New South Wales District Court CITATION: West End Aeronautical plc v QBE Insurance (Aust) Limited [2009] NSWDC 18 HEARING DATE(S): 2/2/09 - 6/2/09, 11/2/09 - 13/2/09 JUDGMENT DATE: 25 February 2009 JURISDICTION: Civil JUDGMENT OF: Rolfe DCJ DECISION: Verdict and Judgment for the 1st Defendant. CATCHWORDS: Claim under Policy of Insurance - Damage to Stock and Contents caused by Arson - Defence of Fraud - Burden of Proof - Matters of Circumstantial Evidence which can be taken into account. LEGISLATION CITED: Insurance Contracts Act 1984 (Cth) Evidence Act 1995 Briginshaw v Briginshaw (1938) 60 CLR 336 Rejfek v McElroy (1965) 112 CLR 517 CASES CITED: Neat Holding Pty Ltd v Karagan Holding Pty Ltd (1992) 110 ALR 449 Helton v Allen (1940) 63 CLR 691 at 714 Jones v Dunkel (1959) 101 CLR 298 TEXTS CITED: Suttons Insurance Law in Australia (3rd Ed) p 1132-33 PARTIES: West End Aeronautical plc (Plaintiff) QBE Insurance (Australia) Limited (Defendant) FILE NUMBER(S): 335/06 COUNSEL: S A Walsh (Plaintiff) B J M Toomey QC with T A Berberian (Defendant) JUDGMENT 1 In 1999 Network Welding Pty Limited ("Network Welding") conducted a welding business at 20a/9 Lyn Parade Hoxton Park New South Wales ("the Premises"). 2 On 11 May 1999 Network Welding entered into a policy of insurance (the "Policy") with QBE Insurance Limited for the period 11 May 1999 to 11 May 2000. The Policy is exhibit A. The Certificate of Insurance, exhibit B, records that the property insured was contents in the amount of $600,000 and stock in the amount of $100,000. 3 The first defendant, QBE Insurance (Australia) Limited ("QBE" or "defendant") assumed the liability of QBE Insurance Limited under the Policy. 4 On 3 January 2000 a fire occurred at the Premises causing damage to Network Welding's stock and contents. The parties agree that the fire was deliberately lit. 5 On 9 May 2000 Network Welding was voluntarily wound up and Rod Sutherland was appointed as the Liquidator. Shortly before this event, Mr Sutherland had been appointed as Network Welding's Administrator. 6 On 20 October 2005 Network Welding, through Mr Sutherland as Liquidator, assigned to the plaintiff its right title and interest under the Policy. The assignment was by way of deed (exhibit C). 7 QBE says it is not liable to indemnify the plaintiff under the Policy for any loss or damage suffered by Network Welding because of Network Welding's : (a) Fraud (b) Non-disclosure (c) Breach of policy conditions. 8 During the hearing it was agreed that, if necessary, the third issue would be dealt with separately, along with the quantification of the plaintiff's claim. 9 In view of the Court's conclusion on the fraud issue, it is unnecessary to deal with the non-disclosure issue. Fraud 10 QBE says that the claim on the Policy is fraudulent because the fire was deliberately lit by or with the connivance of Ernesto Paulo, a director of Network Welding. 11 QBE relies on clause 3.11 (iii) of the Property Section of the Policy, clause 3.1 (e) of the General Property Section of the Policy, clause 5 of the General Conditions applicable to all Sections of the Policy and section 56 of the Insurance Contracts Act (1984) (Cth). 12 The plaintiff accepts that QBE will not be liable under the Policy if QBE can satisfy the Court that the fire was deliberately lit by or with the connivance of Mr Paulo. 13 QBE, in accepting that it has the burden of proving fraud, submitted that the standard of proof is the balance of probabilities but the degree of probability must be commensurate with the occasion and be proportionate to the subject matter: Briginshaw v Briginshaw (1938) 60 CLR 336: Rejfek v McElroy (1965) 112 CLR 517 and Neat Holding Pty Limited v Karagan Holding Pty Limited (1992) 110 ALR 449. 14 Counsel for QBE referred the Court to the unanimous statement made by a full bench of the High Court of Australia in Rejfek's case at 521 as follows: "The difference between the criminal standard of proof and the civil standard of proof is no mere matter of words; it is a matter of critical substance. No matter how grave the fact which is to be found in a civil case, the mind has only to be reasonably satisfied and as not with respect to any issue in such a proceeding to attain that degree of certainty which is indispensable to the support of a conviction upon a criminal charge." 15 In that case the High Court referred to its earlier decision in Helton v Allen (1940) 63 CLR 691 where at 714 Dixon, Evatt and McTiernan JJ commented on the wisdom of avoiding "undue elaboration of the simple statement that in a civil case the same high degree of certainty is not required as in a criminal case, but reasonable satisfaction according to the nature of the case". 16 Counsel for QBE also referred the Court to the statement made by the majority of the High Court in Neat Holding at page s 449-450 as follows: "The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary "where so serious a matter as fraud is to be found. Statements to that effect should not however be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct." 17 Counsel for the plaintiff accepted that the Court should proceed to deal with the matter on the basis set out above. 18 There is no direct evidence linking Mr Paulo or members of his family to the fire. QBE relies on circumstantial evidence to make out its case. Counsel for QBE referred the Court to Suttons Insurance Law in Australia (3rd Ed) where at p 1132-33 the learned author summarised the kind of matters which are often taken into account in a circumstantial case: . The assured's financial commitments providing motive . Opportunity . The failure of the assured to explain his whereabouts at the relevant time . The lack of any evidence of a forced entry into the premises and of the operation of the security system . Recent insurance of the premises and/or contents . Failure on the part of the assured to give evidence on his own behalf. Background 19 Network Welding was incorporated on 30 September 1992. Mr Paulo was the sole director until his wife was appointed on 7 January 1999. 20 Network Welding conducted the business of a steel fabricator for the building industry with contracts in the Sydney metropolitan area. As well as operating from the premises, Network Welding had an adjacent factory at 22/9 Lyn Parade Hoxton Park. It continued to use this factory after the fire as well as operating from new rental premises at 56-68 Heathcote Road Moorebank. 21 When Network Welding first started operating it had no more than two staff, but at the height of its operation, between 1997-1999, Network Welding employed more than 20 staff. The Administrator in his report to creditors (exhibit 10) described the company's growth during this period as "excessive" and said the growth was matched by a lack of capital funding. 22 Mr Paulo was a welder by trade. On 1 October 1982 Mr Paulo slipped while he was walking home from work and landed on his buttocks. According to the medical evidence at the time (exhibit 18), he had been symptom free prior to this accident. The result of the accident as disclosed in the reports of Dr Bannister, Dr Houang and Dr Robert-Smith, was severe. He was diagnosed with an L4/5 disc protrusion and a similar lesion of less mark at the L5/S1 level. These were crippling injuries which were radiologically proven. 23 In 1983 Mr Paulo obtained an award of worker's compensation for the injury resulting from the accident on 1 October 1982 and in 1987 Mr Paulo's rights were redeemed for $100,000, after he had been paid for total incapacity from the time of his award. 24 In 1998 Dr Bentivoglio performed a double laminectomy on Mr Paulo at the site of the L4/5 disc prolapse suffered in 1982. 25 On 30 December 1996 Mr Paulo was injured whilst driving home from work at Wilson Welders Pty Limited where he was working full time as a welder. Mr Paulo made a claim on that company's workers compensation insurer, Allianz/MMI, as a result of his injuries. He claimed that he was disabled by lower back pain, neck pain, left sided chest wall pain and concussion. He made statements to the doctors denying he had suffered any relevant injuries in the past. I will return to these later in the judgment. 26 Mr Paulo was paid workers compensation on the basis of total incapacity for work from the date of the accident on 30 December 1996 until after the fire on 4 January 2000. He presented to Allianz/MMI compensation certificates claiming total unfitness for work from 30 December 1996 until 13 February 2000. 27 As mentioned, from mid 1997 the business of Network Welding began to expand. Although there is no evidence that Mr Paulo did work as a welder, the evidence clearly demonstrates that Mr Paulo was otherwise managing the business, except for short periods when he was incapacitated by his injuries. He was heavily involved on the financial side of things, in organising contracts and giving directions to his staff members. Notwithstanding, at this time Mr Paulo falsely represented himself to Allianz/MMI as being incapacitated for work. Both Mr Paulo and his wife untruthfully claimed that he attended the work place "just to keep (himself) mentally occupied or distracted" and that the business was "run solely" by his wife (exhibit 1.150) and that he had "no function whatsoever in the running of Network Welding" (exhibit 1.152). The Fire 28 Glen Jacobson, an Inspector, Fire Investigation, employed by New South Wales Fire Brigade, said in his statements, which were in evidence (exhibits 3 and 4) that on 4 January 2000 there was a "000" call at 1.34am, as a result of which he attended the Premises which he described as a single building unit constructed of brick walls with fibro roof incorporating metal trusses as supporting framework. The Premises consisted of a workshop/welding area and an upper mezzanine level used as office space. The Premises were severely damaged by fire in the office area and towards the front. There was damage to two vehicles. Heat and smoke damage had been done to the remainder of the Premises. 29 In carrying out investigations, Inspector Jacobson observed that the rear door had two dead locks installed in it, but they were unlocked. Moreover, the horizontal steel cross-bar used for securing the door had been removed and was lying against the wall on the ground. Inspector Jacobson also observed the steel bar frame in the window of the ladies toilet had been cut with an oxy acetylene torch and the bars pulled inwards. He observed that the window was shut and although there were some "leverage" marks on the exterior frame of the window (photo 3 in exhibit 4). 30 During the course of his inspection, Inspector Jacobson learned that there should have been a video recorder present for security cameras in the building, but after a thorough search he could not locate it. Most likely, someone had removed this item to prevent identification of the perpetrator. 31 Inspector Jacobson concluded, having observed the fire and burn damage patterns, that there were two seats of fire in different areas of the building. The first was where two ford utility trucks had been parked. In Inspector Jacobson's opinion ignitable liquid had been placed in the cabin of both vehicles where severe fire damage had been done to the cabin areas and had spread to the rear tray sections of both vehicles. The second area of fire damage was outside the western wall of the office on the mezzanine level. Again, an ignitable liquid had been used to enhance the spread of fire. 32 These observations led Inspector Jacobson to conclude that the fire had been deliberately lit so as to destroy the building and contents. 33 During the course of the inspection Inspector Jacobson observed the Nissan four-wheel drive vehicle which was owned by Mr Paulo. He was informed this had been damaged the previous day by having its tyres slashed. Inspector Jacobson smelt petrol in the four-wheel drive and concluded that due to the lack of fire load spread from other vehicles, the four-wheel drive had not reached ignition point. In my assessment, the slashing of the tyres was an event orchestrated by Mr Paulo in order to suggest that "someone" was out to get him and to link that "someone" to the fire. THE EVIDENCE Ernesto Paulo 34 On 7 January 2000 Mr Paulo was interviewed by Greg Whitmore, an insurance investigator. The record of interview is at exhibit 1.178-250. During the interview Mr Paulo told Mr Whitmore that he believed he suffered a slight brain injury in the car accident which made him a little bit slower, although he could still remember things. He also said he had a back injury and problems with his bladder and intestines. 35 Mr Paulo also told Mr Whitmore that the annual sales turnover of Network Welding was "quite a bit more than $1,000,000", although there had been a slow down in the previous six or seven months which he attributed to "negligence of some of the employees" as a result of which "people were retrenched" (exhibit 1.195). The figure of $1,000,000 was a gross exaggeration as demonstrated in Mr Penklis' report (exhibit 9) referred to later in the judgment. The inference I draw is that Mr Paulo came up with this figure of $1,000,000 to distract the investigators from concluding that he had a financial motive to burn down the Premises. 36 Mr Paulo informed Mr Whitmore that there was a back to base security alarm on the Premises which was set and deactivated by use of a pin number. 37 Mr Paulo said the first he knew of the fire was when he received a phone call from an employee, Mr Kent, between 6 and 7am on 4 January informing him the factory was on fire. 38 When asked about possible suspects, Mr Paulo said (exhibit 1.210) that he did not have enemies. When he was asked if was involved in setting the fire his answer at exhibit 1.211 was: "Whatsoever no, is no logical, and is not the point whatsoever with the businesses running in the capacity as it is, as it is with the amount of, of contracts and there are quite a bit of hundreds of thousands dollars involved with it is the aim of any company to have profit that the circumstances only put me behind, and in a very dangerous financial situation." 39 Mr Paulo told Mr Whitmore he was the last person to leave the premises on 3 January 2000. When asked whether he checked whether the back door was locked he said that he did a visual check only because he had confidence in his employees locking the door. In that respect, he said the person who was supposed to lock the door was either Ernesto Castro or Mr Kent. Mr Castro was the cleaner at the Premises. The only other employees who had been there during the day were Mr Paulo's daughter Cecilia and Mr Matt Wilson, who had been contracted to revamp the accounting software package of the business. 40 When asked about his movements on 3 January 2000, Mr Paulo said he got to the factory about 7am. The cleaner, Mr Castro, and another employee, Mr Sana Mola, were there waiting for him and he opened the door for them. Once in the factory he instructed the two employees to move some trucks and to unload some tools from one truck and place them in the other truck. 41 Mr Paulo said that about 3 or 4pm he saw the tyres on his four-wheel drive had been slashed. He said he was shocked. 42 Mr Paulo said he decided to get Cecilia to take him to Liverpool so he could get some new tyres. They left the Premises close to 6pm and Cecilia dropped Mr Paulo at Liverpool. Everything was closed in Liverpool on that day as it was a public holiday. He then decided to walk back to the Premises but, purely by chance, his employee, Mr Soa, picked him up somewhere between Hoxton Park Road, Liverpool and the Premises. Mr Paulo said he would have been walking for between one and two hours, which meant that Mr Soa picked him up sometime between 7.10pm and 8.10pm. 43 Mr Paulo told Mr Whitmore that after checking his office work and papers around about 8.20pm, he phoned his daughter Cecilia to pick him up at the Premises. He then set the alarm on the security system and left the Premises just after locking the front door. He said he waited a couple of minutes outside and started to walk and at about 9pm Cecilia picked him up in her car and drove him to Waterfall station. He said that at Waterfall station his other daughter Paula picked him up to take him home to Balgownie Crescent in Wollongong. He said he arrived home at around elevenish, had a shower and some dinner, sat down on the lounge and slept for a couple of hours. He said he then went to bed at about 2.30am, waking up shortly after 5am. 44 Although Mr Paulo had been at pains to give details of his movements on 3 January 2000, he made no mention to Mr Whitmore during the interview about his daughter Paula taking him from Waterfall station back to the Premises. 45 Another insurance investigator, Mr Paul Brown, interviewed Mr Paulo on 27 March 2000 in the presence of his solicitor Mr Weller. (Mr Weller also acts for the plaintiff in these proceedings). Mr Brown was investigating the fire on behalf of an insurer other than QBE. 46 Mr Brown obtained an unsigned statement from Mr Paulo in the form of the unsigned statutory declaration which is part of annexure G to exhibit 7. 47 Mr Paulo told Mr Brown, with reference to his earlier interview with Mr Whitmore, that he may have given the impression that he was suffering from head injuries as a result of the car accident. He said he wanted to inform Mr Brown that he had never suffered any permanent brain damage or head injury as a result of the car accident and his only real injuries were to the hip and the back area of his body. 48 Mr Paulo reiterated that he went to Liverpool on 3 January 2000 to get someone to come back to the Premises to fit a new tyre on the four-wheel drive. He said he did not realise until he got to Liverpool that 3 January 2000 was a public holiday. He said that Cecilia could not wait with for him at Liverpool because she had to go to the airport. 49 Mr Paulo said that it was purely by accident that Mr Soa was able to pick him up as he was walking from Liverpool back to the Premises, a distance he estimated to be about 3 kilometres. 50 Mr Paulo said Mr Soa dropped him at the front of the Premises and he went inside on his own. It was about 8.15pm. Mr Paulo told Mr Brown that the entry at 9.53pm on 3 January 2000, relating to the alarm system records, was "approximately right as being the time I locked the factory for the night". He also told Mr Brown (page 4): "When I returned to the factory from Liverpool no one else came there or spoke to me except my daughter who came to pick me up. That is my other daughter, Paula Paulo." Once again, although Mr Paulo went to some trouble to explain his movements on 3 January 2000, he said nothing about Cecilia taking him to Waterfall station, or about Paula picking him up from Waterfall and driving him back to the Premises. 51 Mr Paulo also mentioned that he had had to sack several employees in the previous 18 months. He said he suspected he had competitors who were jealous of his business although he could not directly accuse anyone. He said he was fearful of a former employee whom he described as a "Lebanese guy" but he did not want to identify this person or tell the police about him because he did not want to be accused of defamation. He also said that some nuisance phone calls had been made some time ago to the family home but had stopped after the phone number had been changed. This information was useless to the investigators as they had no way of checking its accuracy or following up on it. It gave them no leads. 52 At p 6 of the interview Mr Paulo told Mr Brown: "At this time I do have around $400,000 in debt. If it hadn't been for the fire I would have been $300,000 in front … my turnover last financial year would have closer to two million dollars than one million dollars." The assertion that Network Welding would have been $300,000 in front is not supported by Penklis' analysis in exhibit 9. The assertion about the turnover for the last financial year is wholly unsupported by the evidence. In my assessment, this is demonstrative of Mr Paulo's desire to distract the investigator's attention from concluding that Mr Paulo had a financial motive to burn down the Premises. Adelina Paulo 53 Mrs Paulo was interviewed by Mr Parish, another insurance investigator, on 4 January 2000. The unsigned record of interview is located in exhibit 1.251-293. Mrs Paulo said she did not really work for Network Welding, at most, she helped out with the bookkeeping occasionally. In this respect, Mrs Paulo told Mr Parish that another company had been set up recently which she referred to as "Network Welding Aus Pty Limited". This had not been mentioned by Mr Paulo in either of the interviews referred to above. 54 When asked if the business was profitable, Mrs Paulo said she would not say so because there was trouble having invoices paid. 55 Mrs Paulo said that her husband usually slept on the lounge at their home because he could not sleep in the bed due to his neck and back problems. 56 Mrs Paulo said her daughter Paula went from Wollongong to pick up Mr Paulo at Waterfall station. When Mr Paulo came home he sat down on the lounge and Mrs Paulo went to bed. Mr Paulo did not come up to bed until about 2am or 2.30am. Cecilia Paulo 57 The insurance investigator, Mr Parish, interviewed Ms Cecilia Paulo. The transcript of the record of interview is exhibit G. 58 Ms Paulo said she was not employed by Network Welding but assisted her father from time to time. 59 On 3 January 2000 Cecilia Paulo said she arrived at the Premises around 3pm to 3.30pm and worked in the office with Mr Wilson, who was transferring Network Welding's accounts onto a MYOB system. Mr Wilson left the premises at 6pm. 60 Cecilia Paulo said she observed the slashed tyres on the four-wheel drive and rang Liverpool Police station to report the incident. She said that she and her father then left the Premises and she drove him to Liverpool so he could find a replacement tyre. 61 Next, Cecilia Paulo said that Mr Paulo called her from the Premises and asked her to pick him up. This was between 8pm and 8.30pm. She then drove to the Premises. Her father was inside. Shortly after, Cecilia Paulo drove Mr Paulo to Waterfall station. This was between 9.30 and 10pm. Paula Paulo 62 The investigator, Mr Brown, interviewed Paula Paulo on 30 March 2000 by phone. Mr Brown's notes are described as "Investigation Log 17" and are part of exhibit 7. 63 Paula Paulo told Mr Brown that she had picked up her father at Helensburgh or Waterfall railway station on the evening of 3 January 2000 at around 7.30pm. She then drove Mr Paulo back to the Premises so he could pick up his briefcase which he had mistakenly left behind. Ms Paulo said they arrived at the Premises sometime between 8pm and 8.30pm. She remained in the car outside whilst her father went into the Premises where he remained for two hours. He returned to her car at about 10pm and they then drove to Mr and Mrs Paulo's residence in Wollongong. 64 Paula Paulo gave evidence to the Court. She said she recalled picking up her father from a railway station on 3 January 2000. She said it may have been Waterfall station. This was after Mr Paulo had phoned her and asked her to pick him up. 65 Paula Paulo said that after she picked up her father and when they were driving away from the station, Mr Paulo asked her to drive him back to the Premises because he had left his briefcase there. On arriving at the Premises Ms Paulo said that she and her father both walked through it, up the stairs, into the office, so he could pick up his briefcase. She said that her father told her he wanted to look at something on the computer and so she sat by his side where she stayed until they left the Premises. 66 At the very least, Ms Paula Paulo demonstrated a very poor recollection of the events of 3 January 2000. She could not even estimate how long she sat by her father's side whilst he was on the computer or how long they were at the Premises for, in respect of which she did not even have a rough idea (T 118.43). Paula Paulo could not remember what time it was she dropped her father at his home and she did not even have a rough idea. Ms Paulo maintained she was not aware of how her father got to the station on 3 January 2000. 67 In examination in chief (T 120.35) Paula Paulo said someone called her on the phone to speak to her about what happened and " … it would have been some sort of investigator I would think". In cross-examination Ms Paulo did not remember whether she spoke to the investigator within three months of the fire or even at a time which was not long after the fire. She claimed she could not remember the investigator's questions about what happened in the interaction between her and her father on the night of the fire and that she gave answers to those questions. She maintained she could not remember telling the investigator that she had picked up her father at Waterfall station and then taken him back to the Premises. She was asked specifically at T 123.3 as follows: "Q. Do you remember that you told this person that you had remained outside in the car, and that your father had gone into the factory alone? A. I could not have possibly have said that, because my father would not have left me in the car by myself." 68 Although Ms Paulo conceded that the purpose of going back to the Premises was for her father to get his briefcase, she insisted throughout her cross-examination that her father would not have left her in the car no matter how long or how short that took. 69 Paula Paulo said she did not ask her father why he stayed in the factory for one hour and 40 minutes (as established by the security alarm records in evidence) when he only went back to the Premises to pick up his briefcase. She could not explain to the Court why it was that she had driven her father back to the Premises so he could pick up his briefcase and he ended up staying a lengthy period of time. When continually pressed about the matter, Ms Paulo finally said she could not explain why her father, if he had work to do, first went to Waterfall station on his way home. Nor could Ms Paulo shed any light on what her father was actually doing at the computer whilst she allegedly sat beside him for one hour 40 minutes. Moreover, she claimed that the only thing her father said to her was that he wanted to pick up his briefcase; nothing was said about him doing some substantial work. 70 Paula Paulo said she could not remember informing her solicitor, Mr Weller, that she was not willing to supply a statement to the police because she had been interviewed by an insurance investigator and the experience was stressful (see exhibit 13 para 4). 71 Ms Paulo was in the witness box for quite a while and so I had a good opportunity to make an assessment of her whilst she was giving evidence. In this respect, Ms Paulo was an unimpressive witness who was clearly uncomfortable being asked questions in the witness box. This was so because Ms Paulo was an untruthful witness whose evidence that she could not recall the matters referred to above was entirely unconvincing. I have concluded it was false. Further, I do not accept Ms Paulo's denial that she told the investigator she had stayed outside the Premises in her vehicle. In my assessment, Ms Paulo gave deliberately false evidence to the Court about going into the Premises with her father and staying there for 1 hour 40 minutes with him. I am satisfied that Ms Paulo gave this evidence so as to provide her father with an alibi in the event he could not explain what he was doing inside the Premises for one hour 40 minutes to those persons investigating the circumstances of the fire. Ernesto Castro 72 Ernesto Casto gave evidence that he was the cleaner at the Premises employed by Network Welding in January 2000. He said Mr Paulo had asked him to clean the Premises on 3 January 2000 before it reopened the following day. Mr Castro said he also moved some equipment from the Premises to the factory across the road. 73 Mr Castro said he cleaned the toilets, including the ladies downstairs toilet near the back door to the Premises. He said he noticed the bars on the inside of the window in the ladies toilet had been cut (exhibit 4 photograph 4). At the time he noticed that they had been cut, they had not been pulled out as shown in photograph 4. 74 Mr Castro said he did not tell anyone about the bars in the ladies toilet being cut. His co-worker did not speak English very well. He said he did not mention the matter to Mr Paulo because Mr Paulo, in effect, was busy and in any event, he thought some repair work was being done on the bars - Mr Castro inspected the window and saw that it was closed. It therefore did not occur to him to report the matter, but he did so after the fire because he then realised it might have been important. 75 Mr Castro said his co-worker on 3 January 2000 was Sam Mola and they had lunch together. He recalled that Mr Mola opened the back door to let in some light. In this respect it was put to Mr Castro that he forgot to lock the door after he and Mr Mola had finished their lunch. Mc Castro categorically denied this. I accept his denial and his evidence as a whole. Mr Castro was a witness who plainly told the truth and had no reason for not doing so. Matthew Wilson 76 Matthew Wilson is an IT consultant who was engaged by Network Welding in about August 1999 to update the company's accounting system. In his statement, exhibit 14, Mr Wilson said that whilst working for Network Welding it came to his attention that the company may have been financially struggling because some of its debts were not being paid. He said this may have been because of a lean period in business or for some other temporary reason. In this regard, when asked who was managing the business, Mr Wilson's evidence at T 147.34 was as follows: "Well, from the interactions that I had from day to day, I was particularly invited into the business by Cecilia to look after the accounts, but the general atmosphere and vibe that I received in the business was that Ernie was the boss." 77 Mr Wilson said he saw Mr Paulo interacting with employees and giving them instructions. Mr Wilson attended the Premises over a period of months for about 21 days and each time he was there he saw Mr Paulo. Mr Paulo was there when Mr Wilson arrived at 10.30am and when he left at 4 or 5pm later in the day. 78 Mr Wilson said in cross-examination that although Network Welding's profit appeared to be fine, it had cash flow difficulties (T 152). That was the main thing that was constricting the business (T 159.47). 79 I accept Mr Wilson's evidence. It was given in a careful but straightforward way and he was entirely convincing. Ken Creighton 80 Mr Creighton was the project manager for Network Welding for about two years when the fire occurred. He observed Mr Paulo running the business in terms of interaction with employees, giving instructions and being present at the Premises five days a week from early in the morning until 6pm or thereabouts at night. 81 Mr Creighton was not sure about the financial aspects of the business of Network Welding, but in his observation there were times when things were a bit tight. George Brown 82 Mr Brown gave evidence that he worked for Network Welding for about three years prior to the fire as a driver. 83 Mr Brown gave evidence that he had been called in from his holidays to ensure that material being delivered to the Premises was "craned off" onto Network Welding's big truck. This was a Nissan 6 tonne truck which he had a licence to drive and he also had a licence to operate the crane on it. The only other person at the business of Network Welding who had a licence to drive the truck was Mr Paulo. 84 Mr Brown parked the truck in the Premises, but after the fire he found out it had been moved to Network Welding's factory across the road and so it had not been affected by the fire. Mr Brown was told by another employee, Mr Mola, that Mr Paulo had instructed him to move the truck to the other factory. The evidence establishes that this truck was required to satisfy orders in the weeks ahead after the fire. 85 Mr Brown also gave evidence that Mr Paulo ran the business for at least nine months before the fire. In that respect, Mr Brown described the business as "going alright, not as good as it should have" (T 178.24). Administrator's Report 86 Prior to his appointment as Liquidator, Mr Sutherland provided creditors with his report as the Administrator of Network Welding (exhibit 10). In his report, the Administrator cited the reasons for his appointment as the fire on 4 January 2000 which destroyed the Premises and the costs of re-establishing business operations subsequent thereto. In this context, the Administrator identified other factors contributing to the company's demise (and described in the report as "minor") as follows: . excessive growth of the company from 1997 to 1999 and the lack of capital to fund that growth. . a lack of adequate systems to cope with large projects. . excessive labour and wage costs. 87 The Administrator was of the view that the directors of Network Welding may have breached their duty of care under s 180 of the Corporations Law in allowing the deficiency in Network Welding to become as large as it had. 88 The material referred to in the Administrator's report was not challenged by counsel for the plaintiff. Expert Report of Alex Penklis 89 Mr Alex Penklis of GPL Solutions was engaged by QBE to provide an expert accountant's report. In his report (exhibit 9) Mr Penklis expressed the following opinion: "48 In view of the net losses, deficiency in working capital, the quick ratio and the possible actions of creditors prior to the fire, we consider the financial position to be illiquid and that Network Welding was unable to pay its debts as an when they fell due." 90 In concluding that, as at the date of fire, Network Welding was insolvent, Mr Penklis took into account the trading statements of Network Welding, the turnover figures of the business prior to the fire, the expenses it incurred and the balance sheets. All of this material disclosed, for example, that for the 1998 financial year Network Welding suffered a financial loss of $47,244. For the 1999 financial year a profit of $64,005 was realised, but for the six months prior to the fire, ending on 31 December 1999, the company had incurred a loss of $241,311. The loss was attributable to expenses of $231,560 plus the cost of sales exceeding sales income by $9,751. 91 In paragraphs 20 and 21 of his report Mr Penklis opined that if Network Welding had continued trading in the same manner post-fire as it had pre-fire, it would have remained insolvent. 92 Mr Penklis was not required for cross-examination and the opinion he gave the Court was not contested by the Plaintiff. Discussion 93 There is no direct evidence that Mr Paulo lit the fire which caused damage to the Premises. The defendant relies on matters of circumstantial evidence to prove its case. 94 It is therefore necessary to examine the following. Motive 95 The administrators report (exhibit 10) and the Penklis report (exhibit 9) established that the business of Network Welding was in serious financial difficulty at the time of the fire. In the opinion of Mr Penklis, uncontroverted by the evidence, Network Welding was insolvent. Independently of Mr Penklis, the Administrator had identified the company's financial predicament as being caused by excessive growth, excessive labour and wage costs and a lack of capital to fund operations. 96 Based on the material in the Administrator's report and the expert report of Mr Penklis, as at 1 January 2000, it is obvious that it was only a matter of time before Network Welding went to the wall. In this regard, the inference that the Court draws is that Mr Paulo was well aware of his predicament. He therefore had a real motive for burning down the Premises because a successful claim under the Policy would give rise to an entitlement on the part of Network Welding to receive $700,000, which would have been sufficient working capital to enable Mr Paulo to trade the company out of its difficulties. In this respect, Network Welding already had the other factory across the road from the Premises where its business could be continued and, as demonstrated by Mr Paulo's actions after the fire, it was not difficult for him to find a suitable additional factory to keep the business going. 97 Mr Paulo had an additional motive. Network Welding owed money to the plaintiff. The plaintiff was a secured creditor. The evidence establishes that the plaintiff is owned and controlled by Antonio Batista Lopez, Mrs Paulo's brother-in-law. Thus, Mr Paulo would be able to ensure the return of some of the insurance proceeds to the brother-in-law, with whom he had incorporated the new entity, Network Welding Aus Pty Limited, a few months before the fire. Opportunity 98 The security alarm log records disclose that someone was in the Premises between 8.13pm and 9.53pm on 3 January 2000. I am satisfied on the evidence that this person was Mr Paulo. Having rejected Ms Paula Paulo's evidence that she was inside the Premises with her father and having found that she was in fact outside in the waiting vehicle, I am satisfied that Mr Paulo was on his own in the Premises. 99 Taking into account that Mr Paulo was on his own and that he gave as his excuse for returning to the factory the need to pick up his briefcase, the inference I draw is that Mr Paulo needed to spend one hour 40 minutes at the Premises to spread the ignitable liquids which Inspector Jacobson discovered as the source of the fire. In drawing this inference I have taken into account Mr Paulo's deceit in failing to tell Mr Whitmore that Paula had picked him up from Waterfall station and taken him to the Premises. To the contrary, he told Mr Whitmore that Paula had picked him up at Waterfall and taken him home. Mr Paulo also deceived Mr Brown in telling him that Paul Paulo picked him up from the Premises and made no mention of Cecilia Paulo taking him to Waterfall and Paula picking him up there. 100 Mr Paulo was the last person to leave the factory before the fire was started. In this respect, I am satisfied that the person who lit the fire did so in connivance with Mr Paulo and entered through the rear doors which had been left unlocked. Although counsel for the plaintiff sought to suggest that it was Mr Castro who had left these doors unlocked, I accept his evidence to the contrary. In the circumstances, the inference I draw is that Mr Paulo unlocked the back door so that other persons could enter the Premises with a view to igniting the fire. 101 The fact that Mr Paulo either himself moved or gave directions for the movement of the Nissan truck (which was ordinarily driven by Mr Brown), from the Premises to safety across the road on the day before the fire (exhibit 16, paras 13 & 14), is evidence that Mr Paulo wanted to make the most of his opportunity: even though the Premises would burn down, Mr Paulo would be still be able to use the truck to fulfil orders over the following weeks. 102 The cut bars in the ladies toilet were first seen by Mr Castro on 3 January 2000. At that stage, when he saw them, the window was locked and the bars were in a vertical position. The bars could only have been cut when the window was open and it had to be opened from inside. However, as the windows were shut when Mr Castro last saw them and in a vertical position, they would have had to have been pulled out and bent upwards by someone inside the Premises. That could only have been Mr Paulo as he was the last person inside. His action in this regard was a feeble attempt at demonstrating a forced entry. 103 The evidence of Mr Julian Fodor at the coronial inquiry on 11 September 2002 (exhibit 18, T 27.12) that Mr Paulo cancelled roving security patrols at the Premises prior to Christmas 1999 is another piece of circumstantial evidence which I have taken into account and which demonstrates that Mr Paulo wanted to create the opportunity for the Premises to be burnt down. Mr Paulo's Absence from the Witness Box 104 In the scheme of things, Mr Paulo was obviously a critical witness. His absence from the witness box for cross-examination by senior counsel for the defendant hampered the defendant in the presentation of its case. 105 As mentioned, Mr Lopez, the controlling mind and shareholder of the plaintiff, is related to Mr Paulo through his wife. They could have called on Mr Paulo to give evidence. In this respect, there is no adequate explanation before the Court for the plaintiff's failure to call Mr Paulo to give evidence. For example, he could have elaborated on the suggestion only hinted at in his statements to the investigators that someone else may have been responsible for lighting the fire. There were countless other topics upon which his evidence would have been of assistance to the Court in determining the plaintiff's claim. The plaintiff's failure to call Mr Paulo leads me to draw the adverse inference that Mr Paulo's evidence would not have assisted the plaintiff's case. (Jones v Dunkel (1959) 101 CLR 298). 106 At the heel of the hunt, the plaintiff served a notice pursuant to s 67 on the defendant in relation to Mr Paulo. The Court ruled against the plaintiff in its application under s 63 of the Evidence Act 1995. Nevertheless, counsel for the plaintiff sought to rely on the material before the Court to answer the Jones v Dunkel submission (exhibit L). In this respect, whilst the evidence of Dr Heiner, included in exhibit L and also in exhibit K, suggests that Mr Paulo has significant cognitive defects, the plaintiff failed to satisfy the Court that it had taken concrete steps and made a real effort to ensure that Mr Paulo attended Court. A belated attempt was made by the plaintiff to have Mr Paulo subpoenaed when leave was given for a subpoena addressed to Mr Paulo to be served through Dr Heiner, providing Dr Heiner could make contact. This was during the course of the hearing and the attempt was unsuccessful. Such feeble attempts do not enable the plaintiff to rebut the Jones v Dunkel inference which the Court has drawn. Deceitful Behaviour and Conduct of Mr Paulo 107 Prior to the fire, Mr Paulo's behaviour and conduct demonstrates a pattern of dishonesty. 108 Following the car accident on 30 December 2006 Mr Paulo made a claim on Allianz/MMI for workers compensation claiming that he was disabled by various injuries including lower back pain, neck pain, left-sided chest wall pain and concussion. Mr Paulo failed to disclose to Allianz/MMI and their doctors the significant injuries suffered in the 1982 fall. These were crippling injuries and not easily forgotten. For example, Dr McMahon recorded in his report of 24 April 1997 in assessing the injuries sustained in the car accident (exhibit 1.10): "He has had no other operations. He has had no previous head or neck injuries or problems …" 109 Similarly, Mr Paulo failed to disclose those matters to Dr Bashford who was also reviewing him following the car accident. These material non-disclosures by Mr Paulo naturally enhanced his prospects of obtaining full workers compensation from Allianz/MMI and prevented that insurer from taking steps to reduce his workers compensation entitlement because of the earlier accident in 1982 and the compensation Mr Paulo had received as a consequence of it. 110 Moreover, Mr Paulo represented himself to Allianz/MMI as being totally incapacitated for work when, as the evidence discloses, he was the "boss" and he was actively involved in the operations of Network Welding right up until the date of the fire. 111 Mr Paulo's actions in withholding vital medical information from Allianz/MMI are consistent with the behaviour of a person who is prepared to act fraudulently and dishonestly to achieve a financial gain. Conclusion 112 Taking all the matters I have referred to into account, I am comfortably satisfied that Mr Paulo, a dishonest and deceitful person who failed to properly disclose to investigators his movements on the night of 3 January 2000; arranged for and was involved in the lighting of the fire at the Premises. 113 The defendant has made out its case in fraud. Result 114 In the result, there will be a Verdict and Judgment for the first defendant. 115 Costs on the ordinary basis should follow the event. 116 I direct the exhibits be returned. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.