Foundry Pty Ltd v Maffra Corporation (1948) 77 CLR 544, 572.
Generally there is no practical difference between the two forms of order, except where the unsuccessful defendant is insolvent, or there is at least a real risk that he is impecunious. Then the insolvency (or the impecuniosity) of the unsuccessful defendant is a factor to be taken into account as part of the overall circumstances for the purpose of determining which form of costs order should be made as a matter of fairness: Bankamerica Finance Ltd v Nock [1988] AC 1002, 1011; State of Victoria v Horvath(No 2) [2003] VSCA 24 [15].
4.2 The Bresland parties
[526] Coastal Hire Pty Ltd v Ewers [2009] WASCA 36 (S) [23] ‑ [24] (Wheeler and Buss JJA agreed).
I agree that a Bullock order should be made against AIG in respect of the McMurrays' costs of their action against the Bresland parties. However, I am not of the opinion that AIG should pay the McMurrays' entire costs of their action against the Bresland parties. It is my view that AIG should pay 50% of the McMurrays' costs of the action against the Bresland parties.
The McMurrays succeeded in their claims in contract and tort for breach of a retainer against the Bresland parties and breach of duty, which claims did not involve AIG. The Bresland parties should not be entitled to their costs for defending their failure to take reasonable care.
The McMurrays' claim against the Bresland parties was in the alternative to their claim against AIG, and was interconnected.
Until the trial, the issues between the McMurrays and the Bresland parties of breach of the retainer (breach of contract claim) and breach of duty of care (claim in tort) were in issue. After the McMurrays' lead witness and documentary evidence in respect of this issue, counsel for the Bresland parties conceded the breaches had been made out. As AIG point out, the breach of retainer and breach of duty on the part of the Bresland parties did not involve AIG, and it could not have been known by AIG that Mr McMurray did not become aware of the Contract Works Exclusion clause until after the fire.
Because the McMurrays were entirely successful on this issue against the Bresland parties, the Bresland parties should pay the McMurrays 50% of the McMurrays' costs of their action against them. As the McMurrays point out in their written submissions, there was wrongful conduct by the Bresland parties that led to the litigation, and but for the findings against AIG, the Bresland parties would have been liable to pay damages to the McMurrays. For this reason also, the Bresland parties should pay 50% of the McMurrays' costs against them and bear their own costs of defending the McMurrays' action.
A Bullock order against AIG is appropriate for 50% of the McMurrays' costs of bringing the action against the Bresland parties. This is because the McMurrays' action against the Bresland parties was necessary; if AIG's defence succeeded in whole or in part, the Bresland parties would have been liable to pay damages to the McMurrays.
The McMurrays commenced the action initially against AIG only by writ of summons dated 11 November 2016. In its defence dated 12 December 2016, AIG denied liability and sought to justify that denial by reference to the Contract Works Exclusion clause. By raising that defence, AIG focused on the conduct of the Bresland parties, as insurance brokers, in failing to ensure that the McMurrays had insurance cover for all eventualities, including the damage caused by renovation activities. In response to AIG's defence, on 14 December 2016, the McMurrays filed a minute of proposed amended writ of summons to add the Bresland parties as a second defendant. Consequently, I am satisfied it was reasonable for the McMurrays to sue the Bresland parties.
The Bresland parties, in their reply submissions on costs dated 28 October 2021, submit that if they are to be brought into account for defending the failure to take reasonable care issue, it should be by qualifying an order that the McMurrays or AIG pay their costs of defending the action by their not being able to recover their costs on that issue only; or by being ordered to pay the McMurrays' costs of that issue only. In part, this submission has some merit. However, having case managed these proceedings for some years and having been the trial judge, it is my view that the breach of duty issues occupied at least 50% of the matters raised between the McMurrays and the Bresland parties. It is my view that an order should be made to require payment of costs assessed as a percentage rather than by issues, because it would be difficult for the taxing officer who assesses the bill to assess which work was performed for particular issues.
At the trial, the Bresland parties prepared detailed closing submissions dated 28 August 2020 that supported the McMurrays' case as to why AIG was liable to indemnify the McMurrays under the AIG insurance policy. I also agree that AIG's conduct led to the McMurrays joining the Bresland parties to the litigation because it created uncertainty as to who was the proper defendant. In these circumstances, it is this conduct (leaving aside the breach of retainer and breach of duty issues) that makes it just to move 50% of the burden of the Bresland parties costs from the McMurrays to AIG.
It is immaterial that it was not until the end of the trial that the McMurrays decided not to pursue claims against the Bresland parties for the costs of accommodation and storage of items, costs which they were not seeking from AIG. These amounts were small, and if pressed, the issue whether those amounts should be recovered or not would have occupied very little time in the proceedings. It is also immaterial that it did not become clear to the court until commencement of the trial that the McMurrays' case was that if they succeeded against AIG on the basis of Mr Cugley's assessment of the costs of construction, they would have no claim against the Bresland parties. The Bresland parties have put no material before the court to establish that this issue was not raised with them prior to the commencement of the trial.
For these reasons:
(a)an order should be made that AIG pay 50% of the McMurrays' costs of the action against the Bresland parties, including any reserved costs, to be assessed if not agreed;
(b)an order should be made that AIG pay 50% of the costs of the Bresland parties of defending the McMurrays' action against them, to be assessed if not agreed; and
(c)an order should be made that the Bresland parties pay 50% of the McMurrays' action against them, to be assessed if not agreed.[527]
4.3 Tokio Marine
[527] The McMurrays do not seek any special costs order against the Bresland parties.
In circumstances where the McMurrays entered into a settlement agreement with Tokio Marine, including a contribution to the McMurrays' costs of the action against it, there is no basis for the McMurrays to now seek an order that AIG pay their costs of the action against Tokio Marine.
5.0 The third and fourth party proceedings
5.1 Mosman Bay
Mosman Bay (now in liquidation) seeks, and AIG concedes, that AIG should pay Mosman Bay's costs of the third party proceedings and fourth party proceedings, to be taxed. AIG makes this concession because it was found that AIG's action against Mosman Bay was a subrogated claim brought under the construction contract between Mosman Bay and the McMurrays was not permitted to be made in the name of McMurrays prior to indemnifying them for their loss.[528] AIG concedes that it should pay Mosman Bay's costs of the fourth party proceedings because it is open to infer that Mosman Bay would not have sued Mr Holgersson had the third party proceedings not been commenced.
[528] McMurray v AIG Insurance Australia Ltd [No 5] [2021] WASC 300 [653] ‑ [672].
Mosman Bay also seeks an order that AIG pay its costs of its application for costs in the third party and fourth party proceedings to be taxed. I agree that an order should be made that AIG pay Mosman Bay its costs of the application for costs, to be assessed if not agreed. This is because, prior to the concession by AIG, the liquidators for Mosman Bay caused to be filed detailed written submissions setting out its reasons why AIG should pay its costs.
5.2 Mr Holgersson
There is a contest between AIG, Mosman Bay and Mr Holgersson as to who should pay Mr Holgersson's costs.
Both Mr Holgersson and Mosman Bay contend that AIG should pay Mr Holgersson's costs for the fourth party proceedings.
For the reasons I give in 2.2, I am not satisfied that AIG should pay Mr Holgersson's costs on an indemnity basis.
AIG claims that it should not have to pay Mr Holgersson's costs because it did not sue Mr Holgersson and its conduct did not induce or cause Mr Holgersson's involvement in the proceedings. Further, AIG contends that Mr Holgersson sought to involve himself after Mosman Bay withdrew from the proceedings, and an inference should be drawn that he would have sought to involve himself in the proceedings even if he was not sued by Mosman Bay. Consequently, AIG contends it is not just to move the burden of Mr Holgersson's costs to AIG by a Sanderson or Bullock order.
I do not agree.
As Mr Holgersson and Mosman Bay point out in their submissions, the interests of justice require that AIG pay Mr Holgersson's costs of the proceedings, including all reserved costs and the first fourth party's application for costs.
First, the fourth party proceedings did not involve private issues between Mosman Bay and Mr Holgersson. AIG's claims against Mosman Bay in the third party proceedings inevitably lead to the fourth party proceedings. This is because the catalyst for the entire proceeding was AIG's denial of liability under its policy of insurance with the McMurrays on the basis that the fire was caused by self‑ignition of rags infused with Loba Oil (spontaneous combustion) placed in the bin (in the front dining room of the house) by painters engaged by Mr Holgersson on 15 January 2016 using those rags to wipe excess Loba Oil from timber surfaces in the house, which were part of activities undertaken as part of, or in connection with, the renovations of the house.
Second, whether or not AIG's spontaneous combustion hypothesis was correct was the critical factual issue, which issue occupied the majority of the time at trial, on which AIG lost.
Third, having denied liability, AIG brought third party proceedings against Mosman Bay and its insurer, Tokio Marine, on the erroneous basis that if AIG was required to indemnify the McMurrays, then it would be subrogated to the McMurrays' rights under the terms of the construction contract that they had entered into with Mosman Bay. Tokio Marine required Mosman Bay, pursuant to the terms of the insurance contract between them, to bring fourth party proceedings against Mr Holgersson. This was squarely a claim that the fire was caused by the negligence of painters engaged by Mr Holgersson. In those circumstances, the fourth party proceedings resulted directly from the conduct of AIG, were defensive in nature, and Mosman Bay acted reasonably in bringing them.
Fourth, AIG's claim that the Contract Works Exclusion clause was engaged put Mosman Bay at risk of liability for the whole of the McMurrays' loss caused by the fire (to the extent that it was uninsured by Tokio Marine). Mosman Bay was squarely at risk in the third party proceedings if it was found that the fire was caused by Mosman Bay's painting subcontractor, and if it was found that the exclusion clause was engaged. To address that risk, Mosman Bay sought an indemnity from Mr Holgersson by way of the fourth party proceedings. Importantly, when considering Mr Holgersson's application for security for costs against Mosman Bay, it was found that, in the context of Mr Holgersson's application for security for costs, Mosman Bay 'had no practical alternative but to commence the fourth party proceedings in defence of the third party proceedings brought against it by AIG'.[529]
[529] McMurray v AIG Insurance Australia Ltd [No 2] [2018] WASC 391 [87] ‑ [88].
Fifth, even though Mosman Bay withdrew from taking any active part in the proceedings due to its financial circumstances (which ordinarily would have resulted in the dismissal of the fourth party proceedings), it was reasonable for Mr Holgersson to continue to play an active part in the proceedings to defend the collateral attack which had been made on him by AIG in pressing its spontaneous combustion hypothesis. This was particularly so in circumstances where the limitation period for claims against Mr Holgersson had not expired and he remained exposed to the risk of such claims. Defending the collateral attack was necessary for Mr Holgersson to continue to be involved in the proceedings after Mosman Bay withdrew.
I am also of the opinion that the scale limits for preparation of case should be lifted. Although Mr Holgersson did not call any expert fire investigation witnesses, he did cause to be filed a forensic locksmith witness statement and expert report (Mr Tisdale) and called Mr Tisdale in support of his case.[530] Senior counsel and his instructors were required to engage with all of the issues raised by AIG in respect of the fire investigation and fire cause evidence, as analysis of this evidence was central to the factual issues raised about the cause of the fire.
[530] ts 1339.
For these reasons, it is not necessary to consider Mr Holgersson's alternative argument that Mosman Bay pay his costs subject to an indemnity from Tokio Marine. Consequently, it is not necessary to consider the written submissions on this point by Tokio Marine and Mosman Bay (in respect of any liability of Mosman Bay to pay Mr Holgersson's costs prior to 17 March 2020).
I do, however, agree that Mr Holgersson should pay Tokio Marine's costs of opposing Mr Holgersson's claim for an indemnity order against it for costs.
For these reasons, the orders sought by Mr Holgersson in par 2.2 of his re‑amended minute of proposed orders as to costs dated 10 November 2021 should be made.[531]
[531] Set out in [25(b)] of these reasons.
6.0 Orders
I will hear the parties further as to the specific orders that should be made to reflect these reasons.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EC
Associate to the Honourable Justice Smith
20 JANUARY 2022
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