CHARLES EDWARDS v UNION INSURANCE COMPANY LIMITED SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL SAMUELS, PRIESTLEY and HANDLEY JJA 13 June 1990, 14 June 1990 [1990] NSWCA 58 KEY WORDS: FIRE INSURANCE CLAIM — business premises insured against fire by tenant — damaged by fire shortly after closing time — owner by leave brings proceedings direct against insurer — owner alleges tenant negligently caused fire — trial judge holds allegation not made out — on appeal, owner submits that on facts before judge only reasonable conclusion was that more probably than not tenant responsible for fire — appeal upheld. ORDERS 1. Appeal upheld, judgment set aside. 2. Judgment for plaintiffs, as at 15 September 1988, for $59,437. 3. Defendant to pay plaintiffs' costs of proceedings at first instance. 4. Respondent to pay appellants' costs of appeal. Priestley JA This is an appeal from Judge Herron of the District Court. The four appellants claimed, in the proceedings before him, that the respondent insurance company was liable to them in respect of fire damage to a property they owned at Nambucca Heads, but he dismissed their claim. The appellants' case before Judge Herron was put on two different bases. As it seems clear to me that the appellants should have succeeded on the first of these and I have some doubts about the other, I will confine what I am going to say to the first basis of the appellants' claim. The appellants' property was tenanted by a company which ran a business in it. The company had a contract of insurance with the respondent. By Extension 6 to s8 of this contract the respondent promised to indemnify the insured against all sums which the insured became legally liable to pay in respect of damage by fire to premises occupied by the insured in connection with its business. There was a fire in the premises on 7 February 1985. The appellants claimed that the insured company was liable to them for the damage caused by the fire because it was caused by an act or omission of Mrs Priest, a servant of the insured company. The company went into liquidation and the appellants obtained leave under Pt4 of the Law Reform (Miscellaneous Provisions) Act 1946 to bring proceedings directly against the respondent insurer. For the appellants to succeed they needed to prove that the damage to their property, that is, in the circumstances of the case, the fire which caused the damage, resulted from an act or omission of Mrs Priest. It was common ground in the appeal that if that fact should have been held proved at the trial then it would necessarily have followed that the tenant company was legally liable to the appellants for the fire damage and the respondent insurer obliged to indemnify the tenant company for the money amount of that damage. Because of the short-circuit procedure permitted under the Law Reform (Miscellaneous Provisions) Act 1946 this, in turn, meant the appellants would have been entitled to that sum directly from the respondent 2 UNREPORTED JUDGMENTS insurer. Thus, on this basis of the appellants' claim, success or failure depended on whether the court held the fire was negligently caused by or resulted from an act or omission by Mrs Priest. The parties agreed at the trial that if the appellants succeeded the judgment should be $59,437 made up of $37,756 damages and $21,681 interest. The evidence concerning the fire was as follows: Mrs Priest, who was called by the appellants in their case, had worked in the premises during the day. She regularly smoked about twenty cigarettes a day, starting at 11 in the morning. There were ashtrays in the premises which customers used and which she used. On 7 February 1985, in accordance with her usual practice at the end of her working day, she emptied the ashtrays into a plastic waste paper basket. She then locked the premises and left. This was about 5.15. A fire in the premises was well under way by 5.45. Mr Beckett, an expert in arson investigation and in the establishment of the cause and origin of fires, examined the premises nine days after the fire and prepared a report which became an exhibit. The report described his location of the point of origin of the fire. In his opinion it started at or near the melted and burnt remains of a plastic waste paper container. Other evidence identified this as the waste paper basket into which Mrs Priest had emptied the ashtrays. In his report Mr Beckett said he could not give a definite opinion on the cause of the fire, but said no electrical appliances were located near the origin of the fire; there was no evidence of any material which would spontaneously combust; there was no evidence of any flammable liquid or any appliance or substance which would produce heat as a possible source of ignition. He added that Mrs Priest had told him of her practice concerning the ashtrays and waste paper baskets and that on the day of the fire the waste paper basket contained tissues, carbon paper and other scrap paper. He also said waste paper baskets are frequent sources of smouldering fires. His report ended with the sentence: "While a definite opinion on the cause of this fire cannot be given, it is more than likely that the fire was caused by discarded smoking material." Although Mr Beckett was thoroughly cross-examined, the substance of his evidence was not, in my opinion, affected. It came down to the fact that the only heat source he could find for the beginning of the fire was the waste paper basket, which meant the material in it. All other possibilities were eliminated, including the possibility of arson, as he said in re-examination that he had found nothing to indicate the fire had been deliberately lit Other reports which were in evidence supported his elimination of causes of the fire other than the waste paper basket. On this evidence it seems to me that virtually the only possible conclusion is that it was more probable than not that the fire was caused by the ignition of material in the waste paper basket shortly after Mrs Priest had emptied the ashtrays into it and left and locked the premises. Although it is clear from his decision to dismiss the appellants' claim that Judge Herron did not reach the foregoing conclusion, the reason for his decision is not explicitly given. He referred to Mr Beckett's opinion without any hint of criticism and then to evidence given by Mrs Priest in cross-examination that she was sure when she left the shop the butts from the ashtrays emptied by her into the waste paper basket had been extinguished. That is all that was said by the trial judge on this, the critical point in the case. Probably it is to be inferred that he accepted Mrs Priest's evidence and concluded that his acceptance of it required him to decide that she had not caused the fire. This was the argument vigorously pressed on us by counsel for the respondent. However, the trial judge expressed URJCHARLES EDWARDS v UNION INSURANCE COMPANY LIMITED (Handley JA) 3 no opinion about Mrs Priest's reliability as a witness and did not, at least expressly, attempt to analyse her evidence; nor did he give any indication of not accepting Mr Beckett's expert evidence or suggest any reason why Mr Beckett's conclusion could reasonably be rejected. Mrs Priest's evidence was before the trial judge in two ways: He admitted into evidence, over objection, a statement Mrs Priest had made on 20 June 1985. In this she did not give any direct recollection of what she had done about emptying the ashtrays on the day of the fire. She spoke only of her practice in this regard. Judge Herron also had Mrs Priest before him giving evidence orally, three and a half years after the fire. In this evidence, prompted by a friendly cross-examiner, she directly recalled some details of what she did with the ashtrays on the afternoon of the fire. Even in these circumstances her answers do not convey an impression of confident recollection. For example, one question she was asked in cross-examination was, "When you stubbed your last cigarette out your recollection is that there were no other cigarette butts lit in that ashtray?" To this she answered, "I don't know". Assuming that Judge Herron thought Mrs Priest a completely truthful witness, on the materials before him, that finding could amount to no more than that she was honestly trying to do her best to recall the details of what she did on the afternoon of the fire in circumstances where it was plain that what she was saying was largely, if not wholly, based on her recollection of her practice. The outstanding facts from her evidence were that she emptied the ashtrays into the waste paper basket very shortly before the fire broke out in the waste paper basket itself, this last fact being virtually unchallengeable in the light of the expert's evidence. These facts, taken with the expert's opinions, necessarily in my view outweighed what Mrs Priest said about not noticing anything smouldering in the waste paper basket. It is not only possible but in my opinion proper to conclude that, accepting that Mrs Priest did not notice any possibility of combustion, nevertheless there must have been present in the waste paper basket, at the time she last attended it immediately before leaving the shop, the potential for fire to break out. Mr Beckett's explanation seems to me to be the only satisfactory way of accounting for the totality of the facts which were proved at the trial. Upon elimination of other causes the fire is simply inexplicable on any other basis than that there must have been smouldering material in the waste paper basket when Mrs Priest left the shop. This could only have been due to oversight on her part which, in a legal context, must be classed as an act or omission causing damage to the appellants for which the respondent insurer had contracted to pay. As I have mentioned, it was not contended before this court that if the court reached the conclusion that Mrs Priest was, in the manner I have attempted to explain, responsible for the fire, the respondent could resist judgment against it. It follows, in my opinion, that the appeal must be upheld. I propose that the court should set aside the judgment below and, in its place, enter judgment for the plaintiffs, the appellants in these proceedings, as at 15 September 1988 in the sum of $59,437. The plaintiffs' costs of the trial to be paid by the defendant and the appellants' costs of the appeal to be paid by the respondent. Samuels JA I agree. Handley JA I also agree. 1. Appeal upheld, judgment set aside. UNREPORTED JUDGMENTS 2. Judgment for plaintiffs, as at 15 September 1988, for $59,437. 3. Defendant to pay plaintiffs' costs of proceedings at first instance. 4. Respondent to pay appellants' costs of appeal. Counsel for Appellant: HJ Mater Solicitors for Appellant: Burridge and Harris Counsel for Respondent: CS Leahy Solicitors for Respondent: Dunhill, Maddern, Butler