RUSSELL v NRMA INSURANCE LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL SAMUELS J, CLARKE and MEAGHER JJA 17 May 1990, 1 June 1990 [1990] NSWCA 159 INSURANCE CLAIM — ALLEGATION OF ARSON — SUFFICIENCY OF EVIDENCE ORDERS 1. Appeal upheld 2. Order below set aside 3. Order that the matter be remitted to the Commercial Division for the assessment of the damages owed by the respondent to the appellant 4. Order that the respondent pay the appellant's costs both of the appeal and before Rogers J; and 5. Order that the respondent have a certificate under the Suitors' Fund Act. Samuels J I agree with Meagher JA. Clarke JA I agree with the orders proposed by Meagher JA and, subject to the following observations, the reasons underlying those orders. Meagher JA has agreed with the trial judge's conclusion that the appellant had a motive for destroying his house or, as Rogers J put it, manufacturing a claim for insurance. The basis of this conclusion was the undeniable lack of liquidity of the appellant. For my part I am not persuaded that motive was established. In saying that I accept fully, as I must, the view that the appellant was suffering a crisis resulting from his lack of liquidity. That factor may well loom high in resolving an issue of motive, particularly if the person involved is unable to realise assets at a reasonable value due to the prevailing financial climate in the community. But in this case as Rogers J found the appellant's assets exceeded his liabilities. Included within those assets was his house which was, in the light of the then buoyant real estate market, readily saleable at a reasonable price. Why would he destroy his house for $178,000, at best, rather than sell it? Quite apart from that matter there were a number of other factors which weighed against his Honour's conclusion. Independent evidence established that an estate agent had secured a tenant for part of the downstairs at a rental in excess of $200 per week and there was a prospect of letting another part of the premises. In addition it is possible, I put it no higher in the light of Rogers J's view of the appellant's credibility, that the appellant was in receipt of a recently acquired substantial weekly income. Apart from all these considerations the insured amount was less than the total of the appellant's debts (in excess of $195,000) and slightly greater than debts secured on the property (in excess of $166,000). If the respondent required reinstatement and demanded to pay the builder direct the appellant would have obtained no funds with which to alleviate his liquidity crisis. These factors all lead me to the view that the respondent failed to establish the motive on which it primarily relied. Meagher JA At approximately 10.30pm on 18 August 1987 the house owned by the plaintiff Mr Russell at 8 Eastern Avenue, Kensington was damaged by fire. Some of the contents were damaged by water and fire, others were stolen. The 2 UNREPORTED JUDGMENTS plaintiff sued his insurer, the present respondent, NRMA Insurance Limited, for indemnity both in respect of fire damage and theft. The respondent disclaimed liability both on the ground that the fire was started by or on behalf of the plaintiff and on the ground that there had been non-disclosure by the plaintiff sufficient to constitute a breach of s21 of the (Federal) Insurance Contract Act 1984. His Honour would have been inclined to find against the respondent on the latter defence, but found it unnecessary finally to decide that question as he upheld the former defence. The plaintiff appeals against the consequent verdict for the defendant entered by his Honour. Certain features of the fire which were common ground ought be mentioned. First, the house was under-insured. It was insured for $178,000; his Honour found that the plaintiff at the time of the fire thought it was worth $265,000. His Honour found that in fact it was then worth at least $300,000. Evidence was led that it was worth between $350,000 and $370,000 at the time and that the real estate market was "very buoyant". It was sold in its damaged condition on 11 October 1988 for $435,000. Secondly, the fire was deliberately started by some person. Thirdly, whoever started the fire, it was not the plaintiff himself: at the time of the fire he was entertaining a party of friends at a restaurant. The house consisted of three living units. There was the main unit downstairs, which was built about 50 years ago and was constructed of double brick. Attached at the rear was another unit constructed of fibro, which his Honour described as a "granny flat". The third unit was an upstairs unit constructed of hardiplank about 7 years ago and situated above the main unit. The fire was started at two places in the main unit downstairs, and at one place in the main unit upstairs. The fires were started with the aid of petrol, turpentine and kerosene. The goods which were stolen were situated upstairs and consisted mainly of crystal glass. There were apparently no contents situated downstairs. No ladder was found. Access to the upper unit could only be obtained by an external door at the northern side of the premises, and an internal door in the main unit; both doors had a double deadlock, and neither deadlock had apparently been tampered with. Curiously enough, as his Honour found, "argument as to who might have set the fire and how did not loom large", although one might be pardoned for thinking this was the central issue in the case. On these facts, which I have outlined sketchily but I hope accurately, his Honour found that the fire was set by an accomplice of the plaintiff. The steps in his Honour's reasoning may be summarized as follows: first, the plaintiff lacked all credibility. His Honour said: "On the whole of the evidence, I am of the view that the plaintiff was prepared to deceive anyone if it was in his financial interest to do so. I am further of the opinion that he was in an extremely precarious financial position. He was reduced to juggling his obligations." Secondly, the plaintiff had every motive to start the fire: whilst his assets exceeded his liabilities, his cash-flow problems were formidable, and these were aggravated by his employment and marital problems. He could solve these problems only by an infusion of cash. There were only two possible sources of such an infusion: sale of the house and an insurance claim. The former he would not contemplate because of his sentimental attachment to the house, leaving the latter as the only alternative. Thirdly, there were only three possible arsonists: an accomplice of the plaintiff, a thief and a disappointed drug addict. And fourthly, URJ RUSSELL v NRMA INSURANCE LTD (Meagher JA) 3 the objective circumstances (lack of ladder, apparent use of a key to the double-deadlocked doors, use of petrol kerosene and turpentine) ruled out the last two categories. Without any disrespect for his Honour, I must say that I find this reasoning unconvincing. An allegation of arson is an extremely grave allegation, and no such allegation should be upheld unless, in accordance with what the High Court of Australia said in Briginshaw v Briginshaw (1938) 60 CLR 336, the tribunal of fact can be persuaded of its accuracy bearing in mind the gravity of the consequences which flow from the finding and the seriousness of the allegation. Since his Honour heard the evidence in the case, and we did not, the first step in his Honour's reasoning must be accepted, (although it is not assisted by his Honour's concurrent finding that the plaintiff was ugly and overweight). We must assume, therefore, that the plaintiff is a man without credibility. The second step in his Honour's reasoning, viz that the plaintiff had a motive for creating an insurance claim, I think must also be accepted. He needed cash. He had arrears of instalments owing to his mortgagee, National Westminster Finance Australia Limited. He owed money to the Commonwealth Bank, Chinatown branch, in excess of his overdraft limit. He owed Westpac Banking Corporation more than $26,000. He owed sums to the Customs Department Credit Union. He was already in trouble with American Express. He had a substantial periodic liability to pay maintenance to his recently divorced wife. He had left one employment and was building up another. As against that, he had an income from his new employment of about $1,250 per week at least from 24 July 1985 (with an expectation of 40% of its profits after a few months), together with a potential of rental income of between $300 and $400 per week. But, as his Honour rightly said, proof of motive is not enough. In the first place, there are few people who do not need extra money. In the second place, motive is a very uncertain guide in deciding issues of magnitude. As Wills on Principles of Circumstantial Evidence (7th ed) p 65 says: "..to eke out a weak case by proof of a motive apparently tending towards possible crime is a very unsatisfactory and dangerous process." (See Water Lily (Sales) Pty Ltd v The New Zealand Insurance Co Ltd, Supreme Court of New South Wales (Meares J), 15 March 1977, unreported). In the third place, there are countervailing factors in the present case which would weaken very considerably the force of any motive. A fire would have destroyed the plaintiff's potential rental income. Even if the plaintiff were paid the full value insured (ie $178,000), his mortgagee (who had already initiated proceedings for recovery of possession) would not have been paid out. The motive for burning an underinsured building is substantially less than if the building had been overinsured or even adequately insured. Nor can excessive reliance be placed on his reluctance to sell the property: after all, he did so, and at a vast profit, the following year. But if the second step in the reasoning is doubtful, the third is unsupportable. There is no possible reason to limit the suspects to an accomplice, a thief and a drug addict. The possibilities are endless. At least as probable as any of those three are a business rival (a possibility expressly adverted to by his Honour in argument), an enemy, a former tenant, or a friend of his ex-wife. Nor should the claims of a juvenile vandal or a pyromaniac be overlooked. The fourth step in the reasoning is also not easy to accept. Not only is it fallacious in necessarily involving an acceptance of the validity of the third step, but also it involves reaching an ultimate conclusion by speculation as opposed to inference. There are too many factors which are quite unknown. One cannot tell 4 UNREPORTED JUDGMENTS whether the upstairs fire was lit after or before the fires downstairs. One does not know whether the thefts took place before, during or after the lighting of the fires. There is no evidence from which one could conclude whether a single individual was responsible or (as often happens) there was a group of miscreants who were responsible. Despite the respondent's assertion that a key must have been used, there was evidence that the double deadlocks could be opened without a key. Moreover, a neighbour's evidence that he heard a noise like someone walking on the roof, followed by a noise like someone jumping to the ground, rather supports the conclusion that whoever was responsible did not have a key land was therefore less likely to be an accomplice of the plaintiff). Further, there are other indications which suggest that an accomplice of the plaintiff was not responsible. Despite the submission of Mr Bennett QC, senior counsel for the respondent, that there was no evidence of a forced entry, a report which was tendered in evidence prepared by two experts from the University of Technology does state that one window was forced open, and this is inconsistent with the notion of the responsibility of the fire being the plaintiff's Indeed, the very fact that the fire was so inexpertly lit, resulting in but little damage (about $20,000 on the defendant's version and $80,000 on the plaintiff's), seems to me to tell against the fire being the work of the plaintiff, who presumably, if he were minded to have a fire at all, would have ensured that it was an effective fire. All in all, with so many questions left unexplored and so many loose ends untied, I am of the view that, no matter how unsatisfactory the plaintiff was, and even granted the existence of a motive, the Court cannot reach the requisite persuasion that the plaintiff was responsible for the fire. In my view, therefore, the following orders should be made: 1. Appeal upheld 2. Order below set aside 3. Order that the matter be remitted to the Commercial Division for the assessment of the damages owed by the respondent to the appellant 4. Order that the respondent pay the appellant's costs both of the appeal and before Rogers J; and 5. Order that the respondent have a certificate under the Suitors' Fund Act. 1. Appeal upheld 2. Order below set aside 3. Order that the matter be remitted to the Commercial Division for the assessment of the damages owed by the respondent to the appellant. 4. Order that the respondent pay the appellant's costs both of the appeal and before Rogers J; and 5. Order that the respondent have a certificate under the Suitors' Fund Act.