Admiral International Pty Ltd v Insurance Australia Ltd; Brightcity International Trading Pty Ltd v Admiral International Pty Ltd

Admiral International Pty Ltd v Insurance Australia Ltd; Brightcity International Trading Pty Ltd v Admiral International Pty Ltd - [2021] NSWSC 1440 - NSWSC 2021 case summary — Zoe

[4]

Judgment

These two proceedings were heard together in September 2021, evidence in each matter being received as evidence in the other. The plaintiff in the first proceeding is Admiral International Pty Ltd ("Admiral"). In 2018 that company operated a warehouse in a leased industrial unit at 64-66 Burrows Road, Alexandria. The defendant in the first proceeding is Insurance Australia Ltd trading as CGU Insurance ("CGU"). Under an Industrial Special Risks policy ("the ISR policy") issued for a period of 12 months commencing on 30 September 2017 CGU agreed to insure Admiral against damage to or destruction of property at the warehouse and against loss of gross profit resulting from business interruption.
A person entered the warehouse at about 12:24 am on Monday, 16 April 2018 and set it alight. A very destructive fire instantly took hold, with a powerful explosion at 12:31:35 am. The fire destroyed the warehouse building and Admiral's contents within, such as office equipment, forklift vehicles, pallet racks and pallet jacks. Admiral claims indemnity for the destruction of its equipment and for consequential loss of gross profits. The fire also destroyed the entirety of the stock that Admiral was holding in the warehouse on behalf of its clients, consisting mainly of imported alcohol and tobacco products.
Ultimately none of the three parties to the proceedings has argued against a finding that the fire was deliberately lit. CGU has denied Admiral's claim under the ISR policy on the ground of arson fraud. It alleges that the fire was started with Admiral's knowledge and consent. CGU further alleges that within 48 hours before the fire large quantities of the goods that were in storage for Admiral's customers were removed from the warehouse without the customers' authority. It is alleged that the goods were stolen by persons who acted with the knowledge and consent of Admiral. Admiral disputes that there was theft from the warehouse over the weekend before the fire. It denies fraudulent involvement in the fire or in any such theft. It claims that CGU's refusal to grant indemnity is in breach of the contract of insurance and involves breach of the insurer's duty of utmost good faith implied by s 13 of the Insurance Contracts Act 1984 (Cth). Admiral claims damages for the alleged breaches.
The second proceeding is brought by Brightcity International Pty Ltd ("Brightcity") against Admiral and CGU. From about 2008 and continuing through 2018 Brightcity was an importer of liquor and cigarettes. It used Admiral's services for the storage of both duty-paid goods, otherwise known as free goods, and customable goods on which duty was yet to be paid. Goods in the latter category were held in sections of the warehouse that were licensed under the Customs Act 1901 (Cth) as a bond store. Admiral had two licences in respect of the premises. The first was a depot licence under s 77G, permitting short term storage of imported goods on which duty had not been paid, for unpacking and consolidation. The second was a warehouse licence issued under s 79 of the Customs Act for longer term storage of goods upon which duty was yet to be paid. Brightcity's goods, to a replacement value of approximately $2.36m excluding customs duty, were not stolen but were destroyed in the fire.
Brightcity alleges against CGU that the ISR policy taken out by Admiral responds directly to its losses. CGU denies that the policy responds. If Brightcity succeeds in that claim but the policy does not fully cover its losses, Brightcity claims any balance from Admiral on three alternative bases: first, as damages flowing from Admiral's breach of an alleged agreement to insure the goods to their full value for the benefit of Brightcity; secondly, as damages for misrepresentations said to have been made by Admiral, to the effect that it had procured such insurance; thirdly, for breach by Admiral of its obligations as a bailee. If Brightcity fails to establish against CGU any entitlement to indemnity under the policy, then it claims the whole of its losses from Admiral on those three alternative causes of action. Brightcity claims against Admiral loss of $246,132.90 in profits that could have been earned from sale of the destroyed stock. There is no claim that the ISR policy issued by CGU responds to Brightcity's loss of profits or that Admiral is liable for not insuring against that loss. The $246,132.90 is claimed only from Admiral for breach of bailment.
Admiral denies that it breached its duties as a bailee. It denies that it came under any contractual obligation to procure insurance, directly enforceable by Brightcity, for the value of its goods and it denies having made any representation in that regard. Admiral says that the ISR policy obtained by it from CGU fulfilled any promise or representation that the Court may find was made to Brightcity.
In the proceeding brought by Brightcity, Admiral has cross-claimed against CGU claiming, first, a declaration that under the ISR policy CGU is obliged to indemnify Brightcity directly in respect of its stock destroyed in the fire. Secondly, Admiral relies upon a General and Products Liability Policy issued to it by CGU ("the Liability policy"). That policy covered Admiral's legal liability and any costs awarded against it in respect of property damage. The Liability policy was also issued on 30 September 2017 and provided cover for a period of 12 months. Under the Liability policy Admiral claims to be indemnified against any judgment awarded in favour of Brightcity in that company's action for damages for breach of bailment.

[11]

Primary facts

My findings of fact, necessary for the resolution of these issues, are organised under the following headings. The central matter of factual dispute, to which most of the evidence was directed and which occupied most of the hearing time including counsel's addresses, is whether Admiral knew of and consented to the deliberate burning of the warehouse and its contents. Admiral's corporate structure and personnel [12]> Admiral's warehouse, stock handling and stock recording [17]> Brightcity's dealings with Admiral [26]> Security at the Alexandria warehouse [48]> Driveway gates [50]> Vehicle and pedestrian entry ways [55]> Alarm system [62]> CCTV system [74]> Morris Gazzara's delivery of tyres [87]> Truck movements, tyre placement on 13 and 14 April [87]> Dmitry Fateev's explanation [94]> Morris Gazzara's explanation [100]> Denis Fateev's departure for Hong Kong on 13 April [112]> Activity at the warehouse on 13 and 14 April [115]> Dmitry Fateev's departure for Vladivostik on 15 April [125]> Ignition and progress of the fire, combustion of tyres [127]> Remnants of the fire compared to Admiral's stock records [138]> Stolen tobacco seized in August 2018 [155]> Admiral's proposed move to Lidcombe [162]>
As will be seen I find there to be clear proof that Dmitry Fateev facilitated the theft of many millions of dollars' worth of Admiral's customers' goods from the warehouse on 13 and 14 April 2018, that he deliberately caused motor tyres to be spread around the warehouse to provide fuel for a fire and that he left the premises unsecured to facilitate the entry, at about 12:24 am on 16 April, of an arranged arsonist. Dmitry Fateev, now deceased, was the father of Denis Fateev who has been at all material times the managing director of Admiral. Dmitry Fateev worked in the business part time as a warehouseman and driver.
For CGU to discharge its burden of proving arson fraud by Admiral, it must establish that Denis Fateev, as the controlling mind and will of the insured company, connived at Dmitry Fateev's procurement and facilitation of the fire. The legal principles underlying this proposition are considered at [171]-[175] below. Admiral has not confined itself to contesting that Denis Fateev knew of and consented to his father's conduct. Despite clear evidence that Dmitry Fateev took part in the massive theft of Admiral's customers' goods and that he enabled the staging of a fire to cover the stock deficiency, Admiral has actively disputed Dmitry Fateev's involvement. It tendered an implausible statement from him denying complicity and it adduced equally unimpressive evidence from Maurizio Gazzara, one of three truck drivers who helped remove the stock and who delivered the tyres that fuelled the subsequent fire.

[12]

Admiral's corporate structure and personnel

Upon incorporation of Admiral in February 1997 its sole director was Dmitry Fateev. He continued as a director until May 2009, apart from an interruption of seven months. His wife, Svetlana Fateev, was either a director or the secretary of the company for most of the period from incorporation up to September 2012. From incorporation until 2008 four other people served as directors from time to time, for periods of between two and seven years. The company appears to have been inactive until late 2012. On 12 September 2012 Denis Fateev was appointed a director and he has been the sole director of Admiral since then. He was 23 years old when appointed and was just short of 28 at the date of the fire in April 2018. Since his appointment Denis Fateev has acted as managing director. He has deposed that his duties were as follows: I am the only person responsible for the management and operation of Admiral's business affairs, including but not limited to the practices and procedures utilised in the operation of the business, the entry into respective agreements with customers and service providers and the making of the insurance claim on CGU. That evidence has not been contradicted and I accept it.
As at October 2009 there were eight issued shares in the company, all held by Dmitry Fateev. The eight shares were then transferred to Admiral Corporate Group Pty Ltd. Two additional shares were issued in October 2015, one to Admiral Corporate Group Pty Ltd and one to Viktoriia Ivantec. Her share was cancelled on 9 May 2018. Throughout Admiral's active trading history up to the date of the fire, it has been in the effective ownership of Admiral Corporate Group Pty Ltd. Denis Fateev's mother, Svetlana, has been the sole shareholder and director of Admiral Corporate Group Pty Ltd since 2009. Denis Fateev said that Admiral Corporate Group Pty Ltd held the shares in Admiral on trust but he did not give any satisfactory evidence that the Court could rely upon as to the beneficial interests in that trust.
For some years prior to 2012 Dmitry Fateev operated a freight carrying and courier business through a company named Admiral Management Group Pty Ltd. That company had occupied premises at 15-17 Byrnes Street, Botany but its activities were curtailed as a result of rezoning by a local government authority. Restrictions on the hours during which truck movements could take place caused the business to become unprofitable. A creditors' voluntary winding up of Admiral Management Group Pty Ltd commenced on 4 January 2016.
From about the beginning of 2013 Admiral commenced to conduct a warehousing business at the same address in Botany under the managing directorship of Denis Fateev. This appears to have been a successor to or replacement of the business that Dmitry Fateev had earlier conducted in the name of Admiral Management Group Pty Ltd. Admiral moved its business from Botany to the warehouse at Unit 1, 64-66 Burrows Road, Alexandria in mid-2014 and commenced occupation under a four-year lease commencing 1 May 2014 and expiring 30 April 2018.
All members of the Fateev family have worked in Admiral's business in various capacities since 2013. Up to the time of the fire Dmitry Fateev worked part time, assisting with the reception of goods into the warehouse, dispatching goods and driving delivery vehicles. He was not an office holder of Admiral at any time after it commenced its warehousing business in 2013. Dmitry was aged 52 at the date of the fire. He died on 28 January 2021 in Vladivostok as a result of coronary and vascular disease. Svetlana Fateev has managed Admiral's bookkeeping since it commenced operations. Denis Fateev's younger brother, Nikita, was aged 19 at the time of the fire. He worked part-time in a similar capacity to his father, Dmitry. In 2018 Nikita lived with his parents in a house in Zetland, not far from the warehouse.

[13]

Admiral's warehouse, stock handling and stock recording

Burrows Road Alexandria is aligned more or less north-south. The properties on both sides of the road are developed with light industrial and commercial improvements. The Alexandra Canal lies to the east of and parallel with Burrows Road. Properties on the east side of the road, such as Nos 64-66, lie between the road and the Canal. In 2018 the improvements at Nos 64-66 comprised an industrial building on a concrete slab with tilt-slab concrete panel walls and a sheet metal roof supported on steel beams. The entire building, comprising four conjoined units with party walls, was about 90m long from north to south and about 40m deep from west (being the street side) to east (being the Canal side). Unit 1 occupied by Admiral was the southern-most unit. The rear of the building is on the bank of the Canal, only a few metres from the water. At the time of the fire Units 2-4, to the north of Unit 1, were unoccupied.
Directly in front of the building on the street side, extending along the full length of the property from north to south, was a forecourt about 12m wide. There was a screen of trees and shrubs between that and the front fence. The fence was constructed of cyclone wire on tubular steel posts and rails, with barbed wire on top. There were two vehicle entrances from the street onto this forecourt, one opposite Unit 4 at the north end and one opposite Unit 1 to the south. Each entrance was approximately 6m wide and fitted with double gates, closing in the middle. The gates were also constructed of cyclone wire on tubular steel frames.
The front of Unit 1 was approximately 24m wide. At the left-hand, or north, side of the front facade there was a vehicle entrance into the unit, measuring about 4.75m wide and 6m high. The ground floor office area for the unit was at the right side of the front facade. In between the vehicle entrance to the left and the office area to the right there were four undercover parking spaces. The front of the ground floor office area, facing the street, was glazed. This glazed office front was about 4.7m wide and in the middle of it was the entry to the office, through double glazed doors of which one was usually fixed in place at the top by a sliding bolt.
Inside the ground floor office area there was a reception desk and other office furniture. At the back of the office, furthest from the street, a door led out into the warehouse area behind. Adjacent to the ground floor office, but accessible only through internal doors leading off the warehouse, there were staff toilets and a kitchen. A set of stairs within the office gave access to further office space on the mezzanine floor. The upstairs office space extended across most of the front of the building, from the southern wall to the vehicle entrance.
The warehouse area lying behind the office and the amenities rooms was about 25m wide. It extended for about 30.5m in depth to the rear or east wall. In the south-west corner of this area, adjoining the back of the ground floor office, a wire mesh cage about 3m square and about 3m high was installed. This was required for holding goods under additional security, as might be required from time to time pursuant to the conditions of Admiral's Customs Act licences. Steel framed pallet racking was installed against the remainder of the south wall stretching to the back of the warehouse. This was capable of carrying pallets of goods on each of three levels above the ground level.
Down the centre of the warehouse, running from west to east, were two double rows of pallet racking separated by a middle aisle. Further pallet racking was installed along the north wall. All of the pallet racking was aligned east-west through the length of the warehouse. Thus, progressing from south to north across the storage space, there was racking on the south wall, a south aisle, a double row of racking accessible from both sides, a middle aisle, another double row of racking accessible from both sides, a north aisle and, finally, the racking on the north wall. Towards the front or west of the warehouse there was some clear space across the width of the warehouse for unloading and manoeuvring pallets and for access to each of the respective aisles.
Cases of imported alcohol and cigarettes arrived at the premises in containers. The standard industry units of packaging of cigarettes in wholesale quantities are the "carton" and the "master case" or "shipper". A carton is a wrapped grouping of 10 cigarette packs, each pack containing 20 sticks, in two layers of five packs side-by-side, one layer on top of the other. A master case or shipper is a cardboard box containing 50 cartons. A master case therefore contains 10,000 "sticks" or individual cigarettes. Master cases of cigarettes within the containers were not on pallets when they arrived. Admiral's personnel unloaded cargoes of cigarettes from the containers and stacked the goods on pallets in the warehouse, usually around 30 master cases per pallet. It is not clear whether cases of alcohol arrived already stacked on pallets within the containers or whether they had to be palletised in the warehouse.
Admiral had a machine for wrapping goods on pallets with plastic. This consisted of a turntable on which a pallet could be rotated while sheet plastic was stretched around the cargo. Under Admiral's s 79 Customs Act licence, bonded goods were required to be kept intact until duty had been paid. The plastic wrapping was applied in order to comply with this requirement and it was only breached for the purpose of removing cases of alcohol or master cases of cigarettes on which duty had been paid. Licensing under the Customs Act is administered by the Australian Taxation Office ("ATO") and the Australian Border Force ("ABF"). When one of Admiral's customers sold goods for consumption in Australia it would pay duty on them and obtain from the ATO an Authority to Deal. The customer would then arrange for Admiral to release the goods out of the warehouse. This was usually case by case rather than by the pallet.
For all customers Admiral recorded a unique shipment number for each consignment of goods it received. Against that number the company recorded the date and the number of items, usually cases of alcohol or master cases of cigarettes, and the brand or other description. If duty was paid on the goods, or on any of part of them, when they were received into storage or while they were in the warehouse, the notation "cleared" was recorded by Admiral against the quantity of goods concerned. Admiral's records further showed the number of items that were released to the customer. Whenever cases of alcohol or master cases of cigarettes were removed from the warehouse the numbers remaining were updated and the number of pallets or part pallets was adjusted.

[14]

Brightcity's dealings with Admiral

Since about 2008 Brightcity has conducted a business of importing tobacco and alcohol products from China. It pays duty on some stock and arranges for it to be warehoused as free goods pending sale within Australia. Brightcity arranges for a significant part of its stock to be held in bond. Ms Helen Yao has at all material times been the principal of Brightcity. She caused the company to commence using Admiral's warehousing services in December 2013 when it was still operating from 15-17 Byrnes Street, Botany. Admiral's charges at that time were $5 per pallet per week for free goods and $7.50 per pallet per week in bond. Admiral did not have its own licence to operate a bond store at the Byrnes Street warehouse but it held goods in bond under a licence in the name of Admiral Management Group Pty Ltd. Dmitry Fateev had obtained that licence some years earlier for the purpose of conducting the warehousing and logistics business of Admiral Management Group Pty Ltd.
Denis Fateev deposed that when Brightcity commenced to do business with Admiral at the Byrnes Street premises an invoice was provided "at an early stage of the relationship", headed with the words "Insurance at owners cost & responsibility". The document identified by Denis Fateev is in fact a list of services and rates on the letterhead of Admiral Management Group Pty Ltd, not an invoice from Admiral to Brightcity. Ms Yao agrees that she was given the document when she requested a price list. However, this occurred when she was doing business in a very small way with Admiral's operation at Byrnes Street. Whatever contractual effect the document may have had in relation to those early dealings, it was superseded by the exchange of emails and the conversations that took place in June 2015 when Ms Yao commenced placing a greater volume of Brightcity's goods in Admiral's care at Alexandria and when the topic of insurance was explicitly referred to during the negotiation of storage charges.
Denis Fateev and Ms Yao both deposed that when their business relationship commenced in December 2013 Ms Yao asked whether Admiral's storage fees "include insurance specifically for Brightcity". Denis Fateev deposed that Ms Yao limited this enquiry, by making reference to cover for damage that might be done to Brightcity's goods by Admiral itself as opposed to damage occasioned by fire or the actions of third parties. Denis Fateev's version of his reply to Ms Yao is as follows: We do have insurance, so if Admiral damages your goods, we should be able to make a claim for that. Ms Yao's recollection of the reply was different, as follows: Storage fees do not include insurance specifically for your goods but Admiral has insurance for the warehouse and the goods stored in the warehouse so if anything happens to your goods we can just claim on that insurance.
Denis Fateev was not questioned about this difference and Ms Yao was not required for cross-examination at all. Denis Fateev deposed that he found Ms Yao's spoken English difficult to understand. It may have been intended by this evidence also to raise a doubt about Ms Yao's understanding of what was said to her in English. Ms Yao's affidavits are written in accurate English and they have not been made or affirmed through an interpreter. Comparison of the text of the affidavits with that of contemporaneous emails suggests that the affidavits are not in Ms Yao's own words. If her evidence of any of the relevant conversations was to be challenged seriously on the ground of a language barrier it would have been necessary for Admiral to require her for cross-examination so that the Court could make an assessment. That did not occur.
I am not able to resolve the competing versions of the December 2013 conversation referred to at [28] above. I cannot attach any significance to that conversation in determining whether Admiral represented that it had taken out cover for Brightcity's goods in the Alexandria warehouse or whether Admiral promised that it would obtain such cover in favour of Brightcity. Brightcity's case in that respect turns upon documents that were exchanged between the parties in mid-2015 and conversations that took place at that time, as considered below.
After Admiral had relocated to the warehouse at Alexandria Brightcity's free goods were moved there on about 24 August 2014. Admiral did not initially have a bond licence for its new premises. From about mid-July 2014 it made arrangements for storage of Brightcity's bonded goods with another operator, Pegasus Supply Solutions Pty Ltd ("Pegasus"), at that company's warehouse in Marrickville. Admiral managed the record keeping of Brightcity's goods in Pegasus' bond store but it did not have physical custody of them. Both parties expected that arrangement to last for only about a month until Admiral secured a bond licence for the Alexandria warehouse.
In early April 2015 Denis Fateev advised Ms Yao that Admiral had applied for its licence and that the ATO required a deposit of $750,000 as security for duty that may become payable on bonded tobacco goods that would be stored for Brightcity. Denis Fateev requested Brightcity to fund the deposit but Ms Yao declined. This difficulty was eventually overcome when the ATO accepted a lesser security deposit and Admiral paid it.
Admiral's s 77G Depot Licence and s 79 Warehouse Licence were issued on 15 July 2015. The licences were valid until 30 June 2016. They were thereafter renewed from year to year. From 7 October 2015 the ATO required a security deposit of $200,000 as a condition of permission to store up to 20 million sticks of cigarettes. Admiral paid that. The limit of 20 million individual cigarettes would equate to 2,000 master cases, which could be stored on between 66 and 100 pallets. In June 2016 further security of $100,000 had to be paid when Admiral commenced to store loose tobacco (up to 3,500 kgs) and cigars (up to 4.5 million). By email of 24 July 2017 Admiral applied to the ATO to increase its bond storage limit for cigarettes from 20 million to 40 million and for loose tobacco from 3,500 kgs to 7,000 kgs. The limit was not increased.
On 2 June 2015 at 11:19 am Denis Fateev sent an email to Ms Yao as follows: Pegasus have advised that they no longer want to store your cigarettes due to high insurance costs. We need to have a meeting regarding our options. This was followed up with a further email at 1:29 pm on the same day in these terms: Pegasus have asked us to move all [your] stock out by the 14/06/15. Otherwise they will increase the storage charge significantly. Yesterday I had our insurance broker visit our new warehouse and we discussed your stock. I am in the process of applying for the ATO licence, but I need to review your rates because of an increase in rent at the new place and Insurance for your amount of cigarettes to be stored. Below are the rates we will need to charge to be able to store your cigarettes in our ATO warehouse when it is approved. If you cannot agree to these rates, it will not be financially viable for us to store your goods as insurance for your stock is very expensive.
There were then set out a list of charges for 20ft and 40ft containers and for various aspects of inbound and outbound handling. The following proposed charges for storage were nominated: FREE GOODS STORAGE: $8.00 per plt per week (Tobacco & Alcohol) inc. insurance BONDED STORAGE: $1.00 per ctn per week (Tobacco & Alcohol) inc. insurance
Ms Yao deposed that she expected each pallet would carry "about 20 cartons" for storage. I understand her to intend by that evidence that 20 master cases of cigarettes could be stored on a pallet, so that the cost per week of a full pallet of bonded cigarettes would be $20. On 2 June 2015 Ms Yao responded to Denis Fateev's quotation with a request for a discount on container and warehouse fees. Her email concluded as follows: I agree the storage fee.
As at 5 June 2015 Admiral held free goods belonging to Brightcity in the Alexandria warehouse and it was still managing bonded goods that were held for Brightcity in Pegasus' licensed warehouse. Admiral invoiced Brightcity for the storage of goods in both categories, presumably paying Pegasus on a subcontract basis for holding the goods that were in bond. On 5 June 2015 Admiral invoiced Brightcity for storage of both classes of goods for the period 1 June 2015 to 7 June 2015. A separate invoice was issued for the storage of each shipment that had arrived on a specific date. As an example, the invoice of 5 June 2015 in respect of stock that remained from a shipment that had arrived in late 2013 was in the following terms: COMMENT: Please note NEW charges apply for this week. Bonded storage 1/06/15 - 7/06/15 1 weeks (140 cases * $1.00 / 7 PLT) - $140.00 Free goods Storage 1/06/15 - 7/06/15 1 weeks (3 PLT * $8) - $24.00
On 5 June 2015 Ms Yao reconsidered her initial agreement to "the storage fee" (see [36] above) because she had expected the bond storage charge for alcohol to be less than that for tobacco and thought that Admiral's proposed "$1.00 per ctn per week" was too high for alcohol. She sent Denis Fateev the following email at 7:04 pm: I can't understand your company's charge. If you charge under carton, I can't do this business. I understand your storage fee is pallet charge. I can't accept this charge.
Ms Yao deposed that on about 9 June 2015 she discussed Admiral's increased storage charges with Denis Fateev at his office at the Alexandria warehouse. According to her affidavit Ms Yao reiterated that the quoted rate of $1.00 per carton per week for bonded alcohol was too high and she contrasted it with the rate that had until recently been charged by Pegasus of $7.50 per pallet per week. She deposed that Denis Fateev replied as follows: Helen I am unfortunately not able to lower the container fee and warehouse charges due to the higher warehouse rent and warehouse insurance costs. As for the storage fees, they are now so much higher, and I have to charge by the carton for tobacco, because of the high insurance cost for your goods. However, what I can do is adjust the storage fees for bonded alcohol goods to $7.50 per pallet per week to match Pegasus' storage rate. I am not able to go any lower for the storage fee for bonded tobacco goods since the insurance cost is high, not forgetting of the high duty payable for tobacco goods. Ms Yao says that she agreed to this.
Denis Fateev deposed that his reply was in different terms, as follows: I cannot offer you a discount for your tobacco. Because we are storing your tobacco, we have had to pay an additional security deposit to the ATO, and have had to increase our insurance cover in relation to our liability for duty. This has all resulted in additional costs to Admiral, and so we have had to revise our storage rates. I can reduce the storage fees for bonded alcohol goods to $7.50 per pallet per week to match Pegasus' storage rate.
The difference between these recollections is that Denis Fateev claims he attributed the increased charges for tobacco, not to insurance cover for risk to Brightcity's goods, but to Admiral's cost of providing the security deposit to the ATO and "our insurance cover in relation to our liability for duty". In cross-examination Denis Fateev resiled from that distinction, in the following answers: Q. When you were speaking to Ms Yao in the middle of 2015 you were telling her that taking out insurance for Brightcity stock was expensive, correct? A. Yes. Q. It wasn't for the liability [for] duty, but it was for the actual stock, correct? A. Whilst in our possession. […] Q. Whether it was bonded or unbonded, provided you controlled it, you were talking to Ms Yao about insurance for that stock? A. Correct. Q. The cover that you were discussing with Ms Yao was for the full value of the goods, correct? A. I assume so but we never discussed the value.
I accept Ms Yao's recollection of the conversation, which accords with the terms of Denis Fateev's email of 2 June 2015 quoted at [34] above. No evidence has been tendered to show that Admiral took out insurance in respect of its potential liability for duty, which could arise in the event of failure to keep the bonded goods secure: s 35A of the Customs Act. If Admiral did have such cover, the evidence does not substantiate that in June 2015 it had incurred an increased premium cost in that regard. On the basis of Ms Yao's evidence about this conversation I am satisfied that Denis Fateev justified to her the significantly increased storage rate for bonded tobacco, relative to what had been charged by Admiral at the Byrnes Street warehouse and subsequently by Pegasus, on the basis of increased costs of insuring against risk to Brightcity's goods.
The rate of $7.50 per pallet per week for bonded alcohol that was agreed in the conversation on 9 June 2015 was less than the price of $8.00 that had been quoted on 2 June 2015 for free storage. By an email of 24 November 2015 Admiral reduced the rate for free storage for alcohol to $7.00 per week.
From October 2015, as Brightcity received new imports of alcohol that were required to be stored in bond, it caused them to be delivered to the Alexandria warehouse, which now had its Customs Act licence. At this time a substantial quantity of Brightcity's goods were still held in bond at Pegasus' premises. On 18 December 2015 the remainder of the goods held by Pegasus were transferred to the Alexandria warehouse.
On 13 April 2018 Admiral issued to Brightcity invoices for storage for the week from 9 April 2018 to 15 April 2018 and "Stock on Hand" reports in respect of alcohol and cigarettes as at 9 April 2018. Two of the invoices related to shipments that had been received between February and October 2014 and in February 2015. All of the invoices recorded Admiral's charges for cleared goods, alcohol and tobacco, at the rate of $7.00 per pallet per week; for alcohol in bond at the rate of $7.50 per pallet per week and for cigarettes in bond at the rate of "$1 p/ctn p/week". This was in accordance with the emails of early June 2015 and the subsequent conversations and emails of that year, as referred to above. Invoices from 2016 and 2017 show that Admiral consistently charged Brightcity for storage throughout those years at the rates that had been offered in mid-2015. Brightcity paid those invoices when due and clearly accepted, by its conduct, the rates quoted in mid-2015 and the terms that were discussed at that time. I will return to the contractual effect when considering Issue 6 at [264]>.
After the fire Admiral produced from its computerised records a full schedule of all stock that was held on behalf of each customer up to Friday, 13 April 2018, being the last business day before the fire. Admiral had in the warehouse a total of about 609 pallets of goods on behalf of all its customers. This included 18 Intermediate Bulk Containers ("IBCs"), each with 1,000 litres capacity, containing pure alcohol. I have counted each IBC as equivalent to a pallet. Of the total, 271 pallets were of cigarettes and 129 pallets were of alcohol.
Brightcity was a major customer of Admiral. The 13 April 2018 stock record showed that Admiral held 141 full pallets and five part pallets of goods for Brightcity, of which 35 pallets were alcohol and the remaining 106 pallets and five part pallets were cigarettes. Disregarding part pallets, Brightcity's goods constituted 23% of the total of all goods in storage. There is no reliable evidence of what proportion of Admiral's total revenue was earned from Brightcity, either in the financial year during which the fire occurred or in any earlier year. Denis Fateev could offer no estimate of Admiral's turnover in any year although the figures have been presented to the Court through forensic accountants. Denis Fateev was unable to give an estimate of Brightcity's contribution to Admiral's turnover, either in dollar terms or as a proportion.

[16]

Driveway gates

Admiral's NVR was not recording feed from the CCTV cameras mounted on the front of the warehouse, or from any of its internal cameras, when the fire was ignited. It had not been recording at any time over the three preceding days. However, movements at the front of the premises were continuously recorded by the CCTV surveillance system of a building directly across Burrows Road from the southern vehicle entrance to Nos 64-66. One CCTV camera at that location faced south east and covered the front facade of Admiral's Unit 1 and the southern vehicle entry. The other camera faced north east and covered both vehicle entries. Neither entry was secured by the closing of the double gates at any time from 4:00 pm on Friday 13 April until the time when the arsonist drove in through the north vehicle entry, parked outside Unit 1, entered the warehouse, started the fire, returned to his car and drove away.
When Denis Fateev was cross-examined about the gates not having been secured he first said: "We never close those gates". He was pressed about Admiral's representation to the ATO in 2015 in connection with the company's application for Customs Act licences, that "The entry and exit gates to the complex are locked overnight". He then gave this answer: [That] gate was damaged shortly after we moved into that premises and wasn't operating properly […]."
In later answers Denis Fateev said that he was referring to the gate at the southern vehicle entrance and that it was damaged either in late 2015 or early 2016. He said that one half of the double gate was bent so that when the two parts were closed "they didn't come together". I do not accept that evidence. There is no mention made of this explanation in Denis Fateev's affidavits, notwithstanding that it is obviously relevant to issues that have been live at all stages of the litigation. From the outset of Brightcity's bailment claim there has been an issue as to whether Admiral failed to take reasonable care to protect the warehouse. In CGU's case on arson fraud, there has always been an issue whether Admiral deliberately left the premises exposed. In the circumstance that Units 2-4 were vacant, the securing of the front gates was entirely within Admiral's control. If damage to one of the gates was a truthful innocent explanation for them having been left unlocked over the weekend immediately preceding the fire, I would expect it to have emerged well before the point at which it was proffered by Denis Fateev under cross-examination.
Further, Denis Fateev's claim that damage prevented closure of the gates to the southern entrance cannot stand with photographs that were taken very shortly after the fire, showing the two gates across that entrance drawn together and secured with a chain and padlock. Nor can it stand with the evidence of Mr Kozinets, whose company sub-leased from Admiral some office space at the warehouse. He had occupied that space for about two years from approximately May 2016. Over that period he attended the premises on four or five mornings per week on business days. He did not have keys to the premises and usually arrived after Admiral employees had already opened up. Usually he was not still present at the premises when Admiral closed for the day. This routine applied "90% when I was there" but on other occasions he had seen that the gates were closed.
At a late stage of his questioning on this subject, Denis Fateev volunteered this answer concerning the gates to the southern entrance: The key of the lock, the actual key initially, as far as I remember it was provided by the landlord and if my memory is correct, when it [ie the gate] was damaged the lock itself was removed or - so we just - nobody locked it. This evidence is inconsistent with Denis Fateev's earlier explanation. If the two halves of the gate could not be brought together then the absence of a lock would be irrelevant. There is a clear contemporaneous photograph showing that the gates could be closed and Denis Fateev's supplementary attempt to explain the failure to secure them is an implausible afterthought. As there was no other occupant of the site, Admiral could have replaced any padlock that the landlord may have removed for about $50.

[17]

Vehicle and pedestrian entry ways

The vehicle entrance to the warehouse was capable of being secured at the front facade by a metal roller door that could be lowered by a chain and pulley mechanism operated from within. Inside the roller door two steel bollards could be locked into the concrete floor to prevent the passage of a vehicle. Also inside the roller door there was a steel frame and cyclone wire gate capable of being secured across the vehicle passageway to the warehouse. There is no evidence that any of these three layers of protection against vehicle entry was or were left unsecured at the time of Dmitry Fateev's departure at 11:11 pm on Saturday 14 April.
It has been mentioned that the left-hand panel of the double glazed doors at the front entrance to the office was fixed by a top bolt. This secured it to the underside of the top horizontal member of the doorframe. At waist height there was a striker plate on the edge of the left-hand panel and the right-hand door had a mortise latch operated by a door handle on the inside and outside. There was no floor bolt in the left-hand fixed panel. Security of the double doors therefore depended upon a heavy, lockable patio bolt on the external surface of the right-hand door. The same key operated the locking mechanism of the mortise latch at waist height and the lock of the patio bolt. An electronic card reader had been fitted to the front door but this had never been activated or used.
Immediately after the fire, the patio bolt was found to be unlocked. It could therefore be lifted and disengaged readily. Either Dmitry Fateev must have left it in that condition when he departed the premises on the Saturday, or someone must have made one of the six issued keys available to the person who entered at 12:24am on Monday 16 April and started the fire. At that time, even if the mortise latch had been key locked, with the patio bolt unlocked and able to be disengaged from the threshold the front door could be worked back and forth until the mortise latch was released from the striker plate on the fixed panel. As described by CGU's investigator, Mr Pellegrino, without engagement of the patio bolt the arrangement was "flimsy". It was feasible to rattle the front door open. Alternatively, the mortise latch may have been left disengaged. If a key was made available to the arsonist, the same key would release both the patio bolt and the mortise latch.
Denis Fateev was uncertain whether the mortise latch would automatically lock upon being slammed shut from the outside, without turning the key. If that was the case it would have been very simple for Dmitry Fateev to have ensured that the mortise latch did not lock by tying down the inside handle of the latch at the time of his departure late on the Saturday night. Using a rubber band or similar tie onto a point of attachment below the handle, the latch would not engage. It is clear from the speed with which the arsonist did his work between about 12:24 am and 12:31 am on 16 April that access was gained through the office front door, without forcing. There was no time for forcing and there is no evidence of forcing. One or other of the above means of leaving the office front door so that it could be opened without impediment must have been adopted. Each of the alternative means depended upon Dmitry Fateev having failed to lock the patio bolt in the engaged position and also having either failed to lock the mortise latch, or issued a key, or deliberately held the latch open by tying the inside handle down in the open position.
The latch of the door from the back of the ground floor office into the warehouse was operated by a card reader. There was no card reader on the warehouse side. Egress from the warehouse to the office was by manual operation of the latch. That was a fire escape precaution. The card reader for ingress to the warehouse was connected to the alarm panel, described below, and the panel would record each time the card reader was activated, irrespective of whether the alarm was armed. About six cards were issued, one to each of the four members of the Fateev family and two to employees. The cards were electronically registered and the alarm panel recorded whose card had been used each time the reader was activated.
Under cross-examination Denis Fateev gave evidence that his mother's card was usually left on a desk adjacent to this door so that any employee could gain access from the office into the warehouse without the inconvenience of having to find his or her card or borrowing someone else's. Admiral's Operations Manager in 2018, Artur Russkikh, confirmed that the swipe card of Svetlana Fateev was left on the desk near this door and he said that he routinely used that card to gain access to the warehouse.
There was a rear access door through the east wall of the warehouse onto the bank of the Canal. It was a lockable timber door and there was also a sturdy steel grill door on the inside. There is no evidence to suggest that these doors were left unlocked or insecure or that they had anything to do with the arsonist gaining access to initiate the fire in the early hours of 16 April 2018.

[18]

Alarm system

When Admiral entered into possession of Unit 1 in mid-2014 the warehouse was already fitted with motion sensors connected to an alarm panel manufactured by Inner Range Pty Ltd ("Inner Range") and a DTU. At some time between mid-2014 and April 2015 Admiral engaged Peter Yammine to upgrade the system. Mr Yammine installed additional motion sensors in the warehouse and office, an electronic lock for the door from the office to the warehouse, with card reader, and reed switches at certain doors including the front door to the office. From April 2015 Mr Yammine subcontracted Securitas Australia to provide back-to-base monitoring of the alarm system.
Mr Yammine programmed the alarm system so that it could be armed by the entry of a Personal Identification Number ("PIN"). The keypad for this was mounted in the ground floor office to the right of the front door. It was wired to the alarm panel about 10 m away. Individual PINs were allocated to each member of the Fateev family and to each of three other employees. Upon being armed and after a short delay to allow for exit, the system would record any alarm signals received from the sensors and would transmit those signals to Securitas' control room. The signals would pass from the alarm panel to the DTU and the latter device would send them wirelessly through the cell tower network to Securitas' control room computer.
Upon re-entry of an authorised person to the premises, keying in a PIN would disarm the alarm. Mr Aslanis, the manager of Securitas' Operations Centre in Victoria, said that provided disarming took place within a short time limit, no alarm event would be recorded by the software that Securitas used to process signals from this warehouse. Mr Yammine did not program Admiral's alarm panel to send any signal to Securitas to notify the events of arming or disarming the alarm, only signals of motion detection from the sensors and reed switches while the alarm was in armed mode. Mr Aslanis confirmed that this was the extent of signals that were received and recorded by the control room computer.
Mr Yammine required Admiral to nominate people who could be contacted in the event of an alarm event. The names and mobile phone numbers of Denis and Dmitry Fateev were provided and these were recorded by Securitas. Mr Yammine nominated himself as a third point of contact but this was a matter between him and Securitas as his subcontractor and it was not suggested to Admiral that Mr Yammine could be relied upon to respond to any notifications from the control room. The terms arranged by Mr Yammine with Securitas included that it would not send a patrol car in response to an alarm without having first obtained approval from one of the persons on its contact list. I accept the evidence of Mr Yammine and Mr Aslanis that the names and phone numbers of the contacts could be changed or added to, on either temporarily or permanently, by phone call or email.
If more than seven days elapsed without Securitas receiving any signal of an alarm event, even of motion being detected followed by disarming, then Securitas' software would record this as a "delinquency", with the notation "DTU hasn't transmitted any event for over 1 week". Securitas sent periodic reports of delinquencies to Mr Yammine in respect of the premises of all his customers, including Admiral. On about 5 March 2018 a report from Securitas to Mr Yammine showed an entry against that date: "DTU hasn't transmitted any event for over 1 week". Mr Yammine has no specific recollection of his response to this notification but his usual practice would have been to attend the property, reboot the system and make sure that it was transmitting any activation of the motion detectors to the Securitas control room when the system was armed. He has deposed that in early March 2018 he would have satisfied himself that there was no fault in the alarm system and that it was operational to detect movement when armed and to transmit signals accordingly.
In Mr Yammine's opinion Admiral's alarm system including its DTU was working properly in March and April 2018. I am satisfied from his evidence that the delinquencies during those months with respect to transmission of alarm events arose because, for extended periods, the motion sensors were not triggered with the system in armed condition. As the system was not programmed to send a signal to Securitas upon arming or disarming, those actions would not have been detected by Securitas' monitoring software and would not have averted the delinquency of "DTU hasn't transmitted any event for over 1 week". Prior to the fire early on 16 April 2018, the last signal received by Securitas' software of an alarm event from the premises was on 26 March 2018. After that, Securitas' system recorded on 3 April and again on 11 April that no event had been transmitted for over a week
I accept Mr Yammine's evidence that if the alarm was in an armed condition early on 16 April 2018 before the fire started a person could not have forced entry into the warehouse without triggering one of the motion sensors, for example the reed switch on the front door or one of the sensors within the office area. Mr Yammine said that if the alarm was armed the transmission of an alarm signal to Securitas would not have been prevented by cutting power to the building as there was a back-up battery for the alarm panel. The DTU was powered from the panel so it also had back-up. Disablement of the alarm panel or DTU could only have been effected from within the premises. If the alarm was armed, disablement could not have been achieved without triggering at least the front door reed switch and causing an alarm event to be signalled to and recorded by Securitas. No such event was signalled or recorded. The alarm must have been left in an unarmed state at least from the last time one of Admiral's personnel was at the warehouse, that is, from 11:11 pm on 14 April 2018 when Dmitry Fateev departed. No alarm event at all was signalled to Securitas after that time.
Irrespective of whether the alarm was armed, the DTU was configured to transmit to the cell phone network every 60 seconds to confirm that it was operating. This is referred to as "polling". Its purpose was to raise an alert in the system of the cell tower wireless network if the DTU was not maintaining wireless connection. The DTU was part of the cell tower network operator's supply and this polling function, to verify continuity of connection, was entirely independent of the signalling of alarms from the alarm panel via the DTU to Securitas. If the network operator did not receive polling signals from the DTU, its software automatically reported this to Securitas' software, where it would be recorded as "Direct wireless complete communications failure". Securitas' recording and reporting software was divided into "areas", one area comprising the transmission of alarm event signals from the alarm panel and another area comprising any reports from the network concerning delinquency with respect to the operation of the DTU. Mr Yammine said that a loss of connection through the DTU can be caused by "failures or other glitches" in the cell tower network.
None of that evidence appears have anything to do with the status of the alarm system at the time of the fire. There is no evidence that the DTU did not have a stable connection with the network over the weekend leading up to the fire. On 16 April 2018 at 12:28:53am Securitas recorded "Direct wireless complete communications failure". I conclude that this was due to the fire and explosion that occurred within the building at about that time. The CCTV cameras from across Burrows Road recorded an explosion at 12:31am. The CCTV timestamp may not be precisely accurate. Also, the developing fire may have interfered with the DTU transmission even before the explosion was recorded by the cameras.
The alarm panel was removed from the premises by investigating police as soon as it was safe to enter the office area on 16 April 2018. The device was submitted by police to Mr Tanenui, a Technical Support Specialist with Inner Range. Mr Tanenui extracted all data recorded on the device, for a date range commencing 1 January 2015. The earliest recorded events dated from Saturday, 14 April 2018 at 4:03pm. From then through to 5:59pm on the same day there were six recorded activations of the card reader for the door from the office into the warehouse. Two of those appeared to indicate double taps of an access card. The records probably correspond with only four physical entries through this door. The card that was used had been assigned to Svetlana Fateev. Other evidence shows that the only person associated with Admiral who was in the premises at the time was Dmitry Fateev. The use of his wife's card is consistent with evidence given by Denis Fateev and Mr Russkikh that her card was customarily left on a desk near the door.
Activation of the door from the office into the warehouse was the only action that the alarm panel was programmed to record when the alarm was not armed. In its unarmed condition the panel clearly did not record activation of movement sensors in the warehouse and office or reed switches on the doors. Signals from those devices would be received by the panel when armed and would then be fed to the DTU and transmitted to Securitas. Mr Tanenui said that when the panel was armed by keying in a PIN, data of that event would be recorded in the panel's memory. He said, "We don't see anything of such", referring to the data that he downloaded from the panel after it had been recovered by police from Admiral's office.
The printout of data extracted by Mr Tanenui was tendered. It shows no event of arming system at a time corresponding with Dmitry Fateev's departure on Saturday night or later. In fact it shows no event on that day after the last activation of the office-to-warehouse door at 5:59:52pm. I am satisfied that Admiral's warehouse alarm was not armed at the time of the fire and had not been since Dmitry Fateev left the premises late on the preceding Saturday night.

[19]

CCTV system

When Mr Yammine upgraded the alarm system at the Alexandria warehouse in late 2014 or early 2015, he also removed CCTV cameras that had been installed at the company's Byrnes Street warehouse and reinstalled them at the new address. Eight cameras were installed, one in each corner of the warehouse, one at each side of the front elevation of the building directed at the entrances and forecourt, one in the vehicle entryway inside the roller door and another in the office. The cameras were cabled back to a monitor in the ground floor office and to a Digital Video Recorder ("DVR") that was installed in a cabinet directly opposite Denis Fateev's desk in his executive office on the mezzanone level. The DVR contained some electronic componentry to receive the feed from the cameras and a hard drive on which to record it. A second monitor was also installed in Denis Fateev's executive office, on top of the cabinet containing the DVR. The cabinet was approximately 2 m from the seated position at Denis Fateev's desk.
In August or September 2017 Denis and Dmitry Fateev requested Mr Yammine to replace the DVR. Mr Yammine duly installed a later model Network Video Recorder ("NVR"). This had a single hard drive capable of recording up to 30 days of CCTV surveillance. The replacement unit was installed in the position the DVR had occupied, in the cabinet opposite Denis Fateev's desk. The CCTV system was designed and intended to operate continuously, not just when the premises were unoccupied. At the same time Mr Yammine was asked to install an application on the mobile phones of each of Denis and Dmitry Fateev by means of which they could view live feed from the premises' CCTV cameras, remotely, at any time. That was done and Mr Yammine checked that the application was working on both phones.
On or shortly before 9 April 2018 Denis Fateev telephoned Mr Yammine and said: I am hearing a beeping sound coming from the camera system in the office. Are you able to come and take a look at it? Mr Yammine directed his employed service technician, James McGovern, to attend the warehouse. A business record shows that at about 9:45 am on Monday 9 April 2018 Mr McGovern attended. Mr Yammine deposed that shortly afterwards Mr McGovern reported to him as follows: The hard drive [in the NVR] has failed: it needs to be replaced.
The following passage of Mr Yammine's affidavit was read without objection: While I cannot recall a specific conversation with anyone from Admiral, I am certain that consistent with my usual practice I called Denis and explained what the issue was in similar terms to those reported by James to me. In examination in chief Mr Yammine reiterated that this evidence rested upon his usual practice rather than specific recall. He said that his practice also included instructing the employee who attended on-site to inform the client what had been found.
As at 9 April 2018 the NVR was still within its 12 months warranty. Mr Yammine ordered a replacement, which he expected would arrive in the ordinary course within 2 to 4 days. I accept Denis Fateev's evidence that in the meantime the failed NVR remained in place in the cabinet in his office. Denis Fateev understood the functions of this device, as demonstrated by the following answer (in which he referred to the device as a DVR): If the DVR had been removed, it wouldn't have translated the footage from my understanding. This is a reference to the electronic componentry in the device by which the feed from the cameras was processed, enabling video images to be displayed on the monitors.
I do not accept Denis Fateev's evidence that he was unaware that the hard drive in the NVR had failed and that the camera feed was not recording. As he had an understanding of the functionality of the device and as he had called Mr Yammine to report the beeping sound, I find it inconceivable that after the attendance of the serviceman he would not have ascertained what had been found. After all, the malfunctioning device was beeping, in a manner that he found sufficiently abnormal to report it, in very close proximity to his desk. Mr Yammine deposed that he was certain he informed Denis Fateev that the hard drive had failed. It is no more than common sense and predictable business practice that he should have done so. From Denis Fateev's oral evidence it appears the NVR was still translating the video feed and displaying it on monitors. It would have been apparent to him that the effect of the hard drive failure was loss of the other function of the device, namely, recording.
The replacement NVR had not arrived by Friday, 13 April 2018. Consequently, no recording was made of video images from the cameras from 9 April 2018 up until the fire destroyed the warehouse.
With respect to the mobile phone application for remote monitoring of the CCTV, in cross-examination by Brightcity's counsel Denis Fateev gave these answers: Q. But your mobile phone app wasn't updated at the time of the fire, was it? A. No, it wasn't. Q. You didn't have the app on your phone that would allow you to monitor what was going on in the warehouse at the time of the fire, did you? A. No, I don't think so.
The mixture of definite negative and "I don't think so" in the second of these answers is unconvincing. This is something the witness would definitely know and recall, one way or the other. It concerns whether or not he had had the capacity to undertake remote observation of what occurred in the warehouse over the weekend immediately before it burned to the ground. Denis Fateev's evidence on this subject became completely unacceptable when he endeavoured to confirm that he did not have the CCTV application and to give an explanation of why not. That arose in questions from the bench as follows: Q. Had you ever had that application on your phone? A. I did. It was set up initially by Mr Peter Yammine's company but we - I used to go through a few phones because we were often either on the forklift or the truck and you'd sit on it and break it and every time we'd have to call Peter to come in and reinstall the app, and to put in all the credentials, so from time to time we didn't have it. Q. You broke a few phones, did you? A. Yes, yes. They'd fall out of your pocket in the trucks and Q. What, you operated the forklifts in there yourself, did you? A. Occasionally I would if we operated the trucks ourselves if we had to pick up airfreight or something urgent and our drivers weren't available. Q. And when was it that your last phone broke and you just refrained from getting the application reinstalled on the new one? A. I can't recall, your Honour. Sorry. Q. Approximately? In other words, I'm asking you for approximately how long before this fire had you been without that application on your phone? A. Possibly around six months but I can't remember exactly. Q. About six months. And is that the only reason that you didn't get the application installed on whatever became your current phone from that time before the fire, just the fact that you got - you became tired of getting it reinstalled? A. Not tired, just in order to do it we had to have to ..(not transcribable).. see Peter and he normally helped us out with it because there's a lot of credentials to be input to gain access. Q. Yes, but is it the only reason that you didn't get that app put onto your subsequent current phone that, that is after the event six months earlier when you broke a phone, is the only reason just that it was too much trouble to get Mr Yammine to come and install it? A. Yes.
I find Denis Fateev's explanation for the asserted absence of the application from his phone at the relevant time inherently absurd. It is also contradicted by other evidence. The application had only been installed 7-8 months before the fire, in September 2017, as established by Mr Yammine's unchallenged affidavit evidence. Denis Fateev had been working at Alexandria in the role that he described since mid-2014. If he ever broke a phone by sitting on it or dropping it while operating a forklift or truck, it is not credible that he would have made the same mistake repeatedly after September 2017 so as to "go through a few phones" within a short time after the application had been installed, thereby losing patience with renewals of the installation by a date six months prior to mid-April 2018.
Mr Yammine's affidavit contained the following further evidence, again unchallenged: I never received any request from anyone at Admiral saying that they were having difficulties with the app or that they wanted me to reinstall the app. Anyone with the app could install it on anyone else's phone provided they knew the username, password and serial number (all of which they could access from the app, with the exception of the password).
The CCTV application had been specifically requested by Dmitry and Denis Fateev in September 2017. It was obviously a significant security measure, particularly in conjunction with back-to-base alarm monitoring. If an alarm signal caused Securitas to notify Dmitry or Denis Fateev, they could readily ascertain whether there was an intruder in the warehouse and/or the office. From this they could make an informed decision whether to authorise the despatch of a patrol car. The application would thus enable them to save expense in the case of false alarms and to initiate a further stage of protection if an intruder was present. This was important in a business that was entirely concerned with maintaining security for goods that were valuable, readily transportable, easily disposed of and highly attractive to thieves. Security of storage was at the core of Admiral's contractual obligations to its customers and its licence obligations to the Commonwealth.
I am satisfied that Denis Fateev either had the CCTV application on his phone at the time of the fire and has falsely denied having had it in order to disavow knowledge, or the means of knowledge, of what went on in the warehouse between 13 and 16 April 2018; or he deleted or disabled the application on or before 13 April 2018 in order not to witness what took place in the warehouse over those days. His evidence regarding circumstances of not having had the application is not believable and is contrary to other reliable evidence.

[20]

Truck movements, tyre placement on 13 and 14 April April

Admiral's broker notified CGU of a claim under the ISR policy on 16 April 2018. By 8 November 2018 CGU had not communicated a decision whether or not it would grant indemnity. Admiral therefore commenced proceedings in the District Court seeking, amongst other relief, a declaration that CGU was obliged to indemnify. On 9 April 2019 CGU's solicitors wrote to Admiral to advise that the claim would not be paid on the grounds that it was excluded under Policy Condition 7 (Fraud). Particulars of fraud were given in that letter, including the following: (a) the Fire was deliberately lit; (f) at the time of entry into the Premises by the person [who lit the fire at approximately12:24 am on 16 April 2018] there was combustible material in the nature of tyres spread around the Warehouse; (g) the tyres had been delivered to Admiral at the Premises on 14 April 2018; (h) prior to 14 April 2018 the Warehouse was full of large quantities of stock to the approximate value of $14,000,000; (i) by the time of the Fire the Warehouse was not full of stock and large quantities of stock had been removed from the Premises prior to the Fire; (j) the stock had been removed from the Premises in the 48 hours prior to the Fire with the knowledge of Admiral.
CGU's fire investigator, Mr Pellegrino, first inspected the fire damaged premises on 19 April 2018. On 16, 17, 18 and 20 July 2018 he made a very detailed examination of the remains of fire damaged stock on the warehouse floor. On 16 September 2020 he issued a report to which he attached a floor plan marked up with the locations in which he had found various types of remnants. This showed that he had found, spread through the warehouse, 19 pallets or remains of pallets on which there were used motor tyres, in some cases partially burnt or heat damaged, and/or remnants of radial steel tyre reinforcing consistent with tyres having burned away. In the western half of the north aisle there were five such pallets. Halfway down the middle aisle there were two more and a further 12 were distributed along the south aisle.
Mr Pellegrino's report stated that in addition to the tyres or remnants of tyres on pallets there were numerous individual tyres, some with minor or no heat damage, throughout the debris of fire damaged stock. Mr Pellegrino concluded that at the time of the fire development the pallets of used tyres had been in the locations where he found them. The pallets were flat on the concrete surface with no debris underneath them, from which he concluded that they had not fallen to ground level from elevated storage positions on the racks. Mr Pellegrino said that the pallets "were left in obstructive positions and would have blocked access through the aisle[s]". He said that the tyres would have acted as an accelerant "because of their fuel load and high heat release rate".
Mr Pellegrino's report also stated that he had combed carefully through the debris, which was a metre deep over most of the warehouse floor apart from the north aisle. Despite the presence of identifiable remains of many categories and brands of the stock that Admiral had recorded as being in the warehouse up to 13 April 2018, he could find no trace of 16 pallets of bottled wine, about 14 pallets of other alcohol and at least 160 pallets of cigarettes of brands and types belonging to more than 10 of Admiral's customers.
On 17 September 2020 another CGU investigator, Ms Cris Garvin, issued a report containing an analysis of the CCTV footage from the security cameras of the building across the road from Admiral's warehouse. This stated that on Friday, 13 April 2018 three trucks had made between them five trips to the warehouse and on each occasion had remained for a duration of between 15 and 35 minutes. The trucks were rigid body vehicles with covered cargo sections, of a type referred to as "tautliners". The first of these vehicles to attend at the warehouse arrived at 6:16 pm and the last departure was at 10:35 pm. Ms Garvin's analysis showed there were a further 14 movements of the same vehicles on Saturday, 14 April 2018, the first truck arrival being at 7:31 pm and the last departure being at 11:11 pm.
Both of the above reports were served on Admiral's solicitors on 17 September 2020. Admiral was aware that the only person from the company who was at the warehouse after business hours on Friday 13 and Saturday 14 April when these truck movements took place was Dmitry Fateev. Nikita Fateev, at least, knew that his father was there until late on the Friday evening. Mr Kozinets called Nikita at 8:27pm on the Friday to say that he had passed the warehouse and noticed that someone was in attendance. Nikita reassured him that it was not an intruder but Dmitry. On the Saturday, the presence of Dmitry Fateev during the attendances of the trucks is apparent from the CCTV footage that is summarised in Ms Garvin's report. Stills of Dmitry Fateev standing in front of the building on the Saturday are extracted in the report.
When these reports were served it was obvious that CGU would rely on them to support an inference that by the truck movements on and 14 April a substantial quantity of very valuable stock had been removed from the warehouse immediately before the fire and that, by those same vehicles, there had been placed in the warehouse used motor tyres that would provide fuel suitable to promote a fire capable of destroying the remaining stock and concealing the theft.

[21]

Dmitry Fateev's explanation

In an endeavour to provide an innocent explanation for the truck movements and for the presence of the used motor, Admiral obtained an affidavit of Dmitry Fateev sworn in Vladivostok on 8 December 2020. Dmitry Fateev never returned to Australia after his departure for Russia early on the morning of Sunday, 15 April 2018. In his affidavit he said that he had only worked for Admiral "as needed", at a salary "based on the minimum wage". He denied that any alcohol or tobacco had been removed from the warehouse while he was there on Saturday 14 April. He denied having consented to or had knowledge of any person stealing goods of Admiral's customers from the premises or deliberately starting a fire. He denied having "acted improperly in the work performed by [him] as a casual employee of Admiral".
The affidavit contains no account of what took place at the warehouse after hours on Friday, 13 April, when Dmitry Fateev was the sole representative of Admiral present there up to 10:30pm. His narrative commences with a claim that on the Friday afternoon he was asked by someone, he could not recall whom, to attend to receive warehouse deliveries the next day. He said that on the Saturday morning the first delivery may have been at about 8:00am and that he could not recall "who the particular delivery people were or who they work for". Dmitry Fateev deposed that "there were 2 or 3 people who made deliveries for Morris Automotive throughout the day". His affidavit continued as follows: 19 I recall that the first few deliveries were loosely stacked on pallets and were either only lightly covered in black shrink-wrap or otherwise had no black shrink-wrap at all. 20 While I cannot recall the name of the person or when during that Saturday the conversation happened, I recall having a conversation with one of the delivery men delivering for Morris Automotive with words to the following effect: Me Are these goods just being stored here or will they be exported? Delivery man They are going to be exported. Me Ok. If they are going to be exported they will need to be wrapped so that nothing hangs over the side of the pallets. Delivery man Ok. Can I wrap the pallets here? Me No, you will need to take everything away and bring it back when they are wrapped.
Dmitry Fateev deposed that after the above conversation he loaded the "goods" back on to the trucks using one of Admiral's forklifts that were available in the warehouse. He deposed that the trucks drove away and they returned later, throughout the day, "to complete the deliveries of Morris Automotive's goods". Dimitry Fateev's repeated use of the neutral term "goods" gives the impression the he has sought to avoid acknowledging in this affidavit that he knew Mr Gazzara was bringing in a cargo that was most incongruous for this warehouse and that was highly combustible.
He deposed to the following explanation of the manner in which he placed the pallets of "goods" in the warehouse: 24 […] As I do not use a forklift regularly, I am not comfortable using a forklift to store goods in the racking throughout the warehouse and so I placed the pallets on the floor of the warehouse wherever there was space. 25 It was not unusual for me to store pallets which had been delivered in this way. I would leave them like this for one of Admiral's employees to put them on the racks when they arrived at the warehouse after the weekend. 26 I do not recall the exact position in the warehouse that I stored the goods.
Dmitry Fateev identified an annexed document as "an invoice from Morris Automotive". In fact it purports to be an invoice from Onboost Auto Parts to Morris Automotive for the sale of 318 mixed used tyres for $2,226 and 53 used vehicle batteries for $795. Although not stated, the apparent intent of annexing this document is to suggest that these were the goods that were delivered into the warehouse. Dmitry Fateev further deposed that after the last delivery on the Saturday night at about 10:30 or 11:00pm he closed the roller door of the warehouse vehicle entrance, secured the bollards and internal wire gate, turned on the alarm and engaged the patio bolt of the office front door. His affidavit does not state that he locked the patio bolt. He deposed that he departed Sydney for Vladivostok via Seoul at 7:45am the next morning.
Dmitry Fateev could not be cross-examined on this affidavit because he died in Vladivostok in January 2021. I do not any regard any part of his affidavit as truthful. In every material respect it is either inherently improbable or contradicted by other evidence. The following difficulties with his evidence are the most significant: 1. The three trucks that are captured making five visits to the warehouse late on the Friday evening are exactly the same vehicles as attended repeatedly on the Saturday. Although Dmitry Fateev was present on the Friday evening his affidavit contains no explanation of the truck movements at that time. 2. Mr Pellegrino found on the warehouse floor 19 pallets that had carried used motor tyres at the time the fire commenced. The evidence shows that approximately 20 tyres could be loaded onto a pallet, so the 19 pallets approximately correlate with the number of tyres shown on the Onboost Auto Parts invoice. After the fire, Mr Russkikh signed a copy of that invoice as acknowledgement of receipt of that quantity, although Mr Russkikh had not been present. 3. Two of the trucks that attended on the Friday evening had capacity for 10 pallets and the third truck could carry eight. Three movements of those trucks could deliver the entire consignment of 19 pallets of tyres to the warehouse. If those trucks were, as Dmitry Fateev asserts, concerned only with delivering tyres there would be no occasion for them to have returned on the Saturday. 4. It is not credible that Dmitry Fateev would have insisted upon re-loading pallets of tyres that had been delivered to and unloaded in the warehouse, to have them taken away and re-packed and plastic-wrapped elsewhere. Re-packing approximately 20 tyres on each pallet to ensure that they did not overhang the edges could have been undertaken by each delivery driver, either on the warehouse floor or on the back of his truck, in very little time. Admiral had a wrapping machine on hand and Denis Fateev gave evidence that the wrapping of pallets was a very simple operation, routinely undertaken by Admiral for its customers upon the unloading and palletising of stock delivered in containers. 5. It would have been a time-consuming exercise for Dmitry Fateev to reload the pallets of tyres, wait more than two hours for each truck to depart and return and then unload again. This would have been a significant inconvenience to the drivers, compared to the simple task of re-stacking and wrapping the pallets where they had already been unloaded on the warehouse floor. No credible explanation for such an absurd proceeding is offered in the affidavit. I am satisfied that none of this occurred and that it has been made up by Dmitry Fateev to explain the large number of truck movements that otherwise could not be explained by the mere delivery of 19 pallets of tyres 6. If there was a problem with the manner in which the tyres were stacked on the pallets, it would have been identified at the first load and while the pallets were still on the truck. It is inconceivable that the two or three trucks that would be necessary to deliver these tyres would have been fully unloaded before the supposed problem emerged. Even if that was the case, at most the exercise described by Dmitry Fateev could explain six or possibly nine truck movements, not 14 as occurred on the Saturday. 7. The placement of tyres on pallets in each of the three aisles of the warehouse, with a significant concentration of them in the south-east corner at the furthest point from the vehicle entry and two of them obstructing the middle aisle, is not explained by Dmitry Fateev's claim that he just placed them "wherever there was space" because he was uncomfortable using a forklift. He had worked in the warehousing business, in his previous company and then through Admiral, for over 10 years. I do not accept that he was uncomfortable driving a forklift. Mr Pellegrino's floor plan shows that there would have been ample space to deposit the pallets of tyres in the north aisle, close to the vehicle entry, with minimal forklift driving, minimal congestion of the aisles and maximum convenience for Admiral's employees to shift them to suitable rack positions on the Monday morning. 8. I reject Denis Fateev's evidence that the placement of pallets of tyres throughout the aisles would have been necessary in order to keep the west part of the warehouse, near to the vehicle entry, clear for container unloading operations. Even if a container was expected for the Monday morning, there was no need to place two of the pallets in the obstructive position in which they were found in the middle aisle or to place numerous other pallets in the south aisle toward the east, where they were found in close proximity to an ethanol tank that Admiral had in storage for a client. 9. Dmitry Fateev's claim that he armed the alarm is refuted by the electronic records from the panel and from Securitas' monitoring computer, as explained by Mr Yammine. He may have pushed down the patio bolt, as he has deposed, but clearly he did not lock it. It was found to be unlocked when examined immediately after the fire.

[22]

Morris Gazzara's explanation

Admiral endeavoured to corroborate Dmitry Fateev with an affidavit from Maurizio (Morris) Gazzara, sworn 13 August 2021. Mr Gazzara was cross-examined on this affidavit. His account contradicts that of Dmitry Fateev in central respects and is, independently, implausible in the extreme.
Mr Gazzara sent an email to Mr Russkikh at 12:43pm on 12 April 2018 enquiring whether Admiral "would be able to store car parts and accessories on pallets for export in the next few weeks, until I am ready for export". He requested a price per pallet per week. Mr Russkikh told Denis Fateev of the enquiry and obtained from Denis Fateev a unit price of $15. Mr Russkikh replied to Mr Gazzara by email at 1:26pm, advising the rate. Mr Russkikh never spoke to Mr Gazzara. By an email of 2:14pm on 12 April Mr Gazzara asked if he could deliver "some pallets in the next few days". He was informed that that was possible. The next communication from Mr Gazzara was at 1:19pm on Friday 13 April, in which he wrote this: Can I please start to drop off pallets tomorrow morning, I have 20-30 pallets.
Mr Russkikh replied, within the hour, that delivery could be made on the Saturday. He advised that the after-hours charge would be $65 per hour and that a person named Dmitry would be present. Dmitry Fateev's mobile phone number was supplied. The email communications between Mr Gazzara and Mr Russkikh made no mention of used motor tyres. The goods were said to be "car parts and accessories".
Mr Gazzara deposed that, notwithstanding the above arrangements, he commenced to deliver pallet loads of used tyres and batteries on the Friday evening, driving one truck himself and assisted by two associates who drove two other trucks. The trucks were the two Hertz tautliners of 10 pallet capacity and the unmarked 8 pallet truck captured on CCTV from across Burrows Road. No other truck movements to or from the warehouse are seen in the CCTV coverage for the Friday evening, apart from two unrelated movements to collect empty containers.
Mr Gazzara deposed that he and the other two drivers resumed theirdeliveries of tyres to the warehouse in the same trucks on the Saturday morning. He said that after the second or third load on that morning he had a conversation with Dmitry Fateev, which he recounted in substantially the same terms as deposed by Dmitry Fateev at par 20 of his affidavit: see [95] above. Mr Gazzara deposed that he complied with Dmitry Fateev's instruction that all of the pallets of tyres and used batteries that had been delivered on the Friday night and Saturday morning be reloaded and taken away for re-packing. He took them to his own business premises at Revesby "and/or to [the] property at Rossmore". Rossmore is located in the western part of the metropolitan area, more than 35 km by road from Alexandria. Revesby is 18 km from Alexandria. Mr Gazzara said the tyres were re-packed at these locations and then delivered once again to Admiral's warehouse.
In cross-examination Mr Gazzara said that he had brought forward the delivery of the tyres to the Friday evening because he had been given notice "mid-week" to remove them from the property at Rossmore, where they had been stored for 18 months to 2 years. He said he had proposed to export them to a person whom he had met in Thailand in about 2015. He thought the person's name was Ing. He could not recall the name of his business. He said that Ing was a tyre recycler but he could not give his address or the name of the town or city where he operated, notwithstanding that he claimed to have visited there in 2015 specifically for the purpose of investigating a possible business of exporting used tyres. Mr Gazzara had not had any communication with Ing since 2015 and he did not know whether he was still in business in April 2018. He believed that he could get between $5 and $10 per tyre for tyres that were only fit to be recycled and up to $50 each for tyres that still had tread on them and could be used on the road. Mr Gazzara said "possibly 40%" of his tyres were in the latter category. He had never exported tyres prior to April 2018 and he has not done so since. He had approximately 600-700 tyres at Rossmore but when he removed them in April 2018 he "got rid of" many of them to one of the two associates who drove the trucks for him on 13 and 14 April 2018.
Mr Gazzara said that his associate who occupied the property at Rossmore had a pallet wrapping machine and that the tyres had been palletised and wrapped there before their first delivery to Admiral. Mr Gazzara at first said that he did this packing and wrapping over few days. When it was pointed out to him that he had also said he was given only one or two days' notice to remove the tyres from Rossmore, he said the process took "hours" and declined to answer how many hours. He was cross-examined about the fact that the 20-30 pallets he had estimated in his email to Mr Russkikh could all have been delivered in two or three of the truck movements on the Friday evening. Mr Gazzara then asserted that the estimate of 20-30 pallets was only "as a start" and that although that many were delivered on the Friday evening in about three truckloads, altogether he took "possibly from 60 to 70" pallets to Admiral's warehouse. Mr Gazzara said that the invoice from Onboost Auto Parts only described some of what he transported to Admiral and that he had produced that invoice in response to Mr Russkikh's request, after the fire, that he provide evidence of the value of his goods that had been destroyed. He said this was the only invoice for any of those goods that he could find.
Mr Gazzara said that he knew about the CCTV footage that had been obtained from the building across Burrows Road. When counsel for CGU asked him how he knew about it, Mr Gazzara appeared to freeze and could not be induced to answer the question. He gave a highly improbable account of having borrowed a shrink-wrapping machine from a business near to his own business premises in Revesby on the Saturday and having used that to re-wrap some of the pallets that had been rejected by Dmitry Fateev.
Mr Gazzara's manner of giving evidence was unconvincing. Time and again in cross-examination he was confronted with apparent contradictions and improbabilities in his account. Stolidly, with flat affect, he adhered to his story. As the questioning wore on he fell at times into long delays before answering. He was unable to rationalise or justify numerous unlikely features of his account. He adopted an air of resignation, glumly persisting in his narrative, with no reaction to the suggestion that he was lying, exhibiting no animation or endeavour to demonstrate his truthfulness. Despite explicit accusations of the most serious criminality being put to him he plodded on, dead-pan, giving the impression that he was indifferent to whether he was believed or not and that he was merely waiting, as patiently as he could, for the questioning to be over.
The principal contradictions and improbabilities in Mr Gazzara's evidence are as follows: 1. The stated intention of exporting the tyres that he delivered to the Alexandria warehouse cannot be accepted. Mr Gazzara had no arrangement for purchase by any overseas buyer. He had not even investigated prospects of an overseas sale at any time proximate to mid-April 2018. He did not have so much as an address for the suggested customer, Ing, and, on his own version, he had not spoken to that person for three years. I do not accept that he had ever spoken to any such person. I infer that he made up the name. On Mr Gazzara's own figures the supposed export would not have earned a profit. It is apparent from his evidence that he had not made the calculation. 2. Mr Gazzara's evidence that he received only one or two days' notice to remove tyres that, on his account, had been stored on his associate's property at Rossmore for at least 18 months is improbable. Mr Gazzara claimed that he did not have any idea why he was suddenly told remove them. I do not find that credible. It is the kind of thing that Mr Gazzara most certainly would have known if any of this had occurred but it is a detail that he omitted to fabricate in preparing for his cross-examination. 3. The proposition that, upon receiving short notice to remove a large number of used tyres from storage on a property at Rossmore, Mr Gazzara would have reacted by placing them in a secure warehouse in Alexandria pending an unplanned and uncertain export is not believable. That form of storage was unnecessary and disproportionately expensive for a low value, durable commodity that could have been placed in a paddock or yard, exposed to the elements. 4. Mr Gazzara's evidence of delivering 20-30 pallets of tyres on the Friday evening is in conflict with that of Dmitry Fateev, who describes a first delivery early on the Saturday morning. There is no doubt that the three trucks made a total of five attendances, between them, at the warehouse on the Friday evening but it is a significant inconsistency that Mr Gazzara says these movements were for the delivery of tyres and Dmitry Fateev says nothing about them at all. Further, the supposed delivery of only 20-30 pallets on the Friday evening is contradicted by the CCTV capture of five truck movements that cannot be accounted for by such a small volume. 5. It is not credible that Mr Gazzara would have meekly gone along with a direction on Saturday morning to take all of his tyres away and repack them. On his evidence, by the time he received this instruction at least three truckloads had been delivered the night before and two on the Saturday morning and all of these had been unloaded. 6. If, as Mr Gazzara asserts, the total of 19 truck movements on the Friday night and during Saturday were for the purpose of delivering and/or removing and/or re-delivering pallets of tyres, there would have been remnants of many more than 19 such pallets in the debris that was examined by Mr Pellegrino after the fire. According to Mr Gazzara there were no additional pallets for batteries as these were placed inside the tyres.
Mr Gazzara denied that goods belonging to Admiral's customers were removed from the warehouse in the trucks that he and his two associates drove. I attach no weight to that denial. I reject Mr Gazzara's explanation for having taken used tyres to Admiral's warehouse and his description of having removed, repacked and redelivered the tyres in multiple truck movements. The evidence referred to at [88]-[89] above and at [122]-[124] below satisfies me that late on Saturday 14 April Mr Gazzara and his two associates delivered to the warehouse more than 300 used motor tyres on approximately 19 pallets, for the purpose of fuelling a fire that was to be ignited early on the Monday morning.
The emails to Mr Russkikh of Thursday 12 April on Friday 13 April were a cover, to provide the appearance of a genuine commercial storage arrangement in case the tyres should not be completely consumed in the fire and in case questions should be asked about them. The emails also provided a pretext for Dmitry Fateev to attend the warehouse after hours on the Friday and on the Saturday. I do not infer that Mr Russkikh knew any of this. A further indication of the spurious character of this deposit of used tyres is that no such cargo for export had ever previously been received by Admiral. Denis Fateev said that the company had once previously received new imported tyres that it held in storage temporarily

[23]

Denis Fateev's departure for Hong Kong on Friday 13 April

On 29 March 2018 Denis Fateev travelled to Chongqing, China on business. He arranged that on his way back to Australia on the afternoon of 4 April 2018 he would meet in Hong Kong with a solicitor acting for Juhao Flavour (Hong Kong) Co Ltd ("Juhao"),. Denis Fateev appears to have been in discussions with Juhao about proposed importation of food produce into Australia and storage of it at Alexandria. The solicitor for Juhao, Ms Debbie Fu, explained the purpose of the proposed meeting in an email to Denis Fateev of 2 April 2018, as follows: Our meeting is purely to clarify the warehousing and logistic protocol and to understand Admiral's standard trading terms and conditions.
Denis Fateev sent an email at 12:42 pm on 4 April cancelling the meeting on short notice, saying he had insufficient time. He returned to Australia shortly afterwards. On Thursday, 12 April 2018 Ms Fu wrote to Denis Fateev requesting a number of documents relating to Admiral's business, such as insurance policies, audited accounts, a list of major contracts and an organisational chart. The letter included the following: We have instructions from [the vice president of Juhao] to contact [Admiral] for the purpose of the due diligence exercise to facilitate the preparation of a due diligence report for consideration by the Board. We also have instructions that the due diligence report should be ready for the Board's consideration no later than Wednesday, 18 April 2018.
On Thursday 12 April 2018 Denis Fateev booked a flight to Hong Kong departing Sydney at 2:20pm the next day. The booking included a return flight departing at 8:00pm on Tuesday 17 April 2018, Hong Kong local time. After being informed by phone about the fire Denis Fateev changed the return flight and arrived back in Sydney on 17 April 2018. During this trip he had one meeting with the Hong Kong solicitors. They described the meeting, in an email sent to Denis Fateev shortly after his return, as a "preliminary due diligence exercise at our Hong Kong office between your good self and our Ms Debbie Fu on Sunday, 15 April 2018".

[26]

Dmitry Fateev was present at the warehouse at all of the above times, except left for three periods of 50-60 minutes each on the Saturday. No trucks were present while he was absent, except for one period of 50 minutes when Hertz truck B was at the warehouse while Dmitry Fateev was off site. His residence was nearby, in Zetland.
Admiral had four forklifts in the warehouse, two of them gas-powered and two battery-powered. Mr Russkikh used these machines on most days. He gave the following evidence: Moving pallets around the warehouse safely and quickly took practice. It would take me a minimum of about 8 to 10 minutes to unload a single pallet from a truck or a container and move it through the warehouse and onto the racking in the southern aisle of the warehouse. It would take me a longer period to move pallets into the middle aisle as only the electric forklifts could fit into that area. It would take longer when the pallet was to be stored on the higher tiers of the racking. Storing or removing pallets from the higher tiers of racking takes more time and requires care because of the risk of dropping stock. It would take me a minimum of about 8 to 10 minutes to retrieve a pallet from the racking and load it onto trucks. Although it could take longer if the pallet was stored on the higher tiers of racking.
Relying upon that evidence Admiral submitted that on several of their visits to the warehouse on 13 and 14 April the trucks did not stay long enough to be loaded with pallets for the purpose of unlawful removal of stock. If the appropriate calculation for the smallest vehicle, the Unbranded truck, is 8 pallets requiring 8 minutes each to load, then even that truck could not have been fully loaded on any occasion when it stayed for less than an hour. A similar calculation would indicate that the minimum time for loading the 10 pallet trucks was 1 hour and 20 minutes.
I do not accept Admiral's submission. Dmitry Fateev was in the warehouse for long enough before and between truck arrivals to be able to remove pallets from the racking and to assemble them close to the vehicle entry so that the trucks could be very quickly loaded as soon as they reversed in. From 5:54pm to 5:56pm on Saturday, 14 April the CCTV captured the unloading of three pallets from the Hertz A truck while it was standing on the forecourt parallel to the front of the building. The time taken for the forklift to manoeuvre each pallet off the vehicle and transfer it inside gives an indication of how quickly the reverse exercise could be carried out; namely, about one minute per pallet. Provided that the pallets intended to be removed by any particular truck had been taken from their shelves and lined up in the area of the warehouse to the west of the pallet racks, 8 or 10 pallets could be loaded on to a truck in less than 15 minutes. Also, one or more of the drivers of these trucks may have been able to operate a forklift so that two of the machines could be working at the same time to expedite loading.
Admiral submitted that the appearance of the cargo on three pallets that were filmed being unloaded on the forecourt early on the Saturday evening is consistent with motor tyres. I accept that that is so. It is Admiral's own case that the 19 pallets of tyres that Mr Pellegrino identified in the post-fire debris had not been in the warehouse prior to the Friday evening. I infer that they were not brought there until the Saturday evening. I have rejected the evidence of Dmitry Fateev and of Mr Gazzara that the reason for the tyres being delivered late on that day was that they had been taken away, repacked and then returned. Delivery of the tyres on the Saturday evening is consistent with Dmitry Fateev having kept the warehouse floor uncongested during the Friday evening and up until late on the Saturday, while the stock that was to be removed was taken off the racks and loaded on to the trucks, with the last few pallets of stock being placed in readiness for removal near the vehicle entry.
The three pallets that were removed from Hertz truck A shortly before 6:00 pm on the Saturday are visible on the CCTV footage only because the truck was parked towards the south of the forecourt, beyond the screen of trees along the front boundary of 64-66 Burrows Road, and because the forklift carried the pallets around the front of the truck on its way into the warehouse. No other lifting of pallets off or onto this or any other truck is captured. In all other footage, each of the trucks either reversed into the loading bay of the warehouse or parked slightly further to the north, behind the screen of trees, during loading or unloading.
The movements of the trucks, the missing stock, the positioning of the tyres in the warehouse and the deliberate lighting of the fire all indicate that many truckloads of Admiral's customers' goods were stolen over two days and that a fire was then lit with the intention that it would so far obliterate the remaining stock that the absence of a substantial quantity should be undetectable. It is consistent with that inference that the tyres should have been delivered on the Saturday evening, when the stock removal exercise was near completion and when access through the warehouse was no longer required, so that the tyres could be spread through the aisles to promote the intended fire.

[28]

Ignition and progress of the fire, combustion of tyres

The CCTV capture from the early hours of 16 April 2018 shows a white station wagon entering through the northern gate of the premises at about 12:23:20am. The vehicle drove south on the forecourt and at 12:23:41am it stopped outside Unit 1, parallel to the front of the building and mostly concealed from the street by a truck, presumably belonging to Admiral, that had been parked in front of the warehouse since the Friday evening. An occupant alighted and the station wagon's rear lights were extinguished. The rear lights flashed on and off a few times between 12:27 and 12:29am. From 12:30:10am the vehicle's rear lights were illuminated almost continuously until 12:31:25am when the vehicle reversed out of its position between the parked truck and the front of the building. A flickering glow, consistent with the commencement of a fire, can be seen at the warehouse as the vehicle reversed and then drove toward the southern exit. At 12:31:35am the CCTV captures a massive explosion in the warehouse. The white station wagon exited through the southern gate at 12: 31:40am.
I infer from the above sequence that either the driver of the white station wagon or another person in the vehicle entered the warehouse at about 12:24am and set it alight. Whoever did this had at the most six minutes within which to start the blaze and return to the vehicle. From this timing, taking into account that the patio bolt of the office door was not locked, I infer that neither that door nor the door from the office into the warehouse was secure or provided any impediment. There was no sign of forced entry through the rear pedestrian door to the back of the warehouse from the bank of the canal, nor through the roller door and inner gate of the vehicle entrance. There was no sign of forced entry at the front door through the office. The speed with which the arsonist was able to complete his objective is consistent with him not having had to force entry to the building.
I accept Mr Pellegrino's conclusion that the explosion occurred in the southern and western part of the warehouse. He found that the tilt-slab wall panels dividing the warehouse from the office exhibited uniform horizontal and vertical cracks indicating that the panels had flexed through the middle, as would occur under the influence of explosive pressure. The tilt-slab panels of the southern wall collapsed outward on to the adjoining property. In the absence of an explosion, those panels would have collapsed inward as the steel roof beams weakened and slumped due to the heat of the fire, drawing the panels toward the centre of the enclosed space.
Further evidence of the explosion and its location was provided by the scattering of goods that had been stored in the racks of the middle aisle. Those goods were spread across the floor of the north aisle. Mr Pellegrino found that the southern half of the warehouse displayed the most severe physical damage. Fire damage to wooden pallets located on the floor was greatest in the south aisle towards its western end, with the degree of damage near the floor surface decreasing in an easterly direction, towards the rear of the warehouse. This strongly suggests commencement of the fire in pallets at floor level in the south aisle close to the pedestrian entry door from the office to the warehouse.
Mr Pellegrino took a sample from a floor joint at the western end of the south aisle, which tested positive for petrol. I accept Mr Pellegrino's opinion that this residue is highly unlikely to represent contamination after the fire, given that the surface from which the sample was obtained was buried under a significant quantity of debris. Denis Fateev gave evidence that one of the gas-powered forklifts could be operated on petrol if the gas ran out. However, he gave no affirmative evidence that this had actually occurred, or that there had been any spillage, on any date proximate to the fire. I accept Mr Pellegrino's opinion that if there had been spillage of petrol during normal operation of the warehouse it would not have persisted for long on the surface, due to exposure to the air. Mr Pellegrino also found high concentrations of Limonene, another flammable substance, in a cardboard base and a toilet roll in a box of stored toilet rolls at the west end of the north aisle. That evidence does not assist in my determination that the fire was deliberately lit and deliberately fuelled by the pre-placement of tyres. The location where Limonene was detected was far from the location of greatest intensity and apparent origin of the fire.
Admiral's stock records show that at the time of the fire 18 IBCs of pure spirit were stored for a single client. Each of these contained 1,000 L. Each IBC would have been contained within a frame of either steel or aluminium. Only seven steel frames could be found after the fire. It is possible that if some of the IBCs had aluminium frames, those frames were destroyed by the heat. Mr Pellegrino found that the alloy gas bottles of two of the forklifts had melted, giving an indication of the intensity of the fire. Whether all 18 IBCs remained in the warehouse when the fire was started or whether 11 of these had been removed leaving 7 IBCs containing 7,000 L of pure ethanol, this liquid would have provided highly volatile fuel that would have contributed to the fire taking hold rapidly and would have added to its destructiveness.
There was also stored in the warehouse a steel tank filled with 2,110 kg of pure ethanol. This was held for Casella Family Brands Pty Ltd for use in the manufacture of rum. The tank was only half full after the fire. The acceleration and intensity of the fire may have been added to by the escape of ethanol from this tank. Mr Pellegrino's floorplan shows that at the time of the fire the tank was placed towards the eastern end of the south aisle and it was surrounded by pallets of tyres. It has been noted earlier that Mr Pellegrino found a total of 12 pallets that had carried tyres in the south aisle, with two more halfway down the middle aisle and five more distributed along the north aisle.
Mr Pellegrino gave the following evidence about the combustion of tyres: […] Vehicle tyres are quite difficult to ignite but once they ignite, they are very difficult to extinguish and they contain a high fuel load. So they will release […] a lot of energy upon combustion. […] They would ignite from being in the warehouse which is on fire. So the fire would transfer radiant heat, conductive heat over toward anything that's near it, and rubber is a combustible material so it will ignite ‑ if a tyre is in a room and the room is on fire, the tyre will ignite or if the tyre has radiant heat, direct flame impingement placed upon it and if there's a significant amount of that, so obviously a cigarette lighter is only a small amount of heat being omitted from a small flame. But if you've got ‑ if you throw a tyre on a fire, it will burn. It will take a while to ignite. It absorbs energy before it starts releasing a lot of energy.
In Mr Pellegrino's opinion petrol was spread at the western end of the south aisle and was ignited to commence the fire. He gave the following evidence: So if the petrol had been poured in the warehouse it would have ignited. The heat from those flames would have ignited the tyres. The tyres would have ignited each other and it just continues on. That's how a fire propagates. Obviously, if petrol was poured onto any of the tyres it could have been retained within their hollow interiors and ignition of the petrol could have started the tyres burning by the process that Mr Pellegrino described.
With respect to the contribution of the ethanol stored in the warehouse Mr Pellegrino said this: Eventually the ethanol [from bottles of spirits burst open in the fire] would have evaporated and been involved in the fire. […] there was also IBCs which reportedly contained ethanol in there so the ethanol would have become involved in the fire. […] [An] IBC full of ethanol depending on its depending on its weight volume, so its concentration would have, yes, assisted with the it's an ignitable liquid basically.
There was no substantial challenge to Mr Pellegrino's expert opinion concerning the initiation and propagation of the fire, nor any evidence of a different theory. No affirmative case of accidental causation of the fire was propounded by Admiral or Brightcity.

[29]

Remnants of the fire compared to Admiral's stock records

In the course of putting out the fire, where some concrete tilt-slab panels of the south and east walls had fallen on top of fire damaged warehouse stock, the firefighters used machines to break up or punch holes in the panels so that water and foam could penetrate onto smouldering materials amongst the debris. On Mr Pellegrino's first visit to the site on 19 April 2018 he found the steel roof beams still connected to the top of the north and west walls, which remained standing. This enabled him to examine the north aisle and to catalogue the remnants there. The south and east ends of the roof beams had collapsed onto the pallet racking and had become entangled with it. In some places the south and east ends of the roof structure had fallen into contact with the debris of damaged warehouse stock. During the week before Mr Pellegrino returned on 16 July 2018 to make a full examination of the remnants in the warehouse, the collapsed roof beams and sheeting were removed. That was done under Mr Pellegrino's instructions, to enable safe access for his further examination.
When the roof steel was removed some of the pallet racking came away with it. In all locations where racking was removed Mr Pellegrino was able to locate the points at which the bases of the racks were fixed to the warehouse floor. He used those points and the positions of pallets at floor level to prepare his floorplan of where various types of goods had been located when the fire took hold. Between the extinguishment of the last pockets of fire amongst the debris, on about 18 April 2018, and the removal of the roof beams and sheeting in July, the debris in the location of the two central rows of racking, on either side of the middle aisle, and the debris in the southern aisle was not accessible. It was therefore left undisturbed. There is no evidence that any of the debris was significantly churned or mixed between when it was severely damaged by the fire and the dates in mid July 2018 when Mr Pellegrino categorised the types of goods that had been in storage and their locations, based upon the remains. Most significantly, there is no evidence that during that interval there had been removed from the debris the remnants of goods of any particular brands or categories, with one minor exception referred to at [148]-[149] below.
On 16 July Mr Pellegrino directed the machinery operators to clear the north aisle first, as that area had been thoroughly examined on 19 April. He then caused the middle aisle to be cleared. Halfway along it he found the remains of an IBC and a timber pallet on which there were the remains of boxes of toilet rolls. The IBC and the pallet of toilet rolls were side-by-side and would have blocked the aisle. The remains of two pallets of tyres were found close to this obstruction, one immediately to the west and one immediately to the east. Most of the pallets on the floor along each side of the middle aisle were intact, apparently protected by the collapse of other materials from above. The contents that had been stored along the middle aisle when the fire commenced were identifiable. At the far eastern end of the middle aisle sections of concrete tilt-slab panels had collapsed inwards. When they were removed, the debris below was examined and recorded.
In a similar fashion, Mr Pellegrino worked along the south aisle and identified, from the remnants, the types and brands of goods that had been stored there immediately prior to the fire. In the south-east corner of the building it appeared that imported beer had been stored on pallets stacked three high. All of this had collapsed into a very substantial pile of broken bottles. Mr Pellegrino excavated to ascertain whether there was any other category or brand of stock at lower levels in that location. Wherever the debris was of any significant depth, Mr Pellegrino dug down through it to ascertain the full profile of the remains of damaged goods. He described his procedure as follows: The debris was removed later by layer, excavator bucket by excavator bucket, and I spent four days observing and recording the types and brands of items that were stored inside the warehouse. […] The debris inside the warehouse was carefully dismantled, and labels inspected. The items were stored on pallets, which made this task very manageable. […] A list of items and brands were recorded. […] It was not difficult to identify the items (brands). There were fire damaged labels; however, the items were bunched together (on the pallet). […] Once I found numerous similar items and labels, I was able to estimate that it was probably a pallet of stock. […] The materials stored on higher levels of pallet racking would have sustained more fire damage. However some labels were still legible, which gave an indication of which pallet of stock had collapsed in any specific area. Therefore, I did record most of the contents that was originally stored on upper level racks.
Amongst the debris in both the middle and south aisles there were numerous individual tyres in addition to the tyres or remains of tyres that were found on pallets in the positions that Mr Pellegrino marked on his floorplan.
Numerous photographs of the debris were taken: first, by Australian Border Force personnel within a few days after the fire; secondly, by Mr Pellegrino on 19 April and 16, 17, 18 and 20 July 2018 and, thirdly, by another fire investigator, Mr Café, on 20 April 2018. Some of the photographs, showing only distant views, give a first impression that, at the dates when they were taken, any attempt to identify particular brands of stock would have been difficult and perhaps impossible. Closer photographic views show that a surprising amount of packaging and labelling survived both the fire and the drenching of the remnants by firefighters. The photographs show that a large proportion of the remnants were clearly marked, enabling positive identification of brands and stock types. These identifiable remnants included a great deal of combustible material such as parts of cardboard boxes, paper and plastic packaging, labels glued onto bottles and so on. Despite being combustible, this material had not been destroyed.
At [46] above I have referred to the 106 pallets of cigarettes and 35 pallets of alcohol that were held by Admiral on behalf of Brightcity at the time of the fire. Mr Pellegrino was able to identify packaging and other remnants of goods that matched the names on Brightcity's stock list. Ms Yao confirmed the identification, in considerable detail, by going through digital copies of the photographs and marking up images of her company's goods and packaging, lying amongst the charred remnants. Ms Yao was able to correlate the images of damaged goods to promotional pictures of the Brightcity stocklines. The items identified by Ms Yao amongst the fire debris include single packets of cigarettes, cartons of cigarettes and cardboard packaging for individual bottles of spirits, all of which remained recognisable despite their combustible nature.
Counsel for Admiral put to Mr Pellegrino that "a large amount of […] packaging and products […] simply couldn't be identified at all". Mr Pellegrino responded as follows: No, well most of the products could be identified, like the brand, it just wasn't ‑ some of the products were destroyed beyond recognition but like I said in my secondary report, when you've got a pallet of content, some of the content from that pallet is going to survive even though the majority of it is burnt away.
Mr Pellegrino rejected the proposition that there had been a large quantity of cigarettes in cardboard boxes in the warehouse that had "simply burned away". In the following oral evidence he explained the mechanism by which identifiable remnants of any combustible stock that was present, including identifiable packaging, survived the fire: [A box of cigarettes] would be a large fuel package. However, it is compressed, organic material so it lacks oxygen similar to a piece of wood. So because it's so tightly packed, it's the same as paper when it's tightly packed, it doesn't burn readily. It only burns the outside edges.
Several months after his detailed examination of the debris, Mr Pellegrino was provided with a copy of Admiral's stock list as at 13 April 2018. He had found no remnants of many of the brands of stock on this list. The goods that were not evident in the debris were as follows, listed by customer name: 1. TS Tobacco: 22 pallets, probably containing 648 master cases of TS brand cigarettes. The total of TS Tobacco's goods in the warehouse consisted of 24 pallets containing 708 master cases. Mr Pellegrino found only two pallets of these goods, heavily damaged. They had been stored at floor level against the south wall, at the western end. 2. Aussino World Wines: 16 pallets, probably containing 690 cases of wine. This customer had a total of 28 pallets in storage containing 1215 cases - an average of over 43 cases per pallet. Twelve pallets were found, of two particular labels nominated in the stock list. 3. BES International Pty Ltd: 4 pallets containing 120 cases of cigars. 4. Euro Tobacco Pty Ltd: 35 pallets containing 1,140 master cases of cigarettes branded, variously, Euro Gold, Euro Blue, Euro Red. 5. FIT Holdings Pty Ltd: 88 pallets, of which 28 contained 840 cases of Durham roll-your-own tobacco and 60 contained 1,785 master cases of Regent Street (Gold and Blue), Brooklyn (Gold and Blue), King Street (Gold and Blue) and Xover cigarettes. 6. Inter Continental Tobacco Pty Ltd ("ICT"): 28 pallets comprising 718 master cases of Top Smoke cigarettes. ICT had in storage a total of 41 pallets of cigarettes, 28 of Top Smoke and 13 of Wild Spirit. Amongst the debris there was evidence of the Wild Spirit brand but only one solitary fire damaged carton of Top Smoke, depicted on an Australian Border Force photograph. This single item does not weaken Mr Pellegrino's evidence that, for practical purposes, the 28 pallets of Top Smoke were not represented in the debris. Of ICT's stock in the warehouse on 13 April, 711 master cases had only arrived that day, pursuant to an arrangement that had been made some days earlier for this additional consignment to be stored in bond. 7. Jaradat & Sabbagh Group Ltd: 5 pallets containing 107 master cases of cigarettes including 50 master cases of Marlboro, 20 master cases of Peter Jackson and less than 10 master cases of each of several other brands. Only three packets of Peter Jackson were found amongst the debris. 8. LK Corporate Pty Ltd: 14 pallets containing 925 cases of spirits of a single brand, Chamisu Soju.
I accept Mr Pellegrino's evidence about the missing stock. With respect to item (6), in cross-examination by Admiral's counsel Mr Pellegrino identified photographs that he had taken on 19 April 2018 of two pallets of fire damaged cigarettes at ground level in the racking that had been situated against the south wall before that wall was blown out. Those cigarettes were branded "TS" and Mr Pellegrino accepted counsel's suggestion that these were ICT product of the "Top Smoke" brand. The principal of ICT, Mr Roushanak, was subsequently called and said that the TS cigarettes in the photograph were not his brand. The two pallets in the photographs were part of TS Tobacco's stock and they have been taken into account at item (1) above. Mr Russkikh gave evidence that cigarettes were not usually stored at floor level. I infer that these two pallets were in a position in the warehouse that was out of the ordinary and may have been overlooked by Dmitry Fateev as he was removing the stock on 13 and 14 April.
Mr Pellegrino said that the two fire damaged pallets of TS cigarettes were not in the same location when he returned to the site on 16 July 2018. They constitute the one exception to the conclusion, otherwise established by the evidence, that the debris examined by Mr Pellegrino in mid-July 2018 had been preserved in its original position since the fire was extinguished. These two pallets were right on the southern edge of the warehouse floor slab, close to the electrical transmission infrastructure of Ausgrid on the adjoining property. The pallets may have been moved when construction materials that had fallen onto the Ausgrid property were pushed back into Unit 1.
The major components of stock missing from the debris add up to 212 pallets: 150 of cigarettes containing 4,398 master cases; 32 pallets of other tobacco products (cigars and roll your own tobacco) and 30 pallets of alcohol (16 of wine and 14 of spirits). At 10 pallets in a single layer for each of the Hertz trucks and 8 pallets for the Unbranded truck, the 19 truck movements listed at [116] and [117] above had a total capacity to remove 176 pallets of stock. I infer that it would have been possible to stack pallets of cigarettes on top of the 30 pallets of alcohol, giving an additional truck capacity of 30. I infer that it would also have been possible to consolidate some of the pallets of cigarettes. There was no witness who could be asked about any of this because Dmitry Fateev was not available for cross-examination and Mr Gazzara did not accept that any stock had been taken.
Mr Roushanak gave evidence that in 2018 he was selling each carton of Top Smoke cigarettes, wholesale, for $155.45, exclusive of GST. That price would include customs duty of 71.046¢ per cigarette stick of less than 0.8g; that is, $14.20 per packet or $142 per carton. At sale Mr Roushanak's company would add GST bringing the wholesale price to $171 per carton. The retail price to consumers would obviously be higher again.
It is reasonable to adopt a wholesale value of $156 per carton, ex GST, across all brands of cigarettes, because some of the missing brands were saleable at higher prices. At that rate, each master case had a value of $7,800 and the total wholesale/duty-paid value of the missing stock was $34,000,000. There is insufficient information to establish a value for the 32 pallets of cigars and roll-your-own tobacco. Admiral's stock records suggest that each pallet of alcohol contained 43 cases, each of 12 bottles. Assuming an average value of not less than $15 per bottle for both the wine and the spirits, the total value of the missing stock would be $232,000. The money was in the cigarettes.
The approximately 606 pallets of goods that were in storage according to Admiral's stock record included the following categories, of which Mr Pellegrino found amongst the debris positive evidence that these goods had been present at the time of the fire and had been damaged by it: Description No of pallets TS Tobacco - cigarettes 2 ANQ Import Export Pty Ltd - soft drinks, toilet paper 39 Aussino World Wines - wine 12 Brightcity - cigarettes and alcohol 141 Global Point Solution Pty Ltd - insulation panels and aerosol paint cans 20 Guangzhou Dream Land Wine Co Ltd - IBCs 7 ICT - Wild Spirit cigarettes 13 MOS Beverages Pty Ltd - alcohol 40 Tivok Energy Pty Ltd - solar power equipment 40 Trojan Trading Company Ltd 18 Total 332

[31]

Stolen tobacco seized in August 2018

Mr Roushanak's evidence established that distinctive batch numbers were marked on each of the various brands of cigarettes that were imported by ICT and held in storage at Admiral's warehouse. ICT's cigarettes were manufactured in Dubai and Mr Roushanak nominated to the manufacturer the batch numbers that he required to be labelled on each carton and master case of the various brands, respectively. The last consignment of ICT's imported cigarettes to be deposited in the warehouse was landed in Australia on 9 April 2018 and entered the warehouse on 13 April. It comprised 20 pallets (529 master cases) of Top Smoke cigarettes and seven pallets (182 master cases) of Wild Spirit. This consignment brought the total number of ICT's Top Smoke brand cigarettes in the warehouse to pallets 28 comprising 718 master cases. The value of the additional ICT stock received into Admiral's warehouse on 13 April 2018, calculated on the basis referred to at [151]-[152] above, was $5,545,800.
During August 2018 police conducted an operation to identify persons who were selling substantial quantities of cigarettes other than through established retail premises, in a secretive manner and pursuant to cash only transactions. Some purchases were made by undercover officers and thereafter substantial quantities were seized upon execution of search warrants. As a result of this operation police seized a total of 42.5 master cases of Top Smoke cigarettes and an additional 125 individual cartons. The total is equivalent to 45 master cases. All of these cigarettes bore the batch numbers used by ICT for its Top Smoke brands. The brand was a trade name owned by ICT and cigarettes were manufactured under that brand only for that company, pursuant to orders placed by Mr Roushanak.
I accept the evidence of Mr Roushanak that the only place where Top Smoke cigarettes were stored in bulk, up to the date the fire, was at Admiral's warehouse, with the exception of a small quantity at ICT's premises in Bondi Junction and approximately two pallets at a warehouse operated by a firm named Emo Trans. I accept that none of ICT's stock at those other two locations has been stolen or otherwise gone missing. I am satisfied that cigarettes seized by police in south-western in Sydney August 2018 had come from Admiral's warehouse and were stolen from there immediately before the fire, on either 13 or 14 April 2018.
Admiral's counsel suggested to Mr Roushanak that there had been extensive and systematic pilfering of his cigarettes from locations other than Admiral's warehouse. By reference to emails Mr Roushanak was able to identify one instance when four cartons were noted missing from a master case of Top Smoke cigarettes that had been warehoused with Emo Trans. The master case had been transferred to Admiral's warehouse prior to August 2017 and then released to ICT, at which point the shortfall was discovered. Mr Roushanak did not identify any other instance and did not accept that pilfering had been systemic when his stock was stored with Emo Trans. This line of cross-examination was a faint and unsuccessful attempt to trail the possibility that the Top Smoke cigarettes seized by police in August 2018 may not have been taken from Admiral's warehouse on 13 or 14 April. The seizures afford substantial support to CGU's case that there was a large-scale theft of ICT's stock from the warehouse immediately before the fire. That support was maintained, rather than weakened, by the cross-examination of Mr Roushanak.
In final address counsel for Admiral propounded an explanation for substantial quantities of Top Smoke cigarettes having been in the hands of people who are not entitled to them, as follows: What we suggest is that the theft that occurred - if the theft did occur - it was a massive and systematic pilfering of Top Smoke cigarettes from the port, and what the fire was all about, fire was deliberately lit by someone who wanted to conceal the evidence of that massive pilfering exercise after the cigarettes had arrived at the Alexandria warehouse and before they were going to be sent on to the customer or to the importer, Intercontinental, where that evidence would be uncovered.
That possibility is entirely speculative. There is no evidence that any consignments of Top Smoke cigarettes received into the warehouse were significantly short, relative to their paperwork, as would have been the case if there had taken place "massive and systematic pilfering" at the port or at any other point on the logistic chain. Admiral recorded the number of master cases that it had received up to Friday 13 April, including 711 received that day. Extensive pilfering prior to unloading in the warehouse could only have gone unnoticed if individual cartons had been removed from the master cases. If that were the situation and if there had been no theft of Top Smoke cigarettes from the warehouse on the Friday evening or the Saturday, one would expect Mr Pellegrino to have found some remnants of this product in the debris of the fire. He did not.
Further, counsel's speculative hypothesis offers no explanation of the absence from the debris of any trace of the numerous other lines of stock listed at [147] above. I dismiss the alternative possibility as having no basis in the evidence and as being irreconcilable with other circumstances that support an inference of large-scale theft from the warehouse over the weekend before the fire, while Dimitry Fateev was present.

[33]

Alleged false statements by Admiral in connection with its claim

CGU alleges that in connection with Admiral's claim under the ISR policy it made representations that it knew to be untrue, to the following effect: (i) that no stock had been removed from the warehouse during the 48 hours prior to the fire; (ii) that at the time of the fire the warehouse was full of stock as listed in Admiral's stock reports; (iii) that the estimated value of the contents at the time of the fire was $14m; (iv) that Admiral was unaware that its CCTV system was not recording at the time of the fire; (v) that used motor tyres delivered to the warehouse on Saturday, 14 April 2018 were stored in a specific area and not spread around the building.
The parties gave very little attention to this allegation, either in evidence or in oral or written submissions. Both CGU and Admiral conducted the case on the basis that the impugned statements would be shown to have been untrue only if CGU proved that the fire was deliberately lit with Admiral's knowledge and consent, in which case the fraud exclusion in the policy would be engaged irrespective of any false statements in connection with the claim. In fact, there is not such a complete overlap of the issues. Items (i)-(iii) of the alleged false statements concern theft of Admiral's customers' goods before the fire; items (iv)-(v) concern the static condition of the premises before the fire. As a matter of logic, and depending upon the evidence, a finding that Admiral had not known of or consented to the lighting of the fire when it occurred - and that the policy exclusion was therefore not engaged by arson fraud - could stand with a finding that, by the date upon which the impugned statements were made in connection with the claim, Admiral had known that the theft had taken place and that the CCTV recording system had not been operational and/or that tyres had been spread through the warehouse aisles.
For reasons given below, I am satisfied that the fraud exclusion in the ISR policy is engaged because, through Denis Fateev, Admiral knew that its customers' goods were to be stolen and that the warehouse was to be set alight and consented to those acts before they occurred. In reaching that conclusion I have found that the statements pleaded by CGU as set out at [164] above, if they were made by Admiral in connection with its claim under the ISR policy, were untrue. It is not necessary for me to make findings as to whether the alleged representations were in fact made or, if so, when. CGU is entitled to refuse indemnity on the basis of findings as to Admiral's conduct in consenting to the theft and to the arson, irrespective of any statements or representations made by it in connection with the claim.

[35]

Standard of proof

CGU bears the onus of proving its allegation that the fire was deliberately lit with the knowledge and consent of Admiral. The standard of proof, on the balance of probabilities, must be applied with due regard to the matters specified in s 140(2) of the Evidence Act 1995 (NSW). That section is as follows: 140 Civil proceedings: standard of proof (1) In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities. (2) Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account - (a) the nature of the cause of action or defence, and (b) the nature of the subject-matter of the proceeding, and (c) the gravity of the matters alleged.
Here, CGU's case depends upon the Court being satisfied of a matter that is of considerable gravity for Admiral and for Denis Fateev. A finding that CGU is entitled to refuse Admiral's claim under the ISR policy on the ground of arson fraud would have significant adverse financial consequences for the company, both in the outcome of these proceedings and in the future conduct of its business. Such a finding would gravely diminish the reputations of both Denis Fateev and Admiral. It may preclude either of them or any other company in which Denis Fateev might be involved from holding a Customs Act licence. Such a finding may discourage customers from entrusting goods for safekeeping in any warehouse that Denis Fateev and/or Admiral might operate.
The evidence that the fire was deliberately lit with Admiral's knowledge and consent is entirely circumstantial. The approach to be taken to circumstantial proof in a civil case was described in Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 at 5 (Dixon, Williams, Webb, Fullagar and Kitto JJ) as follows (citations omitted): The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence while in the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort where direct proof is not available, it is enough if the circumstances appearing in the evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture. But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then though the conclusion may fall short of certainty it is not to be regarded as a mere conjecture or surmise.
In Palmer v Dolman [2005] NSWCA 361 at [41], Ipp JA (Tobias and Basten JJA agreeing) extracted from the cases the following principles, which their Honours said have "become well-established in determining, in a civil case, whether circumstantial evidence leads to an inference of fraud": (a) The jury [ie tribunal of fact] must consider "the weight which is to be given to the united force of all the circumstances put together" [Belhaven & Stenton Peerage (1875) 1 App Cas 278 at 279 (Lord Cairns), quoted with approval in Chamberlain v The Queen (No 2) (1984) 153 CLR 521 at 535 (Gibbs CJ and Mason J)]. (b) The onus of proof is only to be applied at the final stage of the reasoning process: "[i]t is erroneous to divide the process into stages and, at each stage, apply some particular standard of proof. To do so destroys the integrity of [a] circumstantial case" [Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125 at 129 (Winneke P)]. (c) The inference drawn from the proved facts must be weighed against realistic possibilities as distinct from possibilities that might be regarded as fanciful. (d) Where the competing possibilities are of equal likelihood, or the choice between them can only be resolved by conjecture, the allegation is not proved: Bradshaw v McEwans Pty Ltd .

[36]

Legal principles: fraud of individuals attributed to insured company

Admiral and CGU adopted a common position that the judgment of Ipp J (as his Honour then was) in Entwells Pty Ltd v National and General Insurance Co Ltd [1991] WASC 286; (1991) 5 ACSR 424 accurately states the principles upon which the Court should determine whether a fraudulent act of an individual may be regarded as a fraudulent act of the insured, for the purposes of the relevant exclusion in the ISR policy. The exclusion is quoted at [210] below. I respectfully accept the authority of Entwells Pty Ltd v National and General Insurance Co Ltd in this respect. The insured in that case was a family company of which Mr and Mrs Nikolic and their son Sasha were the shareholders and directors. Mrs Nikolic and Sasha supervised the conduct of the company's supermarket business and dealt with its everyday affairs. Neither of them was under the orders of anyone else. On that basis it was found as a fact that they acted, with the approval of the insured, as joint managing directors. The company's approval was manifested through the acquiescence of all members and directors.
The insured's supermarket store was destroyed by fire and it claimed indemnity under a policy by which the defendant insured it against such loss. The defendant refused the claim alleging that the fire was caused by the deliberate act of another with the connivance of the insured company. His Honour found that the fire was started by an unidentified intruder who knew the code for the alarm and deactivated it. He drew a very strong inference that the arsonist obtained the alarm code from either Mrs Nikolic or Sasha or both and that the code was provided to him so that he could enter the supermarket and set fire to it in a way that would give the appearance of the fire having occurred without human intervention. His Honour concluded that Mrs Nikolic or Sasha or both had connived with the arsonist to set fire to the premises. It was not established that Mrs Nikolic and Sasha acted in concert.
Ipp J stated the applicable principles as follows: The mere fact that an employee or agent of an insured deliberately destroys property of the insured does not mean that the insured cannot recover the loss under insurance policy: General Accident Fire and Life Assurance Corporation v Midland Bank Ltd [1940] 2 KB 388. Where the insured is a company the act of an individual said to be acting on the insured's behalf will only defeat the insured company's claim for indemnity when the act of the individual is to be regarded as the act of the insured company itself: S & Y Investments (No 2) Pty Ltd (In Liq) v Commercial Union Assurance Co of Australia (1986) 85 FLR 285. As Asche J said at 311: Public policy implies some form of moral blameworthiness such that would shock the conscience to allow a person (or his estate) to benefit from his own misdeed: Beresford v Royal insurance Co Limited [1938] AC 586 [other citations omitted]. But the moral blameworthiness attaches only to those directly committing the act or those who encourage or knowingly permit it. A person therefore may be vicariously responsible in tort without at all being tainted by the moral blameworthiness of his servants or agents. Indeed, it might almost be said to be itself against public policy if an insurer could refuse payment to an innocent insured because of the blameworthy act of the servant or agent which inflicted the very loss upon him for which he has insured. For the same reasons, in my view, on a proper construction of the policy the insurance covers loss caused by the deliberate act of an employee or agent of the insured company unless the individual concerned causes the loss with the authority of the company or is so closely connected with the company that his acts can be said to be its acts. There is no evidence that either Mrs Nikolic or Sasha acted with the authority of the plaintiff. The question therefore arises whether the acts of either of them could, by reason of the close connection which each had with the company, be regarded as acts of the company itself.
Applying the principles in Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 707, HL Bolton (Engineering) Co Ltd v TK Graham & Sons Ltd [1957] 1 QB 159 and Tesco Supermarkets Ltd v Nattrass [1972] AC 153, his Honour found that Mrs Nikolic and Sasha were each, separately, entrusted with the exercise of the powers of the insured company and that each acting separately and independently constituted the mind and the active and directing will of the insured company. His Honour therefore concluded as follows: In assisting some outside person to set fire to the store, Mrs Nikolic or Sasha was acting with the intention of enabling the plaintiff to claim under its policy with the defendant. In the circumstances, I consider that in giving that assistance the acts of either Mrs Nikolic or Sasha are to be identified with the plaintiff itself. I conclude, accordingly, that the defendant has made out its case that the fires in the store were lit by the deliberate acts of some unidentified person with the connivance of the plaintiff. In the circumstances the plaintiff's claim for indemnity fails.
In the present case CGU submitted the following: [A]t all critical moments Dmitry Fateev was the directing mind and will of the company. His personal involvement, including ownership, was strong. On the relevant days he was entrusted with control not subject supervision. That approach purports to identify a directing mind and will of the company with respect to the acts and events that constituted the theft and the arson, or out of which the theft and the arson arose. The submission appears to assume that the actions of opening the warehouse on the Friday and Saturday are to be regarded as actions of Admiral and proceeds from there to identify Dmitry Fateev as the individual who constituted the human embodiment of Admiral in relation to those acts.
I reject CGU's submission and its approach to the issue. In effect, the argument proceeds from a premise that is actually the conclusion sought to be drawn. It is erroneous to identify a person as the directing mind and will of the company separately and solely in respect of the acts and state of mind that are in question. Rather, one must first identify who is or was the directing mind and will of the company for the purpose of conducting its affairs and making its decisions generally. The acts and knowledge, or intent, of such a person may then be regarded as the acts and state of mind of the company itself in relation to the particular act in question.
Dmitry Fateev's role in the business of Admiral as a part time warehouseman and delivery driver, was far too limited to constitute him the directing mind and will of the company. Denis Fateev as de facto managing director was the only person in that position. Neither Dmitry Fateev's participation in the theft nor his facilitation of the arson can be directly attributed as acts of Admiral. As stated at [11], CGU's reliance upon the fraud exclusion (quoted at [210] below) depends upon proof that Denis Fateev knew of the proposed arson and consented to it. I infer from the circumstances considered in the following paragraphs that Denis Fateev had such knowledge and that he gave consent on behalf of Admiral.

[37]

Involvement of Dmitry Fateev in the theft of goods: an intermediate fact

The circumstances relied upon by CGU as proof that, through Denis Fateev, Admiral knew of and authorised the fire include some intermediate facts that, in turn, depend upon circumstantial evidence. One such intermediate fact is that Dmitry Fateev took part in the large-scale theft of Admiral's customers goods from the warehouse over the preceding weekend. I am satisfied of that fact from the following circumstances: 1. Admiral's stock records establish what was in the warehouse up to Friday 13 April. 2. I am satisfied from Mr Pellegrino's evidence that the fire debris was not materially altered between the time when the fire was extinguished and the dates upon which he examined and catalogued the debris. By "not materially altered" I mean that no debris was removed, no additional debris was brought to the site and the material was not in any significant degree rearranged, so that Mr Pellegrino's conclusions are properly based upon the true remains of the fire. 3. Mr Pellegrino's examination was rigorous and it satisfies me that all or substantially all of the goods listed at [147] and [150] were removed between the Friday afternoon and the commencement of the fire. 4. The missing goods were of very great value, in the order of $34 million. The cigarettes, which represented most of the value, were marketable and easily transported. Hence, they would have been a target for theft. 5. The seizure by police, in August 2018, of significant quantities of ICT's Top Smoke cigarettes, that had been stored in the warehouse until 13 April, supports Mr Pellegrino's evidence concerning goods on Admiral's stock list of which there was no evidence in the fire debris and which must have been removed before the warehouse was set alight. 6. Between the late afternoon of Friday 13 April and the commencement of the fire there were 19 movements from the warehouse of trucks that had the capacity to remove stock of the description and quantities identified by Mr Pellegrino as missing from the debris. There were no other means by which and no other time at which the stock could have been taken. 7. Dmitry Fateev was present at the warehouse throughout the truck movements on 13 and 14 April 2018. 8. He departed for Vladivostok, on a one-way ticket, at 7:45 am on Sunday, 15 April 2018. I infer that that was either the first departure for the Far East, or one of the first departures, after the last truck movement from the warehouse late on the previous evening.
The inference of a large-scale theft actively participated in by Dmitry Fateev is compelling. His evidence and that of Mr Gazzara, that the three trucks repeatedly attended the warehouse on 13 and 14 April merely to deliver tyres, has no credibility. It provides no material support for any reasonable hypothesis, that could be accommodated to all of the circumstances, alternative to the inference of a large-scale theft.
I do not include, amongst the circumstances from which I infer Dmitry Fateev's active participation in the theft, awareness on his part that Admiral's NVR was not recording CCTV coverage of the warehouse on 13 and 14 April. Although I have found that Denis Fateev was informed on or about 9 April 2018 that the NVR's hard drive, and therefore its recording function, had failed, there is no independent evidence that Dmitry Fateev was informed of this by Denis or by anyone else or that he knew the device had not been replaced by the end of that week. In the absence of evidence that the NVR was disconnected or tampered with on the Friday or the Saturday, I infer that Dmitry Fateev must have known it was not recording by late on the Friday afternoon. I draw that inference because I have concluded from other circumstances that he took part in the theft. He would not have left the NVR connected and intact if he thought his activities were being video recorded. But that is to reason back from my finding about Dmitry Fateev having participated in the theft. Reasoning toward that finding is not supported by any evidence that Dmitry Fateev knew the status of the NVR.

[38]

Involvement of Dmitry Fateev in lighting the fire: a further intermediate fact

A further intermediate fact that is important to the ultimate inference of Denis Fateev's - and therefore Admiral's - consent to the arson is that Dmitry Fateev knew the warehouse was to be set alight and that he facilitated initiation of the fire. I find that Dmitry Fateev's knowing facilitation of the arson is established on the balance of probabilities from the following circumstances: 1. As captured on the CCTV, the arsonist drove straight to Unit 1 and immediately started the fire. Admiral's warehouse was a premeditated target. The company was not the victim of a random or coincidental attack. 2. Dmitry Fateev actively participated in the theft, as concluded above. He therefore had a compelling motive to have the warehouse burned down so as to reduce the remaining stock to unrecognisable rubble and thereby to conceal the shortfall. The evidence does not disclose any other possible motive of any person for this targeted arson. 3. At 11:11pm on 14 April Dmitry Fateev left the warehouse unsecured in that he did not close and lock the front gates; he did not lock the patio bolt of the front office door in the ground-engaged position; he did not close the door from the office into the warehouse so as to activate its electronic latch and he did not arm the alarm. 4. Dmitry Fateev's departure for Vladivostok early on the Sunday morning not only followed closely after the last of the truck movements by which stock was removed but was just 17 hours prior to the warehouse being set alight. 5. Dmitry Fateev knew that only he and his son Denis were listed contacts for notification of alarm signals received by the monitoring service engaged through Mr Yammine. By Friday 13 April, at the latest, Dmitry Fateev knew that Denis would be out of the country over the weekend and into the next week so that, upon Dmitry Fateev's own departure, there would be no one directly concerned in the business available in Sydney to be notified of alarm activation and to give authority for a patrol car to be sent. 6. Dmitry Fateev received 19 pallets of used tyres into the warehouse late on Saturday, 14 April and caused those pallets and individual tyres to be spread through the aisles. 7. He caused to be placed at the midpoint of the middle aisle an IBC of ethanol, side-by-side with a pallet of toilet paper, the two items together obstructing the aisle and abutted on both sides by pallets of tyres.
With respect to circumstance (3), the combination of security lapses is significant. Reference has been made earlier in this judgment to the fact that physical security was at the heart of Admiral's enterprise. Dmitry Fateev had worked in this type of business for over a decade and at this particular warehouse for nearly four years. Maintaining security of the warehouse when it was full of alcohol and tobacco must have been constantly on his mind, especially late on the Saturday evening when he had sole responsibility for locking up and was booked to depart overseas early the next morning, knowing that his son Denis was already out of the country. I infer that he was well familiar with all of the security measures at 64-66 Burrows Road. It is highly improbable that in those circumstances he could have failed to turn his mind to the security of the premises when departing. It is highly improbable that all of his failures - to lock the front gates, to lock the patio bolt of the office front door, to lock the office-to-warehouse door and to activate the alarm - could have been oversights.
With respect to circumstance (4), there is evidence that Dmitry Fateev's elderly mother lived in Vladivostok and that she was unwell. That does not reduce the significance of his departure for that destination at this precise time. The potentially material circumstances are to be considered all together, not by examining possible innocent explanations for any of them in isolation. The evidence discloses no reason why Dmitry Fateev had to depart for a visit to his mother on this particular Sunday, when Denis would also be overseas.
As to circumstance (5), it was a simple process to nominate an additional or substitute person for the call-out list of the monitoring service. This is another thing that would not likely have slipped Dmitry Fateev's mind in the context of a business that was all about warehouse security. He would have understood that if an alarm signal should be received at the monitoring base there would be no action taken if neither of the contacts should answer a phone call. He would have known that there was no one apart from himself and Denis who had the ability to monitor the CCTV on a mobile phone in order to assess any calls from the security service. With both of them absent from Australia, in transit by air for extended periods and otherwise in different time zones from Sydney, the back-to-base monitoring service was rendered ineffectual, as I infer Dmitry Fateev would have perceived.
As to circumstances (6) and (7), I am satisfied from Mr Pellegrino's evidence that the pallets of tyres and the obstructions in the middle aisle were placed as described by him and depicted on his floorplan - referred to at [88]-[89] and [133] above. It is clear from the CCTV footage from across the road that Dmitry Fateev was still in the warehouse when those placements were made. They had to have been made prior to his departure late on the Saturday evening as no one went to the warehouse thereafter until the arsonist arrived at 12:24am on 16 April.

[39]

Knowledge and consent of Denis Fateev and therefore of Admiral

Dmitry Fateev's actions were necessarily preceded by planning and preparation. He had to arrange: a buyer for the goods that were to be stolen; an arsonist; trucks and drivers to remove stock and to deliver tyres to fuel the fire. Even if the plan should be implemented with complete success, by disposal of the stolen goods for a significant proportion of their wholesale value without detection of either the theft or the deliberate lighting of the fire, there was potential for collateral damage to Admiral's business. The claims of customers who did not have their goods independently insured against fire might exceed the $4 million sub-limit for Customer Goods in the ISR policy. Those customers might claim against Admiral for breach of bailment. The ATO might allege failure adequately to secure dutiable goods and might claim duty on the contents that were in bond, under s 35A of the Customs Act. There would necessarily be loss of income for Admiral during the delay before new goods could be deposited by customers at the replacement warehouse in Lidcombe.
Whether or not the plan was carried out successfully in the sense referred to above, Admiral would likely suffer some loss of custom. If the plan should meet with less than complete success, there was an obvious risk of very much greater detriment to Admiral. If the theft and the deliberate lighting of the fire were to be detected, the reputations of Admiral and of the Fateev family, including Denis as managing director, would be severely damaged. The company's goodwill and its standing as a licensee under the Customs Act would be destroyed.
Admiral operated as a family concern. All members of the Fateev family worked in the business and there is no evidence that any of them had any other gainful employment. The company was Denis Fateev's career and his future. The family held the entire proprietary interest in Admiral. As Svetlana Fateev was and is the sole shareholder and director of a holding company that has at all times owned all the issued shares in Admiral, I am satisfied that through that structure the beneficial ownership of Admiral lies with one or more or all of the Fateev family. Given those economic interests and the risks posed by Dmitry Fateev's plan, to be gambled on the possibility of a massive gain from selling stolen cigarettes, it is a very strong inference that he would not have proceeded without consulting his son and obtaining his agreement.
On the facts that I have found concerning Dmitry Fateev's involvement, the only alternative hypothesis is that he carried out the theft and arranged the arson without the prior agreement of his son. The only circumstance in which that hypothesis could be anything more than fanciful is if there had developed a deep rift between Dmitry Fateev and the other members of the family, in particular, Denis. Only under conditions of major disharmony and divergence of interests would it be plausible that Dmitry Fateev would have pursued illegal gains for himself by perpetrating these crimes, at such grave risk to his family's legitimate economic interests and to his son's business reputation and future. There is no evidence of any such disharmony or divergence of interests. To the contrary, the evidence is that all family members worked cooperatively in the business, that Svetlana Fateev controlled the holding company, that she and Dmitry Fateev lived together and that their younger son resided with them. Those circumstances all indicate harmonious family relationships.
Admiral has not even propounded the hypothesis that Dmitry Fateev took part in the theft and facilitated the arson but did so without consulting Denis and without his agreement.
It was essential to Dmitry Fateev's own interest of avoiding detection that Denis Fateev should be informed of the scheme and should cooperate. I infer that Dmitry Fateev's planning of the enterprise was in place by no later than Thursday, 12 April, when Mr Gazzara sent the first of his emails to Mr Russkikh to create the appearance of a commercial storage transaction and to provide a cover for Dmitry Fateev to attend the warehouse on Friday evening and Saturday: see [101]-[102] and [111] above. On the same day Denis Fateev booked his travel to Hong Kong. That timing supports the inference of collaboration. There was no pressing need for Denis Fateev to go to Hong Kong for the period 13 to 18 April. From the terms of Ms Fu's letter of 12 April 2018, it is not apparent that there had arisen by that date any requirement for Denis Fateev's presence in Hong Kong at all. The due diligence process of Ms Fu's client had not progressed beyond review of documents listed in her letter. They could have been provided to her by email. From the point of view of Admiral's business, there were good reasons for Denis Fateev to have remained in Sydney at this time, notably, to advance the arrangements for the company's impending move to Lidcombe.
It is extremely improbable that Dmitry Fateev would have accepted the heightened risk of detection that would arise if his son was not a party to the undertaking. If he acted behind his son's back, the latter might change his mind and not travel to Hong Kong; or he might return early and go to the warehouse on Sunday, where he might find half the stock missing; or he might phone his younger brother or Mr Russkikh or another employee from Hong Kong on the Sunday, to have a check made that the warehouse was secure after the departure of Dmitry Fateev for Vladivostok that morning. Unless Denis Fateev's approval was secured, he could become the principal informant against his father; or he could frustrate his father's attempt to leave the warehouse unprotected for the arsonist's entry. These considerations strengthen the inference that Denis Fateev acted in concert with his father. They are cumulative upon the other matters referred to, especially the timing of Denis Fateev's trip to Hong Kong that provided his alibi.
My observations at [181(5)] and [184] concerning Dmitry Fateev's failure to notify the alarm monitoring service of his impending absence overseas and to nominate a substitute contact apply equally to Denis Fateev. Denis Fateev's departure without nominating another contact supports the inference that he knew the security of the warehouse would be breached by someone who would start a fire and that he did not want the monitoring service to be able to reach anyone for approval to send a patrol car. I find it highly unlikely that Denis Fateev would have departed for Hong Kong, knowing that his father would also be out of the country from the following Sunday, without turning his mind to the fact that this would render the alarm system substantially ineffectual. His failure to nominate an alternative contact was not inadvertent.
I have rejected Denis Fateev's evidence that he did not have on his mobile phone the application for remote monitoring of the CCTV in the warehouse, which Mr Yammine had installed in September 2017. I am satisfied that remote monitoring was available to him and that he either he saw what was taking place in the warehouse on the Friday evening and/or the Saturday and did nothing about it, because he was complicit in the theft, or he did not look at the mobile phone application because he was aware that large quantities of goods would be removed. I find that he has denied having the ability to monitor the CCTV remotely in order to disavow knowledge of what occurred in the warehouse. I do not find it credible that the managing director of a business such as this would fail to utilise such a remote monitoring application over the whole course of a weekend while he was absent in Hong Kong, knowing that the warehouse was to be opened up for an after-hours delivery. Even if he did not look at the CCTV on his phone during the time when goods were being removed, having regard to the quantity that was stolen, if he had looked at any time on the Sunday he would have seen the warehouse half empty.

[40]

Denis Fateev's lack of credibility

Denis Fateev denied that he had known in advance that the warehouse would be set alight or that he had agreed in such a plan. I do not accept his denial. He was not a credible witness. I found highly discrediting his evidence that after the fire, and especially in the context of CGU's refusal of indemnity, he did not make inquiries about inherently suspicious circumstances - circumstances that CGU has explicitly raised in defence of the insurance claim.
Denis Fateev acknowledged that it was exceptional for Admiral to open the warehouse after normal operating hours, which were 8:00am to 4:00pm Monday to Friday. He said that after-hours opening would be arranged "when clients are running late or have an urgent shipment, especially if it's time sensitive cargo or it's bonded cargo and it's arriving from airport or port". But when asked what was the urgency for which Dmitry Fateev opened the warehouse on the evening of Friday 13 April and the next day, he gave these answers: Q. When was this plan, to open the premises outside ordinary work hours, when was it made? A. On my understanding it was the Friday. Q. When on the Friday? A. I'm not aware of the time. Q. What was the urgency? A. My understanding is we had a client who would like to deliver cargo to our warehouse. […] Q. What was the urgency here? A. I am not aware. […] Q. I take it you've had enough interest to try and find out what happened? A. Yes. Q. What was the urgency which meant that this particular cargo would lead to the premises opening after 6pm on a Friday? A. I'm not sure, my assumption is that the client could have requested, that it was more convenient for him. […] Q. I'll move on to the Saturday. […] Q. And so, again, why was it that the premises were being open on a Saturday, well outside business hours? A. To receive a delivery. Q. Was it urgent? A. I'm not sure. Q. You've never looked into that? A. Into the urgency? […] Q. [In the] three and a half years [since the fire], haven't you asked about what the urgency was that led to the premises being opened on a Saturday? A. My understanding it was a request from our client. Q. Same client? A. Yes. Q. What was the urgency, why did the client want you to open on a Saturday? A. So he could make the delivery. It was his request.
These answers are banal and evasive. They do not identify any legitimate explanation, in Denis Fateev's understanding, for the after-hours opening. On Admiral's case that it had no knowledge of the theft or of the premises being set up to be burned, one would expect him to have pressed such inquiries in order to expose the deliverer of the tyres, and whoever cooperated with that person, as conspirators or accessories to the theft and arson.
Denis Fateev also claimed not to recall having made inquiries concerning the quantity of goods that were delivered after hours, or the background of the client who delivered the goods, or the client's intentions with respect to the goods. If he had made such inquiries, he did not recall any information he obtained. He answered questions about these matters as follows: Q. […] you must have asked your father, in case we get sued, what was there, was it 100 tyres or was it 10,000 tyres, Dad? Surely you asked him a question like that? A. It's possible but I don't remember, it's a long time ago. Q. How many tyres were there? A. I am not sure. Q Roughly, you must have a rough number, was it 100,000 or 100? A I'd have to go back and look at the paperwork from the client, because I don't remember. […] Q. I'll put it again. Surely, since the fire, you must have tried to find out who this client was? A. Not really, no. I haven't. Q. You've been sitting here for a few days while evidence has been given? A. Yes. Q. You would have heard evidence given that the tyres in the premises added to the fuel load, were extremely difficult to extinguish and apparently were responsible for a lot of damage done to your family business. A. Yes. Q. Where did the tyres come from? A. From my client who was intending to export them, as far as I'm aware. Q. And the name of the client please? A. As I said before, it was Morris and I don't remember the second half of - […] Q. You haven't bothered to find out the name of the man who delivered the tyres, is that what you're telling us? A. Well, there was a lot of cargo, from my understanding, in the warehouse and I would have had to have called everyone in to identify but I understand that the fire ..(not transcribable).. but I did not call the clients, like I didn't many others to find out. I don't understand what that would have given me. […] Q. Morris what? A. Like I say, I've never had the pronunciation of second one but it was G something. Q. Have you ever spoken to him? A. I have not. Q. The cargo was principally tyres delivered by this Morris, correct? A. Tyres but I believe there was other goods as well, [batteries] or something. Q. Let's focus on the tyres for a moment, I think you said that they were going to be exported? A. I think that was the initial request from the client. Q. Who told you that? A. I think I saw it in emails. Q. So you saw emails between the client and Admiral? A. Yes. Q. To where were they to be exported? A. I'm not sure, would have to ask Artur who was looking after this one. HIS HONOUR Q. Haven't you asked him? A. No, I have not.
If Denis Fateev was not complicit in approving the theft from this warehouse and the burning of it, one would naturally expect him to have made thorough inquiries - of his father, of Mr Russkikh and of Mr Gazzaro - into the background of the client and the transaction. What was the client's name and the name of his business? Was he bona fide? Did he have a genuine commercial reason for storing his tyres at the warehouse and for delivering them on the Friday evening and Saturday? Could he have introduced this cargo with sinister intent? Given the notable coincidence between the unusual after-hours opening of the warehouse and the deposit of an odd cargo of used motor tyres and the conflagration that followed, such inquiries would naturally occur to a managing director in the position of Denis Fateev and would be pursued, long before the insurance company refused the claim. In the interests of greater security for future operations and to assist police with their investigation into whether crimes had been committed against the company and its customers, and if so by whom, the above questions would be asked. When the insurer's allegation of fraud was made on 9 April 2019, these obvious inquiries became more pressing.
Cross-examination by CGU's counsel did not establish whether Denis Fateev had some plausible reason for regarding such enquiries as unimportant. I therefore raised this with him myself in order to ascertain whether he had a perception of the case that may have rendered his failure to inquire into the circumstances of the fire less significant than it might otherwise appear. On the first occasion I asked him about this, he provided no sensible answer, as follows: HIS HONOUR Q. Mr Fateev, are you aware of the report of Mr Pellegrino for the insurer in this case in-- A. Yes, I am. Correct. Q. Yes, and particularly the report in which he described where he considered the tyres had been placed within the warehouse on pallets at various points distributed around the warehouse, have you seen all of that? A. Yes, I have, your Honour. Q. Were you aware that CGU is making an allegation in the case that the tyres were deliberately placed at points around the warehouse in order to provide fuel for a fire and to encourage fire? Did you realise that that was part of the case that they're making to-- A. Yep. Yes, your Honour. Q. With that knowledge, have you not made full inquiries to ascertain what were the origins of the dealing with Mr Morris that brought about the introduction of this quantity of tyres that the insurer says was deliberately used in that way? A. I'm sorry, your Honour, I didn't understand the question. Q. The tyres were delivered into the property possibly to some extent on the Friday afternoon, but according to other evidence on the Saturday, just within 48 hours before the fire, and CGU is alleging that they were deliberately then placed around the building in order to encourage fire that would destroy stock. Given that that seems to be, as the argument is presented to me, a significant part of the dispute between yourself or your company and the insurer, have you made inquiries to ascertain how it came about that your company [took] a delivery of tyres just at that point, and what is the background of this person Morris, and such things as that? A. Yes, your Honour, I understand now, but my understanding is that we would receive the cargo for export on the Friday and on the Saturday, and it was placed where we had space available, but I don't know if that's suspicious or not.
On a second occasion I gave Denis Fateev an opportunity to explain why he had not inquired into the circumstances of the delivery of tyres to the warehouse shortly before the fire. I find his answers, as follows, fatuous and unsatisfactory: Q. Let me just point out to you, it seems to me quite apparent on the documents and the papers that have been given to me, as the judge, to explain to me what this dispute is all about, that it's quite central to the very serious allegation of fraud that CGU is making that it is asserting that these tyres were all received into the premises in dishonest circumstances and that they were then placed about the premises in circumstances that were designed to cause a fire to proceed and to do a lot of damage. Now, in that situation, as it seems to me, this would be, this question of the tyres and how they came to be there and how long they were going to be there and what was the origin of this arrangement, it seems to me to be quite a central thing in the dispute. Is that how you have understood the place of this question about tyres in the case? A. Yes, I do, your Honour, but I just can't treat it differently to any other clients that had delivered cargo on the Friday or the Thursday of just I really don't understand what more we could have done or Q. I suppose part of Mr Watson's questions is directed to just querying why you are not more familiar now, with all the opportunity for inquiry about this to have been made since CGU refused your claim, why you are not more familiar with the detail of this transaction, to be able to answer the questions that he's putting to you about the nature of this transaction and whether its features may or may not indicate dishonesty on somebody's part. Is there a reason why you haven't made more detailed inquiry and gathered more detailed information about this? A. Well, your Honour, there's just been a lot of really information for me to adapt and adopt into and my understanding that there was something that I was to be made reference to would be in the Court books which were provided yesterday afternoon but that's my understanding of it.
In the absence of any coherent, plausible alternative explanation from Denis Fateev, the only possible reason for him not having sought answers to questions such as those referred to at [196]-[199] above is that he already knew the warehouse had been opened after hours for the purpose of being plundered and stuffed with fuel for a destructive fire and he either knew that Mr Gazzara was the operative who deposited the tyres and drove off with the stolen goods or he did not wish to confirm the name of whoever filled that role, or the number of tyres, or any other detail.
Despite Denis Fateev's admitted failure to make pertinent inquiries, Admiral's solicitors obtained the affidavit of Dmitry Fateev of 8 December 2020 and that of Morris Gazzara of 21 August 2021. When questioned on the circumstances of the after-hours opening of the warehouse and the delivery of tyres, Denis Fateev did not even demonstrate familiarity with those affidavits. Both of them are central to Admiral's denial that stock was stolen and to its denials that the tyres were placed so as to encourage a fire and that Dmitry Fateev left the premises unsecured.
A notable weakness of Dmitry Fateev's affidavit is that it contains no acknowledgement of his presence at the warehouse on the Friday evening, nor any description or explanation of his actions there at that time. Denis Fateev said that he had never asked his father about the events of the Friday night, although he had known from when Ms Garvin's report was served on 17 September 2020 that the same three trucks that attended the premises on the Saturday made five visits on the Friday evening when Dmitry Fateev was present. Denis Fateev gave the following evidence when questioned about the omission from his father's affidavit of any reference to the Friday evening: Q. But your father doesn't refer at all to the events of Friday 13 April. A. Possibly. Q. What do you mean "possibly"? Have you read the affidavit? A. I have but I don't I can't memorise every piece of evidence. Q. […] He doesn't refer to doing anything on Friday 13 April. A. Okay. Q. Can you explain that? A. I can't. Q. Did you ask him? A. Possibly but I can't remember now. I haven't spoken to him for awhile. […] Q. Now, how many truckloads came from Morris to Admiral on the Friday and Saturday? A. I don't know. […] A. I can't say because I wasn't there. […] Q. You must know that the police extracted CCTV footage from across the road. A. I do. Q. It showed three different trucks attending the premises; you know about that, don't you? A. I don't recall how many trucks but I have seen the footage. […] Q. Who hired the Hertz trucks? A. I don't know that. Q. It was the third truck apparently not from Hertz but unbranded, and who owned that truck? A. I don't know. Q. Why don't you know? A. We have hundreds of trucks come into our premises and out during the week, and I don't know any of the owners. […] Q. [Those] other trucks are pretty irrelevant compared to the importance of these trucks, aren't they, Mr Fateev? A. I guess. Q. I want you to tell us why you wouldn't know where the trucks had come from? A. Because I was never told. Q. Did you ever ask? A. I did not.
CGU did not challenge the evidence that Dmitry Fateev suffered a stroke in Vladivostok in July 2018 and that he was medically unfit to fly back to Australia during the remainder of his life up to January 2021. The evidence does not suggest that after July 2018 he was unable to communicate with his son about the fire in the warehouse or about this litigation. The making of his affidavit on 8 December 2020 shows that he was well able to communicate on those subjects at least up to that date. The point made at [202] above is reinforced: in the absence of any alternative explanation from Denis Fateev, the inescapable inference from his failure to ask his father about events on the Friday evening and in particular about the trucks that attended the warehouse at that time is that he already knew they were the same trucks that attended again on the Saturday, as he would have seen from the CCTV, and he knew that what took place on both occasions was of the same character, namely, stealing from the warehouse and delivering tyres for fuel.
I infer that Denis Fateev did not make inquiries of his father concerning the Friday because he did not wish to confirm details of the perpetration of the crimes. Even before Mr Gazzara's affidavit was sworn, throwing up conflict between his account and that of Dmitry Fateev, Dmitry's affidavit was self-evidently deficient for want of explanation of the Friday night and for the absurd story about re-loading tyres and sending them away to be re-packed. An honest innocent person in Denis Fateev's position would have made the further inquiries of his father that counsel suggested in cross-examination and would not have endeavoured to pass off Dmitry Fateev's implausible evidence on the Court, unquestioned.
Taking together all of the circumstances considered above, I am satisfied on the balance of probabilities that Denis Fateev knew in advance of his father's plan to steal from the warehouse and to have its remaining contents destroyed by fire. I am satisfied that, in his capacity as the controlling mind and will of Admiral, he agreed to the execution of the plan and that he cooperated in it by absenting himself on a trip to Hong Kong for the critical weekend.

[41]

Issue 2: CGU's entitlement to refuse indemnity under the ISR policy

The insuring clause in the ISR policy Wording is in the following terms: In the event of any physical loss, destruction or damage […] not otherwise excluded happening during the period of insurance at the Situation [being Unit 1 64-66 Burrows Road Alexandria, as per the Schedule] to the Property Insured [as described in endorsement] the Insurer will, subject to the provisions of this Policy including the limitation on the Insurer's liability, indemnify the Insured in accordance with the applicable Basis of Settlement.
The insuring clause is qualified by an endorsement, as follows: FIRE AND PERILS ONLY ENDORSEMENT Notwithstanding anything contained herein to the contrary, it is hereby declared and agreed that damage means physical loss, damage or destruction caused by or arising out of fire, lightning, thunderbolt, explosion, implosion, earthquake, subterranean fire, volcanic eruption, impact, the acts of persons taking part in riots or civil commotions or of strikers or locked-out workers or persons taking part in labour disturbances or malicious persons or the acts of any lawfully constituted authority in connection with the foregoing acts or in connection with any conflagration or other catastrophe, storm, and/or tempest and/or rainwater and/or wind and/or hail, water or other liquids or substances discharged overflowing or leaking from apparatus, appliances, pipes or any other system at the premises or elsewhere. The effect of this endorsement is that the ISR policy provides no cover in respect of goods stolen from the warehouse.
Exclusion 7 of the ISR policy, modified by an endorsement, is in the following terms (extracted to the extent relevant): 7. Physical loss, destruction or damage occasioned by or happening through: (a)(i) fraudulent or dishonest acts […] by the Insured or any employee(s) of the Insured acting alone or in collusion with any other person(s); Provided further that the term "dishonest acts", in relation to any of the Insured's employees, shall not be deemed to mean acts of arson or vandalism for the purposes of Perils Exclusion 7. […]
The ISR policy includes the following condition, applicable to all sections: 7. FRAUD If any claim be in any respect fraudulent or if any fraudulent means or devices be used by the Insured or anyone acting on the Insured's behalf to obtain any benefit under this Policy, or if any destruction or damage be occasioned by the wilful act or with the connivance of the Insured, the [Insurer] without prejudice to any other right(s) the [Insurer] might have under this Policy, shall be entitled to refuse to pay such claim.
The proviso to Exclusion 7, in the extract above, was inserted by endorsement FIDELPC4. Admiral relies upon this proviso to submit that acts of Dmitry Fateev that may have "occasioned" the fire, or through which the fire may have happened, would not engage Exclusion 7(a)(i). That submission is advanced upon the basis that Dmitry Fateev was an employee of Admiral. It is not necessary to address the submission because CGU is able to rely upon the exclusion in circumstances where, as I have found, the "physical loss, destruction or damage [was] occasioned by or [happened] through fraudulent or dishonest acts […] by the Insured", that is, Admiral, itself. The "fraudulent or dishonest acts" were those of Denis Fateev, attributed to the insured of which he was the directing mind and will; namely, the acts of consenting to and conniving at the deliberate destruction of the warehouse and its contents by fire. On the findings of fact that I have made the exclusion is engaged and CGU is entitled to refuse indemnity to Admiral under the policy.

[42]

Issue 3: Does Brightcity have a direct claim to indemnity under the ISR policy

The provisions of the ISR policy that bear upon Brightcity's claim to direct indemnity include, first, the definition of the Insured in the policy Schedule. Brightcity relies on par (c) of this definition: THE INSURED Admiral International Pty Ltd, Admiral Corporate Group Trust and (a) subsidiary companies, organisations and other associated companies as defined under Section 50AAA of the Corporations Act 2001 (Commonwealth), and (b) social and sports clubs (including the committees and officers from time to time of unincorporated bodies) and the trustees of the Insured's superannuation and pension funds and welfare organisations, and (c) all organisations and other entities to whom (whether mortgagees, lessors, joint [venturers] or other parties with a legal or equitable interest in the Property Insured) the named Insured has a responsibility to maintain insurance; all for their respective interests, rights and liabilities and to the extent that they are not more specifically insured, but excluding none.
Secondly, the insuring clause and the Fire and Perils Only endorsement, which I have quoted at [208] and [209] above, are relevant to Brightcity's direct claim under the policy.
Thirdly, the definition of Property Insured in Section 1 of the ISR policy Wording is relevant. The first paragraph of that definition, as modified by endorsement PROPBX4, is as follows: All tangible property both real and personal of every kind and description (except hereinafter excluded) belonging to the Insured or for which the Insured is responsible, or has assumed responsibility to insure prior to the occurrence of any Damage, including all such property in which the Insured may acquire an insurable interest or for Damage to which the Insured becomes responsible or assumes responsibility to insure, after the commencement of the Period of Insurance.
Fourthly, the following further endorsement affecting the extent of the Property Insured is relevant to Brightcity's claim: SALESXB4 CUSTOMERS' GOODS The policy extends to insure goods belonging to the Insured's customers at the Premises, to the extent that such goods are not otherwise insured.
Finally and most importantly, in the Memorandum to Section 1 of the policy Wording, there is an Interests of Other Parties ("IOP") clause in these terms (emphasis added): INTERESTS OF OTHER PARTIES The insurable interests of only those lessors, financiers, trustees, mortgagees, owners and all other parties specifically noted in the records of the Insured shall be automatically included without notification or specification; the nature and extent of such interest to be disclosed in event of damage. Where the insurance covers the interests of more than one party, any act or neglect of an individual party will not prejudice the rights of the remaining party/parties; provided the remaining party/parties shall, immediately on becoming aware of any act or neglect whereby the risk of damage has increased, give notice in writing to the Insurer(s) and on demand pay such reasonable additional premium as the Insurer(s) may require.
If Brightcity falls within the IOP clause then its entitlement to claim indemnity for its loss directly from CGU would be assured by s 48(1) of the Insurance Contracts Act, as follows: A third party beneficiary under a contract of general insurance has a right to recover from the insurer, in accordance with the contract, the amount of any loss suffered by the third party beneficiary even though the third party beneficiary is not a party to the contract. "Third party beneficiary" is defined in s 11 of the Act to mean: a person who is not a party to the contract but is specified or referred to in the contract, whether by name or otherwise, as a person to whom the benefit of the insurance cover provided by the contract extends.
Brightcity claims a direct entitlement to be indemnified under the ISR policy on three alternative bases, namely: 1. that it is within part (c) of the definition of Insured; 2. by force of the SALESXB4 endorsement and/or 3. by the operation of the IOP clause.
If it should be found that the ISR policy responds to Brightcity's loss on the basis that it falls within part (c) of the definition of Insured, the question would arise whether CGU is bound to indemnify Brightcity in circumstances where indemnity may be refused to another insured, Admiral, on the grounds of arson fraud, there being no allegation of fraud or complicity against Brightcity itself. CGU does not contend that it could refuse indemnity on the ground of arson fraud by Admiral if the policy responds to Brightcity's loss of stock on either of the other bases (2) and (3) above. For reasons now to be stated Brightcity's claim succeeds on the basis of the IOP clause. It is not necessary to resolve either of bases (2) or (3), nor to determine whether the fraud of Admiral would justify refusal of indemnity to a co-insured falling within par (c) of the definition of Insured.

[43]

Brightcity's position under the Interests of Other Parties clause

Brightcity's direct claim for indemnity in reliance on the IOP clause and s 48(1) of the Act must be upheld on the authority of the decision of the Full Court of the Federal Court in Insurance Australia Ltd v MOS Beverages Pty Ltd [2021] FCAFC 165. The insured in that case, MOS Beverages Pty Ltd ("MOS"), has been referred to earlier in this judgment. It was another customer of Admiral. It is goods were also damaged in the fire that is the subject of the proceedings now before this Court. MOS, like Brightcity, sought indemnity directly from CGU under the ISR policy.
At first instance in MOS Beverages Pty Ltd v Insurance Australia Ltd [2020] FCA 1716, Allsop CJ answered in the affirmative the following question that the parties had agreed should be determined first and separately: Whether [MOS] is entitled to indemnity from [CGU] under s 48(1) of the Insurance Contracts Act 1984 (Cth) by reason of: a. [MOS] being sufficiently noted in the records of Admiral International Pty Ltd in accordance with the clause titled "Interests of Other Parties" and/or b. the proper construction of endorsement SALESXB4.
The Chief Justice's affirmative answer was given on the basis of part "a" of the question. At [4] his Honour said: [4] For the reasons that follow, the question should be answered in the affirmative. On the proper construction of the Policy, being the "Interests of Other Parties" clause, MOS Beverages is entitled to indemnity from CGU as a third party beneficiary under the Policy.
MOS did not contend that it was an Insured party to the contract. His Honour did not need to determine whether the SALESXB4 endorsement would also, independently, entitle MOS to indemnity but it is clear that he did not consider that the endorsement would have that effect. So much is apparent from [43] of the judgment: [43] […] Given my conclusion as to the construction of the "Interests of Other Parties" clause, it is strictly unnecessary to decide whether MOS Beverages would otherwise be a third party beneficiary under the Policy by reason of the SALESXB4 endorsement. Looking at the Policy as a whole and the provisions congruently, however, the better view is that the SALESXB4 endorsement clarifies the property that is covered under the Policy. The endorsement should not be interpreted as excluding the requirement for notation of third party interests (including customers' interests) in the records of Admiral, as required by the "Interests of Other Parties" clause.
The Chief Justice summarised the operation of the ISR policy in relation to Admiral's customers in the following terms: [36] The definition of "Property Insured", as amended by the endorsement, meant that any property for which Admiral was responsible was insured under the Policy. This included property which Admiral took into its possession as bailee. The SALESXB4 endorsement extended the property insured under Section 1 of the Policy to include all goods of Admiral's customers (including MOS Beverages) which were stored on the premises, to the extent they were not otherwise insured. These clauses together have the effect of insuring customers' goods for their full value, not just for the liability of Admiral to the customer as bailee and bailor [citations omitted]. The "Interests of Other Parties" clause further extends the protection afforded to Admiral's customers by ensuring that they have a direct claim to indemnity from CGU (provided that the requirements in the clause are satisfied and the goods are not otherwise insured).
The agreed facts upon which the Chief Justice answered the separate question included that at the time of the fire MOS had goods stored in the warehouse, at least some of which were damaged thereby. Business records of Admiral were in evidence in the Federal Court, including an email from Denis Fateev quoting prices for services such as rates per pallet per week for bonded and free storage; periodic invoices from Admiral to MOS for storage charges; statements of account between the two companies and records of importation. The Full Court proceeded upon the same factual basis, together with the following concession, recorded at [14]: CGU conceded before the primary judge that the bundle of documents establishes that MOS Beverages was a customer of Admiral and, from time to time and in variable amounts, goods or products owned by MOS Beverages were kept at the warehouse premises of Admiral.
There is equivalent evidence in the case before me. Brightcity was, like MOS, a customer of Admiral whose goods were "from time to time and in variable amounts […] kept at the warehouse premises of Admiral". In all respects relevant to the reasoning of the Chief Justice at first instance and of the majority in the Full Court (Besanko and McKerracher JJ), Brightcity's commercial dealings and relationship with Admiral were the same as those between MOS and Admiral. As was the case for MOS, Brightcity's goods were not otherwise insured so that the ISR policy cover is for the full value of the goods: no limitation of cover arises under the SALESXB4 endorsement.
In the Full Court, CGU advanced various arguments in support of construing the IOP clause more narrowly than the Chief Justice had done, to the effect that MOS would not fall within the clause. Besanko and McKerracher JJ rejected all of those arguments. It is not necessary to repeat them here. The correct construction of the policy is a question of law and the Full Court has decided, by majority, the precise aspect of construction that is material to the engagement of the IOP clause on identical facts in the proceedings before me. The Court of Appeal would be bound to follow the Full Court's decision unless convinced that it is plainly wrong: Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89 at [135]; Gett v Tabet [2009] NSWCA 76 at [286]. At first instance I am bound by this decision upon the exact point of law that I am called upon to determine.
In dissent in the Full Court, R Derrington J held that the words "owners and all other parties" in the IOP clause should be construed ejusdem generis with the immediately preceding words, "lessors, financiers, trustees, mortgagees", with the result that his Honour expressed in the following terms at [165]: [The] operation of the expression "owner" (or indeed "all other parties") [is confined] to those who have rights or an interest in or in respect of insured property in which or in respect of which the named insured also has some right or interest. In the present case, MOS had no interest in property in which Admiral also had some proprietary right or interest. It was the sole "owner" of the goods which it stored at the premises and is not within the scope of the IOP clause.
Although R Derrington J based his dissent upon the above reasoning, his Honour also identified what he regarded as a preferred construction, which neither of the parties had argued. This appears in the following extracts from his Honour's judgment: [56] Despite the grounds on which the appeal was argued, there exists an alternative construction of the policy which supports the conclusion that the appeal should be allowed. It is that the IOP clause operates as a machinery provision to facilitate the extension of cover to the entities identified in paragraph (c) of the definition of "The Insured", being those to whom the named insured has assumed a responsibility to maintain insurance. […] Neither of the parties to the appeal sought to propound that construction rendering it inappropriate to determine the matter on that basis. […] [105] There is, however, a preferred construction of the policy which accords [the IOP] clause a sensible and appropriate operation […]. On this alternative construction, it is the definition of the "Insured" which defines the scope of the entities to whom the benefit of the insurance cover in the policy extends whether or not they are parties to the contract. The IOP clause operates concordantly with paragraph (c) of that definition to ensure that the interests of certain third parties, to whom a named insured has assumed a responsibility to maintain insurance, are automatically covered without the need for notification to the insurer. However, it does not, itself, extend the benefit of the cover to third parties. [106] As this alternative construction was not the subject of submissions by the parties, it would be inappropriate to decide the appeal on that basis. His Honour's preferred construction was further developed and supported at [112]-[126].
In written submissions CGU invited me to adopt R Derrington J's preferred construction, on the basis that the majority of the Full Court did not consider it and that, therefore, "this Court is in a position to determine the correctness of that constructional argument, and there is no finding of the Full Court [scil the majority] or of Allsop CJ on the correctness of that construction". I will not take the course proposed by CGU. There is but one question, namely, what is the correct construction and operation of the IOP clause in relation to customers of Admiral in the identical circumstances of MOS and Brightcity? I must answer that question of law as Besanko and McKerracher JJ answered it.

[45]

Quantum of Brightcity's indemnity under the ISR policy

It is agreed between the parties that the amounts claimable by Brightcity under the ISR policy in respect of destroyed stock are $2,364,460.20 for the cost of replacement stock and $967,393.80 for the combination of transport costs and duty paid on free goods. The total is $3,337,854. In the policy Schedule, the declared value of Customers Goods as at the commencement of the period of insurance is $4 million. The value at the date of the fire was more than seven times that figure. The precise value is not ascertainable from the evidence. The value at the commencement date, only six months earlier, is likely to have been much greater than $4 million but the evidence does not permit the Court to make a reliable estimate, let alone a definitive finding, of the value at that date. The policy contains a co-insurance/under insurance endorsement. If that endorsement would otherwise be engaged, the limitations of the evidence of value would leave the Court unable to determine its application to the facts of this case. In any event, CGU conceded in oral address that the endorsement does not bear a construction that would limit indemnity when claimed not by an Insured party to the policy but by a claimant whose entitlement arises under the IOP clause, as I have found Brightcity to be.
Customers whose stock was stolen, as listed at [147], cannot claim under the ISR policy because it does not cover the risk of theft. At [153] I have listed the customers of Admiral whose goods were destroyed by the fire. Brightcity and MOS are the only such customers who are identified in the evidence as having made claims against CGU under the ISR policy. MOS' claim is for a sum in the order of $500,000. Together the claims of these two companies may come close to the sub-limit of CGU's liability for "Customers Goods" under the policy, being $4 million. I propose to enter judgment for Brightcity against CGU for $3,337,854, subject to any application CGU may make if, contrary to my understanding, the total claim entitlements exceed the indemnity sub-limit of $4 million.
In reserving CGU's liberty to apply in this respect I have not overlooked Brightcity's argument that if it were found to be an Insured within par (c) of the policy definition, then its cover would be up to $7 million for damage to its goods. I do not accept that that would be so. The description of "the Business" in the policy Schedule is that of a "Customs […] approved warehouse […] [and] Licensed Bond Store". The category of Customers Goods to which the coverage sub-limit of $4 million applies clearly means goods deposited at the "situation/premises" by customers of that Business. Brightcity's goods would not be any the less Customers Goods, in that policy sense, if it were held that Brightcity is an Insured on the basis that, under par (c), it is an entity "to whom […] the named Insured [ie Admiral] has a responsibility to maintain insurance".

[46]

Issue 4: quantum of damage to Admiral's own property

Although Admiral's claim for indemnity under the ISR policy must be dismissed, I will determine the quantum of the claim. The policy Schedule does not prescribe any sub-limit for loss of or damage to Admiral's own property. The parties have agreed that $252,536.66 represents Admiral's loss due to destruction of or damage to its office equipment, plant and the like and that its costs of preparing this aspect of its claim are $41,029.96. CGU contends that the first of these amounts is to be reduced by application of endorsement AVDELPC4. The relevant part of that endorsement is as follows: Average/Under-insurance The Insured is required to ensure for full value calculated in accordance with the appropriate Basis of Settlement Clauses, as at the commencement of the Period of Insurance and, in relation to any Property Insured acquired after the commencement of the Period of Insurance, as at the time of acquisition of that property. In the event of a claim, the monies otherwise payable under Section 1 of this Policy [being Material Loss or Damage], shall be the proportion that the Insured's declaration at the time of the commencement of the Period of Insurance of the value of all property insured at the Situation to which the Damaged item or items belong bears to 80% of the value of all such property as at the time of commencement of the Period of Insurance calculated in accordance with the appropriate Basis of Settlement Clauses.
The Basis of Settlement clause in relation to Section 1 Material Loss and Damage, in combination with endorsement INDCLPC4, appears to have the same effect, for present purposes, as the above-quoted Average/Under-insurance endorsement. In the Schedule, the declared value of Admiral's "Contents (other than stock)" is $150,000. There is no evidence of the value of the contents belonging to Admiral that were destroyed in the fire, other than its claim in the sum of $252,536.66 and CGU's acceptance of that quantification. I infer that that was the value at the commencement of the period of insurance, only 6 ½ months before the fire. 80% of that sum is $202,029.33. The proportion that the declared value of $150,000 bears to that figure is 0.742. Therefore, under this head, the quantum of Admiral's indemnity would be: 0.742 x $252,536.66 = $187,382.20
To that would be added the cost of claims preparation. A deductible of $5,000 must be subtracted. The resulting quantum of Admiral's indemnity claim under Section 1 Material Loss and Damage is $223,412.16.

[47]

Issue 5: Admiral's business interruption claim

I will also assess the quantum of Admiral's claimed indemnity under Section 2 Consequential Loss. The insuring clause in that section of the ISR policy is as follows (extracted so far as relevant): In the event of any building […] used by the Insured at the Premises for the purpose of the Business being physically lost, destroyed or damaged during the period of Insurance by any cause or event not hereinafter excluded […] and the Business carried on by the Insured being in consequence thereof interrupted or interfered with, the [Insurer] will, subject to the provisions of this Policy including the limitation on the [Insurer's] liability, pay to the Insured the amount of loss resulting from such interruption or interference in accordance with the applicable Basis of Settlement.
The policy Wording concerning the Basis of Settlement of consequential loss claims was replaced by endorsement GREVNCC4, which includes the following (again, extracted so far as relevant): Item No 1 The insurance under this Item is limited to loss of Gross Revenue due to (a) Reduction in Gross Revenue and (b) Increase in Cost of Working and the amount payable as indemnity thereunder shall be: (a) in respect of reduction in Gross Revenue: The amount by which the Gross Revenue during the Indemnity Period shall, in consequence of the Damage fall short of the Standard Gross Revenue; (b) in respect of increase in Cost of Working: The additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the loss of Gross Revenue which, but for that expenditure, would have taken place during the Indemnity Period in consequence of the Damage but not exceeding the amount of the reduction in Gross Revenue thereby avoided less any sums saved during the Indemnity Period in respect of such charges and expenses of the Business as may cease or be reduced in consequence of the Damage […] Definitions Gross Revenue: The money paid or payable to the Insured for services rendered […] in the course of the Business at the Premises. Standard Gross Revenue: The Gross Revenue during the period in the 12 months immediately before the date of the Damage which corresponds with the Indemnity Period. Annual Gross Revenue: The Gross Revenue earned during the 12 months immediately before the date of the Damage. Such adjustment shall be made [to the Standard Gross Revenue and Annual Gross Revenue] as may be necessary to provide for the trend of the Business and for variations in other circumstances affecting the Business either before or after the Damage or which would have affected the Business had the Damage not occurred, so that the figure as thus adjusted shall represent as nearly as may be reasonably practicable the results which, but for the Damage, would have been obtained during the relative period after the Damage.
The Indemnity Period referred to in this endorsement is specified in the Schedule as 12 months. According to the definition in Section 2 of the Wording the Indemnity Period commences with the occurrence of the damage. In the circumstances of this case, the relevant period was 16 April 2018 to 15 April 2019. The period for which Standard Gross Revenue must be calculated is the corresponding preceding 12 months, 16 April 2017 to 15 April 2018. That is exactly the same as the period defined as Annual Gross Revenue.
Admiral tendered reports of a forensic accountant, Mr Bleasedale, containing calculations of Admiral's loss due to business interruption, consequent upon the fire. CGU tendered reports of Mr McPhee, who arrived at a different projection of loss. The two experts conferred and the report of their conclave was tendered. This significantly reduced the areas of disagreement. I have reproduced, below, a table summarising the experts' competing conclusions. In this I have substituted "Gross Revenue" for "Turnover", in order to be consistent with the terminology of the policy endorsement. Both experts calculated their figures for reduction in Gross Revenue by reference to "expected turnover" based upon "April 17 - April 18 actuals"; that is, by reference to the policy concept of "Standard Gross Revenue".
The highlighted entries in the table identify the points of difference between the expert witnesses: Description Mr Bleasdale (Admiral) Mr McPhee (CGU) 1 Standard Gross Revenue 1,405,385 1,405,385 2 Trend +19.32% 0% 3 Adjusted Standard Gross Revenue 1,676,665 1,405,385 4 Actual Gross Revenue during Indemnity Period 486,615 486,615 5 Reduction in Gross Revenue 1,190,250 925,274 6 Rate of gross profit 66.99% 62.28% 7 Loss of gross profit 797,348 576,353 8 Increased Cost of Working 65,555 65,555 9 Saved costs (222,147) (222,147) 10 Claim preparation costs 22,816 17,808 11 Total consequential losses 663,572 437,569

[48]

CGU instructed Mr McPhee also to make an alternative calculation of Admiral's consequential losses on the assumption that its Customs Act licences would not have been renewed after they expired on 30 June 2018, even if the fire had not occurred. Mr McPhee duly carried out the calculation but I have not included it in the above table. I find it irrelevant. There is no evidentiary basis for the assumption. On 26 April 2018 ABF notified Admiral of its intention to cancel the licences for the Alexandria warehouse and requiring cause to be shown why that cancellation should not take effect. That notification was inevitable, given that the warehouse to which the licences related had been destroyed. The evidence does not reveal any reason why the licences would not have been renewed if the fire had not occurred and if the company had continued its business beyond 30 June 2018. The licences had been routinely renewed at the end of each of the three preceding financial years.
Denis Fateev had notified ABF on 1 March 2018 that the company proposed to relocate to new premises. At that time the lease of the Lidcombe warehouse had not been signed. I accept the evidence of Denis Fateev that within about two months from obtaining access to the Lidcombe premises, which would have been by about late June 2018, that property could have been fitted out with security equipment sufficient to satisfy ABF and the ATO. That same period would have been sufficient for Admiral to relocate warehouse fixtures, such as pallet racking, to enable Admiral to commence storing free goods at Lidcombe whilst variation of the licences, as to premises, was pending. Admiral had arranged to hold over its tenancy of the Burrows Road warehouse during the transition. I infer that, had the fire not occurred, Admiral could have secured variation of its licences to the Lidcombe address in sufficient time to enable it to continue its bonded warehouse operations without interruption.
Admiral's sudden loss of its warehouse fitted out for storage of customers' goods naturally led to immediate loss of Gross Revenue. Admiral commenced occupation of the Lidcombe property in late April 2018 and completed setting up those premises for warehousing operations in late June 2018. From then it was able to resume storage of free goods and to derive some Gross Revenue from that activity.
In May 2018 Denis Fateev made enquiries of ABF, which is administered by the Commonwealth Department of Home Affairs, as to whether its Customs Act licences could be varied by substitution of the Lidcombe warehouse in place of the Alexandria premises. On 25 May 2018 an officer of the Department of Home Affairs advised Denis Fateev as follows: In order to progress your licence variation request, you will be required to submit the relevant documentation noting we will also require the completed police report relating to the original site closure. Until all relevant documentation is provided to the ABF, we are unable to progress the application. […] I confirm the licence currently remains suspended.
New South Wales police had commenced an investigation of the cause of the fire on 16 April 2018. To this day the police investigation remains open. No charges have been laid against any person for having started the fire or for accessory liability in relation to arson. The only charges laid, that are in any way connected with the Alexandria warehouse, are charges against two persons who were in possession of Top Smoke cigarettes that had been stolen on 13 or 14 April. The evidence does not make clear whether those persons were charged with receiving stolen goods or only with offences concerning trading in cigarettes upon which excise or customs duty had not been paid. Investigating police have not issued anything in the nature of a completed report concerning the fire.
On 28 May 2018 an officer of the ATO informed Denis Fateev by email that the ATO adopted the same position as the ABF, that it would not agree to variation of Admiral's licences as to premises until a finalised police report concerning fire had been received. On 31 May 2018 another ATO officer emailed Denis Fateev to remind him to supply a completed police report. Admiral did not complete installation of sufficient security measures at Lidcombe to satisfy ABF and ATO requirements for bond store operations until 19 July 2018. On that date the company formally applied for variation of its Customs Act licences, to substitute the Lidcombe warehouse in place of the Alexandria premises.
On 16 October 2018 Admiral's solicitor spoke to Detective Sergeant Peebles, the officer in charge of the fire investigation. The detective advised that the recording device for the CCTV at the warehouse had not functioned and no footage could be obtained from it; that a diagnostic report on the alarm panel from the premises had been obtained from the manufacturer; that the alarm system appeared to have been disabled at the time of the fire and that the police investigation was "ongoing and its conclusion will not be forthcoming shortly". The solicitor wrote to Det Sgt Peebles on 22 October 2018 to confirm the terms of this conversation and to advise that "Admiral is willing to assist NSW police and its prosecution of the theft [of the Top Smoke cigarettes seized during August 2018] and in answering any questions that they may have".
On 15 February 2019 Admiral was advised by letter from the ATO that variation of the company's warehouse licences was refused because a full police report regarding the fire at the Alexandria warehouse (as well as some other documents) had not been received. On the assumption that Admiral did not consent to or authorise the fire in its Alexandria warehouse, which is the premise upon which I am to assess, contingently, the quantum of Admiral's claim against CGU for business interruption, the inability to obtain a variation of the licences to permit resumption of bond store operations has been an inexorable consequence of the fire and of the ensuing police investigation. Upon the stated assumption, it was beyond Admiral's control or capacity to procure a completed police report and thereby to satisfy the licensing prerequisites stipulated by the ABF and the ATO. Without those licences Admiral has not been able to generate the component of its Gross Revenue that, in the preceding 12 months, had been derived from bond store operations. Therefore, on the given assumption, if Admiral is entitled to indemnity from CGU under the ISR policy, the amount of its indemnity for business interruption losses would properly include so much of its shortfall in Gross Revenue as may be attributed to the absence of licences for the storage of goods in bond, throughout the Indemnity Period.

[49]

Trend in Gross Revenue

In Mr Bleasdale's first report of 1 June 2020 he calculated that Admiral Gross Revenue for the nine months ended 31 March 2018 was 6.5% greater than for the corresponding previous nine-month period, to the end of March 2017. He adopted 6.5% as an appropriate year-on-year trend, for the purpose of adjusting the Standard Gross Revenue that Admiral would have derived in the Indemnity Period, but for the fire. Mr Bleasdale acknowledged that for the full 12 months to March 2018 Admiral's Gross Revenue showed no growth relative to the previous 12 month period. However he calculated that in the six months to March 2018 there was 22% growth relative to the corresponding period ended March 2017 and that the comparison of the final three months of each of the years showed a 38% increase.
Both forensic accountants have subsequently agreed that there must be an adjustment to the March 2018 Gross Revenue to eliminate a one-off unusually large revenue transaction. When that adjustment is made, the comparison of corresponding nine-month periods shows an increase in the year ended 31 March 2018 of only 1% and the comparison of six-month and three-month periods reveals increases of 12.5% and 19%, respectively.
I regard Mr Bleasdale's methodology, relying on comparison of nine-month periods, as unsound, even when the adjustment for the unusual revenue item is made. The Gross Revenue figures for Admiral show very large fluctuations from month-to-month in each of the 12 month periods ended 31 March 2017 and 31 March 2018. In the first of those periods, the high point was $193,277 in September 2016 and the low point was approximately half of that, namely, $87,971 in December 2016. In the second period, the variation was between $143,886 in September 2017 and $69,071 in June 2017. Across the two years there was no consistency of the months in which Gross Revenue was relatively high and those in which it was relatively low. Comparing the two years month by month, half of the months in the year to March 2018 had lower Gross Revenue than in the corresponding month of the preceding year and half had higher gross revenue. In light of that variability I consider it necessary to take each 12 month period as a whole in order to remove the arbitrary influence of such significant and unpredictable variations from month-to-month. A comparison of the two years does not establish any upward trend in Gross Revenue that should be projected beyond March 2018.
In further support of a 6.5% trend, Mr Bleasdale opined as follows in his first report: [The increase in Gross Revenue in the periods of three months and six months ending March 2018, compared to corresponding periods ending March 2017] reflects growth in the business through sales development work that had been occurring over a lengthy period of time. Furthermore, at the time of the fire the owners had been in the negotiations to commence contracts with new overseas customers wishing to employ an Australian importer for their products. If the fire had not disrupted the ability of Admiral International to serve new customers, these new business opportunities would have further grown the future turnover of the business.
I accept that Admiral had concrete prospects of increasing its business by providing bonded warehouse services to Pegasus Supply Solutions Pty Ltd and by handling food products to be imported from Juhao, the Chinese entity with which Denis Fateev was in discussions through solicitors in Hong Kong. I also accept that the Lidcombe premises are significantly larger than the warehouse Admiral occupied in Alexandria and that the company therefore had the capacity to expand. However, the volume of such potential new business has not been quantified in the evidence and its potential impact on Gross Revenue can only be the subject of crude estimation. Of themselves, these possibilities of additional business provide no justification for Mr Bleasdale's adoption of 6.5%
In his second report of 26 April 2021 Mr Bleasdale made the correction for the one-off unusual revenue transaction in March 2018, referred to above, and recognised that the increases in Gross Revenue for the six month and three month period immediately before the fire, relative to corresponding periods in the preceding year, were 12.5% and 19% respectively. However, in reliance upon Denis Fateev's evidence regarding prospects for expansion of the business, as deposed in his affidavit 5 June 2020, Mr Bleasdale opined that for the first six months of the Indemnity Period, Standard Gross Revenue should be adjusted upwards by 15% relative to the corresponding period in the year before the fire and for the second six months the adjustment upward should be 20%. I do not find in the evidence any breakdown, calculation or itemisation that would justify quantifying a projected increase in Gross Revenue by these very substantial margins.
In the forensic experts' joint report, following their conclave, Mr Bleasdale states that he now adopts 19.32% as the trend of increase in Gross Revenue on the following basis: The trend growth reflects the growth shown by Admiral in the 3 months before the fire (38%) and in the six months before the fire (22%) as well as the expectations communicated to me by Mr Denis Fateev of sales growth opportunities. This opinion involves Mr Bleasdale reverting to the erroneous calculation for the three and six months periods, as originally carried out before the agreed adjustment for the one-off revenue transaction in March 2018, and adopting a speculative component for "expectations" of a very general and unquantifiable nature.
Although I have accepted that Admiral had prospects of expanding its business in the new premises, it appears unlikely that this could have occurred any earlier than three months into the Indemnity Period, allowing for the transition to the new premises that was to occur irrespective of the fire. Some allowance would have to be made for the possibility of reduced capacity to handle business during the transition period. None of these considerations are capable of being sensibly quantified on the evidence before me. I am not satisfied on the balance of probabilities that there has been established any trend of growth in Gross Revenue that should be applied in respect of the Indemnity period.

[54]

Issue 6: Admiral's contractual obligation to obtain insurance for Brightcity

As I have held that Brightcity is insured under the ISR policy in its own right and has a direct claim against CGU for indemnity, it is not necessary that I should determine whether Admiral made a contractual promise to procure such insurance. If it did, there has been no breach. In case it should become relevant, in the event of other findings being disturbed on appeal, I will state shortly my reasons for holding that it was a term of the warehousing contract between Admiral and Brightcity that Admiral would take out insurance of the deposited goods, for their replacement value, against the risk of damage or destruction by fire, for the benefit of Brightcity and enforceable by it against the insurer.
This follows from the events and communications referred to at [31]-[45] of these reasons. Denis Fateev's email of 2 June 2015 (quoted at [34]-[35]) and his conversation with Ms Yao (see [39]-[42]) had the effect that Admiral offered Brightcity rates of storage that included "insurance for your stock". By conduct, Brightcity agreed to those rates when it delivered goods to the warehouse and subsequently paid Admiral's invoices. In the absence of any statement to the contrary, the reference to "insurance for your stock" and "insurance cost for your goods" must be given the meaning that business people in a negotiation of this nature would intend. That includes that the insurance would be for replacement value. No lesser value would be sensible from the bailor's point of view. Objectively, in the absence of any alternative level of cover proposed by Denis Fateev, insurance for replacement value must be taken to have been intended. In the evidence quoted at [41], Denis Fateev acknowledged that that was what he intended, subjectively. An agreement by Admiral to obtain cover for replacement value was workable. Shipping documents were provided with each delivery of Brightcity's goods to the warehouse and Admiral was readily able to keep track of the value of the goods held so as to maintain a sufficient level of cover.
Although there was no discussion between Denis Fateev and Ms Yao of the risks against which the insurance should be taken out, it would be a common understanding between businesspeople in this situation that those risks would include fire. Further, it would be a common understanding, that may be objectively attributed to both parties, that the cover would take the form of a policy under which Brightcity could claim in its own right. There would be no commercial reason why parties in this setting would have intended that Admiral's obligation should be limited to taking out insurance that it could enforce but under which Brightcity would have no direct claim. Such a limitation would involve obvious disadvantage to Brightcity, including that the claims process would be in the hands of Admiral rather than itself. Further, any breach of the policy conditions by Admiral might leave Brightcity without cover. Absent any express limitation upon Admiral's promise to obtain insurance, an objective and commercial construction of the parties' communications is that, in order to confer appropriate protection upon the bailor for whose benefit the insurance was to be obtained, the parties should be understood as having mutually intended that the cover would be enforceable directly by Brightcity.

[56]

Issue 8: breach of Admiral's obligations as bailee of Brightcity's goods

The legal principles governing the liability of a bailee such as Admiral for loss of or damage to goods in its custody for safe keeping are as stated by Kirby J when his Honour was a Judge of Appeal, in Tottenham Investments Pty Ltd v Carburettor Services Pty Ltd (1994) Aust Torts Reports 81-292. Gleeson CJ expressly agreed with the whole of his Honour's judgment and Priestley JA applied the same principles. The following extract from Kirby J's judgment omits citations and some content that is presently immaterial: 1. A bailee for reward […] assumes a duty to take such care of the bailed goods as is reasonable in the circumstances. It is essential to bailment that, unless forgiven by the law, the bailee should restore the property bailed to its lawful owner. 2. In the event of loss of goods during the bailment, the onus is upon the bailee to disprove that the loss is the result of any negligence on its part. This exceptional shifting of the onus of proof to the defendant derives from the essential obligation of the bailee to restore the property to the bailor and from the obligation imposed by the reward which the bailor pays to the bailee for the work and labour done and the safe keeping of the goods. 3. The duty of the bailee is not that of an insurer. Thus, the bailee is not obliged to take every conceivable or possible precaution to prevent loss of the goods. Its duty is simply to act reasonably. It is to take reasonable care such as a person would take in respect of that person's own goods. The duty is stringent so that the responsibility assumed by the bailee cannot, at least without consent, be delegated to another. 4. In respect of goods lost during bailment by theft, the bailee must show that it took steps which were reasonable in the circumstances to keep out intruders who might otherwise be tempted to misappropriate the bailor's goods or damage them. The relevant circumstances will include such matters as the value of the goods bailed; the location of the place of bailment; the costs paid to the bailee by the bailor; the extent of knowledge of the bailor of the circumstances of safe keeping; and the extent (if any) of evidence of thefts of goods in the vicinity of the place in which the bailee held the subject goods. 5. […] 6. […] 7. Foreseeability of damage or loss has been described as invoking an "undemanding test". See Shirt v Wyong Shire Council and Ors [1978] 1 NSWLR 631 at 641, approved The Council of the Shire of Wyong v Shirt and Ors (1979) 146 CLR 40, 44. Although this description was used in a context of personal injury litigation framed in negligence, it applies equally to the alleged negligence of a bailee. The test is "undemanding", in the sense that it embraces a duty to take precautions not only for events which are "likely to happen" or "not unlikely to happen" but also for events which are "not unlikely to occur". […] Of obvious relevance to that question are the valuable and mobile qualities of the goods typically bailed to the bailee, the ready market for their sale and the ease of their removal once the security of the building was breached. 8. If the bailee, bearing the onus of proof, discharges that onus by establishing that the theft of the bailed goods occurred without negligence on its part, and the evidentiary burden is borne by the bailor to establish the precautions which reasonably could and should have been taken by the bailee to prevent the loss of the goods [… it] is then for the bailor to adduce evidence of what those further precautions might have been and from which the decision maker can infer that it was reasonable to expect that they would have been taken having regard to all of the circumstances. 9. […]
Tottenham Investments Pty Ltd v Carburettor Services Pty Ltd was concerned with theft of a bailor's goods. The present case is concerned with destruction by fire of bailed goods after theft of other goods from the warehouse, as a means of concealing the theft. The first consideration relevant to the extent of precautions against arson that it would have been reasonable for Admiral to take is that Brightcity's goods were highly valuable. Secondly, they were vulnerable to destruction by fire, the cigarettes particularly. Thirdly, Brightcity's goods were stored together with the goods of other customers that were of high value, especially large volumes of cigarettes that were transportable, readily saleable as stolen goods and, hence, attractive to thieves. Fourthly, the significant risk of theft from the warehouse carried with it the risk of fire. Deliberate destruction of residual contents to conceal a theft or to eliminate forensic evidence of the identity of the perpetrators was a likely sequel. Fifthly, physical security such as locked gates and doors, an activated alarm system and remotely monitored CCTV were, in any event, required in order to meet ABF and ATO expectations for protection of the revenue, so that proper use of these security measures was not an additional burden that Admiral would have to assume solely for the protection of Brightcity's goods.
Admiral has failed to disprove that the destruction of Brightcity's goods was the result of negligence on its part. Reasonable steps that could have been taken to protect the contents of the warehouse, and that were not taken from when the premises were last attended by an Admiral employee, Dmitry Fateev, at about 11:00pm on Saturday, 14 April 2018, include the following: 1. Locking the front gates to the warehouse forecourt. 2. Locking the patio bolt of the front office door, with the bolt engaged in the threshold. 3. Closing the electronically latched door from the office into the warehouse and not leaving any readable card key in the vicinity. 4. Arming the alarm. 5. Notifying the alarm monitoring service, Securitas, of one or more persons in Sydney, additional to Denis and Dmitry Fateev, who could be contacted in the event of an alarm signal being received during the absence of those two persons overseas. 6. Maintaining the capability to monitor CCTV within the warehouse remotely and ensuring that that capability was at all times in the hands of someone present in Sydney and nominated to Securitas as a contact.
The first three of these measures, alone, would have been capable of preventing the arsonist from gaining access to start the fire by which Brightcity's goods were destroyed. At the least, those three basic steps could have impeded the arsonist to such a degree that he would not persist with trying to force entry for fear of being discovered. The impediment and deterrent would have been further increased by the addition of steps (4), (5) and (6), pursuant to which a patrol car may have been dispatched to the warehouse before entry could have been forced. The failure to take any of these steps has been clearly established and Admiral has not disproved that they were causative of the arsonist gaining entry to ignite the fire.
On the findings that I have made, Admiral's failure to take reasonable care to preserve Brightcity's went well beyond the omissions referred to above. I have found that Dmitry Fateev deliberately left the premises in a state that would permit ready access and that he arranged for and consented to the attendance of the arsonist. Further, I have found that he caused combustible motor tyres to be distributed through the warehouse aisles in order to fuel the fire and promote its destructiveness.
There has been the clearest possible breach of the obligations of Admiral as a bailee. It is liable to Brightcity in damages for the replacement value of its goods and for the loss of profits that could have been earned on the sale of those goods. The agreed figure for loss of profits is $246,132.90 (see [5]) and Brightcity shall have judgment against Admiral in that sum. As recorded at [5] and [233], the agreed figure for the value of the goods is $3,337,854. Brightcity would also be entitled to judgment against Admiral for that amount but closing arguments left it unclear whether Brightcity seeks that relief in view of its entitlement to judgment against CGU for the value of its destroyed goods. The parties will be heard as to that after these reasons have been handed down. The question is affected by the circumstance that such a judgment for Brightcity against Admiral for the goods' replacement value of $3,337,854 would rightly be for the benefit of CGU, for the following reasons.
CGU has not filed a cross-claim against Admiral in exercise of any claimed right of subrogation to Brightcity's entitlement to damages for Admiral's breach of its duties as a bailee. CGU may pursue, by subrogation, any right of action that an Insured Other Party such as Brightcity has in respect of the subject matter of the loss: ss 64 and 67 Insurance Contracts Act; Mann's Annotated Insurance Law at [48.20.1] and [64.10]; Kelly & Ball Principles of Insurance Law at [9.0060.20]. The ISR policy is composite, rather than joint, according to the distinction drawn by Sir Wilfred Greene MR in General Accident & Life Assurance Corp Ltd v Midland Bank Ltd [1940] 2 KB 388 and recognised, for example, in Lombard Australia Ltd v NRMA Insurance Ltd (1968) 72 SR (NSW) 45; Federation Insurance Ltd v Wasson [1987] HCA 34; (1987) 163 CLR 303; MMI General Insurance Ltd v Baktoo (2000) 48 NSWLR 605; [2000] NSWCA 70. The interests of Admiral and Brightcity under the policy were several and separate. A claim for recovery in exercise of the insurer's right of subrogation may be brought against an at fault insured party under such a composite policy where the at fault insured is denied indemnity by reason of fraud or some wrongful act on its part that has brought about the loss: P Samuel & Co Ltd v Dumas [1925] AC 431 at 445-446 (Viscount Cave), cited in MMI General Insurance Ltd v Baktoo at [9].

[57]

Issue 9: Admiral's claim against CGU under the Liability policy

The insuring clause in the Liability policy is in the following terms so far as relevant: We will cover You for Your legal liability to pay all sums by way of compensation, and all charges, expenses and legal costs recoverable from or awarded against You in respect of: […] (b) Property Damage […] happening during the Period of Insurance and caused by an Occurrence within the Territorial Limits in connection with Your Business and Your Products.
The limit of liability for all claims arising out of any one event is $20 million and the deductible for any one occurrence is $5,000. The definition of "Occurrence" includes the following: Occurrence means an event which results in […] Property Damage […], neither expected nor intended from Your standpoint.
On the findings I have made, Admiral's claim for indemnity under this policy against its liability to Brightcity for breach of bailment fails because there was no Occurrence. The "event which [resulted] in […] Property Damage" was the fire and I have found that that was both expected and intended from the standpoint of Admiral. Further, and independently of the definition of Occurrence, Admiral is disentitled from indemnity under the policy in circumstances where its connivance at the arson plainly amounted to fraud. In Beresford v Royal Insurance Co [1938] AC 586 at 595, Lord Atkin said: On ordinary principles of insurance law an assured cannot by his own deliberate act cause the event upon which the insurance money is payable. The insurers have not agreed to pay on that happening. The fire assured cannot recover if he intentionally burns down his house […].
In Entwells v National and General Insurance Co Ltd, after quoting the above passage, Ipp J said this: Similarly if the insured connives at someone else burning down his property he cannot recover under the policy. This rule is based on two separate principles of law. It follows as a result of the construction of the contract of insurance; the policy is not intended to cover the loss caused by the insured's deliberate act: Beresford v Royal Insurance Co at 595. Further, it would be against public policy to allow an insured to recover indemnity for the consequences of his own criminal or civil wrong: Gray v Barr [1971 2 QB 554.
CGU also invoked Exclusion 5.15 of the Liability policy. That provision excludes from cover any liability of Admiral for damage to property that is owned by Admiral itself, or leased by it, or in its physical or legal control. Exclusion 5.15 is subject to some exemptions, so that the cover does extend to Admiral's liability for damage to property that is in its possession or control in limited and defined circumstances. An endorsement to the policy purports to delete Exclusion 5.15 and to replace it with different wording. The endorsement is ineptly drafted and it is extremely doubtful whether it is really intended to replace the entirety of the Exclusion or only par (e) of the exemptions thereto. Either way, it is difficult to make any sense of the substitute wording. This raises a question purely of construction, not dependent upon any additional finding of fact that I would need to make in order to resolve it. Having regard to my conclusions at [277] above, it is not necessary to determine the scope of Exclusion 5.15 or the endorsement in order to decide the case. I will therefore not embark upon the very considerable challenge of trying to reconcile and construe these provisions.
CGU also invoked Condition 8.16 of the Liability policy, pursuant to which Admiral was obliged to "take all reasonable care to prevent […] Property Damage". Admiral argued that breach of this condition, if proved, does not warrant refusal of indemnity. It relied upon ss 52(1) and 55 of the Insurance Contracts Act. There most certainly was a breach of Condition 8.16, constituted by the aspects of neglect referred to at [270] above and by the deliberate actions identified at [272]. It is unnecessary for me to determine the consequences of the breach of Condition 8.16, pursuant to relevant sections of the Act, because of the more fundamental objections to Admiral's claim for indemnity, arising from its knowing concern in and approval of the arson.

[58]

Issue 10: Admiral's damages claims against CGU

I have found that CGU's refusal of Admiral's claims under the two policies is contractually justified. Against the eventuality of this finding being displaced on appeal, it may be said that the damages that would be assessed against CGU for wrongful refusal to pay Admiral's claim would be the amount of the contractual indemnity, as assessed in relation to Issue 4 (see [236]>) and Issue 5 (see [239]>). Admiral contends that in declining the claim CGU also breached its obligation of utmost good faith, implied by force of s 13 of the Act. Particulars of breach of the obligation of good faith, going beyond the refusal of indemnity, are alleged to the following general effect: 1. failure to make a decision on Admiral's claim for indemnity within a reasonable time; 2. alleging that the fire was deliberately lit and 3. declining claims for indemnity made by Admiral's customers, including MOS and Brightcity.
Quantification of damages under the cause of action for breaches of CGU's duty of good faith in any of these respects would be inextricably bound up with the question of what causative effect any established breach of that implied duty may have had. The first aspect of Admiral's case on causation concerns its inability to secure variation of its Customs Act licences to enable it to undertake bond store operations at Lidcombe. The circumstances are referred to at [247]-[251] above. Admiral contends that its inability to obtain the variation has been caused by CGU's refusal of the claim and its allegations of fraud. That contention is founded upon the following statement by investigating police in a letter dated 17 March 2021: Police have not finalised the investigation and are awaiting the outcome of the civil matter between Admiral International Pty Ltd and CGU which may impact the criminal investigation.
I do not accept, on the basis of this letter or otherwise, that CGU's contest of the insurance claim has caused the police investigation to remain open. Although the letter states that police are "awaiting the outcome of the civil matter", it does not state that that is preventing finalisation or that there are no other lines of inquiry that remain to be pursued. Irrespective of the outcome of this case the police may continue to regard their investigation as open indefinitely. There may never be a "completed police report" as required by the ABF and the ATO. As a result of suspicious and unresolved circumstances of the fire, the Commonwealth authorities may therefore never be satisfied to grant Admiral's application for variation of its licences to enable it to resume bonded warehouse operations. In those circumstances it cannot be said that CGU's denial of the claim has caused there to be no "completed police report" and thereby caused the ABF and the ATO to refuse to vary the licences to the Lidcombe warehouse.
Secondly, Admiral claims that each of the above breaches, or a combination of two or more of them, caused damage to Admiral's reputation amongst customers who, otherwise, might have utilised free and/or bonded warehouse services provided by the company at the new location. This loss of reputation is said to have caused ongoing loss of revenue, well beyond the 12 months Indemnity Period. It is not practical to determine on a contingent basis this aspect of Admiral's case on causation of loss. It depends upon precisely what findings might be made, contrary to my own conclusions, as to respects in which CGU may have departed from its obligation of good faith.
If CGU is entitled to refuse Admiral's claim, as I have held, none of the particulars of want of good faith, including that regarding delay in reaching a decision, could be sustained. If the finding that Admiral knew of and consented to the arson should be disturbed, then the question whether CGU's refusal of the claim lacked good faith would still have to be determined. I cannot ponder alternative findings regarding particulars of bad faith or their causative effect and it would therefore be futile to attempt a contingent assessment.

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