VACC Insurance Co Ltd v Lekkas
[1999] VSCA 31
•30 March 1999
SUPREME COURT OF VICTORIA
COURT OF APPEAL Not Restricted No. 8251 of 1997
VACC INSURANCE CO. LTD.
Appellant
v
VASSILOS LEKKAS AND MARIA LEKKAS
Respondents
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JUDGES: BROOKING, ORMISTON and BUCHANAN, JJ.A. WHERE HELD: MELBOURNE DATES OF HEARING: 10 and 11 February 1999 DATE OF JUDGMENT: 30 March 1999 MEDIA NEUTRAL CITATION: [1999] VSCA 31
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INSURANCE - Assessment of loss - Admissibility of evidence of subsequent events -
Compulsory acquisition of property.
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APPEARANCES: Counsel Solicitors For the Appellant Mr D. Habersberger, Q.C. Scholl Nicholson and Mr M. Scarfo For the Respondents Mr C. Porter Coulter Burke
BROOKING, J. A.:
I concur in the judgment of Buchanan, J.A.
ORMISTON, J. A.:
On this appeal I confess that I have had a good deal of sympathy for the respondents, two of whose shops were burnt down as a result of a fire which is the subject of the claim which led to these proceedings. After all, they were the owners of a group of properties which, though neither recently built nor modishly constructed or decorated, produced for them three sources of income. After the fire they were left with two shells of buildings surrounding the one remaining fish and chip shop which still produced a rental income and which could have been no great prospect for any future landlord. Not only were the two shops burnt down but by reason of the local council's intransigence they could not be reconstructed because the council had some imprecise and leisurely desire to, at the least, reconstruct the nearby intersection and possibly go further in using the subject properties for a "traffic management plan", which would have required the acquisition of all of the respondents' properties. Of course, if the properties were acquired, as eventually occurred, the respondents would thereby be entitled to compensation calculated by reference to the value unaffected by the consequences of the planning restrictions to which they had been subject. However, at the time of the fire that was some way in the future and the history of their dealings with the council did not suggest any great haste, assuming even that the council had funds to acquire their properties. Whether or not one accepts, and it is not clear that the learned judge accepted, the account of Mrs Lekkas that the council had said this might not occur until about the year 2005, there was much uncertainty about this but they will now recover only the rental on the shops for the interim period. They had no effective power to realise their properties (since a purchaser would be affected by those restrictions, as we understood the argument), so that the compensation moneys could not be applied in the purchase, construction or development of some property unaffected by these vagaries of local bureaucracy.
I would therefore have preferred a solution requiring the insurance company to pay the respondents the whole "amount of the damage" based on comparative rent capitalisation values or some other immediate estimate as soon as practicable after the loss was suffered. After all, that is one of the virtues of having a fire insurance policy, or so it might be imagined. Although it was not cited to us, a similar solution was reached in relation to a negligence claim in Dominion Mosaics Co. Ltd. v. Trafalgar Trucking Co. [1990] All E.R. 246, where the Court of Appeal, in not dissimilar circumstances where a fire damaged premises had been used for the plaintiff's business (and, coincidentally, also affected by a road improvement scheme), held the owner entitled to claim damages for the cost of the purchase of similar premises in order to mitigate its loss which might result from any delay in rebuilding and which were said to represent its real loss and damage.
However, the reasoning of Buchanan, J.A. makes clear why the conclusion should be reached that the appeal must be allowed and that the only amount which can be recovered pursuant to the policy should be restricted to the amount of rent which would otherwise have been obtained from the two burnt-down shops up to the time of the council's acquisition of the whole premises. As to the methods of valuation adopted by the expert witnesses called on each side, those of the appellant ought to have been preferred for the reasons stated by Buchanan, J.A. A different method of assessing the loss might have been put forward which would have allowed for the uncertainty which existed at the time of and immediately after the fire by making allowance for the loss of a "chance". In other words the respondents might have made a claim at that time for the loss based the amount of rent expected to be lost having regard to all contingencies, including the uncertain date of compulsory acquisition. That is what the insurance company should at the time have calculated and paid (and the respondents accepted) rather than waiting for the issue to come to court some years later when by good fortune the property had been acquired. That happened to give certainty to what had been uncertain up to that time, but no alternative calculation was put forward and we must decide the case on the evidence.
The appeal should be allowed.
BUCHANAN, J.A.:
On 7 April 1993 a fire broke out in premises at Ocean Grove owned by the respondents. The premises consisted of three shops, a beauty shop, a pizza shop and a fish and chip shop, each leased to a different tenant. Only the fish and chip shop survived the fire. The other two shops were destroyed.
At the time of the fire there was in force a policy of insurance issued by the appellant whereby the appellant undertook that if the property be destroyed or damaged by fire, the appellant "... will pay to the Insured the value of the Property at the time of the happening of its destruction or the amount of such damage or at its option reinstate or replace such Property or any part thereof."
The insured and the insurer were unable to agree upon the amount of the loss sustained by the insured as a consequence of the fire, and the respondents brought these proceedings to recover the amount which they claimed represented the loss they had sustained.
The parties' difference of opinion as to the amount of the loss was due to the prospect of the compulsory acquisition of the property by the Greater City of Geelong Council (Bellarine District), which I shall call "the Council". The appellant contended that the prospect was to be taken into account in assessing the loss caused by the fire, whereas the respondents argued that it should be ignored.
The respondents purchased the property in 1979 and became registered as proprietors in 1982. In 1982 the respondents applied to the Council for planning permission to develop the property, and were informed that part of the land would be acquired for the purpose of road widening. In a letter dated 11 February 1982 the Council said of the road widening proposal:
"No commitment has yet been made to proceed with this proposal and
it is not known when such work will be carried out."Thereafter the respondents made regular enquiries of the Council as to its plans for the property, apparently without any result. On 11 November 1992 the respondents applied for a planning permit to develop the property in order to force the Council's hand. The Council refused the application on the ground, inter alia, that the grant of a permit "... would be contrary to Council's adopted Traffic Management Plan for Ocean Grove ...." The respondents appealed against the refusal, but before the appeal could be heard the fire occurred. The appeal was subsequently dismissed because "the appeal site is required for public purpose". In its reasons for determination the Administrative Appeals Tribunal referred to a proposed traffic route through Ocean Grove which required the acquisition of the respondents' property, and said that "the proposed traffic route is adopted by the Ocean Grove Structure Plan ... [which] is at an advanced stage."
Some four months after the fire the respondents applied to the Council for permission to reinstate the premises. The application was refused. A ground for the refusal was that "The site is required for a public purpose." On 13 June 1995 the council compulsorily acquired the land.
The respondents and the appellant called valuers to give evidence of the value of the property before and after the fire. The valuer called by the respondents said that the value of the property immediately before the fire was $181,600 based on a capitalization of rent, adopting a capitalization rate of 13 per cent. He valued the property immediately after the fire at $79,240 on the same basis but adopting a capitalization rate of 10.5 per cent. He applied that rate to the rent of only one shop saying, "The after valuation reflects the fact that further development of the site would not be possible and that the only income that could be generated from it is from the one remaining tenancy." He said that the figure of $79,240 was "extremely optimistic". He regarded the prospect that the property would be compulsorily acquired by the Council "on some future date" as a factor that depressed its value.
The appellant called evidence from three valuers. Two of them, like the respondents' valuer, based their valuations of the property before the fire on a capitalization of rent, although they used a rate of 10 per cent instead of the respondents' valuer's rate of 13 per cent. Those valuers were engaged by solicitors and loss adjusters acting for the appellant. The third valuer had been requested by the Council before and after the fire to value the property. The third valuer based his valuation of the property before the fire on comparable sales. All three of the valuers called as witnesses by the appellant estimated the value of the property immediately after the fire as a development site, which was the basis upon which the price of compulsory acquisition would have been struck, for s.43(1)(a) of the Land Acquisition and Compensation Act 1986 provided that any decrease in the market value of the interest being acquired arising from the proposal to carry out the purpose for which the interest was acquired was to be disregarded.
The difference between the respondents' valuer's estimates of value before and after the fire was $102,360. The differences between the before and after estimates made by the appellant's valuers ranged from $15,000 to $40,000. The principal difference between the respondents' valuers and the valuer engaged by the appellant was that the former took the permanent post-fire position to be that the Council would not permit the replacement of the two shops destroyed in the fire, leaving the value to be determined by the capitalization of the rent of one shop, and ignored the prospect of compulsory acquisition, whereas the latter disregarded the return from the remaining shop and treated the price upon the impending compulsory acquisition as fixing the value of the land.
The respondents' valuer accepted that upon the occurrence of the fire, compulsory acquisition would have to take place, but proceeded to value the property as but one shop continuing to produce rent for the foreseeable future. The respondent's valuer rejected the amount which the Council would pay to compulsorily acquire the property as a factor affecting its value because he regarded valuation as the price which a willing vendor and purchaser would agree upon acting voluntarily. Compulsory acquisition was inconsistent with such a concept.
The trial judge held that the approach of the respondents' valuer was correct, and he too disregarded the price that the Council would pay to compulsorily acquire the land. He said, "In the event that it [acquisition] was set in concrete that that would happen, then maybe there is something to be attached to ..." the argument that the value of the land was the price the Council would pay. It followed that as the compulsory acquisition was not set in concrete, the argument that the chance of such an acquisition occurring was to be brought into account should be rejected. Later he said:
"Described in that way it is not very hard to see why the various valuers tackled by Mr. Porter about the prospect of purchase were saying that it would be irresponsible to advise a commercial purchaser such as mortgagee to enter into this transaction on the basis that it was going to do any better than acquire the rights to the rent since we are by definition talking about buying rights to compensation and not buying a commercial possibility for which compensation may become payable."
The trial judge held that the value of the property immediately following the fire was to be assessed solely on the basis that it produced an income from a leased fish and chip shop. His Honour paid no regard to the benefit represented by the chance that the land would be compulsorily acquired by the Council at a price which assumed the land could be developed.
His Honour assessed the respondents' loss in an amount of $102,360, being the difference between the two valuations made by the respondents' valuer, and in addition awarded an amount of $2,974.64 which the parties agreed was the amount of lost rental income, which was payable pursuant to a term of the policy of insurance.
There was a considerable body of evidence that upon the occurrence of the fire the Council would acquire the respondents' land. The valuer called as a witness by the respondents shared the view of the appellant's valuers that the occurrence of the fire rendered certain the compulsory acquisition of the land by the Council. In the course of his cross-examination the following exchange took place:
"Once the fire damaged that property it effectively ensured, did it not, that the acquisition by the Council had to be, if not immediate, within a very short time?---It would ensure that only if the owner then applied to redevelop the property.
To reinstate it?---And that would force their hand, yes.
So immediately the fire took place the circumstances were such that reinstatement would not be allowed and that compulsory acquisition would have to take place?---Yes."
Two of the valuers called by the appellant gave evidence without objection that their enquiries of Council officers revealed that the Council would proceed to compulsorily acquire the land. In a valuation report Mr. Nixon said:
"Latest enquiry indicates the Responsible Authority will seek to rezone as 'Reserved for Public Purposes' and then proceed with compulsory acquisition."
In his evidence he said that information was given to him at the Council town planning office. The other valuer, Mr. Snowden said:
"When I went to the town planning department at the council they explained to me that it will have to be acquired for road widening at some stage."
It would appear that the prospect of compulsory acquisition increased upon the occurrence of the fire because thereupon the Council faced a more substantial claim for compensation pursuant to the provisions of s.98(2) of the Planning and Environment Act 1987.
His Honour was also entitled to rely upon the evidence of the acquisition which occurred in June 1995 in assessing the value of the chance of such an event occurring at the date of the fire, just as a court assessing damages for injury as at the date when the injury was sustained will have regard to later events that reveal the extent of the injury. As Latham, C.J. said in Willis v. The Commonwealth (1946) 73 C.L.R. 105, at p.109:
"... Where actual facts are known, speculation as to the probability of those facts occurring is surely an unnecessary second-best. Damages are awarded for injury actually suffered and for prospective injury. Prospective injury can only be estimated with more or less probability. But where the extent and character of what would at one time be described as prospective injury depends on the happening or non- happening of a particular event and that event has in fact happened, it is unnecessary to speculate as to whether or not this event might happen and, if so, when. In such a case prospective damage (or diminution of damage) has become actual."
In Johnson v. Perez (1988) 166 C.L.R. 351, it was held that where a plaintiff lost the benefit of an action he might successfully have brought but for the negligence of his solicitor in allowing its dismissal for want of prosecution, his loss crytallized at the date of the dismissal and damages where to be quantified at that time. At pp.368 Wilson, Toohey and Gaudron, JJ. contemplated the admission of evidence of events occurring after the dismissal
"... it may assist the court in placing itself in the position of the trial judge at the notional trial when a judgment was to be made of the likely losses that would be suffered by the respondent in the future and for which the employer was to be held responsible."
See also Nikolaou v. Papasavas Phillips & Co. (1989) 166 C.L.R. 394, at 403-4 per Wilson,
Dawson, Toohey and Gaudron, JJ.If the question had been the market value of the property immediately after the fire as if there had then been a sale of the property, evidence of the later acquisition by the Council may not have been admissible. However, the question was the amount of the loss sustained by the respondents, which depended upon the amount they were able to realize from the property. As Crockett, J. said in Lucas v. New Zealand Insurance Co. Ltd. [1983] 1 V.R. 698, at 701:
"In determining the value of the property lost it must be borne in mind that it is not the value in an abstract sense that is to be assessed, but the value of the property to the insured. That is to say it is the insured's actual loss that is recoverable ..."
In The Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd. v. The Pontypridd Waterworks Company [1903] A.C. 426, the undertakers of waterworks gave a notice to mine owners not to work coal in their mines. The House of Lords held that in an arbitration to assess the compensation to be paid by the undertakers to the mine owners as a consequence of the notice evidence was admissible of a subsequent rise in the price of coal. Their Lordships distinguished between the case where the inquiry was as to the value of the mine and the case where the inquiry was as to the amount which the coal owners would have made out of the coal if they had not been prohibited from mining it. Accordingly the House admitted evidence of the later rise in the price of coal. Lord MacNaghten said, at 431, of the task of the arbitrator:
"Why should he listen to conjecture on a matter which has become an accomplished fact? Why should he guess when he can calculate? With the light before him, why should he shut his eyes and grope in the dark?"
In the present case the question was not the abstract value of the land but the amount of the actual loss sustained by the respondents. In my opinion the Court was entitled to have regard to the accomplished fact in order to evaluate the loss.
There was a substantial body of evidence that the Council would acquire the respondent's property. The evidence to the contrary was slight. It consisted of the long gestation period of the Council's management plan on which the acquisition depended and the evidence of the second-named respondent that representatives of the Council told her before the fire that they would make a decision in 2005.
The trial judge erred in requiring that the acquisition be "set in concrete" before being considered for the purpose of estimating the loss sustained by the respondents. The prospect of acquisition in fact bore upon the question of the loss sustained by the respondents. The prospect was not merely speculative or fanciful, indeed it was substantial, and to leave it out of account was to ignore the most important factor relating to the amount of the respondent's loss.
In assessing damages in contract and in tort the law recognizes a lost commercial opportunity as a compensible loss notwithstanding that, on the balance of probabilities, it is more likely than not that the opportunity will not be realized. See Chaplin v. Hicks [1911] 2 K.B. 786; The Commonwealth v. Amann Aviation Pty. Ltd. (1991) 174 C.L.R. 64 at 92, 102-4, 118-9; Malec v. J.C. Hutton Pty. Ltd. (1990) 169 C.L.R. 638; Davies v. Taylor [1974] A.C. 207, at 212, 219; and Sellars v. Adelaide Petroleum N.L. (1994) 179 C.L.R. 332. In my opinion it is logical to take the same approach to the assessment of the loss sustained by an insured under a policy of insurance. Provided that the chance of its occurrence is not merely fanciful, a future event which will affect the amount of the loss is to be taken into account in order to ascertain the true measure of loss.
The appellant was the only party to call evidence of the value of the chance of compulsory acquisition. The valuers called by the appellant regarded the prospect as a certainty. There was no valuation of a chance less than a certainty. The respondents approached the case on the basis that the chance of compulsory acquisition was to be ignored and accordingly their valuer ascribed no value to it. Two of the three witnesses who did take into account the prospect of the compulsory acquisition of the property estimated the respondent's loss at $40,000. The third witness estimated the loss at $15,000. The appellant conceded that if the appeal were to succeed, this Court should act upon the higher estimate of loss.
For the reasons I have stated I am of the opinion that the judgment of the court at first instance should be set aside and in lieu there should be judgment for the respondents in an amount of $42,974.64, made up of the loss of value of $40,000 and the agreed loss of rent of $2,974.64.
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