New South Wales Supreme Court CITATION : Max Hams & Anor v CGU Insurance Limited [2002] NSWSC 716 FILE NUMBER(S) : SC 50022/01 HEARING DATE(S) : 31/7/02 JUDGMENT DATE : 15 August 2002 Max Hams (First Plaintiff) PARTIES : Judith Hams (Second Plaintiff) CGU Insurance Limited (Defendant) JUDGMENT OF : Einstein J COUNSEL : Mr M Cashion SC, Mr J Lawrence (Plaintiffs) Mr PW Taylor SC (Defendant) SOLICITORS : Maurice Blackman Cashman (Plaintiffs) Deacons (Defendant) CATCHWORDS : Damages - Causation Jones v Dunkel (1959) 101 CLR 298 CASES CITED : TNT Management Pty Ltd v Brooks (1979) 23 ALR 345 West v Government Insurance Office of NSW (1981) 148 CLR 62 DECISION : Short minutes to be brought in. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Thursday 15 August 2002 50022/01 Max Hams & 1 Ors v CGU Insurance Limited JUDGMENT Supplementary Judgment 1 A reserved judgment was delivered in these proceedings on 12 April 2002. The Judgment granted leave to the parties to address further submissions on any claim or matter arising from the findings which may not have been dealt with. 2 Pursuant to that leave the defendant on 24 May 2002 filed a motion seeking leave to further cross-examine Mr Sinclair on particular matters and an order granting leave to adduce further affidavit evidence in chief concerning those same matters and concerning the scope and amount of the property damage caused by the initial inundation found in paragraphs 166 and 167 of the reasons for Judgment. 3 The parties were directed to serve written submissions concerning the factual findings for which they contend on the existing evidence in relation to the cause of damage and the amount recoverable for that damage. The matter became not only the subject of written submissions, but further the subject of oral address on 31 July 2002. 4 Senior counsel for each of the parties accepted that it was appropriate in the first instance and by way of a threshold determination, for the court to initially deal with the findings which are appropriate on the existing evidence. At the same time it would be possible for the court to state whether, and if so for what reasons, and in relation to what matters, it may be appropriate for leave to reopen the existing evidence to be considered. Both senior counsel seemed to be of the clear view that the most efficient way forward was to approach the matter in this way and to leave to the side for the time being, questions going to applications capable of being pursued by either side for leave to reopen the evidence. 5 To a considerable extent the reasons which follow adopt the submissions put by the plaintiffs on 31 July 2002. The onus of proof 6 Clearly the plaintiffs bear the onus of proving that their claim falls within the insuring clause in the policy of insurance. This matter is not in issue. It was dealt with in the Judgment at paragraph 60. 7 What is in issue concerns the defendant's assertion that the destruction, loss or damage to the plaintiffs property was caused by an excluded event, namely "Flood" as defined in the policy. Clearly in that regard and as the defendants accept, the onus of proof lies upon the defendant. The logical way forward 8 The next appropriate step is to review the existing evidence in order to determine whether, and if so to what extent, the defendant has discharged that onus of proof. Leaving aside the "lakes" argument on which the defendant has been unsuccessful, the defendant will have discharged that onus if the evidence establishes that the damage to the plaintiffs' property was caused by waters which inundated the property which: · emanated from the arrival of waters which had escaped from Treloar Creek or from Scour Lake; or · did so because of the causal presence of such waters 9 As the Judgment makes clear, after an extensive review of the hydrology evidence, the court was not satisfied on the balance of probabilities that the defendant had established that the waters which inundated what was (aside from the woolshed), the highest flooded building, namely the Homestead, at 6:00pm on Monday 21 February 2000 and for the next few hours, satisfied either of these requirements. At paragraphs 142 and 143 of the Judgment the following appears: " 142 As it seems to me, the Court is thrown back to the essential onus of proof. Leaving aside the question of the definition of the word 'lake' for the purposes of the defendant's so-called 'lake' submission, 1 am simply not satisfied that on the balance of probabilities the defendant has established that the waters which inundated the Homestead at 6.00pm on the Monday and for the next few hours (a) emanated from the arrival of waters which had 'escaped' from Treloar Creek nor from the arrival of waters having 'escaped' from Scour Lake; or (b) did so because of the causal presence of such waters. 143 In short, leaving aside the 'lake' submission, the defendant has failed to establish that on the balance of probabilities the damage caused by the waters which inundated the Homestead at 6.00pm on the Monday and for the next few hours was caused by 'flood' in terms of inundation following the escape of water from the normal confines of Treloar Creek or Scour Lake". 10 As the plaintiffs, correctly as it seems to me, then submit, the question then becomes whether the defendant has discharged its onus of proving which part, if any, of the plaintiffs loss, was not effectively caused prior to the arrival of external waters a few hours after 6:00pm on Monday 21 February 2000. At paragraphs 165 to 169 the following appears: "165. My own view is that on the evidence it is reasonably likely that within several hours of 6.00pm on the Monday, water external to the local catchment and arriving in all likelihood from Treloar Creek and possibly also from Scour Lake became contributors to the damage to the Homestead. In any event Mr Taylor very responsibly made clear that in the event of such a finding the defendant could not on the available evidence submit that the damage to the Homestead would have been caused by any event which was not the subject of cover. This was because as Mr Taylor put it: 'Your Honour will recall the cross-examination by Mr Cavanagh of Mr Sinclair which was dealing with this issue of whether or not the damage is caused by the instant wetting or by the prolonged wetting. Now, frankly, I think we would have to concede that the end result of Mr Sinclair's evidence is that he would say once there was a significant wetting of the water, then there is likely to be some deterioration to floorboards and there is going to be some damage, and 1 think we would have to accept that, as the evidence stands, we could not persuade Your Honour that if water got a foot above the relevant floor level, the inundation would be so transitory that it was only the inundation that occurred subsequently that caused the damage. That is true in relation to the homestead'. 166 On my findings Mr Taylor has correctly summarised the effect of the evidence given by Mr Sinclair [see in particular transcript pages 108.50, 109.40, 109.55]. In those circumstances the damage to the Homestead was caused by the initial inundation which on my findings constituted an event which was the subject of cover. The word 'caused' is used in terms of the cause which was proximate in efficiency, the real, effective or dominant cause. 167 In that regard and by reason of my findings the doctrine of proximate cause has no relevance to the question of damage caused to the Homestead. 168 The defendant takes a different stance insofar as the hangar is concerned. It was the first building affected - water flowed into it from 6.00am on the Sunday. Mr Taylor put the matter as follows: 'Mr Sinclair's evidence doesn't deal with the hangar and, of course, the construction of the hangar is not timber floors, timber posts or anything else and, with respect, we would submit that the evidence simply does not establish that the hangar was damaged by its initial inundation. It is much more likely that the damage to the hangar was as a result of the prolonged inundation, and in relation to that we submit that the prolonged inundation is undoubtedly equally contributed to, if not predominantly contributed to by the extra inflow of water and that in relation to the hangar, any damage there is not able to be attributed solely to the inundation from its initial flooding' 169 I accept this as a submission of substance. The evidence does not establish that the hangar was damaged by its initial inundation only. On the evidence it is in fact far more likely that the damage to the hangar was as a result of the prolonged inundation. The prolonged inundation was comprised of the initial inundation which did not follow the escape of water from the natural confines of any lake or creek but rather occurred by reason of run off of surface water from surrounding areas as well as by the subsequent inundation which did follow the escape of water from Treloar Creek". 11 In determining whether the defendant has discharged its onus of proof I accept that it is appropriate to look at the existing evidence relating to causation which is extremely sparse. 12 First, in the Report annexed to his affidavit sworn on 24 May 2001, Mr Sinclair said at paragraphs 2,3 and 4: "2 ... The commencement date of damage is obvious - as at the time of inundation but the sequelae of the extensive wet up to the buildings and the founding soils continues. In relation to buildings which are economically repairable (in the main, the hanger, machinery shed and wool shed) all may suffer further distortion/deterioration as the movement in the founding soils continues during the dry out process. 3 We cannot (and are unaware of a consultant in any particular discipline who can), with any degree of accuracy, 'pin point' at what stage the homestead and contents, shearers quarters and contents (and including out buildings of both) reached the point where economic repair was not possible. However, it is fair to conclude, in our view, this would have been many weeks or months after inundation. Perhaps a hydrologist/engineer may be able to provide more particular advice. 4 With the insured property having been under water for some substantial period of time and thereafter, the lengthy dry out of founding soils during which time the volume of them has changed, damage has been ongoing and continues". 13 Secondly, at transcript 108-109 the following appears: "CAVANAGH: Q. Mr Sinclair, as you are aware the parties have agreed the quantum overall. Dealing just with the homestead, am I correct in assuming that the extent of the damage to the homestead is dependent upon two factors: the amount of water that entered the homestead and the length of time that it stayed there? A. 1 suggest the amount of water that entered the homestead is subjective because the main damage that renders the building unrepairable is damage to the timber piers, the floor framing and the flooring, which is very badly distorted, as you may have observed from some photographs and from the video. Now, just how much one and a half or two feet or - sorry, 450 or 600mm of water as compared to two metres of water might affect the footings, being the piers and the - and the subsoils, is not an issue 1 can really tell you. I'm not qualified to do that. But there would have been a very substantial wet-up and very substantial movement of the piers, no matter-~ Q. Are-- HIS HONOUR: Q. When you say "no matter" did you finish your answer? A. Yes. Thank you, sir. CAVANAGH: Q. Are you saying that the level that the water reached, if I put it this way, inside the homestead is not necessarily determinative of the amount of damage to the homestead because you believe the most damage is to the piers and the floor structure; is that what you say? A. The height of the water certainly has an effect, but as you may have observed from the film, the main distortion through the building arises through the piers and the floor framing being so badly distorted, it then throws everything else out. Q. And that distortion arises because of the length of time that the piers and floor was under water; is that right? A. 1 think it may have some effect on it, but I think you are asking the wrong person that, sir. Q. I see. Well, you inspected the property in 2001? A. Correct. Q. And you're not able to say then, are you, what was the water level at that time as far as the homestead is concerned? A. Nil, nil surface. Q. Wouldn't it be the position, Mr Sinclair, that the damage to the piers and floor structure and I think, for example, you said that there was separation of the floorboards; you recall that? A. Yes. Q. That's likely to have occurred after a lengthy period of inundation rather than, for example, immediately the water hit, that is, rather than on the night the water entered the homestead? A. I don't agree. Q. You are not suggesting, for example, that if water flowed through over the floorboards and out the other side, if we put it that way, that that would have caused the floorboards to separate, are you? A. Could you repeat the question? Q. You are not suggesting that if water flowed throw the homestead - and by that I mean over the top of the floorboards and out the other side - that that would have caused the floorboards to separate as you have indicated in your report? A. It may well have done". 14 In the result to the extent to which there is evidence causing causation, it clearly relates primarily to the Homestead. That evidence in my view does not discharge the defendant's onus of proof in relation to the Homestead. In any event when the evidence given in cross-examination is read carefully, it clearly establishes that the Homestead was irreparably damaged once it was inundated. In any event the matter does not require investigation for the simple reason that a finding of fact was given in the judgment which forecloses the issue completely. 15 It is convenient to next refer to the defendants written submissions insofar as they dealt with what was described as the "first scenario", namely the findings which should be made without relying upon Mr Sinclair's opinion that "irreparable" damage would require prolonged inundation 16 In this regard the defendants submitted that the plaintiffs had sought indemnity for damage to a number of buildings and other property under the terms of the Policy, those buildings being: · the Homestead and shearers' quarters · the aeroplane hanger; · the shearing shed/wool shed; · the machinery workshop; · the lighting plans shed. Homestead · that the damage findings set out in the reasons for Judgment only related to the Homestead and the hanger. Shearers' quarters · that the evidence established that the shearers quarters were inundated before the Homestead and that it followed that the findings at paragraphs 142, 143 and 165 also applied to the damage to the shearers' quarters. Machinery shed · that the evidence also established that the machinery shed was constructed of steel and concrete [reference was made to paragraph 12 (e) of the affidavit of Mr Hams made on 1 June 2001]. The submission was that when this evidence is read with Mr Sinclair's description of the damage-it follows that the findings in relation to the hangar (at paragraphs 168 and 169 of the reasons for judgment) also apply to the damage to the machinery shed. That damage is then said not to have been recoverable under the policy. Woolshed · that the evidence had also established that the Hams evacuated to the woolshed which was located on high ground. The floor of the woolshed was never inundated and was substantially above the peak water level. The damage to the woolshed is said to have consisted of rust damage to the structural piers and a water tank. The defendant's submission is that the evidence requires the conclusion that whatever damage was suffered by the wool shed was caused by the ultimate water level after the contribution from Treloar Creek. On the defendant's submission what follows is that the findings in relation to the hanger (at paragraphs 168 and 169 of the reasons) also applied to the damage to the wool shed. The submission is that the damage is not then recoverable under the policy. Tractor/Bulldozer · that the description given by Mr Sinclair of the nature and source of the damage to the tractor and bulldozer requires a finding that the damage was caused by "mixed" sediment made in water that exceeded the exhaust part levels of the equipment. On the defendant's submissions, it follows that the findings in relation to the hangar (at paragraphs 168 and 169 of the reasons for judgment) also applied to the damage to this property. Hence the submission which is made is that the damage is not then recover able under the policy. The courts holding The shearers' quarters 17 In so far as the shearers' quarters are concerned, the evidence is that the framework is timber with isolated pier footings (Report annexed to Mr Sinclair's affidavit sworn 24 May 2001, paragraphs 12.5 and 12.7). This is the same type of construction as the Homestead. The type of construction of the Homestead was identified by Mr Sinclair in the Report annexed his affidavit sworn on 24 May 2001 at paragraph 7.2.5 as being "constructed of timber frame, mounted on isolated timber pier footings, approximately 300 mm above ground level". Hence as the plaintiffs' submit, the evidence established that the shearers' quarters were inundated before the Homestead. In the result the reasoning which leads to a finding in favour of the plaintiffs in respect of the Homestead also applies to the shearers' quarters and I accept as correct the plaintiffs' submission that they should also succeed in that part of their claim. The woolshed 18 It seems to me clear that on the existing evidence the plaintiffs' claim fails with respect to the wool shed for the reason that the subject water never inundated the wool shed in terms of rising to the floor level. The evidence requires the conclusion that whatever damage was suffered by the wool shed was caused by the ultimate water level after the contribution from Treloar Creek. The hanger 19 The existing finding in relation to the hanger stands. It was a finding of fact based on the evidence. The machinery shed 20 It does seem to me that there is substance in the defendant's submission that the fact that the machinery shed was constructed of steel with a concrete floor should result in a similar approach to that which had been taken in relation to the fact finding concerning the hanger. The tractor and bulldozer 21 Insofar as the tractor and the bulldozer are concerned, the existing evidence does not disclose sufficient about the nature or the extent of the sediment, or about the height of the exhaust pipe levels, to enable the court to conclude that the damage the subject of the plaintiffs' claim was not caused within several hours of 6:00pm on the Monday. The remainder of the items the subject of the plaintiffs' claim 22 As to the remainder of the items the subject of the plaintiffs' claim, [see annexure A to the plaintiffs written submissions] I accept as correct the plaintiffs' submission that the evidence is either so scant or non-existent that the defendant has therefore not discharged its onus of proof. Conclusion 23 In the result, on the existing evidence in my view, save as specifically identified above, the defendant has simply not discharged its onus of proof. That evidence does not justify the findings for which the defendant has contended in its submissions. Nor could such findings be made as a matter of inference. Rather, they are matters of mere speculation. In West v Government Insurance Office of NSW (1981) 148 CLR 62 at 66, Stephen, Mason, Aicken and Wilson JJ referring in part to the Judgment of Dixon CJ in Jones v Dunkel, put the matter as follows: "His Honour went on to say that the law 'does not authorise a court to choose between guesses, where the possibilities are not unlimited, on the ground that one guess seems more likely than another or the others. The facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied' and see also TNT Management Pty Ltd v Brooks per Gibbs J". Short minutes of order 24 The parties are to consider their respective positions in the light of these further reasons and to bring in short minutes of order. I certify that paragraphs 1 - 24 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 15 August 2002 ___________________ Susan Piggott Associate 15 August 2002 Last Modified: 09/03/2002 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.