Medalham P/L v NZI Insurance Australia Ltd - [2000] QSC 77

SUPREME COURT OF QUEENSLAND

CITATION: Medalham P/L v NZI Insurance Australia Ltd [2000] QSC 077

PARTIES: MEDALHAM PTY LTD (Plaintiff)
v
NZI INSURANCE AUSTRALIA LIMITED (Defendant)

FILE NO: 11650 OF 1997

DELIVERED ON: 7 April 2000

DELIVERED AT: Brisbane

TRIAL DATES: 31 January and 1, 2, 3, 4, 7, 8, 9, 10, 11 & 14 February 2000

JUDGE: BW Ambrose J

CATCHWORDS: INSURANCE – FIRE – whether fire was deliberately lit

COUNSEL: Mr D R Lynch and Mr P J O’Neill for the plaintiff
Mr E J Lennon QC for the defendant

SOLICITORS: Files, Stibbe & Associates for the plaintiff
Carter Newell for the defendant

At about 5.15 p.m. on 17 October 1997 a small fire was first observed in a cardboard display stand located in a large Mitre 10 hardware store at First Avenue, Bongaree, Bribie Island.

The store was owned by Mr and Mrs Renton who had established and conducted a hardware business in it from the 1950’s or early 1960’s.

Eventually they retired and leased their store to other people who continued to conduct a hardware and building supply business in it.

Eventually the plaintiff became lessee of the premises under a five year lease commencing 11 December 1994. The oral evidence suggests that in fact the plaintiff commenced to carry on a hardware business in that store in 1989. It is unnecessary to consider what changes in the shareholding and control of the plaintiff may have led to the execution of the lease in 1994 because it is clear from its terms that at the time of the fire the plaintiff occupied the store pursuant to that lease – vide Ex. 5. Under the Fourth Schedule to the lease the plaintiff was given two options to extend the five year term. Each option provided for a five year extension.

As the result of the fire that occurred on 17 October 1997 the store was almost completely destroyed together with most of its fittings and stock. Subsequently the remainder of the building was completely demolished, the remnants of the stock sold and the site redeveloped for another purpose.

At the time of the destruction of the premises a little over three years of the plaintiff’s first term of five years had expired. Subject to complying with the requirements of the lease for the exercise of the two options, the plaintiff could look forward to occupancy of the premises for a period of almost 12 years. Under the Third Schedule to the lease the rental was fixed and elaborate provision was made for variation of the rental at the commencement of each of the second and third five year terms should options be exercised.

It is unhelpful and unnecessary to examine in more detail the provisions of the lease relating to extensions and rentals payable.

Over the years Mr and Mrs Renton made extensive additions and alterations to the building they first erected. The initial structure was purchased from army disposals on the mainland, demolished and then taken to Bribie Island by barge (before the advent of the bridge which was constructed many years later) and then re-erected upon land near the centre of the shopping area of Bribie Island at that time. It is clear from photographs that the building had been re-erected partly on a concrete block foundation wall under its southern side which faced on to First Avenue. The building was L-shaped with a southern wing about 30 metres long by about 12 metres wide and a western wing about 23.5 metres long by about 9 metres wide. Both wings of the building were supported on concrete piers except for the concrete block wall which supported the southern wing frontage to First Avenue.

Over the years however, the spaces between the concrete piers on the eastern end of the southern wing were filled in with concrete blocks as were the spaces between concrete piers on the western and northern side of the western wing. It seems that major additions were made over the years to the ground floor area underneath the wooden framed building first erected. Initially the building had been re-erected on wooden bearers resting on the concrete piers and floor joists were placed at about 18 inch centres (with a few variations) on those bearers. The bearers supported by the posts ran in a north/south direction – i.e. at right angles to the bearer bearing the southern side of the building. The floor joists (which were about the same size as the bearers) ran in an east/west direction. Over those floor joists was laid hardwood tongue and groove flooring running in a north/south direction. The only evidence is that the flooring was Tasmanian Oak hardwood.

There is no evidence as to what was placed over the hardwood flooring in the initial stages of the building’s use. When the plaintiff first occupied the premises in 1989, they were “polished” – i.e. uncovered. However from photographs taken prior to the commencement of the lease on 11 December 1994 the floor appears to have been covered by carpet tiles – vide Ex. 65A and C – and it remained so covered in October 1996 – vide Ex. 65G and H.

At some stage about 11 or 12 metres from the western end and about 18 or 19 metres from the eastern end of the southern wing, stairs were constructed to give access from the top floor to the lower floor. At some stage or stages upon most, if not the whole of, the land underneath the building was constructed a concrete floor. Some concrete posts seem to have been replaced by steel supports. Concrete block walls were constructed to provide storerooms and various other types of room under both the southern and western wings of the original timber framed building.

At some stage the land inside the “L” shape was paved with concrete and metal posts to support a roof were placed in that area and the ground floor of the store was greatly extended by enclosing a rectangular area which converted the “L” formed by the southern and western wings of the original building into a large retail display area of roughly rectangular shape. The external walls of this new area were of light metal type construction. The northern wall of this latest extension was about 18 metres long and the eastern wall about 12 metres long.

When the building had been extended and altered to its state when the plaintiff leased it from Mr and Mrs Renton it had essentially been converted to a store with facilities which must have more than doubled the floor area of the original store. Some of the lower floor area had been developed under the old wooden framed building. A large part of it however had been constructed outside the confines of the old building and this was used for display purposes and for the “heavy hardware” stock carried by the store.

At one stage of the development apparently there had been an office area constructed partly under the north-eastern corner of the southern wing of the original building. Eventually this office was shifted upstairs to an area in the south-western corner of the building first erected. The aperture left in the construction on the lower level which had housed the office was eventually used by the plaintiff as an area for the storage of softwood scantlings (Miranti pine et cetera) which were better stored under cover. Hardwood was apparently not stored in there; it was stored in racks outside the building because it was able to better withstand the elements. The softwood was stored upon wooden racks constructed for that purpose which extended into the northern end of a “receiving room” for a distance of about five metres.

At some stage underneath the eastern end of the southern wing of the building had been redeveloped as a “receiving room” for goods unloaded externally to the building. This room (described in the evidence sometimes as the “outdoor furniture store” – presumably because there was some outdoor furniture stored in there temporarily which was destroyed by the fire) ran for the entire width of the southern wing of the building which was about 12 metres. A concrete wall with a couple of doorways was erected for most of that width leaving the receiving room with a depth of about six or seven metres, the north western corner of which contained the timber racks protruding into it for a distance of about five metres. Access to these racks was gained from the most recently constructed display area transforming the L shape of the earlier construction into a roughly rectangular shape. It is clear that at the time of the fire there was a significant amount of softwood stored on those racks (vide exs. 32A, 45, 61, 63.)

There is no evidence as to just what change in the running of the hardware business accompanied the change in location of the office. It suffices to say that the receiving room to which I have referred was then used to store items of stock and to receive some of those items through an external door on its northern end.

I will shortly analyse as briefly as possible the 1160 pages of expert and other evidence in this case.

By way of introduction it suffices to say that eye witnesses to the early development of the fire described it as a “small one” which gradually gained size. It is clear that the damage done to the upper level of the hardware store was caused by the spread of fire probably from its south-western corner near the office. One of the experts called to give evidence expressed the view that it was likely that an accelerant of some sort had been used to cause the fire to spread rapidly between the south-western corner and the northern end of the western wing.

I observe merely that a number of eye witnesses to the inception of the fire failed to see anything to indicate that an accelerant of any kind had been used either north of the area where the fire was first observed or east of that area. It suffices to say that the eye witnesses said that within 15 to 20 minutes of the time they first noticed a small and as they thought manageable fire, it got completely out of control and was moving down towards the northern and eastern extremities of the building at street level.

Eventually fire brigade vehicles arrived on the scene at street level on the southern side of the building and one travelled to the lower level to the north and east of the building. From those locations firemen used hoses with a view to controlling the fire in the upper section of the building constructed of wood and fibro. As well fire hoses were taken through the lower floor to the bottom of internal stairs providing access between the upper and lower floor levels.

At some stage a fire commenced in the receiving room. It is the contention of the defendant supported by a police officer and a number of loss adjustors/investigators, who made inspections of the room, days or up to a week after the fire that there is no evidence looking at the bottom of the floorboards or the bearers or floor joists, to which was attached a fibro ceiling about two metres above the concrete floor of that room, that there was any connection between the fire raging on the top floor (in an area at the eastern end of the southern wing which contained much flammable material – including 300 to 400 litres of flammable liquids) and the ignition of the fire in the receiving room.

I will later analyse in greater detail the evidence given by experts called by both the defendant and the plaintiff on this issue.

On balance I would infer from all the expert evidence that it is impossible from examination of the site and scientific testing performed after the fire was extinguished, to exclude the possibility that the fire observed in the south-western area of the upper floor in the vicinity of the office resulted from its non-intentional ignition. Only one of the loss assessors (Mr Nystrom) expressed a contrary view and I am unpersuaded that his view is supported by the evidence. On the other hand those experts called by the defendant to show that the fire in the downstairs receiving room had no connection with the fire raging in the paint store area immediately above it but in fact ignited at about the same time as the ignition of the fire in the south-western corner of the upper storey if accepted would lead almost irresistibly to the conclusion that the fires both upstairs and downstairs were deliberately ignited.

It is clear therefore that essentially the defendant’s refusal of the plaintiff’s claim under its insurance policy is based upon the advice of its assessors (and the view formed by the investigating police officer within a couple of hours of commencing his first inspection) and really only upon that advice and view (subject to “confirmation” by the opinion of Dr Agnew) that the fire in the lower floor on its south-eastern area was deliberately ignited by somebody.

The evidence indicates that Mr de Hey, one of the directors of the plaintiff, was the person who last had access to the building and it was only a few minutes after he left the building that a fire was first observed on the upper floor.

Put shortly it is the defendant’s contention that I should be satisfied that the fire in the downstairs storeroom was intentionally ignited at about the same time – within half a minute or so – as the upper fire was intentionally ignited and that because Mr de Hey was the last person in the building (he having locked it up) I should infer that he intentionally ignited both fires.

Some evidence was given as to motivation for him to light these fires. In my view that evidence is really not at all persuasive but I will deal with that issue at a later time.

The problem that I have really with the case for the defendant is that the persons who expressed the opinion that the downstairs fire was not attributable to the penetration of fire from the upper level did not in my view conduct a careful, if indeed any examination of the upper surface of the floorboards above the receiving room to determine whether there was in fact no evidence consistent with the fire in the paint store area which on the expert evidence probably reached a temperature of between 900 and 1000 degrees Celsius having facilitated the entry into the receiving room of flammable liquids and vapours either directly through the floor and asbestos cement ceiling tacked to the bottom of the floor joists or down the concrete walls forming both the southern and eastern walls of that receiving room.

The photographs taken of the fire debris on the upper floor indicate that much attention was paid to the western end of the southern wing – in the area of the office and indeed halfway down the western wing in a northerly direction. Some examination seems to have been made of the area between the office at the south-western corner and perhaps down to or in the vicinity of the stairs providing access between the upper and lower levels of the store which on my understanding of the evidence are 10 or 12 metres removed from the commencement of the paint section of the shop where all the flammable liquid was stored.

At some stage all the debris was removed from the eastern end of the upper floor together with the remnants of the roof and walls which were not destroyed by the fire. The evidence is silent as to when this was done but from photographs tendered it had clearly been done before Mr Cafe came to inspect the fire scene and took the photographs contained in his report on 6 February 1998.

The evidence of Mr de Hey which is quite uncontradicted is that the whole of the upper floor was covered in carpet tiles. Over these carpet tiles were laid lengths of carpet of a different colour designed to lead people to various display areas by walking on it rather than the carpet tiles. There is absolutely no expert evidence as to the flammability of either the carpet runner or carpet tiles over which the fire commencing near the office must have spread. It may be that the carpet and the carpet tiles when exposed to fire would themselves readily catch on fire which would spread rapidly over them. Indeed it does not seem to have taken too long for the relatively small fire initially observed to turn into an all consuming one which spread to the whole of the upper floor area down both the southern and western wings.

I find it exceedingly strange that no effort was made to discover the flammability of the carpet tiles or the carpet laid upon them. At least there was no evidence led on this topic. Perhaps they were totally destroyed in the fire.

At one stage of the evidence reference was made to “vinyl tiles”. There is no photographic evidence of any vinyl tiles left. The uncontradicted evidence of Mr de Hey is that initially vinyl tiles were laid only over a small area of the upper floor to give access to the stairs from the centre door giving access from First Avenue. They were glued to the hardwood floor.

When it was decided to put carpet tiles over the whole of the upper floor area efforts were made to have the vinyl tiles lifted. It was found however that the vinyl tiles had been so firmly glued that it was impossible to do so. Mr de Hey said that instead of persevering to lift this material it was decided simply to lay the carpet tiles over them and then the other carpet runner over the carpet tiles. He said that generally speaking there was nothing placed under the carpet tiles. There was a suggestion made really almost in passing by one of the investigators that there had been masonite sheets laid over the whole of the floor on to which the carpet tiles had been laid. This was contradicted by Mr de Hey who had in fact apparently been instrumental in the plaintiff borrowing money to upgrade the store and I accept his evidence. The photographs of the floorboard remnants after the flooring had been cut and allowed to fall on the receiving room floor give no indication of the existence of any hardboard.

I am comforted in accepting Mr de Hay’s evidence because of all the experts called by the defendant to examine this fire not one apparently made any effort to examine or photograph the surface of the upper floor cleared of debris above the receiving room in which the fire on the lower floor was investigated. One would have thought accepting that on all eye witness accounts there had been a “raging inferno” in the paint store immediately above the storeroom which caused explosions and the loss of hundreds of litres of highly flammable material that once there was a suspicion that the ignition of the fire in the storeroom downstairs had no connection with the fire upstairs, common prudence would have encouraged a careful examination of the upper surface of the floor immediately above the scene of the downstairs fire.

Not merely was there no examination shortly after the fire had destroyed most of the building – within say a week or so – but there seems to have been no examination when all the debris from the upper floor was removed – when presumably the wooden studs and the roof structure over the paint store area shown in photographs 34, 35, 36, 38, 39 and 40 in Ex. 77 were demolished and removed. Exhibit 34 shows the extent to which the floor above the receiving room and timber racks had been demolished (and the second double door entrance to that room exposed) by February 1998 – prior to Mr Cafe retained for the plaintiff after rejection of its claim having had any opportunity to inspect.

At some stage the condition of the surface of the floorboards above the store room must have been obvious to any person sufficiently interested to examine it. It is clear from some of the photographs taken in the downstairs receiving room that a good deal of paint did somehow find its way into that room in the course of the fire. It is clear that materials from upstairs did flow down some parts of the concrete block walls downstairs. According to Mr de Hey before the carpet tiles had been laid, on one occasion he or a staff member dropped a can of paint onto the hardwood floor which had noticeable cracks in it and paint spilling from it simply “disappeared” down through the cracks before materials could be procured to clean it up. This I find consistent with photographs (ex. 39, 62 and 75) showing what appears to be and what everybody assumed to be white paint which had obviously penetrated the floor of the upstairs paint section to fall onto the top of a TV set located inside a door giving entrance to the receiving room near its south-western corner.

According to Mr de Hey as I have indicated the floor was constructed of Tasmanian Oak. That hardwood tends to swell in wet weather. It was almost certainly for that reason according to Mr de Hey that cracks were left between the floor boards when laid so that in times of wet weather they would not swell to such an extent as to cause the floor to buckle. Mr de Hey gave evidence and he was not even cross-examined on it that in fact when the floor was laid the width of the crack between the bottom grooves would have been even greater than the width at their top. Presumably the floorboards were milled in this way to lessen the impact of sustained wet weather on their swelling.

Although photographs taken in the receiving room by various assessors after the asbestos ceiling had been pulled down demonstrate no significant cracks or apertures between the floorboards it must be remembered that an enormous amount of water had been sprayed by the firemen on this area in an effort to control the fire and the spread of asbestos cement residue from the floor on the upper level. If the fire was such as to consume the carpet tiles, the effect of that one would think would be to cause any cracks in the upper floor to widen as the heat “dried out” the floor boards. If any of the tongues of the flooring or even parts of the tongues had been destroyed or knocked off in the course of laying the floor (or in the course of its initial demolition, transport and re-assembly) then this may well have facilitated the passage of flammable liquid, either alight or not alight into the room below. The only photographs placed before me relevant to this question were those taken of the underneath appearance of the floorboards. I am quite unable to determine from those whether any wide cracks may have existed at the time the fire was raging upstairs and before water was applied to it. It is clear from the photographs taken a couple of days after the fire and from evidence of the people who were downstairs examining this room – presumably then entertaining the suspicion if not belief that the fire in that room had not been ignited from the fire upstairs - that a great deal of water was dripping down through the floorboards. Indeed, examining photographs of the floorboards one can see that they appear to be close together and wet in the vicinity of their edges.

It is possible in my view, if not indeed likely, that the water sprayed on the fire on the upper floor in the area of the paint shop after it had been burning fiercely perhaps reaching temperatures of between 800 and 1000 degrees Celsius found its way into whatever cracks or other access points to the receiving room below may have existed at that time and this would have caused the timber to swell. After a couple of days of water sitting on the surface of the floorboards, the under side of the floor would probably have had a quite different appearance from that which it had during the progress of the fire on the upper floor prior to it being extinguished by water which then rested on that floor for perhaps a couple of days.

Had the debris been shifted off the upper floor in the paint shop area and that floor carefully examined – perhaps after it had been given the opportunity to dry out for a few days – then reliable evidence could have been given as to whether at the time of the fire which caused the combustion and loss of hundreds of litres of flammable material located immediately above the receiving room, there were or may have been any cracks in the floor which may have permitted penetration of the fire and/or flammable liquid above the receiving room into it. If the surface had been properly cleaned of debris any significant cracks or holes in it may have been visible from below against a background of sunlight above.

However, not merely are there no photographs whatever taken of the wooden surface of the floor with the debris removed from it, there are no photographs whatever taken of the junction of the floor and walls either before or after the removal of that debris. Moreover for some reason without apparently any examination of the surface area of the floor having been made it was all cut up – presumably by a saw of some kind being run across the floor boards between the floor joists. All this timber was then knocked down onto the lower level and photographs demonstrate this. No effort seems to have been made to examine the studs on either the eastern or southern walls of the paint shop area. There is clearly evidence to which I will shortly refer in more detail to support an inference that wood cornices just below the ceiling on the eastern and southern walls of the receiving room were consumed by fire. Some of the defendant’s assessors and experts expressed the opinion that this destruction of wood probably resulted from radiation of heat from the fire downstairs. On the other hand an expert called for the plaintiff – who unfortunately did not have the opportunity to observe the floor and/or walls of the eastern end of the southern wing of the building before they had been almost entirely demolished - expressed the view that from what he observed in the photographs taken by others of parts of the downstairs receiving room that indeed it was possible that flammable material had percolated into that room below when containers of it exploded or were destroyed by the fire raging in the paintshop area above. The heat would have been sufficient to simply melt the containers. If a sufficient depth of flammable liquid was flowing over cracks or holes of some sort in the floor or underneath or through the junction of the hardwood floor and the fibro sheeting constituting the internal lining of the eastern and southern walls of the paint shop, then it may have been possible for that liquid either to run down the walls or to run through cracks in the floor. Unfortunately however as I have lamented nobody seems to have examined either the upper surface of the floor or its junction with the asbestos wall sheeting at the eastern or southern sides of this building at its eastern end to investigate this possibility.

It is quite unclear to me from the photographs and from the evidence generally whether some of the fibro sheeting which seems to have fallen off the ceiling of the receiving room of its own accord may not have fallen off in the course of the fire permitting flammable material to penetrate the room through cracks in the flooring upstairs or some other aperture near where the sheets had fallen off. It is clear that one or more of the loss assessors set about to remove all the asbestos cement sheeting constituting the ceiling that was still attached to the floor joists when their inspection commenced. The approach seems to have been adopted that to determine whether flammable liquids had penetrated the receiving room from above it was sufficient merely to look at the wet hardwood floorboards then in position from underneath and to take photographs of them. It seems to have crossed nobody’s mind to examine the upper surface of the flooring after it had dried out for a while to determine whether there may have been some point or points of access through which flammable liquid whether or not alight may have passed. As I have indicated there is clear evidence in some of the photographs that paint in appreciable quantities and possibly undiluted by water did percolate down onto a TV set and video recorder which happened to be stored near the south-western double door entrance to the receiving room and not so far removed from the area which the experts called by the defendant designated to be the centre of the fire in the downstairs room. I attach weight to the evidence of Mr de Hey to the effect that when a tin of paint was spilt on the hardwood flooring before it was covered with carpet tiles it very quickly percolated through the cracks in the floor boards.

I find the expert evidence to the effect that it was “impossible” for the fire which was responsible for damage to flammable material within the receiving room to have penetrated that room from the paint section upon the upper floor unpersuasive. It is of course necessary to look at that evidence in the context of all the other evidence – particularly the evidence of observations of firemen, one of whom looked in through a window towards the position in the receiving room designated as the “centre of the fire” in it by the defendant’s experts and saw no fire at a time when the fire on the upper floor was well alight.

The critical issue debated on the expert evidence was whether the fire on the lower floor started at about the same time as the fire started on the upper floor. If it did then Mr de Hey was the last person in the building and the fire on the upper floor was observed less than five minutes after he left. The time of his departure has been accepted to be within a minute of the time when he switched on the burglar alarm system which was recorded by the security company at 5.18 p.m. (plus or minus 59 seconds).

On the defendant’s case when Mr de Hey left that building within 20 or 30 seconds of setting the burglar alarm he had already intentionally ignited a fire near the principal entrance to the upper floor near the office at the south-western corner and as well had ignited a number of cardboard boxes storing aluminium framed furniture in roughly the centre of the receiving room between the door at the south-western corner of that store and the end of timber stored on racks protruding into it.

I repeat only that there was a set of louvres on the northern end of that receiving room adjacent to an external door giving access to it which Fireman Reddiex said he looked through at about 6p.m. and saw no fire where he later observed it to be burning.

It is convenient to turn now to the evidence of five fire officers who attended the scene of the fire on the evening of 17 October 1997.

The first officer was Mr Hill who at the time was relieving station officer at Bribie Island. He said that he was at home when he was advised of the fire. He immediately went to the fire station where he met with the auxiliary fire crew and he and that crew then travelled to the Mitre 10 store at Bongaree. Refreshing his memory from contemporaneous records kept (ex 9) he said he and his crew arrived at the fire at 5.36 p.m.. He then observed that the fire was “well involved in the left hand side of the front of the shop”. He supervised his fire crew getting a hose ready to play on the fire and then went around and inspected the building generally. He said that the flame when he arrived there was about 30 feet above ground level. The efforts of his fire crew were directed to placing a “water curtain against the chemist wall” which was on the south western corner of the Mitre 10 store. He then went around the building looking in the doors and windows with a view to ensuring as far as he could that there was no person inside the building. In the course of this he entered the open door on the northern wall of the lower floor within two or three minutes of his arrival at 5.36 p.m. to conduct a quick search for people. That would mean he would have entered that area prior to and by 5.40 p.m.. He said that when he entered the lower floor he proceeded to the bottom of the internal staircase giving access to the upper floor. He said that when he went in there it was smoky and he did not have any breathing apparatus on. He was interested to make sure as far as he could that there was nobody in the downstairs area but more importantly to see how much the fire had extended into the lower area. He said that he was actively looking for any sign of fire on the lower floor. He was endeavouring to ascertain any areas at potential risk of fire destruction in the building. He said that all told he entered the lower storey of the building on three separate occasions in the course of supervising the operation. On the first occasion (shortly prior to 5.40 p.m.) he did not observe any flame in any part of the downstairs area. However on two subsequent occasions he observed that fire had started on the lower level and he attributed this to the fire making its way through the floor of the upper level. He attributed this to the “fire pressure” generated on the upper level and the fire making its way through the floor and he formed the opinion that fluids may have been making their way through the floor extending the fire to the lower level. He said that he first observed fire against the western wall of the western wing of the building (near the location of a sealed stairway near that wall) and he could also see some fire on the southern wall of the lower floor area to the eastern side of the stairwell. On his inspection he thought that melting plastics from the upper level would be the cause of extensions of fire to the lower level. He said that he was also aware of various types of flammable liquids kept on the upper level. He was living on the island at the time and obviously had knowledge of the layout of and material kept in the store. He said that when a plastic product or petro chemical material burns it gives off a very dark black smoke with a distinctive odour.

He said that on none of his inspections of the lower floor did he see any signs of flame or smoke emanating from the receiving room. He said that on his second entry to the lower floor he observed cinders and embers coming to the lower floor from the fire on the upper floor. He said that when a second fire crew arrived from Caboolture (and this occurred on the evidence at about 5.43 p.m.) he directed the crew from Caboolture to the back of the shop - ie its northern side to gain entry to the ground floor to assist in slowing down the fire which was then setting alight parts of the lower floor. He said they did this and what fire did come downstairs they were able to extinguish. He said that as the officer-in-charge it was his obligation to keep an eye on all members of the fire crews because he was responsible for the control of the fire and he had to be careful to see that the crews were as safe as possible. He said that prior to the collapse of the roof on the upper level most of the smoke was going upwards. He said prior to the roof collapse it was possible to travel about ¾ of the distance between the northern doorway on the lower level and the staircase without the assistance of breathing apparatus. He said the roof of the upper floor – presumably over the western wing and much of the southern wing of the building collapsed at 5.51 p.m. and this was noted contemporaneously. He said that after the collapse smoke was very thick and poisonous. He said that from his experience he would have expected with the collapse of the roof on the upper section of the building that debris, burning timber, cinders, embers and sparks would fall into the lower area. He said that the fire was a severe one and he thought the temperature on the upper floor would range between 800 and 1000 degrees Celsius which was sufficient to cause thinners and plastic and flammable liquids to melt or explode. He observed that the outside of the eastern wall of the upper floor on the southern wing (external) had a lot of heat damage to the paintwork. He said that the heavy jets of water applied to burning material during fire fighting operations may itself remove “charcoaling” which will permit the exposure of “holes” through which liquids may pass. Mr Hill was very familiar with the shop, its construction and layout because he had entered it on many occasions subsequent to 1981. He said that in a severe fire convection thermals can move and lift materials which in turn start fires in other locations. He observed that during the early stages of the fire as he observed it there were paint flakes, paper and cardboard being lifted by air currents and passing over the heads of the firemen. He said that he did not observe any sign of a fire in the receiving room on any occasion that he had walked in the lower floor area. None of the crew under Mr Hill was called to give evidence. Apparently they remained at street level fighting the fire on the upper floor and it was only Mr Hill from the Bribie Fire Station whose duties required that he become familiar with the lower level because he was in charge of the general fire fighting operations and this involved him searching for signs of fire on the lower floor.

A second fire truck arrived from Caboolture at 5.43 p.m.. The officer in charge of that appliance was Mr Kahler. Upon arrival Mr Kahler spoke to Mr Hill and then proceeded with his three man crew to the northern rear side of the store. This would probably have been achieved in a couple of minutes by the time the fire engine made its way out of First Avenue into Second Avenue and the fire hoses were connected to the water before entry was made in through the same doorway into the lower floor as was used by Mr Hill. Mr Kahler said he entered the rear of the premises on a number of occasions after his first entry. He said that when he first entered the lower floor (which on the evidence I infer to have been from about 5.45p.m. to perhaps 5.49p.m.) he was not wearing breathing apparatus. He said there was smoke on the lower level but visibility was alright and he was able to see his surroundings. He said he went in there without breathing apparatus initially and the object of his entry was to supervise the activities of his fire crew. In a statement he gave to an investigating police officer on 12 December 1997 he said that it was at 5.50 p.m. that two of his crew members first entered the building wearing breathing apparatus. He said that after about 10 minutes he was unable to enter this area due to the amount of smoke. He said he was examining his surrounds to investigate the seat and/or intensity of any fire on the lower floor and on the upper floor to the extent that it was visible from the lower floor. One of the things he did was to ensure by keeping the area surrounding his men under examination that they could not be trapped by any fire moving behind them. He said he was unable to observe any flames or smoke emanating from the receiving room when he first entered the lower floor area. He made his second entry to the lower floor to supervise his men about five minutes after he had made his first. I infer that this would have been about 5.55 p.m.. He said on this occasion visibility “would have deteriorated or would have been poor”. I infer that he had no real recollection of this but was simply expressing an opinion as to what it would have been like at that time. However he did say that he had no recollection of there being any signs of flame or smoke from the receiving room, nor indeed from any part of the lower floor area to which access was readily gained from the area near the steps providing access between the two levels.

On the third occasion that he entered the lower floor area he said visibility was very poor – so poor that he had to use the hoseline stretching from the doorway to reach the firefighters applying water to the upper level and stairs giving access to it. On that occasion he was not wearing breathing apparatus either. Perhaps for this reason he did not spend much time on his third visit. He said that the roof collapse would have occurred just prior to his third venture into the lower floor when he found visibility so badly affected. In fact it was subsequent to this third visit that his crew were taken out of the lower floor area. Mr Kahler first noticed that there was a fire contained in the lower floor receiving room area from outside the building and not from any smoke or flames observed at any time by him within it. He noticed that there was a door leading into that room. He said he was able to look through the louvres beside the external door and observed “some sort of glass panel”. I infer that the remnants of this glass panel and its metal frame are shown in the photographs Ex. 39 (number 73), 45 and 61 (number 66). At about 6p.m. he checked the door for heat and found “intense heat” behind the door and on the metal knob of the door lock. He made this observation prior to his third visit into the lower floor area but it was well after that visit that he got around to having the door opened and through it water directed onto the fire in the downstairs receiving room. He instructed fireman Reddiex to open the door with the assistance of a sledge hammer. He said he observed a fairly intense fire inside with a lot of flame. He said it was a rolling ball of flame and that it was mushrooming towards the ceiling and then rolling back on to itself. He said that it did not appear to him to be oxygen starved at all and that the room in which he observed the fire seemed to be reasonably well ventilated. He said that he believed there was timber and outdoor furniture and small quantities of solvents and paints in the room.

In a statement given on 12 December 1997 he said he was able to observe flame and smoke through a small opening in the set of louvres beside that door. He apparently spoke to a man employed in the business whose appearance would seem to resemble that of Mr de Hey about the contents of the room and the type of lock and was informed that the contents of the room included furniture, together with paint and solvents in only small amounts. It was at about 6.20 p.m. that he received this information and he then instructed Mr Reddiex to open the door with a hammer. Mr Kahler said that it was opened on the second blow. He said it took his crew about ten minutes to control the fire within the room. Unsurprisingly he would not allow any members of his fire crew to enter the room. He observed blackened timber in the racks. He said that the fire in the room continued to flare up because there was a small fire behind the stack of timber that he could not get to. He said that the nature of the fire led him to believe it was paint or some other type of flammable product that was burning and it was really quite difficult to extinguish. This flammable material was about three metres into the room from the door from which he was looking.

He said they continued fighting that fire until about 7.23 p.m. without gaining access to the room because he thought it would be unsafe to enter it.

Mr Burgess one of the fire crew under the control of Mr Kahler arrived at the site at 5.43 p.m.. The Caboolture crew saw Mr Hill who told them to go around to the northern side of the building. These instructions were given on the southern side at the front of the shop where the fire was “going quite well”. He said he was only there for a very short time before they left to fight the fire from the northern side. He said that he and another crew member Ross Dunn went inside. They went straight into the lower level and over to the stairwell giving access to the upper floor. They were there able to see the fire on the upper level of the premises. He estimates that he first made entry to the building about five minutes after they had arrived at the scene - at say 5.48 p.m.. His recollection is that when he first entered the building visibility on the lower floor at that time was quite clear. He said the heat and smoke were venting out through the top section and it was quite clear on the lower floor near the internal staircase where he and Mr Nunn spent quite some time playing water on the fire upstairs. He said the only flames that were visible to him when he entered were those near the stairwell. In fact flames were proceeding down the internal stairwell, the treads actually being on fire and as far as he observed that was the only part of the lower floor that was then on fire. He believed that the smoke that was in the lower area was coming down from upstairs. He said it was a little bit hazy but generally clear. At Mr Nunn’s request Mr Burgess went outside to get an iron implement to smash through the fibro of the upper floor area so that they could play water onto the fire on the upper level. He said that both he and Mr Nunn were wearing breathing apparatus which has a time limit of approximately 40 minutes. He went outside in the course of the fire fighting operations and then re-entered the premises for a second time through the same doorway. He said that on the second entry visibility was still quite good and again he observed no sign of flames in the downstairs area. He saw no sign of smoke emanating from any part of the downstairs area but there was light smoke throughout the area which he attributed to the fire on the upper floor which was burning well. He said he started to break the fibro walls of the upper section of the store and they applied water through those holes from the fire hose they had on the lower level. There was therefore water hosed on to the fire in the southern wing and indeed presumably on the fire in the western wing as well through the holes depicted in photographs taken from the lower level – vide Exs. 50 and 52.

According to Mr Nunn when he first arrived air was passing from the ground floor entrance up the stairwell and into the upper floor which was alight. He said that 20 minutes after they first left the area after their entry, they went back in again. This time upon the evidence it would have been about 6.20 to 6.30 p.m. When they finally left the lower floor area permanently Mr Nunn said that he and Mr Burgess took their breathing apparatus off and were then advised that the officer-in-charge wanted the external door to the receiving room on the northern side of the building “knocked in”. They shifted hoses so that there were then two hoses, each manned by a couple of crew men, pointed towards the external door of the receiving room. He saw Mr Reddiex hit the external door with a hammer to open it and he said that he observed a lot of flame in the room but it did not amount to “an intense fire”. He said it was a gentle flame and did not seem to him to be starved of oxygen. He said the fire did not flare up when the door opened. In fact that was what the fire crew had been afraid of, more or less expecting that to happen but it did not. In his view the edge of the fire was about a metre off the eastern wall and between three meters and five metres in from the external door at the northern end. He said he had difficulty at this stage recalling precisely distances about which he gave evidence. He said that the door was just knocked open without requiring “any effort”.

Mr Nunn confirmed the evidence given by Mr Burgess. He said that during the course of the fire operations with respect to the receiving room, most of that had taken place while it was still daylight and probably between 6 p.m. and 7 p.m..

Mr Reddiex was the fourth of the Caboolture firemen to give evidence. It was his function to drive the fire engine and maintain the water supply used to fight the fire and to do anything else that the senior officer might require. He confirmed the evidence of other officers about what happened upon their arrival. He said he connected water to the fire engine from a fire hydrant on First Avenue and then connected up the hoses for use by firefighters. It was his function to ensure that the breathing apparatus available to the firefighters was in working order and to keep an eye on the water supply. He said that when the fire control operation started on the lower floor initially, most of the time was spent inside the building. Eventually one hose line was directed to the exterior of the eastern end of the upper floor because it was seen that paint was starting to blister on the outside wall of the upper section. This he said indicated an intense heat.

Apparently Mr Reddiex observed the external door to the storeroom on a couple of occasions and thinking that it might give access to a stairway leading to the upper floor which might provide access to get water to control the fire he suggested to Mr Kahler at an early stage that the door be opened. He said that it was subsequent to this discussion that he used a sledgehammer to break the door open. Mr Kahler thought that it was about 6.20p.m. that he gave Mr Reddiex this instruction. The first time he saw flames within the building was after he had broken open the door. He said he then saw that it was soft rolling flame. He said that when he looked into the room it appeared to him that just about everything in it was engulfed in flames. He said the appearance of the fire led him to believe that it was “oxygen deficient” rather than “oxygen starved”. If it had been “starved" there would have been thick, black, heavy smoke which he did not observe. He said the fire did not flare up at all when the door was open. He said that long before attempting to break open the door and at a time when he had noticed the upper storey paint melting or flaking he had looked through louvres which were right beside the door he eventually broke open. He said when he did that he saw no flame within the room. He said that when he had looked through the louvres and saw no fire in the storeroom, it was about 20 minutes after he had arrived at the fire (5.43 p.m). It was therefore probably after 6p.m. that he had looked through the window and found no flame. He said that to his recollection the louvres that he looked through were not clear glass. He did not say whether they were open or shut.

In paragraph 12 of the statement he gave to police officer Holahan on 12 December 1997, Mr Kahler said that after he felt the heat on the external door he was able to observe flame and smoke through a small opening in a set of louvres which was beside the external door.

If the louvres were open and the security bars inside the louvres which are visible in the photographs are consistent with the louvres sometimes being left open for the purposes of ventilation then that aperture would provide access to oxygen from outside. Both the external door and the louvres are covered by a roof, one purpose of which one would think would be to protect both the door and the louvres from weather. If one effect of the fire on the upper storey was to cause air to flow in from the ground floor door on the northern side of the building up the stairwell to the upper level one would expect air to be drawn into the storeroom through the open louvres and to carry some smoke at least from the fire in the storeroom out through the southern entrance of that storeroom towards the stairwell where it would be observable to the various fire officers near the stairwell, none of whom observed any smoke while fighting the fire on the upper level from the lower level and presumably near the western wall of the storeroom in the vicinity of the holes knocked into the walls of the upper floor – vide Ex. 63 (number 32) and Ex. 64 (number 54).

I will turn now to analyse the evidence of persons independent of the plaintiff who had the opportunity to observe the place which all but one of the experts agree was the probable location of the commencement of the fire on the upper level of the building near the office.

Of those persons I take the view that Mr Ashton is the most helpful. Mr Ashton was retained by Marshall Security to visit periodically premises fitted with burglar alarms (and perhaps those not so fitted) to check the security of those premises. On the afternoon of the fire in the course of making a regular round of inspections in the late afternoon he drove his vehicle along Second Avenue past the back of the Mitre 10 store with a view to driving around to the front of that store to inspect the doors etc on the southern side. As he drove past the rear or northern side of the building he noticed that the rear gate was still open and there was a vehicle marked as a Mitre 10 vehicle parked outside. He assumed that there was somebody still in the premises and continued to drive along Second Avenue and eventually made his way to First Avenue where he parked his vehicle on the road outside the main entrance to the building on its southern side. He apparently brought his vehicle to a halt facing towards Welsby Parade and the library which was about 150 metres to the west of the Mitre 10 store. He did this because after inspecting the Mitre 10 doors he intended next to go to inspect the library. He left his motor vehicle and checked three doors to the Mitre 10 store giving access to it from First Avenue. At the principal access to the building near the western end of the southern frontage he looked through the door closest to the chemist shop and rattled it to ensure that it was firmly fastened. As he put his card in between the door and the jamb to indicate he had attended, he “had a quick glance” inside the building. It was still daylight but he noticed that lights were out and the interior of the building was in semi-darkness. He said he did not see any person inside the store. He then got into his vehicle and drove across to the other side of First Avenue, went down to the library and turned right into a laneway giving access to it about 150 metres from the Mitre 10 store. He parked in the laneway and checked two doors at the library. The library was on the corner of Welsby Parade and First Avenue. Having checked the two doors – one opening into Welsby Parade apparently - he turned intending to walk around the corner to where his car was parked in the laneway giving access to the library and while doing this he observed Mr de Hey pull up in his Mitre 10 vehicle on the corner of First Avenue and Welsby Parade. Each waved to the other and Mr de Hey turned the corner into Welsby Parade as Mr Ashton walked up towards where he had parked his vehicle in the library laneway. As he was about to get into his motor vehicle he heard a burglar alarm go off. He was unable to detect the source of this noise from where he was. However to carry out his next inspection he had to travel in an easterly direction and this required that he drive back past the Mitre 10 store. He looked towards the Mitre 10 store to see if a blue strobe light was flashing. He noticed that no blue light was flashing. He slowed down looking towards the door. He said he did not believe that there had been a break-in which would normally cause an alarm to go off. He saw nothing untoward with the doors that he had checked a few minutes earlier and proceeded to check another shop. He thought that the light that he expected to be flashing and which he looked for was mounted externally to the building underneath the awning above the main doorway. He said that at the time he was not even sure the alarm was sounding in the Mitre 10 building. He drove past to the next place he wished to check to find that no alarm seemed to be emanating from that place and he was driving back in a westerly direction along First Avenue intending to go to yet another shop opposite the Mitre 10 store. As he proceeded along the roadway opposite the Mitre 10 store he then for the first time noticed a glow in its window which he thought was not normal so he drove across to the window and pulled up outside the building. He pulled his vehicle up in the vicinity of the eastern end of the store where the paint section was – which was immediately above the storeroom below. He said he walked to the main entrance near the chemist shop and when he looked through the glass he could see “a very small flame”. He said he suggested to another person who happened to be there that he should ring the fire brigade and somebody went in to the chemist shop to do this. Mr Ashton stood outside and watched the progress of the fire. He said he observed a very small flame perhaps a foot high towards the bottom of a stand against the counter adjacent to the office. He said the flame was not progressing at a fast rate and was a very small one. He said that a man from the chemist shop came out with a fire extinguisher. He broke the window of the store and the two of them tried to put the fire out. However the fire extinguisher that was first brought only sprayed out water and was not effective to extinguish the fire – particularly since it had been decided that they would not enter the store but merely stand outside the door which had a hole in it and try to extinguish it from that position. He said that after the door had been smashed “the air got in and it just sort of took off”. He said the fire then quickly climbed up the front of the counter and actually ended up on a wall in the office. He said quite a lot of smoke was then being produced and indeed some heat so he and the chemist backed off and by that stage a lot of people had arrived. He said that as he stood on the footpath watching the progress of the fire it seemed initially to spread “like a normal fire”. He did not see any rush of flames or acceleration of flames apart from that which he observed when the window was first broken. According to Mr Ashton the gates, doors etc of the premises were checked three or four times per night by the Marshall Security firm. He said he though it was not particularly noteworthy but the store appeared not to have lights on in it. He said sometimes they were left on and sometimes they were not. He said however it was still daylight and I infer that to the extent that the interior of the store was in “semi darkness” that would simply have made any fire once ignited more readily visible to anybody looking through the door near the office. He said that of course he may not have observed any minor flame present at the counter when after leaving the library he slowed down and looked in through the door before he went off to check another business. He did say however that it was so small when he did finally observe it that he did not believe that it was burning observably when he drove past to investigate the source of the alarm. He had travelled more than a kilometre in checking on the other business house before he returned and noticed the small glow in the window. He said he could not honestly say that a more careful observation made some minutes before as he drove past the doorway would not have detected a very small flame. He said that to the best of his belief the fire had not started when he drove past to investigate the source of the alarm noise. He looked with sufficient care as he drove past to ensure that none of the doors was open. He said indeed that he observed that the card that he had inserted in the door a few minutes earlier was still there. He said that he first noticed the glow in the window of the store when he was about a hundred yards away from it and confirmed that it was a very small fire when he first actually examined it closely from the doorway of the store. He said that he was unable to say whether an alarm was going when he finally observed the fire which he said was burning on a display stand with products on it. He said that it engulfed that stand and then after a while crossed the counter and went up a wall. He said the flame initially was creeping at a very slow rate and not advancing at anything like the speed at which one would expect it to advance if some fire accelerant was fuelling it. He said as he watched the flame burning it seemed simply to creep up the stand from its bottom at which it appeared to have started and to burn materials displayed on the stand as it reached them. He was unable to see any other fire either in the office or in any other part of the store. He said that he had watched it for about a minute before it really started to get bigger and eventually somebody arrived from the chemist shop with a foam extinguisher and he and the chemist attempted to extinguish the fire with that. Indeed Mr Ashton said he was satisfied that he could have extinguished the fire if they had actually gone inside the store but the chemist dissuaded him from taking that course. He said all told he watched the fire for probably four or five minutes before it appeared to him to get out of hand and start to burn the office wall.

He said that between the time he put his card or cards in the door on the first occasion and the time he saw Mr de Hey drive past him down near the library between two and four minutes would have elapsed. The library was located about 150 metres to the west of the Mitre 10 store. He said that the fire was just a little out of range of the fire extinguisher for it to operate effectively. He thought that it would have been 14 or 15 feet from the hole in the door through which the extinguisher was operated. He said that the fire was at about the middle of the counter. Mr Ashton said that give or take a minute or two it would have been between 15 and 20 minutes past 5 when he placed the cards in the Mitre 10 door. He said normally in his experience the shop closed down about 20 past 5 and he saw nothing unusual about Mr de Hey's vehicle being parked out in Second Avenue with the gate open on this occasion. He said that he had waved to Mr de Hey as he turned out of First Avenue into Welsby Parade before he heard the sound of any alarm. It is clear from Mr Ashton’s evidence that he and Mr de Hey were in the habit of waving to each other when they saw each other in the course of Mr Ashton performing his security inspections. He said only a minute or two would have elapsed from the time he waved to Mr de Hey as he drove along Welsby Parade and the time he first heard an alarm. He was unsure whether the Mitre 10 store did in fact have a strobe light. Mr de Hey was not asked any questions about that. Mr Ashton said that no more than two minutes would have elapsed between the time he first heard the alarm and the time he got back to the shop. He would have been 10 or 12 feet from the window when he looked through the glass and he said that there was no fire alight in the shop at that stage. Indeed he said that he did stop at the door for the purpose of inspecting the interior of the shop as well as he could and ensuring that his card was still located in the door where he had put it a few minutes before. He said that perhaps two or three minutes would have elapsed between the time he saw Mr de Hey when he was near the library and the time he got back to Mitre 10 to see if the alarm in the shop was then going off. He said that when he first observed the light in the window of Mitre 10 he thought that it might have been a reflection of the sun but that he should nevertheless check it out and it was after he decided to do this that he first observed the flame. He said he could not say whether there was fire alight on the office side of the counter because he could not see there. All he could see was a small fire at the base of the display stand gradually creeping up and getting larger as it consumed the items on that stand. He agreed in his statement given to the insurance loss assessor Mr Pollard that he could see fire as it burned its way across the carpet. He said it seemed to be creeping slowly across the carpet and did not look as if it was being assisted by any accelerant. He said it “just looked like a normal carpet fire”. Mr Ashton indicated his regret that he had not broken the window sufficiently to allow him to get in with the fire extinguisher and put the fire out. He said that he thought that had he done that the fire could have been controlled. Sometime later Mr Ashton’s son who controlled the security business arrived on the scene and then Mr de Hey was contacted. Mr Ashton of course was aware of problems that burglar alarm systems sometimes give; he observed to the insurance loss assessor that sometimes a cockroach could set an alarm off.

It is really part of the defence case that it was the onset of fire that set alarms off in various part of the building at the times recorded by the security company. It seems to me more than possible that initially at least the alarm was activated quite independently of the commencement of the fire. There was no alarm located anywhere in the vicinity of the storeroom underneath the paint section of the shop. Even if the fire had ignited when Mr Ashton stopped outside the door and peered through the glass door to see inside the shop when he heard a burglar alarm, the evidence seems inconsistent with the fire by that stage having developed to such an extent as to itself set off any burglar alarm.

I am unpersuaded on the evidence, and particularly in the absence of independent expert evidence that touches on the point, that the cause of the burglar alarm going off was probably connected with the commencement of the very small fire first observed by Mr Ashton. A significant period of time elapsed between his endeavouring to check the building and looking through the window after he first heard an alarm when he observed not the slightest hint of a fire in the area where he discovered a very small fire some minutes later when he noticed a glow in the store window which he thought was probably simply a reflection of the sun until he made closer investigation.

The next witness who observed the fire in its very early stages was Mr Mitchell who conducted a pharmacy in the building abutting on to the Mitre 10 store on its western wall. He said he was working in his pharmacy on the afternoon of the fire. He said that a lady came in to him and said that there was a fire in the hardware shop next door. He was unable to say what time this occurred but said that it was sometime after 5 o’clock – perhaps between 5p.m. and 5.30p.m. He said that he went out and observed that there was a fire in the store next door and called out to some employees to get the fire extinguishers and to report the fire straight way. He said he broke the glass of the main entry door which was locked. He said it looked as though a stand near the office section where people pay for goods they purchased was on fire. He said that the stand was adjacent to the counter. He said that he thought that the fire was then located probably 2 ½ to 3 metres from the doorway where he was standing. He said that he could not recall noticing any fire in any other part of the building. He did not at first notice any fire or flames in the office area itself. He said initially he could see no flame moving from this stand in a northerly direction (ie along the western wing) but of course it did commence to spread eventually. He said the building was a very old one and when he saw the fire start to spread he spent time taking steps to protect his own chemist shop and contents. He said he did not go into the building to attempt to put out the fire. He said the fire extinguisher was just able to reach the fire but not sufficiently. He said the fire extinguisher quelled the fire a little but eventually it built up again and he then used an extinguisher which was for electrical fires and that again reduced its intensity to some extent but then it simply built up again. He said that he had had some experience with the effect of accelerators on fire and in his view from what he observed of the spread of the fire there was no accelerant involved. He said that it seemed quite a long time before the fire brigade arrived but he could not say just what period of time elapsed from when they were first called until their arrival. He said that from his observation the stand that he saw on fire in the store was a cardboard type of stand with products on it. The top of it was slightly above the level of the top of the counter. He said that he observed this cardboard stand to be burning together with its contents. He said he attributed the spread of the fire after he had broken the door to the draught that had been created. Apparently air was going through the hole in the door and this in his view caused the fire to move initially towards the northern end of the western wing. He said he had heard a burglar alarm going off beforehand but did not pay much attention to it because it had malfunctioned before and he assumed that it was doing so again. He said that he had heard the alarm go off a couple of minutes or so before the lady first arrived and told him about the fire. Mr Mitchell obviously had not attempted to record accurately the times when various events of which he gave evidence occurred.

In cross-examination Mr Mitchell said that when he first saw the fire it was towards the top of the cardboard stand. He said that it seemed to be getting bigger all the time. He said as he watched the fire it just seemed to spread generally not preferring any one direction over another. He said he had watched the progress of the fire from when he first saw it for about half an hour or so. He said that he was concerned at the delay in the arrival of any fire engine and rang 000 again because the fire had got more intense. By the time the first fire truck arrived the whole building was “well alight”.

The next person with an opportunity to cast light on the cause of the fire is Mr Lever. On the afternoon of the fire he and his wife had returned from a holiday. He arrived home at Woorim at about 3p.m. and being anxious to effect repairs to his golf buggy attempted to buy some bolts from a hardware store. Believing that the hardware stores would be open until 5.30p.m. on a Friday, he drove first to one to find it closed and then to the Mitre 10 store. He said that when he found the first hardware store closed he observed that it was between 17 and 18 minutes past 5. He decided he would then drive to the Mitre 10 store to see if it stayed open until 5.30. As he drove towards it in a westerly direction along First Avenue he glanced to the rear of the store and could not see any activity there. He was familiar with the store because he had used it on previous occasion. He said he saw no vehicles parked at the rear of the store nor indeed any sign of life at all. He went to the front of the store and made a U-turn bringing the front of his car to a halt at right angles to the front of the store near the main entrance. He said he looked into the shop and saw that it was obviously shut. He noticed that the display material often put on the footpath outside the store when it was open was missing and there was no-one around. He said he looked inside and could see no sign of life. He estimated that it would have been 22 or 23 minutes past 5 when he did this. He said he noticed nothing unusual at all within the store and nobody on the footpath outside. He said he had no difficulty looking through the glass door. It was daylight but he could not recall whether lights in the store were on or not. He said he only stayed looking into the store a matter of seconds. He then reversed his car out and drove home. He did not say the burglar alarm in the store was then sounding

Janine Farren-Price had been employed at the Mitre 10 store for about 8 years – and before Mr de Hey came on to the scene to conduct the business. She said on the day of the fire she finished work no later than 5.5 p.m.. When she left four other persons who worked in the shop were present. She said when she left the shop there was one customer still being served in the store and that time was perhaps 3 or 4 minutes past 5. She observed nothing unusual about the shop. Interestingly she observed that electricians had come to the store from time to time to repair electrical equip.m.ent in the office. She said that there were lots of electric wires running along the floor and along the walls underneath the counter and indeed she said that computers had been installed in the counter and elsewhere in the shop about two or three years prior to the fire.

June McLatham had worked in the hardware store prior to the de Heys becoming involved with it. On the day of the fire she finished work between 5.05 and 5.10p.m. She said that she and Janine Farren-Price left the premises by the front door near the office and Lindsay Adams closed and locked the door behind them. Only Mr de Hey and Lindsay Adams then remained in the building. She said that in fact there were two smokers trays on the floor in front of the counter – one in front of each of the two “tellers” (i.e. computers and tills) on the counter to enable customers waiting to pay their bills to the tellers to throw their cigarette butts into them.

According to Mr Pierce the Selleys’ stand which I infer was the one that observers saw to be on fire at an early stage of the fire’s development had been covered with hessian to make it look more rustic. The hessian reached from the top of the stand to the floor. He said the stand was about 600 millimetres deep and about a metre wide. He said beside this stand was normally kept an ashtray. Mr Pierce observed that in his experience of the store it was a very old one and three or four different electricians had done a lot of electrical work in it and there was “a lot of old electrical stuff there”. By this he referred to the wiring and the fuse box which was in the office. He said that from time to time fuses were blown.

In October 1997 Mrs Barker was having a holiday on Bribie Island. On 17 October she and her husband went to the Mitre 10 hardware store for advice. She spoke to Mr de Hey from about 4.40p.m. It was a long discussion and she purchased a steel cabinet to be delivered at some time in the future when she returned from holidays. She said she was served by Mr de Hey for close to 20 minutes and that it was close to closing time when her business was finished. She said she and Mr de Hey went downstairs and she talked to him about a cabinet and paint that was required for a job she had to do. She was with her husband and I presume she was the late customer to whom Ms Farren–Price referred.

In considering the evidence of Mr de Hey, the only director of the plaintiff called to give evidence, one must keep in mind that it is the case for the defendant that I should infer that he intentionally set fire to the Mitre 10 store for two reasons –

(1) he was the last person on the premises to have the opportunity to set fire to the building and

(2) the financial affairs of the plaintiff were in such a poor condition that he was motivated to set fire to the building deliberately so that the plaintiff might recover against the defendant an indemnity for its loss.

I will deal firstly with the opportunity that he had to set fire to the building. I do not propose to analyse this evidence in great detail. He freely admitted that he was the last person to leave the building on the evening of the fire. Although a great deal of time was spent in cross-examination it seems to me to be of only the most marginal assistance to analyse in detail the minutes that he may have had available to him to set two separate fires – one at the south-western corner of the building near the office and the other in the storeroom on the south-eastern corner of the building on its lower level. However because so much time was devoted to exploring this issue I will briefly analyse the evidence which Mr de Hey gave.

He agreed that in the receiving room there was about $15,000 worth of outdoor furniture that the plaintiff had purchased for the “Christmas promotion” shortly before the fire. He said the receiving room also contained damaged stock that was awaiting return to the manufacturers and various other items of material. He said in the paint store above the receiving room there were between 300 and 400 litres of flammable fuel. Most of it was contained in four litre plastic containers. In the western wing of the building there were gas containers, lighters and other flammable materials.

He said that there was a power point in the office area which provided power for computers on the sales counter – in front of which was the Selleys cardboard stand which eye witnesses said seemed to be the origin of the fire. He said that there was a key cutting machine powered from a point within the office area the electrical system of which had given trouble from time to time. He said that over the years there had been problems with the electricity supply to the switchboard and that sometimes it caused an unusual smell. He said that he had actually replaced electrical fittings, equipment et cetera in the area of the office and particularly inside a meter box which was above the counter. He said that there were ashtrays kept on the floor near the customer service area where the fire was first observed by Mr Ashton.

He said the store had a burglar alarm control panel in a room on the lower level from where it took 30 seconds to hurry to the external door on the lower floor to avoid activating it. There were various burglar alarm devices at various “stations” within the building. He said there was no smoke detector in the building and that sometimes the slightest movement would set off the burglar alarm – even a cockroach crawling over it would set it off. He said that the upper floor of the building was not really airtight. There were louvres all the way around the northern walls of the shop – these are shown in a photograph of the store before the fire – Ex. 65H. He said sometimes the air getting into the building would move the suspended signs around and this would set off the burglar alarms “at the most inconvenient times”. He said that he had experienced a lot of false alarms from the burglar alarm system and had had to attend the store from time to time only to find that the alarms had been set off without any entry being effected into the building. He said that after he had activated the burglar alarm system he had about 30 seconds to travel from the control panel to the external door before the alarm would actually be activated by his movement within the store. He said that the day of the fire was a normal day, it was a Friday and the store closed at about 5 o’clock. He said that he finished serving his last customer about 5.05p.m. He then went downstairs and counted the takings in a till kept near the entrance to the downstairs floor on the northern side of the building. He said that after he completed closing down the till on the lower level he went back upstairs to do some work on the computer for a short time. He said that most of the staff had left by about 5.15p.m, apart from him and Lindsay Adams, his father-in-law. He said that Lindsay Adams as usual went around the shop locking all the doors. He said that shortly before leaving he was standing at the top of the stairs providing access between the upper and lower floors when he heard Mr Ashton rattling the door and saw him slipping a card in to indicate that he had inspected it. He said that at that time Lindsay Adams was about halfway down the staircase. He said that Lindsay Adams then just went towards the external door and that he, Mr de Hey, then went to set the alarm, which he did. He said that he reached the external door of the downstairs floor and locked it and picked up a couple of plants that were near it which he intended to take home and then walked to the gate that Lindsay Adams had left ajar for him. He said he would have switched the alarm on about the time that was shown on the Marshall Security printout -5.18p.m. He said that he did not actually see Lindsay Adams get into his car but he saw what he believed to be his car driving past the rear of the Mitre 10 yard as he was locking up the external door on the northern side of the lower floor. He said he then quickly walked to the gate and closed and padlocked it shut. He said he then drove along Second Avenue in an easterly direction and turned right into Foley Street and then right into First Avenue and drove down towards the corner of First Avenue and Welsby Parade where he saw Mr Ashton. They waved to each other and then he drove off towards the Esplanade to go home. He said that he did not know there was any fire in the building and he certainly did not set fire to it at any time prior to activating the burglar alarm system and locking up the building and setting off for home.

His journey towards his home was uninterrupted until he was on Sunderland Drive, some distance past Gidya Street where he had been seen by Karen King, when he got a phone call to advise that a “sector two alarm” at the Mitre 10 store had been activated. He then decided to return back to the shop – believing that it was probably another malfunction of the alarm system. When he arrived at the rear entrance to the shop he found that it was actually on fire. He walked to the front of the building and then returned to the back where he opened the door to the back of the shop. He tried to get a fire hose but there was a loud explosion when he got about halfway between the rear northern door and the stairwell which caused him to run back out of the premises, take the keys to the forklift and a truck that were parked outside the shop and take them out onto the roadway. He also released a number of budgerigars that were in the gardening section. He said he could not really recall whether he could hear the alarm from the street. He said that normally when it malfunctioned it sounded only for 10 minutes and then stopped. He really could not recall whether it was ringing or not when he returned to the building. He said that when he entered the ground floor he could not see any sign of fire downstairs. There was some sign of fire on the top of the stairs. He did not notice any smoke on the ground floor at all – least of all emanating from the receiving room.

It was at 11p.m. on the night of the fire that police officers asked him for a statement. At some stage they also took possession of the clothing and shoes he was wearing when he finished work. They also took possession of the clothes and shoes et cetera of Lindsay Adams. These items were analysed for the presence of accelerant but the analysis demonstrated that no accelerant was present on them.

Next day police officers and insurance loss assessors/investigators took possession of all records connected with Mitre10 and the personal records of Mr de Hey.

Mr de Hey said that unsurprisingly the security people did not attend at precisely the same time for each of their inspections. However he agreed that Mr Ashton regularly visited the Mitre 10 store between 5p.m. and 5.30p.m. He said that he believed that there was a single light illuminating the stairwell when he left the building. On the other hand he said that sometimes the lights were left on and sometimes they were left off but to the best of his belief there was one on on that occasion. Mr Ashton did not see Mr de Hey when he looked through the main entrance to the store although Mr de Hey said that he could see Mr Ashton – who was outside in the sunlight – from where he was standing at the top of the stairs and that he waved to him but that Mr Ashton did not appear to see him. He said it was actually the rattle of the door as Mr Ashton shook it and inserted his card to indicate he had inspected it that drew his attention to Mr Ashton. He denied that he had anything whatever to do with setting fire to the Mitre 10 store and he said in effect that Lindsay Adams would have left the store only a short time – I would infer perhaps half a minute or so before Mr de Hey left the store. Mr de Hey was actually locking up the door at the northern entrance to the building on the lower level as he saw Mr Adams’ car go past the back of the shop. He said that in fact Mr Adams was walking towards the rear of the shop to leave through the doorway as Mr de Hey went to activate the burglar alarm system. He said that he was actually outside the premises just having locked up the door when he observed Lindsay Adams’ car being driven away.

Dealing with the construction of the upper level above the receiving room Mr Cafe said:

“It was a wooden floor, it had gaps along the wall like all wooden floors, it could have had gaps in the wooden floor like between the boards and if there was any flammable liquids over the floor there’s a good likelihood that they’d leak down into the storeroom below…So any flammable liquids during the fire could easily make their way down into the storeroom below.”

He went further and said that there was a “good likelihood” that such flammable liquids in the course of the fire would make their way into the room below. He relied upon photographs showing the leaking of paint from the paint area into the room below. He said he had not seen any photographs “of any direct holes in the floor, but I have seen gaps along the eastern wall when I examined it.” He said he had some photographs of the areas he had examined.

Unfortunately by the time Mr Cafe arrived on the scene, the upper level of the building had been largely demolished. Photograph A in his report of 30 March 1998 shows the area where the paint store used to be at the eastern end of the southern wing of the building and it shows also of course the remnants of the western wing. Photograph E shows the remnants of the hardwood floorboards that had been cut up and dropped through to the receiving room floor. Photograph E looks towards the eastern end of the building. Photograph D shows that eastern end looking over the floor joists of the upper level. Photograph E should be considered with Exhibit 74, which shows the receiving room looking towards its northern wall with the remnants of the wooden timber frames beside the double width doorway on the northern end of the receiving room wall.

Photographs F, G, H, I, J and K all demonstrate fire damage to those parts of the eastern wall which had not been already demolished. They were taken on 6 February 1998, which I assume was the time when Exhibit 74 was also taken.

These photographs were relied upon by Mr Cafe to support the possibility – if indeed not likelihood – that containers of flammable materials including mineral turpentine, kerosene, methylated spirits and acetone all stored in the paint section on the eastern wall of the upper floor may have melted and leaked their contents onto the floor adjacent to the eastern wall and those flammable liquids may then have travelled through gaps along the eastern wall into the room below. He relied upon the photographs taken of the eastern wall to which I have referred to support that proposition. He said the burn patterns on the eastern wall were consistent with flammable liquids leaking into the storeroom while alight. He said another “equally plausible” possibility is that the flammable liquids were not on fire when they ran down the eastern wall to the storeroom below but that they left a vapour trail which eventually caught fire from the intense heat in the upstairs paint section and fire flashed along this vapour trail. He said that if this had happened there would be little or no burning found to the timber beams along the eastern wall because they would be wet as a consequence of all the water being played on that end of the building. There was evidence that rainwater penetrated the eastern end of the building from time to time. If this had happened the timber bearers at the eastern end of the building may have been wet and this may have caused the accelerants to simply flow across the timber and if they did catch fire it would not do an enormous amount of damage to them. The photographs demonstrate some sort of blackening or scorching of the bearers and joists resting on them and it was pointed out that if the asbestos cement ceiling protected them from direct exposure from fire in the receiving room below, it would be hard to explain those markings shown so clearly on the photographs except by attributing them to the penetration of accelerants whether or not alight at the time of actual penetration from the floor above.

The evidence is to the effect that there was a ponding in that part of the concrete floor of the receiving room which the firemen and the experts described as being the site of the centre of the fire in the storeroom. It was there that the cardboard boxes of furniture were stored. One of the possibilities for which Mr Cafe contended is that accelerant not alight may have trickled down the eastern wall of the storeroom and then flowed down to the ponding area beneath the cardboard boxes and furniture and other pieces of wooden material shown in the photographs and accumulated there in a significant quantity. The evidence is that there were about 400 litres of such material stored in plastic containers and other sorts of containers I suppose at the eastern end of the building and much of it on shelving against the eastern wall of the upper level.

The whole matter of course is complicated by the fact that undoubtedly when the fire in the room below did take hold it did produce a lot of soot and it did cause the walls of the storeroom to be marked by smoke and other products of the fire. If accelerants had in fact proceeded down the wall ponding somewhere towards the centre of the storeroom as Mr Cafe says is possible once the fire took hold and produced a lot of black smoke leaving marks of the sort apparent in photographs taken by Mr Cafe to which I have referred then of course there may well be no evidence left to demonstrate that indeed this was the genesis of the receiving room fire. Mr Cafe says that the charring to the timber beams along the eastern wall visible in the photographs lends some support to the proposition that the fire did spread from the paint section down into the receiving room by flammable liquids trickling down the inside of its eastern wall.

Mr Cafe refers to the photographs he took to show heavy depositions of smoke deposit on the walls of the receiving room generally and points out that the fire in that room must have been producing a lot of smoke which had it been burning at the time the firemen were on the lower floor level in the general area outside the storeroom, must have been clearly visible to them as it emanated from the room. Moreover one of the photographs taken by Mr Pollard shows smoke deposits penetrating to the ceiling and bearer west of the western wall of the receiving room, which is consistent only with the smoke being clearly visible to anybody looking for indications of fire on the lower level at the time it was emanating from the receiving room.

Another possible source of ignition according to Mr Cafe was embers getting into the storeroom as a result of holes being knocked through the fibro walls up above the receiving room and perhaps coming down the stairwell – particularly when the roof collapsed at 5.51p.m. causing a reversal of direction of air flow from upstairs where the fire was raging to the lower floor level. He said that there was evidence of burning along the eastern wall of the receiving room which supported the possibility of flammable liquids penetrating the room from the eastern wall end of it and perhaps igniting other vapours and flammable liquids that had made their way down into the room from the paint section above.

The second expert witness called for the plaintiff was Associate Professor Stern. Professor Stern is a professor of chemistry and lectures in the area of forensic science and chemistry at University of Technology in Sydney. He practices as a consultant in the area of fire investigation and has done so for 18 years. He did not inspect the site. He has had regard to all the expert evidence and to all the photographs that have been placed before the court. He had regard to the evidence of all the eye witnesses – particularly the firefighters and the persons who first viewed the fire at about 5.25p.m. Unsurprisingly Professor Stern said that to his mind the most important witnesses were the eye witnesses who actually saw the inception of the fire on the upstairs level and the firefighters who did not see any fire in the receiving room below until a significant period of time had elapsed from the upstairs fire spreading.

Professor Stern reiterated the views expressed by Mr Cafe that there were three possibilities for the cause of the fire:-

(1) It was possible that it was lit deliberately, although there was no physical evidence of that because no accelerant or traces of accelerant had been found in the area of origin on the upper floor.

(2) A possible cause was fire spreading from an ashtray, perhaps containing dockets and papers and unextinguished cigarettes. That witness’s professional experience was that cigarette butts in ashtrays containing papers et cetera can and do cause fires.

(3) The possibility that the cause of the fire was electrical and Mr Faulks, the independent expert in fires, said that from his examination it was not possible to rule out an electrical ignition as a cause of the fire in the office area.

In his scientific analysis of all the facts it was his view that there was nothing to indicate an intentional ignition, more likely was an unintentional ignition resulting from a smouldering cigarette in the ashtray or an electrical ignition of the fire first observed in the stand near the principal entrance to the door about 5.30p.m.

Unsurprisingly both Professor Stern and Mr Cafe commented that the position a few metres in from the main door providing clear visibility of the stand where the fire was first observed would be a rather unlikely place for somebody to intentionally ignite a fire where it might be readily observed by any passerby who happened to look through the doorway while the sun was still up and people still in the vicinity of the store. One must keep in mind that Mr Aston, when he first noticed a glow in the glass door of the Mitre 10 store, was about a hundred yards down First Avenue approaching the store and thought that it was simply a reflection of the sun which was still up at the time.

Those observations however do not seem to me to have any scientific basis. They are really just matters of commonsense which should be exercised when analysing the whole of the expert and non-expert evidence. I treat them more as persuasive submissions more properly to be made by counsel for the plaintiff than as expert evidence supporting the plaintiff’s case.

Professor Stern said that comparing the photographs of the fire damage on the upper floor with those of the damage in the room underneath the paint section, the fire in that room had been “far less destructive” than had been the fire on the upper floor because there was a lot of unburnt combustible material left in the room compared with what was left on the upper floor. He expressed the view that this alone suggested to him that the fire in the storeroom on the lower level had developed later than the fire on the upper level. He gave the dimensions of the room and pointed out that on all the evidence the room was well ventilated and that its size and volume and the ventilation would not have impeded the develop.m.ent of the a once it commenced. He expressed the view that simply looking at the damage in the lower room, which was photographed after the fire was extinguished and comparing it to the nature of the damage on the upper level, he would have expected far greater damage to the combustible material in the storeroom had the fire in that storeroom started at roughly the same time as the fire on the upper level. He pointed out there were some articles in the room that did not seem to be fire damaged at all. He expressed the view that after the collapse of the roof there would have been a “chaotic situation at the lower level and that sparks and embers and air currents would have been generated to fly in all directions.” He said that in “an internal fire” 15 metres is not an excessive distance for such sparks, embers, cinders et cetera to travel and that had this occurred then that would have been a source to ignite flammable liquid and other material in the storeroom if they came into contact with it. He said it would not have been a case where cinders or embers would travel in a straight line, but that air currents and turbulence would have them swirling around “in a chaotic fashion” and they would have been able to enter through the various openings in the western wall of the storeroom quite easily. He pointed out that the photographs demonstrate that debris probably burning at the time had come down onto the lower level, falling down the stairway. He said the photographs themselves demonstrated holes that had been burnt in the floor between the staircase and the storeroom door at its southern end and he pointed out that the holes that the firemen had knocked in the fibro walls of the upper storey, to permit them to fight the fire on the upper level from the lower level, would themselves have permitted cinders and embers and sparks to come down to the lower level.

Professor Stern said that in his opinion it was quite possible for the fire on the lower level receiving room to have been ignited from the fire on the upper level which attained a temperature of about a thousand degrees burning flammable liquids in the paint section. In Professor Stern’s view the photographs taken by Mr Pollard and relied upon to support his view that fire did not penetrate the lower room from the upper level indicated to the contrary that there had been a fire in the ceiling area – that is between the asbestos ceiling sheeting and the floorboards of the upper level. He said that he would expect that the hardwood flooring would have areas in it which allowed liquids to percolate through. That was his experience with old timber buildings. Sometimes part of the tongues of tongue and groove floor boards are broken off before the flooring is assembled and this allows liquids to percolate readily through the cracks.

Professor Stern considered the nature of the material stored in the store and said that once a fire reached a certain stage it would take only minutes to set fire to various items of stock – particularly gas and material stored in the camping area of the store. He said the fire in this case was an intense fire and he would expect that it would jump from rack to rack and it would be quite unnecessary for it to spread along the floor.

I prefer the expert opinions of Professor Stern and Mr Cafe called for the plaintiff to the various opinions advanced by the policeman supported by various experts and the defendant’s claims investigator called on behalf of the defendant.

In coming to this conclusion I pay particular attention to the eye witness evidence of the firemen whose evidence stated shortly is inconsistent with the propositions advanced on behalf of the defendant that the fire in the storeroom on the lower level was ignited at about the same time as the fire on the upper level – which is a critical fact to be established if the defendant’s case is to succeed. Similarly I prefer to rely upon the eye witness evidence of the persons who saw what must have been the very initial blaze of the fire near the office when they looked through the doorway and observed that it was a relatively small fire which did not commence to spread quickly until the chemist smashed the door of the store in an attempt to extinguish it which had the effect of allowing air to enter resulting in the fire taking hold of the upper floor area in the vicinity of the office within 10 minutes or so, to the theories advanced by persons to explain their perception of fire damage long after the fire had been extinguished. I accept the evidence of Mr Aston that had he not acceded to the wisdom of the chemist and had he actually smashed a bigger hole in the door and gone over closer to the small fire he may well have been able to extinguish it.

I found Mr de Hey a credible witness. I saw no reason upon the whole of the evidence to reject his version of events. In particular I find no reason to reject his denial that he had anything to do with intentionally setting fire to the Mitre 10 hardware store. Far from deriving any financial advantage from doing such a thing the shortest consideration of his financial position and that of the plaintiff company generally would have made it abundantly clear that he and his company, which was essentially a vehicle for investments for family members, would suffer irreparable loss and damage as a consequence of the conflagration that has deprived them of a comfortable livelihood.

The defendant has simply failed to discharge the onus on it of proving on the balance of probabilities that Mr de Hey or for that matter any other officer of the company intentionally lit the fire that substantially destroyed the plaintiff’s business and stock on 17 October 1997. Indeed were the onus on the plaintiff to prove that Mr de Hey did not intentionally ignite the fire which destroyed the plaintiff’s business and stock I would be persuaded on the balance of probabilities that he did not. I find therefore that the defendant is in breach of its obligation to indemnify the plaintiff against loss under the policy of insurance which is Exhibit 10.

I turn now to the quantum of loss proved by the plaintiff.

Under the relevant insurance certificate, part of the policy which is Exhibit 10, the following are the indemnity limits –

(a) stock - $350,000-00

(b) all other contents - $185,000-00

(c) expenses occurred in preparation of insurance claims - $10,000-00

(d) additional increased costs of working - $5,000-00

(e) removal of debris - $50,000-00

(f) extra costs of reinstatement - $100,000-00

(g) gross profits - $525,000-00

(h) computer equipment $40,000-00

I will deal with the damage proved under each of these headings –

(a) Stock

One of the problems in the way of the plaintiff in establishing the value of the stock destroyed was that most of the financial records in the business were destroyed in the fire.

It is clear from the evidence of a number of witnesses that the store was always well stocked – if indeed not a little overstocked. This had been the position for many years. It is clear that additional stock had been purchased for the Christmas season just prior to the fire – indeed much of the material destroyed in the receiving room comprised that stock. I will not detail the precise evidence given by the various persons as to the shop being kept fully stocked I will simply refer to the evidence given by fire officer Hill who lived on the island, the plaintiff’s employees Janine Farren-Price, Mr Pierce, and Judith McLauchlan who was involved with preparation of records of stock takes etc over the years. She said that the stock levels at the time of the fire were high due to the purchase of items for sale in the Christmas season. Customers of the shop include Ms Barker, Mr Burke and Ms Harpman who all gave evidence that the store was fully stocked – to such an extent as to even sometimes impede easy access to various display stands etc. As early as 30 June 1991 stock takes and financial statements demonstrated the stock then held to have a value of $356,108-00 (Exhibit 80B). On 30 June 1992 the stock valuation was $374,927-00 (Exhibit 80A).

Paula Sharp an accountant employed by the defendant’s loss adjustors noted that the closing stock for each of the years 1993, 1994,1995 exceeded $350,000-00 -vide Exhibit 68.

The accountants called by the plaintiff estimate that based upon a closing stock figure of $355,872-00 as at 30 June 1995 and using a gross profit rate of 32% it may be inferred that as at 17 October 1997 the value of the stock would be $343,280-00. If a gross profit rate of 35% was used the value of the stock at that time would be $389,235-00.

Unfortunately these accounting exercises became necessary because of the destruction of the plaintiff’s actual records in the fire. Looking at the whole of the evidence and particularly the evidence of Paula Sharp retained to assess stock levels on behalf of the defendant over the years 1993, 1994 and 1995 and keeping in mind the value of the stock just acquired for the Christmas season I am persuaded on the balance of probabilities that the value of the stock actually destroyed in the fire was about $375,000-00. The sum obtained by the plaintiff on its fire sale of damaged stock was $30,009-82. Had the defendant not repudiated its obligations under the insurance policy this sum would have been held for the benefit of the insurer. However it does not follow that it must be deducted from the $350,000-00 limit of the defendant’s liability. That limit relates only to the actual loss of stock suffered by the plaintiff. I infer that the actual loss suffered was in the vicinity of $375,000-00 disregarding the proceeds of the sale of fire damaged stock. Taking these proceeds into account I assess the actual loss in the sum of $345,000-00 which is within the limit of indemnity under the policy. I assess the indemnified loss under this heading in the sum of $345,000-00.

(b) All other contents

I accept the evidence of Mr de Hey that the contents destroyed are listed in Exhibit 21. The complete list of items destroyed (apart from computers) as valued by Mr Sanderson the defendant’s loss adjustor amount to $71,195-00 additional items were valued by Mr Sanderson at $12,025-00.

With respect then to “other contents” apart from the computer system I assess the loss in the sum of $83,220-00.

(c) Expenses occurred in preparation of claim

The limit of the defendants obligation under this heading is $10,000-00. I accept the evidence of Mr de Hey of the cost of preparing and pursuing its insurance claim against the defendant. This is confirmed by Exhibits 26 and 27 being costs incurred to the solicitors to the plaintiff and in respect of accounting services in preparing company accounts for 1997.

I assess the plaintiff’s loss under this heading in the sum of $4,200-00.

(d) Additional increased costs of working

I accept the evidence lead by the plaintiff that the breakdown of expenses actually incurred following the fire in attempting to carry on/wind up its business affairs amounted to $24,683-20 – Exhibit 23. I accept the evidence of Mr de Hey that it was the plaintiff’s intention to attempt as soon as possible to set up business once more on Bribie Island or perhaps over on the mainland as close as possible to the site of the destroyed Mitre 10 store. For this reason the plaintiff kept its staff employed and paid them for some weeks. Contacts were maintained with suppliers and customers who were in the building industry and I have no doubt that had the defendant promptly accepted the claim made by the plaintiff and met its obligations under the insurance policy the business would have been forthwith re-established on another site, at least temporarily.

In my view the loss incurred by the plaintiff by reason of additional increased costs of carrying on business etc far exceed the full indemnity amount of $5,000-00 under this head I therefore assess the plaintiff’s indemnified loss in the sum of $5,000-00.

(e) Removal of debris

In this respect I accept the evidence of Mr de Hey that much of the stock on the lower level (visible in some of the photographs taken after the fire) was smoke and water damaged. This material was removed and stored in the old premises pending its sale as fire damaged stock. On the evidence of Mr de Hey I accept that this loss amounted in fact to the sum of $7,439-00 less WorkCover and superannuation payments. I assess the plaintiff indemnified loss under this head in the sum of $7,000-00.

(f) Extra costs of reinstatement

Having regard to the refusal of the defendant to meet the plaintiff’s insurance claim in fact the plaintiff did not re-instate its business. Because it did not incur any costs of re-instatement it suffered no loss indemnified under this heading.

(g) Gross profits

I accept the evidence of Paula Sharp the loss adjustor retained by the defendant who prepared a summary of the plaintiff’s turnover for the period 1992 to 1997 (Exhibit 69C) I extract from this document the total turnover of the period from October 1996 to September 1997 in the sum of $1,148,871-00.

Accepting a closing stock value of $320,000-00 for the year ended 30 June 1997 the accounting report suggests a rate of gross profit of 58.45%. The sum received upon the sale of smoke and water damaged stock was $30,098-82 (Ex 22). In applying the insurance policy formula in assessing the plaintiff’s loss under this head for the twelve month period from 17 October 1997 I am not prepared to accept a rate of gross profit based upon the 1997 tax return submitted after the fire. Using those figures, in the context of previous tax return figures submitted, there would be a gross profit of 58.45%. This whole approach questionable having regard to the inaccuracy of the annual stock takes used for taxation purposes. The earlier stock valuations were designed to lower tax in the years in which the returns were put in although inevitably that would only postpone payment of tax in the long term. In the circumstances I think it appropriate simply to use the generally accepted industry rate of 35% rate of gross profit on the assumed trading result for the period of one year. Making that assumption the deduction in gross profit would be –

$1,148,871-00 minus $30,098-82 (proceeds of salvage sale) multiplied by .35 which amounts to $391,570-26.

From this sum however it is necessary to deduct expenses that have been saved by reason of the business not being conducted.

In calculating the expenses saved by not conducting business I adopt the expenses claimed in the taxation year ended 30 June 1997. The defendant’s expert accountant estimates savings of $258,019-00. However I accept the contentions of the plaintiff that there has been an overestimate in this figure which should be reduced by $27,422-00. I therefore deduct from the $258,019-00 the sum of $27,422-00 leaving a total saved expenditure in the sum of $230,597-00.

This approach of course treats the likely income of the directors and shareholders of the plaintiff as a “saved expense”. However the family members of this company are not party to this action and it is not contended that their personal loss is relevant to the plaintiff’s right to indemnity against loss of its gross profits.

Using the gross profit rate of 35% therefore I calculate the loss of gross profit over the following year to 17 October 1998 applying the formula contained in the insurance policy in the sum of $160,973-26.

(h) Computer Equipment

The defendant’s loss adjustor expressed the view that the replacement cost of the computer system at the time of the fire was $35,000-00. This however did not include the water damaged computers on the lower floor. Mr Small called on behalf of the plaintiff gave evidence that the replacement costs of the system including the downstairs computers would exceed $40,000-00. The quote which he gave is Exhibit 51. I accept that it would not be appropriate to assess damage by having regard to the cost of an attempt to replace the destroyed equipment with second hand equipment for the reasons Mr Small gave.

The limit of the obligation of the defendant to indemnify the plaintiff against loss of computer equipment is $40,000-00. I’m satisfied that the cost of meeting the defendants obligation under the policy if the plaintiff attempted to replace that lost and damaged equipment would certainly exceed $40,000-00. I therefore assess the indemnified loss suffered by the plaintiff by reason of the loss of its computer equipment in the sum of $40,000-00.

I assess therefore the liability of the defendant under its insurance policy with the plaintiff in the sum of $645,393-26. I assess interest on this sum at 11% per annum for a period of 2.25 years in the sum of $159,734-83. I give judgement for the plaintiff in the sum of $805,128-09.

Index to Reasons for Judgment

Subject Page

History of development of business premises 1-6

Preliminary Resume of events leading to fire and
observations of eye witnesses 6-7

Resume of case for defendant 8-9

Resume case for plaintiff and preliminary observations 10-17

Analysis of evidence of fire officers 18-28

Analysis of evidence of persons who saw early stages of
fire or gave evidence relevant to its inception

Mr Ashton 28-35

Mr Mitchell 35-37

Mr Leaver 37-38

Mrs Farren-Price 38

Mr McLellan 39

Mr Pierce 39

Mrs Barker 39

Analysis of evidence of Mr de Hey 40-49

Preliminary observations on evidence of Mr de Hey in
context of other evidence 49-53

Analysis of evidence statement taken from Lindsay
Adams by Mr Pollard 53-54

Analysis of evidence of Mrs Lavan called for
the defendant 55

Analysis of evidence of Mssrs Keneller called by the
defendant 56-58

Effective evidence of Karen King 59

Analysis of evidence of police officer Holohan 60-78

Analysis of evidence of Mr Casey consulting
scientist called by the defendant 79-84

Analysis of Mr Pollard as the defendant’s insurance
claim investigator 84-92

Analysis of evidence of Mr Nystrom called by the
defendant 92-95

Analysis of evidence of Dr Agnew called for the defendant 95-98

Conclusions drawn on the whole of the scientific evidence
called by the defendant 92-93

Scientific experts called by the plaintiff

Mr Cafe fire investigator 99-105

Professor Stern 105-109

Conclusion drawn on the whole of the scientific evidence called 109

Determination of issue of liability 109-110

Quantum loss proved 110-117

Assessment of damages and interest 117

CITATION:	Medalham P/L v NZI Insurance Australia Ltd [2000] QSC 077
PARTIES:	MEDALHAM PTY LTD (Plaintiff) v NZI INSURANCE AUSTRALIA LIMITED (Defendant)
FILE NO:	11650 OF 1997
DELIVERED ON:	7 April 2000
DELIVERED AT:	Brisbane
TRIAL DATES:	31 January and 1, 2, 3, 4, 7, 8, 9, 10, 11 & 14 February 2000
JUDGE:	BW Ambrose J
CATCHWORDS:	INSURANCE – FIRE – whether fire was deliberately lit
COUNSEL:	Mr D R Lynch and Mr P J O’Neill for the plaintiff Mr E J Lennon QC for the defendant
SOLICITORS:	Files, Stibbe & Associates for the plaintiff Carter Newell for the defendant